Business confidence has continued to decline during the June 2010 quarter.

The Commonwealth Bank Business SA Survey of Business Expectations for the June quarter showed that the South Australian confidence index decreased 26 per cent to 91 points.

It is the second consecutive decrease in business confidence following a rise in confidence in mid to late 2009.

The slide in confidence for the June quarter is being attributed to the continued increases in interest rates, the proposed Resource Super Profits Tax, the European sovereign debt crisis and the uncertainty associated with the Federal election.

Business SA Chief Executive Officer, Peter Vaughan, said that the survey results confirm that many challenges remain for the local business community.

“This is a concerning fall in business confidence and there are many challenges ahead as we remain in the early stages of economic recovery,” said Mr Vaughan.

“Local businesses are being hit with premature interest rate rises, a significant increase in the minimum wage and increases in labour costs arising from transitional provisions to Modern Awards.

“There are major concerns regarding the implications of the new mining tax, the financial trouble facing some European countries and the uncertainty associated with the Federal election.

“The negative sentiment around general business conditions also continued for the second consecutive quarter, decreasing 23 per cent to 84 points.”

The total sales revenue index decreased by 15 per cent, however, both general business conditions and total sales revenue are expected to be slightly higher next quarter.

Mr Vaughan also said that expectations of further interest rate rises have dampened confidence.

“The local economy has remained resilient throughout the downturn, however premature rate rises have slowed consumer spending and hurt small businesses across the State,” said Mr Vaughan.

According to Joe Formichella, General Manager Corporate Financial Services, South Australia and Northern Territory, Commonwealth Bank, the fall in business confidence over the past two quarters would support the case for interest rates to remain on hold next month.

“Business confidence in South Australia has certainly taken a turn for the worse over the past six months. It’s evident that business owners are still concerned about the global financial crisis, particularly the European sovereign debt crisis, as well as higher interest rates domestically.

“The survey results would support a decision by the Reserve Bank of Australia to leave interest rates on hold when they meet early next month and for the foreseeable future. This would help offset the anticipated rise of material and overhead costs as well as real labour costs over the second half of 2010,” said Mr Formichella.

Mr Vaughan said that it was no surprise that businesses expect labour costs to rise.

“Our local unemployment rate has increased significantly since the last quarter and more than three quarters of respondents expect an increase in labour costs.

“The majority of businesses did not see a change in sourcing professional, skilled or unskilled labour during the June quarter, however more than half expect an increase in the unemployment rate in the next quarter.

“Indications are that material and overhead costs will increase next quarter.”

The majority of exporters indicated their export sales were the same as the previous quarter, and more than two thirds predicted much of the same in the next quarter.

Half of survey participants expect the Australian dollar to decrease in the next quarter, while a large proportion of the remainder predicted it to remain stable.

The June quarter 2010 survey also asked businesses about the national policies of the Federal Government, and about their cash flow and banking visibility.

More than half of businesses indicated that fiscal policy (taxation and government spending) needs urgent addressing by the next Federal Government.

An overwhelming 98 per cent strongly agreed or agreed that the Federal Government should provide a comprehensive response to the Henry Taxation Review.

Over 90 per cent stated that the Commonwealth Government should take over control of the Murray-Darling Basin.

Almost one third of the surveys’ respondents stated that they often had difficulties managing their cash flow because their customers were not paying their bills. 61 per cent indicated that it was essential to have full visibility over their banking.

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