Changing population a threat to small business

Small businesses will struggle to compete for workers as Australia’s population growth declines and baby boomers start moving into retirement, a new report says.

The annual Business & Population Monitor, released by PKF Chartered Accountants & Business Advisers, looks at the impact of Australian demographic changes on businesses.

According to the latest report, Australia is heading for a downswing in population growth that could last for a generation, making it increasingly difficult for businesses to attract and retain workers.

Matthew Field, PKF national director of enterprise advisers, says other factors, such as Australia’s ageing population, will escalate the problem.

“The combination of official cutbacks to immigration, the slowing down of natural population growth, as well as the upcoming retirement of baby boomers, means that just as the demand for workers is rising rapidly the potential new supply for them is decelerating fast,” Field says.

“The likely implication is that workers will become harder to find, putting pressure on wages, inflation and eventually interest rates, while smaller businesses may struggle to compete for workers with the larger employers.”

The report states that although Australia is currently in the midst of a second commodity boom, growth may be compromised by an undersupply of workers, confirming fears the nation is facing a severe skills shortage.

Field says he is particularly concerned that the boom is centred on the export potential of mineral resources in Queensland, Western Australia and the Northern Territory; the three regions experiencing the sharpest drops in population growth.

According to Field, small businesses in resource-rich states will therefore face the most challenges when it comes to recruiting and retaining staff.

With regard to the other states, the report shows population growth in NSW has declined since mid-2009, although the decline has been less dramatic than in other states.

“This result is somewhat surprising, given that New South Wales remains the key point of entry of migrants into Australia,” the report says.

“[However,] retail and business investments spending are the only areas where NSW is losing ground compared to other states.”

Victoria’s population growth increased by around 100,000 people in the past year, well below the increase recorded in the previous year. Victoria’s decline has been driven by falling international migration levels.

According to the report, housing starts, housing investment and new motor vehicle registration have all grown relatively strongly thanks to the state’s solid economic position.

“Also, Victoria’s recent retail growth was close to its five-year average and the fastest rate of growth in retail of any Australian state or territory,” the report says.

According to another report titled People Power, commissioned by the Urban Taskforce, the government’s plan to freeze capital city populations would hurt property prices and hinder productivity.

The Federal Government has proposed a sustainable population strategy, which would freeze Australian capital cities at their current size.

Urban Taskforce chief executive Aaron Gadiel says population growth is a vital part of any modern capital city.

“With our ageing population, if a city’s population is to remain static its workforce would need to decline to offset the rising number of people reaching retirement age,” he says.

“The loss of workers would hit household income, which would feed in to lower property prices.”

Gadiel says the projected decline in residential property prices could only occur if the Government made a decision to cap a city’s population at its existing level.

According to the report, a population cap imposed across Australia’s five biggest cities could reduce national income by $5,000 per person within 10 years.

“Larger urban areas tend to be more productive because they enable greater labour specialisation, better matching of skills and jobs, and a wider access to goods and services for both households and businesses,” Gadiel says.

“If government policy restricted Australians’ access to these places, more people would be forced to settle in areas where they are less productive, earn less and have more restricted choice of goods and services.”