Rate rise reinforces urgent need for reforms to support business investment

CPA Australia says the Reserve Bank’s decision to increase interest rates to a 15-year high will add to the pressure on households and small businesses already grappling with persistent inflation, rising operating costs and subdued consumer demand.

Gavan Ord, Business Investment Lead at CPA Australia, said while the increase was expected, it would deliver another blow to borrowers and businesses operating in an increasingly challenging economic environment.

“Today’s interest rate increase will be deeply frustrating for households and businesses already struggling with cost-of-living pressures and higher borrowing costs,” Mr Ord said.

“For many small businesses, the pressure is coming from every direction: higher interest repayments, persistent inflation, volatile fuel prices, rising operating expenses and subdued consumer demand.

“Many may need to pass on these higher costs to customers. Others may reconsider investment plans, expansion opportunities or hiring decisions to preserve their financial viability.”

Mr Ord said the decision highlighted the delicate balance Australia’s economy faces between bringing inflation under control and maintaining business investment, employment and economic growth.

“It’s essential that monetary and fiscal policy work in the same direction,” Mr Ord said.

“The Reserve Bank and the federal and state governments must coordinate their efforts to ease inflationary pressures across the economy.”

CPA Australia said governments should prioritise responsible spending and meaningful reforms that improve productivity, encourage business investment and restore confidence.

“Small businesses need more than short-term relief. They need decisive government action to improve the business environment by stripping back red tape and supporting entrepreneurship," Mr Ord said.

“As the Reserve Bank Governor recently noted, monetary policy cannot solve Australia's productivity challenge. Governments must focus on reforms that reduce unnecessary compliance costs and make it easier for businesses to invest, innovate and grow."

Mr Ord said uncertainty surrounding future tax settings was also weighing on business confidence.

“The changes to capital gains tax and trusts announced in May’s Federal Budget have added uncertainty to an environment where economic confidence was already fragile,” Mr Ord said.

“Business owners and investors value certainty. Uncertainty around future tax settings can discourage businesses from making investment decisions that could support productivity, jobs and economic activity.”

With inflationary pressures remaining elevated, Mr Ord said businesses and households should continue preparing for a prolonged period of high borrowing costs.

“Today's decision highlights that inflation remains stubbornly persistent. Until inflationary pressures ease, households and businesses should expect interest rates to remain high, and possibly go higher,” Mr Ord said.

“Businesses should review their cash flow, financing arrangements and investment plans, and seek professional advice early if they are concerned about managing the current economic environment.

“Accountants will continue to play a critical role in helping businesses adapt, manage risk and plan for the future.”

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Gavan Ord, Business Investment Lead, CPA Australia.jpg

Gavan Ord, Business Investment Lead, CPA Australia.

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