Australian small and medium business (SMB) confidence has fallen five points to +39 on a net basis, driven by negative sales, employment and profitability results, according to the latest Sensis Business Index (SBI) survey.

The net balance of +39 is calculated by comparing the number of confident SMBs (57%) to the number who are worried (18%).

Sensis Executive General Manager, James Ciuffetelli said: “After confidence hit the highest level in more than six years in December, we’ve seen confidence drop. We saw declines in all of the key indicators this quarter, with business owners particularly feeling the pinch on sales and employment.”

The result would have been worse were it not for the strong result among regional businesses, with regional business confidence now sitting at the highest level in more than seven years, after rising seven points to +47.

“We saw a 20 point reversal in confidence between businesses in the capital cities and those in regional areas this quarter. This was driven by strong results among regional businesses in New South Wales, South Australia and Tasmania,” said Mr Ciuffetelli.

The Index, which reflects the views of 1,000 small and medium businesses from across Australia, also revealed that SMBs responded favourably to the Federal Budget, with the Government’s approval rating jumping eight points to +6 on a net basis.

“Last quarter confidence in the Federal Government fell into negative territory but it has bounced back strongly this quarter following a popular Federal Budget which has resulted in more businesses seeing the Government as supportive of their needs,” said Mr Ciuffetelli.

“The Government’s approval rating is now only one point off Malcolm Turnbull’s highest score, which was recorded when he took over as Prime Minister. The key reason behind the boost in the Government’s fortunes was the popularity of the $20,000 instant depreciation benefit for asset purchases made by businesses with a turnover of $10 million or less announced in the Federal Budget.”

Across the states and territories, only WA businesses were more confident, in the first survey taken since the state election in March. Confidence went backwards in all other locations, with the ACT still the most confident location, despite suffering the biggest fall this quarter.

Despite the results, most Governments improved their approval ratings. “There was good news for most state and territory governments, with a strong boost to the NT Government’s approval rating following the NT Budget, while the ACT and WA Government’s scores have also improved as businesses enjoy the certainty of having moved past their local elections,” said Mr Ciuffetelli.

“The Victorian, Queensland and South Australian Governments remain unpopular with business owners, although the South Australian Government is struggling the most and was the only Government to go backwards this quarter after a 16 point fall, driven by concerns of too much bureaucracy and taxation being too high.”

At an industry level there were mixed results in terms of business confidence, with six out of 10 industries going backwards. Health and community services continues to lead the way, while there were considerable jumps in confidence in manufacturing and wholesale trade, with expectations for strong sales to continue this quarter.

“Businesses in retail are struggling the most, while those in hospitality suffered a 21 point drop in confidence this quarter, driven by poor profitability results. It was also the businesses in these two sectors that have the lowest approval ratings of the Federal Government,” said Mr Ciuffetelli.  

The net balance score for current perceptions of the economy now sits at +1, while the expectation for the economy in a year’s time sit at +9, after both scores fell one point this quarter.

“Businesses are finding it much harder to access finance than they were six months ago and concerns around sales are continuing to act as a barrier to employers taking on new staff. The good news is that all of the forward indicators remain positive, although none have improved this quarter,” said Mr Ciuffetelli. 

Read the full report here.