Articles

Articles

By Jenna van Nierop March 24, 2025
Being an employer of choice as a small business owner is a key component of long-term success. Small businesses are presented with unique challenges when it comes to competing with larger organisations for top talent, but with a strategic approach, challenges can become opportunities. By including employee attraction and retention strategies in a strategic plan, small businesses can build a loyal, motivated workforce and position themselves for sustainable growth. What is Strategic Planning for Small Businesses? Strategic planning is the process of defining the key goals and direction of a business and the actions required for success. This will involve setting long-term and short-term goals, identifying potential risks/issues that need to be resolved, and mapping out measurable actions and responsibilities. A key pillar of a small business strategic plan should focus on people because attracting and keeping the right staff is critical for business success and growth. Some other key benefits of linking employee-related goals to the strategic plan include: It will ensure that talent management remains a focus, which is essential when employees are one of the most important assets of a business. Decisions regarding employing new staff and managing existing staff will become intentional and structured and form a cohesive approach to building the best team. With good planning and communication, employees can work towards achieving business goals and become aligned with the mission and vision of the business. Employee retention is more cost-effective than constantly recruiting and training new hires. A strong employer brand that’s incorporated into your strategic plan helps ensure long-term stability, minimising turnover costs and creating a loyal, experienced workforce. Planning to become an Employer of Choice Below are some examples of how business owners can use actionable steps to attract and retain talent. It is also interesting to see how some of these examples also promote business growth. Training and development Investing in staff development can align with nurturing employees’ own personal growth and ambition, as well as helping business owners achieve long-term success. Actions might include: Identify areas where the team needs development to help the business grow. (e.g. leadership skills, cross-functional skills, technical skills, professional certifications, soft skills). Create a staff development and training calendar that aligns with those needs. Create a mentorship program which will not only encourage knowledge sharing but will also build relationships. Develop a clear career pathway for each role within the business. This motivates and gives employees a long-term focus. Workplace culture Employees place great importance on feeling happy and supported at work. Creating a workplace culture that promotes this is a key factor in retaining staff. Actionable steps aimed at improving workplace culture might include: Develop and promote a brand that reflects the values and culture of the business. This will naturally help attract the right staff as job applicants tend to research the business prior to applying to determine whether the business is a good fit for them. Identify and engage in training and staff development options aimed at improving workplace culture. Create and enact a plan on how to monitor staff engagement and satisfaction. Recruitment Small businesses often have limited resources, but allocating some of those resources to talent management can have a lasting impact on a business’s ability to grow. Create a recruitment plan that budgets for: Attractive compensation packages - ensure pay is aligned with industry standards based on location and sector. Offering flexible benefits or non-monetary rewards (such as extra leave or remote work options) can make a huge difference. Employee referral programs - encourage current employees to refer friends or colleagues by offering incentives. Employee referrals are often a more cost-effective recruitment strategy for small businesses, and they tend to bring in candidates who are a good cultural fit.  Sufficient human resources involvement – high-quality human resources assistance throughout both the recruitment process and day-to-day operations is essential. It helps with talent management and guiding behaviours that promote a good workplace culture. Work-life balance Incorporating work-life balance into the business strategy is crucial for small businesses looking to become an employer of choice. Having a focus on work-life balance is an investment in employee well-being, which directly impacts retention and productivity. Some actions that are aimed at achieving a good work-life balance include: Reviewing and updating business procedures and infrastructure to enable an offering of remote work options, flexible hours, or a hybrid model to employees. Establish guidelines promoting healthy work habits, such as encouraging employees to take their vacation days and limiting work outside regular hours. Identify and implement communication tools that will promote regular conversation between management and staff. Early identification of burnout or work overload is key (e.g. employee surveys, one-on-one check-ins, and team meetings). How to Stay on Track As with any business strategy, it’s essential to measure the effectiveness of employer of choice initiatives and make adjustments as needed. This can be done via surveys, focus groups and performance reviews. It is also essential that the overall strategic plan of the business be reviewed regularly to ensure that actions are being addressed and also that the plan remains relevant as the business grows. If you need help developing the strategic plan for your business, please contact us at Smith Thornton.
By Jenna van Nierop March 18, 2025
Aims to accelerate the growth of your agtech innovative startup by giving you expert guidance, deep industry insights, critical tools, and strategic connections. Are you an agtech startup? A farmer who has developed new technology? A researcher looking to commercialise your innovation? Or a business looking to apply your technology in the agricultural sector? Now in its ninth year, HARVEST has supported over 80 businesses. The program is valued at over $10,000 and is FREE for successful applicants. What stage should my business be to apply? - From early stage startups, to small to medium enterprises. Applications close 5 May 2025. Click here to view full funding guidelines on the provider's website.
By Ryan McLaren February 25, 2025
With another financial year end approaching, we are turning our attention to tax planning season. We have listed below some things that may have changed from prior years, as well as some general strategies to consider. Tax cuts from 1 July 2024 With tax cuts applying from 1 July 2024 this may present an opportunity to review and plan for upcoming decisions regarding trust distributions, payment of dividends and strategies such as contributing to superannuation. The changes that apply from 1 July 2024 are: The bottom tax rate decreases from 19% to 16% for income in the range of $18,201 to $45,000. The 32.5% tax rate decreases to 30% for income in the range of $45,000 to $135,000 The threshold above which the 37% tax rate applies increases from $120,000 to $135,000 The threshold above which the top 45% tax rate applies increases from $180,000 to $190,000. *Note that the above rates do not include the Medicare levy of 2%. Maximise Super Contributions From 1 July 2024, the general concessional contributions cap is $30,000 for all individuals regardless of age (previously $27,500). Many people will also have unused contribution caps from prior years so this can provide a good opportunity for a good tax outcome whilst boosting your superannuation. $20,000 Instant Asset Write-Off As part of the 2024–25 federal budget the government announced it will extend the $20,000 instant asset write-off limit for a further 12 months until 30 June 2025. Please note that this measure is not yet law. Under the measure, small businesses with an aggregated turnover of less than $10 million will be able to: deduct the cost of eligible depreciating assets costing less than $20,000 that are first used or installed ready for use between 1 July 2023 and 30 June 2025 deduct the cost of additions for assets costing less than $20,000 (if an immediate deduction for an asset under the simplified depreciation rules in a prior income year where the amount is less than $20,000). The proposed $20,000 threshold under the measures applies on a per asset basis, so small businesses can instantly write off multiple assets. Review Bad Debts Now is a great time for reviewing the debtor's list for your business and determining which of those won’t be able to be recovered, as writing off the unrecovered income as a bad debt prior to the end of the financial year will provide a tax deduction for the 2025 financial year. Please note that the debt must be genuinely bad, and not merely doubtful, and the decision to write off the debt must be made in writing before the end of the financial year to claim the deduction. We are currently scheduling tax planning and meetings for the upcoming months, so if you want to discuss strategies and review your affairs, please contact our team.
By Jenna van Nierop February 21, 2025
Offers scholarships for research and travel in the agricultural industry. Eligibility Typically between 28-45 years of age. Please note that exceptional candidates outside this age range will be considered A citizen or permanent resident of Australia Engaged in farming, horticulture, fishing or associated industries Intending to remain involved in food and fibre industries in Australia  Scholarship Benefits 15-weeks of purposeful learning and unique access to our approachable, global agricultural network Connections with the global alumni – over 500 scholars in Australia and 2,000 worldwide See leading and innovative businesses and identify new best practices Select a research topic that will be of use to you, your business, community and industry Value ​$40,000 bursary, subject to guidelines set out on this website to cover costs associated with the study and reporting $3,000 of the bursary will be withheld as an assurance on the submission of an approved report In addition to the longstanding scholarship investors, the Future Drought Fund (FDF) are investing in at least five scholarships that are specifically available to study drought resilience and support innovation. These scholarships will support applicants to build drought resilience expertise, adapt innovative technology and practices from overseas and share these learnings to advance Australian agriculture. Click here to view full funding guidelines on the provider's website.
purchasing small business
By Jenna van Nierop January 28, 2025
Buying a small business can offer a range of exciting opportunities for business owners. However, the acquisition process can be somewhat daunting for some buyers and sellers, involving meetings and discussions with terms, words, concepts and processes that may not be familiar. It can be high-pressure and time-critical and can often culminate in the buyer and seller becoming overwhelmed and frustrated. Under these circumstances, it is recommended that advisors (lawyer, accounting, business advisor) are engaged to ensure that information is understood and proper processes are followed. Advisors will, of course, add a cost to the process; however, they will ensure that the acquisition is approached thoughtfully with a clear strategy in place. Outlined below are key considerations and practical steps to help potential business owners navigate the process of purchasing a small business successfully. Clarify Your Goals Before looking for a business to purchase, determine the key business criteria and establish business ownership goals. Perhaps consider the following: What rate of return is required? Should the business be under management or managed by a business owner? How many hours does the business owner want to work each week? Is there a preferred industry or an industry that should be avoided? Is stable cash flow preferred, or is growth potential preferred instead? It will be essential to keep these criteria in mind and refer back to them each time acquisition opportunities arise. This will ensure that the business opportunities that are pursued tick the key boxes. Review Key Financials When a suitable business is found, the next step will be to review the financial information that is available from the business broker. This will provide an initial indication of whether the business is financially stable and whether the asking price is fair. At least three years of profit and loss statements should be provided to check whether the business is consistently profitable, margins, types of expenses, and revenue generated yearly. If profits are up and down or following a declining trend, the acquisition might be risky. The drivers behind profit variation need to be understood. The seller will often provide adjusted profit and loss statements to the buyer. These remove certain income and expenses to adjust for those specific to the seller, unusual or non-recurring. These adjustments should be understood, and any queries should be clarified. It is also important to understand whether it is the shares in the business or just some of the business assets being acquired. Most small business acquisitions involve buying just some of the business assets, such as plant and equipment, goodwill, IP, client lists, etc. However, occasionally, the shares or the company itself are acquired. In this situation, the buyer will acquire all the company's assets and liabilities and take on all past, current, and future liabilities. If this is the case, the balance sheet should be requested and reviewed, and thorough due diligence should be performed before settlement. Understand the Asking Price It is important to understand whether the asking price for the business is reasonable. A common valuation method for small businesses involves using a multiple of the business’s earnings before interest, taxes, depreciation, and amortisation (EBITDA), which is essentially the adjusted profit. It is highly advisable to get an accountant or business advisor to assist you with this task. Engage a Lawyer Once the initial review of the asking price and financials has been performed, the next task is usually to sign an offer and acceptance contract. It is very important that a lawyer assists with this if the buyer is not confident in their ability to understand the terms and conditions of the contract. Some key conditions that are typically included in the contract by the buyer are to make the offer subject to securing finance and subject to due diligence. These terms are aimed at ensuring that if the buyer cannot secure finance or has concerns following due diligence, the contract ceases, and their deposit is recovered. Securing Finance Approaching a finance broker or bank with a sense of urgency (or getting pre-approval) is advisable, as securing finance can take some time. The bank will typically require cash flow forecasts for the business and a business plan from the buyer and these can take some time to prepare. An accountant or business advisor will usually assist with this process and can liaise with the bank if required. Once finance is secured it is also important that the buyer understands the terms of the finance offered. This will likely be discussed with the accountant when cash flow forecasts are prepared, however, if not, the buyer needs to understand key terms such as interest rates, term of loan, the type of loan facility offered, repayments, and the risk involved in securing finance against personal assets. Perform Due Diligence Due diligence involves requesting and reviewing information about the business to ensure no hidden issues could become a problem for the buyer after settlement. For a very small business, this process can be less involved. Key areas that due diligence will cover include: Legal and compliance checks. Contract and lease reviews. Thorough financial review. Review of employee and management contracts and discussions with the seller around roles, responsibilities, key staff and their resistance to change. Inventory and equipment review, including review of equipment condition and whether the price in the contract represents market value. Legal and Regulatory Considerations Once finance has been secured and due diligence has been finalised, the next step will be completing the settlement. A lawyer or settlement agent will usually assist with this process. Prior to settlement, some key legal and regulatory considerations need to be addressed to ensure a smooth settlement and changeover of business ownership. These might include: Choosing a business structure. Applying for an ABN or ACN (if necessary). Organising the transfer of business name. Registering for GST and PAYG. Applying for a TFN (if necessary). Setting up a business bank account. Writing to customers to explain the change of ownership and new bank account details. Contacting suppliers to organise new accounts. Purchasing a small business can be an exciting and rewarding experience. Still, it requires careful planning, thorough research, and an understanding of the business acquisition process, along with knowledge of the financial and operational aspects of the business. The information above is by no means exhaustive; however, it provides potential business owners with some key issues to consider. Ideally, advisors will be engaged throughout the business acquisition process by both the seller and buyer to ensure that each party is well-informed and that correct decisions are made. This approach also helps minimise risk, stress and delays, which are great outcomes for both parties. If you need help navigating the business acquisition process, please contact Smith Thornton , and we will be happy to help.
By Jenna van Nierop December 13, 2024
Farmers know better than anyone that preparing a forecast is not always as simple as cutting and pasting from last year. Profits and net cash flow generated from farming operations can change significantly year on year due to the influences of a multitude of variables. Some variables are unpredictable, such as weather, commodity prices, conflict and government policies. However, farm owners can estimate several income and expense drivers with reasonable accuracy based on their invaluable experience on farm over many decades. With the assistance of an advisor competent in preparing detailed cash flow forecasts, farmers can then use their knowledge to forecast expected profit and cash flow for the year (or years) ahead. At Smith Thornton, we often assist our farming clients with preparing their annual farm forecast. For some farmers, a quarterly review and update is preferred or required, depending on their financial circumstances, the size of their farming operations, or whether they are experiencing a period of change. In preparing the forecast, it is important to review and discuss key farming inputs and assumptions, future plans, financing, capital expenditure, changes to operations, and even succession. The more information discussed and clearly understood, the more robust the forecasting will be. Key inputs and assumptions that should be considered include: Livestock schedules: Destocking and restocking are occurring across many farming operations off the back of poor pricing and drought conditions. It is therefore important to forecast livestock numbers, including natural increases, birth rates, death rates, sales and purchases. Operational changes such as running a new breed or holding stock longer/shorter than usual also need to be given careful consideration. Commodity pricing: Whilst we can’t predict commodity pricing with 100% accuracy, we can apply prices that are reflective of industry forecasts. We can also apply conservative prices to test worst case scenarios. Crop rotations: Crop rotations are common and are adopted to improve soil nutrients and yields. This means crop types, hectares and expected yields need to be reviewed yearly. Fertiliser and chemicals: Fertiliser and chemical types, quantities and pricing need to be reviewed on an annual basis to ensure that the cost is reflective of cropping and livestock plans. If the farm operates with an overdraft facility and cash is tight, fertiliser payment is often deferred and paid once crop sales are made. It is important to consider the timing of payments to accurately forecast a cash balance. Seed and seeding: Consider whether seed is available on farm or whether it needs to be purchased. Consider crop rotations, what type of seed will be required, and what type and how much seed is required for pasture. Seeds will also need to be sown by owners, staff, or a contractor. The costs associated with these vary, so consider which is most appropriate for the year ahead. Stock expenses: Lice treatments, vaccinations, tags, drenching and vet expenses are significant costs for livestock farmers. They are also dependent on the breed and livestock numbers on farm, so can change year on year depending on the farming operations. Shearing and crutching: Every sheep farmer will understand the large expense involved in shearing and crutching a herd. It is, therefore, imperative that the timing of shearing and crutching throughout the season is considered when preparing a farm forecast, as this will have a significant impact on the monthly cash balance. Destocking and restocking of sheep will also impact this expense, along with the breed of sheep on farm. Harvesting: Harvest will occur at a similar time each year, although it can vary depending on weather experienced throughout the season and leading up to harvest. The key to forecasting harvest costs is to consider harvest conditions, fuel, contractor availability, receival and storage fees, and the condition of equipment required for harvest. Repairs and maintenance: Repairs year on year can vary wildly and unexpectedly. We can’t forecast unexpected expensive equipment failure, but we can budget for a certain level of repairs, knowing that equipment breaks occasionally. We can also consider the condition of farm equipment, whether major maintenance should be planned, along with the costs associated with regular servicing of equipment/vehicles and property maintenance. Financing: Most farms have debt, whether it be through long term loans, equipment finance or an overdraft facility. Understanding the terms of these debt facilities and the impact that they have on cash flow is important. Plant & equipment: Equipment gets old, farms expand, and operations change. If plant and equipment need to be replaced or purchased, this needs to be planned for, and financing needs should be considered. Needs will need to be prioritised if cash flow is an issue. Living expenses: Farm owners also need to live! Monthly drawings, personal debts, schooling expenses, holidays, personal insurances and income tax should all be considered when preparing a farm forecast. Preparing a farm forecast is a time-consuming exercise and requires careful thought and consideration. Albeit a tedious task, it does provide peace of mind, knowing what to expect when it comes to cash flow and then having time to change some decisions or talk to the bank if necessary. The information passed around when preparing a farm forecast is also invaluable when the next generation becomes involved in these discussions. It gives the next generation a good insight into the financial considerations of operating a farm, which is a part of the business that they are often not involved in. If you need help preparing your farm forecast, please contact us at Smith Thornton and we will be happy to assist.
collaborative business ownership concept
By Rebecca Williss November 25, 2024
Whether you are in business with family members, fellow professionals or a third party, it is important to protect and nurture your co-owner relationships to ensure your business can thrive
By Jenna van Nierop November 22, 2024
Assists primary producers to take advantage of digital agribusiness solutions to boost productivity, improve safety and drive more sustainable farming practices. The On Farm Connectivity Program Round 2 is now open for rebate applications from Approved Suppliers and Primary Producers. Rebates of up to 50% are available for eligible equipment worth up to $30,000 (GST exclusive). Applications close 5pm AEST on 30 April or until funding is exhausted, whichever occurs first. Broadened eligibility criteria under Round 2 of the program and a larger number of Approved Suppliers means more Primary Producers can benefit from the program. The objectives of the program are: Extend digital connectivity and take advantage of advanced farming technology Enhance a primary producers’ capacity to implement digital agribusiness solutions through improved connectivity Capitalise on the agricultural sector’s potential for increased productivity and growth Support access to new communications equipment by offsetting some of the cost. The intended outcomes of the program are: Increased investment in equipment to support operations of the agricultural sector Increased efficiency, competitiveness, productivity and profitability of the agricultural sector Improved safety on farm Increased use of advanced farming technology Improved knowledge of advanced farming technology and digital literacy. Eligible Primary Producers can only access the program (and rebate) through an Approved Supplier. Download a list of Approved Supplier here. Primary Producer eligibility An Eligible Primary Producer must: be a registered business and have an ABN that has been active for the previous 12 months at the time of applying have an annual average pre-tax income from primary production of between $40,000 and $4 million. Annual average gross income is calculated as the average of the previous 3 full financial years' income for each ABN not be a hobby farmer operate an eligible primary production activity that is defined as those listed in the Australian and New Zealand Standard Industrial Classification (ANZSIC) 2006 (revision 2.0) codes under Division A, Agricultural Forestry and Fishing, Subdivisions 01, 02 and 03 agree to the department contacting you for a case study about your connectivity solution for the On Farm Connectivity Program up to 2 years after the Program has closed. You can download eligible ANZSIC codes in Appendix D of the On Farm Connectivity Program Round 2 - Grant Opportunity Guidelines here. As part of the application process, the Primary Producer will be required to sign a declaration to confirm their eligibility. How much is available? The Australian Government is providing $18 million in 2024–25 under Round 2 of the Program. Rebates of up to 50% of the cost of eligible equipment are available, with a minimum rebate of $1,000 (GST exclusive) and a maximum of $30,000 (GST exclusive) on offer. How much is the rebate? Under Round 2 of the Program, the rebate amount will be up to 50% of the cost of eligible equipment. the minimum grant (rebate) amount is $1,000 (GST exclusive) the maximum grant (rebate) amount is $30,000 (GST exclusive) There is no limit to the amount an eligible Primary Producer may spend, however, the rebate cannot exceed $30,000 (GST exclusive). Primary Producers can purchase eligible equipment from multiple Approved Suppliers, to a total combined value of $30,000 (GST exclusive). What products are eligible? There are 5 broad categories of eligible connectivity solutions and associated eligible equipment: Low Power Wide Area Networks (LPWAN) Connectivity Equipment Environmental monitoring Farm management Remote automation and control You can find the list of eligible equipment categories and sub-categories at the List of Eligible Equipment . Important notice: Any supplementary products offered by the Approved Supplier are not eligible for the Program and must be purchased outside of the Program. What's the process? Once a Primary Producer accepts a quote for the eligible equipment, the Approved Supplier will submit an application for a rebate. If the application is successful, the Primary Producer pays for the equipment at a reduced price. Once the equipment is installed/shipped, the supplier can claim the reduced price back as a rebate. Further information is outlined below: Step 1 - Support: Primary Producer may engage with the Regional Tech Hub to discuss their connectivity needs and get personalised advice. Step 2 - Choose: Primary Producer engages with and selects a connectivity solution from an Approved Supplier. Step 3 - Quote: Primary Producer receives, then accepts quotes from an Approved Supplier. Step 4 - Application submission: Approved Supplier submits rebate application. Step 5 - Application assessment: Business Grants Hub assesses application (estimated 2-6 week turnaround). Step 6 - Rebate outcome: Approved Supplier and Primary Producer advised. Step 7 - Invoice: Primary Producer receives invoice at discounted price of up to 50% off from Eligible Equipment Supplier. Step 8 - Payment: Primary Producer pays invoice. Step 9 - Equipment installed / shipped: Approved Supplier ships product. If required, an appointment is arranged to install the connectivity solution and/or train the Primary Producer in how to use the connectivity solution. Step 10 - Rebate claim: Approved Supplier is required to submit rebate claims to the Business Grants Hub for payment within a 120 day timeframe, or by 31 May 2025, whichever is sooner. Smith Thornton subscribes to a grant search provider and can help you prepare your grant application. If you have any questions our Business Services Advisor Jenna van Nierop will be happy to assist. You can email her at jennav@smiththornton.com.au or call her on 9842 5155.
Payday Super for Employers: New Rules Coming July 2026
By Lauren Batten October 29, 2024
Starting July 2026, employers must pay super with each payroll cycle. Learn how these changes impact cash flow and what steps to take for compliance.
September 26, 2024
The politicians have weighed in on the Reserve Bank of Australia’s economic policy and their reticence to reduce interest rates in the face of community pressure. We look at what the numbers are really showing. Treasurer Jim Chalmers has stated that global uncertainty and rate rises are “smashing the economy”. Former Treasurer Wayne Swan weighed in and told Channel 9 that the RBA was, “putting economic dogma over rational economic decision making, hammering households, hammering Mums and Dads with higher interest rates, causing a collapse in spending and driving the economy backwards” and that the RBA was, “simply punching itself in the face.” Australian mortgage holders and renters have had no relief from interest rates following 13 successive interest rate rises to the official cash rate since May 2022. The Reserve Bank’s position and the flow through effects The Reserve Bank of Australia (RBA) Board opted to maintain the official cash rates at 4.35% at its September Board meeting. The rationale is that inflation remains persistently high and has been for the last 11 quarters. The consumer price index (CPI) rose 3.9% over the year to the June quarter and remains above the RBA’s target range of 2-3%. But, it is not persistently high inflation that is causing the politicians to weigh in. RBA Governor Michele Bullock has warned that “it is premature to be thinking about rate cuts” and “the Board does not expect that it will be in a position to cut rates in the near term.” The Australian Bureau of Statistics (ABS) June Quarter National Accounts paint a bleak picture of the Australian economy. Per capita GDP fell for the sixth consecutive quarter by -0.4% to -1.5%. The longest consecutive period of extended weakness ever recorded. Household spending weakest since COVID Delta Household spending fell by -0.2% in the quarter, the weakest growth rate since the Delta-variant lockdown affected September quarter 2021. Discretionary spending – travel and hospitality impacted most The ABS says that we spent less on discretionary items (-1.1%), particularly for events and travel. It will come as no surprise that spending on hotels, cafes and restaurants was down 1.5%. Spending on food also fell -0.1% as households looked to reduce grocery bills. Household savings lowest since 2006 The savings ratio remains low. Households saved only 0.9% of their income over the year. This was the lowest rate of annual saving since 2006-07. Net savings reduce when household income grows slower than household spending. Economic growth from Government spending The Australian economy did grow by 0.2%, the eleventh consecutive quarter of growth but the growth rate was unimpressive. The ABS says that, “the weak growth reflects subdued household demand, which detracted 0.1 percentage points from GDP growth while government consumption contributed 0.3 percentage points, the same contribution to growth as previous quarter.” Government spending increased by 1.4% over the quarter. Commonwealth social assistance benefits to households led the rise, with continued strength in expenditure on national programs providing health services. State and local government expenditure also rose with increased employee expenses across most states and territories. The RBA’s position on interest rates The RBA is on a narrow path. It’s trying to bring inflation back to target within a reasonable timeframe while preserving the gains in the labour market over the last few years. The RBA expects to reach this target range by the end of 2025. Through 2022 and 2023, most components of the CPI basket were growing faster than usual (the CPI is literally a basket of 87 types of expenditure across 11 groups such as household spending, education and transport.) Over the last 18 months, the price of goods has come down as supply disruptions like COVID-19 and the war in Ukraine have eased, and are now growing close to the historical average. The key problem areas are housing costs and services. In housing, the growth is from increased construction costs and strong increases in rent. For services, while discretionary spending is down, as we can see from the June National Accounts, inflation in this category remains high at 5.3% to the June quarter. Wage increases and lower productivity, combined with the increased costs of doing business (electricity, insurance, logistics, rent etc) are all impacting. The RBA is keen to point out that inflation causes hardship for the most vulnerable in our community. Lower income households tend to allocate more of their spending towards essentials, including food, utility bills and rent. Higher income households tend to spend more on owner-occupied housing as well as discretionary items such as consumer durables. Younger households and lower income households have been particularly affected by cost-of-living pressures. Need help navigating your financial journey? Get in touch with our team to learn how we can support your business.
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