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Wages Growth Putting Pressure On Profits for Small Businesses

February 23 2006 - Results from the December 2005 quarter St.George - ACCI Small Business Survey indicates that conditions for small businesses are mixed, with wages growth a significant issue.

In fact, wage growth was the highest since the survey began a decade ago,and is now restraining profitability. But, more positively, the survey reveals that small businesses are investing and this should result in productivity improvents. The Investment In Plant and Equipment index reached an all time high in the December quarter.

Growth in employment has been maintained and expectations for the March quarter are optimistic suggesting that the labour market should remain tight.

Mr Peter Hendy, Chief Executive, Australian Chamber of Commerce and Industry, said:

"The high level of investment and the increase in employment by small businesses indicates that the sector is generally sound and poised for growth. The high wage and non-wage labour cost growth is the product of tight labour markets. Continuing reform to tax and workplace regulation should help reduce wage pressures caused by the tight labour market. Indeed, small business nominate taxes and charges as the number one constraint on future investment."

Steven Milch, St.George Head of Economic Research, commented:

"The Reserve Bank last week described the business environment as 'highly stimulatory' and, while this is the case for a number of industry sectors, this quarter's survey indicates that the environment for small business remains more difficult than for larger operators. Encouragingly though, the readings on profits, employment and equipment investment each rose compared to the previous quarter. Furthermore, the survey's expectations series indicate that small firms expect conditions to improve."

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