Businesses are failing at rates that have not been seen since the start of the pandemic due to the impact of a rising cost of living.

The business landscape in Australia has taken a sharp turn as companies are collapsing at an alarming rate, reminiscent of the peak of the pandemic. Latest data from CreditorWatch's Business Risk Index has revealed that business failures have reached an all-time high in October 2024, with an average of 5.04% of businesses shutting down.

Experts have attributed this sudden surge in business closures to the ongoing cost of living crisis and the mounting tax debts that have been plaguing business owners. This marks the first time since October 2020, when the pandemic was at its peak, that the failure rate has surpassed the previous month's record of 5.08%. The situation has become so dire that the Reserve Bank has been closely monitoring it in their decision-making regarding interest rates.

The hardest hit industry is the hospitality sector, as customers are cutting down on their spending, resulting in an 8.5% failure rate in the past 12 months. What's even more concerning is that CreditorWatch predicts this rate to increase to 9.1% in the next year, which spells trouble for cafes, restaurants, and pubs. The Australian Bureau of Statistics' Household Spending Indicator for September has shown a 1.7% decrease in visitors and sales in the hospitality industry compared to last year.

Following closely behind is the administrative and support services sector, followed by the arts and recreation and the transport, postal, and warehousing industries. The retail and construction industries are also facing the same failure rate of 5.3%. A major contributing factor to these closures has been the accumulation of overdue taxes, with the Australian Taxation Office stepping up their collections since October 2023.

The hospitality sector has been hit the hardest, with an average tax debt of over $100,000. Among the capital cities in Australia, Sydney is expected to have the highest rate of business failures in the next 12 months, followed by Brisbane, Melbourne, and Perth. The only silver lining is Adelaide, which has been forecasted to have the lowest rate of business failures.

CreditorWatch's chief executive, Patrick Coghlan, has emphasized that while a slowdown in the inflation rate may provide some respite, the cost pressures on businesses still remain. This means that there may not be a significant decrease in the cost of goods and services. The key to reviving the business landscape lies in bringing down interest rates, which will provide households with some relief in the cost-of-living pressures and encourage them to spend more.

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