Sentiment among company directors has risen to its highest level in two years following the appointment of Malcolm Turnbull as Prime Minister, although directors want him to quickly address crucial issues to offset concerns that global economic uncertainty will weigh on local business.
The bi-annual Director Sentiment Index conducted by the Australian Institute of Company Directors (AICD) shows the overall sentiment of directors has risen 9.6 points in the past six months, reversing the steady decline of the last two years.
There has been a surge in the number of directors who believe the Federal Government understands business from 24 per cent to 46 per cent in the second half of 2015 and the proportion who believe the Government’s performance has a negative impact on business decision-making has almost halved.
“The Federal Government is in a strong position to pursue a reform platform. Directors want reform and they want it urgently,” said John Brogden, Managing Director & Chief Executive Officer of the Australian Institute of Company Directors.
"Our survey results clearly indicate the direction it should take – tax reform and a detailed infrastructure plan are the top priorities for the government in the next three to six months.”
The Director Sentiment Index found that an “ineffective tax system” was the third biggest economic challenge facing Australian business, ranking behind only global economic uncertainty and low productivity growth.
Support for tax reform increased amongst directors from all parts of the community, with 82 per cent of respondents indicating that the GST should be raised, broadened or both (up from 78 per cent).
“Directors believe the GST should be higher and broader to meet future economic and social challenges. Public debate must shift to determining the appropriate rate and the areas that should be subject to GST, plus other measures that would form part of a comprehensive tax reform package,” Mr Brogden said.
“We call on the Government to produce a detailed analysis of viable tax reform options that can be properly debated by the Opposition and other stakeholders so the best outcome is achieved to the benefit of all Australians,” he said.
Directors have nominated the GST, personal income tax and multinational tax arrangements as the top three priorities for a wide-ranging tax reform package.
Almost 90 per cent of directors also maintained that government spending on infrastructure is too low and nominated it as a top priority for Australia’s transitioning economy.
“Further, directors are increasingly concerned about our international competitiveness and engagement with Asia. These are important issues that will impact the nation’s future and are additional evidence that Australia needs a bold new policy framework and commitment to innovation if its past prosperity is to be maintained,” Mr Brogden said.
The case for reform is underlined by directors’ ongoing expectations that the Australian economy as well as European and Asian economies will remain weak over the next 12 months. Only the US economy is anticipated by directors to be strong in that period.
The Director Sentiment Index is the only indicator of the sentiment and future intentions of directors in all sectors, including private business (49 per cent of respondents), not-for-profit organisations (31 per cent) and listed companies (14 per cent). It was conducted between 6 October and 18 November, after Prime Minister Turnbull took office on September 15.
To read the latest Director Sentiment Index Report, click here.
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