Capex budgets for the new financial year stalled

June 30, 2016

Businesses sweating on the Federal Election outcome and macroeconomic confidence levels to rise

The number of Australian businesses intending to decrease their capital expenditure (capex) budget for the new financial year has risen by a third over the past 12 months to 19.1%. What’s more, the number of firms intending to increase capex for the new financial year has dropped by 20.5% to 15.9%.

These are some of the key findings of the latest Alleasing Equipment Demand Index (the Index), which seeks to provide a picture of capex budgets for Australian businesses for the 2016-2017 financial year (FY17).

The Index data suggests that despite strong underlying economic conditions such as the extremely low interest rate environment, businesses are electing to stand still and cautiously await the outcome of pivotal macro events before looking at their capital budgets. Key events businesses are dwelling on include the Australian Federal Election, purported tax and regulatory changes, the fallout from the Brexit vote, and even the United States presidential election.

Just under half of Australian businesses (47.8%) said their confidence level in the overall economy is behind their decision to increase, decrease or not change their capital budget for FY17, representing the biggest driver of decision making.

While there has been a decline in the percentage of firms that will increase their capex budget in FY17, there are pockets of positivity in the overall picture, as the average percentage businesses expect to increase their capex has climbed from 6.9% last year to 7.4% in June 2016. In addition, the proportion of businesses opting to leave their capex budgets unchanged in the new financial year has remained stable since the previous year (64.9%).

Alleasing Chief Executive Officer, Daniel Blizzard, said that while the country awaits the outcome of the Federal Election, more needs to be done to encourage business investment and support economic growth.

“The Index data suggests that an increasing number of businesses will be pulling back on investment in the new financial year, which can have profound and long term operational consequences for revenue, new project opportunities, profitability and overall balance sheet management. Regardless of the Federal Election outcome or global economic headwinds, the number of Australian businesses negatively impacted by outdated assets has reached a new high at more than two thirds.

“The need for businesses to increase capex budgets is considerable. More must be done from the Federal level downwards to help Australian businesses take a forward-thinking approach to capex, namely by determining the types of capital they will need to remain competitive, enhance productivity and continue to grow. This is in line with recent recommendations provided by the Productivity Commission[1].”

Examining the data on a sector basis, disparity exists around what is driving capex budget changes for businesses. For manufacturing organisations, decisions regarding capex budgets for the new financial year are being driven by rising operating costs (19.3%), project requirements (18.9%) and confidence in their own operation (18.3%). For firms in the construction sector, project requirements (11.6%) is the primary driver, followed by confidence in their own operation (10.1%). Meanwhile, for the retail industry, confidence in their own operation (12.4%) and increased operating costs (12.4%) are key influencers of capex budget decisions.

The Index also reveals differences in FY17 capex intentions across the country. One in two New South Wales based firms plan to increase their asset base during the September quarter 2016 (49.4%) – up from 43.7% last year. Victoria (19.6%), Queensland (16.5%) and Western Australia (6.8%) are constrained in comparison.

“In less than five years, we’ve seen a turnaround with New South Wales and Western Australia trading places as the fastest and slowest growing states respectively, due primarily to the slowdown in the mining boom. In addition, other states are not enjoying the residential construction growth and infrastructure development that is currently powering New South Wales and boosting investment,” added Mr Blizzard.




Further information:

Anna Frilingos

02 9850 5108 | 0409 599 911 |

About the Alleasing Equipment Demand Index

The Alleasing Equipment Demand Index is a quarterly index, which examines the current asset inventory of Australian businesses, as well as expectations for future investment. More than 1,200 firms that turn over $1-$100M are surveyed each quarter. These businesses have been broken into three segments: micro business ($1-5M annual turnover), SME ($5-20M annual turnover) and lower corporate ($20-100M annual turnover). The inaugural index was run during July and August 2014 – the research is executed by East & Partners on behalf of Alleasing.

Alleasing is a leading, independent provider of asset finance and leasing solutions. We have financed billions of dollars of assets for businesses in Australia and New Zealand during our 25 years of operation.

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