Directors worry about Government’s business understanding

The relationship between business and the Federal Government has further deteriorated, while growing regulation and red tape has become a major worry for directors, according to the latest Director Sentiment Index (DSI).

This biannual survey of over 500 Australian chairmen and directors, compiled by research company Ipsos on behalf of the Australian Institute of Company Directors, found that only eight per cent of directors surveyed (down from 12 per cent six months earlier) believe the Federal Government understands business. Conversely, more than 80 per cent – up from 70 per cent in November 2012 – believe that the Federal Government does not understand business. In contrast, around half felt the Federal Opposition understands the commercial world.

Commenting on these findings, Steve Burrell MAICD, Company Directors' general manager of communications and public affairs, says: "While there is a clear difference between the view of directors about the current Government, as opposed to the Coalition, there is still a feeling that, overall, whoever is running the show doesn't have a great understanding of the drivers of business and some of the issues that business confronts. It's not exactly a plague on both houses, but it does indicate a general understanding in the business community that there is a problem in Canberra regardless of who is actually steering the ship."

Meanwhile, the DSI also found that, while still negative, overall director sentiment has improved from its lowest level, recorded in the November 2012 survey, on the back of rising optimism about the future health of the Asian economy, as well as expected growth in the Australian share market.

"Things are still very tough, but slightly better, and there is a slightly better spring in directors' steps than there was in the depths of the second half of last year when things were looking very gloomy indeed," says Burrell.

Almost 50 per cent of directors believe the Asian economy will be strong over the next 12 months, up from 31 per cent last survey. In addition, nearly 70 per cent expect the Australian share market to grow in the coming year. "It is a positive sign that overall sentiment is improving on the back of some encouraging data about the future of the global economy," says John Colvin, Company Directors' CEO.

"While more than 40 per cent of directors claimed the growth of their businesses had weakened over the past six months, directors are now equally optimistic and pessimistic (about 30 per cent respectively) about the general business outlook and the outlook for their own sector."

The DSI found that the high value of the Australian dollar continues to be a major concern for directors. They rank it as the top economic challenge facing Australia, followed by global economic uncertainty and growing concerns about the amount of regulation and red tape. The latter jumped from seventh place to be ranked the equal second most significant economic challenge facing Australian businesses. It is also rated as the second biggest impediment to productivity growth, after general economic conditions.

According to Colvin, rising regulation distorts the operation of the market, slows up the engines of growth and job creation and stifles wealth creation in the economy.

"It is a drag on entrepreneurial activity and distorts business behaviour," he says. "Directors are saying that deregulation is a crucial part of the agenda for boosting national productivity and must be a priority for government."

The DSI reveals that directors believe that the level of red tape and board time spent on regulatory compliance has increased over the past 12 months, with regulation surrounding workplace health and safety and employing workers rated as having the highest effect on productivity.

According to Burrell, the measure of sentiment towards regulation, legal issues, reporting issues and the carbon tax is still deep in negative territory. "These are all about government policy and impediments to business decision-making. This tells us something very interesting: even though directors are relatively optimistic about their firms going forward, and general conditions, they are clearly saying they are being held back by government policies, particularly around regulation. This and previous surveys have identified this as being a major issue for productivity and decision-making and business operations generally."

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