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Reserve Bank of Australia Governor Michele Bullock reveals why business failures are at their highest level in a decade and Labor’s new policy to tackle construction skills shortages


Australia’s most powerful central banker has indicated that corporate insolvencies are at a decade high during the construction crisis as many companies fail to cope with interest rates rising from record lows.

The annual tally of corporate collapses is now on track to break the 10,000 mark this financial year for the first time since 2012-13.

Construction companies account for a quarter of insolvencies during the immigration-fueled population boom, and the upcoming federal budget is earmarking $90.6 million for construction training in a bid to ease the skills shortage crippling the industry.

Reserve Bank of Australia Governor Michele Bullock weighed in to suggest that many of these businesses could not cope with interest rates rising from a record low of 0.1 per cent.

«Yes, I think some of those businesses that have been kept going because they’ve had really low interest rates and bolstered balance sheets,» she told reporters in Sydney on Tuesday.

Reserve Bank Governor Michele Bullock indicated that corporate insolvencies were at a decade high as many companies failed to cope with interest rates rising from record lows.

The annual tally of corporate collapses is now on track for this financial year to top 10,000 for the first time since 2012-13 (Kingdom Constructions plant in Melbourne pictured)

The annual tally of corporate collapses is now on track for this financial year to top 10,000 for the first time since 2012-13 (Kingdom Constructions plant in Melbourne pictured)

“They’re going to have a harder time with subsidies like Covid and I think we’re starting to see that.

«We are now seeing bankruptcies returning to the level they were historically as a share of businesses.»

Ms Bullock also noted that the Australian Taxation Office is now chasing debts that were unpaid during the 2020 and 2021 Covid lockdown.

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«Another factor here is tax: I’m not a tax expert, but I know that the tax authority is also looking for repayment of debts owed to the tax authority,» she said.

Housing crisis

With builders accounting for more than a quarter of insolvencies, federal Housing Minister Julie Collins announced a $90.6 million package in the upcoming budget on Wednesday to fund construction skills training.

The package will include $88.8 million for 20,000 more free TAFE training places and $1.8 million to streamline applications from potential migrants with construction skills.

«Our government knows that building more homes is the best way to tackle Australia’s housing crisis, which is why we have an ambitious national target of 1.2 million homes,» Ms Collins said.

Labour’s plan to build 1.2 million new homes over five years would require 240,000 to be built a year from July 2024.

But Ionly 168,690 new homes were built last year, even though a record 548,800 net new migrants moved to Australia in the year to September.

With an average of 2.5 people per household, this conservatively leaves a shortfall of more than 127,000 new homes for new permanent and long-term arrivals from overseas even before births are counted.

With unemployment at just 3.8 percent, builders are struggling to find enough skilled labor, leading to rising costs for both wages and construction materials.

«Companies don’t want to lay people off yet because they’re worried that if they do, they’ll be caught like they were 18 months ago,» Bullock said.

«They laid people off and had to rehire them, but they couldn’t, so there’s a hoarding of labor.»

Ms Bullock said high immigration had added to pressure on the housing market, with the capital’s rental vacancy rate now below one per cent.

“In terms of the impact on inflation, it’s not really that simple because yes, new migrants increase demand; they’ve certainly put pressure on the housing market, we know that,” she said.

“But on the other hand, they added to the labor supply.

«Because it hasn’t added dramatically to inflation, other than it’s put a lot of pressure on the housing market, and that’s obviously making its way into rents.»

With builders accounting for more than a quarter of insolvencies, federal Housing Minister Julie Collins announced a $90.6 million package in the upcoming budget on Wednesday to fund construction skills training.

With builders accounting for more than a quarter of insolvencies, federal Housing Minister Julie Collins announced a $90.6 million package in the upcoming budget on Wednesday to fund construction skills training.

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Construction companies accounted for 27.7 percent of insolvencies between July 2023 and March 2024 (Rork Projects building pictured)

Construction companies accounted for 27.7 percent of insolvencies between July 2023 and March 2024 (Rork Projects building pictured)

Insolvency crisis

Between July 2023 and March 2024, 7,742 firms became insolvent, with the Australian Securities and Investments Commission predicting 10,000 are likely to go under in 2023-24 for the first time since 2012-13.

During that nine month period2,142 construction companies went into administration, which represents 27.7 percent of all companies that became insolvent.

Boarding and lodging accounted for 1,174 insolvencies, i.e. a total of 15.2 percent.

Insolvencies in the first nine months of 2023-24 were 36.2 per cent higher than in the corresponding months of 2022-23.

This followed the Reserve Bank raising interest rates 13 times in 18 months, between May 2022 and November 2023, taking the cash rate to a 12-year high of 4.35 per cent.

Borrowers faced the most aggressive pace of monetary tightening since 1989, but Ms Bullock hinted that rates could rise again.

«If we have to, we will. If we really think inflation is going to be sustained and well above our forecasts, we will tighten again,” she said.

«We always felt it was too early to declare victory and I think the numbers from the last few weeks prove that for us.»



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