Originally published by Xavier Smerdon on 5 November 2014 in Pro Bono Australia.
Directors’ confidence in the Federal Coalition Government, including Not for Profit Directors, has slumped to its lowest level since its election in September 2013, according to the latest Director Sentiment Index (DSI).
The Index released by the Australian Institute of Company Directors (AICD) shows almost half of all directors rate the Government’s performance in its first year in office as “poor” or “very poor”.
The latest survey for the second half of 2014 shows that overall director sentiment has slipped 7.1 points since the last survey, falling back to the same level recorded in early 2013 when the former Labor Government was still in power.
The AICD says the Index is the only indicator measuring the opinions and future intentions of directors. It is based on a survey of 501 directors of private business, Not for Profit organisations and ASX-listed companies.
The survey, which was conducted from 29 September to 12 October, found that most directors now believe that the Coalition Government does not understand business.
Almost half of all directors believe the Government’s performance had a negative impact on their business decision-making and around 75 per cent believe it had a negative impact on consumer confidence.
AICD says this continues a downward trend in sentiment that has been apparent since the Coalition took power last September.
“The DSI results highlight the challenges faced by the Government as it attempts to implement its policies, particularly those posed by the balance of power in the Senate. An overwhelming majority of directors believe the make-up of the Senate has an adverse impact on both business confidence and consumer confidence,” Company Directors’ Chief Executive Officer and Managing Director, John Colvin said.
“Directors are more pessimistic about the future health of the Australian economy than previously, with 55 per cent expecting it to be weak over the next 12 months. For the first time in the four-year life of the DSI, directors believe that the economic outlook for the US economy is more positive than the outlook for Asian economies.”
Directors expect the exchange rate and wages growth to further decline over the next 12 months. Inflation, the RBA official cash rate and unemployment are expected to increase.
“The DSI results show that productivity growth and taxation reform are critical issues for the Government to address in the short term. Directors have, for the first time, indicated that both these areas are a greater priority than infrastructure investment,” Colvin said.
Directors nominate multinational tax arrangements as the top priority in any comprehensive review of the tax system, followed by reforms to state levies such as payroll tax. GST reform ranks as the third most important priority.
“It is clear that tax reform is a now significant item on the national reform agenda. Any debate about this issue needs to consider all aspects of taxation, so that Australia can adopt a robust system that will generate sufficient public revenue without compromising business investment or entrepreneurial spirit,” Colvin said.
Directors indicated broad support for the idea that the Government should provide financial assistance to select industries with a capacity for growth. The sectors considered most worthy of Federal funding include research and development organisations, start-up companies and those operating in niche markets with high barriers to entry.
Around 60 per cent agree that no assistance should be given to those in severe market decline.
Notably, 70 per cent of directors believe Australian boards are risk averse and more than 80 per cent claim the risk of personal liability has caused them to take an overly cautious approach to decision making at some point.
The AICD’s Not for Profit Manager Phil Butler said the Index results mirror the recent findings of the recent Not for Profit Governance and Performance Study conducted by research firm BaxterLawley for the AICD.
“A majority of directors in this Director Sentiment Index, as many as 70 per cent, agree that there is a risk-averse decision making culture on Australian boards and this reflects on what Not for Profits have expressed as a slide in innovation and risk taking,” Butler said.
“This is a reasonable pessimistic survey and has implications for the Not for Profit sector especially where funding uncertainty is alive.
“If the economy is seen not to be in good shape then it has flow on effect for philanthropy, sponsorships and other levels of Government and non-government funding sources and leads to uncertainty in business models for NFPs.”