Struggling to stay afloat construction firms and self-employed tradies are defaulting on tax debts more than any other industry, new research can reveal.
The alarming statistics come as Aussie construction companies continue to collapse by the thousands as rising costs continue to impact the building industry.
The second half of 2023 saw almost 1400 construction companies fall as many struggled to pay creditors and debts.
Factors leading to the trending downfalls include high demand, labour shortages, and continued material supply constraints since the pandemic, which have resulted in higher construction costs and longer build times.
This has led to construction businesses defaulting more on ATO tax debts over $100,000 than any other industry at a staggering 23.8 per cent.
Most of those debts are held by smaller subcontractor businesses, which make up seven in every ten defaults.
Meanwhile, building construction businesses account for just over a quarter of the industry’s defaults, with residential builders a whopping 1.5 times more likely to default on a tax debt than those in commercial, civil or infrastructure construction.
The data taken from CreditorWatch’s March Business Risk Index (BRI) paints a dark outlook for construction companies that continue to battle cost pressures, skilled labour shortages and declining consumer demand.
CreditorWatch Chief Economist Anneke Thompson says many subbies and small businesses would likely need help to pay off the large tax debts, which could otherwise lead to more business collapses.
“These businesses often have debt secured against personal assets, and debts of $100,000 or more would be a severe imposition on their ability to meet their ongoing financial obligations,” she warned.
Ms Thompson says increased trade payment defaults alongside rising debts meant more construction businesses were also failing to pay bills on time.
“Of particular concern is the continued high level of trade payment defaults which, coupled with the ATO now lodging defaults for tax debts outstanding of $100,000 or more at increasing rates, means that more and more businesses are unable to meet their supplier payments on time,” she said.
CreditorWatch CEO Patrick Coghlan believes material costs and cost-of-living pressures on customers meant construction businesses were impacted by the public’s decision not to spend.
“Most businesses, particularly those that are consumer-facing, and therefore exposed to the vagaries of discretionary spending, are currently being hit by a range of heavy impacts,” he said.
Mining sector also sees increased insolvencies
The mining sector has also seen increased business failures in recent months, with a 74 per cent spike in external administrations over the last year.
Experts say labour shortages, an unfavourable exchange rate, heavy rain in WA mining regions and a slump in lithium and nickel prices are some of the reasons behind the spike, which has led to the largest increase nationwide in late payments.
