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Australia lagging behind in business creation

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Australia is lagging behind in business creation, according to figures from global research from a global audit, tax and consulting firm.

RSM studied data on business ‘births’ and ‘deaths’ over the last five years in 35 countries across its international network.

Australia ranks 23rd on the list, trailing behind other Asian countries like Hong Kong, China, Singapore, India and New Zealand.

Over the last five years, Australia has seen a net gain of 58,000 businesses, an annual compound growth rate of 0.7 per cent.

This puts Australia on par with the UK (0.7 per cent growth rate) and ahead of the US, which had only a 0.3 growth rate.

According to RSM, whilst some governments around the world have been looking for ways to stimulate entrepreneurship in the wake of the financial crisis, others have been slower to respond.

The research clearly shows that with businesses around the globe facing a variety of challenges including regulation and compliance changes, tighter financing requirements and rising commodity prices, more needs to be done to boost business creation and survival.

Of the 35 countries sampled, Hong Kong has exhibited the fastest rate of new business creation over the last five years – 9.9% on an annualised basis, from 655,000 to 956,000 – while South Africa has seen the steepest decline in the number of active enterprises, - 3.8% per annum, from 956,000 to 817,600.

Other Asian countries with rapid growth included China (6.9 %), Singapore (4.8%), India (4.7%) and New Zealand (4.4%).

Jean Stephens, Chief Executive of RSM, comments: “While most countries have seen the number of active businesses increase over the last five years, for a significant number the annual growth rate is sub two per cent.”

“Business is vital to jobs and prosperity, but with many countries – particularly in the West – cutting public spending and raising taxes, creating and growing a business has become more challenging than ever before.”

She adds: “Governments can do more to encourage entrepreneurship and help businesses thrive. In many economies, lack of external finance is a major impediment to starting and growing a business. Since the financial crisis, banks have de-risked and come under pressure to hold more capital in reserve, which has hindered their ability to lend to businesses.”

Neil Cribb, Director of RSM Bird Cameron in Australia says: “Australia was relatively insulated from the global financial crisis, but with the mining sector slowing down, the outlook is a concern. Cuts to interest rates and a decline in the value of the Australian dollar are helping some businesses. However, the costs of doing business in Australia, including high income tax rates, high labour costs and low productivity and compliance costs are still major issues, in addition to the current uncertainty in the political environment. The corporate tax rate in Australia is 30 per cent, for example, whereas in Singapore it currently stands at 17 per cent and in Hong Kong it is 16.5 per cent. This remains one of a number of important factors when businesses are deciding whether to invest in Australia.”

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