By Peter Taylor

Wage costs have dethroned taxes as the biggest constraint on business investment in Australia as employees seize on a labour scarcity to demand fatter pay packets.

For the first time in the 12-year history of the Australian Chamber of Commerce & Industry’s Survey of Investor Confidence, wage costs have topped the list of investment constraints. The perennial gripe of taxes and other government charges was relegated to second place on the table.

ACCI chief executive Peter Anderson said rising labour costs along with increasing finance costs, were constraining the ability of businesses to “employ, invest and expand”.

“Unfunded wage increases (not matched by productivity improvements) during 2011 will simply compress margins closer to breaking point and dampen investment,” Mr Anderson said.

He said there was a strong case for the Reserve Bank to “remain on the sidelines . . . until the general business outlook becomes clearer”.

The December survey found that businesses continue to harbour fears about the strength the economy as interest rates rise while the strong dollar weakens the competitive position of manufacturers. Concerns about skills shortages also intensified, with businesses ranking the availability of suitably qualified employees among the five biggest constraints on investment.

Mr Anderson said that while businesses remained guarded about trading conditions in 2011, the survey broadly highlighted that “general business conditions and sentiment slowly improved” last quarter.

Most businesses expected sales and profitability to improve over the coming three months. Separately, the Performance of Services Index published yesterday by Australian Industry Group and Commonwealth Bank indicated that activity again contracted last month.

It climbed marginally, from 46.2 points in November to 46.4 points, but remained below the 50-point threshold that represents an expansion in activity.

Article from The Herald Sun, January 7, 2011.