At a glance
- Inflation easing, but cash flow pressures remain high.
- Rate cuts expected, but financing conditions stay tight.
- Global volatility demands sharper client scenario planning.
After a volatile start to the year, the Treasury’s Pre-election Economic and Fiscal Outlook 2025 (PEFO) confirms that Australia’s economy is slowing but stable.
Inflation is easing, but monetary policy remains restricted and consumer sentiment is fragile. For SMEs already managing tight margins, higher wage bills and cautious consumers, even minor cash flow or pricing forecasting errors could carry larger consequences in the second half of 2025.
A shifting macro landscape
As wage growth and tighter-than-usual credit conditions are tipped to persist into 2026, real pressure points remain under the surface. Accountants who can read the signals behind the macroeconomic trends will be better placed to help clients plan through uncertainty.
Inflation
Headline inflation is expected to land around 3% by late 2025, with both the Treasury and NAB forecasting a gradual easing.
While goods price pressures are lowering, cost pressures are proving harder to shake in areas critical to SMEs, including rents, insurance, utilities and professional services. Operating expenses for many small businesses are unlikely to fall significantly, even as overall price growth slows.
“Check that your client’s payroll software is up to date and payroll staff are aware of the rate change, to avoid unintentionally underpaying super which could give rise to large interest and penalty charges.”
Letty Chen, Tax and Super Advisor, Institute of Public Accountants
Wages
The Treasury expects wage growth to hold around 3.25% through 2025–26, maintaining steady upward pressure on SME labour costs. While nominal wages are rising, real wage growth remains modest and cost-of-living pressures still constrain households.
For business owners, upcoming increases in the superannuation guarantee rate to 12% from 1 July 2025 may further strain payroll budgets.
Interest rates
Monetary policy remains restrictive, with the Treasury projecting tighter conditions into late 2025. NAB expects the RBA to begin cutting rates more aggressively from May 2025, with the cash rate forecast to fall towards 3.1% by the September quarter.
For SMEs, borrowing costs are unlikely to return to pre-COVID lows, reinforcing the need for careful cash flow planning, conservative capital investment decisions and close monitoring of debt servicing obligations.
Global pressures
While Australia’s direct exposure to new tariffs remains limited, slowing global trade and supply chain disruptions will likely hit sectors reliant on imported inputs, machinery and finished goods.
Devika Shivadekar, economist at RSM Australia, says SMEs will need to remain adaptable to global market changes amid escalating US-China trade tensions.
“Australia’s closely intertwined trade relationships offer little protection from the indirect impacts of trade tensions between its two important partner nations,” she says. “The RBA will be closely weighing these risks of slowing global trade against domestic inflation and interest rate expectations.”
However, Shivadekar remains cautiously optimistic.
“Steady employment levels, albeit primarily driven by the non-market sector, moderating inflation and ongoing government support measures point towards a degree of stability for the Australian economy, supporting cautious optimism for the near-term economic trajectory,” she says.
How you can help clients prepare for volatility
Letty Chen, Tax & Super Advisor at IPA, says small businesses will struggle to maintain cash flow in unpredictable times.
“In the lead up to year end, advisors should in particular ensure that their clients are aware of the recently legislated non-deductibility of interest charges on overdue tax debts and the upcoming super guarantee rate increase to 12% — both changes start on 1 July 2025,” she says.
“Check that your client’s payroll software is up to date and payroll staff are aware of the rate change, to avoid unintentionally underpaying super which could give rise to large interest and penalty charges.”
Chen also advises careful timing of major asset investment, with the $20,000 instant asset write-off threshold that applies for 2024–25 remains uncertain beyond this period.
“Work with your clients to carefully consider the timing of planned capital purchases and the delivery and usage of such new assets,” she says. “Before the client sells a valuable capital asset, you can help your client analyse the potential application of the small business CGT concessions and CGT roll-overs before they sell it to ensure they meet eligibility criteria for relevant concessions.”
Managing domestic pressures will only be part of the challenge for SMEs in the second half of 2025. Shivadekar warns that trade disruptions and rising tariffs could hit SMEs indirectly through higher freight costs, input shortages and increased compliance burdens.
She recommends strategies such as diversifying supply chains, reviewing tariff exposures, renegotiating contract terms and managing foreign exchange risk. While specialised trade advice may be necessary for complex customs or duty mitigation strategies, accountants can play a critical role in identifyingexposure points, stress-testing financial forecasts and guiding clients toward operational adjustments that protect cash flow and margins.
In a slower, more volatile economy, sharp advisory work will set apart the financial professionals delivering indispensable client value.
More information on IPA’s tax roadshow series can be found on the events page here.
