MLC Asset Management portfolio manager Anthony Golowenko said while the federal government’s stage 3 tax cuts, due to take effect in July, would help consumers cover some costs, much of the benefit would be eroded by price pressures in non-discretionary spending categories, such as food and education.

“Some businesses are able to push through their cost pressures, but not all can do that,” Golowenko said. “Tighter consumer spending and deferred expenditure on some categories will manifest in some businesses not being able to continue, especially indebted businesses, and those with considerable costs, including in construction.”

Smaller businesses are at the greatest risk of failing, Hasseldine said, while some of the largest are seeing reduced risk of failure because of their scale and pricing power.

“What we’re seeing is businesses earning under $10 million of revenue a year are facing failure risk about 20 per cent higher than what it was last year,” he said. “Quite interestingly, you have companies earning over $100 million, where their risk of failure is actually reduced, in some cases by up to nearly 30 per cent.”

Hasseldine said there was a risk of increasing concentration in industries, such as food services and retail, where many of the smaller players are at higher risk of failing than their larger counterparts.

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“We can see in our data that spending at fruit and vegetable stores, butchers and delis has reduced year-on-year, whereas spending in supermarkets is elevated,” he said.

The coming year will be especially tough for industries heavily exposed to consumer discretionary spending, Hasseldine said, with more businesses set to fail.

“Until discretionary spending starts to return, we’re going to see business failures worsen before they improve,” he said. “Every month, we’re seeing more and more businesses falling into our highest risk category of being at really severe risk of failing in the coming year. It’s definitely a warning sign that it has deteriorated quickly.”