Australian small and medium businesses are facing another cost challenge, with wage pressures rising sharply as business confidence and growth expectations remain weak.
Fifth Quadrant’s July 2026 SME Sentiment Tracker found confidence weakened during the month amid continuing cost pressures and renewed geopolitical tensions, while only 24 per cent of businesses were planning to expand over the next 12 months.
The 4.75 per cent increase in minimum award wages from July 1 contributed to a sharp rise in wage expectations. The tracker’s net wage expectation reached plus 24 per cent, its highest level in 13 months.
The research found higher wage expectations across all industries surveyed, adding another expense at a time when revenue expectations remain subdued.
Revenue remained under pressure in July, with 34 per cent of SMEs reporting lower monthly revenue than 12 months earlier and just 21 per cent recording an increase. The resulting net revenue score of minus 13 per cent was in line with the 13-month average.
Smaller businesses were particularly affected. SMEs employing fewer than 20 people recorded a net revenue score of minus15 per cent, compared with plus 24 per cent among businesses employing 20 or more people.
The short-term outlook also remained difficult. Only 14 per cent expected revenue to improve over the following four weeks, while 25 per cent anticipated a decline.
Despite those pressures, profitability improved, with 54 per cent of SMEs reporting a profit in July and 21 per cent recording a loss.
Businesses are responding by looking closely at costs. Twenty-eight per cent were discontinuing unprofitable products or services, 27 per cent were streamlining operations and 22 per cent were renegotiating supplier contracts or seeking alternative suppliers.
Growth ambitions nevertheless remained at a 12-month low. Just 24 per cent planned to concentrate on growth over the coming year, while 20 per cent expected to exit or downsize and 55 per cent intended to maintain current revenue levels.
Cost pressures were identified as the biggest challenge for 53 per cent of SMEs, followed by changing customer behaviour at 32 per cent and regulatory, compliance and governance challenges at 26 per cent.
The caution is also flowing through to investment, with the net capital investment score dropping from plus 11 per cent in June to just plus 2 per cent in July.