Here's an uncomfortable truth: the Reserve Bank just made a decision on Tuesday that will push some Australian small businesses over the edge. The official cash rate is now 4.10%, following a closely contested 5-4 vote that revealed just how uncertain the board itself felt about the move.
Forget the aggregate inflation statistics for a moment. Focus instead on a cafe owner in Brisbane, or a plumbing contractor in Perth, or a construction firm outside Melbourne. Their variable-rate business loans just got more expensive. Some of them will hold on. Some won't. The Australian Chamber of Commerce and Industry was blunt: this rate hike could be the "final nail in the coffin" for struggling businesses.
The brutal mathematics are straightforward. Small and medium enterprises carry higher proportions of variable-rate debt than large corporations. When rates rise, they cut faster. They hire less. They delay investment. Business failure rates, currently around 0.5%, could spike to 4-5% if the predicted May hike materialises. Employment will contract, particularly among younger workers and in casual, shift-based roles.
Here's the thing that nobody wants to say publicly: much of the inflation the RBA is trying to suppress isn't actually something rate hikes can cure. Rising oil prices driven by Middle East tensions are pushing fuel and energy costs higher. These are supply-side shocks. Squeezing credit in the Australian economy doesn't unstick geopolitical crises. It doesn't reopen the Strait of Hormuz. It just makes borrowing more painful for the people and businesses that drive jobs.
RBA Governor Michele Bullock acknowledged this tension, saying petrol prices "will add to inflation, but they're not the reason for today's decision." The bank argues demand is outstripping supply more broadly. Perhaps. But when you're treating a problem that's 30 per cent energy shock and 70 per cent demand excess with a tool that hurts your most vulnerable economic actors, you need to question whether the cure is worse than the disease.
Strip away the rhetoric and ask the simple question: what is the government doing to support small businesses through this? The silence is deafening. We've got rate relief for pensioners and electricity bill rebates ending. We've got wage supports that don't match inflation. We've got nothing substantial for the 3.4 million small and medium enterprises that employ almost half of Australia's private sector workforce.
If this sounds like I'm being contrarian about rate hikes, consider the alternative. The RBA is in a genuine bind. It faces real inflation risk. But so is every small business owner watching their repayments climb while their customers spend less. The question isn't whether rates should rise or fall. It's whether Australia has the policy tools to say: rate hikes are necessary, and we're also going to protect the businesses that will bear the brunt.
Right now, we're doing neither. We're just hoping small business survives.