Motions

Hospitality Business Closures

The Hon. J.S. LEE (Deputy Leader of the Opposition) (22:43): I move:

That this council—

1. Recognises the important economic and social contributions of South Australia's small and family businesses within the hospitality industry;

2. Notes the increasing and alarming number of hospitality venue closures in the past 12 months, with approximately 20 reported to have closed their doors between 1 January and 30 April 2024 this year, with the list including some well known and long-established local restaurants;

3. Notes that the hospitality business closures have hit every corner of the dining scene, within metropolitan areas of Adelaide as well as in regional South Australia;

4. Notes that the hospitality sector is buckling under the heavy strain of inflation, low profit margins, rising interest rates and staggering skills shortages;

5. Notes that hospitality business closures are associated with the skyrocketing costs of doing business in South Australia, in particular soaring power prices, payroll tax, red tape and the growing costs of goods and services, along with reduced consumer spending due to rising costs of living; and

6. Calls on the Malinauskas Labor government to provide better support to address key concerns in the hospitality sector to prevent further job losses and more business closures in South Australia.

I rise to speak on the motion regarding the alarming number of hospitality venue closures in South Australia. The hospitality industry plays an important role within our economy, as hospitality venues not only serve as a way for us to gather with family, friends and the community but also are a key source of employment.

The accommodation and food services industry in South Australia employs around 60,000 people, according to Skills SA. Within this industry, 60 per cent are part-timers, 54 per cent are female and the median age is 25. Hospitality is important because it employs young people and people who are still studying or training and is a gender-diverse industry. According to the Australian Bureau of Statistics, accommodation and food services represented 16.9 per cent of the gross state product in 2022-23, behind only the mining industry. Yet, despite its importance and the impact of the industry, more and more hospitality venues have continued to close down because of the skyrocketing cost of operating business in South Australia and all the challenges faced by the industry.

According to the Australian Securities and Investments Commission (ASIC), in the past 24 months from July 2023, 116 hospitality businesses have become insolvent, entering into some form of external administration for the first time, with 95 of those occurring just within 2024. Businesses within the CBD accounted for 33 per cent of insolvency cases in 2024. Unfortunately, a stack of Adelaide venues closed last year. Among them were 1000 Island, Fire x Soi 38, Chicken & Pig, Extra Chicken Salt, Crack Kitchen, Cocina Comida, Cheekies, Gang Gang, Hey Bianca, Hot Chicken, Kopi Tim, My Lover Cindi, Paddy Barry's and Zenhouse.

There has been a trio of closures at Plant 3 Bowden with Caroclub, Little Banksia Tree and Shirni Parwana closing their doors. Three of the Hills' most beloved venues, Brid Coffee Shop, Lost in a Forest and the Summertown Aristologist, shuttered over the holiday period. Big Shed Brewing has now gone into voluntary administration, Italian institution Enzo's revealed it would close its doors after 25 years and the Ed Castle fell into liquidation two months after reopening under new owners.

In each and every one of these cases, the same underlying factors contributed to the closures of these businesses. Many owners reported suffering from the uncertain economic climate. This aligns with the ABS report Characteristics of Australian Business, which placed 'uncertainty about economic conditions' as the largest factor hampering general business activities or performances. The same factor was also the largest factor reported as a barrier to accessing finance.

Other major factors in the report include supply chain issues, lack of skilled persons within the labour market, lower profit margins to remain competitive and the cost of inputs. Skill shortages have particularly impacted the accommodation and food services industry, experienced by 56 per cent of all businesses in the industry, the most out of any industry measured by the ABS. Government regulations and compliance and lack of customer demand for goods or services were also among the highest reported factors hampering general business activities or performances.

These combined factors highlight the compounding negative spiral caused by the current cost-of-living crisis. Businesses are met with increasing prices of rent, energy and supplies, which force them to increase the prices of their goods and services, but customers who are hampered by inflation have less disposable income to use, so businesses are forced to increase prices or find other ways to cut costs. Unfortunately, this becomes unsustainable and has led to many businesses shutting down as a result.

Burger and brunch cafe Gang Gang on Unley Road made the decision to close down as the owners reported that they were 'feeling the pinch'. Those very same words were used by the owners of the Karma and Crow coffee spot. The owners of nightclub My Lover Cindi shut their doors due to exorbitant costs. Acclaimed Italian restaurant Martini on the Parade shut down after almost two decades because of the uncertain economic climate.

These words were scarily similar to the reason given by the owners of beloved regional South Australian restaurant Terroir Auburn in the Clare Valley, who are shutting down after 12 years. They wrote that the extremely volatile and uncertain economic future of the country was a big factor in their decision. They also stated that the issues facing the hospitality industry are yet to be fully recognised by those decision-makers at the top, calling on political leaders to recognise the serious issues crippling the state's hospitality industry.

Similarly, the award-winning chain Cheffy Chelby's at Morphett Vale and Hallett Cove has closed its doors just over a year after the flagship Port Noarlunga venue also closed. Owner operator, Michelle Lowe, said:

Wages went up massively last year, our rent's gone up, insurance has gone up, the cost of goods has gone up…as a whole, our customers are just not coming and spending as much money and that's totally understandable with the cost of living going up.

I have fought and fought and fought and I don't have the energy anymore. I'm devastated that I've put so much work into this but you can't control everything. It is what it is.

The same sentiments were echoed by owner and chef of Rusco & Brusco on Magill Road:

I'm losing money every week at the moment. If things continue like this…I will unfortunately have to shut it down. Things are that bad.

I am opening and closing the place. I'm doing dishes…I'm doing everything I can to stay open. I've never been front of house, but now I'm doing everything. I'm pushing myself to the limit, but it's do or die at the moment.

Simone Douglas, owner of the Duke of Brunswick Hotel in the city, was forced to close the cafe operating next to the hotel in May this year. She highlighted that small cafes are only sustainable when the business owners themselves are clocking a 50 to 60-hour working week within the business. She said:

Many of those smaller cafes are running on an 8 to 10 per cent bottom line profit margin which really leaves no space for equipment breakdown or replacements…things along those lines.

Focusing on the cost of doing business, Simone stated:

If you look at power bills…we've gone upwards of 30 to 35 per cent and we're all being told to strap yourselves in because they're about to go up again and that doesn't sound like a lot but when that power bill for three months is $10,000, it's a significant number of coffees to cover that cost.

In Mount Gambier, owner of Gym Challenge Meals, Alex Marlow, had to shut his business down due to unsustainable trading conditions. Alex also highlighted the need for government interventions, stating:

Our closure underscores the need for substantial government support at both federal and state level to sustain the hospitality industry.

These are just a handful of many examples from just this year. It is evident from the statistics and from the stories told by members of the hospitality industry that businesses and people are doing it really tough.

The issues have been laid out in front of this Labor government for a long time now: tackle inflationary pressures, reduce the cost of energy and rent, eliminate unnecessary payroll tax and allow small and medium-sized businesses to operate the way that they see fit so that they can employ the people that need to work the most. Instead, the recent state budget has seen a pitiful lack of support for small businesses, with next to no new measures to address the current cost of doing business. Energy bill rebates have been cut, and calls for payroll tax reform have been ignored, despite record tax revenue off the back of South Australia having the highest inflation rate in the country.

Lifting the payroll tax threshold is a sensible measure to help South Australian businesses keep up with wage increases and keep workers in jobs at a time when many small and family businesses have found themselves either reducing staff to avoid paying payroll tax or they have started to pay it for the first time.

In the latest South Australian Business Chamber Survey of Business Expectations for the June 2024 quarter, payroll tax was repeatedly highlighted as a significant constraint on employment and productivity. The survey states:

Payroll tax issues are no longer the domain of big business. Among businesses employing 20 or more people, which accounts for 35.5% of the survey, payroll tax is by far their priority, selected by 64% of respondents. However, businesses with fewer than 20 employees are now feeling the burden, with 42.7% calling for change.

For hospitality businesses, payroll tax is crippling, punishing those who are trying to expand their offerings in a wage-heavy industry that is disproportionately affected by a payroll tax.

I would like to take a moment to provide honourable members with direct quotes from respondents to the SA Business Chamber survey. Their words speak volumes about the drastic impact this tax has on businesses across our state:

Payroll Tax reform would be a game changer for our business. It impacts our ability as owners to earn an income, also our desire to further invest in the industry.

Another quote:

Wages and super have increased but the Payroll Tax threshold has stayed the same. How is that fair?

Another said:

Because the government always expects businesses to pick up the bill—payroll tax, higher wages. Especially when people are already spending less. Commercial rents have gone up, materials and costs of business are ridiculous! They make employing staff too expensive and complicated.

Businesses in the hospitality industry have been crying out for support for a long time, but this Labor government has continued to ignore their pleas and has failed to listen to their concerns. The huge increase in hospitality business closures is not a unique event but is the culmination of continual failure by this government.

I call on the Malinauskas Labor government to provide better support and more tangible measures, such as payroll tax reforms, to address the key concerns in the hospitality sector to prevent further job losses and more business closures in South Australia. With those remarks, I commend the motion.

Debate adjourned on motion of Hon. I.K. Hunter.