Australian business profits have flatlined. The September 2025 ABS Business Indicators data shows company gross operating profits (CGOP) recorded 0.0 per cent quarterly growth in seasonally adjusted terms, with the trend measure falling 1.6 per cent over the quarter and 2.4 per cent over the year.
At the same time, wages and salaries grew 1.5 per cent in the quarter and 6.3 per cent annually. Sales of goods and services barely moved.
This is not a temporary dip. It is the continuation of a structural pattern that has been building for over two years: wages are rising faster than revenue, and profits are absorbing the difference. For the roughly 2.7 million actively trading businesses in Australia, the question is no longer whether margins are under pressure. It is which industries still have room and which are running out.
The ABS Business Indicators publication produces quarterly estimates of private sector sales, wages, profits, and inventories across industries. The data is drawn from the Quarterly Business Indicators Survey and feeds directly into the Australian National Accounts.
Total private sector wages and salaries reached approximately $31.4 billion per quarter by mid-2025, rising steadily from $29.7 billion in June 2022. That is a cumulative increase of roughly $1.7 billion per quarter over three years.
Company gross operating profits, by contrast, sat at approximately $17.9 billion per quarter in June 2025. In December 2023, the figure was $17.7 billion. Over 18 months, profits moved approximately $200 million. Wages moved $1.3 billion in the same period.
The Australian Industry Group Leaders Survey from January 2026 reinforces this. Margins across the broader economy recorded a net balance of negative 2, down from prior years. Wages were identified as the top inhibitor of business performance by 34 per cent of respondents, followed by general costs at 32 per cent.
Not all sectors are being squeezed equally. The ABS provides industry-level breakdowns that reveal significant variation in how profits, wages, and sales interact across different parts of the economy.
Mining remains the clear outlier. CGOP of approximately $47.9 billion against wages of $9.4 billion gives the sector a profit-to-wage ratio that no other industry comes close to matching. This reflects the capital-intensive nature of mining operations, commodity pricing, and relatively smaller workforces per dollar of output.
For SME owners outside mining, this figure is largely academic. Very few businesses in the $2 million to $10 million revenue range operate in mining, and the dynamics that drive mining margins (commodity prices, export demand, capital expenditure cycles) are fundamentally different from those affecting services or retail businesses.
Manufacturing tells a different story entirely. CGOP of approximately $10.9 billion against wages of $17.1 billion means wages exceed profits by more than 50 per cent. This is a sector where labour costs are the dominant expense, and any revenue softness flows directly to the bottom line.
The ABS data shows manufacturing sales declined 0.3 per cent annually, while the AI Group survey noted energy costs as a particular burden in this sector. For manufacturing SMEs, the margin pressure is coming from both sides: costs rising and revenue flat or falling.
Construction operates as one of the most labour-intensive sectors in the economy. High wage costs relative to output, combined with materials price volatility and project-based revenue recognition, create persistent margin challenges. The AI Group data shows construction businesses facing a combination of labour shortages and input cost inflation that makes it difficult to pass costs through to clients on fixed-price contracts.
Services sectors show the most interesting dynamics for SMEs in the $2 million to $10 million revenue range. Wage costs are the dominant expense line, often accounting for 50 to 70 per cent of total costs in professional services firms. Unlike manufacturing or construction, services businesses have limited ability to substitute capital for labour. Revenue growth in services has been moderate, but wage expectations continue to rise.
The MYOB Bi-Annual Business Monitor from November 2025 found that 25 per cent of SMEs cited pricing as a revenue driver, suggesting that some services businesses are managing to pass wage costs through to clients. However, 47 per cent reported stable revenue, meaning nearly half are absorbing cost increases without corresponding revenue growth.
Wholesale trade recorded the strongest annual sales growth at 2.7 per cent in the ABS data. Retail, however, sits in a more difficult position. The MYOB data shows retail, hospitality, and manufacturing businesses reporting 40 per cent lower profitability relative to the broader sample. Consumer spending remains cautious, and the ability to raise prices without losing volume is limited in retail categories.
The temptation is to treat flat profits as a temporary condition that will resolve when the economy improves. The data does not support that interpretation.
Three forces are keeping margins compressed, and none of them are going away soon.
First, wage growth is being driven by a tight labour market that the RBA expects to remain "a little tight" through 2026. The unemployment rate has been lower than expected, and measures of labour underutilisation remain at low levels. Even with the RBA's forecast of unemployment gradually rising to 4.6 per cent by mid-2028, wage pressures are unlikely to ease significantly in the near term.
Second, energy and input costs continue to rise. The MYOB data showed utility costs as the leading cost pressure for SMEs, with 30 per cent citing energy as a source of high or extreme pressure. That figure jumped 11 percentage points in just six months, and the winding up of the Energy Bill Relief Fund at the end of December 2025 will intensify this.
Third, the RBA's February 2026 rate hike to 3.85 per cent, with market pricing suggesting rates could reach 4.2 per cent by the end of 2026, increases the cost of carrying debt. For businesses using credit facilities to manage working capital, this directly reduces net margins. Note: the RBA's rate path is current as of February 2026 and may be updated at subsequent meetings.
One finding that stands out across multiple data sources is that start-ups and younger businesses are outperforming established firms on profitability.
The MYOB Bi-Annual Business Monitor found that 53 per cent of start-ups reported being more profitable, compared to lower figures for businesses operating for ten or more years. One in three start-ups reported higher revenue, nearly three times the rate of established businesses.
Among younger business owners aged 18 to 30, 37 per cent expect general economic conditions to improve, compared to 24 per cent across all businesses.
This suggests that operational agility, leaner cost structures, and willingness to adopt technology earlier are creating a margin advantage for newer businesses. Established firms with legacy cost structures, larger payrolls, and less flexibility in pricing face a harder path.
The ABS data covers businesses with 20 or more employees for profit and expense items. This is an important limitation. It means the margin compression visible in the data is occurring in mid-sized and larger businesses. For businesses with fewer than 20 employees, which make up the vast majority of Australian SMEs, the pressure is almost certainly more acute. Smaller businesses have less negotiating power on wages, less ability to absorb cost shocks, and less pricing power in their markets.
The practical implications come down to three areas.
Pricing discipline matters more than cost-cutting. In a wage-driven squeeze, the primary lever available to most services businesses is pricing. The data shows businesses that actively manage pricing are more likely to report revenue growth. Those that hold prices and absorb cost increases are seeing margins erode.
Financial visibility is not optional. Understanding your actual margins by service line, client, or project is the difference between informed pricing decisions and guesswork. The businesses navigating this environment successfully are the ones that know exactly where their money is being made and lost. This is precisely the kind of financial infrastructure that an embedded finance team, like the model Scale Suite provides, builds and maintains for growing businesses.
Efficiency investment outperforms headcount investment. The AI Group data shows 36 per cent of leaders prioritising process improvements, while capital expenditure intentions sat at zero net balance. Businesses are investing in doing more with what they have rather than adding capacity through hiring.
The ABS Business Indicators data, while comprehensive, has limitations worth understanding. CGOP is calculated by deducting non-production items (interest, rent, bad debts, depreciation, and unrealised gains or losses) from pre-tax profits. This means the profit figures exclude some costs that SME owners would consider part of their operating reality.
The data also reflects the private sector broadly, not SMEs specifically. Industry-level figures are dominated by larger businesses within each sector. The margin patterns are directionally accurate for SMEs but the absolute figures should be interpreted as indicative rather than precise.
Mining continues to have the highest profit margins of any Australian industry, with company gross operating profits of approximately $47.9 billion against wages of $9.4 billion according to the ABS Business Indicators September 2025 release. However, this is largely driven by major resource companies and is not representative of the SME experience. Among sectors relevant to most small businesses, professional services and wholesale trade show relatively stronger margin positions compared to retail, hospitality, and manufacturing.
Yes. The ABS data shows company gross operating profits recorded 0.0 per cent quarterly growth and a negative 2.4 per cent annual trend as of September 2025. Meanwhile, wages and salaries grew 6.3 per cent annually. This gap means profits are being compressed by rising labour costs that are not being offset by corresponding revenue growth. The Australian Industry Group Leaders Survey confirmed this, with margins at a net balance of negative 2.
A tight labour market is the primary driver. The unemployment rate has remained lower than expected, labour underutilisation is at low levels, and businesses are competing for workers across most industries. The RBA described labour market conditions as "a little tight" in its February 2026 Statement on Monetary Policy and forecast this to continue through 2026 before gradually easing.
Three strategies are supported by the data. First, active pricing management: 25 per cent of SMEs that cited pricing as a revenue driver in the MYOB Bi-Annual Business Monitor were more likely to report profitability. Second, financial visibility: understanding margins by client, project, or service line enables informed decisions rather than blanket cost-cutting. Third, process and technology investment: 36 per cent of business leaders in the AI Group survey prioritised efficiency improvements over headcount growth.
Start-ups are outperforming established businesses on profitability metrics. The MYOB Bi-Annual Business Monitor found 53 per cent of start-ups reported being more profitable, and one in three reported higher revenue, nearly three times the rate of established businesses. This suggests leaner cost structures and greater operational agility provide a margin advantage.
Scale Suite provides embedded finance and HR services for Australian businesses. Our team integrates into your operations through shared platforms, providing the financial visibility needed to understand your margins by client, service line, and project. From bookkeeping and management reporting to cash flow forecasting and payroll, we deliver the finance department infrastructure that growing businesses need without the cost of building one internally.
We review and update articles periodically. At time of writing, all data and sources were current and accurate. Figures are based on publicly available datasets and should not be taken as financial advice.
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