The Australian hospitality sector is facing an unprecedented wave of closures, with the business closure rate soaring to a record of 9.3 percent in the year to February 2025.
This marks a sharp rise from 7.1 percent in the previous year, according to new data from CreditorWatch.
These closures span voluntary and involuntary administrations, ASIC strike-offs, deregistrations of solvent businesses, and voluntary shutdowns.
The food and beverage services sector has been hit the hardest, as businesses grapple with cost pressures, driven by rising food prices, energy costs, wages, and rent hikes.
Rising Defaults Signal Further Closures
While the hospitality sector is bearing the brunt of these challenges, other industries, such as retail, service-based businesses, and manufacturing, are also under strain.Data reveals a 47 percent increase in invoice payment defaults over the past year—an early warning sign of financial distress. Businesses that fail to pay invoices see their insolvency risk skyrocket from 0.7 percent to 7.9 percent.
CreditorWatch CEO Patrick Coghlan warned that this spike in defaults signals more trouble ahead, particularly as broader economic factors, including U.S. tariff policies, further squeeze business profitability.
“The expected slowdown in economic growth from the widespread US tariff regime will, unfortunately, but inevitably, result in higher insolvencies. After a tough couple of years managing higher inflation, interest rate increases, and lower demand, I certainly hope Australian businesses are spared the worst of it,” he said.
Which States Are Hit Hardest?
After a brief dip in December and January, insolvency rates surged again in February, continuing their upward trajectory.The Australian Capital Territory (ACT) and New South Wales (NSW) recorded the highest insolvency rates, outpacing Victoria. Even Canberra—typically viewed as an economically stable city—saw a sharp increase in business failures.
In contrast, Western Australia remains the most resilient, buoyed by a strong mining sector that continues to support business stability.
CreditorWatch Chief Economist Ivan Colhoun noted that there is little relief in sight.
Political Clash Over Support for Small Businesses
As economic pressures mount, both the government and opposition are presenting competing visions for supporting small businesses, particularly in the hard-hit hospitality industry.Opposition Leader Peter Dutton has proposed targeted relief for small hospitality businesses with turnovers of up to $10 million.
His plan, which excludes alcohol-related sales, would exempt businesses from the Fringe Benefits Tax (FBT) for an initial two-year period.
“This is a win for the small business spending the money on their staff or clients, and a win for the hospitality venues who will see an increased spend in their businesses. It will help businesses recover from a horrible period under three years of Labor,” Dutton said.
Deputy Opposition Leader Sussan Ley took a sharper tone, directly blaming the government for the sector’s struggles.
“Under Labor, more than 26,000 small businesses have gone to the wall, with insolvencies at record highs. More than 4,000 of those were in hospitality,” Ms Ley said.
Treasurer Jim Chalmers dismissed these claims and questioned the viability of Dutton’s proposed ‘free lunch’ plans.
Can Tax Cuts and Rate Drops Stem the Tide?
Despite the grim outlook, there are some signs of relief on the horizon.Recent income tax cuts and the Reserve Bank of Australia’s decision to reduce interest rates in February may provide businesses with some much-needed breathing room.
However, persistent cost pressures and global economic uncertainties, particularly trade-related disruptions, continue to weigh heavily on small businesses.
With an election on the horizon, both major parties are scrambling to present themselves as the best bet for business recovery. For businesses already on the brink, the real test will be whether their proposed measures are enough to stem the tide of closures.
