Limitations of Data
1. Seasonality of business and administrative activity
There is a strong seasonal component in the data used to prepare this paper. This seasonal pattern is linked to business and administrative activity throughout the annual cycle. Business Entries are typically highest in the August quarter, which is linked to business activity after the end of the financial year. Business Exits typically occur sometime after the business has ceased operating. For example, before a business is able to cancel its ABN it is required to submit any outstanding activity and tax statements, and settle any remaining tax debts, so Business Cancellations will typically not occur until after the end of the financial year. This contributes to Business Exits typically being highest in the November quarter, along with regular administrative and quality assurance processes. The net effect on total counts is that the count of businesses will typically decrease in the November quarter, and steadily increase to a peak in the August quarter. To enable a better understanding of the seasonality of this data, Seasonally Adjusted estimates for the three headline counts have been provided. While the seasonal component is also present in more granular series analysed in this paper, it was not possible to provide seasonally adjusted counts for these due to timing and resource constraints. When reviewing data in more granular series, the impact of the seasonal component should be considered.
2. Reconciliation of entries and exits
There is a clear statistical measure of new Business Births; the creation of a new ABN. In the context of the counts in this paper, a business is only counted as a Business Birth once; when its ABN is first created. Also in the context of the counts in this paper, ABN cancellations are the best statistical measure of a business genuinely leaving the economy, as there is a formal intention to cease trading. The limitation of this measure is that an ABN can be cancelled multiple times; that is a business may cancel its ABN, and be counted as a Business Cancellation, but later re-activate the same ABN, and be counted as a resurrection. This same business may cancel its ABN again at a later date. Because of this, the total number of Business Births is not directly reconcilable with the total number of Business Cancellations.
3. Source of Long Term Non Remitters
Businesses in the long term non-remitter population are likely to fall into a three key scenarios;
a. A business that has registered an ABN, never lodged BAS for the relevant tax role, and becomes a long term non-remitter after 3 years. These long term non-remitter's are businesses that are not active, or may be minimally active in the economy.
b. A business that has registered an ABN and previously lodged BAS for the relevant tax role but has since ceased, as it is no longer actively trading. The business has not cancelled its ABN or tax roles, and becomes a long term non-remitter after 5 quarters or 3 years of non-lodgement of BAS. These long term non-remitters' are businesses that are no longer active in the economy, but have not formally wound-up their business.
c. A business that has registered an ABN and has ceased lodging BAS for the relevant tax role even though it continues to actively trade. The business becomes a long term non-remitter after 5 quarters or 3 years of non-lodgement. These long term non-remitter's are businesses that remain active in the economy, and are an area of potential under coverage in the data.
4. Time lag between businesses ceasing in the real-world and reflection in data
In this paper there are two main ways in which a business is considered to have ceased, or is no longer active in the economy; when the business is cancelled, or when it becomes a GST long term non-remitter. The limitation of these indicators is that these events typically occur sometime after the business has ceased operating in the real world. For example, before a business is able to cancel its ABN, it is required to submit any outstanding activity and tax statements, and settle any remaining tax debts. Therefore Business Cancellations will typically not occur until after the end of the financial year, and is part of the reason that Business Exits are highest in the November quarter. When looking at long term non-remitters, the time between a business ceasing lodging BAS and moving out-of-scope is either 5 quarters (for monthly and quarterly remitters), or three years (for annual remitters). These time-lags mean that when significant economic events occur that result in a business ceasing, these impacts are often not represented in the data for up to a year after the event, and sometimes even longer. Businesses that cease as a result of a particular economic event will likely be captured as exits across multiple quarters, as the time it takes individual businesses to wind-up can vary.
5. Unavailable data items
Key data items including Turnover and more granular geography (geocoding), such as SA2 and LGA could not be presented as part of this release. This is due to the data not being available within the required time constraints. This information will be included in the annual CABEE to be released in February 2021.