The Australian businesses walking a tightrope in 2025

The construction and healthcare sectors are expected to face more financial upheaval this year, risking the ambitious housing targets set by state and federal governments and putting further strain on budgets.

Retailers, particularly mid-market apparel sellers, are also staring down another tough 12 months that has already dented the fortunes of top-tier groups such as Myer and Country Road.

The warning has come from the insolvency sector which is seeing weakness in some parts of the economy even as recession fears fade and the overall economic outlook brightens.

Company collapses hit an all-time high in 2024 financial year and are expected to keep rising as higher-than-hoped interest rates, ongoing inflationary pressures and an aggressive tax office continues to push businesses to the brink.

The brunt of the pain is expected to be worn by sectors already facing serious economic headwinds or structural issues, most notably construction industry and healthcare providers, according to a survey of 180 insolvency specialists conducted by restructuring and consultancy specialists Alvarez & Marsal.

Jason Tracy, a partner at the firm, said 96 per cent of respondents to the survey expect insolvencies to remain either at the same record level or increase in the current financial year.

“There’s some big call-outs in terms of where we see ongoing distress, particularly across construction, healthcare and retail sectors,” Tracey said. “Insolvencies remained pretty high right through 2025 but what we’re seeing there is the unwinding of what you might describe as the COVID hangover.

“The increase is really in the small- to medium-sized businesses, not necessarily at the large end of town.

“According to our survey, around 86 per cent of respondents foresee stress in the construction industry. Similarly, 76 per cent of respondents expected companies in the healthcare sector to face financial difficulties in the current year, while 75 per cent of respondents were wary about the outlook for the retail and consumer goods industry.”

Tracy said the collapse of private hospital operator Healthscope highlighted the difficulties the sector has in dealing with financial pressures, evolving care models and rising operational costs. Such factors are challenging the sustainability of private hospitals, with potential ripple effects on the public system.

In a report released in June, Alvarez & Marsal suggested it was time to consider a more efficient approach to private hospital operators and the owners of those assets – including new agreements with insurers and improvements to the public private partnerships models.

Like healthcare, the construction industry is also facing structural problems as well as economic headwinds and sagging productivity.

This included the proliferation of project contracts in the industry that provided almost zero wriggle-room for builders – from large-scale infrastructure contractors to small builders – to cope with increases of costs in materials or delays.

“We’ve developed in this country a model where all of the risk transfers from the principal of the project, that’s the government or some private party, to the main contractor,” said Tracy.

“Often the contracts are effectively fixed price contracts and all the risk has been transferred onto that major contractor. That’s a fatal flaw.”

“That is the principal cause of the collapse of Probuild and Clough because they have no contingency, no headroom for when things go wrong.”

Retail is another sector facing a patchy future despite a brighter overall economic outlook, with mid-market apparel particularly financially stressed.

“What we’ve seen in Australia is a shift towards either being in the top end or right at the bottom end. If you’re in the middle, you get lost.

Another driver of business collapses in the year ahead, according to the survey, was the increasing aggression of the taxman in collecting debts from businesses for failing to pass on superannuation, GST or pay-as-you-go deductions from staff wages.

According to ATO deputy commissioner Anna Longley, around $50 billion is owed to the government in back-taxes by businesses and individuals.

“Our more lenient approach to payment during the pandemic had an impact on payment culture within the community, where we continue to see some taxpayers de-prioritising payment of ATO debts,” Longley told a gathering of tax practitioners last month.

“We do expect that more insolvencies are likely to arise for businesses that aren’t viable.”

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