As we approach the new fiscal year, dentists and especially owners can breathe a sigh of relief and look forward to a more stable and promising economic landscape. Here are eight compelling reasons to be optimistic about FY25.
1
Inflation Coming Under Control
The latest data reveals that inflation is now at 3.6%, just slightly above the RBA’s target band of 2-3%. This indicates that the rampant inflation seen in recent years is finally being reined in. In dentistry we’ve already seen the costs of many consumables start to stabilize recently, allowing for more predictable financial planning.
2
Interest Rate Pain Likely as Bad as It Will Get
The Big Four banks anticipate that the current cash rate has peaked and that we can look forward to some interest rate relief coming in by November this year. Any rate cuts will put more money into the pockets of patients and support access to dental care. It’s also welcome news for dental businesses with loans or those looking to finance new equipment or expansion projects.
3
Strong Employment
Despite a slight uptick over the last two years, unemployment remains near historic lows at 4%. This robust employment scenario is a double-edged sword for dentists. On one hand, it means a steady stream of patients with stable incomes; on the other, it underscores the competitive labour market for dental staff. Nevertheless, the overall health of the job market bodes well for patient demand and practice revenues.
4
Stability Returning to the Dental Workforce
There are promising signs that finding and retaining employees is becoming less challenging, despite ongoing tightness in the labour market. Pacific Smiles' 1H24 results showed a significant decrease in annual dentist turnover, down to 4% from a peak of 14% in FY22. A more stable workforce will allow dental practices to focus on growth and patientcare rather than constant recruitment and training.
5
Real Wage Growth Finally Returns
Wages rose by 4.2% YoY to March 2024, according to the Wage Price Index. This marks a return to real wage growth, which is expected to continue alongside more sustainable inflation. Although recent inflationary periods eroded 14 years of wage progress, the current trend suggests an increase in purchasing power. This could lead to more patients willing to invest in elective and preventive dental care.
6
FY25 Tax Cuts Imminent
Starting 1 July 2024, stage 3 tax cuts will take effect, with the Federal Treasury estimating that the average household will be$2,200 better off. This increase in disposable income for most households could translate to higher spending on healthcare, including dental services.
7
Wealth Effect of Rising Property Prices and Share markets
A study by Visa in 2023 concluded that the wealth effect—where consumers spend more as their wealth increases—is more powerful than previously thought. Consumers are now estimated to spend 34¢ of each dollar increase in wealth from housing and the share market, up from 9¢ in2017. This increased consumer spending can positively impact dental practices as patients feel more financially secure and willing to invest in their dental health.
8
Private Health Insurance Remains Favourable
A study by Visa in 2023 concluded that the wealth effect—where consumers spend more as their wealth increases—is more powerful than previously thought. Consumers are now estimated to spend 34¢ of each dollar increase in wealth from housing and the share market, up from 9¢ in2017. This increased consumer spending can positively impact dental practices as patients feel more financially secure and willing to invest in their dental health.
Conclusion
FY25 brings with it a plethora of positive economic indicators that dentists can leverage to enhance their practices. From controlled inflation and potential interest rate cuts to strong employment and real wage growth, the economic outlook is improving. The upcoming tax cuts, wealth effect, workforce stability, and favourable health insurance trends further add to the optimism. By staying informed and adapting to these changes, dental professionals can look forward to a prosperous year ahead.
