The federal government must be allowed to cut red tape and repeal the carbon and mining taxes to maintain growing business confidence.
The Australian Chamber of Commerce and Industry (ACCI) small-business survey for the September quarter shows expectations for the economy's performance at its highest level in three years, but actual business conditions remain subdued.
Its small-business conditions index was 42.4 points, which is up from 41.5 points but well below the 50-mark that separates contraction from expansion.
Profit growth remained well below 50 points at 36.2 points, while selling prices fell to a record low of 43.1 points.
However, the expected economic performance index was 50.7 points, up from 47.4.
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"Confidence has been restored seemingly to the small-business community," ACCI's acting chief economist, Burchell Wilson, told reporters in Canberra on Monday.
Other components of the survey also pointed to a more positive December quarter.
However, Mr Wilson said the rise in confidence following the federal election was fragile.
"What it shows is the government needs to move ahead with its deregulatory agenda and its ambitions to lower taxes," he said.
Mr Wilson said there needed to be a breakthrough regarding the repeal of the carbon tax.
Labor says it will support the repeal only if it means going to an emissions trading scheme, rather than the government's direct-action plan.
"We need to see the opposition get on board and admit that the carbon tax is orphaned internationally and needs to be repealed," he said.
Mr Wilson said the survey showed that business taxes and government charges remained the number-one constraints on small-business investment intentions, as they had been for the past 11 consecutive quarters.
Overall, he said weak conditions built the case for lower interest rates in the new year.
"It seems unlikely that the Reserve Bank is going to cut in December but more likely if the non-mining sector of the economy fails to pick up, then they will have to reconsider monetary policy settings in February."
