More company directors now believe the Federal Government does not understand business than those that believe it does.

A survey of around 500 board members by the Australian Institute of Company Directors (AICD) has found that more than 40 per cent now do not believe that the Federal Government understands business, while almost 40 per cent believe it does.

The survey also finds that almost half of directors now believe the Federal Government's performance is negatively affecting their business decision making, and almost three-quarters noting a negative effect on consumer confidence.

Almost half have rated the Coalition's first year in office as poor or very poor.

Despite two federal "red tape repeal days" this year, more than a third believe regulation has increased over the past year.

This lack of confidence in the Federal Government has translated to a general fall in director confidence, with sentiment down 7.1 points since the last survey earlier this year back to levels seen when the previous government was still in power.

However, the AICD's chief executive John Colvin said much of the business community's concern is directed towards the Senate, rather than solely at the Government.

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"An overwhelming majority of directors believe the make-up of the Senate has an adverse impact on both business confidence and consumer confidence," he noted in the report.

The directors have become more pessimistic about the outlook for the Australian economy, with more than half expecting it to be weak over the coming year.

Despite expected economic weakness, and many directors seeing a weakening in recent growth, expectations for future growth and profits remained solid.

Directors now see productivity enhancing reforms and taxation changes as the key priorities, with infrastructure having fallen down the list.

Survey respondents generally said personal income tax was too high, but that multinational corporate tax arrangements were the most important priority for reform, along with payroll tax reduction and GST changes.

"Any debate about this issue needs to consider all aspects of taxation, so that Australia can adopt a robust system that will generate sufficient public revenue without compromising business investment or entrepreneurial spirit," said Mr Colvin.

While directors indicated broad support for government support for selected growth industries through research and development support, 60 per cent said no assistance should be given to industries in severe market decline.