Small business is pleading with the federal government not to lift business taxes or remove beneficial tax arrangements in the May budget because the sector remains in a dismal state.

The Australian Chamber of Commerce and Industry's (ACCI) latest small business survey for the December quarter showed the sector was still in deep contraction.

The chamber's chief economist Greg Evans said specific indicators in the survey for sales activity, profitability, investment and employment were "all fairly dismal".

"The sector was under significant pressure over that period and it is certainly continuing to endure very difficult trading conditions," he told reporters in Canberra.

The small business conditions index eased to 40.5 points in the December quarter from 40.7 in the previous three months, remaining well below the 50-mark that separates contraction from expansion.

Mr Evans said profitability was testing levels seen during the 2008-2009 global financial crisis, while selling prices were at historic lows.

Firms were having to absorb the impact of higher energy costs and the carbon tax, rather than passing that on to their customers, leaving balance sheets under pressure.

"It also diminishes their capacity to recover if and when a sustain upturn occurs in the non-mining economy," he said.

Mr Evans said another interest rate cut by the Reserve Bank of Australia would be justified when its board meets in March.

He also believes there is scope for commercial banks to independently cut rates because funding costs are dropping.

"The fact that we haven't seen that by the commercial banks is more of a commentary on the level of competition at the moment," he said.

ACCI also doesn't want see the government shore up its budget position by removing beneficial business tax arrangements.

"We are yet to see any major recovery in respect to the non-mining economy, and an increase in taxes certainly won't help that process and will diminish confidence," he said.