Many among the 900-strong partnership at PwC Australia fear the firm is descending into a civil war that could take years to recover from.
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I am Leon Gettler. My job is to review and monitor the week’s news in business, finance and economics. I bring it all to you, every week.
This is episode number 18 in our series for 2023 and today’s date is Friday June 2.
First I’ll be talking to Jim Penman, the founder of the franchising company Jim’s Group which has had a strong growth over the last two years. And I’ll be talking to RMIT economist Jonathan Boymal about house prices.
But now, let’s talk to Jim Penman
So what’s happening in the news?
The World’s most valuable chipmaker Nvidia has unveiled more AI Products. Nvidia Corp Chief Executive Officer Jensen Huang has unveiled a new batch of products and services tied to artificial intelligence, looking to capitalize on a frenzy that has made his company the world’s most valuable chipmaker. He hailed a new era of computing in which “everyone is a programmer”, as the world’s most valuable semiconductor group unveiled a new supercomputer platform to stay at the forefront of the artificial intelligence revolution.The wide-ranging lineup includes a new robotics design, gaming capabilities, advertising services and a networking technology. Perhaps most central to his ambitions, Huang took the wraps off an AI supercomputer platform called DGX GH200 that will help tech companies create successors to ChatGPT. Microsoft Corp. Meta Platforms Inc and Alphabet Inc’s Google are expected to be among the first users. The flurry of announcements underscores Nvidia’s shift from a maker of computer graphics chips to a company at the center of the AI boom. Last week, Huang gave a stunning sales forecast for the current quarter — almost $4 billion above analysts’ estimates — fueled by demand for data-center chips that handle AI tasks. In the presentation Monday, Huang argued the traditional architecture of the tech industry is no longer improving fast enough to keep up with complex computing tasks. To realize the full potential of AI, customers are increasingly turning to accelerated computing and graphics processing units, or GPUs, like those made by Nvidia.
Economist Ross Garnaut says rising unemployment is a bigger concern than a recession and he has called for the Reserve Bank to pause its run of 11 interest rate rises in the past year. He also accused the RBA of making “one very big mistake” that hurt Australians when it held interest rates higher than other developed countries between 2013 and 2019. Garnaut told a University of Melbourne panel that the central bank created unnecessarily high unemployment and weak wages growth last decade by keeping the official cash rate higher than in similar countries, and he urged it to work more closely with the federal government, including conducting joint research. He said Australia’s historically high rates of immigration made it hard to have recessions, but the RBA should wait to assess how lifting rates to an 11-year high had affected the economy. The Reserve Bank is under fire for promising in 2020 not to lift rates for three years, and then raising them at the fastest pace in recent history. A recent review recommended 51 changes to the Reserve Bank, including post-meeting press conferences by its governor, fewer meetings and an increased focus on economic research.
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The strength of the Qantas brand has been dented by high airfares, negative publicity and performance issues, according to new analysis of the world’s top airlines. The Brand Finance report examined the economic credentials and marketing power of major airlines, along with consumer sentiment and media coverage. Japan’s All Nippon Airways was rated the world’s strongest brand, followed by Korean Air, with Singapore Airlines’ fifth and Japan Airlines sixth. Qantas slipped out of the top five for the first time since 2018, coming in at number seven. Brand Finance Australia managing director Mark Crowe said a checklist of factors was taken into account, under the headings of investment in the brand, the equity the brand held and brand performance. Qantas scored a total of 78.1, down from 82.4 last year, and a high of 86.6 in 2019. Qantas has seen a drop in ratings for value for money and innovation, and then under brand equity they’ve had falls in recommendation and reputation Finally under performance they’ve also experienced a drop in loyalty which is perhaps not surprising given there’s been a lot of negative publicity around Qantas and customer service. Brand was considered particularly valuable in the airline industry, accounting for “anything from 18 to 25% of overall enterprise value”, Crowe said.
The Victorian government has signed off on a preferred development plan for its $3.3bn electricity transmission project, VNI West, a centrepiece of the state’s push to shift the power grid away from coal and reach a 95% renewables target by 2035. After kicking off the regulatory process in 2019, the Australian Energy Market Operator has struck a deal for the transmission line that connects the EnergyConnect line now being built in NSW with Victoria’s Western Renewables Link. The development allows for up to 3400 megawatts of extra renewable generation to be built across the solar-rich Murray River renewable energy zone and the wind power-driven Western Victoria zone. The Andrews government has approved a ministerial order backing AEMO’s preferred option, which connects VNI West to the planned Western Renewables Link at a terminal station at Bulgana in Victoria’s west. It then links to a terminal station near Kerang in North Central Victoria, before crossing the Murray River north of Kerang. Planning and environmental approvals will still be required, however, with the state saying community input would play a “crucial role” in helping design a route that minimises impacts on the landholders, the environment and farming operations.
Australians have enthusiastically embraced champagne since the end of lockdowns and Covid-19 restrictions, propelling the nation to become the sixth-largest champagne market in the world. A record 10.5 million bottles of French bubbly were shipped to Australia in 2022, up 6%, with Australian consumers becoming more educated and increasingly willingly to spend more when filling a flute. Latest figures from Comite Champagne, the regulatory body that represents the houses, growers and co-operatives of the Champagne appellation in France, show that the value of the Australian champagne market increased by 17.7% for the year, representing a turnover of €188m ($310m). And despite only a small population relative to some of the other giant champagne drinkers, Australia now ranks as the sixth-biggest champagne export market and is closing in on much larger nations such as Japan, Germany and Belgium, which rank third, fourth and fifth, respectively. It is the first time Australia has ranked sixth by volume as well as value in terms of champagne shipments, underlining that shift to higher priced champagne brands by local drinkers.
Business will seek to limit the Albanese government’s gig worker laws to minimum pay, opposing powers to mandate conditions such as portable leave and rest breaks on grounds they threaten to increase costs and push up prices for consumers. The Business Council of Australia, which is expected to campaign against the government’s second tranche of industrial relations changes in the coming months, in a submission lashed the proposed gig economy laws as threatening to restrict wages, rostering and the ability for gig workers to easily move between platforms. The government is proposing to introduce powers for the Fair Work Commission to set minimum pay and conditions for “employee-like” workers, with a focus on gig platforms such as Uber and Doordash. But BCA chief executive Jennifer Westacott said the reforms as currently framed “failed to recognise the importance of flexibility these roles offer, both to the worker and the community”. Workplace Relations Minister Tony Burke said the government wanted to maintain the flexibility for platform workers in picking when they worked and what work they took on but without undercutting minimum pay.
Many among the 900-strong partnership fear PwC is descending into a civil war that could take years to recover from. The leaks scandal, which involved then PwC tax partner Peter Collins sharing confidential government information that was used to advise clients how to sidestep new tax laws, has led to a level of bewilderment, fury and sadness throughout the firm. Those emotions are being increasingly directed at the firm’s new executive board, which many feel is taking an overly legalistic and slow approach to the crisis. So far, the main personnel action taken by leadership is to announce that former CEO Tom Seymour will leave the firm early and that two other partners have stepped down from leadership positions. Some of the firm’s 900-strong partnership, always a hyper-political body, fear the firm is descending into a civil war that could take years to recover from. One former partner now at a rival big four firm divides PwC partners into three groups. “There’s a lot of unsatisfied people,” he said. “Junior partners are worried about the financial consequences”, “the mid-career [ones] are looking to jump”, and the senior partners “think they can ride it out, they’ve had good years.” The former partner also said “a group of government partners was shopping [themselves] around to other firms”. A similar tactic was attempted in mid-2020 by eleven partners from PwC but was stymied, in part by concern about whether the partners or their new firm would bear the cost if PwC took legal action against them based on a clause in their partnership deed covering group departures. Potential partners are also hesitant to tie their financial future to PwC, a career step previously considered one of the pinnacles in the professional services sector. “A lot of candidates have baulked at becoming partners,” the former partner said.
Under-fire accounting and consultancy firm PwC has directed nine of its partners to take leave pending the outcome of an internal investigation into the leaking of confidential Australian government tax information. The firm also announced that the chairs of its governance board and designated risk committee are stepping down, with two independent non-executive directors to be appointed to the governance board. PwC will also “ringfence” its provision of services to the federal government, with a standalone executive and governance board to oversee those operations from September onwards. In addition, the firm has now committed to publishing in full an internal report being conducted by Ziggy Switkowski for PwC when it is completed in September. Previously, the firm was planning only to publish a summary of the report and its recommendations, but changed its mind “after listening to our stakeholders”.
Australia’s tax office foiled several attempts by multinational firms to subvert new tax avoidance laws months after confidential drafts were leaked by a then-PricewaterhouseCoopers (PwC) Australia partner, a spokesperson told a parliamentary hearing on Tuesday. The “big four” firm is reeling after a former Australian tax partner who was consulting with the government on laws cracking down on corporate tax avoidance shared confidential drafts with colleagues to drum up business around the world. Shortly after the introduction of the Multinational Anti-Avoidance Law in 2016, the tax office noticed several multinationals “suspiciously and quickly” restructuring their affairs, Australian Tax Office (ATO) Commissioner Chris Jordan told senators on Tuesday. The unnamed firms ultimately readjusted their structures after the ATO issued notices, saving the tax payer roughly A$180 million annually, said Jordan. Mr Jordan also detailed how the Tax Office shared information with federal police in 2018 about PwC partner Peter Collins leaking confidential Treasury documents.
Online doctors will be banned from prescribing drugs to patients they have never spoken to, under a crackdown aimed at preventing Australians from accessing medicine with a click of a button. It comes as Medical Board of Australia chair Dr Anne Tonkin warned that it was only a matter of time before someone died or suffered serious harm from the “tick and flick” prescribing practices of telehealth platforms. The Australian Health Practitioner Regulation Agency is currently investigating telehealth companies for failing to recognise adverse drug reactions, prescribing medication that patients are allergic to and dispensing pain medication for extended periods without face-to-face reviews. The Medical Board of Australian will release new rules for telehealth companies this week that will deliver a significant blow to the business model of many start-ups selling and prescribing drugs online. These companies often prescribe drugs through online questionnaires without patients ever having a real-time consultation with a doctor. Telehealth has exploded in popularity since the pandemic and so too have patients’ grievances. New data shows the medical watchdog has received more than 503 complaints about the industry so far this financial year. This represents a more than 400% jump in complaints since 2019-20. Almost one in six of these related to prescribing issues, while others related to cost, incorrect or missed diagnoses and delays in care. Tonkin, who is a specialist in clinical pharmacology said the watchdog had received complaints about people being prescribed Valium without any questions being asked about their medical history or why they needed the drug.
Nursing home providers have backed a new Albanese government consultation paper that floats making elderly Australians pay more from their own pocket for aged care as part of efforts to relieve pressure on taxpayers. The draft National Care and Support Economy Strategy also warns that higher wages for carers working in the aged, disability, veterans and early childhood sectors can only be achieved through productivity gains to avoid driving up costs of services further. The release of the discussion paper comes weeks after the Albanese government agreed to fund a 15% increase in wages for aged care workers at a cost to the budget of $11.3 billion over four years. The United Workers Union flagged last week it planned to launch a pay claim for a 25 per cent increase for childcare workers following the introduction of multi-employer bargaining laws. Forecasting that annual government spending on the care sectors will almost double from $60 billion in 2021-22 to more than $110 billion by 2026-27, the paper said the sectors faced the same challenges from workforce shortages, growing demand and budgetary pressures. To ensure long-term financial sustainability and intergenerational fairness, the paper said there needs to be a “broader national conversation” about public expectations on the services government funds and provides, as well as the split in contributions between governments and individuals. This includes whether governments should fund a universal, minimum standard of care and support, but allow people to buy a higher level of care if they wanted to, or whether Australians are willing to wear higher taxes or a reduction in public services if they want governments to fund a high level or care.
Nearly three-quarters of renters have experienced rent hikes over the last year, in increases that have become larger and more common than before the pandemic. But as more households struggle to manage growing rental prices, separate forecasts suggest the worst is yet to come and rental inflation could rise to 8% by early next year. Rental inflation reached 4.9% in March, according to the Australian Bureau of Statistics Consumer Price Index, and the Reserve Bank governor Philip Lowe has warned rising rents added to the ongoing danger of high inflation. Financial services firm JP Morgan believes rental price growth could accelerate as the uptick in migration and smaller household sizes continue to put pressure on rental demand, while higher interest rates and slower construction mean the increase in supply remains sluggish. The firm’s modelling forecasts annual rental inflation will increase to 6 per cent by September and reach 8 per cent by March next year.
Australia could have built an extra 1.3 million homes over the past 20 years, but costly zoning, planning and building red tape imposed by local councils is chiefly to blame for a huge housing undersupply, according to analysis by former Reserve Bank of Australia economist Tony Richards. In new research, Dr Richards said building more medium-density homes may require taking powers off local councils to stop caving in to “NIMBY” (Not in My Backyard) agitators. Dr Richards said the federal government’s target for 1 million new homes over five years was “not that ambitious”, and a much bigger expansion was required to make up for past undersupply and future population growth. Home building has slowed significantly over the past two decades, largely due to prime residential real estate being restricted to single homes, developers facing long and expensive applications, and legal disputes with existing residents. The report, The case for medium density housing in our large cities, calculates that housing supply has expanded at just 4.5% ahead of population growth over the 20 years to 2021, much slower than the 17% above the population increase in the previous 20 years. Maintaining the earlier pace would have increased the housing stock by 220,000 homes a year, instead of the actual growth of 153,000 a year. The slower building of homes implies a 20-year shortfall of 383,107 homes in NSW, 352,292 in Queensland, 282,694 in Victoria, 160,397 in Western Australia, 102,321 in South Australia, 34,146 in Tasmania, 14,385 in Canberra and 8504 in the Northern Territory.
The ACTU wants the Albanese government’s upcoming same job, same pay laws to target major companies such as CIMIC, Qube, BHP and Qantas for using labour hire-like structures to push down pay. The union peak body named the construction, stevedore, mining and airline giants in research released on Tuesday that found Australia’s largest dozen labour hire providers now ranked in the country’s top 30 largest commercial employers with combined revenues of about $20 billion. The research says labour hire extends to “complex, multi-tiered, opaque” structures and many large listed corporates “such as BHP, Qantas, Qube and CIMIC have also established their own internal labour hire subsidiaries that suppress wages”.
And that’s it for this week. And next week, I’ll be talking to Dr Silvia Pfeiffer, CEO and co-founder of Coviu, Australia’s leading video telehealth solution and a spinout of CSIRO’s Data61. And I’ll be talking to economist Nicholas Gruen examining whether governments have actually created feel-good budgets.
In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment. For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business on the Apple podcast store or on my website leongettler.com.
If you want to contact me, email me at leon@leongettler.com. I answer all emails.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week
