Consumer sentiment at “recessionary levels” – Westpac
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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 20 in our series for 2023 and today’s date is Friday June 16
First I’ll be talking to film maker Michael Budd from Amazing People Pictures who will talk about how he managed film-production during the pandemic. And I’ll be talking to CommSec Chief Economist Craig James about market trends for the week.
But now, let’s talk to Michael Budd.
So what’s happening in the news?
Five industry superannuation funds representing more than $750 billion in Australians’ retirement savings have frozen new contracts with PwC and more are considering doing so, as the sector leads the corporate push away from the big-four consulting firm over the tax leaks scandal. Aware Super and CareSuper have joined AustralianSuper, Australian Retirement Trust and HESTA in freezing contracts with PwC, while Rest Super and LegalSuper are reviewing their dealings with the firm. It comes as the prudential regulator, which oversees super funds, warns that companies working with PwC need to consider the governance risks connected to their contractor decisions. The watchdog has stopped short of telling banks who they can deal with, but has spoken to them about the need for companies and their boards to consider “significant risks” posed by contractors in light of the PwC revelations. The firm has been under growing fire over revelations it leaked confidential tax plans to other staff and partners at PwC so the information could be used to try to win clients who may want to circumvent those rules. The Department of Finance has effectively banned the firm from winning new government work by ordering officials to consider confidentiality breaches when evaluating bids, but the superannuation funds’ response suggests PwC’s lucrative private sector contracts are at risk. Losing superannuation work is a significant blow for PwC, which brands itself as an “active participant” in the industry and a “leading adviser” to funds, and had been working to expand its footprint in the sector historically dominated by rivals Deloitte and KPMG. Hostplus is the only big super fund to use PwC as a major supplier that is not openly banning new deals with the firm or still in the process of reviewing their contracts.
Australian business and consumer surveys showed on Tuesday that storm clouds were gathering for the economy, with a slowdown in business activity accelerating and spending confidence staying near recession levels, amid warnings of more rate hikes to come. A survey from National Australia Bank that is closely watched by the Reserve Bank of Australia (RBA) showed its index of business conditions fell by a sizeable seven points to +8 in May, coming off highs seen in the last year. Business confidence also slid back to negative territory, and, worryingly, forward orders, a leading indicator of demand, contracted in May, highlighting the risks to growth in the months ahead. The Westpac-Melbourne Institute Consumer Sentiment Index rose 0.2% to 79 but the Index has now been near recession lows for the last year.
Aged Care Minister Anika Wells says the government has a “genuine duty to deliberate” a levy on taxpayers to help fund a better aged care system. The aged care minister says two decades of inaction have left the federal government in a position where all options to fund higher standards of aged care are on the table, including a Medicare-style levy. Last week, Ms Wells used an address at the National Press Club to float the idea of a taxpayer levy to fund improvements to the sector. The new aged care taskforce, chaired by the minister, will consider the funding instrument recommended by the royal commission inquiry into the sector. But an aged care levy was not a Labor election policy, and the Opposition has labelled the suggestion a “lazy” way to fund improvements in the sector. Ms Wells said the taskforce was focused on ensuring older Australians have a choice when it comes to their care. The plan is to create policy settings that encourage investment in innovative models, such as village-style care seen in The Netherlands.
Australians struggling with the highest interest rates in a decade are being warned to expect one or two more mortgage bill hikes as the Reserve Bank (RBA) pushes the economy into perilous territory. A surprise – though not totally unexpected – cash-rate hike last week has forced many experts to tear up their forecasts, with leading analysts now saying 4.6% is on the cards by August. That implies upcoming RBA meetings in July and August could add another $150 or so to monthly repayments on a $500,000, 25-year home loan – bringing the squeeze since May 2022 to more than $1250. “We now expect one further 25bp (basis point) increase in the cash rate for a peak of 4.35%, and see it most likely at the August board meeting,” Commonwealth Bank chief economist Gareth Aird said on Friday. “The risk is a 25bp rate hike earlier in July. There is also a risk of 25bp rate rises in both July and August, which would take the cash rate to 4.6%.” ANZ Bank forecasters, who did expect the RBA to hike in June, had already pencilled in 4.35% in August, and also think there’s a risk there will be no pause in July.
Westpac will sack about 300 of its staff in its business and retail banks as part of an ongoing push to reduce its office headcount by 20%.The affected staff were informed on Thursday, according to the Finance Sector Union, and project delivery and program management workers in the retail and business bank will bear the brunt of the cuts. While hundreds of employees are on the way out, it is a small portion of the bank’s 38,000 staff. Westpac, which reported an interim profit of $4 billion and increased its net-interest margins to 1.9% in the half-year to December, said the cuts were part of an ongoing push to reduce costs first announced last year. The company has long flagged its ambition to cut its headcount by 20% compared with 2020 levels by 2024 to get costs under control. At its 2022 financial year results, Westpac said it had cut about 12% of the roles that it was planning to.
CreditorWatch has told businesses told to brace for ‘challenging’ FY 2024 with insolvencies already at a ten year high and trading conditions further weakening.Leading economic indicators point to a difficult financial year for businesses in 2023-24 with consumer sentiment deteriorating and costs expected to rise further. CreditorWatch chief executive Patrick Coghlan said the latest ASIC data is now indicating that insolvencies are at a 10 year high. CreditorWatch chief economist Anneke Thompson said retail volumes are already falling even if nominal retail turnover is rising due to inflation. The food and beverage industry is the sector most at risk over the next 12 months, according to Ms Thompson.
Ride-hailing giant Uber has struck a deal with BP to offer discounted electric vehicle charging to its Australian drivers as it launches a service dedicated to lower-emissions rides and seeks to persuade reluctant drivers to make the switch to electric cars. Uber, which has set a target to phase out carbon-polluting vehicles from its platform by 2040, is exploring ways to increase uptake of electric cars in Australia, where sales of emissions-free vehicles are still lagging far behind other developed nations. The United States-based app company on Friday sent the “Uber Green” feature live across Australia for the first time, four years after it was launched in Europe, enabling customers to request a hybrid or fully electric car for the same price as an UberX journey. In a new deal between Uber and British energy major BP, Uber drivers and couriers using electric vehicles will receive a discount on charging at BP Pulse service stations. The program, which the companies aim to launch by the end of the year, would save Uber drivers between 5¢ and 8¢ a kilowatt-hour on the cost of charging. Light vehicles account for more than 10% of Australia’s output of greenhouse gas emissions, making the sector a major contributor to global warming. While ride-hailing cars are newer and have better fuel efficiency than the wider vehicle fleet, the industry has faced scrutiny in some cities in the United States, where studies suggest it contributes to urban congestion and emissions because of the amount of time drivers spend driving around between jobs. Ride-sharing platforms, however, believe they can have a significant impact on decarbonisation if they can influence more electric vehicle uptake.
Qantas cabin crew will be able to ditch high heels, grow their hair long and opt to wear make-up regardless of their gender as the national carrier relaxes strict uniform rules that one union has branded as ridiculous. The “style and grooming” overhaul comes in response to long-held frustrations by staff, modernising workplaces and evolving customer expectations, the airline said. Men will be able to wear make-up and women can ditch the high heels. Qantas uniforms have not changed, but designated “male” and “female” uniform determinations have been scrapped and grooming requirements overhauled. Female cabin crew previously expected to wear high heels on long-haul flights had been asking to wear more comfortable and practical flat shoes. Similarly, some male cabin crew expressed a desire to wear concealer and foundation. Included in the changes for all staff is the option to wear flat shoes with uniforms, as well as wearing long hair in a low ponytail or bun. All employees can now wear the same jewellery, including watches and diamond earrings. Employees will also have the choice of whether to wear make-up or not, although tattoos still need to be concealed. Hosiery will be required to be worn with a dress or skirt.
The company behind the ambitious, failed media organisation News.net has gone into liquidation, giving staff little hope of recouping hundreds of thousands in missing wages. Liquidators were appointed to the company, which has formerly trading as Sydney News or Global News and Sport on May 23 and last month the liquidator notified News.net staff their contracts were terminated, directing them towards the government’s fair entitlements scheme. News.net was initially led by Tony Gillies, the former editor-in-chief of newswire service AAP. The start-up aimed to launch a network of 1800 websites associated with its domain name in 2022, intending to hire at least 170 staff in its first few months. The company had as many as 37 employees in August 2022 before it ceased operating on October 21, 2022, amid disputes with staff over its failure to pay wages and superannuation, and with suppliers over payments. The liquidator’s initial report lists the total owed to creditors at $1.43 million as of 1 June; however it is believed only 50% of possible creditors have been contacted at this stage.
The Hunter region will be declared Australia’s second offshore wind zone, a boost to the industry that energy executives say will be critical if the country is to meet its renewable energy targets. Federal Energy Minister Chris Bowen in February invited community feedback on permitted offshore wind in the Hunter region. The proposal received overwhelming local support, and Mr Bowen will formally declare applications to develop in the region open within a month. Opening the Hunter to offshore wind is a boost to Australia’s hopes of dramatically reshaping its electricity generation mix. Australia expects to replace its fleet of coal power stations, the largest source of electricity in the country, in little more than a decade but is struggling to build enough renewable energy sources to compensate. Offshore wind projects are often much larger than onshore wind or solar projects, offering far better compensation for the loss of coal-fired power stations that typically produce more than two gigawatts. Australia has legislated a target of having renewable energy account for more than 80% of its electricity generation by the end of the decade, a target that has put pressure on coal generators. A second offshore wind region comes as states and territories place the zero emission source at the heart of plans to wean off fossil fuels. Victoria is Australia’s most aggressive state, placing offshore wind at the heart of its plan. In 2021, the southern state set a target of generating about 20% of its energy needs from offshore wind within a decade. The target then doubles to 4GW by 2035 and 9GW by 2040. In all, Victoria sees potential for 13GW of offshore wind capacity by 2050, five times the current renewable generation in Victoria. The renewable goal has drawn many of the world’s largest developers and local heavyweights, all seeking to build offshore wind projects in Gippsland. But with only five licences expected to be approved, those of miss out are expected to turn their attention to NSW.
Rio Tinto has stepped up its efforts to keep its Pilbara iron ore mines relevant as China looks to decarbonise its steel industry, signing a deal with steelmaking giant Baowu to find ways to produce so-called “green iron” in the Pilbara. The move is the latest in a series by Rio and other Pilbara iron ore majors, which have faced pressure for years over their so-called scope 3 emissions – those attributable to customers that buy their iron ore and other commodities. While Rio has steadfastly refused to follow the lead of Fortescue Metals and BHP in setting a target for the reduction of scope 3 emissions, on Monday it signed the latest in a series of deals designed to help customers reduce their own carbon emissions. Rio said the memorandum of understanding would see the pair trial technology at one of Baowu’s steel mills in China that could eventually be used in Australia to produce a higher value iron ore export that produces less carbon dioxide when fed into steel mills. Rio is already running trials on an in-house green iron process that uses raw biomass and microwave technology to produce high grade iron that could cut the need for coking coal in the steel industry. The company said it would now trial a second route to green iron with Baowu, first flagged as a prospect in 2021, that will use hydrogen to produce metallic iron from Pilbara iron oxide ore, then use an electric melter to remove impurities – eventually producing iron briquettes or pellets that could be fed into a blast furnace, or the electric arc furnaces that are seen as the future of the industry. Rio is also working with Australian steel major BlueScope on the implementation of a similar technology. Iron ore fines, effectively a thick dust, currently make up the bulk of Pilbara exports. They need to be roasted in a sinter plant before entering a blast furnace, a process which produces its own carbon emissions. Direct feed options, such as lump ore or pellets, are estimated to cut about 220kg of carbon equivalent emissions for each tonne of steel produced. The agreement will also see the companies look for other ways to allow Pilbara iron ore to be turned into pellets capable of being directly fed into blast furnaces. While it is possible to pelletise Pilbara fines using existing technology, it comes at a significant cost. Rio was at pains to reiterate that the technology is still a long way from turning into a commercial reality, and is aimed at reducing the emissions from China’s relatively young blast furnace fleet, rather than revolutionising the way steel is made.
Employees at three of the big four banks are flouting office attendance rules and a snap poll suggests the problem could be widespread across some of Australia’s biggest companies. Average attendance at Commonwealth Bank, NAB and ANZ remains below 50% despite all three banks recently reminding staff that they were expected to come into the office 50% of their time each month (CBA and ANZ) or two or three days a week on average (NAB). The bank’s chief executives say such targets strike a balance between offering staff flexibility and promoting in-person collaboration. But employees are reluctant to attend the office more frequently as they feel they adapted well to remote working during the pandemic and do not want to give up their newfound flexibility. Business leaders, including the chief executives of CBA, NAB and ANZ, believe the office plays a crucial role in sustaining company culture and helps new starters get up to speed and forge stronger ties with their colleagues. The snap poll included Westpac, BHP, CSL, Woodside, Aristocrat, Transurban and TPG Telecom. Most require staff to spend two or three days a week in the office. But CSL enforces a 25% minimum for office-based roles, and TPG Telecom has adopted the rule, “it’s not zero days [in the office], but it’s not five days”.
Relying on a staff expert to advise firms on the use of artificial intelligence risks boards being blindsided and exposes companies to big legal, safety and brand risks, a report on AI governance in Australia warns. The report found the rapid uptake of AI technologies in customer service, marketing and sales, human resources and administrative systems has not been accompanied by investments in governance procedures and reporting. Three hundred corporate and technology leaders were surveyed by the Human Technology Institute (HTI) at University of Technology Sydney. Nearly two-thirds (64%) were already using or planning to use AI systems in their operations. However, only 10% of firms surveyed had an AI strategy, despite a 20% annual increase in AI investment. The report by HTI co-director Nick Davis and AI corporate governance senior researcher Lauren Solomon found that only 5%, or four out of 80 firms surveyed, had a governance system specifically oriented towards AI models and systems. The report suggests four areas for urgent action: developing fit for purpose AI strategies; finely tuned oversight systems reporting to boards with a focus on data quality; building internal expertise; and a focus on the societal and personal human harms AI can cause. The research found widespread ignorance about the use of AI. Around a quarter of senior executives and three-quarters of company directors were unaware or unsure of the details of AI governance in their organisation.
The corporate watchdog has put accountants and lawyers on notice about the looming challenge of providing advice to companies about how to comply with complex disclosure rules on sustainable finance and climate risk. Australian Securities and Investments Commission chairman Joe Longo said implementingand adhering to the broadening environmental, social and governance global framework would be on a par with navigating “major tax reforms” such as the introduction of the goods and services tax. He said there were legal and reputation risks for listed companies and directors under the looming standards for sustainability and climate-related financial disclosures proposed by the International Sustainability Standards Board. “I think for many businesses that will require a real change in governance mindset,” Mr Longo said, in an interview after his speech at a Committee for Economic Development of Australia conference in Canberra. “They’re going to be quite properly and reasonably relying on experts to help guide them, particularly in the early years. A generation of accountants and lawyers, they would not have had any exposure to this before.” Treasury is working on a discussion paper on the new sustainable finance and climate risk disclosure rules, and will tailor the rules to Australia after the global standard-setting body releases high-level guidelines in the next two weeks.
And that’s it for this week. An next week, I’ll be talking to Ross Sharman, founder of EnergyIQ, an energy switching site for those looking for renewable energy options. And I’ll be talking to Indeed economist Callam Pickering about the latest jobs figures.
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
