Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, the Apple Podcast store or wherever you go to get your podcasts. Or you can get it at the Business Acumen website at www.businessacumen.biz.
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 one in our series for 2019 and today’s date is Friday February 1.
First I talk to Brett Shanley, the CEO of Study Loan Australia, the first private dedicated provider of student loans in Australia.
And then I talk to economist Stephen Koukoulas, looking at what’s ahead for economies this year.
But first, let’s talk to Brett Shanley.
Mr Trump might have agreed to reopen the government on Friday, 35 days into a shutdown he had forced in order to demand $5.7bn (£4.3bn) to build a wall on the US-Mexico border. But his shutdown cost the economy $11 billion, according to a new analysis from the nonpartisan Congressional Budget Office. Although most of the damage to the economy will be reversed as federal workers return to their jobs, the CBO estimated $3 billion in economic activity is permanently lost. Overall, the CBO projected economic growth will slow this year to 2.3 percent, compared with the 3.1 percent rate last year, as the benefits of the new tax law begin to fade. The loss was driven by a fall in productivity from furloughed government workers, and economic anxiety which spread from the shutdown into the business sector. The deal he struck with congressional Democrats included no funding for the wall. And it’s a temporary measure that expires in three weeks. Which means there could be another shutdown in mid-February. “Although this shutdown has ended, little agreement on Capitol Hill will likely weigh on business confidence and financial market sentiments,” the S&P said in its news release. President Donald Trump said another government shutdown is “certainly an option” as he expressed skepticism that Congress would reach a deal to fund the border wall he requested,. Trump also said he doubted he would accept less than $5.7 billion for the border wall, nor would he agree to grant citizenship for “Dreamers” in exchange for wall funding, according to the Journal report.
Don’t expect American and Chinese trade negotiations to get off to a good start this week. to America’s Justice Department has accused Huawei of misdeeds including obstruction of justice and technology theft. The Chinese tech giant was also accused of defrauding four banks into violating sanctions on Iran, on which basis Canadian police last month arrested Meng Wanzhou, Huawei’s chief financial officer, on behalf of American authorities. On January 28th the Americans formally requested her extradition. Huawei denies wrongdoing. At first glance, it appears prosecutors have little concrete evidence of the gravest suspicions: that Chinese spooks use Huawei gear to eavesdrop, or that long-rumoured ties to the People’s Liberation Army are real. But if they can prove trade-secret theft and bank fraud, Huawei will have plenty to fret about. That could mean a devastating ban on American firms selling it technology.
TPG Telecom has cancelled its plans to build the nation’s fourth 4G mobile network, in a dramatic move that the telco blamed on the federal government’s ban on Huawei equipment from use on 5G networks. TPG, which provides fixed-line broadband services, announced in early 2017 that it would build its own network of mobile towers to compete with the likes of Telstra and Optus. TPG has since sought to join forces with Vodafone Australia in a merger that is currently under review by the country’s competition and consumer watchdog. The main equipment vendor for TPG’s mobile network is Chinese telecom giant Huawei, which is the principal target of Australia’s ban. According TPG, the reason for using Huawei equipment to build out its network was because it allowed a straightforward upgrade path to 5G, using more Huawei equipment. But since the government announced the prohibition of Huawei equipment in 5G networks in August, that upgrade path is now blocked.
Australia’s subdued inflationary pressures were in line with expectations in the final three months of 2018. According to the Australian Bureau of Statistics (ABS), headline consumer price inflation (CPI) rose by 0.5% during the December quarter, leaving the increase on a year earlier at 1.8%. Both the quarterly and annual rates were higher than the 0.4% and 1.7% rates expected by financial markets.
Australian business conditions deteriorated sharply late last year, tumbling by the most since the height of the GFC. Business conditions now sit below their long-term average for the first time since January 2016. The National Australia Bank’s (NAB) Australian Business conditions index, contained its broader Business Confidence survey, tumbled to +2 points in December, down sharply from +11 points in November. The fall over the past six months suggests a significant slowing in the momentum of activity in the business sector — especially from the highs seen earlier in the year. Making the decline all the more ugly, and worrying, the deterioration was relatively broad-based, be it by location or sector. The drop in business conditions lines up with other indicators, such as motor vehicle sales and building approvals, pointing to a sharp loss of economic momentum. Anecdotes also point to a very weak December for retail sales. It was the biggest one-month drop since the GFC, and left overall business conditions at the weakest level since September 2014.
With Commissioner Kenneth Hayne delivering his final, fateful report on Friday, bankers are now asking just how far will he go in extirpating the venal practices and customs of the industry that have been allowed to flourish, virtually untouched, for decades. At the centre of the feverish speculation, they are now asking three key questions: Will the Commissioner announce flagship reforms that are bound to transform the critical home lending and financial advice markets by, for instance, changing the rules for paying mortgage brokers or banning vertically-integrated firms? Will his key report recommend that criminal charges be laid against some of the country’s most senior bankers and some of its most venerated financial institutions – bringing a brutal end to the benign decades-long regime under which feeble regulators only ever dreamed of imposing the mildest of penalties for misbehaviour. And will Commissioner Hayne maintain his seemingly hardline position on the subject dearest to bankers’ hearts – their pay packets. We heard evidence about billions of dollars ripped from customers, the outrageous deceptions of regulators and conscious decisions to put the interests of institutions ahead of their clients. But will anyone end up behind bars for it? The royal commission is an inquiry, not an inquisition. It can’t press charges itself, nor “fix or award compensation”, nor even “make orders requiring a party to a dispute to take or not take any action”. Decoded, that means they weren’t set up to fix existing problems, more to prevent those problems recurring. But it can make recommendations to the Office of the Commonwealth Director of Public Prosecutions. From there it’s up to them. But mortgage brokers and smaller lenders are set to escape a major crackdown in in the Morrison government’s response to the royal commission into financial services, because Treasurer Josh Frydenberg wants to maintain competitive pressure against the big four banks and keep credit flowing to the economy. Watch this space.
The Morrison government is now more focused on protecting its electoral chances than the nation’s finances with claims it is going on a pre-poll spending spree based on a short-term boost in tax collections. Deloitte Access Economics said in a quarterly report out on Tuesday that Scott Morrison is looking to buy back disappointed voters, with the government sitting on $9.2 billion worth of tax cuts and handouts that were included in the December mid-year budget update but not announced. Deloitte Access partner Chris Richardson said the government had promised $16 billion in extra spending and tax cuts in the past six months, the biggest short-term spend by a government since Kevin Rudd in 2009 in the depths of the global financial crisis. He said with the budget in a reasonable condition on the back of strong global growth and a surge in company tax profits, the Morrison government had made a decision to woo back voters with taxpayers’ cash. This meant that the government has been busily taking decisions that add to spending and cut taxes, thereby worsening the bottom line rather than repairing it,” he said. Mr Richardson said it would not just be the Morrison government repeating “our oldest budgetary mistake” of promising new spending in an election campaign, adding that Labor would also make pledges which would eat into a permanent improvement in the budget.
In his first economic speech for the year in the lead up to the election, the Prime Minister Scott Morrison has pledged the creation of 1.25 million jobs over the next five years, and eradicating net debt within a decade, a move that would require paying down more than $350 billion over the next 10 years.
The world’s biggest litigation funder has set up shop in Australia to get a slice of the booming class-action business, including some high profile cases stemming from the banking royal commission. Burford Capital is funding the Quinn Emanuel Urquhart & Sullivan class action against AMP. Burford’s backing of the AMP class action pits it against other household brands — including Slater & Gordon, Shine Lawyers and Maurice Blackburn — that are competing to profit from a slice of the royal commission’s legal fallout. With several competing legal class actions against AMP around “fees for no service”, the firm’s share price collapse. It has had its reputation and market value smashed by royal commission revelations, including the “fee for no service” scandal.
Australia’s biggest energy companies have warned that the Coalition’s proposed “big stick” powers to break up electricity companies would decrease investment and increase prices. The Morrison government introduced the energy market misconduct bill in December, promising that the threat of breaking up power companies would force them to pass on savings to consumers and refrain from activity that manipulates prices or substantially lessens competition. But the Energy Users Association which represents large industrial and commercial energy users, told the Senate economics committee it was “very concerned” the bill would have the opposite effect. Its views echo those of the Australian Industry Group and the Grattan Institute. In December, energy companies warned the bill may not be constitutional and Liberal MPs raised concerns internally that it is too great an intervention in free markets.
Supermarket giant Coles has partnered with UberEats to deliver ready-to-heat meals to consumers, bringing two major brands together to bring convenient options to time-poor customers. From today, customers can order from a range of delicious ready-to-eat and ready-to-heat meals from Coles Pagewood, delivered right to their door. The team at Coles will pick orders from supermarket shelves and hand them to the Uber drivers who promise to deliver to customers in less than 30 minutes for a $5 delivery free.
BuzzFeed has announced plans to slash its Australian work force, but confusion surrounds exactly how many roles will go. 25 BuzzFeed Australia news staff have been given redundancy letters. There’s confusion about how many jobs are actually being slashed Worldwide, BuzzFeed is facing staff cuts of about 15 per cent About 40 people work for the organisation Down Under. Founding editor Simon Crerar tweeted 25 roles would go, but then backtracked, saying the actual number was only 11. BuzzFeed Australia employees had known there would be cuts since last Thursday.
And that’s it for this week. And next week, I have a terrific interview with Steve Layton., founder of Sofa Brands. Through his innovative new co-venture spanning Australia, Italy and China, he’s making Italian luxe furniture available to the many, by delivering top-quality, heritage-rich Italian sofas, for one third of the usual price. It’s a fascinating interview, giving insights into what drives entrepreneurs.
In the meantime, you can tune into Talking Business on Twitter at talkingbizz or on Facebook. And leave a comment if you want. Looking forward to hearing from you. Take care, be good and looking forward to bringing you Talking Business next week.