Talking Business podcast December 11 2020
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 forty-five in our series for 2020 and today’s date is Friday December 11.
I’ll be talking to Tommy Huppert, founder and CEO of medicinal cannabis company Cannatrek which is developing export markets for Australian medicinal cannabis. And I’ll be talking to IFM Investors economist Alex Joiner about the latest GDP figures and the state of the Australian economy moving forward,
But now, let’s talk to Tommy Huppert.
First the good news.
The Westpac-Melbourne Institute Index of Consumer Sentiment lifted by 4.1% to 112 in December from 107.7 in November. The surge in the Index continues. It is now 48% above the low in April and has reached its highest level since October 2010 – marking a ten year high. After only eight months the evidence seems clear that sentiment has fully recovered from the COVID recession. The behaviour of the Index highlights the difference between this recession; the downturn during the Global Financial Crisis and the recession of the early 1990s.
Businesses are the most confident they have been for more than two years, with corporate sentiment buoyed by growing evidence of the national COVID-19 economic comeback, tumbling interstate borders and Victoria’s much-delayed reopening. NAB’s business confidence index lifted for the fourth consecutive month in November, climbing nine points to 12 points, pushing above the long-term average and far higher than the “neutral” zero level which represents a balance between optimists with pessimists. The index dropped to more than 60 points below zero at the height of the pandemic but has since recovered at a rapid pace, and now sits at its highest level since January 2018.
Victoria’s reopening has sparked an acceleration in the Job Ads recovery through October and November, with ANZ Job Ads up 27% over the two-month period. ANZ Job Ads are on track to match or even exceed pre-COVID levels by year-end. This suggests that the rebound in national employment could continue into early-2021 at least, although the lagged recovery in full-time employment remains a concern
Victoria and NSW have lost their prized AAA credit ratings, with ratings agency S&P Global downgrading both states on Monday in moves that put a cloud over the federal government’s own AAA rating. S&P Global cut its long-term rating on Victoria by two notches to “AA/Stable” from “AAA/Watch Negative” citing a weaker fiscal outlook. The prolonged lockdown in the state due to two coronavirus outbreaks this year has led to more significant effect on the state’s economy than elsewhere in Australia and the government’s path to fiscal repair would be more challenging, the international ratings agency said. But in something of a surprise, NSW also lost its coveted AAA rating. The state’s long-term issuer credit rating fell one notch to AA+/Stable from AAA/Negative as the coronavirus pandemic slashed revenue projections and fuelled public spending on NSW’s large infrastructure program. The stable outlook reflects S&P’s expectation that NSW’s budgetary performance will improve during the next few years as the economy climbs out of a Covid-19-induced recessionBut new borrowings will see NSW’s debt rise substantially to levels consistent with AA+ rated peers. Meanwhile S&P said Victoria’s operating and after-capital account deficits and debt burden had “deteriorated sharply” as a result of the coronavirus pandemic, mobility restrictions and a big-spending budget. Victoria’s debt reached about 200% of operating revenue in 2023, up from 70% in 2019. Victoria’s after-capital account deficit was expected to remain large and debt levels were expected to be elevated for many years, S&P said. S&P also removed Victoria from CreditWatch negative and said its outlook was now stable. Before this downgrade, Victoria was one of the few state governments globally with a AAA rating.
The Morrison government has unveiled controversial legislation that will see casual workers able to apply for permanent roles after a year in the job, but remove the right of misclassified employees to claim billions in pack pay. Employers will be required to offer part-time or full-time roles to people after 12 months if they have worked a regular pattern of hours for the previous six months, and could continue without a significant adjustment to hours. Employers will retain a right to refuse if they have “reasonable grounds” to do so. Unions warn the bill will only entrench casual work. The bill will also seek to cover employers exposed to up to $39 billion in claims, following a court ruling under appeal over misclassified casual workers. Part-time workers in the food, accommodation and retail sectors will have access to more hours but will forgo overtime payments under changes proposed by the Morrison government. The reforms planned for the three sectors hardest hit by COVID-19 are among measures announced under the omnibus bill. Under the proposal, part-time employees covered by 12 awards can agree to work additional hours on their usual rate of pay. Employers in 12 award areas hit hardest by the pandemic will be granted exemptions under the Fair Work Act for two years, enabling them to alter the terms of employment of their workers. As well, the better off overall test (BOOT), the safety net that underpins the enterprise bargaining system, will not just be diluted to make its interpretation by the Fair Work Commission less rigid, but, in some cases also will be able to be effectively bypassed for two years.
Unions are opposing the Coalition’s proposals for casual work, the creation of a new “part-time flexi” role, and a high bar set for wage theft penalties. The Australian Council of Trade Unions’ concerns include the proposed “part-time flexi” role allowing part-time workers in accommodation, food and retail to take on up to 16 hours a week of extra shifts without being paid extra for overtime. ACTU secretary Sally McManus said Labor and the crossbench should prevent the passage of the reforms through the Senate unless changes were made, including granting the industrial tribunal powers to force businesses to make some casuals permanent. McManus said she welcomed any laws that would address wage theft, but that the bar the Morrison government proposed was too high.
Construction, manufacturing and mining are set to cut the most jobs in both the short and long term and COVID-19 restrictions will only further exacerbate the shrinkage, according to a new report from the National Skills Commission. The report shows that over the next five years Australia’s restrictions on population flows due to the pandemic will subtract 25,000 jobs from the construction industry or 2.1% off the current workforce. In other words, more than two in every 100 existing workers will lose their job in the next five years. It is worse in manufacturing, where there will be a 2.5% contraction in the number of workers. Mining and agriculture are expected to be hit hardest as forecasts of lower exports and higher exchange rates, and the speed of technological adoption, carve off 27,000 or 11.2% and 16,400 or 4.9% respectively from those industries. However, the NSC notes it has used export forecasts from the International Monetary Fund as the basis of its modelling and these are likely to change. The winner from COVID-19 is the health sector, with healthcare and social assistance to see a 205,900 or 11.6% rise in jobs numbers. More jobs will also come for higher skilled workers in education and training (up 85,100 or 7.9%) and the professional, scientific and technical services (up 65,800 or 5.7%) over the next five years.
Prime Minister Scott Morrison has new powers to veto or scrap agreements that state governments and universities reach with foreign powers under laws that could stymie China’s Belt and Road Initiative in Australia and further inflame tensions between the trading partners. The laws passed by Parliament on Tuesday will give the foreign minister the ability to stop new and previously signed agreements between overseas governments and Australia’s eight states and territories, and with bodies such as local authorities and universities. Morrison’s government will be able to block or curtail foreign involvement in a broad range of sectors such as infrastructure, trade cooperation, tourism, cultural collaboration, science, health and education, including university research partnerships. An early target is likely to be an agreement the Victoria state government signed in 2018 to join President Xi Jinping’s signature infrastructure-building BRI. The laws could further worsen ties between Australia and its largest trading partner, which have been in free fall since April, when the prime minister called for an independent probe into the origins of the coronavirus. Beijing has since inflicted a range of trade reprisals, including imposing crippling tariffs on Australian barley and wine while blocking coal shipments. With the new law, the Morrison government will immediately examine whether to scrap Victoria’s Belt and Road infrastructure agreement with China. The Foreign Relations Bill gives Victoria three months to explain to the Federal government why the deal is in Australia’s national interest. Independent senator Rex Patrick failed to get enough support for the upper house to insist on an amendment making the foreign minister’s decisions subject to judicial review
Australia issued a warning on trade, saying uncertainties from its souring ties with China and the lingering impact of an earlier drought will push down the value of its agriculture exports. The value of shipments is set to decline 7% in 2020-21 to the lowest level in five years, according to a report from the government forecaster Abares. While that’s a slight improvement from its September estimate of a 10% slump, the downturn comes in a year of solid domestic production growth. Australia’s agriculture industry has borne the brunt of escalating trade tensions between Beijing and Canberra that threaten serious disruption for an expanding number of exporters. The most recent hit came last month, when China slapped anti-dumping duties of up to 212% on Australian wine on top of trade measures that impact other commodities including timber, barley and lobster.
Thermal coal exports to China from Australia’s busiest coal terminal have completely stopped amid escalating trade tensions and an unofficial Chinese ban on Australian coal. Newcastle is the largest coal port in the world and trade with China made up 20% of its exports last year. No ships have left for China in December and there are none listed in the schedule leading up to Christmas. Fourth quarter exports to China are down 82%.
The Transport Workers Union will test Qantas’ decision to outsource thousands of ground handling staff in the Federal Court. The union will allege that Qantas breached the Fair Work Act by outsourcing 2000 ground handling roles to third party contractors like Swissport and Menzies Aviation at 10 airports around the nation. The outsourcing is part of a broader cost-cutting drive at Qantas, which seeks to save $1 billion a year by the 2023 financial year as it recovers from the COVID-19 pandemic. About 370 more ground handling jobs at budget subsidiary Jetstar and 50 bus drivers based at Sydney Airport also face outsourcing. But the TWU court action only covers the ground handlers hit at the mainline brand.
The Council of Financial Regulators demanded banks, insurers and super funds improve fortification of computer systems, issuing a detailed new framework to govern a series of simulated cyber attacks.Banks have been ordered to adopt a proactive rather than a reactive stance to cyber security, including hiring new, independent teams of “red hat” hackers to secretly deploy the latest techniques against institutions to expose weaknesses. It comes ahead of industry-wide cyber resilience exercises to be overseen by the council – comprising Treasury, the Reserve Bank, APRA and ASIC. Under the Cyber Operational Resilience Intelligence-led Exercises framework, “red teams”, who will be shadowed by internal “white teams”, will use “advanced adversary simulation capabilities” including seeking to hack bank staff to get access to internal networks, “simulating a real-life adversary in a production environment”. The techniques will use “opportunistic malicious media drops and social engineering” and also “malicious insiders” to attempt to break defence policies. Once inside systems, adversaries will attempt to initiate payment instructions to steal money from banks. While banks, insurers and some super funds already use “red hats” to try to identify vulnerabilities and attempt to penetrate systems, under the new framework, there will be fewer traditional testing restrictions and attacks will take place over longer time periods, mimicking real-world threats. Under the simulation plans, attacks will go on for 12 to 14 weeks. The council said the simulations would re-create “tactics, techniques and procedures of real-life adversaries, creating and utilising tools, and using techniques that may not have been anticipated and planned for”.
Metcash said sales momentum has continued into the first five weeks of the second half as the supermarket operator and hardware retailer unveiled a profit rebound and higher dividend in the first half. Group revenue increased 12.2% to $7.1 billion and 12.3% to $8.1 billion including charge-through sales. Underlying profit after tax increased 43% to $129.6 million. Statutory profit after tax of $125.1 million compared to a loss of $151.6 million at the same time last year.
The corporate watchdog’s case against mining giant Rio Tinto and its former executives Tom Albanese and Guy Elliott has been pushed back until 2022 so both men can be vaccinated for the coronavirus before travelling to Australia to testify. While a vaccine is expected to be rolled out within months, the Federal Court has taken an ultra-cautious approach and decided to vacate the trial originally scheduled for March 2021 given the high infection rate in the US. The Australian Securities and Investments Commission launched civil court action against Rio Tinto, former CEO Mr Albanese and CFO Mr Elliott alleging they engaged in misleading and deceptive conduct over the valuation of the company’s Mozambique assets. Rio Tinto, Mr Albanese and Mr Elliott are vigorously defending the Australian case. The case centres on Rio Tinto’s 2011 acquisition of some coal assets in Mozambique for $US3.7 billion. Those assets were sold just three years later for only $US50 million. ASIC alleges Rio’s 2011 annual report misrepresented the value of the reserves. ASIC is seeking fines and to have both men barred from being a director of an Australian company. The court had been mulling potentially holding the trial over video conference, however, New Jersey-based Mr Albanese and London-based Mr Elliott both successfully argued it would be fairer to them to be in Australia during the trial to instruct their solicitors. The court was also facing the mammoth task of managing the trial across three locations in separate time zones – Sydney, New Jersey, London.
The Arnott’s Group, which owns some of most well known biscuit, cooking and soups brands in the supermarket aisle, will pour $8m into expanding its Campbell’s canned soup factory in Shepparton, Victoria to transform it into a hub for an expected fourfold lift in export volumes. The sizeable investment is being driven by a growing taste for the soups in Asia, in contrast to flatlining and in some categories declining sales in Australia, with the Shepparton plant to manufacture an extra 16.5 million kilograms of Campbell’s soups and stocks each year, reflecting a 30% lift in volumes. However, Arnott’s is not overexposing itself to the growing prickly trade relationship between China and Australia that could endanger its Asian export strategy as it has done to the nation’s wine, coal, barley and beef industries, and is focusing markets on China’s doorstep such as Taiwan, Hong Kong and Thailand.
And that’s it for this week. And next week, I‘ll be talking to Tammy Sherwood, CEO of Person Centred Care Australia with its app-based Mobile Care Monitoring for the aged. And I’ll be talking to AMP Capital chief economist Shane Oliver about the market and his predictions for next year.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Wishing you all a safe and healthy week and looking forward to bringing you Talking Business next week.