Kathryn Campbell goes on leave – – a day before the robo-debt royal commission makes its damning findings against her.

Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast    site, my own website, 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 or at Banking Day.

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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 24 in our series for 2023 and today’s date is Friday July 14.

First, I’ll be talking to Scott McKinnel, the regional manager for Tenable, to talk about website security. And I’ll be talking to EY economist Cherelle Murphy about the economic outlook for the new financial year.

And first, let’s talk to Scott McKinnel.  

So what’s happening in the news?

Meta Platforms’  Twitter rival Threads crossed 100 million sign-ups within five days of launch, CEO Mark Zuckerberg said on Monday, dethroning ChatGPT as the fastest-growing online platform to hit the milestone. Threads has been setting records for user growth since its launch on Wednesday, with celebrities, politicians and other newsmakers joining the platform that is seen by analysts as the first serious threat to the Elon Musk-owned microblogging app. “That’s mostly organic demand, and we haven’t even turned on many promotions yet,” Zuckerberg said in a Threads post announcing the milestone. The app’s sprint to 100 million users was much speedier than that of OpenAI-owned ChatGPT, which became the fastest-growing consumer application in history in January about two months after its launch, according to a UBS study. Twitter had nearly 240 million monetizable daily active users as of July last year, according to the company’s last public disclosure before Musk’s takeover, although data from web analytics companies indicates usage has dropped since then. Twitter’s web traffic was down 11% from the year prior in the days after the Threads launch, compared to the 4% it was down year-over-year as of June, according to Similarweb. Matthew Prince, CEO of internet infrastructure firm Cloudflare, shared a graph showing a similar trajectory in a tweet on Sunday and said Twitter’s traffic was “tanking.”

China’s economy teetered on the brink of deflation in June. Chinese core inflation, a figure that excludes energy and food costs, dropped to 0.4% from 0.6% the month before. Annual producer prices in the Asian superpower declined by 5.4% in June, which was the steepest drop since December 2015.  This added to calls for Beijing to launch a stronger stimulus package to sustain the country’s sputtering post-Covid recovery, increasing the risk of deflation in Australia’s largest trade partner and piling pressure on Beijing to launch stronger economic stimulus. Factory gate prices fell at the fastest pace since 2016 as demand for consumer and manufactured products softened. Analysts expected the figures to lead China’s central bank, the People’s Bank of China, to reduce interest rates again, adding to a round of cuts last month that many believe Beijing will have to supplement with fiscal stimulus policies. “China is still growing — the question is whether it will hit its target,” said Heron Lim, economist at Moody’s Analytics. “In terms of that recovery, it is still there, but the concern is it’s slowing down.” China is targeting gross domestic product growth of 5% this year as the economy emerges from draconian Covid-19 controls, but the recovery is proving fragile, with property prices and exports falling.

The Australian Securities & Investment Commission data on insolvencies, largely ignored in the period when record low interest rates dominated headlines, is now starting to reveal the true pain points for the nation’s manufacturing sector. While much is written about advanced manufacturing and its exciting future, here in the present the pragmatist has to deal with another surge in power prices from July 1, tight labour markets and a fractured global supply chain. Manufacturing companies entering administration for the first time jumped 94% to 93 from 12 months earlier, when 48 businesses had been tagged on ASIC registers as entering administration. Despite an increase in earnings for the manufacturing sector (up $7.3bn, 17.8%), according to the latest Australian Industry report from the Bureau of Statistics, pressure on margins is clearly evident in the ASIC data. The most recent June quarter data represents a 119% increase from the September 2021 period, as ASIC changed its releases to incorporate going-concerns entering administration for the first time. A cursory of major manufacturers such as Caltex, CSL and Amcor operating in Australia and with significant overseas footprints are benefiting from a weak currency, with the Australian dollar trading around US66.2c. This in stark contrast to the FX impact just over a decade ago when the manufacturing sector, having to contend with a mining boom fuelling the dollar to highs of $US1.20, saw the competitive advantage that smaller manufacturer-exporters had historically enjoyed eroded.  The hawkish posturing of the US Federal Reserve chair Jerome Powell may have provided a more accommodating foreign exchange rate but has not been able to ameliorate the rise in insolvencies around Australia’s industrial base, no doubt a cause for concern for policymakers in Canberra. Nationwide, New South Wales recorded 28 companies entering administration and 22 businesses in Victoria, a 100% increase on the same period 12 months earlier. In Queensland, 25 manufacturing businesses appointed administrators while Western Australia recorded 8. In the west, favourable business conditions, notably an iron ore price hovering at $US110 per tonne, provide a positive headline but demand for workers remains a challenge.  Prior to the temporary insolvencies protection rules implemented by the former Morrison government, the September quarter, typically a busy one for administrators, is set to reveal which businesses limped to the end of the financial year and could not get up again for another 12 months.  While former treasurer Josh Frydenberg was a noted fan of US-style Chapter 11 bankruptcies in adopting debt restructuring for companies, the downside for smaller operators is the costs associated with such filings. Once the lawyers are involved, it is hard to come back.

Consulting firm PwC has decided to repay in full the nearly $1 million it had received to evaluate the robo-debt scheme in a move welcomed by Government Services Minister Bill Shorten. In 2017, the Department of Human Services hired PwC to examine the scheme and provide recommendations in a final report, with an agreed fee of $853,859 excluding GST. But the firm never handed the department its final report, instead providing a PowerPoint presentation. PwC acting chief executive Kristin Stubbins said the firm had decided to hand back the fees following the royal commission’s final report. “Following the findings of the royal commission review into the robo-debt scheme, we do not feel it would be appropriate to retain the $853,859 fee for work carried out for the DHS on this matter,” she said in a statement. Government Services Minister Bill Shorten said it was better late than never. Shorten had directed his department to ask PwC for a refund of part or all of the fee to be returned. It is unclear whether the department had contacted PwC before the firm offered to return the money. In the robo-debt royal commission final report, commissioner Catherine Holmes, SC, said the letter of engagement between the department and PwC required the firm to set out key recommendations in a final report. “No report was ever delivered and instead, a PowerPoint presentation was made to the Minister for Human Services on 22 May 2017,” she said.

Former top public servant Kathryn Campbell went on leave from her $900,000 a year job with the Defence Department last week – a day before the robo-debt royal commission made damning findings against her.  There are now doubts within Defence over whether Campbell, who now advises the government on the AUKUS project,  will return from leave after the royal commission made a range of scathing findings including that she repeatedly failed to act  when the scheme’s flaws and illegality became apparent. Bill Shorten said he didn’t want to comment on specific individuals in the public service as that would be dealt with by “other jurisdictions and other people”. But Shorten said he understood “the general sense of the anger” from robo-debt victims. “They feel that people have got away with it,” he said. “I just want to assure them that they haven’t got away with it.” Senior Defence sources confirmed that Campbell was on leave from her role with Defence on Thursday and Friday as the damning findings were damning findings were handed down by royal commissioner Catherine Holmes, SC. Campbell served as secretary of the Department of Human Services between 2011 and 2017, the period in which the illegal income averaging scheme was introduced. The royal commission found that Campbell kept the true nature of the income-averaging scheme secret when advising cabinet because she knew then-social services minister Morrison wanted to pursue the program. It also found Campbell deliberately instructed her own legal team to discontinue a request for legal advice on the scheme and that she shelved a damning $1 million audit by PwC into the welfare crackdown just as it was about to finish because she feared its contents would be damaging. Multiple senior members of the Albanese government and the public service, who were not authorised to speak publicly, said they believed Campbell would have to resign from her role with Defence or would eventually be forced out.

The law firm that led the $1.8 billion Robodebt class action is potentially weeks away from launching a new case against Coalition ministers and senior public servants with lawyers arguing who really suffered egregious harm have not yet received proper justice. Gordon Legal partner Peter Gordon said he was considering filing action under the tort of misfeasance in public office, and was exploring other torts, in order to claim damages for victims who experienced indirect financial losses and pain, suffering and distress. Mr Gordon likened robodebt to “Australia’s Watergate”. “It has exposed systematic dishonesty right throughout the highest levels of government that was ongoing for years,” he told radio 3AW. “I hope that the government will now do the right thing by the citizens as it has so far done consistently since it won office.” Royal Commissioner Catherine Holmes SC’s scathing report published on Friday found “elements of the tort of misfeasance in public office appear to exist”, which has been seized on by Government Services Minister Bill Shorten. Gordon Legal has written to Anthony Albanese, Attorney-General Mark Dreyfus and Mr Shorten inviting them to discuss the potential legal action, which Mr Gordon said could be weeks or months away. Mr Gordon said lead applicants in the original class action were among those who had approached Gordon Legal to investigate whether other legal rights might be available to them.  While Gordon Legal would not name the possible defendants in a future case, Scott Morrison, Alan Tudge, Christian Porter, Stuart Robert and former Department of Human Services secretary Kathryn Campbell were among those most criticised by the royal commission.

Former public service chief Stephen Sedgwick will lead a task force investigating whether current and former federal bureaucrats referred to by the rob-debt royal commission should be sanctioned. The Australian Public Service Commission review of the commission’s final report is part of a four-pronged plan to bring to account politicians and federal public servants who the royal commission referred for possible civil and criminal prosecution. Mr Sedgwick, who was finance secretary in the 1990s, has been appointed as a special independent reviewer who will lead a task force to respond to the royal commission’s referrals. Public servant chiefs Prime Minister and Cabinet secretary Glyn Davis and Public Service Commissioner Gordon de Brouwer, in a joint email to 170,000 federal public servants, addressed the widespread sector shock at searing commission findings.  They said a taskforce led by the department of the Prime Minister and Cabinet, the Attorney-General’s department, and the Australian Public Service Commission will be established to support ministers in preparing the government’s response. The leaders advised of Mr Sedgwick’s appointment. They said he would make inquiries and determinations about whether an individual referred for inquiry has breached the APS code of conduct.  Both Professor Davis and Dr De Brouwer helped co-author the highly influential 2019 Thodey public sector reform report. It identified the same lack of citizen and community understanding—and digital and data immaturity—the robo-debt report exposed.

A partner at accounting giant PwC shared confidential information with others at the firm about a 2015 government requirement for multinationals to disclose key tax details, while discussing with them how to influence the Tax Office to gain benefits for PwC’s clients. The unnamed partner spoke to a senior tax officer in July 2015 on a confidential basis, and minutes later emailed details of the conversation to all PwC’s Australian tax partners and tax directors. The partner described it as “an opportunity to feed in suggestions [to the ATO officer] which may help influence definitional/interpretation aspects and/or free or defer certain clients from some or all” of the new measures. “Most off the record so pls [sic] be discreet,” the partner said of the tax officer’s briefing. This exchange – part of 144 pages of internal PwC emails that were released by the Senate last month – related to the government’s plan to introduce country-by-country reporting laws as part of a global initiative led by the Organisation for Economic Co-operation and Development against multinational tax avoidance. It shows that another partner at PwC had breached confidentiality at the same time that the firm’s former head of international tax, Peter Collins, was leaking Treasury documents. PwC has continually insisted that Mr Collins was the only one to breach confidentiality in sharing government plans about new tax laws. But in this exchange, Mr Collins was a recipient of the emails, not the sender. Last month, the Albanese government wound back its plans to build on the 2015 country-by-country reporting laws by making disclosures publicly available, after strong opposition from industry, the OECD  and the big four accounting firms, including PwC. In addition to the exchange about country-by-country reporting in 2015, the internal emails released by the Senate suggest a PwC partner forwarded a copy of a confidential OECD briefing document in 2014 to other partners in the UK and the US, warning that it was confidential and would embarrass PwC Australia if it was released outside the firm.

And that’s it for this week. And next week, I’ll be talking to Anita Wingrove, the managing director of leading search and leadership advisory firm Russell Reynolds Associates, about how boards can get a new breed of leaders. And I’ll be talking to Rabobank economist Michael Every about why China’s recovery is sputtering.

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