Australia’s misery index has skyrocketed & is almost on par with the GFC period.

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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 19 in our series for 2023 and today’s date is Friday June 9.

First 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. 

But now let’s talk to Dr Pfeiffer.

So what’s happening in the news?

The treasurer, Jim Chalmers, has signed the cheque’s death warrant to end its use in Australia by 2030, as part of a range of payment reforms for the digital era. In a speech delivered to the Australian Banking Association in Sydney on Wednesday, Chalmers said there had been a 90% decline in the use of cheques over the past 10 years alone but it remains a legacy payment method, while other economies have transitioned to digital payments. Chalmers said that 98% of personal cheques and 100% of those used in institutional and commercial settings could be serviced through internet or mobile banking, and that using cheques is a more costly way of doing business.  The government will now begin the process of winding down the use of cheques across the banking system, with federal departments to use other payment methods by 2028. A goal has been set to end the use of cheques completely in 2030.

New data has revealed the growth of Australia’s “misery index” is almost as high as it was during the global financial crisis, due to climbing inflation and interest rates.  During 2022, the index jumped by almost 220%, compared to a 62% increase in the 12 months to the start of the GFC in 2007-2008. The index has tracked inflation, interest rates and unemployment in Australia since 1960s. The analysis by University of Melbourne economists Guay Lim and Sam Tsiaplias showed the index would likely remain high for some time.  Despite inflation retreating slightly in recent months, the unemployment rate and interest rates had continued to rise.

The Reserve Bank has lifted its official interest rate to 4.1%. The cash rate is currently at its highest level since April 2012.The bank’s board decided to lift the cash rate target by 0.25 of a percentage point. RBA governor Philip Lowe said “some further tightening of monetary policy may be required” The RBA is particularly concerned about the stickiness of inflation, particularly in the service sector. Domestic sources of inflation appear to be holding up, even as foreign sources of inflation start to subside. If high inflation becomes entrenched in expectations then it will require aggressive hiking – above and beyond what we have seen thus far – to contain. The most recent monthly consumer price index from the Australian Bureau of Statistics showed prices rose 6.8% over the year to April, up from the March reading due to some statistical noise caused by last year’s temporary fuel excise cut.

PricewaterhouseCoopers has identified a list of 76 current or former partners associated with its tax leaks scandal, handing over their names to Australian lawmakers. “We’ve heard the calls from our stakeholders to release the names of those who were responsible for confidentiality breaches and we’ve been working as quickly as possible to determine that and to disclose these names to the Senate per their request, and we have now done so,” PwC Australia acting Chief Executive Officer Kristin Stubbins said in a statement Monday. In an email to partners on Monday, Stubbins said former partners Michael Bersten, Peter Collins, Neil Fuller, and Paul McNab were involved in breaching confidentiality.  Stubbins added that the names of nine others who were placed on leave last week have been provided to a Senate committee and promised to take appropriate action. The firm also handed over a list of an additional 63 current or former partners and staff who received at least one email containing confidential information, noting those people may not have been aware of the confidentiality breach. The Australian arm of the global consulting giant has been under pressure following revelations that a former senior partner obtained confidential tax policy information while advising the government and the firm then used it to advise global clients. The firm stands to lose millions of dollars in revenue thanks to its breach, as clients review their relationship with the consultant. 

The entire business community, including miners and farmers, has declared war on the Albanese government over its proposed labour hire laws, arguing the changes will remove reward for effort and ultimately stifle wage and business growth. In the biggest joint campaign of its type, eight peak organisations have launched a multimillion-dollar campaign – which they vow will run indefinitely if need be – and which mocks the government’s “simplistic” sales pitch that cracking down on the use of labour hire was about “same job, same pay” The laws will spearhead the government’s second wave of industrial relations reforms to be introduced in the latter half of the year and which also includes a crackdown on the gig economy, measures to reduce the use of casuals, and criminalising wage theft. Business and industry groups – which feel they were used as props by the government at last year’s Jobs Summit, which produced the first wave of IR changes, including multi-employer bargaining – say they are going to stand and fight this time. The campaign argues the IR agenda, like the first wave, is a union agenda, and the consultation process on labour which has been going for months, has been a sham.

Australian Prime Minister Anthony Albanese expects an upgrade in diplomatic relations between his country and Vietnam to a comprehensive strategic partnership soon, he said during his first visit to the Southeast Asian country. Australia and Vietnam are targeting to boost bilateral trade to $20 billion. Last year, their trade was about $15.7 billion, according to Vietnam’s Ministry of Foreign Affairs.  The cooperation agreements include establishing ministerial-level trade talks and exchanging intelligence sharing on money laundering and terrorism financing. Albanese, who met senior government officials and Communist Party Chief Nguyen Phu Trong announced a A$105 million ($69.4 million) assistance package to support Vietnam’s transition away from coal.  Australia has signed comprehensive strategic partnership agreements with several other Southeast Asian nations in the past decade, including Indonesia, Singapore and the ASEAN grouping.  Both Australia and Vietnam had previously expressed a hope to elevate their relationship to a similar level by 2023.  Vietnam is an important part of Australia’s ongoing policy of trade diversification, which ramped up in recent years following a decision by the Chinese government to place sanctions on a range of Australian agricultural products, such as wine and barley.  Vietnam has since become an important new destination for Australia’s barley, making up 13% of the country’s entire barley exports in the financial year ending June 2021. 

The country’s competition regulator says the federal government should establish an independent agency to deal with consumer complaints against airlines, and has urged it not to wait until next year to act on the growing dissatisfaction surrounding flight cancellations and delays.  Gina Cass-Gottlieb, in her most direct intervention into the debate about airline performance and profit, also said that carriers should be fined for cancelling flights and made to compensate passengers as is the case under European rules. Customer frustration remains high in the airline industry even as the pandemic-induced pressures on fares and the staff shortages that forced flight cancellations recede. The rate of delays and cancellations remains well above average, and smaller local airlines and international carriers say Qantas and Virgin Australia are locking them out of routes. “We can see enough of a sustained level of failure on service reliability and the level of complaints from customers that we think there should be a definitive, independent and external scheme that will hold them to account,” Ms Cass-Gottlieb said. The Australian Competition and Consumer Commission had first called for airlines to face financial penalties for flight cancellations as part of its submission to a review into how demand for gate access was managed at Sydney Airport. Industry sources complain that both Virgin and Qantas rotate flight cancellations among their services to avoid breaching the 80% threshold at which the slot will be surrendered. The federal government is due to release a broader policy proposal for the industry next year, but Ms Cass-Gottlieb said Infrastructure, Transport and Regional Development Minister Catherine King could act to establish an aviation sector ombudsman this year.

The competition watchdog has called for carriers to pass on falling fuel costs via ticket prices, as it warned consumers are not being served well enough by domestic airlines.  In its final airline monitoring report, the Australian Competition and Consumer Commission said there was evidence market domination by Qantas and Virgin Australia was hurting customers — with service reliability worse and fares higher than in 2019.  “At the same time, (airline) costs have reduced. Jet fuel has almost halved in price and we’re hoping to see those reduced costs passed on,” ACCC chair Gina Cass-Gottlieb said.   “In the current cost of living environment we think that is why we’re starting to see some tailing off of what were very high levels of pent-up customer interest to fly because price levels are just too high for many families to afford.”  The ACCC report made the point that domestic passenger numbers in the normally busy month of April actually declined from the previous month, and remained below 2019 levels. Ms Cass-Gottlieb also raised concerns about the market domination of the Qantas and Virgin Australia groups, which carried 94% of all domestic travellers.

The Australian government is looking for “a way forward” to compensate families of victims of alleged war crimes in Afghanistan, the defence minister has told legal advocates. But officials continue to warn about the complexity of the compensation issue, one of the key outstanding recommendations from the landmark Brereton inquiry into alleged war crimes by Australian special forces soldiers. Human rights and legal groups have stepped up their calls for a compensation plan in the wake of Thursday’s federal court ruling dismissing the defamation case brought by former Australian solider Ben Roberts-Smith. The government has not commented on the case itself, saying it is not a party to the civil proceedings, but has restated its commitment to acting on the Brereton report. The four-year-long inquiry by Maj Gen Paul Brereton found “credible” information to implicate 25 current or former Australian special forces personnel in the alleged unlawful killing of 39 individuals and the cruel treatment of two others. Brereton’s report said Australia need not wait for a court to establish criminal liability before making compensation payments. He argued that if there was credible information of an unlawful killing it was “simply the morally right thing to do” to pay compensation swiftly. He also said such steps would help restore “Australia’s standing”. The government is working through options on the issue of compensation, but has yet to made a decision.   The defence minister, Richard Marles, emphasised his personal commitment to action in a letter to the Australian Centre for International Justice, a not-for-profit legal centre that aims to combat impunity. Marles told the group that since taking office, he had “made it a priority to engage with Defence on the implementation of all of the recommendations arising from the Afghanistan inquiry”.

As excitement around artificial intelligence explodes, the national science agency CSIRO and fund manager Alphinity Investment Management have joined forces to build a framework to help investors identify “responsible” AI. While environmental, social and governance (ESG) investing has become a core framework for many investors, CSIRO research director Liming Zhu says the rapid growth of AI has left gaps in the understanding of how the technology should be considered in line with ESG frameworks. Responsible artificial intelligence is the practice of developing and using AI systems in a way that provides benefits to individuals, groups and wider society, while minimising the risk of negative consequences. Alphinity’s head of ESG and sustainability, Jessica Cairns, said discussions about AI and its ethical implications in the firm began two years ago as it had big technology names such as Google, Microsoft and Apple in its portfolio, but AI risks and opportunities have since become increasingly relevant to sectors beyond IT. While Cairns said there were “significant benefits” to integrating AI into businesses, including greater access to information and increased business efficiency, the technology posed substantial risks – both to businesses directly and to the systems within which they operate. Most sectors are using AI in one form or another, but Cairns pinpointed the financial services industry as one of the most interesting users, with banks harnessing AI to power processes such as credit scoring, pre-application screening, transaction monitoring and fraud detection.

The country’s big four banks are set to shed tens of thousands of jobs in coming years as generative artificial intelligence takes over more of their core operations, from approving home and small business loans to handling standard foreign currency transactions. How do we know this? Because ChatGPT – the most famous generative AI application – said so. When asked how AI would affect the financial services industry, ChatGPT noted that “AI technologies can automate various tasks and processes in financial services, such as data entry, document processing, customer support, and fraud detection”. This automation, it added, “improves efficiency, reduces errors, and allows employees to focus on more complex and value-added activities”. ChatGPT clearly sees a role for AI in enhancing the customer experience. “AI-powered chatbots and virtual assistants can provide personalised customer support, answer inquiries and handle routine transactions,” it said. AI also has a role to play in financial risk assessment and fraud detection. According to ChatGPT, AI algorithms “can analyse large volumes of financial data to identify patterns and anomalies that may indicate fraudulent activities”. But the more sensitive issue for the country’s banks is that AI can also be used in their core lending operations, eliminating – or reducing – the need for loan assessment officers. It’s hardly surprising that when asked which jobs were most at risk from AI, ChatGPT nominated data entry clerks, customer support representatives, risk analysts, loan underwriters, those working on the trading floor, as well as those involved in back office operations, such as fraud detection and compliance checks. Still, ChatGPT was modest enough to concede that “while AI can automate certain aspects of these roles, it often augments human capabilities rather than completely replacing them”. As a result, “many banking jobs will continue to require human skills, such as critical thinking, complex problem-solving, relationship management and decision-making, which AI currently struggles to replicate”.

Australian universities have produced their worst financial results in history with a combined $1.3 billion loss, with only five of the 29 that have reported their 2022 accounts being in surplus and only one improving its financial position on the year prior. Experts put the extreme volatility down to the COVID-19 pandemic, which had a dire impact on international student revenues in some – but not all – universities. The pandemic also spurred on “opportunistic” job redundancies and cost-cutting, which drove surpluses in 2020-21. But having shed an estimated 27,000 jobs in 2021, most institutions were forced to rehire staff in 2022 as campus life and in-person teaching resumed some level of normality. Only one of NSW’s 10 universities was in surplus in 2022. The University of Sydney was in the black to the tune of $302 million, but that was $700 million less than its 2021 surplus. A similar picture emerged in Victoria where only one university – La Trobe – posted a surplus, of $38 million. However, because of a quirk of accounting protocols in the higher education sector that counts one-off grants and payments, such as for research and philanthropy, in the net result, La Trobe only made it into the black thanks to a $45 million donation to autism research.  However, severe deficits have also not had much influence on vice-chancellor salaries.  Ten vice-chancellors earned $1 million-plus salaries in 2022, with the University of Melbourne’s Duncan Maskell the most highly remunerated with a package of $1.5 million, unchanged from 2021. Five of the 10 vice-chancellors earning more than $1 million are female. Those who received the highest pay jumps were John Dewar at La Trobe, Alec Cameron at RMIT, Patricia Davidson at Wollongong, Alex Zelinksy at Newcastle and Harlene Hayne at Curtin.

As a swag of polls show support for the Voice is faltering, an increasing number of corporates have declared they will take an impartial position on the referendum, in contrast to the supportive stance many took for the 2017 marriage equality postal vote. Companies such Orica, EnergyAustralia and Dow Chemical will not advocate in support of an Indigenous Voice to parliament, but have vowed to inform employees about constitutional change and to equip them to have respectful debates about Indigenous reconciliation. Westpac emerged as the only corporate heavyweight to publicly advocate a “yes” vote in the upcoming referendum, with institutional bank chief executive Anthony Miller calling the Voice “a leadership moment” for Australia’s oldest bank.  However, many other leaders said their outfits were still considering whether they would take a position, but all felt a sense of responsibility to help employees inform themselves about the choice they had to make.

Mortgage arrears are climbing as borrowers run down their savings and collide with a tighter refinancing market that has escalated financial stress, S&P Global says. The credit ratings agency observed arrears in residential mortgage backed securities rose notably for both prime and less stable non-conforming securities, attributed to “rising interest rates and cost-of-living pressures weight on debt serviceability”. The worst hot spots for arrears in NSW are the Blue Mountains suburb Katoomba (5.6% of loans in arrears), the Sydney suburbs Bonnyrigg (4.9%), Dolls Point (4.9%) and Allaway (4%), and the Southern Highlands suburb of Alpine (4.5%). Forrestfield in Western Australia (4.9%), Avoca Dell in South Australia (4.1%) and Barkly in Queensland (4%) underperformed. In Victoria, Broadmeadows (4.1%) and West Melbourne (4.2%) stood out for arrears.

And that’s it for this week. And next week, I’ll be talking to film maker Michael Budd 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.

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 Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week