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CreditorWatch has warned more businesses will go under in the coming months as cost pressures from interest rates, inflation, wages and labour shortages bite deeper with payment defaults hitting a record high in February

https://play.acast.com/s/talkingbusiness/talking-business-7-interview-with-tim-rossanis-from-turo

 

 

 

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.

For the most exclusive access to leading economists and business leaders from around the world, subscribe  to Talking Business from my website leongettler.com.

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 7 in our series for 2024 and today’s date is Friday March 15.

First, I’ll be talking to I’ll be talking to Tim Rossanis, Managing Director of peer-to-peer car sharing pioneer Turo and former Head of Growth for Uber Retail. He’s well-positioned to speak about the rise of the sharing economy as Aussies continue to battle changing economic conditions.

And I’ll be talking to Rabobank economist Michael Every about the Chinese economy in the year of the Dragon.

But first, let’s talk to Tim Rossanis.

So what’s happening in the news?

US inflation unexpectedly increased to 3.2% last month, highlighting the challenge faced by the Federal Reserve in the “last mile” of its fight against rising prices. Economists polled by Bloomberg had expected annual consumer price inflation to remain unchanged from January’s rate of 3.1%. But Tuesday’s rise, largely stoked by services such as motor insurance and health, triggered warnings that the Fed may have to wait longer than previously expected before cutting interest rates from their current 23-year high. It also dents Biden’s re-election chances.

CreditorWatch has warned more businesses will go under in the coming months as cost pressures from interest rates, inflation, wages and labour shortages bite deeper with payment defaults hitting a record high in February. CreditorWatch said conditions would get more difficult and it believed up to four cuts to the cash rate would be needed before consumers started to feel comfortable making discretionary purchases, however this was unlikely to be until early 2025. The CreditorWatch Business Risk Index (BRI) showed that payment defaults from business-to-business transactions were at record highs, up about 50% in the past year to 122, as companies faced lower consumer demand.

Market heavyweights say interest rates may stay higher for longer amid structural economic changes and a higher long-term inflation rate, as the global economy adjusts to a new normal. Former treasurer Peter Costello said markets were probably too optimistic in their view that interest rates had peaked, and that there was a risk central banks would not start cutting rates as fast as markets were pricing in.  In January, Costello said that while inflation was easing, it remained outside the Reserve Bank’s target band of 2% to 3% and that strong labour markets, wage pressures and high energy prices were still feeding into price pressures.  BlackRock global chief investment strategist Wei Li said the long-term inflation rate would probably settle at a higher annual rate than in the past. “3% is the new 2% in this environment,” she said, noting rates were likely to stay higher for longer.

Billionaires such as Clive Palmer and Mike Cannon-Brookes will have their influence on politics dramatically curtailed as Labor moves to remove big money donations in the biggest shake-up to Australian election rules in a generation. The Albanese government will shortly begin briefing MPs on its plans to limit the amount donated to parties and candidates, in a move that will prove controversial among Coalition, Greens and independent MPs. In its legislation, the government will also seek to limit the amount spent in each electorate. But the rules will not apply until after the next election as Labor gives the Australian Electoral Commission time to administer the overhaul and seeks to avoid opposition claims it is trying to game the system to win a second term. Under the proposed changes, an individual, company or third-party group who could currently contribute an unlimited amount to a campaign would be banned from giving huge sums to parties, according to senior government sources. Legislation has not yet been finalised,, The government has not landed on a precise figure for the cap but it is likely to be in the tens of thousands of dollars. Introducing such a cap would mean donations such as the $117 million Palmer gave to the United Australia Party and the $1.2 billion Cannon-Brooks gave to Climate 200 before the last election would no longer be allowed. At the last election, UAP ran candidates in every electorate and won a single Senate seat, while six new Climate 200-backed independents were elected to the lower house, along with one senator and the re-election of four MPs.

There are fears hundreds of billions dollars worth of looming public infrastructure projects will deepen an already severe shortfall of skilled labour in the construction sector. Over the last few years the construction sector has taken the brunt of a confluence of factors which created the so-called profitless boom that sparked a surge in insolvencies including a string of well known company collapses. Last year the total share of construction sector administration appointments reached 33% of all company collapses – well above historic highs – as the sector started to slow after a period of surging demand sparked by low interest rates, first homeowner and HomeBuilder grants in the residential sector. While some of the issues behind the profitless boom such as rampant material cost increases and supply chain issues have settled, demand for skilled labour has never been higher with a long list of infrastructure projects around the country forecast to suck up skilled tradies. According to Infrastructure Australia, there is a major public infrastructure pipeline valued at $230bn over five years while at the same there is a target of building 1.2 million new homes as well as major investment in the energy sector. It said Australia’s infrastructure workforce will need to grow by 127% to meet demand.  Michael McNab, managing director and founder of the diversified South East Queensland builder McNab, said while the rise in construction costs and supply chain issues have “settled down” he was concerned over the ambitiously high public infrastructure rollout.

The decline in physical bank branches and ATMs will continue as customers abandon cash transactions but the move risks marginalising less tech-savvy people or those whose first language is not English. The warning from analysts and industry experts comes as the trend towards shutting branches in the banking sector continues apace. Commonwealth Bank last week said it would close 45 of its Western Australia branches under CBA-owned brand Bankwest and switch to servicing affected customers by digital means only. Since 2017, major banks’ reported branch closures, including those at Bankwest, have totalled roughly 1422 according to the Finance Sector Union. The union’s national assistant secretary Jason Hall on Wednesday took aim at CBA and Bankwest, arguing closure of the branches would cost about 350 jobs and disadvantage customers. “A range of Bankwest customers will be badly affected including the most vulnerable in our community,” Hall said. “Worst affected will be the elderly, First Nations customers, people whose first language is not English, and others who are not computer literate.” CBA group executive of retail banking Angus Sullivan said the bank would continue to support customers and employees with 500 roles in technology, operations, and customer service to be redirected to WA to support Bankwest’s digital transition, and 15 regional Bankwest branches to be converted to CBA branches this year.

Treasury estimates reforms – which will come into effect on 1 July – will ease cost-of-living costs for businesses and families to the tune of $120 million over four years and raise declining productivity levels. Businesses will save over $30 million in compliance costs per year, says Treasurer Jim Chalmers, adding the tariffs will “streamline” over $8.5 billion worth of annual trade. From pharmaceuticals to cotton, footwear, toothbrushes and musical instruments, a range of imported goods that often arrive under concessional rates will become easier to import. The reform aims to slash away at excessive red-tape in a patchwork system that requires importers to justify their use of tariff concessions. Treasury said the tariffs on targeted imports “do nothing to protect Australian businesses” since they often arrive under a concessional rate. The Productivity Commission defined “nuisance” tariffs as those that raise minimal revenue for the Government, have little benefits for Australian producers, and impose compliance costs on businesses. Given most affected imports are duty-free, the potential consequences for Australian producers in cutting the tariffs will be minimal, said Treasury. “This means that businesses spend time and money proving their imports are eligible for existing tariff preferences and concessions,” it added. Menstrual and sanitary items will also be affected by the changes which the Government said will “align” with GST cuts on these goods. In 2022, the Productivity Commission reported that compliance and administrative costs related to proving preferential tariff agreements and concessions are “wholly or at least in part passed on to consumers.” In 2019-2020, businesses spent somewhere between $700 million and $2.2 billion on these compliance costs, said the report. In the same financial year, the Government raised only $1.5 billion in general tariffs. In 2022-23, the general tariff raised only $1 billion, contributing less than 1% of overall Government revenue. Unilateral trade liberalisation has been an ongoing process since at least the 1970s, with a partial exception of recession-era tariff increases in 1975. According to DFAT, the average (import-weighted) tariff rate applied in Australia fell from above 7% in 1986 to below 1% while individual tariffs have fallen from a maximum of around 90% to 5%. In 2016, by value, 79% of all imports to Australia attracted no tariff.

Climate Change and Energy Minister Chris Bowen has indicated Labor will soften the edges of its new vehicle emissions standard, as he conceded Australia was attempting to introduce the change at a much faster rate than other countries. With the consultation period finished, Mr Bowen said while the government would not be “bullied” out of acting, it was prepared to accept changes proposed by those in the industry who backed the need for an emissions standard and wanted the scheme to work. Motoring groups and manufacturers accept the need to adopt the standards but have argued the proposal to force the industry to reduce new car emissions by more than 60% in just five years, with little flexibility, will either price out, or drive out vehicles from the market, before there are affordable and equally capable low-emission alternatives. Most concern centres around utes and SUVs which are Australia’s top-selling vehicles. Under the policy, which begins on January 1, manufacturers will have to ensure their entire fleet of new vehicles meets an annual emissions cap. There will be one cap for smaller cars and another for light commercial vehicles (LCVs), such as utes. The caps will be lowered each year until 2029. Manufacturers can offset the emissions of their dirtier cars, such as diesel utes, by selling more electric and low-emission vehicles, or buying credits from those who beat the cap, such as EV maker Tesla. Appearing on the ABC’s Insiders program, Mr Bowen did not provide details but hinted one problem was the proposal to classify large SUVs as passenger vehicles rather than light commercial vehicles, even though SUV models like the Ford Everest and the Isuzu MUX, have the same chassis and engine as the respective Ranger and D-Max utes. Mr Bowen also hinted at applying credits and carve-outs that apply in the US scheme, which Australia is trying to emulate. He accepted the proposed pace of change in Australia may be too ambitious, given the government was trying to catch up after the inaction of its predecessor.

Wealthier Australians will pay more for aged care under a long-awaited government review, which calls for retirees to make rental contributions instead of large lump sum deposits to live in nursing homes. Ruling out a new tax or levy to pay for aged care, as well as any change to means testing on the family home, the review proposed new co-contributions for daily living expenses and accommodation costs in residential facilities. If adopted by Labor, retirees being cared for at home will also pay more through a fee-for-service model, with government funding primarily focused on care provision. The plan aims to stabilise the aged care industry and provide greater choice for retirees and their families. Released by Aged Care Minister Anika Wells on Tuesday, the report said demand for quality services was increasing at the same time as more elderly people had the means to pay more. Healthy superannuation balances and falling reliance on the age pension make the changes possible, the report said. A growing proportion of people aged 85 will have remaining savings in the next two decades, including those with “significant funds” available. Health Department analysis suggests government spending of $37 billion, in 2024 would be required to build the rooms needed for older people by 2050. By 2030, about $5.5 billion would be needed for refurbishment and upgrades, growing to $19 billion by mid-century. “Current funding arrangements will not deliver the required amount of capital funding,” the report said. Ahead of a demographic time bomb – with a  doubling of people older than 65 and the percentage of the population in the workforce falling – Labor is conscious that aged care is politically sensitive. Labor delayed the release of the report until after this month’s Dunkley byelection. The plan, designed by an expert taskforce led by Ms Wells and former senior Treasury official Nigel Ray, said existing lump sum payments known as refundable accommodation deposits will be phased out by 2035, in favour of a rental only model. This is a decade later than the phaseout proposed by the 2021 Aged Care Royal Commission, which was deemed “too aggressive” and would disrupt the sector too much, putting service availability for older people at risk. Under existing rules, the deposits can be used as a significant source of funding for capital investment, acting as an interest-free loan to providers. The deposit is refunded in full when a resident leaves or dies. Moving to a rental-only model would give providers greater certainty about cash flow and remove the risk of insolvency from large liabilities which can fall due at any time. A periodic rental payment would also support equity in the contributions of residents, the report said. The report warned that existing payments for daily living activities in residential care were causing providers to make a loss of $4 per resident per day. Across the sector, two-thirds of residential aged care providers reported a net loss in 2021-22, equating to a combined $2.26 billion. A new basic daily fee structure is recommended, with a supplement in place to stop providers’ banking losses. The cost, currently $61 per day, would continue to be maintained as a percentage of the age pension. Residents would be able to negotiate a better deal or premium services for a higher fee, with providers required to publish pricing schedules, provided participants have already entered care. Currently, the vast majority of aged care costs are met by the federal government. The average contribution of residents is $6000 a year and the contribution is capped at $32,000 a year and $76,000 for a lifetime. The federal government’s total cost of aged care is projected to surge from $24.1 billion in 2021-22 to an estimated $36 billion in 2023-24 and $42 billion by 2026-27.

Communities will be consulted and “incentivised” to adopt nuclear power, Opposition Leader Peter Dutton said as he amplified his case for the energy source to play a central role in Australia reducing its emissions. Mr Dutton also pledged to “ramp up” the domestic production of gas to help firm renewable energy. He also hinted at an expansion of rooftop solar, as already flagged by Nationals leader David Littleproud, as an alternative to large-scale renewable energy projects and the thousands of kilometres of transmission infrastructure that those will require. In setting the scene for his nuclear announcement, Mr Dutton outlined three principles that will guide the policy. “First and foremost, we want to get the highest yield of energy using the smallest amount of land,” he said. “We want to maximise the amount of energy we can obtain per square metre and minimise our environmental footprint.” This, he said, will be achieved by putting reactors on or near the sites of old coal-fired power stations so they can use the existing transmission grid. The second principle will involve seeking a “social licence” for the policy “by listening to and incentivising communities to adopt nuclear power”. A third principle is that the Coalition will put people at the centre of its energy policy by making lower energy bills a key consideration. Mr Dutton dared the government to lift the nuclear power moratorium and let the market decide. But energy experts continued to cast doubt on the feasibility of the Coalition’s approach. Carbon Market Institute chair Kerry Schott said she was technology neutral but nuclear “really does not make sense for Australia”. “Nuclear by far is the most expensive,” she said. “It really doesn’t make sense for Australia because we have so much renewable energy resources.” She said firming wind and solar with hydro and “a little bit of gas” until hydrogen was commercially available was “by far the cheapest and easiest”. She did, however, agree, that putting solar panels on every rooftop would alleviate the need for Labor’s 28,000 km of transmission infrastructure. Mark Hutchinson, chief executive of Fortescue’s energy division backed removing the moratorium on nuclear power, but said the market was unlikely to invest in nuclear power.

And that’s it for this week. And next week, I’ll be talking to Gartner director of HR Advisory Neil Woolrich to talk about the future of work including remote / hybrid work, strategic workforce planning, employee experience, and engagement,

And I’ll be talking to CommSec chief economist Craig James about what’s happening in the market in the week ahead.

For the most exclusive access to leading economists and business leaders from around the world, subscribe to Talking Business from my website leongettler.com.

If you like Talking Business, please leave us a review with Apple podcasts. Thank you in advance.

In the meantime you can catch me on Facebook, Twitter, Instagram, LinkedIn and YouTube. And if you want leave a comment.

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