A complete analysis of the Albanese government budget.

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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 15 in our series for 2023 and today’s date is Friday May 12

I’ll be talking to Glenn Cross, the Chair of EZZ Life – an ASX listed company that researches and develops a broad range of products to enhance health and wellness. And I’ll be talking to EY economist Cherelle Murphy about the Budget.

But now let’s talk to Glenn Cross.

So what’s happening in the news.

Berkshire Hathaway’s Warren Buffett said executives in charge of failed banks should be held accountable for mistakes that in some cases were hiding in “plain sight.” Buffett also called out regulation overseeing the banking sector as riddled with skewed incentives, as well as poor messaging by regulators, politicians and the press to the American public about the upheaval. The turmoil began with the liquidation of a small crypto-friendly lender in early March before it spread to engulf three other regional banks. Buffett also pointed to First Republic Bank, which JP Morgan Chase & Co. just rescued. First Republic’s filings showed the lender was offering jumbo, non-government-backed mortgages at fixed rates and in some cases for ten years — “a crazy proposition,” Buffett said. “It was doing it in plain sight and the world ignored it ‘til it blew up,” Buffett said.  Much of the issue stemmed from piles of securities held by the banks that had lost value as interest rates rose. That poured spotlight on accounting classifications for recording value of the securities.

Weight loss brand Jenny Craig has filed for bankruptcy and has begun liquidating its operations in the US after efforts to ease a cash crunch fell short.  Jenny C Holdings LLC and affiliates filed for Chapter 7 bankruptcy on Friday in Delaware, court papers show. The move means Jenny Craig will cease operating and see its assets sold off in pieces.  Jenny Craig acknowledged the wind-down on its website. Customers’ auto-delivered subscriptions have been canceled, while coaching sessions and merchandise sales have ceased, the company said. Since founder Jenny Craig opened the company’s first brick-and-mortar location in 1983, diet fads have changed dramatically. Weight-loss drugs, at-home exercise machines and health-food stores have reshaped the industry landscape. 

The Albanese government has unveiled a $15 billion package of cost-of-living relief, welfare increases, bulk-billing incentives and energy bill discounts, in a budget it says is not inflationary, but paves the way for more tax hikes and spending restraint. Handing down his second budget, Treasurer Jim Chalmers warned there would be more “difficult decisions”, as he confirmed tax hikes to help fund a cost of living package, which includes $9.5 billion in welfare increases, $3.5 billion in Medicare incentives to lift the rate of bulk-billing, and $3 billion in one-off energy bill discounts. The welfare increases – which involved a $4.9 billion boost to the dole, $2.4 billion for a 15% increase to rent assistance, and $1.9 billion for single parents – would have a negligible impact on inflation because they were spread over four years in a $2 trillion economy. Pointing to a $4.2 billion surplus this financial year, Chalmers claimed his economic plan would deliver a “stronger economy and a fairer society” even though economic growth is forecast to slow to just 1.5% next financial year. The brief surplus will be followed by deficits of $13.9 billion next year and $35.1 billion in the subsequent year, sparking debate about whether tough policy decisions on the stage 3 tax cuts will be needed to end more than 15 years of structural deficits.

Australia is heading for the most benign of soft landings, with Treasury predicting a robust labour market, rising wages and continuing business investment, although it concedes that persistent inflation could cast a shadow over its forecasts. Treasury expects real, or inflation-adjusted gross domestic product (GDP) growth will ease from 3.25% this financial year to 1.5% next year, before promptly rebounding to 2.25% in the 2024-25 financial year. Consumer spending growth is expected to rise by a modest 1.5% in 2023-24 financial year – down from the very strong clip of 5.75% this financial year – as higher interest rates squeeze household budgets. Inflation is also forecast to subside from its peak of 7.8% in the final three months of 2022 and to return to the Reserve Bank’s target range of between 2 and 3% in 2024-25. Significantly, Treasury expects that price pressures will ease despite a buoyant labour market, which is driving faster wage rises. The unemployment rate is expected to remain at a near 50-year low of 3.5% in the June quarter of this year, before edging up to 4.25% by the June quarter of 2024 and 4.5% the following year.

The Albanese government is expected to bank a further $22 billion in revenue from record iron ore and coal prices in future budgets after Treasury was forced to update its price assumptions for key commodities. Soaring iron ore and coal exports have helped deliver a strong trade surplus this financial year and higher than expected commodity prices also helped deliver a $4 billion budget surplus this financial year, the first surplus in 15 years. The terms of trade are expected to decline sharply in 2023-24 as iron ore and coal prices fall back to historic averages – but it will take twice as long for prices to fall as far as originally predicted by Treasury. After under-estimating resource prices in the October budget, Treasury officials have been forced to change their assumptions, predicting iron ore and coal prices will take four quarters – instead of two quarters – to return to long-term averages. The move will add a further $22 billion to the budget bottom line, according to Treasury estimates. 

A $2bn program to underwrite large-scale green hydrogen projects headlines a list of new spending initiatives designed to make Australia a ‘renewable energy superpower’. Tuesday’s budget included a total of $4bn in new measures to support the nation’s energy transition as global competition for transition-linked capital intensifies. The government said its Hydrogen Headstart program would provide revenue support for large-scale renewable hydrogen projects through ‘competitive hydrogen production contracts’, which would help ‘bridge the commercial gap’ for early-stage projects. The government said the investment would put the country on course for up to a gigawatt of electrolyser capacity by 2030 through two to three flagship projects. However, it is not clear how the competitive production contracts used to distribute the $2bn in funding will work, and government officials are believed to still be consulting with industry about the details of the scheme. The measures are likely to fall short of the broadbased subsidies industry have called for to support the development of a local hydrogen industry in the face of the massive packages on offer in the US and other competing jurisdictions.

The taxman plans to raise an extra $3.8 billion in GST by extending a compliance crackdown on businesses as part of the government’s efforts to lift tax receipts and repair its bottom line. Multinationals also face a new minimum tax rate, while gas companies will be taxed an extra $2.4 billion over five years under changes to the Petroleum Resource Rent Tax that were announced in the lead-up to the budget. The budget showed the government expects to raise substantial extra revenue from the business world over the next four years, though this is mainly because of upgrades to its economic outlook and high commodity price assumptions. Among the policy changes to raise more revenue, an extension in a GST compliance program is the biggest initiative, raising $3.8 billion over the next four years. The government said the program would involve giving the Australian Tax Office an extra $588 million to continue with “a range of activities that promote GST compliance.” Global companies are also in the taxman’s sights, with the budget confirming Labor would introduce minimum tax rates of 15% for big multinationals. The measure, which implements an election commitment and is part of a global effort to counter tax-dodging, is expected to raise $370 million over five years. Earnings on superannuation balances over $3 million will be taxed at an increased rate of 30%, up from 15%, from July 1 2025. But these revenue-raising measures were dwarfed by the big upgrades in expected company tax receipts, thanks to buoyant conditions in the resources sector. Since October, the government has raised its forecasts for company tax receipts in the coming financial year by $28.9 billion, and it now expects to collect an extra $52.7 billion in company tax over the five years from 2022-23. As for support measures, the budget announced a tax break allowing small firms to deduct the full cost of eligible assets costing up to $20,000.

On the revenue-raising side, the budget also includes a change to the Petroleum Resource Rent Tax,  paid by oil and gas companies on their offshore liquefied natural gas projects, which will bring in $2.4 billion over the next four years. The government already announced a 5% a year increase for the next three years on the fax on tobacco. which will bring in an additional $3.3 billion over four years.

The Albanese government will spend $1.9 billion giving single parents an extra $176.90 a fortnight in welfare payments, winding back a controversial welfare cut  Labor helped implement when last in government. Landing in Perth after a week in Britain, Prime Minister Anthony Albanese announced on Monday morning that the single parenting payment would continue to be paid until the youngest child turns 14, up from the current cut-off age of eight. reverses a controversial change that pushed single parents onto the lesser-paying dole when their youngest was still in primary school. The government baulked at returning the age to the original cut-off of 16. Mr Albanese argued a child was sufficiently independent at 14 for the parent to do some work.

Westpac’s s   statutory profit rose 22% to $4bn for the six months ended March 31, compared to $3.28bn in the same period a year earlier.

CBA’s unaudited third-quarter net profit rose 10% to $2.6 billion from the year-earlier period and firmed 1% against the first half.

Chemist Warehouse is facing a test case over underpayments that could grow into a $10 million backpay bill for hundreds of its stores across the country. The Shop Distributive and Allied Employees Association has taken legal action against four of the discount pharmacy’s South Australian franchisees, owned by co-founders Jack and Sam Gance and group head Mario Verrocchi, for allegedly underpaying nine staff while working higher duties. The union argues that its claims, if upheld following an August trial, would have ramifications for 1000 employees across 350 stories. Individual workers in the case have claimed an average $5000 underpayment, which the union says could amount to $600,000 for South Australia and up to $10 million nationally. The SDA claims in 2017 the Chemist Warehouse stores directed and paid staff to obtain a certificate III in community pharmacy to perform higher duties such as dispensing medication. It alleges from then the workers were performing at a level 3 classification but that the stores did not then pay them wages in line with this classification. The franchisees have denied the allegations and say that the employees’ principal responsibilities did not include the higher duties. They say the workers were promoted to level 2 classifications.

New housing approvals fell to the lowest level in almost 2½ years in March, triggered by a surge in borrowing and construction costs that depressed new sales and projects. New dwelling approvals in the 12 months through March fell 15 per cent to 180,893 from the year-earlier period, the Australian Bureau of Statistics said on Monday. It was the weakest yearly result since October 2020, when approvals totalled 180,165. The sharp decline, which the industry warned will worsen the affordability and rental crises, is crimping the pipeline for new housing. This will ensure there will be an extraordinary shortage of dwellings over the next few years. Soaring costs, lower borrowing capacity, and growing cost-of-living concerns mean purchasers are increasingly unwilling to commit to a new home.

   Australia’s 30 largest superannuation funds have increased their exposure to industries with high greenhouse gas emissions, despite many commitments to net zero, environmental lobby group Market Forces has claimed.  In a report published on Monday, Market Forces warns the 30 biggest retirement funds in Australia increased their fossil fuel-exposed investments by $34bn in 2022.  Market Forces said the exposure to new coal, gas or oil projects increased by nearly 50 per cent in the default investment options offered by these 30 funds in 2022.  Market Forces said almost 9.3 per cent of investments across these 30 funds were in “climate-wrecking companies”. Market Forces estimates total fossil fuel exposure of almost $140bn across the Australian retirement sector. This equates to an average $6100 invested per member account.

The Labor senator who helped expose PwC’s tax leaks scandal has called for a clean-out of all partners and staff “actively or passively” involved, and said until then the firm can’t be trusted by the government or corporate clients to keep confidential material secret. Deborah O’Neill, who chairs parliament’s joint committee on corporations and financial services, said PwC’s leadership appeared not to have grasped the seriousness of the behaviour of dozens of its employees. “PwC deliberately designed a scheme of theft and deception to cost the Australian people and profit PwC. That fact is not in dispute,” Senator O’Neill said on Sunday, after PwC on Friday said it would hold an independent review but not move for sackings or resignations.   “The question is – can all those involved finally accept that truth and respond appropriately to the nature and scale of the ethical collapse of which they were a part … Everyone actively or passively involved in the scheme needs to own up to that large-scale moral and professional failure,” Senator O’Neill said. Her comments come as former senior bureaucrat and now ANU honorary professor Andrew Podger said PwC should be banned from receiving contracts from Treasury, or even the entire federal government, until it has reformed. This builds on calls by Greens senator Barbara Pocock for the firm to be banned from winning government work and for PwC chief executive Tom Seymour to step down. On Sunday, Senator Pocock added that the government should launch its own inquiry into the matter.

The chief executive of PwC Australia has resigned in response to a leak of confidential Treasury information on tax policy, a scandal that sparked a broader examination into the government’s use of consultants. Tom Seymour, whose resignation is effective immediately, was one of dozens of partners who received emails about confidential information obtained by former PwC adviser Peter-John Collins. The Tax Practitioners Board deregistered Collins last year after finding that he shared the confidential information obtained through consultations with Treasury. Seymour had repeatedly apologised for the breach and recently told a Senate inquiry into the government’s use of consultants that the firm’s internal processes had been improved after the breach. Tracey Kennair, the chair of PwC Australia’s board of partners, said the firm needed to immediately rebuild trust with government and the public. The Greens had called for Seymour to resign and for PwC to be banned from all new government contracts as a result of the tax policy breach.

Airfares are rising at more than twice the rate of inflation, as carriers cash in on surging demand for travel that has defied broader economic headwinds. Average ticket prices on more than 600 of the world’s most popular routes rose at an annual rate of 27.4%  in February, the latest month for which data is available, marking the fifteenth consecutive month of double-digit growth, according to a Financial Times analysis of data from aviation company Cirium. By contrast, US inflation, a proxy for global inflation in developed economies, has grown at less than half that over the same period The data analysed prices on popular roputes flown across the world and used average one-way fares in economy, excluding taxes and fees. It found significant price rises across many routes this year, compared to pre-pandemic levels.

Treasury Wine Estates is stepping up a cost-cutting and restructuring push centred mainly on its division selling commercial wines under $10 per bottle as it braces for tougher economic times and repositions further towards the luxury segment. The company, which has a workforce of about 2500 people, last week foreshadowed the looming restructure in internal communications and a series of meetings. The main area being targeted is the Treasury Premium Brands division which oversees affordable labels including Wolf Blass, Lindemans, Squealing Pig, Pepperjack, Wynns, Seppelt and 19 Crimes. The $15 per bottle (or less) price bracket is under the most pressure across the wine industry as households cut back because of cost-of-living pressures and rising interest rates. There was speculation that the restructuring could result in up to 200 jobs being removed in a reshaping by 2025. The company declined to comment on specific job numbers, saying it was at an early stage and that part of the process was connected to an existing “2025” strategy.

More than half of Australian IT and security executives say they would pay a cyber ransom to recover their data in the wake of a cyber attack, as the federal government weighs a total ban of ransom payments. A report from Rubrik Zero Labs, dubbed The Hard Truths of Data Security, found that almost three-quarters of the 125 respondents (72%) have previously paid a ransom to recover data or to stop a ransomware attack, while 64% said they would be likely to pay a ransom to recover their data in the wake of a cyber attack. Almost every respondent (98%) said malicious actors had attempted to affect their data back-ups during a cyber attack, while organisations saw an average of 46 attempted cyber attacks in the past year. The local figures were well above the global average, where 90% had seen attackers attempt to affect back-up data and 73 per cent reported that the attempts had had a level of success.  Only 14% of Australian businesses that paid attackers for decryption tools were able to recover all their data, the report found. The government is weighing whether to ban cyber ransom payments.

Vitura Health – known as the Amazon of medicinal cannabis – is considering pivoting from being a marketplace to a drug manufacturer after striking a joint venture with Canadian firm PharmAla Biotech. The partnership, named Cortexa, aims to become Australia’s lead supplier of psychedelics for research and therapeutic research. It will allow the company to stock MDMA and psilocybin – commonly known as ecstasy and magic mushrooms – to treat post traumatic stress disorder and treatment-resistant depression.  The venture follows the Therapeutic Goods Administration allowing the use of MDMA and psilocybin under the Authorised Prescriber Scheme from July. Vitura chief executive Rodney Cocks said Cortexa would be the exclusive licence holder of Pharm­Ala’s IP for MDMA and psilocybin in Australia and was already in talks with contract manufacturers about producing the drugs locally.

And that’s it for this week. And next week, I’ll be talking to the CEO of GenieUs, the Aussie startup on a mission to tackle the world’s fastest-growing long-term health risk: neurodegenerative diseases.  And I’ll be talking to AMP Capital chief economist Shane Oliver about the Budget.

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