RBA minutes confirm a tightening bias, but it’s reluctant to hike.

This, as consumer sentiment remains deeply pessimistic with just over half expecting rate rises to resume over the next 12 months.

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 17 in our series for 2024 and today’s date is Friday May 24

First, I’ll be talking to I’ll be talking to Brad Adams who started developing Rare Foods Australia’s globally unique artificial reefs for abalone while witnessing the decline of wild stocks and the introduction of tighter quotas in the Augusta region of Western Australia. The result is Rare Foods Australia’s world-first ABITATs, or abalone habitats.

And I will talk to economist Saul Eslake about the challenges for Jim Chalmer’s third budget

But first, let’s talk to Brad Adams.

So what’s happening in the news?

The Reserve Bank board considered the case for a 14th interest rate hike at its meeting earlier this month, as members discussed that “the risks around inflation had risen somewhat” and repeated their resolve to “do what is necessary” to bring price growth back under control. Newly released RBA board minutes revealed that the process to get inflation back to the midpoint of the 2-3% target range “was unlikely to be smooth, and members recognised the considerable uncertainty about the outlook for both inflation and the labour market”. “Given this, members agreed that it was difficult either to rule in or rule out future changes in the cash rate target,” the minutes said, echoing comments from RBA governor Michele Bullock. Board members held the cash rate at 4.35%, but “reiterated their resolve to do what is necessary to return inflation to target, and to continue paying close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market”. This coincides with the Westpac-Melbourne Institute consumer confidence index showing consumer confidence is still in the doldrums with just over half expecting rate rises to resume over the next 12 months.

Added to that, Macquarie Group economists estimate  there is a 50% chance of recession this year, as the “trap” of high migration unwinds and high interest rates leave the private sector in “stagnation”. Macquarie economist Sophie Photios said the economy was like a “masquerade”, where the “surge in immigration” had masked the gap between the economy growing modestly in total but going backwards in per-person terms. Strong net migration of more than half a million people over the past year had also added to inflation pressure including rents, she said. “Population is at the centre of the Australian story as it is working on growth in a ‘positive’ way and on inflation in a ‘negative’ way – and has offset the impact of combined policy tightening,” Ms Photios said in a joint report with colleague Graham McDevitt. “The huge surge in population has pushed up aggregate growth for the entire economy, yet individually, it doesn’t feel like strong growth because everyone is getting a smaller piece of that growing pie. “Australia’s migration pulse is expected to taper off in 2024, and when this happens, it does not appear that households, business, or trade will be able to fill the growth void. “We expect gross domestic product (GDP) to slow into stagnation, which we define as between -0.5% and +1% with prolonged combined policy tightening increasing the risk of recession to 50-50 in the second half of 2024.” Per-person GDP declined for the fourth straight quarter in December, while the economy eked out 0.2% growth for the months of 2024. The Macquarie report, previously unreported in the media, was published last month before the federal budget and Opposition Leader Peter Dutton’s plan to cut migration, particularly international students. Macquarie’s Ms Photios and Mr McDevitt said Australia had fallen into a “population trap”. “If an economy’s growth is being driven by immigration, as Australia’s is today, more and more immigration is needed to hold up aggregate growth in the future. If population growth slows, then aggregate growth slows, and if there is no other driver of growth, the economy is at risk of recession.”

Peter Dutton’s nuclear energy plans have suffered a setback with the CSIRO estimating the nation’s first large-scale nuclear power plant could cost as much as $17 billion in today’s dollars, and would not be operational until at least 2040. With the Coalition now saying it will announce its nuclear plans by the end of the year, the CSIRO’s final annual GenCost report says while a large-scale reactor would produce cheaper power than the small modular reactors (SMR), as first proposed by the opposition, the electricity would still cost one-and-a-half to twice as much as firmed renewable energy. “New large-scale nuclear costs are significantly lower than nuclear SMR, but both represent moderate to higher-cost sources to electricity generation,” it said. When the CSIRO released findings on SMRs as part of its draft report in December, it received a tongue lashing from Mr Dutton.  In its final report, the science agency repeats its findings regarding the feasibility of SMRs and also examines large-scale reactors, given the Coalition has added them to its energy plans. In an attempt to present a best-case scenario, the CSIRO bases its cost projections on a continuous  build program of nuclear power plants in South Korea, which are cheaper than those in the US. “Based on this approach, the expected capital cost of a large-scale nuclear plant in 2023 is $8655/kW,” it says, meaning a standard one-megawatt power station would cost about $8.65 billion. But the CSIRO cautions that “this capital cost can only be achieved if Australia commits to a continuous building program and only after an initial higher cost unit is constructed”. It says a first-of-a-kind (FOAK) premium applies to all new technologies in energy, including nuclear, and “FOAK premiums of up to 100% cannot be ruled out”. That means the first large-scale power station could cost just over $17 billion if the full premium applied. The CSIRO also identifies time as another hurdle for nuclear power. “Given the lack of a development pipeline and the additional legal and safety and security steps required, the first nuclear plant in Australia will be significantly delayed,” it says. “A 15-plus-year total development time would mean that if a decision to pursue nuclear in Australia were made in 2025, with political support for the required legislative changes, then the first full operation would be no sooner than 2040.

Liberal Senator Linda Reynolds and her former staffer Brittany Higgins have failed to reach an agreement in a second round of mediation, Ms Reynolds told media outside the West Australian Supreme Court where she is suing Ms Higgins and her partner David Sharaz for defamation.  After three hours on mediation on Tuesday, Senator Reynolds emerged from the court with her lawyer Martin Bennett and told reporters: “Unfortunately, it appears at this stage that we still will be heading to trial in July.” Earlier on Tuesday while arriving at court, Senator Reynolds said it is time for the Finance Minister, the lawyer general and his department to “admit they got it wrong”. Senator Reynolds paused outside the court on Barrack Street in the centre of Perth – a second attempt at mediation – and urged all parties to accept all of the findings made by Justice Michael Lee in his judgment in April. Justice Lee found that on the balance of probabilities Ms Higgins was raped by another of Senator Reynolds’ employees Bruce Lehrmann in Senator Reynolds’ ministerial suite in 2019 as she has long claimed.  “I consider it more likely than not, in those early hours after a long night of conviviality and drinking, and having successfully brought Ms Higgins back to a secluded place, Mr Lehrmann was hellbent on having sex with a woman he found sexually attractive,” Justice Lee said. However Justice Lee found that there had not been any political cover up after the rape.  This was the central plank of the story Ms Higgins participated in for The Project.

Telstra will axe up to 2800 jobs – or about 9% of its workforce – as it races to achieve its ambitious cost savings as part of its much-hyped T25 strategy and partners with Indian tech giant Infosys to automate more engineering tasks. Chief executive Vicki Brady said the cuts were necessary to ensure “Telstra could continue to make the investments needed to support the ever-increasing growth in data volumes on its networks and deliver improved connectivity for customers across the country”. Ms Brady attempted to cauterise the fallout by announcing that Telstra – which employs about 31,000 people – would not be making any price rises linked to inflation to its postpaid mobile plans, with hikes normally happening in July. She also reaffirmed the company’s full-year earnings guidance. Ms Brady was adamant the company could deliver most of the remaining $400m in the next 18 months. Most of this will come from the job cuts, which Ms Brady said on Tuesday would achieve $350m of Telstra’s T25 savings. In the past several months, Telstra has been reviewing the cost base of Network and Services (NAS) business, which Ms Brady said was “clearly a long way from where we need it to be” after it delivered flat half-year revenue at $1.35bn. NAS provides Telsta’s enterprise customers with network security and cloud services among other products. The job cuts are expected to be completed by the end of this calendar year. Ms Brady said staff consultation on 377 of those roles would begin immediately, mainly from areas supporting the products and services in its enterprise division. She said the redundancies would “reshape” some of Telstra’s internal operations by moving its global Business Services function into other parts of the business.

One of the biggest scam syndicates to ever attack Australia is ­almost invisible on the corporate regulator’s investor alert list. The Australian Securities & Investments Commission has failed to include on the alert list a warning about websites associated with the international scam syndicate that fleeced 34,000 Australians out of more than $200m. German police sent letters to victims in that country naming websites Infinity CapitalG, Topmarketcap, Richmondsuper and Iron Bits as being used by the fraudsters in cryptocurrency scams promoted on Facebook and elsewhere online using fake celebrity endorsements. None of the websites came up in a search of ASIC’s online “Moneysmart” alert list on Monday, and nor did numerous others associated with the syndicate. Australia was by far the most affected country, making up more than one-third of the 90,000 victims from 90 countries. There were 14,000 victims in Canada and 13,000 in Europe. Files shared by German police with ASIC included victims’ names, phone numbers, emails, physical addresses, identity documents, notes on their background, and total losses. Scammers’ names and aliases in each individual case were also provided. German police said it sent the database for the purpose of warning victims they had been dealing with a crime group and were at risk of greater losses. Australians are known to have reported having money stolen from three of the four websites named in the German police letter to victims in that country: Topmarketcap, Infinity Capital G and Richmondsuper. The new concerns come as the Albanese government said on Monday it had called for ASIC to explain why it didn’t contact and warn victims of the scam, following revelations that German police gave the regulator a comprehensive database of evidence in June last year. The discovery ASIC had not taken the minimal step of updating its alert list with websites associated with the syndicate will likely increase pressure on the agency over its handling of the case and its approach to relentless targeting of Australians by organised crime gangs offshore.

The corporate regulator has found that around one-third of customers who approach their home loan lender for help because they’re struggling with repayments have dropped out of the hardship process due to delays and information requirements. The Australian Securities and Investments Commission has lashed banks and non-bank lenders for creating “unnecessary barriers hindering customers from obtaining assistance”. The problems, identified in a report on hardship procedures, include poor communication, inadequate staff training, mixed internal messaging, and cookie-cutter approaches. ASIC chairman Joe Longo says the situation is “simply not good enough”. The regulator is understood to be considering enforcement action against the laggards, while several banks argue their processes are already being improved. ASIC found that 71% of hardship notices were approved with some assistance, such as deferred loan repayments for a period of time. It said 23% of requests were withdrawn or declined when a customer provided insufficient information, while 6% were declined for another reason. In general, banks treat struggling customers better than non-banks, and bigger banks are better than smaller banks. However, gaps in the support provided were identified at all lenders. The report shows the scale of customers doing it tough across the country. There were 250,000 hardship notices, for 144,000 accounts, filed in the 18 months to the end of December. This included 53,000 in the last three months of 2023, up 54% on the final quarter of 2022. Banks typically say hardship is created by three factors: unemployment, medical issues or marriage breakdown. ASIC agrees these are credible, but the two biggest are simply “over commitment” and reduced income. There were 58,437 notices relating to over committing to debt in the period, raising questions about compliance with responsible lending obligations, while 51,361 relating to reduced income. These were higher than medical issues (38,982), unemployment (29,882), and separation (18,760). The number of customers in hardship is expected to grow as unemployment ticks higher and interest rates stay elevated. Banks have pointed to a small deterioration in bad debts for the March half.  ASIC’s 157-page report, titled Hardship, hard to get help, finds concerns include misleading messages that assistance is only available following specific life events, such as an illness. Sometimes, collections staff didn’t explore why a customer had missed a payment. Or they were too focused on the immediate payment of arrears rather than ensuring the customer could meet their future obligations. Customers also report having to explain circumstances multiple times to different people, onerous requests for documents, and overly standardised approaches. The report suggests hardship assistance can be a Band-Aid solution. It found in about 40% of cases where payments were reduced or deferred, customers fell into arrears right after the assistance period ended. In more than a third of these cases, the customer gave another hardship notice within three months. The regulator has asked lenders to prepare an action plan outlining how they intend to respond to the issues.

And that’s it for this week. And next week, I’ll be talking to Steven McKeon, founder and CEO of MacguyverTech and MacNerd  about why governments around the world are moving to control Tik Tok.

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

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

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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