Talking Business: May 28 2021
China has warned Australia it is in for economic “pain” in the near future — saying plans to hit our highest export are already taking effect and could wipe billions from our economy.
Welcome to Talking Business, a podcast produced in Melbourne Australia. The podcast is available on the Acast app, 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.
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 2021 and today’s date is Friday May 28.
First, I’ll be talking to @WORKSPACES founder and managing director, Jenny Folley about how many businesses and offices are slowly bringing staff back to work and how they are changing staff and customer behavior at work. And I’ll be talking to Indeed economist Callam Pickering about the latest labour force and wages figures
But now, let’s talk to Jenny Folley.
China has warned Australia it is in for economic “pain” in the near future — saying plans to hit our highest export are already taking effect and could wipe billions from our economy. According to CommSec, iron ore prices are down sharply again, dropping US$11.85 a tonne or 5.9% to US$188.25 a tonne — after hitting a record high of more than $US230 a tonne earlier this month. That comes after it dropped 5.1% at the end of last week — sending shockwaves through mining companies on the stock market. The valuable steelmaking ingredient is by far Australia’s biggest export, and a whopping 60% of it is gobbled up by China for its constantly churning mills. Sparked by China’s high demand for steel, the roaring iron ore trade has thrown Australia an economic lifejacket in the midst of the coronavirus recession. But Beijing has had enough of paying record prices for it and is cracking down hard to reduce the cost. On Sunday the National Development and Reform Commission (NDRC), China’s top economic planner, along with four other departments, held a meeting with industry leaders and vowed to severely punish “excessive speculation, price gouging and other violations” that they say helped lift prices. Regulators would adopt a “zero tolerance” approach toward illegal activities and strengthen regulation of abnormal transactions and malicious speculation, the NDRC said in a statement. The skyrocketing ore prices are putting China’s economic recovery from the pandemic at risk, with companies and everyday Chinese citizens bearing the cost. Chinese government mouthpiece the Global Times says companies have already raised prices for a wide range of products, including refrigerators, washers and bicycles, citing rising costs. However, analysts told the paper that China’s latest moves to crack down on “speculations and other market manipulation” is about to send “chilling waves across the globe”. The Times singles out Australia as the nation that will be hit hardest by the crack down — given iron ore is such a dominant force in our exports — and accused us of “profiteering” from the rising prices. “Among the most affected could be iron ore exports from Australia, which has benefited massively from the sky-high prices in its main export – emboldening officials in Canberra to continue on their relentless provocation against China,” the paper stated. “While China’s reliance on Australian iron ore will likely continue in the foreseeable future, despite its efforts to diversify sources, sharp drops in iron ore prices would mean heavy losses in export revenue for Australia, which is already seeing declining trade with China in areas such as wine and seafood.” It says that iron ore prices have dropped $9.25 per tonne since Beijing took action last week. It says that could translate into a loss of over $2 billion in extra revenue for Australia based on the amount of exports to China in the first four months of 2021.
Melbourne has braced for another hit to its economic recovery after a local outbreak rapidly ballooned to 15 cases. Businesses were told to mandate masks for indoors, New Zealand shut down its travel bubble, states imposed travel restrictions, and major events prepared for further restrictions. The blowout in COVID-19 cases across northern Melbourne saw authorities impose an indoor mask mandate, restrict public gatherings to 30 people and a limit on house guests to five per day from 6pm on Tuesday night. Business leaders said the new restrictions would affect confidence recovering from one of the world’s longest lockdowns. A major 10-day winter cultural festival called Rising opened among fears by organisers that interstate travellers will not risk coming to Melbourne, leading to hotel and restaurant cancellations. The new gathering restrictions do not apply to hospitality venues or workplaces. However, masks are now mandatory at both, as authorities said such places were easier to contact trace than social gatherings.
The federal environment department wrongly skipped a key assessment when approving a water pipeline for Adani’s massive Carmichael coal mine, a court has ruled. The North Galilee Water Scheme would extend a dam and pump water 110 kilometres to the coal mine in central Queensland, to suppress dust and wash coal. A department official in 2019 decided the project wasn’t a coal mining activity or involving a large coal mining development. Deeming it so would have mandated an assessment of whether the pipeline and other infrastructure had or was likely to have a “significant impact” on water resources. In the Federal Court on Tuesday, Justice Melissa Perry ruled the delegate made an error of law by finding the harvesting and supply of water for decades was not integral to the conduct of mining operations at the Carmichael mine. As a result, the project’s approval was set aside and will be sent back to the department to restart the approval process.
More than 700 highly paid employees at NBN Co, the taxpayer-owned body which runs and operates the National Broadband Network, received average personal bonuses of $50,000 last year. New data submitted to Federal Parliament this week shows the government-owned enterprise – which paid out almost $78 million bonuses to staff despite the worst economic downturn since the Great Depression – rewarded more than 3800 staff with the cash payments.
The journey through COVID-19, lockdowns, social distancing and closed borders has left a lasting imprint on consumers, ranging from health to savings and career goals, that is now playing out in spending habits. It is between the generations, from Gen Z to pre-Boomers, where the differences are starkest. There has been a split between the young, middle-aged and the old as the pandemic meant something different to every generation. A new survey, the inaugural Commonwealth Bank Insights Report, has shed a light on consumer behaviour post-pandemic and discovered shoppers eager to buy locally sourced products, frequent neighbourhood shopping centres and many cutting overall spending to preserve cash. And when they are spending it is increasingly online, using mobile wallets such as Apple Pay rather than cash. The CommBank survey of almost 5700 consumers found the pandemic had affected the way people live, work and spend, and that while some were able to boost savings, COVID reduced the household income of more than a third of Australians surveyed. One in four report having less money to spend on necessities. This reflected the uneven ramifications of the pandemic, with what generation a shopper was born into often dictating their experience. The uneven impact of the pandemic is highlighted by the experiences across the generations, CBA says.
Facebook Australia was paid $712 million by local advertisers using its platform in 2020 but trimmed its income tax bill to just over $20 million through a reselling arrangement that minimised its profits to $17.6 million. The social media giant’s tax bill comes as it tries to avoid being included under the Morrison government’s media bargaining code designed to rebalance bargaining power between tech giants and local media companies by signing agreements with publishers to pay for their journalism. Facebook scooped up more than $700 million in Australian advertising revenue last year by boosting its online sales as the nation spent more time at home and online through the pandemic. With much of this ad revenue expensed back to its US parent, the tech giant’s tax bill was just $20.2 million. Documents lodged with corporate regulator the Australian Securities & Investments Commission revealed Facebook Australia Pty Ltd generated $712.7 million in Australian advertising sales last calendar year, up 5.7% on a year earlier. Because Facebook views its Australian business as a “reseller” of ad inventory across its flagship website, Instagram and Messenger apps, it books a “reseller expense” to be ultimately paid to its Californian parent. Last year, $559 million in Australian sales were expensed. This huge expense bill allows the company to sharply reduce its Australian profits and puts potential local earnings out of the reach of the taxman. After this reseller expense, Facebook declared net ad sales in Australia of $154.6 million, down 7.4% on the year earlier. Net profit for the year for the Australian business came in at $37.86 million, slightly down on $39.48 million a year earlier. The $20.2 million tax bill compares to the previous year’s $16.8 million.
Energy giants Shell and PetroChina have been hit with a $1.2bn writedown on their Australian gas business due to a commodity price slump, double the previous year’s level, with losses now nearing $9bn since 2010. The pair’s Arrow Energy joint venture recorded a $606m loss for the 2020 financial year after a $866m loss the year before, with torrid oil and gas markets unsettled by the pandemic triggering a huge writedown for the Queensland-based energy operator.
Finder says it will use its open banking accreditation from the competition regulator to speed up the delivery of insights on how customers can save money on their loans and insurance products generated by its app, which has 155,000 users. Finder co-founder Fred Schebesta said the green light from the Australian Competition and Consumer Commission late last week to ingest big bank data, when its users give permission under the government’s open banking regime, will help the comparison site win more trust as it moves towards its vision of creating an artificial intelligence system that helps people optimise their finances. Finder’s app, which was launched late last year, already allows customers to work out if they are likely to be rejected for a loan or a credit card, which could adversely impact their credit score and compromise access to a mortgage later in life. The app also added cryptocurrency buying and selling last week. User data is accessed via a “screen scraping” process, where users share banking passwords, but Mr Schebesta said shifting to open banking, to begin later this year, would help to build trust and widen its customer base.
The death of the big-budget television beer ad may be upon us – alcohol brands will reduce their television advertising spending by 2.4% a year, a report from global media agency Zenith says. Australia has spawned a litany of excellent TV beer campaigns, from a thirsty tongue for Tooheys to a symphony of beer bottles for VB and perhaps the most well-known of all, The Big Ad for Carlton Draught. But the days of the carefully crafted television ad designed to get the punters talking – and drinking – are probably over as audiences on mass advertising platforms such as TV shrink. Zenith predicts alcohol brands will cut their spending on TV ads to 2023, shifting some to outdoor billboards and doubling down on digital ads.
More than 500,000 Australians moved to faster NBN plans in the first quarter of 2021, the Australian Competition and Consumer Commission says in its latest Wholesale Market Indicators Report. The report showed that about 8.3 million services were now connected to the network which is being rolled out by the NBN Co. ACCC commissioner Anna Brakey said more than two-thirds of all NBN connections were now 50Mbps or above, and about 17% were using connections that delivered 100Mbps or above. On the downside, there were almost 465,000 fewer ‘Home Fast’ (100Mbps) and 100/40Mbps services in the same quarter, which the ACCC said was partly due to the end of a particular promotion. Other promotions aimed at even higher speeds had now been introduced. The ACCC report showed that there was “significant” take-up of services above 250Mbps – which it calls superfast – in the first quarter, with the number growing from 11,136 at the end of the final quarter of 2020 to 490,000 at the end of March this year. The number of connections that the ACCC calls ultrafast — 500Mbps to 1000Mbps — grew from 9924 to 83,000 by the end of March.
Workers at explosives giant Orica have been permitted to stop laying charges at mine sites if they have concerns about impacting Indigenous heritage, as Rio Tinto’s destruction of the Juukan Gorge caves last year heightens caution across the industry. Orica chief executive Sanjeev Gandhi said the blasting of the 46,000-year-old site in Western Australia’s Pilbara, which has been attributed to Rio Tinto’s failure to adequately engage with the land’s traditional owners, had prompted a reassessment of Orica’s own internal controls to help prevent such disaster happening again. Monday marked the first anniversary of Rio’s disastrous decision to blast through two ancient rock shelters at Juukan Gorge, which was legally sanctioned to enlarge a neighbouring iron ore mine, but went against the wishes of the Puutu Kunti Kurrama and Pinikura (PKKP) people, who have been left devastated and said they were not aware of Rio’s intention to proceed with the blast until it was too late.
Burchell Hayes, a director of the PKKP Aboriginal Corporation, described the anniversary as not only a day of great sorrow, but an “urgent reminder that government and industry need to act quickly to prevent another tragedy”.
Crowns Resorts has already contravened its new anti-money laundering policy to not receive cash deposits, an inquiry has heard, adding to the cache of evidence casting doubt on Crown’s ability to reform and rid its casinos of financial crime. The Victorian royal commission into Crown also heard the James Packer-backed casino group for more than a year ignored expert advice telling it to examine key bank accounts identified as facilitating money laundering before hastily commissioning a deliberately “limited” review sparked by the NSW Bergin inquiry’s spotlight on the accounts. Giving evidence to the royal commission into Crown’s suitability to operate its Southbank casino licence, the principal of anti-money laundering consultancy Initialism, Neil Jeans, said he discovered evidence of a breach of Crown’s new policy which prohibits third-party and remittance payments to be deposited into Crown’s bank accounts. It was also revealed that 14 of 45 Crown bank accounts showed evidence of still being used to facilitate money laundering as recently February. These accounts were not examined by last year’s damning NSW Bergin inquiry which only examined the Perth-linked Riverbank and Melbourne-linked Southbank accounts – meaning these new revelations could be just the “tip of the iceberg,” Counsel assisting the royal commission Meg O’Sullivan told the inquiry. .
A $100 million battery to be built in south-west NSW will support a $3.2 billion contract won by Shell and Edify Energy to power schools, hospitals and state government buildings for the next 10 years – in stark contrast to Canberra’s focus on gas to supply power on demand. NSW energy minister Matt Kean said the 100-megawatt battery would provide critical “dispatchable” electricity before the closure of AGL Energy’s Liddell coal power station in 2023. The battery will have a maximum power output of 100 MW, and capacity of 200 MWh, meaning it can run for two hours at maximum output before having to be recharged.
Commonwealth Bank of Australia has invested $30 million in local e-commerce start-up Little Birdie, in the largest-ever funding round for an Australian start-up that has yet to launch a product. Little Birdie is the latest venture of Catch Group founders Gabby and Hezi Leibovich with co-founder Jon Beros leading the company as chief executive and the Leibovichs retaining an interest as 10% investors. It is yet to launch but bills itself as a new homepage for online shoppers, where there will be more than 70 million products to search, compare, track and share deals, with AI technology and an online user community voting up and promoting the best deals available. Its $30 million funding round has been filled by Commonwealth Bank, which intends to integrate Little Birdie’s shopping content into its mobile app. This would give Little Birdie direct access to CBA’s 11 million customers, while supporting the bank’s plan to target younger customers through its banking and partner ecosystem.
Sanjeev Gupta has crept closer to securing the future of South Australia’s Whyalla steelworks after holding “very constructive and productive” meetings in Dubai to refinance debt held with banking giant Credit Suisse. Mr Gupta’s Liberty Steel Group said the company was in advanced talks with Credit Suisse “to reach a formal standstill agreement on its Liberty Primary Metals Australia business while refinancing is completed that will repay Credit Suisse out in full.”
The Queensland government has announced a $7.5 million package to lure workers to take up tourism jobs in regional Queensland. The incentives will offered for jobs stretching north from Mackay to regions west of Toowoomba, From July 1, job seekers would be offered a $1,500 incentive to relocate, as well as $250 in travel vouchers in the year-long “Work in Paradise” campaign. Premier Annastacia Palaszczuk said there’s strong demand for workers across the state, from bartenders and deckhands to tour guides, as the industry rebuilds after being hit hard by the COVID-19 pandemic. The state government has invested about $800 million into the tourism industry through the pandemic.
Surging land prices will force people away from detached houses and back into apartments, triggering a boost in new apartment construction over the next four years that will be further supported by a return of investors, the Australian Construction Industry Forum’s (ACIF’s )May 2021 forecasts show. Stronger housing – both standalone and detached – has prompted ACIF to boost its latest forecast for housing construction for 2021 to over $105 billion from the $97 billion it last forecast in November. But from 2022 onwards, construction of apartments, townhouses and semi-detached homes will surge – ACIF has added an additional $8.8 billion to its attached house forecast for next year – while detached housing weakens through to 2025 due to the loss of stimulus measures and higher land prices.
And that’s it for this week. And next week, I’ll be talking to Yannick Ieko, Founder and CEO and Senior Lending Strategist of the SMSF Loan Experts. And we’ll be talking about how people are using their SMSFs to invest in some really interesting and different / quirky investments including accommodation for NDIS services. And I’ll be talking to Rabobank economist Michael Every about the Chinese economy’s recovery.
In the meantime you can catch me on Facebook, Twitter and LinkedIn. And if you want leave a comment. Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.