Australia’s federal budget will see a massive increase of 56% in electricity costs over the next 18 months.
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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 39 in our series for 2022 and today’s date is Friday October 28.
First, I’ll be talking to the founder/CEO of Macquarie Telecom Group, David Tudehope about cyber security challenges.
And I’ll be talking to Indeed economist Callam Pickering about the latest unemployment figures
But now, let’s talk to David Tudehope.
China’s gross domestic product grew well below target in the third quarter, intensifying falls in Chinese stocks as investors worried about the longer-term outlook for the world’s second-largest economy. GDP expanded 3.9% year on year, better than the forecast of 3.3% from analysts polled by Bloomberg but still short of China’s full-year target of 5.5%, which is already its lowest in three decades. The release of the data on Monday, delayed from last Tuesday, comes after China’s president Xi Jinping extended his rule for an unprecedented third term and tightened his grip on political power at the Communist party’s 20th congress last week. China is grappling with a property crisis and strict zero-Covid controls and lockdowns, which have largely curtailed the spread of the virus but also crippled consumer activity. The data release added to pessimism in Chinese equities after investors were disappointed that the party congress did not send more positive signals for the economy.
Australia’s Labor government revealed its first budget, a combination of delivering on election promises, billion-dollar spending cuts and warnings of widening deficits ahead. The Labor government is pouring billions of dollars into new projects to boost renewable energy and transition away from fossil fuels, in line with their election promises. Everything from modernized electricity transmission, to electric vehicle charging stations and new funding for critical minerals research. Some of the funding has yet to be distributed and other projects are still a while away from being completed, but it is a big signal by the government that it is not backing away from its commitment to combatting climate change. The 2022 budget has allocated hundreds of millions of dollars towards protecting Australia’s threatened species, including the iconic koala, as well as $100 million for urgent action for the Great Barrier Reef which has experienced multiple bleaching events in recent years. It’s a good time to be a fish in Australia. In this budget, the Labor government has invested heavily in childcare and paid parental leave, two areas which gender equality activists have said will help improve women’s participation in the workforce. Minister for Women Katy Gallagher has also planned millions of dollars in additional funding to help end violence against women and children. Australia has ramped up its foreign aid spending in its October budget with a particular focus for the Pacific and Southeast Asia, which Foreign Affairs minister Penny Wong said would increase Australia’s influence in the region. Canberra will create a military training school in the Pacific, increase aerial surveillance over the region and boost its infrastructure assistance. Australia’s home buyers might be in luck for the first time in a long while. In an attempt to solve rising house prices, the Labor government announced a new accord with state governments to build one million new homes in accessible locations beginning in 2024. There are about $28 billion of cuts and delayed spending in Chalmers’ budget, and a lot of that comes from cancelled or suspended infrastructure projects. The Labor government has been highly critical of former Prime Minister Scott Morrison’s administration for announcing publicly-funded infrastructure projects for political purposes, and these cuts reflect that. Labor has its own infrastructure priorities which are funded in this budget, including $2.2 billion for Melbourne’s Suburban Rail Loop. Labor also promised to cut back on the government’s use of contractors for publicly-funded projects and they have delivered – in spades. The government has slashed A$3.6 billion from expenses by cutting back on contractors, advertising, travel and legal expenses. All the money has gone into paying for their election promises.
Labor’s first federal budget forecasts debt and deficit will be worse than expected, energy prices are about to skyrocket/ Soaring commodity prices and a booming jobs market have delivered the government an extra $141 billion in revenue, in a boost that Treasury says is unlikely to be repeated. A crackdown on tax avoidance, higher levies on off-market share buy-backs and a one-off increase in skilled migration are among the new measures the Albanese government expects will net $9.4 billion over the next four years. However, the budget also forecasts spending on the National Disability Insurance Scheme could hit $102 billion by June 2033 and eclipse the age pension as the government’s most expensive federal government social program. In additional, annual interest payments are tipped to hit $70.5 billion in the next decade, about $30.5 billion higher than forecast just seven months ago. The structural deficit is forecast to remain at about $50 billion over the decade. It is not an unsurmountable issue – it works out to about 2% of gross domestic product – but it shows that the government will have to eventually make some very tough decisions on spending, tax and economic reform. It has deferred the required big cuts until next year to buy time to soften up the public for drastic change.
Labor’s first budget, which Treasurer Jim Chalmers said “begins the hard yards of budget measures Labor took to the election such as cheaper childcare and prescription medicines. Compounding the cost-of-living crisis, interest rates are now assumed to peak sooner and higher than forecast in the last budget update in April, with the cash rate, now 2.6%, expected to reach 3.35% by the middle of next year. “Many indebted households will come under greater pressure,” the budget says. In more bad news, the budget forecasts power prices will soar by 20% this year and a further 30% in 2023-24, for a compounded increase of 56%. Due to their immediate impact and their flow-on effect through the economy, high energy prices will contribute 0.75 percentage points to inflation this financial year and 1 point next year. Dr Chalmers gave notice that the government was planning a “a broad suite of regulatory interventions” in the energy market. But Dr Chalmers said to offer households extra cost-of-living relief now would only add to inflation which, the budget forecasts, will average 5.75% this financial year and 3.5% next year before dropping back to 2.5% in 2024-25, within the Reserve Bank of Australia’s target band. “The immediate focus of the strategy is to ensure that fiscal policy avoids adding to inflationary pressures in the economy and beginning budget repair,” the budget papers say. “Over time, the focus will shift to achieving measured improvements in the budgeted position to stabilise and then reduce gross debt as a share of GDP.” The repair job will come amid a softening economy with growth predicted to fall from 3.25% this year, to 1.5% in 2023-24, before recovering slightly to 2.25% the year after. Dr Chalmers did not rule out breaking promises by implementing structural measures to fix the budget before seeking a mandate at the next election. “We are prepared to make difficult decisions in difficult times,” he said. “Our responsibility is to put the budget on a more sustainable footing. I don’t think that work can wait for another three or four budgets. Australians know there are hard days to come and hard decisions to accompany them.” In forecasts which will rekindle discussions about the affordability of the stage three tax cuts and tax concessions on super, trusts and housing, as well as the spiralling cost of the National Disability Insurance Scheme, the budget predicts debt and deficit to worsen dramatically over the decade without intervention. The deficit is forecast to shrink this year from the $78 billion predicted in the April pre-election fiscal update, to just $36.9 billion, due to a revenue boom driven by soaring commodity prices and low unemployment. But owing to the structural pressures on the budget, and highly conservative commodity price forecasts in future years, the deficit begins to grow again. By 2032-33, the deficit, based on the current trajectory, is estimated to be 1.9% of GDP, a significant deterioration from the 0.7% of GDP forecast in the April update. Interest payments which will be $76 billion over the forward estimates and $70 billion a year by 2032-33; the NDIS which will cost $166 billion over the next four years, reach $50 billion a year by 2025-26 and, if it continues to grow at its current rate, will cost $102 billion a year in a decade; and more realistic productivity assumptions which Labor introduced to underpin budget assumptions.
An extra 20,000 university places will also be created over the next two years for students from disadvantaged backgrounds looking to study in an area of skills shortage. The government will also spend $203.7 million on student wellbeing, including school mental health support and social activities. It has also created the Startup Year program, providing 2000 income-contingent loans a year to allow eligible students to participate in a university-based accelerator program in a bid to foster the next generation of Australian entrepreneurs. The government has poured billions into supporting families. That includes $531.6 million over the next four years to expand the Commonwealth paid parental leave program from 18 to 26 weeks – but the full six subsidised months won’t be available to new parents until 2026. The government is also spending $4.6 billion to increase childcare subsidy rates for all families with annual incomes below $530,000 up to a maximum of 90%.
Multinational corporations will pay an extra $1 billion in tax under a new clampdown on excessive deductions and profit-shifting to lower-taxing countries, as the government also seeks to raise $3.7 billion more by targeting tax-dodging individuals and businesses. Tuesday night’s budget implemented Labor’s pledge to crack down on tactics used by global corporations to minimise their tax bills and extended various Australian Tax Office (ATO) compliance programs.
Coles Group has posted a rise of just 1.3% in first quarter sales of the 2023 financial year to $9.89 billion, underpinned by it supermarkets where inflation of fresh food and dry goods continued to surge, heaping more pressure on household budgets. The nation’s second-biggest grocery chain said on Wednesday that first quarter food inflation climbed 7.1% boosting prices paid by consumer, up significantly on 4.3 per cent in the June quarter. Fresh food inflation “continued to be driven by bakery, reflecting higher wheat prices, and fresh produce, particularly in fruit such as berries and bananas,” Coles said. Inflation excluding tobacco and fresh food rose 6.7% for the first quarter. Raw material, commodity, shipping and fuel costs remained the key drivers of supplier input cost requests received, Coles said.
Higher pension and social service payments will add $33 billion to government spending over the next four years in another pressure point for the federal budget as Treasurer Jim Chalmers warns of structural problems that will keep the nation’s finances in deficit. A tougher outlook for the economy is a key factor in the spending increase because the government is assuming more people will need assistance, with JobSeeker payments to the unemployed making up one third of the surge. But the increase in social services outlays cannot be avoided because the age pension, JobSeeker and most other forms of income support are indexed to consumer prices and must rise to help recipients keep up with household costs.
The latest inflation data from the Australian Bureau of Statistics shows annual inflation was 7.3% for the September quarter, the highest since June 1990.
Home prices could drop by 20% from the peak in just over two years if pessimism takes hold in the property market, according to an internal assessment by the Reserve Bank of Australia. The fallout from this “downside housing price scenario” would hit both broader consumer consumption and the hard-pressed building industry, with real estate agents already seeing big shifts on the ground. Bank documents released under Freedom of Information showed its concerns about recent weakness in housing prices, particularly in Sydney and Melbourne, and the effect this is having on dwelling investment. The documents showed that national housing prices unexpectedly fell in the June quarter, reflecting declines in the two major capitals, as auction volumes and clearance rates in these cities dropped. The bank is assuming that price falls in Sydney and Melbourne continue over the second half of this year, with its central case scenario for prices in those cities expected to be off by around 1.5% per month. It said that at the same time, price growth has slowed in other capital cities and regional areas, and this is expected to continue into next year and prices in these markets would also drop.
Australia joined the Global Methane Pledge, becoming one of the last major developed economies to sign on to an effort to reduce emissions of the potent greenhouse gas 30% from 2020 levels by the end of this decade. Announcing the decision to sign the methane pledge on Sunday, Climate and Energy Minister Chris Bowen said meeting the 2030 target could help avoid 2C (3.6F) of warming across the planet. Canberra’s participation is the latest push by Prime Minister Anthony Albanese’s Labor government to improve the nation’s climate standing on the world stage. In September, the government passed a law requiring a 43% cut in greenhouse gas emissions from 2005 levels by 2030 and setting a net zero goal by 2050, its first binding emissions-reduction target. Cutting methane releases in Australia could prove tricky if farmer or miners balk at the changes needed to meet the agreement’s goals. Officials in New Zealand, the world’s largest dairy exporter, said in October its farmers will start to pay a levy on agricultural emissions by 2025, a move Prime Minister Jacinda Ardern said would be a world first. The cheapest way to for Australia to significantly reduce emissions of the gas are to reduce leaks from coal mines, according to a recent analysis from energy think tank Ember. The pits spew more than 1 million metric tons of methane each year, contributing nearly a quarter of the country’s emissions of the gas, the group said in its analysis.
Victorian Premier Daniel Andrews said voters would decide if they wanted a publicly owned power company to generate electricity after former premier Jeff Kennett lambasted him for “quickly sending Victoria broke” and said his energy plan was “heartbreaking”. Last week Andrews announced a re-elected Labor government would revive the State Electricity Commission (SEC) and spend $1 billion to create 4.5 gigawatts of renewable energy, about 30% of the state’s electricity. Victoria would have a 51% stake in the revived commission, and its wind and solar projects. Andrews said the superannuation industry was the preferred investor in the remaining share. Kennett, who carved up and sold off the commission during the 1990s, tweeted on Saturday that Andrews was “quickly sending Victoria broke” and “must be stopped”. But Andrews said on Sunday he believed energy was an essential, not a business, and it had been a mistake for the Kennett government to sell off the commission’s assets. He said his energy plan would benefit Victorians rather than private companies, which he said had made $23 billion in profits since privatisation. Labor would also, if re-elected, accelerate its target to cut emissions by up to 80% of 2005 levels by 2035 and net-zero by 2045 – five years earlier than planned.
Australian consumers would rather cut back on eating out, smoking, drinking and even groceries instead of cancelling their digital media subscriptions, according to new research by Deloitte. The firm’s survey of 2000 Australians found spending on digital services jumped to an average of $62 in 2022, up from $55 last year, and that the average number of digital subscriptions per household increased to 3.1 this year, up from last year’s 2.3. But churn also remained high, with more than 30% of respondents cancelling one or more services in the past six months.
Billionaire Gina Rinehart’s Hancock Prospecting has pulled its $15 million sponsorship from Netball Australia (NA). It comes after some Diamonds players objected to the possibility of branding being splashed across their uniforms — Indigenous player Donnell Wallam, in particular, was uncomfortable considering Rinehart’s father Lang Hancock made terrible comments about sterilising Indigenous peoples in an ’80s documentary. After pulling the funding, Hancock Prospecting’s statement was fairly strongly worded — it said the sponsorship would’ve generously boosted the wages of players, and that it was “unnecessary” for sport to be used for social or political causes.
Qantas-owned Jetstar scrapped almost one in 10 domestic flights in September – a horror month for the carrier during which only five of its 11 aircraft were operable. Official data released on Monday showed the airline axed 626 flights – or 9.5% of services – in September. Jetstar’s performance was significantly poorer on the most popular routes including Brisbane to Sydney, where 21% of flights were axed. The Bureau of Infrastructure, Transport and Regional Economics data – which does not capture international data – showed 17.6% of Jetstar’s Brisbane to Melbourne flights were cancelled, along with 17.1% of Melbourne to Sydney services in the month. In comparison, Qantas had an overall cancellation rate of 2.5%. With several planes grounded (Jetstar blamed bird strikes, lightning strikes and runway debris), thousands of travellers were left stranded in September. The BITRE data shows that more than 40% of Jetstar departures were delayed in the month, compared to 35% at Qantas and 33% at Virgin Australia.
Australia’s biggest health insurer Medibank says it’s now aware that a criminal took Medibank customer data in addition to that of ahm and international customers. It said it had received specific files from the criminal, but made no mention of specific ransom or blackmail demands and said the matter is under investigation by the Australian Federal Police. It said criminals have stepped up extortion demands after providing another 1000 customers’ details. The embarrassing admission comes after Medibank spent the last week-and-a-half telling the market it was confident the issue — which involves the most sensitive health data and personal information — was contained to its cheaper AHM-branded insurance and international students. The insurer said the criminals had shared another 1000 AHM customer files, adding to the 100 customers it confirmed on Thursday last week. Medibank has set up a 24/7 mental health support services line for any customer and “support for customers who are in uniquely vulnerable positions”. It has now agreed to suspend premium increases previously slated for this month until next year.
One in two gay or non-heterosexual people say they have not come out to their work colleagues, a new study has found, while more than a third of women feel marginalised at work simply due to their gender, the highest proportion in the Asia-Pacific, according to a report from Michael Page. It also found that the majority of people who identify as LGBTQIA+ do not feel comfortable “being their authentic selves at work”. “Giv en that approximately 40% state that they work with homophobic or transphobic colleagues, one can understand why,” the report said. Half of all Australians who identified as LGBTQIA+ in the survey said they were not “out” at work, while 35% said they worked with colleagues who were homophobic or transphobic. 40% of this group said they believed they would have progressed further in their career if they identified as straight, the same as Singapore. Only India and Indonesia (49% and 48% respectively) were higher.
And that’s it for this week. And next week. I’ll be talking to Martin Creighan, Managing Director, Citrix Australia and New Zealand about cyber security budgets. And I’ll be taking to Rabobank economist Michael Every about the impact of Ji Xinping’s continued rule over China’s economy.
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.
Wishing you all a safe and healthy week. And looking forward to bringing you Talking Business next week.