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 twenty in our series for 2019 and today’s date is Friday June 14.
First I talk to Chris Croker, the managing director of Impact Investment Partners. And they’re setting up an exciting and innovative Indigenous Infrastructure Investment Fund.
And then I’ll be talking to Commsec economist Craig James about what trends we can expect in the market for the week ahead.
But now, let’s talk to Chris Croker.
Donald Trump, the US president, has warned Xi Jinping, his Chinese counterpart, that a new round of tariffs would be levied on the country’s goods if the two leaders failed to meet at the G20 summit in Japan, as trade tensions continued to simmer between Washington and Beijing.
In an interview with CNBC on Monday, Mr. Trump said he believed there would be a bilateral meeting with Mr. Xi in Osaka on the sidelines of the world leaders’ gathering later this month. The meeting has been widely seen as a chance for a new truce between the US and China. He also renewed his attacks on the Fed and suggested a US ban on Huawei may be scrapped as part of a trade deal.
Global finance ministers failed to forge a way forward out of the US$250 billion US-China trade dispute at the G20 in Japan, with the Group of 20 finance leaders declaring that trade and geopolitical tensions have “intensified” but failing to express a pressing need to resolve them. The ministers also agreed to compile common rules to close loopholes used by global tech giants such as Facebook to reduce their corporate taxes, a final version of the bloc’s communique obtained by Reuters showed.
Facebook, Google, Amazon, and other large technology firms face criticism for cutting their tax bills by booking profits in low-tax countries regardless of the location of the end customer. Such practices are seen by many as unfair. The new rules would mean higher tax burdens for large multinational firms but would also make it harder for countries like Ireland to attract foreign direct investment with the promise of ultra-low corporate tax rates.
However, rocky negotiations nearly aborted the issuance of the communique, before the finance ministers and central bank governors gathered in Fukuoka, southern Japan, affirmed language on trade issued in Buenos Aires last December. “Global growth appears to be stabilising, and is generally projected to pick up moderately later this year and into 2020,” the final draft reportedly said. “However, growth remains low and risks remain tilted to the downside. Most importantly, trade and geopolitical tensions have intensified.
We will continue to address these risks, and stand ready to take further action,” the communique said. The Buenos Aires G20 summit in December 2018 launched a five-month trade truce between the United States and China to allow for negotiations to end their deepening trade war. But those talks hit an impasse last month, prompting both sides to impose higher tariffs on each other’s goods as the conflict nears the end of its first year.
The G20 finance leaders’ final communique language excluded a proposed clause to “recognise the pressing need to resolve trade tensions” from a previous draft that was debated on Saturday. The deletion, which G20 sources said came at the insistence of the United States, shows a desire by Washington to avoid encumbrances as it increases tariffs on goods. The statement also contains no admissions that the deepening US-China trade conflict was hurting global growth. The International Monetary Fund warned last week that the trade conflict would cut global growth next year, and financial markets had sold-off heavily as U.S.-Sino ties soured.
Australia should unilaterally cut trade barriers, remove “nuisance” tariffs and review millions of dollars in assistance to farmers, the government’s top economic advisory body has found, as it warns the world trading system is under greater strain than at any time since the 1930s. A day after global finance ministers failed to forge a way forward out of the US$250 billion US-China trade dispute at the G20 in Japan, the Productivity Commission said Australia must lead by example by ditching anti-dumping measures and encouraging foreign investment by removing regulations. The Commission said Australia “has continued to retreat into protectionism in some areas” through $14.4 billion in annual assistance to industries that lowered its international competitiveness.
Australia’s private sector is losing momentum, with business conditions “well below average” and weakening further, according to the National Australia Bank’s monthly business survey. Business confidence jumped from 0 to +7 in May following the election and indications of a looming rate cut. But business conditions fell to +1, “well below average” levels and 20 points off last year’s recent peak Retail, mining, transport, and utilities were the main sectors which drove the business conditions to result lower.
But the weaker trend is more noticeable over a two-month period — with a 6-point fall since March. From a longer-term perspective, business conditions are about 20 points below their early-2018 peak. The downbeat result was largely weighed down by a decline in trading (-5 points) and profitability (-4 points) in May.
Key Senate crossbenchers will demand the government come up with a plan to stop Australia’s “abhorrent” energy price rises before supporting the Coalition’s signature $158 billion income tax cuts in Parliament. The government will need to convince both Centre Alliance and One Nation to back the three-stage, 10-year package without the support of Labor.
It had hoped that personal briefings from RBA governor Philip Lowe and Treasury executives in Adelaide last week would sway the crossbench votes it’s way. But the two Centre Alliance senators weren’t persuaded that the government had made the case that the tax cuts alone were in the economy’s best interest. They will now give the government’s chief negotiator, Finance Minister Mathias Cormann, less than three weeks to pull together an energy proposal to ensure power price rises do not wipe out the benefit of tax cuts worth between $1000 and $4000 a year for middle-income earners over the next five years. Centre Alliance senator Rex Patrick said if disposable income was consumed by rising power prices, you “effectively nullify the advantage of the tax cut”.
Labor meanwhile is standing firm on its demand for the Morrison government to split the bill for income tax cuts, as the Coalition calls for the Senate to “respect the verdict” of voters and pass the package in full. Amid the stand-off between the Coalition and Labor over the government’s key election pledge, the passage of the legislation could come down to crossbench senators who are leaving open the possibility of supporting the plan.
On Monday, Pauline Hanson indicated she would oppose the third stage of the government’s $158 bn tax cut package. saying she was “not sold” on the economic argument of the boost for higher income earners. She called on the government to prioritise “nation-building” projects, naming a coal-fired power station, the Bradfield water scheme first proposed in the 1930s and a royal commission into the family courts system as key to her support
Australians who rely on earning interest from their savings will the biggest losers after the Reserve Bank slashed rates to a record low last week. A total of $526 billion is currently held in savings accounts across the nation, according to a report by financial comparison website Finder. It also found that households may lose around $1.3 billion in interest from their term deposits and savings accounts if the banks pass on the full rate cut of 0.25 percentage points.
The hardest hit groups will be “those saving for their first home, or retirees relying on their savings as a form of income”, said Graham Cooke, Finder’s insights manager. Mortgage borrowers, on the other hand, are the main beneficiaries of lower rates, even though many lenders opted not to pass on the full cut. In the last two months, more than 50 banks have already lowered their term deposit rates.
Interest rates on more than 80 percent of savings and 44 percent of term accounts are below the headline rate of inflation, with more cuts on the way following last week’s reduction in cash rates, University of NSW analysis shows. The record low rates are a blow to 3 million households that rely on interest rates to make ends meet, such as retirees and other pensioners, and will force more than 1 million households to dip into their capital, according to analysts. These negative real rates are also expected to force many savers from cash into riskier investments, ranging from housing to stocks, particularly high dividend paying income stocks, in search of bigger returns.
Wesfarmers has outlaid $230 million to buy one of Australia’s oldest and largest online retailers, Catch Group, from founders Gabby and Hezi Leibovich. Wesfarmers has entered into an agreement to buy Catch Group for $230 million in cash to accelerate the conglomerate’s digital and e-commerce capabilities. Catch Group, which operates an online marketplace and owns sites such as Catch Of The Day, Mumgo, Grocery Run and Scoopon, will operate as an independent business unit overseen by Kmart managing director Ian Bailey.
AGL Energy has issued a $3.1 billion proposal to acquire telecommunications company Vocus Group a week after takeover talks with a Swedish private equity player fell through. Under the proposal, AGL would buy all of Vocus shares at $4.85 each, 40¢ lower than the offer that private equity EQT Infrastructure bought to the table in May. The bid would value Vocus at some $3 billion
Casino giant The Star Entertainment Group aims to cut as much as $50 million from its cost base after warning a soft economy means it’s fiscal 2019 underlying earnings will fall below last year’s result. The Star said on Tuesday it expects normalised earnings before interest tax, depreciation and amortisation (which adjusts for lucky streaks for either the house or punters) for the year ending June 30 would be between $550 million – $560 million, below the $568 million posted last year.
Eric Beecher’s Private Media has launched its new investigative journalism team, INQ, with a staff of 12 – two editors and 10 journalists – who will focus on deep reporting across a range of topic areas as an extension of independent digital news publisher Crikey.
Subscribers to Crikey will have access to INQ. Mr. Beecher, a former editor of The Sydney Morning Herald, said the new division had more than 800 applicants for the 12 positions at INQ. Six-time Walkley winner Suzanne Smith has been brought on as consulting editor, while former chief of staff at Network 10’s The Project Lauren Molan will be inquiry editor.
The team of journalists will include David Hardaker, Jennine Khalik, Kirsten Drysdale, Emily Watkins, Georgia Wilkins, Justine Landis-Hanley, Charlie Lewis, Kishor Napier-Raman, Amber Schulz and Chris Woods. INQ marks the return of the storied Fairfax family to the media sector. Marinya Capital, the family investment office for John B. Fairfax and Nicholas Fairfax, has invested in the INQ venture along with Cameron O’Reilly. The Fairfax family ended its association with Fairfax Media, which has now merged with Nine, in 2011 when Nicholas Fairfax left the publisher’s board of directors and the family’s stake in the business was sold.
The chief executive of waste management group Cleanaway says a pioneering trial of electric rubbish trucks in a council area in Melbourne is showing some promising signs in its early stages. The electric trucks have a range of 180 kilometres before they need to be recharged and the first has been operating for the past few weeks in the City of Hobsons Bay, which covers 12 suburbs in western Melbourne. Cleanaway chief executive Vik Bansal said there were good signs on the operating costs for the vehicles for kerbside collections because they need to be kept low for the technology to be viable in the long term.
Global ridesharing giant Uber has named Melbourne as one of three locations around the world for its aerial taxi service trial. The service would use a network of small and electric aircraft using vertical take-off and landing technology (VTOL). A 2016 paper proposed using car park roofs and existing helipads to run the service The Civil Aviation Safety Authority previously said the project was possible and could be introduced within five years The company’s Uber Air pilot — which will also run in the US cities of Dallas and Los Angeles — aims to connect transport hubs like airports to central city sites.
The rideshare company said test flights were due to start from 2020 and plans were for commercial operations to commence from 2023. The announcement was made at the company’s Elevate summit in Washington after sealing the deal with Melbourne Airport and companies Macquarie Capital, Scentre Group and Telstra.
And that’s it for this week. And next week, I’ll be talking to Daniel Lai, the CEO of cybersecurity firm archTIS, which has secured endorsement from the Digital Transformation Agency for its Kojensi Gov offering which provides security for government networks. It will be a great conversation about hacking and cybersecurity.
And then I talk to AMP Capital chief economist Shane Oliver looking at what’s ahead in the markets.
And of course, I’ll be bringing you all the week’s news. In the meantime, you can find me on Twitter at talkingbizz, on Facebook and on LinkedIn. And if you want, leave a comment. Have a great week, take care, be good and looking forward to bringing you Talking Business next week.