This is episode number thirty-six in our series for 2020 and today’s date is Friday, October 9.
First I talk to Erin Brindley, National Programs Manager at Generation Australia on tackling the growing level of youth unemployment.
And then I’ll be talking to economist Nicholas Gruen about creating better models for forecasting, for economics, for coronavirus.
But now, let’s talk to Erin Brindley.
With Joe Biden’s lead widening in the polls and President Donald Trump’s campaign sidelined by the virus, investment strategists now say there’s less of a chance for a contested election. A clear-cut Democrat victory could avoid a long and messy legal battle and provide certainty to markets that have been nervous about election risks, according to strategists from Citigroup to JPMorgan Chase & Co.
At the same time, there is still no shortage of debate over whether Democratic or Republican policies would be better for investors. While some pundits say the former would raise taxes and tighten regulations in a blow to corporate profits, others point out a Democratic sweep could boost government and consumer spending to add a fresh leg to the risk cycle. All told, between the disruption wrought by the pandemic and a volatile sitting president, a humdrum transfer of power is seen as providing investor solace.
Australia’s trade balance surplus has fallen to $2.64 billion in August from $4.65 billion in July, well below the $5.05 billion surplus economists had been forecasting. Exports for the month fell 4% to $32.6 billion while imports rise 2% to $30 billion. Economists had been forecasting exports would fall by 2% and imports would fall by 5%.
ANZ Australian Job Ads rose 7.8% in September following an upwardly revised 2.6% in August. Job ads were still down 21% since February though.
The Reserve Bank of Australia has kept its rates on hold following its October meeting. The RBA’s cash rate target remains 0.25% and its yield target on the 3-year bond also remains at 0.25%. However, economists are tipping a Melbourne Cup rate cut next month with RBA governor Philip Lowe declaring that the RBA “continues to consider how additional monetary easing could support jobs as the economy opens up further.”
Billions of dollars in fast-tracked tax cuts and younger worker wage subsidies underline the Federal Government’s budget recovery pitch, as Australia’s recession sends debt and deficits to record levels. The budget assumes the recession will be over by next year. However, it will do little for unemployment. The official unemployment rate is now forecast to peak at 8% in the December quarter. It’s expected to stay above 6% until mid-2023.
Debt and deficits are set to hit record highs as coronavirus savages the economy Treasurer Josh Frydenberg’s coronavirus-delayed Budget include $50 billion to bring forward tax cuts and $4 billion in subsidies for businesses to hire unemployed workers aged between 16 and 35.
Almost $50 billion in tax relief for businesses and low-and-middle-income earners is at the heart of $98 billion in new measures designed to return the economy to health and create 950,000 jobs over the next four years. Making good on the Prime Minister’s pledge for a business-led-recovery, Tuesday’s federal budget contained an investment allowance which, at a cost of $26.7 billion in just over two years, will enable almost every company in Australia to immediately write off in full any eligible depreciable asset, with no limit on value.
The focus of the Budget is getting those who lost their jobs to COVID-19 back to work as Australia faces its biggest economic challenge since the Great Depression. Cash payments worth $500, aimed at stimulating a struggling economy, will go to seniors, carers, and disability support recipients, costing $2.6 billion, and an extra 23,000 in-home aged care packages will be offered, costing $1.6 billion.
The economic devastation sparked by coronavirus will see budget deficits continuing for at least another decade. This financial year, the deficit is forecast to surpass $213 billion. Gone is the Government’s pre-virus pledge to get the budget back to surplus and pay off the nation’s debt within a decade.
Now, the Government forecasts gross debt will peak at $1.1 trillion — the equivalent of 44% of gross domestic product (GDP) — in 2024 A so-called JobMaker Hiring Credit will be paid for a year to businesses who hire an unemployed worker aged 16 to 35 from the JobSeeker program.
Unemployed workers in the 45-64-year-old bracket will get nothing. The rate will be $200 a week for people under 30 and $100 a week for people between 30 and 35, and they must work at least 20 hours a week. The Budget forecasts that will support 450,000 jobs and is eligible for all businesses except the major banks.
The next round of tax cuts, which are being brought forward two years ahead of schedule, will be retrospective to July, but people will have to wait until the end of the financial year to recoup the extra tax they have paid since the start of the financial year.
The Budget expects all domestic borders, except for WA’s, will reopen by the end of the year. It expects WA’s to reopen in April, shortly after the state election there. A return of international students and permanent migration isn’t forecast to happen until late next year, with international travel expected to “remain low through the latter part of 2021”.
If there is a vaccine before July next year, the Budget expects economic activity could increase by $34 billion. But if there’s no vaccine and further outbreaks occur, forecasted economic activity will be $55 billion lower over the next two years.
The JobKeeper wage subsidy program is still slated to end in March next year, signaling a major end to direct Government economic assistance ramped up during the height of the pandemic. The Government will also cut placements on its humanitarian program, saving almost a billion dollars in the coming years.
The Budget also includes $6.4 billion in funding the Government has allocated but is yet to announce. In his budget lock-up news conference, Mr. Frydenberg echoed Treasury’s concerns about how the COVID-19 pandemic will play out. The budget papers say “its effects on communities and the economy are highly uncertain”. There are large upside and downside risks associated with the forecasts. The upside presumes a rollout of a vaccine from July speeding a return of more business, as usual, resulting in a $32 billion increase in activity in the first half of the following year. The downside presumes outbreaks of the infection leading to the reimposition of lockdowns and a contraction similar to the first wave costing the economy $55 billion.
The Queensland government will invest $200 million in the relaunched Virgin Australia under new owner Bain Capital for a 10% stake aimed at keeping the airline’s headquarters in Brisbane. Virgin fell into voluntary administration under the strain of the COVID-19 pandemic in April. The prospect of the airline moving interstate to reduce overheads post-relaunch sparked a bidding war with NSW and Victoria, which were both keen to host the airline at their major airports. Queensland laid its cards on the table in May, after previously offering a similar lifeline that was conditional on federal government support to try and stop Virgin entering administration in the first place, and won over Bain.
Richard Branson’s Virgin Group is set to take about a 5% stake in Virgin Australia, as part of a new agreement with incoming owner Bain Capital. It is understood Bain and Virgin Group are in late-stage talks to finalise the British tycoon’s investment, which sources said was on track to be signed when Bain formally takes the Australian airline’s keys at the end of this month.
Virgin Group’s equity stake would ensure Branson’s world-famous company continued to have a presence in Australia’s skies – about 20 years after it set up what was discount carrier Virgin Blue – and give new owner Bain Capital an ongoing relationship with the group whose name is emblazoned on its aircraft and whose culture is still synonymous with the No.2 Australian carrier.
Virgin Group is expected to tip in fresh funds for the stake, although the size of the equity cheque is not known. The shareholding is part of a wider deal that also includes Bain’s on-going use of Virgin’s name and branding. (Virgin Australia has historically paid an annual fee to Virgin Group for use of the trademarks). Should Virgin Group’s investment complete with the wider deal is expected at the end of this month, it would mark a full-circle situation for Branson’s company.
Brisbane-based vaccine technology company Vaxxas has scored $30.2 million ($US21.7 million) in funding from a US government biomedical research body to advance its needle-free vaccine technology in preparation for future pandemics. The fresh funding injection from the US Biomedical Advanced Research and Development Authority (BARDA) will support its preclinical studies and a large phase one human clinical trial of its micro-patch technology using an influenza vaccine. Vaxxas’ micro-patch technology will change the way vaccines are administered.
The company, which was spun out of the University of Queensland in 2011, has created technology that allows vaccines to be administered via a one-square-centimetre patch with 5000 tiny projections invisible to the naked eye. These projections are coated in a dry version of the vaccine, rather than a liquid, and prick the skin when applied. Early Vaxxas research suggests this method causes a far greater immunological response to the vaccine, thanks to the high proportion of immune cells found in the skin. This means a substantially smaller dose would be required for immunity. Its early studies have shown comparable immune responses with a sixth of the vaccine dose.
One of the nation’s most iconic fruit and vegetable processors, the century-old SPC, is making its first move into the frozen prepared-meal category. SPC Ardmona has taken a majority equity stake in the Australian manufacturer of frozen ready meals and finger foods The Kuisine Company, as the iconic fruit and vegetable processor continues its transition into a global agribusiness.
SPC, now under the ownership of Shepparton Partners Collective who bought the ailing business from Coca Cola Amatil, will grow its health and aged care food offerings by adding the Emu Plains, NSW company’s brands, and 100 staff members. Kuisine makes its The Good Meal Co, The Gluten-Free Meal Co, and Simply Special brands for supermarket chains, health services, Meals on Wheels, and other foodservice clients, while SPC offers its existing ProVital brand.
A decision by Qantas to stand down hundreds of aircraft engineers without pay during the COVID-19 pandemic has been vindicated by the Federal Court. Qantas claimed all other cost-saving measures had been implemented before the stand-downs. The Engineers Association said the decision to stop work was in Qantas’s control The court ruled the work stoppage was the direct result of government restrictions on flying.
About 450 Qantas and Jetstar maintenance engineers were among two-thirds of the workforce benched for a month from late March as passenger numbers declined. In a case being closely watched for its likely ramifications outside aviation, Qantas sought a declaration from the court that the stoppage of work was for reasons it could not be held reasonably responsible for.
But the Australian Licenced Aircraft Engineers Association argued a lack of customers, no matter how stark, should not be considered a stoppage of work under the workers’ agreement. Justice Geoffrey Flick today ruled in the airline’s favour and found the stoppage of work was due to the substantial stoppage of domestic and international passenger flights between March 29 and April 22. This “dramatic downturn” was not the result of any conduct of the airlines, the court found.
Australian businessman James Packer has told the independent inquiry into Crown casinos that his bipolar disorder has impacted his behaviour in the past. James Packer faced the inquiry into the Crown Sydney licence. He told the inquiry that it was “correct” he was on medication which impairs his memory, Mr. Packer resigned from Crown Resorts in 2018, citing mental health issues Mr. Packer appeared for his first day of questioning when he revealed issues caused by his mental health state.
The hearing this afternoon was paused for legal argument over the release of emails sent by Mr. Packer in 2015, with his lawyers arguing they should be kept confidential. The inquiry has already heard testimony from senior Crown executives and directors, and Supreme Court Judge Patricia Bergin has criticized the state of the company’s anti-money-laundering systems.
Last month, she said the lack of transparency at Crown exposed by the probe was a “debacle,” and she called some of the evidence “extraordinarily troubling.” But it resumed after more than half an hour to reveal Mr. Packer sent threatening emails to a businessman, referred to as Mr. X to protect his identity for the purposes of the inquiry. He admitted his behaviour was “shameful” and “disgraceful” after he had sent allegedly threatening emails to Mr. X in 2015 at a time when he had been canvassing to privatise the company, although the reason behind the emails has not yet been made public. Mr. Packer said at the time he was being treated for bipolar disorder.
Online sales with COVID-19 have seen baby goods retailer Baby Bunting is heading for a bumper December-half result after achieving 17% same-store sales growth and higher gross margins in the 14 weeks to October 2. Excluding stores in metropolitan Melbourne, same-store sales had risen 28.5% in the year to date, Baby Bunting said in a trading update before its virtual annual meeting.
The 17% same-store sales growth compared with comparable-store sales growth of just 3.1% in the same period last year. The sales growth was fuelled by online demand – online sales including click and collect soared 126% in the first quarter. Excluding Victoria, online sales rose 92%, and click and collect sales surged 233%. While most discretionary retailers in Melbourne remain closed under stage four lockdown rules, Baby Bunting’s Melbourne stores and its distribution centre at Dandenong South have remained open. However, sales in Melbourne have moderated.
Insurance Australia Group will pay $138 million to settle a class action over the sale of add-on motor insurance through car and motorcycle dealers. The action, brought against the insurer by law firm Johnson Winter & Slattery, related to insurance products that motor dealers sold to customers as add-ons when buying a car or motorcycle. The sales in question took place between 2008 and 2017, and the action was first made public in April 2019. IAG has stopped selling add-on insurance through motor dealers in 2018. The sale of often unnecessary insurance products through car dealers was a major focus of the Hayne royal commission’s insurance hearing in 2018, and the class action closely followed commissioner Kenneth Hayne’s final report.
And that’s it for this week. And next week, I will be talking to Longtail UX Co-CEO Andreas Dzumla and we’ll be talking about the Longtail start-up which has an industry-first online marketing solution with its patented technology delivering a perfect match for every keyword searched by potential customers. As well as boosting traffic and conversions, the technology also ensures SEO investments are 100% measurable, providing detailed analytics that demonstrates results down to the individual keyword level. And economist Saul Eslake will give his assessment of the Budget.
In the meantime, you can find me on Twitter at talkingbizz, on Facebook, and on 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.