But Frydenberg and Finance Minister Mathias Cormann were given the perfect weapon to stimulate the economy during the election campaign -- all they need to do now is accelerate it -- and it won’t cost the budget a dollar.
Last November Scott Morrison stood in the lion’s den - the Business Council’s annual dinner. The Prime Minister gritted his teeth and declared to Australia’s top companies: “If you want to do government work, you’ve got to pay your suppliers and you’ve got to pay your contractors on time within 20 days. They’re the standards we’ll be requiring of those who want to work with the government”. At the time, many CEOs at the dinner were glad that Mr Morrison seemed almost certain to be defeated in the looming election.
Mr Morrison also pointed out that many big companies had not signed the Business Council’s payments code but diplomatically did not point out that the code didn’t go far enough.
Fast forward to September 2019 and I believe that the speedy implementation of that promise is just what is required to stimulate the economy.
But rather than use my words let me use the Prime Minister’s November description of how quicker payments will transform the economy. Importantly he acknowledged that the main driver of the fast payment stimulation was small business minister Michaelia Cash, who attended the BCA dinner.
Mr Morrison: “Trade between small and medium and large businesses totals about $550bn a year. Healthy cash flow is critical to these businesses. This issue is being consistently raised with us of course, by small and medium businesses, particularly with Michaelia as she’s travelled around the country … completed payment terms are being pushed out to 60, 90 and 120 days in some cases. Even loans are being offered to cover extended payment terms. So; ‘I’ll loan you some money, while I don’t pay you’.”
What followed were words rarely heard from a Prime Minister.
“What really makes small businesses light up, is when they get paid. When they get paid and when they get paid on time. If you don’t pay them on time, it slows the whole show down. In the economy the money has got to move. If you slow it movement down, everything slows down.”
Very few politicians understand this but our Prime Minister “gets it”. What followed at the BCA dinner was incredible detail of what the government is doing and proposed to do
Mr Morrison said that government’s “Pay on Time” survey showed that Commonwealth agencies paid 97 per cent of their invoices under $1m within 30 days.
“The results also show that we’re on track towards our commitment to pay our invoices within 20 days, by July 1, 2019”, he said.
Of course, it’s now September 2019 but the government believes it has gone close to meeting the target. The states have all agreed to follow but there are laggards and work is required to speed them up.
The big job is the private sector. Under the Morrison plan, the first step will be to “name and shame”.
Mr Morrison: “We will be developing an annual reporting framework requiring large businesses over $100m in turnover to publish their payment information. I want people to know who to do business with and people should do business with people who pay on time.
“They should know who they are, and they should be able to make those judgements and I’d like to see that as a positive incentive for businesses to pay more readily.
“It will cover 3000 of the largest businesses in Australia, including foreign companies and government entities. Small business will have more transparency, allowing them to do business with better payers.
“Large businesses will get the benefit of their suppliers and their customers knowing that they play fair and they pay on time.
“We are committed to using every available lever to support businesses by pursuing these processes across the supply chain and so we’ll also deliver a new government procurement connected policy, which will require those large businesses seeking to tender to have satisfactory payment times in line with the government’s pay on time policy of 20 days.”
If anything, Morrison has understated the boost to the economy such actions will have.
The banking system led by the National Australia Bank and Suncorp is moving towards increasing its cash flow lending because modern accounting systems enable lenders to follow the cash flow of their business borrowers. But a raft of non-banks are moving in the same direction. The above moves will accelerate the process.
I know everyone in government is busy with the legislative response to the banking royal commission but we have an economy to boost and a Prime Minister who promised to take action. Given there has been plenty of notice, there is no reason why the payment terms should not be required to be announced in the next 60 days and the procurement policy introduced soon after.
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The Australian economy clearly needs another kick start. Lower interest rates have now become counter-productive and, given the deficits the states are running up and high consumer debt, Treasurer Josh Frydenberg is right to keep his budget powder dry in case there is a severe world downturn.