Failure to lead us from the fiscal gloom

The quicker the country can get from emergency support to actual budget stimulus the better everyone will be. Picture: NCA NewsWire

Business was underwhelmed by Thursday’s economic statement not because of the national debt, but because Treasurer Josh Frydenberg failed to provide any suggested pathway out of the fiscal gloom.

The onus will now be on October’s budget to deliver evidence of a plan via policy reform to achieve the necessary switch from emergency funding via JobKeeper/Seeker to long-term stimulus.

That is the tricky test ahead of the Treasurer, unless of course his budget is pre-empted as Thursday’s statement was by the early release of the JobKeeper extensions.

Just why that split was made was confusing because clearly the two announcements made more sense together but put that one down to marketing and who claims credit.

The quicker the country can get from emergency support to actual budget stimulus the better everyone will be because the latter is all about growing the economy and the former just trying to keep the place together.

The budget statement was simply a confirmation of the reality the market was basically already aware of and unusually for the Government even a little more pessimistic than some.

By way of example Treasury is looking at negative 0.3 per cent GDP in the 2020 financial year against National Australia Bank’s economics forecast of plus 0.03. Treasury is tipping negative 2.5 per cent for the present financial year compared to NAB forecasts of negative 0.7.

Either could be right and the reality is economic forecasting at this time is almost impossible because it depends firstly on how the pandemic is controlled.

Any further Victorian snafus will blow out even the more pessimistic Treasury numbers.

The good news from yesterday’s figures is while net debt will grow to a record $677.1bn this year or 35.7 per cent of GDP the cost of that debt according to Frydenberg’s speech was $16.3bn.

This was below the cost of much lower debt in the 2014 financial year, because, of course interest rates are so low.

The point as economist Saul Eslake has noted is if the country is hit by another or more Victorian bungles there is enough fuel in the tank to keep the country running a while longer.

The impact of the Victorian lockdown is much greater than the $3.3bn extra hit to the economy it appears to have derailed the entire national consensus wagon.

In early May, the Business Council of Australia, buoyed by the brilliant operation of the national cabinet, arranged 14 working parties to come up with a blueprint for reform as the economy recovered.

At that time confidence was high, the country was coming out of lockdown, the national cabinet was working well across party and State lines, business and government were working well together, Canberra was actually considering real reform rather than just talking about it and the economic impact of the lockdown appeared on the low side of estimates.

Well almost but in any case then Victorian Premier Daniel Andrews’ administrative bungles were revealed in all their infamy.

Now the states are closing borders, Mr Andrews has gone from hero to total impotence, NSW is worried and the only one seemingly enjoying it all is Queensland Premier Annastacia Palaszczuk.

Granted, back then the BCA was getting a little ahead of itself in thinking 10 ideas from each of 14 working parties would magically work their way into Mr Frydenberg’s October 6 budget speech.

At best the business community can expect some of its top five ideas to get there and these would be-an investment allowance of some sort, long term industrial relations reform, deregulation, more details around skills and tertiary education reform and infrastructure project spending.

Thursday’s numbers confirmed the case for some sort of investment allowance with the Treasury predicting non mining investment will go from falling 9 per cent in the year just gone to down 19.5 per cent this financial year.

Mining investment will be up 9.5 per cent this year according to Treasury but then again it fell 9.4 per cent in the 2019 financial year so is highly cyclical.

Iron ore as noted earlier this week is the star performer keeping the budget afloat.

Coalition Governments are not noted for reform but the imperative is clear.

Pre-Victoria all the talk was about not wasting a crisis but it remains to be seen whether Mr Frydenberg delivers on October 6.

CBA’s Stephen Halmarick said at the very least “we still think that there is a good case to bring forward the already legislated 1 July 2022 income tax cuts”.

“Policies that boost demand in the economy are the ones to pursue at the moment and personal income tax cuts certainly fit the bill,” he added.

BCA members would prefer more widespread reform than simple personal tax cuts.

Corporate changes

The economic uncertainty which clouds the budget preparation was also seen as delaying massive governance changes in corporate Australia with planned departures perhaps delayed.

Paula Dwyer has however followed through on her planned departure after a momentous decade as Tabcorp chair and her chief executive David Attenborough will also leave sometime in the new year.

Both have presided over the successful expansion of the company since the casino demerger in 2011, with the creation of Star Entertainment, the $11 billion Tatts takeover and the revamp of the company so that now 50 per cent of retail sales are digital.

Tatts delivered lottery sales which are now the company’s biggest earner and a handy diversification from its traditional business.

Ampol chair and Tabcorp director Stephen Gregg will replace Dwyer with the initial task for finding a replacement for Attenborough.

Internal candidates start with wagering boss Adam Rytenskild.

Dwyer is now free to take the chair at ANZ if Davd Gonski proceeds with his stated plans to step down at this year’s annual meeting.

But Coca-Cola Amatil chair Ilana Atlas would be the favoured internal candidate assuming Sir John Key’s profile was dented with the controversy over former ANZ New Zealand boss David Hisco.

QBE defence

QBE’s Pat Regan defends his company’s handling of the pandemic noting insurance works best when things don’t all go wrong at the same time which is why pandemics are excluded from many policies.

COVID-19 has done just that and the industry has copped criticism for not providing cover.

Small Business Ombudsman Kate Carnell will shortly convene an inquiry into the industry.