Whatever political benefits Anthony Albanese is anticipating from his ministerial reshuffle, it will have no impact on the nation’s entrenched economic problems. Some of these were painfully clear in new figures from the Australian Securities & Investments Commission, reported on Monday. Business failures surged to a record high in the past financial year, with 11,049 insolvency appointments, up about 40 per cent on the 7942 appointments the previous year and 124 per cent more than in 2022. Cafes, restaurants, small retailers and accommodation providers were among those hardest hit.
Soaring power costs, higher prices for ingredients and other inputs, and hard-pressed consumers, especially those struggling with higher mortgages and rents, who have been cutting back on discretionary spending, contributed to the failures. So, for many businesses, has the Albanese government’s more rigid industrial relations system, which is ill-suited to industries in which flexibility and casual work are vital for employers and workers. Nor are the changes finished. As of August 26, the Fair Work Commission will have the power to set minimum standards for workers in the gig economy and “employee-like” contractors in road transport.
A week ago, we reported that insolvencies in the building and construction sector were on track to exceed historical highs. Stakeholders are awaiting new inflation and retail trade figures on Wednesday, and the Reserve Bank board’s next decision on interest rates on August 6. Common factors in most problems sending firms broke are inflation and economic policy. That includes big spending by states and territories, which are recording some of the highest deficits in the developed world, Jack Quail and Patrick Commins report. Economists are warning the blowout is undermining the Reserve Bank’s efforts to tame inflation.
New analysis by ratings agency S&P Global predicts combined state and territory debt piles are set to triple from pre-pandemic levels to $750bn by mid-2027, with state deficits far outstripping “subnational” governments in Japan, Germany, Spain, Canada and the Nordic states. Irresponsible spending is costing consumers and businesses dearly. Left unchecked, it could cost jobs. Problems in the private sector are being largely hidden by expansion in the public sector, where jobs and wages are rising, particularly in the government-funded care economy. But such spending, Productivity Commissioner Danielle Wood has warned, is a drain on productivity.
Jim Chalmers dismissed as “ridiculous” concerns that big-spending governments were adding to inflationary pressures. Budgets were not the primary determinant of inflation or prices, the Treasurer said. But in its June board meeting statement, the RBA warned that “recent budget outcomes may also have an impact on demand, although federal and state energy rebates will temporarily reduce headline inflation”. And independent economist Chris Richardson says the start of the stage three tax cuts, alongside new federal and state spending, amounted to an extra $46bn being poured into the economy this financial year – equivalent to the “best part” of 2 per cent of national income. That was “huge” relative to the amount of money the RBA’s rate rises have taken out of the economy, he said: “If your yardstick is (whether governments are) helping or hurting the Reserve Bank to fight inflation, then they’re clearly hurting.”
Small businesses operating on tight margins, with depleted cash reserves, are hurting the most, CreditorWatch chief executive Patrick Coghlan said: “They are experiencing a combination of rapid price increases, a series of interest rate hikes, and rising wage costs.” But Gayle Dickerson, KPMG’s national leader, turnaround and restructuring, said the problems would spread to medium and large businesses.
It is economic policy, as much as personnel, that needs a reshuffle.
