The corporate regulator wants to take insurers to the cleaners to clean up their decidedly dirty practices and excessive premiums. This follows accusations from the Australian Securities and Investments Commission (ASIC) that big insurers haven’t been listening!

To make the management of our big insurance companies listen, ASIC wants bonuses to top executives to be slashed as a payback for poor handling of complaints.

The Australian’s David Ross reports that ASIC says insurers are even failing to identify one in six complaints that come to them. This represents insurers denying their customers critical protections, which is a disgraceful accusation, if true.

This follows the regulator’s concerns about how poorly the insurance companies looked after the victims of the 2022 floods in NSW and Queensland.

ASIC looked at 1.4 million complaints and found 85 “systemic issues”. It found around half of our insurers didn’t find even one systemic problem with their handling of complaints.

The poor practices have ASIC commissioner Alan Kirkland considering the serious move of an enforcement action. An enforcement action means:

1. A matter resolved in an administrative proceeding or civil action with ongoing compliance obligations.
2. Actions taken by regulatory agencies against entities that break the law.
3. Measures to compel management and directors of a financial institution to address weaknesses.
4. Orders directing individuals, businesses or other entities to come into compliance or clean up a site.

 

This would be a serious kick in the pants for our big name insurers. Some could end up in court for not living up to their claims in the marketing of their products.

All up, 11 insurers will be given feedback on ASIC’s findings. They will have to return with their action plans to right the wrongs they’ve exerted on their customers.

Kirkland explained to Ross that ASIC can use something called FAR, i.e. the Financial Accountability Regime, which empowers it to claw back big bonuses from executives from companies that have been mistreating customers in the finance sector.

Insurance companies point to the 300,000 insurance claims totalling $7.4 billion that came out of that big flood event, but ASIC insists the insurers should be prepared for such events.

The plight of insurance customers not being appropriately helped by insurers has long been a problem. It might be significant that Alan Kirkland was once was the boss of the consumer group, Choice. It looks like ASIC has recruited the right man for the job of making insurers lift their game by listening to consumers, as well as the regulator who has outlined what they should be doing. ASIC means business and insurers won’t ignore their complaints!

What? No food! No beer! With an election looming? Yep, these are the kinds of big issues that can get a Workplace Relations Minister like Murray Watt fired up to solve a union strike.
A Christmas with no beer could KO a PM heading to the polls in May or before.
And that’s what happened yesterday as the Woolworths-United Workers Union standoff materialised into supermarkets with low food supplies on the shelves, as well as beer and wine shortages at the likes of Dan Murphy’s and BWS.
The supply problem is centred on Victoria and southern NSW, with four warehouse sites locked in a dispute over pay and conditions with the supermarket giant. To date, 1,500 workers have been on strike for 12 days and now are due to meet Woolworths at the Fair Work Commission on Friday.
This follows Minister Watt meeting with the Union Secretary Tim Kennedy.
The grog supply problem emanates out of the Melbourne Liquor centre that was owned by Woolworths, but the alcohol and pubs business was spun off into a new company called the Endeavour Group.
The big fear for Woolworths and the Albanese Government is the prospect that this dispute might spread nationally, so there are high hopes that the FWC can broker a deal on Friday.
So, what’s the strike about? First, the workers want “cost-of-living wage increases” ranging from 10% to 12.5% annually but Mr Kennedy has hinted lower increases haven’t been ruled out. But the more interesting bone of contention is linked to a problem that’s seen as a national concern and that’s productivity.
Woolworths has an innovative program designed to boost the company’s efficiency and lower average costs, but the workers don’t like it.
“The union is pushing for Woolworths Group’s supply chain arm, Primary Connect, to scrap its Coaching and Productivity Framework, saying it used engineered standards to discipline or even fire people for not meeting company-stipulated speeds of working,” The Australian’s Ewin Hannan and Brendan Kearns revealed.
Not a lot is known about the actual demands of the company with respect to the productivity demands but this is what Tim Kennedy told The Australian: “Business groups may well come out and support the dangerous, inhumane and unsafe productivity framework but you can bet they are not being marked out of 100 in real time every time they perform a task”.
Clearly, the FWC’s job will be to see how realistic the claims are that what Woolworths expects of their workers with their efficiency drive is “dangerous, inhumane and unsafe”, and how reasonable and how truthful it might be that every task is rated out of a 100, as the union claims.
Our country has had a declining productivity for a long time, as the chart below shows.

The causes aren’t just bludging workers. Professor Stephen King of Monash University cited the Albanese Government’s reasoning for poor productivity, which include:
1. Less entry and exit of firms.
2. Less job-switching.
3. A significant reduction in business investment.
4. Mergers leading to increased business concentration.
5. An increase in the markups businesses can sustain.
6. Only few highly productive firms, with the rest increasingly less so.
These all are a part of the explanation, while the Productivity Commission concludes the following: “Productivity fell in 2022-23 as record high increases in hours worked outpaced output growth”.
Population surges with no smarter ways of doing business makes for lower productivity.
Professor King says “…boosting productivity will require measures that cover education, technology, business regulation, taxation, carbon emissions, and more”.
What Woolworths has been doing to boost worker productivity isn’t a bad idea — workers everywhere have to change their work practices to approach world’s best standards — what the Fair Work Commission has to determine is whether what the company imposed was really “dangerous, inhumane and unsafe”.
Given the insurance claims of workers against companies nowadays for injuries and stress, and the law firms happy to prosecute on a no-win-no-pay basis, what we learn about Woolworth’s productivity ‘punishment’ will make interesting reading.
If we have to go without beer and wine over Christmas because workers don’t like new age work practices, it could be a worrying sign for our future productivity.

Former Treasurer and Prime Minister Paul Keating is about to pocket a $40 million windfall for being good at business. It’s clearly time he started giving lessons to his current day Labor colleagues as it might boost their flagging popularity.

As he told the AFR’s Jenny Wiggins: “I’ve got a chunk of a successful business which I co-founded and funded myself,” the former Prime Minister said. “I’m reasonable at my own ventures.”

This particular business is Boost Mobile, which he kicked off in 2000 and now owns 29% of the company. His marketer Peter Adderton has 32% and the operation has been swallowed up by no less than Telstra for a cool $140 million.

The company’s competitive advantage was specialising in pre-paid phone plans. This is how the company explains itself: “With Boost, you'll get awesome data inclusions, unlimited national calls and text and international calls from Australia on selected recharges. All our plans are prepaid with no lock-in contracts, and you can bring your number.”

This is why Boost has a million users and why Telstra was happy to add it to it arsenal of different communication offerings.

Other big shareholders include skateboarder Peter Hill and his brothers Stephen and Matthew, who all founded Globe, the now listed shoe, clothing and skateboard brand.

This is just another Australian small business made good story, and accolades to Paul Keating for being an entrepreneur. It’s a pity his beloved Labor Party doesn’t cater to the interests of his fellow small operators.

This isn’t just me whinging, look at this in the AFR on September 17: “Former ACTU secretary Bill Kelty, for example, is savagely pointed in his demands — as reported in The Australian Financial Review this week – that the Albanese government must urgently reshape an economic agenda ‘mired in mediocrity’ to revive a near-stagnant economy.

A few months ago, business outlined what gripes they have with the Albanese Government. Here they are:

1. Not tying pay rises to productivity.
2. Both Keating and Kelty have criticised the Government’s policies on housing, which is crucial to a thriving economy, and taxes.
3. The last economic growth reading was 0.2% in the June quarter, which as the AFR’s Jennnifer Hewett reminded us was crawling “at its slowest rate since the early 1990s recession”.
4. Business failures have hit their highest level since October 2020, with the hospitality and construction sectors seeing the most insolvencies, according to CreditorWatch.
5. Higher prices and interest rates are keeping spending subdued, while businesses are juggling rising rent, electricity prices and increases to the minimum wage.
6. The Australian Taxation Office is playing hardball torecover $34 billion of debt, much of it was Covid-related.
7. Industrial relations has become old world ignoring the better practices seen under the Hawke and Keating governments.
8. The Minerals Council chief executive Tania Constable warned the Prime Minister that his industrial relations laws are already bringing conflict “to every workplace in every industry”.
9. At the annual Parliamentary dinner Constable also told the PM that "Each new regulation, each new tax, additional layer of complexity, and arbitrary decision makes it harder for us to compete against competitors with no such constraints”.

Ultimately, the government of the day cops the blame if the RBA can’t get inflation down along with interest rates. And it’s fair to say that the Treasurer didn’t help by giving away tax cuts to lower income Australians, who are more likely to spend them, which then feeds inflation.

The abc.net.au website yesterday reported this intriguing take on what we’re thinking: “New research shows dissatisfaction with the direction of the country is at the same level as it was just before the Morrison government lost the election, in an ominous sign for the government”.

This was an ANU study involving 3,500 voters but there was some good news for the government.

“And while it shows dissatisfaction is at the level it was at when Scott Morrison was given the boot, it also shows that we are in much better shape when it comes to people's trust in the direction of our country than people in the UK or America,” the report found.

That’s good news for Labor but it’s not really a big plus being better than the US and UK. I think the less -than-subtle Paul Keating would agree with me.

Oops, there’s been a budget deficit blowout around $60 billion! This story contrasts with the double surpluses totalling $37.9 billion that Dr Jim has understandably crowed about. Apart from the question about how this happened, the bigger question for a government set to face voters in May (at the latest) is this: did the Treasurer’s bad budgeting hurt inflation and rate cut hopes?
This Wednesday we see the September quarter National Accounts and a 0.4% rise in economic growth is predicted. The annual growth rate is tipped to be 1.1% and you can thank the Treasurer’s budget blowout for a lot of that. On the flipside, it has made the RBA’s job of getting core inflation into the 2-3% band a lot harder.
In turn, this has delayed our first rate cut, once expected by mid-2024, then September, and then December or February. Now economists are tipping May. Why has this happened?
In simple terms, our economy is too strong. The job market is tight, so unemployment hasn’t budged from around 4.1% because economic growth, powered by the budget blowout, has kept us away from a recession.
Across the ditch, the NZ central bank took the cash rate over 5%, while we stayed at 4.35%. The Kiwi government hasn’t played an offsetting role, so there’s been two half-a-percent rate cuts in the past two months.
The Kiwis will see their budget deficit blowout because they’re probably in recession with a 0.2% contraction of growth in the three months to June 2024. Their next number is bound to be negative with the RBNZ having cut the cash rate by 1% over the past two months!
The Albanese Government has saved us from recession, but it has also stopped us getting rate cuts. The US has avoided a recession and had two rate cuts, but they did take their equivalent cash rate above 5% and that helped them get inflation close to the 2% target that the Federal Reserve set.
Back here, former Treasury economist Chris Richardson has looked at Dr Chalmers efforts. Here are his main conclusions:
1. Jim Chalmers has added $104 billion in spending while raising taxes by $44 billion.
2. The surpluses wasn’t great budgeting but a consequence of war, migration and inflation factors.
3. Spending is at Covid level highs.
4. Cash headline deficits between now and 2028 will be $220 billion.
This is the Richardson view: “Our budgetary luck is running out – instead of write-ups, the budget is now edging into write-down territory. That’s because iron ore prices are down, inflation is down too, and migration is slowly slowing, while the hollow log provided by past Treasury conservatism is a lot less hollow than it used to be”.
He thinks the Government has blown an opportunity to really improve the country’s budget position for the future by over-spending.
The AFR’s Michael Read has reported on what’s likely to show up in the National Accounts that will add to this view of excessive spending. “Westpac expects the National Accounts will show that government spending hit a record 27.7 per cent of GDP in September, up from 27.3 per cent in June, fuelled by infrastructure spending and state and federal government cost-of-living subsidies, including for electricity bills,” he revealed.
Meanwhile, forecasts of GDP per capita, which is an indicator of living standards, fell for a seventh straight quarter in September due to continued strong population growth. This is another area that has produced economic growth and effectively has kept demand high for goods and services, which in turn kept inflation high.
I could trot out a pile of facts, figures and other exaggerations but the unquestionably true story is that the Albanese Government has spent to avoid a recession and a big spike in unemployment, but it has slowed down the fight against inflation. If we don’t see a rate cut in February and we have to wait until May, then Treasurer Chalmers will be to blame.
By the way, one of the best economists in Australia, Morgan’s Michael Knox told me on my Switzer Investing TV that we might have to wait until September for the first cut!
Here’s that episode — watch it at your peril: https://www.youtube.com/watch?v=_ym69iMezko

Aussie retailers love the US-created Black Friday and the ensuing Cyber Monday because it’s great news for their bottom lines. However, it might be in the interests of interest rate worriers if this proves to be the worst Black Friday ever!

 

Why? Well, this economy of ours has defied 13 rate rises, unemployment hasn’t increased, and all the Australians largely not hit by higher home loan repayments and ratcheting rising rents have been spending high enough to not push inflation down to justify a Reserve Bank rate cut.

Before explaining why interest rate worriers should hope for a weaker-than-usual Black Friday, let’s do some history.

There’s no Wall Street market data today because the Yanks are celebrating their beloved Thanksgiving, which remembers a get-together of the English Colonists and the Wampanoag Indian tribe to give thanks for the 1621 harvest feast. It’s a day that turkeys don’t look forward to and the day after modern Americans do what they’re famous for —shop until they drop!

It's this Friday (which always follows the fourth Thursday in November because of the legendary price discounts stores offer on the first day of the holiday season that takes in Hanukkah and then Christmas), retailers finances go into the black. The ‘black’ in Black Friday is what accountants celebrate as it’s the opposite of “the red”, which is a condition that businesses try to avoid and bean counters despise.

Clearly, local retailers want a great Black Friday of sales. And news headlines show everyone is getting in on the act.

Virgin Australia is launching a massive sale, Sony’s PlayStation 5 Slim has been drastically discounted, Nike is cutting 25% off prices with its GOBIG24 and the price-cutting is great for so many goods and services, you’d have to think this would be great for inflation. Think again.

Yep, headline inflation will fall in the months of November and December because of Black Friday but the price hikes after this momentous weekend, when desperate Christmas shoppers become victims of the festive frenzy to get ‘stuff’, could slightly offset the inflation gains, thanks to Thanksgiving and all it has delivered on modern retail.

But there’s another inflation irony. You see, the inflation that the Reserve Bank cares about is underlying inflation, which strips out temporary or volatile price changes (both up and down) so the great price drops will help headline inflation, now at 2.1% but not underlying inflation at 3.5%.

Nope, only a kick-in-the-guts for the growth of our economy will do that. And to date, those 13 rate rises haven’t done the trick.

This week the Kiwis cheered an official cash rate cut of 50 basis points (or half-a-percent) to a two-year low of 4.25%, as expected, with their Reserve Bank saying, “a second consecutive super sized cut was justified by slowing inflation and weaker economy”.

This followed a 50-point cut in October, so our cross- the-ditch cousins have had a 1% cut in rates over two months.

How come? Simply, their central bank took the cash rate to 5.25%. It ripped into their spending and economic growth and inflation is on the slide.

This is what RNZ.co.nz reported yesterday: “Economists had overwhelmingly forecast the big cut as the economy remained weak, households and businesses kept tight control on spending and investment, and the unemployment rate kept rising.

The RBNZ acknowledged the weak state of the economy, but said there were signs an improvement was coming now that inflation was back in its 1-3 percent target band”.

Unemployment in the Shaky Isles is 4.8%, while our jobless rate is 4.1%. After digesting the recent speech by the Reserve Bank governor, The SMH’s Shayne Wright put a number on how many people have to lose their jobs for a rate cut to be a reality. “Up to 75,000 Australians face being shut out of a job as the Reserve Bank attempts to bring down inflation as bank governor Michele Bullock admits the nation’s “unusually tight” jobs market is a factor pushing up prices,” he revealed. “In a blow to the government’s hopes of a pre-election interest rate cut early next year, Bullock told the Committee for Economic Development of Australia that while quarterly headline inflation had fallen to 2.8 per cent, which was within the bank’s 2-3 per cent target range, underlying inflation was still at 3.5 per cent.

She said a key issue was the jobs market, which, by comparison with other nations, remained strong.”

The irony of this speech was that Bullock should have said: “We have let those who want rate cuts down, but we have kept more people off the dole queues than the Kiwis!”

Enjoy your Black Friday purchases but don’t think you’re doing those sweating on lower inflation any big favours. People have to lose jobs for that to happen, which is another reason why economics is called “the dismal science”!

Despite inflation falling to 2.1%, the expert economists who’ve got our inflation and rate cut calls wrong for too long are now telling us to forget a cut in February! While I’m another economist who has been fooled by our unusual economy, the biggest mistake maker has to be the Reserve Bank board.

You see, the RBA would be happy that the headline inflation rate came in at 2.1% in the month of October but the trimmed mean inflation rate (or underlying inflation) rose from 3.2% to 3.5%.

This measure takes out one-off or temporary ups and downs of prices. It’s a more reliable number. The fact it rose is bad news for rate cuts. The next meeting is December 10. The RBA board has a holiday in January and then convenes to make a rates call again on February 18.

This is bad news for those praying for a rate cut. To put it brutally, if they’re assessed on what they want to achieve, it says the RBA is the biggest nincompoop. To be fair, plenty of Aussies without debt could argue that inflation is still low at 2.1% and happily unemployment at 4.1% is a ripper of a result.

In case you didn’t know, the RBA has a dual role to secure price stability or low inflation while aiming to keep unemployment low. However, the current RBA has prioritised getting underlying or core inflation into 2-3% band using 13 interest rate rises.

On that criteria, this inflation result says the RBA has failed. With hindsight, they should have raised rates higher or hit us harder with more half-a-percent rises. The economies that are cutting rates now saw their central banks raise their equivalent cash rates over 5%, while Governor Michele Bullock and her board stopped at 4.35%, where we are now.

But be clear on this: if the RBA wasn’t such a loser who can’t beat core inflation like other central banks, there would be a lot more Aussies out of work at Christmas time.

Here are the key facts from yesterday’s CPI:

1. Annual headline inflation was down to 2.1%.
2. This was helped by electricity prices dropping 35.6%, thanks to government rebates and 11.5% lower fuel prices. But these don’t get counted in the underlying inflation number that the RBA looks at. This was up from 3.2% in September to 3.5% in October.
3. On the bad side, rents were up 6.7% over the year and these have a big hit on inflation.
4. Food and non-alcoholic beverages prices were up 3.3%.
5. Recreation and culture prices rose 4.3% and alcohol and tobacco prices spiked 6% over the year.

The news gets even worse, with economists inexplicably saying the first cut might have to wait until May! They seem to be ruling out a cut on April Fool’s Day on April 1, for those who refuse to acknowledge this terrible joke played on people born on this day!

Why are they saying May? Well, that’s because we don’t see the more reliable quarterly CPI until April 30, which then could help deliver an overdue rate cut.

The only way a rate cut would come earlier would be if economic growth went negative on the December 4 release and unemployment surprisingly started to spike.

Personally, I’m giving up on predicting when rates will fall. And I won’t give any airtime to the predications of other economists because their form guide reads as “hopeless”. To be fair, the same rating has to be used for doing the form on the RBA.

We won’t see rate cuts until our economy and a lot of people in it are under a lot more hip-pocket pressure. I say this ahead of Black Friday when many of us will spend too much. And then there’s Christmas! Of course, Black Friday will help lower headline inflation, but it will be ignored in the underlying inflation numbers.

Reality is biting for members of the Electrical Trades Union (ETU) who work for Ausgrid and have had their Christmas party cancelled because of an ongoing wage dispute. This comes as union demands for more pay escalate and strikes are on the rise, leading to concerns about a Pied Piper effect.

There’s also the accusation that union leaders are taking problems in the polls for the Albanese Government as a trigger to secure pay rises before next year’s election.

This week, nurses in 17 Ramsay Health Care hospitals walked off the job for 24 hours, despite being offered a 16% rise over three years, which the union says is really over four years. The AFR reports that “65,000 NSW public sector nurses are striking in support of a first year pay increase of 15 per cent, on top of improved staff-to-patient ratios”.

Meanwhile, 1,500 Woolworths warehouse workers from four distribution centres look set to disrupt Christmas supplies.

Without taking sides, the growing demands for more pay from more workers isn’t just a response to the possibility that a Coalition government could be in power by May, but 13 interest rate rises and the delay to expected rate cuts is also a factor in the actions of these unions.

And then there’s the Pied Piper effect, where one group getting good pay hikes leads to the “I want what they’re having” syndrome.

The AFR’s David Marin-Guzman reveals that “…public sector pay rises outpaced private sector for the first time in four years, according to wage data released on Wednesday, fuelling fears they could prolong inflation and contribute to interest rates staying higher for longer.”

In NSW, police have just won a 19% pay rise over four years and the Rail, Tram and Bus Union is demanding a 32% pay rise over the same time period, and a 35-hour working week.

The Pied Piper effect looks alive and happening!

“University of Wollongong management professor Paul Gollan said the public sector, which employs 25 per cent of health workers and 50 per cent of those in education, had multiplier effects for private sector wage growth,” Marin-Guzman reported.

This isn’t news the board of the Reserve Bank needs to hear as it considers what to do with interest rates.

And with all this going on, the Daily Telegraph says:

“Electrical union members are in meltdown after Ausgrid declared it would be cancelling end-of-year Christmas parties and a traditional half-day off in response to the ongoing industrial action.”

Ausgrid has accused union members of cancelling more than 500 jobs since the start of the wages dispute in August, which included ensuring power is connected for new apartment owners to critical infrastructure.

Ausgrid argues that as Christmas Day falls within the office closure period, “and due to the business being behind on works programs”, it was “unable to gift this additional half day this year”.

But according to the Telegraph, it then stuck it to the union adding, ‘and out of respect’ to its customers, many of whom were being ‘severely’ impacted by the industrial action, Ausgrid would also not be paying or hosting any end-of-year events”, the memo said.

“As many of you are seeing first-hand, industrial action is having a severe impact on many of our customers and service providers,” Ausgrid said.

The union sees this as a “petulant retaliation against its workforce” and points to the $313 million profit Ausgrid made in the 2023-2024 financial year, up from $296 million in the previous year”.

The union’s leadership argues that the move to cancel half-day leave and host or fund any end of year events was “peak Grinch behaviour”.

Ausgrid workers are looking for a 21% increase over three years, which would be 7% a year. If other workers pursued similar rises, it would be inflationary and bad for interest rate cuts.

What’s interesting is that many unions are looking at the profits of their employing companies and saying, “they can afford it”. This does raise an issue I’ve brought up before: are these big companies with no real competition raising prices to consumers, and not only pushing up inflation but also giving incentives for unions to ask for higher wages, which in turn leads to more inflation and no rate cuts?

Looks like a job for a more proactive government and an aggressive Australian Competition and Consumer Commission (ACCC). Undoubtedly, there are some swashbuckling price setters in key industries out there that really need to be named and shamed.

One of the nice aspects of Australia’s reputation for liking a drink is that too much cheer can play havoc with our short-term memory. Lack of short-term memory can favour those like the governors of the Reserve Bank, who’ve made a few mistakes in their time when it has come to the cutting and raising of interest rates. There was one called Dr Phil…something, but for the life of me I can’t recall his name!

I remembered lots of this when the AFR’s Lucas Baird and James Eyres revealed that the Australian Prudential Regulation Authority (APRA) tells us that there are 35,000 households behind on their home loan repayments and are “in deep financial difficulty”.

And there are $23 billion worth of loans in the distressed household category. This has forced John Lonsdale, chairman of APRA to use this to quieten down politicians and industry representatives who want a smaller loan serviceability buffer.

He says current mortgage stress is double that of 2016.

This buffer is used by lenders to see how a borrower would cope with a stiff sequence of interest rate rises. The buffer is now set at 3 percentage points worth of hikes. So, if I borrow at 5%, the lender needs to be confident that I can keep on paying if the loan goes to 8%, thanks to RBA changes to its cash rate.

Lonsdale makes the point that the buffer not only protects the borrower, but it also prevents mortgage stress hitting the economy, with a serious jump in unemployment as well.

And Lonsdale has shown that no one is safe from the results of the US election, with the top regulator arguing if Donald Trump’s tariffs spike inflation up then rates could rise. This underlines the benefit of a big buffer, which the abovementioned 3% is.

He also quite rightly points out that the buffer makes the banking system safer. Earlier this year, the CBA’s boss Matt Comyn backed the buffer while his ANZ rival, Shayne Elliott argued the case for a lower buffer because home loans were becoming affordable only for the rich.

The big buffer became more acceptable after interest rates fell as low as 2% or 3% and borrowers needed to be assessed on the basis that these low rates couldn’t last. Of course, some inexperienced borrowers believed the RBA, which backed Dr Phil Lowe’s ‘rates won’t rise until 2024’ message, and that has left a lot of over-borrowers deep in the you know what!

And you can bet APRA’s mortgage stress numbers are out-of-date. The problem is undoubtedly worse now as the rate cut date keeps getting pushed out by the guess merchants (i.e. banking economists and money market players) who have got it wrong for all of 2024.

While that includes me, unlike many of my mates, I have a good long-term memory, writing, reporting and broadcasting on the RBA for over three decades. I recall them waiting too long to move on rates.

I’m not sure if central bank economists have worked out whether mortgage stress indicators are useful for guessing how weak the economy is becoming, but I reckon they should know this.

It’s not that the RBA is dopey on rates. No, it’s more that it’s hard to get the timing of rate rises and cuts right. Given that and given the nature of public servants generally, who are historically risk-averse, it means central bankers wait until they see a real economic slowdown before they say: “It’s time to cut!”

Next week we see the Consumer Price Index (CPI) for October. It needs to show that core inflation is falling towards the 2-3% band. The last reading was 3.5% and it dropped by 0.5% between June and September. This was a big drop and could be a sign that our economy of spenders is weakening.

The next big data drop will be the National Accounts that tell us how the economy is growing. If this a weak number, then a February cut will gain supporters again.

The RBA meets on December 10, and we’ll need a great inflation result and a weak economic growth number to even get the RBA board close to thinking about a cut for Christmas.

I’m not arguing the RBA is wrong right now as the lack of rising of the jobless rate is surprising, but there are lags with interest rate policy and how it hits the economy first and then unemployment.

It’s why Paul Keating has slammed the RBA in the past for “coming late to the party”. I’m hoping we’re not living through another case of the RBA being too risk averse and therefore making the lives of too many borrowers riskier than they need to be.

If this is the case, we could see a slower economy next year than economists are predicting and rates could fall quicker than expected as unemployment really jumps.

A cut in time just might save nine!

If you were trying to really solve the problem of our housing crisis (and it looks like no politicians are seriously trying), you might start by asking how the cost of building a home in Australia rose by a mammoth $100,000 in four years. While Covid has been a contributor to this big surge in building costs, there are other contributing factors and local councils, along with the ‘caring and sharing’ world we now live in, can’t be left out of the blame game.
What you need to know to understand the great concern about these numbers was revealed by Millie Muroi writing in the SMH: “The national average construction cost for a home – including houses, townhouses and apartments – rose from $345,410 to $443,828 between 2019-20 and 2023-24, according to Australian Bureau of Statistics data published last week,” she reported. “Costs surged across all states during the period, rising by 25.5% in Victoria and 30.2% in NSW.
However, the biggest rise happened in Queensland, with a 44% rise!
So, who or what’s to blame?
Here are the usual suspects, outlined by Muroi and others in the industry:
1. Pandemic lockdowns made homes more attractive to own.
2. The related work-from-home trend made them even more valuable.
3. Record low interest rates to kill the Covid-created recession.
4. Government grants such as Homebuilder.
5. Covid-linked supply problems, especially from overseas, drove up costs.

On this latter point, Tim Reardon, chief economist at the Housing Industry Association, points out that timber prices have fallen 20% over the past year because global supply has improved. However, energy-intensive products such as aluminium, glass and cement have continued to rise.
This points to government-created cost rises linked to the trend towards more expensive power bills for business as we play ball with global environmental goals.
Construction costs driven by supply problems have been a big contributor to inflation and now we have demands to renovate adding to the price surge.
In the year June 2020, there were 56,000 Australian homes under construction but in 2023 it rose to 104,315, which was a 48% spike. Building times have gone from six months and three weeks to nine months and four weeks, the ABS pointed out.
The industry explains that there are labour shortages as well, which slows up a project. And if a renovation has a builder, often there’s a project manager on site that’s costed for. And if the housing world has added about 13 weeks to a build, then this could mean $26,000 added to the cost of a new home or big renovation.
But wait, there’s more in this blame game. Try these:
1. The industry suppliers or price-setters who raise prices when costs rise but don’t cut when costs fall.
2. Ridiculous councils with excessive costs associated with trying to renovate a home.
3. The NIMBY or “not in my backyard” resident, who wants their worlds to remain unchanged and un-shared.
4. The demands of the green world we live in now that’s banning gas stoves and heating.
Victoria banned gas connections so from January this year, electric will be the way to go. Do you reckon electric stoves got dearer this year?
There’s not much we can do about the costs of supplies to the industry, the greediness of those setting prices and the new era of green demands that are adding to costs, but state politicians could review the madness that prevails in local councils when it comes to building.
The delays and the associated costs of complying with council demands and the demands of unreasonable residents need to be looked at by courageous rational politicians, if there are any out there. If this doesn’t happen, homes will be increasingly unaffordable.
Industry experts say the government-cost-imposition can be as high as 30% on a new home. If home ownership is important to Australians, someone in politics has to change that.

 

It looks like an “Employers Strike Back” trend is emerging with a leading human relations firm polling bosses and finding a growing majority won’t touch a would-be worker if they won’t come to the office five days a week. This could be an early sign that the ‘Trumpification’ of the US could be a worldwide movement of people who used to be in charge.

Political analysts trying to work out why the US electorate gave Donald Trump the White House, the Senate and the House of Reps (that’s a clean sweep!) argue the cost-of-living problem was a huge factor but the surprise inclination of minority groups such as blacks, Hispanics, religious minorities and legal immigrants to vote for Trump indicates concerns about the ‘new rules’ as US TV host Bill Maher calls them, that are in all likelihood worrying these groups.

To that group, you could add worried parents about what’s tolerated at schools, academics who are cancelled for addressing objective debateable topics, and generally a bewildered older world confused about how to address someone with the right pronoun.

The support for Trump could be that people who don’t even like him voted for him because he wasn’t signed up for the changes okayed by the Democrats. And employers worldwide could easily be in that group.

The HR software firm Rippling polled 500 Australian business leaders on their expansion goals for 2025, where they’re looking for new staff and how the work-from-home tussle is playing out.

Blair Jackson from News.com.au says that “the report finds 57% of employers are less likely to hire candidates unwilling to work onsite five days a week.”

And another 60% are less likely to consider candidates who will not work beyond contracted hours.

“Employers must communicate their expectations clearly to ensure alignment with employees’ own expectations for flexibility,” Matt Loop, Rippling head of Asia told NewsWire. “Ultimately, the goal should be a workplace dynamic that prioritises results, engagement, and wellbeing over rigid rules”.

The poll surveyed leaders from middle management or above, including HR leaders, finance leaders, business owners, managing directors and IT leaders, at firms with a headcount between 20 and 500.

“The research found Gen Z’s preference to work from home, unwillingness to work outside standard hours, lack of company loyalty and desire for rapid career progression all rank as main concerns among the managers surveyed,” Blair reported. “Major Australian corporations are telling staff to get back into offices, the latest being Coles.”

The group of employees who will be most affected by this ‘Trumpification’ of employers will be Gen Z, who were born between 1997and 2012. The Covid experience gave them a taste of working from home and there’s bound to be pushback from this group on the subject of going back to the office full time.

Matt Loop says this group are like remote work and high flexibility, but this can be in conflict with the productivity needs and goals of employers. And because many businesses have been challenged by rising interest rates and a slowing economy, what was tolerated post-Covid might be less so going forward.

Of course, bosses can play hardball with some workers but not all. Until our labour market shows rising unemployment rates, employers will need to tread carefully, especially with key contributors in the workplace. “Employers need to find a balance by creating growth pathways that respect these preferences while also ensuring that essential skills and experience are developed along the way,” Matt Loop advised.

Interestingly, the Ripling survey indicates the private sector is in a hiring mood, with 86% of businesses planning to hire more employees in 2025, and 89% looking internationally.

Other findings included:

1. Australian firms are most often looking to recruit from Singapore, China and the broader Asia-Pacific region.
2. Australians with critical thinking skills, cybersecurity expertise, and industry-specific certifications were not in good supply.
3. 97% of Australian businesses incorporate AI in hiring and onboarding.

 

Clearly, survey questions of potential employees will ask if they’re prepared to come to work five days a week. Their responses to that question could be an AI trigger that means they might now get to the post-AI interview stage.

While a ‘Trumpification’ change is bound to show up here, it probably won’t be as dramatic as the recent US experience.