SOMETHING DOESN’T ADD UP

The Federal #Budget2020 has definitely forgotten to carry a few 1’s along the way…

There is a lot of criticism out there. Financially secure Liberals are unhappy about the sea of public money piling up around the working class. Media hacks (who didn’t read it) are absolutely certain that women were short changed. Labor commentators are stuck between demanding cash for their pet topics while simultaneously giving Josh a hard time about the trillion-ish dollar debt. (Labor upset about debt. Try not to laugh.) And then we have the businesses owners, who are simply depressed because they can recognise unhelpful bullshit at a hundred paces.

This is all noise, of course. Every time a budget slithers out of government, only a few economists are bored enough to actually read it. These poor bastards lop off the head and translate the waffle into a couple of talking points which are then repeated at length by the rest of the news cycle. Within hours it has become a game of economic Chinese Whispers.

So, what is actually wrong with the budget?

Frydenberg makes a huge assumption that the pool of existing businesses who have survived the Covid crisis are somehow immortal. This false hope is used to underpin his recovery figures, which are then extrapolated into pretty graphs that might as well be drawn in crayon. Anyone separated from the climate-controlled enclosure of the public purse knows full well that the economic train has a long way left to crash. Even if Covid vanished tomorrow and Australia returned to business as usual, margins are well below profit and the banks are preparing to call in loans that have been shadowing our nation.

As government assistance withdraws from the market, international borders remain closed, and a vaccine unlikely for months – businesses are going to fold in an extinction level event. This outcome is predicted to be so serious that Chapter 11 bankruptcy legislation was rushed through – probably when an escapee from the Reserve Bank showed up looking rather rattled in Scott Morrison’s office. At that point, someone in government must have realised that they were about to permanently wipe out the productive seam of Australia’s entrepreneurs, who are collapsing through no fault of their own.

Frydenberg is in a dilemma. He wants people to throw their remaining assets into starting up new business to salvage his spreadsheet, but who is going to risk their savings now that they know the government can pounce at any moment and destroy their life’s work? Not many. In the halls of Australia’s retail giants, many are preparing to cut their losses and give up on this country, and who could blame them?

Second major problem… The budget is full of unintended consequences. Allow me to give you a typical example. The government knows that it has an issue with too many people sitting on the expensive JobSeeker welfare scheme. Naturally, they want to incentivise businesses to hire them.

Governments aren’t particularly bright, so they picked up a wad of cash and decided to throw it at businesses who hire JobSeekers under the new ‘JobMaker Hiring Credit’. There is plenty of fine print involved meaning that it is only really useful for larger companies who are doing well, not struggling small businesses, but more to the point, it actively disadvantages prospective employees who have managed to make it this far without dipping into the government’s pocket. If an employer has the choice of hiring two people and one results in them getting paid by the government and the other doesn’t, they’re going to pick the government hand out regardless of how skilled the employees in question are. In essence, the government is now competing with an individual’s merit while tossing a bit of casual ageism in for good measure.

There has been plenty of fair criticism pointing out that John Howard had similar youth-employment policies during his tenure as Prime Minister. However, playing around in the job market during a booming economy cannot inflict anywhere near the damage of tilting employment away from Australians during a financial crisis. Remember, free food doesn’t cause a stampede unless the people are starving.

A better idea would have been to pressure the states to give up Payroll Tax (already a broken promise left over from GST reform), get rid of Paul Keating’s Fringe Benefit Tax, and significantly reduce Company Tax. All of these taxes punish businesses for hiring people and being productive – which is a ludicrous thing to keep in your economy if you’re trying to salvage as many businesses as possible and avert an employment crisis.

Frydenberg, like all of his predecessors, will not pursue this because it requires admitting that these particular taxes have always been counter-productive and anti-business. They exist purely to collect revenue at the cost of the average person trying to make a go of the Australian dream.

The last glaring issue in this budget comes in the form of detail. There are a lot of grand gestures and statements of cash being thrown into key industries which have been trending in the press. Take the 1.3 billion for the Modern Manufacturing Initiative. Sounds great, eh? Who doesn’t love a bit of manufacturing when the public are keen to claw back market share from China. Unfortunately, when you dig a little further you find that it is more of a vague thought bubble than a tangible lifeline with no information available until 2021. With an election due in 2022, one would be forgiven for thinking that this money will be folded back into a whole new set of election promises – around and around – never actually manifesting in a glorious manufacturing industry.

US President Donald Trump knows how to salvage an economy, but no one in Australian politics is paying much attention. If there is one thing that Australians can take away from Frydenberg’s budget, it is that Capitalism has made Australia fabulously wealthy and free over its short life. When the government was forced to engage in Socialism by health-mandated-fear, it sent itself broke overnight.

This budget is not our salvation.


By ellymelly – If you enjoy my work, consider shouting me a coffee over on Ko-Fi

THE CRIME OF BUSINESS

This article is published in the Penthouse AU…

It makes running a business seem like a huge risk and incomprehensible folly and perhaps it is. Small business owners are the schools of tiny fish, darting around Australia’s corporate receiving none of the perks of wealth but all of the suspicion…

( read it online here )

The Crime of Business

FORCE MAJEURE

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By ellymelly – If you enjoy my work, consider shouting me a coffee over on Ko-Fi


 

Australia’s retail industry is dying. It is standing on the stage, hands tied behind its back wearing a hood as it listens to the baying crowd. The executioner’s footsteps circle behind. Right when the show is about to start, the government sends the crowds home. Silence swells through empty streets. There is a whistle of metal. A sickening ‘thud’ as the first head drops down into a waiting basket. Without witness, the blade falls again and again and again as businesses line up. Their misery snakes around the block.

Fashion retail is my life. Our family began writing software and payroll systems for the shoe industry in the early 70s when computers were barely lifting themselves out of the evolutionary swamp. Over the decades we have been stolen from by names you’d recognise, seen companies rise and fall, lost it all with Keating and resurrected in time to watch the whole ecosystem shudder and convulse as it attempted to negotiate the influx of foreign competitors. These retail businesses are not emotionless monoliths devoid of soul – they are collections of families with bosses that sleep on packing room floors forced to beg and borrow to get off the ground while working long hours without pay because that’s what it takes to own a company.

I was being folded into the life’s work of ghosts, growing up surrounded by the innards of computers and warehouses full of shoes. Through my twenties, I worked from the ground up, crossing the business from invoicing to stock management before delving into the world programme design where I built pick-pack webstores from scratch and automated the nightmare of Australia’s Award-based payroll. I’ve spent years in online fraud, helped to crack international credit card scams originating in China and survived the hell of the NBN’s messy birth all while integrating systems with the biggest boys in town. I know what makes a margin work and which stresses were being placed on the retail industry before the Corona-crisis.

One of these is the ongoing battle between shops and corporate lease holders, particularly Westfield.

So far, none of the commentators on TV or MPs drafting rescue packages guessed that unaffiliated retail chains would team up and move as a group against Westfield, defying expectation. Anyone in the industry could have told those pretending to be in charge that this would happen considering the exact same thing transpired when the idea of closing Boxing Day trade in Pitt Street was floated or the numerous times Westfield tried to enforce unworkable compulsory sale events.

In emergencies, retailers pick up the phone to each other and, despite being market competitors, school together like fish to pressure their collective foe – and so they should. The government has done nothing but tear pieces off Australian retail for years, opening the gates to foreign competitors with cash hand outs, tax breaks and relaxed regulations that infuriated local business. Have no doubt, when facing off against the retail industry, politicians are starting from a position of resentment and distrust.

When retailers hear Fairwork tell them that ‘a downturn in trade is not an excuse to stand down staff’ they calmly try to explain that all their customers were ordered to stay at home by the Prime Minister. So, although they were not ‘technically’ forced to shut down trade – they bloody well were.

When the government hosts smug press conferences explaining that, ‘landlords and tenants will just have to work something out’ and that ‘medium sized businesses should have enough capital in reserve to wear the cost’ they throw up their hands in fury.

For the MPs and commentators who do not yet understand, here is how the three second discussion between retailers and their landlords goes: “I have no money. Me neither. Right. So…? Glad we sorted that out.”

Allow me to put this in perspective with an average retail business.

A 500 shop retail company has closed every shop except for a webstore which is suffering a 70% downturn in trade. Webstores notoriously make the worst margin in a retail business (for a variety of reasons) and operate as little more than glorified marketing exercises. The company still has a full payroll of staff that Fairwork requires them to roster onto their normal contracted hours for empty shops or sack them and pay out their entitlements. The latter presents a major expense that dramatically shortens a business’s survival time during this ‘hibernation’. Regardless of what they do with their staff, those 500 leases, which were so expensive shops used to rely on Easter and Christmas periods to afford, are not bringing in any money. In addition, all the usual phone/internet/terminal/licence bills are piling up.

How does the government expect this to work?

The inevitable happens – retailers refuse to pay their rents to avoid immediate liquidation.

Hilarious ideas of deferring these missing payments to a later date are never going to materialise because even at trading peaks, no one made enough extra money to fork out for four missing months of revenue (seriously, what were the government thinking?) and that leaves places like Westfield with no prospect of recovering that income. Landlords now have two choices; take legal action against their retailers or lean on the banks. The banks have not got very far to give because they are tied to foreign markets and if Westfield goes after the retailers for bankruptcy there will be no one left to fill the empty shops. Remember, this is not just about a group of rebellious retailers – it is the entire retail market.

Now, if the market had been left to run as normal then it would be a scene of violent evolution with opportunity to capitalise or face extinction but the moment the government waded in and took supreme control of the market they turned the entire mess into their responsibility because they have robbed individuals of their ability to adapt.

To put it very simply, if the government does not fund retail for their employees and rent there will be an unimaginably huge die-off of Australian business. Only the largest mega-corporates and international players will survive which is a cultural catastrophe, not to mention a political reckoning once the debt settles with the dust. We are casually discussing the annihilation of an industry that employs hundreds of thousands of Australians and supports pilot businesses (like mine). Software. Banking. Suppliers. Shop fitters. Fixtures. Marketing. Designers. Cafes. Hardware. Drivers. These are all immediate casualties.

Now let’s talk about the convoluted mess-of-an-idea that Christian Porter and others have drafted to deal with employers holding onto staff.

This frustrates me the most because its solution is easy. If the idea is to put business into a form of hibernation then you have to maintain as much normalcy as possible with an even hand. The very last thing you do is pick winners and losers and risk adding jealousy into the mix. We know two crucial things. The first is that saving both lives and the economy will be expensive and second, we are starting with an economy on the edge. It goes without saying that government systems are a total mess so the best course of action is to use as many existing Award structures and interactions as possible.

The government never writes in sentences, they do things by the page so the less they try to do, the better.

A clean solution is to offer a six week Corona Virus Leave entitlement, at the discretion of the employer, to be paid at the base Award rate as per an employee’s contract. If a person is still working, they do not use this leave. If a person cannot work, they start deducting from this leave as if it were Annual Leave except the company back-bills it to the government like Maternity Leave. This works for salary, full time and permanent part timers who are already set up to use normal leave.

Easy to keep track of. Easy to audit against timesheets. Easy to work into existing pay systems and crucially, people are getting close to a normal wage.

Why does that matter? Well, if people are receiving a regular cash flow they can keep their commitments to leases and mortgages, completely avoiding the major private banking problem now facing the government. This has the added benefit of taking stress off banks from saving the private sector so they have more flexibility to assist the government in bailing out corporate. Ah, but what about casuals? The fairest thing to do with a casual is average their last month of employment and deduct those hours from the Corona Virus Leave at their base rate – not the casual rate.

If a solution similar to this had been in partnership with the corporate leasing bailout there would have been almost no added pressure on Centrelink, reducing queues forming inside the heart of a pandemic. By in large, those left at Centrelink would be people already in unsecured work who are more likely to be re-employed in a stable job market at the end of the lockdown instead of high paid, difficult to re-employ breadwinners whose jobs have been rubbished.

Yes, this sort of thing might cost more up front but not compared with destroying swathes of Australian business setting millions of workers onto a decade of unemployment benefits not to mention the cut to tax revenue that the government will suffer if those businesses and employees are now on the public purse. This is before we touch on the loss of trust between individuals and their government. Who would risk being a private business owner knowing that the government could kill your life’s work overnight? Those crazy enough to try have all been wiped out and are gun-shy. Many will never work again.

Economies are chaos systems underpinned by humans who act on risk and emotion. I am unconvinced that you can hibernate an economy without killing it but if you want to attempt the impossible and send Australia into a holding pattern we must treat it like a complex machine. Revenue has to be fed in through natural points where business acts as our fuel tank. By focusing on paying the two biggest expenses of business, money flows down to their employees and up through to landlords and banks. With this in place, negotiations on stock sitting unsold in warehouses and shelves can be reached.

Don’t misunderstand me, the businesses are badly wounded and bleeding but they haven’t been lopped off at the neck. Instead of multiplying problems, you have reduced their complexity to a single point that is easier to track and cost while preserving the rest of the economy which will drag itself along the ground bloody but not broken. Instead, we are watching MPs hurl ill-conceived junk at the whirring blades of industry which are getting stuck and causing vital components to catch fire. Very soon, it’ll explode.

When we desperately need even-handed simplicity, we are being offered favouritism and complexity. The result is inevitable. All you need to do is listen to those standing on the scaffold but the government doesn’t ask the opinion of small business owners. It tells them to ‘sort out’ what they cannot change, like a victim of injustice pleading for their life to an empty square.

Of course, we must not forget that China is the executioner but the sword was sharpened by the Australian government and we sat there in silence and watched.