THE MAJORITY of experts consulted in the latest  Finder RBA Cash Rate Survey agree that stamp duty could soon be on its way out as the government grapples with the post-COVID economy.

Comparison site Finder’s survey – the largest of its kind in Australia – asked 43 experts and economists about future cash rate moves and other issues related to the state of the Australian economy. 

While all experts surveyed expect a cash rate hold in June (43/43), more than two-thirds who weighed in on stamp duty (69%, 24/35) predicted that it would be axed within the next 18 months, with most (21) expecting the change in 2021.

Policymakers have been calling for an overhaul of taxes to help boost the post-COVID economy, with stamp duty emerging as the most ripe for reform. 

Graham Cooke, insights manager at Finder, said stamp duty heavily penalises families who were required to move regularly for work, as well as those trying to get on the property ladder.  

“Stamp duty makes the process of buying a home even harder,” Mr Cooke said.

“Not only do borrowers have to save a 20 percent deposit, they also need to save well over $10,000 – in some cases more than $80,000 – for a tax that generally cannot be included in your mortgage. 

“It’s like an on-the-spot fine for home buyers. Putting this tax burden all up front, holds back purchases and dissuades buyers from purchasing frequently,” Mr Cooke said.

Not only do economists think stamp duty will be axed, four in five  (80%, 28/35) also think the tax should be abolished or replaced with a land tax.

Mr Cooke said eliminating stamp duty or replacing it with an ongoing land tax could be a great way to stimulate the market. 

“As a borrower, investing that $10k-$80k in the value of your home rather than immediately losing it to the government will be a huge benefit,” he said.

ECONOMIC RECOVERY WHEN?

More than four-fifths of experts (29/34, 85%) said the economy would not fully recover until at least 2022.

More than one-third of experts (37%, 14/38) expected Australia to have its first quarter of GDP growth in Q3 2020.

Mark Crosby, applied macroeconomist at Monash University, said Q3 GDP growth is more about how bad the preceding quarters have been. 

“If growth in Q3 2020 was measured against any quarter in 2019 it would be negative,” Mr Crosby said.

“In other words it’s growth but nowhere near a reversion towards trend in Q3, not the end of recession (other than in definition) and not the end of rising unemployment,” he said.

RESTAURANTS STRUGGLE INTO 2021

Mr Crooke said those anxious for a ‘normal’ restaurant experience once restrictions ease, may be waiting longer than they think.

Nearly half (47%, 15/31) of the experts who weighed in on hospitality said restaurants and bars won’t be operating at full capacity and without social distancing restrictions until 2021.

Less than a third (10, 31%) expected to see this happening this year.

Mr Cooke said while restrictions were beginning to be relaxed, Australia still had a way to go until things return to normal.   

“While restrictions are beginning to ease, it’s clear we’re still a long way off from booking a big group table at the pub over the long weekend,” Mr Cooke said.

EXPERT OPINIONS

Nicholas Frappell, ABC Bullion: “The impact of coronavirus will create a lasting demand impact and rates will stay low for an extended period of time. The RBA is likely to target longer-term bond yields in preference to negative rates.”

Shane Oliver, AMP Capital: “The cash rate is already at the RBA’s effective lower bound and Governor Lowe has reiterated that negative interest rates are ‘extraordinarily unlikely’ so, rates won’t be cut. But with the economy taking a big hit from the coronavirus shutdown, economic activity has fallen well below potential, and this will take a long time to fully reverse which means high unemployment and low inflation for several years to come so the RBA can’t raise rates. We don’t expect the cash rate to start increasing again for three years at least.”

Alison Booth, ANU: “The economic indicators suggest a rate cut in near future, but the timing is uncertain. Unemployment is increasing, participation and hours of work are declining, investment and household consumption will continue to be declining. Lowering interest rates may encourage people to spend more though the amount rates can drop is very curtailed and any effect would be very marginal.”

John Hewson, ANU: “RBA will hold for a couple of years, but bond selling task may start to force market rates up.”

Malcolm Wood, Baillieu: “RBA forward guidance and zero global rates.”

Rebecca Cassells, Bankwest Curtin Economics Centre: “The RBA won't increase the interest rate until we see strong signs of economic recovery – this may be some years away. Until then, they will keep the cost of borrowing as low as possible.”

David Robertson, Bendigo and Adelaide Bank: “No further cuts needed – we are on our effective floor for interest rates. The next increase is several years away when employment reverts to pre COVID-19 levels.”

Sarah Hunter, BIS Oxford Economics: “I don't think the cash rate will rise until 2023 (so, I'm not really unsure) – the recovery from COVID-19 will have a long tail, and the RBA will be looking to support the economy throughout.”

Ben Udy, Capital Economics: “To be clear, I'm not unsure of the timing. I think the RBA will remain on hold until beyond 2022.”

Peter Boehm, CLSA Premium: “Still unclear how long it will take to get a line of sight on where the economy is heading – I can't see rates increasing for the foreseeable future, especially with potential recessionary pressures on the horizon.”

Saul Eslake, Corinna Economic Advisory: “You didn't have an option for later than Q4 2022, otherwise, I might have chosen that. The RBA has repeatedly stated, since its March meeting, that it will keep the cash rate at its present level until sustainable progress is being made towards the inflation target and full employment – and I suspect it may not be until the second half of 2022 that those criteria are satisfied.”

Craig Emerson, Craig Emerson Economics: “No one can predict the course of a global pandemic and its economic impacts.”

Trent Wiltshire, Domain: “The RBA will keep the cash rate unchanged for at least the next two years as the unemployment and underemployment rate will remain elevated for an extended period due to the COVID-19 recession.”

John Rolfe, Elders Home Loans: “I do not think the RBA will lower the cash rate any further. There would be no benefit to anyone other than the banks and they are in a strong position. I believe the next rate will be up – perhaps as early as at the end of Q1 2021 if there is no second wave of COVID-19 in Australia.”

Angela Jackson, Equity Economics: “The RBA will hold cash rates until the economy recovers and unemployment is around the 8 percent mark. Uncertainty around the path of COVID-19 makes predictions on when this occurs difficult. Best case scenario third or fourth quarter of 2020-2021.”

Mark Brimble, Griffith University: “The current situation will need to play out further before a direction is clear.  Either way, it is likely to be lower for much longer.”

Tony Makin, Griffith University: “The official interest rate has apparently reached its floor level. The main story now is the quantum of government bonds the RBA has been buying as a result of the COVID-19-related spike in the budget deficit. Textbook monetary economics tells us this increases the money supply accordingly.  Central banks around the world are doing likewise.  Whether this means a subsequent and unexpected global inflation surge remains to be seen.  But history shows it could happen after a lag of several years.”

Stephen Miller, GSFM: “I do not think the RBA wants to cut the cash rate further. Any easing of monetary policy will take a different form.”

Peter Haller, Heritage Bank: “The RBA has made it clear that the cash rate will be at 0.25 percent for an extended period of time.”

Leanne Pilkington, Laing-Simmons: “The RBA has stated its view that rates are at their lowest point, and there’s no appetite for negative rates. The banks themselves have access to cheap credit at the moment, which is reflected in the low rates charged to customers. The economy remains in a fragile place and while some businesses cautiously re-open, we see the holding pattern continuing for the foreseeable future.”

Nicholas Gruen, Lateral Economics: “They should cut to zero (no reason not to), but they’ve said they won't.”

Mathew Tiller, LJ Hooker: “The RBA is unlikely to drop rates further and is expected to continue to support the economy via its other stimulatory measures.”

Geoffrey Kingston, Macquarie University: “Inflation could be picking up at this point.”

Jeffrey Sheen, Macquarie University: “The economy should have recovered sufficiently in two years.”

Stephen Koukoulas, Market Economics: “The fall-out from the health crisis is still unfolding. It is not possible to be confident about monetary policy pressures until that is resolved.”

John Caelli, ME Bank: “The RBA will keep the cash rate unchanged for an extended period of time until the full impacts of COVID-19 are known.”

Michael Yardney, Metropole Property Strategists: “We are now in the low-interest-rate environment for at least three years, the RBA doesn’t want to spook the market with negative interest rates.”

Mark Crosby, Monash University: “Further rate cuts are likely to have no effect, and I think it will be a while before a full recovery from COVID-19 leads to increasing rates – in other words, the RBA is likely to do nothing on rates until 2022.”

Julia Newbould, Money: “Depending on what other stimuli are employed, it might be time to raise the rates by then.”

Susan Mitchell, Mortgage Choice: “I expect the Reserve Bank to hold the cash rate at its monetary policy meeting in June. RBA board members seem resolute in their mission to support the economy as they target full employment and the inflation target. April Labour Force data from the Australian Bureau of Statistics shows that this goal will not be achieved in the near-term, with a tragic loss of employment over the month. That being said, April Payroll data from the ABS provided a glimmer of hope that the deterioration may not continue into May. While social distancing rules had a detrimental effect on property sales, data from CoreLogic shows that the loosening of restrictions has seen volumes lift again, which may be bolstered by an extremely low cost of borrowing for the foreseeable future.”

Dr Andrew Wilson, My Housing Market: “Rate to remain steady for foreseeable future. Contemporary, effective monetary policy set to go the way of the dinosaurs.”

Andrew Reeve-Parker, NW Advice: “Interest rates are at historic lows at the moment, but by 2022, I expect the economy to be running ahead of trend."

Rich Harvey, Propertybuyer: "COVID-19 has placed policymakers in a very difficult situation.  RBA has already indicated they will not go to negative interest rates and there is little impact reducing a further 0.25 percent.”

Matthew Peter, QIC: “The RBA and other global central banks will keep rates at their lower bound for some years to come. It is unlikely that we will see a rise in policy rates within the coming four years.”

Noel Whittaker, QUT: “No way they were increasing them – and it’s pointless to drop them. There are too many uncertainties to make any kind of forecast – I am pessimistic.”

Cameron Kusher, REA Group: “They have stated that there will be no increase in the cash rate until unemployment is on its way to full employment and they are comfortable inflation will be within 2-3 percent. That looks a long way off. They also seem extremely reluctant to take the cash rate any lower than it currently is.”

Sveta Angelopoulos, RMIT university: “The RBA is unlikely to change the cash rate until the economy is well into recovery and even then, only if it feels, it is overheating.”

Christine Williams, Smarter Property Investing Pty Ltd: “Given the medical and financial climate we are in, I believe rates will be kept on hold.”

Janu Chan, St George Bank: “RBA is unlikely to move the cash rate any time soon. It sees the cash rate at its effective lower bound, and for the cash rate to increase, we would need to see a very meaningful decline in unemployment. Spare capacity in the labour market will remain for some time.”

Besa Deda, St.George Economics: “The RBA has indicated that it will not raise the cash rate before removing the 3-year bond yield target. It will take time for the unconventional policies to be unwound, and these will only be unwound once the economy recovers which is not expected until later this year and next.”

Mala Raghavan, University of Tasmania: “Due to the uncertain times ahead and the worldwide ability to contain the pandemic, it will be difficult to predict the effectiveness of an accommodative monetary policy (irrespective of conventional or unconventional measures).  What is probably needed for the way forward, is a well-coordinated fiscal and monetary policy measures - first, the focus should be on containing the health crisis, and then subsequently the focus should be on stimulating the economy.”

Other participants: Bill Evans, Westpac. Jason Azzopardi, Resimac.

www.finder.com

ends

THE Institute of Public Accountants (IPA) has welcomed the introduction of the Payment Times Reporting Bill 2020, saying its implementation will go a long way to help small businesses that are struggling with cash flow issues.

“This legislation will bring greater transparency, requiring businesses with over a $100 million turnover to publish their policies including payment times,” IPA chief executive officer, Andrew Conway said.

“We appreciate that businesses are doing it tough in this COVID-19 pandemic environment, but small businesses still need to be paid on time to help keep them afloat. 

“The ASBFEO final report on its Payment Times and Practices Inquiry [1]points to the fact that a lack of cash flow is the leading cause of business insolvency and this underscores the importance of the issue of late payments which can easily put many businesses out of operation.

“The ACCC[2] has highlighted of big businesses refusing to pay small business suppliers or in some cases, trying to renegotiate pricing that had been agreed upon after the product or service has been delivered," Mr Conway said.

“The Bill will see the establishment of a Payment Times Reporting Scheme[3] which will be reviewed after three years.  It also provides for the creation of a Payment Times Regulator.

“The Bill also allows the Regulator to publish information about a reporting entity that has failed to comply with the Act. This will provide transparency to small businesses using the register, allowing them to determine the companies they will engage with.

“As the legislation defines small businesses as those with a turnover of less than $10 million and therefore, 99 per cent of businesses, it is hoped that small businesses will get a fairer go," he said.

“The IPA has been a long-time advocate of legislating payment times, given that Australia has one of the worst records for payment times to small business compared to many other countries. 

"Hence, we support the ASBFEO recommendation that all small businesses should be paid within a 30-day time frame.  We hope that this will happen well in advance of the three-year review,” Mr Conway said.

www.publicaccountants.org.au

References

[1] https://www.asbfeo.gov.au/sites/default/files/ASBFEO_Payment_Times_and_Practices%20Inquiry_Report.pdf

[2] ACCC Commissioner Rod Sims at small business and franchising consultative committee meeting.

[3] https://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/Bills_Search_Results/Result?bId=r6542

 

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By Leon Gettler >>

A LOT OF BUSINESSES have done it hard since the shutdowns and social distancing rules came in. But CreditorWatch data suggests small businesses were struggling with cash flow issues long before the coronavirus lockdown measures came into play and were unprepared for the current downturn.

Patrick Coghlan, CreditorWatch CEO, said it was all too evident that many businesses were unprepared – although not many companies would have been prepared for it.

He said the majority of small to medium enterprises (SMEs) only held a few weeks, maybe a couple of months at best, of cash reserves that can withstand a 70-90 percent downturn in revenue. 

Mr Coughlan said the data showed that small businesses were being paid 40 percent slower than the previous quarter.

“And that was for Q1 2020, so that’s pre-coronavirus,” Mr Coghlan told Talking Business. “So they were already struggling to get cash in the door before they got hit with the pandemic itself, which means there is underprepared and extremely underprepared – and it was a horrible situation for most SMEs and their directors and owners out there.to have to deal with this, as well as the already slow-paying customers.”

RIGHT ACROSS THE BOARD

Mr Couglan said the problem was right across the board, but there were some specific sectors that stood out.

He highlighted agriculture, which was no surprise as it had been hit by fires and floods in late 2019 and early 2020; construction which is always slow over that Christmas-New Year period; retail which had experienced a number of administrations taking place in November and December; transport was struggling; and a lot of professional services businesses, with many customers slowing their payments and looking to see whether they could move somewhere else.

“SMEs at the moment are doing it extremely tough and the challenge is how do they get out of it?” Mr Coughlan said. “I’ve been talking about zombie companies, companies that were struggling pre-corona.

“If corona hadn’t come along, you’d be questioning whether they would still be around within the next six months as a result of tightening cash flow, reducing margins and a reduction in profit and revenue,” he said.

HELPFUL GOVT RESPONSES

Mr Coughlan said the government sector had responded by introducing terrific measures like insolvency changes.

“What I think that does, though, is kick the can down the street so to speak in terms of directors and shareholders looking at their business and saying: ‘We probably should have wound this up in early 2020 but why don’t we take advantage of JobKeeper and why don’t we take advantage of the fact that we can trade insolvent and let’s see what happens. Who knows what will happen? It gives us six months, so let’s go with that.’ “

That said, there were plenty of signs of businesses looking for opportunities. 

Faced with revenues falling 90 percent, businesses were now coming up with new models, selling food online and marketing it through social media, or re-producing office furniture recalibrated for a work-from-home environment, or businesses creating protective gear for health workers and ventilators.

Mr Coughlan said CreditorWatch had seen a significant drop in credit inquiries in March, but in April it jumped 36 percent not only on existing customers but new customers applying for credit. This was a healthy sign.

“I think what you’ll find is suppliers, distributors, manufacturers will start to have a good sense of which of their customers are hibernating or potentially going out of business,” Mr Coughlan said.

“They’re starting to do new searches on companies that are coming to them and they’re getting a sense of which of their existing customers are healthy – and that’s all designed for them to be able to continue to trade or to start trading as soon as possible,” he said.

www.creditorwatch.com.au

www.leongettler.com

Hear the complete interview and catch up with other topical business news on Leon Gettler’s Talking Business podcast, released every Friday at www.acast.com/talkingbusiness.

 

ends 

ASIC has amended the Corporations Act 2001 to provide an additional month for companies to lodge their financial statements.

This affects all entities with June 30 year-ends which lodge financial statements under the Corporations Act.

Importantly for listed entities, the ASX has not extended the deadline for the lodgement of Appendix 4E under ASX Listing rules 4.3A and 4.3B. This means that non-exploration entities will still have to lodge financial statements by 31 August. 

If the audited financial statements are not available by that date, they must lodge unaudited financial statements. The extensions above do not affect continuous disclosure obligations, and listed entities should continue to lodge their financial statements as soon as practicable. Where listed entities intend to rely on this extension, they should disclose this to the market, and state the reasons why they have used the extension. 

Commenting on the extension, RSM Australia national technical director, Ralph Martin said, “We welcome ASIC’s extension of relief from financial reporting deadlines to 30 June preparers. The impact of COVID-19 on business has been significant, and its effects will cause substantial challenges in preparing and auditing financial statements, including issues such as the determination of fair values, impairment assessments, and going concern considerations.

"While Australia has currently been less affected than some other jurisdictions, many Australian entities have global operations which continue to experience a high level of disruption to their operations. The deadline extension offered by ASIC is a suitably proportionate response which balances these issues against the need for timely and relevant financial information.” 

Details are:

  • The deadline for listed companies is extended until 31 October 2020 (but see below in respect of Appendix 4E).
  • The deadline for unlisted disclosing entities and registered schemes is extended until 31 October 2020.
  • The deadline for proprietary companies and other non-disclosing entities is extended to 30 November 2020.
  • Listed entities with a 31 December year-end now have until 13 October to lodge their half-year reports.

www.asic.gov.au

 

ends

UP TO 730,000 Australian mortgage holders on interest-only loans will be hit with higher repayments this year, according to new research by Finder, the Australian comparison website. 

A Finder analysis of Australian Prudential Regulation Authority (APRA) data has revealed that 730,000 interest-only home loans will convert to principal and interest loans in 2020. 

Finder is warning that of all the home loans granted in 2015-2016, a worrying 39 percent ($295 billion) were interest-only (IO).  

Graham Cooke, insights manager at Finder, said borrowers on IO loans needed to financially prepare for their interest-only period to expire. 

“Interest-only home loans allow borrowers to only repay the interest portion of their mortgage for a set period of time, usually between three and five years," Mr Cooke said.

“This means repayments tend to be lower because you’re only paying off the interest on your loan, rather than the principal as well. 

“But borrowers can be hit hard once their mortgage converts to principal and interest, as their repayments can increase significantly. If you know your IO loan is expiring this year, it’s important to factor this into your budget,” Mr Cooke said. 

If the average loan size during the 2015/2016 period was $395,000, interest-only borrowers can expect to pay an extra of $3,600 per year if forced onto a standard variable loan with an interest rate of 4.80 percent. 

Owner-occupiers or investors who borrowed above the $395,000 average could be hit even harder, he said, with the increased cost for a million-dollar loan clocking in at $789 per week, or $9,468 annually.

Mr Cooke said interest-only borrowers did not need to stick with the same lender once their loan converts. 

“If your interest-only loan is due to expire in the coming months, start comparing your options now," he said. "There are hundreds of principal and interest loan products to choose from. 

“Banks will sometimes offer a discounted variable rate on a case-by-case basis in a bid to keep your business. It’s therefore worth negotiating with your lender for the biggest rate discount you can get. 

"The lowest rate available on Finder is currently 2.84 percent, and there are more than a dozen variable home loans that start with a '2'. If your current lender can’t match this, there’s no need to stick around,” Mr Cooke said.

www.finder.com.au

ends

THE Australian Small Business and Family Enterprise Ombudsman Kate Carnell has welcomed the Federal Government’s decision to provide some non-bank lenders with access to the COVID-19 SME Guarantee Scheme.

The scheme provides eligible small businesses with access to up to $250,000 in unsecured funding, including a six-month repayment holiday with interest accrued to be amortised over the course of the loan.

“The inclusion of five non-bank lenders in the scheme, means there is a greater chance of credit flowing to viable small businesses that need it,” Ms Carnell said. 

“Non-bank lenders are accustomed to lending unsecured and getting funding to SMEs quickly.

“It is important the selected fintechs pass on the lower rates for loans under this scheme to small businesses, as they are backed by a 50 percent government guarantee," Ms Carnell said.

“Essentially this means the government is taking on half of the risk of the loan and that needs to be reflected in loan pricing. This is something my office will be monitoring closely.

“We certainly support the inclusion in the loan guarantee scheme of fintech firms on the proviso they are signed up to the Fintech Code of Conduct, as this commits them to provide a process for complaints-handling  and transparency around loan rates.

“It’s encouraging that four of the chosen non-bank lenders are signatories to the code - Prospa, Moula, Get Capital and On Deck Capital.”

www.asbfeo.gov.au

ends

AUSTRALIAN Small Business and Family Enterprise Ombudsman,  Kate Carnell has urged senators to back the Australian Business Growth Fund Bill, claiming it will "significantly encourage business growth and promote economic expansion".

“We strongly support the investment by the Commonwealth in the Australian Business Growth Fund to provide much-needed patient capital to SMEs seeking to realise their high-growth potential,” Ms Carnell said.

“This investment is critical to the success of the fund. Previous attempts leaving it to industry to establish the business growth fund, resulted in no action. 

“The fund is aimed at SMEs that need patient capital and have been overlooked by venture capitalists and other investors. The fund is focused on helping an SME grow to a point where they don’t need the equity investment," Ms Carnell said.

“The overwhelming feedback to my office from the small business community is that a lack of access to funding is their biggest barrier to growth.

“RBA Governor Philip Lowe has made a number of pertinent observations about the credit squeeze impacting the small business sector and how that’s effecting the economy more broadly.

“In November last year, Dr Lowe said we will all be better off if businesses have the confidence to expand, invest, innovate and hire people," she said.

 “The Australian Business Growth Fund will help address the critical funding gap as identified in our Affordable Capital for SME Growth report, for long-term, patient capital to enable our up-and-coming, high growth potential  SMEs to flourish.

“Similar models in the UK and Canada have been tried and tested, providing access to affordable capital for businesses that have gone on to demonstrate successful growth.”

www.asbfeo.gov.au

ends

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