CMAX Advisory closely follows political developments internationally and analyses implications for businesses operating in Australia. We develop a weekly report of the most important political and economic news in Australia, utilising our understanding of complex political issues and processes to inform companies of relevant developments and forecast likely outcomes.
Government banks consecutive surpluses
Treasurer Jim Chalmers has become the first Labor treasurer since Paul Keating to deliver two successive budget surpluses.
According to Treasury’s Final Budget Outcome (FBO) for 2023-24, the budget will be in surplus by A$15.8 billion. This follows a A$22.1 billion surplus in the 2022-23 budget, and is A$6.4 billion better than the A$9.3 billion surplus forecast in May.
“We’re the first government to post back-to-back surpluses in nearly two decades,” Dr Chalmers said. “A second straight surplus is proof of our responsible economic management. Our bigger than expected surplus in the year just gone is entirely due to lower spending, with the tax take also lower.”
The treasurer’s reference to lower spending is being seen as a response to the Reserve Bank of Australia (RBA), which had earlier said government spending, both federal and state, was helping to drive inflation, and thus high interest rates.
In case the point was lost, Dr Chalmers said back-to-back surpluses demonstrated Labor’s strong economic management and would help the RBA bring down inflation. The treasurer has not been shy in suggesting that high interest rates are a drag on the economy.
Over the course of the year, the treasurer has said high interest rates were “smashing” and “hammering” the economy as well as consumption and discretionary spending. While the treasurer, and Prime Minister Anthony Albanese, brushed the comments off, they were seen as a direct commentary on the RBA’s policy.
With inflation cooling according to the latest data from the Australian Bureau of Statistics, the central bank will likely face increasing pressure from business and community groups to either cut rates or at least not increase them.
While the central bank argues that its key measure of core inflation is not yet in the desired sweet spot of 2-3 per cent, that argument becomes increasingly hard to argue in the court of public opinion when headline inflation is dropping.
The latest group to add its voice to the debate was the nation’s retailers, who were concerned that higher retail spending might convince the RBA to tighten the screws and raise interest rates. The Australian Retailers Association (ARA) and the National Retail Association (NRA) both said retailers were struggling, despite the improved figures.
ARA chief executive Paul Zahra said the RBA needed to offer a rate cut when it next meets to discuss interest rates in November.
Other news
Geopolitical unrest threatens Australian supply chains
The ongoing unrest in the Middle East will have far-reaching implications for Australian businesses, which can no longer ignore geopolitical tensions.
Australian companies, particularly those in the defence sector, will need to prepare for ripple effects including supply chain disruptions, trade wars, and rising geopolitical instability, all of which could reshape markets for years to come.
According to KPMG’s Dr Merriden Varrall, geopolitical events are no longer avoidable for Australian businesses. In 2023, 93 per cent of international firms reported losses due to political instability, in contrast to 35 per cent in 2020.
The trend highlights a need for Australian companies to adopt a holistic approach to risk management, recognising that the challenges arising from global unrest can reveal themselves in a number of ways.
A key concern for Australian firms will be supply chain vulnerability with the ongoing conflict putting the movement of goods, particularly critical minerals, at risk. Trade sanctions or blockades would exacerbate such disruptions, driving up costs and project delays.
A broader economic downturn sparked by geopolitical tensions is a further risk of heightened tensions, which could spread beyond the region. While some sectors, such as defence, may typically benefit from geopolitical instability, a significant economic downturn would put governments under pressure to meet more electorally sensitive sectors such as health, education and welfare.
Moreover, the proliferation of misinformation and disinformation, as highlighted by KPMG’s Dr Varrall, poses a subtle yet profound risk. “The risk to business is that customers would not know what to trust anymore and whether to believe what a company was saying,” she said.
Social and political divisions fuelled by false information could erode trust in institutions and major companies, with impacts on stakeholder relationships and contract negotiations with governments.
Mitigating these risks, according to Dr Varrall, involves scenario modelling to better understand the potential impacts on a firm’s operations. Such modelling can help firms make informed decisions on supply chain diversification, investment strategies, and risk management.
Greens would demand major health package
The Greens would demand a A$54 billion healthcare package in the event of a minority government after the next federal election.
The Greens would use an overall tax increase of A$514 billion over 10 years — from “excessive corporate profits” — to fund a substantial package that includes 1,000 healthcare clinics over four years, as well as a tripling of the bulk billing incentive and increased pay for junior doctors.
The clinics would all have a GP, psychologist, nurse and dentist and would be accessible with no out-of-pocket cost.
Greens Health spokesperson Jordan Steele-John said voters had increasingly been raising the cost of healthcare as a key concern amid the overall cost-of-living crisis. Senator Steele-John said the issue had become as important as climate change and housing to voters.
The Greens are reportedly eyeing off seats in Perth in Western Australia, Wills and Macnamara in Victoria, Richmond in New South Wales and Sturt in South Australia, where they see their health policy as the most salient, with success in these seats making a minority government at the next election more likely.
The Royal Australian College of General Practitioners welcomed the announcement, saying that “patients who don’t qualify for bulk billing incentives are paying more out-of-pocket because Medicare rebates are nowhere near the actual cost of providing care”.
Government warns gas producers to stabilise supply
Resources Minister Madeleine King has warned gas producers to ensure stable supply and affordable prices, or risk enabling the Greens, who want to shut the sector.
Speaking at the Australia-Japan roundtable, Ms King said that failing to meet domestic gas needs could damage the industry’s social licence and empower those who seek to shut it down.
“Shortages, or even forecasts of shortages, of Australian gas for Australian customers only play into the hands of those who would seek to close the industry down,” she said.
The minister’s comments come in the wake of new data indicating significant gas shortfalls in Western Australia starting from 2029, coinciding with the state’s plan to phase out coal-fired power plants by 2030.
Ms King’s comments also acknowledged intensified attacks from Greens leader Adam Bandt, who has been pushing for laws to restrict gas exports and force producers to divert supply into the domestic market.
Ms King took issue with that stance, saying that much of the exported gas originates from Western Australia and the Northern Territory — regions not connected to the east coast, where shortages are forecast.
“They also ignore the fact these gas projects would not exist at all were it not for the investment and demand of Japan and other nations,” she said.
The government’s call to action is being seen as a suggestion of increased scrutiny and the potential for regulatory changes that could have an impact on operations and profitability. In other words, if domestic supply issues persist, the industry may face policies that could hinder its growth and sustainability.
Adding to the complexity is a subdued global outlook for resources and energy. The latest Resources and Energy Quarterly forecasts a decline in export earnings due to lower commodity prices and slower global growth.
While there is an expected rise in demand for resources essential to low-emissions technologies, prices for those commodities have fallen.
EnergyQuest CEO Rick Wilkinson said that new supply from projects such as Scarborough and developments in the Perth Basin will be crucial in the coming years. However, beyond these projects, options for increasing domestic supply are limited without relying more on LNG exporters.
Ms King’s message is being seen as a call for the gas industry to balance export commitments with domestic needs, especially as Australia transitions away from coal-fired power.
Demand for specialist advice on the rise
Executives are increasingly willing to pay a premium for strategy advisors who not only bring traditional consulting expertise but also deep industry knowledge.
No longer satisfied with the one-size-fits-all advice model, companies are seeking specialised knowledge that can directly address their individual challenges, particularly in capital-intensive industries such as mining.
The growing preference for sector-specific expertise is creating demand for boutique-style consulting firms that combine strategy acumen with technical or industry depth. The shift not only reflects a change in how clients assess value, but is making life more difficult for generalist consultants.
Chris Paxton, the newly appointed managing partner of EY’s Port Jackson Partners (PJP), says he is a proponent of the specialised approach. PJP, originally a boutique strategy firm absorbed by EY in 2020, has focused on key sectors and leveraged its in-house expertise.
“The ability to be distinctive in the market is what sets us apart,” Mr Paxton told the media, pointing to the team’s success in securing projects that require deep industry understanding.
The trend is not unique to PJP; across the consulting industry, firms with specialised skill sets are outperforming their more generalised counterparts, while large firms are cutting staff due to weakened demand. At EY Australia, broader consulting revenue fell by 6 per cent in the 2023-24 financial year, while PJP has seen steady growth.
With clients willing to pay for depth of expertise, the value proposition for generalist consultants is seen to be fading.
Government boosts ACCC funding to investigate supermarkets
The federal government has announced a A$30 million funding boost for the Australian Competition and Consumer Commission (ACCC) to step up investigations into supermarket practices.
The move comes amid increasing pressure to address the cost-of-living crisis, without further stoking inflation through direct financial assistance to households.
Prime Minister Anthony Albanese said there was a need to protect consumers from “dodgy supermarket practices” during challenging economic times. “We don’t want to see ordinary Australians, families, and pensioners being taken for a ride by the supermarkets,” he said.
The National Farmers’ Federation (NFF) welcomed the increased ACCC funding, pointing to the need for greater scrutiny of the food and grocery sector. “The NFF has long called for increased resourcing to the ACCC to bolster its critical role in Australia’s competition landscape, in particular for the food and grocery sector,” the NFF said.
The hope is that the government’s focus on supermarket practices could lead to more equitable dealings between farmers and retailers and that greater ACCC oversight may help address concerns such as unfair contract terms, information asymmetries, and a lack of transparency.
Additionally, the government’s plan to work with states and territories to reform planning and zoning laws aims to boost competition by opening more sites for new supermarkets. The NFF has backed this move, saying it could mitigate the weakening of competition due to practices such as “land banking” by major retailers.
However, there are concerns over so-called ripple effects, with increased regulatory scrutiny on supermarkets leading retailers to push back on suppliers to maintain their margins, possibly affecting pricing and contract terms for farmers.
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