Any government failing to fix this sort of thing is courting trouble
More than 1600 Australian manufacturing and construction businesses have succumbed to insolvency in six months, and thousands of jobs are under threat as increasing numbers of companies move offshore or shut down operations, ham strung by rising power prices, supply chain pressures, labour shortages and lingering inflation that’s still high compared with other advanced countries.
Following Australian Securities and Investments Commission (ASIC) data showing that 1387 construction companies and 243 manufacturers called in administrators towards the end of last year, Australian Bureau of Statistics (ABS) figures in January reveal a sharp drop in manufacturing productivity.
Making a bad situation worse are spikes in business failures among companies involved with accommodation and food services, retail, transport, postal and warehousing, health care and social assistance, professional, scientific, and technical services.
Mounting national frustration
Last month’s expensive recall of politicians to Canberra to confront Australia’s inflation-fuelled cost of living crisis, underlined the government’s across-the-board lack of policy to deal with the problem.
It also heightened national frustration, following establishment of a $15b National Reconstruction Fund (NRF) to finance projects that will diversify and transform Australia’s industry and economy while helping to secure future national prosperity with sustainable economic growth. (The NRF replaced former PM Scott Morrison’s axed Modern Manufacturing Initiative.)
Indeed, in our 18 August newsletter last year we reminded our newsletter subscribers of PM Anthony Albanese’s election promise that the NRF would be “a first step” to reverse the nation’s manufacturing decline by “reviving our ability to make world-class products”.
Readers may recall Macks Advisory also warned that in reality the NRF was a bank without a mandate and that because of its lack of policy we feared for the fund’s misuse.
(The NRF has been directed to invest in “priority areas” including renewables and low-emission technologies, medical science, transport, defences capabilities and technologies, value-adds in resources, agriculture, and fisheries.)
Our understanding is that although enabling legislation for the fund was passed last March and an investment mandate finalised in November, no money has been released to even a single firm despite skyrocketing insolvencies – this at a time when the Australian Construction Industry has warned bankruptcies are running at “an annualised rate of around 3000, roughly twice the pre-Covid rate”.
Yet, under pressure from mainstream media to activate the NRF, Mr Albanese said in January “the fund has been open for business since November, and the money is available now”.
Why there’s frustration
The coalition estimates the government’s lack of action in the face of obvious threats to the economy puts 3,000 jobs under threat. Be that as it may, the fact is Alcoa, which employs 1100 workers has announced shutting down its Kwinana refinery in WA, and we reported in last month’s newsletter that Tritium, a world leader in manufacturing fast EV charges, was – with the loss of hundreds of jobs – closing its Brisbane factory and moving to the US.
On a variety of media platforms manufacturers have made it clear they believe the NRF is the wrong tool for the wrong time, and they don’t want Anthony Albanese as a business partner. They want cheaper power bills, less red tape, and delivery of a viable government plan to strengthen an economy that in less than two decades has dropped 15 places for competitiveness among the world’s advanced economies.
Builders’ and small businesses’ associations claim the government’s failure to fix the cost-of-living crisis and curb prices across supply chains, has increased the average time for a house to be built to 14 months, compared to six to nine months pre-pandemic.
Latest available data from the Australian Bureau of Statistics (ABS) shows dwelling approvals, commencements, and completions have subsided to decade lows while population booms.
SA has done comparatively well in this situation, being ranked, for the first time in 15 years by CommSec – an arm of the Commonwealth Bank -- as the nation’s top state for economic growth in the most recent quarter. SA also had the lowest rate for unemployment together with the best record for construction work and dwelling starts.
But note, that top rating is awarded on relative quarterly success compared to historical averages. SA was rated only fifth in economic growth for the year to September 2023 and Adelaide’s inflation rate of 5.9% is 0.5% above the national rate.
Clearly, most Australians consider farcical the government’s proclaimed target of ensuring 1.2m homes are built in the next five years. Housing Industry Association (HIA) managing director Jocelyn Martin says the number of building companies reporting cash flow problems is “alarming”, and adds, “Nothing is trending in the direction of our ability to build those 1.2m homes.”
Master Builders Australia (MBA) chief executive Denita Wawn believes construction forecasts for the current financial year will be “worse than expected”.
NSW Premier Chris Minns has told Sydney’s Daily Telegraph the state has “no chance” of completing 75,000 new dwellings a year -- which is supposed to be the state’s share of the government’s 1.2m five-year target.
We’re just running on the spot
It’s because of government failures in fiscal and monetary policy settings, together with economic reform neglect, that many Australians who are working harder than ever to make ends meet, are frustrated to see their work not necessarily producing extras goods and services.
Furthermore, they’re frustrated by seeing themselves condemned to work in an economy that at best seems to be running on the spot – when it’s not actually losing ground.
The Productivity Commission acting chair Dr Alex Robinson says that although Australians are working a record number of hours to make more money to counter the rising cost of living, output has risen just O.4% nationally to yield 2.4% economic growth, despite a 2% fall in labour productivity. “In other words, Australians are working more hours just to produce and buy the same number of goods and services.”
It's no wonder Macks Advisory’s clients and contacts tell us they’re scared the government’s lack of performance will elongate inflationary times to reduce chances of interest rate cuts this year.
It’s no wonder they say the PM talks nonsense when he claims that because we’re all already suffering the effect of “global inflation”, he hesitates to provide cost-of-living relief because this might “stoke inflation” here!
What global inflation? While Australia’s inflation rate is 4.1% (down from 5.4% at the end of last month) Europe’s rate averages just 2.4%. It’s 3.1% in Canada and the US.
Closer to home it’s 2.6% in Indonesia, 2.8% in Japan, 3.2% in South Koreas, and 3.6% in Singapore.
Australia’s target range for inflation is between 2% and 3%, and of course inflation has been a problem for comparable economies to Australia’s in the past couple of years. It’s not anymore.
Which is why we say apolitically in this article’s heading, that a government unable or unwilling to fix what ‘s happening now – or not happening in Australia – “is courting trouble”.
Certainly, the recent drop in the inflation rate from 5.4% to 4.1% and consequent likelihood the Reserve Bank of Australia (RBA) will stop raising interest rates – even lowering them sooner rather than later – will to some extent mitigate against this trouble.
But the government still faces serious trouble if it doesn’t achieve significant reforms with taxation and in other areas needed to spur economic growth.
