Many Australian small business owners are taking a double hit each time interest rates rise because they often have both a mortgage and a business loan secured by their home.

And the pain is being made even more intense by the fact that banks have pushed rates higher for business loans than home loans.

Recent RBA figures show that on loans and overdrafts SME owners faced average actual interest rates of 9.31% in January 2008, well above the official cash interest rate of 6.75% and the 7.64% average rate payed by larger businesses.

Despite the RBA lifting rates by 0.25% between October 2007 and January 2008, the average rate paid by small business owners increased by 0.5%.

And almost half of small business borrowers feel the squeeze from both sides when interest rates rise. Data collected by research house Cannex shows that just over 45% of business loans are residentially secured, with the majority of those – 30.19% – on variable business loans.

This interest rate double-whammy gives business an additional reason to be cautious in choosing the finance product that is best for them, Cannex financial analyst Jeremy Ooi says.

“Even if you think rates might go down, if you have two mortgages you should be cautious,” Ooi says. “Even if you don’t want to fix both loans it could be wise to go one fixed and one variable.”

The gap between business and home loan rates, even where they are secured against the same property, reflects a view among banks that business owners’ incomes are higher risk than an employee’s income.

“Banks perceive that if you are an employee your income is more constant and reliable, and the risk you won’t be able to repay is lower.

“Income from small business is seen as more volatile and irregular – although that depends on a whole range of factors such as your record and the industry you are in. So if you are small business owner there is a greater risk, and that attracts a premium,” Ooi says.

Jetstar is offering discounts to passengers without check-in baggage, and Tiger Airways is selling 100,000 seats at $9.95 each.

The two airlines are competing for business in what analysts say is a softening market.

Under the Jetstar offer, Jetsaver Light, passengers without check-in luggage get a $10 discount on its cheapest fares and $20 off on international fares. The allowance for carry-on baggage has increased to 10kg from 7kg.

Jetstar chief executive Alan Joyce says he believes the offer will appeal to business and short-break travellers.

But if you change your mind as to what you’d like to bring home with you, you’ll have to pay the difference plus a $10 change fee. And the discount is not available for more flexible fares.

Subscribers to the Jetstar newsletter were also offered 5000 one-cent fares on six interstate routes.

Tiger offered 100,000 tax-inclusive one-way $9.95 fares on 12 routes, including 15kg luggage allowance.

The likely prospect of further interest rate rises and continued sharemarket volatility have pushed business confidence levels to the lowest point seen since 2001, according to the NAB monthly business survey released today.

Business confidence fell by nine points in January to fall four points below the 50 point line separating positive from negative sentiment. The business confidence reading is the lowest taken by the survey since the terrorist attacks of 11 September 2001.

“If this proves to be sustained, we would expect to see downward adjustment in actual conditions, and notably capital expenditure plans, during the next few months or so,” NAB says.

The survey also showed that business conditions have dropped four points to 13 and profitability had fallen by six points to 13 in the first month of 2008.

The negative result is also reflected in a new Dun & Bradstreet survey in which business owners and managers say they expect to face rising prices and falling profit levels in the months ahead.

Over 60% of firms surveyed by D&B said they expect to lift prices in the June 2008 quarter, well below the 33% of business executives who said they expected profits to rise.

On the markets, a strong rise in the early minutes of trading had been erased by midday, leaving the S&P/ASX200 down 0.2% to 5538.8 at just before 1pm.

An employee sacked for giving himself a $2.40 discount on a packet of cigarettes has had his claim for unfair dismissal rejected by the Australian Industrial Relations Commission.

George Reid worked the midnight shift for a BP service station in Sydney’s Redfern, but was dismissed after breaching company policy by buying a pack of cigarettes on his credit card at a discounted rate.

Reid lodged a claim for unfair dismissal, arguing that it was harsh and excessive for his employer to sack him over a mere $2.40, especially given his previous good record with the company.

At the AIRC, however, senior deputy president Robert Cartwright said while he would normally have some sympathy with the Reid’s argument, his failure to be honest with his employer about what he had done made his breach more serious.

Cartwright found Reid had given two different stories to his employer about what had happened and then gave “vague and evasive” evidence to the commission.

“Mr Reid’s conduct… and his unsatisfactory responses mean that BP cannot have the trust and confidence necessary for Mr Reid to continue in the role for which he was employed,” he said.

Business groups will closely scrutinise new minimum employment standards to be released by the Rudd Government on Thursday to ensure new rights to request family friendly work arrangements do not unduly increase employment costs.

Australian Chamber of Commerce and Industry acting chief executive Peter Anderson says it is crucial that Labor sticks to its commitment not to force employers to agree to more than one year parental leave or flexible work arrangements if it doesn’t make business sense.

“It is important that we take one step at a time. These are new rights that need to be balanced against their practicality for business, and that’s why the ALP in opposition said it would create these new rights but it wouldn’t create a system that could override the employer’s decision, and we’ll expect them to stick to that principle,” Anderson says.

Labor is also likely to introduce its first tranche of industrial relations legislation into Parliament on Thursday, but confusion in Opposition ranks on the approach to AWAs means it is unclear just how much difficulty Labor will have in passing it through the Coalition-dominated Senate.

Some Opposition MPs, lead by deputy leader and workplace relations spokeswoman Julie Bishop, are reportedly in favour of rejecting Labor’s legislation unless it retains AWAs, while others hold less hardline views that could see the laws passed more quickly.

ACCI’s Anderson says he is not worried by the prospect that the fate of the legislation could remain in limbo for some time, and welcomes a Senate inquiry into the laws.

“It’s important not to rush any of these changes,” Anderson says. “The Australian economy cannot withstand a economic hit of our own making, so any changes to our IR laws need to be carefully examined so that they minimise their impact on the economy.”

The 10 new national employment standards, to be released in draft form on Thursday, are expected to deal with:

• Hours of work.
• A right for a parent to request 12 months unpaid parental leave in addition to the 12 months they are legally entitled to.
• A right for parents to request flexible work arrangements until their child reaches school age.
• Annual leave.
• All full-time non-casual employees will be entitled to 10 days’ paid personal and carers leave each year.
• Community service leave for activities like jury duty.
• Public holidays.
• Employers required to provide employees with a Fair Work Information statement explaining workplace rights and obligations.
• Minimum termination periods and redundancy rights to apply to workplaces with more than 15 employees.
• Maintenance of existing long service leave entitlements.

Click here for more on employers’ responsibilities to accommodate family responsibilities. 

JB Hi-Fi bumper profit

A bumper profit announcement by electronics retailer JB Hi-Fi has not saved the company’s share price this morning from investors' concerns about consumer spending.

JB Hi-Fi Ltd posted a 60% increase in profit in the six months to 31 December 2007 to reach $41.94 million, thanks to insatiable demand for flat-panel TVs, and upgraded its outlook. Same store sales were up 18.8%.

The retailer reported that sales so far in January and February have continued the strong momentum of the first half, and profit for the full-year would rise as much as 49%.

But consumer spending concerns saw the share price fall 9% to $11.45 this morning. Retailer David Jones got a similar response on Monday when it announced a profit upgrade, closing down 4%.

JB Hi-Fi raised its full-year sales forecast to $1.8 billion from a previous forecast of $1.7 billion, or a 40% increase. The company is in an aggressive expansion phase, opening 15 new stores in the first half to bring the total to 104.

MYOB results

Accounting software company MYOB announced revenue up 13% to $205.6 million for the full year ending 31 December. Net profit after tax increased from $17.3 million to $18.8 million.

Chief executive Craig Winkler says new product releases and better marketing in new regions propelled the growth. Australia was the company’s best performing market. He says the growth is sustainable in 2007-08, despite a slowing global economy. Winkler is predicting “double digit growth revenue growth, margin expansion in the underlying business and carefully targeted development spend”.

The company, which rejected a private equity offer to buy the company at $1.90 a share last week, is planning to grow through more acquisitions.

Shares were trading at $1.67 this morning.

Nestle has launched legal action against its former distributor Cantarella Bros, claiming the Australian company is misleading consumers by selling Santa Vittoria mineral water.

Nestle, which sells Sanpellegrino sparkling mineral water, says Santa Vittoria looks too similar to its product and selling it breaches section 52 of the Trade Practices Act. Both mineral waters are in long-neck green glass bottles with seals, a wrap-around neck label and rectangular central label.

But Cantarella Bros has been distributing its sparkling mineral water under the Santa Vittoria brand for 12 years, beginning three years after Nestle ended its 40-year distributorship relationship with Cantarella and started to distribute in Australia itself.

Paul Zawa, intellectual property partner at lawyers Minter Ellison, says it is significant that the local product has been on sale for so long.

“It would be interesting to know what – other than the market for bottled water becoming more lucrative – has occurred to have [Nestle] bringing the action now, given the amount of time that the other party has been distributing,” Zawa says.

“If you have allowed something to go on for 12 years, it may be difficult to claim that you have reputation in a green bottle with an Italian label.”

Cantarella Bros chief executive Les Schirato told The Australian Financial Review that the claims are ridiculous. “We’re an Australian company and we’ve built up this brand of mineral water and now export it all over the world. This is something we’ll certainly be defending.”

Nestle and Cantarella Bros, which owns Vittoria coffee, are also fighting over trademarks. Last year Nestle sought sole rights to an image of a cup of coffee and a red mug.

Federal Government departments will come under greater pressure to pay amounts owed to small business creditors within 30 days under a proposal announced by Small Business Minister Craig Emerson yesterday.

Under the proposed laws, which will be based on a private member’s bill introduced by Emerson mid last year, Government departments will face penalties and be required to pay interest if they fail to pay bills within 30 days.

Despite the fact that the core of the legislation has already been drafted, Emerson has not committed to a timetable for the introduction of the laws, with his spokesman only able to confirm that they will be brought to Parliament “in due course”.

While Emerson will take further advice on the drafting of the laws, a spokesman says at this stage they would retain a $2 million revenue cap on the size of businesses able to claim interest payments included in the original bill.

The amount of interest small businesses will be able to charge is likely to be equal to the statutory General Interest Charge rate, which is currently set at 13.37% per year, or 0.03663014% per day.

Small business advocates have previously called for laws that would give small businesses a statutory right to charge interest or levy a penalty on big business creditors as well as Government departments, but both Emerson and the previous minister Fran Bailey ruled out any change in that direction.

Laws to implement its first tranche of industrial relation changes, to establish national statutory authorities to deal with skills and infrastructure and to implement personal tax cuts promised before the election are expected to top the Rudd Government’s agenda during the first sitting of Parliament.

The chance of a further interest rate rise in the year ahead has increased dramatically after the Reserve Bank of Australia lifted its inflation forecasts in a statement released today.

In its quarterly statement, the RBA says inflation is likely to increase in the short term and will not start falling unless there is a significant fall in the level of domestic demand.

“The risk of inflation remaining uncomfortably high for some time is considerable. Absent a further shift in economic risks to the downside, therefore, monetary policy is likely to need to be tighter in the period ahead,” the RBA says.

The RBA had previously forecast that inflation would fall to between 2.75% and 3% after 2008, but it now believes that inflation will still be around 3% – the upper limit of its inflation target band – until the end of 2009.

The RBA’s stark comments have already created ripples in the markets, with Westpac chief economist Bill Evans saying he is shocked with the extremity of the RBA’s statement on inflation.

Westpac now believes the RBA will lift rates again at its next meeting in March, less than three weeks away.

The only possible reprieve from higher rates could come if global growth slows dramatically because of the international credit crisis. But while there is significant uncertainty about the global outlook, the RBA says both domestic demand and Australia’s key markets in China and India have so far shown little sign of faltering because of the crisis.

Rents, a significant component of inflation measures, look set to rise after new housing finance dropped 0.6% in December, signalling continued tightness in Australia’s housing market.

Significantly, interest rate rises appear to have affected investors most heavily, with approvals for owner-occupied housing increased 0.5% against a fall in investor loans of 3%.

And wages pressures appear likely to mount, with ANZ job ads data for January showing the number of jobs advertised increased 1.8% – 31.9% up on this time last year.

On the markets, at 12.40pm the S&P/SX 200 is down 2.2% on Friday’s close to 5530.8, thanks primarily to a weak lead from US sharemarkets on Friday.

Will 2008 finally be the year that digital cinema comes to a multiplex near you?

This has been the slowest-moving part of the digital revolution. The first digital demo took place in 1998 at a cinema in London and it was soon declared to be the greatest change to watching movies since the talkies came in.

Ten years later we’re still watching movies more or less in the way that was invented by Thomas Edison in 1891. Reels of film are physically couriered to the 100,000 or so movie theatres around the globe. When the reel arrives the projectionist still feeds it into a projector and changes reels when the second circle in a row appears in the top right corner.

It’s true that film technology has improved dramatically over the past 10 years, with more reliable pictures and gearless projectors.

But still… we’re all watching YouTube on the computer, digital pictures on the TV and ringing each other on digital phone lines, taking pictures of each other on mobile phone cameras, and then heading out to the movies to watch Kodak film.

The reason for that is simple; the exhibitors have to pay for the equipment upgrades but the distributors make all the savings, and they can’t agree on a cost/saving sharing model.

The cost of converting a cinema to digital is about $150,000. That’s $300 million for the 2000 screens in Australia and $5.4 billion for the 36,000 screens in the United States.

After conversion, movies could be sent via broadband from the studios to all cinemas at once, so there would be simultaneous release around the world and less of an issue with piracy.

A single film print costs around $1350 to make, excluding the cost of getting it to the cinema. A digital copy, on the other hand, would fit on a standard 300GB hard drive, which costs less than $100, and could be encoded to disappear after a month’s run.

With several hundred movies showing each year, the savings for film distributors would run into billions.

The trouble is that the margins on showing movies are skinny, with much of the profit coming from the popcorn. The idea of spending $150,000 changing each screen to a digital projector is a nightmare for cinema-owners.

Not that they wouldn’t get any benefit at all. Showing movies digitally would require less labour and they could show material other than movies.

There’s even talk of using cinemas to show big sporting events live – like the Olympics, the soccer world cup or the AFL Grand Final. The cinemas could become much livelier places, in fact, showing lots of shorter things all the time – TV shows perhaps, more short films and so on. The whole business of going to the movies would be transformed.

But unlike digital television, there is no interest among politicians to force the issue, despite the enduring popularity of the movies.

This year Hoyts in Australia is planning to trial six digital projectors, randomly showing digital productions – mostly 3D. Greater Union is also running some tests this year.

But the Australian market is too small for serious testing of digital cinema; it has to be driven from the US.

The American studios have set up a company called Digital Cinema Initiatives (DCI) to establish a standard architecture for the systems and on 12 April last year they released the latest version of the specification.

The National Association of Theatre Owners issued “Digital Cinema System Requirements” in 2006, but the biggest roll-out seems to have been in India, where 2000 screens have been converted to an MPEG-4 satellite-based system.

The digital revolution has been incredibly slow in coming to the cinema – not because the technology is not available, but because of an argument over the money. This year looks like being a turning point.

This story first appeared in BusinessSpectator.com.au