While there may be differences between Ken Henry and members of the RBA team, there appears to be consensus that small business will face a long period of market corrections due to a combination of cuts to public sector expansion, the impact of Tanner’s expenditure review processes and the threat of Abbott’s $4 billion freeze on public sector replacement of retirees.
The biggest emerging problem is the impact of the tax concessions of the post-Howard era that still flow through this year along with the Swann cash splash embedding a false sense of optimism about the next year’s business environment that encourages the RBA to rush out a damaging credit squeeze on the big banks.
As we are now firmly into a highly volatile election environment and the inherent turbulence that comes with dramatic cut backs in Federal Government expenditures in this financial year, smart companies will need to adopt the rocky roads to fiscal conservatism.
As indicated in last week’s column we are currently engaged in a significant correction in the market place rather than a catastrophic response to the European contagion as both the US and UK central banks are holding interest rates down while removing stimulus packages and tackling their massive debt overhangs.
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In this context it is not surprising that consumers are indicating that they are cocooning their lives in the face of the Glenn Stevens determination to disregard the electoral cycle and take interest rates up a major peg or two or three before Christmas. Investors are showing that they are prepared to sit out the consolidation phase by taking gold prices over $US1,250 and buying into the banking and finance sector until after November.
There has been a high level of expected volatility in stocks and investors are looking to place funds with larger companies that have strong export earnings and prospects to expand known franchises rather than start up efforts.
Morgan’s weekly Consumer Confidence has plummeted 5.7pts to 117.8 after the release of the Henry Tax Review, but before this week’s Federal Budget — the lowest weekly Consumer Confidence level seen for nine months — since August 1/2, 2009. Gary Morgan says: “The biggest driver behind this week’s fall has been a substantial drop in confidence about the Australian economy over the next 12 months with 33% (down 12% – the largest weekly drop ever seen in this indicator) saying Australia will have ‘good times’ economically over the next 12 months.
“Close analysis of Consumer Confidence by state shows falling Consumer Confidence around the country — but particularly large drops in the mining States of Western Australia and Queensland. These heavy falls suggest that the Rudd Government’s proposed new mining tax has already had a substantial impact on confidence in the States that will be most impacted by the new Mining Super Profits Tax.”
The key to small business success is to accept that value propositions will need to be very clear, costs kept firmly under control and business plans for the next financial year directed towards a soundly growing economy.
Now is the time to reach out into Asia and Latin America, find multi-lingual staff or agents and build a platform for innovation. As Dr Lowe of the RBA says: “The central scenario for Australia remains a positive one. Our major trading partners are growing solidly, commodity prices are high and domestic is likely to grow strongly over the year ahead.”
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Dr Colin Benjamin is an entrepreneurship and strategic thinking consultant at Marshall Place Associates which offers a range of strategic thinking tools that open up a universe of new possibilities for individuals and organisations committed to applying the processes of innovation, creativity and entrepreneurship.
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099