Business Now | 2 September

Published Sep 2, 2024, 7:26 AM

The Treasurer blames high rates for a sluggish economy as economists expect the latest GDP figures to be the worst in 30 years. Plus, Auspost's CEO explains why the business is losing money, and home prices hit new records.

This is Business Now with Ross Greenwood.

Hi there and welcome to the Business Now for another week. Thanks for your company. I'm Ross Greenwood. Coming up on the program today, the blame game over who's responsible for the economic slowdown and the cost of living crisis heats up in the government's mind. It's everybody's fault, the supermarkets, the banks, most.

Definitely the reserve banks.

Anybody's fault, of course, except the governments itself. Shares in the Star Casino Group are suspended from the AX as it seeks extra funding from its lenders and it failed to produce its Tune City accounts on time. And Australia Post boss Paul Graham is with us on the ongoing losses from its letters operation and when its parcel business will be big enough to absorb those losses. So all that and plenty more coming up on today's program now. Other stories we think you should know about today include Shares in the Star were suspended by the AX today because the company's new management seeks new leading arrangements to ensure the ongoing operation of the casino. The Star failed to release its full year profit report before its August thirty one deadline. Last Friday, so the suspension was immediately put in place. It's one of six companies that failed to produce their accounts on time. Another is the fashion chain Mosaic Brands, which owns Miller's, NONIB and Kadi's. It's also suspended after entering a so called safe harbor arrangement to protect the company and directors from insolvency actions. The Star on Friday received the first piece of good news in some time that it will keep its casino license in New South Wales if it complies with directions from the New South Wales Independent Casino Commission.

In the past year, the.

Star's shares of halved in price, and a sponsor of this program, RIA Group today reported to the ASX it's considering a cash and share takeover for the UK's leading real estate site rightmove dot co dot UK.

It's not yet approached Right Moves board.

RIA Group says there are clear similarities between the sites in their leading map positions and leading audience share. The announcement of a shared deal for the acquisition fits with RIA Groups saying the combination of the two businesses provides opportunity for both sets of shareholders to extract great value from the combination.

Now under UK takeover.

Law, Aria Group now has until September thirty to make a formal offer or to walk away. With the slowdown in the UK housing market in the past, you write move shares have fallen by a little, the company's value to close to four point four billion pounds around eight and a half billion Australian dollars will today Ria Group shares they did fall heavily down by about five point three percent with the prospect of that share issue to fund the acquisition and look. The vicious storms that have ripped through Southeast Australia in the past day have already caused a significant lift in calls to insurance companies from people making claims. It's too early to assess the extent of the damage and the financial loss.

We spoke with major.

Victorian insurers IAG and RAACV Insurance today who are urging affected families and businesses to make contact as quickly as possible, but both stress while the emergency is ongoing, safety comes first and they urge people to evacuate if they need to and to call emergency services if in trouble. Both insurers have taken on extra personnel for the expected rush of claims. Assessors and partner builders will quickly be in the most affected areas to help expedite the claims. Telstra earlier this hour reported that one hundred and seventeen mobile sites across Victoria have now been restored, with forty eight sites still disrupted. It also reported twenty six of its mobile sites remain off air in northern Tasmania due to the loss of mains power. It had thirty eight sites cut off on Sunday, the heart of the storm.

This afternoon, they has moved.

North through broad parts of New South Wales, the Illawarra south Coast, the Hunter Valley, the Snowy Mountains and Canbra likely to be most affected by the winds. A wind gust of one hundred and forty six kilometers of an hour was recorded at Wilson's Promontory last night around two thirty am. Looked as we go away with all this, there's a fire emergency warning at Tomigo, which is near Newcastle, the site of Australia's largest aluminium smelter. The out of control fire is right on the edge of the smelter property, heading in an easterly direction. One hundred and one hectares has already been burnt and authority say those in the area should seek shelter.

It's too late to leave. The fire is close.

New South Wales headquarters of Caterpillar machinery distributed at West Track, controlled by the Stokes family, so we'll keep an eye on that one for you as well. Let's get across the markets with business reporter Edward Boyd ed we should acknowledge into the profit reporting season. For the past month, we've been going through chief executive interviews a whole lot. We should sit and assess what actually happened on the market.

Though market actually went pretty well ross over the past month. You can see here at the ASEX two hundred performance over the past thirty days. Tech companies and industrials were the top performers in August, while energy stocks and mining companies were sold off. ASX two hundred it gained point two two percent and finished just five points below its record closing high. And here's the five best sorry, the three best performers in the ASEX fifty over the same period. The world's largest palette supply, Brambles, had a better than expected profit result. Quantus announced a decent profit and Stockland sold more residential lots than expected, so it finished the month up about twelve percent and on the flip side, is the worst performance during the past month. A two milk shares crashed twenty four percent on results day. Ampole reported record sales but cut its dividend. A medical device maker Cochlear missed its earnings guidance, so it was down about eleven points three percent.

Here's what the market did today.

It dropped at the open, then slowly fought back in the afternoon, lifted by energy stocks and the bank's CBA shares. They're at a record high right now and the market, as I said before, is just five points off its all time record closing high. Top stocks today included the property developer Murvak, medicine maker Mesa, Blast, private hospital operator Helius Engineering business Downer, and the online bookie points Bed Gold Miners all lost values today. West Golden Perseus were the worst of the barge shipbuilder Ostil was down too, along with data center builder Next to See, and health company Nanosonics was off just under two percent and ross that's markets.

Thanks so much for ed Well.

Let's go to the government and the Treasurer, who over the weekend seemed to place the blame for expected weak economic growth figures due out this week at the feet of the Reserve Bank.

Well today he followed up.

The combination of global economic uncertainty and higher interest rates is smashing household budgets and slowing our economy considerably.

Well, Jim Charmers says that another thing in this is new, and he was backed up by the Prime Minister.

There's nothing new in what Jim Charmers has said. He has said that consistently in the parliament.

Warren Hogan joins me now, economic consultant for Judo Bank. Warren, do you do you think the Treasurer was trying to send a very strong message to the government or to the community here.

I think this is to the community. He's prepositioning on the GDP numbers, which we get a lot of coverage on Wednesday, and they'll show the weakest and your economic growth in thirty years since the nine en nine years recession. But I think this is a political strategy heading into the election. You know, it's the blame game. Don't look at us, look at them. But I don't know if it's going to work. Because it's not what's happening. I mean, the Treasurer talked about economic volatility and higher interest rate hurting household incomes. Well, the reality is it's actually inflation and bracket creep which is doing the main negative impact on household incomes. Bracket creep, in my estimation this year, is worth fifty billion dollars to the government accumulated over the last four years. If we had no bracket creep, which is twice.

As much as the government is handed out and tax cut.

Well if they did, if we didn't get a tax cut, it'd be what seventy five billion, So if we didn't have the breakink.

That's what people don't know about. Actually think about this. We don't talk about this much. What people have worked out is that the government's clawed back more in bracket creep through inflation from what they've given out in the tax cut.

Well, this tax cut this year still doesn't get rid of all the bracket creep. There would have been thirty one billion of bracket creep this year and the tax cut was worth twenty five So we still got six billion of bracket crep. If we handed all the bracket creep back for the last three years, it'll be a tax cut of another fifty odd billion, and of course that's fifty billion the government's got in its revenues that households don't have in their pockets. So that on top of the actual inflation which is making everything more expensive, and of course some people are getting hurt by hiring.

So we have an inquiry into Bunnings, We'll have an inquiry into the supermarkets, We'll have an inquiry into the banks. All of them will be asked by things are so expensive. We haven't ad actually an inquiry into the government to ask shim why things are so expensive.

Well, it does also get back to fiscal policy. So between the States and the Feds this year, government spending is up over four percent. When the economy is growing at one, that's demand running well ahead of supply. The government is contributing to that. Of course, We've got three hundred and eighteen thousand jobs created in the seven month first seven months of this year to July, and that of course brings income with it and demand. So this is what the RBA has been getting at the demand is running faster than the supply capacity of the economy, and of course when you're pumped a man into an economy that's constrained. You don't make more widgets, it just becomes inflation.

Okay, So is inflation now being baked into our economy because you can hear you know, Bill short And talking about this now, Jim Charmers talking about the Surprime Minister talks about this that you know, really be careful about raising interest rates because it'll smash the families. You know, it's a very populous message to give, but the reality is you have to smash the inflation.

Well you do.

And I think that is the risk they're taking politically because I think Australians get it. And of course the RBA in the last six months has learned that this four hundred and twenty five basis points of raid high, which we all thought was going to get the job done because of all of our variable interest rates in our mortgage in our mortgages, hasn't. And we've only got a real interest rate of just over zero. The cash rate's only just a little bit above inflation.

And compare that with the United States where they're about to start cutting interest rates. Jerome Podwels indicated September YEP, we're going to cut interest rates.

They're real interest rate right now is two point five percent. It is restrictive. So they can do four rate cuts this year, which is probably unlikely. It's probably three, but they can do four and their rates still higher than ours. New Zealand can do another three.

On the world, I just have a look at this, so this gives you the sign of it. You can see inflation, you can see where the cash rate is. And so in the United States still four and five and a half percent is there interest rate? So you're quite right there you go. They can cut interstrates so more regressively. But that's the reason why in the UK, in the US and New Zealand that inflation rate has started to come down much much faster than what it has there in Australia.

And look that inflation rate of three point five percent that we got last week. It's got at leasto point three, if not more, of government subsidy effect. So the underlying inflation is still running it for that's what we're all paying and what we're all feeling. And of course it's showing no signs. There's nothing in the data so far that tells me it's coming down.

But the next time that there's wage claims coming in, the next time that there is an enterprise bargaining agreement, every union, every individual is going to look at that inflation right and say, there's my number. That's what I want it to be.

Yeah, And look, this is the problem with our rigid industry relations with all these two and three contracts is we saw it on the way out. Wages didn't adjust. It really hit people's cost of living, their living standards because real wages fell. But when the economy slows, those wages won't come down keeping up with pressure on inflation.

All right, we'll get your input on Wednesday once those economic numbers come out. Many thanks for your time. We're on Hogan.

Thanks well.

Late last week there was evidence the transformation of Australia Posters ongoing, but honestly not there yet. The service lost eighty eight and a half million dollars in the last financial year, even though its revenue grew to nine point one billion dollars. But the issue remains exactly the same. The decline in the letter's business is greater than the improvement in its parcels and service business. In Australia's post community service obligation that is to deliver the mail is likely to be an ongoing drag.

Well.

The man charged with turning the mail service around is Paul Graham, the Chief executive of Australia Post, and asked him about how it's managing those losses.

We're doing everything you can, obviously to minimize those losses and all out of business. But we're now seeing mail volumes that reflect the mail volume person on the nineteen fifties, So that shows you how significant as the client and in that time fan Australian populations growing three times. We do have a two speed business, but we are working hard to drive efficiencies across the business and continue to also invest heavily in our parcel business, which is the growth area.

So it's always said to me that the hardest part of delivery is.

The last mile. You do the last mile.

Why is it that you are not able to capitalize more on your.

Delivery of the last mile?

I noticed, say, for example, last week, that Amazon provided free same day delivery for its prime customers.

If they order before midday.

What I'm wondering is where does Australia Post fit into that future delivery service for Australians.

Yeah, Look, we continue to adopt our services to meet consumer needs. We introduced our metro service last year which is cut off by eight pm and key metropolitan area.

Delivered next day.

We'll look to introduce more services that allow our merchants to compete with Amazon and others.

But we continue to invest.

In our facilities, in our technology particularly but it is a very very competitive business.

As you say, Amazon and others.

I continue to invest significant amounts of money, but we believe that we have a pathway to remain comparedive in that space, but it will require us to do lots of different things. Invest at the same time, continue to work with government and what we believe is sense of reform to the letter business.

So tell me about this.

Because your shareholder is the government, the Communications Minister, you have to go to them to seek the capital that you require to invest in some key areas.

How does that negotiation go?

Normally to be a chief executive go into a board and say I can get you x per cities return on that capital you invest. How do you negotiate with the government according to this.

Well, we've got a good setup as a gb we are independent arms length from the government.

We have our own board.

Those capital decisions are made by the board, not the government.

There are certain limits that we do have to notify the government.

Don We've got a strong balance sheet and we'll continue to look to use that balance sheet. But as you said, Ross, we've got a two speed business. You know the reforms that the government gave us last year on the new mail delivery service, our drive in efficiencies. We're only in the introductory phase of rolling that out, but what we've seen so far is promising. It's posters, our frontline team members, delivering more small parcels and delving mail every aal ternative and as we see mail continue to decline, we'll look to work with the government on getting appropriate changes to reflect that the client.

Okay, so one other aspect of your business is an important part of your business is licensed post offices effectively franchised operations to Australia Post. One thing I did notice with another business, which is the Bank of Queensland, which is buying back the franchise businesses from its own franchise operators. Just explain to me whether there is a temptation in your mind to buy back some of those post shops from those lpos.

Yeah, look, we don't believe that's part of our strategy. We have a terrific licensed post office network out there, mom and pops and others doing terrific jobs day to day to serve the community.

We have also corporate post office. We think the blender is right.

We are regulated to have four thousand post offices across the country, two and a half thousand regional, rural and remote, and we're very, very committed particularly those regional and rural areas. What we do see in metropolitan area is significant overlap, and we'll work with the community to ensure we have the right portion of post office to serve their needs. But we've got no intention of doing anything but continue to support our licensees to be viable business in the communities operating.

Okay, And one final one is take me to your community service obligation, which means you have an obligation to deliver the mail. Just explain there is a cost to that, quite clearly, and obviously.

That is a part of the decline of that mail service.

So how do you weigh that up again with your board and again with the government when you have conversations with them.

Yeah, look, it's four hundred and forty seven million dollars. That's the cost, so it's not a small amount of money. We don't get any funding from the government or any contribution for that obligation.

As you say, it's a universal obligation.

We have to deliver mail to every part of Australia at a standard price. We are seeing a decline in that mail volume, so as to say the volume is now reflecting what we saw in the nineteen fifties. But we added another two undred thousand delivery points last year's so more delivery points last volume not a good economic equation.

Paul Graham, it's always good to chat to you and many thanks for your time today.

Thanks for us all the best.

Coming up the weekend auction markets and now home prices have fared over the past month.

It's gread to have your company here on business.

Now, let's take you around the country for the weekend auction results. Nationally, there were eighteen hundred and seventy nine auctions a clearance rate around about sixty two percent. In Sydney seven hundred and sixteen auctions. It was busy a clearance rate close to fifty nine percent, plus another fifteen hundred private stales across New South Wales.

In Melbourne seven hundred and twenty four auctions.

Sixty seven and a half percent of those were sold, with an extra eleven hundred or so private stales across the state. In Brisbane just eighty five auctions fifty nine percent sold, plus a further thousand private sales.

Adelaide is still strong fifty nine.

Auctions, a clearance rate here eighteen one percent, us an extra two hundred and eighty two private styles, and in Canberra fifty three options a clearance right strong seventy seven percent and ninety seven private sale. So let's bring in the Eleanor christ senior economists at Aria Group.

Eleanor.

Home prices through to the end of July again stronger and for the years of through to July, much stronger even than the inflation.

Right. That's important, isn't it? Yeah? Certainly.

So.

We've seen that national home price is lifted again in August, lifting a further point two two percent that brings them up a little over six percent above level seen this time last.

So home prices growing faster than inflation. That's an important thing because it means that the real value of homes is actually outstripping inflation.

Yeah, that's exactly right, and we're continuing to see that that persistent uptrend in home prices is in play. Twenty consecutive months of home price growth now and certainly Sydney continuing to defy those affordability challenges that we know are ever present. And really it's those drivers that we've talked a lot about, strong population growth, rental markets, the home equity gains of recent years, incentivizing upgrade activity, and of course in the background that persistent shortage when it comes to that persistent dent in building activity that is fueling that chronic housing shortage.

Okay, so you would think that with the prices continuing to rise and with these shortages, you'd start to see and we're seeing some of these values here on a month by month basis, but you'd imagine that would start to give it in city to developers.

There are building approval numbers out today.

They're stronger, much stronger, but they're still not strong enough to keep up with the government's targets.

Yeah, so we saw that building approvals data today we've got around ten percent month or month off uplift. We're moving in the right direction, but we're still nowhere near that kind of twenty thousand a month in terms of dwellings that we need approve to really hit that one point two million target over the next five years.

And that one point two.

Million target is just the bare minimum that we need to sustain population growth, So really no kind of meaningful change there. But certainly, as you say, the uplift in pricing that we're seeing in the established markets should start to become an incentive for developers to start pushing ahead with new projects. But of course there's other factors in play for developers, higher materials costs, higher financing costs, and all of this has meant labor shortages, and like all of this has meant that it's quite literally and figuratively harder to get those projects off the ground. Those visibilities just don't stack up.

So we'll get them to put the chart back up of those home prices again, because one of the things that's pretty obvious is that most of the state capitals are at peak prices right now that they continue to make these peaks. So we're talking about Sydney, Brisbane, Adelaide, canbra all a peak prices Melbourne's the one that stands out here and look at the value there. The median value is now comparable all my say, to Adelaide, whereas in the past Brisbane was left in the shade compared with Melbourne prices, and you can see they're at least twenty percent.

Or more below where Sydney values are.

Yes, So if these current trends continue, whereby we continue to see Melbourne underperforming an Adelaide continuing this persistent strong home price growth, values in Adelaide could actually outpace Melbourne by the first quarter of next year.

And historically that's not what happens, right.

No, certainly not, and it really speaks to the difference in conditions in Melbourne. So we've seen that slight kind of one point five percent fall in home prices over the year, so a very small fall in Melbourne's home prices, but nonetheless significantly underperforming most of the other capital city marketing.

The little KRAI always good to have in the program. Many thanks to your time today and.

That is a program for today. Mini thanks to your company. We'll see you tomorrow.

Business Now with Ross Greenwood

As the market closes each day, Ross Greenwood brings you breaking business news you can’t afford to  
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