Storm warning

Against the optimism and confidence being pushed by Prime Minister Julia Gillard and the $50 billion in government expenditure cuts being proposed by Opposition leader Tony Abbott, there is a very real risk of a major global double dip decline in the next few months.

Smart companies need a sound plan for the next financial year and the time to put up the shutters is when the storm warnings come at a faster rate.

Both major parties are telling us that they are committed to growth in the Aussie economy and cutting corporate taxes but neither has been willing to give us the charter for change that would generate long term innovation away from a quarry/farm economy. The reality is that lowering corporate income tax does nothing for the two million business managers in unincorporated small enterprises

Despite the high levels of consumer confidence and claims that Australia is once again the lucky country that has come out of the GFC ahead of the rest, there is a very high risk that we are once again blind-sided by the China economy.  Treasury pre-election reports on the economic and fiscal outlook released earlier this week point to “substantial downside risks to the global economic outlook.”

A survey by banking industry consultant East & Partners has found that eight out of ten small businesses from companies in the $1 million to $20 million turnover mark that make up the bulk of Australia’s smart companies say that their banks have shown little or no loyalty to them. The real cost of funds have been rising at a time when the big banks will be reporting huge profits while claiming that their cost of funds from overseas are rising, despite the reality that their profits have been growing steadily as returns to shareholders are protected.

As soon as the ballots are done and dusted, Treasury will retake control of fiscal and economic policies, banks will raise their costs of funds and impose much stricter controls on funds for small business carryover finance and sovereign funds will become more cautious about the export prospects of small business.

Gary Morgan reports that that there is no need for the RBA to raise interest rates at this time.  He say:  “Consumer confidence has strengthened slightly, up 1.1pts to 124.1, after the first week of the Federal Election campaign. Driving the increase is the rising number of Australians (30%, up 2%) that say their family is ‘better off financially’ than a year ago and also a slight increase (58%, up 1%) in those saying now is a ‘good time to buy’ major household items.”

This means that treasurers in small and medium enterprises should be heading for their lending advisors seeking to lock in bridging finance against a post-poll rise in the cost of bridging finance. The conflicting directions of the major banks will exacerbate the competition for credit in this country as the RBA follows international banking concerns that quantitative easing (printing money) may replace stimulus packages.

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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.

Email dr.colinbenjamin@marshallplace.com.au
Contact: CEO Dr Jane Shelton, Phone +61 3 9640 0099