Mark Kenny Chief political correspondent
May 30, 2013
Business is cutting jobs, and the PM may pay the price.
'For a government that keeps telling us it is all about jobs and growth, that could be painful.' Photo: Josh Robenstone
Julia Gillard was wise to avoid a clash with those great secular festivals, the AFL and NRL grand finals, when setting the election for September 14. Unfortunately for some, she could not avoid a clash with the holiest day of the Jewish calendar, Yom Kippur. Observers are precluded from undertaking work, and many will spend polling day in fasting and prayer.
But a bigger problem, given that Labor needs every card to fall its way between now and the poll, was situating the campaign in a softening global economy and at the end of the peak annual reporting season for most listed companies.
In previous years, the season when companies reveal their hand to shareholders may not have figured too heavily in political considerations. For Australia in 2013 however, it perhaps should have. The month-long corporate show-and-tell from August 1 looms as a kind of climactic deadline by which many companies will have moved decisively to cut costs and bolster their bottom lines.
For a government that keeps telling us it is all about jobs and growth, that could be painful.
''The quickest, sharpest, way for CEOs to repair their balance sheets is cutting costs, and costs is labour,'' said one senior business figure. He added that of the top half-dozen executive appointments in mining over the past 12 months, all have been recognised as specialists in cost cutting, at ''ripping the costs out of businesses through restructuring and labour shedding''.
Ford's sad withdrawal from manufacturing in 2016 rocked the nation last week, yet it is likely that more of these kinds of announcement are to come in manufacturing, in finance, and in the services sector.
Holden, which has done a superior job in cost minimisation through using a global platform to build its medium-size Cruze, and by developing export markets, nonetheless faces a very uncertain future. It is committed to building cars here until 2022, according to co-investment agreements with the federal government and the states. Tellingly however, Ford decided to quit despite substantial governmental assistance, revealing losses of $600 million over the past four years.
Holden, and for that matter Toyota, may yet come to the same answer, particularly if their projected losses exceed the quantum of governmental assistance they would forfeit by leaving early.
While car making faces its own set of challenges, large employers across the board are eyeing cost pressures, and many will be coming to similar harsh conclusions.
It is not the pre-election environment one would choose.
The Australian Industry Group has been warning for some time of deteriorating conditions. While the official jobless rate hovers around 5.5 per cent, the Ai Group's CEO, Innes Willox, believes Treasury projections of a jobless rate of 5.75 per cent for 2013-14 and 2014-15, then dropping back to 5 per cent after that, might understate the severity of the coming business response to a softening economy.
''We have data which is way ahead of the official data and we're very concerned about what's around the corner for the economy,'' he said. Much of that ''data'' is feedback from member firms, including assessments of their prospects and immediate plans.
Willox said construction and manufacturing had been in decline for three years, and the services sector is now also slowing quite substantially, driven even lower by declining business confidence.
While the depreciation of the dollar is likely to assist, economists say the recent dip below parity with the US dollar needs to be much faster and more substantial if recessionary pressures are to be resisted.
The OECD - which relies heavily on data supplied by Australia's Treasury to help construct its picture - predicted in a report released on Wednesday night that Australian growth would slow to 2.5 per cent in 2013. ''The persisting high exchange rate and still fragile confidence are inhibiting the emergence of new drivers of growth,'' it said.
Bureau of Statistics figures released on Wednesday also pointed to a faster-than-expected slide in economic activity, noting that construction work slipped 2 per cent in the March quarter against market expectations of an increase of 1 per cent. That could take 0.2 percentage points off GDP when the March quarter national accounts are released next week.
Willox argues the excruciating reality confronting many large employers now is the outlook itself. Unlike the GFC in 2007-08, during which many trimmed costs while retaining their hard-won skilled labour, he says the outlook now suggests no end in sight. Having made all the obvious efforts to retain employees by creative means such as rostering workers for fewer hours and cutting overtime, the only option left, in many cases, is job shedding.
If companies want to report healthier balance sheets in August, they may need to take unpleasant decisions in the next few months. A spate of labour shedding would set a bad feel in the weeks before voters decide. Yom Kippur, which begins on election-eve, is also known as the Day of Atonement. It may be the day Labor is asked to atone for the decisions of those over which it has no control.
Mark Kenny is chief political correspondent of The Age.
