The Big Bad Budget – Tough Times Ahead for Business, Retail and Ethics

Yesterday’s Federal Budget announcement is tipped to have severe implications across the Australian economy, and some commentators are even tipping it could mean a worse economic outlook.

The majority of comments are levelled at various removals of incentives and additional levies that will ultimately hit those worse-placed to bear the brunt of added financial pressures, particularly worrying for this demographic are changes to Medicare and the Newstart allowance.

However, even the “Budget Repair Levy”, which targets high income earners only, has been roundly criticised by common interest and industry figures alike, and it certainly adds to a broader picture of concern for the retail sector specifically.

By contrast, there are several elements that may alleviate near-term pressure, with changes to the Family Tax Benefit Part B meaning extra income for families, while incentives have also been added to encourage businesses to employ people over 50 years old – but don’t expect it to be a simple process.

“Whilst many retailers would love to have more experienced and mature store staff, quite a bit of training to help people re-skill for retail is required,” said Simon Trivett, National Head of Retail at Grant Thornton Australia.

Nevertheless this initiative is encouraging for small and medium enterprises, Trivett said.

“Talk of a budget emergency was somewhat inconsistent with the messages coming out of the RBA when reviewing cash rates and this could be confusing for consumers.

“Hopefully we see things settle down and the promising growth in retail over the last few months will continue,” he said.

Retail Representatives Speak Out

Peak retail industry bodies have voiced their concerns regarding budgetary changes, but there isn’t yet a consensus among these representatives on how short-lived any negative impacts may last.

The obvious concern is that tighter spending measures and tax increases will cause consumers to react by changing their spending habits, purchasing less or less high-end products. This is certainly the view taken by Margy Osmond, CEO of the Australian National Retailers’ Association (ANRA).

“Retail sales have been gradually growing for eleven consecutive months and retailers are concerned that today’s Budget will reverse these gains and erode consumer confidence at a critical time,” Osmond said.

“Retail needs a good economic base from which to grow, and any cuts that eat into household spending will damage that base in the short term. However, retailers recognise there is a need for fiscal discipline if the economy is to prosper in the long term.”

Osmond also singles out the fuel excise that will see the cost of fuel and just about anything related to travel and transport impinged. Not only will retailers be expected to bear the cost of rising freight prices, but for bricks-and-mortar ventures it may also expected that consumers will be less willing to drive significant distances to reach them.

“The increase in fuel excise will generate a multitude of cost pressures for retailers – including rising transportation and freight costs as well as a hit to consumers’ hip pockets.

“In the longer term the dedicated road infrastructure investment will provide a better transport network to large scale logistic operators like retailers. The jobs associated with this infrastructure will also mean a brighter future for a number of communities and their retail businesses.”

As a sector that employs 1.2 million Australians, ANRA supports budgetary measures that will support a more efficient use of resources, productivity gains and an overall higher rate of economic growth, and Osmond says there are enough “thrills” for businesses in this budget that we can still hold hope that any near-term pain will be quickly offset by economic benefit.

Meanwhile, Executive Director of the Australian Retailers Association (ARA), Russell Zimmerman is mostly happy with the proposed removal of the Carbon Tax and other measures to cut ‘red tape’ – unfortunately, the low value GST exemption is an issue that is yet to be addressed.

“We commend the Government’s decision to abolish the carbon tax. The ARA has long campaigned for the removal of this unnecessary cost burden to retailers and consumers, and we are confident the decision to finally remove the carbon tax will be music to the ears of business owners.

“The ARA was pleased to hear $1 billion P.A. in red tape will be removed – allowing retailers to get on with the job of doing business,” Zimmerman said.

“We are still waiting, however, for a decision to be finalised on removal of the low value GST exemption for overseas goods under $1000.”

Zimmerman may not have to wait long, however, with the Sydney Morning Herald recently reporting that NSW Premier Mike Baird intends to “bring forward” the GST debate. If successful, we will see an increase to a tax that hits the poorest members of our society the hardest, and does little to incentivise businesses to enhance their service offerings.

In looking for a retailer’s own perspective, John Winning, CEO of Winning Group, has unequivocally concurred that short-term pressures will eventually be overtaken by long-term confidence.

“The combination of cuts to family payments, increasing costs of medications and doctor visits and increases in petrol prices will impact consumer sentiment and slow retail sales in the short term, as Australian families will have less household disposable income,” Winning said. “However, there is a need to improve our deficit, to provide stability and stimulate Australia’s economy for the long-term confidence of consumers and the success of retailers.”

Winning also states that consumers can be expected to shift their purchasing habits towards products that guarantee a long lifespan.

“We can expect some impact to consumer buying habits across the population due to Australians having to pay more for visiting doctors and fuel, cuts to family payments and pensions and changes to higher education fees,” he said. “With less household disposable income available, Australians will look to purchase quality products that will last them a long time, rather than short life or trend related products. It will simply come down to needs vs wants and this will be different for each generation, so every segment in the retail industry could expect to be impacted on some sort of level.”

The Bigger Picture

The general consensus among retail advocates falls in line with the messaging pronounced by the Prime Minister, Tony Abbott. It’s a case of ‘short-term pain for long-term gain’ – but is this truly the case?

There are several assumptions built-in that, when analysed closely, still leave very large question marks hovering over them. For example, the Federal Government has already increased the debt limit to $500 billion as of October last year, which doesn’t really make sense if this budget is expected to reduce Federal debt to less than $3 billion over the next five years. What aren’t we being told here?

The potential for the Government to begin massive infrastructure projects in the near future appears increasingly likely, and while these may be “good for the economy” in the long run, I fail to see how this tact is going to produce anything but hardship for consumers and retailers alike in the next five to ten years.

Retail advocates may point to any number of positive signs to come out of last night’s announcements, but the single biggest change that none of these have succeeded in pointing out is the $80 billion that is to be removed from education and hospitals in the next decade. Perhaps not everyone would drastically cut their spending in favour of better education, but they certainly will to afford adequate health care where needs be. Moreover, we’re talking about areas of the public system that are already struggling to cater for the numbers they deal with and you’d hope that their funding should be increased, not shredded.

All this to consider before we even begin to think about the implications for the environment, charity and ethical consumerism – all of which are bound to fare poorly as a result of the released budget.

In a recent, national survey of 1,025 Australians conducted by McCrindle and Fairtrade Australia & New Zealand, 85 percent of the population indicated they would more likely to purchase a product that supported people in need, while 77 percent indicated the same for products that support animals or the environment. What do you think will happen to these purchases once a consumer begins to weigh up the price of an ethical product versus a cheaper, ‘standard’ option on top of their increased cost of living, reduced access to healthcare and so on?

Ultimately, this budget appears to be designed to put Australia on a path to a dumber, less healthy future. For retailers, the reality of this situation probably means long-term pain, as consumers continue to find less money to purchase high-margin products and access to new talent to employ becomes rare.

But then again, the Liberal Government might not survive the next election, or perhaps a double dissolution may even be on the cards…

Feel free to give us your two cents on the Federal Budget decision in the comments below.

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