Treasury Roundtable in Hobart: Eye-opening and mouth-watering

October 2022

The Australian Corporate Treasury Association (ACTA) recently returned to Hobart courtesy of a Commonwealth Bank of Australia (CBA) sponsored thought-leadership roundtable with Stephen Halmarick, Chief Economist and Head of Global Economic & Markets Research.

The audience consisted of leading elements of the Tasmanian business community.  All are financially and commercially astute businesspeople who came ready to contribute actively, asking questions and presenting their own perspectives of factors affecting their businesses.  The interaction was lively, dynamic, thought-provoking, and eye-opening, and, in Hobart’s inimitable style, it took place in an exquisite architectural setting with impressive art and mouth-watering local delicacies.

Stephen started proceedings with the global backdrop of rising prices for energy and commodities (including agricultural), which, if not caused, have been exacerbated by the Russia-Ukraine conflict.  He noted that Australia stood to benefit from these factors on a ‘net’ basis, especially in contrast to Europe, but the net benefits would not be equally shared amongst economic sectors or agents.  The audience explored whether these factors were a permanent structural shift or transitory, and Stephen drew together the threads of the discussion by concluding that if one considered the sanctions and not just the war, then the effects were likely to continue for some time as a semi-permanent structural shift higher.

This frank exchange of ideas is one of the real strengths of the ACTA/CBA thought-leadership roundtable events.  While Stephen is a pre-eminent economist with a high-profile, he is genuinely interested in hearing from, not just imparting knowledge to, the audience.  The fact that he is an avid listener is an almost counter-intuitive reason why he is a sought-after speaker – he can provide interesting anecdotes from his extensive travels (while maintaining client confidentiality) that supplement data-driven analytical insights.

The current hot topic of inflation and monetary responses to inflation by central banks aroused great interest.  I participated in a side-discussion with an articulate and passionate business leader who believes that central banks and governments have not only lost control they have over-stepped, creating unreasonable expectations that they will save people when his personal experience is that small business has suffered greatly and even existentially.  This aligns with my own experience and viewpoint, which is interesting as we hail from opposite sides of the country.  I have written a short article on inflation and how the express purpose of the globally coordinated economic policies was to increase inflation, and now, the same is true to decrease inflation.  Small businesses attempting to survive on volatile variable net incomes have been caught in the crossfire of policies developed by policymakers who have certain fixed net incomes – rain, hail, or shine (in an economic sense).  These policymakers do not understand the pain because they do not, have not, and more likely than not will never, run a small business.  As a small business owner, I would make it compulsory for politicians to run a small business before they run for office, but that is another soapbox for another time!

Interestingly and controversially, the outward appearance that central banks are exclusively focused on the current actual inflation problem, as opposed to the future potential recession problem the present ‘solution’ may cause, closely reflects reality.  This is a worry given the lack of precision and the substantial time lag in official policy responses.  Policy volatility may be a persistent and economically disruptive feature of attempts to manage to price stability.  If this is the case, the Treasury profession will come to the fore.

Stephen’s take was pragmatic.  I believe he is the first prominent Australian economist this cycle who argues persuasively for fiscal policy to do its share of the heavy lifting to address inflation.  This means that State and local governments, as well as the Commonwealth government, need to reduce budget deficits to reduce and then reverse the expansionary impact on the economy.  A question I wanted to ask, but unfortunately did not have the opportunity to explore because of the animated discussion, was the influence of government electoral cycles on the appetite for fiscal heavy lifting.  Reducing budget deficits is not usually a winning re-election or election platform in jurisdictions not just accustomed to, but increasingly reliant on, government support.  I will have to investigate the timing of election cycles in other states at a later date.

The next surprisingly hot topic was work-from-home (WFH).  There is evidence of increasing tension between employers who want to have a greater physical presence in the office and employees who do not.  We heard a business leader’s anecdote that employees, believing WFH to be a right, not a privilege, of employment are submitting stress claims upon being asked for more hours in the office.  Another business leader said that staff have benefitted not just from more flexibility, but also from a large pseudo pay increase from reduced working hours and travelling costs (e.g., fuel, tolls, parking), although cost savings are now being eroded, at least in part, by rising home energy costs and the soon to be removed fuel excise subsidy.

I noted that the power balance will inevitably shift from employees, currently benefitting from the very tight labour market, back towards employers.  I shared that in my corporate consulting role, I have already advised companies to ease operating margin pressure by renegotiating leaseholds based on a 40%-50% physical employee footprint.  No point paying for un- or under-utilised space, especially for prime CBD addresses.  Employees (and Unions) should also be aware that WFH flexibility cuts both ways.  It is well-known that WFH is an effective way of retaining talent.  Less well-known, is that if fungible white-collar work can be completed by someone at home, then home can be in a low-cost offshore labour market with good internet, it does not have to be the home of a current employee in the suburbs.  Good employers and good employees will find a happy compromise.  Other combinations leave plenty of room for things to go wrong!  As in most things, balance and moderation is required from both sides.

While global supply chain dislocation has eased for the time being, there does appear to be some emerging conflict between onshoring of manufacturing in response to prior over-reliance on supply chains in locked-down or militant jurisdictions; and near-shoring of domestic service businesses, such as large companies now servicing Hobart clients exclusively from Melbourne-domiciled teams.  While the reasons are understood, it will inevitably dilute the relationship with those service businesses and therefore commoditise the service, again, to where anyone with the appropriate skills, knowledge, and experience, anywhere in the world can compete to perform.  A form of Clayton’s globalisation.

In closing the event, I remarked how fantastic it was to be back in Tasmania and Hobart in particular.  I was proud to mention ACTA’s Certificate in Corporate Treasury (Certificate) which provides 14 online learning modules split equally across foundational and advanced streams, which are in turn assessed by two comprehensive simulations.  The Certificate targets early-stage treasury professionals to develop their job into a rewarding career.  Employers gain comfort in the knowledge that employees have met an industry standard of proficiency, and that they have taken the opportunity to make a well-targeted and effective retention investment in their employees.

I am certainly hoping to be back in Tasmania again soon.

Thank you to our event Partner the Commonwealth Bank of Australia.

About the author

Kurt Smith is the Vice President and Technical Director of the Australian Corporate Treasury Association; and a Director of Marengo Capital, a corporate advisory company.  Kurt has over 25 years’ experience in creating and managing for value in banking, funds management, private equity, fintech, utilities and mining services.  Kurt has a Ph.D from the University of Western Australia, and an M.Phil. from the University of Cambridge.

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