Correction not catastrophe

While the Dow Jones had its thousand point “correction” and the techos rush to assure us that the stock market jockeys are back in the saddle after the computers threw them, the reality is that our Australian future is on track for growth.

Next week Wayne Swann will join Lindsay Tanner and Julia Gillard in presenting the “Wealth Creation” Budget that is heavily focussed on small and medium enterprise at the expense of the big end of town. The budget will report an earlier than reported return to a surplus and a conservative roll out of infrastructure expenditure including the fabled 93% of household access to high speed broadband.

The themes will be a call for a fair go for innovative business that is prepared to invest in export development and make the most of faster connections to a world that is not only worse off but ready to look to Australia for a way forward. Swann and Tanner will be telling us that we are investing in the future of Australia’s prosperity by cutting business taxes and encouraging sustainable prosperity.

Tanner says that: “The purpose of the whole package is not additional spending, it’s not electoral giveaways, it is plain and simple wealth creation and the vast bulk of the package, the vast bulk of the fiscal benefit we get from the super-profits tax is going straight back into reduced taxes for business generally.”

It will be presented as a cutting company tax – an accelerated cutting company tax for small business, a substantial increase in the amount of money that small businesses can write-off immediately for capital expenditure, a super tax on the mining industry but not on the banks that are being asked to increase lending to small and medium business expansion and of course, a further boost to our superannuation system.

So now is the time to make plans for solid expansion over the coming year, find ways to make the most of the broadband network, take on multi-lingual staff that have strong family connections overseas and invest in market research and innovation. Glenn Stevens is sure that the economy is growing too fast, that housing prices are still going up too far and that we need to get investments in long-term development rather than maintain the unfortunate short-term stimulus packages.

Compared with the rest of the developed world our public sector balance sheet, our Federal Government balance sheet is in very, very good shape and our debt levels are the envy of the rest of the developed world. Choose any one of these countries and let us know why you would prefer their situation to our own in the coming months.

Greece had triggered the underlying crisis in the European community and calls into question the survival of the whole of its monetary system if cannot restore order at home. The necessary tight austerity measures that accompany the recently agreed IMF and European Union support package will have a direct impact on the economy and on the banking sector, and funding will remain under pressure despite expectation of ECB support.

Ireland was one of the first countries to be affected by the abrupt bursting of the real estate bubble. The government and the banks now have to execute the plans and hope that the decisiveness and large acceptance of the austerity measures by the population will see them emerging stronger, albeit smaller, at the end of this process.

UK – The new British Government is yet to announce a multi-billion cut in its next few budgets, as its banking sector remains vulnerable with the threat of a double dip recession.

Spain claims that it is not another basket case and can fund its way forward.

Liquidity could be the key: wholesale market access requires confidence in banks’ solvency and currently this confidence is lacking. Provided that the system remains sheltered, the key question will be whether profitability will be sufficiently resilient to absorb asset impairments over next few years.

Portugal is the next to suffer from the European contagions. Its banks’ ratings have been placed under review for possible downgrade to examine the degree of vulnerability to such developments and any bank failure will trigger a crisis in confidence across the continent.

Italy is particularly vulnerable to this contagion with a history of political instability, a traditionally low growth economy and relatively weak banking system.

United States is going to continue to print money as oil prices come down and mid-term elections come up as its investors lose confidence in Wall Street and demand stronger regulatory controls.

So it is inevitable that we will see a worldwide collapse in consumer confidence in the next few months as we hit the second V of the W shaped economic recovery. But this will flow on to a more home based set of markets and customers for products and services that provide quality, value and high degrees of personal interaction. What is going on should be seen as an opportunity to plan for long-term market penetration into recovering economies that look to Australia for success rather than being seen as a continuing source of catastrophe.

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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