Tim Reed interview with Fran Kelly, RN Breakfast

Event          Business Council president Tim Reed interview with Fran Kelly, RN Breakfast

Speaker       Tim Reed, Fran Kelly

Date            10 March 2020

Topics         Coronavirus response

E&EO

 

Fran Kelly, host RN Breakfast: Tim Reed is president of the Business Council of Australia and the former chief executive of the business software firm, MYOB. Tim Reed welcome back to breakfast.

Tim Reed, president Business Council of Australia: Thank you Fran, it's great to be here.

Fran: The PM will today call on business to do their patriotic duty. Will business heed that call?

Tim: I think businesses are already doing everything they can to support their customers, their employees, and the overall welfare of the nation at this point in time. So, I do think that businesses are going to be acting in the long-term and acting responsibly. 

Fran: Well what does that look like in your head? Because a big concern of the government is to ensure the fast payment of bills for instance for small business suppliers who are facing a cash crunch, to keep the cashflow going. Is that a message big business has already heard? Is that what you're saying?

Tim: It is. It's actually something we've been working on for a number of years with our supplier payment code and we're just approaching almost half a trillion dollars that is covered by that supplier payment code every year. And those are big businesses…

Fran: What does that mean? The supplier payment code, paying on time, on the due date?

Tim: It's a code of conduct that says that big businesses will pay small businesses within 30 days and generally the due date is somewhere around the end of the following month. So, yes, paying on time. But more than that, through the bushfires, Jennifer and I wrote to all of our members actually encouraging them to pay small businesses early in the impacted areas and all the conversations I've had with CEOs since then have said that's exactly what they'd tried to do. So, we're not just trying to the right thing, we're actually trying to do better than that and do everything that we can to support small businesses through this time.

Fran: And in fact, that's a call from the Prime Minister today, not just on time but ahead of time so they don't go bankrupt. You know a bit about small business cashflow, I mean you founded MYOB, that's an accounting system software firm that a lot of small businesses have used, you know it pretty intimately. How many small businesses are in a position to weather a situation where customers aren't coming through the door because there's nothing for them to buy? You know, they can't get supplies to sell. We've got a supply shock and a demand shock really on our hands here, haven't we?

Tim: Yeah we have. Just one thing quickly Fran, I didn't found MYOB, I led it for a number of years.

Fran: You led it, I'm sorry Tim.

Tim: That's okay, I would hate to take that away from the founders. But look, many small businesses do live in the short-term discretionary component of the consumer's wallet. So they do live month to month. Making sure they just balance the books. They do live at the edge of the wallet where if people aren't going out, if people aren't eating out, if they're starting to cancel some of those extracurricular activities that their kids might take on et cetera, that is revenue to the small business. And if that revenue doesn't come in then it will impact the small business' ability to pay their employees, to continue to offer casual employees employment et cetera. And that's why one of the things that I was really pleased to read about this morning is that they are looking at tax relief. Because the most tangible thing that the government can do at that point in time is have deferrals of BAS payments. So the quarterly payments that small businesses have to make. It is an incredibly efficient way for the government to support the cashflow of small businesses through this. From a big business perspective, the best thing that big business can do is to continue to buy from small business suppliers through this time and continue to pay their bills on time.

Fran: And some of the big businesses that you represent there with the Business Council of Australia, you've already said that in the bushfires some of them anticipated the cashflow problems with their small suppliers and paid early. Do they take into account, is there a mindset in the boardrooms that they should do more? For instance, you know, continue to buy and actually buy more than they need to have it in advance. Knowing these are stocks they will use eventually. Does that mindset exist, and that behaviour occur?

Tim: It does, and it even goes beyond that. A number of them bought back damaged stock from small businesses who had bought things from them. They were damaged by the fires; they knew those small businesses were never going to be able to sell that stock. So they actually bought it back at full price and replaced it with stock that small business was then able to go on and sell. On behalf of all of our members, the Business Council co-ordinated to go into impacted regions. We've got teams on the ground there now who are giving out $500 vouchers to go and see an accountant or see a lawyer if they're not sure about the status of their business. We've got $2,000 re-tooling vouchers that we are giving out. We had small businesses who said I've got customers, I've got employees, but I don't have the equipment and we were able to supply equipment to them such that they could get working within a matter of hours and days.

Fran: Can I just ask you more broadly about the stimulus package the government is designing? We don't know what it is, we'll get some signals from the Prime Minister today. The package will be released later this week we think with a price tag of up to and around ten billion. You mentioned the first thing the government should be doing for small business is defer their BAS payments. When we spoke to Peter Strong from the small business association a week or so ago, he was talking about tax relief, but he was talking about tax holidays, not just deferrals but holidays. How far do you think the government should go in providing tax relief in terms of letting some businesses off some tax payments? Payroll tax payments perhaps?

Tim: Yeah, I think it's an evolving situation. 

Fran: Which is a state tax.

Tim: Yeah it is. It's an evolving situation so I think what the government needs to do right now is act with purpose. Because the crisis is here right now and the economic impact I think is going to be felt most over the next three or four months. So, what the government is doing in co-ordinating a fiscal response along with monetary policy I think is very sensible. I think the fact that they're looking at things that will hit immediately but won't create a long-term fiscal deficit is the right thing to be doing. I think they're looking at supply-side measures rather than demand-side measures and I think that's the right thing to do. What we saw when the interest rates were cut last year, what we saw when the tax cuts went through in the first of July, is many people were cautionary and actually banked that and paid off their mortgages more quickly. Now I don't think that's a bad thing per se and I think everybody should make up that decision themselves but that's not going to create economic growth if people bank whatever the stimulus is. So by having supply-side measures that keep businesses operating, that keep people in work and keep salaries flowing through the economy, I think the government is doing the right thing. Now as to the holiday versus the deferral. I think right now if it were me, I would be starting with the deferral because there are many businesses that will have short-term cashflow problems that will then come through this and actually be stronger on the other side. And that's what we would really encourage the government to shape their economic policy towards - stronger on the other side, the investment offset allowances. If we can get businesses investing right now then they will come out stronger on the other side.

Fran: You're listening to RN Breakfast, Tim Reed is our guest, he's president of the BCA, the Business Council of Australia. A third of the workforce in this country is casualised, business has really driven that rise in casuals because well it makes for a more agile workforce which is often code for easier to put workers off in the downturn. Do you expect workers will be put off?

Tim: I don't believe that there are going to be large amounts of unemployment through this period of time. Casualisation actually Fran has been fairly steady in the Australian economy for the last few decades.

Fran: Well it hasn't been at a third for the last few decades. It's grown.

Tim: The last two decades, casualisation has absolutely been stable in the Australian economy.

Fran: Is that including the move to the gig economy?

Tim: Absolutely.

Fran: Because there's a lot of people, not just casuals but who are gig economy workers.

Tim: There are. But if you look at companies like Coles and Woolworths, what they’ve been doing is moving away from casuals on to more permanent employees. So the rate of casualisation is not going up. It is also often something that is good for the worker. So there are many people who like the idea of casual work. Many people, young people who are students, many people who the flexibility that comes with it is beneficial to them. To get back to your point though and I think the concern at this stage is the casuals will be the first ones who are impacted in a downturn. Again, small businesses are going to find this difficult. For a cafe, if no one is coming in, continuing to have casual workers and pay them is going to be very difficult. And thus the importance of the government acting now and allowing those business owners to plan for the fact that they won’t have to make those BAS payments and therefore they can afford to keep more staff on.

Fran: Okay. What do you think should happen to casuals who are required to self-quarantine; take sick leave because they've either got the virus; or there's fears that they've got the virus; or someone around them have the virus; someone at their workplace has the virus through no fault of their own they are without a wage? Should businesses, should employers be prepared to pay their employees through this time?

Tim: I think wherever businesses can, they should continue to support their employees who have supported them through their business growth through that period of that time…

Fran: Well hang on, that's a pretty open answer, 'wherever businesses can'. How many businesses do you think would be in position to do that and should be the government be looking to step in here with something like a Newstart payment or something?

Tim: I do think that having Newstart payments start without the deferral period for casual employees who lose their job through this time period, it is a very positive move. I say, 'where businesses can', because there are 2 million businesses in Australia. 98% of them are small or family owned businesses. That will be a very difficult situation for them given what I spoke about earlier where I know most of them budget their cash flow month to month. For bigger businesses, where there are casual employees, I think what boards will be thinking about is how do we continue to support these employees through this period of time? Where is it that we can find other things that they can do? Where is it that we can have employees who have leave, which are casual employees, to take that leave rather than letting people go.

Fran: And should workers have to take their sick leave or take their holiday leave even if they are sent home for self-quarantine if it's no fault of their own? Should they have to do that?

Tim: Well I think if there is sick leave that's why sick leave is there. Sick leave is a statutory entitlement for when people aren’t well so they can continue to be paid and so absolutely, I think that's an appropriate use of sick leave. 

Fran: Okay. Just finally Tim Reed the economy was weak on some fronts going into this crisis. Do you believe the economy is heading into a recession?

Tim: I think we will see at least one quarter of negative growth. You look at what's happening to tourism and education. It's very difficult for me to see that there is going to be enough other things happening that will offset that. Whether we have two quarters of economic decline or just one, I am not sure. I don’t think anyone really knows at this time to be honest with you Fran. Economists make predictions but no one truly knows. What I do believe however, is that if that we are sensible through this period, if the government does the things that they are saying they're going to do and that we're believing the Prime Minister will say today. If businesses continue to make long-term decisions about what's right for their employees, what's right for their customers, what’s right for their business. Then what we should see whether it is one or two or three quarters it will be quite a shallow recession and we will be able to come out the other side growing stronger from there.

Fran: Tim Reed, thank you very much for joining us.

Tim: Always a pleasure.