CFOs losing faith in Canberra

The debate rages on between the bulls and the bears over the state of the economy, but it is becoming quite obvious the main thing holding the country back is the government.

There is no disputing the fact that the economy is in transition. The latest poor terms of trade data confirms Australia’s main exports aren’t selling as well as the glory days of the resources boom.

That’s not to say that everything is gloomy, far from it, employment is holding up well, the housing market is chugging along, people are spending albeit at the sales, tourism is picking up and the lower $A and lower fuel costs are having an effect on exports and foreign investment.

So what’s wrong? The answer is business isn’t spending. It’s got its hands stuck permanently in its pockets. At the other end of the spectrum banks also aren’t lending to anything with risk involved.

That’s right it’s all about risks. No one wants to take any.

The reason is quite clearly shown in the latest Deloitte quarterly CFO Survey for December. Chief Financial Officers are the men and women in corporations usually referred to as ‘bean counters’ and who always try and keep the ambitions of the managing director or chief executive officer in check.

They crunch the numbers on any new deal but to give it the ‘thumbs up’ do they have to be confident that the external economy is under control and in December they were extremely doubtful that was the case.

Quoting from the survey ‘Discontent with federal government policy is now as bad as it was in the dying months of the former Labor government. This has combined with the sharp drop in commodity prices and the multi-speed economy to put a brake on finance bosses’ willingness to invest and take new risks.’

A net 6 per cent of CFOs felt positive about the prospects for their company, up from 2 per cent in the September quarter, but well down from 32 per cent at the beginning of 2014.

Seventy-three per cent said it is not a good time to take on more risk – up from 70 per cent in the September quarter – the highest since the March quarter of 2013.

“Risk aversion, and an overall sense of caution, across both individual companies and the wider market, appear to be taking a real hold and impacting investment appetite and growth strategy,” Deloitte chief operating officer Keith Skinner told the Australian Financial Review.

When the Abbott government came to power in September 2013, a net 60 per cent saw it as a positive influence on their businesses. That has reversed to 62 per cent seeing it as a negative. “For the third quarter in a row, CFO confidence in the financial prospects of their companies was well below 10 per cent, with a shift in sentiment coinciding with the beginning of the [2015 financial year] federal budget impasse.”

Failure to sell the budget’s austerity strategy to the public, and the Senate,  and a number of subsequent policy reversals has further hurt business’s faith that the government is in charge of the economy.

Mr Skinner said there was plenty of cheap debt, with bank loans now the most favoured funding source, but CFOs’ willingness to borrow was at its lowest level in three years at a net minus 17 per cent. The majority expects their gearing levels to fall even further, even though most think gearing levels are too low.

“Canberra appears to still be a lead weight on business confidence,” Mr Skinner said.

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