At the time of writing, there is continuing concern about the Eurozone debacle and the effect this may have on the banking system internationally. Will there be a global recession or worse? Will this bring China’s current insatiable appetite for our raw materials to a halt?

Populations in many previously undeveloped countries are experiencing marked increases in living standards. Some of the world’s most populous countries – Brazil, Russia, India, China – known as the BRIC economies – are experiencing rapid growth and their huge populations are moving from subsistence levels to middle-class. This is creating significant falls in birth rates and increases in demand for houses, cars and consumer goods.

In China, this may slowdown somewhat as a result of credit restrictions likely to eventually bite (taxInsight November 2011). Demand from all other BRIC economies will likely continue to grow.

Of greater concern to Australian businesses in the deleterious effect of Government policies.

We saw the Global Financial Crisis in 2008 caused by a deliberate US Government policy to excessively expand lending for housing, failure to sufficiently regulate the banking system and investment bankers collateralising high risk housing loans into bonds and somehow securing AAA status for them from the ratings agencies.

Today we have the Euro and many European economies in a state of collapse due to excessive Government borrowing to fund unaffordable pensions and benefits for their populations.

A number of recent decision and actions by the Australian Government has caused alarm bells to ring among businesses and their customers.

These include:

+ The Mining Tax, which started out as a proposal to obtain a share of the super profits generated by the mining boom, has been seriously watered down to political imperatives. Earnings from this tax are now likely to be lower than the benefits promised.

+ The carbon tax has been legislated at a time when other world economies are pulling out, the IPCC now saying the “settled science” is actually not settled and a further massive tranche of emails evidencing a very unscientific method of disseminating information.

+ A refugee crisis made significantly more difficult through legal decisions and political arguments. Overflowing detention centres forcing the Government to allow refugees into the community. The expectation now is for the Courts to be clogged with contested deportation orders and taxpayer being required to pay all the costs.

+ A national broadband network being built without a robust business plan and estimated cost blowing out from $35b. to a reputed $50b.

+ Retrospective tax legislation being enacted to claw back expected deficits.

+ Heightened industrial disputes following a long period of significantly improving employee benefits and industrial peace.

These are the challenges facing businesses in Australia. Those which are successful will find ways of surviving through difficult times. We have not and are not likely to experience the severe recessions of Europe and the US. But, except for the mining industry, boom times are clearly over and businesses must carefully manage their cashflow for survival until confidence returns.

Andrew and Tony Lovett

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