Insights

19/11/18

Boardroom Brief: Week commencing 19 November 2018

Welcome to Edition 89 of Boardroom Brief.

This is a service specifically targeted at the needs of busy non-executive directors. We aim to give you a “heads up” on the things that matter for NEDs in the week ahead – all in two minutes or less.

YOUR KEY BOARDROOM BRIEF

GST Bill is passed. On 14 November 2018, the Treasury Laws Amendment (Making Sure Every State and Territory Gets Their Fair Share of GST) Bill 2018 passed both Houses of Parliament. The reforms are expected to deliver an additional $9 billion in untied funding to the states and territories over 10 years, and an additional $1 billion in perpetuity once fully implemented. The new laws will: (i) establish a more stable and predictable equalisation standard, based on the fiscal capacity of the stronger of New South Wales or Victoria; (ii) introduce a GST relativity floor, initially set at 70 cents and ratcheting up to 75 cents in 2024-25; (iii) permanently boost the GST pool with direct Commonwealth cash injections; and (iv) during the transition period between 2021-22 and 2026-27, ensure that states and territories get the better of the old or the new system over the period (with the Productivity Commission charged with reviewing the effectiveness of the new GST distribution system at the end of the transition period).  The Government’s additional contribution to the GST pool will not be offset by decreased grant funding to states. The largest beneficiary of the new regime will, of course, be Western Australia, but (as the long and tortured title of the Bill suggests) all states will benefit on the Government’s projections. At the cost, of course, of increased national debt.  See Treasurer of the Commonwealth, the Hon Josh Frydenberg’s media release.

$51.5 million boost to pursue financial misconduct criminal prosecutions. On 16 November 2018, the Government announced that, as part of its $70.1 million commitment to bolster ASIC’s enforcement activities, $41.6 million will be given to the Commonwealth Director of Public Prosecutions (CDPP) to enable more prosecutions of criminal misconduct by banks and other financial institutions and $9.9 million will be given to the Federal Court to fund additional resources for civil cases. As noted in previous Boardroom Briefs, we are entering a period of increased enforcement activity by regulators, and Directors would be well advised to ensure that their companies’ compliance programmes are up to date and being enforced. 

Government cuts more red tape for small and medium sized businesses. On 16 November 2018, the Government announced it will reduce the reporting burden for small and medium businesses by doubling financial reporting thresholds (last adjusted in 2007). The financial reporting threshold will now be meeting two of the following: (a) $50 million or more in consolidated revenue; (b) $25 million or more in consolidated gross assets; or (c) 100 or more employees. Submissions can be made until 14 December 2018.

Government moves into Alt-Fi. Directors of alternative finance providers should take note of the Commonwealth Government’s decision to make $2 billion of funding available to small and medium sized enterprises (SMEs) through the creation of a taxpayer-backed securitisation fund. The fund (to be named the Australian Business Securitisation Fund) will be managed by the Australian Office of Financial Management and will buy packages of secured and unsecured SME loans issued by smaller banks and non-bank lenders (such as Fintechs), with the aim of increasing the flow of funding (and potentially lowering borrowing costs) to the sector. See Treasurer Josh Frydenberg’s media release on the new fund here. Hopefully this will provide a boost not only to SMEs but also the Fintechs and smaller lenders who have traditionally found debt for this class of lending difficult and costly to access.

THE WEEK AHEAD

Scott Morrison a ‘turning point’ in the Australia-China relationship? In response to Chinese Premier Li Keqiang’s statement last week that Scott Morrison’s ascension to leadership had represented a ‘turning point’ in the China - Australia relationship, Scott Morrison was quick to assure that Australia would not take sides in the escalating trade tensions between China and the United states - despite also having announced a Pacific pivot and a plan to provide $3 billion in infrastructure loans to Pacific island nations, of which many are indebted to China and which could be seen as a plan to curb growing Chinese influence in the region. On the flipside, China’s warm reception to Scott Morrison may provide comfort to Australian companies in the resources and agriculture sectors, who are often dependent on Chinese demand.

Are banks warming up to lithium? Last week, the Financial Review reported that Australian lithium miners were noticing an uptick in discussions with mainstream banks about funding. Australia’s lithium sector has grown from one mine to seven in under two years, which has required billions of dollars of capital spending on new and existing mines. But mainstream banks have supplied little of that finance, with the boom instead funded by shareholder equity, customer prepayments for future delivery of lithium, high-cost bonds and some specialist lenders to the small end of the resources sector.  A lack of clarity over pricing - including certainty over the future cash flows in the absence of a well-defined and published index price that provides a forward market to hedge price risk - has held back lending. Until now, foreign banks have been more willing to lend.

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