6 Nov 2008

Big Banks Win As Labor Screws Small Business

By Evan Jones
In view of Westpac's takeover of St George, Evan Jones wonders what is driving the Rudd Government's small business agenda

Not yet 12 months old, the Rudd Labor Government looks like a headless chicken. Worse, a headless chicken lacking political courage.

As the Government treads water on workers' rights, education, climate change, the Northern Territory Intervention, and security, Labor's treatment of small business has fallen under the radar, but its actions sum to a substantial deficit. In the May budget, Labor cut small business programs, most of which had been initiated by the Hawke-Keating government. The Commercial Ready program subsidised innovative businesses, and was a rare, sophisticated well-run program with previously bipartisan support. Mentoring programs which offered management assistance were also cut. The Opposition claims that the cuts added up to almost $1 billion.

But the Government's approval of the takeover of St George by Westpac last week is a turning point. In May, I highlighted the possible anti-competitive impact of a takeover, approved by the Australian Competition and Consumer Commission in August on clearly dubious grounds which in my view brought into question the Commission's commitment to its brief.

The Treasurer approved the takeover on 23 October. The approval statement is a joke — the claim that it "takes careful account of the detailed assessments of the [ACCC]" highlights that it's a con job.

Swan claims that "this decision strikes the right balance between enhancing the competitiveness and the strength of our banking system." No it doesn't. It is a mortal blow to competitiveness for the indefinite future. Moreover, the emphasis on stability is unwarranted. The Australian second tier banks are not in trouble — least of all St George.

St George posted a stable $1.17 billion net profit for the financial year 2007-08. In spite of lower ratings from the discredited ratings agencies, St George continued to eat into the big four's markets. Southern Cross Equities analyst T.S. Lim said in the Australian Financial Review, "If you look at Westpac, the retail banking hasn't been very good. [The St George takeover] will rejuvenate the Westpac franchise." Who is saving whom? Swan gave the takeover the green light subject to some conditions — maintenance of the St George brand, branches, etc — which are trivial and meant to be broken. Moreover, there is no means to enforce these conditions.

Similarly, the Bank of Western Australia — now subject to an opportunist takeover bid by the Commonwealth Bank — is not in trouble. Its parent HBOS is in trouble, but that's no reason for the authorities to tolerate a takeover from one of the big four.

Finally, in Swan's statement there is no mention of the significant small business sector at all. These takeovers are a disaster for small businesses, whose traditional reluctant dependence on the major banks was just beginning to find an alternative in the second tier banks.

This decision doesn't reflect well upon the three ministers involved in this decision. Both Swan and Bowen have on their desks information concerning the significance of an independent St George to the small business sector. Amongst other material, they have been apprised of disquieting results from a recent East & Partners survey; the following appraisal appeared in finance industry newsletter The Sheet on 14 October:

"East estimates that CBA/BankWest will hold 24.4 per cent of primary transaction banking relationships with small to medium business customers following the takeover and market leadership. Westpac/St George will hold 22.9 per cent, ranked third. NAB ranks second with 23.3 per cent of relationships and ANZ holds only 10.6 per cent of relationships.

"East has found that St George customers are increasingly frustrated at the imminent change of bank. Paul Dowling, principal analyst with East, said that a survey more than two months ago found that 60 per cent of St George business customers described the Westpac takeover as having a negative impact on their relationship with St George. He said around 60 per cent of that 60 per cent would look to change banks in the next 12 months, with about half of those looking to other regional banks. A follow up survey last week found that the percentage of disgruntled customers increased to 80 per cent, with 60 per cent of that group still looking to shift banks."

More significantly, Swan and Bowen are aware of malpractice claims made by small businesses against the major banks. They are aware of the lack of regulatory remedies to unconscionable or fraudulent conduct by the big four against their small business customers. And apparently they don't care.

Coincidentally, a MYOB survey of small business quizzed respondents on the Rudd Government's approach to their sector. The results were not good:

"When asked to rate the current performance of the Federal Government in helping the development of small business, 56 per cent of small business owners said it was a 'poor' or 'very poor' performance. This increased from 37 per cent in November 2007."

I'm surprised that the figure isn't higher than 56 per cent. There are currently two Parliamentary inquiries into matters of profound concern for the small business sector. Submissions to an inquiry by the Joint Committee on Corporations and Financial Services into the franchising sector have highlighted the vulnerability of franchisees to franchisor abuse, sometimes with bank complicity. "Churning" is the most heinous of the practices whereby prospective franchisees are drawn in by misleading claims about prospects, forced into failure, and then replaced by the next gullible purchaser. Atypically, this regulatory impasse has received condemnation from federal backbenchers.

The second pertinent inquiry, conducted by the Senate Economics Committee, is examining the "unconscionable conduct" provisions (s.51) of the Trade Practices Act.

The Government's response to these inquiries will test its intent regarding the small business sector. Both inquiries have been forced on the Government and both are a response to the manifest failures of existing legislation.

The Government has already shown its hand in response to the so-called "Birdsville" amendment to s.46 of the Trade Practices Act. In September 2007, Treasurer Peter Costello surprisingly accepted a belated amendment to s.46 from Nationals Senator Barnaby Joyce to a July Amending Act that promised substance to small business but gave it peanuts. Section 46 proscribes "misuse of market power". The Birdsville amendment attempts to redress predatory pricing by any "corporation that has a substantial share of a market" against small business competitors, suppliers or customers.

The sustained attack on the Birdsville amendment from the big end of town is now becoming hysterical. In an unseemly development, ACCC Chairman Graeme Samuel, who has demonstrated no concern for small business since his appointment in mid-2003, publicly joined the attack. The brains behind the amendment, University of New South Wales academic Frank Zumbo, has decried what he sees as a disinformation campaign.

Curiously, Rudd's Government moved speedily to remove Birdsville from the Act. Labor's legislative rollback has, however, been knocked back in the Senate. Liberal MPs, initially hostile to Birdsville, reversed their decision to support the amendment after a concerted lobbying of the Liberal Caucus by the foot soldiers of B.A. Santamaria's slumbering National Civic Council.

The tolerance of the Westpac takeover of St George has reinforced and legitimised the big four bank's indifference to an innovative banking sector with integrity. Labor created the Commonwealth Bank in 1911 to counteract the hated "Money Power". It has now become a captive to it.

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Posted Friday, November 7, 2008 - 15:37

Thanks Evan,

Banks and Governments have always been the best of mates despite the advertising!

So what is it driving the agenda and what is "small business", its probably anything which is not "big business", so its fair to say small business is your average Australian making a living, whether selling their time or their services.

Small business, unlike BIG BUSINESS, doe'snt wear a suit or have direct access to the UMPIRE, or chicken feed distributor, OUR Government. We still call them that but what they really are is not what they really advertise...like all of Rudds promises and Mother Hood statements, notice that they have all gone or never existed in the first place.

Wheres the Beef? There is none and there was never any plan for a feast. We have been given "Sorry Day", "Fuel-Watch", "Gabfest 2020", "LoveBudget08", and "XMASpack08"...has'nt been a year for any serious decision making but some earth shattering progress on the transport energy front....Toyota Prius to be manufactured in Australia...so this government has failed deliver and is clearly not demonstrating itself to be progressive in any media releases or media that I have read.

In terms of the BIG global issues we would vote on, Climate Change, Emissions Trading all bollocks and all exposed in a flash when we look at any area of Australian government to reveal the policy perversity and waste, taxpayer funded, good on ya mate!!

This could also have been titled, "Cruising for a Climate Change Bruising" but surely thats not politically correct !


Posted Saturday, November 8, 2008 - 12:39

I can't fully agree with your anti-amalgamation stance Evan, as in Australia we have a small population and a tyranny of distance, so therefore many economic decisions made, are made in cooperation (like franchises, cartels and monopolies) and can be far more profitable than competition.
Maybe a mix of the two ideals, that of competition and cooperation is the logical way to see the marketplace.
Competition can be an illusion though, created by the financial giants, same product or service, with a different name or wrapper. And with our negatively skewed economies of scale and small population, we can only support so many banks and small businesses.
And why should government prop up any business, small or big? Theoretically in a democracy, the marketplace should decide which business succeeds or fails. Big business obviously has the reasonable excuse of employing more people and so having the livlihoods of more people at stake.
Merging two concerns like Westpac and St George could create a financial consolidation that all the 'innovation and integrity' (an oxymoron if ever I heard one) of business management could never achieve.
This consolidation of finances should then create more stability in the financial markets, not less as you predict.
If there are enough complaints from or about small business, then perhaps we should also create a government-backed Small Business Assessment Panel to deal with unfair business practices and to ensure fair trade for all.

Posted Sunday, November 9, 2008 - 00:28

The old adage of "how do you create a small business in Australia? You start with a large one " still holds firmly.

Maybe anyone who ever tried to run their own business in this place will tell you, we don't want anyone's hand outs, or advice, who does'nt have a clue in the first place.
All we want is to be left alone, to compete, with quality of product or service, and with price.

What we don't want is more mindless bureaucratic red tape, paperwork, idiots who think they can intimidate decent hardworking individuals.

Remember small business people are consumers too.
The more legislation about things like privacy, the less privacy you will have.
When the time comes that we have to have a bill of rights,( more human rights protection), the lesss of that we'll end up with too.

The same as axiomatic common sense notions of fairness, reasonableness, honesty, once "enshrined in law" become less meaningful.

The banks actually make small businesses sign a waiver to say they are aware that their rights as consumers are no longer applicable for this loan. They require information about every aspect of one's life, insurance, past loans, complete accountant stamped tax returns, and a willingness on the part of the small business owner to pay exorbitant, credit card vicinity interest rates on their loans.

This brings me to the final beef I have, accountants: Like the parking police, they are avowed revenue collectors for the governemt ATO.
No tax shall go unpaid, and no fine is too high for late submissions, even when it is the accountant's fault the paperwork is late.
So don't give me fair trade for all, run by governments, when in this classless society, the inmates are running the jail.
If they could have done the job, why have govts. been selling off everything, in these fire sales we've been seeing, since the PMG, Telecom, SCC, GIO, MWS&DB, Qantas, Commonwealth Bank?
Sure more govt involvement in regulation is needed, but not their unsolicited and gratuitous advice on running the business.
But woe betide if they try to get involved in anything more than the State govts are currently mismanaging. The Feds need to step in and assist the stumbling, bumbling states, and make sure the banks are'nt screwing businesses that are otherwise being run competently and properly.
We really don't want to become like America or Russia at the other extreme, do we?