A LAST DESPERATE BUDGET

For Swan, it’s six and out!

The Budget brought down on May14 was essentially a political, as distinct from, an economic document, although, of course, it would have important economic consequences, for many years to come.

Politically, it sought to “wedge” Abbott on certain expenditure cuts (eg, abolition of the baby bonus), as well as to set something of a platform (especially Gonski school funding reform, Disability Care, and infrastructure projects) that they could run on in the next election due in September.

However, if the polls are right, that Budget may never be implemented, soon to be recast by an incoming Abbott Government.

In revenue terms, the Gillard Government has been chasing the economy down. Despite some recent, scattered, better, economic data, the economy is weaker than the Government and the authorities have been forecasting.

Of course, if you listen to the loose language of Treasurer Swan, you would think that budget revenue had “collapsed”. However, revenue is still increasing, but less fast than predicted, as the weaker than expected economy disproves the official forecasts.

Revenue is weak across the board, personal and company tax, capital gains, even the GST, where the revenue from expenditure on those items that are taxed, is growing slower than revenue that would be collected if the GST tax base were widened.

I don’t really understand how the Government can continue to argue the merits of Treasury forecasting, essentially putting them high on some unquestionable pedestal.

They are consistently wrong, with no better record than a host of other forecasters.

It has been said that Treasury forecasters only exist to make sorcerers and weather forecasters look respectable!

Recall last years’ Budget, where the original Treasury estimate of the deficit was some $12 billion, but which ultimately came in at some $44 billion.

This time they have admitted that the promised surplus for this year is actually a deficit of at least $19 billion, probably with more bad news to come.

On the expenditure side, the Gillard Government has been initiating new spending, almost daily, generally in response to perceived, short-term, political pressures. They seem happy to attempt to buy their way back into government.

More broadly, they have made a host of longer-term spending commitments, totaling tens of billions of dollars, even in the short-term, for which they simply don’t have, and won’t have, the money.

The Gonski school “reforms”, the National Disability Insurance Scheme, the National Dental Scheme, the NBN, and a host of infrastructure commitments, have been announced, some even legislated, but the funding of these commitments is still essentially up in the air, despite their claims to the contrary.

For example, in the four years covered by this budget, the Government would only spend about $1.9 billion in total on Disability Care, well short of the expected annual cost of between $20 and $30 billion, when the scheme is fully operational in the early 2020s.

This is aspirational politics at it worst, and most cynical, hypocritical, and fiscally irresponsible.

But, there is an even more cynical and disturbing layer to these spending commitments, namely, that the Federal Government is calling on the States to provide some of the funding, when it is clear that the States have limited, and rapidly declining, capacity to meet those commitments.

Indeed, we are facing what I have called “A Federation Cliff”, where the Federation is rapidly grinding to a financial halt.

The States have limited capacity to augment their tax bases, a situation compounded by a flat economy, yet the costs of their basic services, health, education, policing, etc., are also running away from them.

With three levels of government, and extensive duplication of departments and bureaucrats, much expenditure is essentially wasted. The solutions are obvious, but politically difficult. First, there needs to be a clear allocation of service delivery/spending functions and responsibilities to a single level of government, allowing elimination of duplication, combined with a genuine apolitical review of overall government spending and priorities.

Second, the whole tax system needs unconstrained reform. Given the political resistance to significant increases in personal and corporate taxes, indeed a desire to reduce them where possible, the focus must be on areas where there significant loopholes/concessions to be closed or reduced, such as superannuation and housing, or on the GST, increasing the base and the rate, while reviewing the distribution of the revenue across the States.

All easily said, but virtually impossible to address in today’s short-term/populist, media driven politics.

But, as tough as it will be, it will become imperative, whoever is in government, in just a matter of a few years, as the financial base/arrangements of our Federation progressively implode.

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The AGE quoted in an article on 18th February 2013 “Cyber-attacks against Australian organisations are rising, with more than one fifth of 255 major companies surveyed for a new government report admitting they were targets in the past year. Of those, a further 20 per cent said they had experienced more than 10 "cyber security incidents". One organisation reported the theft of 15 years of critical business data.

More than half of the affected organisations surveyed believed the attacks on their company to be targeted (rather than indiscriminate), with the majority coming from external sources but 44 per cent originating from within the organisation. Attacks involved the use of malicious software such as "ransomware" and "scareware", and trojans to steal confidential information, and denial-of-service attacks. This is despite 90 per cent of respondents reporting the use of anti-virus software, spam filters and firewalls, and 65 per cent having IT security staff with tertiary qualifications”

SPYWARE, BOTS, TOJANS, DDOS, ZOMBIE, MALWARE, PHISHING - what seem like characters from an alien movie are in fact terms used to describe potentially the biggest threat to your business - Cybercrime. Cybercrime has become one of the biggest exposures to business operators in recent years. Cybercrime is a term used to cover a multitude of potential acts that can affect your business, which include:-

Distributed Denial of Service Attacks (DDoS): A (DDoS) occurs when multiple systems flood the bandwidth or resources of a targeted system, usually one or more web servers. This is the result of multiple compromised systems flooding the targeted system(s) with traffic. When a server is overloaded with connections, new connections can no longer be accepted, thus making your website & URL unusable.

Breach of Privacy and Notification Costs: Probably the most high profile case of a Privacy Breach involved account holders of SONY play stations. An unauthorised person stole names, addresses and other personal data including potentially credit card details belonging to about 77 million people who have accounts on Sony Electronics' PlayStation Network. It has been estimated that the cost to SONY was $1.25bn. In Australia, it is estimated that to notify and protect each record breached, it costs the business direct and indirectly between $122 and $194. Direct and indirect costs include:-

• Notification expenses
• Credit file monitoring expenses
• Forensic costs
• Public Relations costs
• Call Centre costs
• Legal cost (to defend a claim brought by a third party)
• Regulatory Legal Defence
• Regulatory Fines and Penalties

Claims may also arise from the simple act of losing a device such as a laptop or IPhone that contains private customers information. In a 2012 Norton Cybercrime report, 35% of respondents admitted to having lost or had stolen their mobile device and 2 out of three had no security or protection measures in place to disable the device.

The facts about Cybercrime are startling:-

• USD$110bn annually
• USD$2bn in Australia alone
• Types of Data Breaches
• 23% hacking
• 26% lost devices
• 10% staff error
• 10% rogue staff
• 12% theft

It can’t happen to us? This is a common thought and statement, however, the reality is it can happen to anyone. Some of the major companies that have suffered a financial loss as a result of a Cyber-attack include.

• E-Trade
• American Express
• Westpac
• Apple

The below table was issued in the 2012 CERT Report

How can GSA help protect your business from a Cybercrime attack?

The insurance industry now provides a policy that responds to a Cybercrime attack. GSA has undertaken a full review of the Security and Privacy Liability policy’s currently on offer and note that the coverage provided by the individual insurers varies greatly. GSA have consulted to many insurers looking to develop a Security and Privacy Liability product offering, as they perceive our knowledge in this area to be market leading.

Like many things in life, ‘you get what you pay for’ and if you don’t understand what coverage you are looking for, it can be fraught with danger. The below diagram sets out a summary of cover provided and how the policy responds.

For more information or if you have any questions, please feel free to call your GSA broker.

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Speaking a few weeks ago at the 2013 Creativity Conference alongside some pretty inspiring speakers got me thinking about the awesome power of creativity. Creativity helps us make meaning of the world; connect with ourselves and others, and to influence the world around us. It also helps us learn and problem solve.

Another significant factor in our ‘sense-making’ is trust - a fairly simple concept, a very easy thing to talk about and yet a very complex thing to build. A concept that demands an exchange of truth, accumulated evidence and transparency of actions. I imagine in the world of insurance that trust must be pretty close to being everything. But what if your reality as a child, teenager and/or adult contradicts that concept until TRUST becomes an unreliable, foreign concept that arouses suspicion rather than safety?

Creativity and trust can’t be conjured out of nothing, but with time and a whole lot of TLC, their seeds can be nurtured, cultivated and ultimately helped to thrive. And that’s a big part of what we do at KidsXpress.

We harness the power of creativity and trust to help kids who, because of their life experiences, struggle to make meaning of their world. Working with our therapists, these kids build trust, and, through creative expression, start to safely express themselves, make meaningful connections, and begin to understand their world.

Trust and creativity are connectors. We all connect in different ways, some do it through art, some do it through words, and some do it through cricket. People like James Telford (GSA), John Moss (Chubb Insurance) and the cricket boys – who connect bats and balls with hearts and dollars at their annual cricket day. This year they raised a phenomenal $52,000 for KidsXpress! Thanks fellas.

With the launch earlier this year of our first Mobile Therapy Programs in Miller and Mt Druitt, we are taking the power of creativity that little bit further. Working through the logistics of making our program mobile has been an exercise in creative problem solving. The project has also been a valuable lesson in the importance of building trust. Working with new stakeholders, many of whom had never heard of KidsXpress, we’ve had to work hard to build trust at every stage.

But early feedback for the mobile program has been really positive.

Trust isn’t something we can take for granted – it’s something we all have to work hard at, all the time, to foster and grow. And as for creativity – take yourself to a gallery, play with your kids’ play dough, turn off your telly, don’t check your emails or Facebook so often - by doing this, you help build your creative capital so that the next time you’re struggling to solve a pesky problem or negotiate with a tough customer - you have a store of it to tap into.

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For many years the Australian economy has experienced continued growth in the mining sector and sustainable public spending on infrastructure, both of which have created opportunity for many Australian Businesses. A recent slowdown in demand for mineral exports from China, the strong Australian dollar and weak growth in consumer spending are now contributing towards many companies feeling the pinch, with Construction, Retail and Manufacturing sectors being the most affected.

External Administrations (EXAD) have remained high in 2012 with the number of appointments trending upwards. The Australian Securities and Investments Commission (ASIC) statistics reported EXAD appointments for Q1 2012 were higher than the levels experienced during the GFC. As a comparison, EXAD Appointments for Q2 2012 were recorded at 2,589, 1.1% higher than the same period in 2011 and 7.9% higher than 2010. The Australian Trade Credit Insurance Market is not only reporting the number of insolvencies increase, but also the size of debts.

In the current economic climate, it is now imperative that companies ensure they place themselves in the best possible position for recovery of an unpaid debt, either from default or an Insolvency scenario.

New reform known as the “Personal Properties Securities Act 2009 (PPSA)” came into effect in January 2012. This new legislation brought together 70 existing registers and/or forms of security. Companies are now required to register (PPSR) their security interest (Retention of Title) in goods supplied on credit terms, rather than being able to rely solely upon the terms and conditions signed.

As a company you now need to register your security interest (on the PPSR) over the goods you supply on credit terms to secure Retention of Title. Without registration, the goods will simply become the property of the administrator/Insolvency Practitioner.

Recent publicized cases have highlighted the importance of registration. Where companies have not registered, they have lost the right to recover what they believed to be their property/goods and have subsequently been ranked as an unsecured creditor. If affected correctly the PPSR can protect a company’s position, increasing the potential for recovery.

Link: www.ppsr.gov.au

With reducing costs and overheads being at the forefront of many companies minds, a Trade Credit policy can be tailored to cater for their individual needs. Despite the increased level of claims seen by the Trade Credit Insurers over the last 12 months, appetite and competition for business with good loss ratios, even in poorly performing sectors remains strong.

We welcome the newest members of our Trade Credit Division, Gemma Scott, Account Executive and Fiona Bulbrook, Brokers Assistant.

Gemma, Geena, Caron and Fiona make up the Trade Credit team.

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