InvestSMART Radio June 7th Transcript

Steve Price: Yes, we’re going to give you some help tonight and give you some advice on how to get a pay rise, maybe. Each Thursday we are joined by the team at InvestSMART. The group is lead by Paul Clitheroe, the chairman, who will join us next week. We are lucky enough to have in the studio Evan Lucas, InvestSMART’s chief market strategist. Good evening, good to talk to you again Evan.  

Evan Lucas: Good evening Steve, how are you?

SP: Good thanks. I think the big sleeping political issue, and it might be about to wake up, is the fact that people are not getting pay rises. There’s just no wage growth in Australia. And yet, the cost of living keeps going up around people. I’m going to play for you in a moment the treasurer Scott Morrison who appeared on the ABC today, and was actually asked the question by Sabra Lane, “if the economy is going gang-busters, when is the rest of the country going to catch up and reap the benefits?” It’s a pretty good question, isn’t it?

EL: It’s an interesting question, because it depends if you look at it from a glass half-full or from a glass-half empty. The wage part is a very interesting question, and the reason we want to talk about this is because we’d love to hear your listeners actually call in tonight. I think it’s a really valid question to be asking what’s going on at the moment. It depends at how you look at it, too. If you look at wage growth from a public-sector side, it’s actually been quite good. It’s around about 2.5% to 2.6%. It’s the private side that hasn’t actually seen materially any growth. The interesting thing that happened in the first quarter of this year, so 2018, is that you actually saw a material upside in compensation - what they call the compensation part of the GDP figures – to a level we haven’t seen since 2003. So, yes, retrospectively things haven’t been fantastic. But there are signs that we are starting to see acceleration in that space. It will particularly come probably around August or September – that’s when we’ll really start to see it.  You’ll probably start to see better profitability from firms, and you’ll actually start to see actual rates coming through, and therefore through in wages themselves. So again, glass half empty, glass half full. The wage question is a valid one, and one that certainly should be pressed. We’ve seen movements in the minimum wage, but we’re actually now starting to see it move across the whole band.  

SP: We’re getting close to the financial year, so companies will start doing budgets for next year. I’d be really interested to hear from across our audience exactly when you last got a pay rise, and are you expecting one this year? Have you been promised one in the second-half of next year or this year as your company does better and the economy begins to chug along a lot better? Simple question tonight, how are you coping with the cost of living, with bills and have your wages gone up when did they last go up and when was the last time your physically got a pay rise? I think most people, and I have asked this question before, would say its 2 or 3 years since they got a meaningful pay increase, unless as you say, they’re a public servant.

EL: And the slight added part of that question, is have you expected or do you expect your bonus to increase?

SP: Do people still get bonuses?

EL: They certainly should. Or at least a discretionary bonus should actually be there. And the reason I say that, again, is getting back to what we are starting to see in the growth numbers. And I know we are getting to Scott Morrison and the question asked by Sabra Lane soon, and what Scott Morrison has been saying for the past two to three days is that you are generally starting to see profitability pick up, and from the profitability side, a discretionary bonus should certainly be there. And that’s the other part of the question you should be asking so not only to look at your wages, but actually look at the discretionary bonus that is probably put into your contract as well. So, that would be the next part of the question. Overall, getting back to your original question about the cost of living, the interesting thing about cost of living is what is called the basics. And that’s the real hard part that has expanded rapidly, particularly over the past 24 months. Everyone will talk about electricity prices, but it’s not just electricity prices. Education and health are the other sides of the basics. So, the five basics are basically things such as household living, energy which includes petrol etc. That’s huge. Your power, but also your health and education. They are the general basics. And they are known as the big five – the general basics of living. And they are now making up just shy of just under 60% of your take home pay. And that is because, particularly power, health and education over the past 24 months - 

SP: That’s without even throwing in rent, for people who are not paying off a mortgage?

EL: Correct, and that’s also in your household budget. And that is and has always been sort of astronomical, it’s those bottom three that have really come up the last 24 months.

SP: We’ll hear from the treasurer in a moment. A couple of calls first. Justin from Caloundra, how’re you, Justin?

Justin: I’m well thank you gentlemen.

SP: When did you last get a pay rise, mate?

Justin: 18 years in the car industry, I left it 6 months ago because of the way the industry has changed and how people buy cars. There is no profit in cars. I have watched my income drop by about $90,000. From close to $200,000, down to $160,000 and down to under $100,000.

SP: So, when you were earning $200,000, were you working on commission?

Justin: Commission and a retainer of $550 per week.

EL: So, this is the other thing that has happened with the change. It’s not just your income from a retainer – the commission part of the market has also massively changed over the last twenty years. And the big headlines have always come from industries like finance, I mean look at the banking royal commission that’s going on now. That is unfortunately what’s filtered on into your industry as well is that commission is no longer seen as aligned with consumer interests. And for that reason, unfortunately, the law has clamped down on you rather than anything else.

Justin: A comparison would be, I used to make on average about $280 to sell a car. These days you’d get paid a minimum of $75. And there is very low profitability in the cars, so you are unlikely to get anything over $100 for selling a motor vehicle.

SP: So, is that because of disruption of the car industry? I mean my old man spent his whole life in the car industry selling cars, so you’re saying now that people are more likely to go online, Evan and Justin, and purchase a car that way? And car yards are no longer the place where people go to buy a car.

EL: Go ahead, Justin.

Justin: With the internet, everyone is more informed. The internet is there for information, which is great. But when it comes to a marketplace, it screws everyone down and takes our margins. Your father would know that back in his day, people would walk around a car yard and look for a car in their area.

SP: Correct.

Justin: They might go to one cluster, and then to another. If you go to any state capital city in Australia, you’ll see that all the car yards are clumped together. Parramatta Road, Brisbane, the Nepean Highway – they’re all close together to pick up each other’s walk-in traffic. CarSales mainly – not blaming them, they have come up with a great idea – they have bought every car for sale in Australia into your lounge room. So, everyone knows the market, what you should be paying for a car, that you can’t flip cars, and everyone knows roughly what their trade in is worth, it’s very hard to suck back on a trade or nick one like that. Everyone is virtually telling you what you have got to do for them, not rather what you can do for them and what they can do for you. You’re trying to negotiate virtually nothing into something. Hence why they are selling the finance, and the after-market, and the tint and the warranty – it’s such an important part of a dealership. You normally make more out of selling someone paint protection than you do for selling them the car.

SP: That’s a story. Thank you, Justin, I hope it comes good for you. That’s a whole other area and a whole other discussion even, about disrupted businesses. I mean, we could start with taxis and then go to real estate.

EL: And very quickly on the car industry as a whole - it’s interesting to look at. In the end, the car industry is a commoditised industry. You basically have a piece of machinery that gets you from A to B. And that’s sort of another way at looking at this from another point of view. You can sell all the bells and whistles all you want, but in the end a car is that. And that has therefore meant that competition is through the roof. The old days of having brand differentiation is still there, but nowhere near at the levels it was in the late ‘90s / early 2000’s.  Again, as Justin alluded to, because of that competition has caused margin squeeze. Therefore, your very top end of the bracket to the very bottom end of the bracket in, let’s say in an SUV car, is no longer $50,000 to $100,000 for a medium sized Australian car. It is now about $30,000 – for maybe even to as low as $20,000 – depending on what you look at. And that competition is much, much stronger, and therefore the margins out of it are much, much lower.

SP: Margins have been squeezed like you wouldn’t believe. When was the last time that you got a pay rise? What was the pay rise you got? Is your bonus still in place, or have they disappeared? In a moment, we are going to discuss with Evan what sort of plans you have, in that instance, for retirement because your nest egg may disappear quicker than you think. John’s in Sydney, g’day John.

John: How are you going guys? Listen, I work for one of the major transport companies that operates nationally in Australia, and the TWU handles our wage cases. Recently, a wage case went forward to the federal government by the TWU to have the driver wages increased for the transport industry. That’s both driver employees (full-time) and also contractor drivers (full-time), that supply their own vehicles. In the last wages case, it wouldn’t go through until the contractor determination was removed. And what that resulted in was that the contract drivers who supplied their own vehicles had not had once cent added to their hourly rate in eleven years.

SP: 11 years!

John: 11 years – not one cent.

SP: What would have happened to the cost of fuel, and parts, and road tolls in eleven years?

John: And there is the cost of repairs on vehicles, registration, insurance…

SP: How do you survive with that little bit of maths?

John: It’s going backwards at a rate of knots.

SP: What do you know about the transport industry, Evan?

EL: A little bit, but unfortunately, I don’t know much on that granular level. I do know that very much at the moment, if you look at the pressure, the biggest one to look at is what’s happening to QR National which is now called Aurizon and what’s going on in their space. So, they’re on train haulage and train areas. It’s a similar idea that again, the qualifications of the drivers is what they’re now looking at, and whether or not they can go across to the driverless space.  It’s also looking back into the old world, which is now owned by Japan Post, and that’s Toll and the changes they’ve seen. The turnover is again looking at how the transport is run. Again, another industry that is under disruption pressure.  

SP: John, who do you blame for the contractor part of that deal falling over and not going ahead?

John: It comes down to companies that are making big profits who do not want to pay extra money for their transport needs. And then you’ve also got the situation where the companies themselves are hiring overseas drivers that they know will work for less. And that’s actually putting pressure on all the Australian drivers out there, that have got mortgages and kids in school and all the rest of it. For the companies to say – “well we don’t really need to give a pay rise. Because if these guys leave, we’ll just put an immigrant in the vehicle.  

SP: Yeah, I have heard that’s story a lot. Particularly 2GB/Ray Hadley’s program, where a lot of truck drivers have complained about lack of training, and even the situation where your big doubles are getting driven by people who can’t actually manoeuvre the truck properly. We’re talking with Evan Lucas from InvestSMART. We’re going to hear from the treasurer to explain why none of you have gotten a pay rise yet, but it’s just over the horizon. We’ll be back with more calls just after this.

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SP: Thursday night, twenty minutes past nine. From InvestSMART, their chief market strategist Evan Lucas is in the studio with us. We’re taking calls 131 873 about the economy and pay rises, and when you last got a pay rise. The other thing Evan, that I guess then gets put under pressure, is people tend to not top-up their superannuation if they’re not getting a pay rise. So they’re not salary sacrificing, they’re probably only putting in the bare minimum that the law requires in terms of super. And so you get to that retirement age and end up with less of a nest egg.

EL: Yeah, and obviously what we’ve been seeing over the last sort of two weeks is what happened with the Products Commission as well in regards to the super you move in to. And it’s not just your super, it’s your general savings as well in terms of how you look at it. And your ability to therefore grow your savings, not just the fact that it is eaten up, and eroded by – as we were just talking about before the break - the general cost of living, it’s also reaching that goal that you might have, whether it’s a house deposit, whether it’s a holiday, whether it’s just general living that you want to go and do. All of that comes into it. And that’s, again, why we keep asking people to sit down and just ask yourself the biggest question you need to ask yourself when you’re in this, and it’s – what do you want out of getting a wage, anyway? What is the wage for? The wage isn’t just for living. A wage is for, basically, a certain thing that you may want to get. And when you ask yourself that question, and when you can start drilling down and going “okay, I do actually want to save for that holiday, or I do want to save for that house. So how do I get there?” And that’s what we like to talk about and where what my love is, after the last couple of weeks of talking with you, is markets. Markets can be a little bit scary, but they are one way of doing it. It’s also looking at other simple products, like a term deposit, and how that could actually help you get towards your goal. All of that should be something you’re not only asking yourself, but you can also very quickly and very simply go online, whether it’s through us or just online forums, and they can point you in the right direction and actually get you towards where you need to be, so you can actually start focus yourself towards that goal.  

SP: So the key message is to get advice. Greg’s in Geelong, g’day Greg.

Greg: G’day guys. The reality is, you guys are dreaming. The fact is, that I am down to fifteen hours of work a week.

SP: What’s your job? What do you do?

Greg: Right now, I’m doing commercial cleaning. My elbows are stuffed, I can’t afford to fix my elbows, because it’s going to cost me too much money and most likely I would have to be off work. I’m not entitled to anything if I’m off work because I work casual, so I get no sick leave, no nothing. I’ve got mates who are in a similar boat.

SP: So, you’re saying that the casualisation of the work force is much greater than we think?

Greg: Steve, listen. Listen. Hello?

SP: I am listening Greg.

Greg: Well, listen.

SP: I’m listening, but we have limited time so you need to get to your point.

Greg: The fact is, we’re looking at the situation where 20% of the population in Australia is on-edge.

SP: That’s an invented figure, Greg. Thank you. I mean, we deal in facts here. 20% of the population is not on edge. Chris in Bega, g’day.

Chris: How are you going?

SP: Well, how’re you coping?

Chris: Yeah, going well. I work in a national industry, I’ve been in the game for 30 years and have had my own business for 17 years. When I first started out, we were on $28 an hour which was the rate paid by most insurance companies across the board, with you know, varied 70-80 cents an hour difference depending on which company you were dealing with. And nowadays its up around to $38 an hour, to open your doors and do a good day’s work. Back in my industry when I first started, I did my apprenticeship in Bega and the money was small – it started out as $98 a week. And it went up, and I was earning $700-$800 a week by the end of my apprenticeship, and so on. And nowadays the workers expect to be paid better, which you have to, to get the work out.  

EL: Chris, a question for you. A bit of a question for you. This is the interesting thing – it’s nice to have a caller like you who sits on the other side. You’re obviously a small business owner and someone who feels the nuts and bolts of those kind of changes. Question for you about probably where you’re at right now. Are you finding or feeling that the economy around you in Bega and that part of NSW is starting to improve? Or do you feel that it’s sort of sitting where it was two years ago? 

Chris: No, it’s definitely stale. It’s been a stalemate since the [economic] crash, really. From the financial crash of Australia, we still haven’t bounced back as such. Land rates have not gone up much. In terms of what the value of land is, it’s changed a little bit but not a lot. 

SP: So, what could government do to help? There’s the ongoing debate about cuts to company tax rates – would that help? 

Chris: Look, I think tax is not going to make system bounce back. The government really need to look at it from – well let’s look at it from my point of view. I own a smash repairer, and I open the door every morning for $42 an hour. Now, there is one company, and that’s NRMA, that will pay you $70 an hour. But, the turn around and cut your other hand off. They cut the hours down that you have to do things. They literally dictate your hours to give you that money. Now at around $70 an hour, you at least have a reasonable chance of earning somewhere around $45,000 [per year] if you push yourself.

SP: So as the boss, are you earning enough out of your business to have the lifestyle that you want, to keep your kids and wife happy, and to live the life that you always imagined you would?

Chris: No.  I got a little bit smarted and diversified into restorations of old cars, and all those types of things.

SP: That sounds pretty smart, Chris. Thank you mate. It’s nice to hear that, isn’t it Evan, from inside a business. There is a lot of frustration out there. 

Chris: Yeah. What I was going to ask as a follow up question is, in that sort of the industry, it’s the same industries we’ve been hearing about across the board, we’ve been hearing both sides so whether you’re on the employee or employer, that these are industries that have seen huge amounts of disruption. This is the second time tonight that heard from somebody from a sort of auto-industry exposure that is showing the signs of change that has happened, pretty much since basically 1990, which is the year you can really have a look at. Between the end of the ‘80’s and start of the ‘90’s is when that really started. And that’s why the next question, the follow up, is what Chris’ next decision is – is he going to sell his business? 

SP: And disruption’s carved it way through every industry. I mean – look at the media.

EL: Yeah exactly. It’s been decimated, and you know that better than anybody, in terms of how it works. The ability for marketing money now to just across so many different media spaces is you know, quite frightening. We were talking today about what’s going on with Facebook, and Facebook’s exposure to Russia, and Facebook’s exposure to China, and all that material – and therefore the security side of it. So, disruption is good, but it doesn’t always have a happy ending. 

SP: Sam’s in Essendon. Hello, Sam.

Sam: Hi guys, how’re you doing?

SP: We’re good.

Sam: First time listener, I was just listening to everybody having a chat and this could be a bit left-field – but I’m tired of everyone sort of expecting, I understand that things are hard – yes they are, but you need to try and re-educate yourself and don’t wait for someone else to do it. I know that sounds a bit harsh –

SP: No, it sounds positive. I like you. I like a positive message. 

Sam: And look, I left school young, and one thing my father said to me – I was just listening to the other gentleman speaking about the transport industry, and I got into trucks. And every licence I had to get, I went and paid for it. As time went on, I knew I had to change in myself and not wait on anybody else to give me what I needed to get. And what I want to say to people listening, is I know it’s hard and I don’t mean to sound rude but get out there and re-educate yourself, look at other things that might not make you happy, but give you an income. Look left-field, look outside the box, I know it can sound weird.

EL: Yes – diversify yourself.

Sam: Diversify in anything. Become a tattoo removalist, veganism is making it big, there’s heaps of things you can look into

SP: Oh, don’t bring up veganism – I’ve got a daughter at home who’s heading down that route and it’s making it very difficult at home. Well that’s a very positive message we got there, Evan. Kerry’s in Pitt Town. G’day Kerry.

Kerry: Hello Steve, how are you?

SP: Fabulous, thank you.

Kerry:  That’s good. My husband – we have a family business. My husband works anything from 65 hours to 80 hours a week. And that’s the honest to god truth. I help in the business; our son is also in the business. We are putting these hours in, and we’re working it for less money.

EL: Kerry I believe you. I’ve come from the same scenario. My parents still do that – they own two small businesses in Adelaide, and I basically all the way through school did the same thing that your son is doing right now. It is hard. The one thing about being a small business owner is that you are the one who is taking on the risk of the actual company performing. And that therefore means because of that you have more emotional investment in it as well. You feel the ups and downs, and I’m sure that your husband and also your son feels the ups and downs as well. And yeah, talking from personal experience I understand it. The thing that Steve asked, and I am going to ask, is that in the end if it providing you with the fulfilment you want? And if that answer is yes, you can obviously get through the hours. If it’s not, that again gets back to the previous caller, and that’s about diversification and thinking about the way that you earn, the way that you actually grow, and that your overall position needs to be diversified as well in terms of your wage. It’s what we talk about every day in that space.

Kerry: Yes. It’s hard because he’s in the engineering field and unfortunately engineering shops are just closing left, right and centre. Nobody wants this type of work. I mean most of our work is now coming from repairs for excavators, etc. And it’s hard, heavy work

SP: Well that’s the message we’ve heard tonight I think. Kerry, thank you for the call. People are finding it difficult, it’s hard out there. It’s very hard out there, Evan. I mean that’s what we’ve heard all night.

EL: Yeah, we have, and again, the hardship is the legacy we have sort of been seeing for the past five years. And that’s why the question to be asked, is, is there and can you see a light coming towards the end of this year? That’s the question.

SP: I think we will continue to ask that question, and we’ll certainly do that again next week. Thank you very much for coming in, I’ll talk to you soon.

EL: Thank you very much Steve.

SP: Good on you mate. That is InvestSMART, next week Paul Clitheroe will be in the studio.