Cut rates and spend to save economy

Australia’s major banks should pass on all of the Reserve Bank of Australia's reduction to the official cash rate believes the Franchise Council of Australia (FCA) . FCA executive director Steve Wright said reductions in mortgage rates had been much greater than those applying to business lending.

"If banks want to drive investment and increase their turnover, they need to reduce business lending rates,” Wright said. “It will be small business which has the ability to kick start reinvestment if there is a significant downturn this year. The quicker we get business lending rates down, the quicker the recovery can get started.”

However the Australian Retailers Association's executive director Richard Evans said it's up to single workers and working families to inject funds back into the economy and save their jobs.

"Around 8.8 million Australian families and singles are expected to receive payments of up to $950 from March this year as part of the Household Stimulus Package but to save jobs this money needs to flow through the economy," said Evans.

Retailers are looking to consumers to spend responsibly, he added. "Economic recovery is in the hands of Australian workers at the moment. If they spend the Government Stimulus Package they will save their jobs; if they save it or spend it irresponsibly all working Australians will suffer. That is the clear responsibility that comes hand-in-hand with the Government's bonus.

"What we're saying to consumers is, if you're saving on your mortgage repayments, by all means use some of this extra cash to reduce your debt but also spend some to inject funds back into the economy and save your jobs."

Evans said the small business tax break of an additional 30 percent deduction for eligible depreciating assets costing $1,000 or more, would help the 80 percent of independent retailers who turnover less than $2 million per year.

Wright, who was speaking at an FCA breakfast event, said franchising is resilient and in a period of opportunity. “There is a resilience in the strength of the franchise brand, the franchise support network and the bulk buying and marketing capability of franchise systems. There is no doubting it will be tough going, but the signs are there that many experienced franchise businesses have anticipated the situation and have prepared themselves well.”

Clark Rubber CEO, Chris Malcolm, told the FCA breakfast the business had its best January sales outcome for 14 years.

This article appears courtesy of 5 Minute Franchising Newsletter