Super funds under pressure to end executive bonuses linked to more fossil fuel projects

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Source: "Digging Deeping" from Market Forces

Australia's big superannuation funds are under pressure to veto bonuses to energy company executives who are rewarded for expanding traditional fossil fuel or carbon emitting projects.

A report from the environmental advisory firm Market Forces says super funds are "hoodwinking" investors by voting for multi-million dollars bonuses despite committing themselves to climate friendly policies.

Listen to the full interview broadcast on The World Today

Market Forces executive director Julien Vincent says superannuation funds are being hypocritical in approving bonuses for energy executives whose remuneration is explicitly linked to pursuing and establishing new fossil fuel exploration projects.

"It's an absolute hypocrisy for funds to be saying they are helping to steer the economy in a direction that's compatible with limiting global warming and the incentivise more fossil fuel exploration on behalf of their members," Mr Vincent told The World Today.

"Super funds love to tell their members that they're engaged on climate change and they're working with companies to get results and transform companies and transform the economy.

"But what we've found is that they're actually voting for the executives of fossil fuel companies to get fat bonuses to go and explore for more fossil fuel reserves when we've got far more than we can actually burn for a safe climate."

The report identifies seven ASX-listed energy companies that have awarded bonuses relating to new fossil fuel projects including Santos, Oil Search and Karoon Gas Australia.

The report titled "Digging Deeper" urges superannuation funds to use their voting power at Annual General Meetings to vote against bonus deals.

"Super funds actually this money on behalf of millions of Australians so this is actually our money being used to vote for fossil fuel executives getting bonuses to damage the environment and worsen climate change," Mr Vincent said.

"It's the old adage - money talks. And we're talking about assets worth about 20 percent of the ASX. That's a huge chunk of change there and that's very influential.

"Many investors have started writing to companies saying you either need to change your business model or do the decent thing and start returning capital to shareholders."

The Australian Council of Superannuation Investors has rejected the claims of hypocrisy contained in the report.

An ACSI spokeswoman told the ABC the council is "is engaging with resources companies on behalf of its members on the transition to a low carbon economy."

ACSI is also calling on companies "to provide greater levels of transparency around the way bonuses are calculated to enable an informed assessment to be made."

China trade deal allowing dumping of cheap steel on Australia needs to go, report urges

The federal government is facing calls to remove a special trading deal that allows China to dump cheap steel and aluminium on the Australia market.

A study by the McKell Institute released today says Australia's decision in 2004 to award China "market economy" status has backfired and Australian companies are being damaged by the predatory dumping of products at below market cost.

Listen to my full report on this morning's AM program

The call to review World Trade Organisation (WTO) rules on China's access to Australia's market comes as big steel producers like Bluescope and Arrium struggle to complete in a world of too much cheap steel.

Source: McKell Institute report on Australias' anti-dumping framework

Australian Workers Union national secretary Scott McDine seized on the McKell study and pointed to major construction in central Sydney as evidence to the damage caused by steel and aluminium dumping.

"We've got Darling Harbour and the convention centre. There is not one scrap in that whole contruction of Australian steel. That is Chinese and Korean steel," Mr McDine told the ABC's AM program.

"There is not one bit of steel out of the Port Kembla steelworks and not one bit of steel out of the Arrium steelworks in Whyalla in there."

Mr McDine said Australia needs to act on parts of the "China accession protocol" under WTO rules which will expire at the end of the year to prevent China's ability to dump products without paying appropriate duties.

"It seriously needs to be debated by Australia as an absolute necessity and it needs to be done by the end of this year," Mr McDine said.

"The rest of the OECD nations around the world have not given China market status. It is now becoming increasingly apparent that will not be the case at the end of 2016."

Predatory dumping from China hurts businesses of all sizes including the Australian company Capral which manufactures aluminium products like windows and doors to industrial customers.

Managing director Tony Dragicevich told AM that over the past decade China has flooded 40 percent of the local market.

"It's made life extremely difficult. We've had to lay off a number of people over the years, we've had to close a factory and our employee numbers have reduced significantly," Mr Dragicevich said.

"Our business has not been able to pay a dividend to shareholders for the past 13 years and that's made it difficult to raise capital and to continue to invest.

"Australia is currently one of only three developed countries which consider China as a market economy  and that means Australia is a reasonably easy target."

The Australian government recognised China as a "market economy" in the leadup to the China-Australia Free Trade Agreement which came into effect last December.

However the Department of Foreign Affairs & Trade says the recognition "has not prevented Australia from remedying injurious dumping of products from China."

"The Australian Government is committed to a strong anti-dumping regime to ensure our manufacturers and producers can compete against imports on a level playing field".

The spokesman said investigations into alleged dumped products from China are treated on a case by case basis by the Anti-Dumping Commission.

Trade Minister signals new foreign investment rules after China rebuff

The Trade Minister Steve Ciobo has signalled the federal government is preparing to update its foreign investment guidelines to appease disgruntled or confused Chinese investors.

Mr Ciobo is visiting Hong Kong where he reassuring Chinese investors that Australia is open for business, despite the Treasurer's decision last month to block the sale of the New South Wales electricity provider Ausgrid.

The rule changes are likely to provide clarity to proposals relating to critical infrastructure to ensure all investors have clear guidelines when they tender for assets up for sale in Australia.

Mr Ciobo told The World Today that while the government is not signalling that investment in Australia infrastructure is off the table, it is moving to provide great certainty for investors after the Ausgrid rejection.

"The Treasurer is working through a number of proposals in respect to critical infrastructure," Mr Ciobo said.

"It's not about putting forward a prescriptive of assets they can or cannot bid for."

Mr Ciobo, who is attending an investment conference in Hong Kong, confirmed he would be meeting with Cheung Kong Infrastructure, one of the unsuccessful bidders for Ausgrid to discuss proposed and current investments in Australia.

Mr Ciobo said he wanted to send the message that Australia has a non-discriminatory approach to foreign investment while retaining the power to veto proposals that could be in conflict with the national interest.

"Provided it's communicated well to to investors it means they can have certainty about investment proposals in Australia," Mr Ciobo said.

"But at the same time, Australians can have certainty that investment into Australia is going to be good for our country."

In a speech to be delivered later today in Hong Kong, Mr Ciobo is expected to single out the "critical power and communications services" that Ausgrid provides to Australian business and government.

But Mr Ciobo will stress the Treasurer's rejection of the Ausgrid proposal related to the "nature of the assets - not to any particular investor".

Coal moratorium would be blip for economy, modelling suggests

New research out today says Australia's economy would not be hurt by a gradual phasing out of coal production in Australia.

Modelling from the Centre of Policy Studies at Victoria University commissioned by the Australia Institute says there would be minimal economic impact if the government imposed a moratorium on new coal mines or the expansion of existing ones.

Listen to my report on this morning's edition of AM

The study says the managed winding back of coal production as existing mines are depleted would be an economic blip given the industry’s share of employment which represents 0.04 percent of the Australian workforce.

It says the economy would grow regardless of a phasing out with a difference of 0.06 percent in 2040.

Professor Philip Adams who led the research told the ABC's AM program that environmental policies to put a tax on carbon was effectively a tax on the use of coal.

 

"The world outlook for coal is fairly bleak. We don't see much likelihood of strong market conditions for coal  over the longer term," Professor Adams said.

"Our modelling suggests that the impacts will not start for ten to 15 years. There is enough coal in mines that are operating or will be operating to continue the level of exports that we see now.

"But thereafter coal production will slow as new mines which otherwise would come on are not allowed to come on.

"Is this a bad thing for Australia? The answer is no."

However, the study commissioned by the Australia Institute concedes that while the national economic impact would be minimal, the phasing out from coal would be painful for regional areas relying on the industry.

        

"The Fitzroy area in Queensland, the Hunter Valley in New South Wales will be significantly affected adversely by the slowing down in both demand and supply of coal production.

Australia Institute chief economist Richard Dennis says the research is a wakeup call for the coal industry and the federal government.

"Look the end of coal is nigh. The question is whether it's nigh enough," Mr Denniss told AM.

"The effect is a rounding error - it's trivial. The Australian economy will still double in size in the coming decades.

"Literally when you graph the economy with a moratorium and without a moratorium, you need a microscope to find the difference."

The coal industry has rejected the calls for a coal moratorium and says energy generated from coal remained critical to Australia's economy.

Benjamin Sporton, chief executive of the World Coal Association, says coal currently provides 41 percent of the world's electricity and 90 percent on Australia's eastern seaboard.

"To try and say we're going to move away from a fuel that provides that much of the world's electricity, I just don't think is realistic," Mr Sporton said.

"Coal is going to play a big role in the world's economy and the world's electricity mix for decades to come and it's incredibly important that we focus on a role for low emission coal technology."

While Richard Denniss doesn't see the government imposing a coal moratorium, he says market forces will apply and that history provides some good lessons.

"The government's decision to abandon the car industry has hurt in Victoria. The Kennett government's decision to privatise electricity saw ten thousand jobs go back in the 1990s.

"Imagine if you heard someone say in the 90s they want to build a big new video cassette recorder factory?"

Glenn Stevens lauded for preserving RBA independence from government

When it comes to legacies, the outgoing Reserve Bank governor Glenn Stevens will be remembered for guiding Australia through the global financial crisis and marring his record with a the burden of a recession.

Listen to the full interview with Saul Eslake

Mr Stevens - who makes his final public speech in Sydney today - also navigated Australia through a once in a century mining boom but also the unwanted legacy of a real estate bubble fuelled by cutting interest rates to a record low of 1.5 percent.

While the jury is out on the full Glenn Stevens time in the RBA hot seat, one respected economist has lauded Mr Stevens for preserving the independence of the Reserve Bank by raising interest rates a week before the 2007 election.

John Howard’s Coalition was swept from office, heralding the ascension of Labor’s Kevin Rudd as Prime Minister.

Saul Eslake, a former bank chief economist now vice chancellor’s  fellow at the University of Tasmania, said Mr Stevens came under immense political pressure from the Liberal Party after raising the cash rate by 0.25 percent to 6.75 percent.

"I think Glenn Stevens' courage in these circumstances is another key achievement of his time during the decade at the helm of the Reserve Bank," Mr Eslake told The World Today.

"There are many in the Coalition who never forgave Glenn Stevens for that even though I doubt that his decision to lift interest rates had any impact on the outcome of the 2007 election.

"There were a number of Coalition members who from time to time would surreptitiously briefed the (Canberra) Press Gallery against Glenn Stevens."

Mr Eslake also cited media pressure with The Daily Telegraph in Sydney describing Mr Stevens as "the most useless banker in Australia" because of his strategy of hiking interest rates.

Glenn Stevens' preservation of the Reserve Bank independence of government was most recently demonstrated when the RBA board cut the cash rate on May 3, overshadowing the Federal Budget.

Despite the plaudits as Mr Stevens prepares to retire on September 17, there is mounting criticism that continuous rate cuts since November 2011 have fuelled an investment housing bubble in the eastern seaboard, in particular in Sydney and Melbourne.

"That's something that critics of Glenn Stevens' time in office - and of Ian Macfarlane before him - will probably point to as an arguable blemishes on their records," Saul Eslake says.

"But I doubt that anyone could really say that Australia's economy would have been materially better of as a whole if the Reserve Bank had maintained higher interest rates."

Mr Eslake agrees however the younger Australians have been locked out of the main markets and live in the hope of receiving an inheritance or winning Lotto.

"Yes. Those are regrettable trends. And I think Glenn Stevens would be at one with in saying that the trend has been regrettable."

Glenn Stevens will deliver his final speech titled "An Accounting" when he speaks in Sydney at an event hosted by the Anika Foundation and Australian Business Economists

Digital disruption could rock workplace agreements, report warns

In a world of digital disruption with the likes of Uber and Air BnB, the focus is turning to how rapid changes to business and lifestyles could translate to the workplace.

A report out today looks at likely challenges to legal rights for both employers and employees given the move to contracting and more flexible work arrangements.

The law firm Corrs Chambers Westgarth says businesses, governments and not-for-profits need to consider how they can adapt to the challenges of a fast changing digital economy.

Partner John Tuck told The World Today that navigating the rise of the sharing economy will be critical for Australian businesses and their employees.

"The nature of the impact is going to be very dramatic change in the way in which services are being delivered," Mr Tuck said.

"Couple that with automation and artificial intelligence, you can see that we are going to have a revolution in the way that work is being undertaken in Australia."

Mr Tuck agrees a major challenge is ensuring that workplace flexibility is not perceived as worker exploitation.

"Yes. And I think that any responsible business is set up in a way that is lawful and that they take notice of the proper regulation."

In its annual workplace report, the firm singles out the scandal involving the retail chain 7-Eleven where some employees were underpaid and exploited.

John Tuck says the 7-Eleven example highlights social and legal risks for companies that fail to ensure worker rights are protected in a flexible economy.

"The challenge for employers of course is how do we ensure that laws are being followed and that does create issues," Mr Tuck said.

"A prominent brand, a known brand may well have to put in new governance structures to ensure that those laws are being followed.”

After the 7-Eleven revelations by the ABC and Fairfax Media, both major political parties ramped up policies to bolster employee protections and to impose higher penalties for breaches.

But with the rights checks and balances, the report says workers in the new economy can adapt while maintaining industrial protections.

"The new generations are going to embrace the portability and flexibility of new work opportunities as opposed to looking back through the rear vision mirror," Mr Tuck said.

Key challenges for employers are ensuring enterprises agreements are honoured while independent contractors understand superannuation laws and workers compensation laws.  

While the report recommends workplace reform, it says the close election result means there is limited prospect of any significant changes in the near term.

Investors, depositors big winners from RBA rate cut

The decision by major banks not to fully pass on the Reserve Bank's official rate to mortgage borrowers demonstrates the power of big investors at a time of tighter profit margins, according to interest rate analyst.

Listen to my interview with RateCity data director Peter Arnold

But Peter Arnold, director of data at the financial services monitoring firm RateCity, says the move by the Big Four isn't surprising and proves that the interests of shareholders is now the number one priority for major banks.

"Protecting those margins, holding back money as equity is now very important. But as a borrower, you're the one who's paying the price here," Mr Arnold told the ABC's AM program.

"There'd be a lot of pressure from shareholders. The bank profits are a big source of income for super funds so the typical Aussie is benefiting in some regards.

"But the big investors are certainly a force to be reckoned with."

The changing priority for banks is in contrast to the past decade when Federal Treasurers including Peter Costello, Wayne Swan and Joe Hockey publically urged banks to pass on rate cuts in full.

Bank chief executives were routinely carpeted in public and private when official rate cuts were held back to protect profit margins.

When the Reserve Bank cut rates in May on federal budget day, three of the four major banks delivered the full rate cut to borrowers.

But yesterday, major banks passed on around half the official reduction with the National Australia Bank handing over just 0.1 percent of the RBA's 0.25 percentage point reduction.

Instead term deposit rates have been sweetened by the Commonwealth, NAB, ANZ and Westpac to ensure depositors - who are hurting from record low rates - keep their money with banks.

Peter Arnold says banks are under more pressure than ever given demands from institutional shareholders along with the Australian Prudential Regulation Authority (APRA) which now requires banks to keep more cash in reserve to deal with potential shocks.

As economists question the Reserve Bank's strategy in taking rates to record lows, there are still fresh memories of banks raising rates independently in the leadup to the global financial crisis when bank funding costs spiralled.

Mr Arnold warns borrowers could be exposed to the scenario of independent rate hikes again in the event of a global shock.

"That could certainly happen again, " Mr Arnold told AM.

"We've seen it before and it's happened this decade. We saw some months where the RBA didn't move and the major banks added 0.1 to 0.5 percent extra on to home loan rates."

While the major banks have held back the full RBA cut, smaller banks without shareholders are better positioned to pass on the full 0.25 percent to borrowers.

The former credit union Bank Australia was the first to move, opening the door for other borrowers to do the same.

RBA tipped to cut rates to new low but urged to keep rates powder dry

                  

It's shaping up as a tight call but most economists think the Reserve Bank will cut interest rates to a new historic low this afternoon.

The majority of economists polled by Bloomberg are tipping a 0.25 percentage point cut to 1.5 percent as the RBA fights back against an outlook for slowing inflation.

Listen to my report from this morning's edition of AM  on the ABC

If the RBA delivers on expectations, it will have cut the cash rate by 3.25 percentage points since November 2011.

But while money markets see a 70 percent chance of a rate cut at 2.30pm AEST, one economist is urging the RBA to keep its rates ammunition on hold to deal with potentially harder economic times ahead including a recession.

Annette Beacher, head of Asia Pacific Research at TD Securities in Singapore says now is not the time for the RBA to cut rates to deal with low inflation.

"While there is certainly a raft of expectations for the RBA to cut, we don't see any data or any situation in recent weeks and months to tip them over the line," Ms Beacher  told ABC News.

"Australia hasn't had a recession since 1991 and I do think the RBA would quietly like to keep some powder dry in case there is a real crisis.

"I think leaving a 1.75 percent cash rate in the bank might be sufficient powder for whatever occurs around the corner."

The Reserve Bank last cut the cash rate in May on fears about deflation, overshadowing the Federal Budget, in what was also seen as a close decision.

The Australian Bureau of Statistics released more evidence of soft inflation on July 27 with headline inflation up 0.4 percent in the June quarter and one percent over the year.

While headline inflation is well below the RBA's target band of 2 to 3 percent over time, the RBA watches core inflation with the trimmed mean measure rising to 1.7 percent over the year.

The RBA is also concerned about the rising Australia dollar which it has described as a “complication” in previous statements.

While it is lower today at 75.3 US cents ahead of the RBA meeting, it has been above 76 US cents after soft economic growth data in the US late last week and the reduced likelihood of a US rate rise this year.

Today's meeting is the second last for RBA governor Glenn Stevens who will chair his final rates decision in September before leaving the RBA on September 17.

Tax Office warns retirees on dodgy tax avoidance schemes

Prospective retirees are being warned they could be risking their nest eggs by investing in illegal retirement schemes designed to dodge tax.

The Australian Tax Office is working to shut down what it calls a "significant" number of schemes that lure investors with tactics to minimise or avoid legitimate tax through complex "paper shuffling".

Listen to the full interview with ATO deputy commissioner Michael Cranston

The ATO says the schemes are "artificially contrived and complex" and are usually connected with the management of a self funded superannuation fund or SMSF.

Deputy Tax Commissioner Michael Cranston told AM that taxpayers who adopt illegal schemes face "severe penalties" which could amount to 47 percent of retirement savings.

"What we're seeing is some taxpayers getting close to retirement and moving some of their businesses into these self managed super funds," Mr Cranston said.

"Then when they go into retirement phase they draw out the dividends and there is no tax. They are things they are not allowed under the law.

"If things are too good to be true, they're generally not right."

The ATO is targeting three schemes including the tactic of "dividend stripping" where dividends from shares in a private company are channelled through an SMSF to avoid tax.

In addition, the ATO is ramping up surveillance of "non commercial recourse borrowing arrangements" and "personal services income" arrangements that break tax law.

However, Mr Cranston says while prospective retirees are looking at ways to boost their retirement nest egg there is no relation to the federal government's proposed changes to superannuation tax concessions.

"This has really got nothing to do with government discussions around superannuation policy," Mr Cranston said.

The ATO has launched an educational program to alert investors and to help weed out promoters of what it calls "dodgy schemes".

"That's if somebody has tried to structure your scheme differently, if it does look a bit artificial, or things that you don't have to pay tax on that you don't have to any more.

"They're signals that you should check with another accountant or ask the ATO."

In addition to penalties, Mr Cranston says fines could amount to 47 percent of the earnings of any illegal scheme.

"There's a lot of love": Fiji trade minister Faiyaz Koya as diplomatic tensions with Australia ease

Fiji's diplomatic and trade relationship with Australia has almost normalised as tensions about a history of military coups continue to fade, according to a senior Fijian government minister.

The South Pacific nation's Trade and Tourism Minister Faiyaz Koya says concerns about coup-driven political stability are no longer an issue after Australia lifted sanctions imposed in 2006 when Frank Bainimarama seized power in a military coup.

Listen to the full interview with Faiyaz Koya

"I think we've gone quite far already. There's a lot of love and now we're just strengthening that love," Mr Koya told The World Today.

"We've pretty much normalised our relationships and we're on a firmer footing now."

After years of bilateral tensions steming back to military coups in 1987, Australia lifted the remaining sanctions and sought to normalise diplomatic relations with Fiji in October 2014 after Prime Minister Bainimarama was returned in democratic elections.

At the time Foreign Minister Julie Bishop said the decision to lift sanctions marked "a new era" in Australia's relationship with Fiji which she described as a "work in progress".

Mr Koya has been visiting Australia to build relations with government and industry as Fiji's economy continues to recover from tropical Cyclone Winston which devastated parts of the nation in February this year.

The impact of the cyclone, which harmed the tourist industry, rocked Fiji's economic growth (GDP) after steady rises in recent years.

But Mr Koya was positive when he spoke to the ABC saying it was fortunate that the cyclone steered away from major tourist hotspots.

"We've done all right. We've had some growth and the Aussies and the Kiwis have still been coming across and that's our major market," My Koya said.

Mr Koya says Fiji is monitoring the impact of Britain's decision to leave the European Union amid concerns the uncertainty could disrupt important sugar exports.

"Britain especially because of sugar. And our sugar exports go out to the EU so people think it could have a massive effect on us," Mr Koya said.

In addition to sugar, Mr Koya is working to attract investors to Fiji's still untapped agricultural assets.

"For us, it has to be agriculture. We are trying to expand it as much as we can," Mr Koya said.

"We have vast tracts of unused land and very very good virgin land. It's the economic base that we need to expand."

Despite the focus on economic recovery and rebuilding diplomatic and trade links, Fiji remains synonomous with political instability and military coups steming back to 1987.

But Mr Koya says while the world might see Fiji that way, it's not the image for locals.

"Not at all. I actually spoke with a young gentleman and I asked - what is it that you find good about Fiji?," Mr Koya said.

"He said 'the best thing for us is the stability. This is somebody at home telling us.

"So stability is not really an issue any more."

Mr Koya also says Fiji is dealing with its corruption problem with the establishment of the Fijian Independent Commission against Corruption.

"I think we followed some of the models out of Hong Kong and we have done quite well in getting rid of it as much as we can," Mr Koya said.

"Again it's something that has effected a lot of countries. But I think Fiji has led the way with that and we have done fairly well out of it.We have advanced quite well in terms of corruption at home."

Mr Koya rejected concerns about media censorship in Fiji and believes political and social tensions between indigenous Fijians and Indians which have played a role in previous coups are being resolved.

"Everybody's a Fijian. No one is labelled or put into a little group," Mr Koya said.

"Obviously there's going to be some small elements that always exist but the fact that they're all known as Fijians has gotten rid of that problem.

"It's something we were left with when the English were around, the divide and conquer thing happening but not any more."

PM must restore stability and community confidence - says super fund boss Ian Silk

Australia's biggest superannuation fund says the newly-elected Turnbull government needs to re-establish political stability to regain the confidence of the community.

Ian Silk, chief executive of AustralianSuper, says it's now imperative that the Prime Minister send a positive message about stability after several years of uncertainty under both Labor and the Coalition.

AustralianSuper chief executive Ian Silk with the ABC's Peter Ryan

"I think that's the number one task - to establish some political stability and regain the confidence of the community," Mr Silk told The World Today.

"Obviously the rise of the independents and the minor parties in the Senate is reflective of a community that is seeking strong leadership and a clear direction for the country."

But with two million members and a $100 billion dollars of superannuation funds under management, AustralianSuper worries that navigating the makeup of the new parliament and a fragile Senate will be "challenging" for the Prime Minister.

Mr Silk also cast doubt on the government's proposed corporate tax cut for small business which is expected to be revised after the global ratings agency Standard and Poor's put Australia's AAA rating on a negative outlook.

""I think the prospect of the company tax cut even being legislated is remote," Mr Silk said.

"Even if it was, I don't think there are too many people who thought a decade long company tax program would actually be implemented without any changes over that period."

However, business groups are urging the government to maintain the proposed corporate tax cut despite the warnings about the need for budget repair.

James Pearson, chief executive of the Australian Chamber of Commerce and Industry, told AM  the tax cuts remain justified.

"We still support that. It makes just as much sense today as it did before the election," Mr Pearson said.

" I think it's a phony choice to say it's about cutting spending or raising taxes.

"It's a moderate measure. It comes in over 10 years, and it starts off with small businesses. And the benefits as shown by Commonwealth Treasury research flow overwhelmingly to households."

But Mr Pearson agrees that despite Mr Turnbull's narrow win, the new parliament is an opportunity to build new stability.

"There's no doubt that the Senate which has been elected, it will be a much more diverse body than it was before," Mr Pearson said.

"The degree of difficulty may well have gone up but business is ready to build a constructive relationship with the new crossbenchers and the old, and we'll do so with genuine goodwill.

The responsibility is on all politicians, be they Government, Opposition or on the crossbenches. We cannot afford another three years of policy gridlock."

Business edgy on election deadlock amid AAA rating concerns

Business groups are warning the election deadlock is likely to create of an extended period of uncertainty with critical decisions set to be put on hold in the absence of a clear outcome.

The looming prospect of a hung parliament or a minority government also puts doubt over budget repair, raising concerns that Australia's prized AAA credit rating could be in jeopardy.

Listen to my interview with Business Council chief executive Jennifer Westacott broadcast on The World Today

Australian Industry Group chief executive Innes Willox says there are concerns that the Turnbull government's  reform agenda could be derailed or compromised.

"Uncertainty is the word of the day.Business craves certainty and stability and what this election has so far givenis uncertainty not just for the week ahead or a month ahead but for a long timeahead," Mr Willox told AM.

"What's the tax regime that they're going to have to deal with? What incentives are there around investment? What are the issues around hiring a new apprentice or a new trainee or hiring new staff?

"We may go into a period of some weeks of those sort of decisions being deferred or delayed unfortunately."

Australian Chamber of Commerce & Industry chief executive James Pearson also worries about the uncertainty but is urging compromises amid the political chaos.

"We'll be calling on the minor party MPs and the senators to move beyond the narrow agendas and make new decisions in the new parliament in the national interest," Mr Pearson told AM.

"It's important that whatever major party forms government they build a constructive relationship with the cross bench because they need to get things done.

"We can't afford three years of policy gridlock."

Innes Willox warns international investors could become more wary about stability in Australia and that the election deadlock rekindles memories of leadership coups under both Coalition and Labor governments.

"We already have a reputation that Australia is a very difficult place to do business and political risk certainly came on to the agenda during 2010 to 2013 because of unstable or minority government," Mr Willox said.

"Those sort of things that were around are likely to return."

Mr Willox says whoever forms government must ensure the necessary budget repair is undertaken to ensure Australia's AAA credit rating is preserved.

"The last thing that any government that is elected as a result needs to do is to rack up further debt in a way that does impact on our credit rating."

Business edgy on election deadlock amid AAA rating concerns

Business groups are warning the election deadlock is likely to create of an extended period of uncertainty with critical decisions set to be put on hold in the absence of a clear outcome.

The looming prospect of a hung parliament or a minority government also puts doubt over budget repair, raising concerns that Australia's prized AAA credit rating could be in jeopardy.

Listen to my interview with Business Council chief executive Jennifer Westacott broadcast on The World Today

Australian Industry Group chief executive Innes Willox says there are concerns that the Turnbull government's  reform agenda could be derailed or compromised.

"Uncertainty is the word of the day.Business craves certainty and stability and what this election has so far givenis uncertainty not just for the week ahead or a month ahead but for a long timeahead," Mr Willox told AM.

"What's the tax regime that they're going to have to deal with? What incentives are there around investment? What are the issues around hiring a new apprentice or a new trainee or hiring new staff?

"We may go into a period of some weeks of those sort of decisions being deferred or delayed unfortunately."

Australian Chamber of Commerce & Industry chief executive James Pearson also worries about the uncertainty but is urging compromises amid the political chaos.

"We'll be calling on the minor party MPs and the senators to move beyond the narrow agendas and make new decisions in the new parliament in the national interest," Mr Pearson told AM.

"It's important that whatever major party forms government they build a constructive relationship with the cross bench because they need to get things done.

"We can't afford three years of policy gridlock."

Innes Willox warns international investors could become more wary about stability in Australia and that the election deadlock rekindles memories of leadership coups under both Coalition and Labor governments.

"We already have a reputation that Australia is a very difficult place to do business and political risk certainly came on to the agenda during 2010 to 2013 because of unstable or minority government," Mr Willox said.

"Those sort of things that were around are likely to return."

Mr Willox says whoever forms government must ensure the necessary budget repair is undertaken to ensure Australia's AAA credit rating is preserved.

"The last thing that any government that is elected as a result needs to do is to rack up further debt in a way that does impact on our credit rating."

Global markets bounce but cloud over London banks, EU passports

With global markets less stressed about Britain's shock decision to leave the European Union, the focus is turning to the consequences for Britain including its once prestigious banking sector.

Listen to my report broadcast on The World Today

EU leaders are warning Britain that its financial services industry including a major hub in the City of London could be damaged once the exit provisions under the Lisbon Treaty are triggered.

Critically the current right to a European Union passport is set to disappear under the Brexit meaning the current easy access Britain has to financial services in Europe could become history.

The chair of the Eurozone group of finance ministers Jeroen Dijsselbloem says major banks based in London could see their businesses decline and prompt some to leave.

"Larger international financial institutions, if they have to decide where do we go and where do we invest, will take into consideration that London is in the future outside this very large European market," Mr Dijsselbloem told the BBC.

"London and its financial services industry is servicing all of Europe now and they do that with the (EU) passport that gives them access to all the markets in Europe.

"That position will inevitably change."

Britain's finance sector employs more than two million people across the UK, many in the City of London.

Most workers have an EU passport which currently gives them free movement to make deals and to service clients across Europe.

The Brexit impact on British banking and the City of London was sitting quietly in the background in the leadup to the referendum.

But London lawyer Simon Gleeson says with deals potentially unravelling for the British banking sector there would be an impact on related businesses in the United Kingdom.

"Passporting is pretty much essential for the provision of services to European corporates," Mr Gleeson told the BBC.

"If you take passporting away then something changes in the city of London and some businesses will simply have to be relocated elsewhere."

In Brussels as the fallout continues, the German chancellor Angela Merkel warned that whatever deal is hammered out, Britain must honour the free freedoms of the EU - the free movement of workers, goods, capital and services.

"The United Kingdom needs to clearly state its intention as to how it wishes to shape its future relationship with the European Union," Ms Merkel said.

"Access to the single market will only be possible with due respect of the four freedoms."

Meanwhile, global markets rallied for the second day in a row with some investors comforted that the Bank of England and other central banks are poised to blockade any Brexit related credit crunch.

London's main index ended 3.6 percent higher and has now recovered its Brexit related losses.

The Australian sharemarket bounced in the global optimism and the big miners were helped by a higher iron ore price.

The All Ordinaries Index was index 1.4 percent higher in late morning trade.

Brexit political turmoil escalates, UK credit rating downgraded

The political and economic fallout from Britain's decision to leave the European Union is continuing to escalate.

Here's my report broadcast on The World Today

Britain's outgoing prime minister David Cameron has once again called for unity after the "leave" vote triggered more turmoil in his Conservative party and the Labour opposition.

European leaders are urging Mr Cameron not to waste time in getting the agreed mechanisms in place to exit the EU as quickly and cleanly as possible.

Global sharemarkets ended sharply weaker and two major ratings agencies downgraded Britain's credit status adding to concerns that the UK might slip into recession.

Central banks on emergency standby with Brexit fallout set to escalate

Central banks around the world are standing by to intervene amid fears that the global fallout from Britain's exit from European Union will escalate in the coming days.

Listen to my report broadcast on The World Today

The Bank for International Settlements - known as the central bank of central banks - is warning of a "period of uncertainty and adjustment" given Britain's status in the global economy and the impact of it withdrawing from the EU.

The bank's general manager Jaime Caruana says "extensive contingency plans" are in place by central banks and the private sector to limit market disturbances such as the shock Brexit decision.

"Central banks have already communicated that they are closely monitoring the situation and stand ready to take the necessary actions to ensure orderly market functioning," Mr Caruana said at the Bank's annual general meeting in Basel, Switzerland.

"Central banks have acted swiftly in the past. They stand ready to act again, and they have the tools."

The Australian sharemarket is set to open 0.1 percent higher tomorrow (Monday) after losing $50 billion in value as part of a global selloff.

The Bank of England moved swiftly after the Brexit outcome and announced it was ready to provide A$460 billion in liquidity to help calm currency and equity markets which went into free fall.

Bank of England governor Mark Carney - who had previously warned a "leave" vote would have serious economic consequences - declared he would take "all necessary steps" to ensure financial and monetary stability.

In Australia, the Reserve Bank provided a briefing to both the government and the opposition under caretaker conventions in the leadup to the Brexit referendum.

In its annual report released on Sunday evening Australian time - but written before the Brexit shock - the BIS pointed to "the declining impact of monetary policy" on domestic economies eight years after the Lehman Brothers collapse.

The BIS calls for "stability oriented monetary policy" and that policy makers should take financial stability into account at all times "during both booms and busts".

"We need policies that we will not once again regret when the future becomes today," the BIS warns.

The BIS message comes against the backdrop of slowing global growth, low inflation, falling commodity prices and concerns that traditional central bank tools like quantitative easing are not working.

In comments made with the release of the annual report, Jaime Caruana said despite deleveraging in the private sector problems were building elsewhere.

"Signs of unsustainable financial booms began to appear especially in emerging market economies," Mr Caruana said.

Mr Caruana urged a global rebalancing to deal with what he called a a pattern "similar to that of previous boom episodes".

Brexit market turmoil but EU ambassador says little impact on Australia

Britain's shock decision to exit the European Union should have little impact on Australia's diplomatic and trade relationships, according to the EU's ambassador to Australia.

Speaking to the ABC's AM program, Sem Fabrizi said despite global financial fallout from the Brexit vote nothing would change immediately.

"Until the new agreement for the separation from the UK takes effect, rights and obligations under the treaties will continue so there will be no immediate change," Mr Fabrizi said.

"Certainly Australia is a stronger partner of the European Union and we will continue to work with Australia as we will continue to work with all our partners."

But Mr Fabrizi said the Brexit outcome was not a shock to the EU and that said "war gaming" had been under way to manage the unexpected.

                            

"Certainly not. We were expecting a close call and the people of Britain have decided. A democratic decision has been taken," Mr Fabrizi said.

"So we're now in a period where clarity is needed more than ever. But there's a procedure in place and we would like to have this process started as soon as possible."

Earlier today on WallStreet, the Dow Jones Industrial Average ended 3.4 percent lower or 611 pointsin the red.

Analysts estimate US stocks lost US$700 billion contributing to global losses of around US$3 trillion.

The banking sector was hardest hit with Citigroup down eight percent and Goldman Sachs and JP Morgan Chase five percent weaker.

The losses on Wall Street follow plunges across Europe in the wake of the Brexit vote with Paris down 8.6 percent, Frankfurt 6.2 percent weak and Madrid plunging 12.3 percent.

The Chicago volatily index which measures market anxiety surged as much as 48 percent given the unknowns about the process for Britain's exit from the European Union.

But Sem Fabrizi told AM that while there was complexity ahead the EU would not seek payback with Britain.

"The spirit is always to find the best solution. I don't think we need to enter a conflict mode."