Expect some unexpected new clients, with troubling issues, over the next few months. That’s the situation many financial planners will face, as the Rudd government’s razor gang gets to work.

With a public service of almost 140,000, the government is one of the biggest direct employers in the country. It has also, at least until now, been the source of a fairly steady stream of lucrative consultancy contracts. The Howard government had been of spending about $360 million a year, on consultants.

But the new government is already between a rock and a hard place. It must reduce its spending, to curb inflation. But it must also keep its election promises, to preserve its credibility. That means that it will proceed with the $31 billion worth of staged tax cuts, which many believe might well be deferred. And it won’t cut excessive spending on private schools and middle class welfare, that should be prime targets, in any cost cutting program. These things are just too difficult, politically.

So what can it do? Look for soft targets, of course. Once again, we have a a new government with the public service in its sights. Just as the Howard government did when it first came to office, back in 1996.

There won’t be another bloodbath now, as there was then, when Howard slashed some 30,000 public service jobs.

But there will be severe trimming. The Finance Minister, Lindsay Tanner, already has two groups, particularly, in his sights. These are the Senior Executive Service and government contractors.

Both are soft targets. The SES, as it is known, has been one of the least accountable divisions of government, over the past decade or so.

Even the Treasury has resisted scrutiny in this area, arguing that would invade the privacy of its senior workers. So standard checks on the way public money is spent in this area has been weakened. But the SES is about to pay for its arrogance.

As Mr Tanner has noted, the SES has become bloated over recent years. He recalls that, just a few years ago,only 13 per cent of Australia’s Federal public servants were in this very privileged club. Now, though, that has blown out to 25 per cent. That growth was not accompanied by substantial signs of any matching improvement in the performance of the public service.

Governments of all persuasions are well aware that there is little public support for senior public servants. The old television comedy, Yes Minister, didn’t help them either.

The National Capital Authority, the Federal Department which manages key aspects of Canberra’s face to the world, has already been targeted. The Defence Department, which is a much harder target, has been exempted.

Mr Tanner has, all too apparently, decided that scattered targets are the easiest to deal with. That’s the pattern that can be expected, as his Razor Gang he heads, gets on with its work.

But there will, of course, be a human cost. The public servants who are “shaved” in this process, will be facing new realities. Their retirement plans will have to be revised. The contractors, hit by the government’s cuts, could well face even more severe problems. The smooth flow of work, to which they have become accustomed, will be interrupted. They will now face quite long waits, between projects.

With the private job market strong, at least for now, the issues arising from the dislocation these groups face, might well be less severe than they could have been, at other times.

They will, nevertheless, be both serious and complex. Financial advisers should prepare to meet these needs. Those who do, will find their clients grateful.

Recent events on shaky world markets offer lessons for all investors.

But just what are those lessons? That is a question of some importance, right now.

Australia’s Investment and Financial Services Association has stepped in to offer some answers.

Its CEO, Richard Gilbert, says:”Investment markets move in cycles.

“And it is impossible to predict when a market will rise or fall.

“However, by looking at the past we can observe how markets usually perform.

“And that can help us to put market movements in perspective.”

His association has produced a pamphlet, which it called “Four Lessons from the Market.”

Summarised, they are:-

1. Markets move in cycles
2. Diversification reduces risk
3. Look at ‘time in the market’ not “timing the market” and
4. Start investing early, save regularly

It’s all a bit general, of course. And the old song, As Time Goes By, summarised much the same thoughts, very elegantly, many years ago. The key line in that song is unforgettable:-

“The fundamental things apply, as time goes by.”

Markets, after all, are just one more human relationship.

Naturally, there is a bit more to IFSA’s pamphlet, than we have been able to record here.

You can get the whole thing from www.ifsa.com.au

Many Australians – particularly men – will be surprised by their own retirements, which might come earlier than they had expected.

Young men, especially, still hold to the traditional belief that they can safely plan to retire at the traditional age of 65.

However, new figures, produced by the Australian Bureau of Statistics, strongly suggest that this may not be so. Yet the bureau’s report is likely to be swamped, by all the bad news flowing from financial markets, right now.

That would be a pity. The bureau’s study, called Retirement and Retirement Intentions, should serve as a wake up call, for all people making long term financial plans.

The bureau reports, for example, that the average age of retirement, for Australian men, is now closer to 60 than 65. It’s 60.3, to be precise.

The average retirement age for women is lower, at 59.

Compulsory superannuation payouts will, generally, still be too small to fund a financially comfortable retirement. So a little advance planning, based on solid figures, rather than broad perceptions, is still as necessary as ever.

The bureau’s 56 page report, based on the findings of the 2006-07 Multi-Purpose Household Survey it conducted in 2006-07,is an excellent guide. It revealed that a no less than 42 per cent of Australians, who have chalked up their 45th birthdays, have already retired from the nation’s workforce.

That is some 3.1 million people.

Naturally, the likelihood of retirement rises with age. Only 6 per cent of 45-49 year olds had retired, at the time of the survey, but that increased to 23 per cent, among 55-59 year olds and 75 per cent of 65-69 year olds.

The bureau reported that sickness or injury often led to early retirement as did retrenchment.

The report’s catalogue number is 6238. For more detail, go to www.abs.gov.au

Access Economics is backing Glenn Stevens’ prediction of good global growth, around trend levels, this year.

It says its assessment is that the world will post another year of good growth in 2008 as Asia’s momentum offsets US weakness.

That, broadly, is the view the RBA chief also took, in a speech he delivered in London last Friday.

But, perhaps wisely, Access is hedging its bets.

“The risks are rising fast,” the forecaster says in the latest issue of its Business Outlook, which it published today.

“We don’t forecast a US recession, but one is quite possible.” it adds.

“And both Japan and Europe have the wobbles.”

Access is advising its clients to keep watching commodity prices.

“…they will stumble if the globe does too,” it says.

Access says any weakness in global commodity prices might well be the first indicator of a potential problems.

And while Access still expects global growth to be strong, on balance, this year, it is also predicting some softening next year.

It warns, also, that Australia is presently loaded with “inflation risk.”

New figures confirm fears that price pressures have been rising sharply in Australia.

At the basic commodity stage, for example, producer prices rose by 1.5 per cent in the final three months of last year and by a massive 4.7 per cent over the year.

Developments like this clearly threaten the Reserve Bank’s stated aim of keeping Australia’s inflation in the 2-3 per cent range, over the course of a business cycle.

The bank’s chief, Glenn Stevens, admitted in a speech he made on Friday, that the authorities had, in the past, tended to discount so-called volatile items, such as oil and gas prices and the cost of refining petroleum which dominate this indicator.

However Mr Stevens also warned then that present circumstances are forcing both the Reserve Bank and its counterparts overseas to reasses all that. The question now, he said, is whether these developments will become permanent, and therefore more dangerous to the economy.

That is no light judgement. And we will all see what Mr Stevens and his board have decided about all this, when they meet on February 5.

Most analysts now expect an immediate rate rise, that day.

The drought, with its consequent rise in food prices, also contributed to the increase in stage one producer prices, that the Australian Bureau of Statistics reported today.

Upstream processing price rises were more moderate. They increased by just 0.6 per cent in the December quarter and 2.8 per cent over the 12 months to the end of December.

The bureau also reported today that both personal lending and commercial finance continued at high levels in November.

The Prime Minister Kevin Rudd set the agenda for his new government, at a business breakfast in Perth this morning.

He told those attending they could expect sharp cuts in government spending, fresh incentives for savings and moves to get more people into the worlkforce.

His promise to tackle Australia’s skills shortage is particularly attractive to W.A. businesses. They have been struggling to overcome skills shortages for many months, as a result of the State’s mining boom.

Mr Rudd’s promise to clear bottlenecks, while cutting Federal spending, appears to rest on basic contradictions.

Better port, rail and road facilities usually require extra government spending.

That implies that cuts to other Federal spending will, in all likelihood, be much deeper than previously expected.

That, too, was made clear, by implication,  today when the Treasurer, Wayne Swan, told ABC radio that the government would proceed with its staged tax cuts, worth some $31 billion, despite its severe spending cuts.

Predictably, Mr Rudd  also attacked his predecessor, John Howard, saying the outgoing government had done little, if anything, to contain inflationary pressures in Australia.

He won’t be able to get away with that kind of talk much longer.

Mr Rudd did not spell out all that his government will do to curb inflation, although he has now signalled that this is is his top priority.

Full details won’t be made public until the government’s first budget in May. Unless, of course, it sees value in some well placed leaks, beforehand. As it did over the weekend that has just passed.

Federal spending is to be slashed and interest rates will rise.

That’s the tough prospect Australia faces, as the government and the Reserve Bank work together to curb inflation.

The Prime Minister Kevin Rudd plans to explain his strategy to business leaders in Perth today.

He is aiming for a surplus of some $18 billion, even though he will still proceed with the staged, $31 billion of tax cuts that he promised before last year’s election.

That can only mean one thing, in the present circumstances. That is big spending cuts.

There is plenty of room for that. Despite its small government rhetoric, the Howard government was both a big taxer and a big spender. The slices of GDP it took in taxes – and then spent – made even the Whitlam government look pale, by comparison.

Rudd’s cuts are likely to trim the Federal public service, in particular. The Department of Foreign Affairs and Trade may well be a particular target.

It will, however, fight back. The government is keen to increase Australia’s exports to both India and China. It will need its own people on the ground, in both places, to do that.

Meanwhile, the Reserve Bank Governor, Glenn Stevens, has signalled as clearly as he can that further interest rate rises are needed, possibly as soon as February 5, when the bank’s board next meets.

He did that on Friday. London time, in address to expatriate Australian business leaders.

Mr Stevens said he did not like the pattern of price rises, that is now appearing in Australia.

“Prices for foodstuffs, energy and raw materials and for industrial processes are quite high,” he said.

“The synchronised nature of the increases has been quite marked, as well, in a fashion eerily reminiscent of the early 1970s.”

Hints don’t come much clearer than that.

Mr Stevens let all who are interested know, in the most forceful way possible, that the Reserve Bank now has its eyes firmly fixed on inflationary pressures in Australia.

And it is not content to stand idly by, hoping that a slowdown in America will kill inflation in this country.

Investors are – predictably – taking tougher attitudes to offers of Asset Backed Commercial Paper.

That is a natural product of the US sub-prime mortgage crisis.

The Reserve Bank tracks the development, in an article it published yesterday in its monthly bulletin.

It notes that ABCP investments still have advantages.

“Notwithstanding the recent difficulties in this market, ABCP, like other forms of securitisation can allow financial institutions to diversify their sources of funding ,” the bank said.

It also said that these instruments also enable credit risk to be packaged and sold to meet the preferences of investors.

But, to put it mildly, there are issues, too, as the bank noted.

“Recent events have, however, highlighted a number of issues that are likely to receive ongoing attention.

“One of these is the important role of transparency in the smooth operation of the market,” the bank said.

It said investors are now reluctant to roll over these short term instruments, because of what it called the “opacity” of the market.

Obscurity, that is, both in the composition of asset pools, backing ABCP and in the lack of publicly quoted prices.

Putting it simply, the bank said investors are now demanding more transparency in this area.

As the late Ralph Jacobi MP used to say, about such matters:” Sunlight is the best disinfectant.”

www.rba.gov.au

Fighting for great causes is glorious – while you are in opposition. The consequences can be a little troubling, though, if you wake, one day, in government.

Things are a bit like that, right now, for Labor. The South Australian Labor Premier, Mike Rann, wants to boost his State’s already impressive endeavours in uranium exploration and production. And he specifically included India, when asked to identify countries likely to increase their nuclear power output.

So far, so good. But that put Australia’s new Foreign Minister, Stephen Smith,on a sticky wicket in Perth yesterday, when he visited the cricket, with an Indian friend, Shyam Saran, who is also an envoy of the Indian Prime Minister.

Unlike its neighbour, Pakistan, India has a good record on non proliferation. As Mr Saran happily noted, it hasn’t allowed its nuclear secrets to leak. But India hasn’t signed the Nuclear Non Proliferation Treaty, either. Nor is it likely to do so.

That leaves Australia in a bit of a spot. Likely, that is, to miss out on sales it wants to make to India. Especially as its denial, of such an important resource,l are weightier in semantics than reality.

There another point of of embarrassment for Australia in all this.

The previous government, of Prime Minister John Howard, agreed “in principle” last year to sell uranium to India. On the usual “strict conditions,” of course.

Mr Smith has now announced that the Rudd Labor government will reverse that decision.

That’s not a particularly good look, especially with Australia’s Trade Minister, Simon Crean, now in India, on a trade boosting mission. Especially after that recent unpleasantness, after an earlier cricket match.
The financial wire service, Bloombergs, ran the story last night with a suitable touch of disappointment, emphasisng that word “reversing.”

Once again, not a good look for Australia, which has the world’s biggest known uranium reserves.

Winning elections is wonderful. But it does present problems.

West Australians have been celebrating the State’s boom in great style, but the question now is can it last?

The spectre of a US recession is making that question urgent.

WA doesn’t sell much directly to the United States, but its big customers, Japan and China certainly do.

And there’s the rub.

There’s been hopeful talk suggesting that growing domestic demand, in both of these countries might fill any shortfalls they might face in US orders.

But that’s just what it is, at this stage. Talk. No more than that.

The West Australian Chamber of Commerce and Industry reports that spending on hospitality and services in the State rose by a massive 6.7 per cent in November.

To put it another way, West Australians spent an extra $18.5 million on those items that month.

That is, certainly, starting the party season in great style.

And why not? West Australians have a lot to celebrate, right now.

At 3.4 per cent, their unemployment rate, is significantly below the national average of 4.5 per cent.

The State’s total employment rose by 3.1 per cent over the year.

As other Australians decided to seek their fortunes by going West, in the June quarter of last year, the State chalked up a net gain of 1,355 from net interstate migration.

But that was swamped by the 5.642 migrants who arrived from other countries in the same time.

That was beginning to look like those of the old goldrush days, when the Golden Mile, between Kalgoorlie and Boulder, shone like a beacon to the world’s young and ambitious.

Over the same brief period, the State’s net gain, from overseas migration, was no less than 5,642.

Once again, too, they came for the money.

Average weekly earnings in the State rose by 5.7 per cent in the 12 months to the end of August and that, once again, was significantly above the national average of 4.9 per cent.

Established house prices rose by a relatively modest 2.8 per cent in Perth, over the 12 months year. Who, though, would be surprised at that after they had risen by a almost 50 per cent, in the previous 12 months.

The State’s exports, particularly in times of drought, are overwhelmingly mineral based. And, despite the boom, it’s economy is still relatively thin.

All this means that any significant cut in still booming iron ore orders, from Japan and China, could bring the State’s boom to a very sharp halt.

The new Labor government is to extend a service which provides basic financial help and  advice  to  Aboriginal  communities.

The service, known as income management, will be available from today in the Alice Springs town camps or Ingerreke and Amoonguna.

The Minister for Families, Housing, Community Services and  Indigenous Affairs, Jennny Macklin, who made the announcement, said the program had already been well received in other  Aboriginal Communities.

“People understand why it is important to have half of their income support payments protected, so that money is used on essential items such as food, rent, medicines and utilities,” she said.

Ms Macklin said Centrelink had already stationed officers in the Alice Springs communities and camps.

They had conducted individual interviews with community members.

The aim was to help their clients understand what income management means and where their money goes.

“Income management is extremely important in helping families manage their government payments to cover essential items and, importantly, also provide for the wellbeing of their children,” Ms Macklin said.

The Labor government picked up the initiative from the previous Howard government, which was worried about the habit of some Aboriginal men, who pooled their social security payments to buy alcohol, instead of meeting their families needs.