by Alan Thornhill
Another dry season has left Australia with a bare 9 million tonnes of wheat in the nation’s bins.
That figure, which the Australian Bureau of Statistics released today, compares with the 20.5 million tonnes held in storage, in December 2003, after a more normal season.
The current drought has been doubly bitter for the nation’s wheat farmers this season.
That’s because a world shortage of wheat has kept wheat prices unusually high.
Indeed, the Australian Bureau of Agricultural and Resource Economics is predicting an average price of $US 310 a tonne for wheat, this financial year.
So growing wheat would have been a profitable business, if it had grown. But it hasn’t, because of the drought. And Australian farmers have had little, if any, wheat to sell, this season. Thousands have, once again, been looking out over dry, dusty paddocks, over recent months.
And many farmers, who have already been squeezed financially, are now finding it almost impossible to hang on.
Their financial capacity was hit once again, last financial year. ABARE estimates that incomes on broadacre farms fell by 40 per cent nationally then, an average of just $42,000.
And many farmers went backwards, financially.
“The proportion of farms reporting negative farm cash incomes increased in each State,” the bureau said.
Expect to hear some serious talk if you attend the Bureau’s annual National Agricultural Outlook Conference, which will be held in Canberra in the first week of March.
by Alan Thornhill
Access Economics believes demand from China will underpin good growth for Australia over the coming year, even though the Chinese, themselves, are now worried about their prospects.
Premier Wen Jiaboa has warned this week that China has a “most difficult year” ahead.
“There are uncertainties in international circumstances and the economic environment and there are new difficulties and contradictions in the domestic economy,” the Chinese leader said in an official paper, which he prepared for China’s State Council
It’s not just that Chinese trade with America is threatened by the now apparent slowing of the US economy. China also has vast reserves of cash, invested in $US securities.
Access admits that much of Australia’s economic fortunes this year are tied up with Chinese growth, which has been running in double digit figures.
Its economists are basing their argument on their assessment that increased domestic demand in China will take up any slack, that a US slowdown might inject into the order books of Chinese factories, over coming months.
In the latest issue of its Investment Monitor, the forecaster notes that new Australian projects, worth a total of $353.3 billion are currently being planned.
Access says Australia’s resources sector is the most direct beneficiary of Chinese demand.
“Massive investment dollars are being aimed at LNG, iron ore and coal in particular,” Access said.
“And were it not for skill shortages in WA, investment levels would be considerably higher still,” the forecaster added.
Its optimistic assessment supports advice that officials in Canberra have been giving the Federal Treasurer, Wayne Swan.
by Alan Thornhill
The Federal Treasury loves to talk about “tax expenditures.”
Most people call them tax breaks. And they are legitimate.
But the Treasury hates them. That’s because protecting Federal revenue is a big part of its job.
So we shouldn’t be too surprised to see that the Treasury has just produced figures showing that the cost of these “expenditures” – or tax breaks – is rising sharply.
A tax expenditure is money the Federal government doesn’t get because it allows tax breaks on certain items, like superannuation and accelerated depreciation on business equipment.
But superannuation is the really big ticket item in a report that the Treasury has just published. Its study shows that the government will “spend” almost $26.9 billion, on superannuation tax breaks this financial year.
So, theoretically at least, the government would get an extra $26.9 billion this financial year, if super was taxed at standard rates.
That’s almost twice what tax breaks on super cost, back in 2003-04.
That calculation makes no allowance for inflation.
However, even the Treasury, itself, urges us to take care with these figures. And they are, frankly, controversial. Indeed one MP we talk to calls them “nonsense.”
The Treasury does admit that its figures are not really a suitable base, for comparisons over time.
However it does publish such comparisons and its figures are the best available.
The Treasury also admits that Australians would probably not save for their retirement, as they do now, if the tax breaks on super were scrapped. That’s putting it mildly.
The Treasury report says the total cost of all tax breaks, this financial year, will be $51.4 billion.
That is a massive 4.6 per cent of Australia’s gross domestic product.
That is up from just 3.7 per cent in 2003-04. And this comparison does take inflation into account, at least indirectly.
Naturally, the Treasurer, Wayne Swan, would abolish all tax breaks overnight, if he could do so – and survive.
But he knows that is not a realistic idea.
Besides, even from the government’s point of view, tax breaks, or expenditures, are not necessarily bad.
If the superannuation tax breaks, for example, were abolished millions of Australians, who do save for their retirement that way, would, almost certainly, stop doing so.
So the government would face much bigger pension bills in future.
Besides, many people believe that the tax breaks the government does offer on retirement savings are not all that generous, anyway.
“They tax (retirement savings) on the way in (to the super fund), tax earnings on that money while its there, and then tax it again, on the way out,” many say.
That common complaint does have some merit.
So, though, does counting the cost of tax breaks. And if the Treasury didn’t do that, each year, who would?
by Alan Thornhill
- US investors strong:oil majors face grilling
- Opportunities lost
- Meet your new clients
The week ahead
Fed meets Wednesday on US interest rates
US job growth data Friday
Retail price data for Australia Wednesday
by Alan Thornhill
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.
by Alan Thornhill
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:-
- Markets move in cycles
- Diversification reduces risk
- Look at ‘time in the market’ not “timing the market” and
- 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
by Alan Thornhill
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
by Alan Thornhill
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.”
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
Monday December 9
The Dow Jones index rose 198.69 points (Friday, New York time) to 16,020.20
Tony Abbott’s bills to repeal the carbon tax face defeat in the Senate this week, raising the spectre of a double dissolution
Australia’s first same sex marriages take place in Canberra, but may over-ruled by the High Court Thursday
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