Shoppers spirits rise as US economist warns of a new Depression

Australian shoppers still don’t believe that the global economic crisis will hit them.

Indeed, the Roy Morgan research organisation reports that their confidence has now risen for  five straight weeks.

And the  latest Morgan  survey, conducted on December 20 and 21, shows consumer confidence at its highest level since March last year.

That was well  before the global crisis arrived.

Gary Morgan  credits the Rudd government’s $10.4 billion stimulus package.

He says this package, which arrived just before Christmas, came just  “at just the right time.”

Oddly, perhaps, the Federal Treasurer Wayne Swan, was more cautious, when he spoke to reporters in Queensland yesterday.

“The global economic crisis will have a substantial impact on this economy,” he said.

And Australia’s  growth will slow, Mr Swan admited.

The Treasurer said, though, that  it is still too early to predict what impact the government’s stimulus package would have.

Meanwhile, the Nobel prize winning American economist, Paul Krugman, says he doubts that the incoming US president, Barack Obama will be able to take the steps necessary to avoid  another Great Depression.

Writing in the New York Times, Krugman explains the risk he sees.

“Here’s my nightmare scenario,” he says.

“It takes Congress months to pass (Obama’s) stimulus plan.

“And the legislation that emerges is too cautious….

“Will we, in fact, do what’s necessary to prevent Great Depresion II?” Krugman asks.

Krugman is making no secret of his fear that the world is, indeed, facing the spectre of a new 1930s style  Depression.

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Reserve Bank board members keep their feet up

You might be back at work, but the  Reserve bank board isn’t.

It usually meets on the first Tuesday of each month  to review Australia’s interest rates.

But that won’t happen today.

The board is still on  leave.

And nobody is minding the shop.

So there will be no more rate cuts, for a while yet.

Board members are  sitting back to watch what happens in the weeks and months ahead.

At  a marker rate of 4.25 per cent.

The US Federal Reserve  has just cut its marker rate to zero-0.25 per cent

The Fed  has also declared that it will do all it can to restore growth.

But the minutes of the Reserve Bank board’s December 2 meeting betrayed a certain complacency.

They noted that “there had been a major easing in monetary policy over the past few months.”

And they said  board members had agreed that “a period of assessment of local and overseas events was warranted over the summer.”

As they don’t plan to meet again till February, that assessment might well be conducted over pina coladas, on  breezy hotel balconies.

Other members of Australia’s official family, in Treasury and government circles though, will be staying close to their desks, as the global economic crisis continues to batter all before it.

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Can the miners save us?

West Australians like to display their wealth.

Even a brief walk around the streets of Perth’s southern suburbs shows that.

These are not Perth’s rich districts.

But many driveways, in quite ordinary suburbs like Thornlie, are cluttered with big power boats, on trailers, as well as two or three late model cars.

This wealth was produced, largely, by the State’s mining boom.

And a lot of hard work went into it.

Miners now, commonly, work the iron ore operations, in the State’s north, on fly in fly out arrangements.

And they work hard.

Twelve hour shifts are the norm.

So the miners have little personal recovery time, in their working weeks.

But their efforts have paid off handsomely.

The Productivity Commission reports that they added $11.2 billion to the value of Australia’s production in 2006-07.

Coal miners put even more money into Australia’s national pot, that year, adding $16.4 billion to the nation’s wealth.

Oil and gas extraction added another $22.4 billion.

But all of that changed, didn’t it, when the global economic crisis hit Australia late last year, causing commodity prices to tumble, catastrophically?

Well, no. Not exactly.

An index of commodity prices, produced by the Reserve Bank, confirms that there have, indeed, been sharp falls in mineral prices over recent weeks.

But it also shows that commodity prices are still at historically high levels.

Two and a half times higher, in fact, than they were during the 1991 downturn.

No one yet knows what will happen to iron ore and coal prices this year.

Some falls are, indeed, to be expected.

But if they are not catastrophic, Australia’s miners should, once again, help to boost the Australian economy.

However, the Productivity Commission warns that there are problems.

“The decline in mining industry productivity after 2000 has been a major drag on national productivity growth,” it says.

That includes a fall of almost 9 per cent in the mining industry’s multi-factor productivity in 2005-06.

The Federal government’s planned multi-billion infrastructure spending program might help there, at least in the long term, by clearing the rail and port bottlenecks, which plague coal mines, particularly in New South Wales and Queensland.

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Bulldozing Byzantium:Can Ken and Wayne do it?

Even Ken Henry admits that Australia’s tax-transfer system is “very complex.”

But he adds that “some complexity is unavoidable” in a country, like Australia, which also pursues “equity and efficiency objectives.”

The Treasury Secretary made that admission in a paper he issued, just before Christmas.
So is Ken already running up the white flag, in the inquiry he is heading, which is meant to overhaul Australia’s Byzantine systems, and make them simpler?

Or is he just recognising reality?

Wayne Swan set the agenda, very forcefully, in his book, Postcode, the Splintering of a Nation.

In that book, published in 2005, he said bluntly that Australia needs “genuine tax and welfare reform, not endless scapegoating of recipients and piecemeal handouts at election time.”

Bold words, those.  And Mr Swan, who was the Opposition’s Treasury spokesman, when he wrote them, at least had the grace, last year, to repeat those thoughts, with equal force, when the government ordered its inquiry into Australia’s tax and welfare systems.

Mr Henry is conducting that inquiry.

And his marching orders were firm.

Find ways to simplify these arcane systems.

So how does it all work out, in practice.

Let’s test all this, against a real life case, that of a small business operator, we will call Peter.

Peter worked overseas, as a contractor for two years, and while there, scrupulously paid both his – and his company’s – taxes every three months, through regular business activity statements.

Peter wants us to let the Tax Office know that its electronic submission system worked well, all that time, even though he was filing from a third world country, with an unreliable electricity system.

We must admit, though, that Peter is something of a whinger.  He keeps banging on about John Howard promising, before one of the elections he won, that he would cut the red tape, that small business then faced, in half.

Back then, Peter said, he was submitting only two tax returns a year, one for himself and the other for his company.

Now he is required to submit six.  Those two annual returns, plus four quarterly BAS returns.

“Thanks, John,” he says.

But Peter has his faults, too.

While overseas, he forgot those two annual returns, believing, perhaps, that as he was paying his taxes, when they were due, that would meet his obligations.

So Peter he was surprised, on his return, when the Tax Office slapped a demand for $2,100, on him, for allegedly “unpaid” taxes.

Peter did what any small business-man would do, in those circumstances.

He rang his accountant, and asked him to straighten it all out.

The accountant, eventually, did that.

He confirmed that the Tax Office was, indeed, in error.

The $2,100 was not owed.

But the accountant then hit Peter with a $4,400 bill, for submitting those missing annual returns.

Thousands of business people, like Peter, spend a half, or full day each week, starting to get their accounts into the kind of order that the Tax Office regards as acceptable.

They leave their building sites, factories and  shops, in huge numbers, to do that.

The collective loss to national productivity has never been measured.

But it is huge.

So, on Peter’s behalf – and that of thousands of Australia’s small business operators – Private Briefing wishes Ken Henry and Wayne Swan every success, in their ambitious plan to simplify Australia’s Byzantine tax and social security systems.

But we are not holding our breath.

“Longevity risk:” Why you worry Canberra

It’s true.

People in Canberra are worried about you.

Particularly, at present, about your “longevity risk.”

They fear you might outlive your retirement savings.

So they are asking some pertinent questions.

“Do financial markets provide the means to address these risks?”

That one should have Australians, from Halls Creek to Hugenden, rolling around the floor in bitter laughter.

After all, our superannuation funds, which were meant to look after us, financially,  in our dotage, have been among the chief victims of the stock market crash, over the past 12 months.

“If not, is there a role for government to address these shortcomings?” the bureaucrats are asking, too.

These two, highly pertinent, questions both came from a discussion paper, published by the Henry review, that is charged with overhauling Australia’s highly complex tax and pension systems.

The committee’s third question, though, is the real killer.

“In what ways does (Australia’s) retirement income system impose undue complexity costs on retirees and workers,” it asks.

“How could this complexity be reduced?”

Great questions.

Australians will be looking for great answers, too, when this high powered committee makes its final report, by the end of this year.

The comittee notes that Australia has a three pillar retirement income system.

• The government Age pension.
• Compulsory savings, through the superannuation guarantee levy and
• Voluntary savings.

It says this system has developed “over time.”

“The SG pillar will not mature until 2037,” the committee says, in a preliminary paper.

That is when employees will be able to retire, with SG savings accumulated over a full 35 year working life, the committee adds.

What it doesn’t say is that, even then, those workers will be short changed.

Paul Keating, the architect of the superannuation guarantee system, meant contributions to go well beyond their present 9 per cent level.

But his successor, Malcolm Fraser, killed that idea, after he took office back in 1975.

So those warm, friendly bureaucrats do, indeed, have good reason to worry about you – and all other Australians – living too long.

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