Tonight’s budget “a hard sell”

Tonight’s Federal budget will be a hard one to sell.

Chris Richardson, of Access Econonomics has no doubt about that.

He says  the Treasurer, Wayne Swan, will have two urgent tasks.

The first will be to explain why the government needs to spend more now, to stimulate the economy.

The second will be why it needs to spend less, over the longer term, to return the budget to surplus.

Mr Richardson, a former Treasury economist who has worked on many Federal budgets himself, says that will be a huge task.

And it could hardly have come at a worse time in the political cycle.

The Rudd government will be going to the polls next year.

And no government likes to make big – unpopular – spending cuts when it is about to face the judgement of the people.

His only comfort, perhaps, would be that his rivals would face the same restrictions.

Mr Richardson says that is why politicians on both sides of Australia’s political divide are “in a pickle.”

“Some still don’t realise the size of the policy task ahead,” he adds.

“Even worse, some of those who do are daunted by it.”

He says they are “frozen in the headlights.”

Private Briefing will bring a progressive cover of the budget tonight.

We will be aiming to get its broad parameters out first, then move to a more detailed coverage.

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A nasty budget coming

This week will be dominated by tomorrow night’s Federal budget.   And the Treasurer Wayne Swan has admitted that it writing it required “courage.”

If you find that description unsettling, the chances are that you are reading the situation correctly.  And that’s not just because the scriptwriters for the Yes Minister program defined a “courageous” political decision as one which would cost the government the next election.

In his weekly note on the economy, Wayne Swan said:”The central core of the budget is a really complex balancing act between continuing to stimulate the economy now to support jobs, while having the courage to make some hard choices so we can make room to deliver for pensioners, for investment for the future, and so the budget is sustainable in the long term.”

Mr Swan said all Australians would be expected to “do their bit” to offset the global economic crisis.

This always was to be something of a horror budget.  Second budgets, in any Federal government’s terms, usually are.  Governments, of all persuasions, like to leave a little room in the final budget, of their three year terms, to buy votes.

The global economic crisis, though, has upset all budget calculations this year.  It did that, primarily, by slashing some $200 billion from the government’s revenue forecasts for the coming financial year.

Mr Swan finally confirmed that figure, in a television interview yesterday.

So what can we expect tomorrow night?

Higher pensions are a certainty.

So is a paid parental leave scheme, that will start on January 1, 2011.  That will provide the primary carer with 18 weeks post natal leave, paid at the Federal minimum wage, which is currently $543.78 a week.  But that will be means tested

Some  election promises will be broken.

But the tax cuts the Rudd government promised before the 2007 election will proceed.

But the big ticket items in the budget will be the spending the government is planning on major infrastructure projects, to support and develop the Australian economy, through the present recession.

Expect big deficits, for several years to come, too.

And big debt loads, to fund the government’s stimulus packages.

This will be tight-rope walking, on a grand scale.

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More Federal regulation of financial services

Margin lending, debentures and trustee companies are all to be brought under Federal regulation.

The Federal Superannuation and Corporate Law Minister Nick Sherry made the announcements yesterday.

Full details can be seen by going to www.treasurer.gov.au and following the prompts

The latest announcements  came as no surprise, as Senator Sherry also released draft legislation last week for national regulation of mortgages, mortgage brokers, pay day lending and credit cards.

This rush to regulate , of course,  follows the reckless lending in the United State, which led to the present global economic crisis.

But, in a separate speech that he delivered yesterday, Senator Sherry said there had been abuses in Australia, too, particularly with margin lending.

“Overly aggressive margin lending, delays in notification of margin calls and extremely volatile markets are the main reasons why some Storm clients may be at risk of losing their homes,” Senator Sherry said.

“The Rudd government intends that this issue should be addressed,” he added.

“The responsible lending and notification requirements are intended to do this,” he said.

In fact, all three measures, that Senator Sherry announced, were strongly focussed on consumer protection.

Trustee companies, for example, will be required to maintain minimum capital levels.

And their activities will be regulated under the Federal Corporations Act.

Senator Sherry said the changes he proposed would provide better protection for all Australians who use financial services.

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Stimulus package works – but at what cost?

The Rudd government’s stimulation measures are working.  Retail sales figures released yesterday show that.

But at what cost?  The Federal Opposition Leader Malcolm Turnbull, raised that issue in a speech he gave to the National Press Club in Canberra yesterday,

Mr Turnbull attacked Kevin Rudd, saying the Prime Minister is taking the nation so deeply into debt that every man, woman and child in Australia would soon owe the equivalent of an extra $15,000.

Quoting the former British Prime Minister,  Margaret Thatcher, Mr Turnbull said the problem with using other people’s money is that, sooner or later, it runs out.

“Inevitably, this will slow the economy,” Mr Turnbull said.

Fewer people would have jobs and Australia’s economic recovery would be delayed. Taxes would also have to rise,

But retail sales figures, that the Australian Bureau of Statistics released yesterday, tell a different story.

They showed that, on seasonally adjusted figures, retail sales throughout Australia grew by 2.2 per cent in March, as thousands of Australian taxpayers spent the  $900 stimulus payments, that the government had sent to them.

The bureau reported that big retailers, overall,  saw their sales increase by a massive 13.9 per cent during the month, while sales in smaller stores rose by 9.5 per cent.

These truly remarkable figures were well in excess of economists’ predictions.

Australia’s international trade also held up remarkably well in March, when the nation chalked up a $2.5 billion trade surplus, largely as a result of the hard work of Australia’s wheat farmers.

The acting trade minister, Martin Ferguson, said this was the second highest surplus on record and Australia’s eighth consecutive monthly trade surplus.

But the recession also helped.  Australia’s imports fell by 3 per cent in March.

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Why the Reserve Bank really held off

Glenn Stevens would never admit it.  But the Reserve Bank just doesn’t like cutting interest rates.

And it has kept them on hold, yet again.

The opening lines od its explanatory statement hardly support that decision.

“The global economy contracted further during the first few months of this year,” it said.

“While the near term outlook remains weak, there are further  signs of stablilisation in many countries,” it added.

The bank also noted that the Chinese economy had “picked up speed in recent months” and there had been “considerable economic policy stimulus” in many countries.

Those observations, though, could also have been used to justify another small rate cut.

So why didn’t that happen?

There is plenty of room for speculation.

Another rate cut might not have achieved much, in terms of economic stimulus, anyway.

After all, Australia’s highly protected banks have been letting the world know that their priority now is to rebuild their margins and their profits. Passing further rate cuts on to help hard pressed home owners is well down on the banks’ to do lists, right now.

The latest decision, too, was made in the shadow of next Tuesday’s Federal budget, which is likely to contain more stimulatory spending.

Indeed,  the Federal Treasurer, Wayne Swan, was warning, less than an hour after the bank announced its decision, that Australians can now  expect a string of  big budget deficits, in the years ahead.

And besides all that, there is also the Federal government’s big shopping list, for new fighters, submarines and other military equipment.

Nobody has yet put a price tag on all that.

All that, though, probably still doesn’t amount to a full explanation of the Reserve Bank’s decision to keep rates on hold.

At 3 per cent, the Reserve Bank’s marker rate is already very low, by historical standards.

If it were cut again, the bank’s ability to respond to fresh challenges would have been restricted.

And everyone likes to be a player.

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Recession hits boom State

West Australians are finally feeling the impact of the global economic crisis.

The Australian Bureau of Statistics reports that established house prices in Perth, the capital of this once booming State, fell by 10.1 per cent in the 12 months to the end of March.

That included a fall of 3.6 per cent in the March quarter itself.

In both cases, these were the biggest falls recorded in any Australian capital.

But house prices are still falling, substantially, in other Australian capitals.

The bureau reports that, on a weighted average basis, the price of established homes in Australian capitals fell 2.2 per cent in the March quarter, to a level 6.7 per cent below that seen at the end of March last year.

Only Hobart and Darwin defied the national trend.

In Hobart, house prices edged up by 0.1per cent in the March quarter, to a level 0.6 per cent above that seen 12 months earlier.

In Darwin, though, the changes were more decisive.  They rose by 2.2 per cent in the March quarter, to a level 10.8 per cent above that seen in the previous 12 months.

Sydney’s house prices fell by 2.9 per cent in the March quarter, to a level 7.3 per cent below that seen 12 months earlier.

Melbourne house prices also fell, by 2.3 per cent in the quarter and 6.7 per cent over the year.

In Brisbane, prices fell 1.1 per cent in the quarter and 6.3 per cent over the year.

In Adelaide, the price of established homes fell by 0.8 per cent in the quarter and 1.9 per cent over the year.

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Government delays carbon trading scheme

Kevin Rudd says his government will delay the start of its carbon pollution reduction Scheme by one year to help Australian companies manage the impacts of the global recession.

In an announcement today, the Prime Minister said Australian businesses are currently dealing with the worst global recession since the great depression.

“In this environment the Government has decided to act to further support jobs and assist businesses during these difficult economic times,” he said.

These will include:-

• A one year fixed price phase will apply between 1 July 2011 and 30 June 2012. During the fixed price phase, each carbon pollution permit will cost $10. From 1 July 2012, businesses covered by the scheme will need to purchase permits at the prevailing market price.

• A new Global Recession Buffer will be provided as part of the assistance package for emissions-intensive trade-exposed industries.

• Eligible businesses will receive funding to undertake energy efficiency measures in 2009-10 as part of a $200 million tranche of the Climate Change Action Fund.

Private Briefing notes that the announcment also means that the still controversial, though now watered down scheme, won’t start until after the next Federal elections.

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Empty order books rattle Australian business

There are few things in business quite as depressing as empty order books.

But that is precisely the situation in which many Australian businesses now find themselves.

The National Australia Bank puts it bluntly in the results of its latest business survey, which have just been published.

It said forward orders, held by the nation’s businesses, have fallen to levels not seen since June 1991, when Australia was also in recession.

“More disconcertingly. business expectations for the next 12 months fell to the lowest level since the survey began in 1988.” the bank added.

So Access Economics’ report that there are “very few new projects” on Australia’s investment horizons comes as no surprise.

But this private forecaster still expects that government investments will eventually offset some of the present slide in private sector investment.

It says the Federal Government’s Education revolution, which is funding schools across the country, should be particularly helpful.

The picture that the Reserve Bank painted, in statistics it released yesterday, was also grim.

These showed that business borrowing fell by 0.6 per cent in March, after a fall of 0.5 per cent in February.

NAB economists are still predicting that the Australian economy will contract by 1 per cent this year.

They are also forecasting just 1 per cent growth in 2010.

But they also expect further interest rate cuts to take the Reserve Bank’s marker rate to just 2 per cent this year.

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