Wayne sends Glenn a message

Wayne Swan is hoping that the Reserve Bank will keep Australia’s interest rates on hold, when its board meets in Sydney tomorrow.

The Treasurer is not bothering to hide that fact even though the board will, of course,  act independently, as usual.

In his weekly economic note, Mr Swan noted that the International Monetary Fund, itself, now believes that:”Premature exit from from accommodative monetary and fiscal policies seems a significant risk…” to the still troubled global economic recovery.

Just in case that might not be a big enough hint for the Reserve Bank Governor, Glenn Stevens, Mr Swan also took the precaution of  quoting Mr Stevens, himself, as well.

The Treasurer reminded Mr Stevens of the words the bank chief. himself, had used a few days ago, when he appeared before the Senate Economics Committee in Canberra.

Under questioning then, Mr Stevens had said:”I think it’s a bit hard to claim as of this moment that that there is too much growth in the economy.”

Hardly the time then, eh Glenn, to be raising interest rates again, as you have been so fond of doing over the past several months?

Is it?

Although Mr Swan didn’t use those last two sentences, exactly, he might as well have done, for all practical purposes.

There was, in fact, no way that the Reserve Bank board could miss the none- too- subtle message that the Treasurer was sending.

Whatever happens on rates,  though, this will be a big week.

Federal Parliament will be back – and the government is still at loggerheads with the mining industry over the  proposed resources super profits tax.

That has just become more personal, with a senior Labor Minister, Craig Emerson, calling reporters together to explain the substantial  Clive Palmer’s substantial links with the Liberal and  National Parties.

Meanwhile, the heavy advertising campaigns, that both sides are mounting in newspapers and television, are delighting Australia’s media barons.

They have had little else to cheer them, over recent years, as they watched their old rivers of gold drying up,  before the rapid advance of new media like the internet, which they don’t control.

New figures this week will also throw more light on Australia’s balance of payments, its retail trade, building approvals and national income.

Federal parliament is also due to debate Australia’s tax laws, superannuation reforms and the Rudd government’s relatively modest paid parental scheme proposals, this week.
Investor’s attention, though, will still be firmly on Europe’s debt problems, which were still contributing to Wall Street wobbles, late last week, New York time.

Europe’s debt crisis hits home here

The European debt crisis is starting to hit home in Australia.

This showed up first through volatility in both local and international share markets.

They have not yet settled.

That, in turn, is threatening superannuation payouts.

Two other immediate – and possibly serious – effects have now appeared, as well.

Finance, for new housing developments, has tightened, too.

The Housing Industry Association says this has become the main constraining influence on Australia’s building recovery.

The Association’s Chief Economist, Harley Dale, says that the level of residential building work approved – but yet to be started – is now 10 per cent per cent higher than it was a year ago.

“A lack of available finance for viable residential projects is a major obstacle to boosting Australia’s housing supply,” Dr Dale said.

He said Australia needs at least 110,000 more houses than it has at present.

Dr Dale said  the present finance constraints are “simply untenable” in present circumstances.

Greece, Portugal and Ireland have already announced severe measures, to tackle their budget problems.

A report from Paris says Great Britain, France, Italy and Denmark are also likely to follow suit soon.

These troubles – and the fierce row the Federal government is facing – over its proposed Super Profits tax on Australia’s miners – have also hit consumer confidence.

The Roy Morgan organisation reports that consumer confidence in Australia has fallen sharply over the past week, plunging 8.1 per cent.

However, on a weekly basis, consumer confidence is still 10.9 points higher than it was a year ago, in the wake of the global economic crisis.

Only 36 per cent of Australians now expect good times in the year ahead, a fall of 6 per cent for the week.

Garry Morgan said “The large fall this week has pushed the Roy Morgan weekly confidence (index) to its lowest point for more than 10 months.”

He described this as “a worrying sign” in Australia’s recovery from the global economic crisis.

Share market woes hit super

Volatile stock markets are again threatening superannuation payouts.

Jeff Bresnahan, the Managing Director of SuperRatings, says:”…Australia’s super funds have been well and truly caught up in the May correction across world markets.”

He said the estimated loss – “as of yesterday” would be some 4.1 per cent.

Mr Bresnahan said, though, that this had followed “a solid gain” of 13.9 per cent over the previous 12 months.

He noted,  too, that Australian mining stocks had suffered a 2 per cent fall, immediately after the Federal government announced its new super profits tax, on the nation’s resource industries.

Thousands of Australians, who retired after the share market crash of late 2008, were shocked at the hit it inflicted on their payouts.

However, there have been significant gains since then.

Mr Bresnahan noted that.

“The solid long term results continue to reinforce the success of a diversified portfolio across various economic cycles,”
he said.

However Mr Bresnahan added a warning.

“…but the increased volatility within these portfolios is an interesting addition to the debate,” he said.

Mr Bresnahan said that complocatef the strategies that should be followed, in the new investment scene.

Market slide:where will it end?

Where will it all end?

That thought was on many Australian investors’ minds late yesterday, after local share prices and the $A both fell sharply.

The benchmark S&P/ASX200 index closed down 130.1 points, or 3 per cent, at 4265.3,

That was its lowest close since August.

The broader All Ordinaries index was off 126.5 points, or 2.9 per cent, at 4286.3.

These falls were broadly twice as big as those seen on the New York market overnight Monday, New York time.

Share prices in Asia also fell sharply yesterday.

The $A also continued to fall, plunging almost 2 US cents to 81.4 US cents.

The prime cause of these movements, once again, was uncertainty over Europe’s currency woes

Fairfax reports that about $150 billion has been wiped from the value of the Australian  market  so far this month.

The  All Ordinaries index fell  11 per cent in that time.

This is  the biggest slide since October 2008 when the collapse of US investment bank Lehman Brothers sent financial markets into a tailspin.

That first collapse led directly to the global economic crisis.

So what chance is there that we are now seeing the world slide into a second crisis?

That is all too possible.  But it should not happen.

World governments certainly know enough to prevent that happening.

However the necessary steps take courage.  There have been small, but positive signs of recovery, particularly in the US market.

However the Nobel Prize winning American economist, Paul Krugman, says the Obama administration might not have done enough, by way of stimulus measures,  to put the US recovery beyond doubt.

A mix of stronger stimulus measures – and Chinese demand – has allowed Australia to escape the grip of global recession, despite the crisis.

The EU, though, has had no such luck.  Although firm measures have been taken to rescue Greece, other European countries,  including Spain, Ireland and Britain, also have debt worries.

That super profits tax:what it means to you

Think the debate over the Federal government’s proposed super profits tax doesn’t affect you?   Think again.

It’s reach is extra-ordinarily wide.  So wide that you will, almost certainly be directly affected by it.

That’s because it is part of a package of reforms, that affects almost everyone.

Kevin Rudd declared again, in Federal parliament yesterday, that his government’s plan to gradually take the compulsory superannuation levy from 9 to 12 per cent won’t proceed, if the super profits tax is blocked.

If you are a young worker, that could leave you $108,000 worse off, when you get your superannuation payout, on the day you retire.

The mining industry – and the Federal opposition – are both flatly opposed to the tax.  Their argument, essentially, is that it would make Australian mines uncompetitive – and send badly needed investment funds overseas.

That’s a familiar argument, often reduced to thoughts of killing the goose that lays the golden eggs.

Business, too, is worried about the implications of the plan, which the government announced earlier this month, in its annual budget.

The Australian Chamber of  Commerce and Industry warns that the government’s plan to gradually raise the compulsory super levy to 12 per cent would cost Australia’s employers an extra $20 billion a year, once it reaches maturity.

It said the gradual reduction in company tax, from 30 to 28 per cent, would not be an effective offset, particularly for small business, which would be hit very hard by the change.

The debate – which dominated question time in Federal parliament yesterday – is essentially a dialogue of the deaf at this stage.

Everyone is shouting. No-one is listening..

Privately, miners, superannuation funds and other interested participants have been talking to panels of public servants, which will take their submissions to the government.

The Prime Minister told Parliament that the West Australian Premier, Colin Barnett, had said Australia’s miners are “getting away with murder” at present, on the taxation front.

All eyes, though, are now firmly on the Federal election, which is to be held later this year.

The miners know that they won’t have to worry too much about the super profits tax, if Tony Abbott leads his coalition team to victory, in that poll.

Mr Abbott is leaving no doubt about his intentions, saying he would scrap the government’s “great big new tax.”

Never forget, though, that you have a big stake in this debate, no matter who you are.

Looking through the mist to the road ahead

Looking through the present  volatility, to what’s ahead this year, might be the best thing we can do right now.

That’s what the economist, Don Stammer advises.  He admits, quite frankly, that he has given up trying to predict short term movements in financial markets.

That may be no bad thing.  There’s nothing essentially wrong, after all, with a medium term outlook.

We should still watch markets closely, though. So it is still important to note that by the close of trade Friday, New York time, the Dow Jones index had recovered roughly a third of  the ground that it had lost, the previous day,  on fears of persistent instability in Europe.

The Treasurer, Wayne Swan, too, is urging Australians to be confident – as politicians usually do  in bad times.

In his weekly economic note, Mr Swan says:” While we see continuing global turbulence and economic instability in countries like Greece, we know that our own economy is the strongest in the developed world and is backed up by a robust and resilient financial system.”

“The responsible economic management on display in the Budget means we’ll return to surplus ahead of every major advanced economy,” Mr Swan says.

“And just this week it was reported that Australia is among the world’s top five most competitive economies according to the World Competitiveness Yearbook,” he adds

Mr Swan’s assesement of Australia’s current economic strength, of course, is based squarely on our exports of iron ore and coal, particularly to China.  So how good are they likely to be, in the months and years ahead?

Happily, there is no sign, at present, that they are likely to flag, any time soon.  Chinese demand, for both commodities,  is likely to remain strong in the immediate future, especially as China, itself, still has a lot of work do, to meet meet domestic expectations of higher living standards.

Doubts might well be raised, though, about China’s ability to maintain its export growth, in the years ahead.  The United States,  was once seen as the engine of global growth.  But it has been idling recently.  US dominance of world trade has certainly faded, over the past decade  However America is still a big customer  for China, in particular.

And a new spectre has appeared there.  The Nobel Prize winning economist, Paul Krugman, is warning that the US could face a Japanese style lost decade, because the Obama administration’s stimulus measures, in the wake of the global economic crisis, may not have been strong enough.

Writing in the New York times, Krugman sums up, by asking:”Will the worst happen?”

He then answers his own question, saying:”Not necessarily.  Maybe the economic measures already taken will end up doing the trick, jump starting a self-sustaining recovery.

“Certainly, that is what we are hoping.  But hope is not a plan.”

There is, clearly, a warning in what Krugman says, not only for Wayne Swan, but for the rest of us, as well.  That is, perhaps, best illustrated by another question.

Has Mr Swan being been so dazzled by the present minerals boom, that he is simply not seeing real dangers, like a stagnant US economy,  in his headlights.

Just a thought.

Mr Swan, himself, had another one, too, for the miners, who are campaigning against his recently announced Resource Super Profits Tax.

It was blunt. “The purpose of the RSPT is to ensure Australians receive fair value for these non-renewable resources that miners extract from our country,” he declared, bravely.

“No other business would try to argue that they should get their primary input for free courtesy of the Australian people just because they pay company tax – and neither should Australia’s largest mining companies,” he added.

Fine words.  However, they probably won’t end the huge row, that now surrounds that tax.

So what else is ahead, this week?  No major statistics are scheduled.

However Federal parliament will debate  the  budget, when it meets again, later today, for a two week session.

Coming soon:A crackdown on share market scams

The Federal government is planning a sharp  crack down on insider trading, unsolicited share offers and other share market scams.

It  has just released two draft bills, which it will use to press its attack on these abuses.

Public  comment  is being sought on both initiatives.

The government is proposing bigger penalties for these offences.

Police would also be given specific power to intercept telecommunications, while investigating these crimes.

The  Australian Securities and Investments Commission  would also be permitted to raid suspects’ premises without prior warning.

The government’s prime targets would be insider trading and market manipulation.

However, there would be new measures, also, to block scams in which unwary  investors are invited to sell their shares for less than their  full market value.

These scams would be tackled by making it harder for unscrupulous people to get hold of corporate share registers.

The government says it will  make improper use of information, obtained from a share register a criminal offence.

Financial Services Minister Chris Bowen said the proposed changes would “send a clear message” that these practices would not be tolerated.

“These offences have a negative effect not only on investors, but also on the broader economy,” Mr Bowen said.

“The government is determined to ensure that Australia’s financial markets are fair and transparent for all investors,” he added.

Mr Bowen said the proposed law would allow the Federal Police to apply for permits to intercept telecommunications, while they are investigating possible breaches.

It would also allow ASIC to apply for search warrants, without first having to issue the  “notice to produce” which is required under the present law.

Mr Bowen says this gives offenders a chance to destroy incriminating material.

He said ASIC had been hamstrung in its investigations by that requirement.

Fat cats still getting the cream

Australia’s “fat cats” are still getting the cream.

The Australian Bureau of Statistics reports that  the average weekly  earnings of Australia’s public servants rose by 6.3 per cent, excluding overtime, in the 12 months to the end of February this year.

That’s more than twice Australia’s inflation rate – of 2.9 per cent – over roughly the same period.

Average earnings, for private sector workers, rose by 5.4 per cent over the same time, on a similar basis.

However analysts see both figures as disturbingly high, particularly in the wake of events associated with the global economii crisis

They will also worry the Reserve Bank, which aims to keep Australia’s inflation rate within a 2-3 per cent range over the course of a business cycle.

The bureau’s figures show, too, that men are  staying well ahead of women, in the nation’s wage stakes.

It reported that men’s  ordinary time earning rose by 6.4 per cent, in trend terms, over the same period.

The comparable rise, for women, was just 4.5 per cent.

Despite these relatively strong wage rises, many Australian families are still finding themselves out of pocket, at the end of each week.

A string of rate rises, ordered by the Reserve Bank, has hit the finances of  thousands of Australians very hard.

That has shown up, quite clearly, in relatively subdued spending patterns, in the nation’s shops, over recent months.