Carbon scares

Visitors in the public gallery of Federal parliament  may well have trembled, as Tony Abbott and Julia Gillard faced off – at question time – shortly after the Federal Government’s climate change adviser, Ross Garnaut,  presented  his final report on carbon tax.

The two political leaders both presented nightmare scenarios.

The Opposition Leader lent heavily on a single sentence he drew from the report.

It said Australian families would “ultimately bear the full cost” of the proposed carbon price.

The Prime Minister accused Mr Abbott of taking that line out of context.

She warned, too,and that Professor Garnaut had reported that the Direct Action alternative, favoured by the Opposition, would be “immensely” more expensive than a market based carbon price scheme.

Ms Gillard said the Coalition would tax families to subsidise polluters.

Visitors, wanting to know more about the planned carbon tax, might well have left the public gallery confused, if not terrified.

So it is probably fortunate that very few people were in the public gallery, as Australia’s political leaders clashed, over this critically important report, of some 400 pages.

Professor Garnaut, himself, had tried to explain it earlier in a speech he gave  to the National Press Club.

So what can we tell you about it?

Well, Professor Garnaut is recommending an initial carbon price of $26 a tonne.

He said that would raise $11.5 billion in the first year of a carbon tax.

He concedes that electricity prices would rise by about 10 per cent.

But that would be offset by the  compensation he recommends  for low to middle income families.

There would also be compensation for exporters, disadvantaged by the carbon price and funds for research into low carbon alternatives.

He says 55 per cent of the revenue should go to households and 35 per cent to the polluting businesses as compensation.

The rest wouldl go towards innovation and carbon farming.

His package is said to be budget-neutral.

Professor Garnaut says the move to a full floating-price emissions trading scheme should be made in 2015.

Ms Gillard said people should remember that the government has not yet made its final decisions on the Garnaut report.

So what happens now?

More talk.

Leading, perhaps, to some firm conclusions by the end of  July.

Foreign debt:stay alert

Australia’s debt structure does have its problems.

While not yet urgent, they do bear watching, especially in the light of developments in other countries.

A recent study by the ratings agency, Standard and Poors, for example shows that families account for a bigger slice of that debt than either the corporate sector or government.

That’s surprising in a capital hungry country like Australia, with huge mining – and other resource projects – to develop .

Perhaps a little worrying, too.

Most of  Australia’s household sector debt is tied up in home mortgages.

So it’s safe as houses then?

That’s close to a conventional, view, bolstered by a strong belief that house prices never fall.

But a recent survey, conducted jointly by the Housing Industry Association and the Commonwealth Bank, shows that house prices in Australia have, indeed, eased over the past year.

Of course, we haven’t yet seen anything like the collapse in house prices that occurred in the United States, after the global financial crisis struck in 2008.

And with a strong economy, backed by high commodity prices, still attracting migrants to Australia, we may well escape that fate, altogether.

But if that small slide does gather pace there will be urgent reassessments.

They would not be a light matter, in view of present world issues.

The US, for example, is close to its debt ceiling.

That is worrying global traders.

Serious  problems, related to high debt levels, are already making themselves felt in the US.

The Nobel Prize winning economist, Paul Krugman, for example argues that high US debt is already preventing US authorities acting effectively to reduce that nation’s painfully high unemployment.

Krugman is blunt about that:-

“The core of our economic problem is … the debt — mainly mortgage debt -…” he argues, in the New York Times.

He says US families ran up that debt up during the bubble years of the last decade.

“Now that the bubble has burst, that debt is acting as a persistent drag on the economy, preventing any real recovery in employment,” Krugman says.

Although circumstances in the US and Australia are very different, this is still an example that Australia would be unwise to ignore.

Especially as debt issues in Europe, especially in countries like Greece and Ireland, are already causing deep worries,among global financiers.

Global financial stability is still a distant dream.

Your $9 billion loss

Prepare for a shock on Wednesday.

That’s when Australia is expected to start chalking up income losses, that are – eventually – expected to total some $9 billion.

This horrifying figure comes from the Treasurer, Wayne Swan.

No doubt he had a little help, though, from the number crunchers in his Department.

Those Treasury officials, of course, have been totting up the cost of income lost in three disasters, earlier this year.

These were the floods, cyclone Yasi and disasters in Japan, which is still Australia’s second biggest trading partners.

By all reasonable standards, these were terrible events.

Despair would certainly have been understandable.

Strangely, perhaps, Mr Swan is still optimistic.

He believes we are, too, at least mostly.

Why Wednesday, though?

That’s when the Australian Bureau of Statistics is to release its March quarter  National Accounts.

These are expected to reflect the brunt of those three natural disasters, earlier this year.

In his weekly Economic Note, Mr Swan says:”The latest estimates from the Treasury are that those three events are likely to have subtracted more than 1 per centage point from growth in the quarter.

“The total economic is likely to be around $9 billion, with the March quarter bearing the brunt of that,” he added.

How then can Mr Swan be optimistic?

Why, also, does he believe most other Australians are, too?

He says that, despite those losses, the nation’s economic fundamentals are strong.

“Our economy is forecast to create some 500,000 jobs “in the next couple of years,” he said.

Mr Swan said the latest official investment statistics supported that.

They showed that Australian companies are planning record levels of investment, in the years immediately ahead.

Mr Swan conceded that prosperity had not yet reached everyone, in Australia’s “patchwork economy.”

Many families and  businesses had suffered a very “tough start to the year.”

But, even now,  most Australians believe their nation’s best years “still lie ahead.”

Mr Swan said this is a belief he shares.

House prices fall, but…

Many Australians stopped buying – or building – houses after interest rates rose last November.

So house prices fell in the following months, .

This was confirmed today in the results of a survey, that was conducted jointly by the Housing Industry Association and the Commonwealth Bank.

Their joint news release was carefully worded.

Predictably it was headed:”Housing affordability enjoys a temporary respite.”

In other words, its message was “this is a good time to buy.”

Who can blame them?

After all HIA members build houses and the bank lends people money to buy them.

The study showed that the mid level price for a dwelling in Australia fell from $481,600 in the December quarter to just $467,800 in the first three months of this year.

They stood at $481,900 in the March quarter of last year and peaked in the June quarter of 2010 at at $502,700.

The HIA and the Commonwealth Bank said other developments  had also improved home affordability.

These included growth in average weekly earnings, over  the past year and steady interest rates, since last November.

Predictably, the HIA’s senior economist, Andrew Harvey, added:- “…now is a particularly good time to consider building a new home.”

But will the present respite really be temporary?

We hesitate to answer that question, recalling the advice of a famous economist who once said that economic predictions were invented mainly “to make astrology look good.”

The likely course of interest rates, over the year ahead, should be a big factor in your calculations, if you are thinking of building or buying a new home.

Especially as the Reserve Bank is making no secret of the fact that it is worried about the inflationary pressures which have built up with the rapidly developing Minerals Boom, Mark II

Click on HIA study, for more details of developments in your area.

Rate rise likely as capital spending booms

The risk of an early rate rise rose sharply today, when the Statistician reported that expected capital spending this financial year has hit a record level of $124.096 million.

Most of this projected spending would be associated with the Mining Boom Mark II, which is now gripping the Australian economy.

That figure, for this financial year, is 14.2 per cent above  the comparable projection for last financial year.

The Bureau’s capital expenditure figures, for the March quarter of this year, also show that actual capital spending is rising strongly.

On a seasonally adjusted basis, for example, total capital spending hit $30.868 million in the quarter.

That represented a 3.4 per cent in the  quarter, itself,  to a level 10.6 per cent higher than that seen in the same quarter last year.

Spending on buildings and structures, in particular, really boomed.

That reached $16.073 million in the March quarter, a level 4.5 per cent up on the December quarter and a 17.2 per cent rise above the March quarter of last year.

The Reserve Bank’s Governor, Glenn Stevens, indicated earlier this year that the bank would “look through” inflationary pressures due to the devastating floods – and Cyclone Yasi -  earlier this year.

However the bank later revised this advice, admitting that inflationary pressures arising from the latest mining boom, could force the bank to act on rates sooner than it had expected.

The bank’s board next meets, to review rates, on June 7.

Rate rises worry us:RBA chief

A Reserve Bank chief admitted today that Australian families are more sensitive to movements in interest rates now  than they have been in the past.

Addressing stockbrokers in Sydney, the bank’s Deputy Governor, Ric Battellino, also said that he expects demand for credit, in Australia, will remain subdued for some time.

Mr Battellino also noted that Australians have been saving more – and spending less – since the global financial crisis struck in 2008.

“As you know, after 15 years of rapid growth, credit has been growing at a much more subdued pace over the past couple of years,”  he said.

Mr Battellino noted that the credit contraction had not been confined to families.

“Since the global financial crisis, the inevitable correction has occurred,” he said.

“Business credit has fallen and those lenders that expanded the most have since contracted the most.

“Similarly, sectors such as commercial property that increased gearing the most have since experienced the sharpest increase in problem loans and the sharpest contraction in credit.”

Even so, Mr Battellino devoted much of his speech to issues arising in the household sector.

“While the household sector as a whole continues to show a good deal of resilience in meeting loan repayments, the increase in indebtedness over the past 15 years does mean that households are now significantly more sensitive to changes in interest rates,” he said.

“The proportion of household income devoted to debt servicing is relatively high, even though housing interest rates are only a little above average,” Mr Battellino added.

He said credit growth, which had been rising at an average of 14 per cent a year, before the crisis struck, had now slipped back to just 4 per cent a year.

Mr Battellino said nothing, today, to indicate whether the Reserve Bank board will, or will not, raise interest rates again, when it next meets on June 7.

The bank had been signalling, earlier this year,  that it would not raise rates before the end of 2011, at the earliest.

More recently, though, it has warned that it is very worried about inflationary pressures emerging with the Mining Boom, mark II.

So an earlier rise is now thought to be quite likely.

We’ll get more country kids to uni:PM

Julia Gillard has promised that more will be done to get country kids into universities and other tertiary education.

The Prime Minister made the promise while replying to Rob Oakeshott, a New South Wales independent, at question time in Federal parliament.

Mr Oakeshott has championed a targeted approach to getting more young people, from rural and regional areas into universities.

Ms Gillard said she had been told, repeatedly, while she was Education Minister in the previous government. that the low participation rates of young people from rural and regional areas in tertiary studies was just a fact of life, and nothing much could be done about it.

“I think we should reassure ourselves that changes are possible,” the Prime Minister said.

The Prime Minister said Australians need to be “more optimistic” about the opportunities available for post school education in rural and regional areas.

Ms Gillard said her government had already taken steps to raise the university participation rates in rural areas.

She said, too, that these rates are already rising, although they had been falling under the Howard government.

However Ms Gillard also admitted that the government needed “to go further down the road” Mr Oakeshott had been advocating, than it has already.

Mr Oakeshott has said, outside parliament, that a recent report, funded by the Federal government, will be “a blueprint” for expanding tertiary education in rural areas.

“This is important work that has been done by many local people and it will deliver”, Mr Oakeshott, whose electorate is on the New South Wales mid coast,  said.

“The education push on the Mid North Coast now begins in earnest,” he added.

“This report has involved many meetings and much thought over three years.

“We  now enter the implementation stage.”

We’re fussier about wine, but spend less

Australians are gradually losing their taste for white wine in casks.

But we are still fond of a nip of fortified wines, like port and sherry.

The Australian Bureau of Statistics reports that, back in 2007-08, more than half of the white wine sold in Australia was packaged in cardboard cartons.

Fifty two per cent, to be precise.

In the first three months of this year, though, that proportion was down to just 47.5 per cent.

However our clear preference for red wine in bottles has been maintained.

It stayed at 59.4 per cent, at both points.

We are drinking less wine, though, in both varieties.

The Bureau reports that white wine sales fell by 7.7 per cent, in the 12 months to the end of March this year.

Red wine sales fell by 6.2 per cent over the same time.

Brandy sales have taken an even bigger hit, falling by 8.4 per cent in the 12 months to June past year.

The Bureau offers no explanation of these falls.

However, they are in line with a broader trend, evident over the past year, for Australians to spend less and save more.

The Bureau did urge caution in the use of its figures, though.

It said a significant change has been observed in the reporting of bulk wine sales since the June and September quarters of 2009.

Significant revisions had been made, as a result.

However, the Bureau also said that the total impact, at this stage, is still unquantifiable.

The Bureau  reported that total combined sales of port and sherry rose by 10.6 per cent, in the 12 months to the end of March this year.