Tighter investment rules recommended

Federal authorities may  get new step in powers, to protect investors,  when particular projects strike serious difficulties with infrastructure.

That is one of several recommendations, made by the Council of Financial Regulators, after an inquiry ordered by the Federal government.

The Treasurer, Wayne Swan, published the Council’s report today.

It also recommended:-

*  …New powers to require certain market infrastructure to have key aspects of their operations located in Australia, where deemed appropriate and managed by ‘fit and proper persons,’

*…Strengthened and clarified powers for regulators to give directions to operators of key market infrastructure and impose appropriate sanctions where licensees and their officers fail to comply with directions or licence conditions.

Mr Swan recalled that he had sought advice, on these issues last year, after he had prohibited the acquisition of ASX Limited by Singapore Exchange Limited.

The government will give stakeholders six weeks to comment on the council’s recommendations.

Comments should be sent to the Treasury.

More at www.treasurer.gov.au

Home sales recover – slightly

New home sales recovered slightly last month – after hitting a low point in January.

The Housing Industry Association which surveys these sales, with Jeld-Wen, said they rose by 3 per cent in February.

Detached house sales rose by 2.2 per cent while multi-unit sales jumped by 10.5 per cent, the HIA said.

The Association’s Chief Economist, Dr Harley Dale, warned though that “…there is much work to be done to see new home sales volumes back at healthy levels across the country.”

“In a contemporary economic environment where interest rate settings are too high, finance conditions persistently tight, consumer and business confidence too low, and plans to tighten fiscal policy inappropriate, it is hard to envisage a sustained recovery in new home sales in coming months,” Dr Dale added.
“However, the beginning of a recovery seems evident in Western Australia.” he said.

Is Wayne stumbling?

We have heard it all before.

Wayne Swan saying that the coming budget will be his hardest ever.

A surplus is “economically imperative.”

Company tax collections are down.

“…there won’t be a lot of new spending in this Budget.”

In his more reflective moments, the Treasurer even been known to say that this is also what conventional  economics demands.

Withdrawing the stimulus, as the economy recovers.

This all sounds both economically – and politically – correct.

Virtuous, even..

But hold on.

Isn’t there something missing here?

Something unstated, perhaps?

After all, large slabs of the Australian economy, such as the building industry, retailing and the factories, are still becalmed, at best.

How is Mr Swan’s plan to cut government spending, tighten the tax net and produce a surplus, at any cost, going to help them?

The truth, of course, is that it isn’t.

The missing link here, too, is the creature the US economist, Paul Krugman, calls “the confidence fairy.”

Australia has a well documented housing shortage.

But no-one is building new homes, because interest rates are high and confidence has been shattered by the global economic crisis and Europe’s debt worries.

Mr Swan  responded brilliantly to the onset of that crisis, back in 2008.

His stimulus, then, kept Australia out of recession – and unemployment low.

Of course strong demand  from our Chinese customers helped.

Now though,  Australia factories laying off workers, almost daily, the nation’s big department stores are  deserted, and building sites are mostly  idle.

But Mr Swan is planning a severely contractionary budget.

Could he slip in his rush towards a budget surplus?

Sometimes a brisk walk is safer.

In economic management, as in dancing, timing is everything.

How you pushed up home loan rates

Australians are saving more – and that is pushing up both bank costs – and home loan rates.

Sounds strange, doesn’t it?

But Australians are not just saving more.

They are becoming smarter with their money.

They are placing more of it in term deposits, which pay relatively high interest rates.

That,  of course,  adds to bank costs.

These developments were behind the decision of Australia’s big four banks made  last month to raise the rates they charge on home loans, even though the Reserve Bank had left its marker rate on hold in February.

Critics have suggested the banks could have got the money they need, to lend to home owners, more cheaply.

They said this money was available, at low rates, on international markets.

But that’s not what happened.

Indeed figures the Australian Bureau of Statistics published today show that  deposits account for 54.3 per cent of bank liabilities, in the December quarter.

The Bureau said that was the, highest level since June 1996 .

See  Australian National Accounts: Financial Accounts (cat. no. 5232.0)

Job vacancies shrinking

The public sector job market is drying up.

The number of vacancies available in the private sector is also shrinking.

The Bureau of Statistics reports that public sector job vacancies fell by 6 per cent in the 12 months to the end of February.

These trend figures include a 1.5 per cent fall between November and February.

On the same basis, private sector vacancies fell by 3.7 per cent, over that 12 month period, including a fall of 0-.2 per cent, between November and February.

Are ETFs for you?

Have you thought of using Exchange Traded Funds?

Or wondered what they are?

A new report, compiled by the Australian Securities and Investments Commission, might help, either way.

ASIC says ETFs  can provide a convenient and low-cost way for investors to diversify and receive returns close to the performance of market indexes or other assets.

Its report says this can often be done with lower fees than traditional managed funds.

“ But while standard, ‘physical’ ETFs generally invest in the underlying investments they are designed to track, ‘synthetic’ ETFs also use derivatives, such as swap agreements, to achieve similar outcomes,” ASIC says.

“Benefits to investors of synthetic ETFs may include access to new and varied asset classes and low performance ‘tracking error’,” it adds.

“ Downsides include increased complexity and counterparty risk,” ASIC said.

Still puzzled?

Try the MoneySmart website.

We’re tightening the tax net: Swan

Wayne Swan told business leaders today that he is planning to make Australia’ tax system “more robust.”

The Treasurer also declared that he will be looking for extra savings in his May budget and that there will be very little room for new spending.

But he said getting the budget back into surplus is “an economic imperative in a turbulent new global economic era.”

Addressing a Business Economists’ breakfast in Sydney, Mr Swan noted that a number of recent court decisions had gone against the Tax Office.

He said this had “exposed weakness” in parts of Australia’s tax law.

“We’re looking at these to see where we can make the tax system more robust, more sensitive to complex transactions, and better at deterring people from tax avoidance,” Mr Swan said.

The Treasurer said producing a surplus, in this year’s Federal budget, would require strict discipline.

But that would ensure that fiscal strategy would not be adding to price pressures as the economy strengthens.

“Returning to surplus provides more flexibility for the Reserve Bank to respond to any further developments in the global economy,” Mr Swan said.

“Maintaining our credible fiscal policy also sends a strong message of confidence to investors across the world in uncertain times. “

Mr Swan also warned a new oil shock might be among the challenges that the Reserve Bank would have to face.

He said, too, that the global financial crisis had hit all of Australia’s tax collections.

“The tax to GDP ratio fell 4.2 percentage points to 20 per cent, Mr Swan said.

“Collections, particularly related to company profits, have been lower than expected,” he added.

“Life on Struggle Street” – the ABS reports

More than one Australian in five is poor – and their incomes are still  falling further behind the rest of the community.

This is shown in figures the Bureau of Statistics has just released.

Co-incidentally these figures, reflecting the extent of poverty in Australia, were published on the eve of the annual conference of the Australian Council of Social Service.

ACOSS has been arguing vigorously for higher pensions and allowances.

In a report entitled Life on Struggle Street, the Bureau reported that 4.9 million Australians – 22.6 per cent of the population – live in low income households.

That is an average of 2.9 people, living in households with incomes of no more than $465 a week.

That was less than half of the average – of $1,033 a week – for other Australians.

And the poor are still falling further behind.

The Bureau reported that., after adjusting for inflation, the incomes of poor families had risen by 21 per cent between 2003-04 and 2009-10.

The rest, though, had enjoyed an average rise of 27 per cent, over the same time.

Inequalities in wealth, though, are even sharper.

The average wealth of low income families was just $53,000.

For the rest, the average was almost 10 times greater, at $509,800.

Technically, though, the poor are not getting poorer.

The Bureau reports that, after adjustment for inflation, the average level of their wealth had remained flat, in the six years to 2009-10.

Relatively, though, the poor were, indeed, worse off.

Over the same time, the average wealth of other Australians had risen by 29 per cent.