What we are reading

Europe’s Economic Suicide, by Paul Krugman

Related stories:

1. What we’re reading
2. What we are reading. Government debt – the real threat

We borrow less

We are borrowing less – and saving more.

A new report, confirming this trend, follows other data showing that consumer confidence is still weak.

The Bureau of Statistics reported today that housing finance fell by 4 per cent in February, while borrowing for personal finance dropped by 3.8 per cent, from the January level.

Commercial finance fell by 8.4 per cent, also on seasonally adjusted figures, over the same time.

However lease finance rose by 4.1 per cent.

Our recent habit of saving more has been noted in several studies, notably by the Reserve Bank.

Related stories:

1. We’re starting to borrow again
2. We’ll still borrow for one thing

We won’t cut “frontline services” Government

The Federal government declared today that it would not be cutting “front line” services in next month’s budget and that it would produce a budget surplus.

The Assistant Treasurer, David Bradbury, told reporters: “We will not take a razor to front line services.”

But he added: “It is essential that we return the budget to surplus, because (that) is in the interests of the Australian economy.”

The Greens have declared they will fight any attempt by the government to use cuts to the public service, family benefits or research and development funding to return the budget to surplus.

New Greens leader Christine Milne said her the party would pursue more spending measures, including a rise in unemployment allowances, a national dental health scheme and a boost to schools funding, instead.

Related stories:

1. Government boosts funding for families hit by the financial crisis
2. More Federal regulation of financial services

Wayne Swan’s new message

Wayne Swan is now talking of a “balanced” budget.

“This will be a balanced Budget,” he said in a paper just published.

“Balanced in that it charts a responsible middle course and balanced,” he added.

“ In that it gets us back in the black well before our peers.

“Most importantly it’s a Budget right for the challenges we face today and right for building on our unique strengths for a future in the most dynamic region in the world.”

Don’t panic.

Mr Swan is still promising to produce a surplus in his Federal budget, next month.

Even though he did use the s-word only twice, in his weekly “economic note.”

“ Returning to surplus will also ensure the Reserve Bank has the flexibility for further interest rate cuts if it thinks that’s necessary,” Mr Swan said.

Treasurers never choose their words more carefully than they do in the weeks leading up to a budget, when pre-budget speculation peaks.

Mr Swan is an old hand at all that, now.

So what, really, is his message here?

Elsewhere in his note, Mr Swan warns, yet again, that revenue will be below already forecast levels in the new financial year.

“Since the global financial crisis struck, we’ve been forced to write-down government tax revenues by $140 billion, and as I’ve indicated there will be more write-downs in next month’s Budget.,” he admits.

He declares, too,  that job creation is still a prime target for the government.

Mr Swan knows, very well, that there are conflicting elements in his note.

He is inviting his readers to interpret what he is saying.

Our guess is that his underlying message goes something like this.

“Yes, there will be a surplus.

“But it won’t be big.

“Our approach will be balanced.”

Nice word, that.

Related stories:

1. Is Wayne stumbling?
2. Wayne Swan talks of heavy spending cuts

ANZ raises rates despite “massive” profit

The Federal Treasurer, Wayne Swan, is trying to hold the line on interest rates, after the ANZ bank raised its home loan and small business rates by 6 basis points.

Mr Swan bluntly rejected the ANZ’s claim that rising costs had forced it to act, saying that its latest rise flies in the face of Reserve Bank advice that those costs had eased.

The ANZ’s Chief Executive Officer, Philip Chronican was equally blunt.

He said: “The funding environment changed quite dramatically in late 2011 as a result of the economic and financial crisis in Europe.

“This has seen wholesale funding costs rise and competition increase dramatically among banks for deposits,”Mr Chronican said.

This is the second time the ANZ has raised its rates outside the traditional cycle, in just two months.

The rise adds $14 a fortnight to repayments on a typical  $300,000 ANZ mortgage.

All big four banks raised their interest charges last month, even though the Reserve Bank has been keeping its marker rate on hold, over recent months.

That was seen, by some, as a bank revolt.

Previously, the banks had only moved their rates, when the Reserve did so.

The Reserve Bank has insisted, since then, that its marker rate is still the biggest single influence on home loan rates.

However, the ANZ’s latest announcement raises fresh doubts about that.

Mr Chronican said:“We accept our response to the new funding environment is difficult for some of our customers – even though deposit customers have benefited from better rates.

“Given this and the volatility we have seen in wholesale funding markets, we wanted to ensure these costs were sustained before we acted to pass them on,” he added.

“ We also wanted to pace increases in a way that was manageable for our customers and ensured we were competitively positioned.”

But Mr Swan was not impressed.

”There would be a lot of ANZ customers very upset about this decision to jack up rates, coming after their recent massive profit announcement and staff sackings,” he said.

”ANZ’s decision to whack its customers at a time when many of them are doing it tough flies in the face of recent Reserve Bank statements saying funding costs for banks have eased,” Mr Swan said.

Despite that, the other big banks may well decide to raise their rates, too.

Related stories:

1. Rates:up they go
2. RBA raises rates by 25 basis points

Australia’s job market strengthens

Australia’s job market strengthened last month.

Although the Bureau of Statistics reported that the nation’s unemployment rate remained flat, at a seasonally adjusted 5.2 per cent, other movements were in the right direction.

Unemployment, for example, fell by 3,200 during March.

And an extra 44.000 also found work.

That included 15,800 who found full time work.

The nation’s critically important work force participation rate also rose from 65.2 per cent in February to 65.4 per cent in March.

The bureau said, too, that the number of hours  worked during the month had been 9.5 million higher than the total seen in February.

These are small signs of gathering strength in the nation’s job market.

However, Australia’s job scene is still far from stable.

Many Australians are still worried about job security.

That has damaged both consumer confidence and the building sector.

Related stories:

1. Housing market strengthens – a little
2. Job market weakens

Job worries rise

Worries about job security have hit Australia’s housing market and damaged consumer confidence.

These developments have led to calls for drastic action – including a big cut in interest rates – and  a sweeping overhaul of  state property taxes.

A new survey shows that house prices are still falling throughout Australia – but they are now expected to bottom out later this year.

Meanwhile, the Bureau of Statistics reports that home finance approvals fell by 2.5 per cent in February.

The only bright spot in the Bureau’s figures was a 3.1 per cent rise in the number of loans approve for home construction.

A property price survey, conducted by the National Australia Bank, showed that access to credit still viewed as the biggest impediment to purchasing existing property.

However the bank said this worry is being slowly pared back.

“Employment security has emerged as the next biggest concern, with Victoria the most pessimistic state,” the NAB said.

The bank’s residential property index rose to 5 points in March, as the pace of house price decline moderated and rents continued to grow.

The NAB said Western Australia had now overtaken New South Wales as Australia’s “strongest state” while Victoria’ is the nation’s weakest.

In other  developments:-

*  The Westpac Melbourne Institute Index of Consumer Sentiment fell by 1.6% from 96.1 in March to 94.5 in April.

* The Housing Industry Association called for an urgent overhaul of state property taxes, saying that these could amount to more than 40 per cent of the final price of a new home and

* Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry, urged the Reserve Bank to slash Australia’s interest rates by 50 basis points, when its board next meets on May 1.

Related stories:

1. Carbon tax worries
2. Home building surges, but worries persist

House prices expected to bottom out soon

House prices are still falling throughout Australia – but they are now expected to bottom out later this year.

This has led to calls for a big cut in interest rates next month and an urgent overhaul of property taxes.

Meanwhile, consumer confidence took a surprising dip this month, taking confidence back to its lowest level since August last year. (see next story)

A new survey of  house prices shows the rate at which property prices are falling  eased last month.

The National Australia Bank’s residential property index rose to +5 points in March, as the pace of house price decline moderated and rents continued to grow.

The bank said Western Australia has now overtaken New South Wales as Australia’s “strongest state” while Victoria’ is the nation’s weakest.

House prices, throughout Australia, fell by 1.3 per cent in March, following a 2 per cent fall in the final three months of last year.

Meanwhile, the Housing Industry Association called for urgent reform of property taxes.

“In some states, the total tax bill amounts to over 40 per cent of the final price of a new home,” the Association’s managing director, Shane Goodwin said.

And Peter Anderson, chief executive of the Australian Chamber of Commerce and Industry urged the Reserve Bank to cut the nation’s interest rates by 50 basis points, when its board meets on May 1.

Related stories:

1. House prices “soften”
2. House prices ”to fall”