Prospects brighten, but…

Australia’s growth is likely to rise, but that might not be sustained.

These prospects are reflected in annualised growth rate of the Westpac Melbourne Institute Leading Index, which hit 5.4 per cent in April.

This figure, which has just been released, is comfortably above its long term trend of 3.0 per cent.

Two factors drove most of the 2.4 percentage point pick-up.

These were improvements corporate profits and productivity.

Both added 1.1 percentage points to the pace of growth

Westpac Senior Economist, Matthew Hassan, said that: “After a slight moderation in March, the Leading Index picked up again in April.

“ However we remain concerned that this above trend pace will not be sustained over the course of 2013,” Mr Hassan warned.

“…our chief concern is that the first few months of the year saw rallies in commodity prices, profits and the equity market that have all since reversed,” he added.

Small business owners:A word from the Treasurer

Small businesses now have only a short time left to take advantage of new tax reforms.

The Treasurer, Wayne Swan, reminded the nation’s 3.2 million small business owners that small businesses which invest in new equipment this financial year will be able to claim an immediate deduction in this year’s tax return under Labor’s $6,500 instant asset write-off.

And the financial year, of course, ends on June 30.

“Those businesses buying assets costing under $6,500 can deduct the full amount against income earned this year,” Mr Swan said.

He said this: “…will ease the burden of bookkeeping having to depreciate assets over a number of years.

The Treasurer also said the Government had also simplified depreciation arrangements for assets costing $6,500 or more.

“These businesses can depreciate these assets in a single pool, claiming 15 per cent in the first year and 30 per cent each year after,” he said.

“In addition, small businesses purchasing a motor vehicle will be able to claim an immediate deduction for the first $5,000 before depreciating the rest in the single depreciation pool.

“For example, a small business that purchases a ute for $20,000 by June 30 will be able to deduct $7250 in this year’s tax return.

“ If they also bought machinery worth $5000 they would also receive an immediate deduction of the full amount, enabling them to claim $12,250 in tax deductions in the first year and access cash sooner.

Need more?

Mistakes with money:how to avoid them

Even small mistakes with money can be very expensive.

So it’s best to avoid them.

The Australian Securities and Investments Commission has stepped in to help.

It is meant to help the young, in particular.

The Commission has launched a new initiative that will help 16–25 year olds avoid expensive ‘rookie errors’ when they make first big financial decisions.

Its ‘MoneySmart Rookie’ plan involves a series of videos, case studies, information and tools to help young people make smarter financial decisions.

It also gives educators guides that have been produced for mentors and advisers working with young people.

The launch follows 18 months of extensive research and consultation with youth experts, youth organisations and young people to understand what challenges they face when managing their money.

The content can be found by searching the ASIC site.

Rates could fall further

Australians are starting to borrow more.

And more rate cuts are possible.

Both developments were noted in the minutes of the Reserve Bank Board’s latest meeting.

Although the meeting was held earlier this month, the minutes have only just been released.

On rates, the bank said: “The Board … judged that the inflation outlook as currently assessed might provide some scope for further easing, should that be required to support demand.

On borrowing, it said there are “signs that the appetite for borrowing in the household sector was picking up.”

This could have important consequences.

As the bank noted “…the housing market generally appeared to be improving, as the effects of the most recent and earlier reductions in the cash rate worked their way through the economy.”

It added: “Forward-looking indicators of labour demand were consistent with further moderate growth in employment.

“Wages growth had slowed over recent quarters, which would help to contain inflation as the exchange rate depreciated.”

The bank noted too, that: “Interest rates had declined further as a result of the Board’s decision at the May meeting.

“The exchange rate had also depreciated noticeably, though it remained at a high level considering the decline in export prices that had taken place over the past year and a half.”

The bank said too, that it is possible that the exchange rate would depreciate further over time as the terms of trade declined.

It said that would help to foster a rebalancing of growth in the economy.

Pressures rise as Parliament resumes

Kevin Rudd has positioned himself well, for the circumstances he says he “cannot imagine.”

Those are his return to the Labor leadership.

He has campaigned powerfully and effectively for Labor colleagues who know they might lose their seats, on September 14, if the polls are right.

Those show, persistently, that the present Labor Leader, Julia Gillard, is not popular with voters.

And Mr Rudd’s public appearances have confirmed, powerfully, that he is.

With the election on September 14 approaching fast, leadership pressures in Canberra are close to peaking.

And the most dangerous times, for any insecure political leader, are when party members are in town.

With Federal parliament about to resume, for two weeks, Ms Gillard has reason to be nervous.

Asked about Rudd, Ms Gillard replied that she expects all Labor MPs to be out now, campaigning vigorously in their electorates.

Even Mr Rudd.

The former Labor leader, though, has been doing more than that.

Twice, last week, he spoke of mistakes he had made, while he was still Prime Minister.

Both times, he admitted, that he had not given Labor colleagues the credit they deserved, for the good work they had done.

Not in public, anyway.

Although he had noted their work, mentally.

In politics, of course, there is always a subtext.

In this case, it might go something like this.

“OK.

“You sacked me last time for being an egocentric bastard.

“But I would be nicer this time, if I did get my old job back.”

“And I can win the election for you.”

A crude summation, of course.

And for all who will listen, Julia Gillard does have both a very impressive record sheet – and some very attractive plans.

The trouble, for Labor at least, is that too many voters have stopped listening, either to Ms Gillard, or to her Treasurer, Wayne Swan.

So Labor MPs, who will face voters on September 14, didn’t have to be “nervous Nellies” to be worried.

So far, though, the hiatus persists.

Julia Gillard says she will stay put.

Labor’s kingmakers, like Bill Shorten, are holding back.

But if it all does collapse, under the weight of these somewhat less than Great Expectations, Kevin’s political resurrection might not be the last.

The Liberals are well aware that their man, Tony Abbott, isn’t particularly popular, either.

So nobody in Canberra is totally discounting a comeback by Malcolm Turnbull, either.

Rudd brushes off “clutter and noise”

Kevin Rudd has dismissed current leadership speculation as “clutter and noise.”

The former Prime Minister was speaking to reporters, while campaigning for Chris Bowen in Fairfield.

In this, at least, he is close to his successor, Julia Gillard, who has called such speculation a waste of breath.

A reporter asked Mr Rudd about a new poll which found that voters in Western Sydney would be more likely to vote Labor if he was back at the party’s helm.

Mr Rudd replied: “My response to that is pretty simple.

“ The reason why people support the Australian Labor Government and will support the Australian Labor Government is because our policies work for working people.”

He said:“There’s a whole lot of clutter and noise in national politics at present.

“But when you speak to people on the ground what they are concerned about is: are their schools better?

“ Under us the answer is unequivocally yes.

“ Do they see fresh evidence of new investment in their hospitals but also in their community health centres?

“ Under us the answer is unequivocally yes.

“Are they excited about in outer Sydney, in Western Sydney and in outer suburban Australia about having broadband rolled out in their communities?

“Well, yes they are and I attended such a forum last night in my electorate in Brisbane,” Mr Rudd said.

“ These are the reasons why we have confidence for the next election despite all the static and noise which gets in the road of day to day politics,” Mr Rudd declared.

Wayne Swan writes for us – and a few others

Never Let the Facts Get in the Way of Talking the Joint Down

by Wayne Swan, Treasurer

Over the years in this job, I’ve read countless new stories. Many are insightful, some are completely misleading or incorrect, others still are deeply irresponsible.

Two different stories in (Wednesday) morning’s papers fall into that last unfortunate category.

The first cited a private economist from Goldman Sachs who predicted there was a 20 per cent chance Australia would head into recession. As an economist, he’s entitled to his views – as are the hundreds of other private sector economists, some of whom are paid to push the boundaries to get their company’s name in the paper. This time, journalists who should know better blindly took the bait, splashing the word ‘recession’ all over their headlines and lead paragraphs as though this was some common credible view.

This is incredibly reckless. As I said last week, the consequences of these kind of half-cocked misrepresentations about our economy live on for much longer than the news cycle. As Treasury Secretary Martin Parkinson said on Thursday: “I don’t think anybody, and I’m being serious about this, I don’t think anybody should throw around accusations of that we’re in a recession or we’re on the verge of a recession lightly. Because the most important thing when you think about economies is confidence and trashing confidence, whether it’s for whatever reason and however it’s done is not something that I think is in the national interest.”

Tellingly, this morning’s report was the third time in the last five years economists from Goldman Sachs had predicted the same chance of a recession. Did these predictions eventuate? Of course not. Was this mentioned in any of today’s stories? Of course not.

Goldman Sachs’ model appears to completely ignore the very stimulatory effects on economic activity of record low interest rates and the RBA’s scope to ease further if it judges that necessary – a critical fact.

I’m always up for a robust discussion about the performance of our economy, and it’s great to have a range of views in our public debate – but opinions and assertions must be based in fact.

Too often we see a Liberal Party determined to talk down our economy at every turn, be slippery with the truth and tell straight out lies about our economy (think of the Opposition Leader saying he’ll return growth to the economy).

But just because Mr Abbott and co are at war with the facts, it doesn’t give licence to others to ignore their responsibilities to base their assertions on reality.

I’ve talked a lot in recent times about the big transitions our economy is going through, as the mining boom shifts from a record investment phase to a ramp up in production and exports, and the broader economy transitions to non-mining drivers of growth. We’ve never expected these transitions to be seamless – the big adjustments rarely are – but as a country we’ve got runs on the board when it comes to managing some of the most powerful forces in living memory.

If you’d told any economist ten years ago we’d go through a once-in-a-century terms of trade and business investment boom and come out with contained inflation and record low interest rates, they’d have laughed. If you told them we’d also get hit with the worst global recession in three generations followed by five years of prolonged uncertainty and come out the other side with an economy 14% bigger and 960,000 more jobs, they would have shown you the door.

Since late 2007, our economy has grown more than any major advanced economy to become the 12th largest in the world, climbing three places from 15th – with only the 51st largest population. We’ve got an unemployment rate that starts with a ’5′, at the same time that both underlying inflation and our official interest rates start with a ’2′.

The position of strength that our economy faces the challenges is so often absent from commentary and reporting, much of which seems determined to talk down our prospects and achievements at every turn.

The other story that that completely missed the mark was an article in The Australian newspaper today under the headline ‘Coalition better Robin Hood than Labor’. The basis for the claim that inequality has somehow increased under Labor was that in 2001 government taxes and benefits reduced overall income inequality by 48% whereas in 2010 the reduction was less than 45%.

This is yet another example of the Australian cherry picking years to suit their political purposes. If The Australian had taken the final year of the Howard Government as its starting point, then little change would have been apparent on this same measure.

In 2007 government taxes and benefits reduced overall income inequality by 44.4% whereas in 2010 the reduction was 44.5%.

But much more importantly, the article only touches on the difficulties of any simplistic interpretation of these numbers. Acting decisively to save jobs during the GFC was undoubtedly the right thing to do by low income workers and their families. And yet saving jobs means there’s less redistributive work that needs to be done by taxes and transfers – more workers means fewer people on Newstart.

Indeed, the author Roger Wilkins is cited in the article referring to falling welfare reliance as well as tax cuts as driving the results in his paper.

A more interesting and informative article would have discussed what was driving these trends and the extent to which they merit concern. I have never suggested that the success or otherwise of Government policies rides on single indicators of inequality precisely because interpreting them is complex. Governments have a responsibility to help the needy and preserve the fair go but also encourage and reward hard work. We can’t ignore globalisation and pretend it won’t affect us, but nor should we be blind to it.

Perhaps the most interesting indicator, intergenerational mobility, is something that can only be measured decades after the period in question. Yet if any measure of income inequality rises, the Australian paints it as a failure of the Government. If it falls, the Australian says our focus on those doing it tough is unnecessary.

Judith Sloan’s attempts at gotcha journalism failed miserably with this contribution:

Wayne Swan would get a lot out of reading the latest results of the HILDA survey. The Treasurer will be able to find out that the distribution of wealth actually became more equal between 2002 and 2010, with the largest gains in the bottom half of the distribution.

This finding may be news to Judith Sloan, but this was published in detail in a Reserve Bank paper more than a year ago and reported on by her colleagues at The Australian then.

In my economic note just prior to and foreshadowing my John Button lecture in July last year, I drew on this study saying:

Australia’s success was confirmed by a Reserve Bank study in March that showed wealth inequality in Australia has lessened in recent years. Not only did we avoid recession during the GFC but we came out of it a more equal society than we went in.

In my discussions on inequality, I have always championed Australia’s great successes, preserving the fair go, and being a more socially mobile society than most. I’ve also always said we need to watch out for those who attempt to shut down or delegitimise discussion of inequality and its causes.

This is a complex issue and the readers of the Australian deserve better, as do those who were forced to eat their breakfast this morning reading stories about impending recession.

It’s just not right and it’s deeply irresponsible to assert otherwise.

PM offers WA on Gonski

The Prime Minister, Julia Gillard, has substantially increased the amount of money she is offering the West Australian Premier, Colin Barnett, to accept her education funding reforms.

She told reporters in Perth this would involve an increase of about $920 million.

Ms Gillard said the Federal government accepts that it is more expensive to provide education in Western Australia than in other States.

So far only New South Wales and the ACT have accepted her plan, based on the Gonski proposals.

“Western Australia wants to be fairly treated in this reform agenda,” Ms Gillard said.

“I want WA kids to get fair treatment too and the new funding offer I’ve put on the table today I believe is a very persuasive one.”

All up, Ms Gillard says WA schools would receive an extra $2.8 billion over six years.

Mr Barnett welcomed the increased offer but says he still will not be signing up to Gonski in its current form.

“The financial offer is better than what previously was basically an insult to WA schools so I’m pleased with that,” he said.