by Alan Thornhill
International developments may weigh on Australia’s growth in the months ahead.
That is the conclusion that Westpac economist, Bill Evans, is drawing from the latest edition of the bank’s leading index.
Mr Evans says the index, which the bank compiles with the Melbourne Institute, indicated that the likely pace of economic activity three to
nine months into the future, fell from –0.40 per cent in November to –1.03 per cent in December.
He said:“This is another disappointing result.
“The Index has now been growing below trend for the last eight months.”
“It continues to signal that growth in the Australian economy in the first half of 2016 will be below trend.”
“ Apart from in August 2015, this negative deviation represents the largest deviation we have seen since the second half of 2011,” Mr Evans said.
He said both Treasury and the Reserve Bank are now assessing trend – or potential – growth at 2.75 per cent.
He said Westpac’s current forecast for 2016 entails an annual growth pace in the first half of 2016 of 2.75 per cent, on trend figures.
But the LeadingIndex indicates that this forecast might be “somewhat optimistic,”Mr Evans said.
by Alan Thornhill
A senior Labor figure says the government should recognise the “stimulatory factors” that Australia now faces.
Speaking in an ABC interview yesterday. the Shadow Assistant Treasurer, Andrew Leigh, said:“ It’s important that you recognise that there’s stimulatory factors for the Australian economy.”
He said these include low oil prices, historically low interest rates and a low Australian dollar.
However Mr Leigh also said the government must outline to the Australia people how it woudl deal with challenges and how “you’ll build the case for productivity.”
The Treasurer “Scott Morrison says that it’s important to protect consumption, ” Mr Leigh said.
However Mr Morrison “won’t rule out raising the GST,”Mr Leigh added.
And that ” is, of a course, a tax on consumption.”
“You’d expect that to hit to consumption just as it did when the GST was first introduced.”
Mr Leigh said all this flowed from the fact that Australia is a “small, open economy.”
This is “ really important at a time when the global economy faces a set of downside risks,” he said.
“There’s the possibility that China’s contraction will get worse with currency and stock controls, the huge falls on stock markets,” Mr Leigh added.
“Tthe Australian stock market has already lost $136 billion this year – the uncertainties going on around what’ll happen in the global oil market, and yesterday’s Westpac-Melbourne Institute consumer sentiment index falling as well. ”
“All of these things demand a Government that has a long-term economic strategy, not just for tax but also for productivity,” Mr Leigh said.
by Alan Thornhill
China’s economy grew by 6.9 per cent in 2015.
That was down from 7.3 per cent a year earlier.
It was also the slowest growth seen in China in 25 years.
by Alan Thornhill
Consensus on tax reform proved elusive when the Prime Minister, Malcolm Turnbull met State premiers and Territory leaders in Sydney today.
The State and Territory leaders went into the meeting of the Council of Australian governments seeking reversal of the $80 billion cuts to their health and education spending that flowed, ultimately, from the unpopular 2014 Federal budget.
Mr Turnbull, for his part, was seeking more stable revenue flows, as the mining boom subsided.
That led to the Federal Treasurer, Scott Morrison, ordering the Federal Treasury to model the likely impact of possible changes, including several that would include a higher Goods and Services Tax.
Although the Opposition has been warning that Mr Turnbull wants to impose a 15 per cent GST on “everything” in place of the present 10 per cent, a 12.5 per cent rate is now starting to look more likely.
But the Coalition remains determined to curb the big Federal deficits it inherited from its Labor predecessor,
Mr Turnbull opened today’s meeting by thanking the Premiers and Territory leaders for what he called “very collaborative discussion we had last night.”
He said:“We all understand that Australia’s economy is transitioning from an enormous mining construction boom.”
And added:”We recognise that we’ve seen a high rise in our terms of trade and as was always going to happen that has now subsided.
I think we all recognise that to ensure our continued prosperity we do need to be more competitive, more productive and more innovative.
However the COAG leaders did agree to keep on examining options for tax reform.
They also accepted a March deadline on their discussions.
”Mr Turnbull said after today’s meeting “there are many different options.”
“There are many different approaches and… ultimately what we need is a tax system for the 21st century.”
The Tasmanian Premier, Will Hodgman, said he was looking forward to putting some concrete proposals on the table by the proposed deadline of March next year.
Mr Hodgman said his focus was not to increase the tax burden.
“We believe that the better and more appropriate approach is to ensure that we use this discussion, which also has a very important element of understanding the inefficiencies in our systems,” he said.
ACT Chief Minister Andrew Barr said there are still some fundamental issues in the tax system that need to be addressed ahead of the looming deadline.
“Importantly, out of today was recognition from states and territories as well as the Commonwealth that this is a shared challenge,” Mr Barr said.
“But it’s one that the clock is ticking on and we can’t have another meeting like today in March.
“We have to start making decisions.”
by Alan Thornhill
Speculation on tax reform has peaked ahead of a meeting between the Treasurer, Scott Morrison, and State premiers on Friday.
The Federal government has insisted, in the lead up to this meeting, that “everything will be on the table” as these talks progress.
Labor has responded by alleging that Malcolm Turnbull is secretly planning to increase the GST.
Opposition strategists know that an effective campaign on the GST will be their best chance of defeating the still popular Prime Minister, at the Federal elections expected next year.
Lingering divisions in the Liberal party – mostly flowing from the September coup in which Mr Turnbull replaced Tony Abbott as Prime Minister, might help.
Especially as Mr Abbott is finding it difficult to remain heroically silent, about his loss.
But Mr Turnbull knows, deep in his political heart, that his own scare campaign, on the carbon tax, is also the best card he has in his hand.
And – perhaps for that reason – he has been reluctant to say – flatly – that his government won’t increase the GST if it is re-elected next year.
There are several good reasons for not doing so.
After all, coalition governments don’t have a particularly good record, when it comes to keeping pre-election promises, particularly on tax.
Why draw attention to that?
Then there would be recalcitrant premiers to convince, if a Prime Minister did want to increase the GST.
Why give them time to organise, too?
Much better to keep mumbling about “everything being on the table” when it comes to tax reform.
There are risks, of course.
That was illustrated – all too well – today when Fairfax newspapers claimed to have a secret document showing not only that massive increases to the GST are likely, but that the Medicare Levy could rise as well.
There is an old game, in politics, called “frightening the horses.”
And our politicians – on all sides – are quite good at it.
by Alan Thornhill
A new survey indicates that the recovery now apparent in the Australian economy – outside mining – is continuing to “gain traction.”
The National Australia Bank, which drew this conclusion from the results of its latest Monthly Business Survey, described this as “encouraging.”
It said:“consistently above average business conditions are an encouraging sign that the apparent non-mining sector recovery continues to gain traction, despite relatively muted levels of business confidence.”
However it added:”although better business conditions have not been felt uniformly across the economy, under-performing industries – outside mining- have gradually been gaining ground in recent months.
The bank said this is providing further evidence of a more entrenched non-mining recovery.
It said, too, that business conditions remain buoyed by the non-mining recovery.
The latest NAB Monthly Business Survey suggests the apparent recovery in the non-mining economy has remained on track, with business conditions holding up at above average levels for the past nine months.
The bank said that the NAB Business Conditions Index remained at +10 points in the month of November – the fourth consecutive month of conditions at this level – which is well above its long-term average of +5 points.
According to NAB Group Chief Economist Alan Oster: “This is basically another strong result for the NAB Survey, which in conjunction with signs of improvement in the labour market, means we can put more faith in the building non-mining sector recovery”.
“Interest rate and AUD sensitive industries have generally outperformed, while improvements in areas such as retail in November are an encouraging sign that the recovery is becoming more entrenched,” Mr Oster. said
In contrast, mining continues to weaken.
This is also reflected in variations across states.
“In fact, the survey is showing a widening gap between deteriorating mining/mining services (-21) and the rest of the economy” Mr Oster said.
However, business confidence has been disappointingly muted, despite recouping some of the losses from last month, he added.
The confidence index rose from +3 to +5, which is still marginally below its long-run average.
According to Mr Oster, “Given improved prospects for the domestic economy outside of mining, relatively subdued confidence is most likely a reflection of the uncertain global economic environment.
“ In any case, it was good to see a broad-based increase in confidence across industries”.
NAB continues to see no change to the RBA cash rate in coming months.
by Alan Thornhill
As you read this, a delegation of Australian politicians will be flying out to the Pacific to meet local islanders
Steven Ciobo, the Minister for International Development and the Pacific, who will be leading the group, said it would be visiting Fiji, Tonga, Samoa and Solomon Islands.
He said the delegation would be observing the outcome of Australia’s aid and investment in the region.
Its aim would be to strengthen Australia’s relations with its Pacific neighbours.
But that’s only half of the story.
Members of the delegation may well find themselves spending more time listening than they expect.
Australian aid is welcomed – and highly valued – in the Pacific.
But that has never meant that it is above criticism.
One senior Pacific politician, for example, liked to talk about what he called “boomerang aid.”.
His point was that too much of the money that Australia sets aside, to help the people of the Pacific, actually ends up in the pockets of Australian aid workers, instead.
So who is going on this trip, for Australia?
Mr Ciobo said the members of the bi-partisan delegation he is leading are Nola Marino the Chief Government Whip, Jane Prentice, the Federal Member for Ryan, Sharon Claydon the Federal Member for Newcastle and NSW Senator, Deborah O’Neill.
These are serious people doing an important job, in Mr Ciobo’s view.
As he says:“the delegation underlines the strength and breadth of support in Australia for closer relations with our region.”
That declaration will be welcomed in the Pacific.
Tongans, in particular, often feel their geographically isolated position in the world very keenly.
So they won’t be allowing these Australian politicians to fly back home without knowing how they see the great issues of the day.
And for Pacific Islanders, no issue is greater than climate change.
For they know, all too well, that if rising sea temperatures, cause the Antarctic ice sheet to melt, many of the beautiful islands they call home, would simply disappear beneath the sea.
The BBC reports that World leaders, meeting in Paris last week, approved a draft text they hope will form the basis of an agreement to curb global carbon emissions.
The 48-page document will be discussed by ministers today.
They will try to arrive at a comprehensive settlement on outstanding issues this month,
Some of them will be tricky.
The French climate ambassador has warned that major political differences still need to be resolved.
Delegates from 195 countries worked through the night at the conference centre in Le Bourget, conscious of a Saturday deadline imposed by the French president.
The aim now is to turn this draft text into a long-term agreement.
And although they are on the other side of the world, Pacific Islanders are determined to make their voices heard, in support of that objective.
With good reason.
They have already seen what can go wrong, when many people feel compelled to leave home, for whatever reason.
These include civil war.
That’s what happened in the Solomon Islands, when 30,000 islanders from Malaita took to the sea in canoes, intending to settle on the island of Guadalcanal.
That gave the world an early glimpse of what the results of large population movements can be.
So Australia – and the world – have good reason to press their climate change negotiators for a tight agreement.
by Alan Thornhill
Tumbling export prices are hitting the Australian economy hard.
Business, governments and Australian families are all feeling the squeeze.
Trade figures, the Bureau of Statistics has just released, tell the story.
They show a $3.3 billion trade deficit in October, as key export prices continued to fall.
The sharper than expected fall – of $829 million – during the month was concentrated in areas which were once star performers.
These included iron ore, rural goods metals and gold.
Westpac economist, Andrew Hanlan, said Australia’s export earnings “took a hit from lower global commodity prices” during the month.
But Imports were little changed rising – 0.2per cent – and meeting expectations.
That left Australia with a $902 million blowout in its trade deficit for the month.
Mr Hanlan said the key take–out is that Australia’s terms of trade, which fell –2.3 per cent in the September quarter – and 10.4 in the 12 months to the end of September- had weakened further at the start of the December quarter.
“This sizeable retracement in the terms of trade from an historic high is squeezing national income, adversely impacting businesses, households and governments,” he said.
Weathercoast by Alan Thornhill
A novel on the murder of seven young Anglican Christian Brothers in the Solomon Islands.
Available now on the iTunes store.
Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.
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