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
Business optimism falls away
Business optimism has weakened as results fail to meet expectations .
This is reflected in the latest Dun & Bradstreet’s Business Expectations Survey.
The results of the survey, which were published today, suggest a fairly subdued outlook for the first quarter of 2016.
The firm reports that, as the new year approaches, business are lowering their expectations sales, profits, employees and capital investment.
It said, too, that in the September quarter, the percentage of businesses reporting an actual increase in activity minus percentage of businesses reporting an actual decrease fell short of expectations a across all components, except Selling Prices,
That exceeded expectations by a marginal 0.33 points.
Meanwhile, the actual increase in both Selling Prices and Employees exceeded expectations for the September quarter.
The firm said 25.2 per cent of businesses reported an increase in selling prices for q3, compared to the 24.2 per cent that had expected an increase.
It noted too that 23.0 per cent of businesses had reported an increase in employees for the quarter, compared to the 21.1 per cent that had expected an increase.
The firm said the muted outlook comes despite an improvement in Actual Indices for Profit, Capital Investment and Selling Prices in the September quarter compared to the June quarter.
Only the actual sales index decreased; the actual employees index remained unchanged from the previous quarter.
Adam Siddique, the Head of Group Development at Dun & Bradstreet, said business confidence remains historically strong,.
However he warned that the cooling in housing market activity might present challenges in the year ahead.
“There can be no doubt the Sydney and Melbourne housing markets are now slowing down, which is to be expected after a period of spectacular growth,’ he said.
In light of the Treasury’s recent cut to its growth forecast, from 3 per cent to 2.75 percent, it will be interesting to see how business confidence fares if this key driver of economic activity begins to fade,” Mr Siddique said.
“Housing, along with construction and other related activities, has underpinned growth following the end of the mining boom.”
“The lack of business investment in non-mining areas of the economy suggests there will be no obvious candidates to pick up the slack should this turn into a sustained easing in the housing market.”
“The recent trend of Actual and Expected results gradually aligning in the headline and component indices has continued, and this is something we’ll track with interest as we head into 2016,” Mr Siddique added.
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by Alan Thornhill
Some might call it a mini-budget.
All the Prime Minister said, in an interview with Leigh Sales on the ABC last night, though, is that his government would release “an innovation statement” within the next two weeks.
Well, perhaps he did add a little dressing, to make the prospect enticing.
By promising, for example, that he would would “set out a very large number of substantial measures. to drive the innovation that would ensure that Australians, their children and grandchildren, will have great jobs.”
“…better jobs in the future that will drive our economy,” he added.
Then he laid it on the line.
“I don’t think anybody has any doubt that if we are to remain the high wage, generous social welfare net country, first world country that we want to be then we need to be more innovative, more competitive, more productive and the innovation statement will be a good example of the measures the government is undertaking to achieve that.”
Yet Mr Turnbull, himself, has some catching up to do in this regard.
He saddled Australia with the pursuit of an internet system which, even if achieved, would offer speeds be well below those of many other first world countries, such as France.
Of course, with its vast expanses to connect, Australia does have difficult – and expensive – problems to overcome, in building anything that could – even remotely – be called a fast internet system.
Yet the picture emerging from Mr Turnbull’s attempt to do so – on the cheap – has not been impressive, so far.
Long waits for connection.
There can be no doubt about one thing.
This “innovation statement, when it appears, will be drawn up to underwrite Mr Turnbull’s bid for re-election next year.
Politically, his situation has its difficulties, despite what some are calling his initial “honeymoon” period.
He is still the man who became Prime Minister, without a popular mandate.
And he is not short of opponents who stand ready to remind him of that fact, if he starts making mistakes, as most Prime Ministers do, as they start to settle into office.
Mr Turnbull also declared during his interview last night that he is “comfortable” in his new job.
But make no mistake.
His handling of the Brough affair is already being watched very closely.
by Alan Thornhill
Australian wages – measured on the wage price index – grew by just 2.3 per cent in the 12 months to the end of September.
The Bureau of Statistics, which published this trend figure today, said private sector wage growth of just 0.5 per cent in the September quarter and 2.1 per cent in the 12 months to the end of September, on seasonally adjusted estimates had been the lowest on record.
The Bureau first started keeping wage growth statistics in their current form in 1997.
Public sector wages grew by 2.7 per cent over the past year.
However ohn Osborn, Director of Economics and Industry Policy at the Australian Chamber of Commerce and Industry, said :the wage growth figures don’t tell the full story,
“There is also low inflation and the fact real wage growth is in line with its five and ten year average.
“What the latest figures actually show is the importance of securing wide ranging economic reform.
“We want Australia to have high real wages, but this can only be achieved sustainably through greater productivity growth and stronger investment.”
To secure that, we need genuine economic reform of tax, workplace relations and our Federation, Mr Osborn added.
by Alan Thornhill
A Reserve Bank chief says Australia can expect to benefit from changing patterns of demand in China and Asia generally.
Christopher Kent, the bank’s Assistant Governor (Economic), made the observation at a UBS conference in Sydney today.
He said a slowing in the Chinese economy had already affected Australia in at least two ways..
First, the substantial slowing in industrial production has contributed to a further decline in commodity prices over the course of this year,” Mr Kent said.
Second, the shift in demand towards services and agricultural products within China and the Asian region more broadly presents new opportunities for Australian exporters.
And he added:“ While our comparative advantages in service industries are perhaps less obvious than they are for mineral resources, the rise in the demand for services from a large and increasingly wealthier populace in our region will no doubt be to our benefit.
Mr Kent also said:”The easing in the growth of the Chinese economy over the past year or so has two related parts.
The economy is slowing as it matures, and this is to be expected.
Overlaying that, there has been a substantial slowing in the industrial sector, linked in part to earlier excesses in construction.
How all of this will play out and the effects on the Australian economy are uncertain.
But he added:I’ll briefly highlight some possibilities.”
“Let me be clear though, many of these have positive implications for our economy.
It is natural for the speed of China’s economic development to ease and for its nature to evolve.”
He also said:”part of this reflects slower growth of the working-age population, which is now in decline.
Other than increasing the retirement age, there is little that can be done to alter that in the coming years, notwithstanding the ending of the one-child policy.
“However, growth continues to be supported by the process of urbanisation, which uses commodities intensively.”
“This has further to run, albeit at a more gradual pace.”
“Productivity growth appears to be slowing as windfall gains from earlier reforms have waned.”
“But there remains a large gap between productivity in China and in advanced economies.”
“That gap could be closed more quickly via additional reforms to allow a greater role for market forces in allocating productive resources.”
“The authorities have expressed support for such reforms.”
“The authorities would also like to see growth rebalancing from investment towards consumption.”
“That is happening gradually.”
“It is also being accompanied by a rise in the share of activity accounted for by the services sector as the economy develops and household incomes rise.”
“While these longer-run changes imply a decline in the growth rates of investment and industrial production, both have also experienced a noticeable cyclical slowing over the past year or more,” Mr Kent said.
“As earlier excesses in residential construction gave rise to a large stock of unsold housing, house prices declined and so too did housing construction.”
“Sales and prices have recovered a bit since the start of this year, but there is little sign to date of a sustained improvement in construction activity.”
by Alan Thornhill
What’s happening with home prices?
Few questions are more basic to family finances than that.
Or more urgent, given the sharp rises seen in both the Sydney and Melbourne markets over recent times.
All this, of course, makes a report, just published by the Housing Industry Association, all the more relevant.
The overall conclusion of this study called Perspectives on Australian Dwelling Prices will, however, surprise many.
For the report concludes that “dwelling prices in Australia are proportionate and balanced in the broader economic context.”
What’s behind that bold claim?
The study notes that there is a significant gap between the high growth markets (Sydney and Melbourne) and those cities experiencing falling prices.
It says, too, that the national dwelling price growth rate of 10.1 per cent in the year to October 2015 masks these variations.
“That said, the current position of dwelling prices with respect to fundamental economic indicators like incomes, earnings, interest rates and rental streams remains largely balanced at the national level and across a majority of the capital cities,” it adds.
There is a bit of economist speak, there.
Basically, though, what the economists who wrote this paper are pointing out is common sense.
That is, if you want one of the high incomes, available in the Sydney job market, you might find yourself paying a little more for a home than you would in, say, Hobart.
Besides as the HIA economists, who wrote this report also say: “it is important to stress that price to income ratios are very sensitive to the particular income metric used.
Accordingly, the selection of an unsuitable income measure will result in unreliable price to income multiples being estimated.
Since mid-2012, home prices in Sydney have increased by 50 per cent.
But the HIA economists add:”Despite the strong price growth over the past three years, Sydney prices remain in a ‘normal’ range with respect to fundamental indicators like rents, earnings and interest rates.”
But the sums, on which this report are based, are more complex than might, at first seem necessary.
What, though, of the broad overall picture with home prices?
The HIA report puts its answer to that question very forcefully.
It says:-”Since bottoming out in May 2012, dwelling prices have increased by 32.1 per cent across Australia’s eight capital cities.”
That’s impressive, particularly at times of low inflation in many other areas.
Once again, though, the HIA concedes that the price growth you are likely to see, on your property, depends very much on where you choose to live.
Or as the report itself says:” The distribution of price growth is increasingly polarised with double-digit growth in Sydney and Melbourne and prices declining in several capital cities.”
A mixed picture, indeed
by Alan Thornhill
The Reserve Bank board kept its cash rate on hold again today,
but its Governor, Glenn Stevens, hinted that there might be
at least one further cut in future.
In a statement issued after a board meeting today, the Bank’s
Governor said the bank had decided to leave the cash rate
unchanged at 2.0 per cent.
In that statement, Mr Stevens said the global economy
is expanding at a moderate pace, despite some further
softening in conditions in the Asian region.
He said US growth is continuing, as is the recovery
But he added: ” Key commodity prices are much
lower than a year ago.”
He said that, in part, this reflected increased supply,
including from Australia.
“Australia’s terms of trade are falling,” Mr Stevens
“The (US) Federal Reserve is expected to start
increasing its policy rate over the period ahead
, but some other major central banks are continuing
to ease monetary policy,” he said.
” Volatility in financial markets has abated
somewhat for the moment,” he said.
At today’s meeting the Board judged that the prospects
for an improvement in economic conditions had
firmed a little over recent months and that leaving the cash
rate unchanged was appropriate at this meeting.
Members also observed that the outlook for inflation
may afford scope for further easing of policy, should that
be appropriate to lend support to demand.
He said “The Board will continue to assess the outlook,
and hence whether the current stance
of policy will most effectively foster sustainable growth
and inflation consistent with the target.
In a statement issued, with the bank’s decision,
Mr Stevens also said that
while credit costs for some emerging market
countries remain higher
than a year ago,
global financial conditions overall
remain very accomodative.
In Australia, the available information suggests that moderate
expansion in the economy continues, Mr Stevens said.
While GDP growth has been somewhat below longer-term averages
for some time,
business surveys suggest a gradual improvement in
conditions over the past year.
This has been accompanied by somewhat stronger
growth in employment and a
steady rate of unemployment.
Inflation is low and should remain so, with
the economy likely to have a degree
of spare capacity for some time yet.
Inflation is forecast to be consistent with the target
over the next one to two years
, but a little lower than earlier expected.
“In such circumstances, monetary policy needs
to be accomodative,”
Mr Stevens said.
“Low interest rates are acting to support borrowing and spending.
While the recent changes to some lending rates for housing will reduce this
support slightly, overall conditions are still quite accommodative.
Credit growth has increased a little over recent months, with growth in lending
to investors in the housing market easing slightly while that for owner-occupiers
appears to be picking up.
Dwelling prices continue to rise in Melbourne and Sydney,
though the pace of growth has moderated of late.
But Mr Stevens added :”Growth in dwelling prices has remained
mostly subdued in other cities.
“Supervisory measures are helping to contain risks that
may arise from the housing market.
“In other asset markets, prices for commercial property
have been supported by lower long-term interest rates,
while equity prices have moved in parallel with developments in global markets.
“The Australian dollar is adjusting to the significant declines in key commodity prices,” Mr Stevens said.
At today’s meeting the Board judged that the prospects for an i
mprovement in economic conditions had firmed a little over recen
t months and that leaving the cash rate unchanged was appropriate at this meeting.
Members also observed that the outlook for inflation may afford scope for further
easing of policy, should that be appropriate to lend support to demand.
“The Board will continue to assess the outlook, and hence whether the
current stance of policy will most effectively foster sustainable growth
and inflation consistent with the target,” he said.
by Alan Thornhill
Equal pay is still a distant dream for many Australian women.
The Bureau of Statistics put that bluntly today.
It said mean, or average, weekly earnings from main jobs was higher for males than for females in every age group studied in its latest report on Characteristics of Employment in Australia in August 2014.
The Bureau noted the average earnings of Australian women with full time jobs back then was $1,264 a week.
The comparable figure for men was $1592.
A chart produced by the Bureau shows the smallest difference between male and female earnings is encountered in teenage years.
That was $106 a week.
The biggest differences, noted by the bureau, were for those in the peak earning ages of 35-44.
By then that gap had blown out to $642 a week.
Who, though, is getting the big bucks, these days?
The mining boom has passed, but miners still had Australia’s highest average earnings in August last year.
The Bureau put that figure at $2,1000.
It said also that the lowest median wage was for accommodation and food service workers, at $461 a week.
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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