by Alan Thornhill
Australians are still borrowing heavily for housing, but the amount of lease finance taken out dropped sharply in August.
Seasonally adjusted figures that the Bureau of Statistics published today showed that home buyers borrowed $20,795 million that month, 6.1 per cent more than the amount borrowed in July.
However the $601 million borrowed in August – by way of lease finance – was 33.2 per cent below the comparable figure for the previous month.
The $42,037 million worth of commercial finance, taken out in August, was 4.4 per cent below the amount borrowed in July.
We are also becoming more cautious about how much we borrow for personal finance.
The Bureau reports that we borrowed just $7,184 million to finance personal transactions in August 2.5 per cent less than we borrowed in July.
by Alan Thornhill
The Reserve Bank should keep official interest rates on hold, when its board meets tomorrow to review them.
This advice comes from the bank’s “shadow board”, chaired by Dr Timo Henckel, an economist based at the Australian National University.
In a statement today, Dr Henckel, said the bank should hold its marker rate at 2 per cent, even though the weakening global outlook and uncertainty in capital markets pose risks for the Australian economy.
The RBA Board lowered the official cash rate from 2.25 per cent to 2.0 per cent in May.
Dr Henckel said while Australia’s inflation estimates of 1.5 per cent were well below the RBA target band of 2.0 to 3.0 per cent, the RBA Shadow Board considers the present marker rate to be the appropriate setting.
“A weakening outlook for the global economy and jittery financial markets do not portend well for the Australian economy,” Dr Henckel said.
“With latest estimates of inflation at 1.5 per cent and delayed action by the US Fed, the RBA Shadow Board on balance prefers to keep the cash rate on hold, attaching a 72 per cent probability to this being the appropriate policy setting.”
The RBA Shadow Board is a project based at the Centre for Applied Macroeconomic Analysis (CAMA) at the ANU Crawford School of Public Policy.
It brings together nine of the country’s leading experts to look at the economy and make a probabilistic call on the optimal setting of interest rates ahead of monthly RBA Board meetings.
It does not try to predict RBA behavior.
Dr Henckel said domestic data is still mixed. Australia’s property market is still looking strong, with the construction PMI surging to 53.8 in August, from 47.1 in July. However, in the same month building permits fell nearly 7 per cent.
He said the local stock market has also been hit, with the S&P/ASX200 closing below 5000 last week.
“With heightened uncertainty affecting global capital markets, it is unlikely domestic share prices will rebound significantly,” he said.
Dr Henckel said the Shadow RBA Board attached a 72 per cent probability that 2.0 per cent should be the appropriate setting for the cash rate, down from 77 per cent in September.
It found a 14 per cent probability of a needed rate cut, up from nine per cent last month, while the probability of a rate rise remained steady at 14 per cent.
In the longer term, the Shadow RBA Board placed a 62 per cent probability on the need for rates to increase in six months, with only a 25 per cent probability on the need for rates to remain at 2.0 per cent.
The probability of a needed rate cut in six months was 13 percent.
The RBA Shadow Board includes Professor Bob Gregory and Professor Warwick McKibbin, who have both served on the RBA Board.
Other members are Paul Bloxham of HSBC; Dr Mark Crosby; Professor Guay Lim of the University of Melbourne; James Morley of University of New South Wales; Jeffrey Sheen of Macquarie University; Mardi Dungey of University of Tasmania; and John Romalis, Professor of economics at the University of Sydney.
by Alan Thornhill
Australian living standards returned to trend growth in the June quarter, because price rises were “exceptionally weak.”
Ben Phillips, principal research officer at NATSEM, which confirmed this in a joint study with SAS, admitted that this finding was a surprise “on the upside.”
However the study also found that Australia’s renters were the “most impacted” by rents, as a share of income.
Mr Phillips said” “Living standards growth was a healthy 0.7 per cent during the …..June quarter, enabled by exceptionally weak growth in prices”.
He added that growth was 1.7 per cent for the full 2014-15 financial year, in line with long term trend.
David Bowie, the Managing Director of SAS in Australia and quarterly reports, like the one just published are interactive and available to anyone, cost-free, at www.sas.com/en_au/offers/natsem.html.
“ We present them in a visual format to bring the raw numbers to life and deliver an immediate understanding of economic trends as they directly affect everyone in Australia,” Mr Bowie said.
The latest one shows:-
Household living standards for the year improved most in the Northern Territory and Victoria with increases of 2.6 and 2.2 per cent, respectively.
The least gains were recorded by the ACT at 1.3 per cent and New South Wales at 0.8 per cent.
Cost of living pressures over the full year were generally slight everywhere and actually retreated in Tasmania and the Northern Territory.
The highest price growth was in NSW but at a modest 1.2 per cent.
The cost of living increased by only 0.5 per cent overall and this advantage was best enjoyed by higher income households, thanks to interest rate cuts leading to reduced mortgage repayments.
Incomes remained subdued across the board, advancing by just 2.2 per cent.
Household budgets during the quarter were mainly impacted by increases in the costs of healthcare, alcohol, tobacco and household goods and services.
Over the full financial year, the biggest cost increases were for alcohol and tobacco up $237; healthcare up $177; and food up $144.
The main offsetting categories were mortgage repayments down $198 and transport costs down $139.
….Overall, renters spent around 29.0 per cent of their total outgoings on housing compared with 18.9 per cent in the case of those purchasing and 8.0 per cent amongst outright owners.
Amongst lower income renters, 29.9 per cent of all expenditure goes on housing while for those with the lowest incomes the figure is above 40 per cent.
For renters in the highest income group the figure is 23.9 per cent. There is little difference in housing expenditure shares amongst people purchasing their dwelling.
Median housing cost shares of expenditure were highest in the Northern Territory at 23.6 per cent followed by Queensland and NSW at 18.1 and 17.7 per cent, respectively.
The lowest median shares were in Tasmania at 13.8 per cent and Victoria at 13.1 per cent.
The focus on housing in this report included looking at expenditure by type of family. Ben Phillips noted that, “Single parents devote the biggest share of their expenditure to housing followed by lone occupants.
Couples without dependants spend the lowest share.
“We also saw a clear correlation between housing costs and the ages of household heads.”
“The report shows that where the head is under 35 the share is 27.5 per cent compared with just 10.6 per cent for those aged 65 and over.
by Alan Thornhill
Tony Abbott has never abandoned his belief that coal is “a gift to mankind.”
Providing cheap power.
However the former Prime Minister did not manage to convince the Institute for Energy Economics and Financial Analysis.
It believes Australia’s coal industry is in terminal decline and says so in a report it has just published.
That has convinced the Australian Greens, who have responded with a “transition plan” to deal with the consequences of the industry’s demise.
They released it today, on the eve of a speech their Leader Richard Di Natale will gives to the National Press Club . explaining the proposal.
Dr Di Natale said:“China, Japan and India are all diversifying their energy sectors away from imported coal.”
He noted that China has already cut its coal imports by almost a third this year,
“ This scenario creates two major public policy challenges,” Dr Di Natale added.
These are finding ways to:-
* transition thousands of coal industry jobs and
* pay for clean up and rehabilitation costs for dozens of disused coal mines.
The Greens are planning to introduce a rehabilitation fund, which miners could access aa particular mines approach the end of their economic lives.
The Greens Deputy Leader Senator Larissa Waters, who speaks for the party on resource issues, said this money would be used to create new jobs in the same communities where coal workers are losing jobs.
“The long-term creation of 21st century jobs requires an investment in 21st century industries,” she added.
“The Greens don’t want to see coal workers stranded with nowhere to go,”Senator Waters said.
“These people are victims of an industry in decline and both government and industry must play a role in protecting them and their families,” she added.
Will it work?
The plan, so far, is far from fully explained.
But it may prove to be a necessary first step.
by Alan Thornhill
Malcolm Turnbull declared today that violence against women and children is never acceptable, as he unveiled a package to tackle domestic violence.
The $100 million package is heavily symbolic, as it is the first formal business announced by Mr Turnbull, since he became Australia’s Prime Minister last week.
Domestic violence has already claimed the lives of 63 women this year.
In a joint statement, with four of his ministers, Mr Turnbull declared:” Women and children in Australia have the right to feel safe and live without fear of violence.”
The others, joining him in the statement, were the Minister for Women Senator Michaelia Cash, the Attorney General, Senator Brandis, the Health Minister, Sussan Ley and the Social Services Minister, Christian Porter.
They said:”We must elevate this issue to our national consciousness, and make it clear that domestic, family or sexual violence is unacceptable in any circumstances. ”
“Today the Australian Government is announcing a $100 million package of measures to provide a safety net for women and children at high risk of experiencing violence.”
“The package will improve frontline support and services, leverage innovative technologies to keep women safe, and provide education resources to help change community attitudes to violence and abuse. ”
“The package includes $21 million for specific measures to help Indigenous women and communities.”
The Ministers noted that the Council of Australian Governments had made domestic violence a national priority.
And they said:”governments are acting.”
However they admitted:”recent events show we are not moving fast enough.”
by Alan Thornhill
Joe Hockey says “Australia is leading the world in cracking down on multinationals that are not paying their fair share of tax.”
The Federal Treasurer, was speaking to reporters in Canberra.
He said that he had told European authorities, while on a recent visit to Turkey that Australia would introduce the toughest legislation in the world to deal with companies not paying their fair share of tax.
“ I understand a number of multinationals have already come forward to identify profits previously unseen in relation to their activities in Australia,” Mr Hockey said.
He said, too, that these companies: “… are prepared to restructure their businesses to pay their fair share of tax in Australia
Mr Hockey also revealed that he had ordered a crack-down on foreign investors who are holding residential property illegally in Australia.
“I can advise you that, as of today, there are now over 500 investigations into over one billion dollars of residential real estate that may be held unlawfully by foreign nationals in Australia,” Mr Hockey said.
Seven have already been ordered to sell these properties.
by Alan Thornhill
A senior Reserve Bank executive today urged caution in linking property cycles and financial stability.
Luci Ellis, who Heads the Bank’s Financial Stability Department, admitted that there are still gaps in our knowledge of the subject.
She was addressing a Real Estate Symposium at the University of New South Wales.
There have been persistent worries, over recent months, over the possible impact that a sudden end to the house price booms in Sydney and Melbourne might have on the broader economy.
Ms Ellis said the present financial crisis had certainly “ramped up” interest in this subject.
But – because of the crisis – much research was finding its way very quickly into policy conclusions.
“That’s a natural temptation when the stakes are so high,” Ms Ellis said.
“But the policy imperatives inspiring the work make it even more important to be scientific in our approach.”
“It is an exciting time to be working in this area,” Ms Ellis said.
“Financial stability and property markets are inextricably linked.
“It’s an important topic.
“And yet there is still so much to learn.”
“In many respects I am reminded of the early 1990s and monetary policy.”
“Inflation targeting was fairly new.”
“Around the world there was important foundational work on how this new approach to monetary policy should operate.”
“Some of that work took place at the Reserve Bank.
“We learned a lot along the way.”
“I often feel that we are at a similar point now in financial stability policy world as we were back then on monetary policy.”
Ms Ellis confessed that she sometimes found it hard to keep up with the flow of academic research on the subject.
” Despite these difficulties, I think it’s fair to say that we already know quite a bit about property markets and financial stability,” she added.
“There is certainly a lot of evidence – or at least some strong indications – that property has something to do with the boom-bust episodes that so often engender financial instability and crisis,” Ms Ellis said.
“What we don’t yet know in all this is what the mechanism behind these connections really is.”
“We do know that there are strong correlations between strong upswings in credit, measured in a variety of ways, strong growth in property prices, and subsequent bad events,” she added.
“What isn’t yet settled is whether the credit causes the prices, the property markets drive the credit, or whether either of these is the decisive factor in generating economic downturns or financial distress.”
Ms Ellis said there is some interesting recent literature that tries to tease out these relationships.”
“But I don’t think the profession has reached a consensus on this as yet.”
“As soon as you start to talk about preventative policy, though, you should at least have a good theory about the mechanism, and some evidence to back it up.
“Otherwise, how can you distinguish what is really causal, from what is merely a correlation?”
“Another issue that I do not consider to be settled is whether we should regard these boom-bust dynamics as a cycle, and if so, whether it represents a credit cycle that is somehow independent of the business cycle,” Ms Ellis added.
“Certainly there have been many papers asserting the existence of a credit or financial cycle that has a longer frequency than the conventional business cycle frequency, which is usually assumed to be much less than a decade.”
But she warned:”I would be wary of assuming too readily that property finance really is the driver of the cycle in the way some literature has claimed.
“It might well be, but some recently released empirical analysis suggests that, for the United States at least, it is unsecured corporate borrowing that drove the cyclicality in business credit in recent decades….”
A range of one-off triggers for booms had been mentioned in the literature.
These included new products, political change and financial deregulation.
“If that’s right, perhaps we should not speak of a cycle, but rather, simply a parade of stuff happening,” Ms Ellis said.
by Alan Thornhill
The rich have been getting richer.
And the news, for the rest of us is pretty much as expected.
The Bureau of Statistics reported today that the average income of high income households rose by 7 per cent between 2011-12 and 2013-14, to $2,037 per week.
But Rita Scholl from the ABS said that not all households have experienced the same improvement in economic well being.
“Today’s results show that low income households have experienced an increase of around 3 per cent in average weekly household income, while middle income households changed little since 2011-12.”
Ms Scholl said the average income of all Australian households had risen to $998 per week in 2013–14.
But average wealth had remained relatively stable at $809,900.
Ms Scholl said, though, that change in average wealth had been uneven across different types of households.
For example, the average wealth of renting households was approximately $183,000 in 2013-14.
Rising house prices contributed to an increase in the average wealth for home owners with a mortgage ($857,900) and without a mortgage (almost $1.4 million).
She said too, that, most Australian households continue to have debts in 2013-14.
Over 70 per cent of households were servicing some form of debt.
These included mortgages, car loans, student loans or credit cards.
For example, the average credit card debt for all households was $2,700, Ms Scholl said.
And some had big debt burdens.
“One quarter of households with debt had a total debt of three or more times their annualised disposable income” Ms Scholl said.
“These households are considered to be at higher risk of experiencing economic hardship if they were to experience a financial shock, such as a sudden reduction in their income or if interest rates were to rise, increasing their mortgage or loan repayments,” she added.
Ms Scholl also said the Bureau’s survey also allow comparisons of income and wealth across different types of households.
“In 2013–14, couple families with dependent children had an average household income of $1,011 per week, which was similar to the average for all households at $998 per week.”
“By comparison, after adjusting for household characteristics, one parent families with dependent children had an average household income of $687 per week,” Ms Scholl 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.
|Bhp Blt Fpo||23.97||+0.07||+0.29%|
|Cwlth Bank Fpo||86.14||+0.88||+1.03%|
The News This Week
- Postscript 2
- Postscript 1 – Australia in the age of Trump
- Thank you
- The news: Friday January 20
- Scrap debt reduction plan:Greens
- How prices are moving:ABS
- Trade:Trump warned
- The News: Wednesday January 14
- It’s one rule for them…and
- The news:Wednesday January 11
- Retail growth flattens
- The news:Tuesday January 10
- The news:Monday January 9
- The news: Sunday January 8
- Don’t come the raw prawn with us:Barnaby
- agriculture (203)
- Airlines (329)
- Banking (3,951)
- Business (4,227)
- climate (107)
- Communications (127)
- corruption (33)
- crime (84)
- defence (105)
- Diplomacy (106)
- disability (19)
- Disaster (180)
- Economics (4,246)
- education (177)
- employment (435)
- Environment (214)
- farms (135)
- Financial advice (3,783)
- Health (266)
- Housing (1,094)
- Inflation (662)
- Insurance (155)
- Investment (3,169)
- Law (34)
- manufacturing (203)
- Markets (3,121)
- Media (157)
- medical (152)
- mining (577)
- pay (348)
- pensions (121)
- Politics (4,585)
- population (1,228)
- property (138)
- Regulation (1,460)
- retail (113)
- retirement (207)
- rural (68)
- Rural australia (185)
- Security (66)
- Social security (497)
- Superannuation (324)
- Tax (672)
- terrorism (29)
- The latest (1,519)
- Trade (1,572)
- transport (112)
- Uncategorized (1,006)
- welfare (219)