Rudd watching rate decision – apprehensively

No-one will be watching the outcome of today’s Reserve Bank board meeting more closely than Kevin Rudd.

The Prime Minister has a very big interest in the result.

And he will be hoping that the board does the unexpected – and cuts rates.

Recent figures confirm that Australians have stopped shopping, as far as possible.

They have also stopped ordering new homes or moving to better ones.

With petrol prices and interest rates both  high, they have little choice but to economise where they can.

But yesterday’s news, that home prices slipped, throughout Australia, in the three months to the end of June, is a real threat to the government.

The principal private home is the base store of wealth for most Australian families.

Home owners are happiest when house prices keep climbing, even though those still hoping to buy a home of their own might not be.

The government is hoping to give low income families a little help, when it reforms Australia’s tax system.

But that is a mid to long term project.

And many Australian families need real help now.

Australia is probably not heading for a recession.

The imminent resources boom, in both Western Australia and Queensland, should prevent that.

But the current economic situation is starting to feel very much like a recession.

Thousands of Australian families are already having to choose between paying bills and eating well.

So far, Australia’s job market has held up strongly.

However, figures to be released on Thursday might well show that employment, too, is softening.

If that happens, voters are likely to start re-assessing their support for the Rudd Labor government.

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Community care pays off:study

Community care programs have been identified as good investments for Australia’s taxpayers.

This was confirmed in a new study that the Federal Minister for Ageing, Justine Elliott, released yesterday.

It showed that these programs:-

• help to preserve the physical and mental y health of older Australians
• increase “cognitive function” and help to sustain social networks
• reduce the strains on those caring for older relatives.

The study was initiated by the Baptist organisation Baptcare and carried out by Monash University’s Department of Epidemiology and Preventative Mediciine.

Mrs Elliott said Federally funded community aged care packages and extended aged care home packages often delayed admission to residential aged care.

In that way, they help old people to maintain independence and to continue living in their communities.

“These packges generally allow care recipients to maintain their quality of life and, in some instances, as this study shows, improve their quality of life,” Mrs Elliott said.

She said the need for such packages would increase as the Australian community ages.

“So it is vital that we have evidence like this study to ensure that we are supporting best practice in community care,” Mrs Elliott added.

She noted that the government has budgeted to provide $2.2 billion, over four years, for community care services.

“In 2008-09 alone, we will be providing $2.2 billion to community care,” Mrs Elliott said.

She said this represents an increase of $260 million, over the 2007-08 budget figure.

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How emissions trading will affect you

Australians will today get their first glimpse of a new, highly complex trading system which may well have a bigger impact on their finances than the Howard government’s goods and services tax.

And there will be one small, but pleasant, surprise.

The government is planning to offset petrol price increases, arising from emissions trading, by cutting its fuel excise.  That will be done for at least three years after the new scheme is introduced in 2010.

The first draft of the plan will be published, around lunchtime, in Canberra.

That will be in what the government calls a green paper. That is a documen meant to promote public discussion, rather than to set out firm new rules.

We can expect to see the final shape of the new scheme later this year.

What, though, is an emissions trading scheme?

What will a scheme of that kind be meant to achieve?

And what will it cost?

These are the basic questions.

Emissions trading schemes have one, over-riding objective.

That is to reduce the amount of greenhouse gases, like carbon dioxide, that we put into the air.

Under such a scheme, the government sells permits to do just that, mainly to big factories and powerhouses.

But they are strictly limited and – critically – they can be traded between polluters, at a price.

And the right to pollute would be gradually reduced, over time.

So if your local power station buys a permit of that kind for, say $5 million, you can expect to see it add a certain amount to your power bill, each month, to get that money back. Thousands of other prices, including fuel prices, will be hit in much the same way.
The government expects to raise huge amounts of money, by selling those permits.

So what will it do, with all that extra cash?

The preliminary Garnaut report gives us some clues.

The government will be expected to:-

• Give much of the money back to Australian families, to help them cope with the new scheme.
• Subsidise companies that compete internationally, so that they are not disadvantaged against their competitors in other countries, which do not have similar schemes
• Support research and investment in new ways of reducing greenhouse gas emissions and
• Set up reserves, that might be used to buy international carbon trading permits, or to fund other international obligations Australia might face, as it takes part in global efforts to reduce greenhouse gas emissions.

Conservative critics have already dismissed the idea of carbon trading schemes, altogether.Some have said all they amount to, ultimately, is a Rudd government GST.

Others say the idea of emission trading schemes are just too complicated and warn that big emitters, like India and China, will never accept them.

They say a simple carbon tax would be better – and more acceptable – all round.

The government believes, though, that these schemes are needed, to reduce the potentially disastrous effects of climate change, caused by unrestricted pollution.

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Would an extra $52 a week help?

Kevin Rudd and Wayne Swan have a message for you.

They would like to remind you that the average Australian family will be $52 a week better off from today.

That will flow from measures the government announced in its May budget.

Mr Rudd said the package will include help with the costs Australia’s parents face educating their children.

So the Treasurer is urging you to keep your receipts,  to validate these expenses.

Up to $750, that is, for primary school students and $1,500 for secondary students.

Produce those receipts at tax time, and you will get a 50 per cent deduction on those expenses.

Nice.

But that’s not all.

The child care rebate also rises from 30 to 50 per cent from today.

That will take it to a ceiling of $7,500.

All that,  and tax cuts as well.

Naturally, the government has its own reasons for reminding you of all this.

It took a belting in the Gippsland by-election last weekend, as angry voters let it know what they thought of rising petrol prices and interest rates.

And the opposition can’t wait for the next by-election, which is likely to be in the safe Liberal seat of Mayo, held by the former foreign minister, Alexander Downer.

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Several budget measures blocked in Senate

The Prime Minister, Kevin Rudd, launched a savage attack on the Federal opposition in parliament yesterday, after it delayed parts of his government’s budget in the Senate.

He accused the Liberal Leader, Brendan Nelson, of orchestrating the move.

“The Leader of the Liberal Party…has directed his colleagues in the Senate to act in a way which has the effect of stripping away $300 million worth of real money from the budget surplus,” Rudd said.

As the attack was made at question time, Nelson did not have an immediate opportunity to reply.

“You see, responsible economic analysts, regulators and commentators recognise that inflation is a problem,” Rudd said.

“And that fiscal policy has a role to play.

“We on this side of the House have developed such a fiscal policy.

“The contrast lies in what has happened in the Senate today,” Rudd declared.
“To avoid rising inflation expectations causing strong wage growth, monetary conditions need to be kept tight until domestic demand and price pressures have moderated sufficiently,” the Prime Minister added.

“In this context, the stabilising role that fiscal policy should play is welcome,” he said.

The Treasurer, Wayne Swan, joined the attack, declaring that the Senators who had voted to delay part of the budget had, effectively, voted for higher spending and higher interest rates.

The opposition used its numbers in the Senate to refer part of the government’s budget bills to a Senate committee, for further examination.

These include the government’s Fuel Watch scheme, the luxury car tax hike and changes to Medicare.

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Market fluctuations:the collateral damage

Current fluctuations in the world’s share market could leave you much poorer in retirement.

The Federal government is worried about that.

It is not alone.

Australia’s once booming superannuation industry is, too.

The superannuation funds, of course, are big investors. And when the share market is performing badly, as it is now, they get hurt, too. Their returns fall. So their performance is weaker.

And fund members start to lose faith in them.

But there are three points all Australians should remember.

The first is that superannuation is still the nation’s second most tax favoured investment after the private home.

The second is that super is, essentially, a long term investment, particularly if you are young.

Thirdly, it is quite realistic to base your retirement income strategy on the belief that there will be good years, as well as bad, for investment.

That is if the past is a reliable guide. And it is the only one we have.

Other investments, certainly, may appear to be more attractive, now.

Investment in oil production is certainly among them.

But that is not practical for everyone.

Besides, the circumstances, which affect particular investments, change constantly.

Over the months ahead, you can expect to see more information, designed to persuade you not only to view superannuation as a long term proposition, but to stay with it, as well.

Some of it will probably come from your superannuation fund.

It will be worth careful assessment.

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Rudd to come under pressure in parliament this week

Kevin Rudd will be brought back to earth with a thump this week.

Pleasant memories, from his trip to China, Japan and Indonesia will fade quickly, when he faces the Federal opposition in parliament today.

Interest rates are high and – according to the Reserve Bank chief Glenn Stevens – likely to remain so for some months yet.

Bread prices are rising faster than most Australians can make the dough they need to buy it.

And fuel prices are still stratospheric.

In these circumstances, an astute politician, like Rudd, will know that the recent slide in his government’s public support, might just be the beginning.

The Roy Morgan poll, for example, showed the Labor party’s primary vote down 5 per cent to 45 per cent.

As that translated into a two party preferred vote of 58 per cent for Labor and just 42 per cent for the opposition, some MPs might well believe that Labor still has very little to worry about.

Especially as the government’s budget tax cuts, which were meant to ease the pain of rising prices, will kick in very soon.

It’s a safe bet, though, that Rudd, himself, is not comfortable and relaxed about his government’s situation.

He keeps reminding Labor politicians that, despite John Howard’s unpopularity, Labor’s victory last November was still much narrower than it might have appeared to be, to the casual observer.

We can expect to see the Federal opposition land some heavy blows on the government, in parliament this week.

The opposition will focus, particularly, on the arrogant behaviour of Federal Labor backbencher, Belinda Neil, and her husband John Della Bosca, a prominent NSW State Labor politician, at the Iguana nightclub, earlier this month.

Rudd has already instructed Ms Neil to undergo an anger management course.

However that won’t stop the opposition raising the matter in Federal parliament this week.

And that is just about the last thing Rudd needs, right now.

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Tax Office lapse on offshore havens exposed

A significant gap has been identified in the Tax Office’s efforts to catch cheats who use offshore tax havens.

It was exposed in a new report, published by the Auditor General.

The report notes that the Tax Office has adopted a risk management framework for its compliance program.

This is meant to identify and assess risks associated with tax havens.

Mitigation strategies are then developed.

“This (system) comprises a combination of oversight committees, intelligence areas and compliance staff from a number of areas,” the report says.

It adds that this is meant to work at both formal and informal levels.

“However, at a formal level the key steering committee, responsible for determining strategic direction has not yet met, ” the report adds.

So it is not providing the strategic direction that is expected of it.

“The Tax Office can improve its governance of tax haven risks by ensuring that this key strategy setting committee meets on a regular basis, in accordance with the terms set out in its charter,” the Auditor General said.

The Tax Office has accepted this advice.

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