Look East, young man:Swan

Wayne Swan wants us to look to China – not America – as we assess Australia’s economic prospects.

Yet even the Treasurer, will be will be closely watching what President Obama has to say, when he makes a major address to American voters on Thursday (Washington time) this week.

Mr Obama will be not only be speaking about the US economy but, ultimately, about his own political survival, as well.

New figures show that US unemployment is still sitting at the stubbornly high rate of 9.1 per cent.

And as The New York Times notes:”No president since Franklin Roosevelt has been re-elected with unemployment so high.”

Franklin D Roosevelt was US President, as you will no doubt remember, from March 1933 to April 1945, a time which spanned both Depression and global war.

President Obama is expected to announce new job creating initiatives, in his address to US voters later this week.

The local job figures, that the Australian Bureau of Statistics will release on Thursday, will also be watched closely.

With Bluescope, OneSteel and Qantas all announcing heavy retrenchment programs last month, some rise in Australia’s present unemployment rate of 5.1 per cent would not be a complete surprise.

But why does Mr Swan want us to look to Asia, now?

After all, Australians have always looked to the United States and Europe, as they tried to work out what the future might hold.

So why does the Treasurer want us to change that now?

He admits:”…we’re certainly not immune to events on both sides of the Atlantic.”

However, he also warns that there is a risk that we might “lose sight of how different our situation is here in Australia.”

In his weekly economic note, Mr Swan says our exports to China and India now “double those” we send to the United States and Europe.

What’s more, Mr Swan says, those exports are likely to rise, along with rising living standards in China.

He pointed out that Australian accountants and architects are already getting bigger and bigger orders from China for their services.

The Treasurer also wants us to watch out for another major local figure, that will be released this week.

He says the national accounts, which the Statistician will publish on Wednesday, are expected to show increased growth, as the impact of the floods, which hit Australia early this year, gradually recede.

Related stories:

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Carbon price:Treasury’s modelling

The Federal Treasury expects both the Australian and global economies to grow strongly over the years ahead.

In the key points of its economic modelling of the government’s new climate change policies, the Treasury said this can happen as we “cut pollution to reduce the risks of dangerous climate change.”

“Early global action is cheaper than delayed action,” the Treasury added.

“For economies like Australia, deferring action on climate change will only lead to higher long-term costs as emission-intensive technology, processes and outputs are locked in,” it said.

In other points, the Treasury declared:-

* Pricing carbon will drive structural change in the economy, moving production towards less emission-intensive industries. Many of Australia’s industries will maintain or improve their competitiveness in a carbon constrained world.

* The structural change in the economy driven by a market-based carbon pricing mechanism will be modest compared to other changes facing the economy, such as those driven by the terms of trade or demographic change.

* Incomes grow strongly under carbon pricing. By 2020, income per person is around $9,000 higher in today’s dollars.

* Jobs will continue to grow under carbon pricing. By 2020, national employment is projected to increase by 1.6 million jobs, with or without carbon pricing.

* Household consumption continues to grow strongly over time. The impact on the overall price level is modest.

* The modelling provides information on only one element necessary for evaluating climate change policy: the costs of taking action. It does not measure the benefits of tackling climate change.

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Rate rise risk

A rate rise this week would be surprising.

But that is what the Reserve Bank board will be considering on Tuesday.

Even though:-

*At 2.2 per cent, Australia’s underlying inflation rate is close to the low point in the 2 – 3 per cent range the bank aims at, when it sets rates

*A strong $A is helping to restrain inflation, by restraining the price of imported goods

*Home prices have been flat, or easing,

* Retail sales have been slow, as nervous Australians increasingly decide to save, rather than spend their money.

*Government spending is also tightening, at both Federal and State levels and

*Australia’s construction industry may well be in recession.

Despite all that, the Reserve Bank’s Governor, Glenn Stevens, has been talking aggressively about the need he sees for “restraint” in both fiscal and monetary policy.

That is, he sees a need to curb the Australian economy, both through tight spending and taxing policies and – quite possibly – higher interest rates.

The Reserve Bank, of course, has worries of its own, with two related operations. Securency and Note Printing Australia sank into bribery scandals, as they bid for banknote printing contracts in Indonesia, Malaysia and Vietnam.

Mr Stevens prefers to worry, though, about the huge amount of money now sitting in a pipeline, waiting to be invested in Australia’s booming resource industries.

He argues that the Reserve Bank board must look forward, not backwards, when it sets interest rates.

He has left little room, either, for sceptics who suspect that the Reserve Bank won’t raise interest rates, anytime soon.

The truth is, it will.

But – probably – not this month.

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The budget and you

High flyers will be hit by measures announced in the budget, but those on low incomes can expect a little more help.

The Treasurer, Wayne Swan, explained:-

“We will reform the fringe benefits tax arrangements for cars by introducing a single rate regardless of how far a car is driven.”

He said that would save the Federal government $954 million over five years.

“This is one of 12 reforms since the last Budget which deliver on directions identified by the tax review,” Mr Swan said.

These also include phasing out the Dependent Spouse Tax Offset and replacing the Entrepreneurs’ Tax Offset with better small business policies.

“Extending the freeze on the higher income limits for family payments for two more years will also save $1.2 billion and make the system more sustainable.

“And we will increase the public service efficiency dividend, saving $1.1 billion,” Mr Swan said.

“We don’t take our savings decisions lightly, and we take no joy from making them,” he added.

“ But we take comfort in knowing they are right and necessary to ensure we don’t compound the pressures of the boom.”

Mr Swan also said:”From July this year, we will deliver up to a further $300 a year of the Low Income Tax Offset into pay packets, rather than at the end of the year.

“We will increase Family Tax Benefit Part A for older teenagers by up to $4,208 a year, $161 a fortnight, on top of the $460 million we are providing to extend the Education Tax Refund to cover school uniforms.

“We will allow payment advances of up to $1,000 for Family Tax Benefit Part A recipients at any time to meet unexpected family expenses, and give parents greater choice in when they receive child care support.

“And tonight we recognise prisoners of war from World War II and the Korean War with an additional payment of $500 a fortnight from 20 September 2011.

“We know too many Australians are squeezed by rising costs of living, and we help where we responsibly can.

“That’s why we cut income taxes substantially in each of our first three Budgets so that an average income earner now pays around $1,000 a year less tax, and why we have ensured pensions are now $128 a fortnight higher for singles, and $116 higher for couples, since the announcement of our historic boost two years ago.”

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Extra help for parents

The Prime Minister has confirmed that the Federal government will  offer extra support to families with teenagers at school in next week’s Federal budget.

Julia Gillard said there would be major increases in family payments for many thousands of Australian families if their teenage children stay on longer at school.

She said the budget would deliver an increase in Family Tax Benefit (FTB) Part A for 16-19 year olds with families receiving up to an additional $4,200 a year for each eligible teenager that stays in school.

“This will deliver on key a Gillard Labor Government election commitment that will be good for families and good for skills in the economy in the future,” Ms Gillard said.

“The families of around 650,000 children turning 16 over the next five years will be eligible for the substantial cash increases if their teenager continues learning.

“A great chance in life starts with a great education, which is why it is so important that teenagers stay at school and finish their secondary education,” she added.

Ms Gillard said this would help many Australian families cover the costs of raising children and encourage teenagers to stay on at school.

“From 1 January next year, the new maximum rate of FTB Part A for 16-19 year olds will increase by around $160 per fortnight – an increase of around $4,200 per year.

“This will align with the 13-15 year old rate and ensure assistance for families does not drop when children turn 16.

“The increases to FTB Part A will only be available for families where their teenager is in full-time secondary study, or the vocational equivalent.

“Education is a central piece of the Gillard Government’s reform agenda.

Ms Gillard said her government  is committed to building a strong workforce and economy based on a well-educated and trained population.

“Since 2007, the Government has almost doubled schools funding and has made record investment in the training system to help more Australian children achieve their potential.

“It has also introduced ‘earn or learn’ requirements so young people in receipt of income support are working or studying to ensure that young Australians are doing all they can to build their skills and get ready for work.

“The increased financial support for families outlined today builds on these initiatives.

“The Government recognises that children do not get cheaper to care for as they get older. The cost of groceries, clothes and family activities can all increase as children grow.

“We know these costs can be a barrier for low-income families to support their child’s secondary education.

“Research shows children from low-income families have lower levels of school completion. In 2006, Year 12 completion rates were 59 per cent for low-income students, compared to 78 per cent for higher income students.

“By linking the increase to FTB Part A to school participation, we are ensuring families are able to better support their teenage children to stay at school.

“New analysis by the Department of Families, Housing, Community Services and Indigenous Affairs shows that thousands of Australian families will be eligible for extra cost of living relief when the increase to FTB Part A begins next year.

“We expect more young people and their families to stay in the family assistance system as a result of these changes. This will mean they will also benefit from access to Rent Assistance and FTB Part B.

“About 23,000 families will either receive Rent Assistance, or receive extra Rent Assistance, up to $3,600 a year. In addition, 28,900 families will be eligible for FTB Part B up to $2,900 a year.

” The increase to FTB Part A will cost $771.9 million over five years.

“This initiative builds on and will help support the Government’s robust targets for secondary school completion. The 2009 Council of Australian Governments (COAG) National Education Agreement aims to lift the number of people with a Year 12 or equivalent qualification to 90 per cent by 2015,”Ms Gillard said.

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Tax reform II

“There’s no doubt that reforming resource taxation has not been easy.

” It’s been difficult,” the Treasurer said.

That’s true.

Count Kevin Rudd’s job as Prime Minister as one of the casualties.

But Mr Swan was still claiming victory.

” … it’s a long term, worthwhile reform, a reform that has been worth fighting for and a reform which will bring great benefits to the Australian economy.

“Everybody would have heard Martin and I talk about the two-speed economy – addressing the consequences of the two-speed economy.”

he added.

“Getting this resource rent tax, the MRRT, in place has been an important part of dealing with all of the issues that flow from a two-speed or a multi-speed economy.

“In particular, I think it’s a very good thing that the Argus Committee has worked as well as it has and a great credit also to the work of Minister Ferguson as well, working with Mr Argus.  They have developed a very good proposal, a very good design and one which also, I think, delivers more benefits or some extra benefits particularly to the smaller miners.

“So today marks, I think, another very important step in converting our policy vision into the reform reality for the future, particularly dealing with the challenges of mining boom mark II,” Mr Swan said.

“Investing in infrastructure, boosting superannuation, lowering taxation for particularly small business is all critical.  Tax cuts which will flow to something like 2.4 million small businesses, a lower company rate, historic changes to superannuation including increasing the superannuation guarantee and making a new contribution to the superannuation savings of 3.5 million low-income earners are all very important and, of course as I said before, making those important infrastructure investments, particularly in Queensland and Western Australia.”

“So, this is a plan which will be part and parcel of our approach to delivering strong growth, strong job creation, particularly in the States of Western Australia and Queensland.”

And it doesn’t stop here.

There is, presumably, more tax reform to come, from the new tax summit, that is to be held in October.

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Make money mining

Is all that mining boom money going to other people?

You needn't miss out.

Phillip Lowe, the Reserve Bank's Assistant Governor (Economic),

has some handy hints, for those who would like a share of that
wealth.

He  dropped them in a speech he gave to industry leaders in
Sydney.

Mr Lowe identified the likely winners - and the losers.

He said it is mostly a matter of relative prices.

That is, price movements, inside and outside Australia.

The boom, itself, was generated by high demand
for Australia's resources, particularly
from China.

Mr Lowe identified investors, first,  as likely winners.

He noted that the price of Australia's resource exports,
like coal and iron ore,
are now close to record levels.

Relatively though, the price of manufactured goods
has been falling,
in what Mr Lowe calls ''a clear downward trend.''

The Aussie dollar is strong, too.

Mr Lowe stopped short of saying all that adds up

 to a bonanza for investors.

What he did say, though, is that ''..the lower price
for investment goods have
helped make investment more attractive in a
number of areas of the Australian economy.''

Naturally, Mr Lowe noted, also, that the mine workers,
 themselves,
 are also doing well, in the boom.

But they make up less than 2 per cent of Australia's
workforce, anyway.

So who cares?

Mr Lowe reminds those, who think like that, that they
are forgetting a
sector called mining services.

''In terms of demand, the improved outlook for
resource sector
investment has increased
demand for a whole range of ancillary professional services,'' he said.

''These include engineers,  project managers,
 equipment lessors,
 lawyers, accountants,
 recruiters and IT specialists,'' he added.

''As a result, employment in a number of these  business services
 has grown strongly over
recent years.''

The losers?

Domestic tourism.  The strong Aussie dollar is making visits
 to Paris stack up well against
 a Barrier Reef holiday, pricewise, these days.

Mr Lowe said local manufacturing, too, has been in decline
for some time.

But will the good times - elsewhere - keep  rolling?

Mr Lowe clearly agrees with the famous economist who
once said that
the main achievement of economic
forecasting is to ''make astrology look good.''

But he pointed to positive signs, saying that that
commodity prices
are likely to be above
their long term average ''for some time yet.''

And official data suggests that  investment in the
nation's resources
sector is growing strongly.

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Your economic prospects

Your prospects, right now, depend very much on where you are.

In the economy, that is.

A new study confirms what most of us already knew.

Australia has a multi-speed economy.

If you are a shop keeper, you will have to be very adaptable to survive.

The National Australia Bank’s monthly business survey shows, once again, that Australians are more careful with their money now, than they have been for a long time.

Persuading them to spend is very difficult indeed.

Mining, though, is getting back on its feet, after the Queensland floods.

Iron ore miners, in the Pilbara, never paused.

The bank said business confidence has risen in Queensland, where there is still an enormous amount of work to be done, cleaning up – and rebuilding – after the floods.

But it warns that business confidence has not yet fully recovered, more broadly.

“Conditions  have softened in Western Australia and South Australia, and remain poor in Tasmania,” the bank said.

It said New South Wales is now Australia’s strongest State, followed by Victoria.

The bank also noted that a new factor is now affecting  Australia’s business prospects.

That is political changes in the Middle East.

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