This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/business-finance/peter-costello-and-the-future-fund-fiddle/
Peter Costello and the Future Fund Fiddle
The latest portfolio update from the Future Fund confirmed that the average annual return on its investments has been 7.7 percent since it was established in May 2006.
Former Treasurer Peter Costello, who is the Chair of the Future Fund Board of Guardians, judged this return to be good to the point where he claimed that it was successful in “exceeding the return objective”.
That is an expansive claim.
In the media release – that included details of the fund return up to June 30, 2016 – there was a table that showed the 7.7 percent annual return that Costello referred to. It also noted that the ‘target return’ or objective for the Future Fund since inception was 6.9 per cent, which no doubt leads Costello to his conclusion that the 7.7 percent was larger and had exceeded the objective.
Alas, that target return for the Future Fund in its own media release is misleading. According to the Future Fund Act 2006, the investment objective or target return is at “least the rate of inflation (measured by the change in the CPI) plus 4.5 to 5.5 percent”.
This return was designed to be achieved “over the long term” which is prudent and sensible given the inherent short-term volatility and variability in many market values.
This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/the-real-reason-young-aussies-are-struggling-to-get-on-the-property-ladder-230332254.html
The real reason young Aussies are struggling to get on the property ladder
I thought kids stopped screaming and being blindingly selfish when they turned 3 or maybe 4. I was wrong. It could be that 30 is the new 3.
Having witnessed, first hand, some of the froth and bubble surrounding the issue of consumption patterns of millennials, that they prefer spending money on lattes and smashed avocado on toast rather than a dwelling, there is an irrational, self centered discussion that blames anyone and everyone for their inability to get into the housing market.
If Twitter and some of media articles are anything to go by, a bevvy of millennials have explicitly expressed their overwhelming desire to spend their money on avocado, ubers, the latest phones and travel rather than saving to buy a house. I have noted, ad nauseam, that this is fair enough – it’s their money, spending it whichever way floats your boat is a fundamental tenet of economics. It is all part of that basic choice we all have about where we wish to spend our money.
Rather than leaving it there, the millennial group then unrelentingly complain about their perceived in ability to tap into the housing market. This is incongruous given they have just said they are no longer looking to buy a house. Why would anyone care about the price of a Brett Whitely painting, for example, when you aren’t looking to buy one? But the millennials are vocal about their insistence of unapologetically wanting to spend their money on lattes, pulled pork and a mascarpone pancake stack whilst still moaning about their inability to buy a house.
It’s this juxtaposition that leaves me wondering what the fuss is about.
This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/why-poor-aussie-financial-literacy-is-to-blame-for-banks-overselling-their-financial-products-222825364.html
Why poor Aussie financial literacy is to blame for banks overselling their financial products
Watching the parliamentary appearances of the Big Four Bank CEO’s this week revealed many things, but one that was most striking was the implied weakness in financial literacy of the general population who it seems often sign up to expensive services they don’t understand, didn’t ask for and don’t need.
It is all very well to criticise the banks for urging their staff to be overly aggressive when cross-selling different products to their customers, but it is another for the customer to succumb to this pressure and sign up for the new products. Rather the customers offered new products should give a friendly “thanks, but no thanks” reply when the sales pitch from the bank teller comes along.
This article first appeared on The Guardian web site at this address: https://www.theguardian.com/business/2016/oct/03/credit-downgrade-assured-if-coalition-keeps-hiding-from-its-debt-and-deficit-disaster
Credit downgrade assured if Coalition keeps hiding from its debt and deficit disaster
The treasurer, Scott Morrison, and the finance minister, Mathias Cormann, “took out the garbage” last Friday afternoon, dumping the final budget outcome for 2015-16 on the Treasury website under the cover of the football grand finals, a long weekend and the start of school holidays around much of the country.
Morrison and Cormann came close to breaching the Charter of Budget Honesty, which requires the release of each budget outcome for the prior financial year by 30 September each year. They made it with a few hours to spare.
They also released it without a press conference or detailed media release, making sure there was miniscule coverage of something that would normally be a key area of economic and fiscal management. This is especially the case with “budget repair”, the “return to surplus”, “paying off debt” and dealing with the “budget emergency” being the basis that saw the Coalition elected to power in both September 2013 and July 2016.
Looking at the budget outcome document, it is clear why it was released in the shadows of the Friday night without any fanfare.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/the-recessionary-horror-of-the-western-australian-economy-002509793.html
The recessionary horror of the Western Australian economy
Western Australia is in a deep and increasingly nasty recession. There are no signs that the economy is near a bottom which is disconcerting. The plunge in mining investment and the slump in commodity prices have hit WA hard and the economic scorecard is, quite simply, miserable.
During 2008, the unemployment rate in WA fell to a stunning low of 2.3 per cent. After a temporary rise with the GFC, the unemployment rate was 3.5 per cent during 2012. This was the lowest in Australia by a large margin. Most recently, unemployment spiked to 6.3 per cent which is now third highest in Australia, behind only South Australia and Tasmania. Since the middle of 2015, there has been no increase in employment levels.
State final demand, which is effectively GDP excluding net exports, peaked in September 2012 and since then, has been trending lower. From that peak, State final demand has slumped 13.2 per cent. While exports of iron ore and other commodities are strong and adding to activity in WA, from the perspective of private and public sector spending and investment, the economy is going backwards.
This article first appears on The Guardian website at this address: https://www.theguardian.com/business/2016/sep/22/why-the-turnbull-governments-plan-to-issue-30-year-bonds-is-an-unnecessary-risk
Why the Turnbull government's plan to issue 30-year bonds is an unnecessary risk
The Turnbull government has indicated that it will start issuing 30-year government bonds.
In layperson’s terms, this means the government will be borrowing money for a 30-year fixed term, paying interest every six months over those 30 years to the holder of those bonds. This locks in interest payments as a part of the budget bottom line right through to 2046 and probably beyond. The government will use the revenue from those borrowings to fund the budget deficit and maturities of existing bonds. The deficit continues to hold at levels well above the levels the Coalition government inherited from the Labor party when it won the 2013 election.
The decision by the government to borrow money for such an extended duration – via the Australian Office of Financial Management (AOFM) – sits oddly with the rhetoric from Malcolm Turnbull and Scott Morrison about their core objective of “budget repair” and the goals of returning to surplus. If these objectives were genuinely part of the government’s economic strategy, there would be no need to borrow money for 30 years. The current 25-year bonds are more than sufficient to cover the government’s deficit requirements, especially if the projections for a return to surplus in about three years are still relevant.
This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/has-the-gloss-finally-worn-off-the-aussie-economy-000224376.html
Has the gloss finally worn off the Aussie economy?
Having rubbed shoulders with global leaders at the G20 meeting in China, Prime Minister Malcolm Turnbull said "Our economic performance is the envy of most of those countries around the G20 table. There are very few developed nations that have economic performance as strong as Australia's”.
Mr Turnbull is wrong.
There is no doubt that for the bulk of the past couple of decades, Australia has been a star performer with continuous economic growth, sound budget settings and rising incomes. Australia was one of very few countries to avoid recession during the global financial crisis in the period from 2008 to 2010.
More recently, the gloss has warn off the Australian economy. This is most notably showing up in the unemployment rate which remains higher today than during the GFC. In most other G20 countries, the unemployment rate has fallen as economic recovery has gained traction.
Year 12 students are flat out - preparing for final exams and life after school. Some are planning to go straight to university, others are looking to take a 'gap year' before going uni.
Below is a short extract from my book, Myth Busting Economics, about the cost of taking a gap year. Read it and think.
And if you want a copy of my book, it is available here: https://www.booktopia.com.au/myth-busting-economics-stephen-koukoulas/prod9780730321958.html
A gap year? Don't do it!
A common notion for some students when they finish Year 12 is to have a so-called gap year. That is, they take a year off to do something different and postpone the decision to start university by a year. That is all fine and again, it is your choice, but it is worth thinking about the cost of doing so. Let’s look at a stylised example of the cost of a gap year.
There are two people, they have just finished Year 12, have equal abilities, achieved the same university entry score, aim to do the same three year degree and when they finish their degrees, they will get a job where the starting salary is around the average for university graduates in 2013 at $52,500 a year. One goes straight to university, the other takes a gap year, traveling around Europe and generally bumming around home.
Let’s fast forward four years.
This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2016/sep/09/whats-the-point-of-budget-repair-if-so-many-australians-are-unemployed-and-underemployed
What's the point of budget repair if so many Australians are unemployed and underemployed?
What’s the point of budget repair if 725,000 Australians are unemployed and a further 1,067,000 people are underemployed?
At its most basic level, economic policy is about maximising the speed at which an economy can sustainably grow to ensure the pool of unemployed and underemployed workers is as small as possible.
The superficially strong 3.3% annual GDP growth rate in this week’s national accounts would normally signal a stronger labour market. The skewing of that growth to exports of bulk commodities, where employment is small, means the domestic side of the economy is still not growing fast enough to attain full employment.
There was also a significant contribution to GDP from government demand, something that flies in the face of the government’s obsession with budget repair. It is unclear where economic policy is currently being aimed.
The policy priority is to reduce spending to ensure the deficit is as low as possible and to return to budget surplus. Such policies take money from the economy and by definition, growth slows and with that, the rate of job creation softens and unemployment is higher than it would otherwise be.
Hidden away in the quarterly national accounts are data on the volume of tobacco consumed in Australia.
The excellent news is that in the June quarter 2016, the volume of tobacco consumed fell 2.3 per cent to be at the lowest level ever recorded in the national accounts, which has data going all the way back to 1959.
More remarkable is the five-fold increase in the population over this time which means the fall in per capita smoking levels are even more acute.
The plain packaging laws for cigarette packets were introduced in December 2012, even though the Liberal and National Parties voted again them (sort of cute in the current debate to note the donations to the Coalition parties from tobacco companies, but that is another matter).
The shadow Health Minister at the time the legislation introducing plain packaging went through the Parliament, Peter Dutton, was doubtful weather the laws would work, when in 2011 he called on the government to prove that plain packaging would cut smoking levels. He said “We would like to see the evidence the government in replying on.”