Blog

Tue, 24 Apr 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/will-banking-royal-commission-undermine-economy-054126660.html 

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Will the Banking Royal Commission undermine the economy?

 For those of us worried about the health of the economy, economic growth and the objective of full-employment, the findings of the banking Royal Commission are extremely worrying.

There is a real risk that the revelations about the misconduct and devious practises of the banks will have the dual effect of undermining already fragile sentiment and will force the banks to tighten up on their credit policies. If ether of both of these happen, there would be a downgrading of investment and spending plans in an economy that is already growing below its long run trend. Sound, financially secure and well-run banks are the bedrock of a modern and successful economy.

Banks and other financial institutions allow consumers to borrow money for their house, to fund some of their personal expenditure while at the same time, often manage their superannuation savings. They also help business, big and small, expand and invest.

Mon, 23 Apr 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/tax-pushed-spotlight-012812764.html 

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Why your tax is about to be pushed into the spotlight

The budget is just a few weeks away. The Federal election is likely within a year.

Over this time, you will be hearing a lot more about tax. Some will claim the tax-take of the government in Australia is high and that cuts in company and personal income taxes are a necessary policy aim. Others will claim a decent amount of tax revenue is needed to fund the services the people demand from government, namely health care, education, roads, defence, pensions and the like. Closing loopholes and getting rid of unfair tax breaks, collecting more tax in other words, will allow billions of dollars to be directed from the wealthiest so that these services can be funded.

All this assumes, quite plainly, that responsible economic policy delivers budget surpluses when the economy is strong and allows for deficits when the economy is soft or downright weak.

But let’s have a look at a few of these claims on tax against some hard and fast facts.

Wed, 11 Apr 2018  |  

The RBA Governor, Phillip Lowe, suggested that when interest rates do increase, it “will come as a shock to some people”.

On this, Lowe is spot on.

It has been 7 and a half years since the last interest rate rise from the RBA which means that those who have taken on debt since November 2010 have only see their interest rate stay the same or move lower.

There are a few fun facts with this development.

Wed, 11 Apr 2018  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2018/apr/11/first-home-owner-grants-and-the-peoples-bank-plan-push-house-prices-higher?CMP=soc_3156 

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First home owner grants and the people's bank plan push house prices higher

The Reserve Bank of Australia must be dismayed at the policies from several state governments that have increased cash payments to first home buyers and propose a people’s bank that, among other things, will make it easier for potential owner-occupiers to access credit and bid for a house.

The last thing potential property buyers need is easier access to credit and cash handouts to boost demand. Indeed, the RBA and other regulators are still working the other way, keeping policy tight so that credit growth continues to slow and with that, there will be some rebalancing of household balance sheets away from ever increasing debt.

The first home owners grant increases in NSW and Victoria have underpinned prices, with the number of first home buyers rising around 35% over the past year. In addition to adding to demand for housing, these policies have also been costly to the state budget position.

Without this surge in first home buyer activity, house prices would have no doubt been weaker still and that may have allowed the RBA to be more proactive in setting monetary policy with an eye to boosting demand and lowering unemployment which would impact positively on wages growth and in time see inflation return to the target.

One of the important economic issues that will likely have a significant impact on the economy and policy, is the fall in house prices that is steadily unfolding.

Outside Darwin and Perth, where prices have slumped by over 20% and 10% respectively from their peaks, the falls are not yet substantial, but they could be signalling the early stages of a fall in household wealth which, if sustained, would have consequences for the economy.

In the two mega-cities, Sydney and Melbourne, prices are down 4% and 1%, respectively, from the late 2017 peaks and according to the Corelogic price data, there is no evidence that the falls in prices are abating.

Mon, 02 Apr 2018  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2018/mar/19/the-next-election-is-as-much-about-labor-v-liberals-as-young-v-old 

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The next election is as much about Labor v Liberals as young v old

For younger Australians who are increasingly disaffected and angry about the growth of intergenerational inequality in housing, superannuation and education, there will be a clear choice at the next election.

With its latest policy on the tax treatment of dividend imputation, Labor has added to its policy agenda that promises to tackle some of the intergenerational unfairness that has built up in recent decades. It follows Labor’s proposed reforms on housing and education which should give young people something to be pleased about and a motivation to turn up at the ballot box when the election is held.

For the so-called baby boomers, generally those at or near retirement, Labor’s policies are likely to generate disaffection and shore up their support for the Coalition.

Specifically, the Labor party’s policies on negative gearing will help make housing more affordable, while its plan to adjust the tax treatment of dividends that currently favour well-off baby boomers with shares in their superannuation portfolios will free up cash for spending in education. This in turn will allow younger people to have greater access to gaining a skill, training and education without the burden of huge HECS debt.

These policies should set a clear divide between the young and old, between Labor and the Coalition at the next election.

Mon, 26 Mar 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/australia-urgently-needs-interest-rate-cut-231554621.html 

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Australia urgently needs an interest rate cut

The Australian economy urgently needs an interest rate cut, or two, if there is to be a pick up in activity, lower unemployment, higher wages growth and for inflation to move back to the RBA target range.

The RBA last cut interest rates in August 2016 to 1.5 per cent, having dragged the chain to cut to even that level when the bulk of the industrialised world had already had the benefits of years of near zero interest rates and, in many cases, quantitative easing. This is not to say that Australia needed zero interest rates or QE, but official interest rates below 1.5 per cent a year or two earlier would have helped support growth and not seen Australia stand out like a sore thumb with a lack of progress on reducing the unemployment rate and returning the economy to optimal growth.

Of course, the RBA was worried about house prices. Its problem was its strong philosophical objection to regulatory changes to limit lending for housing, especially investor housing. Had it embraced these changes earlier, it would have been able to cut rates to help the business sector be the lynchpin of stronger growth while the housing market softened.

Thankfully, on the issue of changes to lending regulations, the RBA was left on the sidelines. APRA and other regulators imposed restrictions on bank lending which are now clearly having an impact on the housing market. 

Fri, 23 Mar 2018  |  

This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/heres-political-debate-tax-getting-hot-213307700.html 

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Here's why the political debate over tax is getting hot

Just about all economists agree with the general principal of budget management that the Federal budget should be in balance over the course of the business cycle and that the level of net government debt should be low enough to ensure the maintenance of Australia’s triple-A credit rating.

These big picture fiscal themes even have bipartisan support with both the Coalition and Labor arguing that they will both deliver a sound budget position when in government. But like someone planning to travel from Dublin to Cork, there are different routes that can be taken to get there. What is the best policy mix that will meet the end point of budget management of balanced budgets and low government debt?

In broad terms, there are two paths that the government can take to balance the budget and contain government debt.

One is to spend less money by cutting government funded services on education, health, roads, pensions and the like while keeping the tax base lower than it would otherwise be. Such a strategy can comfortably balance the budget as fiscal austerity trims the spending side.

The other way is to have tax laws to ensure there is enough revenue in the government coffers so that services can be provided to a large number of people at a high quality. If the tax system is progressive, the much of the revenue raise will be through fair means.

Tue, 13 Mar 2018  |  

This article first appeared on the Yahoo7 Finance website at this link:  https://au.finance.yahoo.com/news/house-prices-fall-across-australia-worried-004714571.html 

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As house prices fall across Australia, should we be worried for our economy?

Are you a home owner?

If you are in Sydney, Perth and Darwin, you are losing money at a rapid rate.

In Melbourne and Canberra, prices are topping out and there is a growing risk that prices will fall through the course of this year. If your dwelling is in Brisbane or Adelaide, you are experiencing only gentle price increases, whilst the only city of strength is Hobart, where house prices are up over 13 per cent in the past year.

The house price data, which are compiled by Corelogic, are flashing something of a warning light on the health of the housing market and therefore the overall economy. For the moment, the drop in house prices has not been sufficient to unsettle the economy, even though consumer spending has been moderate over the past year.

The importance of house prices on the health of the economy is shown in the broad trend where the cities that have the weakest housing markets tend to have the slowest growth in consumer spending and are the worst performance for employment and the unemployment rate. The cities with the strongest house prices have strong labour markets and more robust consumer spending.

Wed, 07 Mar 2018  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/trump-cause-next-global-recession-heres-233953884.html 

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Trump could cause the next global recession: here's how

The Trump trade wars threaten the global economy. This is not an exaggeration or headline grabbing claim, but an economic slump based on a US inspired global trade war is a distinct and growing possibility as it would dislocate global trade flows, production chains and bottom line economic growth.

Up until a few weeks ago, there was a strong enthusiasm for the economic policies of US President Donald Trump. Tax cuts and planned infrastructure spending were seen to be good for the US and world economies. US stocks and many around the rest of the world rose strongly, to a series of record highs. At the same time, bond yields (market interest rates) surged as the market priced in interest rate hikes and inflation risks from the ‘pro-growth’ policies. It was seen to be good news.

Very few, it seems, were worried about the consequences for US government debt and the budget deficit from this cash splash, especially when the US Federal Reserve was already on a well publicised path to hiking interest rates.

About a month or two ago, a few of the more enlightened and inquisitive analysts started to focus on the fact that the annual budget deficit under Trump was poised to explode above US$1 trillion with US government set to exceed 100 per cent of annual GDP.

A debt binge fuelled by tax cuts was a threat to the economy after the temporary sugar hit.

Wed, 28 Feb 2018  |  

This article first appeared on the FIIG website at this link: https://thewire.fiig.com.au/article/commentary/opinion/2018/02/25/26-years-and-no-recession-what-might-go-wrong 

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26 years and no recession – what might go wrong

 Australians should be justifiably proud of the fact that the last recession in Australia ended in the June quarter 1991, over 26 years ago. This means around half the current workforce has never had to deal with the pain and suffering – both financial and emotional – that a recession delivers.

While the economy is hardly on fire at the moment, it is pretty safe to say there is no material threat of a recession. Indeed, there are few identifiable issues that can be seen as genuine triggers for what some are suggesting is a long overdue recession.

As 2018 kicks off, business investment is rapidly recovering from the mining sector imposed slump and public sector spending is strong. These items alone will provide a foundation for the economy for the next year or two, also supported by the export sector, which should perform well following steady growth in the global economy. Despite moderate growth in household spending due to weak wages growth and high levels of household debt, it is still expanding and adding to bottom line GDP. In other words, it is not falling and offsetting the positive news in business investment and public spending.

For a recession to emerge as a material threat, household consumption has to fall, or business investment and public infrastructure spending has to reverse sharply, neither of which are currently on the radar.

Forecasting a recession is easy

Forecasting recessions is easy and many people seem to make a living out of it.

THE LATEST FROM THE KOUK

Will the Banking Royal Commission undermine the economy?

Tue, 24 Apr 2018

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/will-banking-royal-commission-undermine-economy-054126660.html 

----------------------------------------------------------------------  

Will the Banking Royal Commission undermine the economy?

 For those of us worried about the health of the economy, economic growth and the objective of full-employment, the findings of the banking Royal Commission are extremely worrying.

There is a real risk that the revelations about the misconduct and devious practises of the banks will have the dual effect of undermining already fragile sentiment and will force the banks to tighten up on their credit policies. If ether of both of these happen, there would be a downgrading of investment and spending plans in an economy that is already growing below its long run trend. Sound, financially secure and well-run banks are the bedrock of a modern and successful economy.

Banks and other financial institutions allow consumers to borrow money for their house, to fund some of their personal expenditure while at the same time, often manage their superannuation savings. They also help business, big and small, expand and invest.

Why your tax is about to be pushed into the spotlight

Mon, 23 Apr 2018

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/tax-pushed-spotlight-012812764.html 

 -------------------------------------------------------

Why your tax is about to be pushed into the spotlight

The budget is just a few weeks away. The Federal election is likely within a year.

Over this time, you will be hearing a lot more about tax. Some will claim the tax-take of the government in Australia is high and that cuts in company and personal income taxes are a necessary policy aim. Others will claim a decent amount of tax revenue is needed to fund the services the people demand from government, namely health care, education, roads, defence, pensions and the like. Closing loopholes and getting rid of unfair tax breaks, collecting more tax in other words, will allow billions of dollars to be directed from the wealthiest so that these services can be funded.

All this assumes, quite plainly, that responsible economic policy delivers budget surpluses when the economy is strong and allows for deficits when the economy is soft or downright weak.

But let’s have a look at a few of these claims on tax against some hard and fast facts.