Sun, 24 Aug 2014  |  

This article first appeared on my old blog in 2013.

The Howard government went to capital markets on no fewer than 400 occasions to borrow money.

Between March 1996 and November 2007, there were 135 lines of bonds that were taken to market in various bond tenders which were issued with a face value of $51 billion, while there were over 280 T-Note tenders with a face value of over $220 billion.

Wed, 20 Aug 2014  |  

The strange thing about RBA Governor Glenn Stevens testimony to the Parliament today was his agnostic approach to a horribly weak labour market.

Stevens suggested an unemployment rate at around 6.25 per cent and likely to stay there for a couple of years was "kind of OK". The 789,000 people unemployed (plus another half a million underemployed) may beg to differ.

He was correct to note that the record low growth in wages that our flexibale labour market is delivering, would in time help to reverse the rise in the unemployment rate, but only when the pace of economic growth moves back above trend.

Wed, 13 Aug 2014  |  

The labour market is in dreadful shape. Not only is the unemployment at a 12 year high at a rate about 1.5 percentage points above full employment, but the employment to population ratio has slipped to a 9 year low and now annual wages growth has slumped to a level never before recorded by the Australian Bureau of statistics. There are close to 800,000 people unemployed.

Tue, 12 Aug 2014  |  

I originally produced this research at my old website in 2012.

Given the kerfuffle over asset sales and Treasurer Joe Hockey's flailing with the budget and former Treasurer Peter Costello's suggesting that the government redo the budget, I thought it useful to up the debate on debt, asset sales and the fiscal follies of the Howard government.

There are a few updates from when this was initially published.

Australia's net Government debt was $96 billion in June 1996. By June 2007, Australia had net financial assets (negative debt) of $29 billion. The Howard Government and the current Liberal Party point to this turn in the finances of the Government with pride and say it is a sign of good economic management.

To be sure, this is a significant turnaround but there are some interesting facts behind the issue of Government debt in the past 30 or so years

The first point to note is that the $96 billion of debt inherited by the Howard Government from the Labor Party in 1996 comprised around $39.9 billion of debt accumulated by the Fraser Government under the Treasury-ship of Mr Howard and left to the Hawke Government in 1983! See Table 3 of Budget Paper 10 for more details.

As I discussed a while back, , when the Coalition talks of the $96 billion of Labor debt that it inherited, recall that just under half of it was in fact Liberal Party debt that was a hangover from the Fraser era that ended in 1983.

That slightly embarrassing issue aside, let's look at how else the Howard Government "got rid" of that debt.

Asset sales loom large in that discussion. The list of government assets sold by the Howard government is here: . This table shows the asset, the time of sale and the price.

To get an accurate indication of the true dollar impact on debt of those asset sales, I have converted them into June 2007 dollar terms. Take the sale of DASFLEET, for example, which was sold for $408 million in July 1997. In June 2007 terms, this was worth $536.8 million. Or perhaps the first tranche of Telstra is interesting. Sold for $17.2 billion in November 1997, that converts to $22.6 billion in June 2007 terms.
The value of all asset sales under the Howard Government totalled a very hefty $71.8 billion in June 2007 dollar terms. This means that around three-quarters of the pay-down of the $96 billion of government debt was simply from selling assets to the private sector. Nothing more, nothing less.

To summarise the above facts:

The $96 billion "Labor debt" inherited by the Howard Government in 1996 comprised $39.9 billion of Fraser Government debt that carried through the Hawke/Keating period meaning that the true level of Labor debt in 1996 was $56 billion. To pay that $56 billion off, the Howard Government sold almost $72 billion of Government assets meaning the move to negative net debt was not really due to any miraculous and bold fiscal settings, but owed everything to a series of asset sales.

Mon, 11 Aug 2014  |  

This article originally appeared on the Business Spectator website in October 2013: Here 

Budget complaints bark up the wrong tree

With this being my second to last article for Business Spectator, I want to deal with the concept of good economic management.

Don't let this put you off, but the issue of what is a 'good economic manager' has been clouded by the hysteria of recent years and what has generally been an unquestioning dogma on what economic policy is all about.

Let's start at the end.

At a macroeconomic level, if policy makers in Australia can deliver annual GDP growth at 3 per cent, inflation between 2 and 3 per cent, an unemployment rate at 4 or 5 point something, and preside over rising living standards, this is almost perfect. It is as good as it gets.

For all credible economists, this is the unquestioned, universally agreed end game for policy makers.

The budget surplus or deficit, level of debt, interest rates and value of the Australian dollar are the tools used to achieve those objectives and are not the target in themselves.

Fri, 08 Aug 2014  |  

Since the Abbott government came to power in September 2013 on a platform of "reducing debt" and "paying down debt" with the end point of "eliminating debt", it has borrowed, in gross terms, over $93 billion. That is about $2 billion a week.

The borrowings are in the form of government bonds and T-Notes and the debt is issued to cover the usual running costs of government when revenue is not sufficient to cover the cost of things like defence, aged pensions, other social security, health, giving money to the RBA and roads and the like.

The gross borrowings include a lot of short term debt (3 to 6 month T-Notes) and debt issued in years gone by that has matured over that time has had to be covered by new borrowing. The issue of financial management of government finances has been this way for many, many decades and it is entirely appropriate.

This means that the $93 billion or so of borrowing has not all added to the overall level of gross government debt which, according to the Australian Office of Financial Management, has increased to $333.5 billion as of today, which is some $53.2 billion above the level of gross debt at the September 2013 election.

The government has, to date, done nothing to suggest this $2 billion a week gross debt binge is going to end as it promised when in opposition. Losing the revenue from the abolition of the carbon and mining taxes, the cut to company tax, the $8.8 billion spending on the RBA reserves in addition to the paid parental leave scheme, roads, defence and the medical research future fund are all big ticket items that have to be covered.

With evidence building that the economy is stuck in a growth rate at or even a little below trend, the revenue from other sources will not see the budget deficit narrow much over the next few years.

Get set for a lot more borrowing from the Abbott government in the years ahead.

Thu, 07 Aug 2014  |  

Dreadful news on the jobs front.

The low light is a 6.4 per cent unemployment rate – a 12 year high for that measure. Add to that a 9 year low for the employment to population ratio and almost no net increase in employment for the last four months and you have a picture where the jobs market is telling the world (including the RBA), that the rate of economic growth remains below trend.

Curiously, at its meeting just two days ago, the RBA Board noted "There has been some improvement in indicators for the labour market this year" and to be sure, there was. But with this update on the jobs market, it seems that 'improvement' was short lived.

Thu, 07 Aug 2014  |  

This article first appeared in the July edition of The Melbourne Review:

Link here: 

The Australian economy is entering its 24th year without a recession, as we move into the second half of 2014.

This is a feat of extraordinary economic management and terrific good luck. Most economies experience a recession every seven to 10 years or so, as Australia did prior to the 1991 slump.

The reasons why Australia has managed to avoid a period of falling GDP and sharply rising unemployment over recent decades fills one with optimism that the next recession is still some way off. Policy makers have been, and still should be, shrewd and pragmatic, pulling the policy levers without fear or favour as growth and jobs dominate their objectives.

Hugely important for Australia's recent success has been the conduct of monetary policy, including the free-floating Australian dollar.

Tue, 05 Aug 2014  |  

The monetary policy deliberations of the RBA remain torn. At one level, there is a need for higher interest rates as the house price pick up continues, as the hard data on inflation is ticking higher and as evidence mounts that the pause in activity associated with the budget may have been temporary.

At another level, that pause in activity may still be the start of a move back towards sub-trend growth – time will tell, the Australian dollar is still very high – certainly relative to the terms of trade, the unemployment rate is elevated and while the global economy is looking only mediocre, commodity prices are trending lower which will no doubt act as a drag on national income.

So there you have it. Up, down; down, up. While such divergences and uncertainties persist, the best course of action is to leave interest rates steady and that is exactly what the RBA has done for the past year.

Thu, 31 Jul 2014  |  

Some mixed news on the economy today – it suggest that the strong start to 2014 may have edged off a little, but that a resurgence in credit growth and on-going house price inflation are issues that will test the RBA in the months ahead. For now, with the economy rolling along with uneven pressures, the RBA is set to keep interest rates on hold next week and probably for some months beyond.

Credit growth was upbeat, with a monthly rise of 0.7 per cent in June, which was the largest monthly rise since March 2008. Borrowers are back in town! This means that annual credit growth leapt to a 5 year high of 5.1 per cent. This is probably the most important indicator for the RBA today – borrowers are ramping up their credit at the same time lenders are willing to extend that credit. Another few months of these sorts of increases and the RBA will not only be moving to a tightening bias but it will be delivering rate hikes to cool the credit lift off.


Politics Panel: Australia's intergenerational gap

Fri, 25 May 2018

I was one of the panel members of this podcast which was on ABC Radio National. 25 minutes of interesting discussion.

At this link: 

Politics Panel: Australia's intergenerational gap

 With the federal budget handed down and the battle lines emerging for the next election, Australia's intergenerational gap is shaping up as a major political issue.

The Coalition is promising a host of sweeteners for retired voters while Labor is promising to pump more money into education and get housing prices down.
If you're a voter, there's a good chance your view of those promises will be informed by the year you were born.

Do we need to be worried about Australia's economic outlook?

Tue, 22 May 2018

This article first appeared on the Yahoo7 Finance web site at this link: 


Do we need to be worried about Australia's economic outlook?

The Reserve Bank of Australia reckons that the next move in official interest rates is more likely to be up than down. RBA Governor has said so in recent weeks as he talks up the prospects for the economy over the next year or two.

This is disconcerting news for everyone out there with a mortgage or a small business loan, especially in a climate where the business sector is doing it tough and when wages growth is floundering near record lows. The good news is that the RBA is likely to be wrong and the next move in interest rates could be down, such is the run of recent news on the economy. Failing an interest rate cut, the hard economic facts suggest that any interest rate rises are a long way into the future and if they do come, there will not be all that many.

At this point, it is important to bring together the issues that would need to unfold to see the RBA pull the lever to hike interest rates.  At the simplest level, the start of an interest rate hiking cycle would need to see annual GDP growth above 3.25 per cent, the unemployment rate falling to 5 per cent and less, wages growth lifting towards 3 per cent and more and underlying inflation increasing to 2.5 per cent.

This is where the RBA expectation for higher interest rates is on very thin ice.