Sat, 01 Nov 2014  |  

This article first appeared on The Drum on 28 October 2014, at this link: 


Why is Abbott considering a GST hike?

Tony Abbott's recent consideration of GST hikes is more about covering his costly policy priorities than plugging a revenue hole in the budget over the next decade, writes Stephen Koukoulas.

It is not altogether clear why Prime Minister Tony Abbott is giving consideration to hiking the rate of the goods and services tax.

This is especially the case when the budget his Government brought down in May confirmed that government revenue would be rising to a healthy 24.9 per cent of GDP in 2017-18, to be well above the historical average and some 2 to 3 per cent of GDP higher than the revenue take under the previous Labor government.

Increasing the rate of the GST is, at face value, a simple and very effective way to boost government revenue. Based on 2014-15 data, each 1 per cent extra on the GST would raise about $5.4 billion (increasing to $6.4 billion in 2017-18), meaning a hike in the GST rate from the current 10 per cent to, say, 15 per cent would add more than $25 billion per year to government revenue, escalating to more than $30 billion per annum within three years - if nothing else changed.

Fri, 31 Oct 2014  |  

The RPData house price series shows that for the five major cities, prices rose 1.1 per cent in October. At face value, this seems a strong rise, but allowing for seasonal factors it reflects a further cooling from what was runaway house price growth late in 2013 and early in 2014.

Here is some context.

In the seven months since the end of March, house prices have risen a moderate 3.8 per cent in total. This translates to average monthly gains of 0.5 percent for an annualised pace of around 6.25 per cent which, clearly, is nothing to be too worried about. Even the year over year rise reported by RPData has fallen to 9.1%, down from the peak levels around 12 per cent earlier this year. It seems likely, if not certain, that the rate of increase will ease further, especially if – or when- macroprudential rules come into place to dampen the sector.

As noted, the real heat in house prices was in 2013 and the early part of 2014 when, arguably, the RBA could have and should have hiked interest rates. Alas, it didn't take my advise and it failed to do so but thankfully, with the momentum in house prices is now off the boil, it can sit tight a little longer on interest rates and judge what happens globally, to the unemployment rate and inflation before changing.

For now, the RBA can rest easy knowing house prices are no longer rising at a pace that is all that concerning. A macroprudential tweak, if delivered, would likely see house prices soften further or even fall and this is when the RBA can move to cut official interest rates as it deals with disinflation pressures domestically and from around the globe.

Thu, 30 Oct 2014  |  

Joe Hockey is right! There is soooo much petty red tape in this great country of ours.

For our Treasurer, it was a pizza shop in Sydney. Thick-crust Joe went for a pizza a few weeks ago and as he arrived he saw a few friends. When he saw a couple of tables outside with three chairs on one table, four on the other, Pepperoni Joe went to put the two tables together so that the two families could be together. What could be nicer than sitting outside on a sunny spring evening, nibbling away at a Quattro Stagioni and a Hawaiian (extra pineapple)?

But there was a problem. The pizza shop owner came out and said "I'm sorry Mr Hockey, you're not allowed to do that, the council regulation prevents you putting the two tables together."

According to Meat Lovers Joe, "There were eight of us, so I went inside to get another chair and they said, 'Sorry Mr Hockey, they've said you can only have seven chairs [outside], not eight". This is when anchovy Joe "exploded."

Arrgghh. RED TAPE!

Fri, 24 Oct 2014  |  

This article appeared in the October edition of The Adelaide Review at this link. It is reproduced in full below. 

The risks of falling house prices

House prices in Australia are high. Having risen by around 9.5 percent over the past year, the Reserve Bank of Australia is giving consideration to implementing radical policies that would not only slow this house price growth but would risk seeing absolute falls in prices.
Before the RBA and the anti-house price growth clique get too excited about the prospect of a policy suite that stops house prices rising or engineers a house price fall, it is worth thinking about the consequences for the macro economy from both strong house prices and the alternative – price weakness.

Wed, 22 Oct 2014  |  

Australia's inflation rate is heading lower. What is interesting is the deceleration in inflation is starting from a position where inflation was within the RBA's target band of 2 to 3 per cent.

In the September quarter, the CPI rose by 0.5 per cent, to be up 2.3 per cent for the year. Taking out the large prices swings and using the RBA underlying measures, inflation was 0.5 per cent for the quarter for an annual rise of just 2.5 per cent. In the first half of 2014, headline inflation was near 3 per cent with underlying inflation around 2.75 per cent.

Inflation is well contained, which ever way you cut it. Indeed, it looks like the quarterly momentum on prices is slowing which will filter into the year on year inflation run rate over the next few quarters. If, for example, underlying inflation is 0.6 per cent in the December quarter, annual underlying inflation, all of a sudden, is down at 2.25 per cent.

Wed, 22 Oct 2014  |  

Within hours of the news that Gough Whitlam had died, age 98, the mantra of 'hopeless economic management' started to flow.

According to those who clearly loathe Whitlam and anything vaguely socially progressive, Fairfax and The Australian had stories where the Tea Party faithful in Australia wrote or were quoted saying, Whitlam was the worst Prime Minister Australia had seen, he was economically damaging, that he set up the culture of entitlement especially for health and university education, that he created the mentality of the dole bludger and so on.

I am sure you get the drift.

Fri, 17 Oct 2014  |  

The global economic slowdown and market turmoil is a cause for concern for Australian policy makers.

The RBA will soon need to consider cutting interest rates based on low inflation, rising unemployment and general economic weakness. For the budget, Treasurer Joe Hockey is facing revenue write-downs from the disinflation funk that is hitting the local economy at the same time the government is ramping up spending. When the Mid Year Economic and Fiscal Outlook is released in December, the budget deficits will be bigger than forecast at Budget time.

The clip below is me talking to Chris Hammer from Fairfax Media on 16 October. 

Wed, 15 Oct 2014  |  

This article was originally published on 30 April 2013 on my old blog,

The background to this article was Mr Abbott taking a significant pay cut after the 2007 election when he went from a Ministerial salary of around $200,000 a year to a Shadow Minister's salary of around $110,000 a year. He and his family clearly maintained their spending levels, did not 'tighten their belts' in any observable way and reverted to debt - a $710,000 mortgage - to cover his expensive lifestyle choices. The article has not been altered to take account of events since April 2013.  


Here's a true story. It's about a man called Tony.

Tony is a hard working Aussie, doing his best to provide for his family. He has a good job, but such is the nature of his work that his income is subject to unpredictable, sharp and sudden changes.

Tony's much loved and wonderful children go to a private school and wow, those fees that he choses to pay are high. He used to have a moderate mortgage, especially given he was doing well with an income well over $200,000 per annum.

Then things on the income side turned sour.

Wed, 15 Oct 2014  |  

Deflation is spreading like the plague throughout Europe to the point where negative interest rates are in play. In the UK, inflation has cascaded to a 5 year low and is set to fall further as the early and encouraging signs of economic recovery in the first half of 2014 are snuffed out. Even in the US inflation is too low and this alone is seeing the market question just when the US Federal Reserve will start to hike interest rates from zero per cent.

This morning the oil price has crashed to below US$82 a barrel (WTI) as a ramp up in supply meets softening demand. The global indices of commodity prices are also plumbing fresh lows.

For Australia, this news is poison.

Tue, 14 Oct 2014  |  

On election night, in September 2013, Tony Abbott claimed that with the election of his government, "From today I declare Australia is under new management and is once more open for business".

Well, 13 months on and the signs are not good for Mr Abbott with the business sector floundering, the stock market flat and under-performing and the unemployment rate rising. At the same time, consumers remain gloomy and the prospects for GDP growth hitting its long run trend at around 3.25 per cent are bleak.

Let's have a look at a few basic facts.


Change of view on interest rates

Fri, 24 May 2019

Having been the only economist to correctly anticipate an interest rate cut from the RBA when close to 50bps of interest rate hikes were priced in to the market last year (See Bloomberg 17 August 2018), I have agonised over the exact months the cuts would be delivered and then how many rate cuts would be needed to reflate the economy.

Recently, I was of the view that the RBA would need to cut 100bps from now, to a level of 0.5%, but I did so with relatively low confidence. This is why I recommended all clients to close their long interest rate positions on 17 April 2019 (when the implied yields were 1.10% for the mid 2020 OIS; 1.35% on 3 year yields and the Aussie dollar was just over 0.7000 at the time).

Like in most good trades that were massively in the money, I left a little money on the table while I reassessed the outlook.

Since calling for interest rate cuts from the RBA, a lot of water has passed under the bridge, especially in the last few weeks.

Events mean I am changing my view on interest rates and have been placing / will be looking to implement new trades.

Watch out Australia: There's a flood of dismal economic news on the horizon

Wed, 01 May 2019

This article first appeared on the Yahoo Finance website at this link:


Watch out Australia: There's a flood of dismal economic news on the horizon

The Australian economy is in trouble and Scott Morrison and the Liberal Party government need to come clean and acknowledge this and outline a framework how this period of economic funk is to be addressed if they win the 18 May election.

The Liberal Party is campaigning in the election on a “strong economy” and being “good economic managers”, bold claims that fly in the face of the latest score card for the economy.

That scorecard shows a flood of what is, frankly, disappointing or even dismal economic news. Australia is going through a very rare recession in per capita GDP terms and last week saw data showing zero inflation in the March quarter. Contribution to these indictors of economic funk is the fact that well over half a trillion dollars of householder wealth has been destroyed as house prices have tumbled.

Add to that the fact reported by the Australian Office of Financial management last week that gross government debt is $543 billion, almost double the level that the Coalition government inherited in September 2013, and the scorecard is looking very ratty indeed.

As the ad man used to say, “but wait, there’s more”.