Amid all of the political kerfuffle, opinion polls and growing sense of incompetence surrounding the Abbott government, the betting markets continue to have the Coalition as warm to hot favourites to win the next Federal election.
For those punters thinking Labor will cruise to victory at the next election, buoyed by disenchantment with thet Abbott government, as much at $2.65 is available from the bookies. In other words, punters can get a 165 per cent tax free return for a 28 months investment if in fact Labor romp home at the next election.
These appear to be generous odds in a two-horse race where the polls are generally 53 to 56 per cent to Labor and 44 to 47 per cent to the Coalition.
The RPData house price series shows that house prices have tumbled a quite remarkable 1.7 per cent so far in May. This follows a softish 0.3 per cent rise in April and it just might be signaling something starting to go amiss in the $5 trillion housing market.
To be sure, the RPData house price series are not seasonally adjusted, they are produced on transactions from several months ago and no doubt there are other foibles in the series, but they are often used by the RBA to judge house price trends and for that reason alone, they are worthy of mention.
It was always likely that house prices would be softening after the strong gains between late 2012 and early 2014. It is just that the catalyst for the slowing - higher interest rates – has not been the cause.
I am very, very surprised at the extent to which some key drivers of the Australian economy have hit a brick wall.
It is increasingly clear that this means the RBA is on hold for a while longer and my earlier view that the economy would sustain a period of strong growth was probably wrong. This upbeat view has been superseded by a strange and disconcerting run of economic news.
Consumer sentiment has been smashed, with the ANZ-Roy Morgan measure dropping a tub-thumping 14 per cent in a month. With interest rates obviously on hold, stock prices sort of flat and no other significant factor about, it must be reaction to the budget that is driving this collapse in sentiment. It is a similar story with the Westpac-Melbourne Institute measure of consumer sentiment which dumped 6.8 points in May to be at levels associated with very weak growth in consumer spending.
One of the issues in the carbon price furore of recent years was the perception that consumers would be hit very hard by the associated rise in electricity prices. This was despite the obvious fact that for the average household, electricity is a small part of their spending and the Gillard government ensured that over three-quarters of the population was compensated for this rise.
More recently, Treasurer Joe Hockey has got into hot water over his comment that the $7 GP charge his government has implemented each time you go to the doctor is just "a couple of middies of beer or the third of the price of a packet of cigarettes"
Well, according to the latest consumer piece index release, the following facts of household spending make for interesting reading.
It will be terrific viewing tomorrow night when Treasurer Joe Hockey appears on ABC TV's Q&A programme. It is an opportunity for the Treasurer to outline his economic strategy and the issues that he was dealing with as he framed the first budget of the Abbott government.
It is to be hoped that the questions and discussion move away from the lame rhetoric and platitudes that have come to dominate the economic and policy discussion in recent years.
On that score, here are 10 questions that I would like to hear Mr Hockey asked tomorrow night (or on any occasion for that matter).
After a tepid 0.3 per cent rise in April, house prices have fallen a somewhat large 0.7 per cent in the first 16 days of May, according to the daily RPData house price series.
While the numbers are clearly choppy, volatile and are not seasonally adjusted (the autumn blues?), we just might be seeing the jolt to consumer sentiment and impaired affordability starting to bite what had been a strong rise in prices.
For now, a moderate house price fall of, say, 5 per cent or so would be small beer. Even with the recent house price pick up, which was looking uncomfortably large, the total change in house prices since 2010 has been a little over 6 per cent. This is not a large change.
That said, the perils of falling house prices for the banking sector and the economy more generally are clear. One only has to look at the experience of Ireland, the US, the UK and Spain, to name a few, to see how a drop in house prices can smash the economy into recession.
Mr Hockey's first budget allows me to update my 'size of government' comparison, which I first published on 1 May 2014. It is reproduced in full, below.
For the sake of simplicity, the size of government is calculated by adding revenue and spending as a share of GDP, to see what sort of footprint any particular government has in the economy.
It is early days for the Abbott government, to be sure, but the budget shows that the size of his government will be 49.1 per cent of GDP, calculated on the period from 2014-15 to 2017-18.
This is a smidge below the Howard government (49.2 per cent) and the Hawke / Keating government (49.6 per cent), but is significantly larger than the Rudd/Gillard government (47.4 per cent).
Today's the day the snake oil assumptions that created the budget 'emergency' should be washed away and the true position of the long run fiscal settings will be revealed.
A vital element of the bottom line of the 2014-15 budget and the forward estimates will be the extent to which changes in the economic parameters are the driver of the return to budget surplus.
Most people seem to have forgotten that in the independently prepared PEFO document released during the election campaign in August 2013, the budget was on track to return to surplus in 2016-17. The PEFO used a range of conservative and near consensus forecasts. No serious economist took issue with the numbers underpinning the PEFO estimates.
This changed with the MYEFO in December 2013 when the Treasurer's office forced a range of unduly pessimistic forecasts onto a meek Treasury and as a result, the budget was smashed to the point where never again would Australia record a budget surplus.
With today's $700 million borrowing by the Abbott government, the cumulative total of all borrowing since the election stands at $70.95 billion. Not bad for a government that prior to the election was hell bent of paying off debt but to date has only had policies in place to increase borrowing.
The $70.95 billion of borrowing includes funds to cover maturing bonds and T-Notes, as it always does, as well as covering the Commonwealth government's budget deficit which at the time of MYEFO was assumed to be $47 billion in 2013-14.
Allowing for the borrowing to cover maturities, gross government debt has increased by $46.7 billion since the 2013 election to now stand at $319.925 billion.
This article first appeared on the ABC's The Drum. It is also at https://www.percapita.org.au/01_cms/details.asp?ID=711
Joe Hockey's policy prescriptions along with stronger economic parameters could have the budget heading towards a surplus in 2016-17 and beyond, writes Stephen Koukoulas.
The budget will comprise thousands of pages of documents, perhaps a million words, and many hundreds of tables and charts. No one will read it all, not even the Treasurer Joe Hockey or his trusty sidekick, Finance Minister Mathias Cormann.
That matters little, because from a macroeconomic perspective, which looks at the total impact of the policy decisions that will be taken in the budget, it is thankfully possible to focus on less than a dozen pages and just a few tables.
The big picture view will boil down to a comparison of the new data within the budget with that presented in the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2013 and the Pre-Election Fiscal Outlook (PEFO) in August 2013.