This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/business-finance/scouring-budget-enlightenment/
Scouring the Budget for Enlightenment
Every Federal Budget contains many thousands of numbers, graphs and words about the economy, the finances of the government and the impact of the decisions taken during the budget process.
It is impossible to digest every aspect of this myriad of information but it is fun, and somewhat enlightening, to scour through the budget papers for interesting facts and issues that the budget throws up after it has been delivered.
Some of those issues that captured my attention, as I sat by the fire the weekend after budget day, are outlined below. They help to illustrate how detailed and complex the budget process is and how much work is undertaken to get the budget finished, signed off and delivered on time each year.
Here are some Budget snippets:
Each US$1 a tonne move in the iron ore price in 2018-19, away from the US$55 a tonne assumed in the budget, impacts government tax receipts by $420 million per annum. If, for example, the iron ore price were to jump US$20 / tonne, to the level it was two months ago, the budget bottom line would improve by $8.4 billion each year.
This article first appeared on the Yahoo7 Finance web site at this link: https://au.finance.yahoo.com/news/housing-hit-wall-225035072.html
House prices slump: Straw that breaks the economy’s back?
Will a slump in house prices be the straw that breaks the economy’s back and be the trigger for an economic hard landing in Australia?
Probably no, but it is a question that will likely dominate the news over the remainder of 2017 and into 2018.
Australia has gone 25 glorious years without a recession, but the risks are building that late 2017 and 2018 will be glum ones for the economy. The extent to which the economy is stuck in the mud will depend on the extent of the housing slowdown, the impact this has on already fragile consumer demand and the policy response of the RBA and possibly the government.
A slump in house prices will damage consumer wealth and with that consumer spending, investment and employment. Wages growth, which is already at a record low, will stay low which will further compound the lack of traction in the economy and feed into the fragile growth outlook. Already retail sales are flat or falling and consumer sentiment shows more people are pessimistic than optimistic.
This is not good news.
This article first appeared on The Adelaide Review website at this link: https://adelaidereview.com.au/opinion/politics/its-the-economy-stupid-australia-turnbull-government/
It’s the Economy, Stupid
Those in power, who are able to pull the economic policy levers, are unable or unwilling or simply unaware of what is happening in the economy and what needs to be done to get the economy back on track to stronger job creating growth.
At every opportunity, the Turnbull government is sweeping economics under the rug while it focuses on terror, laws on racial vilification, rhetoric about ‘hard working Australians’, a blip in energy prices and anything else that means the economy is not discussed. The ‘jobs and growth’ mantra is as sincere and meaningful as a US shop assistant saying ‘you’re welcome and have a nice day’ just after they serve you a miserable coffee.
The other economic policy heavyweight, the RBA, is fixated about house prices in Sydney and Melbourne and continues to leave Australia with some of the highest interest rates in the industrialised world and an over-valued exchange rate. It does this while inflation is entrenched below the bottom of its own target range, real wages growth stalls and the spare capacity in the labour market balloons.
To be fair, there is one economic policy issue that has a substantive proposal behind it – the cut to company tax rates. But the plan to reduce company tax rates is more like a Chinese Politburo 10-year plan and it is of such a scale that it will fracture an already vulnerable budget outlook. And, in any event, it looks like hitting the rocks in the senate as it is expensive, ineffective and unpopular. The key elements of the company tax issue will no doubt slowly but surely sink in the not too distant future.
The Australian Office of Financial Management has updated the data on gross government debt level. Today, it hit a new record at $493.8 billion. See aofm.gov.au
Having inherited $273 billion from the Labor government in September 2013, the Coalition’s policies have added a rib-cracking $220 billion in just 3 years and 8 months, and all of this in a climate of decent global economic growth, a lower Aussie dollar and record low interest rates.
Having watched the dust settle from the recent budget, it is clear that the levels of government debt will keep rising, probably at a more rapid rate than Treasurer Scott Morrison projected simply because wages growth is so weak, company profits are fragile and the commodity price outlook has become more fragile on the back of extra global output and huge inventories.
In arguing the case for cutting the company tax rate from 30 per cent to 25 per cent over the course of the next decade, Treasurer Scott Morrison claimed that one of the key effects of such a move would be to boost investment, employment and wages growth.
Let's use the inverse of that logic when it comes to hiking company taxes.
Specifically, does Mr Morrison think that hiking company tax rates will mean lower investment, employment and wages?
This article first appeared on the Yahoo 7 Finance web page at this link: https://au.finance.yahoo.com/news/1187922-051601764.html
Let’s repair the budget once and for all
Let’s once and for all repair the budget and start on a path of lowering government debt by hiking taxes on luxury cars, wine, petrol, diesel, beer, spirits and so-called ‘other’ alcoholic beverages.
Not only will a decent lift in tax in these areas fix the budget, it will be good for the general health of the population (less alcohol consumed), it will help the environment (less driving and a switch to other means of transport) and in the case of luxury cars, it will be fair (taxing expensive cars).
It can work.
As the dust from the 2017 budget slowly settles, it is apparent that there is a moral and political advantage from selectively hiking taxes. There is strong support for the 20 per cent lift in the Medicare levy from 2.5 to 3 per cent; the bank tax is seen to be a claw-back of some of the support that government has previously given to the big four banks; while the tobacco excise tax impost (admittedly delivered over many years) is set to deliver nearly 3 per cent of all revenue to the government and people should stop smoking in any event.
As things stand, there is a problem in that even with this brazen tax grab from the Turnbull government, the budget deficit is still substantial and gross government debt is on track to exceed $600 billion within three years and then it will hit a stonking $725 billion (which will be around $55,000 per household) by 2026-27.
Let’s start from a budget fact that in the financial year 2020-21, the government will raise $15.2 billion from the tobacco excise tax. That is a lot of money from the 13 per cent of the population that smoke.
The luxury car tax in that year, will by way of comparison raise a puny $720 million even though sales of luxury car are already at a record and are set to growth further over the next few years.
So $15 billion from smokers and $0.7 billion from luxury cars?
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/1164162-223853338.html
Morrison has donned rose tinted glasses
As per the normal process, the 2017-18 budget documents went to the printer over the weekend, some 48 hours prior to Treasurer Scott Morrison delivering the budget to the Parliament.
In that time, flood of economic news has cast a shadow over the economic forecasts which are for an acceleration in economic growth over the next few years, a gradual fall in the unemployment rate and a quite staggering acceleration in wages growth.
“Optimistic” might be the catch cry of those budget forecasts.
Morrison is hoping that the economy will miraculously pick up, leading to a surge in tax revenue which feeds into the estimate of a return to budget surplus in 2020-21. Suffice to say, any shortfall in what would be a strong performance in the economy will lead to yet another blow out in the deficit and the return to surplus will be pushed back yet another year or two.
This article first appeared on The Guardian web site at this link: https://www.theguardian.com/australia-news/2017/may/10/warm-words-in-morrisons-budget-barely-disguise-a-story-of-fiscal-failure
Warm words in Morrison's budget barely disguise a story of fiscal failure
Three years ago, then-treasurer Joe Hockey delivered the first budget of the Abbott government. It was a classic austerity budget, designed to tackle the “debt and deficit disaster” and “fiscal emergency” that it had railed against in opposition. That budget saw a raft of spending cuts, user charges and tax increases as the government tried to fast-track the return to budget surplus.
The effect of the policy changes in that budget saw the forecast for the 2016-17 deficit fall to $10.8bn, and then to a mere $2.8bn in 2017-18. There were budget surpluses forecast in 2018-19 and beyond. According to Hockey, the budget had effectively been fixed and the emergency thwarted. Or so it seemed.
Over the intervening three years, the budget bottom line numbers have soured. This is despite the global economy registering solid, unbroken growth that has seen Australian export volumes grow substantially. Domestically, the economy has recorded average gross domestic product (GDP) growth at a reasonable rate, around 2.5% per annum over three years, despite the crash in mining investment and the volatility in commodity prices.
Suffice to say, something has gone badly wrong with budget repair over the past three years.
The Dun & Bradstreet business Expectations Survey were worrying for those looking for economic momentum into the second half of 2017.
For the full report, click on the following link. https://dnb.com.au/article-bex-q3-2017-prelim-results.html#.WQq_jHdh24k
The key points of the release were:
Business expectations have dropped off for the September quarter following a softer-than-expected March quarter. Dun & Bradstreet's April Business Expectations Survey shows lower actual sales, profits, employment, selling prices and capital investment in the first quarter of 2017 compared to the final quarter of 2016.
After an encouraging end to 2016 and significant optimism in the early part of 2017, the business sector has indicated a deterioration in conditions into the second half of the year. It points to a growing risk that the RBA may deliver a further interest rate cut in the months ahead which would be even more likely if inflation remains well contained, as per the results on expected selling prices.
This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/its-the-unemployment-stupid-061925051.html?soc_src=social-sh&soc_trk=tw
Australia is failing when it comes to unemployment
Unemployment around most of the western world is falling at a rapid rate and in many countries it is at a level that is at, or close to, full employment. That means the unemployment rate is low enough to see skills and worker shortages start to appear in some industries and regions and as a result, wages growth is accelerating.
Stimulatory policy settings have driven this favourable outcome, even if those extreme policy settings were in reaction to the economic horrors of the global banking and financial crisis which plummeted much of the world into a recession that threatened to cascade into a depression.
In large part, these falls in unemployment are the result of the success of the unconventional monetary policy actions of central banks – zero or even negative interest rates followed up with huge bouts of quantitative easing have kicked in to support growth, lower unemployment, avoid deflation at the depths of the recession and now it is starting to rekindle much needed inflation.
Unfortunately, Australia has lagged the rest of the world at least in terms of the recent momentum in economic activity and the direction of the unemployment rate.
The unemployment rate is going up and wages growth is going down.