This article first appeared on the Crikey website at this link: https://www.crikey.com.au/2017/05/02/scott-morrisons-good-debt-bad-debt-economic-slogan-is-rubbish/
ScoMo's ludicrous new budget slogan is stupid and unnecessary
Treasurer Scott Morrison is in trouble. Or at least his budget is.
As Morrison sat down to frame his second budget and the fourth of the current Coalition government, Treasury presented him with an economic triple whammy on the outlook: a wider budget deficit, sluggish economic growth and many years ahead where unemployment will be stuck at a relatively high 5.25-5.75%.
This is an outlook that requires a policy response.
To his credit, Morrison is set to increase infrastructure spending to not only boost growth but to add to productivity. As Labor did during the global crisis, Morrison knows he needs to deliver some fiscal stimulus to move the economy out of its low inflation/high unemployment funk.
The problem politically is that this means an already wide budget deficit and rising level of government debt will need to be expanded. This is anathema to the Coalition and will reinforce the rank hypocrisy of its political strategy over the past decade of maligning budget deficits and rising government debt regardless of the state of the business cycle and level of unemployment and what that debt is being used for.
The budget papers, next week, will show net government debt as a share of GDP on track to reach the highest level since the aftermath of World War II. Faced with this political embarrassment on the economy and rapidly growing debt, Morrison has chosen to trot out a new slogan. Morrison is covering the government’s economic and fiscal challenges by seeking to distinguish between “good” and “bad” government debt.
It is clear that the slogan is cover for what will be a blowout in the budget bottom line.
This article first appeared on The Business Insider at this link https://www.businessinsider.com.au/podcast-devils-and-details-457-visas-2017-4
Click on the link to the podcast with Dr Chris Wright who gave some interesting insights into 457 visas, the labour market and a range of other matters.
PODCAST: With Stephen Koukoulas and Dr Chris Wright on good vs bad debt and the 457 visa changes
Working life is changing. A “job for life” is no longer an expectation. People now have “portfolio careers”. The “gig economy” is an increasing source of income for people, but it comes with none of the associated benefits of work like superannuation and paid holidays.
In Australia, we just learned that consumer prices have been growing marginally ahead of wages. The federal government has moved to tighten the skilled migration program by replacing the 457 visa program with a more restrictive regime.
All of this comes as the RBA has signalled it is less than comfortable with the evident weakness in the labour market: youth unemployment is at all-time highs, and we are starting to see signs of high levels of underemployment among older workers too.
Dr Chris Wright from the University of Sydney business school is an expert in labour market dynamics. On this week’s episode of Devils and Details, Wright joins us along with prominent economist Stephen Koukoulas for an intriguing discussion about what is happening to the way we work and the challenges for Australian businesses in finding the right people.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/inflation-020818312.html
Inflation is low and remains low
Inflation edged up a little in the March quarter – from an annual rate of 1.5 per cent at the end of 2016, the headline rate rose to 2.1 per cent. The underlying rate of inflation, which the RBA trends to place more weight on when it comes to assessments of interest rate policy, was even more muted, lifting from 1.5 per cent to 1.8 per cent.
And recall, the RBA target range for inflation is between 2 and 3 per cent.
Annual underlying inflation has been at or below 2 per cent since late 2015, and has been below 2.5 per cent, the midpoint of the inflation target, since the end of 2014. That is a long time.
The data today confirm that inflation is low and remains low and in isolation, continues to give the RBA plenty of scope to further reduce interest rates. When the recent data on unemployment, building approvals, private sector business investment and wages growth are added to the mix, the case for an interest rate cut is strong.
This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/apr/19/the-australian-budget-is-likely-to-confirm-this-is-a-big-spending-big-taxing-government
The Australian budget is likely to confirm this is a big-spending, big-taxing government
While much of the focus of the upcoming federal budget will, quite rightly, be policy issues associated with housing affordability, areas of changes to spending and revenue, there will also be an opportunity to analyse the underlying values of the government.
This will be the fourth budget of the current Coalition government and will show us the ‘big picture’ of government policies and priorities. There will be data on aggregate government spending, taxation receipts, gross and net government debt and the budget deficit.
The most accurate way to analyse the trends in the key budget figures will be to assess them as a ratio of GDP. Government spending, for example, totalled $48.8bn in 1982-83 and this rose to $423.3bn in 2015-16, which is, at face value, an enormous increase. But spending actually fell from 25.8% of GDP in 1982-83 to 25.6% of GDP in 2015-16. It is a similar issue with government debt, the budget deficit and other benchmarks.
Based on the performance of the economy since the last fiscal update in December 2016, the budget is likely to confirm that this is a big-spending, big-taxing government with a strategy for continuing budget deficits and rising debt as it funds some of its pet projects.
It is all but certain that government debt will remain above 25% of GDP in 2017-18 and the forward estimates, meaning the government will be the first in the last 50 years to have spending at more than a quarter of GDP for eight straight years.
I was delighted to be on Peter Switzer’s show, Switzer Daily discussing the economy.
Click on here for the link of the discussion: https://www.switzer.com.au/video/stephen-koukoulas-20170418/
Let's see who is more right - the optimist (Peter) or me?
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/housing-affordability-axing-prices-answer-024411025.html
Housing affordability: Is axing prices the answer?
Improving household affordability does not mean that house prices have to fall. In the crescendo of noise and fury about house prices in Sydney and Melbourne (forget the rest of the Australia in this debate), too many commentators and analysts are suggesting that the only way to improve affordability is for house prices to fall.
That is wrong. Such comments miss the point about how affordability is measured.
Thankfully, the calculation of housing affordability is remarkably straight-forward.
There are three components of housing affordability – house prices, household disposable income and interest rates. The interaction of these three components and nothing else influence how hard or easy it is to buy a house. Affordability in other words.
Despite the hoopla that greeted the labour force data which showed employment up 60,000 in March, the labour market, and with it the economy, remain entrenched in a quagmire of funk.
To be sure, the 60,000 rise in employment was welcome, but that jobs growth needs to be put in context of the prior months of disappointingly weak job creation. Annual employment growth remains under 1 per cent which is well below the run rate needed to make inroads into unemployment.
Speaking of which – the unemployment rate stayed at a high 5.9 per cent in March. It is at least 1 percentage point higher than the rate seen when the economy is running at full employment. And interestingly, 5.9 per cent is the same rate that prevailed at the peak of the global crisis!
From a macroeconomic management perspective, the 750,000 people unemployed are a huge resource, untapped and unproductive. Many have limited or depreciating skills. Yet the government wants to make it harder for people to get additional skills, training and education. It is content to have the economy slothfully meander while it focuses on fourth tier policy issues.
The social costs of unemployment are even greater.
This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/got-huge-mortgage-rest-easy-now-231105702.html
Got a massive mortgage? Rest easy, for now – you could get a rate cut
Everyone with a large mortgage can rest assured for a while, given that an interest rate hike is unlikely in the next year and if anything, the next move in rates will be a cut.
The market has been speculating about the need for an interest rate hike as the global economy improves and for reasons linked to dealing with house prices in Sydney and Melbourne. The latter point is remarkably silly and ignores one critical factor that always feeds into RBA deliberations – unemployment.
Since December 2002, the Reserve Bank of Australia has hiked interest rates on 17 occasions. Of course, there have been a series of interest rates cuts over that time as well, but it is clear that the unemployment rate is a factor of substance that feeds into the decision to tighten monetary policy.
Those 17 interest rate increases over 15 years have occurred against a range of differing backdrops – the removal of emergency stimulus, dealing with the inflation surge from the terms of trade boom and simply managing the economy in a prudent way, with an eye on keeping the inflation rate on target at between 2 and 3 per cent.
A simple post today.
Policy makers in Australia have not done a good job managing the economy. The government’s tax and spending policies like a dog’s breakfast, achieving neither fiscal consolidation nor growth. The RBA has been distracted by Sydney and Melbourne house prices while the rest of the economy splutters and stutters.
Here are some basic facts.
I was involved in the preparation of a letter to Prime Minister that debunked the claim that cuts to worker's penalty rates would lead to more employment. A brief summary of the findings, plus a link to the letter, are in the link below.
Full praise to Jim Stanford and John Quiggin for their drive in this project and thanks to the other signatories to the letter – the list is a powerful one.
Read the letter and think about whether wage cuts are a good thing for the economy or not. There are a lot of smart people who don’t think so.