Blog

Wed, 23 Nov 2016  |  

How about a government policy that benefits people’s health? Raises revenue to help ‘repair’ the budget? Saves the government money in health care and medicine because health outcomes are improved?

No - I am not referring to the tobacco industry, I am talking about a sugar tax.

A sugar tax that raises the price of, say, soft drinks, will lead to lower consumption (gotta love price signals) and raise revenuefor the government. A win-win.

For the sugar growers – be agile. Grow pawpaws, pumpkins, rockmelons, corn or lychees and you will still make a good return. There’s a handy link here for all sugar farmers looking for alternative crops. https://www.daf.qld.gov.au/plants/field-crops-and-pastures/sugar/complementary-crops 

Oh, and if you want to see how the policy on tobacco has worked, see https://thekouk.com/item/403-tobacco-consumption-crashes-after-plain-packaging.html 

Reproduced blow:

Tue, 22 Nov 2016  |  

The Turnbull government is hell-bent on delivering company tax cuts over the next decade. The cost to the budget of these cuts is about $50 billion when fully implemented.

With the budget still in deficit and the surpluses into the 2020’s rice paper thin at best, the money to cover the cost of these tax cuts will have to be borrowed by the government. In other words, there will be a tub-thumping $50 billion of extra government debt once these company tax cuts are in place.

If we work on the reasonably conservative assumption that the average interest rate paid by the government on the money borrowed to fund these lower company tax rates is 2.5 per cent, there will be an additional $1.25 billion of interest to be paid each and every year in perpetuity to cover this cost.

That’s interest only.

That’s $100 million a month in interest, just to fund those company tax cuts. $25 million a week, every week forever, just on interest for this one promise.

Mon, 21 Nov 2016  |  

This article first appeared on the Yahoo 7 Finance website at this link https://au.finance.yahoo.com/news/do-we-need-to-be-worried-about-government-debt-230722360.html 

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Do we need to be worried about government debt?

Here’s a question for those worried about government debt. Which side of politics is racking up debt at a faster pace – Labor under Rudd and Gillard or the Coalition under Abbott and Turnbull?
The answer would surprise most people – it’s the Abbott / Turnbull Coalition government.

Remember when the Labor government was being slammed by the Coalition for creating a “debt and deficit emergency”, Labor were a “budget disaster” and “addicted to borrowing and spending”?

Well, it seems that the Coalition now has a debt problem.

The Labor Party was in government for 70 months from November 2007 to September 2013, during which time gross government debt rose $320 billion. A mix of collapsing revenue from the terms of trade slump plus the huge fiscal policy stimulus associated with the global financial crisis accounted for the bulk of the rise in debt. The rise in government debt averaged $4.6 billion a month for those 70 months.

Recent data from the Australian Office of Financial Management shows that the Coalition government have been racking up debt at a faster pace than Labor. In the 38 months the Coalition has been in power, government debt has risen by $185 billion which is an average increase of $4.9 billion a month.

Mon, 21 Nov 2016  |  

The recent labour market data threw up a few disconcerting facts about the economy.

Since the July 2016 election, employment has fallen by 25,650 people despite growth of over 70,000 in the working age population.

The Coalition government plan for 1 million jobs in 5 years is in tatters. Since the September 2013 election when the pledge was made, monthly employment growth has averaged 12,600 which extrapolated over 5 years means employment gains of just 757,000, some 243,000 short of the 1 million commitment. 

The workforce participation rate fell to 64.4 per cent, the lowest since 2006. At a time when Australia needs more of the population working, participation is falling. Little wonder the budget deficit remains too high.

The underemployment rate rose to a record high of 9.3 per cent, meaning that almost one in 10 people who do have a job would like to work more hours. The economy is simply not growing quickly enough.

In absolute terms, the data are disconcerting and the trend is going the wrong way.  

 

Fri, 18 Nov 2016  |  

The Turnbull government borrowed another $900 million today which means that gross government debt hit a fresh record high of $458.6 billion. It seems a long time ago that the Coalition threatened to block legislation to raise the debt ceiling to what now looks like a puny $300 billion. That was May 2012.

According to the Australian Office of Financial Management, the current government debt level is some $185.5 billion above the level inherited by the Coalition when it won the September 2013 election on a platform to return the budget to surplus and pay off Labor’s debt.

On any objective measure, the Coalition has failed dismally in this KPI. And the AOFM suggests there is still around $40 billion to be borrowed between now and the end on the financial year on 30 June 2017.

Thu, 17 Nov 2016  |  

This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/is-the-aussie-economy-in-trouble-022757219.html 

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Is the Aussie economy in trouble?

It has not been a good week for data on the labour market.

Since the election in July 2016, employment has fallen by 25,600 people despite the working age population increasing by more than 70,000; the workforce participation rate has dropped by an alarming 0.5 percentage points; and annual wages growth has plummeted to just 1.9 per cent, a level not seen in many decades – possibly even half a century.

In trend terms, full-time employment has been falling to 10 straight months which means that the take home pay for many of those with a job is being undermined as workers work fewer hours, on average, than they would like. This crimps consumer spending and so the cycle of weak growth in consumer spending and employment continues.

You don’t have to be an economist to realise these are not good indictors.

Wed, 16 Nov 2016  |  

This article first appeared on The Guardian website at think link: https://www.theguardian.com/business/2016/nov/16/what-bill-shorten-and-labor-can-learn-from-the-election-of-donald-trump#comments 

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What Bill Shorten and Labor can learn from the election of Donald Trump

In the years since the global financial crisis, proposals from Nobel laureates and professors of economics for fiscal policy stimulus to boost growth have been met with widespread derision. This was mainly from the proponents of fiscal austerity, who can only see cuts to government spending as a solution to all economic ills, despite the moribund state of the global economy.

But such economic quackery is being called out by someone who, oddly, appears to the master of quackery, the US president-elect, Donald Trump.

What a turn-up for the books. But the Trump win and his economic agenda has exposed a critical problem for the progressive side of politics in Australia and around the world.

When a bombastic businessman, with a void of economic understanding, accidentally becomes president of the United States and indicates that he will oversee a fiscal stimulus based on an infrastructure and defence spending spree, there is a surging stock market, forecasts of stronger economic growth and all-of-a-sudden analysis that such policy stimulus is overdue.

Fri, 11 Nov 2016  |  

This article first appeared on The Guardian website at this link: https://www.theguardian.com/commentisfree/2016/nov/09/donald-trump-as-us-president-financial-markets-tell-the-world-what-they-think-of-that 

Note: in the 48 hours since this article was written, stocks have risen approximately 4 per cent and government bond yields have crashed, with the 10 year yield in the US, for example, up around 40 basis points. Tjis reverses the knee-jerk rection where bonds rallied and stocks fell.

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Financial markets tell the world what they think of Trump as president

Financial markets have told the world what they think of the election of Donald Trump as US president – and it is not good.

Global stocks, both the futures and in the physical market, started to weaken when the votes started hinting that Trump might get close. They tanked when it was clear Trump would probably win.
There was extreme market volatility as the updated tally of votes were posted minute by minute but with an average fall of around 4% (at the time of writing), the value of global stocks has already dropped around US$3tn in value. US stock futures fell around 4.5%, throughout Europe and the UK stocks are down around 4% to 5%, while Japan is down over 5%. These numbers are fluid, but the verdict and direction are clear.

This market reaction reflects the fear and uncertainty surrounding how president Trump will run the economy, frame the budget and operate on the international stage. As has been well analysed, there are irreconcilable differences in the economic policy aims of Trump – lower taxes and a smaller deficit do not go together, as an example.

“Make America Great Again”, the slogan from the Trump campaign, involves the US raising barriers to international trade in an effort to protect US industry. If Trump follows through and works to restrict trade, especially with China where the US runs a huge trade deficit, there is a genuine threat that the global economy will stall, perhaps falling back into recession. The decades of productivity and income benefits from strong global trade risk coming to an end. Periods of weak global trade are inevitably associated with sluggish growth, stalled productivity and falling living standards.

Tue, 08 Nov 2016  |  

With just two months to go to assess the absurd forecast from RBS analyst Andrew Roberts at the start of the year to “sell everything”, it gives me little pleasure to note that his forecast continues to be humiliatingly wrong. 

If Roberts has any clients left, they would be reeling if they had taken his advise on a range of asset classes he said were a "sell" when in fact most have been rallying strongly.

As a reminder of the issue at hand, when Roberts made his outlandish, headline grabbing forecast, I offered him a chance to have some skin in the game. I was overly generous in my offering noting that he would need to get just 6 of 11 variables to win a $A10,000 bet - not ‘everything’ had to fall for him to be right. The bet I offered Roberts is here https://thekouk.com/blog/sell-everything-my-challenge-to-andrew-roberts-of-rbs.html 

Some ten months since the bet and the scorecard reads:

The Kouk  10
Roberts      1

As has been the case for the bulk of the year, the only market where Roberts is ahead is the Nikkei which is down a piddling 0.2 per cent.

Including that fall, the average rise in the 11 items that Roberts suggested should be sold, the gain so far is a marvelous 22.1 per cent. In the current era of low inflation and low interest rates, that’s about 6 years return in just 10 months.

Fri, 04 Nov 2016  |  

This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/is-the-aussie-economy-back-on-track-for-growth-233144753.html 

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Is the Aussie economy back on track for growth?

The interest rate cutting cycle appears to be over. This is not because inflation is accelerating – on the contrary, inflation remains low and looks like staying low for some time. Rather, interest rates are on hold is because the RBA is looking at a range of indicators that are suggesting the economy will be stronger over the next year and that, in time, inflation will eventually lift and return to the target band.

In other words, in not cutting interest rates now, the RBA is speculating that the economy will be strong enough to drive inflation higher during 2017 and beyond.

The growth pick up scenario has some strong points behind it. Importantly, commodity prices are moving higher which, if sustained, will give a substantial income boost to the Australian economy over the next few years. The unrelenting strength in house prices, particularly in Sydney and Melbourne, is not cooling to any significant extent, which is boosting wealth and posing a threat to financial stability. The RBA would prefer to see house price growth weaken and an interest rate cut does not fit with that wish. It does not want yet lower rates to underpin further house price growth.

THE LATEST FROM THE KOUK

Why are Bill Shorten and Labor scared to run on the economy?

Tue, 21 Mar 2017

This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/16/why-are-bill-shorten-and-labor-scared-to-run-on-the-economy 

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Why are Bill Shorten and Labor scared to run on the economy?

The dust is settling from the Western Australian election and there are some implications for the way the federal Labor party should conduct itself from now until the next election if it is to enhance its chances of winning.

For the Liberal party, the lessons are clear. It might sound trite to mention it but its electoral success will depend almost exclusively on its ability to deliver materially better economic conditions between now and election day.

For Labor, the task is easier. It needs to take the initiative on the economy, economic policy, the budget deficit and government debt and highlight how poor the Coalition has been in most aspects of economic managements since the 2013 election.

In those three-and-a-half years of the Coalition being in charge of the economy and budget, growth has been sluggish despite favourable conditions in Australia’s major trading partners. The Australian economy should be stronger because of the welcome news of the Australian dollar falling sharply in recent years, which has provided a boost to domestic economic conditions. What’s more, interest rates have been cut to record lows, yet the economy has been struggling to register annual GDP growth near 2.5%, the unemployment rate is the same as when the Coalition won the 2013 election, wages growth has plummeted to a record low, and the government debt has grown significantly faster than during the previous Labor government, which of course included the fiscal stimulus measures that kept Australia out of recession.

Ever since the mid-1990s, the Labor party has been reluctant to run hard on issues to do with the economy. For some reason, it is riddled with self-doubt that stems, it appears, from the high interest rates of the late 1980s and early 1990s, and its proactive use of budget debts and moderate debt accumulation during the global crisis to ensure Australia kept growing and to protect an estimated 200,000 jobs.

A $2 billion national building snow job

Sat, 18 Mar 2017

Prime Minister Malcolm Turnbull reckons his Snowy Hydro $2 billion investment is a “nation building project”.

Yes, that is what he said. Really. Turnbull think a one-off $2 billion government infrastructure project is “nation building”.

Let’s look at $2 billion in the context of the Australian economy.

In the December quarter 2016, Australia’s GDP was $435,445 billion dollars (seasonally adjusted). This works out at $4,769 billion a day which makes the $2 billion snow job about 10 hours GDP.

Useful? Sure!

Nation building? Ha!

By 2020, Australia’s GDP will be around $510,000 billion a quarter and $2 billion will be akin to about 8 hours GDP.

Here’s what elese $2 billion is now days.