This article first appeared on the Dynamic Syndications website at this link: https://www.dynamicsyndications.com/news/CAT--DOG-or-RACEHORSE--Comparing-costs-may-surprise-you-
Cat, dog or a racehorse? Comparing costs may surprise you
When I tell family and friends that I own a share in a couple of race horses, they are often aghast – “how much does that cost?” and “You must have heaps of spare cash” or words to that effect.
Being an economist, I know pretty much exactly how much it will cost me each month to have a high quality racehorse spelled, trained, vetted, raced and looked after as it goes through the racing cycle. And I note at the outset that the costs include the horses being trained by the wonderfully marvelous Gai Waterhouse, the Hall of Fame Champion trainer who has more accolades than I have had hot dinners – and that’s a lot!
The funny thing is that most of my friends own a cat or two, a dog or two or both cats and dogs and an array of other pets. Funny because it costs about as much to look after a cat or dog as it does owning a 5% share in a racehorse. My family own two cats and I know how much they cost to look after.
I must note and emphasise that the references below refer to the maintenance costs of horses, cats and dogs after they have been purchased. Most horses are undeniably expensive to buy into (commonly $5,000 to $10,000 or even a little more for a 5% share) which is clearly a lot more than a furry pet that sits on your lap or you take for a walk.
But read on and you’ll see what I am getting at.
This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/to-cut-company-tax-or-not-that-is-the-question-002352751.html
To cut (company) tax or not - that is the question
In the furious debate about the cost and benefits of the government’s proposed cuts to company tax, the discussion is more about ideology and not much about facts.
In an ideal world, that is one where the budget can afford it and other social and economic issues have been addressed, cuts to tax rates on personal income and companies are probably beneficial to the economy. That said, data from around the world shows that there is effectively zero correlation between the level of a country’s company tax rate and the level of unemployment.
That’s right. There is no evidence to suggest that a low company tax rate is associated with a low unemployment rate and vice versa. Some countries with low company tax rates have high unemployment, while some with a high company tax rate have low unemployment.
This article first appeared on The Adelaide Review website at his link: https://adelaidereview.com.au/opinion/business-finance/behind-australias-sheer-dumb-luck/
What’s Behind Australia’s Sheer Dumb Luck?
As the mining investment slump continues and the housing boom is at an extreme risk of turning nasty, the Australian economy is getting another dose of good luck.
In the last year or so there has been a significant rise in commodity prices, and this is adding to national income and corporate profits, presenting upward momentum to the economy for the first time in four years. Over the past year, the economy has otherwise muddled along with GDP growth not sufficient to boost employment growth, wages growth or inflation, the latter two hovering at record lows. The market is so convinced about this change of luck that it is betting that the sharp rise in commodity prices will force a policy tightening within a year.
The money market futures are now pricing in two 25 basis point interest rate increases by the end of 2018, such is the optimism and change in sentiment. There is roughly a 50 per cent chance that the RBA will hike rates before the end of 2017. Just a few months ago, an interest rate cut was anticipated by the market.
Regardless of what might happen to interest rates, the commodity price rise has occurred at a time of record production of iron ore and coal, and even though natural gas prices have lagged the strength in other commodities, gas output and exports are set to surge in the next few years. Not only are the amount of commodities we are exporting rising strongly, but the price received is sharply higher.
This article first appeared on the Yahoo7 Finance website at this link: https://au.finance.yahoo.com/news/why-an-interest-rate-cut-is-needed-220755657.html
Why an interest rate cut is needed
It has been more than 8 months since the last interest rate cut from the RBA and based on the recent rhetoric from senior officials, it is unlikely to deliver another one in the near term. Over the medium term, the RBA is likely to change its view on the economy and it is likely to cut interest rates as it strives to boost growth, inflation and employment.
In forming this controversial view of monetary policy, the RBA is paying lip service to the bulk of the hard data on the economy, which would normally demand an immediate interest rate cut or two. Instead, the RBA is relying on what are very optimistic forecasts for the economy and is making a proverbial mountain out of a mole hill about house prices pressures in Sydney and Melbourne in deciding not to cut.
Interest rates are only a part of the house price problem in those cities. Simply note weak housing in Perth, Darwin and much of regional Australia to see why the current level of interest rates are not the main factor in the house price equation.
Since the August 2016 interest rate cut, the hard data paint a disconcerting picture on the economy. The unemployment rate has risen from 5.7 per cent to 5.9 per cent; the annual increase in the underlying inflation rate has dropped from 1.6 per cent to 1.5 per cent; annual wages growth has slowed from 2.1 per cent to 1.9 per cent and annual growth in real growth in GDP has dropped from 3.1 per cent to 2.4 per cent. Retail sales and new building approvals have also been very weak since the second half of 2016.
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
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.
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.
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.
This article first appeared in the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/labour-market-why-beauty-is-in-the-eye-of-the-beholder-011836039.html?soc_src=social-sh&soc_trk=tw
Aussie labour market: Why beauty is in the eye of the beholder
Economic facts do not always give an accurate reading on the health of the economy. Or rather, they are open to interpretation and, as in most things, the beauty is in the eye of the beholder.
Think of today’s labour force data.
The unemployment rate in seasonally adjusted terms in February was 5.9 per cent. Whether that is a ‘good’ or a ‘bad’ number is open to interpretation. Compared with January, the unemployment rate was 0.2 percentage points higher; compared with middle of 2015 ago, it was 0.4 percentage points lower; compared with the recent low point in the unemployment rate just prior to the global financial crisis, it was almost 2 percentage points higher.
See the difficulty in determining whether it’s a good or bad result?
This article first appeared on The Guardian website at this link: https://www.theguardian.com/australia-news/2017/mar/08/to-tackle-housing-affordability-scott-morrison-must-get-more-homes-built
To tackle housing affordability Scott Morrison must get more homes built
Scott Morrison is aiming to make housing affordability a key policy aspect of the federal budget in May. If the treasurer can set in place policies that go towards achieving this, it will be good news for the economy and for issues of fairness and equity.
Housing affordability is relatively easy to calculate because it is the interplay of house prices, household income and the level of mortgage interest rates. Nothing else drives affordability, although having a deposit helps too.
There are three factors that can improve affordability: falling house prices, rising wages and lower interest rates.
I continue to wonder why the super-charged debate on Australian housing is so devoid of reliable facts and analysis. So much of the debate relies on privately manufactured snake oil, made up of unproven survey results, pretend numbers, factual errors and sweeping generalisations that fit into the "OMG I'll never be able to buy a house" narrative that generates lots of clicks and unleashes pent up anger. The media, or a large part of it, love these 'crises' and report the snake oil without doing any background checking or research to see whether the report they are covering is in any way accurate.
So little of the news, reporting and commentary makes reference to the comprehensive, in depth, reliable, considered and unbiased research of the RBA.
While house prices are not a direct policy aim of the RBA, distortions in the housing market can have consequences for the marco economy, inflation and financial stability, which is why it spends a lot of time researching the issue and, thankfully for those with an open mind, the RBA published much of its findings.
This article first appeared on the Yahoo7 website at this link: https://au.finance.yahoo.com/news/can-we-fix-housing-affordability-from-supply-side-232827776.html?soc_src=social-sh&soc_trk=tw
Addressing housing affordability with a sellers subsidy
Let’s fix housing affordability from the supply side.
Instead of cash incentives to buyers which will only fuel a surge in already strong demand and further add to price pressures, what about a government policy that offers, say, $15,000 for owner occupiers to put their house on the market and sell it, and investors $25,000 to sell their investment properties?
Think of the flood of houses that would come on to the market as people close to selling but not quite across the line take advantage of the Home Sellers Grant.
Investors, increasingly frustrated with very low rental yields and now perhaps starting to fret about the prospect for higher interest rates in the not too distant future, might get out while the going is good. The fresh supply would likely be substantial.
Buyers would likely be flooded with choice. Sellers may be inclined to accept a lower selling price knowing it will be topped up by the grant. Of course, there could be a price threshold for the selling price ensuring sellers of super expensive property don’t get the subsidy. This could be assessed at the median price for each town and city calculated from the various house price data bases.