Mon, 12 Dec 2016  |  

This article first appeared on the Yahoo 7 website at think link: 


Is low Aussie inflation a bonus or a burden?

Since the Coalition government was elected in September 2013, the rate of inflation has been very low. This is generally favourable news at it keeps cost of living pressures in check and means that even with modest wages growth and low interest rates, many householders are able to maintain their purchasing power.
It is important to note that this low inflation climate in Australia has been driven by well contained global inflation pressures and the disinflationary effects of a weak domestic economy.

The low overall inflation rate masks some huge divergences in price pressures between different goods and services.

In the three years of Coalition government, prices have fallen in some significant categories of household spending, most notably petrol (down 23.1 per cent), computers and other electronic equipment (down around 10 to 15 per cent), cars (down 1.7 per cent) and clothing (down 4.3 per cent). These price falls have largely been the result of global issues, especially the drop in oil prices, and the on-going high productivity / low cost production of goods in many merging market countries. Advances in technology have also worked to drive many prices lower.

Thu, 08 Dec 2016  |  

This article first appeared on The Guardian website at this address: 


Coalition policy has gone badly wrong and the RBA needs to cut interest rates

When gross domestic product and employment fall, it is usually the result of a policy error or an external shock to the economy.

An external shock can be ruled out as global GDP growth and financial markets have performed well during 2015 and 2016. This means that the economic weakness now being seen is the result of a policy error.

Today’s September quarter national accounts confirmed a quite stunning 0.5% fall in GDP, which, with hindsight, dovetails with the recent labour force data that shows employment having fallen 25,700 since July. Something has gone wrong.

While the Reserve Bank did cut interest rates in May and August this year, at 1.5% Australian interest rates are among the highest in the industrialised world. The RBA was reluctant to cut because it did not believe the rapid deceleration in inflation to be anything other than a temporary phenomenon and it looked at the growth side of the economy, including wages growth, with rose-coloured glasses, which meant it was generally expecting GDP and employment growth to “eventually” pick up. For the same reason, it also placed little weight on the run of unexpectedly low inflation results.

Wed, 07 Dec 2016  |  

It is always interesting to superimpose facts over perceptions and one that springs to mind is the perception that the Coalition side of politics are better at economic management than Labor.

With the horrid September quarter GDP result today, I thought it useful to dust off the average quarterly GDP results of each government since 1972.

You draw your own conclusions.

Average quarterly GDP

Abbott/Turnbull      0.58%

Rudd/Gillard          0.62%

Howard                 0.89%

Hawke/Keating      0.90%

Fraser                   0.54%

Whitlam                0.76%

Note that in today's dollar terms, 0.01% difference on GDP is approximately $42.3 million per quarter or $170 million a year. 



Wed, 07 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance website at this link: 


Is the Australian economy going backwards?

The news on economic growth is shockingly weak. GDP fell a stunning 0.5 per cent in the September quarter to register only the fourth decline in the last 25 years. It was the second worst GDP result since 1991. It is not good news given the ‘normal’ or long run average rate of quarterly GDP is around 0.75 per cent.

The shock GDP crash follows a raft of other surprisingly poor news on the economy since the July election, where the Coalition campaigned and won on an economic platform of “jobs and growth”. Employment has dropped an alarming 25,700 since the election, as employers have shed staff in reaction to the shrinking economy.

At the same time, annual growth in wages has dropped to an all time low, which is undermining household incomes and with that, the spending power of consumers. It is little wonder household spending growth remains weak and consumer sentiment is hovering around its long run average level. Reflecting these moribund conditions in the economy, underlying inflation has fallen to a record low as firms increasingly resort to price discounting to sell their products.

Fri, 02 Dec 2016  |  

This article first appeared on the Yahoo 7 Finance website at this address: 


Are Aussie interest rates about to hike?

There is a slowly growing vibe that the next move in interest rates in Australia will be up. Perplexingly, money markets are starting to price in higher interest rates for reasons that are paying scant regard to local economic news.

It is a case of the local market reverting to its unthinking, unquestioning attitude to what the RBA tells them in private “Chatham House rule” meetings plus the lead from the US where its strong economy will see the Fed hike its interest rates a few times over the next six months.

In Australia and for the RBA, it is an approach that is ignoring a litany of weak economic indicators.

Think about this for a moment for the Australian economic scorecard. Private sector business investment is in free-fall to be down 13 per cent in the last year and 33 per cent in three years. Underlying inflation is the lowest ever recorded and has been below the bottom of the RBA target range for over a year. Wagers growth has slipped below 2 per cent which is the weakest wages growth in many decades. Employment growth has stalled and underemployment is at a record high.

Tue, 29 Nov 2016  |  

This article first appeared on the Adelaide Review website at this link: 


2016: A Most Reasonable Year for the Economy

The Australian economy is in reasonable shape as 2016 draws to a close. Real GDP growth is around three per cent, inflation is 1.5 per cent while the unemployment rate is hovering near 5.75 per cent.

To be sure, it would be desirable if growth was a little stronger and unemployment lower, but given the collapse in mining investment, consumer spending being constrained by record low wages growth and the pressure of global disinflation on local producers, 2016 has been a stronger year than almost all forecasters were anticipating at the start of the year.

There are reasons to think that 2017 will also be a reasonably good year for the economy.

Commodity prices are edging up and are higher now than at the start of 2016, and, in some cases, this is by a large amount. This is leading to a lift in national income and nominal GDP growth. The Australian dollar, which has been stuck around US 75 cents for many months now, is providing a competitive boost which will further underpin economic growth. One only has to look at the surge in tourism and education exports to see how the lower Aussie dollar is helping the economy.

Sat, 26 Nov 2016  |  

It’s here!

The book I co-wrote with Alan Kohler, Our World in Charts, is available for purchase.

Here is the link to buy it now: 

As the blurb says: An old proverb says: "a picture paints a thousand words" and in this book, the pictures are the charts. The World in Charts has over 150 charts that depict a range of economic, market and social issues. There is a lot of information in each chart and each tells a story which authors Alan Kohler and Stephen Koukoulas explain.

Charts give context. An annual budget deficit of $30 billion sounds a lot, but relative to the size of the economy in 2017 it's about the average of the last 40 years. A chart can show this. Ask a good economist, "how are you today?" and they should answer, "relative to what?" Charts show how the economy or markets are today relative to the past.

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. 

Oh, and if you want to see how the policy on tobacco has worked, see 

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 


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.


The Australian stock market is a global dog.

Sat, 24 Jun 2017

This article first appeared on the Yahoo7 web page at this link: 


The Australian stock market is a global dog.

At a time when stock markets in the big, industrialised countries are zooming to record high after record high, the ASX200 index is going no where. So poor has the performance been that the ASX is around 20 per cent below the level prevailing in 2008.

It is a picture most evident in the last few years. Since the middle of 2013, the ASX 200 has risen by just 10 per cent. The US stock market, by contrast, has risen by 50 per cent, in Germany the rise has been 55 per cent, in Canada the rise has been 20 per cent, in Japan the rise has been 45 per cent while in the UK, with all its troubles, the rise has been 15 per cent.

So what has gone wrong?

Tony Abbott and debt

Fri, 16 Jun 2017

With Tony Abbott and governemnt debt hot news topics at the moment, I thought I would repost this artricle which I wrote in April 2013:

Enjoy, SK


Here’s a true story. It’s about a man called Tony.

Tony is a hard working Aussie, doing his best to provide for his family. He has a good job, but such is the nature of his work that his income is subject to unpredictable, sharp and sudden changes.

Tony’s much loved and wonderful children go to a private school and wow, those fees that he choses to pay are high. He used to have a moderate mortgage, especially given he was doing well with an income well over $200,000 per annum.

Then things on the income side turned sour.

Tony had a change in work status that resulted in his annual income dropping by around $90,000 – a big loss in anyone’s language.

How did Tony respond to this 40 per cent drop in income?

Well, rather than selling the house and moving into smaller, more affordable premises, or taking his children out of the private school system and saving tens of thousands of after tax dollars, Tony called up his friendly mortgage provider and refinanced his mortgage.

In other words, Tony took on a huge chunk of extra debt so that he could maintain his family’s lifestyle. No belt tightening, no attempt to live within his means, just more debt.