Stephen Koukoulas

Stephen Koukoulas

Amid all of the political kerfuffle, opinion polls and growing sense of incompetence surrounding the Abbott government, the betting markets continue to have the Coalition as warm to hot favourites to win the next Federal election.

For those punters thinking Labor will cruise to victory at the next election, buoyed by disenchantment with thet Abbott government, as much at $2.65 is available from the bookies. In other words, punters can get a 165 per cent tax free return for a 28 months investment if in fact Labor romp home at the next election.

These appear to be generous odds in a two-horse race where the polls are generally 53 to 56 per cent to Labor and 44 to 47 per cent to the Coalition.

Monday, 26 May 2014 00:00

House prices - from boom to crash?

The RPData house price series shows that house prices have tumbled a quite remarkable 1.7 per cent so far in May. This follows a softish 0.3 per cent rise in April and it just might be signaling something starting to go amiss in the $5 trillion housing market.

To be sure, the RPData house price series are not seasonally adjusted, they are produced on transactions from several months ago and no doubt there are other foibles in the series, but they are often used by the RBA to judge house price trends and for that reason alone, they are worthy of mention.

It was always likely that house prices would be softening after the strong gains between late 2012 and early 2014. It is just that the catalyst for the slowing - higher interest rates – has not been the cause.

I am very, very surprised at the extent to which some key drivers of the Australian economy have hit a brick wall.

It is increasingly clear that this means the RBA is on hold for a while longer and my earlier view that the economy would sustain a period of strong growth was probably wrong. This upbeat view has been superseded by a strange and disconcerting run of economic news.

Consumer sentiment has been smashed, with the ANZ-Roy Morgan measure dropping a tub-thumping 14 per cent in a month. With interest rates obviously on hold, stock prices sort of flat and no other significant factor about, it must be reaction to the budget that is driving this collapse in sentiment. It is a similar story with the Westpac-Melbourne Institute measure of consumer sentiment which dumped 6.8 points in May to be at levels associated with very weak growth in consumer spending.

One of the issues in the carbon price furore of recent years was the perception that consumers would be hit very hard by the associated rise in electricity prices. This was despite the obvious fact that for the average household, electricity is a small part of their spending and the Gillard government ensured that over three-quarters of the population was compensated for this rise.

More recently, Treasurer Joe Hockey has got into hot water over his comment that the $7 GP charge his government has implemented each time you go to the doctor is just "a couple of middies of beer or the third of the price of a packet of cigarettes"

Well, according to the latest consumer piece index release, the following facts of household spending make for interesting reading.

It will be terrific viewing tomorrow night when Treasurer Joe Hockey appears on ABC TV's Q&A programme. It is an opportunity for the Treasurer to outline his economic strategy and the issues that he was dealing with as he framed the first budget of the Abbott government.

It is to be hoped that the questions and discussion move away from the lame rhetoric and platitudes that have come to dominate the economic and policy discussion in recent years.

On that score, here are 10 questions that I would like to hear Mr Hockey asked tomorrow night (or on any occasion for that matter).

After a tepid 0.3 per cent rise in April, house prices have fallen a somewhat large 0.7 per cent in the first 16 days of May, according to the daily RPData house price series.

While the numbers are clearly choppy, volatile and are not seasonally adjusted (the autumn blues?), we just might be seeing the jolt to consumer sentiment and impaired affordability starting to bite what had been a strong rise in prices.

For now, a moderate house price fall of, say, 5 per cent or so would be small beer. Even with the recent house price pick up, which was looking uncomfortably large, the total change in house prices since 2010 has been a little over 6 per cent. This is not a large change.

That said, the perils of falling house prices for the banking sector and the economy more generally are clear. One only has to look at the experience of Ireland, the US, the UK and Spain, to name a few, to see how a drop in house prices can smash the economy into recession.

Wednesday, 14 May 2014 00:00

Mr Abbott embraces big government

Mr Hockey's first budget allows me to update my 'size of government' comparison, which I first published on 1 May 2014. It is reproduced in full, below.

For the sake of simplicity, the size of government is calculated by adding revenue and spending as a share of GDP, to see what sort of footprint any particular government has in the economy.

It is early days for the Abbott government, to be sure, but the budget shows that the size of his government will be 49.1 per cent of GDP, calculated on the period from 2014-15 to 2017-18.

This is a smidge below the Howard government (49.2 per cent) and the Hawke / Keating government (49.6 per cent), but is significantly larger than the Rudd/Gillard government (47.4 per cent).

Today's the day the snake oil assumptions that created the budget 'emergency' should be washed away and the true position of the long run fiscal settings will be revealed.

A vital element of the bottom line of the 2014-15 budget and the forward estimates will be the extent to which changes in the economic parameters are the driver of the return to budget surplus.

Most people seem to have forgotten that in the independently prepared PEFO document released during the election campaign in August 2013, the budget was on track to return to surplus in 2016-17. The PEFO used a range of conservative and near consensus forecasts. No serious economist took issue with the numbers underpinning the PEFO estimates.

This changed with the MYEFO in December 2013 when the Treasurer's office forced a range of unduly pessimistic forecasts onto a meek Treasury and as a result, the budget was smashed to the point where never again would Australia record a budget surplus.

With today's $700 million borrowing by the Abbott government, the cumulative total of all borrowing since the election stands at $70.95 billion. Not bad for a government that prior to the election was hell bent of paying off debt but to date has only had policies in place to increase borrowing.

The $70.95 billion of borrowing includes funds to cover maturing bonds and T-Notes, as it always does, as well as covering the Commonwealth government's budget deficit which at the time of MYEFO was assumed to be $47 billion in 2013-14.

Allowing for the borrowing to cover maturities, gross government debt has increased by $46.7 billion since the 2013 election to now stand at $319.925 billion.

This article first appeared on the ABC's The Drum. It is also at https://www.percapita.org.au/01_cms/details.asp?ID=711

Joe Hockey's policy prescriptions along with stronger economic parameters could have the budget heading towards a surplus in 2016-17 and beyond, writes Stephen Koukoulas.

 

The budget will comprise thousands of pages of documents, perhaps a million words, and many hundreds of tables and charts. No one will read it all, not even the Treasurer Joe Hockey or his trusty sidekick, Finance Minister Mathias Cormann.

That matters little, because from a macroeconomic perspective, which looks at the total impact of the policy decisions that will be taken in the budget, it is thankfully possible to focus on less than a dozen pages and just a few tables.

The big picture view will boil down to a comparison of the new data within the budget with that presented in the Mid-Year Economic and Fiscal Outlook (MYEFO) in December 2013 and the Pre-Election Fiscal Outlook (PEFO) in August 2013.

THE LATEST FROM THE KOUK

The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

Tue, 07 Jan 2020

This article first appeared on the Yahoo Finance web site at this link: https://au.finance.yahoo.com/news/the-governments-test-in-2020-220310427.html   

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The misplaced objective of the government of delivering a surplus, come hell or high water, has gone up in smoke

For many people, the cost of the fires is immeasurable. 

Or irrelevant. 

They have lost loved ones, precious possessions, businesses and dreams and for these people, what lies ahead is bleak.

Life has changed forever.

As the fires continue to ravage through huge tracts of land, destroying yet more houses, more property, incinerating livestock herds, hundreds of millions of wildlife, birds and burning millions of hectares of forests, it is important to think about the plans for what lies ahead.

The rebuilding task will be huge.

Several thousands of houses, commercial buildings and infrastructure will require billions of dollars and thousands of workers to rebuild. Then there are the furniture and fittings for these buildings – carpets, fridges, washing machines, clothes, lounges, dining tables, TVs and the like will be purchased to restock.

Then there are the thousands of cars and other machinery and equipment that will need to be replaced. 

What's ahead for the Australian economy and markets in 2020

Thu, 02 Jan 2020

What's ahead for the Australian economy and markets in 2020

Happy New Year!

2020 will be a year where Australia’s annual GDP will exceed $2 trillion, our population will get very close to 26 million people and we will clock up 29 years with no recession.

It is also a year where the economy will be a dominant issue for policy makers, will drive what happens to interest rates, will help drive investment returns and will feed into the well-being of the Australian community. 

2020 kicks off with relatively good news in terms of economic growth, even though the labour market is likely to remain weak, with wages growth struggling to lift and inflation remaining below the RBA’s 2 to 3 per cent target. The Reserve Bank may have one more interest rate cut in its kit bag, but by year end, the market is likely to price in interest rate increases, albeit modestly.

The ASX, which had a great 2019 is set to be flatten out, in part driven by the change in the interest rate outlook, but it should get a boost from better news on housing and household spending.

In terms of the specifics, I have broken down the 2020 outlook into a range of categories and given a broad explanation on the issues underpinning the themes outlined.

GDP Growth

It’s a positive outlook. A pick-up in GDP growth from the current 1.7 per cent annual rate is unfolding, with the only real issue is the extent of the acceleration.