Get ready for a February budget

Wed, 15 Aug 2018  |  

This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/heres-need-get-ready-early-2019-budget-010743625.html 

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Get ready for a February budget

 An early budget is the likely scenario given the Federal election is set to be held in May 2019. The budget, which in modern times is usually delivered by the government on the second Tuesday in May, cannot be handed down during the election campaign which will be running hot if Prime Minister Turnbull sticks to his word and holds the election in May.

To allow the government to deliver its budget before the election is called, the most likely time for it will be in the period from mid-February through to early March.

With the constraint of the election timing, this timeframe for the budget would allow the government to ramp up its economic rhetoric and no doubt engage in a bit of a voter friendly strategy in an effort to gain some political momentum into the election campaign. This timing also means that soon after voters return to work and the real world after the summer holidays, they will be bombarded with budget news which, if the government is smart, will be portrayed as ‘good news’ and ‘vote for us’ as it struggles to remain competitive with the Labor Party.

The good budget news, at least what the government will try to convince voters of, will be focused around more spending, a scenario of tax cuts and probably solid bottom line budget numbers and the return to surplus in 2019-20. It remains to be seen whether the voters will respond positively to such a strategy of how Labor will respond with its own policy platform.

A late February budget would come only a couple of months after the release of the Mid Year Economic and Fiscal Outlook update which is set to be released in December 2018. This will mean the budget numbers are unlikely to see significant revisions, except of course allowing for the inclusion of any policy decisions the government may take which will impact the bottom line.

As things stand, the budget numbers are facing mixed news.

On one side, there is likely to be an influx of extra tax revenue given the unexpected strength in some commodity prices, in particular for iron ore and coal. These price changes are likely to add up to $5 billion a year to the budget bottom line.
That is $5 billion that the government will be sorely tempted to recycle back into the economy with pre-election spending. Offsetting this windfall tax gain, there is considerable uncertainty surround the employment and wage outlook. Since the start of 2018, employment growth has slowed appreciably and this is eating away and the growth in personal income tax collections.

Also holding back income tax collections is the on-going weakness in wages growth which seems set to remain a major economic issue while ever the unemployment and underemployment rates remain relatively high.

While a main priority for the government will be to get the MYEFO prepared for December, it will also be starting to frame the budget about now, as it reacts to the election timetable and the need for it to look for policy ideas that will not only limit the extent of the losses at the next election, but may also give it a hope of winning.

 

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For the last year or so, it has been obvious to anyone with an open mind that the economy is in trouble. Unfortunately, the government and the Reserve Bank not only ignored this growth slump, but they ran a propaganda campaign saying the economy was “strong”, that unemployment would keep falling and wages growth was poised to pick up.

It might have been politics that lead the RBA and Treasury to this view with the recent election swinging on the economic credentials of both major parties. Ahead of the election, the RBA and Treasury were loathe to undermine the government with an honest assessment of the rapidly spreading economic problems.

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An update on my house price bet with Tony Locantro

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This article first appeared on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/house-prices-are-still-dropping-but-bottom-sight-210000929.html 

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An update on my house price bet with Tony Locantro

It is difficult to think of a bigger issue that gets Australians fired up than house prices.Regular readers will know that back in September 2018, I made a bet on house prices with Tony Locantro, a fired-up Investment Manager with Alto Capital in Perth.

Tony wont mind me saying this, but he is what is called an ‘uber bear’ on house prices – he reckons prices are grossly inflated and are overdue to collapse. On the other hand, I reckon there is a cycle and that after the surge up to 2017, house price falls were inevitable, but that the decline would last only a couple of years and would not be too severe.

The bet was framed around a peak-to-trough fall in prices of 35.0 per cent in either Sydney, Melbourne or the 8 capital cities measure used by the Australian Bureau of Statistics. If prices fell by more than 35 per cent at any stage from the peak until the end of 2021, Tony would win, if the fall was less than 35 per cent, I would win.

Simple.

That background is important because the ABS just released the official dwelling price data for the March quarter 2019.

In the quarter, dwelling prices fell 3.0 per cent in the 8 capital cities and dropped 3.9 per cent in Sydney and 3.8 per cent in Melbourne.