Peter Martin

Dollar's up, so we're nicking off

noreply@blogger.com (Peter Martin) — Fri, 06 Nov 2009 21:00:00 +0000

AS THE RESERVE BANK SEES IT:

. Outbound tourism up 17 per cent since January

. Australian dollar the world's strongest currency this year

. Resource exports back on track

. Inflation to ease

. GDP "speed limit" lifted

. Interest rate increases "gradual"

RBA Statement on monetary policy, November 2009

Australians are leaving the country as never before. The soaring Aussie dollar and low international airfares pushed the number of Australians taking holidays overseas up above 600,000 in September with the number leaving in the past year hitting a record 6 million.

In its quarterly assessment of the economy released yesterday and prepared ahead of the latest tourism numbers the Reserve Bank said overseas departures had jumped 17 per cent since January. The trend in departures is now further ahead of arrivals than it has ever been, and there is little sign of the Aussie dollar flagging.

The Reserve Bank report says the Australian dollar has climbed further than any other currency against the US dollar in recent months, jumping 31 per cent since March.

Only the South African rand, the Brazilian real and the New Zealand dollar come close.

US economist David Hale in Australia as a guest of the Commonwealth Bank told a seminar in Canberra to expect parity with the US dollar by January.

The Aussie closed Friday at 91.36 US cents after climbing from 68.7 US in March. Mr Hale said the Aussie was the Aussie would keep climbing beyond 100 US until serious doubts emerged about the health of Chinese economy.

"Traders use the Aussie as a proxy for China," he told the business audience. "It's no longer about the Australian economy"...

Asked whether Australian manufacturers as well as local tourism operators stood to be hurt by the soaring dollar he said he was amazed at how weak the export lobby was in Australia. "They are not being heard," he said. "Your Reserve Bank doesn't seem to regard your exchange rate as a constraint."

The Reserve Bank report says Australia's exports are well on the road to recovery with exports of coal and iron ore to Japan back to near where they were before the start of the global recession. Exports to China have climbed much higher.

The report warns that exports of some key commodities are approaching capacity but says investment already underway should ease those constraints allowing production of bulk commodities to increase by about one-third over the next two years.

The bank expects Australian economy to return to healthy growth more quickly than the Treasury predicting 3 per cent growth in year average terms during the 2010-11, somewhat more than the 2.75 per cent predicted by the Treasury in Monday's mid-year budget update.

Importantly it believes that even with that healthy pace of growth ,inflation will remain controlled and has factored into its forecasts only "gradual" rate hikes.

Fresh from talks with Reserve Bank officials Mr Hale said the Bank wanted to move its cash rate from 3.5 per cent to 4 per cent fairly quickly and would do so by February.

Suggesting the Bank might pause before hiking again the report says the Bank expects the the phased withdrawal of the government's stimulus measures is act as a drag on growth in the months ahead.

Further down the track it believes the economy will be able to grow faster than before with fast population growth and strong investment lifting the effective "speed limit" on economic growth.

Published in today's SMH and Age

DAVID UREN TODAY:

AUSTRALIA is rapidly emerging from the downturn into an economic boom the Reserve Bank believes could last for years, powered by the resource industry and rapid population growth.

The bank's quarterly review of the economy, published yesterday, has sharply upgraded its short-term economic forecasts and presented a radical rethink of Australia's growth potential.

It believes the economy is about to overcome the infrastructure bottlenecks that held back resource exports during the boom which preceded the financial crisis.

The Reserve Bank suggests that boom will be dwarfed by the developments to come.

The Reserve Bank has sharply upgraded its short-term outlook, with growth to average 3 per cent in 2010-11, which is slightly more optimistic than Treasury's tip of 2.75 per cent, published in the budget update released on Monday. The bank expects the revival in the resource industry to start taking effect over the next year, with the big iron ore and coalmine firms expected to win price rises of 10 to 20 per cent in the next round of contract negotiations, and Australia's terms of trade set to start rising again.

While iron ore exports have risen by 70 per cent over the past five years, the bank notes that coal exports have been held back by problems with shared rail and port infrastructure in Queensland and NSW.

"Over the next two years, if capacity comes on line as planned, production of these bulk commodities could increase by around one third, with further significant increases possible over the remainder of the decade."

LNG exports will grow three or four times once the $43 billion Gorgon project starts to come on line, and the Reserve Bank believes there is scope for more LNG expansion.

It says that there have been previous periods when many large resource projects were under consideration but the optimism faded and expansion plans were scrapped. However, it believes this is less likely now.

"This reflects three important considerations: the prospect of continued strong growth in China, India and other emerging economies in Asia; the fact that confirmed reserves of gas, iron ore and coal have already been discovered; and, for LNG, that projects generally lock in multi-decade contracts with buyers before construction commences."

Until now, both the Reserve Bank and Treasury have believed that ageing of the population and low productivity growth meant that Australia could no longer expect to grow at rates above 3 per cent without risking inflation.

"It will be less, and our growth aspirations would have to be adjusted accordingly," Glenn Stevens said in a speech shortly after being appointed Reserve Bank governor in 2006.

However, the bank said yesterday that the fastest population growth since the 1960s and rapid growth in business investment meant growth potential could now be much higher.

Business investment is building Australia's stock of plant and buildings at a rate of 5 per cent a year, double the rate of the 1990s and much higher than in any other advanced country.

The population is rising at more than 2 per cent a year, which is its fastest growth rate since the 1960s.

Even if productivity improvements are only modest, "growth in potential output in the immediate period ahead is likely to be above the standard estimates of recent years", the bank said.

The Reserve Bank's review follows comments on Wednesday by Mr Stevens to the Road to Recovery conference, presented by The Australian and the Melbourne Institute, that the growth in mining investment, which has risen from 1.5 per cent to 5 per cent of GDP over the past five years, could be eclipsed over coming years.

Mr Stevens suggested Australia might need to follow Norway in establishing an offshore fund to invest mining tax payments to minimise disruption to the economy.

Treasury shares the Reserve Bank's optimism about the long-term future for the resource sector, however the bank believes the upturn is more imminent and is also more confident about the rest of the economy.

Its quarterly review says business investment is turned around everywhere except commercial property, while Treasury says it remains weak outside the resource industry.

"Business investment is no longer expected to fall sharply, with spending supported by the improvement in business conditions, growth in Asia, the positive outlook for the resources sector and the fiscal stimulus measures," the Reserve Bank says.

Although it does not provide a forecast on unemployment, the Reserve Bank says its liaison program with private business shows that hiring is increasing, suggesting it believes there may be little if any further rise in the number of jobless.

The bank's central forecast is the economy can make the transition from downturn to resources boom without inflation breaking out of its 2 to 3 per cent target band, however it says investment could turn out to be even stronger than it expects.

"While this would have positive implications for longer-term potential growth of the economy, the higher level of investment spending and flow-on to the broader economy could see capacity pressures re-emerging in the near term, and a further appreciation of the exchange rate.

"In this event, underlying inflation would be expected to decline by less than in the central forecast."

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Six easy graphs - the story of the Australian economy

noreply@blogger.com (Peter Martin) — Fri, 06 Nov 2009 08:16:00 +0000

From today's RBA Quarterly Statement.

Enjoy.

China: hold on for the ride

noreply@blogger.com (Peter Martin) — Thu, 05 Nov 2009 21:57:00 +0000

- Governor Stevens

Reserve Bank Governor Glenn Stevens has warned of "heightened exposure" to China in the decade ahead as it entrenched its lead over Japan to become by far Australia's biggest customer.

Trade figures released yesterday show Australia earned a record $11.8 billion from China during the September quarter, easily eclipsing the $8.7 million it earned from its traditional chief customer Japan.

A year previously Japan easily out-rated China receiving 3 shipments of Australian commodities for every 2 that went the Chinese mainland.

In an after-dinner speech to a Melbourne Institute conference Governor Stevens warned that China would become even more important to Australia that it had been in recent months helping us avoid recession...

As Australia recovers and most-likely enters a new boom it will need a very heavy flow of capital from abroad to fund houses and resources for immigrants and to fund an even higher level of "already very high" mining investment.

"Absent offsetting changes elsewhere, Australia’s current account deficit could be considerably larger for some years than the 4 to 5 per cent of GDP we have seen on average for the past generation, which itself was a good deal bigger than seen in the generation before that," he said.

"Now of course the current account position we have had turns out, contrary to what most would have expected, to have been manageable and sustainable. Why would Australians alone take on all the risk of these massive projects? It is probably more sensible to share the risks. But these trends will take some explaining, not least to foreign and international organisations, many of which have a more traditional view of current account positions."

Mining is likely to become even more important to Australia's economy than during the last mining boom meaning "other areas will by definition shrink," the Governor said.

"This does not necessarily mean that they will shrink in absolute terms, particularly given the population is growing quickly, but certainly their growth prospects would be weaker than otherwise," said Mr Stevens before asserting that the "two-speed economy" debate of a few years ago in which some parts of the nation did better than others was "only a preview of what we could see if the resources sector build-up goes ahead".

Australia's trade would be concentrated around China, and while such concentration "would not be unprecedented and may well be worth accepting if the returns were high enough," Australia should start thinking about to handle the risks.

"The emergence of China and India is a benefit to Australia, but we stand to have a heightened exposure to anything going seriously wrong in those countries," he said.

"How then to manage an income flow that is higher on average over a long period, but potentially more volatile?"

Mr Stevens said the answer was beyond his brief today but presumably involved "thinking about the extent and form of saving by the community."

One option canvassed by academic economists including Warwick McKibbin and Saul Eslake is an investment fund along the lines of Noway's that stores taxation revenue from the mining boom offshore to be used as a buffer in the event of trouble.

Published in today's SMH

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Let's fix tax. Really.

noreply@blogger.com (Peter Martin) — Thu, 05 Nov 2009 21:03:00 +0000

Wayne Swan and these guys are thinking along the same lines!

Personal Income Tax Reform 09

TIM COLEBATCH:

SUPERANNUATION tax breaks for high-income earners are set to be slashed as one of the first reforms from the Henry tax review, with Treasurer Wayne Swan warning Australians that there will be winners and losers when tax reform begins.

In a speech setting the scene for tax changes that could replace emissions trading as the most difficult issue for the Rudd Government going into next year's election, Mr Swan said the Henry review would include ''unpopular choices''. He appealed to Australians' sense of patriotism to accept what is good for the country.

He hinted that losers could include the big mining companies, which could see the resource rent tax extended to super-profits from iron ore, coal and other minerals.

States could also face pressure to scrap some taxes.

Ordinary taxpayers could be spared the need to file annual tax returns, with people able to ''complete their tax return with just a few clicks of a mouse''.

Tax expert Neil Warren forecast that the review would also propose lifting petrol taxes in line with inflation - a practice abandoned by the Howard government in 2001 - and increasing state land taxes.

Addressing a conference in Melbourne, Mr Swan said the Government would make quick decisions on some of the proposed tax reforms, but encourage debate on others.

Some options, he said, might not be pursued ''without a mandate from the people''. That implies the Rudd Government could repeat former Prime Minister John Howard's strategy in 1998 of promising to bring in a GST if he was re-elected.

Mr Swan said Treasury secretary Ken Henry, chairman of the five-member review, would hand in the report on Christmas Eve.

He implied that one change the Government would quickly adopt would be a redesign of superannuation tax breaks, which now give disproportionate gains to high income earners.

''Because superannuation contributions are taxed at a flat rate of 15 per cent, the value of concessions on contributions increases as a person earns more income'', Mr Swan said.

''Less than 2 per cent of taxpayers earn more than $180,000 each year, but they receive a concession worth 31.5 per cent of their contributions.'' By contrast, someone earning $35,000 a year would receive a benefit of only 1.5 per cent.

Mr Swan appealed to Australians to look beyond their own interests to the good of the country when considering tax changes. ''We need to recapture the spirit of the 80s and early 90s, when many meaningful reforms were achieved because we were all prepared to consider some short-term pain in return for long-term gain'', he said.

''Tax itself is the price that we pay for a decent society. And altering the way we tax people and companies provides one of the most effective means we have of achieving the community's wider social and economic objectives.''

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Thursday column: This time, get us a future

noreply@blogger.com (Peter Martin) — Thu, 05 Nov 2009 09:07:00 +0000

We really could set things up

WHY, oh why are we wasting our time debating economic questions that don't matter?

Are interest rates rising because of the "government spendathon" or because the economy is improving?

I really don't care. Given that one helped cause the other, the two seem pretty much the same to me. But listening to Wayne Swan and Malcolm Turnbull, you would think it was the only question that mattered. It is like arguing about the reason the cutlery moved on an ocean liner when the important thing is it avoided disaster.

What matters now is what we are going to do about what will happen next. And I don't hear Labor or the Coalition talking about it.

We've actually got a pretty good idea of what's going to happen next...

China's economic boom will resume and much of the world will once more be beating a path to Australia's door. Our dollar is already climbing in anticipation.

You know the rest of the story; a flood of money pouring into the country to buy LNG, iron ore, coal, uranium and the like, a windfall in company tax for the Government and money spewed out almost everywhere in tax cuts that swell property and share market prices, in grants to organisations that don't even want the money, in public service numbers that grow as if someone wanted them to . . . You know the story because it is what happened last time.

Fortunately, it wasn't all that happened. Former treasurer Peter Costello put the budget into surplus a wafer-thin surplus that never seemed to grow, but a surplus nonetheless and he set up the Future Fund. He could have managed things worse. But he could have managed them much, much better.

Australia was pretty lonely during the last boom, and it will be pretty lonely during the next one. Among developed nations, only Norway had a boost to its terms of trade anywhere near as big.

In Norway's case, the boom was the result of being loaded with North Sea oil. And it was prepared.

From the mid-1990s, it has funnelled all the extra government revenue that flowed from petroleum exports straight into its imaginatively titled Norwegian Petroleum Fund, later renamed the Government Pension Fund.

No mere accounting exercise, the rule ensures that most of the windfall revenue never makes it to Norwegian shores or into government hands. Invested offshore at arm's length from government, it cannot force up the currency, cannot inflate the local share market or property market and merely accumulates, in foreign currencies, until it is needed.

By December last year it was worth $A473 billion, a nice buffer for a population of less than 5 million, which is less than Victoria's. Between them, they own a reputed 1 per cent of the world's shares.

They did it because they knew North Sea oil was not going to last. They want to be able draw on the earnings from their oil earnings long after the oil is gone.

And they saw what happened to Holland. Its experience with North Sea oil in the 1960s gave rise to the term "Dutch Disease". Its currency and asset prices exploded, leaving the rest of the country uncompetitive. Timor has learnt the lesson too. Its Timor-Leste Petroleum Fund has grown to $A6 billion in just four years, all of it invested offshore, none of it near the locals or their politicians. Chile, Russia, Alaska and Papua New Guinea are doing similar sorts of things.

As is a mystery woman in Britain, who won $A2.7 million a few years back and didn't tell her husband. She phoned in anonymously to a BBC talkback on money and happiness in 2006 and allowed them to check out her story. She likes the job her husband has, likes the way her children are being brought up and doesn't want to disturb things. She knows the money won't last and that she might really need the earnings later.

It's a maturity that Australia has yet to demonstrate.

Documents obtained under the Freedom of Information Act by journalist Paul Cleary for The Australian Financial Review reveal Treasury examined the Norway model in 2006 and 2007 concluding it was an "excellent case study in managing commodity risk in a manner that maximises fiscal sustainability".

But the idea was never acted on, perhaps in part because of a June 2007 memo to Costello, which asserted instead there was "a strong case for spending additional revenue from the increased terms of trade to the extent that the increase is considered permanent".

During the election that followed, it was spent as if the boom would last forever. Even future revenue increases were spent in escalating tax cuts worth $34 billion with further "aspirational" cuts pencilled in. It would be a tragedy if we did it again.

And Costello, who now says he was an unwilling participant in the orgy of giveaways, has provided a way out. The Future Fund, originally set up to fund public service superannuation, could be given a much grander mandate, one really involving the future.

What if it was given resource taxation revenues automatically and told to keep them outside the country until the day they were really needed?

What if it was asked to act like the anonymous mother in Britain or the Norwegian Fund or Timor's, and preserve our way of life, our currency and our asset prices while really looking after our future?

It would give the creator of the fund a permanent and much-deserved legacy, one he has already shown he is keen to preserve by accepting a role on the fund's board of guardians. It would be a bipartisan legacy. The co-creator of the new-look fund would be Swan.

Rather than "going for growth", he would be coming as close as possible to setting Australia up for ever more. It would be a less-exciting but more assured ride, one I think we deserve.

Published in today's Age

Graphic: This Old House magazine

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Let's stop buying their water

noreply@blogger.com (Peter Martin) — Thu, 05 Nov 2009 01:41:00 +0000

Easy? Easy.

Read about Fiji Water here and read about its links with the police state here (literally chilling).

Related Post:

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"Where d'ya get it?" In Sydney, where the toilet paper's cheap

noreply@blogger.com (Peter Martin) — Wed, 04 Nov 2009 20:48:00 +0000

...and much else besides

SYDNEY MELBOURNE

Rice, 1kg $2.47 $3.06
Eggs, dozen $4.07 $4.47
Cheese, 500g sliced $5.20 $5.45
Milk chocolate, 200g $3.46 $3.77
Instant coffee, 150g $7.70 $7.89
Laundry powder, 1kg $5.88 $6.21

ABS 6403.0.55.001

IF YOU'RE looking for bargains in Sydney, stay put. The wash-up from the financial crisis has left Sydney's grocery prices the cheapest on the east coast.

The Bureau of Statistics' September quarter update shows that Sydney prices are cheaper than Melbourne's in 33 of the 51 comparisons published.

The difference is particularly marked in the price of staples such as milk, cheese, bread, breakfast cereal and rice, with a one kilogram bag of rice priced at $3.06 in Melbourne but just $2.47 in Sydney.

The prices are collected from a wide range of outlets in different parts of each city in order to calculate the consumer price index.

The raw data shows Brisbane and Melbourne prices are typically higher than Sydney's, and Brisbane's prices are often the highest of the lot...

In the instances where Sydney prices are higher, the margin is usually slight, suggesting that lower economic growth and higher unemployment in NSW is restraining Sydneysider's ability to spend.

The NSW economy scarcely grew in the year to June, whereas Victoria's grew significantly.

Although Sydney house prices have been climbing more slowly than those in Melbourne, they remain the highest in the nation, further limiting the ability of Sydneysiders to spend.

Among the bargains identified by the Bureau of Statistics were laundry detergent a one kilogram pack cost $5.88 in Sydney compared with $6.21 in Melbourne; cheese a 500g sliced packet cost $5.20 in Sydney and $5.45 in Melbourne; and chocolate a steal in Sydney at $3.46 for a 200g block compared with $3.77 in Melbourne and $3.87 in Brisbane.

Sydney's highest relative prices were for meat: a one-kilogram leg of lamb sold for $10.46 rather than $9.86 in Melbourne, and a kilogram of chuck steak sold for $10.81 rather than $10.45. A kilogram of beef sausages cost $6.13 in Sydney compared with $5.81 in Melbourne.

Retail spending continued to climb in trend terms in September, falling a little in seasonally adjusted terms as the effects of the December and March stimulus payments wound down.

In a speech to be delivered in Melbourne today the Treasurer, Wayne Swan, will say that while the stimulus payments "helped keep the cash registers ticking over" it is up to business to pick up the slack as they wind down.

"Our stimulus is designed to gradually scale back as a private sector recovery takes hold throughout 2010," his speaking notes say.

"Its peak impact on growth occurred in the June quarter 2009, and its impact on growth is already moderating. It will actually begin to subtract from growth from the March quarter 2010 because of the very fact that it is temporary."

Mr Swan warns that private business investment is set to be $42 billion lower through the downturn than it would otherwise have been.

"We are investing to support the economy when it is needed, and withdrawing as it recovers," he says.

Building approvals continued to climb in September and are now up 27 per cent since the start of the year.

Approvals for housing grew by a mild 0.3 per cent over the month, with approvals for units up a strong 15 per cent.

Published in today's SMH

Shane Wright, economics editor of the West Australia adds:

Perth grocery prices are skyrocketing, with some daily essentials up to 40 per cent dearer than a year ago, putting pressure on cash-strapped families.

New figures from the Australian Bureau of Statistics show the average cost of 1kg rice over the past three months has jumped more than 9 per cent in a year, while a 1kg leg of lamb has jumped almost 17 per cent.

Across almost all meat products there have been sizeable price rises, from a 17.4 per cent lift in the cost of a kilo of pork leg to a 5.8 per cent jump in the price of a kilo of chicken. Only the humble sausage has fallen in price, down an average 6¢ a kilo.

Even feeding a dog is getting more expensive, with the average cost in Perth 19.1 per cent higher than a year ago.

Ordinarily prices in Darwin are by far the highest among the nation's capital cities.

But Perth now lays claim to top spot for a shopping-trolley load of goods, including butter, self-raising flour, chuck steak, oranges and canned salmon.

The city is now cheapest only for petrol - a position it has claimed since Queensland axed its fuel subsidy because of Budget constraints - and laundry and dishwashing detergent. Perth also has the cheapest canned baked beans.

The jump in prices is at odds with official inflation figures, released last week, which showed overall consumer prices in Perth rising 0.8 per cent over the September quarter, the second lowest of all capital cities.

That figure takes in a much broader range of costs rather than grocery prices.

The jump in prices has been obvious to Kingsley mother-of-three Linda Firth. She said that where a year ago her fortnightly shopping would cost about $200 it was now at least $300, excluding daily necessities and meat.

The lift in prices had been offset by big falls in petrol prices and interest rates, but with signs they both may increase, it meant shopping in coming months might be tougher.

While prices had generally risen, there was some respite for shoppers.

A two litre bottle of milk is, on average, 8 per cent or 28¢ cheaper while the price of a 200g block of chocolate is now 11 per cent cheaper than a year ago.

Only chocoholics in Canberra enjoy cheaper chocolate than their Perth counterparts.

And the cost of soap has not changed, on average, since the September quarter of last year.

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Retail spending down, but doing fine

noreply@blogger.com (Peter Martin) — Wed, 04 Nov 2009 01:27:00 +0000

From the ABS today:

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Is it the "big spendathon" or is it the recovery?

noreply@blogger.com (Peter Martin) — Tue, 03 Nov 2009 21:05:00 +0000

Or are they the same thing?

Either way...

Just weeks after hiking mortgage interest rates 0.25 per cent each of Australia's big four banks and the Reserve Bank have done it again adding a further $46 per month to the cost of servicing a $300,000 mortgage, with no end in sight.

The ANZ acted within minutes of the Reserve Bank's announcement. By late in the day each of the big four had announced plans to pass on in full Reserve Bank hike of 0.25 per cent from next week. The ANZ and Westpac standard variable rates will jump to 6.31 per cent; the Commonwealth and National Australia Bank's rates to 6.24 per cent.

The speed on the decisions is in contrast to the uneven and tardy responses of the big four when rates were coming down.

The changes will force a household with a $300,000 standard variable mortgage to pay $92 more per month than before the first hike last month. A household with a $500,000 mortgage will pay an extra $154.

The wording of the terse six-paragraph statement from Reserve Bank Governor Glenn Stevens makes clear that there is more to come...

Breaking ranks with the Treasury which Monday predicted weak economic growth in the year ahead the Governor said he expected growth "close to trend over the year ahead", building a case for the Reserve Bank to push its cash rate to normal or "neutral" within the year.

The Reserve Bank is understood to believe that the so-called neutral cash rate that neither stimulates economic activity nor winds it back in is somewhere above 5 per cent, implying that there is room for an extra six rate hikes of 0.25 per cent to bring the present cash rate of 3.5 per cnet into line.

Such a series of hikes would push the standard variable mortgage rate to 7.75 per cent, eventually adding an extra $287 per month to the cost of repaying a $300,000 standard mortgage - in total an extra $380 since the hikes began.

But the Bank board is giving every indication the path will be gradual, expressing concern in its statement that as the effects of various government stimulus measures wear off some parts of the economy may "soften".

"It's open-minded about pausing in December to sniff the breeze and assess the lay of the land before probably before hiking again in February," said Macquarie Reserve Bank watcher Rory Robertson. " Its objective simply is to edge up its rate to more-normal levels."

Opposition Leader Malcolm Turnbull blamed the Rudd Government’s "big spendathon" for the hike and said the rate rises would "continue for some time".

Treasurer Wayne Swan said rates would go up as the economy recovered.

"Interest rates can’t stay at 50-year emergency lows forever, and it is dishonest for anybody to claim that they can. To someone with an average home loan this will mean an increased payment of something like $46 per month. But even that family would still be something like $662 per month better off than when rates peaked, because they are still historically very low."

In August last year a family with a $300,000 mortgage was paying $2646 per month. Even after the latest hike they are paying a much lower $1985.

In good news for savers the Commonwealth and National Australia banks will boost will boost their rates on basic deposit accounts 0.25 per cent, and the ANZ 0.35 per cent.

Published in today's SMH and Age

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0.25% and another 0.25%... and that's just the start

noreply@blogger.com (Peter Martin) — Tue, 03 Nov 2009 04:56:00 +0000

Here's the Reserve Bank's statement

Here's my piece for the National Times:

Many of us can probably spare the best part of an extra $50 per month for mortgage repayments. Many of us could probably spare the best part of an extra $50 we were saddled with last month. But for how long?

Each time the Reserve Bank hikes its cash rate 0.25 per cent and our mortgage provider passed it on we are slugged with an extra $46 or more per month in repayments on a $300,000 mortgage.

For how long is it going to keep happening?

Today's Reserve Bank statement has clues.

In contrast to the Treasury which Monday revealed it doesn't expect a return to normal economic growth for some time, the Reserve Bank expects growth "close to trend over the year ahead".

That means a return to a so-called "neutral" cash rate over the year ahead. A neutral rate is one that neither stimulates economic activity nor winds it back in.

In the past the Bank has dropped hints that that rate is somewhere between 5 per cent and 6 per cent.

Let's do the maths...

To get to 5 per cent - lower bound of neutral - from 3.5 per cent would need a further six hikes like today's in fairly short order.

Yes. Six further interest rate hikes, enough to take the standard variable mortgage rate up from $6.31 per cent where it is about to be after today's hike to 7.81 per cent. The extra damage - a further $287 per month, or a grand total of an extra $380 per month since the hikes bean in September.

It might not happen. It is widely believed that the Treasury Secretary Ken Henry has argued against rat rises around the Reserve Bank board table. He might sometimes win.

But it could be even more. Remember that 5 per cent is believed to be the LOWER bound of what the Reserve Bank thinks of as neutral.

But the sad truth is that if you can't afford to pay an extra $300 or so per month you shouldn't have a mortgage. Last Melbourne Cup Day the standard variable mortgage rate stood at around 8 per cent.

It was never reasonable to think it wouldn't go back there.

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Wayne Swan was a funky dude

noreply@blogger.com (Peter Martin) — Tue, 03 Nov 2009 01:30:00 +0000

Weren't we all?

He has released this photo to demonstrate his support for Movember

His (male) office staff are growing their mo's now.

I write about his -- at times hilarious -- experiences with prostate cancer here.

Expect intense debate around the boardroom table

noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 22:54:00 +0000

Here's what happened last time:

Members discussed the risks that a move at this meeting would be premature. Key among them was that economic prospects for most of the developed world were still uncertain and the possibility of another downturn in some countries could not be ruled out. While such an outcome would no doubt be detrimental to confidence, including in Australia, members noted that prospects for Australia were being affected significantly by developments in the Asian region, which was doing relatively well despite weakness in the advanced economies. Members also noted that a sizeable gap had opened up between the performance of Australia and other developed economies, and the Board had to be mindful of local conditions in setting policy.

Members noted that there was still a possibility that the recent strength in the domestic economy had been largely due to the greater-than-expected impact of the fiscal stimulus, which left open the attendant risk that activity might slow as that stimulus faded. It was also likely that the appreciation of the exchange rate would act as a contractionary influence on activity and help contain inflation. These considerations weighed in favour of keeping the current policy setting for a while longer so as to evaluate further data.

On the other hand, members judged that, compared with previous meetings, the risks in waiting had increased. In particular, underlying inflation was still, on the latest data, above the target and, while current forecasts suggested it would fall in the coming year, the expected trough in inflation was significantly higher than earlier thought. Keeping interest rates at very low levels for an extended period could therefore threaten the achievement of the inflation target over the medium term. More generally, very expansionary policy could result in the build-up of other imbalances in the economy, which would ultimately be detrimental to economic growth.

Overall, members concluded that, while downside risks to the domestic economy could not be ruled out, they had diminished significantly over recent months. This meant that the balance of risks was now such that the current very expansionary setting of policy was no longer necessary, and possibly imprudent. The Board therefore decided in favour of raising the cash rate.

And that was the verison in the official minutes.

The decision will be announced just ahead of the Cup at 2.30 pm AEDT.

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noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 20:44:00 +0000

I love these lines:

"The Coalition, apparently unhappy that we're doing better than expected, wants the Government to withdraw its stimulus so we can do worse."

"The Government, already committed to what now looks like an excessive level of stimulus, has to convince us that it is still needed."

The full thing's in the National Times, and below the fold.

"THERE'S a puzzle in the Government's budget update. On one hand, it lifts the growth forecast for this year by 2 percentage points, which you'd think would reduce the deficit. Yet no. Somehow they end up with a worse deficit than they started with.

It sums up the weird debate we're having. The Coalition, apparently unhappy that we're doing better than expected, wants the Government to withdraw its stimulus so we can do worse.

The Government, already committed to what now looks like an excessive level of stimulus, has to convince us that it is still needed - while telling us at the same time that we are doing better than anyone else in the world.

''Australia is the strongest-performing advanced economy in the world,'' Treasurer Wayne Swan declared yesterday.

I guess that's why we've got unemployment up to 5.7 per cent now, forecast to rise to 6.75 per cent next year, whereas poor old Norway only has 3.2 per cent of its workforce unemployed, the Netherlands 3.5 per cent, Korea 3.8 per cent, and so on.

Perhaps the Treasurer thinks that the higher your unemployment is, the stronger your economy.

Some of us hoped that the midyear economic and fiscal outlook might shed some objective light on the debate. But as soon as you open it - on page three - you find a graph showing how well Australia is doing compared with other countries.

Only the footnote tells you it is actually comparing Australia in one period with the rest of the world in another. Spin has taken over.

For the economy, Treasury's new forecasts are far less gloomy than its previous, set six months ago. Compared with its May budget forecasts, its estimate of growth in 2009-10 is up by 2 percentage points. Its estimate of employment in mid-2010 has risen by almost 200,000 jobs. Its forecast of unemployment is down from 8.25 per cent to 6.75 per cent - which it now thinks will be as bad as it gets.

By normal rules of thumb, that should lower the budget deficit.

Access Economics director Chris Richardson, who was formerly Treasury's numbers man on all this, estimates that 1 percentage point increase in growth improves the budget bottom line by almost $3 billion. A higher exchange rate also boosts the bottom line. And Treasury estimates that paying fewer unemployment benefits will save it $1.4 billion this year, $5.2 billion over the next four years.

Access publishes its own budget forecasts, and it predicts all this will cut the deficit by $12 billion this year, $20 billion next year and $64 billion over the four-year forecast period. Yet Treasury, working off broadly similar economic forecasts, predicts a net increase in the deficit of $100 million this financial year, although it would shrink over the following three years by a total of $36 billion. So $28 billion is missing. Where did it go?

Almost half of it has been swallowed up by programs costing more than expected. Installing insulation batts alone will cost almost $1 billion more this year than anticipated. The midyear review revises up total program costs by $2.6 billion this year, $13.5 billion over four years. It quotes many reasons why, but the bottom line is that these revisions lift government spending by 1 per cent across the board.

The other gap is that Treasury forecasts no revenue bounce from the dramatically improved economic outlook until 2010-11. In fact, it now predicts $1.5 billion less personal and corporate income tax revenue for 2009-10 than it predicted six months ago.

Access disagrees. It expects income tax revenue to rise $10 billion above the May forecasts, mostly in corporate tax, but also in tax on the super funds, the self-employed and the oil and gas sector. That's why it forecasts a $45 billion deficit this financial year, which would then slim by about $10 billion a year, to be $14 billion in 2012-13.

That last figure is roughly what Access sees as the ''structural deficit'' left by the Howard government's spending on middle-class welfare during the minerals boom and the Rudd Government's stimulus measures during the crisis.

''There is still a substantial budget repair task ahead,'' it warns. ''Having partied during the good years, we now face the hangover.''

But we won't face it until after the election. On Treasury's forecasts, growth in 2010-11 would be not quite enough to trigger the Government's pledge to restrict growth in real spending to 2 per cent. It would still be free to spend up in next year's budget if, as one suspects, Treasury revises up its revenue forecasts in May rather than now.

Even on these estimates, though, public debt is now forecast to peak at just 10 per cent of GDP, rather than the 14 per cent previously forecast, and a sharp contrast to debt ratios ranging from 82 per cent (Germany) to 144 per cent (Japan) in the biggest Western economies.

Seriously, folks, that is not a problem - so long as the Government keeps to the path of fiscal discipline it set out.

We have a good story to tell, even if the Government keeps exaggerating it, and even if Treasury is right in forecasting unemployment to rise by another 100,000 before it peaks.

The Coalition should shift the debate from its futile attempt to demonise the stimulus to focus on the real victims of the recession: the unemployed, now condemned by the Rudd Government to survive on a dole benefit of just $32.57 a day, plus whatever the welfare agencies can give them. Why don't we aim to lead the world on that?"

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We're "something special" - Swan

noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 09:14:00 +0000

Dramatically improved Treasury forecasts released ahead of today's expected Melbourne Cup day rate hike have the Australian economy growing faster sooner, unemployment climbing a mere fraction of what was expected and government debt peaking way below the Budget forecast.

The mid-year budget update unveiled by Treasurer Wayne Swan has the economy expanding 1.5 per cent this financial year instead of contracting 0.5 per cent, unemployment topping out at 6.75 per cent instead of 8.5 per cent, and government debt reaching $153 billion instead of the $203 billion forecast in the Budget and the differently-calculated $315 billion emblazoned by the Coalition on its so-called debt truck.

The lower unemployment projection means some 200,000 fewer Australians will be forced into unemployment than had been expected, an achievement the Treasurer hailed as "something special"...

"We have avoided the destruction of our capital and our skills base that is usually accompanied by a sharp recession," he told a Canberra press conference. "That is something that all Australians can be proud of because it's something that we have done together."

The upgraded forecasts will strengthen the resolve of the Reserve Bank board to lift interest rates when it meets this morning with an announcement of the second consecutive 0.25 percentage point hike expected at 2.30 pm.

Strengthening the hand of those on the board who want an even bigger hike will be other official figures released yesterday confirming that house prices have regained everything they lost during during the downturn and are climbing into new territory.

Conceding stimulus measures had had a "greater than expected impact on confidence" Mr Swan rejected claims that his initial forecasts on budget night had been too pesmisstic saying "it was a savage criticism made of the Government that night and through subsequent days that everything we put forward was too optimistic".

"We are doing our level best to try and get the balance right here, because we are still dealing with a difficult situation globally, and if you go out there on the ground and talk to people who are running small businesses and so on, they’re not declaring victory. The really good thing is that no one ever thought we would be in this space. We have avoided a sharp recession."

Burried within the revised estimates is news of a $2 billion blowout in government spending, around half due to greater than expected spending on the home insulation program and $620 million due to bigger than expected spending on the Education Revolution program to reequip primary schools.

Education Minister Julia Gillard announced what she called a "rephasing" of that spending, with $500 million postponed from 2010-11 to 2011-12 to allow extra time to achieve "greater value for money" and $200 million deferred indefinitely.

Shadow Minister Christopher Pyne said the change all but conceded the program was "beset by waste, mismanagement and profiteering".

Shadow Treasurer Joe Hockey said the spending blowout would push up interest rates.

"They are maintaining recession levels of spending without in any way having a recession," he said. "In doing so they are putting pressure on rates."

Published in today's Age

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It's official: Rory wins

noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 05:58:00 +0000

Rory Robertson writes:

· I don’t know much about racehorses or the Melbourne Cup, but my winner this week already is home and hosed!

· With the ABS measure of house prices today having punched to a new high (see chart below), high-profile pessimist Dr Steve Keen has lost our year-old bet.

· Dr Keen said repeatedly that Australian house prices would fall by 40% from peak to trough. In our bet, he agreed to use the ABS measure, and agreed that the starting point was 131.0. (For ABS data, see first table in "Downloads")

· On the agreed ABS measure, house prices fell by just 5.5% (to 123.8) and now are at a new high (134.4) in Q3. Dr Keen could scarcely have been more wrong – out by a factor of seven! Thus the bet has been won and lost.

· Indeed, Dr Keen has conceded he’s now due to walk over 200km from Canberra to the top of Mt Kosciuszko wearing a tee-shirt saying “I was hopelessly wrong on house prices! Ask me how”. I wish Dr Keen well on his long walk.

· For fun, if Australian house prices ever fall by 40% from any peak in my lifetime, I will follow in Dr Keen's footsteps. Similarly, if Dr Keen proves the existence of the Loch Ness Monster, I will take the walk.

For the record, Dr Keen’s big miss on house prices largely reflects a big miss on his "Depression in Australia" forecast: "Best case scenario is a recession more severe than 1990 and lasting one and a half times as long. Worst case is something up to the level of the Great Depression which was 20 per cent unemployment and lasting up to a decade"

Joye: "I think we can claim at least some partial credit for Rory’s conviction on this subject"

CBD: On the road to Kosciuszko

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MYEFO - Repaint the debt truck!

noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 05:10:00 +0000

Here's me in the National Times:

Treasurer Wayne Swan had held a sit-down press conference in Canberra complete with Power Points.

His shadow Joe Hockey held a stand-up "doorstop interview" at the back of NSW Parliament House. And the Opposition's Debt Truck was no-where to be seen.

Perhaps it was in for a paint job.

When last taken out for a spin it had "Labor's Debt bombshell - $315 billion" written on the side.

Always a piece of sophistry - the $315 billion was the meaningless gross figure rather than the more useful net figure - it's now not even in the ballpark.

The Mid-Year Budget update has net government debt peaking at $153 billion rather than the $203 billion expected at budget time.

Divide that by each man woman and child in the country and you get... well not the kind of burden you would have, because annual GDP is also set to be some $50 billion higher than it was going to be.

Yes.

Much of the expected debt simply won't be run up, and it will be easier to repay.

That's what happens when swift action to stop the economy stalling has what the Treasurer calls a "greater than expected impact".

Continued at National Times

The economy will grow this financial year rather than sliding as expected at budget time. Unemployment will peak at a not-too-bad 6.75 per cent mid next year instead of the expected 8.5 per cent. Future budget deficits are set to be up to half what was expected.

Too good to be true? Well it is true the Treasurer didn't expect it. His measures have worked better than he thought they would (and so did China's, just as importantly).

But it isn't true that he and the Treasury were deliberately pessimistic in May in order bring us better news now. Just about everyone was pessimistic in May, scared even. Most commentators believed the Treasury was underplaying how bad things were going to get, as Wayne Swan enthusiastically pointed out today, metaphorically waving at a pile of Budget newspaper clippings.

We're on our way out of the woods, but it'll be bumpy. Every one of the stimulus measures had an end date, and as they end we will feel the bumps.

The bumps will be made harder by the Treasurer's pledge to bank future unexpected increases in revenue. Taken literally the pledge means that next year's government election promises will be fully funded.

It'll repeat that. Taken literally the pledge means an austere election campaign, and an austere five or so years. As we should be in the aftermath of the cash splash.

The Coalition is promising austerity too. At the back of the NSW parliament Joe Hockey pointed to $4 billion of cost overruns identified in the Mid-year update, and implied they wouldn't happen if he was Treasurer.

Lets hope not.

Hockey himself had trouble managing taxpayers' money as Human Services Minister in the last government, spending millions promoting the so-called Access Card and actually calling for tenders before the Senate approved legislation it subsequently let lapse.

But if he and Wayne Swan are in favour of austerity now, that's good. We'll need it as the recovery takes hold.

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"Lower unemployment, higher growth, lower deficits, lower debt"

noreply@blogger.com (Peter Martin) — Mon, 02 Nov 2009 00:36:00 +0000

The mid-year picture:

The 2009‑10 Mid‑Year Economic and Fiscal Outlook (MYEFO) released today forecasts lower unemployment, higher growth, lower deficits and lower debt than expected at Budget, and underscores Australia’s position as the strongest performing advanced economy in the world.

The improved economic outlook reflects the effectiveness of monetary and fiscal stimulus in Australia, and the stronger global recovery. Fiscal stimulus and low interest rates have bolstered confidence by more than expected and set a solid platform for recovery.

The Australian economy is now expected to grow by 1½ per cent in 2009‑10 and 2¾ per cent in 2010‑11 and the unemployment rate is forecast to peak at 6¾ per cent in the June quarter 2010...
Despite the improved outlook, the global recession has still had a marked effect on the Australian economy and challenges remain.

The economy is expected to continue to operate below capacity for some time and unemployment is still expected to rise. The decline in the terms of trade and reduced hours worked is expected to drag on domestic incomes, resulting in the weakest growth in nominal GDP in almost 50 years, and business investment and private demand are forecast to contract this financial year.

If not for the direct impact of the fiscal stimulus, Australia would have experienced a technical recession and the economy would have gone without growth for two consecutive years, in both 2008-09 and 2009-10.

The stronger economic outlook has resulted in increased tax revenues across the forward estimates. Notwithstanding this improvement, the impacts of the global recession still mean forecast tax receipts remain $170 billion lower than forecast at the time of the 2008‑09 Budget.

Consistent with the Government’s fiscal strategy, all of the increase in expected tax receipts since the 2009-10 Budget has been directed to improving the budget position.

In addition, saving decisions taken by the Government since the 2009‑10 Budget more than offset the funding required for new spending measures across the forward estimates to 2012‑13. This is the first time a Commonwealth Government has delivered a net saving to the Budget in a Mid-Year Economic and Fiscal Update since they began in 1997-98.

The Government has also made some minor adjustments to the fiscal stimulus measures, which in addition to delivering a small saving to the Budget, allow for additional flexibility in managing the demand for individual programs, provide for continued value for money and ensure an appropriate level of support is provided to the economy.

Because the impact of stronger economic activity will take time to be reflected in tax receipts, the forecast for the underlying cash deficit in 2009‑10 is largely unchanged from Budget at $57.7 billion (4.7 per cent of GDP). However, in the three years from 2010‑11 to 2012‑13, the expected underlying cash deficit has improved by an average of 1 per cent of GDP each year.

Current projections are for the budget deficit to fall from 4.7 per cent of GDP in 2009-10, to 3.6 per cent of GDP in 2010-11, 2.3 per cent of GDP in 2011-12, and 1.1 per cent of GDP by 2012‑13. The Government’s fiscal strategy is expected to see the Budget return to surplus in 2015‑16.

Net debt in Australia is now expected to peak at 10.0 per cent of GDP in 2013‑14. This is lower than the 13.8 per cent peak forecast at Budget, and represents an improvement in net debt of around $50 billion compared to Budget.

The Government’s strategy to return the Budget to surplus as the global economy recovers will ensure Australian Government net debt remains considerably lower than any major advanced economy. Net debt for the major advanced economies is expected to reach 93 per cent of GDP by 2014 and their budget deficits are expected to peak at 10 per cent of GDP in 2009.

Notwithstanding the improvement in the economic outlook, the economy is not yet growing at a rate sufficient to prevent further rises in unemployment, incomes remain under pressure, and a sustained recovery in the major advanced economies is not yet assured.

It remains appropriate for stimulus to be withdrawn gradually as private sector demand recovers, as it is designed to do. The impact of fiscal stimulus peaked in the June quarter, and its planned withdrawal will begin to detract from GDP from the March quarter 2010. Reflecting the withdrawal of stimulus, real spending is expected to contract in 2010-11, for the first time in 20 years.

The withdrawal of stimulus and the banking of increased tax receipts will see a substantial tightening of the fiscal stance over the forward estimates – in the order of 1 per cent of GDP a year. A more rapid withdrawal of fiscal stimulus than is planned would risk stalling the economy before a broad-based recovery in private demand has taken hold.

In moderating the downturn and supporting activity and employment during the global recession stimulus is expected to have long lasting benefits. Stimulus has resulted in less capital and skill destruction during the downturn and that has meant less permanent damage to the economy. Reflecting this, the revised medium-term projections in the MYEFO imply a smaller permanent output loss, with the level of real GDP around ½ per cent higher over the medium-term, than projected at Budget.

The MYEFO is available at www.budget.gov.au

MYEFO on-line 11.30 am AEDT

noreply@blogger.com (Peter Martin) — Sun, 01 Nov 2009 22:45:00 +0000

The Mid Year Economic and Financial Outlook will be here at 11.30 am AEDT

That's www.budget.gov.au

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It's on: MYEFO tomorrow

noreply@blogger.com (Peter Martin) — Sun, 01 Nov 2009 00:23:00 +0000

That's the Mid Year Economic and Financial Outlook.

Out Monday!

"Tomorrow in Canberra I will release the Mid-Year Economic and Fiscal Outlook, which will update our forecasts for the coming years. Because of the efforts of Australians, combined with the actions taken by the Government and the Reserve Bank, our forecasts for growth and unemployment will be better. Unfortunately, the Budget has still taken a big hit from the global recession, and challenges remain in areas like business investment and the terms of trade, and this will be reflected in MYEFO as well. On Tuesday the Reserve Bank Board will meet for its November monetary policy meeting. RBA Governor Glenn Stevens has previously indicated that rates cannot stay at 50-year emergency lows. The fact that fiscal stimulus has already peaked, and is already tapering away, means that fiscal and monetary support will continue to work together throughout the recovery."

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Not a joke, not a drill - Costello appointed to Future Fund board

noreply@blogger.com (Peter Martin) — Sat, 31 Oct 2009 21:26:00 +0000

"The Minister for Finance and Deregulation, Lindsay Tanner and the Treasurer, Wayne Swan today announced that the Government intends to appoint the former Treasurer Peter Costello to the Future Fund Board of Guardians.

Mr Costello, Treasurer from 1996 to 2007 will provide the board with unique expertise in governance, international finance and macro economic conditions.

"To have the experience of someone like Mr Costello on the Future Fund board will be of great benefit,” Lindsay Tanner said.

Mr Costello will fill the position on the board that will become vacant when the term of Mr John Paterson expires on 17 December 2009."

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Who could afford a Sydney house? Who could afford a deposit?

noreply@blogger.com (Peter Martin) — Fri, 30 Oct 2009 21:40:00 +0000

No wonder locals are leaving

A typical Sydney house now costs well in excess of $600,000 after surging at the rate of $5000 to $6000 a month all year.

The latest RP Data-Rismark property index shows prices in Sydney, Melbourne and Canberra continuing to climb apparently unaffected by a slowdown hitting other state capitals.

Sydney house prices are the most expensive, but Melbourne's are climbing the fastest, gaining 12.6 per cent so far this year, compared to Sydney's 9.4 per cent.

At the trough in December the median Sydney price hit $554,800 before climbing to pass through $600,000 in August and $606,800 in September.

The median Melbourne price climbed from $443,800 to $499,800.

But the RP Data index, Australia's most comprehensive, shows prices in other capitals turning down. The median Brisbane price slipped 1.3 per cent in September, the median Adelaide price 0.4 per cent; and the median Perth price 2.5 per cent...

The national picture shows prices taking a breather in September as the First Home Owners boost winds down.

"The key question is whether September is just a temporary pause or whether it represents a more general cooling," said Rismark managing director Christopher Joye. "Only time will tell, but we are projecting materially lower rates of house price growth going forward as mortgage rates increase."

The RP Data-Rismark index is typically ahead of indexes and identified the recovery earlier that those prepared by real estate agents. It compares "like sales" with "like sales" and so is not distorted by changes in the composition of the stock sold.

"The booming growth that they are reporting now may relate more to past than present conditions. We see no evidence of prices accelerating."

Reserve Bank figures released Friday showed demand for credit weak with total borrowing climbing just 1.7 per cent over the year to September, the slowest pace since 1993.

The Bank board is expected to increase interest rates by a further 0.25 percentage points on Tuesday, pushing the standard variable mortgage rate back up above 6 per cent and adding $45 to the monthly cost of servicing a $300,000 loan.

A Reuters survey has economists pricing in the equivalent of four extra such hikes before the middle of next year, taking the standard variable mortgage rate above 7 per cent.

Centrebet stopped taking bets on the Tuesday rate hike Friday, saying almost all the money was waged the favourite, a hike of 0.25 per cent.

"There was virtually nothing placed on a hike of 0.50 points, and nothing placed on no change. Even when we adjusted the odds, the favourite was all the punters wanted to back," said spokesman Neil Evans.

Most punters who backed a 0.25 point hike will earn $1.45 on every dollar invested.

"It'll go some way to easing the pain," said Mr Evans.

Only one punter bet really big, waging $3000 on a 0.25 point Melbourne Cup day hike.

Published in today's SMH and Age

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"How Henry's mother saved the economy"

noreply@blogger.com (Peter Martin) — Fri, 30 Oct 2009 07:50:00 +0000

That's the title of the wonderful page one story by John Kehoe in today's (gated) Financial Review.

Extracts:

Ken Henry had spent all Saturday locked in the cabinet room with Kevin Rudd and senior ministers trying to ward off the global financial crisis. Now the Treasury secretary just wanted a quiet Sunday lie-in. Then the phone rang.

"I'm really worried!" It was Henry's mother. "Should I go down to the bank on Monday morning and take all my savings out?"

Henry already knew about one respected businessman who had withdrawn $3 million from a bank and stuffed the cash in his briefcase. With his mum worried too, the Treasury secretary decided there was no choice but to advise the Prime Minister to instigate the bank guarantee scheme and the first $10.4 billion of a series of stimulus packages credited with saving Australia from the full impact of the global financial crisis...

A couple of hours after his mum rang that Sunday, the Treasury secretary told the Prime Minister: "You know that discussion we were having yesterday? My mother takes a keen interest."

Henry advised a bank guarantee was needed to secure the country's financial institutions and Rudd announced it that afternoon.

There's more, for a price.

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Coffee

noreply@blogger.com (Peter Martin) — Fri, 30 Oct 2009 02:31:00 +0000

Please. Now.

HT: Lucy Kippist

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Canberra is not the problem

noreply@blogger.com (Peter Martin) — Thu, 29 Oct 2009 07:26:00 +0000

Paul Keating says "Canberra was in essence a great mistake".

Malcom Fraser says the new Parliament House should not have been built.

They are both wrong.

Canberra is a nice city, yes. With lovely people and a beautiful environment. But it is not un-Australian.

If anything it is the most Australian of Australia's cities, inland, small, friendly; with big backyards.

Jack Waterford cogently argues that it is not Canberra that is out of touch with the rest of Australia, but Parliament House that is out of touch with Canberra.

I've extracted highlights below the fold.

"My guess is that opposition to shifting the Australian capital to Sydney or Melbourne would be even more fierce today than it was 110 years ago; this time, however, probably joined by the citizens of NSW and Victoria as well as all the other states.

Each of these cities is a beautiful thing, Sydney more organic, for what that is worth, than Melbourne but neither is so well planned or designed that it could easily cope with the transport and other problems of plonking a parliament in a prominent place, let alone the infrastructure, buildings and insignia of a national capital...

When Keating was prime minister he would muse aloud, sometimes, about having the executive government thrown out of Parliament House. It would, he thought, be good for Parliament, as a legislature, and for improving the quality of administrative government.

I think he was right on that. One does not hear him on the subject now but it would be even better if the press gallery was thrown out of Parliament at the same time. Not prevented from reporting Parliament and the politics in and around the building, but forced to headquarter itself elsewhere, in the process being forced to inhale some of the air of Canberra as opposed to the air-conditioning of its mini-city.

Relocating ministers to offices in their departments could serve as a partial antidote to their increasing tendency to see comparatively little of their departmental advisers but to live cheek by jowl with political advisers. Minders themselves spend more time liaising with minders in other political offices than in dealing with departments.

Building, for our Prime Minister, a proper lodge with adequate living quarters and public spaces for entertaining and conducting cabinet, etc, and a reasonable "west wing"-style prime ministerial office, would give the position the dignity it holds in our constitutional system (whether in its present monarchical or later republican form).

Just as importantly, we might get a better parliamentary service from a building no longer so dominated by the "need" to give so much accommodation to ministers or for prime ministers and other ministers to colonise parliamentary spaces for their press conferences and functions, and by the way that ministers feel able to alter parliamentary timetables and routines simply for their personal convenience.

This is not to say that governments would not have the numbers in the Parliament, or be in a position to arrange matters according to the incumbents' view of the world. But a controlled distance between executive and Parliament might increase mutual respect, and, possibly, help restore a few balances.

A part of Keating's lament is that while one is slaving away at Parliament House, a run down to Manuka for some Chinese food does not always seem attractive. No doubt it is different these days in Double Bay, where he presides over coffee and croissants most mornings.

But his comment conceals a truth which reflects on journalists and minders as much as on politicians. Parliament House is a city in itself, down to its own cafes. A good many people who work there leave it only to fall into bed. Or, leaving late, only to go to bars patronised by journalists, minders and politicians, before falling into someone else's bed. The politicians who fly in and out according to the sitting schedule experience very little of Canberra. Those parts of Canberra, chiefly Manuka and Kingston, which were created for this sort of bizarre lifestyle, bear very little relationship to the way most Canberrans live, or the way most Australians live. It may suit politicians to pretend that they hate Canberra and can never wait to leave it, and that leaving Canberra is re-entering the real world.

The unreal world, however, is not "Canberra", but the life of the suitcase, the non-stop meetings, pretending one is living in a university college or boarding school, and the Holy Grail and other such hangouts. Young (mostly) unmarried journalists like to affect the same sort of ennui, anomie and world-weariness, and tend to blame Canberra rather than themselves. Merchant bankers and young lawyers, I am told, have many of the same problems in Sydney, if at about thrice the expense."

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The Melbourne Cup day favourite

noreply@blogger.com (Peter Martin) — Wed, 28 Oct 2009 21:27:00 +0000

It's on

A Melbourne Cup Day rate hike is now a certainty after September quarter figures showing inflation stubbornly high and growing, restrained only by weak conditions overseas and the soaring Australian dollar.

Briefing papers for next week's Reserve Bank board meeting, to be sent to members tonight, will note that despite the economic downturn the Bank's preferred measure of inflation stands at 3.5 per cent; well above its 2 - 3 per cent target and way above the 1.3 per cent annual headline figure highlighted by Treasurer Wayne Swan in an attempt to argue prices were contained.

In three months electricity prices have jumped 11 per cent, water and sewerage prices 14 per cent, bank fees 3 per cent and rents 2.9 per cent.

An analysis prepared by the Australian Bureau of Statistics suggests that without the restraining influence of low import prices Australia's 1 per cent quarterly rate of inflation would have been much higher...

The price of so-called tradables, which are imported or subject to import competition climbed a mere 0.2 per cent in the quarter.

But the price of domestically-produced services jumped 0.9 per cent and the price of domestically-produced goods not subject to import competition soared 2.6 per cent.

Australia's quarterly rate of inflation is now close to where it was when the Treasurer declared that in February 2008 that "the inflation genie is out of the bottle, it's been on the march for a couple of years".

The difference is that this time it has got there from a low base, having been negative when the economy turned down late last year.

At a parliamentary press conference yesterday Mr Swan played down the resurgence, saying that while the economy had improved in recent months, business investment was still weak and unemployment would continue to climb as the economy absorbed a big cut in national income.

While he "does not speculate about what the Reserve Bank will do" he pointed out that around half of the 1 per cent quarterly inflation rate was driven by "unusually large increases in utility prices" beyond the ability to Bank to influence.

"It’s a factor every September. Every September these prices show through. But the fact is this September they are bigger than they have been in the past, and in that sense it is a one-off which disguises a broad-based easing of inflationary pressures."

A decision by the Reserve Bank board to lift interest rates a further 0.25 percentage points Tuesday would push the standard variable mortgage rate above 6 per cent adding $45 to the monthly cost of servicing a $300,000 loan. A decision by the board to lift rates 0.50 points would add $92 to the monthly cost of servicing such a loan.

Westpac economist Bill Evans said no slowing in the underlying inflation trend combined with very strong language from the Reserve Bank made him rate a 50 point jump on Tuesday "a genuine prospect".

Skilled vacancy figures released by the Department of Employment Tuesday increased for the forth consecutive month, lending weight to arguments the economy is recovery quickly.

Published in today's SMH and Age

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