April 13, 2017 Edition.
A complicated week with Mr Trump pulling a big surprise with an attack on a Syrian airbase after a chemical attack by Mr Assad. From non-interventionist to interventionist while President Xi was even in to room – Amazing stuff!
Here at home it is all about house prices and if/when greed and fear of missing out result in economic chaos and pain for all of us. There is risk and the regulators need to get their arms around the issue and stabilise things quickly. To not do so could mean things do not go well and is just possible things have already gone too far. Time will tell! Clearly to ignore the issue and hope it goes away is folly.
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Here are a few other things I have noticed.
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National Budget Issues.
Scott Morrison’s May Budget challenge and his business tax plan
April 2, 201711:54am
TREASURER Scott Morrison has not given up pursuing the remainder of the government’s 10-year business tax plan and will present the next phase to the Senate when the government believes it will pass.
The parliament on Friday agreed to a tax rate of 27.5 per cent for businesses with a turnover of up to $50 million, to be phased in over the next three years, or “stage one of the plan”, as Mr Morrison describes it.
“We haven’t moved away from this at all,” he told ABC television’s Insiders. “We remain absolutely committed to this plan because this plan is what is going to attract investment.” He does not necessarily believe in waiting until after the next election, given the Senate crossbench has already shifted from supporting a rate reduction for businesses with a turnover of up to only $10 million.
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Sorry folks, this ain't no property bubble
Jessica Irvine
Published: April 4, 2017 - 2:53PM
Published: April 4, 2017 - 2:53PM
Believe me, no one is keener than me to see a property bubble burst.
But sadly – for would-be buyers, at least – I just don't see it happening.
Sure, there are risks.
If it turns out that banks have been lending to people who really can't afford it, then we have a problem when interest rates start to rise.
But banks insist they stress test customers for a 2-percentage-point rise in interest rates and require "interest-only" borrowers to prove they could afford to repay principal too, if required.
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RBA keeps rates on hold amid increasing concern about house prices
Peter Martin
Published: April 4, 2017 - 4:04PM
Published: April 4, 2017 - 4:04PM
The Reserve Bank of Australia has held the cash rate steady at 1.5 per cent for the 12th consecutive month amid growing pressure for it to increase rates to contain soaring house prices.
The futures market is pricing in no change in rates until late 2018, when there will be an increase.
In the year to March 31, Sydney home prices climbed 18.9 per cent, Melbourne prices 15.9 per cent and the average of capital city prices 12.9 per cent.
In the past week, both the Australian Prudential Regulation Authority and the Australian Securities and Investments Commission have announced tighter rules and increased supervision of banks' lending to investors in an effort to contain the growth in lending to investors to 10 per cent.
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- Updated Apr 3 2017 at 9:47 PM
Budget could contain tax increases, says Mathias Cormann
Finance Minister Mathias Cormann has hinted there could be tax increases in the May budget but says the government will adhere to its medium-term target of the overall tax take not exceeding 23.9 per cent of the economy.
While the budget is expected to include changes to the Petroleum Resources Rent Tax designed to deliver billions more in revenue, Senator Cormann is fighting to protect the tax-to-GDP ratio from blowing out. He, along with others, is adamant that the deficit levy be abolished on July 1, as promised, and he is fighting internally against proposals to curb the capital gains tax deduction for investors to try and cool the housing market.
The Australian Financial Review has previously reported the government has been considering its own changes to CGT as part of its housing affordability policy and a recent freedom of information request lodged by Labor revealed extensive work had been done by Treasury.
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Beware of politicians selling empty promises of jobs and growth
Ross Gittins
Published: April 4, 2017 - 11:58AM
Published: April 4, 2017 - 11:58AM
What's the four-letter word politicians of both stripes most use to bamboozle voters? Jobs. Or, as Neville Wran, former NSW premier and never given to understatement, used to say Jobs, Jobs, Jobs.
Economists and business people worship at the shrine of Growth because it raises their material standard living. Materialism is the god of our age.
But growth is rarely what the pollies try to sell the public on. No, what presses the right button with ordinary folk is jobs.
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Federal budget to tackle illegal cash economy costing up to $15b in lost revenue
Nassim Khadem
Published: April 5, 2017 - 8:12AM
Published: April 5, 2017 - 8:12AM
The Turnbull government is expected to announce some interim measures in the May federal budget aimed at beginning a long journey to claw back up to an estimated $15 billion in lost federal tax revenue and illegitimate welfare payments due to widespread cash economy activity.
The man heading the federal government's "Black Economy Taskforce", Board of Tax chairman Michael Andrew, told Fairfax Media he was shocked by the scale of the problem, with exploitation of vulnerable workers such as students and temporary visa holders rife.
The black economy was hard to tackle because Australians viewed taking cash-only payments and not declaring it as "almost a national sport", Mr Andrew said.
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'Jobs and growth': $24 billion company tax cut could be worth just 0.2 per cent to economy
James Massola, Eryk Bagshaw
Published: April 5, 2017 - 7:04AM
Published: April 5, 2017 - 7:04AM
The Turnbull government's $24 billion company tax cut will boost the economy by less than 0.2 per cent when fully implemented, according to a preliminary analysis by the Grattan Institute.
The federal government has been resisting pressure from Labor to outline the growth dividend from the cuts, which will see company tax fall to 25 per cent over a decade for companies with a turnover of up to $50 million, after they passed the Senate last week.
Prime Minister Malcolm Turnbull and Treasurer Scott Morrison said on Tuesday the company tax cut would deliver "substantial economic growth", but would not quantify the contribution to GDP.
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Growing inequality is a 'ticking time-bomb', Nobel prize-winner Muhammad Yunus warns Australia
Latika Bourke
Published: April 4, 2017 - 9:22AM
Published: April 4, 2017 - 9:22AM
A renowned Nobel Peace Prize-winning economist and entrepreneur, who is considered the father of microfinance, has warned that growing inequality is a "ticking time-bomb" that will "explode" the political system if it is not addressed, arguing the amount of wealth locked up with the wealthiest in society is not tenable.
Professor Muhammad Yunus, who spoke to Fairfax Media ahead of an Australian visit this week, has also called on the Australian corporate sector to radically transform the way they think and to create "selfless " or "social businesses" that solve societal issues with market-based solutions.
Professor Yunus said business needed to remember that humans were not just "money-making robots and that capitalism could and should be humane."
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APRA plays Santa Claus for bank CEOs
Michael Pascoe
Published: April 6, 2017 - 12:25AM
Published: April 6, 2017 - 12:25AM
Hats off to Westpac CEO Brian Hartzer for the use of understatement by declaring Australian Prudential Regulation Authority's (APRA) alleged crackdown on real estate investors wouldn't have "any particular profitability impact".
Boosting profits by a few billion tends not to hurt. And higher profits tend to lead to higher bonuses. APRA is playing Santa Claus for bank CEOs.
No toasting of any gullible media though, who swallowed the line that investor fervour would be noticeably cooled by reducing the proportion of new interest-only loans from 40 per cent to 30 per cent. Good for banks that will charge higher rates to encourage a proportion of investor customers to switch to principal-and-interest loans, negligible impact on the size of the investor book that can continue to grow by up to 10 per cent a year.
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Australian Bankers Association head Anna Bligh concedes banks face 'implosion' of public trust
Heath Aston, political correspondent
Published: April 5, 2017 - 2:31PM
Published: April 5, 2017 - 2:31PM
Banks are dealing with an "implosion of trust and an explosion of scrutiny", former Queensland premier Anna Bligh has warned.
In her first speech since her controversial appointment as head of the Australian Bankers Association lobby group, Ms Bligh said it was her mission to reverse a "profound and fundamental shift in trust" against institutions like banks that is happening all over the world.
"Banks here in Australia are under an unprecedented level of pressure and scrutiny. I think there is a direct correlation between the implosion of trust and explosion of scrutiny," she told the Australian Financial Review's wealth and banking summit in Sydney on Wednesday.
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RBA governor Philip Lowe blames lax lending, tax concessions for house prices
Peter Martin
Published: April 5, 2017 - 7:44AM
Published: April 5, 2017 - 7:44AM
Reserve Bank governor Philip Lowe has intervened in the debate over tax ahead of the May budget, blaming the tax arrangements for property investors as well as lax bank lending standards for the explosion in Sydney and Melbourne home prices.
In remarks addressed to a private dinner between Reserve Bank board members and the Melbourne business community to which television cameras had been invited, Governor Lowe said too many loans were being made "where the borrower has the skinniest of income buffers".
In some cases banks were "assuming that people can live more frugally than in practice they can", leaving little for them to live on if things went wrong.
Close to 40 per cent of housing loans (and 60 per cent of investment loans) were interest-only, not requiring the scheduled repayment "of even one dollar of principal at least in the first years of the life of the loan; only interest".
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- Updated Apr 6 2017 at 2:58 PM
Malcolm Turnbull backs RBA warning as household debt hits new record
by Jacob Greber
Household debt is rocketing towards 190 per cent of disposable incomes, ramping up pressure on the Reserve Bank of Australia and regulators to take action that avoids a US-style debt crisis.
Prime Minister Malcolm Turnbull endorsed Reserve Bank governor Philip Lowe's warning that household debt is rising too fast and linked the high burden of servicing loans to the need for the Commonwealth to manage its debt.
A key reason for maintaining the government's AAA credit rating is that credit agencies assume Canberra will bail out any banks that are blind-sided by a housing crisis.
"All of the warnings that the Reserve Bank and APRA have made about rising levels of debt are well made," Mr Turnbull said in Sydney on Wednesday. "That's their job, the system is working.
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- Updated Apr 6 2017 at 11:00 PM
Housing set for 'orderly' correction
The world's biggest ratings agencies have warned of an unwinding of Australia's overheated house prices, but say the strength of the banking system and its regulators would ensure any falls are "orderly".
The brutally frank assessment emerged on an explosive second day of The Australian Financial Review Banking and Wealth Summit, where Treasurer Scott Morrison backed the regulators' attempts to quell demand for home loans and improve the stability of the banking system.
Representatives from Fitch Ratings, Moody's and S&P Global Ratings agreed that although the Australian banking system was among the best-regulated in the world, risks were rising in line with growing levels of household debt and property prices.
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- Updated Apr 7 2017 at 8:30 AM
Major banks short at least $20 billion of equity
One of this column's firmest convictions has been that the major banks must continue deleveraging their balance sheets, which in respect of their biggest asset exposure (home loans) remain more than 40 times their equity capital base. This did not jive with the prevailing zeitgeist, with many bank investors, analysts and executives crowing that the capital raising debate was "over".
Yet arguably Australia's finest regulator, Wayne Byres, once again "shocked" complacent stakeholders during the week with a hard-hitting message that materially more equity capital was coming.
This will likely result in the majors targeting core risk-weighted common equity tier one (CET1) capital ratios above 10 per cent, which CLSA's Brian Johnson estimates leaves them pro-forma short about $20 billion assuming no further rises in the risk weights applied to investment property loans, which account for 35 per cent of their housing books. If they do climb, which is probable, then the shortfall expands by $10 billion for every 10 percentage point increase in risk weights.
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Banks are still lending too much to property buyers
Noel Whittaker
Published: April 7, 2017 - 7:00AM
Published: April 7, 2017 - 7:00AM
Real estate continues to dominate the headlines in tandem with speculation on the future of the housing market as the banking regulator's crack down on interest-only loans begins to bite.
Bank of Queensland chief executive John Sutton was front-page news last week when he revealed that some of his competitors were offering maximum loans of up to 30 per cent more than his bank was prepared to write. He finished with a timely warning: "This will end in tears."
To test the veracity of that statement I spoke to a friend who works for one of the major banks. I asked him to run the numbers to let me know how much his bank would lend to a couple earning $85,000 a year each, with an adequate deposit and no debts. I was astounded to learn they could qualify for a loan of $1 million.
Let's do the calculations with the figures rounded for ease of reading. Income tax including Medicare Levy on an $85,000 a year salary would be $21,000. Therefore, our hypothetical couple should be receiving combined take-home pay of $128,000 a year.
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Scott Morrison and Liberals seek scapegoat for tax fumbles
- The Australian
- 12:00AM April 7, 2017
John Durie
When your leadership fails you, cast around for someone to blame — and that’s what Scott Morrison is doing right now.
That’s the reaction of one senior businessperson to the Treasurer’s pitch that big business has failed to come to the party supporting a tax cut for the big end of town.
Morrison blamed a lack of business support and business’s own lack of credibility for the failure to get a cut in big company taxes.
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Scott Morrison eyes $4 billion budget bonus from resources price boom
James Massola, Eryk Bagshaw
Published: April 5, 2017 - 8:00PM
Published: April 5, 2017 - 8:00PM
Treasurer Scott Morrison is eyeing a $4 billion bonus from booming iron ore and coal prices, a month out from the May 9 budget, and is likely to plough it back into reducing the federal deficit.
Government MPs familiar with budget deliberations confirmed to Fairfax Media that forecast deficits of $36.5 billion in 2016-17 and $28.7 billion in 2017-18 could come in lower than expected.
Mr Morrison last month told Parliament the government's "fiscal strategy is to reduce the deficit and to reduce debt on every opportunity, if there is any improvement in commodity prices or improvement in the parameters that would lead to that result".
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5 Apr 2017 - 2:58pm
Business frustration with Canberra grows
Business groups are becoming increasingly frustrated by the slow pace of reform and the political bickering that goes with it.
Source:
AAP 5 Apr 2017 - 2:58 PM UPDATED 5 Apr 2017 - 2:58 PM
A business leader has vented his frustration at the state of modern day politics where even the simplest of measures strikes disagreement and risks Australia falling behind the rest of the world.
Australia Industry Group chief executive Innes Willox says the lack of agreement at both the federal and state levels is damaging confidence and more importantly business investment.
"There is deep and endemic frustration about not just the pace of reform, but the nature of the debate in Australia, the inability to agree on even quite simple measures," Mr Willox told the National Press Club on Wednesday.
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Our complacent reliance on foreigners’ savings
- The Australian
- 12:00AM April 7, 2017
Savvy consumers are careful with debt, just as citizens ought to be troubled when government relies heavily on foreign savings. Commonwealth net debt is heading for $317 billion by June but many Australians are complacent about it. Truth is, they are relieved when the spurious “fairness” argument trumps yet another reform of middle-class welfare. They feel less pressure to be self-reliant and to pay their own way, thanks to populist politics. The result is massive borrowing — not for growth-spurring infrastructure but to cover recurrent spending in big-ticket areas such as health, welfare and social security. And this demand on funds will only increase as our population ages, leaving the tax and transfer system reliant on ever fewer workers. In 2015, there were 4.5 working age people to support one person aged 65 or over. By 2045, that ratio will fall to three.
As economics editor David Uren reported yesterday, the government will have to borrow more than $60bn a year over the next four years to finance continuing budget deficits and roll over existing debts. Treasurer Scott Morrison’s coming budget will be the 10th in a row with a big deficit. We are spending more than $1bn a month on interest. And commonwealth debt is unlikely to be paid off until 2047 at the earliest. The Howard-Costello budget surpluses are a distant memory. Debt has risen at an average rate of $50bn a year since the 2008-09 financial crisis, when Labor’s temporary stimulus became a permanent bloat of recurrent spending. The 2014 Abbott-Hockey budget represented a serious attempt to rein in unsustainable spending but the politics were mishandled. Ever since, obstructionist Labor and a populist Senate have blocked fiscal repair. Morrison has managed only modest savings measures. As Uren wrote, the Turnbull government’s strategy is failing. “At best, the savings measures to date have stopped the deficits growing but have made no meaningful impact on narrowing them.” The government is left with the fragile hope that the economy will speed up enough for revenue to rebound. It protests that bringing a sense of urgency to budget repair might only undermine confidence. Maybe so, but putting off tough talk means a more painful adjustment to fiscal reality when it does come.
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Morrison budget vow to ease household costs
- The Australian
- 12:00AM April 7, 2017
Sarah Martin
Michael Roddan
Scott Morrison has pledged next month’s budget will put downward pressure on housing and energy costs, as he seeks to play down broader concerns about Australia’s rising household debt levels.
The Treasurer has flagged a housing affordability package will be a keystone of the May 9 budget, and told industry and business leaders yesterday that the government would continue its “unapologetic focus” on jobs and growth “because lifting the living standards of hardworking Australians and their families depends on jobs and growth.
“Jobs and growth are significant contributors to wealth,” Mr Morrison said. “We will ensure the budget works to place downward pressure on the cost of living, especially on energy and housing.”
Australia has $1 trillion foreign debt. Should we be worried?
Ross Gittins
Published: April 8, 2017 - 12:15AM
Published: April 8, 2017 - 12:15AM
When you consider how many people worry about the federal government's debt, it's surprising how rarely we hear about the nation's much bigger foreign debt. When it reached $1 trillion more than a year ago, no one noticed.
That's equivalent to 60 per cent of the nation's annual income (gross domestic product), whereas the federal net public debt is headed for less than a third of that – about $320 billion – by June.
Similarly, when you consider how much people worry about the future of the Chinese economy, American interest rates and all the rest, it's surprising how little interest we take in our "balance of payments" – a quarterly summary of all our economic transactions with the rest of the world.
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Why we need to worry about the level of Australian household debt
Elizabeth Knight
Published: April 8, 2017 - 12:15AM
Published: April 8, 2017 - 12:15AM
The balance sheets of Australian households with a mortgage are dangerously exposed to any fall in house prices. It isn't just that household debt relative to disposable income has reached the record high of 189 cent, it's that households' ability to service that debt is potentially a ticking time bomb.
If you look at the health of a household balance sheet in the same way as a company's balance sheet there are two things that come into the picture, the first is the size of the debt against the assets and the second is the ability to pay interest based on the income.
The main reason the average Australian household balance sheet doesn't look like a crisis in the making is that the asset side of the ledger is healthy because house prices have appreciated enormously.
- Updated Apr 7 2017 at 9:00 PM
Housing correction 'won't be orderly'
Ask respected property analyst Martin North what form the coming downturn in the housing market might take and "orderly" is not the description he uses.
Instead North anticipates a much more significant downturn in the investor-driven, debt-laden markets like Sydney and Melbourne.
"Orderly" is how S&P Global Ratings director Sharad Jain described the likely unwinding of the overheated housing market, where annualised house price growth is running close to 20 per cent in Sydney and Melbourne.
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The $22 billion cost of work-related tax deductions to be tackled in federal budget
Nassim Khadem
Published: April 8, 2017 - 12:15AM
Published: April 8, 2017 - 12:15AM
The Turnbull government wants to take a stab at reducing an estimated $22 billion in tax deductions for work-related expenses each year, and may consider introducing a standard deduction for all taxpayers or doing away with certain deductions in favour of lower tax rates.
A government inquiry pushed by Treasurer Scott Morrison has been examining whether a host of work-related tax deductions claimed by individuals every year could be scrapped or reduced, and instead replaced with low personal tax rates.
Mr Morrison last year asked his department to look into a universal cap on income tax deductions that would apply to work-related expenses, as well as housing tax breaks including negative gearing and the capital gains tax concession, which he later ruled out any changes to.
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Health Budget Issues.
Why aren't GPs more concerned about Health Care Homes?
3 April 2017
Money is important: it’s what the Medicare rebate freeze anger is all about; it’s why the GP co-payment plan obliterated Abbott’s premiership; it’s why the debate about bulk-billing rates and their effect on clinical practice won’t die any time soon.
This is stating the obvious so far. But there’s another very obvious issue missing from this GP grievance list.
Why is there no noise, no public debate, no discussion from grassroots GPs about the looming Health Care Homes reforms?
Yes, the phrase ‘Health Care Homes’ hits you with the same dynamism as news of a summer sale at Bunnings Warehouse.
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Health Insurance Issues.
Australian Medical Association reveal best and worst health funds as premiums rise on April 1
Sue Dunlevy, National Health Correspondent, News Corp Australia Network
March 31, 2017 10:00pm
EXCLUSIVE
DOCTORS have revealed the best and the worst health funds in a new report card that shows some policies will leave their members with gap fees on half of all medical services.
The Australian Medical Association has warned people to avoid “junk” policies as they look to switch funds in the wake of the $200 premium hike that takes effect today (Saturday).
The AMA has released its annual Private Health Insurance Report card which says the amount health funds pay in benefits can vary widely between states with some health funds providing benefits for cataract surgery that are 20 per cent lower in one state than another.
Payouts for knee replacements are 18 per cent higher in some states than others.
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Insurers again blame Prostheses List for high premium costs
- The Australian
- 12:00AM April 6, 2017
Sarah-Jane Tasker
Australia’s top health insurers have continued to call for regulatory reform and sector collaboration to stop consumers cancelling policies because of affordability concerns.
Nib’s group executive of Australian residents health insurance, Rhod McKensey, said conditions remained soft as consumers listed affordability as a key concern.
“Rising healthcare spending and an increasing ratio of taxpayers to retired, often high-cost, Australians means on balance any policy or regulatory change needs to encourage private health insurance participation,” he said.
“Some real prospects to improve system efficiency include further prosthetic pricing, risk equalisation and community rating reforms. New Health Minister Greg Hunt seems very determined to improve system efficiency and we will continue to prosecute for change.”
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Industry specific health funds find favour
- The Australian
- 12:10AM April 8, 2017
Verity Edwards
In the past 30 years the health insurance industry has seen massive changes as premiums rise, needs differ and the number of people taking out cover drops per capita.
Debate is raging over premium rises and over the demands public hospitals place on private patients to use their own insurance to help cover funding shortfalls.
As people contemplate cutting their level of cover or withdrawing entirely to save money, Michael Oertel has watched the not-for-profits he has headed for the past 22 years, Police Health and Emergency Services Health, increase membership. His staff has grown from two to 50.
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Concern as health funds limit mental health cover
April 8, 20176:18pm
EXCLUSIVE
Health fund members are facing huge out of pocket costs for mental illness treatment as funds move to restrict cover for mental health to drive down premiums.
The move is alarming mental health advocates who claim it is happening by stealth and catching patients unaware.
Many funds are now only providing cover for mental health treatment in a private hospital in top cover policies.
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Superannuation Issues.
Understanding ‘total superannuation balance’ crucial for SMSFs
- Monica Rule
- The Australian
- 12:00AM April 8, 2017
As we move towards July 1 and the biggest suite of changes to superannuation rules that most advisers have ever seen, the term “total superannuation balance” is something that all superannuation fund members must come to understand.
Up until now, many articles have been written on the $1.6 million transfer balance cap. This is the total amount an SMSF member can have on the day they start their retirement pension account (from July 1).
Separately, a member’s total superannuation balance is also struck at a figure of $1.6m but is a rolling limit — it is to be assessed every year.
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I look forward to comments on all this!
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David.
David,
ReplyDeleteYour esteemed blog seems to have regained its feisty persona. I hope you have recovered from whatever it was that took you off to hospital recently. Have a restful and recuperative Easter break.
Bernard
Bernard and all,
ReplyDeleteI had a small pontine stroke. I seems to be recovering and I am on statins and aspro to stop it happening again..Hope it works!!!
Full disclosure as time takes its toll.