January 21 Edition.
The macro view is dominated this week by the inauguration, on Jan 20, of the new US president.
There is no doubt this is a biggie with the evolving Russian bromance and the systematic poking of the Chinese Dragon.
FWIW my view is that the game has been changed in a set of rather unpredictable and sinister ways.
This does not bode well:
Trumponomics gets the thumbs down from Nobel-winning economists
Rich Miller
Published: January 8, 2017 - 12:09AM
Published: January 8, 2017 - 12:09AM
A pack of Nobel Prize-winning economists gave Donald Trump and his policy plans the thumbs-down on Friday, with one saying the president-elect's programs could lead to a deep recession.
Speaking on a panel during the first day of the annual American Economic Association meeting in Chicago, the Nobel laureates voiced a variety of concerns about the billionaire developer's stance, from his haranguing of US companies about their outsourcing plans to the risk that his tax and spending proposals could lead to run-away budget deficits.
"There is a broad consensus that the kind of policies that our president-elect has proposed are among the polices that will not work," said Joseph Stiglitz, summing up the views of the panel that included his fellow Columbia University professor Edmund Phelps and Yale University's Robert Shiller.
Such disapproval though is likely to fall on deaf ears. Trump rode to victory on the back of an unconventional campaign that was short on advice from PhD economists -- relying more on a team of wealthy businessmen -- and there's no indication that's about to change.
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Also, read this superb report to see what I mean:
This also points at the world in flux:
Davos Wonders If It’s Part of the Problem
Did the global elite’s devotion to borderless capitalism sow the seeds of a populist backlash?
by Matthew Campbell and Simon Kennedy
13January,2017, 11:00 am AEDT
Kenneth Rogoff can pinpoint the moment he started to grow concerned Donald Trump would be the next U.S. president: It was when Rogoff’s fellow attendees at the World Economic Forum’s annual meeting last January said it could never happen. “A joke I’ve told 1,000 people in the months since leaving Davos is that the conventional wisdom of Davos is always wrong,” says the Harvard professor and former chief economist of the International Monetary Fund. “No matter how improbable, the event most likely to happen is the opposite of whatever the Davos consensus is.”
The repeated failure of business and political elites to predict what’s coming—last year, that included the U.K.’s vote to leave the European Union—doesn’t strike those returning this month to the Swiss Alps as very funny. After a year in which political upsets roiled financial markets and killed off the careers of once-dominant Davos-going politicians, the concern for delegates attending this year’s meeting isn’t that their forecasts are often wrong, but that their worldview is.
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Note as I type there are rumours of the British PM (Theresa May) planning a very hard Brexit which will surely cause trouble this week as well.
Locally we seem to have been careless enough to lose our senior Health Minister to a touch of abuse of public funds – although the amounts were trivial compared with the financial abuse on us all of the myHR!
For mine 2017 is shaping up as being way too interesting!
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Here are a few other things I have noticed.
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National Budget Issues.
The pension is a victim of the great Australian muddle
Emily Millane
Published: January 3, 2017 - 12:00AM
Published: January 3, 2017 - 12:00AM
In 1966, Richard Downing, professor of economics at the University of Melbourne, appeared on an ABC television forum on whether the pension means test should be retained. With high levels of old age poverty, there was much debate at the time about the design of the age pension and whether the means test should be abolished. Downing was an advocate for retaining the means test, where "benefits go to the poor and the benefits are paid for by the people who are not so poor, because they are rich enough to pay taxes".
This is one view of how the social security means test is intended to work. The changes to the means test that took effect on January 1 are to bring the reality closer into line with the intention of the system.
There are two deeper stories going on here, not that you would know it from the media maelstrom and the unedifying spectacle of the ACTU's robocalls to pensioners who stand to lose their benefits.
Firstly, the means test changes are imperfect and result in some unintended consequences.
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Rent or buy? The evidence is in
Jessica Irvine
Published: January 9, 2017 - 12:00AM
Published: January 9, 2017 - 12:00AM
There is perhaps no question more vexing for young Australians today than the decision whether to buy or rent a home.
Of course, for many, there is no choice at all. Lacking the substantial deposit required to enter the property market in many Australian cities, they rent by default.
But for many, the logic of home-ownership is unquestionable. Rent money is dead money. Why pay off someone else's mortgage? Property prices always go up.
But this one-eyed view of property ownership overlooks some of the substantial costs involved. There's stamp duty, maintenance, local council charges, water bills and strata levies to consider. Plus the hundreds of thousands of dollars in interest payments.
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Retirement will disappear like the fax machine
Elizabeth Henderson
Published: January 9, 2017 - 12:00AM
Published: January 9, 2017 - 12:00AM
My children and I were born into different technological worlds but one thing we have in common is none of us had heard of a fax machine until our early teens. My daughter once asked "Mum, what's a fax?" I could've asked the same question at her age. Although 1990s office workers couldn't imagine working without one, in truth barely a generation relied on the fax for any meaningful period.
Australians today can't imagine working without retiring, spending decades of healthy, active years not needing to work. A century ago retirement barely existed. In the late 19th century, half of American men aged 80, and three-quarters of British men over 65, worked and only a minority lived that long to begin with. Most people worked until they died. A recent ad features a child and his grandfather visiting a museum exhibit of a couple driving in a convertible. "What are they doing grandpa?" the child asks. "They're in retirement," grandpa responds longingly. Grandpa may well have had to explain the exhibit to his own grandfather too.
Australia introduced the aged pension in the early 1900s when life expectancy at birth for men was 55 and for women, 60. If you made it to pension age, and most didn't, you'd expect to live on the pension for no more than a decade.
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Morrison rejects IMF, OECD calls to use boost debt spending
The IMF is also pushing Australia to increase its budget spending.
- The Australian
- 12:00AM January 9, 2017
David Uren
The OECD believes falling interest rates have given the Australian government the scope to more than double its net debt to stimulate the economy, while it calculates that it could spend an additional $8 billion a year on infrastructure for about two years without affecting the long-term trajectory of its debt.
Both the OECD and the IMF have been urging the Australian government to ease up on budget repair and lift spending as part of their global campaign to lift economic growth.
They are using the concept of “fiscal space”, or the ability to raise additional debt without provoking an adverse market reaction, to argue that governments, particularly in the advanced world, should be using fiscal policy rather than relying on central banks to support their economies.
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GOLDMAN SACHS CHIEF ECONOMIST: There are 3 big risks for 2017
Jan 10, 2017, 7:11 AM
LONDON — The second half of 2016 will probably be remembered for its geopolitical shocks and uncertainty rather than as a period of benign economic data.
But to do so would be to only have one half of the story.
According to Goldman Sachs’ measures of economic activity, the last two quarters of 2016 were really pretty encouraging.
“If you look at economic data for the past few months, there’s been an impressive acceleration in growth,” Jan Hatzius, chief economist at Goldman Sachs, said in a speech in London on Monday.
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Governments are bystanders as inequality festers
Tracey McNaughton
Published: January 10, 2017 - 12:00AM
Published: January 10, 2017 - 12:00AM
It is ironic that just as governments around the world are coming to the realisation that large portions of their populous have been left behind as a result of rising income and wealth inequality, the political capital needed to do anything about it has been depleted.
Voters worldwide are increasingly turning to non-mainstream parties that promote a more nationalistic agenda. With so many disparate parties winning support, the formation of a stable, effective government has become more difficult.
Globalisation, free trade, large-scale immigration programs, and free-market ideologies in general have produced the most rapid progress in living standards that the world has ever seen. Millions have been raised out of poverty.
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Goldman Sachs tips three key areas for equity investors
Julie Verhage
Published: January 10, 2017 - 7:09AM
Published: January 10, 2017 - 7:09AM
Goldman Sachs has identified three big items that will shape the equity landscape this year - and they all hinge on the impact of President-elect Donald Trump's policies.
Tax reform, the strength of the US dollar and the pace of wage gains stand to set the tone on the American market this year, chief US equity strategist David Kostin and his team at the investment bank wrote in a note to clients. Here's why:
Tax Reform
"Corporate tax reform represents key source of hope,'' the strategist wrote. That's especially true for sectors that tend to have higher tax rates, such as brick-and-mortar retailers, energy producers and makers of consumer products.
It's not yet clear how Trump's proposed measures will look when they come out of Congress, so Goldman ginned up a table on how various scenarios would impact earnings for S&P 500 companies. A cut to 25 per cent from the current 35 per cent statutory rate on domestic income, for instance, would boost profit in the large-cap benchmark by 8 per cent.
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Savings account interest rates dip below inflation
Clancy Yeates
Published: January 10, 2017 - 2:40PM
Published: January 10, 2017 - 2:40PM
A handful of banks have cut the interest rates paid to savers over summer, as average returns on a key type of savings account dipped below the rate of inflation.
In a sign of the miserable returns being paid to many savers, including retirees, analysis shows several banks, including ANZ Bank and Westpac, cut interest rates on savings accounts in December.
Canstar, an interest rate comparison website, said there had been 13 cuts in savings account interest rates across its database of banks in December, compared with only two increases. There were also 16 cuts in savings account rates in November, compared with one increase.
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Scott Morrison’s targeted tax strike on digital economy
- The Australian
- 12:00AM January 11, 2017
David Crowe
David Uren
The federal government is urgently preparing new budget measures to deal with the explosive growth of the online economy, as Scott Morrison vows to confront the growing pressure on tax revenue.
The plans include a pilot program to put more government services online as Australians increase their digital payments to more than 10 billion transactions a year, while scaling back their use of cash and cheques.
After creating a “Google tax” to stamp out tax avoidance and a “Netflix tax” to capture more online purchases, the government is drafting a wider digital agenda for the year ahead in the hope that the shift away from cash could shore up the integrity of the tax system.
“You’ve got to make sure your tax base is just not comprehensive but make sure it is modern,” the Treasurer told The Australian.
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Pensioners' payments reduced amid anger over politicians' entitlements
Bianca Hall and Naomi Neilson
Published: January 12, 2017 - 7:47PM
Published: January 12, 2017 - 7:47PM
Judith Daley is one of the unlucky ones. Amid simmering anger over politicians' entitlements and the government's Centrelink debt clawback, the Sydney retiree is one of about 327,000 pensioners to have had her pension reduced or cut altogether this year.
Ms Daley, 72, has lost her part pension and health benefits under changes to the aged pension introduced on January 1.
"I have lost the health benefits that come with the age pension card," Ms Daley said. "I don't quite know at this stage what that means. I have serious ongoing health issues and they will be degenerative as I age."
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We haven't learnt anything from the rise of Trump and Brexit
John Hewson
Published: January 13, 2017 - 12:00AM
Published: January 13, 2017 - 12:00AM
German philosopher Georg Hegel once remarked: "Rulers, statesmen, nations are wont to be emphatically commended to the teaching which experience offers in history. But what experience and history teach is this – that people and governments never have learned anything from history, or acted on principles deduced from it."
The key question for 2017 is just how much have the "elites" learnt from recent experience? How have they actually responded to Brexit, Trump, Hanson, and so on.
The obvious answer, so far, is that the "elites" have simply not learnt anything: they have not responded substantially, rather attempting to close ranks against the "outsider", treating such events as but a mere aberration to their social agenda, soon to return to their "normal". This will not, and cannot, be a sustainable response.
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Why we can't be sure we are in a housing bubble
Michael Potter
Published: January 13, 2017 - 11:20AM
Published: January 13, 2017 - 11:20AM
House prices are out of control in some Australian capitals. And this week comes a proposal that this should be countered by halting interest rate cuts, a move that would not only fail to solve the problem but also have detrimental impact on the rest of the country, where housing is not booming.
In 2016, the prices of dwellings rose by 16 per cent in Sydney, 14 per cent in Melbourne and 11 per cent on average across all the capitals, according to CoreLogic, but prices fell by 4 per cent in Perth.
The ABS has capital city prices almost doubling since 2003, with Sydney prices increasing by 50 per cent since 2013.
Certainly, this rate of increase cannot be sustained. House prices in the booming cities are growing much faster than incomes, and are either going to slow or fall. It may not happen soon, but it will happen.
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Lessons still to learn as 10-year anniversary of GFC approaches
Jessica Irvine
Published: January 14, 2017 - 2:15AM
Published: January 14, 2017 - 2:15AM
Where does the time go? This year will mark the 10th anniversary of the onset of the global financial crisis.
By the middle of 2007, the wheels had well and truly started falling off the US sub-prime mortgage market, eventually prompting the collapse of US investment bank Lehman Brothers in September 2008.
As the world financial system froze over, the Rudd government unleashed the biggest fiscal stimulus in Australian history.
Two major packages totalling almost $100 billion were announced, including cash cheques, pension boosts, first-home buyer incentives, local council grants, school halls and pink batts. Everything but a kitchen sink.
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Health Budget Issues.
Health Minister Sussan Ley apologises for Gold Coast trip, agrees to repay expenses
Matthew Knott
Published: January 8, 2017 - 6:09PM
Published: January 8, 2017 - 6:09PM
Embattled Health Minister Sussan Ley has admitted she made an "error of judgment" by charging taxpayers for a trip to the Gold Coast in which she bought a $795,000 apartment and will repay the cost of four taxpayer-funded trips.
Ms Ley's decision followed a conversation with Prime Minister Malcolm Turnbull in which he said she had not met the standards he expects of ministers.
Ms Ley had come under intense pressure to provide a full explanation of the May 2015 trip or resign from the ministry since it was revealed on Friday. Government records show Ms Ley has frequently visited the Gold Coast on taxpayer-funded trips over recent years.
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Maternity services bundled payments ‘will put mums at risk’
- The Australian
- 12:00AM January 11, 2017
Sean Parnell
A landmark bid to save money in public hospitals by bundling government payments for maternity services has gained support, but not from obstetricians and gynaecologists, who fear it will put vulnerable mothers at risk.
The Australian last year revealed the Independent Hospital Pricing Authority, which advises governments on activity-based funding, wanted to introduce a package deal for treating expectant mothers to encourage providers to look for more efficient models of care.
For example, a hospital might be paid a set amount to cover all staff, interventions and accommodation, thereby encouraging hospital managers to negotiate better deals with clinicians.
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Linking hospital funds to error rate raises fears of secrecy over bungles
- The Australian
- 12:00AM January 12, 2017
Sean Parnell
A plan to penalise public hospitals financially for procedures that result in errors or avoidable side effects is proving more difficult than governments first thought.
Some jurisdictions are concerned that hospitals might be more reluctant to admit to mistakes if they will lose money as a result, while others question what it means for an adverse outcome to be considered preventable.
The Council of Australian Governments agreed last year to work on new hospital funding mechanisms that penalise unnecessary or unsafe care, with federal Health Minister Sussan Ley putting the Independent Hospital Pricing Authority in charge.
But the first round of IHPA consultation has elicited a cautious response from state and territory governments, even if the federal Department of Health is in favour, and suggests implementation will be a slow process.
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Sussan Ley: Where it all went wrong
- The Australian
- 3:08PM January 13, 2017
Sean Parnell
All Sussan Ley had to do was calm the health stakeholders and leave the big decisions to others. Yet she spooked everyone with her expenses, becoming a symbol of what is wrong with governments everywhere, and lost her job before she could do anything with it.
Ley was elevated to cabinet just before Christmas 2014, the then prime minister Tony Abbott recognising her potential and the health sector welcoming a pleasant change from her predecessor, the abrasive Peter Dutton.
The new minister set about consulting stakeholders and was forgiven for some early misunderstandings about health. Being a cabinet newcomer, Ley was also forgiven for lacking the authority that comes with big portfolio experience; it would come in time.
The key policies – largely consolidation and prioritisation of spending – were already in place, and Ley just had to keep things ticking over. The former punk rocker, waitress, cleaner, farmer, air traffic controller and commercial pilot settled into her new role and knew her place. Even after Malcolm Turnbull took the leadership, Ley remained health minister.
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Superannuation Issues.
Barriers to home ownership the real hurdle to a comfortable retirement
John Collett
Published: January 10, 2017 - 2:01PM
Published: January 10, 2017 - 2:01PM
But millennials worried about whether they will ever save enough to afford a comfortable retirement should be giving priority getting into the housing market. Property owners retire wealthier than renters.
It's not only that capital city property prices have risen strongly leaving renters in the shade, the family home is exempt from assets test applied for the age pension.
No capital gains tax payable on the sale of the family home and, given the political sensitivities of the issue, that's not likely to change.
There's also peace of mind that comes with home ownership.
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Health Insurance Issues.
Arthur Sinodinos moves into health hotseat on insurance premiums
- The Australian
- 12:00AM January 10, 2017
Sean Parnell
One of the first tasks Arthur Sinodinos will have in the health portfolio is deciding how much health insurance premiums should rise this year and what the government can do to help cash-strapped consumers.
Sussan Ley stepping aside as minister comes at a challenging time for the Turnbull government, which was expected to spend the year on policy after the Coalition’s first term of spending cuts ended in the so-called “Mediscare” election.
Ms Ley had been more consultative than her predecessor, the abrasive Peter Dutton, and has major stakeholders more willing to discuss issues than debate them. Nonetheless, Treasury still has a heavy influence on health decisions — Ms Ley said as much during the election campaign — and the arrival of former assistant treasurer Sinodinos may be met with suspicion.
Among the first tasks for Senator Sinodinos is deciding the level of insurance premium increases for April 1.
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Private health insurance nears crisis point as costs soar
- The Australian
- 12:00AM January 14, 2017
Sarah-Jane Tasker
Health insurance chiefs have warned that the issue of affordability is close to crisis point as the head of the industry body argues reform will take “more courage” from the Turnbull government than it has previously shown.
HBF boss Rob Bransby, president of Private Healthcare Australia, said 2017 had to be the year when the government showed it was serious about putting a brake on the rising health costs that were forcing up insurance premiums.
The call for reform comes as Malcolm Turnbull is forced to find a new health minister after Sussan Ley resigned yesterday following her travel expenses scandal.
Ms Ley’s replacement will be taking on the portfolio at a crucial time for the sector, with a number of reviews under way and this year’s annual premium increase close to being finalised. The rise will increase affordability concerns and sector heads have warned they expect downgrades and almost no growth this year.
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Aussies paying more but getting less cover from their private health insurance
STEPHEN DRILL AND KAREN COLLIER, Herald Sun
January 14, 2017 8:00pm
AUSTRALIANS are paying more but getting less cover from their private health insurance.
The latest Australian Prudential Regulation Authority report into health funds shows a drop in payouts for dental, chiropractic, physiotherapy and optical extras of up to six per cent.
iSelect Health spokeswoman Laura Crowden said some private health insurers were reducing benefits in new policies to rein in rising costs.
Pregnancy, spinal and brain surgery were increasingly excluded from mid-range cover.
Cover for insulin pumps, cochlear implants, dental implants and weight loss surgery were also being removed from more products.
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I look forward to comments on all this!
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David.
