June 1, 2017 Edition.
We have had a quiet week on the Trump front as he has been wandering around the world causing trouble with climate change control, defence policy and a range of other issues. The current week will be fascinating with more leaks happening and the Comey testimony due.
On the local front there seems to be a fair bit of worry about just how we are travelling economically. The signs are becoming a little worrying. See here:
- Updated May 27 2017 at 8:00 AM
A rising sense of economic fragility
by The Australian Financial Review
Jac Nasser is one of Australia's most prominent global corporate leaders and is about to finish his board stewardship of one of our biggest companies, BHP. Running one of the world's largest car makers, Ford, out of Detroit and then chairing the world's biggest mining company provides a unique insight into the wealth of different nations. Natural endowments, the culture of enterprise, education and health systems, the rule of law and strong institutions all play a role. Now the man who describes himself as "an unabashed Australian nationalist" fears that the prosperity of his country of upbringing has become fragile.
This assessment, in this week's The Australian Financial Review Magazine, comes as ratings agencies raise the threat level on two of Australia's most serious potential shocks. S&P Global Ratings downgraded Australia's 23 smaller banks, citing the increased economic risk from a still-inflating housing bubble. And Moody's downgraded China's sovereign rating for the first time in 26 years, rebuking Beijing for failing to transform its debt-driven economic growth model.
Tightening their belts
The discomfort is happening on the street too. As AFR Weekend details, consumers are tightening their belts, smaller retailers are starting to go bust, analysts are downgrading listed shop chains, and car dealerships are putting out profit warnings. Australia reached a peak of prosperity when our resources boom was in full swing. But that has also left among the highest household debt burdens, along with rising government debt. Wages are failing to keep pace with low consumer price inflation as globalised supply chains force Australia to confront an inflated cost structure. Householders are bracing for steep electricity and gas price rises due to a decade of bungled energy policy.
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Here are a few other things I have noticed.
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National Budget Issues.
Labor-lite budget ticks all the boxes for Turnbull
Ross Gittins
Published: May 21 2017 - 11:45PM
For students of the politics of economics – my special subject – this clothes-pinching budget has been a feast. Oh no, it's "Labor-lite". Shocking!
Actually, it's a budget that ticks all the boxes for Malcolm Turnbull and, by extension, his parliamentary followers – something their silent acquiescence suggests they realise.
You need brains to see a Labor-lite budget. What's harder is to see that it's not as out of character as some suppose.
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Budget 2017: How Fairfax readers view the government's economic management
Soren Frederiksen, Eryk Bagshaw
Published: May 22 2017 - 12:00AM
Australians feel poorer than they are, the Turnbull government has amassed less debt than the May budget shows, and the median Sydney property is $100,000 cheaper than in reality.
Those are the findings of more than 240,000 responses to a Fairfax Media pre-budget survey that matched the Turnbull government's spending per portfolio but was more pessimistic about the economic conditions presided over by the Coalition.
The average response accurately mapped the government's 35 per cent spend on welfare, 15 per cent spent on health, and 7.5 per cent spend on education per budget, proportions that have remained largely consistent over the Coalition's term in office.
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You don't have to be a communist to admit capitalism is in crisis
Jessica Irvine
Published: May 21 2017 - 11:00PM
It should surprise no regular reader of this column to learn that your humble scribe is a dedicated reader of The Economist magazine.
The most august of journals from the British homeland is not – how shall we put this gently – renowned for its communist views. So one must confess to spitting out one's piping-hot Earl Grey tea upon discovering this provocative headline in last week's edition: "Labour is right – Karl Marx has a lot to teach today's politicians."
"Egad! What scoundrelry is this?" one exclaimed, to no one in particular.
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Scott Morrison's economic fairy tale doesn't add up
Michael Pascoe
Published: May 22 2017 - 4:02PM
Scott Morrison's budget projections rely entirely on orthodox economic thinking about what drives wages. Unfortunately that orthodox thinking is demonstrably wrong.
The textbooks say that, as unemployment falls, the labour market tightens and wages rise. Supply and demand and all that. But it's not happening.
The fancier version of that story is that we're enjoying a surge in national income as our resources export volumes rise, a surge that will result in higher profits that labour will subsequently want a share of. But wanting and getting are two very different things.
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Direct action fund would cost taxpayers $23b if used to meet Paris climate targets
Adam Morton
Published: May 22 2017 - 6:35PM
Taxpayers would pay up to $23.6 billion for Australia to meet international climate targets if the Turnbull government were to continue with its "direct action" emissions-reduction fund as its main policy.
Following a request by the Greens, the federal Parliamentary Budget Office estimated the cost of using the fund to meet the target the Coalition submitted at the Paris climate summit – a 26 to 28 per cent emissions cut compared with 2005 levels by 2030.
The fund pays businesses and farmers through an auction process, with the cheapest bids winning contracts to cut emissions.
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Treasurer Scott Morrison becoming a huge disappointment
Tom Switzer
Published: May 22 2017 - 2:52PM
Australian treasurers are in most cases dominant figures, and sometimes just as assertive as the prime minister of the day. This was obviously the case during Peter Costello's long tenure at Treasury. Paul Keating before him was also a heavyweight. Go back further and the rule still applies: Arthur Fadden and Earle Page were prominent treasurers in the '50s and '30s.
Does Scott Morrison fall into the same category? Not at this stage. He shows no signs of holding his own in Cabinet and resonating with the conservative movement. Nor is he held in veneration by the financial markets.
Why? It's difficult to avoid the conclusion he lacks the nerve and the political muscle to make the unpopular spending cuts that are urgently needed to address runaway debt. If this continues, it is likely Morrison will go down in history as the most disappointing treasurer since John Kerin, whose poor grasp of economics helped destroy Bob Hawke's leadership in 1991.
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A long time ago, in a reality far away, was a wonderful budget
Nicholas Stuart
Published: May 23 2017 - 12:15AM
I don't know what sort of juice they're drinking over at the Treasury, but I sure wish I could get some. Perhaps they just delight in watching normally intelligent people treat economic forecasts as if they're actually based on something more than political wistfulness or a stab in the dark. It's easy to imagine the chatter over cappuccinos in the morning.
"Can you believe it? They've swallowed our projections whole," the first says.
"Yes," the person next to him in the queue responses, slapping his thigh in delight. "Wages growth (currently the lowest on record at just 1.9 per cent, although Australian Bureau of Statistics data only goes back to the late 1990s) has been stuck below 0.6 per cent a quarter for the past three years. Then, without bothering to give any reason for the change (other than suggesting it will 'revert to the long-term average'), we assert it will suddenly zoom up and almost double. By 2020, it's more than 1 per cent higher than inflation, yet no one bats an eye. The figures are quite literally incredible!"
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Forget the bank tax: Banks are now a better buy than before the budget
Michael Pascoe
Published: May 24 2017 - 3:11PM
When it comes to mounting a scare campaign, the big four banks' CEOs and chairmen are more Casper the Friendly Ghost than Freddy Kruger, more Pooh Bear than Chucky.
Oh, they tried - brace yourself - they even wrote letters to shareholders! Yet the peasants show little sign of manning and womanning the barricades for two key reasons: nobody really believes the Big New Bank Tax won't be substantially passed on; and banks are now a better buy than they were before the budget.
Westpac has identified itself as the bank that will pay the most for the levy, $370 million gross in the first year. But because the levy is a deduction, it will only cost the bank $260 million after tax.
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Australia losing its economic vibrancy, boss of Orica warns
Brian Robins
Published: May 23 2017 - 11:00PM
The boss of explosives group Orica has warned Australia risks facing a future that will look increasingly like "France and not Singapore" as the country loses its economic vibrancy and as China's economy changes gear.
"The dynamic, vibrant economy that I saw when I first came [to Australia] is not present any longer," Alberto Calderon warned in an address to a Latin American business group late on Tuesday. "Our economy will look more and more like France, not like Singapore. But this is not inevitable; this can be changed."
The warning came as the easy gains to Australia's exports from the surge in China's standard of living, which had lifted demand for Australia's exports of iron ore and coal, for example, is now maturing. Its rising standard of living and expanding middle class will lift demand for copper, instead, he said.
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- Updated May 24 2017 at 5:28 PM
Budget blues are here again
Scott Morrison seems to be having as much fun mocking Labor for "running the banks' lines" as he has had mocking the banks. He treats Chris Bowen's criticisms in much the same manner as he does the complaints from the bank chief executives – with derision.
"Which bank are you appearing for today?" he demanded of the shadow treasurer, accusing him of being part of the "bank protection racket".
The Treasurer knows that for all Labor's quibbles about exactly how the bank tax will work, how much it will raise and whether it should include foreign banks, the opposition will pass the levy legislation in the Senate. Not too much of a proper protection racket there.
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Federal budget 2017: Meet the real high taxpayers. They're not high earners
Peter Martin
Published: May 24 2017 - 11:45PM
Anyone would think we were overtaxing high earners.
The Prime Minister says Labor's proposed top marginal tax rate of 49.5 per cent would send a "very negative signal". The Treasurer says it would mean working "one day for the government and one day for yourself – not a competitive way to run your economy".
But it's how things have been run ever since the Coalition's first budget. The stated rate has been 45 per cent plus the Medicare levy of 2 per cent plus the temporary budget repair levy of 2 per cent introduced in 2014. It adds up to 49 per cent; half for the high earner and half for the Tax Office.
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Bilingual budget blinded us to bottom line
Ross Gittins
Published: May 27 2017 - 12:15AM
Before the budget Scott Morrison promised us "good debt" and "bad debt". What we actually got was less radical but more sensible.
The government has come under increasing pressure from the Reserve Bank of Australia to draw a clear distinction between its borrowing to cover "recurrent" spending (on day-to-day operations) and borrowing to cover investment in capital works ("infrastructure").
It was wrong to lump them together and claim the combined deficit constituted the government "living beyond its means", as the Coalition often has.
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- Updated May 26 2017 at 9:00 PM
The Australian economy turns down and the consumer goes on strike
by Jacob Greber
Treasurer Scott Morrison has taken to promising that "better days are ahead" for the economy, and particularly those Australians who are frustrated at "not getting ahead".
They are words that could come to haunt him as early as just over a week from now, when official figures for first-quarter economic growth are published by the nation's statistician.
Based on what we know so far, they aren't likely to make for pretty reading.
Following on from a series of whip-saw readouts on the nation's economic fortunes over the past year - a contraction in the third quarter of 2016, followed by a boomer in the final three months - the start of 2017 is almost certain to be one for the doomsters.
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NAB’s Andrew Thorburn: low wage rise, job losses threat to economy
- The Australian
- 12:00AM May 27, 2017
Richard Gluyas
Andrew White
Low wage growth and the threat of job losses from technological disruption are starting to take a toll on business confidence, with National Australia Bank chief executive Andrew Thorburn raising concerns over the economy amid a slew of retail failures and profit downgrades.
Despite optimistic forecasts in the budget for wages growth to double in the next two years, signs are mounting that underemployment and sluggish wage growth combined with rising mortgage and electricity costs are taking a toll on consumer spending habits.
Mr Thorburn said his cautious optimism about the economy had given way to worries about complacency in the face of massive disruption to workplaces from a technology revolution.
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Australia one of the economies sitting on pensions time bomb, WEF warns
Szu Ping Chan
Published: May 26 2017 - 12:24PM
The world's biggest economies are sitting on a $US70 trillion ($94 trillion) pensions time bomb that will balloon to more than $US400 trillion within four decades unless policymakers take urgent action, the World Economic Forum has warned.
Analysis by the WEF showed the six countries with biggest pensions - Australia, the US, UK, Japan, the Netherlands and Canada - as well as China and India - the two most populous countries in the world - faced a retirement savings gap of $US428 trillion in 2050, up from $US67 trillion in 2015.
This is based on the Organisation for Economic Co-operation and Development's (OECD's) recommendation that savers should aim for a retirement income of 70 per cent of working-age earnings when they stop working.
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Health Budget Issues.
Budget support for pharmacy owners extends to 2020
Compensation for community pharmacy losses, due to the Medicines Australia Strategic Agreement, are promised to be delivered in the final two years of the 6CPA
As previously reported, Health Minister Greg Hunt and the Pharmacy Guild have reached an agreement over the lower than expected script volumes in 2015-16.
The government will provide $200 million in compensation over the remainder of the 6CPA, which operates until 30 June 2020.
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Budget 2017 is a disaster for GPs. Unfreezing the Medicare rebate is not the cure
The professional associations that are meant to advocate in our interests are not helping and patients are not being well served, either
Tuesday 23 May 2017 05.56 AEST Last modified on Tuesday 23 May 2017 06.01 AEST
I’ll tell it like I see it and hang the consequences.
The past three to four years, since the 2014 budget and before, have been a disaster for general practice. A litany of impoverished and discredited rhetoric from our professional associations has undermined the real opportunities to improve the professional standing, incomes and relevance of general practice that were there for the taking.
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Medicare levy exemptions for nine million Australian adults
- The Australian
- 12:00AM May 25, 2017
David Crowe
More than nine million Australian adults will be exempt from the expanded Medicare Levy as the Turnbull government widens protections for those on low incomes, while slamming Bill Shorten for obstructing an $8.2 billion tax hike that helps the disabled.
Scott Morrison outlined the carve-outs in parliament yesterday in a new attack on the Opposition Leader for trying to amend the increase in the Medicare Levy when some of his Labor colleagues disagree with his stance.
The Treasurer introduced a bill yesterday to ensure the Medicare Levy will be waived for individuals earning up to $21,655 a year, families earning up to $36,541 or retired couples who qualify for a seniors’ tax offset and earn up to $47,670 a year. The bill also expands the “phase-in” rules that apply the Medicare Levy at a concessional rate for millions of workers depending on whether they have children.
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1:03pm May 26, 2017
Govt buying doctors' silence, Shorten says
AAP
Opposition Leader Bill Shorten is gearing up for another federal election fight over Medicare, accusing the federal government of trying to buy the silence of doctors with its May budget.
"It's like cash for no comment," he said on Friday of the plan to gradually thaw the Medicare rebate freeze.
Mr Shorten told the Australian Medical Association national conference in Melbourne costings by the Parliamentary Budget Office revealed the government was saving $3.2 billion by not lifting the freeze immediately.
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Devil in the detail: 23 million GP services delayed in Turnbull's Medicare thaw
Adam Gartrell
Published: May 27 2017 - 9:43PM
The Medicare rebate freeze will remain in place for tens of millions of GP services – including mental health plans and chronic disease management – for another three years under little-known details of the Turnbull government's budget.
A gradual thaw in the deeply unpopular indexation freeze, which doctors claim has forced them to increase prices and in some cases abandon bulk-billing, was the centrepiece of the government's health budget earlier this month. But doctors and the federal opposition are now accusing the Coalition of trying to sneak out details that show the thaw will be slower than advertised.
Under Health Minister Greg Hunt's agreements with doctors' groups, indexation will be reapplied to bulk-billing incentives, visits to the doctor, allied health services and a small number of diagnostic imaging services over four years.
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Hunt says the budget is a winner for GPs — just look at those pacts
| 26 May, 2017 |
Comment: Those pre-budget agreements with the AMA and RACGP have given the Minister for Health (pictured) an ironclad riposte to criticism.
Wisely or not, Greg Hunt opted on Friday to deliver his first speech — in the wake of a budget that disappointed so many GPs — to a roomful of doctors.
The Minister for Health is on one side of two opposing political narratives.
Labor says the budget is all about continuing the cuts to general practice; Mr Hunt says his re-indexation of Medicare — the pledge to slowly thaw the freeze — is a winner for the specialty.
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International Issues.
Australia is sleepwalking to war, admiral Chris Barrie warns
- The Australian
- 12:00AM May 22, 2017
Jamie Walker
Former defence force chief Chris Barrie says the world is on a countdown to war and a “complacent” Australia will not be ready when it comes.
Admiral Barrie warned that Australia had been involved in “proxy wars” in Afghanistan and the Middle East in the past two decades, but the potential flashpoints for international-scale conflict reminded him of the build-up to World War I.
Speaking at the Australian Leadership Retreat on the Gold Coast, the man who headed the nation’s 59,000-strong defence force from 1998-2002 said most people had no idea what a major war would be like.
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In Trump’s world could tensions lead to World War III?
Bruce Loudon
It’s an unremittingly grim prospect. It portends, potentially, Armageddon. And former defence force chief Chris Barrie, speaking at the Australian Leadership Retreat on the Gold Coast, is not alone in sounding the alarm.
But is the world really “sleepwalking” into another war? And will a “complacent” Australia not be ready when it comes?
The signs “look bad”, says Barrie, highlighting destabilising factors in our region and beyond including tensions between China and nations in the South China Sea, North Korea’s nuclear weapons, US isolationism under Donald Trump, the volatility in The Philippines under President Rodrigo Duterte, and the risk that Turkey could become “another Syria”.
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Larry Summers calls Donald Trump's budget 'simply ludicrous'
Lawrence Summers
Published: May 24 2017 - 7:47AM
Details of President Donald Trump's first budget have now been released. Much can and will be said about the dire social consequences of what is in it and the ludicrously optimistic economic assumptions it embodies.
My observation is that there appears to be a logical error of the kind that would justify failing a student in an introductory economics course.
Apparently, the budget forecasts that US economic growth will rise to 3.0 per cent because of the administration's policies — largely its tax cuts and perhaps also its regulatory policies. Fair enough if you believe in tooth fairies and ludicrous supply-side economics.
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Wake up: Australia will remain at war in Iraq for decades unless we plan now to win the peace
Greg Colton
Published: May 26 2017 - 12:15AM
One of Australia's most respected former military leaders, Admiral Chris Barrie, just declared that Australia is "sleepwalking" towards war. In doing so, Barrie drew parallels between current simmering geopolitical tensions and those at the outbreak of World War I. He also highlighted that, as in 1914, Australia is unprepared for war. In his words, the complacency of Australians towards the looming threat "beggars belief".
Surely, after almost 20 years of deployments to East Timor, Iraq, Solomon Islands and Afghanistan, the Australian Defence Force is fully prepared for the challenges ahead?
Not according to senior serving and retired military leaders attending a recent seminar titled "war in the sandpit", where Barrie voiced his concerns. The two-day event, organised by the Australian National University's Strategic and Defence Studies Centre along with Military History and Heritage Victoria, was the most significant gathering of policymakers and military practitioners since the global war on terror began. The outcome was a discussion of hitherto unseen brutal honesty.
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I look forward to comments on all this!
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David.
