November 03, 2022 Edition
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The US is running up to very important mid-term elections and the next two weeks may determine the next 2 years and how things go.
In the UK Rishi Sunak is trying to settle in a the PM. Interesting to watch!
In OZ we have had a Budget and are facing real energy cost blow outs which are going to be hard to fix.
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Major Issues.
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Australia, Japan strengthen defence ties in face of China threat
Brad Thompson Reporter
Oct 22, 2022 – 4.49pm
Australia has run the risk of inflaming tensions with China by moving to strengthen military ties with Japan as it hits back at Beijing’s push into the East and South China Seas.
Prime minister Anthony Albanese and his Japanese counterpart Fumio Kishida signed a joint declaration on security co-operation in Perth on Saturday that set out a framework for a co-ordinated response to security threats.
The new pact comes after Mr Kishida issued a stern warning to China about military activity around Japan.
Mr Kishida said Japan would strongly defend its territory, including land and air space, and the Senkaku Islands.
The joint declaration strengthens security and defence ties between Australia and Japan but does not go as far as including mutual defence obligations. Nor is it as comprehensive as Japan’s military alliance with the United States.
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Are we close to the bottom? Three signs to look out for
Overcome investor caution by recognising the triggers needed to become more opportunistic in your portfolio.
Todd Hoare
Oct 24, 2022 – 5.00am
Many investors will find it difficult to contemplate a constructive attitude towards their investment portfolio, let alone adopt one, when witnessing equities and bonds suffering their worst combined years in decades.
This is shaping up to be only the third year since 1926 where both bonds and equities have fallen in the same year (the other periods being 1931 and 1969).
Where is the constructive news in that? Well, based on history, it would be unprecedented for both equities and bonds to have two consecutive years of combined negative returns. The implications are significant – the chances are high that one or both asset classes will post positive returns in 2023.
From what levels, by how much, and whether it is both asset classes remain to be seen. Nonetheless, it is an important consideration for investors as it speaks to the view that asset allocation is now – counterintuitively – getting easier, not harder.
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Why concentration is the biggest risk to your portfolio
Concentration has been quietly increasing in most equity benchmarks and is challenging diversification benefits, with exposure to Russia the most recent to bite.
James Wright Contributor
Oct 25, 2022 – 5.00am
When Russia invaded Ukraine in February and attracted global condemnation and unprecedented financial market sanctions, many investors were surprised to learn the extent of Russian exposure in their portfolios via global products.
Russia represented some 3.2 per cent of the MSCI emerging market equity benchmark and around 1 per cent of the emerging market debt benchmark.
Along with these known benchmark exposures, numerous global companies (spanning finance, media, food, technology, energy and professional services) had substantial business operations in Russia that were rendered virtually worthless overnight. The loss of capital across the globe has been extensive.
How many investors really knew the extent of Russian exposure embedded in their portfolio through emerging market products or direct company holdings?
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Cracks in Labor-business relations grow post-budget
Ronald Mizen Economics correspondent
Oct 26, 2022 – 9.28am
Treasurer Jim Chalmers’ first budget missed an opportunity to drive critical economic reform to boost the most important metric for living standards and wages growth, business groups said.
Industry leaders also warned proposed industrial relations reforms that would see a return of industry or pattern bargaining with little mandate, threatened to make a bad situation for productivity even worse.
Andrew McKellar, chief executive of the Australian Chamber of Commerce and Industry – the nation’s largest employer group – said there were some important measures to alleviate the acute skills crisis through increased labour force participation and investment in filling skills gaps.
“On the downside, we have real concerns the changes to workplace relations take us in completely the wrong direction,” Mr McKellar said. “One size fits all industry or pattern agreements would not deliver the productivity improvements needed if we are to underpin real wages increases.”
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https://www.afr.com/politics/federal/the-politics-of-the-first-labor-budget-20221025-p5bspw
The big clean out after a decade of spending
The budget paints a grim picture of the economy in the 12 months ahead as it will be experienced by most households, with less certainty about job prospects, big increases in energy costs, and inflation.
Laura Tingle Columnist
Oct 25, 2022 – 8.13pm
Labor Treasurers have always come into office feeling they have to do a lot more to prove their fiscal credentials than the Coalition.
It’s just the reality of dealing with entrenched perceptions in the electorate that Labor is not as good at dealing with money as the conservatives, irrespective of the fact that, since the Hawke era, it has been Labor governments that have made the biggest discretionary cuts in spending.
Jim Chalmers’ first budget is an exercise in thoroughly cleaning out the Augean stables left after a decade of little actual spending restraint, a lot of political largesse, and quite a lot of general mess left after the chaotic demands of a pandemic.
The budget is the work of a new government establishing its credentials as a serious budget manager by banking unexpected tax windfalls from high commodity prices.
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Inflation jumps to 7.3pc, putting pressure on RBA
October 26, 2022
Inflation has jumped to 7.3 per cent over the year to September, the highest since 1990, driven by accelerating prices for homebuilding, gas, and furniture and raising the chances of a more severe RBA response on Melbourne Cup day.
The Australian Bureau of Statistics data showed the change in the consumer price index over the quarter was 1.8 per cent, which lifted the annual pace from 6.1 per cent in June.
The consensus forecast among economists was for the annual pace of inflation to lift to 7 per cent.
Last night’s budget showed inflation reaching 7.75 per cent by the end of this year, before moderating to 5.75 by June next year, and then to 3.5 per cent by mid-2024.
The Reserve Bank also has consumer price growth peaking at 7.75 per cent by December, but today’s data raise the spectre that inflation is running still hotter than expected.
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Chalmers delivers the weakest fiscal strategy of recent times
This Treasurer has no budget goals, no rules to discipline himself, and counts not blowing a windfall as a tough decision.
Steven Hamilton Economist
Oct 26, 2022 – 1.24pm
I slept through the 2022-23 budget Mark II speech – the Treasurer having taken to the dispatch box at 4:30am local time here in Washington. After waking a couple of hours later and reading through the budget papers, it became clear to me that Jim Chalmers slept through the writing of them, too.
“That’s a bit mean!” – you may be thinking. But the PR blitzkrieg the government has waged before and since the budget, and the cuddly, uncritical reception it’s received in some quarters, calls for a big dose of scepticism – indeed, cynicism – among objective observers.
I have for some time given this Treasurer the benefit of the doubt. I was willing to overlook his overblown rhetoric before the election – the demonisation of debt and deficits following the greatest public health and economic crisis this century; the hollow complaints about real wages; the reckless backing of wage increases during an inflationary outbreak.
During the election, Labor released what can generously be described as a pamphlet detailing its economic strategy – one containing no substantive economic reforms whatsoever. “Just wait until we’re in government”, my Labor friends assured me.
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Bosses face arbitration threat if they refuse flexibility requests
Phillip Coorey Political editor
Oct 26, 2022 – 10.30pm
Employers will face the threat of forced arbitration if they refuse a request by an employee for more flexible work arrangements, under changes that will apply to millions of workers and be included in the Albanese government’s new industrial relations bill.
The expansion of flexible rostering rights is set to further inflame tensions between Labor and the business sector which is already riled at other measures in the bill including a ramping up of industry-wide bargaining and the abolition of the construction industry watchdog.
But the government’s intention to secure the passage of the omnibus bill before parliament rises on December 1 faces headwinds with independent Senator David Pocock sharing concerns of the opposition that it is too big a bill to rush and that there should be a longer inquiry pushing into next year.
Lower House independents, whose votes will not count, have nonetheless begun to express misgivings at the contents of the bill, the plan to rush it through before Christmas, and the government’s mandate for many of the measures.
The “Secure Jobs, Better Pay Bill”, to be introduced on Thursday by Workplace Relations Minister Tony Burke, will include changes to flexible roster provisions the government claims were agreed to at last month’s Jobs and Skills Summit.
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Investors brace for dismal year on inflation woes, war and recession fears
By John Collett
October 27, 2022 — 5.10am
This year is shaping up as one of the worst on record for investors as central banks struggle to bring inflation under control, the growing likelihood of a recession in the US, United Kingdom and the Eurozone, and fears that the war in Europe could escalate.
“Over the past year, the global inflation spike has weighed on market sentiment, contributing to a broad-based sell-off across many asset classes, with only a small number generating positive returns,” says Damien Hennessy, head of asset allocation with Zenith Investment Partners.
Similarly, David Bassanese, chief economist at exchange-traded fund (ETF) provider BetaShares, says the breadth of the weakness across asset classes makes this year “one of the worst” on record for investors. Even those investments that usually perform well in times of high inflation, such as bonds and gold, have failed to provide protection this time, Bassanese says.
Superannuation funds have produced a return of negative 8.1 per cent since the start of this year. The Australian sharemarket is down almost 9 per cent and overseas sharemarkets are down about 20 per cent.
Australian property prices are down – which will be welcomed by those looking to buy their first home – though it is not all bad news for property investors with rents rising strongly.
Younger investors, many of whom only started investing during COVID-19, have taken a bigger hit than investors with better diversification as the US tech shares and cryptocurrencies they favour have taken a thumping.
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Angry retirees slam ‘obscene’ changes to retirement income
Duncan Hughes Reporter
Oct 28, 2022 – 5.45pm
The federal government is accused of undermining self-funded retirees with two changes to capital raisings and franking credits in a month, despite election promises the system would not be changed.
Modelling using a recent blue chip buy back reveals self-funded retirees and superannuation savers in accumulation phase would have been between 10 per cent and 18 per cent worse off had the changes been introduced.
Retirees claim they are “confused and angry” about prospective changes they believe will reduce future income and potential retrospective amendments expected to require additional tax payments on realised gains and income.
Fund management and retirement chiefs allege the moves could be part of a bigger agenda to undermine self-managed super fund members compared with individuals who are members of large superannuation funds.
They are planning a lobbying campaign against the budget franking credit changes based on the successful 2019 federal election attack on proposals by then leader of the Opposition Bill Shorten to abolish cash refunds of franking credits.
John Maroney, chief executive of the SMSF Association, said the Budget crackdown on companies using off-market share buybacks to distribute franking credits “came completely out of the blue” despite being involved in discussions about earlier changes.
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COVID-19 Information.
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Pandemic decisions cannot be made on the run: independent review
Australia’s next disaster needs broad teams of experts in place and public servants that can talk easily across state and federal boundaries.
Peter Shergold
Oct 24, 2022 – 3.09pm
The story of Australia during COVID-19 will depend on who’s telling it. For some, it’s a story of inconvenience. It’s a narrative of cutting our own hair, binge-watching television and endless Zoom meetings.
But for others, it’s a story of trauma. It’s a tale of lockdowns in overcrowded housing, job loss, deteriorating mental health, isolation and domestic violence. It’s a story of losing loved ones and missing final goodbyes.
These were the heartbreaking stories Jillian Broadbent, Isobel Marshal, Peter Varghese and I heard as we undertook our Independent Review into Australia’s Response to COVID-19.
The review was a first for Australia. Its terms of reference were not set by a politician. It was entirely independent of government. It was philanthropically funded. It was apolitical.
The more than 350 people who participated in the review were not compelled to appear. They did not feel obliged to defend a decision in public. Their evidence was entirely confidential.
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Climate Change.
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We are having the world’s first global energy crisis. And next year could be worse
Senior business columnist
October 26, 2022 — 11.51am
The International Energy Agency has described the current state of energy markets as “the first truly global energy crisis in history.” It also says it could get worse.
In its October oil market report the IEA says disruptive forces in the energy markets are multiplying, with OPEC+’s plan to cut oil supplies by an effective million barrels a day for the rest of this year and into next year as having “derailed” the growth trajectory of oil supply with a move that increases energy security risks worldwide.
The IEA’s executive director, Fatih Birol, speaking at the Singapore International Energy Week on Tuesday, said that natural gas and LNG markets would tighten further next year, with only modest (20 million tonnes) of new liquefaction capacity scheduled to come online. With supply remaining tight, demand for gas would continue to be strong, especially in Europe and perhaps in China, he said.
The energy crisis was sparked by Russia’s invasion of Ukraine and its throttling of gas supplies into Europe, along with some voluntary reductions in demand by Europe in response to the invasion. The invasion ignited a scramble by European utilities to find alternate sources of supply, forcing European gas prices and global LNG prices up dramatically.
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‘Everything is on the table’ to force down power prices: Bowen
Mark Ludlow and Angela Macdonald-Smith
Oct 28, 2022 – 6.12pm
Victorian Energy Minister Lily D’Ambrosio has accused big gas companies of price-gouging consumers to make “obscene profits” during the current energy crisis, as federal Energy and Climate Change Minister Chris Bowen vowed all options were on the table to intervene in the market to lower power prices.
With the Albanese government actively investigating several regulatory interventions, including a super profits tax on gas producers and a price cap on gas in the domestic market, Mr Bowen said “everything is on the table” to help ease the predicted 56 per cent increase in electricity prices over the next two years.
“State and territory ministers agreed today together with me that we will not stand by and watch this flow through to the Australian people without taking action,” Mr Bowen said after a ministerial meeting in Melbourne on Friday.
“We have agreed we have levers at our disposal and we intend to carefully, methodically use those levers wherever it puts downward pressure on prices.”
Mr Bowen blamed the war in Ukraine and high fossil fuel prices for the soaring power prices, saying Australia had no choice but to accelerate its push towards renewable energy and net zero emissions by 2050.
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Low-emissions transition splutters as energy crisis bites
12:00AM October 29, 2022
The energy crisis has become the Albanese government’s Covid emergency. Global events have exposed deep problems at home. As with the pandemic, premiers are calling the shots but the federal government is left carrying the can.
Electricity prices are forecast to rise a further 30 per cent next year, terminating a key federal election pledge by Labor to lower costs for households. Industry is heavily exposed with high gas prices here to stay and local manufacturers unable to compete.
Sky News Political Editor Andrew Clennell says soaring power prices continues to be a main issue in Canberra with… Jim Chalmers not ruling out electricity bill rebates before the May budget. "It was interesting too to see Jim Chalmers, who has been talking about a national conversation on More
The solution for Labor is intervention. Victorian Premier Daniel Andrews has announced plans to nationalise future energy development and speed the closure of coal. Federal Labor is under pressure to cap prices for gas and/or divert supplies away from export to the domestic market.
There has been an ominous warning from Santos chief executive Kevin Gallagher that Australia risks going down the same road as Argentina. He says market intervention and price controls kill investment and curb supply. This lifts prices so that manufacturing has to be propped up with government subsidies that in turn drive government debt to unsustainable levels. Poor households suffer most.
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Royal Commissions And The Like.
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How the NDIS will blow out to $50b (in four charts)
From a limited rollout in July 2013, the National Disability Insurance Scheme has experienced rapid growth and now counts more than 530,000 participants.
Michael Read Reporter
Oct 25, 2022 – 5.00am
The National Disability Insurance Scheme, which just 10 years ago existed in name only, is now Australia’s second most expensive social program after the aged pension.
At an annual running cost of $35.8 billion in 2022-23, the federal government will spend more on the NDIS this year than Medicare ($30.8 billion), aged care ($27.7 billion), and support for state government hospitals ($27.3 billion).
Disability Minister Bill Shorten revealed last week the budget for the program had blown out by another $8.8 billion over the next four years, taking the scheme’s annual running cost in 2026 to $50 billion.
With more people joining the scheme, fewer people than expected leaving, and service levels increasing the longer people stay on, costs are forecast to grow steadily.
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National Budget Issues.
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https://thenewdaily.com.au/finance/2022/10/24/deficit-debt-economics-kohler/
6:00am, Oct 24, 2022 Updated: 9:32pm, Oct 23
Alan Kohler: Deficits and debt are about politics, not economics
In his 2013 book, Glory Daze, Jim Chalmers described his “enthusiasm” for getting the budget back into surplus within Labor’s hoped-for next term of government.
It was 2010 and Chalmers was Treasurer Wayne Swan’s chief of staff. He wrote the book having packed a cardboard box and vacated his office after the 2013 election, which Labor lost but Chalmers won, becoming the Member for Rankin in Brisbane.
Preparing
that 2010 budget with Wayne Swan was a happy time; he wrote that it was their
first budget in “a climate of cautious optimism”.
Europe was on the edge, with Greece having to be bailed out (again), and the US
Federal Reserve was into its third round of money printing to support the
flagging American economy, but commodity prices were booming thanks to China’s
post-GFC fiscal rescue, and as a result Swan and Chalmers were able to produce
a budget that was fiscally responsible with surpluses in its future.
That budget in May 2010 predicted a surplus of $1 billion in 2012-13, and $5.4 billion in 2013-14.
But the most important thing, wrote Chalmers in his book, was “we would be doggedly sticking to the strict rules we had set ourselves, limiting public spending as our economy recovered and banking the improvement to the bottom line”.
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GDP growth to plummet next year as cost of living bites
Phillip Coorey Political editor
Oct 23, 2022 – 10.30pm
A slump in household consumption driven by the high cost of living will result in economic growth taking a sharp downturn next financial year, Tuesday’s budget will forecast.
The budget, the first to be delivered by the Albanese Labor government, will forecast a gross domestic product of 3.25 per cent for this current financial year before more than halving to 1.5 per cent in 2023-24.
That is a full 1 percentage point lower than Treasury forecast in April when it released its pre-election economic outlook.
Against a backdrop of a deteriorating global outlook, the drop-off will be driven primarily by weaker household spending as rising interest rates and other cost-of-living pressures wear down family budgets, Treasurer Jim Chalmers said.
Dr Chalmers said this was another reason why the government would reject calls for extra cost-of-living relief on Tuesday, despite a revenue boom of more than $100 billion higher than expected, as it would only make the inflationary situation worse and drive up interest rates further.
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Chalmers misses chance to re-anchor the budget on Tuesday night
Whilst the government’s economic team has hardly put a foot wrong since May, the Treasurer has missed an opportunity to use his first Budget to reimpose discipline and sensible priorities.
Stephen Anthony Economist
Oct 23, 2022 – 2.21pm
The 2022-23 October federal budget – what Shakespeare might call a MYEFO by any other name – has been classed as a “bread and butter” exercise. It will reconcile the budget’s present position regarding parameters and funding to Labor’s election commitments. No big-picture reforms. No risk. Just deferment of tough choices until next May.
Perhaps that cautious approach is one of the lessons of recent events in the UK. But another is the need for fiscal and monetary policy to work effectively independently, but towards a common goal.
Sadly, Australia’s macroeconomic management over the past decade or so has been deteriorating. And during the pandemic it was truly bizarre. Let’s recap. An egregious $300 billion-plus fiscal easing, supported by Reserve Bank balance sheet expansion, all in response to a supply-side shock?
It’s like Robert McNamara’s documentary The Fog of War – a global policy community framing the next policy response based on the last, in this case the global financial crisis. And did that spending purchase wholesale structural reform which we can no longer afford?
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RBA tips property prices to drop 20 per cent amid interest rate hikes
Australia’s central bank has some dire forecasts for property prices, as mortgage holders are already struggling to pay their bills.
Staff writers
October 24, 2022 - 10:26AM
The Reserve Bank of Australia (RBA) predicts that property prices will plunge by a whopping 20 per cent thanks to back-to-back interest rate rises.
By 2024, house and unit values are expected to lose a fifth of their value – all but wiping out the unprecedented gains made in the 2021 property boom.
That’s according to freedom of information documents from the RBA obtained by Sydney Morning Herald.
It comes as Australia has endured interest rate hikes for the past six consecutive months, seeing the cast rate rise from a record low of 0.1 per cent to 2.6 per cent since May.
In the FOI documents, an unnamed RBA economist wrote: “We’re now anticipating housing prices to decline over the next few years.
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Budget 2022: rate rises, inflation trigger growth downgrade
9:30PM October 23, 2022
Australia’s economy is poised for a major shock next year with interest rate hikes, persistent inflation and the looming global downturn inflicting significantly more damage than predicted, with growth downgraded to just 1.5 per cent, according to grim forecasts in Tuesday’s budget.
Jim Chalmers also warned on Sunday of more hip-pocket pain for workers, with real wages expected to remain below inflation for another year, but the Treasurer said he remained confident Australia would avoid a recession.
Budget forecasts reveal a full one percentage point will be wiped from economic growth in 2023-24 – the equivalent of $25bn taken out of the economy – due to higher interest rates imposed by the Reserve Bank of Australia, the slowdown in China and war in Ukraine.
The new modelling projects a bleaker economic outlook and exposes a split between Treasury and the RBA over the impact of higher interest rates and the effect of global factors on the domestic economy.
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https://www.afr.com/policy/economy/government-borrowing-costs-hit-record-levels-20221024-p5bsbd
Government borrowing costs hit record levels
Ronald Mizen Economics correspondent
Oct 24, 2022 – 10.30pm
Debt-funded spending in Treasurer Jim Chalmers’ first budget will be the most expensive in almost a decade, as surging interest rates globally drive bond yields to long-run highs and some record levels.
The three-year government bond yield has surged from 2.9 per cent to 3.6 per cent since the beginning of August, while the 10-year yield hit 4.1 per cent on Monday, the highest level since 2014.
Yields on the 30-year government bond have galloped ahead from 2.6 per cent in March to 4.55 per cent on Monday, when $300 million sold at the highest rate since the line was introduced in 2017.
Angus Coote, co-founder of Jamieson Coote Bonds, said the market was probably about four-fifths of the way through a sell-off, but ultimately investors needed inflation to top out before things settled down.
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$40 billion earmarked for new borrowing as deficit cut in half
By David Crowe, Shane Wright and Rachel Clun
October 24, 2022 — 10.30pm
Key points
- New funds will be set up within months to deliver on election promises for energy projects, manufacturing proposals and housing deals.
- They include the $20 billion Rewiring the Nation Corp, the $10 billion National Reconstruction Fund and the $10 billion Housing Australia Future Fund.
- The policies will add to $1.2 trillion in gross debt previously forecast for 2026 at a time when higher interest rates are pushing up the cost of servicing the debt.
- But the outlook over the near term has improved by $40 billion since March.
- Shadow treasurer Angus Taylor said the government should use the budget to bring spending under control.
Labor will commit to at least $40 billion in new borrowing in the federal budget to set up funds and companies to invest in its policy promises but will point to an improvement in the bottom line to fend off fears about ballooning debt.
Treasurer Jim Chalmers will reveal new forecasts on Tuesday night that show a significant improvement in the budget bottom line, with the deficit for 2022-23 coming in at $36.9 billion compared to $78 billion forecast by the previous government in March.
The budget will include new funds to be set up within months to put the proceeds of the expanded lending program into energy projects, manufacturing proposals and housing deals that deliver on Labor pledges at this year’s election.
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https://thenewdaily.com.au/news/2022/10/26/alan-kohler-budget-no-repair-no-relief/
6:00am, Oct 26, 2022 Updated: 12:20am, Oct 26
Alan Kohler: Jim Chalmers delivers a responsible budget, with no repair and no relief
The last time a new government brought down its first budget, in 2014, it was a disaster for all concerned.
Spending was cut by $14.2 billion over four years and receipts were increased by $3.2 billion – an extraction of $17.4 billion out of the economy – and the Prime Minister Tony Abbott and Treasurer Joe Hockey were extracted within 18 months.
This one, the first from the next new government, couldn’t be more different: Labor’s budget measures increase government spending by $22.9 billion over four years, and increase receipts by $13.1 billion. Net addition to the economy: $9.8 billion, which is about half of Labor’s $18 billion in election promises, so they are funding half of the promises from savings.
So it’s a giving budget, not a taking one. Hockey and Abbott tried to set themselves up to give later; Chalmers and Albanese are taking it one budget at a time.
Is this good or bad? Well, half of the extra spending is “unfunded”, and we saw what a mess unfunded tax cuts made of British PM Liz Truss.
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Labor’s first budget is a financial reckoning
By David Crowe
October 25, 2022 — 7.30pm
Talking points
· Labor’s first budget warns of soaring energy prices in a bid to halt the rise of inflation.
· The best thing we can do now is exercise restraint, says Treasurer Jim Chalmers.
· The 22-23 deficit has halved to $36.9 billion, but will deepen in later years.
Households will be hit by a 56 per cent surge in energy bills in the coming two years but will receive no federal payments to help with the challenge in a crucial Labor decision to avoid cash assistance that would add to rampant inflation.
Treasurer Jim Chalmers warned of soaring prices and slowing economic growth in Labor’s first budget in nine years, revealing a grim forecast that included a potential spike in unemployment to 5 per cent if Australia is caught in a deepening global downturn or even a recession.
Chief Political correspondent David Crowe breaks down what's in Treasurer Jim Chalmers' first budget and what it means for you.
Chalmers revealed the bleak outlook with a pledge to use tougher regulation to control electricity and gas prices on the grounds that pouring more cash into the economy would undermine the budget effort to halt the rise in consumer prices.
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https://www.smh.com.au/politics/federal/five-minute-budget-20221023-p5bs4m.html
The five-minute budget: Everything you need to know
By James Massola and Millie Muroi
October 25, 2022 — 7.30pm
Economy
· Economic growth will reach 3.25 per cent in 2022-23, a slight decrease from the 3.5 per cent forecast in March, and then go down to 1.5 per cent in 2023-24 – a significant fall from the previously forecast 2.5 per cent.
· Australia’s unemployment rate is expected to fall to 3.75 per cent this year but then rise to 4.5 per cent over the following two years. However, this figure is still low by historical standards.
· Wages growth is currently 2.6 per cent and is expected to hover between 3 and 3.75 per cent over the next four years. However, the fact that inflation is rising faster means Australians won’t be getting a real pay rise for about 12 months.
What you should know: Prices have been soaring and unemployment is at record lows, but Australia’s economic growth is cooling. At the same time, wages haven’t kept up with price rises and aren’t expected to until 2023-24, something that Labor will be keenly aware of – and will need to do more to address in the next budget, due in May, than in this super-sized mid-year economic update.
Chief Political correspondent David Crowe breaks down what's in Treasurer Jim Chalmers' first budget and what it means for you.
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The budget asks questions to which Labor has no answers
The Albanese government is hostage to the deteriorating conditions it outlined in the budget until it starts taking the lead on reform.
Oct 28, 2022 – 6.54pm
The economic forecasts in Tuesday’s budget were a cold bath for the Albanese government for which it, as yet, has no answer.
The promises of just six months ago to reduce energy costs with cheap renewables and to lift real wages have succumbed to inflation that will now be higher for longer than expected.
Kitchen table power bills will rise sharply – 56 per cent during this and next financial year – while real wages won’t rise in that time. Economic growth will sputter to just 1.5 per cent in 2023-24 and joblessness will rise as the Reserve Bank keeps moving to slow consumption, with a seventh consecutive interest rate rise on Tuesday.
And while it breathes, the inflation dragon could still torch all of Treasurer Jim Chalmers’ best hopes: the budget papers show that if inflation peaks at 8.75 per cent rather than 7.75 per cent, the landing will be significantly harder.
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https://www.afr.com/politics/federal/chalmers-wrestles-with-the-energy-price-monster-20221027-p5btdn
Chalmers wrestles with the energy price monster
Mispeaking on power prices was only the start of the energy headaches for the federal treasurer this week.
Laura Tingle Columnist
Oct 28, 2022 – 3.58pm
Jim Chalmers prides himself on being on top of his brief and meticulously on-message. So imagine the treasurer’s horror on Wednesday when he realised that he had misspoken – as the phrase goes in politics – about power bills and election promises.
Should Australians still expect their power bills to be $275 lower than the pre-election prices, he was asked. “Yep, it’s in the budget,” Chalmers responded without even pausing. It was the swift and succinct nature of the response that confirmed he hadn’t really heard, or processed, the question.
Labor’s election promise that it’s energy plan would reduce household bills by $275 by 2025 had been the subject of regular questions to Chalmers – and all his colleagues – for some time as electricity and gas prices started to soar a few months ago.
And the treasurer had made it clear well before Tuesday’s budget that the government would not be providing any immediate relief to households to deal with those increasing power costs.
It says much about the budget – and the times – that energy costs were the first thing the federal opposition chose to attack.
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The dragons that could slay Labor in just one term
Political and international editor
October 29, 2022 — 5.00am
Jim Chalmers says inflation is “the dragon we need to slay”. But anyone who’s watched the TV show Game of Thrones knows that if you’re going into battle, it’s always better to have the dragon on your side.
As things stand, the dragon is on Peter Dutton’s team. Like the fearsome beasts that serve the dauntless heroine Daenerys Targaryen, the opposition leader expects that inflation will flame and incinerate the foe. Strikingly, Dutton’s budget reply this week offered not a single new policy. This was a notable missed opportunity to get some attention with a fresh initiative; opposition leaders don’t get many such chances. So he must be feeling confident that inflation will do all the work.
And maybe it will. Dutton is very unlikely to win the next election in his own right, but Anthony Albanese could certainly lose it. A big price shock could be that serious.
When Labor was in opposition, one of its favoured lines of attack on the Morrison government was to say “everything is going up, except your wages”. The most powerful moment in Dutton’s budget reply speech was when he took the same line and turned it against Labor: “On Tuesday, the treasurer failed to mention in his speech what Labor’s budget papers revealed: ‘Everything is going up, except your wages.’”
And while the inflation dragon was stirring when the Coalition was still in office, now it’s raging. Not Labor’s fault, of course, but now Labor’s responsibility.
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Budget 2022: Family household budgets take $13,000 hit from inflation and interest rate rises
9:00PM October 28, 2022
Average wage earners will be $5000 a year worse off – and mortgage holders up to $13,000 a year out of pocket – as a combination of surging inflation and rising interest rates eat into household budgets.
Anthony Albanese on Friday reaffirmed his promise to “get wages moving again”, but Jarden chief economist Carlos Cacho warned an invisible inflation tax could see real pay continuing to slide until 2024. “Middle Australia is feeling the pain,” Mr Cacho said.
Westpac has upgraded its expected peak in inflation to 8.5 per cent in December, up from the 7.75 per cent predicted by Treasury and the Reserve Bank, an outcome that would lead to a drop in purchasing power of $4994 for a household on the annual median income of $90,800.
The budget was about implementing ‘our plan for a better future’: Albanese
Prime Minister Anthony Albanese has discussed the newly announced budget at a media conference in Parramatta,… NSW on Friday. “We went through the commitments that we gave the people of Australia in May and have ensured that we have delivered on them,” Mr Albanese said. “From the youngest More
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Don’t be fooled, the budget is full of facts you need to know
11:01PM October 28, 2022
If anyone this week tells you there was “nothing in the budget”, don’t listen to them. There was a mountain of material highly relevant to all investors at every level.
The art of a budget is to highlight the giveaways and bury the decisions that might prompt trouble. On that front, Treasurer Jim Chalmers did a pretty good job.
But as the days pass, a range of important items are being uncovered by analysts from the blizzard of measures announced on Tuesday.
As with profit results at big companies, there are the expected items which the budget confirms and then there is the “guidance” which can be just as important.
You’ve probably heard the top-line budget items but, for investors, it should be useful to just quickly recap the implications of the headlines and then we can look under the hood at some of the very interesting material bubbling beneath the surface.
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Albanese government mugged by new energy reality
11:00PM October 28, 2022
The Albanese Labor government isn’t responsible for the alarming rise in energy prices forecast for the years ahead. But it is responsible for making a rather stupid promise to bring energy prices down.
Labor reiterated that commitment during the election campaign, when it was well known inflation was on the up and up and there was little chance of containing a rise in energy prices.
It is learning the hard way that making promises in opposition is much easier than keeping them in government. Mugged by the reality of incumbency, the government will be forced in the months and years ahead to do what John Howard did after winning in 1996: distinguish between core and non-core commitments.
For example, it is widely anticipated that Labor will junk the stage three income tax cuts already legislated, despite promises before the election last May and again in budget week to keep them. Of course the government won’t use Howard’s rhetoric – not wanting to have the comparison drawn. But the sentiment will be the same. And that’s just one example; there are many more.
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Health Issues.
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Call for investigation as private health funds ‘spend up big on executive salaries and perks’
Jess Malcolm MAX MADDISON
8:03PM October 23, 2022
Private health insurers have been accused of “totally indefensible” spending on salaries, bonuses and management costs that has increased at three times the rate of expenditure on member benefits, leading to calls for an “urgent investigation”.
Analysis of Australian Prudential Regulation Authority data has revealed that spending by private health insurance companies on management expenses has increased by nearly 18 per cent over the past four years.
In the same period, insurers’ spending on benefits for members increased by only 4.7 per cent.
Research conducted by Catholic Health Australia found the funds collectively poured an extra $389m into management expenses compared with 2019. The peak body – which represents 75 not-for-profit hospitals – said the increased spend on salaries and admin was “totally indefensible”.
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https://www.ausdoc.com.au/news/discontinue-the-mbs-what-does-margaret-fauxs-phd-thesis-actually-say/
‘Discontinue the MBS’: What does Margaret Faux’s PhD thesis actually say?
Spoiler alert: It does not at any point say the number $8 billion
24 October 2022
If there’s another example of the medical profession spending more than a week discussing an obscure PhD thesis on the inner workings of the Medicare system, nobody at Australian Doctor remembers it.
But last week it happened, as the ABC and Nine Newspapers repeatedly cited Margaret Faux’s 443-page thesis in their attempts to justify allegations that doctors were rorting billions from Medicare each year.
But what does it actually say? If you are expecting a series of citations to hard numbers stemming from an expert audit of mass fraud which ends with the words “$8 billion in total”, you will be disappointed.
Dr Faux, as standard practice, starts out listing her research questions:
- What are the experiences, perceptions, attitudes and knowledge of medical practitioners in relation to their claiming and compliance obligations under the MBS?
- How do medical practitioners manage, research and investigate their MBS claiming and compliance obligations?
- Where do medical practitioners access support and advice in relation to their Medicare claiming and compliance obligations, who provides this support and advice, and how do medical practitioners rate the quality of the support and advice?
- What are the complexities in the Australian medical billing ecosystem that may impact medical practitioners’ compliance with medical billing?
None of these seek to quantify Medicare non-compliance of either a fraudulent and non-fraudulent kind.
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https://medicalrepublic.com.au/medicare-compliance-is-a-numbers-game/79811
24 October 2022
Medicare compliance is a numbers game
Medicare Medicolegal Political PSR
The PSR isn’t the only worrying aspect of the audit and compliance program. How do GPs end up there in the first place?
Once the director of the Professional Services Review has decided to investigate you, a PSR committee will have an enormous amount of freedom to choose the evidence it collects, the evidence it pays attention to and how it forms its conclusions.
But what exactly happens before that to put a doctor in the PSR’s sights? What rules or guidelines does the Department of Health use to decide it suspects “inappropriate practice”? That information exists in a 64-page document, but we’re not allowed to see it.
Medicare monitors individual practitioners’ patterns of providing or initiating MBS and Child Dental Benefits Scheme (CDBS) services, and prescribing PBS items.
“This data is analysed to identify practitioners whose claiming varies from their peers,” DoH tells TMR. “Where this variance could be due to possible inappropriate practice, the Department may review a practitioner’s servicing under the Practitioner Review Program (PRP).”
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Health spending to grow by $11 billion over the next four years
By David Crowe
October 24, 2022 — 10.00pm
Federal spending on health and aged care will grow to $548 billion over the next four years in a trend that makes the combined sector the second-biggest target for Commonwealth outlays.
The federal budget will show the spending has risen from the $537-billion estimate made just seven months ago as a result in part of new commitments to subsidise medicines and spend more on Medicare.
Health Minister Mark Butler confirmed the figures – including $135.3 billion for health and aged care this year alone – with a statement saying he made “no excuses” for putting a priority on better services.
Even so, the government has named aged care and hospitals as two of the five areas of spending where it is concerned about the increase in outlays, especially when it has promised to help fund a likely increase in wages for aged-care workers.
“Good health is the foundation of everything. Our government’s spending on health and aged care is an investment that underpins the future prosperity of Australia,” Butler said in a statement.
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https://insightplus.mja.com.au/2022/41/medicare-rorts-we-read-dr-fauxs-thesis-so-you-dont-have-to/
25 October 2022
Medicare rorts? We read Dr Faux’s thesis so you don’t have to
Authored by Eddie Cliff Tori Berquist
THE Sydney Morning Herald (SMH) alleged on its front page that doctors are “rorting” $8 billion from Medicare each year, including by “billing dead people and falsifying patient records to boost profits”. Another twenty articles plus multiple 7.30 stories have repeated these claims.
Medicare’s challenges, particularly its budget, are under close scrutiny as we emerge from a pandemic, with many frontline workers arguing the system is in crisis due to under-funding.
This joint SMH, The Age and ABC investigation suggests that “ambulances ramping, public hospitals not cop[ing], and general practices in tatters” are “all part of the same problem”: doctors defrauding Medicare. We agree these issues need urgent attention, but there is little evidence to suggest that doctors’ dishonesty is their cause.
This investigation claims its figure of $8 billion in fraud per year is based on data from the PhD thesis of lawyer Dr Margaret Faux. Prominent doctors, including Australian Medical Association President Prof Steve Robson have been publicly chastised for not having read Dr Faux’s 474-page PhD before denouncing her allegations.
Dr Faux suggested we read her PhD.
So we did.
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International Issues.
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China’s Xi Jinping confirmed as leader for life, elevates loyalists
Michael Smith North Asia correspondent
Oct 23, 2022 – 3.42pm
Tokyo | Xi Jinping has appointed a new leadership team of fierce loyalists and eliminated politically moderate officials from the Communist Party elite, as he was confirmed as China’s ruler for life with a historic third term.
Striding into a conference room in Beijing’s Great Hall of the People with the other six members of his new cabinet on Sunday, Mr Xi confirmed his appointment as China’s leader for the next five years.
He also announced four new members of his seven-man Politburo Standing Committee, including the Communist Party chief of Shanghai, Li Qiang, who is expected to become the country’s Premier and Mr Xi’s number two.
The other new members were Ding Xuexiang, a long-time Xi loyalist who has effectively been his chief of staff, as well as Beijing party chief Cai Qi and Guangdong party boss Li Xi.
Two other existing members of the Standing Committee, Wang Huning and Zhao Leji, retained their positions.
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https://www.afr.com/policy/foreign-affairs/resounding-victory-cements-xi-s-dominance-20221020-p5brf8
Resounding victory cements Xi’s dominance
This congress was a triumph for one man and those loyal to him were rewarded.
Richard McGregor Columnist
Oct 23, 2022 – 4.51pm
Ordinarily, it makes for unmatched political theatre in an otherwise grey and opaque system, the moment when China’s ruling communist party unveils its new leadership at the close of its congress.
The appearance of the seven men – and, yes, they are all men – marks the climax of months of intense bargaining, factional balancing and brutal purges that take place behind the scenes beforehand.
This time around, however, the ceremony at the Great Hall of the People on Sunday had only one star performer, Xi Jinping.
It was no surprise that Xi emerged out front, confirming what has been an open secret since the last congress five years ago, that he would break with recent convention and take a third term as leader.
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https://www.afr.com/world/europe/boris-johnson-pulls-out-of-uk-pm-leadership-race-20221024-p5bs8a
Sunak set to become UK PM as Johnson pulls out of race
Hans van Leeuwen Europe correspondent
Updated Oct 24, 2022 – 9.18am, first published at 7.29am
London | Boris Johnson has pulled the plug on his dramatic comeback campaign for the top job in British politics, paving the way for his former chancellor Rishi Sunak to be anointed as prime minister on Monday (early Tuesday AEDT).
After Mr Johnson rushed back from a Caribbean holiday to run the numbers over the weekend for a second crack at Downing Street, he conceded late on Sunday (Monday AEDT) that his bid risked splintering the Conservative Party.
In a statement, he said it was likely he could have won the leadership contest, but “I have sadly come to the conclusion that this would simply not be the right thing to do”.
“You can’t govern effectively unless you have a united party in parliament,” Mr Johnson said. “I believe I have much to offer, but I am afraid that this is simply not the right time.”
His withdrawal means Mr Sunak is all but certain to win the Conservative Party leadership contest triggered by Liz Truss’ resignation last Thursday, and will become British prime minister on Monday night.
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Xi’s economic vision for China is riddled with contradictions
North Asia correspondent
October 24, 2022 — 12.01am
When the economy of the Soviet Union reached its zenith in 1985, it had a gross domestic product of $3.5 trillion. Today, its successor as the second-largest economy in the world, China, has a GDP of $25 trillion, seven times the level of output of its economic, ideological and political forebear.
But Xi Jinping, who was elected as China’s president for a third five-year term on Sunday and is now the most powerful person in the world, does not want China to stay the course on policies that have lifted 800 million people out of poverty, fostered hundreds of globally competitive technology companies and delivered China more billionaires than any other country.
Xi wiped out his more liberal economic rivals Li Keqiang and Wang Yang from his Politburo Standing Committee on Sunday - ending the last vestiges of moderate resistance to his red campaign. Now he wants to reshape China’s economy into one that will share the proceeds of wealth by reconfiguring the tax system, entrenching ideological purity in its largest companies and driving economic growth away from the major cities towards the regions.
Xi’s campaign has been a decade in the making. In 2017, as he prepared to be anointed for his second term he told the National Party Congress he had identified a new “principal contradiction” in Chinese society that would shift the Party’s emphasis away from years of focus on wealth generation to wealth redistribution. Until then, the principal contradiction was “the ever-growing material and cultural needs of the people and backward social production,” (wealth generation). By 2017 he transformed this contradiction to “between unbalanced and inadequate development and the people’s ever-growing needs for a better life” (wealth redistribution).
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His domestic rivals vanquished, Xi’s now free to pursue international ambitions
By Eryk Bagshaw
October 24, 2022 — 5.00am
In the end, he just walked out on stage. After a decade of building his power base, wiping out his rivals and forcing changes to the constitution, Xi Jinping emerged first on Sunday to signal he would be staying in charge.
That such a monumental change to China’s political structure – the end of term presidential limits, the end of collective leadership, and the end of moderate economic and ideological influence could take place with little more than a procession of seven suits on a stage in Beijing is remarkable.
Xi and the Chinese Communist Party have been telegraphing this change for years, now it is here. The world will have to brace for the consequences.
By the time Xi Jinping finishes his third term in 2027, he will have become one of the longest-serving post-war leaders of any major economy. He won’t be finished there. At 69, Xi could serve a fourth or fifth term, imprinting his name, image and thoughts on China for generations.
On Sunday, Xi and his six lieutenants walked out, one after the other, onto the red stage at Beijing’s Great Hall of the People: Xi followed by his Shanghai protege Li Qiang; Zhao Leji, his corruption enforcer; Wang Huning, the architect of Xi Jinping Thought and his ideological lodestar; Cai Qi, who rose through the ranks after working with Xi in Fujian and Zhejiang; Xi’s chief of staff Ding Xuexiang and his family friend Li Xi.
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How the Conservatives can come back from the dead
Clare Foges
The Times
October 24, 2022
In the 19th century, the businessman Alfred Nobel invented dynamite, opened several explosives factories and made a lot of buck for his bangs. He was mooching along happily until a life-transforming error was made. When his brother Ludvig died, a French newspaper printed an obituary about the wrong brother. Thus Alfred - very much alive - was able to read his own obit.
It was ugly. “The merchant of death”, he was dubbed, a man enriched by developing new ways to “mutilate and kill”. Horrified to think he would be remembered this way, Alfred left his vast fortune to create a different legacy: the Nobel prizes. A name once linked with war is now synonymous with peace.
A mid-life obituary can be a gift, a course corrector, and in recent days the Conservative Party has also had a foretaste of how it might go down in history. With the polls dipping as low as 14 points, obituaries are being written, and they are ugly: incompetence, ineptitude, lying, loafing, recklessness, selfishness, squabbling, careerism-before-country.
Former UK prime minister Boris Johnson has pulled out of the race to become the country’s next Prime Minister.
Like Nobel, the Conservatives have been offered the gift of regrouping while still alive politically; while still in government. Will they take it? Or will they continue on this death spiral, cast in perpetuity (and unelectability) as merchants of destruction?
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Political backlash against monetary policy is looming
The credibility of central banks is only as good as the credibility of the macroeconomic regime as a whole. Defenders of their independence must think about their democratic legitimacy.
Martin Sandbu
Updated Oct 24, 2022 – 1.38pm, first published at 12.27pm
Three weeks ago, Sanna Marin, Finland’s Prime Minister, retweeted a link to an article by a Finnish academic together with the following quote: “There is something seriously wrong with the prevailing ideas of monetary policy when central banks protect their credibility by driving economies into recession.”
Defenders of those prevailing ideas predictably pushed back, warning against second-guessing independent central banks or not valuing their credibility.
But defensiveness is the wrong response. Not just because Marin didn’t actually criticise any central bank actions. But, more profoundly, because avoiding a debate over whether our macroeconomic regime is fit for purpose is more perilous than having one.
Comparisons with the 1970s often fail to notice one important lesson of that decade: a macroeconomic regime that cannot justify itself will be toppled, first intellectually, then politically.
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https://www.afr.com/world/europe/sunak-can-stop-the-chaos-but-is-he-a-winner-20221024-p5bs9g
Sunak can stop the chaos, but is he a winner?
Britain’s likely new PM takes the job after just seven years in parliament. Will his strengths see him through, or are there flaws that could bring him undone?
Hans van Leeuwen Europe correspondent
Oct 24, 2022 – 10.07am
London | The likely coronation of Rishi Sunak as Conservative Party leader and British prime minister on Monday (Tuesday AEDT) is Britain’s best chance of drawing a line under a year of political chaos.
One thing everybody agrees on: Sunak has a good policy brain and phenomenal attention to detail; and he will certainly re-establish the party’s reputation for sound fiscal management.
If he can get the books looking balanced in the next year or two, he can then conjure a crowd-pleasing tax give-away before the next election, due in late 2024.
But the question that remains unanswered, and which pushed almost a third of the Conservative Party to back Boris Johnson over the weekend, is whether Sunak is an election winner.
He has to retain those former Labour seats that Johnson won in hard-scrabble northern England back in 2019.
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Britain’s next PM faces enormous economic challenges
Eshe Nelson
Oct 24, 2022 – 12.42pm
Rishi Sunak would have every right to be smug.
Throughout the summer, Sunak, Britain’s former finance minister – and now the front-runner for prime minister – warned against the economic policies of Liz Truss as he competed with her for the nation’s top job, and then lost.
From the first television debate, when he described her plans as a “fairy tale,” to the final days of the contest, when he said he “struggled to see” how Truss’ tax cuts and spending plans would “add up”, he sounded the alarm.
For the past six weeks, Sunak has been lying low as his economic predictions have played out at a dizzying speed. Investors baulked at Truss’ widespread tax cuts and increased borrowing; the pound slumped; government borrowing costs soared; the mortgage market was upended; and the central bank had to intervene. After just 44 days as prime minister, Truss resigned last week with her economic agenda in tatters.
Sunak’s relatively gloomy attitude over the summer, warnings about inflation and strict adherence to fiscal conservatism might have cost him the opportunity to be named prime minister in September. But less than two months later, these same characteristics and accurate prognosis of the effects of Truss’ program have eased his pathway to Britain’s top job. After Boris Johnson, the former prime minister, took himself out of the running on Sunday, Sunak has cemented his commanding lead in the contest.
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https://www.afr.com/world/europe/rishi-sunak-to-become-britains-next-prime-minister-20221025-p5bsji
Sunak calls for stability, unity, as he wins contest to be British PM
Hans van Leeuwen Europe correspondent
Oct 25, 2022 – 12.31am
London | Rishi Sunak will become Britain’s prime minister on Tuesday after taking the Conservative Party leadership unopposed, in an extraordinary comeback less than two months after crashing to defeat against Liz Truss.
The 42-year-old former chancellor will be the youngest prime minister in more than 200 years, and the first ethnically Asian leader of the increasingly diverse United Kingdom.
He must now set about healing his rancorous, divided party, and start the task of rebuilding Britain’s battered international reputation and fragile public finances. A make-or-break fiscal statement is scheduled for next Monday.
Mr Sunak does not need to call an election until the end of 2024, giving him time to repair the budget before offering tax cuts and giveaways in the lead-up to that campaign.
In a televised statement outside Conservative Party headquarters, he vowed to pursue “stability and unity” as the government and country confronted “a profound economic challenge”.
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Rishi Sunak: the $1.3b PM who’s richer than the King
Britain’s newest prime minister is also one of its richest men with a £730 million ($1.3 billion) fortune. Does this leave him out of touch in a country gripped by a cost-of-living crisis - or uniquely qualified?
Karla Adam
Oct 25, 2022 – 1.22am
London | Rishi Sunak is one of the wealthiest people in Britain and is now one of the country’s most powerful after capturing the prime ministership. For the first time in history, the residents of Downing Street are richer than those of Buckingham Palace.
Brits are used to being ruled by elites - Boris Johnson was about as elite as they come - but Sunak is not just rich, he is super rich, which has prompted some to ask whether his vast fortune makes him too rich to be prime minister?
His backers, however, say it is precisely this background and the years spent making money that qualify him to lead a deeply damaged nation during these economically tumultuous times.
Sunak, a former banker, and his wife, Indian tech heiress Akshata Murty, have an estimated fortune of about £730 million ($1.3 billion), according to the Sunday Times Rich List. On the 2022 list, the monarch was estimated to have about £370 million ($664 million) by comparison.
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‘Untouchable’: How Xi Jinping became more powerful than Mao Zedong
Political and international editor
October 25, 2022 — 5.00am
The first day of the 20th Congress of the Chinese Communist Party last week happened to be the anniversary of an event that took place more than a millennium earlier.
It was the date 1332 years ago that the empress dowager ascended the throne as the Empress Regnant Wu Zhou of Zhao. It was the first and last time that a woman ruled China.
But that’s not the reason all references to the anniversary were censored from China’s internet. That moment of history was banned because some citizens were pointing out the anniversary “as a sly reference to President Xi Jinping declaring himself emperor”, explains the eminent Australian sinologist Geremie Barme.
“It’s so obscure that nobody really takes it seriously – but even that has to be scrubbed, 1300-years-old though it may be.”
It was not a surprise when the party congress endorsed Xi for a third five-year term. He’d prevailed on the party to rewrite the constitution to remove the two-term limit. It was unanimous – 2296 delegates all of a single mind, apparently.
But the completeness of Xi’s consolidation of power last week was not expected by most observers. He removed from the inner sanctum of power, the seven-member standing committee of the politburo, anyone with any independent standing or power base. None of the party’s factions will be represented other than Xi’s own.
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Gloomy outlook on Ukraine: a war without end
11:00PM October 24, 2022
As Russia’s invasion of Ukraine enters its ninth month, the question being increasingly asked is: when will this war end? But Vladimir Putin is digging in his heels and has imposed enforced conscription and martial law over Russia’s occupied territories in Ukraine. And we are witnessing an increase in the debate about whether Russia will soon use nuclear weapons to determine this war’s outcome.
There are four possible ways this war may end: first, Ukraine wins; second, Russia wins; third, there is a negotiated peace, and; fourth, there is no decisive victory and this dangerous war in Europe continues perhaps for a long time.
The scenario where Ukraine wins would see a Russia that is decisively defeated, and its forces entirely evicted from the territory of Ukraine. For this scenario to succeed, America and its NATO allies will have to seriously upgrade their supply to Ukraine of technologically advanced and highly accurate weapons.
Such a defeat for Russia would have crucial implications for its ranking as a serious military power. And it would have terminal implications for Putin’s survival. Moreover, it may well have profound consequences for the survival of the nation state of Russia. The disintegration of the Soviet Union more than 30 years ago into 15 different countries might not be the end of further secession elsewhere in Russia. There are parts of Siberia that have long felt ignored by Moscow (a puppet “independent” Russian Far Eastern Republic existed briefly in the early 1920s).
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The warning from this $2.5b company should worry all investors
Reliance Worldwide’s plunging share price shows investors have a lot to worry about: falling demand, rising inflation, increasing debt costs and even COVID.
Oct 25, 2022 – 11.40am
Reliance Worldwide, the $2.5 billion manufacturer of plumbing supplies, might not be the first ASX-listed company that comes to mind when investors are looking for a bellwether stock.
But if you’re looking for a window into how the real economy is tracking in Australia, the United States and Britain, then it fits the bill nicely.
The company’s geographic spread provides a snapshot of global markets. And given Reliance’s products are sold to both tradies and do-it-yourselfers, investors get a view into the construction and housing sectors, and consumer spending more broadly. The company’s manufacturing business also allows the market to look at the trajectory of commodity prices, labour shortages and broader inflationary pressures.
So with all that in mind, the trading update chief executive Heath Sharp provided on Tuesday morning painted a worrying picture.
The first point is that Reliance’s own earnings are under pressure, with adjusted earnings before interest, tax, depreciation and amortisation for the September quarter (excluding a property sale) falling 4 per cent. That’s due mainly to lower sales in the company’s American and European divisions and intense margin pressure from both input cost inflation and selling expenses; EBITDA margins in the period plunged from 26.6 per cent in the September quarter of 2021 to 20.9 per cent.
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Serious Sunak offers UK and the Tories a reset moment
Britain’s new Prime Minister has shown formidable ability. He will need it to do what the economy needs and then win an election.
Shamit Saggar Contributor
Oct 25, 2022 – 11.53am
Just as the global Indian diaspora were celebrating their central cultural festival, Diwali, they got two unexpected gifts. One was an Indian cricket victory over Pakistan. The other was the arrival of Britain’s first Indian-origin prime minister.
Rishi Sunak now holds the top job, just seven years into his parliamentary career and barely two months on from losing out to the ill-suited Liz Truss.
He got there through a clarity of message, being proven right on Trussonomics, and his track record as a former Chancellor of the Exchequer.
The first in-tray task will be party unification. The post-Thatcher, post-GFC and post-Brexit Tories are an incoherent coalition of ideologues, baffling preferment and internecine hatreds, with moderate One Nation Tories thinned out.
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Why China’s share rout is ‘not an emotional overreaction’
The sell-off in China since the Communist Party congress reflects a change in fundamental value investors need to get to grips with.
Oct 25, 2022 – 3.15pm
The red terror stalking Chinese markets is not over.
The historic sell-off that engulfed Chinese markets on Monday following the end of the Chinese Communist Party congress continued early on Tuesday, pushing the Hang Seng Index below 15,000 points for the first time since April 2009, and sending the Hang Seng China Enterprises index down almost 8 per cent in two days.
The market bounced in afternoon trade, but bet on more volatility; Chinese stocks listed on US markets plunged about 15 per cent on Monday night, with Tencent and Alibaba down almost 20 per cent before paring losses.
The natural response to a move of this size and ferocity is to label it an emotional response. Yes, Chinese President Xi Jinping has eliminated any hint of factional opposition in his new leadership team, and yes, the congress failed to deliver any of the pro-growth policies the market was hoping for.
But Xi’s total control of China was never really in any doubt, and GDP figures released on Monday – albeit after a suspicious delay – came in stronger than expected. So an argument can be made that relatively little has changed this week and last. JP Morgan’s chief global markets strategist, Marko Kolanovic, notably declared the rout to be “disconnected from fundamentals” and said he expected a gradual recovery to take hold.
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Winter is coming: How Ukraine can use the cold to its advantage
Military leader and strategist
October 25, 2022 — 3.30pm
Recently, it has become common to compare the coming winter in Ukraine with the Russo-Finnish Winter War, fought from November 1939 through to March 1940. The Finns resisted a massive Soviet invasion of their nation, resulting in a peace agreement which temporarily ended hostilities. But this deal also saw the Finns cede 9 per cent of their territory to the Soviet Union.
The Winter War, seen historically as a David versus Goliath conflict, is notable for the clever use of terrain and weather by a defending military force. But it also offers another important lesson for observers of the war in Ukraine: wars can be fought, and battles can be won during the most extreme weather, including the depths of winter.
Both the Russian and Ukrainian strategies are predicated on a continuation of hostilities over the coldest months. However, they will have different approaches. For Russia, the aim is to draw the war out over winter and well into 2023. A key element of this is the insertion of masses of newly mobilised troops into Ukraine to stabilise the front line. But the most important aspect of Russia’s strategy for winter is its strategic energy warfare.
Putin’s energy war, which has already affected 30 per cent of power generation capacity in Ukraine, will see heating restricted, more burst water pipes and a range of other hardships for the population. While stockpiling of warm clothing and firewood commenced some time ago, many Ukrainians are either displaced from their homes, or living in damaged residences, making them more vulnerable to the ravages of winter.
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Sunak retains key Truss ministers in bid to heal Conservative rifts
Hans van Leeuwen Europe correspondent
Updated Oct 26, 2022 – 4.05am, first published at Oct 25, 2022 – 11.13pm
London | New British Prime Minister Rishi Sunak on Tuesday (Wednesday AEDT) launched a cabinet reshuffle that has kept most of his predecessor Liz Truss’s top ministers in place, even as he vowed to patch up the mistakes made under her watch.
After seeing the King late on Tuesday (AEDT) to formally receive his commission, Mr Sunak looked to be making good on his promise to foster unity in the restive Conservative Party ranks: he promoted or retained ministers from Ms Truss’s camp as well as rewarding his own support base.
But speaking outside Downing Street after returning from Buckingham Palace, he did not hold back from criticising his predecessor, saying Ms Truss had been well-intentioned but mistaken in her approach.
That was a reference to Ms Truss’s rushed and risky mini-budget, which spooked markets and prompted a cascade of chaotic policy U-turns and ministerial sackings.
He said he “admired her restlessness to create change”, and “she was not wrong to want to improve growth in this country”.
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New Conservative Party leader Rishi Sunak tells MPs ‘we have one chance … unite or die’
8:42PM October 25, 2022
Rishi Sunak – confirmed as Britain’s third prime minister in two months and the youngest in more than two centuries after meeting King Charles on Tuesday night – has warned Conservative MPs “we have one chance. It is unite or die.”
Mr Sunak told a gathering of more than 350 Tory MPs that he was committed to reducing taxes, but only when it was affordable. He also vowed there would be no early general election, despite the demands of all opposition parties.
Shortly after being elected Tory leader, Mr Sunak said he was humbled and honoured, but stressed “there is no doubt we face a profound economic challenge”.
He gave a 84-second address outside Conservative Party headquarters in London in which he called on the Tories, riven by deep factions, to develop “stability and unity”, saying it will be his utmost priority to bring the party and the country together.
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Bank of Canada signals tightening phase near end
Theophilos Argitis and Erik Hertzberg
Oct 27, 2022 – 3.02am
Ottawa | The Bank of Canada unexpectedly slowed its pace of interest-rate increases as the nation’s economy flirts with recession, although sustained inflation meant it still expects to raise borrowing costs again.
Policymakers led by governor Tiff Macklem lifted the benchmark overnight lending rate by 0.5 percentage points to 3.75 per cent, less than the 0.75 percentage points move expected by markets and most economists. The central bank increased rates by three-quarters of a percentage point last month, and by a full percentage point in July.
While officials retained relatively hawkish language around combating inflation, the surprise move will raise questions about the central bank’s appetite to impose further damage on Canada’s economy. Other central banks may also look to their Canadian peer as they too try to work out how aggressively they need to keep tightening monetary policy.
Bonds staged a big rally, pushing the Canada 2-year yield down to 3.931 per cent at 10.06am Ottawa time, down to 3.936 per cent at 10.53am Ottawa time, down about 18 basis points from its level just before the decision came out. The loonie swiftly dropped as low as $C1.3651 per US dollar before recovering those losses.
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China will never be the No.1 economy with its current policies
This was supposed to be the decade when China’s economy closed in on the US. Now there is a chance of it slipping significantly instead.
Jim O'Neill Columnist
Oct 27, 2022 – 12.33pm
Judging by the reporting from the Communist Party of China’s 20th National Congress, Xi Jinping, newly anointed to an unprecedented third term as president, is tightening his political grip and strengthening the CPC’s control over society. Can successful economic development continue in this environment?
I have been thinking for many months that one day, I would wake up to read that China was revisiting its zero-COVID strategy, overhauling the CPC’s interaction with domestic private business, truly reforming the country’s hukou system of rural and urban residence permits, and rethinking crucial aspects of its Belt and Road Initiative (BRI) and its recent tactical stance on international governance. It is proving to be a very long wait.
At a meeting with a senior Chinese official a few months ago, I jokingly said that my 30-plus years of “understanding” China may have been a fluke because I couldn’t comprehend some policies the country had adopted in recent years. The only way I could rationalise them was to conclude that they must be part of some tactical manoeuvre to neutralise factions within the CPC’s upper echelons before the Congress.
Judging by who the Congress has chosen to be next to Xi in the new leadership, there have certainly been further purges of opponents – and few signs of a reversal of the policies of recent years.
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Billionaire Rishi Sunak’s no-win political conundrum
The UK PM’s biggest political liability is not the enmity of Boris Johnson, nor the financial markets, nor the trashed reputation of the Conservative Party.
Hans van Leeuwen Europe correspondent
Oct 28, 2022 – 9.33am
When Rishi Sunak was Boris Johnson’s chancellor, the social-media-friendly finance minister liked to post photos of himself on the job.
Sometimes he’d be out and about on cosplay visits to a small business, pub or factory. Other times he’d be snapped in his office, often casually dressed but always fully focused, working on the budget or on some pandemic rescue scheme – calm, confident and in control.
But these photos sometimes revealed more than he intended.
In one photo from 2020, he is leafing through his budget papers with a laptop open and a large black coffee mug beside him. Journalists quickly identified it as a Bluetooth-enabled Ember travel mug, designed to stop tea or coffee going cold. Apparently a present from his millionaire wife, it costs an eye-watering £180 ($320).
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Ron DeSantis is Donald Trump with brains and without the drama
If re-elected Florida Governor, the man of the hour for America’s right-wing populist movement is likely to challenge the former US president’s hold over the Republican Party.
Joshua Chaffin
Oct 28, 2022 – 5.00am
It was six days after the worst storm in nearly a century struck Florida’s south-west coast, disfiguring seaside communities and barrier islands. Retirees who came here to spend their golden years in the sun and salt breeze were wilting. They’d gone days without electricity and clean water. A realisation was settling in that many of them were now homeless and without the means, or the years, to rebuild.
But they had Ron DeSantis. The Florida governor, a beefy former athlete, ditched his suit and tie for a rain jacket embroidered with the state seal when he arrived outside a library-turned-relief centre in Fort Myers, a city that bore the brunt of Hurricane Ian’s fury. At his elbow was his glamorous wife, Casey, a former television news anchor, with an inscrutable gaze trained on the future.
DeSantis, 44, boasts Yale and Harvard degrees and what some describe as a photographic memory. The recovery effort appeared to be in solid hands as he rattled off statistics and organisational plans with a vigour and fluency that President Joe Biden’s handlers can only dream of.
Then came the righteous anger that DeSantis increasingly channels for a growing legion of fans. It was aimed at a quartet of alleged looters the police had arrested nearby a few days earlier. They were Hispanic and three of the four were illegal immigrants.
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ECB doubles its interest rate to the highest in over a decade
Carolynn Look, Jana Randow and Alexander Weber
Oct 27, 2022 – 11.51pm
The European Central Bank doubled its key interest rate to the highest level in more than a decade, intensifying its broadside against record inflation in the face of a likely recession.
Policymakers in Frankfurt delivered a second straight three-quarter-point increase on Thursday – as economists expected. That brings the deposit rate, which was below zero as recently as July, to 1.5 per cent.
In ploughing on with increases even as energy market turmoil batters the 19-nation eurozone economy, the ECB reaffirmed its commitment to wrest back control over prices that are surging at five times the 2 per cent target.
The move matches the recent pace of the Federal Reserve, whose assault on inflation began earlier, and has boosted the dollar at the euro’s expense. Canada, however, wrong-footed investors on Wednesday by unexpectedly slowing the speed of its monetary tightening as its economy flirts with a downturn.
“Inflation remains far too high and will stay above the target for an extended period,” the ECB said in a statement. “The Governing Council took today’s decision, and expects to raise interest rates further, to ensure the timely return of inflation to its 2 per cent medium-term inflation target.”
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America’s brittle consensus on Ukraine will soon break
The pressure on Biden to negotiate with Putin is bound to grow, especially after Republicans win the midterms and with a US recession looming.
Edward Luce Columnist
Oct 27, 2022 – 10.44am
“Diplomacy” is a taboo word in American politics right now. The speed at which progressive Democrats this week disowned their call for Joe Biden to talk to Russia is testament to that.
Only Ukraine can decide when and how this war will end, the legislators insisted. The group was clearly shell-shocked by the savagery of condemnation from their own side.
Yet, they were guilty only of speaking out too soon. Wars end in one of two ways: with the unconditional surrender of one party or in a negotiated settlement. As the world’s equal largest nuclear power, Russia’s full capitulation is almost unimaginable.
That means the West and Ukraine will eventually have to negotiate an end to this war. That moment has not arrived. But it is probably nearer than most people think.
It would be madness to open ceasefire talks with Vladimir Putin at a time when Ukrainians are recapturing territory. Today’s urgency is for the West to give Ukraine enough firepower to regain Kherson and what they can of the Donbas before winter. The stronger Ukraine’s military position next spring, the likelier Putin’s “partial mobilisation” will fail to reverse the war’s direction.
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Beware the falling knife: China’s turn to tyranny has sent investors fleeing
By Tom Stevenson
October 28, 2022 — 10.09am
There’s nothing quite like a bear market for testing stock adages to destruction. This week’s piece of conventional wisdom under the spotlight was “don’t catch a falling knife”, as the Hang Seng index went into freefall at the close of China’s 20th Communist Party Congress.
The drop in Hong Kong’s benchmark equity index - nearly 10 per cent at one point on Monday, its worst one-day fall since the financial crisis in 2008 - reflected unease, in particular among overseas investors, about what President Xi Jinping’s consolidation of power would mean for the world’s second-biggest economy and its financial markets. The general consensus is that Xi’s dominance, underpinned by a uniformly loyal politburo standing committee, means a continuation of the recent focus on social stability and so-called common prosperity at the expense of economic growth.
The market reaction reflects dashed hopes for a more pragmatic approach, in particular with regard to the ongoing zero-COVID policy which contributed to GDP falling well below Beijing’s 5.5 per cent annual target in the latest quarter. The published number - 3.9 per cent - was held back until after the Congress closed for reasons that are obvious in light of the market response.
The fallout from the Congress was not limited to stock markets in Shanghai, Shenzhen and Hong Kong. In New York, Nasdaq’s Golden Dragon index of US-listed Chinese shares dropped by more than 14 per cent on Monday, its largest ever one-day fall. Its decline so far this year is now 50 per cent.
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Why the era of ‘get rich first’ is officially over in China
With zero-COVID around to stay and equity markets in freefall, China’s wealthy capitalists are leaving in droves.
Michael Smith North Asia correspondent
Oct 28, 2022 – 1.18pm
For decades China’s newly minted millionaires, bankers and high-flying entrepreneurs were the country’s new capitalist heroes.
They drove flashy cars, drank expensive champagne in Shanghai nightclubs and wore head-to-toe Italian designer wear.
In a country that had endured decades of poverty, famine and hardship under Mao Zedong’s Cultural Revolution, it was not surprising that hundreds of millions of people were determined to create a better life for themselves than their parents had.
Former leader Deng Xiaoping’s catch cry was to “get rich first” and many people did. Jack Ma, the founder of e-commerce giant Alibaba, became the poster boy for the country’s growing army of billionaires. He jetted around the world to speak at Davos and mingle with kings, queens, presidents and other corporate titans. Many Chinese people had a picture of him hanging in their homes.
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The Westminster sitcom has a new male lead. Pass the popcorn
Journalist and author
October 30, 2022 — 5.00am
For months now, my homeland has doubled as a content-providing streaming service, with a round-the-clock feed of genre-busting programming. There’s been the slapstick comedy of Boris Johnson’s departure from office, not to mention the absurdist farce of his failed return. We have witnessed the solemnity of the Queen’s passing, with its blend of long processionals and even longer queues. We’ve watched the self-immolation of Liz Truss, a prime minister unready for prime-time.
From those pesky ink pots and pens to the mesmerising sight of yellow-vested police outriders slaloming in and out of the London traffic, it’s been pass-the-popcorn viewing. Perhaps we should call it Britflix.
How ironic that this season of national drama should come on the eve of the latest series of The Crown, a heavily fictionalised version of real events that plays fast and loose with history. Although perhaps that provides us with a useful frame for understanding this current era of British life: a politics based on castles in the air that also relies on questionable interpretations of the past.
The speedy demise of Liz Truss, and the discrediting of Trussonomics, proved the impossibility of running a country based on post-truth politics and post-truth policy. The former prime minister and her ideological soul-mate, the then chancellor Kwasi Kwarteng, tried to peddle the fallacy that mammoth unfunded tax cuts would spur higher economic growth. But their mini-budget never survived its first brush with reality. Even before Kwarteng had finished delivering his fiscal statement, the pound was nose-diving while government borrowing costs were soaring.
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‘Hunger games’ as Russia suspends grain deal with Ukraine
October 30, 2022
Moscow has pulled out of a United Nations-brokered grain deal with Ukraine after accusing the British of organising an attack on the Russian fleet in the Black Sea.
On Saturday morning a series of drones targeted various Russian ships in Sevastopol, including the frigate Admiral Makarov, which had been the flagship of the fleet after the Moskva was destroyed earlier in the war.
Extraordinary footage from one of the drones flying close to the waterline shows it veering past a Russian patrol boat – including footage of a sailor diving off the back of the boat – before it approaches the Markarov.
The UK Ministry of Defence said Russia was “peddling lies” after Moscow accused the British Navy of helping Ukraine in the Black Sea attack, as well as claiming that London was responsible for the explosion which crippled the Nord Stream gas pipelines in September.
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I look forward to comments on all this!
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David.
