This article first appeared on the Yahoo 7 Finance web page at this link: https://au.finance.yahoo.com/news/political-fallout-new-morrison-government-232153917.html
The political fallout of a new Morrison government
The revamping of the government’s leadership team and the elevation of Scott Morrison to Prime Minister and Josh Frydenberg to Treasurer opens the door for some much needed revamping of the economic policy agenda. Ironically, Morrison has left Frydenberg a number of awkward policy issues that will need to be addressed.
One that is clearly having a political effect and hurting the government is the health, or lack thereof, of the labour market. Wages growth is hovering around a record low, barely keeping up with inflation. This weakness in wages is a major constraint on consumer spending, which is also being impact by a sharp fall in the growth of savings and record household debt.
The fact that the unemployment rate has been entrenched well above 5 per cent right through the Abbott/Turnbull/Morrison period of government is a policy failure. The economy is simply not strong enough to generate the number of jobs needed to deliver a material lowering in unemployment and with that, a lift in wages.
If Frydenberg can deliver policies that help engineer a stronger economy and a lowering in the unemployment rate, he will have done something Treasurers Hockey and Morrison could not. This is where some meaningful fiscal policy changes and reforms to labour laws (industrial relations) would be welcome.
This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/heres-need-get-ready-early-2019-budget-010743625.html
Get ready for a February budget
An early budget is the likely scenario given the Federal election is set to be held in May 2019. The budget, which in modern times is usually delivered by the government on the second Tuesday in May, cannot be handed down during the election campaign which will be running hot if Prime Minister Turnbull sticks to his word and holds the election in May.
To allow the government to deliver its budget before the election is called, the most likely time for it will be in the period from mid-February through to early March.
With the constraint of the election timing, this timeframe for the budget would allow the government to ramp up its economic rhetoric and no doubt engage in a bit of a voter friendly strategy in an effort to gain some political momentum into the election campaign. This timing also means that soon after voters return to work and the real world after the summer holidays, they will be bombarded with budget news which, if the government is smart, will be portrayed as ‘good news’ and ‘vote for us’ as it struggles to remain competitive with the Labor Party.
This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/way-pay-stuff-fixing-budget-024912997.html
How the way you pay for stuff is fixing the budget
Over the past few weeks, I have tried a little experiment with a few on my favourite small business retailers who, for what will be obvious reasons, will remain nameless.
For a range of smallish transactions of say $10 to $20, I deliberately made a bit of a fuss about paying with cash, rather than tapping with my card. Almost without exception, the proprietor, with a wink and nod, appreciated the use of cash, and passed a quick comment to the effect that “unfortunately, cash is rare these days”. I also noticed on a number of occasions the transaction was not rung up on the cash register, with the notes tucked into the cash drawer with no one other than me and the shop keeper aware of the transaction.
This got me thinking about an issue which has had me a little puzzled – the sharp improvement in the government’s budget position on the back of unexpectedly strong tax receipts. This extra tax revenue for the government appears to be an odd development given the sluggishness in the economy and consumer spending, and the ongoing weakness in inflation and wages, which over many decades have proven to be the driver of tax collections.
Rather than an unexpected pick-up in economic activity driving the revenue surge, it appears that technology, the decline in the use of cash and the greater use of cards accounts for the extra tax take.
Tonightly with Tom Ballard
I was delighted to be a guest on the Tonightly program, discussing, dare I say it, baby boomers and millennials. With a shirt like that, I am surprised Tom was so critical.
Here is the clip of the show:
The avocado house at the end was a bit of fun.
This article first appeared on the FIIG website at this link: https://thewire.fiig.com.au/article/commentary/opinion/2018/07/31/we-have-an-inflation-problem
We have an inflation problem
Australia continues to have an inflation problem, with the official consumer price index for the June quarter confirming annual underlying inflation at 1.9%.
This means that underlying inflation has effectively been outside the Reserve Bank’s 2 to 3% target for three years and based on recent quarterly results, seems unlikely to pop back into the target range for quite some time. Any hope of inflation getting into the middle or top half of the target band seems fanciful with current policy settings.
Even the RBA know this despite its forecasts which are based on the increasingly unrealistic premise of accelerating wages growth and two more years of 3% or more GDP growth. Put another way, if there is any downside to the RBA view for the economy, inflation will be even lower over the next two years. Which begs the question, why is the inflation targeting RBA so reluctant to trim interest rates to help drive economic growth? It makes little sense when higher economic growth, and lower unemployment would help to ensure a lift in wages growth and inflation.
Is low inflation a bad thing?
The short answer is usually “yes” and it is particularly so now when the low inflation result is driven by sustained sluggishness in the economy. With the unemployment rate being too high and wages growth weak, inflation will not pick up. It is important to note, the RBA acknowledge this.
This article first appeared on the Yahoo 7 Finance web site at this link: https://au.finance.yahoo.com/news/election-results-mean-economy-013232186.html
It’s inequality, stupid
The super-Saturday by-election results over the weekend presented a clear preference from Australian voters – they don’t like policies that increase inequality in society and tax cuts to business are unfair and expensive, draining scares cash from education, heath and other vital services.
In a variance of Bill Clinton’s successful phrase and strategy “it’s the economy, stupid” in winning the 1992 US Presidential election, Labor’s “it’s inequality, stupid” approach to policy is winning it support in the electorate. Or just as accurately, it is the Coalition Government’s policy strategy that increase inequality in society that voters are shying away from.
Credit to the “it’s inequality, stupid” analysis goes to Stephen Moriarty who tweeted that phrase in the aftermath of the by-election results. It summed up the results very well.
It has been obvious with the last year of polling and then the by-election results that voters are not happy with the Liberal Party sales pitch which is framed around a story of a growing economy and the promise of income and company tax cuts. This is because economic growth is not all that impressive, despite the government’s rhetoric, and what growth is being registered is skewed heavily towards rising company profits and away from the wage share. Future company tax cuts will only add to that inequality.
Recent cuts to education and the miserable level of the Newstart allowance are the sorts of policies that are compounding unfairness.
This article first appeared on the Yahoo 7 website at this link: https://au.finance.yahoo.com/news/will-falling-house-prices-trigger-next-aussie-recession-000039851.html
Will falling house prices trigger the next Aussie recession?
House prices are falling, auction clearance rates continue to drop and there is a such sharp lift in the number of properties for sale that, for the moment, no one is willing to buy at the given asking price.
Potential house buyers who have held off taking the plunge in the hope of falling prices seem to be staying away, perhaps hoping for further price falls. But also influential factors forcing buyers away is the extra difficulty getting loans approved as banks tighten credit standards, then there are concerns about job security and associated awareness of probable cash flow difficulties given the weakness in wages growth. It is remarkably obvious that house prices will continue to fall and this poses a range of risks to the economy.
Research from a range of analysts, including at the Reserve Bank of Australia, show a direct link between changes in housing wealth and consumer spending. This means that when wealth is increasing on the back of rising house prices, consumer spending is stronger.
This was evident in Sydney and Melbourne, in particular, when house prices in those two cities were booming in the two or three years up to the middle to latter part of 2017. Retail spending was also strong. Looking at the downside, in Perth where house prices have fallen by more than 10 per cent since early 2015, consumer spending has been particularly weak.
If the flow of punter’s money is any guide, Labor are in for a very rough time on Sublime-Saturday on 28 July when there are five by-elections around Australia.
In the three seats where the results are not a forgone conclusion, the flow of money on Liberal candidates over the last few days has been very strong.
The Liberal Party are now favourites to win Braddon and Longman and in Mayo, Liberal candidate Georgina Downer has firmed from $4.20 into $2.75.
If the punters are right, Sublime-Saturday would see Labor lose Braddon and Longman and could see Liberal’s sneak back in Mayo.
If so, it would be odds on that Prime Minister Turnbull would go to the polls as soon as possible, not only to take advantage of the by-election fallout, but, from a different angle, go before the housing market and the economy really hit the wall, probably in late 2018 or 2019.
Liberals $1.70 (was $2.25)
Labor $2.05 (was $1.65)
Liberals $2.75 (was $4.20)
Centre Alliance $1.35 (was $1.15)
Liberals $1.50 (was $2.00)
Labor $2.50 (was $1.85)
This article first appeared on the Business Insider website at this link: https://www.businessinsider.com.au/inequality-economic-growth-australia-2018-7
Tackling inequality has the potential to drive the kind of economic growth Australia has been looking for
In the decade or so since the global banking and financial crisis plunged the world into the Great Recession, policy makers around the world have been adopting a range of policies that were previously considered ‘unconventional’ as they has sought to promote economic growth, lower unemployment and reflate economic conditions.
Think about some of those policies.
Negative interest rates – fancy being paid to borrow money!
Quantitative easing or QE, which has been colloquially referred to as central banks printing money and dropping it into the streets out of a helicopter. Government debt levels exploded to levels only seen when the world was at war as revenue collapsed and in some instances, fiscal stimulus measures were implemented. To this day, governments are struggling to get their budgets anywhere near balance, let alone in a position to reduce debt.
It is clear, or at least it should be, that these policies cannot be in place forever. At some point, interest rates will normalise, central banks will have to mop up the excess cash from the economy and budgets will need to be repaired. This begs the vital questions of how to pull off these tricky maneuvers without disrupting financial markets and the economy?
I think I have an answer.
It will not appeal to everyone and is politically challenging.
It is to do with making society less unequal or, if you wish to avoid two negatives, making society more equal. The economic debate on inequality of income and wealth shows, unambiguously, that as inequality increases, the rate of economic growth slows or at least is slower than it would otherwise be.
In simple terms, the link between more equality and stronger economic growth is based on the observation that if, for example, a low income earner gets an extra $20 a week in their pocket, they are more inclined to spend most if not all of it, whereas a $20 a week extra to a very high income earner – think a billionaire – will have little influence on their spending patterns. If the tax system is structured in a way that sees low income earners taking home more pay while high income earners take home a little less, the economy will be boosted by the extra spending of the low income earner.
This extra spending will deliver a higher rate of economic growth which will, in turn, boost demand for labour and this will lower the unemployment rate. Such a policy initiative can be revenue neutral to the budget. This requires the very well off to pay more tax or get less tax deductions and those proceeds are redirected to low income earners.
This is where the political problem can emerge. As we can see in the current debate about income and company tax cuts, issues of fairness and equity are important aspects of the case for and against lower company tax rates and the introduction of a flat tax rate for both low and high income earners (those on $40,000 and $200,000 will pay the same marginal tax rate).
Polls show that many people are against the company tax cuts, largely because of fairness issues. There are other areas where inequality can hamper economic growth, including access to education and health care.
People on high incomes usually have little trouble accessing the best quality of health care and education. Poorer people often struggle on these fronts. Think access to health services in the public health system versus the private sector.
Wealth, health, and education This matters for economic growth because good health and high levels of skills and educational attainment are positively correlated with economic growth.
Countries with an educated workforce are generally rich. This is why most people want to have a good education for themselves and their children. It pays off not only for the individual, but for society.
Health care is also important. People who are sick do not go to work as often as those who are healthy. This extends to people taking time off work to care for sick relatives who have less access to health professionals. To the extent that access to high quality health care allows the population to be fit enough to turn up to work, there is a clear productivity boost from wide access to good health care.
All of which goes to the point that economic growth can be nurtured by more than just interest rates, printing money, tax and government spending.
Policies that reducing income equality and improve access of low income people to education and health care is good for GDP.
Maybe policies aimed at reducing inequality will be the new wave of thinking when it come to generating stronger economic growth. It will take bold political leadership but when other policies have had limited success, it seems a matter of time before this path is taken.
I prepared a research paper on issues associated with the economic and financial security for women. The report is being considered by the Minister for Women, Kelly O’Dwyer and will be part of a bi-partisan parliamentary discussion on the critical policy issues associated that can be developed to enhance the economic security for women.
The report can be seen at this link: https://www.security4women.org.au/wp-content/uploads/20180625-eS4W_White-Paper_Defining-the-Concept-of-Economic-Security-for-Women.pdf
Defining the concept of economic security for all women & Policy recommendations to boost women’s economic security
Boosting Economic Security for All Women
OBJECTIVE: To raise awareness and contribute effectively to development and implementation of policy that impacts all women living in Australia and ensures women’s equal place in society, in the Government’s policy priority area of improving women’s economic independence and financial security.
The current policy approach to childcare, superannuation, education, jobs and financial literacy is not keeping up with changes in social attitudes, structural changes in the economy and demographic changes.
The paper brings together research and analysis of specific issues that feed into the overarching issues of economic and financial security for women. We are grateful for the efforts, thoroughness and insightful nature of that work. This paper highlights some of the policy reforms that will be needed if women’s financial and economic security is to be enhanced.
It is a next step in the process that will inevitably be built upon as steps are taken to improve economic security for women.
Economic Security for Women
One of the well-established and central platforms of economic and social policy is to deliver economic and financial security for all members of society.
Economic security entails a number of basic conditions, but has as a central underpinning an ability, throughout life, to afford to have shelter, food and basic living expenses covered. Financial security also means opening access to opportunities not only at these basic levels of living standards, but to also achieve higher levels of security and well-being through education, training and employment opportunities.
Paid employment is one of the benchmarks for financial security, but in the circumstances where many women have either sporadic or minimal opportunities to engage in paid work throughout their adult life, a government provided, broadly based, financial safety net is essential if economic security for women is to be enhanced.