Thursday, March 28, 2013

Super. The funds say it's hard to more heavily tax the rich


The government’s options for more heavily taxing superannuation are shrinking. The industry has warned that one of the options - a higher tax on the earnings of funds held by high earners - would be almost impossible to administer.

“The funds would have to attribute to individual tax file numbers earnings on every product they sell,” one source said. “It be an administrative nightmare. Right now funds can apply the same tax rate across the entire pool.”

“It could probably be forced through, but it would have unintended consequences.”

The industry could more easily live with a higher tax rate on all fund earnings.

The government had been considering boosting the tax on the super fund earnings of high earners from 15 to 30 per cent. The change would net it between $500 million and $1 billion per year.

An alternative proposal - boosting the earnings tax on all super accounts from 15 to 20 per cent - might raise $4 billion per year, and much more over time as fund balances climb.

The Fairfax calculation is based on the long-term super fund return of 6 per cent per year. But fund earnings are uneven. Many will report losses when they next pay tax meaning the higher tax rate on earnings would cost the government money because it would be offset at a greater rate against the tax on super contributions.

Treasurer Wayne Swan is understood to be reluctant to increase super taxes across the board, and is continuing to look for ways that cut back concessions for high earners without touching low to middle earners.

Treasury calculations show that in 2009-10 the top 1 per cent of earners received an average super tax concession of $19,200. Middle earners got $800.

Mr Swan began attacking concessions for high earners in the May 2012 budget, taxing the contributions of Australians earning more than $300,000 at 30 rather than 15 per cent.

After a few years the change is set to net the government $475 million per year. But it hasn’t yet been legislated, giving Mr Swan the option of amending it in the May budget to cut in earlier at $180,000, where the top marginal income tax rate begins.

The change would net the government a further $145 million per year, an extra take which is relatively low because the incomes below $300,000 are much lower than those above it.

In a sign that it could also cause political problems former Kevin Rudd backer and Hunter Valley MP Joel Fitzgibbon said he was worried Labor would botch the definition of “wealthy”...

''Coal miners in my electorate earning $100,000 $120,000 $130,000 and $140,000 per year. They are not wealthy,” he told Fairfax TV.

He would agree to higher tax at the ''very very very high end'' but not changes that hit ''ordinary people, like my coal miners living in the Hunter''.

In Perth Prime Minister Julia Gillard said she wanted to make super "sustainable for the long-term future".

"Superannuation is only in this country because Labor brought it here. Otherwise ordinary working people wouldn't have super, only some high-income earners would,” she said.

Treasury calculations disputed by the industry show the cost of super tax concessions is set to explode from $32 billion per year to $45 billion by 2015, at which time they will be more expensive than the aged pension.

David Whiteley, chief executive of the Industry Super Network, said Wednesday that although there were ‘‘extraordinarily legitimate questions about the sustainability and the equity of the current tax concessions,’’ there was no need to rush.

‘‘You’ve got different industry bodies and Treasury and government all with a different interpretation,’’ he said. The best outcome would be five to ten years of stable settings. ‘‘To achieve that you would inevitably seek to have bipartisan support... something better undertaken after the coming election.’’

A Westpac analysis released Wednesday had the budget on track to be $8 to $10 billion worse than the government expected in October.

In today's Sydney Morning Herald and Age


Related Posts

. Super. Great if you're already well off

. Skewed. Why Labor is finally rounding on super tax breaks

. Simpler super. Letter of the day


Read more >>

Monday, March 25, 2013

We need more tax, we need an extra $10 billion - Doug Cameron


Listen to Cameron at the Adelaide ACOSS Conference, March 25 2013

9 minutes, play or CLICK THEN CLICK AGAIN to download mp3



Leading Labor senator Doug Cameron wants Australians to pay more tax after the May budget - an extra $10 billion more. He wants Labor to stop seeing it as a “badge of honour” to have a lower tax ratio than did the Coalition.

Addressing the Council of Social Service conference in Adelaide Senator Cameron said there was “almost universal acceptance” Australia should lift the Newstart unemployment allowance, introduce a national disability insurance scheme and provide world-class public education.

“But manifestly it seems there is almost universal timidity when it comes to the question of how we pay for them,” he told the conference.

“I have said before and I will say it again. I can not understand why it is a badge of honour for a Labor government to have a lower tax to gross domestic product ratio than the Howard government.”

“Tax receipts to GDP in this country are the fifth lowest in the Organisation for Economic Co-operation and Development. A mere 0.7 per cent increase in the ratio would be for us to realise our aspirations to be a good society.”

An increase of 0.7 percentage points would lift the tax to GDP ratio from 22.1 to 22.8 per cent, bringing in an extra $10 billion per year.

“With GDP approaching $1.5 trillion it is beyond me that we cannot see fit to devote less than one per cent to fulfilling a promise of a good society,” he said.

“Even if we did we would still be the fifth lowest taxing country in the OECD.”

Although a long-standing supporter of the superannuation system, Senator Cameron said the time had come for a reappraisal of the associated tax concessions that arguably acted as a device to allow high-wealth Australians to minimise tax...

“Many of these concessions are deeply entrenched. They cost around $32 billion a year and they are not sustainable,” he said.

“Treasury estimates they will cost $42 billion in 2015-16, more than the annual cost of the aged pension.”

“At that rate we may as well double the aged pension and do away with superannuation incentives.”

Acknowledging his remarks would get him “in trouble again,” he said his party should “change its position on increasing and indexing Newstart”.

The conference will consider a resolution Tuesday calling on the government to lift Newstart and other low paying allowances by $50 per week.

In today's Canberra Times


Related Posts

. Skewed. Why Labor is finally rounding on super tax breaks

. Our attitudes to tax are hardening. Only others should pay more

. If you are a pensioner you'll get $35.80, but if you're on Newstart...

Read more >>

Our attitudes to tax are hardening. Only others should pay more


Australia’s high earners are surprisingly magnanimous when it comes to tax. Many think the rich should pay more. They just don’t think that applies to them.

The two apparently contradictory positions spell trouble for Wayne Swan as he attempts to wind back tax breaks in the May budget.

“We are talking about the top 4 or 5 per cent of earners,” says David Hetherington, executive director of the Per Capita think tank. “People earning more than $150,000 are generally well disposed to the proposition that high earners should pay more. Around four in every ten thought that in our latest survey, but when we ask about their own situation the overwhelming majority think hey pay too much.”

“It is as if they don’t realise they are high earners. When the Treasurer cuts back on their tax breaks they will complain because they don’t think they are well off. Their complaints will be amplified in the media, to which they have better access.”

The annual Per Capita survey shows attitudes to tax hardening across the entire population with the proportion of Australians who believe they pay too much tax passing 50 per cent for the first time.

“While there remains a belief that the well off should pay more there is a view that everyone else is paying too much. A lot of it seems to have arisen in the belt-tightening that has followed the global financial crisis.”

“Australians are saving more than they have in years. They expect similar caution from the government, especially because as they see it they are getting less and less from the government."

“Pensions, university fees, school fees, health insurance - these are all things that once the government would have looked after. There’s a growing view that the government is no longer pulling its weight and that people can use their money better themselves.”

Around 85 per cent of those surveyed believe the government should spend more on health, but the proportion has slid from 95 per cent over the past two years...

Around 40 per cent believe the government should spend more on social security, down from nearly 70 per cent in the past two years. Support for spending on defence has dropped from 40 per cent to 28 per cent, support for overseas aid has slid from 18 to 10 per cent.

Asked specifically whether they would be prepared to pay more tax to support Gonski-style education reforms, 94 per cent of those surveyed said no.

“I am not saying the government shouldn’t fund these things, or that it shouldn’t attack tax breaks on superannuation and the like to find the money,” said Mr Hetherington. “But the survey suggests it will have its work cut out making the case. It’ll be accused of starting a class war and it’ll need to have its response ready.”

In today's Sydney Morning Herald and Age


So ignorant about the carbon tax are Australians that more than half think it has pushed up the price of petrol. Nine months on the tax that specifically excludes motor fuel is believed by 54 per cent of Australians to have pushed up prices at service stations.

Most who made an estimate thought their cost of living had climbed by $20 or more per week. Five per cent thought it had climbed by more than $100 per week.

The government’s modelling came up with $9.90 per week.

Asked about compensation 49 per cent said they received nothing at all. The compensation package introduced with the tax applies to 90 per cent of the population.

“Clearly the advertising campaign hasn’t got through,” said David Hetherington of the Per
Captia think tank, which commissioned the study.

“I was less surprised about ignorance about the technical side of tax than I was about compensation. After all, there is no reason every Australian should know exactly who it applies to and who it does not. But not to know about compensation means not knowing, or not remembering, what goes into their own bank accounts.”

“It looks as people have noticed the tax cuts and the upfront payments at first, and then forgot about them. By the second pay packet they had mentally banked the increase and assigned it to the past, even though it continues in perpetuity.”

“Around one million Australians were taken out of the tax system. It looks as if they noticed that at the time and then forgot.”

In today's Sydney Morning Herald and Age







Related Posts

. We think the rich are too rich. But they're even richer..

. Which governments take the biggest chunk from a $100,000 salary?

. Price Shock: The carbon tax is doing even less than expected

Read more >>

Monday, March 18, 2013

If you are a pensioner you'll get $35.80, but if you're unemployed...


Pensioners are about to get a supersized pay rise while Australians living on Newstart get a comparative pittance.

From Wednesday the take-home pay for single pensioners will jump by an extraordinary $35.80 per fortnight. Couples will get an extra $54.00.

The increase will lift the total fortnightly payment for a single pensioner to $808.40. It is made up of the scheduled half-yearly increase of $22.30 and the new carbon energy supplement of $13.50 per fortnight.

The first nine months of the energy supplement were paid in a lump sum ahead of the start of the carbon tax on July 1.

From Wednesday the supplement will paid each fortnight along with the pension. The Coalition has promised to remove it should it take office and abolish the carbon tax.

But unemployed Australians on Newstart will get much less. The single Newstart benefit will climb by $4.40 per fortnight - a mere fraction of the $22.30 to be given to pensioners.

The Newstart carbon energy supplement is $8.40 per fortnight, much less than the $13.50 given to single pensioners.

The combination means unemployed Australians will get just one-third of the increase offered to pensioners on Wednesday: $12.80 per fortnight instead of $35.80.

Originally in line with the pension, Newstart began slipping in 1997 when the Howard government guaranteed to index the pension by at least the increase in male earnings but left NewStart linked to the consumer price index...

The consumer price index has climbed little since. In the year to December it grew 2.2 per cent while male earnings climbed 5.5 per cent.

From Wednesday the single Newstart payment will be $497.00 per fortnight. The pension will be $794.90.

Calculations by the NSW Social Policy Research Centre suggest Newstart will shrink to just one third of pension by 2050 unless the system is changed.

Labor backbenchers are lobbying the Treasurer to announce a $100 per fortnight increase in Newstart in the May budget. It would cost $1.2 billion per year.

In the last budget the government gave Newstart recipients an extra $8 per fortnight as part of a “Spreading the Benefits of the Boom” package which was to have been funded by the mining tax. The Coalition will axe the payment if it takes office and repeals the tax.

In today's Sydney Morning Herald and Age


Related Posts

. Revealed - the truth about Newstart they don't want you to hear

. September: Here's 20 cents, don't spend it all at once

. Contemptible spin. Pension up $17.10 per fortnight, Newstart up $2.90



Read more >>

Sunday, March 17, 2013

Murdoch fears another Murdoch


"This is the first government outside of war time that is contemplating government-sanctioned journalism."

Murdoch's man raised an interesting point this week.

But he didn't explain what did happen during the second world war, and who tried to push it through.

Here's Bruce Page in his 2003 book The Murdoch Archipelago.

The Murdoch he refers to is Rupert father, Keith Murdoch, then chief executive of the Herald and Weekly Times. Theodore Fink is Murdoch's predecessor as chief executive, by then the company's chairman. The prime minister was Robert Menzies.

He is talking here about Keith Murdoch:


"In June 1940, undertaking to relinquish all
his editorial powers meanwhile, he became Menzies'
Director-General of Information. He then asked Menzies for the
means to correct media 'mis-statements', and received sweeping
authority over the content of newspapers, magazines, radio and
theatre. Outrage was universal — except among the Herald
papers, allegedly now disconnected from Murdoch. They remained
silent. Theodore Fink, eighty-five and unwell, called on the
Herald directors to protest. Principles of editorial
independence would be eroded, they said, were they to do so.

Dissociating himself from his own company's behaviour, Fink
called the Murdoch regulations 'an infringement of the rights
and liberties of the public'. His words were published
everywhere — except in the 'Murdoch press'. Public opinion
fiercely supported Fink, and Menzies jettisoned the
Director-General's astonishing programme. Murdoch resigned in
November and rejoined the board — perhaps a bittersweet victory
for Fink, as its swiftness minimised the damage to Murdoch's
reputation."




RM Younger provides a more detailed acount.

It's in Keith Murdoch, Founder of a Media Empire, also published in 2003:


"KM's appointment earlier in June had coincided with what was
widely seen at that time as Australia's gravest hour, but he
believed it could be Australia's greatest hour if 'decisions
and events ... forge our spirit and weld our heart and mind
into a greater and better nation'...

The brief gave KM access to confidential military
material and included the opportunity for him to attend War
Cabinet meetings. He detached himself from
The Herald and
worked from government offices in Melbourne and Canberra.

The post's responsibilities included not only direction of positive
aspects of morale-building but also censorship — a dichotomy
which was to cause insurmountable problems. Nevertheless, he
took up the task buoyant and optimistic, thinking only of the
positives:


"The department will exist to serve the people, and for no other
reason. There will be no conceivable bias or selfish interest,
but only utter devotion to Australia ... everything that can be
done will be done to give the people [a close understanding of
the facts of the war situation] ... As the days pass there will
be a great and clear call to action for very many people, and I
would say that there would be a call to everybody if humble but
necessary national duties get their due honour. By this I mean
that guarding by each person of his or her share of Australia's
indivisible soul, proud encouragement of the fighting man, and
contribution of money or humble toil will be honoured in their
true light as important to Australia's effort.

"...We will try to make all the facts of Australia's own effort
known as soon as they can be told, and we hope that these facts
are in the minds of people before they make their criticisms or
judgements. It is, of course, in nobody's mind that criticism
is to be stifled, but we want constructive criticism based on
actualities."

In accepting the post, no doubt Murdoch was influenced by his
memories of what the leading London newspapermen — especially
Northcliffe — had done in World War I, when they directed
important national morale-building efforts within the British
Ministry of Information. However, two of his close friends had
contrasting views about the wisdom of his step. Former
Herald
journalist Sir Henry Gullett, now a member of the War Cabinet
and the minister assisting Menzies on information matters,
believed KM uniquely suited to the difficult morale-building
task and encouraged him to take up the position, but Lionel
Lindsay, a worldly personal friend with whom KM had maintained
a long association, pointed out to him that it was almost
certain rival newspaper proprietors would resent his
appointment and would mount destructive opposition.

KM was aware of the likely difficulties. 'The War Cabinet has given me
an affrighting list of duties, but, of course, we can only
serve the great efforts of the people themselves,' he told
The
Argus. He had a philosophy about the part newspapers would be
called upon to play, and he expressed it when he spoke at a
farewell gathering of HWT executives:

"The work of a newspaper is of paramount importance in a
democracy in wartime, and if it were not for [the fact] that I
am going to serve newspapers outside I certainly would not be
leaving you now ...

"In the policy-making and direction of the
Department of Information, my tasks are going to be of a
peculiarly unpleasant type. It is not an easy job to find and
stir the inner thoughts of men, or go deeper and try to touch
the spirit. It is very difficult, and of course carries with it
a considerable share of danger."

In outlining his ideas to the War Cabinet on 19 June, KM said
his conception of the Department of Information was that 'it
should be a Department of expression, except in respect of
information of use to the enemy. If criticism would be damaging
to the national war effort, it should be suppressed.' In a
suggestion that foreshadowed his later move to bring
opinion-polling to The Herald, Murdoch said it would be
valuable to establish a service for ascertaining what a typical
cross-section of the public mind is thinking on important
questions'.

It was important, he also told the War Cabinet,
that a regulation should be passed 'to insist on a journal
publishing the truth in an appropriate form if required to do
so'. He submitted proposals for active campaigns covering radio
and the print media. The essential thrust of these proposals
was that he would have the right to insist that a publication
or a broadcasting station present the facts to correct any
misleading or inaccurate information. After the War Cabinet had
endorsed the plan, on 1 July KM convened a conference with
newspaper editors to draw out their views.The editors were
vocal on the shortcomings of censorship, but they were wary of
the proposal for enforced publication of 'corrections'. KM
explained that he was concerned about 'wilfully biased' news
and put the view that it would be better to adopt the
corrections method than to install an elaborate regime of
censorship. The newspapers remained unimpressed; it was one
thing to designate what they should not publish, another to
compel publication of particular material. Even Sir George
Knowles, the government chief law officer, saw some
difficulties in the new plan. He told KM the regulation 'is
going a long way' and although he did not doubt that it would
not be operated to demand excessive space, he nevertheless felt
that 'if made in the form suggested, its verbiage may be
criticised'. In spite of the warning, KM decided to let the
regulation stand.

Clearly the dominant issue at stake was the
newspapers' belief that their contents could come under
government control — and all KM's denials that this was the
intention or the implication were swept aside.

Meanwhile, the practical difficulties of developing a sound
organisation were quickly apparent. As well as having a small
staff in the department's editorial division, KM was anxious to
enlist the best available help in presenting authentic
material, and wrote to Professor Copland, the Commonwealth
Prices Commissioner, asking him how best the department could
help publicise the significance of the war on the economic
front.

Copland provided him with notes setting out a program to
achieve this aim, but the difficulties facing the department in
getting things done meant that it would be six months before
the plan was taken up. After two months in the post, KM became
aware of the mounting pressures he faced, and in his reply to
Copland he wrote: 'I am still immersed in a labyrinth of vested
interests which make it extremely difficult to be effective.'

Those vested interests were to be found both in the bureaucracy of
established departments and, most potently, among the major
newspaper proprietors, who were not happy with the Government's
choice of KM. to exercise some degree of authority over their
exclusive domain.

The most contentious phase of the Murdoch
administration began when drastic powers were assumed under
national security regulations gazetted with his authority on 17
July to force the publication by newspapers of any matter
'necessary or expedient for the defence of Australia or the
efficient prosecution of the war'. Similar powers were given to
him as Director-General over all radio stations and cinemas.
The only opposition to the regulations came from the
newspapers.

An explanatory statement by Prime Minister Menzies
said the regulations made the Director-General's decision final
regarding which particular position, space or time was to be
allotted to the corrective item to be published, broadcast or
exhibited. Menzies gave an assurance that although the powers
were broad they would be sparingly used and applied only in
cases in which a newspaper was guilty of persisting in blatant
misrepresentation of the true position. John Curtin, as Leader
of the Opposition, was cautious in his comment that use of the
new powers called for the Opposition's 'utmost watchfulness'.
Others were less restrained: the NSW Minister of Justice,
Vernon Treatt, said he viewed . such powers with concern, while
the Premier of Victoria, Albert Dunstan, declared: 'This is
establishing a dictatorship.'

In explaining the reasons for the
regulations, KM said the purpose was to get a wide publication
and understanding of the truth about the war and Australia's
national position and problems. He added:

"As regards publications, the censorship lies within this
department's duty but I hate suppression as we all do, and
would much prefer when possible to correct some bad position by
a statement of the truth which will answer and destroy the
untruth. The regulations give us the right to require a journal
to publish our statements in the type and position which will
adequately and comparatively present the truth as against the
untruth which we are chasing. I should think we would use this
power little, if at all, because reputable newspapers take
pains to avoid untruth, and when they fall
into mistakes correct them ... I believe this is better than
suppression by censorship. I believe in freedom of the Press,
and I am trying to preserve that freedom as against censorship."

In spite of Murdoch's assurances, there was virtually
unanimous condemnation by newspaper proprietors of the sweeping
powers assumed under the regulations. Most were opposed in
principle to any limitation on the independence of newspapers
in deciding contents;
The Sydney Morning Herald considered the
regulation's power to control the use of space as an
abrogation of property rights. The paper splashed its
front-page report of KM's 'drastic powers to compel the
publication by newspapers of any matter necessary or expedient
for the defence of Australia or the efficient prosecution of
the war'. These powers, the headline suggested, conferred on
the Government the 'power to commandeer space'. Next day, the
paper's editorial, entitled 'A bludgeon for the press',
thundered against what it dubbed 'the creation of a Propaganda
Department designed to remedy supposed deficiencies in the
win-the-war spirit of the public'. Drawing upon the
leader-writer's most vituperative rhetoric, the editorial saw
the regulation as 'a betrayal of that trust which has already
done the Government incalculable harm and may end in doing it
irreparable injury, if the mischief is not corrected in time'

The most hurtful attack came from within the HWT, when KM.'s
own chairman used the issue as a weapon in internal company
power play. Sir Keith's place as managing director at HWT had
been filled by Lloyd Dumas, managing director of
The
Advertiser, who was quick to take a leading role in trying to
calm the fears of the other newspapers over the regulations.
Dumas considered that these 'regulations to control newspapers'
were unfortunately worded, but he understood that Murdoch's
objective was 'to make it possible for the Government to get
statements, particularly correcting statements, into certain
publications which were anti-Government and in some cases,
anti-war'. Dumas believed the regulations had been made broader
than intended; he prepared an editorial for
The Herald saying
that it was an unnecessary piece of interference with the press
but it obviously had been drawn up hurriedly to meet some need.

Most damagingly for KM, the octogenarian HWT chairman, Theodore
Fink, immediately expressed his dissatisfaction with the
paper's editorial stance. He told Dumas that
The Herald must
wholeheartedly attack the regulations in the same way
The Age
and
The Argus had been doing. Instead, Dumas found support
within the HWT board for his more conciliatory view;
The Herald/i>
then ran an editorial urging that the regulation be withdrawn
and redrafted. In an effort to further his compromise Dumas
phoned Murdoch in Canberra, as well as the main Sydney
proprietors and
The Age and The Argus in Melbourne, before
finally preparing a revised version of the regulations that
would still give the Government the power of correction it
sought but would give no other powers of control over the
press. His effort appeared to succeed when the newspapers
agreed to accept his draft proposal. Next morning
The Age and
The Argus suggested the confrontation was over. In its
editorial headed 'Retrieving a blunder'
The Sydney Morning
Herald revisited what it described as 'a nation-wide outburst
of alarm and resentment' and added a touch of hyperbole in
seeing the withdrawal of this 'autocratic attack upon the
corner-stone of the free civilisation which [the war] is
designed to save' as a necessary part of checking 'the
pretensions of bureaucrats'.'

However, no one had realised the
extent to which Theodore Fink would go to upset this
arrangement. Two days later he wrote an article, which he
signed as chairman of the Australian section of the
Commonwealth Press Union, and submitted it to
The Age and
Argus, both of which published it. A copy of the article was
also handed to George Taylor, editor of
The Sun News-Pictorial,
by Fink's son, Thorold, but after discussion with HWT board
members Harry Giddy and George Caro, it was decided at an
executive level to withhold its publication.

Further complications arose when the Sydney newspapers picked up the
Fink statement that he `wish[ed] to dissociate [himself] from
the views expressed in HWT publications in favour of the
regulations'. The
Herald board met, with Thorold Fink
deputising for his father, who was confined to his bed; it was
agreed the Dumas version should run as The Herald's editorial
view. However, the differences ran deep, and the unpleasantness
that developed over the issue lingered, as Dumas recalled when
he wrote: 'Mr Fink tried in other ways to undermine Sir Keith
while he was out of the office and I was deputising for him'.

After considerable difficulty a new regulation was drafted
with provision that an offending newspaper could avoid
compulsory correction by complying voluntarily with a request for
publication of 'a statement correcting the statement previously
made [by it]'.

Despite the dust settling over the
regulations, behind the scenes resistance simmered among
Australia's powerful family proprietors Fairfax, Packer and
Norton in Sydney and Syme in Melbourne). Chance weakened KM's
position when Sir Henry Gullett, who was assisting Menzies on
information matters, was among three ministers killed in an air
accident in Canberra in October 1940, leaving KM without his
most stalwart ally in federal Cabinet.

Murdoch was concerned that the Department had so quickly become caught
up in political gamesmanship. A chief protagonist of the attack
was Arthur Calwell, who entered the federal Parliament in 1940
after a quarter of a century as a political activist steeped in
socialist dogma while working within Victoria's public service.
Calwell had spent years in preparation for a parliamentary
career by understudying the federal member for Melbourne, whose
political heir he became. Calwell had a long-standing grudge
against Murdoch dating back to 1934 when he agreed to the
settlement of an untried libel action following a slighting
reference to him; soon after taking his parliamentary seat
Calwell railed against Sir Keith's role as Director-General of
Information.

In the face of increasing pressure of newspaper
opinion, Menzies withdrew his support. By October Murdoch
realised his position was untenable, and decided to resign. He
advised a meeting of the War Advisory Council on 30 October
that this was his intent. Shedden's pencilled Minutes noted:

"Retirement of D.G. — reason given by Sir K. Murdoch:-

Sir K Murdoch's influence. and work can be greater in his
group of papers than as DG.

Opposition of Sydney press."


He consoled himself that the editorial division of the
Department of Information had gained a reasonably sound
footing. Menzies made a public statement on 14 November
expressing appreciation of Murdoch's 'generous and honorary
work' and acknowledging that his experience, ability and energy
had been invaluable.' The prime minister noted that Sir Keith
would remain associated with the department in an advisory capacity,
particularly in relation to its overseas activities in the
establishment of representation offices abroad.

Out of the controversy questions had been
raised about the value of the information service. When KM
reviewed the work of the department at a session of the War
Advisory Council, it expressed approval, of the extensive
reorganisation he had initiated. Wider and more intensive
activities were expected to include greater extension overseas,
especially in the United States. Some months later, as a result
of KM's initiative, the Australian News and Information Bureau
was established in New York to provide material to the media
that would strengthen understanding of Australia's viewpoint
and promote knowledge of Australia among Americans.

In his public appreciation of KM's work Menzies took a laudatory
approach:

"
The work of the department has been completely reorganised and
is now well established. Sir Keith Murdoch, who came in to
assist the government in this reorganisation, now feels that he
could, in future, make a more effective contribution to the
strengthening of public opinion and the winning of the war by
resuming active association with his newspaper interests.

"Ministers have expressed the keenest appreciation of the work
done by Sir Keith and were naturally anxious for him to
continue. They have, however, as a result of discussion, agreed
that the future work of the department can proceed on lines
which are now largely settled and with machinery which is
running smoothly, and that in the circumstances [he] should be
released ...

"I desire to say how greatly the Government has
appreciated Sir Keith Murdoch's generous and entirely honorary
work. He is one of the outstanding newspapermen of the British
Empire and his great experience, ability and energy have been
invaluable to us."




Related Posts

. Crude, distorted, dangerous - Garnaut on News Limited

. They do things differently at NewsCorp

. Can Rupert Murdoch swing elections?




Read more >>

Friday, March 15, 2013

71,500 more jobs. It isn't true, the Treasury knows it.



Julia Gillard grabbed it as a gift from heaven.

“Today we can say, since this Government came to office, we created 926,000 jobs,” she told parliament. “We have seen an increase in the number of jobs of 71,500 in the last month. For the information of the house, this is the largest monthly increase in jobs since July 2000. This is the best monthly job creation result in 13 years. To give this some perspective, the US economy created 236,000 jobs in February. They are 15 times bigger than us and we are creating jobs so their job creation is only three times bigger.”

Except that it wasn’t true.

The Bureau of Statistics had confirmed earlier in the day that the figures it published for February showing the unusual jump in employment of 71,500 overstated the increase, most likely by a factor of two.

To understand why, its necessary to examine the way the figures are created.

Each month the Bureau surveys around 29,000 homes.

One-eighth of the group, around 3600 homes, leave the survey each month and a new 3600 are “rotated” in.

Rarely, usually only once every one or two years, employment conditions in the new homes are quite different to those in the old.

When that happens the official employment numbers jump (or fall) even if employment itself hasn’t changed.

The houses rotated in in February were extremely different to the houses rotated out. So different that the Bureau believes the rotation itself was responsible for half of the reported 71,500 surge in employment, the “best monthly job creation result in 13 years”.

Bureau staff briefed government officials Thursday morning.

Another unusual occurrence “amplified” the error. To convert its survey into answers for the entire population, the Bureau multiplies the result by a number based on its guess of the population.

Its best guess is that Australia’s working age population soared by more than usual at the start of this year as a greater than usual number of foreign students arrived. It reckons this further exaggerated the already-exaggerated employment growth, perhaps by another 13 per cent.

It would prefer people to look at its estimate of what it calls the trend. This shows employment climbed at a sedate pace of 11,600 in February, much less than 71,500 and just enough to keep pace with population.

The unemployment rate remained steady at 5.4 per cent. The NSW rate inched up from 5.1 to 5.2 per cent. The Victorian rate slipped from 6.1 to 5.5 per cent. Victoria accounted for more than half of the reported 71,500 surge in employment.

In today's Sydney Morning Herald and Age
















Related Posts

. December. The truth about jobs. It's about to become clearer

. Jobs growth not as we said - ABS

. Switching jobs. The turbulence beneath the smooth job market surface


6202.0
Read more >>

Thursday, March 14, 2013

Middle class welfare, the good news

We're winding it back

Physics and economics are bedeviled by the phenomenon known as “hysteresis”. It’s where, once made, a change can’t be easily undone.

In the physical world it applies to breaking an egg. It’s impossible to run the sequence of events backwards - to unscramble the egg.

In the world of social policy it applies to extending to the well-off benefits that were previously reserved for the poor.

The Baby Bonus is a case in point.

By the end of the Hawke/Keating government in 1996 Australia had one of the tightest social security systems in the world. On one estimate 92 per cent of government payments went to the half of the population that earned the least. By the end of the Howard government a decade later many more of the payments were spilling over to the top half. A lesser 87 per cent went to the bottom half.

Professor Peter Whiteford of the Australian National University who did the calculations is keen to point out that even after the end of Howard era Australian payments were still the most tightly targeted of the rich nations that make up the Organisation for Economic Co-operation and Development. He ought to know. For many years he was in charge of social policy statistics at the OECD.

The Baby Bonus was one of Howard’s most brazen spillovers. Instead of being directed to the parents who had earned the least it was funneled to those who had earned the most. Mothers who had enjoyed high incomes in the year before their child was born were able to claim $2500 per year. Mothers who had been on low incomes got $500.

Two years later it became a fairer flat payment of $3000, which later climbed to $5000. But that was as fair as it got. It was paid to millionaires as well as the very poor. No means test, no cut off. Once extended to the well-off it couldn't easily be pried from their hands.

Kevin Rudd developed courage in 2008 and denied it to families earning more than $150,000 per year.

For his trouble he was accused of being anti-children...

“Every mother loves her baby,” declared opposition leader Brendan Nelson. “Every baby is valued and Mr Rudd should value all babies equally. We should not live in an Australia where Mr Rudd thinks that some babies are more valuable than others.”

Late last year as the government’s budget woes worsened it decided to trim the bonus for second and subsequent babies. They were each to attract a payment of $3000 instead of $5000. It was rewarded with a reference to China’s one child policy.

"The government seems to want to penalise anyone that has a second or third child," said Coalition Treasury spokesman Joe Hockey. "I think that worked quite well in China, didn't it?"

Private Health Insurance Rebate was the Baby Bonus writ large. Overwhelmingly taken up by the middle to high income earners who could afford private health insurance it was budgeted to cost the Howard government $1 billion in its first full year of operation. Thirteen years on it is costing $5 billion per year. The Bureau of Statistics says Australia’s highest earning families (the top 20 per cent) get $16 a week from the rebate. The lowest earners get $5.

Labor has hacked away at the rebate since taking office, most recently means testing it so that families earning more than $260,000 get nothing. That high threshold says a lot about how scared it has become about taking away a benefit well-off families should arguably never have received. It’s begun a review of alternative “natural” therapies that attract the rebate with a view to knocking them out. (The Howard government can take credit for earlier knocking out insurance for running shoes, gym memberships and relaxation tapes.) This week the Australian Council of Social Service went further and proposed axing so-called “extras” cover altogether.

“Why should the government help fund high-end dental work for people with a chance of affording it, when it doesn’t yet properly fund dental work for people who can’t?” asks ACOSS president Cassandra Goldie.

But in assembling $6 billion of proposed savings for the May budget ACOSS has eschewed even bigger measures such as getting rid of the private health insurance rebate in entirety.

“We would need to convince powerful people,” Goldie says. “We would like to do more, but we need to build a consensus.”

Meanwhile Labor has been quietly eating away at the rebate’s foundations. Until now it has paid a certain proportion of whatever the health insurance funds have charged. As medical costs have soared (by 7 per cent a year) so have the payouts. But from April next year the payout will only climb by the rate of inflation, typically just 2 to 3 per cent each year.

Over time this will mean the government will pay out much less than it would have to families that aren’t particularly needy. A Fairfax analysis suggests that in a decade’s time the government could be paying 30 per cent less. It will have done it without ruffling too many feathers, as it needs to if it is to take away benefits from middle Australia.

Labor has done the same sort of thing with pensions. The Howard government made it easier for middle earners to keep at least a part pension by cutting the rate at which the income test took it away from 50 cents in the dollar to 40 cents. Labor has changed it back to 50 cents.

The ANU’s Peter Whiteford wants Labor to go further and cut the rate at which the pension increases each six months. At the moment it climbs with male earnings. The next increase, due this month, will be $35 per fortnight. But unemployment benefits increase more slowly, with the consumer price index. It’s been happening for so long that the pension is now 57 per cent bigger than Newstart and climbing. The Henry Tax Review recommended finding a midpoint and increasing both at a rate somewhere in between the consumer price index and wages. “It won’t be popular, but in the long run it’s incredibly important,” Whiteford says.

Not being popular is the roadblock facing every attempt to remove a piece of middle class welfare once it is introduced. Richard Denniss of the Australia Institute uses the new insights of behavioural economics to explain why losing a benefit matters far more than gaining one.

“Imagine how good you would feel if you found a $20 note on the footpath. Now imagine how bad you would feel if you lost one on the footpath,” he says. “The sums involved are the same, but the loss hurts much more than the gain helps. It’s true of children when you take away their toys.”

And the number of middle income Australians with benefits to lose has grown. They are better organised than low income Australians, better able to use the political process and sometimes have entire industries such as superannuation and private health insurance behind them.

It took just a week for the Gillard government to back down on a plan floated in January to tax presently untaxed super payouts on balances of more than $1 million. A replacement plan that would more highly tax the earnings of funds held by the top 1 per cent of earners has come under attack on the unlikely ground that it might discourage saving. Treasury calculations suggest the top 1 per cent get an average super tax break of $19,200. Middle earners get $800. Low earners get nothing.

The campaign against taxing super payouts was all the odder because an earlier Howard government measure gave all Australians aged over 65 an effective tax free threshold of $60,000. Even if Labor had taxed super payouts a retiree would need to get $60,000 per year from super before he or she paid a thing.

“It’s not just that middle earners are alarmed at the thought of losing benefits, they’re also alarmed at the thought of high earners losing benefits because they think one day that might be them,” Denniss says. “It gives high earners allies.”

And it makes radical measures unimaginable.

Whiteford would include the family home in the pension means test. “It would be political death, but aged pensions are where we spend the money. “You could do it at a home valuation where most people wouldn’t be affected. It would stop really wealthy people getting the pension where others didn’t, but it would invite hysteria from oppositions and from the media. It would be - as they say - courageous.”

Subjecting expensive family homes to the capital gains tax would also be courageous, as would ending the 50 per cent tax holiday for capital gains, neither of which are being pursued by ACOSS.

Because middle class welfare is hard to unwind, Labor has been moving slowly and for the most part quietly. Future governments may thank it, but not many people will thank it today.

In today's Sydney Morning Herald and Age


GOING... GOING...

Middle class welfare wound back:

. Private Health Insurance Rebate means tested

Annual saving $600 million

. Family Tax Benefit income thresholds frozen

Annual saving $350 million

. High income super contributions taxed at 30% rather than 15%

Annual saving $350 million

. Mature Age Worker Tax Offset phased out

Annual saving $130 million

. Baby bonus means tested

Annual saving $100 million

. Golden handshakes in excess of $180,000 taxed at top marginal rate

Annual saving $60 million


Middle class welfare under threat:

. Private Health Insurance Rebate for extras

Potential annual saving $1.2 billion

. Medical Expenses Tax Offset

Potential annual saving $300 million

. Seniors Tax Offset

Potential annual saving $300 million

. High income super fund earnings

Potential annual saving could exceed $1 billion







Related Posts

. Skewed. Why Labor is finally rounding on super tax breaks

. Tax expenditures. Notice how the big ones go to the best off

. Budget reality check. Is $150,000 typical?

. Baby bonus. Something odd happened the day it was introduced

Read more >>

Dodgy costings. It'll be hunt and destroy

After the election, that is

Treasurer Wayne Swan will introduce tougher than expected legislation to crack down on dodgy costings by political parties, extending its reach to the accountants who work for them.

The draft bill to be unveiled Thursday will require the Parliamentary Budget Office to seek information from “third parties” employed by political parties in its examination of their costings and will force the parties to furnish the Office with clear lists of their election commitments.

The Office will not be given the power to subpoena documents.

Flagged by the Treasurer in February the legislation will compel the Office to publish a post-election report on the election commitments of all the political parties 30 days after the vote, including their full impact on the budget bottom line.

In cases where political parties contract private accountants to prepare their costings, as the Coalition did in 2010, the Office will be required to seek information from those accounts.

The two Perth accountants who signed off on the Coalition’s 2010 policies provided no information other than a one page note saying it was satisfied they were accurately prepared and could be funded.

They were later fined and found to have breached professional standards by the Institute of Chartered Accountants for allowing their work to be presented as an audit...

A subsequent examination by the Treasury found errors including double-counting, purporting to spend money from funds already allocated and counting as a benefit interest saved from a privatisation without counting as a cost the dividends that would be forgone.

“Currently the public relies on the goodwill and honesty of political parties to submit their policies for costing in good time,” said Mr Swan Wednesday. “Unfortunately history shows that cheap politics can often win out. This legislation means there will be nowhere to hide. Those who have nothing to hide have nothing to fear.”

In today's Sydney Morning Herald 


Related Posts

. February. Swan chucks Hockey a time bomb

. History: The inexcusable, the inexplicable...

. Costings aftermath: Joe Hockey is to truth as....

. Lib costings debacle - "auditors" fined

Read more >>

Bugger the election. We're feeling good and we want to spend

Six near-consecutive interest rate cuts and a share market that’s been climbing since December have broken the back of consumer gloom propelling confidence to heights not seen for years.

The March Westpac Melbourne Institute consumer sentiment survey recorded a reading of 110.5 on a scale where 100 means optimists merely balance pessimists.

It’s the first time the index has breached 110 since December 2010.

On the all important question of whether now is a good time to buy a house the confidence reading surged to a three and a half year high of 144. A extraordinary 60 per cent of consumers surveyed believe that now is a good time to buy a dwelling. Only 16 per cent think it is not.

“Sentiment about house purchases usually leads building approvals by around twelve months,” said ANZ economic analyst Savita Singh. “This points to a recovery in dwelling investment.”

Otherwise lacklustre housing finance approval figures released Wednesday show a jump in approvals for investors of 4.4 per cent in January, offsetting a dip of 2 per cent in December. Approvals for investors are up 19 per cent over the year.

Australians are also unusually keen to buy cars. An impressive 56 per cent of those surveyed thought that now was a good time to buy a car, compared to only 14 per cent who thought the timing was bad.

“Consumers would have been buoyed by the positive run on markets,” said Westpac chief economist Bill Evans. “The share market rose a further three per cent between the February and March to be up 10 per cent for the year and 20 per cent from its September low.”

Asked directly about whether the share market was a wise place to hold savings 8.6 per cent felt it was, up from 5.4 per cent a year earlier. Asked about real estate, 21 per cent said it was a wise place for savings, up from 19 per cent...

The proportion believing “paying down debt” was the best use for savings slumped from 23 to 18 per cent.

All but one of the questions asked by the Melbourne Institute recorded clearly positive responses. The index for Australians expecting better family finances in the year ahead climbed to 108 from 99 a year earlier. The index for Australians expecting a better economy in the year ahead climbed from 89 to 110. The index for Australians expecting better conditions over the next five years climbed from 93 to 107.

“These are strong results,” said Mr Evans. “Despite the run of interest rate cuts to December 2012 the index averaged only a modest 98. What we are now seeing is the accumulation of those cuts genuinely boosting confidence.”

The only index not above 100 refereed to family finances over the past year. It climbed from 76 to 87.

In today's Sydney Morning Herald and Age







Related Posts

. February. Now even Coalition voters feel good

. June 2012. It's the carbon tax wot done it - we're gloomy no matter what

. August 2011. Consumer confidence by voting intention

CSI

Read more >>

Wednesday, March 13, 2013

Why we partied at Canberra's shops

Me, last night -->


"The shops." They matter more in Canberra than in other cities. They are not on main roads, they are either in big town centres or the centre of small surburbs, tucked away in the folds of interlaced roads, unfindable if you were wizzing past in a car.

The local shops are designed as local centres, close enough to walk to. And we do. They are the focal point of each community. Last night each local shops hosted a "Party at the Shops" to celebrate Canberra's centennary. It was as good as you could imagine.

Or maybe you can't imagine, if you haven't lived in Canberra.

More than 40 years ago in Ideas for Australian Cities Hugh Stretton outlined the thinking behind Canberra's shops.

He got it right:


"The city is built of units, neighborhoods that can support a primary school and a walk-in shopping centre. Three or four of them are grouped to share a larger shopping and service centre. Three or four or five of such groups make a district of 60,000-120,000 people with a major town centre. Any number of these can proliferate around the single metropolitan centre, in a pattern usually called a 'metro-politan cluster'. For communications the Canberra cluster would rely chiefly on a network of roads. From the residential cul-de-sac to the freeways which skirt and link the districts, these roads will be more radically differentiated, safer and-faster than any comparable network in Australia.

But the heart of the scheme is not its method of coping with traffic. The heart of the scheme is its use of leasing powers to distribute the city's activities precisely, thus con-trolling the pattern of journeys which the channels have to cope with. For example, for the Canberra population 12 square. feet of shop floor per head is the provision which seems to balance Satisfied customers and prosperous shopkeepers. Each citizen's ration of shop is deliberately distributed 3-1. square feet to the metropolitan centre, 31 to his district centre, 3 to his group centre and 2 to his neighborhood. Some American advisers, used to locating nothing smaller than drive-in supermarkets for no other purpose than retailers' profit, would abolish most of Canberra's neighborhood shops, leaving all the widows and carless housewives to struggle to the super-markets as best they could. But the Canberra planners keep a wary eye on such alien propaganda. They obstinately con-tinue to build the neighborhood centres; and enjoy showing American visitors how they prosper as half their customers arrive on foot and the other half keep their parking spaces as busy as any at the supermarkets.

Commercial office needs are similarly predictable, and government and institutional employments are negotiable. The planners put them where they'll prosper best, and. do most good to the town around them. So also with land uses and employments in industry, service trades and higher education.

Perhaps private enterprise should complain about this tyranny. In practice most private enterprise revels in it, with what adjustments of its enterprising conscience I don't know. Planning reduces many investors' risks. It need not reduce those that are economically and socially productive — risks with new products, processes, methods. But it reduces the useless risks which arise from uncertain forecasting of other people's land uses. There is nothing efficient about a private enterprise that guesses wrong about the future spread of residence, the build-up of rival or complementary businesses near by, the location and timing of public investment in roads, power, water and sewerage. But in Canberra, if private enterprise bids for a site, it knows exactly when its services will be connected, it knows the customers will be housed around it in predictable numbers by predictable dates, and it knows that a watchful (but reasonably incorruptible) eye will limit the release of competing sites to the number the custom can genuinely nourish.

Of course there are policy problems. Producers and consumers sometimes have contrary interests in the level of competition. There are novel business projects for which it is sometimes difficult to provide appropriate land fairly by public auction. In time there will be problems of re-use and redevelopment. So far these problems have been solved in Canberra without impeding innovation — except objectionable innovations, impeded deliberately. Consumers sometimes complain — there's not much chance for any cheap-jack, wild-cat, road-side or tin-shed competition. But the degree of 'producer protection' is no more than a mild case of the general bias of Australian policies towards protected production and employment, at some cost to consumers where ther necessary."



Thank you Hugh. Thank you Canberra's founders.




Read more >>

Tuesday, March 12, 2013

Swanny's budget just got $1 billion worse

Shane Wright has the details:

Treasurer Wayne Swan’s troubles bringing the Budget back into the black are getting worse as he faces a blowout in interest costs on the Government’s mounting debt.

The interest bill on the nation’s $267 billion gross debt, to be revealed when the Budget is handed down on May 14, is expected to be at least $1 billion worse and could be pushed out even further.

The Government’s interest bill this year was forecast to reach $12 billion in the mid-year update.

It was predicated on near-record interest rates and a Budget surplus that would drag down the Government’s overall debt.

The mid-year update was done when the interest on long term Government debt was at 3.1 per cent.

Since then interest on Government debt has increased in line with the improving outlook for both the global and Australian economies.

It now stands around 3.6 per cent

Over the forward estimates that 0.4 percentage point difference on a larger than expected debt that will peak close to $270 billion will cost Mr Swan’s Budget bottom line...

Falling interest rates on Government debt have saved Mr Swan billions of dollars over recent Budgets.

In the 2011-12 Budget the Government forecast it would be paying $12.9 billion on its outstanding debt for the 2013-14 financial year.

That forecast was sliced to $11.7 billion in the most recent mid-year update. Billions more have been sliced from the forward estimates because of those lower interest rates.

The lift in global interest rates has been driven by the improvement in the economies of the United States and China. It was the faltering state of the global economy that originally brought down those rates.

The higher interest rate will not only hit the May Budget bottom line but ripple through future budgets.


Related Posts

. What about the sovereign risk? Er....

. You'll no longer be able to rely on government bonds - Robb

. Worried about government debt?

Read more >>

Sunday, March 10, 2013

How well do home‐owners know the value of their homes?

Not that well, and in the outer suburbs it's even worse

Our homes are worth less than we think, around $100 billion less Australia-wide.

New research published in the Australian Economic Review finds Australians typically overestimate the value of their homes by 2.5 per cent. The ones who do it the most are young, living in so-called McMansions on the fringes of Sydney, Brisbane and Perth.

Daniel Melser, a senior economist at Moody's Analytics conducted the research while at the University of Technology Sydney.

“It means our wealth statistics are wrong,” he says. “All the wealth statistics are based on owners estimates of the value of their homes, not the actual values.”

“And it means people are at risk of making bad decisions, like deciding they can afford overseas holidays when they can’t or afford to retire early.”

Dr Melser examined the results of a regular survey about estimates of household wealth and compared them to the prices the people being questioned had actually paid for their houses, adjusted for price growth.

He found most of the overestimation took place in the outer suburbs of Sydney, Brisbane and Perth, with comparatively little in Melbourne in Adelaide...

The owners of big homes (with four or more bedrooms) were by far the most optimistic, typically thinking their homes were worth 5.3 per cent more than they were.

“We are talking about McMansions I guess,” Dr Melser said. “Big homes are a worth a lot to the people who live in them but not everyone loves big homes,” he said. “It’s a bit like the old idea that you paint a wall pink because you love pink and you capitalise that into your idea of the value of the house, but not everyone loves pink.”

Big houses tend to be further away from city centres, worth less to buyers than they are to the people who live in them.

Older Australians more likely than young Australians to realistically value their homes, perhaps even undervaluing them, Dr Melser says. An Australian aged 30 is likely to value a house at around 6.6 per cent more than an Australian aged 70.

“The cut off point seems to be around the age of 50,” he says. “People younger than that overestimate what their homes are worth. Beyond that they have a pretty good idea.”

In today's Sun Herald


Related Posts

. Our houses are emptying, as are our dreams of owning them outright

. Reserve Bank to public: Don't complain about the house prices you're pushing up

. Supersized. Our McMansions lead the world

Read more >>

Wednesday, March 06, 2013

RBA in March. Quietly happy, prepared




The Reserve Bank believes Australia’s mining investment boom will last longer than it had thought, ending in something more like a plateau than a peak. But it thinks the outlook is highly uncertain and it is on standby to cut interest rates again as soon as is needed.

Last week’s ABS capital expenditure survey played an important role at Tuesday’s Melbourne board meeting, persuading members the mining investment boom was not as weak as had been thought and suggesting non-mining investment might pick up in the second half of the year.

But with so few mining companies involved in the big decisions and with much that could go wrong, the Bank isn’t placing much store on investment forecasts.

In a statement released the meeting Governor Glenn Stevens said said the four rate cuts delivered last year were “starting to have some of the desired effects”.

Consumer spending was growing moderately, and homebuilding and house prices were climbing.

Holding the economy back were constrained government spending and an exchange rate “higher than might have been expected”.

While low inflation gave the Bank “scope to ease policy further should that be necessary” there was not yet a big enough threat to economic growth to justify a further move.

The Bank expects its earlier cuts to continue to stimulate the economy for some months.

In today's Sydney Morning Herald and Age






Related Posts

. February. Reserve Watch: Why it's on standby to cut again

. December: The big four can pass it on, and if we have to we'll cut again

. November: No cut. It's today's favourite

Read more >>

Friday, March 01, 2013

What the Reserve really thinks. The Aussie is 5 cents overvalued

But on business investment, there are green shoots

The Reserve Bank believes the Australian dollar is around 5 cents overvalued, but is considered likely to leave interest rates on hold this month after better than expected news on business investment intentions.

The Bureau of Statistics survey showed mining investment slipped 2.9 per cent in the three months to December, manufacturing investment fell 2 per cent and investment by services firms slid 7.5 per cent.

When asked about their plans for the coming financial year mining firms were 12 per cent more downbeat than a year ago and manufacturing firms 23 per cent more negative. But services firms - regarded as the most responsive to interest rates - were 5 per cent more positive.

“Manufacturing is a disastrous story whichever way you look at it,” said Westpac chief economist Bill Evans. “The slide is the biggest we’ve ever seen. But planned investment by services companies is four times as big and is set to climb. These are companies putting in warehouses or showrooms.”

Mr Evans had been expecting an interest rate cut at the Reserve Bank board’s next meeting on Tuesday, but he now thinks there won’t be one until June when the next set of investment figures are out.

The dollar slipped half a cent to 102.4 US cents on the investment news before climbing back to 102.8 as traders shifted their focus from actual to expected investment.

HSBC Australia chief economist Paul Bloxham said while the peak in mining investment was approaching, the drop off looked like being more gentle than had been feared...

“The fear was that you might get a projection which suggested you were going to get a sharp drop off, but these numbers suggest it is going to be more of a plateau,’’ he said.

A near-record $152 billion of business investment is expected in the coming financial year, $100 billion from mining.

Freedom of Information documents released Thursday show the Reserve Bank believed the Australian dollar was about 7 per cent overvalued in December. At the time the Australian dollar was trading for 105 US cents, meaning the Bank believed it should have been worth around 98 US cents.

But Bank staff had little confidence in the estimate saying they could only be 70 per cent confident the the dollar was somewhere between 4 per cent undervalued and 12 per cent overvalued.

While there had been a “clear and credible case” for Switzerland to intervene to stem the rise in its currency the circumstances in Australia could “not yet be considered comparable”. Switzerland relied heavily on manufacturing exports, had been facing deflation, and traded heavily with Europe.

Shadow Treasurer Joe Hockey backed the Reserve Bank Thursday holding out no prospect of the Coalition supporting intervention to restrain the dollar.

“There is no doubt that the high dollar is impeding the competitiveness of Australian exporters,” he told a business audience in Brisbane.

“But on the other side of the coin, the high dollar brings benefits for businesses which rely on imported goods, and for consumers who purchase cheaper imported products.”

“Those who argue for a lower dollar are effectively arguing in favour of higher prices for consumers – at a time when many households are under extreme financial pressure from rising electricity prices and now the government’s carbon tax.”

In today's Sydney Morning Herald and Age


From the RBA, under FOI:





Related Posts

. August 2012. Mining investment - we were nearer the edge of the cliff

. September 2011. A carbon tax, a mining tax... we'll invest 82 billion

. Our unreasonably high dollar concerns the RBA. It is opening its mouth


5625.0
Read more >>

Dams. Gillard's three-card trick

She gets the money from where?



It’s as audacious as a raid could be. In order to find $100 million to extend dam walls in Sydney and Brisbane the Gillard government is raiding the equivalent of its coffee jar.

Even better, it’s taking out more than it needs - $150 million, directing the extra $50 million to cutting its deficit. Who could possibly complain?

“A whole lot of suits in Switzerland” is how one government source puts it. After the September 11 US terrorist attacks in 2001 the Howard rammed through the Terrorism Insurance Act. Australian insurers were refusing to insure big city buildings against the same sort of attack here. The Act forced them to offer the insurance and forced them to contribute to a newly established Australian Reinsurance Pool Corporation which would meet the claims.

Backed by an Australian government guarantee of $10 billion, the Corporation has been also been spending buying international insurance, spending for $75 million per year.

No more. Its $75 million per year contributions will stop for at least two years. Instead they’ll be paid to government as extra dividends (on top of a special dividend announced in the last budget). It’ll bank $25 million per year and spend $50 per year on worthwhile projects such as extending dam walls.

The Insurance Council of Australia won’t complain. It welcomes the spending because it’ll make it easier to insure homes at risk of flooding.

“It will certainly reduce the upward pressure on premiums, but we also expect them to go down in areas where there has been a major flood risk,” said chief executive Rob Whelan Thursday.

Looked at another way it’s a heist from the the CBD (which houses the buildings at risk of terrorist attack) to the suburbs at risk from the Warragamba Dam. It’s sneaky, its popular, and it’ll save money.



In today's Sydney Morning Herald 



Related Posts

. Also clever. Gillard's Robin Hood innovation plan

. Graphed. Why the budget is bleeding

. Tony Abbott you need to balance your books. Your time starts now

Read more >>