In The Press   PAGE 1

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Federal Government considering new tax breaks for banks

January 16, 2010

The Federal Government is considering the implementation of new tax advantages for international banks, as well as the reduction of regulations for financial institutions, in order to promote Australia as a regional financial centre and attract greater international investment. The recommendations were contained in a report recently prepared by a panel of senior financial executives and supported by Treasury officials. Among other initiatives, the report calls for the abolition of any taxes on the interest income that foreign banks earn from their Australian branches. Already, Australia’s financial institutions have been commended for weathering the global financial crisis significantly better than their US and European counterparts. If implemented, the tax breaks and reduced regulatory burden for financial institutions would go against the broader international trend to raise taxes on banks in an effort to curb the so-called ‘excesses’ of the financial industry which have been blamed for precipitating the financial crisis. Indeed, the release of the report comes just as US President Barack Obama has announced a $US90 billion tax on the US banking system in an effort to recoup losses faced when US taxpayer funds were used to bail out fragile financial institutions. The tax breaks are also being touted by some as a means to allow Australia to continue financing its consistent Current Account Deficit (CAD). Presently, financial service exports are only a fraction of Australia’s finance industry and account for just 3 per cent of the total value added by Australia’s financial sector.

Impressive employment figures confirm Australia’s rapid recovery

January 14, 2010

The latest figures released by the ABS show that unemployment has fallen for a second consecutive month to an eight-month low of 5.5 per cent in December – down from 5.6 per cent in November. More impressive is that increases in employment are increasingly being seen in full-time – and not just part-time – positions. The better-than-expected unemployment figures present a stark contrast to earlier predictions handed out in the Federal Government’s 2009-10 budget. In the budget, Treasury economists forecasted that unemployment would continue to rise until the end of 2010 and would peak at 8.5 per cent in the December quarter of 2010 and remain there until the June quarter of 2011. However, a combination of stimulus measures by both the Federal Government and the Reserve Bank (via a dramatic cut in interest rates) helped to stave off a domestic recession and stabilize the banking industry. As a consequence, the Federal Government downgraded its peak-unemployment forecast from 8.5 per cent to 6.75 per cent in its mid-year review of the Budget in 2009. So far, however, unemployment seems to have only peaked at 5.8 per cent in June 2009. However, strong employment figures represent a potential increase in aggregate demand and will encourage the Reserve Bank to lift interest rates at its next meeting in February. Already, the faster-than-expected economic recovery has prompted the Reserve Bank to increase interest rates three times to currently sit at 3.75 per cent to ensure that the economy does not ‘overheat’ during its rapid recovery.

China overtakes Germany to become the world’s largest exporter

January 11, 2010

New reports have confirmed that China has overtaken Germany to become the largest exporter of goods and services in the world. The data comes soon after confirmations that China had overtaken the US to become the world’s largest automotive market and that it is forecast to overtake Japan in 2010 to become the world’s second largest economy. China’s state media claimed that the country’s total exports had increased by 17.7 per cent in December in comparison to one year earlier. While the news signals continued positivity with respect to China’s economic performance, it is likely to galvanise China’s international competitors to demand that it devalue its currency, the yuan. Many countries, such as the US, have accused China of deliberately devaluing its currency in order to make its goods more internationally competitive. Nevertheless, just as China’s exports have recorded impressive growth, the total level of Chinese imports also witnessed a dramatic surge by a larger-than-expected 55.9 per cent, bringing the country’s total trade surplus down to $18.4 billion.

Increased job advertisements spells positive news for domestic employment

January 11, 2010

The total number of job advertisements published on the internet and in national newspapers increased by over 6 per cent in December, according to a recent survey conduct by ANZ. The figure represents the survey’s second consecutive rise after job advertisements increased by 5.2 per cent in November, suggesting that national employers are becoming increasingly willing to hire workers once more. Specifically, newspaper job ads increased by 11.6 per cent over the month, while internet ads increased by 5.6 per cent. The biggest increase was in the Northern Territory where job advertisements increased by 62 per cent, followed by a 13.9 per cent increase in NSW. The increase in job advertisements is likely to downplay any expectations of any substantial increase in Australia’s unemployment rate in the near term, and points to continued economic recovery in Australia. Previously, many economists and government officials had predicted that Australia’s unemployment rate would cross the 6 per cent threshold – however, the continuing streak of positive news in Australia’s labour market have cast significant doubt over these earlier predictions.

New report suggests that NSW is holding back national economy

January 11, 2010

A new report titled ‘State of the States’ has recently been released by Commsec, ranking the state of New South Wales (NSW) as last in several key economic indicators. The Australian Chamber of Commerce and Industry (ACCI) has subsequently claimed that Australia’s overall economic recovery in 2010 will likely be jeapordised by lagging economic performance in NSW. However, Acting NSW Treasurer John Hatzistergos has responded negatively to the report and has claimed that it does not accurately portray NSW’s recent economic performance, since in the first three months of the 2009-2010 financial year, total demand in NSW grew by 1.3 per cent – more than twice the national average. Commsec’s report also rated Western Australia and the Australian Capital Territory (ACT) as the country’s top performing economic regions, driven principally by the continued mining boom in Western Australia as well as broader employment growth in the ACT. In addition, strong retail spending and growth in the housing sector has contributed to the ACT’s strong result. NSW boasts the largest state economy in Australia, but in recent years has been plagued by sub-par economic results even as other states have experienced significant periods of economic growth.

Key climate change talks begin in Copenhagen

December 6, 2009

Officials and world leaders from 192 countries have begun to gather in Denmark’s capital – Copenhagen – to begin talks focused on arriving at a new global framework to deal with climate change. Any agreement is intended to replace the 1997 Kyoto Protocol which was similarly aimed at reducing greenhouse gas emissions but had attracted significant criticism – particularly due to the absence of any legally binding commitments on developing countries, such as China and India, and the fact that the provisions outlined in the Kyoto protocol were set to run out in 2012. However, many leaders have downplayed any expectation that a legally binding agreement will be settled upon at the Copenhagen conference. This is due to many areas of contention between different countries, ranging from how much countries are actually willing to reduce their greenhouse gas emissions to how much financial support advanced countries are willing to provide poorer, developing countries to make the change to cleaner technologies. Continued disagreement on these fundamental issues have prompted may commentators to accept that the likely outcome of the conference is an agreement on a broad framework to deal with climate change, followed by the signing of binding final agreements by next year. The European Union (EU) has offered a 20 per cent in its emissions from 1990 levels by 2020, rising to 30 per cent if a comprehensive global agreement is reached. The US has pledged to cut its emissions progressively over several stages, starting with a 17 per cent reduction from 2005 levels by 2020. China and India, on the other hand, have not committed to any reduction in overall carbon emissions. Rather, they have agreed to reduce their ‘carbon intensity’ – the amount of carbon dioxide emitted per unit of GDP.

Economists retain hopeful expectations for US economy

December 6, 2009

Economists are expecting soon-to-be-released statistics to point towards a continued recovery in the US economy, as many suggest that sales at US retail outlets probably rose in November for the third time in the past four months. If true, the figures would suggest that US household spending is on the rebound and will likely continue to pick up momentum throughout the first half of 2010. According to one survey, total purchases increased by 0.7 per cent in November. The expectations have led US Treasury Secretary Timothy Geithner to predict that the US labour market – which has been incurring significant job losses since December 2007 – is on the cusp of moving back towards a period of job creation instead of job losses. Noticeable, while 11,000 jobs were shed in November, this was the smallest decline in jobs since the start of the recession in December 2007. In addition, the US unemployment rate unexpectedly fell to 10 per cent from 10.2 per cent. However, the recovery is simultaneously spurring demand for imports, which widened the US trade deficit to $37 billion in October as households began to purchase items produced from overseas locations.

RBA raises cash rate for third month in a row

December 1, 2009

In a move that signals further confidence in the ability of Australia’s private sector to sustain itself without government stimulus, the Reserve Bank lifted interest rates in December for a third consecutive month. The Reserve Bank’s decision brings the cash rate to 3.75 per cent. The rise comes amidst further reports that additional interest rate rises are likely to be on the agenda during 2010, as continued economic recovery and strong levels of aggregate demand may place increased pressure on inflation. The decision also represents the first time the Reserve Bank has lifted the cash rate for three consecutive months since January 1990. The broader concerns that have also influenced the Reserve Bank’s decision to wind back its ‘emergency’ cash rate stimulus include the need to avoid the creation of a housing price bubble or excessive levels of credit spending. Throughout the economy, recovery in the share market has also helped to boost the level of household wealth for Australian families. This has no doubt played a continued part in promoting Australia’s recovery from slower economic conditions experienced in late 2008 and early 2009.

India’s economy may have grown more rapidly than expected

November 30, 2009

India’s $1.2 trillion economy – which is officially the third largest economy in Asia after China and Japan – is expected to have grown at its fastest pace in over a year; an outcome driven by lower interest rates as well as government tax cuts. India’s Gross Domestic Product (GDP) increased by 6.3 per cent in the September quarter – slightly larger than the 6.1 per cent growth figure for the previous quarter. Much of this positive result has been due to government stimulus, which has accounted for around 12 per cent of GDP over the past year. This level of stimulus places India in the delicate position of having to decide when the private economy can sustain itself without the need for government assistance. Withdrawing public stimulus – in the form of low interest rates and government spending – too soon could jeapordise India’s economic recovery, whereas excessive public stimulus could stoke inflationary pressures and jeapordise India’s growth in 2010. While inflation was only 1.34 per cent in October and 0.5 per cent in September, the Indian central bank forecasts inflation of 6.5 per cent by April 2010. Consequently, interest rates are likely to be lifted from their current lows in 2010.

Reserve Bank promotes optimistic outlook for Australian economy

November 30, 2009

In a speech at the 6th National Housing Conference in Melbourne, Reserve Bank deputy Governor Ric Battellino has promoted an optimistic outlook for the Australian economy. In particular, the speech suggested that Australia’s economy has entered a new period of upward growth which is expected to last for – at least – the next few years. Furthermore, Battellino predicted that Australia would continue to see a rise in total levels of mining investment over the next five years as giant developing economies such as China and India continue to industrialise. According to the speech, Australia’s exports are also expected to rise over the next year as Australia’s trading partners in Asia continue their speedy recovery from the global recession. On the domestic front, Battellino suggested that Australia’s population will continue to grow at a quick pace as higher economic growth promotes an increased demand for labour. All together, these factors are expected to result in a solid increase in household incomes over the next few years.

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