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Henry Thornton - Corporate: A discussion of economic, social and political issues From the coalface, Q3 2010 Date 17/09/2010
Member rating 4/5
Tax reform best bet for hung parliament.
By Henry Thornton Email / Print

Tax reform best bet for hung parliament, 17/9.

The intervention by a senior mining man who acknowledges the need for Real Action, even Moving Forward, on climate change is very welcome.

BHP's Marius Kloppers has made the case for a carbon tax, amongst other direct actions to begin to deal with greenhouse gas emissions.

Here is Tracey Lee's report in yesterday's Oz, but I cannot yet find a link to the speech itself. (Can anyone help? Contact Henry here.)

This follow-up article, by Matthew Stevens, is well worth a read. Support for a carbon tax is no recent matter for the Big Australian.  As a nation highly relient on coal, but also with vast deposits of uranium, adjusting early to a carbon-constrained future is vital.

One assumes Mr. Kloppers will not be subject to the cries of 'shame' by the climate change skeptics to quite the same extent as those of us who have been trying to promote a balanced debate on this issue.

The ETS is 'dead, buried and cremated'.  But a simple revenue neutral carbon tax is arguably better, including offsetting rebates for those who cannot afford to pay for more expensive power and other necessities of life.  Read on here.

China resurgance strengthens rate hike case for Oz, 13/9.

Henry's Blog todays makes the case.

Jobs growth = higher interest rates, 9/9.

'AUSTRALIA faces the prospect of higher interest rates' says James Glynn, 'sooner rather than later after the unemployment rate fell to 5.1 per cent today.

'About 30,900 jobs were added in August and continued growth in the jobs market has now put the Reserve Bank of Australia on notice that it may need to resume hiking interest rates soon.

'A total of 350,000 new jobs have been created in Australia in the past year despite the grim global backdrop, providing a clear line of separation between Australia and northern hemisphere economies that are still struggling to get back on their feet after the global downturn.

'Full-time workers made up the bulk of the employment gains, rising 53,100. The number of part-time workers fell by 22,100, continuing a trend of workers moving into full-time jobs'.

Economy picks up speed, 1/8.

THE Australian economy picked up surprising speed in the second quarter, reports Daniel Morrissey, growing at its fastest quarterly pace in three years.

The Australian Bureau of Statistics said gross domestic product (GDP) rose 1.2 per cent in the three months ended June 30, from a revised 0.7 per cent in the previous quarter. It was the quickest growth since the 2007 June quarter, when GDP jumped 1.3 per cent.

The annual GDP growth rate was 3.3 per cent.

Economists tipped quarterly growth of 0.9 per cent and annual growth of 2.8 per cent.

The resilience of the economy is thanks to demand for the nation’s iron ore, coal and other minerals, particularly from China, which has helped boost company profits.

This has helped support business and consumer confidence and kept household consumption buoyant, a big contributor to economic growth in the June quarter.

Still, consumers remain cautious as China eases its economy on to a more sustainable path for growth and as debate intensifies over the risks of a global double-dip recession.


Mining profits keep economy afloat, 31/8.

David Uren reports: 'The mining sector almost doubled its profits in the June quarter while earnings in the rest of the economy went backwards.

The mining sector reaped 40 per cent of all company pre-tax profits in the June quarter, although it accounts for less than 7 per cent of the economy. Soaring prices for iron ore and coal boosted its earnings by $9 billion to $19.5bn.

"The economy is awash with cash from the mining boom," RBS chief economist Kieran Davies said. He said the mining profits would surge again in the September quarter before easing in line with some reductions in contract export prices.

Excluding mining, pre-tax profits fell by 8 per cent.

Australian economy still breathing, 31/8.

Total credit outstanding is creeping up, according to the Reserve Bank's latest data release, though business credit is still creeping down.

Total credit provided to the private sector by financial intermediaries rose by 0.1 per cent over July 2010, following an increase of 0.2 per cent over June. Over the year to July, total credit rose by 2.8 per cent.

Housing credit increased by 0.5 per cent over July, following an increase of 0.4 per cent over June. Over the year to July, housing credit rose by 8.1 per cent. Housing credit rose over July due to growth in lending to both owner-occupiers and investors.

Other personal credit was flat over July, following a fall of 0.3 per cent over June. Over the year to July, other personal credit increased by 3.2 per cent.

Business credit fell by 0.4 per cent over July, following a fall of 0.1 per cent over June. Over the year to July, business credit declined by 5.0 per cent.

The latest ABS Retail Trade figures show that retail sales increased 0.7% in July, seasonally adjusted, compared with an increase of 0.4% the previous month.

Cafes, restaurants and takeaway food services (5.3%) recorded the largest seasonally adjusted increase in July followed by Other retailing (1.4%) and Food retailing (0.4%).  Red meat production boosted the South australian economy.

ABS Building Approvals show that the total number of dwellings approved rose in July 2010 following falls in the previous three months in seasonally adjusted terms.

According to the ABS, New South Wales (9.7%), Victoria (12.1%), South Australia (8.3%) and Tasmania (4.4%) recorded more dwelling approvals this month, while Queensland (-18.3%) and Western Australia (-4.9%) recorded less dwelling approvals in seasonally adjusted terms.

Latest ABS figures show that, in seasonally adjusted, current price terms, the current account deficit fell $10,817m to $5,640m in the June quarter 2010. Exports of goods and services increased $12,747m (21%) and imports of goods and services increased $3,041m (5%).

In trend current price terms, the current account deficit fell $9,463m to $7,141m in the June quarter 2010.

In seasonally adjusted chain volume terms, the deficit on goods and services fell $1,260m (16%) from $7,694m in the March quarter 2010 to $6,434m in the June quarter 2010. This is expected to contribute 0.4 percentage points to growth in the June quarter 2010 volume measure of Gross Domestic Product.

Australia's net International Investment Position (IIP) rose $4.2b to a net liability position of $763.5b in the June quarter 2010. Australia's net foreign debt liability increased $14.1b (2%) and Australia's net foreign equity liability decreased $10.0b (10%).

Links to relevant ABS data releases are available here.

BHP's profits double, 25/8.

Mining company BHP today announced its yearly profit will be double what it had first forecast.

The Australian reports, 'BHP Billiton said today full-year net profit more than doubled to $US12.72 billion ($14.5bn), driven by demand for its commodities.

The world's largest mining company, whose $US38.6 billion hostile bid for Potash Corp was rejected by the Canadian fertiliser company's board last week, said revenues rose 5.2 per cent to $US52.8bn in the year ended June 30, from $US50.21bn the previous year.

Net debt was $US3.31bn, with net gearing of 6 per cent, compared with $US7.92bn and 15.1 per cent gearing at the end of December 2009, giving it more scope for the all-cash offer.

Excluding exceptional items, net profit was $US12.47bn, up by an encouraging 16 %.

RIO's results are also impressive, but its CEO's comments on the global economic scene were also important.

John Garnaut recently reported from Shanghai: : 'Commodities markets are entering a new age of volatility that could involve dips as low as those seen during the global financial crisis, says the chief executive of Rio Tinto, Tom Albanese.

'Mr Albanese predicted a sharp slowdown in China's trend GDP growth rate to between 6 and 7 per cent for the next decade, overlaid by "higher amplitude" financial market cycles associated with Western economies unwinding their deep imbalances.

' "We will see higher levels of volatility - higher highs, lower lows - as we saw over the past two years," Mr Albanese said'.

It is good to see that this massive mining company is so on the ball in diagnosing the frankly scary evolution of the second age of globalisation.

See also Henry's blog today.

Labor costs contained, 19/8.

'The modest rate of pay increase will help the Reserve Bank to keep interest rates steady', says David Uren.

'WORKERS are winning much smaller pay rises than they were before the global financial crisis, with no sign of serious wage inflation, even in the mining industry.

'The average wage increase over the past 12 months was only 3 per cent, with private sector workers achieving increases of only 2.8 per cent. This is only just above the 2.6 per cent level of last year, which was the lowest since 1997. Over the past decade, workers have averaged increases of 3.6 per cent a year, while in the two years leading up to the global financial crisis, increases were in excess of 4 per cent.

'The rapid employment growth and the fall in unemployment since September last year had raised concerns that unions might exploit improving economic conditions to seek catch-up pay increases. However, the modest rate of pay increase will help the Reserve Bank to keep interest rates steady'.

Consumer confidence rises but retailers cautious, 13/8.

'THERE was a lot of talk yesterday about what is going on in the minds and the wallets of Australian consumers.

'Coca-Cola Amatil chief executive Terry Davis, one of the most astute business leaders whose company will clock up sales of more than $4.5 billion this year, produced another higher-than-expected, record net profit of $212.7 million for the June half.

'But, despite the strong result and some recent figures showing an upturn in consumer confidence, which has translated into more demand for his beverages, Davis is still wary about the economic outlook.

'Given that last year's figures for all retailers were artificially boosted by the impact of the federal government stimulus package, he said any company in consumer sales which was reporting close to breakeven volumes or value growth was doing pretty well. He pointed out that there was conflicting news coming out from the consumer and retail sector with some players, he believed, set to announce weaker results'.

Henry's blog today discusses background facts which weigh in the global and australian economy and markets.  And readers should avoid black cats and walking under ladders, especially today. (Henry doesn't fancy Essendon's chances against Collingwood tonight.)

Job ads rise again, now 36 % above July 2009, 9/8.

'JOB advertisements in Australian newspapers and on the internet rose 1.3 per cent on a monthly basis in July, data showed today.

'The total number of advertisements rose to an average of 171,685 per week, contributing to a 36.1 per cent annual rise, said ANZ Banking Group, which compiles the statistics from major newspapers.

'The number of internet job advertisements rose 1.3 per cent in July over June figures, contributing to an annual increase of 37.6 per cent in seasonally adjusted terms.

'Job advertisements in newspapers in Australia rose 1.2 per cent last month to register a 14.5 per cent annual increase in seasonally adjusted terms.

'ANZ chief economist Warren Hogan said the results of the July survey showed that print and web advertising had built on strong gains in June and May'.

Trade surplus surges, house prices, vehicle sales up, 8/8.

'Australia's trade surplus ballooned to a record in June as export earnings from iron ore and coal surged, lifting the local Australian dollar and acting as a reminder of why the next move in interest rates is still likely to be up.

'The surplus of $3.54 billion was almost twice the market forecast and far outstripped the previous record of $2.5 billion.

'The surplus for the three months to June amounted to $6.6 billion, a turnaround of almost $10 billion from the first quarter's deficit and a boon for economic growth.

'A government measure of city house prices also showed brisk growth of over 18 per cent for the year to June, a worry for the Reserve Bank of Australia (RBA) which has been hoping higher mortgage rates would cool the red-hot sector.

"The trade numbers are just massive," senior economist at RBC Capital Markets Su-Lin Ong said.

"That's a lot of income flowing into the economy and we could well see nominal GDP (gross domestic product) growth in double-digits."

"It's also coming while the labour market is already strong and unemployment low," she added'.

New vehicle sales jump

In other economic data, new vehicle sales lifted more than nine per cent in July, driven by strong demand from private buyers and sustained interest in four-wheel drives, according to data from the Federal Chamber of Automotive Industries (FCAI).

The FCAI said 82,376 passenger cars, 4WDs and commercial vehicles were sold in July, a rise of 9.3 per cent compared to the same period in 2009. This compares to annual growth of 5.7 per cent in June.

Seasonally adjusted, VFACTS estimated sales fell 4.6 per cent in July, from June.

FCAI chief executive Andrew McKellar said the result was even more impressive given the start of a new financial year usually resulted in slower sales.

“These figures provide further evidence that sales to private customers continue to increase strongly – recording a 20 per cent rise compared to this time last year,” Mr McKellar said.

Why Stevens is wary, 4/8.

'The Reserve Bank’s decision to leave official interest rates on hold', says Stephen Bartholomeusz, 'was inevitable after last month’s consumer price index was weaker than expected. While that’s good news for Julia Gillard, the lack of any underlying momentum in the economy is a little disquieting.

'House prices are sliding, building approvals falling, retail sales are weak and consumer confidence low. As the RBA noted today, business credit has stabilised but conditions for some sectors "remain difficult". Overseas, Europe and the US remain in a fragile low-growth condition, with the US actually falling back after showing tentative signs of recovery'.

Read the full RBA statement here.

As Bartholomeusz notes, the saving grace is that employment growth remains strong.  But is also worth noting that modest growth of retail sales and low growth of credit is exactly what the doctor ordered.  It is not, repaet not, a cause for alarm or despondancy, rather a sign of maturity given the global scare over the consequences of excessive credit growth and unsustainable consumerism.

Graincorp swallows AWB, 2/8.

'The new GrainCorp will start life with four very operational strong pillars, three of which have exceptionally powerful brands: United Malt Holdings, Landmark, GrainCorp and of course, AWB'.

Inflation below expectations, 28/7.

Australia's goods and services CPI) inflation was 0.6% in the June quarter 2010, compared with 0.9% in the March quarter 2010. See the full ABS report here.
The measure was 3.1% through the year to June quarter 2010, compared with a rise of 2.9% through the year to March quarter 2010.

These measures were below the rate expected in a recent poll of economists.  Henry cannot yet find a report of 'underlying' goods and services inflation, but guesses that it too might be below the expected level.

The most significant price rises this quarter were for tobacco (+15.4%), hospital and medical services (+3.8%), automotive fuel (+2.1%), rents (+1.1%) and house purchase (+0.6%).

The most significant offsetting price falls were in domestic holiday travel and accommodation (-6.0%), fruit (-4.8%), audio, visual and computing equipment (-6.3%), vegetables (-3.0%) and overseas holiday travel and accommodation (-1.9%).

Insurance claims rocket, 28/7.
'A day after the market crunched QBE for a contraction in its insurance margin, Insurance Australia Group was also hit, slumping 15c, or 4.3 per cent, to $3.35, despite chief executive Mike Wilkins reaffirming his previously revised insurance-margin guidance of 7 per cent.

'IAG also called time on its top British executive Neil Utley, who oversaw a big full-year loss and the $367m net charge announced on June 2.

Economy on a roll, rate hike now looking likely, 22/7.

WHOEVER wins the election will inherit an economy growing at well above its sustainable rate, says Peter Martin, making further interest rate rises inevitable, according to the latest Westpac-Melbourne Institute leading economic index.

'The index purports to predict economic growth three to nine months into the future. It was 6.7 per cent in May, down from April's 7.5 per cent but still in excess of the Reserve Bank's view of a sustainable rate, believed to be about 3.25 per cent.

'Driving the growth are improving international conditions and near-record minerals prices, but so extreme is the prediction that Westpac chief economist Bill Evans says he does not fully believe it.

"But I have to say, over the years - particularly in the Asian crisis when I dismissed what the index was telling me - it turned out to be right," Mr Evans told BusinessDay.

Henry's latest here.  As we said in early July: 'A cautious central bank will sit tight today. Further rate hikes will be needed but now is a time for caution as the world faces the possibility of a double-dip recession, or worse'.

Reserve Bank undercuts Abbott say Peter Martin and Clancey Yeates, 21/7.

'RESERVE Bank Governor Glenn Stevens has undermined one of the key Coalition election policy planks, declaring Australia has ''virtually no net public debt''.

'As Tony Abbott was in Melbourne pledging $1.2 billion in spending cuts and a "complete focus on getting debt and deficit under control", the Reserve chief was in Sydney preparing to deliver a speech that countered some of the debt arguments point by point.

'But in an unwelcome sign for Prime Minister Julia Gillard, Mr Stevens indicated the Reserve would raise interest rates at its meeting on August 3 - less than three weeks before the election - if circumstances required it.

'Mr Stevens said the board would ''consider all the issues for the economy and do its job. What else do people expect?''

'The key to whether there will be a rate rise during the campaign will be next Wednesday's inflation figures. Yesterday the RBA took the unprecedented step of nominating the underlying inflation figure that spells danger for Labor: 3 per cent'.

Henry adds: If underlying inflation is above 3 % and Glenn Stevens does not raise interest rates, that will be just as political act as when he raised rates in November 2007.

Qantas feeling feisty, 16/7.

Qantas has given a further sign of its confidence that the aviation market is improving by boosting fares by 3 per cent.

'The airline revealed the increases to the travel trade yesterday in the wake of Wednesday's announcement that it had advanced the delivery of its long-awaited Boeing 787 Dreamliners by two years and would now take the first aircraft in 2012.

'The decision to increase fares across its international, domestic and regional businesses builds on international increases in December and rises to domestic fares of $5 to $10 last September, after more than a year of falling ticket prices because of the global financial crisis.

'The airline said yesterday pricing was reviewed continually across all routes and took into account factors such as demand, capacity, competitor activity and business performance'.Consumer confidence rebounds, 14/7.

'CONSUMER confidence rebounded by a monthly record in July as Australians remained positive about the economy, a new survey shows.

'The Westpac-Melbourne Institute of consumer sentiment index rose 11.1 per cent in July to 113.1 points, its strongest monthly increase since the survey began in the mid-1970s.

'A reading above 100 points indicates optimists outweigh pessimists in the survey.

'The rebound in consumer confidence reversed declines in the previous three months'.

Another nail in the coffin of the 'rate cut' school.

Labor market inflation, 12/7

The so-called 'Fair Pay' Commission continues to wreak havoc in Australia's labor markets.

'The cost of shipping cargo has escalated because of Labor's workplace policy.

'Shippers are passing on the costs of regulations that require them to pay local wages to foreign seafarers carrying domestic freight between Australian ports, prompting warnings that this could lead to higher costs for widely used goods such as vegetables and packaging'.

And the same 'Fair Go' commission has decreed that young people cannot work less than 3 hours at a stretch, making life difficult for small business and depriving said kids of useful income.

Strong jobs data, 8/7.

The ABS today announced strong jobs data.

In seasonally adjusted terms:

* Employment increased 45,900 (0.4%) to 11,100,700. Full-time employment increased 18,400 to 7,794,700 and part-time employment increased 27,500 to 3,306,000.
* Unemployment decreased 200 to 598,400. The number of persons looking for full-time work decreased 11,000 to 424,700 and the number of persons looking for part-time work increased 10,700 to 173,700.
* Unemployment rate remained at 5.1%. The male unemployment rate remained at 5.0% and the female unemployment rate decreased 0.1pts to 5.2%.
* Participation rate increased 0.1 pt to 65.2%.
* Aggregate monthly hours worked decreased 6.4 million hours (-0.4%) to 1,567.4 million hours.

More here.

Australia's big miners have agreed to a profits-based tax, 2/7. 

The tax will only be applied to coal and iron ore, which are the areas where 'super-profits' are being made.

There is a higher hurdle for the definition of 'superprofit' - approximately 13 % if Henry heard right.

The rate of 'super-tax' is a mere 30 %, so does this mean another 30 % on top of 'normal' company tax?

The totally unbelievable 'refunds for losses' part of Treauury's scheme has been scrapped, meaning the offensive part-nationalisation story disappears.

Value of existing investments will be 'fully recognised', which deals with retrospectivity.

All in all, not a bad compromise solution, and Don Argus is to chair a committee including Resources Minister Martin Ferguson, which makes The Don a 'super-minister' one assumes.

More here in Henry's blog today.

Weak economic data prompts rate cut bets, 1/7.

David Uren reports that the economic recovery is faltering, with financial markets starting to place bets on the Reserve Bank cutting interest rates.

'A set of weak retail, building and manufacturing figures released yesterday, along with another heavy fall on the sharemarket guarantee that next week's Reserve Bank board meeting will not raise interest rates further.

'The S&P/ASX200 index closed 64 points, or 1.5 per cent lower yesterday, at 4327.5 points in response to renewed pessimism on the world financial markets over the European debt crisis.

'Retail sales had been showing signs of recovery in March and April, but rose by 0.2 per cent in May as consumers were spooked by the world market turmoil'.

More here.

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