Category Archives: Economy

Unions call on super funds and government to act on affordable housing

From New South Wales

Unions covering teachers, police and other emergency and those working in other emergency services, have taken on the issue of housing affordability.

They find that many of their members are struggling to put a roof over one’s head provide for family.

Many union members do not qualify for public housing or other forms on non-privately owned properties, which go under the banner of social housing. The result is that a growing body of working Australians are being pushed into the urban fringes, where they miss out on many important services and must often commute long distances to work. This impacts on quality of life issues.

The big problem is the lack of affordable housing stock, in a market characterised by a bubble that has sent both mortgage repayments and rents through the roof.

Some unions have consequently began to look at ways in which they can help their members.

Early talks have begun in New South Wales, between the Australian Teachers Union in this state (NSW Teachers Federation) and First State Super and Teachers Mutual Bank, aimed at accessing suitable housing in the areas where teachers work. It was announced at the union’s 4 July conference by state general secretary General Secretary John Dixon.

The initiative has encouraged other unions to look at doing something similar.

However, pursuing affordable housing is not supported by the New South Wales Industrial Commission, not by the Australian Fair Work Commission, which have imposed a narrow band of matters on which unions and business can agree. Unions face the need pursue creative means by which to move ahead.

Taking on affordable housing is an important step, especially if it catches on and becomes a national campaign involving all public sector unions and expanding to  other unions and sections of the workforce.

Means of financing is there, in the form of superannuation funds. After all, the money going into them comes from the wages of workers. Even the employer contribution does, because it is the outcome of direct wages trade-offs. There is no reason why this money should not be put to work for those to whom the the money belong.

Up to now, the money in these superannuation funds has been at the disposal of major employers, to be used as a source of back up capital loans or as means to acquire shares in other companies.



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Australian households are not becoming better off

by Jim Hayes

Australian Bureau of Statistics (ABS) information shows that total household wealth stood at a record $9.6 trillion at the end of March, which is 2.4 percent higher in one quarter.

This is somewhat misleading however. It does not mean that the wealth of the average Australian household is rising.

Household wealth is based on total of assets, including business assets and liabilities in the economy and then divided by the number of households. This very different from measuring income, which is a much better indication of standard of living.

Secondly, the liability of one is an asset of another, which means that there is a measure of double counting.

Nor does the household wealth measure consider the distribution of this wealth. Rather than the average household becoming wealthier, it could be that some do and others become poorer.

If an increase has been reported at the same time as the nation’s Gross Domestic Product (GDP) has experienced negligible growth, it must be that much of it represents the shift of wealth from some households to others and that the measure is inaccurate. After all, new wealth must come from somewhere.

This is exactly what has happened. GDP for the quarter grew by just 0.3 percent. Match this with the  reported 2.4 percent rise in average household income and it just doesn’t add up.

Another truth is that nominal household income has been sewed upwards by the real estate bubble. It is questionable whether this is real wealth when it comes to the household’s residential address, given that the cost of a transfer from one dwelling to another would cancel out the gain on the average.

Household wealth should be based on real, rather than nominal wealth and this means discounting inflationary growth.

The biggest growth has been in shares. These are now worth a record $826 billion, due to a rise by just over $36 billion for the quarter. Superannuation funds growth account for $29.9 billion of this. Although these numbers are used to add up assets it represents a transfer of assets, from one form to another and are not the creation of any new wealth. It is about distribution not accumulation.

Welfare groups have said that the ABS information highlights the growing disparity between rich and poor across Australia. They are right.

There is a transfer away from disposable income to shares.

Consumption expenditure almost kept constant, rising only by 0.1 percent. Savings decreased by 0.4 percent, suggesting that  expenditure other than for consumption was funded at the cost of savings.

It no longer looks like average households are improving their position.

Chief executive of the Australian Council of Social Service (ACOSS) said that nearly 3 million people still living below the poverty line.

“The reality is that people in the bottom 50 per cent of the community own just 6 per cent of the overall nation’s wealth,” she said.

“This is a story about, well, how are we making sure that the benefits of the overall wealth in the country are being shared more fairly.”

The inescapable conclusion is that one should not take official statistics at face value. There is usually more to the story than we are often told. Most people have not acquired the skills to properly interprete statistics and can therefore easily be misled by false conclusions.

In this case, a misinterpretation of what is really going on at the average household level, hides the truth and therefore detracts from what needs to be done to overcome the real problems faced by many. This needs to be corrected.




Australia’s billionaires and their connection to government

By Joe Montero

An article written by Peter Martin, economics editor of the Age (28 May 2017) is an eye opener for anyone not familiar with the connection between government and Australia’s billionaires in Australia. The practice is so rampant that Australia ranks as one of the worst in the world.

What is left out is the connection that this has with the rise of the finance industry over the last 30 years.

Martin quotes from the work of professor Paul Frijters and economist Gigi Foster, who examined the Rich 200 List for the Australian Economic Review in 2015 and recorded then  in a book coauthored by Frijters and Cameron Murray called Game of Mates.

“over 80 per cent of the wealthiest Australians have made their fortunes in property, mining, banking, superannuation and finance generally – all heavily regulated industries in which fortunes can be made by getting favourable property rezonings, planning law exemptions, mining concessions, labour law exemptions, money creation powers and mandated markets of many stripes”.

The book suggests that seeking “favours, be they planning approvals or the right to build casinos or toll roads, is what makes Australia go round. Certainly, it makes Australia’s job market go round. Local council planners move into positions with developers, state and Commonwealth government ministers take up positions with companies they used to regulate and former Treasury officials sit on the boards of private banks”.

Martin describes this as a particularly Australian way to make money. Unlike people like Larry Page and Sergey Brin did with Google, Steve Jobs did with Apple, and Bill Gates did with Microsoft, who did bring something new to the world, these people do no such thing.

They made their money by doing things that anybody could have done and they were able to do so, he says, because they had the right connections.  Government provides the opportunities.

Peter Martin labels this as “a particularly Australian way to make money”, and “where Australia has more in common with Columbia than with the United states”.

A study by two United states economists Sutirtha Bagchi and Jan Svejnar used the international Forbes Rich List and an extensive search of newspaper reports to estimate the proportion of

Based on the data, they pointed out that four countries stood out and they were Colombia with 85 percent of billionaires being politically connected, followed by India with 66 percent, Australia with 65 percent and Indonesia with 64 percent.

Martin quite rightly points out that this arrangement makes it likely that there is little threat of billionaires being taxed more in Australia, any time soon.

There is another part to this story.  Australia’s billionaires are in partnership with much bigger entities. Those involved in the development game need to raise considerable capital. They do not finance out of their own pocket, but raise the funds from other sources from the banks. This applies even more in the mining industry.

All roads point to the banks. They are where the collective store of investment funds is held and  released for a percentage. The point is that they create debt and this debt gives them enormous power. For instance, you could be a Gina Rinehart raising the capital to start up a new mine. The bank supplying it has the leverage to impose conditions. It can recall the money and this can make life difficult for the borrower. Although the billionaires might be in a better position than the average punter, they remain dependent.

This means  the banks must be implicated, in whatever level of corruption there is. More so, when government itself depends on raising funds from the same banks.

According to a 2012 report by the International Monetary fund, major banks are highly interconnected. Credit Card Compare reported that they not only transfer funds between them, but shared the same four major shareholders. They are nominee companies controlled by the American banks (Citibank and JP Morgan) and a major British bank (HSBC). There is Also National Nominees that acts on behalf of less clearly defined clients, most of which are registered in tax free havens.

The same banks own large parts of most companies registered on the Australian Stock Exchange. This gives a small group much more power than most would ever suspect. A power that has a global dimension. This is critical. Because it is not likely that a connection with government for favourable treatment would exist without their involvement.

Australia is at the top of the charts in something else and that is the most deregulated financial sector of any comparable economy. The assertion being made here is that there is a connection between the giving out of government favours and the deregulation of finance. If you want to get rid of one, you have to get rid of the other.

Among other changes, deregulation meant that government had less capacity to regulate the monetary side of the economy and to use its control to divert funds for its own needs.It has been a major pusher to privatise government concerns to secure funds to balance the books and creating a major potential for generating close business contacts between government and the business sector

Banking became riskier with the loosening of controls over reserve and liquidity ratios, the rise of new financial institutions and greater exposure to the global financial system, which meant a more unstable exchange rate and subjection to the whim of major global investors and institutions.

Reduction of government control meant that credit could no longer be targeted towards priority areas. It quickly became a free for all. Government could no longer issue directives that would compel the banks to behave in a given way.

Deregulation has created a recipe for corruption.

Documents reveal Banks losing battle in image repair

By Joe Montero

Australia’s major banks are having a rough ride, not in terms of the profit they are making, but in the way they are seen to operate.

Never has the image of banks been so low, regarded by the average Australian as greedy, overcharging, providing poor quality, making too much money and enablers of corporate the tax dodging industry. This is the reason why proposals for an inquiry are so popular.

Evidence shows that the banks are getting extremely worried about this public perception of them. They have spent almost $7 million in a year trying to fix their image and ward off pressure for an inquiry.  The public relations campaign has been a spectacular failure and this is adding considerably to the worry.

The problem is that there is substance to the accusations and no amount of soft sell is going to change this. Only change will.

So serious is the feeling against the banks that politicians are compelled to publicly distance themselves. This is part of what is behind the the $6.2 billion tax on the banks in the May budget, even if it going to be paid by the customers. at heart, the government remains sympathetic to the banks and is working hard to combat pressure in parliament for a Royal Commission. It must also cover itself politically, using diversion and pretending it too is concerned about the excesses of the banks, to respond to  a deep sense of betrayal, by the government’s failure to date to take any significant action.

It is even talking about imposing more regulation and accountability measures.

Leaked documents, which include agenda papers from several Australian Bankers Association meetings and a new battle plan drawn up in April, by the Australian Bankers Association’s (ABA) public relations consultants, Newgate, highlight an acute awareness inside the sector about its image problem and frustration at being unable to combat it.

An ABA council agenda warned in December that there were two scenarios the industry faced in the “coming months and years”.

The first was “death by a thousand cuts from the current government, which has made it clear that, so long as banks remain a political issue, it will continue to make new announcements against the banks, including imposing new regulations and making further demands for banks to fund government initiatives”.

This refers to the extra powers and resources granted to the regulators in 2016 for which the banks were made to pay.

The second scenario was “a royal commission initiated by a Labor government”.

“The ABA’s assessment is that there is an 80 per cent chance of a royal commission into the industry in the next two to three years,” the ABA agenda says.

“The two scenarios are not mutually exclusive and both could play out.”

It says the banking industry’s political problems were being “compounded by a growing reaction in Australia against big business and those seen to profit from a political and economic system that many Australians feel does not benefit them.”

The papers detail that the ABA had already spent $2.6 million on a six-point plan launched in April 2016 designed to protect consumer interests, increase transparency and accountability, and build trust and confidence in banks.

The December agenda  confirms a six-point plan to convince Australians that the banks were taking measures to protect consumer interests, increase transparency and accountability and build public trust and confidence in the banks had fizzled.

So, it was decided in January 2017 to add another three measures and then launch a Better Banking campaign, which, at the cost of a further $3 million, aimed to “educate key stakeholders about industry-led initiatives to deliver better products, services and culture with the banks”.

In April this year the ABA spent another $1.25 million for Newgate to develop a 14-point plan, which was to guide the new ABA chief executive, the former Queensland Labor premier Anna Bligh.

Despite the new measures, Newgate warned that “there is a lot of evidence that political momentum will continue to build against the industry” and for significant remedial action following the conclusion of “numerous parliamentary committees “. The banks have been told to expect hardening political rhetoric against them.

The ABA has also commissioned former ASIC executive general manager Phil Khoury to conduct a review of the Code of Banking Practice, which sets standards of good conduct for banks, and commissioned former Public Service commissioner Stephen Sedgwick, to conduct a review of commissions and payments made to bank staff and third parties. They have also appointed customer advocates to help when things go wrong.

They are worried and have good reason to be. Australia will continue to demand action to clean up the operations of the banks until it becomes a reality.


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Property crash fears downgrade Australian banks

By Joe Montero

Fears of an Australian crash in property prices have been around for quite a while.  Regardless, property prices have continued to rise.

But in the last month or so, they have stabilised and even gone down a bit in Melbourne and Sydney, the two places that are at the heart of the price bubble. Nevertheless, they are not crashing, as they have in some other countries.

The reason for this is that Australia has some unique factors that makes our housing bubble a special case.

Because of the existence of a generous negative gearing provision, housing stock has been turned into an attractive investment option, not so much for the home buyer, but for the corporate buyer seeking a higher return in a lack lustre investing environment.  Consequently, it is not those buying a home to live in that are keeping up the price. It is the corporate investor, able to do this, thanks to the generous handout of taxpayers’ money,on the basis of recompense for loss of potential rental income. This is guaranteed to keep up the price. And it has gone up by 250 percent since the 1990’s (OECD figures)

A second consequence of negative gearing is that for the corporate investor with a large stock, it is more profitable to take the property out of the rental market. This is why Australia’s two biggest cities have about 80,000 vacant residential properties each. This is replicated proportionally around the country, creating an artificial shortage that pushes rents up. This also buoys up property prices.

corporate investors also enjoy write offs on the Capital Gains Tax.

Buying residential property has become an attractive proposition in its own right and it is useful as a means to transfer funds from other business activities to minimise company and personal tax obligations.

A further factor is the nature of Australia’s financial market. It is heavily dependent on investment from overseas. This means that it reacts to changes in the global financial market and the national financial markets from which this investment comes from. The two main ones are the United States and Great Britain.

If the investment climate in these countries worsens, investment funds will turn up in Australia, which tends to run on opposite short and medium term cycles. Some of it turns up in the housing market. The greatest part of corporate investment in Australian housing property comes via companies registered in Singapore, but using funds that traditionally mostly originate from Great Britain. Some up to date research is needed on this. Nevertheless, enough is known to see the pattern.

Investment in assets that come with the guarantee of government payouts is attractive to foreign investors in an uncertain global market and an Australia that for now is relatively stable.

Without these factors coming into play, it is doubtful that property prices would have kept on rising for so long. It still will not last forever, because there is one inescapable fact. Sooner or later, the price becomes too high for too many people to afford and the market will start to cave in. We are close to this point, and this is why it is starting to get a little shaky.

Enough for the ratings agency Standard and Poores to downgrade Australia’s financial sector, because of a belief that “economic imbalances” caused by soaring private-sector debt and property prices, are leading to a potential precipice.

“Consequently, we believe financial institutions operating in Australia now face an increased risk of a sharp correction in property prices and, if that were to occur, a significant rise in credit losses,” the agency wrote.

High housing costs is the major reason why Australia’s personal debt level is the highest in the world. This is not sustainable. The longer the property bubble continues, the large the level of personal debt and this suggests that a crash could be in the making.

The Standard and Poores downgrade follows a March report by OECD warning that soaring house prices and ever-rising household debt had exposed the Australian economy to “extreme vulnerability”.

The rating downgrades applied to 23 financial institutions, including AMP, Bank of Queensland, and the Bendigo and Adelaide Bank.

The notable exceptions were the ‘Big Four’ (AA-) and Macquarie (AA), which kept their ratings, but only because the agency presumed they would be bailed out by the government in the event of any catastrophe.

The financial institutions are on the one hand heavily exposed to risk with the level of debt tied up to housing loans. They are even more exposed with the level of debt owed overseas.  The collapse of the real estate bubble could place their ongoing survival at risk.

As defaults multiply, This would mean the spread of the crisis through the whole economy.

Bernie Fraser and John Edwards say increase taxes on wealthy

 The following from Elysse Morgan (ABC 17 May 2017) shows just how widespread has become the rejection of increasing the income of those at the top, at the cost of those lower down, as the means to economic recovery has become. When people with backgrounds like Bernie Fraser and John Edwards feel compelled to speak out, there may just be something in it. They go so far as to support increasing taxes for the rich.
Financial heavyweights Bernie Fraser and John Edwards are united in calling on the Government to increase taxes if it wants to balance the budget.

Both believe there are flaws in Treasurer Scott Morrison’s assumptions of a surplus by 2021 and say some radical changes are needed to address future spending.

Taxing the rich more and hitting all Australians with the Medicare levy is the only reliable way the Federal Government will reach its surplus goal, according to Dr Edwards, former Reserve Bank board member and leading economist.

He also welcomed Opposition Leader Bill Shorten’s plan to take the tax rate for those earning more than $180,000 to 49.5 per cent permanently, an idea slammed by Dr Edwards’ former boss Paul Keating, who labelled it a punitive tax gouge.

“I don’t think a change of 2 cents in the dollar on very high incomes is going to make quite that much difference,” Dr Edwards told The Business.

The bank levy does not trouble him and he praised the Government’s “courage to recognise we need tax increases”.

“I think they should scrap the corporate tax cut as well and we’d get to surplus a little more reliably and little more rapidly,” he said.

It is on the bank levy that the two men part.

“It looks like a populist policy based essentially on the unpopularity of the banks and it’s an easy target for the Government to raise revenue,” Mr Fraser, a former RBA governor, said.

“It won’t hurt the economy in any obvious way but it won’t lead to a sustainable society that politicians talk about wanting, a more prosperous and fair society.”

When put to him that the Government believed it was fair the banks should pay a levy particularly given the taxpayer support they receive, Mr Fraser suggested the tax should be across the board.

“If Scott Morrison believes it is OK to chase big profits, then it should also look to pharmaceutical, mining, technology companies to name a few,” he said.

“If there is this kind of capacity there that the Treasurer thinks that there is in the banks [to pay more tax] then it is elsewhere, and a fair tax would not be discriminatory on the unpopularity of the banks but would actually pursue [them all].”

He suggests a progressive company tax, similar to the income tax system, where the more a business earned the more it paid.

“It’s at least worth thinking about, we already have two rates of tax for business based on turnover,” he said.

He backed former Treasury boss and now NAB chairman Ken Henry’s calls for an inquiry into the bank levy, if the reports that the Government did not consult with industry or regulators were true.

“If there hasn’t been appropriate consultation, that’s a no, if the Government wants to make significant changes to taxation, if they don’t consult adequately with all the stakeholders before they determine what they are going to do … that is a serious mistake and governments run a real risk in getting things wrong,” he said.

Mr Fraser dismissed the argument the levy would even up the playing field for smaller banks, saying that would only happen if the big banks increased their lending rates dramatically as a result, which he did not believe would happen.

The temptation for future governments to raise the bank levy to plug budget holes would be too great to resist, Mr Fraser said, because there was nothing to stop them.

“There is no clear coherent framework for determining budgets, for determining government spending and revenue measures, and that’s the problem — everything is ad hoc, in large part driven by ideologies and lobbyists,” he said.


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