“The various forward-looking indicators point to continued growth in employment over the period ahead,” said Philip Lowe, the bank’s governor.
“Wage growth remains low, however, and this is likely to continue for a while yet. Inflation is expected to increase gradually as the economy strengthens.”
Housing debt remains a major concern for the RBA. “Growth in housing debt has outpaced the slow growth in household incomes,” the bank stated. “The recent supervisory measures should help address the risks associated with high and rising levels of household indebtedness.”
However, there are some positive outlooks. “In some other markets, prices are declining. In the eastern capital cities, a considerable additional supply of apartments is scheduled to come on stream over the next couple of years. Rent increases are the slowest for two decades.”
Australia’s businesses reported strong conditions despite declining confidence, the National Australia Bank’s (NAB) May business survey found.
The survey, containing responses from more than 400 firms, showed a slight ease in conditions – encompassing trading, profitability and employment – with one index point decline to +12. The drop was attributed to the sluggish construction, finance, property and business services. Despite the fall, it is still well above the average of +5.
“The business sector is looking quite upbeat, maintaining the apparent disconnect with a rather melancholy household sector,” said Alan Oster, chief economist at the NAB. “It is good to see that the strength has been quite broad-based, and even at the state level we have seen some significant improvements in Western Australia, which signals that the worst of the mining sector drag is probably behind us.”
Oster also predicted improvements in profitability and employment. “Profitability has remained elevated for some time now, backed up by solid profit outcomes in the first quarter National Accounts,” Oster said.
“Similarly, the current level of employment conditions is consistent with the recent improvements in ABS employment growth. That has helped to close the previous departure between the NAB and ABS measures of employment, while the NAB index suggests that we can expect more solid employment growth to continue over coming months.”
However, the survey also found a fall in confidence from +13 to +7, two points above the long-run average.
“The wedge between confidence and conditions is likely a reflection of the heightened uncertainty around the outlook, although the degree to which this reflects global versus domestic factors is difficult to gauge,” the bank said.
The bank said economic growth is expected to rise for the second half of the year, but the longer term outlook may not be as positive. “Significant structural headwinds still pose a hurdle that will prove difficult to overcome, keeping wages growth subdued and consumers cautious with their spending,” said Oster.
“The longer-term outlook could be less sanguine as important growth drivers (LNG exports, commodity prices and housing construction) begin to fade.”
The Sunday penalty rate cuts will be phased in over the next four years in a move that angered both employers and unions.
The Fair Work Commission ruled that the reductions to existing penalty rates for fast food, hospitality, retail and pharmacy employees will not take full implementation until 2019-2020.
Fast food and hospitality workers will have Sunday penalty rates cut by 5 per cent next month, and 10 per cent in 2018 and 2019. Their final penalty rate cuts will be 125 per cent and 150 per cent respectively.
Retail and pharmacy workers will take a 5 per cent cut this year, and a further 15 per cent every year until 2020. Their penalty rate cuts will be reduced from 200 per cent to 150 per cent.
Unions argue that the pay cut would devastate workers who sacrificed their weekends to earn money. “I think no matter which way you dress it up, you’re facing pay cuts every single year,” said Australian Council of Trade Unions secretary Sally McManus. “Australian workers are already suffering as a result of stagnant wage growth… They can’t afford a $1.42 billion wage cut.”
On the other hand, employers believe the reductions should be phased in two years instead of four. “Retailers need a break and they need it now,” said National Retail Association chief Dominique Lamb.
Russell Zimmerman, head of the Australian Retailers’ Association, also said the long phase-in period prevents businesses from employing more staff. “What this will do is create an incredible amount of extra work for retailers, who won’t be able to employ more people as quickly as they would like,” he said.
Employment Minister Michaelia Cash said the decision showed the commission’s impartiality. “Nobody got exactly what they wanted. The unions wanted it set aside, employer groups wanted a speedier transition process,” Cash said. “What this does now is give certainty.”
Nevertheless, Cash insisted that the cuts are helpful for small business while impacting only three to four per cent of Australia’s workforce. “The adjustments to Sunday penalty rates will even the playing field for Australia’s small businesses, which have to pay more for staff on Sundays than big businesses who do deals with big unions,” Cash said. “This will help thousands of small businesses open their doors, serve customers and create jobs on Sundays.”
The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9:35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email.
Look, we just need to keep in mind that we have one of the highest progressive tax rates in the developed world at the moment. – Innes Willox, chief executive of the Australian Industry Group, speaking on Q&A, May 15, 2017.
When Q&A host Tony Jones asked if wealthy people should pay more tax, the AiGroup’s Innes Willox said that Australia already has one of the highest progressive tax rates in the developed world.
Is that true?
Checking the source
When asked for sources to support Innes Willox’s statement, a spokesman for the AiGroup clarified that Willox was referring to top marginal tax rates.
The spokesman referred The Conversation to OECD tax statistics, and two charts built using that data, saying that:
This shows that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).
You can read his full response and see those charts here.
Is it true? Not exactly
Looking at OECD data, Australia’s highest marginal tax rate is higher than the OECD median. Out of the 34 OECD member countries in this data set, Australia ranks 13th for the top marginal rate of tax, meaning 12 countries have a higher top marginal rate, and 21 countries have a lower top marginal rate.
However, a straight comparison like this can be misleading. More than half (19) of the OECD countries impose “social security contributions”. The OECD defines social security contributions as “compulsory payments that confer an entitlement to receive a (contingent) future social benefit”. It notes that they “clearly resemble taxes” and “better comparability between countries is obtained by treating social security contributions as taxes”.
When social security contributions are taken into account, Australia’s “ranking” in terms of top marginal rate of tax drops to 16 out of the 34 OECD member countries – making it still higher than the OECD median top marginal rate, but not by much.
The other point noted by the AiGroup spokesman was that Australia’s top marginal tax rate applies at a relatively low level of income compared to most other OECD countries.
Australia’s highest marginal tax rate applies to taxable income above A$180,000, approximately 2.2 times Australia’s average wage. The AiGroup spokesman was right to say this is relatively low, with the majority of OECD countries (20 out of 34) applying their highest marginal tax rate at income levels higher than Australia (that is, at income levels higher than 2.2 times the average wage).
Where Australia does rank amongst the highest in the OECD is the percentage of total tax revenue that is derived from individual income taxation.
In 2014, 41% of Australia’s taxation revenue came from income taxation on individuals. This is the second highest in the OECD (the highest being Denmark at 54%) and significantly higher than the OECD average of 24%.
The statement made by Innes Willox that “Australia has one of the highest progressive tax rates in the developed world at the moment” is an exaggeration.
Australia ranks 13th in the OECD for the top marginal rate of tax, and 16th if social security contributions are taken into account.
However, Australia does rely more heavily on personal income tax (when compared to other taxes) than all but one other OECD country. – Kathrin Bain
I agree that the statement is an exaggeration. 13th out of 34 is higher than the median, but it would be equally true to say that more than one-third of the OECD countries have a higher personal marginal tax rate than Australia.
It is always problematic to try to compare tax data across different countries. Although the OECD does try to make the data comparable the differences between tax and welfare systems can lead to misleading comparisons.
It is generally well known that certain Scandinavian countries, such as Sweden and Denmark, have a very high marginal tax rate. However those countries also tend to have a different approach to social and welfare spending. Australia does not have a dedicated social security tax: pensions and income support are paid from general revenue. This structural difference in the tax-transfer systems does limit the comparison.
Australia does have a high reliance on personal income tax, and the top marginal rate is higher than the median OECD level. Although the top marginal rate is relatively low at 2.2 times the median wage, the fact that only 3% of the population are in the top bracket says that we, in fact, have a relatively flat tax structure, with most taxpayers in lower tax brackets. – Helen Hodgson
Increasing house prices in Australia are putting pressures on renters as rental affordability in Sydney reached a record low.
The latest report from Rental Affordability Index found that despite the stability in some parts of the country, low- and moderate-income households are still largely priced out of all metro markets.
Sydney and Hobart are found to be the most expensive cities for renters while Melbourne and Perth are the most affordable. Sydney renters spend an average of 29 per cent of their household income on accommodation, while those in Hobart spend 28 per cent.
Per cent of household income
-3.8 per cent
-5.4 per cent
-0.7 per cent
-0.3 per cent
-0.1 per cent
+6.2 per cent
Source: National Shelter, Community Sector Banking, SGS Economics and Planning
“Lots of frustrated renters can’t get into home ownership and they stay in the rental market,” said Adrian Pisarski, executive officer at Australia’s peak housing body National Shelter.
“Those people tend to rent down as low as they can so they can save a deposit to meet the gap in terms of housing purchase, and what that does is displaces lower income households in the rental market.”
The index found that despite the negative conclusions, rental affordability has remained stable in most parts of Australia.
“What we found overall nationally is that rental affordability has not improved, it hasn’t declined overall either, except in Sydney and Hobart, where it is worse than it was six months ago,” Pisarski said.
“For most of the rest of the country [it] is pretty stable, but having said that, rental affordability is very bad across the nation.”
Tenants NSW senior policy officer Ned Crutcher said renters, who made up one-third of households in the state, were largely ignored by the government. “Rents are going up and wages are not. On top of that, renters have very little security of tenancy – they can be kicked out at any time,” he said. “This stuff keeps people awake at night.”
Chinese investment in Australia has reached a record high since the Global Financial Crisis to $15.4 billion, a report found.
A record 103 deals were signed with Chinese companies in 2016, according to the report “Demystifying Chinese Investment in Australia” from the University of Sydney and KPMG.
Commercial real estate accounted for 36 per cent of Chinese direct investment, followed by infrastructure with 28 per cent and a record amount of $4.34 billion thanks to the purchase of stakes in Asciano and the Port of Melbourne. In agribusiness, there were 12 deals with a record of $1.2 billion invested, threefold of the 2015 amount.
Despite the high record, report co-author Professor Hans Hendrischke from the University of Sydney Business School said investment from China is slowing down.
“Australia has proven itself to be a preferred destination for Chinese capital, but we must be cognisant that the growth in investment is slowing compared to other parts of the world such as the United States and the EU,” Hendrischke told ABC.
The report found that Australia is the second biggest destination of new Chinese investment with a total of $US90 billion ($120 billion) since 2007, losing only to the US with over $US100 billion.
The Australian housing prices boom has reached its peak, investment bank UBS said.
“After housing activity rose consecutively for over four years, its longest ever boom, we are now calling the top and think that housing activity has already peaked,” UBS economists Scott Haslem, George Tharenou and Jim Xu wrote in a note.
“Mortgage rates are rising, and sentiment of home buying collapsed to a [near] record low… Hence, we are ‘calling the top’, but stick to our forecasts for [dwelling construction] commencements to ‘correct but not collapse’ to 200,000 in 2017 and 180,000 in 2018.”
National house price growth is currently at 13 per cent, the highest in seven years, but UBS expected the growth to fall to 7 per cent this year, and 0-3 per cent next year. “We see a moderation ahead amid record supply and poor affordability, with the new buyer mortgage repayment share of income spiking to a decade high,” UBS said.
While house prices will still be out of reach from first home buyers, the bank said more rental options will be available following completion of units this year, allowing rents to rise more slowly than incomes.
The bank also warned that while the risks for housing slump are low, considering strong population growth and stable employment, the country’s record household debt and high housing prices could still cause trouble.
Shares in Unilever have slumped by 7 per cent after Kraft Heinz withdrew its takeover bid of $US143 billion.
Kraft sought to buy Unilever, merging the two companies into a global consumer goods giant. However, a joint statement released on Sunday revealed that Kraft had “amicably agreed” to pull its offer.
Unilever’s London-listed shares, which rose by 13 per cent to set a record high when the bid was announced on Friday, were down 8 per cent after the withdrawal, while its Dutch-listed shares fell 7 per cent.
Despite the fall in stock prices, analysts and shareholders believed it was unlikely for Unilever to discuss another takeover deal. “A takeover at a later stage seems unlikely to me as Unilever will build their defense and sharpen their focus on profitability,” a major Unilever stockholder told Reuters.
Raphael Moreau, food analyst at Euromonitor said it was unlikely that any other company would be able to handle the acquisition of a company as big as Unilever. “Maybe they realised the price would have been too high to be feasible or that the corporate culture would be too different or too much of a hurdle and that created a long and convoluted process that would ultimately damage both companies,” said Moreau.
Prime Minister Malcolm Turnbull said while US’ withdrawal represented a “big loss”, the deal should not be abandoned.
“It is possible that US policy could change over time on this, as it has done on other trade deals,” Turnbull said. “There is also the opportunity for the TPP to proceed without the United States. I’ve had active discussions with other leaders as recently as last night.”
Turnbull also said Japanese Prime Minister Shinzo Abe, whose country was the only one to have ratified the deal to date, reiterated his commitment to the deal through a phone call on Monday.
Trade Minister Steve Ciobo said he had reached out to fellow signatories. “I’ve had conversations with Canada, with Mexico, with Japan, with New Zealand, with Singapore, Malaysia,” Ciobo told the ABC on Monday. “So there’s quite a number of countries that have an interest in looking to see if we can make a TPP 12 minus one work.”
Ciobo also said the deal had been designed to enable other countries to join.
“Certainly I know that Indonesia has expressed a possible interest and there would be scope for China if we were able to reformulate it to be a TPP 12 minus one for countries like Indonesia or China or indeed other countries to consider joining and to join in order to get the benefits that flow as a consequence.”
Housing investment in New South Wales continues to grow as current levels are getting close to record highs, new Australian Bureau Statistics reports revealed.
Latest ABS data found that the value of residential lending in the state reached $7.19 billion in November 2016, the highest on record for the year and a significant 25.5 per cent increase from the previous month’s $5.7 billion.
The November value was also the second highest on record for NSW, with the highest being $7.36 billion in June 2015.
Investor loans constituted 56.7 per cent of all approved residential lending in NSW over the month, making it the highest market share nationally, followed by Victoria’s 45 per cent.
NSW’s residential investor lending represented 56.1 per cent of all approved lending in Australia in November. “This is clearly a record result, eclipsing the previous high of 48.8 per cent reported over March 2016,” said Andrew Wilson, chief economist at Domain Group.
“The strong Sydney market remains a magnet for investors with demand set to continue to rise attracted by continuing solid price growth and a tight rental market with rising rents consolidating gross yields.”
Wilson expected the NSW market to continue its growth, prompted by the possibility of better investment property taxes and rate cuts after 2015’s hike in mortgage rates.
“Residential investors have stormed back into the market since May 2016 driven by the prospect of possible changes to the tax treatment of investment property and interest rate cuts,” said Wilson.
“NSW generally and Sydney specifically remain the epicentre for what has re-emerged as unprecedented activity from this group.”
Cameron Kusher, head of research at CoreLogic said while NSW and Victoria might seem promising, investors should be mindful of the long-term risks.
“It’s clear that demand for mortgages from the investor segment is picking up, particularly in New South Wales and Victoria, which are proxies for Sydney and Melbourne respectively,” said Kusher. However, he added that investors should also think about the risks from long-term value growth phase as well as the historically low rental earnings.