BlackFire Finance

Human behavior flows from three main sources: desire, emotion, and knowledge.
Plato

Welcome to Blackfire Finance, dedicated to Finance, Money, Business and Most Importantly Knowledge

Aussie Wage Inequality Rising – Are We the Next America?

Well this is a somewhat concerning thought; with the growing wage inequality (read: absolute struggle) it looks like we’re on track to developing a similar unhealthy work culture we see form America. ‘What is that culture?’ you may ask? Well in America there is a constant struggle with employers demanding longer hours for lower wages and diminishing job security, meaning that company A will demand that person A work longer hours with no over time pay and maybe time in lieu (but that’s only because the company loses a normal rate of pay instead of increased over time/weekend pay). Person A is reluctant to refuse the unfair offer because they know that all the recent job cuts mean that there are plenty of more desperate people who are willing to take their place despite the unfair agreement.

 

You would have heard about the government reducing the amount of weekend pay that employees in certain sectors get and this could very well be just the beginning. Bill Shorten himself said that the direction that this economy is going is not at all in our favour.

 

So in a climate where the poor struggle more and still get poorer, while the rich get away with less tax and get richer, what are we to do? Can we do anything? Will we soon see the day where hospitality workers are paid $3-$10 an hour and must scrounge to hell and back to get enough tips so that they don’t lose money? I mean… we’re already seeing the rich benefit from the ability to live and work in better areas with better jobs, while the more disadvantaged spend more on travelling to work, get paid less to do their job and are more likely to live in worst conditions and more dangerous neighbourhoods.

Australia’s Housing Crisis to Continue for Another 40 Years, Report Finds

Australia’s housing crisis could last for another 40 years unless changes are made to the market, a report by the Committee for Economic Development of Australia (CEDA) found.

CEDA said housing affordability is unlikely to improve for the foreseeable future, especially in capital cities. “Barring any major economic jolts, demand pressures are likely to continue over the next 40 years and supply constraints will continue,” said CEDA.

The report said the current structure of land release discourages house developers from getting more supply in the market, leading to increasing numbers of Australians retiring without owning a property.

The committee said changes are needed now at all government levels to avoid longer-term consequences. It made eight recommendations to ease the demand, including providing stronger legal protection for tenants, replacing stamp duty with land-based taxation, increasing capital gains tax and relaxing house planning restrictions.

CEDA research and policy committee chairman Rodney Maddock emphasised the latter, saying the government needs to allow more and bigger residential buildings to be built.

“We’ve got a free market on the demand side but all sorts of restrictions on the supply side,” said Maddock.

“Overall, the conclusion must be that our housing system has been designed – inadvertently, of course – to supply new additions at a lesser rate than needed to keep housing prices and affordability within acceptable limits,” said CEDA.

Climate Change Is A Financial Risk, According to A Lawsuit Against the CBA

Anita Foerster, University of Melbourne and Jacqueline Peel, University of Melbourne

The Commonwealth Bank of Australia has been in the headlines lately for all the wrong reasons. Beyond money-laundering allegations and the announcement that CEO Ian Narev will retire early, the CBA is now also being sued in the Australian Federal Court for misleading shareholders over the risks climate change poses to their business interests.

This case is the first in the world to pursue a bank over failing to report climate change risks. However, it’s building on a trend of similar actions against energy companies in the United States and United Kingdom.


Read more: Why badly behaving bankers will never fear jail time


The CBA case was filed on August 8, 2017 by advocacy group Environmental Justice Australia on behalf of two longstanding Commonwealth Bank shareholders. The case argues that climate change creates material financial risks to the bank, its business and customers, and they failed in their duty to disclose those risks to investors.

This represents an important shift. Conventionally, climate change has been treated by reporting companies merely as a matter of corporate social responsibility; now it’s affecting the financial bottom line.

What do banks need to disclose?

When banks invest in projects or lend money to businesses, they have an obligation to investigate and report to shareholders potential problems that may prevent financial success. (Opening a resort in a war zone, for example, is not an attractive proposition.)

However, banks may now have to take into account the risks posed by climate change. Australia’s top four banks are heavily involved in fossil-fuel intensive projects, but as the world moves towards renewable energy those projects may begin to look dubious.


Read more: How companies are getting smart about climate change


As the G20’s Taskforce on Climate-Related Financial Disclosures recently reported, climate risks can be physical (for instance, when extreme weather events affect property or business operations) or transition risks (the effect of new laws and policies designed to mitigate climate change, or market changes as economies transition to renewable and low-emission technology).

For example, restrictions on coal mining may result in these assets being “stranded,” meaning they become liabilities rather than assets on company balance sheets. Similarly, the rise of renewable energy may reduce the life span, and consequently the value, of conventional power generation assets.

Companies who rely on the exploitation of fossil fuels face increasing transition risks. So too do the banks that lend money to, and invest in, these projects. It is these types of risks that are at issue in the case against CBA.

What did the CBA know about climate risk?

The claim filed by the CBA shareholders alleges the bank has contravened two central provisions of the Corporations Act 2001:

  • companies must include a financial report within the annual report which gives a “true and fair” view of its financial position and performance, and
  • companies must include a director’s report that allows shareholders to make an “informed assessment” of the company’s operations, financial position, business strategies and prospects.

The shareholders argue that the CBA knew – or ought to have known – that climate-related risks could seriously disrupt the bank’s performance. Therefore, investors should have been told the CBA’s strategies for managing those risks so they could make an informed decision about their investment.


Read more: We need a Royal Commission into the banks


The claim also zeros in on the lengthy speculation over whether the CBA would finance the controversial Adani Carmichael coal mine in Queensland. (The bank has since ruled out financing the mine.) The shareholders assert that the resulting “controversy and concern” was a major risk to the CBA’s business.

Global litigation trends

While the CBA case represents the first time worldwide that a financial institution has been sued for misleading disclosure of climate risk, the litigation builds on a broader global trend. There have been a number of recent legal actions in the United States, seeking to enforce corporate risk disclosure obligations in relation to climate change:

Energy giant Exxon Mobile is currently under investigation by the Attorneys General of New York and California over the company’s disclosure practices. At the same time, an ongoing shareholder class action alleges that Exxon Mobile failed to disclose internal reports about the risks climate change posed to their oil and gas reserves, and valued those assets artificially high.

Similar pathways are being pursued in the UK, where regulatory complaints have been made about the failure of major oil and gas companies SOCO International and Cairn Energy to disclose climate-related risks, as required by law.

In this context, the CBA case represents a widening of litigation options to include banks, as well as energy companies. It is also the first attempt in Australia to use the courts to clarify how public listed companies should disclose climate risks in their annual reports.

Potential for more litigation

This global trend suggests more companies are likely to face these kinds of lawsuits in the future. Eminent barrister Noel Hutley noted in October 2016 that many prominent Australian companies, including banks that lend to major fossil fuel businesses, are not adequately disclosing climate change risks.

The ConversationHutley predicted that it’s likely only a matter of time before we see a company director sued for failing to perceive or react to a forseeable climate-related risk. The CBA case is the first step towards such litigation.

Anita Foerster, Senior Research Fellow, University of Melbourne and Jacqueline Peel, Professor of Environmental and Climate Law, University of Melbourne

This article was originally published on The Conversation. Read the original article.

Australians Increasingly Under Financial Stress, Report Finds

Concerns over rising costs of necessities, stagnant income growth and prospects of increased loan rates are stressing Australian households, a survey has found.

The latest ME Household Financial Comfort Report, which surveyed 1,500 Australian households, revealed that concerns over budget balancing are increasing, as 51 per cent are found to have no spare cash at the end of each month. Rising costs of groceries, fuel and utilities have been blamed, along with weak salary growth and rising underemployment.

“Australian households are under financial stress,” said ME Bank consulting economist Jeff Oughton to ABC’s AM. “They’re concerned about the rising cost of bills but also there are income woes, interest rates are starting to rise and there’s mortgage and rental stress.”

While the unemployment rate has gone down, underemployment is still strong, with 27 per cent of casual and part-time workers saying they were eager to increase their hours.

Furthermore, 68 per cent of the respondents reported wage fall or stagnation in the past 12 months, and 40 per cent of households in debt are becoming less confident about their ability to repay their mortgage.

RBA’s eventual plan to lift the cash rate is also expected to worsen this burden on Australians “as it will impact monthly cash flows, ability to pay off debts, save and spend”, Oughton said. “It will bite into those young couples with children, single parents and also generation X-ers who are concerned about the impact on their monthly cash flows from rising rates.”

IMF Downgrades US Economy Forecast

The International Monetary Fund has downgraded its growth forecast for the US’ economic growth on concerns over Donald Trump presidency’s ability to make policy changes.

The IMF revised down its US gross domestic product growth predictions from 2.3 per cent to 2.1 per cent, while its global economic forecast remains unchanged at 3.5 per cent growth in 2017 and 3.6 per cent in 2018.

The organization said it downgraded US forecast based on “the assumption that fiscal policy will be less expansionary than previously assumed, given the uncertainty about the timing and nature of US fiscal policy changes”.

President Trump came into office after promising increased infrastructure spending and limited taxes and regulations. However, these policies has remained stalled as the administration focuses on other matters such as healthcare regulation and disagreement within the Republican party.

The IMF also downgraded growth forecast for the UK from 2 per cent to 1.7 per cent, due to “weaker-than-expected activity” for the first three months of 2017 following Brexit.

China’s Economic Growth Beats Expectations

China’s economy has grown faster than expected in the second quarter, thanks to robust exports and strong domestic consumption.

The country’s gross domestic product maintained its 6.9 per cent annual growth rate from the first quarter, according to the data from the National Bureau of Statistics released Monday. It outpaced analysts’ forecast of 6.8 per cent, and helped the country on its track to 6.5 per cent growth target in 2017.

Solid production output and exports along with increasing retail sales helped drive the growth, according to a Reuters calculation.

“Overall, the economy continued to show steady progress in the first half … but international instability and uncertainties are still relatively large, and the domestic long-term buildup of structural imbalances remain,” the Bureau said in a statement.

Australians Are Working Longer So They Can Pay Off Their Mortgage Debt

Rachel Ong, Curtin University; Gavin Wood, RMIT University; Kadir Atalay, University of Sydney, and Melek Cigdem-Bayram, RMIT University

Rising mortgage debt is affecting everything from employment to spending, as Australians approach retirement, our study finds. Higher levels of housing debt among pre-retirees are linked to them working for longer.

We found for a home owner aged 45-64 years, the chances of being employed are around 40% higher for every additional A$100,000 in mortgage debt owed against the family home.

There’s also a link between house price changes and household spending. For every A$100,000 increase in the value of a person’s house, annual household spending of home owners increased by around A$1,500. These home owners are willing to increase their spending because they’re able to borrow more against their home to finance it.

Long-run trends in mortgage debt

Australians are paying down their mortgages later in life. The percentage of home owners aged 25 years or over who are carrying a mortgage debt climbed from 42% to 56% between 1990 and 2013.

Mortgage debt burdens among pre-retirees have soared. For home owners aged 45-54 years, the incidence of mortgage debt has nearly doubled from 36% to 71%. Among those aged 55-64 years, this incidence has more than tripled from 14% to 44%.

These trends reflect at least two things. Higher housing cost burdens have resulted in a decline in home ownership rates among young people. Those able to access home ownership are doing so later in life and by taking on higher levels of debt relative to their incomes.

Flexible mortgage products also now allow home owners to unlock wealth stored in the family home whenever required, and not just their retirement years.

Higher mortgage debts, longer working lives

Australians are working longer because they are paying down their mortgages later in life.

Our modelling, based on the 2001-2010 Household, Income and Labour Dynamics in Australia (HILDA) survey data, shows that pre-retirees aged 55-64 years are 18% more likely to continue working for every A$100,000 increase in their mortgage debt.

On the one hand, unexpected increases in housing prices could have caused buyers considering home ownership to borrow more in order to buy a house, and encouraged homeowners to spend more by withdrawing the equity from their homes. These mortgagors then have to extend their working lives to meet higher mortgage repayments.

On the other hand, longer life expectancy may have encouraged many Australians to plan longer working lives. Carrying higher levels of mortgage debt later in life could be a financial tactic to finance their spending over a longer lifespan.

Borrowing more, spending more?

Our analysis found some differences between subgroups of home owners and between periods preceding and following the global financial crisis.

Before the global financial crisis highly indebted home buyers were more prepared to use their mortgages in order to bridge the gap between spending plans and income. After the crisis, home buyers with large mortgages were less willing to use their mortgages in this way.

In contrast, the spending plans of indebted households who both own their home and a second investment property seem more sensitive to house price movements since the global financial crisis. Property investors with mortgage debt increased their average yearly spending after the crisis from A$1,700 to over A$2,800 for every A$100,000 increase in their housing wealth.

On the other hand, for home owners with no investment properties, average yearly spending tightened from A$1,700 to A$1,500 for every A$100,000 increase in their housing wealth. This suggests investors with debt are not so risk-averse as other homeowners.

Housing, productivity and the economy

Mortgage debts have important economy-wide effects through interactions with labour markets and consumer spending.

Ageing is often associated with lower rates of labour force participation and declining physical and mental health, which can result in reduced productivity growth. If people are extending their working lives to repay higher mortgage debt, this could mitigate some of the productivity consequences of population ageing, albeit at the expense of greater exposure to debt in later life.

When real house values are rising, home owners and property investors are able to borrow more against their home to finance their spending. In the short run this can help offset the effect of stagnant wages (on their spending) and thereby sustain growth momentum in the economy.

But if wages fail to pick up, these higher levels of debt can be a drag on growth. High levels of indebtedness also increase exposure to house price and interest rate risk, and pose a threat to macroeconomic stability.

The ConversationOur research makes a compelling case for considering housing differently, as essential economic infrastructure. Housing needs to be re-positioned from the periphery to a central place within national economic policy debates. This could be crucial to an understanding of how our housing system can promote rather than curb economic growth in Australia.

Rachel Ong, Deputy Director, Bankwest Curtin Economics Centre, Curtin University; Gavin Wood, Emeritus Professor of Housing and Housing Studies, RMIT University; Kadir Atalay, Senior Lecturer in Economics, University of Sydney, and Melek Cigdem-Bayram, Research Fellow, RMIT University

This article was originally published on The Conversation. Read the original article.

News: Reserve Bank Puts Interest Rates On Hold at 1.5 Per Cent

The Reserve Bank has left the official interest rates on hold at a record low of 1.5 per cent.

The bank board last changed the rates in August, cutting them by 25 basis points.

While business investment and employment numbers have improved, the bank board still maintained its conservative approach to rate setting.

“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.”

News: Labor Vows to Reverse Penalty Rate Cuts

Opposition Leader Bill Shorten has pledged to reverse the cuts to Sunday penalty rates if Labor wins the upcoming election.

Cuts to weekend penalty rates for workers in retail, hospitality and fast food industry will be applied starting July 1, under a decision by the Fair Work Commission.

“I promise you this: a new Labor government will restore the Sunday penalty rates of every single worker affected by this cut,” Shorten said at an address to the Australian Council of Trade Unions in Sydney Tuesday night.

Labor’s bill to block the cuts was voted down 73 to 72 in Parliament in June.

Labor employment spokesperson Brendan O’Connor said the party will continue to fight against the cuts when parliament resumes in August.

Earlier this month, Employment Minister Michaelia Cash accused Shorten of hypocrisy on the matter.

“Bill Shorten has no problem with reducing penalty rates when he himself does it, and when his union mates do it in deals with big businesses,” said Cash. “He only objects when an independent umpire does the same thing for small business.”

‘The Way They Manipulate People is Really Saddening’: Study Shows the Trade-Offs in Gig Work

Sarah Kaine, University of Technology Sydney; Alex Veen, RMIT University; Caleb Goods, University of Western Australia, and Emmanuel Josserand, University of Technology Sydney

Uber driver Michelle, thinks her job is fantastic when she’s only after part-time hours. But she’s given it a couple of months and she says she’s not getting anywhere.

To be able to earn A$800 she has to actually pull in A$1,500, averaging 70 hours a week. The money per hour can be good, but only when it really picks up. Looking at the current job market, she doesn’t want to do two full-time jobs to make the same amount of money that she used to earn in an office, working half the time.

She feels exhausted. She used to think people in Melbourne were good drivers, but now that she’s been driving all day, she sees a fair amount of aggression. Six weeks ago she was trying to merge into traffic and a man in a ute next to her showed her a crowbar.

Her latest day off she spent sleeping because she was so tired.

Michelle (not her real name) was one of our study participants. We interviewed 60 ridesharing and food delivery workers like her. And the reality of their experiences is far more nuanced than others make out.

Work in the “gig economy” is often depicted as flexible by businesses and those who run the platforms that offer work, or as exploitative by labour activists and commentators.

A key finding is that gig workers arbitrate between the costs and benefits of gig work. Many interviewees preferred their gig work over other forms of low-paid work (most commonly cleaning, hospitality, retail) because of abusive bosses, underpayment, and underemployment. In comparison, gig work is seen by these workers as providing a more appealing work environment.

While some rideshare drivers note they need to work long hours to earn the equivalent of a full-time wage, they also emphasise their enjoyment of their rideshare work. One food delivery worker summed it up:

It is more flexible. You can do whatever you want. You are on the street talking to the people enjoying. You can do exercise as well on the bicycle. And, it is good money.

Despite these workers’ sense that there are opportunities in gig work – their experience was not overwhelmingly positive. There was a group of workers who felt marginalised, had few choices, and the gig work was a last resort.

These workers saw gig work as a stopgap measure while they looked for “real” jobs. In these cases they were doing it because it got them out of the house, to supplement their income or before starting their own business.

Social versus isolating

The workers in the study saw social interactions as part of their gig work as one of the more enjoyable aspects. What varied between rideshare and food delivery workers was how these interactions took place.

Food delivery drivers often end up crossing paths during their shifts and informally waiting together. As one worker summed up:

You end up knowing most of the riders, because you see them pretty often. You kind of speak with each other, and there is a social club.

By contrast rideshare drivers noted that their work could be quite physically isolating. Some drivers engaged in online forums with other drivers but would never meet up with them. Despite limited social interaction with other drivers, rideshare drivers reported that this is where they derived most of their job satisfaction.

Freedom versus control

The drivers we interviewed expressed a sense of freedom and flexibility because they had “no boss, no set hours”. However, the flip side of this was a sense of limited control over work. As one food delivery worker described:

I currently fit my life around their work…obviously I have to work around busy times – lunch and dinnertime.

Both delivery riders and rideshare drivers – found that only particular pockets of time across the day were profitable. This was usually lunch and dinner times, especially weekends for food delivery, and weekends and evenings for rideshare drivers. So while their options to sign on or off the app (the platform that employed them) were flexible, realistically their productive working hours were determined by patterns of consumer demand.

Both the rideshare and food delivery platforms also unilaterally changed the terms and conditions of engagement, which directly affected earning potential. Both groups of workers expressed particular concern about the periodic increases in the commission taken by the platform, reporting cuts to earnings of up to 15%. One driver lamented:

The way they [the platform] manipulate people….is really saddening.

Ridesharing workers were also concerned about being financially over-committed due to the cost associated with purchasing and running a vehicle. This financial burden, coupled with continued changing rules of game, and the capacity for these platforms to arbitrarily “deactivate them” led to anxiety and frustration. One worker described this:

It used to be good before they did all the price cuts and started treating their drivers like trash. We have had 30% cuts since I came on board whilst demand hasn’t matched supply. I make around $10 an hour.

Best of a bad lot

Our emerging findings suggest gig workers often understand the trade-offs between the positive and negative features of their work but see this as a reality of their position within the labour market.

A number of our interviewees felt exploited and/or would prefer better paying “real jobs”, validating the concern on regulation, pay and conditions in this industry. But, gig work allows these workers to meet their immediate needs and gives them a sense of being their own boss.

The ConversationThe gig workers enjoyed the high levels of autonomy in their work, and many of them saw their gigs as the best in a market characterised by low paid jobs.

 

Sarah Kaine, Associate Professor UTS Centre for Business and Social Innovation, University of Technology Sydney; Alex Veen, Lecturer – Early Career Development Fellow, RMIT University; Caleb Goods, Lecturer – Management and Organisations, UWA Business School, University of Western Australia, and Emmanuel Josserand, Professor of management, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.