Home Prices and Household Spending
This paper explores the positive relationship between home prices and household spending by following a panel of Australian households over the period 2003 to 2010. There are three hypotheses put forth in the literature to explain this relationship: (1) increases in home prices raise spending via a ‘traditional wealth effect’; (2) increases in home prices raise spending by easing credit constraints; and (3) home prices and spending are influenced by a common ‘third factor’ such as something that affects expectations regarding future income. Identifying differences in behaviour across households of different ages helps to distinguish among these hypotheses. Younger homeowners exhibit the largest home-price wealth effects, with a 3 to 4 cent increase in spending per dollar increase in home price. As young homeowners are more likely to be credit constrained, their relatively large marginal propensity to spend supports hypothesis (2) as an important determinant of the co-movement between home prices and household spending. Further, the non-response of young renters to changes in home prices argues against hypothesis (3)...............
http://www.rba.gov.au/publications/rdp/2...013-04.pdf
(19-11-2014, 11:41 PM)piggo Wrote: [ -> ]Don't understand the logic... with real estate being relatively illiquid, shouldn't consumption be linked to income (or any consistent inflow of money)? It's like saying your investment property went up in valuation and u went to buy your wife a fancy handbag -_-?
I'd think it's more connected to immigration since unlike the generic immigrant in Singapore (where they are here for job prospects/scholarships), they are generally more well off and can afford to spend regardless of income/job opportunities.
(19-11-2014, 11:42 PM)newbie11 Wrote: [ -> ]They can release equity, redraw their principal. Feeling rich adds to increased consumption
Nothing new under the sun. It was recently called equity extraction and all the rage from 2003 onwards in the land of the free, which is just as big, and migrant society to boot.
Super pool climbs 9.6pc to $1.87 trillion in year to September
THE AUSTRALIAN NOVEMBER 21, 2014 12:00AM
Andrew Main
Wealth Editor
Sydney
Super stockpile
Super stockpile Source: TheAustralian
AUSTRALIA’S pool of superannuation money, already the fourth biggest in the world, climbed by 9.6 per cent, or about $164 billion, to a massive $1.87 trillion in the 12 months to the end of September, according to statistics released by the Australian Prudential Regulation Authority.
The publication, which only includes approximate numbers for self-managed super funds because they are supervised by the Australian Taxation Office, indicates that $558bn or 29 per cent are in SMSFs. In line with recent reports, SMSFs have lost ground slightly in that they represented 30.3 per cent of the total a year ago, although they have grown in size by 7.8 per cent.
Bryce Doherty, head of Australia and New Zealand for UBS Global Asset Management, said this week that SMSFs’ concentration on cash and domestic equities had made them slightly underperform the pooled funds overseen by APRA, because of the SMSFs’ limited offshore exposure.
The APRA numbers, which have come in for criticism because of the way they are expressed, showed that net contribution flows in the year, meaning contributions less benefit payments, were $37.8bn and total contributions for the year were $96.8bn.
Australian Institute of Superannuation Trustees executive policy manager David Haynes said the “data does not tell consumers what they really need to know”.
“They stop well short of providing consumers with any meaningful information about their superannuation, including how their fund compares with others. It’s like the ATO providing an overall figure for the average wage and not breaking it down on a gender or age basis,’’ he said.
The numbers came out on a day when consultants Chant West said the most common type of pooled super fund, the median growth fund, had grown in value by 6.2 per cent for the first 10 months of the year, almost certainly giving savers the fifth positive return in six years. The median growth fund, by far the most common default option, contains between 61 per cent and 80 per cent allocation to growth assets such as shares and property.
“With the end of the year in sight it’s likely that we’ll see a positive return — not in the double digits but well ahead of the rate of inflation,” director Warren Chant said. “While it won’t be anywhere near the 12.8 per cent seen in 2012 and 17.2 per cent in 2013, it will certainly represent the fifth positive return in the past six years and the tenth in the past 12 years.’’
He said the “unprecedented” 21.5 per cent loss in 2008, which produced a dampening “GFC effect” as he called it, for the past seven years, was evidenced by a modest 3.6 per cent annual growth rate over that period. The equivalent number for the past five years was 8.5 per cent a year, he added.
China resources demand to remain strong: RBA
BUSINESS SPECTATOR NOVEMBER 21, 2014 12:58PM
Mitchell Neems
Business Spectator Reporter
Melbourne
THE fallout for Australian coal exports from a historic climate deal between China and the United States is uncertain, says a Reserve Bank official.
The head of the RBA’s economic analysis department, Alexandra Heath, told a NSW mining industry and suppliers conference the deal to cut emissions was a manifestation of China’s concerns about air pollution.
“The effect of policies designed to address these concerns could put downward pressure on coal consumption in China, but the implications for Australia’s coal export volumes will depend on a number of factors including relative prices and competitiveness of our producers,” she said.
DOLLAR: Firmer despite RBA comments
In a surprise announcement during this month’s APEC conference, Chinese President Xi Jinping and US President Barack Obama unveiled a deal to curb emissions.
The US committed to cutting emissions by 26 per cent to 28 per cent by 2025, while China has set a goal for its emissions to peak in 2030 and has pledged a fifth of its energy will come from non-fossil fuel sources by then.
Looking at the outlook for Chinese demand, Ms Heath said China is likely to be a large market for Australian resource exports for some time to come.
“While the growth of Chinese demand is slowing, many of the long-term drivers of the original increase in demand for commodities from China are still in play,” she said.
“The Chinese economy is continuing to evolve in ways that will support demand for resources, and the sheer size of the economy suggests that these demand forces will, over the medium-to-long term, remain strong.”
BREE tips collapse in resources investment
THE AUSTRALIAN NOVEMBER 27, 2014 12:00AM
Barry FitzGerald
Resources Editor
Melbourne
Investment.Investment. Source: TheAustralian < PrevNext >
••
THE culminating LNG production boom, and a raft of mineral project deferrals in response to the broad retreat in commodity prices, has prompted the federal government’s chief commodity forecaster to predict a $150 billion collapse in committed resource project investment over the next four years.
In its latest snapshot of investment in the resources sector, the Bureau of Resources and Energy Economics (BREE) forecasts committed project investment will plunge from just under $250bn in 2015 to less than $100bn in 2019.
The looming completion of $160bn in LNG export projects — the Inpex project will be the last to be completed in 2018 — is the key factor in the forecast collapse in investment, with the recent oil price plunge and emerging competition from US shale gas exports casting doubt over the timing of a new wave of LNG projects and expansions.
The shock plunge in iron prices since the beginning of the year, and the retreat in thermal and coking coal prices to levels at which much of the industry is struggling to break even, has also squeezed the “pipeline’’ of committed, likely, and potential resources projects.
BREE’s deputy executive director Wayne Calder said the investment survey found a “reduction in the number of projects across all categories of the investment pipeline’’.
“This is consistent with the picture we have seen since the mining investment cycle peaked in 2011-12 and continuing softness in commodity prices,’’ Mr Calder said.
The slowdown was reflected in BREE’s finding that in the six months to October, only three projects worth $597 million were identified as receiving a positive final investment decision and progressed to the committed stage — the lowest number and value in more than a decade.
The three projects were all infrastructure projects by Andrew Forrest’s iron ore producer, Fortescue Metals.
During the height of the resources boom, it was a common complaint that the state and federal approvals process for resources projects was causing a backlog of projects ready to move into the committed stage.
But according to BREE, the backlog is now at the feasibility study stage, not because of government delays, but because of a reluctance to commit to new capital expenditure because of the slump in commodity prices.
“The appetite for risk among project developers and financiers appears to be low in the current operating environment; nevertheless, Australia still has many world-class resource deposits that can be developed when market conditions improve,’’ BREE said.
The world’s biggest mining company, BHP Billiton, has led the industry’s new era of capital expenditure austerity. It has previously cancelled two of the biggest projects in the investment pipeline, the $30bn expansion of Olympic Dam and the $20bn Outer Harbour at Port Hedland.
And earlier this week it announced a $US600m reduction in capital expenditure for 2015 to $US14.2bn, while also reducing its capital expenditure “ceiling’’ for 2016 by $US1bn to $US13bn. At the height of mining boom, its capital expenditure — not all was spent in Australia — was running at $US25bn.
On a more upbeat note, BREE emphasised that resources investment was cyclical.
“While the stock of investment in the sector is declining, there remains the potential for further investment in the future.
“Australia has many world-class mineral and energy deposits that can be developed when market conditions permit,’’ BREE said.
“The cost pressures that have affected the sector are beginning to abate in response to reduced construction activity and cost-cutting measures undertaken by companies. In addition, proponents are reassessing the plans for projects that are currently on hold with a view to reducing capital costs.’’
Boom’s end delivers hit to budget
THE AUSTRALIAN DECEMBER 01, 2014 12:00AM
Adam Creighton
Economics Correspondent
Sydney
Budget impact.
THE torrent of revenue delivered by the resources boom to the federal government has dried up sooner than expected, all but destroying Tony Abbott’s promise to return the federal budget to surplus even if he manages to convince the Senate to pass his controversial savings.
The mid-year budget update, due within weeks, will reveal a deficit blowout of more than $35 billion over the next four years and show that for the first time in more than a decade the state of the economy has become a drag on the budget, according to a report by economic forecaster Deloitte Access Economics.
In analysis that will bolster the government’s case for significant and permanent spending cuts, Deloitte says that sharper-than-expected falls in the price of Australia’s biggest export, iron ore — down more than 35 per cent since May to less than $US70 a tonne — and sluggish wage growth at home have lopped more than $9bn from projected revenues over the next two years alone, rendering hopes of a surplus in 2017-18 “well and truly toast”.
“Whereas the impact of China and the resources boom on the budget came and went, the impact of politicians’ promises lingered,” says Chris Richardson, head of economics at Deloitte, who points out that about 80 per cent of the deterioration in the budget’s bottom line since 2000 was due to extra spending rather than tax cuts.
“The costs of a further weakening in the economic backdrop are even bigger than the policy savings the government announced in May, and that the Senate has largely since rejected,” he says.
For the first time, the budget update is expected to show that the cumulative value of Treasury revenue writedowns since 2000 will exceed the value of the unexpected revenue gains made since the resources boom got under way more than a decade ago.
At the peak of the boom in 2007, the revenue bonanza was adding about $80bn a year to government revenues but the state of the economy will now subtract $24bn from the budget over the next four years.
While the outlook for revenue has deteriorated, Australia’s involvement in Iraq, new national security spending and the government’s compromises with the Palmer United Party to get the mining tax repeal through the Senate have added $5.4bn to spending over the next two years.
The report places renewed pressure on the government to keep its commitment to unpopular savings such as the $7 GP co-payment and cuts to family tax benefits and university subsidies, amid reports suggesting some senior cabinet ministers want to dump them.
The government, which last week suffered its worst few days since taking office, will focus on securing crossbench support for its higher-education reforms before parliament rises on Thursday for the long summer recess.
In his report, Mr Richardson says the budget delivered in May is “the only road map to structural fiscal repair Australia has”. “The opposition and minor parties have washed their hands of setting out detailed alternatives, preferring populist posturing,’’ he says.
Mr Richardson says a naive electorate and populist Senate have refused to acknowledge the gravity of the government’s mounting fiscal challenge.
“It looks to us like a nation that can’t handle the truth: a temporary boom has come and gone, and a sustainable path for our national social compact requires some tough decisions,” he says.
“When even the Greens oppose sensible fuel tax policy it is clear something is wrong with Australia’s political processes,” he adds, referring to the government’s inability to index fuel tax excise to inflation.
The $27bn deficit pencilled in for this financial year in May will swell to $35bn, while the balanced budget scheduled for 2017-18 will instead be a $12.4bn deficit, Deloitte estimates, after which “Australia faces deficits as far as the eye can see”, owing mainly to the surging cost of the national disability insurance scheme.
“Australia may not have a crisis around its government debt, but we do have increasing risks around our deficit trajectory,” Mr Richardson says.
Deloitte’s budget projections assume all of the government’s controversial savings proposals will ultimately be legislated, which, with only one sitting week of parliament left this year, is looking increasingly unlikely.
“If our politicians can’t craft a compromise, then better budgets will be even further away than our forecasts have them here,” he says, pointing out that the biggest improvement in the structural deficit over time relied on changes to indexation of the Age Pension, tightening eligibility for the seniors health care card and Family Tax Benefit Part B.
The Deloitte report follows a strongly worded warning from outgoing Treasury secretary Martin Parkinson last week that perpetual deficits threatened living standards and risked damaging increases in income tax on ordinary workers, who would soon be paying a marginal income tax rate of 39 per cent.
The Parliamentary Budget Office also warned that the government’s budget projections were highly dependent on optimistic assumptions about labour productivity growth and Australia’s terms of trade remaining relatively elevated.
“Were China to tremble more than we have allowed then the fiscal follies of the last decade would show up in an even worse light than already seen,” Mr Richardson says.
Deloitte says that a weaker Australian dollar and ultra-low interest rates are boosting retail spending and home building, which has provided some unexpected boosts to GST receipts, which flow to the states, but not enough to offset falls in income and company taxes.
Lower Australian dollar helps lift manufacturing
AAP DECEMBER 01, 2014 9:33AM
THE lower Australian dollar has helped lift the manufacturing sector into growth for the first time since July.
Australia’s manufacturing sector expanded in November, albeit very slightly, rising 0.7 points to 50.1, according to the Australian Industry Group’s performance of manufacturing index.
A reading above 50 indicates expansion while anything below suggests contraction.
The index has been in contractionary territory since July, when it had a short-lived bounce following an eight-month slump.
The latest bounce was a welcome sign of resilience in the sector, Ai Group chief executive Innes Willox said this morning.
“The lower dollar, an easing in energy costs, moderate wages growth and relatively low interest rates are all helping to underpin the sector’s performance,” Mr Willox said.
Strong housing construction activity was also supporting the sector, Mr Willox said.
But there were still “substantial headwinds with the steep decline in mining investment and the impending closure of Australian automotive assembly stifling business sentiment and the appetite for investment”, he said.
“Businesses also noted that the still-strong Australian dollar continues to support intense import competition.”
Four of the eight manufacturing sub-sectors expanded in November, including food and beverages, wood and paper products, textiles, clothing and furniture, and nonmetallic mineral products.
Respondents to the survey said business sentiment and appetite for investment remained weak, while the boost from housing construction was being dampened by declining mining investment and car production.
National income recession ‘already here’
PUBLISHED: 11 HOURS 56 MINUTES AGO | UPDATE: 0 HOUR 0 MINUTES AGO
“We’re explicitly forecasting that there will have been an income recession in the past two quarters,” says Bank of America Merrill Lynch chief economist Saul Eslake. Photo: Jessica Shapiro
JACOB GREBER Economics correspondent
Falling iron ore prices, stagnant wages and weak profits are prolonging two years of deterioration in the main driver of Australians’ living standards.
The economy is tipped to have produced 3.1 per cent more goods and services in the year to the September quarter. But the national income – mostly profits and wages – generated from this production has been savaged by the slump in export prices.
Saul Eslake, one of the nation’s most experienced economists, has for the first time forecast that Wednesday’s national accounts will show that real gross domestic income – a measure of the nation’s earnings – shrank 0.2 per cent in the September quarter from the June quarter, when it slid 0.3 per cent.
“We’re explicitly forecasting that there will have been an income recession in the past two quarters,” Mr Eslake, chief economist at Bank of America Merrill Lynch, said.
Most of the income slump is being driven by the falling terms of trade which has been smashed by iron ore collapsing to a five-year low of under $US70 a tonne. Adding to the pain are lower oil prices, which are eroding gas prices just as Australia is about to pass Qatar as the world’s biggest liquefied natural gas exporter.
The latest update of a closely monitored Reserve Bank index of commodity prices, published late on Monday, is 16 per cent down over the year and close to levels last seen in 2009.
Declining commodity prices are likely to force Treasurer Joe Hockey to wipe at least $35 billion over four years from the mid-year budget update in two weeks and result in further delays beyond 2018-19 in the return to surplus.
Australian Bureau of Statistics data on Monday showed wages and salaries rose just 0.4 per cent in the September quarter, the smallest trend increase since the same quarter of 2009 when the economy was last battered by falling iron ore and coal prices.
The figures showed that profits in the mining sector – the number one driver of income growth during the boom years – fell 5 per cent in the quarter, extending a 16 per cent plunge in the previous three months. At the same time, sales volumes in the mining sector actually rose, by 1.4 per cent.
The disconnect between falling prices and rising shipments highlights a growing trend in which the traditional measures of the economy’s health – primarily real gross domestic product growth – may be misleading when commodity prices are down, including for iron ore that generates $1 in every $5 of exports.
Economists surveyed by Bloomberg expect Wednesday’s national accounts to show headline real GDP rose 3.1 per cent from a year earlier and 0.7 per cent in the September quarter.
Increasingly analysts and policy makers are focusing on nominal GDP, which effectively measures what the nation is paid for what it produces.
It directly dictates budget revenue, company profits and whether consumers receive pay hikes.
Its main driver is the sliding terms of trade, which gauges what Australia can import with the profits of its exports.
“The declining terms of trade equates to Australia receiving a ‘pay cut’ from the rest of the world for what it produces,” Macquarie Group analysts James McIntyre and Richard Gibbs said in a note on Monday titled Deflating Expectations.
“Unless there is an offsetting rise in production, then Australia will experience an ‘income recession’.”
The prospect of this week’s national accounts dragging on consumer and business sentiment has re-ignited speculation the Reserve Bank may be forced to resume interest rate cuts.
Economists are unanimous in predicting today’s Reserve Bank board meeting – the last until early February – will see the official cash rate left unchanged at 2.5 per cent.
Most also predict the next move will be a hike in borrowing costs, but many have pushed the timing back to mid- or late 2015. However, in an unusual split between what economists think and what financial markets are anticipating, a Credit Suisse swaps index indicated there is now a 64 per cent chance Reserve Bank governor Glenn Stevens will cut the cash rate to 2.25 per cent within the next 12 months.
That’s the strongest bet of its kind in 14 months and comes despite repeated signalling from the Reserve Bank that it has no intention of cutting the cash rate any further, not least for fear of stoking house prices.
Asked what policy levers could be used to help the economy shake off an income recession, Mr Eslake said: “there aren’t a lot of them and nobody seems to want to push them.
“In theory, the Reserve Bank could cut interest rates more, as [deputy governor] Phil Lowe acknowledged last week, but I don’t think there’s any enthusiasm and some concern . . . it may not have such positive results.”
Mr Eslake said he had accepted the Reserve Bank’s argument that a cash rate of 2.25 per cent or 2 per cent would be unlikely to make much difference if 2.5 per cent was not enough.
Another option would be for the government to use some fiscal stimulus, “provided it’s in the form of well-chosen, rigorously evaluated and targeted infrastructure spending. But you have to say there would be good grounds for doubting whether any such spending undertaken in these circumstances would meet all those criteria,” he said.
The Australian Financial Review
BY JACOB GREBER
Jacob covers economics from our Sydney and Canberra newsrooms.
@jacobgreber
Reserve Bank holds rates, next move may be down
THE AUSTRALIAN DECEMBER 02, 2014 3:53PM
Adam Creighton
Economics Correspondent
Sydney
Decoding the outlook on rates
THE Reserve Bank of Australia has kept official interest on hold for the 16th month in a row as expectations mount that the next move in rates will be downwards.
Today's decision represents the longest period of interest rate stability for almost 20 years and is designed to support economic growth as slumping global commodity prices undermine confidence in Australia’s economy.
The Australian dollar gained almost a quarter of a US cent after the news.
The currency rose to US85.05c shortly after RBA’s decision was announced at 2:30pm (AEDT), from US84.83c just prior to the announcement, but has subsequently tracked back below that mark.
In a statement accompanying the RBA’s decision, governor Glenn Stevens said economic indicators showed that growth would stay moderate.
“Resources sector investment spending is starting to decline significantly, while some other areas of private demand are seeing expansion, at varying rates,” he said.
“Overall, the bank still expects growth to be a little below trend for the next several quarters.” Mr Stevens noted that the Australian dollar has fallen further recently but that was largely due to the strengthening US dollar.
“The Australian dollar remains above most estimates of its fundamental value, particularly given the significant declines in key commodity prices in recent months,” he said.
“A lower exchange rate is likely to be needed to achieve balanced growth in the economy.”
Last week, RBA deputy governor Philip Lowe said the bank is in a position to cut interest rates again if it needs to, a move that was previously believed to be highly unlikely.
Since then several economists have started to forecast rate cuts for 2015, including Deutsche, Saxo, AllianceBernstein, Morgan Stanley and Western Union.
The futures market also has the cash rate below 2.5 per cent next year.
Deutsche Bank’s chief economist Adam Boyton today predicted the RBA would cut rates twice more in 2015 as the unemployment rate rises to 6.75 per cent.
“What has prevented us, until now, from actually forecasting rate cuts has been the strength in the housing market — in particular house price growth and the degree of investor activity,” he said, noting the housing market was cooling already and regulators had planned a crackdown on investor lending in the new year.
“As for what benefit an interest-rate reduction might deliver, placing additional ‘income’ in the hands of consumers who are currently seeing zero real wages growth and suffering fiscal drag (bracket creep) should lift both sentiment and consumption,” he said.
National Australia Bank senior economist David de Garis said the RBA had slightly strengthened its language on the Australian dollar being too high.
“They’re continuing to say the exchange rate is overvalued,” Mr de Garis said.
“They’ve ramped that up a little bit perhaps.
“There are very nuanced changes in the statement but the thrust of policy, that is, leaving rates unchanged and giving this transition (from mining) time to percolate, seems to be their continued strategy.”
Continual sharp falls in the price of iron ore to below $US70 a tonne will sap corporate tax receipts and are expected cause significant blowouts in the government’s budget projections, due to be updated within weeks.
The board has held the cash rate at 2.5 per cent since August, 2013.
The RBA held the cash rate at 7.5 per cent for 18 months from December 1994 before beginning to lower it as the economy slowed.
Asset bubble to keep growing...
Interest rate cut on the cards as Stevens pushes for lower dollar
• THE AUSTRALIAN
• DECEMBER 03, 2014 12:00AM
Glenda Korporaal
Editor, The Deal
Sydney
Decoding the outlook on rates
RESERVE Bank governor Glenn Stevens has stepped up his rhetoric about the need for a lower ¬dollar.
Whether he meant to or not, his blunt statement yesterday will add to market speculation that a rate cut could be on the cards next year if the dollar doesn’t fall low enough.
While the bank has been jawboning down the dollar for some time this year, Stevens used the bank’s last monthly board meeting for 2014 to declare that “a lower exchange rate is likely to be needed to achieve balanced growth in the economy”.
This represents a step-up in rhetoric from the previous observations that this year’s fall in the dollar “is offering less assistance than would normally be expected in achieving balanced growth in the economy”.
The dollar has already fallen from levels of US94c in June to about US84c, on the back of a sharp fall in world commodity ¬prices including a major collapse in the iron ore price, now at five-year lows.
RBA Statement
Just how much lower would the RBA like the dollar to go? (Hopefully not to Paul Keating’s 1986 “banana republic” levels of US57c.) And if the slump in commodities has not been enough to get it down to the level the RBA thinks is appropriate, what is it prepared to do to get it there?
Until recently the expectation has been that the next move in the cash rate, which has been at 2.5 per cent for the past 14 months, would be up, sometime around the middle of 2015. But concerns about the underlying health of the economy and the fallout from the sharp fall in commodity prices is working its way through the broader economy — from jobs in the mining sector to the budget — and have led economists (including those at Deutsche Bank yesterday) to speculate that the bank could cut rates if the jobless rate rises.
The RBA statement also noted that while the US economy was strengthening, “the euro area and Japan have both seen weakness recently”. Stevens’s comments reflect a heightened level of concern about the outlook for an economy struggling to rebalance from one held up by a strong mining sector to one more dependent on ser¬vices (the recent fall in the dollar has come too late to help our manufacturing industry).
Stevens would clearly prefer that Australians opted to spend their Christmas holidays at home, maybe towing the caravan around, giving the local economy a boost, than going offshore. By this time next year, if he gets his way, there will be more financial incentive for Australians to stay at home with the cost of travelling overseas rising.
Today’s national accounts figures for the September quarter are expected to show an economy that appears to be doing quite well, with annual growth coming in above 3 per cent. But just how this is figure is achieved will need to be watched closely.
The unemployment rate remains stubbornly high at 6.2 per cent, with many believing the real rate maybe higher, ¬particularly for the under 30s and over 50s. Yesterday’s RBA statement notes it has “edged higher” — another shift in tone from the “spare cap¬acity” in the labour market it talked about last month.
The rising jobless rate contrasts with the picture of the US, which was hard hit by the global ¬financial crisis. The jobless rate there has come down to 5.8 per cent as its economy recovers.
The Abbott government’s May budget was an attempt to deal with the fiscal mess it inherited from Labor. It has had an uphill battle ever since trying to get it past an unruly Senate. But the deficit outlook has suddenly become much worse with the collapse in commodity prices hitting government revenues. Expectations are the fall in prices so far will wipe off at least $35 billion in revenues over the next four years.
The true fiscal horror will be released in the mid-year economic statement this month.
In question time yesterday, Joe Hockey spent much time reminding parliament of the inability of Labor to deliver on its promised surplus.
The government needs to start selling the message that the true deficit picture is getting so bad that it has little choice but to cut back services.
The RBA statement also included a reference to the fact that “differences in monetary policies across large jurisdictions are affecting markets, particularly exchange rates”.
This could be read to mean that the dollar is being held artificially higher by the fact that other central banks (this means you, US Federal Reserve chief Janet Yellen) have not moved to reverse their loose monetary policy.
Could this be the bank laying the intellectual groundwork for a rate cut next year? It’s too early to say. But yesterday’s shift in tone is an acknowledgment of cracks in the economic outlook for 2015.
With fiscal policy constrained, and a less certain outlook, can monetary policy remain on hold?