Wage Growth Slows To New Annual Low

Wages in Australia have grown at their slowest ever annual rate since the government started issuing data on wage prices nearly two decades ago.

Official figures show wages rose by 0.6 per cent in the December quarter, while the annual pace of wage growth fell to a new record low, reflecting ongoing weak conditions for businesses and pointing to low inflation and interest rates for the foreseeable future.

For the year to December, the Australian Bureau of Statistics’ wage price index rose 2.5 per cent, in line with analysts surveyed by Bloomberg.

That rate is above the inflation rate of 1.7 per cent, which fell in the most recent ABS release.

The seasonally adjusted annual wages increase was the lowest result since the ABS started issuing the data in 1997.

The index measures movement in underlying wages by calculating the change in wage and salary cost across a range of occupations.

Wages growth has slowed as Australia’s resource-rich economy undertakes a difficult transition away from growth led by mining. Commodity prices are also falling sharply, delivering a cut to national income and driving unemployment higher. Non-mining investment is still sluggish, compared to the drop in investment from the mining boom.

In the private sector, wages excluding bonuses rose 0.6 per cent in the third quarter and by 2.5 per cent from a year earlier. Public-sector wages climbed by 0.7 per cent in the third quarter and by 2.7 per cent from a year earlier.

The information media and telecommunications industry had the largest quarterly wage rise of 1.2 per cent due to regular December quarter pay increases, while the smallest quarterly rise across all industries was the accommodation and food services industry, where wages rose 0.2 per cent.

This news story is reprinted from www.businessspectator.com.au

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RBA tipped to leave rates on hold at next week’s meeting

The RBA is set to keep interest rates on hold, rather than risk another cut. Source: Getty Images

THE Reserve Bank of Australia will likely leave interest rates on hold at next week’s policy meeting, fearing a further cut could put a rocket under too-hot property prices.

With the country’s home prices already at record-high levels, there are signs of renewed upwards momentum following this month’s surprise cut in the benchmark cash rate to an all-time-low of 2.25 per cent.

Housing auctions last weekend in Sydney saw a near-record 86 per cent of all properties sold, compared with about 83 per cent a week earlier.

That gives the central bank — which has repeatedly warned against too much speculative property lending — further cause for worry, at a time when the economy remains fragile as a mining boom fades.

Nationally, home prices have climbed 22 per cent since mid-2012. Melbourne and Sydney prices have risen by more than 50 per cent since 2009. A sudden crash in home prices could undo much of the hard work interest rates have done to modestly spur non-mining sectors of the economy, such as retail.

The RBA debated the problem of frothy house prices on February 3, according to minutes of their last meeting, before deciding to cut rates for the first time in more than a year and a half. The nine member board was divided on the wisdom of a cut.

Australia’s banking regulator has recently stepped into the debate, saying it would step up its monitoring of investment-housing loans and may implement lending curbs if the credit tap continues gushing.

Since those warnings, data shows that the scale of speculative buying hasn’t diminished. If anything, it’s encouraged speculators to jump in while the going is good.

While interest-rate swap markets have a 50 per cent chance of a rate cut in March priced in, the central bank will be cautious about cutting while the impact of regulation that may or not be brought in remains unknown. It makes better sense to pause for a while and consider more data.

News of a jump in unemployment to 6.4 per cent in January, its highest level in more than 12 years, is likewise an unlikely trigger for a second consecutive rate cut. True, joblessness is rising, but averaged over a number of months it’s still only a gradual climb.

Next week the RBA is likely to signal its intention to cut rates again — just not immediately.

After all, much more needs to be done to lift Australia’s economy out from the rubble at a time when prices for the nation’s commodity exports have also fallen dramatically.

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This news is reprinted from http://www.theaustralian.com.au/business/economics/rba-tipped-to-leave-rates-on-hold-at-next-weeks-meeting/story-e6frg926-1227237306258

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Cut Corporate Tax Rate To 25 percent BDO

Australia should aim to cut the corporate tax rate to 25 per cent to stop businesses moving offshore.

That’s the view of business consultants BDO, which says it not only costs Australian jobs when a business moves elsewhere, but also millions of dollars in lost revenue.

At 30 per cent, Australia’s corporate tax rate is higher than all but three of the 34 OECD countries – Belgium, France and the United States.

“Corporate tax is a big cost for business and obviously plays a significant role in any decision about where to base a company’s operations,” BDO tax partner Mark Molesworth says.

In a new analysis, BDO says services-based firms – such as software and technology developers, whose geographic considerations are less important – are taking away up to $15 million in tax for every $100 million in turnover when they moves to another country.

For manufacturers, it’s $4 million in lost tax per $100 million in turnover.

Mr Molesworth concedes it is not realistic for Australia to move to a very low corporate tax rate like Switzerland (8.5 per cent), Ireland (12.5 per cent) or Canada (15 per cent), but there is certainly room to move lower.

Even in the US, where the rate is 35 per cent, President Barack Obama has recently proposed lowering it to 28 per cent.

“An achievable target for Australia could be to move to 25 per cent, which would bring us close to the OECD average,” Mr Molesworth says.

At the last election, the Abbott government promised a cut in the corporate tax rate to 28.5 per cent from July 1, 2015, although the top 3400 companies would be simultaneously asked to pay a 1.5 per cent levy to pay for a new paid parental leave scheme.

While that PPL scheme has since been scrapped, it remains unclear whether the levy will remain to fund a new families and childcare package, resulting in a two-tier business tax rate.

The 2010 Henry tax review also proposed a 25 per cent corporate tax rate as a target.

This news story is reprinted from au.finance.yahoo.com

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RBA To Monitor Property Prices

Australia’s central bank debated whether to cut interest rates at its February policy meeting or wait until March, before choosing the earlier date which had the option of communicating its reasons in a quarterly policy statement just days after.

“In deciding the timing of such a change, members assessed arguments for acting at this meeting or at the following meeting,” the Reserve Bank of Australia said in minutes from the meeting.

“On balance, they judged that moving at this meeting, which offered the opportunity of early additional communication in the forthcoming Statement on Monetary Policy, was the preferred course,” it added.

The RBA cut interest rates by one quarter of a percentage point at the start of the month to a record low 2.25%, its first cut since August 2013, citing falling global interest rates, weak domestic growth and the risk of rising unemployment.

The RBA also said it will be watching property prices in the wake February’s record-low official rate. “Given the large increases in housing prices in some cities and ongoing strength in lending to investors in housing assets, members also agreed that developments in the housing market would bear careful monitoring,” the minutes said.

“Housing price inflation had moderated from the rapid rates seen in late 2013, but remained high and in Sydney and Melbourne had been well above the growth rate of household income,” the RBA said.

The RBA said growth of investor credit had continued to increase “at a noticeably faster rate” than owner-occupier housing credit, while a range of indicators suggested further growth of dwelling investment in the near term, the bank said.

The RBA said it would keep a close eye on the impact of moves late last year by the Australian Prudential Regulation Authority, designed to temper investor activity.

In board member’s discussion of the economic outlook, they noted that forecasts for output, which were conditioned on an assumption of no change in the cash rate, had been revised lower in the near term, and that non-mining business investment was likely to occur “later than had previously been anticipated”.

“The revisions to GDP growth implied that the unemployment rate would peak at a higher rate and later than had been previously forecast, before declining gradually,” the minutes said.

GDP growth itself would remain below trend over the course of this year, before gradually picking up to an above-trend pace in 2016, the minutes said, somewhat later than had been previously expected.

There was no indication of whether the RBA will follow up February’s rate move with another cut in March.

Many in the financial markets were not expecting the cut in as RBA Governor Glenn Stevens had indicated as recently as December that interest rates stability remained an attractive option.

Financial markets are now betting the RBA will cut interest rates at least one more time by mid-2015, with some market participants expecting it will continue cutting in the second half of the year.

A high Australian dollar had added to the woes of the economy, albeit it has now fall by close to 30% since its historic peaks above parity in 2011.

The Australian dollar has fallen a long way against the U.S dollar, but not so against other major currencies.

“A lower exchange rate was likely to be needed to achieve balanced growth in the economy,” the minutes said.

Stevens told parliament Friday the economy was in need of more growth, with employment data the day prior showing a jump in unemployment to its highest level in around twelve and half years.

This news story is reprinted from www.businessspectator.com.au

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Australian Billionaire Gerry Harvey Accuses Tax Lobbyists Of Pushing Multinational Companies Interests

Australian retail billionaire Gerry Harvey slammed the country’s powerful business lobby groups for pushing the interests of profit-shifting multinational corporations ahead of Australian companies. Harvey said companies that pay their fair share in taxes have no voice in government.

The billionaire retailer spoke after it was publicly revealed that Apple Inc only paid $80 million in tax to Australia despite earning $6 billion in local revenues. Without mentioning a specific company, Harvey said “a lot of lobbying” has been happening. He added that multinational companies have many lobbyists in Canberra in an effort to present their case.

Sydney Morning Herald reports that the Harvey Norman franchise owner is one of the few business leaders in the country to speak out against corporate tax avoidance. Harvey said both Australian-owned and foreign multinational companies are more interested in weakening tax laws so they avoid paying high taxes. He believes it was unfair for local companies to pay the right amount of tax while foreign companies don’t.

A spokesman for the Business Council of Australia said there were certain risks if it acted alone against the practice of shifting profits. The council recommended taking caution and acting based on evidence to ensure competitiveness will not be diminished. He said unless a multinational agreement is in place, Australia can continue to enforce its tax laws which many believe are some of the “toughest” in the world.

Michelle DeNiese, executive director of the Corporate Tax Association, shares the same view with Harvey. She said multinational companies should be able to pay their own fair share of tax. DeNiese spoke out against the view that Australia’s corporate tax system is “fundamentally flawed.”

Despite having 15 retail stores in Ireland and Singapore, Harvey claimed he has never used them to shift profits. Harvey Norman has paid higher taxes than Apple in 2014 with $89 million compared to the Cupertino-based company’s $80 million, according to accounts filed with the corporate regulator.

Meanwhile, Kate Carnell, chief executive of the Australian Chamber of Commerce and Industry, told SmartCompany that Harvey’s comments were disappointing. She said the ACCI has been lobbying for the government to address issues of large corporations that have the option to pay taxes wherever they choose.

This news story is reprinted from au.ibtimes.com

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RBA Cuts GDP Inflation Forecasts

The Reserve Bank of Australia has downgraded its forecasts for Australia’s GDP growth and inflation giving an insight into its reasons for cutting the official cash rate to a record low on Tuesday.

In its latest quarterly Statement on Monetary Policy, the RBA revised the forecast for GDP growth for the year to June to 2.25 per cent, compared with a forecast of 2 to 3 per cent for the same period in the bank’s previous estimate. The forecast for the 2015 year was cut by 0.25 per cent to 2.25 to 3.25 per cent.

The RBA slashed its inflation forecast for the year to June to 1.25 per cent, down from its former estimate of between 1.5 per cent to 2.5 per cent in its November statement.

The central bank cut the official cash rate to 2.25 per cent earlier this week, meeting market expectations, but surprising many economists, who believed the bank would hold or cut at a later date.

The RBA said today it downgraded the growth forecasts as the Australian economy had been growing at “a bit below its average rate” in the second half of 2014, while the end of the mining boom was dampening inflation growth.

“While growth in non-mining activity has picked up a little over the past two years, all components except dwelling investment look to have grown at a below average pace over the past year,” the RBA said.

GDP growth is now expected to remain below trend over the course of this year and then to pick up to an above-trend pace in the latter part of the forecast period, in response to rapid growth in LNG exports and the lower exchange rate and interest rates.

But the bank also said gas exports were expected to increase less rapidly than first thought, picking up less slack from the end of the mining boom.

This suggested that consumption will continue to grow at a below-average pace for a time and non-mining investment will remain subdued until at least mid-2015, the RBA said.

In particular, the ABS capital expenditure survey suggests that there will be only very modest growth in non-mining investment in the 2015 financial year, according to the statement.

Lower commodity prices and the depreciation of the exchange rate in the Australian dollar have offset some of this gloom, the RBA said.

This forecasts in this statement are based on the price of Brent oil remaining at US$59 per barrel, which is more than 30 per cent lower than the price forecasts used in November.

“The decline in oil prices is expected to have a positive effect on overall growth in the Australian economy,” the RBA said.

After a year and a half of stable interest rates, the board said on Tuesday that a reduction in the cash rate was appropriate, taking into account the flow of recent information and updated forecasts.

Explaining the rate cut, Mr Stevens said earlier this week that available information in Australia suggested growth was continuing at a below-trend pace, with domestic demand growth overall quite weak while the jobless rate has gradually moved higher over the past year.

Most analysts believe there will be another interest rate cut this year because of a gloomier economic outlook. The Reserve Bank historically has a higher chance of making a second cut in the month directly after a first move.

This news story is reprinted from www.businessspectator.com.au

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