Federal Budget and Reserve Bank differ

Just a week after the Federal Budget, Reserve Bank of Australia (RBA) estimates suggest the numbers do not add up.By the RBA's calculations, the Budget could be out by $11 billion.
Documents obtained by 7News show the RBA has a major difference of opinion on Treasury's growth predictions. Treasury secretary Ken Henry today rejected criticism of the "optimistic" economic forecasts put forward by his department and defended its independence from government interference. Last week's Budget forecasts predicted the economy will see a recovery with above-trend Gross Domestic Product (GDP) of 4.5 per cent in 2011-12.
Treasury says the stimulus measures taken prior to the Budget will raise GDP by 2.75 per cent.
But Reserve Bank estimates, obtained under Freedom of Information by 7News say they will boost growth by roughly 1.75 per cent. That is a difference of 1 per cent of GDP, or $11 billion.
When the anomaly was pointed out to the government today the response was that Reserve Bank estimates were three months old and that part of the Budget had been clumsily worded.
Shadow Treasurer Joe Hockey is concerned there may be other errors in the Budget. "The Budget is barely one week old and now it has this multi-billion dollar problem," he said. "These Budget papers need to be corrected immediately." The section referring to measures taken prior to the budget should have included measures taken in the Budget. It would have added another 0.75 percent of GDP, bringing the document closer to the Reserve Bank's prediction. Giving his annual post-Budget address to business leaders in Sydney today, Dr Henry took at swipe at those who "seemed to think we must have simply plucked the numbers out of the air".Dr Henry said Treasury's method for calculating GDP used several factors, including the unemployment rate, the population aged over 15 and productivity. "We can obtain an index of real growth domestic product simply by multiplying together those five things and that's actually what we did," he said. "Taken together, those factors produce a GDP growth rate of 4.5 per cent." Reserve Bank Governor Glenn Stevens gave his assessment of Treasury's outlook in hardly a ringing endorsement. "I don't think it's, crazily optimistic," he said. Prime Minister Kevin Rudd says Australia's debt will peak around $300 billion.
Mr Rudd had to be asked the question several times on television before he would name a figure.
He said the peak projected public debt would be 13.8 per cent of GDP in 2013-14. "We're aiming to a gross figure of 13.8, which comes out at about 300 (billion)," Mr Rudd said.
Read the Freedom of Information documents here (WARNING: Large PDF file)

capping salary sacrificing on super

The federal government has cut by half the amount some Australians can save in superannuation through salary sacrificing and has reduced its contribution to lower income earners who choose to save more."The government will reduce the generosity of some superannuation concessions for those with greater private wealth," Treasurer Wayne Swan said on Tuesday as he handed down the federal government's 2009/10 budget.
"The cap on concessional super contributions will be lowered and the matching rate of the superannuation co-contribution will be reduced temporarily."The cap on concessional super contributions for people aged under 50 will be reduced to $25,000 from $50,000, the budget documents said.The cap for those aged 50 and over, which was an interim measure to make up for the fact that they hadn't participated in the super scheme for as long, would be reduced to $50,000 from $100,000 up to the 2011/12financial year.The concessional contributions allows employees to salary sacrifice, avoiding the normal income tax rates of 30 per cent or more, and put the money into their super scheme, which is taxed at 15 per cent.The government will also reduce the super co-contribution matching rate to 100 per cent from 150 per cent, for lower income earners for the next two financial years. The rate will rise to 125 per cent for 2012/13 and the year after that.Up to this financial year, the government had contributed up to $1,500 to those who put an extra $1,000 after tax into their super scheme. The maximum contribution for the next two years would now be $1,000.

Budget 2009

Some Australians bore the brunt of those hard choices, while others are set to benefit from the Treasurer's recession-busting budget plan.
Here is a breakdown of this year's winners and losers:
WINNERS
Pensioners Single pension payments boosted by $32.49 per week, $10.14 per week extra for couples on the full rate.
Carers Mr Swan plans to introduce one-off bonuses for Australia's 500,000 carers - $600 per year for carer payment recipients and an extra $600 per year for carer allowance recipients.
Parents18 weeks of Paid Parental Leave from 2011 – paying minimum wage of $540 a week - worth $731 million over four years.
Homebuyers First Home Owners Fund extended by a further six months from June 30.
People who enter into contracts on or before September 30 will still be eligible for a grant of $14,000 for an existing dwelling and $21,000 for a new home.
The more generous scheme will then been phased down, and end after December 31. Read more
CompaniesSmall businesses will be able to claim a 50 percent tax deduction on new capital worth $1,000 or more, such as vehicles, purchased between December 13, 2008 and December 31 this year. Read more
Larger companies – particularly industrial and transport groups – are set to gain from the $22 billion infrastructure plan.
Low-income earnersThe average person will be better off from July 1 - when the tax savings from last financial year will range from nearly $3 for those with annual salaries of $30,000 up to about $10.50 for those on $100,000 a year.
Middle-income earnersThey will receive the tax cut but some will be hit by the rise in the Medicare Levy, the phase out of Private Health Insurance rebate and changes to superannuation contributions.
InvestorsThe vast infrastructure plan will lift activity from listed industrial companies and promote growth. However, some investors will be hit by the changes to concessional superannuation contributions.
Students$1.5bn for the Jobs and Training Compact, providing education and services to support young people, retrenched workers and local communities.
LOSERS
Baby boomersThe decision to raise the pension age to 67 will come as a big blow for baby boomers born after 1952.
The qualifying age will increase in six monthly increments between 2017 and 2023 as the government attempts to lighten the burden of the "demographic time bomb" of a growing pension bill and a shrinking workforce.
The rich High-income earners will suffer a rollback of tax breaks on superannuation. Read more
From 1 July 2010, the private health insurance rebate will be reduced on a means tested basis by 30 percent for those earning more than $75,000.
The Medicare Levy will be pushed up from 1 percent to 1.5 percent for singles earning above $90,000/couples $180,000, single income earners above $120,000 will pay the full surcharge of 1.5 percent.
Middle-income earnersWhile generally winners, middle income earners will also be hit by cap on salary sacrificing for superannuation. Read more
From 1 July 2010, the private health insurance rebate will be reduced on a means tested basis by 30 percent for those earning more than $75,000.

Difficult times ahead

AUSTRALIA will encounter an increasingly difficult time over the coming months as the economy battles against the backwash of the global financial crisis, the head of the Commonwealth Bank said yesterday.But Ralph Norris stopped short of agreeing with Gail Kelly, his counterpart at Westpac, that the country would fall into recession this year as a consequence of the worldwide drop-off in economic growth.Speaking a day after Mrs Kelly said a local recession was now unavoidable, Mr Norris, who heads the country's second largest bank by market capitalisation, said his organisation, remained cautious about the short- to medium-term outlook for growth.With more than 70 per cent of the developed world now in recession, the Commonwealth Bank chief executive told a Credit Suisse-organised investment conference in Hong Kong that the current state of play represented the "worst economic performance in our lifetimes".World growth was now forecast to go backwards this year and this would have a direct impact on the Australian economy, which was already slowing and experiencing rising unemployment, Mr Norris said. The effects would be felt across a broad range of the bank's customers, which made the domestic outlook "increasingly difficult".However, he joined both Mrs Kelly and ANZ Bank's chief executive, Mike Smith, who spoke at the same conference this week, in praising the strong policy responses by the Government and the Reserve Bank in helping to offset the worst of the global downturn.
The Federal Government's twin stimulus packages totalling $52 billion and the deep cuts in interest rates by the Reserve Bank would help to "soften the impact" of the slowing economy.
Mr Norris also highlighted the strength of the Australian banking sector which, unlike the shattered financial services industries in the US and Britain, was now among the strongest in the world. With four of the only 12 globally "AA" rated banks, the Commonwealth, Westpac, ANZ and National Australia Bank were also now listed among the world's top 20 safest such institutions, he said.Each was profitable, well capitalised and, just as importantly, continuing to lend, as witnessed by the finance flowing to the housing market. That was being helped by three main drivers: a chronic undersupply of homes, the boost provided by first-time home buyers, who have been bolstered by the Government's direct grants, and the 400 basis points cut in interest rates.As for the state of consumer credit - a key indicator of both the economy's immediate health and the quality of the bank's lending book - Mr Norris said its housing and personal loan portfolios remained sound.While conceding that there had been a small rise in the arrears rate of those home-owners who were 30 days or more behind in their repayments, this, he argued, was off an historically low base.As to a recent jump in credit card arrears, that could be put down to a one-off change in the minimum monthly amount that borrowers now needed to meet

Housing shortage to increase

The federal opposition says housing shortages in the near future are likely to be far higher than predicted in a new report.In a report commissioned by the federal government, the National Housing Supply Council has confirmed there is plenty of land available for development on the fringes of Australia's major cities.But it says without significant government and industry intervention the housing crisis could increase tenfold by 2028.In 2008, the housing shortfall was around 85,000 dwellings.In three years, the number was expected to reach 203,000 and hit 431,000 by 2028.The forecasts are based on recent housing development and government funding trends.But if these trends slow, the predicted shortfall could top 800,000, the report warned.The shortfalls could also be higher than the report predicts because it fails to include the impact of the global financial crisis.Opposition housing spokesman Scott Morrison said the projections are "overly optimistic"."Banks and housing groups have been forecasting an undersupply of 200,000 dwellings in the next financial year and I think that's pretty accurate," he told AAP.Mr Morrison said exorbitant state and local government charges associated with new housing development must be cut and more land released.The government should also be doing more to help the private sector rather than public housing, he said.But National Housing Supply Council chairman Owen Donald said the majority of housing demand was coming from the bottom end of the market and people from lower socioeconomic backgrounds were going to be hardest hit as rents and housing prices lift.He said there had been a significant boost to housing investment, particularly in social housing, by the Rudd government but much more was needed."The absence of a very significant industry response and a very significant response from government will actually lead to a deterioration of housing supply ... and ... affordability," Dr Donald told reporters.Housing Minister Tanya Plibersek said the bleak outlook should not be seen as a sign that the Australian dream of home ownership was no longer achievable."No, this report shows that with government action and with industry responses we can begin to close the gap between housing demand and housing supply," Ms Plibersek told reporters.Ms Plibersek said it should also send a clear message to industry."The incentive is that they want to build the sort of houses that people want to buy, that's their bread and butter."

housing sustained by first home buyers

It's only first-home buyers entering the property market that is keeping the sector afloat, the Property Council of NSW says.The housing market in Sydney's west is enjoying a mini-property boom, the latest figures from the NSW Office of State Revenue shows.The number of sold sales across all western Sydney suburbs for the three months to February soared by up to 20 per cent on last year, News Limited reported.Sales in suburbs such as Blacktown and Penrith sales are up 20 per cent. In Liverpool, Campbelltown and Fairfield they are up 12 per cent - to a six-year high.The number of contracts exchanged in the three months to February was up more than 1,100 over the same period last year.But it is only the first-home buyers that are producing the figures, the NSW Property Council says.Its executive director, Ken Morrison, says the figures point to the need for extending incentives to get buyers into the market."The rest of the market is very, very flat and falling and we saw that this week with new data out from the ABS (Australian Bureau of Statistics) on development approvals figures."So the rest of the market is extremely flat and falling."The only thing that is holding it up is this first home buyer incentive."NSW Treasurer Eric Roozendaal also attributed the sales increase to first time home buyers entering the market.He said that half the homes sold in the areas had been bought by first-home buyers, adding that more than 8,500 contracts had been exchanged in the last three months."We're seeing people take advantage of the NSW government stamp duty concessions and the first home-owners grant to move from rental accommodation into their first home," he told ABC Radio on Saturday.

well, lets see if the councils can see their way through being power wielding dictators and actually allow small developers to build and help the economy to resurrect instead of obstructing the way as they have been to date

Rate cut or not to rate cut, that is the question

The Reserve Bank's recent aggressive policy of interest rate cuts could be coming to an end this week, a prominent economic expert says. The RBA gave strong indications two weeks ago that it would be backing away from a series of drastic rate cuts that have seen four percentage points shaved off the cash rate in the past six months.While some are predicting the central bank will ease rates by as much as 1 percentage point tomorrow, others, including Macquarie Bank's interest rate strategist, Rory Robertson, think it could leave rates on hold. "I think this week's policy decision probably boils down to a choice between a 50-basis-point cut or a policy pause," he told AM. "The Reserve Bank's cut by four percentage points in the past five or six months; that's the sharpest easing in monetary policy in their history and mortgage rates in Australia now, in the 5 to 6 per cent range, are as low as they've been in 40 years. "So I think the Reserve Bank has flagged pretty clearly its inclination to think about pausing. "Whether or not it pauses tomorrow, I'm not sure. I think there is a real possibility the Reserve Bank will pause after cutting at five consecutive meetings."
Mr Robertson says he thinks Australia is heading into a recession, but he argues there may be justification for keeping some "fuel in the tank" for later interest rate cuts to stimulate the economy. He says with the second stimulus package injecting money into the bank accounts of millions of Australians from April, the Reserve Bank could afford to see whether the economy recovers without the need for further rate cuts. "The Australian economy to this point hasn't shrunk at a dramatic pace," he said. "We've cut as hard as any other central banks have cut and our policy rate is actually connected to something that matters and that's mortgage rates at least," he said. "So I think there is room for the Reserve Bank to take into account of the fact that interest rates have come down across the economy, there have been two fiscal packages, and the Australian dollar has come down a lot. "I'm not convinced that faster is better in terms of rate cuts from here. I think that's the story the Reserve Bank is in the process of telling."Don't expect a rate cut this month.