Thought this was an interesting read. To everyone who did invest in the Facebook IPO, have fun
Although the article calls upon US data, it’s still very much relevant to the current situation in Australia. Feel free to skip all the statistics until you get to the graph… This paragraph sums it up for TL;DR readers:
Consumers do not treat price increases and decreases symmetrically. Instead, they give more weight to those that increase than to those that decrease. Economists call this loss aversion. Using the previous month’s prices as reference point, consumers perceive any price increase as a loss and any price decrease as a gain. For changes of equal dollar value, the pain of an increase outweighs the pleasure of a decrease. For example, in applying loss aversion to the April data, we would find that people would feel the pain of increasing prices for fruit and vegetables more than the pleasure of falling prices for dairy products, and the pain of rising motor fuel prices more than the pleasure of the decreasing price of natural gas.
Currently I don’t believe inflation WILL rise substantially for a while, especially with the retail price wars from the past few years, but with the weakening dollar and reduced exports perhaps we could feel an inflation creep soon?
I’ll leave you to read if interested – but what surprised me in the article is that the Eurozone is actually China’s primary export market (as opposed to the US)!
The main gist of the article is that China is attempting to eradicate the USD as a reserve currency (mainly by buying up plenty itself, I forgot exactly how many trillions of USD China have in reserve) and they WERE on the same track with the Euro, except they’ve now stopped purchasing European sovereign debt. The aim is to replace the USD with their own new currency, the CNH (international trading variant to the renminbi whose value is NOT dependent on the mainland currency).
Anywho either way I recommend the read to eco students, obviously China’s sustained economic growth is vital for the Australian economy, and the biggest worry with the budget “surplus” (in quotation marks because there are doubts over whether it will happen) is a crash from the Euro market resulting in decreased mineral demand from China as it slows exports.
… from 5.2%. Unemployment was forecasted to rise to 5.3%, so it now seems unlikely that we’ll see the expected interest rate cut (you know, the one the government said was inevitable with the contractionary fiscal policy). The rise in unemployment mainly came from new part-time jobs taken up.
In other news, the Australian dollar has taken a beating recently – economists now predict a drop to at least US$0.90 by December, and a possible $US0.80 if China’s demand for resources slows (COINCIDENTALLY today it was announced that China’s export and import levels for the past month have been lower than expected).
Here’s a good visualisation of the data by SMH: http://j.mp/JZ8lKv
They also do a good ‘budget at a glance’ here, I’ll quickly quote it below:
- Defence – $5.4 billion, over four years
- Scrapping promised company tax cut – $4.8 billion, over four years
- Foreign aid – $2.9 billion over four years
- Tighter superannuation concessions – $2.4 billion over four years
- More than 3000 public service jobs to go
- National Disability Insurance Scheme – $1 billion
- Schoolkids Bonus – $2.1 billion
- Boosting family tax benefits – $1.8 billion
- $3.7 billion for the aged to remain at home longer
- $1.5 billion over five years for remote jobs and community program
- $38.8 billion over four years to higher education with extra support for students from poor backgrounds.
- $1.8 billion in tax breaks to Family Tax Benefit Part A
- Modest tax cut for those earning up to $80,000
- Extra $80 a week for parents of school children aged 16-19 and extra $820 for secondary school students and $410 for primary school students
- Superannuation guarantee rate rises to 12 per cent
- $1.5 billion surplus in 2012-13, to rise to $7.5 billion by 2015-16
- Growth at 3 per cent in 2011-12
- Unemployment to remain at 5.5 per cent in the next two years
My thoughts: not as conservative as it could’ve been, but I guess that may be for the better. I remain sceptical that they’ll achieve the desired surplus purely because Europe’s in deep trouble and we may be headed into another global slowdown sooner than anticipated. The family tax benefits and schoolkid bonuses ARE to sugar-coat the impacts of the carbon tax and hopefully buy Labor some votes come election time. Conversely businesses won’t be happy they didn’t get their tax cuts, and I can imagine Labor knew the votes they’d be losing from high-income earners they probably didn’t have in the first place anyway.
One thing I found a bit absurd was how Swan all but promised interest rate cuts (which although likely, wouldn’t come about due to the budget). I also agree with sentiments that the budget is a bit ‘all over the place’ – why increase spending for dental particularly? Why were all the proposed infrastructure developments merely named without their economic benefit explained (railways are obvious, but a few others were hrmm)? And why DIDN’T he mention expected productivity even once, nor about whether the surplus is indeed achievable (a question he kept dodging during the interview)?
Oh but that interview was GOLDEN. Worth watching just that to be honest Hockey didn’t exactly do himself a favour tonight…
You’ve probably already heard about the 2.15% wiped off the ASX today (2.2% off ALL ORDS), and it seems as though Australian investors have finally acted on the eurozone debt crisis. The upcoming European election results could topple the politics driving the current stimulus packages being pumped into the suffering PIGS, and as a result investors are dumping their volatile assets from European markets.
Locally there was a significant slump in mining shares as investors fear a reduced demand for resources with what seems to be an inevitably upcoming global economic slowdown.
Also don’t forget to tune into ABC at 7pm for the 2012 Federal Budget! A $1.5bn surplus is expected as mentioned yesterday, and it seems as though Swan will go against his promise to lower company tax as a result of the implementation of the Mining Resources Tax a few years ago.
- current stats: cash rate 3.75% (recent 0.5% cut), inflation 1.6%, unemployment steady at 5.2%
- modest “technical” surplus – mainly due to political agenda
- current Australian retail statistics suggest large slump in consumer confidence over past few months, this is supported by the recent 0.5% cash rate cut by the RBA to encourage consumption
- government revenues have been down $150bn over 5 years since the GFC, forecast of $1.5bn surplus after $37.1bn deficit last financial year
- government is carrying on with recommendation from Business Tax Working Group to introduce “loss carry-backs” for businesses where a company applies operating losses to a preceding year’s income to reduce tax liabilities (it is offset against past profits)
- capped at $1m of losses with maximum benefit to any firm of $300,000
- increase in instant write-off for businesses to $6500 (will increase net income after tax)
- to replace existing education tax refund, new means-tested SchoolKids Bonus policy -> parents will receive $820 a year for every teenager in high school, $410 for every primary school child ($300m total claimable)
- average family will receive about $700 more, will cost budget $2bn over 5 years
- $500m pledged to dental services
- budget will come as a surplus only at the expense of subsequent deficits in the future (may have negative impact on economy in the long-term)
- inadequate public transport may act as drag on economy’s growth, causing tax collections to rise faster
- NBN not counted as part of budget (private corporation)
- possible plan of cuts to single-parent welfare benefits
- people on disability pension will be permitted to work 30-hour weeks and still receive welfare (aim to lower unemployment) -> management of ageing population
- requirement of teenage mothers to complete high school or risk suspension of welfare, force long-term unemployed to spend 2 days a week in training
- plan to add $1bn to low-income population by doubling high-income earners’ tax on super contributions (top 1% of income)
It’s been speculated, but I have a feeling it’s about to happen. Consumer confidence is too low for the RBA to not take any measures.