ECONOMY

August 15, 2017

The Reserve Bank of Australia is less confident that house price growth will cool enough for its liking, after it warned that households are still borrowing faster than their incomes are rising.

After regulators including the Reserve Bank imposed a raft of policies to curb bank lending to investors and marginal borrowers, officials conceded that prices are still rising briskly in Sydney and Melbourne.

While the Reserve Bank has given no indications it will resort in the near-term to interest rate hikes to slow the market further, board members regarded “conditions in the housing market and household balance sheets as continuing to warrant careful monitoring”.

Recently released bank’s august meeting left the official cash rate at a record-low 1.5 per cent, it also reiterated that the focus remains on balancing the risks associated with high household debt in a “low inflation environment”.

The comments highlight a deepening mood of unease over ongoing increases in household debt – which surged above 190 per cent of incomes last quarter, a record and one of the highest ratios anywhere in the world.

Governor Philip Lowe  told a parliamentary committee that banks had responded to restrictions on lending that were imposed in late March, including a measure to limit interest-only lending to no more than 30 per cent of new mortgage lending.

Reserve Bank watchers said the latest minutes and recent official commentary continues the central bank’s focus to inflation, employment and financial stability.

Most local bank economists don’t anticipate a rate hike until late 2018 at the earliest, while financial market betting puts the chance of a quarter-point increase at 52 per cent by June next year.

Source

August 15, 2017

Irrespective of the federal government’s attempt to address housing affordability in the budget this year, it is clear that in order to improve housing affordability, there is much work to be done on both supply and demand drivers of the market.

The share of Australian homes selling for seven figures, that was an unthinkable sum a decade ago has risen to a record high, with Sydney nearing the half-way mark, according to new research.

In markets like Sydney and Melbourne, dwelling values have increased by 77 per cent and 61 per cent respectively over the past five years, values continue to climb and is anticipated that in another 12 months an even higher proportion of sales will be sitting at or above $1 million.

Property data firm Core Logic reported this week 23.2 per cent of all Australian capital city homes sold in 2016-17 were over the million-dollar mark, up almost two whole percentage points, from 21.5 per cent, on the previous 12 months.

Sydney led the price inflation, with nearly half (47.8 per cent) of all houses in Australia’s biggest city selling in 2016-17 for at least $1 million. Ten years earlier, it was only 13.8 per cent.

The Melbourne market had only a quarter (25.9 per cent) of million-dollar homes, but this was well up from a decade ago, at only 5.8 per cent.

Many experts predict that property prices will grow slower in coming months, but continue to rise nonetheless, with factors such as immigration, a potential pickup in the economy, persistently low interest rates, and state and federal government benefits for first-time buyers.

In the minutes of the Reserve Bank’s August rates decision, published on Tuesday, the central bank said there were “signs” that the Sydney and Melbourne property markets “had eased somewhat”, but that price growth “remained relatively strong”.

“In some other housing markets, prices had been declining,” the RBA said.

Borrowers investing in residential property had been facing higher interest rates and growth in credit to investors had eased, but overall housing credit growth had continued to outpace the relatively slow growth in household incomes.

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17 August, 2017

Australian employment growth has been strong all year long, a positive sign for the overall economy. However, the Reserve Bank of Australia (RBA) remains concerned with spare capacity in the jobs market – a situation that keeps wages low.

Part of the problem with spare capacity may stem from the gradual shift toward part-time employment at the expense of more stable full-time positions. The tide appears to be slowly turning back in favor of full-time work, which could help support wage growth.

Australia’s labor market continued to blossom in July, as employers increased payrolls for a fifth consecutive month. However, the entirety of the gains were concentrated in part-time positions, reviving previous concerns of slack in the labor force.

In seasonally adjusted terms, overall employment rose by 27,900 last month, following a revised gain of 20,000 in June, according to the Australian Bureau of Statistics. Analysts in a median forecast called for a net gain of 19,800. Full-time employment fell by 20,300, following a revised gain of 69,300 in June that was higher than initially forecast. Part-time positions rose by 48,200 after falling 48,000 the month before.

Australia’s jobless rate fell to 5.6% from a revised 5.7% the previous month. Workforce participation, which monitors people who are employed or actively searching for work, edged up 0.1 percentage point to 65.1%.

Analysts expect cyclical wage growth to gather speed in the near term, although service-based occupations are unlikely to benefit.

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16 August, 2017

China is Australia’s largest trading partner and overseas market for Australian resources, services and agriculture, representing over a quarter of all Australian exports at $85.9 billion in 2015-2016.Australia would face severe consequences if China’s economy grows at a significantly lower rate, or falls into recession according to a study.

Australia trade is more than twice that of our next largest trading partner, Japan. The relationship with China represents Australia’s largest dependence on any one nation since the UK in the 1950s.

In addition, while China ranks third for foreign investment in Australia, future increases in investment from China are central to the prosperity of many Australian industries, such as agriculture and construction.

Modelling from Deloitte’s Access Economics, released by economist Chris Richardson, shows that a slowing of China’s growth rate from 6.5% to 3% would effectively cause a recession in Australia.

There would be a loss of 500,000 jobs, a 9% drop in house prices costing Australian families $600 billion, and a 17% share market drop costing $300 billion. Construction and mining sectors would be hit the hardest, resulting in a housing market crash, and a drop in iron ore exports. Iron ore, the biggest component of Australian exports to China, is extremely sensitive to economic conditions.

China currently controls 15 per cent of global trade, 30 per cent of global savings and more than 30 per cent of global investment. However, China is experiencing record debt levels: its debt to GDP ratio stands at an eye-watering 277 per cent; there is a large and opaque “shadow banking” system; and “no nation has ever emerged from such a debt-fuelled growth binge in such a short space of time without a serious lift in bad debts, and a deep recession”, says a business commentator.

There are growing fragilities in the China’s economy, it is changing focus from the export to the consumption sector, the working-age population is shrinking, state-owned enterprises, competition is increasing from lower-cost developing nations, and there is increasing pressure on wages for unskilled workers.

A downturn in the Chinese economy could be triggered or heightened by climate change events. Increased natural disasters, growing water shortages impacting the agricultural sector, the threat of rising sea levels on low-lying cities and industries including agriculture, and damage to infrastructure from extreme events are just some of the potential impacts.

 

SOURCE

 

COMPANY NEWS

August 7, 2017


Sydney fintech start up ZipMoney has landed a $40 million investment from Westpac.

The round, announced on the ASX on Monday morning, includes $40 million cash up front and a further $8 million in future performance-dependent funding.

Zip Money’s deal immediately becomes the third largest capital raising in the Australian tech sector this year, behind online conveyancer PEXA’s $64.7 million and Saluda Medical’s $53 million.

ZipMoney operates a “buy now, pay later, no interest” service — integrating into online retail stores to reach consumers. The business’ IP is in the artificial intelligence and big data technologies that drive its credit and fraud decision engine.

Westpac’s investment is the second involvement from a Big Four bank for the payment tech start up, after it revealed a new National Australia Bank-led $260 million debt facility in May that was the largest of its kind in Australian fintech history.

According to ZipMoney, the new Westpac relationship would go “both ways” with the fintech gaining access to the bank’s customer base and exploring “the integration of Zip’s products and service across Westpac’s network throughout Australia”.

The Sydney start up stated that the June quarter saw “record” results, with the user population reaching 665,000 and more than $300 million in transaction volume through the platform.

“Zip will benefit from Westpac’s expertise, its 200-year history and the power of its distribution capability to help fuel our growth,” said ZipMoney co-founder Larry Diamond.

ZipMoney also has personal budgeting app Pocketbook under its umbrella, after a $7.5 million acquisition last September that was claimed to be Australia’s first fintech-to-fintech merger. Pocketbook itself reached 365,000 users during the June quarter.

SOURCE

August 22, 2017

Apple was unaffected by the two major pieces of legislation Australia had introduced to crack down on multinational tax avoidance.

The Australian head of technology giant Apple says a five-year audit of the company’s tax affairs did not result in any penalties or ongoing disputes with the Australian Tax Office, Tony King told a parliamentary inquiry that a “lengthy and rigorous” audit by the Australian Tax Office finished in May. He said there were no issues in dispute.

“The audit has concluded and no penalty was imposed by the ATO,” Mr King said.

“We have confirmation from the ATO that all our corporate taxes are up to date.”

The local executives of some of the world’s biggest e-commerce companies are appearing before the long-running Senate inquiry into corporate tax avoidance in Sydney. The ATO has hit large corporates and multinationals with $4 billion in tax bills this financial year. $2.9 billion relates to seven multinationals in the resources and e-commerce fields. Contrary to expectations, Apple appears not to be among them.

Apple had not been forced to restructure to change its business model to comply with any new laws, Mr King said neither the Multinational Anti-avoidance Law (MAAL) nor Diverted Profits Tax (DPT) had affected Apple, he said.

The anti-avoidance legislation is designed to look at companies who have their books and records, unlike Apple, on an offshore basis. The Diverted Profits Tax is designed to capture tax on transactions where transfer pricing is not correctly applied. The ATO audit was of Apple’s affairs from 2012 to 2016. During those audit years, Apple paid $630 million in tax, Mr King said. In 2015, for example, Apple paid $146 million tax on revenue of $8 billion. The cost of sales, which is the purchase of Apple products by Apple Australia, was $7 billion. There were also expenses for 4000 employees, real estate and other expenses, which left net profit of $500 million.

SOURCE

August 22, 2017

The big four accounting and consulting firm beat Deloitte and PwC for the audit role, which was worth a combined US$16.9 million ($21.3 million) last year. EY is set to become BHP’s new global auditor from July, 2019, after beating its rivals during a two-stage competitive tender.

The mining giant made the announcement, as it also rewarded shareholders by more than tripling its final dividend even as underlying profit came in well below expectations.

BHP’s global audit account is one of the most valuable, and prestigious, in the country but the changing nature of work done by the big four means that it is potentially more valuable as a consulting client.

The win will mean EY is limited in the level of non-audit advisory work it can provide BHP once it becomes the company’s external auditor.

While the absolute value of traditional audit work has grown over time at the local arms of the big four, the proportion of revenue it represents has been steadily falling as the level of consulting work increases.

The percentage of audit work done by the big four has dropped to 16 per cent of revenue at Deloitte in 2015-16 financial year, 19 per cent at PwC, 22 per cent at KPMG and 24 per cent at EY.

BHP’s current auditor, KPMG, was unable to bid for the work due to European Union and UK rules around mandatory auditor rotation which mandated a new firm had to be in place by 2023.

KPMG is set to continue working on the audit until the 2019 results, after which EY will step into the role. In 2016, KPMG earned US$15.8 million for it’s audit work at BHP and another US$1 million for non-audit work at the mining company. The change in auditor is subject to shareholder approval.

SOURCE

TAXATION

 

Australia’s federal Trade Minister has warned that billions of dollars of exports and thousands of jobs are at risk from the Queensland Government’s new state procurement policy.

Last month, the Queensland Government announced a “Buy Queensland” procurement policy, which will apply across all agencies, statutory bodies, and government-owned corporations.

From September 1, 2017, this policy will define a “local supplier” as a business that maintains a workforce within a 125km radius of where the goods or workers are needed. Local suppliers will receive a local weighting of up to 30 percent on any tender lodged for a significant procurement. At least one local or regional supplier, and one other Queensland-based business, must be invited to quote or tender for every procurement opportunity offered.

According to a statement from the Government, the Cabinet has agreed the state Government would no longer be constrained or bound by free trade agreements that have seen jobs go offshore or interstate. If Queensland breaches Australia’s free trade agreements, the country’s trading partners could retaliate and increase barriers to trade.

SOURCE

10 August 2017

The Australian parliament has passed legislation to ensure parity in the taxation of manufactured cigarettes and loose leaf tobacco.

Revenue Minister Kelly O’Dwyer said that a disparity currently occurs because the duty on cigarettes is a set amount per cigarette stick, based on an assumed 0.8 grams of tobacco. The duty on loose leaf tobacco is applied by reference to weight, at a rate per kilogram. O’Dwyer explained that, as the average stick cigarette contains less than 0.8 grams of tobacco, the current rate of duty on loose leaf tobacco is a lower effective rate than for stick cigarettes.

Under the new rules, the per kilogram tobacco duty rate will be based on the assumption that the average cigarette contains 0.7 grams of tobacco.

O’Dwyer said that the adjustment will increase the duty imposed on loose leaf tobacco over four years. The first adjustment will take place on September 1, 2017, with further annual adjustments to September 2020.

The Government expects the changes to deliver AUD360m (USD283.7m) to the budget over the forward estimates period, and an additional AUD35m in GST revenue.

 

SOURCE

9 August, 2017

Just five weeks into tax time 2017, the Australian Taxation Office (ATO) has said that it is on track for another record-breaking year.

According to Commissioner Chris Jordan, over four million returns have already been successfully lodged. This represents an increase of around 350,000 compared to the same period in 2016. This figure also includes an increase of around 72,000 returns lodged through tax agents.

Jordan added that the ATO has so far issued nearly three million refunds, worth a combined AUD6.8bn (USD5.4bn). Most returns are processed within the ATO’s 12-day service standard, he said.

Jordan reported that the ATO’s online lodgement tool, myTax, has seen an uptake in use. He said: “Last year we saw three million people lodge their own tax return through myTax, which was a record at the time. I’m confident we’ll smash this record in 2017, with more than 1.6 million people already lodging through myTax.”

“If you’re using myTax, chances are most of your information will be pre-filled, you’ll have your return done in half an hour, and a refund in your bank account in a week. These are just some of the reasons why it has a 93 percent satisfaction rate with users.”

The ATO suffered major system outages in December 2016 and February 2017, caused by multiple failures on the ATO’s primary Storage Area Network. In June, the ATO said that the storage system has now been rebuilt to “world class levels of both performance and resilience.”

Jordan said: “Our people worked around the clock to ensure our systems were ready to cope with the surge of returns from July 1 – and the hard work has paid off. Overall our systems are performing strongly, better than they were last year. We’re also receiving fewer complaints – nearly 30 percent less than at the same time last year.”

 

SOURCE

Due to tougher government regulations and new tax rules, Australia is losing Chinese buyer interest to other parts of the world.

Chinese international property portal Juwai.com figures revealed that Chinese inquiries in Australian residential property was down 9.7 per cent in the first half of the year compared to the same period in 2016. The median inquiry price also fell from about $394,000 to about $350,000. At the same time, inquiries from around the world including Thailand, Japan and Malaysia grew 8.7 per cent.

The data comes as Chinese regulators formalised new guidelines restricting Chinese corporate investment overseas that include real estate being placed on a ‘restricted’ list, which could further compound a drop-off in new developments in the Australian property market.

 

The Australian head of Juwai.com, Jane Lu, said Chinese buyers were still adjusting to the new regulatory and tax rules in Australia, which remained the second-most popular country in the world for investment. The price of similar property in Australia as compared to China offers good value.

The Victorian Government axed the stamp duty concession for off-the-plan investors from July 1 and more than doubled the foreign-buyer stamp duty surcharge from 3 to 7 per cent in 2016. NSW doubled its foreign-buyer surcharge to 8 per cent, while Queensland implemented a 3 per cent surcharge. The policy changes have prompted some China-based businesses to diversify by selling other countries’ real estate.

Investorist, a business-to-business, off-the-plan property website, surveyed 120 China-based agents for its China 2017 International Property Outlook report.

A majority 83 of the agents said they were currently selling property in Australia, but only 47 said they would sell in Australia in the next 12 months.

 

SOURCE

August 21, 2017

Starting July 1, 2018, Australia will begin collecting a 10% tax on books ordered online from within Australia, and shipped from abroad.

The new regulation, which was agreed upon in June, comes after significant lobbying from Australian retailers, including the Australian Booksellers Association. The Booksellers Association has claimed its members are at a disadvantage under the current tax system. The Australian retailers say overseas companies were taking advantage of a regulation placing taxes only on imported items shipped from abroad that were valued at AUS$1,000 or more. This regulation, the retailers pointed out, left items below the threshold, such as books, tax free.

The new provision in the law extends the 10% tax to “low value” goods, including those costing as little as AUS$1. The tax must be collected by companies selling AUS$75,000 of goods or more a year.

Amazon was among the companies in opposition to the law, and had argued that taxing shipments to Australia was “unworkable.” The American retail giant, which is expected to open an Australian based business next year, said a new tax would be too complex to implement. Others in opposition to the law included international online retailers such as EBay and Alibaba.

Commenting on the change to the law at the Booksellers NZ Conference, Australian Booksellers Association chief executive Joel Becker said it was “good news.” He went on: “I congratulate the Australian Government and praise all those within the books community and the broader business sector who collaborated so effectively on this long campaign.”

 

SOURCE

CURRENCY & TOURISM UPDATES

 

August 20, 2017

On a daily technical chart, AUD/USD remain in clear retreat from recent, two-year highs. However, it has not fallen very far and support is holding even at current, relatively lofty levels. Strong employment data, could see that support consolidate, while weakness may see it give way at last.

The Australian Dollar gained, following the release of minutes from the Reserve Bank of Australia’s last monetary policy conclave which saw the central bank quite upbeat about domestic economic prospects, even if it stuck to its usual caveats.

The RBA has forecasted this month that the economy will soon be growing at a robust 3 per cent on-year rate, adding the bet assumes no major shift in the Aussie dollar.

The RBA has been subtly ramping up warnings about the Aussie dollar this month, after the currency surged to its highest levels since 2015, and threatened to extend the gains.

The central bank is hoping for stronger economic growth and sees inflation rising back to its 2-3 per cent target over time, neither of which will be helped if the Australian dollar were to continue rising

The RBA kept interest rates unchanged at their 1.5% record low on July 1, but then took the chance once again to worry about the negative effects it feels a stronger currency would have on the Australian economy.

The RBA noted improvement in the global economy, particularly in China and the Eurozone, and said that recent data suggested better domestic growth in the second quarter. This is possibly what supported the currency in the aftermath.

However, the minutes said house prices and household debt levels warranted “careful monitoring” and that expectations of low wage growth coupled with high debt levels could rein in consumer spending.

Essentially the RBA is still fretting that the high cost of home ownership, along with subdued wages, is making the going tough for domestic demand. The RBA said recently that strong employment data could see wages rise. Official labor-market numbers will be released in the next obvious risk event for the local currency. There was a customary warning that further Aussie Dollar strength could mean weaker inflation and slower growth.

With economic conditions in Australia finely balanced, the RBA is expected to continue talking down the currency for now.

SOURCE

August 17, 2017

According to the record international visitor numbers in year to June 2017, Australian Chamber – Tourism today claimed tourism its unsung hero for the economy. Tourism has been given the auspicious nod that it is, indeed, doing some really top notch work.

The June publication of the Overseas Arrivals and Departures figures shows that in trend terms, 733,100 international visitors came to Australia in June 2017, an increase of 6.3 per cent from June the previous year.

This release also rounds out the 2016-17 financial year, showing visitor numbers increased from 8.45 million in 2015-16 to 8.55 million in 2016-17.

John Hart, Executive Chair of Australian Chamber – Tourism said, “These are the highest numbers on record, and we know from the last International Visitor Survey that in addition to more visitors arriving, they are staying longer and spending more.

“More Australians than ever are employed in tourism, and if the sector continues to grow many more will be.” Hart said tourism is largely responsible for ensuring Aussies have plenty of jobs available.

Tourism is well known for the jobs on offer to young people as a great entry into the workforce. This is certainly true, but the job opportunities generated by tourism are across all skill levels and are widely dispersed across Australia. Focusing on developing tourism sectors in regional areas will help address the youth unemployment that is being addressed currently. Regions such as Townsville are hot spots for youth unemployment that gives opportunity to leverage regional tourism to address this challenge. There are still a few conundrums at play in terms of getting visitors to all parts of our country’s vast land.

To increase the numbers of visitors to our regions, there is a need to make it easier for tourists to get to them, and easier for them and the businesses that serve them to connect to the world.

Governments must increase infrastructure investment around both physical and digital connectivity in order for regional tourism to reach its potential.

The tourism sector continues to go from strength to strength, employing directly and indirectly almost one million Australians and contributing $53 billion to our national GDP. However the benefit to Australia tourism is much more than an economic story, it is about the richness it can create in communities and the improvement in cultural understanding.

Today’s figures also demonstrate the value Australians see in tourism experiences and cultural exchange with 850,700 residents departing Australia for holiday purposes, up 3.1 per cent from the June 2016 figures.

SOURCE