ECONOMY

A Reuter’s poll taken from Jan 9-17 found analysts estimated Australia’s $1.7 trillion ($1.27 trillion) of gross domestic product (GDP) grew 2.4 percent last year, down from the 2.9 percent expected in the previous survey in October. The deterioration reflected a surprise 0.5 percent contraction in GDP in the three months to September, the first negative reading since early 2011.

The setback appears to have been temporary with monthly data pointing to a revival in consumer spending and exports. Rising prices for many of Australia’s major commodities, notably iron ore and coal, delivered the first trade surplus in almost three years in November.

Paul Bloxham, HSBC’s head of Australian economics, noted the average price of the country’s commodity export basket had climbed 40 percent from the trough seen in early 2016.

Miners are also shipping more product with export volumes of liquefied natural gas alone rising almost 40 percent in 2016. “All this is set to lift export values, nominal income growth, corporate profits, tax revenues, wages growth and inflation,” says Bloxham, who tips GDP growth of 2.8 percent this year and 3.2 percent next.

However the risk of a trade war between China and the United States, given the past pronouncements of President-elect Donald Trump could bring a negative outcome of the analysis.

China is Australia’s single biggest export market and any U.S. policy that hampers trade would likely spill over to commodity demand and prices. Domestically, the labour market has also disappointed with marked shift toward part-time hiring rather than more secure, better-paid full-time jobs.

The Reserve Bank of Australia (RBA) has highlighted employment as one area of concern for this year and might yet be compelled to cut interest rates again, should the labor market take a turn for the worse. Rates are already at record lows of 1.5% and the central bank is reluctant to ease it further. Much will depend on whether inflation picks up as policy makers hope. Having spent the past two years under the RBA’s target band of 2 to 3 percent, analysts predict inflation will accelerate to 2.1 percent this year and 2.2 percent for 2018, greatly lessening the need for new rate cuts.

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Home buyers and property investors have enjoyed the last six blissful years of falling mortgage interest rates, but a growing group of forecasters believe the next rates move will be up.

 

Some are pencilling in a Reserve Bank interest rate rise this year, while some believe the official cash rate will remain steady for all of 2017. Others still think another cut is on the cards if Australia’s economy remains weak or there’s another global financial shock.

 

The RBA has cut its official cash rate 12 times since 2011, from 4.75 per cent to today’s low of 1.5 per cent.

It can’t keep cutting forever because it’s quickly running out of percentage points to cut, and there have been claims that its recent cuts failed to have the desired effect of boosting the economy and increasing inflation, which remains stubbornly low.

 

The offshore movements have affected the interest rates. The US has started raising interest rates as inflation there increases, and rising inflation can be contagious. Economists believe US authorities will increase interest rates between two and four times in 2017.

 

Property owners and investors haven’t seen a RBA rate rise since November 2010, so for many it will be a financial shock and for some it will be a completely new — and disturbing — experience.

Most households tend to spend almost every cent they earn, so having to find an extra $40, $60 or $100 a month each time rates rise can seem scary.

Many property investors have already felt this in recent years as banks started charging investors higher interest rates than owner occupiers, pocketing some handy profits along the way.

The best way to minimise the financial pain of higher interest rates is to prepare yourself early.

Australia’s unemployment rates slightly moved upward from 5.7% in November to 5.8% in December which took the unemployment rate to its highest levels in 6 months, erasing the gains made in the later half of 2016.

According to the Australian Bureau of Statistics, the economy outstripped economists’ expectations of 10,000 new jobs, creating 13,500 in December. It added 9,300 full-time roles and 4,200 part-time positions. 

However, there was a rise in the participation rate, the number of Australians both employed and actively looking for work – meant the total unemployment figure rose. Participation edged up to 64.7 per cent, from 64.6 per cent in November. 

The Australian economy added 91,500 jobs in 2016 – the worst yearly figure since 2013. Year-on-year employment growth was 0.7 per cent in 2016, well above the 20-year average of 1.8 per cent.

Alarmingly, according to the latest TomTom Traffic Index data, Sydney already has traffic congestion greater than London’s. Sydney’s most congested road is a stretch of the Pacific Highway in the northern suburbs along which motorists crawl at less than 20km/hr at peak periods, an analysis of government data shows.

And with Sydney’s population forecast to surge by 1 million over the next decade, major arterial routes such as the Pacific Highway and Epping Road in the north west will come under increasing pressure.

The telematics company found congestion in the NSW capital that increases travel times by 36 per cent, which adds an extra 151 hours to the time motorists spend on the road each year. In London, traffic congestion increases travel times by 38 per cent, which equates to 149 additional hours. The index has also found inner-city congestion costs Australian businesses $3.37 billion annually in wasted labour costs because of the extra time courier drivers are spending in traffic.

Our cities are already choked with car traffic and on-demand services that use cars, vans and trucks will add more vehicles to the mix, what is known as ‘induced demand. The city’s growing congestion is also due to the on-demand, convenience economy.

Regulation and, more importantly, smart infrastructure investment will help to ease the congestion problem in the times ahead.

Research from the IT outsourcing company has revealed that Australian businesses rank last in artificial intelligence maturity globally, with a lack of skills and ethical concerns impacting adoption levels.

Two-thirds of “big business” organisations in Australia have artificial intelligence (AI) technologies in place, spending an average of AU$8.2 million in 2016, according to a report from IT giant Infosys.

Despite the reported weighty financial investment, Infosys revealed that Australian businesses ranked last in AI maturity globally, citing a lack of skills and ethical concerns as having an impact on the country’s adoption levels.

In compiling its Amplifying Human Potential: Towards Purposeful Artificial Intelligence report, Infosys surveyed 1,600 business decision makers, with 200 representing medium to large organisations in Australia, and found that Australian business leaders believe that future growth of their organisation depends on large-scale AI adoption.

Infosys said 64.5 percent of the Australian respondents have already deployed “AI technology” within their organisation, but noted that only 59 percent of respondents were automating parts of their organisation, 49 percent were using predictive analytics, and 46 percent were working with machine learning. The study found further adoption of AI technology was being impacted by ethical debates, such as whether or not AI will be a danger to humanity in the future.

Almost two thirds — 63 percent — of respondents said ethical concerns were a major barrier to their organization’s AI deployment plans, compared to 33 in the United States. Similarly, 74 percent of Australian business leaders said ethical concerns were stopping AI from being as effective as it could be, more than any other country.

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The Australian Taxation Office has warned users of “sharing economy” apps like Uber, Airbnb and Air tasker that it performs data matching with third parties to detect undeclared income.

ATO assistant commissioner Matthew Bambrick said that his organisation obtains more than 650 million records from a range of third party sources  such as banks, eBay and Uber  to match and analyse with its own data to catch Australians not declaring income.

“The data enables us to put together a picture of what a person’s assessable income should be. If something doesn’t look quite right, it will send up a red flag and we’ll investigate further,” he said.

“The ATO is keeping up with the sharing economy, meaning that we have the ability to identify if you have left out a significant amount of your income.”

Last year, the ATO wrote to 20,000 ridesharing drivers about their tax obligations after data-matching identified them as earning an income through Uber or similar apps.

“We also write to newly registered drivers, drivers that have been driving and have not registered, and drivers that continue to drive and remain unregistered despite us having written to them previously. The last group can expect more contact from the ATO,” Bambrick said.

The tax office website shows that data-matching processes are currently in place for ridesharing, eBay sales, credit and debit cards, “Specialised” payment systems and motor vehicle registrations. The tax agency says that it adheres to the Privacy Commissioner’s guidelines on Data Matching in Australian Government Administration for all its programs.

The ATO’s data-matching revelations come amid controversy about Centre link’s use of third party data to calculate alleged welfare overpayments.

H&R Block tax communication director Mark Chapman said that Uber drivers must register for GST and declare their gross ridesharing income to not get caught up in the ATO’s crackdown.

To offset any tax liability, Chapman said rideshare drivers have a range of potential deductions that can be claimed, such as fees and commissions to Uber, cost for water and mints.

If you are running a business through the sharing economy you also need to declare this income, as for any business. If the business turnover is more than $75,000 you have to register for GST. If you transport passengers through ride sourcing you have to register for GST no matter what your annual turnover is.

COMPANY NEWS

A financial technology company in the US – “SOFI”is preparing to launch in Australia to offer mortgages in direct competition with the banks.

Sofi has recently posted advertisement on LinkedIn for a manager of mortgage operations, based in Sydney, along with an operations manager and a marketing manager.

The pending opening in Sydney would be SoFi’s first office outside the US, where it has funded more than $US14 billion in student loan refinancing, personal loans and mortgages since it was founded in 2011. Over the past two years, SoFi, which used to be called Social Finance, has raised $1 billion in new equity funding and grown staff numbers from 200 to 700.

SoFi desires to break into Australia’s $1.5 trillion mortgage market. It will be closely watched by Australian banks who have given home loans that comprise the majority of their assets. While the company has an eye on other parts of banking such as personal or business loans, they have not targeted banks’ mortgage lending books.

SoFi, which has been profitable since 2014, was initially established as a peer-to-peer lending platform for US college loans, allowing students at prestigious universities to borrow from well-heeled graduates of the same unis at rates lower than what are typically offered by US government schemes.

Sofi’s funding now comes from securitisation markets and on-selling loans to institutions and banks – and it has continued to expand into other financial services including mortgages, wealth advice and, most recently, life insurance.

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Uber will be emulating its longtime partner Google by sending out cars with cameras to harvest mapping data in Australia.

The ridesharing service has traditionally used Google Maps for its app, but announced in August that it would, at a reported cost of US$500 million, start harvesting its own mapping data in order to reduce its dependence on a third-party product.

The company announced its mapping cars would hit Australian streets for the first time. Gold Coast residents this week will be the first area to see the fitted-out vehicles, with other localities to be mapped in the coming weeks.

“We’re investing now in Australia because it is one of our most popular regions, and as we have grown the need for high-quality and accurate maps underlying the Uber experience has become even more important,” said an Uber Australia spokesperson.

The mapping will be performed by existing Uber vehicles with mapping devices installed to save putting extra cars on the road.

“Of course, we take the privacy of our riders very seriously. If you catch a ride with one of these, know that the devices do not retain any imagery at or around your initial pick-up or final drop-off locations,” said Uber Maps head of product Manik Gupta.

Gupta added that the data would help the company “improve core elements of the Uber experience” such as routing and identifying the best spots for dropping off and picking up passengers.

Industry superannuation funds have blamed lax compliance by the Australian Tax Office for the chronic underpayment of super contributions, leading to workers retiring with tens of thousands of dollars less than they otherwise would.

The accusation is set to spark a row between union-backed schemes and the ATO in a Senate inquiry hearing in Melbourne on Wednesday.

The ATO declined to comment on the criticism, but in a submission to the Senate economics committee it questioned industry funds’ claims that as many as 30 per cent of employees were missing out on compulsory super payments, with unscrupulous employers, sham contracting and the cash economy responsible for the underpayment of $3.6 billion.

 

Financial Services Minister Kelly O’Dwyer also weighed in, telling The Australian Financial Review a government-initiated working group examining non-payment of super would provide an interim report by the end of the month, and a final report in March.

 

The government’s working group will develop practical recommendations to ensure employees get the superannuation they are legally entitled to. Employers are required to pay 9.5 per cent of an employee’s salary into their super account.

The ATO argued that Industry Super Australia’s method of calculating the number of people who were failing to be paid the super guarantee was flawed.

“The report substantially overstates the prevalence of SG [super guarantee] underpayments,” the ATO says in its submission to the inquiry into the impact of the non-payment of the superannuation guarantee

Union-backed schemes said that underpayment of compulsory super invariably occurred over long periods.

ISA said that ATO data from 2013-14 showed that people aged between 60 and 64 on salaries of between $50,000 and $75,000 who weren’t correctly paid compulsory super had almost 40 per cent less in retirement savings than they otherwise would.

Matthew Linden, public affairs director at ISA, blamed poor compliance on the part of the ATO for a $35,000 shortfall in workers’ retirement savings.

“It is disturbing that compliance systems are allowing the underpayment of the super guarantee to go on year after year. If the ATO had a more effective compliance system in place, the likelihood of employees being short-changed would be significantly reduced,” Mr Linden said, adding that it left the government short-changed on tax revenue and forced more retirees to rely on a government pension.

“The lower balances also mean retirees need to rely more on the age pension. The impacts are far reaching and the processes and enforcement around unpaid SG must be strengthened,” Mr Linden said.

Mr Linden disagreed with the ATO’s critique of ISA’s calculations, arguing they were done by a former Treasury official.

“We note they [ATO] offer no alternative estimate. If the ATO has concerns, they should explain why the basic methodology used by ISA is utilised by the ATO itself in targeted compliance activities,” Mr Linden said.

The ATO said that it had difficulty in monitoring the timely payments of the super guarantee, partly because retirement funds only reported super contributions on an annual basis, giving the Tax Office no access to data for up to 15 months after the start of any financial year.

It said workers sometimes did not report non-payment of compulsory super immediately, perhaps because individuals did not pay any attention to super until they neared retirement.

The ATO said in its submission that it had embarked on a number of strategies to improve employer awareness of their super responsibilities and educate workers about their rights.