An insolvency firm is warning brokers that small business owners looking for finance are becoming more and more likely to break the law, via Australian Broker.
The group, Jirsch Sutherland, said with the property downturn and
possible negative gearing changes, directors need to be protected by
Safe Harbour regulations.
Alongside uncertainty in the residential property market, company
partner Ginette Muller said a credit squeeze or crunch was coming.
She said, “The current property climate is weighing heavily on anyone who either owns, or aspires to own, real estate.
“And this is particularly acute with small business, where access to
finance is usually conditional on the bank securing the loan against the
director’s house.”
The group said that owners faced with a credit squeeze often turn to
solutions like repayment arrangements with the ATO, use other creditors
by stretching out terms, selling surplus business assets, reducing
overheads and streamlining staff.
Muller said this could lead many to trade while insolvent. She added,
“Australia has some of the most draconian insolvent trading laws in the
world and the reality is, if you are a director and you take any of
these actions, you may be about to commit an offence.”
Safe Harbour was introduced in 2017 and is progressively being used
as an insurance policy by directors in a bid to minimize the risk of
breaching directors’ duties.
Directors are advised to seek Safe Harbour protection prior to negotiating repayment terms.
“Safe Harbour protection is confidential and is not expensive as the director and senior staff remain in control,” Muller said.
“There are rules they need to comply with to ensure they have a plan
and are not driving themselves and creditors off a cliff. In exchange
for their diligence, they can avoid the potential threat of insolvent
trading. Safe Harbour is just another word for insurance.”
In its long-awaited final report on the efficiency and competitiveness of Australia’s leaky superannuation system, Australia’s Productivity Commission provides a roadmap.
Weeding out scores of persistently underperforming funds, clamping
down on unwanted multiple accounts and insurance policies, and letting
workers choose funds from a simple list of top performers would give the
typical worker entering the workforce today an extra A$533,000 in retirement.
Even Australians at present in their mid fifties would gain an extra A$79,000.
If this government or the next cares about the welfare of Australians
rather than looking after the superannuation industry it’ll use the
recommendations to drive retirement incomes higher.
So why the continued talk (from Labor) about lifting compulsory super
contributions from the present 9.5% of salary to 12%, and then perhaps an unprecedented 15%?
It’s probably because (and Paul Keating, the former treasurer and
prime minister who is the father of Australia’s compulsory
superannuation system says this) they think the contributions don’t come
from workers, but from employers.
To date, they’ve been dead wrong. And with workers’ bargaining power arguably weaker than in the past, there’s no reason whatsoever to think they’ll be right from here on.
Past super increases have come out of wages
Australia’s superannuation system requires employers
to make the compulsory contributions on behalf of their workers. Right
now that contribution is set at 9.5% of wages and is scheduled to
increase incrementally to 12% by July 2025.
So, for workers, what’s not to like?
It’s that while employers hand over the cheque, workers pay for
almost all of it via lower wages. Bill Shorten, then assistant
treasurer, made this point in a speech in 2010:
Because it’s wages, not profits, that will fund super increases in
the next few years. Wages are the seedbed of the whole operation. An
increase in super is not, absolutely not, a tax on business.
Essentially, both employers and employees would consider the
Superannuation Guarantee increases to be a different way of receiving a
wage increase.
The Henry Tax Review and other investigations
have found this is exactly what happens. Increases in the compulsory
super contributions have led to wages being lower than they otherwise
would have been.
Even Paul Keating, speaking in 2007, made this point. Compulsory super contributions come out of wages, not from the pockets of employers:
The cost of superannuation was never borne by employers. It was
absorbed into the overall wage cost […] In other words, had employers
not paid nine percentage points of wages, as superannuation
contributions, they would have paid it in cash as wages.
This is more than mere theory. Compulsory super was designed to
forestall wage rises. Concerned about a wages breakout in 1985, then
Treasurer Paul Keating and ACTU President Bill Kelty struck a deal to defer wage rises in exchange for super contributions.
When the Super Guarantee climbed from 9% to 9.25% in 2013, the Fair Work Commission stated
in its minimum wage decision of that year that the increase was “lower
than it otherwise would have been in the absence of the super guarantee
increase”.
The pay of 40% of Australian workers is based
on an award or the National Minimum Wage and is therefore affected by
the Commission’s decisions. For these people, there is no question:
their wages are lower than they would’ve been if super hadn’t increased.
Where’s the evidence employers pay for super?
If wage rises came from the pockets of employers then we should see a
spike in wages plus super when compulsory super was introduced, and
again when it was increased. But there wasn’t one when compulsory super
was introduced – a point Bill Shorten has made in the past.
When compulsory super was introduced via awards in 1986, workers’
total remuneration (excluding super) made up 63.3% of national income.
By 2002, when the phase-in was complete, it made up 60.1%.
Out of the 26 countries for which the Organisation for Economic Co-operation and Development has data, Australia recorded the tenth largest slide in the labour share of national income during the period compulsory super contributions were ramped up.
Of course, changes in super aren’t the only thing that affects workers’ share of national income.
But the size of the fall in the labour share in Australia over the
period when the super guarantee was increasing isn’t consistent with the
idea that employers picked up the tab for super.
Would it be different this time?
Paul Keating argues that while in the past lifting compulsory super to 9.5% was paid for from wages, a future increase to 12% today would not be:
Workers are not getting real wage increases anywhere, and can’t get
them. The Reserve Bank governor makes the point every week. So the award
of an extra 2.5% of super to employees via the super guarantee will
give them a share of productivity they will not get in the market –
without any loss to their cash wages.
But such claims are difficult to square with concerns that workers’ weak bargaining power is one of the reasons current wage growth is so weak..
If employers don’t feel pressed to give wage rises, why would they feel
pressed to absorb an increase in the compulsory Super Guarantee?
And while real wages (wages adjusted for inflation) haven’t grown
particularly quickly, the dollar value of wages continues to grow: by 2.2%
a year over the past five years. It would be easy for employers to
simply reduce those increases to offset any increase in compulsory super
– as they have in the past.
And no, more contributions won’t help workers
The Grattan Institute’s recent report, Money in Retirement,
showed increasing the compulsory super would primarily benefit the top
20% of Australians. It would hurt the bottom half during working life a
lot more than it helps them once retired.
Their higher super contributions would not improve their retirement
outcomes: their extra super income would be largely offset by lower
part-pensions. What’s more, the age pension is indexed to wages. If wages grew by less (as they would as compulsory super contributions were increased) pensions would grow by less too.
Lifting compulsory super would also cost the budget A$2 billion a year in extra tax breaks, largely for high-income earners, because it is lightly taxed.
That would mean higher taxes elsewhere, or fewer services.
For low-income Australians, increasing compulsory super contributions
would be a thoroughly bad deal. It means giving up wage increases in
return for no boost in their retirement incomes.
A government that wanted to boost the living standards of working Australians both now and in retirement would consider carefully all of the Productivity Commission’s suggestions including this one: an independent inquiry into the whole idea and effectiveness of Australia’s regime of compulsory contributions, to be completed ahead of any increase in the Superannuation Guarantee rate .
The Productive Commission released their latest report today. We discuss the findings and consider the implications. Many people are not getting the maximum returns from their savings, thanks to poor fund choice, high fees, multiple accounts and insurance premiums.
In addition, APRA and ASIC have been asleep at the wheel, with more of a focus on the institutions compared with the interests of members.
Finally, industry funds often out perform retail funds.
The Productive Commission summary says:
Australia’s super system needs to adapt to better meet the needs of a modern workforce and a growing pool of retirees. Structural flaws — unintended multiple accounts and entrenched underperformers — are harming millions of members, and regressively so.
Fixing these twin problems could benefit members to the tune of $3.8 billion each year. Even a 55 year old today could gain $79 000 by retirement. A new job entrant today would have $533 000 more when they retire in 2064.
Our unique assessment of the super system reveals mixed performance.
While some funds consistently achieve high net returns, a significant number of products underperform, even after adjusting for differences in investment strategy. Underperformers span both default and choice, and most (but not all) affected members are in retail funds.
Evidence abounds of excessive and unwarranted fees in the super system. Reported fees have trended down but a tail of high‑fee products remains entrenched, mostly in retail funds.
Compelling cost savings from realised scale have not been systematically passed on to members as lower fees or higher returns. Much scale remains elusive with too few mergers.
A third of accounts (about 10 million) are unintended multiple accounts. These erode members’ balances by $2.6 billion a year in unnecessary fees and insurance.
The system offers products that meet most members’ needs, but members lack simple and salient information and impartial advice to help them find the best products.
Not all members get value out of insurance in super. Many see their retirement balances eroded — often by over $50 000 — by duplicate or unsuitable (even ‘zombie’) policies.
Inadequate competition, governance and regulation have led to these outcomes.
Rivalry between funds in the default segment is superficial, and there are signs of unhealthy competition in the choice segment (including product proliferation). Many funds lack scale, with 93 APRA‑regulated funds — half the total — having assets under $1 billion.
The default segment outperforms the system on average, but the way members are allocated to default products has meant many (at least 1.6 million member accounts) have ended up in an underperforming product, eroding nearly half their balance by retirement.
Regulations (and regulators) focus too much on the interests of funds and not members. Subpar data and disclosure inhibit accountability to members and government.
Policy initiatives have chipped away at some problems, but architectural change is needed.
Default should be the system exemplar. Members should only be defaulted once, and move to a new fund only when they choose. Members should also be empowered to choose their own super product from a ‘best in show’ shortlist, set by a competitive and independent process. This will bring benefits above and beyond simply removing underperformers.
All MySuper and choice products should have to earn the ‘right to remain’ in the system under elevated outcomes tests. Weeding out persistent underperformers will make choosing a product safer for members.
All trustee boards need to steadfastly appoint skilled board members, better manage unavoidable conflicts of interest, and promote member outcomes without fear or favour.
Regulators need clearer roles, accountability and powers to confidently monitor trustee conduct and enforce the law when it is transgressed. A strong member voice is also needed.
Implementation can start now, carefully phased to protect member (not fund) interests.
The continuing U.S. government shutdown highlights the periodic weakness in its budget policymaking, Fitch Ratings says. Shutdowns have not directly affected the country’s ‘AAA’/Stable sovereign rating but can signal that disputes on other issues are a constraint on fiscal policymaking.
The partial federal government shutdown that began
Dec. 21 is now the longest since October 2013 (the longest shutdown
lasted three weeks in 1995/1996). President Trump’s refusal to sign
temporary spending bills that did not include USD5.6 billion for border
wall funding and which included appropriations for other programs
exceeding those in the president’s budget triggered the shutdown.
When
and how the government will reopen remains unclear. The advent of a new
Congress on Thursday saw a similar spending package passed by the House
of Representatives, where the Democrats now have a majority. The
package did not include additional wall funding, is opposed by the Trump
administration and will not be taken up by the Senate. Some Republican
senators have advocated passing a continuing resolution to reopen the
government.
U.S. fiscal policymaking coherence can be weak
relative to peers. The policymaking process at times has entailed
shutdowns (there were two short-lived shutdowns earlier in 2018) and
debt limit brinkmanship.
Shutdowns are much less of a risk to
sovereign creditworthiness than debt limit impasses. The partial nature
of the current shutdown, affecting around 25% of the federal government,
should limit its economic impact, although this will increase depending
on its length.
Nevertheless, the ongoing shutdown suggests that
the current arrangement of political forces, following November’s
midterm elections that resulted in a divided Congress, limits policy
consistency. It also makes it unlikely in the near term that medium-term
fiscal challenges, such as rising mandatory spending will be addressed.
The main implication for our U.S. sovereign credit view will
depend on whether we feel this shutdown foreshadows a more pronounced
destabilization of fiscal policymaking, including brinkmanship over the
debt limit, which happened in October 2013. The debt limit is due to
come back into force in March, although the Treasury would have several
months during which it could operate under extraordinary measures. We
view the risk of a failure to lift the debt limit in time to prevent a
U.S. federal debt default as remote. House Democrats’ adoption of a new
version of the so-called Gephardt rule, linking debt limit suspension to
the approval of budget resolutions, could make debt limit impasses less
likely.
Evidence of greater dysfunction in fiscal policymaking
could still contribute to negative pressure on the U.S. rating. This is
especially the case as deficits continue to increase (pro-cyclical
fiscal stimulus in 2018 helped widen the federal deficit in the fiscal
year Sept. 30 by 17% to USD779 billion) at a time when growth is likely
to slow.
Democratic control of the House reduces the prospect of
additional, large tax cuts over the next two years, although spending
consolidation is also unlikely. Policies enacted by the new Congress
could influence U.S. fiscal outturns, although we expect relatively
limited impacts on our deficit forecasts. These include plans to
reintroduce the ‘PAYGO’ budget rule mandating that any changes to
legislation affecting mandatory spending do not increase budget
deficits. Democrats have also said they will amend the rule that
requires a three-fifths majority in the House of Representatives to
raise income taxes.
An online legal service designed to support borrowers tackling mortgage stress has been launched by the NSW government, via The Adviser.
NSW
Attorney-General Mark Speakman has announced the launch of LawAccess
NSW, a website designed to offer free legal services to help borrowers
overcome mortgage stress and settle rates debts with local councils
without being drawn into court proceedings.
According to the
government, the LawAccess NSW website provides two interactive guided
pathways to match people with the information they need to resolve
issues “before they spiral out of control”, with another four pathways
on other topics to be released later this year.
“This service is
arriving at a crucial time for families facing mortgage stress. The
online pathways are convenient and easy to use, with users only needing
to answer a few simple questions to get reliable legal information and
practical solutions tailored to address their situation,” Mr Speakman
said.
“For example, the mortgage stress pathways provide
information on budgeting, seeking a ‘hardship variation’ to a loan and
tips on avoiding ‘quick fix’ pitfalls that could ultimately cause
greater financial pain.”
The government stated that the launch of
the LawAccess NSW website is part of the NSW government’s $24 million
Civil Justice Action Plan, which it said is “harnessing technology and
innovation to make it faster and easier for people to navigate courts
and resolve legal problems”.
“The Civil Justice Action Plan has
huge potential to reduce stressful and costly legal headaches –
particularly for small businesses that are the engine room of the NSW
economy,” Mr Speakman added.
“While
criminal matters tend to dominate the media news cycle, 85 per cent of
legal problems in NSW relate to civil law. So, it’s vital we address
these civil issues faced by almost 2.4 million people in this state
every year.”
The Conversation discusses the lessons from the Opal Tower, and it goes way beyond building certification.
The reasons for the cracked concrete
that triggered the evacuation – twice – of residents from Sydney’s Opal
Tower over Christmas and the New Year are unknown and will take time to
properly establish. Many commentators are jumping to the conclusion
(yes that includes you, Senator Carr)
that the problem is the result of the privatisation of building
certification. Instead of being done by government or council
inspectors, certification is now done by private contractors engaged by
the developer.
It might well be a contributing factor, but what went wrong at Opal
Tower is is much more complex than that. Making certification a
government responsibility again won’t solve it.
Opal is unusual. Very few residential buildings in Australia have
ever been evacuated due to construction defects, and fewer still because
of structural cracking. The vast majority of construction defects in
multi-unit residential buildings are waterproofing failures. Rather than
creating short-term alarm, they create long-term misery. Because misery
does not generate headlines, the problem of quality in multi-unit
housing continues to be ignored by governments.
Most strata buildings are defective
Strata title allows each resident to own the space in which they live
as well as a share of the common property including pipes and walls.
It’s the way apartments are usually sold after they are developed.
We don’t have definitive, current data on the extent of defects in
strata title buildings. Researchers from UNSW’s City Futures Research
Centre have begun collecting the information for Sydney. But there are
clear indications that defects are significant and widespread.
A 2012 study by City Futures surveyed 1,020 strata owners across NSW,
and found 72% of all respondents (85% in buildings built since 2000)
knew of at least one significant defect in their complex.
In 2017 a City of Sydney survey identified defects and maintenance as the top concern of owner occupiers of apartments, along with short-term letting through organisations such as Airbnb.
Unfortunately for those keen to leap to conclusions about
certification, studies showed the same thing back in the early 1990s
when certification was largely in the hands of local governments. In
fact, studies have found the same thing ever since speculative housing
became common in Australia, from the end of World War One.
In fact, ever since speculative housing development and investment
has become common (after World War I in Australia), residential
construction defects have been a concern both here and overseas.
The market for residential buildings is extremely competitive, and
controlling the cost of construction is one of the key factors in making
a profit. Sometimes, the urge to maximise profit dominates to the
extent that both short and long-term construction failures are
inevitable.
It’s the consequence of cost control
There are, of course, reputable developers and builders, but
reputation usually finishes last, undercut by less-reputable players who
produce buildings that are slightly cheaper.
Defects in single-storey speculative houses with pitched roofs are
probably just as common as defects in multi-unit dwellings with flat
roofs, but they are much easier to fix because the houses are close to
the ground and no strata committee is involved.
They are also much easier to find; a competent building inspection
initiated by a purchaser is normally enough to protect the buyer. On the
other hand, a building inspection of a single unit in a multi-unit
development is highly unlikely to find defects which are located
elsewhere in the common property of a building.
The only practical way to make multi-unit dwellings a good investment
for the residents and a decent place to live is for government to take a
pro-active role in driving quality throughout the design and
construction process, not just at the end when the building is certified
for occupation, or at the beginning when it gets a development
approval.
It is a simple reality that no other actor in the construction
process has the capacity to take this role. It is also simpler and
cheaper to build in quality than to rectify defects.
Often, a $1 detail realised for fifty cents will cause endless grief and cost thousands of dollars to fix.
Reducing the amount of rectification required will improve
sustainability outcomes by containing the amount of embodied carbon
incorporated in the building.
If the building performs well, it will have a longer life and that
will reduce the need to eventually replace it with a new building; again
saving materials and improving the outcome for embodied carbon. It is
worth remembering that 20 million tonnes of construction and demolition
waste are produced in Australia each year.
Governments have been reluctant to intervene early
Governments have as good as ignored the problem of defects in
multi-unit residential construction even though they have been aware of
it for years.
This is particularly concerning because the state governments in NSW
and Victoria have been busy spruiking this type of accommodation as the
solution to the pressures of rising populations in Sydney and Melbourne.
Given this, the protections for apartment owners under existing
legislation are ludicrously slight.
Unfortunately, compliance with the National Construction Code (NCC)
in its current form is no guarantee. There are so many ambiguities and
grey areas in the NCC and in the way that it is applied that it is a
guarantee of almost nothing, particularly when it comes to
waterproofing.
A simple example is the construction of balconies with flat slabs,
which is perfectly acceptable under the NCC. The floor slab is
constructed as a single plane from the interior to the exterior of the
building with the waterproof barrier at the balcony being provided by a
masonry wall or a concrete ridge on top of the slab.
This design almost always leaks within a few years. The reliable
solution is to cast the slab with a step, but this is more expensive and
as a consequence is rare. Cut-price membranes under tiled terraces are
also common, causing leaks, mould and misery, despite arguably complying
with the provisions of the NCC.
Fortunately, there is plenty that government could do to improve
quality of multi-unit construction without affecting prices much.
Five stars. Information could drive standards
One clear way forward is to make the construction quality of a building more transparent to buyers.
This could be achieved by introducing a similar sort of quality
assurance scheme to the one government runs to improve safety in cars; a
five-star rating.
People are free to buy a two-star car, but for obvious reasons, not
many do, even if they are cheap. Similarly, it is unlikely that many
people would buy a two-star unit.
It would be perfectly possible to star rate multi-unit housing for
construction quality using an independent assessment body against a
transparent set of criteria.
It’s been tried before
Such a quality assurance scheme was introduced by the now defunct
Building and Construction Council (BACC) in NSW during the 1990s, but
unfortunately foundered due to a lack of funding and will from Bob
Carr’s government. This was a pity, as the scheme was designed to drive
quality through the whole of the building process, from design to
completion.
It still provides a perfectly valid model for a policy that would
actually do something to improve multi-unit construction quality at a
cost which is minimal in relation to the value of the benefits produced.
If a building is built correctly in the first place, then owners will
not need to rely on shonky fly-by-night builders and developers for
rectification works nor need to claim against complex insurance
policies.
If the NSW and Victorian governments are serious about having a greater proportion of people live in multi-unit developments, they have a responsibility to do something about their quality before we are left with a overhang of misery, leaks and failures. Just ask the residents and owners of Opal Tower.
Author Geoff Hanmer: Adjunct Lecturer in Architecture, Univeristy of NSW, UNSW
The latest edition of the World Bank Global Economics Prospects Report, January 2019, says global growth is moderating as the recovery in trade and manufacturing activity loses steam. Despite ongoing negotiations, trade tensions among major economies remain elevated.
These tensions, combined with concerns about softening global growth prospects, have weighed on investor sentiment and contributed to declines in global equity prices. Borrowing costs for emerging market and developing economies (EMDEs) have increased, in part as major advanced-economy central banks continue to withdraw policy accommodation in varying degrees. A strengthening U.S. dollar, heightened financial market volatility, and rising risk premiums have intensified capital outflow and currency pressures in some large EMDEs, with some vulnerable countries experiencing substantial financial stress. Energy prices have fluctuated markedly, mainly due to supply factors, with sharp falls toward the end of 2018. Other commodity prices—particularly metals—have also weakened, posing renewed headwinds for commodity exporters.
Economic activity in advanced economies has been diverging of late. Growth in the United States has remained solid, bolstered by fiscal stimulus. In contrast, activity in the Euro Area has been somewhat weaker than previously expected, owing to slowing net exports. While growth in advanced economies is estimated to have slightly decelerated to 2.2 percent last year, it is still above potential and in line with previous forecasts.
EMDE growth edged down to an estimated 4.2 percent in 2018—0.3 percentage point slower than previously projected—as a number of countries with elevated current account deficits experienced substantial financial market pressures and appreciable slowdowns in activity. More generally, as suggested by recent high-frequency indicators, the recovery among commodity exporters has lost momentum significantly, largely owing to country-specific challenges within this group. Activity in commodity importers, while still robust, has slowed somewhat, reflecting capacity constraints and decelerating export growth. In low-income countries (LICs), growth is firming as infrastructure investment continues and easing drought conditions support a rebound in agricultural output. However, LIC metals exporters are struggling partly reflecting softer metals prices. Central banks in many EMDEs have tightened policy to varying degrees to confront currency and inflation pressures.
In all, global growth is projected to moderate from a downwardly revised 3 percent in 2018 to 2.9 percent in 2019 and 2.8 percent in 2020-21, as economic slack dissipates, monetary policy accommodation in advanced economies is removed, and global trade gradually slows. Growth in the United States will continue to be supported by fiscal stimulus in the near term, which will likely lead to larger and more persistent fiscal deficits. Advanced-economy growth will gradually decelerate toward potential, falling to 1.5 percent by the end of the forecast horizon, as monetary policy is normalized and capacity constraints become increasingly binding.
They show that there have been previous periods of low inflation during the Bretton Woods fixed exchange rate system in the post-war period up to the early 1970s, and during the gold standard of the early 1900s.
Softening global trade and tighter financing conditions will result in a more challenging external environment for EMDE economic activity. EMDE growth is expected to stall at 4.2 percent in 2019—0.5 percentage point below previous forecasts, partly reflecting the lingering effects of recent financial stress in some large economies (e.g., Argentina, Turkey), with a sharply weaker-than-expected pickup in commodity exporters accompanied by a deceleration in commodity importers. EMDE growth is projected to plateau at an average of 4.6 percent in 2020-21, as the recovery in commodity exporters levels off. Per capita growth will remain anemic in several EMDE regions—most notably, in those with a large number of commodity exporters—likely impeding further poverty alleviation.
The projected gradual deceleration of global economic activity over the forecast horizon could be more severe than currently expected given the predominance of substantial downside risks. A sharper-than-expected tightening of global financing conditions, or a renewed rapid appreciation of the U.S. dollar, could exert further downward pressure on activity in EMDEs, including in those with large current account deficits financed by portfolio and bank flows.
Government and/or private sector debt has also risen in a majority of EMDEs over the last few years, including in many LICs, reducing the fiscal room to respond to shocks and heightening the exposure to shifts in market sentiment and rising borrowing costs.
Escalating trade tensions are another major downside risk to the global outlook. If all tariffs currently under consideration were implemented, they would affect about 5 percent of global trade flows and could dampen growth in the economies involved, leading to negative global spillovers.
While some countries could benefit from trade diversion in the short run, rising trade protectionism would stifle investment and severely disrupt global value chains, contributing to higher prices and lower productivity. Other downside risks—such as heightened political uncertainty, escalating geopolitical tensions, and conflict—further cloud the outlook.
Even though the probability of a recession in the United States is still low, and the slowdown in China is projected to be gradual, markedly weaker-than-expected activity in the world’s two largest economies could have a severe impact on global economic prospects. Stimulus measures have bolstered the near-term outlook in these two countries but could contribute to a more abrupt slowdown later on. A simultaneous occurrence of a severe U.S. downturn and a sharper-than expected deceleration in China would significantly increase the probability of an abrupt global slowdown and thus negatively impact the outlook of other EMDEs through trade, financial, and commodity market channels. A global downturn would be particularly detrimental for those EMDEs with reduced policy space to respond to shocks.
The softening outlook and heightened downside risks exacerbate various challenges faced by policymakers around the world. Advanced economies should use this period of above potential growth to rebuild macroeconomic policy buffers and lay the foundation for stronger growth with reforms that bolster potential output. Care should be taken to avoid shifts in trade and immigration policies that could negatively affect longer-term growth prospects, both domestically and abroad. A renewed commitment to a rulesbased international trading system would also help bolster confidence, investment, and trade.
In a context of limited policy buffers, EMDE policymakers need to bolster the capacity to cope with possible bouts of financial market volatility, including sharp exchange rate movements—while undertaking measures to sustain the ongoing period of historically stable inflation. This immediate priority will require a credible commitment to price stability from central banks, underpinned by strong institutional in dependence, as well as efforts by regulators and prudential authorities to reduce persistent financial fragilities. EMDEs also face substantial fiscal challenges and the risk of worsening debt dynamics as global financing conditions tighten.
For many EMDEs, it will be imperative to restore fiscal space given cyclical conditions, as well as address the vulnerabilities associated with elevated foreign-currency-denominated debt.
Equally critically, amid a projected deceleration in potential growth, EMDEs face the pressing challenge of ensuring sustained improvements in living standards.
This will require investments in human capital and skills development to raise productivity and take full advantage of technological changes. In the current environment of limited fiscal resources, the urgency of these investments highlights the critical need to prioritize effective public spending and increase public sector efficiency.
Moreover, facilitating the expansion of small- and medium-sized enterprises, including by improving their access to international markets and finance, would also spur productivity and stimulate growth -enhancing investments. For many EMDEs, there is scope to further liberalize trade and improve the extent to which they are integrated into global value chains, which would foster a more efficient allocation of resources, job creation, and export diversification. Policies that help improve outcomes in these areas would also contribute to address the challenges associated with informality, thus reinforcing the basis for future productivity growth.
The number of dwellings approved in Australia fell by 2.3 per cent in November 2018, in trend terms, according to data released by the Australian Bureau of Statistics (ABS) today.
“The trend for total dwellings has been steadily declining over the past twelve months,” said Justin Lokhorst, Director of Construction Statistics at the ABS. “The series is now 18.3 per cent lower than at the same time last year.”
NUMBER OF TOTAL DWELLING UNITS
The trend estimate for total dwellings approved fell 2.3% in November.
NUMBER OF PRIVATE SECTOR HOUSES
The trend estimate for private sector houses approved fell 0.3% in November.
NUMBER OF PRIVATE SECTOR DWELLINGS EXCLUDING HOUSES
The decrease in November was driven by private sector dwellings excluding houses (e.g. townhouses and apartments), which fell 5.0 per cent. Private sector houses also declined, by 0.3 per cent.
Among the states and territories, dwelling approvals fell in November in the Australian Capital Territory (9.5 per cent), South Australia (6.2 per cent), Western Australia (4.5 per cent), Queensland (3.4 per cent) and New South Wales (3.1 per cent) in trend terms. Tasmania (3.5 per cent) and Victoria (0.6 per cent) were the only states to record increases, while the Northern Territory was flat.
Approvals for private sector houses fell 0.3 per cent in November in trend terms. Victoria (0.7 per cent) and New South Wales (0.1 per cent) rose, while decreases were recorded in Queensland (1.8 per cent), South Australia (1.0 per cent) and Western Australia (0.7 per cent).
In seasonally adjusted terms, total dwellings fell by 9.1 per cent in November, driven by a 17.9 per cent decrease in private dwellings excluding houses. Private houses fell 2.6 per cent in seasonally adjusted terms.
The value of total building approved fell 0.8 per cent in November, in trend terms, and has fallen for 12 months. The value of residential building fell 1.6 per cent, while non-residential building rose 0.6 per cent.
HIA Blames Credit Supply
The HIA were quick to blame tighter lending, blaming the banks for tightening too far. No, HIA, they are now obeying the law!
“This weak result shows just how much the current credit squeeze is weighing on the home building sector.
“The credit squeeze is happening at the behest of the banks’ own lending practices which have been tightened above and beyond APRA’s requirements.
“HIA research has found that the time taken to gain approval for a loan to build a new home has blown out from around two weeks to more than two months.
“APRA’s decision late last year to lift its 30 per cent cap on banks’ interest-only lending is a welcome development, but more needs to be done to mitigate the growing risks of a hard-landing in the housing market.
“Policy makers and lenders alike need to be cognisant that ordinary home buyers are now facing blow- outs in loan processing times and also much greater rates of flat-out loan rejection. Today’s results show how this is weighing substantially on the new home building sector.
“We’ve long been anticipating the current downturn in new home building, but there is a risk it could develop more quickly and strongly than expected.
“In particular policy makers and lenders will need to respond judiciously to the pending release of the Banking Royal Commission’s recommendations.”
Following on from our mortgage stress report for December 2018, which we released yesterday, we complete our monthly data series with the release of the December Household Financial Confidence Index, our gauge of how households are feeling about their financial situation.
The overall index fell again in December to an all-time low of 87.3 (which is strange given the Government’s assertion the economy is in fine fettle!
The DFA index can be segmented a number of different ways, to home in on which households are most concerned about the state of their finances. A significant factor is whether households are property owning, and whether they are mortgaged. Households who hold property, but no mortgage are the most confident and above the 100 neutral setting, although confidence in this group is falling. Those with a mortgage are well below the neutral measure, and confidence for this group continues to fall. Those in the rental sector, or living with friends or family are less confident, though recent wage rises and falling rents have had a slightly positive impact this month.
Within the property holding segment, we can also separate property investors from owner occupied households. Significantly property investors have gone very negative now, thanks to falling property prices, rising mortgage costs and issues with mortgage refinancing. The threats to negative gearing are also in play. Concerns about rising mortgage rates are building (Bank of Queensland moved yesterday!). Owner occupied property holders are more positive, those with mortgages and those mortgage free are both within this segment. Property inactive households – those with no exposure to property – are slightly more confident than property investors.
We can also examine the data across the main states. When we do that we find a “bunching” of scores, as NSW and VIC come off their highs (the main centres in which property prices are falling).
South Australian households have remained more positive, while Victorian households have taken something of a dive -as prices are moving south at a faster clip. And we can also look at the age band data.
Here, younger households remain the least confident, and the general slide continues across the age bands, other than those aged 50-60 – who are less likely to hold mortgages, so more likely to reside in the “Free Affluent” segment.
We can then look at the data drivers for the index.
Job security shows a spike in those feeling less secure, up 3% – and workers in the construction and real estate sectors have become more concerned. There was a fall of 1.7% in those feeling more secure than a year ago, at 11%. 53% of households reported no change than a year ago, down 2%.
Savings are taking a beating, with more households tapping to savings to sustain their budgets, and also being hit by falls in interest rates on deposits and falls/volatility in the share markets. 2% only, are more comfortable than a year ago, 46% less comfortable, and 51% about the same.
Debt remains a major source of concern for many households. Whilst overall personal credit (other than for mortgages) is falling there are credit hot spots where households under pressure are putting more on credit cards, using staged repayment products like Afterpay, or even Payday loans. Many households are finding their large mortgages more difficult to handle (as reflected in our stress reports). Around 1.5% of households are feeling more comfortable than a year ago, 46% less comfortable and 51% about the same.
Household income remains under pressure, with many reporting no increase in real incomes in the past 5 years. Many households are working multiple jobs, and are still underemployed. In addition, the interest on deposits held with the banks have fallen significantly, as they trim their interest rates to protect their margins. 4% said their income in real terms had risen, 53% said it had fallen and 43% said there was no change.
Households reported continued rising living costs in December with and additional 1.5%, or a total of 86% saying costs, in real terms had risen. 5% said they had fallen and 8% said there was no change. As well as the usual suspects – higher electricity costs, health care, child care and some food costs, a number of households reported rises in land tax as a concern. Once again the official CPI seems disconnected from the true experiences of many households, costs continue to rise and fast!
Finally, we look at Net Worth – Assets less loans owning. We see a rise in those reporting a fall, directly associated with the fall in home prices, 34% said their net worth had dropped in the past year, 33% said it had improved, and 29% said it was about the same. So whilst for some the “wealth effect” is intact, one third are feeling the effects of a reduction in wealth on paper, and as a result they are more cautious on their planned spending. This is sufficient to slow consumption ahead, and may well impact GDP as a result.
In summary then, we continue to see the same forces in play, in that as home prices slide and costs rise, household finances are under pressure. But the effects are not uniform, those with mortgages, and younger are most impacted. But the recent stock market ructions and lower returns on deposits are also biting.
By way of background, these results are derived from our household
surveys, averaged across Australia. We have 52,000 households in our
sample at any one time. We include detailed questions covering various
aspects of a household’s financial footprint. The index measures how
households are feeling about their financial health. To calculate the
index we ask questions which cover a number of different dimensions. We
start by asking households how confident they are feeling about their
job security, whether their real income has risen or fallen in the past
year, their view on their costs of living over the same period, whether
they have increased their loans and other outstanding debts including
credit cards and whether they are saving more than last year. Finally we
ask about their overall change in net worth over the past 12 months –
by net worth we mean net assets less outstanding debts.
The Bank of Queensland has announced that they will lift mortgage rates for existing borrowers, thanks to higher funding costs, and pressures on bank deposits. The BBSW (interbank funding rate) has risen, and there are limits to how far deposit rates can be cut. We expect other banks to follow.
BOQ announced today that funding cost pressures and “intense”
competition for term deposits were partly behind its decision to lift
interest rates.
The rates of more than 20 of the bank’s home loan products will rise
from Friday with most set to increase by 0.18 percentage points,
including the standard variable rates for owner-occupiers and investors.
The standard variable rate for owner-occupiers paying principal and interest will rise from 5.70% to 5.88% ( comparison rate of 6.04%), while the standard variable investment housing rate will rise from 6.33% to 6.51% (comparison rate of 6.67%).
Six of its line of credit products, including the Clear Path Line of Credit Rate, will also rise by 0.18 percentage points.
The Economy Owner Occupier principal and interest home loan is the only one among the changes that will have a smaller hike of 0.11 percentage points to 3.99% (comparison rate of 4.15%).
As we highlighted yesterday, mortgage stress is on the rise with more than one million households under pressure, and these rate rises will created more pressure on household budgets.