Just How Bad Is The Economic Situation In Australia?

It’s not a very scientific analysis, I know, but sometimes raw observations can be the most powerful. I spent an hour wandering around Westfield Southland tonight, and what I saw got me thinking about a whole slew of layman’s economic “indicators.”

For those who aren’t local, Southland is the second-largest shopping centre in Melbourne, after Chadstone (also in Melbourne); it is located in Cheltenham, about 14km south of the CBD, and is the eighth-largest shopping centre in Australia (Chadstone, incidentally, is the largest in the country).

I haven’t been to Southland on a Friday night for a couple of years; typically my visits there are on a Saturday to shop at Coles. But historically, a Friday night visit to Southland involves half an hour of looking for a car park, followed by the crush of making one’s way through the hordes of people who descend on the place for whatever reason at the end of the working week.

What I saw tonight was stunning.

The car park was, without exaggeration, half-full at most; even the undercover spaces, on a cold and squally Melbourne night, were easily snapped up — even the ones closest to the entry to the shopping mall itself.

Walking from one end of the centre to the other, then back again on a different level, I noticed not only how few people seemed to be around — not much of a surprise, given the state of the car park — but also how many shops were, at 7pm, either closed or closing: right at what should be the peak of the evening shopping rush.

Many of the shops that were open were placarded with sales and discounts for this and that…but I also noticed that quite a few retail spaces were vacant, and that quite a few others had turned over very recently — also a sign that business conditions aren’t the best.

And on the way back to my car, I stopped in at Coles to buy a packet of cigarettes, because I’d left mine at home; rather than queueing long enough to get nicotine withdrawal symptoms, I saw that not only were there only three checkouts open (in quite a big supermarket), but that nobody was queueing at any of them.

So Southland was a virtual ghost town; it says pretty clearly to me that people aren’t spending money because they’re at home, and if people aren’t spending money, it’s a telling pointer to the state of the economy.

And it got me to thinking about everything else that’s going on economically in Australia at present — and the picture isn’t pretty.

Official government figures from Treasury tell us that the economy is, indeed, growing; I have suspected for quite some time now that if the minerals and energy sector of the economy were to be excluded, then the remainder of the system would actually be in heavy recession.

So let’s look at some of the other indicators; you draw your own conclusions.

Job losses seem to be rocketing at present; between companies going into voluntary administration/receivership/liquidation, and companies simply sacking staff in the name of restructures and finding efficiencies, the stream of such stories in the media is now almost a multiple event on a daily basis — just like at the beginning of the 1991-1992 recession.

It’s true that some companies shedding staff do so for a reason; Qantas recently announced it would axe 400 maintenance jobs. But this was due to the retirement of old aircraft, whose replacements require little or no heavy maintenance, which has made those jobs redundant.

On the other hand, an exponentially greater number of businesses are simply failing; just today a Melbourne company called Brides of Melbourne went into receivership, with the loss of 16 jobs. Hundreds of customers are believed to be collectively at risk of losing hundreds of thousands of dollars in deposits, progress payments and even finished goods, to say nothing of hundreds of wedding plans that have probably been thrown into chaos as a result.

And anecdotally, just as these jobs are disappearing, it seems there isn’t a great deal around to replace them; a common complaint increasingly heard in social and business circles is that there isn’t a great deal of work on offer at present (which refers to the same type of work as people ordinarily do; of course there’s a lot of work to be found, but it’s often a different type of job and/or remunerated at a vastly inferior level).

Moving on, the residential property market is stagnant, and has been for some time; reports of house prices falling for the past year in most major markets seem to be just that: reports. First home buyers are still locked out of the market to a great extent, whilst intending vendors are sitting on their assets until they can realise greater capital growth from them.

The high Australian dollar is hurting a lot of businesses, and especially those reliant on imports; it has also cruelled domestic tourism and hospitality to a considerable degree, and that industry — which employs over a million people — is doing it tough.

Yet one of the things a high Australian dollar should redress is the price of fuel; as I have said before, the cost of oil is 40% below its 2008 peak, and the dollar is 10-15% higher than at the same time, yet petrol prices are equivalent to their all-time peak of four years ago.

The latest ACCC investigation into price collusion can be confidently expected to identify and rectify nothing; the ACCC’s investigations into the retail petroleum companies never do.

And living costs are higher than they have ever been; rocketing prices for gas, electricity, petrol and water are one thing, but they feed into the price of everything else we buy. Fuel especially — everything needs to be transported.

I was discussing the cost of living some time ago with some of my associates — all of whom, myself included, have travelled — and we concluded that it is now probably cheaper to live in the United Kingdom than it is in Australia when all of these factors are taken into account. And that is an indictment — a very heavy indictment.

Wage growth — which grew strongly in real terms from 2000 until the onset of the GFC in August 2008 — has stagnated, even falling in many industries.

Interest rate movements are a red herring, as it is estimated officially that only one in three Australian households have a mortgage; but to the extent they are a factor, banks increasing rates by more than an official movement on the way up, but reducing them by less than the official movement on the way down, strips more money from households on the dubious pretext of bridging shortfalls in “funding costs.”

And for those who do not own homes outright or have a mortgage, most rent; and residential rents have exploded in the past ten years to the point they have more than doubled, in real terms, in some areas of major capital and regional city markets.

Add to this a MRRT (the “mining tax”) which the Gillard government will shortly impose; whilst not denying the profitability of the mining sector, this means — in actual terms — that gross profit dollars that pay mine workers as highly as they do will begin to dry up; similarly, infrastructure spending by mining companies will contract, just to name a couple of examples.

Add to this a carbon tax of $23 per tonne from 1 July, levied on the “500 biggest polluters” as designated by an arm’s-length government agency; it doesn’t take an economics degree to understand that the more money withdrawn from a market system in the form of taxation means that less money will remain in that system to be otherwise used or deployed free of government interference, intervention of influence.

And it doesn’t take an economics degree to see what the coming federal budget will achieve, either.

Treasurer Wayne Swan is getting ready to rip $40 billion in recurrent spending out of the budget when he delivers it next week to achieve the paper surplus he is so obsessed with; pulling that amount of money out of the economy is only going to increase the financial strain on individuals, families, small businesses, and local communities.

I’m sure there are other “indicators” I haven’t included here — some of which I will no doubt think of as soon as I publish this article — please feel free to put them in your comments, folks, because this is a large discussion subject in which some points are going to be overlooked by some of us, and highlighted by others.

But I return to my opening point: just how bad is the economic situation in Australia?

I think it’s pretty bleak; in fact, I wouldn’t be at all surprised if we follow Europe into recession later this year.

Quite aside from the points I have covered here, there are other, more ominous warning signs. China has recently agreed to begin to appreciate its currency against those of its trading partners, whilst slowing its overall rate of economic growth; both movements have the potential to inflict horrendous damage on the Australian economy as China pays less in real terms for what it buys, and then begins to reduce the actual volumes of what it buys.

Europe and America remain large trading partners with Australia in their own right; yet Europe is heading back into the depths of severe recession, whilst the USA seems mired in economic growth so sluggish it barely makes a mark on that country’s manufacturing and employment figures, let alone increasing demands for goods and services from external markets like Australia.

And to cap it, the risk of military misadventure (North Korea, Iran etc) — were such an event to materialise — would be enough to send shock waves through already rattled world markets to which Australia is openly and highly exposed to.

Official figures are one thing (like inflation running at 1.6%, for example, because the price of cyclone-ravaged bananas is no longer a price pressure, and its removal masks the effects of a 25 cent per litre rise in the price of petrol), but reality is quite another matter altogether.

I don’t think the Australian economy is in very good shape at all, and I think that’s something that is likely to deteriorate in the next six to twelve months.

At some point, under the pressures in the system and the drain on those who sustain it monetarily — Australian consumers — something has to give.

I think the result is likely to be a fairly hefty recession.

Those are my thoughts; what do others think?

Ambit Interest Rate Rises and Private Health Rebate Cuts…What Sort Of A Ship Does Gillard Really Run?

Tonight I want to talk about cost of living issues (I know Newspoll is out soon, and there are other issues to cover). But speaking generally, and with the cost of living in this country rocketing, it would be cheaper to live in England. And that is some achievement, perverse as it is.

Does anyone doubt it? The UK is a notoriously expensive place to live, but the way things are headed, Australians would be financially better off by making the move to the Old Dart.

At least with the dollar buying 68p in the pound at time of writing, the conversion wouldn’t hurt too much.

There are two developments in the past few days that have triggered my sentiment, but stacks of others that have been building and building, to the point one huge question needs to be asked of the Labor Party and its government, headed by Julia Gillard.

As a free marketeer of lifelong tenure, I have already opined (reluctantly) that it may very well be time to hit the banks to impose the corporate responsibility on them that they refuse to undertake themselves: to slug them with a Windfall Profits Tax of 50% on anything above $2 billion they post in profit each year.

It’s at the point that it is past a joke: as was pointed out on 3AW by Neil Mitchell this morning, in the past five years the cumulative nett annual profits of the big four banks have increased from $16 billion to $24 billion.

At the same time, in an environment of soaring bank fees and charges and of mostly falling interest rates, the banks now seek to act as mini-RBAs by setting their own interest rates independently of the Reserve Bank.

Here’s the rub: if “funding costs” are so tight, why have their profits increased by 50%?

And if profits are so solid, why the need to start sacking thousands of staff?

Treasurer Wayne Swan, in his creditably stern public utterances on this matter, is clearly as effective as a wet mop; the results — banks slugging their customers to high heaven and sacking thousands of staff, whilst recording stratospheric profits — are there for all to see.

Wayne Swan has no influence or authority over the banks whatsoever.

We move on.

Julia Gillard’s Labor government is now moving (not for the first time) to means test the private health insurance rebate; the levels at which the clawback commences, in round terms, are $83,000 per annum in income for singles and $159,000 for couples and families.

What don’t these people get?

I’m the first to acknowledge that there are thousands and thousands of people who fall below those thresholds, who struggle and manage to make ends meet (and indeed, as at today’s date, my wife and I represent one such family unit).

But the simple fact is that those thresholds do not denote “rich” people; in 2012, they mostly denote struggling tradespeople, managers and professionals trying to achieve a better standard of life.

And this government seeks to clobber them for it.

But the kicker is this: the health care rebate is going to be progressively withdrawn from people/couples at those income levels, and for those people who refuse to maintain or take out private health insurance, they will receive a Medicare surcharge slug.

And the problem with that is that for all the money the Gillard government might save on the health insurance rebate, it will pay out tenfold on the creaking burden that will befall Medicare when hundreds of thousands of private health insurance policies are abandoned in favour of claiming what tax dollars have been extracted to pay for.

In my household, the bill for private health insurance is about $2,600 per year, on top of the 1.4% of our incomes that the government takes as a Medicare surcharge.

The changes to the private health insurance rebate won’t even recoup that from most of the people it affects, but it will cost a damned side more in Medicare expenditure.

It’s a mighty big price for a government claiming to want to return the federal budget to surplus to pay.

I’d say it’s actually a good old-fashioned Labor/Socialist hit at those the ALP and their Communist Green mates think can afford to pay; what it really is is just a grab for tax dollars, and bugger the cost.

Again, we move on.

The imbecilic decision by the Labor government under Kevin Rudd’s leadership to allow non-residents from foreign countries to purchase Australian real estate has directly worsened the crisis in housing affordability in this country.

That decision has never been reversed; and as a result, houses owned by foreign nationals across Australia stand empty (and appreciating in value by virtue of the diminished availability of housing stock) whist AUSTRALIAN CITIZENS are unable to buy houses in their own country.

This policy must be immediately rescinded. Go to China as a non-resident and an Australian citizen, and see how welcome you are to buy property.

And if anyone thinks I’m being racist, go to the UK, the US, and Canada too: you might get to make the purchase, but you’ll have to jump through so many hoops to do so as to have whiplash by the time you sign the contract. If you still want to.

And in a related vein, foreign interests are now not only buying prime Australian agricultural land, but taking its harvests and slaughters offshore to process, and then reselling our own produce to us at ridiculous mark-up. It is a syndrome that has taken hold under the present government’s revised foreign ownership rules.

Can anyone spot what is wrong with this picture?

Again, we move on.

With the Australian dollar roughly 15% above its peak immediately prior to the so-called Global Financial Crisis, and the price of oil roughly 40% below its level at the same time, is anybody able to adequately explain why the price of petroleum products in Australia are, broadly, the same as they were at those pre-GFC highs?

Much has been made in the past few days in the mainstream press about a need to sack the Commissioner for petrol prices, and I must say that I agree.

But Australia’s Trades Practices legislation is woeful: in this area, all that is ever “discovered” is that there is no collusive behaviour between oil companies to drive and/or keep the price of petrol high.

Of course there isn’t! These companies aren’t stupid; no oil company is going to be naive enough to commit a syllable to paper on price collusion.

Yet some years ago, near the end of the tenure of the Howard government, the ACCC announced that it would be “looking at” oil companies and petrol prices; for a couple of weeks the price a the bowser fell by 20 cents per litre — and once the heat was perceived to be off, back up it went.

Yet again, we move on.

Let’s not forget the entrenchment of the supermarket duopoly, its lack of competition and its crippling of consumer choice; indeed, it’s fair to say that half the reason petroleum products are as dear as they are is because two retailers now control nearly 80% of that market.

And Coles and Woolworths now want to start operating in the retail pharmacy sphere? Spare me.

We haven’t even gotten to electricity and gas prices — largely (but not entirely) the purvey of state governments — but my thoughts on those are much the same as my thoughts on the banks.

Sheer and utter usury.

Against the backdrop of all of this, we have the ALP’s carbon tax, which (“compensation” notwithstanding) will be a nett burden to consumers; its mining tax, which will render the country’s minerals and energy sector uncompetitive by international standards; and the slavish adherence by Treasure Wayne Swan to return the federal budget to surplus this year, motivated by no other trigger than political expediency.

And that, my friends, means more budget cuts — but cuts aimed at people trying to get ahead, as opposed to those content to bludge and sponge off the system.

And it also sits against a backdrop of a government wages policy whose design might be well-enough intentioned, but whose practical effect is to drive wages down and to empower unions over workers and employers, and to remove incentive for workers to work, or for employers to be remotely flexible.

All of this (and other factors I’m just about out of space to include) adds up to one big reality, and it’s this.

Unless you’re earning $250,000 per year, Australia is now one of the most expensive places in the world in which to live.

The Rudd/Gillard government has presided over the single greatest deterioration in living affordability in Australia since Federation.

And the “one huge question” I alluded to, at the commencement of this article, is a simple one.

Having presided over such a massive deterioration in living standards in this country, and having reduced both the disposable incomes and the prospects for Australians to advance themselves, and having saddled the country with hundreds of billions of dollars in debt and a fundamentally directionless policy agenda, what does the Gillard government propose to do about it?

I’d wager…nothing.

It’d be cheaper to live in England; not an unattractive prospect, but I would prefer to live in Melbourne, and in Australia generally.

But in four years of Labor government, it has become so expensive to live in Australia that so many people and families, who once could pay their bills and save, now struggle weekly to make ends meet.

What do you think?