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Category Archives: Dealing with the GFC

From: AAP January 10, 2010 4:41AM

Car production in Australia has plunged to its lowest level since 1957.

CAR production in Australia has plunged to its lowest level since 1957, with manufacturers hit by the global economic slump and the high Australian dollar.

Despite strong local car sales, helped by the federal government’s business tax breaks, exports to markets such as the Middle East and the United States have all but collapsed, Fairfax newspapers say.

The industry is set to be further buffeted by a January 1 tariff cut that has lowered the price of imported models relative to locally produced cars.

Figures from the Federal Chamber of Automotive Industries show Australia produced just 225,713 vehicles last year, almost 100,000 fewer than in 2008 and 55 per cent of the output in 2004.

The chamber’s chief executive, Andrew McKellar, told Fairfax a “crucial factor” this year will be the speed of recovery in export markets, warning that the high dollar poses a serious long-term threat to the competitiveness of the industry.

Separate figures from the Bureau of Statistics confirmed the dramatic collapse in exports.

The export slump will leave Australia’s car industry even more heavily dependent on taxpayer-funded assistance, which is mainly provided through the Government’s $6.2 billion car industry plan.

Industry Minister Kim Carr said production had been running at half its usual pace, although local producers had fared better than elsewhere in the world, given no major companies had gone broke.

AAP
May 27, 2009 10:56am

BHP Billiton predicts the global economic recovery will be slow and protracted, but says there’s reason for some cautious optimism in China.

Chief executive Marius Kloppers told a minerals conference in Canberra that it would be another six months before there were clear signs of the true situation for the company’s markets in China and the OECD.

“The best we can say in the medium term is that conditions remain uncertain,” he said.

In the US, there was still a downside risk with unemployment remaining a problem. The economies of Europe, especially the UK and Germany, were still a worry, and Japan was weak.

On China, Mr Kloppers said there were a few reasons for optimism including early signs about growth, Chinese loan activity and in the construction and real estate sectors.

“If all of these trends continue in the second quarter they will give us some reason to be cautiously optimistic,” he said.

But Mr Kloppers stressed the need for caution because there were still issues around Chinese exports, adding the company did not expect in the medium term a sharp return to overall economic activity.

“We probably believe as a company the economic recovery will be both slow and protracted,” he said.

http://www.news.com.au/business/story/0,27753,25545415-31037,00.html

Cosima Marriner and Peter Martin
May 22, 2009

THE chairman of Australia’s largest company, BHP Billiton, has contradicted assurances by the Rudd Government, Treasury and Reserve Bank that an economic recovery is imminent, warning instead it will be “protracted and complex”.

Speaking at his old high school in Brisbane yesterday, Don Argus said he was “pessimistic” about prospects for recovery in the short term.

His comments follow spirited defences by Treasury Secretary Ken Henry and Reserve Bank governor Glenn Stevens of growth forecasts in last week’s federal budget. The economy is projected to grow above 4.5 per cent from the middle of 2011, a forecast economists have questioned and Opposition Leader Malcolm Turnbull has labelled “completely unbelievable”.

“(Dr Henry and Mr Stevens) have got the levers of the economy,” Mr Argus said. “I’ve got a balance sheet, I’ve got revenue statements, I deal with customers, I’m a contributor to the Australian economy … I’m just calling it from where I see it.”

Mr Stevens tipped on Tuesday that “a recovery will get under way towards the end of the year”. But Mr Argus warned it would be a “pretty tough” 2009 and 2010. “We can hope for recovery. We should also have contingency plans for scenarios where world capital markets continue to provide surprises on the downside.”

He said that while some people would call his comments pessimism, “I prefer to call it caution that 50 years in corporate life engenders … The current outlook is very uncertain.

“It’s very much reliant on the Government, corporate and regulatory response to the global financial crisis. It will be a difficult transition period. Governments and corporates have to pay off debt and rebuild their balance sheets.”

He predicted that Australians who had so far been shielded from the impact of the crisis would start to be affected, as the Government was forced to pay back debt incurred with its stimulus packages. “They can’t do that without budget cuts and increasing taxation.”

Mr Argus based his analysis on an International Monetary Fund report, his own analysis of the 1987 crash, and business conditions BHP is experiencing. “The IMF report makes it easy to conclude that the road to economic recovery will be slow, hence my cautious response to the recent political rhetoric.”

He said the recovery would be under way when financial institutions had access to good liquidity and had dealt with distressed assets, and weak institutions had been recapitalised.

His comments came as it was revealed Australians paid off $19.7 billion of credit card debt in March — the second-biggest amount on record — as $900 and $950 cheques directed at single-income families, carers and parents of children at school went out. The record for card repayments was in December, when stimulus cheques of between $1000 and $2000 went out.

There was also a spending surge in March, with credit cards getting their second-biggest work-out on record, again exceeded only in December. “We’re both spending and saving at the same time,” CommSec economist Savanth Sebastian said.

The next stimulus payments began hitting bank accounts in April, suggesting spending and saving will continue to climb.

Some of the extra spending appears to have gone on cars, passenger vehicle sales up a seasonally adjusted 1.8 per cent in April after months of decline.

The rebound is consistent with a Westpac-Melbourne Institute survey this week showing a rise in consumer sentiment.

Other figures showed that average full-time earnings climbed 5.6 per cent to more than $61,000 in the year to February. But the rate of increase is slowing as fewer hours and less overtime are worked.

“Workers in the public sector are enjoying better conditions than private sector workers,” said Commonwealth Bank economist James McIntyre.

“Public sector households are getting the benefits of significant interest rate cuts, stimulus payments, petrol price falls and tax cuts without the job security concerns.”

Meanwhile, new figures yesterday showed investment in minerals and energy projects hit a record high in April, defying budget forecasts.

http://business.theage.com.au/business/bhp-at-odds-on-recovery-20090521-bh6e.html

May 22, 2009 – 6:34AM
The government’s emissions trading scheme will cost more than 23,000 jobs across the mining sector by 2010 and almost triple that number by 2030, the Minerals Council says.

Half of those jobs would be in Queensland alone, the Minerals Council of Australia says in a study released on Friday.

Council chief executive Mitchell Hooke says this showed the government’s proposed carbon pollution reduction scheme (CPRS) was out of step with global efforts to reduce emissions, with other international trading schemes and with the development of the low emissions technologies needed to reduce emissions.

“It will impose the highest carbon costs in the world on Australia’s mineral exporters,” he said in a statement.

“We share the government’s commitment to reducing emissions but this modelling shows the CPRS is fundamentally flawed. By imposing the highest carbon costs in the world on Australia’s mineral exporters, it will eliminate jobs while failing to materially reduce global greenhouse gas levels.”

Mr Hooke said recent changes to the CPRS including a year’s delay in introduction would not fix its fundamental flaws.

“The simple message of this report is that the CPRS as it is currently designed will result in a transfer of exports from Australia to our international competitors,” he said.

The study was produced by economic consultant group Concept Economics and conducted by Dr Brian Fisher, former executive director of the Australian Bureau of Agricultural and Resource Economics.

It doesn’t cover the natural gas and oil industries.

The study points to 23,510 job losses by 2020 with 11,440 in Queensland, 4,260 in NSW, 3,410 in Western Australia, 1,990 in South Australia, 1,050 in Tasmania, 1,210 in Victoria and 150 in the Northern Territory.

By 2030 job losses will have risen to a total of 66,480 – 34,090 in Queensland, 14,600 in NSW, 5,750 in WA, 3,150 in SA, 2,520 in Tasmania, 5,830 in Victoria and 540 in NT.

In the long term most jobs would go from the smelting and refining sector with 8,570 jobs lost by 2020 and 33,670 by 2030, followed by the coal industry with 9,040 by 2020 and 15,610 by 2030.

Mr Hooke said a simple change to the CPRS would deliver a cap and trade emissions reduction scheme without the job destroying impact of the current design.

He said it should include a phased approach to emissions trading with the number of carbon permits auctioned increasing over time.

“Such a simple change would deliver a scheme with good outcomes for the environment and save thousands of jobs,” he said.

“Other schemes around the world have adopted a phased approach. It is hard to understand why it has been ruled out in Australia.”

Meanwhile, Deputy Prime Minister Julia Gillard has defended the government’s emissions trading scheme, amid reports it will cost more than 23,000 jobs across the mining sector by 2020.

Ms Gillard says the government has worked with the business community to get the best design for the scheme.

“I know that there are going to be a variety of views on this and as we close out for vote on the legislation in the Senate, I think we’re going to see some very big ambit claims made in the newspaper,” she told Macquarie Radio on Friday.

“But we believe the scheme gets the balance right, we believe this scheme will work with our economy but will also work to tackle the challenge of climate change.”

SARAH MARTIN
May 15, 2009 12:01am

BRIDGESTONE has cut three production shifts at its Salisbury factory as demand slumps for its truck and trailer tyres.

The company told workers this week it needed to reduce inventory levels to match sales, which have fallen during the economic downturn.

Workers will be given other duties during the seven-week hiatus, which will cut truck and bus tyre production by 20 hours a week.

The production shutdown came into force last night and will continue until the end of June.

A spokeswoman for Bridgestone insisted the company had not cut any shifts, but that “we have simply adapted our production mix to meet customer needs”.

“As a result, there has been a simple reallocation of duties for our employees,” she said.

The Advertiser understands affected workers are being deployed in cleaning and painting duties.

In a notice issued to employees, managing director Shawn Hara said the global financial crisis was affecting the automotive industry particularly hard.

“Truck and trailer manufacturers have recently announced the need to reduce their daily build rates due to falling customer sales,” he said. “Additionally, there has been a decline in commercial TBR (tyre, bus radials) replacement demand (and) as a result we need to adjust TBR inventory levels to the market demand.”

The Bridgestone spokeswoman said the situation was “something we normally do as demand fluctuates”, but general manager John Signoriello said the adjustment was a result of current economic conditions.

In a factory notice, Mr Signoriello said there would be no change to passenger and light vehicle tyre production as inventory adjustments had been ongoing since February.

Last month, the factory closed for two weeks to reduce inventory.

There are 600 employees at the Salisbury factory, which is Australia’s only tyre manufacturing plant.

Earlier this year, business information analyst IBISWorld ranked tyre manufacturing in its 10 most risky Australian industries for 2009.

Bridgestone has previously said it was committed to maintaining tyre production at Salisbury, despite the tough economic conditions.

http://www.news.com.au/adelaidenow/story/0,22606,25484604-2682,00.html

Kenneth Davidson
May 18, 2009

Turnbull is wrong, it is not the size of the deficit that matters, but how it is used.

THE political debate about the budget is bizarre. The fiscal strategy is not rocket science. As the budget papers say, the task of budgetary policy is “supporting the economy and jobs now while investing in infrastructure for the future”.

The prime short-term objective of budgetary policy (reinforced by monetary policy) is to balance the economy. In other words whether the budget should be in balance, surplus or deficit depends on the rest of the economy. There is no particular virtue in a surplus budget unless the surplus is designed to offset a potential inflationary gap between expenditure plans and economic capacity.

Today there is a deflationary gap which can be measured by rising unemployment. As the world is experiencing the biggest recession since the 1930s, it isn’t surprising that Australia is running the biggest deficit since the end of World War II. It is also at least arguable that the reason the world is unlikely to experience another Great Depression is because of the willingness of the industrial nations to “pump prime” demand to offset the crisis in consumer and business confidence.

Because the budget accounts for about a third of gross domestic product and sets expenditure and revenue-raising priorities, it is also the major direct government influence on income distribution and the allocation of resources. This in turn influences the growth in living standards.

Yet all the Opposition can do is bleat about the size of the budget deficit. In a truly pathetic budget reply in Parliament last week, the Leader of the Opposition, Malcolm Turnbull, said: “Australians are now paying the price for Labor’s reckless spending” and he contrasted this with the record under the Howard government when “… the Coalition, together with the Australian people, (took) 10 years to pay off $96 billion of Keating Labor debt”.

The Howard government paid off the debt by a slash and burn policy on higher education, public schooling, training and hospitals, as well as the privatisation of Telstra, airports and virtually all government office buildings.

Arguably, the net sale of the overwhelming majority of these assets generated no net benefit to the nation.

The Howard government undermined support for CSIRO and independent university research. The bureau of manufacturing industry was abolished, meaning the future of manufacturing was left to the tender mercies of the Treasury and the Productivity Commission.

This contributed to the destruction of manufacturing know-how and capacity and the blow-out in foreign debt from about $150 billion in 1996 to about $600 billion now.

And, despite the erosion in services that added to household expenses, there was no tax relief. The tax burden rose from 22 per cent of GDP under Labor to a peak of 25 per cent between 2004 and 2006. The diminution of public services, which led to higher private costs in health and education and the rise in the tax burden, was a major factor in the rise in household debt to a record 160 per cent during the Howard era. It is household debt and foreign debt that is the real burden on Australians.

Government debt raised domestically is largely owed to ourselves. If it is borrowed from the Reserve Bank, the interest charged becomes part of the profit of the RBA, which is owed to the Government.

The money borrowed from the public is a burden on us as taxpayers but it is an asset to us as superannuants and as depositors in financial institutions.

Part of the debt will be borrowed offshore. But these borrowings will be largely associated with the necessity to finance the foreign debt burden that grew out of the Howard government policies that undermined Australia’s balance of payments in the first place.

If the budget reply by Turnbull can be taken at face value, he would impose a smaller deficit on the economy than the Government.

This is the path to the Great Depression Mark 11. The budget is already deflationary. The impact of the budget on the economy is measured by the change in the surplus or deficit, not its size.

The net injection into the income-expenditure flow this financial year is equal to 4.4 per cent of GDP (from 1.7 per cent in 2007-08 to -2.7 per cent in 2008-09).

In 2009-10, the net injection from the budget into the income-expenditure flow will be halved to 2.2 per cent of GDP according to the budget papers (from -2.7 per cent in 2008-09 to -4.9 per cent in 2009-2010).

In 2010-11 the forward estimate suggests the budget deficit will contract from 4.9 per cent of GDP to 4.7 per cent, resulting in a cut in the contribution to the income expenditure flow of 0.2 per cent.

Just because the stock of debt will be increasing over the two years, it doesn’t mean fiscal policy is contributing to an expansion in consumer demand and job creation.

One of the oldest confusions in economics is between stocks and flows and there always seem to be plenty of politicians happy to exploit this, rather than educate themselves and the public. This is reinforced by financiers whose prestige and profits would be diminished by a more active fiscal policy underpinned by financial reregulation.

By maintaining the fiction that responsible fiscal management demands balanced or surplus budgets, the opportunity for profit from “innovative financial products” that got the world into the present financial mess is maximised.

Whatever. Both sides of this political debate are reluctant to embrace deficits of the scale necessary to support employment, even though there is little risk that this would promote inflation.

While the cynicism on both sides of this debate is palpable, I don’t think either party is aware that the greatest danger to the prospect of an above trend 4 per cent growth rate after 2011-12 is not the level of debt— which is forecast to be a piddling 13.6 per cent of GDP with an interest burden of 0.6 per cent of GDP — but questionable infrastructure projects such as the $4.3 billion express rail project from West Werribee to Southern Cross Station.

It is not the size of the deficit that matters in terms of the burden on future generations, but how it is used. Households and corporations use debt to enhance their long-term wealth. The same principles apply to government debt. Providing the debt yields a higher rate of return than the cost of borrowing, there is no burden on the future.

Conversely, where governments sell productive assets for a price that yields a lower return to the taxpayer than if the assets and the dividends were kept in public ownership, then the nation is impoverished.

kdavidson@theage.com.au
http://business.theage.com.au/business/cut-deficit-and-bring-on-depression-20090517-b7e6.html?page=-1

Agence France-Presse
May 15, 2009 02:46pm

AIR New Zealand will offer a lonelyhearts trip for US singles to New Zealand in what it is billing as the world’s matchmaking flight.

US singles are being offered the chance to fly from Los Angeles in October to “get amongst it” with New Zealanders at the “Great Matchmaking Ball” in Auckland.

Before take-off passengers will attend a pre-flight gate party at Los Angeles Airport, and themed food, drink, entertainment and games will be offered during the long flight, said Air New Zealand’s Steve Bayliss.

The global downturn in travel due to the economic crisis and more recently the swine flu outbreak is leading the airline to come up with unusual marketing ideas.

Earlier this week it launched a domestic television ad showing staff including baggage handlers, pilots and cabin crew at work wearing very little but body paint.

Even chief executive Rob Fyfe appeared briefly in the advert.

http://www.news.com.au/travel/story/0,28318,25487476-5014090,00.html?referrer=email&source=eDM_newspulse

Jacob Saulwick
May 15, 2009

JOBLESSNESS in the inner city is already approaching 10 per cent, while working hours are also falling as recession eats into working conditions.

Detailed labour force figures released yesterday by the Bureau of Statistics show the uneven spread of job losses throughout Sydney and NSW.

In the inner city, for example, the number of unemployed has more than doubled since the end of last year – from 15,800 in December to 31,900 in April.

The figures are sketchy – the bureau urges caution because of small sample sizes – but trends are emerging in the geographic sweep of joblessness.

The unemployment rate in inner Sydney and in the inner west increased every month from the end of last year, from 4.6 per cent in December to 9 per cent in April. For men in the area, unemployment has hit 12 per cent, while the female rate is about 6 per cent. For most of last year unemployment in the region was closer to 4 per cent.

Sydney, with the nation’s highest concentration of finance sector workers, has been an early victim of the downturn. But while finance companies have been steadily laying off staff for the best part of a year, it is only in recent months that rising unemployment has started to emerge in official figures.

Outer suburbs – Fairfield, Bankstown, north-west Sydney – have had higher unemployment in the past couple of years. But they have not had the same level of increase since the financial crisis escalated last September.

Yesterday’s report provides more detail than the Bureau’s release last week, which showed the national unemployment rate dropping from 5.7 per cent to 5.4 per cent, and NSW unemployment falling from 6.8 per cent to 6 per cent.

The report also showed employees have started to work shorter hours, typically a precursor to rising joblessness. For the first time since figures were collected eight years ago, the average male working week dropped below 41 hours. For females, it dropped less sharply, to 31 hours.

The report comes as a range of indicators point to improvements in economic confidence.

A consumer confidence index compiled by Roy Morgan rose more than seven points last month to 104.5, and is now seven points higher than a year ago.

Some 38 per cent of Australians – 5 per cent more than the previous month – expected their family to be “better off financially” by the same time next year. Only 17 per cent – a fall of 5 per cent – expected to be worse off, the survey, conducted before the budget, showed.

A separate report from the Bureau of Statistics highlighted emerging strength in the first-home market, with housing finance increasing 7.3 per cent in March. And loans to build new homes have increased by more than 40 per cent in the past seven months, spurred on by the $21,000 government grant.

The success of the first-home owner’s grant has raised hopes Australia will avoid the precipitous falls in home prices that have hit the US and Britain.

But a Royal Bank of Scotland economist, Kieran Davies, warned that lower interest rates and limited new housing supply might not support house prices in the coming year.

“House price dynamics can develop a life of their own … Prices may fall further independently of what happens to unemployment,” he said.

http://www.smh.com.au/national/jobless-rate-doubles-in-innercity-sydney-20090514-b4ti.html?page=-1

Posted Wed May 13, 2009 8:00am AEST
Updated Wed May 13, 2009 8:06am AEST

The Community and Public Sector Union has welcomed the Federal Government’s decision to remove the extra 2 per cent efficiency dividend imposed on the public sector.

The Government did not include the additional dividend in last night’s Budget. Government departments will now have to reduce their running costs by 1.25 per cent rather than 3.25 per cent over the next financial year.

CPSU national secretary Stephen Jones says while the union would like to see the efficiency dividend removed altogether, it is a welcome first step.

“It’s a welcome surprise, we’ve been campaigning hard in the community over the last nine months to have that special efficiency dividend knocked off,” he said.

“That’s a good start but there’s more work to be done to ensure that this blunt instrument which is a tax on jobs and a tax on services is removed from the Budget in future years.”

Mr Jones says on the jobs front, the Budget has delivered mixed results.

He says the Government has created around 3,200 real jobs.

“Unfortunately at the same time it’s axed around 1,700 existing positions, that to us doesn’t make sense – you don’t create jobs by cutting them,” he said.

“So on a critical test, the Government gets about five out of 10 on public sector jobs.”

http://www.abc.net.au/news/stories/2009/05/13/2568745.htm?section=justin

Misha Schubert, Daniella Miletic and Peter Martin
May 14, 2009

AUSTRALIANS could be forced to wait until they are 67 to get access to their superannuation savings under a radical proposal to be considered later this year by the Rudd Government.

A day after flagging a rise in the pension age to 67, the Government has confirmed it will look at introducing the same age limit for super access – in effect making 67 a universal minimum retirement age.

Bringing the superannuation age into line with a higher pension age was recommended by Treasury secretary Ken Henry in a review published with the federal budget papers on Tuesday.

Dr Henry’s plan, for a phased lifting of the super age from 60 to 67 from 2024, is part of a broad push to keep Australians at work longer to help the nation cope financially with its ageing population.

A spokesman for Treasurer Wayne Swan said the Government would “thoroughly assess the findings of the Henry review when they are delivered at the end of the year”. But he stressed that the super issue would not be considered before then.

The plan could be even more controversial than the budget decision to lift the pension age.

Jane Chisholm, 53, was unhappy enough at the idea of having to stay in the workforce beyond 65 before she could even think about applying for the age pension.

“They are finally getting us baby boomers back, I guess,” said Ms Chisholm, marketing manager of Gasworks Arts Park in Albert Park.

But she expressed stronger misgivings at the proposal to lift the super access age. While she understood the need to prepare the nation for people living and working longer, she said the super proposal was cruel.

“People like to think they could have control of the money that is there for their retirement,” Ms Chisholm said. “If you want to go travelling and do some of the things you want to do, it’s just putting it closer to the 70 mark, when you can’t count on your health.”

The move to raise the pension age sparked fierce debate, with critics saying it would entrench inequality and force more old people into poverty.

Mr Swan said the decision was needed to keep pensions sustainable. “Currently we have five workers in Australia for every person aged 65 and over and by 2050, that will be 2½,” he said in a post-budget interview.

“Life expectancy has increased by 23 years since the age pension came in,” he said. “Twice as many people are going on it for twice as long.”

Opposition Leader Malcolm Turnbull supported the pension age increase, saying his only concern was that it would not come in soon enough.

National Seniors also backed the move, noting that it would not come in until 2023.

But critics highlighted the contrast between the rich getting access to super at 60 (at least under existing rules), while the poor were being forced to work or stay on the dole until 67.

The Combined Pensioners and Superannuants Association warned the move would add to poverty among over-65s and force some to toil longer at hard physical labour. “People in their 50s and 60s are often unable to find adequate employment,” said the association’s policy officer, Charmaine Crowe.

But she backed the idea of aligning the pension and superannuation ages, saying it would ensure more equality between richer and poor retirees, keep skilled people in the workforce longer and boost super savings.

Sydney University workplace relations centre analyst Michael Rafferty said increasing the pension age would entrench inequality and force some of the hardest working people in the world to work even longer.

He also pointed to what he said was a disparity between the pension decision and the mild cuts in the budget to tax breaks on superannuation. “The rich have been hit with a feather duster and the poor have been told you are going to work longer and harder,” he said.

Australian Council of Social Service chief Clare Martin said lifting the pension age to 67 might disadvantage “lower-income, mature-age people with limited job prospects, who will have to remain on lower income support payments for longer”.

UNSW Centre for Pensions and Superannuation deputy director John Evans said the pension age rise was a “knee-jerk” decision that could damage the vulnerable.

But Brotherhood of St Laurence chief executive Tony Nicholson said raising the pension age was inevitable to ensure the long-term sustainability of the system.

David Knox, a partner at Mercer Consulting who proposed the 67 pension age in a paper prepared for the Committee for the Economic Development of Australia, also welcomed the decision.

But he expressed dismay at the proposal to lift the super preservation age to 67.

“The superannuation access age should generally be about five years younger than the pension age in order to provide flexibility. You cannot assume that everyone will retire at the same age, in fact today most people retire before 65.”

Superannuation access is at present available at 55, with the age set to climb to 60 by 2024. The Henry Review recommends a further staged increased to 67, after which it would remain aligned with the pension age in order to stop Australians spending their super payout quickly and then getting access to the part-pension.

http://www.theage.com.au/national/push-to-lock-up-superannuation-savings-until-age-67-20090513-b39y.html?page=-1