Went to the Westpac Federal Budget Dinner last night at Crown. It did have Melb/Vic bias because of the audience. Here are my scribbles based on Bill Evans commentary. I have also attached the presentation/slides for eveyone's consumption. Happy reading!
• The turnaround in the Federal budget as a % of GDP is the largest in over 40 years
• Our net public debt is one of the smallest in the developed world
• Despite the large contraction in public finances over the next FY (over 3%), the impact of these changes on GDP is much smaller, Bill anticipates this to be around 1% contraction on GDP
• Net savings initiatives under 'Other' are a sum total of 50 initiatives
• Biggest spending initiatives under roads, is mostly for NSW ($3b) for the Pacific Highway mostly, and one large project in SA. Nothing for Victoria.
• Families related to the education bonus
• 2012/2103 is the forecast to be the largest reduction in government payments for over 30 years. This is optimistic based on demonstrated performance by the Federal government over the past 30 years
• Last interest rate cut will bolster confidence but seemed to have bottomed at the end of 2011
• Mining investment the biggest contribution to private demand, with consumer less so as a result of housing contracting
• Mining boom will continue to drive higher imports but overall exports will fall due to global demand, and will we start seeing large trade deficits again
• Retail sales off their worst but Victoria hardest hit, with manufacturing taking a hit through high AUD and very little mining investment
• One of the key areas which will retard growth will be the high household debt in conjunction with global uncertainty & increasing unemployment
• Housing prices in Melbourne were the biggest beneficiary of the post GFC stimulus, but the is now experiencing the biggest hangover. Worst seemed to be at the end of 2011, and slight increase in early 2012, but tracking sideways throughout 2012, with a better 2013.
• Housing price growth expectations starting to turnaround for the first time in a year - a leading indicator that shows some slight rebound in outlook
• Housing affordability is back to 2003/4 levels, but Melbourne still slightly less affordable than the national level. Reduced interest rates will assist affordability+
• Construction levels close to GFC levels but is expected to increase off these low levels. Still well below underlying demand
• Dwelling approvals for Melbourne were the biggest beneficiary of post GFC stimulus but significant reduction in the last 12 months
• Melbourne taxes on new housing around 38% and one of the biggest impacts on unaffordability. Sydney is worse at 44%
• Consumer sentiment re finances have deteriorated primarily due to the lack of interest rate reductions from the RBA & independent bank interest rate rises
• Unemployment to go a touch higher in 2013 to 5.5% before recovering. Vic is suffering and is biggest need of stimulus/interest rate reductions
• Whilst cash rate is expected to go to 3 - 3.25%, 3 year fixed rates are expected to increase over the year. i.e. lock in to a fixed mortgage rate now, unless cash rate is forced below 3 then you would expect to see lower fixed rates
• Neutral cash rate in today's environment is 4.1%
• RBA focus is primarily on inflation, and a falling AUD will place pressure on tradeables price inflation and would put upward pressure on inflation
• Government bonds (to fund our recent deficits) have been purchased primarily by Asia because of confidence in Australian economy, which has contributed in keeping the AUD high.
• China will now reverse contractionary policy as housing prices have reverted back to their 2009 levels and inflation fears have subsided
• China RMB to be floated in between 5-10 years.
• Ongoing European worries for the next 2 years. Expects EURO to be disbanded in 2014
• Spain the biggest issue in Europe and would expect to leave the EURO
• US economy the hardest to read, but is expecting QE3 if poor jobs data continues to come through
• If QE3 comes about, get on board US equities
• Expects strong rebound in ASX in late 2012 and 2013
• Thinks commercial property at 8% (office) 7% (industrial) is an excellent investment choice vis a vis 10 yr bond return
Some questions from the floor were answered as follows;
• re surplus debate, the Federal government should be looking at larger stimulus for infrastructure and relieve states of most of the funding, so they can ease their reliance on property taxes and increase affordability
• Low public debt allows more than enough margin to invest & go into debt
• Carbon Tax effect will not be as large as its detractors believe, but electricity prices will continue to increase due to demand pressures and investment in additional capacity needs to be paid
• The turnaround in the Federal budget as a % of GDP is the largest in over 40 years
• Our net public debt is one of the smallest in the developed world
• Despite the large contraction in public finances over the next FY (over 3%), the impact of these changes on GDP is much smaller, Bill anticipates this to be around 1% contraction on GDP
• Net savings initiatives under 'Other' are a sum total of 50 initiatives
• Biggest spending initiatives under roads, is mostly for NSW ($3b) for the Pacific Highway mostly, and one large project in SA. Nothing for Victoria.
• Families related to the education bonus
• 2012/2103 is the forecast to be the largest reduction in government payments for over 30 years. This is optimistic based on demonstrated performance by the Federal government over the past 30 years
• Last interest rate cut will bolster confidence but seemed to have bottomed at the end of 2011
• Mining investment the biggest contribution to private demand, with consumer less so as a result of housing contracting
• Mining boom will continue to drive higher imports but overall exports will fall due to global demand, and will we start seeing large trade deficits again
• Retail sales off their worst but Victoria hardest hit, with manufacturing taking a hit through high AUD and very little mining investment
• One of the key areas which will retard growth will be the high household debt in conjunction with global uncertainty & increasing unemployment
• Housing prices in Melbourne were the biggest beneficiary of the post GFC stimulus, but the is now experiencing the biggest hangover. Worst seemed to be at the end of 2011, and slight increase in early 2012, but tracking sideways throughout 2012, with a better 2013.
• Housing price growth expectations starting to turnaround for the first time in a year - a leading indicator that shows some slight rebound in outlook
• Housing affordability is back to 2003/4 levels, but Melbourne still slightly less affordable than the national level. Reduced interest rates will assist affordability+
• Construction levels close to GFC levels but is expected to increase off these low levels. Still well below underlying demand
• Dwelling approvals for Melbourne were the biggest beneficiary of post GFC stimulus but significant reduction in the last 12 months
• Melbourne taxes on new housing around 38% and one of the biggest impacts on unaffordability. Sydney is worse at 44%
• Consumer sentiment re finances have deteriorated primarily due to the lack of interest rate reductions from the RBA & independent bank interest rate rises
• Unemployment to go a touch higher in 2013 to 5.5% before recovering. Vic is suffering and is biggest need of stimulus/interest rate reductions
• Whilst cash rate is expected to go to 3 - 3.25%, 3 year fixed rates are expected to increase over the year. i.e. lock in to a fixed mortgage rate now, unless cash rate is forced below 3 then you would expect to see lower fixed rates
• Neutral cash rate in today's environment is 4.1%
• RBA focus is primarily on inflation, and a falling AUD will place pressure on tradeables price inflation and would put upward pressure on inflation
• Government bonds (to fund our recent deficits) have been purchased primarily by Asia because of confidence in Australian economy, which has contributed in keeping the AUD high.
• China will now reverse contractionary policy as housing prices have reverted back to their 2009 levels and inflation fears have subsided
• China RMB to be floated in between 5-10 years.
• Ongoing European worries for the next 2 years. Expects EURO to be disbanded in 2014
• Spain the biggest issue in Europe and would expect to leave the EURO
• US economy the hardest to read, but is expecting QE3 if poor jobs data continues to come through
• If QE3 comes about, get on board US equities
• Expects strong rebound in ASX in late 2012 and 2013
• Thinks commercial property at 8% (office) 7% (industrial) is an excellent investment choice vis a vis 10 yr bond return
Some questions from the floor were answered as follows;
• re surplus debate, the Federal government should be looking at larger stimulus for infrastructure and relieve states of most of the funding, so they can ease their reliance on property taxes and increase affordability
• Low public debt allows more than enough margin to invest & go into debt
• Carbon Tax effect will not be as large as its detractors believe, but electricity prices will continue to increase due to demand pressures and investment in additional capacity needs to be paid