Tag Archives: business spectator

Now Or Never To Stop The Carbon Tax?

26 Apr

A great bloke over at Business Spectator, Rob Burgess, has crunched the Senate electoral numbers with a view to the likelihood of Tony Abbott actually being able to repeal the Labor/Green/Oakeshott carbon dioxide tax at any time soon.  It makes for troubling reading (free subscription access) –

Labor is revealing its carbon pricing policy with all the coy teasing of a professional stripper – a glimpse here, a peek there. All Greg Combet showed us yesterday was that 50 per cent of carbon tax revenue would be handed back to households. The rest of his National Press Club speech was old hat.

And all the while Tony Abbott hopes he can get them off stage and close the club before we see ‘everything’.

In an important sense, that’s Abbott’s only hope of triumphing in the highly polarised debate over the carbon tax. The anti-carbon-tax rallies and marches of the past few weeks have elicited rash promises from the Coalition figures who have attended, that they will repeal any carbon tax and get on with reducing emissions their own way. As Abbott put it in February, “we will oppose it in opposition, we will rescind it in government”.

I doubt the thousands of concerned Australians turning up to the rallies know that the Coalition can’t deliver on this promise.

While it’s certainly true an Abbott-lead government would wish to repeal the tax, there is an infinitesimally small chance it would have the Senate numbers to do so in its first term. And it’s pretty clear there would be no help from Labor or the Greens to overturn legislation for which they have so bitterly fought.

The Senate is a tricky beast. Indeed, it’s designed to be that way – the manner in which the house of review is elected virtually ensures a broader range of parties will be represented than in the lower house. Moreover, because only half the 76 seat chamber is elected at each general election, it takes a bit of scribbling on the back of an envelope to work out what’s going to happen (okay, I do it in Excel).

And here’s the results.

The probability of Tony Abbott winning government, whether from the floor of the house, or through an early election, or through a normal general election in 2013, and having enough votes in the Senate to repeal the carbon tax … practically nil.

The odds of Abbott winning government, serving something close to a full term and winning the next election (in 2016, say) with a Senate majority … slim, but not impossible.

To win 22 seats at the next election, the Coalition needs to retain the one seat it holds in each of the territories, and win 20 seats in the states. With Tassie likely to repeat its familiar pattern, that means winning:

— four out of six seats in three of the non-Tassie states

— three out of six in the two remaining states

— one seat each in ACT and NT.

That would give the Coalition the 22 votes required to repeal the carbon tax. That would also give bookmakers across the land heart attacks, because the odds of such an electoral coup are so extraordinarily long.

That fact remains, therefore, that if Tony Abbott’s team does not find a way to bring down the government before the carbon tax is legislated – most likely in November of this year – the Coalition will be powerless to repeal it until two Senate elections have taken place. That most likely means a carbon tax for four years, and by that time who knows where global carbon politics will have taken us.

Our only other hope would be a double dissolution election – where both houses of parliament are dissolved, and full elections for both houses held:

Gottliebsen: In The Eye Of GFC Storm

30 Jun

Highly respected business commentator Robert Gottliebsen appears to agree today with what Barnaby Joyce has been saying since October last year – that the GFC is far from over.

From Business Spectator:

Despite a late US Dow index rally, last night was among the more serious sharemarket falls we have experienced since global financial crisis plunged markets in 2009.

We are well above the dismally low levels witnessed on equities markets during the crisis, but last night you could see fear in almost every corner of the world. The forces that are behind each of the fears are probably manageable, but when they occur together, as what happened last night, they triggered waves of selling, including a savaging of the Australian dollar.

And of course Gillard’s mining tax dithering is rekindling global doubts about the sovereign risk of this country which threatens to put Australia and our high house prices in the eye of the storm.

And for most Australians, the global wave of selling will be reflected in our share prices levels at June 30, which means that the value of superannuation funds will be hit on balance day. Many retirees will have their income reduced for the year ahead…

Clearly China is slowing much more rapidly than expected, and as a result the bad property loans that are in its banking portfolios will weigh down future growth.

In the past China has always managed these issues and I think it will do it again, but the markets fear there will be much more pain than had been anticipated.

Meanwhile, in Europe the big banks have been playing the stupid game of borrowing from depositors and then investing in the sovereign debts of European countries that can’t pay.

Tomorrow the banks are supposed to repay €442 billion in emergency loans but they almost certainly will have to be bailed out again. Fears of bank collapses are rife. On top of this dire outlook, Europe’s austerity measures will bring on recessions in countries ranging from Greece to the UK which will make it even harder for the banks. And the strikes in Greece will be repeated in many countries, which could make the spending cuts impossible to deliver.

In the US they are helped because in a crisis money flows to the world currency, so the US dollar rises. Nevertheless, there are still chronic housing problems so consumer confidence is depressed and the US economy is still living on the old stimulus packages. Accordingly Wall Street’s earnings estimates look too optimistic.

Barnaby is right.

Henry “Dumb”, “Completely Mad”, “Naïve Greenie”

24 Jun

In the wake – literally – of former PM Kevin Rudd, Mike Mangan at Business Spectator predicts the death knell for the RSPT:

The Labor leadership spill ensures the resources super profits tax is dead. While the RSPT started as an investment theme, it’s now just politics…

This (the RSPT) would have to rate as one of the dumbest political moves since Chifley tried to nationalise the banks 60 odd years ago. Labor nick-named Mark Latham “crazy brave”. But I doubt even Latham would have tried this one on…

Happily, Mangan goes on to join the rumblings (that were started right here on this blog back in February) calling for the sacking of Treasury secretary Ken Henry:

Former Labor senator Graham Richardson said earlier this week the miners are now spending a million a week advertising the stupidity of this “super tax on profits”. And he concludes “their ads are 50 times more effective than the government’s ads”. What was Rudd thinking? Who was advising him?

Enter stage left: Ken Henry.

Although Rudd has since rejected the idea, on Monday Rudd’s Treasury Secretary helpfully suggested the RSPT should be extended to all industries, especially banks and retailers. I think there are three possibilities here. Ken Henry is either politically dumb, gone completely mad or he is a secret admirer of Tony Abbott. Surely Kevin Rudd had enough enemies without adding two of Australia’s largest industries to that ever growing list. There is another possibility. Henry is just a naïve greenie. Reportedly he partly drafted his tax review while caring for northern hairy-nosed wombats in central Queensland. Too bad wombats don’t vote.

The spill result is great news for investors, because the mayhem Rudd unleashed over the last six or so months will cease and the RSPT in particular will be consigned to the history books with him. And I strongly suspect Secretary Henry won’t be too far behind.

Mining Tax Puts Australia On Frontline of Market Fury

21 May

Highly respected Australian economics commentator, Robert Gottliebsen, puts forward the same basic point as investment giant Goldman Sachs/JB Were in their recent note to clients – that the Rudd’s government’s mining tax is a prime cause of the dramatic collapse in the Aussie sharemarket and Aussie Dollar.

From Business Spectator:

Global stock markets are losing faith in governments to manage the escalating problems stemming from the sovereign debt situation. But it is worse than that. Bankers are also losing confidence in governments. The sharp falls in stock markets will affect business activities and will have repercussions on economies around the world.

Solvent governments such as Germany are effectively borrowing vast sums to prop up bankrupt countries like Greece and most of the other PIIGS . The bankers say it will not work. Traders are liquidating their portfolios and the shorters are selling European shares.

And whereas we should have been one of the pillars of stability in this global crisis, our crazy mining tax has caused Australia to be in the front line of the market fury.

We have already been hit by a massive bear raid and now we will hit again by the falls on Wall Street.

We need good government at this crucial point in history. Instead we have bad government, so our economic recovery will be stalled if markets keep plunging. Treasury’s optimistic budget forecasts now look as silly as its mining tax.

Cracks Multiply In Europe

7 May

From Business Spectator:

Global share markets plunged overnight as panicked investors worried that the eurozone could fragment as a result of the escalating European financial crisis.

The European banking system is under huge strain* as banks are increasingly reluctant to lend to each other. The European banks are worried about how much other banks have lent to the weaker eurozone countries – the so-called PIIGS (Portugal, Ireland, Italy, Greece and Spain) – and the catastrophic losses that could ensue if any of these countries defaulted on their debt.

At the same time, there’s been a flight of capital out of the eurozone as investors have worried the common currency might crumble as a result of the problems in the vulnerable economies of the PIIGS (Portugal, Ireland, Italy, Greece and Spain).

The huge question mark over the eurozone’s survival is causing the euro to plummet. Increasingly, market analysts are predicting that the currency, which broke through the $US1.30 earlier this week for the first tine since April 2009, is set to hit parity with the US dollar.

There is an increasing consensus that the $US145 billion European Union-IMF rescue package for Greece is not sufficient to solve Greece’s basic problem – that it is simply unable to service its colossal debts. There are also questions as to whether Greece will be able to implement the punitive austerity measures it is being forced to adopt in exchange for the bailout.

At the same time, there are increasing signs that even if it bails out Greece, Germany will not be prepared to write the huge cheques required to help other vulnerable PIIGS.

German taxpayers are already outraged at having to pick up a large chunk of the cost of the Greek bail-out, and Germany’s largest opposition party, the centre-left SPD, has said that it will not vote in favour of the bill.

Predictions that the cascading PIIGS debt crisis will cause the eurozone to collapse are becoming more widespread.

* That the European banking system is “under huge strain” and is beginning to freeze up (again) has profound implications for our economy. Why?

As explained in this post a few days ago, even the heads of our major banks quietly admit that our banking system has an “achilles heel” – it is desperately dependent on the international wholesale capital markets for funding.  If/when the banking system abroad seizes up again, our banks will be in deep trouble.

Watch out for the emergency reinstalment of the government’s Bank Guarantee, hoping to again prop up international confidence in our banks so that they can continue to attract funding in a second credit crunch.

Watch out also for higher interest rates charged by the banks – irrespective of the RBA cash rate – due to their having to pay ever higher interest rates in order to get that international funding in the first place.

Don’t Bet The House On China

4 May

An excellent and timely article by Karen Maley in today’s Business Spectator (reproduced here in full):

Kevin Rudd’s resource super profits tax has one massive risk – that commodity prices collapse before he gets to collect one cent of it.

Yesterday, the influential forecaster, Marc Faber joined those warning of problems ahead in China. “The market is telling you that something is not quite right”, he said in an interview on Bloomberg television. “The Chinese economy is going to slow down regardless. It is more likely that we will even have a crash sometime in the next nine to 12 months.”

On Sunday – as Kevin Rudd and Wayne Swan were announcing their new resources tax – China’s central bank made another attempt to dampen property market speculation. It lifted its reserve requirement ratio by a further half a percentage point, so that most Chinese banks will now have to hold 17 per cent of their deposits on reserve.

But this latest increase in the reserve ratio will likely prove as ineffective as the two previous rises in January and February this year. Many believe the Chinese property bubble will continue to expand for as long as the Chinese government maintains interest rates below the rate of inflation.

And that’s the core of the problem. The Chinese government is reluctant to increase interest rates because it risks exposing the huge fault lines that exist in the economy.

Over the past decade, China has built factories and expanded its manufacturing capacity in the expectation that the United States and Europe would continue to demonstrate a robust appetite for Chinese-produced goods. But western demand for Chinese products slowed in the wake of the financial crisis, leaving the Chinese economy with substantial overcapacity in manufacturing.

The problem was exacerbated during the financial crisis. With Chinese exports plunging, the Chinese government launched a massive economic stimulus program, equivalent to around 14 per cent of the country’s GDP. It also ordered Chinese banks to lend, and instructed Chinese state-owned companies to borrow.

The program had the desired result. The Chinese economy grew at an 11.9 per cent annual clip in the first three months of the year, the fastest pace since 2007. And we benefited too, because this strong Chinese growth pushed up the prices of our commodity exports, such as iron ore and coal.

But there are huge concerns over how the Chinese stimulus money was spent. Provincial governments, under instructions from Beijing to reach specified growth targets, undertook massive construction projects that have resulted in a glut of commercial office space, and huge shopping malls that are near-vacant. And much of the increase in bank lending was funnelled into property market speculation, pushing up housing prices to astronomic levels.

The Chinese government has tinkered with various measures to contain its property bubble – increasing the reserve requirement, lifting the minimum deposit that home buyers must have before they’re allowed to borrow, and urging banks to monitor their risks.

But it is loathe to raise interest rates for fear that it will cause mass defaults among manufacturers and property developers, leading to huge problem loans in the banking system.

Eventually, however, an end-point will be reached. Either the Chinese government will raise interest rates, or the property market bubble will collapse under its own weight. At that point, commodity prices will plummet, slashing the profits of the big mining companies.

And if this happens before 1 July 2012 when the new tax regime for the miners comes into effect, Rudd is unlikely to ever see a cent of his new resource super profits tax.

Betting the house on China is exactly what the numbskulls in the Rudd Labor government, the Treasury, and the RBA are doing.

Please take some time to review some of the many earlier articles in this blog, showing how the likes of Treasury secretary Ken Henry and RBA Governor Glenn Stevens have declared that the GFC is ‘over’, and forecast that (thanks to China) we are all set for a ‘period of unprecedented prosperity’ lasting until 2050.

What is vital to bear in mind always, is that these are the very same incompetents who all completely and utterly failed to foresee the onrushing Global Financial Crisis in 2008… even though its first wave had already broken in the USA and on global share markets during 2007!

Waking Up To Sovereign Debt

25 Mar

From Business Spectator:

The current Greek debt crisis is likely to be only the first of a series of disruptions this year, as global financial markets inevitably shift their attention to the sovereign debt problems of advanced economies.

These problems were magnified by the global financial crisis. Faced with a collapse in consumer spending, and the risk of widespread bank failures, governments opened their cheque books while central banks printed trillions of dollars.

This had the effect of stabilising the financial system, but we now have to deal with consequences of these actions, and particularly with the deterioration in the balance sheets of most advanced economies.

The sovereign debt problem is not confined to the so-called PIIGS of Europe (Portugal, Ireland, Italy, Greece and Spain). Markets are also unnerved by the massive build-up of government debt in the United Kingdom and Japan. And that’s without mentioning the huge budgetary problems facing debt-laden US states, such as California.

There are various doomsday scenarios as to how this situation will ultimately play out.

The first is that countries will start off by heading in the direction that Greece is currently taking. That is, governments will attempt to repair their balance sheets by slashing their spending, and pushing up tax rates.

But the worry is that such budgetary measures will prove counter-productive. The countries that follow this path will end up with their economies plunging into recession, and with an outbreak of social unrest. And as their economies shrink, their tax revenues will dry up, which means that they won’t be able to pay the interest bills on their massive debt.

Eventually the situation will become untenable, and central banks will be forced to respond to the situation by printing more and more money in order to create enough inflation to erode the value of the debt.

Under this scenario, massive central bank money printing means ending up with hyperinflation, along the lines of the Weimar Republic, or, more recently, Zimbabwe. In which case the price of gold explodes, with some predicting it could reach $5,000 an ounce. Prices for other commodities also soar, and stock prices are also likely to remain high, as it is assumed that central banks will always keep interest rates below the rate of inflation.

The alternative fear is that the world ends up looking a lot more like Japan than Zimbabwe, and the main struggle is against deflation.

Under this scenario, the determination of consumers to reduce their debt levels overwhelms government efforts to stimulate the economy. What’s more, the deleveraging process causes demand to collapse, and this puts pressure on labour costs. Households respond to this further deterioration in their earnings by tightening their belts even further, resulting in an ongoing deflationary cycle.

One of the main arguments of this camp is that even though central banks continue to print huge amounts of money, it won’t lead to inflation because the banks are not lending the money. Instead, total credit in the economy will contract as consumers, and businesses, try to repay their existing debts, rather than taking out new loans.

According to this view, the price of gold and other commodities will collapse. The drop in demand will also put pressure on the profit margins of businesses, and this will push global sharemarkets lower, even though interest rates will be kept close to zero.

Of course, it’s likely that neither of these two extreme views will play out in their entirety. But we are likely to see markets oscillate between these two opposing fears as worries about sovereign debt continue to climb this year.

Got to love that blind optimism in the final paragraph.

It’s interesting to observe how the power of denial encourages an otherwise rational and sensible commentator to set aside all the evidence of where things are clearly headed, simply because the end of this road looks calamitous –

"She'll Be Right, Mate"

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