Official Letter of Complaint against the Australian Treasury

5th November 2019

Dear Secretary Steven Kennedy,

I am today making an official complaint about the behaviour of the Australian Treasury relating to disclosures as a result of a Freedom of Information request (FOI 2580 – Document 1) relating to Economy Wide Cash Payment Limit (CPL). 

The basis of good Government is effective consultation and engagement with the public. The evidence suggests this has been actively avoided in this case to drive a specific agenda.

The Submission provided Minister Sukkar and the Treasurer Frydenberg with a briefing on the outcomes of the public consultation Treasury facilitated concerning the Currency (Restrictions of the Use of Cash) Bill 2019, the Currency (Restrictions on the Use of Cash – Excepted Transactions) Instrument 2019 and other associated documentation. The public consultation was conducted by Treasury from 26 July 2019 to 12 August 2019.

Specifically, in the advice, Treasury informed the Minister and the Treasurer that:

“Treasury has received over 3,500 submissions during the two-week public consultation period. Over 3,400 of these submissions are part of a campaign by the Citizens Electoral Council.”

This is a factually incorrect statement, in that I have evidence that many of the submissions, whilst they might echo some of the sentiments voiced by the CEC, were not directly or indirectly associated with the CEC or their campaign.

Indeed, Digital Finance Analytics, a boutique research and consulting firm made a direct submission, and we are also aware of a significant number of other individuals and firms who also made submissions. I have not financial or political alignment with the CEC.

But we all hold the firm view that the bill as presented eroded our civil liberties, did not provide factual justification for the $10,000 cash limit, and the connection with monetary policy and negative interest rates – as articulated for example by the Black Economy Taskforce itself as well as agencies such as the IMF – was not discussed in the explanatory memorandum.

This appears to be a blatant attempt to dilute the very strong community concerns about the propose bill, whilst displaying a strategy like that executed a couple of year ago when the revisions to APRA’s powers were nodded though in the Senate. In each case the CEC was used as an excuse to ignore very real community concerns.

So, I am seeking a formal apology for this error, confirmation of the true count of independent submissions and specifically that my own submission was NOT bucketed into the CEC campaign count.  When will the submissions be made public so I can confirm this?  Clearly your advice would also need to be updated.

It is no wonder that public trust in Government is at an all time low.

I will be making the same point as part of my submission to the current Senate Inquiry.

Martin L North, Principal Digital Finance Analytics

Corrupt Canberra says your Freedom is Out of Scope

Economist John Adams and Analyst Martin North discuss the recent Treasury FOI response relating to the Cash Restriction legislation which was open (briefly) for public comment.

https://treasury.gov.au/sites/default/files/2019-11/foi-2580.pdf

https://www.adamseconomics.com/post/official-letter-of-compliant-against-the-australian-treasury

https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Economics/CurrencyCashBill2019

Retail Dies A Little More

Australian retail turnover rose 0.2 per cent in September 2019, seasonally adjusted, according to the latest Australian Bureau of Statistics (ABS) Retail Trade figures. In line with our expectations, and continuing to show the pressure on households, and the limited impact of the tax cuts, and even lower interest rates.

This follows a 0.4 per cent rise in August 2019.

Rises were seen in other retailing (0.8 per cent), cafes, restaurants and takeaway services (0.6 per cent), and food retailing (0.1 per cent). These rises were slightly offset by a fall in clothing, footwear and personal accessory retailing (-0.5 per cent) and department stores (-0.2 per cent). Household goods (0.0 per cent) was relatively unchanged.

In seasonally adjusted terms, there were rises in New South Wales (0.3 per cent), Western Australia (0.7 per cent), Tasmania (1.0 per cent), South Australia (0.2 per cent), the Australian Capital Territory (0.1 per cent), and the Northern Territory (0.1 per cent). Victoria (0.0 per cent ) was relatively unchanged. Queensland (-0.1 per cent) fell in seasonally adjusted terms in September 2019.

The trend estimate for Australian retail turnover rose 0.2 per cent in September 2019, following a rise of 0.2 per cent in August 2019. Compared to September 2018, the trend estimate rose 2.4 per cent.

Online retail turnover contributed 6.3 per cent to total retail turnover in original terms in September 2019. In September 2018 online retail turnover contributed 5.6 per cent to total retail.

Quarterly volumes fall 0.1 per cent

For the September quarter 2019, there was a fall of 0.1 per cent in seasonally adjusted volume terms. This follows a rise of 0.1 per cent in the June quarter 2019.

The quarterly fall in volumes was led by cafes, restaurants and takeaway food services (-1.0 per cent), and department stores (-0.1 per cent). Food retailing (0.0 per cent) was relatively unchanged. Household goods (0.9 per cent), other retailing (0.3 per cent), and clothing, footwear and personal accessories retailing (0.3 per cent) rose in seasonally adjusted volume terms.

Dwelling Approvals Fell Again In September

The number of dwellings approved fell 0.8 per cent in September 2019, in trend terms, and has fallen for 22 months, according to data released by the Australian Bureau of Statistics (ABS) today.

“The fall in trend dwelling approvals for September was the smallest monthly decline in six months,” said Daniel Rossi, Director of Construction Statistics at the ABS. “However, the number of dwellings approved remains 21.1 per cent lower than at the same time last year.”

Across the states and territories, dwelling approvals fell in the Northern Territory (9.3 per cent), Western Australia (2.4 per cent), Australian Capital Territory (1.8 per cent), New South Wales (1.2 per cent), Queensland (0.5 per cent) and Victoria (0.4 per cent). Tasmania (1.6 per cent) and South Australia (0.4 per cent) recorded increases, in trend terms.

In trend terms, approvals for private sector houses fell in Western Australia (2.7 per cent) and South Australia (1.3 per cent). Victoria rose 0.1 per cent, while private house approvals in New South Wales and Queensland were flat.

The seasonally adjusted estimate for total dwellings approved rose 7.6 per cent in September, driven by a 16.6 per cent increase in private dwellings excluding houses. Private sector houses rose 2.8 per cent.

The value of total building approved rose 1.4 per cent in September, in trend terms, and has risen for nine months. The value of residential building rose 0.5 per cent, while non-residential building rose 2.5 per cent.

Fed Cuts Again

As expected, the Fed cut rates again following their latest meeting. Its worth noting a slight change of tone, which some suggest this may be the last for some time. Worth reflecting though, if we are not in an economic crisis, just why are rates so low, and what firepower remains if one emerges? Their worry centres on trade and business investment. The “Non-QE” QE continues in parallel. The Dow was higher.

Information received since the Federal Open Market Committee met in September indicates that the labor market remains strong and that economic activity has been rising at a moderate rate. Job gains have been solid, on average, in recent months, and the unemployment rate has remained low. Although household spending has been rising at a strong pace, business fixed investment and exports remain weak. On a 12-month basis, overall inflation and inflation for items other than food and energy are running below 2 percent. Market-based measures of inflation compensation remain low; survey-based measures of longer-term inflation expectations are little changed.

Consistent with its statutory mandate, the Committee seeks to foster maximum employment and price stability. In light of the implications of global developments for the economic outlook as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 1-1/2 to 1-3/4 percent. This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2 percent objective are the most likely outcomes, but uncertainties about this outlook remain. The Committee will continue to monitor the implications of incoming information for the economic outlook as it assesses the appropriate path of the target range for the federal funds rate.

In determining the timing and size of future adjustments to the target range for the federal funds rate, the Committee will assess realized and expected economic conditions relative to its maximum employment objective and its symmetric 2 percent inflation objective. This assessment will take into account a wide range of information, including measures of labor market conditions, indicators of inflation pressures and inflation expectations, and readings on financial and international developments.

Voting for the monetary policy action were Jerome H. Powell, Chair; John C. Williams, Vice Chair; Michelle W. Bowman; Lael Brainard; James Bullard; Richard H. Clarida; Charles L. Evans; and Randal K. Quarles. Voting against this action were: Esther L. George and Eric S. Rosengren, who preferred at this meeting to maintain the target range at 1-3/4 percent to 2 percent

CPI Continues Below RBA Target

The Consumer Price Index (CPI) rose 0.5 per cent in the September 2019 quarter, according to the latest Australian Bureau of Statistics (ABS) figures. This follows a rise of 0.6 per cent in the June 2019 quarter.

All groups CPI seasonally adjusted rose 0.3%.

The trimmed mean rose 0.4%, following a rise of 0.4% in the June 2019 quarter. Over the twelve months to the September 2019 quarter, the trimmed mean rose 1.6%, following a rise of 1.6% over the twelve months to the June 2019 quarter.

The weighted median rose 0.3%, following a rise of 0.4% in the June 2019 quarter. Over the twelve months, the weighted median rose 1.2%, following a rise of 1.3% over the twelve months to the June 2019 quarter.

This is well below the RBA target.

The most significant price rises in the September 2019 quarter were international holiday, travel and accommodation (+6.1 per cent), tobacco (+3.4 per cent), property rates and charges (+2.5 per cent) and child care (+2.5 per cent).

The most significant price falls this quarter were automotive fuel (-2.0 per cent), fruit (-3.1 per cent) and vegetables (-2.5 per cent).

ABS Chief Economist, Bruce Hockman said: “Despite the price falls for fruit and vegetables this quarter, the drought is impacting on the prices for a range of food products. Prices rose this quarter for meat and seafood (+1.7 per cent), dairy and related products (+2.2 per cent) and bread and cereal products (+1.3 per cent).”

The CPI rose 1.7 per cent through the year to the September 2019 quarter. This follows a through the year rise of 1.6 per cent to the June 2019 quarter.

“Annual inflation remains subdued partly due to price rises for housing related expenses remaining low, and in some cases falling in annual terms. Prices for utilities (-0.3 per cent) and new dwelling purchase by owner-occupiers (-0.1 per cent) both fell slightly through the year to the September 2019 quarter, while rents (0.4 per cent) recorded only a small rise,” said Mr Hockman.

Main contributors by city:

Sydney (+0.5%)

  • International holiday, travel and accommodation (+6.9%)
  • Tobacco (+3.4%)
  • Wine (+2.6%).

The rise was partially offset by:

  • Automotive fuel (-2.2%)
  • New dwelling purchase by owner-occupiers (-0.6%). The fall in new dwelling purchase by owner-occupiers is mainly driven by base price reductions due to weak market conditions.
  • Sports participation (-3.5%) due to the introduction of a second $100 Active Kids sports voucher for school aged children in New South Wales.

Melbourne (+0.5%)

  • International holiday, travel and accommodation (+5.5%)
  • Tobacco (+3.5%)
  • Gas and other household fuels (+3.5%) due to the seasonal switch to peak winter gas prices.

The rise was partially offset by:

  • Electricity (-4.1%) due to the introduction of the Victorian Default Offer from 1 July 2019.
  • Motor vehicles (-2.0%)
  • Automotive fuel (-1.8%).

Brisbane (+0.6%)

  • International holiday, travel and accommodation (+4.7%)
  • Tobacco (+3.2%)
  • Electricity (+2.6%) driven by the $50 asset ownership dividend that was applied to consumers’ electricity bills last quarter.

The rise was partially offset by:

  • Automotive fuel (-2.6%)
  • Fruit (-2.7%).

Adelaide (+0.7%)

  • International holiday, travel and accommodation (+6.3%)
  • Tobacco (+3.4%)
  • Wine (+3.5%).

The rise was partially offset by:

  • Domestic holiday, travel and accommodation (-2.4%)
  • Insurance (-3.5%) due to the Compulsory Third Party insurance market being opened to competition on 1 July.
  • New dwelling purchase by owner-occupiers (-0.7%).

Perth (+0.5%)

  • International holiday, travel and accommodation (+6.8%)
  • Tobacco (+3.5%)
  • Electricity (+1.7%).

The rise was partially offset by:

  • Automotive fuel (-2.6%)
  • Fruit (-6.5%).

Hobart (+0.5%)

  • New dwelling purchase by owner-occupiers (+2.3%) due to a strong housing market.
  • International holiday, travel and accommodation (+6.2%)
  • Tobacco (+2.6%).
  • Hobart is the only capital city to record a rise in automotive fuel this quarter (+0.5%).

The rise was partially offset by:

  • Domestic holiday, travel and accommodation (-7.0%)
  • Vegetables (-2.5%).

Darwin (+0.3%)

  • Domestic holiday, travel and accommodation (+4.4%) due to increased demand during the peak tourist season this quarter.
  • Tobacco (+3.1%)
  • International holiday travel and accommodation (+4.6%).

The rise was partially offset by:

  • Rents (-1.8%); due to continued high vacancy rates
  • Other financial services (-3.2%) due to the introduction of the Territory home owner discount (THOD), which offers a discount on stamp duty when purchasing a dwelling for owner-occupier purposes from May 2019.
  • Sports participation (-9.0%) due to the biannual $100 sports voucher provided to school aged children in the Northern Territory.

Canberra (+0.7%)

  • International holiday, travel and accommodation (+6.5%)
  • Property rates and charges (+7.9%) due to reductions in stamp duty for property purchases being replaced by increases in general rates.
  • Domestic holiday, travel and accommodation (+3.2%).

The rise was partially offset by:

  • Other financial services (-7.6%) due to the introduction of the home buyer concession scheme.
  • Games, toys and hobbies (-3.6%)
  • Fruits (-3.1%).

Fitch Affirms Australia at ‘AAA’; Outlook Stable

Fitch says Australia’s ‘AAA’ rating is underpinned by an effective and flexible policy framework that has, in combination with strong net migration, supported 28 consecutive years of positive GDP growth in the face of substantial external, financial, and commodity-price shocks. A credible commitment to fiscal consolidation from a debt level that is already broadly in line with the ‘AAA’ median also supports the rating.

The federal government’s fiscal position continued to strengthen over the past year, bolstered by a cyclical upswing in revenue, largely from higher iron ore prices, and sustained spending restraint as part of the government’s consolidation efforts. On a Government Finance Statistics basis, Fitch estimates a federal government surplus in the fiscal year ending-June 2019 (FY19) of 0.1% of GDP; the first surplus since FY08. We forecast the federal surplus to trend slightly upward, reaching 0.3% by FY21. Fitch forecasts the general government deficit to decline to 0.5% of GDP by FY21, from 1.0% in FY19.

The government appears committed to continued fiscal consolidation, focusing on reaching an underlying cash surplus in FY20 (from a balance in FY19) and over the medium-term. Strong revenue growth allowed the government to pass additional personal income tax cuts in July, while remaining on track to achieve its fiscal targets. However, the fiscal trajectory remains sensitive to commodity-price developments. Iron ore prices have receded sharply from their mid-2019 highs, but remain above the assumptions incorporated into Fitch’s April 2019 budget outlook.

We estimate that general government gross debt remained stable at 41.0% of GDP in FY19, just below the ‘AAA’ median of 44%, and expect the debt ratio to fall gradually on improved fiscal performance.

Fitch forecasts GDP growth to slow sharply to 1.7% in 2019, from 2.7% in 2018, due to domestic factors triggered by a protracted housing-market downturn. We expect economic growth to rise to 2.3% in 2020, as the housing market stabilises and consumption is supported by recent monetary policy-rate cuts, tax cuts, and public-infrastructure spending. Risks are tilted to the downside given US-China trade frictions and slowing growth in China, as China is the destination of roughly 30% of goods exports.

The Reserve Bank of Australia (RBA) has cut its policy rate by a cumulative 75bp since June to a historic low of 0.75%, a considerable change in the interest-rate environment. Fitch now expects the RBA to remain on hold through 2021 to support economic growth and employment, and does not anticipate the use of quantitative easing. Inflation fell in 1H19 to 1.4% and Fitch forecasts it to remain below the RBA’s 2%-3% target band until 2021. The unemployment rate has edged up to 5.2% since April, but employment growth remains resilient and the participation rate has increased to historic highs.

Policy rate cuts and a relaxation of macroprudential policies have helped stabilise house prices after an 8.4% fall in the national house price index between the October 2017 peak and June 2019. Fitch expects an acceleration in house price growth in 2020, although housing turnover is still subdued and mortgage credit growth remains low, in part due to the tightening of underwriting standards. However, housing-loan approvals have increased in recent months and sustained low interest rates, along with continued strong net migration, will put upward pressure on house prices and household debt over the medium-term.

Household debt, at 191.1% of disposable income in 2Q19, is among the highest of ‘AAA’ rated sovereigns and poses an economic and financial stability risk in the event of a shock. Under current conditions, households appear well positioned to service their debts, with non-performing loans at just under 1% of total loans. However, a labour market or interest rate shock could impair households’ ability to service their debts. Mitigating these risks is that some households have prepaid their mortgages or maintain mortgage offset accounts that can be used to service debt in the event of a shock, though newer borrowers and financially weaker households could be vulnerable.

Australia’s banking system, which scores ‘aa’ on Fitch’s Banking System Indicator, is well positioned to manage potential shocks. Sound prudential regulation and ongoing strengthening of underwriting standards have improved the resilience of bank balance sheets and limited their exposure to riskier mortgage products.

Improved terms of trade caused by high commodity prices led to Australia’s first current-account surplus since 1975 in 2Q19. We forecast the surplus to be short-lived, as iron ore prices have declined from their mid-year highs, and expect the current account for the full year to be roughly in balance, against a deficit of 2.1% of GDP last year. Fitch forecasts the current-account deficit to widen to 1.5% of GDP by 2021, below its 4.1% average since 1990.

Net external debt remains among the highest within the ‘AAA’ category and we project it to reach 56.4% of GDP in 2019. Heavy reliance on external funding leaves Australia exposed to shifts in capital flows. Most external liabilities are denominated in local currency or are hedged to reduce currency and maturity mismatches. This helps to mitigate risks.