Small business concerns continue to rise – ACCC

The ACCC says small business enquiries and complaints to the national competition agency continue to grow, topping more than 7,600 contacts in the first half of 2016.

Small-Biz-Graphic1

“We’re continuing to see an increasing number of contacts from the Australian SME sector. These contacts have been particularly concerned about misleading conduct by other firms, consumer guarantees, and agricultural issues,” ACCC Deputy Chairman Dr Michael Schaper said.

The ACCC’s six-monthly Small Business In Focus report #12 has been released today, providing an update on key developments in the small business, franchising, and agriculture sectors.

For the first time, information on the agriculture sector has been included. The ACCC received more than 200 agriculture-related enquiries and complaints, principally focussed on potential misleading conduct or false representations made by other business operators.

Other key developments in the last six months are also highlighted in the report:

  • there have been more than half a million visits to the ACCC’s business web pages;
  • the ACCC continues to receive reports of losses to scams targeting small businesses, with $1.6m lost;
  • new rules for country of origin labelling have commenced (Country of origin food labelling laws);
  • Coles, Woolworths, and Aldi are now required to comply with the entire Food and Grocery Code
  • there were more than12,000 users of the ACCC’s online education programs.

“The number of small businesses contacting the ACCC with concerns has risen steadily over the past few years. The current review of the Australian Consumer Law (ACL) provides a valuable opportunity for small business to speak up and ensure that their concerns are taken into account during that process,” Dr Schaper said.

“Concerns about changes to new credit card surcharging laws in September, and new changes to the ACL that will extend protections from unfair contract terms in business-to-business dealings in November are expected to generate significant interest from the Small Business community.”

The ACCC has prepared advice for small business on the new credit card surcharging laws (Excessive payment surcharges) and new Unfair Contract Term protections (Business-to-business unfair contract terms).

Small Business in Focus is available at: Small business in focus – 1 January 2016 to 30 June 2016

Wealth inequality shows superannuation changes are overdue

From The Conversation.

The government is still consulting on superannuation after concerns raised by backbenchers over changes made in the budget. However these changes are more important than ever, as evidenced by the 2016 HILDA statistics on wealth and superannuation.

The statistics highlighted changes in the distribution of wealth of Australians since the survey commenced in 2001. The most significant assets held by most Australians continue to be their family residence and superannuation, but policy changes over the time of decade the survey have changed the balance of those investments.

More concerning is the finding that wealth inequality has increased. The data adds strength to the argument that superannuation reforms are overdue, with a small number of wealthy people able to accumulate wealth in superannuation and investment property.

In Chapter 5 of the report, which discusses household wealth, the authors note that superannuation will soon overtake the family home as the major asset owned by Australians. This is the result of two separate trends: increases in superannuation balances and lower net wealth in housing.

HILDA-COnv1Looking at the HILDA data, it’s not unexpected to see that younger age cohorts have experienced the strongest growth in superannuation assets.

Prior to 1993 superannuation was very different to the current system. According to Treasury data in 1986 53.5% of Australian full time employees did not have superannuation coverage, and over 80% of those who did, were members of a defined benefit scheme, which would not generally be reported as an asset. By 2000, 96.9% of full time employees had superannuation coverage, with 86% of those employees in accumulation type funds.

The superannuation guarantee has been a significant contributing factor in the importance of superannuation as a household asset. Notably, the phasing in of the rate of the superannuation guarantee shows in account balances. As can be seen from the HILDA report the increased rate of superannuation guarantee after 2002 has resulted in higher superannuation balances for people at the same age in successive surveys.

The increase in housing values is the second trend which has altered the mix of assets. Over this time residential house prices rose significantly, with ABS data showing an increase in the Residential Property Price Index across eight capital cities from 69.0 in September 2003 to 120.2 in Dec 2014.

Given that in the 2002 data the major asset of Australians was the family home, homeowners benefited disproportionately from the increased value of housing. Even with the significant increases in superannuation, for older Australians the proportion of wealth held in housing has been maintained as their total wealth has increased.

However for younger age groups the story is not as positive. The rate of home ownership is declining as it is becoming more difficult to enter the housing market and home equity is declining among younger age groups as the value of loans has increased.

The HILDA data shows that most age cohorts, including all except the oldest retirees, have seen increases in their superannuation accounts over time. Policy changes effective from 2007 have supported superannuants through tax exemptions and high contribution levels.

Another trend contibuting to this is that people are retiring later. The change in the pension age to 67 has been accompanied by a trend for people to work longer. Not only are they deferring withdrawals from their superannuation fund, but they are also continuing to contribute during this time.

As noted in the Productivity Commission report last year there is some evidence of withdrawals at the time of retirement, but these are generally used to pay outstanding debts, including mortgages against the family home.

Others convert their superannuation at retirement into other financial investments. This cements the family home as the most significant asset held by retirees.

The more concerning finding for policy makers is that wealth inequality has increased, and that superannuation holdings and investment properties are factors in this inequality. HILDA data shows that in 2014 the mean superannuation balance of the top 10% of people aged 50 to 69 was $991,268, up from $650,619 in 2002, compared to $210,798 in 2014 for the sixth to ninth decile and $13,719 for the bottom 50% (although a significant number of retirees in this age group do not have any superannuation balance).

There is a strong correlation between high superannuation balances, income and non-superannuation wealth. People in the top decile have access to higher levels of income to make higher levels of concessional contributions, and the ability to find the funds to make non-concessional contributions into a tax preferred investment environment.

As has been noted previously, the current superannuation system allows high income and high wealth individuals to over-accumulate in tax preferred superannuation, which increases wealth inequality as well as intergenerational inequality.

The Government proposals to restrict the level of contributions and to reduce the amount that can be retained in a tax free environment are important tools to address increasing levels of wealth inequality in our community.

Author: Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University

What factors influence income inequality?

From The Conversation.

Whether it’s by coincidence or causation, the financial collapse of 2008 and 2009 has resulted in growing angst over income inequality.

Millions of workers disappeared from the workforce and have yet to return. This has magnified the gap between households at one end of the income spectrum and the other.

WalletWhile this growing concern over the existing income distribution has emerged as a debating point in the worlds of public policy and politics, it’s been a challenge to pinpoint the optimal way to redistribute income to reduce inequality.

Our aim here is not to provide one. Alas, as with beauty and issues of fairness, the optimal distribution lies in the eye of the beholder. Nevertheless, most would agree that reducing the inequality gap is a worthy goal. Understanding what is causing the growing gap between rich and poor is key to figuring out how to reduce it.

Is it driven by natural causes such as age that can’t be easily effected by policy? Or is inequality rooted in more malleable factors like education or tax policy?

A statistical analysis of 53 countries that emerged from a graduate student’s research project provides some clues. And the analysis begins with what social scientists call the Gini coefficient.

Gini in a bottle

The Gini, developed by Italian statistician Corrado Gini in 1912, is a measure of income inequality applicable to both small and large populations, from households to countries.

The Gini coefficient is measured on a scale of zero to one. A Gini of zero indicates that everyone in the defined group shares income equally. This outcome is not necessarily good, however, as everyone in the group could be equally poor or destitute. A Gini of one means that one worker earns all the income and everyone else zero. This outcome is not necessarily bad, as many households depend upon the earnings of a single individual assuming the group is a household.

The Gini Index tracks which societies are the most unequal, and the Central Intelligence Agency lists some of the latest data on its World Factbook. Using just the most recent data on this site, Slovenia ranks as the least unequal with a Gini of 0.24 in 2012, while South Africa suffers from the most inequality, at 0.63 in 2013.

The latest data on the U.S. puts it somewhere in the middle, at 0.41.

‘Natural’ causes of inequality

In an attempt to shed some light on which forces or conditions in the economy affect income inequality, we analyzed how a variety of socioeconomic variables affect the differences between each country’s Gini coefficient.

Initially we looked at how just one variable, age, affected the Gini of 30 countries. We expanded this to 53 relatively developed countries in various continents and 10 variables.

Our analysis showed that the median age of the population appears to have a significant influence on the differences in Gini coefficients, which varies inversely with the median age of the population. That is, older populations are less unequal (have a lower Gini) than younger ones, probably because as individuals age there is less disparity in their incomes. Retirement from productive endeavors is an obvious leveler of income differences. In addition, the incentive to pursue ever-higher incomes diminishes as workers approach retirement, producing the age-earnings curve.

Age is one of the ways income disparity can be attributed to a “natural” cause, thus representing a challenge to policy makers hoping to reduce inequality, and was the most significant variable in our analysis.

Similarly, our analysis shows that greater GDP growth and the percentage of the population employed in the agriculture sector are negatively related to the Gini. That is, countries with higher economic growth or a greater the share of its workers engaged in agriculture have less inequality.

For the most part, the measures identified above can generally be attributed to environmental forces and normal human behavior and are thereby not easily affected by short-term policy. They explain most of the variation among countries in the Gini coefficient. In other words, these findings suggest most inequality is more or less hardwired into our societies and only long-term trends (in policy, demographics, etc.) can affect them.

Where policy can play a role

Our analysis did find that some variables more directly linked to short-term policy choices played a role in explaining the Gini differences among countries.

Among these, the variable that influenced inequality the most was tax policy. In particular, the higher the overall tax rate in terms of revenues as a share of GDP, the lower the Gini. This may help explain why countries like Switzerland and France, which have high tax rates on the wealthy, suffer from less income inequality than the U.S., which has relatively low ones.

But taxation can be a double-edged sword, as taxes may act as a deterrent to productive (income and job creation) behavior. Fortunately, it’s possible to design tax policy that encourages economic growth in the short term while raising government revenue in the long term.

Another policy variable that affects the Gini coefficient is investment. Our analysis showed that increasing investment in productive assets leads to greater income inequality. This seemingly counterintuitive result arises because investment expenditures produce GDP growth at a lag while detracting from current consumption.

The last significant variable we considered is unemployment, which, as you’d expect, leads to more income equality. Although this finding is intuitive (as were our results on aging and growth), it is comforting to learn that statistical analysis confirms what common sense dictates.

Four variables we tested – inflation, years of schooling, GDP per capita and government deficits (as a percent of GDP) – had no measurable influence on income inequality.

Together, these factors explain roughly three-quarters of the differences in the Gini among the 53 countries in our review. In other words, variables we didn’t consider are responsible for a quarter of the deviation in income inequality in these countries. Understanding what those factors are will require further review.

Leveling inequality

Putting these results into perspective suggests that some income inequality emanates from environmental forces and normal human behavior. However, public policy may exert a positive influence on reducing income inequality through economic policy that promotes economic growth, lower unemployment, greater labor force participation and appropriate tax policy.

Although by and large GDP growth is a natural variable that can’t be directly affected by policy makers, it’s still arguably the most important factor in reducing income inequality. Tax and regulatory policy, for example, are indirect ways to influence growth as significant and sustained economic growth has been shown to be among the biggest levelers of income inequality.

We believe public policy would best be structured toward that end.

Author: Dale O. Cloninger, Professor Emeritus, Economics & Finance, University of Houston-Clear Lake

 

The Investment Property Honeypots

We have just finished updating our household surveys, and over the next few days we will be running through some of the key findings which in due course will flow into the next edition of the Property Imperative.

We start with an observation which, is at one level completely logical, yet at another level is surprising. We have been asking prospective property investors whether they are planning to purchase in the next twelve months, as usual. There is still strong appetite, thanks to strong returns, tax incentives and low interest rates. However, we have also asked about which state they were expecting to purchase in, and we have found some significant variations across the states. We conclude that NSW and VIC are investment property honeypots, attracting both local and interstate interest, especially from WA. Another reason why prices are on the rise here.

The first chart shows the relative proportion of property investors in each state, who expect to purchase in their home state. Almost all NSW based investors are expecting to buy in NSW, and those in VIC, mainly in VIC. But there are more residents in QLD, SA, ACT and WA who are expecting to buy interstate than in their home states.

Investor-Interstate-1We then asked those considering interstate transactions, to identify their likely target state. In NSW, the small number considering interstate investment picked VIC, whilst residents in VIC going interstate will pick NSW. Across the other states, the majority of those seeking investments interstate will pick NSW, or second VIC. A smaller number would also select ACT. These three states captured the bulk of the interstate attention.

Interstate-Investor-2Finally, we asked about the drivers of this decision. The prime driver related to increased capital returns, a larger property market, lending criteria and rental returns.

Investor-Interstate-DriversSo, we can conclude that demand in NSW and VIC for investment property is heightened by interested interstate investors who are attracted by the higher returns in these two states. Further evidence of the two speed housing market.

Stark divide between young and old as Australian household incomes and wealth stall

From The Conversation.

Poverty in Australia has declined, welfare reliance has stabilised and long-term poverty is becoming rare – but overall economic wellbeing is no longer improving, and households wealth has remained static, despite rising property prices, according to Australia’s most respected longitudinal study of economic wellbeing.

And there is a rapidly growing wealth divide between generations, with median wealth increasing by 61% among people aged 65 and over, compared to just 3.2% among people aged 25 to 34, since 2001.

This is the picture from the latest statistical report of the Household, Income and Labour Dynamics in Australia (HILDA) Survey, collected by the Melbourne Institute of Applied Economic and Social Research. Collected every year, HILDA is Australia’s only nationally representative household longitudinal study, and has followed the same individuals and households since 2001.

Stagnating household incomes and wealth

Perhaps best summarising the experience of Australian households since 2001 is the path taken by median income, shown in the figure below. The HILDA data shows that in the early years of this century, the median household income (after taxes, and adjusted for both inflation and household size) grew strongly.

However, since 2009 growth has stalled, with the median income stagnating at approximately $45,000.

HILDA data on household wealth, collected every four years since 2002, shows a somewhat similar pattern. Median household wealth grew strongly between 2002 and 2006, but has since grown very little – despite continued increases in house prices.

Measures of average economic wellbeing of Australian households HILDA Survey, Release 14.0

In some respects, Australia has handled this slowdown quite well. There has been relatively little change in income inequality since 2009, and measures of poverty have actually declined slightly in recent years. For example, the percentage of the population with an income less than half the median income was 10.3% in 2014, down from its 2007 peak of 13%.

Decline in welfare reliance

Furthermore, while HILDA shows that the large decline in welfare reliance among working-age people between 2004 and 2008 was arrested by the 2008 global financial crisis, welfare reliance has increased only slightly since 2008.

Nonetheless, it is clear that overall economic wellbeing is no longer advancing as it was prior to the global financial crisis. Financial pressures have also increased for families using child care and for those with private health insurance. These markets have experienced substantial real price increases, effects of which have been exacerbated by government policies which in recent years have acted to reduce subsidies.

HILDA correspondingly shows that households’ expenditure on these items has been rising faster than their incomes.

Winners and losers

There are, moreover, some concerning trends evident in the HILDA wealth data. The proportion of adults who are home owners has declined from 57% in 2002 to less than 52% in 2014, and on current trend will be below 50% by next year. There is an important intergenerational dimension to this decline: home ownership has declined from 39% to 29% among people aged 25 to 34, from 63% to 52% among people aged 35 to 44, and from 76% to 67% among people aged 45 to 54. There has been almost no decline in home ownership among older age groups.

Associated with this, but also strongly connected to changes in superannuation holdings and to a lesser degree, investment property ownership, has been a growing divide in wealth between the young and old.

Between 2002 and 2014, median wealth grew by 39% among people aged 55 to 64 and by 61% among people aged 65 and over. By contrast, median wealth grew by only 3.2% among people aged 25 to 34, 7.4% among people aged 35 to 44 and 10.8% among people aged 45 to 54.

HILDA also shows that particular groups in the community have continued to experience high rates of disadvantage over the entire period since 2001. Most notably, people with disability, poor general health or poor mental health have not fared well economically, and poverty rates among children living in lone-parent households have consistently been above 20%.

Long-term disadvantage

The longitudinal nature of the HILDA data further provides important insights into the prevalence and determinants of persistent or long-term disadvantage. Long-term poverty is in fact relatively rare, with 85% of poverty spells lasting three or fewer years.

That said, poverty is considerably more likely to be long term for people with disability, Indigenous people, immigrants from non-English speaking countries, the elderly, single people, people living in rural areas, and people with low levels of education.

Perhaps most surprising are HILDA’s findings on welfare reliance over the longer term. While only around 18% of people aged 18 to 64 receive income support payments in any given year, nearly 45% of people in this age range received income support at some stage in the 14 years to 2014.

Indeed, nearly 70% of all working-age people were at some stage in a household that received income support payments. Contact with the welfare system is therefore very high, but is typically only for relatively short periods, suggesting the welfare system in many cases works as a temporary safety net rather than as a long-term income source.

In 2014, new questions on “material deprivation” were included in the HILDA Survey to provide more direct information on the groups in the community faring worst economically. Among the findings were that 12% of households did not have $500 in savings for an emergency, 8% did not have home contents insurance because they couldn’t afford it, and 5% could not afford dental treatment when needed.

Consistent with findings using more traditional income-poverty measures, rates of deprivation were found to be highest among lone-parent families, Indigenous people and people with severe disabilities.

The more direct material deprivation approach does reveal, however, that the elderly have very low rates of deprivation, despite having high rates of income poverty. This suggests that income needs are lower for the elderly, for reasons such as their high rates of (outright) home ownership.

Implications for future policy

The detailed picture of the economic lives of Australians that is provided by the HILDA Survey is necessarily somewhat complicated. It is nonetheless clear that the current trajectories of income and wealth are in general much lower than in the early years of this century.

The HILDA Survey data suggest that the effects of this slowdown have to date been relatively equitably distributed, notwithstanding some concerns about trends in the wealth distribution. Of course, there is no guarantee that this will continue to be the case in future, particularly in the context of the need to reduce the government deficit.

The form that deficit-reduction policies take will be profoundly important to the distribution of economic wellbeing over coming years.

Author: Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

Personal Insolvencies Up 13.7%

The Australian Financial Security Authority today released the personal insolvency activity statistics for the June quarter 2016. Total personal insolvencies increased 13.7% in the June quarter 2016 compared to the June quarter 2015. This is the largest rise since the March quarter 2009, when compared to the same quarter in the previous year. WA is worst hit with a 35% year on year rise.

Insolvencies-June-2016Total personal insolvency activity in Australia percentage change compared to same quarter in previous yearIn the June quarter 2016, economic conditions (465 debtors) was the most common business related cause whilst unemployment or loss of income (2,138 debtors) and excessive use of credit (2,132 debtors) were the most common non-business related causes.

By type of personal insolvency, bankruptcies increased by 7.0%, debt agreements increased by 24.3% and personal insolvency agreements were stable (0.0%).

Debt agreements in the June quarter 2016 are the highest on record, with 3,329 debt agreements. The previous record was in the September quarter 2015 (3,081 debt agreements).

Debt agreements reached record highs in New South Wales, Queensland and Western Australia in the June quarter 2016.

In the June quarter 2016, 17.5% of debtors entered a business related personal insolvency.  This is a rise from 16.1% in the March quarter 2016 and from 16.3% in the June quarter 2015.

Household Finance Confidence Improves In June – DFA

The latest edition of the Digital Finance Analytics Household Finance Confidence Index to end June is released today. Overall confidence improved again, to 95.21, although this is still below the long-term neutral score of 100 which we fell below in 2014.

FCI-Jun-2016Despite Brexit, the indecisive election result, and stock market volatility, the average financial confidence all household split by property segments improved, with property active owner occupied households now above neutral, thanks to ever lower mortgage interest rates, and positive news on home prices in the major states of NSW and VIC. Property inactive households were a little more positive too, thanks to rental increases being contained and food costs down a little. Property investors are also positive, thanks to lower interest rates, and better access to mortgage funds at good prices. Intention to purchase property has improved, thanks to continued capital gains, lower mortgage funding costs and net perceived better returns than stocks or deposits.  Future price growth expectations also rose.

FCI-Jun-2016---PtyThe state variations are quite stark however, with NSW and VIC improving strongly, whilst WA languishes, thanks to flatter home prices, and rising unemployment. Variations across the regions were even more extreme.

FCI-Jun-2016--StatesIncome, in real terms, continues to fall for many.  Those reliant on interest from bank deposits were hardest hit, with average rates for many falling. Further drops in returns on deposits will force many to consider alternatives, including property.

FCI-Jun-2016-Income By way of background, these results are derived from our household surveys, averaged across Australia. We have 26,000 households in our sample at any one time. We include detailed questions covering various aspects of a household’s financial footprint. The index measures how households are feeling about their financial health. To calculate the index we ask questions which cover a number of different dimensions. We start by asking households how confident they are feeling about their job security, whether their real income has risen or fallen in the past year, their view on their costs of living over the same period, whether they have increased their loans and other outstanding debts including credit cards and whether they are saving more than last year. Finally we ask about their overall change in net worth over the past 12 months – by net worth we mean net assets less outstanding debts.

Black market jobs cost Australia billions and youth are at the coalface

From The Conversation.

Young people, job creation and taxation have all been at the centre of the federal election campaign; yet almost nothing has been said about one of the sleeper issues these have in common – the cash-in-hand economy.

Youth unemployment is typically twice the national unemployment rate. Millennials are finding it harder to secure full-time work after leaving university. Shockingly, Australians aged 15-24 are at the highest risk of hospitalisation following a workplace accident.

However, there is another risk young people face that we know surprisingly little about.

A rose by any other name?

“Cash-in-hand” is a familiar phrase in our economy. Like most shady dealings, it goes by many names: unreported employment, the informal economy, or a grey labour market. Whatever we call it, it is used to circumvent Australian workplace and taxation legislation.

This should not be confused with being paid in cash. For example, let’s say an employer wanted to reduce their expenditure on transaction fees. They could add up an employee’s hours, calculate wages for the week minus tax, superannuation and other deductions. The adjusted wages could then be paid straight from the till, accompanied by a payslip.

The tell tale signs of a “cash-in-hand” job are a lack of formal employment paperwork, such as signed contracts, weekly payslips or a group certificate at tax time.

There are obvious downsides. These jobs are unlikely to pay the correct minimum wage, penalty rates, or super contributions. A greater concern is these jobs aren’t covered by workers compensation. Considering the previously mentioned risk of hospitalisation, cash-in-hand jobs become a serious concern.

Who, what and why?

The most concerning aspect is that so little data is being collected about these jobs.

A 2012 survey found that one in four young workers had recently done cash-in-hand work. While no concrete data exists on where these jobs are being offered, we can make some educated guesses.

Part-TimeThe figure above was created by selecting the top five jobs where the average age of employees was between 15-21. This gives us the most common industries for young Australians: fast food, hospitality, and retail.

Figure 2 ‘Participation in education and/or employment among young people aged 15 to 24, by age group, 2005 and 2014’ Australian Institute of Health and Welfare analysis of ABS 2015

If we look at the orange portion of Figure 2, we can see that 29% of young Australians are combining work and study. This is especially relevant when we consider Student Visas, Youth Allowance and Austudy payments.

We know that approximately 899,000 young people are both working and studying. However, 229,900 are receiving study payments, at a maximum rate of $216.60 per week with the ability to earn an additional $216.50. This puts the maximum payment as $433.10 – just over $30 above the poverty line. Let’s use some hypothetical examples, and say that “Julie” and “Ravi” are two of these student workers.

Julie is 18 and works casually at a local cafe in Brunswick while studying at the University of Melbourne. To maximise her earnings, she works 13 hours during the week at $16.61 an hour. This gives her $215.80, combined with her Austudy payments for a total of $432.40 per week.

She shares a three bedroom house in Brunswick and pays $200 a week in rent. Her average weekly expenses are $104 on food, $10 for her mobile phone, $19.50 on her public transport, and $34 a week on utilities. This leaves her $64 per week for other expenses.

Ravi is a 21 year old international student. He is studying for his Masters at Deakin University and works at a supermarket in Burwood, near the house he and his brother share. His rent and expenses are comparable, but he cannot receive Austudy. His Visa states that he can only work 20 hrs a week, giving him a maximum income of $459.64 after tax. After accounting for expenditure, Ravi is a little better off with $92.13 to cover other expenses.

Neither example accounts for business cycle/seasonal demands, parental income affecting payments, unexpected expenses, legal fees, health costs, or textbooks. Basic living costs account for 80-87% of their entire wage.

If either student faces costs that can’t be met by their usual wages, they may consider “cash-in-hand” work the only viable alternative. Julie will still get her Centrelink payments, and Ravi won’t breach his visa requirements.

What we don’t know could hurt us

The risks of this informal economy extend well beyond young workers. Professor Christopher Bajada estimates that cash-in-hand jobs make up a informal economy equivalent to 15% of Australia’s GDP. Similarly, in 2004 the government estimated the informal economy between 3-15%.

Even if we take the lowest estimate of 3% of GDP, that’s approximately AUD$48.6 billion outside our economy. A 2012 comprehensive report produced by The Australia Institute estimates a staggering $3.3 billion of revenue is being lost to cash-in-hand working arrangements. Given that taxation, debt and public spending have become key election battlegrounds, this lost revenue is potentially game changing.

Author: Shirley Jackson, PhD Candidate in Political Economy, University of Melbourne

NSW and VIC Population Increased The Most

CoreLogic’s latest – population growth slows nationally but New South Wales and Victoria attract a record high proportion of the population increase.

Demographic data for the December 2015 quarter was released by the Australian Bureau of Statistics yesterday.

Chart 1

At the end of 2015, the national population was estimated to be 23,940,278 persons having increased by 1.4% or 326,073 persons over the year.  Although the population continues to increase at a fairly rapid pace, the rate of population growth has been trending lower since it peaked at 2.2% over the year to December 2008.

Chart 2

Nationally, population growth is driven by two factors: migration and natural increase (births minus deaths).  Over the 12 months to December 2015, the national population increased by 148,935 persons due to natural increase and by 177,138 persons due to net overseas migration.  Net overseas migration has increased a little over the quarter but has fallen dramatically since it peaked at 315,687 persons over the 12 months to December 2008.  Natural increase is -1.0% lower over the year while net overseas migration is -0.5% lower.

Chart 3

Looking at state population data, New South Wales and Victoria have recorded the greatest increases in population over the past year, up by 106,116 and 109,830 persons respectively.  Across the other states and territories the annual population increases have been recorded at: 59,714 persons in Queensland, 11,180 persons in South Australia, 30,980 persons in Western Australia, 2,110 in Tasmania, 840 persons in Northern Territory and 5,271 persons in the Australian Capital Territory.  The above chart shows the rate of population growth over the year and it shows that not only has Victoria seen the greatest increase in population over the year it also has the fastest rate of growth of all states and territories.

Chart 4

Over the past year, Victoria has accounted for 33.7% of the total increase in the national population (more than a third) which is a record-high for that state.  Elsewhere, South Australia accounted for 3.4% of national population growth (lowest since March 2002) and Western Australia accounted for 9.5% of population growth (lowest since December 2002).  The above chart highlights that historically either New South Wales or Queensland has typically accounted for the highest proportion of population increases.  Since the financial crisis, New South Wales and Victoria have accounted for increasing proportions of national population growth due to their stronger economies and the subsequent lure of job opportunities in Sydney and Melbourne.

At the state level there are two components of migration; net overseas migration and net interstate migration.  It is important to look at how the trends across each category of migration impact on population growth in each state.

Chart 5

Throughout 2015 almost three quarters of net overseas migration occurred in either New South Wales (38.6%) or Victoria (34.2%).  The chart shows that annual net overseas migration to New South Wales and Victoria is continuing to rise (albeit at a moderate pace) but is falling elsewhere.  The 34.2% of national new overseas migration for Victoria over the year was a record-high.  Queensland accounted for just 11.0% of net overseas migration over the year, its lowest share since March 1991 and well below the 20.1% of national net overseas migration the state attracted in March 2009.  Western Australian net overseas migration accounted for just 8.2% of national net overseas migration, a far cry from its recent peak of 23.9% in September 2012.  As the mining boom has faded and the New South Wales and Victorian economies have strengthened over recent years, more migrants have been choosing to settle in these two states and fewer are settling in Queensland and Western Australia.

Chart 6

Victoria and Queensland are the only two states that have recorded positive net interstate migration over the 2015 calendar year with net interstate migration cancelling itself out at a national level.  Over the year, net interstate migration was recorded at +13,049 persons in Victoria, which is an historic high.  In Queensland, following a long decline in net interstate migration, the number of migrants crossing to border into Queensland has started to turn, recorded at +8,326 over the past year its highest level since March 2013.  Across the other states and territories, the losses from net interstate migration have been recorded at: -8,749 in New South Wales, -4,967 in South Australia, -4,313 in Western Australia, -79 in Tasmania, -2,732 in Northern Territory and -535 in Australian Capital Territory.  The net outflow in New South Wales is the largest since March 2014, South Australia’s outflow is the greatest since September 1996 and Western Australia’s outflow is the greatest on record.  Tasmania’s net outflow is the lowest since June 2011, the Northern Territory’s is the lowest since December 2013 as is the Australian Capital Territory’s.

Although population growth is continuing to trend lower, it is becoming more evident that growth is much greater in the states with stronger economies (NSW and Vic).  It is clear that the economic strength of a state is key to attracting more residents not just domestically but also internationally.  It also looks that as housing becomes increasingly unaffordable in the two capital cities of NSW and Vic, interstate migration into Queensland (the third largest state) is beginning to pick-up again.  I would suggest this is being driven by an improving employment market accompanied by a much more affordable housing market.

The more up-to-date overseas arrivals and departures data indicates that net overseas migration is likely to continue to slow over the coming quarters.

Australians’ growing property debt in retirement calls for super planning

Data from ING DIRECT reveals that Australians are increasingly taking property debt into their retirement years, with the number of over 65 year olds still holding a mortgage rising by 28 per cent in the past three years. This finding aligns with data from our own surveys, as shown in this data extract from DFA analysis of owner occupied loans held by those over 50.

Old-Mortgages

Of those in their retirement years that still have a mortgage, 26 per cent hold an investor loan while 74 per cent are owner occupiers. The average debt they are holding is $158,000.

Mark Woolnough, Head of Third Party Distribution at ING DIRECT commented: “As property prices climb and people wait longer to get onto the property ladder, it’s not a surprise that people are holding their home loan debt later in life.  However, proper planning is critical to make sure that this debt doesn’t cause stress in later years and people can enjoy the retirement they have worked hard for.”

According to ING DIRECT’s Autumn Buyers Guide, since June 2012 the average capital city residential property has increased in value by 32 per cent, with growth of 7.6 per cent in the past 12 months alone. The average age of a home buyer has also risen in recent years to 38.

Mr Woolnough added:  “We talk about superannuation and property as the barbells of a person’s financial lifecycle – in most cases they are the two biggest investments that a person will ever make.

“Research has shown us that people are very open to discussing broader financial needs when they are sourcing a mortgage, such as their superannuation, and brokers are in a great position to encourage and support their clients to consider and sort their super in light of this growing property debt trend.”

The analysis is based on ING DIRECT’s own customer base. ‘Retirement years’ considers those customers aged between 65 and 79.