The New Daily – Page 4 – Digital Finance Analytics (DFA) Blog

Banks do what RBA won’t: hike interest rates

The Reserve Bank may hold rates for as long as a year, but mortgage borrowers could be punished anyway by rising house prices and gouging by the banks.

Australia’s central bank held the official cash rate at 1.5 per cent for the tenth time on Tuesday. It hasn’t moved since a 25 basis point cut in August 2016.

But this hasn’t stopped the banks. They have refused to pass on the full benefit of the RBA’s record-low rates in order to offset costs and prop up profits.

Analysis by The New Daily of official data published on Tuesday showed that the gap between the RBA rate and the standard rate banks quote to mortgage borrowers is around the widest in 20 years.

RMIT economist Dr Ashton De Silva, an expert on the housing market, said it was “conceivable” that banks could widen this gap even further in coming months in response to rumblings in the global economy.

He pointed to the impact of Brexit and the Federal Reserve pushing up rates in the US as factors that could force Australian banks to pay more to borrow overseas and pass on the costs to owner-occupiers.

This spread between the official rate – which the RBA insists is still the “main driver” of bank funding costs – and the Standard Variable Rate banks quote to prospective customers is sitting perilously close to four percentage points, the biggest margin since 1994.

The SVR is higher than what most customers actually pay, but the gap is similar for discounted rates.

The good news for borrowers is that the RBA probably won’t hike rates for a few months more, according to the market.

The futures market is tipping rates won’t rise until next year, and even then, not by much. The ‘yield curve’ in that market shows rates are expected to reach about 1.75 per cent by November 2018.

But that’s not much relief if the banks push up rates in the interim in response to rising borrowing costs.

Martin North at Digital Finance Analytics said lenders were likely to continue penalising investors and interest-only borrowers, while leaving owner-occupier rates roughly where they are.

“Last year there was a massive race to the bottom in terms of discounts to try to gain volume and share. Many banks dented their margins in the process,” Mr North told The New Daily.

“They’ve now got the perfect cover, thanks to APRA’s regulatory intervention, and so I’d expected to see mortgage rates continuing to grind higher, particularly for investors and anyone on interest-only.”

The RBA’s cash rate may be the “main driver” of bank funding costs, but it’s not the only driver. Australian banks also borrow heavily in overseas money markets such as London and New York, where central banks are eyeing rate hikes, and from term deposits in Australia.

Owner-occupier mortgage rates are still lower than they were in 2011, when the RBA began cutting. Since then, the official cash rate has fallen by almost 70 per cent, from 4.75 to 1.5 per cent.

The problem for borrowers is that rising house prices (fuelled in part by low rates) are negating the benefits.

Rate cuts are supposed to give households more disposable income by reducing their mortgage repayments.

But interest is only half a mortgage. The rest is ‘principal’, which is being pushed up by higher property values, especially in Sydney and Melbourne.

This means the total amount of money we’re repaying to banks is high and staying high, despite what the RBA has been doing.

The Bank for International Settlements has estimated that the average Australian household spent 15.3 per cent of income on interest and principal repayments (a measure known as the ‘debt service ratio’) over the last three months of 2016, its latest estimate.

This is back to levels last seen in 2013, which means the benefits of low rates must be getting swamped by house price rises.

Australia’s debt service ratio is now third behind the Netherlands (17.4pc) and Denmark (15.9pc), putting us above a comparable economy like Canada (12.3pc) and well above bigger economies such as the USA (8.2pc) and United Kingdom (9.7pc).

Australian household debt breaks new records

From The New Daily.

The Reserve Bank board will be facing record-high debt levels when it decides on Tuesday whether or not to follow other central banks by lifting the official cash rate.

Ten years after the global financial crisis – which many trace to the collapse of two Bear Sterns hedge funds in July 2007 – Australians are more indebted than ever, largely because of mortgages.

The latest official data, published by the Reserve Bank on Friday, showed that Australian households owed debt in the March quarter equal to 190 per cent of their yearly disposable income – a new all-time high.

In a speech in May, Reserve Bank governor Dr Philip Lowe blamed this trend on a combination of low interest rates, slow wages growth and house price rises fuelled by overseas investor demand and strong population increases.

At its last interest rate meeting in June, the RBA board cited persistently weak wages growth as a key factor in it keeping the cash rate on hold at a record-low 1.5 per cent – where it was widely forecast to stay on Tuesday.

Household debt will no doubt weigh heavily on the minds of the RBA board.

Last month, the Swiss-based Bank for International Settlements captured headlines across the nation by warning that Australia’s surge in household indebtedness was likely to constrain future economic growth and increase our susceptibility to another crisis.

Global ratings agencies Moody’s and Standard & Poor’s have also downgraded the creditworthiness of Australian banks over fears about unsustainable debt and inflated house prices.

Australia’s debt-to-income ratio concerns many experts because it is globally unusual – and because high household debt frequently coincides with financial crises.

Not even the US, just before it plunged much of the world into economic chaos, had a debt-income ratio as high as Australia’s current 190 per cent. Estimates put US household debt closer to 140 per cent in 2007.

Further data from the Reserve Bank confirmed that Australia’s debt mountain is largely a consequence of soaring property prices.

In the March quarter, Australian housing debt reached 135 per cent of annual disposable income, according to the RBA, breaking another record.

Homeowners hold a large share of the debt.

According to the Reserve Bank, the ratio of owner-occupier housing debt to yearly income hit 101.8 per cent in the March quarter – yet another all-time high.

The reason the Bank for International Settlements predicted that Australia’s economic growth would be curbed by debt was that inevitable interest rates rises would reduce disposable income of indebted households.

Household consumption is crucial to Australia’s economic growth – it accounted for 57 per cent of GDP in the March quarter. Rate rises could put that GDP figure at risk by reducing spending, the BIS said.

This is a key reason why most economists are predicting the Reserve Bank won’t hike the cash rate on Tuesday.

The RBA Shadow Board – an independent panel of economists – has put a 59 per cent probability on a rate hold being the right decision on Tuesday, compared to a 39 per cent probability for a rate hike, and only 2 per cent probability for a rate cut.

“The spotlight is turning again to the high indebtedness of Australian households,” the Shadow Board noted.

However, there is some good news on debt. A wealth divide in the Australian housing market could lessen the risk of a US-style mortgage crash.

According to the RBA governor, housing debt is heavily skewed towards the wealthy.

“This is different from what occurred in the United States in the run-up to the subprime crisis, when many lower-income households borrowed a lot of money,” Dr Lowe said in May.

The bad news is that these mortgages are increasingly invading our retirement.

“Borrowers of all ages have taken out larger mortgages relative to their incomes and they are taking longer to pay them off,” Dr Lowe said.

“Older households are also more likely than before to have an investment property with a mortgage and it has become more common to have a mortgage at the time of retirement.”

Why Australia is becoming a workers’ paradise lost

From The New Daily.

Australia was once regarded as a workers’ paradise where pay, conditions and skill levels were the envy of the world. But something is amiss.

Where once the fortunes of working people and the economy travelled hand in hand, workers have become uncoupled from national prosperity.

Australia’s record-breaking 26 years of uninterrupted growth comes as little consolation for working men and women doing it tough. While we’ve technically avoided recession for almost three decades, many workers are living in recessionary climes every bit as punishing as the infamous recession we had to have in 1991.

The headline indicators of economic growth mask a crisis of confidence in the suburbs as debt-laden households nervously ponder their financial stamina. Employment was once the reward of a prosperous economy but many Australians are in a virtual state of permanent job insecurity.

The unemployment rate hit a four-year low of 5.5 per cent in May but workers on the ground know things are more fragile than such bumper figures suggest.

They know many employers are struggling, maintaining their viability with relentless cutbacks. Those who get to keep their jobs know they can expect little movement on their pay. Wages growth is at its lowest since the 1991 recession.

Add to that the penalty rate cuts for hospitality, fast food, retail and pharmacy workers, who have lost the benefit of the minimum wage increase – and are likely to suffer a wage cut in 2018 and 2019.

The proportion of national economic output paid to workers is at an all-time low, based on trend estimates. Total labour compensation fell to 51.5 per cent of national GDP in the March 2017 quarter, the lowest since 1964.

Workers also know that employers are relying more on casual and part-time labour and the use of contractors and labour-hire workers. This not only keeps a lid on wages growth but also means the underemployment rate – employed workers wanting more hours – is at a record high of 8.8 per cent.

While households are walking on eggshells the Turnbull government gloats that it is delivering “jobs and growth”. But Reserve Bank governor Philip Lowe is concerned about wages.

Dr Lowe recently called on workers to reclaim their stake in the Australian economy by seeking wage increases. In an unusually forthright speech, he described the static wages growth as a “crisis”. He recognised that workers concerned about job security were unwilling to press for better wages.

“People value security and one way you can get a bit more security is not to demand a wage rise,” he said.

With annual wages growth of just 1.9 per cent, Dr Lowe said it “would be a good thing” for workers to “ask for larger wage rises”.

The absence of a clear recovery after the global financial crisis has left many workers in wages limbo. Workers prepared to show wages restraint in 2007-08 have not had the “bounce back” in wages that normally comes with a clear-cut recovery.

The post-GFC period also coincides with enormous advances in digital technology which has transformed business models and whole industries.

A report by the Committee for Economic Development of Australia estimates that 40 per cent of Australian jobs that exist today are likely to disappear in the next 10 to 15 years due to technological advancements.

And yet from the Turnbull government, or the opposition for that matter, there has been no sign of an honest “conversation” about the enormous changes and challenges that face workers. No blueprint for Australia’s transition to a digital economy, no investment in the training and reskilling that will be so vital to Australia’s future, no apparent understanding of what the workplaces of the future will look like.

The government is entitled to celebrate the record run of growth. But it would do well to understand the consequences of simply looking the other way as workers languish in prolonged recession-like conditions and households teeter on the brink of financial despair.

A workforce under sustained distress will ultimately impact on living standards, consumer confidence, financial viability and national productivity. The workers’ paradise, after all, was a paradise shared by all Australians.

The working poor: one-in-five households being left behind

From The New Daily.

It was heartening on Thursday to see job ads continue to tick up, rising 1.7 per cent in the three months to the end of May, or 9.2 per cent in the past year.

But before we get too excited, this week’s census data raises real concerns that the kinds of jobs being created aren’t paying enough for workers to live on.

The alarming fact is that one-fifth of households in 2016 recorded a gross income, including all government benefits, of less than $650 a week.

To put that in context, that’s less than the full couple rate for the aged pension ($670 a week) and less than a full-time worker on the minimum wage ($673).

Think about that for a minute. If 800,000 households say they have income of less than $650, and if that figure by definition excludes retiree couples living on the full pension, or on a higher combination of pension and super, we’ve got a huge problem.

The census, for some reason, compares the number of households on $650 or less with households falling under the same threshold five years ago.

That’s a bit strange, because the consumer price index has risen a cumulative 9.85 per cent in that time. So you’d need $714 today to buy the same goods and services as in 2011.

For middle Australia, that’s proving less of a problem – real wages are not rising as quickly as GDP growth, which means companies are taking a larger share of growth as profits, but at least they’re ahead of inflation.

So while the economy expanded 6.2 per cent in real terms over five years, the median personal income was up 4.6 per cent , and median household incomes are up 6.1 per cent. Not great, but a lot better than for the sub-$650 group.

The Australian Council of Social Services estimates that 800,000 households are in housing stress – spending more than 30 per cent of their income on housing – and while that’s not an exact fit with the sub-$650 group, the overlap would be very large.

Who are we forgetting?

When Bob Menzies spoke of a ‘forgotten people’ in his famous 1942 speech, he meant a middle class who were not wealthy, but neither backed by the then-huge union movement.

Well, times change. The census reveals an alarmingly large cohort of people forgotten for other reasons.

They are left behind by a skyrocketing housing market, stuck in the rut of under-employment, attacked as a drain on the budget or for not paying more tax, seeing their penalty rates cut, or forced to jump through undignified job-seeker hoops.

So yes, it’s natural for the political and media classes to welcome an uptick in job ads. But we have to ask if that’s going to do anything to lift the fortunes of the gradually swelling ranks of working poor.

This year’s census summary was released under the headline “Census reveals: we’re a fast changing nation”.

When one in five households live on less that the age pension and less than a single minimum wage, “a fast polarising nation” might be more apt.

Eight rate hikes in two years? Our economy should be so lucky!

From The New Daily.

A widely-misreported warning of eight rate hikes in two years would in fact be good news for the economy, according to the man who made the prediction.

Dr John Edwards, former economic advisor to Paul Keating, former RBA board member and former chief economist at HSBC, struck fear into the hearts of mortgage holders this week by supposedly forecasting that the official cash rate would rise from 1.5 to 3.5 per cent by the end of 2019.

He actually wrote that the RBA would be forced to lift rates to 3.5 per cent only if the Australian economy substantially improved.

“This implies that within three years Australia’s economic world has returned to more-or-less normal, with wages growth of 3.5 per cent, inflation of 2.5 per cent, and output growth of 3 per cent,” Dr Edwards said.

He admitted such a rosy outcome might never eventuate.

“The pace of tightening will anyway be governed by the strength of the economy,” he wrote.

“If household spending weakness, if the long expected firming of non-mining business investment is further delayed, if the Australian dollar strengthens, if employment growth is persistently weak, then the trajectory of rate rises will be less steep and the pace less rapid.”

The piece prompted warnings that households would be forced to pay hundreds more a year in mortgage repayments, but Dr Edwards himself feared no such disastrous outcome: “The increases will cause less distress than will be widely observed.”

He said this was because housing interest payments were at 7 per cent of household disposable income, compared to 9.5 per cent in 2011 and 11 per cent just before the US-triggered global financial crisis.

These figures ignore the enormous impact of principal repayments. But the latest census data confirmed his point, showing that most parts of Australia were paying less overall on their mortgages than five years ago.

Dr Stephen Koukoulas, former economic adviser to Julia Gillard, said the economy would have to be “on fire” to necessitate eight rate rises, which would be “fantastic” news for workers.

He said GDP growth would have to be closer to 5 per cent, inflation 4 per cent and unemployment 3 per cent for the RBA to push the cash rate up by 200 basis points.

“If it comes to pass, it’ll be because the economy is in an inflation-inspired boom,” Dr Koukoulas told The New Daily.

Such a boom would help regular Australians because inflation is largely driven by household consumption, and “you need wages growth to underpin household consumption”.

A key factor is that the RBA sets the cash rate to target core inflation of 2 to 3 per cent over the medium term.

Because inflation has been below target for so many years, the central bank might allow it to sit at 3.2 or 3.3 per cent for a similar period of time, Dr Koukoulas said.

“There is a serious discussion among central banks that because of the hangover of the GFC, with low inflation still being recorded, let’s tolerate a year or two of above target inflation and let the unemployment rate get back down a little bit.”

Core inflation would only sit persistently above 3 per cent over the next two years if workers were “swimming in cash”, offsetting higher mortgage payments, which Dr Koukoulas said was an “improbable” but “fantastic” scenario.

Tom Kennedy, economist at JP Morgan, saw no such wage boom on the horizon.

In a research note on Thursday, he said next month’s minimum hourly wage increase of 3.3 per cent would be wholly offset by the much-publicised reduction in Sunday penalty rates.

Structural changes, such as underemployment and the increasing share of lower-paid services jobs, meant that the unemployment rate (currently 5.5 per cent) “most likely understates the slack” in the labour market, Mr Kennedy wrote.

Workers would have to get substantially more jobs and hours to enjoy wage rises, he said.

Older Australians face housing crisis

From The New Daily.

Australian retirees will face a housing crisis within 15 years unless urgent action is taken, according to the Council on the Ageing.

The lobby group for seniors hosted a policy summit in Canberra in recent days where it drew attention to the impact on older Australians of rising prices, rising rents, huge mortgage debt and the scarcity of suitable homes.

The assumption that Australians retire in a home they own underpins the nation’s superannuation and pension systems, but summit attendees heard this could be under serious threat in as little as 10 to 15 years.

Keynote speaker John Daley, CEO of the Grattan Institute, warned that the looming housing crisis is a “ticking time bomb” for this demographic.

“We must address these issues immediately if we want to stand a fighting chance to mitigate the severity of the looming housing affordability crisis and to safeguard the future of older Australians before it is too late,” Mr Daley said.

The summit heard a key threat is that more Australians are entering retirement with mortgage debt, which they typically pay off in a lump sum from their superannuation.

Others enter retirement while still renting, which radically increases the amount of disposable income they need to cover monthly expenses.

The Association of Superannuation Funds of Australia, which represents both for-profit and non-profit funds, has estimated that couples who rent for life in the eight capital cities will need at least $1 million to retire comfortably.

In Sydney, a renting couple would require a lump sum at retirement of $1.16 million, almost double the $640,000 a couple who own their home debt-free would need, ASFA found.

The huge disparity is due solely to the ongoing costs of renting. For example, a 65-year-old Sydney couple who own their home will spend — if they live comfortably — about $60,000 a year, compared to almost $80,000 for a renting couple.

The problem is even worse for age pensioners. The 2017 Rental Affordability Snapshot report by Anglicare Australia found only 6 per cent of the market was affordable for a single older person living on the age pension.

The forum also discussed the growing incidence of homelessness among older people, especially women; and the implications for age pensioners of unaffordable rental properties in the cities.

COTA chief executive Ian Yates said older Australians are increasingly disadvantaged by the lack of supply of affordable housing that meets the physical needs of older residents.

“Older Australians are increasingly falling through the cracks in the growing housing affordability and supply challenge, with a growing number of older Australians needing to rent, rather than owning a home outright,” Mr Yates said.

“We are already starting to see rates of home ownership by older Australians decline, and this is forecast to drop even further in the next 10-15 years.

“This trend is already exerting extra pressure on the rental market and on many older Australians who are struggling to pay their rent, while also juggling other rising expenses like energy.

“There is a whole group of people currently in their 50s and 60s who will be retiring as renters, or if they are lucky enough to own a house, facing the prospect of retiring with a mortgage.”

An Australian researcher has estimated that anyone who doesn’t have a mortgage by the age of 45 will probably be renting in retirement, due to price growth outpacing savings, the risks of sickness and unemployment, and the difficulty of convincing a bank to provide a home loan.

The COTA summit also heard from Dr Ian Winter at the Australian Housing and Urban Research Institute; Judith Yates from the University of Sydney; Jeff Fiedler from Housing for the Aged Action Group; and Paul McBride from the Department of Social Services.

Many of the same themes were covered in a recent report by consulting firm KPMG. It confirmed that it will be very difficult for older Australians to be debt free in later years, largely because of housing costs.

NSW state budget swollen by property boom

From The New Daily

Bloated by nearly $10 billion in stamp duty from the hot Sydney property market and asset sales, the New South Wales state budget delivered on Tuesday looks like a political winner for the Gladys Berejiklian government.

While the state enjoys the nation’s lowest unemployment rate at 4.8 per cent, 3.5 per cent local economic growth and negligible net debt, new Treasurer Dominic Perrottet reported a 2016-17 surplus of $4.5 billion from total revenues of $78 billion.

“We are the envy of the Western world,” Mr Perrottet told the budget lock-up media briefing.

The results were boosted by stamp duty receipts of half a billion dollars from the recent sale of the state’s electricity poles and wires and the demand-driven astronomical prices of Sydney property now at $7.2 billion in 2017-18.

While former federal treasury head Dr Ken Henry once described state property transfer taxes as a distorting influence on the efficient use of land, NSW and other mainland states have become addicted to it.

Stamp duty on a $2 million house in NSW currently costs the buyer $95,763, a big windfall for the state.

Also addictive is the state’s dependence on payroll tax, currently at $8.6 billion rising to just on $10 billion a year by 2021.

Payroll tax, easy to collect, nevertheless has been described by economists as a tax on jobs.

NSW also mainlines on gambling for its big revenues, collecting $800 million from club poker machines, $766 million from pub pokies, $111 million from racing, $363 million from lotteries and $278 million from Star Casino.

Grand total from gambling: $2.3 billion.

Mr Perrottet, a proclaimed Christian and father of four, says he supports a national approach to the anti-social impacts of gambling.

The Turnbull government and federal Treasurer Scott Morrison are unlikely to have any sympathy for Mr Perrottet’s complaint that NSW is being short-changed on GST distribution by $15 billion over the next four years.

“Right now GST from NSW taxpayers is subsidising inefficient Labor states, some of whom seem more interested in increasing the size of their bureaucracies, rather than undertaking reform,” Mr Perrottet said in his ‘bearpit’ budget speech.

Housing in NSW ‘still unaffordable’

While Premier Berejiklian promised a game changer on housing affordability, her government’s budget does not deliver systemic change.

Instead, it offers a planning red tape-cutting blitz to boost supply and “a fair go for first home buyers” in the form of stamp duty exemptions from July 1 for new and existing properties up to $650,000, with discounts up to $800,000.

Following the recent federal budget lead, foreign investors have been constrained with an investor transfer duty surcharge increase.

While welcoming the state budget’s bias to local first home buyers, property affordability analysts say low interest rates and relentless demand pressure from population growth will continue to drive Sydney’s sky high property prices.

Infrastructure ‘equivalent to 124 Harbour Bridges’

With the NSW population projected to increase to 11 million by 2056, the state’s already congested city road systems are now a big political problem.

Through its asset recycling program, property sales and privatisations, the state’s ‘Restart NSW’ fund is bankrolling $73 billion in capital works over four years, including the contentious Westconnex toll road now cutting through suburban houses in western Sydney and the stand-alone privately operated Sydney Metro fully automated commuter train with the track now under construction from Sydney’s north west, under Sydney harbour and through the CBD to the south west.

Mr Perrottet made this declaration about the infrastructure spend: “That’s equivalent to building 124 Harbour Bridges – a once-in-a-generation investment that will transform our state forever.”

The capital works include already announced new schools and hospital upgrades, but announced on Tuesday was a $720 million upgrade for the Prince of Wales Randwick hospital in Sydney’s eastern suburbs.

While wage growth in Australia has been flatlining in recent years with a depressive impact on economic growth, the NSW government is insisting on maintaining its 2.5 per cent cap on public sector wages.

With the Reserve Bank governor Dr Philip Lowe this week saying employee demands for higher wages were now justified, Mr Perrottet would not be moved, also insisting that departmental efficiency dividends would continue to be imposed.

In a blatant move for political popularity the state will now fund a non-means tested $100 per child payment for sporting activity, said to be justified by the obesity epidemic.

Significantly for a state budget, this one is presented with an “outcomes” template for the first time, similar to Oklahoma in the US.

NSW Treasury secretary Rob Whitfield, a former banker, says benchmarking performance alongside the budget numbers will help to change the state’s political culture to accountability for its primary function – service delivery.

Amazon should bring Whole Foods to Australia

From The New Daily.

A leading economist has welcomed Amazon’s shock $US13.7 billion takeover of Whole Foods, saying it could be very good news for Australian grocery shoppers.

UNSW Professor Richard Holden, who spent a decade teaching and researching at top US universities, said he hoped Amazon would open Whole Foods supermarkets in Australia, as the sector is ripe for a new premium competitor.

“As someone who lived in the US for 10 years and shopped at Whole Foods every second day, it would be great for the consumer if they came to Australia,” he told The New Daily.

Amazon announced on Saturday it had signed a binding $US42-a-share merger contract with Whole Foods, which has 460 supermarket outlets across the US, Canada and the UK.

This was a radical shift in strategy for Amazon. Almost overnight, it went from an almost entirely online retailer to an enormous bricks-and-mortar grocery powerhouse.

With last year’s launch of AmazonFresh, an online grocery delivery service, it’s clear CEO Jeff Bezos wants Amazon to change grocery shopping forever.

“Millions of people love Whole Foods Market because they offer the best natural and organic foods, and they make it fun to eat healthy,” Mr Bezos said in a statement.

“Whole Foods Market has been satisfying, delighting and nourishing customers for nearly four decades – they’re doing an amazing job and we want that to continue.”

All physical stores will continue to operate under the Whole Foods brand, Amazon confirmed.

Professor Holden said the premium supermarket chain, which specialises in healthy, vegan and eco-products, could be expanded to Australia after AmazonFresh officially launches here in 2018.

“Coles and Woolworths seem to charge fairly high prices, so if someone was to come in with a premium offering like Whole Foods, then they’re not trying to battle into a market where people are used to paying extremely competitive prices,” he said.

“It’s certainly a market where a premium offering like Whole Foods might appeal, and where prices are already, shall we say, not low.”

Professor Holden said his experience of shopping at Whole Foods regularly while living in the US was overwhelmingly positive.

“They have a lot of organic food, really high-quality produce, a lot of incredibly good prepared meals as well. It’s like shopping at David Jones food hall, basically, but for everything,” he said.

“If you had to pay incredibly high prices, that would be one thing. But they’re really not that bad, compared to Australian prices.”

Whole Foods will join AmazonFresh for groceries, Amazon Prime for TV shows and movies, Kindle for e-books, Audible for podcasts and audiobooks, Echo to rival smart assistants like Apple’s Siri, and IMDb for movie reviews, among many other subsidiary companies.

Maria Prados, vice-president at online payments platform Worldpay, said in a statement that Amazon’s purchase was a “clear sign of its intention to disrupt the grocery industry globally”.

“From the ‘Dash’ buy button, to the launch of the AmazonFresh service last year, the eCommerce giant has been taking clear steps to build its position in the grocery sector. And investing in a physical presence could be the key to Amazon’s success in this space,” Ms Prados said.

Australian underemployment is the highest in modern times

From The New Daily.

Underemployment is at its highest level since records began in the 1970s, but you won’t have heard it on the TV.

Thursday’s headlines were instead dominated by news that Australia’s official unemployment rate had fallen from 5.7 per cent in April to a four-year low of 5.5 per cent in May, based on the popular ‘seasonally adjusted’ measure.

Economists and politicians seized on this unexpected surge in full-time employment as a sign that the labour market and the broader economy were improving.

“Fifty-thousand Australians went out to get a job in May and they got one under the economic policies of the Turnbull government,” Treasurer Scott Morrison told Parliament.

“The unemployment rate now has fallen to 5.5 per cent, lower than what we inherited from the Labor Party back in 2013.”

Mr Morrison was using the seasonally adjusted measure, the usual number quoted by politicians and journalists.

However, the measure preferred by the Australian Bureau of Statistics – trend – had the unemployment rate unchanged at 5.7 per cent.

Worse still, the ABS itself drew special attention to the fact that the share of workers wanting more hours was at the highest level since modern records began in 1978. This was widely ignored.

The trend estimate of underemployment worsened from 8.7 per cent in December-February to 8.8 per cent in March-May, which means 1.1 million Australian workers are crying out for more hours.

ABS chief economist Bruce Hockman said this figure was an important reminder of “spare capacity” in the labour market.

“The underemployment rate is an important indicator of the spare capacity of workers in Australia, and has risen for the sixth consecutive quarter to a historical high of 8.8 per cent,” Mr Hockman said.

The ABS prefers trend estimates because it says they are less volatile than seasonally adjusted numbers.

Thursday’s record-high underemployment was a symptom of growing casualisation, which many believe has deleterious effects on wages, job security and conditions.

The ABS defines a person as underemployed if they are part-time and want more hours, or if they are usually employed full-time but were forced for economic reasons to work part-time the week they were surveyed by the bureau.

Even during the 1990s recession the underemployment rate never exceeded 7 per cent.

And despite the headlines welcoming the creation of “50,000” new full-time jobs, the long-term trend of destruction of full-time positions saw no abatement in the latest quarterly data.

Since the late 1970s, the share of men with full-time jobs has fallen from 95 per cent to 80 per cent. Women have suffered too, with their share of full-time jobs falling by roughly the same amount, from 66 to 53 per cent.

You won’t have heard that in Question Time.

Using Super to Save for a Deposit Clashes with Retirement Needs

From The New Daily.

Consultancy firm KPMG has thrown into question the legality of the Turnbull government’s budget measure to allow first home buyers to use superannuation to save for a deposit.

In its Super Insights Report, released on Wednesday, KPMG said the policy, which would allow home savers to salary sacrifice up to $15,000 a year into their existing super fund, was “difficult to reconcile” with the government’s own definition of the purpose of superannuation.

“Arguably, policies to address housing affordability do not fit comfortably within their proposed primary subsidiary objectives of superannuation.”

The Turnbull government introduced draft legislation in 2016 stating that the purpose of super was to substitute or supplement the age pension. It is yet to pass Parliament.

Labor has also seized on the issue, with Shadow Financial Services Minister Katy Gallagher branding the measure “inconsistent” with the proposed definition.

The KPMG report also called for a national debate to determine whether super should be able to be passed on through wills and whether it should be directed for national purposes like infrastructure.

The report found that industry super funds have caught up with their retail competitors, creating an even split between the two at the top end of Australia’s super system.

But while large funds are getting larger, there are still too many smaller funds which need to be consolidated, according to KPMG.

The report also found that the 9.5 per cent super guarantee (SG) needed to be lifted as it is not sufficient to provide the 65 per cent of working income considered adequate for retirement.
“The 9.5 per cent is a good starting point but you need to keep building,” KPMG actuarial partner Michael Dermody said.
However the planned increases in the SG to 12 per cent from 2025 will help provide adequate retirements.

“KPMG has calculated that a person on average earnings who starts their career after 2006 and works for 40 years will retire with a superannuation balance of more than $545,000,” he said.

“That is the level estimated to be needed for what the Association of Super Funds Australia has defined as a ‘comfortable’ standard of retirement living.”

The industry fund sector has been growing faster than the retail funds over the past decade and this is now almost on a par with its main competitor. When the other not-for-profit fund types, public sector and corporate, are added in they easily outstrip their for-profit competitors.

However self-managed super funds have also been a major growth area over the period and now have more assets under management than either retail or industry funds. The not-for-profit sector collectively still outstrips the SMSF sector however.

However, the member profile of fund types varies quite dramatically. Industry funds have a much younger profile resulting in much lower withdrawals and higher levels of net contributions.

The industry funds also appear to have lower-income members with the vast majority of contributions coming from employers under the SG. For the retail funds, however, more than one-third of contributions come from members themselves.

The net inflow of industry funds of $19 billion yearly is over 40 per cent larger than the $12 billion reported by retail funds.

The super gender equation. *Source: KPMG*

The gender divide remains an ongoing concern in superannuation with women in the 45 to 64 cohorts holding significantly less in their super accounts than men. The differential is driven by the gender wage gap and women’s disrupted career patterns as a result of caring responsibilities for children and the aged.

The workforce is still very gender segmented with building industry funds, Cbus and BUSSQ, reporting 92 per cent and 94.2 per cent male members. Meanwhile, health industry fund HESTA and pharmacists fund Guild Super report 80.7 per cent and 86.4 per cent female members, respectively.

KPMG wealth management partner Manish Prasad told The New Daily: “There is a shift to more equal positions between the retail, industry and public sector funds.

“Account numbers are flattening out with the industry rationalising, the introduction of [the ATO’s] Super Stream and the government’s lost account portal starting to work.”