An estimated 7 million “buy now pay later” users will soon see new laws introduced by the federal government that aims to better protect them against financial abuse.
A new Treasury paper released by Financial Service Minister Stephen Jones today suggests buy now pay later players could soon be subject to the same laws as credit card providers, as “unaffordable or inappropriate lending practices are contributing to financial stress and hardship, and other types of consumer harm”.
The paper said there were 7 million active buy now pay later accounts in the 2021-22 financial year resulting in $16 billion in transactions, an increase of almost 37 per cent on the previous financial year.
The Treasury paper makes it clear self-regulation, without some controls, is no longer an option.
It raises a range of issues, noting there’s been reports of “poor complaints handling processes” and that “the lack of hardship assistance for consumers leads to delayed or unsatisfactory remediation”.
Go to the Walk The World Universe at https://walktheworld.com.au/
In today’s show we look at the latest inquiry into Banking, which is looking at how regional areas in Australia are and should be supported. Whilst the short-hand answer might appear to be go on-line, the truth is connectivity in many areas is still shaky, some services still need face to face interaction, yet banks are shutting branches and removing ATMs, in an attempt to drive down costs. There has been a 24 per cent fall in regional bank branches over the last four years, and this does not count the increasing number only open for a few hours a week.
You can make a submission for the next month or so. https://treasury.gov.au/consultation/c2021-222961
I discuss with Robbie Barwick from The Citizens Party.
The Prime Minister And Treasurer released their second stimulus package today which is designed to shield the country from the current emergency, and to keep businesses from collapsing for at least the next 6 months. But a warning, watch how the RBA measures have been rolled into the total support now valued at $189 billion. This is deceptive. They want to make it look like a big number. It is not, yet!
In summary, small businesses can receive cash payments up to $100,000 and some welfare recipients will receive another $750 in payments, as Newstart is repurposed temporarily.
It builds on the measures included in the first $17.6 billion economic stimulus package announced more than a week ago.
ScoMo said “We cannot prevent all the many hardships, many sacrifices that we will face in the months ahead.
He made the point that the health-related issues are leading to a range of broader economic issues, as never before. The total packages are now worth around 9.7% of GDP – or around $189 billion dollars, and Treasury modelling indicates benefits to the national accounts in the June and September quarters to offset the big falls elsewhere. No one knows where results will land. But within that, $90 billion reflects the RBA’s liquidity injections, so the true Government direct support is much lower than advertised.
The UK initiatives, we recently discussed were 15% of UK GDP, so we are still doing things on the cheap in my view. More direct support for households needs to come.
The new measures include:
Temporarily doubling the Jobseeker Payment, previously called Newstart
Allowing people to access $10,000 from their superannuation in 2019-20 and 2020-21
Guaranteeing unsecured small business loans up to $250,000
Reducing deeming rates by a further 0.25 per cent
A second $750 payment will be automatically paid to an estimated 5 million people on July 13 on welfare. The first $750 payment, announced in the first stimulus package, will be paid on March 31.
The
Government will temporarily double the Jobseeker Payment, previously
called Newstart, providing people with an additional $550 a fortnight.
The
payment will be available to sole traders and causal workers, provided
they meet income tests. The Government will waive asset tests and
waiting periods to access the Jobseeker Payment.
The Prime Minister said that “the nature of these payments and the purpose of these payments are changing.” to provide additional income support for vulnerable groups.
For small businesses and Not-for-profits with a turnover under $50 million can receive a tax-free cash payment of up to $100,000, with a minimum payment of $20,000 for eligible companies.
The Government says 690,000 businesses employing 7.8 million people and 30,0000 not-for-profits will be eligible for measures in the stimulus package. The payments will be delivered by the Tax Office as a credit on activity statements from late April.
In an agreement with the banks, the Commonwealth is also offering to guarantee unsecured loans of up to $250,000 for up to three years to businesses, interest free for 6 months.
In response the CBA said “The Commonwealth Bank will support as many of the Government supported loans as possible and in doing so make available up to $10 billion of additional unsecured credit to support small and medium businesses.” The ABA welcomed the move saying ” Banks stand ready to help their business customers get through this, whether it’s deferring their loan payments or providing more working capital. Today’s announcement of a second stimulus package, which includes an SME Guarantee scheme, will mean access to funds to see small businesses through this downturn”.
The Government will allow people to access up to $10,000 from their superannuation this financial year and in 2020-21.
People will not pay tax on they money they access and withdrawals will not affect Centrelink or veterans’ payments.
There will also be a temporary 50-per-cent reduction in superannuation minimum drawdown requirements for account-based pensions in 2019-20 and 2020-21.
On top of the deeming rate changes made at the time of the first package, the Government is reducing the deeming rates by a further 0.25 percentage points to reflect the latest rate reductions by the RBA. As of 1 May 2020, the lower deeming rate will be 0.25 per cent and the upper deeming rate will be 2.25 per cent. The change will benefit around 900,000 income support recipients, including Age Pensioners. This measure is estimated to cost $876 million over the forward estimates period.
The Government is moving quickly to implement this package. To that end, a package of Bills is being introduced into Parliament on 23 March 2020 for urgent consideration.
Subject to passage of the Bills through Parliament, the Government will then move to immediately make, and register, supporting instruments.
The National Cabinet will meet tonight to find a way to force Australians to adhere to social distancing, following the temporary closure of Bondi Beach after people failed to adhere to government spacing requirements.
There were clear signals of more draconian measures should people not keep their distance. The Government also said not to travel unless it was essential. Reality is slowly catching up with the community, but many are still looking the other way.
MYEFO has been released, and as expected the Government is still forecasting a surplus, this year down from $7.1 billion to $5 billion, but still a surplus for the first time in 12 years. The surplus for 2020/21 is now seen at $6.1 billion instead of $11 billion as previously estimated. Tax receipts are down 32.6b over 4 years.
Wage growth forecasts were reduced, but are still too optimistic, while the unemployment rate was expected to be higher than hoped at 5.25 per cent, rather than five per cent for this financial year and next.
Treasury still is sticking with a 5% employment threshold below which inflation is expected to rise, while the RBA has this at 4.5%.
The forecast for economic growth has reduced from 2.75 per cent, to 2.25 per cent. The downgrade to growth was blamed on weak momentum in the global economy, as well as domestic challenges such as the effects of drought and bushfires. The drought in Australia that had already taken a quarter of a percentage point off GDP growth and reduced farm output by a significant amount over the last two years. Growth is then expected to strengthen to 2¾ per cent in 2020-21.
They have shrunk the expected surpluses over the next four years due to a downgrade of tax receipt expectations, with total receipts revised down by $3 billion in 2019/20 and by $32.6 billion over the four years to 2022/23. GST to the states is down nearly 2 billion in the next year, due to weaker activity.
Australia’s interest bill on its debt will fall from $19 billion last year to $14.5 billion (thanks to lower interest rates). Over the next four years this amounts to $13.5 billion savings.
While the
mid-year update included a $623.9 million aged care package, there were
no other new major spending measures to lift economic growth. This will
keep the pressure on the Reserve Bank of Australia to reduce the cash
rate even further next year.
In essence, the Treasury is leaving the action to the Reserve Bank, further confirmation we are likely to get more cuts next year.
But they are also counting on stronger house prices leading to a positive wealth effect.
After a recent period of significant falls in housing prices from mid-late 2017 to mid-2019, the established housing market has stabilised. In July 2019, combined capital city housing prices rose for the first time in almost two years, and this has continued in recent months. Although increases have been largest in Sydney and Melbourne, increases have now spread to all cities except Darwin. Overall, combined capital city housing prices are now almost 6 per cent higher than their recent trough in June, although they are still around 5 per cent lower than their peak in September 2017.
This increase in housing prices is expected to support the outlook for household consumption, particularly as corresponding increases in housing turnover should see a pick-up in spending on household goods such as furnishings. More broadly, continued rises in housing prices should provide a boost to confidence and household wealth, as well as increasing borrowing capacity given changes in collateral.
Ownership transfer costs — various fees incurred when fixed assets such as dwellings are sold (including legal and real estate agent fees, stamp duty, and other government charges) — were negatively affected by low rates of housing market turnover in 2018-19 and detracted from real GDP growth. Ownership transfer costs rose by 4.5 per cent in the September quarter 2019 and a further increase supported by stronger housing turnover and prices should contribute to economic growth over the forecast period.
Movements in housing prices impact dwelling investment activity through changes to expected returns to residential construction. However, recent price gains will affect new dwelling investment with a delay. This is because planning and approval processes take time to work their way through into new construction. On average, depending on the type of dwelling, it can take around 2 to 5 months for new dwellings to commence following approval, and a further 6 to 20 months for activity to be completed. High-density dwellings have the longest approval and construction times, and houses the shortest on average.
New dwelling approvals have trended down since late 2017, with the total number of building approvals over the year to October 2019 down by more than 20 per cent from the preceding 12 months and below the 10-year average. The falls in building approvals have been particularly stark in medium-high density dwellings, which also have the longest lag between approval and completion. This means that further moderation in dwelling investment is likely over the forecast period (Chart A). This weakness should be partly offset by a solid pipeline of housing construction work yet to be done.
The other area of sensitivity is the iron ore price and commodity prices in general.
Iron ore spot prices increased sharply in the first half of 2019, mainly due to supply issues in Australia and Brazil, and stronger-than-expected demand from China. Iron ore prices peaked in early July at almost US$120 per tonne free-on-board (FOB). Prices have since fallen, but remain above the price assumed at PEFO. The decline in the price has mainly been due to uncertainty about demand from Chinese steel mills and the recovery in supply. As such, prudent assumptions have been retained and the iron ore spot price is assumed to decline to reach US$55 per tonne FOB by the end of the June quarter 2020. This is one quarter later than was assumed at PEFO.
Coal prices have fallen since PEFO. Metallurgical coal prices have fallen faster and further than had been assumed at PEFO, with the spot price below US$150 per tonne FOB since October 2019. The fall in the spot price is due in large part to uncertainty about demand from Chinese steel mills and policy changes in China. The metallurgical coal price is assumed to remain around recent levels of US$134 per tonne FOB over the forecast period. This is lower than the PEFO assumption, which was for the price to fall to US$150 per tonne FOB by the end of the March quarter 2020.
After reaching a peak of just over US$125 per tonne FOB in mid-2018, thermal coal prices have trended lower, mainly due to increases in seaborne supply and softer global demand. The thermal coal price is assumed to remain around recent levels of US$64 per tonne FOB over the forecast period, below the PEFO assumption of US$91 per tonne FOB.
If the iron ore price were to fall immediately to US$55 per tonne FOB, two quarters earlier than assumed, nominal GDP could be around $7.5 billion lower than forecast in 2019-20 and $0.3 billion lower in 2020-21. This would have a negative flow-on impact to company tax receipts estimated at around $0.8 billion in 2019-20 and $1.1 billion in 2020-21.
By contrast, if the iron ore price remained elevated for two quarters longer than currently assumed, before falling immediately to US$55 per tonne FOB, nominal GDP could be around $6.4 billion higher than forecast in 2019-20 and $1.0 billion higher in 2020-21. This would have a flow-on impact to company tax receipts estimated at around $0.5 billion in 2019-20 and $1.3 billion in 2020-21.
The actual impact on company tax receipts may vary due to timing of tax collections and the availability of tax losses.
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.
Well, who would have though it. My show with the CEC’s Robbie Barwick has now had 105,000 views in the past week and counting. So this draft bill is really hitting a nerve.
This is the biggest audience we have ever had for any of our shows. Thanks to all those who watched it and shared it.
Still time to get your submission into the Treasury today, when the consultation closes.
The country of origin is also interesting with 50% based in Australia, followed by the USA, Great Britain Canada and New Zealand. So this has significant international interest.
And if I count up the messages I have received from viewers who have posted a response to the treasury, then they will have received not tens but hundreds of submissions. Now, I wonder if they were expecting that. And if they will report the true volumes received.
And if you have submitted a response, remember to also contact your local MP and Senators in your home states. Contact details are easily found on the Parliamentary website.
A quick reminder that the draft legislation relating to the restrictions on cash transactions which the Treasury released for comment recently, and was the subject of our recent shows, has a deadline of Monday 12th August.
Email: blackeconomy@treasury.gov.au with the subject line:
Submission: Exposure Draft—Currency (Restrictions on the Use of Cash) Bill 2019
This bill proves the necessary preparations for negative interest rates in Australia, meaning money in the bank could cost savers!
There is a clear link between the restrictions on cash holding and cash transactions and negative interest rates. Indeed, the IMF, and other organizations admit that without such cash restrictions, negative interest rates, (perhaps as low as 4%!) will not be effective.
One of our viewers prepared a brief flier which he hopes may be useful to help raise awareness of this critical issue. Its available here. Share as widely as you can. Remember the deadline is 12th August!
Screen shot of flier – note click on image to access live linked document which you can view or download
