Monday, September 19, 2016

Trade Minister signals new foreign investment rules after China rebuff

The Trade Minister Steve Ciobo has signalled the federal government is preparing to update its foreign investment guidelines to appease disgruntled or confused Chinese investors.

Mr Ciobo is visiting Hong Kong where he reassuring Chinese investors that Australia is open for business, despite the Treasurer's decision last month to block the sale of the New South Wales electricity provider Ausgrid.

The rule changes are likely to provide clarity to proposals relating to critical infrastructure to ensure all investors have clear guidelines when they tender for assets up for sale in Australia.

Mr Ciobo told The World Today that while the government is not signalling that investment in Australia infrastructure is off the table, it is moving to provide great certainty for investors after the Ausgrid rejection.

"The Treasurer is working through a number of proposals in respect to critical infrastructure," Mr Ciobo said.

"It's not about putting forward a prescriptive of assets they can or cannot bid for."

Mr Ciobo, who is attending an investment conference in Hong Kong, confirmed he would be meeting with Cheung Kong Infrastructure, one of the unsuccessful bidders for Ausgrid to discuss proposed and current investments in Australia.

Mr Ciobo said he wanted to send the message that Australia has a non-discriminatory approach to foreign investment while retaining the power to veto proposals that could be in conflict with the national interest.

"Provided it's communicated well to to investors it means they can have certainty about investment proposals in Australia," Mr Ciobo said.

"But at the same time, Australians can have certainty that investment into Australia is going to be good for our country."

In a speech to be delivered later today in Hong Kong, Mr Ciobo is expected to single out the "critical power and communications services" that Ausgrid provides to Australian business and government.

But Mr Ciobo will stress the Treasurer's rejection of the Ausgrid proposal related to the "nature of the assets - not to any particular investor".

Friday, September 16, 2016

Coal moratorium would be blip for economy, modelling suggests

New research out today says Australia's economy would not be hurt by a gradual phasing out of coal production in Australia.

Modelling from the Centre of Policy Studies at Victoria University commissioned by the Australia Institute says there would be minimal economic impact if the government imposed a moratorium on new coal mines or the expansion of existing ones.

The study says the managed winding back of coal production as existing mines are depleted would be an economic blip given the industry’s share of employment which represents 0.04 percent of the Australian workforce.

It says the economy would grow regardless of a phasing out with a difference of 0.06 percent in 2040.

Professor Philip Adams who led the research told the ABC's AM program that environmental policies to put a tax on carbon was effectively a tax on the use of coal.
"The world outlook for coal is fairly bleak. We don't see much likelihood of strong market conditions for coal  over the longer term," Professor Adams said.

"Our modelling suggests that the impacts will not start for ten to 15 years. There is enough coal in mines that are operating or will be operating to continue the level of exports that we see now.

"But thereafter coal production will slow as new mines which otherwise would come on are not allowed to come on.

"Is this a bad thing for Australia? The answer is no."

However, the study commissioned by the Australia Institute concedes that while the national economic impact would be minimal, the phasing out from coal would be painful for regional areas relying on the industry.
"The Fitzroy area in Queensland, the Hunter Valley in New South Wales will be significantly affected adversely by the slowing down in both demand and supply of coal production.

Australia Institute chief economist Richard Dennis says the research is a wakeup call for the coal industry and the federal government.

"Look the end of coal is nigh. The question is whether it's nigh enough," Mr Denniss told AM.

"The effect is a rounding error - it's trivial. The Australian economy will still double in size in the coming decades.

"Literally when you graph the economy with a moratorium and without a moratorium, you need a microscope to find the difference."

The coal industry has rejected the calls for a coal moratorium and says energy generated from coal remained critical to Australia's economy.

Benjamin Sporton, chief executive of the World Coal Association, says coal currently provides 41 percent of the world's electricity and 90 percent on Australia's eastern seaboard.

"To try and say we're going to move away from a fuel that provides that much of the world's electricity, I just don't think is realistic," Mr Sporton said.

"Coal is going to play a big role in the world's economy and the world's electricity mix for decades to come and it's incredibly important that we focus on a role for low emission coal technology."

While Richard Denniss doesn't see the government imposing a coal moratorium, he says market forces will apply and that history provides some good lessons.

"The government's decision to abandon the car industry has hurt in Victoria. The Kennett government's decision to privatise electricity saw ten thousand jobs go back in the 1990s.

"Imagine if you heard someone say in the 90s they want to build a big new video cassette recorder factory?"

Wednesday, August 10, 2016

Glenn Stevens lauded for preserving RBA independence from government

When it comes to legacies, the outgoing Reserve Bank governor Glenn Stevens will be remembered for guiding Australia through the global financial crisis and marring his record with a the burden of a recession.

Mr Stevens - who makes his final public speech in Sydney today - also navigated Australia through a once in a century mining boom but also the unwanted legacy of a real estate bubble fuelled by cutting interest rates to a record low of 1.5 percent.

While the jury is out on the full Glenn Stevens time in the RBA hot seat, one respected economist has lauded Mr Stevens for preserving the independence of the Reserve Bank by raising interest rates a week before the 2007 election.

John Howard’s Coalition was swept from office, heralding the ascension of Labor’s Kevin Rudd as Prime Minister.

Saul Eslake, a former bank chief economist now vice chancellor’s  fellow at the University of Tasmania, said Mr Stevens came under immense political pressure from the Liberal Party after raising the cash rate by 0.25 percent to 6.75 percent.

"I think Glenn Stevens' courage in these circumstances is another key achievement of his time during the decade at the helm of the Reserve Bank," Mr Eslake told The World Today.

"There are many in the Coalition who never forgave Glenn Stevens for that even though I doubt that his decision to lift interest rates had any impact on the outcome of the 2007 election.

"There were a number of Coalition members who from time to time would surreptitiously briefed the (Canberra) Press Gallery against Glenn Stevens."

Mr Eslake also cited media pressure with The Daily Telegraph in Sydney describing Mr Stevens as "the most useless banker in Australia" because of his strategy of hiking interest rates.

Glenn Stevens' preservation of the Reserve Bank independence of government was most recently demonstrated when the RBA board cut the cash rate on May 3, overshadowing the Federal Budget.

Despite the plaudits as Mr Stevens prepares to retire on September 17, there is mounting criticism that continuous rate cuts since November 2011 have fuelled an investment housing bubble in the eastern seaboard, in particular in Sydney and Melbourne.

"That's something that critics of Glenn Stevens' time in office - and of Ian Macfarlane before him - will probably point to as an arguable blemishes on their records," Saul Eslake says.

"But I doubt that anyone could really say that Australia's economy would have been materially better of as a whole if the Reserve Bank had maintained higher interest rates."

Mr Eslake agrees however the younger Australians have been locked out of the main markets and live in the hope of receiving an inheritance or winning Lotto.

"Yes. Those are regrettable trends. And I think Glenn Stevens would be at one with in saying that the trend has been regrettable."

Glenn Stevens will deliver his final speech titled "An Accounting" when he speaks in Sydney at an event hosted by the Anika Foundation and Australian Business Economists

Thursday, August 4, 2016

Digital disruption could rock workplace agreements, report warns

In a world of digital disruption with the likes of Uber and Air BnB, the focus is turning to how rapid changes to business and lifestyles could translate to the workplace.

A report out today looks at likely challenges to legal rights for both employers and employees given the move to contracting and more flexible work arrangements.

The law firm Corrs Chambers Westgarth says businesses, governments and not-for-profits need to consider how they can adapt to the challenges of a fast changing digital economy.

Partner John Tuck told The World Today that navigating the rise of the sharing economy will be critical for Australian businesses and their employees.

"The nature of the impact is going to be very dramatic change in the way in which services are being delivered," Mr Tuck said.

"Couple that with automation and artificial intelligence, you can see that we are going to have a revolution in the way that work is being undertaken in Australia."

Mr Tuck agrees a major challenge is ensuring that workplace flexibility is not perceived as worker exploitation.

"Yes. And I think that any responsible business is set up in a way that is lawful and that they take notice of the proper regulation."

In its annual workplace report, the firm singles out the scandal involving the retail chain 7-Eleven where some employees were underpaid and exploited.

John Tuck says the 7-Eleven example highlights social and legal risks for companies that fail to ensure worker rights are protected in a flexible economy.

"The challenge for employers of course is how do we ensure that laws are being followed and that does create issues," Mr Tuck said.

"A prominent brand, a known brand may well have to put in new governance structures to ensure that those laws are being followed.

After the 7-Eleven revelations by the ABC and Fairfax Media, both major political parties ramped up policies to bolster employee protections and to impose higher penalties for breaches.

But with the rights checks and balances, the report says workers in the new economy can adapt while maintaining industrial protections.

"The new generations are going to embrace the portability and flexibility of new work opportunities as opposed to looking back through the rear vision mirror," Mr Tuck said.

Key challenges for employers are ensuring enterprises agreements are honoured while independent contractors understand superannuation laws and workers compensation laws.  

While the report recommends workplace reform, it says the close election result means there is limited prospect of any significant changes in the near term.

Wednesday, August 3, 2016

Investors, depositors big winners from RBA rate cut

The decision by major banks not to fully pass on the Reserve Bank's official rate to mortgage borrowers demonstrates the power of big investors at a time of tighter profit margins, according to interest rate analyst.

But Peter Arnold, director of data at the financial services monitoring firm RateCity, says the move by the Big Four isn't surprising and proves that the interests of shareholders is now the number one priority for major banks.

"Protecting those margins, holding back money as equity is now very important. But as a borrower, you're the one who's paying the price here," Mr Arnold told the ABC's AM program.

"There'd be a lot of pressure from shareholders. The bank profits are a big source of income for super funds so the typical Aussie is benefiting in some regards.

"But the big investors are certainly a force to be reckoned with."

The changing priority for banks is in contrast to the past decade when Federal Treasurers including Peter Costello, Wayne Swan and Joe Hockey publically urged banks to pass on rate cuts in full.

Bank chief executives were routinely carpeted in public and private when official rate cuts were held back to protect profit margins.

When the Reserve Bank cut rates in May on federal budget day, three of the four major banks delivered the full rate cut to borrowers.

But yesterday, major banks passed on around half the official reduction with the National Australia Bank handing over just 0.1 percent of the RBA's 0.25 percentage point reduction.

Instead term deposit rates have been sweetened by the Commonwealth, NAB, ANZ and Westpac to ensure depositors - who are hurting from record low rates - keep their money with banks.

Peter Arnold says banks are under more pressure than ever given demands from institutional shareholders along with the Australian Prudential Regulation Authority (APRA) which now requires banks to keep more cash in reserve to deal with potential shocks.

As economists question the Reserve Bank's strategy in taking rates to record lows, there are still fresh memories of banks raising rates independently in the leadup to the global financial crisis when bank funding costs spiralled.

Mr Arnold warns borrowers could be exposed to the scenario of independent rate hikes again in the event of a global shock.

"That could certainly happen again, " Mr Arnold told AM.

"We've seen it before and it's happened this decade. We saw some months where the RBA didn't move and the major banks added 0.1 to 0.5 percent extra on to home loan rates."

While the major banks have held back the full RBA cut, smaller banks without shareholders are better positioned to pass on the full 0.25 percent to borrowers.

The former credit union Bank Australia was the first to move, opening the door for other borrowers to do the same.