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More than one-third of Australian pensioners are living below the poverty line, making the country among the worst performers in the world for the financial security of older people.

The findings of the OECD report, Pensions at a Glance 2015, compared Australia to 33 other countries.

Australia was ranked second lowest on social equity, with 36 per cent of pensioners living below the poverty line, which the report defined as half the relevant country's median household income.

Australian pensioners fared better than their counterparts in South Korea, where 50 per cent live below the poverty line but performed poorly against the OECD average of 12.6 per cent.

The report, released last month, found the Australian government contributes less to old-age benefits than other OECD countries. The Australian government spends 3.5 per cent of GDP on the pension, below the OECD average of 7.9 per cent.

The findings are backed up by the Global Age Watch Index 2015 report card which rates countries by how well their older populations are faring

It ranked Australia lowest in its region on income security, due to the high rate of old age poverty and pension coverage which is below the regional average.

Paul Versteege?, senior research and advocacy adviser with the Combined Pensioner and Superannuants Association, said the base Australian pension rate was low compared to median household incomes

"There are huge discrepancies among retirees in various countries," he said.

"In Australia there is quite a large group that has to subsist on the age pension as its only source of income. In spite of pension reform and recent increases to the pension, the base pension is still quite low for singles."

The annual payment for a single person is about $22,000 and $34,000 for a couple, with 2.25 million Australians claiming the pension.

Council on the Ageing chief executive Ian Yates said the report challenged perceptions that the entitlement was too high.

"Claims that the age pension is somehow too extravagant and unsustainable do not bear out," he said.

"We have always argued for progressive improvements to the pension but at the moment an increase to the pension is highly unlikely and more focus ought to go towards building superannuation contributions."

Chief executive of Vision Super Stephen Rowe said he was "staggered" by the findings of the OECD report, saying it painted a bleak picture for many older Australians.

"Are we generous enough with the pension? I don't think so."

He said that Australians retiring now have not received the full benefit of compulsory superannuation contributions, introduced in 1992, but were grappling with rising living costs.

"The basic cost of living in Australia is quite high, compared with  some other OECD countries," Mr Rowe said.

Chief executive of National Seniors Michael O'Neill said the pension had gone backwards in real terms and many older people had not accumulated enough superannuation to supplement the benefit.

"In terms of sustainability, the report confirms that Australia spends substantially less than the OECD average on pensions," he said.

"In fact, our pension spend has dropped and plateaued since 2000. Against other countries, our proportion of pensioners living below the poverty line is startling."

2017 Tax Planning



  • Top tax bracket earners can celebrate the end of the temporary budget repair levy from 1.7.2017, giving you an effective tax cut of 2%
  • If you owed tax last year or received a large refund, you may want to adjust your tax withholding with your employer for the upcoming tax year to avoid excessive refunds or nasty surprises
  • If you are feeling generous, make donations to registered charities before the 30th June. To be tax deductible, it must be an outright donation, not a raffle or toy
  • Consider topping up super contributions by salary sacrificing – review your concessional contribution limits – the compound impact of earnings on even small increases to super are substantial over your working life
  • Consider prepaying next year's interest on your negatively geared investment property
  • If you've made a capital gain this year, consider selling any under performing investments that trigger a capital loss within the same tax year
  • If you have earned a side income from ebay, gumtree, air b and b, uber etc, please talk to us about the tax treatment of this income
  • If you want to claim your car travel, be sure you have a valid logbook, otherwise we can only use the km method to claim for your car up to 5000 km
  • Consider the superannuation changes – see below under superannuation. 


  • From 1 July 2017, the condition of having to have less than 10% of income come from wages in order to claim a concessional super contribution as a tax return deduction will be removed. This opens up opportunities for those who want to make deductible contributions to super from their own money or from business earnings in a sole trader structure.
  • From 1 July 2017 taxpayers with an income up to $ 37,000 will receive a (LISTO) contribution to their fund equal to 15 % of their total concessional contributions of the year up to $ 500
  • From 1 July 2017, there is a new $ 1.6 million cap on the total amount that can be transferred into the tax free retirement phase for superfund account based pensions, excess assets move back into accumulation mode
  • Up to 30 June 2017, taxpayers earning over $ 300,000 will trigger the Division 293 tax ( an additional 15% tax imposed on the amount over the threshold). This reduces to $ 250,000 from 1.7.2017, catching more taxpayers into this net.
  • The current non concessional contributions limit of $ 180,000 reduces to $ 100,000 from 1.July 2017. This is a big change impacting the baby boomer generation. Talk to us before end of June, if this impacts you. It has a dramatic effect to those eligible to access the bring forward rules.
  • Members with a total super balance of over 1.6 million for the 2018 financial year, who make contributions in the new tax year, will have excess non-concessional contributions. There are some complex rules affecting those with balances close to $ 1.6 million, who still wish to make contributions, so talk to us, before making further contributions.
  • The concessional contributions limit is dropping from the current $ 30,000 to $ 25,00. 
  • For those with super savings of less than $ 500,000, they will be able to access their unused concessional contributions cap on a rolling basis for five years. Talk to us if this affects you.
  • Transition to retirement income streams are no longer tax exempt from 1.7.2017. Earnings from assets supporting a TRIS will be taxed at 15 % regardless of when the TRIS was commenced.


On 23 May 2017, the ATO announced the 15-16 Budget changes are now law.

From 1 July 2017
  • The tax rate for small businesses is reduced to 27.5 %
  • For sole traders, partnerships and trusts, there is a 8 % small business tax offset ( up to $ 1000 limit) for those with a turnover of less than $ 5 million.
  • The small business turnover threshold has now been increased to $ 10 million ( previously $ 2 million). This means more businesses can access a range of small business concessions including the $ 20,000 instant asset write off and reduced company tax rate.

The Federal Budget 2017-18 proposed an extension to the asset write-off program to 30.6.2018. So watch this space as legislation is being tabled. For now, you can rely on the small business asset writeoff up to $ 20,000 to 30thJune 20117.

Other things you might consider :

  • Prepay expenses - includes insurance, utilities or professional subscription
  • Maximise super contributions up to concessional contributions limits, this can include sole traders, provided that wages income is less than 10 % of total income
  • Write off bad debt - keep records of actions you have taken to recover the debt
  • Make sure you pay your employee's super on time and in a way that is super stream compliant. You can bring forward payments due in July relating to June wages, by paying them before 30 June.
  • Conduct a stocktake and write down inventory to lower cost or realiseable market values.

 Some general tips to make your business reporting easier:

  • Set reminders for due dates throughout the year
  • Separate your business and personal finances
  • Go paperless - this will save you space and there are a host of tools available to allow you to access your records from anywhere
  • Migrate to a cloud software - we recommend Xero or MYOB, this enables us to help you in real time, any time when you are stuck with a transaction. It enables us to keep you focused on regular business reviews with up to date accounts at least monthly in a "live environment". This enables a true partnership between us to ensure your business success.
  • Visit the small business tax room. This is a great ATO iniative to keep you informed


2017 Budget

Budget 2017 

CPA Australia

Produced in association with CCH


Budget 2017.pdf

Source:  In The Black, CPA Australia

By Jan McCallum

Find out if you're a winner or a loser from this year's Federal Budget.

Australia's Government is optimistic about the prospects for the global and Australian economy, said Federal Treasurer Scott Morrison in delivering his budget speech last night.

Morrison said the nation was moving towards the end of a difficult period, with signs of global recovery "and there is potential for better days ahead".The relatively upbeat comments set the tone of a budget with a theme of "fairness, security and opportunity" that combined cuts to welfare with significant infrastructure spending and moves to help first-home buyers.

CPA Australia welcomed the investment in infrastructure, an extension of the instant asset write-off for small business and a new Medicare Guarantee Fund to increase health funding to an ageing population.

Morrison has placed government spending on target to get the budget into a A$7.4 billion surplus in 2021, and says from 2018/19 the government will no longer be borrowing to pay for everyday expenses.

With forecast economic growth of 2.75 per cent in 2017/18 that has meant winners and losers in this year's budget.


Entrepreneurs/self employed

The government is retaining the popular small business instant asset tax write-off at A$20,000 for another 12 months. It had been due to fall to A$1000 from June 30. CPA Australia and business groups have been pushing for the higher level to be retained, arguing the ability to write off up to $20,000 in the same year equipment was bought is a real boost to business cash flow. 

The measure applies to businesses with annual turnover of up to A$10 million.

Regional Australia

The Government will establish a A$472 million Regional Growth Fund to support regional communities. This includes A$200 million to support a further round of the successful Building Better Regions program.

It will inject A$8.4 billion in equity to the Australian Rail Track Corporation to fund the Melbourne to Brisbane Inland Rail project with work starting in 2017/18


The property industry

The housing market gets a boost from the new First Home Super Savers Scheme allowing first home buyers to save for a home through their superannuation fund, contributions and earnings taxed at 15 per cent, rather than their marginal rates. Withdrawals will be taxed at their marginal rate, less 30 percentage points.

Contributions will be limited to A$30,000 per person in total and A$15,000 per year.

The government will also allow people aged 65 or over to make a non-concessional contribution into their super of up to A$300,000 from the proceeds of selling their principal residence. The incentive is designed to free up larger homes.

The government plans to step up release of Commonwealth land for housing. It has barely touched negative gearing but tightened some rules on deductions.

Infrastructure and engineering

This is a big spending, big project budget, with A$75 billion earmarked for infrastructure spending in the next 10 years. This includes a new Western Sydney Airport, with work starting in the second half of next year. 

In addition, Morrison announced a A$10 billion National Rail Program to upgrade rail around the country.


A higher Medicare levy will channel funds into the health sector, with Morrison announcing the National Disability Insurance Scheme (NDIS) will be fully funded. 

There will also be extra funding for mental health and veterans' mental health.



All taxpayers will pay a higher Medicare Levy, rising from 2 per cent to 2.5 per cent from 1 July 2019. The increase is expected to raise A$8 billion to fund health care.


Bank customers will be able to take complaints to a new Australian Financial Complaints Authority. Bankers might feel they have dodged a bullet because the Authority is likely to be preferable to a Royal Commission into the banking industry. 

Morrison also announced tighter controls over bank executives, higher fines for misconduct and a new permanent Australian Competition and Consumer Authority task force to investigate competition in the banking and financial system.

A new 6 basis-point levy on the liabilities of the five major banks, starting July 1, will raise A$6.2 billion for budget repair

Foreign property buyers

Foreigners will lose the main residence capital gains tax exemption on their Australian homes. If they buy property and fail to occupy or lease it, they will pay an annual A$5000 levy.

Developers will be prevented from selling more than 50 per cent of new developments to foreign investors.

Welfare recipients

Welfare recipients will face tougher obligations, including a new demerit point system for people who miss job interviews.

Employers of foreign workers

Employers will pay an annual foreign worker levy of A$1200 or A$1800 per worker per year on temporary work visas and a A$3000 or A$5000 one-off levy for those on permanent skilled visas.

Multinational companies

The government is toughening the Multinational Anti-Avoidance Law to extend the rules to structures involving foreign partnerships or trusts and clamping down on aggressive structuring using hybrids

Source:  Australian Government Budget 2016


The issue

Superannuation tax concessions are intended to encourage people to save for their retirement. They are not intended to provide people with the opportunity for tax minimisation or for estate planning. As the earnings from retirement phase superannuation accounts are tax-free they are a very desirable investment choice for individuals. Limiting the amount that can be transferred into a tax-free retirement account will make the superannuation system more fiscally sustainable and increase confidence that the settings are consistent with the objective of superannuation.


The details

From 1 July 2017, the Government will introduce a $1.6 million cap on the total amount of superannuation that can be transferred into a tax-free retirement account.

• Like the Age Pension, the cap will index in line with the consumer price index. The transfer balance cap will increase in $100,000 increments.

• Superannuation savings accumulated in excess of the cap can remain in an accumulation superannuation account, where the earnings will be taxed at 15 per cent.

• A proportionate method which measures the percentage of the cap previously utilised will determine how much cap space an individual has available at any single point in time. ? For example, if an individual has previously used up 75 per cent of their cap they will have access to 25 per cent of the current (indexed) cap.

• Subsequent fluctuations in retirement accounts due to earnings growth or pension payments are not considered when calculating cap space.

• Following consultation, the Government commits to reviewing the impact of the transfer balance cap should there be a macroeconomic shock that substantially affects retirement incomes. The review would draw on advice from the Council of Financial Regulators and on actuarial advice to inform what response, if any, may be required.


Consequences for breach

Individuals who breach the cap will be required to remove the excess capital from their retirement phase account and will be liable to pay tax on the notional earnings attributable to the excess capital. The amount removed from the retirement phase can be transferred into an accumulation account, where the earnings will be concessionally taxed at 15 per cent, or withdrawn from superannuation.

Those individuals already in retirement as at 1 July 2017 with balances in excess of $1.6 million will need to either:

• transfer the excess back into an accumulation superannuation account; or

• withdraw the excess amount from their superannuation.

Transitional arrangements will apply for existing account holders. Individuals can also apply to the Commissioner of Taxation to replenish their transfer balance cap space for anomalous situations that cause their retirement balance to be depleted, such as fraud, bankruptcy or family law splits. Where a fund moves an asset back to an accumulation account to comply with the introduction of the transfer balance cap before 1 July 2017, the fund will have the option of resetting that asset's cost base to its current market value. This will ensure that tax will not be applied to gains that accrued while the asset supported a retirement phase interest. Where an asset is already partially supporting an accumulation account, the fund will have a capital gains tax liability on the non-exempt proportion of the unrealised gains. The liability can be paid immediately or deferred until the asset is sold.


Very few people will be affected by this proposal. The average superannuation balance for a 60-year old Australian nearing retirement is $240,000 and less than one per cent of fund members will be affected by the balance cap. The details of the broadly commensurate treatment for members of defined benefit schemes are in Superannuation Fact Sheet 5.


Budget Impact

The measure is estimated to improve the underlying cash balance by $1.8 billion over the forward estimates.

Cameo - Jason

Jason is 60 and plans to retire during the 2017- 18 financial year. Jason expects he will have an accumulated superannuation balance of less than $1.6 million. This measure does not affect Jason.

Cameo - Agnes

Agnes, 62, retires on 1 November 2017. Her accumulated superannuation balance is $2 million. Agnes can transfer $1.6 million into a retirement income account. The remaining $400,000 can remain in an accumulation account where earnings will be taxed at 15 per cent. Alternatively, Agnes may choose to remove this excess amount from superannuation. While Agnes will not have the ability to make additional contributions into her retirement account, her balance will be allowed to fluctuate due to earnings growth or drawdown of pension payments.



$1.6 million transfer balance cap

When does the measure start?

  • The $1.6 million transfer balance cap will commence on 1 July 2017.

Is the $1.6 million transfer balance cap retrospective?

  • No. The Government is simply limiting the amount that benefits from the tax-free retirement phase from 1 July 2017.
  • Earnings in retirement phase accounts will remain tax-free.
  • By the time the new rules apply, individuals who have retirement balances in excess of the transfer balance cap will have had time to transfer any excess into the concessionally taxed accumulation phase, where earnings are taxed at 15 per cent, or out of the superannuation system.

Can I make more than one transfer?

  • Yes, individuals will be able to make transfers in the retirement phase as long as they have available cap space.
  • The amount of the cap space an individual has available will be determined by the proportionate method which measures the percentage of the cap previously utilised.

How many people will this affect?

  • It will affect less than 1 per cent of Australians with a superannuation account.
  • The average superannuation balance of a 60-year old Australian nearing retirement is $240,000.

What if I have more than one superannuation retirement account? Is it $1.6 million per account?

  • No, the cap applies to the total amount of superannuation that has been transferred into the retirement phase, it does not matter how many accounts these balances are held in.
  • Similarly, for individuals already in retirement prior to 1 July 2017, the cap applies to the total amount held in the retirement phase, it does not matter how many accounts these balances are held in.

What sort of income and living standards will I have with a $1.6 million balance in retirement?

  • A balance of $1.6 million is approximately twice the level of assets at which a single homeowner currently loses entitlement to the Age Pension, and almost three times the 'comfortable standard' of the Association of Superannuation Funds of Australia.

Does the cap limit how much I can hold in my retirement phase account? What happens if my retirement account grows in excess of $1.6 million?

  • The cap only limits the amount you can transfer into a retirement phase account it does not apply to the balance on that account.
  • Your balance can grow above $1.6 million in your retirement phase account. The cap does not apply to this subsequent growth.

Once my retirement phase account balance falls below $1.6 million, can I transfer more?

  • An individual can transfer more into a retirement phase account only if they have not previously exhausted their cap. The amount of the cap space an individual has available will be determined by the proportionate method which measures the percentage of the cap previously utilised.
  • If, for example, an individual transfers the full $1.6 million into a retirement phase account which subsequently decreases the individual will not be able to transfer any more into the retirement phase as they have utilised 100 per cent of their cap space.
  • If an individual transfers $800,000 into a retirement phase account, they will have utilised 50 per cent of the cap space. If the cap is later indexed to, for example, $1.7 million, they will be able to transfer an additional 50 per cent of the indexed cap, being $850,000.

What happens if I make transfers in excess of the cap after 1 July 2017?

  • If an individual transfers amounts into a retirement phase account in excess of the cap, they will be required to remove the excess (including notional earnings on the excess capital). If they choose not to, their fund will be required to remove the excess on their behalf.
  • These amounts can be transferred back into an accumulation account, where the earnings on the excess will be taxed concessionally at 15 per cent. Alternatively, the excess can be withdrawn from superannuation.
  • For a first breach, individuals will be subject to a 15 per cent tax on the notional earnings.

What happens if I am already retired before 1 July 2017 and have a retirement phase balance in excess of $1.6 million?

  • Individuals already in retirement with retirement phase balances in excess of the cap at 30 June 2017 will be required to either: - withdraw these excess amounts from superannuation; or - transfer these excess amounts back into an accumulation account.
  • The earnings on funds in an accumulation account will be taxed at the 15 per cent concessional tax rate.
  • Transitional arrangements will apply for those above $1.6 million but at or below $1.7 million – individuals will have 6 months from 1 July 2017 to remedy the breach. If they comply, no further penalty is applicable.
  • Those who do not remedy the breach or who have balances above $1.7 million on 30 June 2017 will be subject to the consequences of their fund removing the excess and a tax on notional earnings on the excess capital.

What if I retired before 1 July 2017 and transferred less than $1.6 million at that time, but my balance has grown to $2 million through investment returns?

  • You will still need to comply with the cap. If your balance on 30 June 2017 is in excess of $1.6 million, you will need to remove the excess amount from your retirement account.

How will this cap apply to defined benefit pensions?

  • Different arrangements involving changes to the taxation of defined benefit pension payments will be adopted to achieve a broadly commensurate taxation outcome to that of the transfer balance cap.
  • Defined benefit pensions will not be required to be commuted and rolled-back if they are valued at over $1.6 million. Rather, defined benefit pension payments over $100,000 per annum will be subject to additional taxation to broadly replicate the effect of the $1.6 million transfer balance cap.

How will this cap apply to non-commutable pensions (commenced prior to 1 July 2017)?

  • Non-commutable pensions that commenced prior to 1 July 2017 will be treated the same as defined benefit pensions.

How will this cap apply to non-defined benefit, non-account-based income streams (started after 1 July 2017)?

  • Products such as lifetime annuities, market-linked pensions and annuities and term/life expectancy pensions and annuities will be valued using their purchase price.

How will this cap apply to future 'innovative' income stream products?

  • These products will be valued using their purchase price.
  • If a product is purchased with instalments during the accumulation phase or deferred from the point of purchase, it will be valued using an existing method requiring actuarial certification.
  • Collective defined contribution scheme pensions will be valued at the amount of the collective pool of fund assets attributed to the member on the day the pension commences and certified by an actuary.

Do transition to retirement income streams count towards the transfer balance cap?

  • No. As transition to retirement income streams (TRIS) will no longer receive an earnings tax exemption from 1 July 2017 they do not count towards the transfer balance cap

Can I still split my retirement phase interests to purchase or diversify my retirement income streams?

  • Yes. Once you have transferred your superannuation income streams to the retirement phase, they are not counted again towards your transfer balance cap.
  • To achieve this outcome, your transfer balance account will receive a 'debit' equal to the value of the amount commuted. This amount, plus any unused cap space, may then be used to purchase a new income stream or retirement product.
  • To ensure the integrity of this approach, you will no longer be able to use partial commutations to satisfy minimum drawdown requirements.
  • If you choose to commute your income streams (either in part or in full) you will receive a debit equal to the value of the commutation.

Do I need to pay tax on income from my retirement account? Or on the amounts that I withdraw from my accumulation phase account?

  • No. The Government has not changed the taxation treatment of amounts drawn down from superannuation accumulation accounts by people who have reached their preservation age. Superannuation benefits paid, either as an income stream or as a lump sum, from a funded source (that is, one in which taxes have been paid on contributions and earnings such as in an accumulation scheme or a funded Defined Benefit scheme), are generally tax-free for people aged 60 and over.
  • The earnings on amounts in an accumulation phase account are taxed at the concessional 15 per cent tax rate. Withdrawn funds are not taxed, providing the individual has reached age 60. There are no minimum (or maximum) drawdown requirements from accumulation accounts.

Will the $1.6 million transfer balance cap be indexed?

  • Yes. The cap will index in $100,000 increments in line with the consumer price index, just as the Age Pension assets threshold does.

Do structured settlements or personal injury payouts count towards the cap?

  • These amounts will not count towards an individual's transfer balance cap. This will ensure that individuals can continue to access these arrangements which support them in meeting their healthcare and living costs.

For couples where one spouse either does not have a superannuation account or has a low balance in their account/s can they have a joint $3.2 million cap?

  • The transfer balance cap is an individual cap. Each individual can transfer $1.6 million into their retirement phase account/s from their accumulation account/s.
  • An individual with more than $1.6 million in the retirement phase will need to either transfer the excess to an accumulation account where earnings will be taxed, or withdraw the excess from the superannuation system. Subject to the contribution caps, excess amounts withdrawn could be contributed to their spouse's account.
  • In the superannuation system, and most areas of tax, people are taxed and treated as individuals not as families or households.


Source:  CPA Australia, In the Black

Writer:  Cameron Cooper

Predictions of continued slow economic growth are mounting across the globe. The implications are significant – from reduced capital investment to political instability.

When influential American economist Larry Summers brought the concept of secular stagnation out of mothballs during an address to the International Monetary Fund in 2013, he inadvertently put pressure on his peers to make a call. 

Were they true believers, agnostics or sceptics on the notion that the US and other advanced nations are facing a sustained slowdown in economic growth that could last for decades, rather than problems merely to do with business cycles? 

Four years on, with working-age populations shrinking and inflation and interest rates stuck at low levels in many nations, more economists are joining the secular stagnation camp. 

Economist Alvin Hansen coined the phrase secular stagnation in 1938 to explain his theory that a long-term slowing of economic growth – due to lower population growth and modest technological advances – could stifle investment and prolong the recovery from the Great Depression. 

The outbreak of World War II meant his theory was never tested, as the war sparked massive government spending and innovation in areas such as communications and medicine, and the post-war baby boom led to a population explosion in the US and elsewhere.

Summers, a Harvard University professor who served as US treasury secretary in Bill Clinton's administration, issued a call to world leaders to address the secular stagnation issue in a 2016 Foreign Affairs article: "Secular stagnation and the slow growth and financial instability associated with it have political as well as economic consequences. 

"Slow economic growth will reduce the need for new capital investment, which will work in turn to make growth even slower." Robert J. Gordon, Northwestern University

If middle-class living standards were increasing at traditional rates, politics across the developed world would likely be far less surly and dysfunctional. So mitigating secular stagnation is of profound importance."

US Federal Reserve chair Janet Yellen has commented: "we cannot rule out the possibility expressed by some prominent economists that slow productivity growth seen in recent years will continue into the future." 

What the numbers say

Even in the wake of the global financial crisis (GFC), few thought that long-term economic stagnation would occur around the world. Yet late last year, the OECD's Global Economic Outlook warned that a "low-growth trap has taken root", tipping that developed nations' gross domestic product (GDP) growth will rise from 1.7 per cent per annum to a still unimpressive 2 per cent in 2017 – a far cry from levels of around 4 per cent in the years before the GFC. China, too, has seen real GDP growth more than halved from 14 per cent in 2007 to below 7 per cent in 2015.

Cause and effect

Robert J. Gordon, an economics professor at Chicago's Northwestern University, says the US and other advanced economies will struggle to hit past highs.

He blames four key factors: a reduced fertility rate in many countries, leading to lower population growth; the retirement of the baby boomer generation; a decline in the labour force participation rate of adult workers; and a fall in the rate of productivity growth. 

"All of these make a significant contribution to slower growth in output," Gordon says.

He also puts a modern twist on one of Hansen's other theories – that technological innovation had faltered and put the brakes on growth. Yes, there has been innovation in the form of the internet, smartphones, artificial intelligence and machine learning, but it has failed to drive jobs growth and productivity in the way breakthroughs such as power stations and the combustion engine did in the past.

"So far, the main use of machine learning with big data has been in marketing, helping companies to steal market share from each other rather than raising economic growth for society as a whole," he explains.

Demography is another element. Australian economic commentator Saul Eslake notes that a sharp slowdown in the growth rate of working-age populations (people aged 15-64) in OECD countries started in 2010-11, when the first of the baby boomers began turning 65 and retired. 

This could contribute to lower rates of economic growth in major advanced economies and some emerging economies during the next two decades, compared with the period between the recessions of the early 1990s and the GFC in 2007.

"That obviously has further to run, as a rising proportion of those born in the years after World War II move past the statutory retirement age," he says.

A contributor to lower productivity growth, Eslake argues, is that the war on terror has seen deployment of enormous resources – managing security at airports, for example – for questionable returns.

"So, in my view, the slow growth Larry Summers identified as the hallmark of secular stagnation is more likely to be the corollary of slower population growth and weaker productivity growth." 

Uncertain outlook

If this slow growth lingers, the implications are significant. Some analysts fear continued political instability – highlighted by the Brexit vote in the UK and Donald Trump's accession to the White House – as voters react to low growth by demanding change.

On the economic front, companies' prospects for expansion may be undermined. Tax revenues, too, are being hit at the same time as governments are trying to support an ageing population. The warning from Gordon is stark.

"Slow economic growth will reduce the need for new capital investment, which will work in turn to make growth even slower," he says. 

"Governments everywhere will find that their projections for old-age pensions and medical care are too optimistic, and to fund those obligations to senior citizens will require higher tax rates or force a reduction in benefits paid per person."

For investors and the public, the prospect of interest rates remaining low means bank deposits are likely to remain an unattractive option, except for those who cannot bear any capital losses. 

"To the extent that Trump's proposed fiscal stimulus does boost demand, it will stimulate higher inflation." Saul Eslake, economist

Disposable income and consumer spending is also likely to suffer, in turn hurting business growth and the capacity for enterprises to employ more people or lift wages. A growing cohort of poor part-time and contract workers struggling on meagre salaries, mirroring the example of Japan, is also on the cards.

The IMF, in its World Economic Outlook April 2016 report, called Too Slow for Too Long, points out that persistent slow growth has "scarring effects" that limit output and, consequently, consumption and investment.

"Consecutive downgrades of future economic prospects carry the risk of a world economy that reaches stalling speed and falls into widespread secular stagnation," it states.

The implications for jobs are significant, the IMF says, with overall weak demand leading to "higher unemployment that results in a reduced labour supply as (1) skill depreciation generates a higher natural rate of unemployment and (2) discouraged workers withdraw from the labour force".

Shane Oliver, AMP Capital's chief economist, does not think global economies are heading for the "bleakest interpretation of secular stagnation". All the same, the actions of international policymakers will be crucial. He points out that Japan's debilitating period of low growth since the Nikkei Index peaked in 1989 was exacerbated by delays in implementing interest rate cuts and stimulus packages.

Oliver believes Europe is most at risk now because its political framework is not fully integrated, so there's a lack of decisive policymaking. Despite Europe having a common currency, "as it stands it takes a long time to get agreement on monetary policy," he says.

Qian Wang, senior economist at investment manager Vanguard in Hong Kong, is more upbeat than some about the future. Wang's argument is that pre-GFC growth had been artificially boosted by aggressive credit expansion during the 1990s and 2000s. She adds that trend growth of about 2 per cent in an economy such as the US is now perfectly normal.

"We don't think the global economy is in secular stagnation," she says, "[but] we do admit there are significant growth headwinds, like demographic or productivity factors, that are keeping the global economy from really having a significant rebound." 

With China, Wang puts recent lower economic growth down to the fading "catch-up effect" as the mainland closes the gap with developed countries. Beijing's political leaders should maintain stability in the economy and pursue modest structural reforms, she says. "If you push too aggressively you run the risk of a sharper slowdown in economic growth."

Impact of a spending spree

One possible way to encourage economic growth is for governments to ramp up their own spending. Summers has called for a decade-long infrastructure renewal program in the US to upgrade roads and airports and create new capacity in areas such as green technology and health care. In a speech at Princeton University in 2015, he bemoaned the share of public investment in GDP, saying that "if we have a moral concern about my children's generation, deferring maintenance is just as surely passing the burden on to them as issuing debt".

Eslake, however, worries about a combination of looser fiscal policy (such as tax cuts and additional spending on the military and certain types of infrastructure) and protectionist policies (such as tariff barriers). It may well be wishful thinking, he argues, that such an approach will boost US economic growth to something like the 4 per cent achieved during the Reagan years.

His view is the strong growth of the Reagan era owed a lot to US interest rates falling from 17 per cent to 6 per cent, "something that can't be repeated in current circumstances". Unemployment was more than 10 per cent at its peak in 1983, compared with less than 5 per cent today, and the working-age population was growing at almost 1 per cent per annum compared with barely more than 0.2 per cent today.

"Secular stagnation and the slow growth  and financial instability associated with it have political as well as economic consequences." Larry Summers, Harvard University

"To the extent that Trump's proposed fiscal stimulus does boost demand, it will stimulate higher inflation – because Trump's protectionist trade policies will … instead add directly to inflation by raising the price of imported goods and services, creating room for US producers to raise their prices, too," Eslake says.

For his part, Gordon endorses government infrastructure investment, but not the Trump scheme that encourages spending by private investors by giving them large tax breaks.

"We must recognise that infrastructure spending is not a panacea and cannot have nearly the effect in boosting productivity as the original interstate highway system investment of the 1960s and 1970s," he says. "Much of the needed infrastructure investment is to repair deterioration in highways and bridges, and inherently these repairs will not have the same impact as building the roads and bridges in the first place." 

A dissenting view

Not everyone agrees with the global secular stagnation view. Former Federal Reserve chair Ben Bernanke is among those who believe that when problems in the banking sector and restrictive fiscal policies recede, growth rates will strengthen. 

Manu Bhaskaran, an economics consultant at Centennial Asia Advisors in Singapore, says in the past decade a perfect storm of economic shocks – the global financial crisis, the eurozone crisis, geopolitical shocks, the collapse of commodities markets and an evolving Chinese economy – has contributed to an inevitable slowing of growth.

"It is unlikely these shocks will continue to keep hitting us," Bhaskaran says. He believes the ongoing rise of developing economies such as India, Indonesia, Vietnam and the Philippines can drive growth at sustainable but higher levels. Technologies hitting their take-off in areas such as renewable energy, advanced manufacturing through the use of AI and robotics, cloud computing and data analytics will also make a difference. 

Japan's slow burn

When economists discuss slow growth, Japan is the go-to case study. After enjoying annual gross domestic product (GDP) growth of about 4.5 per cent in the 1980s, the wheels fell off the Asian powerhouse. An asset price bubble burst in 1992 and in the past two decades Japan's GDP has grown at an average rate of less than 1 per cent. Interest rates are effectively locked at about zero per cent. 

While many Japanese continue to live well, and Japan is still one of the world's largest economies, the downturn has had significant psychological, social and financial impacts, says the IMF. These impacts include:

  • Forcing a shrinking working-age population to support a growing pool of pensioners
  • Contributing to the rise of 100-yen shops, Japan's answer to discount shops
  • Fuelling a high suicide rate, which has risen sharply since economic stagnation set in
  • Shattering consumer confidence and leading to a drop in consumption and a dip in real household income 
  • Creating a sharp division between regular workers who have so-called jobs for life, and part-timers with little or no security
  • Fostering an environment in which low wages growth has hurt many families

Source:  CPA Australia, In The Black

Writer:  Glenn Rees

When the Australian Signals Directorate releases an update to its cybersecurity strategies, every business should take note.

When the Australian Signals Directorate (ASD) published its first cybersecurity strategies guide in 2010, it became a reference for many information security professionals around the world.

Why? Because the guide produced by the ASD, an intelligence organisation within Australia's Department of Defence, is both comprehensive and simple to understand. It clearly identifies the top strategies organisations should prioritise as defences against cybercrime. 

The ASD's February 2017 update, Strategies to Mitigate Cyber Security Incidents, outlines eight essentials that should be taken as the "cybersecurity baseline for all organisations". These protocols aim to prevent malware running, limit the extent of cybercrime incidents and recover data.

Given the ASD's respected reputation in the information security community, it could be well worth talking to your IT or security manager or a consultant to see how its strategies can be applied in your business. Using even the first four strategies can still mitigate at least 85 per cent of the techniques often used in hacks, according to the ASD. 

1. Application whitelisting 

"A whitelist only allows selected software applications to run on computers. All other software applications are stopped, including malware," the ASD explains. 

This strategy is particularly important for larger organisations to ensure that IT teams install only approved and trusted applications. It can be done with an advanced application management tool such as AppLocker, which is included in enterprise versions of Windows 7, 8 and 10.

It might be overkill for very small businesses, but if you don't adopt whitelisting, it becomes even more critical to adhere to the fourth strategy – restricting administrative privileges to prevent unauthorised software from running.

2. & 3. Patch applications and operating systems

"Adversaries will use known security vulnerabilities to target computers," says the ASD. This is why individuals should always install application and OS updates when prompted, or automatically if the software offers this feature.

For organisations, it's a bit more involved. The second and third strategies require setting up IT processes that ensure operating systems and applications on all computers are updated in a systematic and timely manner. 

4. Restrict administrative privileges 

"Administrator privileges … should be restricted to only those that need them," advises the ASD. This means that in Windows, for example, only trusted IT administrators should have administrator accounts; everyone else should have standard accounts, which have restrictions such as not being able to install or run new programs.

As the ASD observes: "Admin accounts are the 'keys to the kingdom' [and] adversaries use these accounts for full access to information and systems."

5. Disable untrusted Microsoft Office macros 

Microsoft Office macros are "increasingly being used to enable the download of malware," according to the guide. So macros should be "secured or disabled" by configuring Office settings to "block macros from the internet, and only allow vetted macros …"

6. User application hardening 

"Flash, Java and web ads have long been popular ways to deliver malware to infect computers," the guide explains. Still, it's interesting that the ASD now says it's essential to "block web browser access to Adobe Flash player (uninstall if possible), web advertisements and untrusted Java code on the internet." 

7. Multi-factor authentication 

This means having more than a password for accounts, particularly when accessing important data or performing privileged actions, such as system administration. Additional log-in factors can include a passphrase or PIN; a physical token or software certificate; and/or biometric data such as a fingerprint scan. 

8. Daily back-up of important data

Somewhat surprisingly, this wasn't one of the original essentials, but it is now, possibly due to the rise of ransomware – a malicious software that blocks access to your computer system until a ransom is paid.

The ASD stresses the importance of securely storing daily back-ups "offline or otherwise disconnected from computers" because ransomware and other malware can "encrypt, corrupt or delete back-ups that are easily accessible"

Predictions for 2017

Source:  The Knowledge Shop, Feb 17 Tax Round Up

Pride & Prejudice: Top Four Predictions for 2017

The global economy is picking up and Australia is about to secure the global record for the longest period a country has gone without a recession. But with the focus on the political environment, there is an uneasiness in the market and with uneasiness comes a reticence to take risks. The fortunes of Australians this year will have much to do with how you or your business is positioned and how you respond to challenges. Here are our top predictions:

 1. Trumponomics will impact on our region

Business is business - either an opportunity makes sense or it doesn't. The biggest pressure from the new US President is unlikely to be the much discussed Trans-Pacific Partnership (Australia's current Free Trade Agreement with the US (AUSFTA) has been in place since 2005), or President Trump's controversial immigration policies, but the plan to cut the US Federal company tax rate from 35% to boost competitiveness. If the US drops its company tax rate below 30%, Australia will be the one of the most expensive countries in its region to do business and globally uncompetitive. The 2016-17 Federal Budget announcement to reduce Australia's company tax rate progressively to 25% for all businesses has stalled in the Parliament with voter perception that it is a gift to 'big business' at the expense of more deserving elements of the community.

 The US is Australia's second largest two-way trading partner at around $69 billion and our third largest export market at $22 billion* (we import around $47 billion in US goods and services). Australia's trade relationship with China however swamps this volume with $150 billion in two-way trade of which almost $86 billion is in exports. These trade statistics are important to remember when we look at the geopolitical landscape of the Asia-Pacific region and in particular the increasingly antagonistic relationship between the United States and China.

 Australia is too small an economy to successfully survive on its domestic market alone. Strong regional alliances and competitiveness are critical.

 2. For business: Innovate or Perish

Economists widely predict that residential construction and exports - the mainstay of Australia's domestic economic growth - will slow in 2017. Part of this is the Chinese Government's concern about investment outflows (Australia has been a significant beneficiary with Chinese Direct Foreign Investment growing by 72.5% over 2010-15). So, where is growth going to come from?

 One of the most alarming statistics comes from the Boston Consulting Group Global Manufacturing Cost-Competitiveness Index.  

 The BCG analysis demonstrates that Australia was the least competitive of the top 25 global manufacturers between 2004-14 – Australia's direct manufacturing costs, for example, were just under 30% higher than the US. Manufacturing wages grew 48% in Australia over this period while labour productivity fell 1%. While this was a period of abnormal events with the mining boom, the Australian dollar at parity with the US, and a GFC, it still creates a stark picture of why a focus on productivity is important.

 Over the last two decades we have seen a global trend towards offshoring to reduce labour costs to achieve productivity gains. Now, gains are being achieved through innovation to reduce costs. This is an area where Government policy is there to support business. These incentives include:

 ·       Small business rollover relief that removes the tax impediments associated with changing your business structure.

·       Tax incentives for investors in early stage innovation companies.

·       Broadened tax incentives for early stage venture capital limited partnerships and venture capital limited partnerships.

·       More generous employee share scheme arrangements particularly for high growth start-ups.

·       Immediate deductions for start-up businesses.

·       Reduced company tax rates for small businesses.

·       Plus there is also the R&D incentives for innovative companies.

 For survival, all business operators need to look at the trends in their industry.  Continued over….

Advances in technology in particular will make some operators unsustainable and give others the capacity to change the very nature of their sector either through production efficiencies or disruption. After all, tech company Uber started in 2009, spreading exponentially around the world well before it launched in Australia in 2014. Real Estate Agents may be next with companies like Purplebricks.

 The bottom line is that you cannot rely on the stability of your business model to sustain over time.

 3. For you: Superannuation knee-jerk reactions will disadvantage some

2017 will be a watershed year for superannuation in Australia. With many of the reforms coming into effect on 1 July 2017, there will be a temptation for many to 'do something' before the deadline.

 The biggest impact of the reforms is likely to be on those with large super balances close to or exceeding $1.6 million. And, it's not just the wealthy with large super balances. Many SME business operators utilise the business real property exception to hold their business premises inside their SMSF, which can significantly increase the asset value of the fund. For anyone close to or exceeding the $1.6m cap, it's essential that you have current valuations for your assets to know exactly where you stand.

 One of the key decision points for those with large balances is how Capital Gains Tax applies where assets supporting pension payments exceed the new $1.6m pension transfer limits and need to be moved back into accumulation phase.

 Knee-jerk reactions to the management of your fund's assets - like quickly selling assets pre 1 July - may result in your fund being in a much worse position. With the risk of sounding conflicted, good advice is essential.

 4. International is still a dirty word

If you are an individual or a business that transfers money internationally, you will continue to be a target. For individuals, if you work overseas be careful of residency issues. The residency tests don't necessarily work on 'common sense'. Just because you work outside of Australia for a period of time does not mean you are not a resident for tax purposes. And, for those with international investments, it's important to understand the tax status of earnings from those assets. Just because the asset and the earnings from those assets are overseas does not mean they are safe from Australian tax law, even if the cash stays outside Australia.

 For business, Government regulation is increasingly cynical about those using low taxing jurisdictions, paying large management fees between international entities, and parking large debts in Australian entities.

 Like every other tax authority, the Australian Tax Office wants its share of profits earned from Australian consumers. You can see this trend in the new GST rules (dubbed the 'Netflix tax') which come into effect on 1 July 2017 - although for many the requirement for foreign entities to charge GST on services and digital products provided to Australian consumers has already come into effect. On the other hand, changes to the GST treatment of international transactions that apply from 1 October 2016 are intended to make life easier for both Australian and overseas businesses, but these rules can become quite complex to apply in real life.

 No one likes uncertainty and 2017 is shaping up to be a year where people feel unsettled. Take a breath, think strategically, look beyond your personal experience, and take advantage of the opportunities that are available to you.

 *2015-16 figures Austrade Why Australia Benchmark Report 2017.




Quote of the month

"There comes a time when one must take a position that is neither safe, nor politic, nor popular, but he must take it because conscience tells him it is right." 

Martin Luther King Jr.,


8 Great Entrepreneurial Success Stories

Contributor:  Steve Tobak, Author of Real Leaders Don't Follow

We love this inspiring article on innovators who saw a gap in the market and jumped at the opportunity.  

It never ceases to amaze me how much time people waste searching endlessly for magic shortcuts to entrepreneurial success and fulfillment when the only real path is staring them right in the face: real entrepreneurs who start real businesses that employ real people who provide real products and services to real customers.

Yes, I know that's hard. It's a lot of work. What can I say, that's life. Besides, look on the bright side: You get to do what you want and you get to do it your way. There's just one catch. You've got to start somewhere. Ideas and opportunities don't just materialize out of thin air.

The only way I know to get started is by learning a marketable skill and getting to work. In my experience, that's where the ideas, opportunities, partners, and finances always seem to come from. Sure, it also takes an enormous amount of hard work, but that just comes with the territory.

If you want to do entrepreneurship right, here are eight stories you've probably never heard about companies you've most definitely heard of.

The Pierre Omidyar way. In 1995, a computer programmer started auctioning off stuff on his personal website. AuctionWeb, as it was then known, was really just a personal project, but, when the amount of web traffic made it necessary to upgrade to a business Internet account, Omidyar had to start charging people fees. He actually hired his first employee to handle all the payment checks. The site is now known as eBay.  

Related: How to Be Smarter

The John Ferolito and Don Vultaggio way. Back in the 70s, a couple of Brooklyn friends started a beer distributor out of the back of an old VW bus. Two decades later, after seeing how well Snapple was doing they decided to try their hand at soft drinks and launched AriZona Green Tea. Today, AriZona teas are #1 in America and distributed worldwide. The friends still own the company.   

The Matt Maloney and Mike Evans way. When a couple of Chicago software developers working on lookup searches for got sick of calling restaurants in search of takeout food for dinner, the light bulb went off: Why isn't there a one-stop shop for food delivery? That's when the pair decided to start GrubHub, which went public last April and is now valued at more than $3 billion.   

The Joe Coulombe way. After operating a small chain of convenience stores in southern California, Joe Coulombe had an idea: that upwardly mobile college grads might want something better than 7-11. So he opened a tropical-themed market in Pasadena, stocked it with good wine and booze, hired good people, and paid them well. He added more locations near universities, then healthy foods, and that's how Trader Joe's got started.   

8 Great Entrepreneurial Success Stories

Related: Success Does Not Follow a Time Clock

The Howard Schultz way. A trip to Milan gave a young marketer working for a Seattle coffee bean roaster an idea for upscale espresso cafes like they have all over Italy. His employer had no interest in owning coffee shops but agreed to finance Schultz's endeavor. They even sold him their brand name, Starbucks.

The Phil Robertson way. There was a guy who so loved duck hunting that he chose that over playing pro football for the NFL. He invented a duck call, started a company called Duck Commander, eventually put his son Willy in charge, and that spawned a media and merchandising empire for a family of rednecks known as Duck Dynasty.  

The Konosuke Matsushita way. In Japan in 1917, a 23-year-old apprentice at the Osaka Electric Light Company with no formal education came up with an improved light socket. His boss wasn't interested so young Matsushita started making samples in his basement. He later expanded with battery-powered bicycle lamps and other electronic products. Matsushita Electric, as it was known until 2008 when the company officially changed its name to Panasonic, is now worth $66 billion.

The Steve Wozniak and Steve Jobs way. While they had been friends since high school, the two college dropouts gained considerable exposure to the computer world while working on game software together on the night shift at Atari. The third Apple founder, Ron Wayne, was also an Atari alumnus.

As I always say, the world is full of infinite possibilities and countless opportunities, but your life and career are finite, meaning you have limited time to find what you're searching for and make your mark on the world. This is your time. It's limited so don't waste it. Find something you like to do and just do it. That's how real entrepreneurs always start.

8 Great Entrepreneurial Success Stories

By imagining for a few minutes that the year is 2026, we can get a better idea of how the Australian economy might evolve. Here six economists speculate on how the economy might change in the decade after 2016.

INTHEBLACK asked six leading economists to exercise their imaginations and invent a story of what Australia's economic evolution might look like by 2026. They invented economic environments with elements that we can already see, but with huge changes to jobs, businesses, cities and international relations.

Here, then, are six thought-provoking visions of possible economic changes ahead, each addressing a different element of the economy.

Automation, looking back from 2026 – Shane Oliver

In the past decade hundreds of thousands of jobs have disappeared in transport, professional services, manufacturing, government and other sectors as machines have taken over repetitive tasks.

In the past, such transformations occurred over decades, giving displaced businesses and workers time to adjust, and the technologies that have driven the process have given rise to new industries.


Shane Oliver

However, AMP Capital Investors chief economist Shane Oliver says the decade to 2026 has been different. The rapid speed of change has been traumatic for many – old jobs have been destroyed at a much faster pace than new ones have been created.

This has caused a growing gulf between those in well-paid jobs, immune to automation, and the rest.

With less disposable income around, economic growth has slowed and social tensions are increasing. There are growing demands for the government to use the tax and welfare systems to even the spread of income, and people are loudly advocating a shift to a four-day week to share jobs.

All is not gloom, however. Cafes, tourism operators, gyms, gene therapy clinics and other personal service providers are prospering, and new jobs and businesses are appearing all the time. Despite this, the period of dislocation has been painful for many.

The workplace, looking back from 2026 – Deborah Cobb-Clark

The plunge in office rents and property prices that began in 2021 shows little sign of letting up as the days of the corporate head office appear increasingly numbered.


Deborah Cobb-Clark

While a core of employees continue to work in the same physical space, for years now a growing proportion has been taking advantage of advances in communications technology to work from remote locations – homes, shared office spaces and even cafes with dedicated work areas.

University of Sydney professor of economics Deborah Cobb-Clark, who anticipated this development a decade ago in 2016, says this, combined with the increasing automation of many jobs, is transforming the way we live and work.

People have more leisure time as their workload shrinks and an increasing number are freed from having to undertake the daily commute.

The new model of work is changing the structure and purpose of cities. Increasingly, the CBD as a work destination is a relic of the past and the "peak hour" pressure on transport networks is receding. People still flock to cities, but mostly for their amenity and social life rather than work.

Population ageing, looking back from 2026 – Stephen Koukoulas

Having already helped to usher in land taxes in the states, the Federal Government is now facing an even tougher political fight over plans to increase the retirement age to 70 years, introduce death duties and establish a HECS-style scheme for the aged pension. 


Stephen Koukoulas

Stephen Koukoulas of Market Economics says there is little choice. "It is a matter of dollars and cents," he says. "Community expectations are that the provision of services be held to a high level, and that is very expensive."

The nation's swelling ranks of retirees are driving ever-increasing demands for health care, community services and income support. The burden of this cost is falling on a shrinking share of working-age Australians.

The situation has called for radical solutions, and the government is now contemplating measures that 10 years ago would have been considered unthinkable – including a progressive scale of death duties and a "reverse-HECS" for pensions, under which a means-tested proportion of the welfare payments claimed by recipients are reimbursed to the government from their estate when they die.

"People want a decent level of government-provided services," Koukoulas says, "but without some serious action, there is a real risk of it becoming unaffordable."

Productivity, looking back from 2026 – Mardi Dungey

Australia's biggest economic achievement of the past decade has been to solve the conundrum of chronically low productivity.


Mardi Dungey

By breaking down rigidities in the way work is conceived and structured, University of Tasmania professor of economics and finance Mardi Dungey says the nation has tapped into a rich pool of labour and expertise among those who in the past have been systematically excluded from the workforce, such as those with disabilities and chronic medical conditions.

By relaxing time constraints and instead conceiving jobs in terms of outcomes, the nation has opened up a swathe of opportunities for those who might take longer to complete a task, but can deliver results at least the equal of able-bodied workers.

Innovations like e-lancing and a more sophisticated approach to measuring production, particularly in the services, have helped drive the transformation.

Deflation, looking back from 2026 – Nicholas Gruen

Almost 20 years on from the global financial crisis, the Australian economy, like that of much of the developed world, continues to struggle to get out of second gear.

While Australia's record of 35 years of unbroken growth is remarkable, Lateral Economics principal Nicholas Gruen says there is little to celebrate from the last 10 years. The dark cloud of economic stagnation that settled over Europe in the wake of the GFC has spread Down Under.


Nicholas Gruen

The tough medicine policies forced on Europe's debtor nations (Italy, Spain, Greece) by Germany stoked deflationary forces that quelled growth there, and a similar dynamic has gripped Australia. Central banks around the world, including in Australia, have struggled in vain to lift the inflation rate.

Most workers have not had a real pay rise in years, and housing costs are claiming an increasing share of income, leaving fewer dollars left over for shopping and personal services. In turn, soft turnover has given firms little reason to hire more staff or make substantial investments.

In the past decade, annual growth has averaged 2.5 to 3 per cent, rather than 3 to 3.75 per cent. The result, says Gruen, has been to make the country 5 per cent poorer than it would otherwise have been. 

Instead of acting to break out of this rut, successive governments have been complacent. "Now our unemployment rate is higher than the United Kingdom and the US, and there is no sense of urgency, or that something is seriously wrong," says Gruen. "It is a story of the great Australian complacency."

China's hard landing, looking back from 2026 – Saul Eslake

In the decade since 2016 the country has endured slowing population growth, a continued decline in the terms of trade and productivity, and an end to booming house prices. Yet the biggest shock has come from the liquidity crisis that crippled China's financial system.


Saul Eslake

The warning signs were already appearing in the middle of the last decade, says independent economist Saul Eslake, when the country's banking system developed some of the worrying characteristics of the American banking system before the global financial crisis hit.

"The GFC was not primarily caused by a huge increase in bad mortgage loans, but by a wholesale run on funds tied up in securities," Eslake said at the time.

"China's banking system has taken on some of that character. China's banking system has become much more dependent on the types of funding [securities] that brought down the Western banking system [in the GFC]," he adds.

The Asian country's massive foreign exchange reserves, worth around US$3 trillion, were of little help in what became a solvency crisis. For Australia, whose trade dependency on one nation was greater than at any time since the 1950s, the economic consequences have been severe.


Original source : In the Black

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