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Quarterly Economic
and Property ReportAustralia
Quarter 2 | 2012
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It appears that times are tough all round ifyou are not part of the mining boom.
Retail spending remains low, the housing
and building markets have contracted
while exports are still struggling with the
high Australian Dollar. A case of dj-vu?
Or is it? As predicted commodity prices
have decreased, due to the slowdown in
demand from the emerging global
economies. This combined with the effects
of natural disasters and mining employee
strikes appear to have taken their toll, with
the surprised closure of the Norwich ParkCoal Mine. This was a blunt reminder of
the boom to bust conundrum that is the
mining industry.
The rate of GDP growth continues to
decrease in China, with the major trading
partner of Australia registering growth at
8.1 per cent, down from a forecasted 8.5
per cent. Since 2007 the Chinese current
account has dropped from 12 per cent to
4.0 per cent of GDP, reflecting a rise in
imports and fall in exports, as the economyshifts towards domestic consumption.
Consumption is likely to continue growing
because of the upward trend in workers'
wages, which increases manufacturing
costs but is generally good for the
domestic economy. On top of this, there is
high scepticism on the validity of the
economic data being released in China,
with claims of fabrication.
Europe is still doing it tough, with
substantial social and economic problemsin Greece, Spain, Portugal, Italy and even
France. There is scope for this to get
worse as elections in Greece and France
could bring forth a crisis in these countries.
The US Federal Bank has found itself in a
challenging position as inflation starts to
move, partly as a result of rising gasoline
prices. More quantitative easing in
response to the anaemic US recovery is
very unlikely. In fact a discussion will have
to be had at some point about how todrain the excess liquidity from the
economy before 2013.
Furthermore, US corporate profits are nearrecord levels and only likely to fall, so after
a big run over the past months the equity
markets on Wall Street now look set for a
correction.
Here on Australian soil, we are in the midst
of our own interesting times, as banks are
increasing rates while the Reserve Bank of
Australia (RBA) is trying to get them down.
The property market continues to contract,
as shown by housing finance approvals
data, while bank rate increases and a tightfiscal federal budget will likely prevent any
substantial green shoots in the market from
gaining significant traction. So far
unemployment has been fairly contained,
but any significant change will hurt the
property market.
However, according to the International
Monetary Fund (IMF), the Australian
economy is expected to outpace all
advanced economies with projected
growth of 3.0 per cent in 2012 and 3.5 in2013. It has also increased the forecast of
global growth over 2012 to 3.5 per cent,
from 3.3 per cent. In comparison the US is
forecasted to grow at 2.1 per cent, up from
a prior estimate of 1.8 per cent.
Looking at the macro level property market,
the reality is that while the rate of decline in
values have slowed and could be even
stagnant, a quick recovery to where sales
activity and prices were at prior to the
Global Financial Crisis of 2008 would beunthinkable, considering what global
markets face in the near future. However
investors could now be tempted back into
the property market as the rate of decline in
values erodes away, while the equity
market remains not only turbulent, but has
provided returns inferior to fixed bonds
over the past five years.
Economic and Property Overview
Key Facts:
CPI: 1.6%
SVHL Rate: 7.4%
AUS Unemployment Rate:5.0%
AUS Population Growth: 1.29%
Average AUS Fuel Price:$1.50pl
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Early 2012 has seen negative sentimentlinger from 2011, as the long-term six
month moving average Australian
Consumer Sentiment Index decreased
by a further 0.1 point over the month to
register 98.3 points. When compared to
the previous year, a total decrease of
10.7 points has been recorded.
On a monthly basis the Australian
Consumer Sentiment Index decreased
further by 5.0 points over the month of
March 2012, to record a score of 96.1points.
Optimists will point to a likely rise in
household consumption growth over the
next year. Over the past year the
Treasury has noted that spending has
been in line with the longer term trend.,
despite natural disasters, anxiety over the
global economic turmoil and declining
global growth. Optimists now predict that
household consumption will increase as
they become less cautious. Employmentgrowth is expected to increase at 1.25
per cent next year, pointing to a peaking
unemployment rate. Furthermore, it is
likely that the Reserve Bank will cut the
cash rate again during 2012.
Looking ahead to the most recent surveyon consumer sentiment in April 2012, out
of the five states measured for the Index,
sentiment was highest in South Australia
at 103.8 points. This score equated to a
monthly increase of 20.4 per cent.
Western Australia recorded a 3.4 per cent
decrease over the month to register an
Index score of 103.4 points. Pessimists
continue to outweigh optimists in New
South Wales (92.2 points), Queensland
(91.1 points) and Victoria (93.2 points).
However, Queensland resisted the trendof declining sentiment by recording an
increase of 5.0 per cent over the month.
ConfidenceSentiment strongest in South Australia
Australian Consumer Sentiment
Graph (right):
The Consumer Sentiment Indexindicates short-run changes toconsumer willingness topurchase goods in theforthcoming quarter.
The Index is based on a monthlysurvey of 1,200 Australianhouseholds conducted by theMelbourne Institute andWestpac.
It represents current and future
perspectives of the broadeconomic climate andhousehold financial state.
Australian Consumer Sentiment
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ConsumerSentimentIndex
Au str al ia n C ons ume r S en ti me nt Ind ex S ix Mo nt h Mo vi ng Av er ag e
Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012
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Confidence decreased over the March2012 quarter, to record -1.2 index points
on the NAB Quarterly Index, equating to
a fall of 2.6 points. The double cut to the
official Cash Rate by the RBA in the
fourth quarter of 2011 appears to have
had only a temporary affect on business
confidence, which did not carry through
to the New Year. Considering the
persistent concerns with the European
debt crisis and sluggish US recovery, the
Index result is not overly pessimistic, but
is nevertheless still below the longer-term10 year average of +5.1 points
Over the March 2012 quarter, business
confidence fell in most states, but
increased dramatically in Western
Australia (up 11 points). Victoria
decreased the most at -6 points, while
New South Wales, Queensland and
South Australia all registered a fall of 1.0
Index point in confidence. Confidence is
now weakest in Victoria and Tasmania,
while slightly negative in the remainingstates.
Confidence improved over the March2012 quarter in mining and recreational
services, while a rapid deterioration was
felt in wholesale and retail. Most
industries are expecting a contraction in
activity over the June 2012 quarter.
Confidence is weakest in the wholesale
and transportation & utilities, followed by
manufacturing and retail.
The Business Conditions Index marginally
increased by one point to +1 in the March
2012 quarter. Trading conditions arereported to be stronger, but employment
remains subdued. This suggests the
economy is effectively moving sideways.
According to a recent report from ASIC,
the number of corporate insolvencies hit
a 14 year high in February, with retail,
tourism and the construction sectors the
hardest hit.
Confidence cont.Business confidence improves in 2012
Business Confidence Graph
(right):
The Business Confidence Indexindicates expectations ofbusiness conditions for theupcoming quarter.
The Index is based on a surveyof approximately 900 small tolarge businesses in the non-
farm sectors and is conductedby the National Australia Bank(NAB).
Business Confidence
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Indexvalue
Quarter
ImprovingConfidence
Prepared by PRDnationwide Research
Source: National Australia Bank (NAB), last updated Apr-12
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The March 2012 CPI figures recorded anannual change of 1.6 per cent, which
equates to a dramatic decrease from the
previous quarter of 3.1 per cent, and is
well below the RBA target range of two
to three per cent.
The underlying inflation figure, as
measured by the RBA removes volatile
items such as fruit and fuel, remains
inside the target range but has increased
marginally from the September 2011
quarter by 0.2 per cent to 2.5 per cent asat the end 2011.
Global financial and commodity markets
have improved as a result of the
European Central Bankss decision to
further add substantial liquidity into the
banking system (increasing the bail-out
by 200 billion). Improved employment
data from the US has also assisted in
reducing market volatility and despite
several emerging economies slowing in
2011 (such as China), the outlook for2012 looks favourable. The NAB
predicts GDP to remain at 3.25 per cent
in 2012 and 2013, equating to low
pressure on core inflation between 2.2
per cent to 2.5 per cent.
Surprisingly, the official Balance of Traderecorded a deficit of $673 million in
January, down from a $1.3 billion surplus
in December. This was a result of an
immense 8.0 per cent drop in exports,
mainly focused around the large falls in
the volume of iron ore (down 21 per cent)
and coal (down 9 per cent). It is
anticipated that exports have improved
over February, leading back into a trade
surplus.
Macroeconomic ClimateWeak inflationary pressure over 2011
Inflation Graph (right):
Inflation is measured as achange in the Consumer PriceIndex (CPI), calculated by theAustralian Bureau of Statisticsas the price of a weighted'basket' of goods and serviceswhich account for a highproportion of expenditure bymetropolitan households.
The Reserve Bank of Australia(RBA) aims to constrain inflation
in a long-run target range of 2-3% through the setting ofinterest rates.
Inflation
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Al l g rou ps E xc lud in g v ol ati le i tem s
Reserve Bank's Target Range
Prepared by PRDnationwide ResearchSource: ABS Cat 6401, last updated May- 2012
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The RBA has painted a rosy picture onthe Australian economy. The possibility of
a catastrophic outcome in Europe has
receded, global activity on the whole has
picked up, while Australian growth is
close to trend and inflation near target.
This combined with the depreciation of
the Australian Dollar had led the RBA
adopting a wait and see approach over
the first quarter of 2012. Largely due to
the significant drop in inflation at the end
of April, the RBA decided to cut the
official Cash Rate by 50 basis points to3.75 per cent.
While the RBA has kept rates on hold
over the beginning of 2012, the major
banks have mostly increased their
lending rates by around 0.1 per cent,
after several banks decided not to follow
the official Cash Rate due to higher
overseas lending costs. The ANZ was the
latest bank to raise their lending rates
independently. CLSA has stated that the
cost of funds for the banks will likelycontinue to rise. So far, the standard
variable home loan rate has remained at
7.4 per cent for the month of March
2012, but is expected to fall with the
amount dependant on how much the big
banks decided to pass on.
The RBA has consistently said bankshave just cause when they argue their
margins have been eroded by rising
funding costs. The RBA takes this into
account during its own rate deliberations.
The RBA has also stated that official rate
would be a full percentage point higher if
the banks had simply been passing on
official rate movements.
The Federal Budget seeks to encourage
foreign bank competition to directly target
the big four Australian banks. The rate ofinterest withholding tax (IWT) paid by
foreign bank branches which borrow
from their overseas head office will fall
from 5.0 per cent to 2.5 per cent in 2014-
15, and then be phased out entirely in
2015-16. Meanwhile, the IWT for other
financial institutions that borrow from
foreign financial institutions or offshore
retail deposits will fall from 10 per cent to
7.5 per cent in 2014-15, and 5.0 per cent
in 2015-16. The government says the
measure will help local subsidiaries andbranches of foreign banks to access
cheaper offshore funding from their
parents, ultimately putting more
competitive pressure on the major banks.
Macroeconomic Climate cont.Rate cut in May expected
Housing Loan Interest Rate
Graph (right):
The housing loan interest rate isthe average rate of interestbeing offered by housing
lenders. It is higher than theRBAs target cash rate due to
lending costs and profitmargins.
Interest rates are set by theRBA, who acts independently ofgovernment and sets interestrates with the goal ofmaintaining inflation in a long-run target range of 2% and 3%.The RBA meets monthly toreview the current interest rate
and is only required to justify itsdecision if it chooses to alter therate.
Housing Loan Interest Rate
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Apr-12 S
tandardBankHousingLoanInterestRate%
MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F05, last updated May-2012
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As foreseen in the earlier edition of thisreport, there has been lower Chinese
economic growth, with commodity prices
reaching a peak. This has resulted the
Australian terms of trade decreasing,
resulting in a lower AUD. During the
month of April 2012, the Australian Dollar
Exchange Index only increased
marginally by 0.1 per cent to register an
Index value of 77.0, while decreasing 2.4
per cent over a 12 month period.
The Treasury expects Australianconsumers will take advantage of the
strong Australian dollar by spending
more on overseas travel and imported
consumer goods. Import volumes are
likely to rise by 7.5 per cent in 2012-13
and by 5.5 per cent in 2013-14.
The NAB Export Index has increased inMarch by 3 points to record an Index
score of zero, its highest level since July
2011. This was led by manufacturing (up
15 points) and aided by the softening in
the Australian Dollar.
The Australian Dollar continues to be
above parity with the US Dollar since
September 2011, but has only
appreciated by 0.5 per cent over the
month of April 2012. Over the 12 month
period ending April 2012, the AustralianDollar has depreciated the most against
the Chinese Renminbi (down 6.8 per
cent), while appreciating the most to the
Euro (up 7.4 per cent).
The strength of the Australian Dollar is
proving to be a handicap for exporters of
transformed manufactured goods, and
for firms that sell services, such as
tourism and education-related travel to
foreigners.
Foreign ExchangeAustralian Dollar subsides
Trade Weighted Exchange Rate
Index (right):
The trade weighted exchangerate index is compiled monthlyby the Reserve Bank and ranksthe Australian dollar against thecurrencies of our significanttrading partners.
Exchange rates directly affectthe prices of our exports inforeign trade dollars.
Trade Weighted Exchange Rate Index
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TradeWeightedIndex
MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin F11, last updated May-12
ImprovingAffordabilityof Imports
Apr-11 Apr-12 % Change
EU Euro 0.73 0.79 7.4%
JP Yen 88.91 83.77 -5.8%
NZ Dollar 1.36 1.27 -6.5%
UK Pound 0.65 0.64 -1.9%
US Dollar 1.09 1.05 -4.1%
Source: RBA Bulletin F11
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In dollar value terms, the nationexperienced an increase of 2.7 per cent
to the average petrol price during the
month ending March 2012. The average
price Australians pay at the pump
increased to $1.50 per litre. During the
year petrol prices increased at an
average rate of 4.4 per cent across the
nation.
Melbourne continues to be the capital
city where motorists pay the least but is
now joined by Canberra at $1.46 perlitre. Melbourne experienced 5.8 per cent
increase over the quarter, while Canberra
increased at 0.8 per cent. In Darwin
consumers continue to pay the most at
$1.57 per litre, followed closely by Hobart
at $1.55.
Over the three month period ending
March 2012, all other capital cities
experienced an increase to petrol prices
with Perth increasing the most at 7.2 per
cent. This was followed by Brisbane (6.3per cent), while Adelaide increased by
5.8 per cent.
During the course of the 12 monthperiod, Adelaide petrol prices increased
the most at 7.3 per cent, while Canberra
increased the least at 2.2 per cent.
Despite demand for fuel falling in both the
US and Europe, prices are expected to
keep rising. Demand has risen
substantially in the Americas and in Asia
(mainly China) with several global
refineries recently closing, cutting supply
at a crucial time during the Iran trade
sanctions.
Fuel PricesFuel prices expected to increase over winter
Retail Fuel Prices Graph (right):
Sourced from Fueltrac, thischart tracks the average retail
price for unleaded petrol acrossa broad range of suppliers inmetro areas.
Retail Fuel Prices
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AverageRetailPriceofULP
Month
Brisbane Melbourne Sydney
Prepared by PRDnationwide ResearchSource: AAA/Fueltrac, last updated May-2012
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During the month of April 2012, theCommodity Price Index increased by 0.4
per cent to reach 99.5 points. When
compared to the previous year, the Index
has fallen by 5.2 per cent. Commodity
prices are still above the longer-term 10
year average of 71.8index points.
The town of Dysart, Queensland has
been rocked with the news that BHP
Billiton will close this Norwich Park coal
mine. The impact of floods, rising
production costs and softening coal
prices were cited as the principal reasons
for the mine closure. Although the town
of Dysart supports seven mines, the
closure still delivers a timely reminder of
the boom to bust challenge that many
regional towns face. Comparisons have
been made to the town of Ravensthorpe,
Western Australia, in which the BHP
Billiton nickel mine closed in January
2009. This mine was only opened in
2008 with a predicted life span of 21
years and the closure meant a direct loss
of 1,800 jobs.
The last financial year approximately $86
billion in revenue was registered from the
mining services sector. This is expected
to increase by 17 per cent this year.
Deloitte Access Economics estimates
that there is $189 billion in investment
being spent with a further $217 billion on
projects within the industry awaiting
approval.
The International Monetary Fund (IMF)
has played devils advocate and stated
that the uncertainty in the global marketscombined with the slowdown in the
emerging economies (such as China) has
softened demand on commodities. The
IMF believes that price growth in the
commodity market will not reach the
highs experienced in 2011. Copper
prices have contracted to a three month
low, and the price for coal has also
declined, while iron ore remains stable.
Australia could face a large balance of
payments deficit if a sharp slow-down in
China results in a drop in export earnings
while imports of capital goods soar as
resource companies complete their major
investment projects. According to the
latest budget projections, Australias
current account deficit is expected to
increase to 4.75 per cent of GDP in
2012-13, and to 6.0 per cent of GDP the
following year. According to Treasury, the
deterioration reflects the fact that the
trade balance is likely to fall into deficit as
miners step up their imports of foreign-
made investment equipment while export
earnings fall as a result of lower
commodity prices.
Even though commodity prices appear to
have peaked in the third quarter of 2011,
Treasury expects that our export earnings
will remain relatively buoyant in the next
two years, due to continuing strong
demand from China and India.Australias
coal and iron ore exports are likely to rise,
following major expansions in resource
projects in Western Australia and alongthe east coast.
Commodities PricesCommodity prices to fall in 2012?
RBA Commodity Price IndexGraph (right):
Primary commodities accountfor more than half of Australias
export earning.
The Reserve Banks Commodity
Price Index provides an indicatorof primary commodity pricemovements. The index includes17 commodities with separateweightings, the highest of whichare coal, gold and iron ore.
High commodity prices are oneof the primary drivers behindAustralias robust economy,
influencing real estate pricesparticularly in Western Australia,Northern Territory, NorthernQueensland and as of lateSouth Australia. Coupled withthe resource industry boom,employment and populationgrowth follow, which spursdemand for housing and rental
accommodation, particularly inneighbouring resource richregions.
RBA Commodity Price Index
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RBAcom
moditypriceindexvalue
MonthPrepared by PRDnationwide ResearchSource: RBA Bulletin G5, last updated May-12
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The national gross spend onconstruction (other than houses)
decreased during the December 2011
quarter by 2.4 per cent. When compared
to the previous quarter, the gross spend
in the December 2011 quarter was at a
similarly high level, recording just over
$26 million. The overall spend for the
year ending December 2011 was just
over $101 million, up 6.3 per cent from
the previous year.
The ABS has released recent datashowing a decline in both new housing
and major alteration spending for the
December 2011 quarter, equating to a
third consecutive decrease. The
seasonally adjusted figures decreased by
1.8 per cent to $44.5 billion. The largest
fall occurred in Queensland, with a
decrease of 4.9 per cent over the
quarter, followed by 3.9 per cent in New
South Wales. Spend for new residential
construction improved the most over the
quarter in Tasmania, by 11.7 per cent.
A recent report from the Centre forInternational Economics (CIE) has found
that new housing is the second most
heavily taxed of Australias largest
sectors, being those valued over $10
billion. The HIA has followed with a
statement that exclaims in some states
the total tax bill amounts to over 40 per
cent of the final price of new home taxes
on new housing. The taxes are a brake
on economic activity, and represent a
constraint on housing affordability and
labour productivity.
From the Federal Budget, the
government plans an allocation of $3.6
billion to duplicate the Pacific Highway, in
a 50:50 funding partnership with the New
South Wales state government. The
highway, due for completion by 2016, is
expected to improve freight efficiency
along with other initiatives including
development of the Moorebank
Intermodal Terminal in New South Wales
and the contribution of $232 million toAdelaides Torrens and Goodwood rail
project. The measures come under the
umbrella of a total of $36 billion spending
on roads, rails and ports in the six years
to fiscal 2014.
Construction MarketConstruction spend contracts while residential continues to struggle
National Construction Gross
Spend Graph (right):
The construction industry is oneof the driving areas in theeconomy, having a significantcontribution to GDP and amultiplier effect on the activity inother industries. Indicators ofprice movement of constructionoutputs will be a valuable tool ineconomic analysis.
Construction industry outputprice indexes are beingdeveloped to measure changes
over time in the price of newconstruction outputs, other thanhouses.
3.7%
1.8%
-0.1%
2.1%
4.7%
0.0%
1.5%
0.9% 1.0%
5.0%
-2.4%-3.0%
-2.0%
-1.0%
0.0%
1.0%
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6.0%
Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11
Percentagechangefrompreviousquarter
Quarter
Prepared by PRDnationwide ResearchSource: ABS Cat 1350, last updated Apr-2012
National Construction Gross Spend
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The gross spend on housing finance was$20.3 billion during the month of
February 2012. Compared to the
previous year, the total spend has
increased by 4.9 per cent, equating to $1
billion more. The spend on housing
finance has yet to reach the levels
experienced prior to the Global Financial
Crisis of 2008.
Investor spend increased slightly to just
under $7 billion, and largely follows the
greater trend established at the start of2011. For the month of February 2012,
investor financial commitment increased
by $400 million to record $6.9 billion.
During the month of February 2012,
owner occupier spend decreased by
$700 million to equate to $13.4 billion.
Approximately 33.9 per cent of the
property market is now investor financed
and is expected to increase as rental
yields across the nation continue to
become more attractive.
The seasonally adjusted number of loansfor new housing fell by 5.8 per cent in
New South Wales, 1.3 per cent in
Victoria, 2.1 per cent in Western
Australia, and 26.9 per cent in the
Northern Territory. There was a rise of 4.9
per cent in Queensland while increases
were also recorded for South Australia
(+2.8 per cent), Tasmania (+18.3 per
cent), and the Australian Capital Territory
(+7.0 per cent).
Lending for the purchase of newdwellings is down $66 million to $605
million in February, while the purchase for
established dwellings has fallen $529
million to $11.4 billion. Lending for
renovations is also down $26 million to
$341 million.
The ABS finance releases show
borrowers and lenders becoming more
cautious in early 2012. Personal finance
fell 3.8 per cent, while commercial finance
decreased 8.4 per cent in February. Thefall in commercial finance equates to four
consecutive months of decreases.
House FinanceSpending slides in the month of February
Housing Finance Commitments
Graph (right):
Housing finance commitmentstrack the volume of financecommitments made bysignificant lenders to individualsfor the purchase of housing.
This graph tracks the value ofloans approved for both owneroccupiers and investors.
Housing Finance Commitments
0
2
4
6
8
10
12
14
16
18
20
Feb-02
Feb-03
Feb-04
Feb-05
Feb-06
Feb-07
Feb-08
Feb-09
Feb-10
Feb-11
Feb-12
ValueofCommitments($billion)
Month
Owner Occupied Investment
Prepared by PRDnationwide ResearchSource: ABS Cat. No. 5609, last updated Apr-2012
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During the month of April 2012unemployment decreased to 5.0 per cent
and is on par with the longer-term five
year average. Since the turn of the year
unemployment remained stubbornly
above 5.0 per cent. When looking at the
moving annual average, the rate has
been steady at 5.1 per cent since the
corresponding period in the prior year.
For the month of April 2012, the nations
lowest rate of unemployment occurred in
the ACT at 2.9 per cent, a rate that hassignificantly decreased by 1.5 per cent
from the previous month. Tasmania
continues to have the highest rate of
unemployment at 7.5 per cent, up 0.5
per cent over the month.
Unemployment in Queensland increased
by 1.0 per cent to 5.1 per cent during the
month of April, while Victorian
unemployment also increased at 0.8 per
cent to 5.5 per cent. Unemployment in
New South Wales has remained fairly
stagnant over the month at 5.0 per cent.
The ABS Jobs Vacancies data displays a
tight labour market, with a marginal rise
of 0.7 per cent in February, following a
3.4 per cent rise in the fourth quarter of
2011. The ANZ Job Ads Index also
increased in February by 3.3 per cent,
after increasing by 7.5 per cent in
January.
The US has registered an improvedunemployment rate of 8.2 per cent while
Spain has 23 per cent of its workforce
unemployed. Another staggering statistic
is that of Spain's workforce aged 25
years or under, approximately 51 per
cent is unemployed (as well as in Greece),
36 per cent in Portugal & Italy and 30 per
cent in Ireland. France is in better shape,
but only just with one in five young people
out of work. Nicolas Sarkozy was the
eighth leader of a Eurozone member
country to have been removed from officein little over a year. Is the grass always
greener on the other side?
There is growing discontent regarding the
misleading method utilised by the ABS in
recording the official unemployment rate.
Many leading economists cite a rival
employment survey produced from Roy
Morgan Research as portraying a more
accurate rate. This research currently
puts Australian unemployment at 9.7 per
cent, almost twice that of the ABS rate.
The Federal Government has struck a
deal with GM Holden in which $275
million was spent to ensure the car
manufacture remains on Australia soil for
the next ten years. The automotive
manufacturing industry is worth $7.7
billion, with annual turnover at $160
billion. In 2012 the industry employed
59,000 people directly, representing the
largest sector of Australian
manufacturing.
Labour MarketUnemployment picks up in 2012
Unemployment Rate Graph
(right):
Unemployment is calculated asthe proportion of people in thelabour force that wereunemployed and activelyseeking work during the surveyperiod.
The labour force is defined asthe number of people agedbetween 16 and 55 who wereeither employed or activelylooking for work during thesurvey period.
This graph tracks theunemployment rate on a
monthly and moving annualaverage basis over the last 30years.
Unemployment Rate
2%
4%
6%
8%
10%
12%
Apr-82
Apr-83
Apr-84
Apr-85
Apr-86
Apr-87
Apr-88
Apr-89
Apr-90
Apr-91
Apr-92
Apr-93
Apr-94
Apr-95
Apr-96
Apr-97
Apr-98
Apr-99
Apr-00
Apr-01
Apr-02
Apr-03
Apr-04
Apr-05
Apr-06
Apr-07
Apr-08
Apr-09
Apr-10
Apr-11
Apr-12
UnemploymentRate
Month
Unemployment Rate Australia
Moving Annual Average Australia
Prepared by PRDnationwide ResearchSource: ABS Cat 6202, last updated May-12
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On the whole, the Australian SecuritiesIndex has remained stable since the turn
of the year. The Index increased its
monthly average value during the month
of April 2012 to reach 4,332 points, up
from February's average of 4,255 points,
equating to an increase of 1.8 per cent
over the month.
Equity markets could be set for further
turbulent times in 2012, as the US
economy will face its biggest fiscal
contraction ever, labeled the fiscal cliff.
Next year will see the end of the Bush tax
cuts, the expiration of the 2010-11
payroll tax cut, expiration of emergency
unemployment benefits and most
importantly, $1.2 trillion of spending cuts
that will commence automatically. It
could be a potential mix to cause another
recession in 2013.
While not normally known for producinghigh returns, Australian fixed interest
bonds have outperformed the equity
market over the past five years. A
Morgan Stanley report advises investors
to not relocate from bonds to equities as
a result of continued turbulence in the
global environment. The report is
sceptical that US growth will accelerate,
with the high price of oil a significant risk
to growth. There is substantial uncertainty
surrounding Chinas economic data while
recent data from Europe has beendisappointing.
After comments released from the
Treasury, investors would be wise to
consider mining related stocks.
Approximately 60 per cent of capital
expenditure on buildings and structures
over the past year have been mining
related, up from 29 per cent in 2003.
This has supported growth in insurance
and finance, scientific and technical
services, which have increased by 40 percent. Over the past decade, professional
and scientific equipment exports have
tripled while chemical related product
exports have increased by 60 per cent.
Stock MarketCautious times ahead for equity markets
S&P / ASX 200 Graph (right):
The S&P/ASX 200 is recognizedas the primary investablebenchmark in Australia. Theindex covers approximately 78%of Australian equity marketcapitalization. Index constituents
are drawn from eligiblecompanies listed on theAustralian Stock Exchange. Thisindex is designed to addressinvestment managers' needs tobenchmark against a portfoliocharacterized by sufficient sizeand liquidity.
The S&P/ASX Australian Index isa real-time, market capitalisationweighted index that include thelargest and most liquid stocks in
the Australian equity marketlisted on the Australian StockExchange (ASX).
S&P / ASX 200
2,500
3,000
3,500
4,000
4,500
5,000
5,500
6,000
6,500
7,000
7,500
IndexValue
DayPrepared by PRDnationwide ResearchSource: Standard & Poors, last updated May-2012
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Superannuation contributions to June2011 totalled $104.8 billion, equating to
an increase of 4.8 per cent over the year.
Employers contributed $71.4 billion (68.7
per cent) and members contributed
$32.5 billion (31.3 per cent). Other
contributions, which include spouse
contributions and government co-
contributions, totalled $0.9 billion.
Total superannuation assets increased
by 11.5 per cent during the year to 30
June 2011 to $1.34 trillion. Of this total,$810.6 billion are held by APRA-
regulated superannuation entities and
$407.6 billion are held by self-managed
superannuation funds (SMSFs), which
are regulated by the ATO. The remaining
$117.0 billion comprises exempt public
sector superannuation schemes ($80.9
billion) and the balance of life office
statutory funds ($36.1 billion).
There is an increasing trend of more
retirees shifting their pension funds into aself-managed superannuation fund. As
Australians reach retirement, they have
more time available to manage their
superannuation. Between 2007 to
2011, the ATO reported that the number
of SMSFs increased by 31 per cent.
Currently, superannuation is a $1.3 trillion
industry.
There is a growing debate on whethersuperannuation funds should increase
the portion of bonds at the expense of
shares. Typically Australian pension funds
have a high share allocation with a low
bond allocation, at 50 per cent to 18 per
cent. When observing longer-term
periods, shares have tended to return a
higher return (of 11.9 per cent) than
bonds (6.0 per cent).
The Federal Budget shows plans to
increase the superannuation guarantee to12 per cent by 2019-20, a measure that
will boost retirement savings by $500
billion by 2037. Also among
superannuation reforms funded by MRRT
revenue, a higher concessional
contributions cap will be available for
older Australians with super balances
below $500,000, from July 1, 2014.
Government will reduce the super tax
break on concessional contributions for
the top 1 per cent of earners. Around
128,000 people earning over $300,000per annum will have the tax break on their
super contributions cut from 30 per cent
to 15 per cent. Tax receipts from
superannuation funds are expected to
grow by 10.9 per cent, to $711 million, in
fiscal 2012, and by 11.3 per cent, to
$820 million, in the following year.
SuperannuationSMSFs become popular with baby boomers
Superannuation Contributions
Graph (right):
The APRA AnnualSuperannuation Bulletincomprises statistics on thesuperannuation industry whichhave been prepared from thefollowing sources:
I. superannuation returnssubmitted to APRA
II. data from quarterly returnssubmitted to APRA by selectexempt public sector
superannuation schemes inAustralia.
III. data provided by the ATO onself-managed superannuationfunds
IV. returns submitted to APRAunder the Life Insurance Act1995 by registered lifecompanies in Australia
V. returns submitted to APRA byretirement savings account(RSA) providers
Superannuation Contributions
$0
$20,000
$40,000
$60,000
$80,000
$100,000
$120,000
$140,000
$160,000
$180,000
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
TotalContributions($million)
Financial Year
Employer Member Total Contributions
Prepared by PRDnationwide ResearchSource: APRA Bulletin, last updated Apr-12
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The Home Loan Affordability Index hascontinued to increase since the June
2011 quarter, with affordability increasing
by a further 0.6 points in the December
2011 quarter to an Index score of 30.4
points.
Over the quarter the states were divided
in changes to affordability, with Victoria,
Queensland, Western Australia and
Tasmania all experiencing increasing in
the Index. New South Wales, South
Australia, the ACT and the NorthernTerritory all experienced declines in the
Index. The state that experienced the
largest growth in affordability was
Victoria, increasing by 2.1 per cent over
the quarter. The ACT experienced the
largest decrease at 2.3 per cent to
register 53.7 points.
On average, Australian households now
need approximately 32.9 per cent of the
family income to service their home loan.
New South Wales continued to be theleast affordable state, with households
requiring 37.9 per cent of the family
income to service their home loan,
equating to 5.0 per cent above the
national average.
Queensland families requireapproximately 31 per cent of the average
family income to service the average
home loan, while Victoria requires 33.1
per cent. The ACT requires the least
amount, with 18.6 per cent of the
average income. According to the REIA,
the proportion of family income needed to
meet the average rental payment has
increased slightly during the December
2011 quarter to 24.9 per cent.
The Real Estate Institute of NSW(REINSW) has tried to source an
innovative way to stimulate the market by
urging the state government to allow first-
home buyers to pay off their stamp duty
over three years rather than in one
upfront lump sum.
Home AffordabilityAffordability on the way up
Home Loan Affordability Index
Graph (right):
The Home Loan AffordabilityIndex measures average loanrepayments against medianwages and tracks these valuesover time.
Continued price growth in theproperty market without anaccompanying rise in incomesaw a long period of decline inthe home loan affordability indexacross the nation.
The Home Loan Affordabilityindex commenced its rapiddescent during 2002. After ashort leveling between 2004 and
2006, affordability levels haveagain continued to trenddownwards.
Home Loan Affordability Index
20.0
30.0
40.0
50.0
60.0
70.0
Dec
-81
Dec
-82
Dec
-83
Dec
-84
Dec
-85
Dec
-86
Dec
-87
Dec
-88
Dec
-89
Dec
-90
Dec
-91
Dec
-92
Dec
-93
Dec
-94
Dec
-95
Dec
-96
Dec
-97
Dec
-98
Dec
-99
Dec
-00
Dec
-01
Dec
-02
Dec
-03
Dec
-04
Dec
-05
Dec
-06
Dec
-07
Dec
-08
Dec
-09
Dec
-10
Dec
-11
Indexvalue
Quarter
ImprovingAffordability
Prepared by PRDnationwide ResearchSource: REIA / Deposit Power, last updated Apr-2012
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The total number of dwellingcommencements drastically decreased
during the December 2011 quarter by
8.6 per cent, equating to 3,245 less new
homes for the quarter. When compared
to the previous year, commencements
have decreased by 13 per cent.
On a state-by-state basis, Victoria
continued to record the highest number
of dwelling commencements during the
December quarter, representing 35 per
cent of all dwellings commencednationally. New South Wales followed
with 22 per cent and Queensland
contributed with 17 per cent of
commencements.
The least amount of dwellings
commenced for a state during the
December 2011 quarter was the
Northern Territory (down 21.7 per cent to
260), followed by Tasmania (up 16.7 per
cent to 637).
Larger Australian developers havecommented on the amount of green
tape put in place by the Federal
Government to overcome, costing
millions of dollars. Requests have been
made for the environmental approval
process to be given back to State
Government, in an attempt to streamline
the process.
The latest figures to be release by the
ABS have shown that building approvals
has increased by 7.4 per cent over themonth of March 2012. New South Wales
lead the way, with an increase in multi-
residential units of 49.3 per cent. Dwelling
approvals increased in Western Australia
(up 11.1 per cent) and South Australia (up
4.2 per cent) but decreased in
Queensland (down 8.7 per cent),
Tasmania (down 6.7 per cent) and
Victoria (down 5.0 per cent). The number
of dwellings approved are still 15 per cent
below from the previous year.
Dwelling MarketNew dwellings plummet
Dwelling Commencements
Graph (right):
Dwelling commencementsindicate the number of newdwellings that have commencedtheir construction phase.
A moving yearly average is usedto filter out seasonal fluctuationsin the number of dwellingscommenced.
Nationally, the annual number ofdwelling commencements havebeen on a downward trendsince Sep-04 (earlier in NSWand VIC).
Dwelling Commencements
25,000
30,000
35,000
40,000
45,000
50,000
55,000
Dec-95
Dec-96
Dec-97
Dec-98
Dec-99
Dec-00
Dec-01
Dec-02
Dec-03
Dec-04
Dec-05
Dec-06
Dec-07
Dec-08
Dec-09
Dec-10
Dec-11
MovingAnnualAvg.of
Commencements.
Quarter
Dwelling Commencements Australia
Annual moving average
Prepared by PRDnationwide ResearchSource: ABSCat.No. 8750, last updated Apr-2012
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Over the March 2012 quarter, the Timeto Buy a Dwelling Index significantly
decreased in the two mining related
states while South Australia, New South
Wales and Victoria all experiencing an
increase in the Index. The mining boom
states of Queensland and Western
Australia experienced dramatic
decreases of 13.4 per cent and 22.4 per
cent respectively.
For the month of March 2012 South
Australia registered the highest indexvalue at 138.5 points, but was followed
closely by Queensland at 129.5 and
Victoria at 121.2 points. This represents
an increase from the previous quarter of
19.9 per cent for South Australia, a fall of
13.4 per cent for Queensland and an
increase of 3.1 per cent increase for
Victoria.
According to the Westpac-MelbourneInstitute Survey of Consumer Sentiment,
family financial conditions deteriorated
over the 12 month period ending April
2011 in four of the five measured states,
with the largest decline felt in New South
Wales (down 29.8 per cent) and Victoria
(down 27.7 per cent). Queensland
experienced a decline of 12.3 per cent,
while South Australia fell 17.2 per cent.
The only state to improve its family
financial condition was Western Australia,
by 35 per cent. Indications for the coming12 months show a strong decrease in
Queensland (down 19.9 per cent) while
South Australia could rise by 8.2 per
cent.
Dwelling Market Cont.Mining states decrease in the Time to Buy a Dwelling Index
Time to Buy a Dwelling Index
Graph (right):
The Time to Buy a DwellingIndex indicates short-runchanges in consumer sentimentregarding whether it is a goodtime to buy a dwelling.
It is a component of the
Melbourne Institutes ConsumerSentiment Index which isundertaken monthly.
Time to Buy a Dwelling Index
40
60
80
100
120
140
160
180
Mar-02
Mar-03
Mar-04
Mar-05
Mar-06
Mar-07
Mar-08
Mar-09
Mar-10
Mar-11
Mar-12
MovingannualaverageofTimetoBuyaDwellingIndex
Moving Annual Average
NSW VIC QLD WA SA
Prepared by PRDnationwide ResearchSource: Westpac/Melbourne Institute, last updated Apr-2012
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According to the ABS House Price Index,all capital cities, except Darwin,
experienced a decline in value over the
12 month period ending March 2012.
On average, property values have fallen
by 4.5 per cent, with the largest declines
felt in Hobart (-6.7 per cent) Melbourne (-
6.6 per cent) and Sydney (-4.6 per cent).
Brisbane and Adelaide only experienced
a slight decrease of 3.7 and 3.6 per cent
respectively, with Perth decreasing by
1.7 per cent. Darwin experienced an
increase of 3.5 per cent, while Canberraremained fairly stagnant over the year,
decreasing by 0.5 per cent.
When observing changes in home values
over the quarter, green shoots appear in
Canberra, Brisbane, Darwin and Perth,
as marginal, but still positive growth was
recorded, while the rate of decline in the
other capital cities increased on the
December quarter.
According to the RPData-Rismark HomeValue Index, Canberra was the best
performing capital city over a 12 month
period ending in April 2012, by only
experiencing a softening in the Index of
0.72 per cent to $577,820. This was
followed by Darwin, experiencing a
decrease in the Index by 1.10 per cent, to
$479,330. According to the Index, the
largest decline was felt in Hobart,
recording a 8.47 per cent fall in the Index
to $326,490.
Home PricesHome values fall in 2011
ABS House Price Index Graph
(right):
The chart to the abovemeasures the annual change in
house prices in the capital cities,together with the weightedaverage of the eight capitalcities.
ABS House Price Index Change by Capital City
-4.6
-6.6
-3.7
-3.8
-1.7
-6.7
3.5
-0.5
-4.5
-1.8
-2.2
0.4
-0.9
1.1
-2.7
4.4
1.2
-1.1
-8 -6 -4 -2 0 2 4 6
Sydney
Melbourne
Brisbane
Adelaide
Perth
Hobart
Darwin
Canberra
Average of all capitals
Change in house price index (%)
CapitalCity
March 2012 Quarterly Change
March 2012 Annual Change
Prepared by PRDnationwide ResearchSource: ABS Cat 6416, last updated May 2012
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The Australian average vacancy rate
remained steady at 2.5 per cent over the
most recent December 2011 quarter.
Sydney remains the tightest rental market
with a 1.6 per cent vacancy rate, followed
by Canberra at 1.9 per cent.
Three capital cities experienced a
marginal decrease in vacancy rates over
the quarter, with Perth leading the way at
a drop of 0.5 per cent, followed by
Melbourne (-0.4 per cent) and Canberra
(-0.2 per cent). The rate increased the
most in Adelaide, by 0.3 per cent and now
has the highest vacant rate at 3.4 per
cent.
Darwin maintains the highest median
rental price for a standard three bedroom
house at $523 per week, despite this price
decreasing by 4.0 per cent over the
quarter ending December 2011. Adelaide
remains the most affordable city to rent in,
with a median rental price of $320 per
week.
Rental prices for a standard threebedroom house in Melbourne, Brisbane
and Adelaide have remained steady over
the December 2011 quarter. Rental prices
in Sydney and Perth increased by 5.0 per
cent, while Hobart experienced an
increase of 3.0 per cent. The Australian
capital city average increased to $397 per
week, equating to a 1.2 per cent shift over
the quarter.
According to the Australian Property
Monitors Rental Price Series, the national
median weekly asking rent for houses
increased by 1.1 per cent over the
December 2011 quarter, with units
increasing by 1.4 per cent.
Rental MarketCapital city vacancy rate stabilises
Quarterly Vacancy Rates Graph
(right):
An industry benchmark forvacancy rates is considered tobe 3%. Vacancy rates lowerthan 3% indicate strongdemand for rental
accommodation, whilst rateshigher than 3% reflect anoversupply of rentalaccommodation.
Quarterly Vacancy Rates
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
4.0%
SydneyMelbourneBrisbaneAdelaidePerthHobartDarwinCanberraAus Average
QuarterlyVac
ancyRate
Capital City
Dec-10 Dec-11
Dec-11 Average 2.5%
Prepared by PRDnationwide. Source: REIA
Last Updated Apr- 2012
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The Property Councils latest Office
Market Report shows Australias office
vacancy dropped from 9.0 per cent to
7.9 per cent during the six months to
January 2012.
Perth CBD is now has the lowest level
amongst the major Australian CBDs with
a vacancy rate of 3.0 per cent, followed
by Melbourne CBD and Hobart CBD at
5.0 per cent.
The Brisbane CBD experienced thelargest net absorption in the 12 months
to January 2012, at 92,140 sq. m,
followed by Perth CBD at 80,054 sq. m.
The vacancy rate by grade increased only
in Premium Grade (up 2.8 per cent to 5.1
per cent), with all other grades
experiencing a decrease (an average fall
of 1.1 per cent) in the vacancy rate.
Office MarketOffice vacancy rates continues to decline
National Office Vacancy Rate
7.9
10.3
0
5
10
15
20
25
Jan-90
Jul-90
Jan-91
Jul-91
Jan-92
Jul-92
Jan-93
Jul-93
Jan-94
Jul-94
Jan-95
Jul-95
Jan-96
Jul-96
Jan-97
Jul-97
Jan-98
Jul-98
Jan-99
Jul-99
Jan-00
Jul-00
Jan-01
Jul-01
Jan-02
Jul-02
Jan-03
Jul-03
Jan-04
Jul-04
Jan-05
Jul-05
Jan-06
Jul-06
Jan-07
Jul-07
Jan-08
Jul-08
Jan-09
Jul-09
Jan-10
Jul-10
Jan-11
Jul-11
Jan-12
VacancyRate%
National Vacancy Rate Historical Aver age
Source: Property Council of Australia / PRDnationwide Research
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Over the quarter ending September2011, the Australian rate of population
growth increased slightly by 0.33 per
cent to 1.29 per cent, equating to 75,421
new residents. Although the increase in
the growth rate is marginal, the outcome
is the first increase to the population rate
since September 2009 and equates to
288,300 new residents over the year.
The growth rate in Western Australia
continues to increase, with an annual
increase of 2.63 per cent (up from 2.18per cent), equating to 60,690 new
residents. Victoria registered the highest
number of new residents with 73,770
during the 12 month period ending
September 2011. This is just above
Queensland with 67,093 new residents
and New South Wales with 64,117.
The Northern Territory has registered the
slowest population growth at 0.44 per
cent for the 12 month period ending
September 2011. This represents anincrease of only 1,006 new residents for
the state. Tasmania was not far behind,
recording only 0.48 per cent growth
(2,418 new residents) during the twelve
month period.
The rate of the natural increase in theAustralian population has decreased, with
3,366 less net newborns over the
September 2011 quarter than the
previous year, equating to fall of 9.3 per
cent. The sharp rate of decline in the
number of immigrants entering Australia
over the past year has stopped, with
Australia realising two consecutive
quarters of an increase in the rate of net
international migrant growth. The most
recent quarter experienced a 5.2 per cent
increase from the previous year. Over theSeptember 2011 quarter, the slight
majority of the overseas migrants tended
to take up residence in New South Wales
(25 per cent), followed by Victoria (24 per
cent) and Western Australia (24 per cent).
DemographicsNatural increase appears to have peaked
Population Growth Graph
(right):
Population change tracks thechange in population across thestates and territories of
Australia. Population growth isseen as the key driver ofdemand for housing.
Population Growth 2006 v 2011
1.4%
1.9%
2.4%
1.1%
2.9%
0.8%
1.8%
1.9%
1.8%
0.9%
1.3% 1
.5%
0.7%
2.6%
0.5%
0.4%
2.0%
1.3%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
N
SW
VIC
Q
LD
SA
WA
T
AS
NT
A
CT
AU
ST
Annualpercentagechange
State
Annual Percentage change over five years
Annual % change year ending Sep-11
Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3101, last updated Apr-2012
Australian average 1.3%
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The number of net migrants enteringWestern Australia continued to increase
at an exponential rate of 66.6 per cent
over the 12 month period ending
September 2011. The state recorded a
net 2,002 new residents, which equates
to the second largest number of net
residents entering a state (behind
Queensland).
Queensland net migration has increased
once again, with 2,665 new interstate
migrants during the September 2011quarter. This high level of growth has not
been experienced since the December
2009 quarter.
The rate of interstate migrant growth has
slowed in Victoria over the September
2011 quarter. Approximately 259 net
migrants decided to call Victoria home,
equating to the smallest amount since
September 2009.
New South Wales still records the highestoutward migration of residents
nationwide and until recently, this rate
was in decline. However this rate has
increased again, with the September
2011 quarter registering an outward net
migration of 3,786 residents.
South Australia continued to lose
residents, with 693 net residents
departing during the quarter, while the
ACT increased a net 45 interstate
migrants.
Demographics Cont.Western Australia proves to be popular
Net Interstate Migration Graph
(right):
Net interstate migration tracksthe net population change ineach state attributable tointerstate migration.
Net interstate migration figures
fluctuate with the seasons, so amoving yearly average is shownto filter out these changes.
Net Interstate Migration
-15,000
-10,000
-5,000
0
5,000
10,000
15,000
Sep-85
Sep-86
Sep-87
Sep-88
Sep-89
Sep-90
Sep-91
Sep-92
Sep-93
Sep-94
Sep-95
Sep-96
Sep-97
Sep-98
Sep-99
Sep-00
Sep-01
Sep-02
Sep-03
Sep-04
Sep-05
Sep-06
Sep-07
Sep-08
Sep-09
Sep-10
Sep-11
AnnualAvg.ofNumberofPersons.
Quarter
NSW
VIC
QLD
WA
Prepared by Colliers International and PRDnationwide ResearchSource: ABS Cat 3401, last updated Apr- 2012
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After retail expenditure declined at theend of 2011 (over the build-up to the
holiday season), the first two months of
2012 recorded stronger growth, albeit
only marginal. January recorded an
improved 0.3 per cent from December,
with February continuing to add a further
0.2 per cent.
Over the 12 month period ending
February 2012, Australias annual
change in retail expenditure increased
2.03 per cent from the previous year, butremained fairly flat during the month
itself.
Western Australia continued to incur the
greatest increase in retail spending over
the 12 month period ending February
2012, with an 8.2 per cent surge,
followed by Victoria at 3.2 per cent. New
South Wales was the only state to
experience less spending for retail from
the previous year, at -0.4 per cent.
The largest growth in expenditureoccurred in other retailing, registering an
annual growth of 6.6 per cent. This was
followed by other cafes, restaurants and
takeaway food which registered an
annual growth of 5.0 per cent.
Department stores experienced a
softening of 2.8 per cent from the
previous year, while clothing and soft
good retailing also softened by 1.5 per
cent.
Australian households spent on average
$5,100 each on Chinese-made product
last year (up 16 per cent). This was
mainly focused on telecommunications
equipment, clothing and computers.
Retail TradeModest consumer spending set for 2012
Annual Change in Retail
Expenditure Graph (right):
Retail spending figures areestimated by the ABS based onthe Retail Business Surveyconducted monthly amongst4,350 retail and selected servicebusinesses.
The annual change in retailspending indicates how activeconsumers are in themarketplace and the degree towhich consumers are willing tospend.
The seasonally adjusted figures
are used to smooth outseasonal factors associated withthis data.
Annual Change in Retail Expenditure
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
Mar-02
Jun-02
Sep-02
Dec-02
Mar-03
Jun-03
Sep-03
Dec-03
Mar-04
Jun-04
Sep-04
Dec-04
Mar-05
Jun-05
Sep-05
Dec-05
Mar-06
Jun-06
Sep-06
Dec-06
Mar-07
Jun-07
Sep-07
Dec-07
Mar-08
Jun-08
Sep-08
Dec-08
Mar-09
Jun-09
Sep-09
Dec-09
Mar-10
Jun-10
Sep-10
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Annualpercentagechange
MonthPrepared by PRDnationwide ResearchSource: ABS Cat No: 8501.0 Seasonally adjusted figures last updated May-2012
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The government has upheld its promiseto return the federal budget to surplus in
2013, through the largest budget
turnaround in over 50 years, despite a
larger than expected deficit forecast for
the current year. Originally it was thought
that the surplus would come from
'saving' its way out of deficit, but when
scrutinised it hasnt, only managing to
find $4.7 billion in savings in this budget
while increasing $39.6 billion in tax
revenues. A large portion of the new
revenue derives from the carbon tax.Overall, this appears to be a big taxing,
big spending budget, with an increase
spending by $201.2 million, culminating
from a total of 284 separate increases in
spending in the budget.
One difference between Australia and the
US is demonstrated in the 2012-13
Australian budget. In the 2012
Presidential election campaign, Mitt
Romney desires to cut US taxes to 25
per cent while President Obama wantsthem cut to 28 per cent. The Australian
government was planning a 1.0 per cent
reduction in company tax and was
expecting consequent growth dividends
to benefit all Australians and reduce
unemployment. The company tax cut
was to come out of the revenue that the
government speculates can be raised
from the mineral resources tax. The
corporate tax cut was rejected by the
opposition who plan to abandon the
resources tax. The government hasresponded by not cutting corporate tax,
so the Australian company tax rate will
stay at 30 per cent. That will boost the
budget bottom line by $300 million in
2012-13, $1.2 billion in 2013-14, and
$1.55 billion in 2014-15. Total money
that the 1.0 per cent tax cut would have
returned to the corporate sector over
four years was $4.5 billion.
So where will the revenue be generatedfrom? The Treasury is expecting higher
than normal tax receipts for starters. Tax
receipts usually grow by about 8 per cent
a year, a result of fiscal drag (taxpayers
moving into higher marginal brackets),
but this years increase is expected to be
11 per cent.
The resources sector of the economy is
expected to grow at around 8.5 per cent
from fiscal 2012 to 2014. In comparison,
the non-resources part of the economy isexpected to grow at a below-trend
average annual rate of 2.0 per cent over
the next two years, with a high Australian
dollar and shifts in household spending
attitudes towards debt assisting the
disparity. However, iron ore and coal
companies arent expecting to pay any
Minerals Resource Rent Tax (MRRT), so
the $3.5 billion budgeted from that in
2012-13 could be a challenge, with the
remaining increase dependant on
economic growth of 3.25 per cent. TheTreasury expects carbon permit money to
provide $4.02 billion in the coming
financial year, followed by an estimated
$6.61 billion in 2013-14. Yet the two
major contributors to income (the carbon
tax and the claimed mineral resources tax
revenue) are both measures that the
opposition has guaranteed to drop.
Where does the Treasury plan its
expenditure? In total, welfare payments,
including the school kids bonus and theextra family welfare, will increase by $4.8
billion. In the schoolyard, parents who
have combined income below $112,000
with two children will be celebrating the
kids' bonuses of $820 for a secondary
student and $410 for primary school
students (a carbon tax dividend). In
income taxes, the tax-free threshold
jumps from $6,000 to $18,200, but the
next $18,800 is taxed at 19 per cent (up
from 15 per cent), and between $37,000
and $80,000 the tax take rises from 30 to32.5 per cent.
Federal BudgetAn overview with an insight into how it affects property
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A significant change that is propertyrelated will be the removal of the Tax
Breaks for Green Buildings program.
This scheme, worth $405 million over
four years, is deemed surplus and the
Department of Climate Change's
suggestion to firms who wished to use
the old scheme is to seek low-cost
financing of energy savings measures
from the Clean Energy Finance
Corporation (CEFC) instead. The CEFC
has $10 billion to directly invest in
renewable energy or energy efficiencyprojects over the next four years.
Currently Australia has a legislated
requirement for 20 per cent of our energy
needs to be sourced from renewable
energy by 2020.
The federal government has also
allocated $29.8 million to a
Manufacturing Technology Innovation
Centre in an effort to boost the troubled
industry, which has been hit by the high
Australian dollar and reductions inpersonal and business spending
following the global financial crisis. An
additional $25 million will be spent in the
six years from 2013 on assistance for
automotive manufacturers, including $20
million on grants covering up to 50 per
cent of costs on activities intended to
expand companies customer bases or
product range.
On the whole, the budget has receivedcriticism from leading property groups in
response to the industry being largely
ignored. The Housing Industry
Association has described a lack of
initiative to boost the housing supply, the
Green Building Council was against the
scrapping of tax breaks for building
retrofits and Australian Industry Group is
negative about the focus on short term
consumption at the expense of long term
growth. The broken promises regarding
the retrofits and also company tax ratereductions has provoked poor sentiment
from the construction industry.
A shift into surplus will help ease pressure
on monetary policy and give the Reserve
Bank more flexibility to alter interest rates
than would otherwise have been the
case. In addition, its a significantly
positive message that Australia portrays
to the international scene as an
investment destination after the
governments fiscal discipline relative tointernational peers.
The announced measures allowing
companies which make losses in a given
financial year to carry back these losses
against any profits made in previous
years (and thus claim back some of the
taxes paid on profits in those years) are
particularly useful in the building industry
given the cyclical nature of the industry,
and will be especially important in helping
construction firms to survive through leanyears.
Federal Budget Cont.
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We setindustrybenchmarkswhenpartnering
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developmentarena.
PRDnationwides research division provides
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