August 4 Edition.
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A week where we have all sorts of macro-economic news dominating little Australia with the central banks in the US, UK and Japan all adjusting policy of leaving things as they are for now.
The news this week globally was a little grim.
COMMENT
· Satyajit Das
As Europe braces for the release of its bank stress tests, the world could be on the verge of another banking crisis.
The signs are obvious to all. The World Bank estimates the ratio of non-performing loans to total gross loans in 2015 reached 4.3 per cent. Before the 2009 global financial crisis, they stood at 4.2 per cent.
If anything, the problem is starker now than then: there are more than $US3 trillion ($4 trillion) in stressed loan assets worldwide, compared to the roughly $US1 trillion of US subprime loans that triggered the 2009 crisis.
European banks are saddled with $US1.3 trillion in non-performing loans, nearly $US400 billion of them in Italy. The IMF estimates that risky loans in China also total $US1.3 trillion, although private forecasts are higher. India's stressed loans top $US150 billion.
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Elsewhere we have had some Australian news suggesting that lowering of interest rates is coming soon. As of the weekend Australian 10 year bond rate is sitting around 1.83% which is close to the lowest ever while the share market seems to be going higher and higher – which makes no sense in conventional economics. Something is going to have to give and it may not be pretty – but it may take a long time for things to play out.
Australia’s circumstances are not looking all that flash this week:
by Ross Garnaut
Australia's 45th Parliament faces the most challenging economic environment for a quarter of a century. Real incomes per person have been stagnant or falling since the China resources boom began its retreat in the September quarter of 2011. Multi-factor productivity is negligibly higher than a decade ago. While real output has been growing only moderately below what were once considered to be trend rates, recent growth depends overwhelmingly on increases in resource export volumes that are outweighed by falls in prices, or on unsustainable expansion of government and housing expenditure. The official budget forecasts are built on unlikely export prices, growth and inflation rates and count as savings measures that have been rejected repeatedly by the Parliament, yet still point to continuing deficits. Budget weakness continues at a time when the vulnerability of Australian commercial banks to a closure of global debt markets is greater than during the GFC – when only the strength of the Commonwealth balance sheet allowed the banks to continue normal operations.
After two decades in which rising incomes and wealth for most Australians eased discomfort with moderately increasing inequality, the end of the resources boom has brought sharper differentiation in economic conditions across regions and amongst citizens as well as declines in real living standards for many people.
Outside Australia there is low productivity growth and business investment in all the high-income economies. Private investment tending to fall well short of savings in the developed countries and China has led to the lowest real interest rates ever, and taken the world financial system into unknown territory. There is retreat from the open movement of goods, services, capital and people that have made the past three quarters of a century the most economically dynamic time in human history. China, the world's biggest trading economy, struggles to balance short-term growth against the necessity of structural change for long term development. A difficult external strategic environment raises the spectre of unexpected burdens, including in Papua New Guinea where the significance of the collapse of the rule of law has escaped the notice of most Australians.
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Oh dear – a very important read.
Here are a few other things I have noticed.
General Budget Issues.
- The Australian
- 12:00AM July 25, 2016
Weak price growth in the June quarter is expected to provide the Reserve Bank with the excuse it needs to cut its benchmark rate to a fresh record low of 1.5 per cent next month — however, new research shows the fall in inflation around the world is predominantly driven by global forces that domestic monetary policy is powerless to address.
The June quarter inflation report, to be released on Wednesday, is expected to show the underlying rate of inflation was around 0.4 per cent which would put the annual rate at 1.4 per cent.
This would be slightly below the Reserve Bank’s forecast in its May monetary policy statement of 1.5 per cent. The minutes of the bank’s last meeting flagged that inflation was expected to remain low for an extended period given the subdued growth in labour costs and low cost pressures around the world.
The March quarter’s underlying inflation growth of only 0.15 per cent was a shock to both the Reserve Bank and to market economists and a further surprise in the June quarter remains possible.
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- The Australian
- 8:45AM July 28, 2016
Using conventional criteria the set of economic numbers that were released yesterday should have produced an Australian recession. But we have not gone into recession and indeed the share market is trading at around year-high levels and Australian dwelling prices, at least in Sydney and Melbourne, have risen. Most economists concentrate on whether there is
going to be a rate reduction next week. I am not going to get into that game because I want to look at the deeper forces — why there should have been a recession; why it didn’t happen and whether we can keep avoiding such dangers.
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In 1648 a Dutch water authority issued a bearer bond inscribed on goatskin to Niclaes de Meijer that promised to pay him 5 per cent in perpetuity to finance improvements to a local dike. The bond is now owned by Yale and, 368 years later, is still paying interest, even though the rate halved to 2.5 per cent in the 17th century.
Yale professors Geert Rouwenhorst and Will Goetzmann write that the life of such perpetual loans has typically been "cut short by imprudent financing, government recall or the misfortunes of wars and revolutions".
Here in Australia we see perpetual notes in the form of the preferred equity issued by banks, called "hybrids", that have no legal maturity (only optional refinancing periods or mandatory equity conversion dates).
These hybrids lost 40 per cent of their value during the 2008-2009 crisis. But mark-to-market investors, which represent most of us, are told to
ignore this volatility and focus on the claim that the major banks will never go bust.
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COMMENT
Ross Gittins
On the prospects for China's economy, it's easy to be wrong. We analyse unfamiliar things by comparing them with things we understand, but in its massive size and economic history, China is one of a kind.
That's one conclusion I've drawn from a visit to China as a guest of the Australia-China Relations Institute, at the University of Technology, Sydney, and the All-China Journalists Association.
In recent years people in the world's financial markets have gone from ignoring the Chinese economy to assuming it works the same way a developed economy does.
Hence the consternation in global share markets last year and again early this year when China's share market took a sharp dive. Surely this meant its economy was in big trouble.
Well, maybe, but not for that reason. China is still a developing, middle-income economy and its share market is a relatively recent creation of its government, lacking the strong links with the real economy we're used to in the West.
As Professor Peter Drysdale, of the East Asian Bureau of Economic Research at the Australian National University, has explained, the worth of China's share market is equivalent to about a third of its gross domestic product, compared with more than 100 per cent in developed economies.
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Health Budget Issues.
July 24, 20169:00pm
Belinda Merhab AAP
Frontline health services are failing to target regions with high rates of preventable hospital admissions, a new report shows.
The Grattan Institute report has found 38 areas in Queensland and 25 in Victoria where potentially preventable hospitalisations, for conditions like asthma or diabetes, have been at least 50 per cent higher than the state average every year for a decade.
It found Primary Health Networks - 31 organisations responsible for delivering local primary care services across the country - are receiving inadequate data that doesn't allow them to identify these hot spots in order to fix the problem.
"This is unacceptable really," report author Stephen Duckett told AAP.
"More has to be done."
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- The Australian
- 9:53AM July 25, 2016
Prime Minister Malcolm Turnbull will today meet with health department officials for the first time since the Coalition’s re-election bid for was almost derailed by Labor’s so-called ‘Mediscare’ campaign.
The Australian understands Mr Turnbull and his reappointed Health Minister, Sussan Ley, will meet with key bureaucrats to discuss the Coalition’s election promises and broader issues confronting the portfolio.
Neither would comment on the meeting yesterday but the Prime Minister appears keen to take a greater role in health policy and, in particular, communicating the Coalition’s plan to crossbench senators, stakeholders and the community.
Key to the Turnbull government plans this term is the trial of Health Care Homes, where patients with chronic illness enrol with a GP clinic or Aboriginal health service for regular treatment and monitoring through services funded through bundled payments.
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Michael Gannon
Monday, 25 July, 2016
THERE has been much conjecture since election night about the significance of health policy, and the use of a “scare campaign” in changing votes.
The Australian Medical Association (AMA), too, was critical of the opposition’s Medicare privatisation claims. There is, and was, no move to privatise Medicare. All that was announced, and later withdrawn, was a plan to look at outsourcing some backroom administration arrangements in the antiquated payments system, something that the AMA would still welcome and support.
Nevertheless, the political reality is that health played a major part in this election, and it was the Coalition that created and nurtured the fertile ground that allowed the scare campaign to grow and thrive.
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- The Australian
- 12:00AM July 26, 2016
Health Minister Sussan Ley last night defended the Medicare freeze and vowed to consult with medical practitioners on any changes to be made by the Turnbull government.
Promoting new models of paying for healthcare, Ms Ley reiterated that the freeze on indexation was appropriate — “If you can’t pay for something, you can’t deliver it” — and refused to say if or when it would be lifted.
Asked on ABC radio whether health policies had hurt the Coalition at the election, Ms Ley instead referred to Labor’s claims Medicare would be privatised, saying, “the Medicare lie, the outrageous lie, I’m sure it did”.
The privatisation claim arose largely from secretive government plans to upgrade the Medicare payments system and prompted an unexpected, mid-campaign pledge from Malcolm Turnbull that the system would not be outsourced.
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July 25, 20165:30pm
AMA chief wanted to hear more from Ley
THE Federal Health Minister has denied government health cuts have led to cancer patients being denied treatment after a viral Facebook status claimed pensioners were being refused scans.
“I was really concerned to read Sue’s post on the weekend, as there are no changes to Medicare-rebated diagnostic imaging services which would justify the experience she has outlined,” a spokesperson for Sussan Ley, Minister for Health and Aged Care, told news.com.au.
“Sue kindly got in touch with my office this afternoon and we are now working through her situation in a bid to address her concerns.
“Can I again make it very clear; Commonwealth bulk billing incentives for Diagnostic Imaging providers remain in place for all concession card holders and anyone under 16 now and into the future.”
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· Jeffrey Braithwaite
Some would be dissatisfied with the state government's explanation that it was a "systems failure" that tragically killed one newborn baby and seriously injured another when the wrong gas was connected to an outlet in the operating theatre of a Bankstown hospital.
But, NSW Secretary of Health Elizabeth Koff was right when she said "we failed as a system". It is systems, not individuals, that are responsible for devastating errors in complex organisations like hospitals. And it is also here that potential solutions lie.
It is difficult to imagine circumstances more devastating than the needless death or injury of a newborn child. For every serious error that occurs in our hospitals, particularly one that takes a life, a "no stone unturned" investigation or inquiry is, of course, essential, as is the support of all those affected.
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- The Australian
- 8:30AM July 28, 2016
Inactivity costs Australia more than $800 million a year and taxpayers foot most of the bill, a world-first study has found.
Researchers from four Australian universities have calculated that sedentary lifestyles gouged $805m from the national economy in 2013 in direct healthcare costs and lost productivity through illness, disability and shortened lives.
The findings, published in The Lancet, come from the first analysis of the worldwide economic effects of a “global pandemic” of inactivity. The team found five major diseases caused by sedentary lifestyles — coronary heart disease, stroke, type 2 diabetes and breast and colon cancer — cost the world about $90 billion a year. -----
· Michael Bachelard
Vereniki day is a favourite at Kalyna Care.
The traditional eastern European dumpling, often served with cabbage, is part of the identity of many residents at the Delahey home formerly known as the Ukrainian Elderly People's Home.
But all this is under threat, as not-for-profit aged-care homes like Kalyna face the pinch of competition and reduced government funding.
Without much fuss, big listed or private for-profit companies are taking over the residential aged-care industry.
"Eighty-five per cent of aged care, disability and mental health care will be privatised over the next five years," predicts Michael Goldsworthy from not-for-profit representative group, Better Boards Australia.
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Health Insurance Issues.
Private health insurers that also own dental surgeries are misusing data obtained through the HICAPS claiming system for commercial benefit, the Australian Dental Association has warned a Productivity Commission inquiry into expanded data sharing.
The inquiry, for which submissions close on July 29, is examining the benefits and costs of data being shared more widely between public sector agencies, private sector organisations, the research sector, academics and the community. In a submission by Australian Dental Association (ADA) president Dr Rick Olive, the peak body said the way some private health insurers were already behaving should be a warning on the perils of data sharing.
Dr Olive said contracts between dentists and private health insurers had clauses relating to the use of confidential information in HICAPS, which were "too generous" to insurers. They are allowed to access data about the charging practises of individual dentists and practices which use the HICAPS system, and drill down to analyse the specific procedures performed and the identity of patients receiving them.
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Pharmacy Issues.
- The Australian
- 12:00AM July 27, 2016
Sean Parnell
Pharmacists have a conflict of interest in selling unproven drugs and therapies to supplement their incomes from dispensing medicines, an independent review has been told.
The Review of Pharmacy Remuneration and Regulation was a key commitment in the $18.9 billion pharmacy agreement negotiated by the federal Coalition government last term. The review panel — headed by Stephen King from the Productivity Commission — held back the release of its discussion paper until after the July 2 election.
Apart from perennial issues of fees, business models and location rules, the paper questions the very nature of what pharmacists do, and what they charge, and asks should they be put to better use. “It was put to the panel that community pharmacists face conflicts of interest between their role as retailers and as healthcare professionals,” says the paper, noting pharmacists can sell over-the-counter, complementary therapies and other retail products.
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The King Review discussion paper is scrutinising location and ownership rules, and supermarket restrictions
Currently there are 11 pharmacy location rules agreed to by the Department of Health and the Pharmacy Guild of Australia within the Sixth Community Pharmacy Agreement, which specify where pharmacies can be opened – with a focus on spacing them out across urban areas.
These regulations cover both the relocation of existing pharmacies and the establishment of new ones, and were introduced in 1991 after it was discovered most pharmacies in urban areas were clustered together while rural and remote areas had significantly poorer access.
While some have submitted to the recently released Pharmacy Remuneration and Regulation Review panel that the current location rules allow pharmacies to provide a range of high-quality services to the community, others have argued that they limit access to, and affordability of, prescription medicines. -----
July 27, 20165:12pm
Belinda Merhab AAP
It's feared patients are being sold medicines they don't need when they walk into their local chemist by pharmacists seeking profits.
An independent panel, tasked by the federal government to review the regulation and pay of pharmacists, has raised concerns about the role of pharmacists as both retailers and healthcare professionals.
It's heard that some consumers worry their pharmacist may be unnecessarily up-selling them over-the-counter products or complementary medicines they don't need to make money.
It's also heard concerns about whether complementary medicines, such as vitamins, with no evidence-based health benefits should be sold in pharmacies at all, given it could "misinform consumers of their effectiveness".
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Kate Aubusson
Pharmacists could see their PBS funding cut if they don't limit the space they devote to retail products, and restrictions put on the types of products they sell under potential reform measures canvassed by a major federal government review.
A pharmacist's dual role as retailer and healthcare professional had blurred the line between treating people as customers or patients, the Pharmacy Remuneration and Regulation review panel has heard.
It meant community pharmacists face a conflict of interest by offering patients unnecessary over-the-counter and complementary medicines to boost their earnings, according to the review's discussion paper released this week. -----
28 July 2016
DO pharmacists have a conflict of interest as both retailers and healthcare professionals? Are they upselling unproven treatments to help line their pockets? Should they receive Medicare rebates for the advice they give to patients?
These are just some of the many questions that will be addressed as part of the first independent, comprehensive review of community pharmacy in close to 20 years.
A discussion paper from the Review of Pharmacy Remuneration and Regulation - also known as the King Review - was belatedly released on Wednesday, after having been held back until after the federal election.
The paper sets the agenda for a thorough examination of pharmacy - not just of the perpetual issues of business models and location rules, but of the very nature of what pharmacists do.
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Superannuation Issues.
- The Australian
- 12:00AM July 25, 2016
Glenda Korporaal
Scott Morrison has promoted the fiscal benefits of the government’s proposed crackdown on superannuation tax concessions at the G20 finance ministers meeting in China at the weekend.
The Treasurer said he had told the meeting the government’s cutbacks in super tax concessions and the eligibility for the Age Pension were about “protecting the integrity of the tax base” and “having a sustainable treatment of retirement incomes”.
The G20 ministers had discussed the importance of having as many people as possible in the tax system. “The more people you have in the tax system, and which are part of the system, the more you are able to address the equity issues between those who receive and those who pay taxes,” he told the meeting in Chengdu, capital of Sichuan province in China’s southwest.
Mr Morrison said he had spoken about the need for a sustainable tax system.
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Shane Wright | Economics Editor | Chengdu, China - The West Australian on July 25, 2016, 6:21 am
Treasurer Scott Morrison has used a meeting of the world’s top finance ministers and central bankers to back in his plans to curtail superannuation benefits to well-off Australians.
Mr Morrison, speaking on the sidelines of the meeting of G20 finance ministers in Chengdu, China, said his planned changes to super were part of a wider effort to make the tax system more sustainable and up-to-date.
The superannuation changes, including a move to cap concessional contributions at $500,000 starting from 2007, have caused troubles within the Federal Government since they were announced in the May Budget.
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Treasurer Scott Morrison who has vowed to stick with the government proposed changes to superannuation to make savings that are opposed by some Liberal MPs, has warned taxes could rise if the measures do not pass.
"The changes we've made to superannuation do a number of things they make the superannuation system more fair and more sustainable and they make a significant contribution to bringing the budget back towards balance.
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- Jul 27 2016 at 11:45 PM
- Updated Jul 28 2016 at 8:10 AM
Treasurer Scott Morrison has urged those opposed to a $500,000 lifetime cap on non-concessional superannuation contributions to consider that scrapping the proposal would benefit only the very wealthy.
Stepping up his push against the backbench and those in the industry who want the proposal dumped or heavily amended, the Treasurer raised the prospect of tax increases as an alternative to spending cuts should changes cause a loss in revenue.
"We need to ensure we continue to get this under control otherwise the deficit will be higher, the debt will be higher, more taxes will inevitably rise. This is not something the government is interested in doing," he told Sky News.
The $500,000 lifetime cap, which would be backdated to 2007, is causing the most angst because it is deemed retrospective. Last week, Queensland Nationals MP George Christensen, who represents the working class seat of Dawson, said he would cross the floor if it were not changed.
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- The Australian
- 12:00AM July 30, 2016
In Melbourne’s Malvern Town Hall on June 20, about 250 people gathered for a Save Our Super meeting. On the stage sat three empty chairs representing Malcolm Turnbull, Bill Shorten and assistant treasurer Kelly O’Dwyer. The Prime Minister and the Opposition Leader had promptly declined the invitation to attend. O’Dwyer, the local member of parliament and the person with carriage of the superannuation issue, declined to attend at the last minute.
“Not only did she not attend, until mid-afternoon on the day of the meeting she had not even responded,” says Jack Hammond QC, founder of the community-based group Save Our Super. “Worse, the response only came after I phoned a senior member of the Liberal Party, advised that Kelly had not responded to earlier messages, and said it was a very bad look.”
O’Dwyer was contacted for comment but did not respond.
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I look forward to comments on all this!
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David.
