cpa australia chris richardson 19 november 2015. the big picture: world income shares
TRANSCRIPT
CPA Australia
Chris Richardson
19 November 2015
The big picture: World income shares
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1000
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Japan
United States
Western Europe
India
China
That plays Australia’s way …
Investment spending as a share of 166 different economies
But China is only part way through a tricky transition
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1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 55 58 61 64 67 70 73 76 79 82 85 88 91 94 97 100
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China
China’s share of global consumption by commodity
0% 10% 20% 30% 40% 50% 60% 70%
Oil
Economy (GDP)
Uranium
Wheat
Population
Corn
Gold
Rice
Steel
Copper
Coal
Nickel
Aluminium
Concrete
China's share of global consumption
China’s tricky transition
• China’s economy is transitioning towards more sustainable growth: away from reliance on infrastructure and more towards consumer spending.
• China’s slowdown still had further to run, even though growth has already dropped to the lowest in a quarter of a century. That’s why Chinese authorities continue to step more firmly on the stimulus accelerator.
• China’s challenges remain central to Australia’s future:• The working age population is shrinking due to the ‘one child policy’• Corruption remains endemic• The housing bubble is deflating • The ‘catch up’ potential that once powered China’s growth engine is now
less of a driver that it once was (the technology gap between China and the developed world is narrowing)
• The Chinese sharemarket took a hit, and the mad scramble by the authorities in response shows they are nervous.
China leads Australia’s top 10 trading partners
Source: Department of Foreign Affairs and Trade
0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000
Germany
Thailand
Malaysia
UK
NZ
Singapore
Korea
US
Japan
China
2013-14 2012-13 2011-12
Two-way trade, $A (millions)
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1980s 1990s 2000s to 2013 Decade to 2023
Productivity & other Participation
Terms of trade Total living standards
Contribution to annual income growth
Australia’s future productivity challenge
The WHY of tax reformLiving standards depend on productivity growth
-1.0%
-0.5%
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
1980s 1990s 2000s to 2013 Decade to 2023
Productivity & other Participation
Terms of trade Total living standards
Contribution to annual income growth
The WHY of tax reform – 2
Recent real net national disposable income per head trend is down
$30,000
$35,000
$40,000
$45,000
$50,000
$55,000
1992 1997 2002 2007 2012
And some key tides are changing
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1984 1987 1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020 2023
Real engineering construction to GDP ratio
The terms of trade (RH axis)
Share of economy Terms of trade index: 2012-13=100
Meaning construction tides are changing too
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1%
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1985 1988 1991 1994 1997 2000 2003 2006 2009 2012 2015 2018 2021 2024
Real commercial construction-to-GDP ratio
Real engineering construction-to-GDP ratio
Share of economy
That affects Australian national income growth
-2%
0%
2%
4%
6%
8%
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12%
1990 1994 1998 2002 2006 2010 2014 2018
Annual nominal income growth (%)
But interest rates are helping
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2%
4%
6%
8%
10%
12%
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16%
18%
20%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Standard variable mortgage rates
90 day bank bill rates
10 year bond yields
And so too is the Australian dollar
40
45
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0
10
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30
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1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
World commodity export prices (index)
TWI exchange rate (RH axis)
While wage growth has dropped
2.2%
2.4%
2.6%
2.8%
3.0%
3.2%
3.4%
3.6%
3.8%
4.0%
4.2%
1998-99 2001-02 2004-05 2007-08 2010-11 2013-14
The sectoral leaderboard
-4% -2% 0% 2% 4% 6% 8%
Manufacturing
Farm
Construction
Transport & storage
Public administration
Utilities
Education
Business services
Wholesale and retail
Information services
Property services
Recreational services
Health
Finance and insurance
Mining
Change in output, %, 2015-16
Eastern States leading domestic demand
-4% -3% -2% -1% 0% 1% 2% 3%
WA
NT
ACT
SA
QLD
NSW
TAS
VIC
% change on year eariler, 2015-16
State final demand growth, %
Mixed picture for growth in the ACT
1%
2%
3%
1987-88 1990-91 1993-94 1996-97 1999-00 2002-03 2005-06 2008-09 2011-12 2014-15 2017-18
ACT - shares of national totals
Output Population Retail Housing investment
The US starts a global lift in interest rates
Keep an eye on fair value
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1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Housing prices and national income
Housing prices National income
Index: 1986 = 100
Which is looking toppish
-12%
-9%
-6%
-3%
0%
3%
6%
9%
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21%
24%
1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
Housing over- and under-valuation relative to national income
The HOW of tax reformShift from ‘bad’ to ‘good’ taxes (raise on the left, cut on the right)
Tax reform can boost living standards if we rely less on taxes that hurt the economy the most.
How much prosperity is at stake? The maths is pretty simple. The extent to which tax reform makes Australians better off comes down to:
The dollars shifted from ‘bad taxes’ to ‘good taxes’, multiplied by
The gap in economic costs between ‘good’ and ‘bad’ taxes.
Bad taxes include State stamp duties on business and residential conveyancing, insurance taxes and royalties, as well as Federal company tax.
Good taxes include taxes such as the GST or broadly-based land taxes.
Tax reform is mostly about prosperityBut fairness needs a look in too
For fairness, super is the standoutGive everyone the same tax benefit from putting a dollar into super
-15%
-10%
-5%
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Current incentives to invest in super Proposed incentives to invest in super
Percentage points
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