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Ben Kingsley Blog post by Ben Kingsley

RBA Cash Rate July 2020: Victoria’s Lockdown Slows The Speed Of Recovery & The Air Is Colder Up High

Today Governor Lowe and the reserve board met and they kept the cash rate on hold. Now the good news story here has been in some of the language that’s been coming out from Governor Lowe and also the board in regards to how positive they have felt, and how optimistic they are about where we sit.  

Now, they had three obviously case scenarios. They had a very pessimistic and worst case scenario, they had a midpoint scenario and they had a best case scenario.  

And in a lot of the commentary that we’ve seen coming out from all the people at the Reserve Bank has been that we’re sitting between the really positive story and the midpoint. 

So the best case scenario and that midpoint, and that is pleasing. And that is obviously on the back of the fact that Australia has done very, very well in containing the virus up to date. Now, of course, we’ve got some issues around Victoria and what’s happening there, but the other parts of Australia have been opening up and we are starting to see some economic activity return. So I’ll talk more about that when I get into the summary of the Australian data, but I wanted to start firstly with the Chinese data. And we did see here, in terms of what was happening in China. 

China is very much a story of compliance. 

Whether the people in China like it or not they are very compliant with the rules and regulations, and they have obviously been very effective at stopping the virus over there. And that has meant that they have been able to ease their economy out into a more broader active economy. And we did see some data coming in from Goldman Sachs that’s showing that the economy is really back to normal and in some cases above normal activity. So we’re talking about traffic congestion, which is probably also a byproduct of less people on the subway systems over there. Coal usage, car sales, steel demand, property sales are all above normal activities from this time last year. So that is a really positive sign. We’re still seeing people being sensible about their activities. So we’re not necessarily seeing people doing the same level of dining and also domestic travel has also being restricted and airline travel associated with that. But when we start to take a deeper dive into their data, we can see the Caixin purchasing managers index’(PMI) — and I hope I’m saying that correctly, apologies if I’m mispronouncing that. But the PMI index rose to a 10 year high of 58.4 in June. And that was from a 55 reading, which was the best consensus in regards to what the economists were predicting there. 

Now that means that the supply and demand in services recovery and the sub-index has also been measuring very, very well as well. So in terms of the service index that’s gone to a seven-month high of 54.4. So we’re seeing the manufacturing and purchasing index up to a 10 year high of 58.4, and then that servicing index at a seven month high of 54.4. So remembering that anything above 50 is expansionary, anything below 50 is contracting in that economy now. So obviously that’s the second biggest economy world, let’s now focus in on the US story.  

And the US story is one of noncompliance.  

It’s one off the freedoms that the US enjoy basically being exposed in regards to this virus. And so with that lack of control and lack of compliance, we’re obviously seeing the virus spreading further into the US and we’re seeing some challenges around that. However, in terms of what we saw in the data, the US economy added 4.8 million jobs in June. That’s the sharpest monthly gain on record. As again, the regions across the US decided to ease their social distancing restrictions and those businesses reopen. Now that outcome was well above consensus, where they expected only 3.2 million. So it did pop higher than that. But also don’t be… be mindful two months ago we did see a record decline in April of 20.8 million job losses in that area. So the unemployment level rate fell from the main levels of 1.3% to 11.1% in June. So that is still a significant level of unemployment, which is still historically high levels. And certainly well above the pre-pandemic level of 3.5%. And our consensus was expecting that at 11.1% to actually be as high as 12.5%, but we didn’t see that materialise yet. 

So it is interesting times in the US, we’re seeing obviously these record number of cases. In terms of fatality rates, interestingly enough we are seeing them do quite well in terms of keeping the fatality rates down, but this is a very serious disease and now there’s a big question mark, in terms of how the US economy will perform if the virus continues to spread out of control in that particular market. 

The other big talking point around the globe has been equity markets.  

They continue to surprise on the upside. Where whilst we’re seeing this record spread of COVID-19 and the coronavirus throughout the globe, where the contagion is getting further and further out of control, we are definitely seeing global equity markets performing better than expected and a huge, a massive bear market followed by this which was the shortest bear market in history when we consider that the gains have being well and above 20% in this current bull market. 

Now the question is, why is this the case? Now I’m not an expert in the world equity markets, never said I would be, but very simplistically one can understand that money is cheap. And the world’s reserves, they’re the Governors and the Reserve Banks around the world are all doing everything to make money cheap. And with that obviously comes poorer returns in terms of putting money in term deposits and in banks. And so we’re seeing for the first time ever lots of people are getting into the stock market, maybe punting on the stock market might be a better example of that. And we are definitely seeing them focusing on some of the changes that have started to materialise around the COVID-19 pandemic. And that is, there’s very much been an out-performance on digital tech stocks, any type of digital transformation that’s going on from car sellers, which is obviously Tesla, robotics, consumer goods, online spending, all of those types of stuff that we’re seeing. So the Amazon, the Googles, the Facebooks, the Netflixs of this world doing incredibly well as we move more through this digital age. And we’re seeing a rapid expansion that. 

Now, obviously will this last? Time will tell in terms of whether this has been a false dawn in terms of what’s happening in the equity markets, and that’s going to be on the back of obviously how much patience everyone has, and also our success in control in the pandemic and the fatality rates, and then the economic impact that, that has. So that’s one to watch. I would always say be very, very careful in terms of going into this market, because one thing that will be guaranteed is that these markets will be highly volatile over the coming weeks and months as we learn more about what’s going to be happening with this virus spread around the globe. 

Turning our attentions to Australia, I wanted to start off with the most important data and that is consumer confidence. So we have seen effectively Victoria have an incredibly disappointing owned goal. 

So yes, New South Wales had the Ruby Princess, but I think Victoria are going to gazump that in a massive way by the way in which they’ve handled their hotel quarantining rules and regulations, which has led to a rapid spread of the virus here in Melbourne, and that is obviously causing some concern. And we’re seeing that show up in the weekly ANZ-Roy Morgan reports where consumer confidence survey is down to a 93 from 97.5. So that was the result the last week of June, we saw that result come in. Again, led by the concerns that people had around the spread Victoria.  

In terms of business confidence, which is the other interesting measure that we’re seeing come through. This is positive and this is pleasing in terms of the Roy Morgan business confidence was up 5.1%. This is the June three release, sorry, July three release. So up 5.1% to 95 in June the highest. Western Australia, very, very small number of cases, active cases. Their confidence is riding high at 110.5 followed by New South Wales, which is now starting to see sporting events opening up and more normality in their lifestyle. And so they have confidence running at a 100.7 compared to the second biggest economy, which is the Victorian economy, which is running currently at 84.4. 

Now, that June data really does point to an indication that when you have mobility and people are able to move around, everyone seems to be more optimistic and confident, and that’s spreading through to the data that came through.  

So Western Australia, New South Wales, Queensland are all feeling quite positive about their situation. States like Victoria and Tasmania which have had these clusters and bursts have also felt the impact in terms of the confidence around their economy.  

So that is good to understand that when you do get this mobility and understanding of the virus and you can see that there are some partial lockdowns versus widespread lockdowns, the easing of those restrictions really does change the mindset to a positive optimistic mindset relatively quickly, bearing in mind a hundred is the flat line there. So we are by no means out of the woods yet, but it certainly gives us some confidence around that. 

Now let’s talk about employment. So this is a difficult one to make commentary on because there’s so many unknowns. So we have a situation where we have an employment base where there’s a lot of people on JobKeeper, and we really don’t know what’s happening about that. So I’ll come back to that in a second. So we did see 228,000 jobs in May, those job losses, obviously the second biggest drop in the history of the survey. And that was on the back of 607,000 in April. So that saw the unemployment rate jump to 7.1 in May from 6.4% in April, the highest, obviously since October of 2001.  

The other thing that we’ve also seen is participation rates. So I’ve talked about this in previous updates where I felt that that was the main measure that we wanted to focus in on, but the reality is under the JobSeeker and JobKeeper packages. Under the JobSeeker package participation rate wasn’t relative for you to be getting JobSeeker, so that’s why we have seen that participation rate fall. So, in terms of some of the numbers that we’ve seen, we are seeing some economists such as St.George Bank reporting that if the participation rate, which has fallen from 63.6 to 62.9 had have stayed at 63.6, then the unemployment rate across Australia would be around 8.1%. We still have challenges around underemployment where we’re well aware of those challenges in terms of that.  

But the other point that I wanted to focus in on was around the JobKeeperSo a lot of people and media commentary have been misreporting in my view. Once they add JobKeeper into the mix, they’re quoting double digit numbers of unemployment in that 13/15/20% range. The reality is that businesses are getting JobKeeper and all those businesses who are getting JobKeeper, there are still a vast majority of those people are actually working. I think people get the perception that the JobKeeper package is for people and they don’t have to be working. That’s not true. And those businesses have reopened. So we really won’t know in terms of the percentages of people on JobKeeper whether they’ll maintain their jobs until post-September and the other big variable attached to that is we absolutely know that the government will not let us fall off any type of fiscal cliff and jobs cliff. So we’ll be seeing some announcements later this month around their program and what they’re thinking to give businesses some guidance and also people some guidance and confidence around their situations because there is a lot of media pressure out there saying, once we hit this cliff, once we hit this cliff, and we’ve also heard from the Reserve Bank and the Governor Lowe talking about that the expectation is that the federal government will be doing more on fiscal policy because pretty much the RBA have done what they needed to do on monetary policy. 

So that to me just says… an unemployment rate of 7.1% is artificial; it’s not relative, it’s definitely around that 10%, maybe even 11%, range. And that’s probably where it’s going to peak.  

And I think that is what most economists are also now starting to tell us is that we’re probably seeing the big number of job losses behind us now and we’ll start to see some sporadic job losses here, a hundred jobs there, 200 jobs there, et cetera, et cetera. But we’re not going to see these vast volumes of tens of thousands or hundreds of thousands of job losses as we open up the economy and come out of the severe lockdowns that we saw in the March, April period. 

In terms of credit lending. So we did see that private credit has fallen by 0.1%. So there’s really no need for people to be borrowing private funds at the moment. And it’s the first decline in nine years. So it’s quite interesting that we’ve actually seen a fall because normally it was population growth and people taking out loans and credit cards and all those types of things. There’s normally a continuous increase in credit levels, that has definitely been impacted by the economic shock that we’ve received. And so private credit is definitely at the lowest levels. 

In terms of business credit, we’ve also seen the same sort of thing. Business credit has declined 0.6 in May, which is the largest monthly fall since June of 2011. And it’s obviously on the back of businesses aren’t necessarily going to be investing or spending yet until they have a clearer line of sight in terms of what’s happening in their industry and their level of demand that they’re going to get from their consumers in the medium term. 

Turning our attention to household credit, housing credit, I should say. Very subdued, so we saw a growth of 0.2%. And that is now two consecutive months where we’ve seen modest growth in this particular area. In terms of investor lending, this is something that I want to spend a moment in focusing in on.  

We did see a fall of 0.3% in May, and that’s the largest decline in investor lending since August of 1991. So, I wanted to pause to think about that… 

What we are definitely seeing, and I’ll be talking more about this when I get into the property summary, is we’re definitely seeing less of an appetite for investors to be buying the type of what we would call investment stock versus investment grade assets. The vast majority of investors have been convinced that buying into medium and high density makes for a good investment because you get all the depreciation and the tax benefits associated with that. What we’ve been saying since day one, that that is a silly idea, you should never be investing in property for that reason and particular that property segment. And that’s starting to now show up and I’ll be explaining that in more detail in a minute. 

In terms of other personal debt, so credit continues to run at extreme weakness. So this is the credit card stuff I was telling you about before. So we did see personal loans, credit cards declined 10.2% in the year to May. That’s the weakest on history. And this series of data began in 1972. So that just goes to show you there’s no people necessarily having to set up credit cards or use money on credit cards, because everyone is basically in a holding pattern trying to work out what’s going on in regards to the economy. 

Now, retail spending. So we talk about no one’s spending money on credit. That doesn’t necessarily mean that that’s correlating to what’s happening in terms of the retail data. So we saw some remarkable retail figures coming out in May. The pent-up demand from people at home and the shopping that’s going on, and the easing of restrictions did see more foot traffic out into retail land. And they were out spending. So overall turnover rose 16.9% in May. That’s a new record following the increase of the record decline in April, which was down 17.7%. On an annualised basis the turnover was 5.8% higher in May bouncing back from a 9.2% fall in April. The sub-sectors that saw the boost; well, clothing. So again, people went out and bought some new clothes, footwear, accessories and you’re ready for this, those sectors rose 129.2% for the month. So obviously when we can’t get out, we don’t buy things; when we can get out, we do buy things. Turnover for the sector is still however, after that 129% increase 19.4% weaker than a year ago. So again, we still don’t see full mobility and I suspect what’s also playing into that is the Victorian data as Victorians are still weigh laid at home in a lot of cases and not necessarily going out and doing their spending that they have. 

Household goods, retailing, also had a rise of 16.6% in May. And so again, focusing in on the home as they do. Eating at home was also very popular. That was up 7.2% and is 12.9% higher over the year. So people are getting takeaways as opposed to going out into restaurants. We are seeing more restaurant and cafe activity. There was definitely a solid post of 38, sorry, 38.8% increase in dining in during that month and again, I suspect that would have been even better if we had seen more of an opening happening up in Victoria. And we’ll probably see those numbers now start to plateau as the economy is starting to move in what we would probably say is a two-tier economy. So the rest of Australia and then Victoria. 

So to give you an idea of that, New South Wales has had annualised growth in retail sales of around 4%. Victoria is barely registering 1% annualised, Queensland’s over 10%, South Australia is seeing around 7%, Western Australia are quite strong at around sort of 12 to 13%. Tasmania greater than 10%, Northern territory greater than 10%, the ACT sitting around 5%. So overall around 5.5% to 6% of retail annualised sales, but Victoria is definitely the handbrake when it comes to progress in that particular area.  

The other thing that I thought was also of interest to study at this point was just around “What do Aussies spend when we go overseas? 

 So I went looking for some of that data and I found some data that was quoted this month in regards to that data. And what we saw was Australians spent $65 billion in overseas holidays last year. And international visitors spent 45 billion in spending in Australia.  

So the question’s got to be… if we’re not going overseas because of these restrictions, where is that $65 billion going to land?  

And I’ve been mentioning this in my previous economic update last month. That money is hitting our balance sheets. The household balance sheet has now got more money in it. We are doing different things with that money. We are definitely seeing saving rates increasing, we’re seeing debt levels being paid down as people are more cautious about spending their money. But as you’ve just seen in those retail sales figures, we’ve definitely seen some of that money being spent on personal goods and also potentially spent around the house. And we hope that there will be an enormous amount of that money starting to flow into our tourism and retail sectors and hospitality sectors as we are able to move around. 

So you’re going to start seeing more people holiday in Queensland, except from Victoria. And we did see yesterday the borders are being closed between Victoria and New South Wales. So there will be potentially a bit of intra-state spending, which is great. But also hopefully a little more movement of people moving around Australia as we start to live and understand that the pandemic and get on with our lives. So that is just something to be mindful of. There’s a lot of pent up money that needs to find a home. And who knows, maybe that’s some of that money flowing into the stock market at the moment.  

In terms of manufacturing, here’s some positive news. The AiG performance of manufacturing index rose to 51.5 in June from 41.6 in May. Now this index is now above the critical levelso it’s in expansion and that is good news. And also good news on that as we’ve come out of this hiatus, is that new orders jumped 20.6% in June. So in May, sorry. So that also means that the June numbers would also hopefully be in an expansionary state where we’re seeing those new orders in terms of the productivity in our manufacturing sector. So that is a positive sign. Building approvals, building approvals fell 16.4% in May. Again, this is lag data driven by obviously the volatility in the marketplace. And that’s very much in regards to the apartment market. The other dwelling sector approval fell 34.9%. So that is the private dwelling stuff. So that’s the stuff that the government has announced. The HomeBuilder packages to try and get that program moving forward. So turning to construction, we also then saw The Australian Industry Group’s performance of construction index rise from 24.9 in May to 35.5 in June. The improvement fell short of the 50, which is where it’s still not an expansionary mode, but it obviously means that there’s definitely improvement. And in terms of reading some of the reports coming out from home builders and land sales area, the HomeBuilder packages, and also the renovation packages have definitely played a role in increasing the number of sales that have transpired in the month of June. And we won’t see that data for a little while, but we do know in terms of, you only need to read the papers to see some of the commentary coming out from some of our volume builders a sign that they’ve had definitely the best month of the year so far and potentially best month in years and on record. So that does bode well for further construction uplift in the latter part that’ll probably start materialising in the September data and we’ll start to see those job opportunities in the construction sector as vastly across the country and definitely needed in regards to that sector. 

So now let’s talk about the property market.  

There is a two-speed property market out there, and we’ve always talked about markets within markets, and that is no different. 

 We’ve seen certainly the higher end of the property market. So that top 25% quarter of the market was enjoying the biggest expansion in terms of capital growth indicators leading out of the middle of last year, mid-2019 through into August, sorry into February. But they have also been the areas that have probably had the biggest falls. The middle market as been well indicated is only down around 1% across the nation. So that’s just telling you that that higher end, the top end of the market is probably having that flatter period or that higher correction, but more broadly speaking, the correction has been incredibly mild like we said it would be. And I know people are still talking about what’s coming and this is only the start of it. 

But the reality is inside the CoreLogic data that was released earlier last week, we did see some really important indicators here and I wanted to spend a moment on that. What we saw was that in April transactions were down a third. So they were down 32% in April when we were in lockdown and we couldn’t go and inspect properties. And we were basically just trying to work out what this virus was going to do to us. In May we saw volumes, and this is in terms of sale activity, bounce back by 22% in May. And as we’ve seen the restrictions ease and auctions, and those things start to coming back, in June we saw a further 30% increase in sales activity. 

So the combination of the June bounce back and also the May bounce back now means, and I want to emphasize this, means that sales activity is now stronger than what it was this time last year. I’ll repeat that… 

Sales activity is now stronger than it was this time last year.  

So pre-COVID levels. Now, what does that mean? Because you’re thinking, well, how does that happen? Because stock lists are still quite low. Yes. What we are seeing is new listings are coming on, but that stock is being bought, okay? So it still means that the stock levels are low. So even though we’ve seen an increase in stock levels, we’ve definitely seen all of those properties transacting. And so that is a positive sign that there is buyer demand out there. And Bryce and I have been really clear in terms of our communication that we do see that evidenced in all of our demand supply measures that Jeremy Shepherd delivers to us on a monthly basis, that we do know that there is strong buyer demand out there. 

We also know through market sentiment surveys, that “Is it a good time to be buying property? Well that survey is still sitting very high at over a hundred, which means that more people believe it’s a better time to buy a property than not to buy property and we’re seeing that showing up in our data. And that’s the area that you get where we’re talking about markets within markets. So good stock is hard to find, when it comes on the market, it’s actually performing very, very well. The property market in Australia is alive and well in those particular areas. But there is one market. There is one particular market that is going to experience and we are going to see it in the media and we’re going to see it basically hype it up in terms of the crash of the property market. No. 

It’s going to be very selective in terms of which market is going to experience that significant downturn. And we’ve said it before, it’s going to be the medium and high-density apartment market. 

Now, never before have we seen a black swan event like this for that particular sector. So let’s think about this… We’ve got still new builds being completed at the moment. We’re seeing the off the plan apartments50% of those apartments are settling with valuations under contract price and 25% of those as reported by core logic where the 25% have a material loss of 10% or more. So that is significant. So be mindful of that.  

We’ve obviously got the cladding and construction issues that we’ve seen from the self-regulation that was happening in that industry. So those things are going to be ongoing in costs to people who have bought in those areas with the fire risk on the claddings are just terrible. In terms of the short term stay market is still struggling. So we’re seeing a significant oversupply of that type of stock. We’ve seen hotels also moving into short to medium-term rental accommodation to supplement the fact that there are no tourists coming in and staying in short-term accommodation in the hotels. 

A reduction in international students from the rental demand side and also the immigration program has also slowed almost to zero. So with those types of elements this has never been an event that we’ve been able to measure from a data point of view. So it is going to be a fascinating exercise in terms of what is the trigger point in regards to what’s going to happen to property prices in this particular subsection, okay? And then the question is, is it going to present a systemic risk to the rest of the property market? 

Well, that’s ultimately up to people who buy that story or don’t buy that story. So what I mean by that is, we are going to see the media hammer this story because it’s brilliant click bait for them, it’s sensationalist journey, and in a lot of cases there are going to be many, many people who lose money in terms of negative equity in these properties. So that is something to be careful of in our CBD areas. So it’s only in large concentration of these types of investor grade, sorry, investor stock properties, not investment grade.  

We don’t believe it’s going to materialise and flow into the broader property market because there is no systemic risk in those particular marketplaces.  

So when we’re talking about distressed mortgage sales, we’re seeing no evidence of that more broadly spread. It’s more random and it’s not in clusters, and when you don’t get those clusters, you don’t get that tipping point in terms of a confidence in that market.  

So it is definitely going to be fascinating in terms of how this particular marketplace plays out over the coming weeks and months and what support that particular sector gets because we have definitely seen, we see the scare mongering going on about this fiscal cliff, we’re going to see as I said some announcements made by government in regards to JobKeeper and JobSeeker programs, and what’s going to be happening there, but we’re also seeing, again you don’t have to look very hard a bit of googling can see you find all of the banks are working with their customers and will continue to extend deferred payments as required to get people through that difficult period. 

So we are not going to see this cliff that is so called being reported. I stand by that statement, but I also believe that if the journalism focuses in on those two, the high rise and medium density stories then people will potentially be a little bit overwhelmed by that. So I would be saying to those people, there’s really nothing to worry about if you own land and a house in the burbs, or even a unit in the suburbs where you’re not part of the large clusters of properties in those particular locations. We’re seeing rental demand holding up. In fact, we’re actually seeing vacancy rates starting to stabilise and potentially fall in some of those suburban areas as well. So I don’t think there’s anything to worry about in that particular area. 

I now want to turn my attention to something that really is important in terms of we are going to be spending, as a nation, billions and billions, hundreds of billions of dollars in terms of supporting ourselves through this current health and obviously economic crisis.  

Now that also then leads into the great tax debate… where are we going to find the money to repay all this debt over time?  

You might be hearing some commentary at the moment around modern monetary theory and what can potentially take shape and we could just basically not pay the debt back, but I believe that that has severe consequences more broadly to our currency. And I’m not necessarily a big believer in that theory at the moment.  So I want to focus in on the one that is probably the most prevalent tax that we can do something about, which has really a lasting effect in terms of our economy and that is the goods and services tax. And yes, it’s really important that we understand we should be taking advantage of this crisis to take and have a debate, an informed debate around our taxation policies and the goods and services tax is a no tax is good, but in terms of as a consumption tax, it means those people who consume more pay more tax. And I think that there’s an important message in there.  

Now, when we look at goods and services tax levels around the world, we see that the UK’s goods and service taxes at 20%. New Zealand’s GST is at 25, Sweden’s at 25, Denmark’s at 25 and the OECD nations have an average of 19%. Obviously, our GST currently sits at 10%. Now again, no new taxes is good tax. And I do think generally governments have a problem with overspending, but it is important that we see what type of changes could happen in regards to having a debate around our goods and services tax. 

So the GST raises around $70 billion, which is 13% of our total tax base. And that money goes to the states. An increase in GST to 15% would further raise around $30 billion in new tax revenues, right? Now, if you broaden the base even further, you are going to see tax revenues that will increase even greater around that, because at the moment currently only 47% of the items that we buy have a GST on them. 

Now, if we did broaden that base to include things like fresh fruit, health education, all of those types of things, fresh food, those types of things. Then our base, we’d be able to raise around $90 billion a year in additional tax revenues for the nation. Now, what does that money then do? Well, it does a lot of great things in terms of providing for infrastructure, spending in hospitals, education, schools, those types of things that are critical to keep our economy growing, our people informed and well-educated as we move into the new digital age and we can make sure that there’s jobs of the future. 

The other thing that we’ll also do is it would take away and given that the focus is on jobs, it would take away things like payroll tax, which is a shocking tax on businesses to not encourage them to employ more people. And businesses like ours pay hundreds of thousands of dollars a year in payroll tax when we could be employing more people. It would potentially remove other taxes like vehicle registration taxes to drive on our roads which will basically help our households out in terms of mobility and moving around. 

And the other big one that it would help is obviously stamp duty. So potentially we could get rid of state-based stamp duties which we heard recently when we interviewed Ken Morrison on The Property Couch Podcast, that for every dollar raised by stamp duty, 72 cents of damage is done to the economy. And when we talk about that damage that it’s done, we’re talking about reducing locking people into locations, reducing labor mobility and overall economic activity. And so it’s an incredibly unproductive tax. And so with that type of change, people could downsize, there will be more mobility, more properties that will become available for people to move around and people could move from city to state without having this whopping big tax that they pay. 

So something like that in my view definitely needs to be debated. And we know that the politicians of the day who want to control things and stay in power, realise that the GST is politically unfavorable, but it’s not so if consumers and households understand this better. In terms of what households spend by way of higher taxes. So again, if I buy a luxury car, or if I want to stay at a fancy hotel instead of a budget hotel, if I want to eat at a fancy restaurant, all of those types of things, I’ll be paying more goods and services tax as opposed to those people who are on a lower income. 

Now, of course there’s one big thing that we have to do here and that is we need to make sure that the safety net is in place. We absolutely need to make sure that we have an appropriate safety net to make sure we look after the most vulnerable in our society, agreed. But we also need to make sure that they’re middle class people don’t have social welfare. So we want to try and make sure that we’re getting more people moving through the economy looking after those most vulnerable and those in most need, but keeping the economy moving in regards to that. So, we have aspirational people in our society who are willing to move forward in that area. 

But coming back to the politics politicians are self-interested right? So this is, they’ll look at their number, they’ll look at the testing that they do in the society. And they’ll say, “No, no, we don’t need to do anything. This is politically poison, so we won’t touch it.” But if they keep coming out and sampling society and people are more informed and they say, “No, I’m open to a change in goods and services tax.” Once they start seeing that through their polling hopefully we’ll see a leader who has the maturity to have the debate and get the reform that we need, because we want to take advantage of this situation to set up our economy, set up our tax systems, because it should also result in lower PAYG taxes for people as well. 

Again, so pay on consumption, you don’t pay on tax or hours worked. Those types of things are just, they’re economy killers and they don’t provide for prosperous economic outlook. So you can understand my view on this. I think that tax reform in the GST area is going to be far better than tweaking at the edges, which was what we’ve seen, and what’s been happening in all of the Henry tax reviews where they’re basically haven’t included GST in that. 

So if the people say to the governments that we’re open to the idea of the GST an increase or a broadening of the base, that’s going to only be good for the long term reform that we need in this country to have a prosperous economy. So I just wanted to focus in on that to get that conversation out there because I think it is a debate that we need to have.  

So in summarising my month wrap up, there’s no doubt that we want to keep an eye on consumer and business confidence. Victoria is definitely taking that hit.  

So there’s going to be a secondary speed and that’s disappointing. We would have liked to have seen that sort of deep V that we did get out of, but we’re coming out, but it’s going to slow down because of what’s happening here in Victoria and the containment. 

But what we also want to be focused in on is the fact that we aren’t experiencing widespread lockdowns and I don’t think we will going forward. If we have a widespread lockdown, its consensus of all economists and people understand jobs and the economic outlook, that that would be extremely dangerous. And will see us into our very, very deep recession. So widespread lockdowns will do that. And so we want to avoid them at all costs, which basically means that we want to have these targeted lockdowns and these partial lockdowns to be able to control the virus, to have it at a manageable level because we always said, that’s what we want to do. So we will still see the economy opening up. And we won’t see these widespread lockdowns.  

We’ve learnt a lot from where we’ve come from. From being quite concerned and nervous and unknown and fearful back in March and April to now knowing we know what we need to do, we need to keep people locked down in certain areas, and that will slow the spread of the virus. Whilst we’re also trying to open up the economy and giving people the opportunity to go to work and earn an income so they can support their families. 

So it’s really important to understand if we keep these partial lockdowns going, they’re not going to be a material impact on the broader economy. It’s only a widespread lockdown that will have that material impact and hopefully we’ll get out the other side of it. We know that obviously with the health issue that we’ve got here in terms of the treatment programs they’re doing, they’re getting better and better each week. And we’re seeing the fatality rate improving in developed nations where they have availability of good health care and services and medicines to be able to do that. And in addition to that, obviously we await results of vaccine trials that are going on around the world. 

So that is my final message. And it is about, we don’t have to be as fearful as we were back in those dangerous months where we really had a lot of unknown unknowns. We now know what we know, we now know more about the virus every day, every month. And we’ve got to go on about living in our lives. We’ve got to make sure that we continue to do our best whilst also practicing social distancing measures whilst also downloading the COVID-19 app. So it makes it easier for people to do the tracing that they need to do, and to understand where the spread is occurring. You’re only helping yourself and also your fellow citizens. You don’t want to be responsible for spreading the virus. No one wants to be responsible for that. 

So keep acting responsibly but keep going about your lives, keep doing the things that you said you were going to do and keep some sort of level of normality in your life. And that will bode well for the broader economy and also the broader health and wellbeing outcomes for everyone and the job outcomes for everyone in our economy.  

So that’s my message for now remembering, it is about get busy living and also that knowledge is empowering, but only if you act on it. Until next month, take care, stay safe, and we’ll talk to you next month. 

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