Hot Issues
spacer
September update of latest COVID-19 initiatives.
spacer
Seven reasons why the trend in shares will likely remain up, albeit with bumps along the way
spacer
Market outlook Q&A
spacer
Changes to super contribution rules for over 65s
spacer
COVID-19: How long may your super savings take to recover?
spacer
Boost your super in the lead up to retirement
spacer
4 ways to help prepare your finances for a recession
spacer
JobKeeper - Latest Update
spacer
Australian economic and fiscal update
spacer
The fiscal cliff is more likely to be a fiscal slope
spacer
Protect yourself from COVID-19 related scams
spacer
The economic hangover of COVID-19: how long will it last?
spacer
How to rebuild your super after a COVID-19 withdrawal
spacer
Market update - July 2020
spacer
Investment options and retirement
spacer
Extra Tools & Resources for our clients.
spacer
The Australian economy and recovery from COVID-19
spacer
Digital payments and online banking for older Aussies
spacer
The coming surge in Australia's budget deficit and public debt due to coronavirus
spacer
10 medium to longer-term implications from the coronavirus shock
spacer
Thinking about insurance ahead of retirement
spacer
Gifting and financial generosity during coronavirus
spacer
Diversification - why it matters now more than ever
spacer
The value of financial advice
spacer
Our Website, your resources
spacer
Light at the end of the coronavirus tunnel
spacer
Market update
spacer
Changes to pension drawdown and deeming rates
spacer
Preserving retirement saving during COVID-19
spacer
How investment market volatility could affect your super
spacer
COVID-19: Early Childhood Education and Care Relief Package
spacer
The coronavirus pandemic and the economy – a Q&A from an investment perspective
spacer
Money challenges women face
spacer
Data so large it's hard to comprehend.
spacer
Is coronavirus driving a recession, depression or an economic hit like no other?
spacer
Holding your nerve – why retirees fear a market plunge
spacer
Historic $130bn wage subsidy to cover 6 million workers
spacer
Stage 2 – Covid-19 stimulus package.
spacer
Covid-19 Update - Small Business
spacer
PM launches $17.6 billion virus stimulus plan
spacer
The plunge in shares – seven things investors need to keep in mind
spacer
Three reasons why low inflation is good for shares and property
spacer
Can refinancing my home loan save me money?
spacer
Expected GDP by country 2010 to 2100
spacer
Super investment options – what’s right for you?
spacer
Life beyond work
spacer
Statistical picture of Australia - Update
spacer
A resource hub for our clients.
spacer
Market Update
spacer
Real Time World Population Growth - Wow!!
spacer
Dividends explained
spacer
Start 2020 with a best snapshot of Australia.
spacer
5 tips for green investing
spacer
Make Australians save again
spacer
Bushfires and the Australian economy
spacer
Grow your super in the new year
spacer
Australia by the Numbers
spacer
How to create realistic goals…… and stick to them.
spacer
5 days to get your finances in order
spacer
Our Advent calendar for 2019
spacer
5 reasons why I’m not so fussed about the global outlook
spacer
Superannuation changes
spacer
You'll be the life of the party when armed with this information!
spacer
7 tips to improve your financial wellness
spacer
Rebooting for retirement
spacer
5 reasons why the A$ may be close to the bottom
spacer
Resist today, relax tomorrow
spacer
Market Update 30 September 2019
spacer
How much superannuation is enough?
spacer
All Australia's vital statistics - October 2019
spacer
6 new financial videos
spacer
DGP by country since 1800
spacer
Boost savings with compound interest
spacer
High times for low interest rates
spacer
Market Update - September 2019
spacer
Will the world slip up on oil again?
spacer
Australia by the numbers - September 2019
spacer
Spending money in a cashless world
spacer
Dealing with being cash poor and asset rich
spacer
Saving for a rainy day
spacer
Market update
spacer
Access to more resources and tools than most websites.
spacer
Nine reasons why recession remains unlikely in Australia
spacer
Can I go back to work if I’ve accessed my super?
spacer
How's Australia doing statistically?
spacer
Protecting your super package.
spacer
Making the most of record-low interest rates.
spacer
Market Update 2019
spacer
How the top 10 global companies have changes since 1998
spacer
The longest US economic expansion ever
spacer
When can I access my super
spacer
Australia by numbers – Update
spacer
How to retire early
spacer
How to play catch up with your Super
spacer
Inflation undershoots in Australia
spacer
9 money mistakes to avoid in retirement
spacer
What a financial planner does to help.
spacer
Australia's vital statistics.
spacer
What kind of money parent are you?
spacer
How to save money
spacer
Federal Budget 2019 - Overview
spacer
How the 2019 Federal Budget affects you
spacer
New Global growth slowing, plunging bond yields & inverted yield curves
spacer
Women and Money
spacer
Market Update - March 2019
spacer
The problem with getting to 53 years of age.
spacer
How to avoid a travel debt hangover
spacer
Things to avoid as a newbie investor
spacer
Budget Time - How's Australia going?
spacer
Most older Aussies prefer home care over a nursing home
spacer
Why growth in China is unlikely to slow too far
spacer
10 money conversations to have when your relationship heats up
spacer
Australia slides into a 'per capita recession'
spacer
6 steps to get your money stuff together
spacer
All you need to know about how Australia is going.
spacer
Australian housing downturn Q&A
spacer
6 ways to reduce your credit card debt once and for all
spacer
5 life insurance questions you've always wanted to ask
spacer
2019 a list of lists - regarding the macro investment outlook
spacer
Part 4 - The major benefit of ‘behavioural coaching'
spacer
How to adult—a quick guide to personal finances in your 20s
spacer
How Australia is performing.
spacer
The Australian economy in 2019
spacer
Holiday budgeting tips— How to avoid a travel debt hangover
spacer
Australia - a comprehensive run-down of our vital statistics.
spacer
The Fed and market turmoil - the Fed turns a bit dovish but not enough (yet)
spacer
12 ways to avoid waste this Christmas
spacer
Rising US interest rates, trade wars, the US midterm election results, etc
spacer
Our Advent calendar for 2018
spacer
Responsible and ethical investing
spacer
What are the 3 biggest living expenses for households?
spacer
Your Adviser and Behavioural Coaching
spacer
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
spacer
Information needed to be the BBQ expert.
spacer
Would you like to retire by 40?
spacer
The property cycle and the economy
spacer
How financial advice helps create wealth.
spacer
7 money personalities you may identify with or want to avoid
spacer
Are shares expensive?
spacer
How's Australia doing statistically?
spacer
Super investment options – what’s right for you?
spacer
Here's how to lead a happier life
spacer
What happened to all the worries about rising inflation and bond yields? Goldilocks, tariffs, Turkey & other things
spacer
Is it better to buy an investment property or home first?
spacer
Nine keys to successful investing
spacer
This information will turn you into a fireside expert.
spacer
How Australians will use their tax return
spacer
Lessons from the blue zones: secrets of a long life
spacer
Trumponomics and investment markets
spacer
Tools for budgeting, cash flow, Super and more ….
spacer
How much super should I have at my age?
spacer
How tax deductible personal super contributions work
spacer
The rise of the gig economy and side gigs (thanks to technology)
spacer
Statistics for all Australians
spacer
Watch out for tax scams
spacer
After the Australian household debt and east coast housing booms
spacer
Now’s the time for tax planning
spacer
Why it pays to contribute to your partner's super
spacer
Australia by numbers – Update
spacer
How to deal with financial stress – nearly 1 in 3 affected
spacer
Federal Budget 2018 – Overview
spacer
Your Budget
spacer
4 components of our 2018 Federal Budget
spacer
US China trade war fears – Q & A
spacer
Tools to help you manage your financial position are available on our site.
spacer
7 ways to boost your super
spacer
Australians reveal their priority goals
spacer
Australia by numbers – Update
spacer
Your retirement questions answered
spacer
How to make money by turning your unwanted goods into cash
spacer
Our website is really our digital office.
spacer
Bitcoin – is it really for you?
spacer
Spread your money, reduce risk
spacer
Love and money? It’s not about control
spacer
The pullback in shares - seven reasons not to be too concerned
spacer
Australia. All you need to know to be the expert.
spacer
Australian’s love affair with debt - how big is the risk?
spacer
5 ways to keep a cool head in a falling share market
spacer
2018 – a list of lists regarding the macro investment outlook
spacer
Sports lovers enjoy better financial fitness
spacer
Where Australia is at. Our leading indicators.
spacer
The year that was and the year ahead
spacer
Add some extra cash to your New Year
spacer
New year, new financial resolutions
spacer
Our Advent calendar for 2017
spacer
Where are we in the global investment cycle?
spacer
Australia's vital statistics
spacer
12 ways to enjoy summer without spending a fortune
spacer
One in three Aussies travel without protection
spacer
Digital payment options could see you spend more this Christmas
spacer
If you’ve always thought property prices only go up…
spacer
Will Australian house prices crash?
spacer
Where are we in the global investment cycle and what's the risk of a 1987 style crash?
spacer
Money steps for women
spacer
Resources on our site to help you, your family and your friends.
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
How to retire, your way
spacer
Prepare for retirement without missing out today
spacer
Be the boss of your cash
spacer
The Australian economy bounces back again
spacer
Should you lend money to family?
spacer
Money mistakes people make in their 50s and 60s
spacer
Australian Dietary Guidelines and healthy eating chart (PDF)
spacer
Eight steps to improved cashflow... and lifestyle
spacer
Powerful Budgeting, cash flow and Super Tools available on our site.
spacer
5 ways Australians will use their tax return this year
spacer
Australia's leading causes of death - ABS
spacer
The threat of war with North Korea
spacer
Six traits of Australians living the dream
spacer
The break higher in the Australian dollar is likely to be limited
spacer
Money can buy you happiness, you’re just spending it wrong
spacer
Key Economic Indicators, 2017 – updated
spacer
Helping your kids buy a home
spacer
From Goldilocks to taper tantrum 2.0
spacer
What’s your debt age?
spacer
Doing a budget is a good idea but ....
spacer
Planning is the key to making it financially
spacer
What to do when you come into money
spacer
Managing your money when you move in together
spacer
Reduce your bills with these household items
spacer
It pays to contribute to your partner's super
spacer
How to cope with losing independence
spacer
Transition to retirement income streams
spacer
The Australian economy hits another rough patch
spacer
Watch out for tax scams
spacer
The three core pillars of this year's budget
spacer
Federal Budget - 2017-18 - Overview
spacer
Federal Budget - 2017-18 - Budget documents
spacer
Make the most of the current super caps
spacer
Five, four, three… it’s not too late to get more in super
spacer
Super changes are coming
spacer
What’s your debt age?
spacer
Australian cash rate on hold
spacer
Super changes this financial year - Dr Shane Oliver - video
spacer
The door is closing on super’s current caps
spacer
Is Donald Trump's honeymoon with investors over?
spacer
Estate planning and why you need a super plan
spacer
What does a comfortable retirement look like?
spacer
Give your career a health check
spacer
Super changes from July 2017
spacer
Changes to the Age Pension assets test
spacer
Keep your money safe over the silly season
spacer
Looking ahead at 2017
spacer
Review of 2016, outlook for 2017 - looking better despite the political noise
spacer
Merry Christmas for 2016, a Happy New Year and a prosperous 2017.
spacer
54.2 million worries
spacer
Five tips for happy healthy ageing
spacer
Thinking about managing your own super?
spacer
Sending more to the tax office than you should?
spacer
Government pulls back on proposed changes to super
spacer
Market Update - What to consider when investing in a low return world
spacer
Stop!! Don't do a paper Budget, use our online budgeting tools instead.
spacer
Oliver's Insight - Megatrends
spacer
Value of Advice
spacer
A growing family doesn't have to blow the budget
spacer
Blinded by optimism
spacer
Thinking about managing your own super?
spacer
The investment outlook - it's not all that bad!
spacer
What’s your biggest obstacle to financial success?
spacer
Ageing Parents
spacer
Should you own the roof over your head?
spacer
Be a senior entrepreneur on your own terms!
spacer
Brexit and other key developments
spacer
Brexit wins
spacer
Commentary on major issues - AMP
spacer
Five money habits for a happy financial year
spacer
Remember to factor in parental subsidies at tax time
spacer
Are grandparents giving too much?
spacer
2016-17 Federal Budget - AMP
spacer
2016 Budget in detail
spacer
How (and why) to talk to your adult children about insurance
spacer
Procrastination: Just do it. Eventually.
spacer
Why Australian property won't collapse
spacer
The Lucky Country holding up pretty well
spacer
Have we reached the bottom?
spacer
The evolution of the Chinese consumer
spacer
Retirement rolls around faster than you think
spacer
Pressed for time?
spacer
Changes to the Age Pension assets test
spacer
Women are building financial intelligence
spacer
Heirlooms no more
spacer
Initial market falls precede stronger returns - Shane Oliver
spacer
What exactly is income protection insurance and do I need it?
spacer
A rough start to the year, which could have further to go
spacer
Aged Care - Changes to Assessment of Rental Income
spacer
A bump in the road, then a new start
spacer
New year, new start – are you ready for retirement?
spacer
Review of 2015, outlook for 2016 - Dr Shane Oliver
spacer
We wish you a Merry Christmas for 2015 and a Happy New Year
spacer
Go easy on the plastic over Christmas
spacer
Resolutions for a wealthy future
spacer
The Australian dollar doing what it normally does - overshoot. Dr Shane Oliver
spacer
How to manage volatility in a low return world
spacer
The Australian economy - more help will be needed. Dr Shane Oliver
spacer
Insurance through my super
spacer
Four tactics to build an investment portfolio
spacer
The demand for global infrastructure
spacer
Help achieve your investment goals with dynamic asset allocation
spacer
The Power of Budgeting
spacer
Jump retirement hurdles with a coach
spacer
Preparing for the time of your life
spacer
A Super Loan for all reasons
spacer
Making a smooth transition
spacer
Budget 2015 - some professional opinions
spacer
Australian Government - Budget 2015
spacer
Achieving a comfortable retirement
spacer
Is off-the-plan on the money?
spacer
Should I take my super as a lump sum or not?
spacer
Do you have a key person in your business?
spacer
Tips for success in a competitive job market
spacer
All you need to know about buying at auction
spacer
To sell or not to sell?
spacer
Saving in a material world
The fiscal cliff is more likely to be a fiscal slope
... and why concerns about Australia’s budget deficit are overblown.
 
Dr Shane Oliver - Head of Investment Strategy and Chief Economist, AMP Capital 
 
       
 
Key points
  • The threat to the recovery from the “second wave” of coronavirus cases necessitates additional fiscal support in Australia, with the Government recognising this. 
  • Australia’s federal budget deficit is now expected to peak at around $220bn this financial year, or around 11% of GDP, its highest since the end of WW2. 
  • This is unlikely to cause a major problem as public debt is low, borrowing costs are very low, the Government is borrowing in $A’s & it’s not dependent on foreign capital.
 
Introduction
 
The thought of various government support measures expiring in the months ahead, causing some sort of fiscal cliff over which economies and share markets will plunge, has caused much consternation. But as with the original fiscal cliff of December 31, 2012 in the US, it’s likely to be tapered into a fiscal slope. Particularly with so called “second waves” of coronavirus reaping havoc with the economic outlook. Of course, this will add to the public sector’s debt burden associated with the coronavirus shock, in turn adding to concern about some sort of fiscal day of reckoning down the track. 
 
This note looks at the key issues around fiscal support and the budget in Australia ahead of the Treasurer’s Economic Statement (due 23rd July) which is expected to provide new economic forecasts, an estimate of the budget cost of support measures so far and outline plans for future support measures. 
 
Fiscal stimulus to be extended
 
It made sense for many of the coronavirus government support measures to expire at the end of September as it avoided a permanent/hard to reverse lift in public spending, and to borrow from the analogy likening the support measures to a bridge across a chasm, once the coronavirus chasm has been crossed there is no longer the need for the bridge. However, its increasingly clear that support will be needed for longer: 
 
  • First, the second wave of coronavirus cases in Australia has seen the Victorian Government return Melbourne to a “stay at home” six-week lockdown which will slow the recovery. While we estimate the direct impact on the Australian economy to be around $5bn which will knock around 1% off GDP this quarter, there is a high risk that it impacts confidence in other states (as people “self-isolate”) and that other states may also return to a lockdown if cases spread, with NSW most at risk. This already appears to be impacting economic activity, with our Australian Economic Activity Tracker which combines timely weekly data faltering over the last two weeks, after ten consecutive weeks of recovery.
 
Australia Economic Activity Tracker*
 
 
Source: AMP Capital 
 
  • Second, the easy gains from the initial reopening including the unleashing of pent up demand may have mostly been seen but distancing requirements and travel restrictions mean that it will take much longer for some industries - travel, events, culture, accommodation, restaurants and housing construction - to get back to normal.
     
  • Third, the coronavirus shock has accelerated the shift to a digital world, such that job losses associated with automation are now likely occurring faster than new jobs are being created. Three examples of this are a faster take up of online retailing meaning less jobs in retailing, more working from home meaning less office demand and less jobs in public transport and less business travel in favour of virtual meetings meaning less use of airlines and hotels.
     
  • The last two mean that “spare capacity” will linger well into the future and this is likely to show up in a long tail of high unemployment. Without the JobKeeper wage subsidy and changes to JobSeeker, “effective unemployment” would have risen to 14.8% in April and would still be around 13.6% now. 
 
Unemployment rate, %
 
 
Source: RBA, ABS, AMP Capital 
 
The initial spike in “effective unemployment” may be reversed quickly taking it down to say 9% by year end, but getting it back to 5% as seen early this year could take years as some sectors take a long time to recover and accelerated structural change impacts. This suggests both a short-term and a long-term challenge for government which will likely be met at least in the short term by more fiscal stimulus. 
 
Revised budget deficit projections
 
Our revised deficit projections are shown below and take the December 2019 Mid-Year Fiscal Outlook as the starting point. 

 

 

2018-19

2019-20

2020-21

2021-22

2022-23

2019-20 MYEFO, $bn

-0.7

5.0

6.1

8.4

4.0

Parameter chgs

 

-42.0

-100.0

-55.0

-30.0

Stimulus so far, $bn

 

-58.0

-79.0

-6.0

1.0

New stimulus, $bn

   

-50.0

-20.0

 

Projected budget,$bn

 

-95.0

-223.0

-73.0

-25.0

%GDP

 

-4.8

-11.1

-3.5

-1.2

Source: Australian Treasury, AMP Capital 

The hit to the economy will mean a hit to government revenue and this is shown in the line called “parameter changes”. Budget data released for the period to May suggests that this has been running at just over $10bn a month since March. 
 
The Government has already announced significant policy support and this is shown in the line “stimulus so far”. We have allowed for the three policy support packages in March, the health package and industry support packages. These are dominated by JobKeeper now estimated to cost $70bn. 
 
However, the need for additional support for the economy has also been recognised by the Government. As a result, in its 23 July economic statement we are likely to see: 
  • An extension of JobKeeper – although it’s likely to be revamped with a monthly eligibility test and different pay rates and companies are likely to be discouraged from accessing it for jobs that won’t be revived;
  • The doubled JobSeeker payment is likely to be pared back;
  • Income tax cuts due from 2022 may be brought forward;
  • Additional investment incentives; and
  • More industry support packages.
 
The Government will partly fund extra support by taking JobKeeper from those who no longer need it, but the bulk will likely come from the $60bn saving already seen on JobKeeper, which we expect to be fully spent and then some (see “new stimulus”) although it may not all be announce next week. 
 
As a result of the Government’s fiscal response and the hit to public revenue from the economic downturn, the budget deficit is expected to blow out from around $95bn for the past financial year to around $223bn this financial year before improving from 2021-22, as support programs phase down and the economy recovers. This would see the budget deficit as a share of GDP peak at around 11% of GDP in 2020-21, which would be its highest since World War 2. Spread over several years, this will add nearly 20% of GDP to Australia’s public debt. This raises two questions though: will it be enough? And can we afford it? 
 
 
Australian Federal budget deficit
 
 
Source: RBA, Australian Treasury, AMP Capital 
 
Will it be enough?
 
By extending programs like JobKeeper beyond September and announcing additional stimulus including the likely bring forward of tax cuts, the Government will effectively taper the fiscal cliff and turn it into more of a slope. This helps solve the short-term reality that a lot of jobs won’t have come back by October. However, it remains to be seen whether this will be enough given the long tail of unemployment flowing from the coronavirus shock discussed earlier. The Government’s focus looks likely to shift to economic reforms in the October budget and this makes sense, but more fiscal support may ultimately be needed to soak up the likely long tail of unemployment. 
 
Can we afford the surge in the deficit and debt?
 
Our assessment remains that it is affordable. First, were it not for the support measures the economic hit would be far greater, ultimately resulting in an even bigger public debt blowout. 
 
Second, as Keynes showed, it makes sense for the public sector to borrow from households and businesses at a time when they have cut their spending, and to give the borrowed funds to help those businesses and individuals that need help. 
 
Third, the support programs won’t cause a permanent step jump higher in public spending. 
 
Fourth, Australia’s starting point for net public debt was low at 23% of GDP compared with other advanced countries averaging 83%. See the next chart. And even with projected budget deficits it will remain relatively small. 
 
Net public debt, 2019 & 2021
 
 
Source: IMF, AMP Capital 
 
Fifth, borrowing to finance the budget deficit is in Australian dollars and, with a current account balance, we are not dependent on foreign creditors risking a foreign currency crisis. 
 
Sixth, the cost of Government borrowing is very low at less than 1% for ten years. This is partly being facilitated by the RBA buying bonds, but bond rates would be low anyway. 
 
Finally, consider what would happen if “shock horror” the Government and the RBA agreed to cancel the bonds that the RBA owns? Apart from a lot of grinding teeth from some commentators the answer would be very little – the Government’s loss on its “investment” in the RBA would be offset by a reduction in liabilities. In other words, it’s not necessarily the case that all public debt has to be paid back if it’s owned by the central bank. For the technically minded, the limit to this would be if all the extra money that the central bank printed to buy the bonds causes inflation – but as Japan has seen, if there is lots of spare capacity, inflation is not an issue. 
 
Concluding comment
 
With the private sector spending hit by coronavirus it makes sense for the Government to continue to help fill the breach and support the economy. The best approach to getting debt back down is to grow the economy aided by a reinvigorated economic reform agenda, but for a while government fiscal support will continue to be needed. 
 
 

Important note: While every care has been taken in the preparation of this document, AMP Capital Investors Limited (ABN 59 001 777 591, AFSL 232497) and AMP Capital Funds Management Limited (ABN 15 159 557 721, AFSL 426455) make no representations or warranties as to the accuracy or completeness of any statement in it including, without limitation, any forecasts. Past performance is not a reliable indicator of future performance. This document has been prepared for the purpose of providing general information, without taking account of any particular investor’s objectives, financial situation or needs. An investor should, before making any investment decisions, consider the appropriateness of the information in this document, and seek professional advice, having regard to the investor’s objectives, financial situation and needs. This document is solely for the use of the party to whom it is provided.