From Good to Better, But Not Yet Best

From Good to Better, But Not Yet Best

The RBA is still asleep at the wheel, but the rest of the world is on the rise.

Good Better But Not Yet Best

The RBA kept rates on hold this week……. zzzzzzzzzzzzz

The RBA sited some global uncertainty, but their take on things was basically the same as anyone else who reads the newspapers each day.

They still do not get it. They have kept rates much higher than is necessary to keep inflation low, while the domestic economy has struggled all these years. The export boom has continued in volume terms with the actual amount of minerals sold to China and elsewhere, but the fall in commodity prices has meant a sharp decline in the trade balance.

This has exposed the Australian domestic economy for what it is: The great under-performer of Asia.

The Solution Is Bold Reform

Too much regulation in every industry (not just property) and taxation is the real problem. It stifles activity and discourages fresh initiative. It most certainly weighs on the degree of aspiration that the Australian people hold. This is why an increase in the GST could be a good thing for the broad economy overall, only (and this is important) if it is accompanied by greater cuts to company and personal tax. A GST is actually a progressive tax which will capture a fairer degree of revenue from everyone, while allowing reductions in tax that inspire activity overall. I believe we will see significant reform, but not enough in my book.

Nevertheless, any and all reform that reduces overall taxes and eliminates un-necessary over-the-top taxation, is a good thing.

In this way I think the Turnbull effect on the economy will persist for some time. This is a strong positive for property.

Any stabilisation and renewed interest by domestic buyers in a market that is still swamped by overseas interest is likely to see a fresh price boom realised though the year.

The outlook for China, the US, and Europe, all remain far more favourable than you will be reading in the press.

That the RBA mentioned the global outlook as “a concern” can only tell us that any such concern has reached its “Use By” date.

That the RBA has kept rates on hold is no surprise.

My forecast has been the same since the last rate cut. The RBA will sit at 2.00% for around 18 months, then mistakenly raise rates. It simply does not have the intellectual or economic capability to understand and do more - which should have been to cut rates to 1.5% by now. So we are stuck with this weight, but it is a weight that the property market can carry.

So the outlook remains very strong, with stability by the RBA a reassuring support factor, at least.

Clifford Bennett International Economist

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