90 seconds at 9 am: Bold Aussie budget

Aussie budget spends big on infrastructure; gives tax cut to FHBs; imposes new costs on big banks; hits foreign investors; HNA under scruitiny; UST 10yr yield up to 2.41%; oil and gold drop; NZ$1 = 68.9 US¢, TWI-5 = 74.1

10th May 17, 7:27am by David Chaston

Here's my summary of the key events from overnight that affect New Zealand, with news of some surprisingly adventurous policy moves in the Australian Federal budget.

Their government will impose AU$23 bln in tax hikes on banks and foreign investors in a bid to ‘reset the budget’.

For that money, they have announced a 10-year "nation-building program" that is set to create tens of thousands of construction and support jobs in a range of major projects. Firstly a new AU$5.3 bln a new company to build and operate a second airport in Sydney by 2026 will be a fully Federal project. Then a new project to connect Melbourne and Brisbane by a 1,700-km inland rail line will be funded. The government will also acquire outright ownership of, the Snowy Hydro scheme. That will unlock funds for New South Wales and Victoria states to reinvest in other infrastructure.

In housing, first-time home buyers will receive a tax cut on deposit savings up to AU$30,000.

And Australia's five biggest banks are being hit with a new levy on liabilities that will raise AU$6.2 billion over four years. From July 1, ANZ, Westpac, National Australia Bank, Commonwealth Bank and Macquarie will face a 6 bps levy on customer deposits above AU$250,000, corporate bonds, commercial paper, certificates of deposit and Tier 2 capital instruments. And a new body, the Australian Financial Complaints Authority, will be tasked with resolving disputes customers have with their bank, and banks will face fines of as much as AU$200 mln for misconduct.

And finally, developers will be barred from selling more than 50% of any new residential project to foreign investors. The government will also introduce a so-called "ghost house" tax of $5,000 on foreigner investors who fail to occupy or lease a property for at least six months of the year.

Elsewhere in the world, the focus is back on HNA Group and its shady, opaque ownership. It has raised eyebrows by increasing its stake in Deutsche Bank to 9.9%, something that was today welcomed by German regulators.

In New York, the UST 10yr yield has risen yet again and is now at 2.41%. (And the VIX volatility index is settling in comfortably below 10, indicating 'fear' is low in markets these days. In addition, Australasian investment grade corporate debt CDS spreads have fallen to their lowest level since late 2007.)

The price of oil is trending down today. The US crude benchmark is now under US$46 a barrel, while the Brent benchmark is under US$49.

It is the same story for gold, but it is down more sharply and now at US$1,214/oz.

The New Zealand dollar is slightly softer as well at 68.9 USc as the greenback is moving up. On the cross rates the Kiwi dollar is at 93.8 AU¢ and 63.3 euro cents. The TWI-5 index is at 74.1.

We should also note that the price of bitcoin, that just recently rose sharply to over US$1,500, has today surged on higher to well over US$1,700.

If you want to catch up with all the changes yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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27 Comments

by bw | 10th May 17, 7:42am 1494358923

"..Australia's five biggest banks are being hit with a new levy on liabilities that will raise AU$6.2 billion.."
....bank's CUSTOMERS. Do we really believe that any and all costs, whatever they are, are not going to be passed on to the customer base in one form or another?! Just look what happens when interest margins are squeezed - the banks simply raise borrowing rates to make up for the shortfall. Of course, it's a death spiral in many ways - the less customers borrow, the more the banks will raise rates, the less cusomers will borrow. But that's what will happen.....

by Advisor | 10th May 17, 10:49am 1494370144

One argument against your position could be that banks will be forced to innovate and bring costs down instead.
Wait... Wasn't so-called innovation on the part of big US banks that brought the global financial system to its knees.

by frazz | 10th May 17, 7:42am 1494358942

I remember the commentators on this site poo pooing Bitcoin when it was NZD $150..saying it would not last

by Joe Public | 10th May 17, 10:28am 1494368927

Blockchain , this book is great :

The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology

Yes the commentators can't see part property.... selling property to each other ....

by MortgageBelt | 10th May 17, 7:49am 1494359368

NZ students will pay international full fees at Australian universities from 2018.
However will be able to access the HECS student loan system.

by sharetrader | 10th May 17, 8:04am 1494360297

we would not be treated like this if it was not for our own high immigration settings

by sharetrader | 10th May 17, 7:58am 1494359887

they keep slamming foreign property investors but wont take the next step of banning them.
I will be interested to see what people come up with to get around the ghost tax, I can see two friends leasing each others property for 7 months for the same amount but neither living in Australia.
always loopholes

by KH | 10th May 17, 8:35am 1494362115

New Zealand has similiar tax collection problems because IRD has really no feet on the ground. Quite possible to come in, buy property and collect rent and not declare a thing. They don't know you exist.

by James007 | 10th May 17, 8:53am 1494363228

KH, I think IRD will know you exist but as you say, no feet on the ground and 6 years later when they get around to it, you are long gone and not able to be found.

More and more I see the reason that governments are moving to only digital money - no cash. IRD could have a snooping algorithm on all banks where they watch what is happening then highlight suspicious patterns to humans for follow up.

by Joe Public | 10th May 17, 10:31am 1494369119

Labour will ban them from buying existing homes. Unlike National that have done nothing at all.

http://www.labour.org.nz/cracking_down_on_speculators

Labour’s ban on foreign speculators purchasing existing houses will be based on the Australian policy. Under our policy only citizens and permanent residents will be able to buy existing homes. The ban will also apply to foreign trusts and foreign corporations.

Removing this speculative demand from the market will help stabilise prices and give Kiwi families a fair shot at buying a place of their own.

by Roger Witherspoon | 10th May 17, 8:07am 1494360428

I like the idea of a bank levy. It sems an appropriate way to extract a toll payment in return for the special privilege a banking license confers. Probably they have been too complex though, a 5 bps levy on the total loan book would be harder to game.

A banking license is sort of similar to a mining license, in that it grants a specific privilege, and so a royalty on turnover seems fair. We all pay 15% royalty or 1500 basis points, as GST, so it is arguably far too cheap, but once the principal is established it is easy to increase the rate to whatever seems a fair and reasonable level.

by iconoclast | 10th May 17, 9:40am 1494366036

How slow NZ lever-pullers are

You like the idea of a bank levy? Really.
For 4 years I proposed a banking licence. Never got any support.
Where were you?

Banking Licences - what's so hard - complicated legislation is not needed - Can't believe how slow NZ lever-pullers are. Anybody who has been paying attention will be aware that at least 4 times over the past 4 years, I have advocated an annual banking licence fee of $½ billion per annum per bank to hang up their shingle

No traction

http://www.interest.co.nz/opinion/71372/bernard-hickey-says-capital-flo…
http://www.interest.co.nz/opinion/74735/bernard-hickey-argues-reserve-b…

by Stephen Hulme | 10th May 17, 8:08am 1494360512

Don't bank regulators claim they have never seen an asset bubble until it has burst?

Maybe not?

Australia’s banking regulator will get new powers to curb property lending both in the shadow banking sector and in specific geographic areas.

The additional powers and funding for the Australian Prudential Regulation Authority come after soaring house prices in the nation’s largest cities stoked concern from politicians and central bankers.

Treasurer Scott Morrison said the government will legislate to extend APRA’s ability to apply controls to the non-bank lending sector as well as “explicitly allow them to differentiate the application of loan controls by location.” He spoke as he was handing down the federal budget.

Bringing non-bank lenders into APRA’s regulatory purview will strengthen oversight of a sector that has grown as the big four banks tighten their lending criteria. Read more

by murray86 | 10th May 17, 8:12am 1494360769

Can somebody explain the rationale behind the levy on depositors? To me it seems counterproductive. Shouldn't we see banks encouraging saving, ergo deposits, so that that money can be invested? Banks with little or no deposits must then borrow to do their business, which would make them more vulnerable?

by Stephen Hulme | 10th May 17, 8:50am 1494363054

They (Aussies) tried it on with the large foreign owned miners and failed. Now they think a local captured group can be raped in the hope of balancing a budget that will never happen.

Australian prime minister Kevin Rudd stepped down today, after intense political conflict in regards to a proposed ‘super profits’ tax for Australian mining companies.As TD Securities strategist Roland Randall explained to the Wall Street Journal, “In Australian politics, it is almost unprecedented that a first-term prime minister is dumped by his own party.”

It’s a huge blow and the proposed mining tax was ultimately Mr. Rudd’s downfall. Read more

by iconoclast | 10th May 17, 9:35am 1494365713

That is just wrong

Mitch (Mitchell) Hooke, chairman of the Minerals Council of Australia was on TV nightly railing against Rudd. The Minerals Council spent over $100 million in a fraudulent advertising campaign that eventually undid Rudd

A black-ops vilification campaign run by the elites did to Rudd similar to the ridicule campaign against Winston Peters and identical to the smear campaign run by Howard against Pauline Hansen

By the way there were two Rent Resource Taxes. Rudd's collapsed. Gillard's got thru

by iconoclast | 10th May 17, 9:51am 1494366714

The irony of this is the Labor Government tried to extract money out of the miners with a MRRT (Mineral Resource Rent Tax) but was viciously opposed by the National-Liberals, and now, here, 6 years later we have the Liberals exacting the identical impost on the banking sector. Difference is I don't think there will be too many people sympathetic to the banks. I suspect the quiet acceptance by the banks of this impost is the price they have had to pay to dodge the bullet of a Royal Commission that has long been mooted but opposed by the National-Liberal Party

by Roger Witherspoon | 10th May 17, 10:33am 1494369181

That is the art of politics, taking advantage of opportunity as it presents itself. Banks are fair game at the moment, so a chance to correct long neglected imbalance occurs. Usually the politicians miss the opportunities as they are concerned with their own personal agenda. It is the difference between an opportunistic entrepreneur and a corporate officer or bureaucrat; or between a brilliant commander and a first rate staff officer.

by two otherguys | 10th May 17, 12:14pm 1494375256

Now we wait and watch (come budget night) to see if the local wellington outfit can see the golden opportunity to slip in a low blow while the serfs are looking elsewhere

by murray86 | 10th May 17, 12:38pm 1494376706

Avoiding the debate re the mining efforts. Ta Stephen, so what you're saying is that before anyone saves any money, that money existed somewhere as a loan first, before it was paid to the recipient. In other words the money i receive in salary is a loan somewhere else before i receive it and deposit it into my bank account?What comes first the chicken or the egg?

Early learnings I received included that bank deposits are the basis of further investment into the economy (I know this has been somewhat abused lately) so therefore savings are to be encouraged. However this move appears to be actively discouraging savers, albeit big ones (I wish I had $250 K to just sit in a bank). It is still counter intuitive, apart from when one considers the possible source of those deposits as possibly nefarious and essentially 'hidden'.

by Andrewj | 10th May 17, 8:35am 1494362134

The Deep Causes of Secular
Stagnation and the Rise of Populism

https://www.gmo.com/docs/default-source/research-and-commentary/strateg…

by scarfie | 10th May 17, 10:24am 1494368695

I don't think they have gone deep enough, neoliberalism is a symptom in itself IMO. The peak rate of growth in population was in 1961, the world was hitting the limits to resources then. Peak oil isn't the point at which things start falling apart, the start point is the inflection point where hockey stick growth stops and declining growth kicks in. I bet peak EROI would match nicely with peak population growth. Peak energy per person. They are right in the problem being decades old.

So in terms of politics I have another equation :-)

The planets resouces consumption behaviour politics

Politics follows, not leads. If you want to make a different it starts with your own behaviour, not your vote.

by David George | 10th May 17, 2:54pm 1494384893

Thank you Andrew.
In theory, the Establishment Old Media neocon globalist assumptions are devoid of clothes. Let’s call a spade a spade, should we? 2008 was Crash1, but little if any of the thinking upon which it was predicated has changed. Bourses are madhouses, wealth doesn’t trickle down, a wealth restricted to 3% cannot kickstart a real recovery, the Fed Reserve is akin to Hitler’s bunker, the mass of people making 30% less than they did in the last century can’t consume on the level demanded by the Growth nuts, the secure human job market has been phased out, new robotics appear every week, still nobody knows what percentage of radioactive packaged investments are netted, at least nine eurozone and one British bank are utter basket cases, monetarist stimulation theory is a busted flush, and two huge Asian financial markets – Japan and China – remain upright solely by the use of giving free money to the casino (China) and the central bank buying up everything that stands still for longer than an hour (Japan).

We are on a journey, and there is only one place it can end: failed objectives, bank collapses, huge Bourse corrections, mass unemployment, and 40% of most Western populations financially wiped out….living alongside that 3% who have (it is estimated) enough capital in various forms to bale out the other 97% five times over. And that is not counting the electronic money swimming aimlessly around the shadow banking system.

Never in the recorded history of the world has that sort of ending evoked anything less than violence, repression, censorship, revolution, wars and then dictatorship. The only reasons the vast majority of humanity don’t see this coming are first, an ignorance of history; and second, the flaw in human wiring that prefers denialism up to and including the point where they’re sliding down the deck in the direction of the cold sea.

by middleman1 | 10th May 17, 9:44am 1494366292

Shareholders are wary of investing in businesses which Governments can arbitrarily treat as cash cows. The reef fish investor crowd will likely exit en masse over coming days followed by the usual slow recovery in price but longer term this move will see bank shares rerated down by longer term investors if it causes net margin erosion. The tax will either have to be passed on in increased loan rates (force Kiwi mortgagors to fund Aussie government budget deficits) or more rounds of bank expense cost cutting are on the way.

by Brendon | 10th May 17, 10:47am 1494370044

"Force kiwi mortgagors to fund Aussie government budget deficits"

Does NZ accept its subservient role of paying for its big brother Australia -a kind of tribute to the bigger colonial power. Or does NZ also increases taxes on the banks which operate in NZ (which are mostly subsidiaries of Aussie banks) or does NZ need a locally owned banking system?

My guess is the donkeys in charge of NZ will kowtow in the form of bum up and head in the sand....

by Cowpat | 10th May 17, 9:48am 1494366529

HNA , appears mirror image of Shanghai Pengxin, even two brothers. Start off as real estate developer in Shanghai,purchase ailing state chemical company in non public offering.Head to Bolivia for soybean farm Turn up in Congo with China Construction bank money and purchase copper mine with funding to Congolese state.Turned down in Canada and Brazil head to New Zealand Turn up on stage with Kuangchi science CEO and Xi Jinping ,get photographed with PM, continue buying dairy farms. Kuangchi take over Martin Jetpack ( that is going well) Head to South Africa , take over gold mine previously gutted by nephew of President Zuma, and promise large real estate development in Durban . Head to India with Jinping and promise massive investment fund overseen by Pengxin. Head for Australia look to purchase massive landholding . With Kuangchi promise to revolutionize internet in the Congo, why not. Recently buy stake in Cleanteq , Australia, as its missing cobalt on its list, money no problem, buy at inflated price.With Kuangchi , Pengxin International mining and 5 others, participate in 1 billion non public share offering raising 7.2B for Zhejiang Longsheng Autoparts .Of course it makes car seats Price of shares at 80 percent discount to 60 day moving . Autoparts shares rise on Stock exchange, as major shareholder Zhejiang Longsheng continues funding thru issuance of short and medium term corporate bonds. Kuangchi Science CEO takes over as Chairman of Zhejiang , that makes sense, as Kuangchi annual accounts show almost all profit from paper value rise in Zhejiang shares, not many jet packs sold. Currently, Pengxin International mining,with 50 percent of its shares pledged alongside its copper , Hunan Dakang of dairy farm fame, Zhejiang Autoparts are all currently suspended, Pengxin International mining being restructured again If you throw in SSE investigations and multiple CFO resignations its all as clear as mud, where does the money come from.

by Joe Public | 10th May 17, 10:36am 1494369373

How many Empty homes in NZ or is the Government too scared to ask

http://business.financialpost.com/business/spectre-of-empty-houses-haun…