Economy

Inflation niggles rate worry.. House price boom and bust… Bosses take aim at fairness test red tape… Transport consolidates… Business sales floodgates open… Accountant demand ropes in students

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Rising inflation increases risk of interest rate rise

The consumer price index increased by 1.2% in June quarter 2007, exceeding market expectations by 0.2% and making it more likely that interest rates will rise when the Reserve Bank meets in August.

HSBC chief economist John Edwards is predicting a rate rise in August. Westpac is predicting two rises, one in August and another in November.

But ANZ Bank economist Tony Pearson believes the bank will wait until early 2008. “The annual rate of the core inflation measures remains stubbornly in the upper half of the RBA target band,” Pearson says. “Given recent softness in activity indicators such as retail sales and dwelling construction approvals, the RBA would still seem to lack a strong case for a rate rise in advance of the federal election.”

The most significant price rises this quarter were for automotive fuel (+9.1%), fruit (+8.4%), and vegetables (+6.1%).

– Mike Preston

 

Melbourne boom, Perth bust on housing prices

House prices in Perth have come back to earth with a thump after recent stratospheric growth in recent years, the booming mining state experiencing a 0.2% contraction in median house prices in the June 2007 quarter.

The Perth market still has some way to go before it comes back to normal levels – it still costs an average of $503,303 to buy a home in Perth, the second highest in the country behind Sydney’s average of $528,533.

The previously slower moving cities of Melbourne, Adelaide and Canberra experienced the fastest growth in prices in the June quarter, with price increases of 6.5%, 4.5% and 7.4% respectively.

The $398,217 price tag on the average Melbourne home, or $355,827 in Adelaide, means it is still much more affordable to become a home owner in the southern cities, however.

Housing prices declined by 1.6% in Hobart in the three months to June, while Sydney’s 1% growth rate for the quarter means house prices have gone backwards by 0.2% over the year.

Australian Property Monitors general manager Michael McNamara says house prices in Melbourne in the June quarter were the strongest they have been since September 2001. “This type of growth is obviously unsustainable in the long term, [but] it does reflect increasing buyer confidence in the market, which will likely persist for the rest of the year.”

– Mike Preston

 

Employers criticise fairness test red tape

Members of the Australian Chamber of Commerce and Industry (ACCI) will meet today to discuss ways to streamline the assessment of workplace agreements against the fairness test and clarify the controversial “fair compensation” clauses.

The Workplace Authority (formerly the Office of the Employment Advocate) is still battling through a backlog of AWAs and collective agreements lodged between the policy’s announcement on 7 May and the law taking effect in June.

Some employers have received notification that the fairness test does not apply to their workplace agreements or that they comply with applicable award conditions.

A Workplace Authority spokeswoman could not provide figures on how many agreements remain in the backlog, but said the organisation is working towards clearing it in the next couple of weeks.

ACCI has expressed concern about the fairness test since it was announced, and will today consider ways to limit any negative impact on employers and send a message to the Government to minimise red tape, The Australian Financial Review reports today.

In other IR news, a new report released today shows productivity in the construction industry increased dramatically in the period following the inception of the Government’s construction industry watchdog, the Australian Building and Construction Commission.

Between 1994 and 2003, costs in the residential building sector, which has a small union presence, were 10.7% higher than in commercial construction. Cost changes in the latter saw a shrinking of this gap to 1.7% between 2004 and 2007, the period in which tough new laws restricting union activity in the sector were introduced by the Government and enforced by the ABCC.

– Mike Preston

 

Concentration in transport industry grows

More pressure on small players in the transport/logistics industry with the announcement that Australia’s second biggest transport company, Linfox, has bought Westgate Logistics for $180 million. The purchase follows hard on the heels of other acquisitions by Linfox including Provisional Freightlines and FCL Freight.

Smaller players have already been under pressure since the merger of Toll and Patrick. And it could get worse. The Australian reported that Linfox executive chairman, Peter Fox, says he expects the third-biggest transport operator Allan Scott, who is 84, to put up the For Sale sign. “This place is built on monopolies and duopolies. Companies at the bottom will get squeezed out,” he says.

– Amanda Gome

 

Who will buy…

The business sale tsunami has begun, with 40% of businesses in Australia expected to change hands within 10 years and more than half (52%) forecast a sale in the next three to five years, according to the Grant Thornton International Business Report.

WA leads the way with almost half of all businesses planning a change of ownership over the next decade (47%) followed by 41% in Victoria, 40% in SA and NSW and 36% in Queensland. The survey of 7200 business owners in 32 countries found the sales tsunami will be highest in South Africa (52%) followed by New Zealand, Canada and the Philippines.

In Australia a trade sale is the most popular exit (22%) followed by a management buy-out/buy-in (20%), sale or passing it to a family member (18%) sale to employees (13%) or private equity (12%).

– Amanda Gome

 

Super funds go backwards in June, but it was an excellent year

Average superannuation fund returns fell by 0.18% in June 2007, because of losses in international shares and listed property trusts.

But strong revaluations of unlisted assets helped many of the largest super funds get their best returns in a decade, according to SuperRatings data for June. Median super returns for the biggest 50 funds for 2006/07 year were 15.65%, a 1.15% increase on the previous financial year.

Top 5 Super returns

  • Catholic Super Fund – Balanced (21%)
  • Westscheme – Trustee Selection (18.8%)
  • MTAA Super – Balanced (18.7%)
  • Telstra Super Corp – Balanced (18.2%)
  • Buss (Q) – Balanced Growth (17.9%)

Big super funds were the best performers in 2006/07, the top balanced 50 funds by size returning 15.65% compared to the “all funds” average of 14.92%.

But there was a relatively small gap between the best and the worst performers. The top quartile average return of 16.5% was only 2.2% higher than the bottom quartile.

– Mike Preston

 

Love your accountant

Amid dire predictions that accountants could soon be as rare as plumbers, major firms are headhunting high school students into accounting courses. And the problem is only going to get worse with many school leavers not interested in studying accountancy because it is perceived as boring.

Accounting firms use to hire second and third year graduates. Now some are poaching students as young as 16 and paying their degree fees.

Mind you, at least the fees will be low. Accountancy graduates are among the lowest paid graduates according to Graduate Careers Australia. The highest paid grads from dentistry start on $68,000 in their first year of full-time employment, accountants were at the bottom with an average starting salary of $37,000.

For more on graduate starting salaries see Trends and Ideas.

– Amanda Gome

 

Services exports in decline

Australia’s exports of commodities may be booming, but exports of services, which represent three-quarters of the domestic economy, are lagging.

A recent Business Council of Australia report found Australia is nearly $10 billion a year poorer as a result of declining services exports over the past decade, and now the Australian Services Roundtable is calling for a “minister for services” to address the problems.

But Trade Minister Warren Truss told The Australian Financial Review that he can’t see the need because three-quarters if the economy is services. Labor’s services economy spokesman Craig Emerson is supportive of the idea.

SmartCompany wonders whether it would be a good idea to add services to the Minister for Small Business role and elevate it to Cabinet. That would get the issues further up the agenda. What do you think? Email [email protected]

– Jacqui Walker

 

 

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