1)      “Off the plan buyers” up to $600,000 will no longer pay stamp duty. This is going to help developers obtain finance because banks want pre sales before firming up financial arrangements for their clients.

2)      Home buyers that buy during construction or at completion will receive a 25% reduction in stamp duty on purchases up to $600,000. This incentive will help some “spec builders”.

3)      “Empty Nesters” (or last home buyers) over 65 are being encouraged to sell their main home and buy another home up to $600,000. Those who do this will pay no stamp duty on the purchase.

4)      First Home buyers are getting $7000 plus they pay little or no stamp duty on home purchases up to $600,000 for another two years.

Those interested are encouraged to read the fine print about the “NSW Home Builders Bonus” by looking at the Office of State Revenue site.

This contrasts with a deficit expected for 2009-2010 of $1bn as recently as December, 2009. Settlements for real estate sales in the booming March quarter should increase the surplus further. Not content, the government has decided to milk the property cash cow further by slapping the new land transfer tax on settlements after June 30, 2010.

The government will no doubt splash the cash during next year’s state election campaign. In the meantime proceeds of the $850mil lottery sale have been used to shore up the superannuation shortfall for NSW public servants (to the extent of $510mil).

Some of these super commitments won’t accrue for a decade. Why can’t the government share some of the proceeds now with ordinary taxpayers that are sick of being sucked dry with tax increases.

The Federal Government spends or allocates to the States for spending, 1 in every 3 dollars spent in Australia, (almost equal to the entire GDP of Greece, which admittedly only has half our population). Almost half the expenditure and all the increase in total expenditure goes to health, social security and welfare. The main areas of reduced expenditure, education, housing and energy efficiency are areas that needed boosting rather than cuts.

Labor’s heartland will welcome the reduced income tax, the superannuation guarantee increase from 9% to 12% and easier tax returns (plus higher deductions) so much so that if the Liberals refuse to pass elements of the Budget because , for example, they don’t like the super profits tax on miners then Labor will easily win the election to be called shortly.

I believe Mr Abbott has made a serious mistake aligning himself with the miners. That’s a no win situation. Voters will want the handouts and won’t care about big mining companies paying for them. Politics at its cynical best.

Hidden in the Budget are some interesting nasties for small businesses. The government is going to spend a quite massive extra $420m targeting GST avoidance and the cash economy. If the FBI can catch a terrorist because he paid for his car with cash, the sky is the limit as to what can be achieved if serious resources are directed at the black economy.

Most individuals and most industry sectors gain a little from the budget. The government has cautiously increased spending as much as it dared without raising the ire of the RBA. They are pinning their hopes for revenue raising on miners and smokers. Once the election is announced we will see the hollow logs raided for more election promises.

Lucky we can still afford a glass of wine or 2 for another year.

Several manufacturing enterprises have since called it a day, the Bridgestone Tyre Company being the biggest. Thousands of exporters, however, must be feeling the pinch because the AUD is becoming so expensive. One positive aspect of the larger pool of unemployed is that some will be available for the massive resources projects getting underway throughout Australia.

The article in the Australian by David Uren titled “Golden lining to the currency cloud as world dumps greenback,” highlights the impact of the sagging USD on its domestic economy. The USD’s fall (apparently down 35% from its peak in 2002) is proving a major bonus to US exporters whose businesses have taken off. On the capital side, the US government and all the US companies holding international assets are making squillions. For example, the US private equity group TPG that has just lured the Australian public and institutions into buying MYER out, may have originally bought the AUD when it cost around USD 60c. That same AUD is now worth over USD 90c at a time when a lot of American companies like TPG will be tempted to repatriate assets, including their property holdings, from Australia.

The downside for America lies in the potential for serious inflation from all this money swirling around. Firstly there is income from the sale of overseas assets. Then there are various stimulus packages and last but not least there is the inflationary impact of the increasing costs of imported goods. Interest rates in the US may have to rise sooner rather than later. The longer they delay the higher they will have to go. The US Federal Reserve probably should have raised rates before we did.

So the world has dumped the greenback and justifiably so. Central banks like India are buying gold instead (200 tonnes in the past week or just short of Australia’s annual production). Companies like the private equity group TPG that just made over AUD 1.5 billion flogging Myer shares to an unsuspecting Australian public will not be leaving the proceeds in USD for long. They will probably put the money straight into the Chinese Yuan which surely can not be pegged to the USD for much longer, but about that in another blog…

We are a trillion US dollar economy compared with the US 14 trillion USD economy and the USD 60 trillion world economy. Our country is only a speck internationally, traditionally only 2% of turnover for global giants like Nestle, Unilever & Shell. However, our interest rates are internationally high by comparison. So where is a lot of hot money going to flow, if not into the AUD? If the RBA continues along this path whilst the huge US economy keeps deflating and the USD keeps falling, our currency will reach parity with the USD in very short order.

This could be fatal for our exports, especially in the manufacturing sector which will become uncompetitive with imports if they haven’t already become so.

Since I recently predicted, wrongly as it turns out, that US rates would rise before Australia’s, the US economy has continued to weaken. Unemployment has risen to 9.8%. President Obama’s health care reform is stalled, Afghanistan is a quagmire, Chicago lost the 2016 Olympics to Rio, gold continues to break records (because those in the know have lost faith in the USD).

So, whilst US interest may not have risen for domestic reasons, investors will vote with their feet and search for a currency that is rising.

What better place to put their money than in Australia, which is politically stable, supplies the world with resources and now has one of the highest interest rates in the world (but lower than India and Brazil), and a rising dollar.

The upward pressure on the AUD will rise each time the RBA ratchets up the cash rate. Inevitably more money will flow into the AUD pushing it rapidly towards 1AUD = 1USD. As the Aussie dollar buys more US dollars, imports get cheaper, outbound tourism will boom and inflation may abate, but….on the other hand, exports, import/ competing manufacturing, inbound tourism, property and jobs will all suffer.

Is inflation that much of a problem that this should be allowed to occur?

Hopefully, at least the Federal Government will maintain its fiscal stimulus. In any event, Mr Turnbull, which schools precisely, would you deny their once in a generation opportunity for a new (“freebie”) multi purpose hall?

Whilst I may have been wrong in predicting that Australian interest rates would not rise until they do in the US, the consequences of the rise, yesterday, will seriously hurt sectors that do not need further shocks.

Another consequence of the tightening of monetary policy will be that the Federal Government will have to bring in a tough Federal Budget next year if it is to avoid unnecessary rate rises now that Mr Stevens has put his hand on the interest rate trigger. Will the Federal Government want to have a tough Budget before the next election? I don’t think so. No wonder it’s looking for an excuse for a double dissolution. What better time then when the Liberals and Nationals are imploding.

Henk Emans, B. Comm, MBA, LREA

The properties auctioned in our local area were diverse. From the first auction at 9:30am that Beach & Bay Realty auctioned – a 1 bedroom at 1/20 Banksia Rd, Caringbah that sold for $230,000 to the last auction of the day, 169 Woolooware Rd, Burraneer which sold prior for $1.21mil. Of the 9 auctions, the properties were in the suburbs of Cronulla, Woolooware, Burraneer, Caringbah and Caringbah South.

5 of the properties auctioned were apartments and 4 were houses, all the houses achieved sales over $1 million.

During the week there was 1 auction held, waterfront 58 Grandview Pde, Caringbah South, unfortunately this did not sell.

The Beach & Bay team has enjoyed a 100% auction clearance rate throughout 2009. As selling agents we believe strongly in the auction process but only if the property or market is unique. At the moment I would say it is a ‘unique’ market, where demand is much higher than supply.

In other words, there are a lot of buyers right now and not enough properties on the market at a time that is traditionally peak selling season. So if you are thinking of selling, in particular if you are in the suburbs including Cronulla, Burraneer, Woolooware, Dolans Bay, Caringbah, Caringbah South and Lilli Pilli please give Beach & Bay Realty team a call on 9527 0008.

I understand that a lot of China’s gold is stored in London but that it is pulling at least some of it back to start storing it in Hong Kong. The other worrying development for the US is that China is to allow its citizens to hold gold.

These developments are good for Australia because we dig up lots of the yellow metal (about 10% of the world’s supply) and production has started to rise again (up 2 tonnes in last quarter) with new mines still coming on stream (Boddington the largest with expected annual production of approx.7 tonnes rising to 30tonnes) but not so good for America because interest rates in the US will have to rise to make their Treasury Notes (TN’s) more attractive. If they do rise in the US (they already are rising at the long end) then there will be less pressure on our dollar and on our interest rates.

The Australian Reserve Bank knows that if it increases Australian interest rates (already high by international comparison) our currency will become more attractive to foreign investors who will want to buy more AUD which will rise and make our exports less competitive and lead to job losses.

If rates in the US do rise to make TN’s more attractive, the US$, which has already lost 12% of its value in the last year compared to the Chinese yuan, may slow its slide.

US GDP in 2008 was approx US14 trillion (vs Australia’s USD 1 trillion) but its national debt is now fast approaching US$ 12 trillion (vs Australia’s nominal Federal government debt), rising by over US$ 100 billion every month at a time when President Obama wants to introduce free healthcare to those who can’t afford to pay while still fighting wars in Iraq & Afghanistan. On the other hand the capacity of industry and the well-off to pay higher taxes has reduced, if anything. How is the deficit going to reduce? I can’t see it happening unless the US$ falls dramatically to make their exports much more competitive so that incomes  rise again, tax receipts rise and deficits start to fall.

In short, I think US interest rates will rise before ours do. Let’s see if I’m right. If I am, the Cronulla property market will be perfectly placed, new quality developments such as Sammut developers Drift apartments on Gerrale St, Cronulla (Central) will come on the market as a luxury finished product at the end of 2009, while interest rates are low and the Australian economy strengthens…

Henk Emans, B. Comm, MBA, LREA