The Economic News Thread

[Prince George]

When the price of housing is raised by people making these investments, they make it more difficult for larger investors to increase the density in our existing low-density neighbourhoods.

How? Both their costs and their returns would be higher but either way they'd still have the problem of requiring many properties from many owners.

I can't find you the reference that I first read this discussion - I think it was commentary in the AFR around the release of the Henry Tax Review - but I can point you to the minutes from the Senate select committee on housing affordability where there's at least a few notes.

[Will]

From the Advertiser:

Construction Giant Grocon to set up in Adelaide

SARAH MARTIN From: AdelaideNow July 13, 2010 10:44AM


NATIONAL construction giant Grocon will establish a new office in Adelaide on the back of a $50 million contract at Edinburgh defence base.
The company is Australia's largest privately owned construction and development enterprise and has built most of the nation's tallest buildings - including the 297m Eureka apartment building in Melbourne.

Grocon has a strong presence in New South Wales, Victoria and Queensland and is also developing projects in Abu Dhabi and Dubai.

Grocon chief executive Daniel Grollo said the the company had been looking at opportunities in Adelaide for some time and the recently secured package of work at Edinburgh was its first foray into the SA market.

"We have been pretty cautious and the right opportunity hadn't necessarily come along, but we do enjoy working with Defence and this is a great place for us to start," he said.


"It will certainly mean a new Grocon office of sorts, and the scale of that will support the scale of projects that we work on."

Mr Grollo said the company was also interested in commercial projects being developed in Adelaide and was looking at several of the larger commercial pre-commitments being mooted in the market.

He said the company was strategic in its development approach and was not interested in becoming a "mass market" builder.

"They (our projects) are relatively iconic, large and complex projects with top-tier clients and that is certainly the type of opportunities we are looking at," he said.

"It will be a question of the right opportunities meeting our criteria and it was about extending a very strong relationship that we have with Defence in other states."

The company is recruiting two senior positions and seeking a commercial manager with experience working on projects above $100 million, along with a service manger to oversee the Defence job.

[crawf]

Brilliant news!

[ricecrackers]

i remember getting pilloried in this thread 2 years ago when i predicted there would be very little to no construction occurring in Adelaide due to the GFC

seems i was right

http://www.sensational-adelaide.com/for ... 0&start=75

now we're in 2010 and we havent come out of it yet...it will possibly be another 5 to 8 years before we see construction of commercial property ramp up again to the levels of the early naughties (which IMO was still less than the late 80's)

[Aidan]

i remember getting pilloried in this thread 2 years ago when i predicted there would be very little to no construction occurring in Adelaide due to the GFC

seems i was right

http://www.sensational-adelaide.com/for ... 0&start=75

now we're in 2010 and we havent come out of it yet...it will possibly be another 5 to 8 years before we see construction of commercial property ramp up again to the levels of the early naughties (which IMO was still less than the late 80's)

The link you supplied shows the pillorying was based on your ten year figure, so it's really too early to say who was right yet.

[joshzxzx]

Interesting reading on SA..

[joshzxzx]

And another one..

[Wayno]

a few things have caught my eye from this leaked document as we head towards tomorrow's SA budget:

* Increase in politician superannuation to 15%. I hope such increases help bring a better calibre of person into state politics.
* Many Art, Dance & Festival project cutbacks (a few low priority programs have been cut completely, most have had their allocations trimmed). This includes the Fringe Festival and the SA Film Corporation.
* State Library & Art Gallery to have funds cut back
* Scale back of 'Thinkers in Residence' program
* Cessation of Commission for Integrated Design (unsure how this impacts Tim Horton's IDC role)
* Carrick Hill to be sold
* Cessation of the Capital City Program (The Committee plays a strategic role in ensuring the cooperation between the Adelaide City Council and State
Government agencies to achieve agreed common objectives)
* Closure of overseas offices
* Travel reduction for Defence staff
* Increase Techport funding
* Increase mining royaltes from 3.5% to 5%
* Reduce number of ministers by 3
* Increase clipsal cost recoveries (read: more expensive tickets)
* Cut back car fringe benefits for some govt employees
* Increase the Save the River Murray Levy
* Transport Oriented Developments (TOD) Developer Levy
* Introduction of a Broad Acre Development Levy
* CBD Car Parking Levy
* Removal of leave loading from employee entitlements
* Stop assessing, correcting and improving council Development Plan Amendments (DPAs).
* Annual Drivers Licence Fee Increase
* Additional Revenue from Point to Point Speed Cameras on the Dukes Highway (i thought it was about safety - not revenue?)
* Heaps of staff reductions n many govt departments
* Closure of 8 metropolitan police stations (and 9 country stations)
* Cut back or cease TDU event funding (???)

[rhino]

Keep in mind that this is from a submission by a consultative group as to ways in which the Government can save money. Some of the things are ridiculous, and the Government knows this. This document is good at creating hysteria, in many cases without justification.

[Will]

Can one of the financial warlocks here on the site explain to me why such drastic cuts are needed?

From what I gather, such cuts are designed to return the budget to surplus sooner. Why is running a deficit for a few more years so bad, so as to warrant such outrageous cuts?

Furthermore, why is maintaining the state's Triple AAA credit rating so overwhelmingly important?

[Aidan]

Can one of the financial warlocks here on the site explain to me why such drastic cuts are needed?

The government has made some bad economic decisions, such as cutting land tax, rebuildintg a viaduct that would've been better to demolish, and selecting an unnecessarily expensive route for the Seaford extension. Plus they want to waste even more money moving the RAH.

From what I gather, such cuts are designed to return the budget to surplus sooner. Why is running a deficit for a few more years so bad, so as to warrant such outrageous cuts?

It isn't. This is another of their bad economic decisions.

Furthermore, why is maintaining the state's Triple AAA credit rating so overwhelmingly important?

Because the Federal government won't let the state government borrow directly from the Reserve Bank, so everything has to be bond financed. A lower credit rating means they have to pay more interest.

[AtD]

Can one of the financial warlocks here on the site explain to me why such drastic cuts are needed?

From what I gather, such cuts are designed to return the budget to surplus sooner. Why is running a deficit for a few more years so bad, so as to warrant such outrageous cuts?

Furthermore, why is maintaining the state's Triple AAA credit rating so overwhelmingly important?

Speculating as to why the cuts are needed:
- Tax revenues have fallen off a cliff (not likely)
- Costs already committed, such as health and education, rising faster than tax revenues (probable)
- Commonwealth grants have fallen, such as infrastructure stimulus (likely) or GST allocation (less likely)
- Funding the big infrastructure spend (probable)
- Good ol changes in political priorities (definite)

Of course I'm just taking a guess, since we don't have the budget yet. There is a reasonable amount of scope for revenues and expenses to be pushed around the budget paper so they appear in all sorts of weird and wonderful places, past, present and future. We may be equally clueless come Thursday evening.

Why are deficits bad? For SA, being so small, the macroeconomic issues can be overlooked (inflation and what not). The biggest problem I suspect the Treasury are worried about is maintaining that debt, ie paying interest. States, unlike the Commonwealth, are at higher risk of default simply because they don't have their own Reserve Banks to dip in to.

Credit ratings are the rubber stamp of approval/disapproval that ratings agencies apply to debt as a measure of default risk (in a perfect world). This directly effects the interest rate the government must pay to maintain the debt. A downgrade from AAA to AA is a signal that the rating agency of the moment regards that the revenues of the government are that little bit less likely to cover the debt costs. This significantly increase the cost of maintaining the debt, thereby making it even harder to maintain, and down the spiral goes.

For demonstration purposes: Currently a AA rated corporate bond yields (pays) about 0.6% less than a A rated bond. This changes on the whim of the market. In the 09/10 budget the non-financial SA public sector had gross liabilities of approx $23b, of which $8b were borrowings (the rest is mostly superannuation and employee entitlements). 0.6% of $8b is $48m. Not small change.

I have memories of something in the first round of stimulus talks about all state debt being guaranteed by the Commonwealth, thereby allowing all states to borrow until the cows come home and the consequences being born by the Feds. I don't know what happened with that.

[jk1237]

I like the CBD carparking levy, regardless of our state's financial position

[AtD]

I like the CBD carparking levy, regardless of our state's financial position

I agree! Sydney does a similar thing. Hopefully it'll cull off some of the stand-alone car parks currently proposed.

[Will]

Thanks for the explanation guys.

In regard to today's state budget, it was less full of horror than what I anticipated. Although I feel like stumpjumper, it wouldn't surprise me if the leak was orchestrated by Foley himself so the public would say to themselves ''ït could have been worse''.

Regarding the actual budget, I think some better ideas for savings would have been:

*To scrap the tram extension to West Lakes (now with the upgrade of AAMI no-longer going ahead, it is no-longer necessary)

*Introduce a tiered system for fines, license fees, vehicle registrations.... For, example those earning over $100 000 should pay double the amount, whereas those over $500 000, should pay triple the amount. Such a mechanism would make it fairer for everyone.

*I would close down the St. Margarets hospital at Semaphore. It is an outdated facility, whose services could be incorporated by the QEH.

*I would have incorporated the recommended cuts to MPs car perks, their recent superranuation increase, and reduce the number of ministers to 3. I would also, get rid of the Legislative Council.

*I would introduce a new category for vehicle registrations. Instead of 7 cyllinders and up being the top category, I would introduce a new 9 cylinders and up category, whereby those with such cars pay more.

*I would get rid of all housing grants. they only serve to increase the prices of housing.