It’s rare these days that regulators are criticized for being over cautious however that is exactly the criticism being faced by the Reserve Bank of Australia who says that its own rules for access to the credit card system are so restrictive even the RBA itself is denied access.

Back in 2004 the central bank rescinded the right of MasterCard and Visa to decide who would be allowed to issue and receive their cards. The RBA argued that the system had to be open to any ”authorised deposit-taking institution” that is under the supervision of the Australian Prudential and Regulation Authority (APRA).

The problem the central bank has is not that it does not qualify since it provides banking services to the Federal Government and its agencies. However it is finding that it cannot issue Visa and MasterCards in the same way other financial institutions can. The central bank would love to be able to issue these cards because it would mean that ordinary individuals could pay ASIC feed or taxes simply by quoting their card number.

The central bank could submit to APRA oversight however it is unlikely to do, alternatively it could use a private lender as a proxy to deal with the credit card companies on its behalf.

In response to its quandary the Reserve Bank has released a consultative paper which proposes that the access regime be revoked and that the two card companies once again be allowed to decide which banks have the right to issue and accept cards which would mean the RBA would very likely make the list.

According to the paper both card companies have transformed their ownership structure away from being privately owned by a consortium of banks, into full publicly traded companies instead. Neither seeks to restrict access to their infrastructure and both are keen to expand business.

The paper makes the point that Visa and MasterCard are not what they were. A decade ago they were owned by the banks and keen on restricting access to their infrastructure. Each is now a public company, keen to expand business.

The change in regulations would mean it would be much easier for non banks to issue pop cards that can only be used one and are often part of travel industry promotions.

There is a third alternative which is to maintain the same regulatory structure but to broaden the definition to include ”all entities conducting banking business in Australia’’ which would obviously mean the RBA.

Getting rid of restrictions would make it possible for big companies such as Qantas or Telstra and retailers such as Coles and Woolworths to issue their own cards without having to partner with a bank

Reserve Bank of Australia in a reflective moment by Newtown grafitti, on Flickr

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Whilst consumer sentiment may be low, Australia continues to be ranked the happiest nation in the world amongst developed economies for the third consecutive year.

The Better Life Index is compiled by the Organisation for Economic Cooperation and Development (OECD) which cited continued strength in the overall economy as the reason.

The top five countries were rounded out by Sweden, Canada Norway and finally Switzerland.

Index ranks over 30 countries and bases its ranking on criteria such as income, housing health and safety.

“Australia performs exceptionally well in measures of wellbeing, as shown by the fact that it ranks among the top countries in a large number of topics in the Better Life Index,” the OECD said on its website.

Over 73 per cent of the 23 million people between the ages of 15 to 64 in Australia have a paid job which is well above the average for OECD countries. Life expectancy in Australia is also longer at about 82 years.

The Australian economy has grown for 22 consecutive years largely on the back of Chinese demand for raw materials such as iron ore and coal.

The country managed to weather the financial crisis better than most and was the only developed economy to have avoided falling into recession during 2009.

The strength of the Australian economy has been reflected in its currency value which until recently had been trading near 30 year highs though recently there have been sharp declines.

The government has started to see challenges to economic growth as investment in mining peaks and demand for raw materials subsides resulting in increasing unemployment.

The minority Labour government in response is seeking ways to restructure the economy away from mining industry dependence and emphasize construction and manufacturing instead.

The country is also seeing greater income inequality, according to the OECD with the top 20 per cent of the population earning six times more than the bottom 20.

happiness by evilcabeza, on Flickr

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Consumer confidence in Australia fell to its lowest level in over 17 months in response to both record low interest rates and a budget deficit according to the results of a survey..

The Westpac Melbourne Institute sentiment index in May fell 7 per cent during May, its largest decline since December 2011 and the first time the index level which is currently 97.6 breached the all important 100 mark which suggests that there are more pessimists than optimists.

The Reserve Bank of Australia has cut official interest rates by 2 per cent over the last 19 months and the official cash rate now stands at a record 2.75 per cent. Australia has joined its counterparts in other western nations in holding down interest rates in an environment where inflation remains subdued and mining investment is expected to peak and credit growth falters.

In December the Australian government back tracked on a pledge to return the budget back to surplus and now projects a fiscal deficit of A$19.4 billion for the year ending June 30th.

“The results confirm our reasonable assumption that this weakness in confidence is being driven by a sharply negative response to the budget. We expect that the dissatisfaction is not only due to concerns around some of the savings measures in the budget but also the sharp deterioration in the fiscal position, renewed fears about the overall state of the economy. These concerns are also likely to have been fuelled by the surprise fall in the Australian dollar before and during the survey period.” Westpac’s chief economist Bill Evans said

Paraparaumu Banks in a row by Finsec, on Flickr

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The big four Australian banks are being tipped to earn a combined $13 billion between them during the first half which would be an all time record after all the banks failed to pass on official cuts in interest rates and sacked thousands of staff members.

Many banking analysts say the industry is currently in a “sweet spot” and is benefitting from profit growth that is in large part the product of reduced bad debt provisions declining costs and higher share prices as investors seek out higher yields.

Some analysts however have expressed concern that credit demand is weak which will result in reduced earnings over time.

Victor German an analyst with Nomura says there is limited upside in the next few years.

“We expect the longer-term outlook for banks to remain challenging, while the near-term performance will be supported by improved funding conditions, potential upside from cost initiatives and supportive yields,” he said.

Investors chasing yield has meant banking stocks have risen significantly with NAB’s share price rising 31 per cent since the year began, followed by Westpac which has risen by 26 per cent. ANZ and CBA saw their share prices rise by 19 per cent and 14 per cent respectively.

ANZ has already kicked off earnings seasons with an 11 per cent rise in first half profits which came in ahead of analyst predictions of 9 per cent.
David Ellis, banking analyst with Morningstar says the future looks bright for banking stocks. He predicts ANZ to earn as much as 30 per cent from its super regional strategy by 2017.

Business by Tax Credits, on Flickr

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The Westpac-Melbourne Institute Leading Index suggests the economy is on the rebound as commodity and equity prices rally.

The index grew by 4.2 per cent in February up from 2.7 per cent recorded in September and much higher than the long term trend rate of 2.8 per cent.

The index estimates the pace of economic activity for the next one to three quarters.

Matthew Hassan senior economist at Westpac says the results suggest economic momentum has clearly lifted since June 2012.

“(It) points to moderately above trend growth in the first half of 2013. Our chief concern though is how well this will be sustained through the year, especially as the peak in mining investment approaches.” he said.

The Coincident Index which indicates the current level of activity registered 3.1 per cent which is roughly in line with the long term trend rate of 3 per cent.

Westpac is predicting the central bank will leave official interests unchanged during its May meeting.

“Westpac expects growth in the Australian economy to remain sluggish and below trend in both 2013 and 2014. With inflation firmly under control that indicates a need for further stimulus, accordingly, we expect that rates will come down further in 2013.” Mr. Hassan said.

The February pick up is mainly due to rallying equity and commodity prices. The All Ordinaries posted a 16 per cent gain for the five months ending in February, though it has come off its highs by about 3.5 per cent. Commodity prices have also rallies since experiencing sharp declines last year, though prices remain volatile.

US corporate profits, industrial production and productivity have all made gains which might have had a positive impact on Australia.

Westpac by Mal Booth, on Flickr

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Mark Butler, Minister for Housing and Homelessness says housing affordability is a key concern for many Australian families.

Recently Mr. Butler met with some Adelaide tenants who are part of a government backed scheme that provides affordable rents.

The scheme provides incentives to build an additional 1000 homes across the country by next June.

“We want to move as quickly as possible to build new homes in areas that are most in need and to give the business and community sector more certainty for the future. This scheme is a critical part of the Australian government’s efforts to help Australians struggling in the housing market. We remain firmly committed to delivering 50,000 more affordable rental homes by June 2016.” Mr. Butler said.

Under the National Rental Affordability Scheme, the government pays as much as $10,000 per year for ten years to individuals who build new houses or apartments and then rents them out to low income tenants.

Poverty, Housing & Affordability by CFC 2011 Conference, on Flickr

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A new report from Deutsche Bank has confirmed what many people have long suspected, Australians are paying some of the highest prices on the planet.

The report takes prices for a number of goods and services and compares them across many cities and countries around the world. People who live in Melbourne and Sydney pay nearly 40 per cent more to go the movies compared with people living in Paris or Manhattan.

A two litre bottle of Coke bought in one of Australia’s two major cities costs  50 per cent more than if it had been purchased either in Auckland or Berlin.

The report uses New York prices for its baseline and all prices get converted back to US Dollars. The report’s findings are very similar to the conclusions came to by the Economist Intelligence Unit’s Cost of Living Index Survey which ranked Sydney and Melbourne as the third and fourth most expensive places to live in the world.

The stunning thing is not less than ten years ago, not one Australian city made the top 10 ranking.

The cause of the rise can be traced back to the start of the mining boom which began eight years ago. Since the Australian dollar breached parity with its US counterpart the country has now become one of the world’s most expensive places to live.

According to Choice chief executive Alan Kirkland, it ”shines a bright light on how much we are being fleeced”.

The price of a pint in Australia is the third highest across a group of 17 countries, though the Australian Hotels Association says 20 per cent of the cost is tax.

Whilst tobacco and alcohol are taxed heavily Australia itself has low import tariffs particularly in comparison to the US and Europe, which make it hard to understand why imported goods tend to be so costly in Australia according to economist Stephen Koukoulas.

Mr. Koukoulas thinks the cost of transporting goods across a vast country may be the reason for differences in prices.

Choice has a different view and thinks companies price gouge in Australia because they can.

”It is about marketers deciding what is the highest price they can charge. Australians have historically paid more for a whole range of goods … but in many cases when you put it to the test the increased cost of selling in Australia just didn’t hold up any more.” Kirkland says.

Deutsche Bank says Australians pay as much as 26 per cent more for an iPhone and 13 per cent more for a MacBook.

price-gouging-cake by gamestooges, on Flickr

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ANZ has released its first half results and reported a 10 per cent increase in first half cash earnings and will pay a dividend in excess of forecasts.

ANZ earned $3.18 billion which came in ahead of an expected $3.13 billion analysts estimate. ANZ cited solid performance across its institutional, retail and international business units.

The lender says it will increase its dividend by 11 per cent and would seek to increase its dividend payouts as part of a drive to become more efficient.

The result has meant many analysts now expect profits to be robust across the entire industry.

“The beat here will impress as ANZ had been expected to be moderate at best versus its peers, and this might just see it legging up on NAB and Westpac,” IG Markets market strategist Chris Evans said in a note.

One of the main reasons behind the jump in profits was an unexpected decline in provisions for bad debts during the period. The core Australian retail banking division also saw its profits rise by 11 per cent with margins widening as banks avoided passing on cuts in official interest rates to their customers.

The institutional and international businesses both had an extremely strong half with both units leaping by 26 per cent.

Mike Smith, the lenders chief executive said the results showed its Asian expansion had started to pay off and was no contributing towards a more sustainable and consistent set of profits.

“Since 2008 we have worked hard to connect ANZ shareholders and customers to the significant opportunities being created by Asia’s fast-growing economies while building on our traditional strengths in Australia, New Zealand and the Pacific. This half saw us strengthen our franchises in Asia Pacific, Australia and New Zealand, hold Group margins steady, produce a lower cost-to-income ratio and achieve a higher return on equity while further strengthening our capital position. Shareholders are benefiting from these outcomes.” Mr. Smith said.

The rise in profits has come at a time when consumer demand for credit is weak and mortgages loan growth is at its slowest level on record. Despite weak demand ANZ has sought to aggressively expand its mortgage book and pursued an ambitious Asian strategy.

The lenders goal of becoming a super regional bank had not been received well by investors who argue it eats capital at the expense of returns compared to those received from ANZ’s domestic business.

ANZ Building Docklands by Lnk.Si, on Flickr

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Despite the recovery in house prices nationally, the Australian property market is paradoxically witnessing a decline in new home sales for the first time in four months,

According to data from the Housing Industry Association, new home sales across the country fell by 5.3 per cent in February driven by steep declines in South Australia and Victoria.

The New Home Sales report polls Australia’s largest builders and found that unit sales had fallen by 11 per cent whilst sales of detached homes had declined by 4 per cent.

“The broadly based decline in activity during February is a reminder of how delicate the nascent recovery in the housing industry really is,” HIA economist Shane Garrett said.

Leith van Onselen an economist says the market for detached homes has fallen to its lowest annual level in 16 years.

“It’s the worst February on record,” he said.

Detached home sales in Victoria fell by 13.7 per cent which was the weakest performance of all states.

“Victoria’s detached new homes market is extremely sick,” Mr van Onselen said.

The property markets problems have been magnified by the withdrawal of the first time home buyers subsidy last year.

The decline in sales is in spite of the fact that many builders were offering big incentives such as cash rebates and even cars to lure buyers.

Euro Housing Market by Images_of_Money, on Flickr

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Property prices in Sydney have regained all their losses since the property slump in 2010 making it the first Australian city to do so whilst Melbourne has maintained steady prices despite predictions that prices would fall further.

According to RP Data Rismark, property prices in Sydney rose 1.5 per cent in March making it the first city in Australia to regain all the ground lost over the last three years.

The Australian residential property market had a strong month in general with nearly every major Australian city recording growth.

The national house price rose by 1.3 per cent during March which was the second strongest month since property prices fell.

“[Nationally] the March 2013 result is one of the strongest we’ve seen over the 3 years since March 2010,” said Rismark International CEO Ben Skilbeck. Mr. Skilbeck added the only Australian capital city that did not experience any growth was Adelaide.

Cameron Kusher of RP Data added that the Sydney property market had been strong since last May.

“Sydney has experienced a long period of sustained under performance. There’s not a lot of new construction taking place but population growth is starting to ramp up again, which is what I really think is driving that market.

House prices in Melbourne rose by 0.8 per cent in March contradicting RBA predictions that more falls were likely in that city.

Brisbane house prices rose by 1 per cent, Darwin clocked 2.4 per cent, Perth 3.4 per cent and Hobart 2.4 per cent.

Property prices in all cities except Sydney remain below 2010 levels despite the growth trend resuming.

Price of Houses in the UK by Images_of_Money, on Flickr

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