Two cheers for Howard’s return

WHEN Johnny comes marching home again, hurrah hurrah.

Two cheers summed up the stock market reaction to the Howard Government’s return to power. Institutional investors who had bet the right way in the weeks before the election stifled a yawn as share prices crawled up in early trading. In the foreign exchange arena, where dealers had quaintly gambled on a hung parliament, the dollar hurdled through 52 cents. The currency has since lost ground on the preposterous notion that, because the RBA believes the Australian economy is relatively robust, the next interest rate cut may be restricted to one quarter of a per cent, and that is somehow bad. Go figure.

The coalition that traders were more interested in was the one in Afghanistan, where US troops are apparently being led into action by Northern Alliance warriors on horse back. Wars are not good for markets. Victories are good for markets. Watch Wall Street.

Locally, investors have recovered their nerve and are tip toeing into the banking sector again. Retail stocks and building-related shares are holding their ground. The red-hot residential housing market may be peaking, which is something of a relief. CBA economists say there is still enough momentum left to last in house building for nine months.

The average home mortgage has risen 18 per cent in a year to $149,200 – the highest since 1989. Rising prices account for a lot of that. But rock bottom interest rates have suckered some buyers into going for more expensive homes. That is a little worrying. The first signs of recovery in global growth, hopefully next year, will mean tighter monetary policy all round. Do not get caught out.

The Federal election was characterised by the cigarette paper-thin difference in economic policy between the two major parties. The proposed Beazley rollback of the GST hardly got a ripple of applause. The current exemption from tax on fresh food benefits the wealthy, who fork out asparagus at the dining table, more than the working poor who have to grab pre-cooked prepared meals. Tinkering with baby nappies and the like did not capture the imagination.

The Libs were lucky not to get tipped out by their traditional support base. The manner of the GST implementation was a bummer. The Government simply has to get off the backs of small business. For a start, any changes to GST compliance, superannuation, or anything else which looks more complicated than existing legislation should be sent back to the barmy bureaucrats who dream these things up. The partial simplification of paying business tax was one of the flip-flops that saved Howard’s bacon.

The next good idea would be to recognise that we have a mining sector that contributes more than half of our exports. It would be nice to give some assistance to the resources industry, on the exploration front at least, rather than standing on the quay-side waving goodbye to the long list of Aussie icons knocked down cheap to overseas buyers – WMC will be the next ship to sail.

The major concern, for what might even prove a bold and proactive administration in Canberra, is how to steer legislation through the Senate.

How’s it all going then, me old China

POSSIBLY the most important moment for our economy last weekend took place in Qatar, when the director general of the World Trade Organisation, Michael Moore, improbably threw his arms around Chinese trade minister Shi Guangsheng and hugged him. China was finally admitted to the WTO. An hour earlier, Taiwan was sworn in. This must be the most consistently undercovered issue in our national media. Readers of this column will know I have been banging on for months about how Chinese entry to the trade body is unequivocally good news for Australia in general, and Western Australia in particular.

There ultimately will be easier access and lower entry costs for up to 1,500 categories of Australian goods sold to China, which is our third largest trading partner. Half of the exports are farm products. Import tariffs on agricultural goods are set to drop 17 per cent. Wool, wheat, barley, sugar, lamb, beef, dairy produce and wine are among the winners, along with coal, oil and LNG. Other sales opportunities include computer software, smart card technology, auto parts, telecommunications, switching gear, education, and medical diagnostic services. Go for it.

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