THE DISTILLERY: Rating Newman

One jotter highlights Campbell Newman's credit rating challenge, while others look at an RBA study that shows Australians are saving more.

The Australian economy is back in the spotlight following a report by the Reserve Bank that not only confirmed households are saving more, but corporates too. The Australian's David Uren uses the release to argue the government is only making things tougher by cutting spending at the same time, and that will damage the economy and its own revenues in the process, while The Sydney Morning Herald's Ross Gittins proudly takes another stance – that the savings figures help separate us from less responsible nations like the United States. Meanwhile, The Age's Adele Ferguson says things can only get worse for supermarket suppliers, The Australian's Andrew Main says Campbell Newman shouldn't pop the champagne just yet – there's still much work to be done if he wants to win back the state's AAA credit rating and, in The Australian Financial Review, Perry Williams warns coal seam gas producers that Queensland's new government mightn't be as friendly as Labor.

But first, The Australian's David Uren highlights new risks to the Australian economy as households, corporates and the government reduce spending all at once. In this context, federal budget cuts could do more harm than good to Australia's balance sheet, which relies heavily on high tax-paying industries like finance.

"The government has fuelled expectations that this year's deficit will be larger than forecast with Wayne Swan commenting that company tax collections are still below expectations. However, the treasurer has stuck to the government's determination to return the budget to surplus in 2012-13. If this were achieved, it would require a contraction in the government's call on national economic resources of more than 3 per cent of GDP. Although Swan has described the finance sector's profits as excessive, the danger is that, with further contraction in demand, it will find credit growth, and hence profitability, harder to achieve. This would undermine the tax revenue recovery that the government is counting on."

On the other hand, The Sydney Morning Herald's Ross Gittins is heartened by Australia's relatively high savings rate, and what it says about our spending habits.

"Pulling the components together, national saving is now back up to almost 25 per cent of GDP, also its highest since the '80s. And this is about 6 percentage points higher than the average for the developed countries. Why has our current account deficit almost halved to 2.25 per cent of GDP in the past year or two? Because national investment is down a bit on the one hand, while national saving is up a bit on the other. The charge that we're living beyond our means has never been less applicable."

Writing in The Age, Adele Ferguson explores a report by Merrill Lynch analyst David Errington, who warns that Coles, Woolworths and Metcash will need to boost their earnings significantly to make an acceptable return on recent acquisitions and capital expenditure. The commentator writes that that's particularly bad news for supermarket suppliers, who are already being squeezed in the discounting battle.

"It goes a long way to explaining the intensifying price war between the supermarket giants as Coles tries to snatch market share to justify its investment. Ditto for Woolworths and Metcash. A former senior executive at Foster's said he had never seen such tough treatment of suppliers in all his years in the business. The boss of a listed food manufacturer said 'cliffing' was becoming a common occurrence – where suppliers were asked to stand at the edge of a cliff and agree to certain discounts and if they didn't, they were told to look over the cliff and see if they liked that better. Another said cliffing was a choice between quick suicide or a death by a thousand cuts."

Following the Labor Party's crushing defeat in Queensland, The Australian Financial Review's Perry Williams warns coal seam gas operators that the Liberal National Party may crack down on controversial 'fracking' techniques in certain areas.

"Deutsche Bank told this columnist it expects the cost of new CSG wells in Queensland could rise under the LNP with further limits to be placed on drilling in areas with high-value agricultural land. When you consider tens of thousands of CSG wells are still to be drilled across the central Queensland coalfields, executives like Origin Energy’s Grant King and Santos’s David Knox will be eager to discover the extent to which new policies will affect some of the largest investments in their business. While the LNP certainly supports CSG development, it will have a keen sense of just how much community opposition exists to issues ranging from environmental approvals through to compliance standards and water management."

The Australian's Andrew Main also cautions Campbell Newman not to pop the champagne just yet — he still faces hurdles if he wants to win back the state's AAA credit rating.

In company news, The Australian Financial Review's Michael Smith examines Transurban under its most likely new chief executive, Tom Honan. And in the same paper, Andrew Cornell argues Westpac has lost momentum.

Elsewhere, The Age's Eric Johnston dissects an estimate by ANZ that retail investors could deliver an extra $40 billion in funding to local companies – if the government allows Australia's lagging corporate bond market to grow.

Meanwhile, The Australian's Paul Garvey says that for all the hype surrounding Hong Kong as a destination for mining IPOs, the expected flood of new offerings out of the west has failed to materialise, and his paper-mate Robin Bromby writes that the military coup in Mali is obscuring some very positive news from mining explorers.

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