US theatrics obscuring debt issue
There's general disbelief that Republican opposition to President Barack Obama's healthcare and insurance makeover put this year's US budget into limbo and forced the partial closure of the government, but it is the mid-October deadline for the debt limit to be raised that really matters.
The government closure bears down on growth, but only gradually.
A stand-off on the debt ceiling, on the other hand, threatens a US debt default that would reverberate around the world.
The market bounce showed that there was still optimism that the government shutdown could turn out to be a circuit-breaker.
Republicans will get nowhere, capitulate, and do so in a way that kills their appetite for a brawl over the debt ceiling, so the theory goes - and if it is right a quick settlement of the budget brawl would be counter productive. The Republicans would need time, a week perhaps, to become totally dispirited as criticism of their tactic ramped up.
The great annoyance is that Washington's theatrics are overshadowing continuing signs of global recovery.
As the budget bill hit the wall and the shutdown commenced, the markets were hearing, for example, that US manufacturing activity grew at the fastest rate in nearly 2½ years in September, and that the jobs market had stabilised in Europe in August.
In the local market, stronger retail sales data and rising home prices helped investors ignore the US brawl for the time being.
Online jumping
The Australian Bureau of Statistics reported on Tuesday that merchandise retail sales rallied in August. On Wednesday, it redrew the retailing landscape.
Its August trade report revised trade numbers as far back as 1998, and the past three years are a massive statistical upgrade of how much international internet shopping Australians have been doing. More than $20 billion is added to the total.
The new numbers make Australia's trade balance and balance of payments look worse. They are also likely to revive calls for the threshold to be cut, extending the coverage of the Goods and Services Tax.
The bureau says the revisions more completely capture imports of goods that are priced below Australia's low value threshold of $1000, goods that come in by parcel post, notably. It estimates that goods with a value of only $50 million came in undetected in the September quarter of 1998.
In 2005 however, the threshold was lifted from $250 per item to $1000 per item, internet shopping took off, and serious licks of money started flying under the radar.
Revisions for the past three years that capture imports previously undetected decrease the surplus on goods and services for 2010-2011 by $7.3 billion, lower the surplus on goods and services in 2011-2012 by $6.8 billion, and increase the deficit on goods and services in the year to June 30 2013 by $7 billion.
Consumption goods accounted for 65 per cent of the revision in 2010-2011, 80.5 per cent of the revision in 2011-2012, and 95 per cent of the adjustment in the latest year to June.
That's a sign that it is online buying that is behind the rise.
The local retailers have been talking about intense online competition for years. This revision backs up their comments, and supports calls by Solomon Lew, Gerry Harvey and others for the threshold to at least be lowered. The states also want a lower threshold, because it would boost their GST income.
After fielding reports from the Productivity Commission and a special task force, the Labor government announced in December last year that the threshold would not be lowered.
A cut in the threshold would not be cost-effective until low-value parcels were processed more efficiently, the Productivity Commission decided, and Labor's assistant treasurer David Bradbury agreed, saying the cost of collecting revenue generated by a lower threshold would be greater than the amount of additional revenue collected.
Online sales only accounted for about 6 per cent of total retail sales in Australia, Bradbury said, adding that published data suggested that international online retailers accounted for only 1.5 per cent of total Australian retail sales.
That estimate appears to have been overtaken by the bureau's new number-work, however.
Its $7 billion adjustment for the latest year to June includes newly detected spending of $6.7 billion on consumption goods, for example. On my count, those imports alone are the equivalent of about 2.5 per cent of the total retail trade in Australia, and close to twice as much if food retailing is excluded.
mmaiden@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
The article says US sharemarkets rose and Australia’s sharemarket eked out a gain as investors hoped the partial US government shutdown might avert a riskier fight over raising America’s $US16.7 trillion debt limit. Markets treated the shutdown as a gradual drag on growth, while a standoff over the debt ceiling — especially with a mid-October deadline — posed the bigger threat to global markets.
According to the article, a stand-off on the debt ceiling threatens a US debt default that would reverberate worldwide. By contrast, a partial government shutdown generally weighs on growth only gradually, so the debt ceiling fight is viewed as the more acute market risk.
The article notes that upbeat data — such as US manufacturing activity expanding at the fastest rate in nearly 2½ years in September and signs that Europe’s jobs market had stabilised in August — were being overshadowed by the Washington budget drama, despite pointing to continuing global recovery.
Local investors were able to look past the US budget brawl because stronger Australian merchandise retail sales and rising home prices helped support confidence in the domestic market, according to the article.
The ABS revised trade numbers back to 1998 and added more than $20 billion to recorded international internet shopping. These revisions reduced Australia’s surplus on goods and services for past years and increased the deficit to June 30, 2013 by about $7 billion, indicating online imports were larger than previously measured.
Yes. The article says the new ABS numbers make the trade balance look worse and are likely to revive calls from retailers like Solomon Lew and Gerry Harvey — and from the states seeking more GST revenue — to lower the low‑value threshold so more online imports are captured for GST.
The Productivity Commission concluded, and Labor’s assistant treasurer David Bradbury agreed, that cutting the threshold wouldn’t be cost‑effective until low‑value parcels could be processed more efficiently. They argued the administrative cost of collecting extra revenue would exceed the benefit.
The ABS made a roughly $7 billion adjustment for the year to June, with consumption goods accounting for 65% of the 2010–11 revision, 80.5% of the 2011–12 revision, and 95% of the latest year’s adjustment — underscoring that online buying was the main driver of the change.
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