Transcription of Finance News Network Interview with Commonwealth Bank of Australia’s (ASX:CBA) broking arm CommSec Chief Economist, Craig James.
Lelde Smits: Hello, I’m Lelde Smits for the Finance News Network and joining me from CommSec is its Chief Economist, Craig James. Craig, welcome back to FNN.
Craig James: Good to be here.
Lelde Smits: The first Abbott government budget is set for release in May. What are you expecting Treasurer Joe Hockey’s first budget will say about the state of our economy?
Craig James: Well, the federal government is taking a fairly negative line on our economy. It’s playing to its interest that it wants to have a tough budget upfront. Very much like Peter Costello did when the Howard government came into place. They had a hard budget, a tough budget first up, and then effectively they coasted for the remainder of the term. But that tough budget really set up the economy quite well. We saw the budget go into surplus, then paying off the debt in the early part of the noughties decade.
Lelde Smits: And do you think a hard and tough budget is necessary this time around?
Craig James: I think certainly, it’s up to the government to be able to get our fiscal situation back in order. So if you have got a very strong economy driven the commodity sector, driven by China, then we should see a budget closer to balance, rather than the small deficit that we’re seeing. So I think it is now a period of consolidation, that everyone should be providing their contribution. I think that it’s a game changer, the first budget, basically they can set the scene for the new government, for their term in office.
Lelde Smits: So Craig, what are some of the key points we may be likely to see in this budget?
Craig James: I think we are going to see very much a focus on efficiency, productivity. Very much in terms of the public service, that we’re going to continue to see very close looks at the staff numbers there, the sort of contribution that’s being provided by the public service. I think too, in terms of welfare, the government’s made no secret that everyone should be paying their way and if it is a case that you’re on welfare and you don’t need that welfare then it’s going to be taken away, so very much a focus on efficiency, productivity and then improvement in the budget line.
Lelde Smits: Looking closer at the economy, Commsec’s latest ‘State of the States’ report provides a snap shot of Australia’s economic performance. Which states impressed this time around?
Craig James: If we are looking at those states which impressed New South Wales has got to be the top candidate there. Last time around it was equal fifth in the rankings, now it’s third. And we are starting to see New South Wales economy starting to run on a bit stronger, particularly due to the housing market. For a long period of time NSW wasn’t building enough free-standing homes or apartments but now, driven by higher population growth, driven by higher demand, we are seeing investors responding to the challenge. We are seeing first home buyers as well. Housing market’s running on strongly and that’s supporting the NSW economy.
Lelde Smits: OK, and which states lagged?
Craig James: If we are looking for the laggards, it’s probably the ACT this time around. There’s concerns in the ACT about job prospects and what we are seeing is the ACT has basically slipped from a position of round about third in the rankings to round about sixth.
Lelde Smits: So Craig, what are the biggest risks on your horizon as we look out on the year ahead?
Craig James: Well, I suppose the biggest risks do lie overseas rather than domestically. Here in Australia our economy is nicely balanced. We’ve got this transition from the mining sector to the housing sector and that looks as though it is playing out quite nicely. There’s always the risk that the government goes too hard and is too negative and the Reserve Bank doesn’t counter that by cutting interest rates so there’s the risk I suppose there but I think the major risks are overseas. It’s the situation in the Ukraine, it’s China, it’s the outlook for growth there, the United States, getting the balance right in terms of winding back stimulus and eventually lifting interest rates. I think it’s more the international environment rather than the domestic environment which offers the key risks for Australian investors over the coming twelve months.
Lelde Smits: Finally Craig, I know you’re a fan of the diversified investment strategy but are there any asset classes that you’re leaning towards or away from at the moment?
Craig James: Well I think, as you say, a sort of diversified portfolio is something that we do recommend. I think really in terms of residential property and property generally and shares, you’re getting good returns out of both those key assets. Probably what you’re going to get less of in terms of returns is cash or fixed interest. So we would probably be gravitating more to the property side, the shares, putting those fairly much equal in terms of the portfolio but much less of a contribution in terms of cash and fixed interest.
Lelde Smits: Craig James, thank you so much for the update from Commsec.
Craig James: Thank you.
Ends
