0.75% is a record low, but don’t think for a second the Reserve Bank has finished cutting the cash rate

Peter Martin, Crawford School of Public Policy, Australian National University

Anyone who thought that with the Reserve Bank’s cash rate now close to zero, its run of interest rate cuts was over, needs only to read the last sentence of Governor Philip Lowe’s announcement after Tuesday’s cut:

The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

For the longest time, the run of cuts was over.

Lowe’s immediate predecessor, Glenn Stevens, cut the cash rate to a record low of 1.5% in August 2016 as something of a “parting gift”, allowing Lowe to take over and keep it steady, unchanged for a record 34 months.

For most of those three years he made it clear the rate was unlikely to fall further. Six times he said the next move in rates was likely to be up, “rather than down”, pointing to rate increases overseas and progress on jobs and returning Australia’s unusually low inflation rate to his target band.

By February this year he was backtracking. Although it wasn’t apparent in the published figures, the unemployment rate was about to begin climbing. Wage growth had been far weaker than forecast, inflation showed no sign of returning to the centre of his target band, and forecasts for global growth were falling.

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Reserve Bank cash rate

Source: RBA

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More importantly, consumer spending, which accounts for six in every ten dollars spent in Australia, was extraordinarily weak, growing at less than half the usual rate, as households “responded to this extended period of weaker income growth by progressively downgrading their spending plans”.

The probabilities of next move being up and down had become “more evenly balanced”.

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Read more:
RBA update: Governor Lowe points to even lower rates

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Two weeks after the May election he cut the cash rate, then cut it again, taking it to a new record low of 1%, anticipated by only two of the 19 economists surveyed by The Conversation just six months earlier.

The extra cut announced on Tuesday is because the last two didn’t do enough.

House prices have begun to move up (as would be expected with lower rates) but borrowing is growing only slowly, and home building is weak. The Australian dollar is low (in part because of the lower rates), which should help make Australian businesses competitive, but they are not keen to borrow.

Since the last Reserve Bank board meeting we have learned that economic growth is shockingly low, just 1.4% over the past year, the weakest since the global financial crisis. Household spending is barely keeping pace with population growth.

Lowe would like to believe the economy has reached “a gentle turning point”. He told a community dinner in Melbourne on Tuesday night the board thinks it might have.

There are a number of factors that are supporting this outlook. These include the low level of interest rates, the recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets, and a brighter outlook for the resources sector.

But they will need help. The bank believes the economy is capable of producing an unemployment rate of 4.5%. Instead it has been climbing, to 5.3%.

How the cuts will help

The cash rate is determined by the rate the Reserve Bank pays banks who deposit with it overnight. It drives almost every other rate, including the rates banks pay retail depositors, which help determine their cost of lending.

They don’t have to cut their mortgage and business rates in line with cuts in the Reserve Bank cash rate, but they usually do.

The big banks played a game of chicken yesterday, each waiting for the other to move. The Commonwealth Bank moved first, offering just 0.13 of the 0.25 points, followed by the National Australia Bank, which offered 0.15 points.

The real action is in the discounted rates that target borrowers for whom they matter. Before Tuesday they averaged 3.46%. Some were much lower. HSBC Australia wanted just 3.17%. If it passes on Tuesday’s cut in full it will charge only 2.92%, offering the first Australian mortgage rate in history beginning with the number “2”.

There’s every reason to believe the cuts will help. Even if Australians don’t borrow more to buy houses, they will be able to use the historically cheap credit embodied in their house loans to buy other things, such as solar panels whose payoff period will have shortened dramatically.

Since June many mortgage-holders will have saved A$150 on monthly payments.

Sure, confidence and decent wage growth would help, but given how indebted many Australians are, low mortgage rates will do quite a bit on their own.

Why they’ll continue

Governor Lowe made it clear on Tuesday that they will have to stay low for “an extended period”. A signed agreement with the treasurer requires him to keep them low until unemployment falls and inflation and economic growth return to return to normal levels.

He would like the government to help by boosting spending. He often mentions spending on infrastructure. But his employment contract requires him to use the cards he has been dealt. If the economy is weak, he is required to boost it using the instruments he has.

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Read more:
Below zero is ‘reverse’. How the Reserve Bank would make quantitative easing work

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That’s why he says he is prepared “to ease monetary policy further”.

If needed, he’ll do it as soon as next month, cutting the cash rate to 0.5%. If more is needed beyond that, he will get ready to use so-called unconventional measures of the kind being used overseas, buying government and corporate bonds in order to force even more money into Australian’s hands.

There’s no reason to believe that the tools he has won’t work, and every reason to believe he’ll keep using them.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

The Reserve Bank will cut rates again and again, until we lift spending and push up prices

Peter Martin, Crawford School of Public Policy, Australian National University

The Reserve Bank cut interest rates on Tuesday because we aren’t spending or pushing up prices at anything like the rate it would like. And things are even worse than it might have realised.

As the board met in Martin Place in Sydney, in Canberra at 11.30 am the Bureau of Statistics released details of retail spending in April, one month beyond the March quarter figures the bank was using to make its decision.

They show the dollars spent in shops fell in April, slipping 0.1%, notwithstanding weakly growing prices and a more strongly growing population.

The March quarter figures the board was looking at were adjusted for prices. They show that the volume of goods and services bought, but not the amount paid for them, fell in seasonally adjusted terms during the March quarter.

Adjusted for population, the volume bought would have fallen further.

We’ll know more on Wednesday

The Bureau of Statistics will release population-adjusted figures as part of the national accounts on Wednesday.

The figures for the September quarter show that income and spending per person barely grew. The figures for the December quarter show income and spending per person fell.

A second fall in the March quarter will mean two in a row – what some people call a per capita recession.

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Australian National Accounts

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Even unadjusted for population, economic growth is dismal.

During the September and December quarters the economy grew just 0.3% and 0.2% – an annualised rate of just 1%.

That’s well short of the 2.75% the treasury believes we are capable of, and the lower than normal 2.25% it has forecast for the year to June.

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Australian National Accounts

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We’ve been doing it by ourselves. As Reserve Bank Governor Philip Lowe said in announcing the rates decision on Tuesday:

The main domestic uncertainty continues to be the outlook for household consumption, which is being affected by a protracted period of low income growth and declining housing prices.

The bank wants both inflation and employment higher, and it wants us to spend more in order to do it. Lower rates should help, although not for everybody.

Lowe acknowledged this in a speech to a Sydney business audience on Tuesday night, but he said households paid two dollars in interest for every one dollar of interest they received. So while rate cuts hurt savers, they benefit borrowers by more, and over time should benefit all households by boosting the economy. They also drive the dollar lower, making Australian businesses more competitive.

Tuesday’s cut should free up an extra A$60 a month for a typical mortgage holder. Another one will free up a total of A$120.

It’s not much, and there’s doubt about whether it will do much, but interest rates are about the only tool the Reserve Bank has.

It is required by its agreement with the government to aim for an inflation rate of between 2% and 3%, “on average, over time”.

Treasurer and Reserve Bank Governor, Statement on the Conduct of Monetary Policy, September 19, 2016.
Reserve Bank of Australia

Uncomfortably for Governor Lowe, underlying inflation (abstracting from unusual moves which are quickly reversed) has been below 2% ever since he was appointed governor in late 2016.

Explaining his push for higher inflation to a business audience in Sydney on Tuesday night he said that while adherence to the target was intended to be flexible, that flexibility was “not boundless”.

If inflation stays too low for too long, it is possible that inflation
expectations move lower – that Australians come to expect sub-2% inflation
on an ongoing basis. If this were to happen, it would be harder to achieve the
medium term inflation goal. So we need to guard against this possibility.

He is also required to aim for full employment.

He told the business audience that while for some years the bank and others had thought full employment meant an unemployment rate of 5%, the absence of inflation at 5% and the persistence of underemployment (where people wanted more hours) meant it could and should go lower.

Our judgement now is that we can do better than this – that we can sustain an
unemployment rate of 4 point something.

Lower interest rates should help by making it easier for businesses to borrow to expand, and giving consumers something in their pockets to buy from them.

If you don’t succeed…

If that doesn’t happen, the bank will cut again.

Tuesday’s statement as good as said so:

The board will continue to monitor developments in the labour market closely and adjust monetary policy to support sustainable growth in the economy and the achievement of the inflation target over time.

Tuesday’s cut and the next will take the bank into uncharted waters, where its so-called cash rate – what it pays to banks to deposit money with it overnight – is close to zero.

As far as can be discerned it has never been that low in the 100+ years the Reserve Bank has been in operation, originally as the Commonwealth Bank of Australia.

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Reserve Bank cash rate since 1990

Reserve Bank of Australia

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Should inflation still not pick up and employment still not fall as far as it believes it could, it will have to effectively cut its cash rate below zero, forcing cash into the hands of banks by aggressively buying government bonds, giving them little choice but to lend it to households and businesses, in a process known as quantitative easing. It has been done in the United States, Europe, the United Kingdom and Japan, and is by now anything but unconventional.

Governor Lowe would prefer the government to pull its weight by cutting tax and boosting spending, especially on infrastructure, and by policies that make Australia more productive.

He said so on Tuesday night

the best approach to delivering lower unemployment and a stronger economy is through structural policies that support firms expanding, investing, innovating and employing people. As we ease monetary policy, it is in the country’s interest that other policy options are considered too.

Treasurer Josh Frydenberg gets it.

He pointed out on Tuesday that the yet-to-be-approved tax offsets in the budget will give Australians on up to A$126,000 a cash bonus of up to A$1,080 when they submit this year’s tax return, far more than the rate cut.

His biggest concern, and the biggest concern of the governor, might be that they don’t spend it. Another concern would be that the banks don’t pass the rate cut on.

The ANZ has said it will only cut mortgage rates by 0.18 points instead of the full 0.25, a decision Frydenberg said “let down” customers. Westpac has cut by only 0.20 points. The National Australia and Commonwealth banks have passed on the cut in full.

On Tuesday night in Sydney Governor Lowe addressed the question of whether the banks should have passed on the full cut head on:

My usual practice in answering this question has been to explain that there are a
range of other factors that influence mortgage pricing, and then say “it all depends”.

Today, though, I would like to break with my usual practice and provide a clearer
answer. And that is: Yes. There has been a substantial reduction in the cost of banks raising funds in wholesale markets. Average rates on retail deposits have also come down.

This means that the lower cash rate should be fully passed through into standard variable mortgage rates. Full pass-through would also mean that the economy receives the full benefit of today’s policy decision.

The Governor is concerned that, for their own reasons, lenders such as ANZ and Westpac are forcing him to cut rates lower than he should and making an already difficult job harder.

If he has to cut further he will, but with the cash rate at just 1.25%, he would dearly love not to have to.

Reserve Bank of Australia

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Read more:
Cutting interest rates is just the start. It’s about to become much, much easier to borrow

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Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital signs. Zero inflation means the Reserve Bank should cut rates as soon as it can, on Tuesday week

The last time inflation was zero the Reserve Bank cut rates twice. It’ll get the chance on May 7.
Shutterstock

Richard Holden, UNSW

What do US pizza executive Herman Cain, US conservative commentator Stephen Moore, US Chief Justice Earl Warren, and Australia’s Reserve Bank governor Philip Lowe have in common?

More than you might think.

The immediate issue for Lowe is Wednesday’s inflation figures released by the Bureau of Statistics. Inflation for the first quarter of 2019 came in at 0.0%. Zero. Nada.

Taken together, the sum of consumer prices moved not at all between the last quarter of 2019 and the first quarter of 2019. The annual increase (all of it in the last three quarters of last year) was 1.3%.

However you cut the numbers, inflation is now incredibly low. The Reserve Bank’s measures of so-called underlying inflation (that mute the effects of sharp movements in things such as the prices of fruit and vegetables) are at the same level they were in 2016 when the Reserve Bank cut rates twice – in May and then August.

The Reserve Bank must cut

It has to do it again. The market expects it and is pricing in a cut.

Trading on the Australian Securities Exchange implies that 67% of those wagering real money expect the Reserve Bank to cut its cash rate from its present record low of 1.5% to another uncharted low of 1.25% when it next meets to consider rates on Tuesday May 7, a fortnight before the election.

A day earlier, before the release of Wednesday’s shockingly low inflation figure, only 13% expected a cut on Tuesday week.

ASX Target Rate Tracker

Three days after the Reserve Bank meeting, and just one week before the election, Lowe is due to release his quarterly report on the state of the economy and his stance on interest rates. He’ll find it easier to write if he justifies a cut.

Not only is inflation far lower than he is his aiming for, but economic growth has plummeted to levels that imply annual growth of closer to 1% than the present 2.3%
or his forecast of 3% by December. Strong house price growth, that would have once been a reason for caution about cutting rates, is no longer a consideration.

A broad cross-section of market economists expect a cut on Tuesday week.

Westpac’s Bill Evans has long predicted 50 basis points of cuts this year, and on Wednesday ANZ economists Hayden Dimes and David Plank said

The downward surprise to core inflation in the first quarter leaves the RBA with little choice but to cut the cash rate by 25 points at its May meeting, with another basis points likely to follow in August

The Reserve Bank’s inflation target of 2-3% has become a joke. Inflation has rarely even entered that range the entire time Lowe has been governor.

Lowe keeps hoping for lower unemployment to spark wages growth, but despite unemployment being consistently at or near its long term low of 5%, nothing much has happened, for almost a decade.

Most observers think that unemployment would need to be much lower – closer to 4% than 5% – for wages to take off.

Politics makes it urgent

Then factor in the election. Labor is odds-on to win. If it does, then there is a chance of fairly radical industrial relations reform. Think about the wish list of Australian Council of Trade Unions Secretary Sally McManus. That seems unlikely to me because of Labor’s extremely sensible economic team, but it’s possible.

Whether it happens or not, until the industrial relations landscape becomes clear businesses are unlikely to do a lot of hiring. Why hire a bunch of folks if you don’t know what you might have to end up paying them or how easy it will be to let them go or change what they do?

That uncertainty is likely to put more downward pressure on wages than whatever upward pressure comes from Labor heavying the Fair Work Commission into reversing its recent penalty-rates decision.

The Bank is losing credibility

All this suggests that the Reserve Bank has waited far too long for wages to tick up of their own accord.

We’ve had recent lessons from the US about the importance of credibility in central banking.

Donald Trump’s nomination of pizza executive Herman Cain to the board of the US Federal Reserve has been withdrawn after sexual harassment allegations, his nomination of Stephen Moore is in doubt after a series of derogatory public remarks he made about women.

They have political problems. Their nominations are in trouble because they are, to put it bluntly, grossly unqualified to govern the Federal Reserve.

The Reserve Bank’s problem is obviously different. It enjoys an impeccable reputation. But repeatedly seeming to ignore inflation numbers (and its own targets for inflation) is putting that reputation at risk.

Having resolve is important. The Reserve Bank isn’t supposed to just do exactly what the market expects or wants it to do.

But getting way out of whack with informed public sentiment without offering good reasons for doing so is very dangerous.

US Chief Justice Earl Warren – the great liberal reformer who desegregated education, ensured the right to a lawyer in criminal cases, and established the principle of one person one vote – was famously mindful of the Court not getting too far ahead of public opinion.

In Brown v Board of Education, which ruled racially segregated education unlawful, Warren worked hard to ensure a unanimous opinion of the Court. That opinion required desegregation “with all deliberate speed” – a phrase that was justly criticised as allowing desegregation to proceed far too slowly, but ensured that the court wasn’t too far out ahead of the Southern states and allowed them to adapt rather than defy it.

The Reserve Bank’s problem is not getting too far ahead of public opinion, it is lagging too far behind.

The consequences can be similar, though. If the public and the markets lose faith in the Bank as an institution – if it seems radically out of touch – then it will lose its ability to persuade and it will risk forced change from the outside.

Forced change is a possibility. Each new government strikes a new agreement with the Reserve Bank governor setting out what it expects of him.

The present one specifies “inflation between 2% and 3%, on average, over time”. If it can be seen that the governor has paid scant regard to the agreement, the new one might make the target more binding, or replace it with a different target.

Treasurer and Reserve Bank Governor, Statement on the Conduct of Monetary Policy, September 19, 2016.
Reserve Bank of Australia

It’s time to stop waiting

Governor Lowe waiting for wages to tick up without any underlying factor to cause it to happen is like Waiting for Godot. And it’s getting absurd.

He needs a better narrative than “something will turn up”, and he needs to cut rates. Not with all deliberate speed, but fast.

Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Vital Signs. If needed, this man can and will cut rates during the election campaign

Richard Holden, UNSW

It was a great story.

Philip Lowe had taken over as Reserve Bank governor after 25 years of uninterrupted economic growth. The Australian economy was transitioning nicely away from the country’s biggest-ever mining boom. Interest rates had been cut to historic lows in the wake of the 2008 financial crisis and had bottomed out. Inflation and wages growth were about to pick up. Unemployment was falling. And the new governor would preside over a return to “new normal”, with gradual rate rises up to a cash rate of 3.5-4.0%.

Then a funny thing happened on the way to the fairytale ending.

In a remarkable speech at the National Press Club on Wednesday, Lowe essentially admitted that the bank might well need to take extra remedial action to get the economy moving again.

Gone was the mantra that “the next movement in interest rate will likely be up”. Rather, Lowe said:

…here are scenarios where the next move in the cash rate is up, and other scenarios where it is down. Over the past year, the next-move-is-up scenarios were more likely than the next-move-is-down scenarios. Today, the probabilities appear to be more evenly balanced.

Translation: “I don’t want to freak you out, but we’re probably going to have to cut rates. And do it sooner rather than later.”

Consider the two main things driving the Reserve Bank’s decision.

Inflation is stubbornly low. As I pointed out last week, the bank has long had an inflation target of 2-3%, but it keeps undershooting it, and not just missing the centre, but missing the lower bound. In two and a half years with Lowe as governor, inflation has averaged just 1.87% – and has never been inside the target band. The latest figure is 1.8%.

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Related to that, wages growth is anaemic. For five years it has barely kept up with inflation.

This is broadly true in advanced economies around the world (although our wages are doing worse than those in the United States) and suggests the unemployment rate will need to be pushed down further than in the past in order to reignite wages pressure and hence inflation. That suggests we’ll need even lower interest rates than we’ve got in order to provide what the boffins call monetary stimulus.

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And the Reserve Bank’s cash rate — the rate that most other rates are set in reference to — is already the lowest on record, at just 1.5%.

Meanwhile, the housing market has taken a big hit, which isn’t over. Nationwide, the market is down 6.1% from its October 2017 peak. In Sydney and Melbourne, the falls are double that.

They are the mainly the result of a credit crunch that flowed from the Australian Prudential Regulation Authority’s decision to wake from its multi-year slumber and tighten lending rules at about the same time the banks responded to the royal commission by impersonating frightened turtles.

Sinking property prices sink spending

Sliding property prices shrink household spending, which makes up roughly 60% of economic activity.

On Tuesday, in the statement it released after its first board meeting for the year, the bank obliquely signalled that it had cut its GDP growth forecasts, mentioning forecasts of 3% this year and less in 2020 instead of the 3.5% this year and less in 2020 it had mentioned after its December meeting.

Add in the global headwinds from the US-China trade tensions and the fallout from the bungled Brexit, and it’s hard to find much that’s encouraging about the Australian economy in the year ahead.

Lowe didn’t want to state explicitly that he might have to cut rates between now and the election (and if necessary during the campaign itself), but he didn’t need to. He has been as clear as governors get.

Rates could be cut on budget day

A decent bet is the bank will cut 25 points on the first Tuesday in May, after the release of the updated (and possibly weak) inflation data on April 24.

Another possible date is the first Tuesday in April, April 2, after the March release of the December quarter economic growth figures, especially if economic growth turns negative. Coincidentally, April 2 is the day the government has set aside for the early budget, so it can hold the election in May.

If it does there will be some who will try to spin it as good news. In 2007 John Howard campaigned under the slogan that rates would be “lower under the Coalition”.

Don’t think it couldn’t happen

His treasurer Peter Costello was under the impression the bank wouldn’t dare move rate during the campaign, unwisely telling broadcaster Jon Faine it would keep them put.

“He looked me in the eye. He put his thumb down as he sat there…and he said, ‘There will not be a rate rise in November. Take it from me’,” Faine said.

Having marked out the territory, there is no doubt the bank will use it if needed. To do otherwise would be to invite questions about whether it had favoured one party or the other by holding off.

The hard truth is that we live in a secular-stagnation world, with too much saving chasing too few profitable investment opportunities.

Rates no longer need to be particularly high

That means that interest rates don’t need to be anything like as high as they once did to attract enough money to fund good ideas. And even if the ideas are good, it is likely they won’t need as much money as they did. Whereas once it took tens of billions of dollars to create a globally significant company (like BHP or US Steel) all it takes now is maybe $2,000 and a laptop, as with Facebook and Google.

A massive mining boom caused by the transition of China to a market economy and then a huge property bubble masked the new reality here for while.

Now it is here for all to see, the Reserve Bank governor included.

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Read more:
No surplus, no share market growth, no lift in wage growth. Economic survey points to bleaker times post-election

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Richard Holden, Professor of Economics, UNSW

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Young Australians will wear the costs of Turnbull’s middle income tax cut

Danielle Wood, Grattan Institute and Hugh Parsonage, Grattan Institute

Malcom Turnbull has promised tax cuts for middle-income earners in the next budget or even earlier. The short-term political benefits of pre-election tax cuts are not in doubt. But unless the government is willing to increase taxes elsewhere to pay for these sweeteners, there will be longer-term costs for the budget and the economy. And younger Australians will wear these costs.

Young people will pay the price

If the government goes ahead with tax cuts and nothing else changes, we can look forward to the announcement in the 2021 budget of Australia’s 13th successive budget deficit. This is despite the fact Australia is in the midst of the longest period of uninterrupted economic growth anywhere in the developed world. And the unlucky recipients of this legacy of poor budget management are the young.

Grattan Institute research shows that each year the government runs a A$40 billion deficit, it increases the lifetime tax burden for households headed by a person aged 25 to 34 by A$10,000. This is based on the share of debt they would have to repay – with interest – over time. With each successive budget deficit, the tab grows for today’s young Australians.

And the government is magnifying the cost of future economic downturns. Australia was well placed to respond to the global financial crisis because of its healthy fiscal position. But with net debt now sitting at A$322 billion (18.4% of GDP), the government has less room to respond if there is another serious downturn.

Middle-income earners are hit by bracket creep

In the 2017-18 budget, the government was clear: if the senate won’t support spending cuts, then tax increases will have to do the “heavy lifting” on budget repair. And this heavy lifting is largely happening through bracket creep – growth in income taxes as a share of wages.

Middle-income earners are particularly hurt by bracket creep. Based on the wages growth projected in the 2017 budget, the average tax rates for people in middle-income groups will increase by between 1.9 and 2.9 percentage points by 2021. For example, a person earning A$50,000 a year will go from paying an average tax rate of 17.1% in 2017 to 19.5 % in 2021 – and that’s before the government’s proposed increase in the Medicare levy.

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No government likes to go to an election with taxes going up, so the temptation to “give back” bracket creep was always going to prove irresistible in next year’s pre-election budget. And as the prime minister flagged, there is also an economic case for such tax cuts. High marginal tax rates for middle income earners can significantly affect incentives to participate in the workforce, particularly for for women with children in childcare.

Tax cuts will blow the surplus

But the kicker is the effect of the promised tax cuts on the budget bottom line. The Australian government has been running budget deficits since 2009. In the last budget, the treasurer promised a return to surplus in 2021.

That promised surplus always relied on optimistic assumptions: strong wages growth, healthy growth in profits, government spending restraint, and, importantly, no cuts to income taxes. The government’s proposal is light on details, but even modest cuts to tax rates could eliminate the forecast surplus.

For example, if the government was to reduce the tax rate only in the middle bracket (A$37,000-$80,000) from 32.5% to 30%, the cost to the budget bottom line would be about A$7.3 billion in 2021, almost wiping out the promised A$7.8 billion surplus.

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If Malcolm Turnbull wants to cut income taxes but is still serious about delivering on his commitment to return the budget to surplus, then he will need to look elsewhere for revenue. Winding back the capital gains tax discount or negative gearing, better targeting of superannuation tax concessions and tax breaks for older Australians, or increasing or broadening the GST are just a few policies we could suggest.

But if the PM pursues the sugar hit of tax cuts without the difficult work on paying for them, then politics will once again have trumped policy and the economic future of today’s young Australians.

Danielle Wood, Program Director, Budget Policy and Institutions, Grattan Institute and Hugh Parsonage, Associate, Grattan Institute

This article was originally published on The Conversation. Read the original article.

New Christian Convert from Islam Murdered

Muslim militants shoot young man dead after learning he had begun to follow Christ.

NAIROBI, Kenya, April 20 (CDN) — Two Muslim extremists in Somalia on Monday (April 18) murdered a member of a secret Christian community in Lower Shabele region as part of a campaign to rid the country of Christianity, sources said.

An area source told Compass two al Shabaab militants shot 21-year-old Hassan Adawe Adan in Shalambod town after entering his house at 7:30 p.m.

“Two al Shabaab members dragged him out of his house, and after 10 minutes they fired several shots on him,” said an area source who requested anonymity. “He then died immediately.”

The militants then shouted “Allahu Akbar [God is greater]” before fleeing, he said.

Adan, single and living with his Muslim family, was said to have converted to Christianity several months ago. Area Christians said they suspected someone had informed the Islamic militants of his conversion. One source said that a relative who belonged to al Shabaab had told Adan’s mother that he suspected her son was a Christian.

“This incident is making other converts live in extreme fear, as the militants always keep an open eye to anyone professing the Christian faith,” the source said.

Two months ago there was heavy fighting between the rebel al Shabaab militants and forces of the Transitional Federal Government (TFG), in which the TFG managed to recover some areas controlled by the rebels. Al Shabaab insurgents control much of southern and central Somalia.

With estimates of al Shabaab’s size ranging from 3,000 to 7,000, the insurgents seek to impose a strict version of sharia (Islamic law), but the transitional government in Mogadishu fighting to retain control of the country treats Christians little better than the al Shabaab extremists do. While proclaiming himself a moderate, President Sheikh Sharif Sheik Ahmed has embraced a version of sharia that mandates the death penalty for those who leave Islam.

Al Shabaab was among several splinter groups that emerged after Ethiopian forces removed the Islamic Courts Union, a group of sharia courts, from power in Somalia in 2006. Said to have ties with al Qaeda, al Shabaab has been designated a terrorist organization by several western governments.

On Jan. 7, a mother of four was killed for her Christian faith on the outskirts of Mogadishu by al Shabaab militia, according to a relative. The relative, who requested anonymity, said Asha Mberwa, 36, was killed in Warbhigly village when the Islamic extremists cut her throat in front of villagers who came out of their homes as witnesses.

She is survived by her children – ages 12, 8, 6 and 4 – and her husband, who was not home at the time she was apprehended. Her husband and children have fled to an undisclosed location.

Report from Compass Direct News
http://www.compassdirect.org

Somali Mother of Four Slaughtered for her Faith

Al Shabaab militants carry out ritual slaying of Christian found to be ‘apostate.’

NAIROBI, Kenya, January 17 (CDN) — A mother of four was killed for her Christian faith on Jan. 7 on the outskirts of Mogadishu, Somalia by Islamic extremists from al Shabaab militia, a relative said.

The relative, who requested anonymity, said Asha Mberwa, 36, was killed at 5:15 p.m. in Warbhigly village; the Islamic extremists from the insurgent group had arrested her outside her house the previous day at 8:30 a.m. She died when the militants cut her throat in front of villagers who came out of their homes as witnesses.

She is survived by her children – ages 12, 8, 6 and 4 – and her husband, who was not home at the time she was apprehended. They had married in 1993.

Her relative, whose location is also withheld for security reasons, said he had phoned her on Jan. 5 to try to make arrangements for moving her family out of the area. Al Shabaab extremists, who control large parts of Mogadishu, were able to monitor the conversation and confirm that she had become a Christian, he said.

He told Compass by phone that Mberwa feared that she and her family members’ lives were threatened.

“Asha had been receiving threatening messages” after al Shabaab monitored her previous communications with him, he said.

Her husband, Abdinazir Mohammed Hassan, fled to an unknown location. Mberwa’s relative said a “good Samaritan” in Mogadishu was caring for her four children. The traumatized children continue to weep and cry out for their mother, he said.

Al Shabaab insurgents control much of southern and central Somalia and have embarked on a campaign to rid the country of its hidden Christian population. With estimates of al Shabaab’s size ranging from 3,000 to 7,000, the insurgents seek to impose a strict version of sharia (Islamic law).  

Al Shabaab was among several splinter groups that emerged after Ethiopian forces removed the Islamic Courts Union, a group of sharia courts, from power in Somalia in 2006. Said to have ties with al Qaeda, al Shabaab has been designated a terrorist organization by several western governments.

The transitional government in Mogadishu fighting to retain control of the country treats Christians little better than the al Shabaab insurgents do. While proclaiming himself a moderate, President Sheikh Sharif Sheik Ahmed has embraced a version of sharia that mandates the death penalty for those who leave Islam.

Report from Compass Direct News

Recent Incidents of Persecution

Madhya Pradesh, India, December 31 (CDN) — Hindu nationalists on Dec. 26 beat a Christian distributing gospel tracts in Damoh Naka at Jabalpur. The Global Council of Indian Christians (GCIC) reported that at about 3 p.m. Devanand Dandale was distributing literature when Hindu extremists from the Bajrang Dal and Dharam Sena grabbed him, seized his mobile phone and money and phoned other extremists to come. A GCIC coordinator told Compass that for nearly two hours the extremists repeatedly slapped and kicked Dandale, pulled his hair and mocked him, finally forcing him to the Kotwali police station. En route, they falsely told news reporters that Dandale was a convert who was forcing others to convert. On advice of police, Dandale filed a complaint against Amit Tiwari, Sunil Sonkar, Ambasingh Thakur, Surendra Jain and Babu Tiwari, after which he was sent home at 9 p.m. At press time Dandale was receiving medical treatment for swollen legs and severe pain.

 

Andhra Pradesh – On Dec. 20 in Hi- City, Hyderabad, about 100 Hindu extremists attacked Pastor T.R. Raju, warning him to vacate the area. The previous day Pastor Raju had led a Christmas celebration with a convert from Hinduism, an actor identified only as Surya, as a quest speaker, reported the All India Christian Council (AICC). Surya had mentioned the blessing of having Christ as God and did not criticize other faiths, according to the AICC. Afterward, however, four people came and argued with the pastor and verbally abused him. The next day, about 100 Hindu hardliners gathered at the pastor’s house, verbally abused him and beat him, according to the AICC. Surya also showed up and pleaded with the furious mob to stop, and police arrived as the attackers scattered. The extremists continued to threaten the pastor to leave the area or face harm. They also threatened the pastor’s landlord, who subsequently gave notice to the pastor to vacate the house in 10 days.

 

Maharashtra – Carol singers on Dec. 18 were beaten at 10:15 p.m. in Worli Koliwada, Mumbai, reported national daily the Times of India (TOI). Joseph Dias of the Catholic Secular Forum reportedly said 25 members of the New Life Church youth group were singing carols when Dhananjay Desai of the Hindu extremist Hindu Rashtra Sena began mocking them, saying they were paid to sing. Desai then phoned other Hindu extremists, who rushed to the spot in three cars and charged into the youth group, beating two of them, Ganesh Gadam and Joel Metrin. The TOI reported that the extremists forced the victims into their cars and took them to a police station. Dias told Compass that police issued a warning to the assailants, who threatened the Christians with harm if they persisted in holding public Christian activities.

 

Karnataka – Hindu extremists from the Rashtriya Sawaymsevak Sangh on Dec. 17 attacked a Christian and accused him of “large-scale conversion” in Shimoga. The All India Christian Council (AICC) reported that about 15 Hindu extremists gathered at the house of S. Prakash, manager of the Dalit Education Centre, and accused him of using the school as a cover for the alleged conversions. The extremists beat Prakash, leaving him with several internal injuries, and threatened further harm if he did not close down the school. They also cut down trees at the school and destroyed its signboard. Prakash filed a complaint with local police. Village officials are supportive of the work by the school, reported the AICC. A police investigation was ongoing at press time.

 

Madhya Pradesh – On Dec. 9 in Satna, police arrested Pastor V.A. Anthony and booked him under the state anti-conversion act. The arrests was made in connection with an incident that took place earlier this year when the pastor conducted a Christian funeral at the request of the parents of the diseased, reported the All India Christian Council (AICC). An activist with the Hindu nationalist Bharatiya Janata Party, Lakshimi Yadav, learned of the funeral and filed a case against Antony. Police investigated the case but found no wrongdoing by the pastor. In early September, Hindu extremists from the Sangh Parivar forced local newspapers to publish biased reports about the funeral and complained to the inspector general of police that the pastor had forcibly converted the parents of the deceased, identified only as Rajesh. The Hindu extremists threatened the pastor on Sept. 12.

 

Karnataka – Hindu nationalists from the Bajrang Dal on Dec. 8 disrupted a prayer meeting, falsely accused Christians of forcible conversion and seriously injured two of them in Gonilkoppa. The Global Council of Indian Christians (GCIC) reported that at about 8 p.m. the Shakina Full Gospel Church was worshiping when 10 extremists led by Hindus identified only as Manu, Devaraj and Manju stormed in. A GCIC coordinator told Compass that Christians identified only as Raju, Kaliamma, Rajukamma, Belli, Lovaliamma and Viji were verbally abused and dragged to the Gonilkoppa police station, where the extremists pressured police to arrest them. The Evangelical Fellowship of India reported that officers released the Christians without charges but strictly warned them, for security purposes, not to conduct future worship meetings at their homes. Belli and Viji, who bled profusely from the attack, received medical treatment at the Gonilkoppa Government Hospital. “Police, however, did not take action against the extremists for attacking the Christians,” a GCIC coordinator noted.

 

Madhya Pradesh – Armed men on Dec. 6 attacked the Rev. Thomas Chirattavalli in Satna. The suspected Hindu extremists hit the priest’s head when he opened the door of the parish house, then they chased and beat him. The parish driver, cook and another staff member heard the disturbance and tried to come out, but the assailants had locked the doors from outside. The priest sustained two deep wounds on the head, as well as injuries on other parts of his body. He filed a First Information Report at Burgama in Singrauli district.

 

Karnataka – Shimoga police on Dec. 5 forced the closure of a house church at Rippon Pete, Shimoga district. The Global Council of Indian Christians reported that on Dec. 3 Pastor Sebastian Babu was falsely accused of forced conversion by area Hindu extremists who threatened to harm him if he continued church services. On Dec. 5, as Sunday worship was going on in Rippon Pete, police arrived after the extremists complained of “conversion activities.” Officers took Pastor Babu into custody and warned him against conducting worship, adding that he had to report to the police station the next day with the landlord of this rented house. A GCIC coordinator told Compass that Pastor Babu and his landlord went to the police station on Dec. 6, where officers learned that the landlord had no objection to the house church. Nevertheless, they advised him against conducting Christian worship “as a security measure.”

 

Karnataka – Hindu extremists on Dec. 5 pressured the Slum Board administrative committee in Kengeri, Bangalore to demolish the Gypsy Prayer Church building. The Global Council of Indian Christians reported that the extremists barged into the prayer hall and disrupted a service led by a pastor identified only as Rajesh. They filed a complaint with the Slum Board committee against the Christians and persuaded it to order that the church building be demolished.

 

Karnataka – Police on Dec. 2 arrested a pastor on charges of attempted forcible conversion in Udayanagar, near Mahadevapura. The Global Council of Indian Christians (GCIC) reported that a pastor identified only as Johnson and a senior church member identified only as George were invited for a prayer service at the home of a Christian. Johnson, 26, of Kerala, was staying at the Evergreen School at Udayanagar near Mahadevapura. While they were praying at about 11 a.m., nearly 25 Hindu nationalists from the Bajrang Dal stormed the house, dragged Johnson outside and continued hitting and kicking him while falsely accusing him of forced conversion. A GCIC coordinator told Compass that the extremists forcibly took them to the Mahadevapura police station, where officers filed charges. At press time, the pastor was still in jail.

 

Kerala – Hindu extremists on Dec. 2 attacked a nun who is a college student in Ernakulam. The All India Christian Council reported that Sister Ann Matthews was attacked by a group of men inside Ernakulam South Railway Station and had to be treated for her injuries at Medical Trust Hospital. Matthews said she was targeted because she was a nun. Police have registered a complaint, but no arrests had been made at press time.

 

Karnataka – Police arrested a pastor on Dec. 2 after Hindu extremists beat him and accused him of forceful conversion in Udayanagar, near Bangalore. The Global Council of Indian Christians reported that Hindu extremists stopped the pastor, identified only as Johnson, as he was returning home after a prayer meeting. They accused him of forcefully converting Hindus to Christianity, beat him and dragged him to Mahadevapura police. The assault continued in front of police. Later Pastor Johnson was arrested under Section 295 of the Indian Penal Code for damaging a place of worship with intent to insult the religion of any class. A judge sent the pastor to Bangalore Central Jail, but he was released on bail the next day.

 

West Bengal – Radical Muslims in Natungram, Murshidabad have forbidden a woman who converted to Christianity from Islam to buy or sell if continues in her new faith, a source told Compass. The past few months the Muslims had ordered Chanda Babi and her family, who became Christians in February, not to attend church services and told them not associate with any neighbors. As Babi and her family continued to follow Christ, the Muslim radicals on Nov. 28 ordered villagers not to buy from her family’s milk business, and they ordered shopkeepers not to sell to her, the source said. They further warned that they would impose a large fine if her family continues to believe in Christ.

 

Uttarakhand – Police on Nov. 9 detained three Christians from the Indian Pentecostal Assemblies on false charges of forceful conversion in Ravli Mehdud, Haridwar. The Evangelical Fellowship of India reported that police officers stormed into the prayer meeting and took Pastor Manoj Kumar and two church members into custody. Officers verbally abused the Christians, uttered derogatory remarks against Jesus Christ and the Christian community and threatened to harm Pastor Kumar. The Christians were released without charges after the intervention of area Christian leaders.

Report from Compass Direct News

Vietnam Grants Last-Minute Permit for Christmas Event

Officials present several obstacles to large-scale worship service.

HO CHI MINH CITY, December 29 (CDN) — Granted permission only five hours before a scheduled Christmas event, house church leaders turned an empty field into a rudimentary stadium and welcomed some 20,000 people for a time of worship and evangelism on Sunday (Dec. 26) in Vietnam’s largest city.

The last-minute permission for the event in Ho Chi Minh City reflected the byzantine manner in which authorities have applied Vietnam’s religions laws. The central government’s Bureau of Religious Affairs (BRA) in Hanoi, the body charged with managing religion in communist Vietnam, gave permission for the event to the newly registered Vietnam Assemblies of God (AOG) organization in early December. The Vietnam AOG represents a large grouping of mostly unregistered house churches in the Vietnam Evangelical Fellowship (VEF).

Organizers were grateful for the early permission this year – last year they received only 42 hours notice for an event that 40,000 people attended – but when the AOG superintendent, Pastor Duong Thanh Lam, and other VEF leaders began working out particulars with the Ho Chi Minh City BRA, they met with considerable resistance. After the Ho Chi Minh City BRA finally consented, church leaders said, the organizers found that landlords with potential venues, clearly under pressure, refused to rent them space.

The stand-off lasted until Christmas Day. Meantime, based on the permission from Hanoi, organizers sent invitations to many thousands of Christians in the city and surrounding provinces, and Christians were preparing to come with friends and neighbors to the event, sources said. Some 300 buses, each carrying 60 to 70 passengers, were to bring people from the provinces, they said.

By 11 a.m. on Christmas Day, in spite of official promises, the required permission papers had not yet been granted, church leaders said. Organizers debated whether to push ahead or call off the event – wondering whether communicating word of a cancellation was even possible at that point. Finally at 5 p.m., in an emergency meeting with the city’s ruling People’s Committee, they got a verbal go-ahead and a promise of a written permit.

They said this meant they had only 24 hours to build a perimeter around the field, bring in electricity and water, prepare sanitary facilities, set up chairs, erect a stage, and install the sound and lighting systems.

But the next morning – the Sunday of the planned event – authorities informed organizers that the permission was not for their program but only to provide a place where the buses and people could come so organizers could explain, apologize and send them home, sources said. Organizers said it was another in a series of deeply discouraging betrayals, but that many Christians in Vietnam and worldwide were praying fervently.

Just before noon, a church leader went to the BRA office in a last-ditch attempt to get written permission. He urged officials to think through the possible consequences of many thousands of people arriving in the city for a much anticipated event and finding nothing. Finally at 1 p.m., just five hours before the event was scheduled to start, the BRA issued written permission for a gathering of 5,000 people.

Permission at last in hand, organizers called and text-messaged the many people standing by to help set up to come to the venue in district 12. Sources said they came quickly, like a small army, encountering huge cement culverts and pilings on roads as they approached the venue. These had to be manually removed to allow buses and trucks to enter.

Too late now to set up properly, they said, they did only what was absolutely necessary. They brought in 14,000 chairs on flatbed trucks, and one of the trucks served as the stage. As a backdrop they had time only to put up a large red cross with a white border that, when lit, sources said, stood starkly and powerfully against the night sky.

Crews and volunteers worked feverishly erecting towers and installing sound and lighting systems. Christmas worshippers began arriving in large numbers at 5 p.m., even though people reported authorities had prevented a significant number of buses from embarking on their journey, and that others were intercepted and forced to turn around.

The program began only 30 minutes later than the announced start time of 6 p.m., which organizers regarded as a miracle, and people continued to pour into the venue until well after 7 p.m. while worship music was underway. Those attending enthusiastically participated in loud and joyful praise, and sources cited as especially moving a local choir of hundreds singing “Praise to the Lord, the Almighty.”

As they did last year, the Jackson family of six from the United States sang at the rally. The state-controlled media had earlier given ample coverage to the unique sight of the Christian group giving away their CDs in a busy downtown area.

Pastor Ho Tan Khoa was well into his evangelistic message when the lights went out, although sources said that, miraculously, the sound system was not affected. Thousands of people in the crowd opened their cell phones, lighting the darkness with their digital candles. The failure – or cutting – of the electricity did affect the live video broadcast on www.hoithanh.com , but within about 15 minutes power was restored.

After a song and prayer for healing, Pastor Pham Dinh Nhan asked those who wanted to follow Christ to come forward. Hundreds streamed up, and sources said those who arrived first rushed onto the flatbed truck serving as a stage and clung to the large cross. Organizers estimated 2,000 people indicated a first-time decision to follow Christ.

In a fitting closing song, the Jackson family sang both in Vietnamese and English, “I can do all things through Christ who gives me strength.” Pastor Duong Thanh Lam then graciously thanked the relevant government departments for “recognizing our need to worship” and for “creating the conditions for this event to happen.”

Those who follow religion in Vietnam were puzzled that the government went to such lengths to hinder the gathering. They cited the government lock-out of a scheduled Christmas celebration in Hanoi on Dec. 19 as an example of interference that will also long be remembered (see http://www.compassdirect.org, “Vietnam Authorities Move to Stop Protestant Christmas Events,” Dec. 20).

“It seems Vietnam squandered an excellent public relations opportunity at a time when there are renewed efforts in the U.S. Congress to put Vietnam back on the religious liberty blacklist,” said one long-time observer.

Some Vietnamese church leaders and international observers have said they believe officials have clamped down on Christmas celebrations this year because they were alarmed at the size of last year’s Christmas events.

One church leader told Compass of Directive No. 75 of the Ministry of Interior, an Oct. 15 order that presumably forbids such gatherings. Though no church leader has been shown the directive, an official considered to be sympathetic to Christians told a pastor that the directive orders strict adherence to the Decree on Religion 22. This 2005 decree, the main law governing religion, forbids Christians in unregistered groups from any public gatherings, restricting their religious activity to
single family worship in their household.

In practice, sources said, many house churches have experienced considerably more freedom than that. Last year many unregistered groups were allowed, though reluctantly, to hold large public Christmas gatherings in Hanoi and Ho Chi Minh City.

The unregistered house churches are becoming increasingly frustrated. Most have tried to register their congregations according to existing laws but have either been refused or ignored. The freedoms that members of registered churches enjoy are not available for unregistered Christians, sources said, and unregistered Christians are unable to register.

Many speculate that concern over security in the run-up to the January 2011 Party Congress, held every five years, is one reason for the government’s approach. Whatever the reason, all concerned church leaders agreed that the efforts to stop the large Hanoi and Ho Chi Minh City Christmas events this year were ordered from the top level of government. No leaders said they believe the obstacles resulted merely from disagreements and delays among government departments, as it was sometimes made
to appear.

A number of other events held in public venues by the registered Evangelical Church of Vietnam (North) and the Evangelical Church of Vietnam (South) went ahead peacefully. The largest one in Ho Chi Minh City on Dec. 17 attracted an estimated 9,000 people, with about 1,000 indicating a desire to follow Christ.

In some places, unregistered house church organizations held small Christmas events without difficulty. According to one count, at least 6,000 people throughout Vietnam indicated a first-time decision to follow Christ in this year’s Christmas events.

Report from Compass Direct News

Christian Jailed in Ethiopia Accused of Desecrating Quran

Constitution flouted as he is jailed for two months in Muslim area without court appearance.

NAIROBI, Kenya, October 7 (CDN) — A Christian in Ethiopia’s southern town of Moyale has been languishing in jail for two months after his Muslim business partner accused him of writing “Jesus is Lord” in a copy of the Quran, local church leaders said.

Tamirat Woldegorgis, a member of the Full Gospel Church in his early 30s, was arrested in early August after the Muslim co-worker in the clothes-making business the two operated out of a rented home discovered Woldegorgis had inscribed “Jesus is Lord” on some cloth, area Christians said.

Woldegorgis returned from a break one morning to find that the inscribed words had been cut out of the piece of cloth, the sources said. He then had the words set in the machinery of their tailoring business for inscription on clothing material, only to find later that the inscribed plates were removed from the machinery as well, they said.

The Muslim associate, whose name has not been established, then went to a nearby mosque with the accusation that Woldegorgis had written “Jesus is Lord” in the Quran itself, sources said. Angry sheikhs at the mosque subsequently had Woldegorgis arrested for desecrating the book sacred to Islam, they said.

Other sources said, however, that Muslims accused Woldegorgis of writing “Jesus is Lord” on a piece of wood, on a minibus and then on the wall of a house. As he has not been brought to court, the exact charges against him are not yet known. Woldegorgis denies all accusations, and area Christians insisted he is innocent.

A church leader who requested anonymity told Compass that Christians in Moyale are concerned that Woldegorgis, a married father of two from Hagarmariam village, has not been granted a trial after two months in jail. He said that two days after Woldegorgis was arrested, two friends inquired about him at the Moyale police station; authorities responded by jailing them for two weeks.

“The Ethiopian constitution allows for religious tolerance,” said the church leader, “but to date Woldegorgis has not been taken to court. He is still in a police cell, which is quite unusual for an Ethiopian national, and given constitutional provisions.”

Jijiga, capital of Ethiopia’s Somali Region, has the largest court in eastern Ethiopia, and Christians fear that Islamic principles govern it. In Ethiopia’s federal state system, each state is autonomous in its administration, and most of those holding government positions in Somali Region Zone Five are Muslims.

“We fear that our brother might be taken to Islamic court in Jijiga for trial, which will further threaten his life,” the church leader said. “Where is justice for our brother being in prison without been tried?”

Sources also said that authorities are offering to release Woldegorgis if he will convert to Islam. Woldegorgis is physically weak but strong in his faith, the church leader said, adding that he needs food and other material assistance, as well as an attorney.

Sources said Woldegorgis has been jailed in Zone Five of Ethiopia’s Somali Region, a predominantly Somali area. Moyale, located on Ethiopia’s border with Kenya, is divided between the predominantly Muslim Zone Five and Zone Four, which is populated mainly by ethnic Oromo, with each zone having distinct administrative and judiciary systems. Preaching non-Muslim faiths is not allowed in Zone Five, in spite of provisions for religious freedom in Ethiopia’s constitution.

Hostility toward those spreading faiths different from Islam is a common occurrence in predominantly Muslim areas of Ethiopia and neighboring countries, they said. Christians are often subject to harassment and intimidation.

Ethiopia’s constitution, laws and policies promote freedom of religion, but occasionally local authorities infringe on this right, according to the U.S. Department of State’s 2009 International Religious Freedom Report. According to the 2007 census, 44 percent of Ethiopia’s population affiliate with the Ethiopian Orthodox Church, 19 percent are evangelical and Pentecostal and 34 percent are Sunni Muslim.

Report from Compass Direct News