The Real Estate Institute’s two biggest branches are speaking with two voices right now. The problem is while Melbourne continues on a boom, Sydney is still in a slump, and their reasons why are just as varied as the two cities’ auction results. Certainly at this rate, Melbourne prices will soon be nearly at Sydney levels. The overall impression for those in the industry is the recent sense of urgency among some buyers has now lessened with sanity returning to this vital market. Meanwhile, the Housing Industry Association (HIA) has joined the debate saying new home building continues to recover very slowly with nowhere near the numbers needed to stop fueling the present rate of house price increases.

Federal treasury boss, Ken Henry, has surprisingly entered the current mining debate by insisting it was not that sector which kept our economy out of the recent GFC, but good national economic management. But his recent revelation did concede that our Asian raw materials markets proved extremely strong, especially China, which should see the Federal budget return to surplus by 2011.

To the surprise of many, economic analyst Ernst & Young has stated their research is showing current volatility in financial markets will not deter merger and acquisition activity planned in the next 6 months. And amazingly they say that almost one in two Australian companies plan to make an acquisition amid what is in reality improving confidence in capital and credit markets.

Global credit ratings agency, Moody’s Investor Service, says the outlook for Australia’s building societies is stable and improvements are inevitable due to their sound deposit base and a solid economic outlook for the future. The most interesting statistic they issued was that customer deposits have climbed 68 percent of total funding in the past year.

The Board of the Reserve Bank of Australia (RBA) has announced the basic cash rate will be held at 4.5 percent. Three consecutive rate rises and renewed risk aversion made a powerful case for inaction. A fair amount of the decision is devoted to the developing European issues. The RBA notes that “at this stage, global growth is still expected to be at about trend pace in 2010”. This comment is a tad weaker than the “modestly above average” rate of global growth anticipated in the May Statement on Monetary Policy (SMP).

Nevertheless, the inflation risk case for higher rates eventually remains intact, however. Australian growth is set to run around trend, the commodity-income boost is yet to flow through the economy and inflation appears likely to be in the upper half of the target zone over the next year. It is believed that the cash rate will be 5 percent by late 2010 and a move towards 6 percent in 2011.

The Organisation for Economic Co-operation and Development (OECD) has suddenly issued a rates warning about the Australian economy. The normally conservative OECD now says: ‘at least four more rate rises in the year ahead’ which will result in home loan interest rates hitting 8.5 percent. Interestingly, our interest rates are already the highest in the developed world and only exceeded by smaller economies such as Turkey, Poland, Mexico and Iceland.

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Wayne Swan delivered his budget for 2010/11 on Tuesday 4 May in what is described as a “no frills” budget designed at bringing Australia out of deficit. What does the budget mean for you? Taxpayers will be able to claim $500 in work expenses without receipts from 1 July 2012 which will be increased to $1000 the following year. From 1 July 2011 you will receive a 50% discount on the interest you earn from money invested in a savings account. Previously any interest earned needed to be declared and taxed at the marginal rate. This will change so that you pay tax on half of the interest that you earned. Tax cuts will apply from 1 July 2010 with the tax free threshold increased to $16,000. The company tax rate will be 29% and 28% for small businesses.

The Government expect that Australia will return to surplus in 2012-13 which is 3 years earlier than expected. Health is a big winner with extra funding to train nurses, improve existing GP super clinics and provide 23 new ones. Extra revenue will be generated by increasing the tobacco excise and there will be savings resulting in changes to the Pharmaceutical Benefits Scheme. The childcare rebate will be reduced to $7,500 per child in a bid to provide revenue.