Glenn Stevens lauded for preserving RBA independence from government

When it comes to legacies, the outgoing Reserve Bank governor Glenn Stevens will be remembered for guiding Australia through the global financial crisis and marring his record with a the burden of a recession.

Listen to the full interview with Saul Eslake

Mr Stevens - who makes his final public speech in Sydney today - also navigated Australia through a once in a century mining boom but also the unwanted legacy of a real estate bubble fuelled by cutting interest rates to a record low of 1.5 percent.

While the jury is out on the full Glenn Stevens time in the RBA hot seat, one respected economist has lauded Mr Stevens for preserving the independence of the Reserve Bank by raising interest rates a week before the 2007 election.

John Howard’s Coalition was swept from office, heralding the ascension of Labor’s Kevin Rudd as Prime Minister.

Saul Eslake, a former bank chief economist now vice chancellor’s  fellow at the University of Tasmania, said Mr Stevens came under immense political pressure from the Liberal Party after raising the cash rate by 0.25 percent to 6.75 percent.

"I think Glenn Stevens' courage in these circumstances is another key achievement of his time during the decade at the helm of the Reserve Bank," Mr Eslake told The World Today.

"There are many in the Coalition who never forgave Glenn Stevens for that even though I doubt that his decision to lift interest rates had any impact on the outcome of the 2007 election.

"There were a number of Coalition members who from time to time would surreptitiously briefed the (Canberra) Press Gallery against Glenn Stevens."

Mr Eslake also cited media pressure with The Daily Telegraph in Sydney describing Mr Stevens as "the most useless banker in Australia" because of his strategy of hiking interest rates.

Glenn Stevens' preservation of the Reserve Bank independence of government was most recently demonstrated when the RBA board cut the cash rate on May 3, overshadowing the Federal Budget.

Despite the plaudits as Mr Stevens prepares to retire on September 17, there is mounting criticism that continuous rate cuts since November 2011 have fuelled an investment housing bubble in the eastern seaboard, in particular in Sydney and Melbourne.

"That's something that critics of Glenn Stevens' time in office - and of Ian Macfarlane before him - will probably point to as an arguable blemishes on their records," Saul Eslake says.

"But I doubt that anyone could really say that Australia's economy would have been materially better of as a whole if the Reserve Bank had maintained higher interest rates."

Mr Eslake agrees however the younger Australians have been locked out of the main markets and live in the hope of receiving an inheritance or winning Lotto.

"Yes. Those are regrettable trends. And I think Glenn Stevens would be at one with in saying that the trend has been regrettable."

Glenn Stevens will deliver his final speech titled "An Accounting" when he speaks in Sydney at an event hosted by the Anika Foundation and Australian Business Economists

Digital disruption could rock workplace agreements, report warns

In a world of digital disruption with the likes of Uber and Air BnB, the focus is turning to how rapid changes to business and lifestyles could translate to the workplace.

A report out today looks at likely challenges to legal rights for both employers and employees given the move to contracting and more flexible work arrangements.

The law firm Corrs Chambers Westgarth says businesses, governments and not-for-profits need to consider how they can adapt to the challenges of a fast changing digital economy.

Partner John Tuck told The World Today that navigating the rise of the sharing economy will be critical for Australian businesses and their employees.

"The nature of the impact is going to be very dramatic change in the way in which services are being delivered," Mr Tuck said.

"Couple that with automation and artificial intelligence, you can see that we are going to have a revolution in the way that work is being undertaken in Australia."

Mr Tuck agrees a major challenge is ensuring that workplace flexibility is not perceived as worker exploitation.

"Yes. And I think that any responsible business is set up in a way that is lawful and that they take notice of the proper regulation."

In its annual workplace report, the firm singles out the scandal involving the retail chain 7-Eleven where some employees were underpaid and exploited.

John Tuck says the 7-Eleven example highlights social and legal risks for companies that fail to ensure worker rights are protected in a flexible economy.

"The challenge for employers of course is how do we ensure that laws are being followed and that does create issues," Mr Tuck said.

"A prominent brand, a known brand may well have to put in new governance structures to ensure that those laws are being followed.”

After the 7-Eleven revelations by the ABC and Fairfax Media, both major political parties ramped up policies to bolster employee protections and to impose higher penalties for breaches.

But with the rights checks and balances, the report says workers in the new economy can adapt while maintaining industrial protections.

"The new generations are going to embrace the portability and flexibility of new work opportunities as opposed to looking back through the rear vision mirror," Mr Tuck said.

Key challenges for employers are ensuring enterprises agreements are honoured while independent contractors understand superannuation laws and workers compensation laws.  

While the report recommends workplace reform, it says the close election result means there is limited prospect of any significant changes in the near term.

Investors, depositors big winners from RBA rate cut

The decision by major banks not to fully pass on the Reserve Bank's official rate to mortgage borrowers demonstrates the power of big investors at a time of tighter profit margins, according to interest rate analyst.

Listen to my interview with RateCity data director Peter Arnold

But Peter Arnold, director of data at the financial services monitoring firm RateCity, says the move by the Big Four isn't surprising and proves that the interests of shareholders is now the number one priority for major banks.

"Protecting those margins, holding back money as equity is now very important. But as a borrower, you're the one who's paying the price here," Mr Arnold told the ABC's AM program.

"There'd be a lot of pressure from shareholders. The bank profits are a big source of income for super funds so the typical Aussie is benefiting in some regards.

"But the big investors are certainly a force to be reckoned with."

The changing priority for banks is in contrast to the past decade when Federal Treasurers including Peter Costello, Wayne Swan and Joe Hockey publically urged banks to pass on rate cuts in full.

Bank chief executives were routinely carpeted in public and private when official rate cuts were held back to protect profit margins.

When the Reserve Bank cut rates in May on federal budget day, three of the four major banks delivered the full rate cut to borrowers.

But yesterday, major banks passed on around half the official reduction with the National Australia Bank handing over just 0.1 percent of the RBA's 0.25 percentage point reduction.

Instead term deposit rates have been sweetened by the Commonwealth, NAB, ANZ and Westpac to ensure depositors - who are hurting from record low rates - keep their money with banks.

Peter Arnold says banks are under more pressure than ever given demands from institutional shareholders along with the Australian Prudential Regulation Authority (APRA) which now requires banks to keep more cash in reserve to deal with potential shocks.

As economists question the Reserve Bank's strategy in taking rates to record lows, there are still fresh memories of banks raising rates independently in the leadup to the global financial crisis when bank funding costs spiralled.

Mr Arnold warns borrowers could be exposed to the scenario of independent rate hikes again in the event of a global shock.

"That could certainly happen again, " Mr Arnold told AM.

"We've seen it before and it's happened this decade. We saw some months where the RBA didn't move and the major banks added 0.1 to 0.5 percent extra on to home loan rates."

While the major banks have held back the full RBA cut, smaller banks without shareholders are better positioned to pass on the full 0.25 percent to borrowers.

The former credit union Bank Australia was the first to move, opening the door for other borrowers to do the same.

RBA tipped to cut rates to new low but urged to keep rates powder dry

                  

It's shaping up as a tight call but most economists think the Reserve Bank will cut interest rates to a new historic low this afternoon.

The majority of economists polled by Bloomberg are tipping a 0.25 percentage point cut to 1.5 percent as the RBA fights back against an outlook for slowing inflation.

Listen to my report from this morning's edition of AM  on the ABC

If the RBA delivers on expectations, it will have cut the cash rate by 3.25 percentage points since November 2011.

But while money markets see a 70 percent chance of a rate cut at 2.30pm AEST, one economist is urging the RBA to keep its rates ammunition on hold to deal with potentially harder economic times ahead including a recession.

Annette Beacher, head of Asia Pacific Research at TD Securities in Singapore says now is not the time for the RBA to cut rates to deal with low inflation.

"While there is certainly a raft of expectations for the RBA to cut, we don't see any data or any situation in recent weeks and months to tip them over the line," Ms Beacher  told ABC News.

"Australia hasn't had a recession since 1991 and I do think the RBA would quietly like to keep some powder dry in case there is a real crisis.

"I think leaving a 1.75 percent cash rate in the bank might be sufficient powder for whatever occurs around the corner."

The Reserve Bank last cut the cash rate in May on fears about deflation, overshadowing the Federal Budget, in what was also seen as a close decision.

The Australian Bureau of Statistics released more evidence of soft inflation on July 27 with headline inflation up 0.4 percent in the June quarter and one percent over the year.

While headline inflation is well below the RBA's target band of 2 to 3 percent over time, the RBA watches core inflation with the trimmed mean measure rising to 1.7 percent over the year.

The RBA is also concerned about the rising Australia dollar which it has described as a “complication” in previous statements.

While it is lower today at 75.3 US cents ahead of the RBA meeting, it has been above 76 US cents after soft economic growth data in the US late last week and the reduced likelihood of a US rate rise this year.

Today's meeting is the second last for RBA governor Glenn Stevens who will chair his final rates decision in September before leaving the RBA on September 17.

Tax Office warns retirees on dodgy tax avoidance schemes

Prospective retirees are being warned they could be risking their nest eggs by investing in illegal retirement schemes designed to dodge tax.

The Australian Tax Office is working to shut down what it calls a "significant" number of schemes that lure investors with tactics to minimise or avoid legitimate tax through complex "paper shuffling".

Listen to the full interview with ATO deputy commissioner Michael Cranston

The ATO says the schemes are "artificially contrived and complex" and are usually connected with the management of a self funded superannuation fund or SMSF.

Deputy Tax Commissioner Michael Cranston told AM that taxpayers who adopt illegal schemes face "severe penalties" which could amount to 47 percent of retirement savings.

"What we're seeing is some taxpayers getting close to retirement and moving some of their businesses into these self managed super funds," Mr Cranston said.

"Then when they go into retirement phase they draw out the dividends and there is no tax. They are things they are not allowed under the law.

"If things are too good to be true, they're generally not right."

The ATO is targeting three schemes including the tactic of "dividend stripping" where dividends from shares in a private company are channelled through an SMSF to avoid tax.

In addition, the ATO is ramping up surveillance of "non commercial recourse borrowing arrangements" and "personal services income" arrangements that break tax law.

However, Mr Cranston says while prospective retirees are looking at ways to boost their retirement nest egg there is no relation to the federal government's proposed changes to superannuation tax concessions.

"This has really got nothing to do with government discussions around superannuation policy," Mr Cranston said.

The ATO has launched an educational program to alert investors and to help weed out promoters of what it calls "dodgy schemes".

"That's if somebody has tried to structure your scheme differently, if it does look a bit artificial, or things that you don't have to pay tax on that you don't have to any more.

"They're signals that you should check with another accountant or ask the ATO."

In addition to penalties, Mr Cranston says fines could amount to 47 percent of the earnings of any illegal scheme.

"There's a lot of love": Fiji trade minister Faiyaz Koya as diplomatic tensions with Australia ease

Fiji's diplomatic and trade relationship with Australia has almost normalised as tensions about a history of military coups continue to fade, according to a senior Fijian government minister.

The South Pacific nation's Trade and Tourism Minister Faiyaz Koya says concerns about coup-driven political stability are no longer an issue after Australia lifted sanctions imposed in 2006 when Frank Bainimarama seized power in a military coup.

Listen to the full interview with Faiyaz Koya

"I think we've gone quite far already. There's a lot of love and now we're just strengthening that love," Mr Koya told The World Today.

"We've pretty much normalised our relationships and we're on a firmer footing now."

After years of bilateral tensions steming back to military coups in 1987, Australia lifted the remaining sanctions and sought to normalise diplomatic relations with Fiji in October 2014 after Prime Minister Bainimarama was returned in democratic elections.

At the time Foreign Minister Julie Bishop said the decision to lift sanctions marked "a new era" in Australia's relationship with Fiji which she described as a "work in progress".

Mr Koya has been visiting Australia to build relations with government and industry as Fiji's economy continues to recover from tropical Cyclone Winston which devastated parts of the nation in February this year.

The impact of the cyclone, which harmed the tourist industry, rocked Fiji's economic growth (GDP) after steady rises in recent years.

But Mr Koya was positive when he spoke to the ABC saying it was fortunate that the cyclone steered away from major tourist hotspots.

"We've done all right. We've had some growth and the Aussies and the Kiwis have still been coming across and that's our major market," My Koya said.

Mr Koya says Fiji is monitoring the impact of Britain's decision to leave the European Union amid concerns the uncertainty could disrupt important sugar exports.

"Britain especially because of sugar. And our sugar exports go out to the EU so people think it could have a massive effect on us," Mr Koya said.

In addition to sugar, Mr Koya is working to attract investors to Fiji's still untapped agricultural assets.

"For us, it has to be agriculture. We are trying to expand it as much as we can," Mr Koya said.

"We have vast tracts of unused land and very very good virgin land. It's the economic base that we need to expand."

Despite the focus on economic recovery and rebuilding diplomatic and trade links, Fiji remains synonomous with political instability and military coups steming back to 1987.

But Mr Koya says while the world might see Fiji that way, it's not the image for locals.

"Not at all. I actually spoke with a young gentleman and I asked - what is it that you find good about Fiji?," Mr Koya said.

"He said 'the best thing for us is the stability. This is somebody at home telling us.

"So stability is not really an issue any more."

Mr Koya also says Fiji is dealing with its corruption problem with the establishment of the Fijian Independent Commission against Corruption.

"I think we followed some of the models out of Hong Kong and we have done quite well in getting rid of it as much as we can," Mr Koya said.

"Again it's something that has effected a lot of countries. But I think Fiji has led the way with that and we have done fairly well out of it.We have advanced quite well in terms of corruption at home."

Mr Koya rejected concerns about media censorship in Fiji and believes political and social tensions between indigenous Fijians and Indians which have played a role in previous coups are being resolved.

"Everybody's a Fijian. No one is labelled or put into a little group," Mr Koya said.

"Obviously there's going to be some small elements that always exist but the fact that they're all known as Fijians has gotten rid of that problem.

"It's something we were left with when the English were around, the divide and conquer thing happening but not any more."

PM must restore stability and community confidence - says super fund boss Ian Silk

Australia's biggest superannuation fund says the newly-elected Turnbull government needs to re-establish political stability to regain the confidence of the community.

Ian Silk, chief executive of AustralianSuper, says it's now imperative that the Prime Minister send a positive message about stability after several years of uncertainty under both Labor and the Coalition.

AustralianSuper chief executive Ian Silk with the ABC's Peter Ryan

"I think that's the number one task - to establish some political stability and regain the confidence of the community," Mr Silk told The World Today.

"Obviously the rise of the independents and the minor parties in the Senate is reflective of a community that is seeking strong leadership and a clear direction for the country."

But with two million members and a $100 billion dollars of superannuation funds under management, AustralianSuper worries that navigating the makeup of the new parliament and a fragile Senate will be "challenging" for the Prime Minister.

Mr Silk also cast doubt on the government's proposed corporate tax cut for small business which is expected to be revised after the global ratings agency Standard and Poor's put Australia's AAA rating on a negative outlook.

""I think the prospect of the company tax cut even being legislated is remote," Mr Silk said.

"Even if it was, I don't think there are too many people who thought a decade long company tax program would actually be implemented without any changes over that period."

However, business groups are urging the government to maintain the proposed corporate tax cut despite the warnings about the need for budget repair.

James Pearson, chief executive of the Australian Chamber of Commerce and Industry, told AM  the tax cuts remain justified.

"We still support that. It makes just as much sense today as it did before the election," Mr Pearson said.

" I think it's a phony choice to say it's about cutting spending or raising taxes.

"It's a moderate measure. It comes in over 10 years, and it starts off with small businesses. And the benefits as shown by Commonwealth Treasury research flow overwhelmingly to households."

But Mr Pearson agrees that despite Mr Turnbull's narrow win, the new parliament is an opportunity to build new stability.

"There's no doubt that the Senate which has been elected, it will be a much more diverse body than it was before," Mr Pearson said.

"The degree of difficulty may well have gone up but business is ready to build a constructive relationship with the new crossbenchers and the old, and we'll do so with genuine goodwill.

The responsibility is on all politicians, be they Government, Opposition or on the crossbenches. We cannot afford another three years of policy gridlock."

Business edgy on election deadlock amid AAA rating concerns

Business groups are warning the election deadlock is likely to create of an extended period of uncertainty with critical decisions set to be put on hold in the absence of a clear outcome.

The looming prospect of a hung parliament or a minority government also puts doubt over budget repair, raising concerns that Australia's prized AAA credit rating could be in jeopardy.

Listen to my interview with Business Council chief executive Jennifer Westacott broadcast on The World Today

Australian Industry Group chief executive Innes Willox says there are concerns that the Turnbull government's  reform agenda could be derailed or compromised.

"Uncertainty is the word of the day.Business craves certainty and stability and what this election has so far givenis uncertainty not just for the week ahead or a month ahead but for a long timeahead," Mr Willox told AM.

"What's the tax regime that they're going to have to deal with? What incentives are there around investment? What are the issues around hiring a new apprentice or a new trainee or hiring new staff?

"We may go into a period of some weeks of those sort of decisions being deferred or delayed unfortunately."

Australian Chamber of Commerce & Industry chief executive James Pearson also worries about the uncertainty but is urging compromises amid the political chaos.

"We'll be calling on the minor party MPs and the senators to move beyond the narrow agendas and make new decisions in the new parliament in the national interest," Mr Pearson told AM.

"It's important that whatever major party forms government they build a constructive relationship with the cross bench because they need to get things done.

"We can't afford three years of policy gridlock."

Innes Willox warns international investors could become more wary about stability in Australia and that the election deadlock rekindles memories of leadership coups under both Coalition and Labor governments.

"We already have a reputation that Australia is a very difficult place to do business and political risk certainly came on to the agenda during 2010 to 2013 because of unstable or minority government," Mr Willox said.

"Those sort of things that were around are likely to return."

Mr Willox says whoever forms government must ensure the necessary budget repair is undertaken to ensure Australia's AAA credit rating is preserved.

"The last thing that any government that is elected as a result needs to do is to rack up further debt in a way that does impact on our credit rating."

Business edgy on election deadlock amid AAA rating concerns

Business groups are warning the election deadlock is likely to create of an extended period of uncertainty with critical decisions set to be put on hold in the absence of a clear outcome.

The looming prospect of a hung parliament or a minority government also puts doubt over budget repair, raising concerns that Australia's prized AAA credit rating could be in jeopardy.

Listen to my interview with Business Council chief executive Jennifer Westacott broadcast on The World Today

Australian Industry Group chief executive Innes Willox says there are concerns that the Turnbull government's  reform agenda could be derailed or compromised.

"Uncertainty is the word of the day.Business craves certainty and stability and what this election has so far givenis uncertainty not just for the week ahead or a month ahead but for a long timeahead," Mr Willox told AM.

"What's the tax regime that they're going to have to deal with? What incentives are there around investment? What are the issues around hiring a new apprentice or a new trainee or hiring new staff?

"We may go into a period of some weeks of those sort of decisions being deferred or delayed unfortunately."

Australian Chamber of Commerce & Industry chief executive James Pearson also worries about the uncertainty but is urging compromises amid the political chaos.

"We'll be calling on the minor party MPs and the senators to move beyond the narrow agendas and make new decisions in the new parliament in the national interest," Mr Pearson told AM.

"It's important that whatever major party forms government they build a constructive relationship with the cross bench because they need to get things done.

"We can't afford three years of policy gridlock."

Innes Willox warns international investors could become more wary about stability in Australia and that the election deadlock rekindles memories of leadership coups under both Coalition and Labor governments.

"We already have a reputation that Australia is a very difficult place to do business and political risk certainly came on to the agenda during 2010 to 2013 because of unstable or minority government," Mr Willox said.

"Those sort of things that were around are likely to return."

Mr Willox says whoever forms government must ensure the necessary budget repair is undertaken to ensure Australia's AAA credit rating is preserved.

"The last thing that any government that is elected as a result needs to do is to rack up further debt in a way that does impact on our credit rating."

Global markets bounce but cloud over London banks, EU passports

With global markets less stressed about Britain's shock decision to leave the European Union, the focus is turning to the consequences for Britain including its once prestigious banking sector.

Listen to my report broadcast on The World Today

EU leaders are warning Britain that its financial services industry including a major hub in the City of London could be damaged once the exit provisions under the Lisbon Treaty are triggered.

Critically the current right to a European Union passport is set to disappear under the Brexit meaning the current easy access Britain has to financial services in Europe could become history.

The chair of the Eurozone group of finance ministers Jeroen Dijsselbloem says major banks based in London could see their businesses decline and prompt some to leave.

"Larger international financial institutions, if they have to decide where do we go and where do we invest, will take into consideration that London is in the future outside this very large European market," Mr Dijsselbloem told the BBC.

"London and its financial services industry is servicing all of Europe now and they do that with the (EU) passport that gives them access to all the markets in Europe.

"That position will inevitably change."

Britain's finance sector employs more than two million people across the UK, many in the City of London.

Most workers have an EU passport which currently gives them free movement to make deals and to service clients across Europe.

The Brexit impact on British banking and the City of London was sitting quietly in the background in the leadup to the referendum.

But London lawyer Simon Gleeson says with deals potentially unravelling for the British banking sector there would be an impact on related businesses in the United Kingdom.

"Passporting is pretty much essential for the provision of services to European corporates," Mr Gleeson told the BBC.

"If you take passporting away then something changes in the city of London and some businesses will simply have to be relocated elsewhere."

In Brussels as the fallout continues, the German chancellor Angela Merkel warned that whatever deal is hammered out, Britain must honour the free freedoms of the EU - the free movement of workers, goods, capital and services.

"The United Kingdom needs to clearly state its intention as to how it wishes to shape its future relationship with the European Union," Ms Merkel said.

"Access to the single market will only be possible with due respect of the four freedoms."

Meanwhile, global markets rallied for the second day in a row with some investors comforted that the Bank of England and other central banks are poised to blockade any Brexit related credit crunch.

London's main index ended 3.6 percent higher and has now recovered its Brexit related losses.

The Australian sharemarket bounced in the global optimism and the big miners were helped by a higher iron ore price.

The All Ordinaries Index was index 1.4 percent higher in late morning trade.

Brexit political turmoil escalates, UK credit rating downgraded

The political and economic fallout from Britain's decision to leave the European Union is continuing to escalate.

Here's my report broadcast on The World Today

Britain's outgoing prime minister David Cameron has once again called for unity after the "leave" vote triggered more turmoil in his Conservative party and the Labour opposition.

European leaders are urging Mr Cameron not to waste time in getting the agreed mechanisms in place to exit the EU as quickly and cleanly as possible.

Global sharemarkets ended sharply weaker and two major ratings agencies downgraded Britain's credit status adding to concerns that the UK might slip into recession.

Central banks on emergency standby with Brexit fallout set to escalate

Central banks around the world are standing by to intervene amid fears that the global fallout from Britain's exit from European Union will escalate in the coming days.

Listen to my report broadcast on The World Today

The Bank for International Settlements - known as the central bank of central banks - is warning of a "period of uncertainty and adjustment" given Britain's status in the global economy and the impact of it withdrawing from the EU.

The bank's general manager Jaime Caruana says "extensive contingency plans" are in place by central banks and the private sector to limit market disturbances such as the shock Brexit decision.

"Central banks have already communicated that they are closely monitoring the situation and stand ready to take the necessary actions to ensure orderly market functioning," Mr Caruana said at the Bank's annual general meeting in Basel, Switzerland.

"Central banks have acted swiftly in the past. They stand ready to act again, and they have the tools."

The Australian sharemarket is set to open 0.1 percent higher tomorrow (Monday) after losing $50 billion in value as part of a global selloff.

The Bank of England moved swiftly after the Brexit outcome and announced it was ready to provide A$460 billion in liquidity to help calm currency and equity markets which went into free fall.

Bank of England governor Mark Carney - who had previously warned a "leave" vote would have serious economic consequences - declared he would take "all necessary steps" to ensure financial and monetary stability.

In Australia, the Reserve Bank provided a briefing to both the government and the opposition under caretaker conventions in the leadup to the Brexit referendum.

In its annual report released on Sunday evening Australian time - but written before the Brexit shock - the BIS pointed to "the declining impact of monetary policy" on domestic economies eight years after the Lehman Brothers collapse.

The BIS calls for "stability oriented monetary policy" and that policy makers should take financial stability into account at all times "during both booms and busts".

"We need policies that we will not once again regret when the future becomes today," the BIS warns.

The BIS message comes against the backdrop of slowing global growth, low inflation, falling commodity prices and concerns that traditional central bank tools like quantitative easing are not working.

In comments made with the release of the annual report, Jaime Caruana said despite deleveraging in the private sector problems were building elsewhere.

"Signs of unsustainable financial booms began to appear especially in emerging market economies," Mr Caruana said.

Mr Caruana urged a global rebalancing to deal with what he called a a pattern "similar to that of previous boom episodes".

Brexit market turmoil but EU ambassador says little impact on Australia

Britain's shock decision to exit the European Union should have little impact on Australia's diplomatic and trade relationships, according to the EU's ambassador to Australia.

Speaking to the ABC's AM program, Sem Fabrizi said despite global financial fallout from the Brexit vote nothing would change immediately.

"Until the new agreement for the separation from the UK takes effect, rights and obligations under the treaties will continue so there will be no immediate change," Mr Fabrizi said.

"Certainly Australia is a stronger partner of the European Union and we will continue to work with Australia as we will continue to work with all our partners."

But Mr Fabrizi said the Brexit outcome was not a shock to the EU and that said "war gaming" had been under way to manage the unexpected.

                            

"Certainly not. We were expecting a close call and the people of Britain have decided. A democratic decision has been taken," Mr Fabrizi said.

"So we're now in a period where clarity is needed more than ever. But there's a procedure in place and we would like to have this process started as soon as possible."

Earlier today on WallStreet, the Dow Jones Industrial Average ended 3.4 percent lower or 611 pointsin the red.

Analysts estimate US stocks lost US$700 billion contributing to global losses of around US$3 trillion.

The banking sector was hardest hit with Citigroup down eight percent and Goldman Sachs and JP Morgan Chase five percent weaker.

The losses on Wall Street follow plunges across Europe in the wake of the Brexit vote with Paris down 8.6 percent, Frankfurt 6.2 percent weak and Madrid plunging 12.3 percent.

The Chicago volatily index which measures market anxiety surged as much as 48 percent given the unknowns about the process for Britain's exit from the European Union.

But Sem Fabrizi told AM that while there was complexity ahead the EU would not seek payback with Britain.

"The spirit is always to find the best solution. I don't think we need to enter a conflict mode."

Brexit "leave" vote to spark UK recession, economist warns

The polls might be tipping a tight outcome in the Brexit referendum, but behind the scenes experts have been war-gaming the potential impact of a possible "leave" vote.

Research by the London School of Economics in "Life After Brexit" is warning Britain would most likely fall into recession if it leaves the European Union as a myriad of agreements unravel over several years.

The report's co-author Professor Swati Dhingra is the latest to agree with warnings from the British Treasury that a "leave" vote would be a shock to the UK economy and rattle global financial markets.

Professor Dhingra speaks with the ABC's Peter Ryan

Low inflation, rising dollar, moderating jobs. August rate cut firming?

The outlook for low inflation and a rising Australian dollar could lay the foundations for another cut in official interest rates, the Reserve Bank has signalled.

In the minutes from its June meeting when the cash rate was kept on hold at 1.75 percent, the RBA says measures of both short term and long term inflation remain below average.

Low inflation and fears about deflation drove the RBA to deliver an interest rate cut in May, coinciding with the release of the Federal Budget.

Reflecting on a world of low inflation and the potential impact here, the RBA says "monetary policy was very accommodative in the major economies and was expected to remain so given that inflation was below most central bank targets."

Consumer inflation in Australia is running at 1.3 percent - well below the RBA's target range of 2 to 3 percent over time.

The RBA says while the Australia dollar had depreciated around four percent against the US dollar, a recent recovery "could complicate the adjustment of the economy to lower terms of trade."

The central bank is also watching the labour market and says despite strength seen at the end of 2015 there had been "some moderation" in employment growth this year.

While there has been recent evidence that the transition out of the mining investment boom is occurring, the RBA is seeing "a further sharp fall in mining investment and a decline in non-mining investment in 2016/17."

On housing, the RBA noted that while residential building approvals increased strongly in April, this could be balanced by a flood of apartments coming on to the market in the next two years.

The RBA says there continue "to be indications that the effects of supervisory measures" have strengthened lending standards by major banks.

The RBA also cited the coming "Brexit" referendum on Britain's membership of the European Union as a factor increasing market volatility.

On China, the RBA says measures by Chinese authorities to curb speculation in commodity prices had led to recent falls in spot iron ore prices.

While money markets are factoring in a small chance of a rate cut in July, expectations are growing that the RBA will cut again in August after fresh consumer inflation data is released in late July.

Follow Peter Ryan on Twitter @peter_f_ryan

Brexit fears to rattle markets this week; I go to lunch and find "uncertainty" on menu

Nerves are running high on global financial markets with this week's vote on whether Britain should stay in the European Union only days away.

Polls on the Brexit referendum are now pointing to a lineball outcome when the poll is declared on Friday afternoon Australian time.

But in an already edgy world of slow growth, financial institutions and fund managers are working overtime to brief investors on their potential exposure to Britain leaving the EU.

The ABC's Peter Ryan goes to lunch and finds plenty of uncertainty on the menu.

Brexit breather but referendum has shock potential, says CMC's Jasper Lawler

There's been a brief respite on European markets overnight but in the background serious concerns about a possible British exit from the European Union loom large.

Just this morning, the US Federal Reserve left interest rates on hold as expected but cited uncertainty over a possible "Brexit" next week as a key factor.

That's ramped up worries about ramifications for the global economy - including Australia.

Jasper Lawler is an analyst with CMC Markets and I spoke from London earlier today.

Jobless rate steady but full time jobs growth evaporates

Unemployment has remained steady at 5.7 per cent in May with the estimated addition of 17,900 jobs.

The participation rate, the proportion of people in work or looking for it, remained steady at 64.8 per cent.

However, the entire growth in jobs was in part-time work, with fulltime work remaining flat.

Here's my reading of the May jobs outcome broadcast on The World Today

Medibank Private accused of misleading customers on health fund claims

Australia's biggest private health fund Medibank Private has been accused of misleading customers by failing to tell them about changes to benefits for pathology and radiation treatment.

The consumer watchdog the ACCC is taking Medibank to the Federal Court accusing it of unconscionable conduct to protect its brand and reputation.

Medibank Private listed on the sharemarket two years ago after being sold off by the Federal Government and has been in a battle with private hospitals over benefit payouts.

ACCC chairman Rod Sims spoke with the ABC's Peter Ryan.

Digital disruption, automation to shake up traditional jobs, report warns

Digital disruption has the potential to threaten 40 percent of jobs over the next ten to 15 years as automation and machine learning shake up the economy, according to a Productivity Commission report out today.

In research entitled "Digital Disruption: What do governments need to do?", the Commission warns governments and regulators need to prepare for changing times as "disruption" moves beyond Uber and Air BnB.

Productivity Commission chairman Peter Harris says developing disruptive technologies of machine intelligence and automation will gradually change economies.

I spoke with Productivity Commission chairman Peter Harris on The World Today

"There's little doubt that in some sectors there will be dislocation of labour and dislocation of capital. It's not just a cost to employees, it will be a cost to certain businesses as well," Mr Harris told The World Today.

"Things like 3D printing are going to have an impact. Right now it's more of a niche product but over time, you're going to see this applied to manufacturing."

However, Mr Harris says despite a new world of hyper-connected technology and big data, some of the early fears about humans being replaced by machines are overstated.

"The majority of jobs in our economies today are services kind of jobs and that requires some form of human interface. So simply saying that we have automated or can automate something doesn't mean to say it will be readily acceptable to consumers," Mr Harris said.

"You can't necessarily imagine that a doctor will be replaced by a robot to whom you will speak and get an analysis."

While smart technology will inevitably replace humans, especially in manufacturing, the Productivity Commission says Australia's social safety net, including a strong Medicare, could be critical.

"We do have an important social safety net and maintaining that will be essential for the purposes of people who will have their lives disrupted as a consequence of this," Mr Harris said.

The era of digital disuption will also be a challenge for governments and regulators but the report recommends that new companies and businesses should not be given a heavy handed approach.

Peter Harris warns against regulatory models that use inflexible "black letter law" that is based on the time the legislation is written.

"Giving regulators the power to offer temporary periods of holiday from a regulatory impact to allow an idea to unfold while ensuring consumers are protected," Mr Harris said.

"That sort of initiative and flexible thinking is tremendously important for governments if they're going to allow creative ideas to unfold and to deliver benefits not just for consumers but for employees and investors in the future."

But Mr Harris takes a wry view on how disruption will change lives, reflecting on the 1960s cartoon series The Jetsons.

"No, not quite Jetsons yet although we do have our video phones," Mr Harris said.

"George communicating with Jane is now possible today. But rocket jetpacks - I'm afraid I'm still waiting for mine to be delivered."

Brexit jitters, German ten year bond goes negative. So why should Aust care?

I talk Brexit and global jitters ahead of the June 23 vote with Robbie Buck from 702 Sydney.

Listen to it here

Mining transition underway - NAB business survey

Conditions for Australian businesses outside the mining sector continued to recover in May, according to NAB's latest monthly survey.

While conditions were flat compared to April, they remained at historically strong levels, with an improvement in sales and profitability offsetting a disappointing moderation in employment growth.

Here's my analysis on The World Today on ABC Radio

AAA rating in jeopardy without budget repair, CEDA warns

A leading business-backed economic think tank has warned that Australia's prized AAA credit rating is in jeopardy without serious budget repair.

The Committee for Economic Development of Australia (CEDA) has raised the prospect of a downgrade to Australia's sovereign rating as both the Coalition and Labor adjust their economic plans to return the budget to surplus.

Three weeks out from the election, CEDA's chief executive Professor Stephen Martin has told AM the AAA rating could be in the balance unless both major parties need to deliver sustainable and holistic plans to drive growth over the next four years.

"There is no doubt that if we continue to let the budget deficit slip year in and year out that the ratings agencies are going to look at Australia and say you're not serious about trying to get your budget back into balance," Professor Martin said.

"It doesn't matter who happens to be the government. Government must make the hard decisions to  that will get the budget back into balance sooner.

"That's a problem you can then put to bed and then you can embrace the real change issues that will see us set sail for growth."    

The warning is contained in a CEDA report out today which says time is running out for both major parties to convince voters that they have a winnable and workable plan for the economy.

The report also says policies for budget repair and a return to surplus need to have broad community support.

CEDA is urging a bipartisan approach on the economy to ensure measures undertaken by one political party won't be overturned by a change of government.

The report titled "Australia's economic future: an agenda for growth" outlines policy priorities across ten key areas including innovation, competition policy, education, workplace relations and climate change.

But Professor Martin - a former Labor speaker - said there was deep disappointment that significant tax reform on the GST and negative gearing had been put in the too hard basket.

"There's no doubt that a genuine debate around tax reform is still required," Professor Martin told AM.

"The business community believes it's still important  and this goes into the term of whoever wins government and the one after that.

"It is a critical juncture for Australia now and we need to see people put politics aside because we really are going to be left behind if we don't embrace these sort of agenda."

Banks exposed to "credit negative" risk from housing, warns Moody's

A resurgence in Australian real estate prices and rising household debt are becoming a greater risks for the nation's banks, according to the Moody's credit ratings agency.

Moody's warns the two factors raise bank sensitivity to potential "downside risk" in the reheating housing market with potential implications for the wider financial system.

Listen to my interview with Moody's senior vice president Ilya Serov 

Moody's says increasing leverage through housing could be "credit negative" for banks, despite currently strong employment conditions and an economy supported by low interest rates.

A contributing factor to the housing concerns is the Reserve Bank's decision to cut the cash rate to 1.75 percent in May, according to Moody's senior vice president Ilya Serov.

"The housing market in Australia appears to have accelerated over the past couple of months partly on the back of the cut in interest rates that we've seen in May," Mr Serov told The World Today.

"We are already in an economy which is characterised by fairly high levels of debt particularly in the household sector and the debt to income ratio which had been stable is now creeping up again."

Mr Serov says although interest are at record lows and likely to get lower, investors are exposed if the RBA moves or banks hike rates independently.

"The economy from a household sector perspective is more sensitive to increases in interest rates should they occur," Mr Sherov said.

While an imminent shock to the housing sector is unlikely, Mr Sherov said there could be broader macroeconomic effects that would rattle the financial system if the worst case scenario unfolds.

"It would most likely effect consumption, therefore households and how much money people are prepared to spend on durables such as white goods and car which are typically linked to how well the value of their house is going," Mr Serov said.

"I think the housing market in Australia is interlinked with economy very much so it would be difficult to separate  the two in that kind of adverse unlikely event."

The Moody's warning comes after data released last week by CoreLogic showed signs of house price acceleration in early 2016 despite a moderation late last year.

The Reserve Bank has also warned that banks are potentially exposed although intervention from the prudential regulator APRA (Australian Prudential Regulation Authority) appears to have tamed investor appetite.

Data released yesterday by the ABS showed investor housing finance fell by five percent in April.

However, Moody's Ilya Serov says there are signs that the APRA pressure has some way to go.

"It's particularly challenging in the context of declining interest rates. To that extent always when interest rates drop some housing activity reaccelarates and I think that's what we're seeing here."

Yellen dampens June rate rise talk as RBA board meets

US interest rates are set to remain on hold this month after Federal Reserve chair Janet Yellen delivered a highly qualified speech that signalled a June move was off the table.

While Dr Yellen said the US economy was making progress, she failed to repeat earlier comments that a rate hike would be appropriate in "coming months".

"I continue to think that the federal funds rate will probably need to rise gradually over time to ensure price stability and maximum sustainable employment in the longer run," Dr Yellen said.

Fed watchers have taken the omission of "coming months" as a signal that Dr Yellen is no hurry to raise US rates after disappointing payrolls data showed US jobs grew at the slowest pace in six years in May.

Speaking in Philadelphia, Dr Yellen described the jobs outcome as "concerning" but said it was too early to draw meaningful conclusions about implications for the wider US economy.

"One should never attach too much significance to any single monthly report," Dr Yellen told reporters.

"If the May labor report was an aberration or reflects a temporary slowdown resulting from the weakness in economic activity at the start of the year, then job growth should pick up and support further gains in income."

Dr Yellen's softer comments are seen as significant ahead of the Fed's highly anticipated June meeting next week.

US rates have been kept steady at between 0.25 percent and 0.5 percent since last December when the Federal Reserve moved higher from near zero levels introduced at the height of the global financial crisis.

Since December, Dr Yellen has repeated that future rate rises would be "gradual" and depending on jobs growth and inflation rising closer to the Fed's target of two percent.

Wall Street investors applauded the apparent rates reprieve having already factored in the likelihood of a June rate rise after earlier hawkish signals from Fed members before the May jobs disappointment.

The Dow Jones Industrial Average closed 0.64 percent or 113 points higher on Dr Yellen's dovish comments while the US dollar fell to its lowest level in four weeks against major currencies.

Dr Yellen said she is monitoring "four areas of uncertainty" including the economic growth rate in China and the "Brexit" referendum on June 23 over Britain's membership of the European Union.

The focus on US rates comes as Australia's Reserve Bank holds it's June meeting after delivered a May rate cut on Federal Budget day.

While money markets are factoring in five percent chance of another cut, the focus will be on the statement after last week's better than expected economic growth figures for the March quarter.

However, most economists expect the RBA board will wait on the June 28 consumer inflation reading before deciding on whether to deliver a follow up rate cut in August.

Bondi hipster profile for media worker bad for diversity, warns PWC report

A report out today warns a lack of racial and gender diversity in Australia's media is dragging down the future growth of the industry.

Instead of reflecting real world Australia, the research shows the average media worker is a while male "hipster" who lives in Sydney's inner west or eastern suburbs.

Listen to my interview with PWC's Megan Brownlow broadcast on The World Today

In Melbourne - Australia's second biggest media market - the typical media worker lives in the inner city suburbs of St Kilda or Richmond.

The disturbing snapshot is revealed in PWC's annual media and entertainment outlook which urges the media sector to tackle internal culture and recruitment problems to create better diversity in ethnicity, gender and age.

The outlook examines workplace diversity in the media for the first time and says the industry is overrepresented by English monolingual staff with 75 percent of employees white, male and aged over 35.

Megan Brownlow, who edited the outlook for PWC, told The World Today the media sector needs to face up to some disturbing truths about media workers confirmed in the geospatial modelling.

"It turns out to be the Bondi hipster - a 27 year old white male who lives in Bondi," Mr Brownlow said.

Megan Brownlow, editor of PWC's media outlook 

"The top ten suburbs for media and entertainment people are all in Sydney, either in the eastern suburbs are the inner west."

Ms Browlow says the report shows that Australia has moved on dramatically from 1910 when the average Australian was a 24 year old white male farmer who was Anglican and of British background.

"I think it's fairly apparent that we are not a very diverse industry," Ms Brownlow said.

"If we fast forward to today, the average Australian has changed from being a male to a female.

"She's a 37 year old and her belief is not Anglican but Catholic and she works in retail."

But when it comes to decision makers - or senior managers - the average profile is a 45 year old white male who is less likely to be bilingual.

The PWC report reflects recently comments from ABC managing director Michelle Guthrie that the national broadcaster needs to better mirror Australian society.

But Ms Brownlow says all broadcasters including the ABC need to constantly review their strategies to improve diversity.

Ms Brownlow says the lack of diversity stems from "unconscious bias" or "similarity of attraction" where employers are drawn to people like themselves.

However, Ms Brownlow has highlighted Waleed Aly who recently won the Gold Logie as a role model of changing times in the media along with Rebecca Maddern who is now presenter of the Victorian version of The Footy Show on the Nine network.

Breaking in to lucrative China market - a hard road for Aust business

The rapid rise of China's expanding middle class is a potentially lucrative opportunity for Australian businesses.

But as many are finding out, it's not as simple as just arriving and setting up shop in the world's second biggest economy.

Listen to my special report broadcast on The World Today

Businesses have to deal with cultural differences, negotiate with a myriad of Chinese regulators and navigate harsh restrictions on the Internet - better known as the Great Firewall of China.

That's opened up an opportunity for Sinorbis, a specialist digital business which is helping Australian entrepreneurs exploit the burgeoning demand from China.

Chief executive Nicolas Chu says China's private consumption is rapidly expanding and there is massive demand for high quality goods and services from countries like Australia.

"Chinese consumers are increasingly looking internationally for premium goods and services and Australia is high on their radar, demonstrated by strong year-on-year increases in search volumes for Australian products," said Mr Chu said.

"This is a pivotal time for international businesses to position themselves to meet growing demand from China's new generation of upper-middle class consumers. Many businesses baulk at doing business in China, but with the right knowledge and local expertise it can be as easy as doing business in Australia."

Sinorbis co-founders Nicolas Chu (left) and Allan Wu with a client in Sydney

A big opportunity - but one fraught with cultural and regulatory issues - is the recent relaxation of the one child policy in China.

The prospect of middle aged Chinese couples racing to conceive a second child before it's too late is a major challenge for fertility specialist Dr Raewyn Teirney and he Sydney-based company "ConceivePlease".

"It's a great opportunity for my product to get into China and giving people advice and a one stop kit that will help them conceive naturally," Dr Teirney said.

Dr Teirney is using Sinorbis to develop a culturally sensitive Chinese name for her product and to use focus groups to develop the most sensitive way to market it.

But Dr Teirney should brace for big cultural and regulatory hurdles, warns tech entrepreneur Leo Coates who made his first attempt to set up shop in China four years ago.

"It blew me away. I had all the text book study and all the understanding you could have in the world thinking that business in China should be fairly straight forward," Mr Coates said.

"However I found myself sitting down eating McDonalds on the trade room floor thinking how on earth am I going to do this.

"From the authorities, the complications with the language and the culture to the pricing structure, I was in an absolute twirl."

Sinorbis has just released a white paper titled "Stoking the Dragon: Unlocking China's New Generation of Digital Consumers".

It says China's private consumption is rising rapidly through rapid urbanisation and ecommerce, and will grow by another 50 percent to A$8.6 trillion by 2020.