If sad
Here's Senator Fielding Thursday setting up a joke.
With admirable restraint Senator Wong holds off on delivering the punchline.
Enjoy:
Senator FIELDING (2.44 pm)—My question is directed to the Minister for Climate Change and Water, Senator Wong. I refer to the article in The Weekly Times on 11 November which revealed that the government has diverted over 60 per cent of the environmental water bought by the federal government to the minister’s home state, South Australia, and that the bulk of funding under the National Urban Water and Desalination Plan has also gone to South Australia. Can the minister explain why so much of this water has been directed to South Australia instead of to areas in Victoria, like the Murray Goulburn region, where the seasonal allocations of water to places such as Campaspe, Loddon and Bullarook Creek are zero per cent?
Senator WONG—I thank the senator for his question. I can advise that the use of environmental water is undertaken by the Commonwealth Environmental Water Holder. It is an independent statutory authority. I do not direct how that authority chooses to use the water the Commonwealth purchases. That is a judgment that that body makes. In future years, environmental watering will occur in accordance with the Basin Plan, which is being prepared by the Murray-Darling Basin Authority. Prior to that plan being in place, the Commonwealth Environmental Water Holder, from memory, has been consulting with basin state governments, including the Victorian government, to develop the plan for the utilisation of the Commonwealth environmental water holdings. It is important in relation to the use of environmental water that the public have confidence both in the transparency of the use of that water and in the process. We as a government are very clear about ensuring that that process is credible, is based on sound science and sound policy, and is undertaken appropriately. As I said, my recollection—but I will check on this—is that state governments were also consulted in the use of that water.
In relation to the second point, the funding of the Adelaide desalination plant was, from memory, an election commitment of this government. If the senator is referring to the stormwater grants, I have announced the first round results and it is true that the majority of the first round went to South Australia. That was as per what was recommended to me through departmental advice. I would make the point that it may be that a number of South Australian councils had already undertaken quite a lot of work in planning for stormwater grant applications. (Time expired)
Senator FIELDING—Mr President, I ask a supplementary question. Is it true that none of the money promised to Victoria under the federal government’s National Urban Water and Desalination Plan has been handed over yet and that Victoria has received no federal funds for the Wonthaggi desalination plant, and yet the South Australian government has already been given $328 million in federal funds for its desalination plant? Given this, can the minister explain the reason for this bias against Victoria in favour of South Australia?
Senator WONG—I want to make it very clear that our view in relation to water in the Murray-Darling Basin has been that the finger pointing and blame shifting of the past, where state governments who had control of these rivers simply blamed each other for what was wrong, should not continue. As the federal water minister, that is what I have ensured. I have always said that what we need is an approach to the basin that is predicated on science. That is what the Commonwealth is seeking to deliver. A significant step towards that was the passage through this parliament of the Water Act.
In relation to Victoria, my recollection—and I do not have the details here—is that there was a Victorian project funded in relation to stormwater. I would again remind the Senate that it is only the first round of the stormwater funding which has— (Time expired)
Senator FIELDING—Mr President, I ask a further supplementary question. Given that the government is treating Victorians like mugs and favouring South Australians in the allocation of water and environmental funding, will the government look at setting up a fairer independent body to deal with the assessment and allocation of environmental water so that a fairer and more transparent—
Government senators interjecting—
The PRESIDENT—Order! Senator Fielding, just halt. You are entitled to be heard in silence. Continue.
Senator FIELDING—Will the government look at setting up a fairer independent body to deal with the assessment and allocation of environmental water so that a fairer and more transparent decision-making process can occur and so that Victorian farmers will not be treated like second-rate citizens and forced to play second fiddle to their South Australian neighbours?
Senator WONG—What I said in my first answer is correct—that is, the allocation of environmental water is not an issue for political direction. I want to make that very clear. We approach the Murray-Darling Basin on the basis of what is best for the basin and on the best scientific advice. We are working through the development of the Basin Plan, and really the senator’s suggestion that there is somehow some bias in how environmental water is allocated is frankly unfair. That is not how we are approaching the management of the basin. I would suggest to the senator that if we are serious about advocating for a better outcome in the Murray-Darling Basin we actually need to get over pointing the finger at different jurisdictions.
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Friday, November 20, 2009
Sometimes the Senate is really, really funny
Green light - Reserve gives banks the all-clear to nudge up rates
The Reserve Bank has given Australia's banks a green light to top up their mortgage rates declaring that their mortgage margins "have actually declined a little over the past two years".
The assessment by Reserve Bank Assistant Governor Guy Debelle delivered to a banking conference in Sydney is at odds with jawboning by the Treasurer who has attacked banks over attempts to widen their margins.
Mr Debelle told the financial services forum that as the Bank saw it, "margins on variable rate housing lending relative to bank funding costs have actually declined a little over the past two years".
While acknowledging that the margin between standard variable home loan rates and the Reserve Bank's cash rate had widened as banks held on to some of the Reserve Bank's official interest rate cuts, he said that was only part of the story...
When all of their mortgage funding costs were taken into account "their overall margin has declined".
When the Commonwealth Bank attempted to claw back some of its margin in June and lifted its standard variable mortgage rate from 5.64 per cent to 5.74 per cent to bring it into line with the National Australia Bank Wayne Swan said it was unjustified and could endanger the effort needed to sustain economic recovery.
"I think we can really see as we’ve been through this difficult period over the last six months or so what Australians can do when we all work together," he said after the bank's move. "Which is why it has been so disappointing to see this decision from the Commonwealth Bank to raise interest rates. I don’t believe that decision is justified, and I believe that if any other bank were to take a similar decision, there would be understandable community outrage."
His words appear to have had an effect. No bank has since attempted to push up its standard variable mortgage rate by more than increases in the Reserve Bank's cash rate.
But the Reserve Bank's new assessment - opposed to the Treasurer's - suggest such a move could be justified and will make it harder for the Mr Swan to argue against future independent rate hikes.
The Bank believes the banks including Westpac, the Commonwealth, the ANZ and National Australia are paying more for money sourced from overseas and are paying substantially more for Australian deposits.
Its quarterly review released earlier this month noted that the average rate offered by the major banks for so-called term deposit specials had "risen by 0.72 percentage points since July to 5.43 per cent, and is up about 1.75 points since early 2009."
The Reserve Bank has pushed up its cash rate twice since it started tightening, and on neither occasion have the big banks used the opportunity to push mortgage rates up further and recoup lost margins.
It's likely to next push up rates after its meeting in December or in February.
Dr Debelle told the conference the private banks gentle treatment of mortgage holders had been "more than offset by a widening in business and personal loan margins, so that overall bank margins have widened, as is evident in the banks’ most recent profit statements."
Mr Swan is understood to continue to believe that there is no justification for the private banks to push up rates outside of Reserve Bank movements.
Published in today's SMH and Age
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Unemployment ain't going to get much worse - OECD
The Organisation for Economic Co-operation and Development says Australia's unemployment rate has "stabilised" and now won't reach either the peak of 8.5 per cent predicted in the May Budget or the much lower peak of 6.75 per cent forecast in this month's mid year Budget review.
The OECD's assessment, that the unemployment rate will touch just 6.3 per cent next year before turning down, has Australia performing better than any western country other than Norway and Switzerland.
It says unemployment in the United Kingdom will peak at 10 per cent and unemployment in the United States at 10.9 per cent...
Australia's unemployment rate is presently 5.8 per cent, close to the projected peak of 6.3 per cent in the forth quarter of 2010.
But detailed employment figures released yesterday indicate that the actual likelihood of joblessness varies enormously throughout the nation and within each city.
The NSW statewide unemployment rates of 6 per cent for men and 5.8 per cent for women bear little relationship the extraordinarily low rates of 1.8 and 2.9 per cent experienced on the northern beaches and 4.1 and 1.8 per cent in the eastern suburbs.
Sydney's worst underemployment is in what the Bureau of Statistics terms the central-western suburbs where it hits 9.5 and 10.1 per cent and in Canterbury-Bankstown where it reaches 9.7 and 7.9 per cent.
Separately-released wage data points to a growing disparity in earnings across the nation with pay packets increasing far faster in the mining states than in than NSW and Victoria.
Western Australia has cemented its lead as the highest wage state with an annual average of $67,900, topping the $63,300 paid in NSW.
Queensland has overtaken Victoria to move into third place at $61,500.
The OECD says Australia will be only of only three member economies to grow in 2009 and predicts that the Reserve Bank's cash rate will hit 5.5 per cent by mid next year, two complete percentage points higher than its present 3.5 per cent.
It says it supports a "gradual tightening of monetary policy" and and also the phased winding back of government stimulus programs.
In a rebuke to the Rudd government it says Australian authorities should "submit proposed projects more systematically to a rigorous and transparent cost-benefit analysis".
Published in today's SMH and Age
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Thursday, November 19, 2009
When Black is White (in the mind of our Prime Minister)
Malcolm Turnbull today, in full-flight on the topic of the Pacific Viking:
"The one thing that is beyond question is that the Prime Minister’s claim that there was no special deal has been comprehensively, universally disbelieved. I don’t believe there has ever been a statement by a Prime Minister in this House in respect of which nobody, nobody is prepared to give agreement or endorsement.
We just work through some of the commentary in the media. We had Dennis Shanahan in The Australian. He said the Sri Lankans “will disembark because they have wrung a special deal from the Rudd Government”. Greg Sheridan, the same newspaper – “for some bizarre reason Rudd keeps saying the people on the Oceanic Viking have not got a special deal. This simply defies the ordinary meaning of language and common sense.” Paul Kelly – “he seems to think almost any line can be spun and will be believed, even when it is nonsense.”
But I am afraid to say the disbelief extends past that centre-right newspaper which the Prime Minister is so unhappy with at the moment. Tony Wright in The Age – he says “there was no special deal for the Sri Lankans, Rudd insisted. Which is, presumably, why the last of them were content to leave the ship yesterday after refusing to budge for more than a month”...
Annabel Crabb in The Sydney Morning Herald – not many people would say that was a right wing newspaper – she wrote on the 18th, “against this crowded palate of lunacy, it’s almost possible to overlook lesser offences against human intelligence such as the Prime Minister’s insistence that the Sri Lankans passengers disembarking the Oceanic Viking have not received any sort of special deal”. Or today, the same writer notes, “a denialist so shameless that he can stare bare-facedly back at the electors and his parliamentary opponents and deny again and again and again that a bunch of Sri Lankans currently being processed in record fast time in Indonesia are not in receipt of any special deal.”
But Mr Speaker the Prime Minister’s spin hasn’t been able to fool anyone, even in his own town. Dennis Atkins wrote in the Courier-Mail today “the consensus view that the Rudd Government provided a special deal for the seventy-six asylum seekers on the Oceanic Viking is now stronger than the much-trumpeted world scientific agreement on the causes behind climate change”.
Michael Gordon yesterday in The Age – now surely, surely Prime Minister that is not a right wing newspaper – The Melbourne Age, Michael Gordon: “The truth is that the group was offered a special deal to leave the boat…”
But the disbelief extends even to another. Apparently, I’m afraid, it’s the ABC. This reluctance of the Australian media to accept this spin seems to be spreading. Barry Cassidy: “just to say there’s no special deal is silly.”
But Mr Speaker probably the neatest summary of all of this was in the editorial in the Financial Review today, and it said “Mr Rudd’s refusal to give a straight answer to opposition questions on the asylum issue follows a consistent and unattractive pattern of behaviour”.
Now Mr Speaker, the Prime Minister’s pattern of behaviours is consistent and it is unattractive, but not simply because it involves saying black is white, for saying that no special deal was done when plainly a very, very special deal was done for a very special reason. It is unattractive because it has resulted in the collapse of border protection policy. The Prime Minister may think he can spin his way of his problems here in the House, but the real challenge is on our borders.
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Thursday Column: What were they thinking? The tax heists that made us a nation of losers
What were they thinking?
How could our leaders have made changes designed to "better target and strengthen the application of capital gains tax" without seeing they would later allow companies associated with the misleadingly-named Texas Pacific Group to make a billion or dollars so in profit from the sale of Myer capital-gains-tax-free because they were registered not in somewhere like Texas but in the tax havens of Luxembourg and the Cayman Islands?
In his explanatory memorandum in 2006 the then Assistant Treasurer Peter Dutton said their cost to revenue was "expected to be $65 million per annum". His estimate was out, just a touch.
The whole thing's only come to light again because of the Tax Office's attempt last week to grab $452 million plus penalties it says the companies owe it after they banked $1.58 billion in proceeds and then withdrew almost the lot leaving just $45 in their Australian accounts...
The Tax Office has now made clear that it isn't after Capital Gains Tax. It can't be. The Dutton changes exempted the foreign owners of Australian companies from Capital Gains Tax in all cases other than those in which they traded real estate.
Labor acquiesced, although during the Senate inquiry it was prescient enough to ask whether the changes would really only cost $65 million per annum, noting they could cost much more, "especially in the event of a takeover bid for Coles".
Barnaby Joyce was one of the very few to point to the emperor's clothes.
"It is quite clear that not only are we are about to pass a piece of legislation that discriminates against Australians but we are doing it at the behest of other people in other corners of the globe," he told the Senate. "This legislation is going to be sneaked through. Do you know that today we have overseas equity firms that in the United States have put in a bid for Home Depot of $100 billion? They have the ability to remove $100 billion from the share market and the Labor Party is quite happy for that investment to be tax free."
Both parties were happy about it. They said other countries exempted foreign investors from Capital Gains Tax in the belief that they would pay it in their country of residence.
It seems not to have occurred to them that that country of residence could be somewhere like Luxenburg, without Capital Gains Tax. It occurred to Barnaby.
"I will give you one place. It is not very far away and people might have heard of it: New Zealand. New Zealand has no capital gains tax, so you can launch from New Zealand, come into Australia, buy up Coles, hold it for a year, sell Coles, put your money in your pocket, take it back to New Zealand and not pay one cent of tax - and that is something you are agreeing to today."
Why didn't our government instead set up a withholding tax refundable to the extent that Capital Gains Tax was paid elsewhere so that foreign investors at least faced the same sort of tax bills as Australians?
Because it wanted to "enhance Australia’s status as an attractive place for business and investment," as Minister Dutton put it. It enhanced it enough to bring us foreign equity owners of Channel Nine who seem to be in the process of destroying it, and a foreign equity bid for Qantas which might have gone down the same path had it not been narrowly rejected by Qantas shareholders.
It's not the only "what were they thinking?" moment being pondered by staff at the Henry Tax Review.
Another heist took place almost exactly ten years ago.
Under the cover of massive publicity for the impending Goods and Services Tax the Howard government set up a less-publicised inquiry into business taxation headed by the Prime Minister's friend John Ralph and included among his terms of reference one that was unusually specific, and it realated to personal, rather than business taxation.
Ralph was to examine "the scope for capping the rate of tax applying to capital gains for individuals to 30 per cent". Until then capital gains made by individuals had been taxed at their marginal tax, minus inflation.
Unlike the changes associated with the New Tax System which were vetted by the Treasury and accompanied by exhaustive analysis identifying which Australians would benefit, the change recommended by Ralph was accompanied by no such analysis and would not have passed muster in the tax division of the Treasury at the time.
The change, effectively a halving of the headline rate of Capital Gains Tax, benefited well-off individuals far more than any of the other more-rigorously examined changes introduced at the same time. Treasury tables show that the top 1 per cent of income earners make 39 per cent of the capital gains.
Ralph said the cut would lead to boom in investment in "innovative, high-growth companies".
Instead we rushed into real estate. It wasn't exactly the "better allocation of the nation's capital resources" he said he foresaw.
Labor was asleep and waved it through with only one dissenting voice, the then backbencher Mark Latham.
It would "add to the great Australian disease of asset and property speculation, particularly in our big cities", Latham told an uninterested Chamber. "It will take away resources from the knowledge economy and put them into the least productive, least honourable aspects of Australian economic activity."
He was right. Before the change Australian landlords actually made money. In 1999-2000 they pulled in a net $219 million from rent. By 2006-07 they were losing a net $5.37 billion.
Ralph - prodded by Howard - turned Australia into a nation of losers. He encouraged us to deliberately lose money in order to replace highly-taxed income with lightly-taxed capital gains.
As Macquarie Bank's Rory Robertson told his clients at the time, “since September 1999 it is almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries.”
It might not for much longer. Ken Henry is drafting his report.
Published in today's SMH and Age
Graphic: Adrenaline Zone
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Tuesday, November 17, 2009
It's different for girls, happiness is
Here's Shane Wright at the West Australian with different news from the ANU economics of happiness conference:
Girls, why aren’t you happier? It’s a question that is being asked increasingly by economists who, in research dating back to the 1970s, have detected a turnaround in almost all female measures of happiness or life satisfaction.
I’ll get to the issue of why happiness matters in a second, but it seems from just about every measure that women — historically the much happier of the sexes — have shown a substantial decline in overall happiness, and there has been a closing of the gap between males and females.
A couple of the leading researchers in this field, Justin Wolfers and Betsey Stevenson, were at a conference on the economics of happiness last week and went through much of the literature surrounding this issue.
Back in the early 1970s there was a sizeable gap between men and women on all questions of happiness. American women were, in general, much happier than blokes.
Women were more likely to say they were “very happy” with their lives, while men were also more likely to say they were “not too happy”...
This type of finding was not just found in “official” opinion polls. Cigarette maker Virginia Slims, carrying out its own market research, had similar results as did a long-term study of students just about to finish high school.
All confirm that over time the gender happiness gap has disappeared.
It wasn’t necessarily that men got happier (although there appears to have been a slight fall in those saying they were not too happy), but there has been a sizeable fall in the number of women saying they were satisfied with their lot.
Now of course the 1970s marked the kicking-off of equality for women in the workforce. There were also massive social changes (think of divorce law, wider availability of cheap and safe birth control) that seemingly gave women much more.
There are some pundits, notably on the Right in the US, who reckon that this fall in happiness shows the women’s lib movement was a failure.
Except that ignores that this has been a fall in happiness across all but one strata of women.
Those less happy are married and single women, women in work and those at home, girls aged 17, those with and without children.
But black women have got happier. Indeed, their happiness levels have risen even faster than black men. This may have something to do with the other great social change — the American civil rights movement.
Now it would be easy to say this is an American phenomenon.
But similar studies of happiness and satisfaction across Europe have found a similar change. Although the fall in female happiness has not been as great, the gap between men and women has all but disappeared.
And, given the wide changes in culture across Europe, this declining level of overall happiness is just as evident in Denmark as it is in Greece.
Unfortunately, the same research has not been done in Australia, but it would be a mighty effort for women of the Antipodes not to be as glum as their northern hemisphere counterparts.
To get some idea of what this change in happiness means, Professor Wolfers compares it to the emotional impact of other changes. “The relative decline in female happiness is the same as an increase in US unemployment of 8 percentage points,” he said. “It’s equivalent to as if women had not shared in any economic growth since the 1970s.” When you put it that way, you can see why happiness matters. Indeed, if all the pre-packaged food, Facebook messaging sessions, re-runs of Sex and the City and Touche Eclat Radiant Touch tubes can’t make women happy, what can? (Yes, I realise this is a question for the ages.)
And this is a particular issue.
By any measure, the lot of women has improved over the past 40 years — from education to wages to absolute freedom in any aspect of their lives.
Professor Wolfers and others aren’t sure what’s behind the disappearing happiness gap.
He says the study of US schoolchildren shows girls have increased concerns about the amount of time they have to do things (spend time with friends, for instance). But has there been a sudden change between young American females and their male counterparts over the period?
It’s an issue for politicians and policy makers who aim to maximise economic growth. If getting richer doesn’t make us happy, then there’s something wrong.
But it’s also a problem for those now trying to argue that instead of GDP we should try to maximise other aspects of our lives. However, as these studies show, if we don’t know why women are getting less happy, then any policy response would be effectively shooting in the dark.
Another idea is that as women have become more financially free, they’ve come to realise that finances are not that fun.
However, that would suggest women at home looking after children (the poster family of the 1950s) should be at least as happy as they were. But they’re not. Ultimately, trying to help people have a more satisfying, happier life should be the aim of all policy makers.
Indeed, the happiness policy area was part of the underpinning of the great cash splashes of last year and this year (based partly on the idea that happier people are more confident, and that confidence is a key part of the economy’s operation).
Despite the complaints of the stimulus snobs, it proved to be one of, if not the, best policy responses to the global recession of the past 12 months in any country. Happiness really does matter, not just in our relationships, in our workplaces, in our families — it matters to the overall economy. Now, just to find what it is eroding the happiness of the world’s women.
Betsey Stevenson & Justin Wolfers, 2009. "The Paradox of Declining Female Happiness," American Economic Journal: Economic Policy, American Economic Association, vol. 1(2), pages 190-225, August.
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Scroogenomics - the Christmas debate writ large
Adam S writes:
"At the risk of being accused of being a bah-humbug Christmas hater, the amount of money we pour into that day is ludicrous. I just don't get it."
We're going through the same debate in our family.
I wrote about it here, quoting this guy, Joel Waldfogel who has now published a book, Scroogenomics: Why You Shouldn't Buy Presents for the Holidays.
"Christmas is a time of seasonal cheer, family get-togethers, holiday parties, and-gift giving. Lots and lots--and lots--of gift giving. It's hard to imagine any Christmas without this time-honored custom. But let's stop to consider the gifts we receive--the rooster sweater from Grandma or the singing fish from Uncle Mike. How many of us get gifts we like? How many of us give gifts not knowing what recipients want? Did your cousin really look excited about that jumping alarm clock? Lively and informed, Scroogenomics illustrates how our consumer spending generates vast amounts of economic waste--to the shocking tune of eighty-five billion dollars each winter. Economist Joel Waldfogel provides solid explanations to show us why it's time to stop the madness and think twice before buying gifts for the holidays."
Bah! Humbug to Joel, I say.
As I wrote at Christmas 2006:
"We continue to give presents notwithstanding what may be their economic inefficiency. We like to be pampered, and usually we're too stingy to do it ourselves. I know exactly the double CD I want for Christmas, and I have dropped a fairly unsubtle hint about it. Normally I'd be reluctant to spend the money, but at a time of indulgence, what the heck? And the look of pleasure on my wife's face at the look of surprise and pleasure on mine will make it all worthwhile."
Scroogenomics chapter below. Enjoy.
Scroogenomics Chapter
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Might we spend even more this Christmas?
"I am not saying that people lie, but they might deceive themselves, plan to spend less and then the Christmas spirit starts to spread"
If the global recession didn't kill Christmas, might the global recovery?
That's the question raised by a Westpac - Melbourne Institute survey showing that one-third of Australians plan to spend less on Christmas gifts this year than they did in 2008.
December 2008 was the vortex of the global financial crisis but was also the month in which millions of Australians received bonus cheques totaling $8.7 billion, enough to push up Christmas spending 13 per cent to an all-time high.
This year without the cheques the survey suggests 35 per cent of us are going to wind back our Christmas spending, swamping the 14 per cent who plan to spend more.
Most households are still planning to spend at least $300 with an impressive 40 per cent planning to spend more than $500.
But on balance every age group and every income group says it's cutting back...
Australians aged 45 to 49 plan to spend the most, preparing to shell out $403 per household. Households headed by the youngest and oldest Australians plan to shell out the least, perhaps because they're the poorest and have fewer friends and family to spend it on.
Because it's the first time Westpac has conducted the survey its senior economist Matthew Hassan cautions against taking it too literally.
"What people say they will do is not always the same as what they turn out to do," he told the Herald.
"There might be a bit of intention about these responses. People think back to last year and say I'm going to economise this year, I am going to be good. You see that every year going into the Christmas season."
"I am not saying that people lie, but they might deceive themselves, plan to spend less and then the Christmas spirit starts to spread and things slip and the kids start to plead for better presents."
Westpac is predicting a slightly bigger spend this Christmas than last, boosted by population growth, a return to economic growth and much stronger consumer confidence.
"If it happens it'll be a very good result," said Mr Hassan. "Last year we had $8.7 billion reasons to spend and we spent like never before. This year we are banking on an improved economy and improved confidence."
Retailers’ Association executive director Russell Zimmerman expects "modest" growth.
"We believe that consumers and retailers are in a much better place this year than Christmas last year, remembering that as we came to Christmas last year we were going into a global financial crisis," he said.
"This year we have low interest rates, the Aussie dollar is really strong ... employment is still quite stable and I think the consumer knows we have avoided a recession."
Published in today's SMH
Christmas Spending
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Monday, November 16, 2009
What the hell were we allowing the foreign equity fund owners of Myer et al to do?
Here's how Stephen Bartholomeusz puts the question:
The real question posed by the scale of the tax-free profits earned by the private equity firms in Myer and other buy-outs is whether the policy of allowing foreigners tax-free gains is appropriate.
His full article is here and worth reading.
An extract:
The major mystery surrounding the Australian Tax Office’s too-late attempt to prevent the shifting of the $1.5 billion capital gains tax-free profits made by the former private equity owners of Myer Holdings offshore is not that the profits were tax-free but that the ATO took the action in the first place.
Since December 2006, when the Howard government amended the Tax Act, foreign residents have been exempt from capital gains tax on investments other than Australian real property.
The motivation for the amendments was straightforward. They were designed to improve the attractiveness of Australia as a destination for foreign investment at a time when all the major economies in the OECD, other than Australia, provided capital gains tax exemptions for foreign investors...
Local private equity firms, and other collective investment vehicles aren’t, of course, exempt from CGT, although that might depend on the extent to which the investments in their funds have been made by foreigners rather than locals.
That brings us to... another businessman's special - the unstated assumption that the more foreign investment we attract the better.
Tell that to the countries that fell victim to the Asian financial crisis of 1997-98 because they let doctrinaire economists talk them into opening their economies to ''hot money'' flows they didn't have the institutional arrangements to cope with.
Or tell it to the Irish, who slashed their taxes to attract foreign investment. For a few decades this strategy looked fabulously successful, but it led to an inflationary boom in wages and asset prices. The bubble was pricked by the global financial crisis and now Ireland's woes are exceeded only by Iceland's.
It is possible to have too much of a good thing and to attract rubbish foreign investment that's more trouble than it's worth.
Below, Michael Pascoe pulls it together:
Australia: tax-free for foreigners
November 16, 2009
Don't blame TPG's various lawyers and loophole-seeking accountants for not paying any tax on its share of the $1.4 billion Myer booty – blame Peters Costello and Dutton instead.
They were the relevant politicians responsible for Tax Laws Amendment (2006 Measures No. 4) Bill 2006, which effectively made capital gains tax optional for foreign entities investing in Australia, other than in real estate.
A Parliamentary Library bills digest sums up what the government of the day, with the support of the then-opposition, thought it was doing: improving "Australia's status as an attractive place for business and investment" and, secondly, improving "the integrity of the capital gains tax base".
Looks like they scored top marks on the first count but failed miserably on the second.
"These changes will mean that foreign residents who invest in shares in Australian companies or holding interests in certain trusts will benefit significantly," says the library. No doubt about that.
Without having the Myer deal specifically in mind, it's easy to draw a general picture of just how appealing that bill can make the typical private equiteer raid on an Australian entity.
Let's say Company W, purveyor of fine widgets and wing nuts, comes into play. W makes an annual pre-tax profit of $100 million and pays income tax at the usual corporate rate of 30 per cent, so $30 million a year flows to the Commonwealth. We won't complicate matters by going into the number of employees W might have and the income tax they pay on their salaries.
Foreign private equiteers, Swarm X, run the numbers: buy W for a billion, employing gearing so that the tax-deductible interest bill exactly matches the operating profit, ensuring no income tax has to be paid and minimal equity is required.
Strip the company down to its leanest and most profitable core, flogging off sundry assets such as the real estate and sharply reducing costs by sacking half the workforce – not that we're getting into the tax that might have been paid by employees.
This process may take a couple of years, but it results in a sharp increase in W's EBIT (earnings before interest and tax). Thus, having dressed up W as a company that makes $200 million (at least for the time being), Swarm X offloads the thing for $2 billion, pays off the loans and makes a clear and clean $1 billion profit capital gain. Nice.
And if Swarm X has been structured correctly, that $1 billion profit is tax-free. Very nice indeed.
That's the theory. To work really well, the game required easy "covenant-light" loans from particularly stupid banks – the sort of loans that were lined up for the TPG/Allco/Macquarie/Onex tilt at Qantas – but that sort of financing isn't as easy to come by any more.
The lack of easy money caused a halt in what was for a while a growing game of "let's go raid Australia – it's free". In time, as the financial markets continue to thaw and the current prudence dissipates, the game will re-emerge.
And that's just one more thing for Ken Henry's tax review to contemplate.
Michael Pascoe is a BusinessDay contributing editor.
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Want to price happiness?
Paul Fritjers is your man. His methodology looks good.
What's a marriage worth?
To an Aussie male, around $32,000. That's the lump sum Professor Paul Frijters says the man would need to receive out of the blue to make him as happy as his marriage will over his lifetime. An Aussie woman would need much less, around $16,000.
But when it comes to divorce the Aussie male will be so devastated it would be as if he had lost $110,000. An Aussie woman would be less traumatised, feeling as if she had only lost $9000.
Recently named this year's Best Australian Economist under 40 by the Economic Society of Australia, the Queensland University of Technology professor knows this because he has been mining a unique set of data that has tracked the happiness and major life events of around 10,000 Australians once a year since 2001.
"These are real people to whom unexpected things happen. They weren't selected because these things would happen, and we can compare their happiness before and after," Professor Frijters told the Herald after presenting his findings at the Australian National university.
Asked to describe how satisfied they are with their lives on a scale of 0 to 10, the Australians surveyed most often use the number 8...
...but the answers change after (and sometimes in anticipation of) major life events and also after sudden changes in income.
That's enabled the professor to put dollar values on the effects on happiness of major events such as marriage, divorce and birth, or as he puts it to calculate their "psychic costs" or "psychic benefits".
The birth of a child turns out to bring both. It makes parents the happiest before it happens and then after some months slightly less happy than they would have been without the birth Which is why Professor Frijters puts low dollar values on the lifetime boost to happiness that flows from a birth - for the mother around $8700, for the father $32,600.
"Losing a loved one has a much bigger effect than gaining a loved one. There's a real asymetry between life and death," he says. "This shouldn't surprise us. Human beings seem primed to notice losses more than gains."
The death of a spouse or child causes a woman $130,900 worth of grief according to Frijters' calculations. It costs a man $627,300.
"This isn't the value of the life that's lost, that would be much higher," he says. "This is just the effect on the happiness of one person flowing from a death."
Asked why his calculations show men much more affected by life's events than women, Professor Frijters says he doesn't know. "But it does tend to give me confidence in the calculations. We know for instance that marriage improves the lives of men much more than women."
Some of the results fit in with stereotypes. Women get a psychic boost of $2600 from moving house. Men suffer psychic pain of $16,000.
Professor Frijters' dollar figures are lower than those arrived at by other methods. He says that's because he finds that money has a greater effect on happiness than previously thought. "Losing or gaining money can offset the effect of other life events quite well, and that's what we are formally looking at - the amount needed to offset an event or keep someone happiness-neutral." he says.
Insurance companies and lawyers take a keen interest in the research he says, because the need to find dollar amounts for compensation payouts, and also the Australian government which funds the Household Income and Labour Dynamics Survey through the Department of Families, Housing and Community Services.
Published in today's SMH and Age
What's it worth? Happiness converted to dollars
Woman Man
Marriage + $15,600 + $31,600
Birth of child + $8700 + $32,600
Separation - $8900 - $109,300
Death of loved one - $130,900 - $627,300
Illness - $50,300 - $360,000
Moving home + $2600 - $16,000
Lump sum. Average of 5% and 10% discount rates
Frijters, Paul, Johnston, David W. and Shields, Michael A., Happiness Dynamics with Quarterly Life Event Data. IZA Discussion Paper No. 3604
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Sunday, November 15, 2009
Thin wasn't always beautiful:
Friday, November 13, 2009
There's a cat in Japan with its own YouTube channel
Three wise economic monkeys
Michael Pascoe writes in BusinessDay:
"Who can forget the three wise monkeys that popped up with Kerry O’Brien after the May budget was delivered to criticise Treasury’s forecasts as being wildly optimistic, implying Ken Henry had been politically nobbled?"
Mmmm. Who were these "wise monkeys"? What exactly did they say?
The answer's here, on the 7.30 Report's website for May 12 under "Expert Budget analysis"
The experts were Chris Richardson, Michael Brissenden and Alan Kohler.
RICHARDSON: "Some of those growth assumptions are optimistic"
KOHLER: "A colossal turnaround that they’re forecasting which I don't think is credible at all"
BRISSENDEN: "The optimistic growth figures are are going to underpin the Government's argument about returning to surplus"
So. Did the Treasury forecasts turn out to be optimistic? Er.... No.
Was the "colossal turnaround" not "credible at all"? It should have been credible, it's happening.
In fact the Treasury's forecast of positive economic growth of 2.25 per cent this financial year now looks so credible it's been revised up.
The Treasury has deep expertise and brings a lot of resources to bear on forecasting the economy.
Wise monkeys do not.
Ken Henry gave a great speech on the forecasts and the monkeys immediately after the Budget.
An extract:
"When the country's best communicator of economic material — I am, of course, referring to our friend Ross Gittins — confesses that this is 'the most puzzling, back-to-front budget I can remember', it is clear that we have a communications problem. In his column the day after the Budget, Ross explained the communications challenge very well. 'It's as though we're planning the clean-up after the cyclone, even before the cyclone's hit', he said. And he went on to say, 'we seem to have been viewing the recession through binoculars. We were cutting interest rates and applying budget stimulus long before it arrived on our shores. And now the recession is yesterday's problem and we're planning what we'll do in the recovery.'
So, on top of the challenge of designing a budget for the most difficult macroeconomic circumstances in many decades, there is also the communications challenge. Some budgets speak for themselves. This one, apparently, does not.
The particular challenge identified by Ross is not an unexpected one. The challenge can be found in the Charter of Budget Honesty Act, legislated twelve years ago. All of you would know that the Act requires the Government to outline its fiscal strategy, specifying fiscal objectives and targets and expected outcomes for key fiscal measures. We have become accustomed to Australian budget documents containing that medium-term fiscal strategy material. But we don't have any experience of another requirement of the Act, and I'm not sure that many of you would even be aware of it: this is the requirement that the Government's fiscal strategy statement 'specify fiscal policy actions taken or to be taken by the Government that are temporary in nature, adopted for the purpose of moderating cyclical fluctuations in economic activity, and indicate the process for their reversal.'
Of course, this statutory requirement doesn't necessarily give us Ross' problem. If the temporary fiscal action were taken after the recession had hit, instead of being pre-emptive, there would be no communications problem. If the Government had waited for the recession to hit our shores before tackling it — and there are some who consider that this is precisely what they should have done — then you wouldn't have had anything like last week's document to confuse you. Things would have been much simpler.
That wouldn't have made Ross happier, of course.
In reading Ross' column I couldn't help but think about the relative simplicity of the communications challenge in that other area of macroeconomic policy – monetary policy. In that area, too, the practitioners who know their stuff seek to behave pre-emptively. But, having adjusted the cash rate in either direction, there is no expectation — and certainly no statutory requirement — that the monetary authority will also announce precisely how, and over what time period, it intends reversing that adjustment. Markets will make judgements, of course; and sometimes the monetary authority will see an advantage in saying something about the likely future course of interest rates, but it is under no obligation to do so.
Rather, we have become content to judge the monetary authority on outcomes, awarding credibility on the basis of actual economic performance over the medium-term. The Charter isn't so sanguine about fiscal policy. There might be good reason for that — although I would have to say that the historical record on fiscal policy is so distorted in the public mind that one should wonder. I'll have more to say about this in a moment.
In any event, it certainly wasn't because of the requirements of the Charter of Budget Honesty Act that the present Government, confronting the task of explaining a large budget deficit, came to the view that it needed also to explain how that deficit would be wound-in over time. With the budget going into deficit, the Government considered that it had to explain to the public how the medium-term fiscal strategy, of surplus on average over the cycle, was now going to be achieved. Indeed, not only did it see a need to tell a medium-term fiscal consolidation story in the same chapter in which it was talking about the need for fiscal stimulus, it also saw a need to relate both things to the 40 year fiscal sustainability issues raised in the 2002 and 2007 intergenerational reports. It even decided that the next IGR should be brought forward — to be released before the 2010-11 Budget.
This is story-telling of extraordinary complexity. And while it hasn't tested Ross, it clearly has exceeded the reading age of many.
Consider, for example, the reporting of the budget in the Wall Street Journal Asia last week. According to that reporting, in all of the decisions taken by the Government in response to the global recession, the only ones that will have any stimulatory impact on the economy are the 'tiny' personal income tax cuts announced in the 2008-09 Budget. The journal also informs its unfortunate readers that revenue downgrades alone would not have driven the Australian budget into deficit. And to cap it off, readers were told, in what is surely one of the most ironic sentences ever uttered in macroeconomic analysis, that '(t)his Keynesian revival comes at a particularly bad time, given that tax revenues are falling as the economy slows, a normal feature of economic downturns'. Apparently, the right time for a 'Keynesian revival', involving the spending of large amounts of public money, is when tax revenue is strong and rising, a normal feature of economic boom times.
As you know, I don't always agree with Australian commentators. But our newspaper readers can be thankful that they don't often have to confront material that is quite that bad."
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Jobs are back from the abyss so...
...expect a December rate hike
Victoria is leading a resurgence in Australian employment, accounting for an astonishing 24,800 of the 26,500 new jobs created nationwide in trend terms in the three months to October.
The new figures show employers taking on workers at the fastest pace in almost two years. And in an important reversal of recent trends they show almost all of the new jobs going to men, making male breadwinners more secure.
They build a solid case for a rare pre-Christmas rate hike, an event that has happened only twice in the two decades.
An extra 24,500 Australians found jobs in October, adding to the extra 39,800 who found jobs in September.
In less-volatile trend terms employment grew 26,500 over the three months to October.
Almost 24,000 of the new jobs went to men...
The figures suggest the unemployment rate is near its peak. At 5.8 per cent nationwide and 5.7 per cent in Victoria, it is little-changed since March.
"It may have peaked already," said AMP Capital economist Shane Oliver. "Business surveys point to solid employment growth going into next year. By the second half of that year jobs growth is likely to be well above labour force growth and the unemployment rate should come down."
Other experts agree that the government's Budget forecast for unemployment, revised only last week, is now too pessimistic.
"The Budget had unemployment peaking at 8.5 per cent. The mid-year review had it peaking at 6.75 per cent. It now may not even get to my forecast of 6.25 per cent," said ICAP Securities' Adam Carr.
Increased job offers, diminishing redundancies and renewed talk of labour shortages are likely to loosen purse strings in the lead-up to Christmas as breadwinners become less worried about losing jobs.
"In effect it will be a self-fulfilling prophecy," said CommSec economist Savanth Sebastian. "We will see a pick up in retail spending and economic activity. It appears almost certain the Reserve Bank will break tradition and raise interest rates for the third consecutive month."
A third successive rate hike would add a further $46 to the monthly cost of repaying a $300,000 mortgage, a total of $139 per month since the Bank began hiking rates in October.
In Singapore for an APEC meeting Treasurer Wayne Swan played down the strength of the employment news saying "substantial challenges" remained.
"We are fortunate in Australia. But nevertheless everybody’s impacted upon by what’s happening globally, which is one of the reasons why we have to maintain the stimulus," he said.
Underscoring Victoria's strength the trend figures show it to be the only state to have boosted full-time employment. Victoria piled on an extra 5,500 full-time jobs in the three months to October at a time when every other state lost them.
Published in today's SMH and Age
Graphic: strangemaps
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Thursday, November 12, 2009
Oh my. An extra 24,500 jobs
Things really are picking up:
Our unemployment rate is as good as steady:
It may now not even get to 6.5 per cent.
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