18 May, 2016

The big beneficiary of Malcolm’s tax cuts… public servants

There has been a lot of howling about the unfairness of the high-income tax cuts proposed in the latest budget by the Liberals.

Indeed, it came to a head during Q&A a couple of weeks ago when a low-income worker asked a fair question about the fairness of the tax cuts.

However, this type of dialogue wrongly accuses the Government of giving tax breaks to millionaires.

Whilst millionaires will certainly benefit, this is not the group that will benefit most from the tax cuts.

A quick look at wage statistics at the ABS (see http://www.abs.gov.au/ausstats/abs@.nsf/Latestproducts/6302.0Main%20Features3Nov%202015?opendocument&tabname=Summary&prodno=6302.0&issue=Nov%202015) shows that average private sector wages sit at just under that magic $80,000 annual income (at around $77,000).

However, average public sector wages sit nicely above this figure (at around $84,000).

Also, since a large proportion of the public servants (federal) are in positions around APS6-EL1, this salary bracket sits at around $80k+.

Clearly, the greatest beneficiaries of Malcolm’s tax cuts will be public servants!

Next time we have a public brawl about the fairness of such tax breaks, please please please let’s demonise the right target: public servants, not millionaires.

Canberra’s public sector wages going nowhere, ABS figures show:
Slowing overall wage growth and inflation may force the RBA’s hand again in August.
http://www.canberratimes.com.au/national/public-service/canberras-public-sector-wages-going-nowhere-abs-figures-show-20160518-goxsdi.html

13 April, 2016

Did NASA really spend billions to create a space-pen?

One of the more pervasive urban legends is that of the anti-gravity space-pen that NASA apparently engineered at great cost, whilst the Russians simply used a pencil. This story is told over and over again, as a credible example of how simple solutions often trump expensive high-tech solutions.

I can imagine at least three political motives behind this story. First, perhaps the KGB perpetuated it to show how stupid the Americans were. Or, second, perhaps elements within the USA perpetuated it to show how the US Government was wasting money. Or, third, perhaps it’s been perpetuated by naturalists who were inherently against scientific and technological discovery and advancement.

The facts, however, tell a different story. NASA astronauts used pencils, just as much as Russians cosmonauts. It was Fisher Pens who independently developed the anti-grav pens, which was later adopted by NASA (and also the Russians!) due to legitimate safety issues with pencils (wood is flammable, and lead shards are not good flotsam in a zero-grav environment).

Yet another example of how gullible we all are, and why it’s so incredibly important that we have a population willing and able to question so-called facts (or factoids) put before us. Especially when our very own governments (and opposition parties) continue to spin absolute rubbish disguised as fact as justification for their ludicrous policies.

The Write Stuff:
astronaut
http://www.snopes.com/business/genius/spacepen.asp

08 April, 2016

The reason Australia won’t suffer a real estate crash

With real estate prices in Sydney, and a few other major cities, softening (even going slightly backwards) in recent months, there are scores of commentators and articles proclaiming that this signals the beginning of the real estate correction that Australia has to have.

There is merit to their arguments. Australian households are, by any standard, rather highly leveraged with significants debt levels, and our market has not suffered a serious correction for several generations.

However, this one-dimensional analysis of the fundamentals continues to exclude the global context in which we find ourselves.

In a recent post (see below), Armstrong Economics explain that the Australian dollar (AUD) will likely bumble around its current level (give or take) for the next year or so, before taking a strong bullish posture going into 2017/2018.

Importantly, Martin Armstrong explains that the reason the AUD will return to a bullish phase after this year is because, as economic conditions in other western nations deteriorate (in particular, as governments themselves get into economic and political trouble), the Australian economic environment will be viewed as comparatively strong, given that our private pension system (superannuation) is relatively well-funded and properly diversified.

Normally, a high dollar will be cause for foreign money to look elsewhere for a home.

But, there is never a one-to-one relationship between two different economic data. It is not always true that a high dollar leads to capital outflows.

In the forecast given by Armstrong Economics, the high dollar will be as a result of capital fleeing far less certain jurisdictions.

Such money is not looking to invest in new enterprise. Rather, it is looking to preserve itself. For this reason, it will likely seek home in Australian bluechip stocks and in real estate.

Whilst all this is taking place, a rising dollar will probably ultimately lead to the Reserve Bank of Australia raising rates. Another factor that will further attract foreign money.

Rising rates will indeed put some pressure on domestic Australian borrowers. Without any significant foreign investment to fill the gap, this might otherwise lead to a real estate correction. But this will not be the case. With wads of smart money pouring into Australia, this will provide a good degree of support for real estate prices, particularly in our major cities.

Domestic commentators and speculators can howl as much as they like about the precarious state of residential borrowings in this country, but at the end of the day global capital flows far outweigh little opinions based on one-dimensional fundamentals.

The A$ Perspective:
IMM Australian Dollar
http://www.armstrongeconomics.com/markets-by-sector/foreign-exchange/the-a-perspective/

19 February, 2016

Hunting money, the Australian way

With the USA and Eurozone moving to eliminate their high denomination notes (the USD 100 and EUR 500 respectively), Australia now seems to be following suite with the AUD 100 note.

The reasons given being:

  • It is used to fund terrorism
  • It is used to avoid taxes
  • It is used to store capital gained from criminal activities

Seriously, who makes up this nonsense?

When was the last time a self-respecting international terrorist pulled out a wad of AUD to buy a rocket launcher? Ummm… that’s right… never!

And if you’re the type of person who wants to get a bunch of AUD to stash your cash out of sight of the taxman, how do you acquire it in the first place? If you’re a PAYG employee, you’ve already paid your tax, so the government has no business to continue to track your post-tax cash. If you’re a business owner who’s received this money through cash payments… seriously, how many businesses have customers buy stuff with AUD 100 notes? Anything more than a few dollars is almost certainly going on the card.

Yet, I won’t deny the third point. Home-grown criminals certainly do (and always have, so why the concern now!?!?!) use cash for their illicit transactions.

I note that nobody’s mentioned the fact that a lot of these AUD 100 notes are actually being stashed away by retirees. Why? To lower their net-worth in order to qualify for the age pension and other benefits.

The real reason behind this move (both in Australia, as well as the USA, EU, UK, Switzerland, etc.) is to inch us closer to the total elimination of cash, and towards purely electronic money.

Electronic money promises to make it easier for governments to scrutinise every single thing you buy or sell, and extract their pound of flesh from it. No more car boot sales without reporting it as income (despite the fact that you bought those items with post-tax dollars, sell them second-hand, and hence made an actual loss). No more $50 cash for your son to mow the lawn without him having to give some to the government, despite the fact that you already paid tax on your money when you earned it in the first place. No more cake stalls without having to give the government their 10% (soon to be 15%-20%) GST.

This is called economic totalitarianism, and demonstrates government’s absolute distain for ordinary citizens going about their ordinary lives.

The end result of all of this will be the rapid death of our so-called “Ideas Boom” as capital quickly finds a home elsewhere in the world, where those countries are actually competing to attract capital for productive purposes.

Dirty money: Australia’s missing $100 bills in hands of criminals, tax cheats, expert warns:
There are more $100 notes in circulation than there are $5s, $10s, or $20s. Where are they?
http://www.abc.net.au/news/2016-02-19/australia-100-notes-used-for-tax-evasion-crime-expert-says/7181054

11 January, 2016

Taxing the sale of the family home is theft by fiat

What a ridiculous proposition… taxing the family home when it is sold!

People don’t sell their home to “make a profit”. They sell their home because they want to move to another place. For governments to prey on this shows how desperate they are becoming.

It’s bad enough that we have to pay stamp duty for the privilege of buying our own home (whereas renters are exempt for this).

Don’t these idiot politicians and their policy wonks understand what’s happening? We’re in a global deflation. For governments to go hunting for money in such ways is only going to accelerate and worsen this deflationary cycle.

Tax concession that costs $46b:
Even the most expensive homes would stay exempt, Labor says.
http://www.theage.com.au/federal-politics/political-news/push-to-tax-profits-on-sale-of-luxury-family-homes-rejected-by-labor-20160111-gm36sw.html

01 December, 2015

It turns out that “social justice” advocates are greedy capitalists after all

I’ve always been somewhat perplexed by Slater & Gordon.

On the one had, they spew forth guff about social justice, equity, labour protections, etc.

On the other hand, they charge enormous fees, have listed on the stock exchange, and now appear to have taken a disastrous punt using other people’s money.

It just goes to show that all those who proclaim and declare that they are white knights fighting for justice, are little more than money-hungry self-interested greedy capitalists.

I wouldn’t be surprised if they skimp on paying their “fair share of tax” also.

Good riddance.

Slater and Gordon: Uncertainty over law firm’s future, or survival, as share price dives:
Slater and Gordon’s share price has fallen by more than 50 per cent.
http://www.abc.net.au/news/2015-11-26/questions-over-slater-and-gordons-future-as-share-price-dives/6978296

21 November, 2015

Corporations need to pay their fair share of tax?

I find this current national debate (and inquiry) around corporate tax avoidance a complete farce.

Notwithstanding the facts that corporations should absolutely follow the law, and also bearing in mind that the directors of public corporations are legally bound to follow the law as well as operate the company in the best interest of its shareholders, this debate is getting rather silly.

And I don’t mean the answers that are being offered by corporate representatives at the Senate inquiry.

The entire premise of the debate is completely distorted.

Firstly, corporations are not “real”. They are legal fictions. It is people (employees and shareholders) who profit from the activities of the corporation. To talk about “corporate profits”, and demanding that “corporations need to pay their fair share of tax” is a strange concept indeed.

With this in mind, you have to ask why we have corporate tax at all?

In years gone by, nations would compete to try and attract business operations to their shores. But those days seem to be long gone as the G20 are no longer seeking to create a competitive marketplace, rather they are only interested in a marketplace where our “legal fiction” corporations are seen by governments as revenue streams for public coffers.

If our governments were serious about business growth and employment opportunities for their citizens, they would be doing whatever they could to create an environment where companies want to come here, to set up shop here, and to employ a lot of people here.

The simplest thing they could do is to drop corporate taxes. To zero!

Of course, also by the wayside would be tax deductions (it does not make sense to have tax deductions if you don’t pay tax). They would also need to better police the use of corporate funds for personal expenses (such as buying yachts, etc., for so-called “entertainment” purposes).

In such a regime, you just watch the stampede of multi-national companies flocking to Australia to set up their operations here.

What about government revenues, you say?

I fully expect that the dramatic rise in business activity that would result from such a tax regime would create so much more employment (and hence payroll tax) and business-to-business transactions (and hence GST revenue) that this will more than make up for lost corporation taxes.

But, even if it doesn’t, the government has many other ways of generating revenue from business operations without crippling the ecosystem via a corporation tax. For example, they could increase royalties for the use of natural resources, or impose more savvy import duties, or change the nature of the GST, or impose an array of licensing fees for certain types of operations, etc.

Such a regime will also serve to truly level the playing field between large multi-nationals and local small and medium businesses (who don’t have the luxury of being able to arrange their international tax affairs as savvily as the big boys).

The entire notion of corporations “paying their fair share of tax” is a fictional paradigm that serves no real purpose, and is absolutely unnecessary.

There are better ways to stimulate business growth in this country, and to grow government revenue streams.

So let’s stop deluding ourselves on this issue. Let’s make Australia open for business, so that we can all benefit from business success.

Facts first to fall at Senate’s corporate tax avoidance inquiry:
Chevron’s vice president and general tax counsel, Sandy Macfarlane (left) and Chevron managing director Australia Roy Krzywosinski.
http://www.smh.com.au/business/the-economy/facts-first-to-fall-in-tax-inquiry-20151119-gl3esq.html

30 October, 2015

Global capital inflows underpin house prices

This is one element that’s driving foreign private capital into Australia real estate.

Local commentators who refuse to acknowledge the role of global capital in supporting Australia’s real estate market are missing an enormous piece of the puzzle. They underestimate the sheer volume of private capital that has been (and is continuing to be) relocated to Australia.

With the AUD/USD having dropped some 40% from its peak, foreign capital has already seen the Australian real estate market crash (in their own currency, not the AUD), and are now coming in to snap up bargains. Locals, however, are still seeing the market go up (or at least, not going down much).

And, many of these foreign buyers are buying with cash. So they are not posing a risk to the mortgage market in any way.

Whilst domestic prices are still expected to soften (note: “soften”, not “crash”) in the coming few years, this enormous influx of foreign capital will ensure that there is a support level for prices in the cities.

Transaction delay saves couple $557,000 in purchase of Eureka Tower apartment:
Apartment 7701 in Eureka Tower sold for $1,988,888 in October.
http://www.domain.com.au/news/transaction-delay-saves-couple-557000-in-purchase-of-eureka-tower-apartment-20151026-gkgk6l/

29 October, 2015

Why aren’t flawed climate predictions prompting a rethink of climate science?

When actual temperate increases are consistently far below predicted cataclysmic increases, we must consider the possibility that the established understanding of climate science has some fundamental flaws, and hence needs some fundamental rethinking.

Sadly, society is way too deeply entrenched in the established (flawed) understandings. It will take a cataclysmic climate shift in the opposite direction to wake up genuinely open and discovery-driven science again.

The Coming Revelation Of The ‘Global Warming’ Fraud Resembles The Obamacare Lie:

http://www.forbes.com/sites/peterferrara/2013/11/12/the-coming-revelation-of-the-global-warming-fraud-resembles-the-obamacare-lie/

15 October, 2015

The beginning of the end for cheap capital

Yesterday, Westpac Bank announced that it was increasing all of its mortgage interest rates, apparently because of increasing capital requirements being imposed by the Government.

Today, the columnist Michael Pascoe is speculating that in fact this rate rise is all about increasing shareholder returns for Westpac.

So, did Westpac raise rates because of capital requirements, or to increase dividends?

Or, maybe, just maybe, it’s because globally we are seeing capital shift away from long bonds, thereby increasing rates for capital. Hence, our banks will have no choice but to raise rates, regardless of what our RBA decides to do.

Or maybe, just maybe, it’s because globally, capital is selling out of long-term bonds and thereby increasing interest rates for these longer-term capital borrowings. In which case, you absolutely know that all banks will be raising rates, and even raising them if the RBA lowers.

The age of cheap capital is coming to and end, and there's nothing that central banks can do about it.

Westpac rate rise: Dividends rule, OK?:
Everyone goes home a winner in Westpac’s money-go-round — except for home loan customers.
http://www.smh.com.au/business/the-economy/westpac-dividends-rule-ok-20151014-gk8zdj.html