24 July, 2015

Tax the rich! Tax the rich!

The Australian Labor Party’s annual conference is a critical event for the party that is desperately trying to regain its standing with the electorate.

So it’s little surprise that they are adopting superficial policies that make for excellent sound-bites, but will have zero (even negative) meaningful impact.

The policy, in particular, of what I speak is their newly adopted position to introduce a tax regime that takes aim at high income earners.

“Take aim”… yes. But meaningful… no.

It simply goes to show that the ALP is trying to buy votes from lower-income earners by promising to take more money from the rich.

Not that tax on “the rich” shouldn’t be more equitable. For that matter, tax on the rest of us should be more equitable also… why should we be financially penalised via taxation so the government can waste our productivity on meaningless, ineffective and unnecessary activities (or, rather, lack of activity).

That aside, these so-called “rich” have options. This includes accountants and lawyers who advice them on how to structure their affairs (including the nature of how their income is earned).

These options are exactly why “the rich” pay so little tax in the first place. They work within whatever the rules are. And if the ALP changes the rules, then “the rich” will simply change the way they play the game. Or leave. They can do that too, don’t you know.

Net result: “the rich” will not end up paying significantly more tax; the government will spend more, in anticipation of raising more revenue from “the rich”, and; ultimately, the government will raise taxes on lower income earners to make up for all of the government’s overspending.

Three cheers for politics… always screwing the little people, every time, even when they tell you they’re trying to screw the big shots.

Labor to slap new minimum tax rate on the super wealthy:
Anthony Albanese (left) with other Labor frontbenchers at the conference.

21 July, 2015

Self-service checkout angst

Marketing experts are now worried that self-serve checkouts are going to cost business because customers would prefer to be served by a cashier.

There were similar concerns about the introduction of supermarkets. They forced people to pick their own groceries and put them into a shopping basket, rather than have a store clerk run around doing it all for them. That was about 100 years ago.

These so-called marketing “experts” clearly don’t have any appreciation for history. Or common sense.

Self-service checkouts risking consumer loyalty: marketing expert:
Generic shopping photo of hand with money at electronic self service supermarket checkout Aug 2012

07 July, 2015

First-home buyer interest rate delusion

As I’ve previously pointed out, when interest rates eventually rise it won’t be the catalyst to a house price crash than many (first-home buyers) are hoping for.

Even if rising rates will bring prices down (and that’s a very by if), first-home buyers will at best have the privilege of paying more (higher rates) for the loan.

But, more likely, the scenario will be compounded greatly by increasingly tight lending criteria as well. Meaning that even if they could afford a loan at a higher rate, the banks will be far less willing to splash credit around.

In short, easy credit at low rates has certainly contributed to rising house prices. But, a future with tighter credit and higher rates will not improve things for first-home buyers.

If I were a prospective first-home buyer in Melbourne or Sydney right now (or any other place, but particularly in these two cities), I don’t think I’d be rushing out to buy a place. But I might be looking for a smart home purchase, something that is a little out-of-flavour and has scope to add value to (i.e. renovate or extend in the future), and only then if I had a serious deposit (20%+). Plus I’d want to be locking in a low fixed-rate for as long as possible.

But I certainly wouldn’t be looking to get into a cheap investment property simply because rising interest rates and falling rental returns will leave many caught, unable to afford to keep such places and unable to sell them to recover their capital.

Why first-home buyers want RBA to hike rates:
Low interest rates mean rising prices and more difficulty for those wanting to get on the property ladder.

Dawn Fraser is the new poster-child for Australian racism

Sorry Dawn. You are a racist. Period.

The thing about people who say things like, “Australia… if you don’t love it, then leave,” and, “go back to where you came from,” is that they claim to be the most patriotic Australians.

In reality they’re actually communicating: “I don’t like your attitude / culture / clothes / nose / etc. And because I’m too lazy to make an effort to appreciate your uniqueness, I’m going to tell you to piss off instead.”

Dawn’s comments are typically Australian racism trying to desperately masquerade as patriotism.

Pure class, Dawn. Pure class. Not! You racist.

Nick Kyrgios labels Dawn Fraser a ‘blatant racist’ following verbal attack:
Dawn Fraser (right) suggested Nick Kyrgios should go back to where his parents came from.

The superannuation infliction

The greatest beneficiaries of Australia’s pension system (including both superannuation and the public pension) are the baby boomers.

The losers… younger Australians who are going to be bled dry in order to sustain the pensions of the baby boomers!

It is now being proposed that the super access age (the age at which someone can access their superannuation) be raised from 55 years old to 65.

Of course, this won’t apply retroactively. That is, it won’t apply to baby boomers. It will only apply to younger Australians.

In effect, what this will impose is that younger Australians will be forced to work longer in order to:

  • Continue to draw a salary so they can pay more tax in order to fund the public pensions of the baby boomers; and
  • Continue to contribute superannuation in order to maintain an income stream for these superannuation funds that are providing private pensions for baby boomers.

Talk about ageism!

Raising super age could save $7b:
Holding off: The Productivity Commission has modelled what would happen if the preservation age was raised further.

01 July, 2015

Rising rates will compel people to buy

Everyone’s now going around saying that Australian house prices will crash when interest rates rise.


Clearly they have a simplistic mindset: low rates good, high rates bad.

Higher rates may impact on first home owners, particularly if they’re mortgaged to the hilt. But worst of all, it will affect the people whose first house is an investment property rather than a live-in property. This group of “investors” will face rising costs, without matching rises in rents.

But, for the rest of the market, rising rates will compel people to go out and lock in low interest rates before rates move too high. That is, buy now, lock in low.

This isn’t to say that there won’t be any sort of reckoning in Australia’s rather pricey real estate market. Just that rising rates will not be the trigger.

House prices in a bubble — but what will make them pop?:
“Housing is showing some bubble-like features, but it lacks a trigger to pop it near-term.”: UBS senior economist George Tharenou.

30 June, 2015

Resurgence of Greek immigration to Australia

As Greece has continued to slide backwards economically (in no small part due to failed austerity measures that aim to protect bonds holders at the expense of Greek citizens), the young and the ambitious have been fleeing the country in search of greener pastures.

In the past, Australia has been a favourite destination for Greeks, and since the GFC it seems it has once again become a prime destination for them.

Everyone in mainstream media is quick to point to the influx of Chinese money as the source of escalating real estate prices in Australia. But I contend that the inflows are far more diverse than that, and includes enormous amounts of money exiting Europe (including Greece) trying to escape the coming economic armageddon facing that continent.

Greeks embark on Australian odyssey for new life Down Under:
A woman shops for Greek ornaments in the Oakleigh suburb of Melbourne, Australia

15 June, 2015

Bubbles, bubbles, everywhere?

Rational Radical recently posted a detailed piece about the situation with regards to Australian real state, from the perspective of Generation Y.

I enjoy his work and perspectives, and I also used to be squarely on the side of “bubbles bubbles everywhere”, but have more recently begun to soften my view based on things I’ve learnt about what is actually happening with capital in the big wide world, rather than what is happening from essentially a domestic point of view.

His chart that tries to explain what a “freaking bubble” looks like is somewhat misleading (see the bottom of this post). For it to be an unequivocal bubble you would need to see a doubling of prices in 1-2 years, not 10 years. A 10-year doubling is a strong bull market. A 1 year doubling would be a bubble for sure. Bull markets turn into bears, but usually don’t pop like a bubble. Or, bull markets can reach a point of irrational exuberance, doubling in an extremely short space of time, at which point they have manifested into a bubble.

Also, the post-GFC rationale is very different than pre-GFC. With so many older Australians as well as foreign interests wanting to put their wealth into private assets (such as real estate, collectables, etc), real estate will yet see another leg up. That is, I suspect we are just at the beginning of this bubble, not the end, despite all of the long-term indicators saying that it is already over-valued.

What is most worrying is that many young people are becoming “investors” before becoming home owners. When interest rates rise, these young investors will be smashed (higher outgoings, and probably lower incomings also), and have no other assets with which they can offset losses. So, these distressed properties will hit the market, but I suspect there will be plenty of takers to absorb them, as other interests look to exit the financial markets and other soft assets (including governments bonds). When interest rates do start to rise, people with the financial means will ramp up their buying and will lock-in rates, probably at the expense of these first-timers.

On the international stage, China is loosening policies that allows its citizens to legally take money out of the country, plus they are continuing to strengthen the yuan inline with its proper market value… they may even float it (but I don’t have any reason to see that coming any time soon). If you track Melbourne property prices in yuan, it’s actually very flat, meaning that the Chinese buyers don’t see a bubble, and are very happy to keep bidding higher (that is, in AUD terms).

Removing all of the concessions might slow/pause things down a bit, but not stop it. Other countries have tried various measures… none of which have pricked the so-called “bubbles” they have.

The problem that surrounds the “affordability” discussion is that it assumes that someone has done something wrong and hence should be called upon to fix it (whether it be negative gearing, superannuation concessions, low interest rates, etc.). The bottom-line fact is that Australian cities are extremely desirable locations (to live and to invest) and are hence magnets for capital. So too are London, Vancouver, Auckland, Zurich, etc, all of which have different incentives (or not) for real estate investment. As I said above, these markets are being driven by capital that wants to exit the financial markets and find safer places to park.

So, when will Australian real estate prices come down? No idea. Maybe tomorrow, maybe 5 years, maybe 10. But one thing is for sure, interest rates can’t go down much further (though they may come down a little more). Anyone complaining about affordability at these prices and these interest rates is going to have to have a lot of cash if there’s a serious crash, because banks won’t be lending money at higher rates to people who don’t have serious deposits and means.

So, anyone with cash… sure, patiently waiting may allow you to pick up some bargains after a crash. For everyone else, it will see you out of the frying pan and into the fire — still unable to buy a house because in a post-crash environment the banks are going to be far more (actually) conservative about their lending.

In many parts of the country right now it actually makes more economic sense to buy than to rent (your weekly outgoings will be similar, and in some places will actually be cheaper to buy than to rent). But, you need to be thinking beyond the current interest rates and current market. What if interest rates go up? Should you lock in your rates at these history lows? Are you buying for the short-term or long-term? If you don’t know about the long-term, then think about the scenario of having to sell in a market where prices might be lower in the future?

Lots of things to think about, and for many young Australians it is actually better to buy now than wait for a hypothetical crash that might arrive much later (rather than sooner) and might come with hefty strings attached with regards to banks being far less willing/able to lend.

The housing crash we had to have: A Gen Y perspective on the bubble:


16 May, 2015

Spending handouts on new TVs is the Australian way

The Government is now concerned that small businesses will use the generous new tax deduction provisions to buy big ticket personal items, such as TVs.

Clearly, these provisions aren’t meant to be used for personal purchases.

But, if a tradie buys a nice flat screen TV for watching the footy on, and charges it to his business, so what?

It’s not as if this type of behaviour is un-Australian.

The baby bonus, introduced by former Treasurer Peter Costello, was meant to be used by families to offset the costs of childbirth. But in reality, families used it to buy large imported flatscreen TVs.

So, if it’s ok for families to rip off taxpayers by purchasing unnecessary TVs, then surely it must be ok for small businesses also.

Buying a nifty home TV and claiming it for your business? The ATO will come after you:


05 May, 2015

Invest in the economy? You’ve got to be kidding!

With today’s cut in interest rates from the Reserve Bank of Australia, the Treasurer, Joe Hockey, has this to say:

“I say to the Australian people directly, now is the time to borrow and invest whether you’re a household or small business, now is the time to have a go to borrow some money and to invest. Invest in the things that help to create jobs.”

Even if his intention is to get genuine investment happening in Australia, what will actually happen is that even more middle-income Australians will take the enormous risk of speculating on capital gains in real estate.

Meanwhile, the rest of us who are genuinely investing in local endeavours are finding that we are out of favour with the banks (whilst the aforementioned amateur punters are most decidedly in favour). So even if we wanted to borrow in order to build the economy (and, it’s a big if, considering that the economy of headed in the wrong direction), the banks would rather plough more credit into unproductive ponzi real estate.

If Joe Hockey is genuine about growing the economy (and creating jobs), how about 0% tax on business earnings! That would give the economy one heck of a mighty kick-start, in the wake of a weakening China and diminishing income from mining endeavours.

But, oh… I forgot. That would be a solution too far. The Government is only interested in namby-pamby “policies”, dreamt up by out-of-touch public servants and/or highly partisan special interests.

RBA cuts interest rate to historic low:
Treasurer Joe Hockey holding a press conference at Parliament House in Canberra.