Friday, April 30, 2010

It's on. Rudd will overhaul mining royalties Sunday

AAP

Federal Treasurer Wayne Swan says the complex mining royalty system operating in Australia will be addressed in the Henry tax review to be released on Sunday.

Media reports have suggested the review will recommend a new tax on resource companies on top of existing royalties, using the funds to pay for a cut in the company tax rate.

Mr Swan said while he would not pre-empt the government's response to the review, he could confirm there would be recommendations in that area.

"There is debate about the royalty systems which exist - we have something like eight different royalty systems in Australia," he told Fairfax Radio on Friday.

"In that instance the mining industry itself has called for reform in that area.

"That issue is addressed in the Henry review and we will be delivering our response to that on Sunday."



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Thursday, April 29, 2010

The Reserve Bank wouldn't push up interest rates between the Henry Review and the Budget...


Would it? Would it?


What's up

Electricity + 15%
Water + 14%
Petrol + 9%
Beer + 6%
Rents +6%
Childcare + 6%
Health services + 6%
School fees + 5%

What's down

Electronic goods - 16%
Children's clothes - 5%

Source: ABS 6401.0


Resurgent inflation has reignited speculation about an interest rate hike at made next week's Reserve Bank board meeting.

At 2.9 per cent Australia's annual rate of inflation has climbed to its highest point in 15 months fed by rapidly rising prices for electricity, water, education and childcare.

Melbourne prices climbed the fastest in the nation in the first reading this year jumping 1.3 per cent in just three months, spurred on by an extraordinary 22 per cent jump in electricity tariffs.

The Bureau of Statistics says nationwide the price of electricity climbed 15 per cent in the year to march, the price of water 14 per cent, childcare and health services 6 per cent and school fees 5 per cent...

Also climbing fast were the price of beer and petrol, each up 6 per cent.

Offsetting the very rapidly rising prices of Australian-produced services were sharply falling prices for imported goods.

The price of childrens clothes has fallen 6 per cent and the reported price of computers and audio visual equipment 16 per cent after adjustments are made for improvements in the power of computers.

The Bureau does not publish the calculations it uses to arrive at these apparent price reductions and submissions to an internal inquiry have cast doubt on their relevance.

"What's important is that domestically-generated price pressures are strong," said RBC Capital Markets economist Su-Lin Ong. "The high dollar is helping out with imports, but it may not be enough to restrain overall price pressures."

The Reserve Bank's preferred measures of inflation, which exclude erratic price movements are close to 3 per cent, well above the Reserve Bank's forecast of 2.5 per cent for the middle of this year.

"This means there's a 'live' possibility of a rate rise Tuesday," said TD Securities economist Annette Beacher. "It'll be close but I think the Bank will lift its cash rate 0.25 points to 4.5 per cent, then pause before continuing to tighten to 5.25 per cent by year's end."

A further hike of 0.25 per cent would add another $48 to the monthly cost of repaying a $300,000 mortgage. A jump in the cash rate to 5.25 per cent by would add $196.

Weighing against a rate hike next week will be the financial crisis in Greece and the imminence of the May Budget due just one week later.

Prime Minister Kevin Rudd said Wednesday's downgrade of Greece's credit rating placed "at an absolute premium the importance of continued strong, sober economic management".

"What is sobering about the news from Europe is the fact that globally we are not out of the woods yet," he said.

Seperately released figures show that Australian wealth held in property, shares and other assets is again approaching record levels, with average wealth per person climbing to $253,000 - just $7500 below the all-time high reached before the financial crisis two years ago.

Calculations by Commonwealth Securities using Treasury data released yesterday show that in the December quarter wealth climbed 3.6 per cent, by almost $9000 per person. Wealth has rebounded 11 per cent in the past year.

"No wonder Aussie consumers are so chipper about life," said Commsec economist Craig James. "Thier wealth isn't far away from record highs. The share market has rebounded and home prices have made solid gains. But spending hasn't. Memories of the financial crisis seem hard to shake."

Published in today's SMH and Age 


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This is it - the 25 per cent cigarette tax hike


ANTI-SMOKING ACTION

The Rudd Government today announced a comprehensive package targeting smoking and its harmful effects, including an increase in the tobacco excise of 25 per cent.

This increase in tobacco excise will provide an extra $5 billion over four years, which along with existing revenues from tobacco, will be directly invested in better health and hospitals through the National Health and Hospitals Network Fund.

The Government’s anti-smoking action includes:

· The first increase in tobacco excise (above inflation) in more than a decade, an increase of 25 per cent.

· Cracking down on one of the last frontiers for tobacco advertising - in a world first, cigarettes will have to be sold in plain packaging.

· Restricting Australian internet advertising of tobacco products.

· Injecting an extra $27.8 million into hard-hitting anti-smoking campaigns...


All four measures deliver on major recommendations of the National Preventative Health Taskforce.

Cutting smoking will save lives, take pressure off our hospitals, and deliver significant economic benefits.

It is one of the best investments in prevention, and keeping people healthy and out of hospital, that we can make.

Smoking kills over 15,000 Australians every year, and is the largest preventable cause of disease and premature death in Australia. The social costs of smoking (including health costs) are estimated at $31.5 billion each year. Annually, over 750,000 hospital bed days are attributable to tobacco related diseases.

Through tough action over the past two decades, including tax increases and bans on advertising, the number of daily smokers in Australia has been reduced from 30.5 per cent of the population aged 14 and over in 1988 to 16.6 per cent in 2007.

This is important progress, but we can and must do better.

EXCISE INCREASE

The Government will increase the excise and excise-equivalent customs duty rate applying to tobacco products by 25 per cent from midnight tonight. The excise on cigarettes will increase from $0.2622 to $0.32775 per stick and loose leaf tobacco from $327.77 to $409.71 per kilogram of tobacco.

This will increase the price of a pack of 30 cigarettes by around $2.16.

This measure alone is expected to cut total tobacco consumption by around six per cent and the number of smokers by two to three per cent - around 87,000 Australians.

This measure will provide an extra $5 billion over four years that, together with existing revenues collected from tobacco, will be directly invested in better health and hospitals through the National Health and Hospitals Network Fund.

In this way, all customs and excise duty on tobacco will fund a reformed Australian health and hospital system into the future.

Cigarette price increases have been shown to be effective in cutting smoking, especially among young people, who are particularly sensitive to price.

Taxes on tobacco as a percentage of the retail price of tobacco are currently just 62% in Australia, compared to 80% in France and 77.5% in the United Kingdom.

Today’s increase will bring Australia’s tax treatment of tobacco closer to comparable countries.

CRACKING DOWN ON CIGARETTE ADVERTISING

In a world first, all cigarettes will be sold in plain packaging by 1 July 2012.

This will remove one of the last remaining frontiers for cigarette advertising, and was a key recommendation of the National Preventative Health Taskforce.

The legislation will restrict or prohibit:

· tobacco industry logos

· brand imagery

· colours

· promotional text other than brand and product names in a standard colour, position, font style and size.

The Government will develop and test package design that will make cigarettes less appealing, particularly to young people.

Graphic health warnings will be updated and expanded. Research shows that industry branding and packaging design reduce the effectiveness of graphic health warnings on tobacco products.

The National Preventative Health Taskforce concluded that “there can be no justification for allowing any form of promotion for this uniquely dangerous and addictive product which it is illegal to sell to children”, including packaging.

The Government will also legislate to restrict Australian internet advertising of tobacco products, bringing the internet into line with restrictions already in place in other media.

ANTI-SMOKING ADVERTISING

At the same time, the Government will boost investments in hard hitting advertising campaigns by $27.8 million over four years, to a total of more than $85 million in the next four years, to encourage even more Australians to quit smoking.

This additional investment will be used for campaigns targeting people in high-need and highly disadvantaged groups such as low socio-economic communities and pregnant women and their partners.

This will extend and broaden the focus of the previous National Youth Tobacco Campaign.

The first elements of the new campaigns will be rolled out by the end of this year.

Through the Australian Taxation Office and Customs and Border Security the Government will continue its successful strong enforcement against the production and importation of illicit tobacco.

This comprehensive anti-smoking package follows this week’s landmark COAG agreement delivering fundamental reform to Australia’s health and hospital system, and builds upon other actions the Government has taken to improve preventative health:

· A record $872 million investment in preventative health including programs in schools, workplaces and community settings

· $103.5 million under the National Binge Drinking Strategy

· The decision to establish the Australian National Preventative Health Agency which is currently being blocked by the Opposition in the Senate.



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Would plain packets make cigarettes less attractive?


Er...

How does increasingly plainer cigarette packaging influence adult smokers’ perceptions about brand image? An experimental study

M A Wakefield, D Germain, S J Durkin

9 July 2008

Method: A 3 (brand types) × 4 (degree of plain packaging) between-subject experimental design was used, using an internet online method, to expose 813 adult Australian smokers to one randomly selected cigarette pack, after which respondents completed ratings of the pack.

Results: Compared with current cigarette packs with full branding, cigarette packs that displayed progressively fewer branding design elements were perceived increasingly unfavourably in terms of smokers’ appraisals of the packs, the smokers who might smoke such packs, and the inferred experience of smoking a cigarette from these packs. For example, cardboard brown packs with the number of enclosed cigarettes displayed on the front of the pack and featuring only the brand name in small standard font at the bottom of the pack face were rated as significantly less attractive and popular than original branded packs. Smokers of these plain packs were rated as significantly less trendy/stylish, less sociable/outgoing and less mature than smokers of the original pack. Compared with original packs, smokers inferred that cigarettes from these plain packs would be less rich in tobacco, less satisfying and of lower quality tobacco.



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Wednesday, April 28, 2010

Taxing carcinogens


I'm going to repost Harry Clarke:

The loathesome cads of the Labor Party have done something good! A move to 'plain packaging' of legal carcinogens (cigarettes) is a welcome move as is the apparent intention to add an additional 35% excise on cigarette sales. The dummies who do smoke go for pale coloured rather than (for example) bright red packaging because they believe the former cigarettes contain fewer carcinogens. They don’t! The general intent of the legislation is the reason the ACCC have forced carcinogen producers not to advertise their cigarettes as ‘mild’. The Australian policy has been widely supported by those opposing the blegal sale of carcinogens to consumers around the world but this is the first time – as far as I know – the policy has been implemented.

Catallaxy, as usual, would prefer to see more people die of cancer. The argument: Cancer taxes are regressive – they save more poor people from cancer than rich - and these taxes ‘might’ involve compensations to the carcinogen producers of $3b (not $m!) per year for loss of copyright. What rubbish! These arguments are adolescent piffle. Taxes paid by the wealthy who are happy to continue inhaling carcinogens can be used to subsidise the extended life styles of the poor who quit. I doubt $1 will be paid in compensations to the carcinogen producers. Interesting too that, according to Catallaxy, the IPA has come out to defend big tobacco. How do these people sleep at night? What a monumentally evil bunch these right-wing lunatics are championing.

Update: A useful report in The Age by Michelle Grattan and Peter Martin. The report cites criticisms by an executive of a carcinogen supplier that ‘plain packaging’ has no proven effects of reducing consumption. Arguably that might be true since it has never been tried but why then is he complaining. My guess is that the effects are very substantial particularly for youth.

As Uncle Milton points out in the comments thread the Liberal Party faces the prospect of being wedged on these reforms. Unlike Labor they still receive funding from carcinogen suppliers. Watch how they jump – my guess is they will attack these reforms!



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Rudd, the T-shirt:



That's ours.

The US one reads better:







More from Steph here and here.

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Wednesday column: We'll still be mining

Don't believe everything you read in the paper. Particularly not headlines like this in Monday's Australian: "Mining tax will kill industry". It is not only wrong, it's also incredibly familiar.

Right up until 1991 gold mining was completely exempt from tax, the only industry with such special status. Hawke squibbed on taxing it in the 1985 tax summit and commissioned an inquiry. As the day of its report grew nearer the campaign against it reached a crescendo. John Brumby, back then not a premier but the federal member for Bendigo lobbied to keep it exempt from tax. A front group, the Australian Gold Mining Industry Council claimed taxing it would "stifle the growth of the industry, destroy jobs and slash export earnings". I conducted repeated radio interviews with its spokesman in which he claimed so in ever more strident terms.

At the time Australia's gold exports amounted to $1 billion per year. They now exceed $1 billion per month.

Looking back in a speech in January Treasury boss Ken Henry said he found it hard to believe that such claims had been made.

"The Australian gold tax exemption lasted nearly 70 years, despite its having absolutely no support in tax theory," he said. "Tax reform is always difficult - even the things that are most obvious. That’s probably because it almost always confronts sectional interest. And, as the gold tax episode illustrates, reform can be especially difficult when those sectional interests can be dressed up as a concern for exports and jobs."

Which brings us to Ken Henry's Tax Review and the claim the resource rent tax the government is about to introduce "will kill" the industry.

By design it can't kill anything... If you think of it as a tax, it is the kind you would want. It doesn't kick in until profit rises above above a hurdle to become super-normal. At present the hurdle for the existing offshore petroleum resource rent tax is around 8 per cent. If a resource company's profits are only normal or if it is not making profits it will not pay the resource rent tax at all.

Australia's biggest-ever resource development, the gigantic Gorgon gas field off Western Australia got the go ahead in August even though its owners knew full well they would be subject to the 40 per cent offshore resource rent tax.

But its not really right to think of it as a tax. It's more of a profit-sharing arrangement. At the moment within Australia the states don't share profits with mining companies, they charge them for resources. The charges are levied at more than 40 different rates, usually applied to the value or volume of what is mined, and range from a low of 3.5 per cent for uranium mines in South Australia to a high of 10 per cent for coal mines in Queensland. They are charged whether or not the mine turns a profit and are increased whenever the state needs more money. Queensland has just upped its charges. Western Australia is likely to do the same.

If those charges were replaced with a nationwide resource rent tax as the Henry Review recommends Australia would sacrifice income while the mining companies are doing the hard work for it of developing the resources, and in return would share the booty when those companies have more than got their money back.

Even if as is possible when the government announces its response to the Henry Review on Sunday the resource rent tax is charged on top of existing state royalties the same will be true of the Commonwealth - it would share in the super-normal booty only after it became super-normal.

Would companies that had been considering setting up in Australia instead mine first in Brazil or South Africa? Maybe, but that mightn't be such a bad thing. It might slow down the development of mines in Australia , delaying new mines until other fields were exhausted and resource prices higher. Australia would still have its resources, but the benefit it got from extracting them would come later and at a higher price.

Given the resources boom in prospect this wiser stewardship of Australia's resources would ease some of the immense pressures in store. Reserve Bank board member Roger Corbett, chairman of Fairfax Media, publisher of The Age, has expressed concern about a "bipolar" economy in which the north and the west expand while the South East contracts, making economic management frighteningly difficult. A slower more gradual boom might do us no harm.

And we would make money along the way. The Treasury believes that if a 40 per cent resource rent tax had been in place in the last financial year we would have raised an extra $8 billion, enough to fund our universities all over again. That's a good return for somewhat slower mining growth.

But back to thinking of it as a tax. The ideal tax is levied on something which is bolted down, as the advocates of a land tax are forever telling us. That's one the four principles that has guided the Henry Review. The others are that the tax system should be simple, that it shouldn't needlessly distort decision making and that it should at least nod in the direction of fairness.

Capital is far from bolted down. That's why the review has decided to tax it lightly, cutting the tax rate on savings and recommending a small cut in the rate of company tax. Labour is for practical purposes bolted down. Australians aren't going to leave the country in big numbers whatever the tax on wages, and nor are men going to withdraw their labour, although women are more sensitive to taxes. That's why while paying special attention to the costs of raising children, the review hasn't recommended a cut in income tax rates.

Minerals are about the most bolted down thing we have. Companies that want to extract our resources have no choice but to pay our taxes, even if they delay doing so until other mines become expensive. They are even digging up our gold, two decades after an impost that was going to stifle mining growth, destroy jobs and slash export earnings.

Published in today's SMH and Age


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Tuesday, April 27, 2010

You wouldn't bet on it - if ASIC gets its way

The Reserve Bank will next meet to vote on interest rates a week from today, but don't expect to be able to bet on the outcome.

For only the second time in two years Centrebet won't accept your money.

The last time it believed the result was a foregone conclusion. This time ASIC has stopped it.

The Securities and Investments Commission has written to the Alice Springs based bookmaker warning that bets on interest rate changes may be "derivatives" as defined in section 761D Corporations Act.

That section defines a derivative as an arrangement in which the value of a consideration is derived from the value of something "of any nature whatsoever," including an interest rate or exchange rate.

On the face of it the section would outlaw all manner of bets including the recent high profile wager between economics professor Steve Keen and financial markets economist Rory Robertson on the value of house prices which saw the loser walk from Canberra to Kosciusko...

The letter from ASIC senior manager Jonathan Coultas to Centrebet says offering a derivative without a financial services licence "is an offence punishable by a fine not exceeding $22,000 or imprisonment for 2 years or both".

It threatens the bookmaker with "court orders shutting down your business".

"Totally shattered and a little bit confused," said Centrebet public relations manager Neil Evans when asked how he felt. "We have spent hundred of hours doing this for two years with not a word said."

Centrebet's market was hardly low profile. It has been reported on eight times in this newspaper and the odds it offers have been used as a guide to the weight of public opinion about what the Reserve Bank board will do.

Less-well known has been the market operated by Centrebet's competitor Sportsbet.com.au.

It is continuing to take bets on Tuesday's Reserve Bank board despite knowing of ASIC's threat.

Two of its bets it has taken on - each on no change in rates - are for $10,000 each.

"We have received nothing from ASIC in terms of whether we can or can't bet on that market. We will keep taking money until they tell us to stop," said spokesman Haydn Lane. "Apart from sports events and elections it is our most popular markets."

Asked why he thought ASIC had targeted Centrebet and not his organisation Mr Lane said it could be because in March "Centrebet started betting on the ASX 200, I think that sort of kicked them into action a bit with them, but we've certainly heard nothing".

Centrebet also suspects ASIC was provoked by its action last month in opening a market on the stock exchange share price index. "This other market seems to have been caught up in it. We've stopped in May but a rival bookie is going ahead."

Asked to explain why it had targeted one bookmaker but not the other an ASIC spokesman was unable to comment on operational matters. However he confirmed that ASIC had written to Centrebet.

Melbourne Law School professor Ian Ramsay said the ASIC letter had effectively shut down the Centrebet market on Reserve Bank decisions. It would not be worth the bookmaker's while to fulfill the requirements needed to get a financial services license.

For now Sportsbet.com.au is offering $1.20 for each $1 successfully bet on no change next Tuesday, and $3 for each $1 bet on a rate hike.

Mr Lane said he is hoping he doesn't have to stop mid-stream and give back the money.

Published in today's SMH and Age


Asic to Centrebet


AFR Editorial, April 17:

ASIC's nanny gambling curbs just don't rate

It's become commonplace in the wake of the global financial crisis to refer to the financial system as a giant casino. And in a sense that's true. But the critical issue is not that large amounts of money are wagered on predictions of future events, but that those making the bets may be unaware of the proper odds, or that the races are fixed. Or indeed that they are wagering at all.

Post-crisis focus should be on the integrity of financial markets, malfeasance by agents, structural imperfections and appropriate regulation and supervision.
The scrutiny should not be on the betting per se.

For better or worse, any financial reward carries a risk, and attempting to price that risk is the business of financial markets. It's an odds play.

Now we hear the Australian Securities and Investments Commission has told betting agency Centrebet to stop offering odds and taking bets on share price indices and the Reserve Bank's monthly interest rate changes.

ASIC claimed that the "financial bets" offered over the ASX 200 share index and RBA interest rate changes may be "derivatives" as defined in the Corporations Act, and that these services may amount to a financial services business, requiring a financial services licence.

Centrebet has suspended offering odds on both markets and has written to ASIC saying it would like to continue its interest rate betting service. It's also stated that its operating licence from the Northern Territory government allows it to bet on interest rates and stockmarket indices.

Curiously, Sportsbet.com.au, which is also licensed in the NT, and also offers interest rate betting, has not received any attention from ASIC. So why the heavying of Centrebet? The online lucky shop has been offering odds on Reserve Bank rate rises since August 2008, without any comment from ASIC. But in March this year it started offering odds on the monthly finish of the ASX 200 share price index, in effect setting up in competition to the ASX. Centrebet stated at the time that it also planned to extend its financial betting to the oil price, and individual stocks as well, although those latter plans are apparently now on hold.

Centrebet is trying to expand its market beyond the traditional gambler to appeal to white collar financial types. And it was succeeding. It received 200 bets on the monthly close of the S&P/ASX200. Now ASIC may well be right; Centrebet's activities with respect to the share price index may technically contravene the law as written. The interest rate betting is more uncertain.

But really, is this something to which a very stretched, crucial agency should be devoting time and resources? Is the spirit of the law intended to stop such bets? Why has it acted now, instead of August 2008, and why has Centrebet been singled out?

Does ASIC really think the integrity of financial markets is being compromised because maybe some investment bank's forex desk or options traders are laying off the RBA rate rise risk by flipping screens and hedging with Centrebet?

For the punter, the monthly RBA board meeting and the daily sharemarket are probably two of the cleanest markets you could hope for. If those markets are fixed, then ASIC would really have some worries.

So, too, if punters were pulling their money from their superannuation and wagering it on Centrebet's ASX200 with a side bet on Martin Place in Race 5 at Randwick.

But there is no evidence of this happening. Those making such a bet can be perfectly sure what they are betting on, the odds being offered, and the counterparty they are dealing with.

Gambling, love it or hate it, is part of the Australian culture. Punters know they are making a bet when they go to a bookmaker. This is not a market we need to be nannied in. Centrebet should be free to resume taking bets on interest rate changes and ASIC should concentrate on bigger issues than a Darwin bookmaker straying into turf that the Australian Securities Exchange regards as its monopoly.




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The other Greek tragedy (funny, persuasive video)



HT: Akis

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Monday, April 26, 2010

An epoch ends. Financial planners won't get kickbacks.


....from 2012

Congratulations, thank you Chris Bowen


Financial planners will have to earn their keep openly from their customers as part of sweeping changes that will outlaw kickbacks and commissions and revolutionise superannuation and investment advice from 2012.

Fiercely resisted by parts of the industry, the changes go further than recommended by the Senate inquiry set up in the wake of the collapse of the Storm financial group that cost thousands of Australians their life savings.

That inquiry recommended in November that the government merely "consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers".

Instead Minister Chris Bowen will legislate to ban the payment of all types of commissions on all investments other than insurance from July 2012. The deadline is ahead of a similar reform in the United Kingdom that will take effect at the end of that year.

The legislation will also require financial planners to "place clients interests ahead of their own," something they are not currently obliged to do..

"We are facing an ageing population. Access to quality advice will be an important part of planning for that future. The reforms will give Australians advice that is in their best interests, rather than the result of incentives or commissions," said Mr Bowen.

Crucially the new law will not only ban the payment of upfront commissions, sometimes worth 1 to 2 per cent of the sum invested, but also the hidden but more significant "trailing commissions" worth 0.55 to 0.60 per cent of the funds under management for each year that it stays invested. On a 200,000 investment these can cost $1200 per year, or more than $24,000 over 20 years whether or not continuing advice received. The financial research firm Rainmaker estimates that Australians pay more than $1 billion in ongoing commissions per year, a figure that would be far lower if investors only paid for advice when they wanted it.

"This will end the kickbacks and commissions and intertia payments that four million Australians have endured for decades, said Industry Super Network chief executive David Whiteley.

"It'll make the commercial funds more like our industry funds. We might have to stop running those compare the funds TV ads. But that's a small price to pay for good public policy."

The Coalition has indicated it will oppose such reforms. Treasury spokesman Joe Hockey gave the industry a commitment in November that "the Liberal Party will not support the banning of commissions. We will not do that."

The changes will only apply prospectively, meaning that Australians in existing superannuation funds will continue to pay on-going commissions, giving the industry time to adjust. However changes to the operation of so-called default funds recommended the Cooper superannuation review are likely to outlaw the payment of trailing commissions for 80 per cent of fund members in any case.

To soften the blow of upfront charging by financial advisors the minister has hinted that government will make such charges tax deductible when it responds to the Henry Review. The concession would cost $1 billion. Mr Bowen said the government would reveal its position on tax deductibility when it responds on Sunday.

Published in today's Age


Future of Financial Advice - Information Pack


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Saturday, April 24, 2010

A win for economics, a win for parliament, a win for my suburb..

Andrew Leigh selected Labor candidate for Fraser 



How did he do it?

"A lot of phone calls."

Here's Andrew's account.

Possum writes:

A person of Andrew’s public policy caliber getting a better-than-good chance to enter the nation’s Parliament is literally a once in a generation affair.

Congrats to Andrew – anyone that cares about thoughtful, empirical based policy with a humanist lean and the raw power of intellectual analysis should tonight be rejoicing.

This is what Parliament is supposed to be.



Oh. Who is Andrew Leigh? Check out my sidebar --->


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Keen's done it! I joined him for the final climb



"Crikey it's cold at the top" exclaimed the exhausted economics professor.

Steve Keen had just touched the monument marking the peak of Australia's tallest mountain. All around were meant to be magnificent views. Instead there was fog.

After nine days and 225 kilometres of running then walking wearing a T-shirt saying "I was hopelessly wrong on house prices" the economic doomsayer yesterday finally fulfilled the terms of the bet stuck with Macquarie Bank economist Rory Robertson who early in the financial crisis challenged him to march from Canberra to Kosciusko if house prices fell by less than half the 40 per cent he had predicted. In the event they fell just 5.5 per cent before climbing, something Keen blames on what he calls the "first home vendors boost".

Along the way Keen made real-life friends with an eclectic group of about 30 members of the otherwise virtual community that reads his blog. The unlikely bunch included a mathematician, an engineer, industrial chemist, fund manager and (usefully) a massage therapist. They've raised money for Swags for the Homeless as they walked.

"This was meant to shut me up," Keen shivered... "Instead it turned into a promotional opportunity."

Just as the legends of Burke and Wills and Ned Kelly grew in stature after their defeats, Steve Keen's reputation seems to have improved by the kilometre.

While he was a Cooma Monday the state premiers and Prime Minister agreed on an inquiry into how to restrain home prices. By the time he had reached Jindabyne Wednesday there was debate over whether it should be extended to cover negative gearing and the rules that allow foreigners to buy Australian homes.

The University of Western Sydney associate professor thinks governments are too gutless to fight rising prices.

"They are hooked on the money they make from rising prices," he told the Herald/Age as he launched into the final 15 kilometres. "If ever there's a downturn in home sales, state government budgets will be stuffed. The banks are their accomplices, merchants of debt. But they can't keep lending more and more. One day it will collapse."

Might it end slowly, with a gentle deleverageing?

"That's the same idea as a gentle heart attack," he said before complaining about his blisters and saying how much he had enjoyed paying up on the loss of his bet.

Published in today's SMH


POSTSCRIPT: While this happening the government tightened some of the rules allowing foreigners to buy Australian houses - another victory.

THE Federal government will scrap its controversial new rules on foreign investment in real estate, and instead tighten both the rules and their enforcement to head off a damaging political storm.

In a stunning about-face, Assistant Treasurer Nick Sherry has announced that temporary residents will now have to seek approval from the Foreign Investment Review Board (FIRB) to buy any real estate in Australia.

Temporary residents will also be required to sell their Australian property when they leave Australia. And for the first time, the FIRB will be given the means to ensure that the laws are enforced.

In a surprising move, the crackdown will also target vendors and real estate agents. Senator Sherry said they would face civil penalties if they were involved in transactions that breached the Foreign Acquisitions and Takeovers Act. His spokesman could not explain how vendors and real estate agents are expected to know the immigration status of buyers.

The move comes barely three weeks after Senator Sherry denied that foreign investors were a factor in the Australian real estate market.

Since then, the opposition has been demanding action and there has been a growing crescendo of complaints and reports of massive buying by Chinese investors. Bloomberg newsagency reports that Chinese government companies and sovereign wealth funds have expressed interest in investing in Australian real estate, after Beijing ordered them to sell Chinese properties to bring down housing prices.

Senator Sherry now says he has consulted the community and the real estate industry, and concluded that the foreign investment regime needs to be strengthened, "particularly in relation to the arrangements for temporary residents".

"International investment that boosts the numbers of houses available for people to rent is a good thing, and temporary residents living here should, within very strict rules, have the opportunity to buy a home. "But the rules have to be tough enough to ensure that the system works in that way, and that's what we're delivering.


GOVERNMENT TIGHTENS FOREIGN INVESTMENT RULES FOR RESIDENTIAL HOUSING
The Assistant Treasurer, Senator Nick Sherry, has today announced a major tightening of the foreign investment rules as they relate to residential real estate and a package of tough new civil penalty, compliance, monitoring and enforcement measures.

"The Rudd Government is acting to make sure that investment in Australian real estate by temporary residents and foreign non-residents, is within the law, meets community expectations and doesn't place pressure on housing availability for Australians," said the Assistant Treasurer.

"The new provisions announced today will mean that anyone trying to flout Australia's strict foreign investment rules will face tough new penalties that will be fully enforced."

Australia's foreign investment regime relies on a combination of legislation, primarily the Foreign Acquisitions and Takeovers Act 1975(FATA), its related regulations, the Foreign Acquisitions and Takeovers Regulations 1989 (Regulations) and an accompanying Government Policy (Policy). Each of these is administered by the Foreign Investment Review Board (FIRB).

Today's announcement includes important amendments to each of the FATA, the Regulations and the Policy to ensure that foreign non-residents can only invest in Australian real estate if that investment adds to the housing stock, and that investments by temporary residents in established properties are only for their use whilst they live in Australia.

Changes to foreign investment in real estate rules
All temporary residents seeking to purchase an existing property in Australia will now be brought within the FIRB notification, screening and approval process.

Temporary residents will be required to notify, be screened or be approved by FIRB. Today's changes ensure that temporary residents are subject to the same compulsory notification, screening and approval requirements required of foreign non-residents.

In addition, temporary residents who are approved will now have to:

compulsorily sell the established property they have bought when they depart Australia; and
be required, where undeveloped land has been purchased, to commence construction on that land within 24-months or have the land compulsorily sold.

"Over the last six months I have been undertaking a comprehensive series of consultations with the community and with industry, including talks in NSW, Victoria, Queensland, South Australia, Western Australia and Tasmania," said the Assistant Treasurer.

"I have been examining whether features of the foreign investment in Australian real estate regime may need strengthening, and I have come to the conclusion that in some respects that is what is required."

"This is particularly the case in relation to the arrangements for temporary residents."

"International investment that boosts the numbers of houses available for people to rent is a good thing, and temporary residents living here should, within very strict rules, have the opportunity to buy a home – that's how it's always been under Governments of both persuasions."

"But the rules have to be tough enough to make sure the system works in that way, and that's what we're delivering."

"The reimposition of compulsory notification, screening and approval at the front end, and the forced sale of properties when temporary residents leave Australia, will ensure that investment is in Australia's interests, and in line with community expectations."

"These changes will also be strictly applied to temporary residents who are here on foreign student visas."

Major additions to Australia's investment regime

The Rudd Government will also work to put in place, for the first time, a full civil penalties regime that will apply to breaches of the foreign investment in Australian real estate regime.
This will include a special penalty to recapture any capital gain made through an illegal purchase and sale of a property.

This will be complemented by a new national data-matching compliance monitoring program, a new 1-800 community hotline, measures to improve compliance by real estate agents and steps to ensure better enforcement outcomes.

"If you are a temporary resident or foreign non-resident investing in Australian real estate, or a real estate agent working in this area, your activities will be proactively monitored with top-of-the-line data-matching and this will be backed up by tough new civil penalties."

"If you do the wrong thing, you will be found out."

New civil penalty regime

Currently the FATA contains only a criminal penalty regime. This regime will be retained but will now be complemented by a comprehensive civil penalties regime, adding another important tool to act against non-compliant transactions.

"A tough new civil penalty regime, in addition to the current criminal sanctions, will make it easier to secure sanctions and should make anyone thinking of acting inappropriately think twice," said the Assistant Treasurer.

As part of the new civil penalties regime, the Government will introduce:

. sanctions for purchasers, sellers and agents for being involved in transactions in breach of FATA;

. an explicit compulsory divestment requirement where property has been purchased in breach of the real estate investment regime; and

. an additional monetary penalty equivalent to any capital gain made by the breaching purchaser at the time of the forced sale, with the capital gain to be measured in accordance with the relevant tax legislation.

Expanded monitoring

FIRB will also undertake a significant new program of rolling three-way proactive data-matching using FIRB data, State and Territory lands and property office transactional data and Commonwealth Department of Immigration and Citizenship (DIAC) visa status data.

"I can confirm that we have already started this program through trials in Sydney and Melbourne," said the Assistant Treasurer.

"FIRB has undertaken a pilot data-matching program between itself and both Land Victoria and the New South Wales Land and Property Management Authority, and we will now add a third leg to this process by incorporating Department of Immigration visa status data."

"This will be rolled out nationally and FIRB has this week brought on board a data-matching and compliance specialist to spearhead this program."

New 1-800 community hotline

In order to ensure improved reporting from the community of possible breaches of the regime, the Government has established a new 1800 Free Call phone line that members of the public can call directly with any information concerning possible breaches.

"I want to make sure everyone in the community has a direct line to report their concerns. This is very important and this new hotline will deliver that option," said the Assistant Treasurer.

The number of the community hotline is 1-800-031-227.

Checks on real estate agents
"I have also become increasingly concerned that some real estate agents may be taking advantage of aspects of the regime, so I will be acting on that," said the Assistant Treasurer.

"Today I have written to each State and Territory Minister with responsibility for the regulation of real estate agents in their jurisdiction, indicating that the FIRB will be seeking to form a formal Memorandum of Understanding with each state-level real estate agent regulator to significantly bolster levels of cooperation, interaction and compliance."

"FIRB will also be producing an easy-to-read guide for the real estate industry setting out their obligations under the regime."

Enforcement

The relationship between FIRB and the Director of Public Prosecutions will be also be significantly enhanced with both agencies commencing work on a detailed Memorandum of Understanding, focused on securing improved enforcement outcomes.

"I want to make sure that all arms of the Australian Government are working optimally together to secure prosecutions where breaches occur," said the Assistant Treasurer.

"This is also the case with getting the maximum number of sanctions from the large amount of data that will now be available under our new proactive data-matching program."

MELBOURNE
24 April 2010



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Friday, April 23, 2010

I've been on the Keen walk



Details tomorrow.


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The Tax Office has set up a hotline to get around its hotline!

If you really need a tax return the Tax Office can do it for you in 90 minutes. And there's a special phone number that will make sure you are able to talk to a human being. Tax Commissioner Michael D'Ascenzo revealed both in evidence to the parliament's Public Accounts and Audit committee yesterday, saying 3200 people had received the express refunds since the new Tax Office computer began holding everything up in January.

"We manually process them to get them through quickly," he said. "One we did in one and a half hours."

"If people say they desperately need it we take that at face value."

For people in real hardship who can't through on the Tax Office inquiry line there's another number they can call to schedule a time for a tax officer to phone them back. "It might be at night, we've got people working then," said Second Commissioner Jennie Granger. Asked to reveal the number, she said it was 1800 150150...

As many as one million tax returns have been delayed by the slowdown that began when the Tax Office switched over to a new computer in July.

Only about 188,000 returns were still running late and things would be back to normal in May.

Second Commissioner David Butler said many of those complaining about late refunds should have got their tax in earlier.

"Self preparers should have filed by October," he said. "We encouraged tax agents to file by Christmas, we made it clear we could not process returns at all through the whole of January."

The Tax office was also suffering in part because of its previously efficient service.

"Tax agents are quite used to getting refunds on electronic returns within 2 or 3 days even though our service standard is 14 days. We had effectively eight weeks in which we coulnd't process returns," said Mr Butler.

Taxpayers who receive returns more than 30 days late will be paid interest, but at a comparatively miserly rate. The Tax Office revealed that it pays interest at 4 per cent, but charges interest to taxpayers who are late at 11.6 per cent.

"We don't set those rates," said Mr Butler. "It's a statutory formula. And the amount is not significant."

"The average refund at this time of year is $2600. If we are more than 30 days late that's $7.50 in interest."

"When the dust settles we will go back and check that everyone got the right interest."

Mr D'Ascenzo welcomed this week's announcement of a independent inquiry into the delays, saying it would be a chance to explain the Tax Office's predicament.

"I'm not sure what you do," he said. "When you close a road to improve it for the future, you say - look, there are going to be delays."


Published in today's SMH and Age 


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Henry Review - Sunday May 2, 2.30 pm

Swan has made the announcement.

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Thursday, April 22, 2010

Obama. He knows how to write.

At The Atlantic James Fallows writes about this extraordinary photo of an Obama-edited speech:





"The speech in question appears to have been his address about health-care reform to a Joint Session of Congress last September, which was the beginning of his campaign to recover from the long, hot "Summer of the Death Panels." Click on the shot below for a slightly larger version; go to the White House Flickr site here  for a stupendously large original shot."





"The volume of Obama's editing is unusual but not unheard of. The quality of his editing is exceptional for a public figure. Think of just one sentence in the shot above. The original says "This has always been our history." Obama changes it to, "This has always been the history of our progress." A different, more interesting, and more original-sounding thought. As people in my business say: You know, if things had turned out differently, he could've been a writer! (Yes, yes, I know that he was..)"



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We need to stop foreigners buying our houses. I never thought I would say that.


Alan Mitchell makes the case well in Wednesday's AFR (extracts below).

When a massive inflow of capital chases something whose supply is fairly fixed, prices soar.

That's what happened when

. Tax changes pushed hundred of thousands of mums and dads into buying rental properties to negatively gear;

. Explosively growing super funds bid up the price of Australian shares,

. And when post-GFC capital honed in on Australian houses.


Tim Colebatch reports today on the beginnings of action to address the problem:


FEDERAL and state governments have commissioned a working party of officials to hold a no-stone-unturned inquiry into all factors contributing to record house prices, as Labor senses the issue is becoming a political danger.

The inquiry, to deliver its first report within weeks, will examine sensitive areas such as tax breaks for negative gearing, land banking by developers, and whether grants to first home buyers push up house prices. Sources said the working party, comprising federal and state Treasury officials, had been operating for several months, looking at the factors adding to housing demand, and those inhibiting supply. Almost all key factors are on its agenda.

The two exceptions are the record levels of migration and rising real estate investment by foreigners and temporary residents.

Assistant Treasurer Nick Sherry today will hold a telephone conference with real estate agents over reports that up to 30 per cent of homes sold in Melbourne's inner-eastern suburbs are being bought by Asian buyers. The 13-point agenda for the working party starts from the one thing all agree on: that high house prices are the result of too many buyers chasing too few properties.



Now here's Mitchell...


House prices are rising strongly even though new lending for housing is falling, and cashed-up foreign investors are prime suspects. The government should put foreign investment in residential real estate under closer regulation of the Foreign Investment Review Board, and the sooner the better.

Foreign investment and housing affordability are a politically explosive combination, and a godsend in an election year for politicians who don't mind engaging in a little outer-suburban racism.

The government will end up increasing the role of the FIRB anyway. If it moves quickly it can avoid an ugly debate.

Australia is now one of the world's few prosperous developed economies, which makes it a magnet for foreign investors and migrants.

The property market, where the supply of new housing is constrained by the states' poor urban planning, is a natural hot spot.

Unfortunately, we are a long way from the reform of urban planning that would make a serious supply-side difference to the price of housing in Australia's major cities. The problem must therefore be managed from the demand side.

Closer involvement by the FIRB would reassure the public that the activities of foreign investors were under proper supervision.

House prices and the highly charged atmosphere of the property market are Australia's biggest economic problem.

The greatest fear is that the surge in property prices will give birth to a speculative bubble in which prices become detached from underlying market fundamentals. But even without going to that extreme, the strength of property prices is complicating the task of cooling the housing market.

The Reserve Bank's action has seen mortgage rates restored to about their long-term average level, and this has reduced the local demand for housing loans. But Australia's monetary policy has less effect on the behaviour of foreign investors who borrow from their own banks at much lower interest rates.

Higher Australian interest rates do strengthen the exchange rate, which makes Australian property more expensive for foreigners. But that does not necessarily put them off. With interest rates expected to rise further in the coming year, foreign investors are just as likely to decide to jump into the Australian market before the dollar becomes even stronger.

Under the current FIRB rules, purchases of new residential properties are "normally approved" and there is no limit on the number that can be sold to foreigners. There is, however, a ban on purchasing second-hand dwellings for investment purposes.

Purchasers must have temporary visas, although they are no longer required to dispose of the property on leaving the country. And homes purchased for overseas students are no longer subject to a cap of $300,000.

In the current economic environment there is probably a case for imposing discretionary global limits on residential investment. For that, the FIRB could draw on the expertise of the Treasury, which is acutely aware of the need to keep the property market on track.

The involvement of foreign investors slightly changes the nature of the property price problem.

Property price booms do their greatest damage when they collapse, ruining highly geared investors and, sometimes, financial institutions in the process. Ruination of foreigners and their financial institutions does not pose the same threat to the Australian economy.

Apart from government regulation, the biggest cause of Australia's shortage of rental properties is the low rental yield.

Gross rental yields are now about 4.5 per cent in Sydney and 3.9 per cent in Melbourne. According to the experts, yields probably need to rise by another 2 per cent.

The best way to attract investment into the rental market is for rents to rise relative to prices.

This will happen, although the structure of the residential accommodation industry probably will make the adjustment a slow process.

A speculative boom in rental property also can boost the supply of rental accommodation in the short term, but is less reliable and potentially more disruptive.

For a start, it will send prices up across the housing market, making the purchase of homes less affordable for other Australian residents.

That is the immediate hot-button political issue.

Any subsequent decline of prices from unsustainable levels also affects Australian investors and home owners.



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IMF: Australia leads the developed world; slug the banks

Our Treasurer is in for an interesting round of meetings

The IMF has declared the global recession over saying Australia has the best prospects in the developed world.

The extraordinary endorsement in the Fund's World Economic Outlook released overnight in Washington sets up Treasurer Wayne Swan for something of a hero's welcome as he attends back-to-back meetings of the Fund, the World Bank and Group of 20 leading industrial nations from Thursday.

For the first time the Fund predicts a return to relatively normal worldwide growth this year of 4.25 per cent, up from 3.25 per cent in its previous forecasts released in October.

It says last year the global economy shrank 0.5 per cent.

The International Monetary Fund singles out Australia as the developed nation furthest ahead of the pack saying "Australia and the newly industrialized Asian economies are off to a strong start and will likely stay in the lead"...

Australia's economy is slated to grow by 3.0 and 3.5 per cent this year and the next, well ahead of the US at 3.1 and 2.6, the UK at 1.3 and 2.5 and Japan on 1.9 and 2.0 per cent. Mainland Europe will grow at just 1.0 and 1.5 per cent.

Australia's unemployment rate is set to fall towards 5 per cent in 2011, way below the 8 per cent expected in the US and the UK and the 10 per cent expected in mainland Europe.

Prepared after consultation with the Australian Treasury the forecasts suggest the government will sharply revise up its growth forecasts in next month's Budget.

En route to the United States Mr Swan said the report was "a testament to the success of economic stimulus together with the resilience of the Australian people."

"Our stimulus is already being withdrawn as our economy strengthens. The withdrawal is expected to detract around one percentage point from growth this year. This means fiscal stimulus in Australia is being withdrawn faster than in most other advanced economies, and ahead of the timetable set by the Fund for other developed economies."

The IMF says Australia's growth will be led by domestic spending, "both public and private" this year with the pickup in commodity prices expected to boost investment in the resource sector.

A second unpublished IMF report leaked to the BBC recommends G20 leaders impose new taxes on banks and other financial institutions in order to fund future bailouts.

It says Australia alone among the major advanced economies paid its financial institutions nothing directly, but supported them with guarantees it assesses as being worth around $150 billion.

It recommends that each of the G20 nations charge their institutions a "financial stability contribution," initially set at a flat rate but later varied in accordance with risk in order to pay for the "fiscal cost of any future government support to the sector".

A second "financial activities tax" would be levied on the total of the financial institutions' profits and the remuneration they pay their staff, including bonuses.

The recommendations would hit Australian banks hard as they are among a small number reporting big profits.

It will be discussed at Thursday's G20 Finance Ministers meeting ahead of formal consideration at the G20 leaders meeting in June.





Published in today's SMH  and Age 


Leaked IMF Report


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Wednesday, April 21, 2010

And on the seventh day, Steve Keen rested

It's Steve's day off today, in Jindabyne.





Photos: Rob Burgess, Business Spectator

Then on the summit Thursday and Friday!


UPDATE: I just phoned him. He's off to the gym (!!!)


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To normal and beyond - the RBA's interest rate path

Hold on

The Reserve Bank isn't done with us yet. The minutes of the April board meeting at which it pushed up its cash rate for the fifth successive time show its members believed the rate would "probably need to rise further," and quickly.

Since October the Bank has pushed up its cash rate from 3 to 4.25 per cent, lifting the typical standard variable mortgage rate from 5.8 per cent to more than 7 per cent and adding $240 to the monthly cost of servicing a $300,000 mortgage.

The minutes make clear that the Bank has been taken by surprise by sudden surges in coal, iron ore and gas prices, saying Australia's terms of trade are now likely to increase far faster than forecast in February driving "strong growth in nominal incomes". While this would benefit Australia it would "also pose challenges."

The wording suggests the bank is in the process of sharply revising up its forecasts for economic growth and its assessment of how high rates need to climb... They suggest that the Treasury is also revising up Budget forecasts.

Unusually the April minutes explicitly cite the "noticeably stronger than expected" jump in the terms of trade as a key reason the Board decided "it would not be prudent to delay" a hike.

They also express concern about a housing market where prices continue to climb despite near-continuous rate rises.

Singling out for blame state governments, local governments and banks they say on one hand "population growth was strong, households had confidence about future income growth, and mortgage rates were at below-average levels," but on the other "the supply of new housing was not expanding sufficiently, partly because of the land usage policies of local and state governments and also because of the tightness of finance for developers".

Although the Bank describes its April hike as "a further step in the process of returning interest rates to more normal levels," they raise the prospect that the Bank will soon feel impelled to push them beyond normal.

"The Bank looks likely to upgrade its outlook for the economy in May," said NAB economist Rob Henderson. "That means rates will need to be above normal."

Commonwealth Bank economist John Peters said he wouldn't be surprised if the cash rate climbed from its present 4.25 per cent to 6 per cent by the end of next year.

"Rocketing iron ore and coal prices have given the Reserve an upbeat view of growth prospects. We still see the cash rate at 5 per cent by the end of the year, but beyond that the Bank will move to a contractionary stance."

A cash rate of 6 per cent would lift the standard variable mortgage rate to around 8.8 per cent, somewhat higher than the 8.57 per cent charged when the Coalition left office but below the peak of 9.36 per cent reached in late 2008.

It would add a further $340 to the monthly cost of repaying a $300,000 mortgage, bringing the total extra monthly impost since October to $580.

Published in today's SMH and Age





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Cooper is super, Brogden is a disgrace

What an industry!

Hidden fees, charges for making contributions and the payment of ongoing commissions to long-forgotten sales people would become things of the past for most superannuation users under landmark reforms put forward by the government's Cooper Review.

Released two months before the review's final report the so-called MySuper reforms would require each fund manager to nominate a default fund out of which members could not be moved without their explicit consent.

Members of each default "MySuper" fund would much better protected that members who decided to leave, although the review has held open the possibility of extending to all funds some of its proposed protections.

Among the most important is a requriement that fund trustees minimise costs as well as work to achieve targeted returns...

An independent report commissioned from Deloitte finds that if the proposals were adopted, some fund members could expect to pay less than half what they are paying now.

More than 80 per cent of super users are at present in default funds. The review finds they are those most likely to "prefer to delegate the task offor designing and maintaining an investment strategy to someone else."

MySuper would both empower and require trustees to look after every aspect of the fund members' welfare, specifically preventing trustees from paying advisors of sales people so-called "trailing commissions" and charging for contributions, although trustees could charge exit fees based on actual costs.

Industry funds embraced the proposals.

"Universal super is one of Australia's greatest post-war achievements," said Industry Super Network chief David Whiteley. "Ticket clipping, kickbacks, commissions, percentage based fees and other incentives to financial planners to sell underperforming retail super funds have no place in universal super."

The Investment and Financial Services Association, representing for-profit funds, labeled the plan an attempt to "deny people control and choice".

"It will legislate for apathy and disengagement," said IFSA chief John Brogden. "At a time when research shows that there is a $700 billion retirement savings gap, the Cooper Review is recommending a solution that actively discourages people from engaging with their superannuation."

The review found that super was becoming more complex and more expensive "at a time when funds ought to be benefiting from economics of scale and increasing size."

Published in today's Age


My Super


IFSA Media Release


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Monday, April 19, 2010

Five reasons Turnbull should stay

Bernard Keane in Crikey and Business Spectator:

1. Turnbull’s retirement is going to strip the party of much of its remaining substance. Until a new generation of quality Liberal MPs makes their mark, the only real intellectual firepower in the party consists of Andrew Robb, George Brandis and Turnbull. Yes, there are younger or more junior Liberals with some real intellectual quality – Simon Birmingham, for one – but they don’t yet have any sway within the party.

Neither Brandis nor Robb are exactly dripping with charisma, and only Robb is even faintly a serious candidate for future leadership as either Deputy or the main gig. Turnbull’s retirement left the party with the prospect that when Abbott leads the party to defeat, Joe Hockey will be the only alternative.

As Hockey’s economic history speech this week showed, the bloke is game, but just doesn’t have the intellectual grunt. He’d make a decent, moderate Liberal leader, in the same way Kim Beazley made a decent, moderate Labor leader.

2. Only Turnbull has the charisma, intellectual firepower and fierce ambition that leadership needs.

3. A third reason: Nick Minchin is leaving. Minchin dedicated his last three years in politics to thwarting Turnbull. His departure leaves the conservative forces in the party without their caporegime. Corey Bernardi will try to step up and fill Minchin’s shoes but he is, Senator, no Nick Minchin...

4. A fourth reason: the Liberals know how badly they cope with opposition. Another defeat at the hands of Rudd, especially one that sends them backwards in terms of seats, could unleash the sort of disunity that makes the last couple of years look cool and professional. In the absence of a powerful figure, the Liberals will continue to keep the spotlight on themselves in a way that has made Kevin Rudd’s life so much easier since 2008. There are no John Howards or Peter Costellos to unify the party now, but there nearest thing they’ve got is Malcolm.

5. Fifth, it can work. Turnbull regains the leadership after the election, learns from his first stint and conquers the flaws in his personal style, provides a more consultative leadership style than the first time around, and challenges an ageing Rudd government by offering a mix of conservative economic policies and a more progressive social agenda than Tony Abbott will ever be able to contemplate.

Because that’s the problem with Tony Abbott, or any conservative, leading the Liberals. Such a figure might appeal to the party base, but is in constant danger of moving away from mainstream voters. The Liberals know they face a long-term demographic challenge as one of their core constituencies, the pre-baby boom generation born before and during the war, die off. They need to appeal to younger voters. They need a leader who speaks to the future, not the past.

At the moment the party needs Malcolm more than he needs it.


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