Tuesday, March 31, 2009

What's the best approach for the G20?

Triage, according to this eloquently argued piece by World Bank economist Aaditya Mattoo.

He more or less says " forget about saving the world, concentrate on merely holding the line on trade".

This column proposes the launch of a WTO Crisis Round at the G20 summit. Unlike the Doha round’s liberalising agenda, such a crisis round would simply aim to “hold the line on protectionism” and prevent a retreat from current levels of trade openness. Such action is necessary for the global trading system to survive these “potentially perilous times.”

The Tax Office is skint?

Australia's Tax Office is hurting in tough economic times, asking its staff to take leave, cutting recruitment and cutting short employment contracts.

Tax Commissioner Michael D'Ascenzo told a parliamentary hearing in Brisbane that his office was on track to overspend its budget by $80 million unless it took "tough decisions".

"In addressing our financial difficulties it is likely we will have to adjust service standards and revenue commitments," he said.

"We will of course need to mitigate this as much as possible bearing in mind how the global financial crisis is affecting taxpayers across Australia. We will continue to work with our clients to help them get through these difficult times."

The Commissioner said his own difficult times stemmed from delays in his computer modernisation program that meant he had to keep legacy systems operating for longer than he had expected, delaying savings...

At the same time the natural rate of staff attrition was slowing.

The Commissioner was encouraging staff to take annual leave, cutting spending on travel and consultants and terminating early some short-term contracts.

The global economic crisis would be "challenging" for taxpayers, tax professionals and the Tax Office.

"Our compliance strategies recognise that an economic downturn increases the risk of extreme non-compliant behaviour," the Commissioner said.

But continuing to collect the tax due was "critical" because of the implications of reduced compliance when the economy began to recover.

The government is under pressure to spend an extra $1 billion in the May budget extending the First Home Owners boost after home sales figures that appear to show it boosting home sales.

The Housing Industry Association says home sales jumped 3.9 per cent in February to be up 8 per cent since November.

"This is evidence that the tripling of the First Home Owners Grant is working in generating new home building activity and employment,” said HIA economist Harley Dale.

The extension of the grant from $7000 to $14000 and to $21000 for new homes is due to expire at the end of June.

New home sales in Victoria have out performed the nation in the last three months, falling 5.6 per cent in February after surging 24 per cent over November and December.

“This reinforces anecdotal evidence that the tripled First Home Owner’s Grant for new homes and additional state-based incentives have had an enormously positive impact in Victoria," said HIA executive Gil King.

“Victoria really took a ‘breather’ in sales in February, but over the three months to February, Victoria still had the strongest result of all the states,” said HIA Victorian Executive Director Gil King.

Airport car parking rips you off

So says Australia's competition regulator

It'd have a fair idea

The ACCC says Melbourne Airport's parking fees are too high and suspects price gougingThe Competition and Consumer Commission has told Assistant Treasurer Chris Bowen that Melbourne's parking fees jumped 50 per cent in the 2 years to 2007-08 with the price of a two-hour stay jumping from $12 to $18.

Its report, prepared at the Assistant Treasurer's direction, finds that total revenue per car park space is "well above expenses including depreciation".

Melbourne Airport makes more of its revenue from parking fees than any other, getting 21 per cent of its revenue from car parks, compared to 7 per cent for Sydney Airport.

The Commission says it believes the prices charged may reflect not only "locational rents", justified by proximity, but also "monopoly rents", gained by the airport operators using their market position to push prices even higher...

It is concerned that Airport operators may using their role as a regulators to drive traffic toward their car parks, noting that they "are in a position to limit vehicle standing times - especially for dropping off and picking up passengers - in excess of the necessary security provisions".

"An airport exercising market power in car parking would have discretion to increase charges, which would be expected to result in the persistence of higher profits over time. Although not definitive by any means, the monitoring results are consistent with this expectation," the report says.

It notes that Melbourne Airport opened an extra 2500 long-term parking bays in December 2007 and is due to open a $65 million extension of its multilevel car park in June, but finds that the overall growth in the number of short-term spaces has been less than the growth rate in people using the airport.

Qantas yesterday backed the Commission describing the fees as "excessive," not only for travelers but also for its own staff. It asked the regulator to extend its monitoring to staff parking fees.

"Airports all around the country have been raising fees aggressively," said spokesman Joe Aston. "They operate outside business hours, and they can't run without staff. They are taxing the people they need."

The report finds that satisfaction with the overall standard of airport service dropped in 2007-08 with Melbourne remaining the 4th rated Australian airport behind Brisbane, Adelaide and Perth.

It says the quality of service appears unrelated to their financial performance, with Sydney, Australia's most profitable airport, judged as providing the worst service for the third consecutive year.

Melbourne's aeronautical revenue climbed 17 per cent in 2007-08 as a result of an 8 per cent increase in passenger numbers and a 9 per cent increase in revenue per passenger.

Mr Bowen said he noted the ACCC's concern about parking charges and said he would "reflect on what further action might be appropriate".

He directed the Commission to continue to monitor the performance of the five major privatised airports for another year.

Monday, March 30, 2009

Woomera! You're kidding me.

Australia's Treasurer Wayne Swan has told the Chinese company Minmetals it can't take over Oz Minerals because it mines at Prominent Hill in South Australia's Woomera prohibited area.

Swan: "The Woomera Prohibited Area weapons testing range makes a unique and sensitive contribution to Australia’s national defence. It is not unusual for governments to restrict access to sensitive areas on national security grounds."

Excuse me!

Granted, Swan's said funny things before. But "sensitive", "security"?

Once Woomera was home to Nurrungar, the top secret US spy base. But Nurrungar was closed a decade ago.

Now we're even talking about letting the Russians use Woomera. HT: Steve Kirchner.

In today's Australian the founder of Oz Minerals' Prominent Hill mine describes Swan's claim as "almost laughable".

"The prohibited area covers around one-third of SA, and there's a highway that goes up the centre of it and a railway," Minotaur Exploration managing director Derek Carter said.

"Any Chinese tourist could travel through there, take a tent with them and no one would know they were there."

The contentious mine, he said, was 170km from Woomera, while the "sensitive" weapons testing range was 40-50km north of the facility.

Security was adequately covered under the rules applying to a prohibited area, which required registration of the names of all people working in the area, and therefore at Prominent Hill."

So what's really going on?

John Garnaut has the only compelling theory:

"Rudd has appeared embarrassed about his deep and clear-eyed knowledge of China and has shied away from leading intelligent domestic discussion. The vacuum has now been filled by vested interests, maverick senators and ageing cold-war commentators.

The result is red peril hysteria.

Since Chinalco's initial Rio Tinto investment the Government has thrown up a series of arbitrary investment barriers apparently to look like it is "standing up to China" - a stance the Howard government never felt necessary to take. It has sent a message to the Australian public that Chinese money is inherently dangerous."

It's worth reading in full.

Rudd and Swan are either fools not properly fit to govern, or there is something about Woomera they are not telling us.

Of course, there is a compelling argument for preventing one of the biggest buyers of Australian minerals from owing the company that sells them.

But lets discuss it OPENLY!!!

Friday, March 27, 2009

What the IMF would tell the US if it could

Great reading, from May edition of The Atlantic, posted early on line

"Typically, these countries are in a desperate economic situation for one simple reason—the powerful elites within them overreached in good times and took too many risks.

Emerging-market governments and their private-sector allies commonly form a tight-knit—and, most of the time, genteel—oligarchy, running the country rather like a profit-seeking company in which they are the controlling shareholders."

RBA to Australians: 'You've never had it so good'

Many of you anyway

DESPITE talk of recession and worldwide financial crisis, Australia's Reserve Bank believes many of us have never been better off.

Backing the claim with statistics in half-yearly Financial Stability Review the Bank notes that retirees are an exception.

Households on wages have seen their real after-tax incomes jump an extraordinary 10 per cent in the past year - more than double the usual rate. The Bank says the December stimulus payments were responsible for much of the boost along with tax changes mid-last year that cut payments 3 per cent.

For households facing interest bills things are even better. The Bank says the ratio of interest payments to disposable incomes has fallen from 15 per cent to 11 per cent and is set to fall further, undoing a half decade's worth of growth.

It notes that petrol prices are down as well.

Household wealth has fallen about 10 per cent in the year, with the biggest falls being in share prices which are down around 50 per cent. By contrast house prices are down just 4 per cent.

But the Bank says that most that most of the share price pain has been felt by wealthiest 20 per cent of households...

...most of whom are still on good wages "and so are likely to have other sources of income to offset the decline in the value of their financial assets".

On the other hand for retirees not receiving benefits the downturn has been dire. The Bank says m any will have lost half their share market wealth, "most likely resulting in a large fall in their available income." Around half of Australia's top 200 companies have cut their dividends, around one quarter of them by more than 50 per cent.

The Bank is unconcerned by talk about Australians running into trouble servicing mortgages, reporting that across the millions of home loans in Australia only 20,000 are more than three months behind. While this is an increase of 7000 on the year before, it remains minuscule by foreign standards.

In only one region of Victoria are there more than 2000 home loans in arrears - the La Trobe Valley, and even there the arrears rate is below 1 per cent.

Separately the Bank's head of economic analysis Anthony Richards told a housing conference he wasn't concerned about a jump in arrears when mortgage rates eventually began to climb.

"Our discussions with banks indicate that they are indeed testing the ability of borrowers to continue servicing their loans if interest rates were to rise," he said.

"No doubt, as at any time, some of the loans being written now will turn sour."

"However, overall, I suspect that the risk of non-performing loans increasing to the extent seen in the United States is low."

The Reserve finds that while mortgage holders have benefited the most from lower interest rates, gaining almost all of the 4 percentage points of rate cuts instigated by the Bank, business borrowers have also benefited, with big businesses enjoying rates 3.7 points lower on average and small businesses rates 2.3 points lower.

Riches amid the Gloom

Real after-tax incomes up 10%

Mortgage burden down 26 per cent

Income tax burden down 3 per cent

House prices down 4 per cent

Share market wealth down 50 per cent

Number of mortgages in arrears: 20,000

Reserve Bank,
March 2009 Financial Stability Review

Thursday, March 26, 2009

Have a lend - of our AAA rating

AUSTRALIA'S Treasurer has offered cash-strapped Australian states a lifeline, promising to let them use his government's AAA credit rating in return for a fee.

The move will be of minimal use to Victoria which already has a AAA rating but be vital for NSW whose AAA rating is on "negative watch," for Western Australia whose AAA rating is at risk and for Queensland whose rating has been cut to AA+.

Until the announcement, made after a Treasurers' meeting in Canberra, Queensland had been finding it harder to borrow than had the banks, building societies and credit unions that made use of the Commonwealth's wholesale funding guarantee.

"The credit market has been dysfunctional," said Queensland's Treasurer Andrew Fraser. "This will allow us to deliver infrastructure".

RBC Capital Markets fixed income strategist Su-Lin Ong said the state fund raising market had been "effectively illiquid and frozen" since the downgrade of Queensland on 20 February 20", tarnishing every states' attempts to borrow...

A spokesman for Victoria's Treasurer John Lenders said he did not expect his state to make use of the guarantee, promising "business as usual".

Australia's states have 28 days in which to decide whether to accept the offer for their existing debt.

Deutsche Bank Australia economist Tony Meer said expected states such as Victoria to join up regardless of their protestations in order to avoid "orphaning" their existing debt.

TD Securities economist Stephen Koukoulas said the debt to be "hoovered up by investors at a rapid rate" given the Commonwealth's AAA guarantee and also the high yield being offered by states.

Meeting as the Loans Council, the state and Commonwealth Treasurers yesterday approved $13 billion of state borrowing during this financial year and $26 billion in the next.

Much of the money will be used to fund with the Commonwealth the big-ticket infrastructure projects due to be given a tick by Sir Rod Eddington's Infrastructure Australia task force within days.

It will also make it easier for state governments to borrow on their own if their private partners in infrastructure projects drop out.

Mr Swan offered the Opposition a briefing and called for bipartisanship. But Shadow Treasurer Joe Hockey said gave no guarantee of support for the legislation saying the Treasurer had made a bad situation worse.

"This is a direct consequence of the government guarantee of bank funding. Banks have been competing with the states, making it more expensive and harder for the states to fund themselves," he said.

Mr Swan stressed that the offer was temporary, to be lifted when “normalized credit market” conditions return. "We don't want to stay in this groove for any longer than we have to," he said.

The guarantee will be limited to borrowing in Australian dollars. Economists say this will support the dollar as offshore lenders buy them in order to lend them to Australian states.

In a further bleak economic development yesterday Japan announced record drops in both exports and imports. Japan's exports effectively halved in the year to February, sliding 49.4 per cent. Its imports slid 43 per cent.


Wednesday, March 25, 2009

New Kids

Until now I've avoided extending my blogroll.

A blogroll that's too long is no blogroll at all.

However there are new kids on the block (or at least new to me).

I have added, and offer for your consideration:

Bill Mitchell - the Newcastle University iconoclast

Christopher Joye - the financial entrepreneur who hardly sleeps

Steve Keen - the debtwatcher who sees Emperors unclothed 

Andrew Leigh - unmuzzled after a 6-month vow of  silence at the Treasury, and

David Uren - actually this is a brand new 3-person blog with Uren, Michael Strutchbury and Scott Murdoch from The Australian, entitled Current Account.

All are available on RSS

While on the subject, 2 blogs on the roll are actually multi-contributor blogs.

You get great value from what I misleadingly label the Joshua Gans site and the Nicholas Gruen site - though they would be value indeed with those contributers alone.

Happy reading.

Let's hope Obama doesn't try to give Rudd some DVDs

"Britain's Prime Minister, Gordon Brown, was recently given a gift of 25 DVDs of classic American movies by US President Barack Obama.

"When Brown sat down to watch one of them, he found he couldn't --
because Obama had given him Region 1 DVDs, unplayable in Brown's Region 2 DVD player.

"The pointless Digital Rights Management didn't stop any piracy, it prevented an absolutely reasonable use of legitimately purchased content.

"Maybe this experience will help the British government understand how many of the entertainment industry's efforts to strengthen intellectual property controls do little more than irritate legitimate consumers."


Memo to Obama: Australia is Region 4 - a distinction we share with Mexico, South America, Central America, New Zealand and Pacific Islands.

We may have a "Free Trade Agreement" with you folks, but we can't watch your DVDs.

Tuesday, March 24, 2009

Schools out. No more Parliament. No more question time.

Not until Budget night, Tuesday May 12.

Not this Tuesday, not next Tuesday.

And it's making me realise what I am missing:

With exceptions, a deadly-dull uninformative abuse of process.

When John Howard was there the answers were short, and often witty. Peter Costello livened the place up.

Now now.

Below the fold, in the funniest and most apt piece of writing I have read this year,  The Sydney Morning Herald's Annabel Crabb explains what's happened.


TO LISTEN to a parliamentary answer by Kevin Rudd is to enlist in a gruelling physical challenge.

At fir
st, your correspondent was embarrassed about her inability to maintain attention all the way through to the end of even some of the shorter answers.

But after yesterday's question time, in which the PM reached a personal best of 13 whole minutes, it became clear there is a mystical power to the man's speech patterns. At the 30-second mark, the listener is feeling confident. There are a few "early and decisives", the odd reference to the "core facts" about something-or-other, but nothing to raise a sweat.

By the 90-second mark, it's an effort. We're forging further and further away from the question. Ordinary landmarks disappear. The PM begins to introduce a few special effects - a column of ABS statistics, or the night thoughts of some long-dead Nobel laureate. Then he might go for a quick whip round the GDPs of some selected OECD countries.

Kevin Rudd is the Phil Spector of political oratory - his technique is "Wall of Sound", with massive overdubbing of economic statistics.

By the second-minute mark, the human brain begins to wander, in search of the banal comforts of home.

Have we run out of Vegemite?

When is the cat due at the vet?

Through the neural crack jemmied open by these uninvited thoughts, dozens of others rudely crowd.

Legions of unwritten letters, unpaid bills, unwatered plants and unthanked great aunts jostle for attention, and suddenly Mr Rudd and his statistics are completely gone.

With an effort, the listener snaps back to attention, only to hear him take a long breath and say: "Secondly …"

It's the oddest thing; it's not that the sentences aren't sentences, or that they don't make sense grammatically. It's just that they attempt so little. Facts and figures flow remorselessly, interspersed with quotations from analysts or International Monetary Fund personages.

Mr Rudd's first answer yesterday lasted six minutes, but it seemed an eternity. When he fell silent, Brett Raguse (Lab, Forde), managed to struggle to his feet. "My question is to the Prime Minister. Will the Prime Minister update the house on recent updates to the global economic outlook and … ?"

What? Was the man mad?

"Flee!" your correspondent wanted to gasp, but was overcome. Mr Rudd resumed his position at the dispatch box.

THIRTEEN more minutes followed, interrupted by feeble cries to the Speaker from a stricken Opposition at minutes six, eight, nine and 11½.

"This is verbal anaesthetic!" protested the Liberal frontbencher Tony Smith.

Later, someone asked about bananas.

I wish I could tell you what the answer was.


Coffee and Vitamin C

Can develop film.


I can't resist posting this, partly because the idea is so appealingly retro (to someone such as myself who collects antique radios).

The method is detailed here.

HT: LifeHacker

Axe it.

The $7000 to $14,000 bonus part of the grant is due to end in the middle of this year anyway.

Both Steve Keen and Christopher Joye agree that it should go.

That has to mean something.

The bonus adds an extra $1.5 billion per year to the cost of the existing grant.

Joye's rather nifty solution - convert the bonus and then the grant itself into loans that never have to be repaid... until the house is sold.

That way over time the annual cost to the budget will become zero.

(IRONY ALERT!) I suppose its okay for the taxes of renters to assist better-off folks to buy homes, but surely they should share in the payoff when the better-off folks move in to even better homes.

Guaranteed higher pensions, but nothing else

Pensions are set to jump by as much as $35 per week after Treasurer Wayne Swan broke with tradition Monday and confirmed there would be an increase in the May Budget.

Until now the government's position has been to offer no guarantees.

"I am not in the business of handing out guarantees about anything," the Finance Minister Lindsay Tanner said recently, "there are a lot of other things that are also on the table."

But the Treasurer told ABC radio that pensioners were the only group guaranteed to get assistance in the Budget, saying he could make no other commitments.

"We have made a commitment when it comes to pensions, but as I have said there will be hard choices to be made. I'm not going to get into the business of ruling anything in, or ruling anything out," he said.

Mr Swan has had the report of the Harmer Pensions Review since the start of the month...

It is understood not recommend any particular increase but to canvass options.

He will shortly receive the retirement incomes part of the Henry Tax Review to allow him to consider pensions and the tax treatment of superannuation together in the Budget context.

The Prime Minister fed speculation that the increase would amount to $35 per week for a single pensioner and $51 per week for a couple when he used those terms to describe the $1,400 and $2,100 "down payments" delivered as part of the economic stimulus package in December.

The Combined Pensioners and Superannuants Association welcomed the commitment to action in the Budget but said the increases would have little effect if they were delivered across the board.

"Pensioners in public housing would lose 25 per cent in rent adjustments," said CPSA policy coordinator Charmaine Crowe.

"And part-pensioners with independent income getting perhaps just $2 a week would get the lot."

The Association asked the Harmer Review to pay the increase as a means-tested supplement which would not be taken into account in adjusting rents.

Because of a confidentiality agreement it signed with the Harmer Review in order to conduct discussions it is unable to disclose the Review's response.

But Ms Crowe says much more is needed for single people who's only income is the pension - around $70 per week according to modeling conduced by Westpac and the Association of Superannuation Funds.

Mr Swan said he faced "really hard choices" in framing the budget.

His challenge was to "continue to stimulate the economy and continue to invest in the future while working under the constraints imposed by collapsing revenue and the global recession".

While economic management was seldom easy, the last decade had been "an exception".

Much as he would have preferred to have spent his time simply ticking off items on his 'to do' list, he had to make the most of the cards he had been dealt.

He agreed with the Prime Minister that it would be "virtually impossible" for Australia to avoid a recession.

He was not able to say that things "would not get tougher".

Opposition arguments about deficits and government debt were "lazy and predictable" in the sharpest synchronised downturn in living memory.


Friday, March 20, 2009

Where the rich people live

The Tax Stats are a treasure trove - dive in

There aren't many taxpayers in Portsea, Victoria. Just 270 of them according to the Australian Tax Office, but they make an important contribution.

According to its latest assembly of tax statistics they reported the highest taxable incomes in Australia in 2006-07, an average of $219,345 each - up 39 per cent on the year before.

By contrast taxpayers in Toorak reported reported earning a lessor $158,927 on average, up a lower 15 per cent on the year before.

The residents of Portsea also do well out of shares, clocking up an impressive $35,000 each on average in imputation credits.

By contrast at the bottom end of the scale in postcode 3387 which takes in Kanya, Marnoo and Wallaloo in Western Victoria...

...the average income is just $28,806 - 11 per cent lower than a year before. Their average imputation credits amounts to a mere $475 each.

While the average resident of Portsea pays $84,600 in tax and the average resident of Wallaloo $4015, most of us are in the middle. The average tax paid in Victoria is $13,440 per person and the average taxable income $49,800.

NSW residents do better with average taxable incomes of $53,000, and residents of Western Australia and the ACT do best of all earning a taxable $55,700 and $57,500 in 2006-07.

But its noteworthy that while average incomes in Canberra are high, none its suburbs comes within cooee what's earnt in Sydney's Darling Point, Bellevue Hill, Mosman or Rose Bay, Melbourne's Toorak or Perth's Peppermint Grove.

Australia's top 10 earning suburbs are broadly the same as they have been for years with Portsea and Toorak Victoria's only two inclusions.

Victoria's Byrneside,Kamarooka,and Marnoo edged their way down into the bottom 10, elbowing out Nyah West, Banyan and Watchupga.

Click to enlarge:


Now THAT'S a downgrade

Even worse than leaked

Describing the world economy as "battered" in the face of "unrelenting turmoil, negative data and sinking confidence" the International Monetary Fund has dramatically cut its global growth forecasts for the year ahead turning almost all of the negative and warning of worse to come without aggressive co-ordinated action boost confidence and spending.

Prepared ahead of a London summit to be attended by 20 world leaders including Kevin Rudd the new forecast came as the United States began effectively printing money, buying mortgage backed securities and government bonds with money it did not have.

Explaining the process on US television ahead of the move the head of Federal Reserve Ben Bernanke said, "the banks have accounts with the Fed, much the same way that you have an account in a commercial bank. We simply use the computer to mark up the size of the account that they have with the Fed."

"It is much more akin to printing money than it is to borrowing."

The announcement that the Fed would buy up to $750 billion of extra mortgage-backed securities and up to $300 billion of government bonds over six months swung Wall Street from sharply negative into positive territory.

The International Monetary Fund slashed its forecast for global growth in 2009 from an anemic 0.5 per cent to negative 1.0 to 0.5 per cent...

As recently as last July it was forecasting positive world growth of 3.9 per cent.

"A shift in the forecast of this magnitude within such a short period of time is, to my knowledge, unprecedented, Reserve Bank Assistant Governor Malcolm Edey told a conference in Sydney.

The new forecasts have the group of advanced economies which includes Australia contracting by an average of 3.5 to 3.0 per cent, "the sharpest contraction for these countries as a group in the post-war period by a significant margin," according to the IMF.

The forecasts incorporate some easing off in the rate at which production is shutting down. The Fund says that in recent months the global GDP has been shrinking at an annualised rate of 5 per cent, led by advanced economies shrinking at an annualised 7 per cent with the US and Japan shrinking at an annualised 6 per cent and 12 per cent.

The IMF forecasts a "gradual recovery" with economic activity rebounding 1.5 to 2.5 per cent during 2010 although it warns this "depends critically on more concerted policy actions to stabilise financial conditions and support demand."

Warning of a "corrosive interplay between financial crisis and real activity," the Fund said "further delays in implementing comprehensive policies to stabilise conditions" would make the recession "deeper and more prolonged".

Speaking with advance knowledge of the IMF forecasts released in Washington overnight Australia's Treasurer Wayne Swan said the world was "experiencing the sharpest downturn in living memory". Australia was in a "deep national economic crisis".

Australian imports of consumption goods fell 13 per cent in Feburary led down by a slide in imports of cars. Car sales fell by 3.5 per cent in the month are are down 18 per cent on a year earlier.

Credit card balances fell in February debt with growth over the last year fsliding to the lowest rate since records have been kept.

Dwelling commencements fell 9.9 per cent in the December quarter to a 8 year low. House commencements fell by 5 per cent while apartments slid 20 per cent.

Detailed Labour market figures showed the biggest job looses in the three months to Feburary occurred in the mining, construction, property and professional services industries. Jobs growth continued in health,administrative support, public administration, utilities and in retail, which has benefiting from the government's multi-billion stimulus programs.

Thursday, March 19, 2009

The truth about cats and dogs... and the bonus

CRIMINALS serving time in jail will receive next month's $900 tax bonus because it's too hard to stop them, according Prime Minister Kevin Rudd.

Accusing the Opposition of feigning outrage over the prospect of bonus payments going to prisoners and to cats and dogs who were named as beneficiaries of tax-paying estates, he said he was doing exactly what the Coalition did when it was in government.

"I am advised that the series of personal income tax bonuses paid by the Howard government in 2004-05, 2005-06 and 2006-07 flowed through to the vast majority of incarcerated individuals who paid tax."

The only exception was the Senior Australians Tax Offset.

The Tax Office had told him it was unable to exclude taxpayers who happened to be prisoners because it didn't know who was a prisoner and who was not...

The revelation that the tax bonus will go to tax-paying prisoners follows confirmation last week that the Centrelink-administered bonus payments are going to former Australian residents who have moved to other countries, something the government said it was required to do by reciprocal pension treaties.

"They are making up it as they go along and they are even trying to make a new rule for the Monopoly game," said Opposition leader Malcolm Turnbull. "Instead of going directly to jail, do not collect $200, Kevin Rudd says go directly to jail, collect $900. It's not so much as stimulus as a crimulus."

Coalition Treasury spokesman Joe Hockey said each year hundreds of people left their estates to pets. Executors were required to lodge tax returns for the estates, some of which would now get the bonus.

"Cats and dogs are richer for it," he told ABC Television.

"It’s actually not funny because the people who are missing out are low-income people. There will be Australians who have lodged a tax return in the 2007-08 financial year who will not be paying any net tax because their income was so low and they will not be receiving any payment from the Government and yet people in jail, people overseas are going to be receiving this payment and it was all done in the name of stimulating the Australian economy. It’s pretty damn hard to spend money if you’re locked up in jail for 30 years."

The first lot of Centrelink-administered bonus payments went into bank accounts last week. The second lot will go into accounts next week. The tax bonuses go out from April 6.

Who gets the tax bonus?

. Australian residents who have filed a 2007-08 tax return

. Prisoners and beneficiaries of estates included

Who misses out?

. Taxpayers earning more than $100,000

. Low income Australians who pay no tax

Who gets the CentreLink payments?

Eligible people on Centrelink's books whether living in Australia or overseas.


The IMF sees a sea of red

An unscheduled early release has revealed a sea of red in worldwide growth forecasts to be released by the International Monetary Fund next month.

The update, outlined to reporters in Portugal by Teresa Ter-Minassian, an adviser to the IMF Managing Director comes as Westpac has declared a recession in Australia all but inevitable.

The new IMF forecast has activity shrinking in every region of the world but Asia this year.

Whereas the Fund's last official forecast in January had the globe growing by 0.5 per cent the April update will have it contracting 0.6 per cent.

The worst affected nation will be Australia's biggest customer Japan, whose economy is expected to shrink 5 per cent...

The United Kingdom is expected to shrink 3.8 per cent, the United States 2.6 per cent and mainland Europe 3.2 per cent.

Until now, all the IMF has said is that it expects global economic growth to be "below zero" and Managing Director Dominique Strauss-Kahn has called the slowdown the "Great Recession".

"The scenario will be worse, but the managing director has already said this," said Ms Ter-Minassian to reporters at a conference in Lisbon.

"This is a true global crisis, impacting all parts of the world and countries at different levels of development."

The Westpac-Melbourne Institute Leading Index slipped to minus 3.1 per cent in January, a long way below its long term trend of plus 3.2.

"The Leading Index is now in deeply negative territory consistent with contracting economic activity. There are only four occasions in the 49 year history of the Index in which its growth rate has fallen lower," said Westpac economist Matthew Hassan. "Each of these was followed by a recession."

Mr Hassan said the deterioration had happened faster than in previous recessions.

"The August 1990 low came a full year after the Index’s growth rate
first slipped below zero. The current cycle has already seen the growth rate collapse to a similar level, but in less than six months.”

The leading index is made up of data found to point to the condition of the Australian economy 6 to 9 months ahead of time. These include company profits, factory overtime and building approvals.

Mr Hassan said retail sales were holding up better than expected, most probably as a result of the government's bonus payments, creating some grounds for optimism.

“Indeed, more generally the policy response to date suggests the economy is not heading for a repeat of the early 1990s experience."

"Both monetary and fiscal policy has been eased aggressively and early," he said.

"At the same time, Australia is not having to deal with the same sort of problems that badly undermined the banking system in the early 1990s – the sharply unwinding boom in commercial property in particular. ”

Wednesday, March 18, 2009

Wam! Kapow! Action on golden handshakes

"Today Treasurer, Wayne Swan, and Minister for Superannuation and Corporate Law, Senator Nick Sherry, announced reforms aimed at curbing excessive “golden handshakes” - or termination payments - paid to company executives.

Under laws left by the previous government, termination payments can reach up to seven times a director’s total annual remuneration package before shareholder approval is required.

The community has been rightly offended by the excessive golden handshakes in firms where directors and executives are rewarded for poor company performance.

The Government’s reforms will empower shareholders to more easily reject such payments where they are not in the interests of the company, the shareholders or the community...

The Rudd Government will amend the Corporations Act to significantly lower the threshold at which termination payments must be approved by shareholders from the current level down to one year’s average base salary.

Currently a director with seven years’ service and an annual average remuneration package over the last three years of $2 million a year would be entitled to receive a termination payment of up to $14 million without seeking shareholder approval. However under the Government’s reform, approval will now be required for any termination payment exceeding one year’s base salary.

The Government will also legislate to extend the range of executives whose termination payments can be subject to shareholder approval.

Currently only directors’ termination payments must be approved, however the Government will legislate to expand the coverage of shareholder approval to cover all those executives named in the company’s remuneration report.

Finally the Government will also broaden the definition of “termination benefit” to catch all types of payment and rewards given at termination.

The Rudd Government recognises that changes to the law cannot apply retrospectively. Today’s announcement will not prevent existing contracts on termination payments from proceeding.

The Government has also today referred the broader issue of executive remuneration to the Productivity Commission, which will provide a final report within nine months.


The Rudd Government has today tasked the Productivity Commission (PC) with examining Australia’s framework in relation to the remuneration of directors and executives.

Professor Allan Fels AO has been appointed as an Associate Commissioner to the PC to be a key member of the examination. The Productivity Commission Chairman Gary Banks will preside over the examination along with Commissioner Robert Fitzgerald.

Unrestrained greed in the financial sector has led to the biggest global recession since World War II. It has now spread across the world and instigated significant slowdowns in the US, Europe, China and caused more than 50 banks to collapse and millions of jobs to be lost.

There is significant community concern about excessive pay practices, particularly at a time when many Australian families are being hit by the global recession.

The Rudd Government is determined to ensure regulation of executive pay keeps pace with community expectations, particularly as job losses increase as a result of the global recession.

This will be a broad-ranging examination that will consider the existing regulatory arrangements that apply to director and executive remuneration for companies that are disclosing entities under the Corporations Act 2001, including shareholder voting, disclosure and reporting practices.

The inquiry will also examine international trends and responses to the problems of excessive risk taking and corporate greed.

Professor Fels brings a wealth of experience to the role; he has worked in the area of competition and consumer regulation for 16 years, including serving as Chairman of the ACCC from 1995-2003, and he is currently the Dean of the Australia New Zealand School of Government.

The Rudd Government has made it clear that it will examine all workable options with regards to executive remuneration.

The Government has today also announced reforms to the regulation of termination payments – or “golden handshakes”.

The Productivity Commission is required to provide a final report within nine months of the date of the receipt of this reference. This review will complement the work already being undertaken by the Australian Prudential Regulation Authority in relation to executive pay in financial institutions.

As part of the review process, the Commission will provide an opportunity for public participation. All interested parties are invited to make a submission.

To register an interest in the inquiry or to find out more, details are available from the Commission at www.pc.gov.au or phone 02 6240 3239.

The terms of reference for the review are attached.


Review into the Regulation of Director and Executive Remuneration in Australia

The Productivity Commission (the Commission) is asked to undertake an inquiry into the current Australian regulatory framework around remuneration of directors and executives, as it applies to companies which are disclosing entities regulated under the Corporations Act 2001 and report within nine months of the date of receipt of this reference.

This review is intended to complement the work already underway in relation to executive remuneration practices by regulated financial institutions. Last year, the Prime Minister announced that the Australian Prudential Regulation Authority would develop a template that links capital adequacy requirements to executive remuneration practices in order to limit excessive risk taking in financial institutions.


The remuneration of company directors and executives is an issue which has attracted considerable interest from shareholders, business groups and the wider community. Concerns have been raised over excessive remuneration practices, particularly as we face almost unprecedented turmoil in global financial and equity markets.

The current global financial crisis has highlighted the importance of ensuring that remuneration packages are appropriately structured and do not reward excessive risk taking or promote corporate greed. The crisis has also highlighted the need to maintain a robust regulatory framework that promotes transparency and accountability on remuneration practices, and better aligns the interests of shareholders and the community with the performance and reward structures of Australia’s corporate directors and executives.

It is also important to recognise that internationally competitive reward structures for company directors and executives continue to provide incentives for directors and executives to assume leadership responsibilities within corporations.

Internationally, remuneration practices have been raised by various forums as a contributing factor to the global financial crisis. The Group of Twenty (G-20) and the Financial Stability Forum (FSF) are both examining remuneration issues to ensure effective governance and oversight of executive remuneration is part of their responses to the crisis. In addition, the United Kingdom and the United States have imposed conditions on remuneration for entities that have received the benefit of recent corporate bailouts and government assistance packages.

Scope of the Review

In undertaking the review the Commission should:

1. Consider trends in director and executive remuneration in Australia and internationally, including among other things, the growth in levels of remuneration, the types of remuneration being paid, including salary, short-term, long term and equity-based payments and termination benefits and the relationship between remuneration packages and corporate performance.

2. Consider the effectiveness of the existing framework for the oversight, accountability and transparency of director and executive remuneration practices in Australia including:

• the role, structure and content of remuneration disclosure and reporting;

• the scope of who should be the subject of remuneration disclosure, reporting and approval;

• the role of boards and board committees in developing and approving remuneration packages;

• the role of executives in considering and approving remuneration packages;

• the role of other stakeholders, including shareholders, in the remuneration process;

• the role of, and regulatory regime governing, termination benefits;

• the role of, and regulatory regime governing, remuneration consultants, including any possible conflicts of interest;

• the issue of non-recourse loans used as part of executive remuneration; and

• the role of non-regulatory industry guidelines and codes of practice.

3. Consider, in light of the presence of large local institutional shareholders in Australia, such as superannuation funds, and the prevalence of retail shareholders, the role of such investors in the development, setting, reporting and consideration of remuneration practices.

4. Consider any mechanisms that would better align the interests of boards and executives with those of shareholders and the wider community, including but not limited to:

• the role of equity-based payments and incentive schemes;

• the source and approval processes for equity-based payments;

• the role played by the tax treatment of equity-based remuneration;

• the role of accelerated equity vesting arrangements; and

• the use of hedging over incentive remuneration.

5. Consider the effectiveness of the international responses to remuneration issues arising from the global financial crisis, and their potential applicability to Australian circumstances.

6. Liaise with the Australia’s Future Tax System Review and the Australian Prudential Regulatory Authority in relation to, respectively, any taxation and financial sector remuneration issues arising out of this Review.

7. Make recommendations as to how the existing framework governing remuneration practices in Australia could be improved.

The Commission is to undertake an appropriate public consultation process including the invitation of public submissions."


Tuesday, March 17, 2009

Stand by for big red splotches of unemployment

Check out your own suburb here

THE MAP of Melbourne is set to be rewritten with vast swathes of unemployment and hopelessness appearing in suburbs that were previously aspirational.

A new index of employment vulnerability to be released today by the Centre of Full Employment and Equity at Newcastle University finds that newer mortgage belt suburbs including Narre Warren, Pakenham and Lilydale are set to join older "battler" suburbs in a new pattern of disadvantage that will spread further than in previous recessions.

"You used to have the old industrial belt around 15 to 20 kilometres out from the centre, all the way around in a sort of circular pattern - Dandenong and Clayton out to the southeast, Broadmeadows out to the north and then Sunshine out to the west. They are still disadvantaged," says Bill Mitchell, co-creator of the index and director of the Centre.

"But what we are predicitng is new growth outside of that ring, say Narre Warren and Pakenham and those sort of areas in the south east and places like Lilydale up the Yarra Valley and also places out near the airport, around the northern ring road. They are new, typically highly-indebted areas - ones that that are vulnerable to major job losses"...

Professor Mitchell's team has mapped the kind of industries in each suburb with other known characteristics about its residents such as education levels and extent of casual employment.

It has identified 100 "red-alert high-risk" suburbs in Victorian cities where job losses are set to be the most severe. Victoria has a higher proportion of such suburbs than any state other than Queensland and South Australia.

"These new red-alert regions have high debts, high casualisation and industries such as construction and light manufacturing at risk of going under."

"Their families have needed two earners to service their debt. In order to stay solvent the wife has had to work in low-skilled, low-paid but plentiful casual jobs.

"As underemployment climbs before unemployment climbs, these families will be threatened immediately, whereas in the 1991 recession there was less debt and causal work.

The Centre has developed an interactive website that will allows people to check their own suburb for employment vunerability and the characteristics that put it at risk.

Melbourne has the highest geographical concentration of potential job losses outside of Adelaide, something Professor Mitchell believes makes it especially vulnerable to sustained unemployment.

"So it you're in a low-risk suburb and you lose your job, you're likely to hear about a new one in the pub or in the golf club or down the surf, and you'll probably meet someone who will make an introduction," Professor Mitchell says.

"But if you are in a red zone surrounded by other people who are unemployed you and get very little quality labour market information coming from anywhere."

"We have studied 15 to 19 year olds who grew up in jobless households during the last recession and found they are now typically unemployed themselves."

Ballarat, Bendigo and Geelong are also vunerable. "The outlook for Geelong's north shore is terrible, as well as Geelong's east," says Mr Mitchell. "Most of Ballarat where the manufacturing is concentrated looks pretty vulnerable, most of Bendigo similarly.

Mildura, Shepparton, Taralga, and Wodonga are at less risk.

The Centre expects expects Australia's uenmployement rate to soar above 10 per cent if the global recession continues for the rest of the year as forecast, with total "underutilisation" climbing to 20 per cent.

Underutilisation also counts people who would like more work than they presently have. The Centre believes 1.2 million Australians are underutilised, around 11 per cent of the workforce.

It has proposed an "Employment Guarantee" under which the government commits to pay the minimum wage to anyone willing to work.

"The government would go on TV tonight and guarantee to job at a minimum wage to anybody who turns up to a Job Guarantee depot. These would be localised in every few suburbs," Professor Mitchell says.

"We would abolish the dole. Anyone who wants pay would have to work for it." The Centre has costed the project at $8 billion to $10 billion, modest by the standards of today's stimulus packages.

"We have asked local government how many people they could take on quickly and we have identified the on-costs and spending on the equipment that would be needed. For $10 or so billion we would cut the unemployment rate to 2 per cent."

Professor Mitchell says the Coalition became examined the idea as unemployment climbed during 2001.

"The then Employment Minister Tony Abbot came to Newcastle to talk to me and was sold on the idea for all long-term unemployed. He had it costed but then he left and became Minister for Health. His replacement Kevin Andrews wasn't interested."

The Newcastle Centre has had more success in South Africa, Nepal, and Argentina which have adopted versions of its plan.

Professor Mitchell fears that without such a plan Australia will emerge from the recession with new entrenched centres of disadvantage.

The Employment Vunerability Index can be viewed at http://e1.newcastle.edu.au/coffee/indicators/job_loss_index/index.cfm

Monday, March 16, 2009

Julia Gillard, Question Time, today

"In addition to our stimulus packages, the government has also decided to reduce the number of skilled migrants places available in the 2008-09 intake."

Does this strike anyone else as incongrous?


A Secretary's lament - what's it like for ordinary Australians?

"We are genuinely interested in these views - not only the views of those who are highly sophisticated in tax matters, we can get their views any time."

TREASURY head Ken Henry believes many Australians find the tax system "too big for them to cope with" and fears he is not getting the full picture in the submissions to his tax review.

Speaking to The Age ahead of a two-week roadshow of "town hall" style public meetings, Dr Ken Henry said most of the hundreds of submissions he had received came from people or groups concerned with policy issues.

"They don't often talk to you about how the system in its entirety affects them, how they feel about it," he says.

"I mean obviously some people do, some people write in in rather colorful language and tell you what they think of the system, but with those people, it would be good to sit down with them and just go through what it is, what features are there in the existing system that's really bugging them?"

Does he want to find out how the tax system people psychologically?

"Absolutely. I think people understand that the country needs tax revenue in order to fund government services. But it is clear that the present system in its complexity - not just the design elements, but also the way in which it is administered - it is clear that for for some people it is just too big for them to cope with"...

"We are genuinely interested in these views, not only the views of those who are highly sophisticated in tax matters - we can get their views any time."

The first of ten 2-hour public meetings gets underway tonight at the Brisbane Town Hall.

Dr Henry isn't sure how he will draw people out. "I don't know, I just don't know," he concedes.

Part of it will be keeping TV and press cameras out. "We don't want to intimidate people. But I don't have any particular tricks up my sleeve."

Dr Henry plans to speak very briefly at the start and then hand over to a facilitator who will ask people how they think about a range of topics including personal income tax, the workings of family and other benefits, and business taxes - particularly those applying to small business.

"In a group where discussions gets going I am hoping people will feel that they really do have something to contribute. It might just be an anecdote that really illustrates the point that somebody else is making - that can be quite valuable."

The Treasury Secretary became convinced he wouldn't get the full truth from experts when by chance he met "Jim" in a central Queensland pub mid last year while returning from holidays.

"It was quite striking," he recounted to The Age yesterday. "Jim had an insightful perspective for somebody who professed not to understand the system at all. He didn't have a terribly sophisticated understanding of the system as a system designer would think about it, or even an administrator, but he had a very good sense of how the system affected him and people like him. That's the perspective that we just don't get very often."

Dr Henry says the town hall meetings will bring risks. The points made at each one will be summarised and put on the review's website, in order to encourage more submissions. "Some the propositions may be put in a challenging manner, but I don't think that risk is so big that we shouldn't take it."

The roadshow comes to Melbourne and Geelong next Monday and Tuesday. People unable to attend are invited to complete a questionnaire that will be on the review's website from today.


Saturday, March 14, 2009

Julie Bishop lives on

... channeling her "understanding" through this bloke, Michael Keenan MP, the Shadow Minister for Employment and Workplace Relations.

An amiable looking bloke, but listen to what he says.

This was Thursday, after the employment figures came out:

Mr KEENAN (Stirling) (3.55 pm)—Since 1 January
this year, 80,000 Australians have lost their jobs.
That is well over 1,200 jobs lost per day

Anything wrong with that statement?

Hint: You can see what happened to employment on the graph below:

Employment has grown slightly, not fallen, since the beginning of the year.

Perhaps the employment spokesman didn't read the employment figures.

Or perhaps he did.

He is just an election away from becoming Australia's Employment Minister!


There are some things Dr Henry can rule out

Such as "board" to oversee the work of the Tax Office

The head of the Henry Tax Review has killed one of the more extreme proposals to reign in the power of the Tax Office.

The so-called group of 100 large Australian companies headed by OneSteel chief financial officer Tony Reeves last month asked for a board of directors to oversee the work of the Office saying it would bring "all of the things you expect a public company board to bring to the management of a company.

Telling a tax conference in Sydney yesterday he was taking this suggestion as his "theme" Dr Henry said it misunderstood the role of the Office and the role of company boards...

"In large public companies, dispersed ownership means it is impractical for shareholders to be directly involved in management," he said.

"A board of directors is delegated the power to manage the company in shareholders’ interests. A critical feature of this governance arrangement is that the board has the power and responsibility to act, including the ability to appoint and remove the chief executive officer."

But he said in the case of the Tax Office, the ultimate owners were "the Australian community, whose interests are represented through the Parliament."

"This institution might be thought of as the ultimate board of directors," he said.

"Given the importance of the Commissioner’s role in the relationship between the executive and taxpayers, governments would properly be uncomfortable with delegating to anybody else their power to appoint and remove the Commissioner. It is not surprising that the boards that oversee other tax authorities do not have this power to directly appoint or dismiss the chief executive."

Dr Henry begins a 10 city roadshow Monday to hear public views about the tax Sydney. He will be in Melbourne and Geelong Monday and Tuesday week.

Linday Tanner is lying awake at night

worrying about debt

Kerry O'Brien: "Lindsay Tanner, you said today that the Government’s debt position, after all its big stimulus spending, is like a person who earns $100,000 a year taking out a $5,000 loan. If that’s all it is, why are you losing sleep? I would have thought you could probably take out another $5,000."

Bill Mitchell helps him out

There is no analogy between a person who earns x and takes out a smaller loan y. The Federal government does not have to finance its spending and can issue debt up until the markets decline to purchase any more of it.

There is much more.

It's good.