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Sunday, 18 February

16:00

Australian Dollar and Bitcoin "IndyWatch Feed Crypto"

1.00 AUD = 0.00008 BTC
0.00010 BTC = 1.30 AUD
Converter

08:06

Follow the money - it won't make you communist Peter Martin

Anyone would think I'd gone communist. Along with John Howard.

As soon as the Treasury released its tax expenditures statement last week, I and others who reported it were accused of wanting to ape Eastern Europe, of going "Peak Orwellian".

"The author has raised an interesting concept, everything belongs to the government and one has no individual rights or assets," wrote one of my kinder correspondents.

"The left regards tax not gouged as government spending," wrote another. "Since when has retaining your earnings been a government handout?"

The short answer is: since at least 1998. That's when Howard made it mandatory for the Treasury to report tax expenditures as if they were cash expenditures.

On taking over as Coalition prime minister after 13 years of Labor government, he set up a Commission of Audit to tell him what to cut.

It told him that government programs were delivered in two ways: as direct payments which hurt the budget, and as tax breaks which also hurt the budget.

Although often functionally identical (parents don't care whether they get the family tax benefit as a payment or a rebate, patients don't mind how they get the private health insurance rebate, and most wouldn't know whether the baby bonus was a payment or a tax break) the two get treated quite differently.

Payments get put in the budget of individual ministers as a line item to be scrutinised and reviewed in the lead-up to every budget.

Tax breaks go on no one's budget and become part of the furniture. As the Henry tax review reported later, they can be "difficult to contain".

Accounting for them once a year, in the same way as direct payments are accounted for twice a year in each budget and budget update, lets us know what they are and what they are worth.

It doesn't mean (necessarily) that they are at risk, any more than accounting for the annual cost of the pension means it's at risk.

This year the Treasury found 289, from the huge (th...

08:00

Cost of tax breaks soars on profits selling homes Peter Martin

Government spending on tax breaks is set to hit a record $170 billion this year, largely as a result of an explosion in the value of concession for the family home.

Treasury's Tax Expenditures Statement required under the Charter of Budget Honesty and released quietly after the close of business on Thursday puts the value of the exemption from capital gains tax for owner occupiers at $74 billion this financial year, up from $66.5 billion last financial year, which was itself $5 billion more than Treasury had forecast.

Four years ago, before house prices shot up, it was worth $46.5 billion. Treasury says by 2020-21 it will be worth $91 billion.

The exemption releases owner occupiers from the obligation to pay capital gains tax on profits made from the sale of their primary residence. Those profits have soared in recent years as prices have climbed, especially in Sydney and Melbourne. Investors pay capital gain at half the income tax rate, a concession the Treasury costs at $10 billion, up from $4.4 billion four years ago.

The cost of tax expenditures is tabulated so that the government can compare the budgetary impact of direct spending in the form of grants with indirect spending in the form of tax breaks.

The government costs assistance to the aged at $64.3 billion and assistance to the unemployed and the sick at $10 billion.

The concession tax treatment of superannuation contributions is costed at $16.9 billion. The concessional treatment of super fund earnings is costed at $19.25 billion. The two figures can't be added together to get a total for super tax concessions, because if contributions were fully taxed the funds would earn less.

The exemption of so-called fresh foods from goods and services tax costs $7 billion per year. Among the items exempt because they are used to prepare food at home is sugar, although commercially prepared products containing sugar such as soft drinks are subject to the GST.

The GST exemption for education services including private school fees will cost $4.55 billion in 2017-18 and $5.65 billion in 2020-21. The exemption for medical services costs $4.1 billion.

The cost of the farm management deposit system, which gives tax advantages to qualifying farmers, is is expected to double from $245 million in 2016-17 to $560 million in 2017-18.

The figures come as the government attempts to find savings to fund personal income tax cuts in the May budget and reduce the deficit of $21.4 billion.

 

Tax Break Top 10

The 10 biggest tax expenditures identified by the Treasury

Revenue forgone per year

Capital gains tax exemption for family home: $77 billion

Tax relief for superannuation earnings: $19.25 billion

Tax relief for superannuation contributions: $16.9 billion

General c...

07:56

A tick from the IMF but company tax cuts no sure thing Peter Martin

When the International Monetary Fund boosted its forecasts of world economic growth on the back of better prospects in the US this week, Australia's Treasurer Scott Morrison was quick to claim it as an endorsement of company tax cuts.

"These new global growth forecasts demonstrate yet again that the move that's been taken in the United States, but also in other countries, the United Kingdom and France and other parts of the world, to drive their economies and to see their businesses grow, is going to generate growth and jobs," he said.

"Labor is stopping us."

The Fund lifted its forecasts of global growth for this year and the next from 3.7 to 3.9 per cent. It said half of the jump was due to the Trump tax cuts. Its US 2018 US growth forecast climbed from 2.3 to 2.7 per cent and its 2019 forecast from 1.9 to 2.5 per cent.

But much of that boost wasn't due to the most impressive and expensive ($US1.3 trillion) part of the cut; the slicing of the rate from 35 to 21 per cent. It was due to another, cheaper measure: a temporary instant asset write-off. Firms that install new buildings and equipment will be able to deduct the full cost straight away without depreciating it over years. It is similar to, but larger than, capped schemes introduced in Australia by both Labor and the Coalition to boost investment after the global financial crisis and the demise of the mining boom.

Like those schemes, it will be temporary, lasting for five years. Like those schemes, much of it will bring forward investment that most likely would have happened anyway, but later, meaning that when it ends US growth will slump, which is what the IMF expects and one of the reasons it is forecasting weaker US growth down the track.

Australia isn't proposing such a scheme. What the Turnbull government is proposing is a cut in the headline company tax rate from 30 per cent to 25 per cent for all companies, not just those with turnovers of up to $50 million, whose cuts to 25 per cent have already been approved by the Senate.

Will the US cut to 21 per cent, and other cuts including Brtiain's cut to 18 per cent, leave Australia uncompetitive?

It depends on how you calculate competitiveness.

These days John Fraser heads the Commonwealth Treasury. Until 2013 he was head of UBS Global Asset Management and responsible for its worldwide investments. He told a budget forum in Australia in 2015 that while he understood the argument for cutting company tax, his own experience told him that the tax was a "second or third order issue" for would-be investors.

"Generally the internal rates of return that are required the hurdle rates are so high it would be false to say the taxation rate, unless they were ridiculous, really large, make a big difference," he said. "It's, frankly, not as important as other issues such as governance and dispute resol...

06:35

ICO Craze Lures Australian Investors "IndyWatch Feed Crypto"

ICO Craze Lures Australian Investors

The hype surrounding the profit-potential associated with initial coin offerings (ICOs) is continuing to attract participation from Australian investors. Despite the potential to incur fast losses just as easily as fast profits, many Australians appear to be dabbling with casual cryptocurrency investment.

Also Read: US Regulator Warns Against Pump-and-Dumps and Advises How to Buy Crypto

Australian Investors Seek ICO Exposure

ICO Craze Lures Australian InvestorsInitial Coin Offerings are attracting investment from ordinary Australians, with a recent report by the Australian Broadcasting Corporation describing the experiences of many investors actively trading the ICO markets.

Warren Stokes, a 58-year-old casual crypto investor, recounts being in...

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Saturday, 17 February

17:00

The Weekend Quiz February 17-18, 2018 answers and discussion Bill Mitchell billy blog

Here are the answers with discussion for this Weekends Quiz. The information provided should help you work out why you missed a question or three! If you havent already done the Quiz from yesterday then have a go at it before you read the answers. I hope this helps you develop an understanding of modern monetary theory (MMT) and its application to macroeconomic thinking. Comments as usual welcome, especially if I have made an error.

Question 1:

If the growth in wages (the money you get paid) keeps pace with inflation which is accelerating at the same rate as labour productivity is growing then the wage share in GDP remains constant.

The answer is True.

The wage share in nominal GDP is expressed as the total wage bill as a percentage of nominal GDP. Economists differentiate between nominal GDP ($GDP), which is total output produced at market prices and real GDP (GDP), which is the actual physical equivalent of the nominal GDP. We will come back to that distinction soon.

To compute the wage share we need to consider total labour costs in production and the flow of production ($GDP) each period.

Employment (L) is a stock and is measured in persons (averaged over some period like a month or a quarter or a year.

The wage bill is a flow and is the product of total employment (L) and the average wage (w) prevailing at any point in time. Stocks (L) become flows if it is multiplied by a flow variable (W). So the wage bill is the total labour costs in production per period.

So the wage bill = W.L

The wage share is just the total labour costs expressed as a proportion of $GDP (W.L)/$GDP in nominal terms, usually expressed as a percentage. We can actually break this down further.

Labour productivity (LP) is the units of real GDP per person employed per period. Using the symbols already defined this can be written as:

LP = GDP/L

so it tells us what real output (GDP) each labour unit that is added to production produces on average.

We can also define another term that is regularly used in the media the real wage which is the purchasing power equivalent on the nominal wage that workers get paid each period. To compute the real wage we need to consider two variables: (a) the nominal wage (W) and the aggregate price level (P).

We might consider the aggregate price level to be measured by the consumer price index (CPI) although there are huge debates about that. But in a sense, this macroeconomic price level doesnt exist but represents some abstract measure of the general movement in all prices in the economy.

Macroeconomics is hard to learn because it involves these abstract variables that are never observed like the price level, like the interest rate etc. They are just stylisations of the general tendency of all the differen...

13:10

Legend Says This Is Going To Send The Price Of Gold Surging Above $2,000 "IndyWatch Feed Economics"

Legend Says This Is Going To Send The Price Of Gold Surging Above $2,000 from King World News With stock markets trading higher and the US dollar attempting to stabilize, today a legend in the business sent King World News a powerful...

The post Legend Says This Is Going To Send The Price Of Gold Surging Above $2,000 appeared first on The Daily Coin.

12:22

New blog We are all dead.

This blog is defunct.

Im now blogging on policy, politics, and data viz at mattcowgill.com and on Australian football at thearcfooty.com.

Thanks for reading.

06:44

Better to kick banks while they are up Crispin Hull

NOW that the banking Royal Commission is under way, it is a good time to reflect on the Australian financial system over the past decade and be grateful that we are kicking the banks while they are up, not down. Far better to have obscenely profitable banks than grotesquely bankrupt ones.

The popular mythology is that Australia was saved from the Great Recession of 2008 by Prime Minister Kevin Rudd and Treasurer Wayne Swan following Treasury advice to increase public spending and to get cash into peoples hands.

But that is only part of the story. Remember, the US Government did a similar thing, pushing $700 billion into the economy, but it did not save the US from recession. Similarly with Britain.

Rudd did the correct thing. It was a necessary thing to save us from recession, but of itself not sufficient. He was able to hand out the cash easily because the Howard Government had not totally squandered the proceeds of the mining boom on tax breaks for the well-off.

But more importantly, the real genesis of Australia dodging the recession was Paul Keating as Treasurer and Prime Minister bucking the US trend of permitting laissez-faire capitalism to capture the banking and financial system.

He made it clear he would not accept takeovers or mergers among the big four banks the four pillars. He also insisted on liquidity measures to help ensure the banks would stay afloat in the case of high defaults or a run.

Importantly, the banks went along with it. And the regulators, the Reserve Bank and the Australian Prudential Regulatory Authority, while not perfect, at least kept their eyes on the ball and the banks under scrutiny to ensure they had sufficient liquidity.

In the US, on the other hand, Republicans and Democrats laid the groundwork for a financially deadly cocktail the removal of regulation, as sought by Republicans, and the easing of credit vetting of the poor so they could get into the housing market, as sought by the Democrats.

This in turn led to the creation of a lot of sub-prime mortgages, no-doc loans and NINJA (No Income No Job) loans. The marketers got paid commissions on these so sold as many as possible and in 2005 started writing mortgages with enticing very low interest rates for the first two years before the real rate cut in.

These were on-sold to the banks and financial houses.

Then the newly freed banks entered the bond and derivative markets. They created new bonds by collecting bunches of sub-prime mortgages. The ratings agencies, Moodies and Standard &...

Friday, 16 February

22:58

From Gibraltar to Australia: How Countries Approach ICOs "IndyWatch Feed Crypto"

With the boom in ICOs over the last year or so, there has been an increased need for regulation, however, with no global standard, different countries are taking different approaches. #INFOGRAPHICS

IndyWatch Australian Economic News Feed Archiver

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