Category: Finance

Federalism, Australian style: federal-state financial socialism

There has been a lot of public debate this year in Australia about the federal system of government, in general, and, in particular, the system of payments between the national level of government and the sub-national level. Australia has a federal system of government similar to countries like the USA and Canada. Like the U.S., there is a national government and sub-national governments called the states and territories. Like Canada, these sub-national governments are a relatively small in number and population compared to the U.S. and include territories. Australia has six states and two territories compared to Canada’s ten provinces and three territories remembering of course that the U.S. has fifty states plus sixteen territories. The Australian national government is called the “Commonwealth”.

Three Aussie states are strongly complaining that it is largely unfair and unreasonable that they respectively and collectively do not get nearly enough revenue back from the … Read the rest

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Quantitative easing, Aussie style

Most everybody in Australia who has watched, listened or read the news over the past decade has heard of Quantitative Easing, also known as QE for short. And perhaps some of these same people might recall that QE is associated with the American central bank of The Federal Reserve, or The Fed for short.

But did you know that Australia’s central bank of the Reserve Bank, or RBA, has also been doing QE?

QE is an approach to monetary policy that involves trying to stimulate economic growth when interest rates are already quite low. It does this through increasing the money supply with financial institutions by purchasing government bonds and other securities from them.

This is supposedly new and unconventional. Perhaps it is, perhaps it isn’t. That is largely unimportant, in an economic sense.

What is important is that QE is about flooding the economy with more money. Money largely … Read the rest

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Central bank monetary meddling spells Groundhog Day for the global economy

The stock market dip in October saw an onset of hysteria regarding the state of the global economy, with many analysts asserting that another sweeping worldwide downturn is imminent. Trade tensions, a poorly timed US fiscal stimulus, slowing Chinese growth, and a messy and uncertain Eurozone have signalled to many that the perfect storm is brewing which may spur another global recession.  

But as most of our economists, policymakers and journalists mull over economic indicators and look towards the horizon for an impending crisis, others argue the symptoms of another global economic catastrophe have been unequivocally fixed in the rear mirror since 2008.

September marked a decade since the bursting of the housing bubble in the US which triggered the collapse of the stock market and economic meltdown felt around the globe. Governments and central banks subsequently took actions to stimulate demand by pumping money into their respective economies and Read the rest

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The dangers of a two-tiered tax system

Labor has thrown its support behind the Morrison government’s tax cuts for small businesses, and while such reforms should be embraced, creating a two-tiered tax system will have negative consequences for the Australian economy.

Under the proposed legislation, businesses with revenue of less than $50 million will be subject to a 25 percent business tax rate while those earning over the threshold will be taxed at 30 percent. Business tax cuts have become highly politicised in Australia, and the parliament’s unwillingness to budge on the issue puts us at odds with other developed countries who have implemented cuts over recent years.

Lowering the business tax rate would be a great policy, but creating a tiered system is not. There are two ways in which high business taxes will harm the economy. They reduce the savings rate by increasing prices, and they hamper economic growth, job creation, and wages by stifling Read the rest

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What’s wrong with super?

In 1992 in an effort to pre-emptively deal with the challenges of an aging population, superannuation was made compulsory in Australia. While our super system may seem like a good idea, it doesn’t function as it should. Nor will it be able to, unless there are some major policy changes.

Recently, former Prime Minister Paul Keating, the man responsible for compulsory super, called for a “national insurance” scheme to support the elderly in retirement. He claimed that only the government had the ability to insure “across the generations”, and that super wouldn’t be enough to support retirees as they now live far longer than they did, on average, in the early 90s.

Keating is wrong for a number of reasons. Firstly, given the attention span of governments, which peculiarly correlates with the electoral cycle, they should not be trusted to develop sustainable long-term policies. This is evidenced by the fact Read the rest

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How you can enter money heaven (and spend money you haven’t got yet)

Money heaven. The state where you can spend money infinitely and indefinitely, where you can forget about “spending less than you earn.”

Until recently, this state of bliss was only possible for governments: if you’re sitting in the Prime Minister’s Lodge, the White House, 10 Downing Street—or even the Kremlin—the idea of spending less than you earn is—how shall put it?—just for the plebs.

Doubt me?

Consider the United States government: from 1901 to 2017 its budget has balanced or been in surplus in just 27 of those 117 years. 22.5% of the time. For a total surplus of $120,372,000,000. Or $4½ billion per surplus year.

But this seriously overstates the achievement of the budget-balancers.

The 90 years of deficits adds up to a whopping negative number of $16,251.4 trillion.

$16¼ trillion!

On average, every year since 1901 the US government has spent $180.8 billion a year more than it … Read the rest

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Dividend Imputation Credits – or how to send non-accountants to sleep

Accountants, and particularly tax accountants, have a wonderful way of making themselves indispensable. They use explanatory terms that induce creeping somnolence and decreasing sentience amongst the general population. In other words, they use sentences that put you to sleep. Once you are asleep, they can issue their bills and there is not much you can disagree with them on as you slept through the entire process. Sign here, please.

Dividend imputation is one of those terms that just seems to cause abject boredom to everyone else but gets many accountants excited.

First, an explainer. In most of the world companies pay tax and then, when they pay dividends, those dividends are also taxed as income to the shareholders. This, as you may have noticed, is effectively taxing the same income twice. The result is that many companies don’t pay much in dividends or they seek out tax havens to reduce … Read the rest

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Time’s up piggy! LibertyWorks’ appearance before Senate Enquiry into rural banking

LibertyWorks gave evidence to the Senate Select Committee on Lending to Primary Production Customers in Canberra on Monday 18 Sept 2017. Like many Australians, we have long been concerned that the banking system is a government protected oligopoly where competition is limited and heavily regulated. This has resulted in poor outcomes for bank customers and crony-capitalist “super profits” for the banks; profits our federal government now dips into specifically to fund an expansionary government agenda. 

At the hearing, LibertyWorks economist Darren Nelson made the following recommendations:

  1. By October 2018, complete a Royal Commission into the regulatory drivers of central banking, fractional reserve banking and banking cartelisation… with the aid of an Australian National Audit Office (ANAO) ‘blue team’ and an Austrian School free market ‘red team’; and
  2. by October 2019, legislate for a comprehensive reform agenda focusing on removal of regulatory barriers to sound money, free banking and banking competition
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Blockchains, debt and globalisation: the limits to central banking in the 21st century

The global monetary system is currently subject to three major trends: high public and private debts, increasing globalisation and the emergence of blockchain technology. Models of economies as complex systems formed by individuals acting on the basis of their psychology and social position suggest it is unlikely central banks will be able to control the money supply to meet their objectives in the face of these trends. Central banks are likely to return to their original function of maintaining financial stability and acting as banker to the government.

The role of central banks is to control the money supply and influence the economy for political ends. These political ends may be financial stability, controlled inflation, strong GDP growth, low unemployment, a particular exchange rate, it really depends on the political zeitgeist. The central bank expands the supply of money or decreases the supply of money in an attempt to … Read the rest

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