Friday, August 8, 2008

Gold Gold Gold!!!

It would be hard to think of a more auspicious date for the Olympic Games to begin than the Eighth of the Eighth of Oh Eight, at Eight minutes past Eight pm. Those who believe in good luck omens and superstitions, which obviously must include the organizers of the Beijing Olympics, must feel somehow reassured by the pleasing symmetry of the numbers. Of course, logically, it is no different than any other date on the calendar, but it is important not to underestimate the power of belief. People who believe in a certain outcome are more likely to act in such a way as to bring it about. That is the true power of good luck charms.

With all of the political controversy surrounding the decision to award the Games to China, and with all of the concern about the effects of the obvious pollution problem, now is the time for the focus to turn to the true meaning of the Games. And what exactly is that? At one level, it is a sporting event, an event which should be conducted in the spirit of goodwill beyond the parameters of politics. Yet at another level it is also an opportunity to subtly influence those politics purely because it is an interaction of cultures in the context of that spirit of goodwill.

Some believe that athletes should be allowed to speak their own minds about such issues as human rights, free from the threat of censure. While that is most certainly our way of life here, it is not necessarily the case in China. The first rule of travel is “when in Rome, do as the Romans.” It’s not necessary, nor appropriate for athletes to be making political statements or protests at the Games. If they have strong feelings on such matters the most sincere form of protest would have been to refuse to participate. Athletes, I believe, can achieve far more by being the excellent representatives of their country that they are, and ambassadors for goodwill.

At the same time, there is a role for our national leaders, including our Prime Minister, to continue to push for dialog on these very important issues. That is part of their job description, and part of their responsibility as leaders. Just as it would be inappropriate for our athletes to be canvassing such matters in China, it would also be inappropriate for our politicians not to be.

As for the rest of us, let’s enjoy the Games for what they should be: a joyous celebration of human achievement. Let the Games begin.

Thursday, August 7, 2008

Tax Reform A Chance To Cut The Chaos

The initial discussion paper on tax reform has been released by the Secretary of the Treasury, Ken Henry, unleashing a vigorous round of discussion. Much of the focus has been on the impact of property taxes, especially stamp duty, which have been identified as excessive, inefficient, and an impediment to the economy. There has also been some discussion of payroll taxes which discourage employment, and capital gains tax which undermines investment.

One feature of the report which may disappoint many is that there appears to be little scope for reduction of personal income tax. The discussion paper reveals that the total tax on wages is well below the O.E.C.D. average. But that is not to say that improvements cannot be made. There is scope for making the system much less complex and removing the need for many people to file complicated tax returns.

It has also been revealed that there are 125 different taxes currently imposed, displaying a level of complexity which obviously reduces efficiency. With the overwhelming bulk of revenue collected by just ten percent of the taxes it would seem obvious that the other 90 percent could very likely be abolished without much difficulty. In fact, the saving in administrative costs could well offset the modest loss of revenue.

More than anything else, it is this opportunity to reduce complexity which is of importance. Significant reforms to capital gains tax and property taxes will be of great benefit to the nation’s prosperity, but that will only happen if the government has the political will to press ahead and implement those changes. But the greatest benefit on offer is the change to cut through the chaos and untangle the tax law mess. That achieves the double benefit of making life easier for all of us, while also making possible significant savings on administrative costs for the government.

Now that would be a great outcome… tax reform where everybody is better off.

Wednesday, August 6, 2008

No Obvious Villain

EDITORIAL WEDNESDAY 06.08.08. While the report by the A.C.C.C. into grocery prices has disappointed many, it has been warmly welcomed by the retailers who see it as a vindication. They are responding to the news that the Commission “has not identified anything that is fundamentally wrong with the grocery supply chain.” It is recognized that grocery price increases have outstripped inflation for the past decade, but the big Coles–Woolworths duopoly has been absolved of any blame.

Instead, the primary factors driving grocery prices up have been the drought and rising fuel costs, along with other input costs, as well as an increase in global demand for staple foods. All this is true, but it remains hard to believe that when Cole-Worths controls 70% of the packaged goods market and 50% of fresh foods there isn’t some temptation to flex market muscle.

At the same time, the Commissioner Graeme Samuel has found that market concentration is “not optimal” and that there are significant barriers to entry for new competitors. Where genuine competitors such as Aldi have entered the market it has been demonstrated that prices are actually lower. While the big two exert such dominance Mr. Samuel could well use his own description of the oil market, “a comfortable oligopoly”, to describe the grocery market.

The A.C.C.C. report introduces two important measures which may help. One is Grocery Choice, which has been described as “Fuelwatch for shops”, and which will give consumers online access to price comparisons. While helpful, it remains to be seen just how much practical benefit might be delivered by the scheme.

The second measure is the introduction of unit pricing, which will require stores to display a price per gram or price per unit so that an easy comparison of value can be made between different sized packages of similar goods. Again it will help, but there’s no guarantee that it will actually bring about lower prices.

It’s always nice to identify a convenient villain to blame when things are not to our liking, but unfortunately the A.C.C.C. report does not provide us with one.

Tuesday, August 5, 2008

OECD Tax Suggestions Not Helpful For Australians

The comprehensive review of taxation ordered by the federal government will produce its first discussion paper this week. Already it has been indicated that the paper may well canvass options which are unlikely to be taken up by the government. That might include some discussion of wealth tax and inheritance tax, both of which would be unpalatable to the Australian people. One thing that won’t be up for discussion will by any change to the scope or the amount of the G.S.T. because the treasurer has specifically ruled that out.

Ahead of that discussion paper however, a report by the O.E.C.D. has recommended that the G.S.T. should be expanded to include food, and that property taxes should be increased. This should be counterbalanced by a reduction in personal and company income tax. The reason is that consumption tax encourages saving while income tax reduces the incentive to work.

In the broader economic picture this view is correct. However, in setting a tax to discourage excessive consumption it should be recognized that not all consumption is excessive. Some of it is essential, especially when it comes to food. No matter what handouts might be made available to compensate low income earners, and no matter what income tax reductions might be offered, the increase to food prices would not be acceptable to Australians.

At the same time, increases in land tax and property rates may well be more difficult to avoid, but they also have another less desirable effect. They act to further reduce the affordability of housing which is already a problem. It is in effect discriminatory in that only the wealthy could hope to afford the Australian dream of home ownership.

The real problem with taxation in Australia is that it is too complicated, and there is too much government. Paying tax on our bread and milk is not what Australians want.

Monday, August 4, 2008

The Bank Always Wins


We’ve all been conned.

In the wake of the sub-prime crisis in the United States we have seen Australian Banks pushing up interest rates above and beyond the increases set by the Reserve Bank. They have told us that their profitability is under threat from the increased cost of wholesale funds. One bank has even gone so far as to suggest that even if the Reserve Bank cuts interest rates, it would not necessarily result in a fall in the rates charged by the banks. They have all been lying…

A survey by has shown that the bank margin has in fact increased from 1.35% to 1.8% in the six months to July. The evidence suggests that even though it was true that costs for the banks rose as a result of the credit crunch, those costs have fallen since February. But the banks are still putting their rates up.

So how can they get away with this? Well, the other effect of the credit crunch was to undermine the market share of the non-bank lenders. For the last decade they have been taking market share from the big banks and forcing margins down. After the credit crunch however, those non-bank lenders found themselves caught short and have lost the edge they once had. As a result, the big banks have been able to not only regain some market share, but to set their price levels too.

Far from suffering from the effects of the credit crunch, it would appear the big banks are enjoying the benefits, as customers look for the security of big institutions over specialist lenders. For the first time in a long time the banks are back in the box seat, and they love it.