GST, Banks Must Feature In Tax Reform Debate

ANY DISCUSSION OF TAX REFORM in Australia must — almost by definition — include revisitation of the scope and rate of GST, and the attendant prospect of steep cuts to direct taxes; rank populism by the ALP (which modelled a GST hike in government and now claims such a change to be a “breach of faith”) should be disregarded, as long-term structural considerations are placed above ridiculously destructive partisan politics.

I have been reading a very good opinion piece in The Australian this morning, which neatly sums up both the challenges facing Prime Minister Tony Abbott in any contemplation of the GST as part of any wider attempt at tax reform, and the rank opportunism of the ALP (and some of the states) that such a discussion has already provoked.

I have to keep this circumspect today, as I am — as readers already know — quite busy at present, but there are nonetheless some key points I should simply get onto the table.

The most obvious of these is the fact that of all the taxation options available to the government (and with an eye to the escalating and recurrently growing demand for revenue by the federal government sector), the GST stands almost alone as a mechanism capable of delivering an expanding growth stream of taxation revenue.

Hot on the heels of this is the revelation, widely reported in yesterday’s press, that the ALP itself commissioned Treasury modelling in office to observe the effects of a modest GST increase of its own, raising the rate from 10% to 12.5%.

Such an increase, in my view, does not go far enough: the switch in the “tax mix” from taxes on income to taxes on expenditure is both urgent and critical, as the share of government revenue contributed by income taxes continues to fall over coming decades as the workforce ages, shrinks, and casualises.

And contrary to the deepest desires and ideological dogma of the ALP and (especially) its bed buddies at the Communist Party Greens, simply hitting “the rich” ever more heavily to try to claw back the difference is counter-productive and will also prove self-destructive in the longer run.

In his article, Paul Kelly hits the nail on the head, and his summation of Labor’s mentality on this question — that merely seeking public consent and/or seeking to engage in a comprehensive and rational debate about GST reform is a “breach of trust” — could as easily apply to the ALP approach to virtually any area of government that requires overhaul, and which Labor in power, despite the robust position it inherited, mostly squibbed.

For mine, a GST rate of 20% applying to everything aside from medical treatment — with accompanying steep cuts to income tax scales, along with boosts to pensions, and perhaps a further lifting of the tax-free threshold and/or the absorption of fuel excise collections into the GST net — makes perfect sense. This, and any options for GST reforms up to and including this position, merit consideration at the very minimum, irrespective of whether they are subsequently adopted or not.

But in the current, toxic political environment — in which even the consideration of raising one tax is used as a crude populist battering ram, irrespective of any potential offsetting measures — such a debate seems unlikely to eventuate, and it will be Australia that will be the worse off for it.

A simple measure of this contention will lie in the fact that comments to this column, if they follow past trends, will simply ignore my own advocacy of cuts to marginal tax rates and increases to social security payments, and simply pillory me for arguing that a doubling and broadening of the GST should be contemplated at all.

Some who come here looking to sink the boot into “Tories” may resist the urge to engage in such blinkered abuse. I will believe their restraint, quite literally, if I don’t see the evidence otherwise.

 

AND ANOTHER THING: readers have been surprised in the past to find this column — usually devoutly liberal in its economic views — advocating for a windfall tax to be applied to profits generated by the banking sector.

There is a difference between a free market returning healthy profits and plain, old-fashioned price gouging, and any group of four companies that cumulatively reap after-tax profits equivalent to roughly 5% of the country’s entire GDP demonstrates the shortfalls of prudential regulation that singularly ignores the difference between the two.

With Australia’s so-called “big four” banks hauling in clear profits of about $75 billion last year, the problem has gone beyond a joke; the retail banking sector uniquely defied the Global Financial Crisis to record consistent profit growth — in part, due to government intervention and monies expended by the Rudd government — and largely off the back of a fees, penalties and charges regime that is not grounded in any reflection of the true costs of providing these items.

This column repeats its assertion that a windfall tax should be applied to all profits recorded over a nominated threshold — say, $5 billion per annum per “banking group,” to remove the incentive to spread black ink through a plethora of subsidiaries — and levied at 50% of all revenues above that level.

Such a tax would raise about $40 billion based on last year’s figures, and whilst its yield would fall if met with cuts in banking charges in response, the measure would nonetheless deliver a win for consumers as it restored money pried from their pockets one way or the other.

$40 billion buys a lot of health and education funding, repays a fair whack of government debt each year, or funds quite a slather of other worthy government expenditure that currently eludes reality.

 

Fee-Free ATMs For Aborigines: Wayne Swan Gets It Wrong Yet Again

He’s done it again…Wayne Swan has provided more evidence, were any required, of how out of touch he is with community values; 76 ATMs in remote aboriginal communities will — from December — no longer charge transaction fees. The rest of the country, of course, will just keep paying.

An article appeared in the Fairfax press today, outlining the plan in which the 76 machines — spread across three states and the NT — will no longer charge customers for making withdrawals, balance enquiries, or other ATM transactions that otherwise would attract a fee.

These machines are located in some of the remotest aboriginal communities; often the inhabitants are poor, and have no choice of ATM provider when checking balances and whether benefits have been deposited and, if so, accessing those funds.

The plan sounds great: I’m sure it will make a great difference to aborigines in these towns who are more or less cut off from society.

And for the record, I am very happy for aborigines to have the benefit of this arrangement; it will save them a little money, and give them the sense of having a small win over the banks.

Yet this sort of thing makes me really angry; egotistical bubble of self-importance and Treasurer Wayne Swan — not content with his recent achievements in slugging it to “the rich” in the federal budget — is hailing this as a win for consumers. The scheme is being implemented by the banking sector on the recommendation of a joint Treasury and Reserve Bank task force.

Commenting on the scheme with Indigenous Affairs minister Jenny Macklin, Swan said: ‘‘Indigenous people and residents living in very remote communities often rely on a single ATM located in a community store owned by an independent ATM company to access their cash and check their account balance.’’

And The Age reports that thirteen banks and two independent ATM companies would do away with ATM transaction fees for their customers in “identified remote indigenous communities.”

I reiterate that I think it’s great that aborigines have got this deal; with some luck it will save them some inconvenience and a little money as they go about their lives.

The thing that incenses me about this announcement is that for tens of millions of Australians, this delivers nothing at a time of economic uncertainty and rocketing cost of living pressures; and it confirms Swan’s status — in the words of mining magnate Clive Palmer — as an economic pygmy when it comes to Swan’s dealings with the major banks on behalf of consumers.

Australia’s banks are raking in billions and billions of dollars in profits every year, and much of this comes directly out of the pockets of ordinary domestic consumers.

Many of these people are sensitive to movements in official interest rates, and the impact this has on their residential mortgages.

Over the past couple of years, they have grown accustomed to a few stern words being directed by Swan at the banks whenever they keep part of a cut, or pass on more than an official rise; but never more than that, and certainly never any action.

Now Swan comes out, all smiles, with a deal to abolish all ATM fees — for a few outback towns with perhaps, sight unseen, ten or twenty thousand people between them.

You see, the fact that it is aboriginal communities getting this deal — set up and brokered by Swan and his department — is unimportant on one level; it still leaves millions of people who will be slugged for using an ATM of any provider other than their own bank.

And can I just make the very obvious point that at times, even in urban areas, and even in places like here in inner Melbourne, people are often forced to pay ATM fees for the same reason — there is only one machine located within a reasonable distance.

Try getting money out at the MCG if you’re a Westpac customer — and try avoiding NAB’s withdrawal fee. There is no other machine within a 20 minute walk. It’s just an example, but by no means irrelevant or specious.

But on another level, the fact that it is aborigines receiving this deal is significant: it’s significant in the conceited little story the Labor government, through Swan where money is concerned, is attempting to construct, tell, and sell.

If you’re aboriginal; disabled; on welfare; a migrant; or from any other minority and/or disadvantaged group, this government is good at telling stories.

And as Swan proved in his recent budget, he too is adept at telling such stories.

There was a lot of fanfare about the ALP’s National Disability Insurance Scheme, with an impressive-sounding $1 billion aimed at the 400,000 Australians with permanent disabilities; the only catch is that in two years’ time — halfway through the period to which that money applies — just 5% of those 400,000 people are expected to have access to it.

So it is with this equally impressive-sounding, but similarly empty gesture aimed at aborigines; there are many, many indigenous people in this country who don’t live anywhere near 26 towns flung across three states and a territory who will get nothing from this, and a large number of those people have far more urgent needs of assistance than saving $2 at the local ATM.

You only have to get in a car and drive less than a mile or so from the centre of major regional towns like Broome, and Dubbo, and Kalgoorlie, to see aboriginal kids with their empty spirit bottles and petrol cans, passed out on the side of the road, to know that $2 at an ATM is the last thing they need.

These are just two examples among many that Swan and his colleagues have notched up in four and a half years in government.

And whilst a very small number of people will get some limited benefit from this latest initiative — just like the so-called NDIS — I would say to people in those groups and in those communities that far from helping you, this government is exploiting you; far from championing your issues and your causes, this government is tokenising them.

To the rest of the people who live in this country — who are being gouged at one end with usurious fees and charges, and ripped off at the other by the rocketing price of everyday essentials — a Treasurer who can’t stand up to the banking sector over interest rate rises, when it is pocketing billions of dollars in exactly the type of transaction fees he is trumpeting the waiver of in the initiative outlined here, is a joke.

Sadly, the fee-free ATMs for the rural communities involved present just another photo opportunity, just a little more spin and empty media space, and just another reason to send a press release; the official story is that the government is “helping,” but the reality is rather different.

And if anyone wants to defend Swan, or the government, over this latest half-baked initiative — saying “at least it’s a start” or something similar — I would respond very strongly that this is not “a start:” it’s just a stunt.

But then again, with this government and this Treasurer, it’s always just a stunt.

 

Comments must keep to the point; anything racist will be deleted as soon as I see it.

Ambit Interest Rate Rises and Private Health Rebate Cuts…What Sort Of A Ship Does Gillard Really Run?

Tonight I want to talk about cost of living issues (I know Newspoll is out soon, and there are other issues to cover). But speaking generally, and with the cost of living in this country rocketing, it would be cheaper to live in England. And that is some achievement, perverse as it is.

Does anyone doubt it? The UK is a notoriously expensive place to live, but the way things are headed, Australians would be financially better off by making the move to the Old Dart.

At least with the dollar buying 68p in the pound at time of writing, the conversion wouldn’t hurt too much.

There are two developments in the past few days that have triggered my sentiment, but stacks of others that have been building and building, to the point one huge question needs to be asked of the Labor Party and its government, headed by Julia Gillard.

As a free marketeer of lifelong tenure, I have already opined (reluctantly) that it may very well be time to hit the banks to impose the corporate responsibility on them that they refuse to undertake themselves: to slug them with a Windfall Profits Tax of 50% on anything above $2 billion they post in profit each year.

It’s at the point that it is past a joke: as was pointed out on 3AW by Neil Mitchell this morning, in the past five years the cumulative nett annual profits of the big four banks have increased from $16 billion to $24 billion.

At the same time, in an environment of soaring bank fees and charges and of mostly falling interest rates, the banks now seek to act as mini-RBAs by setting their own interest rates independently of the Reserve Bank.

Here’s the rub: if “funding costs” are so tight, why have their profits increased by 50%?

And if profits are so solid, why the need to start sacking thousands of staff?

Treasurer Wayne Swan, in his creditably stern public utterances on this matter, is clearly as effective as a wet mop; the results — banks slugging their customers to high heaven and sacking thousands of staff, whilst recording stratospheric profits — are there for all to see.

Wayne Swan has no influence or authority over the banks whatsoever.

We move on.

Julia Gillard’s Labor government is now moving (not for the first time) to means test the private health insurance rebate; the levels at which the clawback commences, in round terms, are $83,000 per annum in income for singles and $159,000 for couples and families.

What don’t these people get?

I’m the first to acknowledge that there are thousands and thousands of people who fall below those thresholds, who struggle and manage to make ends meet (and indeed, as at today’s date, my wife and I represent one such family unit).

But the simple fact is that those thresholds do not denote “rich” people; in 2012, they mostly denote struggling tradespeople, managers and professionals trying to achieve a better standard of life.

And this government seeks to clobber them for it.

But the kicker is this: the health care rebate is going to be progressively withdrawn from people/couples at those income levels, and for those people who refuse to maintain or take out private health insurance, they will receive a Medicare surcharge slug.

And the problem with that is that for all the money the Gillard government might save on the health insurance rebate, it will pay out tenfold on the creaking burden that will befall Medicare when hundreds of thousands of private health insurance policies are abandoned in favour of claiming what tax dollars have been extracted to pay for.

In my household, the bill for private health insurance is about $2,600 per year, on top of the 1.4% of our incomes that the government takes as a Medicare surcharge.

The changes to the private health insurance rebate won’t even recoup that from most of the people it affects, but it will cost a damned side more in Medicare expenditure.

It’s a mighty big price for a government claiming to want to return the federal budget to surplus to pay.

I’d say it’s actually a good old-fashioned Labor/Socialist hit at those the ALP and their Communist Green mates think can afford to pay; what it really is is just a grab for tax dollars, and bugger the cost.

Again, we move on.

The imbecilic decision by the Labor government under Kevin Rudd’s leadership to allow non-residents from foreign countries to purchase Australian real estate has directly worsened the crisis in housing affordability in this country.

That decision has never been reversed; and as a result, houses owned by foreign nationals across Australia stand empty (and appreciating in value by virtue of the diminished availability of housing stock) whist AUSTRALIAN CITIZENS are unable to buy houses in their own country.

This policy must be immediately rescinded. Go to China as a non-resident and an Australian citizen, and see how welcome you are to buy property.

And if anyone thinks I’m being racist, go to the UK, the US, and Canada too: you might get to make the purchase, but you’ll have to jump through so many hoops to do so as to have whiplash by the time you sign the contract. If you still want to.

And in a related vein, foreign interests are now not only buying prime Australian agricultural land, but taking its harvests and slaughters offshore to process, and then reselling our own produce to us at ridiculous mark-up. It is a syndrome that has taken hold under the present government’s revised foreign ownership rules.

Can anyone spot what is wrong with this picture?

Again, we move on.

With the Australian dollar roughly 15% above its peak immediately prior to the so-called Global Financial Crisis, and the price of oil roughly 40% below its level at the same time, is anybody able to adequately explain why the price of petroleum products in Australia are, broadly, the same as they were at those pre-GFC highs?

Much has been made in the past few days in the mainstream press about a need to sack the Commissioner for petrol prices, and I must say that I agree.

But Australia’s Trades Practices legislation is woeful: in this area, all that is ever “discovered” is that there is no collusive behaviour between oil companies to drive and/or keep the price of petrol high.

Of course there isn’t! These companies aren’t stupid; no oil company is going to be naive enough to commit a syllable to paper on price collusion.

Yet some years ago, near the end of the tenure of the Howard government, the ACCC announced that it would be “looking at” oil companies and petrol prices; for a couple of weeks the price a the bowser fell by 20 cents per litre — and once the heat was perceived to be off, back up it went.

Yet again, we move on.

Let’s not forget the entrenchment of the supermarket duopoly, its lack of competition and its crippling of consumer choice; indeed, it’s fair to say that half the reason petroleum products are as dear as they are is because two retailers now control nearly 80% of that market.

And Coles and Woolworths now want to start operating in the retail pharmacy sphere? Spare me.

We haven’t even gotten to electricity and gas prices — largely (but not entirely) the purvey of state governments — but my thoughts on those are much the same as my thoughts on the banks.

Sheer and utter usury.

Against the backdrop of all of this, we have the ALP’s carbon tax, which (“compensation” notwithstanding) will be a nett burden to consumers; its mining tax, which will render the country’s minerals and energy sector uncompetitive by international standards; and the slavish adherence by Treasure Wayne Swan to return the federal budget to surplus this year, motivated by no other trigger than political expediency.

And that, my friends, means more budget cuts — but cuts aimed at people trying to get ahead, as opposed to those content to bludge and sponge off the system.

And it also sits against a backdrop of a government wages policy whose design might be well-enough intentioned, but whose practical effect is to drive wages down and to empower unions over workers and employers, and to remove incentive for workers to work, or for employers to be remotely flexible.

All of this (and other factors I’m just about out of space to include) adds up to one big reality, and it’s this.

Unless you’re earning $250,000 per year, Australia is now one of the most expensive places in the world in which to live.

The Rudd/Gillard government has presided over the single greatest deterioration in living affordability in Australia since Federation.

And the “one huge question” I alluded to, at the commencement of this article, is a simple one.

Having presided over such a massive deterioration in living standards in this country, and having reduced both the disposable incomes and the prospects for Australians to advance themselves, and having saddled the country with hundreds of billions of dollars in debt and a fundamentally directionless policy agenda, what does the Gillard government propose to do about it?

I’d wager…nothing.

It’d be cheaper to live in England; not an unattractive prospect, but I would prefer to live in Melbourne, and in Australia generally.

But in four years of Labor government, it has become so expensive to live in Australia that so many people and families, who once could pay their bills and save, now struggle weekly to make ends meet.

What do you think?

 

Bastards! The Banks Need To Be Hit In The Nether Regions — HARD

This post may surprise a few people, and especially those who know me well; as a conservative and as an economic liberal, it’s not very often I advocate taxes, regulation, sanctions or commercial compliance regimes, but Australia’s big four banks have finally gone too far.

Yes, I’m talking about this week’s decision by the Reserve Bank to cut interest rates and the action — or lack thereof — to pass that cut on by “the big four.”

And yes, it is true all four banks belatedly passed the cut on today (two days after the official action) but if anyone thinks these institutions merit commendation for their actions, they need their heads examined.

Word was put about this morning by sources close to the major banks that they were waiting until Sunday — until various conferences in Europe on that continent’s financial meltdown had taken place — before they announced any movement on their positions on interest rates.

The good word was that they needed to evaluate their position in relation to funding costs.

This mythical position was detonated this afternoon by firstly the ANZ, followed reasonably smartly by the other three, passing on the Reserve’s rate cut in full — and finally destroying any lingering remnant of credibility among the big four banks in this country in relation to interest rate changes.

Now that the ruse about concern for Europe has been exposed, it’s time for a hard look at our banks, and a well-aimed kick in the balls at them is indicated.

Let’s face it: the minute interest rates rise, all four — Westpac, ANZ, the Commonwealth Bank and NAB — pass the hikes on in full, and usually it’s immediate.

Indeed, in recent years — under the guise of the so-called Global Financial Crisis — some of them have passed on rate rises well in excess of official movements in the cash rate.

But they never — NEVER — rush to announce a cut in full.

A delay of a day or two can be worth TENS OF MILLIONS OF DOLLARS IN PROFIT; don’t be fooled into thinking otherwise.

And on this occasion all four of them sat on their hands for two days, which is indicative not just of a contemplated refusal to cut anything, but suggestive of behaviour that might be interpreted as collusive — which is also illegal.

If we take a trip down memory lane — back to the so-called Global Financial Crisis — the big four banks in Australia were going gangbusters.

Indeed, most — if not all — of them, at varying times during the “crisis,” posted record profits that exceeded only their previous year’s result, and which have in turn been exceeded since only by their results in ensuing years.

In simple language, these four institutions have raked in record profits at a time of alleged doom in the banking sector.

And how?

They have done it by increasing interest rates in real terms; all of them — all of them — have at various times imposed interest rate increases in excess of any movement in official rates by the RBA.

“Funding costs” has been the universally stated pretext.

Yet bank profits — at least for the Big Four — are at record levels and continuing to grow.

Clearly, “funding costs” is an excuse for nothing more than increasing profits.

And if you look a little more closely, interest rate considerations are more than just mortgage rates.

Most credit card products (I’m not talking about so-called no-frills cards with no interest free days, no rewards, no bonuses and no features other than a credit facility) are subject to nearly 20% interest on purchases and attract annual fees of anywhere between $90 and $250.

The imposition of annual fees some fifteen years ago was meant to be a levy in exchange for lower interest rates on credit cards; the banks now charge the same old usurious rates of interest and pocket their annual fee.

And to overdraw an account, or to be late with any sort of payment, or to actually ask for service from any of these banks, is treated with the utmost seriousness: the serious application of their rate cards for fees and charges.

These aren’t cheap, as most of you know.

And I haven’t even mentioned their commercial and business divisions yet…

There are two points I would make.

One, the latest interest rate cut by the RBA has been made for good reasons (and it has nothing to do with economic ignoramus and Treasurer, Wayne Swan).

There is a meltdown approaching; Europe is likely to implode economically under the weight of its own mismanagement and misguided principles; the USA teeters on a return to recession; Japan hasn’t fired for over a decade; and China is pursuing a stated policy of deliberate economic slowdown.

There’s a hefty recession looming, and the actions of the RBA are specifically designed to attempt to stimulate economic activity in Australia.

The banks however see it as an opportunity for profit: they have belatedly implemented this rate reduction but they thought about it; and their form in the past few years in this area is uninspiring at best.

And two, I understand that banks are publicly listed entities with shareholders seeking growing returns.

The big four banks, ten years ago, might have posted annual profits of $1 billion each; these days it is increasingly common to hear of half-yearly (and even quarterly) profit results of close to $2 billion.

This leads me to my point.

In order for there to be fiscal conservatism, economic liberalism and freedom generally, there is an obligation on the major participants to behave as good corporate citizens.

I don’t like regulation and red tape, and I certainly don’t like new taxes.

But if companies like Australia’s banks won’t behave, and won’t be decent corporate citizens, then prudential regulatory action must be considered.

I think — reluctantly — that the banking sector should be subjected to a windfall tax of 50% on any profit exceeding $2 billion per annum, per organisation.

Regulations should also be implemented to prohibit these banks from splintering their organisations into “groups” to evade such measures (for example, a bank breaking up into ten entities, all of which fall below the windfall tax threshold, but which cumulatively are liable for hundreds of millions of dollars in taxation revenue).

Maybe they’d start to deliver a bit of service to the mums and dads who’d depend on them.

And whether or not they did, the money (a 50% windfall tax would rake in about $5 billion per year in 2011 dollars) would fund tax cuts, pension increases, or any other properly constructive government expenditure measure.

And taxing the (greedy, overblown, mercenary) banks would be a far better activity than trying to kill the “golden goose” that is Australia’s mining sector.

But let’s face it: the Gillard government looks at the golden goose and it sees money; it looks at the banks, and sees chairmen and CEOs it feels it needs to brown-nose.

Here’s a hard fact: mining executives (whilst pocketing hefty profits) actually run an industry that holds Australia afloat; bankers contribute nothing to the economy, but they take profits that make most of those realised in the mining sector pale by comparison.

In closing, I want to mention the rather odd announcement by ANZ today that it will review interest rate settings every month from now on, independently of the Reserve Bank.

I listened to the media announcement by ANZ this afternoon on this subject; perhaps unsurprisingly, “funding costs” was a phrase that featured heavily.

Well, to be frank, it stinks. ANZ has announced it is going to behave like a mini-RBA; reviewing interest rate settings and making its own changes accordingly, but purely in its own interests of course, and bugger its account holders, official policy, or whatever other more genuine marker might be considered.

If I were an ANZ customer I’d be running for the hills right about now.

These are my thoughts on the major banks in Australia.

What do you think?