Feb 032015

Have a read of this article on the ABC news site, and ask yourself just why the RBA cut the cash rate today to 2.25%, an historical low.The utterances from Treasurer Hockey shout out loud to me that he is desperately scrambling for something….anything….to say which appears even remotely positive. The RBA cut the cash rate today in a bid to inspire more consumer confidence in an otherwise stagnating economy. Glenn Stevens statement today, if you know how to read it, is quite telling. Despite the fall in oil prices due to the ongoing spat between OPEC and non-OPEC suppliers – read: Russia – our domestic economy continues to contract. Credit growth is moderate. ‘Moderate’ is a word the board uses to indicate less than desired. The housing sector, which in Australia forms the keystone of our fiscal structure, is currently the haven only of those who can afford to borrow for investment purposes. In other words, the wealthy who need the tax breaks offered by negatively gearing their income against the interest & expenses of maintaining investment ONLY real estate. This includes lending against commercial as well as domestic housing property. Since deregulation in the 1990’s there is no properly structured method of defining where the money goes, other than it’s going to investors, not owner-occupiers.

GDP growth and balance of trade results are below par, and this despite Abbott et al signing off on so-called ‘Free Trade’ agreements with China, Japan & South Korea. As I wrote recently, “Explain to me just how such things benefit me, or more pointedly, the rural primary producer?”. Free Trade agreements are not the salve we need right now. Australia needs radical root-and-branch tax reform. The Henry Review, otherwise these days called the Future Tax Review recommended sweeping changes to the base of Australia’s revenue collection system. The report released in 2010 came out in May of that year. I think we all remember what happened in June of that same year, ushering in a new governmental structure and a conveniently neglectful collective memory when it came down to the actions and decisions of the previous structure. In short, the Henry Report went largely unheeded by the Gillard government. Unheeded to the extent that today, 5 years later, that government’s initial response to the Henry Review is no longer available online. There are some links however and I refer you, dear reader, in particular to this summary from within the report which deals with Superannuation, Aged Pensions and the proposed forward treatment of same.

Yes, some of the recommendations have been enacted. The increase of the retirement age to 67 years being one, BUT….have any of the other recommendations or proposed reviews taken place? Nary a one. Such proposals require courage. Political courage, and an ability to efficiently and adequately explain to the people what, and why the proposed changes might be effective for the longer term. It’s called ‘taking the people along with you’ and I suggest to you that just this week alone we’ve seen demonstrated by the current government a complete lack of ability and professionalism in even attempting to ‘take the people along’. What the Henry Review revealed if you’re keen on wading through the voluminous reports, is the existence of an inequitable, two, sometimes three-tiered tax transfer system in existence between the income earners and the tax-collector. Essentially, it reveals the more money you have, the greater your asset standing, the better your ability to manipulate the system to your own individual benefit. Three words: Superannuation Taxation Incentives. A full review and subsequent alteration of these incentives to create – be they via negative gearing, or simple taxation reductions on bulk payments to self-managed super funds in June annually – a fairer and more equitable structure between the extremes of the purposely tax-minimal self-managed superannuation vehicle, and those funds and schemes which don’t have the capacity to avail of investment incentives or inject cash. Of course, we all know, such moves would impact only one end of the class/income scale in this country and clearly neither flavour of federal politics has the intestinal fortitude or conviction to undertake the necessary changes.

And that was just one relatively small area of taxation reform recommended. All of the ‘Free Trade’ agreements under the Sun will make zero difference, long or short, to our domestic GDP position or indeed, our balance of trade figures. The only beneficiaries arising from ‘Free Trade’ agreements are those that can afford to indulge in international trade on a large enough scale to activate the associated government trade incentives. You & me….the small business person or 9-to-5 wage earner……buckley’s.

As for Hockey’s anticipation of a 25 basis point drop in the cash rate flowing onto ALL credit lines including credit cards……..I’d sneer in derision, but the energy expended in raising a lip simply isn’t worth the effort.


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