1. The inequality paradox
A New Scientist article by cognitive scientist Mark Sheskin of Yale University (pay-walled) says we should aspire to ‘fair inequality’ rather than ‘equality’ or ‘unfair inequality’, and most people would be happy with that.
He’s saying if you force people to choose between complete equality and high levels of inequality, most choose the latter. Given an open choice, however, people will choose moderate inequality.
One study found that Americans thought the top 20 per cent should hold 30 per cent of all wealth, and the bottom 20 per cent just 10 per cent. This graph shows what people in the US think is happening, what they want and the reality:
On the planet, just eight people own as much wealth as the poorest half of the population. In the US 85 per cent of wealth is owned by the top 20 per cent and the bottom 40 per cent own just 0.3 per cent. The bars on the graph are barely visible.
Fairness, he says, is what allows humans to work in large groups. We don’t mind unequal reward for those who do the best within the group. It is key to our big brains and our success as a species.
A Pew Center canvassed opinions in 44 countries. In all 44 a majority of people thought the gap between rich and poor was a “big problem”. In 28 the majority thought it was a “very big problem”.
2. Individuals are propping up the nation’s finances
New analysis by Perth-based workplace expert and risk adviser Conrad Liveris has warned the federal budget is becoming increasingly reliant on revenue from individual income taxes. AFR article here.
Here’s the revenue sources from the 2008-09 budget:
This is how 2017-18 shapes up:
The budget revenue has grown from $319.4 billion to $444.4 billion, an increase of around 39 per cent. Individual income tax has grown from $126.7 billion to $209.6 billion, an increase of 65 per cent.
Company and resource rent tax has barely moved, from $76.4 billion to $80.4 billion. Clearly the poor things are hardly done by and need a break, according to our all-wise leaders with their $65 billion corporate tax cut (over 10 years)!
Here’s the difference in percentage terms:
That’s not easy to read, but individual tax has gone from 39.7 per cent to 47.2 per cent, whereas the movement for companies is 23.9 to 18.1.
The report says:
Relying on one source of revenue will always be a risk to the stability of government revenue, but especially on individual income tax at a time of casualisation, subdued full-time job creation and with low wage growth.
So the recommended answer is:
1. Encouraging part-time workers to become contractors outside their work; Allowing multiple forms of income for workers gives them greater security of income and make more stable contributions to the tax base.
2. Reduce the complexity of starting a small business and the tax arrangements; and, The processes to start contracting and align tax obligations for individuals can be complex. Individuals can struggle to understand their duties on their own and, accidentally, not pay their
fair-share of tax.
3. Developing revenue sources in other areas. Reliance on one income stream is a risk to the stability of government revenues. The current
tax base is too narrow for a 21st Century economy, and is built on individual income tax.
How turning us into business centres, responsible for our own superannuation, recreation leave and sick leave, is going to solve the problem beats me. Seems like Howard and Costello’s vision of how we should all operate. Remember, It’s all John Howard’s fault.
3. Jaw-dropping behaviour by those who manage our money
I’d have to say that what is coming out of the Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry is about 10 or 20 times worse than I expected. It boggles the mind. Charging for services not provided, as a conscious decision, lying to the regulator repeatedly, charging fees to people who are dead – unless you’ve been living under a rock, you know the story.
Now AMP CEO Craig Mellor has resigned in disgrace, as well he might.
Wikipedia tells us:
- AMP formed in 1849 as the Australian Mutual Provident Society, a non-profit life insurance company and mutual society. In 1998, it was demutualised into an Australian public company, and listed on the Australian and New Zealand stock exchanges.
Then it went mad. This ‘beacon of trust and integrity’ engaged in a series of corporate blunders, like paying far too much for GIO and Axa Asia Pacific, then, it seems, systematically fleecing its customers.
I’d always thought that only a royal commission would bring out the true stories. I hope the middle managers who must have been in it up to their eyeballs are put on the stump.
We have shares in AMP and the big banks, you would too if you have any superannuation. So I took a bit of a look to see whether all that loot was flowing through to the shareholders.
Not much, as it turns out. AMP has probably been the best, it just feels like a dog because we bought in 2007 just before the GFC at $9.91 per share. It’s now $4.31. However, its earnings per share have increased by 46% since 2013, and are forecast to go up by another 15% in the next three years. You need 8-10% to look after inflation.
The Commonwealth Bank has increased 18% in the last four years and is forecast to increase by only 2.3% in total in the next three. That’s the best of the bunch.
Westpac has increased by only 4.5% in the last four years, NAB is down -2.8 and ANZ -9.7. The forecasts for the next three years are -1.8% for Westpac, -1.1 for NAB and +6.6 for ANZ.
Generally speaking they are floundering, after doing well for five years after the GFC, and surviving the GFC better than most in the world (they only went backwards by about 20%).
Moreover, they are all vulnerable to disruption.
What to do?
There is a lot of money involved. The big banks pay about a fifth of that corporate tax mentioned above. So handing the banks $13.2 of the $65 billion to be foregone in corporate tax cuts over 10 years will be really popular.
Obviously, financial advice and wealth management needs to be institutionally separated. Why anyone thought you could keep foxes in the hen house has me beat. I would point out that fining companies only hurts the shareholders. Jail time for the miscreants, may bring better behaviour.
Referring to the inequality segment above, perhaps there should be compulsory regular community service for senior and middle management executives, so they stay in touch with the real world.
For us, if we’d known what was going on there is no way we would have bought these stocks. Now we assume they will be cleaned up, so the decisions are to be made on investment criteria. We are overweight in banks, but probably the prices will recover when things settle down. Selling now looks like doing the buyer a favour. AMP looks like a raging ‘buy’ if you have the stomach for it, however not without risk.
The Democratic Party has sued President Donald Trump’s campaign, his son, his son-in-law, the Russian Federation and WikiLeaks, saying they conspired to help Mr Trump win the 2016 presidential election.
The party alleges in the federal lawsuit that top Trump campaign officials conspired with the Russian government and its military spy agency to hurt Democratic presidential nominee Hillary Clinton and tilt the election to Mr Trump by hacking Democratic Party computers.
The lawsuit also names Donald Trump Jr, Trump associate Roger Stone and Mr Trump’s son-in-law Jared Kushner as defendants.
The claims raised are already being investigated by Robert Mueller, but it should be fun to watch.