FDI Restrictions for Thee But Not for Me
Qantas is lobbying politicians for FDI restrictions to prevent Etihad from acquiring Virgin or to ease the foreign ownership restrictions in the Qantas Sale Act. Australia’s Hansonite political class will likely choose the former over the latter, at least in the short-run. In the long-run, however, the government will probably have to choose between a majority foreign-owned Qantas or taking Qantas back into public ownership as a loss-making ward of the state.
posted on 22 June 2012 by skirchner in Economics, Foreign Investment
(0) Comments | Permalink | Main
Wayne Swan at Home and Abroad II
Wayne Swan in front of a Euromoney forum in Sydney:
“In a pattern now all too familiar, European politicians are still well behind the curve, having failed to take advantage of the months of relative calm,” Swan said in the text of a speech to be delivered at a Euromoney forum in Sydney today. “Put simply, what is required is some basic political courage.”
Wayne Swan in federal cabinet:
Sources confirmed yesterday that Trade Minister Craig Emerson won approval for the shift with the backing of Ms Gillard, but only after her deputy, Wayne Swan, attacked the policy as lacking a political constituency. The sources said that, although the Treasurer, who has a long record of advocacy for trade liberalisation, did not attack the principles of the policy, he questioned the political wisdom of proceeding with the change at a time when the government was already fighting for reform on a range of other fronts, including the carbon tax.
posted on 14 June 2012 by skirchner in Economics, Politics
(0) Comments | Permalink | Main
Taxing US Human Capital Flight
From this week’s Ideas@TheCentre:
US embassies around the world are accustomed to queues of people seeking to migrate to America. More recently, a new type of queue has been developing: American ex-pats lining up for the 10-minute and $450 ceremony in which they renounce their US citizenship. According to the Federal Register, the number of Americans renouncing their US citizenship or residency increased from 231 in 2008 to 1,781 in 2011. The US embassy in Bern, Switzerland, was recently reorganised to clear a growing backlog of citizenship renouncers.
This human capital flight gained prominence with the decision of Brazilian-born Facebook co-founder Eduardo Saverin to renounce his US citizenship and take up residency in Singapore. This led to accusations of tax avoidance, ingratitude and disloyalty levelled at the former immigrant to the US.
The accusation of tax avoidance is wrong. Under US tax law, expatriation is a deemed disposal for capital gains tax purposes. Saverin will pay taxes on his accrued Facebook capital gains while he was a US citizen. Only subsequent gains, if any, will benefit from the absence of capital gains taxes in Singapore.
The Saverin case nonetheless prompted senators Charles Schumer and Bob Casey to propose a new law, the Ex-Patriot Act, which would ban expatriates from ever re-entering America and tax an ex-citizen’s capital gains at a punitive 30% for 10 years. The Ex-Patriot Act has obvious similarities with the laws imposed by some of history’s worst regimes.
The US government has long made life difficult for its expats, taxing them on their global income, but the growing human capital flight from America has little to do with tax minimisation. The compliance burden resulting from the Foreign Account Tax Compliance Act and other new laws have made it increasingly costly to be an American abroad. Foreign firms are becoming reluctant to hire Americans, and foreign financial institutions increasingly refuse to deal with them because of the US government’s growing administrative overreach.
Rather than persecuting human capital flight, US senators would do well to consider why American citizenship is increasingly seen as a burden and not an asset.
posted on 02 June 2012 by skirchner in Economics, Population & Migration
(0) Comments | Permalink | Main
Euro Crisis Vindicates Friedman’s Big Idea
I have an op-ed in today’s Business Spectator arguing that the euro crisis should be viewed primarily as a vindication of Milton Friedman’s pioneering 1953 essay, ‘The Case for Flexible Exchange Rates.’
Not mentioned in the op-ed, but Friedman’s essay had its origins in a 1950 memo he wrote as a consultant to the Office of Special Representative for Europe, United States Economic Cooperation Administration. The essay references many of the problems with exchange rate regimes in Europe at that time.
posted on 22 May 2012 by skirchner in Economics, Financial Markets, Monetary Policy
(0) Comments | Permalink | Main
The Western Australian Future Fund: A Solution in Search of a Problem
I have an op-ed in today’s West Australian making the case against the proposed Western Australian Future Fund. As I note in the article, the WA Future Fund nonetheless improves on the federal model by avoiding the establishment of an expensive new funds management operation that duplicates existing capabilities. The federal Future Fund incurred expenses of $444m in 2010-11.
posted on 21 May 2012 by skirchner in Commodity Prices, Economics, Fiscal Policy
(0) Comments | Permalink | Main
Intergenerational Conflict: Pagan versus Gruen
I have an article at The Conversation referencing the Pagan-Gruen exchange at the Melbourne Institute’s Intergen+10 Workshop (you can listen to the exchange here). As I note in the article, whether the 2010 IGR growth assumptions were really the outcome of a political process is less important that the perception on the part of serious observers that they could be. This is something that needs to be addressed.
It is interesting to compare how the last IGR compiled under the Howard government in 2007 characterised Australia’s long-term debt position compared to the 2010 IGR. The 2007 IGR said that:
Demographic and other factors are projected to place significant pressure on government finances over the longer term and result in an unsustainable path for net debt towards the end of the projection period.
If Adobe Acrobat’s search function is right, the word ‘unsustainable’ never appears in the 2010 IGR. The 2007 IGR was a much more candid document in relation to the long-run fiscal outlook.
posted on 21 May 2012 by skirchner in Economics, Fiscal Policy
(0) Comments | Permalink | Main
A New Broom at the FIRB?
New FIRB chairman Brian Wilson promises greater openness in an interview with Glenda Korporaal:
The former investment banker, who has been on the board of FIRB since 2009 and took over as chairman last month, says FIRB is making a greater effort to communicate the government’s foreign investment policies through its website and in briefing sessions for advisers. “It is important for all our constituencies—the Australian public, Australian business, foreign investors and their governments—to understand that the processes FIRB goes through are sensible and rigorous, and open and consistent,” he says. “Being a little more forthcoming, and having a little more transparency, will actually reduce, for some, the suspicion that we hear or read about from time to time.”
Wilson says FIRB is now putting up a lot more on its website about Australia’s foreign investment policies.
The FIRB has some catching up to do when it comes to posting things on their web site. The fundamental problem with the legislation the FIRB administers remains:
“There is only one test—is the proposal contrary to the national interest? What that may be varies over time depending on economic circumstances, community attitudes, geopolitics, a whole gamut of things.”
Then there is this:
“So, I wouldn’t have thought talking to FIRB about a concept or a possible transaction would tip you over the ASX disclosure threshhold.”
Probably not quite the level of certainty investors are looking for, but perhaps a good quote for the M&A lawyers to file away for future reference.
posted on 12 May 2012 by skirchner in Economics, Foreign Investment
(0) Comments | Permalink | Main
Good and Bad Reasons for a Budget Surplus
The government’s stated motivation for returning the budget to surplus next financial year is to give the Reserve Bank ‘maximum room to move’ on interest rates. Yet a fiscal contraction is no more effective in restraining the economy than a fiscal expansion is effective in stimulating it. In an open economy with a floating exchange rate and an inflation-targeting central bank, changes in fiscal policy do not have significant macroeconomic implications. That is why the reaction of financial markets to budget statements is so negligible. The Reserve Bank’s statements also make clear that fiscal policy is a very minor consideration in its decision-making.
During the financial crisis, the government tried to have it both ways, arguing that its fiscal stimulus saved us from recession, but had no implications for interest rates. The second part of the argument was correct, but not the first. If the first part had any truth, then monetary policy must have been much tighter during the financial crisis as a result of the government’s stimulus spending.
The government should have no concern over the macroeconomic implications of changes in the budget balance, so long as it is balancing its budget over time and conducting fiscal policy in a sustainable manner. This should free the government to focus on what fiscal policy can do effectively, namely, changing microeconomic incentives to work, save and invest.
The government and opposition’s mistaken belief in a trade-off between fiscal and monetary policy is dangerous, because it leads to fiscal policy decisions that are more about window-dressing the budget balance and claiming credit for reductions in official interest rates that would have happened anyway, rather than improving incentives. For example, the mistaken belief that tax cuts stimulate demand and lead to higher interest rates can prevent sensible tax reform that has positive implications for the supply-side of the economy. Similarly, the fiscal stimulus of 2008-09 was bad primarily because it misallocated resources. Take away the macroeconomic rationale and the stimulus measures look indefensible on microeconomic grounds, even if the spending had been administered perfectly (which it was not).
A budget surplus target can be defended as a fiscal rule designed to impose additional discipline on government decision-making that might otherwise be absent. But there is no reason to subordinate fiscal policy to monetary policy and fiscal targets should not be pursued at the expense of the microeconomic incentives that are the ultimate source of both economic growth and long-term fiscal sustainability.
posted on 09 May 2012 by skirchner in Economics, Financial Markets, Fiscal Policy, Monetary Policy
(2) Comments | Permalink | Main
Mining Booms and Government Budgets
John Freebairn makes the case against a sovereign wealth fund for Australia in the Australian Journal of Agricultural and Resource Economics (no paywall for the moment!) From the conclusion:
The applicability of arguments used in other countries, including Norway and the smaller Middle East oil producers, to quarantine the revenue windfalls of a mining boom in a sovereign wealth fund for use by future generations are questioned for Australia. Relative to these countries, in Australia mining revenues represent a smaller share of the economy and budget, and Australia has a much more diverse portfolio of different minerals and energy, and many with proven reserves exceeding 50 years at current extraction rates. There are other sources of volatility of government revenues and outlays with low correlations with mining government revenues. Future generations are expected to have higher per capita incomes than the current generation. Including mining revenues and outlays within the normal budget processes provides greater flexibility for using the mining boom revenue windfalls for a wider range of investment, tax reform and debt reduction strategies to support higher future incomes than a sovereign wealth fund.
posted on 04 May 2012 by skirchner in Commodity Prices, Economics, Fiscal Policy
(0) Comments | Permalink | Main
Give Bernie 50 and He Will Want 100
Some of us have long memories:
‘No Risk In 1% Rate Cut, Says Fraser’, PAUL CHAMBERLIN, 4 December 1996, The Age:
The former governor of the Reserve Bank, Mr Bernie Fraser, said last night he believed November’s cut in official interest rates should have been doubled. As an overheated dollar retreated in markets yesterday, amid concern about its effect on exports, Mr Fraser said he thought the 0.5 per cent reduction announced last month by the central bank could have been 1 per cent.
“I thought at the time with inflation pretty well under control, very much under control really, and the economy being a bit sluggish in some sectors, that we could have accommodated a 1 per cent cut without any risks,” he said on the ABC’s The 7.30 Report.
Bernie’s comments in December 1996 tanked AUD so hard, the RBA did not cut at that month’s regularly scheduled Board meeting. The RBA waited until 14 December while markets recovered from Bernie’s open mouth operations. So monetary policy ended-up being marginally tighter for longer thanks to Bernie. During his time as Governor, Bernie gave us an average cash rate of 8.7% and an average inflation rate of 3.6%.
posted on 01 May 2012 by skirchner in Economics, Financial Markets, Monetary Policy
(0) Comments | Permalink | Main
How Taxing Housing Diminishes Affordability
I have a piece in The Conversation highlighting the role of taxation in reducing housing affordability. It draws on a recent CIE report for the Housing Industry Association that should have been more widely reported.
posted on 18 April 2012 by skirchner in Economics, House Prices
(0) Comments | Permalink | Main
David Murray Wrong on Sovereign Wealth Funds
Outgoing Future Fund Chairman David Murray wrote a defence of sovereign wealth funds for The Weekend Australian. I respond to Murray in today’s Business Spectator.
A curious feature of this debate is the way in which the defenders of sovereign wealth funds have raised the possibility of secular stagnation in defending inter-generational wealth transfers via a SWF (Malcolm Turnbull also suggested this in a tweet). As I note in my Business Spectator piece, a SWF could at best smooth the implications of secular stagnation over time. If secular stagnation really is upon us, then it is even less likely the Future Fund will realise its targeted real rate of return of 5%.
posted on 23 March 2012 by skirchner in Economics, Financial Markets, Fiscal Policy
(0) Comments | Permalink | Main
A Sub-‘Prime’ Sovereign Wealth Fund
Former Treasurer Peter Costello says that the Future Fund he created is a ‘prime sovereign wealth fund’ and ‘probably the most respected’ in the world. But that is not the conclusion of the Washington think-tank the Peterson Institute, which has compiled the most comprehensive international ranking of sovereign wealth funds (SWFs). The Peterson Institute gave the Future Fund a score of only 80 out of 100, which is below the average of 84 given to the other pension funds in its sample of 53 SWFs in 37 countries. Thirteen other sovereign wealth funds were given a higher overall score in the Peterson Institute rankings, including those in Timor-Leste and Trinidad and Tobago.
In terms of accountability and transparency, the Future Fund scored only 75 out of 100, below the 89 out of 100 given to the State Oil Fund of Azerbaijan. On governance, the Fund scored 86, a little below the average of 87 for other pension funds in the sample. By contrast, New Zealand’s Superannuation Fund ranks third overall with a score of 94 and a perfect score of 100 for governance as well as accountability and transparency.
The Future Fund’s fractious board and the controversy surrounding the process for appointing the new Future Fund chairman only serves to underscore the Peterson Institute’s finding that the Future Fund falls well short of world’s best practice.
For more on the Future Fund, see our Policy Monograph Future Funds or Future Eaters?
posted on 16 March 2012 by skirchner in Economics, Financial Markets
(2) Comments | Permalink | Main
Some Political Leadership on Foreign Direct Investment
Trade minister Craig Emerson has called for increased foreign direct investment in agriculture, in contrast to the federal Coalition’s calls for increased Foreign Investment Review Board scrutiny of foreign investment in the sector. It is one of the few acts of political leadership in this policy area since the late 1980s.
It is hard to believe now, but in the 1980s there was something of a bidding war between the federal Labor government and the opposition Coalition to liberalise the regulation of FDI. It culminated in then opposition leader John Howard’s undertaking to abolish the FIRB in his 1988 Future Directions manifesto. Both sides of politics recognised that restricting FDI increased foreign debt at the expense of foreign equity. The federal Coalition took a principled stand not to make a political issue of the Hawke-Keating government’s liberalisation measures.
Australia has often relied on external pressure rather than domestic political leadership in liberalising FDI. The 2005 Australia-US Free Trade Agreement resulted in a significant liberalisation of FDI screening thresholds in response to US concerns that would have been unlikely in the absence of the agreement.
The conventional wisdom holds that the existing discretionary regime for the regulation of FDI is as much liberalisation as the Australian political system can sustain. Yet the current system replaced an open-door regime that was in place until the early 1970s, at least if we ignore the statutory restrictions in certain sectors. The Australian political system has historically supported a more liberal FDI regime at times when economic nationalism and xenophobia were even more pronounced than they are today.
The shift to a discretionary regulatory regime from the early 1970s has normalised the idea that foreign direct investment should be regulated at the border rather than in-country on a national treatment basis. It is a legacy of the economic nationalism of Gough Whitlam and Rex Connor that continues to hold Australia back.
posted on 12 March 2012 by skirchner in Economics, Foreign Investment
(0) Comments | Permalink | Main
A Sovereign Wealth Fund is Not the Same as Fiscal Responsibility
Treasury Secretary Martin Parkinson addressed the issue of a sovereign wealth fund in a speech to the Australia-Israel Chamber of Commerce. Parkinson said that ‘Treasury is often characterised as being opposed to an SWF – yet our comments are neither supportive nor critical.’ In fact, Treasury and the RBA are just as often characterised as supportive of a SWF when they have been studiously equivocal. Whether Australia chooses to make greater use of a SWF is ultimately a decision for politicians. It is appropriate for Treasury and the RBA to discuss the implications of this policy choice, but we should not expect them to come down explicitly in favour of one side of the argument.
Parkinson’s speech makes clear that greater use of a SWF is not the same thing as more responsible fiscal policy:
the creation of an SWF per se does nothing to address either Australia’s net debt position or, more broadly, the level of government or national savings over time.
If the Australian Government had financial liabilities of $10 billion and runs a $1 billion surplus, it can reduce gross liabilities to $9 billion, or it can maintain them at $10 billion and buy $1 billion of financial assets to be held in an SWF – in both cases, net financial liabilities are $9 billion.
The only way the creation of a Sovereign Wealth Fund delivers a faster improvement in net debt is if it is used to justify a tightening of fiscal policy that would not otherwise be achieved.
As such, if we are to have a sensible discussion about the merits of an SWF, the proponents of such Funds, whether at the national or sub-national level, need to be clearer about precisely what they have in mind. Absent tough fiscal decisions, an SWF does not constitute a contribution to future fiscal sustainability.
Robert Carling and I make this point in our CIS Policy Monograph, Future Funds or Future Eaters? If contributions to a SWF, like the budget surplus itself, are no more than a residual after the government is done spending and taxing, then there is no reason to believe that a SWF changes government behaviour. A SWF, like a budget surplus, is a consequence not a cause of fiscal policy decisions. The IMF found there was little impact on government spending in its study of countries making use of SWFs.
Unless a SWF is embedded in a broader framework of binding and enforceable fiscal policy rules, there is no reason to believe a SWF will induce greater fiscal responsibility. If a politician supports a SWF but does not support fiscal policy rules, you know they cannot be trusted with a SWF.
posted on 08 March 2012 by skirchner in Economics, Financial Markets, Fiscal Policy
(3) Comments | Permalink | Main
Page 6 of 97 pages ‹ First < 4 5 6 7 8 > Last ›
|
