“Future Fund backs financial hub tax breaks” – Australian Financial Review
We love newspaper headlines that talk of tax breaks. We love how the journalist, the special interest group and the government talk of the need to provide incentives to businesses by reducing taxes.
But it’s usually a flash in the pan. Before long the same journalists, special interests and governments then put forward their ideas about how everyone should be taxed so the government can give money out to their favourites.
But if a tax break will help with the growth of the financial sector isn’t it logical to not levy taxes in the first place? And not just the financial sector, but everywhere.
The government bribes last year were an admission that taxation is a burden on everyone. Cash handouts were made, businesses were given permission to delay tax payments, and tax breaks were offered to businesses if they bought certain items.
Now we’ve got Future Fund chairman David Murray saying:
“We have an incredibly sophisticated financial system sitting in an Asian time zone and we have an opportunity to trade off some tax revenues for genuine growth of that system.”
OK, that’s fine. But surely what’s good for one goose is good for other geese.
Why not cut taxes everywhere to encourage “genuine growth” in other sectors of the economy? What makes the financial sector a special case for a tax cut but not shoe manufacturers or paper plate manufacturers?
We’ll assume Mr. Murray is keen to get these tax breaks for other reasons. Not just to encourage more investment in Australian financial services, but to prevent what we have from going offshore to Asia.
In other words, he wants to avoid the export of financial services jobs to other countries. That’s very noble of him.
But as per usual, Murray and his cohorts have got everything muddled up – either unintentionally or deliberately.
Just remember, when these guys in the financial services sector speak, they aren’t doing so from a neutral position. They aren’t making an objective statement on the position of the entire economy. They are simply sticking up for their vested interest.
Take this ridiculous comment from the same article in today’s Australian Financial Review (AFR):
“Professor Harper pointed out that services make up 80 per cent of gross domestic product but only one quarter of exports. ‘Australia needs more high value-added service industries,’ he said. ‘What you’d like to do is export more high value-added services because that’s what generates high-paying jobs and generates income.’”
What is he talking about? By the way, Professor Ian Harper is a director at Access Economics.
We don’t think it would be possible to read more nonsense in a paragraph than that printed by the AFR today.
For a start, why does Australia’s GDP comprise of 80% of service sector activity? The economy hasn’t been specifically designed that way. It isn’t down to free market forces.
It’s down to excessive government regulation, including the job destroying minimum wage. Of course, plenty of so-called experts and trade unionists will try and tell you the minimum wage has no impact on unemployment.
Even though that argument goes against logic. And even though it goes against the fact of Australian businesses either sending manufacturing offshore, or going out of business because they can’t compete.
Yet Murray argues that tax breaks are needed to prevent financial services people going offshore and also to encourage more people to work here in the financial industry. It’s clear then that higher costs of doing business destroy jobs.
In other words, without this reduction in taxes, jobs will be lost or not created.
Extend that to the minimum wage and you’ve got the same principle. A minimum wage rate is effectively a tax on businesses. It arbitrarily increases the cost of doing business.
Therefore, a reduction – or preferably abolition – in the minimum wage would decrease the cost to businesses and also increase employment.
It’s logical and can’t be contradicted.
Anyway, the argument from Harper is not that the service industry is already outsized, it’s that it needs to grow even more by exporting more high value-added services.
We’re not exactly sure what that means, but we’ll assume he’s referring to the financial services sector.
Surely the opposite is the case. If these boffins agree that decreasing the tax burden on the financial sector will increase jobs and exports, why wouldn’t the same apply to businesses and individuals in less ‘sexy’ industries such as shoe and sock manufacturing?
Yet the same principle doesn’t seem to apply there. In the union dominated manufacturing sector it’s all about increasing the cost of doing business and therefore ensuring unemployment, or…
Seeing those jobs migrate to the service sector.
So with all these people moving into the services industry it makes you wonder what impact it has on the Australian economy. Professor Harper answers that question himself in the quote above and here again below:
“Services make up 80 per cent of gross domestic product but only one quarter of exports.”
In other words, the majority of services are ‘consumed’ domestically.
We’re not saying the service sector is bad. After all, what’s this newsletter if it isn’t a service?
But what we are saying is that government interference, excessive regulations and high taxes are causing the Australian economy to become lopsided. The export of natural resources is the only strong leg of Australia’s exports, and even that relies on the continued growth of China.
We seriously doubt that increasing the exports of financial services is a long term benefit to the economy. You only have to look at the UK, US and Dubai to see that pinning your hopes on financial markets for sustained economic growth is a disaster waiting to happen.
If Murray and his finance chums really were interested in giving a boost to the Australian economy and increasing exports they would champion the manufacturing industry. An industry that actually produces tangible goods that can be exported.
However, as you know, these jobs are seen as less desirable to politicians who prefer to legislate them out of existence in preference for clean white collar jobs. Especially those in the financial services industry.
The fact is, Australia doesn’t need to be an Asian hub for financial services. What it needs is an economy that produces products that can be exported, rather than an economy that pours everything into consumption.
Providing artificial incentives to the financial services industry at the continued expense of the manufacturing industry will only succeed in unbalancing the economy even further.
Cheers.
Kris.
60-Second Market Round Up
by Shae Smith
The S&P/ASX 200 ended the day slightly higher, closing to 4,911.10, up by 11 points. All the major banks finished higher on Monday, with mining sector down a little on concerns of rising commodity prices.
The American market was closed yesterday for the Martin Luther King Jr public holiday.
It was the usual story overnight in the UK, if it’s not the banks dragging the Footsie down, it was the mining sector pushing the index higher. The FTSE ended the day higher by 0.72% to close at 5,494.39. Eurasian Natural Resources [LON: ENRC] was the big winner yesterday, ending the day up by 3.88%. Find out what else happened in the UK here.
The Nikkei dropped 127 points yesterday, closing at 10,855.08. The news of JPMorgan Chase & Co [NYSE: JPM] heavy losses spooked the Japanese market and raised concerns that the recent rally has been overdone.
The price of spot gold in Australian dollars is trading at $1,224.06 while in US Dollars it is trading at $1,133.60. The price of silver in Aussie dollars is $20.14 and in US Dollars it is $18.65.
The Aussie dollar versus the US dollar is trading at USD$0.9264, and against the Japanese Yen JPY84.09
Crude Oil closed at USD$78.25
For the biggest movers on the market yesterday click here…
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etch you’ve been on the hooch again, damn it – you make more sense under a chemical cloud.
cb – mate really I don’t know. Gold, silver, platinum, oil, diamonds, coal, uranium, titanium, fresh water, arable land, cattle – take your pick. They all are valued and could be currency.
I went to a “sing sing” just outside Port Moresby once and the bride was accompanied by a dowrie of three succulent pigs.
Question – does that make the pigs currency, or is the bride a type of native fiat currency?
How many pigs is a good woman worth?
Or how many women is a good litter of pigs worth?
hahahaha….just athought
maybe his hot-air THIN-AIR scammy biznis
aint making much money so his his looking for that extra buck by putting his hands in sub-ordinates pockets
hey i’ve worked for minimum wages a few times & it dosnt do very much for your ego one iota thats for sure..
its down-right humiliating but aaaaahhh
SIR KING OF DICTATORSHIP knows all…..reduce ‘em
and they tried ………check the link
PLAYYYYYYYY IT LOOOOOOUUUDDD OKAAAAAYYYY
http://www.youtube.com/watch?v=YqiAl84ipIk
Quite so, Johan, or at least that is the theory. In reality, all sorts of spanners end up in the works. One of them is that diminishing and low wages lead to diminishing and low household incomes, which in turn lead to less spending and less and less economic activity, all the way down to a new equilibrium level, called the subsistence level. One side effect from this is that a few grow mega rich, while the rest are reduced to effective serfdom – not a desirable situation, except, perhaps, for those who happen to grow mega rich.
Another thing that is likely to gum up the works is the globalised nature of the economy and that of the labour force. Take an example, such as ours, here in Australia. In a truly free market and liberalised labour force, many of our jobs here could end up paying a mere few dollars a day. There are millions of willing workers globally who would be glad to work for a few dollars a day – for example, people from countries where their families are starving would just about give an arm and a leg to earn a few dollars a day. Now, admittedly, this example is towards one extreme of the spectrum, but have no doubt that there would be plenty of enterprising people willing to import dirt cheap workers into this country, allowing a few to benefit massively, while the rest of the domestic population would end up in the dole queue – if we still had one, that is, since under a truly liberalised labour market the dole would also be abolished.
So far, I see no reason to believe that abolishing the minimum wage and generally liberalising the labour market in the way proposed by Sayce would lead to greater prosperity. Less unemployment, perhaps, but greater prosperity and a general increase in wealth and wellbeing? I doubt it.
Lol, PF. You asked: How many pigs is a good woman worth?
My answer: That might depend on whether you are selling or buying, no?
hahah, anyhow, PF, you are quite right. Each commodity has its value assigned to it by the free market. I have read that in concentration camps while food was adequate, cigarettes functioned as a currency, so even those who did not smoke would accept cigarettes as payment because they knew that they could always use them to purchase with them other things that they wanted later on.
However, when rations were cut and food became scarce, things like slices of bread started to become the more favoured units of exchange.
The reasons why under more or less normal circumstances gold and silver, rather than oil or oxen, or good wine, or still better women, are favoured to function as money, as the currency that is accepted universally, are several. One of them is that these are fungible. Another one is that they take up relatively little space to store value. Another is that you can take them with you just about anywhere and be able to trade them, regardless of political jurisdiction. And another one, of course, is that these are non-perishable, they do not rot, rust, or otherwise go bad on you.
It is a fascinating area and one can raise all sorts of questions and doubts about the rationality of it all, but the monetary metals have proven themselves over thousands of years as reliable stores of value, and it is no different today. Did you know, for example, that the emergency packs of US fighter pilots contain gold coins (apparently quarters)? The bottom line is that, as Greenspan himself put it, in extremis, fiat money is accepted by nobody, whereas gold is always accepted. We could say that gold is universally valued across time, place and cultures.
Peter Fraser 01.20.10 at 9:10 pm
“” etch you’ve been on the hooch again, damn it – you make more sense under a chemical cloud.”"”
yeah no probs PF …any cheap reasonable props up your way???????
nimbin ? byron bay areas?????
etch 01.21.10 at 12:39 am
“any cheap reasonable props up your way???????
nimbin ? byron bay areas????? ”
I don’t look in those areas etch, but I do look at Mt Tamborine and further north from Maleny to Mapleton and properties in those areas are looking like a good buy, in fact I’m trying to negotiate on one at the moment that is very well priced.
Byron and any holiday areas should be well priced if you look hard enough.
Hi Kevin,
My serf comment does not advance the minimum wage argument at all. I was simply pointing out that it was not the absence of minimum wage laws that caused problems for the serfs.
cb, do I have to propose anything? I’m making an observation that minimum wage laws can create unemployment. You disagreed, but then changed your mind, so my observation was worthwhile. I’m not as dogmatic about these things as many people appear to be. But if you want some ideas, there are several options; e.g. start lowering the minimum wage every year until it’s gone, or maintain it at the current price and let inflation lower it in real terms. These would all have consequences that we can’t predicate, as well as those that we can.
A comment before I sign off on this topic: a relative of mine manages a recycling plant owned by a local council. At this plant, most of their staff are mentally disabled workers. They get paid under half of the minimum wage (on top of the disability pension). Apparently government offices get exceptions from minimum wages laws for these cases. Is this to be frowned upon? These people are unable to get a job at or above the minimum wage, but now they have extra income, they feel better about themselves for contributing, and they make some good friends. Why is it that private companies are unable to employ these people at these rates? They could be represented by the very government organisations that located the recycling plant jobs to avoid exploitation. Instead, they are left to work for governments only.
Hi Tim. I agree with you. It is a good scheme and it could be instituted across the board for anyone who is unemployed. I also believe that handing out the dole to people without requiring them to work for it, without contributing at least in the form of some community service, is bad policy. The key and bottom line, I guess, should not be about the question of a minimum wage, but about the question of a minimum income.
For the reasons we have ennumerated, people’s incomes should not be cut, but unlike your position which I think is sensible, I suspect that Sayce would take a hard line on all these government sponsored schemes and would see no sense in abolishing the minimum wage only to see the taxpayer being required to top people’s incomes up to what in effect would again amount to a minimum wage. If I am not mistaken, Sayce would want to see an across the board liberalisation of the labour force, allowing people’s incomes to rise and fall as dictated by the free market.
A lot of us think that this would be a very bad idea on just about every level, and not just from a social and moral points of view, but from the point of view of a healthy, well-functioning economy. In a fairly short period of time there would result extreme concentrations of wealth in very few hands and the masses would be reduced to a mere subsistence existence. In point of fact, and rather sadly, this is a process now well underway in the US, and I don’t think we want to follow them down that path.
Minimum wages are part of our (unspoken) social compact, that we will take at least a minimum level of care over the poorest/weakest/most vulnerable individuals in our society. That ultimately is what the dole is as well.
In feudal society, these did not exist but there was still the social contract. The “lord” had the responsibility to protect and defend his tenant/serf dependents, including ensuring that food was available to the very poorest etc. That started to break down, culminating in the massive discrepancies of the victorian era, hence the introduction of minimum wages.
It is the price we pay for living in a civilised country, and is part of the same framework that ensures that your property is yours (and not vulnerable to government whims), that you can and will receive a minimum level of education and health care and that the roads are not a free for all.
These are all entertwined, each piece ensures respect for the other pieces, and they cannot be separated. Zimbabwe provides an instructive example. Prior to 1980 it had abundant farms (it was not only self sufficient, but able to export produce), and one of the highest per capita incomes in sub saharan africa. This changed as the rights of white farmers and residents were eroded to give rewards to the supporeters of Mugabe. Now it is a basket case- not because it has changed from being a “white” run country to black, but because there are no rules- you cannot trust that your investment will not be confiscated; you do not know that your employer will pay you, or that the doctor is qualified. Altering the social compact- that web of spoken and unspoken rules by which we live- is a slippery slope.
Incidentally- Japan has dropped its minimum wage and salary requirements over the past 20 years- not seeing any benefits there.
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