Month: May 2015

Much ado about Nothing

AustralianActuary Life

Apologies to Shakespeare, of course, but the title of his comedy from the late 16th century could equally apply to the 2015 Budget changes supposedly intended to make the age pension more sustainable. In case you missed it, the asset test arrangements are to be re-jigged for entitlement to the age pension. At lower levels of assets, the threshold has been lifted meaning some people with assets around the margin will receive higher age pension payments. At the upper end, the threshold has been lowered so some people with higher levels of assets around that margin will have lower pension payments. The rate of taper between the two thresholds will accelerate.

A Shakespearian comparison is valid. Equally, is the contemptuous Mick Dundee New York scene – “that’s not a knife”.

I won’t bore you with modelling charts as the end result is a yawn. For the vast bulk of the population, these changes mean virtually nothing. Many people will see payments marginally increase. Those with assets at the higher end of the means-test will see initially lower pension payments, then as their personal assets reduce more quickly to make up for the short fall, they will then move on to the higher pension payments. For most, it is simply a minor timing switch in the receipt of pensions.

“That’s not sustainability.”

Gathering voices

AustralianActuary Economics ,

Some months ago, I posted a piece here saying that the problem with the economy had nothing to do with high interest rates. Cutting interest rates further would not work. Since then, the Reserve Bank of Australia has cut the official cash rate from 2.5%pa to 2.0%pa.

If only a few more economists would make their views known, such as here, and a few more would stand up to the uninformed mainstream economics doctrines* taught mostly everywhere since the death of Keynes, then we would begin to see an improvement in public policy. Let’s hope.

* To help kickstart thinking, how many borrowers pay 2%pa on their borrowings? What is your mortgage rate? What is your credit card rate? What is the cost of capital under a debt finance model for a small business? There are thousands of interest rates in the market, not just one with stepped margins. Why would that be? What does that mean for the IS/LM model and ‘the’ interest rate?

General Election in the UK

AustralianActuary Economics

The election result in the May general election has seen the Conservative party win majority Government. This is undeniably the best result for the UK and interested on lookers. To commentators, the result is a huge surprise. Pre poll accepted wisdom was that there would be no single party majority but instead a messy cobbled together and inherently unstable coalition, possibly with Labour as senior partner. Fortunately, that was avoided.

The UKIP party won approximately 13% of votes, yet only 1 seat, due to the workings of the electoral system. In contrast, the Scottish National Party won 5% of the vote and 56 seats. Go figure.

What Mr Cameron should now do is recognise that the Conservative majority, plus the 13% vote to UKIP, shows that the UK population appreciates economic management. To date, the Government has made modest progress in correcting the economic mismanagement of Labour. Key action is now needed to reduce the budget deficit, reduce statism, reduce welfare abuse and reward individual responsibility. Profit is not a dirty word – profits, and reward for effort, must be admired, not demonised. Tax rates should be reduced, trade liberalised and regulations scrapped. Mindless regulation imposed by the EU must be resisted or ignored – yes, Brexit would be an excellent outcome.

Mr Cameron is not in the mould of Mrs Thatcher or Mr Reagan. But he should take heart that displaying the attitude of those two great leaders to economics will gain him electoral respect, despite what the leftist media says. Please get on with it.