Author: AustralianActuary

The intolerant left

AustralianActuary Life

In 1949, the monumental economic treatise ‘Human Action’ was published, written by Ludwig von Mises. The book remains of immense significance. It is undoubtedly a tough read. Murray Rothbard produced his own magnum opus ‘Man, Economy and State’ a few years later that similarly was an economic treatise built from the ground up. Rothbard and von Mises had similar understandings. Rothbard’s work was a little more accessible for the reader. But von Mises was the grand master. If you question the relevance of a book written over 60 years ago, consider this quotation*:

“The rigid dogmatism peculiar to religious groups and to Marxism results only in irreconciliable conflict. It condemns beforehand all dissenters as evildoers, it calls into question their good faith, it asks them to surrender unconditionally. No social cooperation is possible where such an attitude prevails.”

That quotation is as true, relevant and topical today as it ever was. Today’s Marxists, greens and the totalitarian left are just as vicious as their predecessors.

* Human Action, Ludwig von Mises, Scholar’s edition 1998, p185

Downgrading superannuation

AustralianActuary Business

The Federal Government’s proposed budget for 2016/17 contained a significant number of changes to be made to superannuation laws. Overall, superannuation has been made less flexible and tax incentives have been reduced. That, in conjunction with a proposed legislated ‘purpose of superannuation’ that is insipid, suggests that the Government has downgraded the importance of superannuation in retirement incomes policy in Australia.

The reduction in flexibility is casued by a tightening of the annual limits on contributions. Contributions from year to year have varying levels of disutility for a saver. When incomes struggle to meet living expenses, housing costs, education costs, savings are minimal or non-existent. When the pressure of expenses eases, people are more able to save, typically when they are aged 45 and above during their peak earning years prior to retirement. Savings are adjusted in accordance with the disutility associated with them. The new limits will inhibit savings because they fail to recognise this point.

The proposed limit to savings of $1.6m is causing a lot of anger among today’s retirees and near-retirees. At current interest rates, $1.6m will not generate a particularly lavish lifestyle. But for future retirees that have been constrained by the new lower annual caps on contributions, I suspect the $1.6m limit is beyond reach anyway.

The Government has messed around with the rules, upset a lot of people with the retrospectivity of the changes and made administration more complex. The best next step would be to admit the total failing of Government regulated savings. Abolish the compulsory Superannuation Guarantee, make all investment earnings tax free (within super), remove super contributions as a deductible expense and tax all benefits as income.

Stock indices: the last 10 years

AustralianActuary Business

The broad-based US index S&P500 is up 60% over the last 10 years. Bearing in mind that dividends are not included and that inflation has been low, you might think a passive investor in US equities would be somewhat relieved. Especially when compared to some other markets: the UK FTSE100 and the Australian ASX200 are both at virtually the same level as they were 10 years ago.

indices

Source: Google Finance

 

Laugh of the week – #ethical investments?

AustralianActuary Business

I had a good laugh this week at the story that was picked up by an investment management industry newsletter. An investment management company calling itself Australian Ethical reportedly said it would decarbonise its portfolio by 2050. Citing the urgent need to do something to prevent catastrophic climate change, the team at Australian Ethical is really getting into gear. Urgently. When I have something urgent to do, my timetable for getting it done often extends into the 2060s, so 2050 clearly reflects the degree of urgency this team really has.

Put aside for a moment that climate alarmists have been warning for at least 15 years that unless action was taken in the next 5 years, it would be too late. Continue reading →

The rise of the capital gains tax

AustralianActuary Life

It seems likely, judging by the continued Government hints, that the effective rate of tax applied to capital gains on assets held by superannuation funds is going to be increased. Probably this will be announced on Budget night in May and take effect from 7:30pm that night.

As usual, the language is distorted by the politicians to try to twist the truth. I wrote about that in an earlier post. This time around, they say that superannuation funds enjoy a capital gains tax discount. They say the discount results in a remarkably low rate of tax. Hence they are perfectly justified in reducing the discount and making the funds pay a fairer rate of tax. It’s all rubbish, of course. Lies and deception. Continue reading →

Shooting kites

AustralianActuary Business, Life

UPDATE (Feb 15): The kite referred to below has been shot down. The Government has announced it is not planning to freeze the SG at its current rate.

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The Government has done little to quell the press speculation this week that the Superannuation Guarantee rate of contribution, currently 9.5% of earnings but scheduled to increase to 12% over time, will be frozen at 9.5%. The lack of a smack-down suggests the Government truly is considering this option and allowing the media speculation to check for community reaction. It is called kite flying.

Goodness, the self-interested are quick off the mark – slings and arrows at the ready to shoot down that kite. Superannuation industry associations and rent-seekers have become too used to a guaranteed revenue stream coming in under the compulsion of law. It has become a sense of entitlement and they squeal when confronted with even the slightest perception of a threat to that money. They all lined up last week to squeal about how bad an idea that would be. It really is tiresome.

The cancellation of further increases in the compulsory rate of superannuation contribution is a good idea. I hope it is implemented. Then, I hope the Government realises the logic that if future increases in the SG should be dumped, the current rate is also too high. It should be reduced to zero. That’s right – the whole SG regime should be dumped. Continue reading →

Bob and Paul argue (again)

AustralianActuary Life

The long-established customs of the Christmas period have religious and spiritual origins, of course. But how do more recent additions to the customs of an Australian Christmas, such as the yacht races to Tasmania, the Boxing Day test match, lunch with one set of relatives and dinner with another, and traffic jams to get out of the cities become established? And moving on towards New Year, how has it happened that no Government, big or small, Federal or State, no local municipality believes that there can be too many fireworks displays? Amorous cicadas must hate 31 December in the late evening.

New Year’s day also is the day when Government cabinet papers from years gone by lose their confidential status and are released to the public. It is typically a 25 or 30 year cycle. For Australian Federal Government cabinet papers, we now have access to the year 1990.  This cycle has given rise to the annual Bob and Paul recommencement of hostilities. I must say, this version of a Punch and Judy show is one of my favourite more recently added customs. Bob Hawke and Paul Keating, two giants of Australian politics, still banging on at each other about who was right, who said what, who was the better PM, who reneged on a deal, who brought home the bacon and carried the Government etc. Each yearly release of cabinet papers starts off a new round of argy bargy. It is the season for it. Silly old buggers.

Nibbling away at the rorts

AustralianActuary Business

Joshua Slocum, famous for being the first sailor to single-handedly sail around the world (in the late 19th century) wrote of the slow but gradual progress his yacht, Spray, made up the east Australian coast. He referred to Spray ‘nibbling away at the miles.’

In a modern day version of slow but purposeful progress, the Commissioner of the Royal Commission into Trade Union Governance and Corruption has delivered his own version of nibbling away at the rorts. Justice Dyson Heydon AC, QC, delivered his report to the Governor-General on 28th December 2015. An odd day, perhaps, given that most Australians prefer to be at the beach at this time, or sailing the east Australian coast, and paying attention to a weighty report that carries 79 recommendations for law reform is not so easy. Nonetheless, the GG is made of sterner stuff and the report is now available to the public. One of the recommendations (#51) gives the Government the necessary ammunition to kill off what has been an unconscionable restriction on employee freedom of choice for the last twenty years.  Continue reading →

The French, Italians, English and Austrians knew it. Why not the Australians?

AustralianActuary Economics

The French are credited with saying that the more things change, the more they stay the same. The phrase is less elegant when expressed in English.  Perhaps the most frequently quoted line of Guiseppe di Lampedusa’s novel ‘The Leopard’ is the Prince’s acceptance that ‘If we want things to stay as they are, things will have to change.’ George Orwell wrote, in his essay ‘The Lion and the Unicorn’, of England having ‘the power to change out of recognition and yet remain the same.’ Friedrich Hayek wrote of ‘the fatal conceit’ of those people who believe that central control and planning of a country’s economic output is possible, and even desirable. These are only a handful of examples of a history of observation and understanding of the challenges in achieving meaningful change in a society. Change is endless, although superficial unless the emotions of the people change. Continue reading →