From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Dividend imputation Re: Australia's Debt : IBIS view
Organization: Telecom Australia Research Laboratories
Date: Mon, 16 Nov 1992 07:31:25 GMT

In article <1992Nov9.110227.7510@trl.oz.au> andrew@medici.trl.OZ.AU (Andrew
Jennings) writes:
>
>I've been thinking about that post about our trade performance, and
>how its improving. I think this article encapsulates the reasons
>why its clearly not enough just to do this. 
>
>
>From the "Daily Commercial News" Monday November 2, written by Pauline
>Zahra.
>
>
>The federal government's insistence that the balance of payments
>problem could be solved by increasing exports was "propaganda" and
>Australia was heading for disaster.
>
>This is the view of Phil Ruthven, executive director of IBIS Business
>Information Services who predicted that the payments deficit was fast
>approaching the previous record of $23 billion, set in 1989-90.
>
>Mr Ruthven told DCN the government's ploy of encouraging exports and
>import replacements was paramount to "persistent lies" because the
>major item causing the deficit was the climbing interest rate on the
>foreign debt.
>
>Mr Ruthven said the merchandise balance of trade had improved in the
>past few years and had been in surplus several times this year but the
>imbalance on the services ledger had continued to grow.
>
>Mr Ruthven said the only way to arrest the foreign debt problem was to
>lift the savings ratio which at the moment was a "disgraceful" five
>percent. This compares with 11 percent in Japan, 23 percent in
>Singapore and 31 percent in Taiwan.
>
>He said that Australia did have a savings ratio of 11 percent in 1975
>but 17 years of deterioration wiht governments, both federal and state,
>not balancing their budgets had whittled this down.
>
>Mr Ruthven said the government had been dodging the fundamental issue
>that Australia did not save enough to support the necessary
>infrastructure such as housing, roads and manufacturing
>infrastructure.
>
>...the foreign debt, now about $160 billion, was the second highest in
>the world, behind the US and predicted it could pass the $200 billion mark
>by December 1994.
>
>...the government should either scrap negative gearing and dividend
>imputation, both of which encourage borrowings, or stop taxing the interest 
>on savings.
>
>
>Disclaimer : The above is obviously not the view of my employer, its a quote
>of somebody else yacking. So its not really my view either.
>
>
>What do I think? I'd like to see some money channelled out of real estate and
>invested in my kids' future. I'd like to see the family home taxed as an
>asset, and negative gearing abolished. Also I'd like to see death duties 
>introduced and the funds channelled into an investment bank for new Australian
>companies.

Regarding dividend imputation, it may well be that it encourages borrowing. 
But the important question is whether it encourages unproductive borrowing the
way negative gearing does.  As it stands, dividend imputation is merely a
method of calculating a consistent level of taxation on company profits.  It
has no direct relationship with borrowing.

In fact we can argue very strongly that dividend imputation encourages saving
in the form of investment in Australian company shares, so I don't know where
Ruthven gets the idea that it encourages borrowing by itself.

I find it somewhat worrying that someone who is supposed to be in the business
of providing business information and who gets quoted by a newspaper doesn't
seem to understand the benefit of dividend imputation.  It makes me worry about
the level of ignorance that exists among influential people in Australia.

Chris O'Neill
Telecom Research
Newsgroups: aus.politics