HDTenEightyP/NetNews huggingface dataset:
From: cwarren@peg.pegasus.oz.au
Newsgroups: aus.politics
Date: 17 Nov 92 19:38 EST
Subject: Re: Australia's Debt : IBIS view
Nf-ID: #R:1992Nov10.021721.25895@trl.oz.au:2047588115:peg:996200277:000:2694
Nf-From: peg.pegasus.oz.au!cwarren    Nov 17 19:38:00 1992








            
            
            
            Our current account deficit has many causes, one of which
            may be inadequate savings BUT it is not obvious that this
            is either a lever we can manipulate without upsetting
            other things, or that it is a one to one effect, ie that
            savings sufficiently causes CAD so that boosting savings
            eliminates CAD.
            
            If CAD improves, then relatively less is being used to
            purchase imports and this may appear as increased
            savings.  A high level of saving may be a symptom of a
            surplus on Current Account (high savings and high surplus
            coexist in Japan).  If CAD improves, saving may be
            basically unchanged should, for instance, resources
            (currently purchasing imports) be used to fund additional
            consumption eg pensions.
            
            Anyway the problem boils down to tackling the CAD in its
            own terms.  We have 11% unemployment, unused capital
            stocks, and falling interest rates so why do we need more
            savings; what could we offer savers?  When you have
            unused labour and capital, it would be more appropriate
            to increase consumption (and therefore encourage domestic
            production) in areas with low propensity to import and
            some export potential.  This may need some tariff
            adjustments.
            
            Remember too - adjusting savings, impacts on capital and
            if there is no new source of profits, this may tend to
            lower the general rate of profit, futher depressing the
            economy.  Anyway, if I was a saver I wouldn't use any new
            savings to fix the CAD, I'd export the funds to purchase
            more imports to increase my competitive edge in Australia
            or maybe invest in Third World economies that look
            promising.  FX controls would normally mute this flight
            of capital but not now.
            
            The CAD problem is comprised of; excessive propensity to
            import, meagre export potential (despite our best
            efforts), and the mountain of debt run up by private
            enterprise in earlier years.  The CAD problem (3% of
            GDP?) only points to the real problem: the foreign debt
            (40% of GDP), the interest bill and the bleakness of our
            future foreign transactions prospects.
            
            We need more fundamental changes.
            
            
            Chris Warren
            














Newsgroups: aus.politics
From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: Negative Gearing
Organization: Telecom Australia Research Laboratories
Date: Sun, 22 Nov 1992 03:36:44 GMT

In article <chris.722236291@suite.sw.oz.au> chris@suite.sw.oz.au (Chris Maltby)
writes:
>In <1992Nov19.070558.20320@trl.oz.au> c.oneill@trl.oz.au (Chris O'Neill)
writes:
>>
>>Suppose you borrow $100,000 and invest it all under the conditions of the
above
>>example (18% interest, 8% inflation, 6% rate of return on investment, 48.25%
>>tax rate).  Suppose you sell if after 1 year for $108,000, i.e. you get a
>>capital gain equal to inflation.  Now the rental return was $6,000, the
>>interest was $18,000, so the tax deductable loss was $12,000.  The reduction
in
>>tax reduces this loss to $12,000 (1-0.4825) = $6210.  The net gain is the
>>capital gain minus the loss resulting from rent, interest, and tax reduction,
>>i.e. $8000 - $6210 = $1790.
>>
>>So, you make $1790 and the tax office loses $5790.
>
>But the bank who lent you the money has earned $18,000 interest on which it
>pays tax at 39%. It may have had to offer 12% interest to borrow the money
>which it lent you, and that will be taxed at someone's marginal rate - for
>simplicity also 39%. That's $7020 in tax collected. The tax man has also
>made a net gain of $1230. That is principally at the expense of the nitwits
>who save their money in banks which pay negative real-after-tax rates of
>interest.
>
>Negative gearing is a transfer of wealth from savers to speculators.
>When the merry-go-round stops it's the savers who are worse off.
>And society as a whole loses.

Another way you can think of this is that the lender puts up $100,000 and this
ends up earning 6% real.  So we have a tax system that encourages property-type
investments that only earn 6% real while at the same time investment in
manufacturing equipment (that depreciates) that generates 10% real just isn't
worth doing.

For example say that the interest rate, the inflation rate and the tax rate are
as above (18%, 8%, 48.25%).  Now supposing you can invest in machinery that
depreciates at the same rate as inflation (and hence its dollar value stays the
same) and that it produces a rate of return of 10% after its depreciation has
been allowed for (this means that it has to produce 18% before depreciation is
taken out).

Now the tax laws as they stand do not allow any (net) depreciation to be
claimed on this asset because its dollar value doesn't change.  This means that
the gross return on this asset is 18% -18% = 0, which is not going to make
anyone interested in this investment.

So what we have in our tax system is something that encourages investment in
non-depreciating assets (property, shares) even though they may have a
relatively low rate of return and discourages investment in assets that
depreciate, even though they have a much higher rate of return.

This is what is meant when it is said that Australia has an
investment-distorting tax system (when inflation is significant).

Chris O'Neill
Telecom Research
Newsgroups: aus.politics
From: quy@stone.oz.au (Quy Tonthat)
Subject: testing
Organization: Stone Microsystems, NSW, Australia
Distribution: aus
Date: Fri, 20 Nov 92 06:41:58 GMT

testing only - please ignore
Newsgroups: aus.politics
From: pol253b@monu1.cc.monash.edu.au (Ms D Alexander)
Subject: Re: Policies - does only economic policy count? 
Keywords: gst, economic, policies 
Organization: Monash University, Australia.
Distribution: aus
Date: Mon, 16 Nov 1992 11:37:40 GMT

In article <1992Nov12.105622.165089@dstos3.dsto.gov.au> mjp@itd.dsto.gov.au writes:
>
>Well on the GST thing I will put labor before lib in the
>reps. But quite honestly the difference between labor and
>lib is so often a matter of degree that it makes very little
>difference.

(lots edited out)...

>To clarify my decision, I think the effective difference
>between the two biggest parties is marginal at best, and since

Surely you jest.  What about industrial relations and health fer chrissakes
Michael?  Two major areas with potentially enormous social impact, and areas
where the difference is much, much, more than marginal.

Dey.
Newsgroups: aus.politics
From: yar@cs.su.oz.au (Ray Loyzaga)
Subject: Re: Negative Gearing
Reply-To: yar@cluster.cs.su.oz (Ray Loyzaga)
Organization: Basser Dept of Computer Science, University of Sydney, Australia
Date: Fri, 20 Nov 1992 06:13:58 GMT

In article <chris.722235943@suite.sw.oz.au: chris@suite.sw.oz.au (Chris Maltby) writes:
:In <1992Nov19.061221.9683@cs.su.oz.au: yar@cs.su.oz.au (Ray Loyzaga) writes:
::In article <chris.722147967@suite.sw.oz.au: chris@suite.sw.oz.au (Chris Maltby) writes:
:::Thus is you borrow (say) $100K at 10% to buy blue-chip shares returning 6.1%
:::dividends, your net loss is $4K pa before tax. This will be offset against
:::other income. Additionally there is a further $3900K of tax credits to be
:::used to offset tax on other income. You don't need even need a capital
:
::Not quite right, you get 39 cents in the dollar for FULLY-FRANKED shares
::(which is still usually limited to the blue chip stocks), you get less
::for partially franked stock, and zero for unfranked stock.
::And you calculation is wrong, you would get 39% of the dividend as a
::tax credit (39%*6.1%) or $2379, not the $3900 (or even $3900K :-))
::that you are talking about.
:
:No Ray, my calculation is right. Dividends are paid out of the after-tax
:profits of companies. The actual dividend paid represents 61% of the total
:notional dividend, with the other 39% being imputation credit (tax paid
:by the company). Think about it. The notional dividend is added to your
:taxable income, and the imputation credit is added to your tax paid. The
:difference (10% roughly of the notional total, or 16% of the dividend at
:a tax rate of 48.5%) is the effective tax rate on the dividend. Magic.

You are right, I misread your calculation, although I should have picked
up what looked to me to be a random 6.1% as a trigger, it is actually
$10k minus the 39% company tax, instead I mistakenly took you to be
taking 39% of your interest rate, which would be wrong. Please note
that fully imputed credits are only available on a small number of
stocks listed.
Newsgroups: aus.politics
From: yar@cs.su.oz.au (Ray Loyzaga)
Subject: Re: Negative Gearing - a new question about capital gains tax
Reply-To: yar@cluster.cs.su.oz (Ray Loyzaga)
Organization: Basser Dept of Computer Science, University of Sydney, Australia
Date: Wed, 18 Nov 1992 04:28:48 GMT

In article <alanf.722056652@bruce.cs.monash.edu.au> alanf@cs.monash.edu.au (Alan Grant Finlay) writes:
>c.oneill@trl.oz.au (Chris O'Neill) writes:
>
>>Negative gearing does not view the inflationary part of capital gain as taxable
>>whereas it does view the inflationary part of interest on borrowings as tax
>>deductable.  This is how you make a gain while fobbing the loss on to the tax
>>office:
>
>I'm glad someone could explain what is going on here.  Thanks, Chris.
>
>A question I have which doesn't directly bear on negative gearing is:
>what happens to capital gains when someone dies and wills their property to
>someone else?  Do capital gains get taxed in this caser?  In some cases it
>may not be possible to determine the original purchase price although in
>the case of real estate I guess there is a government record kept somewhere.

This is a particularly dodgy part of tax law, basically if you are about
to inherit a whole lot of stuff that is not liquid, get them to sell it.
This includes the family home.

They way it works is this way:
I own a house, I bought it in 1980 for 200,000, it is now worth
$500,000. I die, and leave it to my 3 children. What happens ...
Well the tax office doesn't know it it worth $500,000, they think
it is worth the inflation indexed price, probably close to $380k.
My death would cause a title shift to the children, this is
given a "worth" worth of $380k. So if the kids sell it after my death
they have to pay tax on the $120k capital gains. Now if I had sold
it before I died, no gains would be taxable and the kids get the whole
$500k. Seems a bit unfair ... but we are talking about tax law!
Newsgroups: aus.politics
From: dyfl@mullian.ee.mu.OZ.AU (Daniel Y Lam)
Subject: Re: GST - double tax?
Keywords: GST
Organization: Computer Science, University of Melbourne, Australia
Distribution: aus
Date: Thu, 19 Nov 1992 02:40:54 GMT

rakesh@ecr.mu.oz.au (Rakesh DESAI) writes:
>In this case also it will  be higher tax.  I will expand on my above
>example of a ballpen worth a dollar.  Suppose 4 stages of value addition
>hypothetically has value addition of 50c, 20c, 20c and 10c.  If each
>stages are taxed it will work out as follows
>50c * 1.15 = 57.5c
>57.5 +20c = 77.5 * 1.15 = 89.125c
>89.125c + 20c = 109.125 * 1.15 = 125.49375c
>125.49375 + 10c = 135.49375 * 1.15 = 155.8178c

No.  15% on the value added.

So, stage 1 will attract a tax of 50c * 0.15
    stage 2 20c * 0.15
    stage 3 20c * 0.15
and stage 4 10c * 0.15

So 15% overall.
--
	Daniel Lam
	Melbourne, Australia

In my opinion, the opinions expressed here are my personal opinions.
Newsgroups: aus.politics
From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: Australia's Debt : IBIS view
Organization: Telecom Australia Research Laboratories
Date: Mon, 16 Nov 1992 07:11:18 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.

Obviously, increasing exports is only going to solve the balance of payments
problem if imports don't increase as much as the exports.  I would hope that
this is what the federal government is trying to imply.

>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.

The rate of saving and the balance of trade are closely related, i.e. the more
saving, the less spent on imports and hence the better the balance of trade. 
Mr. Ruthven appears to be implying that there is no necessary relationship. 
After all, "saving" in the context of foreign trade means that we export more
than we import (i.e. our foreign income is greater than our foreign
expenditure).  One way of considering this is that perhaps we cannot get a
substantial trade and services surplus unless there is sufficient saving.

Chris O'Neill
Telecom Research
Newsgroups: aus.politics
From: u734120@bruny.cc.utas.edu.au (John Lamp)
Subject: Re: 11-11-92
Organization: University of Tasmania, Australia.
Date: Sun, 22 Nov 1992 23:47:55 GMT

dave@eram.esi.COM.AU (Dave Horsfall) writes:

>In article <1992Nov21.051803.10033@physiol.su.OZ.AU>,
>    john@physiol.su.OZ.AU (John Mackin) writes:

>| Well may we say `God save the Queen'...

>Because NOTHING will save the Governor-General...

Maintain your rage!


--
   _--_|\             John Lamp, originating in Hobart, Tasmania
  /      \                 Phone: 002 23 1366 - Fax: 002 34 5685
  \_.--._/                   email: u734120@bruny.cc.utas.edu.au
        v <-----------------------------------------------------
From: mferrare@sirius.ucs.adelaide.edu.au (Mark Ferraretto)
Newsgroups: aus.politics
Subject: Re: Jeff Kennett: good for workers ?
Date: 16 Nov 92 00:49:58 GMT
Organization: The University of Adelaide
Distribution: aus
NNTP-Posting-Host: sirius.itd.adelaide.edu.au

phs265y@vaxc.cc.monash.edu.au writes:
>      Kennett can also take credit for yesterdays march in Melbourne yesterday.
>It was the largest in Australia's history. More than 150,000 marched (figures
>from SBS World News). Some reports have the figure at close to 200,000.

>                                   Tony Hartin
>                                   International Socialist Organisation
>                                   Melbourne

How many unemployed people were there at the march?

-- 
    ___    PA38. | Name  : Mark Ferraretto
     |     Gotta | Place : Department of Physics and Mathematical Physics
-----O-----love  |         University of Adelaide
   / | \   it!!  | Email : mferrare@physics.adelaide.edu.au
Newsgroups: aus.politics
From: foc@ausom.oz.au (Frank O'Connor)
Subject: Re: Will Victorians vote stupid yet again...?
Date: Sun, 15 Nov 1992 01:13:18 GMT
Reply-To: foc%ausom.oz@sol.cc.deakin.oz.au
Organization: AUSOM - The Apple Users Society of Melbourne

-- 
------------------------------------------
Listen, someone is screaming in agony!
Fortunately I speak it fluently
------------------------------------------
quit
--------
Newsgroups: aus.politics
From: dyfl@mullian.ee.mu.OZ.AU (Daniel Y Lam)
Subject: Re: GST - double tax?
Keywords: GST
Organization: Computer Science, University of Melbourne, Australia
Distribution: aus
Date: Tue, 17 Nov 1992 04:15:57 GMT

rakesh@mame.mu.OZ.AU (Rakesh DESAI) writes:
>Something about GST which is not clear to me, can somebody explain?

>IF a particular item from raw material stage to final stage (when it
>reaches consumer) may pass through 3 - 4 stage of manufacturing level.
>If 15 % GST is charged on each level of sale, will that not increase
>price of the manufactured goods?

>e.g.  If a ballpen worth a dollar requires 4 stages of manufacture and
>each stage you charge 15 % tax, will not ballpen cost 
>1.15 * 1.15 * 1.15 * 1.15 = 1.75$?

No. The GST is levied on the value added at each stage, not on the
total value.  So the whole thing is taxes at a rate of 15%, no matter
how many stages it goes through.  At least that's the theory.

--
	Daniel Lam
	Melbourne, Australia

In my opinion, the opinions expressed here are my personal opinions.
Newsgroups: aus.politics
From: andrew@medici.trl.OZ.AU (Andrew Jennings)
Subject: Re: Dividend imputation Re: Australia's Debt : IBIS view
Organization: Telecom Research Labs, Melbourne, Australia
Date: Mon, 16 Nov 1992 22:50:05 GMT

> 
>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.  
> 

Perhaps he was misquoted, since it seems that the forms of saving he is
advocating are precisely those which dividend imputation favours. 

There is the question here also of personal savings. Its not just the balance
of trade, its having a pool of savings to draw on for creating new companies.


a.jennings@trl.oz.au               phone  : 61 3 253 6241 fax : 61 3 253 6173
Andrew Jennings   AI Systems       Telecom Australia Research Laboratory

Newsgroups: aus.politics
From: c.oneill@trl.oz.au (Chris O'Neill)
Subject: Re: Negative Gearing
Organization: Telecom Australia Research Laboratories
Date: Thu, 19 Nov 1992 03:45:09 GMT

In response to a suggestion that I provide an example of how the tax office can
usually be expected to make a loss because of negative gearing, I have worked
out the following.  The suggestion was in response to the comment I made in the
article <1992Nov18.005443.8650@trl.oz.au>:

> See if you can make a
>realistic example that includes interest on the tax office losses.

Suppose we have 8% inflation, 18% (nominal) interest rate, 6% rate of return on
investment, 48.25% tax rate and an interest only loan.  Under these conditions
the proportion of negative gearing decreases as time goes by and eventually the
return exceeds the interest.  For the sake of clarity suppose the original
amount borrowed and invested is $100,000.  Interest is fixed at $18,000 per
year.  Rental return is $6,000 the first year and increases with inflation
after that so we have:

year  rent       loss or gain  loss or gain absorbed   present value of A
                                   by tax office(A)
1     $6000      $12000          $5790                 $5790
2     $6480      $11520          $5558.40              $4710.51
3     $6998.40   $11001.60       $5308.27              $3812.32
4     $7558.27   $10441.73       $5038.13              $3066.36

16   $19033.01    $1033.01(gain)  $498.43(gain)          $41.63(gain)

You can do this on a spread sheet if you like but I just wanted to calculate
the total present value loss absorbed by the tax office if this situation
continues forever.  This gives the least loss absorbed by the tax office
because it makes a gain every year after year 15.  I used the geometric series
summation formula to get the result.

The total present value loss absorbed by the tax office is

[$18000/(1-1/1.18) - $6000/(1-1.08/1.18)] 0.4825   (*)

 = $22774

The derivation of (*) is left as an exercise to the reader :-).

I hope we all now realize why this country was going down the tube so fast.  We
have been given a temporary respite from out-of-control negative gearing by a
massive recession that has stopped inflation.  But inflation only needs to be a
few percent before negative gearing is once again worth doing on high return
investments such as shares and only needs to be 5% before its worth doing on
rental property returning 6%.

The horrible realization is that what happened in the eighties can happen all
over again, maybe not as severely but enough to ensure that Australias
distorted investment problem continues.

Chris ONeill
Telecom Research

Newsgroups: aus.politics
From: johnr@bohra.cpg.oz.au (John Reid)
Subject: Re: GST - double tax?
Keywords: GST
Organization: Computer Power Software
Distribution: aus
Date: Fri, 20 Nov 1992 02:55:13 GMT

miw@cc.uq.oz.au (Mark I. Williams) writes:

>bigm@cs.uq.oz.au (Michael Pilling (Big M is watching you)) writes:

>>What they do not point out is that most OECD countries
>>have a consumption tax because most OECD countries are a
>>member of the EEC. One of the tenants of the EEC was to
>>move towards one market, to make things comparable they
>>had to have a standardised tax system. Hence
>>implementing a consumption tax is a condition of joining
>>the EEC. 

>It isn't. EC countries are perfectly free not to have a VAT. The

Sorry, but you are wrong. You are indeed required to have a VAT. The UK
were obliged to introduce one when they joined, and they didn't like doing
it, either.

The VAT is required, because it is connected with membership levies for the
EC in Brussels.

--

_____________________________________________________________________________

John Reid                           
Newsgroups: aus.politics
From: alanf@cs.monash.edu.au (Alan Grant Finlay)
Subject: Re: Negative Gearing - a new question about capital gains tax
Organization: Computer Science, Monash University, Australia
Date: Wed, 18 Nov 1992 03:17:32 GMT

c.oneill@trl.oz.au (Chris O'Neill) writes:

>Negative gearing does not view the inflationary part of capital gain as taxable
>whereas it does view the inflationary part of interest on borrowings as tax
>deductable.  This is how you make a gain while fobbing the loss on to the tax
>office:

I'm glad someone could explain what is going on here.  Thanks, Chris.

A question I have which doesn't directly bear on negative gearing is:
what happens to capital gains when someone dies and wills their property to
someone else?  Do capital gains get taxed in this caser?  In some cases it
may not be possible to determine the original purchase price although in
the case of real estate I guess there is a government record kept somewhere.

-------Alan Finlay, email: alanf@bruce.cs.monash.edu.au, phone: (03)565-5225.
Newsgroups: aus.politics