Monday Forum: June 27, 2016

Posted in Open Forum | 1,258 Comments

Brexit: the EU Britain leaves is brittle to the point of fracture

In The Australian today

Britain joined the European Economic Community in the turmoil of the 1970s. As its entry occurred, Australia embarked on the Whitlam experiment, which crippled our ability to adjust to the shocks that hit the world economy and condemned us to two decades of misery.

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I’ll have what’s she’s having: Labor’s superannuation policy

download (10)For many people, superannuation is a key issue in terms of determining how to vote.  The Coalition clearly broke a clear and solemn promise not to increase taxation on superannuation and has come up with an over-engineered, unworkable dog’s breakfast, most of which will never be enacted.

For some, this is a line in the sand that has been crossed and we should expect the Liberal’s primary vote to be affected significantly in some electorates.

Most of thought that Labor’s superannuation policy was done and dusted but it now seems that all the net savings of the budget in relation to superannuation have been taken on board by Labor and the party is simply refusing to say which of the changes (and there were many) will be its policy and those that won’t.

There is just this reference in the Labor’s costings document:

Given Labor’s concerns about the Government’s superannuation changes, includingretrospective elements, Labor would consult with stakeholders and take a broader examination of all these measures on coming to government.

So who knows?  If super is your thing, hang on to your hat.

Morrison has developed a very unpleasant inflexibility when it comes to discussing superannuation – he knows that he has stuffed up (thanks Martin Parkinson) but it is just too hard to admit it.

My guess is that Morrison will never lead the Liberal Party after this misstep.

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Cross Post: Peter Swan – Experienced shareholders better than independent directors for business

Businesses benefit from having substantial shareholders as directors on audit committees, but only when they are utilising swing trades, new research shows. The research compares the presence of these experienced directors as opposed to independent directors in management of Australian companies listed on the ASX.

Earlier research shows that swing trades make money and predict returns by up to a year. This latest research modelled 1,414 companies that were once in the ASX top 500 over the period 2001-2012, inclusive.

It found as swing trading increases, that directors who are also substantial shareholders (who own 5% or more of the company’s voting stock), raise the stock price and company returns. This is because these directors are held accountable by informed stock price movements that reward their good actions and punish their bad by huge orders of magnitude. This was contrasted against independent directors, who are defined as having no direct links to either management or substantial shareholders, their actions are neither significantly rewarded nor punished.

Swing trades are a strong indicator of active and informed institutional trading. The activity is made up of the sequences of buy and sell trades of individual funds into “packages” over long periods of time.

When a fund, for example, follows a package of “buys” with a package of “sells” and then reverses again to complete a new package of “buys”, these sequences generally indicate they are informed of the actions of a company’s board. This is in contrast to the majority of funds that either buy or sell for exceedingly long time periods or who follow market trends.

The research showed trades that follow conventional market trends neither reward nor punish substantial shareholders, as only highly informed swing trades are cognisant of the board’s good (buy) and bad (sell) actions. An example of a bad board action was Woolworths’ Masters A$3.3 billion outlay and ultimate loss of about A$1.9 billion, with a 32% decline in its stock price since its 2009 board decision, relative to the market.

Independent directors on boards

Independent directors are essentially professional directors that can serve on multiple boards while lacking any specific company orientation. These independent directors typically lack detailed knowledge of a company’s affairs and mostly have insignificant shareholdings or “skin in the game.”

The ASX Corporate Governance Council (CGC) has required independent directors on the board of listed companies since 2003, largely because of the HIH Insurance Ltd debacle, a notable corporate company failure in 2001 that was the subject of a royal commission. It was later revealed that HIH did already have a majority of independent directors for a number of years prior to its collapse.

But the Royal Commissioner, Mr Justice Owen, observed: “I think that any attempt to impose governance systems or structures that are overly prescriptive or specific is fraught with danger. By its very nature corporate governance is not something which ‘one size fits all’.”

The CGC Guidelines pay lip service to Justice Owen by stating the principles and recommendations in regards to independent directors are not mandatory. However, public pressure on large companies has largely led to them complying with the rules requiring independent directors.

Not a great deal can be inferred from board structure changes, as board requirements could alter as a result of changes in firm performance. But with pressure for boards to employ more independent directors from the ASX CGC without raising board size, alterations to board structure drives performance — not the other way round. So the research concluded the departure of substantial shareholders — with their necessary replacement by independent directors — that is the determining factor explaining the decline in firm performance.

The research argues that shareholder directors are better than independent directors on aspects of company performance such as negotiating and monitoring of CEO pay and advising on takeover acquisitions.

According to the world’s most successful investor, Warren Buffett, “True independence — meaning the willingness to challenge a forceful CEO when something is wrong or foolish — is an enormously valuable trait in a director. It is also rare.”

Only a substantial security holder is capable of challenging authority in such circumstances, as Buffett acknowledges by appointing directors with sizeable shareholdings, some around the $200 million mark.

The ASX CGC is made up of professional groups such as Australian Institute of Company Directors and the Business Council of Australia and is perhaps the only securities exchange in the world to delegate the setting of governance standards to people other than shareholders. By contrast, neither U.S. nor Nordic exchanges deem substantial shareholders non-independent, a key difference with Australia.

In addition to this, Nordic countries do not delegate governance powers to director groups but they do delegate many powers to the top shareholders. Nomination committees are, in Norway and Sweden, appointed by the major shareholders at the AGM, and these committees can specify both board structure and remuneration. In Australia and the U.S. these are subcommittees of the board made up largely, if not entirely, of independent directors.

However, in all Nordic countries there should be at least two board members independent of major shareholders, a reasonable balance. In this way it’s possible for major shareholders of Norwegian and Swedish companies to appoint a majority of members with whom they have close ties consistent with a “positive view of active and responsible ownership.”

Originally posted at The Conversation.

Posted in Cross Post, Economics and economy, Finance | 2 Comments

Site news: June 29

For some reason – I don’t know why – some threadster comments are being caught up in the spaminator and others are going straight into Trash. I am clearing out comments as quickly as I can – hopefully the spaminator will update and stop doing what it is doing. (No idea about the straight to Trash comments).

I am in northern Queensland at the moment so this might not happen as quickly as some might like.

Also I’m taking a cautious approach to new threadsters to avoid Bird outbreaks.

Posted in Site News | 9 Comments

David Leyonhjelm guest post on Middle Class Welfare

Robbing Peter to Pay Middle-Class Paul

There is no government today that restricts itself to the provision of law and order, justice, and national defence. We have all become accustomed to the state providing an array of services.
Some of these are more justified than others. Well accepted is support for the truly poor and needy – nobody wants to see anyone starving or children missing out on health care or an education through no fault of their own.

Prior to the welfare state, in prosperous societies, private philanthropy undertook such tasks. That’s obviously changed, with various adverse effects. There is an inverse relationship between the size, scope, and number of private voluntary charities and the size of the welfare state. Governments tend to be inefficient, spending about 70% on bureaucracy to get 30% to the poor, whereas the ratio is reversed for the private sector.

State welfare and intervention also tends to undermine the spirit of voluntarism, which is still strong in Australian culture. The Victorian government’s efforts to impose union rules on the Country Fire Authority, a volunteer and community based organisation, is likely to have serious implications for its future for example.

But our sense of compassion, of extending a “helping hand”, comes to a shuddering halt when we are forced to assist those who don’t need help but are receiving aid merely because someone wants their vote.

This is the situation in Australia today. Millions of people who do not need welfare are receiving it. Millions who are quite capable of supporting themselves are being supported by others.

I am not merely referring to Disability Support Pensioners who are not disabled, or those on Newstart who refuse to work. A far bigger problem is welfare paid to people who have good jobs and are not even remotely poor. This is known as “middle-class welfare”.

One of the most egregious examples is childcare support. This comes in two forms: the Child Care Benefit is paid to families with incomes up to $178,023 (or higher if you have more than three children), while the Child Care Rebate is not means tested at all.

From July 2018 the Government wants to combine these into a single payment which will fall to $10,000 per child if family income reaches $340,000, then continue regardless of a family’s income. Those on million dollar incomes will still receive it.

Another example is Family Tax Benefits. Families with six children, depending on their ages, are eligible for this, until their income reaches $242,000. There is no assets test either; a family with assets of over $5 million, a level most Australian households will never reach, can be eligible to receive tax money paid by a single person on a modest income.

Yet another is student loans. All Australian citizens, regardless of their household income or assets, have access to loans for higher education that are extremely concessional. No interest rate applies and the value of the debts is simply indexed to the CPI. Again, some students with high household net assets or income will inevitably be subsidised by those who are far less prosperous.

Finally, a retired aged couple that owns their home can have an annual tax-free income over $75,000 before eligibility for the age pension ceases. Moreover, pension eligibility is not influenced by the value of the family home. There are people living in multi-million dollar homes receiving pensions funded by the taxes of people who are never likely to own a home.
Some disabled people are also very well off too, yet their principal residence is also exempt from the assets test for the disability support pension.

Australia currently has a $40 billion dollar deficit and a public debt of $285 billion. Neither the Liberal government nor Labor opposition has a credible plan to address this. Both are content to pretend that debt and deficit can be ignored for at least the next four years.
This is not something we should tolerate. With our tax rates already high by both regional and global standards, and with so much wasteful spending, the elimination of middle-class welfare should be a high priority for any new government.

We can easily afford to support the poor and genuinely needy while reducing taxes for those battling to get ahead if we stop handing out money to those who don’t need it.

David Leyonhjelm is a Senator for the Liberal Democrats.

Posted in Budget, Economics and economy, Guest Post, Rafe, Take Nanny down, Taxation | 59 Comments

Wolf cries ‘wolf’: the saddest of hours

Once upon a time, Martin Wolf was sort of sensible journalist-economist.  But it is a long time ago.  Today he is a grade A climate alarmist, full-blown Keynesian and internationalist of the worst sort.

Check out this piece from the FT, reprinted in the AFR.  Oh please.  Here are Wolf’s bon mots:

“David Cameron took a huge gamble and lost. The fear mongering and outright lies of Boris Johnson, Michael Gove, Nigel Farage, The Sun and the Daily Mail have won.

The UK, Europe, the west and the world are damaged. The UK is diminished and seems likely soon to be divided. Europe has lost its second-biggest and most outward-looking power.

The hinge between the EU and the English-speaking powers has been snapped. This is probably the most disastrous single event in British history since the second world war.

Yet the UK might not be the last country to suffer such an earthquake. Similar movements of the enraged exist elsewhere – most notably in the US and France. Britain has led the way over the cliff. Others might follow.

The UK and, to a lesser degree, the EU are now at the beginning of an extended period of uncertainty. The Conservatives will have new leadership.

Whether they will manage to produce a coherent government is another matter. They then will have to do what Brexiters failed to do during their mendacious campaign – map out a plan for unravelling the UK’s connections with the EU.

They broke it; they now own it. But, alas, it seems unlikely that there is any plan on which Brexiters can agree.

This will probably consume the energies of that government and its successors over many years. It will also involve making some huge decisions.

Continue reading

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Best ask Ossie – I know different spelling

George Osborne's political career looks all-but over tonight after his 'Project Fear' warnings of economic chaos if Britain voted for Brexit failed to scare voters into backing RemainWe all know that UK Chancellor George Osborne is thoroughly discredited – my advice is that we should have asked his cousin (different spelling through mistake made by George’s father) Ossie for advice about the economic implications of Brexit.

Indeed, we would have been better asking Mickey Mouse rather than the governor of the Bank of England, the secretary-general of the OECD, perennially tanned Christine Lagarde of the IMF or the 200 economists who penned a group letter.  (I just love the group letter thing, always from the left and because they can’t think for themselves.  They think ‘consensus’ is persuasive.)

But just in case you are in any doubt that Chancellor George has made a complete goose of himself and is now a dead duck read this:

George Osborne was nowhere to be seen yesterday as Tory MPs pronounced the end of his political career.

The Chancellor, unlike other leading Remain campaigners, did not appear publicly, limiting himself to several short statements on Twitter.

Brexit supporters said his credibility – and his diminishing hopes of becoming Tory leader – were fatally undermined by his relentless scaremongering during the referendum campaign.

Last night there was speculation in Westminster that Mr Osborne could quit the Treasury as early as next week, having stayed for the immediate aftermath of the referendum.

 George Osborne’s political career looks all-but over tonight after his ‘Project Fear’ warnings of economic chaos if Britain voted for Brexit failed to scare voters into backing Remain.
Responding to the shock win for Leave this morning the Chancellor tweeted he will do 'all I can to make it work'.

Responding to the shock win for Leave this morning the Chancellor tweeted he will do ‘all I can to make it work’.

As the chief architect of Project Fear, he claimed Brexit would mean the average pensioner would be £32,000 worse off, families would be £4,300 worse off by 2030, house prices would plummet and the country would plunge into recession.

He also claimed Leave campaigners were ‘economically illiterate’.

The final straw was his attempt to scare the public with an emergency ‘Brexit Budget’. This, Mr Osborne claimed, would mean a £15billion cut to the NHS, defence and other priorities and £15billion in tax rises, including a 2p rise in the basic rate of income tax to 22 per cent, a 3p rise in the higher rate to 43 per cent, and a 5p rise in inheritance tax rates to 45p as well as higher fuel duties.

But the last-ditch ploy, which followed a series of worrying opinion polls for the Remain camp, backfired horribly.

Yesterday Tory MP Andrew Bridgen said Mr Osborne ‘used up all his credibility’ on the ‘punishment budget’.

He said there was ‘genuine anger’ among MPs when Mr Osborne came out ‘threatening to go back’ on so many manifesto commitments: ‘He was like a poker player who went all in. He bet the farm and lost.’

Yesterday Mr Osborne did not appear before the cameras, but wrote on Twitter that it was a ‘hard-fought campaign’.

He added: ‘It is not the outcome I wanted but I respect the decision of British people and will do all I can to make it work.’ Earlier in the day, in the wake of the result being announced, he tweeted that had ‘briefed G7 finance ministers and bank governors on outcome of EU referendum. They all respect the decision of the British people.

He added: ‘G7 central banks have taken steps to ensure adequate liquidity and to support functioning of markets.’

Last night one Remain MP said Mr Osborne had ‘run his course’ and was finished. ‘He’s a spent force. It’s over,’ the MP said.

‘I’m sure he knows that, and there’s no chance he’ll stand for the leadership’. A year ago, in the wake of the Tory general election victory, Mr Osborne was firm favourite to follow Mr Cameron as the next Tory leader and Prime Minister.

But the last 12 months saw his political stock crash repeatedly, after he was forced to reverse controversial tax credit cuts in last June’s Budget, and this year, cuts to disability benefits.

In the last Parliament, Mr Osborne was hailed as the Cabinet’s ‘master strategist’ and, like his immediate predecessor Gordon Brown he used the Treasury to build a Whitehall empire and dispense political patronage. But the referendum campaign destroyed relations with Brexit Tory MPs, for whom he became a hate figure, much more even than the Prime Minister.

According to one biography of the Prime Minister, Mr Osborne argued with Mr Cameron against including a referendum promise, fearing the consequences. Anthony Seldon wrote that both ‘are profoundly irritated by their Eurosceptic MPs, but Osborne is even more pragmatic than Cameron.

‘The Chancellor’s view is that it is simply not sensible to talk about disengaging from major international institutions in the 21st century – not worth considering it.’ On Wednesday Mr Osborne is expected to take PMQs when Mr Cameron is in Brussels for the European Council.

Britain voted for Brexit despite a relentless campaign of scaremongering by David Cameron and George Osborne. Here Jack Doyle recounts the ten most doom-laden warnings about leaving the EU.

1 Early in the campaign, the PM claimed a vote to leave might mean the jungle camp in Calais moving to the UK, saying there were ‘any number of opposition politicians in France who would love to tear up the excellent agreement we have with France’.

2 Pensioners were told by George Osborne that an economic shock of Brexit could knock as much as £32,000 off the value of their retirement nest-egg.

3 Treasury forecasts suggested house prices could take a hit of between 10 and 18 per cent over two years.

4 Annual mortgage costs would go up by £1,000 as a result of Brexit, Mr Cameron claimed.

5 Mr Osborne warned the average household that their wealth would be £4,300 lower by 2030 in the event of a vote for Britain to quit the EU.

6 The Chancellor insisted that Brexit would trigger a year-long recession meaning Britain would lose up to 820,000 jobs within two years.

7 President Barack Obama joined in, claiming that Britain would be at the ‘back of the queue’ for a trade deal with the US if we voted for leave.

8 European Council President Donald Tusk warned that Brexit could mean the destruction of ‘Western political civilisation in its entirety’.

9 Mr Cameron claimed that Britain leaving the EU could mean war and genocide in Europe, arguing: ‘Can we be so sure that peace and stability on our continent are assured beyond any shadow of doubt?’

10 The PM warned that Islamic State leader Abu Bakr al-Baghdadi and Vladimir Putin would be ‘happy’ if there was a Brexit vote.

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What’s say Britain exits the UN next


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If it meant so much to the young’uns


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