Category: Stock Markets

Marion Terrill and Owain Emslie are the authors of the new Grattan Institute report, What price value capture?

….Federal ministers from the prime minister down are enthusiastic about value capture and are pushing the states to embrace it. Only last week, Urban Infrastructure Minister Paul Fletcher reiterated that the Commonwealth does not want to be “just an ATM” for the states. But if the federal ministers face up to some home truths, they may find value capture less to their liking.

Value capture is a tax

Home Truth No. 1 is that a value-capture scheme is a tax. That’s how it raises revenue…..

Which brings us to Home Truth No. 2: to raise a reasonable amount, a value-capture tax would need to include the family home….. A tricky question of who’s in and who’s out.

Home Truth No. 3 is that many taxpayers are likely to feel aggrieved…..Drawing a boundary around a new piece of infrastructure to distinguish between those who must pay the new tax and those too far away to benefit is bound to involve rough justice.

Broad-based land tax is better still

A better answer still could be a broad-based land tax. Such a tax is highly efficient, because land is an immobile tax base (see the chart below).

While it would not zero in on the beneficiaries of new infrastructure, a land tax would capture the effects of all infrastructure, old and new, as these translated into land values, making it scrupulously fair. A broad-based land tax would also be simpler to administer than a value-capture tax. That’s because there would be no requirement to police the geographic boundary of the catchment area.

So a broad-based land tax has some distinct advantages over a value-capture tax…..

One of the biggest dangers with any tax is complexity. It promotes the perception of unfairness and makes collection difficult.

Funding infrastructure is a headache for government. Benefits from increased indirect taxes like personal and company taxes may prove elusive. “User pays” taxes, like road tolls, tax direct users but assume that every user benefits by the same amount. And they have no way of taxing others who indirectly benefit — landowners who build a new shopping centre for example.

A broad-based land tax is far more efficient than indirect taxes and fairer than narrowly-focused direct taxes, while encouraging broader use of new infrastructure assets.

An example of the pitfalls surrounding infrastructure funding is the Skye Bridge in Scotland, a road bridge which connects the Isle of Skye via the A87 to the mainland. The bridge was built by a private consortium and opened in 1995.

Locals objected to the tolls charged (a round trip cost £11.40). Mass protests followed and a prolonged non-payment campaign. Despite numerous prosecutions, by 2004 the issue had become such a political hot potato that the Scottish government purchased the bridge for £27m and abolished the tolls.

Land taxes would have stood a better chance of success, especially if weighted towards land and businesses that would receive the greatest benefit. They also ensure public ownership of monopoly assets that may be exploited by private operators.

Source: Value capture: a good idea to fund infrastructure but not easy in practice

Skye Bridge: Wikipedia

From The Age:

The Federal Reserve raised its benchmark lending rate a quarter point and continued to project two more rate increases this year, signalling more vigilance as inflation approaches its target.

“In view of realised and expected labour market conditions and inflation, the committee decided to raise the target range for the federal funds rate,” the Federal Open Market Committee said in its statement on Wednesday. “Near-term risks to the economic outlook appear roughly balanced.”

Surprisingly, the Dollar Index fell sharply on news of the announcement. But selling was mainly traders who had anticipated a more hawkish stance on future rate increases.

Investors had anticipated the tightening. In fact, Treasury yields had climbed with the dollar on speculation the central bank might signal a faster pace of rate rises. But those trades unwound quickly after the announcement.

Source: Fed raises benchmark rate as inflation approaches target

According to Bloomberg, Nobel Prize-winning economist, Robert Shiller, says he is not buying stocks at present:

….One factor that makes him cautious on American shares is the S&P 500’s cyclically-adjusted price-earnings ratio: While the metric is still about 30 percent below its high in 2000, it shows stocks are almost as expensive now as they were on the eve of the 1929 crash.

“The market is way over-priced,’’ he says. “It’s not as intellectual as people would think, or as economists would have you believe.’’

Robert Shiller’s CAPE compares current prices to a 10-year moving average of inflation-adjusted earnings. That is likely to be distorted by losses incurred in 2009 which are more of a (hopefully) once-in-a-generation event.

Source: Why Robert Shiller Is Worried About the Trump Rally – Bloomberg

Mathew Dunckley from The Age reports on a new $230 million solar project:

The backers of three large solar farms have locked in the final piece of their funding puzzle after securing debt financing from a group including the federal government and Commonwealth Bank of Australia.

Local developer Edify Energy and its German investor, Wirsol, will now look to begin work on the farms in Queensland and Victoria and have the first power flowing by early next year.

….The combined project will add 165MW of renewable energy capacity to the national electricity grid by the start of next year and generate enough electricity to power an estimated 87,000 households.

The Clean Energy Finance Corporation (CEFC) will provide $77 million, taking its total large-scale solar commitments to $281 million across seven projects.

….The lending consortium brings together the CEFC, Commonwealth Bank and Germany’s NORD/LB.

CBA’s managing director and global head of infrastructure, Michael Thorpe, said the bank was proud to support the “landmark” transaction.

“The strong risk profile and expertise of both Edify Energy and Wirsol contribute to excellent project fundamentals of the Whitsunday, Hamilton and Gannawarra solar farms,” he said.

This infrastructure project ticks all the right boxes:

• private-public partnership
• leading international expertise
• renewable energy
• short delivery time

The big question is whether electricity delivery will be at competitive prices.

Source: Government, CBA in landmark $230m solar deal