Australia’s irrelevant election

Satyajit Das spells out the challenges facing the Australian economy in the next decade:

The centerpiece of both major contenders’ campaigns are large tax cuts and significant government spending on infrastructure and welfare. Both parties pay lip service to sound public finance. But the sustainability of policies based on outbidding political opponents and financing permanent expenditure with impermanent revenues is questionable.

….This striking lack of control that Australia has over its economy is grounded in four factors.

….Sadly, no party’s manifesto addresses these fundamental challenges. Tax cuts will not reform a system which needs to be overhauled. Infrastructure spending provides a short-term increase in demand. Bad choice of projects and poor delivery, evidenced by the disappointing National Broadband Network which is over-budget and slow by the best international standards, may not enhance longer-term efficiency and productivity.

The narrowness of the economic base is ignored. No political party is willing to address over-investment in housing, the total value of which is around $6 trillion or around 4 times gross domestic product and constitutes a large proportion of household wealth. Encouraged by complex subsidies, capital is locked up in property, unavailable for more productive activities such as new industries. Leaders are reluctant to champion forceful structural reforms to improve education and skill levels as well as streamline regulation. Instead, all contenders seem happy to rely on windfalls to finance the nation’s living standards through ever shorter electoral cycles.

Worth reading the full article at Nikkei Asian Review

Hat tip to Macrobusiness.

Australia: Unsuspecting super investors are being sold a pup

David Potts at the Sydney Morning Herald writes:

Retirees with far less than $2 million in superannuation face extra tax bills…… the new tax will apply to all earnings above $100,000 a year from 2014, no matter the size of the nest egg.

The tax net is far broader than the 16,000, or 0.4 percent of retirees, mentioned in the recent announcement. Treasury estimates cited are based on a projected 5 per cent rate of return on investment and ignore the fact that returns can fluctuate widely, from 30% in a good year to -30% in a really bad year. Super funds with as little as $200,000 or $300,000 are affected if they earn more than $100,000 in any given year.

The problem is further exacerbated by capital gains, especially for self-managed funds that are not widely diversified. If a super fund sells a property or large block of shares, the asset may have been held for many years but the entire capital gain is recognized in the year in which the asset is sold. Despite some phase-in concessions, lumpy capital gains could lift a retiree over the $100,000 income threshold.

This is a deliberate tax grab that affects ordinary Australians while being sold to them under the smokescreen of “taxing the rich”.

Read more at Super plan contains a booby trap | David Potts | SMH.

Hat tip to Ody for bringing this to my attention on Incredible Charts forum.