Thursday, February 28, 2013

Why should an owner occupier get cheaper council rates?

Not content with ranting on strata insurance KS has in recent weeks been compiling data for council rates on strata properties. I will leave that particular topic until completeion of the epistle for my divisional councillor.

Trying to compare different councils is a headache to unravel of different terminology and formats. However, a feature which diffentiates Cairns from most larger councils, to its credit,  is that it doesn't offer cheaper rates for owner-occupiers.This is something I have always seen as an abomination driven by politics with no empirical basis.

A renter doesn't ever see a direct rates component of their expenses so it is unlikely to influence their vote. Owner-occupiers are likely to perceive rates as among the most significant influence for their vote. Hence the difference in my view?

I believe there have been calls in the past for this concession from certain populist councillors. When Cairns City Council held public consultations in 2006 vocal groups from the northern beaches also called for owner-occupier concessions. This was backed by a perception that investors (and strata properties were classified as investors in their minds) get tax breaks elsewhere.

They may indeed, however as far as I am aware the Commonwealth Treasury regard the CGT concession for a primary residence as the largest tax break of all.  At the time of the Cairns Council consultations I recall that a certain Kewarra resident was very outspoken on the issue that investors get  tax breaks while he was sitting on a massive tax free capital gain on his Kewarra beachfront home!

Regardless it is certainly beyond the expertise and role of local councils to compensate for any such tax issues when setting rates. So what is the justification? As far as I can see it's just because they can and motivated solely by politics and cultural bias to home ownership?

Saturday, February 23, 2013

It all depends on whether .....

There may have been floods and rainfall further south along the east coast this year, but so far this hasn't delivered an average wet season to the Far North! The graph below is the variation from the monthly average (dotted line) for Cairns Airport, where the black line is a 3 month moving average and the red line a 12 month average.

Ex-Oswald did deliver rain in January but not enough for that month to still be short of average. The final data point on the graph here is for February which is still open, and while some rain is expected is unlikely to close the deficiency.  So the deficiency so far this wet season is now around 200mm per month below average. The big wet season spike last year was in March.

Loose Change had previously intended a post on weather related events and PR spin from the Insurance Council but will defer that while he attends to a risotto .......


Saturday, February 16, 2013

Reality Check?

"In fact, with strong economic growth the government can simultaneously increase spending, cut taxes and boost the surplus and if you say that’s a magic pudding, it is actually what happened for the last five or six years of the Howard Government." - Tony Abbott, Address to CEDA, February 15.

"Despite continual commentary that households are very cautious, actual measures of confidence have in fact shown an upward trend since the middle of last year and are currently a bit above longer-run average levels. Admittedly, households do not feel the same ebullience they did for some years prior to the financial crisis in the major countries. But that degree of confidence, with its associated patterns of saving and increasing leverage, was unusual, and is not likely to recur." - RBA Guvnor Glenn Stevens, Statement to House of Representatives Standing Committee on Economics, February 22.

Friday, February 15, 2013

Thousands leave dole queue

Loose Change is deeply humbled. Contrary to the previously posted suggestion that the Cairns Post interpretation of the most recent ABS employment data may be that thousands had been tossed on the dole, the Post actually reported the reverse: Job prospects improve
"THOUSANDS more Far Northern people left the dole queue last month, but the total workforce also decreased by thousands in a strange quirk of statistical collation.
About2600 people stopped collecting benefits, with the unemployment rate falling to 7.2 per cent. But the number of people working also fell, by 7600 people."
A strange quirk of statistical collation? A review of last months report by the Post on this indicates that Nick Dalton is indeed reporting the number of unemployed from the ABS survey as directly reflecting dole recipients. Loose change apologises for over-estimating the analytical capability of the Cairns Post!

Thursday, February 14, 2013

The Northern Dream

Thousands thrown onto dole!

Last month the Cairns Post reported the increase in the ABS monthly employment estimates as equivalent to numbers leaving the dole queue. Presumably this month their literal interpretation will be  that 7,700 Far Northerners have been heartlessly tossed onto the dole queue to contemplate life on $35 a day? I suspect instead they will report the fall in the unemployment rate to 7.2%!

The large fall in the employment estimate is not abnormal and actually not far from the average January decline in the 6 year history for this data series.

Conus suggested last month that any decline in the previously strong participation rate could see such a fall in the unemployment rate and that was certainly the story for January. The participation rate also tends to seasonally weaken in January but this time tumbled by 4.7 percentage points which is it's largest monthly variation ever. 

As always, the trend is your friend .....

Monday, February 11, 2013

Dipolar dividend payout conundrum

Gerard Minack, the perma-bear from Morgan Stanley, raised concerns on Inside Business this week about the high dividend payout ratio (dividends paid as a proportion of profits) for Australian listed corporations:
GERARD MINACK: That in a way is the Aussie market. We're a high dividend paying market by global standards, we're a low earning market by global standards. How do you square the circle? We have a much higher payout ratio.

ALAN KOHLER: Well 80 per cent on average, isn't it?

GERARD MINACK: That's right.


GERARD MINACK: In the US it's closer to 25 per cent and near all time lows. We're nosebleed territory in terms of payout ratio.
Minack's concern basically I think relates to business reinvestment of profits and consequent sustainability of dividends. Meanwhile in the USA a discussion has broken out among some high profile economists from a different perspective. Not only are US corporates not paying out dividends they are not reinvesting their profits either but rather hoarding cash.

Paul Krugman has a couple of posts on this: Corporate hoarding and the slow recovery; Still Say's Law after all these years. Tyler Cowen doesn't think it's a problem: Are corporate profits a sink hole for purchasing power? As usual there is an excellent summary from Noahpinion: The corporate cash puzzle.
If there is a Great Stagnation, and corporations see no attractive opportunities for growth, then shouldn't they just return their earnings to shareholders as dividends?
It is an interesting contrast with both high and low dividend payout ratios perceived as a potential problem. Business (re)investment, or its absence, is the concern which links the two. In not dissimilar economic circumstances to the USA a similar hoarding has been previously noted in Japan for some time.

The high Australian payout ratio is also likely influenced by factors such as the dividend tax imputation system, much beloved of retail investors and also attractive to super funds in the yield hungry Australian market.

Nicholas Gruen has suggested in the past that Australia should scrap dividend imputation in favour of a lower corporate tax rate: Another column on tax reform.

Wednesday, February 6, 2013

Chinese cargo now boarding?

ABS released the December data today for overseas arrivals and departures. There are some nice graphics and also additional commentary there from ABS on 2012 trends and long term growth from China and India.

It was noted by Conus Consulting that arrivals from China have been quite flat in the most recent months with the much heralded arrival of direct flights into Cairns insufficient to cause a ripple in the national data. A graph of the original, seasonally adjusted, and trend data from China is quite interesting.

The blue line is the original unadjusted data and it certainly is not hard to pick out Chinese New Year! The extent of that arrival volatility and how much Chinese tourism depends on the New Year period actually surprised but am not yet sure how that would compare with arrivals from elsewhere? As suggested previously a counter seasonality in arrivals from China may well be the most significant advantage for typically seasonal Far North tourism.

Anyway, the Year of the Snake begins this weekend so numbers and trends for January and February will be interesting. In previous years there have been direct New Year charter flights into Cairns. Last year this drew the particular attention of Bob Katter: Deport the pig trotter smugglers!

Update: Macrobusiness also has some commentary and charts.