Ideas@TheCentre brings you ammunition for conversations around the table. 3 short articles from CIS researchers emailed every Friday on the issues of the week.
In the current economic climate of grossly indebted governments and faltering economies, it is imperative that policy for the medium to long-term should focus on wealth-creation, major reductions in government expenditure and a structure of incentives for entrepreneurship, production and savings. Tax reductions have a crucial role as incentives and capital accumulation and savings support investment. The federal government has taken a bold step along these lines in encouraging investment and innovation by small businesses through concessions and tax reduction.
It therefore beggars belief that the government should now be considering imposing a tax on bank deposits. Rather than encouraging enterprise and production by tax reduction, it now proposes to take more money out of the private sector instead of reducing its own expenditures. This will be done by punishing those who save the capital that may be applied to private investment and production – savers whose interest earned on their savings is already taxed to the point of exploitation.
Current monetary policy entails low interest rates for prudent savers, on the one hand and, on the other, encourages the search for higher savings to combat this low rate of return and a degree of inflation that further reduces returns. Savers have therefore turned to the stock market in search of better returns, but at high risk. That high risk has now eventuated and billions of dollars are being lost.
To overfill the cup of dismay, those who have rescued a fraction of their investment from the stock market face the prospect of another smack in the eye if they put their remnants into a bank account.
The proposal to tax bank savings, therefore, is not only bad economic policy it is also bad social policy, and, at the margin, will make some victims candidates for welfare support.
It is said that the government’s back-benchers are challenging the proposal. Good luck to them!
In the endless flood of government inquires and reviews – rarely translating to any tangible policy reform – there is good hope in the recent move by the Assistant Treasurer Josh Frydenberg to improve the governance of superannuation funds.
According to the new proposal, at least a third of super board members will have to be independent, as opposed to the usual ‘equal-representation’ model in most industry funds, where the board of directors is equally shared by the representatives of trade unions and employers. Additionally, the board chair will also have to be independent, and all directors will be under tougher scrutiny to disclose potential conflicted interests.
The call for changes has been in the political agenda for long. Both Cooper’s Super System Review and Murray’s Financial System Inquiry have commended for independent directors.
Yet, powerful lobbies are already leading fierce opposition to any legislation move. Unions – echoed by the Opposition Leader – argue industry super funds have delivered greater returns and are well administered, dismissing the need for changes.
However, a deeper look into the reality of governance in super funds points to the opposite, with recent allegations of cosy financial links between some industry funds and unions suggesting a bit more transparency is welcome.
Further, it is also claimed that part of the industry super’s superior return is mainly due to the artificial privilege of default accounts – which is also set to go – since it guarantees a steady flow of funds and therefore reducing liquidity risk costs.
In this sense, an independent board of directors is a great move forward, creating more transparency and alignment with best-practice corporate governance. Yet more needs to be done.
An independent board of directors is not itself a panacea for mismanagement. There must be a proper set of incentives and safeguards for board members to effectively monitor the super industry. Nonetheless, as it stands, the board independency proposal is still a step in the right direction.
Divestment from fossil fuels has become the moral weapon of choice in the armoury of ecclesiastical environmental activists who want to end coal production in Australia.
Pope Francis’ recent papal encyclical Laudato Si identified the intensive use of fossil fuels as a major aggravating factor in anthropogenic global warming.
Now Sydney Anglican diocese’s investment arm, the $262 million Glebe Administration Board (GAB), wants to divest from fossil fuels altogether or set targets for “carbon reduction” across its entire portfolio.
But this means choosing to ignore coal investment’s potential economic benefits – and its benefits to the world’s poorer emerging populations.
Christian investment funds should certainly think carefully about where they put their money. There is no godly reason why they should invest in the gambling industry.
But there is no moral equivalence between investing in pokies and investing in coal. Gambling never did anyone any good, but the same can’t be said about coal.
Oil giant BP reports that use of coal has grown four times faster than renewables and 2.8 times faster than oil over the past decade. Investment interest in fossil fuels and the supply of cheap energy is booming.
Coal has helped lift the living standards of hundreds of millions of the world’s poor by providing a cheap source of energy that has a huge, economy-wide impact.
Coal also happens to be Australia’s second most valuable export after iron ore and supplies the fuel for our own electricity networks.
Divesting from fossil fuels may be fashionable but it is also immoral. Quite apart from putting domestic jobs at risk, ‘ethical’ attacks on the coal industry threaten the livelihoods of hundreds of millions of people in developing economies.
The Sydney GAB fund managers will be the latest to jump with their misplaced ideals on to the bandwagon of climate correctness when they take their revised policy to the diocese’s Standing Committee later in the year for endorsement.
A truly ethical investment policy aims to help the world’s poor. Instead, the flawed reasoning of environmental activism threatens only real economic and moral harm.