Australia sets three goals for this week’s G20 meeting

Australia has set three goals for the G20 leaders’  meeting in London on Thursday.

“The way forward for the summit is clear,” the Treasurer, Wayne Swan, told finance journalists in Tokyo yesterday.

“To deal with the problem of toxic assets.

“To maintain the impetus for fiscal stimulus measures.

“And to resist trade and financial protectionism.”

Several European nations, including Germany, Spain and the Czech Republic have been distinctly sceptical on the issue of  stimulus measures.

However, as the Finance Minister Linsday Tanner pointed out yesterday, the German leader, Angela Merkel, had indulged in a little fiscal stimulus, herself, when economic circumstances showed that was necessary.

And Mr Swan, at least, is optimistic.

He said the “groundwork” for the G20 Leaders’ Meeting has already been done.

And governments around the world had already agreed that fiscal stimulus would be necessary this year.

“And we have agreed to have the IMF assess what further stimulus might be needed beyond what has been agreed for 2009,”  he said.

He said, too, that the G20′s agenda is “very broad” as “it needs to be.”

Mr Swan has also been selling Australia’s “underlying resilience” to Japanese investors, while he has been in Tokyo.

He said that four of the world’s 11 most stable banks are, in fact, Australian.

Small business gets a $720 million tax boost

The Federal government is offering a new tax break, for an estimated 1.5 million small business owners in Australia, self funded retirees and small superannuation funds.

The new break, which will cost the government an estimated $720 million, is meant to boost small business cash flows, during the present crisis.

The Treasurer, Wayne Swan, said:”What we’re going to do is reduce the uplift factor that applies to PSAYG tax instalments that are paid on a quarterly basis.

But Mr  Swan also confirmed the Prime Minister’s earlier admission that Australia will now, almost certainly, slide into recession.

In fact, we are already at least half way there.

The Statistician reported that the Australian economy contracted by 0.5 per cent in the final three months of last year.

Two consecutive quarters of negative growth make a recession, on most economists’ reckoning.

Speaking to reporters over the weekend, Mr Swan said the government is expecting fresh forecasts from both the OECD and the World Bank this week.

“…and if there are substantial downgrades there, I think it will be almost inevitable that Australia will experience a period of negative growth,” he added.

This admission, that a recession is imminent, is very close to one the Prime Minister made, before he left Australia to visit Washington and London.

Mr Swan said this was the main reason why the tax break is being offered.

Byt the way it is being made is complex.

The passages below, taken from the official announcement, spell it out.

<!– /* Font Definitions */ @font-face {font-family:”MS Mincho”; panose-1:0 0 0 0 0 0 0 0 0 0; mso-font-alt:”?? ??”; mso-font-charset:128; mso-generic-font-family:roman; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 134676480 16 0 131072 0;} @font-face {font-family:”\@MS Mincho”; panose-1:0 0 0 0 0 0 0 0 0 0; mso-font-charset:128; mso-generic-font-family:roman; mso-font-format:other; mso-font-pitch:fixed; mso-font-signature:1 134676480 16 0 131072 0;} /* Style Definitions */ p.MsoNormal, li.MsoNormal, div.MsoNormal {mso-style-parent:”"; margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:14.0pt; mso-bidi-font-size:12.0pt; font-family:”Times New Roman”; mso-fareast-font-family:”Times New Roman”;} p.MsoPlainText, li.MsoPlainText, div.MsoPlainText {margin:0cm; margin-bottom:.0001pt; mso-pagination:widow-orphan; font-size:10.0pt; font-family:”Courier New”; mso-fareast-font-family:”Times New Roman”;} @page Section1 {size:612.0pt 792.0pt; margin:72.0pt 90.0pt 72.0pt 90.0pt; mso-header-margin:36.0pt; mso-footer-margin:36.0pt; mso-paper-source:0;} div.Section1 {page:Section1;} –>

Who will receive the reduction?

The PAYG instalment reduction applies to taxpayers whose PAYG instalments are adjusted for growth in GDP (GDP-adjustment method).

This method bases instalment amounts on the previous year’s taxable income, uplifted by a GDP adjustment factor.

This adjustment factor reflects nominal GDP growth over the previous two calendar years and is intended to calculate tax instalments payable based on expected profit growth.

However, as the adjustment factor is calculated on previous growth rates it will overstate expected profit growth where economic and business conditions have declined quickly.

Taxpayers using this method include those carrying on a business and those with investment income, for example self-funded retirees, and wage and salary earners with investment income subject to the PAYG instalment system.

In the main, small businesses, individuals and small superannuation funds are eligible to pay their instalments quarterly using the GDP-adjustment method.

How will it apply?

For the 2009-10 income year, the adjustment factor calculated under the tax law will be set at 2 per cent.

In accordance with the existing law, taxpayers may still vary their quarterly tax instalments, if they consider their income is expected to be lower or higher than the amount determined by the Commissioner of Taxation using the 2 per cent adjustment factor.

This reduction does not apply to taxpayers who calculate their instalments based on the instalment rate notified by the Australian Taxation Office. Their payments will automatically adjust

Barack Obama damages his G20 chances

Barack Obama’s decision to expand the US military commitment to Afghanistan can only damage the chances of a successful outcome from the G20 meeting in London this week.

And that would be a tragedy.

The US, along with its allies including Australia,  has been fighting terrorists  in that country for more than seven years,  since the invasion in 2001.  But there has been little clear progress, to show for it.

Wars are expensive, both financially and in terms of political capital.

As a new, fresh US President, just two months into office,  Obama would, usually,  have  have carried great prestige and power into this week’s meeting.  Especially as his election raised hopes  throughout the world.

The late Kim Beazley senior once put the dilemma Obama now faces, very sharply, saying that getting involved in a land war in Asia is the “second worst military decision it is possible to make.”

“After invading Russia in winter.”

Beazley Snr., was criticising the US in Vietnam, at that time.  But his words still have power, today.

The Taliban’s decision to protect Osama Bin Laden, which led to the US invansion, was certainly stupid.

The US had been attacked by al Queada – and certainly had a right to retaliate.

But fighting unwinnable wars, as the US now arguably is, in both Iraq and Afghanistan, is not a clever response.

Nor is sending in an additional 21,ooo troops, when a war bogs down, as Obama is now doing in Afghanisatan.

Both wars are being fought on the US national credit card.

And that is already heavily loaded.

President Obama is taking a clear, financial strategy to the G20 meeting in London.

He wants other nations to follow the US and Australian examples, and stimulate their economies  to lift not just themselves, but the entire world, out of  recession.

But the clear fact that the present recession  started  with the excesses of  US financiers, is enough,  by itself, to make Obama’s position at the G20 summit difficult.

His decision to commit more US troops to Afghanistan will, inevitably, add to those difficulties.

Especially as several European leaders leaders, including Germany’s Angela Merkel, are already deeply suspicious of  both stimulus packages  and long pointless wars, anyway.

Czech leader’s “road to hell” speech threatens G20

Mirek Topolanek’s inflamatory charge that Barack Obama’s stimulus measures put the world on “the road to hell” is threatening to  split  the G20, on the eve of its meeting in London this weekend, to tackle the global economic crisis.

Especially as the EU President delivered his attack just days before the G20 tries to settle on a united strategy to tackle the global economic crisis.

There are mitigating factors, of course.  The Czech President is a desperate man.  His rule, in his homeland, is expiring, as a result of a successful no confidence motion in his government. And that will, also bring his six month term, in the rotating  EU presidency to an end.

Mr Topolanek said EU leaders had been disturbed at a summit in Brussels last week to hear calls from Tim Geithner, the US Treasury secretary, for more aggressive policies to fight the global downturn.

Then he said:-“The US Treasury secretary talks about permanent action and we, at our spring council, were quite alarmed at that . . . The US is repeating mistakes from the 1930s, such as wide-ranging stimuluses, protectionist tendencies and appeals, the Buy American campaign, and so on, all these steps, their combination and their permanency, are the road to hell.”

Mr Topolanek was speaking at a European parliament session in Strasbourg.

His speech threw European Union hopes for better relations with the US thrown into chaos. His attack also threw a dark shadow over next week’s G20 meeting.

It  also came barely a week before Mr Obama is due to arrive in Europe on his first official visit as US president. And it put the 27-nation EU clearly on a collision course with Washington.

The crude attack also compounded the confusion that has engulfed EU policy after the Czech leader lost a no-confidence vote in the country’s parliament on Tuesday, forcing him to offer his government’s resignation midway through its six-month EU presidency.

The Australian Prime Minister, Kevin Rudd, who was in Washington yesterday, refused to comment on the Czech leader’s attack, saying he had not heard what Mr Topolanek had said. US officials also refused to  comment on them.

But the Obama administration says it took great pains to ensure that the Buy American provisions in the $US787bn (€579bn) stimulus that the president signed into law last month were consistent with World Trade Organisation rules. It followed, therefore, that any attempt to make them permanent would continue to be consistent with WTO rules.

But other leaders of EU member states, including Angela Merkel, Germany’s chancellor, also disagree with US calls for big fiscal stimuli to battle the recession. However they have couched their opposition in more diplomatic language than Mr Topolanek’s.

Relations between the Obama administration and Mr Topolanek’s government have been delicate in recent weeks because of signals from Washington that Mr Obama may reassess plans to deploy parts of a US anti-missile shield in the Czech Republic, a project to which the Topolanek government has been committed.

Mr Obama has vigorously opposed the view that the Great Depression was caused by too much spending, rather than too little, a view held by a small handful of right wing economists.

RBA chief exposes big bank bastardry

Some of the now confessed bastardry of Australian banks has now been exposed, at the highest possible level.

The Reserve Bank Governor, Glenn Stevens, chose his words carefully – and spoke politely – when he did that late yesterday.

But those who heard him had no doubts about what he was really saying.

He was laying into Australia’s big four banks.

The Governor’s speech, clearly, followed years of frustration, dealing with the deep conservatism and self-serving policies, of Australia’s big four banks.

True, they haven’t acted as badly  as their reckless counterparts in the United States, who played a major role in precipitating the present global economic crisis, through their reckless lending and subsequent complex cover-ups.

But Mr Stevens’ catalogue of what they have done – and failed to do – makes serious reading, anyway.

The governor says, for example, that the big four banks have effectively lumbered Australian shoppers and businesses with a cumbersome payment system, whose design is at least thirty years out of date.

He said other countries, including Britain, Canada and the United States have done much better, at keeping up with both changing – and rapidly advancing – technologies.

Bad as that, undoubtedly is, Mr Stevens’ criticism of the big banks, which he regulates, didn’t stop there.

He noted too, that if the big four banks ever saw a chance to freeze small rivals out of the system, they would take it, regardless of the damage it did to competition in Australia’s financial system.

But Mr Stevens made it clear, too, that he also had his reservations about the smaller players, in Australia’s financial system.

“For example, small institutions would only consider a system that allowed to form fee-free networks among themselves, otherwise they would be at a competitive disadvantage to the big banks, with their large ATM networks,” Mr Stevens said.

He effectively confirmed, too, that the Reserve Bank had been forced to drag the big four, kicking and screaming, into the recent reform of Australia’s ATM system.

The new  head of the National Australia Bank, Cameron Clyne, boasted yesterday, that as boy who grew up in Sydney’s western suburb of  Penrith,  he was pretty used to “people telling it like it is.”

And he added: “There are issues where many people think the banks can be bastards”.

Mr Clyne might well have hesitated, before saying that, though, if  he had realised that Mr Stevens would soon, effectively, join those critics.

That happened just a few hours after Mr Clyne spoke.

Planning an e-business? Check this

Are you planning an e-business?

Selling your great product  from home?  Or, perhaps, promoting the beautiful attractions of your district to potential tourists.

These can be great ideas.

But there is one thing you must take into account.

That is potential fraud.

A senior Reserve Bank executive, Philip Lowe, is  sounding the the warning.

And as an Assistant Governor of the Bank, with special responsibilty for Australia’s financial system, Mr Lowe is, definitely, in the know.

He says online credit card fraud, in which the merchant does not actually see the customer’s card, is now the most rapidly rising kind of credit card fraud in Australia.

“Almost half the fraud on credit cards occurs in situations where the merchant does not physically see the card,” Mr Lowe said, in a speech he delivered yesterday.

He said, too, that this kind of fraud had increased by around 50 per cent over the past year.

“If this trend were to continue, it could undermine consumer confidence in transacting business on line,” Mr Lowe said.

To say nothing of merchant confidence, in this increasingly common kind of commerce.

Mr Lowe said more needs to be done to offer consumers highly secure payment options.

Kevin Rudd flies into a toxic storm

Australia’s Prime Minister, Kevin Rudd, has flown into a toxic debt storm in Washington.

He arrived there, for his first meeting with the new US President, Barack Obama,  just as the Obama administration launched an ambitious scheme  to sell toxic assets to private investors.

To describe the scheme, that the US Treasury Secretary, Tim Geithner, is promoting merely as dangerous would be a huge understatement.

Mr Geithner is promising that the US government would lend the private investors up to 95 per cent of the money they would pay for those assets.

The scheme, which has been tried before, has its attractions.  Particularly for those private investors.

If those – presently  despised -  assets do turn out to have some residual value, after the present US recession ends, they could make big profits, through such purchases.

But if those assets remain effectively worthless, those investors could, as the Nobel Prize winning economist, Paul Krugman warns, simply “walk away from their debts.”

Heads, the investors win.  Tails, US taxpayers lose.

Geithner says his scheme would “use the expertise of the market” to set a value on those, now toxic, assets.

But Krugman recalled that a previous Treasury Secretary, Hank Paulson, proposed a similar “cash for trash” scheme, six months ago, when George W Bush was still president.  His idea was  quietly abandoned later.

Mr Rudd has a better plan, in his briefcase.

He will try to persuade President Obama, to clear the way for China to be given a bigger say in the International Monetary Fund, at the G20 Leaders’ Summit, next weekend.

China does, after all, have vast cash deposits, which are  presently held in US government securities.

A little of that money might be made to work harder, pulling the world out of its recession, if the conservative Chinese government could be persuaded to make a few, well-placed, investments.

The Chinese, though, won’t be tempted by the Geithner plan.  They know a toxic idea, when they see it.

The real issue, here, is that the global crisis is now advancing so rapidly, that hundreds of thousands of US -and other – jobs are being lost each week.

This is no time for the great and the good to be pushing dangerously unworkable schemes.

That just wastes very valuable time.

A “really tough” Federal budget coming

Expect a really  tough Federal budget in May.

That tip comes from a usually reliable source, the Prime Minister, Kevin Rudd.

Speaking in a television interview yesterday, Mr Rudd left no room at all for doubt about that.

He had been asked if the budget would have to be tough, this year.

“Really tough,” Rudd replied.

“Because what you have got on one side of it is collapsing government revenues, coming straight off the back of the global economic recession.”

Rudd said the same thing is also happening with every other budget around the world.

“The Chinese budget has gone into deficit, I’m advised,” Rudd added.

The Prime Minister also signalled that Australia, too, is likely to slide into recession.

Indeed, figures released by the Australian Bureau of Statistics show that the country is already half-way there, with its economy contracting 0.5 per cent in the final three months of last year.

Rudd noted that the International Monetary Fund is now predicting that the global economy will contract by between 0.5 and 1 per cent this year.

He said the revision, which had produced those figures, had been a big one.

“…and therefore it does have direct roll-on consequences for Australian growth, employment and the budget,” Rudd said.

“That’s just as night follows day.”