Tuesday, 7 July 2015

Cronyism Rules OK?

From here:

I quote:

1. Pick a field where you can establish a monopoly – such as Mexican billionaire Carlos Slim who from 2010-2013 was ranked the richest person in the world after taking control of the country’s entire telecommunications market.

2. Expand as quickly as possible – Amazon has eschewed early profitability to becoming the “everything shop” and as a result investors have poured money in.

3. The worst place to do business is really the best – it is easier to dominate emerging markets due to the lack of competition and potential for growth.

4. Take risks with other people’s money – do all you can to encourage investors and then gamble their money rather than your own.

5. To get rich you need to own your own business and property rights – Bill Gates’s Microsoft at one point had a 95 per cent share of the operating systems market, protected by intellectual property rights.

6. Spin complex laws into gold – set up in industries bound by such convoluted regulation – for example agricultural subsidies and banking regulation - that it is easy to bend the rules as nobody understands [them] anyway.

7. Establish business networks – telecoms networks and shipping networks have created a lot of billionaires’ fortunes as they can squeeze out all competition.

No. 6 is my favourite....

Generally that's all about Private Enterprise, not Free Enterprise.

Monday, 6 July 2015

Greek "Sun and sea vouchers": Part 2.

Random left a comment on Greek debt crisis solved: Greece to issue "Sun and sea vouchers":

Can they be used to pay taxes? ;)

Obviously. The vouchers are pre-paid tax.

Having issued the vouchers, the Greek government has to force the tourism industry to honour them by levying a tourism tax payable in vouchers (just like any other vouchers - be they rationing vouchers, nursery vouchers or coins and notes).

So, for example...

Tour operators buy the vouchers from The Troika for near face value and use them to part-pay the airline companies and hotel owners.

Airline companies have to pay a certain number of vouchers for the right to land a planeful of tourists; hotel owners have to pay a certain number of vouchers each year, depending on how big or favourable their site is. Or the government just levies a fairly high nominal tax rate on them and accepts the vouchers in lieu of cash payment.

The airline companies and hotel owners can keep the cash element (their "net of tax" income) and give the vouchers back to the government as "tax".

The government then chucks the vouchers on a bonfire.

Greek debt crisis solved: Greece to issue "Sun and sea vouchers"

In round numbers, seeing as Greece makes up a lot of statistics anyway:

* Greece owes the Troika €200 billion
* 20 million tourists per year.
* Average spend on air fares and hotels €1,000 each = €20 billion per year.
* Half of this is actual incremental costs.
* The other half of what tourists pay for is stuff which Greece gets for 'free' or which are already in existence/paid for i.e. airport infrastructure, hotel buildings, landscapes and historical sites, beaches, blue sea and sunshine.
* Additional cash spend by tourists €500 per holiday.

So what Greece could do is issue the Troika 400 million "Sun and sea vouchers" entitling the bearer to €500 off the cost of airfares and hotel stays, pre-dated 20 million a year for each of the next 20 years. So Greece will be redeeming its national debt by giving away value which they themselves get for free.

We can assume that balance of what tourists actually spend more than covers the incremental costs (the airport and hotel staff, the food and drink they consume and other tourist tat like fridge magnets), so that's a break even.

All the creditors - the IMF, banks, the ECB and so on - will be given the appropriate number of vouchers and they can sell these to travel agents for something approaching face value, who then pass on the discount to people who want to go to Greece on holiday, so over the next 20 years the creditors will get their money back (albeit indirectly).

A sunshine backed currency. What can possibly go wrong?

Gloriously obvious headline of the day: "Acropolis Now"

Having said that, the whole banking and currency system depends on people believing in it (or more uncharitably, it is a confidence trick).

If people expect it to work, it will work; if they expect chaos, they will get chaos.

To use a crude analogy, in hunter-gatherer days, people collected and stored their own nuts. It was hard work, and what you gathered was your to keep, not for sharing with the whole band.

Fresh meat on the other hand could not be stored as they hadn't invented fridges yet. So when lucky hunters came back from a successful hunt, they would share it with the rest of the clan, including that day's unlucky hunters, on the understanding that next time somebody else had a successful hunt, they would also share, so in the long run, the meat got shared out fairly equally and eaten up straight away.

If some 'hunters' cheated by neither gathering nuts and so on nor bothering to ever catch any animals (i.e. running up debts to the rest of the clan i.e. printing currency), sooner or later they would be excluded from the meat sharing exercise and nobody would want to give away their hard-earned nuts either (i.e. these lazier members of the clan have 'defaulted' and their credibility and hence currency would be deemed worthless), so they had a choice - start collecting nuts etc or try a bit harder with the whole hunting lark.

And presumably it worked or else we wouldn't be here.

Sunday, 5 July 2015

We own land, give us money!

From the BBC:

But Mr Osborne also announced:

* The benefits cap - the total amount a family can claim a year - will be cut to £23,000 in London (the BBC understands the cap will be £20,000 per household outside of London)

Very few households get anywhere near £20,000 or £23,000 in non-housing related benefits, so by an large, this is a cap on Housing Benefit (a good thing, in and of itself). But as most MPs own buy-to-lets and a disproportionate number of those are buy-to-lets in London and many of their tenants receive Housing Benefit, they decided to cut back Housing Benefit a little bit less in London.
This bit either shows he is either stupid, lying or not prepared to say what he means:

Mr Osborne confirmed he would be seeking to make cuts to tax credits for people on low incomes, which had become a "very expensive" system, costing £30bn.

Very little of that £30 bn is actually Working Tax Credits, which would indeed be unnecessary if they increased the National Insurance threshold and the personal allowance for income tax.

The bulk of the £30 bn is Child Tax Credits, the bulk of which go to non- and very low earners. If he wants to cut Child Tax Credits, why doesn't he just say so? That might or might not be a good idea, but this is the bookend to him removing Child Benefit from households where one parent earns over £50,000. So basically he is now clobbering parents all the way up the income scale.
Their policies on social housing are all over the place:

Under the planned changes to housing subsidies, local authority and housing association tenants in England who earn more than £30,000 - or £40,000 in London - will have to pay up to the market rent, Mr Osborne will say.

Those are hardly ridiculously high salaries, so what he is saying is "Get a job and we will not just punish you with income tax and NIC, we'll punish you with higher rents as well" thus creating a whole new set of break-even calculations.

And wasn't their recent bright idea to sell off as much social housing as possible? Will the Right to Buy be restricted to people who earn less than £30,000 a year?

If 'no', then middle and higher earners' best strategy is to simply exercise their Right to Buy (which might be the thinking behind this) and makes a mockery of the whole thing - if these people don't deserve a discount to the market rent, why do they deserve a much bigger discount if they buy?

If 'yes', then their best strategy is to work part-time for a year, then exercise Right to Buy and then go back to work full-time.
But at least it is all for a good cause:

Extra money from those living in local authority properties will go straight to the Exchequer.

The Budget will also confirm the end of inheritance tax on family homes worth up to £1m.

Oooooo, the irony..

Building on my earlier post, there is also this gem from the same article:

"...One CDU member who used to work with Mrs Merkel agrees. "[The announcement of the referendum] was the moment that things changed. Up until then we'd all agreed to work with the Greeks, support the Greeks, pay for the Greeks. All that was OK if they were willing to reform. Many Germans go to Greece to enjoy the culture, the food, the history.

"But they also go there and see what the [Greek] government has wasted its money on.

[I'm sorry, just run that past me again? Whose money has it wasted exactly?]

You see these huge air-conditioned Daimler buses which go to nowhere with just one passenger. We've all seen them."...

This is those German made 'Daimler Buses' that Germany loaned money to Greece to buy, that he actually admits that they 'wasted their money on', when it was perfectly obvious that Greece didn't/would never have the wealth to pay for them in the first place.

As I asked, who are the mugs?

You couldn't make it up.

Saturday, 4 July 2015

I hate to get involved in this, but...

"...I am 52 years old, and get a Pension of €1,400 per month, and dont know if i will get the next payment. I would vote NO, i have been retired since the age of 50 and get the money sent from Greece, and can use the council Gyms in London for free, free meals on wheels from Hackney Council, it is a good life...."

I would not be at all surprised if he also got housing benefits and council tax relief.

From here

Who are the mugs?

Personally, I am beginning to think that the whole thing - the EU - is some giant gerrymandering exercise based on creating the universal client state.

Friday, 3 July 2015

Mutually Assured Destruction

Spotted by View From The Solent in The Telegraph:

Land banking? Nah, not us mate.

From City AM:

York-based Persimmon added 11,500 plots to its consented landbank of 92,400 plots...

Legal completions increased by seven per cent to 6,855 new homes, while total revenue surged by 12 per cent to £1.34bn in the six months to 30 June.

Don't just take my word for it, here's what their Chief Executive has to say:

We concentrate on the fundamentals of our business: maintaining a high quality landbank, maximising our strategic land capabilities, building sustainable homes, continuing to improve margins and providing good customer care.

So their number one and number two priorities are..?

Thursday, 2 July 2015

True cost of Labour's pension tax raid: the square root of fuck all.

The Telegraph is still pumping out the line that Gordon Brown's Pension Raid has cost the "taxpayer" a cumulative £100 billion since 1997.


Rounded to the nearest £ billion or per cent...

Back in 1996-97

The mainstream corporation tax rate was 33% and the ACT credit which pension funds could reclaim was 1/4 of the cash dividend received.

* Total UK plc profits (say) £80 bn, corp tax payable £26 bn = post-tax profits £54 bn.
* Half of the £54 bn post-corp tax profits paid out as dividends.
* Half of retained profits and half of dividends belong to/paid to pension funds.
* Pension funds suffered £13 bn corp tax indirectly (half of £26 bn) and reclaimed £3 bn ACT (1/4 of the £13 bn cash dividends they received) = net direct and indirect tax bill £10 bn.
* Average tax rate 25% (£10 bn divided by half of £80 bn).


Mainstream corporation tax rate 31%.

* Total UK plc profits (say) £80 billion, corp tax payable £25 billion.
* Pension funds suffer half of that corporation tax = net indirect tax bill £12 bn.
* Average tax rate 30% (£12 bn divided by half of £80 bn)

So yes, initially this was a modest increase in their overall tax rate and a modest increase in their overall direct and indirect corporation tax bill of £2 or £3 bn.


The mainstream corporation tax rate is 20%, half paid out as dividends and half belongs to pension funds.

* Total UK plc profits (say) £160 bn, corp tax payable £32 bn.
* Pension funds suffer half that corporation tax = net indirect tax bill £16 bn.
* Average tax rate 20% (£16 billion divided by half of £160 bn).

This is now lower than the overall average rate they were suffering pre-raid.

In summary

You can reasonably argue that pension funds 'lost' £2 or £3 bn in 1997-98 compared to 1996-97 but in the meantime, they are 'winning' about £4 bn a year i.e. instead of paying overall rate 25% on their half of £160 bn, they are only paying 20% overall rate.

I'm not sure when the break-even year was, but all things considered, the losses and gains net off to a very small figure, nowhere near an overall loss of £100 bn and quite possibly a small overall gain. If you want the Excel formula, it is "=FA^0.5".

And of course, pension funds are not "the taxpayer". Everybody else is clearly miles ahead of the game as his overall indirect corporation tax bill is now 13% lower than eighteen years ago.