Banking, insurance and finance news

Do state governments have the authority to act when payments and official interest rates are the RBA’s territory? If one does not have the authority to act, it is hardly whining to make a case.

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Yes.

It used to be that individual state governments had set the maximum permitted interest rate (and to different values).

It may be that state governments have referred that power to the Commonwealth but if so I expect that they can unrefer it.

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Westpac to cop another smack down.

Westpac taken to court over ‘poor value’ insurance

The financial regulator ASIC is taking Westpac to court over its sale of consumer credit insurance to almost 400 customers.

The insurance provides cover for consumers if they are unable to meet their minimum loan repayments due to unemployment, sickness or injury.

It is usually optional and sold by lenders to consumers with a credit card, personal loan or home loan.

ASIC released a report in 2019 that slammed CCI and found it was giving consumers “extremely poor value for money”. That followed recommendations in the banking royal commission about the insurance, too.

In a statement, ASIC alleged Westpac had mis-sold CCI with credit cards and other credit lines to customers “who had not agreed to buy the policies” back in 2015.

ASIC alleges that from April to July of that year, Westpac “made false or misleading representations that customers had agreed to acquire, were liable to pay for and that Westpac had a right to charge for, CCI”.

ASIC is seeking declarations and pecuniary penalties from the Federal Court where it has lodged the action.

“ASIC’s deep dive investigations in late 2018 and into 2019 found lenders had disappointingly not changed policies and conduct to stem harms from the design and sale of CCI,” its deputy chair Karen Chester said.

“As a result, we’ve commenced civil proceedings against Westpac.”

Westpac has been contacted for comment.

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An updated article.

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An article regarding hope for putting a stop to global tax evasion.

It’s important to remember that, in many cases, tax shifting is not a win-win for governments i.e. a company pays more tax in one country and potentially less tax in another country. One country gains and another country loses. That is always going to make multi-lateral agreement hard to get.

Given that the US has been reticent to address this in the past, as a major beneficiary of the present arrangements, I am suspicious of a sudden “conversion” on their part i.e. where’s the catch?

“Global minimum rate” could mean a number of different things

e.g. “all” OECD countries legislate an agreed minimum corporate tax rate (after tortuous negotiation to get that agreement) - that still leaves plenty of argument about how the profit is taxed across the different countries (which is of particular concern to countries like Australia); and it leaves open the question as to how multinational companies might alter their behaviour in response to such a change.

For example, let’s say that a multinational is currently being creative by funneling profits through Ireland. Let’s say that Ireland is strong-armed into participating in this, and raises its corporate tax rate to the new global minimum. So … Ireland gets much more tax, the US doesn’t get any more tax, the multinational has no incentive to remain in Ireland, but the multinational has no particular incentive to leave Ireland either.

I feel as if this is just a “tax and spend” grab by Biden that won’t benefit Australia at all.

Also being discussed here: The Great Australia Tax Dodge

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Regarding US taxes, under Eisenhower the top marginal US tax rate was > 90% and it was previously even higher, and corporate tax rates were > 50%. Taking tax toward zero only improves the lot of those who do not need it according to one view. Trickle down? Discredited by evidence.

As for Biden benefiting Australia, he is POTUS not PM. It might be more useful to reflect on how good our governments have been in collecting taxes and ‘resource rents’ even while the beneficiaries are enjoying record profits and paying essentially nothing or as it is reported, nothing because of the manners they can game the system to acquire and use credits.

It is obviously complex and many companies have moved to low taxing countries to the detriment of comparatively higher taxing ones since every dollar of profit goes into someone’s pockets, not into nation building.

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As mentioned in the other topic, under the right conditions, Australia’s corporate tax rate makes no difference to the amount of tax collected. Those conditions are: profit is distributed to shareholders and the shareholder is an Australian taxpayer.

Of course. I’m just pointing out that this could in fact be a bad thing for Australia, or neutral, or good. We should exercise a high degree of scepticism.

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Wealthier taxpayers to be precise…

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plus anyone with super (which is basically anyone who has worked in the last few decades, wealthy or otherwise), plus self-funded (or semi-self-funded) retirees (who need not be what I would describe as “wealthy”).

The statement that I made is true whether the recipient of the dividend is high income or low income. The high income earner will have to pay extra tax, to make up the difference, and the low income earner will get a rebate of tax, because too much has been paid. A change to the corporate tax rate just shuffles the money around but makes no difference to how much ends up in the government’s coffers.

However “wealthy” is inherently ambiguous - does it refer to assets or income? - and inherently subjective - there is always someone more wealthy than you are and there is always someone less wealthy than you are, and people’s perceptions will differ.

For completeness, I’m not stupid. I know that someone can reduce their taxable income, either through the generosity of the super system or through legally exploiting provisions of the tax system (some would call those loopholes). Even after accounting for that, I think the evidence of the last election is that it is not only the “wealthy” who benefit from the franking credit system.

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I was under the impression super paid a flat 15% rate in accumulation phase, no?

The original premise in this topic started with company tax rates and has broadened.

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Coming back to the actual topic … an alternative to a global minimum corporate tax rate would be a multinational corporate tax rate. That is inherently more flexible (because it allows a country to continue to decide how to tax its corporations that are not multinationals) and it may lead more naturally to a fair division of the tax collected to the countries where the revenue was earned (which is what Australia was mostly interested in).

To be honest I thought that’s what the OECD was working towards, so I am suspicious of the US suddenly floating its own idea.

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Yes (except on capital gains). However that is not relevant. For the purposes of the franking credit system, a super fund in the accumulation phase just looks like a low-income earner whose marginal tax rate is 15%. So if the company pays 30% tax then 15% is rebated to the super fund (too much paid) - and if the company pays 0% tax (e.g. income earned overseas, unfranked dividend) then the super fund has to cough up 15% (nothing paid by the company) - and all possibilities in between.

So the “flat 15% rate” tells you what the tax payable on the taxable income is - but it doesn’t tell you how much actually has to be stumped up, because that depends on how much tax has already been paid (in this case by the company that is paying the dividend).

Yes, we digress. :wink:

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… not all digressions are without their benefits to the casual but interested observer :wink: This digression filled in a few blanks in my understanding …

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The majority of share holders in Australia’s big companies, and indeed many investors are foreign. The USA is number one.

Should we be looking at these groups who collect up to 75% of company dividends or earnings from Australian enterprise?

I suspect the outcome can only favour the USA at the expense of others. This assumes that globally the size of the tax pie is a constant. For one to win another must loose.

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Another horror story.

“The more things change, the more they stay the same”?

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Minor nitpick: It’s not the majority of shareholders. It’s the majority of shares. At least that is my impression from reading that rather imprecise article. (Whether that is actually true, we cannot verify.)

Also, it’s a rather small and selective sample (just the top 20 companies by market cap) and surely the picture would become less favourable to the argument being put if the entire ASX were considered or indeed if the entire corporate sector were considered (i.e. taking into account unlisted public companies, and proprietary companies).

(I don’t think it matters whether the foreign shareholder is US-based or something else, not least because it is extremely hard to see where a US-based shareholder is really based i.e. who the ultimate beneficiary is - and the same for any other foreign country.)

Nevertheless the overall points are reasonable:

  • Should Australian (listed) companies be required to be more transparent about foreign ownership?
  • More controversially, should we look at limits on foreign ownership? (as some companies do by law)
  • Should we look at the effect of franking credits when the shareholder is not an Australian taxpayer?

Australian listed companies currently typically publish information regarding the top 20 beneficial holders (by size of holding), for each class of share. However that information is not always fully transparent about who really owns the shares (and I would question what methodology was used in your linked article).

I believe that if we want to limit foreign ownership then it will require a cultural change within Australia itself i.e. we would have to make up the shortfall.

As an example, Transurban is identified as about 35% foreign money in that article. If we want new motorways (please, no arguments about whether we actually do :slight_smile:) and we don’t allow foreign money or we limit the amount of foreign money used for that purpose then that money ultimately has to come from Australians.

Are we prepared to save and invest more ourselves?

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Australians have large amounts of money to invest as demonstrated by Super and over inflated property valuations.

Whether we are lazy investors, or do not invest wisely might be another question?
That governments of all flavours and levels throw money at property development and home ownership suggests it is about more than ourselves (the wider community). Although those with the means and ability seem to think it’s the way to go.

It’s The Conversation! I was only hoping to add some additional content to the point, the precision of which is less important. There are many foreign investors in Australia. How the suggested changes might affect future investment in Australia, foreign or domestic sources, is also a consideration.

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Yes, exactly. It would likely involve redirecting investment away from property into the areas left vacant by departing foreign investors. That would be a difficult transition and would be disastrous unless undertaken in a measured way, which probably implies bipartisan support, so that it can be a gradual process over multiple terms of parliament. The most likely outcome is limited change - risk averse politicians whose main concern is their own future electoral prospects - and mishandled. [This post is just opinion. I guess we will see what actually happens.]

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and Australia

Their main web page remains marketing driven, but there is an advisory link.

Business as usual, would it be different, but who will buy the accounts? Or will the local ‘office’ continue on, just from Singapore?

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