90 seconds at 9 am: Aussie tax transparency

US jobless claims fall; IMF boss to face trial; Aust. corporate tax details revealed; English says RBNZ partly to blame; UST 10yr yield 2.30%; oil and gold tumble; NZ$1 = 66.9 US¢, TWI-5 = 72.7

18th Dec 15, 7:25am by David Chaston

Here's my summary of the key events overnight that affect New Zealand, with news of some impressive tax transparency in Australia.

But first, the number of Americans filing for unemployment benefits last week fell from a five-month high, suggesting sustained labour market healing that could lead to further Federal Reserve interest rate hikes next year.

What is it with French officials that head the IMF? A French court has ordered Christine Lagarde, the IMF's current boss, to face trial over her role in a payout of some €400 mln to a businessman about 20 years ago.

Australian tax authorities yesterday took the unprecedented step of publishing the records of hundreds of companies, including Google and Apple, which show they paid little or no tax on their in-country earnings. They have company: a third of this list didn't pay any tax in the 2014 tax year. Next year they will publish the tax details of another 300 large private companies. It's an interesting list. A quick search for Kiwi companies shows that Fletcher Building seems to pay an effective rate of about 11%, Fonterra 0%.

And on this side of the ditch, Bill English has fingered the RBNZ for some of the responsibility for current economic growth here being lower than he would like, saying the central bank lifted interest rates "a bit far" last year and "had to go back."

In New York, the UST 10yr yield benchmark has pulled back about -3 bps today and is now at 2.27%. Swap rates in New Zealand are steeper. In fact the 1-5 is its steepest since October 2014, and the 2-10 its steepest since April 2014.

Crude oil just gets cheaper and cheaper. The US benchmark oil price fell yet again today, now just under US$34.50/barrel, while the Brent benchmark is just over US$37/barrel.

And the gold price is taking a big tumble too, down over $25/oz and at US$1,053/oz. This market will soon be toying with the US$1,000 level and who knows what will happen then.

The New Zealand dollar pulled back a bit overnight against the greenback, now at 66.9 US¢, but rose again against the Aussie, now at 94.2 AU¢, and it is at 61.9 euro cents. So these changes mean the TWI-5 is now at 72.7.

If you want to catch up with all the local changes on yesterday, we have an update here.

The easiest place to stay up with event risk today is by following our Economic Calendar here ».

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30 Comments

by iconoclast | 18th Dec 15, 7:57am 1450378657

The total strength of the ASX (and by proxy the wider AU economy) is looking a bit fragile at the moment

The ATO said 63 per cent of all ASX-listed companies reported a loss to their shareholders in the 2013-14 financial year.

http://www.smh.com.au/business/the-economy/half-of-australias-1300-publ…

by steven | 18th Dec 15, 8:34am 1450380842

Or are there better markets/indexes that foretell losses?

"Citigroup analysts led by Anindya Basu point out that spreads on the CDX HY, as the index is known, are currently pricing in an expected loss of 21.2 percent, which translates into something like 22 defaults over the next five years if one assumes zero recovery for investors. That is a pretty big number once you consider that a total of 41 CDX HY constituents have defaulted since the index really began trading in 2005, equating to about 3.72 defaults per year. A big chunk of those defaults (17) occurred in 2009 in the aftermath of the financial crisis."

http://www.bloomberg.com/news/articles/2015-12-16/this-junk-bond-deriva…

However, "That isn’t to say that there are no serious concerns, but the question we are asking is, are spreads pricing in too much risk? I believe the answer is yes." or is it accurate?

We get to watch....

by steven | 18th Dec 15, 8:50am 1450381856

Also the BDI has a new low 471,

http://www.bloomberg.com/quote/BDIY:IND

but that's OK, DC reckons the BDI doesnt matter any more....

"The Baltic Dry Index fell 4.7 percent to 484 points (currently 471 - steven), the lowest in Baltic Exchange data starting in January 1985. Rates for three of the four ship types tracked by the exchange retreated. China, which makes about half the world’s steel, is on track for the biggest drop in output for more than two decades, according to data compiled by Bloomberg Intelligence."

by MortgageBelt | 18th Dec 15, 8:00am 1450378844

94c Au or above is great news. Keep that cross high!

by steven | 18th Dec 15, 8:01am 1450378892

Steve keen's view on the Fed rise,

http://www.forbes.com/sites/stevekeen/2015/12/16/the-fed-by-the-numbers…

by two otherguys | 18th Dec 15, 8:13am 1450379637

Love it when you see this institutionalised nonsense

The Federal Reserve believes:- for every debtor who can (must?) spend less because of higher rates, there is a saver who can spend more, so the two effects cancel out

by steven | 18th Dec 15, 8:27am 1450380449

The equilibrium model in action. Sadly such incompetence that has seen an economy tank in every country that has had its CB raise is depressingly "normal". Isnt that a sign of madness? doing the same thing time and time again expecting a different result?

--edit--

What strikes me is this is such a simple model they follow, and it seems its patently easy to show its not true, yet they continue to use it?

by Roger Witherspoon | 18th Dec 15, 8:53am 1450382029

In fact for every debtor who can (must?) spend less because of higher rates, there is a creditor who can now compound his (or her?) savings faster.

by Roelof | 18th Dec 15, 9:23am 1450383836

Roger .... Did u miss the most important part.....??

This is naïve nonsense, because it pretends that banks don’t create money when they lend—which they do, as the Bank of England recently explained in painstaking detail—and equally, destroy it when they take in more in repayments than they pay out in new loans. So expanding bank credit adds to demand (and income and capital gains) in the economy, while contracting bank credit subtracts from demand.

Most debt growth does not come from savings.... Therefore the Bank that created the Credit would simply make more profits, if interest rates went up ... The big problem thou, is that higher interest rates might show that some debtors are not that creditworthy... eg... Farming Sector..??

by Stephen Hulme | 18th Dec 15, 9:38am 1450384702

Same underlying theme with the critical plumbing description - so necessary for those employing capital.

From the outside, the wholesale money system seems monolithic. However, there is no interbank market; there are several varied interbank markets. Monetary policy in the modern system, particularly in the interest rate targeting regime that developed sometime in the 1980’s (we don’t know exactly when), has relied on open market operations in only the federal funds market. From there, monetary intentions were transmitted via primary dealers and OTC bank transactions. That meant that global dollar markets, particularly eurodollars, had no direct pipeline to the Federal Reserve, relying instead on the big Wall Street and London banks (with US primary dealer subsidiaries) to bridge that geographical/system divide. Read more

by scarfie | 19th Dec 15, 12:28pm 1450481310

Very interesting article. Would it be useful to go a layer deeper and look at the demand side for money? Perhaps prior to Greenspan the demand was driven mostly from industry? Keep in mind my comments on the fact that the money supply responds to the consumption for resources. What if around 2004 there was a structural change where consumption peaked and finance became the driver of money markets? But finance needs to be underpinned by production, so it didn't work. Well it did for a few years, but sooner or later the demands for future income (demanded by finance) have to be met by the real world. Net result if that article, if correct, is that the FED has become the driver for the consumption or resources. But the FED doesn't know this, doesn't have the mandate to do so, and isn't doing a very good job of it.

by Roger Witherspoon | 19th Dec 15, 5:53pm 1450500790

Wrong way around. Finance lends against income streams from existing assets, this pushes up the price of assets until the debt load on society is unsustainable.There is then an "adjustment" when the assets change ownership from debtors to creditors. Typically it takes 18 years.

Industry has always been financed primarily from equity, until there are income streams to pledge.

by Roger Witherspoon | 19th Dec 15, 6:27pm 1450502827

No, I did not. I couldn't find the word to subsitute for saver; financier, hidden oligarch? The point was that the gains from lending (interest payments) are compounded NOT spent. Exactly who they compound to is well hidden behind the veil of banking, but someone assuredly does.

This painting had a big impact on me:
http://ichef.bbci.co.uk/arts/yourpaintings/images/paintings/wadd/large/…
when I saw it at one of the smaller houses in the painting, here:
https://upload.wikimedia.org/wikipedia/commons/9/97/WaddesdonManor.JPG

The gains go to the big players, presumably the Saudi royal family, Mr Putin, et al, who knows who they are these days?

by steven | 18th Dec 15, 10:17am 1450387036

The debtor however is the business person who generates the actual wealth, the "investor" does not.

by Stephen Hulme | 18th Dec 15, 10:43am 1450388624

You mean imported underpaid labour working for the debtor. Hence the abysmal growth in labour's share of capital returns over many decades.The end result CPI deflation.

by steven | 18th Dec 15, 10:52am 1450389145

Actually no, the banking de-regulation by Bill Clinton passing the winning hand to the financial parasites who over 30 years have sucked the life out of the economy.

by Stephen Hulme | 18th Dec 15, 11:05am 1450389939

Yes, admittedly the central bank engineered interest rate collapse reflected by falling CPI created a wonderful wealth transfer racket for those on the receiving end of upwardly accelerating asset values - I include residential homeowners in this category along with the bond kings such as Bill Gross.

by Ergophobia | 18th Dec 15, 12:32pm 1450395156

Yes SH, But the gains will prove transitory for those who get caught holding the "assets" when the cycle changes, as it always does eventually. Then cries of anguish will abound.
This government is/has played the lazy game of: spoil the currency and drop immigration control.

by Roger Witherspoon | 19th Dec 15, 6:30pm 1450503021

The debtor is mainly the mortgagee. $200 billion or so, here in little old NZ. Paying $12 billion or so in interest every year to who knows who. Who knows who then lends it out again...

by two otherguys | 18th Dec 15, 10:44am 1450388649

will compound savings faster?

I was thinking of tax-leakage on interest received by the saver - makes it unequal

by Roelof | 18th Dec 15, 9:02am 1450382573

Thks Steven... Thats a great article by Steve Keen..

We can apply those same ideas about growth in Private sector debt to NZ...
You can be sure private sector debt in NZ is growing at a faster rate than Nominal GDP......
Why is it we want a lower OCR...???
So Private sector debt can grow even more..???

At some point NZ will have to shine the spotlight on our own levels of debt

by steven | 18th Dec 15, 10:16am 1450386964

Because there is good debt and bad debt, the OCR does not differentiate. The problem we face is that the real economy that has to have cheap credit to survive has to be supported, that means we have to knee cap bad debt via a different method. To do that needs a Govn with a clue, none I think have it or want to.

by Stephen L | 18th Dec 15, 11:27am 1450391221

Good point. Steve Keen is deliberately silent on the actual solution, as I suspect while he knows what it is, he also understands there is an intuitive resistance to it. ZIRP is part of the cause of the problem, if the problem is excessive private debt. But raising interest rates all else being equal, will likely slow the economy, even though the balance between savers and borrowers winning and losing is not quite the naive nonsense Keen says it is. The reduction in money supply from the actual reduction in debt is what concerns him. Public, or government, debt can balloon to help fix private debt, but that is no advance if the public debt is to be eventually paid back to a third party, end especially if that third party is foreign.
The solution then is to monetise (or print) enough of a fiscal deficit to more or less meet the other core variables of unemployment, GDP growth, and inflation. That extra monetised deficit, which can be applied to tax cuts or expenditure, will force its way to paying off private debt in a closed economy. At a global level, if there were reasonably coordinated efforts, it would reduce government and private debts from their current unsustainable levels. Already the Japanese and Chinese are playing the game, while the US and UK have done so in the past, while pretending to be doing something else. Europe is a little schizo but is playing currency wars as well. If others are doing it, and you do not, you will be the clear loser.
If you think Keen knows of another solution, I would be interested to hear it.
To reinforce the theme, AEP in the Telegraph finishes an article today:
"The only way out then would be "helicopter money", a potent use of QE to fund fiscal spending directly and inject stimulus straight into the veins of the economy. But that is a saga for another day. She has not failed yet."

by the wurzles | 18th Dec 15, 8:46am 1450381560

I have just discovered the the Governor of the Reserve Bank is the sole decision maker on interest rate changes.That needs to be urgently changed and the decision placed in the hands of a committee of experts so that a consensus decision is made.The Govenor seems a good sort but has got it badly wrong over the last two years by ramping up interest rates in 4 consecutive months from 2.5 to 3.5 and taking far too long to reverse that process when it became apparent it was a mistake.

by steven | 18th Dec 15, 9:55am 1450385732

With the greatest respect such a committee would be better how? Lets form a quango and employ a bunch of un-elected morons that do as the Governing party want?

by Stephen Hulme | 18th Dec 15, 10:51am 1450389094

One elected official is certainly having a constant public say in the workings of a supposedly independent central bank.

New Zealand central bank Governor Graeme Wheeler needs to get inflation back to target and some observers think he has “plenty of room” to cut interest rates, Finance Minister Bill English said. Read more

New Zealand Finance Minister Bill English said the nation’s central bank shares some of the blame for slower economic growth this year after raising rates too high in 2014. Read more

by head_down_bum_up | 18th Dec 15, 10:19am 1450387164

He may make the final decision, but I believe in a recent Q&A a few months ago he stated that he had never gone against the advice or recommendation of the current committee on any decision regarding rates.

by sharetrader | 18th Dec 15, 1:06pm 1450397171

as they say is that a camel is a horse designed by committee, do you really think more than one head making the final decision can be better, Have a look at the FED they dillyed dailyed around and finally raised when they should have a year ago,

by Stephen Hulme | 18th Dec 15, 9:53am 1450385597

The New Zealand dollar pulled back a bit overnight against the greenback.

What!!! - 1.5% is three times the top end of the annual Fed Funds rate and more than 7 month's worth of OCR returns - I hope you are not working to pay off what you think are such trivial trading losses?

by dtcarter | 18th Dec 15, 11:06am 1450389961

Bills hands are starting to shake. Must be some bad economic news coming if he's preparing another scapegoat. Couldn't possibly by that his 'safe pair of hands' on the economy aint what it seems.