There’s a federal election in Australia and it’s scheduled for the 21st of August. If it were possible to avoid all the media coverage of the upcoming election by holding our breath while immersed in a bucket of molasses, we would. But the truth is that you cannot separate politics from share markets these days. Like regular prostate checkups, discussing politics is something we have to do for our own financial health, whether we like it or not.
The main reason you have to figure politics and policy into your investment calculations is that governments around the world are in dire financial straits. They need money. So they’re taxing everything in sight to get it. And you are in their sights. This, among other things, is what U.S. healthcare legislation was about (taxing or fining Americans for not having health insurance).
Here in Australia, there are two preferred methods for squeezing the household wallet in the name of the public good. The first is the Mineral Resource Rent Tax. It exists today like a soufflé just taken out of the oven: all puffy and full of promise, but ready to fall flat. It’s hard to say if this is still keeping a lid on the upside in Aussie commodity shares.
The other big tax con game is the assertion that carbon needs a price. We have yet to see a compelling argument about why this is so. The only argument we have seen is that carbon dioxide emissions from man-made activities are causing the Earth’s temperatures to rise. Thus, carbon needs a price so businesses can be discouraged from carbon dioxide emissions and households can foot the bill to halt the oceans from rising and save the Planet (from us, presumably).
There is surely someone in the DR readership who can educate us as to why the free market has yet to establish a price for carbon. Feel free to edify us with your thoughts by sending an email to email@example.com
In the meantime – since it’ what we try to do – we’ll offer you the alternative for why the global political class is eager to shove a carbon price down your compliant throat: money. If you put a price on something you can sell it. Or, you tax transactions between buyers and sellers. Either way, a price on carbon produces billions in new government revenues at a convenient time, when many governments are staring bankruptcy in the structural face.
Government wants a price on carbon because it is the ultimate cash cow; a way to clip every single ticket in the economy. It can’t tax it right now, though, because there is no market for it. So it must create a market in order to charge a tax to raise the money for the bills it can’t pay because of its previous intervention in the economy and its general overweening pride about how people should live.
Discuss. Or, judging my previous reactions to our view on the carbon con, disgust.
From a business perspective, if you viewed a carbon tax or a price on carbon as some kind of political inevitability, you’d just want some certainty over the matter. The, at least you could figure it in to your models so you’d be able to determine how much higher to raise prices on your customers to cover the new artificially created, government-mandated price.
The lack of certainty for a price on carbon doesn’t justify just making one up. For instance, if you were confronted by a clown with a chainsaw in one hand and a gun in the other and he asked you which way you wanted to be killed and to decide in ten seconds, you might consider rejecting the question altogether and punching him in his big bulbous red nose instead.
But whether there is a carbon price – especially in an economy like Australia’s with lots of mining and coal – fired power plants – is another issue (contrived we’d argue, or self-inflicted) that creates uncertainty for business costs and profits. And the more uncertainty, the worse it is for business and share prices. Come to think of it, the more uncertainty, the harder it is for anyone at all to make plans.
Carbon dioxide does have a price already, by the way. It’s zero. No one wants to buy it. No one wants to sell it. The only way to give it a price is to make it a cost. And the only way to make it a cost is to claim that it’s damaging the public good (air quality, the climate).
And speaking of Australia’s public good, what is NAB head of business banking Joseph Healy up to? Last week, according to news accounts, he made the claim, we think, that the Big Four banks have over-invested in residential housing at the expense of small business lending. Hmm. That sounds right.
Healy said the Basel II capital rules we wrote so much about last week have produced a bias toward home lending. He said, “A bias toward allocating capital to home lending may mean there is less credit to allocate to business, the most productive areas of the economy…The is ultimately bad for growth, bad for competition, bad for jobs, bad for business and in the end bad for Australia.”
If it’s so bad, then, why is it so?
Because it’s good, at least in the short term, for the banks, real estate agents, the government collecting stamp duty, and the whole property spruiking industry in general. You promote housing as a national investment priority if your health and welfare depends on it. The nation’s health and welfare, as Mr. Healy points out, cannot be provided for by people buying and selling houses from each other.
And finally, to close the loop on this climate change an emissions trading scheme subject, do you really care about it? Answer honestly.
We’re asking because the media keep claiming that the Australian public turned on Kevin Rudd when he backed down on his ETS (the ‘great moral challenge of our time’). This, we’ve read, is what doomed him. But is that so?
Maybe. But we think it’s not that people really care about climate change. They like to be seen and heard caring about it because it is both fashionable and morally satisfying. But understanding this about themselves, we think they realised that the Prime Minister cared more about getting re-elected than anything else. This is generally unappealing in a politician when displayed so ostentatiously and without shame. Kevin Rudd reaped what he sowed, just as we all will by our choices, financial and otherwise.
But is it true that the electorate turned on the Prime Minister because he did not share their urgency about climate change? We doubt it. Belief in climate change has become an orthodox position within mainstream media and politics. It is natural then, in the echo chamber of the establishment, for everyone to agree with everyone else and assume the rest of us must agree.
As a non-Australian, though, we wonder if it’s true. Feel free to let us know your thoughts at firstname.lastname@example.org. But keep your comments clean, or at least civil. We’re trying to save the financial planet here.
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