So many paradigms are shifting its hard to keep up. Now, tax.

So I don’t know if you’ve clocked this, but the whole way nations approach taxation is changing.

It’s just one of the paradigm shifts being ushered in by the Biden administration.

Basically, cutting corporate tax rates is out. Hiking corporate tax rates is the new black.

And Biden’s not even sorry:

President Biden on Wednesday pitched his plan to hike taxes on the wealthy and corporations, saying “trickle-down economics has never worked.”

“It’s time to grow the economy from the bottom and the middle out,” the president said during his first address to a joint session of Congress.

Biden has proposed paying for his $2.25 trillion infrastructure plan through tax increases on corporations, and his new $1.8 trillion plan focuses on helping families through tax hikes on high-income individuals.

“It’s time for corporate America and the wealthiest 1 percent of Americans to just begin to pay their fair share,” Biden said. “Just their fair share.”

The president referenced a recent report from the left-leaning Institute on Taxation and Economic Policy that found that 55 large corporations paid zero in federal income taxes last year.

“We’re going to reform corporate taxes so they pay their fair share and help pay for the public investments their businesses will benefit from as well,” he said. “And we’re going to reward work, not just wealth.”

Wow. How things have changed.

It’s not just that this is something Trump never would have said. It’s something Obama never would have said. It’s something no American politician ever would have said.

But here we are, in the strange new reality that Covid has given us, bashing corporations and raising taxes.

This is a total turn around. For over 40 years, corporate tax rates have gone lower and lower.

(Hello 1980s Germany with a 55% corporate tax rate! Hope we ‘re not going back there!)

But going back we are, as countries around the world start or at least start talking about hiking taxes on business.

Of course, the Republicans – the faithful friend of business – are not having it.

Oh no, actually, the Trump faction is selling itself as anti-business now too. Here’s 2024 Presidential hopefuls Ted Cruz and Josh Hawley, going on the offensive:

The vanguard pushing the GOP to become more populist in Trump’s image include Sens. Ted Cruz (R-Texas) and Josh Hawley (R-Mo.) — two potential 2024 presidential candidates — who say they will no longer accept corporate PAC contributions.

“Starting today, I no longer accept money from any corporate PAC. I urge my GOP colleagues to do the same. For too long, Republicans have allowed the left & their big-business allies to attack our values & ship jobs overseas with no response. No more,” Cruz tweeted on Wednesday.

That prompted an enthusiastic response from Hawley, who retweeted Cruz the following day.

“Yes! Corporate America has put Americans last. They ship our jobs to China, mock middle America’s way of life, try to control our speech and run our lives,” Hawley wrote. “It’s time we stood up to them. I won’t take corporate PAC donations & I’ll fight to break up their monopoly power.”

The bashing of corporations is striking a discordant tone with other Republicans at a time when they’re trying to marshal a unified defense against Biden’s plan to raise the corporate tax rate to 28 percent, from 21 percent, to pay for his infrastructure agenda.

And this is exactly why Biden is pushing so hard.

Trump’s populism has opened up a fault-line in the Republican party, and people feel that unfettered capitalism has failed them.

Big business is on the nose.

And taxing the bejeepers out of them is obviously the way to fix it.

Obviously.

JG

The boom is cracking along, but Canberra’s not touching it.

So the current property boom continues to set a cracking pace.

Is there any change the government might step-in and try and throw cold water on it all?

So we had a couple of data points on the property market last week. And they’re both bullish.

First up is Domain’s price data for the March quarter. It’s points to the strongest growth in 18 years, as cities across the country get a full head of steam going.

At the national level, house prices rose 5.7% to just under $900,000, with annual gains also hitting double digits (10.0%).

Sydney led the way recording a quarterly gain of 8.5%, representing a whopping $103,000 increase in its median house price. It was also the fastest quarterly rise in house prices since Domain records began in 1993.

Massive price growth was also recorded across the smaller capitals – Hobart (7.6%), Canberra (9.7%) and Darwin (9.1%) – over the March quarter.

Melbourne’s median house price hit $974,397 in the March quarter after recording a $45,000 (4.8%) increase, with Domain tipping it will crack $1 million over the June quarter.

Boom. Boom. Boom.

At the same time, Corelogic released data for the month of April.

Capital cities surged another 1.8% in the month, which is slightly less than the 2.8% posted in March, although to be fair, that was the biggest monthly increase in 33 years.

The rise in values was once again broad-based with all major markets experiencing strong rises. Sydney’s gain was once again the strongest, surging by 2.4%:

Sydney continues to lead price growth, but all major capitals recorded strong rises in April.

And this is just the capital city story. One of the interesting features of the current boom is that the regions are keeping up, and in recent months, have matched the capitals gain for gain.

When you look at the annual growth rates, you can see that growth is clearly accelerating, and showing no signs of slowing down yet.

So the boom is well and truly cracking. On current form, Sydney prices will end the calendar year up 25%!

So is there any chance the government might get involved and try and cool the market down, like they did in 2016.

Nup. Doesn’t look like it.

Australian Prudential Regulatory Authority (APRA) chairman, Wayne Byers, has hosed down speculation that the regulator might do anything to take any heat out of the market.

“Risk for the financial system occurs when lending standards are poor or weak,” Mr Byres told a Committee for the Economic Development of Australia event.

“We don’t see that up to now – banks have done a pretty good job in holding lending standards up.”

The APRA chief also said that regulatory settings were “broadly right”, given that the agency’s mandate was broader than stability of the financial system at all costs.

Nope, let the boom roll.

That’s the word from the top.

JG

No B.S Friday: What’s up with Clive Palmer’s ad blitz?

So, I’ve been seeing these ads come up in the paper, and I had to dig into it. Here’s a photo from my phone.

Can you read the fine print? Can you see who’s behind it?

Clive Palmer.

So suddenly Clive Palmer is championing the cause of feminism? Suddenly he’s evoking the spirit of the suffragettes and burning bras down on campus?

If you’re struggling to get your head around that image, you’re not the only one.

It doesn’t really add up.

No, apparently, he’s just jumping on the band-wagon to drive a personal vendetta against the head of ASIC – a regulator he accuses  of infringing on his human rights.

No, that’s a true story too.

ASIC were investigating his collapsed Nickel project and the funding of his now defunct political party.

Through that investigation, James Shipton was ASIC’s chair.

And while Palmer says it’s “nothing personal”, in the last six months he’s dropped almost $4m on the ads, according to the AFR, all of which sink the boot into Shipton:

It’s now been more than six months since the ads began, and up to last Friday, Palmer had booked space worth an estimated $3.8 million in the nation’s newspapers (including this one), according to Nielsen’s proprietary ad spend monitoring. Which we suppose is small change for Palmer, who every year banks about $500 million or so in royalties that CITIC reluctantly passes on.

He has also dismissed suggestions that his campaign has anything to do with his various disputes with ASIC, which have related to the collapse of Queensland Nickel as well as the funding of his upstart (but now mostly defunct) political party. ASIC has a vendetta against him, you see, but on his part, it’s “nothing personal”. Just an altruistic attempt to give the business community the corporate regulator it deserves. Rightio.

Palmer recently tried to have ASIC charges against him alleging breaches of director duties and fraud thrown out, saying ASIC’s actions had breached his rights under Queensland’s new human rights legislation. At last month’s Senate estimates, Labor MP Patrick Gorman asked ASIC’s commissioners how common it was for the body to be accused of human rights breaches.

“A search of records indicates that this is the only occasion proceedings have been commenced against ASIC alleging breaches of human rights.”

To be frank, I think this is pretty disgusting.

It is true that the Holgate/Shipton comparison is valid. Shipton claimed close to $120,000 of tax expenses for himself, on ASIC’s tab. Holgate gave her top executives a bonus.

Holgate had her public reputation destroyed. Shipton was politely asked to leave… after he’d been given a few months to sort out his desk.

The treatment was very different. It is a very legitimate question to ask whether this difference in the way they were treated had anything to do with their gender.

So that is fair enough.

But to jump on this bandwagon just to peruse a personal vendetta is pretty cheap. It’s cheapens the whole conversation.

And it’s a very clear attempt to send a signal. Not to Shipton though. Shipton is on the way out, so why bother?

No, this is a message to future regulators.

Come after me and you’ll cop it in the papers.

This is not how a healthy democracy works.

But Palmer doesn’t give a fig about that.

JG.

The banks think conditions are fantastic, and it’s nothing but up from here for house prices.

Dr Doom reckons stagflation is coming.

*ominous music*

Let’s break down why this is interesting.

So Dr Doom is Nouriel Roubini. He earned his evil villain moniker by being one of the few economists to anticipate the Global Financial Crisis.

He also tends to be a bit bearish by nature, and he’s not known for pulling any punches. Hence, Dr Doom.

And he reckons stagflation is coming.

Stagflation is what you get when the economy is collapsing AND prices are rising. It doesn’t happen that often. Normally prices rise when the economy is doing well.

But every now and then you get a collapse in output, and a rise in prices. The most famous recent examples were the oil shocks in 1974 and 1979.

And this is important. The super-cheap money settings we’ve got right now are based on the premise that inflation is contained and is not going to be a problem.

If the inflation dog gets off the leash, then central banks will be forced to raise rates, choking off the recovery before it’s fully established, and possibly causing asset markets to cool.

So this is something to be watching.

Fortunately, I reckon Dr Doom’s clutching at straws.

I don’t find his shopping list of arguments particularly persuasive. First up, he reckons that the US and the rest of the world are just printing and spending too much money. 

Centrals banks have been monetizing large fiscal deficits in what amounts to “helicopter money” or an application of Modern Monetary Theory. At a time when public and private debt is growing from an already high baseline (425% of GDP in advanced economies and 356% globally), only a combination of low short- and long-term interest rates can keep debt burdens sustainable.

Monetary-policy normalization at this point would crash bond and credit markets, and then stock markets, inciting a recession. Central banks have effectively lost their independence.

True, but where’s inflation coming from? It’s not in the data yet. It’s not even in the forward indicators. Old school demand side inflation (where the economy runs so hot that prices get a run on) seems a long way off.

I mean, central banks have been under-shooting their targets for a decade or more. They’re dreaming of inflation. They’re praying for it.

But we live in a world where deflationary pressures are everywhere. Western economies are saturated with supply. We’ve reached peak stuff. At the same time, the developing world continues to add massive production capacity, with a billion or so workers waiting in the wings.

The world has ample capacity to fill any increase in demand that we create.

And it has done for years. That’s what driven disinflation, and made it so hard for central banks to hit their targets.

And none of that is going anywhere.

But stagflation normally happens with a supply-side shock. And it is true that Covid is a big F-off supply side shock.

But will it be long lasting?

Dr Doom believes it could be:

In today’s context, we will need to worry about a number of potential negative supply shocks, both as threats to potential growth and as possible factors driving up production costs. These include trade hurdles such as de-globalization and rising protectionism; post-pandemic supply bottlenecks; the deepening Sino-American cold war; and the ensuing balkanization of global supply chains and reshoring of foreign direct investment from low-cost China to higher-cost locations.

Yeah, that’s fair enough. The poles of global trade are shifting. But that’s not a long term thing. Once supply chains have established themselves with a bit more distance to China, the story’s done. It’s not going to keep driving prices higher. It’s in play now, but I don’t expect it will be in 18 months.

Equally worrying is the demographic structure in both advanced and emerging economies. Just when elderly cohorts are boosting consumption by spending down their savings, new restrictions on migration will be putting upward pressure on labor costs.

Moreover, rising income and wealth inequalities mean that the threat of a populist backlash will remain in play. On one hand, this could take the form of fiscal and regulatory policies to support workers and unions – a further source of pressure on labor costs.

On the other hand, the concentration of oligopolistic power in the corporate sector also could prove inflationary, because it boosts producers’ pricing power. And, of course, the backlash against Big Tech and capital-intensive, labor-saving technology could reduce innovation more broadly.

Ok, this is where Dr Doom is really clutching at straws I reckon.

Demographics in the developed world are highly deflationary. Old people don’t buy stuff. They have lots of stuff. The look to sell down stuff.

And sure, maybe wages get a bit of a run on as workers try to organise and fight inequality. But so what? Wages have been crushed in recent years, as the global labour market becomes more integrated and workers in developed countries find themselves competing with workers in emerging markets.

That’s not going anywhere, and any pick up in wages will be gladly welcomed by politicians and central bankers alike.

And that bit about a backlash against Big Tech discouraging innovation and driving up prices? That’s just nonsense.

The power of big tech has been one of the key features driving down wages costs and driving down the prices of consumer goods. It would be amazing if we could take the foot of that accelerator. But the idea that we could do that, and then get that car in reverse and start putting upward pressure on prices… that’s a bit of a stretch to me.

So yeah, Dr Doom, I’m not buying it.

Yes, there’s some short-term supply shocks in effect. Inflation will spike in the short term.

But this is still a deflationary world.

And our central bankers are chill.

JG

This boom really is one for the ages. Now rents are lifting.

First prices. Then rents. Then prices again.

That’s how this boom is playing out.

We all know about the serious heat that record low interest rates have created. That’s always the way. Interest rate cuts boost spending power. That increase in spending power translates into rising prices.

But there’s something else.

Rising rents.

Remember rising prices don’t cause rents to rise. Just because prices are going up, doesn’t mean you can charge tenants any more. It’s a competitive rental market.

So there’s no reason to expect rents to go up in a boom.

However, the causality does run the other way. When rents are rising, that’s increasing the gross return on your property, and like any asset class, the return an asset offers influences its price.

The greater the return, the more people are willing to pay for it.

And right now, that’s what we’ve got. Rents are rising at the fastest pace in a decade.

CoreLogic has released its April Housing Update, and it shows that rental growth nationally has hit its highest level since September 2011, growing by 3.9% in the year to April 2021:

This growth is being led by Australia’s regional markets, which experienced a whomping 8.6% rental growth in the year to March 2021, more than double the 3.9% rental growth experienced across the combined capital cities.

Every regional market bar the Northern Territory is experiencing strong rental growth, with regional Western Australia (10.7%) the hottest:

By contrast, rental growth across the combined capitals remains mixed, with annual rent falls recorded across Melbourne (-3.0%) and Sydney (-0.2%) (largely on the back of the high-rise apartment sector), offset by massive growth across Darwin (16.5%) and Perth (14.2%), with the other capitals in between.

The next chart, which plots the time series across Australia’s capital cities and across houses and units, shows the wild variation more clearly:

As shown above, units across Melbourne (-8.2%) and Sydney (-4.9%) have experienced heavy rental falls, whereas growth is positive in every other market; albeit softer overall for units than detached houses.

All this is why the regional property markets continue to outperform in terms of capital growth as well. While the capitals were growing at 4.8% in the year to March, the regions were growing by a massive 11.4%.

I don’t think I remember the differential ever being that big.

But this is what we’ve got. Interest rates sparked a boom in prices.

But household incomes held up, largely on the back of government support programs, and now our rental markets are booming as well.

Before you know it, that puts added heat into an already hot market.

And bam – super boom.

One for the ages.

JG