MIS scams uncovered

Legendary bank robber Willie Sutton was a clear thinking sort of guy. When quizzed as to why he robbed banks, he replied that’s where the money is.

Had he been born 80 years later Willie could well have become a MIS promoter.

The ATO’s first attempt to impose civil penalties on tax scheme promoters has seen two taxpayers, Ludekens and Van de Steeg, hauled before the courts.

The tax scheme involved Gunns’ 2006 MIS woodlot scheme. Normally the MIS company is considered to be the promoter but in this instance the scammers interposed themselves between Gunns and the grower/investors. This is what made the case slightly unusual. The complexity of the alleged scheme makes the court decisions inaccessible for a lot of readers. The first hearing in Sept/Aug of 2012 before Justice Middleton of the Federal Court who handed down his decision in March 2013 found against the ATO but before a full Federal Court, in August 2013 the ATO successfully appealed.

Debt money and QE:Lessons from the GFC

 

 

The Debt fallacy examined the question of government debt and the budget surplus mantra from an accountant’s perspective.... where there’s government debt there must be a corresponding asset in private hands and if governments run surpluses then the non government or private sector has no option but to run deficits implying more private borrowings or a rundown of private financial assets. Debt (specifically borrowings of the Australian government) is issued via IOUs or government securities and appears as liabilities on the Australian government’s balance sheet. Notes and coins are also government IOUs but these appear as liabilities on the Reserve Bank (RBAs) balance sheet. Since our currency is now longer convertible (into gold say) the only payment one will get for a note is another note.

The aim of this blog is to have a closer look at debt and how it reconciles with the money supply. We are constantly bombarded with concerns about ‘money printing’, but how exactly is money created and by whom? If one were to take a quick street poll as to who creates most of the money in our economy, the answer would be the government does, and it’s delivered round the community in Armaguard trucks. However it doesn’t work like that and it hasn’t for quite a while.

The debt fallacy

It’s not only refugees who are about to swamp us but also governments debt. The need to return the federal budget to a surplus is an article of faith by every politician running for office, all of the mainstream media and most economists. It’s only a question of how quick we proceed.

Are we being told the truth, the whole truth and nothing but the truth?

The alleged problem

A recent report on tax reform by PwC one of the leading accounting firms Protecting prosperity contained a preamble about why we needed tax reform, essentially to avoid mounting government debt. Australia’s challenge was summarised as follows.

After 22 years of continuous economic growth, Australia now faces the risk of falling incomes and increasing government debt. PwC estimates that the combined annual deficits of Australian governments will rise:

·        from $27.4bn (1.9% of gross domestic product [GDP]) in 2011-12 to $213.5bn (3.5%) by 2039-40and to $583.1bn (5.9%)by 2049-50.

And our governments’ debt levels as a proportion of GDP will rise:

·        from 12.1% in 2011-12 to 32.9% by 2039-40 and to 77.9% by 2049-50.

These trends are unsustainable as the population ages. Australian governments risk not being able to meet the key needs of our community and a further slide into debt.