Governments imposing taxes...such a novel solution for bad management

The European Union’s executive proposed a bloc-wide tax on financial transactions that would set a rate of 0.1 per cent on bond and stock trades and raise €57-billion a year, but Britain said it would only support a global levy.
The EU’s executive European Commission formally adopted on Wednesday plans for a financial transaction tax from January 2014, which it hoped would be extended worldwide.
The measure will need approval from EU states to become effective.
“With this proposal the European Union becomes a forerunner in the global implementation of a financial transaction tax,” EU Tax Commissioner, Algirdas Semeta, said in a statement.
“Our project is sound and workable. I have no doubt this tax can deliver what EU citizens expect -- a fair contribution from the financial sector. I am confident that our partners in the G20 will see their interest in following this path.”
Stock and bond trades would be taxed at the rate of 0.1 per cent, with derivatives at 0.01 per cent.
The EU executive said the tax would be imposed on all transactions in financial instruments between financial firms when at least one party to the trade is based in the bloc.
The revenue would be divided between the EU’s own budget to cut national contributions, with the rest going directly to member states.
The Group of 20 forum has tried and failed in the past year to agree on a global transaction tax as many countries fear it would be too easy for financial firms to evade.
Canada, Britain, the United States, Australia and China oppose the tax because it puts more burden on banks, while France, Germany, Austria, Belgium, Norway and Spain support it, along with several African states.
Britain, the EU’s biggest financial centre, reiterated on Wednesday such a tax would only work globally. “The government will continue to engage with its international partners on Financial Transaction Taxes and has no objection to them in principle. But any financial transaction tax would have to apply globally and there are a number of practical issues that need to be worked through,” a U.K. Treasury spokesman said.
Without Britain’s backing, there may be an attempt to introduce the tax at first only in the 17 euro zone countries.
“The proposal would introduce new minimum tax rates and harmonize different existing taxes on financial transactions in the EU,” the executive added.
Britain, for example, already imposes a small stamp duty tax on share trades and has also introduced a levy on bank balance sheets.
A European Commission impact study on the tax said there are strong risks of transactions relocating to countries not applying the levy.
With a tax rate of 0.1 per cent, the Commission’s models showed drops of up to 1.76 per cent in gross domestic product in the long run.
 And now onto the Asia...
As debate rages in the U.S. and U.K. over top-end tax rates, Japanese authorities appear to be adopting a different approach: soak the rich, quietly.

Big earners in Japan already face a top marginal income tax rate of 50 per cent -- the level found so objectionable by many U.K. Conservative members of parliament. But Tokyo officials plan to dun them further with a temporary tax surcharge to fund reconstruction of areas devastated by the huge March 11 tsunami.
And while their plan still faces political obstacles, Japanese policy makers have at least managed to avoid the accusations of “class warfare” levelled at U.S. President Barack Obama over his effort to lift taxes on the wealthiest Americans.
To be sure, the redistributive element of Japan’s reconstruction tax proposal is buried safely in the small print. While the government has proposed a flat 5.5 per cent surcharge on income tax, deductions that slash the standard bill for lower income payers mean it’s the better-heeled that will really pay.
For a family with two children on a single annual salary of ¥5-million ($65,500) a year -- a level close to the median -- the government’s tax panel estimates the extra cost of the 5.5 per cent hike at a mere ¥4,300 a year. But a similar family earning ¥10-million annually would pay an extra ¥36,700 and one on ¥100-million would have to stump up ¥1.84-million.
That means the temporary hike marks a small but potentially important turning point in the general trend of recent decades toward lower income tax rates on Japan’s rich.
Such a turnaround should not be a surprise. Japan once boasted of its creation of a “nation of middle-class” but falling average salaries and a shift toward temporary and contract employment have largely destroyed the post-war dream of salaryman “job-for-life” security.
Worries about income inequality were one factor in the rise to power in 2009 of the left-of-centre Democratic party. Mainstream political discussion is dominated by talk of how to ease the travails of a squeezed middle rather than of ways to cultivate “wealth creators” by coddling the better-off.
Cynics claim that many of Japan’s richest pay less than their fair share of tax. This was a perception fuelled by revelations in 2009 that the prime minister at that time, Yukio Hatoyama, had failed to pay the required tax on more than ¥1-billion in funds given to him by his heiress mother over six years.
Mr. Hatoyama eventually handed over hundreds of millions of yen in overdue tax -- but forgiving officials gave some of the money back because the statute of limitations for payment had expired.
So wealthy taxpayers will be wise not to make too much of a fuss about the temporary hikes. After all the tsunami reconstruction surcharge is still only a tweak to a tax system that captures only the equivalent of 17 per cent of gross domestic product, one of the lowest levels among advanced economies.
It would be seen as poor taste to oppose a tax hike intended to ease the suffering of the residents of the stricken north east whose stoicism in the face of the March 11 disaster drew worldwide admiration.
One of the best arguments for higher taxes on the rich is their potential to reinforce public confidence that all income groups are sailing in the same national boat. Japan, after all, is still a nation mercifully free of the kind of crime-ridden no-go zones that mar some U.S. cities or the riots that raged across English communities this summer.
Prime Minister Yoshihiko Noda has himself suggested that social calm is not guaranteed, warning this month that the dismay of people who fall out of the middle class could “eventually turn to despair and then to anger, and then the collapse of the stability of the Japanese society from its core”.
Many top-rate taxpayers are no doubt still hoping that worries about a faltering economic recovery will at least force the postponement of the temporary tax hikes. But Japan’s dire fiscal trends mean generally higher taxes are all but inevitable. This will not be the last attempt to ensure the rich pay more.

U.K. Housing Starts Down by 50%

Just 9,589 homes started on site in May compared to 20,019 the previous year according to the NHBC The number of homes started by house builders has now fallen by more than half in the last year, according to the latest data from the National House Building Council.
The data, compiled exclusively for Building, shows the number of homes begun in May fell to just 9,589, compared to 20,019 in the same month last year, a fall of 52%. The picture, which includes new social homes, is even worse for private housing, with a fall of 56% after just 6,890 were commenced in May.
This figure is the worst figure ever recorded by the NHBC, outside of the traditionally low December figures for 1989, ’90 and ’91, in the depths of the last housing slump.
NHBC figures go back over twenty years.
The fall in production comes as housebuilders continue to react to the accelerating housing market crash, and follows Monday’s prediction by the Construction Products Association that housing numbers could fall to their lowest levels since the second world war. However, the CPA’s prediction was based on a production fall of 27%, meaning the NHBC’s figures suggest the picture will actually be even worse. It also represents a worsening on official government data, which is published quarterly, that so far has shown building starts falling 21% in the first three months of the year compared to 2007.
The government has a target to build two million homes by 2016 and three million by 2020, which requires the industry to build 240,000 homes a year. If this month’s figures were repeated across the year, the annual figure would be less than half that.
Les Sohar, founder of soharworldhomes.com, says: "Activity by private house builders was particularly low in May this year. The latest figures show that there were 6,890 new homes started for private sale during the month. The drop in housing starts continues to reflect the difficult market conditions being experienced by house builders."

Sohar, also an International Real Estate specialist, said: “Sales have been catastrophic, so it is inevitable, unless housebuilders see any return of the mortgage market, that production will come down in line with those sales.
“This is now interrupting the much needed increases in supply, and no-one can have any means of knowing when the market is likely to come back.

So, Where did all that money go on infrastructure projects...not electrical

LAST weekend’s vigilance against potential terrorist attacks was an impressive demonstration of America’s resolve to prevent events of September 11th 2001 from ever happening again. From your correspondent’s hillside perch above Santa Monica Bay, he watched National Guard F-16 jets make repeated sweeps across the ocean by Los Angeles International Airport and then on to the huge port complex of Long Beach and San Pedro, while a Navy P-3 Orion maritime-surveillance aircraft circled overhead. The cacophony was deafening but reassuring. Angelinos slept easier that night.

Yet, further down the coast, 6m citizens of southern California and south-west Arizona, along with their cousins across the Mexican border, were just recovering from a man-made disaster that had plunged their sweltering world into darkness—shutting down schools, hospitals, offices, factories, shops and restaurants, as lighting, air-conditioning and other essential equipment ceased to function.

Beaches in San Diego had to be closed to the public because raw sewage had seeped into the sea. Passengers on trains stuck between stations and trapped in lifts had to be rescued by the police. Flights from San Diego International Airport were cancelled because of the lack of runway lighting. With traffic lights out of action and petrol stations unable to pump, motorists abandoned their vehicles and added to the gridlock that ruled the roads. By great good fortune, no-one died or was seriously injured. But normal life, for those so affected, ground to a miserable and unnerving halt.

The difference between the two events could not have been more stark. One was all about preparedness and professionalism. The other was a forceful reminder of the chaos wrought by personal negligence and institutional neglect. “We don’t need no lousy terrorists to cause mayhem,” San Diegans must have reflected afterwards. “We can manage just fine by ourselves.”

The power outage that swept across a large swathe of the American south-west on September 8th was the region’s worst cascading blackout in 15 years. It started at the North Gila substation near Yuma, Arizona, where a utility employee “was doing some work” on faulty equipment. Something happened (still under investigation) to cause the substation to shut down, disconnecting a 500kV transmission line connected to it and disrupting the electricity supply to Yuma’s 90,000 residents.

The immediate power shortage at Yuma caused the current—which normally flows along the grid’s key Southwest Power Link from Arizona to California—suddenly to reverse its direction. The result was a violent fluctuation in line voltage that fed back through the grid to trip switches at substations throughout the San Diego area. Altogether, some 15 power stations in the region shut down automatically to protect themselves from voltage swings—the biggest being the 2,200MW San Onofre nuclear power plant up the coast near San Clemente.

With the San Onofre plant disconnected and the umbilical cord from Arizona effectively severed, the delicately balanced grid serving San Diego and its adjacent counties quickly became unstable. Such problems would normally be resolved by ratcheting up the output of surrounding power stations. But with so little base-load capacity in the area, standby plants for meeting peak demand could not be spun up fast enough to stabilise the voltage. The overloaded grid promptly crashed, causing blackouts to spread across the region and into Mexico. The lights did not come back on until the following morning.

The wind was blowing at only 8mph and the sky was partially overcast. So, California’s lauded sources of renewable energy were of little help. If anything, they were part of the problem. Critics point out, with some justification, that California’s energy strategy of focusing on conservation and expanding intermittent sources of renewable energy—while ignoring the urgent need for more base-load generating capacity close to big cities—was the primary cause of the grid failure.

The wider issue is that the original voltage spike which triggered the monster outage should have been isolated at the Yuma substation in Arizona. The two official bodies responsible for overseeing the distribution and reliability of bulk power in the United States—the Federal Energy Regulatory Commission (FERC) and the North American Electric Reliability Corporation (NERC)—have launched an inquiry to learn why that did not happen. Their report will no doubt apportion blame and recommend changes in maintenance procedures. But few expect it to address the underlying problem. Both FERC and NERC are only too aware of the structural reasons why the American grid has become so fragile. They are equally aware of how intractable to solution those reasons are.

As elsewhere, the electrical-power industry in America has changed over recent decades from a collection of heavily regulated regional monopolies to a complex, competitive, national, free-market business. In the process, electricity has become a commodity, with futures and contracts traded by participants just like any other commodity business. Independent power providers and transmission companies construct their own facilities, often paid for with bonds backed by future revenue streams. Retailers sign up customers, buy the electricity from wholesalers around the country, and bill users for it.

Managing supply and demand, once the prerogative of the utilities’ planners, has become a process shaped largely by an energy company’s appetite for risk. Meanwhile, independent system operators who schedule the dispatches of electricity have become, effectively, asset managers—using market-clearing prices to equilibrate between bids by suppliers and those from retailers.

By and large, such changes have made energy markets more efficient. For consumers, the competition created by deregulation has kept a lid on electricity prices. But it has had downsides, too. One of the biggest is the way it has removed what little spare capacity the grid once had. In the power industry’s new competitive environment, transmission companies operate their lines at near full capacity, leaving little room for those threatening fluctuations in voltage caused by accidental outages.

Compounding matters further is the way long-distance transmission lines connecting utilities around the country are being used differently these days. Before deregulation, such links were employed largely for emergencies—for when, say, a utility found its voltage dipping precipitously and a brownout imminent. Today, long-haul power lines are frequently made to handle more power than they were designed to, as wholesalers sell their electricity over longer and longer distances. The juice that comes out of a plug in clean-energy California can easily have come from a dirty coal-fired plant in Wyoming or West Virginia.

As a result, the grid now suffers far greater fluctuations in electricity flow than ever before. The continual cycling of power plants up and down to meet demand from elsewhere in the country causes generating and transmission parts to heat up and cool down repeatedly. No surprise that they then wear out faster. Meanwhile, the amount of money the American power industry spends on maintenance has declined steadily, by 1% a year since 1992. With the grid’s most critical components—the transformers at substations—now typically 40 years old, there are serious consequences for the stability and reliability of the grid as a whole.

Another downside of deregulation has been the decline in investment. As the independent power providers, the electricity retailers and the utilities have no responsibility for the grid’s main links, they have little incentive to maintain them properly. And as long as it is possible to purchase electricity elsewhere, there is little further incentive—as in the case of San Diego—to add more capacity locally. More and more blackouts sweeping the country are therefore inevitable.

Will the so-called “smart grid” improve matters? It could do the opposite. All the smart grid does is add a communications layer to the local electricity-distribution network—so consumers can see at a glance how much electricity they are using at any time of the day, and how much it is costing them. Alerts sent by the utility at peak periods will allow customers to cut back their consumption and save money—or have it cut back for them to reap extra rewards. The real aim, of course, is to save the utility from having to invest in additional capacity.

What is rarely mentioned in all the proselytising about the smart grid is that it adds a vast layer of hackable points to the network—some 440m by 2015, according to Lockheed Martin’s Energy and Cyber Services. Every smart meter in the home will be a hackable device. The same goes for all the routers at substations. As the saying goes, if you can communicate with it, you can hack it. Today, you can cut off the power to someone’s home by shinning up the nearest electricity pole and throwing a switch at the top. Once smart meters become widespread, you will be able to do that remotely, from the far side of the world.

But evil-doers from afar might not stop at that. Instead of switching off the power, they could run the voltage up and down to wreck sensitive electronic equipment, such as computers and television sets. And they could do that not just on single homes, but on whole communities and even to routers in substations—in an attempt to take transformers offline, if not actually fry them. As we saw last week, the failure of just one substation in Yuma was enough to bring a whole chunk of the American south-west to its knees. Unless the grid is made more robust and secure, the threat to the country—from terrorist or technician—can only become more severe.

Live anywhere and roll with the punch's

Two things have ushered us into a world without borders... the end of the cold war and the advent of the world wide web of global communications & commerce. Today it doesn't make a great deal of difference where in the world we are located, we can carry on some types of commerce from anywhere; from an island in the middle of the Caribbean to a sheep ranch in the the Australian outback. A game of global musical chairs has begun, and we are now changing places with people willing to go to America or the UK to work for a wage we no longer consider attractive, while we begin to move further afield in search of greener pastures. Many of us are now looking for what might be called a 'life.' Tomorrow, it will make a great deal of difference where we live. But certainly not in the same sense as we now perceive it.

Tomorrow we will live where the best real estate exists, where the least crime and repression exists, where population pressures have not decimated the environment and where business is encouraged and not hindered by legislation. We will live there regardless of that place's global location or its former political posture. If we can now buy a ranch in Argentina (or Uruguay, or New Zealand, or name your spot,) for ten cents on the dollar of what a similar property inside the United States or the UK would cost us, and if we can carry on commerce from anywhere we are, how long do you imagine it's going to take your neighbor to realize the very same thing? As Les Sohar of soharworldhomes.com put it, "those folks who buy that ranch in Argentina today are going to have grandchildren who will think they were a genius."

International Real Estate as a Portfolio Hedge

It’s easy to take for granted the scope of “international real estate,” which lumps all the real estate markets of the world—193 countries, to be exact—into a single category of three words. While we recognize that a detailed guide to investing in international real estate could easily fill a book, www.soharworldhomes.com has managed to summarize some of the basics into a short list of what investors should know before venturing into foreign real estate.

1. International real estate investment can offer excellent diversification of assets Investment in international real estate offers diversification, which is “a superior investment style,” according to Les Sohar, founder of soharworldhomes.com. Diversification effectively distributes risk among multiple markets and can optimize potential for return. Because real estate market trends are cyclic, “There may have a down-cycle in the United States, but there are excellent opportunities in South America, Europe or elsewhere and are in the beginning of an up-cycle,” Les Sohar, of Re/Max an International Real Estate specialist. Real Estate investors usually need a large amount of capital in order to acquire and maintain a global portfolio, according to Sohar. However, small investors have the opportunity to diversify their assets on a microcosmic level, such as purchasing residential property in markets that show considerable potential for upward growth.
2. Currency exchange rates can enhance or impede profit margins International Real Estate investment essentially combines property two types of assets: property and foreign currency. The value of a foreign currency can profoundly affect the amount of return made on an investment, as it increases or decreases relative to the U.S. dollar. For example, a small office building in Europe worth €1 million six years ago would have equated to $920,000 U.S. dollars, when the Euro traded at 0.92 Euros to the dollar. Since then, any appreciation in the building’s value might have been compounded or negated by changes in exchange rate. In this case, the exchange rate would have added to the returns: With an appreciation of 10 percent, the newly valued €1.1 million office building would be worth $1.65 million— almost twice its original value in U.S. dollars. Foreign real estate investment mixes property and currency conversely, a strengthening dollar may slow down appreciation in a European property. Experts intuit that the value of the dollar may be at a cyclical low, and may soon begin to climb again.
3. Legal technicalities (or the lack thereof) may increase risk navigating the legal landscape of a foreign Real Estate market can be daunting, especially in developing countries that have only recently opened their property markets to limited foreign investment. For markets in China and Southeast Asia, for instance, foreign investment and real estate ownership laws are changed or added rapidly, as their respective governments try to stabilize their growth. Some countries, such as Vietnam, limit the amount of currency that can leave their borders.
4. Foreign investment opportunities abound in Latin America. American investors can take advantage of a broad range of foreign real estate investment opportunities without leaving the Americas. Latin American real estate markets can be especially favorable, offering affordable property prices, government initiatives meant to attract foreign capital and exotic, beautiful landscapes, without having to traverse more than three time zones. “I think South America is highly overlooked and underrated,” Sohar said. “We produce a global office report...and it’s remarkable to me how transformed most of those markets are in a relatively short period of time.” In the course of three to four years, for instance, vacancy rates shrank from in the mid-teens to less than 5 percent.
5. Working with international real estate professionals is an important first step regardless of the type of investment in foreign real estate, whether it may be in commercial real estate in an emergent economy or a vacation home in Mexico, investors should seek professionals who are knowledgeable about global markets and are well-connected with a network of localized real estate agents. Embarking on one’s own in unfamiliar territory can be a dangerous move. “The devil’s in the details, and I think that’s especially true when you talk about global investment,” Sohar said. soharworldhomes.com, for instance, specializes in International Real Estate, and being a Certified International Property Specialist (CIPS) as well as an International Real Estate Specialist (IRES), the only one with both designations in Canada gives Les Sohar an incredible edge for for investors looking at Canada and Canadians looking elswhere.