Thursday's Top 10 with NZ Mint: 'Accountants should stop bleating about IRD's tax avoidance win'; 'I ain't afraid of no ghost cities'; Virginia's push for a gold-backed US$; The great baby-boomer house sale to come; Dilbert

Here's my Top 10 links from around the Internet at 10.30 am in association with NZ Mint.

As always, we welcome your additions in the comments below or via email to bernard.hickey@interest.co.nz.

See all previous Top 10s here.

My must watch today is #7 on how baby boomers will start selling their family homes from 2020 onwards. Who will buy them and how much will they pay? Maybe they can just borrow it all when interest rates hit 0%... 

1. The great hunt for tax dollars - All around the world governments are shaking the tin, over-turning couches, hanging people upside down to empty their pockets and generally getting tough on anything that looks like tax avoidance or evasion.

The confirmation this week by the courts of the IRD's win over Alesco in the Optional Covertible Notes (OCN) issue was another example.

Now Spanish authorities are hunting down all the British ex-pats who spend most of their time on the Costa del Sol and in the Balearics.

We face this sort of constant tax-hunt for years to come and all around the globe.

Tax ahem structuring specialists should start feeling a little hunted.

Good.

Here's the Telegraph (HT Waymad) with the latest plain tax pain from Spain:

A spokesman for the Spanish tax authority said the globalisation of financial activity and increasing problems with fraud made it necessary “to establish a specific obligation of information on assets located abroad”.

He said residents who were unsure of how to submit their declaration, which has to be completed online, should visit their nearest tax office for further information. Mr Girvan said: “Different governments across Europe are looking at tax declaration. The pressure to raise revenue means that any legitimate methods to generate funds will be pursued.”

Thousands of British expats and second-home owners have been leaving Spain in recent years as its economy teeters.

2. 'Face it guys - you got it wrong. Suck it up and move on' - Tim Hunter has written a satisfying piece over at Stuff pushing back at all the accountants who were 'shocked and disturbed' by the appeal court's ruling in favour of the IRD in its Optional Covertible Note tax avoidance case against Australian company Alesco. They had warned overseas investors would leave...

Hunter starts off well and it just gets better. 

Let's get one thing clear. Claims that the Alesco tax case may discourage overseas companies from doing business in New Zealand are, respectfully, bollocks.

The bleatings of accountants that the ruling increases the uncertainty over New Zealand's tax rules appear to me to be self-justifying fantasy from people have spent so long twisted in a maze of tax minimisation they can no longer see see straight.

3. China's housing crackdown - Here's Bill Bishop at New York Times' Dealbook with a look at the latest moves in China to try to slow down its housing market. They spooked the Chinese stock market for a bit.

Chinese shares fell the most in two years on Monday as the Shanghai stock exchange’s property index tumbled 9.25 percent. Late on Friday, China’s State Council had announced a new set of policies designed to cool down the housing market.

Economic data released in the last few days has called into question the strength of China’s recovery. It may be that Beijing is so confident in the health of the economy that it can afford to squeeze the real estate sector harder. Or it may be that the government is so concerned about the social implications of a resurgent property market and the effect that real estate may have on the effort to rebalance the economy toward consumption from investment, that it is willing to take that risk.

The new rules include a 20 percent tax on gains from a sale, higher down payments and mortgage rates, and requirements that cities set annual price easing targets. The announcement was met with both skepticism and criticism.

4. 'I ain't afraid of no ghost cities' - The WSJ's China Real Time Report looks at those who don't think China's ghost cities are a problem.

In the aftermath of a construction frenzy that lifted China out of the Great Recession, Western hedge fund managers set off on trips to places like Ordos in Inner Mongolia to view the eerie phenomenon – and spooked themselves into believing that a massive oversupply of real estate meant a Chinese economic collapse was inevitable.

What happened? Well, housing prices and sales volumes have been steadily rebounding, to the point where the government is now contemplating new cooling measures. So much for the epic oversupply that bears predicted would wipe out growth.

“Hurray for Ghost Cities,” writes the economist and veteran China-watcher Jonathan Anderson in a recent note. The former UBS analyst, now with the Emerging Advisors Group, isn’t a cheerleader for senseless real estate projects. His point is that by investing in “ghost cities” to underpin growth, China saved itself from even more unwise overinvestment in areas that could have done lasting damage to the economy, such as manufacturing.

5. The persistence of America's gold as money movement - A bunch of American states have proposed creating their own gold-backed currencies lately. It's all part of the astonished reaction to the mass money printing that the US Federal Reserve has done over the last five years. None of these new currencies have gone anywhere. But the proposals keep coming.

Here's the always excellent Gillian Tett at the FT talking about this political phenomenon in the United States. She points to a bill to create a gold-backed currency actually passed through the lower house of the state legislature in Virginia, but was blocked in the senate.

The more that the country plunges into uncharted policy territory with quantitative easing, the more that the sense of confusion spreads from the banks to the central banks as well. Little wonder, then, that sales of gold have been soaring; or, for that matter, that polls suggest a notably high level of popular support for the ideas of men such as Ron Paul who want to abolish the Fed. In a world where policy makers have failed to explain how finance works – and people saw the system almost collapse a mere five years ago – there is a search for answers.

So guffaw at the Virginia bill if you like. And if you want an additional chuckle, you might also note that a dozen other state assemblies, in places such as North and South Carolina, have discussed similar ideas; indeed, Utah has a gold and silver depository which is trying to back debit cards with gold. But whether you love or hate this idea, last week’s events in Richmond will certainly not end this debate about trust; not in a world where the economic pressures keep mounting – and policy makers in Washington are struggling to explain to a mystified and angry public how their economic policies are working. Or not.

6. NZ$4 bln to save 0.25 of a life? - That's the equation consultant Ian Harrison has come up with to argue that proposed earthquake strengthening rules from the government far outweighed any benefits.

Here's Catherine Harris at Stuff with the article:

Economic consultant Ian Harrison said he had analysed proposals put forward by the Ministry of Business, Innovation and Employment on building standards, and it showed the cost of the tougher regime would be 50 times the benefits. In Auckland the cost was 1762 times the benefit.

Harrison said his research was based on the ministry's own expert analysis. "The proposals will save only 0.25 lives a year at a cost of over $4 billion," he said.

"If this money was put into road safety it could possibly save over 20 lives a year." Harrison also claimed many councils were applying higher standards for assessing earthquake-prone buildings than was currently in the law, opening their designations up to a legal challenge. Using those standards, people had been led to believe by MBIE that there were 15,000 to 25,000 buildings in New Zealand which would collapse in a moderate earthquake. In fact "very few buildings" would collapse in such an earthquake, he said.

7. 'The great seniors selloff' - Emily Badger writes at Quartz that the next housing bust in America will come from 2020 as baby boomers start downsizing for their retirements and sell their family homes to move into something smaller.

Same issue here, I suspect. Although there will be a push by property owners (and the banks) to ensure the youngsters buying the houses pay top dollar by borrowing up to their gills with super low interest rates.

No worries then...

In the coming years, baby boomers will be moving on (inching further through the python, if you will). “They will want to sell their homes, and they’re hoping there are people behind them to buy their homes,” says Nelson, director of the Metropolitan Research Center at the University of Utah. He expects that in growing metros like Atlanta and Dallas, those buyers will be waiting. But elsewhere, in shrinking and stagnant cities across the country, the story will be quite different. Nelson calls what’s coming the “great senior sell-off.” It’ll start sometime later this decade (Nelson is defining baby boomers as those people born between 1946 and 1964). And he predicts that it could cause our next real housing crisis.

“Ok, if there’s 1.5 to 2 million homes coming on the market every year at the end of this decade from senior households selling off,” Nelson asks, “who’s behind them to buy? My guess is not enough.”

8. 'We don't have a generational wealth problem - We have a class wealth problem' - Dean Baker at CEPR argues the ageing developed economies can afford their gold-plated pension and health care schemes because productivity growth will bail us all out.

He argues the very wealthy are trying to distract everyone by turning a bog standard income distribution problem into a generational wealth problem. I have sympathy with this view.

My dispute with him is is assumption of continued productivity growth rates at post-War levels. It's not going to happen given our lack of investment recently in genuinely new and transformative technology, the ageing population and peak oil/minerals/water/air. 

But here's Baker:

It is also important to remember that after 2038 the demographics barely change but productivity keeps growing. This means that our children and grandchildren will continue to grow richer through time without any negative impact from an increasing population of retirees.

In reality there are some complications in converting productivity growth to wage growth, so the rise in wages would be somewhat less than these calculations imply; but the basic story is not debatable. All plausible projections of productivity growth show that average wage growth will swamp any negative impact on workers’ living standards from a growing burden of retirees.

At this point everyone should be screaming that workers have not been seeing the gains of productivity growth in the last three decades. This is exactly right. The wages of most workers have barely risen since 1980 because the vast majority of the gains from growth have gone to those at the top of the income distribution.

This is worth repeating a few hundred million times. Most workers have seen little benefit from growth because the gains have gone to those at the top.

This is why the yapping about the burden of Social Security and Medicare is so pernicious. If workers share in the gains of economic growth then there is no way that the cost of these programs will impose a serious burden on their living standards. In fact, workers’ living standards rose rapidly in the past in spite of large increases in the payroll taxes used to support these programs.

It will matter far more to our children and grandchildren whether they share in the gains of economic growth than if they have to pay higher tax rates for Social Security and Medicare. The rich, with the full complicity of the media, are doing their best to keep national policy focused on the cost of Social Security and Medicare. But the arithmetic says that the upward redistribution to the wealthy is the far more important issue for future living standards.

9. Does not compute - The Dow hit a record high this week, despite persistently and painfully high unemployment and slow GDP growth.

How is this possible? One reason for fairly solid profit growth despite the weak economy is a three decade long shift in the share of income from wages to capital. Another reason is the US Federal Reserve has printed the equivalent of 20% plus of US GDP and handed it over to banks at 0% to invest in stocks yielding more than 0%.

It's all sustainable as long as the Fed (and other central banks) keep printing money forever and somehow all these companies can find customers with some money that isn't borrowed to buy all the stuff they're selling.

This chart tells the story, courtesty of The Atlantic.

10. Totally Jon Stewart on Wall St's amazing bounce back. He uses some swear words that I can't put in because I want this to get through some very serious spam filters in some very large corporates. ;)

Stewart makes some good points about inflation adjustment and the structure of the Dow index. Seriously. He is also excellent on the US constitution and the Supreme Court in this one. Excellent in a profane and incisive way.