Tesla – zero emissions and zero registrations


An eagle eyed reader spotted this article in the South China Morning Post today showing that private EV registrations in Hong Kong fell to ZERO in April 2017 from 2,964 in March. The SCMP noted; “Since the April 1 introduction of the first registration tax on EVs, vehicle prices have shot up by 50 to 80 per cent, depending on the model, with tax relief now capped at HK$97,500. A Tesla S was HK$570,000 (under the new tax regime, the price is more than HK$900,000)…the domination of Tesla means zero-emissions motoring in Hong Kong has been largely an elitist activity.” HK is 6% of Tesla’s global volume yet the share price is pricing in blue sky.

Yet more evidence that Tesla product can’t stand on its own without massive subsidies. In previous Tesla dispatches the argument has been the car is an ostentatious fashion accessory to show the world one’s commitment to climate change but only if the price is right.

Are the Aussie major banks as greedy as made out?


One would imagine that Turnbull and Morrison would consult the Treasury or the Reserve Bank of Australia (RBA) to get a feel for the true state of bank greediness. Of course as a political point scorer it is an easy one because Aussie mortgage debt stress is so high and any relief that absolves their own accountability is a plus. Turnbull doesn’t worry about reality and given his supposed business acumen saw no need to consult the banks. Just Mug them in a back alley. Then wonder why they say in response to the proposed tax slug why employees, customers and shareholders will suffer in some way or another. Any conservative government knows that nearly all financial institutions operate for shareholders over customers. In a round about way customers can always choose to switch institutions if they find a better deal. Market forces keep some level of competition but the above chart shows that the return to shareholders for the evil major banks is at 24 yr lows. Profitability is well off the highs. So shareholders aren’t getting the spoils they are accused of. Of course low interest rate environments place extra pressure on net interest margins and they too are hovering at post GFC lows. Never mind. When trying to arrest disastrous polling Turnbull will happily put himself ahead of country. Even if it means dynamiting the tracks of the one sector that greases the wheels of the economy.

Pathetic – that’s the best they’ve got?


Talk about the boy (girl) who cried wolf. I’m not sure why Rachel Maddow bothered to create a storm over him paying $38mn in 2005.  Go back to sleep. If she had an expose over evasion that would be something. Once again, people will switch off to click bait which promises everything and delivers nothing. So much for a gotcha moment. Maddow just kicked an own goal. Ahh the politics of envy. One question for Maddow – does she claim every tax deduction she’s entitled to? Given the White House released before she did took the wind from her sales leaving her story as powerful as an asthmatic blowing through a straw

Trump’s tax returns – the biggest danger


MSNBC’s Rachel Maddow claims to have President Trump’s tax returns. Apart from the legality of such leaks, the question remains whether he’s done anything illegal. If he’s used every legal loophole to his advantage to AVOID taxes then good on him. If he’s abused the sysyem and EVADED taxes then that is a problem and the law should be applied appropriately. The question is what level of detail has Maddow got? A couple of pages of his ‘1040’ or his entire filings? I would imagine his tax filings are complex enough littered with tax loss carry forwards, write-offs, deductions and so on.

The risk is binary.

If he is only shown to have avoided tax then it will be a non issue and the Democrats will bury themselves deeper in the politics of envy. Voters didn’t care much for the original leak during the election campaign.

If Trump is charged with tax fraud and impeached be careful what you wish for. The amount of market chatter I hear from the same pundits who said he had no chance of winning the White House are the ones believing his tax cuts aren’t yet priced in.  That was priced in a while back but such are global markets clinging to any hope things don’t fall apart that deposing the one person that is fueling it will cause massive risk on.

For all of the hero status Maddow expects to garner she may end up doing the greatest disservice. That doesn’t condone illegal activity rather exposing what happens when the inevitable Chinese whisper problems rear up because we’re all US tax code experts.

Poverty in America +16mn since 2000. +9mn since 2008


Remember the feel good video Obama proudly displayed alongside his White House economics flunky. Poverty had fallen by the fastest rate since the 1960s. What a crowning achievement. While much praise was heaped upon this shift on searching through the St Louis Fed’s FRED stats database, the picture is disturbing. It is actually little to do with partisan politics but a cry from the disaffected to get anything to change their fortunes.

Let’s take a look at Ohio, a key swing state at the election. While Democrats were patting themselves on the back and staring at the huge drop in the unemployment rate…


…poverty was climbing sharply. In fact ever since the tech bubble collapse, the plight of Ohioans has just gotten worse. From 1.1mn in poverty it is now over 1.8mn.


On a national level there is little reason to cheer either. Since the tech bubble collapse America has added 16mn to the poverty queue. 7mn under Bush and another 9mn under Obama. This still remains a monstrous challenge for Trump to fix.


When looking at poverty on a country level America (15%) fairs better than the UK (23%), EU (26%) and Greece (37%). One table that sends chills down my spine is unemployed persons. This trend has been rock solid for almost 70 years. When unemployed persons hit the following line, the US economy tends to head into recession (the grey shaded areas).


With the Fed putting the brakes on low interest rates and the world economy drunk on debt there comes a time for payback. The press can be critical of his appointees and ridicule his executive orders but there is no question as to why he won. He answered the call to the increasingly impoverished people that missed out on the fruits of low interest rates and asset bubbles (incl 20,000 Dow). With more political turmoil awaiting us throughout Europe in the form of elections in France, Holland and Italy we are staring down the barrel of high risk geopolitical stakes.

We better hope he makes America great again with his policies of deregulation and downsizing government. The more the media and shocked liberals protest, loot, pillage and divide the more they trigger exactly what they do not want. For those calling for his impeachment be careful what you wish for. The world will not handle destabilized American politics. The world is well overdue a massive slap in the face. It needs to wake up. We are at a far more important economic juncture than at any time in the past 90 years. Victimology won’t help us. Virtual signaling is pointless. This has nothing to do with race, gender, sexual orientation or religion. These charts show we’ve been drinking our own Kool-Aid for too long. Governments have ignored your wishes and covered up gross negligence along with group think central banks via decades of crony-capitalism.

Trump has much to prove but a larger part of America is well behind the ‘change’ his administration could bring that decades of GOP and Democrat governments have failed to. Yet I ask all those who who litter social media and ask Americans to rise up and do their patriotic duty to resist Trump, “exactly what solutions do you have in mind?” As far as I can see your protesting  is little more than moral preening. You complain yet have nothing to offer in return. We are no longer living in a world where things are free. Eventually someone has to take a haircut. One things is a certainty though. The liberals that cry equality will be the first to cut and run if they become the target of common sense. Let that sink in.

Quick route to permanent residency in Japan


I had to wait 10 years to qualify for permanent residency in Japan. The Ministry of Justice is now looking to cut it to ONE. Permanent residency is a privilege not a right and I respect that although in the end I reckon 90% of the decision was based on how much tax I paid. You are required to dole out your past 3 years tax returns as documented evidence. So the fast tracking of permanent residency is only for  senior management, researchers and other value added foreigners. It actually makes a lot of sense.

Japan needs to arrest a sharply declining (working) population but it would be better served with tax breaks and such incentives because that would drive foreign corporations to consider making Tokyo a proper ‘regional hub’ which would not only support jobs but boost the housing market and other tax feathering opportunities.

I am meeting  with politicians here to drive that message but ‘tax reform’ is a taboo word although a Poland style tax reform especially for corporations (70% pay no tax) is being looked into which would be massive.

I will absolutely congratulate Japan for putting its citizens first over foreigners, especially refugees. It might sound cold but this society is completely at odds with flexibility. To be honest as an asylum seeker, Japan is not remotely geared to supporting them when you have a survey showing poverty being the number one concern of people, Japan will look after its citizens first. That’s how it should be. It is not up to the rest of the world to lecture Japan on its culture either. I only wish my country would protect its culture in a similar manner.

To turn the argument on its head, when the EU tries to forcibly redirect 1000s of refugees to Hungary which had a referendum with 98% (albeit a 45% turnout) saying they didn’t want them, have Juncker et al asked the refugees whether they really want to settle in Budapest? If I were a refugee it would be the last thing I’d want – regular visits from Jobbik thugs. Japan doesn’t have thuggery but as hospitable as a people as they are unlikely to be able to accommodate refugees with sustainable futures in a country that is deeply protective of its culture, values and sense of respect.

Why Japan should follow Poland’s tax code

Poland vs Japan.png

In Japan, 97% of the income tax burden is borne by the top 47% of earners. Over two-thirds of Japanese SMEs (corporations capitalised under ¥100mn) pay no tax. While the government has progressively eased the corporate tax rate from north of 50% in the 1990s to just over 40% during most of the 2000s to under 30% by 2018 companies have avoided chipping in to the national coffers. Fig.1 shows clearly that despite corporate tax rates coming down, the impact on the number of corporates reporting losses to the tax office remains largely unchanged.

Poland faced similar issues but in 2004 introduced sensible taxation reform which lured long term tax avoiders/evaders from their lairs. Authorities introduced a flat business tax (19%) and its impacts were so favourable that the government saw a 50% increase in income reported by those corporates in higher tax brackets before the change and a 50% increase in reported income from individuals that fell into upper income tax brackets. In 2009 income tax rates at the top were slashed from 40% from 32% Despite this income tax receipts jumped 17%. Since 2004 tax receipts soared 56.4%. It clearly proved that lowering taxes created much higher tax compliance. There was a psychological factor at play – the cut ‘encouraged’ honesty.

Japan on the other hand continues to drip feed corporate tax cuts at such slow rates that there is little perceivable reason to change behaviour. Instead of burying the dwindling number of diligent tax payers ever more Japan must reform its tax code. We estimate a flat tax with similar outcomes to what Poland experienced would shrink the annual budget deficit by two thirds.

Poland’s population has similar dynamics to Japan, albeit a few decades behind. Population numbers have stagnated at around 38 million in the last decade and the Central Statistical Office of Poland (CSOP) is forecasting by 2050 that it falls to around 34 million. Poland’s 65+ year old demographic will be one-third the total population versus 2/5ths in Japan by 2050.

Naturally Japan’s income tax payer pool is shrinking as the working population declines. None-the-less if Japanese authorities stick to orthodox tax policies and try to squeeze more revenue from wherever it can by raising taxes it will only discourage growth and stagnate the economy further.

Put simply Japan must put its fortunes into the hands of its citizens. Note I did not say ‘back’ in the hands. The government has rarely extended the private sector a free hand but the statistics speak for themselves. Fewer Japanese are paying income tax and even fewer corporates are even bothering to report profit so they are not stupid. The government must come to the conclusion that lowering tax rates considerably will be the only antidote.

If taxes came into line with Singapore or Hong Kong it would make Japan a far more desirable place for multinationals to establish headquarters in the region. This would kill three birds. It would stimulate much needed skilled foreign migration, drive property market transactions and provide employment which all leads to more tax dollars. As capital attracts capital were Japan to reform in such a major way, Japan’s equity markets would react to this new-found sense of purpose.

While we can applaud the direction of corporate tax in Japan, effective tax rates when a company adds local taxes, municipal taxes, prefectural taxes, enterprise taxes becomes closer to 40%, more than double its Asian rivals. Proposals to trim large sized national corporate tax rates from 25.5% to 23.9% have been agreed. SMEs earning less than ¥8mn are subject to a 19% tax rate but will stay at 15% until April 1st, 2017. We don’t wish to trawl into the intricacies of local tax law but Japan needs a change that “jolts” people and corporations to action which is not a one-way street. We run through the psychology of taxes in a later section.

For Personal Income Tax (PIT) in Japan, rates are effectively 50% in the top bracket when local taxes and the 2.1% special income tax for reconstruction (i.e. to pay for the 2011 Great East Japan Disaster) which ends in 2037 are added on top.  None-the-less Japan’s income tax burden is being increasingly borne by the wealthy. In 2012, half of total earners paid no direct tax.


Japan’s national deficit struggles to close. Expenditures, post the bubble period have comfortably exceeded tax revenue.


In 2015, the consumption tax comprised the largest component of filling the Japanese government coffers. Personal income tax has also declined from a peak of 40% toward 30% of the total tax take. In 2015 corporations made up around 20% of total tax take. While higher than it was in 2009, it is still well below the peak of 2008 (38%). Corporate taxes are below the level of 2001.

One must also question the collection costs for the tax authorities. As a business owner in Japan the nature of tax payments is cumbersome. After registering the company with the Ministry of Justice, I need to register with the Tokyo tax office, then lodge documentation for the Minato ward and fill in half a dozen forms with carbon paper triplicates and put my registered seal (company chop) in 20 places which no doubt gets filed in 5 different departments.

We do not have to look very far to see the shortcomings of using paper records when digital could boost efficiency, arguably what the introduction of My Number seeks to address. In 2010, Japanese authorities stumbled over the fact that many people were collecting the pensions of their relatives that died decades ago. They discovered 77,000 people aged over 120 listed as still alive and 884 aged over 150. One woman that was born in 1837 was still listed as living, meaning she’d be turning 179 this year. Another retiree collected ¥50mn in pensions from her parents that died in the 1960s.

Japan’s small-medium enterprises (SMEs) are the backbone of employment, comprising 70% of the labour force and 99% of all corporations. While headline corporate tax rates are expected to drop to 29.97% in 2016 and 29.74% in 2018 from 32.1%, we need to look between the lines. Corporate tax rate changes have had negligible impacts on tax intake. Economic conditions have a bigger bearing on tax take than the tax rate changes.


Tax losses could be carried forward 9 years and offset up to 80% of each year’s taxable income. To slow down companies using this method, tax authorities have reduced this to 65% for fiscal years between April 1st, 2015 and March 31st 2017 and 50% thereafter.

Fig.51 shows that 98% of companies in Japan pay only 24% of the corporate tax intake. That’s right – 2.5mn corporations pay less than one-quarter of the tax burden.

Breaking this down by industry we can see clearly that the tax burden is shared pretty unevenly. Consolidated corporations make up 0.1% of all companies in Japan yet paid 12.8% of the tax burden in FY2014. The construction industry made up almost 16% of corporations by number but only paid 5.3% in tax. Of course this is skewed by the revenue base of each industry, Fig. 55.


Broken down by the type of industry we can see that 80% of restaurants, bars and hotels report no tax payment. While running, successful restaurants poses a challenge one could argue that high levels of cash transactions would potentially lead to grey economic practices.


What is clear is that current tax policy is having little effect on behaviour. 70% paying no tax over many decades despite the drip feed cuts requires more heavy handed responses.

The Polish experience with Flat Tax – this is how a ‘jolt’ works

Poland had long been suffering from a lack of tax receipts no thanks to high levels of corporate and personal income tax rates which pushed more money into the ‘grey economy’. Poland took the bold step by surmising if they cut tax rates by a large enough amount (cut to a flat rate of 19% from the progressive 19%, 30% & 40% brackets) businesses would stop bothering to go out of their way to dodge the tax man, Fig. 57. The effects were profound.


Personal (PIT) and Corporate income tax (CIT) receipts behaved in the following way. Since 2004, PIT receipts jumped 69% and CIT by 45%. The lift in economic activity driven by the changes drove consumption tax intake by over 55%. Over the same period, Japan’s PIT rose a measly 5%, CIT fell 17.2% and consumption tax receipts were flat, Fig. 58.


While Poland (which still uses the zloty) benefitted from EU accession since 2004, tax reforms were a key factor in driving positive tax collections. Although progressive tax rates remained in force for personal income tax, the Polish made provisions that allowed individuals of these businesses, at their request, to pay a 19% flat tax which carried certain restrictions on other benefits. Poland has also made it clear that taxpayers that do not disclose sources of revenue and income will be taxed 75%. Transparency is clear. Japan should adopt a similar system to capture a wider share.

Unemployment rates in Poland plummeted in 2004 from around 20% to around 6.5% before the GFC and in recent years trended back to those lows.


If Japan introduced a 19% flat tax (including all other regional, local and other taxes) and corporates reported a 50% higher income (those companies incorporated below ¥1bn) and 50% of the non-tax paying corporates paid ¥1.5mn in tax then Japan would collect around ¥12.5 trillion yen (+¥2.4bn) based on FY2013 tax take. If we analyse the general recurring margins of around 4.3% for the majority of smaller companies, any efficiency uptake through competition by 1% would see this number at around ¥15 trillion.


Poland offers far better longer term tax solutions to Japan. Burying Japanese in higher taxes is the wrong way. While headline rates are championed as being cut, a wealth of stealthy local and other taxes take back what was supposed to be gained. It needs to stoke the entrepreneurial spirit because frankly there is no other alternative and nationalising the debt via the BoJ will ultimately backfire. The mass ETF buying by the BoJ which was supposed to push equities to levels which would encourage Mrs Watanabe to spend her winnings in Mitsukoshi have been shoved between the mattress. Japan’s authorities inspire very little in the way of new methods of reversing decades of stagnation. Power has to be put back in the hands of the people as public policy has failed and will continue to fail. Without swift action the depopulation and pressure on the prefectures will exacerbate.