Labour

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• While Labor resists calls to change Australia’s system of negative gearing and the Greens push for changes, there’s a chance change could come from somewhere else altogether – Australia’s legal system.
• As surprising as it might seem, the legal precedent that allows one million Australians to negatively gear investment properties can be challenged.

The problematic precedent

• The general deduction section allows taxpayers to deduct from assessable income any loss or outgoing to the extent that “it is incurred in gaining or producing your assessable income”.
• Where such expenses are only partly related to gaining income, the section allows that part of them be deducted, with the rest not.

How Janmor Nominees played out

• In court, the Tax Office argued that the loss shouldn’t be allowed as a deduction because the property wasn’t really rented out.
• This meant it didn’t deal with the more important question of whether negative gearing losses were incurred in gaining or producing assessable income.

Losses need to be in pursuit of income

My respectful opinion is that the judgment can’t govern negative gearing as it is usually practiced today, and for that matter, could not have governed it as it was usually practiced back in 1987. In the standard negative gearing situation, the taxpayer who incurs a rental loss after deducting rental expenses is seeking three things:
rent
capital growth for the purpose of making a profit
use of the loss to reduce other taxable income to reduce tax owed.

• The first of the three advantages (to obtain rent) satisfies the deduction test – it is connected to the pursuit of an income.
• Regardless of purpose, the courts have held that, to be deductible, expenses need to be objectively “incidental and relevant” to earning income.
• Again – objectively – interest expenses are only partly directed at obtaining rent; they are also directed at obtaining tax deductions and capital growth.

The Tax Office ought to seek a ruling

• The Tax Office would get complaints.
• The Tax Office regularly tests the boundaries of deduction provisions by bringing cases to the courts, even where political sensitivities are involved.
• It is a criticism to which the Tax Office might not have a ready answer.

Dale Boccabella does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

• Recent comments questioning the qualifications of Black commercial pilots have compelled us to address these baseless claims with a resolute commitment to truth, merit, and the principles that underpin our profession.
• We also acknowledge the landmark Supreme Court case of 1963, which outlawed discriminatory hiring practices and mandated commercial airlines hire qualified Black pilots based on merit.
• The recent unfounded claims regarding the qualifications of Black commercial pilots not only perpetuate harmful stereotypes but also undermine the hard-earned achievements of countless professionals within our community.
• Captain Jason Ambrosi, President - Air Line Pilots Association, Int'l
  Clovis Jones, President - United States Army Black Aviation Association, Inc.

• We analyse the macroeconomic
  effects of supply chain reorientation through localisation policies, using a global dynamic
  general equilibrium model.
• While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
  analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
• The large sensitivity of the global economy to the recent supply chain shocks suggests that
  the international trade reconfiguration implied by localisation policies could also have sizable
  impacts on key macroeconomic variables such as output, employment and inflation.
• Thus, localisation focuses on the
  goods in our model most closely related to global supply chains.
• Retaliation also attenuates any positive effects from
  reshoring on output and implies a reduction in the volume of overall international trade.
• This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
  most susceptible to supply chain disruptions.
• Either that, or the economic costs are considered a worthwhile trade-off for an increase
  in security of supply, for example.
• While arguments about comparative advantage, the potential forgone benefits of international specialisation and industry- and product-specific disruptions are familiar, there is less
  analysis on the macroeconomic effects of supply chain changes resulting from localisation policies.
• Recent supply chain shocks have had large effects, with disruptions in 2021 estimated
  to have reduced euro area GDP by around two percent and doubled the rate of manufacturing producer inflation (Celasun et al., 2022).
• To analyse this issue, we simulate a (partial) reshoring of production back to Europe in
  a global dynamic general equilibrium framework.
• Thus,
  localisation focuses on the goods in our model most closely related to global supply chains.3 We
  model reshoring through a direct change to the export goods? production-function parameters.
• Since reshoring
  effectively shortens the supply chain, the sum of markups along the chain falls.
• This means that imports that are at the end of the supply chain (i.e.
• In particular, our work relates to papers examining the potential for countries to reduce
  their exposure to global supply chains.
• (2021) demonstrate that reduced reliance on foreign inputs does not mitigate pandemicinduced contractions in labour supply.
• (2021) find no evidence of a relationship
  between global value chain integration and macroeconomic volatility.
• This dynamic, along with factors such as natural disasters, climate-change
  induced volatility and terrorism mean that supply chain disruptions could be a new normal
  (Grossman et al., 2021).
• Our work contributes to the literature providing dynamic general equilibrium analyses of
  protectionist policies, in particular those using global macroeconomic models to quantify trade
  policy changes.
• (2008) analyse the effect of a rise in protectionism in response
  to rising global trade imbalances.
• Linde? and Pescatori (2019) find that although the macroeconomic costs of a
  trade war are substantial, a fully symmetric retaliation is the best response.
• (2020) consider a rich input-output structure and demonstrate that closer integration amplifies
  the adverse effects of protectionist trade policies.
• Several recent studies have also examined the economic effects of a global trade fragmentation.
• First, we modify a dynamic general
  equilibrium model of the global economy in order to analyse the transmission of localisation
  policies.
• This allows for a comprehensive treatment of cross-border macroeconomic interdependences and spillovers between the different regions.
• 4

  There is, however, substantial cross-country heterogeneity in terms of impact, with small open economies
  (SOEs) reliant on global supply chains more affected.

• ECB Working Paper Series No 2903

  7

  Second, we are able to assess both long-run effects and the transition dynamics of localisation
  policies.

• Our model contains a detailed monetary block and captures inflation dynamics, which is a key
  concern for supply chain reorientation.
• Overall, our paper contains a careful analysis of the key aspects of the localisation debate,
  including effects of localisation on domestic competition and efficiency.
• Section 2 provides a brief overview of the model, the modifications to examine
  global supply chain reorientation, some key details on the calibration and a brief discussion of
  the nature of our exercise.
• (2020) for discussions of the relative strengths and weaknesses of
  trade and macroeconomic models in assessing large economic shocks.
• 2.1

  Supply chain reorientation

  Our analysis focuses on imported inputs used to produce goods for export, as the introduction
  of localisation policies is in response to recent disruptions to global supply chains.

• Since reshoring
  effectively shortens the supply chain, the sum of markups along the chain falls.
• Further to
  these effects, engagement with global firms provides an opportunity for knowledge spillovers to
  local firms (Criscuolo et al., 2017).
• This finding calls for limiting the scope of reshoring, such as by focusing on vital goods that are
  most susceptible to supply chain disruptions.
• (B12)

  Adjusting the share of local inputs in export goods, of course, affects prices and quantities all
  along the supply chain.