Are shared services value-destroying?

My interest was drawn to the article Closing a Pandora's Box (INTHEBLACK, September 2007) because it probably applies more generally throughout the economy than just to state and territory governments.

Shared services is a flash or consultants' way of saying 'centralised services'. The decision between distributed or shared services depends on many things, some extremely complex. Normally, a well-prepared business case brings all of the proposed program and its assumptions together in one document.

Where accountants can help with a key part of the business case would be the financial analysis, including an estimate of the costs and benefits. This is known as capital budgeting and has been in use for decades. The program should only be approved if the net present value discounted at the appropriate cost of capital is greater than zero.

This applies to both government and the broader economy.

The article details the inability to capture the expected savings/benefits, amounting to tens of millions of dollars after many years, yet the programs proceed. This is value-destroying, as the NPV is now less than zero.

That is, the program should never have been undertaken and must be shut down. The projects are forever destroying taxpayer funds; they now can never be value-adding.

I was also amused the explanation for these failures included the hoary old statements about cultural issues and people's inability to handle change. I would have thought that in the 21st century these meaningless concepts/lame excuses would be seen as such and would now be unacceptable in terms of covering up value destruction.

Roger Nairn FCPA
Via email

Give a digger a break

This article, How low can you go? (INTHEBLACK, October 2007) prompted me to write this missive.

I am almost 90 years of age and my wife is 86. We have been married for almost 60 years. Apart from World War II and three years working in England after the war, have always lived in Australia.

During the war I served in Tobruk, Alamein and New Guinea, while my wife served as a VAD in Australia.

Since we retired we have not received any old-age pension. Our income since retiring has come mainly from 'do-it yourself' investments. Unlike those with self- managed super funds (SMSFs) we do not receive any help or guidance. Accordingly we do not receive any benefit from the changes to tax on superannuation. At our age we cannot change to an SMSF even if we wished to do so.

Accordingly we pay income and other taxes at the same rate as we would if we were aged 40 and made no contributions to super.

We have previously brought this situation to the notice of our Federal MHR, CPA Australia and some other associations to which I belong, none of whom appear to have taken any action. It seems that Australians of our age are of no importance and should have died long ago. We believe it would be no great financial burden to adjust the taxation system to remove this anomaly, for example for people over 75 years of age. There could be no taxation on income below $70,000 p.a. Above $70,000 p.a. normal rates would apply.

Reyn Keats FCPA
Via email

Parker's prejudices

In his scathing review of Ozonomics (INTHEBLACK, September 2007), Derek Parker shows his own political prejudices, rather than those of author Andrew Charlton, whom he accuses of bias.

Parker claims the book to be a plug for Labor written by someone who has spent much of the past decade overseas.

Charlton is 28 years of age and studied and worked in Australia before gaining a Rhodes Scholarship to Oxford. If he has spent most of the last decade overseas as Parker derides, he must have been an exceptional teenager.Parker appears to have read only the two chapters, which consider the contributions of the Hawke and Howard governments to the current economic boom. Charlton claims Hawke's changes, such as floating the dollar, dividend imputation and tariff reductions were more important than those introduced by the Howard government, which were mainly tax changes. However, he claims none of these are the main cause of the boom. Parker makes no case to show Charlton wrong other than to claim political bias.

I thought Charlton argued his case well. His main point, given in the subtitle of the book, is that politicians loudly claim credit when the economy goes well, but blame others when things go wrong, whereas in a trading country such as Australia both are usually outside of their control.

Charlton argues that what is important in booms is what governments do with the good times. On this he is critical of Howard, whom he claims has favoured giving to the old rather than investing in the young and the future.

It is heartening to hear from such an eloquent young person on these crucial issues. I am sure that if I was Charlton's age I would see things just the same. I consider Ozonomics to be the best finance book written in many years and highly recommend it.

Graham Davies CPA
North Balwyn, Vic

Reference: November 2007, volume 77:10, p. 10