Passive Income in Australia: Perk TV update

Due to a change in Perk TV’s payment rates, it may now actually be a viable passive income source for Australians. This post repeats the previous analysis undertaken here, using the new parameters.   

Recently, a commenter on my previous analysis of Perk TV let me know that the payment rates had changed. Previously, watching two videos in the US would net you four points. In Canada, four videos would give you four points. But for the rest of us chumps worldwide, we had to watch 20 videos for four points. This was a huge source of disadvantage and was one of the key reasons it was not viable for Australians. Now however, that’s all changed.

According to Perk Support, the new rates are:

• For US: Earn up to 3 points for each video

• For UK, Canada and Australia: Earn up to 1 point for each video

• For IN: Earn up to 1 point for each video

 Source 

This is quite a drastic change in rates for Australians - instead of 5 videos to get a point, we can now watch just one. Though I’m a little skeptical of the ‘up to’ part of those sentences. In any case, let’s get into the analysis.

Analysis

Unfortunately, unless you sign up you can no longer see the points required to redeem for each reward. In this case, I’m going to assume that my previous assumption still holds. That is, that you would prefer to convert into cash rather than a gift card, and that the Paypal $25 gift card is still the best value for 35,000 points (if anyone can correct me on this, it would be much appreciated). Though I have read about other users who redeem for gift cards and then exchange them with other people for cash options, I will ignore this in my analysis as it seems quite variable what value you might exchange them for. Additionally, if the idea is for passive income, then spending time trying to exchange for something else is also an opportunity cost on your time. Again, we’ll ignore these and stick with a simple ‘earn points, get gift card’ paradigm.

This means the exchange rate to a $25 PayPal gift card is 1400 Perk points = $1 (35000 / 25). Assuming that the average video is about 2 minutes long, and under the new payment rates, that we are rewarded with 1 point per video - we could expect to earn 720 points per phone per day (1440 min/day / 2; also assumes that these videos are running continuously). This works out at a theoretical maximum return, under these parameters, of 51.4 cents per phone per day ( 720 points/day / 1400 points/dollar).

Unfortunately, that’s not the whole story as there are at least some costs which would eat into your return - namely the cost of your data and power, and tax implications. There could be others as well, for example if you were to purchase a phone for this specific use, but we’ll ignore this as this is more an individual circumstance thing.

I’m going to assume that the user has a properly unlimited data plan. I say “properly unlimited”, because there are many in Australia that advertise as “unlimited” but have some clause that states you can’t use more than X GB otherwise your speed will be throttled/shaped. If you’re already paying for a properly unlimited data plan, then the additional data usage from Perk TV doesn’t impact you and can therefore be ignored. If you aren’t on a properly unlimited plan and you were going to upgrade your service, then there would obviously be an additional cost to factor in. Again, for simplicity, I’m going to ignore this one - but do your own math for your own situation.

I’m also going to assume that most of my analysis on electricity costs from last time still holds. That is, 4 US cents per phone per day, with our approximate doubling factor to account for higher energy costs in Australia (the previous post explains the rationale), and taking into account the exchange rate.  The exchange rate has moved slightly since last time, and not in our favour. Currently, the exchange rate is sitting at 1 USD = 1.36 AUD. So our daily electricity costs work out to be 12.08 cents per day (4c USD/phone/day multiplied by 2.22 - the higher electricity costs factor - multiplied by 1.36 to convert to AUD).

Finally, let’s consider tax implications. I ignored this last time, mainly because it didn’t occur to me, but also because electricity costs alone outweighed any cash benefit under the previous payment rates - so there wasn’t any use in beating a dead horse. Obviously, income tax in Australia is very dependent on your own situation - income tax rates are marginal, so the tax you would pay on these additional earnings depends on what your income already is. For simplicity’s sake, I’m going to ignore complexities like the Medicare levy and other tax offsets that you may or may not be entitled to.

According to the Australian Bureau of Statistics, in November 2016 the average weekly total earnings for all employees was $1,163.50 (Source). Multiplying by 52, this comes out at $60,502 in annual terms. So let’s assume that is your current income. Your earnings from Perk TV would therefore be taxed at 32.5 cents per dollar (Source). Again, do your own sums for your personal situation.

Looking at the breakdown, we have (theoretically, remember) 51.4 cents earned per day, less 12.08 cents in electricity, less 16.705 cents in tax ( 51.4 cents * 0.325 cents in the dollar). This comes to 22.615 cents per day in net income. 

In summary, Perk TV is a net positive passive income stream for Australians providing the following assumptions hold:

• Australians are paid 1 point per video
• 35,000 points are exchanged for a $25 PayPal gift card, which represents the best value for very minimal effort (happy to be corrected if this reward is no longer current)
• You have a properly unlimited data plan and can thus ignore the additional costs of usage
• Electricity costs are about 12 cents per day
• You are on the middle marginal income tax bracket of 32.5 cents in the dollar

Obviously, your milage may vary depending on your own circumstances - so do your own math. 

Your thoughts?

Is there anything I missed in my analysis? Do you think it is worthwhile from your experience? Have you done your own - how does it work out for you? What parameters make your results better/worse? Love to hear from any other Aussies having a go at this one.

Fun With Economics: Tax Incidence

On Budget night, the Treasurer announced a raft of infrastructure spending and other measures which are to be funded by some key tax increases, namely the Medicare levy increase and a new tax on the five largest banks in Australia. This blog post focuses on the latter - putting aside the politics, let's have some fun with economics, shall we?

The Policy

From 1 July 2017, Authorised Deposit-taking Institutions (ADIs, read: banks) with liabilities of $100 billion will be subject to a six basis point (0.06%) levy on these liabilities. A levy usually works by taking a proportion of the whole amount that is over a threshold, so a bank with $100bn + $1 of the right liabilities, would owe the Tax Office about $60 million. The measure is projected to raise about $1.5bn each financial year over the forward estimates period (read: the next four years), for a total of $6bn. (http://budget.gov.au/2017-18/content/bp2/download/bp2.pdf)

Who is affected

Currently, the only banks affected by this measure are the Big Four (Westpac, Commonwealth, National Australia Bank, ANZ) and Macquarie Bank (http://www.abc.net.au/news/story-streams/federal-budget-2017/2017-05-09/federal-budget-2017-big-banks-bear-the-brunt/8511364). The Treasurer, Scott Morrison, has been at great pains to state that it doesn’t affect “pensioners’ and others’ ordinary deposit accounts, nor is it on home loans”. This is technically correct - the budget papers state that the liabilities subject to the levy include “corporate bonds, commercial paper, and Tier 2 capital instruments” and are not applied to “additional Tier 1 capital and deposits of individuals, businesses and other entities protected by the Financial Claims Scheme”. So the calculation for the banks will be something like, take the sum of all your liabilities, subtract the Tier 1 stuff and multiply by 0.06% to figure out what they owe the Tax Office.

However, this policy ignores some fundamental economic theory - namely, tax incidence. Tax incidence is a fancy term for saying “who actually ends up paying for this?”.

Economic Theory Time

Tax incidence can be worked out by considering the price elasticity of supply and demand. In this case, supply and demand could be across a whole range of products and services (e.g. financial advice, insurance, mortgages, bank accounts etc.). But for simplicity, let’s stick with mortgages.

The demand side is probably more intuitive, so let’s start there. How likely are you to change mortgages if your interest rate moves slightly? Chances are, not very likely. Researching and comparing mortgages is a pain in the arse, and most people would rather do just about anything else with their time. OK, what about if you were considering taking on a new mortgage - would a small increase in the interest rate prevent you from taking it out? Probably not, for a whole raft of reasons. In this case, the price elasticity of the demand for mortgages is said to be relatively inelastic. That is, changes in price do not have much effect on demand (people taking out or changing mortgages).

What about the supply side then? This is a little more complicated, because each individual bank has the ability to determine its own interest rates, albeit with some big influencing factors such as the underlying cash rate maintained by the RBA etc. Additionally, new loans are somewhat constrained by prudential regulation, such as requirements to hold certain amounts of different forms of capital (the tiers we saw earlier), and for example, the recent new caps applied to interest-only loans (http://www.abc.net.au/news/2017-03-31/apra-clamps-down-on-interest-only-mortgage-loans/8403712) and so forth. Loans for new housing are also constrained by the land available for development - you can’t borrow to build a house on land you are not allowed to build on in the first place! Let’s keep these in the back of our mind as think about price elasticity.

So what about the price elasticity of mortgage loan supply? How likely will a bank be to offer more loans (subject to the constraints we discussed before) if it can charge a higher interest rate? Very likely. More loans at higher interest rates, means more returns and profits for the bank. The kicker is whether the size in the increase in the amount of loans offered at the higher price is greater than the increase in price. That is, if price goes up a little, does the amount of loans supplied go up a lot? If this is the case, then supply of mortgage loans is said to be relatively elastic. That is, increases (or decreases) in the price, has a considerable effect on the amount of loans a bank is willing to supply. I think this is a fair assumption to make.

So we have price inelastic demand for loans and price elastic supply of them. The supply and demand curve diagram would look something like the below (though probably with a more horizontal supply curve, to indicate the higher elasticity). 

We begin at the point (P without tax, Q without tax) - our current equilibrium point. The imposition of the levy raises the price to P with tax. Due to inelastic demand for mortgages, the quantity demanded drops a little, and the supply curve shifts (to the left, as the quantity supplied is now lower). A new equilibrium point is reached at (P with tax, Q with tax), where a lower quantity of mortgages are demanded at a higher price (interest rate). The tax incidence is shown as the differences from the previous equilibrium point. Moving from (P without tax, Q without tax) along the supply curve to the new quantity supplied (Q with tax), we see that a part of the tax has impacted suppliers; they now supply fewer loans at higher prices. Moving from (P without tax, Q without tax) along the demand curve to the new quantity demanded (Q with tax), we see that there has also been some impact on consumers; they now demand fewer loans at the higher price. We see that, due to the relative elasticities of demand and supply (the slopes of the curves), there is relatively higher incidence of the tax on consumers (loanees), rather than producers (banks). Whether consumers or producers face a higher incidence depends on the relative elasticities of supply and demand (i.e. it depends on what the curves actually look like) - the above example is purely illustration. 

That’s all very nice in theory, what’s the reality?

Supposing that the levy gets through parliament (which it probably will), these bigger banks will have an extra bill to pay. They could get the money to pay for this by either reducing their profits, making their own operations more efficient, and/or increasing prices to customers. Reducing profits and therefore dividends (the incidence on producers above) will probably upset shareholders, of which your superannuation fund probably forms a sizeable part. Banks will most likely want to avoid this at all costs. In my opinion, further increasing operational efficiency is unlikely. In all likelihood, it will be some combination of all of these things, but I think primarily it will be sourced by passing it on to consumers through minor increases in prices (fees and interest rates).

Of course, Turnbull and Morrison aren’t stupid - they’ve already said that the Australian Competition and Consumer Commission (ACCC) will be watching these banks closely for signs that this may be passed on. However, as best put by the ABC, while “[t]he ACCC will be able to force the banks to explain any changes to home loan pricing, including fees or interest rates, during that period, although it is unclear anything could be done to prevent those price rises”. If you have accounts or a mortgage with one of the aforementioned banks, I think it’s prudent to be prepared for a small increase in either your fees or rates but don’t expect them to cite the government’s major bank levy as the reason.

However, because this only applies to five major banks and not everyone, there is nice little constraint on the affected banks to be careful about increasing their fees and rates - namely, that you the customer could take your business elsewhere. While there is some obvious inertia (see: comparing banks/mortgages is a pain in the arse), some customers at least will change banks if they are too gung-ho about passing the tax on. The takeaway being that, you have the power to avoid this potential problem, so long as you are willing to endure the very boring process of comparing financial institutions and products.

Your thoughts?

Of course, much of this is purely speculation given that there is very little policy detail as far as I can tell. Do you think it’s good policy? Bad policy? Why/why not? What would be your alternative proposal? Do you think it has support to get up, from the community, the pollies or both?

I’d love to hear your thoughts. 

Passive Income in Australia: Update on Gomez Peer

After a brief foray into passive income using the Gomez Peer application, I have decided to uninstall it. Here's why.

In an earlier post I described why Gomez Peer could be a suitable passive income opportunity for Australians. However, I've since decided to uninstall the Gomez Peer application. My reasoning is as follows:

It's been about 10 months since I initially installed the program and I am still yet to be activated, despite having over 230,000 minutes of online time accrued (160 days) and over 72,000 minutes (50 days) of processing time (i.e. about 30% of my online time was spent processing - see below). Although they state that "account activation depends on how well your system characteristics match our current testing needs", I'm not sure how factual this is. In the time since I've had the program running, I've lived in three different places (some distance from each other) and had two different connection types (DSL and Fibre). Additionally, I would consider a 30% rate of processing time to online time to be evidence that my characteristics match their testing needs (though I have no hard data to compare against). I have attempted to make contact with the company to seek a timeframe for activation, however the contact form on their website doesn't appear to work, nor did they respond to a Facebook message left on their page. This has reignited some of my earlier skepticism.

While I knew that this avenue was only ever going to offset some of the running costs of my computer, I have since decided that I'm just going to modify my behaviour (i.e. turning off my computer when its not in use) rather than leave it running 24/7. A quick Google search for "software to turn pc on off automatically" nets a wealth of information on how this process can be automated. I'm considering just having it turn itself on for a few hours in the morning and evening on weekdays, and I'll turn it on when I need it on the weekends when I have the time to wait for it to boot up.

I think there is a certain danger of giving into the sunk cost fallacy with this program. That is, it's very easy to say "I've got all this online time/processing time now, maybe I'll just leave it running just in case I get activated". I think it's worth assessing the up and downsides though: The upside is quite small - a passive income stream tied to having your computer being on and online - while the downsides are larger in comparison - the longer your account is pending, the more potential income you forgo while continuing to pay the running costs of your PC to remain ready to undertake processing. If the activation process had of been quicker, it may have enticed me to stay with the program - however, the experience has made me realise that I'd be much further ahead if I just turned my computer off when I'm not using it.

I've now removed the links to download Gomez Peer on my blog and in my earlier post.