Can you make money with planned Slovak tax changes?

One of the proposed changes in Slovak income tax law would eliminate an exemption from capital gains on apartment sale. Currently, if you buy an apartment in Slovakia and register the address as permanent residence for two years or own it for five years, you do not have to pay tax on the income from selling it at a profit.

Slovak Finance Minister Ivan Miklos proposed a series of tweaks in tax laws to generate extra revenue as the deficit left over by the previous cabinet of populist Robert Fico spiralled out of control.

The proposal would make people pay a capital gainst tax (at the current 19% income tax rate) on gains from selling an apartment regardless of when it was acquired and how long the owner lived there. It wouls apply to all properties acquired after January 1, 20111.

If this specific proposal passes it should mean that anyone who has been thinking about buying an apartment in this down market for speculative purposes should do so before the end of December 2010, boosting demand this year compared to the start of next.

I am not sure how you could estimate the magnitude of this effect and whether it could be significant enough to trade on given transaction costs. But nonetheless anyone considering selling an apartment in the near future should do so in December rather than January (assuming there isn't a strong upward trend in place of course that would overpower the tax change effect).

Is the conference discount on hotel room sometimes a surcharge?

Image by leozaza via Flickr

You stay in a hotel room. The man in the identical room next to yours is paying 40% less.

You are attending a conference. The organisers gave you a code to use when booking accommodation in the official conference hotel to receive a discount.

You make the reservation at the alleged discount and maybe never find out that the same room reserved through the hotel's public website costs far less and comes with better terms (I stumbled upon a Prague hotel offering a conference rate of EUR 88 during a recent editors' conference, the hotel website showed a rate of EUR 58 for the same date).

There are a few possible economic rationales:
- the hotel is simply using the pricing power gained from being the 'official venue'
- an intermediary marks up the rates (although sometimes the hotel itself does)
- the rates for accomodation subsidise lower charges to organisers for other services

I found a nice clarification called Why stay at the conference hotel on the website of a US computer association. They say:

On occasion, one of the many internet providers or sometimes the hotel itself will offer a few rooms in their inventory at a lower price than the conference is offering. There are often restrictions and penalties associated with these rates.

So next time you are attending a conference make sure to crosscheck the rates with the hotel website and third party sites.

Things I noticed giving up the Crown for the Euro

On January 1, 2009 the Euro became the official currency here in Slovakia replacing the Slovak crown.

1. Before the switch
There was nervousness long before the D date about price increases. The government and media kept telling people how worried they are about businesses "abusing" the switch to enact "unwarranted" price increases.

One of the key economic news topics in December was what was not going to work after the switch. The banks had arrangements in place to shut down some services (internet banking for a few days) and ATM machines for a few hours.

Oh, and Google screwed Slovak Adwords advertisers (while Moneybookers didn't (in Slovak).

2. The giddy Day One
I shopped at my local Tesco on January 2 (January 1 is a holiday). I paid in crowns but received my change in euros. In this way within two days all the crowns in my wallet were gone and I was 'switched'.

The cashiers asked everyone whether they would be paying crowns or euros. Some people said Euros with a proud smirk. It was a funny feeling, yet another important marker on our way to become 'first class' Europeans.

ATM machines here supposedly usually have slots for four notes. The banks reportedly fed the euros in two slots a few days before the New Year, minimising the downtime required to switch. For a few days you were only able to get EUR 50s and 10s in some machines or 20s and 10s.

3. Nominal schnominal?
I am trained as an economist and I know there is no money illusion and nominal does not matter to a rational person. Nominal of course does matter (and there are loads of evidence in behavioural economics literature).

We tipped by rounding up in crowns before. E.g. you'd leave 100 on an 82-95 crown bill. Traditionally people would simply round up to the nearest 10 and in recent years in classier establishments to nearest 20, 50 or even 100.

With euros, even rounding up to the nearest euro sounds cheap to our ear yet a euro is 30.126 crowns. So people first did not tip at all, I believe out of fear of under or overtipping. I tipped a taxi driver who delivered sushi a little over a euro towards the end of the first euro-week. He told me this was his first tip in the New Year and other taxi drivers confirmed people had ceased up tipping.

With the government sponsored price abuse hysteria, many businesses are keeping weird an uneven euro prices to avoid any semblance of the derided 'machinations during switch from crown to euro'. This is inefficient and annoying but sooner or later I am sure this will stop.

There are some data probably interesting for economists on what portion of currency in circulation was withdrawn within the first fifteen days through retail shops. There is other data on people bringing in cash to the bank days before the switch to have it converted seamlessly and legends of dodgy cash buyers of expensive apartments helping fuel our real estate bubble.

We have made the switch now complaint of the day seems to be that we have to now carry too many coins and they don't fit in a normal wallet (I would add the bills don't fit in the beautiful and RFID-fraud safe Flipside Wallet (TM)).

Crown to Euro Brings Along Fines for Abusers

The Slovak Commerce Inspection will issue the first fine to a company that abused the currency switch from Slovak Crown to the Euro to unjustifiedly increase prices. The Inspection "proved" there was a 50% increase by a children's game machines operator in the Trnava region.

Euro became Slovakia's official currency on January 1, 2009 when the country became the 16th member of the Eurozone. For 15 days the currencies circulated in parallel but now crowns can only be exchanged in banks.

The Inspection reportedly (in Slovak) received 460 complaints from citizens, 260 concerning price increases (the rest probably on issues such as not posting prices in both currencies as required).

There is a Price Board/Council in place, led by an older guy from old-school employer association, to monitor prices. The Council identifies sensitive areas. They have now promised to take a close look at changes in taxi prices, hairdressers, restaurants and school dorms.

I did tell you they were crazy!

P.S. I am required by law to disclose to you here that the official conversion rate is 30,1260 crowns to the Euro.

Surely they ARE crazy - Slovakia's Price Board before euro adoption

For personal and business reasons I try not to follow current Slovak news in detail. But occasionally a detail passes through the filters...

The Slovak government is excessively concerned about businesses abusing the currency change to increase prices.

In comes the price board. They will clamp down on them Euro-introduction profiteers! The Minister of Finance will report to the board monthly and the board will take action should a business try to increase its prices around the end of 2008.

At least the government gave up on trying to make price manipulations during switch to the euro a criminal offense.

Slovakia will officially adopt the Euro on January 1, 2009. For two weeks both the Slovak crown (koruna) and the Euro will be used. The exchange rate was fixed in July to SKK 30.126 to the Euro.

In China, all interest rates must be divisible by 9...

A "divisible-by-nine rule was enshrined in accounting standards issued jointly by the central bank and the Ministry of Finance [of China] in 1993," according to Bloomberg (via Harvard professor Greg Mankiw).

Hence the People's Bank of China's raised its benchmark landing rate by 18 basis points (0.18%) on Friday, May 18, 2007. Central banks in most countries would, of course, deal in quarters or tenths of percents.

Interestingly, on the same day the bank decided that

"Reserve requirements on funds held by banks will be hiked by 50 basis points."

The trading band for the yuan, the Chinese currency, was widened by 50 points on that day as well. Perhaps the rule only applies to the rates for consumers?

The Bloomberg story mentions several motivations for the 'divisible-by-nine rule' (I tried to find nine in the story but only counted six):
- Chinese calendar
- a 360-day financial year
- long considered lucky number
- makes calculation with Abakus counting device easier
- avoid rounding of interest
- nine sounds the same as 'longevity'

Now if so many people believe in this, maybe there is something to it?

May I call you 'Madam', Sir?

Viet Le, a dear friend from my UWC times whose blog I follow (and borrowed the word 'miscellany' in the name of my blog from) has a great entry about doing a double-take after being "Sir'd" by some congresswoman's press spokesman.

'Apparently, my telephone voice has a feminine lilt so it's always "Miss" or "Mam" or even "Veet",' Viet blogs. Got me started thinking about the whole phone voice thing.

I remember in my early teens the frustration, when I answered the phone and everyone thought I was my mother speaking. I also remember the genuine indignation I felt when correcting people. On the other hand, I could make funny calls to people and pretend I am an adult woman, rather than a child of 12.

I remember a few more men whose high-pitched voices were subject to discussion: my male friend working at a travel agency who is always referred to by callers as a Ms. and sometimes doesn't bother explaining and a former classmate of my mother, who she said everyone though was gay due to his high pitched voice until he got married and fathered two kids.

There is evidence (reference, anyone?) that people with deeper voices appear more trustworthy and I think I came across someone mentioning a study of effects of a deep voice on earnings.

How to perform problem tree analysis

I worked with students today on creating Problem trees as part of using the Logical Framework (log frame) methodology in my Policy Evaluation class. This was our final class and I was happy to get something quite interactive going for students - they seem to enjoy this and a few even yearn actually doing something.

The technique is a simple one but rewarding (genuine hat-tip to Dagmar of Slovak Evaluation specialist D&D Consulting, who has used it in a training session we did for local policy makers): you use little cards to write down problems you wish to adress with a public policy intervention (this works reasonably well at any level - strategy, policy, programme, project). You tease out additional cards by asking the WHY question - i.e. why does this problem happen.

Now the trick part: on the back of each card you write an objective associated with resolving the problem - often is as simple as turning a "Too little of XY" into "More XY".

You then work hard to arrange problems according to causality - working from an effect at the top through a focal problem somewhere in the middle all the way to problems, which are the underlying causes.

You then simply flip the card over and voila you have a Goals analysis - a hierarchic ordering of goals you can transfer into a logical framework matrix. Neat.

I have (and I imagine my senior colleagues do as well) a few hangups about using interactive methods in teaching. In my Economics MSc. in Scotland we NEVER did anything remotely interactive - no group work, no in-class presentations and believe it or not, not a single essay (other than the dissertation, of course). But then the university gave the world Adam Smith so maybe they knew what they were doing. Our econ programme shared the building (or rather was a guest) of the Edinburgh MBA Programme and the management students were all about interactive methods while seemingly not so much into "substance".

Apparently, despite a lack of organisation to my Policy Evaluation course, the practical bits were very well received by students. Every time I teach or train I relearn the same lesson: students (at least Slovaks) of all ages love interactive teaching. We have been exposed to so little of it in our school system that we are grateful to learn anything practical and get to actually do and say things in class rather than have to listen to lectures and repeat them back in oral exams.