Tuesday, April 14, 2015

Superannuation. At last, Hockey takes aim at Costello

Call it karma. It has fallen to Joe Hockey to undo two of the stupidest and potentially most expensive decisions ever made by an Australian government. They were made by the Howard government of which he was a part.

But they were driven by its treasurer Peter Costello, and by the treasury itself.

Costello announced both on budget night 2006 with something of a flourish.

They constituted "the most significant change to Australia's superannuation system in decades".

They would "sweep away the current raft of complexity faced by retirees, increase retirement incomes, give greater flexibility as to how and when superannuation can be drawn down, and improve incentives for older Australians to stay in the workforce".

About the only thing he didn't mention was their long-term cost.

His departmental secretary Ken Henry was proud. They were "as good as anything I've seen the department produce in the 20-odd years of my treasury career," he told his staff.

They showed the treasury shaping "strategic thinking, achieving results, exemplifying drive and integrity, cultivating productive working relationships and communicating with influence".

The first of those decisions made super payouts entirely tax-free for most Australians aged 60 and over. Even lump sums. Economist Saul Eslake described it as "one of the worst taxation policy decisions of the past 20 years". It was worse than it looked. Tax-free payouts are quite sensible in theory. After all, withdrawals from bank accounts are tax-free. That's because the income that goes into the account is already taxed, and the interest earned on the money in the account is already taxed. It's the same for super: tax has been paid as the money is earned and as the returns accrue, albeit at concessional rates.

But the earnings of super accounts stop being taxed when the retiree begins to take money out. Costello insisted (against the against the advice of treasury) that this provision stay, meaning that the earnings of retirees who had turned 60 weren’t taxed at all, regardless of their size. Low and middle income Australians who continued to work into their 60s continued to pay tax. But high income Australians who didn’t need to work paid nothing, if all of their income was channeled through super...

The budget papers had it costing $6.2 billion in its first three years.

But they were silent on what it would happen beyond that as more and more Australians spent their entire working lives in super and their balances swelled. Back then only 18 per cent of the population was aged 60 and over. It's now 20 per cent, on its way to 25 per cent. Costello had opened an ever-widening hole in budget revenue.

But at least it would get people off the pension, right?

It might have, were it not for the second decision.

The pension assets test was to be eased so that instead of losing $3 of fortnightly pension for each $1,000 of assets above the threshold the retiree would lose only $1.50. As before, the family home wouldn't count. It extended the part pension to a new wave of previously-excluded wealthy retirees, and with it the much-prized Seniors Health Card.

Labor's Kim Beazley and then Kevin Rudd backed the changes. Only the Greens said no. When they passed the Senate the assistant treasurer Peter Dutton declared 27 February 2007 "super day". It had ushered in the "the greatest reforms to superannuation in Australia's history". For the first time couples with a million dollars in assets (plus a family home) found themselves eligible for some of the pension and the all-important health card.

So great was the cost that the Abbott government reportedly considered axing the pension extension it in its first budget. As it prepares for its second, the Social Security minister Scott Morrison has is seriously considering a proposal from the Council of Social Service to reign it back in. He has reached out to the Greens and the independents for support. Hockey's tax discussion paper has called into question the worth of the zero tax rate on fund earnings for the over 60s saying it opens up "tax planning opportunities".

Even the Association of Superannuation Funds, as attuned as anyone to the worth of tax concessions, says they go too far for very high earners. It says a small group of 24,000 retires receives average super payouts of $216,000 per year, all tax free. Non-retirees earning a fraction of that income pay tax.  

"It is appropriate for the community to start questioning whether it should fund growing tax concessions on very high balances," it says.

The tide is turning. Hockey will start to clean up Costello mess in the May budget. He'll finish the job after a retirement incomes review later in the year.

In The Age and Sydney Morning Herald

Related Posts

. Advice for Hockey: Slug super and fix the budget in one hit

. Budget 2015. Will Hockey ramp up tax on super contributions?

. Super. Greens offer Abbott $13 billion

Click to

Tuesday, April 07, 2015

The pharmacy protection racket that keeps prices high

Do you ever yearn for a return to the days before supermarkets when shopping meant a separate trip to the green grocer, the dry goods grocer, the butcher, the baker and the delicatessen?

Me neither. Life has become busy. Two-earner families shop at one-stop shops because we no longer have time for repeated stops.

Except for chemists, where we are forced to.

Hours after last week's Harper Competition Review recommended an end to pharmacy ownership and location rules the Pharmacy Guild defended them by appealing to nostalgia.

"By ensuring that pharmacy ownership is widely spread, the major supermarket chains are prevented from securing the high degree of market dominance they have obtained in other areas such as grocery retailing" it said, apparently under the delusion that we would prefer our groceries to be sold by someone other than the big supermarket chains.

The truth is we've voted for the supermarket chains with our with our feet. We are likely to continue to vote for them should they be able to sell pharmacy-only medicine and dispense prescriptions (using qualified pharmacists) as they can in the United Kingdom. The best guess is its decision to allow supermarkets to sell medicine cut the prices charged by 10 to 30 per cent. Few in the UK would turn back the clock.

The rules governing Australia's pharmacies are so strange we've come to think of them as normal. They apply in no other industry. Whereas any Australian can own a doctor's surgery or an electrical or plumbing business, only qualified pharmacists can own new pharmacies. The restriction isn't to ensure that those qualified pharmacists work in the pharmacies, many of them own many pharmacies or are retired. It's to make sure no-one else can own them, because apparently supermarket goods and pharmacies don't mix. It's illegal for a pharmacy receiving government payments to be located in or accessible from a supermarket, defined in the 56-page handbook as "the type of store in which a person could do their weekly shopping from fresh food (e.g. dairy, meat, bread), pantry items, cleaning products, personal care items and other household staples (e.g. laundry pegs, plastic food wrap)".

Except for those supermarkets operated by pharmacists *within* their pharmacies. Brisbane's SuperPharmacyPlus has set up an IGA within it allowing customers to "grab it and go".

If you can't find a pharmacy near you, there's a good reason. The industry is effectively closed to new entrants. Any pharmacist trying to set up a shop within 1.5 kilometres of an existing one is denied the use of the Pharmaceutical Benefits Scheme. There are exceptions - pharmacies can be closer within shopping centres (so as not to annoy the likes of Westfield) but there needs to a distance of 500 metres between them when measured in a straight line "from the mid point at ground level of the public access door of each of the premises". In country towns pharmacies have to be 10 kilometres apart.

The Guild says the rules ensure pharmacies are evenly distributed. But they don't always.

The Canberra suburb of Hackett remains a black hole after a pharmacist went to the expense of fitting out a shop only to be told she couldn't use the Pharmaceutical Benefits Scheme because she was 1.345 kilometres rather than 1.5 kilometres away from her nearest competitor. The Harper Review was told a much needed medical centre at Ingham in North Queensland was all set to go until an existing pharmacist moved to a boatyard within 1.5 kilometres of it preventing it from incorporating the pharmacy that was needed to make it a commercial proposition.

The more important effect of the location rules to protect pharmacies from price competition and from competition for the government payments that make up over half of pharmacies' income. Harper says if there are areas of Australia left unserved after the location rules go (as there are now in Indigenous areas) the government should consider allowing doctors to dispense medicines themselves.

It's far from true that Australian pharmacists support the restrictions. The Pharmacy Guild of Australia represents only the the 4000 who own pharmacies. Another 20,000 are locked out of ownership and forced to work for those who got in early. These "employee pharmacists" are represented by Professional Pharmacists Australia which supports a review of the location rules and has incidentally asked the Audit Office to conduct a complete audit of all public money handed to the Guild.

The Audit Office had a brush with the Guild just last month. In its report on the Guild's funding agreement with the government it didn't know what to make of an organisation it described as variously: an industry association, a publicly funded administrator at times acting as an agent for the department of health, a recipient of government grants, an owner of businesses selling products to pharmacies, and an advisor to the health department through its membership of boards.

The Community Pharmacy Agreement agreement pays the pharmacies to do the things many of us might have thought they did routinely, such as dispensing drugs and keeping electronic records. Its annual cost has climbed from $546 million in 1991-92 to $3.087 billion in 2013-14. Not that you've seen this in the budget papers, where it is lumped in with the cost of the Pharmaceutical Benefits Scheme. The Audit Office had to work it out itself. Its report found the health department kept no formal records of its negotiations with the Guild ("not consistent with sound practice"), paid it $31.2 million over five years to administer the agreement (some of it without informing the health minister), and was unable to get data from it about how much its members actually paid for the medications they sold.

It would be easy to get the impression pharmacy owners have access to government funds and government protection on a scale undreamed of by other industries now that the car industry is departing. It would be easy the get the impression that the comments about record keeping and financial management reflect badly on the then head of the department of health Jane Halton, who now runs the department of finance. It would be easy to get the impression that something has to give. Harper has given it a push.

In The Age and Sydney Morning Herald

Related Reading

. Want a pill that will make you rich? David Leyonhjelm, Australian Financial Review, September 19 2014

. A prescription for privilege, Terry Barnes, June 16, 2011

. A prescription for pharmacy reform, Terry Barnes, Policy Summer 2011-12

. Harmacy: The Political Economy of Community Pharmacy in Australia, David Gadiel, Centre for Independent Studies, 2008

Related Posts

. Medicare. What would charging for a previously free visit to the doctor achieve?

. It isn't even health insurance

. Do nations that spend more on health care live longer?

Click to

Tuesday, March 17, 2015

Hockey is right. Eating into super would get home ownership back on track

Can we give Joe Hockey a break?

He says he is prepared to consider allowing us to dip into our super to buy houses. What on earth could be wrong with that? A house is far more useful in retirement than superannuation. Just ask anyone who has tried to survive without one.

When the Harmer pension review examined the question some years ago it found only 3 per cent of home-owning single pensioners were in severe poverty compared up to one quarter of those who rented.

Rent eats income. It's why houses are important in retirement. They relieve us of the need to pay rent.

When renters attempt to earn that income they lose half of it in cuts to whatever pension they are on. Homeowners don't need to earn that income.

Labor is saying silly things about home ownership right now. Its deputy Tanya Plibersek says "you can't eat your family home, you can't pay your electricity bill with it". But you can do those things by saving on rent and you can do them by taking advantage of services that allow you to borrow against your home. Centrelink offers one. You can get up to the full pension fortnightly right up until the day you die taken out of the value of your home, and you'll never be kicked out. Private operators offer similar deals. The Financial Review had a feature on them on Saturday.

Australians are right to want to dip into their super to buy houses. Many do it the minute they can, telling their super fund trustee they've "retired" at the age of 55. They use the payout to pay down their mortgage and get back to work. You can't blame them. It sets them up for retirement better than would super...

It would set them up even better if they were able to use their super to pay down their mortgages earlier, before they grow.

They can't because the present system forces them to save year in, year out at 9.5 per cent even when they should be paying down debt. Like attempting to drive a car by pressing on both the brake and accelerator pedals at the same time, it is possible to save and be in debt simultaneously but wasteful.

That's how Young Labor saw it on the eve of Kevin Rudd's election in 2007. Yes, Young Labor. It proposed what Hockey is now proposing. Australians up to the age of 30 would be able to dip into their super for the deposit on a home.

"What good is having an extra $15,000 in super when you're 65 if you're still renting when you are 85?" asked its then national president Sam Crosby.

Labor's Wayne Swan responded. He came up with a plan for super-like savings accounts, especially to save for deposits.

The contributions and earnings would be taxed like super - at a flat rate of 15 per cent - up to a generous limit. After four or more years they could be withdrawn but only for the purpose of buying a first home.

The plan bombed partly because Swan made the mistake of making explicit the unfairness of the super tax concessions. Treasury told him to tax the accounts normally and achieve an effective tax rate of 15 per cent by making direct contributions, more for high earners, less for low earners.

Invited to submit comments on the treasury website, Australians were appalled.

"I am shocked and utterly disillusioned to find that under the current proposal, the government contribution is twice as much for those paying the highest rate of income tax," wrote one.

Swan modified the scheme somewhat and it died of lack of use.  

The main reason it bombed was that Australians didn't have the spare cash to put the accounts. Nine per cent of their income was going into super whether it was wise or not.

Compulsory super is a one-size-fits-all solution to a problem that hasn't been clearly defined.

It takes the same proportion of wages each year regardless of the calls on income that year and the size of the debt that would otherwise be paid down.

Canadians are able to withdraw up to $25,000 from their super funds to buy first homes on the proviso that after a year than begin paying it back in equal installments over 15 years. New Zealand and Singapore offer similar deals.

It's said that if it happened here it would push up the price of houses, but that's true of any measure that makes houses easier to buy. Denying someone access to their own money in order to deny them access to the housing market is a particularly cruel way to restrain prices.

The best way to hold down prices for first home buyers is to take out the competition. Second and third homebuyers (so called "investors") now almost outnumber owner occupiers at auctions. One out of every seven Australian taxpayers is a landlord.

It can be said in their defence that they provide rental accommodation, just as that used to be said for the far smaller number of foreign investors in real estate against whom the government has taken action. But by elbowing out of the way would-be owner occupiers those landlords are also creating a class of people to rent to, a class of Australians who may never be able to afford their own homes.

Eliminating negative gearing (while allowing it to stay for existing landlords) would remove the competition. Along with allowing Australians access to their own money to buy their own houses it would ensure that more of us had the kind of genuine security in retirement that only a home can give.

Home ownership was once a article of faith of the Coalition. Hockey has at least shown an interest in getting it back on track.

In The Age and Sydney Morning Herald

Related Posts

. Why Abbott will have to clean up Labor's super tax mess

. Advice for Hockey: Slug super and fix the budget in one hit

. Budget 2015. Will Hockey ramp up tax on super contributions?

Click to

Tuesday, March 10, 2015

TPP. We're negotiating for negotiators not for Australians

I get that ordinary Australians don't much like the Trans Pacific Partnership. But businesses?

The deal is being negotiated between the twelve Pacific-facing nations of Australia: the United States, Japan, Canada, New Zealand, Malaysia, Brunei, Singapore, Chile, Mexico, Peru and Vietnam. No-one outside the negotiating teams knows exactly what's in it because the text won't be made public until after it is sealed, quite possibly at a ministers' meeting in Hawaii next month.

Then it'll be too late for Australia to change. That's the way trade agreements work. Our parliament will be able to vote "yes" or "no" to the entire thing, all 20 chapters; but it won't be able to change a word.

Some of the leaks are alarming. They include what British medical journal The Lancet calls an "unprecedented expansion of intellectual property rights that would prolong monopolies on pharmaceuticals and reduce access to affordable and lifesaving generic medicines".

Australia's Pharmaceutical Benefits Scheme spends $1 billion a year on the 10 most expensive of the super-expensive so-called biologic drugs, manufactured from living organisms.

In addition to patent protection, the manufacturers get five years in which the makers of cheaper generics are unable to use their data to prove their alternatives are safe. The US wants to extend the period to eight years. Deborah Gleeson, from La Trobe University, says that would cost the Pharmaceutical Benefits Scheme $205 million a year.

It isn't to facilitate trade. It's a measure to restrict trade. And the TPP is full of them.

In one part buyers of pharmaceutical products (such as Australia's PBS) would be restricted in their ability to offer whatever price they wanted to their suppliers (mainly US-owned pharmaceutical companies), a restriction not normally thought of as advancing free trade. In another, even minor breaches of copyright (such as burning a copyrighted DVD for a friend), would become a criminal rather than a civil offence.

And outside tribunals would be able to adjudicate and impose penalties on Australian governments even after their laws had been found valid by Australia's courts...

It would open the way for alcohol manufacturers to take on Australia over laws requiring labelling, food manufacturers to take on Australia over anti-obesity campaigns and mining companies to sue Australia over environmental regulations, as happens in Canada under the provisions of the North American Free Trade Agreement.

Australian businesses ought to love the TPP. They would get the ability to take on 11 other governments in overseas tribunals, and to the extent that they export intellectual property (Australia is a net importer) they would benefit from the criminalisation of copyright breaches.

But would they actually be able to sell much more product.

It looks as if they wouldn't. The department of foreign affairs and trade said Australia's mega trade deal with the United States, signed 10 years ago, would boost Australia's gross domestic product by $5.7 billion. However, 10 years on, the Australian National University says it has not boosted trade at all. A US Department of Agriculture study says the agricultural component of the  TPP will not boost Australia's GDP at all.

None of which would matter much if agreements such as the TPP weren't so expensive to negotiate and didn't create so much red tape.

The Australian Chamber of Commerce and Industry wants the direct costs of negotiating each treaty reported to parliament. And it wants annual assessments of how they are turning out. Like government spending on roads and on events such as the Olympic Games, there are always plenty of forecasts of the benefits before the agreements are signed, but rarely any follow up.

It also wants the "noodle bowl" of overlapping and conflicting agreements cleaned up. Australia has 12 free trade agreements, each with its own compliance rules. Some involve the same countries, but the superseded agreements are never terminated.

Australia hasn't acceded to the international treaty which would require each of its agreements to be consistent with each of the others. The TPP is the latest which won't be.

An unpublished survey of ACCI members find most neither understand nor use Australia's free trade agreements.  

"In my experience, they have been a waste of time, particularly Thailand. The paperwork to qualify was so erroneous it wasn't worth the effort," said one member.

"I know we have one with the US and I know there is one now with Japan and Korea - is that correct?" said another.

Where they do try to comply, their goods are often stopped at the docks and on the other side charged the full rate of duty because the officials don't know about them. Australia doesn't collect information about how many of our goods get through.

The Chamber's submission to the Senate inquiry into the treaty-making process is damning. It wants the secrecy by which the agreements are negotiated opened up so that community and business groups are taken into the confidence of the negotiators in real time, as happens in the United States.

It's how climate change negotiations are handled. It seems to do no harm.

Its most important recommendation is that the Productivity Commission assess the worth of the agreements as they are being negotiated in real time. It would put a stop to many of the agreements that are being negotiated in our name. It might even put a stop to the TPP.

In The Age and Sydney Morning Herald

Related Posts

. Now business wants more open trans pacific partnership negotiations

. Trans Pacific Partnership. What is being negotiated in our name?

. Trans Pacific Partnership a threat to health, says assessment

Click to

Sunday, March 08, 2015

Why are there so few female chief executives? Why are there so many named Peter?

Fewer big Australian companies are run by women than by men named Peter.

The shocking finding after decades of talk about breaking the glass ceiling comes from a count of the 200 biggest public companies that constitute the ASX200 index.

Thirteen of the top 200 are run by men named Peter; among them Westfield, Woodside Petroleum and Macquarie Roads. Twelve are run by women; among them Coca-Cola Amatil, Cochlear and Harvey Norman.

Companies run by a Peter, a Michael, a David or an Andrew outnumber those run by women four to one.

The idea for the survey isn't original. It comes from the US economist Justin Wolfers who wrote in the New York Times this week that fewer large American companies were run by women than by men named John.

Wolfers is an Australian by birth and a visiting professor at Sydney University, so he'd probably be disappointed to hear that things are just as bad back home. Whereas in the US four chief executives are named John, Robert, William or James for every one who is a woman ("including every woman's name, from Abby to Zara") in Australia there are four named Peter, Michael, Andrew or David for every one who is a woman.

It's unfortunate, not just for women who might want to run organisations, but also for the organisations themselves. That's because there's good evidence that organisations run by women are better run. Really.

The most compelling evidence is brand new. It's from a 15-year study of Luxembourg banks published in January. The researchers compared the representation of women in the senior management of the 264 banks with their quarter-by-quarter financial performance reported to the regulator.

They found a 10 per cent increase in the proportion of women in the senior management ranks of a bank lifted its financial performance by more than 3 per cent per annum.

There's more. The 15-year period included the years of the global financial crisis. During those years, from 2007 to 2009, the effect almost doubled.

Women managed the banks better in the lead-up to and in times of crisis...

It's easy to guess why. Women are less inclined to take stupid risks. It's one of the reasons women live longer than men. Fewer die in accidents.

The study quotes Neelie Kroes, the European Union commissioner for competition during the crisis.

"If Lehman Brothers had been 'Lehman Sisters', would the crisis have happened like it did?" she asks.

"No," she replies. "Generally, women have a better ear to listen, and they are less likely to pretend to know everything themselves. They are team players with less ego."

It's not only attitudes to risk that can make women better at the top, it's also attitudes to women.

Another study finds that the performance of firms with women at the top increases with the share of women workers. Women taking over male-managed firms with at least 20 per cent of women in the workforce lift sales per employee by about 14 per cent.

Women are better at dealing with women.

I am sure you are about to scream that this is a generalisation, not true in every case and perhaps not true of someone you know. But most things about gender are generalisations. Not all women fail to make it to the top. Some (almost as many as men named Peter) do. But taken together women are more likely to fail to make it to the top than men. And taken together women are more likely to run certain types of firms better than men. Taken together that seems to be because women are more cautious and better at dealing with women.

So how do we get more women to the top?

A team led by Dr Danielle Merrett, of the University of Sydney, has come up with the simplest of easy fixes: when selecting candidates for a job (any job) make sure the shortlist contains an equal number of men and women.

Its experiments suggest that doing no more than that can lift the proportion of women chosen to 60 per cent.

It opens up the possibility of a new type of quota - not one that insists on a certain proportion of women being appointed, but merely one that insists on there enough women available so that choosing a woman doesn't look unusual.

What if that's all it takes? What if instead of being chosen from a panel with names like Peter, Michael, Andrew and David the next head of BHP is chosen from a panel where half have names are like Peta, Michelle, Andrea and Davinia. What if it could lift BHP's performance?

In The Age and Sydney Morning Herald

Related Posts

. The truth about women. Why Abbott's Cabinet won't last

. The treasury has a problem with women?

. It's reigning men. How our convict past explains our glass ceiling

Click to

Saturday, March 07, 2015

Intergenerational report. The truth at its core, and how we'll cope

Beneath all the talk about finances, beneath the spin about which side of politics would handle Australia future better, this week’s intergenerational report contained a disturbing truth: the day is fast approaching when a much smaller proportion of the Australian population will be able to work than we’ve become accustomed to.

The starkest illustration of the change isn’t presented in the report itself but can be derived from the figures buried within it. At the moment there are 2.1 Australians of traditional working age to support each Australian of traditional dependent age - either too young to work or what used to be thought of as too old to work. By 2055 the ratio will have shrunk to 1.7.

The actual number of Australians available to work won’t have shrunk (the report says our population will almost double, to 40 million) but the number available to support each Australian traditionally regarded as needing support will have shrunk by one fifth.

The rise of the machines

We’ll cope in part by substituting machines for people, as we have done for years. Launching the report on Thursday treasurer Joe Hockey said 40 years ago it took 2 hours of work to make what takes 1 hour today. But the biggest fear among the treasury officials responsible for the intergenerational report is that that easy gain has been had. Once we remove the labour from an operation we can’t do it again. We automated telephone exchanges. We can’t automate them again. What we are left with are tasks such as caring for senior citizens in nursing homes, things that can’t be as easily automated.

But the treasurer is optimistic.

“I urge people to go and do an internet search of driverless cars,” he said on Thursday. “There is credible evidence that suggests that by 2040 three quarters of the cars on the road will be driverless.” It’s a future prophesied a half a century ago in the cartoon series the Jetsons, except that those cars were going to fly.

Hockey has a new Holden Commodore. He says he can press a button and it parks itself. If he is correct and three quarters of the cars on the road drive themselves we’ll soon be able to catch driverless taxis and busses, and we won’t need to drive ourselves - something that will help when an unprecedented 2 million of us are beyond age 85, the time of life at which the authorities traditionally make it hard to keep a driving licence.

By 2055 retailing will be mostly online. Corner shops won’t need to employ as many people because most will no longer exist. Newspapers will no longer be home delivered (and will almost certainly no longer be printed) Australia Post will have stopped delivering letters daily...

And yet the treasury believes productivity will only climb by 1.5 per cent per year, about its recent average. Its report doesn’t buy into the treasurer’s optimism.

Working longer, and longer

We’ll also need to keep working. The previous government began lifting the pension age from 65 to 67. This one wants to lift it to 70. A half a century ago men who retired at 65 could expect only another 12 years of life. Now they can expect 19. By 2055 they’ll expect 26. As work becomes easier (these days more of us work in offices than factories) and we find we’ve many more years on our hands it’s entirely reasonable to expect us to work for longer.

Some employers are begging for it. At Teachers Mutual Bank in Western Sydney one third of the workforce is over 50. Liz Dec is 66. She was hired to work there at the age of 58.

“I arrived and discovered everyone I met had been here for ten or more years, some 15, some 20,” she said. “No-one leaves.”

To keep staff and to keep its older staff healthy the bank runs workshops on diet and health.

Ms Dec says before she started work in the bank’s call centre she didn’t know how to read the labels on cans of food.

“And they offer aerobics classes and pilates classes. Last year when I turned 65 I told them I was thinking about retiring. They told me instead I could transition, maybe take off one day a week and then the next year two days. They value older people, and they told me it would be fine to apply for a promotion.”

More and more employers are going to go after older workers and fighting to retain them. The hardware chain Bunnings says one quarter of its workforce is aged over 50. Hockey says he met met a worker there in his mid-80s last week and made the mistake of asking him how many days a week he worked. The answer was five.

Working women

Four decades ago only 43 per cent of working age Australian women made themselves available for paid work. Many of those who left to have children never came back. Now 58 per cent of Australian women are available for paid work, but it’s still well short of the 62 per cent in Canada and New Zealand. Hockey says he has heard that in the Canadian province of Quebec childcare is available for just $5 a day. Getting support for childcare right (as he says the government is labour force.

Australia is also well behind New Zealand in the employment of men. There Hockey thinks the reason is compulsory superannuation. We have it, and New Zealanders don’t - so they have to work longer. While Hockey hasn’t talked about ending compulsory superannuation (although he has talked about taxing it more fully) he is keen to remove whatever remaining barriers prevent mothers and men or any age from turning up for work.

Making Australia bigger

Traditionally we’ve solved labour shortages by bringing in more workers. It’s how we built the Snowy Hydro scheme, how we filled our schools with teachers in the 1970s and how we built mines in remote parts of Australia at the start of the 21st century. Yet curiously, for such a forward thinking document, Hockey’s intergenerational report assumes no increase in immigration whatsoever. It remains stuck at 215,000 per year, each year for the next 40 years during what we are assured will be a time of growing labour shortages. It’s a lower immigration rate than we have today.

“I think palatability has played a part,” says demographer Martin Bell at the University of Queensland. “To remain constant as a share of the population the immigration total has to climb each year, but a steady number looks less alarming.

By factoring in a low and steady rate of immigration in the report Hockey also acted to head off a renewed debate about a big Australia.

Bell says it wasn’t long ago the former prime minister Kevin Rudd courted controversy by speaking out in favour of an Australia of 40 million. At the time most projections were for around 28 million. Yet 40 million is what Hockey’s intergenerational report forecasts. Higher immigration assumptions would have pushed the total even higher.

Yet Bell thinks 215,000 per year might be a reasonable guess. he is more optimistic than many our ability to fill labour shortages ourselves by getting more people into work and eating into the ranks of the unemployed.

Framing Labor

The intergenerational report presents two “sliding doors” scenarios. Had Labor’s policies been continued it says the budget deficit would have hit $534 billion by 2055, around 12 per cent of gross domestic product. It says under those of its policies already passed by the Senate the projected deficit has been wound back to half that. It says if they had all been passed it would be eliminated.

Many of the assumptions behind those conclusions are unreasonable, among them that Labor would have kept to its promise to keep increasing foreign aid each year into the future, that Labor would have never lifted taxes to fund its commitments to schools and hospitals, that the Coalition would continue to underfund hospitals by more each year for four decades, and that either side would remain in power until 2055.

The future is hard enough to predict when you feed in reasonable guesses about what's likely to happen. When you ensure that you don't, the predictions become silly. Many of the predictions in the intergenerational report are silly.

In The Age and Sydney Morning Herald

Related Posts

. Intergenerational report. Why the future will be nothing like as bleak as it suggests

. Intergenerational Report: How Labor was framed

. Be careful when reading the Intergenerational Report. It's meant to scare you

Click to

Friday, March 06, 2015

Intergenerational report. Why the future will be nothing like as bleak as it suggests

The biggest economic challenge facing Australia in 40 years' time will be a shortage of workers. The finances aren't nearly as challenging.

It's true that we will probably have to pay more of our income in tax, but we'll earn a lot more. Adjusted for inflation we'll earn will earn three times as much as we do today. We'll be able to find whatever extra tax is needed.

What we won't be able to find - as easily - is more workers. The intergenerational report says instead of the present 4.5 people of traditional working age for each older Australian we'll have 2.7. It's a dramatic slide, but it overstates the problem.

As we getting older, we will also get less young. That means that as well as having more Australians over 65 to support we'll also have fewer Australians under 16. Putting the two together, the figures in the intergenerational report suggest that whereas at the moment there are two Australians of traditional working age available to support each Australian of traditional dependent age, by 2055 there will be just 1.7.

It isn't a problem we can wish away. But the report overstates it by assuming that the automatic mechanisms for solving it work badly.

As we run short of workers we'll want to import more of them. Yet the report assumes that our immigration intake will remain stuck at 215,000 each year for 40 years without climbing. The implicit assumption is that this government and each of its successors will resist what by then would become a deafening call from employers and consumers of services such as home care to bring in more workers.

It's hard to escape the conclusion the assumption was added either to make the Australian population look less alarmingly big than it will be in 2055 (the report says it will be about 40 million) or to make the budget problem look worse. Migrants pay tax and the more migrants we have the better the budget looks.

The other automatic mechanism that will call forth more workers is higher wages. Whenever there's a shortage of anything its price goes up and more people start supplying it. It's how markets work. Yet the report assumes that most older Australians won't answer the call. By 2035 the pension won't be available until the age of 70 if the government gets its way. Yet the report assumes that only 52 per cent of the men aged 65 to 69 will be available for work, and only 37 per cent of the women.

The figures sound too low to me. I don't know a lot about central planning, but do I know that markets work. If there's a shortage of workers their price will go up and we'll find more of them, whether from overseas or from the ranks of Australians presently not working. The report reads as if it was written by Soviet-era bureaucrats who don't believe in markets. The future won't be as bleak as they think.

In The Age and Sydney Morning Herald

Related Posts

. Intergenerational Report: How Labor was framed

. Be careful when reading the Intergenerational Report. It's meant to scare you

. 2010. The real intergenerational change

Click to