Thursday, February 01, 2018

Follow the money - it won't make you communist

Anyone would think I'd gone communist. Along with John Howard.

As soon as the Treasury released its tax expenditures statement last week, I and others who reported it were accused of wanting to ape Eastern Europe, of going "Peak Orwellian".

"The author has raised an interesting concept, everything belongs to the government and one has no individual rights or assets," wrote one of my kinder correspondents.

"The left regards tax not gouged as government spending," wrote another. "Since when has retaining your earnings been a government handout?"

The short answer is: since at least 1998. That's when Howard made it mandatory for the Treasury to report tax expenditures as if they were cash expenditures.

On taking over as Coalition prime minister after 13 years of Labor government, he set up a Commission of Audit to tell him what to cut.

It told him that government programs were delivered in two ways: as direct payments which hurt the budget, and as tax breaks which also hurt the budget.

Although often functionally identical (parents don't care whether they get the family tax benefit as a payment or a rebate, patients don't mind how they get the private health insurance rebate, and most wouldn't know whether the baby bonus was a payment or a tax break) the two get treated quite differently.

Payments get put in the budget of individual ministers as a line item to be scrutinised and reviewed in the lead-up to every budget.

Tax breaks go on no one's budget and become part of the furniture. As the Henry tax review reported later, they can be "difficult to contain".

Accounting for them once a year, in the same way as direct payments are accounted for twice a year in each budget and budget update, lets us know what they are and what they are worth.

It doesn't mean (necessarily) that they are at risk, any more than accounting for the annual cost of the pension means it's at risk.

This year the Treasury found 289, from the huge (the $74 billion cost of exempting the family home from capital gains tax) to the unquantifiable (exempting charities, hospitals and trade unions from income tax) to the odd (exempting ministers of religion from fringe benefits tax) to the small but growing (the farm management deposit system, which is expected to double in cost this year from $245 million to $560 million).

The correspondents who think that I'm a communist for publishing these figures, presumably along with Howard and Treasury and the government-dominated committee that decided they should continue to be published this way, argue that letting people keep their own money is different to handing them government money.

But it is identical if you tax some people at standard rates and give a special deal to others. That's how tax expenditures are calculated, by working out what's normal (such as the standard income tax rates) and then working out the cost of concessions (such as tax-free redundancy payments, which cost $2.4 billion a year).

Sometimes it's hard to know what's standard, and the tax expenditures statement reflects this. The standard company tax rate is 30 per cent. Small and medium-size businesses with turnovers of up to $50 million will eventually get a lower rate of 25 per cent, which is in the books as a tax expenditure of $2.2 billion a year. But if the government gets its proposed cut for all businesses through the Senate and the general rate comes down to 25 per cent, costing much more, the statement won't record a tax expenditure at all, except >for any discounts from the new lower standard rate of 25 per cent. The statement says so.

Its critics claim that its estimates are exaggerations because if, for example, superannuation contributions were fully taxed people would contribute less to superannuation and the government wouldn't get back what it thinks it's losing. But when the Treasury put these claims to the test and calculated so-called "revenue gain" estimates of what it would get back in the real world, it found the numbers were little different.

For superannuation, that's partly because contributions are compulsory. To the extent that people wind back extra voluntary contributions they'll divert their money into other investments that are likely to be more fully taxed and get hit with income tax before the money goes in. So although the Treasury wouldn't get back the full $16.5 billion it loses because of the concessional tax on super contributions, it believes it would get back almost all of it, $16.3 billion, although much would be in other forms of tax.

The costs of these concessions are real, just as real as the $23 billion the government pays out each year in Medicare, or the $12 billion it pays out in pharmaceutical benefits. But the beneficiaries aren't always as deserving. The biggest superannuation and capital gains tax concessions are directed towards the highest earners, something we wouldn't tolerate if they were delivered as cheques, paid into accounts.

Which is why they want them hidden. Which is why they talk about communism. They are embarrassed.

In The Age and Sydney Morning Herald

Sunday, January 28, 2018

Cost of tax breaks soars on profits selling homes

Government spending on tax breaks is set to hit a record $170 billion this year, largely as a result of an explosion in the value of concession for the family home.

Treasury's Tax Expenditures Statement required under the Charter of Budget Honesty and released quietly after the close of business on Thursday puts the value of the exemption from capital gains tax for owner occupiers at $74 billion this financial year, up from $66.5 billion last financial year, which was itself $5 billion more than Treasury had forecast.

Four years ago, before house prices shot up, it was worth $46.5 billion. Treasury says by 2020-21 it will be worth $91 billion.

The exemption releases owner occupiers from the obligation to pay capital gains tax on profits made from the sale of their primary residence. Those profits have soared in recent years as prices have climbed, especially in Sydney and Melbourne. Investors pay capital gain at half the income tax rate, a concession the Treasury costs at $10 billion, up from $4.4 billion four years ago.

The cost of tax expenditures is tabulated so that the government can compare the budgetary impact of direct spending in the form of grants with indirect spending in the form of tax breaks.

The government costs assistance to the aged at $64.3 billion and assistance to the unemployed and the sick at $10 billion.

The concession tax treatment of superannuation contributions is costed at $16.9 billion. The concessional treatment of super fund earnings is costed at $19.25 billion. The two figures can't be added together to get a total for super tax concessions, because if contributions were fully taxed the funds would earn less.

The exemption of so-called fresh foods from goods and services tax costs $7 billion per year. Among the items exempt because they are used to prepare food at home is sugar, although commercially prepared products containing sugar such as soft drinks are subject to the GST.

The GST exemption for education services including private school fees will cost $4.55 billion in 2017-18 and $5.65 billion in 2020-21. The exemption for medical services costs $4.1 billion.

The cost of the farm management deposit system, which gives tax advantages to qualifying farmers, is is expected to double from $245 million in 2016-17 to $560 million in 2017-18.

The figures come as the government attempts to find savings to fund personal income tax cuts in the May budget and reduce the deficit of $21.4 billion.


Tax Break Top 10

The 10 biggest tax expenditures identified by the Treasury

Revenue forgone per year

Capital gains tax exemption for family home: $77 billion

Tax relief for superannuation earnings: $19.25 billion

Tax relief for superannuation contributions: $16.9 billion

General capital gains tax discount: $10.27 billion

GST exemption for fresh food: $7.1 billion

GST exemption for education: $4.55 billion

GST exemption for health services: $4.1 billion

GST concession for for financial services: $3.4 billion

Tax relief for termination benefits: $2.4 billion

Concession for superannuation life insurance: $2.37 billion

Source: Commonwealth Treasury 2017 Tax Expenditures Statement 


In The Age and Sydney Morning Herald

Saturday, January 27, 2018

A tick from the IMF but company tax cuts no sure thing

When the International Monetary Fund boosted its forecasts of world economic growth on the back of better prospects in the US this week, Australia's Treasurer Scott Morrison was quick to claim it as an endorsement of company tax cuts.

"These new global growth forecasts demonstrate yet again that the move that's been taken in the United States, but also in other countries, the United Kingdom and France and other parts of the world, to drive their economies and to see their businesses grow, is going to generate growth and jobs," he said.

"Labor is stopping us."

The Fund lifted its forecasts of global growth for this year and the next from 3.7 to 3.9 per cent. It said half of the jump was due to the Trump tax cuts. Its US 2018 US growth forecast climbed from 2.3 to 2.7 per cent and its 2019 forecast from 1.9 to 2.5 per cent.

But much of that boost wasn't due to the most impressive and expensive ($US1.3 trillion) part of the cut; the slicing of the rate from 35 to 21 per cent. It was due to another, cheaper measure: a temporary instant asset write-off. Firms that install new buildings and equipment will be able to deduct the full cost straight away without depreciating it over years. It is similar to, but larger than, capped schemes introduced in Australia by both Labor and the Coalition to boost investment after the global financial crisis and the demise of the mining boom.

Like those schemes, it will be temporary, lasting for five years. Like those schemes, much of it will bring forward investment that most likely would have happened anyway, but later, meaning that when it ends US growth will slump, which is what the IMF expects and one of the reasons it is forecasting weaker US growth down the track.

Australia isn't proposing such a scheme. What the Turnbull government is proposing is a cut in the headline company tax rate from 30 per cent to 25 per cent for all companies, not just those with turnovers of up to $50 million, whose cuts to 25 per cent have already been approved by the Senate.

Will the US cut to 21 per cent, and other cuts including Brtiain's cut to 18 per cent, leave Australia uncompetitive?

It depends on how you calculate competitiveness.

These days John Fraser heads the Commonwealth Treasury. Until 2013 he was head of UBS Global Asset Management and responsible for its worldwide investments. He told a budget forum in Australia in 2015 that while he understood the argument for cutting company tax, his own experience told him that the tax was a "second or third order issue" for would-be investors.

"Generally the internal rates of return that are required – the hurdle rates – are so high it would be false to say the taxation rate, unless they were ridiculous, really large, make a big difference," he said. "It's, frankly, not as important as other issues such as governance and dispute resolution."

Because of the importance of investment allowances, groups such as the US Congressional Budget Office calculates "effective corporate tax rates" that show how much tax will actually be paid on new investments.

Its latest table, released in 2017, but using data from 2012, puts Australia's statutory corporate tax rate at 30 per cent, but Australia's effective rate at just 10.4 per cent. It puts the US statutory rate at 39.1 per cent including state taxes, but the US effective rate at 18.6 per cent. A more recent calculation, from the Oxford University Centre for Business Taxation, put Australia's statutory rate at 30 per cent and Australia's effective rate at 19.1 per cent, below the present US effective tax rate of 23.2 per cent and above the present UK effective rate of 17.1 per cent.

Low rates don't always go had in hand with good business conditions. Oxford identifies Italy, Hungary, Switzerland, Korea, Ireland, the Netherlands, the Czech Republic, Slovinia, Poland and Luxembourg as having the 10 lowest effective rates in the OECD. Most are better known as tax havens than as attractive locations to relocate operations.

To date, Australia has had no shortage of foreign investment, much of it in mining and in Australian shares. Economist Saul Eslake makes the point that if Australia did become starved of investment, the Australian dollar would fall to make it more attractive, which would be a good thing for other reasons.

"Arguably with our currency at 80 US¢ we are attracting too much capital," he says. "Maybe it might be a good thing if we attracted less, because our currency might be more competitive."

He is worried about where the money would come from to pay for the company tax cuts, which would be nowhere near self-funding. Even if they are budgeted for, and Finance Minister Mathias Cormann insists they are, it will be money which isn't available for other purposes, including larger personal income tax cuts.

Director of the Australian National University Tax and Transfer Policy Institute director Miranda Stewart says the company tax cuts could be paid for by abolishing the almost uniquely Australian system of dividend imputation that shields local investors from tax on dividends where the companies have paid tax.

Labor, the Greens and the essential crossbench members of the Nick Xenophon Team simply won't countenance a tax cut for big business however it is funded.

Morrison is going over their heads and appealing to their supporters.

Before Christmas he said while Australians were sitting on the beach enjoying summer, foreign companies would be making decisions and fleeing the country.

This week Qantas chief Alan Joyce pledged to use the windfall that would come from lower tax to lift wages, and Wesfarmers chief executive Rob Scott said he too would pass the benefits on to workers.

In the US, supermarket giant Walmart came good on a similar promise and announced wage rises and cash bonuses for thousands of its workers in the wake of the Trump reforms.

For the moment, Australian voters are not buying the arguments.

The latest poll to ask a question, the Essential survey in December found only 29 per cent of voters approved of the full tax cut for big business. Forty nine per cent rated personal tax cuts as a higher priority.

In The Age and Sydney Morning Herald

Thursday, January 25, 2018

Safe, but scared. How Victoria became a state of fear

There's something weird in the crime section of the report on government services released on Thursday.

The proportions of Victorians who feel "safe" walking at night has dived from 50 to 45 per cent in 2016-17. The proportion of NSW residents who feel safe has also dived, but from 54 to 49 per cent. The figures are for 2016-17. Victoria is now easily the most scared state in the nation, suddenly even more fearful than the traditionally scared states of Western Australia and Northern Territory.

The proportion of NSW locals who feel safe in their own homes at night remains unchanged at 90 per cent, but the proportion of Victorians who feel safe at home has dropped from 87 to 79 per cent, making Victorians now also the most scared on this measure, sharing the honour with Northern Territorians.

The (dated) figures for actual crime released in the Productivity Commission report show an increase in assaults per 100,000 Victorians during 2015-16, but to nowhere near to the level in Queensland, Western Australia and the Northern Territory.

Victoria is far from Australia's most dangerous state on the figures published, but Victorians seem to think it is.

It's understandable. We're more attuned to changes than absolute levels. The more dangerous states are no more dangerous, while the not particularly dangerous state of Victoria has become more dangerous. And the newspapers, especially the most tabloid of them, have been scaring Victorians for months.

Home Affairs Minister Peter Dutton lent legitimacy to their campaign when he said Victorians were "scared to go out to restaurants", a claim he might have clarified by saying that the risk of assault in Victoria (2490 assaults per 100,000 people) is little more than the Australian average (2420 per 100,000 people).

It'll doubtless lead to more police. Victoria already has more than NSW (297 per 100,000 residents compared to 256) without noticeably better outcomes.

NSW residents are more law abiding when it comes to seatbelts (only 2 per cent drive without them compared to 5.6 per cent) and less law abiding when it comes to speed (61 per cent drive more than 10 km/hilometres per hour over the speed limit compared to 53 per cent).

The most lawless part of Australia by far is the Northern Territory. One in 12 of its drivers drive without seatbelts and one in nine drive over the alcohol limit, compared to one in 17 in NSW and Victoria. The Territory has almost twice the rate of assaults as Victoria and more than twice the ratio of police: an extraordinary 732 per 100,000 residents.

An outsized proportion of the Territory is in prison: 898 in every 100,000 adults, an imprisonment rate comparable with the United States. Western Australia is the next-highest with one-third the number: 320 prisoners per 100,000 adults. NSW sits on the Australian average at 215. Victoria has Australia's lowest imprisonment rate: 140 per 100,000, a distinction it shares with Tasmania and the Australian Capital Territory.

Indigenous Australians are far more likely than others to be imprisoned, especially in Western Australia, which has an even higher Indigenous imprisonment rate than the Northern Territory with 3000 in every 100,000 Indigenous adults behind bars. Victoria's Indigenous imprisonment rate is Australia's lowest apart from Tasmania's.

Detention of Indigenous youth is also lower in Victoria than anywhere else, at 190 per 100,000 young people, compared to 360 in NSW and an extraordinary 600 in Western Australia, a rate that exceeds the Territory's 400.

Victoria treats its prisoners better than other states, allowing more than 80 per cent of them to work and 35 per cent to take part in education or training. It gives them an average of 11 hours per day out of cells. On each of these measures it does better than NSW, and on access to work, for prisoners it leads the nation.

Victoria trumps NSW in other respects. It spends more per resident on aged care. It spends more on aged home support, and it warehouses far fewer old people in hospitals while they are waiting for aged care places. It provides more access to disability support services and much more respite support for carers of people with disabilities. It is quicker at investigating and substantiating claims of child abuse and it places more of the children it takes out of home with relatives, the most in Australia, both Indigenous or non-Indigenous.

But it spends less on social housing than NSW and less per tenant. Its public housing is more overcrowded. Conversely, it spends more on support for the homelessness, especially on help with domestic violence.

The staged release of the Productivity Commission's mega report continues next week with comparisons on health, childcare and education.

Expect to hear a lot (too much) in the next few days about Australia. The truth is that we are a collection of states, some of which do things well and others badly. It is only by examining the textures of what we've tried, the successes and failures, that we can make use of what we've done and do better.

In The Age and Sydney Morning Herald

Wednesday, January 24, 2018

How about showing us the TPP we're about to sign?

What's in the revised Trans-Pacific Partnership deal for Australia? There's no way to tell until we've seen the text, and we won't see it until after it's signed, in Chile on March 8. Really. That's the way things normally work.

After that, there's still time to back out if we don't want to ratify it, and there's a precedent. All 12 would-be members signed up to the original Trans-Pacific Partnership in February 2016. Barack Obama found himself unable to get it through Congress and Donald Trump didn't try.

As best as we can tell, the new deal, TPP-11, is the old one with fewer bad bits. Twenty of the most contentious provisions included at the insistence of the US have been "suspended" until the US decides to join. They include enforced protections for the owners of pharmaceutical patents and extensions to copyright law.

There's no guarantee they would come back if the US did decide to join. Each of the 11 other members would have to agree.

Still in the agreement, although somewhat weakened, are the investor-state dispute settlement provisions insisted on by the US and Korea. They will allow private companies to sue national governments in extraterritorial tribunals, as Philip Morris did over Australia's tobacco plain-packaging laws using the terms of an obscure Hong Kong investment agreement.

John Howard successfully resisted having them in the US-Australia agreement and the Abbott government managed to avoid them in the Australia-Japan agreement, but we have apparently agreed to them now, for Japan, Korea and eight other nations.

The upside is that our companies will also be able to sue governments.

The best guess as to what the trade and investment concessions do for Australia financially, from the respected Peterson Institute, is "not much". Australia's national income would eventually be 0.5 per cent higher, a gain of less than half of one-tenth of a per cent per year.

The Productivity Commission wants to do the numbers itself, performing a proper cost-benefit analysis. Under Labor it would, for all future agreements. It's hard to think of a good reason why it shouldn't do it now.

In The Age and Sydney Morning Herald

Monday, January 22, 2018

Trump's sugar hit to boost world economy - IMF

A sugar hit from the Trump administration's US tax cuts is expected to propel world economic growth to 3.9 per cent in 2018, the best result in eight years.

In an update to its forecasts presented to the World Economic Forum at Davos in Switzerland, the International Monetary Fund said the global economy should grow by 3.9 per cent in 2018 and 2019, up from the 3.7 per cent per year it forecast in October.

Half the upgrade was due to the $US1.5 trillion ($A1.88 trillion) in tax cuts. Its forecasts assume that the hit to US tax revenues will "not be offset by spending cuts in the near term" meaning that the economies of the US and the countries it trades with will benefit as the US budget deficit deteriorates.

It has lifted its forecasts for US growth from 2.3 to 2.7 per cent in 2018 and from 1.9 to 2.5 per cent in 2019.

Beyond 2022 it is expects lower than previously forecast US growth as the next US administration attempts to get the deficit under control and as the "temporary exceptional" five-year tax write-off for investment in business assets expires.

"This short-term growth boost will have positive, albeit short-lived, output spillovers for US trade partners," said IMF director of research Maurice Obstfeld. "But it will also likely widen the US current account deficit, strengthen the US dollar, and affect international investment flows."

Treasurer Scott Morrison welcomed the temporary upgrade saying it "directly contradicts Labor's claim that the Trump company tax cuts have nothing to do with the uptick in economic growth around the world".

"This backs up our positive outlook for Australia's economy in 2018. It is why this government will continue to seek support for our enterprise tax plan."

Only half of the government's $50 billion program of company tax cuts has become law. Company tax is set to fall from 30 per cent to 25 per cent for small and medium-size businesses, but not for big ones.

Mr Morrison said he wanted Australians "to seize the opportunities ahead, rather than be left behind".

The IMF believes the US tax cuts will benefit countries such as China that supply goods and machines to the United States and countries such as Australia that supply the raw materials used to make them.

Much of the growth upgrade is due to a strengthening of the coordinated upswing under way since mid-2016.

The economies of 120 countries, accounting for three-quarters of world GDP, grew faster than expected in 2017 in "the broadest synchronised global growth upsurge since 2010".

Growth was especially strong in Germany, Japan, Korea, the United States, Brazil, China, and South Africa.

The report warns that, as important as lower interest rates have been to the recovery, they have left a legacy of debt, both government and private.

Professor Obstfeld said that although inflation and interest rates remained low for now, a sudden rise from current levels, perhaps due to "pro-cyclical developments" such as the US tax cuts, could tighten financial conditions and prompt markets to re-evaluate debt sustainability. Share prices would also be vulnerable.

A PricewaterhouseCoopers survey of 1300 chief executives released at the forum found 57 per cent expect better economic growth over the next 12 months, almost double the 29 per cent that expected it a year ago.

Among US executives the proportion expecting stronger growth jumped from 39 per cent to 53 per cent.

The US had cemented its position as the most attractive location for investment, named by 46 per cent of the executives, up from 43 per cent.

China was the second most attractive destination, at 33 per cent.

Germany, Britain, India and Japan were the next most attractive locations. Australia fell from the 10th to the 11th most attractive location, nominated by 5 per cent of chief executives.

In The Age and Sydney Morning Herald

Sunday, January 21, 2018

Enjoy the Hottest 100, but it's not all it seems

Wanna rig the Hottest 100?

It's surprisingly easy. I am not talking about blatant write-in campaigns of the kind that attempted to push Shake It Off to the top in 2015. They've been headed off by a new rule that says "votes made as part of a competition that promotes a song or artist, or a campaign that undermines the Hottest 100 may be disqualified or ignored".

I am talking about the kind of manipulation that happens all the time, where songs are pushed to the top of the charts and into the crevices of our hearts without us knowing.

Senator Cory Bernardi, who this week took the unusual step of creating his own alternative "Conservatives 100" in protest at triple J moving the Hottest 100 from Australia Day, achieved little. The best way to control what people want to hear is to control what they do hear.

US station manager Todd Storz twigged to the idea in the 1950s. Like most radio stations, his had been playing a bit of everything, what he thought people wanted. Then as he waited in a restaurant to pick up his girlfriend, who was a waitress, he noticed that the other waitresses were programming into the jukebox the same songs they had been hearing all day. They had come to like what they had been forced to hear. He invented Top 40 and never looked back.

But triple J is different. Its listeners have minds of their own, right?

Liam Lenten and Jordi McKenzie, economists and music tragics from La Trobe and Macquarie universities, think not.

They've just completed what is probably the only economic analysis of Australian pop music charts. Published in the Economic Record, it was intended to be a study of what kept songs at the top of the all-time Hottest 100 and what let new ones in.

The Hottest 100 comes in two forms. The annual survey, which these days is limited to tracks released in the previous year, is followed by a release of a double CD. The best tracks of all-time survey, which used to be annual, now takes place once every 10 or so years. Both are decided by popular vote.

Lenten and McKenzie's initial findings were that songs released in the lead-up to the best songs of all time polls did unreasonably well, and that there was something special about Joy Division's Love Will Tear Us Apart. It has been always been at or near the top.

Then a different, one-off, Hottest 100 put them on to something fascinating. It was conducted in 2013 and limited to the best tunes of the previous 20 years. In each of those years triple J had released Hottest 100 CDs, but because of copyright and other restrictions, none had included anything like the entire 100. Many didn't even include the hottest of the 100. In Lenten and McKenzie's words, "a significant proportion of songs featured each year were low-ranked".

Yet these low-ranked songs, not overly liked at the time, turned out to be over-represented in the hottest of the past 20 years list, eclipsing some that had made it to the top five. They only thing they had that many of the better-liked songs did not have was inclusion in the CD. Lenten and McKenzie conclude that "the radio station itself played a significant role in the results" by what it chose to put on the CD.

A decade ago two Columbia University sociologists asked people to rate 48 songs and download those they liked most. Half were told the truth about which had been the most downloaded. Half were lied to and told the reverse, that the least downloaded were the most downloaded. They downloaded the initially unpopular songs surprisingly often.

Enjoy the Hottest 100, it's democracy in action. But democracy is imperfect. We're more easily manipulated than we think.

In The Age and Sydney Morning Herald

Saturday, January 20, 2018

Government grants sloppy, and perhaps corrupt

Before the last election the Turnbull government had an unofficial budget: $20 million for each electorate in play. It could be handed out as picnic tables, fire trails, skate parks, netball courts, disabled toilets, or anything else that made it look as if the government cared about the electorate.

A senior source told me it was clever – Turnbull had managed to cap the financial cost. Labor said little. It couldn't. In office it had done it itself.

That these sort of grants weren't what the Commonwealth was for, as was tacitly acknowledged as Treasurer Scott Morrison tried to keep a straight face in a press conference days before the vote.

Journalist Phillip Coorey had asked him why the Commonwealth was funding dunny blocks.

"People need them Phil, people need them," the Treasurer replied. Addressing community cohesion was important.

But not important enough to have an independent panel access applications and award grants on the basis of need. If that had happened it is highly unlikely that 20 per cent of the funds would have gone to electorates representing just 2 per cent of the population.

Labor used to have such a panel, although it didn't always follow its recommendations. In 2014 the Audit Office recommended that the Department of Infrastructure and Regional Development do the job. The government "agreed" with the recommendation, although it merely "noted" another that said applications should have to meet published merit assessment criteria.

In an almost ideal world we would have an independent body deciding on grants, in the same way as the independent Reserve Bank decides on interest rates, and for the same reason – the government can't be trusted. In an absolutely ideal world the Commonwealth wouldn't hand them out at all.

At a minimum we should have a Commonwealth anti-corruption commission. And we ought to outlaw bigger grants that are just as sloppy, allocated without tender.

In the budget the government awarded Fox Sports $30 million to "increase coverage of sports that receive low or no broadcast exposure". The criteria are so broad it'll meet them easily. The documentation released this month says it's a direct offer, "available only to Fox Sports Australia Pty Ltd".

In The Age and Sydney Morning Herald

Thursday, January 18, 2018

Sugar's tobacco moment as voters call for new tax

Imagine a tax that Coalition voters actually wanted. They certainly don't want more income tax (only 12 per cent do, according to an Essential poll), they certainly don't want more company tax (they want less) and they will cop an increase in GST only if it brings down other taxes.

But then there is sugar. This week's Essential poll reveals the sort of disdain for sugar there is for tobacco.

An extraordinary 57 per cent of Liberal and National Party supporters say they want a special tax on sugar-sweetened drinks. That's more than the 54 per cent of Labor voters that want it.

It is sugar's tobacco moment. When the tobacco question was asked two years ago a massive 70 per cent of Coalition voters wanted higher taxes on it along with 67 per cent of Labor voters. For both tobacco and sugar, it's the university-educated Coalition voters who want the higher taxes the most.

What has sugar done to get lumped in with perhaps the most despised legal substance on the planet?

Nothing it hasn't been doing for decades. It is just that it is doing more of it and we are learning more about what it is. The industry would like us to believe that obesity and the tragic diseases that follow are simply a matter of "energy in and energy out". Those are the words it uses.

Put less into your mouth, do more exercise, and you won't get as heavy.

Here's Geoff Parker, chief executive of the Australian Beverages Council: "All kilojoules matter, it doesn't matter where those kilojoules come from."

It is what I call the "federal budget" approach to maintaining weight. If only the government spent less and taxed more it would bring down the deficit. It sounds true only because it ignores feedback loops.

When countries such as Spain and Italy imposed austerity programs after the financial crisis, they did indeed cut spending, but they also plunged their economies into deeper recession, losing even more revenue.

Sugar sets off the same sort of feedback loop.

It is true that heavy people eat more than others and exercise less, but the causation is not all one way.

It is easiest to see in children. They eat more during growth spurts, but it is not right to say their growth spurts are caused by the extra eating. It is truer to say that whatever it is that brings on their growth spurts does it by bringing on their extra eating.

Here's another example. Someone with an aggressive tumour will eat more in its early stages. That is because the tumour grabs the incoming nutrition for itself, making the host heavier but weaker and hungry for more food. It is as true to say that the extra weight brings on the extra eating as it is that the extra eating brings on the extra weight.

For sugar, the budget analogy misses the point. The point is that our bodies respond to sugar with insulin.

Rosalyn Yalow won the 1977 Nobel Prize for tracking what insulin does. When it is released, our fat cells start to pack in fuel in the form of fatty acids, and close their walls to prevent them escaping. It is why, bizarrely, we often feel weak or hungry after taking in sugar. The energy we expect to get is rendered inaccessible until the insulin dissipates.

And so we are likely to take in more sugar, triggering another flood of insulin, and so on. If we are especially unlucky, the repeated floods of insulin build up our resistance and encourage our bodies to produce more and more insulin until they exhaust their capacity, meaning we need to take it intravenously.

It is worst for refined, dissolved sugar. It is relatively new in terms of human biology and it hits our bodies instantly, which is why soft drinks are being taxed on a worldwide scale not seen since cigarettes.

Twenty-six countries including Mexico, Portugal and Thailand already have in place a punitive tax on soft drinks. Five more will put one in place by April, including Britain.

Introducing the the legislation in 2016, Conservative chancellor George Osborne warned that within a generation, half of all boys and 70 per cent of girls would be overweight or obese.

"I am not prepared to look back at my time here in this parliament, doing this job and say to my children's generation: 'I am sorry, we knew there was a problem with sugared drinks, we knew it caused disease, but we ducked'," he said.

The British tax is ingenious. It will apply at two different rates. Drinks with less than 5 per cent sugar won't face it at all. There is a pay-off for getting concentrations below 5 per cent. Schweppes lemonade has already done it.

In Mexico, sales of sugared drinks dropped by 5.5 per cent in the first year and then 9.7 per cent. In Berkeley, California, which imposed a city-wide tax, sales dived 9.6 per cent.

Our Prime Minister is on record as saying: "if you want to have less of something, you increase the tax on it". His side of politics wants him to do just that.

In The Age and Sydney Morning Herald

Sunday, January 14, 2018

The gang crisis our leaders help create

What is it about the African gang crisis that's so disturbingly familiar?

In case you haven't been paying attention, Melbourne is supposedly in the grip of a crime wave. Not on the basis of statistics, which show arson, property damage, burglary and theft down (sexual offences and robbery are up), but on the basis of a series of front page articles over summer in the Herald Sun and also The Australian about African gangs, most of them South Sudanese.

Victoria's opposition wants to recall Parliament.

Federal minister Greg Hunt, whose day job is Health Minister and who last year had to apologise to the Supreme Court for calling it soft, says African gang crime is "out of control". Prime Minister Turnbull says he is alarmed by "growing gang violence". And Home Affairs Minister Peter Dutton says people are scared to go out to restaurants "because they are followed home by these gangs".

It's feeding on itself. A nationalist group says it's planning a rally on Sunday in order to "take a stand on the streets". African Australians are being harassed and worse by vigilantes who are suddenly emboldened. Police say a Daily Mail photographer helped create the latest "flare-up" by taking close-up photos of a group of Africans socialising.

"The teenagers had been doing nothing of public interest prior to the photographer's decision to move in," a memo reported by The Guardian says. The Mail labelled the scuffle that it helped create "the latest gang flare-up" and boasted that its pictures were "exclusive".

It is familiar because it happened in Sydney with Lebanese Muslim youths (remember the Cronulla riots?) and before that with "Asian gangs" in Cabramatta. In Adelaide a decade ago it was the "Gang of 49". There never was a Gang of 49, but The Advertiser coined the term to describe 49 mainly Aboriginal youths the police said they were looking for.

The catchphrase had incredibly unfortunate consequences. Former police say it created gangs. Dispossessed, often homeless, youths started saying they were part of Gang of 49 and stealing cars and doing ram-raids to prove it.

"It hypes them up, they think they are famous, it's them against the police," a grandmother of one of the self-described members told the ABC. Very young Aboriginals, too young to be part of a gang, started romanticising the idea and looking forward to the day when they could.

It happened after Melbourne's Moomba riots in March 2016, which the media were quick to attribute to the "Apex Gang". More a grab bag than a gang, it grew swiftly as all sorts of petty criminals started scrawling the word "Apex" wherever they had been. The more it was talked about, the bigger it became.

That's why on Wednesday Police Commissioner Graham Ashton rubbished the idea of a gang and referred instead to low-level crime. It was "complete and utter garbage" to suggest, as our leaders have, that Victorians aren't safe.

"The sort of concept that somehow it's unsafe to go out to dinner, how long since you've been out to dinner?" he asked.

Big cities have had aggravated burglaries and home invasions for years, less so in Melbourne in the past two quarters. The perpetrators are overwhelmingly Australian-born. Although Sudanese youths are over-represented in minor crime statistics (as might be expected given high socio-economic disadvantage) and are involved in many more armed robberies than before (98 in 2016-17, up from 20 in 2014-15) the perpetrators of serious assaults are 25 times more likely to be born in Australia or New Zealand than in Sudan or Kenya.

Talk about gangs has probably always created gangs, at least as far back as the Mods and Rockers in the UK in the 1960s. But it's worse now. Would-be gang members can find each other on social media. Words can do even more damage, all the more so when they are used carelessly by newspapers and "leaders" to fill space and score points.

In The Age and Sydney Morning Herald

Friday, January 12, 2018

Axe negative gearing, boost GDP - RBA conference paper

Axing negative gearing would lift home ownership to as much as 72.2 per cent of households, cut home prices by just 1.2 per cent and lift rents "only marginally", a study shown to the Reserve Bank of Australia has found.

Preliminary results from the economic modelling exercise, believed to be the first of its kind in Australia, were presented to a RBA workshop last month and released on Friday.

Melbourne University researchers Yunho Cho, Shuyun May Li and Lawrence Uren conclude that eliminating negative gearing entirely would lead to an overall welfare gain of 1.5 per cent of GDP, making three quarters of the population better off.

The figure compares to a Treasury prediction of welfare gain of 1.2 per cent from Turnbull government's plan to cut the company tax rate.

Speaking after the release of the paper, Dr Uren stressed the research was incomplete and said it was possible the size of the lift in home ownership could be revised down. But he said the directions of change and magnitudes were unlikely to change much.

An ownership rate of 72 per cent would be the highest since 1991, before 1999 when the Howard government cut the headline rate of capital gains tax making negative gearing more attractive. It currently stands at 66.7 per cent.

During the 2016 election campaign Prime Minister Turnbull said a Labor plan to wind back but not eliminate the negative gearing tax concession would "smash up home values", and "pull the rug out from under the property sector".

The claims were at odds with advice to the government at the time released on Monday under Freedom of Information laws that characterised the likely impact of Labor's proposals as "relatively modest".

Negative gearing allows investors in housing and other assets to deduct investment losses from their wage incomes for the purpose of calculating taxable income. The losses can be recouped later when the asset is sold for a profit, which is taxed at only half the rate of wage income.

Treasury found the arrangement predominantly helped high income families, with more than half of the benefit going to the top 20 per cent of earners.

Dr Uren said his modelling examined only what would happen after a transition process that might take several years.

Renters and owner-occupiers would be the biggest beneficiaries. Landlords, especially young, high earning landlords, would be the biggest losers.

Renters would benefit because although rents would climb by 2.4 per cent, the government would be in a position to compensate them and others with the extra $2 billion it would make in increased tax revenue.

"We are comparing two small changes," Dr Uren said. "One would be a small price change for renters and the other would be a small increase in transfers."

Young owner-occupiers would benefit from the lower house prices "as they can move up a housing ladder more easily".

Landlords who rely on borrowings would be "driven out of the market for investment properties".

Most are "young, but rich enough to afford the downpayment requirement for their investment". Other landlords would also scale back their holdings.

Thirty per cent of rental properties would be freed up and bought by Australians who would have otherwise rented. Almost every income group and every age group would increase its home ownership rate.

Acting Treasurer Kelly O'Dwyer disparaged the paper as "preliminary and incomplete", prepared by university academics.

She said Labor should not boast about a finding that house prices would go down and rents go up. It should "be of concern to every Australian, whether they're a prospective first home buyer who rents or they own their own home".

Labor Treasury spokesman Chris Bowen said it supported the direction of Labor's reforms and showed they would boost home ownership.

In The Age and Sydney Morning Herald

Thursday, January 11, 2018

Coal is now the biggest threat to energy security

Worried the electricity system won't keep up over summer? Worry about coal. Seriously.

One of the four giant units at Victoria's ageing Loy Yang A power station broke down on Tuesday night at 11.05, taking out 230 megawatts, and then at 1.10 on Wednesday morning after being partially restarted, taking out what by then was 161 megawatts.

When demand soared during Sunday's heatwave, the Eraring plant on Lake Macquarie in NSW lost 275 megawatts. A few minutes later, Loy Yang A lost 264 megawatts.

On New Year's Day, unit 1 of Millmerran in Queensland stalled, taking out 156 megawatts. On December 28, unit 2 of Tarong in Queensland stalled, taking out 314 megawatts. On Boxing Day, unit 4 at Loy Yang stalled, taking out 528 megawatts. On Christmas Day, unit 1 at Gladstone stalled, taking out 230 megawatts, then unit 1 at the Tallawarra gas plant in NSW, taking out 187 megawatts. And so on, back to the start of summer.

When unit 3 at Loy Yang shut down without warning on December 14 taking out 560 megawatts and imperilling the entire system, the new Tesla battery 1000 kilometres away in South Australia sprang into action ahead of the coal-fired power station that was contracted to restore stability. It proved to be "dispatchable" in a way coal-fired power stations are not.

Age, heat and the steady encroachment of renewables are destroying the only advantages coal-fired power stations ever had.

When Treasurer Scott Morrison stood up in Federal Parliament and waved around a lump of coal in a stunt unworthy of his office, he said coal was an important part of ensuring a "more certain" energy future.

But he was speaking about the past.

Coal-fired power stations didn't used to get critically hot as often as they do now. The February 2017 heatwave that took out 2438 megawatts in one day in NSW might have once been a once-in-500-year event. Now it's a once-in-50-year event and perhaps soon a once-in-five-year event. The calculations are by the Australia Institute's Mark Ogge and Hannah Aulby in a study of the risks to energy security entitled Can't Stand the Heat. Ogge is the person who has been keeping a record of power station outages.

When temperatures in control rooms get as high as 50 or 60 degrees the electronic control systems buckle and the boilers leak. Failures are inevitable, although unfortunately not predictable.

Wind power and solar power are in large part predictable. Yes, they are intermittent, but it is usually possible to tell a day or two ahead of time when and where the wind will blow and the sun will shine. There's time to put batteries, hydro and gas on standby.

But in summer it's becoming impossible to know when and where coal-fired power stations will blow. They are becoming unpredictably intermittent, all the more so each year they age.

And standby power is costly. Tony Wood of the Grattan Institute helped run Origin Energy for 14 years. He says the industry standard is to have as much back-up as the biggest independent unit, so that if it drops out it can be instantly replaced. But the biggest independent coal units are huge. They require big back-up.

The biggest wind and solar farms are much smaller. While they require storage and gas peaking plants to fill in overnight and when the wind's not blowing, they don't need anything like as much back-up for when mechanical problems knock them out of service.

There are caveats. Independent turbines can stop blowing at once, and sometimes unpredictably. That's because most are located together in South Australia and Victoria, where the wind systems are synchronised. It would be better to have more wind farms in NSW, where the weather cycle is different. At times cloud cover is also unpredictable.

A future without coal-fired power stations is inevitable, and entirely manageable. Wind accounts for 40 per cent of South Australia's electricity supply, 8.5 per cent of Victoria's supply, and 2.8 per cent of the NSW supply. One of the many reasons no new coal-fired power stations will be financed or built is they are not well-suited to filling in gaps.

They are good at providing always-on baseload power, but that's not needed in the middle of the night when the wind is blowing a gale and providing all of a system's need for virtually nothing. They are not as good at turning on or ramping up quickly when the wind stops blowing. If they are used repeatedly to do that, they break down sooner.

The Turnbull government's proposed national energy guarantee would require retailers to ensure that a certain amount of the electricity they line up is dispatchable. Critics took this to be a code word for coal, but it can't be, not unless Turnbull wants to misuse the word. Battery storage, pumped hydro, molten salt solar plants that can fire up overnight, and gas peaking plants are far more dispatchable.

And they are more reliable. The more we move away from coal the more secure our power system becomes.

In The Age and Sydney Morning Herald

Wednesday, January 10, 2018

What a job? Move to NSW

It's the easiest to find a job since the mining boom.

The latest count from the Bureau of Statistics shows there were a record 216,000 job vacancies in November and 661,400 Australians out of work, the lowest total since 2012.

The ratio of 3.1 means there were roughly three job seekers for each vacant job, a step up from November 2016 when there were 3.7.

In NSW, the state with the best odds, there were only 2.2 job seekers for each vacant job, one of the lowest ratios ever recorded. A year earlier there were 2.7.

While Victoria has recorded the biggest improvement, the odds remain nowhere near as good as in NSW. There were 3.1 unemployed Victorians trying to get each vacant job in November, down from 4.2 a year earlier.

In Queensland the odds improved from 4.5 per vacant job to 3.9, in South Australia from 6.1 to 5.7, in Western Australia from 4.7 to 4.3 and in Tasmania from 7.9 to 5.7.

In the Northern Territory the odds remained little changed at about two unemployed per vacancy, and in the Australian Capital Territory they slid from 1.6 to just 1.3. But the ACT figures are unrealistic because they are biased downwards by the number of ACT workers living outside of the territory and the number who come from interstate for jobs.

The better odds in every state reflect both a surge in the number of vacancies, from 69,000 to 81,500 in NSW, and from 45,400 to 57,500 in Victoria, and also a drop in the number of Australians identifying as unemployed.

A near-record 383,300 more Australians have found work in the past 12 months, almost all of them full-time.

Construction vacancies have jumped 22 per cent, manufacturing vacancies 46 per cent, retail vacancies 14 per cent, and hospitality vacancies 16 per cent.

Vacancies in Australia's biggest industry group, health care and social assistance, jumped 18 per cent.

The bureau surveys employment door-to-door. It surveys vacancies by submitting questionnaires to businesses. Its vacancies count is regarded as more reliable than those of other organisations because it includes all vacancies, whether advertised or not.

Over the past year the unemployment rate has fallen from 5.8 to 5.4 per cent. Commonwealth Securities senior economist Ryan Felsman said he expected it to slide further toward 5 per cent in the year ahead.

Business Surveys suggested employment growth of about 20,000 per month, well above the 14,400 needed to merely keep unemployment steady.

In The Age and Sydney Morning Herald

Monday, January 08, 2018

Why Treasury told Turnbull about negative gearing

Malcolm Turnbull knew or ought to have known that the claims he made about Labor's housing policy during the election were likely to be wrong.

The Treasury pointed it out in the lead-up to the campaign.

Ramping up his rhetoric in order to win the election, Turnbull said Labor's plan would "devalue every home, every property, in Australia".

It would "smash up home values", "pull the rug out from under the property sector".

It was "a big sledgehammer" aimed at the property prices.

Except that the Treasury didn't think so, and had spelled out its reasoning in a memo delivered to treasurer Scott Morrison as Turnbull was sharpening his lines.

Far from disowning the memo, the Treasury has spent much of the past two years arguing that its contents reflected its genuinely-held opinion.

Fighting to prevent its release to the ABC under the Freedom of Information Act, it told the Office of the Australian Information Commissioner that publication would harm its "ability to provide candid and confidential advice to ministers in the future".

Here is that candid and confidential advice. Labor wanted to limit negative gearing to newly-built homes. Losses from investments in other homes and shares could still be deducted from income, but only from investment income. Existing investments would be unaffected. And the capital gains from those investments would be taxed more heavily, at three-quarters rather than half the income tax rate.

Treasury said the changes would have a "relatively modest" effect on prices.

Returns for investors would fall. But owner-occupiers, unaffected by the changes, would be "likely to limit the extent to which is an impact on prices".

"Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors," the candid assessment concluded.

Labor's policy, or cut-down versions of it, has been supported by the Property Council, the Business Council, the head of the Abbott government's Commission of Audit, the head of its review of the financial system, the Reserve Bank governor Philip Lowe, the Institute of Company Directors, and the Committee for the Economic Development of Australia.

Treasury, but not Turnbull, thought they were on the right track.

In The Age and Sydney Morning Herald

Sunday, December 24, 2017

Of course Christmas is inefficient, it's why we love it

Who'd can Christmas?

A few years back the Australia Institute produced research suggesting that as many as 6 million of us get gifts we don't want and sometimes give away.

Worse still, the gift givers know it. One in four said they knew that at least some of their gifts would end up wasted.

There were "millions of unused foot spas", as much as $800 million in waste, according to the institute's Richard Denniss, who's still at it. His new book, Curing Affluenza, is built around the proposition that we buy too many things. My colleague, Ross Gittins, picked up on his ideas this week.

The idea that this is wrong was made famous in one of the most downloaded economic papers of all time. It's called The Deadweight Loss of Christmas. It says the best gift a giver can buy with, say, $20, is exactly the one the recipient would have bought for him or herself. Because the giver usually won't hit that target, the gift he or she does give will nearly always leave the recipient worse off than if he or she had just been given the cash and spent it on his or herself.

It's an old idea.

In the late 1800s George Bernard Shaw raged against the notion that "we must be drunken because it is Christmas, we must be insincerely generous; we must buy things that nobody wants and give them to people we don't like". All because businesses "depend on a week of licence and brigandage, waste and intemperance, to clear off their outstanding liabilities at the end of the year."

But Denniss, Shaw, Gittins, and also the late Christopher Hitchens who declared that his life's ambition was "to write an anti-Christmas column that becomes fiercer every year", miss the point. Christmas isn't about avoiding waste. That's what the rest of the year is for. It's about celebrating waste, just once a year, in order to be truly human.

Real life economists have little time for The Deadweight Loss of Christmas. Asked whether giving presents is inefficient, an overwhelming majority say no. In the US, when the question was asked of Nobel Prize winners and fellows of the American Economics Association, only 17 per cent said yes. Fifty four per cent said no, among them this year's Nobel Prize winner Richard Thaler, who replied: "To test theory, try a cash gift next Valentine's day."

Australian economists are even less enamoured of it: 17 per cent agree, and 73 per cent disagree. "Gifts can be useless, but the institution of gift-giving may be very valuable," says one. "Through choosing a gift, the giver demonstrates an understanding of the interests and needs of the recipient, thereby indicating regard, perhaps even love," says another. "It ignores the benefit the buyer can get from putting thought into buying a personal gift, and the benefit the receiver gets from knowing that," writes another.

Splurging, wastefully, is empowering – all the more so if you don't have the money to do it. The poorest of the world's people splurge on special occasions in order to remind themselves that life's worth living. In A Christmas Carol, Bob Cratchit earns just 15 bob a week, but he buys presents for his children to show that he can.

Presents are all about symbolism, as is Christmas itself. It has little to do with Christ, especially these days. It's the one time of the year when friends and family can be certain they can get together, about the only one the Fair Work Commission still regards as sacrosanct.

In Australia, it symbolises the end of the working year, the beginning of the holidays, the beginning of summer. It's the one time of the year we can show ourselves to be our best, to truly value our fellow humans. It's precious. Make the most of it.

In The Age and Sydney Morning Herald

Monday, December 18, 2017

MYEFO. Nowhere near enough to fund tax cuts

Scott Morrison wants you believe the budget's strong enough to fund tax cuts.

It isn't, and the update makes that clear.

As it is required to do, it spells out the stated aim of the budget - what the Coalition has pledged to achieve since its election - on page 31.

The aim is to "deliver sustainable budget surpluses, building to at least 1 per cent of GDP, as soon as possible, consistent with the medium-term fiscal strategy".

That's a surplus of 1 per cent of gross domestic product, as soon as possible, consistent with quality spending and economic growth.

After a boost to the budget of about $10 billion over four years, what has it been left with?

A budget surplus of just one half of one per cent of GDP by the end of the four year projection period.

It's an improvement. The May budget pencilled in 0.4 per cent. But it's nothing like the 1 per cent of GDP the Coalition itself adopted as a target to be reached "as soon as possible". And beyond those four years the graph in the update shows the surplus staying put at half a per cent of GDP right out to 2027.

Weakening that budget position by giving some of it away, as the Prime Minister and Treasurer are hinting they will in next May's budget, would be a further abrogation of a pledge the Coalition hasn't come near fulfilling ever since it made it in 2014.

Improving the budget, certainly improving it by the billions that would be needed to fund reasonable tax cuts, is hard. Almost all of the $10 billion improvement this time came came from (generally mining-related) higher company profits and superannuation earnings, as well as lower than expected payments to Australians who are out of work. Government actions improved the outlook by about half a billion. It won't be enough.

In The Age and Sydney Morning Herald


Fresh push for company tax cuts as economy lifts budget $10 billion

Treasurer Scott Morrison has signalled a fresh push to get the government's $50 billion package of company tax cuts through the Senate, saying that US President Trump is forcing his hand and that the changing composition of the Senate gives him a chance.

Higher than expected company tax receipts helped improve the budget position by $10 billion in the update released on Monday, improving the outlook for 2017-18 by $5.8 billion.

"The Trump tax cuts are coming," Mr Morrison told a Parliament House press conference. Allowing Australian rates to stay high while others fell would kill the goose that laid "the golden egg".

Australia's Senate has passed only $24 billion of the government's $50 billion package of company tax cuts, cutting the 30 per cent rate for small businesses but not for big ones. President Trump is within days of cutting the US rate to 21 per cent.

"When you have the United Kingdom going down to 17 per cent and many jurisdictions, even France now going to 25 per cent, we can't leave Australian workers behind," Finance Minister Mathias Cormann told the press conference.

"The future of job security and the future career prospects and wages growth of Australian workers depend on the Senate passing the government's company tax cut."

The government needs the support of 10 crossbench senators. Resignations and disqualifications since the July 2016 election mean that next year six of them will be new.

Senator Cormann said the $10 billion boost was so big that after this financial year the government would no longer need to borrow to fund day-to-day business.

"That's a year earlier than anticipated at the time of the budget," he said. It would be the first time since the global financial crisis.

The fastest jobs growth in decades meant less was being paid out in Newstart and other benefits. Measures taken in the Coalition's first budget to slow the growth in welfare payments were bearing fruit.

Key measures in the budget update include longer waiting times before newly arrived migrants can access payments, including paid parental leave and family tax benefits.

From July 2018, the two-year waiting period for these payments will be extended to three, though some exemptions will apply for vulnerable groups and New Zealand citizens living in Australia. The measures will save $1.2 billion.

Savings from the university sector of $2.8 billion have been dumped after being blocked by the Senate. Instead, a series of measures including a freeze on Commonwealth payments to universities will deliver a net saving of $2.1 billion.

And $400 million will be saved over four years by withholding family tax benefit lump sums from people who have outstanding social security debts.

In what Victoria's treasurer Tim Pallas is describing as a slight, the update cuts Victoria's share of infrastructure funding from 10.3 per cent to 9.4 per cent. Victoria has 26 per cent of Australia's population, and 37 per cent of Australia's population growth. The NSW's share has climbed from 44.6 per cent to a mammoth 45.5 per cent. 

"The Prime Minister of Sydney has struck again," Mr Pallas said. "He continues to shortchange Victorians, while sending more money to his home state of NSW."

The update forecasts wage growth of just 2.25 per cent this year, down from the 2.5 per cent predicted in May. It forecasts 2.75 per cent in 2018-19, down from 3 per cent.

Offsetting this, the government is expecting better than previously forecast employment growth, with the unemployment rate expected to be 5.5 per cent by June 2018, followed by near full employment of 5.25 per cent in mid 2019.

The economic growth forecast has been shaved by a quarter of a per cent, down from 2.75 to 2.5 per cent. Consumer spending is forecast to grow by 2.5 per cent rather than 2.75 per cent.

"We had much lower-than-expected consumption growth in the September quarter, just 0.1 per cent, said Mr Morrison. "There was, rightly, a lot of concern about what was happening with household living costs. That's why the National Energy Guarantee and other measures have been put in place. We would hope to see  better consumption figures going forward."

Even so, the growth was forecast to climb to 3 per cent in 2018-19 on the back of a lift in private and public sector investment, both of which hade been revised higher.

Shadow treasurer Chris Bowen said he was happy to debate taxes with Mr Morrison because his priorities were "all wrong." 

"The reason the budget is still such a mess is because Malcolm Turnbull and Scott Morrison continued to shower the biggest tax concessions on the people in our community, the millionaires and multinationals, who need tax breaks least, as well as jacking up taxes on people who work in middle Australia," he said. 

In The Age and Sydney Morning Herald

Thursday, December 14, 2017

The jobs boom is real. Government can take the credit

The Bureau of Statistics has produced some shockers – wildly inaccurate employment statistics it has had to disown. But not this time.

An apparent employment surge in one month might be a statistical fluke, the result of a dodgy sample or flawed bad seasonal adjustment. But not a near-record surge that goes on for month after month, 14 of them in a row.

Over the past year a near-record 383,300 more Australians have been funnelled into employment, all but 87,700 of them full-time. In the past month (acknowledging the usual caveat) 61,600 were funnelled into work, all but 19,700 of them full-time.

We won't get the detailed breakdown until next week, but a look at the latest detailed breakdown we do have, for the year to August, shows that almost all of the jump in employment of 324,900 was in two industries: 'healthcare and social assistance' (130,600) and construction (104,400).

On Monday, Victorian Treasurer Tim Pallas said the state was in the midst of a construction boom not seen since Premier Henry Bolte in the 1960s and 1970s. It's getting hard to find the right workers and hard to find steel and cement.

Much of it is the result of government road and rail projects, as in NSW. Much of that is due to the previous Australian treasurer Joe Hockey, who in 2014 awarded incentive payments to states that "recycled assets", selling roads and other things they owned in order to build new ones. Victoria and NSW started early, recycling some of their assets before the Commonwealth incentives.They made use of the riches that had been flooding in to their treasuries as Sydney and Melbourne property prices pushed stamp duty takings sky high.

Once it was thought that government investment "crowded out" the private sector. Not at the moment. It's because of the government investment programs that the private sector is investing too, building projects on contract, handing them over to state governments (which will later sell them) and then starting on the next one. The known pipeline stretches out beyond 2027.

It's not the same as widespread employment growth (employment in the finance sector and in administration went backwards) but it's worth having.

It's centred around Melbourne. More than half of those 61,600 extra workers found their jobs in Victoria. Over the past year more than one-third found their jobs in Victoria, 35 per cent when measured on a trend basis. Thirty per cent found their jobs in NSW.

Population figures also released on Thursday show Australians and foreigners pouring in to Victoria. In the past year its population has swelled 2.3 per cent. The rest of the country's has swelled 1.4 per cent.

Victoria's employment growth, as well as Australia's, reflects much more than more people. In the past year its employment-to-population ratio has climbed from 61.8 to 62.5 per cent. The NSW rate has climbed from 60.4 to 61.3 and the national rate from 61 to 61.9 per cent.

But Victoria's faster population growth has left it with a higher unemployment rate than NSW; 5.5 per cent instead of 4.6 per cent.

So good is that NSW 4.6 per cent figure, that Commonwealth Securities senior economist Ryan Felsman says it could be effectively considered "full employment". It's rare for an unemployment rate to stay below 5 per cent for long.

Australia's national rate is 5.4 per cent, heading down into territory not seen since the Gillard government and the second of Australia's two big mining booms.

Malcolm Turnbull is wrong to say that what's happening is "a direct result" of his government's policies, just as Gillard and John Howard were wrong to say that the earlier mining-related jobs booms were a result of their policies. But he might be more right than they were. What we are seeing is in large measure a government-related jobs boom. Turnbull and his Treasurer Scott Morrison owe Hockey a lot.

In The Age and Sydney Morning Herald

Low wage rises have become routine. Here's why

An entire year without a pay rise? Prepare for another one, next year.

Wage rises used to be an annual phenomenon. The Bureau of Statistics says on average we got one every year. But since 2012 the length of time between them has almost doubled. The average has become once every 1.75 years. For every person that gets a wage rise more often than that, there will be someone who gets one less often.

And when the increases are delivered, they are smaller. If you get one after waiting almost two years, it is more likely to be 2 per cent than the average of 3.6 per cent that prevailed when they were handed out annually.

Back then three in 10 wage rises exceeded 4 per cent. Now it's less than one in 10. And the wage rises that are over 4 per cent are smaller: typically 5.75 per cent, down from 7.5 per cent.

It's an understatement to say it's caught the experts unawares. The employment minister has an entire department to proffer advice. Within months of taking office in as Tony Abbott's employment minister, Eric Abetz warned of a wages explosion. In Abbott's first budget and his next, and in Turnbull's first budget and his next, the Treasury forecast a wages takeoff. Not only did wage growth not climb as forecast, it fell further in each of those four years despite repeated predictions to the contrary.

And it did something remarkable. It's not unusual for the budget to forecast one thing and for reality to deliver another. A lot can happen over two years. But it is highly unusual for the budget to forecast the present and get it wrong.

The budget is delivered each May. The budget forecasts are finalised a few weeks earlier. The forecasts for the wage growth cover the year ahead to the next June quarter, and the year to the June quarter after that. As a point of reference, they also include a forecast of growth in the year to the present June quarter, the one the budget is in. In other words, they forecast the present.

Extraordinarily, in three of past five years the budget has got the present wrong. Wage growth was lower than the printed forecast, even while the forecast was being printed.

So concerned has been Treasurer Scott Morrison that he ordered a special report from the Treasury, one released only this month after Labor submitted a freedom of information request. It says while wage growth has dived in the mining industry (as would be expected, after the boom) it has also plunged everywhere else, as well as overseas. The dive can't be explained by lower productivity growth. It's been pretty stable at about its long-term average for the past five years meaning employers are getting as much extra out of workers as they used to.

Nor can it be fully explained by low inflation. There's scarcely any so-called "real" growth, above inflation.

And it certainly can't be explained by a low demand for workers.

Employers took on an astonishing 355,700 extra workers in the year to October, close to an all-time record. In the past three years they've taken on 766,000.

But the kind of jobs they are offering is changing. Bricklayers, machinery operators and retail workers typically perform "routine" tasks, no matter how skilled. In contrast, much of the work of nurses, engineers, managers and security guards is non-routine. They have to respond to emergencies.

The Treasury says automation and competition from overseas is eating away at routine jobs, both blue collar and white collar, especially those enjoyed by middle-income workers. It's the non-routine ones that are growing.

Some are highly paid. Others, such as security work and child care, are very poorly paid.

And we've produced so many university graduates that they are no longer protected. Until 2010, graduates got bigger wage rises than school leavers. Since 2010 their wage rises have been lower. And they are doing work below what used to be their station, in jobs that are increasingly just as under threat as other jobs.

It helps to work for a company whose workers are highly productive (which usually means a company that doesn't employ many workers or is growing rapidly). But don't expect to share in much of what it makes. The Treasury found that although workers in Australia's most productive companies typically produced 7.1 times as much as other workers, they were typically paid only 1.6 times as much.

Some of it is due to the fading power of trade unions. As recently as 1980, half of all Australian workers were in unions. By the time John Howard took office in 1996, it was 31 per cent. After years of measures aimed at promoting individual rather than collective bargaining (remember WorkChoices) it has slipped to 15 per cent. Not that it's all Howard's doing. Much of it is due to the rise in non-routine jobs. They've always been less unionised.

What can you hope for next year? One Monday the Treasury will release its mid year budget update. It's likely to forecast a pickup, like it usually does.

In The Age and Sydney Morning Herald

Monday, December 11, 2017

Mega projects mean shortages, Treasurer says

So big is Melbourne's infrastructure boom that Treasurer Tim Pallas fears Victoria will run low on the specialist skills and resources such as gravel needed to make it happen.

"We've known for a while that the technical and the specialist skills required for transport projects, particularly rail projects, have been hard to get," he told The Age. "The more projects you start the harder it gets. We've only a handful of rail signallers in the entire state to manage not only the existing network but also the upgrades planned and under way.

"That's just one illustration. We are also hearing of shortages in project management, finishing trades, commercial advisory skills, industry analysis, systems engineering and tunnelling. For high-end skills, it's obvious, but its also a problem for entry-level skills."

"Only on Friday I was meeting with the extractive industries representative body, and everybody around that table was saying there is so much demand for raw materials, quarry materials, cement and sand and so on that suppliers are choosing which jobs they bid on.

"You've got to expect pressure on price."

Mr Pallas said that at $9.6 billion per year, Victoria's infrastructure spending program was unprecedented. As a proportion of the state budget it was the biggest since that of the Bolte Liberal government in the 1960s and 1970s that began construction of the Melbourne Underground Rail Loop.

Victoria's $9.6 billion per year program was in competition for resources with the NSW $12.1 billion per year program, also the biggest on record. Other big projects in Queensland and New Zealand meant that the market for skills along the east coast was tightening, as it had in Western Australia during the mining construction boom.

"We are having to get people from further away and pay them more than we thought," Mr Pallas said. "Ultimately we have to pay what the market is prepared to offer."

"Look at what happened with Sydney's Westconnex. The entire industry in NSW put in one single consolidated bid that put the state government at a disadvantage. Here, we are facing the same sort of thing with the North East Link. You can only bring so many people in from interstate. You get to a point where you hit bedrock in terms of imported skills."

Mr Pallas said it wasn't yet clear that the pressure on skills and resources would delay or push up the price of any of the major projects.

"We are not seeing substantial blowouts. The Melbourne Metro should be on time, we are pretty confident about that," he said.

The government's Major Projects Skills Guarantee ensured that at least 10 per cent of the work on major projects was undertaken by apprentices, trainees or engineering graduates.

"There are plenty of young people looking for work," Mr Pallas said. "Youth unemployment is still 13 per cent. But what we don't have is a skills base. We need to demonstrate to industry that this pipeline of work is here to stay, that it's not 'here today, gone tomorrow'. We need to make it clear that we are building to a plateau of projects, not a peak."

Asked why Victoria didn't simply proceed with fewer major projects so that it wasn't competing with itself for resources, Mr Pallas said that if it did, the resources would go to NSW.

"In my own electorate of Werribee we get 100 kids born every week. That's a primary school every seven weeks. You don't get a choice about these things," he said.

"There is a capacity across this nation that will either get spent here or somewhere else. We are in something of a war for resources. If I were to say we starting to get nervous about this, it wouldn't be clear we had the pipeline of work and the resources would go elsewhere."

Melbourne had an advantage over Sydney in attracting workers because its housing costs were 20 to 25 per cent lower. A guaranteed pipeline of work was attracting former mining construction workers from Western Australia.

"The pace is a bit frightening, but it's also a bit thrilling," Mr Pallas said. The buzz and the congestion we are getting on our rail and road network is a direct consequence of all the work we are doing, and also all the work private firms are doing as a consequence. It is building on itself."

"We've got problems but they are problems I would prefer to have than those associated with the downturn and malaise Victoria had just four years ago. In February 2013 your newspaper declared that the state was at a standstill. We've gone to the other extreme."

"From my perspective I can't take my foot off the accelerator at a time when the community is demanding improvements in their material circumstances."

In The Age and Sydney Morning Herald

Private schools get 100% of needs from Gonski 2.0

Catholic and independent private schools are set to get more than 100 per cent of their needs from governments under the Turnbull government's new 'Gonski 2.0' plan, official documents released under freedom of information show.

Obtained by the Australian Education Union and processed by the convenor of the Save Our Schools campaign, Trevor Cobbold, the Education Department documents spell out the the amount of government funding expected for each school sector in each state in 2018.

In the ACT, Gonski 2.0 will see ACT public schools funded at 117 per cent of the so-called schools resourcing standard from governments, the highest rate in Australia and making the territory one of only two jurisdictions receiving more than 100 per cent. 

Independent schools will receive 113 per cent of the standard, while Catholic schools will receive 102 per cent. 

Currently nine private schools in the ACT receive more than 100 per cent of the standard from the Commonwealth and territory governments, dropping to 14 schools in 2018. 

 By 2027 when the Gonski arrangements are fully implemented the total will be 15 schools. 

In NSW 110 private schools are expected to receive more than 100 per cent of the so-called schools resourcing standard from governments, up from 65 schools in 2017. By 2027 when the Gonski arrangements are fully implements, 212 private schools will receive more than their total needs from governments.

In Victoria, 38 private schools will receive more than the resourcing standard from governments, up from 33 in 2017. When Gonski 2.0 is fully implemented 74 will receive more than all their needs from governments.

The Gonski 2.0 package will eventually give each private school 80 per cent of the resourcing standard in Commonwealth grants. It will give public schools 20 per cent of the standard.

Since the creation of the freedom of information documents, South Australia has promised to boost funding for the entire Catholic and independent school sectors from 19.7 per cent to 22 per cent of the resourcing standard.

The Gonski 2.0 formula will result in a loss of income for some very well funded private schools, but will increase the number of overfunded private schools.

In most states public schools are funded at less than 80 per cent of the resources standard by the governments that operate them, meaning that Gonski 2.0 lifts Commonwealth funding to 20 per cent they will continue to get less than 100 per cent of the standard. NSW public schools would get 91 of the standard, Victorian schools would get 86 per cent.

The private sector would get 107 per cent of the standard in NSW and about 100 per cent in Victoria, according to Mr Cobbold's calculations.

"Gonski 2.0 is the best special deal that private schools have ever had," he said. "The overfunding will cost taxpayers many millions of dollars over the next decade and will divert funds from where they are most needed."

"No funding model that increases the number of overfunded private schools while failing to adequately support public schools can be considered fair. Public schools enrol the bulk of disadvantaged students."

Education Minister Simon Birmingham said states were free to boost funding to their own schools and cut funding to private schools.

"Our reforms are a line in the sand for the cost-shifting and blame game," he said.

"Our plan means every student will get their fair and consistently calculated share of federal support. The new independent National School Resourcing Board will ensure education authorities are held to account for the way they administer federal taxpayer investment."

Gonski 2.0 increases Commonwealth funding for both public and private schools. The legislation sets an "ambition" that state and territory governments fund at least 75 per cent of the resource standard of their own schools, taking the total funding under Gonski 2.0 to at least 95 per cent.

In The Age and Sydney Morning Herald