Friday, March 24, 2017

Victoria fills up as the rest of the nation moves in

In the past 12 months, 82,800 Australians have moved to Victoria from interstate, around 500 carloads a week.
At the same time, 65,600 Victorians have left.
The gap - a net influx of 17,200 - is an all-time record. Victoria's population is being swelled by more migrants from interstate than ever before, and by far more than any other state, even Queensland, which used to be the go-to state for the rest of nation.
Perhaps as a result, or perhaps as a driver, employment in Victoria has surged by 97,300 in the past year, accounting for almost all of the nationwide employment growth of 104,600.
In contrast, the once-booming jobs market in NSW produced only 2000 extra workers.
New population figures show that a jump in interstate migration, in overseas migration and in births lifted Victoria's population by 157,500 to 6.1 million in the year to September - an increase of 2.1 per cent, compared to 1.2 per cent in the rest of the nation.
Victoria now accounts for 25.2 per cent of Australia's population, the most since the share slid during the early 1990s recession.
Net foreign migration to Victoria reached a record 68,600 in the year to September. The natural increase (births minus deaths) reached 41,700, also a record high.
Domestic migrants to Victoria came predominantly from NSW (29,500), Queensland (15,200) Western Australia (11,500) and South Australia (9700).
The main destinations for Victorians moving interstate were NSW (22,900), Queensland (20,800) and Western Australia (7100).

Bureau of Statistics projections released with the population figures show Melbourne overtaking Sydney as Australia's biggest city in 2056.
The central projection puts Melbourne's population at 8.2 million, almost double the present 4.6 million, and Sydney's at 8.1 million, up from 5 million.
The slower growth in Sydney reflects congestion and geographical constraints of the sea and a mountain range.
By 2056, Victoria is projected to have a total population of 9.9 million and NSW 11.1 million.
A faster growth scenario has Melbourne well above Sydney at 9.2 million to 8.4 million, and a slower growth scenario has Sydney slightly ahead of Melbourne at 7.7 million to 7.4 million.
Australia's population is projected to be somewhere between 35 million and 45 million. The central projection is 39.7 million, up from the present 24.3 million.
In The Age and Sydney Morning Herald

Thursday, March 23, 2017

How to kill stamp duty and produce a budget to remember

The myth about budgets is that they can achieve much at all.

In decades to come few will be remembered for anything other than the introduction of Medicare, the national disability insurance scheme and the goods and services tax.

But in six weeks' time the government will have an opportunity to actually do something that will last; something far more important, and more transformative, than the apparently doomed plan to cut the rate of company tax.

It's an idea from the Greens, but that's a plus. It gives it a good chance of getting through the Senate.

There's no doubt about what's the worst tax in Australia, and no doubt about the best bang-for-your-buck tax swap.

The treasury set out the numbers in a discussion paper prepared for the tax review Malcolm Turnbull ditched. The worst of the taxes it examined was stamp duty. On the treasury's estimate real estate stamp duty shrinks the economy by an astounding 72¢ for each dollar it collects.

None of the other taxes it examined come close. The economic cost of company tax is around 50¢ for each dollar collected, the cost of income tax somewhere between 20¢ and 30¢, and the cost of the GST between 17¢ and 20¢.

It can be seen straight away that cutting income tax in order to push up the GST won't do much, which is why Turnbull junked the idea. A slow cut in company tax paid for by a slow increase in income tax facilitated by bracket creep (which is essentially what the government is proposing) won't achieve that much either, despite the rhetoric about jobs and growth.

But a move out of stamp duty into a tax with a really low economic cost ... that would give you about the best benefit a tax switch could buy.

One tax, and only one, has an extraordinarily low economic cost. It's land tax, sometimes levied as council rates. Its economic cost is so low it's negative. The treasury's calculations suggest every extra dollar it raises actually boosts the economy by 10¢ for each dollar swapped. There's no bigger benefit imaginable from rejigging tax.



But the discussion paper concludes wistfully that stamp duties and land taxes are state matters, and says the idea should be looked at as part of the separate federation white paper that Turnbull also junked.

The 2009 Henry Tax Review has chapter and verse on why the benefits would be so big.

People who move house frequently are whacked with much more stamp duty than people who tend to stay put. So they experiment with staying put, driving longer distances clogging up roads. They renovate rather than move, or buy bigger houses than they need in case they run out of room. Older Australians put off downsizing in order to put off stamp duty.

"Ideally, there is no place for stamp duty in a modern Australian tax system," it concludes.

In contrast, land tax doesn't discourage anyone from doing anything, except from wasting land. It makes unoccupied properties and holiday homes more costly. It prods people into using land well, and into downsizing if it makes sense.

So far only the Australian Capital Territory has taken the plunge and begun swapping stamp duty for land tax. It's doing so slowly over 20 years so that people who have just bought properties aren't hit by full stamp duty followed by full land tax.

But there's a quicker way to get the benefits; an ingenious solution cooked up in the office of Greens leader Richard Di Natale and costed by the Parliamentary Budget Office.

It would happen instantly, on July 1. From that date all transactions would be free of stamp duty and would in return face land tax. Properties that hadn't changed hands wouldn't face land tax, until they did swap owners. It would cost the states a lot up front in return for a regular stream that wouldn't make up the difference for a decade.

Which is where Turnbull, Scott Morrison and the budget come in. They would borrow to lend the states enough to make up the difference until 2030. The magic of accounting means it would have a zero effect on the underlying cash deficit. It'd be off the books. Nor would it push up net government debt, because net debt is gross debt net of money that the Commonwealth is owed, and the Commonwealth would be owed that money by the states. After June 30, 2030, the changeover would be complete and the Commonwealth budget no worse off (or probably better off, because of the resulting economic boost).

The Commonwealth would have bought the best economic boost a tax-switch can buy for a song.

It wouldn't solve the housing crisis. Axing stamp duty would make houses more affordable, which would allow buyers to bid up prices. At the same time the land tax would weigh down on prices, making the ultimate outcome "uncertain", in view of the Henry Review.

But if they're serious about tax, they'll do it. There's still time.

In The Age and Sydney Morning Herald

Sunday, March 19, 2017

If your wallet is empty, you're part of the new majority

Open your purse or wallet. If it's empty, apart from cards, you're part of something big.

For the first time, cards account for more of our purchases than cash. Whether its payWave or myki or Opal or MyWay for the small things, or Visa, MasterCard and debit cards for the big ones, we are using cards more often than ever before and taking less cash out of ATMs than at any time in the past 15 years.

Often I have not a single piece of cash on me (much to my children's annoyance).

A new Reserve Bank report released on Thursday finds that an astonishing one-fifth of Australians carried no cash whatsoever on the day they were surveyed, up from 8 per cent three years before.

The typical amount carried fell from $55 to $40.

The typical amount secreted away around the home (such as in bedrooms and under fruit bowls) is $100.

An astounding 30 per cent of us keep no cash whatsoever in the house, up from 25 per cent three years ago.

If nothing else, it suggests incredible faith in banks.

The Reserve Bank carries out the survey every three years. In November it gave 1500 people diaries and asked them to record every transaction for a week, more than 17000 transactions in total. In a telling irony it rewarded them with gift cards rather than cash.

Only one-third of the transactions were in cash, down from two-thirds in 2007. The use of cards jumped from one-quarter to 52 per cent, supercharged by a surge in the use of contactless payments for amounts under $20.

Only for payments of less than $10 did cash still hold its own, and predominantly among older and poorer Australians.

The said they used it because it was cheaper (no surcharges) and easier to budget with because it could be seen. Some said they were concerned about privacy and fraud, but not many.

Soon many of them will be abandoning cash. Smartphone payments (made by waving phones instead of cards) accounted for only 1 per cent of transactions in November, but they are about to get big.

For people like us. Different Reserve Bank statistics suggest there's another (smaller) class of people for whom cash is almost everything and becoming even more. The use of $100 notes jumped 9 per cent in the past year, well above the long-term growth rate of 7 per cent.

There are now an extraordinary 12 $100 notes per person in circulation, twice as many as the more widely-seen $20 notes. The Bank knows this because it pumps them out. In an attempted explanation, its annual report limply says they are "used as a store of wealth".

But not by people like you or me.

A raid on the home of the now-jailed NSW Labor powerbroker Eddie Obeid found $30,000 in cash. There are more Obeids around, and their wallets are anything but empty.

In The Age and Sydney Morning Herald

Thursday, March 16, 2017

That sucking sound is us being robbed of our gas

In Melbourne, gas cooktops are only the start.

Melburnians use gas for stoves, hot water, central heating and room heating. Ninety per cent of Melbourne homes have gas, compared to only 50 per cent in Sydney. Victoria accounts for two-thirds of all the household gas used in Australia. And Victorian industry uses little else.

Because it's been astoundingly cheap.

Esso and BHP discovered it by accident, as a byproduct of searching for oil in Bass Strait in the 1960s. Rather than burn it at sea (as they might have been inclined to do) they were prevailed upon to pipe it to the mainland where they as good as gave it away. A feud between NSW and Victoria at the time meant that it wasn't piped north of Wodonga.

Sydney got its gas from the more expensive Moomba field near the Queensland-South Australian border at the end of a 2000-kilometre pipeline.

Until the mid-1990s, when, for ABC television, I stood in front of the stump at the end of the Victorian pipeline in Wodonga and the stump at the NSW end in Wagga Wagga and explained that they were going to be joined. The gas could flow in either direction, although because Victoria's reserves were running low and Moomba's weren't, Victoria stood to benefit the most.

Which is how it was until just a handful of years ago.

At the height of the minerals boom and the height of oil prices (which drive international gas prices) three of Australia's big gas producers each decided to build two giant freezing plants at Gladstone in central Queensland. The six "trains", each with a capacity to freeze and export half as much gas as eastern Australia used per year, would be connected to the network of pipes that extended all the way to Adelaide and Melbourne.

They signed cast-iron contracts to sell the gas to Japan, which was hungry for energy in the wake of the Fukushima nuclear disaster; contracts they needed in order to justify the enormous expense.

Finding gas may have been a lower priority.

The Gillard government was relaxed, boastful even. It ruled out introducing a gas reservation policy along the lines of the one in Western Australia that stipulates that a certain percentage of local gas has to be retained for local consumption.

Without quite realising, it approved the creation of what an AGL executive later described as a "giant vacuum cleaner for the east coast gas market, hoovering up all the gas it can get its hands on".

Two months ago something extraordinary happened. The Moomba to Sydney pipeline, which for its entire 40-year life had only run in one direction (hence its name) reversed course. Gas was sent from Sydney to Moomba and then north to Gladstone to feed the LNG export trains. Sydney got the gas from Melbourne and, ultimately, Bass Strait. The sucking sound was gas that would have once cheaply warmed Australians being sent an extraordinary 4300 kilometres north across three state borders to be frozen and shipped to Japan.

KAGOME Australia is our largest tomato processor. Based at Echuca on the River Murray it exports in competition with Californian processors and is powerless to increase its prices. Gas accounts for 5 per cent of its costs. It has just been told the price will double. Worse still, it and other business are being offered only short-term contracts at "take it or leave it" prices for gas they fear isn't there.

Retooling to use another fuel is prohibitively expensive. They installed gas because of an implicit promise that it would always be there. Rod Sims, an energy expert who heads the Australian Competition and Consumer Commission, said this week that manufacturers hit by the sudden shortage and price hikes were more likely to close than re-equip. The owner of South Australia's emergency gas "peaking" power plant closed half of it some years back because it couldn't afford the gas.

An (incorrect) way to describe what's happened is to say Australians are at last paying the international price for gas after being shielded from it for so long. But the international price is low. There's a glut. Australians are paying far more than the international price (more than Japan is paying for Australian gas) in order to allow the big three at Gladstone to fulfil watertight contracts.

So wide is the price gap and so short are we of our own gas that there's serious talk of setting up a floating terminal and importing it back (perhaps even from Japan) at what for users would be a cheaper price.

Making more of the stuff here wouldn't much help. It'd be sucked up to Gladstone.

The easiest way out would be for the Gladstone three to voluntarily give up some of what they have bought, and the Prime Minister is pressing them to do that. The other, essential, solution is to ensure that any future gas finds have a portion of what's extracted set aside for us, something I reckon ought to have happened all along.

In The Age and Sydney Morning Herald

Thursday, March 09, 2017

Shared equity: The 'socialist' fix for housing

Anyone would think Victoria had single-handedly reignited the housing crisis.

The critics leapt on the weekend announcement of a (small) pilot program in which the government would take an equity share in private homes, saying it would "drive up prices" and force homeowners to borrow from both a bank and the government.

Yet if it's such a bad idea (socialist, even) why was it first proposed by the Liberal Party-aligned Menzies Research Centre, why did Prime Minister John Howard commend it to his home ownership task force, why have both Malcolm Turnbull and Scott Morrison championed it, and why was Tony Abbott an early adopter?

It helps to get some history, from the Menzies Research Centre's 2003 report to Howard.

Private home ownership is relatively new. Up until the late 19th century most families rented from wealthy landlords. They had no hope of buying in their own right and there was no mortgage finance for people like them. Complaints got them evicted. In the United Kingdom, and Australia, it was fertile ground for the Communist movement.

Some countries, such as Sweden, responded by expanding public housing. Australia (and the UK) went in a different direction. They directed their state banks to offer affordable mortgages to ordinary workers. The federal government chipped in with grants to help cover deposits and also instructed the Commonwealth Bank (then part of the Reserve Bank) to lend to homebuyers itself and make sure the private banks did. By the time Robert Menzies stepped down as prime minister in 1966 Australia was said to be the biggest home-owning nation in the world.

Critics at the time might have said that empowering ordinary workers to buy houses pushed up prices, and it probably did.

It's the same with the next revolution, from the mid-1990s. Securitisation allowed non-bank lenders to offer much cheaper loans using funds predominantly sourced from overseas. It made home-owning easier once again, and probably also helped push up prices.

After each revolution we've come to think of where we have landed as normal, but, from a financial perspective, there's nothing normal about the way we fund houses.

"Imagine you are a young doctor who flies frequently," the report to Howard asked. "You wish to do two seemingly straightforward things: first, consume standard flight services; and second, allocate some fraction of your wealth to a collection of related companies. You also consider yourself to be a fairly canny customer, and prefer not to put all your eggs in one basket."

If you had to make the same choice we have to make for housing, you would have to either put most of your wealth into an airline (actually, into one particular plane) or none at all. And you'd have to borrow to do it.

Like the frequent flyer, would-be homeowners face an unusual all-or-nothing constraint. The sensible advice is to spread their investments over a range of assets. Instead they're forced to put more than everything they own into one particular house in one particular location, or nothing at all.

We allow them to insure against their house burning down, but we don't allow them to use diversification to insure against what happens to its price.

Meanwhile super funds can't get access to a class of assets worth three trillion dollars. It's impractical for them to buy a portion of a range of houses in a range of suburbs. Yet at times houses perform better than the assets in which they can invest, and more importantly, they perform differently. In the language of the professionals, their price is "uncorrelated" with other prices, which makes them valuable.

The report to Howard, endorsed by Turnbull as the chairman of the Menzies Research Centre, recommended that institutions be encouraged to enter into silent partnerships with homebuyers where they would own, say, 20 per cent of a property and allow the homebuyer to live in it rent-free in return for, say, 40 per cent of any increase in price when it was eventually sold. They could bundle the contracts and sell them to super funds.

"Homeowners will benefit from a lower cost of home ownership, and institutions will be able to access an enormous, and uncorrelated, asset class," Turnbull wrote.

The then-treasurer Peter Costello couldn't see the point, so the author of the report, Christopher Joye, went out on his own in partnership with the Adelaide Bank and started offering what they called equity finance mortgages. Tony Abbott was one of their early customers. In opposition Scott Morrison championed the idea as shadow minister for housing.

Now Morrison and Turnbull are drawing up a budget with access to housing as its centrepiece. If they make it a Commonwealth scheme, the Commonwealth could hang on to the equity in each house for only a short time before on-selling it. It would signal that the scheme's legit.

Like each of the revolutions before it, it runs the risk of pushing up prices, although only to the extent that it makes housing more attainable. But it would get people into housing and break the historically unusual and unhealthy nexus between investment and roofs over our heads.

In The Age and Sydney Morning Herald

Tuesday, March 07, 2017

Melbourne booms while the rest wilts, and it'll get worse

Melbourne has become so important it now accounts for all of Victoria's economic growth, with the rest of the state contributing nothing in net terms.

New regional figures compiled by SGS Economics and Planning show inner Melbourne's economy grew by a blistering 3.9 per cent in 2015-16, the city's north-east grew by 4.1 per cent, its north-west by 4.7 per cent, its south-east by 3.9 per cent, and its west by 3.9 per cent.

In contrast the Ballarat statistical area grew 0.1 per cent, Bendigo 0.4 per cent, Geelong 0.6 per cent and the LaTrobe Valley 0.5 per cent, offset by shrinkage of 2.8 per cent in the north-west, 1.4 in Shepparton and 1.2 per cent in Warrnambool and the south-west.

"Victoria's most important economic asset is what happens within 10 kilometres of the GPO," said SGS economist Terry Rawnsley, who produced Australia-wide and statewide national accounts while he worked at the Australian Bureau of Statistics.

"Our state is increasingly monocentric, as is Melbourne itself, with 40 per cent of its growth generated in the inner suburbs."


"Our graphs show no employment growth in the centre of Melbourne for 30 or 40 years until the early 1990s. In the two decades since, employment in the city has skyrocketed, doubling from around 250,000 to close to 500,000.

"The markers were the development of Southbank and the Docklands and the global financial crisis, which knocked the stuffing out of regional employment, especially in manufacturing, as jobs came to be concentrated in the centre."


Mr Rawnsley said Victoria had become so centralised it was too late to envisage attempts at decentralisation working, as the high-value jobs near the centre had become dependent on other high-value jobs nearby.

"There's no way the Latrobe Valley or Geelong could seriously take those jobs," he said. "Employers of accountants and lawyers and the head offices of firms will kick and scream before they leave they CBD. Those jobs, if they are going to move anywhere, would be more likely to move to central Sydney or central Auckland or central Brisbane than to the Latrobe Valley."

While some agencies such as the National Disability Insurance Scheme, WorkSafe and TAC have already moved to Geelong, Mr Rawnsley said that the really high-end jobs had to be near other high-end jobs in the city.

"You could imagine back office call centre jobs being moved, but high-end jobs need to be clustered. Maybe you could draw the workers away, but the jobs themselves depend on there being other workers in related jobs nearby. The bulk of them are going to be wedged in the city creating income and creating congestion."

Getting into the centre of Melbourne was the biggest constraint on the city's, and Victoria's, growth. There was little more that could be done to "sweat" transport assets by making trains longer or more frequent. Attempts to get people to change the times at which they commuted has already failed.

The Melbourne Metro project, when completed, will help by opening up development in North Melbourne and Richmond and taking pressure off the city loop.

But until then it would be hard to bring as many high-value workers into the centre of Melbourne as will be needed. Commuters begin to turn down jobs when it takes more than half an hour to reach the office by public transport.

Ideally, the state government would immediately begin planning the next generation of Metro projects so construction could commence as soon as the Metro is complete in seven to nine years. One such project could run from the CBD to Fishermans Bend, another from the CBD to the airport.

In The Age and Sydney Morning Herald

Sunday, March 05, 2017

Hidden figures. Women manage money better

My mother was a "computer", back in the days when the term applied to people. Plucked from high school because of her prowess at maths, she was put to work at the Weapons Research Establishment at Salisbury in South Australia, performing the calculations that enabled the rockets fired from Woomera to go where they should.

She had dozens of colleagues, all of them women: rows and rows of women, doing calculations for men before the invention of calculators.

Now immortalised in the movie Hidden Figures, their existence ought to kill forever the idea that women can't do maths.

Yet it persists. The Commonwealth Treasury used to be an overwhelmingly male institution until the start of this decade when a new boss began to drag up the proportion towards its present 53 per cent, along with 37 per cent of executives.

But dealing rooms remain disconcertingly male, full of white shirts dripping with sweat, coats on hangers and an atmosphere heavy with testosterone.

Why is it that we let women do our calculations, we let women care for us as doctors and nurses, but rarely let them manage our money?

It could be because of a (correct) belief that women are less likely to take risks. The National Australia Bank reports that its female clients are more likely choose "safe" investment strategies, and as a result miss out on long-term gains.

But the conclusion depends on the time period chosen.

If it's a period when the market is climbing, risks will pay off and avoiding them will look pretty silly, but if it includes a complete sweep from boom to bust, the safe strategies will look more clever.

The problem is there's little long-term data on the performance of share traders by sex. Except in Finland, where investors are required to report their gender whenever they buy and sell local stocks.

Professors Peter Swan from the University of NSW and Joakim Westerholm from Sydney University along with PhD student Wei Lu have obtained 17 years worth of Finnish data covering two complete cycles including the 2000 "tech wreck" and the 2008-09 financial crisis.

Examining only trades in the 28 biggest Finnish stocks, they find that on those occasions where women traded with men, women improved their position by a staggering 21 per cent per annum. Men were made worse off  by 21 per cent per annum.

When the examination was limited to the only really big stock in Finland, Nokia, women improved their position by an astounding 43 per cent per annum.

They sold to men when the price was rising, and bought from them when it was falling, but not in a mechanical way. Swan says they seemed to be better at reading what was happening; less gullible, more intuitive.

They're qualities we could use. On March 20 the Reserve Bank's Dr Luci Ellis will launch Australia's first Women in Economics Network. It'll maintain a list of members happy to speak out in public; a list of people worth paying attention to.

In The Age and Sydney Morning Herald

Cheap stamp duty: Victoria's package looks good

Stamp duty is the worst tax in Australia, so bad that according to calculations by the federal Treasury for the aborted tax white paper, it destroys 70¢ of economic value for each dollar collected. Yet more than most governments, Victoria is addicted to it.

So the state has done the next best thing to axing it. It's cut it where it will most help people get into the housing market, and reimposed it where it's lack has been most hurting them.

Until now there's been a stamp duty exemption for off-the-plan buyers of apartments. From July this will be axed for investors, and available only to buyers who intend to live in the property or are eligible for the first home buyer stamp duty concession.

Cleverly, reimposing stamp duty for off-the-plan investors will raise almost as much as axing stamp duty for low-price first home buyers will cost, leaving the budget little changed.

First home buyers shelling out up to $750,000 will be better able to outbid investors and existing home owners, and investors in off-the-plan units will be less able to outbid them.

Will that extra buying power push up prices? Possibly, but only to the extent that it actually helps first home buyers.

And if it's not enough, the government is also offering HomesVic, a pilot program in which 400 people will get a chance to co-purchase a home with the government, which will take an equity share of up to 25 per cent and get its money back (plus price growth) when the property is eventually sold.

This is modelled on a scheme recommended to prime minister John Howard in 2003 but never adopted.

The 1 per cent tax on vacant properties won't hurt either. It will encourage owners to either sell them or fill them by renting them out.

Premier Daniel Andrews and Treasurer Tim Pallas have paid attention to the needs of renters too, recognising that people who can't buy their own houses need the same sort of security of tenure as those who can.

It's a sign of just how well thought out the Victorian package is that north of the border, NSW Premier Gladys Berejiklian is talking about making parts of it her own.

In The Age and Sydney Morning Herald

Wednesday, November 09, 2016

Donald Trump could be disastrous for the Australian economy

President Donald Trump will declare economic war on our biggest customer, wipe unprecedented amounts off global stock markets, usher in extraordinary financial instability, and risk turning the world's biggest economy into a basket case by pushing its national debt past 100 per cent of GDP.

And that's just what's known about his economic program. The Economist observed in the leadup to the election that while his policies were unusually short on detail, their direction "could not be clearer".

China takes 1 in every 3 shiploads of Australian exports, more than any nation has since Britain in the 1950s according to consultant Saul Eslake. Even small variations in what it wants sends our budget into conniptions.

Trump has promised from "day one" to designate China a "currency manipulator". That would allow him to whack a giant 45 per cent tariff on everything it tries to sell to the US, a prospect he has mentioned with relish. The US is China's biggest market, taking 18 per cent of everything it sells. China would have to retaliate (somehow), raising the prospect of a trade war that would damage both China and the US. War gaming by the respected Peterson Institute says it could push the US into recession by 2019. The last time that happened, during the global financial crisis, Australia avoided recession with help from China. We mightn't get it a second time.

In answer to questions after his first speech as Reserve Bank governor last month, Philip Lowe described the prospect of a Trump presidency as less than benign.

"We don't have a Trump plan," he added. "What we do is have a generic response plan to a whole range of shocks."

Financial markets lost $US2.5 trillion on Wednesday as it became apparent Trump was likely to win, just as they slid on each of his successes and surged on each of his setbacks throughout the campaign. US-Australian economist Justin Wolfers and his colleague Eric Zitzewitz have used those gyrations to put numbers to the Trump effect. They say a Trump win will knock 15 to 30 per cent off the value of the US stock market (during the global financial crisis it lost 50 per cent) and do much the same to other markets. US interest rates will climb 0.25 points.

It wasn't all bad for Australia on Wednesday. Shares in the gold miner Newcrest shot up 9.8 per cent.

Importantly Wolfers and  Zitzewitz say markets will become far more volatile, making it harder to plan, in what appears to be a first for a Republican win. They've analysed the market reaction to every presidential election going back to 1880 and found either a Republican "premium" or a "discount" whenever there was a significant move.

This is the first Republican discount, or as they call it, "Trump discount", a result all the more remarkable because Trump's policies are explicitly pro-business. Trump has promised to cut the US company tax rate from 35 per cent (a good deal higher than Australia's 30 per cent) to just 15 per cent.

But he'll spend big. The National Australia Bank and the US Tax Policy Centre say his promises will add $US7 trillion to US government debt over the first decade. His expansion of the military alone will add $US450 billion. Clinton's would have added just $US200 billion. The Economist describes her budget plans as "fiddly". It describes his as "absurd". The Committee for a Responsible Federal Budget says after 10 years US national debt will hit 105 per cent of GDP under Trump. Under Clinton, it would hit 86 per cent.

In an open letter, 77 US Nobel Prize winners have condemned Trump's platform, 20 of them winners of the Nobel for Economics. They are concerned about more than trade and more than recession. Trump says he will walk away from the hard-won consensus on the need to tackle climate change, describing global warming as a hoax "created by and for the Chinese". Australia's commitment to adjust its emission targets in line with those of its trading partners is about to become less onerous.

And he intends to build a wall along the Mexican border at a cost of $US5 to $US10 billion (funded by Mexico) in order to keep out illegal immigrants. Those already in the US would be deported (as happens here) rather than periodically made legal (as has happened in the US up until now).

On election eve the Economics Society and the Monash Business School polled 36 leading economists on whose presidency would be best for Australia. Thirty said Clinton, none said Trump.

One of the most stridently anti-Trump was 89-year old Max Corden, the doyen of Australian economists who is still working at Melbourne University. He said Trump would be a disaster for the world, "like another Hitler or Mussolini".

Unlike many who evoke Hitler, Corden has experience of him. He remembers the excitement when as a tiny boy in Germany he snuck out of his home to wave at Hitler's motorcade. He remembers his dad being interned in a concentration camp, and he remembers the incredible good fortune that allowed him to escape to Australia.

In The Age and Sydney Morning Herald

Sunday, November 06, 2016

And you thought the TPP was secret. The RCEP is even worse

There's another massive deal you've never heard of. The Trans-Pacific Partnership – negotiated in secret between Australia and 11 other nations over 10 years – appears to be dead.

It would have allowed US corporations to sue Australian governments in offshore tribunals, as they have long wanted to do, effectively trumping our own High Court. Donald Trump himself opposes it (bless him) as does Hillary Clinton, although she once helped to draw it up.

Whoever is elected president on Wednesday has pledged to abandon it.

So you would think we would be safe. Except that, in what The Wall Street Journal calls a long-shot, Barack Obama is going to attempt to push it through in the so-called lame duck weeks between Wednesday and the inauguration of his successor in January. Hundreds of economists and law professors have urged him not to, saying the provisions of the TPP would allow foreign investors – and foreign investors alone – to bypass "the basic procedures of the US justice system".

US corporations can't do it to us at the moment because the Howard government refused to include those provisions in the Australia-US Free Trade Agreement.

Right now, if US corporations want to sue us and don't find our court system to their liking, they have to pretend to be headquartered somewhere else, as the Philip Morris tobacco company did when it purported to move ownership of its Australian operations to Hong Kong in order to take advantage of the provisions of an obscure Australia-Hong Kong treaty after losing its case against our plain packaging laws in the High Court.

So far that case cost us more than $50 million to defend, and although we successfully fended off Philip Morris, we are yet to be awarded costs. It's a prospect that would terrify a smaller country.

Now there's a fresh move to have us face it time and time again, even if Obama fails to revive the Trans-Pacific Partnership. The TPP would have had 12 members. The lesser known RCEP – the Regional Comprehensive Economic Partnership – would have 16 members including China, accounting for one half of the world's population.

Leaked chapters of the draft agreement contain the same sort of investor-state dispute settlement procedures as the TPP. Although the Foreign Affairs website doesn't say so, our assistant trade minister Keith Pitt slipped into the Philippines on Friday to advance the negotiations.

Whereas in the TPP, Australia's delegations took community as well as business groups into its confidence, so far with the RCEP it's only been business groups. Patricia Ranald of the Fair Trade and Investment Network says that might be because, at least to start with, the US is excluded. It's a relatively open democracy. China, Indonesia, Malaysia and other RCEP members are not.

Just as with the TPP, our negotiators are releasing no texts and submitting none of what's proposed to cost-benefit analysis. There's every chance it will cut across rather than intermesh with the TPP and our other trade agreements. There's every chance we won't be told until it's too late.

In The Age and Sydney Morning Herald

Thursday, November 03, 2016

Productivity Commission: how big data could work for us

What if we were on the cusp of one of the biggest ever advances in productivity and we didn't recognise it?

That's how it must have been for Alexander Fleming with the discovery of penicillin, for university technicians with the development of the internet, and for Bill Clinton, who with the stroke of a pen in the year 2000, made highly accurate military global positioning satellites available for everyone to use for free.

Peter Harris believes we are on the cusp of another transformation about as big – one only made possible by the development of the internet and all the things that surround it.

It's the exploitation of data. On one estimate we are now generating as much digital data every two days (five exabytes) as we generated in an entire year at the start of the 2000s.

Some of it is cat videos. Much of it mundane. But an awful lot is useful, and his best guess is that only 5 per cent of the useful stuff is being used, a figure that puts us way behind the countries we usually like to compare ourselves to, especially Britain and New Zealand.

We are behind partly for privacy reasons, partly because potential users don't know what data government agencies hold, and partly because the machines that hold it often can't talk to each other, even within the same hospitals.

It is an outrage that sick patients still have to act as information conduits between healthcare providers (10 to 25 per cent of the medical tests ordered are thought to be duplicates) and a disgrace that 60 years after the Thalidomide tragedy we still don't link prescription data to hospitalisation records to get insights into the side effects of drugs.

Research that could have saved the lives of Indigenous women was delayed five years while the researchers waited for ethics approval to see cervical cancer screening data; researchers wanting to study the link between vaccination and admission to hospital have had to wait eight years and counting.

Harris runs the Productivity Commission. It is a measure of his belief in the importance of the data inquiry commissioned by the Turnbull government that he decided to chair it himself and personally briefed journalists on the contents of his draft report on Wednesday.

His first recommendation is that all government-funded entities create easy-to-access registers of everything they've got. He wants them published by October 2017. If anyone wants a machine-readable copy of something on a register, they should be able to get it for free or for marginal cost, unless there are powerful reasons for holding it back.

Given how much personal data so many of us willingly or carelessly give away every day, he isn't particularly concerned about the privacy risks of releasing de-identified personal data (and allowing it to be linked to other data, as the Bureau of Statistics wants to do with the census), saying the risks are "likely very small". Where there's a clear public interest, he wants researchers to be given access to private information in secure rooms.

Right now they are often required to destroy datasets they create in medical and other research, a practice he says is akin to "book burning". He would require them to keep it.

Really important information would be curated in "national interest datasets", overseen by a national data custodian who would report to the parliament.

But that's just half of it. Right now, in spite of a widespread belief to the contrary, you and I don't have access to our own data.

If I ask my music streaming service for details of my listening habits, or my search engine for details of my search history, or my insurer for details of my claiming history, or my supermarket for details of my shopping history, or my electricity supplier for details of my usage history, they are perfectly entitled to refuse to hand them over. I might want to take them to a competitor.

Harris wants to enshrine in law my right to take them to a competitor. Even better, he wants my providers to hand them to the competitors or brokers I select at my direction. I probably wouldn't be able to make much sense of a machine-readable account of my electricity use, but a competitor would.

Suddenly, competition could really work. And it would cost almost nothing. There would be no privacy concerns because it could be released only at my direction. Harris would also give me the right to request edits or corrections to the data firms have on me, to be informed about their intentions to sell or pass it on, to be able to order them to stop collecting it (at the risk of losing the service) and to appeal automated decisions that deny me services or charge me more on the basis of it.

He is talking about a revolution. It's a revolution we ought to embrace and direct, rather than sit back and watch.

In The Age and Sydney Morning Herald

Tuesday, November 01, 2016

Steady at 1.5%: Reserve thinks it won't need to cut again

Don't bet on another interest rate cut.

Behind the typically bland language used by Reserve Bank governor Philip Lowe to explain Tuesday's decision to keep the cash rate on hold ("the board judged that holding the stance of policy unchanged at this meeting would be consistent with sustainable growth in the economy and achieving the inflation target over time") lies a belief that things are about to pick up.

That's what he'll forecast in his first quarterly statement to be released on Friday, and what his predecessor Glenn Stevens forecast in his final quarterly statement released in August.

Developments since August have strengthened Lowe's confidence.

After sliding since 2013, the underlying measures of inflation have been steady at an annual rate of about 1.5 per cent for three quarters. After sliding since 2011, private sector wage growth has been broadly steady for four quarters.

Commodity prices are no longer sliding. They've been climbing since May, and they climbed another 9.5 per cent in October.

While the RBA doesn't think they'll continue to climb for too much longer (some of the recent increases in the contracted prices of coking coal have been too good to be true and dependent on temporary conditions in China), it doesn't expect commodity prices to fall back to where they were at the time of the May budget. They are not likely to depress wages and prices as they once did.

Mining investment has slid so far the RBA believes it's about to stop.

When that happens, it'll no longer be depressing employment, and the employment figures themselves aren't bad, even if part-time jobs are replacing full-time jobs. The bank believes having a job - any sort of job - is a lot better than not having one at all.

And it has received encouraging news from the retailers it talks to as part of its business liaison program. They say they are beginning to claw back pricing power.

After squeezing their margins in food, alcohol, clothing and luxury goods for ever so long, they are starting to feel they can charge a bit more.

If things continue like this, inflation will recover all by itself and the economy will grow at a healthy pace of around, then above, 3 per cent.

Lowe can leave the cash rate at 1.5 per cent. Things might change, they often do. But that's his central case.

In The Age and Sydney Morning Herald

Sunday, October 30, 2016

Myth busted: parents don't get more on benefits than working

Welfare experts have ridiculed a government claim that thousands of parents on government benefits earn more than if they had a job, saying it is built around a mathematical mistake.

The claim, published in The Australian on Friday and backed up by Social Services Minister Christian Porter, is that single parents with four children can get payments totalling $52,523 per year if they don't work but only $49,831 after tax if they work and receive the median full-time wage.

Mr Porter said the data showed taxpayer-funded benefits could be providing a ­disincentive to work, a systemic flaw that required government ­attention. "What is not in any recipients' best interest is to be deprived of the incentives to reduce income from welfare with income from work," he said.

Treasurer Scott Morrison backed him saying it was "a crying shame that some Australians would have to take a pay cut to get a job in this country because of the way our welfare system works".

Former Department of Social Security analyst David Plunkett said the calculation excluded $30,916 in family tax benefits that the parent working full-time would also receive, meaning that when "apples are compared with apples", the parent would receive $80,747 if working and $52,523 per year if not working.

The parent would be almost $30,000 per year better off working than not working, rather than than $2692 worse off as claimed.

Australian Council of Social Service CEO Cassandra Goldie said the claims were part of a disturbing pattern.

"It appears to be a deliberate strategy to generate a story which creates this impression that we've got a social security system which is 'bloated and too generous' when the facts will show it's completely to the contrary," she said.

"It creates an incorrect and misleading impression that single parents are doing well on welfare. This is absolutely wrong."

She believes the claims are aimed to convince the Senate crossbenchers to support government cuts to family payments.

Peter Davidson, research director at ACOSS, said the "glaring omission" was remarkable because family tax benefits were the biggest source of income for the non-working parent. To have cited them as income while not working, but not while working biased the calculation by $30,000.

It also failed to build the case for government plans to scale back family tax benefits, because if those plans were approved by the Senate and legislated the differential would be unchanged.

"This single parent family with four children stands to lose about $4000 a year [$80 a week] in Family Tax Benefit payments if legislation is passed," Mr Davidson said. "That family would lose the same amount whether the parent is out of paid work or employed full-time."

A total government payment of $52,523 was not a lot for a family of five.

"There is a reason a large family receives much more money than 93 per cent of others receiving Family Tax Benefit: children are expensive," he said.

"Excluding rent assistance, those family tax benefit payments average around $7000 per child which has to cover all child-related costs including food, clothing, and school costs."

The $87 per week received in rent assistance would cover only a fraction of a Sydney or Melbourne rent.

A spokeswoman for Mr Porter defended the original figures.

"The point being made is simply that a person receiving the single parenting welfare payment, plus family tax benefits and other welfare payments, gets an amount equivalent to what another person might earn working full-time."

The amount of welfare being received in the example is equivalent to a full-time median wage, she said.

In The Age and Sydney Morning Herald

Thursday, October 27, 2016

I've got how long? Life expectancy hits new high

Life expectancy has hit a new high, with typical newborn girls now expected to live to 84.5 and boys to 80.4, up from 83.3 and 78.5 a decade ago.

New life tables from the Bureau of Statistics show a typical 30-year-old woman can expect another 55 years, with a further 36 years for a 50-year-old, 18 for a 70-year-old, and 2.4 for a typical 100-year-old.

For men, a typical 30-year-old will get another 51 years, with 32 years for a 50-year-old, 15.6 for a 70-year-old, and 2.2 for a typical 100-year-old.

Men at the traditional retirement age of 65 have another 19.5 years. Fifty years ago in 1966, they had only 12 years. Women at 65 have another 22.3 years. Fifty years ago they had 15.7.

The Australian Capital Territory has the highest life expectancy of 85.3 for newborn girls and 81.2 for boys, followed by Victoria at 84.7 and 81.1. The Northern Territory has the lowest, of 78.5 for girls and 75.7 for boys. Tasmania is the second lowest at 82.8 and 78.9. 

Indigenous life expectancies at birth are 9.5 years lower for girls and  10.6 years lower for boys.

But the reality is less grim. Academic demographers believe the ABS figures are almost certainly underestimates.

Peter McDonald, of the University of Melbourne, says they assume no improvements over the course of a life.

"They are not any individual's lifetime; they are just telling you the expectation of life you would get if life expectancy didn't change," he said. "And for the last 200 years it has been going up."

The ABS itself says the figures it quotes for life expectancies at birth are the average number of years that a group of newborn babies would be expected to live "if current death rates remain unchanged".

Professor McDonald said a rule of thumb was that improvements over an 85 or 81 year life would add anther four  years. That means a typical newborn girl might live to 88 and a typical boy to 85, unless improvements stop or accelerate.

In The Age and Sydney Morning Herald

Who's to blame for rising house prices? We are, actually

If only we had a clue why home prices are soaring out of reach. On Monday Treasurer Scott Morrison offered half a clue. He told the Urban Development Institute it was all about supply. The more houses and apartments that developers were allowed to build, he said, the more residents would be able to buy.

That's true, if you avert your eyes from some of the more immediate reasons residents are unable to buy. And they're growing.

Morrison said over the past 20 years the proportion of households either owning outright the homes in which they live or buying them with a mortgage has slid from 71 to 67 per cent. For Australians aged 25 to 34 the proportion has dived from 39 to 29 per cent, and for those aged between 35 and 44, from 63 to 52 per cent. These days only 13 per cent of new home loans go to first home buyers, down from 19 per cent.

So expensive are homes becoming that the share of median household income devoted toon mortgage payments for Australians aged 35 to 44 has more than doubled in 30 years. Incredibly, it's happened at a time when mortgage rates have slid to their lowest on record.

Morrison says more houses and units will solve the problem, but at the rate at which they are being snapped up by investors (more than half the money lent to buy homes each month now goes to investors, up from 15 per cent during the 1990s) they won't help much.

As one of Morrison's colleagues, Liberal backbencher John Alexander, puts it: "It's not much good increasing supply if it's consumed by opportunistic investors."

What matters for a tolerable retirement (far more than superannuation) is owning the home in which you live. If you do, the age pension is enough to get by on. If you don't, you have to pay rent. Morrison's own figures show we are condemning more and more Australians to retirements burdened by rent.

Alexander conducted the inquiry into home ownership that the government seems to have sat on. Thirty hours of expert testimony and scores of submissions have produced nothing, so far. Work more or less stopped when Alexander was moved to another committee a year ago and then the inquiry was allowed to "lapse" after the election.

But looking through the hundreds of pages of transcripts it's possible to get a good idea of why home ownership is shrinking, and the best place to start is the evidence from Morrison's department, treasury, then run by Joe Hockey.

Graph 13 in its submission shows that up until the end of the 1990s the median dwelling price stayed in a tight band of 2.5 to 3 times household after-tax income. Then in the space of three years it shot up to near four times after-tax income and has stayed there ever since.

The graph Treasury provided to the home ownership inquiry.

What happened at the end of the 1990s? In September 1999 the government halved the headline rate of capital gains tax, making negative gearing suddenly an essential tax strategy. Whereas before, renting out a house at a loss for tax purposes had been mainly an exercise in delaying tax, because the eventual profit made selling the property would be taxed at close to the seller's marginal rate; afterwards, with the profit taxed at only half the marginal rate, it became an exercise in cutting tax.

Would-be investors poured into the market. One in every six taxpayers became a landlord. To get there and stay there they've had to outbid would-be residents. As the Reserve Bank's Luci Ellis put it succinctly in evidence to the inquiry: "It is a truism that if an investor is buying a property, an owner-occupier is not."

Far from seeing the explosion in prices as a problem, the Howard government embraced it as a sign of success. "Rising house prices make for happy voters," one of his parliamentary secretaries, Ross Cameron, infamously declared. Howard himself said he had never heard of a voter complaining about rising prices.

The invasion of negative gearers has been followed by an invasion of foreign buyers, who push aside would-be owner-occupiers in exactly the same way. Rather than living in the homes they've bought, they treat them as investments and either leave them empty or rent them out to tenants who would have once had a chance of owning them.

The 2011 census found an extraordinary 12 per cent more dwellings than households, some of them not bought to live in, others bought as holiday homes and second homes.

One of the barely stated reasons why house prices have been climbing out of reach of first home buyers is many of us have been becoming richer, and we seem to want better located and more expensive, and second homes more than anything else.

Reinstating capital gains tax and imposing a land tax would help, as would building more houses. But there is something in our psychology that's doing it as well. We seem to want to push up the prices we complain about. Adding "supply" might do no more than give us something else to bid up.

In The Age and Sydney Morning Herald

Wednesday, October 26, 2016

Lineball call for Reserve as underlying inflation sinks

Weaker than expected underlying inflation has two market economists predicting a rate cut on Melbourne Cup Tuesday – although neither with much conviction.

Each of the Reserve Bank of Australia's preferred measures of underlying inflation slipped in the September quarter. The so-called trimmed mean came in at 0.4 per cent, down from 0.5 per cent in June.

The weighted median came in at 0.3 per cent, down from 0.4 per cent. The annual underlying rate averaged 1.5 per cent, well below the bank's target band of 2 to 3 per cent.

Although the headline rate climbed from 0.4 per cent for the quarter to 0.7 per cent and from 1 per cent over the year to 1.3 per cent, most of the jump was due to outsized increases in the price of fruit (up 19.5 per cent in the quarter) and vegetables (5.9 per cent) with tomatoes, potatoes, cucumbers, grapes, peaches, plums, bananas and mangoes the biggest movers.

"Our view before today's numbers was that an underlying increase of 0.3 per cent or less would leave inflation trapped at the very low rates that contributed to the May and August rate cuts," said Commonwealth Bank chief economist Michael Blythe.

"As such we continue to expect the bank to cut the cash rate to 1.25 per cent at the November meeting, although we hold this view without great conviction."

'Strong case'

Bank of Melbourne chief economist Besa Deda said persistently low inflation and further signs of slack in the labour market made a "strong case" for a further cut.

"That said, the data may not be enough of a downside shock for the bank," she said. "With some hesitation, we continue to expect the bank to cut official interest rates by 0.25 points when it meets next week, but we admit it will be a very close call."

Tradables inflation, which measures changes in the prices of goods and services that can be traded internationally, climbed from zero per cent in the year to June to 0.7 per netcent in the year to September. Non-tradables inflation, watched more closely by the bank, remained little changed in the year to September at 1.7 per cent, up from 1.6 per cent.

HSBC chief economist Paul Bloxham said the results left the door open for the new Reserve Bank governor Philip Lowe to cut rates if he wanted to.

"However, with growth running above trend, the central bank having cut by 0.50 points since May this year and coal and iron ore prices having bounced, I expect the bank to stay on hold."

Futures market trading ascribed a mere 0.6 per cent probability to a rate cut on Tuesday. The Melbourne Cup day board meeting will be followed by the release of updated Reserve Bank forecasts on Friday.

In The Age and Sydney Morning Herald

Census debacle: Turnbull to decide which heads to roll

The Prime Minister's special adviser on cyber security has told the Senate the denial of service attacks on the census website were small and predictable and should not have brought it down on census night.

Malcolm Turnbull now has the report Alastair MacGibbon conducted on behalf of the Prime Minister to determine "which heads will roll and when" as a result of the debacle.

"They were indeed small attacks," Mr MacGibbon told a Senate committee on Tuesday. "The attacks were around three gigabits per second. To have some comparison, it's not uncommon now to see attacks of 100 gigabits per second, and some of the attacks against some of the internet infrastructure such as domain name servers are up to 1000 gigabits per second.

"There was a massive difference between the size of the attacks on the Bureau of Statistics' census website and the ones that are encountered routinely by corporations and governments."

While the bureau had contracted IBM to defend its sites against attacks, its behaviour after awarding the contract was similar to that of a homeowner who employed a builder but then rarely went on site to check how work was progressing, he said.

The bureau's back-up plan to protect the site if denial of service attacks couldn't be overcome was logically flawed.

Labelled "Island Australia", it was to ask IBM to block traffic from overseas. But the password reset facility IBM used was hosted offshore and relied on traffic coming in from overseas to give Australians that password, suggesting it hadn't been properly thought through.

Larger failures were that IBM was unable to implement Island Australia in any event and that ABS staff misread a report they thought suggested census data could have been leaving the system as a result of hacking and decided to shut the system down.

IBM was for many hours unable to restart it because it had incorrectly coded a router connecting to Telstra, so that when it was turned off the coding "fell out", turning it into a "dumb unit" that had to be recoded.

Had the router been turned off and then turned on again as a test, the error would have been discovered.

"Had the router been properly configured, and had the router when it had been turned off fired back up again, then we wouldn't have a problem," Mr MacGibbon said. "But the most significant problem was really the misinterpretation of the traffic on the load monitoring system. We wouldn't have had the problem if the people monitoring the system had properly monitored the system, which was functioning oddly."

Millions of Australians were unable to complete the census on census night as a result of the shutdown and were locked out of the site for two days.

Mr MacGibbon delivered his report to Mr Turnbull on October 14.

IBM Australia managing director Kerry Purcell told the hearing no IBM staff had been dismissed as a result of the failure of the census website and none had been disciplined.

IBM had offered to pay the extra costs the ABS incurred as a result of the outage, estimated by the ABS to be $30 million. It is in "commercial negotiations" with Secretary of the Treasury John Fraser.

Mr MacGibbon also criticised the closeness of the bureau to IBM, saying there was a degree of "vendor lock-in", where the ABS saw IBM as a natural partner because it had worked with it in the past.

A representative of Capability Driven Acquisition, the company that advised the ABS on hiring IBM, said several other potential bidders had told it there was little point in competing against IBM because it would win the contract.

The bureau's chief, David Kalisch, told the committee he would have considered an open tender had "IBM not been able to satisfy the ABS that it could deliver".

One of many "learnings" the bureau had taken from the experience was that it might be worthwhile running the next census in-house and that the slogan "Get Online on August 9" may have contributed to the problem.

Mr Kalisch defended the bureau's decision to retain the names submitted with this year's census and revealed that in the past no one who declined to submit their name had ever been prosecuted.

A former head of the bureau, Bill McLennan, told the the hearing that in his time the bureau had received legal advice telling it that it lacked the power to compel people to provide names.

In The Age and Sydney Morning Herald

Tuesday, October 25, 2016

Liberal MP who wants housing inquiry back

The Coalition backbencher who chaired the stalled inquiry into home ownership has appealed to Prime Minister Malcolm Turnbull to restart it, and says it will address the role of investors sitting on properties that should be going to owner-occupiers.

John Alexander is now chairing an inquiry into the potential for value-capture to fund large infrastructure projects such as high-speed rail.

He said the lapsed housing affordability inquiry – which considered 30 hours of evidence from organisations including the Treasury and Reserve Bank without reporting –  should be taken over and finalised by his committee, because there was no point in using infrastructure such as fast trains to create new affordable housing if it was snapped up by investors.

"We have been told time and time again that supply is the answer," he said. "But it's no good creating cities in the southern highlands and outside of Goulburn and outside of Shepparton if the same game is played time and again where the investor will have an enormous advantage over the homebuyer and then dominate that market.

"If we can build a city near Goulburn using the increase in the value of the land to fund a very fast train that could get homeowners to Sydney in half an hour, we could create affordable housing, so long as we knew it wouldn't be snapped up by investors.

"If you are going to have a complete suite of policies regarding home ownership, you've got to address your supply and you've got to address the opportunity of homebuyers.

"I feel owner-occupiers ought to be put in front of investors, but at the moment there is no restraint on how many [properties] investors can buy, which means they are dominating the market."

Mr Alexander, a former professional tennis player, said would-be owner-occupiers competing against negative-gearers were like ordinary tennis players coming up against Roger Federer.

"If you were to play Roger Federer you would lose," he said. "If you were to play him 1000 times, I promise you you would lose 1000 times, and that's what it's like for the homebuyer against the investor – it's stacked against them.

"The current level of supply is being completely consumed by speculative opportunistic investors who are driving the volatility of the market."

On Monday, Treasurer Scott Morrison told the Urban Development Institute the reason people were being locked out of the housing market was that supply couldn't keep pace with demand.

"The government will therefore also be discussing with the states the potential to remove residential land use planning regulations that unnecessarily impede housing supply," he said.

In evidence to Mr Alexander's inquiry, Reserve Bank official Luci Ellis said investors were themselves constraining supply, noting that "it is a truism that if an investor is buying a property an owner-occupier is not".

Mr Alexander said he had made a formal request for his committee to take over and complete the home-ownership inquiry and that the Prime Minister was supportive.

The decision would have to be signed off by Mr Turnbull. There would be no need to take any further evidence and both reports could be completed by Christmas.

In The Age and Sydney Morning Herald

Policy priority? Housing affordability inquiry scrapped

The government is sitting on hundreds of pages of evidence and scores of submissions about housing affordability it is unable to use because it let its inquiry into the subject lapse.

News of the quashed inquiry emerged as Treasurer Scott Morrison delivered a speech in which he declared housing affordability to be an "important policy focus" of the Turnbull government in the new parliamentary term.

The inquiry was initiated by Morrison's predecessor, Joe Hockey, in April last year. Undertaken by the House of Representatives economics committee and chaired by Liberal backbencher John Alexander, it took evidence from the Treasury, the Reserve Bank, ANZ Bank, the Law Society and housing economists.

Mr Alexander said at the time it painted a picture of a nation turning from a "commonwealth", with huge home ownership, into a "kingdom" made up of landlords and serfs. One of the ideas considered by the committee was a winding back of negative gearing.

He was replaced as chairman by Liberal MP Craig Laundy shortly after hearings concluded in September last year. Mr Laundy has told Fairfax Media he had worked on a draft report with the committee secretariat but wasn't able to put it to the committee before he was promoted to the ministry and replaced with backbencher David Coleman shortly before the election.

Under the rules governing committees, the inquiry "lapsed" with the election, meaning Mr Coleman is unable to restart or conclude it without a fresh referral from Treasurer Scott Morrison.

A Labor member of the committee, Pat Conroy, believes the inquiry was allowed to lapse because its conclusions would not have suited the government.

"There were incredibly strong arguments for reform to the current system of incentives to make housing more affordable," he said. "We got lots of good evidence out of the Reserve Bank and Treasury to that effect, so any balanced report would have had to reflect that testimony."

Opposition Leader Bill Shorten strongly  criticised the government for saying nothing about housing affordability during the election other than to attack Labor's plans to wind back negative gearing and capital gains tax concessions.

"They rubbished Labor's plans," he said. "Now, belatedly they are engaging in a cruel hoax. They are pretending to want to do something about housing affordability, yet all they're proposing is the states make some administrative changes."

Economist Chris Richardson, of Deloitte Access Economics, said young people who were struggling to get into the housing market shouldn't be too worried, because renting made more financial sense at present.

"It makes sense to rent because there are a hell of a lot of people taking a large punt [on buying property]," he said.

While interest rates were unlikely to increase in the short term, Mr Richardson said that inevitably they would have to rise, and at that point house prices would cool and affordability would begin to improve.

On the policy solutions pushed by the two major parties – Mr Morrison's calls for states to ramp up housing supply and Labor's policy of reducing capital gains and negative gearing tax concessions – Mr Richardson said both approaches would have a limited but beneficial impact.

"Doing something on the supply side is good – it's overdue, I'll applaud it," he said. "But it's also hard to do, because you are herding cats; the states and territories and councils have a lot of power, too. These are sensible changes being talked about, but they are not make or break around affordability."

Asked whether the Treasurer would restart the stalled home ownership inquiry, a spokesman for Mr Morrison said there had been "a number of inquiries into this issue".

The government was "able to draw upon the testimonies and reports of those reviews in framing initiatives going forward", he said.

In The Age and Sydney Morning Herald

Monday, October 24, 2016

Treasury ditches wellbeing as the rest of the world catches on

The head of the Treasury moves quickly.

John Fraser told a Senate hearing this week he wrote the department's new corporate plan "between 6 and 8.30 one night as I was waiting to go out to dinner".

In it, he tossed aside the "wellbeing framework" that for a decade has been supposed to guide the treasury in its assessment of what government decisions are good and bad.

All that really mattered was jobs and growth. "We are talking about living standards," he said. "And if living standards are not about wellbeing, then I do not know what is."

But there is much, much more to a good life than jobs and growth, and the head of the treasury ought to know it.

Who gets that growth is the start. The framework used by his predecessors (which Fraser says he has never seen) had as the second of its five points "the distribution of those opportunities". Under that criteria a decision that further concentrated wealth (such as tax cuts for the already wealthy) would clearly have been recognised as worse than one that spread it more broadly and the government would have been told so.

The third point was sustainability. If economic growth was built on sinking sands – such as burning brown coal and using up Australia's allocation of carbon emissions quickly – it would arguably have been regarded as worse than one than one that cut back on emissions earlier and more gradually. In fairness to Fraser, there's no reason to think he doesn't get this. His idea of targeting "living standards" easily incorporates making sure living standards are sustainable.

But it incorporates points four and five not at all. These days, when for most of us material wealth isn't too bad, they might be the most important of all.

Increasingly, what really matters to us is stress. It weakens us, regardless of our wealth, and it is often brought on by government decisions that force us to go through needless hoops.

Points four and five were "the overall level and allocation of risk borne by individuals and the community" and "the complexity of the choices".

Simplifying life was this week recognised in Britain the United Kingdom as an explicit policy goal, particularly when designing programs for people who are already highly stressed.

While our government tried to get through the Senate rules that would further stigmatise and inconvenience Australians applying for unemployment benefits, the British Behavioural Insights Team Behavioural Economics Unit nominated reducing "cognitive load" as one of the most important things governments could do.

"We all have limited mental processing capacity to reason, to focus, to learn new ideas," it said. "The worries involved in making ends meet already deplete bandwidth, so government services aiming to tackle disadvantage – such as savings schemes, employment advice and parenting programmes – should be required to pass a cognitive load test to ensure these services do not make it harder for people on low incomes to make good decisions."

If only we'd cottoned on first.


The Treasury's now-ditched wellbeing framework

In undertaking its mission Treasury takes a broad view of wellbeing as primarily reflecting a person's substantive freedom to lead a life they have reason to value.

This view encompasses more than is directly captured by commonly used measures of economic activity. It gives prominence to respecting the informed preferences of individuals, while allowing scope for broader social actions and choices. It is open to both subjective and objective notions of wellbeing, and to concerns for outcomes and consequences as well as for rights and liberties.

Treasury brings a whole-of-economy approach to providing advice to government based on an objective and thorough analysis of options. To facilitate that analysis, we have identified five dimensions that directly or indirectly have important implications for wellbeing and are particularly relevant to Treasury. These dimensions are:

  • The set of opportunities available to people. This includes not only the level of goods and services that can be consumed, but good health and environmental amenity, leisure and intangibles such as personal and social activities, community participation and political rights and freedoms.
  • The distribution of those opportunities across the Australian people. In particular, that all Australians have the opportunity to lead a fulfilling life and participate meaningfully in society.
  • The sustainability of those opportunities available over time. In particular, consideration of whether the productive base needed to generate opportunities (the total stock of capital, including human, physical, social and natural assets) is maintained or enhanced for current and future generations.
  • The overall level and allocation of risk borne by individuals and the community. This includes a concern for the ability, and inability, of individuals to manage the level and nature of the risks they face.
  • The complexity of the choices facing individuals and the community. Our concerns include the costs of dealing with unwanted complexity, the transparency of government and the ability of individuals and the community to make choices and trade-offs that better match their preferences.

These dimensions reinforce our conviction that trade-offs matter deeply, both between and within dimensions. The dimensions do not provide a simple checklist: rather their consideration provides the broad context for the use of the best available economic and other analytical frameworks, evidence and measures.

In The Age and Sydney Morning Herald