Friday, September 04, 2015

Going down. Why 60 US cents might be just what we need

The Australian dollar has dipped below 70 US cents twice in the last two days. Next time, it's set to stay below 70 and keep falling.

Economist Saul Eslake is talking about 65 US cents in a matter of months. Shane Oliver is talking 60 US cents. Others are talking values in the 50s. If there's one thing that's certain about moves in the dollar it's that they usually continue much further than they should before swinging back, like a pendulum.

Asked where the dollar should be back in December when it was near 85 US cents, the Reserve Bank governor Glenn Stevens said if he had to pick a figure, he would say probably say 75 rather than 85.

Work on the fundamental value of the dollar based on the relative cost of purchases in the United States and Australia suggests 'fair value' is around 73 US cents. It's the level at which after swapping one currency for another you find the prices unchanged when you move between countries.

Just as the Australian dollar was too high a year ago at 95 US cents, it'll be too low at 55 or whatever it reaches before it swings back...

Pushing it low right now are expectations of a hike in US interest rates, the first since the financial crisis, which will make the US a relatively more attractive place to park money and Australia a relatively less attractive place.

The greater uncertainty that'll flow from the change will also make Australia relatively less attractive, as will any further cuts in Australian interest rates. And sliding export prices are weighing on the dollar as well.

Four years ago iron ore was worth $US180 a tonne. Today it's worth $US56. If Chinese and other buyers don't need to pay as much to buy our products they don't need to buy as much Australian currency to make their purchases.

A lower dollar means higher prices (although perhaps not as high as when it hit its all-time low of 47.70 US cents in April 2001).

But it also means that firms the high dollar locked out of foreign markets suddenly find themselves competitive. This week's national accounts showed manufacturing growing for the first time since 2011. Architects, universities and all manner of firms that try to sell overseas are back in the game. It's what we need.

In The Age and Sydney Morning Herald


Related Posts

. October 2014. RBA: Dollar overvalued, “and not by just a few cents”

. December 2013. 'Twas the dollar that killed Holden, not the carbon tax

. October 2010. Learn to love the higher dollar

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Thursday, September 03, 2015

Economic growth close to zero as living standards slip

A sharp fall in national income has all but obliterated economic growth, pushing down income per head by the most since the global financial crisis and delivering headline growth of just 0.2 per cent.

The best measure of living standards, real net national disposable income per head, slid 1.2 per cent in the three months to June, the biggest slide since the global financial crisis and the 1990s and early 1980s recessions and the mid 1970s oil crisis.

It's the fifth consecutive slide in real net disposable income per head. It is now 5 per cent below its peak at the height of the mining boom in 2011.

Treasurer Joe Hockey attempted to put a positive spin on the result by comparing Australia with countries that are performing worse.

"Canada overnight reported they have now officially fallen into recession," he told a Sydney press conference. "New Zealand had a growth rate of just 0.1 per cent in the March quarter and it's facing significant headwinds. Other commodity-based economies like Brazil are also facing huge challenges."

Australia's economic growth rate is lower than Greece's, lower than Britain's and the United States' and lower than the European Union's...

Had it not been for a surprise 41 per cent jump in government spending on defence equipment in the quarter, economic growth would have been zero. The Bureau of Statistics said the jump in defence spending was responsible for all of the 0.2 percentage points of economic growth.

Asked whether government spending was deliberately brought forward in order to forestall a recession, Mr Hockey replied: "I can promise you it wasn't planned to be that way."

Ongoing government spending also jumped by more than usual, climbing 3.4 per cent in the quarter, more than three times as much as in previous quarters. The Bureau of Statistics said this too was responsible for 0.2 percentage points of economic growth.

Labor treasury spokesman Chris Bowen said none of the weakness in the June quarter figures was due to the sharemarket turmoil in China.

"This all predates that," he said. "If anybody from the government has suggested that to you, they're misleading because to say that events in recent weeks in China could have affected these figures misunderstands the period of time which these figures come from."

The Australian sharemarket slipped 1.5 per cent on the GDP news before rebounding in line with markets overseas. The Australian dollar dipped below US70¢ for the first time in six years, before recovering to close about one third of a cent above US70¢.

Australia's annual growth rate was just 2 per cent, the lowest since the dying days of the Gillard government in 2013 and well below the long-term average of 3.25 per cent. Nominal GDP, a measure in current prices which provides a good estimate of tax revenue, climbed by just 1.8 per cent in the financial year, an increase the Bureau of Statistics said was the lowest since 1961-62.

At his press conference Mr Hockey appeared to take issue with the Bureau of Statistics, saying: "It is wrong to say it's the weakest growth since 1961, it' is just factually wrong.

"The fact is that the economic growth we had in the last quarter was in line with expectations. Of course it bounces around from quarter to quarter but it was in line with our overarching expectation to have 2.5 per cent growth in the last financial year."

GDP per head went backwards in the June quarter, sliding 0.2 per cent, indicating that all of the economic growth was the result of population growth.

Business investment slipped 0.7 per cent in the quarter and 6.8 per cent over the year. Home building activity fell 1.1 per cent, after a surge of 10 per cent in the previous six months. Household spending climbed 0.5 per cent.

Australia's export income slid 3.3 per cent.

In The Age and Sydney Morning Herald

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Tuesday, September 01, 2015

Slow ahead. Expect 'the equivalent of a recession' every ten years

If we were sleepwalking into a mess, would we know it? Our leaders wouldn't.

Tony Abbott opened last week's national reform summit with a self-congratulatory video in which he talked about cutting red tape, the China-Australia free trade agreement, and the need to protect mining from "vigilantism in the courts". Things were heading in the right direction.

Joe Hockey gave a speech that said even less, talking about the rise of the consumer and observing that his dad once told him, "ideas are free, but good ideas are gold nuggets".

Bill Shorten was better. The deficit had doubled. Wages growth was at record lows. Economic growth was nearly a full percentage point below trend. Australia's transition from the mining boom had been patchy.

Then the politicians left the room.

The summit was told that the economy was set to grow at a mere fraction of the officially projected pace, so slowly that the living standard expected in 2055 wouldn't be reached until 2075, when most of us would no longer be alive...

The intergenerational report had assumed average growth in real incomes of 1.4 per cent per year for each of the next 40 years. It would mean that by 2055 real income per person would be an impressive 75 per cent higher than it is today. We would easily be able to afford any extra tax we needed to fund higher pensions and health costs, and our incomes would be climbing so fast, we wouldn't much mind if the tax system was changed.

Even >in March, when the report was released, Treasury officials regarded the assumption as a stretch. Since then views about the future have changed. The Reserve Bank believes Australia's sustainable rate of economic growth may be lower than in the past, so low as to make the projections in the intergenerational report unachievable.

On Wednesday at the reform summit, economic modeller Janine Dixon from Victoria University put numbers on a rate of income growth she said was more realistic. Instead of growing by an average of 1.4 per cent per year, real income per person would grow by a bit less than 1 per cent, enough to leave us only 44 per cent better off by 2055. We would need to wait another 20 years to be as well off in 2075 as the intergenerational report said we would be in 2055.

Her thinking is that productivity (output per hour worked) will grow far more slowly than it has. To prepare the intergenerational report, the Treasury simply projected the growth rate of the past 40 years to the next 40. She said the past 40 years included "an exceptional period in Australia's economic history – a period which included the major economic reforms of the 1980s combined with unprecedented growth in computing and communications technology and the benefits of the stability brought about by a 23-year run of positive economic growth".

Assuming that we are unlikely to computerise once again, and knowing we can't cut high tariffs to near zero again, and that we are most unlikely to survive yet another generation without a recession, she has come up with a much lower estimate of normal productivity growth by excluding the exceptional years between 1994 and 2004.

Professor Ross Garnaut seized on the implications. On present settings, Australia had no chance of achieving the promised 2020 surplus, and instead faced "ever increasing budget deficits".

Dixon outlined other implications. If incomes don't rise as rapidly, we will need to save more in order to fund the things we could have once relied on income growth and future generations to fund. "Decisions about who should forgo consumption to fund investments become contentious," she said. Baby boomers and generations X and Y and Z will fight among themselves over who should pay the most. Rapidly rising incomes are a lubricant - they stop people rubbing up against each other.

The fighting has already started. Instead of embracing tax reform as our leaders used to, the present lot are frightened, knowing that unless incomes are rising rapidly, tax reform is close to a zero sum game. It isn't possible to make everyone better off.

The former treasury secretary Martin Parkinson said the enormity of what was in store amounted to a recession every decade, as each decade lost 5 percentage points of expected GDP. "It means willingly accepting the impact of a recession," he said. "We are actually going to find ourselves sleepwalking into a real mess."

We might get a foretaste on Wednesday when the Bureau of Statistics releases the June quarter national accounts. One bank is tipping economic growth of just 0.2 per cent in the quarter; another, 0.4 per cent. Either result is pitifully low by the standards we have come to expect and if sustained would drive annual growth below 2 per cent.

It might be something we will have to get used to. Highly aged societies such as Japan and Italy have long been used to low income growth. Highly aged individuals get used to it as well. The transition has probably been under way for some time. Until now it has been masked by the mining booms.

It won't be catastrophic, but it won't be pleasant. Things that have been easy will become more difficult. It would be nice if our leaders even acknowledged the possibility.

In The Age and Sydney Morning Herald

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Tuesday, August 18, 2015

By design. Why super system hurts women

Women put away only half as much super as men, and suddenly we're concerned.

The Senate is holding an inquiry. The finance industry is talking stop-gap solutions. The ANZ wants to give its female staff a $500-a-year top-up. Rice Warner wants to pay an extra 2 per cent into their accounts. Westpac is paying their super while they are on maternity leave. Their umbrella body, the Financial Services Council, wants the law changed so that women can top up their accounts later in life, when presumably they've got income to spare. Other solutions are dafter.

The ANZ is offering free financial advice to female customers with less than $50,000 in super. The Association of Superannuation Funds wants women to "take an hour" to check their accounts each International Women's Day. Newspaper columns suggest skipping coffee, getting spouses to pay into super or working for a company that values women.

Oh, and lifting compulsory contributions from 9.5 to 12 per cent. The industry loves that one.

Every one of these suggestions misses the point. Low income earners get less super than high income earners by design. It's the way the system is set up...

Women are usually low income earners. It's a fact. On average women employed full-time get 20 per cent less than men employed full-time. And because so many are employed part-time, their total wages are on average 33 per cent less. And that's when they are working. Because so many have interrupted working lives their life-time incomes are lower still.

It means lower contributions. Our super system gives the most to those who contribute the most, and then accentuates the difference by giving the greatest tax concessions to those who earn the most. It supports most who need it least. And we are meant to be surprised that it isn't aimed at women.

According to Roy Morgan research, typically, an Australian woman holds just $35,200 in super while a man holds $62,900. A retired woman holds $129,100 in super; a retired man has $192,600.

And because women usually live longer than men, the woman's money has to last longer. It's often said that women are able to rely on their men to get them through retirement. It's one of the tips for how to cope. But many retire without partners. Marriages don't last.

As the Human Rights Commission says: "It is inequitable and impractical that a woman's expectations of financial security in retirement should fluctuate according to her relationship status".

And it's dangerous. The commission says depending on male income "makes the significant number of women in violent or abusive relationships financially vulnerable, particularly as they reach retirement age and the possibility of acquiring an independent income diminishes".

If we were going to devise a system that actually supported those who needed it the most, we would devise nothing like the one we have at the moment.

In large part that's because our system wasn't designed; it grew. In presenting the report of his financial system inquiry late last year David Murray pleaded with the government to define a purpose for super. Is it to help middle-income Australians save a little bit more to supplement the pension? Is it to provide a tax break for the investments of high earners? Is it to replace the pension for all but the lowest of earners?

The system began as a short-term fix for a short-term problem. Retirement incomes scarcely entered into it. Ralph Willis, one of Labor's Treasurers in the Hawke/Keating era, remembers that the building unions had just negotiated a massive pay increase outside of the so-called Accord, under which centralised wage rises were handed out. If the increase had spread to workers within the Accord it would have reignited double-digit inflation.

"It was an open invitation to everyone else to breach the Accord," he told ABC radio years after retirement. "The way of resolving it was to turn it into superannuation."

Workers were given super in lieu of wage rises. Because they were unable to spend it until they retired, it didn't stoke inflation. Before long compulsory super accounted for 4 per cent of each wage, and then 9 per cent. Had the Rudd/Gillard Labor government stayed in office it would have climbed to 12 per cent (and there was talk of 15 per cent). All the while without an examination of what it was actually for.

It isn't supporting the retirements of those most in need. They are forced on the pension. It is helping middle-income Australians put away a bit more for retirement, but at the cost of leaving them with less than they could have in the middle of their lives. And it's serving as a tax dodge for high-wealth retirees who pay nothing on the earnings of their funds or on their payouts for the rest of their lives.

The best way to use super to help low income women would be to abolish compulsion, abolish the tax breaks, and let them access their income when they need it. The extra tax revenue could dramatically boost the pension, and better means testing could ensure the very well off still didn't get it.

It would help women because it would replace the system that hurts them rather than merely ameliorate its worst effects. The worst thing we could do would be to boost their compulsory super contributions, as the industry wants. It would further depress their incomes while leaving the differential on retirement in place.

In The Age and Sydney Morning Herald

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Abbott's own figures show he could have done much more to fight climate change

The striking thing about Tony Abbott's attempt to balance damage to the environment against damage to the economy in choosing an emissions reduction target is how mind-bogglingly small the damage to the economy would be.

Abbott's cabinet endorsed the target last week. Whereas until now Australia has tried to lower emissions to 5 per cent below 2000 levels by 2020, at the Paris conference in December it will offer about the same as the United States". It is true the US is offering a cut of 26 to 28 per cent, but its cut is to be delivered by 2025, five years earlier than Australia's 2030.

Comparing like for like and assuming the US continued its promised rate of cuts beyond 2025, the US is offering 35 to 39 per cent, compared with Australia's 26 to 28 per cent.

Abbott might have been hoping we wouldn't notice...

On a like-for-like basis, we will offer less than Britain United Kingdom, less than Germany, less than the European Union, less than Canada and less than New Zealand; less than most of the countries with which we like to compare ourselves, including those with conservative governments.

The Prime Minister says the offer is better than Japan's target and better than China's.

But Japan has lost most of its low-emission power in the wake of the Fukushima​ disaster and China is a developing nation with living standards a fraction of ours. Its offer to cap its emissions before 2030 is more than we could have hoped for.

What's clever about Abbott's offer is that it's just enough for us to be taken seriously. We're at the bottom of a pack, we are not promising as much as needed, but at least we are in the pack.

And the Prime Minister says he has to be "economically responsible".

"We have got to reduce our emissions, but we have got to reduce our emissions in ways which are consistent with continued strong growth," he said on Tuesday.

Evoking an image of balanced scales, he said the last thing he wanted to do was to "strengthen the environment and, at the same time, damage our economy".

Which would make sense if the scales weren't so outrageously unbalanced. His own economic modelling makes the balance clear.

Abbott says it concludes that the cost of a 26 per cent cut in emissions will be "between 0.2 and 0.3 per cent of GDP in the year of 2030".

That's right, between 0.2 and 0.3 per cent of GDP. Not between 0.2 and 0.3 per cent a year, which would be noticeable, but far less than that – about 0.01 to 0.02 per cent a year, which would mean that in 15 years, the economy would be 0.2 to 0.3 per cent smaller than it would have been.

How big would it have been? By then, the projections in the intergenerational report have the economy being one and a half times as big as it is today.

Some of it will be the result of population growth – our population will be 21 per cent bigger by then – but the rest will the result of a higher standard of living, if the projections in the intergenerational report turn out to be correct.

By 2030, instead of being worth $1.6 trillion, the Australian economy will be worth $2.4 trillion; that's unless something dents that growth.

Abbott's modelling shows that the dent from an emissions target of 26 per cent would be 0.03 per cent. The dent would mean that instead of being worth $2.4 trillion when rounded to one decimal place, the economy would be worth $2.4 trillion when rounded to one decimal place. It'd be hard to see.

And hard to feel.

It would amount to $7 billion in a $2.4 trillion economy.

But by then, even with the emissions target, the economy would be growing at the rate of about $5 billion every four weeks. In six weeks, it would have made up the $7 billion it lost as a result of the emissions reduction target.

If you don't much mind feeling as well off as you did six weeks ago, you're going to not much mind an emissions reduction target of 26 per cent. Nor would you mind one much bigger.

The Climate Change Authority's assessment of what is needed works out at a 45 to 63 per cent cut in emissions on 2005 levels. It might set us back 14 weeks.

That's how small an economic price we would need to pay to do everything that could reasonably be expected to limit the increase in global temperature. That's how easy a confident government would have found it to do more.

In The Age and Sydney Morning Herald

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Tuesday, August 11, 2015

Revenge, bloodymindedness and gullibility. The untaxing of capital gains

How on earth did we come to be lumbered with a tax rule so bad it is disliked by the Treasury, the Reserve Bank, the Business Council, the Council of Social Service, the Organisation for Economic Co-operation and Development, and both of Tony Abbott's most trusted business advisers?

And why on earth is Abbott still clinging to it?

The storyof how we came to be saddled with a system that taxes wages at twice the rate of profits made from trading real estate is an epic tale of revenge, incompetence, bloody-mindedness and gullibility. Along the way it has forced Treasurer Joe Hockey to set income tax rates higher than he should and fed an explosion in house prices by supercharging negative gearing.

It is, as economist Rory Robertson told his clients in the early 2000s, "almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries".

The tale begins in 1985 with what now seem two unremarkable decisions...

As part of the tax white paper process, Labor treasurer Paul Keating made fringe benefits and capital gains subject to tax. Remarkably, up to that point they hadn't been. It meant that if you were paid half your salary in benefits you weren't taxed on it. If you made half your income buying and selling property or shares, you weren't taxed on that. Only ordinary wage earners paid full tax.

These days the Coalition claims to have supported Labor's reforms of the 1980s. But it didn't support those two. The then opposition leader John Howard fumed. "Both should be scrapped – lock, stock and barrel," he said.

Labor made a generous and unnecessary concession. Instead of taxing the entire profit on the purchase and resale of shares or property, it taxed only the profit over and above the rate of inflation. This meant a negatively geared landlord could deduct from their taxable income all their interest payments (including the inflation component) but would have added to their taxable income only their "real" profit (excluding the inflation component).

But over time the rate of inflation fell. More than 8 per cent when Labor introduced the concession, it was heading to 2 per cent by the time Howard took over as prime minister in 1996. Speculators were close to being properly taxed. So under cover of introducing the goods and services tax, he asked his friend John Ralph to conduct a review of "business" taxation, sneaking in a very specific reference to personal tax.

The panel was to examine "capping the rate of tax applying to capital gains for individuals at 30 per cent".

The stock exchange lobbied hard. It commissioned a US economist associated with Reagan-era tax cuts to produce modelling showing that cuts to the capital gains tax rate would be "would be close to self-funding".

They would "yield large revenue feedbacks as holders of relevant assets are provided a greater incentive to sell". Really.

The stock exchange put (rough) numbers on it. At the time capital gains tax collections amounted to 0.4 per cent of GDP. If Australia cut the rate to near where it was in the United States, collections could climb to 0.7 per cent.

Ralph bought it. Under the heading "Rewarding Risk and Innovation", he told Howard to tax only half of each capital gain, and found that on balance the change would bring in more money than it lost.

Fifteen years on, it's possible to assess that claim. Before the cut, capital gains tax accounted for 0.4 per cent of GDP. In the latest year for which we have figures (2012-13) it brought in just 0.2 per cent.

Had capital gains tax been as effective as it was before Howard cut it, it would have brought in an extra $3 billion.

Ralph thought the cut would "encourage a greater level of investment, particularly in innovative, high-growth companies". Instead, it delivered windfall gains to those who had already bought real estate and encouraged everyone else to dive in.

Labor's Kim Beazley waved it through. Only Labor's Mark Latham was prescient, telling a largely uninterested Parliament the cut would "add to the great Australian disease of asset and property speculation, particularly in our big cities".

Reserve Bank official Luci Ellis told a parliamentary hearing last week that the capital gains tax cut boosted property prices more than share prices because property was easier to borrow against.

"It is just more profitable to negatively gear property, because you can gear it more," she said.

The Bank's submission to the home ownership inquiry fingers the capital gains tax cut as one of the key reasons borrowing to buy investment properties exploded from 1999. These days more than half of all the dollars lent to buy houses are snapped up by investors.

Tony Shepherd, handpicked by Abbott to head his commission of audit, says he would scrap the discount. "I can't see any reason for treating capital gains any different from income tax," he told a conference in June.

David Murray, picked by Abbott to head his financial systems inquiry, came out in favour of cutting the capital gains concession. The Business Council has called for a rethink, saying such concessions "distort investor behaviour, particularly at a time of rapid capital gains". The Henry tax review wanted the discount to be cut to 40 per cent and applied to all forms of saving. Labor said no. The Treasury uses its latest tax discussion paper to pose a simple question: to what extent do the benefits of the concession outweigh the cost?

Axing the capital gains tax discount would render negative gearing impotent. It would fund a cut in income tax and take the heat out of the property market. Just about everyone in Abbott's corner agrees, apart from Abbott himself, who's stopped listening.

In The Age and Sydney Morning Herald

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Tuesday, August 04, 2015

The Trans Pacific Partnership is still alive and still capable of doing us harm

Don't for one second think the Trans-Pacific Partnership is dead.

Talks to seal the mega-deal between Australia and 11 other nations representing 40 per cent of the world's economy broke up without agreement in Hawaii on Saturday, but agreement is close.

Those involved say all it needs is for a few of the parties to give ground on a few sticking points and all 25 chapters are ready to go.

The 12 trade ministers could meet again within weeks, before the end of August, and declare the deal done. The United States is desperate to get it signed before its extended election season gets into high gear. Canada has an election in October.

Australia is holding out for wants an exemption from so-called investor-state dispute settlement (ISDS) rules for decisions concerning health and the environment, and has so far held out against measures that would prop up the extraordinarily high prices of biologic drugs. But they are differences creative language could smooth over.

A draft of the investment chapter published by Wikileaks shows that Australia has asked to exempt four organisations, including the Pharmaceutical Benefits Scheme, from ISDS. But the request is in square brackets, indicating other nations don't agree. As a back-up, the chapter includes language almost exempting decisions designed to to protect objectives such as public health, safety and the environment. They would not be subject to ISDS "except in rare circumstances".

What this means in practice is that our Trade Minister Andrew Robb could agree to the clause and say Australia couldn't be sued in external tribunals over decisions concerning health and the environment (as it is now by tobacco giant Philip Morris under a different agreement) and later then down the track find himself in the middle of a "rare circumstance".

The clause wouldn't stop Philip Morris or its ilk suing Australia, it would just make it more likely Australia would win...

So far Australia has shelled out about $50 million defending its plain-packaging laws, even though it will probably win.

Australia's hard line on data protection for biologic drugs could also be softened. Biologic drugs are those made with living organisms. There are horrendously expensive. Soliris treats a rare immune disease. It costs our Pharmaceutical Benefits Scheme $500,000 per prescription. The PBS onsells it for $37.70, or $6.10 if the patient holds a concession card.

To get a drug approved, the manufacturer has to submit data from trials to demonstrate that it works and is safe. After five years that data is available to other firms that might want to make it after the patent expires. The US wants to lift the restriction to 12 years, locking away the data for an extra seven years and keeping prices high.

Data protection is separate to patent protection, which lasts for 20 years. If there's a big delay between the discovery of the drug and its approval, it can be additional to patent protection.

And it works the opposite way. Whereas patents grant exclusivity in return for handing over data, data protection grants exclusivity in return for not handing over data.

"You would have to sit in a committee room for a long time to work out a worse policy," says Nicholas Gruen, a patent expert who has prepared reports for the Australian government. "It grants a monopoly in return for nothing."

The US is reportedly considering a compromise to placate Australia. It's a base period of five years, followed by an extension of three years "under certain circumstances". However meaningful, it would allow both sides to claim they had won.

But even considering the idea makes plain how debauched the whole concept of trade agreements has become. In earlier decades the past trade agreements were unambiguously good for the citizens of the nations involved. They cut prices. This one puts them up. The US is using it it in an attemptto try to keep medicines expensive and the cost of taking on US corporations high. In Canada the pharmaceutical giant Eli Lilly is using an ISDS clause in the North American agreement to sue the government for failing to grant it two patents knocked back on the grounds that they weren't sufficiently innovative. Eli Lilly wants $500 million.

Somehowwhere along the road from the 1980s, trade agreements morphed from pacts designed to cut trade barriers to pacts designed to erect them. Negotiators who had previously worked to advance free trade started working to advance the interests of US corporations.

We saw it first in the early `90s in an odd request from the World Trade Organisation for Australia to extend its patent term from 16 years to 20 years. The then Labor government waved it through, handing existing patent holders an extra four years of high prices. A Productivity Commission study found the decision cost more than $376 million.

From then on the demands kept building, most of them made in secret. Much of what we know about the pact presently being negotiated in our name comes from Wikileaks. US corporations are allowed to see what's in it, ours are not.

Trade negotiating has become an exercise in fighting off bad proposals rather than enabling good ones. 

Gruen wants us to get back to basics. He says before we even start negotiations we should make three things clear: that tougher intellectual property laws hurt consumers; that they also have the potential to hurt producers who themselves rely on intellectual property; and that they can only ever be justified where the benefits exceed the costs.

It would put economics rather than tradeoffs at the heart of trade negotiations. It would give us an idea of what we are doing.

In The Age and Sydney Morning Herald

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