Monday, December 11, 2017

As big as Bolte. Government projects creating skills shortages, Treasurer says

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald

Private schools set to get more than they need under Gonski 2.0, documents reveal

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald

Sunday, December 10, 2017

Better than the Olympics. The economic benefits of same sex marriage

How on earth could same-sex marriage deliver 10 years' worth of economic benefits? And why on earth do 18 of Australia's leading economists expect it to?

The experts were surveyed this week by the Economic Society of Australia. Thirty answered this question: "Will changing the law to allow same-sex couples to marry generate net economic benefits for the nation as a whole over the next 10 years?"

Eighteen thought it would. Only seven thought it would not.

Almost always whenever someone claims something will benefit the economy they are wrong. Look at a graph of GDP either side of the Sydney Olympics and you won't see anything other than a drop in GDP during the Games. Tourism flatlined then fell after the Games. It didn't start growing strongly again until 2004. Even the Olympic Stadium, which we were told would be a lasting legacy, is, according to the premier, so clapped out it ought to be torn down.

KPMG, which wanted work associated with the Games, produced a much-hyped study for the NSW government saying the Olympics would boost economy growth by $7 billion. A decade later, an examination of what actually happened found it had clipped economic growth. Like countless expressways, stadiums and mega projects before and after it, it had cost more to create than it could ever produce in benefits.

One of the reasons the spruikers almost always get it wrong is that they add up the costs of the project (that's the easy bit) and then subtract them from the project's benefits. For sports events, those benefits include extra spending as people pour into Olympic Park or into Melbourne Park for the tennis. What the spruikers forget, often, is that the people who spend at big events would have spent something anyway, perhaps in their own suburb or at another sporting event or at the theatre. They forget to subtract the spending that won't be done in order that the spending at the big event can be done.

It's a trap for people expecting benefits from same-sex weddings. Professor Kevin Davis from Monash University put it this way in response to the Economic Society survey: "There may be more expenditure on weddings etc, but there is no obvious reason this would not be at the expense of other expenditures."

There can be a localised benefit in a country town. A really big wedding or special event can draw people into the town who never would have spent there. But the gain to that town will be a loss to the region or town from which those people have come.

So why are the experts so sure there will be benefits from permitting same-sex marriage?

Partly, because it's cheap. Passing a law costs nothing compared to building a stadium.

And partly because there will necessarily be benefits.

Here's how Lin Crase of the La Trobe University puts it: "Constraints that impinge on individuals' full participation in society necessarily reduce economic welfare. It follows that removal of those constraints should lead to some gains."

This would be true even for people in same sex relationships who decided not to take advantage of the opportunity to marry.

Professor Mardi Dungey of the University of Tasmania says that when we remove impediments to improving people's ability to satisfy their wants, with no material harm to others, we necessarily improve people's welfare.

And Curtin University's Professor Margaret Nowak identifies broader benefits: reduced health costs, especially in the area of mental health, reduced suicide rates among youth, and reduced discrimination in the workforce "resulting in more optimal allocation of workers".

For what it's worth, married couples also spend more. Dr Gigi Foster from the University of NSW says married heterosexual couples invest more in the kind of things that shacked-up couples don't. And she says something else.

Legalising same-sex marriage will allow politicians and the public to move on and focus on other things that could produce further economic benefits. There's a chance.

In The Age and Sydney Morning Herald

Thursday, December 07, 2017

Now they can afford a tax cut?

So now they can afford a tax cut?

Just months ago, in the May budget, Scott Morrison and Malcolm Turnbull pushed tax rates up. That's right, up. They lifted the Medicare levy from 2 to 2.5 per cent, beginning in 2019. It'll net them $4 billion a year, money they said they needed to fund the National Disability Insurance Scheme.

And now they can afford a cut?

Maybe they didn't really need the extra money for the National Disability Insurance Scheme after all. And there's an extremely flimsy argument that they didn't.

The mid-year budget update, due within the fortnight, is likely to show the budget is slightly better off. Unexpectedly strong company tax revenue in the first four months of the financial year has put the budget almost $5 billion ahead of target.

Much of it flows from a better than expected run up in commodity prices, which we now know didn't last. But that wouldn't stop an optimistic forecaster or an optimistic government from acting as if it would last and handing out permanent tax cuts of up to $5 billion per year.

The most successful private sector budget forecaster is Deloitte Access Economics, whose senior staff used to prepare the official forecasts when they were in Treasury.

Deloitte says that by the end of the financial year, revenue will be only $2.7 billion ahead of the budget and only $0.9 billion ahead in the following year. It produced a ready reckoner to enable us to calculate what kind of a tax cut those boosts could buy if it was permanent, which it almost certainly will not be.

Three billion could buy a lift in the $18,200 threshold to $19,200 and a lift in the $37,000 threshold to $38,000. That's all.

One billion, a more realistic, though still inflated, guess as to how much extra the government might have long term, couldn't even buy the lift from $37,000 to $38,000. Deloitte director Chris Richardson says it would buy a small sandwich or a small milkshake.

Unless the proposed tax cut applied to hardly anyone, which is a trick they've pulled repeatedly. Lifting the $87,000 threshold by $1000 costs only $110 million per year; lifting the $180,000 threshold costs only $30 million.

It's something to keep in mind if we once again get tax cuts skewed towards the top. It mightn't be so much a case of the Coalition helping out high income mates as making a gesture it can afford.

Middle earners are about to get clobbered. The government's own figures, spelt out by the Parliamentary Budget Office, show the average tax rate faced by middle-income Australians on $40,000 to $50,000 is about to climb 3 percentage points. Within four years.

Instead of handing over 14.9 per cent of their income after low starting rates and the tax-free threshold, middle earners will find themselves handing over 18.1 per cent. Within four years. It's the result of bracket creep, and the increase in the Medicare levy. And the projected return to surplus in 2020-21 depends on it.

The only ways to deliver serious tax relief are to push out further the projected return to surplus (just as it has been pushed out repeatedly by treasurers dating back to Wayne Swan), to fund the needed tax cuts with big spending cuts (something this government and the last have been incapable of, even in non-election years), or to fund the tax cuts by lifting other taxes.

Or by hoping something comes along.

And there's the magic pudding.

Here's how Finance Minister Mathias Cormann put it in a speech to the Business Council last month:

"Something that we keep pointing out again and again, but which doesn't ever seem to be appropriately well understood by analysts or commentators, is that our budget revenue forecasts are based on an assumption imposed on our forecasting model that tax revenue as a share of GDP is not allowed to exceed 23.9 per cent."

"Future tax cuts are already reflected in our revenue forecasting methodology."

He is right. Already baked into the budget projections are tax cuts from 2022-23 when the tax share of GDP is due to hit 23.9 per cent, which is the average take in the years between the introduction of the GST and the global financial crisis.

Five years into the future though those baked in tax cuts will be, they could be delivered as income tax cuts. Except that they mostly won't be, not if the government gets its full company tax cut through the Senate.

The Parliamentary Budget Office says if that happens, the company tax cut will do most of the heavy lifting needed to keep the tax to GDP ratio at 23.9 per cent, leaving little room for cuts in personal income tax, which will "continue to rise as a per cent of GDP".

There's not likely to be a magic pudding, unless the government prioritises personal tax cuts over company tax cuts or gets hit by another mining boom.

Treat sceptically proffered income tax cuts in the months beyond Christmas. They'll be either unaffordable or alarmingly small.


In The Age and Sydney Morning Herald

Wednesday, December 06, 2017

Worst result since 2008: Bill shock shuts wallets across Australia

Bill shock – or the fear of it – shut wallets across the country in the three months to September as alarm about rising energy prices drove people away from shops, healthcare, hotels and cafes.

Spending on almost every discretionary purchase was down in the September quarter, as spending on almost every unavoidable expense increased, led by electricity and rent. The outcome was a net increase in household final consumption of just 0.1 per cent, the weakest result since the 2008 global financial crisis.

Household saving climbed for the first time in five quarters.

"This isn't surprising given the cost of living pressures on essentials," Treasurer Scott Morrison told a Canberra press conference.

"Concerns around electricity prices were at the front of mind in the September quarter and remain there. We saw large price increases from July 1 and the Turnbull government responded."

An apparent rebound in retail spending in October gave the Treasurer grounds for cautious optimism about the December quarter.

Offsetting extraordinarily weak consumer spending in the September quarter was a 2 per cent bounce in private spending on buildings and other capital equipment and a 7 per cent surge in government capital investment. The economy grew by a weaker than expected 0.6 per cent in the quarter and 2.8 per cent through the year. GDP per capita, a measure that adjusts for population growth, climbed just 0.2 per cent.

"The news on business investment is good; the mining investment decline has nearly finished and non-mining investment is improving," said AMP chief economist Shane Oliver. "But consumer spending is being dragged down by low wages growth, slowing wealth accumulation, poor sentiment, high debt levels and rising energy costs."

"Until now consumers have dipped into savings to increase consumption. Solid gains in wealth from strong home price growth in Sydney and Melbourne have given them confidence, but it's doubtful they will want to keep running down savings as those price gains fade."

BIS Oxford chief economist Sarah Hunter said extremely weak consumer spending was a sign that many households were struggling with anemic wage growth and rising prices for essentials.

But it wasn't all bad news. Rapidly growing employment had pushed up the wage bill 1.2 per cent in the quarter, even though wage rates climbed by nowhere near as much.

Labor treasury spokesman Chris Bowen said businesses were feeling good, but households weren't.

"The lowest household consumption growth since the global financial crisis suggests that cost of living pressures and record household debt are weighing on spending habits," he said.

"This is not surprising given workers are struggling to get a decent pay rise and the Turnbull Government is cutting their penalty rates, and their debt levels are rising faster than their incomes."

Victoria was Australia's top-performing state when measured on a trend basis in order to smooth out quarterly fluctuations. Victorian state final demand climbed 1 per cent in the quarter, compared to 0.5 per cent in NSW and Queensland, 0.8 per cent in South Australia, 0.7 per cent in the Northern Territory, 0.4 per cent in the ACT and Western Australia and growth of zero in Tasmania.



Mr Morrison said much of what happened in the December quarter would depend on Christmas spending. In the new year he would be in a position to talk about tax relief.

"I would hope that Australians are feeling in a position where they can go out and celebrate this Christmas and holiday season," he said.

"I am sure their kids are hoping that they will be spending, too."

In The Age and Sydney Morning Herald

Fast-growing job-generating companies are getting harder to find

Just 9 per cent of Australian firms generate half of all net new jobs, fifteen per cent generate two thirds of net new sales.

Until now it's been hard to identify those highly-valuable so-called high-growth firms and find out what makes them special.

Now new cutting edge research from the Department of Industry has identified them and tracked them over time, using unique identifiers created from Tax Office business activity statements and pay as you go records. Linked to Bureau of Statistics survey data they paint a picture of what makes high-growth firms and what happens to them over time.

The most-important finding in the study released on Wednesday is that the 11,000 firms are typically younger than other firms (8 years old compared to 11) and much the same size and in most of the same industry sectors as other firms. They are not overwhelmingly high tech startups.

The firms whose high growth was in turnover spent more than others on research and development. The firms whose high growth was in employment spent less on research and development. While R&D had an ambiguous effect, the effect of innovation was clearly positive.

"Firms that are innovation-active are more likely to grow their revenue and profits, and they're more productive," said Department of Industry chief economist Mark Cully. "This association stands after controlling for a range of other factors, and we were also able to test and establish that the causality runs from innovation to growth."

"Introducing a new product or a marketing innovation had the greatest impact on a firm's revenue, boosting it by 3 and 4 percentage points. For high-growth firms these numbers were greater still. A focus on innovation as a business strategy increased their revenue growth by almost 10 percentage points, all else equal."

After four or so years, most high growth firms grow more slowly. The study concludes that high-growth firms are not a specific type, but "a phase that some firms go through during their life cycle".

Its most disturbing finding is that there are fewer such firms. It defines them as firms with an annual turnover of at least $75,000 employing at least five people with average annualised growth in sales or employment of more than 20 per cent a year over three years.

It says the number and persistence of high-growth firms has deteriorated since the global financial crisis, although in the last few years it seems to be stabilising. They are also growing more slowly.

Slower high growth rates.

Mr Cully said said it wasn't clear whether the slower growth was caused by the slower-growing economy or was a cause of it.

"It is higher in years when the economy is growing strongly, and lower in years when growth is weaker," he said. "The proportion of high-growth firms declined between 2005 and 2014, coinciding with the trend slowdown in Australian GDP growth after the global financial crisis."

In The Age and Sydney Morning Herald

Tuesday, December 05, 2017

Sydney powers the nation, accounting for almost half of Australia's economic growth

Sydney has become Australia's economic powerhouse, accounting for almost half of Australia's economic growth.

The extraordinary figure of 41.2 per cent is the highest since Victoria led the nation into recession in the early 1990s.

New calculations show that Sydney and Melbourne combined accounted for more than two-thirds of Australia's economic growth during 2016-17, a concentration rare on a global scale.

The capital city GDP estimates prepared by Terry Rawnsley of SGS Economics and Planning show Sydney's economy grew 3.3 per cent during 2016-17, easily surpassing Melbourne's 2.8 per cent.

The economy of regional NSW grew 1.5 per cent; the economy of regional Victoria grew 5.8 per cent.

A rough measure of living standards, GDP per capita grew 1 per cent in Sydney while slipping 0.1 per cent in Melbourne.

GDP per capita shrank 0.6 per cent in Brisbane and 4.7 per cent in Perth.

Mr Rawnsley said economic activity was gravitating to Sydney and Melbourne, even though Melbourne's living standards were slipping.

"It's getting economic refugees from Perth and Brisbane, whose living standards are slipping faster," he said. "Melbourne is more affordable than Sydney. If you want a big city with a vibrant economy but you don't want to pay Sydney prices, you go to Melbourne."

Sydney is Australia's hottest capital city economy. SGS suggests that to rein in Sydney's economy the Reserve Bank would have to push up its cash rate from 1.5 per cent to 3.5 per cent. To rein in Melbourne's it would have to push it 2.25 per cent. In Brisbane, Perth and Adelaide, the cash rate would have to be pushed down to 0.25 per cent.



Sydney and Melbourne were set to become even more dominant.

"The knowledge-intensive industries in which we are globally competitive are best located in big dense cities with good access to highly skilled labour," Mr Rawnsley said.

"Australia is unique in having a population of 25 million people and two cities of roughly 5 million each. Those cities are likely to become ever more important at the expense of the other capitals and regional centres like Bendigo and Ballarat or Orange and Wollongong."

Financial services is by far Sydney's most important industry, accounting for 15 per cent of its economy, up from, 11 per cent in 1997. The next most important is professional services at almost 10 per cent, up from 6 per cent in 1997. Construction accounted for 6 per cent of Sydney's economy in 2016-17, and manufacturing 5 per cent, putting Sydney within spitting distance of Australia's traditional manufacturing centre Melbourne, where it accounted for 5 per cent.

The official GDP figures, to be released on Wednesday, don't break down GDP by state. The Bureau of Statistics does this once a year, in November. Shortly afterwards Mr Rawnsley estimates capital city and rest-of-state GDP. Before joining SGS he calculated statewide and national GDP for the Bureau.

In The Age and Sydney Morning Herald


Melbourne living standards slip, as manufacturing slides to record low

Melbourne is no longer Australia's manufacturing capital.

New calculations of so-called capital city GDP show Melbourne's economy growing 2.8 per cent in the past financial year, well below Sydney's 3.3 per cent.

Had manufacturing not collapsed in the wake of the closure of the Ford car plant in 2016 and the closure of Holden in October this year, Melbourne's GDP would have been 0.6 points higher, eclipsing Sydney's at 3.4 per cent.

The capital city and regional GDP estimates are prepared each year by urban economist Terry Rawnsley of SGS Economics and Planning, who used to produce the national and state estimates for the Bureau of Statistics.

Manufacturing now accounts for only 6 per cent of Melbourne's economy, down from 16 per cent in 1997, just pipping Sydney's 5 per cent.

Victorian Treasurer Tim Pallas said that statewide, manufacturing remained Victoria's third biggest employer providing 278,000 jobs across 13,000 businesses.

"More than 266,000 jobs have been created since we were elected in 2014, with around 60,000 in regional Victoria," he said. "That's more than anywhere else in the nation for that period."

Financial services is now far and away Melbourne's most important industry, accounting for 12 per cent of economic output, followed by professional services, accounting for 9 per cent. The next most important industries are healthcare and construction, each worth 7 per cent.

The biggest contributors to Melbourne's economic growth during 2016-17 were the professional, scientific and technical industries, construction and wholesale trade, and healthcare and social assistance.

Adjusted for Melbourne's extraordinarily high population growth, GDP per capita fell in 2016-17, slipping 0.1 per cent. GDP per capita is a rough measure of living standards. It has fallen in six of the past 10 years. Brisbane, Perth and regional Western Australia were the only other parts of the country in which GDP per capita went backwards.


"Melbourne is in transition," Mr Rawnsley said. "Car plants have been closing while professional services and healthcare are growing. The good news is that manufacturing is levelling out. Things should improve from here on."

Asked why Australians should be flocking to Melbourne when living standards were falling, Mr Rawnsley said they were falling faster in Brisbane and Perth.

"They are economic refugees, and Melbourne is a lot more affordable than Sydney," he said. "If you want a big city with a vibrant economy, but you don't want to pay Sydney prices, you come here."

"People are coming for the lifestyle and jobs, even though the income they generate is failing to match population growth."

Melbourne's economy is Australia's second-hottest after Sydney. SGS suggests that to rein in Sydney's economy the Reserve Bank would have to push up the cash rate from 1.5 per cent to 3.5 per cent. To rein in Melbourne's it would need to push it 2.25 per cent. In Brisbane, Perth and Adelaide, the cash rate would have to be pushed down to 0.25 per cent.

Regional Victoria had a bumper year, recording economic growth of 5.8 per cent. A strong wheat crop and good year for other products including cheese boosted agricultural production almost 20 per cent. Manufacturing climbed on the back of related work at Shepparton canneries.

Combined, Australia's two biggest cities now account for 42 per cent of Australia's economic output, and a near-record two thirds of Australia's economic growth.

Mr Rawnsley said Sydney and Melbourne were likely to become even more dominant.

"The knowledge-intensive industries in which we are globally competitive are best located in big dense cities with good access to highly skilled labour," he said.

"Australia is unique in having a population of 25 million people and two cities of roughly 5 million each. Those cities are likely to become ever more important at the expense of the other capitals and regional centres like Bendigo and Ballarat."

In The Age and Sydney Morning Herald

Monday, December 04, 2017

By award. 'Fair work' gives women less than men

The Fair Work Commission is itself responsible for much of the gap between male and female wages, a landmark study has found.

The typical wage gap is 18 per cent, much of it due to decisions by employers paying men and women above the minimum wage. But a substantial gap – up to 10 per cent – is due to the minimum wage itself, which varies for different occupations and years of experience.

"At first glance, one might expect the gender pay gap to be zero among minimum-wage workers, since by definition they are all being paid the minimum wage," said Barbara Broadway, one of the authors of the Melbourne Institute study, to be released on Monday.

"However, there are in fact many different minimum wages in Australia. There are currently 122 federal awards, covering a variety of industries and occupations, and with each specifying numerous different minimums depending on things like the tasks and duties of the job and the qualifications and experience of the employee.

"This, combined with the fact that men and women differ considerably in the types of jobs they do, means that it is still possible for a gender pay gap to exist among minimum-wage workers."

The examination of 37,000 records from the Household, Income and Labour Dynamics survey finds that men hold 91 and 95 per cent of Australia's construction and road transport jobs respectively. Those paid the minimum typically get $22.58 and $20.43 an hour.

In contrast, women hold 79, 82 and 84 per cent of the retailing, accommodation and social services jobs. Those paid the minimum get between $15.67 and 18.27 an hour.

"Unlike market wages, the gap among minimum-wage workers cannot stem from employer discrimination, superior negotiating skills of men, or higher productivity of men, since everyone is being paid the minimum permissible rate of pay," Dr Broadway said.

"But is not immediately clear whether this job-femaleness penalty can be interpreted as discrimination.

"In principle, the job-femaleness penalty could result from the commission taking into account factors other than the required skill level, such as 'dirtiness' and 'danger'.

"However, this argument seems less compelling in a comparison of, for example, the average wage for truck drivers ($21.65) with that of hospitality workers ($15.97), where the latter group of employees would often perform physically demanding work in hot and/or loud environments."

The study concludes that the most likely explanation for the apparent discrimination is that the commission has been indirectly influenced by historical perceptions of what is "appropriate".

"Male-dominated fields might have benefited from a long history of strong unionisation that led to higher average wages – a history not shared by service jobs," the study says.

Nevertheless, it finds that the Fair Work Commission's decisions are far fairer than those made outside the commission. For jobs that require university education, the commission appears not to discriminate at all.

Some of the discrimination against women subject to Fair Work awards isn't the result of the awards themselves.

Men are more likely to be paid above the award – 87.6 per cent compared with 81.5 per cent – and the women forced to rely on it are likely to have had better education and more work experience than the men who rely on it.

"Women might be 'pushed' on to award wages, whereas comparable men are more likely to receive an individually or collectively negotiated (and higher) wage," the study says.

Awards are also structured so that wages increase faster for each year of experience in male-dominated jobs than in female-dominated jobs.

Virginia Haussegger, director of the gender equality initiative 50/50 by 2030 Foundation at Canberra University, said the figures confirmed what many women already knew.

"It shows the gender pay gap is entrenched, multi-factorial, and is not easily bridged," she said. "Fixing it involves looking beyond the numbers in awards to the weightings given to work itself."

The female penalty

Accommodation (82 per cent female): Average award wage $15.67 per hour

Retailing (79 per cent female): Average award wage $16.61 per hour

Social assistance (84 per cent female): Average award wage $18.23 per hour

Residential care (90 per cent female): Average award wage $19.82 per hour

Road transport (5 per cent female): Average award wage $20.43 per hour

Construction (9 per cent female): Average award wage $22.58 per hour

Source: Probing the Effects of the Australian System of Minimum Wages on the Gender Wage Gap, Barbara Broadway and Roger Wilkins, Melbourne Institute Working Paper, December 2017

In The Age and Sydney Morning Herald

Saturday, December 02, 2017

The two of us: Father-son economists Geoff and Tim Harcourt

"Airport economist" Tim Harcourt, 52, teaches at the University of NSW alongside his dad, leading economic theorist Geoff Harcourt, 86, whose influence accounts for his politics – if not their shared profession.

GEOFF: Tim was an extraordinarily happy baby, until he was one and a half. He got measles on the boat back from the United Kingdom. I had been at Cambridge for 18 months on leave from the University of Adelaide, lecturing and refining the ideas of John Maynard Keynes. When we came back he was miserable, pining for his old home. In the UK, we'd had this little Ford Prefect. In Adelaide, whenever a Ford Prefect drove by his face just lit up. He thought he was back in Cambridge.

When he was four we all went to Japan for four months. On our return he suddenly realised he was home in Adelaide. He couldn't keep the grin off his face for a week. He is the most proudly Australian of our four children, even though he's the only one born overseas. But that insecurity has probably never gone away. He seems to be Mr Cool, Crocodile Dundee, but beneath that he is anxious.

Working at Austrade and for the trade union movement has been part of that patriotism. He has toyed with running as a Labor candidate, which isn't surprising given the meetings and rallies we have taken him to. His mother Joan, still alive, was an abortion law reformer and a Labor candidate. He featured in her campaign poster, aged three. But I don't think he should go into politics. If he wanted to I have no doubt they would take him up. He is one of the best people I know at explaining economics.

But he hates Canberra. Bill Kelty sent him there for six months in the 1990s while he was ACTU chief economist and he was miserable. He loves Sydney and his family is important to him. He has an American wife and two adopted children, one from China and the other from Taiwan. 

Tim found out my father had changed the family surname from Harkowitz to Harcourt. I knew we were Jewish, but I didn't know that. My father's parents emigrated from Transylvania and Poland in the early 1900s. My mother wanted to fit in. Only when she died did my father talk about the name to Tim. Tim took Jewishness on board, but not in a religious way. He celebrates Jewish and Christian and Buddhist festivals in keeping with his mixed family.

I don't think he wants to change the world as much as I did. He is more of a pragmatist. As Austrade's chief economist he had no real job description, so he made it up as he went along, promoting trade and economics and also promoting himself along the way. He is one of the best people I know at explaining economics.

Now at university we have coffee or lunch every day. It's like being at home.

TIM: My dad had a broken nose the day I was born, from playing cricket in Cambridge. Growing up in Adelaide, he took me to all my footy and cricket games, and took me to his. My older brother and sister missed out because of the Vietnam War. Dad was too busy with the Campaign for Peace in Vietnam. He would convene meetings at our house attended by the likes of the then South Australian Labor premier Don Dunstan and future ministers Mick Young and Neal Blewett. I'd interview them on my cassette recorder as they arrived, pretending to be Norman Gunston.

I didn't know about the danger we were in. Years later, when I was at Austrade, I got death threats after I wrote about multiculturalism and my adopted Chinese child. My dad told me to take them seriously. During the Vietnam War we had received them at all hours of the day and night. Someone tried to blow up our Holden. For a while we had police protection.

Former prime minister Bob Hawke said something about his dad that applies to my dad, that he was "kindness personified". Mine is generous, even to his enemies. He has turned several into friends. Hawke's dad was a Congregationalist minister. I reckon mine is a minister in different clothes. He could have been a rabbi.

I was shocked when I discovered our family name had been Harkowitz. My grandmother wanted to assimilate, so she sent my dad to Wesley College in Melbourne, run by Methodists. It's where he developed his love of sport. He used to say that if you played football, they thought you were only "half a Yid". He called himself the only Methodist Jew in Adelaide.

He used to help out the South Australian Trades and Labor Council in wage cases. I would go as a schoolboy and sit in the courtroom. I decided then and there that I wanted to work for the Council of Trades Unions. That's why I studied economics, not because of Dad. I went to see the president of the ACTU, Cliff Dolan, at 15. He said to work there you needed a trade or a degree in economics or law, and he said they had plenty of lawyers, so economics might be the better bet.

At university, I didn't learn much about Dad's contribution. He helped develop what is known as post-Keynesian economics. It was only in the later years when they taught me about Keynes and the work of my dad that economics made sense. It had been like learning the New Testament without the Old.

The job offer from the University of NSW came out of the blue in 2011. They wanted someone who could popularise economics, which I'd done in The Airport Economist. I am the J.W. Nevile Fellow in Economics. John Nevile is one of my dad's closest colleagues. When he visits, he uses the same office as Dad, just down the corridor. For 28 years I saw Dad nearly every day, then not as much. Now, I'm blessed to get to see him whenever I'm at work in Sydney. 

In The Good Weekend

Thursday, November 30, 2017

Smothering charities: the plot to keep critics quiet next election

Can't stand politics?

The good news is that when the election campaign proper begins, they'll ease off on the abuse and put forward policies. They'll have to.

And those policies will be scrutinised by just about every interest group there is. That's the way it works. They'll rate them, produce scorecards according to how they'll affect things such as education, health, defence, foreign aid and the environment, assessing what's being offered.

Unless the Coalition stops them. And it's minded to.

The party room might sign off on anti-lobbying legislation as soon as Monday. It was going to consider it this Monday, before the parliamentary session was postponed.

It'll be dressed up as a move against foreign influence. Every organisation that gets even some of its income from overseas (GetUp gets 3 per cent of its income from overseas) would be prevented from spending more than a certain amount on political advocacy during the lead-up to elections.

It echoes the Transparency in Lobbying, Non-Party Campaigning and Trade Union Administration Act introduced by Britain's Conservative prime minister David Cameron. That act bans spending above a threshold during the 12 months before polling day on activities that could be "perceived as intended to influence how people vote". Registered organisations have to keep records and face audits.

The United Nations Special Rapporteur has described its effect as "chilling", saying many organisations opt for silence.

Few people know exactly what's in Australia's draft bill prepared by Special Minister of State Scott Ryan, although the word is its provisions have been made extensive in the expectation the Senate will cut them back.

Australian charities are already (appropriately) limited in what they can do during elections. They are not allowed to promote or oppose a political party or candidate, but they are allowed to advance public debate, including "promoting or opposing a change in the law". They can put out scorecards, helping us work out how to vote, which is what some in the Coalition don't like.

One minister is said to have been incensed at a mobile billboard that paraded around his electorate comparing his record of voting on the environment to the stance of the candidates that opposed him.

Pew Charitable Trusts is an international philanthropic organisation, but in Australia is a registered charity that promotes Australia's Indigenous Ranger program. The government program creates jobs for locals to protect natural and cultural values of their lands. It's backed by both the government and the opposition. But if Pew was to go public during the next campaign about which side backed it most, it could fall foul of the proposed law.

Or not. David Crosbie whose Community Council for Australia is running the Hands Off Our Charities campaign, says the proposed law's real power would lie in what it made uncertain.

"Our concern isn't so much that it would mean Pew wouldn't be able to do its work, although it would be bizarre to stop people advocating for Aboriginal rangers," he says. "It's that every charity would be asked those questions about what it did, and would be inclined to pull back. That's the chilling impact. If we don't want to be audited and don't want to be asked those questions, during the next 12 months or so we are going to have to shut up about housing or animal welfare or whatever it is we exist for. It would have an impact on all of us."

Which might be the idea. Quietly, with just as little publicity, the government has been moving against 'political' charities on another front.

In April last year, a government-backed inquiry into the register of environmental organisations (there is such a register) recommended that environmental charities be stripped of tax-deductible status unless they spent more than 25 per cent of their income on "environmental remediation work". Organisations like the Australian Conservation Foundation would be allowed tax deductibility only if they cleaned up oil spills or collected rubbish in addition to doing what's most effective: lobbying to prevent the environment being damaged in the first place.

Leading the push for the limit was the Minerals Council of Australia, whose members include coal miners and doesn't mind the odd bit of lobbying itself. If the government wanted to, it could do it now. It doesn't need legislation. And although it hasn't said what it will do, it might have started.

This year, the 600 environmental organisations on the register were asked two new questions when they completed their statistical return. The first was how much of their income was spent outside of the country. The second wanted their spending divided by categories, among them "campaign/advocacy" and "on-ground environmental remediation".

Because many don't keep those sort of records, many didn't answer. But down the track they might be made to, under the threat of having their charitable status stripped from them. That's if the government doesn't back down, which given its political problems it might well do.

But it's instructive to look at what some of its members would like to do if they could. They would like to narrow the number of voices out there at election time, to make it harder for us to choose.

In The Age and Sydney Morning Herald

The Coalition and the banks: when the wingman turns inquisitor

What is it with banks? The Coalition began dismantling the rules Labor had put in place to protect the public from them within weeks of taking office.

The task fell to Arthur Sinodinos, a former chief of staff to prime minister John Howard who had come to parliament from the National Australia Bank.

Labor's Future of Financial Advice Act banned conflicted remuneration (bonuses for tellers and other staff who steered customers towards profitable products) and imposed an overarching obligation on financial advisers to act in the "bests interests" of their clients.

Sinodinos said the "best interests" requirement would go. Bonuses would still be allowed under certain circumstances. Also out would be requirements that financial advisers inform existing customers how much they are removing from their accounts in the form of commissions, and to ask them to renew the arrangement every two years. They were "burdensome red tape".

When Sinodinos stepped aside to give evidence to the NSW Independent Commission Against Corruption on another matter, acting minister Mathias Cormann took up the case. The first letters informing customers what they were paying in commissions were just about to go out when, while the parliament wasn't sitting, Cormann had the Governor-General gazette a regulation that removed the requirement, a regulation that couldn't be disallowed until parliament next sat and it had been tabled, something he delayed as long as possible.

He gazetted the regulation on the day a Senate committee headed by Nationals senator John Williams found that the financial planning division of the Commonwealth Bank had engaged in "forgery and dishonest concealment of material facts" and called for a Royal Commission.

Later Fairfax Media and the ABC revealed that commission-based staff at the Commonwealth Bank had been selling life insurance policies with definitions that denied payouts to Australians who had had heart attacks.

In recent months the present minister Kelly O'Dwyer has been making it a priority to disrupt the governance arrangements of the only sector that seriously takes on the banks: the non-profit low-fee industry super funds.

Why has acting as wingman for the banks been so important to the Coalition? It'd be lovely if the Royal Commission found out.

In The Age and Sydney Morning Herald

Wednesday, November 29, 2017

An industry in need of help: marriage slides to an all-time low

Same-sex marriage could be just the boost the industry needs.

Official figures released on Tuesday show Australians marrying less than at any time since Federation.

Only 4.9 marriages per 1000 Australians were registered in 2016, down from 5.8 in the 1990s, 8.0 in the 1970s and 7.0 at the turn of the 1990s.

And the Australian Bureau of Statistics believes 4.9 might be an overestimate of the marriage rate. "A larger than usual number of 2015 marriage registrations have been delayed until 2016," it reported, meaning that the total included an unusual number of marriages that took place the previous year.

Counting only the 10,7836 marriages that actually took place in 2016, the bureau's figures suggest the actual marriage rate was just 4.5 per 1000 Australians, the lowest since it has been collecting statistics.

And they were overwhelmingly consecrated away from churches. In 2016 the proportion blessed by a minister of religion fell to just 23.6 per cent, the first time it has been below 25 per cent. Twenty years earlier, in 1996, the proportion had been 53.2 per cent.

Marriages are taking place later, typically at the age of 30.3 for men tying the knot for the first time, up from 27.6 twenty years earlier. Women marrying for the first time typically exchange vows at 28.7, up from 25.7.

The upside is that, like many same sex couples waiting to get married, they are used to spending time with their betrothed. Eighty one per cent had lived together before marriage, up from 76 per cent a decade earlier.

It might be why marriages are lasting longer. Those that got divorced typically do it after 12 years of marriage, up from 8 years in the 1970s. And divorce is less likely. Twenty years ago 2.9 in every 1000 Australians divorced each year. Now its 1.9.

Celebrants hoping for work when same-sex marriage becomes legal are likely to find it won't all come at once.

September and October were the biggest months for marriages in 2016, with 10,755 and 15,557 in each month. Autumn was the next most popular season, with 11,683 and 12,431 marriages in March and April. December was the least popular month with just 4458 ceremonies.

The most popular day of the month to get married is the 12th. The least popular is the 25th.

In The Age and Sydney Morning Herald

Thursday, November 23, 2017

Rinehart, Pratt spearhead push for super funds to directly fund business

Some of Australia's most powerful corporate leaders have called on the country's $2 trillion superannuation industry to become a major source of lending for local businesses in a move aimed at bypassing banks and stimulating investment.

In a roundtable event organised by Australia's richest man, Visy Industries executive chairman Anthony Pratt, and facilitated by Fairfax Media, the big super funds were urged to use their investment arms to support entrepreneurial companies at a time when international financial regulations was making it more expensive for banks to lend.

Mr Pratt's appeal was backed by Australia's richest woman, Gina Rinehart, former prime minister Paul Keating, Macquarie Group chief executive Nicholas Moore, ANZ boss Shayne Elliott, 21st Century Fox director Rod Eddington, Future Fund chief David Neal as well executives from three of Australia's biggest superannuation funds and the head of the Commonwealth Treasury John Fraser.

Addressing the gathering in his apartment in Sydney, Mr Pratt said his packaging business had funded its expansion by borrowing long at fixed interest from United States superannuation funds, something that wasn't possible in Australia. At issue, he said, is the difficulty even large corporations have borrowing for long periods of time from Australian banks.

"Australia has over $2 trillion in super funds, we are the world's fourth biggest money manager," Mr Pratt said. "In other words we are awash with funds and we can't place them fast enough to keep pace with contributions, yet many companies still have to go to America to borrow long-term."

"Just last week in Ohio we had a super fund bond raising of $200 million over 30 years. It was oversubscribed by $4.8 billion. News Corporation and Westfield are also big borrowers from US super funds. News Corporation even did a 100 year bond."

"Bringing longer-term bond financing into Australia's corporate mainstream is an idea whose time has come."

Visy is one of the few Australian companies that has managed to squeeze long-term financing out of Australian superannuation funds, obtaining a $150 million a 10-year loan from AustralianSuper [TICK] earlier this year in a deal brokered by Westpac.

Mr Keating, whose government established Australia's superannuation system, said banks would become increasingly unable to fund businesses directly as the next wave of the Basel rules on capital adequacy made lending more expensive.

"If you are a Linfox or a Visy you're OK," he said. "Below that, you are not. Australia has never had a robust debt market. You've been able to get long-term finance by giving away a bit of your equity, but not by borrowing."

He argued Super funds had duty to fill the gap.

"The super scheme that I set up was focused on accumulation," the former prime minister said. "Now that Australians are living longer and moving into retirement we need superannuation phase two," he said. "That means funding retirement, guaranteed income. It means tapping into long-term income streams.

"We can't give super funds money and have them not use it for this," he said. One reasons most had not directly funded businesses was stodginess. Another was the backwardness of the banks who were ideally placed to act as credit rating agencies for the funds.

Ms Rinehart said she "loved the Australian banks", who along with 19 overseas banks had funded her giant $US10 billion Roy Hill iron ore project. But small to medium sized businesses that used banks were hit with covenants that put them at risk when conditions turned down.

Super funds were in a position to provide funding at lower rates and over longer terms. "Anything we can do to make ourselves more cost competitive internationally is worthwhile", she said.

Macquarie Group chief executive Nicholas Moore said the proposal would give most Australian firms their first access to long-term debt denominated in Australian dollars, something that would strengthen the corporate sector and make it more resilient.

ANZ chief executive Shayne Elliott said 5 or 7 year lending was a "terrible business" for the banks on which they barely made money. He didn't see super funds as competition, he saw a mutual interest in having them provide finance that the banks could not using banks credit assessment facilities.

Linfox founder Lindsay Fox said he had done well out of Australian banks, but that if he was able to borrow in Australia long-term for 20 years he would be able to take his trucking and logistics firm to the next level.

"We deliver to and from warehouses but we don't own the warehouses. We could take them off the Coles and Woolworths balance sheet. Amazon is going to make life difficult for retailers. We would be able to help them," he said.

Treasury chief John Fraser said he supported the idea and that if anyone was aware of any red tape that stood in the way, they should let him know.

"However, my enthusiasm for the corporate bond market does not extend to tax breaks," he added.

In the second 'Chatham House rules' part of the roundtable which would not be directly reported, representatives of industry super funds cautioned that they lacked some of the advantages of banks. Why they had access to members funds, they were not able to lend money to corporates at a near loss and hope to make a profit on other aspects of the banking relationship.

"My whole purpose is retirement income for my members," said one. Whatever we do needs to make money, and that might make us more expensive than the banks."

Bank representatives said that assessing credit risks was far harder than it looked, particularly over a 20 year time horizons.

"Some businesses have been with us for 50 years," said one. "When everything goes wrong, we stand by them. This happens every day, it is a very difficult skillset."

Mr Pratt said the historic roundtable was the beginning of a national conversation. Super funds were trying to place trillions of dollars in locations that would yield stable returns. Businesses were looking beyond banks and foreign lenders for long-term finance.

In The Age and Sydney Morning Herald


COMMENT: The billionaires have started something. Now to make it work

On the face of it, $2 trillion in super funds needing a home and tens of thousands of Australian businesses needing long-funding is a match worthy of The Bachelor, or The Bachelorette.

Even more so, when you consider how poorly matched things are at the moment. Australian super funds have an outsized half of their funds invested in share markets. Overseas it's more like 10 per cent. Beyond share markets, commercial properties and government bonds, they are poorly diversified.

At the same time Australia's biggest corporations, giants such as BHP, have to head overseas when they are looking for finance, even though a few blocks away in Melbourne there are hundred of billions of our dollars looking for a home.

Listing on the sharemarket can fill the gap for some, but that means losing control. The three biggest corporations headlining the Fairfax Media Visy Roundtable were privately owned, and each is keen to stay that way.

Which means heading overseas to find funds (even though Australia is awash with them) and running or insuring against exchange rate risks.

In the nicest possible way, over exquisite food and bottles of Grange, Anthony Pratt is trying to bang heads together.

He knows it will soon become even harder for Australian corporations to get Australian finance from Australian banks. New internationally-agreed capital adequacy rules will make loans to companies more expensive.

Most of the roundtable agreed, apart from Treasury Secretary John Fraser who mused that it was just possible that Australian firms had no real problem obtaining finance. The problem was more likely to be that many of them didn't want it, something he is grappling with as he prepares new official forecasts for Scott Morision's December budget update.

David Neal, chief executive of the government's Future Fund, was concerned that the money in superannuation accounts weren't as patient as was widely believed. In retirement (and more and more account holders will be retired) the owners of the funds can withdraw them at will. Most of the time they won't, but in financial crisis they will do it quickly.

And super funds don't have the resources needed to micro manage relatively small loans. It wasn't long ago that they wouldn't get out of bed for $200 million, said one of participants.Graphic here

But they are going to have to change. Whereas high returns used to matter most for the funds because most of their members were building up nest eggs, what will soon matter most will be stable returns. A huge chunk of their members will be retired.

What might be needed is some sort of legislation to stop members withdrawing at will, to force and encourage them to take out an annuity that will pay them a fortnightly income for the rest of their lives.

The father of compulsory super, Paul Keating, has ideas about how that might work. The conversation is indeed just beginning.

In The Age and Sydney Morning Herald

Fake economics: how to make bad transport projects look good

Victoria is spending $5.5 billion building the West Gate Tunnel, another $1 billion widening CityLink, probably $10 billion on the North East Link, $11 billion on Melbourne Metro, $8 billion removing level crossings, and, if the Coalition returns, more than $3 billion on the East West Link.

NSW is spending $16 billion on WestConnex, $14 billion on Western Harbour Tunnel Beaches Link, $9 billion on the F6 Extension, $3 billion on NorthConnex, $11 billion on Sydney Metro South West, $8 billion on Sydney Metro NorthWest, $3 billion on Parramatta Light Rail, $2 billion on Sydney Light Rail, and billions more on Sydney Metro West.

It would be nice to know it was money well spent.

There's a fiction that a benefit-cost ratio above "1" means things are OK.

Here's how it works. A consultant adds up all the costs over a period of 30 or 40 years and all the benefits. If the benefits are greater than the costs, giving a ratio of, say, 1.5, it is said to be worth doing. But if they are less, say, 0.45 (which was the ratio in the first study of in the East West Link), it is said to be a waste of money.

Often the studies are never made public, sometimes they are never conducted (as was the case with the national broadband network) and very often they are conducted as an "add-on"; financial bling to be sprinkled over the project after it has been approved and announced.

Melbourne's $5.5 billion West Gate Tunnel is a case in point. Sydney's $14 billion Western Harbour Tunnel and Beaches Link is another. Internal NSW Transport emails released to me under freedom of information show an analyst complaining that his superiors had as good as completed the business case without access to the numbers.

"How something with no, repeat, no, benefit-cost analysis or traffic numbers can be construed as 80 to 90 per cent complete is beyond me," the exasperated official wrote. "The numbers tell us if the thing makes sense."

And the numbers are sometimes rigged.

A seminar in Melbourne last month on the use and abuse of cost-benefit analysis explored the ways.

One of the easiest is to hike the traffic forecasts. On some toll roads, the number of cars predicted to use them was greater than the capacity of the roads. Out of court settlements were reached between the modellers and investors in Sydney's Lane Cove Tunnel and Brisbane's M7 Clem Jones Tunnel.

Professor Jago Dodson of the RMIT Centre for Urban Research revealed that in the queue at a conference he had met one of Australia's senior transport modellers who had worked on at least one of those tunnels.

"Myself and another colleague were joking. 'You guys all inflate your traffic figures to satisfy your clients, don't you?', we said. He replied: 'Oh no, no, no, we are professionals, we have to sleep at night.'

"Then he sort of slyly looked at us and added, 'But it's amazing how little sleep you can get away with'."

You needn't stop at bulking up travel time saved. Also useful for bulking up benefits is "travel time reliability". It's a concept that makes sense for some types of public transport. You want trains and buses to leave and arrive on time. But it makes next to no sense to count it as a benefit for commuters in cars, who can usually leave and arrive whenever they want. Suspiciously, it forms an important part of the claimed benefits for Sydney's Western Harbour Tunnel and Beaches Link.

And you can get more creative. You can add in the benefits of other projects tens of kilometres away as was done for the West Gate Tunnel. You can add "wider economic benefits" to fill the gap that remains.

The original study of Melbourne's East West Link came up with a benefit cost ratio of 0.45. Then "wider economic benefits" were added to take it to 0.85, then the benefits of other "complementary projects" were added to force it above 1. The wider benefits included the "impact of transport on increasing competition", "competition related user benefits", and the biggest: "agglomeration benefits".

Agglomeration helps productivity because it packs more workers in the one location (although the cost of the accompanying deagglomeration – depopulating smaller locations – is rarely counted). But it made no sense to count them as a benefit of the East West Link. Its whole point was to bypass the city. It makes little sense to count them as a benefit of the Sydney Northern Beaches Link. Most of its users would have gone into town anyway.

But the biggest fudge is the simplest. It's what you choose to compare. By not comparing the costs and benefits of the (much) cheaper rail alternatives to those of WestConnex or the Sydney F6 Extension, the government made their figures look good – but good compared to what? Economics is about choices. Studies that don't examine choices are neither economic nor meaningful.

Each of Australia's two biggest states is engaging in an unprecedented transport spending spree, often with the help of willing partners in the finance industry hungry for access to tolls. Neither can demonstrate convincingly that it is getting value for money.

In The Age and Sydney Morning Herald

Saturday, November 18, 2017

Gross State Product. Victoria top, but NSW the real winner

Victoria has Australia's top-performing state economy, but the real prizes have gone to NSW and South Australia.

The annual Bureau of Statistics measure of state domestic product puts Victoria's economic growth at 3.3 per cent throughout 2016-17. NSW recorded weaker growth of 2.9 per cent, South Australia 2.2 per cent, Queensland 1.8 per cent and Tasmania 1.1 per cent. Western Australia's economy shrank 2.7 per cent.

But the league table takes no account of population growth.

Victoria had by far the strongest population growth during 2016-17. NSW and Queensland were well behind, and the other states even further behind. When adjusted for population, gross state product per resident grew fastest in South Australia (1.6 per cent) and NSW (1.3 per cent). Victoria's gross state product per resident grew just 0.9 per cent.


The Australian Capital Territory and the Northern Territory did better than the states on all measures. The ACT recorded economic growth of 4.6 per cent and growth per resident of 2.9 per cent and the Northern Territory recording growth of 4 per cent and 3.7 per cent.

Victorian Treasurer Tim Pallas brushed aside the per capita measure to declare that the overall 3.3 per cent result was higher than at any point during the previous term of the Liberal National Party government.

"This data once again shows the strength of Victoria's economy, and reinforces the direction we've steered our economy across three successive budgets – with a focus on the infrastructure and services Victorians need," he said.

In both big states the growth was broadly based with the production of "professional, scientific and technical services" the biggest contributor.

"For the past five years professional, scientific and technical services have been a bit sick, because the end of the mining construction boom took away the jobs of engineers and geophysicists and architects," said Terry Rawnsley of SGS Economics and Planning. "Now it looks as if the infrastructure and construction booms in Sydney and Melbourne have taken up the slack."

NSW accounts for 33 per cent of Australia's economy, Victoria 24 per cent, Queensland 18 per cent, Western Australia 13 per cent and South Australia 6 per cent.

Production per resident is highest in the mining-dominated Northern Territory ($103,763), the low-population ACT ($92,436), mining-dominated Western Australia ($90,799), NSW ($71,541), Victoria ($63,900) and Queensland ($63,212).


Because much of the income from that production goes to corporations or overseas, a better measure of living standards is gross disposable household income per capita. It is $91,627 in the ACT, $62,893 in the Northern Territory, $51,412 in Western Australia, $50,814 in NSW and $43,516 in Queensland.

In The Age and Sydney Morning Herald

Thursday, November 16, 2017

Maybe we no longer want long lives

So you'd like to live forever.

I'm going to deliver some bad news, straight from this week's conference on the future of Australian lifespans: you probably won't even make 100.

Worse still, your children probably won't make 100, and maybe not even their children.

The massive and unprecedented progress we've made since our first estimates were published in 1867 has blinded us to the fact that – just like regularly squeezing more speed out of computer chips is becoming harder – it's becoming harder to squeeze more years out of life.

No one is yet signing off on an upper limit. Some people are talking about 125 years; others 600 years, which is the age by which, even if we could medically live forever, we would be as good as certain to have a life-ending accident.

Getting even a handful of those extra years would require herculean efforts of the kinds at which we once excelled but now find daunting.

Australia's first life table, published in The Sydney Morning Herald a century and a half ago, gave a newborn colonist just 45.6 years. One published today would give that newborn boy 80.4 years and a newborn girl 84.6.

The figures are midpoints, derived from adding up the death rates at each year of life. Some newborns will live longer. In Melbourne's inner east and Sydney's north shore the typical newborn girl can expect 87 years. Indigenous Australians can expect much less, about 70 for a boy and 75 for a girl.

Higher education is associated with an extra four years, according to Melbourne University's Philip Clarke, although it may not be education itself that buys the years, but something that goes with it. Higher income buys an extra five to six years. Perhaps because of that it matters which electorate you are in. People in Labor and National Party electorates get fewer years than those in Liberal electorates.

The early gains were relatively easy. In the 1860s an extraordinary 20 per cent of boys didn't make it to the age of five. Twenty per cent of girls didn't make it to 10. By ensuring that children survived the first few years, we boosted expected lifespans to 67 for boys and 72 for girls.

Then came the cancer years. For two decades from the 1950s right through to the early '70s, life expectancies scarcely grew. Demographer Peter McDonald told the conference that Bureau of Statistics projections at the time factored in no further growth. Sixty-seven for men and 72 for women was as good as it was going to get.

During this time, tobacco accounted for an astonishing one in every three deaths of men aged 35 to 69. Motor vehicle deaths were appalling, too. By 1972 one in every 20 male deaths involved a car.

Then, from the early 1970s, we got serious. Victoria led the nation in anti-smoking campaigns and in drink-driving and seatbelt laws. Deaths from smoking-related diseases plummeted, along with alcohol-related road deaths. Today transport accidents account for just 1.5 per cent of all deaths for men and fewer for women.

A decade later we did it with AIDS. Remember the Grim Reaper campaigns and appeals to everyone at risk to get tested? Our rate got nowhere near as high as those in other countries, then slid towards zero.

Here's our problem: most of the gains against young and middle-aged deaths have been taken.

McDonald says even if we made cars even safer and medicines even better and eliminated all deaths below the age of 75, we would only add 3.6 years to the expected lifespan of a man and 2.2 years to the expected lifespan of a woman. We couldn't promise 90 years, let alone 100.

To get there we are going to have to cut deaths beyond 75.

Fortunately, we know what to do. Statins are enormously effective. One pill containing statins, low-dose aspirin and blood pressure drugs has been found to cut the risk of heart attacks and strokes by 65 per cent.

Sugar has led to an explosion in obesity. One-third of Australians are clinically obese, another third are overweight. A public campaign against sugar of the kind we had against tobacco would lengthen lives.

But many Australians don't take the pills they are prescribed. Many more don't go to the doctor. Many, many more continue to over-consume sugar.

At the conference half-serious suggestions included adding statins to the water supply in the same way as we add fluoride and withholding pensions from older Australians who don't fill prescriptions in the same way as we withhold family benefits from the parents of children who aren't immunised.

If we really wanted to extend lives we would tax sugar and campaign against it like we did with tobacco. We would ban it in certain products and target its eventual elimination. And we would properly tax alcohol and ban its advertising.

But we are not like we were in the 1970s. We've become less accepting of the nanny state, happier with the years we've got. Some of us still smoke. We've become happy not to live too far beyond 90.

In The Age and Sydney Morning Herald

Monday, November 13, 2017

It's the Trans-Pacific Partnership, with fewer bad bits

The Trans-Pacific Partnership is dead. In its place, maybe, we'll have something lesser, with a longer title: the Progressive Comprehensive Trans-Pacific Partnership, or PCTPP.

The name change is apparently a sop to the Canadians, who like things progressive. They are the only nation, ever in the history of the world, to have named one of their political parties the Progressive Conservatives.

To get it past the Canadians, and a number of other nations that aren't too happy about what was agreed to in the original Trans-Pacific Partnership at the behest of the Americans, much of it will be "suspended".

Gone for the moment will be most of the rules governing copyright, patents and pharmaceuticals designed to support US lobbyists.

Unwilling countries such as Canada and New Zealand won't have to extend their copyright terms from 50 years after the death of an author to 70 years. (Australia has already done it, in order to get the US-Australia Free Trade Agreement over the line).

Gone, too, will be the onerous provision that each country provide the equivalent of eight years' protection to the makers of highly expensive so-called biologic drugs, lengthening the time before many can use cheaper alternatives.

Also gone will be the requirement that member countries make it illegal to hack devices such as DVD players to get around region coding and other technological copyright protection measures. And the requirement that member countries allow copyright owners to sue internet service providers for allowing their customers to illegally download copyrighted material.

Also narrowed, a tiny bit, are provisions that will allow foreign corporations to sue sovereign governments, provisions John Howard refused to accept when he negotiated the US-Australia Free Trade Agreement.

Other suspended provisions are those protecting labour rights and the environment imposed on reluctant, less-developed countries at the behest of former US president Barack Obama.

They are suspended, not entirely removed. The TPP 11, as it is informally known because it includes each of the original 12 signatories apart from the US, will leave those provisions dormant, ready for reinclusion when a new post-Trump administration decides to join.

But it doesn't mean they will be reincluded. For that to happen, each of the 11 members would have to agree, and most likely get legislation through their parliaments.

There's much still to be sorted out. Trade Minister Steven Ciobo said on Sunday the agreement was 90 per cent complete, meaning the hardest 10 per cent is to come. He had wanted it sewn up by the end of the year. Now he won't give a timetable.

If it happens, its provisions will be less contentious than they would have been. The Productivity Commission has spelt out its concerns in detail. It even may get to run the cost-benefit analysis the government has blocked. Labor may be in office by then and has promised it will happen.

In The Age and Sydney Morning Herald

Expect tax cuts, soon, says Access Economics

The federal budget is built on the back of impossibly large tax increases that won't survive the coming election, a new report has warned.

The Deloitte Access budget monitor, released four weeks ahead of the official budget update, finds that on the government's own forecasts by 2021 the typical Australian income will have climbed $6100, but the typical tax take will have climbed $2500.

The tax take of 41 per cent of each extra dollar is way in excess of the typical average rate of 14.9 per cent and the typical marginal rate of 32.5 per cent.

It would push up the average rate from 14.9 to 18.2 per cent.

"I don't think the average Australian - or the average Australian business - has yet realised that the return to surplus is built on the assumption that 2 out of every 5 dollars of extra income will line the government's pockets," said Deloitte Access director Chris Richardson.

"Politically, in the context of elections and byelections, it isn't tenable, which means the forecasted return to surplus isn't tenable."

Known as the 'treasury in exile' Deloitte Access is run by former Treasury forecasters who are able to say what the Treasury cannot. It's findings echo those of the Parliamentary Budget Office, released last month.

"As it happens, we don't think the increase in incomes will be as strong at the Treasury projects, and we don't think the economy will as efficient at turning it into revenue, but that just makes the deficit problem worse."

Deloitte Access is forecasting a wafer-thin surplus of just $2.3 billion in 2020-21 rather than the $7.4 billion projected in the budget. But that forecast allows for no further tax cuts for four years, a scenario Mr Richardson regards as implausible.

A ready reckoner created by Mr Richardson finds it would cost $6.5 billion per year to cut each tax rate by one percentage point, a cost that would climb to $7.3 billion per year by 2020-21. The cost of returning all bracket creep would amount to $12.2 billion per year by 2020-21.

"The official view is one in which the economy does fine and the tax system does superbly," Mr Richardson said.

"The problems are that we think the economy and wages and profits will underperform, although they are doing alright at the moment, and we think the tax system will underperform at turning that extra income into tax.

"Add to that the awful politics of a rising tax take, and we think the government will decide to cut taxes, using what is most likely a temporary over-performance in revenue as cover."

Mr Richardson said he expected the tax cuts to be promised in the lead-up to next year's election, or possibly when the mid-year budget update is released in December.

In The Age and Sydney Morning Herald