Sunday, December 15, 2013

'Twas the dollar that killed Holden, not the carbon tax

At the risk of labouring the obvious

What do Holden and Qantas have in common?

Here’s a clue. It isn’t that they are being strangled by the carbon tax.

(Although you might think they were. In his letter to Holden on Tuesday the deputy prime minister Warren Truss said axing the carbon tax would “lower the cost of producing cars in Australia”. The truth is the cost would scarcely budge. The cheapest new Commodore sells for $35,000. Holden says the carbon tax costs it $45 per car. That’s right, only $45. It’s a decimal place of a per cent.)

And nor are Holden and Qantas being done over by rapacious unions.

During the global financial crisis Holden’s workers accepted half shifts in order to stop job losses. In April this year they signed up for a three-year wage freeze in exchange for a commitment from Holden to stay in business beyond 2016. Each production line worker put in an extra quarter hour per day.

They are literally the most productive in the 37 countries General Motors in which General Motors manufactures cars.

Every 60 seconds a vehicle rolls down our assembly line,” Holden boss Mike Deveraux told the Productivity Commission this week.

“The people making cars in Adelaide have to deal with a significant amount of complexity as each car comes past them - much more than many and most other GM plants. They will build a couple of Cruzes, they will build a Commodore, a sports wagon, a Caprice, another Cruze. I mean, a different car and a different job comes at these people every 60 seconds, and on Cruze, they are loaded to 56 seconds out of that 60-second cycle time, balanced across hundreds of people on that assembly line.”

“It's the highest loading in GM plants anywhere that build the Cruze"...


And yet Australian workers cost more than their less agile counterparts overseas.

Around 80 per cent of the cost of making a car is people.

Deveraux asked rhetorically: “Is the cost of labour higher in Australia than it is in Asia?”

He answered: “Of course it is. We have a very good standard of living here and I don't think I would be making anybody surprised when I say that people in Australia make more than they do in many other places in the world.”

Holden told the Commission it cost twice as much to make a car in Australia as in Europe, four times as much as in Asia.

Holden never needed to close that gap. The deal it had struck with the Gillard government (which the Abbott government reneged on) wouldn’t have closed the gap. But it would have closed it somewhat, enough to make it worth staying.

A global corporation like GM can tolerate having loss-making plants in affluent markets like Australia. Its general philosophy is to “build where we sell”. And it knows the dollar might one day turn down.

The dollar is the common thread that’s linking the death spirals of Qantas and Holden. Not as obvious or as politically charged as less important issues like the carbon tax or industrial relations it has jumped to where it has jumped to a height never before seen in its 30-year history as a floating currency and hasn’t yet moved too far down.

In the quarter of a century to January 2010 the Aussie averaged 72 US cents. In recent months it has been 105 US cents. It has been great for car buyers, great for travellers. A foreign car that used to cost $20,000 now costs $14,000. A foreign air ticket that used to cost $2000 now costs $1400.

For companies like Holden and Qantas that were on the edge before the dollar soared, it means anything they try to sell overseas costs 45 per cent more. Its why Golden Circle is closing its canneries and moving to New Zealand, its why Electrolux is closing its factory in Orange and will source fridges from Asia and Eastern Europe. It’s why neither Holden nor Qantas can survive. Unless the dollar falls.

On Friday the Reserve Bank governor Glenn Stevens abandoned his usual reserve and said he would prefer a dollar nearer to 85 US cents than 90 where it has recently been. It’ll need to go lower still if we are regain our competitiveness. When mining prices were high and earnings were flooding in, it didn’t much matter whether the rest of the economy was able to make money. Now that they are not, and that the Australian dollar is still high, we have a problem.

One way or another we will have less buying power next Christmas. Either the dollar will be dramatically lower allowing us to compete again or more and more Australian firms will collapse, bringing on a recession. It’s time to talk seriously about how we can bring the dollar down.

In today's Canberra Times, Sydney Morning Herald


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Wednesday, December 11, 2013

Inside story. How the Aussie dollar floated, 30 years ago today

1983 was the year

It was Sunday March 6 1983, hours after the election that swept Labor’s Bob Hawke to victory. Australia’s 39-year old Treasurer-elect Paul Keating was pacing a bedroom in Canberra’s Lakeside Hotel greeting his team of would-be economic advisors. Australia’s most powerful bureaucrat, the Treasury boss John Stone was about to present them with the “Red Book”, the incoming government brief that would tell them everything Treasury knew about the state of the budget and the economy.

But the room was too small.

“Keating talked to the manager and said: ‘Look I need some better space’,” remembers Barry Hughes. Hughes was an economics professor who had caught the early flight from Adelaide.

“The manager said there was plenty of room in the lobby, but the lobby was crawling with journalists. The upshot was, it being Sunday and Canberra pubs not open on Sunday, we all went down in the lift right into the basement, went through all the plumbing and ended up in the empty saloon bar. It was about two o'clock in the afternoon.”

Stone opened the conversation not by talking about the Red Book, but by recommending a devaluation - a big one, immediately.

“Stone amazed us by saying he wanted 10 per cent. What was amazing was firstly the amount, and secondly the fact that the Fraser government had been keeping the dollar high as a sort-of anti inflation policy. We had always thought Stone supported it,” Hughes says.

Worried about Australia under Labor, investors had been converting their Australian dollars to US currency and whisking them out of the country. An astonishing $3 billion had left the country in a matter of weeks, the same as $24 billion today.

Short of draconian currency controls the only way to stem the tide was to make converting Australian to foreign dollars more expensive, and the only way to do that was to devalue the Aussie.

But doing it - as Stone had Keating do in his first act as Treasurer (actually it was before he was Treasurer, he had to visit Kirribilli House to ask the outgoing government to do it) only enriched the traders. They were able to convert their US dollars back to Australian dollars at a cheaper price.

Peter Jonson was incensed. By then head of the Reserve Bank’s research department, he couldn’t see the sense in manually adjusting the dollar to staunch such flows. It allowed the speculators to make easy money by punting on near certain outcomes.

Shortly after he joined the Bank in the early 1970s he had asked the then deputy governor Harold Knight why the dollar hadn’t already been floated.

“Harry replied that, like Saint Augustine, he wished to be made pure, but not yet,” Jonson says. “Those were almost his exact words.”

Knight became the governor a few years later and maintained his opposition to a float right up until he left in late 1982, months before Labor came to power. Jonson says his replacement Bob Johnston had no such reservations.

“I kept making the point personally to Johnston and to the treasurer that in effect over that weekend in March 1983 speculators had made $300 million,” he says. “They had done it at the expense of the taxpayer. I left Keating in no doubt as to my view: it wasn’t right that that should happen under a Labor government.”

Jonson had a better idea. He wanted buyers of dollars to negotiate with sellers of dollars and agree on a price. Then they could make money off each other...


Jonson had some experience setting the price of the dollar. By the early 1980s the rate was adjusted weekly and later daily by a committee of four - Stone or his delegate, the Reserve Bank governor or his delegate, and the heads of the finance and prime minister’s departments or their delegates. They posted the result at 9.30 each morning and had to accept whatever foreign exchange would flow in to the country at that price and whatever would flow out for the next 24 hours. For a while Jonson had the related job of determining the “forward rate”, also posted at 9.30 am. It was the rate at which the Australian government agreed buy and sell dollars some time into the future.

“I was feeling comfortable at 9.16 one morning when a colleague told me President Reagan had been shot,” he recalls. We didn’t know whether he would survive. New Zealand had kept its market closed, meaning we would be the first in the world to open. I had to decide whether to close our market or to pick a price and hope it was right.” Jonson sipped his coffee, picked a price and at 9.25 told his colleague to open and make sure Reagan wasn’t dead.

By mid 1983 the entire weight of opinion within the Bank had swung toward a float. Much of the rest of the world had been floating for a decade.

The Bank’s international division undertook “an exercise to look at the options for a more market oriented exchange rate system”. It bundled up the documents in what it called a “War Book” and kept it ready. The then Treasury head John Stone says that he too was in favour of a float by then and points to a memo he sent to Keating in October which supported the Bank “to the extent of agreeing that some change in the system is warranted”. It said the change “should be undertaken in stages”.

Hughes has a different recollection.

“Stone was absolutely adamantly opposed,” he says. “Whatever he says now, he was flatly adamantly opposed to floating the dollar.”

Des Moore was Stone’s deputy at the Treasury. He remains a sceptic. “My scepticism has been reinforced by the difficulties facing smaller nations which have had to go back to a fixed rate or a quasi fixed rate,” he says. “You need a means of protecting the rate from rapid flows.”

In Hawke’s office the newly appointed economics advisor Ross Garnaut pushed for a float. Keating’s office was unanimously in favour. The Reserve Bank had dropped its opposition, and by December foreign money was flowing in to the country as the economy picked up. The government faced the opposite problem. Speculators were punting on the dollar being sharply revalued to stem the flow, increasing the value of the money they had poured in.

The Reserve Bank had turned its back on the daily business of adjusting the rate. On some days Stone did it on his own. Hawke and Keating held a series of private meetings to which they did not invite the Treasury.

On the morning of Friday December 9 in the Cabinet room of the old parliament house Hawke made it official. He was courteous and invited Stone to speak, but Stone says he was “merely going through the motions”.

“Stone used every argument under the sun to delay the float - to delay the freeing of the market,” Hughes says.

“And then Hawke addressed Stone directly.”

“He said to Stone: ‘You have a reputation as a bogeyman amongst my left wing colleagues. Given that it is almost Christmas, in the spirit of Christmas, I wouldn't dare to let them know what you just said and take their boogeyman away from them’.”

Keating had wanted Stone to appear beside him in the historic press conference that followed. He had to make do with Bob Johnston.

Then Johnston flew back to Sydney and directed the Bank to “abolish the foreign exchange control department, today”.

“The relevant officials said we can't do it today,” Peter Jonson recalls.

“And Bob said: Yes, you are going to do it today”.

“Why? So that no-one could turn back.”

“It was like a commander burning the boats to ensure the troops were committed to the battle.”

In the treasury there was confusion about what the decision meant.

“I was responsible for foreign investment,” Moore remembers. “As soon as the decision was made, staff came to me and said: now that the exchange controls have been removed we need to get rid of foreign investment controls”.

“I said, hang on a second, before we do anything like that we need to check with Keating. When we actually got a message to him he said: ‘Wait, I’ll check with my colleagues’, and of course that wasn’t what he wanted.”

The dollar traded uneventfully on Monday December 12. It opened at around 90 US cents and stayed there for six weeks before climbing to a peak of 96 US cents, and then diving and at times climbing in the decades that followed, never again returning to those opening heights until the most recent mining boom.

The movements have enriched traders, at times impoverished and revitalised exporters, and alternately cut and swelled Australian’s buying power.

Going back to having the price set by manually seems unthinkable. And yet...

Peter Jonson spent a decade building the case for a float and much of the subsequent two decades singing its virtues.

Long since retired from the Bank and from a career working in financial markets he wonders now whether Australia shouldn’t be aggressively intervening to drive the dollar down.

“The currency is way too high,” he says. “It is making Australia’s costs too high - you are seeing it with Holden and Qantas. We will need to either bring the dollar down or suffer a recession which will do it for us”.

Johnson suggests a tax on capital inflows.

“John Howard famously said: ‘we will decide who comes to this country and the circumstances in which they come’. It is equally clear we have the right to discourage the excess capital that is flowing in and creating the high exchange rate that’s putting excess pressure on Australian industries.”

Barry Hughes, never a doubter about the worth of floating the dollar, can also see the case for limits.

“I like to think of it as ‘wide tramlines’ around a floating figure. You may not be able to work out exactly what the fair value is, but you should at least be able to work out fair value to within plus or minus 15 per cent,” he says.

The float as we have known it isn’t completely fixed, just as the dollar was never completely fixed. The one constant still with us is the spirit of continual reassessment which brought about the float thirty years ago this week.

Peter Martin worked in the Treasury in 1983.

In The Sydney Morning Herald and The Age



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Sunday, December 01, 2013

What's not to like about Gonski? Pyne edition.

I get that Christopher Pyne likes private schools. But what I don't get (or didn't get until this week) is that he could possibly want to take money away from poor schools to give to richer ones. I couldn't understand how anyone would want to do that.

Of course, Pyne says that's not what he wants to do. As Australia's new education minister he merely wants ''a new model that is national, that is fair to everyone and that is needs-based''.

But note his use of the word ''new''.

The Gonski panel spent two years examining everything about the funding of Australian schools and built a new model from the ground up. It's so new, it's not due to start until next year.

Every student would attract a base amount of funding, the amount needed to provide a good education. It would follow them from school to school. The panel suggested about $8000 a primary student, around $10,500 a secondary student.

Students at government schools would receive the full amount. Students at private schools would receive a scaled-down amount, depending on the school's ability to charge fees.

On top of the base funding would be extra loadings for measures of disadvantage, such as the number of disabled students in the school, the number of them from low socioeconomic backgrounds, the number of indigenous students, the number from non-English speaking backgrounds and so on.

The loadings would be paid in full to all schools, public and private. So generous would they be that some private schools serving heavily disadvantaged students would have all of their costs met by the public.

What on earth is there not to like about such a scheme?

Why in heavens does Pyne want to go back to the drawing board?

He isn't saying, but on Tuesday he dropped a hint. He said the scheme introduced by the Howard government a decade ago was ''a good starting point for a school-funding model'', a comment he spent the rest of the week backing away from.

It is a scheme that saw funding for the wealthiest schools increase at a far faster rate than funding for the poorest ones.

At its heart were two tricks: it no longer took account of a school's ability to raise its own income, so it blindly piled public money into exquisitely appointed private schools in way that hadn't happened before.

And it doled out the money on the basis of a con. Funds were allocated in accordance with the ''socioeconomic status'' of the postcode in which each student lived - not on the basis of each student's actual socioeconomic status, but on the basis of the status of those who lived in the same postcode, most of whom would never go near the school and couldn't afford it.

It meant good schools in poor areas cleaned up, even though they didn't take poor students. It meant schools taking in boarders from poor rural areas cleaned up, when the boarders themselves came from Australia's richest families.

This is the system Pyne said directed funds ''to the schools that were most in need''. This is the system he said was ''a good starting point for a school-funding model''. It's the system Gonski found ''lacks coherence''.

So why would someone like Pyne yearn for it? I didn't have a clue, until I found myself listening to Lars Osberg, a Canadian economist who specialises in the widening income gap between the rich and the poor. He has been travelling around Australia delivering a talk titled What's so bad about more inequality? Osberg says while some inequality mightn't be so bad, a self-perpetuating process is under way that is continually widening the gap, with private schools an important part of the machine.

When incomes were more equal, he said, it didn't much matter whether their children went to a public or a private school. Their success in life would be pretty much the same.

But as the gap widens, affluent families find ''the greater is the gap between their own incomes and those of the masses, the further there is to fall in the next generation''.

It becomes ''ever more important'' for them to give their own children every possible advantage.

''More inequality of incomes thus implies more incentives for upper-income families to reduce their support for public expenditure on the human capital of all children'' - to reduce support for public education.

It calls to mind images of well-heeled passengers clambering onto rescue boats throwing the less well-heeled off. It isn't nice, but it would be rational if you knew only some could survive. And I sincerely hope it is not what's driving Christopher Pyne.

In The Age and Sydney Morning Herald
Read more >>

Sunday, November 17, 2013

Felling better about paying your tax? Thank an economist

Remember how you used to feel when you got a letter from the Tax Office?

Unless it contained a refund, you probably felt a bit like the late Sir David Frost, who memorably summed up the creed of Britain's Inland Revenue Service as: ''If we can bring one little smile to one little face today, then somebody's slipped up somewhere.''

It's not so much that the Tax Office doesn't know how to write nice letters, it's that those letters haven't made it easy to pay or submit the information that's needed. Until now.

Next week the Tax Office will go public with details of an extraordinary behind-the-scenes re-engineering of the way it interacts with the public.

It's borrowing ideas from Google, from behavioural economics and from psychologists. It even has some on staff.

Cheryl-Lea Field is the deputy commissioner in charge of service delivery (debt), which is another way of saying she is the chief debt collector.

She says the ATO used to be indifferent to the way its letters looked. It operated on the heroic assumption that ''because the law required people to do things they would'', she told me on the line from her Brisbane office.

It's a bit like economics. Until recently it overwhelmingly operated on the assumption that people did exactly what was in their interests. If it was in their interest to pay a bill on time they would, if it was in their interest to lose weight they would, and so on. That's all that mattered.

Until the incident involving cashews. In the late 1970s economist Richard Thaler had a group of graduate students around for dinner. While the food was cooking he brought out a large bowl of cashews.

''We started devouring them,'' he later explained. ''I could see that our appetites were in danger. After a while I hid the bowl in the kitchen. Everyone thanked me.''

And then it hit him. They shouldn't be thanking him if they really believed that human beings were rational. ''After all,'' he recalled in his biography, ''if we wanted to stop eating cashews, we could have done that at any time.''

With Amos Tversky and Daniel Kahneman (who went on to win the Nobel Prize in Economics) he founded the new science of behavioural economics. Its role was not to merely examine what people should do, but to examine what they actually did and identify the systematic ways it differed from what was rational.

As Field put it: ''Economists suddenly came to the conclusion that people don't act rationally.

So just because you say 'you have to pay on this date' or 'you have to lodge on this date', people don't necessarily do it.''

Taking the lead of Britain's Revenue Office (which got in quite early, perhaps stung by David Frost), the ATO has been quietly trialling different ways of asking for money.

It has set up a ''simulation centre'' in Brisbane to present pretend letters to real people and see how they react. It presents pretend web interfaces as well. Then, just as Google tests new search algorithms by randomly dishing them up to some customers and not others, it posts new letters to 1000 of its randomly selected customers and old ones to the rest.

The results, to be detailed in the Public Service Commission's state of the services report this month, are astounding.

Merely by removing some opening words and highlighting an ''amount due'' box, it has pushed up the response rate to one letter by 5 to 6 per cent. The phrase it removed was: ''Please disregard this letter if you have paid this debt in full in the last seven days.''

By including an extra phrase in a letter to small businesses it lifted their response rate 12 per cent. The phrase said most ''lodge on time''. It's also test marketing the phrase: ''Paying tax is a fair way for everyone to contribute to the Australian community.''

It's even changing the scripts it gives to its call centre operators. They have been told to state very clearly what the person calling them needs to do next, and repeat that statement at the end of the call.

The move to online tax filing will make fine tuning even easier. The ATO will be able to adjust its forms in real time. The Bureau of Statistics has found that people find it easier to fill in the census online even though it takes just as long with paper.

It's becoming easier to deal with government agencies because they are starting to treat us more nicely. They are absorbing the lesson reluctantly incorporated into economics - that we're not that rational, and we've got feelings.

In The Age and Sydney Morning Herald
Read more >>

Thursday, November 07, 2013

Sorting out the trash. Tax shows what matters to Hockey


You can learn a lot about someone's priorities by the way they sort out the trash.

Joe Hockey and assistant treasurer Arthur Sinodinos have sorted through 96 tax measures bequeathed to them by Labor as announcements not yet signed into law.

(That it ever got this far is an indictment of Labor in government. It was keener to announce measures than it was to ensure they were practical and give Treasury the resources to bring them about. One superannuation measure was announced in the budget of May 2012, took effect from July 2012, and didn’t finally become law until June 28 2013 - two days before the end of the financial year for which it had applied.)

Hockey and Sinodinos have sorted the measures into three piles - those they will proceed with, those they will dump or partly dump, and those they will discuss with interested parties but are inclined to dump.

Some of the decisions are no surprise. They were always going to dump the extra fringe benefits tax on employer-provided cars. They said so during the campaign. They were always going to proceed with Labor’s three successive massive hikes in tobacco excise. They meticulously avoided criticising them during the campaign, saying only that they wouldn’t panicked into “a knee-jerk reaction”. It’ll earn them $5.2 billion over four years and much more into the future.

Their priorities show in the measures they dumped, but didn’t need to. Gone is Labor's (minimal) attempt to impose tax on the super fund earnings of retired millionaires. Right now they pay nothing on the earnings of assets in their funds after they have retired (as well as nothing on the super payouts themselves). After a drawn-out battle in April Labor announced a feeble 15 per cent tax on the fund earnings of retirees, but only on the extra earnings after they had passed $100,000 per year. It would have applied to just 16,000 people, all of them millionaires.

At the same time Hockey and Sinodinos have drawn up their own legislation to axe Labor’s Low Income Super Contribution. It pays up to $500 into the super accounts of Australia’s 3.6 million lowest earners, none of them on more than $37,000.


In  The Sydney Morning Herald 





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Monday, November 04, 2013

Climate change. Direct needn't mean no action

Its the end that matters, more than the means

Ask 35 leading economists whether they would prefer Labor’s carbon price or the Coalition's “direct action” and only two will opt for direct action.

And one of them does it as a sort of joke. Queensland University’s professor Paul Frijters told Fairfax Media last week he thought "direct action" meant "no action". On that basis he thought it was exactly the right policy “for a small country like Australia”.

Economists love prices, for the very good reason that they work. In July, 2012 electricity prices jumped 15.3 per cent. Much of the jump was due to the carbon price. (By way of comparison the same time a year earlier they had jumped 7.7 per cent; the same time this year they jumped only 4.4 pc, the lowest such rise in six years.)

Household electricity use per person dived 3 per cent. Demand for electricity, like demand for nearly everything else, responds to price. If it didn’t, the alcopops industry wouldn't have fought so hard against moves to double the alcopops tax in 2008. Alcopops sales wouldn’t have slid 30 per cent as a result.

And yet there’s a wariness in economists embrace of prices when it comes to cutting emissions. Of course they are the cheapest way of changing behaviour. The Grattan Institute and the Productivity Commission have each examined the cost of command and control programs such as planting trees or paying households to install solar panels (two of the Coalition’s favourites) and found them enormously costly per unit of emissions saved - far more costly than the present carbon price of present $24.15 a tonne.

And yet...

Nobel prize winning economist Paul Krugman sums the diffidence this way in an article in the New York Review of Books, due out this week:

“Why is putting a price on carbon better than direct regulation of emissions? Every economist knows the arguments: efforts to reduce emissions can take place along many ‘margins,’ and we should give people an incentive to exploit all of those margins. Should consumers try to use less energy themselves? Should they shift their consumption toward products that use relatively less energy to produce? Should we try to produce energy from low-emission sources or non-emission sources such as wind? Should we try to remove CO2 after the carbon is burned? The answer is, all of the above. And putting a price on carbon does, in fact, give people an incentive to do all of the above.”

Economists overwhelmingly agree that a carbon price is the best way to move all of the relevant markets at once, cutting emissions for the cheapest possible price. “And I, of course, agree - they’d probably revoke my economist card if I didn’t,” Krugman says.

And yet: “studies attempting to analyze how we might most efficiently reduce carbon emissions strongly suggest that just one of these margins should account for the bulk of any improvement - namely, we have to sharply reduce emissions from coal-fired electricity generation”.

“Certainly it would be good to operate on other margins, especially because these studies might be wrong. Nonetheless... direct action to regulate emissions from electricity generation would be a surprisingly good substitute for carbon pricing - not as good, but not bad.”

It’s as unlikely an endorsement as you’ll find.

And behind the scenes the people who drew up Labor’s carbon pricing scheme were thinking along similar lines...


Quietly, alongside the planned carbon price, in 2011 they set aside up to $2 billion to buy and close as many as five of Australia’s dirtiest coal-fired power stations. Called “Contract for Closure”, the companion scheme was direct action of the most direct kind. The closure of just two of those stations - Hazelwood in Victoria and Playford in South Australia - might have cut emissions by 20 million tonnes.

Labor wouldn’t have developed the scheme if it didn’t see a role for direct action.

Later, minister Martin Ferguson abandoned the negotiations after none of the owners would accept his price.

(As it happens the carbon price, the rapid growth of wind farms and the lower demand for electricity generally has done much of what the Labor’s Contract for Closure program would have anyway. Hazelwood is operating below capacity and Playford has been mothballed. Wind farms now provide one quarter of South Australia’s power.)

The Climate Change Authority in its landmark report released last week also went out of its way to say there was more than one way to skin a cat. It was advising on “ends, not means”. Australia would need to ramp up its target for emissions reductions from 5 per cent to 15 or 25 per cent below 2000 levels by 2020.

The Coalition wants to buy emissions reductions through a tender process just as Labor did with Contract for Closure. The Authority reckons the Coalition's fund could “mobilise similar emission reductions opportunities” to Labor’s emissions trading scheme. The important thing is to get there. It’s how the minister Greg Hunt will be judged. Some goals are too important to quibble over the means of achieving them.

In  The Sydney Morning Herald and The Age


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Easy lovers. How to understand your adolescence

Meet an economist who’s about to make sense of your entire adolescence.

Kai Konrad is a specialist in public debt. In a departure from his normal role at the Max Planck Institute for Tax Law and Public Finance in Germany he has just published a paper entitled Affection, speed dating and heart breaking.

It’ll bring back memories. I am thinking about Phil Collins right now. He used to sing about “easy lovers”. Konrad calls them “high-frequency daters”. Pat Benatar would have called them “heartbreakers”. But why? Why do “easy lovers” cause so much heartbreak and why does so much of society think badly of them? Konrad lists some of the words used, and they are not nice.

As he sees it, it’s a problem of missed communication.

He says there are two types of daters. Low-frequency daters find the process emotionally exhausting. They are more interested in finding ‘the one’ than in shopping around. High-frequency daters quite like shopping around, they are in no hurry.

When high-frequency daters meet high-frequency daters there’s no problem. They have a good time and (probably) move on. When low-frequency daters meet low-frequency daters there needn’t be a problem either. The might even marry. (Although given that they are so cautious about exposing their feelings, they might quite likely never meet.)

The problem arises when a low-frequency dater meets a high-frequency dater and doesn’t know it. He or she can tell that the high-frequency dater is interested, but can’t tell whether or not it is because that person is nearly always interested (an “easy lover”) or similarly cautious and genuinely finds him or her extraordinary.

If it’s the second, marriage is highly likely. If it’s the first, there’s buckley’s chance. Konrad’s calculations show easy lovers turn out to be cautious marriers. As he puts it, they have “high reservation utilities for entering into a marriage”.

Stripped of the maths the reasoning is straightforward. High-frequency daters hook up with so many potential lifetime partners they can “afford to be picky”. This makes them “heartbreakers”...

Without meaning to, they hurt cautious daters who mistake their interest for something serious.

As Konrad puts it, somewhat technically: “High-frequency daters have a negative externality for low-frequency daters. Their higher fall-back utilities as players participating in the matching process make them more reluctant to propose. As a result, if people of different matching frequency meet, the high-frequency dater is more likely to disappoint the low-frequency dater.”

Disappointment turns to anger. Konrad lists several of the labels given to such men: womaniser, playboy, etc. He is gracious enough not to list those given to women, merely saying they are “labels that receive similarly low social approval”.

The labels sound like moral judgments, but Konrad thinks that’s not where they are coming from. Society comes up with hateful words for easy lovers simply because they unintentionally disrupt the marriage market.

What are people in the market looking for when it is working well? Economists used to call it “pizazz”. They thought it was one single property made up of things such as beauty, height, earning power and the like. Those who had more of it were more marriageable, those who had less, less so. Konrad disagrees. He thinks it is more of a matching process. What’s important for some is unimportant for others.

Last year German economists Arnaud Dupuy and Alfred Galichon examined 20 years of social and marriage data and came to more or less the same conclusion. Some things do matter, big time. But for others, its a matter of taste.

Education really matters. Dupuy and Galichon find it’s twice as important as is height or body mass index. All types of women find a more educated man more attractive. But only some types of men find an educated woman attractive. After that it gets messy. Emotionally stable men are attractive, but only to women who are “conscientious”, men with “autonomy” are attractive to women who are extraverts but repellant to women who are conscientious, and so on.

What makes a marriage stay together? One third of them don’t. Examining 2480 Australian marriages over seven years Rebecca Kippen of Melbourne University and Bruce Chapman of the Australian National University found it helps enormously if the couples are close in age and similarly educated. Nothing much else matters, or at least nothing much else economists can get at.

Perhaps some of it is meant to be mysterious.

In The Canberra Times and The Sun Herald






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Sunday, November 03, 2013

Never, ever, take dietary advice from the soft drink industry

It is reckless with the truth

Never take dietary advice from the soft drink industry.

Remember Coca Cola’s infamous 2009 “myth-busting” campaign featuring the actress Kerry Armstrong? It said it was it a myth that Coke made you fat, a myth that it rots your teeth, and a myth that it was packed with caffeine.

The Australian Competition and Consumer Commission made it publish corrective advertisements about all three. "Coke's messages were totally unacceptable, creating an impression which is likely to mislead that Coca-Cola cannot contribute to weight gain, obesity and tooth decay,” the Chairman said at time.

The industry is at it again. But this time the message is more dangerous, precisely because it sounds more believable.

Three leading health organisations - Diabetes Australia, the Heart Foundation and the Cancer Council - banded together this week to to run a television ad which shows the 16 teaspoons of sugar in a 600ml bottle congealing into fat as they enter a drinker’s body.

They want vending machines banned from schools, the sugar content cut, and the manufacturers to “stop promoting the message that high-kilojoule beverages are part of a healthy, balanced diet”.

I don’t like their chances. Appearing on ABC News 24 to respond the chief executive of the Australian Beverages Council Geoff Parker spoke instead of “getting people to understand the concept of the total diet”.

According to the Beverages Council, “all kilojoules matter, it doesn’t matter where those kilojoules come from.”

What matters is “energy in and energy out - what it really comes down to is that people will put on weight if they consume more kilojoules than they expend through physical activity”.

It’s simple, and it turns back clock on dietary science thirty years. It was indeed once thought that all fuels were much the same. It didn’t matter what you poured down your throat - if you poured in less you would get thin, if you exercised more you would burn it off and get thin.

It’s still definitionally true, but it tells us nothing about the way different types of fuel affect our compulsion to pour things down our throat and our ability to burn fuel off.

Carbohydrates - especially sugar - are special. Science journalist Gary Taubes outlines our emerging knowledge of them in his two latest books Good Calories, Bad Calories and Why We Get Fat.

Human beings grow because we secrete hormones. Insulin is one of them. Sugar fires up insulin.

Here’s what happens when we take in several teaspoons of sugar (there are 16 in a 600ml bottle)...


Insulin and associated chemical messengers intercept whatever fat we are digesting before it gets to our bloodstream and stash it wherever they can, often pumping it into fat cells. At the same time the substances that allow fat to leave our fat cells get scarce. Fat gets locked in to the cells. It becomes temporarily unavailable. We feel weak and hungry. If we are unlucky we’ll reach for more sugar.

As Tabes puts it: “We don’t get fat because we overeat; we overeat because we’re getting fat.”

(Some of the sugar also gets directly turned into fat in our livers as the television ad indicates, but the more important effect is that insulin helps push other fat into our fat cells and temporarily prevents it getting out.)

As with most science there’s room for disagreement. The mechanism is more complicated than I have just described and it is not yet fully understood. But what is known - for certain - is that fuels ain’t fuels. Some fuels promote fat growth, hunger and sloth in a way others do not. They help determine whether it’s more energy in or more energy out.

Advising people to take care with “energy in and energy out” when your own product is making that difficult is particularly cruel, in my opinion.

And so too is parading misleading statistics (a bugbear of mine, I’ll admit). The Beverage Council says across all children the proportion of energy provided by soft drinks halved from 3.3 per cent in 1995 to 1.6 per cent in 2007.

It sourced that claim from a report that doesn’t make it. When I asked for the real source it provided another, an analysis that happens to have been funded by the Beverage Council itself, with extra funding to “write the manuscript by Coca Cola South Pacific”.

That report specifically says that two figures are not directly comparable. Among teenagers soft drink consumption climbs with age. The 1995 figure covers children aged up to 18 years, the 2007 figure only children up to 16 years.

The industry is reckless with the truth. It’s the last place you should turn for advice about your diet.

In today's Canberra Times, Sun Herald

Read more >>

Saturday, November 02, 2013

The dietonomics of fat. Correlation does not mean causation

Repeat after me.

In economics as in medicine one of the easiest mistakes is to assume that correlation means causation.

In 2010 two of the biggest names in international economics produced a study showing that when a nation’s government debt hit 90 per cent of gross domestic product its economic growth fell. Politicians used the finding to promote austerity in Europe, with unfortunate results. But the researchers hadn’t proved causation. It was just as likely that low economic growth caused the high debt to GDP ratio as it was the other way around.

Science writer Gary Taubes who was interviewed on the Catalyst program believes that’s how it is with fat.

People who are fat either eat more than thin people or do less exercise. We’ve come to believe it’s the eating or lack of exercise that’s making them fat. But it could be the other way around. Their body’s compulsion to store and hold fat might be forcing them to eat more and stripping them of the energy they need to exercise.

Sugar creates such a compulsion. It produces insulin which pushes fatty acids into fat cells and temporarily locks them there removing a source of energy. Its why people feel weak as they are eating a sugary or carbohydrate-laced meal and hungry for more.

Taubes says that in contrast fat itself doesn’t do that. Taken without carbohydrate fat doesn’t make us fat. After all, we have been eating it for millennia and sugary foods are relatively recent. Which would mean the traditional food pyramid should be turned on its head. Instead of being told to eat only small amounts of fat and large amounts of carbohydrate we should be told to do the reverse (except that we couldn’t eat large amounts of fat - it satisfies rather than builds an appetite). But changing the advice would mean organisations such as the Heart Foundation admitting they have been wrong. Cardiologist Ernest Curtis ruefully told Catalyst, “that’s not going to happen”.

And it would antagonise incredibly important industries. How would the sugar industry cope if food producers tried to remove it from virtually every processed product? How would the grains industry react if we were advised to abandon porridge, corn flakes and bread in the morning?


Part of a larger piece for the Sydney Morning Herald on the ABC Catalyst controversy


Below, Robert Lustig explains the damage caused by sugary foods.

Warning: The video is 90 minutes! (Watch the rest later here)







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Thursday, October 31, 2013

Spot the carbon tax. Our cost of living has flatlined

It's that undramatic

One year on from the carbon tax Australia’s cost of living has flatlined.

New calculations by the Bureau of Statistics show the cost of living for so called working families almost plateaued in the year to September, climbing just 0.9 per cent. The increase is less than half the official inflation rate of 2.2 per cent and less than one third the rate at which wages are climbing.

The Bureau says its living cost indexes are climbing more slowly than the official rate of inflation primarily because they include mortgage and bank interest charges which are excluded from the consumer price index.

Discount mortgage rates have plummeted from around 6.1 per cent to 5.1 per cent over the past year, slicing about $180 per month off the typical cost of repaying mortgage.

“These figures show the cost of living barely climbing, said BT Financial chief economist Chris Caton.

“And they include the effect of the carbon tax.”

“Many Australian families are getting compensated for that tax. That is, they are being compensated for prices that are scarcely climbing"...

If you are being compensated, it is fair to ask whether your cost of living is really increasing much at all.”

The Bureau’s breakdown shows the cost of living facing households not headed by employees has climbed 2 per cent over the past year, also less than the rate of inflation. Households facing a 2 per cent increase in their cost of living include those headed by aged pensioners, those headed by self-funded retirees and those headed by people on benefits such as NewStart.

“It ought to stop all of the talk about a spiraling cost of living,” said Dr Caton. “But I don’t think it will. For me those stories are mainly media and political beat ups.”

“They cherry pick. It's always electricity, its petrol when it suits them, and then its just one or two other prices. If you look comprehensively across the range of everything consumers purchase, inflation is low and it's been low for a long time.”

Electricity prices are climbing at their slowest pace in six years, advancing 6.1 per cent in the year to September, well down on the annual increase of 18.5 per cent recorded with introduction of the carbon tax one year earlier. Average food prices fell 1.6 per cent over the year to September.

Dr Caton said there was little on the horizon that might push prices up. “A fall in the dollar might put some pressure on prices, but they are less responsive to currency movements than they used to be. Consumers are wary about spending, and new technologies are making price discovery easier. Retailers can’t apply the sorts of margins they once used to without shoppers finding out, and buying goods more cheaply elsewhere.”

The 0.9 per cent increase in the cost of living facing working Australians is a big come down from the 3.9 per cent recorded two years ago after a year in which mortgage rates had been climbing.

In The Age


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6467.0

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Saturday, October 26, 2013

Radical, gutsy and quick. What to expect from the Commission of Audit

Saturday column

Joe Hockey’s new Commission of Audit will be the most comprehensive in almost two decades. It’ll examine everything the government does.

And what’ll it say?

Well if it’s anything like the last one established by Peter Costello 17 years ago it’ll recommend further inquiries.

Truely. Here are extracts from that last Commission of Audit report delivered to Costello in 1996:

. “The government should undertake a fundamental review...

. “The Government should review its policy...

. “The Government should initiate further work...

And so on.

Why did the Commission recommend further work rather than do it itself?

It didn’t have the time.

It kept saying so, using phrases like:

. “Because of the very tight deadline for completion of this report...

. “In the limited time available...

. “Because of this time constraint...

And so on.

Costello had given it just three months.

If there’s one lesson Hockey might have learnt from the last time the Coalition asked a Commission to examine its entire financial operation, it’s not to give it only three months.

Hockey has listened. He has given it three and a half.

The Commission’s first report examining the scope of government, the efficiency and effectiveness of spending, the state of the Commonwealth’s finances and the the effectiveness of budget controls is due on January 31.

That’s right, January 31. Even working through Christmas with “a lot of resources” the Commissioners will have to tackle really big questions at a breakneck pace.

Their second report, examining infrastructure and public sector performance, is due two months later.

The thinking behind the speed is impossible to fathom. Hockey himself wants the report to be “thorough and comprehensive”. The Henry Tax Review was given more than a year. I’ve a suspicion the lightning-fast timetable wasn’t his.

To keep to it the Commission will have to take shortcuts. The most obvious is to purloin the findings of its predecessor.

But some of those findings will unsettle the Coalition, if the not Commission itself...

The first Commission was chaired by Professor Bob Officer, an expert in corporate finance from the Melbourne Business School. It took no prisoners. This one is chaired by Tony Shepherd, the president of the Business Council, which is a lobby group for Australia’s top 100 business leaders.

The Officer Commission wanted the government to “urgently review assistance to business and higher income earners”.

It fingered the export market development grants scheme (which survives to this day), the 150 per cent research and development tax concession (only recently closed by Labor) and the non means tested childcare cash rebate (which the Henry Tax Review also wanted means tested and still isn’t).

Its broader concern was that money was being shovelled to businesses and high income earners by means of scarcely visible tax concessions rather than direct payments. That’s how the government shovels outsized support to the superannuation accounts of high earners and the family homes of Australians who are already rich. By contrast measures that support poorer Australians are easy to see in the budget and always in the line for the cop. Just this week the government announced plans to axe the Low income Superannuation Contribution. The more expensive support delivered to high income super accounts was spared.

“The government should comprehensively review all existing tax expenditures programs,” the Commission recommended. It should convert those that were actually worthwhile into direct grants so the public could see where its money was going.

And that was just the start of its attack on privilege. It turned its guns on politicians themselves. Peter Costello was infuriated. Politicians super should be “structured in a similar way to arrangements for senior executives in the rest of the workforce”. It took eight years and campaigning by the new Labor leader Mark Latham for the Howard government to reluctantly act. It replaced the parliamentary super scheme with much like that applying to other other people, but only for new politicians. Howard, Costello and Latham himself continue to receive a super benefit costing around 78 per cent of their salaries for the rest of their lives.

The Commonwealth should abandon its support for private schools. The states could fund them if they wanted to (and there are good reasons why they might, every privately schooled student is a student less the states have to teach). In fact the Commonwealth would get out of school education altogether, keeping responsibility only for tertiary education which it wouldn’t directly fund. Instead it would fund scholarships which students could use to buy education from universities and TAFEs which full fees. Much of what the Commonwealth does in the field of health would be handed to the states as well.

And the Commonwealth would less fully fund pensioners. For obscure historical reasons their payments are linked to 25 per cent of male total average earnings. The government would instead linking them to a lower measure (median total male and female earnings) or lift them only in line with the consumer price index or not lift them at all except following regular reviews which would consider “all relevant circumstances, including budget pressures”.

The unemployed would get no joy from their campaign for higher NewStart benefits. The Commission saw sense in giving them a good deal less than the pension to make sure they weren’t lulled into staying unemployed.

And leaders such as Tony Abbott who wants to build “roads of the 21st Century” would be told bluntly Australia had enough infrastructure. There was “no evidence of overall infrastructure inadequacy”. (Although it should be noted that is a view the Commission might not hold if it revisited the question. What was true in 1996 might not remain true in 2013.)

The Officer Commission was radical, gutsy and quick - so quick it never got the chance to flesh out its ideas. Perhaps that’s why the Coalition has made its successor quick. It might be frightened of what it will find.

In The Sydney Morning Herald and The Age


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Friday, October 25, 2013

Axing the mining tax would save the Coalition money (so it says)

As unlikely as it seems, axing the Minerals Resource Rent Tax tax will save the Coalition a fortune. In fact its the most lucrative of the policies it took to the election.

Treasurer Joe Hockey put a $13 billion price tag on it on Thursday as he unveiled the draft legislation that would abolish the tax. That’s a $13 billion benefit to the government from axing the tax. Axing the mining tax itself will cost the government $3.5 billion in the years to June 2017. But axing what it says are the associated measures will make it more than $17 billion.

Among those measures, whose repeal is included in the MRRT repeal bill, are the Schoolkids Bonus, the Low Income Superannuation Contribution, the Income Support Bonus, a more generous asset write off for small businesses and accelerated depreciation for business vehicles.

All were to funded by either the mining tax or by Labor’s “spreading the benefits of the boom” package. The Coalition’s position is that the boom is receding and the tax will be no more. Everything Labor tied to extra income from mining would go as well.

With one exception. Labor’s staged increase in compulsory super contributions costs the government money because it means a greater proportion of each salary will be lightly taxed...


The Coalition will keep the staged increase but delay it for two years.

Its an exception that will help high income earners more than low income earners, made doubly hurtful because the Coalition is withdrawing the low income super contribution. It says it wants to withdraw it from July 2013, which would make the snatching of the bonus retrospective. What is more likely is that the legislation won’t get through the Senate until after it changes in July 2014 giving low earners another year.

The mining tax (and the measures the Labor said mining would fund) might last another year.

In The Age


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Wednesday, October 23, 2013

Well done Joe Hockey. The $500 billion debt limit

"The debt ceiling is like a personal credit card limit, only sillier"

It’s called “clearing the decks” and there isn’t a chief executive who hasn’t at least thought about doing it.

If you are appointed when things look dodgy, you act as if they are even more dodgy: you write off losses (in this case lift the debt ceiling) by more than you need to knowing you can blame it on your predecessor. If things turn out to be not that bad, you end up looking good. If things do turn that out bad, you won’t look that bad.

The government’s debt ceiling is like a personal credit card limit, only sillier. Unlike a credit card limit it need not take account of ability to repay. It is a political limit imposed at by the parliament rather than an outside constraint imposed by the lender. As such it is is vulnerable to politics as the United States discovered to its cost this month in a standoff which threatened to prevent the government borrowing the money it that it needed to function. Labor’s Wayne Swan had to lift the ceiling four times - to $75 billion, then to $200 billion, then $250 billion and finally to $300 billion. On some of those occasions his opposite number Joe Hockey made things difficult for him. “Enough is enough,” he said in May.

Hockey is treasurer himself now, and he doesn’t want to go through the torture of having to going back to parliament each time he needs a bigger limit...


So he has asked for a very big one - $500 billion, the need for which he can blame on his predecessor. Hockey made the point that he is not proposing to lift the debt, merely the debt limit to give himself headroom free of political sniping should he need it.

His Commission of Audit is looking like a partly-owned subsidiary of the Business Council of Australia. It’ll be chaired by the Council’s president Tony Shepherd and its secretariat will be run by the Council’s director of policy Peter Crone. It’s an enviable double for the big business lobby group. It’ll be examining what fields the Commonwealth should abandon, what it should contract out and what it should privatise. They are topics the Council already has views.

In The Sydney Morning Herald and The Age


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Monday, October 21, 2013

Housing. We are supporting the already-rich


High income Australians are the overwhelming beneficiaries of government support for housing a new report has found, turning on its head the popular perception that it’s low income Australians who get the greatest subsidies through rent assistance.

“Only 25 per cent of renters get any support from the government,” says Jane-Frances Kelly the cities program director at the Grattan institute.

“They get none of the support that homeowners get. Even landlords get more.”

Entitled Renovating Housing Policy the report finds that homeowners receive an annual $36 billion per year in subsidies from the government, landlords around $7 billion per year, and renters less than $3 billion.

“We are not arguing that renters should get lots of government subsidies, but we were just really struck by the level of support for owners given that there are so many reasons for these people to own their own houses anyway,” Ms Kelly said. “It’s hard to see why they need that kind of level of subsidy.”

Home owners enjoy an exemption from capital gains tax, an exemption from the land tax faced by landlords, special treatment in applying the pension assets test and an exemption from tax for what is known as imputed rent.

“If a landlord is renting out a place, the landlord pays tax on that rental income,” Ms Kelly said. “Homeowners enjoy the same sort of benefit. It’s as if they pay themselves rent. But they are not taxed on it"...


“We are certainly not recommending that we start to tax those imputed rents, there are very few countries in the world that do that, but the size of that support should be recognised when it comes to calculating how the government skews the housing market.”

The Grattan Institute report finds the scale of the support for owners pushes up house prices, making it harder to for younger and poorer Australians to get into the market.

“Support for owner-occupied housing used to be roughly even across all income groups. Now the highest-income owners get government support of roughly $8000 per year whereas the lowest income owners get a little over $2000.”

The report finds the skewing of support to ownership rather than renting forces people to live further away from the centre of cities than they would like and makes it hard for them to move because they face stamp duties.

“If you are living out on the fringes you often can easily access only small minority of jobs rather than those in the centre. It means employers face a thinner labour market and workers are locked into jobs they might rather not have.”

Ms Kelly said Australian social norms and the state-based rules governing rent give tenants little security. This further drives Australians into owning rather than renting making them less mobile and responsive to the jobs market.

The report recommends that state governments eliminate stamp duty, replacing it with a broad based annual tax on all properties as the Australian Capital Territory has started to do. It recommends a reexamination of the biggest tax breaks for landlords - negative gearing and discounted capital gains tax rates. And it recommends that state governments reform tenancy rules to make them more like those in Europe with long leases that which allow tenants to modify their properties and own pets.

In The Sydney Morning Herald and The Age






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Shocking. The carbon tax has pushed prices...


Prepare for a price shock.

Australia’s inflation rate is out on Wednesday and the market is expecting 1.8 per cent.

That’s an annual rate of 1.8 per cent - a September quarter result so breathtakingly low it’s close to the quarterly rate of 1.4 per cent for the previous September quarter.

The September quarters are the big ones. They are when electricity price rises hit the index. That one year on from the carbon tax a September quarter inflation result could be so low throws into an entirely different light Tony Abbott’s claim that the price impact of the carbon tax would be “almost unimaginable”.

“Almost undetectable” might be a better description. Earlier this month energy consultant Hugh Saddler of Pitt & Sherry told Fairfax Media it had been “almost impossible” to see the impact of the carbon price when it was introduced, and it would be no easier to to see what happened if it was removed.

The Bureau of Statistics agreed.

“The ABS is not able to quantify the impact of the introduction of carbon pricing, compensation or other government incentives and cannot produce estimates of price change exclusive of the carbon price,” it said in a statement. “Similarly, the ABS will not be able to quantify the impact of removing the carbon price (if that were to occur).”

The near invisibility of the “great big new tax on everything” creates both political and administrative problems for Abbott. And a minefield for businesses.

The political problem is that it’s hard to get the public outraged about a tax which is part of the furniture. Sure, there was a bump in energy prices when the tax came in the September quarter 2012, but it’s hard to tell how much of that was due to the tax and how much was due to the rapacious behaviour of the utilities we have been enduring for years. And the carbon tax bump is in the past (it won’t be part of the annual inflation figure to be released on Wednesday). The ongoing contribution of further adjustments to the carbon price is small by comparison.

The administrative problem is that it’s hard to be sure you have removed what you can’t see...


Abbott promised last week that if he succeeds in axing the tax “Australian households will be better off to the tune of $550 a year”.

The estimate derives from work done by the Treasury but it isn’t the Treasury’s. The department was asked in 2011 to predict the impact of a $23 per tonne emissions tax. It came up with $9.90 per week per household, around $515 per year. Abbott his team scaled that up for the increase in the carbon price from the middle of this year and the increase scheduled for the middle of next and came up with an impact of $550.

But as best as we can tell the boost to prices from the carbon tax turned out to be lower than the Treasury forecast. That means any fall in prices resulting from axing the tax would also be lower, if suppliers act on the way down as they did on the way up.

(Environment minister Greg Hunt’s claim that the saving would be “$3000 per family over the next six years” is silly. It’s hard enough to know what the saving would be over one year.)

There’s an apparent acknowledgement in Hunt’s draft repeal legislation that things aren’t as straightforward as they seemed.

During the campaign he promised that the Australian Competition and Consumer Commission would establish a special unit charged with monitoring and enforcing reasonably expected price reductions following the abolition of the carbon tax.

It would ensure that “businesses pass on the benefits of lower input costs to consumers in the form of lower supermarket prices and lower prices for other goods and services.”

The draft mentions by name only four types of goods, none of them sold in supermarkets. They are natural gas, electricity, synthetic greenhouse gas and synthetic greenhouse gas equipment. The minister would be able to specify other types of goods later, but the exclusion of supermarket goods - so prominent in the Coalition's advertising - suggests it is coming to the realisation that the tax pushed up their prices by so little that there’s little point in making sure they are brought down.

Woolworths reports that its average food and liquor prices were 2.9 per cent lower in the financial year that followed the carbon tax. The Treasury had expected it to nudge up food prices 80 cents per week.

The minefield for businesses caught up in the law is that if they engage in “price exploitation” by not cutting their prices by what the ACCC thinks is enough they can be fined up to $1.1 million plus damages. Worse still, Abbott says the tax will vanish from July next year even if the legislation axing it isn’t passed until later, after the new Senate meets that month. Not knowing what they are liable for and not knowing what they will have to pass on sits uneasily with a clause in the law gagging them from making “false or misleading representations about the effect of the carbon tax repeal”.

If political positions weren’t so entrenched Abbott and Hunt could just leave the tax in place. It’s causing minimal damage, it’s kicking goals (per capita household electricity and gas consumption is down 3 per cent) and it’s an old tax. Google “old tax” and “good tax” and see what you find.

In The Sydney Morning Herald and The Age


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China. Fast now, slow later - Treasury


China will be by far the biggest economy in the world within 17 years but it’s growth rate will have slowed to a trickle, according to a new Treasury analysis.

Labelled a working paper and posted on the Treasury website with the annotation that its conclusions are “those of the authors and do not necessarily reflect those of the Australian Treasury” the study uses measures of labour productivity and long term population growth to produce economic growth projections for six major regions of the world and six individual countries.

It finds China’s growth rate will plummet from an average of 10.5 per cent in the first decade of the century to 8 per cent this decade, then to 4.3 per cent, 2.4 per cent and 2 per cent between 2040 and 2050.

India, whose growth rate had been expected to overtake China’s, will do so as its growth slows from 7.5 per cent last decade to 6.5 per cent this decade, then 6.1 per cent, 4.5 per cent and 3.3 per cent.

Growth among developed nations will slip from 2.1 per cent per annum to 1.6 per cent before settling at 1.7 per cent from 2040...


The authors, Wilson Au-Yeung, Nghi Luu and Dhruv Sharma from Treasury’s international division and Michael Kouparitsas from Treasury’s domestic division, say the projected slid in growth rates need not concern Australia because its potential trading partners woill be quite big.

“Our analysis suggests that the economy of the emerging and developing region is currently larger than
the economy of the advanced region,” they write. “This reflects the rapidly shifting weight of global
economic activity to fast-growing economies of Asia.”

“We project that Asia will become the world’s largest economic region by 2020. Underlying this is the expectation that the combined economies of China and India will become larger than the advanced economies by the middle of the 2030s.”

They expect China to overtake the United States as the world’s largest economy by the start of the 2030s.

China’s economic growth rate will slow as its population growth rate slows. Chinese productivity is expected to climb from around 20 per cent of US productivity where it is today to 50 per cent by the middle of the century and then to 70 per cent.

In  The Sydney Morning Herald and The Age


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Sunday, October 20, 2013

Political expenses. It's the white lie that's the worst one

Sunday Column

Of all the lies told in the parliamentary expenses scandal the most dangerous is the white one - the one designed to make it look as if it’s the rules themselves that are to blame, not the politicians who have abused them.

Foreign minister Julie Bishop tells it beautifully.

“I believe that there is a very grey area between what is official business and what is an event that could be characterised in another way,” she told the ABC’s AM program.

“When we are invited to events, most of the time it's in our capacity as a parliamentarian. If someone wanted to characterise it because I knew the people for example, well is that a social event?”

As unlikely as it seems, she was talking about a wedding.

The truth is that for back benchers the rules are unflinchingly clear.

Ordinary members of parliament can claim travel for only four purposes - meetings of their parliamentary party, “electorate business”, “parliamentary business” (such as representing the parliament or sitting on committees) and “official business” (defined as properly constituted meetings of government advisory bodies or functions representing a minister or presiding officer).

That’s it. Anything else - certainly a wedding, a ski trip or a trip interstate to take possession of a rental property, anything else is off limits. To suggest otherwise is to suggest the person making the claim can’t read.

And to suggest that things are alright because the finance department has paid the claim is absurd.

Coalition MP Don Randall did it while stonewalling over the $5259 he spent on the “electorate business” of a trip to Cairns with his a family member. Cairns is 3446 kilometres from his electorate.

He said the claim was "appropriately acquitted with the Department of Finance".

Anyone familiar with self-assessment will know that paying a claim isn’t the same as approving it, or even examining it...


The Tax Office pays almost everything we claim automatically. It simply checks that the numbers add up. Years later it might come after us in an audit, but until then it treats as as adults who can wear the consequences of our actions.

Randall later conceded that he was wrong - payment doesn’t mean approval. He said he would refund the payment “to ensure the right thing is done by the taxpayer and to alleviate any ambiguity”.

Ambiguity? Randall sits on the committee that oversees MP’s behaviour. Like George Brandis, the attorney general, his claims have been referred to the police. They are not alone in seeing ambiguity where others see clear rules. Few in politics, and few near the very top of politics, seem able to grasp the obvious truth - that for the most part there’s a clear boundary between what is right and wrong. There isn’t a “very grey zone”.

That those at the top can’t grasp that truth says something about them and also something about the blindness that sets in when people ascend to positions of power.

It isn’t just me saying that. The moral blindness that accompanies power has been well documented.

Dutch psychologists Joris Lammers and Adam Galinsky are leading the way. A few years back they divided sixty students into two groups. One they “primed” to feel powerful by asking them to remember occasions when they had power. The other, they primed to feel powerless.

Each was asked to take part in an experiment in which they could cheat. The group that felt powerful cheated more.

Then they asked each group what they thought of people who cheated on travel expenses. Bizarrely the powerful group not only cheated more but came down harder on cheaters. Lammers and Galinsky entitled their study Power Increases Hypocrisy.

In order to be sure, they carried out the experiment again and again in different contexts. In one they asked whether it was okay to break the speed limit to get to an appointment on time. The powerful group was more likely to say no, but also more likely to say it would speed. In another they asked whether it was okay to omit from a tax return income earned from a second job. The powerful group said it was not, but was also more likely to say it would do it.

They were sexual hyprocates as well. Lammers and Galinsky emailed magazine readers anonymous questionnaires. The higher they were in their organisation's hierarchy, the more likely they were to confess that they had been unfaithful.

Power corrupts, and it appears to do it through a kind of blindness that allows powerful people to think the rules apply to other people, not them. It’s our leaders who are at fault in the politicians expenses scandal, not the rules they are breaking.

In The Canberra Times and The Sun Herald


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