Thursday, November 30, 2017

Smothering charities: the plot to keep critics quiet

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
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The Coalition and the banks: 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
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Wednesday, November 29, 2017

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
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Thursday, November 23, 2017

Rinehart, Pratt lead push to direct super to 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
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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
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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
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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
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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
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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
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Saturday, November 11, 2017

Financially stressed? Please don't blame high prices

When Tony Abbott first stood for prime minister, he complained about the price of bread.

He told the leaders debate it had shot up 12 per cent. It hadn't. The Bureau of Statistics found it hadn't increased at all – it had been stuck for a year at $3.88.

Head to Woolworths online today and you'll see a variety of prices, for different kinds of loaves. I've averaged them. Today's price is $3.55.

We never seem to notice the prices that are going down, or at least we pay far less attention to them than the prices that are going up (or that we imagine are going up).

The inflation rate is 1.8 per cent. But when asked by the Melbourne Institute what we think it is, we typically say 5 to 6 per cent.

The Bureau of Statistics calculates the rate by going into shops and entering into scanners the prices of around 1000 items. It does it over and over again, all over each of Australia's eight capital cities. These days it augments those readings with scanner data from supermarkets and the prices advertised on websites.

But it gets it wrong. And not in the direction you would expect.

It systematically overestimates the inflation rate because it systematically underestimates our canniness.

Here's how it would work with two brands of baked beans. To start with they might each sell for the same price, and we might buy the same amount of each. Five years later the price of one brand might be 20 per cent higher and the other 5 per cent higher. The Bureau will record an average price increase of around 10 per cent. But the cost to us won't have increased that much. Over time, we will have shifted our purchases to the brand which has increased more slowly, by 5 per cent.

We do it with everything, switching between brands and between products in order to save money. It's how we shop.

It is why every few years the consumer price index gets seriously out of whack and needs to be recalibrated. The Bureau has just done it, re-surveying how we spend our money and readjusting the index to reflect updated spending patterns. It used to do it every five or so years. From now on it'll do it annually.

The Reserve Bank believes that by not taking full account of our canniness, the Bureau has overcounted inflation by 0.4 percentage points. In other words, it thinks our cost of living has climbed by 1.4 per cent rather than 1.8.

And it has a provided a guide to the ways in which we have changed our behaviour.

The price of tobacco almost doubled between 2011 and 2017. As a result, we cut back on smoking. The Bureau's inflation figures took account of the first but not the second. They had us spending 4 per cent of our budgets on cigarettes when we had actually been spending 2.5 per cent.

The price of electricity climbed 40 per cent. The Bureau took account of that, but did not take account of the ways we cut back on our use of electricity, making the increase matter less.

The price of audiovisual and computing equipment almost halved when adjusted for things such as speed and memory. As a result we bought more of it. The Bureau's figures didn't take account of that, meaning they've underweighted the impact of those lower prices on our budgets.

Other things changed because we changed. Rent become more important to us because more of us rented. And rents are barely moving. International travel become more important to us because we have become richer. And while its prices have been bouncing around, they've changed little for the last four years.

You probably still think you are badly off. You probably are, because your income is barely climbing. But as best as they can be measured, your expenses are under control.

In The Age and Sydney Morning Herald
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Thursday, November 09, 2017

Better economic days ahead? Sorry, not yet

Why do people feel so rotten?

It's because they don't believe the federal Treasurer when he says there are "better days ahead".

He's said it 25 times, roughly once a week since April.

If things were really looking up, retailers wouldn't need to cut prices to maintain sales. During the June and September quarters, retail prices fell 0.2 and 0.4 per cent. Fell. It's rare for prices to fall across the entire retail sector for an entire quarter. It's even rarer for them to fall for two consecutive quarters, and rarer still for them to fall that much. It's the biggest wave of discounting this century.

What did the price dive deliver? An increase in spending of 1 per cent. In department stores, where prices slipped 0.3 per cent, spending slid 2.2 per cent.

ShopperTrak monitors retail traffic in real time. Store owners and shopping centre managers feed it video, Wi-Fi and the output of heat sensors to enable it to work out how many people are in participating stores at any given time and how long they stay. In September, foot traffic was down 6 per cent on the same period the previous year. In the first three weeks of October, it was down 7.5 per cent.

It's partly because we're switching to shopping online, where, for big items, we can get lower prices, often from overseas. But it's also because, even with low and sliding prices, we are less keen to shop.

Ask us whether we expect better or worse conditions in the year ahead, as the Melbourne Institute does every month, and only 21 per cent say "better". That's the average for the past 12 months. Back in the final year of the Gillard government and the last months of the mining boom, 30 per cent said better. Back further in the last year of the Howard government, 33 per cent picked better.

It's the same when you ask about the next five years: only 21 per cent of us expect better times; 26 per cent expect worse. Back in the final year of the Howard government 44 per cent of us expected better times, and only 22 per cent expected worse.

Like businesses reluctant to invest whatever the interest rate, households that are wary will be reluctant to spend whatever the price. Officially, inflation is just 1.8 per cent, keeping pace with record low private sector wage growth of 1.8 per cent. But 1.8 per cent is an overestimate.

The Bureau of Statistics conceded as much on Monday when it revamped the consumer price index to take into account changed buying patterns. The index measures the price of the basket of goods that is said to represent the purchases of a typical consumer. But what's typical changes over time.

In the seven years since the index was last revamped, we've switched to a basket of goods whose prices are growing more slowly, making the true inflation rate probably 1.5 per cent (the bureau hasn't said; private economists have had to do their own calculations based on the make-up of the new basket). It means inflation is probably well below the Reserve Bank's target band of 2 to 3 per cent rather than just a bit below it.

And it could be lower still. Macquarie Group economist Justin Fabo believes the bureau isn't fully measuring the full effect of loyalty discounts at supermarkets. Its price measures are at odds with those of Coles and Woolworths. And it calculates changes in price of online items by "scraping" websites, taking insufficient account of the practice of shopping around and buying from the cheapest offering at the time. Macquarie reckons Australia's actual inflation rate could be just 1.3 per cent, close to an all-time low.

And what inflation there is isn't the result of us bidding up prices because we are desperate to spend, the so-called "demand" inflation that would result from a belief there were better days ahead. The prices susceptible to demand inflation are the ones that are falling or barely climbing. The prices that are climbing, strongly, are those beyond our control, pushed up by the government or international events: alcohol, tobacco, petrol, gas, electricity and public transport – none of them climbing because of pent-up demand.

But better times will come, because there are more of us in jobs, right? Employers will bid up wages and we'll bid up prices.

An extra 371,500 of us have found jobs in the past 12 months, predominantly in "healthcare and social assistance". In the past year that one sector accounted for 130,600 of the new jobs. The economics team at JP Morgan reckons this is in large measure due to the National Disability Insurance Scheme. The new workers are mostly women and mostly on government-controlled contracts that give them little bargaining power. Jobs growth in manufacturing, retail and construction – the sectors whose jobs are normally associated with better times –is much, much weaker.

There may well be better days ahead, one day. There are few signs of them right now.

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Tuesday, November 07, 2017

Life expectancy. From 45 to 82 years, we've come a long way

One hundred and fifty years ago on Tuesday The Sydney Morning Herald broke news that these days would be considered shocking.

The first 'life table' prepared for the British colony put the expected lifespan of a newborn non-Aboriginal Australian at just 45.6 years.

The Bureau of Statistics now gives newborns a lifespan of 82.5 years; 80.4 for boys, and 84.6 for girls.

And that's almost certain to be an underestimate. Improvements in medical technologies throughout 80 years of life are likely to add an extra four years to those totals.

On November 7, 1867, the life table was good news. We were better off than England where newborns got only 40.9 years, and better off than Belgium where they got 32.2.

And things were even better than the raw figure of 45.6 years suggested. An extraordinary 10.6 per cent of newborns (10.6 per cent of boys, 9.8 per cent of girls) died before they reached the age of one. If you survived to the age of one, you were likely to make it to 51.

From today's vantage point it looks as if life expectancy has always increased, but it hasn't, for decades at a time. The 1960s were what Melbourne University demographer Alan Lopez refers to as the "tobacco years". Life expectancy increased not at all.

For older Australians life expectancy scarcely increased for 50 years, between 1920 and 1970. It was only after 1972 when the tobacco use was brought under control (it didn't finally peak until 1978 - 1980) and progress was made against heart attacks that it began to grow again.

In recent years, newborns have been gaining an extra year of life every two and a half years. Australian National University demographer Liz Allen can't see an upper limit, although she concedes it will be more difficult. Controlling tobacco, preventing heart disease and making driving safer were easier to do than it would be to extend the lifespan of the parts of our bodies with built in obsolescence. Our bodies weren't designed to last too many years beyond childbirth, she says.

Alan Lopez says we've already harvested most of the low-hanging fruit. "The gains in lung cancer, chronic heart disease and the tobacco causes will continue, but at a much slower rate," he says. The gains from road accidents will depend on whether we adopt strict road rules of the kind Sweden has where there is a zero tolerance for alcohol.

At a public lecture to be presented at Melbourne University next week, he will suggest that life expectancy will continue to climb for the next 25 years, but at half the rate of the previous 25 years.

The biggest obstacle will be obesity, which has helped turn back the life expectancy of white men in the United States.

"Roughly one-third of Australians are obese, another third are overweight," he says. "Thirty or so years ago it might have been only 10 per cent. We don't yet know what the full effects of that will be, we do know that we are not having success in bringing it down."

Liz Allen says it's important to distinguish between the maximum possible lifespan (which at the moment is 122 years) and life expectancy. Life expectancy depends on conditions; on things such as sanitation, education and income. That's why it's nine to 11 years worse for Indigenous Australians. Who gets the extra years will be up to us.

By numbers:

Life expectancy at birth

1867: 45.6 years

Today: 82.5 years

Extra years expected at age 65

1867: 9

Today: 20

In The Age and Sydney Morning Herald
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Thursday, November 02, 2017

It's time (to take Labor seriously)

The shape of the next Labor government is becoming clearer.

This week we learnt that it will end the practice of signing Australia up to trade agreements that haven't survived a benefit-cost analysis.

Seriously. Korea, Japan, China. None of the three big agreements boasted about by Tony Abbott and Malcolm Turnbull has been subjected to an independent assessment of its benefits and costs. And nor has the far bigger, 5600-page, Trans-Pacific Partnership agreement signed by trade minister Andrew Robb shortly before he resigned and took up a position with the Chinese investor that runs the Port of Darwin.

Nor have any of Australia's agreements ever had to face official scrutiny after the event. "Not that I am aware of," were the words used by a foreign affairs official at a parliamentary hearing.

The US-Australia free trade agreement at least faced an unofficial analysis about the time of its 10th birthday in 2015. An economic modeller from the Australian National University applied the framework developed by the Productivity Commission and found it had cut rather than boosted trade between Australia and the US and the rest of world. Trade between Australia and the US also slid, but for other reasons.

It's easy to see why it cut trade with the rest of the world. Like most exclusive agreements it gave special access to exports from its members. Here's how it would have worked with the 12-nation Trans-Pacific Partnership (had Donald Trump not pulled the pin): Vietnam would have been a member but Thailand would not have been. The US-based Peterson Institute for International Economics has found that Vietnam would have exported more to Australia (which would have boosted its economy) in place of Thailand, which would have exported less (which would have harmed its economy).

And Australia would have had to change the way it made things, cutting inputs from countries such as Thailand and Indonesia under complex "rules of origin" if it wanted special access to the US, even where that meant much higher costs. The Korea-Australia agreement included 5200 rules of origin.

It's little wonder that the business organisation closest to the action, the Australian Chamber of Commerce and Industry, finds its members less than keen to use the agreements trumpeted by the Coalition. Only 15 per cent use and understand the Australia-US Free Trade Agreement, 5 per cent use it without understanding it, 17 per cent understand but don't use it, and 22 per cent neither understand nor use it. Another 41 per cent say it's not relevant to them.

The chamber hosted Labor's policy launch on Monday because it has long argued that a body such as the Productivity Commission should run the ruler over future agreements and should review existing ones every 10 years, both of which Labor would do.

Labor would also tear up what has come to be seen as a cosy relationship between the government and Treasury forecasters, handing responsibility for official forecasts to the independent Parliamentary Budget Office. It would make "convenient" forecasts such as the pick-up in wage growth in this year's budget less suspicious. The Treasury would also lose responsibility for preparing the five-yearly Intergenerational Report, a document so debased by politics in its latest iteration that Treasury staff distance themselves from it when giving public presentations.

And it would make explicit the trade-off between cutting personal income tax and cutting company tax, in part by publishing 10-yearly projections for the cost of budget measures and in part by not proceeding with the unlegislated part of the company tax cut in order to deliver relief to ordinary taxpayers first.

It has consulted widely about its plans, receiving detailed input from 20 economists.

Negative gearing would be limited to new homes, and the capital gains tax discount that makes it attractive would be halved. Payouts from discretionary trusts would be taxed at the company tax rate. Deductions for the "cost of managing tax affairs" would be limited to $3000. "Junk" health insurance policies would no longer be eligible for the rebate, and the rebate along with the Medicare levy surcharge would be frozen for five years.

Labor is inclined to accept the Coalition's proposed national energy guarantee, ending the climate policy wars by keeping the framework (subject to seeing it) and adjusting the emissions target as needed.

Although critical of the Turnbull government's cut-price national broadband network, Labor won't fully return to its original very expensive plan to deliver fibre to 93 per cent of households and businesses. It would aim for a touch under 40 per cent, a step up from the Coalition's 20 per cent but nowhere near as expensive as would be rewiring most urban addresses in the nation.

It would keep offshore asylum seeker processing, but it would aim to process claims within 90 days instead of indefinitely and would set up an independent body to oversee Australian-funded detention centres.

The policies are not all to everyone's liking, but at least they are set down on paper. Unless things change, this time next year we will be faced with a choice between a government that makes things up as it goes along and a government in waiting that knows what it wants to do.

In The Age and Sydney Morning Herald
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