Friday, March 24, 2017

Victoria fills up as the rest of the nation moves in

In the past 12 months, 82,800 Australians have moved to Victoria from interstate, around 500 carloads a week.

At the same time, 65,600 Victorians have left.

The gap - a net influx of 17,200 - is an all-time record. Victoria's population is being swelled by more migrants from interstate than ever before, and by far more than any other state, even Queensland, which used to be the go-to state for the rest of nation.

Perhaps as a result, or perhaps as a driver, employment in Victoria has surged by 97,300 in the past year, accounting for almost all of the nationwide employment growth of 104,600.

In contrast, the once-booming jobs market in NSW produced only 2000 extra workers.

New population figures show that a jump in interstate migration, in overseas migration and in births lifted Victoria's population by 157,500 to 6.1 million in the year to September - an increase of 2.1 per cent, compared to 1.2 per cent in the rest of the nation.

Victoria now accounts for 25.2 per cent of Australia's population, the most since the share slid during the early 1990s recession.

Net foreign migration to Victoria reached a record 68,600 in the year to September. The natural increase (births minus deaths) reached 41,700, also a record high.

Domestic migrants to Victoria came predominantly from NSW (29,500), Queensland (15,200) Western Australia (11,500) and South Australia (9700).

The main destinations for Victorians moving interstate were NSW (22,900), Queensland (20,800) and Western Australia (7100).

Bureau of Statistics projections released with the population figures show Melbourne overtaking Sydney as Australia's biggest city in 2056.

The central projection puts Melbourne's population at 8.2 million, almost double the present 4.6 million, and Sydney's at 8.1 million, up from 5 million.

The slower growth in Sydney reflects congestion and geographical constraints of the sea and a mountain range.

By 2056, Victoria is projected to have a total population of 9.9 million and NSW 11.1 million.

A faster growth scenario has Melbourne well above Sydney at 9.2 million to 8.4 million, and a slower growth scenario has Sydney slightly ahead of Melbourne at 7.7 million to 7.4 million.

Australia's population is projected to be somewhere between 35 million and 45 million. The central projection is 39.7 million, up from the present 24.3 million.

In The Age and Sydney Morning Herald
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Thursday, March 23, 2017

How to kill stamp duty and produce a budget to remember

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

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

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

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

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

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

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

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

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

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

 

 

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald
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Sunday, March 19, 2017

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

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

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

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

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

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

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

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

If nothing else, it suggests incredible faith in banks.

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

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

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

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

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

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

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

But not by people like you or me.

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

In The Age and Sydney Morning Herald
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Thursday, March 16, 2017

That sucking sound is us being robbed of our gas

In Melbourne, gas cooktops are only the start.

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

Because it's been astoundingly cheap.

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

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

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

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

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

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

Finding gas may have been a lower priority.

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

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

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

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

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

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

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

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

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

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

Shared equity: The 'socialist' fix for housing

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald
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Tuesday, March 07, 2017

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

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

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

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

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

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

graphic

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

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

graphic

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald
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Sunday, March 05, 2017

Hidden figures. Women manage money better

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

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

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

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

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

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

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

But the conclusion depends on the time period chosen.

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald
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Cheap stamp duty: Victoria's package looks good

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald
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