Wednesday, December 04, 2019

GDP update: spending dips and saving soars as we stash rather than spend our tax cuts

Australians saved rather than spent most of the budget tax cuts, almost doubling the proportion of household income saved, leaving spending languishing.

The September quarter national accounts show that in the first three months of the financial year real household spending grew by just 0.1%, the least since the global financial crisis.

Over the year to September, inflation-adjusted spending grew by a mere 1.2%, also the least since the financial crisis. Australia’s population grew by 1.6% in that time, meaning the volume of goods and services bought per person went backwards.


Quarterly growth in household spending


Separate figures released by the Federal Chamber of Automotive Industries on Wednesday show November new car sales were down 9.8% on November 2018.

By the end of November the Tax Office had issued more than 8.8. million tax refunds totalling A$25 billion, 30% more than a year before.

Instead of being largely spent, they were mostly saved, pushing up the household saving ratio from 2.7% to 4.8%, its highest point in more than two years.


Household saving ratio


Treasurer Josh Frydenberg put the best face on the result, saying whether they had been spent or saved, the cuts had put households in a stronger position.

The government’s goal has always been to put more money into the pockets of the Australian people, and it’s their choice as to whether they spend or save that money

Separately calculated retail figures show that in the three months to September the volume of goods and services bought fell 0.1%.

The disposable income households had available to spend grew an outsized 2.5%, driven by what the Bureau of Statistics said were the budget tax cuts.

Growth at GFC lows

The Australian economy grew just 0.4% in the three months to September, down from 0.6% in the June quarter, and 0.5% in the March quarter.

Over the year to September it grew 1.7%, well short of the budget forecasts, which in year average terms were 2.25% for 2018-19 and 2.75% for 2019-20.


Real GDP growth


After taking account of population growth, GDP per person grew not at all in the September quarter. Over the year to September living standards grew a bare 0.2%.

Gross domestic product per hour worked, which is a measure of productivity, fell 0.2% during the quarter and fell 0.2% over the year.

Company profits were up 2.2% in the quarter and 12.7% over the year. Wage and superannuation payments grew at about half those rates: 1.2% and 5.1%.

Housing investment was down 1.7% over the quarter and 9.6% over the year.

What household spending growth there was was concentrated on essentials, led by health and rent. So-called discretionary or non-essential expenditures fell, led down by spending on cars, dining out and tobacco.


Consumption growth by category, quarterly


The economy was kept afloat by a surge in government spending. It grew 0.9% in the quarter and 6% over the year. Growth in government spending and investment together accounted for 0.3 of the quarter’s 0.4 points of economic growth.

Government and mining to the rescue

Mining production grew 0.7% over the quarter and 7.4% over the year. A mining-fuelled surge in exports contributed almost as much to economic growth as government spending.

Drought-affected farm production fell 2.1% over the quarter and 6.1% over the year.

Business investment fell 4% in the quarter and 1.7% over the year, led down by a 7.8% fall in mining investment in the quarter and a 11.2% fall over the year, as liquefied natural gas projects came to completion. Non-mining investment fell 0.4%.


Read more: We asked 13 economists how to fix things. All back the RBA governor over the treasurer


Asked whether the December budget update would contain tax measures designed to boost business investment, the treasurer said he was in discussions with business. The update is expected in the week before Christmas.

There’s little evidence in today’s figures of the “gentle turning point” spoken about hopefully by the Reserve Bank governor as recently as Tuesday.

If things don’t pick by the bank’s first board meeting for the year in February, it is a fair bet it will cut its cash rate again. By then it will know what the treasurer did (or didn’t) do in the budget update and whether we decided to spend over Christmas.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, November 06, 2019

Super power - Australia's low carbon opportunity

Ross Garnaut, University of Melbourne.

Four years ago in December 2015, every member of the United Nations met in Paris and agreed to hold global temperature increases to 2°C, and as close as possible to 1.5°C.

The bad news is that four years on the best that we can hope for is holding global increases to around 1.75°C. We can only do that if the world moves decisively towards zero net emissions by the middle of the century.

A failure to act here, accompanied by similar paralysis in other countries, would see our grandchildren living with temperature increases of around 4°C this century, and more beyond.

I have spent my life on the positive end of discussion of Australian domestic and international policy questions. But if effective global action on climate change fails, I fear the challenge would be beyond contemporary Australia. I fear that things would fall apart.

There is reason to hope

It’s not all bad news.

What we know today about the effect of increased concentrations of greenhouse gases broadly confirms the conclusions I drew from available research in previous climate change reviews in 2008 and 2011. I conducted these for, respectively, state and Commonwealth governments, and a federal cross-parliamentary committee.

But these reviews greatly overestimated the cost of meeting ambitious reduction targets.

There has been an extraordinary fall in the cost of equipment for solar and wind energy, and of technologies to store renewable energy to even out supply. Per person, Australia has natural resources for renewable energy superior to any other developed country and far superior to our customers in northeast Asia.


Read more: Australia's hidden opportunity to cut carbon emissions, and make money in the process


Australia is by far the world’s largest exporter of iron ore and aluminium ores. In the main they are processed overseas, but in the post-carbon world we will be best positioned to turn them into zero-emission iron and aluminium.

In such a world, there will be no economic sense in any aluminium or iron smelting in Japan or Korea, not much in Indonesia, and enough to cover only a modest part of domestic demand in China and India. The European commitment to early achievement of net-zero emissions opens a large opportunity there as well.

Converting one quarter of Australian iron oxide and half of aluminium oxide exports to metal would add more value and jobs than current coal and gas combined.

A natural supplier to the world’s industry

With abundant low-cost electricity, Australia could grow into a major global producer of minerals needed in the post-carbon world such as lithium, titanium, vanadium, nickel, cobalt and copper. It could also become the natural supplier of pure silicon, produced from sand or quartz, for which there is fast-increasing global demand.

Other new zero-emissions industrial products will require little more than globally competitive electricity to create. These include ammonia, exportable hydrogen and electricity transmitted by high-voltage cables to and through Indonesia and Singapore to the Asian mainland.

Australia’s exceptional endowment of forests and woodlands gives it an advantage in biological raw materials for industrial processes. And there’s an immense opportunity for capturing and sequestering, at relatively low cost, atmospheric carbon in soils, pastures, woodlands, forests and plantations.

Modelling conducted for my first report suggested that Australia would import emissions reduction credits, however today I expect Australia to cut domestic emissions to the point that it sells excess credits to other nations.

The transition is an economic winner

Technologies to produce and store zero-emissions energy and sequester carbon in the landscape are highly capital-intensive. They have therefore benefited exceptionally from the historic fall in global interest rates over the past decade. This has reduced the cost of transition to zero emissions, accentuating Australia’s advantage.

In 2008 the comprehensive modelling undertaken for the Garnaut Review suggested the transition would entail a noticeable (but manageable) sacrifice of Australian income in the first half of this century, followed by gains that would grow late into the second half of this century and beyond.

Today, calculations using similar techniques would give different results. Australia playing its full part in effective global efforts to hold warming to 2°C or lower would show economic gains instead of losses in early decades, followed by much bigger gains later on.

If Australia is to realise its immense opportunity in a zero-carbon world, it will need a different policy framework. But we can make a strong start even with the incomplete and weak policies and commitments we have. Policies to help complete the transition can be built in a political environment that has been changed by early success.

Three crucial steps

Three early policy developments are needed. None contradicts established federal government policy.

First, the regulatory system has to focus strongly on the security and reliability of electricity supplies, as it comes to be drawn almost exclusively from intermittent renewable sources.

Second, the government must support transformation of the power transmission system to allow a huge expansion of supply from regions with high-quality renewable energy resources not near existing transmission cables. This is likely to require new mechanisms to support private initiatives.

Third, the Commonwealth could secure a globally competitive cost of capital by underwriting new investment in reliable (or “firmed”) renewable electricity. This was a recommendation by the Australian Competition and Consumer Commission’s retail electricity price inquiry, and has been adopted by the Morrison government.

We must get with the Paris program

For other countries to import large volumes of low-emission products from us, we will have to accept and be seen as delivering on emissions reduction targets consistent with the Paris objectives.

Paris requires net-zero emissions by mid-century. Developed countries have to reach zero emissions before then, so their interim targets have to represent credible steps towards that conclusion.

Japan, Korea, the European Union and the United Kingdom are the natural early markets for zero-emissions steel, aluminum and other products. China will be critically important. Indonesia and India and their neighbours in southeast and south Asia will sustain Australian exports of low-emissions products deep into the future.

For the European Union, reliance on Australian exports of zero-emissions products would only follow assessments that we were making acceptable contributions to the global mitigation effort.

We will not get to that place in one step, or soon. But likely European restrictions on imports of high-carbon products, which will exempt those made with low emissions, will allow us a good shot.


Read more: Labor's reset on climate and jobs is a political mirage


Movement will come gradually, initially with public support for innovation; then suddenly, as business and government leaders realise the magnitude of the Australian opportunity, and as humanity enters the last rush to avoid being overwhelmed by the rising costs of climate change.

The pace will be governed by progress in decarbonisation globally. That will suit us, as our new strengths in the zero-carbon world grow with the retreat of the old. We have an unparalleled opportunity. We are more than capable of grabbing it.

The Conversation


Ross Garnaut conducted the 2008 and 2011 climate reviews for the Rudd and Gillard governments. His book Superpower – Australia’s Low-Carbon Opportunity, is published today by BlackInc with La Trobe University Press.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Monday, November 04, 2019

We asked 13 economists how to fix things. All back the RBA governor over the treasurer

Thirteen leading economists have declared their hands in the stand off between the government and the Governor of the Reserve Bank over the best way to boost the economy.

All 13 back Reserve Bank Governor Philip Lowe.

They say that, by itself, the Reserve Bank cannot be expected to do everything extra that will be needed to boost the economy.

All think that extra stimulus will be needed, and all think it’ll have to come from Treasurer Josh Frydenberg, as well as the bank.

All but two say the treasurer should be prepared to sacrifice his goal of an immediate budget surplus in order to provide it.

The 13 are members of the 20-person economic forecasting panel assembled by The Conversation at the start of this year.

All but one have been surprised by the extent of the economic slowdown.


Read more: No surplus, no share market growth, no lift in wage growth. Economic survey points to bleaker times post-election


The 13 represent ten universities in five states.

Among them are macroeconomists, economic modellers, former Treasury, IMF, OECD and Reserve Bank officials and a former government minister.

The Bank needs help

At issue is the government’s contention, spelled out by Frydenberg’s treasury secretary Steven Kennedy in evidence to the Senate last month, that there is usually little role for government spending and tax (“fiscal”) measures in stimulating the economy in the event of a downturn.

Absent a crisis, economic weakness was “best responded to by monetary policy”.

Monetary policy – the adjustment of interest rates by the Reserve Bank – is nearing the end of its effectiveness in its present form. The bank has already cut its cash rate to close to zero (0.75%) and will consider another cut on Tuesday.

It is preparing to consider so-called “unconventional” measures, including buying bonds in order to force longer-term interest rates down toward zero.


Read more: If you want to boost the economy, big infrastructure projects won't cut it: new Treasury boss


Governor Lowe has made the case for “fiscal support, including through spending on infrastructure” saying there are limits to what monetary policy can achieve.

The 13 economists unanimously back the Governor.

Seven of the 13 say what is needed most is fiscal stimulus (including extra government spending on infrastructure), three say both fiscal and monetary measures are needed, and three want government “structural reform”, including measures to help the economy deal with climate change and remove red tape.

None say the Reserve Bank should be left to fight the downturn by itself without further help from the government.

There is plenty of room for fiscal stimulus, particularly infrastructure spending – Mark Crosby, Monash University

I agree with the emerging consensus that monetary policy is no longer effective when interest rates are so low – Ross Guest, Griffith University

It is time for coordinated monetary and fiscal policies to boost domestic demand – Guay Lim, Melbourne Institute

The surplus can wait

Eleven of the 13 believe the government should abandon its determination to deliver a budget surplus in 2019-20.

Economic modeller Renee Fry-McKibbin says the government should “ease its position of a surplus at all costs”.

Former Commonwealth Treasury and ANZ economist Warren Hogan says achieving a surplus in the current environment would have “zero value”.

Former OECD director Adrian Blundell-Wignall says that rather than aiming for an overall budget surplus, the government should aim instead for an “net operating balance”, a proposal that was put forward by Scott Morrison as treasurer in 2017.

The approach would move worthwhile infrastructure spending and borrowing onto a separate balance sheet that would not need to balance.

Political debate would focus instead on whether the annual operating budget was balanced or in deficit.

Former treasury and IMF economist Tony Makin is one of only two economists surveyed who backs the government’s continued pursuit of a surplus, saying annual interest payments on government debt have reached A$14 billion, “four times the foreign aid budget and almost twice as much as federal spending on higher education”.

Further deterioration of the balance via “facile fiscal stimulus” would risk Australia’s creditworthiness.

However Makin doesn’t think the government should leave everything to the Reserve Bank.

He has put forward a program of extra spending on infrastructure projects that meet rigorous criteria, along with company tax cuts or investment allowances paid for by government spending cuts.

Former trade minister Craig Emerson also wants an investment allowance, suggesting businesses should be able to immediately deduct 20% of eligible spending.

It’s an idea put forward by Labor during the 2019 election campaign. Treasurer Josh Frydenberg has indicated something like it is being considered for the 2020 budget.

Emerson says it should be possible to deliver both the investment allowance and a budget surplus.

Quantitative easing would be a worry

Five of the 13 economists are concerned about the Reserve Bank adopting so-called “unconvential” measures such as buying government and private sector bonds in order to push long-term interest rates down toward zero, a practice known as quantitative easing.

Jeffrey Sheen and Renee Fry-McKibbin say it should be kept in reserve for emergencies.

Adrian Blundell-Wignall and Mark Crosby say it hasn’t worked in the countries that have tried it.

A quantitative easing avalanche policy by the European central bank larger than the entire UK economy has left inflation below target and growth fading. Quantitative easing destroys the interbank market, under-prices risk, and encourages leverage and asset speculation – Adrian Blundell-Wignall

Steve Keen says in both Europe and the United States quantitative easing enriched banks and drove up asset prices but did little to boost consumer spending, “because the rich don’t consume much of the wealth”.

The treasurer should step up

Taken together, the responses of the 13 economists suggest it is ultimately the government’s responsibility to ensure the economy doesn’t weaken any further, and that it would be especially unwise to palm it off on to the Reserve Bank at a time when the bank’s cash rate is close to zero and the effectiveness of the unconventional measures it might adopt is in doubt.

Measures the government could adopt include increasing the rate of the Newstart unemployment benefit, boosting funding for schools and skills training, borrowing for well-chosen infrastructure projects with a social rate of return greater than the cost of borrowing, further tax cuts that double as tax reform (including further tax breaks for business investment) and spending more on programs aimed at avoiding the worst of climate change and adapting to it.

The economists are backing the governor in his plea for help. They think he needs it.


The 13 economists surveyed


Read more: Buckle up. 2019-20 survey finds the economy weak and heading down, and that's ahead of surprises The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Wednesday, October 23, 2019

If you want to boost the economy, big infrastructure projects won't cut it: new Treasury boss

Treasury secretary Steven Kennedy – in the job for for just weeks after moving across from the department of infrastructure last month – has dismissed talk of spending big on infrastructure in order to escape an economic downturn.

Such calls “sound straightforward, but in practice are difficult to achieve”, he told a Senate hearing on Wednesday.

The timing requirements of fiscal stimulus are hard to give effect to while ensuring large projects are well planned and executed, and cost and capacity pressures are managed. There are some opportunities though, usually related to smaller projects and maintenance expenditure. The Commonwealth and state Governments are currently actively exploring these opportunities.

More broadly he made it plain that it was the role of the Reserve Bank rather than the Treasury to provide economic stimulus.

The bank has already cut its cash rate to a record low of 0.75% and has indicated it is prepared to consider unconventional monetary policy measures that would have the effect of cutting a wider range of rates.


Read more: 0.75% is a record low, but don't think for a second the Reserve Bank has finished cutting the cash rate


However, bank Governor Philip Lowe said last week such tools would be most effective “when used together with a broader set of policies”, including government spending and tax policies.

Without crisis, no need to spend more

Kennedy rejected the idea of extra spending except in an emergency, saying Treasury could best serve Australia’s interests by a “stable and predictable” policy framework that kept the budget near balance over time.

There would be times when a downturn cut revenue and increased spending on support payments, pushing the budget into deficit, but beyond allowing those so-called automatic stabilisers to operate there wasn’t normally a case for doing more.

The exceptions were “periods of crisis”.

“It is important to consider separately broader policy objectives and temporary responses to crisis,” Kennedy said.

“The circumstances or crisis that would warrant temporary fiscal responses are uncommon.”

Although Australia’s economy is not in crisis, Brexit, the US-China trade war and turmoil in Hong Kong have slowed economic and trade growth worldwide, as businesses opt to stay on the sidelines.

No crisis, but weak growth worldwide

In Australia, economic growth had been unusually weak, weighed down by weak household spending which was itself the result of weak income growth, weak house prices, weak housing investment, and weaker than expected non-mining investment.

Mining investment was down sharply, as was to be expected after the completion of several large liquefied natural gas projects.

Given low interest rates, it was “somewhat of a puzzle” that business investment was not growing faster. Partly that might be because the “hurdle rates” businesses use to assess projects have not been adjusted down as they should have been. Partly it might be because of uncertainties surrounding the global economy and technological change.

Structural factors may also be at play — it is not clear what business investment looks like in a world where more than two thirds of our economy is now services based.

The budget tax cuts that flowed into returns from July have not yet led to a “particularly large improvement” in household spending.

Wages, investment “somewhat of a puzzle”

“We will continue to assess the data on consumption as it becomes available, but it is worth noting that even if households initially use the tax cuts to pay down debt faster, this will still bring forward the point at which households could increase their spending,” Dr Kennedy said.

It is possible that spending might have been even weaker without the tax cuts.

Holding back the economy during the year to June has been drought and dry weather which knocked 0.2 percentage points of the economic growth. Holding it up has been larger than normal growth in government spending that contributed 0.2 percentage points more to economic growth than was normal.


Read more: Why we've the weakest economy since the global financial crisis, with few clear ways out


No one had been able come up with a complete explanation for Australia’s unexpectedly low rate of wage growth. One explanation might be that even though the unemployment rate of 5.2% was unusually low, increases in employment were drawing in older workers and women rather than pushing up wages.

Ultimately what was needed to sustain higher wage growth was productivity growth, and that would be difficult to achieve while business investment was weak. The Productivity Commission had come up with a set of recommendations state and federal ministers were working their way through.

Although economic growth has been very low - just 1.4% in the year to June – it grew more strongly in the last half of that year than the first. It might be “strengthening from here”.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Tuesday, October 01, 2019

0.75% is a record low, but don't think for a second the Reserve Bank has finished cutting the cash rate

Anyone who thought that with the Reserve Bank’s cash rate now close to zero, its run of interest rate cuts was over, needs only to read the last sentence of Governor Philip Lowe’s announcement after Tuesday’s cut:

The Board will continue to monitor developments, including in the labour market, and is prepared to ease monetary policy further if needed to support sustainable growth in the economy, full employment and the achievement of the inflation target over time.

For the longest time, the run of cuts was over.

Lowe’s immediate predecessor, Glenn Stevens, cut the cash rate to a record low of 1.5% in August 2016 as something of a “parting gift”, allowing Lowe to take over and keep it steady, unchanged for a record 34 months.

For most of those three years he made it clear the rate was unlikely to fall further. Six times he said the next move in rates was likely to be up, “rather than down”, pointing to rate increases overseas and progress on jobs and returning Australia’s unusually low inflation rate to his target band.

By February this year he was backtracking. Although it wasn’t apparent in the published figures, the unemployment rate was about to begin climbing. Wage growth had been far weaker than forecast, inflation showed no sign of returning to the centre of his target band, and forecasts for global growth were falling.


Reserve Bank cash rate


More importantly, consumer spending, which accounts for six in every ten dollars spent in Australia, was extraordinarily weak, growing at less than half the usual rate, as households “responded to this extended period of weaker income growth by progressively downgrading their spending plans”.

The probabilities of next move being up and down had become “more evenly balanced”.


Read more: RBA update: Governor Lowe points to even lower rates


Two weeks after the May election he cut the cash rate, then cut it again, taking it to a new record low of 1%, anticipated by only two of the 19 economists surveyed by The Conversation just six months earlier.

The extra cut announced on Tuesday is because the last two didn’t do enough.

House prices have begun to move up (as would be expected with lower rates) but borrowing is growing only slowly, and home building is weak. The Australian dollar is low (in part because of the lower rates), which should help make Australian businesses competitive, but they are not keen to borrow.

Since the last Reserve Bank board meeting we have learned that economic growth is shockingly low, just 1.4% over the past year, the weakest since the global financial crisis. Household spending is barely keeping pace with population growth.

Lowe would like to believe the economy has reached “a gentle turning point”. He told a community dinner in Melbourne on Tuesday night the board thinks it might have.

There are a number of factors that are supporting this outlook. These include the low level of interest rates, the recent tax cuts, ongoing spending on infrastructure, signs of stabilisation in some established housing markets, and a brighter outlook for the resources sector.

But they will need help. The bank believes the economy is capable of producing an unemployment rate of 4.5%. Instead it has been climbing, to 5.3%.

How the cuts will help

The cash rate is determined by the rate the Reserve Bank pays banks who deposit with it overnight. It drives almost every other rate, including the rates banks pay retail depositors, which help determine their cost of lending.

They don’t have to cut their mortgage and business rates in line with cuts in the Reserve Bank cash rate, but they usually do.

The big banks played a game of chicken yesterday, each waiting for the other to move. The Commonwealth Bank moved first, offering just 0.13 of the 0.25 points, followed by the National Australia Bank, which offered 0.15 points.

The real action is in the discounted rates that target borrowers for whom they matter. Before Tuesday they averaged 3.46%. Some were much lower. HSBC Australia wanted just 3.17%. If it passes on Tuesday’s cut in full it will charge only 2.92%, offering the first Australian mortgage rate in history beginning with the number “2”.

There’s every reason to believe the cuts will help. Even if Australians don’t borrow more to buy houses, they will be able to use the historically cheap credit embodied in their house loans to buy other things, such as solar panels whose payoff period will have shortened dramatically.

Since June many mortgage-holders will have saved A$150 on monthly payments.

Sure, confidence and decent wage growth would help, but given how indebted many Australians are, low mortgage rates will do quite a bit on their own.

Why they’ll continue

Governor Lowe made it clear on Tuesday that they will have to stay low for “an extended period”. A signed agreement with the treasurer requires him to keep them low until unemployment falls and inflation and economic growth return to return to normal levels.

He would like the government to help by boosting spending. He often mentions spending on infrastructure. But his employment contract requires him to use the cards he has been dealt. If the economy is weak, he is required to boost it using the instruments he has.


Read more: Below zero is ‘reverse’. How the Reserve Bank would make quantitative easing work


That’s why he says he is prepared “to ease monetary policy further”.

If needed, he’ll do it as soon as next month, cutting the cash rate to 0.5%. If more is needed beyond that, he will get ready to use so-called unconventional measures of the kind being used overseas, buying government and corporate bonds in order to force even more money into Australian’s hands.

There’s no reason to believe that the tools he has won’t work, and every reason to believe he’ll keep using them.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Monday, September 30, 2019

5 questions about superannuation the government's new inquiry will need to ask

The government’s new retirement incomes review will need to work quickly.

On Friday Treasurer Josh Frydenberg said he expected a final report by June, just seven months after the issues paper he wants it to deliver by November.

The deadline is tight for a reason. In recommending the inquiry in its report on the (in)effeciency of Australia’s superannuation system this year, the Productivity Commission said it should be completed “in advance of any increase in the superannuation guarantee rate”.

In other words, in advance of the next leglislated increase in compulsory superannuation contributions, which is on July 1, 2021.


Read more: Government retirement incomes inquiry puts superannuation in the frame


The next increase (actually, the next five increases) will hurt.

The last two, on July 1 2013 and July 1 2014, took place when wage growth was stronger. In 2013 wages growth was 3% per year.

And they were small – an extra 0.25 per cent of salary each.

The next five, to be imposed annually from July 1 2021, are twice the size: 0.5% of salary each.

If taken out of wage growth, they’ve the potential to cut it from its present usually low 2.3% per annum to something with a “1” in front of it, pushing it below the rate of inflation, for five consecutive years.

If we were going to do that (even if we thought the economy and wage growth could afford it) it would be a good idea to have a good reason why. After all, compulsory superannuation is the compulsory locking away of income that could otherwise be spent or used to pay down debt or saved through another vehicle, regardless of the wishes of the person whose income it is.

Question 1. What’s it for?

Fortunately, the new inquiry doesn’t need to do much work on this one.

For most of its life compulsory super hasn’t had an agreed purpose. At times it has been justified as a means of restraining wage growth, at times as means of restraining government spending on the pension, at times as means of boosting national savings.

In 2014, more than 20 years after compulsory super began, the Murray Financial System Review asked the government to set a clear objective for it, and two years later the government came up with one, enshrined in a bill entitled the Superannuation (Objective) Bill 2016.

The bill lapsed, but the objective at its centre lives on as the best description we’ve come up with yet of what compulsory super is for:

to provide income in retirement to substitute or supplement the age pension

Which raises the question of how much we need. For compulsory super, the answer is probably none. People who want more than the pension and their other savings can save more through voluntary super. People who don’t want more (or can’t afford to save more) shouldn’t.

Question 2. How much do people need?

Assuming for the moment that how much people need in retirement is relevant for determining how much compulsory super they need, the inquiry will need to examine what people need to live on in retirement.

The “standards” prepared by the Association of Superannuation Funds of Australia are loose. The more generous of the two allows for overseas travel every two or so years, A$163 per couple per fortnight on dining out, $81 on alcohol “or equivalent spent with charity or church”.


Read more: Why we should worry less about retirement - and leave super at 9.5%


It isn’t a reasonable guide to how much people need to live on, and certainly isn’t a reasonable guide for how much the government should intervene to make sure they have to live on. They are standards it doesn’t intervene to support while people are working.

And there’s something else. Super isn’t what will fund it. Most retirement living is funded outside of super, either through the age pension, private savings, or the family home (which saves on rent). Most 65 year olds have more saved outside of super than in it, and a lot more than that saved in the family home.

It’s a slight of hand to say that retirees need a certain proportion of their final wage to live on and then to say that that’s how much super should provide.

Question 3: Does it come out of wages?

The best guess is that, although paid by employers in addition to wages, compulsory super comes out of what would otherwise have been their wage bill.

Treasury puts it this way:

Though compulsory superannuation guarantee contributions are paid by employers, wage setting generally takes into account all labour costs. As such, it is widely accepted that employees bear the cost of higher superannuation guarantees in the form of lower take home pay.

The inquiry will probably make its own determination. If it finds that extra contributions do indeed come out of what would have been pay rises, it will have to consider the tradeoff between lower pay rises (and they are already very low) and the compulsory provision of more superannuation in retirement.

Question 4: Does it boost private saving?

It’d be tempting to think that the compulsory nature of compulsory superannuation meant that each extra dollar funnelled into it increased retirement savings by an extra dollar. But it doesn’t, in part because wealthy Australians who are already saving a lot have the option of offsetting it by saving less in other ways.

For them, the increase in saving isn’t compulsory.

For financially stretched Australians unable to afford to save (or for Australians at times in times life when they can’t afford to save) the compulsion is real, and unwelcome.

The inquiry will have to make its own assessment, updating Reserve Bank research which found in 2007 that each extra dollar in compulsory accounts added between 70 and 90 cents to household wealth.

Question 5: Does it boost national saving?

Boosting private saving (at the expense of people who are unable to escape) is one thing. Boosting national savings (private and government) is another. The tax concessions the government hands out to support superannuation are expensive. The concession on contributions alone is set to cost $19 billion this year and $23 billion in 2022-23, notwithstanding some tightening up. It predominately benefits high earners, the kind of people who don’t need assistance to save.


Read more: Myth busted. Boosting super would cost the budget more than it saved on age pensions


On balance it is likely that the system does little for national savings, cutting government savings by as much as it boosts private savings. But because the question hasn’t been asked, not since the Fitzgerald report on national saving in 1993 shortly after compulsory super was introduced, we don’t know.

It’ll be up to the inquiry to bring us up to date.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Friday, September 27, 2019

The dirty secret at the heart of the projected budget surplus: much higher tax bills

The budget is bouncing out of deficit and is set to stay in surplus for the decade to come.

That’s what the April budget and the final budget outcome for 2018-19 tell us, and Thursday’s report from the Parliamentary Budget Office doesn’t say any different.

It doesn’t have much choice. The Parliamentary Budget Office is required to take the government’s surplus and deficit projections for the next four years as given, and to take its economic forecasts and tax and spending announcments for the next ten years as given, whether realistic or not.

What it is allowed to do, and does once a year in a publication entitled medium-term fiscal projections, is to set out the implications of those projections.

Those implications, spelled out on Thursday, show the projected budget surplus to be so fragile as to be unrealistic, except the parts that rely on much higher personal income tax collections.

That’s right: much higher income tax collections per person, even after taking into account the coming decade of legislated tax cuts.

Middle earners hit hardest

But it won’t be higher for all of us.

The middle fifth of earners will pay far more of their income in tax in ten years’ time under the government’s projections, according to the PBO’s calculations. Instead of paying 14.9% of their income in tax, by 2028-29 they will pay 18.8%.

That’s after taking into account the long-term tax cuts the government pushed through parliament in May and went to the election on.

Without those legislated tax cuts, they would have been paying an extra 6.3% of their income in tax. With the legislated cuts (and others pencilled in by the PBO to keep the government’s tax take within its promised ceiling) they will be paying an extra 3.9%.

Put another way, the government’s tax cuts will undo some of the damage caused by bracket creep as more of each pay packet climbs into higher brackets, but not most of it.

It’s the same for pattern for the second-lowest fifth of earners. They will move from paying 5.3% of their income in tax to 9.9%, a near doubling, which is taken is taken into account in the surplus projections.


Read more: Those future tax cut promises... they're nowhere near as big as you'd think


The second-highest fifth will move from paying 22% of their income in tax to 23.4%, even after the tax cuts. The bottom fifth, who don’t pay much tax, will move from paying 0.6% to 1.2%.

Highest earners escape

But workers in the top fifth, which at the moment is workers earning above A$90,000, won’t pay a cent more, at least not on average.

The government’s projections, as spelled out by the PBO, have them paying less of their income ten years from today than they do today.

Put another way, they are the only fifth of the population that won’t be expected to wear pain to keep the budget surplus.

There are other contributors to the budget surplus. One is a pretty hefty assumed decline in growth in government spending over the next decade, amounting to 1% of GDP, taking government spending from around 24.9% of GDP to around 23.9%.

Much of it is projected to come from tighter eligibility criteria for payments, and measures to constrain their growth, something the PBO believes might be difficult to maintain:

The spending restraint seen over the past few years may be increasingly difficult to maintain over coming years given the length of time over which restraint has been applied, the pressures emerging in some spending areas, and the potential need for fiscal stimulus, noting that the projected improvement in the budget balance is mildly contractionary.

What it is saying, gently, is that it the longer the government attempts to restrain spending (for instance by imposing tough conditions on access to benefits and using debt collectors to recover alleged overpayments), the harder it will get.

And it is saying the government might need to spend in ways it hasn’t accounted for, including on measures to support the economy in the event of a downturn.

Budget conventions to the rescue

The projections assume the opposite of a downturn.

No blame should attach to this government for them, but our rather odd budget conventions dictate that the worse the economy is, the better the budget’s projections for economic growth. That’s right: the weaker our current economic growth, the stronger the budget’s projections for future economic growth.

The thinking is that over the long term, the economy should grow at roughly its long-term average growth rate. To get there when the economy is weak, as it is now, the budget assumes several years of stronger than normal economic growth to catch up.


Read more: Their biggest challenge? Avoiding a recession


In this case it’s five years of stronger than normal economic growth.

The PBO contents itself with the observation that economic growth that was merely normal (or worse, remained weaker than normal) for some of those years would have a “significant and compounding effect on the budget position over time.”

The surplus is far from assured, and it shouldn’t be. The government might well find that it can’t and shouldn’t restrain spending on payments as much as is projected in the decade ahead, and it might find it needs to spend to support the economy.

It will almost certainly find that lifting the tax take on middle Australians from 14.9% of income to 18.8% is intolerable.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Friday, September 20, 2019

It's Newstart pay rise day. You're in line for 24 cents, which is peanuts

Newstart recipients and other Australians on benefits get their half-yearly pay rise today (and also on March 20). This one is vanishingly small.

Announced very quietly by Social Services Minister Anne Ruston earlier this week, it amounts to just A$3.30 per fortnight for someone on the Newstart unemployment benefit.

That’s $1.65 per week, less than 24 cents per day.

It’s enough to buy about 36 peanuts – or more if you buy them in bulk.

More galling still for Australians on Newstart, age and disability pensions will increase by twice as much - $6.80 per fortnight, an increase the government was keener to highlight in its press release than the increase in Newstart.

It is hard to comprehend how it could have come to this. Back in 1997 Newstart and the pension were about the same in dollar terms. Each was probably somewhat less than a single person needed to live on.

How did it come to this?

Then the Howard government effectively froze Newstart, forevermore increasing it only in line with inflation (which back then was typically 2.5% per year) while using a formula that lifted pensions in line with wage growth or inflation, whichever was the bigger (back then wages were growing by more than 3% per year).

The difference wasn’t big, but over the past two decades it has compounded. Prime Minister Kevin Rudd helped it along in 2009 by a one-off $64 per fortnight increase in the single pension, unmatched by an increase in Newstart.



It means that from today the single pension will be $850.40 per fortnight, while the single Newstart payment will be $559 – a mere two-thirds of the pension.

And it’ll get worse.

Because inflation is low, and each low increase is off what is now a much lower base than the pension, Newstart increases are small while pension increases are twice as big.


Read more: FactCheck: do 99% of Newstart recipients also receive other benefits?


If prices and wages continue to grow at the rates they have over the past decade (2.1% per year for prices, 2.7% for wages) by 2070 Newstart will be just half of the pension. By the end of the century it’ll be just two fifths of the pension.



If it can’t continue, it won’t

Herbert Stein was an economic advisor to US presidents Nixon and Ford. These days he is best remembered among economists for Stein’s Law, which says pithily:

If something cannot go on forever, it will stop.

It’s a warning against the dangers of extrapolations of the kind I have just done, and also a guide to the future. A Newstart rate of just two fifths of the pension, way below everyone else’s standard of living, would be intolerable.

The formula will change well before it gets that bad. It’ll have to.

John Howard himself said so last year:

I was in favour of freezing when it happened, but I think it has probably gone on too long.

The question is how it will change. Labor promised a review and an increase during the last election.

The Coalition is holding firm, although it can’t if it continues to remain in office.

A decade ago the Organisation for Economic Co-operation and Development warned that Newstart was low enough to raise “issues about its effectiveness in providing sufficient support for those experiencing a job loss, or enabling someone to look for a suitable job”.

The budget surplus will help

The Australian Council of Social Service wants the government to lift Newstart by $150 per fortnight to $709, still well short of the pension, and afterwards to lift it in line with the pension and wages, so that it never falls further behind.

It wants the same for Youth Allowance, Austudy, Abstudy, Sickness Allowance, Special Benefit, Widow Allowance and Crisis Payment, which all move in line with Newstart.

The hit to the budget would be $3.3 billion per year, small enough to be funded by projected surpluses.


Read more: Are most people on the Newstart unemployment benefit for a short or long time?


And it would get smaller. Deloitte Access Economics says that after some years about $1.5 billion per year would return to the budget in extra tax as Newstart recipients and the other beneficiaries spent what they were given and boosted economic growth.

They’d have to.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, September 04, 2019

GDP. Why we've the weakest economy since the global financial crisis, with few clear ways out

The Australian economy is tepid, with consumer spending the weakest in ten years, business investment shrinking, and economic growth too weak to cover population growth.

Were it not for very strong growth in export income and the biggest surge in government spending in 15 years, the economy would have shrunk.

The Treasury believes the Australian economy is capable of growing at a sustained annual pace of 2.75%. The growth rate in the past financial year of 1.4% reported on Wednesday is only half that.

Not since September 2009 has the gap between what the Australian economy is capable of and what it has been delivering been so wide. 2009 was the year of the global financial crisis.


Real GDP growth


Economic growth has rarely been as low as 1.4% outside of a recession.

When account is taken of population growth, income and production per citizen went backwards. The last time that happened was during the financial crisis. The last time before that was during the early 1990s recession.

Household spending, which accounts for more than half of total spending, also failed to keep pace with population growth. The inflation-adjusted growth rate of 1.4% was also the lowest since the financial crisis.


Growth in household consumption


Other figures released on Tuesday show retail spending dipped a further 0.1% in July.

Hardest hit in the 2018-19 financial year was spending on cars. Updated figures released at the same time as the national accounts show sales of new cars down 10% over the year to August.

Treasurer Josh Frydenberg said he preferred to think that households were delaying rather than abandoning purchases of cars, waiting until the economic outlook was clearer.


Growth in consumption by category


Weighing on consumers is an extended period of unusually low wage growth that the national accounts show has brought the share of national income paid out as wages down to just about its lowest point since 1964.

Although the wage and superannuation bill increased, climbing 5% over the year as employment grew, the share of national income paid out as wages and super fell to 52% – the lowest since the global financial crisis, and before that the lowest since the Beatles toured Australia and Donald Horne published The Lucky Country.



Also weighing on consumers has been housing. Investment in housing (including alterations and additions) was down 9.1% over the year. Business investment fell 10%.

Company profits grew 12.8%, but leaving aside mining companies, whose profits grew strongly on the back of higher prices and export volumes, other profits grew only weakly, climbing 1.8%.

Mining income pushed up nominal GDP (the raw dollars unadjusted for prices that drive nominal incomes) up a healthy 5.4%, probably delivering the government a budget surplus one year earlier than promised, in 2018-19. Frydenberg said he already knew the result and would unveil it in a fortnight. His smiles suggested it’s one he likes.


Nominal GDP growth


Mining income also pushed up what the Reserve Bank regards as the best measure of actual living standards, which (perhaps surprisingly) is not GDP per capita, which is going backwards, but a lesser known and purpose-designed measure known as “real net disposable income per capita”. It grew a healthy 2.65% over the year and a very healthy 1% over the quarter.

It is true that much of it was paid out in mining profits, but it is also true that it isn’t necessarily right to latch on to the cruder measure of GDP per capita and say that living standards are going backwards.

Helping maintain living standards was a very healthy growth in government spending, the highest for some time – not government infrastructure spending, that actually fell over the year as some state projects wound up, but day-to-day spending on things such as the National Disability Insurance Scheme.



Oddly, because of the way the national accounts work, economic growth was also helped by a slump in imports, down 2.8% over the year due largely to a slump in imports of consumer goods.

The economy is in a bad way. Aside from mining and government spending, the only real bright spot is employment growth, and as the Reserve Bank often points out, employment growth doesn’t tell us much about what’s going to happen.

It tends to lag everything else in the economy, by up to nine months. By the time it turns down, other things already have.

Few clear ways out

Frydenberg doesn’t seem too worried. For now he is banking on the tax cuts and the interest rate cuts in June and July to lift investment and spending.

The treasurer has two Plan Bs. One is an aggressive investment allowance for business. He spoke about introducing one last week, but on Wednesday he indicated that he wasn’t planning to do so until next year’s May budget. If needed, he could bring the date forward.

The other is another Reserve Bank rate cut, most likely at the board’s meeting on Melbourne Cup Day, by which time it will have before it an updated set of inflation figures.


Read more: 'Back yourself' Treasurer Frydenberg tells business. But it's not that simple


Frydenberg revealed on Wednesday that he is taking a close look at the government’s contract with the Reserve Bank, a formal written agreement which is renewed after each election.

He has asked the Treasury to look at it to see whether it needs to be tightened to make the bank more responsive to the state of the economy. This would mean more boldly cutting or pushing up rates.

In Britain, if inflation is 1 percentage point above or below the Bank of England’s target, it has to write to the government to explain why.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Tuesday, September 03, 2019

After 44 years of deficits, we've a current account surplus. What went so right?

Australia has been in a current account deficit – paying more money out to the rest of the world than it took in – for 44 straight years, since September 1975.

Until today. The update from the Bureau of Statistics released on Tuesday shows that in the three months to June Australia actually took in more from the rest of the world than it paid out: A$5.9 billion more, after what for most Australians (most are under the age of 40) was a lifetime of paying out more.



Why has it happened, and how did we get away with doing the opposite for so long?

First, the long-term story. It couldn’t happen to an individual. No one person can get away with taking more in from the rest of the world than they pay out for long.

It was the idea that a nation is like an individual that allowed the then treasurer Paul Keating to spend a good deal of the 1980s arguing that Australia was living beyond its means.

As the drumbeat of a steadily growing current account deficit grew louder and it approached 5-6% of GDP, on May 14, 1986, he infamously told radio presenter John Laws that Australia was in danger of becoming a banana republic:

I get the very clear feeling that we must let Australians know truthfully, honestly, earnestly, just what sort of international hole Australia is in. It’s the prices of our commodities — they are as bad in real terms (as) since the Depression.

If this government cannot get the adjustment, get manufacturing going again, and keep moderate wage outcomes and a sensible economic policy, then Australia is basically done for. We will just end up being a third-rate economy … a banana republic.

To get spending down, and thus reduce the current account deficit, he tightened the budget and encouraged the Reserve Bank to push interest rates to stratospheric levels. The cash rate hit 18% before helping push Australia into recession .

And for what? The current account deficit continued. It averaged 4% of GDP throughout the 1990s and 2000s. But life went on. The economy recovered, the Bureau of Statistics stopped publishing monthly current account figures (moving to quarterly), the figures became little watched and the pundits and politicians turned their attention elsewhere.


Read more: Cabinet papers 1990-91: lessons from the recession we didn’t have to have


With the benefit of hindsight it is clear that the deficits weren’t because of any deficiency on the part of Australians. Reserve Bank deputy governor Guy Debelle explained last week that Australians weren’t spending an unusual amount compared to what they earned. They were “about on par with many other advanced economies”.

The current account deficits were largely the result of money flowing out as returns on investments in Australia. Australia had “a lot of profitable investment opportunities”. Foreigners either lent to Australian businesses or invested in Australian businesses and returns flowed out each month, as they should have.

It came to be known as the “consenting adults” theory of international finance. It’s practical message was: “nothing to see here, move along”.

So what’s changed?

In 2017 and 2018 the current account deficit shrank to around 2% of GDP. We now know that in the three months to June this year it moved into surplus.

Much of it is because we’ve been earning more from mining exports. We’re both exporting more tonnes and getting paid more for each one.

And just lately mining has helped in another way. The so-called mining investment boom is winding up. We are no longer importing enormously expensive machines to build gas terminals and the like.

And it’s more than mining. Export income from services such as education and tourism now accounts for 21% of all exports, up from 17% in the 1980s. Purists will complain that education and tourism aren’t actually exported, but as far as the national accounts are concerned, they are. Even though the teaching and hospitality takes place in Australia, it is paid for in foreign dollars that bring more money into the country relative to what is going out.

And there’s something else.

We are becoming like the US

As popular as Australia remains as a destination for foreign investment, since 2013 Australians have been investing even more in foreign businesses than foreigners have been investing in Australian businesses.

It is superannuation that’s done it: a record A$2.9 trillion worth.

Debelle put it this way:

This largely reflects the significant allocation to foreign equity by the Australian superannuation industry together with the fact that the superannuation sector is relatively large as a share of the Australian economy.

Australia has become a net foreign investor rather than a net recipient of foreign investment, almost certainly for the first time ever.

Debelle says it has made Australia come to resemble the United States. We receive more in dividends from overseas than we pay out in dividends to overseas share holders.

We’re still a magnet for foreign dollars

We are still a huge destination for foreign lending, increasingly in the form of lending to the Australian government rather than to Australian companies, as safety-conscious foreigners push locals out of the way to buy more and more Australian government bonds.

Foreign ownership of Australian government bonds has climbed from around 40% to 60% since the early 2000s.

The interest rate foreigners are prepared to accept in order to hold Australian 10 year bonds has fallen below 1% (which in its own way assists in keeping the current account deficit low).


Read more: Revisiting the banana republic and other familiar destinations


How long the current account surplus lasts will depend on the investment policies of our super funds (the better the prospects are overseas, the higher the surplus will be), the strength of our economy (the weaker is consumer spending, the higher our current account surplus will be) and export prices and volumes (which are mainly beyond our control).

Yes, we’ve current account surplus. It would have once been a cause for celebration. Now that we’ve got it, it’s not looking that special.The Conversation


Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Read more >>

Friday, August 23, 2019

Book review. Banking Bad, A Wunch of Bankers

Banking Bad, Adele Ferguson, ABC Books, $34.99
A Wunch of Bankers, Daniel Ziffer, Scribe, $32.99
It’s Your Money, Alan Kohler, Nero, $34.99


Inertia can be deeply unhelpful. On those rare occasions when important parts of our world really do change, as they did in the 1980s when our banks suddenly started behaving monstrously, we react as if they haven’t, as if each new piece of bad news is isolated and our financial institutions remain on the whole "world class", as one leading commentator infamously claimed while warding off calls for a royal commission.

Each time an insider from the Commonwealth Bank approached journalists from The Australian and The Sydney Morning Herald before he found Adele Ferguson, they'd tell him the story was "too complicated, too risky, too much work, too this, too that".

Australia's most venerable bank – the one we let into our schools – couldn't be completely rotten.

I thought that myself, even while spending time with the first wave of bank victims who'd been plied with foreign-currency loans whose repayments had exploded to more than their businesses and properties had been worth, taking everything they had.

I put them on PM and AM on ABC radio. But I kept my equilibrium. Surely the banks were still trustworthy institutions that had themselves been victims of currency gyrations just as their customers were. They can't have intended to make them destitute.

David Murray
The first inkling I had that the banks might no longer care about their customers came in a conversation with David Murray, then the head of, or about to become head of, the Commonwealth Bank, and for me the most intriguing person in Ferguson's book, Banking Bad.

He told me the victims of currency loans must have known the risks. One was a maths teacher. But my mother had been a maths teacher and she wouldn't have known the risks unless they had been carefully pointed out to her.

I put it down to an unfortunate lack of empathy on Murray's part, not to a change in the nature of the institution he led.

Ferguson documents the change, while unintentionally documenting her own repeated struggles with inertia as she came to realise the banks were not only selling loans that couldn’t be repaid, not only earning fat commissions and a healthy margin on the currency each time those customers tried to trade their way out of trouble, not only ordering staff to sell products they had no reason to believe were right for their customers (playing happy tones into their ears when they made phone sales and sad tones when they did not), not only deducting fees for advice from the accounts of customers who had died or no longer had advisers, not only allowing crime syndicates to launder money through high-tech automatic machines that whisked it overseas before it could be checked, but also – heartbreakingly – refusing to pay out insurance claims in the face of medical advice that they should, and dragging out cases until their terminally ill customers died or ran out of money (which they could determine by checking their accounts).

Murray was 42 when he was offered the top job at the newly part-privatised Commonwealth Bank. He'd joined it as a teller when it was a public institution with a public-service culture. "It's a bit early, isn't it, for me?" he told the chairman, before transforming it – closing branches, sacking staff, rewarding tellers for sales rather than service, buying an insurer whose products they could upsell, setting up a stockbroker and financial planning arms whose products they could upsell, and imposing relentless never-ending targets. The bank manager at Goulburn in rural NSW was told to sell 150 loans a week. Goulburn had only 10,000 income-earning adults, and four big banks.

It would be tempting to think it was only the bank's staff who cut corners, because of the pressure placed on them. But time after time Ferguson details what happened when their bosses found out.

"Dodgy Don", a financial planner whose legendary ability to sign customers up for almost anything put him at the top of the Commonwealth's league table, was suspended when the bank discovered he had been charging improper fees, putting clients into products for which they were totally unsuited and slipping back-handers to tellers who sent victims his way. Then he was reinstated and promoted to "senior planner".

Staff who tried to help victims were discouraged. At least one was made to sign a legal agreement not to.

Ignorance on the part of the victims, each one believing he or she was alone, was essential if they were to keep quiet and the good public image of the bank maintained.

That's why when Ferguson's Four Corners program (same title as the book) exploded onto the screens in 2014 she was inundated with emails and calls from victims who'd paid up or kept quiet, not knowing they had been part of something systematic.

In Parliament, it was the Nationals who pushed hardest for the royal commission. Several had been victims themselves. Labor, perhaps less in touch with voters, was cautious. The Liberal Party was either profoundly ignorant about the behaviour of the banks or thought it was OK. It blocked just about every move to treat customers better, including (bizarrely) attempting to remove a legislated requirement that financial planners act in the "best interests" of their clients.

When the Liberal Party succumbed, it made the commission's time-frame short and added in a reference to trade union-associated industry super funds, about which there had been hardly any complaints and to which the commissioner gave a clean bill of health.

Ferguson, who covered the hearings for The Age and The Sydney Morning Herald, was astounded by what she heard (some of it was new even to her), but disappointed by the result.

"Vertical integration" of the kind pioneered by Murray at the Commonwealth Bank will be allowed to continue, although for the moment the Commonwealth and two of the other big banks have abandoned it. Murray himself had gone on to chair the Future Fund and then the government’s financial system inquiry, in which he warned against the dangers of vertical integration. During the royal commission AMP appointed him as its chairman, to "lead the redevelopment of governance processes".

Daniel Ziffer doesn't suffer from inertia.

His book, A Wunch of Bankers, is a super-charged flight through the absurdity of the year he spent reporting from the commission for ABC TV.

He gives us the good bits: the Commonwealth Bank might have charged dead people for financial advice, but AMP charged dead people for life insurance.

National Australia Bank flicked commissions to "introducers": gym instructors, architects and other trusted non-experts who pushed $24 billion in loans its way.

The financial services firm IOOF, whose website says it has been "helping Australians achieve financial independence since 1846", decided against putting its members into better products on the grounds they were generally disengaged and wouldn't know the difference.

An unnamed director protested, using caps for emphasis: "In what circumstances would it NOT be in a client's best interest to transfer to the new pricing if it was lower than their existing pricing?"

The unnamed hero later asked, in an observation Ziffer describes as "meta": "How would this look on the front page of The Age?"

Alan Kohler offers practical advice about how not to get ripped off by the finance industry, enlivened with insights from the commission and the inquiries that went before it.

It’s Your Money is an extraordinarily valuable book, but only for people able to take control of their money. As he concedes, many people can't, and it's up to the authorities to protect them. The authorities have failed in that job for the best part of 40 years.

The government has before it recommendations that would help, not only from the royal commission (and unfortunately the government has already backed away from the commission's recommendation regarding mortgage brokers), but also from the Productivity Commission, whose plan to put every new worker into a good super fund is being opposed by an unholy coalition of retail and industry funds.

It's up to those of us who can to keep up the pressure. The financial services industry will. It's been shamed, but never remains shamed for long. Among people who weren't paying attention, it still has a good public image.

In The Age and Sydney Morning Herald
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