Sunday, August 25, 2013

What's so good about Abbott's paid parental leave scheme?

Anyone would think Tony Abbott's paid parental leave scheme was an economic disaster.

We are told it’s unaffordable, we are told it's unfair because it gives the most to the workers who earn the most, and bizarrely we are told that it’ll make employers discriminate against women of childbearing age and hire men instead.

(On that last point, that’s what we were told at the end of the 1960s when the so-called equal pay decision make it illegal to pay women for less than men doing the same job. Employers complained they would have to sack women and take on men. Yet in the past 35 years they have taken on an extra 3.2 million more women and only 2.4 million more men. And the equal pay decision actually did make it more expensive to hire women than it had been before. The whole point of Abbott's parental leave scheme is that it would not impose an extra penalty on employers who hire women, it would remove the penalty.)

Let’s talk about fairness first.

Louise, a participant in Wednesday's leader’s debate asked Abbott why we needed a scheme that would pay some women $75,000 for six months leave when most women never earned that much in an entire year.

She could have asked the same question about sick leave. Highly-paid men and women get sick leave at their standard rate of pay. It’s a workplace entitlement. So too is annual leave and bereavement leave.

“Ah, but this is different,” Louise might have responded. “Parental leave is welfare paid by the government, the other types of leave are in employment contracts.”

The other types of leave are only in most employment contracts because government puts them there. Yes, they are paid by the employer. But so too would parental leave be under Abbott’s plan.

The extra cost of Abbott’s scheme is 100 per cent funded by the employers if we are to believe the Coalition’s numbers. A fact check published Wednesday goes through the maths. But instead of being paid by the individual employer who happens to find him or herself with a pregnant worker (which might discourage employers from hiring women) it is paid by the lot of them - well, the biggest ones anyway.

Employers would be made to pay the workplace entitlement just as they are other entitlements, except that for this one the burden would be shared among all (big) employers rather than paid by only the ones with pregnant workers.

The scheme has been designed that way because for small employers pregnancy is “lumpy”. Some get it, some don’t and it affects their costs big-time. Spreading the lumps among the biggest employers would mean no employer would need fear taking on someone likely to get pregnant.

Abbott’s proposed maternity leave system is no less fair than is the superannuation system of which Labor is proud. Both are paid by employers, and the rate of payment is determined by the wage. It’s the special tax treatment in the super system that makes super really unfair. It massively advantages high earners compared to low earners. Abbott’s proposed maternity system has no such flaw.

If $5.5 billion per year sounds like a big bill, that’s because Australia’s annual total wage bill is enormous. The levy on big companies would cover the extra cost. Labor and the Shareholders Association have expressed outrage that shareholders will end up paying the bill. Of course they will - they own the shares. On the bright side those companies will no longer need to fund their own parental leave schemes, so its not all bad for them.

And their shareholders’ children and grandchildren are more likely to be breastfed for the recommended six months rather than the presently funded three at the minimum wage. They will typically develop higher intelligence, greater emotional resilience, better teeth, resistance to colds and flu and protection against diabetes and obesity.

Would these sorts of shareholders and companies have complained about having to pay a proper wage to women back in the 1960s? Yes they did. They got over it and now regard giving their female employees as much respect as their male ones as a normal cost of doing business.

Yes, they could escape the cost by going overseas. That’s true of any improvement in working conditions, although in this case less than most. The cost is offset by the benefits of having all employable women available to work for all employers.

Six months at full pay would make Australia’s scheme one of the world’s most generous. Medicare is also generous. It has helped rather than hurt Australia.

In The Canberra Times and Sun Herald 

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Thursday, August 22, 2013

Half true. Paid Parental leave "fully funded"

The Coalition’s parental leave scheme is “fully funded - by abolishing the existing scheme, and importantly by imposing the 1.5 per cent levy on the largest businesses"

Joe Hockey, Q&A ABC television, Monday August 19 2013

There’s little debate about how much the Coalition's paid parental leave scheme would cost. The Parliamentary Budget Office says $5.5 billion per year.

What is in dispute is how it would be paid for. Joe Hockey told Q&A on Monday the scheme would be “fully funded by abolishing the existing scheme, and importantly by imposing the 1.5 per cent levy on the largest businesses.”

Would just those two measures do the trick?

Finance minister Penny Wong says they wouldn’t. The Coalition would need “deeper cuts to families, education, health and jobs”.

Supporting evidence

The Coalition says it has supporting evidence, but it’s keeping it to itself.

It says Parliamentary Budget Office agrees with it, and (on the record) leaves it at that.

On so-called “background” it spells out what it says the PBO has told it, but it won’t release the actual PBO costing as the Greens have done for their maternity policy.

The Coalition finds $2 billion per year by abolishing Labor’s scheme. It finds another $2 billion to $2.5 billion by its tax levy on big firms. That leaves $1.25 billion to $1.5 billion to be found.

And here’s where it gets complicated.

An extra $1 billion or more would come from higher tax collections. Some would come from the mothers getting the payments, the rest would come from investors.

Right now shareholders can claim their share of whatever tax their company pays as a so-called franking credit which they can use to cut their own tax.

They would be unable to do that with the Coalition’s 1.5 per cent levy. Abbott said Wednesday: “Levies just don’t attract franking credits, that’s just a standard rule”. Because the Coalition both plans to cut the company tax rate (in a separate policy) and lift it for big firms, the firms themselves would notice little difference but their shareholders would be worse off.

The Coalition would also save $100 million on Family Tax Benefits as some parents were pushed into higher brackets, another $100 million from no longer separately paying public service maternity benefits, and $200 to $300 million from the states.

It adds up to the required $5.5 billion if the PBO costing says what the Hockey says it does.


Without seeing the costing Politifact can only rate Hockey’s claim “half true”.

It will review the finding when it sees the costing.

In Politifact and The Sydney Morning Herald

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Monday, August 19, 2013

Costings. Who'd want to be Hockey?

At last, the Coalition is set to produce a set of policy costings we can believe.

After its bizarre experiment three years ago hiring a little-known bunch of Perth accountants to “cost or “audit” its policies using rules that prevented them from doing either, it will submit its policies to three of the toughest most independent-minded economic and bureaucratic brains in the country.

Former Treasury official Geoff Carmody, former Queensland auditor-general Len Scanlan and the former head of the Prime Minister’s department Peter Shergold are anything but pushovers.

Carmody in particular wears the scars of having repeatedly told both sides of politics truths they don’t want to hear. As co-founder and longtime head of Access Economics, he has assessed policies for leaders from Hewson to Beasley and from Latham to Howard. In 25 years of dealing with Carmody I have never known him to tell people anything but what he thought, especially where it was what they didn’t want to hear.

The trio have been working with Hockey for months. Hockey says they will sign off on a public list of his costings a week or so before the election.

Contrast that to 2010. The agreement between the Liberal Party and the two Perth accountants specifically blocked them from making “any assessment or comment on the reasonableness or otherwise of the assumptions”. They were to carry out procedures primarily “not of an audit nature”.

How did it happen? The costings rules are rigged against whoever is in opposition - both sets of rules, those introduced by Coalition's Peter Costello as part of the Charter of Budget Honesty, and the new set introduced by Labor in setting up the Parliamentary Budget Office.

Costello’s rules allow the opposition to ask treasury to cost its policies, but only after the campaign has started and only after they have publicly released them. Treasury then publishes the outcome on its website, exposing the opposition to humiliation from which it can’t escape.

Faced with such a scenario oppositions of both colours have balked and either not submitted their policies or submitted them too late to be costed.

Hockey found things doubly difficult in 2010. Access Economics had decided it no longer wanted to cost opposition policies. Hockey believed the government had lent on each of the big four accountancy firms. Each denied the charge, although each said it refused to do political work for oppositions as a matter of course.

It left Hockey with few places to turn.

The Perth office of Horwath had costed policies for the Western Australian Liberals. But it was a firm of accountants. It no expertise in economics. It agreed to primarily review the “arithmetic accuracy” of the Coalition’s costings - to check the adding up.

Treasury later found a raft of errors including double counting. The accountants were fined for breaching professional standards by allowing their work to be misrepresented as an audit.

Labor’s new rules were supposed to end the circus. They allow the Parliamentary Budget Office to cost whatever the opposition wants in confidence, but with a catch. Those costings requested after the campaign begins have to use the old Costello rules - they have to go straight up on the web, exposing the opposition to ridicule.

Hockey is right not to cop it. Proper costing is an back-and-forth process. A party asks what something would cost, finds out, and then varies it to get something cheaper. Both sides of politics have shamefully skewed the rules against the opposition. It would be a mark of Hockey’s maturity as Treasurer - if he gets there - if he ended the farce and genuinely levelled the playing field.

In  The Sydney Morning Herald and The Age

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Mostly false. An average female earner $21,000 better off

"If you are a mother on average earnings you will be $21,000 better off under this policy."

Tony Abbott, Sunday August 18 2013

Tony Abbott says mothers on average earnings will be $21,000 better off under the Coalition.

He is comparing his paid parental leave policy which replaces actual wages (and super contributions) for six months with Labor’s which pays out only at the minimum wage, and only for three months.

But is the difference really as much as $21,000?

Supporting evidence

Abbott’s background papers show how he arrived at the figure. They say the average salary for women who work full-time is $65,000, which is exactly the figure reported by the Bureau of Statistics. If they get six months of that while on leave they will receive $32,500 plus super. Labor will give them around $11,200. The difference is $21,300.

Does it stack up?

Most working women work fewer than 35 hours per week. Roughly half work fewer than 30 hours per week. They take home much less than the average full-time wage. The same ABS document quoted by the Coalition arrives at a much lower figure for average female earnings (incorporating both part time and full-time workers). The average is $44,200 per year.

A mother on that much would get $22,000 plus super under the Coalition’s policy, well short of the $32,500 quoted. She would be nothing like $21,000 better off than under Labor.

And there’s something else. Most women don’t get average earnings. The average is an artifact, pushed up by a few exceptionally high earners at the top (for whom the scheme is capped when earnings hit $150,000). A typical female worker gets 12 per cent less than the average, meaning the Coalition is offering a typical female on maternity leave $19,320 plus super, not that much more than is Labor.

However, there is a saving grace. Abbott’s scheme won’t start for almost two years, until July 2015. By then female wages will be much higher.


The Coalition's paid parental leave policy offers more than Labor’s, particularly for higher earners. But the gains for a typical women are not as big as Abbott suggests.

A Politifact rating of ''mostly false'' applies where a statement contains an element of truth but ignores critical facts that would give a different impression.

Politifact finds Mr Abbott’s claim that “a mother on average earnings” will be $21,000 better off under his scheme mostly false.

In Politifact and The Sydney Morning Herald

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Monday, August 12, 2013

False. Abbott wants to privatise public schools

"Tony Abbott and Christopher Pyne want to follow Premier Colin Barnett's lead in WA by privatising our public schools.”

Bill Shorten, press release, July 26 2013

If elected the Coalition will be “rolling out independent public schools as our preferred principal autonomy model around Australia,” according to its education spokesman Christopher Pyne. Labor’s Bill Shorten says Abbott and Pyne want to follow Western Australia in “privatising our public schools”.

Could Abbott really be planning to privatise schools?

Supporting evidence

The first point to note is that the schools in question are owned by the states and territories, not the Commonwealth. It can’t sell them because it doesn’t own them. Pyne himself says he hates “central command and control from Canberra”. But he says he will “work with the states and territories to encourage state schools to choose to become independent schools”.

So it wouldn’t be privatisation as such. But would what he is proposing amount to privatisation, where the states agreed to allow their schools to become independent?

How it stacks up

Victoria has had a semi-autonomous school system for many years. Western Australia introduced an option for “Independent Public Schools” in 2010. About one third of the state’s government schools are now partly managed by local boards.

The Oxford dictionary says to “privatise” is to “transfer (a business, industry, or service) from public to private ownership and control”. There would be no transfer of ownership in what the Coalition is suggesting, and only a limited transfer of control.

Kylie Catto, President of Western Australian Council of State School Organisations explains the system like this: “Independent Public Schools are still government schools. The way they operate gives them slightly more autonomy, but they still must comply with the main policies of the Western Australian Department of Education.”

The principal and the board are unable to expel students, for instance. But they are able to hire staff and manage their (government-provided) budgets.

Almost everyone Politifact spoke to said privatisation was the wrong way to describe what the Coalition was proposing. And it carries specific (and often negative) connotations in states such as NSW and Queensland which are actually selling assets. Australian Education Union president Angelo Gavrielatos said the Coalition’s plan was “part of a privatisation agenda”. But he didn’t call it privatisation.


Politifact finds Shorten’s claim “false”.

With Michael Koziol, in Politifact and The Sydney Morning Herald

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Sunday, August 11, 2013

Mostly true. Did Labor push child care numbers past one million?

“As a result of our policies, the number of children in approved child care has grown to more than one million.”

Kate Ellis, early childhood minister, August 7 2013

It’s been a big week for child care. Kevin Rudd kicked off his campaign with a promise of $450 million in extra funding to improve child care centres. His minister Kate Ellis said: “As a result of our policies, the number of children in approved child care has grown to more than one million”.

Is it really Labor’s policies that have driven that growth, or would childcare numbers have got there anyway?

Supporting evidence

The one million figure comes from Child Care in Australia, a report released by the Department of Education, Employment and Workplace Relations this month. It finds the number of children in officially-sanctioned care hit 1,030,970 in September 2012, passing through the one million mark for the first time.

Around 616,000 were in child care centres, 125,000 in family day care, 315,000 in after-school care and the rest in occasional care.

Does it stack up?

In the three years leading up to Labor’s election, child care numbers barely grew - inching ahead a total of 2.8 per cent. In the five years since, child care numbers surged 29.8 per cent. The graph turns up sharply at about the time Labor took office.

But this doesn’t mean that Labor did it. Just before Labor took office John Howard’s brought down a final budget was awash with support for parents using child care. It boosted the benefits paid to the centres, allowed parents to claim two years worth of rebates in one year and introduced real time rebate payments so parents wouldn’t have to wait until the end of each financial year to claim money back through the tax system.

Labor built on Howard’s moves, boosting the size of the rebate from 30 per cent to 50 per cent and allowing more parents to claim it. It introduced fortnightly payments, so parents wouldn’t have to wait until the end of each quarter.

And long-term trends are at play. Sydney University economist Stephen Whelan says for the past quarter century increasing numbers of women have been to returning to work after having children. ANU economist Robert Breunig says it is happening because women are increasingly university-educated and having children later in life.

Coalition child care spokesman Sussan Ley pourscold water on the one million total saying it may include some double-counting, but it is hard to deny that the numbers are going up. Although long-term trends are at play, the actions of this government (as well as those in Howard’s last budget) would have a lot to do with it.


The Howard government boosted support for child care. Labor supercharged it.

Politifact rates the claim mostly true.

With Ellie Harvey, in and The Sydney Morning Herald

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Saturday, August 10, 2013

Mostly False. Abbott could create 2 million new jobs

Abolishing the carbon tax, the mining tax and getting productivity up could "produce 1 million new jobs in five years, 2 million new jobs in a decade"

Tony Abbott, August 8 2013, Devonport

Tony Abbott says he has a plan to create jobs.

As he put it on Thursday: “Abolish the carbon tax, abolish the mining tax, get productivity up”.

He said it could “produce 1 million new jobs in five years, 2 million new jobs in a decade”.

Two million is an extraordinarily big number to add to a workforce of 11.6 million. But it has happened before.

Supporting evidence

In fact it’s happening now. Australia has producing new jobs at the rate of 2 million workers per decade since December 2006. The latest figures show the number of Australians in jobs climbed 2.2 million in the decade to July. So it ought to be easy to continue.

But does it stack up?

Population growth should help. Bureau of Statistics projections have Australia's population growing by between 2.7 million and 4.2 million over the next decade.

But it’s not that simple. Although Australia’s total population will keep growing, its working-age population will not. Adelaide University demographer Graeme Hugo says Australia’s working age population is set to peak and stop growing within a decade as baby boomers become retirees and give up work.

It’ll make Tony Abbott’s target of 2 million more people in jobs much harder to achieve than history suggests, perhaps impossible.

(Perversely, it should make it far easier than it used to be for anyone who is of employable age to find a job.)

Except for this. It won’t be Abbott that creates those jobs.

Here’s his Treasury spokesman Joe Hockey three years ago this month, campaigning in the same town - Devonport.

“Governments don’t create jobs, business creates jobs. Employers employ people, not governments.”

He could have added that demography - especially immigration - has a lot to do with it too.

Abbott is wrong to say that his “economic plan can produce 1 million new jobs in five years, 2 million new jobs in a decade”.

Most of those jobs would be created anyway, even without his economic plan. And changing demographics will make that difficult.


Politifact rates the claim “mostly false”

Politifact and The Sydney Morning Herald

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Friday, August 09, 2013

True. Treasury thinks cutting company tax helps workers

"Treasury believes if you reduce company tax, you increase pay, you increase GDP and you increase employment."

Tony Abbott, press conference Wednesday August 7

To hear Tony Abbott speak, you would think a cut in the company tax rate was good for workers. He is promising to cut the rate from 30 per cent to 28.5 per cent per cent in mid 2015.

“Go back and look at the papers that the government released as part of the Henry tax review,” he said on Wednesday. “And you will see that Treasury believes if you reduce company tax, you increase pay, you increase GDP and you increase employment”

Supporting evidence

The Treasury itself has been silent on the question. But at the 2011 business tax summit its former head Ken Henry left those present in no doubt about his toughts.

At issue was the “incidence” of company tax. Did it fall on the owners of the companies or on their workers.

“In the case of a relatively small, open economy like ours, there is simply no debate in the academic community,” he said. “There is a strong consensus among tax academics that the incidence of the tax falls predominantly on labour.”

It’s a hard proposition to get your head around. The argument is that businesses have a choice about where they invest. The lower Australia’s company tax rate, the more likely it is that they will invest here. Those arriving or staying will employ workers and spend money putting up buildings and buying equipment, each dollar of which will make the workers they do employ more valuable, and more worth paying higher wages to keep.

But does it stack up?

The studies cited in the the Henry tax report do find such an effect, but it is far from complete. In the short term a move in the company tax rate appears to move wages little. In the longer term a 10 per cent adjustment in the company tax rate appears to move wages 7 per cent.

Abbott pointed to modelling prepared for the government which finds that “every 1 per cent cut in the company tax will boost jobs by about 10,000”.

The modelling itself refers to it less grandly: “A small increase in labour supply of around 0.1 per cent”.

But on receiving the Henry report Kevin Rudd was convinced. He promised to cut the company tax rate to 28 per cent, only to have the Coalition block the cut in the Senate because it was to be funded by the mining tax.


Abbott is probably right about what the Treasury thinks. Whether the likely gains in wages and jobs are worth the expense is another question.

Politifact rates the claim ‘true’.

In Politifact and The Sydney Morning Herald

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Thursday, August 08, 2013

False. Rudd and Abbott on the cost of living

Australian families are “all struggling from cost of living pressures”

Kevin Rudd, media conference August 5 2013

“For the average family in Australia today, costs are going up and up and up.”

Tony Abbott, media conference August 6 2013

Anyone would think our cost of living spiraling out of control.

Kevin Rudd used the phrase “cost of living” an extraordinary 14 times in his press conference Monday. On Tuesday Tony Abbott used it four times. Abbott spoke of “cost of living pressures”, which would mean that not only was the cost of living “going up and up and up”(his words) but that it was going up faster than household income. Kevin Rudd’s claim was universal. He said Australian families were “all struggling from cost of living pressures”.

Supporting evidence

Rudd mentioned childcare. Abbott mentioned electricity and gas. Electricity prices have climbed 17 per cent in the past year, gas prices 15 per cent. The government credits the carbon price with 10 and 9 per cent of those increases. The cost of childcare climbed 7 per cent.

Does it stack up?

If that was all you noticed, you would feel squeezed.

But the consumer price index also records that the price of food has climbed an unusually low 1.1 per cent in the past year, and the price of petrol has slipped 3 per cent.

Taken together it doesn’t point to a squeeze. The overall consumer price index climbed 2.4 per cent, including the carbon price. The typical pay packet climbed 3.1 per cent, NewStart climbed by less, and both were boosted further by carbon tax compensation.

Or course not all households are the same. The Bureau of Statistics says the costs facing aged pensioners climbed 2.6 per cent. The costs facing welfare beneficiaries climbed 2.5 per cent, and those facing employees climbed a very low 1.4 per cent.

Lower mortgage repayment costs are are part of the story for working Australians. In the past year the standard variable rate has slid from 6.85 per cent to 5.95 per cent.

Australians wanting to complain about longer-term trends will get no support from an AMP National Centre for Economic Modelling study released last May. It finds the average family is ahead by $224 per week compared to 1984. Low income households are $93 per week better off.

But AMP financial services managing director Craig Meller says we don’t feel that way perhaps because we are listening to our aspirational selves “telling us we need more”.


Kevin Rudd and Tony Abbott are telling us what we want to hear. Politifact rates both of their claims taken together “false”.

In Politifact and The Sydney Morning Herald

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Wednesday, August 07, 2013

Half true. Governor worried, rates not at emergency lows

"Remember the Reserve Bank said that 3 per cent or the Government said that 3 per cent was emergency levels. So, if the Reserve Bank keeps cutting beyond that, understand this - it's because they're worried about the Australian economy."

Joe Hockey, August 5, 2013

Once our politicians boasted about “keeping interest rates low”. In 2004 the former prime minister John Howard campaigned from a lectern emblazoned with those words. Even on Tuesday shadow treasurer Joe Hockey promised that on average, interest rates would always be lower under the Coalition.

But he said on Monday that if the Reserve Bank did cut, it was “because the economy is deteriorating”.

The statement about the cash rate we are checking is this one: "The government said that 3 per cent was emergency levels. So if the Reserve Bank keeps cutting beyond that, understand this - it's because they are worried about the Australian economy."

Supporting evidence

Joe Hockey says that during the 2009 global financial crisis the cash rate was 3 per cent. The Treasurer Wayne Swan said at the time rates were at “emergency levels”. The cash rate is now much lower, at 2.5 per cent.

Does it stack up?

Reserve Bank governor Glenn Stevens doesn’t think he faces an emergency. He told a parliamentary committee in February his cash rate was near 2009 levels “not because we face an emergency like we did back then, but because we face some other forces of a more slowly evolving nature.”

And he explained in two speeches last year that he targets retail rates, not the cash rate.

As he put it: “They are the rates that matter, they are the rates that do the work in the economy, and we are trying to calibrate what we do to get what we think are the right levels for those.”

In his estimation retail rates are 1.5 percentage points higher than they used to be relative to the cash rate. So he has to cut the cash rate further.

In his words: “The normal level of the cash rate is lower than it otherwise would have been, a 3 per cent cash rate today is not the same as a 3 per cent cash rate in the past.”

Joe Hockey is right to say Governor Stevens is cutting rates because he is worried about the economy. But he is wrong to suggest the rates he is targeting are yet at emergency lows.


Politifact rates the claim “half true”.

In Politifact and The Sydney Morning Herald

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Tuesday, August 06, 2013

Half true. Bureaucracy has pushed up child care fees 22 per cent

Adding bureaucracy such as child care centre ratings "has pushed your fees up 22 per cent in two years"

Coalition childcare spokesman Sussan Ley, May 1 2013

The Coalition’s childcare spokesman Susan Ley blames bureaucracy for rising childcare fees. And she is specific. She says added requirements such as those needed to put childcare centre ratings on the MyChild website has “pushed your fees up 22 per cent in two years”.

Supporting evidence

When shown the claim on Ms Ley’s website her staff pointed to the Bureau of Statistics measure of childcare costs in the consumer price index.

It shows childcare costs have climbed 18 per cent in the past two years, not 22 per cent. Her staff then said they based the claim on a parliamentary library paper that found an 23.7 per cent jump between the September 2010 and June 2013 quarters. There was such a jump, but it was over almost three years, not the claimed two.

Does it stack up?

Ms Ley’s claim is not merely that childcare fees have climbed 22 per cent, but that they have climbed 22 per cent because of bureaucracy such as the “new childcare centre ratings now being posted on the Government’s mychild website”.

In the past two years wage costs have climbed 7 per cent. In the period in which the childcare price index has climbed 23.7 per cent wage costs have climbed 10 per cent. As as Ms Ley’s leader Tony Abbott pointed out on Monday, electricity prices have soared. In the period in which the childcare index climbed 23.7 per cent, electricity prices jumped 27 per cent.

So there’s more to rising fees than added bureaucracy.

And fees after rebates (which is what the Bureau measures) are much lower than they used to be. In 2007 during the final year of the Coalition government childcare fees after rebates were 22 per cent higher than they are now. Increasingly generous rebates, lifted towards the end Howard’s last term and made more generous in Rudd’s first term, have pushed childcare costs back to where they were in 2005. That’s what the ABS figures identified by Ms Ley’s office show.

Ms Ley’s office says the centres she has visited have told her the new requirements are pushing up costs. Some have had to hire more staff. It’s anecdotal evidence and hard to quantify.


Politifact rates the Coalition’s claim that increased bureaucracy pushed childcare fees up 22 per cent in two years “half true”.

With Ellie Harvey, in Politifact and The Sydney Morning Herald

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False. The Coalition would need to make $70 billion of cuts

"The coalition, to return the federal budget to as a good a position as the government’s, at minimum, would have to make $70 billion worth of cuts."

Penny Wong, finance minister, August 3 press conference

Labor’s finance spokesman Penny Wong says the Coalition would have to cut the budget by $70 billion to pay for its election promises so far. Kevin Rudd used the same number announcing the poll on Sunday.

Labor backs it up with an eight-page document that goes line by line through what it says are the 19 Coalition promises announced so far. But the biggest ($19.7 billion) isn’t a promise at all. Labor calls it "2010 savings no longer available to offset policies". In its words: "To fund policies announced in the 2010 election the opposition put forward a number of savings. However, many of these savings are no longer available."

Some of those savings are no longer available because the timeframe has passed, others because they were promises to abolish programs that Labor has since abandoned.

Does it stack up?

It is hard to see why a historical footnote about costings in a previous election should be regarded as a cost to be added to a claimed $50 billion of costs for policies the opposition is actually proposing this time.

Joe Hockey says its "double counting".

Wong’s office defends including the figure by saying Hockey has regularly referred to the old savings target. But he isn’t referring to it now. In recent days he has merely promised to deliver a better bottom line than Labor.

Which means the actual cost of coalition policies would be nearer to $50 billion to $70 billion, and that’s if Labor’s other costings are accurate.

Not all of them are.

Labor has costed Tony Abbott’s promise to lose 12,000 public servants through natural attrition over next two years. It says it’ll only save $2.8 billion. Joe Hockey’s office has shared with Politifact a costing from the independent Parliamentary Budget Office that finds the saving is more like $4.8 billion.

And some of Labor’s estimates are guesses. The Coalition hasn’t yet released its Dams and Water Management policy. Labor says it will cost $2 billion.


The Coalition will need to find a lot of money to pay for its promises so far. Abolishing the carbon price is just one of them. But Politifact finds Labor’s claim it would need to find $70 billion, based on what we know so far, “false”.

In Politifact and The Sydney Morning Herald

Wong's costing:

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Sunday, August 04, 2013

Rudd's hike in cigarette tax is far bigger than you think. And it should be

So you’ve heard cigarette taxes will soar 60 per cent. You don’t know the half of it.

Buried within the budget proper in May was a time bomb, which when taken together with the measures confirmed Friday will send cigarette prices through the roof.

The budget changed the method by which the excise on tobacco products is regularly increased. From March the half-yearly increases will no longer be determined by inflation (which was 0.8 per cent in the past half year) but by the growth in average ordinary time earnings (which was nearer 3 per cent).

It’s a big difference, and as the higher growth rate compounds it gets bigger. Putting it together with the four promised four increases of 12.5 per cent means the cigarette excise will double in five years.

Which is just as well, if we want smokers to give up.

Giving up turns out to be much harder than the anti-smoking brigade would have you believe.

A new survey from the US National Bureau of Economic Research finds that for adults the effect of cigarette taxes on smoking is “small and not usually statistically significant”. After examining the relationship between smoking and cigarette taxes in fifty states over twelve years the authors find that “at best, increases in cigarette taxes will be associated with a small decrease in cigarette consumption”.

The author’s stark summation: “It will take sizable tax increases, on the order of 100 per cent, to decrease adult smoking by as much as 5 per cent”.

As it happens, an increase of 100 per cent - a doubling - is exactly what Kevin Rudd has set in motion. It’s the only sort of increase the US authors believe will have much effect. Which doesn’t mean smoking hasn’t been sliding for other reasons...

A graph prepared by the Australian Treasury shows tobacco use per person slipping in what looks like a straight line since the start of the 1980s. The end of television advertising, smoke-free workplaces and changing social norms would be among the reasons. The occasional excise hike scarcely registers. A University of Sydney study of the 25 per cent hike in 2010 found it almost doubled the proportion of smokers who quit or tied to quit, but only for a few months. After a short time the proportion trying to quit returned to where it had been.

The study concluded that in order to consistently boost quitting the tax hikes would need to be regular, which is also was Kevin Rudd has set in motion.

A much-quoted Treasury study of the 2010 tax hike finds it cut tobacco imports by 11 per cent (all of Australia's’ tobacco is imported). But that “cut” was over a two-year period, meaning some of it was the slide that is occurring all the time. And it doesn’t mean 11 per cent of Australia’s smokers quit. Far from it. Many would have simply smoked less. If you are one of those who smoked less, I have grim news. It probably doesn’t mean you took in less nicotine. A US survey of smokers who cut back found the concentrations of nicotine-related substances in their blood remained just as high. Although they smoked fewer cigarettes, they smoked each one "more intensively,” using mechanisms such as inhaling for longer, having more puffs per stick and (perhaps subconsciously) blocking the ventilation holes on the filters.

Another reason the 2010 tax hike cut tobacco imports was that it stopped some young people from ever smoking in the first place. Unlike adults, teens and sub teens are incredibly sensitive to price when it comes to buying cigarettes. They don’t have much access to money. It’s why the manufacturers used to sell cigarettes in packets of four. One estimate is that a 50 per cent increase in cigarette prices will cut teenage smoking by 41 per cent. It will cut adult smoking by 5 per cent.

Once we get money and we are already smoking we will spend it on cigarettes rather than save it (although we won’t go so far as to go without food). It might be why smokers are poorer than non-smokers, even where their incomes are the same. A US finding is that each year of adult smoking is associated with a 4 per cent cut in net worth.

The stickiness of smoking (addiction is the word) means that hikes in cigarette taxes can be very effective in raising more money. Yes, they raise it from poor people, but it is partly the smoking that is making them poor. If the tax hikes are really big, and repeated, they might just do those people a favour. And they are highly likely to stop young people from ever being sucked in in the first place.

In The Canberra Times

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Saturday, August 03, 2013

It's September 7. This morning's front page


Friday, August 02, 2013

Bowen's last budget

It's the usual shuffle

Bowen gives...

Papua New Guinea asylum seeker program partly funded by lower onshore detention expenses ($1.1 billion)

Extra aid to Papua New Guinea, taken from elsewhere in AusAID budget ($420 million)

Carbon tax converts to a cheaper emissions trading scheme ($3.8 billion)

Proposed cap on work-related education tax deductions postponed to July 2015 ($250)

Infrastructure spending worth $869 million brought forward (zero cost)

Decisions “taken but not yet announced” ($681 million)

...Bowen takes away

Four hikes in tobacco excise of 12.5% ($5.8 billion)

Tighter fringe benefits rules for cars ($1.8 billion)

Public service efficiency dividend boosted to 2.25% for three years ($1.8 billion)

An extra $99 billion to the Tax Office to crack down on unpaid tax and superannuation ($827 million)

Bank deposit levy of 0.05% ($733 million)

Inactive super accounts under $6000 to be transferred to the Tax Office for safekeeping ($582 million)

Slower initial growth in foreign aid while still meeting the 2017-18 target  ($262 million)

The Forecasts in May

2013-14 $18 billion deficit
2014-15 $10.9 billion deficit

2015-16 $0.8 billion surplus
2016-17 $6.6 billion surplus

The Forecasts Now

2013-14 $30.1 billion deficit
2014-15 $24.0 billion deficit
2015-16 $4.7 billion deficit

2016-17 $4.0 billion surplus


Revenue writedown: $33.3 billion

Total savings: $17.3 billion

Total new spending: $8.1 billion

Lower economic growth: 2.5% 2013-14

Peak unemployment: 6.25% June 2014

Economic Statement, four year totals

Now we know. Since May the budget's been bleeding red ink. Revenue will down $8 billion on the budget forecast this financial year, $9.5 billion next financial year, then $7.5 billion and $8.5 billion. Add in unavoidable increases in government spending (due to economic conditions rather than deliberate decisions) and the budget will lost $12 billion this financial year, $11 billion the next, then $9 billion and $9 billion.

Faced with the challenge of filling the hole, Australia's new Treasurer Chris Bowen has decided not to. He doesn't plan to fill it in 2016-17, when he promised a 'rounding error' surplus of $4 billion, just 0.2 per cent of gross domestic product.

He is challenging the Coalition to say would it would do differently.

Would it really cut deeper right now when the economy is weak? (The statement puts economic growth at just 2.5 per cent this year and has unemployment climbing to 6.25 per cent within months.) If so where would it cut? Who would it hurt?

As he puts it: “The government has ensured that the pace of fiscal consolidation carefully balances the importance of a sustainable fiscal position with the risks to jobs and growth that have been seen internationally from too fast a consolidation.”

Cuts to offset what has happened to the budget “would put jobs and growth at risk”.

The government has made the “clear decision to allow the tax write-downs to flow through to the budget balance in 2013-14 and 2014-15”.

Most of the bad news has already been flagged.

Some of the savings are dressed up as good news.

The threshold below which small inactive superannuation accounts are to be transferred to the Tax Office will climb from $2,000 to $4,000 and then to $6,000. More accounts will pass to the government for safekeeping. But this will “protect the real value of more lost superannuation accounts”.

The Tax Office will be given an extra $99 million to crack down on employers not dishing out super. This will raise $827 million, but it help workers not getting payments to which they are entitled

More of Australia's foreign aid budget will be directed to Papua New Guinea as part of the asylum seeker plan, but the aid money will still go overseas. The aid budget will climb more slowly, but it will still climb.

As a piece of economic management the economic statement makes sense. There's no point in crunching the economy when its weakening. But as a budget projection it is threadbare. No-one knows whether the 'rounding error' surplus of $4 billion will ever come to pass in 2016-17.
Unless the economy picks up. The statement is designed not to weaken it.

In The National Times 

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