Monday, June 30, 2014

If only we spent less on welfare. Graph from the McClure review

The full thing is here.


Sunday, June 29, 2014

It's reigning men. How our convict past explains our glass ceiling

Why does Tony Abbott have only one woman in his Cabinet of 18 men? Why does BHP has only 2 women on its 12-man board? Why does Australia itself have one of the lowest rates of female company directorships in the world?  

An astonishing 40 of our top 200 public companies have no female directors whatsoever.

It can hardly be the weather. The United States has greater proportion of women on boards. India outdoes us for executive directors. But it could be something to do with our values, something to do with where many of us have come from.

Economists often don’t talk about culture. They talk even less about how it is formed. Modern Australia was formed in an unusual way. Economists Pauline Grosjean and Rose Khattar of the University of NSW describe it as a “natural historical experiment”.

Their groundbreaking study is entitled It’s Raining Men! Hallelujah?

‘Unusual’ is an understatement. For the best part of a century from 1788 to 1868 a total of 157,000 prisoners were sent from Britain to Australia. Only 25,000 were women. By 1833 male convicts accounted for 80 per cent of the recorded east Australian population. Among convicts the ratio of men to women was 8 to 1. Over time the ratio in the general population settled down to 3 to 1. Just as is happening now in China in response to the one-child policy, a large imbalance of men and women can do strange things.

The father of of research into the economics of marriage is Gary Becker of the University of Chicago. He died last month aged 83. More than 50 years ago he suggested that wherever the number of men massively outnumbered women those women were more likely to marry and were more likely to marry up. It makes sense. With many potential suitors it’s easy to get hitched. With many potential partners to choose from it’s possible to discard those unable to provide well and marry those with real prospects. The alternatives were awful in the early days of Australia’s colonies - barely paid domestic service or prison. And marrying well could mean being well kept. The provider could provide for two.

That’s indeed what the figures show. In the parts of Australia that had the highest male to female ratios, women were the most likely to get married, the least likely to be in paid work and the least likely to work in high paying occupations.

Grosjean and Khattar’s shocking finding is that those differences persist today....

They’ve digitised maps in each of the state libraries to match up the results of Australia’s first censuses with the results of the latest census broken down by postcode.

Women in those postcodes today are less likely to work in high-status high-paid occupations. As they put it: “Historical gender imbalance still explains 5 to 10 per cent of the variation in the glass ceiling effect.”

Translated: Women who live where there was once a high ratio of men to women are even today less likely to break through the glass ceiling and make it to the top, perhaps because they are less likely to want to.

And there’s evidence that they are less likely to want to.

Grosjean and Khattar examined the responses from the modern Household, Income and Labor Dynamics Survey to this statement: “It is better for everyone involved if the man earns the money and the woman takes care of the home and children.”

Their finding: “Where the gender imbalance was most severe in the early days of white settlement in Australia, people are less likely to hold progressive views about gender roles.”

Much less. On average: “One more man historically for a given number of women moves the average Australian today towards conservative attitudes by nearly 6 percentage points.”

Attitudes persist through generations. This shouldn’t be surprising. The convict era wasn’t that long ago. Grosjean and Khattar say some of those answering the survey question would have had great grand-parents who grew up in the 1880s when the male female ratio was much higher than it is today. The use of the plough in agriculture goes back much longer, but another economic study has found that even today in the areas were the plough was first introduced women are less likely to be in the workforce and less likely to be involved in politics.

It seems the attitudes are passed down within families rather than through contact between families. Grosjean and Khattar examine the attitudes of Australians born outside of Australia and find no relationship to the historical gender ratio in the regions where they now live.

And they hasten to add that conservative attitudes aren’t necessarily bad, at least not for the women who hold them. The survey shows that women in locations that have traditionally had a heavy gender imbalance are happier in their relationships than those elsewhere, although “only when their husband works”.

But they are poorer. Women in areas where there was once a heavy gender imbalance earn an average of $1500 per year less than those in other parts of Australia. The shortfall isn’t made up by higher earnings from their men as might be imagined. “On average, every year, every person in these areas loses out on nearly $800 of income,” Grosjean and Khattar conclude.

Our views about what we want from work and what we want from relationships come from somewhere. Grosjean and Khattar believe they come from our pasts, and our parents and grandparents pasts. It isn’t easy to outgrow them.

Grosjean will present her trailblazing findings at a conference in the United States next week. There’s worldwide interest.

As for Abbott, he is attempting to outgrow his past. He is dismembering the stay-at-home reward known as Family Tax Benefit Part B and he is introducing paid six month maternity leave. We can change ourselves, but slowly.

In The Age and Sydney Morning Herald

Australia’s convict past has been evoked as an explanation for why so few Australian women make it to the top in politics or in business.

Pauline Grosjean and Rose Khattar of the University of NSW say it is not Australia’s convict history itself that has made women less likely to rise to the top but the very high ratio of male to female arrivals that accompanied transportation.

In some parts of Australia there was one woman for every eight men among arrivals, they report in their new study, It’s Raining Men! Hallelujah?

The high ratio made women sought after in marriage and able to marry up. The men who won their hands were prepared to work hard enough for two, enabling the women to stay at home.

Their important finding, to be unveiled at a conference in the United States next week, is in regions that had extremely high male to female ratios those attitudes have been passed down.

“Historical gender imbalance still explains 5 to 10 per cent of the variation in the glass ceiling effect,” they conclude.

Women living in those regions are today more likely to agree with the statement: “It is better for everyone involved if the man earns the money and the woman takes care of the home and children.”

They earn less than women in other locations but say they are happier in their relationships.

Pauline Grosjean said while female researchers had been intrigued by her findings some older men had been unsettled.

In The Age and Sydney Morning Herald

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Friday, June 27, 2014

Looking for job vacancies? Don't try mining

A tidal shift in the jobs market has seen mining supplanted by aged care and even manufacturing as jobs vacancies in the west vanish and are replaced by new vacant jobs in Australia’s east.

New figures from the Bureau of Statistics show the number of vacant jobs in mining has slipped 5400 in the past two years. The number in construction has slipped 6700. Over the same period the number in manufacturing has slipped just 1200, despite all of the reports of factory closures.

There were 11,000 vacant manufacturing jobs in June, and only 4200 vacant jobs in mining.

Australia’s changing industrial landscape means Western Australia and Queensland are no longer the jobseeker magnets they once were. In the past two years the number of vacant jobs in Western Australia has collapsed 38 per cent and the number in Queensland 41 per cent. In the same period the number of vacant jobs in NSW has climbed 12 per cent. The industries increasingly keen to take on new workers are finance, wholesale trade, the arts, and health care and social assistance. Many are centred in NSW and Victoria. Victoria has 8.5 per cent fewer vacancies than two years ago.

The changing fortunes of the public service have hit the Australian Capital Territory particularly hard. Australia-wide there are 20 per cent fewer public sector vacancies that there were two years ago. In the Australian Capital Territory the number of vacant public sector jobs has collapsed 72 per cent. There are now just 300 vacant public sector jobs in the ACT, the fewest on record...

Western Australia remains the most promising of Australia’s states in which to be unemployed, although nowhere near as promising as it was. In May there were 3.7 unemployed West Australians for every vacancy, a low figure but nowhere near as low as the 1.7 two years ago. In NSW the figure is 4.3 unemployed per vacancy and in Victoria 6.3. Queensland, has a ratio of 6.1, South Australia 7 and Tasmania 8.9.

Nationwide there are 5 unemployed Australians chasing each vacant job. Two years ago there were only 3.6.

In The Age and Sydney Morning Herald

How many unemployed for each vacant job?

Unemployed per vacancy

May 2014 (May 2012)

NSW 4.3 (4.2)

Victoria 6.3 (5.1)

Queensland 6.1 (3.2)

South Australia 7 (4.6)

Western Australia 3.7 (1.6)

Tasmania 8.9 (8.9)

Northern Territory 1.1 (2.2)

Australian Capital Territory 3 (1.6)

Australia 5 (3.6)

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Thursday, June 26, 2014

Carbon trading. How Clive Palmer saved the furniture

Clive has saved the furniture.

If he gets his way (and he is almost certain to) the architecture of Australia's emissions trading scheme will stay in place.

Negotiated over seven years and running to hundreds of pages, the design of Australia’s scheme was a massive intellectual effort about to be rendered useless. Firms had already set up their accounting systems to be prepared for when the carbon price morphed into the trading scheme on July 1, 2015

Destroying it and then reviving it might have taken another decade.

Palmer Senator’s will bring forward the start date of the scheme by twelve months, an idea put forward most recently by Labor’s Kevin Rudd who wanted the scheme in sooner because it would be linked to the international carbon price which is a lot lower than the present carbon tax. Palmer’s twist is to set a carbon price of zero until such time as Australia’s major trading partners come on board with schemes of their own.

The trading partners he names are China, the United States, the European Union, Japan and Korea. The European Union already has a scheme. The US and China are on the way. It is far from unlikely that they all five have trading schemes within a decade.

When they are, Australia will be ready. It won’t need to reinvent its wheel.

And the related mechanisms will remain in place...

Australia’s Climate Change Authority advises on targets and Australia’s progress in meeting them. With Palmer’s help it’ll keep doing that all through the years the trading scheme is in hibernation, advising the government on whatever other means it chooses to meet its target of cutting emissions to 5 per cent below 2000 levels by 2020. That target remains Coalition policy. The Authority has advised the government to move faster, cutting emissions by 19 per cent. Its chief is former Reserve Bank governor Bernie Fraser. Whether or not the government accepts that target he’ll be happy to give it advice on how to meet any lesser target it adopts and to let it know if it's falling short.

The profit-making Clean Energy Finance Corporation remains in business too. It’ll continue to lend to money to worthwhile emission reduction prospects and continue to turn a profit. Rather than frightening away private sector investors, as government ministers suggest, it brings in private sector investors by doing the due diligence and lending its endorsement to worthwhile projects. At of July 2013 it had leveraged $36 million to support projects worth $2.2 billion.

It’ll need to stay in place because renewable energy targets will remain in place as well, at least until after the 2016 election according to Palmer. Their continued life should take few by surprise. Tony Abbott promised in the 2013 election that they would stay.

Abbott will still get a lot of what he wants. The “wrecking ball” that he kept saying would destroy the Australian economy will go. Two years into its life the carbon tax will be replaced by a carbon price of zero. Energy prices will fall in July. Palmer wants a legislated guarantee that prices will fall and the environment minister Greg Hunt will give it to him.

Abbott’s got what he wants, and Clive has saved the furniture.

In The Age and Sydney Morning Herald

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The Australian Capital Territory is just about the best address on earth - OECD

The Northern Territory is a lot like North Carolina, Queensland like Western Norway and the Australian Capital Territory like New Hampshire. The Organisation for Economic Co-operation has unveiled a massive wellbeing matching machine able to match living standards throughout the world in eight dimensions; among them safety, health, income and access to services.

Australia’s clear cut winner is the Australian Capital Territory, scoring 10 out of 10 for income, 9.6 for jobs and 9.5 for the environment.

The ACT’s average income is the highest of the any of the 300 developed nation regions identified by the OECD.

The matching machine says Australia’s national capital is most like Western Norway, New Hampshire or South East England.

The national capital’s worst score, for education, is 9.1 out of 10. But 9.1 is a far better score than any other Australian state. Victoria scores 7.4 for education, NSW 7.2, Western Australia 7, and Queensland 6.9.

Tasmania’s score for education is 5.6, putting it in the bottom 27 per cent of the OECD’s 300 regions. The ACT is in the top 19 per cent. But Tasmania shines in ‘environment’, scoring 10 out of 10 along with Queensland, NSW and Victoria, putting it in the top 1 per cent of the world’s regions...

“Where people live has a huge effect on their quality of life,” said OECD territorial development director Rolf Alter, launching the website at a conference in Brussels. “By zooming in like this, we can really see the big differences that exist between regions and work out what local and state governments must do to reduce them.”

The eight well-being factors, shown as different-coloured petals, are based on data such as household income, life expectancy, homicide rates, broadband access and particulate matter in the air.

Victoria and NSW are hard to separate, both scoring highly in most dimensions. NSW does better in income, scoring 7.1, compared to 6.4. Victoria is better for jobs (8.5 compared to 8.3) and safety (9.6 compared to 9.2).

The Northern Territory is the least well-off of Australia’s states, scoring just 4.1 for health and 1.4 for safety. Its health score is in the OECD’s bottom 29 per cent. Its safety score is in the bottom 13 per cent.

Earlier this month the Australian Bureau of Statistics announced that it would abandon its own version of the OCED index, Measures of Australia’s Progress in order to cut costs.

In The Age and Sydney Morning Herald

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Wednesday, June 25, 2014

Petrol Excise. How the Greens blew it.

Now I've seen everything. The Greens used to be numerate and they used to be smart about the use of price signals.

They are now neither. They are no longer numerate, because they've fallen for one of the oldest tricks in the book. They are no longer smart, because they are prepared to let petrol excise shrink.

Greens leader Christine Milne says she will block the budget move to index fuel excise in line with inflation. It's been shrinking in effectiveness ever since former prime minister John Howard froze it at 38.1¢ per litre.

Back then, in 2001, petrol was $1 a litre, making the excise 38.1¢ in the dollar. Petrol is now nearer 154¢, meaning the rate has collapsed to 25¢ in the dollar.

All through that decade the Greens had been arguing for a price on pollution.

If the petrol excise stays stuck at 38.1¢ per litre as a result of Milne's decision, the rate will slide to 19¢ in the dollar by the time petrol hits $2 a litre. Beyond that it will slide closer to zero.

Do the nine Greens in the Senate really want to be the people who could have revived Australia's sole long-standing pollution tax but decided not to?

That's how it seems.

They're fired up about the way Tony Abbott has tied the indexation of petrol excise to road funding. Which means they have fallen for one of the oldest tricks in the book...

The government says the extra revenue raised from indexing fuel excise will be set aside for building new roads and upgrading existing ones. Note the use of the word “extra”. The Greens have not.

Indexation will raise $112.5 million next financial year, $370 million in 2015-16, and $860 million by 2017-18.

The totals are tiny. Far lower than the $19.5 billion or so each year the Bureau of Infrastructure, Transport and Regional Economics says is spent on roads by all levels of government.

It's entirely possible - even likely - that the extra income from the excise wouldn't have been spent on extra roads at all. The bill the Greens intend to reject does indeed establish “a special account to ensure that the net additional revenue from the reintroduction of fuel indexation is used for road infrastructure funding”. But it doesn't ensure it will be used for extra road funding. It may simply be spent on road work that was going to be done in any event.

Announcing the decision on Tuesday, Milne said: “The package that is going to be put to the Parliament on fuel excise would see revenue raised to go purely to roads, purely to add more congestion to our cities, more pollution from vehicles, and not do a thing for public transport, for getting people to be able to drive less and, when they do drive, to drive more efficiently.”

She is wrong. There is nothing in the legislation she will reject that will add more congestion to our cities, nothing that will add more pollution from motor vehicles, and nothing that would take funding away from public transport.

The Greens were once carbon savvy, numerate and economically literate.

They've fallen for one of the oldest tricks in the book.

In The Age and Sydney Morning Herald

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Tuesday, June 24, 2014

FOFA. Why the Coalition thinks weakening Labor's financial advice rules is urgent

What could be so urgent that the government needs to sneak it through by regulations rather than wait until the new Senate meets on July 7?

It’s the destruction of parts of Labor’s financial advice law. The government can’t wait 13 days until July 7, because in seven days the law will bite.

From July 1 banks will have to stop rewarding their financial planners and tellers for steering customers into the bank’s own products. And from July 1 financial advisers will be forced to tell their former clients exactly how much they are continuing to take from their accounts.

That’s why on Saturday June 28 just two days before the July 1 deadline the finance minister Mathias Cormann will ask the Governor General to sign a regulation that purports to negate those parts of Labor’s law.

Of doubtful constitutional validity (regulations are meant to support the aims of laws, not negate them) it’ll stay in place until it is struck down the High Court or stuck down by the new Senate after it is sworn in.

The Senate will have 15 sitting days to disallow it after it is brought to its notice, which doesn’t have to happen for five sitting days.

In the meantime our banks will get breathing space.

And they need it.

On their own evidence they are woefully unprepared...

Bank staff are paid in bonuses as well as salary. Part of determining those bonuses is sales - how many of the bank’s products they shift. The existing law bans sales-related bonuses from July 1. The banks have known about it for years. The Future of Financial Advice Act was introduced on July 1 2012. But rather than prepare for the ban, they’ve lobbied against it.

At the Senate hearing in May the Bankers’ Association’s director of retail policy Diane Tate was gently asked whether banks were acting as if they expected the provision to be repealed.

“Banks have a choice to continue to operate in the way that they do,” she replied.

“One thing I know corporations are really good at doing is managing risk,” Senator Peter Whish-Wilson told her. “You have not changed your compliance, from what I am understanding now, because you obviously have an expectation that these laws are going to be changed for you.”

“We do have an expectation, because we had bipartisan support prior to the last election that these things would happen,” she replied. “If they don’t happen, it just means that expedited and fast changes need to be made."

Expedited indeed.

It would be entirely possible, in fact desirable, for banks to reward their staff in ways that didn’t constitute commissions. That’s what the Act intends. They could reward them on the basis of customer satisfaction, they could reward them on the amount of money they advised on, or both. But banks are desperate for this not to happen.

When Noel Stevens was phoned by his local branch of the Commonwealth Bank and asked to switch his life insurance policy from Westpac to the Commonwealth he didn’t know that the teller received a referral fee of $444.60. The bank employed financial planner got almost twice as much plus an ongoing commission.

When he was diagnosed with pancreatic cancer and given six months to live the bank refused to pay. It said he had a pre-existing condition.

A judge later found the planner did not act in Noel's best interests. Commissions and kickbacks might have influenced the advice.

Commissions will continue under the changes the Coalition is planning to sneak through. So long as the commissions are part of a ‘balanced score card’ of rewards and so long as the tellers are not making ‘recommendations’ the banks will be in the clear.

But it’s easy to get confused.

In an ABC 7.30 interview last week the chief executive of the Bankers Association Stephen Munchenberg spoke at first as if he thought the changes would allow recommendations.

“There are broadly about making sure that staff in banks are able to recommend - not recommend - sorry I'll have to rephrase that because it's actually legally incorrect. Please don't use that,” he told reporter Greg Hoy. The correct term was general information rather than recommendation.

It’s beyond me why bank staff providing general information need to be rewarded for the number of customers whose life savings they switch across, although I am also easily confused.

The two other changes the Coalition intends to stop before they take effect on July 1 hit planners even harder. From July 1, on the anniversary of each sale from which they are still getting a commission they will need to write to each customer and tell they how much money they are taking out of their account. Even worse, they’ll have to ask each customer for permission to keep taking it out. No permission, no more commission.

It’s a great thing for anyone who has ever been put into an investment product by a financial planner. It’s an appalling thing for planners, although I suspect their complaints have less to do with “red tape” than the amount of income they will lose.

But much of that income has already been lost. As July 1 approaches financial planners have been getting out and selling their practices for much less than the value of the ongoing commissions. They’ve taken the government at its word on on commissions and taken a loss. In many cases the big firms and banks who have bought their practices cheaply will get the benefit of the Coalition's move to rescue ongoing commissions rather than the planners for whom the commissions were intended.

For a while at least. The Senate will most likely strike the regulations down and return things to how they were. Which makes me wonder why the finance minister is bothering.

In The Age and Sydney Morning Herald

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Treasury: Super costs us three times what it should

Australians are paying an extraordinary $20 billion per year in superannuation fees the Commonwealth Treasury says, around three times as much as they need to.

Addressing the Committee for the Economic Development of Australia on Monday the treasury director David Gruen said super fees averaged $726 per year for members with a fund balances of $50,000.

There was little evidence to suggest the fees were value for money. On average high fees were “simply a net drain to investors”.

Australia’s fees are around three times those in the UK, accounting for 1 per cent of gross domestic product.

“A microeconomic reform that permanently reduced costs across the economy by a few tenths of 1 per cent of GDP would be considered a significant and worthwhile reform,” Dr Gruen said.

Significant reductions in fees would have “widespread benefits for society as a whole”.

Although government innovations such as MySuper and Superstream should help drive down costs, more were needed.

Dr Gruen drew attention to a Grattan Institute study that found if fees were merely halved lump sums would eventually be 15 per cent bigger and retirement incomes 20 per cent bigger...

The Grattan Institute recommended removing from employers the power to select default funds and giving it instead to a government-appointed body that would conduct a tender for the right to manage all new default accounts each two years. After ascertaining that the tenderers were appropriately qualified the government would award the tender on the basis of price.

Super products were also deficient in that most didn’t cover longevity risk, Dr Gruen said.

Longevity risk is the risk that a superannuant will outlive their lump sum and be forced on to the pension.

The Australian Research Council Centre of Excellence in Population Ageing Research has pressed the financial system inquiry to consider making lifetime annuities compulsory past the age of 85. On retirement each Australian would have to take out a policy that would pay out for the rest of their lives beyond the age of 85. The policies would be cheap, the Centre says, because of the “mortality bonus”. Many of those taking out the insurance would not live until 85 and many of those who did would not live too many years beyond that.

The Centre recommends allowing earlier access to the lifetime annuities if “serious cognitive decline” sets in earlier.

The financial system inquiry reports in November.

In The Age and Sydney Morning Herald

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Monday, June 23, 2014

Newsflash. Cigarette sales are sliding. Previously suppressed Treasury figures say so.

The Commonwealth Treasury has entered the debate over cigarette sales, publishing previously secret information that shows sales falling since the introduction of graphic health warnings and plain packaging.

The Treasury collects data on sales per stick in order to levy tobacco excise, but has until now withheld it from publication in order to protect taxpayer confidentiality.

Added to the Health Department’s website quietly last week amid debate over the effectiveness of plain packaging, the Treasury data shows 3.4 per cent fewer cigarettes were sold in 2013 than 2012. Plain packaging became mandatory on December 1, 2012.

The Treasury data is consistent with national accounts data which shows a decline of 0.9 per cent in the amount of tobacco and cigarettes sold between 2012 and 2013. The national accounts show a further slide of 7.6 per cent in the three months to March after the first of a number of big hikes in tobacco excise announced late last year.

The Bureau of Statistics bases the national accounts measure on a survey of households, whereas the Treasury collects information on every stick and pouch of tobacco sold.

The Treasury data suggests that adjusted for population growth of 1.7 per cent the number of sticks sold per person slid around 5 per cent between 2012 and 2013.

The ABS data has consumption of tobacco the lowest ever recorded...

Both measures conflict with industry claims that tobacco sales climbed by 59 million sticks or roll-your-own equivalents in 2013. The claimed 0.3 per cent increase said to be sourced from the data analysis firm InfoView although the data behind it has not been publicly released.

Further declines are in store when tobacco excise jumps by a further 12.5 per cent in December, and then by 12.5 per cent in December 2015 and 2016. The increases will be on top of the regular six-monthly indexation increases which now move in line with average weekly earnings rather than the consumer price index.

The Health department website links to a briefing by the chief executive of Imperial Tobacco Alison Cooper which says that during the first six months of plain packaging the Australian tobacco market shrank “roughly 2 to 3 per cent”.

The president of the Australian Council on Smoking and Health Mike Daube said the Treasury data was clearly more reliable than the unpublished industry figures.

“It’s worth noting that in publishing the Treasury data the health department said it was an indicator of tobacco volumes in the Australian market. It was a gentle guide to those who need guide dogs and white sticks that these are the most relevant figures,” he said.

“The whole debate is dishonest,” he added. “We’ve always said that the main focus of plain packaging is long term. No-one said plain packaging was going to stop everybody smoking overnight .”

British American Tobacco spokesman Scott McIntyre agreed that smoking rates were declining. “Smoking rates have been declining in Australia for a very very long time,” he said. “But since plain packaging the rate of decline has halved. That’s what we are arguing.”

In The Age and Sydney Morning Herald

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Friday, June 20, 2014

Reality check. Working one month just to pay for welfare?

It’s the best-remembered phrase of the budget, and it wasn’t even in the budget. Treasurer Joe Hockey used it while selling the budget last week to dramatise Australia’s welfare bill.

“The average working Australian, be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian,” he told the Sydney Institute.

The concept is catching on. The Greens say almost half of Hockey’s one month – 11 working days – goes to assistance to the aged. Only 2 days pay for the dole. Another 9 days pay for what the Greens say are tax concessions for well off Australians and fossil fuel industries.

But the calculation is flawed, marred by two mistakes which partly cancel each other out.

The budget papers put this year’s social security and welfare bill at $140.6 billion. Of this around $36 billion goes to families with children, $26 billion goes to help people with disabilities and $10 billion to help the unemployed and the sick. Only around $2 billion goes to help indigenous Australians.

The total does indeed come to near $6000 per head as the treasurer said, but only if all Australians are counted in the population, including those who are too young and too old to work. Limiting the population to workers (Mr Hockey says only 45 per cent of the population pays income tax) the welfare burden per worker is around $13,400.

But that’s way more than one month’s tax...

The latest Tax Office figures show a total of 12.7 million individual Australians paid a total of $144.8 billion in net tax in 2011-12, producing an average tax bill of $11,400 each. Updated for subsequent wage rises the current average individual tax bill would be around $12,200.

Which causes a problem. The welfare burden per worker is greater than the entire year’s tax collected per worker. In the treasurer’s language “the average working Australian, be they a cleaner, a plumber or a teacher” needs to work a bit over 13 months per year to pay for the welfare of others.

Which means something’s wrong.

What’s wrong is the assumption that individual tax is government’s only source of income. This year the government expects to take in from all sources $363.5 billion. Only $164 billion will come from individual tax. Among its other sources of revenue are company tax, petrol, alcohol and tobacco excises, superannuation and fringe benefit taxes and the petroleum and minerals resource rent taxes.

As a proportion of total government revenue (excluding the goods and services tax) the amount the Commonwealth spends on welfare and social assistance will be 45 per cent.

It’s a finding that would only shock someone who didn’t think that welfare was one of the main reasons the government collected revenue.

So where did the Treasurer get his figure?

His office says he calculated the welfare bill at $6000 per head, calculated average monthly income at “around $4,800 to $6,500 per person” and concluded that the average Australian was “working over one month full time each year just to pay for the welfare of another Australian”.

It would be correct if the average tax rate was 100 per cent. But its closer to 20 per cent, meaning the average individual taxpayer would need to work for much longer than one month to pay the welfare bill. Except that the average worker doesn’t need to work that much longer because workers aren’t the government’s only source of revenue. Two mistaken assumptions have partly canceled each other out.

Expect more of this sort of talk. Accompanying each of this year’s tax returns for the first time will be “concise one-page personalised and itemised receipt”. It will show “in dollar terms, how much of a person’s tax bill was spent on each budget area”.

An initiative of the treasurer, it also has the potential to be misleading. Its oddest feature will be the way it treats government debt. Debt will be displayed as a total, rather than an amount per person, and displayed as gross debt rather than net debt. Net debt per person is around $9800;  per taxpayer it’s around $17,200.

In The Age and Sydney Morning Herald

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Monday, June 16, 2014

Where states' rights stop. The environment

I am a big believer in states’ rights, but you’ve got to know where to stop.

If there’s one thing the Abbott government’s Commission of Audit got right it’s that our system of eight separate states and territories is a strength rather than a weakness. It ensures that our decision-makers ride the same trams, use the same schools and get treated in the same hospitals as the rest of us.

And they compete with each other. Victorians are always looking north, south and west to pick out the best of what’s happening elsewhere. Western Australia tried out industrial relations reform before we did, South Australia gave women the right to vote and stand for office, Tasmania was a lone beacon for many years on daylight saving and Victoria led the way in making seat belts and helmets for motorcyclists compulsory.

By completing, each state strengthens the whole. If an innovation in one state doesn’t work, it stays there and doesn’t damage the rest. If it does work, it spreads and makes the rest stronger. A paper commissioned by former premier Steve Bracks for the Council for the Australian Federation described Australia as a ship with eight separate watertight compartments: “When a leak is sprung in one compartment, the cargo stowed there may be damaged, but the other compartments remain dry and keep the ship afloat”, it said.

In contrast the single national school curriculum proposed by Julia Gillard could have put us on the wrong track for years. One of its selling points was that individual states didn’t deviate. Yet it built on the deviations they had made to date, such as NSW striking out on its own and making Australian history compulsory in high school. Without experimentation the curriculum would have become weaker.

But you’ve got to know where to stop.

Malcolm Fraser put a stop to states rights over the environment almost 40 years ago. A big believe in states rights himself, as Coalition prime minister he overrode Queensland to end sand mining on Fraser Island. Seven years later Labor’s Bob Hawke went all the way to the High Court to override Tasmania on its plan to dam the Franklin River. They did this because national assets such as the Great Barrier Reef and the Tasmanian wilderness belong to all of us. They matter to all of us, and not just to the citizens of states keen to attract industry and earn mining royalties.

Twenty years on John Howard introduced the Environmental Protection and Biodiversity Conservation Act. It declared once and for all that the Commonwealth as well as the states had a legitimate interest in the environment within their borders, and between their borders. Migratory birds, groundwater and the Murray Darling River system don’t respect lines on maps.

The Howard government banned broad-scale tree clearing in Queensland, expanded to 33 per cent the proportion of the Great Barrier Reef protected from fishing, and took control of the Murray Darling Basin.

Its Labor successor tried to stop cattle grazing in Victoria’s Alpine National Park, something Abbott’s environment minister Greg Hunt has since approved.

But until now no Australian government has seriously countenanced the proposition that the environment was a matter solely for the states. Even the Gillard government, which experimented with devolution in an effort to counter “green tape”, gave up after it realised state governments wouldn’t impose the same high standards as the Commonwealth.

Now the Abbott government is legislating for what it calls a “one-stop shop”...

Billed as a “major step forward in the government's commitment to reduce red tape” the law would devolve responsibility for environmental approvals to “the most appropriate level of government”.

Abbott and Hunt believe the appropriate level is state government, and if it chooses to delegate, local government, raising the spectre of at least eight “one-stop shops”, each with different approval processes and none of them necessarily inclined to protect the national environment.

Peter Cosier of the Wentworth Group of Concerned Scientists put it this way in evidence to the Senate last week: “I have actually worked in local government, I am a fan of local government. They have a very important role to play. I cannot imagine many local councils, though, would accept that they have a mandate to make a judgement as to whether or not something affects a matter of national environmental significance.”

The Commonwealth has already signed draft agreements with NSW, Queensland and Western Australia to devolve its powers. It says it will retain “call-in powers” which it can use to override states about to approve something that will cause serious or irreversible environmental damage. But the rules say they’ll have to be used before the state makes the decision. And under the law they’ll have little ability to monitor the decisions the states are about to make.

The Wentworth Group said it was aware of no other countries that delegated environmental approvals in a similar way.

Perhaps we can trust the Queensland government to protect the Great Barrier Reef, even though its premier Campbell Newman says Queensland “is in the coal business”. Perhaps we can trust South Australia not to destroy the Great Artesian Basin, even though it is desperately short of money and anxious for mines. But state governments are elected to pursue state rather than national interests. That’s why we have them.

The environment is a national interest. The tragedy of Abbott’s legislation is that if he is office long enough it will come back to bite him. Australians will hold the national government to account for what happens to the Australian environment whether or not it tries to claim it has passed the responsibility to somebody else.

In The Age and Sydney Morning Herald

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Tuesday, June 10, 2014

Dumbing down the ABS. Like driving at night dimming the lights.

We’re mining our socks off. And that’s good, right? In the first ten months of the previous financial year we moved $46.2 billion of iron ore. In the first ten months of this one we moved $64.3 billion.

The surge is putting GDP back on track. This time last year our gross domestic product was growing at an annual pace of 2.5 per cent. Now it’s 3.5 per cent, about the long-run average. And that’s good too, right?

The best and least likely place to discover that it isn’t necessarily alright is a new book entitled GDP: A Brief but Affectionate History by British economist Diane Coyle.

In it, she pays special attention to Australia.

Measuring GDP is not like measuring the height of a mountain or length of a river, she says. GDP is a concept; the total value of all the goods and services produced in a nation over a particular period of time. But what’s a good or a service? One of founders of the concept in the 1940s, US economist Simon Kuznets originally didn’t want to include advertising. It was persuasion rather than a product, he said. Unpaid housework isn’t included because isn’t valued (on the market) but paid housework is. Teaching in government schools is included (at a guestimate of its value) even though it isn’t bought and sold, and so on. It’s messy,  and even if it wasn’t it would take no account of other measures at least as important.

No less an authority than the Australian Bureau of Statistics says so. “While movements in the volume measure of GDP are an important indicator of economic growth, there is no single measure that can describe all aspects of the wellbeing of Australians,” it says.

So it creates a separate scorecard, Measures of Australia's Progress. It looks beyond GDP to assess the other things that are important, among them “the quality of the environment, the wellbeing of the population in terms of health, education, work, housing and economic resources, and the way people live together in society”.

The initiative has entranced Coyle.

“The data are collected and published once a year on a traffic light system - red is getting worse, green is getting better,” she told a US radio interviewer. “And last year it was very clear that GDP growth is going great in Australia, and that was green. And resource depletion had worsened, so that was red.”

“And actually, isn't that trade-off really clear?,” she enthused. “Australians know that they are digging up the mineral resources of the country to have GDP growth now. They still would carry on doing it, but at least they know they did it.”

Until now. On Thursday the Bureau of Statistics axed Measures of Australia's Progress and shrunk or axed another twelve projects, most involving the collection of social or industry statistics...

It needs to save $50 million. It is losing 116 staff. The cuts are not, as you might expect, primarily the result of the Coalition's attempt to get the budget back to surplus. They are the result of repeated cuts by Labor in the guise of efficiency dividends. Before he retired in January the head of the Bureau pleaded with the government for an extra $300 million to “keep the lights on”. Its 30-year old technology systems were barely coping. “The overall situation has been progressively impacting on the time and effort required to produce key official statistics on time and to the quality expected by our users and now seriously compromises our longer-term sustainability,” he wrote.

He didn’t get the extra funding and he hasn’t yet been replaced. Economies have pushed the response rate to the flagship employment survey to its lowest level ever. The employment survey is best monthly indication of how the Australian economy is traveling. But in at least one sense it is the least reliable it has ever been. It’s as if the government is navigating an economic highway while dimming the lights.

And starving itself of fuel. The budget papers say the Tax Office will lose 2329 staff in the coming financial year on top of the 626 it is losing this year. The cuts come as it’s been given extra work introducing the temporary budget repair levy and winding up the carbon and mining taxes. It’ll probably check fewer returns and think twice about expensive court cases. If not now, then later. “The budget papers signal further reductions in the out years,” the Commissioner has warned staff.

The Australian Securities and Investments Commission is meant to protect us against outright fraud. Its budget will be cut 12 per cent in 2014-15. It will lose 209 of its 1782 staff, also a cut of 12 per cent.  Its surveillance activity “will substantially reduce across the sectors we regulate and in some cases will stop,” its Chairman told a Senate hearing last week. “For obvious reasons” he didn’t want to identify the industries that no longer be checked.

We need protection from dodgy financial planners. Our government needs income. And we all need to know where we are going. An obsession with cuts to return the budget to surplus is starving us of all three. It would be nice to think our leaders had thought it through.

In The Age and Sydney Morning Herald

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Tuesday, June 03, 2014

Anyone who doubts the Medical Research Fund is a fig leaf..

It took Mark Latham to say the unsayable. “If a cure to cancer is to be found, most likely it will happen in Europe or the United States,” he wrote in the Weekend Financial Review. Spending scarce funds to find a cure ourselves is a waste of money, a political fig leaf to cover the electoral pain of the GP co-payment.

Anyone who doubts that the Medical Research Future Fund is a fig leaf or an afterthought, needs to only look at the pattern of leaks and speeches leading up to the budget. Ministers spoke often about the need to restrain the cost of Medicare, scarcely at all about the need to boost medical research.

They weren’t able to prepare the way for the medical research future fund because it didn’t come first. It isn’t that pharmaceutical benefits, doctors rebates and future hospital funding are being cut to pay for the fund. It’s that the fund was evoked late in the piece to smooth the edges of the cuts.  

Under the descriptions of 23 separate cuts in the budget are the words: “The savings from this measure will be invested by the government in the Medical Research Future Fund”.

The cuts hit dental health, mental health, funding for eye examinations, measures to improve diagnostic images, research into preventive health, a trial of e-health and $55 billion of hospital funding over the next 10 years.

We’re told the cuts are to build a $20 billion Medical Research Future Fund, but the immediate purpose is to cut the deficit.

The wonders of budget accounting mean that the savings notionally allocated to the fund will actually be used to bring down the budget deficit except for when money is withdrawn from the fund to pay for research.

It’s the same trick Peter Costello pulled with the Future Fund. The government gets two gold stars for the price of one. It can both cut the deficit and build up the funds for medical research. And it isn’t yet too sure about what type of research.

Under questioning by senators on Monday, health department officials revealed that they didn’t even know about the fund until late in the budget process and even then provided no advice on how it would work.

Asked about the kind of things the fund would finance, the department's secretary Jane Halton said the questions were hypothetical.

Would it include evaluations of potentially life-saving preventive health measures such as SunSmart and anti-tobacco programs? “I think it’s unlikely based on the description I have seen, but again we are in an area that we probably can’t yet answer,” she replied.  

A few minutes later she asked for her words to be expunged saying she really didn’t know. “We need to work through this level of detail” she told the senators.

We know that cures for cancer, Alzheimer's and heart disease will be part of fund’s remit, because the Treasurer told us so. “One day someone will find a cure for cancer,” he said after the budget. “Let it be an Australian and let it be us investing in our own health care.”

Latham’s point is that the idea is silly. By all means contribute proportionately to a global effort to find cures for diseases, but don’t try and lead the pack by taking scarce dollars away from applying the medical lessons we have already learnt.

Small countries like Australia are for the most part users rather than creators of technology, and our funds are limited as Joe Hockey well knows.

The Medical Journal of Australia isn’t fooled. This month’s editorial says a government genuinely concerned about extending the working lives of Australians would be investing more in preventing chronic disease, not less.

“The direct effects of the proposed federal budget on prevention include cuts to funding for the National Partnership Agreement on Preventive Health, loss of much of the money previously administered through the now-defunct Australian National Preventive Health Agency, and reductions in social media campaigns, for example, on smoking cessation,” it says.

“Increased funding for bowel cancer screening, the Sporting Schools initiative, the proposed National Diabetes Strategy and for dementia research are positive developments, but do not balance the losses.”

It’s the indirect effects of the measures the fund seeks to make palatable that have it really worried. The $7 co-payment will work out at $14 for patients with chronic diseases. They’ll pay once to see the doctor and then again to have a test. The editorial quoted four studies which have each found that visits for preventive reasons are the ones co-payments are most likely to cut back.

“The effects of these co-payments on preventive behaviour are greatest among those who can least afford the additional costs,” it observes. Which is a pity because “the potential for prevention is greatest among poorer patients, who are often at a health disadvantage”.

We’ll all suffer if co-payments cut vaccination rates, even those of us who aren’t poor, and even if the Medical Research Future Fund finds a cure cancer.

The journal’s biggest concern is that the cuts to hospital services will hit preventive health measures because they are seen as less urgent.

“The greatest pity of all is that the proposed cuts to funding for health come at the time when the first evidence is at hand of potential benefits of the large-scale preventive programs implemented under the national partnership agreements,” the journal writes. “A slowing in the rate of increase in childhood obesity and reductions in smoking rates among indigenous populations have been hard-won achievements.”

Withdrawing from measures ;we know will work in order to fund measures we think might work is a daft way to manage our health. But it'll help cut the deficit.

In The Age and Sydney Morning Herald