Friday, April 29, 2016

PC calls for free trade books in copyright shake-up

The Productivity Commission has recommended the free import of books, the free use of copyrighted material under new so-called "fair use" rules, a leglislated guarantee that consumers have the right to defeat internet geoblockers and much tighter restrictions on the granting and use of patents, under reforms it says could save consumers up to $1 billion a year.

Consumers should also have a legislated right to defeat internet geoblocks set by such companies as Amazon, it says.

Subtitled Copy(not)right, the draft report of the commission's nine-month inquiry into intellectual property finds copyright terms are way in excess of what is needed, offering more than 100 years of protection for works that ought to be protected for 15 to 20 years.

It says the typical commercial life of a book, film or piece of music is less than five years, but that Australia's copyright rules often grant 120 years, which is the life of the author plus 70 years.

"To provide a concrete example, a new work produced in 2016 by a 35-year-old author who lives until 85 years will be subject to protection until 2136," it says.

"The evidence (and indeed logic) suggests that the duration of copyright protection is far more than is needed. Few, if any, creators are motivated by the promise of financial returns long after death."

The report says the Howard government's decision to extend Australia's copyright term by 20 years to life plus 70 years as part of the US-Australia Free Trade Agreement probably added an extra $88 million to the annual sum sent offshore to foreign rights holders.

The decision to allow pharmaceutical manufacturers to extend the term of their 20-year patents by an extra five years probably costs Australian governments and consumers $250 million >a year.

Australia imports six times as much patented and copyrighted material as it exports, making it a net consumer rather than a producer whose interests ought to be aligned with those of consumers. The report says the gap is widening.

It backs proposals to introduce an open-ended and non-prescriptive right of "fair use" of copyrighted material that would allow many uses presently illegal in Australia, including the use of thumbnail images by search engines, the "quotation" of lyrics or song fragments in songs, the use of politicians' jingles by their opponents in election advertisements, and the use of extracts from films in documentaries.

It goes further than recommendations of the Australian Law Reform Commission in recommending fair use allow the publishing and digitisation of so-called "orphan works", where no rights holder can be found, and copyright-protected works that the owner chooses not to make commercially available. The change would deny authors the right to prevent the publication or performance of their works.

The report says Australia's patent rules are too lax, requiring claimed inventors to provide evidence of a "mere scintilla of invention" in order to lock up the use of their ideas. Patent fees should be higher and applicants should be required to explain why their ideas are not obvious, it says.

Consumers should have a legislated right to defeat geoblocks imposed by companies such as Netflix and Amazon in order to prevent Australians buying products sold overseas. The law that at present prevents Australian retailers importing books without the permission of local publishers should be repealed in the same way as the laws preventing the import of music without local publishers were repealed.

The commission has called for comments on its draft report by June 3. It will deliver its final report to the government in August.

In The Age and Sydney Morning Herald

The Productivity Commission's hands were tied on copyright

Buried within this week's landmark Productivity Commission report on copyright and patents is seething resentment at the way Australia has negotiated trade agreements.

In one of his last acts as treasurer Joe Hockey referred the topics to the Productivity Commission after his colleague, Attorney-General George Brandis sat on the recommendations of an Australian Law Reform Commission report for 18 months rather than free-up copyright as it wanted. It's now been two years, and one of the new excuses is that the inquiry Hockey started is re-examining the question.

The Law Reform Commission wanted to allow "fair use" as happens in the United States. It would mean, for example that the legendary Australian band Men at Work would have been able to include a musical phrase from the ditty Kookaburra sits in the old gum tree in their 1981 hit Land Down Under without being forced to pay damages for copyright infringement in a battle whose aftermath claimed the life of Down Under's composer Greg Ham. Sampling, referencing, making audio copies of books for the visually impaired; all of this would have been regarded as "fair" so long as it didn't unreasonably harm the interests of the copyright owner.

The Productivity Commission took that as a starting point and went further. It wants to define the use of "orphan works" as fair. These are books or photographs or pieces of music for which no one can find the copyright owners, something that's become more and more of a problem as the length of the copyright terms has grown. Right now it's legally risky to assume things are OK, even for libraries wanting to digitise ancient documents. Their lawyers tell them not to take the risk. And the commission wants it to be fair to publish works that copyright owner won't bother to publish or won't allow anyone else to publish.

The overriding consideration would be whether or not the use does any harm.

As the commission puts it: "The key question is whether transformative works have any appreciable impacts on the demand for, and creation of, the original material. If they do not, then there are few grounds for regarding the use of the original material as an infringement."

It's a principles-based rather than a black letter law based approach of the kind favoured by Senator Brandis whose main contributions to copyright law have been to crack down on infringers. The commission derides such tactics as ineffective, noting that the easiest way to wind back illegal downloading would be for the makers of movies and television programs to make them easy to watch legally. To that end it wants the Australian government to legislate to put beyond doubt the legality of breaking geoblocks. And it wants the import of books to be free, something the Australian Society of Authors says will "essentially dismantle the concept of territorial copyright".

What it wanted to do was to wind back Australia's 120 years plus copyright terms. It reckons 15 to 25 years is all that's needed. It says the average commercial life of a book is 1.4 to 5 years. Beyond that, the harm copyright does by locking things up outweighs any conceivable benefit to the authors in extra income. But it couldn't. Australia's trade agreement with the US prevents Australia backsliding, as do the new agreements with Korea and Singapore and the upcoming Trans-Pacific Partnership. It says the Australian government shouldn't have made the commitments on copyright without first assessing the costs and benefits. It wants Australia to try and unpick those deals, something it acknowledges is next to impossible.

In The Age and Sydney Morning Herald

Tuesday, April 26, 2016

Budget 2016: Pallas rides high while Morrison dithers

Who wouldn't want to change places with Tim Pallas? Scott Morrison would. Pallas is offering Victoria surpluses as far as the eye can see; Morrison is offering Australia continuing deficits. Pallas is swimming in revenue yet on the lookout for more; Morrison isn't, and isn't keen to raise much more. Pallas has the confidence of the ratings agencies; Morrison has them worried.

Here's how Pallas explains his determination to continue to raise a bit more here, a bit more there, even though Melbourne's real estate boom is showering him with a record $6 billion a year in stamp duty: "You've got to be prepared to show that you can defend your bottom line by taking decisions about revenue, whether or not you need to. That's how you get a AAA credit rating, mate, and that's how you keep it."

Thinking perhaps of his federal counterpart, or of state governments past, Pallas says: "If you basically show that you are really good at keeping in surplus but all you're doing is dispersing the benefit of bounty or providence, it will count against you – you've got to also show you are prepared to secure and protect your revenue base."

It's what the ratings agencies are telling Morrison. Here's the Moody's agency this month expressing a lack of confidence in a federal treasurer who talks about cutting spending but isn't too keen on sandbagging revenue: "Without such measures, limited spending cuts are unlikely to meaningfully advance the government's aim of balanced finances by the fiscal year ending June 2021, and government debt will likely continue to climb, a credit negative for Australia."

Morrison's treasury is losing more and more to negative gearing and will lose even more now Morrison and Turnbull have acted as if it is a protected species; GST revenue isn't holding up as it once did; and the temporary deficit reduction levy is about to come off, even though the deficit hasn't been reduced. Yet with the notable exception of ultra-high-income superannuation tax concessions, Morrison has shown next to noscant interest in plugging the leaks.

It would be bad enough, were company tax revenue not also collapsing – although hopefully on a temporary basis – and record-low wage growth all-but neutering bracket creep as an engine of income tax growth.

Pallas is inching up taxes on foreign home-buyers and absent landowners, and royalties on the miners of brown coal. He's doing it while raking in billions from the fastest home price growth in the nation, and while planning to invest an unprecedented amount in the infrastructure that will support that population.

In his words, there's about to be a "change in the pace and feel of the government".

"It will inconvenience you," he says. "And not just around the Melbourne Metro. Metropolitan Melbourne itself could resemble a worksite."

Pallas is planning to fund the Melbourne Metro and the Western Distributor himself, without funds from the Commonwealth, plus 50 level crossings, the biggest upgrade of schools in the state's history, and much more, right up to the limit that his advisers tell him it's safe to borrow, which is 6 per cent of gross state product.

When he gets the money from the sale of the long-term lease over the Port of Melbourne in the coming financial year, he'll borrow more to move back up to that limit, just as any prudent chief executive would, where the projects can be shown to have benefits that exceed their costs.

He says he is "not prepared to run a lazy balance sheet".

"Public debate about government debt has often focused on the desirability of eliminating net debt," his budget papers say. "A reluctance to use debt can deter sensible investments in productivity-enhancing infrastructure. Intolerance for debt has the potential to slow economic growth and limit opportunities to improve the quality of life of Victorians.

"Without debt financing, Victoria would not have much of the core infrastructure enjoyed today. The International Monetary Fund has pointed out that infrastructure is under pressure, particularly in urban areas, and that Australia has an infrastructure deficit. The IMF considers that a boost in infrastructure spending funded by borrowing would have short and long-run benefits."

Morrison is less ambitious.

Rather than protect revenue or do much of the hard work needed to identify specific savings, he is expected to hit the public service with another overarching "efficiency dividend". Rather than tackle taxation rorts (superannuation excepted), he'll try to strip unemployment benefits from "rorters" by making it harder still for them to get the dole.

His budget mightn't even include the infrastructure commitments his prime minister has been working towards. They might be postponed until during the election campaign so they can be announced after the budget, when they won't show up in the bottom line.

Instead of removing benefits from welfare recipients, Pallas says Victoria will tackle dependency by introducing New Zealand-style social impact bonds, in which private investors will be asked to stump up the money for alcohol and drug rehabilitation and juvenile recidivism programs. If the projects pay off, reintegrating people into society and boosting Victoria's economy, the investors will get extra.

Pallas is luckier than Morrison, and being part of a state rather than a federal government means he is naturally more more attuned to the welfare of his citizens. But personal and political differences come into it as well.

It isn't clear from his speeches why Morrison got into politics, except perhaps to ensure that business is "not unreasonably burdened" by government. That's what he said in his first speech to Parliament. He seems to believe in not getting in the way.

Since he and Turnbull have been in their jobs, there's always been some sort of crisis or election around the corner, something that's prevented them from governing. Their greatest curse has been the three-year parliamentary term, as well as the false start with Tony Abbott. It's made it hard to be bold.

Pallas and Premier Daniel Andrews face the voters only every four years, and so are actually able to govern. It's Victoria's secret weapon. It ought to be national.

In The Age and Sydney Morning Herald

Victorian State Budget 2016: Pallas redoubles bets on economic growth

Blessed with the highest population growth and the fastest property price growth in the nation, as well as the fastest economic growth this side of Darwin, Tim Pallas has decided to double down.

He is going to invest the proceeds in schools, roads, rail links and hospitals that will allow it continue.

At around the turn of this century NSW made a different decision. Enjoying faster population growth than Victoria, it under-invested in the things that were needed to make the state work, partly to pay for the stadiums that housed the Olympics. Its population growth slid below Victoria's and never recovered.

Victoria's treasurer could have given the bounty back in tax cuts. He could have allowed the surplus to soar. He could have spent it on monuments of little value as did NSW. Instead, he wants to use it to ensure the city and suburbs and regions work.

He'll spend a record $7 billion in the coming financial year, followed by as much, if not more, the next year, and up to $8 billion in 2020-21. Not all of it is on projects that are yet known. It includes what Mr Pallas calls "headroom". It's the amount his treasury officials believe is safe to spend on worthwhile projects when they are identified.

Heading the list is the Melbourne Metro, all the way through to completion in 2026. If a "future Commonwealth government" wants to help, Mr Pallas will accept its money, but he is sick of being messed around.

He says Melbourne is on track to overtake Sydney as Australia's biggest city from 2030. So he is spending big on suburban rail lines, regional lines and the Western Distributor, all "without a dollar from the Commonwealth government". He is going to spend $900 million upgrading and building schools, "the biggest single school investment in Victoria's history".

It's a commitment that can only be safely made by someone who thinks he'll have the money.

Income from stamp duties has shot up 23 per cent in the past year. He is raking in $1 billion more than he expected this time last year. Treasury is wisely expecting some pullback, a slide of 6.4 per cent in 2016-17, and then growth, eventually reaching a long-run average of about 6 per cent a year. There's not much science to its projection. Treasury staff freely concede they don't know when or if prices will pull back. The only reason for expecting growth to eventually revert to the long-term trend is because it's the long term trend.

If property prices turn down sharply and stay down, Mr Pallas might find he doesn't have the money he thinks he will have. But his decision to boost spending on the things that make the city more livable will enhance his odds. The extra spending should itself ensure that Australians keep flocking to Victoria and gain jobs, boosting revenue further.

He is certain it won't deprive him of his prized triple-A credit rating. In fact he says the only chance he has of losing it is if the Commonwealth loses its top rating first, something that's entirely possible.

The ratings agencies have been told the investment is for projects that will set up Victoria for the future, ones that pass a strict cost-benefit test. Spending on the ordinary business of government is set to climb by less than revenue over each of the four years. To keep the agencies happy he is lifting an array of taxes and charges by far more than he is cutting payroll tax, by around $150 million more each year.

In The Age and Sydney Morning Herald

Monday, April 25, 2016

Turnbull out on a limb over negative gearing

You've heard the one about the one-year-old who's buying a house. Addison's parents, Kim and Julian Mignacca, are negatively gearing to buy one for her. Mr Mignacca is deducting the rental losses from his salary for tax purposes.

Visiting their house on Sunday, Prime Minister Malcolm Turnbull warned that "if Labor's reckless change, its reckless new housing tax, was ever implemented", they couldn't afford it.

Which would probably be just as well. If parents everywhere started buying houses for their children at birth, they would bid prices sky high and force the would-be owner-occupiers who missed out to rent.

That's more or less what's been happening since the the Howard government halved the headline rate of capital gains tax and made negative gearing much more attractive at the end of the 1990s. Within two years, prices jumped from less than three times household disposable income to four times disposable income. The new negative gearers faced no problem finding renters; the owner occupiers who missed out were forced to rent from them. It's as if, to use the words of Coalition backbencher John Alexander, we are turning into a nation of landlords and serfs.

Alexander chaired a government-dominated parliamentary inquiry into home ownership, which for some reason has yet to publish its report, even though the initial deadline has long passed.

The Grattan Institute's new contribution to the debate is the finding that negative gearing not only forces would-be owners to rent but also limits their security of tenure. Negative gearers buy and sell houses much more often than investors who aren't driven by tax.

Once, Turnbull himself labelled negative gearing "tax avoidance". He >co-wrote a paper that said it skewed "national investment away from wealth-creating pursuits, towards housing". Only Labor, the Grattan Institute, the Murray financial system review and the Reserve Bank would say such things now.

In The Age and Sydney Morning Herald

Saturday, April 23, 2016

Sleeping with the budget, a love story

Most of us reporting the federal budget get little sleep on the night itself. We are busy "unwinding".

But for two officers of the federal Treasury it's different. They get little sleep the night before. They literally attempt to sleep with the budget papers, in a cage in the basement of Parliament House. One of them has been doing it for years.

Printed under tight security, the documents are taken to the basement late on Monday and then guarded closely throughout the night until Tuesday morning when they are whisked up in the lift and stacked inside the committee rooms in which they will be handed out.

That's how important it is to the Treasury to keep them secret. But it's hard to work out why.

One year, Labor treasurer John Kerin abandoned the lock-up and simply handed them out before he delivered his speech. The world still turned. Earlier, journalist Laurie Oakes got hold of the entire budget speech and read it to Channel Ten cameras. Again, the world turned.

We're told the reason for the secrecy is because the budget contains "market-sensitive" information. If anyone knew what was in it before anyone else they could make a killing on financial markets, or buying up beer before it was more heavily taxed.

But these days most of the budget measures are known in advance. The few surprises that remain are held back for theatre, not to protect the market.

The budget has become more of a US-style State of the Union address than a statement of accounts. Although it is delivered by the Treasurer rather than the Prime Minister, its primary purpose is to outline the government's program for the year ahead, which makes this year's pre-election budget not that unusual.

It is true that this year the parliament won't have much time to consider the budget before it is dissolved, but the budget bills are in need of less consideration than is widely believed.

The constitution says they only cover spending, not revenue. The existing arrangements for collecting revenue continue whether or not there's a budget and whether or not it is passed. If the Senate had knocked back prime minister Gough Whitlam's budget in 1975, as it was about to, the government would have still collected revenue, it just wouldn't have been able to spend it.

Actually it would have still been able to spend a good deal of it. Budget bills are only required for spending for the "ordinary annual services of the government". Other spending, in fact most of it, is on payments to the states and grants. Medicare refunds, pensions, grants to the states and the like are authorised by separate so-called standing appropriations which continue whether or not the budget bills are passed.

Decisions about whether to pass the core budget bills are little more than decisions about whether or not to re-authorise the payment of public servants, which is why they are almost always made swiftly.

The most important things about the budget, apart from the razzmatazz and the setting out of priorities, are the forecasts. And they've only become important since the late 1980s.

Before then the budget papers (rather inexpertly) forecast spending and revenue for just one year ahead. The Hawke government's first finance minister John Dawkins drove a change to four years. Now no one would think of looking at a budget measure without knowing what it would do to the "forward estimates" - the four financial years from budget night.

So accepted have the forward estimates become that these days the impact of budget measures is usually quoted over four years rather than one, often without acknowledgment. So if you're told on budget night that a measure will cost $4 billion, it might mean $4 billion per year, or it might mean $1 billion per year. It's wise to check. Treasurers aren't above choosing the time frame to quote in order to make what they are proposing seem either big or small.

It's a less than perfect process. Journalists are locked up with the papers for less time than the Treasury officers who sleep with them downstairs. But it is the only important annual platform we've got for examining the government's plans. Other nations have far less. The British budget deals only with revenue. The US budget process is a mess.

We should be grateful for the opportunity we are about to be given on May 3. We should make the most of it.

In The Age and Sydney Morning Herald

Thursday, April 21, 2016

We need more tax but don't expect Morrison to tell you so

Never before has a budget advertisement been prepared ahead of the budget itself. In fact, rarely before has a budget needed an advertisement.

The leaked script read on Sky News is a bit like something for Seinfeld in that it is a script about nothing. All previous budget advertising campaigns have been about something specific, such as small-business tax breaks.

The government has worked up the ads early because it will have only days to air them before the election is called. After that date, they would be, arguably, illegal. 

They will help the government get its lines straight, however. The government minister who said the Coalition had cut Labor's debt probably needs to know that by doing little to cut the deficit, it has allowed debt to balloon. The minister who said Labor's negative gearing policy would push up house prices probably needs to know that the official line is it would push them down.

The ads will help differentiate the Coalition from Labor. Notwithstanding what's expected to be a blatant attempt to pinch Labor's policy of tightening up on superannuation tax concessions, the Coalition will paint itself as the party that's holding the line against higher taxes.

"When you hear someone say we have a revenue problem, what they are saying is that Australians should be taxed more, that the tax burden on the Australian economy must be increased," Treasurer Scott Morrison says. "Bill Shorten and Chris Bowen agree – that is why they are proposing, even boasting, that they will increase the tax burden on the Australian economy by over $100 billion over the next 10 years."

Morrison is right about Labor and wrong about what's needed. We need more tax. Only the dishonest, the ideologues and the self-deluded would say any different.

Under Tony Abbott's and Malcolm Turnbull's watch, net government debt has grown from $202 billion to $279 billion and over the next three years will head for $347 billion. That needn't be a problem, so long as there is a way to stop it growing.

The annual interest payments on the debt, once zero, have climbed to $11 billion. They are already more than the government shells out on higher education each year and almost half what it spends on defence. Unless payments are pulled back, the government will have less and less room to govern.

The government's Commission of Audit searched for politically palatable ways to cut spending in order to wind back debt and came up short. The credit rating agency Moody's has just done the same thing. Without measures to address revenue, "limited spending cuts are unlikely to meaningfully advance the government's aim of balanced finances by the fiscal year ending June 2021 and government debt will likely continue to climb," Moody's said.

The ultra-establishment Committee for the Economic Development of Australia examined all the options last month and reached the same conclusion. The best way to attack the deficit would be to garner about $16 billion a year from higher taxes, and only $2 billion from cutting spending.

Most of the higher taxes wouldn't have to be particularly painful. High-income super contributions and capital gains would be more fully taxed, the business fuel tax credit scheme would be halved, luxury cars and alcohol and tobacco would be taxed more heavily, and the Private Health Insurance Rebate would be subject to tax.

Included on the committee were two former heads of the Department of Prime Minister and Cabinet and one former Cabinet Secretary. Between them, they have served prime ministers Howard, Gillard, Abbott and Turnbull.

John Daley of the Grattan Institute reaches the same conclusion. He says the government doesn't spend enough on administration to enable cuts to spending on itself to make big savings. For instance, the entire department of health costs $1 billion to run. It is true that it doesn't run state hospitals but it does administer Medicare, so the spending on its staff and computer systems can't be cut to zero. Cuts could be made in grants to states and in payments to individuals such as the pension, but they are the kinds of things we expect the government to provide, leaving the only realistic option to raise more tax.

Last week an open letter from 50 prominent Australians made the same point. It declared that by developed world standards, Australia was a low-tax country. "To have world-class health, education and transport services, we need to collect the revenue to fund them," it said.

Morrison is planning to turn his back on reality on Tuesday week. He'll be assisted by an arguably temporary increase in the price of iron ore, which will boost the budget's revenue forecasts; a fall in the unemployment rate, which will enable the budget to forecast higher income tax revenue than it would have; and a healthy dividend from the Reserve Bank, which has been raking in money as the falling dollar has revalued its foreign currency reserves. None of it will fix the revenue problem long term, but it will enable Morrison to paint himself as the champion of relatively lower taxes.

Down the track, someone is going to have to do the hard work and put taxes up.

In The Age and Sydney Morning Herald

Sunday, April 03, 2016

Hockey is wrong. It's time to tax soft drinks

The last civil exchange I had with Joe Hockey on Twitter was about soft drinks.

I had noticed that Mexico had just imposed a special tax on sugared drinks and asked the newly installed treasurer whether he would think of introducing one here.

He replied: "Why is your default more tax or more regulations to 'control' individual behaviour? How about the idea of personal responsibility?"

Two years earlier, he had had four-fifths of his stomach removed because he had been unable to control what he ate.

Personal responsibility is easy to speak about, hard to practise.

Sugar is one of the reasons.

It's not only turned into fat, but by manipulating the hormones insulin and leptin, it can turn off the feeling of being full. Dissolved sugar, in the form of soft drinks is far more damaging than sugar that's locked away in the fibres of fruit. It's instantly absorbed, and almost instantly makes us hungry again, dulling the receptors for the hormones that make us feel full.

One of the worst myths ever promoted by an industry association is that all we need is self-control. It's just a matter of counting calories. "All kilojoules matter, it doesn't matter where those kilojoules come from," is how the Beverages Council puts it. But some of those kilojoules drive hunger itself, making the very idea of self-control an exquisitely cruel joke.

Which is why Mexico taxed soft drinks. The investment bank Credit Suisse describes what's coming as sugar's "tobacco moment".

It says in the US the healthcare costs linked to type 2 diabetes amount to $US140 billion. The costs linked to tobacco are $US90 billion.

"If the sole objective is to reduce the consumption of full-calorie soft drinks, one does not need to reinvent the wheel," it says. "Tobacco and alcohol provide relevant test cases, and unequivocally show that, in both cases, taxation has been able to affect consumption on the downside."

Now Britain is following Mexico, treading where Hockey wouldn't.

Its treasurer, George Osborne, is part of a Conservative government that instinctively shares Hockey's reluctance to tax and regulate. Yet in his March 18 budget speech he overcame that reluctance to do what he could to turn the tide of obesity.

"You cannot have a long-term plan for the country unless you have a long-term plan for our children's healthcare," he told Parliament. "Experts predict that within a generation over half of all boys, and 70 per cent of girls, could be overweight or obese.

"I am not prepared to look back at my time here in this Parliament, doing this job and say to my children's generation: 'I'm sorry, we knew there was a problem with sugared drinks, we knew it caused disease, but we ducked the difficult decisions and we did nothing'."

From 2018 he'll tax sugared soft drinks at two rates: a high rate for drinks with more than 8 grams of sugar per 100ml, and a low rate for drinks with between 5 grams and 8 grams. Drinks with less than 5 grams won't face the tax.

He is delaying the start until 2018 to give the manufacturers time to reformulate their products. Some, such as Schweppes lemonade, are already below 5 grams and won't face the tax. Others, such as Sprite, are above it, but could be brought down to avoid the tax. Lucozade is just above 8 and could be brought below it to escape the highest tax. Pepsi and Red Bull contain an astounding 11 grams and will be harder to reformulate. But the manufacturers are likely to do what they can.

Should the tax be passed on to consumers? In Mexico sales of sugared soft drinks slid 6 per cent within a year. The UK Behavioural Insights team, Britain's "nudge unit", says just as important will be the signalling effect of the tax, the message it sends that sugared drinks are bad for your health and that there are alternatives.

There's every reason to believe it would work here. When Australia taxed unleaded petrol at a different rate to super, consumers switched. When we taxed carbon emissions, electricity providers switched. Prime Minister Turnbull gets it. "If you want people to do less of something, put up the tax on it," he is forever saying, usually in relation to something Labor is planning.

There's a chance we'll follow Britain, just as it might follow us on tobacco plain packaging. There's a chance we'll serve our children well.

In The Age and Sydney Morning Herald

Friday, April 01, 2016

Melbourne Institute: The uber-rich are earning more, and more

The top 1 per cent of Australian earners amassed an extraordinary 9 per cent of Australian income in 2013, the highest proportion since the 1950s.

As recently as the early 1980s the top 1 per cent took in just 4.4 per cent.

An analysis of the latest tax statistics to be published by the Melbourne Institute shows the top 0.1 per cent - a mere 18,750 people - took in 2.7 per cent, also the highest take since the 1950s.

The starting income for the top 1 per cent was $237,300. On average each earned $438,100.

The entry income for a member of the top 0.1 per cent was $608,700. On average each earned $1.3 million.

The figures are the incomes reported to the Tax Office, leaving open the possibility that actual incomes might be higher. They are gross figures, before tax and deductions, and adjusted to take account of the people who do not file tax returns.

The national average for all Australians aged 15 and older was $48,800.

The highest earners are different from the rest of us. They get big chunks of their income from sources other than wages, salaries and benefits.

In 2013 the top 10 per cent earned about one quarter of their income from other sources, including shares. The top 1 per cent earned almost half from other sources and the top 0.1 per cent earned more than two thirds of their income from other sources.

The figures show a rapid growth in the proportion of their income high earners are getting from other sources. Ten years earlier the top 10 per cent obtained only one fifth of its income from non-wage sources, the top 1 per cent only 40 per cent, and the top 0.1 per cent, 60 per cent.

But Melbourne Institute professorial research fellow Roger Wilkins says much of the very recent growth in high earnings has been due to salaries.

"The top 1 per cent are more likely to be in the global labour market," he says. "Technological change is making highly skilled workers increasingly valuable."

"Also, in the years to 2013 they had benefited from repeated tax cuts. Although these are pre-tax incomes, there's evidence to suggest that cuts in tax also boost reported before-tax incomes. One reason is that people find creative ways to hide or lower their income. There's less point in trying when rates are lower, so we might be getting a more accurate reading."

"And it takes effort to secure wage increases. The higher the tax rate, the less worthwhile it becomes because you keep less of what you bargained for. Lower rates make wage increases more worthwhile."

Asked whether it mattered that high income Australians were getting larger and larger shares of national income, Professor Wilkins said that depended on why their incomes were climbing. If if was because they were being entrepreneurial and working harder their higher incomes would be boosting the economy, but if it was because they were seeking favours it would be harming it.

"Look at the people in the BRW Rich 200 list. A fair proportion of them are in property and mining. These are not entrepreneurial areas. These are areas where what matters most is the ability to deal with government and get monopoly rights over mining and property developments."

"To the extent that the growing income of high earners is driven by developments like that, things like the College of Surgeons controlling entry into their profession so it can charge high prices, to the extent it is driven by that, and to some extent it is, it is unambiguously bad. It's not fuelling broader economic growth or income growth."

In The Age and Sydney Morning Herald