Thursday, June 30, 2016

Pensioners and unemployed pay for election giveaways

Elections are where we get given things, right?

That's true, for the voters who matter. The rest are treated appallingly. A spreadsheet of Coalition promises maintained by Fairfax Media includes picnic tables, boardwalks, fire trails, skate parks, car parks, netball courts, tennis courts, disabled toilets and lighting for sports ovals.

None are even remotely the responsibility of the Commonwealth, and at any other time the Turnbull government and his ministers would rightly handball responsibility for them to the states, along with schools. But they are in electorates they need to hold. I am told they have set an unofficial limit of $20 million per electorate they believe is in play. It's bribery done cheaply.

Out of sight, they're funding those promises by taking money from people whose votes matter less.

The Newstart unemployment benefit hasn't changed since its inception. Indexed in line with prices rather than wages, it's just $264 a week ($13,700 a year), which is way below the pension at $397 per week. Except for once. On March 20, 2013, under the Gillard government, Newstart recipients got a bonus, an extra $4.20 per week added permanently to their benefit in the form of a clean energy supplement. It was made up of what the carbon tax would do to the cost of living (0.7 per cent) plus an extra 1 per cent.

It stayed when the carbon tax went, leaving Newstart recipients for the first time slightly better off. Wage earners got their own compensation in the form of income tax cuts, which they also kept, something Treasurer Scott Morrison was keen to remind us in the aftermath of this year's budget, telling the press club: "When you get rid of a carbon tax and then you keep the tax relief, that turns from being compensation to a tax cut".

Yet quietly, in the same budget, he removed the clean energy supplement. From September while wage earners keep their tax cut, and existing Newstart recipients keep their Clean Energy Supplement, new recipients will lose it. Morrison is taking away the only proper pay rise they had ever had.

But it's worse than that. Because of the way the clean energy supplement was introduced, removing it will actually leave them worse off. When it came in, their base payment was boosted by 0.7 per cent less than it should have been, because 0.7 per cent of the increase was due to the carbon tax. Then they were given the supplement of 1.7 per cent. Removing the supplement will leave incoming Newstart recipients worse off than if the whole thing had never happened. A calculation by a former department of social security analyst provided to the Australian National University suggests they will be $3.60 per week worse off. Morrison has not only taken away a benefit, he's also given Australia's most desperate citizens a pay cut.

The budget says removing the supplement will save $1.4 billion over five years, which is a fair chunk of the $2.3 billion Morrison and Prime Minister Malcolm Turnbull plan to spend on picnic tables, boardwalks and the like. Australia's least well-off are funding giveaways in marginal, predominantly Coalition, electorates. As are pensioners. The income test for the pension works though something called the deeming rate. Instead of finding out what pensioners' bank deposits and investments actually earn, the government "deems" the rate of interest they earn and then uses the deemed income to restrict access to the pension. The lower the deeming rate, the more access part-pensioners get.

Last March after the Reserve Bank cut its cash rate, the government cut the deeming rate for small investments from 2 to 1.75 per cent and for big investments from 3.5 to 3.25 per cent. "More than 770,000 Australian part-pensioners and allowance recipients will be given a $200 million boost to their payments," the then social services minister crowed. "The current generation of aged pensioners had a deal with the government over their lifetime that if they worked hard there would be an aged pension at the other end. This government is keeping that deal and seeking to make the aged pension sustainable for future generations who will need it." The Social Services Minister was Morrison.

The Reserve Bank has cut its cash rate two more times since then and the private banks have followed. But neither Morrison as Treasurer nor his successor as Social Services Minister have cut the deeming rate. The Commonwealth Bank's pensioner security account is now offering just 0.25 on the first $2000 and 1.25 per cent beyond that. After $48,600 it's offering 2.5 per cent where the deeming rate is 3.25 per cent. Pensioners who bank with the Commonwealth or any of the other major banks are losing income because the government is delaying adjusting the deeming rate in accordance with reality.

They've something in common with the unemployed: they are not particularly visible and they are not good at complaining, which makes them good victims. Along with welfare recipients who'll face greater checks to see they haven't been overpaid, they're helping to bring the deficit down so the rest of us don't have to.

In The Age and Sydney Morning Herald

Company tax cuts built on uncertain foundations

Claims of a boost to living standards from the government's planned company tax cuts rest largely on a dramatic reduction in tax avoidance, a new analysis shows.

Modelling by Canberra economist Chris Murphy for the federal Treasury finds the tax cuts would boost long-run living standards by around $5.2 billion per year, or half of one per cent.

But the bulk of the increase, $3.9 billion, would come from reduced profit-shifting.

The $3.9 billion figure is large compared with estimates of total profit-shifting. In June, an estimate by the charity Oxfam put the total tax Australia lost to profit-shifting in 2014 at between $5 billion and $6 billion. The estimates aren't directly comparable because the $3.9 billion includes the cost of setting up in a tax haven as well as the amount lost to the tax office.

"The $3.9 billion estimate is important because it means most of the benefits from cutting company tax wouldn't come from jobs and growth," said Victoria University economic modeller Janine Dixon. "They would come from the changed use of tax jurisdictions."

"And while the economics of how investment and wages respond to a tax rates is fairly clear, the economics of how tax avoidance responds is more speculative."

Mr Murphy assumed that for every one dollar the company tax rate fell, the cost to the economy from profit shifting would fall 73 cents. He based the assumption on studies of profit-shifting in the European Union.

Dr Dixon said while the European studies might be the best available, that didn't mean they would necessarily apply to Australia.

Without the $3.9 billion gain from reduced profit-shifting, the company tax cuts would boost national income by just $1.3 billion, a barely perceptible gain of 0.1 per cent.

The estimate of a $5.2 billion gain to national income assumed the company tax cut was funded by a lump-sum tax on households. If it was instead funded by bracket creep, living standards would increase by only $4.5 billion, just $0.6 billion more than the cut in profit-shifting. If it was funded by a cut in government spending the boost would be $8.7 billion. But a Treasury paper released with Mr Murphy's paper warned such a cut would not be easy.

Mr Murphy said the main benefit of the company cuts would be that they were self-funding, "to a much greater degree than cuts to other major taxes such as personal income tax or GST".

In The Age and Sydney Morning Herald

Saturday, June 25, 2016

2016-17 Economic Survey. Low rates, weak economy ahead

It'll be a year of weaker growth and not enough jobs.

The mid-year Scope BusinessDay economic survey predicts economic growth of just 2.6 per cent in 2016-17, down from the 3.1 trumpeted by the Prime Minister in the election campaign.

The iron ore price should slide from $US60 a tonne at the time of the last budget to $US48. Non-mining business investment, which was budgeted to grow quickly, should scarcely grow at all.

Nominal GDP – the measure that drives tax revenue – would grow far more weakly than forecast, and living standards will slide for the third consecutive year.

The Reserve Bank will most probably cut its cash rate one more time. Four of the 23-person panel expect at least two cuts and two an increase.

The Scope BusinessDay economic survey is Australia's longest running. For the past 30 years it has aggregated the views of financial market economists, academics and industry economists to produce a window into the year ahead and a record against which their predictions can be judged.

Over time its forecasts have proved to be more accurate than those of any of its individual members.

Australia's health

Australian investors need to look beyond their borders.

The official 3.1 per cent economic growth rate embraced by Malcolm Turnbull with the words "so far, so good" won't continue.

Only two of the panel expect that much growth in the coming financial year, and none expect more. Most expect much lower growth close to the budget forecast of 2.5 per cent.

Three expect just 2 or 1 per cent.

On balance the panel expects no lift in growth in either the US, China or the world as measured by the International Monetary Fund.

Around the world

Republican presidential candidate Donald Trump giving a speech. But does language even matter.

After Brexit, it sees a Trump presidency as the biggest downside risk.

"A Trump victory would be contractionary for global growth in the short term due to uncertainty," says former BusinessDay forecaster of the year Stephen Anthony. "It should then be broadly neutral as policy gridlock ensues."

BT Financial Group chief economist Chris Caton has two words: "God forbid!"

"We can only hope that he is not as mad as he seems, and that he will be restrained by Congress," he adds.

"In that case, the market impact will be large but temporary and the economic impact will be slight."

Saul Eslake fears US bond holders will "take fright" pushing up US rates, weakening the US economy and the dollar, and putting unwelcome upward pressure on Australia's dollar.

Global uncertainty has already pushed Australia's 10-year bond rate to a record low of 2 per cent. On balance the panel expects no further falls, and a lift to a still-low 2.4 per cent.

Sensitivity analysis included in the budget suggests a slide in the iron ore price to $US48 a tonne would cut more than $4 billion from government revenue in the first year. But the central forecast conceals a wide range.

David Bassanese and Bill Mitchell expect the price to slide to as little as $US35 a tonne. Mardi Dungey and Chris Caton expect a rebound to $US60 a tonne. Stephen Koukoulas expects $US70 and Neville Norman expects $US78.

On balance the panel expects Australia's terms of trade to slip a further 1.6 per cent.


Premier Colin Barnett says there is no need to panic despite damning report.

Business investment should continue to slide. Mining investment is forecast to plummet a further 24 per cent after sliding 27 per cent in 2015-16 and 17 per cent in 2014-15.

That's in line with the budget forecast. But whereas the budget expects other non-mining investment to bounce back, climbing 3.5 per cent, on balance the panel expects next to no improvement, although its range of forecasts is wide, from a fall of 4.5 per cent to an increase of 5 per cent.

Julie Toth, of the Australian Industry Group, whose members would need to make the investments, predicts a fall of 2.5 per cent.

The panel expects nominal GDP to grow by just 3 per cent, well short of the 4.25 per cent on which the official budget deficit forecast depends.

One forecaster, Steve Keen, expects nominal GDP to fall. Three, Guay Lim, Richard Yetsenga and Janine Dixon, expect faster growth than does the budget, of 4.5 to 4.9 per cent.

The budget papers predict an improvement in the deficit from $39.9 billion in 2015-16 to $37.1 billion in 2016-17. The panel doesn't believe it. Its median forecast is for a deficit of $40 billion in both years. (The average forecast has been pushed higher by one extraordinary forecast of $70 billion, made on the grounds that the government will have to fight off a recession.)

Real net national disposable income per capita, regarded by the Bureau of Statistics as the best measure of Australian living standards, has been falling for nine consecutive quarters.

The panel expects it to slide for yet another year, slipping a further 1.7 per cent to be down 5.6 per cent since December 2013 and 8 per cent since the peak of the mining boom in September 2011.

Only two of the panel expect it to get worse. Fourteen expect it to sink.


House price growth is expected to slow.

The panel expects household spending to climb 2.6 per cent in line with budget forecasts as saving rates are wound back.

Housing investment should climb just 2.9 per cent in 2016-17 after climbing 8 per cent in 2015-16.

Sydney and Melbourne home prices should climb much more sedately than in the past year at 3.6 and 4.2 per cent.

The panellist who ought to know the most about home prices, Shane Garrett of the Housing Industry Association, predicts 6.3 and 6.9 per cent.

Economic modeller Mardi Dungey, of the University of Tasmania, expects the highest price growth, a further 12 per cent in each city.

The "Doctor Doom" of house prices, Steve Keen is predicting falls of 2 and 4 per cent, but he is not alone. Stephen Koukoulas expects falls in both cities, Jakob Madsen expects a fall in Sydney and David Bassanese in Melbourne.

Inflation should climb up from its present extraordinary low of 1.3 per cent to 1.9 per cent, which is just below the bottom of the Reserve Bank's target band, but it'll probably take another cut in the Reserve Bank cash rate to do it.

Most of the panel expect a cut from 1.75 to 1.5 per cent by December. One (Saul Eslake) expects it to be reversed in the first half of next year.

Five expect deeper cuts; Shane Oliver, Michael Blythe and Tom Skladzien to 1.25 per cent and Stephen Anthony and Steve Keen to 1 per cent. Two, Mardi Dungey and Neville Norman expect the RBA Bank to aggressively push up the cash rate, to 2.5 per cent and 3.25 per cent.


The ASX looks to hit 6000 before 2017.

Forecasts for the Australian dollar follow those for the cash rate. Stephen Koukoulas expects the dollar to climb to US79 cents by December and to US83 cents by the middle of next year.

He thinks the Reserve Bank won't need to move at all during that time as the US consolidates its economic recovery, China stabilises and Europe starts to pull ahead.

It would be good news for the S&P/ASX200 share index, which he sees hitting 6000 by the end of this calendar year and 6260 by June.

"Locally, the dollar at US75 cents plus or minus 5 per cent is providing a bit of a fillip for exporters and import-competing industries," he says.

Toward the pessimistic end of the scale is trade union economist Tom Skladzien who sees the Aussie at US67 cents by June and the share index down to 5500.

"The Australian economy and, I'd argue, a lot of other economies are just cruising along, not being really boosted by anything and performing under capacity," he says.

The average forecasts for dollar and the S&P/ASX200 share index by June are US70 cents, a decline of 8 per cent, and 5605, an increase of 6 per cent.


Australia's jobless level has hovered at 5.7 per cent for the past three months.

The range of forecasts for the unemployment rate is unusually narrow, almost all near the present 5.7 per cent, where there would be just enough jobs created to absorb the new entrants to the labour force but no more.

Wage growth, although low at 2.3 per cent, would be comfortably ahead of inflation at 1.9 per cent.

In The Age and Sydney Morning Herald

Cut negative gearing, not company tax, economists say

If Australia's top economists were deciding the election, they'd vote for Labor's cuts to negative gearing and against the Coalition's cuts to company tax.

Of the 23 leading economists polled for the Scope BusinessDay Economic Survey, those that answered the questions about tax backed Labor's plan 10 to three and opposed the Coalition's plan 10 to six.

The key objection to the Coalition's company tax cuts was that they would have to be funded, most likely from bracket creep, higher taxes, or cuts to government spending. Estimates of the ongoing cost range from $9 billion to $13 billion per year.

"The money should come from reducing superannuation tax breaks, negative gearing tax breaks and other forms of upper class welfare," said BIS Shrapnel chief forecaster Richard Robinson.

"On balance, it is not a good idea. There are very little or dubious benefits for such a large outlay that could be better used to reduce the deficit. If higher investment is the aim, it's better to use targeted investment incentives, R&D tax breaks, and improved workforce skills via higher education spending."

Industry Super chief economist Stephen Anthony said much of the money should be found by paring back corporate welfare, but he said even if it was the tax system would become more heavily reliant on personal income tax which did "not sound efficiency improving".

Saul Eslake said evidence from the OECD showed the biggest bang for the buck came from cutting taxes for new rather than existing businesses, "which would be cheaper than a general company tax cut since there are by definition fewer new businesses."

A supporter of a cut, Monash University researcher Jakob Madsen, said it should not apply to mining companies, builders or property developers and banks because they would "just pocket the extra profit without creating jobs".

The results echo those of a survey conducted by the Economic Society of Australia this week which found that Australia would receive a bigger long run benefit from spending on education than spending the same amount cutting company tax.

Supporters of Labor's plan to wind back negative gearing and capital gains tax concessions generally agreed with the proposition that they would result in lower house prices than otherwise, but said that was a good thing.

"Halving the capital gains discount on housing investment returns is overdue and has arguably been one of the worst policies enacted under Howard-Costello," said BIS Shrapnel's Richard Robinson.

In The Age and Sydney Morning Herald

Scope BusinessDay Economic Survey: How they got 2015-16 wrong

There's an awful lot our panel got wrong about 2015-16.

Like the Treasury, it expected creditable growth in nominal GDP of 3.5 per cent, enough to lift profits and company tax and eat into the deficit.

Instead it languished at 2.5 per cent, less than even the most dire of the panel's pessimists predicted.

Like the Treasury, the panel hadn't expected the iron ore price to fall as far as it did. It predicted a ASX200 share index of around 5800. Instead it'll be closer to 5200.

Australia looks like collecting less company tax in 2015-16 than in any year since 2010-11.

While right about mining investment (the panel expected a slide of 25 per cent) like Treasury it expected a bounce in non-mining investment. Instead non-mining investment slid a further 2 per cent.

This year Treasury has pushed out its forecast of a recovery by another financial year. Our panel hasn't. It's expecting next to no growth in the next 12 months, having learnt from history.

Like just about everyone, it got inflation spectacularly wrong. Its average forecast for underlying inflation was 2.5 per cent, right in the middle of the Reserve Bank's target band.

Instead the underlying rate slid to 1.55 per cent and the headline rate to 1.3 per cent. Although still far too high, Neville Norman came closest, expecting 2.1 and 1.8 per cent.

But he was wrong about other things, expecting far too high nominal GDP growth, just as Steve Keen who was right about non-mining investment expected far too high inflation.

This year there's no award for the best forecaster. None of our panel emerged looking good.

The 10-year bond rate looks like ending the financial year below 2 per cent, an all-time low. Our panel had expected it to climb rather than fall.

This year there’s no award for the best forecaster. None of our panel emerged looking good.

The UK bond rate is close to 1 per cent and the German rate is less than zero.

It was also more or less right on the Reserve Bank cash rate, on balance expecting no change, which is how it would have turned out had the board not sneaked in a half-hearted cut on budget day.

On some measures it was too pessimistic. Only Stephen Koukoulas picked a headline GDP growth rate of more that 3 per cent.

Most of the forecasts has a "2" in front of them and some had a "1". It was also far too pessimistic on jobs. Most of the panel expected the unemployment rate to climb rather than fall.

Only Renee Fry-McKibbin and Shane Garrett picked something close to 5.7 per cent.

The contours of the panel's mistakes tell us much about the way the economy surprised us all in 2015-16. It was better on the surface, worse underneath.

In The Age and Sydney Morning Herald


Thursday, June 23, 2016

Who's Medicare's friend? Examine bulk-billing

The key to examining whether one side or the other wants to destroy Medicare is the baked-in feature that makes it work: bulk-billing.

It's far more clever than is widely realised, far more than a convenience.

Gough Whitlam and his social security minister, Bill Hayden, faced a problem in the mid-1970s when they swept away the confusing dog's breakfast of schemes that left some people unable to afford visits to the doctor. If they simply paid doctors on behalf of their patients, the doctors would take the money and charge more on top, right up to what the market could bear, which is probably what they were charging in the first place. It's what happens these days with childcare rebates, with subsidies to farmers to cover the cost of fodder in droughts and with first-home buyer grants. The alternative of forbidding doctors to charge more than they were offered would have been attacked as socialised medicine and might have been unconstitutional.

So they came up with an ingenious scheme to encourage doctors to charge no more. Those who chose to accept just 85 per cent of the scheduled fee would get a Rolls-Royce payments service. In return for sacrificing 15 per cent of their reasonable fee and the right to add more on top, they would be paid automatically and wouldn't need to hassle their patients. They wouldn't even need tills. If they wanted more, all of the convenience would be withdrawn. They would have to present their patients with bills setting out the full horror of what they were charged. In those days, before the widespread adoption of credit cards, the patients would have to pay by cash or cheques. And they would have to claim the rebate themselves, quite possibly travelling into town to do it. Doctors who chose this route would be disadvantaged. Over time they would lose customers to those who bulk-billed.

The Coalition twice knocked it back in the Senate, forcing Whitlam to call a double dissolution. When the newly re-elected Senate rejected it again he called Australia's first joint sitting of both houses of parliament to ram it through, fending off a High Court challenge from the Coalition in the process. (Malcolm Turnbull has threatened a second joint sitting later this year, in order to get his Building and Construction Commission legislation through).

The full scheme had been operating for only a month when Whitlam lost his job. While campaigning, the Coalition's Malcolm Fraser promised to maintain it, but in office wound it back. The authors of the best account of what happened, Making Medicare, Anne-Marie Boxall and James Gillespie say "even at the time it was difficult for people to understand the Fraser government's changes".

He abolished bulk-billing for everyone but pensioners and the disadvantaged, made private health insurance compulsory on pain of a tax levy, then made it voluntary, then abolished Labor's scheme altogether.

Bob Hawke won office in 1983 partly on a promise to restore it and his legislation sailed through with scarcely any Coalition opposition. The proportion of services bulk-billed climbed each year as it was designed to, growing from 44 per cent to 76 per cent as (at least in the big cities) surgery after surgery stopped charging in order to remain competitive.

After winning office promising to maintain Medicare, although as a "safety net", John Howard used his first budget to freeze doctors rebates so that they no longer climbed with inflation. At first slowly, and then quickly, they bailed. The bulk-billing rate slid to 72 per cent.

Then, chastened by a 2004 election campaign fought largely over bulk-billing, he switched course. Reversing the decline he had helped start became an absolute priority. Flush with money from the mining boom, his health minister Tony Abbott bought an increase. He boosted the rebate to 100 per cent of the scheduled fee and threw in an extra payment of $2.50 for each bulk-billed concession card holder. It worked. The Coalition left office with the bulk-billing rate approaching 80 per cent.

But its heart might not have been in it. In its final year, as a convenience to patients, it allowed doctors to install Medicare Easyclaim terminals. Patients could pay and claim with a swipe of a card. The built-in inconvenience – a central design feature – had been broken.

And then, on the way out, Labor did what Howard did on the way in. It froze doctors' rebates, initially for a year. The Abbott and Turnbull governments extended the freeze, and then extended it again. It won't come off until 2020, by which time the incomes of doctors who bulk-bill will have fallen 15 per cent compared to other incomes. For now, bulk-billing numbers are at a record high. No one wants to be the first in their street to leave. But as the squeeze bites they'll be forced to ditch bulk-billing, at first in a trickle and then in a flood. It's happened before.

Who's the best friend Medicare ever had? You can look at what they say or look at what they've done. History suggests that, with one important exception, it hasn't been the Coalition.

In The Age and Sydney Morning Herald

Sunday, June 19, 2016

Live exports, offshore detention: the lie that diminishes us all

Who are we? We tell ourselves we are compassionate. We've rules for determining how long anyone can be in prison, rules prohibiting cruelty to animals. We even begin parliamentary sittings with the Lord's Prayer: "Forgive us our trespasses ... deliver us from evil".

Yet we send people and animals to torture and death overseas with scarcely a second thought.

On Thursday the ABC's 7.30 showed shocking footage of Australian cattle being bludgeoned to death with sledgehammers. Animals Australia says the lucky ones die immediately. The unlucky remain conscious, in pain and terror, bellowing as they are hit again and again.

It's one of the ways cattle are killed in Vietnam, and we've known about it for years.

Just last year, after earlier secretly recorded vision emerged, our live exporters said their talks with the Vietnamese had given them "a sense that changes would be made".

In 2011, truly shocking footage of Australian animals being tortured forced Labor to ban the export of live cattle to Indonesia. So big had been the public outcry that Centrelink staffed the department's phones.

"I truly do wonder how you sleep at night," said one letter to the minister. "I grew up on sheep and cattle stations and was killing my own meat the age of 14, but I have no stomach for the collection of various tortures I have witnessed inflicted upon the species bred by us, to sustain us."

A few months later "tough new regulations" were put in place and the ban lifted. A year later it happened again, this time in Pakistan, then a year later in Egypt, then Israel. Each time it was never going to happen again, and each time we only knew about it because of a leak to an outlet like Four Corners.

There's talk of making it an offence to film the treatment of Australian animals overseas, just as it is now an offence for health workers to report what they've witnessed happening to human beings on Manus Island and Nauru.

The link is that if these things are happening offshore (even to those for whom we have responsibility) we can kid ourselves we are true to our values at home, all the more so if the details are kept from us.

It's why the United States tortures its captives offshore, in secret locations.

Except that it doesn't work. Cognitive dissonance is a technical term for the mental stress we experience when we know that we are doing something wrong.

Showing around Australia right now is Chasing Asylum, a movie made using hidden cameras in our offshore detention centres. For me the most chilling part is the interview with the former prison officer who says the people he locked up in Australia weren't that badly off. They knew when they would be released.

Neither of our main political parties wants to stop shipping people and animals overseas. But the Greens and others do. We are able to make choices in the fortnight ahead, or we are able to turn our backs and tell ourselves it isn't happening here.

In The Age and Sydney Morning Herald

Sunday, June 05, 2016

The real drug problem that could cause a catastrophe

Count yourself lucky if you are laid low this winter. You probably won't die.

But not long ago you could have. Back in the 1930s before the widespread introduction of penicillin, infectious diseases were responsible for 5600 of Australia's 62,000 annual deaths. These days they bring about just 2600 of 148,000 deaths.

Nothing has improved health and brought down the cost of staying alive as much as antibiotics. But they are losing their power. A decade ago only 1800 Australians died of infectious diseases, but the death rate is climbing and is back to where it was in the late 1960s. Last month the United States was presented with its first patient carrying a bacteria resistant to the drug of last resort, Colistin.

There are literally no backups left, and for financial reasons, there is nothing on the horizon.

Australia has had several cases of Carbapenem-resistant Enterobacteriaceae, some brought in from overseas, and some transferred from patient to patient in hospital. It kills up to 50 per cent of the people it touches. If it gets a bigger foothold and becomes commonplace, we'll enter what the experts call the "post-antibiotic era".



It's true that to a large extent we've done it to ourselves. Right at the beginning of the modern era, accepting the Nobel Prize for his work on penicillin, Alexander Fleming forecast "the time may come when penicillin can be bought by anyone in the shops".

"Then there is the danger that the ignorant man may easily underdose himself, and by exposing his microbes to non-lethal quantities of the drug make them resistant," he went on.

"Here is a hypothetical illustration. Mr X has a sore throat. He buys some penicillin and gives himself not enough to kill the streptococci, but enough to educate them to resist penicillin. He then infects his wife. Mrs X gets pneumonia and is treated with penicillin. As the streptococci are now resistant to penicillin the treatment fails. Mrs X dies. Who is primarily responsible for Mrs X's death? Why, Mr X whose negligent use of penicillin changed the nature of the microbe. Moral: If you use penicillin, use enough."

We haven't. We've often taken antibiotics only until we felt well. Then we've infected other people with the bugs that survived and no longer feared the antibiotic. And we've handed them out where they are not needed and dosed up pigs and chickens on overstocked farms in conditions that breed resistance. Carbapenem-resistant Enterobacteriaceae developed first in pigs before jumping to humans through raw pork.

As a business model, guaranteed obsolescence has worked well for the pharmaceutical industry. It has had to keep coming up with replacement drugs, each time getting new patents.

But what hasn't worked for it is the more important need to come up with a genuine antibiotic of last resort; something that is held in reserve and hardly ever used, because there's no incentive to make such a thing.

Patents typically last only 20 years. Even at an appropriately high price per unit sold, the manufacturer and developer of such a drug would be unlikely to get their money back. Tripling or quadrupling the patent term wouldn't much help.

Antibiotics aren't like other products, or other drugs. The less they are used, the bigger the pay-off. But our system of incentives encourages the reverse. It's in large measure an economic problem, with an economic solution.

The most promising is called "delinkage​". One its most influential proponents is Boston University law professor Kevin Outterson.

Under delinkage companies will no longer be paid according to sales. Instead they would be paid handsomely for developing drugs that weren't to be used. Promotion and free samples (usually the drug company's lifeblood) would be banned. Where the drugs were used, the drug companies would receive nothing other than the actual cost of producing them. Doctors might be given special payments ("bribes") tied to how little they prescribed them.

As an attempt to re-engineer a market it's on a par with carbon pricing, and about as important. Outterson says the long lead times involved mean we've got to act a decade before the need becomes urgent.

The UK government's review into antibiotic resistance has reached a similar conclusion. It believes that unless we act quickly, drug-resistant superbugs could kill as many as 10 million people per year by 2050, more than cancer kills now. Britain's prime minister David Cameron is talking to the group of seven leading industrial nations and to the G20 later this year. I'd like to hope we got on board.

In The Age and Sydney Morning Herald

Thursday, June 02, 2016

Copyright. Australia's leading authors are wrong

Australia's leading authors are wrong.

Richard Flanagan won the Man Booker Prize. Addressing last month's Book Industry Awards, he said the Turnbull government was considering cutting the copyright term, "so Mem Fox has no rights in Possum Magic, Stephanie Alexander has no rights in A Cook's Companion".

"This is a government that has no respect for us and no respect for what we do," he thundered. "If you care at all about books, don't vote Liberal."

Tom Keneally won the Booker for the painstaking research involved in Schindler's Ark. He told the ceremony the government was proposing "something neither the Brits nor Americans propose to do to their writers: to slice Australian authors' copyright to 15 to 25 years".

Magda Szubanski won book of the year and said she was thinking of leaving the country. Jackie French wrote an open letter on HarperCollins letterhead saying she had always assumed the royalties from her books would support her husband and herself in their old age.

None of these living national treasures appears to have read through the report about which they complained.

The draft Productivity Commission report on intellectual property includes just five recommendations on copyright, none of which would cut its length.

Australia can't cut its copyright term. It is bound by the treaties it has signed with the United States, Singapore and Korea, and will also be bound by the Trans-Pacific Partnership should it be ratified. It is true that the Productivity Commission would have very much liked to recommend a shorter copyright term, and said so. But it also said plainly that wasn't an option open to any government, Labor or Liberal.

What the commission does recommend, and what might be really behind the confused cries of our leading authors and the publishers who feed them lines, is an opening up of the market for books.

Most of us hate geoblocks, the annoying restrictions that prevent us from using in one country a DVD made for another, or force Australians to choose from a smaller or more expensive range of products when buying online.

The commission wants the government to state clearly that it is perfectly legal to attempt to circumvent geoblocking, and it wants it to avoid signing agreements that would make it illegal. And it goes further. It says the laws that prevent Australian booksellers from buying books from overseas suppliers are no more than "an analogue equivalent of geoblocking".

You and I can already buy books from overseas. Asked at a Sydney Writers Festival event last month how many present had bought from Amazon, almost everyone in the room put up their hands. Bookshops are able to buy from overseas too, as long as it's one book at a time. Attempts to buy in bulk – attempts to buy American books at American prices – are outlawed unless they are done through or with the permission of the Australian licence holders.

It's enforced through the Copyright Act, even though the restrictions on so-called parallel imports are nothing to do with copyright. The licence holders divide the world into zones which can't compete with each other, like they used to do with records and CDs. If the legal framework allowing them to do so was removed, booksellers such as Dymocks would be able to threaten to buy from overseas if the Australian price wasn't good enough. Deloitte Access Economics says if they could, as they can in New Zealand, Australian prices could be 10 per cent lower.

It's easy to see how the system we've got benefits Australian distributors and foreign authors, harder to see how it benefits our own.

One concern is that without substantial profits on foreign books the Australian distributors wouldn't be able to invest in local talent (an argument the Productivity Commission deals with by saying it would be cheaper and more certain to support Australian authors directly). Another is that Australian books are heavily discounted overseas. Some are in bargain bins. Their fear is that if Australians weren't overcharged relative to, say, Canadians, Australian books would never be published.

But websites such as Amazon are already eating away at that overcharging, and destroying bookshops in the process.

After seven reports recommending the free import of books the government said yes in November. It asked the Productivity Commission to advise on how to do it. The commission wants the restrictions gone by December 2017.

This isn't because the commission members are philistines or have a "perverted world view", as Flanagan puts it. The head of the inquiry, Karen Chester, says she comes from a family of hard-copy bookworms. For years she was among the biggest buyers of books at her local bookstore. She is on the side of consumers, and on the side of bookstores, believing that if they are able to compete on a level footing with websites they might just survive.

The worst outcome for consumers would that Labor backed Flanagan and Keneally and Szubanski and won the election. We'd keep paying much more for our books or drift away and move online.

The commission's report deals with much more than imports. Submissions close on Friday. Access to books is too important a question to leave to authors.

In The Age and Sydney Morning Herald