Monday, January 30, 2017

Australia's biggest tax break: you're sitting in it

The family home has eclipsed superannuation as Australia's biggest tax break, with new figures showing the capital gains tax exemption on family homes cost the budget a record $61.5 billion in 2016-17, well in excess of the $33 billion lost to superannuation tax concessions.

The $61 billion is made up of $27.5 billion the government believes it would have got if it taxed profits made on the sale of family homes at the present capital gains tax rate, plus an extra $34 billion it would have got if the capital gains tax rate were the same as the marginal tax rate instead of being discounted by 50 per cent.

Treasury's annual Tax Expenditures Statement, required as part of the charter of budget honesty and released quietly on Monday afternoon, identifies 25 tax breaks each costing more than $1 billion, which between them cost close to $150 billion.

If abolished, they would close the budget deficit four times over.

The statement was mandated to ensure that so-called tax expenditures received the same scrutiny as cash expenditures. The tax breaks on the family home cost the budget as much as the age pension and Pharmaceutical Benefits Scheme combined. Even after the recently leglislated cuts, the superannuation tax breaks cost the budget as much as defence and foreign aid combined.

Often, government programs are arbitrarily defined as either cash or tax expenditures. The $6.5 billion private health insurance rebate was originally classified as a tax expenditure before being reclassified as a cash expense. The $19.3 billion family tax benefit is classified as a cash expenditure despite its name.

Three of the 10 biggest tax expenditures relate to the goods and services tax. They are the exemptions for fresh food ($6.9 billion), for private education ($4.5 billion) and private health ($4 billion). The concessional GST treatment of financial services costs $3.4 billion.

Other personal tax concessions in the top 25 include the concessional treatment of redundancy payments ($2.6 billion) a tax exemption for family tax benefit payments ($2.2 billion) and the private health insurance rebate ($1.5 billion), a tax exemption for childcare support ($1.6 billion) and the tax deduction for gifts to charities ($1.3 billion).

The budgeted cut in the company tax rate for small businesses will cost $1.1 billion in 2016-17, climbing to $1.8 billion in 2019-20. Separate modelling prepared for the Treasury finds the proposed company tax cut for big businesses would cost $8.2 billion per year by the time the rate fell from 30 per cent to 25 per cent.


Australia's ten most expensive tax breaks

  • Main residence exemption from capital gains tax: $61.5 billion
  • Concessional taxation of superannuation earnings $16.9 billion
  • Concessional taxation of superannuation contributions $16.9 billion
  • Capital gains tax discount for individuals and trusts $9.6 billion
  • Goods and services tax exemption for fresh food $6.9 billion
  • Goods and services tax exemption for education $4.5 billion
  • Goods and services tax exemption for health services $4 billion
  • Goods and services tax financial services concession $3.9 billion
  • Concessional taxation of termination benefits $2.6 billion
  • Exemption from interest withholding tax on securities $2.3 billion

Source: 2016 Tax Expenditures Statement, Commonwealth Treasury, January 2017

In The Age and Sydney Morning Herald

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Friday, January 27, 2017

Exclusive: how the ATO was lent on to deliver high-end cuts

When Treasurer Scott Morrison rose in Parliament in May to deliver a budget speech promising high-end tax cuts "from July 1", he knew he faced a powerful obstacle.

Bundles of emails released to Fairfax Media under the Freedom of Information Act reveal he had been told in April that Tax Commissioner Chris Jordan was reluctant to agree to the request, believing that in normal circumstances pay-as-you-earn tax scales could only be adjusted after legislation, passed by both houses of Parliament.

Jordan, a former policeman who studied accounting at night and went on to work for both prime minister John Howard and treasurer Wayne Swan on tax matters, wanted to stick to the rules.

But Morrison and Prime Minister Malcolm Turnbull had run out of time. Parliament was due to finish sitting within days of the budget without time to legislate the change and it wouldn't resume until after the election, well into the new financial year.

Asked the morning after the budget whether the tax cuts would be delivered from July 1 as promised, Turnbull replied with more confidence than he might have felt, "that is exactly the goal". The cuts would be delivered "administratively".

Emails between the Tax Office and the Treasury ahead of the budget had all-but snuffed out that possibility, offering only a flicker of a hope that if the legislation was introduced into Parliament and supported by the opposition (the words "introduced" and "and" were underlined) a commissioner might be able to "turn their mind to the circumstances at the relevant time".

To this end, on April 21, a fortnight before the budget, the Treasury told the Tax Office that the Treasurer's Office "was confident that the proposed personal tax changes would secure passage", even though they hadn't yet been announced.

But the opposition gave no such assurance, and Commissioner Jordan's position hardened. In the pre-election budget update released as part of the Charter of Budget Honesty, he inserted a paragraph saying he required "the relevant legislation to be passed" before he would amend the schedule.

The Tax Office went further in an email to West Australian journalist Shane Wright, raising the possibility that even a change in the law mightn't be enough. "If" a change was legislated by the incoming government, the ATO would "consider" the administrative approaches available to implementing new rates. It normally adjusted scales only once each year, and the date had passed.

After the election and after the Coalition was returned without delivering the promised tax cut, the Treasury wrote to the Tax Office pleading for "more specificity", saying: "As you would appreciate, when people actually receive the benefit of the tax cut will be a key sensitivity."

The office backed down just a bit, saying that because it took several weeks for employers to adjust their computer systems to implement new scales, it was prepared to announce them before the legislation had passed, so long as it had been introduced and it was "clear that the measure has sufficient support in Parliament".

But it couldn't find evidence for that support. It scoured newspapers and press releases and determined that Greens were opposed, the position of the new senators was "unclear" and there was "no reliable source indicating Labor's position on this matter since the election".

Then, unintentionally, Labor supplied it. In a press release headed "SloMo on the income tax cuts" on September 1, two months after the promised cuts, Labor's Chris Bowen and Andrew Leigh berated the Treasurer for being unable to prevail over the Tax Commissioner.

It included the words: "Labor immediately gave bipartisan support to these income tax cuts". Morrison's office immediately forwarded it to the Tax Office and asked for it to approve the new schedule straight away. If it could "let us know if possible by 2pm question time that would be great".

Some in the Tax Office weren't convinced. "There is no explicit statement of support here," complained one official. But in the middle of question time on September 1, deputy commissioner Matthew Bambrick relented, writing that he was satisfied the legislation would pass and that he would issue the new schedules.

The tax cut, for Australians earning between $80,000 and $87,000 would be delivered on October 1. Employers would be given four weeks to update their software. The commissioner had been worn down.

In The Age and Sydney Morning Herald

Wednesday, January 25, 2017

Centrelink debacle much worse than thought

It has become the most widely cited figure in the Centrelink robo-debt debate: that 20 per cent of the debts identified by its data-matching machine are wrong.

But the figure itself is wrong. The true number of mistakes is almost certainly higher, perhaps as high as 90 per cent.

Twenty per cent has become the accepted truth in part because the figure is big - big enough for critics to use to condemn the data-matching program and big enough for Centrelink to use to fob off requests for the truth.

Even Malcolm Turnbull's disenchanted former digital transformation chief Paul Shelter embraced it.

"All I can say is, if they were a commercial company, you would go out of business with a 20 per cent failure rate, a known 20 per cent failure rate, you would go out of business," he told The Guardian this month.

Labor frontbencher Anthony Albanese backed him up, wrongly saying that "on the government's own figures, 20 per cent of people who've been sent debt letters, often accompanied by threats of debt collection agencies being involved, have been sent them on a false basis".

The 20 per cent isn't the proportion of debt letters sent out that are false. We won't know that for a long time, if ever. Some people have been paying up even when the debt letters are wrong, sometimes because they don't have the records to argue otherwise, sometimes because they trust the government, and sometimes because they can't be bothered dealing with Centrelink.

A Centrelink whistleblower alleges that, disgracefully, staff have been ordered not to use information in Centrelink's possession to correct false debt notices. Another says that of hundreds of debt notices reviewed, only a few dozen (at a "generous estimate") turned out to be correct.

Here is where the 20 per cent figure comes from. Between July and December, Centrelink's computer sent out 232,000 letters asking people to log on to a website to confirm or update their income history. Around 169,000 did so. (An email to Fairfax Media from the office of Human Services Minister Alan Tudge implies that none of the 63,000 who did not log on have been issued with debt notices. Their cases are "are still active and in progress or require further review".)

When the 169,000 logged on and ticked a box or corrected the income information, they were presented with an instant, on-screen estimate of money owed. Despite weeks of requests, the minister's office has been unable to tell Fairfax Media the proportion who were told they owed money. It's likely to be extremely high. The software can't account for income that is exempted from the Centrelink tests and it averages annual income to often falsely conclude that the averaged income is received in the weeks when the recipients are on sickness or other benefits, among other flaws.

But the online estimate isn't a debt notice. That is sent later, after a human assesses the machine's conclusions. A whistleblower says staff are instructed to only lightly assess those conclusions, letting most of them through.

Eighty per cent is the proportion of the 169,000 who are eventually sent letters with demands to pay. Twenty per cent is the proportion who are not. There's no reason to think the proportions who have been wrongly assessed by the computer and wrongly issued debt notices are not much, much higher.

Fairfax Media asked the minister's office three weeks ago for the proportion of computer debt assessments that those who logged on objected to, but despite repeated reminders, still hasn't been told.

The error rate may be even higher than the objection rate. Given what's known about the design of the system, there's no reason to think it is not north of 90 per cent. Twenty per cent would be bad enough (as the Prime Minister's former digital chief says, enough to put a private sector firm out of business) but it's probably far short of the truth.

UPDATE: Department of Human Services spokesman Hank Jongen later responded and said the figure of 90 per cent was wrong. "There is no basis for suggesting the error rate is 90 per cent. This is a figure plucked out of the air that doesn't serve the public discussion well."

In The Age and Sydney Morning Herald

Turnbull's fearful, pessimistic vision for Australia

Malcolm Turnbull and Donald Trump might be at loggerheads over the Trans-Pacific Partnership, but in other respects they're in sync.

Trump's inaugural address focused on what he was against: elites, Islamic terrorism, crime and gangs.

Turnbull's remarkably dark new year message was about economic challenges, international conflict and "Islamist terrorists". It was about fighting things rather than doing things.

We expect it of Trump. He seems to need to be against things. But Turnbull promised something grander.

Tackling Tony Abbott for the leadership in 2015 he acknowledged challenges, but spoke of "enormous opportunities".

"We need a style of leadership that explains those challenges and and how to seize the opportunities," he said at the time. "Our values of free enterprise, of individual initiative, of freedom; this is what you need to be a successful, agile economy.

"What we have not succeeded in doing is translating those values into the policies and the ideas that will excite the Australian people and encourage them to believe and understand that we have a vision for their future."

The people who were most excited by that promise have been disappointed ever since.

At its best the Turnbull government has been about administration, at its worst its been about opposing things: Labor, the unions, external threats and the previous government.

In welcoming the 16,000 people who will become Australians on Thursday his Immigration Minister, Peter Dutton, made only a perfunctory reference to the good they would do and spoke instead of "unprecedented security threats from terrorists, extremists and criminals who seek to exploit migration pathways to citizenship for their own ends".

"The lesson of terrorism here and in Europe is that we must prevent foreign extremists from arriving in the first place, and remove them once detected."

As a vision for the future, it was fearful.

Turnbull's Human Services Minister speaks rarely about services but often about fraud. His Trade Minister talks about Labor almost as often as he does about trade. His Energy Minister is as likely to score political points as he is to talk about energy. His Attorney-General spent much of last year feuding with the Solicitor-General while his Deputy Prime Minister was moving a division of his department into his electorate.

It's anything but a vision, but I don't think it's entirely Turnbull's fault.

Whether he realises it or not, Turnbull (like Trump) might be in tune with the times.

Australia was indeed bold and optimistic when he was growing up. In 1966, the year decimal currency was introduced, half the population was aged under 30. Only 7 per cent were 65 or older.

Today it's double that: 15 per cent are 65 and older. Seven per cent are 75 and older.

As we get older we usually become less adventurous, more fearful and more inward looking. There's every reason to believe it's the same with populations.

The $2, $5, $10 and $20 notes introduced with decimalisation were vibrant – in your face greens, blues, lilacs and pinks.

When they were replaced with plastic notes a generation later in 1992 the new designs were more muted, the colours more pastel.

In the next upgrade to incorporate new security features another generation later in 2016 the designs changed little. Queen Elizabeth lives on the new $5 note, perhaps because removing her would be controversial.

By 2060 when almost a quarter of the population, and almost half the voting age population, will be 65 and over the designs are likely to be more muted still.

We are already becoming more timid and inward looking. Parliament House is now patrolled by police with machine guns. A 2.6 metre fence is about to go up on top of it to keep terrorists away from the lawns.

Radio Australia is about to turn off the shortwave service used to broadcast emergency information to remote Pacific islanders. Our foreign aid budget has been slashed by 16 per cent during three years in which our defence budget has grown 26 per cent.

And care for ourselves, should we become sick, has become our No.1 priority. The ANU election survey finds that in 1990 only 9 per cent of us nominated health as the top political priority, far fewer than >nominated unemployment or taxation. By 2016 it was 24 per cent, more important than any other priority including the economic ones.

It's natural to want to care for ourselves as we get older, just as it's natural to invest more conservatively. Developing a city from scratch, as we did with Canberra a century ago, or the developing the Snowy Mountains Scheme as we did half a century ago, becomes less attractive the older we get.

We'd welcome vision of course. Some of us felt nostalgic when Turnbull talked about it. But what's becoming really important to us is preserving what we've got. Promising to keep us safe might be almost enough.

Not for all of us of course. But fearless, outward looking Australians are becoming lonelier. Like other ageing nations before us, we are becoming more cautious.

In The Age and Sydney Morning Herald

Tuesday, January 24, 2017

TPP was never that good for jobs, never that good for growth

If the Trans-Pacific Partnership was really as good for jobs and growth as Malcolm Turnbull says it was, he would be able to point to a study saying so.

He might have even commissioned one. Instead, despite the Productivity Commission practically begging for the role, his government has been resolute in its determination not to subject the 12-nation treaty that Donald Trump just dumped to independent analysis.

An earlier analysis of three landmark trade agreements that the government did commission found that, combined, the Japan, Korea and China agreements were set to create a total of 5434 extra jobs by 2035.

That's 5434 extra jobs after 20 years. According to the Bureau of Statistics, employment is growing at a trend rate of 8200 per month, meaning the extra jobs will amount to less than a month's worth, after 20 years.

The government-commissioned study found that, combined, the agreements would boost exports 0.5 to 1.5 per cent while boosting imports 2.5 per cent, which means they would send Australia's trade balance backwards.

In the absence of an Australian analysis of the agreement Turnbull insists would have produced jobs and growth, one by World Bank found that 15 years on, it would have bolstered Australia's economy just 0.7 per cent, which amounts to 0.05 per cent per year, somewhat less than measurement error.

It's easy to conclude Turnbull is talking up the TPP because he has not much else to talk up.

In any event, it's dead. Its rules say it can only come into force if it is ratified by members accounting for 85 per cent of its combined gross domestic product, which means it can only come into force if it is ratified by the United States, something President Trump has ruled out.

Part of the problem with it, and part of the problem with reviving something like it without the United States, is that it's so darn complicated. That's because in the assessment of James Pearson, head of the Australian Chamber of Commerce and Industry, "so-called free trade agreements never seek free trade".

Much of the TPP dealt with things such as copyright terms, patent protection for drugs, and so-called investor-state dispute settlement procedures that would have allowed foreign corporations to sue sovereign governments. It took a decade to negotiate.

Pearson says if free trade agreements genuinely sought free trade "they would be simple, stating that the parties agree there shall be no restrictions on trade, investment or movement of people between the two countries, full stop".

When even the potential beneficiaries are questioning the value of ever more complex trade agreements, it could be time to take stock.

In The Age and Sydney Morning Herald

Sunday, January 22, 2017

Not born to run. Why Springsteen was lucky

People don't see Bruce Springsteen for the music. He says so himself.

Here he is on the New Yorker radio hour in November: "I don't get paid necessarily to play this song or that song. I get paid to be as present as I can conceivably be on that particular night, because if I'm there, and I'm alive, I know you're feeling it too."

That's what we will be paying for over the next few weeks: communion, the opportunity to hang out with Springsteen and have him hang out with us, fully present.

We want to be close to him because we know he is one of us. Although talented and driven as a musician, he almost dropped out of high school, he drove busses. He mightn't have made it at all were it not for an extraordinary stroke of luck, which he details in his autobiography.

Asked what he would have done if it hadn't worked out, he says he would have gone back to New Jersey and played in bars.

I've been privileged to see Peter Allen perform twice. As for Springsteen, I didn't go for the music. I went to see him perform, to have him take me into his life. He was the boy who could have been any of us. Try to listen to Cassie McCullagh's Life Matters documentary about her family's memories of him as a boy in Armidale without crying.

Allen was certain he had what it took to get to the top, but he couldn't get close until, balding, with a failing voice and an act that was getting laughed out of gay bars, he was picked up by a manager who thought he could pull something off.

We want to get close to Allen, Springsteen and the rest in part because what happened to them is so unlikely.

If you need to be convinced, check out the Academy Award-winning documentary 20 Feet from Stardom broadcast on the ABC last month. It's an account of truly excellent singers - all of them as good as or better than the stars - who didn't make it.

As with Allen, back-up singer Merry Clayton felt that "if I just gave my heart to what I was doing, I would automatically be a star". She was wrong. Record companies told her she sang gospel and said: "there can only be one Aretha".

In a legendary paper entitled The Economics of Superstars, economist Sherwin Rosen argues that these days the world only needs a few musical superstars, whereas before modern communications it needed one per village.

In Success and Luck: Good Fortune and the Myth of Meritocracy, economist Robert Frank uses maths to point out that even if most of success is due to talent, the final decisions about who makes it to the top will inevitably be the result of luck.

The implications extend from ministerial entitlements to Centrelink to tax to pay scales. They're worth remembering whenever we are told someone got there by themselves.

In The Age and Sydney Morning Herald

Tuesday, January 10, 2017

Harford. A messy symphony that almost hits the crescendo

Tim Harford
Hachette, $32.99

The best pop songs start by giving you what you want, and then build up to so much more.

Tim Harford is a virtuoso of pop economics. Originally a development economist, and the coauthor of an excellent but little-read book about aid, he flicked the switch to pop a decade ago with The Undercover Economist, an examination of topics such as why Starbucks charged the way it did, why you were always ripped off when you bought fair trade, and why you could never get a good price for a second-hand car.

Like the early work of the Beatles or the Beach Boys, it was fascinating but straightforward. Then a few books later came Adapt, which piled layer upon layer of stories from psychology, evolutionary biology, anthropology, physics, maths and music to build to an unarguable case that success is trivial and ephemeral unless it comes from the ground up, from recovering from the worst mistakes.

Now there's Messy, a book that presents itself as an impossibly simple account of the virtues of a messy workspace, then builds to something extraordinary.

The chapters on workspaces are books in themselves. BHP gets special attention. Its 11-page edict to its office workers in Perth ("If you wish to display an award, that's okay – but only if you remove the A5 photograph") is a gift to proponents of messy workspaces, as are those of the Los Angeles advertising agency Chiat/Day which tried to create a "workforce of the future" by banning paper as well as personal desks. Harford says employees had to improvise ways to keep hold of the paper copies of contracts and storyboards and concept art. "Some staff stashed binders in heaps in the corner, others used their cars as storage, heading to to the car park to file and retrieve important documents."

In contrast, Manhattan's appallingly unorganised Brill Building and the makeshift Building 20 at the Massachusetts Institute of Technology produced some of the greatest music of the 1960s and the greatest technological advances of the 20th century.

Harford sees battles over neatness as battles about control. By browbeating their employees over something that's visible, employers think they'll be able to control what's invisible, which is how well their workers work, although it usually works the other way.

Our own attempts to control our thinking fail for much the same reason. To-do lists are notoriously ineffective, piles of paper are far more efficient than filing cabinets, email search is quicker than logically arranged folders or tags, near-random hookups succeed better than carefully matched dates. Then Harford broadens the field. Generals succeed best in war (and chess) when they are unpredictable, musicians when they are placed in near-impossible situations, hospitals and ambulance services when they abandon clear targets, pilots when they don't always rely on autopilot and great speakers when they depart from the script.

Martin Luther King's most famous phrase "I have a dream" came mid-sentence when he didn't like the next pre-prepared line. Casting around for something better, he heard someone behind him yell: "Tell 'em about the dream, Martin."

But Harford stops just short of the ultimate crescendo. It would be to acknowledge that just as rules can't exert control, neither can we. Most of what we do comes from our unconscious, with our central control unit merely taking the credit. I think he didn't go there because he doesn't believe it. Like most of us with a healthy ego, he likes to think he does it himself.

In The Age and Sydney Morning Herald think he does it himself.


Sunday, January 08, 2017

How Centrelink unleashed a weapon of math destruction

The most frightening thing about the Centrelink malware debacle is the verve with which the government embraced it.

Malware is software designed to do damage under the cover of providing a service.

Unveiling the automated Centrelink debt recovery system mid-year treasurer Scott Morrison and social services minister Christian Porter promised more "accurate and appropriate income testing". They were going to work with the prime minister's Digital Transformation Office to "cut red tape and ensure that mistakes are minimised".

It's theoretically possible for machines to do complex things better than humans. These days chess-playing programs do it (at least they do it to me) but those programs are exquisitely designed and have goals that are properly specified.

What Morrison and Porter promised was an automated system that would issue Centrelink debt notices "better" than human beings.

Humans did the job extremely well. A former Centrelink worker with 30 years experience says they would "look at start dates for employment that customers had declared, see if it was the same for the employer [using Tax Office records] and roughly work out if it lined up."

"If it looked as if a person had possibly been overpaid they would write to the customer and ask them to call and tease out where the discrepancy was, and ask for proof, if it was still available, in the form of things such as payslips. If the customer didn't have them and it looked like there was a possibility of an overpayment, they would write to the employer to ask for the information. If evidence was collected that the customer had not declared the income correctly and a debt existed, then the debt calculator would raise the debt in accordance with the legislation and the customer would be written to."

What's important in this description is the humans charged with applying the law didn't issue debt notices unless they had evidence that a debt existed. To do so without evidence would be to break the law.

But a wrongly-programmed computer need have no such scruples. Even better, its decisions can be presented as objective, hard to overturn. Data scientist Cathy O'Neil outlines scores of examples in her new book Weapons of Math Destruction, from the systems used by credit rating agencies in the lead up to the global financial crisis, to systems that automatically select teachers for the sack on the basis of secret algorithms that grade performance, to systems that deny people job interviews on the basis of proxies for mental health, even though that's illegal.

They are used because they are quick rather than accurate. As an expert told O'Neil, the primary purpose of a workplace hiring system is "not to find the best employee, but to exclude as many people as possible as cheaply as possible".

By necessity, they do it unfairly. People who are wise to the systems will mention the right words in job applications to get to the top of the pile. As she says, they are usually not from racial and ethnic minorities. Here, it's the persistent and well-resourced people who get the better of Centrelink. They are unlikely to be the hardest up.

Many of the automated systems are malicious, created to do harm in the guise of providing a service. The formula used by Centrelink produces consistently false estimates of debts by dividing by 26 the annual wages employers report paying in order to overestimate income received during the smaller number of fortnights claimants get benefits.

The formulas used by for-profit colleges in the US to target internet advertising zero in on single mothers of colour who are poor enough to earn the colleges' valuable subsidies and ill-informed enough not to twig to debt. The formulas O'Neil herself worked on in financial markets presented securities as safe that weren't.

O'Neil says that to be a "weapon of math destruction" a formula has to be used en masse (as the Centrelink formula will be), it has to be difficult to question (as the Centrelink formula will be for many people) and it has to cause damage (as the Centrelink formula is doing).

That isn't to say that credit risk and Centrelink and other software can't be designed to do the job better than humans. It's a worthy aim, one Morrison and Porter apparently thought they had achieved.

The man Turnbull hired to prevent such stuff-ups describes what happened as as "cataclysmic". Paul Shetler left the prime minister's Digital Transformation Office in November as the Centrelink debt collection program gathered pace. 

In The Age and Sydney Morning Herald

Thursday, January 05, 2017

Centrelink's robo-debacle is a litany of inhuman errors

These days the butt of jokes, the Leyland P76 started out as a good car. The only one specifically designed for Australia, it had a roomy interior, good stability, excellent fuel economy for a car of its size and excellent prospects. In 1973 Wheels magazine named it car of the year.

In part that was because of the fanatical devotion of its quality control team. Nothing left the yard unless it was perfect. But then its parent, British Leyland, ran into financial troubles. It sent over a new Australian chief who over-ruled the quality control team and released onto the market a flood of cars with faults. British Leyland got the cash, destroyed the car's reputation, and wound up the entire operation, a year costing 5000 jobs.

The Centrelink robo-debt debacle won't cost as many jobs, but its impact will be worse. It'll dwarf that of the bungled census, for which the Prime Minister declared that heads would roll.

In the lead-up to Christmas tens of thousands of Australians received notes embossed with the Centrelink logo telling them the income their employer had reported to the Tax Office was different to the income they had reported to Centrelink. Unless they explained why within 14 to 21 days, they would have an assessment made against them and be hit by a 10 per cent recovery fee.

Some of the letters dealt with Newstart, sickness and other payments going back six years, beyond when most people keep records, and way beyond the six months the Centrelink website asks people to keep pay slips.

If they could get on to the right part of (which was difficult in the lead-up to Christmas) and if they entered the correct information, they were often still told they owed money, and sometimes told to pay it even if they disputed it in order to avoid debt collection.

In a reversal of the usual onus of proof, they were guilty and sentenced until later proven innocent.

Many are entirely innocent. An internal Centrelink check is said to have found that only 20 out of hundreds of cases reviewed are genuine debts. Social Services Minister Christian Porter uses a different metric to say that eight in every 10 letters has uncovered a legitimate debt. But they've done it by the equivalent of spamming, by sending out thousands of obviously wrong assessments in the hope of getting money while they are contested. They are assessments that never would have got past quality control had humans been in charge of the process, as they used to be until Centrelink put it in the hands of robots mid last year.

One of their stupidest mistakes is to calculate fortnightly income by dividing annual income by 26. If the figure is too high the robots say someone wasn't entitled to benefits during the weeks they received them, even if during those weeks the person earned nothing. In other words, they misapply the law. Another is that they are not too bright. If the name of an employer is spelt one way by the Tax Office and another way by Centrelink, the robots assume it's a different employer and that it's undeclared income. In other words, they shouldn't have been let loose.

How they came to be let loose, how they were allowed to shake down vulnerable people in the lead-up to Christmas, will doubtless be the subject of a Senate inquiry and probably an Audit Office inquiry.

There were clues on the Tuesday before the election. That's when Porter and Treasurer Scott Morrison said they had found billions to pay for their promises. Through "the smarter use of technology" they were going to "improve the capability for the identification and recovery of debt owed to taxpayers".

Automated compliance systems would "minimise red tape, and avoid mistakes that may adversely affect a recipient's payments".

It was a worthwhile aim. None of us should want either overpayments or underpayments. But the delivery was appalling. Morrison and Porter had promised all the P76 promised and somehow delivered what the P76 delivered.

One of the wilder theories is that they intended to. By inflicting a faulty debt recovery system on the public, they wanted to persuade ignorant, scared and busy people to hand over money they didn't owe and dissuade others from ever applying for benefits again.

A more likely explanation is that they didn't know what they were doing. Asked about the letters sent out by his department threatening a 10 per cent recovery fee, a surprised Human Services Minister Alan Tudge told the ABC: "A 10 per cent recovery fee is new to me, and I don't believe that does occur."

But they might not have reckoned on the extent to which people can fight back. Many of those wrongly hit up have in the intervening years qualifiedhave subsequently become lawyersare now as lawyers. They are talking about a class action. They are going to use the freedom of information process to document how robo-debt was set up and to get the medical and other records that the department already had but chose not to share with robo-debt.

Tudge, Morrison and Porter could do worse than look beyond our shores to Michigan in the US. It backed down after sending out tens of thousands of robo-debt notices in error and announced that in future assessments would be overseen by human beings.

In The Age and Sydney Morning Herald

Sunday, January 01, 2017

Ditching sugar is a new year diet that might actually work

This year you're going to lose weight. Really. Not like last year, when you tried to eat less and exercise more and ended up no lighter, but by approaching the problem differently. Because calories in and calories out is probably the worst way to think about it.

Here's another one.

Excluding waste and sweating, it's true that the calories we take in have to be turned into either energy or weight. So it ought to be true that taking in less will cut weight. But what usually happens first is that we get hungry (and add back the calories, leaving our weight unchanged) or lethargic (expending less energy so that more of what we take in is directed to maintaining our weight).

It's almost as if our weight wants to be maintained; as if it has a will of its own and manipulates the rest of us to get what it wants.

Which is probably what happens.

Tumours act as if they have minds of their own. They press-gang whatever they can find into making themselves grow. Children do it. During growth spurts their growth hormones direct whatever's coming in to building bones and muscles, leaving the rest of the body bereft or hungry.

Only in a trivial sense is it true to say that children grow because they eat more. They eat more because they are growing. And that growth is regulated by hormones.

In 1977 Rosalyn Yalow won the Nobel Prize for tracking the hormone insulin. When it's released, fat cells start packing in fatty acids. And they also close the exits so the fatty acids can't escape while the insulin is there. It's why, oddly, we often feel weak or hungry after having sugar. The energy we thought we'd get isn't accessible. So we want to eat more, which also gets tucked into fat cells if there's insulin around; which there will be if what we've eaten is rich in sugar or other carbohydrates.

Veteran science journalist Gary Taubes has just set out his findings in a book entitled The Case Against Sugar, which follows Why We Get Fat, and Good Calories, Bad Calories. He is more of a forensic examiner of evidence than he is a purveyor of diets, and his main finding is that much of the evidence has been buried.

He says in the 1960s it was fairly widely accepted that carbohydrates (especially sugar) boosted the production of fat and increased appetites. It's one of the reasons we use bread as a starter at meals; it prepares us to eat.

Fat, by contrast, doesn't bring on the production of insulin at all. It may eventually be stored in fat cells, but it doesn't make those cells pack fat in and prevent them letting fat out. It's one of the reasons it rarely makes us hungry. Try eating half a slab of butter and see whether it boosts your appetite.

But in the 1970s, in the United States and in Australia, where our dietary guidelines follow the US, a new more plausible theory took hold. It was that fat causes fat. Nutritionist Ancel Keys laid it out in the massive Seven Countries Study which compared nations including the US, Finland and Japan and concluded that the nations that ate the most fat suffered the most heart disease.

Later research concluded that the results derived were particular to the seven countries chosen. Had Keys chosen other countries, such as France and Switzerland with high rates of fat consumption and low rates of heart disease, the correlation would have disappeared. But by then an abhorrence of fat had been written into the guidelines.

Consuming less fat meant consuming more carbohydrates, especially sugar which improves the taste of low-fat foods. So obesity climbed. The University of Sydney's Charles Perkins Centre is one of the few that disputes the connection. It produced a paper defending sugar that later had to be corrected after economist Rory Robertson ripped into it for misuse of statistics. Columnist Peter Fitzsimons details links between sugar and those dietitians promoting sugar in his book The Great Aussie Bloke Slimdown.

Just last month an industry-funded paper purporting to defend sugar fell apart when one of the funders, Mars Inc, disassociated itself saying it made all industry-funded research look bad.

Naturally, I am unable to guarantee that giving up sugar will make you lose weight. But I can guarantee that if you are anything like me it'll make you less hungry. I ditched sugar several new year's days ago, lost weight, and never got it back.

In The Age and Sydney Morning Herald