Thursday, August 31, 2017

The appalling mathematics of offshore detention

What kind of person cuts people off income support and gives them weeks to leave their homes?

What kind of person locks them up indefinitely without even processing their papers?

It isn't Trump. Here's the US President, trying to get sense out of Malcolm Turnbull: "Why haven't you let them out? Why have you not let them into your society?"

Here he is again, in the same 24-minute phone call earlier this year: "Maybe you should let them out of prison."

Australia's prime minister had to attempt to explain a policy that looks crazy from the outside and not much better from the inside.

More asylum seekers have arrived by plane than by boat over the past 20 years, and yet it's the ones that arrive by boat who are almost always genuine. Ninety per cent of boat arrivals are found to be real refugees when their claims are processed, compared to less than half of those who arrive by air.

Yet we only make life impossible for the ones who arrive by boats.

Here's Turnbull trying to explain it to a disbelieving US President: "The only people that we do not take are people who come by boat. So we would rather take a not very attractive guy ... than to take a Nobel Peace Prize winner that comes by boat."

Trump: "What is the thing with boats? Why do you discriminate against boats? No, I know, they come from certain regions. I get it."

Turnbull: "No, let me explain why."

Turnbull's explanation was that asylum seekers who come by boats are likely to pay people smugglers, and people smugglers let asylum seekers die at sea.

Stopping boats saves lives, in ways that stopping planes do not.

Because lives are very valuable, whatever we spend to stop the boats ought to be worthwhile, as ought whatever damage we inflict on people to do it.

It's a cost-benefit calculation of the kind made all the time by governments planning new roads or railways or anything else that will cost or save lives. Yet the calculation has never been made explicit for offshore detention and the renewed onshore cruelty that accompanies it.

Nor has a calculation compared it to alternative policies that might be able to achieve the same thing with fewer financial and human costs.

The Opposition isn't much use. It has broadly supported what the government is doing up until this week, when it has begun to make tiny noises about the plans to end support for the Australian-based asylum seekers who've come from Nauru and Manus Island for medical treatment.

So Melbourne University economist Tony Ward has stepped into the breach.

His new book, Bridging Troubled Waters, sets out the costs and the benefits of what we are doing and what we could be doing instead.

Calculations from Save the Children Fund and UNICEF put the total financial cost of our current suite of policies at $9.6 billion over the past four years and up to $5.6 billion over the next four. Offshore detention accounts for 95 per cent of the cost.

The Coalition's Commission of Audit found it costs $440,000 per person per year, around $1200 per day. It costs only half that, $658 per day, to detain someone in Australia, and only about $300 to keep an Australian prisoner in an Australian prison, which is about what it costs to put someone up in a luxury hotel.

Processing someone's papers in the community is cheaper still, at around $250 per day. Handing out a bridging visa with support is even cheaper, at around $90 per day.

And offshore detention has other, harder to quantify, costs. You can't easily put a price on mental health, but you can work out which kind of detention damages people the most. The United Nations High Commissioner for Refugees found 88 per cent of the residents in offshore detention suffered from a depressive or anxiety disorder or post-traumatic stress. Among asylum seekers living in Australia while their claims are processed the figure is as low as 52 per cent.

Ward concludes that the extra billions spent on offshore detention didn't buy us less damaged people, they wrought greater damage.

But what about the benefits? As far as we know, in recent years we've had not a single death at sea. Under Labor there were 1100. But the saving of lives mightn't have been due to offshore detention, it might have been due to the (much cheaper) program of boat turn-backs that accompanied it. Few boats try to come to Australia now, even after offshore detention has been softened by the prime minister's announcement that some of those detained will be taken by America.

Ward reckons a much cheaper way of saving lives would be to ditch offshore detention (saving $1.7 billion over four years) move locally-detained asylum seekers into the community more quickly (saving $1 billion), to spend more on turn-backs ($11 million) and more on regional co-operation ($150 million).

It's a human and financial saving worth having. If it fails, and deaths at sea resume, we can always reconsider.

In The Age and Sydney Morning Herald

Wednesday, August 30, 2017

All in the family. Surnames suggest elite jobs inherited

It's no easier to move from rags to riches in Australia than it used to be, and no easier than anywhere else.

That's the surprising finding from a new study of intergenerational mobility that negates the traditional wisdom that it's twice as easy to get ahead in Australia as in Britain or the United States.

The new study has created Australia's first very long run estimates of social mobility, using data on rare surnames among doctors and university graduates from 1870 to the present.

"What we find is that even although some apples might fall away from the tree, they have a tendency to roll back," said one of the authors, Andrew Leigh, a former professor of economics and a Labor member of parliament. "In other words, a rich grandparent might have a poor son, but the grandkids may end up closer to their grandparents' social status."

With Melbourne University economist Mike Pottenger​ and the author of an American study of surnames, Gregory Clark from the University of California, Davis, Dr Leigh has compiled a list of the rarest surnames among the graduates of Sydney and Melbourne universities between 1870 and 1899.

Among the 500 rare surnames are A'Beckett, Brissenden, Clubb, Westacott and Zwar.

He then examined the electoral rolls from 1903 on to determine the occupational status of voters with those names. He finds that even in recent years they are much more likely to be in elite professions than people with names such as Smith.

A separate examination of graduation records from Sydney and Melbourne universities found that even today people with the rare surnames of earlier graduates are 76 per cent more likely to obtain university degrees than people with names such as Smith.

Another examination of rare surnames among the doctors listed on the 1875 Australian Medical Pioneers Index held by the State Library of Victoria found that even today people with those names are 28 per cent more likely to be doctors than the rest of the population.

The study concludes that the intergenerational correlation of status >is a very high 0.7, twice as high as found in earlier father-son studies, and about as high as in Britain and the United States. A correlation of 0.7 means the status of earlier Australians explains about half of the status of their descendants.

The correlation has changed little over time.

Dr Leigh himself conducted one of the earlier father-son studies in 2007 and wrote at the time that "Australian society exhibits more intergenerational mobility than the United States".

His findings were used by Finance Minister Mathias Cormann​ in a speech to the Sydney Institute this month to claim that when it came to providing opportunity to succeed in life through effort and hard work Australia ranked "ahead of other significant countries including the UK, the US, Switzerland, France, Germany, Japan, New Zealand and Sweden".

Dr Leigh told Fairfax Media that his earlier study was about what happened in a single generation. The new study was about what happened across multiple generations. There appeared to be a "surprising degree of persistence" at the top.

In The Age and Sydney Morning Herald

Thursday, August 24, 2017

Our obsession with tax deductions is peculiarly Australian ... and pointless

Spare a thought this tax time for the pledge that was going to end the anguish. In 2010, still clutching his freshly printed copy of the Henry Tax Review, treasurer Wayne Swan promised to "remove the hassle of shoeboxes full of receipts".

From 2012 onwards everyone would get a standard deduction of $500 in lieu of claiming work-related and tax-preparation expenses. It would climb to $1000 from 2013.

Anyone who thought they could get more (and could be bothered) could keep receipts. The rest of us could tick, flick and get on with our lives.

Ken Henry had found that none of the countries with which Australia normally compared itself allowed unlimited work-related deductions. New Zealand allowed none whatsoever, having axed them in the 1980s in return for a tax cut. The US allowed only up to 2 per cent of gross income, Britain only where they were essential for doing a particular job, and Canada only those deductions that were specifically legislated.

Here, as the Tax Office conceded to a parliamentary inquiry in March, "almost any item purchased may be deductible in the right circumstances".

An extraordinary 8.6 million of Australia's 12 million taxpayers put in claims for the cost of doing their job. If you exclude very low and very high earners, it's even worse. About 90 per cent of wage earners on between $37,000 and $150,000 claim for something. An astounding 3.4 million claim for motor vehicle expenses, even though travel to and from work is not supposed to be tax deductible.

In the words of Richard Highfield, a former senior Tax Office official and an adviser to the OECD: "While many employees can justifiably point to the legitimate use of their motor vehicles for work purposes, it is extremely difficult to comprehend how this population could extend to anywhere near 30 per cent of employee taxpayers."

And the claims are climbing. A decade ago motor vehicle claims amounted to $6 billion. Now it's $9 billion.

Highfield told the inquiry claims of all sorts had become so widespread "as to be beyond the administrative control of the ATO".

Those of us using agents claim half as much again as those of us who don't, and high earners claim much more than the rest of us, even though the cost of cars and uniforms ought to bear little relationship to income.

For some, using deductions to cut taxable income has become a sport.

Australian National University economics professor Robert Breunig has spent much of the past four years embedded in the Tax Office, along with an economist within the Department of Prime Minister and Cabinet, Shane Johnson. They've been examining the phenomenon of "bunching", where an unusual number of taxpayers report incomes just below each tax threshold.

Their first finding, to be published next week, is that bunching near every threshold is a peculiarly Australian thing. Taxpayers in other places bunch only below the top threshold.

Near the $18,200 threshold, where the tax-free zone ends, they find 374 per cent more of us than there would be if the distribution of earnings was smooth, as it otherwise is.

Near the $37,000 threshold, where the marginal rate climbs from 19¢ in the dollar to 32.5¢, they find 209 per cent more of us than there should be. Near the $80,000 threshold they find 663 per cent more, and near $180,000 a remarkable 1896 per cent more – almost 20 times more than there should be. (Not all of those who try to bunch get below the target threshold. Some end up just above it, presumably because they were aiming to get below and missed.)

And the bunches move. In 2007-08 when the top rate kicked-in at $150,000 Breunig and Johnson found a large spike near $150,000. The next year when the top threshold climbed to $180,000 the spike climbed as well.

But some of the taxpayers who had grown used to bunching near $150,000 stayed put. They kept bunching there for another year, only wising up and stopping in 2009-10.

It's silly. Anyone who genuinely cuts their income to get below a threshold gets less income, both before and after tax. And most of us don't do it. Outlining his findings at a seminar in Canberra, Breunig said the spikes were driven by young self-employed people and distributions from partnerships and trusts.

Answering a question on notice from the Senate this year the Tax Office said the taxpayers spiking just below the thresholds of $37,000, $80,000 and $180,000 had a higher incidence of distributions from trusts. Those spiking just below the $18,200 tax free threshold had a higher incidence of partnership or sole trader income.

Clamping down on work-related deductions, as Swan was going to do before a budget crisis made his alternative of a standard deduction too expensive, wouldn't completely stop bunching. You'd have to also clamp down on trusts, as Labor is promising.

But it would make paying tax more simple and honest. Before he entered Parliament a decade ago economist Andrew Leigh costed the time spent filling in each tax form at $300 per person; around $3 billion per year. Most of us have better things to do.

In The Age and Sydney Morning Herald

Thursday, August 17, 2017

Same-sex marriage.The one good thing about the survey

The ABS is fighting back.

Forced to conduct a survey that its staff know will almost certainly be unreliable and possibly wrong, it has planted a time bomb.

First, some history. The Bureau of Statistics is the best organisation in the country at getting at the truth, whatever the statistical question.

It does it in census by taking the extraordinary step of surveying the entire population, and making answers compulsory.

It does it in surveys like the employment survey by sampling a portion of the population (26,000 households) and multiplying the results by around 300 to develop a picture of the entire nation.

But it doesn't simply multiply by 300. The sample will be biased. Some groups will be under-represented, such as women in their 60s. Where that happens, the Bureau gives the responses of women in that age group extra weight to compensate for the bias. If there are half as many women aged in their sixties as you would expect from the Australian population, the Bureau counts their responses twice to make the survey representative. If there is twice as many 20-something men as you would expect, the Bureau averages their responses and applies them to half the number of men.

It's important. In a fortnight the Bureau will release the results of its long-awaited six-yearly survey of household expenditure. It will update our views about how much we spend on technology, how much we spend on electricity and so on. It's a survey of 9800 households. But unless those households contain exactly the right mix of teenagers, pensioners and every other type of Australian they won't tell us much or be comparable to previous surveys unless they are adjusted to properly represent the population.

That's what the Bureau usually does, and what it did the last time it was asked to conduct a plebiscite-like survey, in 1974. It surveyed 60,000 Australians to in order to find out what national anthem we preferred, and – just as with the employment survey – it weighted the results. The man who ran the poll, the then assistant statistician Bill McLennan, says anything else – anything uncorrected for bias – would have been "rubbish".

I've seen McLennan's printout, broken down by age and gender. You can tell how men aged 18 to 24 voted, and how women aged 65 to 69 voted. And you can see the totals after they have been adjusted to remove bias and accurately represent the entire Australian population.

This time there are exceptionally good reasons for removing bias. Malcolm Turnbull expects roughly half of those eligible to respond. But it won't be just any half. History suggests it'll be predominantly older Australians. ABC election analyst Antony Green says the last time we conducted a voluntary plebiscite, in 1997 to select delegates to the Constitutional Convention, younger Australians were almost half as likely to take part as older ones.

We know from the privately-conducted surveys that younger people are far more likely to support same-sex equality an older Australians.

And this time they may be even more poorly represented than in 1997. Many don't know how to post letters, many more don't know where to find them.

Best practice as normally applied by the ABS, even in the hugely representative census, is to give a greater weight to the under-represented responses and a lesser weight to the over-represented ones.

But the Bureau can't do it. It's been ordered not to. The ballot has to be secret, which makes it impossible. It will open envelopes that will have all the information needed to identify each type of respondent, and then separate them from the responses, which will be pooled electorate by electorate, making them indistinguishable.

Australian National University demographer Liz Allen says of all the methods available to work out what Australians really think about same-sex marriage, a voluntary postal survey is the least likely to produce the right result.

Even if the Bureau knows the responses are chronically biased, there's nothing it can do, except wish it had resisted.

McLennan believes it could have. He acknowledges that the Census and Statistics Act allows the treasurer to direct the statistician to collect statistics on a specific topic, but he says after that it's up to the statistician to decide how to do it and when and how to publish the results.

Mr Morrison has directed the statistician to collect "statistical information from all Australians on the electoral roll as to their views". McLennan believes best way to ascertain the views of all Australians on the roll is to survey them and weight the results to represent the roll.

Or it can passively resist. Buried within the Bureau's rundown of how it will go about the poll is its decision to publish response rates by electorate, gender and age. On November 15 when the results are out it'll be instantly apparent whether the poll is representative; whether older Australians, or women or men or West Australians are over or under represented. If they are, if the results are "rubbish", the Bureau will have made sure we know.

In The Age and Sydney Morning Herald

Tuesday, August 15, 2017

Cabinet leak: Sydney to Parramatta in 15 minutes

A final decision on the route for the Sydney Metro West rail link is shaping up to be a contest between a line that provides an express 15-minute service from the CBD to Parramatta with only five stations, and a 25-minute route with 12 underground stations known as Metro Local South.

Another route known as Metro Rapid promises a 20-minute journey at speeds of up to 130 kilometres per hour along a train line with 10 stations that takes in Five Dock and North Burwood.

Trains on the express route would travel at up to 160 km/h and those on the Metro Local South route at up to 100 km/h.

The fourth route, and the least likely to eventuate, would be Metro Local North, which would run via Drummoyne and under Sydney Harbour to Ryde in the north before finishing at Parramatta.

All four options in the Cabinet paper seen by Fairfax Media and the ABC run from Pitt Street in the CBD and have benefit-cost ratios well in excess of 1, meaning the benefits such as travel time savings for tens of thousands of commuters exceed the costs of constructing and operating the line.

The preferred option – Metro Local South – along which driverless, single-deck trains would run takes in the Bays Precinct at Rozelle, Lilyfield, Concord and Silverwater.

The 15-minute express option, with only five stations, performs the worst when subjected to benefit-cost analysis. Although the fastest route on offer with impressive time savings, it has only two points of interconnection with heavy rail or light rail networks, limiting its use.

Its benefit-cost ratio of around 1.7 is about the same as that presented in the business case for the WestConnex toll road.

The Metro Rapid option has a much higher benefit-cost ratio of around 2.5, meaning the benefits are more than twice the costs. Metro Local South and Metro Local North have benefit-cost ratios well in excess of 2.

Among the benefits identified for the project are public transport time savings, reduced train and station crowding, shorter waiting times, improved rail reliability and private vehicle travel-time savings.

The analysis raises questions about why the Metro West rail project wasn't considered as an alternative to WestConnex, given that most of its variants have better benefit-cost ratios.

Excluding it as an alternative when WestConnex was first considered made the $16.8 billion toll-road project appear to be the best available option.

An internal Transport for NSW memo released under the NSW Government Information Public Access Act refers to a Cabinet directive not to consider public transport alternatives to road projects.

It suggests Cabinet forbade the consideration of public transport alternatives to toll-road projects including the F6 Extension and the Western Harbour Tunnel and Beaches Link.


"It would be extraordinarily foolhardy to consider that academic transport economists, transport practitioners and a range of stakeholders will not raise these issues," it said.

"There is considerable political and reputational risks associated with not considering options."

The Metro Local North and Metro Local South routes would each cost up to $15 billion to build (in 2016 dollars) and around $2 billion to run over 30 years.

In contrast, the Metro Rapid would cost around $13 billion to build and the Metro Express less than $12 billion.



But the Metro Local North and Metro Local South options allow the government to recoup money from developers who buy air rights above 12 new underground stations. It boosts the expected benefit-cost ratios from around 1.8 to around 2.3.

The number of stations will also be crucial to determining the final price for constructing the line because a typical underground station can cost between $400 million and $500 million.

Transport and Infrastructure  Minister Andrew Constance said no decisions had been made on either the funding mechanism or development around Metro West.

Well planned cities needed smart investment in both road and rail infrastructure. "Thanks to the strength of the NSW budget, we can invest in both. Our $41.5 billion investment in roads and rail infrastructure is evenly split between roads and public transport," he said.

While the Berejiklian government is still some time away from revealing the exact route for the new metro line running mostly through tunnels, it has named Parramatta, Olympic Park, the Bays Precinct and the central city as locations for stations.

Under its timetable, the new line will be built next decade and be operational in the second half of the 2020s. It will link to the $20 billion-plus metro railway under construction, the first stage of which from the city's north-west to Chatswood is due for completion in 2019.

The second stage will continue on to the central business district, Sydenham and on the existing Bankstown line, and should open in 2023.

The new Sydney Metro West will also dovetail with the planned 22-km light rail line to be built in two stages from Westmead and Parramatta to Olympic Park and Strathfield. Construction is due to begin next year at a cost of more than $3.5 billion.

In The Sydney Morning Herald

Monday, August 14, 2017

Parliamentary Budget Office disowns $150b Turnbull costing

The Parliamentary Budget Office has been forced to disown modelling released by the Turnbull government that claimed Labor's tax plan would put a $150 billion tax bill on families and small businesses. 

On Monday, Treasurer Scott Morrison seized on the figures to claim that Labor's tax plan would hit retirees, businesses, negative gearers, and those benefiting from capital gains tax. 

"There is a tax winter coming under Bill Shorten if he ever becomes Prime Minister," Mr Morrison told Sky News. 

But in a rare public intervention, the independent office issued a statement that it had nothing to do with modelling released by the Treasurer's office on Monday morning.

"References in the media this morning to modelling being released today by the Parliamentary Budget Office are incorrect," said Parliamentary Budget Officer Jenny Wilkinson, referring to several reports in News Corporation publications. 

"The analysis reported in the media this morning was not conducted by the PBO." 

Shadow treasurer Chris Bowen condemned the "blatant politicisation of the independent Parliamentary Budget Office." 

"Scott Morrison needs to withdraw his ridiculous claims about Labor's tax policies and apologise for seeking to politicise the independent PBO," he said. 

Reporters were briefed by the Treasurer's office on Sunday that proposed Labor taxes, including a $65 billion hit to small businesses and a $15 billion slug on family trusts, were costed by the PBO and Treasury.  

On Monday, the PBO said the last time it had assessed Labor policies was in August 2016 as part of its role costing policies taken to the election. Its rules forbid it from costing the polices of one side of politics at the request of another.

The Treasurer's office confirmed that it took the PBO figures prepared after the 2016 election and moved them forward one year. As a result, what was presented as the "true toll of Labor policies" excluded more recently promised tax cuts including to the Coalition's proposed increase in the Medicare Levy.

Labor has not announced its position on the company tax cuts for small businesses but the Treasurer's office claimed its $56 billion costing of Labor's position on company tax was a "Treasury costing".

Asked whether the Treasury had costed the opposition's tax policy as claimed, a spokesman for the Treasury declined to answer and referred the question to the Treasurer's Office.

In 2012 when Labor distributed a "Treasury costing" of the Coalition's policy on parental leave, the Coalition's Joe Hockey wrote a letter of complaint to the Treasury secretary Martin Parkinson.

Dr Parkinson replied it had "long been the case" that the Treasury was periodically asked to cost alternative policies.  

Outside the caretaker period before elections, it did not conduct costings unless specifically directed to.

In The Age and Sydney Morning Herald

Thursday, August 10, 2017

Dodgy from the start: don't blame Turnbull for Labor's flawed NBN

Some things you can't blame Malcolm Turnbull for: the state of the NBN is one of them.

Customers who switch to it (and they are being given no choice – their existing services turn off 18 months after they are invited to switch) are greeted with slower speeds, more dropouts, unreliable phone and alarm services, and movies that continually buffer when they try to watch them between 4pm and 10pm.

Many are worse off than they were before.

Importantly, they are worse off whether they are getting the new Turnbull NBN, which is delivered by a mix of technologies, or Labor's original national broadband network, which in cities was to be delivered all by fibre-to-the-premises.

Australia's foremost telecommunications analyst, Ian Martin of New Street Research, says the method of delivery has nothing to do with it.

"Let's be clear, technology is not the issue in slow speeds," he wrote in the Australian Financial Review this month. "Hybrid fibre coaxial and fibre to the node are well able to handle speeds of 50 megabits per second and 100Mbps or more. In some places the copper component is old and slow but this is not an issue across the board and can be dealt with other than by an expensive upgrade to fibre to the home nationally."

Horrendously expensive and unbelievably time-consuming, Labor's original plan was for a technician to lay or string an optic fibre cable into each home and business in each of Australia's cities and big towns at a cost of $4300 per premises. It was essential for Labor to keep the cost off-budget: $49 billion gets noticed when you are running a deficit. So it decreed that NBNCo, the government-owned company that was to build the NBN, would eventually make a profit.

Spending on profit-making companies isn't treated as spending under the oddly-named Charter of Budget Honesty, which is one of the reasons the current government is building the Western Sydney airport and the Melbourne to Brisbane rail freight link that way. As long as it can pretend they'll one day make a profit it can keep the cost of building them off its books.

For a project as expensive as the NBN, that was hard.

Dodgy assumptions in its 2010 corporate plan helped. It assumed that no more than 16.4 per cent of customers would abandon fixed lines. It's achieving only a 75 per cent take-up, suggesting the real figure is closer to 25 per cent. It assumed the number of households would grow at a compound annual rate of 1.6 per cent per year. Between the last two censuses it's grown by much less.

It assumed that people would want to pay big-time for more speed, as it had to.

Two million or so customers on, it's discovering that eight out of 10 select the lowest speeds possible: 12Mbps and 25Mbps, turning 50Mbps and 100Mbps into niche products.

It expected customers to upgrade as they became acquainted with the wonders of high speed, but given that many were acquainted with higher speeds before they switched, that's unlikely.

And it adopted a curious method of charging the retailers who sold its connections to the public. It billed them twice. First for speed, under a monthly "access virtual circuit" charge set to reflect the speed provided. It's a silly idea. There's nothing to stop it giving everyone the highest possible speed; it's like constraining a car engine until the owner hands over more. And it charges for "connectivity virtual circuits" which reflect how much data the retailer is able to put through at once. Again, there's no reason for this. There's usually no physical constraint on how much can be put through at once.

Retailers wanting to grab market share have been paying for the first – it's an access charge – and skimping on the second. This means they can claim to offer the quoted speeds at a good price,  but can't deliver them when their cut-price connections become congested in the early evenings and speeds slow to a crawl.

Their customers blame the NBN, the NBN blames the retailers, and so worried is the government it has commissioned the Australian Communications and Media Authority to inquire into the whole mess.

There's nothing inherent in the NBN that's strangling its speed and giving customers grief; it's inherent in the pricing model it adopted to make it look as if it could make money.

Turnbull's NBN will at least be cheaper. Martin believes that under Labor's scheme the connectivity virtual circuit charge would have been three times higher, making the retailers skimp more and degrade speeds further.

One day it will be sold. That's the policy of both parties. Even under Turnbull's scheme the government will be lucky to get back half of what it spent. Then, when it becomes clear it was never a profit-making concern and the spending gets brought back on-budget tarnishing the financial records of both Swan and Morrison, we'll start wondering why we ever thought we could spend up big replacing what for many is a perfectly good service instead of spending less and zeroing in on the people who needed help.

In The Age and Sydney Morning Herald

Monday, August 07, 2017

We've got the low wage growth we sought

It's better sometimes when we don't get to touch our dreams.

The incoming Coalition government wanted low wage growth, badly.

Within weeks of taking office in 2013 employment minister Eric Abetz upbraided "weak-kneed employers" whom he said were unable to "just say no".

They were all for the carrot, but saw no role for the stick.

He led by example, abolishing the Commonwealth guidelines for cleaners employed in places such as Parliament House. It meant that when their contracts expired the workers who cleaned his office would get just $17.49 an hour (the minimum wage) instead of the $22.02 they had previously been guaranteed; an absolute pay cut of 20 per cent.

He offered defence force staff just 1.5 per cent a year, less than inflation and the least in living memory. He said he expected other public servants to get the same or less. He offered staff in his own department just 0.5 per cent, along with cuts in conditions. Several agencies offered nothing – pay rises of zero per cent – with government endorsement.

The worst thing about his call to arms was the timing. Wage growth was in free-fall. A year earlier it had been 4.3 per cent. When he spoke, it was below inflation at 2.5 per cent, it's now below inflation at 1.9 per cent.

The previous Coalition government, led by John Howard, had done much of the work for him. Its WorkChoices legislation made it harder for unions to win pay rises. With employees in many workplaces forced to negotiate individually, employers with the power to hire and fire had the upper hand.

It didn't matter much while the economy was booming. Employers desperate to find staff willingly bid up rates. But when things turned down, the upper hand became decisive.

By then much of the WorkChoices infrastructure had been stripped away, but so too had much of the union infrastructure. Membership fell further. In 1996, when Howard took office, 31 per cent of the Australian workforce was represented by a union. The latest figure is 15 per cent.

Another of his changes made it hard for unions to exercise power even when they found a seat at the table. Shortly after becoming prime minister he introduced the Temporary Work Skilled Subclass 457 visa, otherwise known as the 457.

Employers facing shortages could take in an unlimited number of skilled workers from overseas. They'd have to be paid Australian wages, but the ability of employers to get them in rather than bid up Australian wages left unions with little to bargain with.

Even without 457s, Australians were facing competition from overseas.

The boom in Chinese manufacturing which took off under Howard made Australian prices uncompetitive. The higher dollar, pushed up by China's demand for Australian raw materials, made Australian manufacturers even less competitive.

White-collar work, including answering phones and providing legal and accountancy advice, can be done more cheaply overseas. Technology is also making traditional workers expendable. Uber drivers do what taxi drivers did for half the price. Self-driving taxis and trucks will do it for even less.

It isn't all bad. Low wage growth appears to have helped Australian businesses keep workers on during the global financial crisis. It has meant the government has spent less than it expected on wages and wage-linked pensions, as well as getting less than it expected from bracket creep.

But it gives the people on those slowly-growing wages a sense that they need to be careful. We are saving far more than we used to, and switching jobs less often. We're battening down the hatches, hanging on, in the hope that something picks up.

In The Age and Sydney Morning Herald

Sunday, August 06, 2017

When it comes to electricity, the joke's on us

There's this joke, told against economists.

Two of them are walking down the street. One points, and says: "Hey look, there's a $20 note on the footpath." The other replies: "Impossible. If there was, someone would have picked it up by now."

Boom tish. My favourite is about a can-opener. And there's another one about sheep. But we'll leave them for another day.

What I'm getting at is that the joke against economists is actually a joke against us, about half of us.

Newgate Research has come up with the numbers in a paper prepared for the Australian Energy Market Commission, quoted by the Prime Minister in his letter to electricity bosses; the one summoning them to a crisis meeting in Canberra on Wednesday.

Roughly half of us haven't switched electricity suppliers in the past five years, and a good many have never switched.

The letter says they are leaving on the table (or on the ground) savings of up to $830 per year in Victoria and $1400 in NSW.

Why do they do it? Most say (just like the economist) that they "generally don't trust energy companies that promise a better deal". Most also say it's too complicated to compare offers and plans, a conclusion I reluctantly came to myself, and I'm normally good at these things.

Curiously, around half say they would rather cut their bill by cutting electricity use than shopping around, and most strangely of all, 39 per cent say the amount of money they could save isn't "worth the time and effort involved in switching".

It's strange, because without investigating switching they can't know how much they could save, and also because the savings would be ongoing, whereas the time and effort would be a one-off.

Newgate dug deeper and asked how much of a saving they would need in order to seriously consider switching. The thresholds were astonishingly high. On average the 2000 householders surveyed said they would need to save 23 per cent of their electricity bills to make the effort worthwhile. That's $82 each quarter in Victoria (more than $300 a year) and $97 each quarter in NSW (almost $400 a year).

If it was petrol, or groceries, we'd drive to the other end of town to save half as much.

And savings available from switching electricity suppliers appear to be bigger. Half of us don't know it because we don't think its worth our while finding out.

Many of us wouldn't know where to start. Asked unprompted to name a government price comparison website, only 2 per cent could. might as well not exist. Twice as many people used Google to compare suppliers as used a comparison website. Of those that did try to switch, 21 per cent found it difficult, a result much worse than the 15 per cent who found it difficult to switch internet providers, 9 per cent who found it difficult to switch mobile phone companies and 7 per cent who found it difficult to change home insurance. It's about the same as the 20 per cent who find it difficult to switch banks, the best part of a decade after attempts to make it easy.

Partly, the difficulty is intentional. By expressing electricity charges in formulas that are hard to calculate, the retailers hope we'll give up. And I reckon it's also because electricity is dull, and the rewards are delayed. If you get a bargain on an iPad, you feel good straight away. You can take it home and see what you've saved.

But if you get a bargain on electricity, nothing changes: the electrons are the same and you won't see a changed bill for months. It's the same with mortgages: the dollars are identical and the savings take a while to flow through.

We're wired for novelty. If the dollars are dull, we won't pick them up.

In The Age and Sydney Morning Herald

Thursday, August 03, 2017

Why we're suddenly concerned about inequality. Things have stopped getting better

Bill Shorten's on to something. Not the pointless debate over inequality – whether it's rising or not depends on what you measure – but the truth that lies beneath the debate.

It's that, unusually, life is getting harder.

In every year since the turn of the century the Melbourne Institute's Household Income and Labour Dynamics survey has asked the same 7000 households a raft of questions designed to establish whether things are getting better or worse. HILDA is a statistical version of Seven Up.

In all but four of the past 15 years, things were getting better.

Two of those four years followed the global financial crisis. The other two were the two most recent years for which we have data: the first two full years of the Abbott-Turnbull government.

It means that whereas before the election of Tony Abbott, a typical Australian family took home about what it did in 2009, it now takes home less, after adjusting for inflation.

It's unusual, absent a recession. But it's been bearable because interest rates have been falling. When they climb, as they have just started to for some borrowers, it'll become painful.

As Shorten put it in a speech that purported to be about inequality but was actually about declining real incomes, "It feeds that sense, that resentment, that the deck is stacked against ordinary people, that the fix is in and the deal is done."

We didn't get that sense when ordinary incomes were rising, even though inequality was widening. Only now, when real incomes are slipping, do we feel resentful.

And it's mainly men who are resentful. Female earnings are trending up, especially those of women employed full-time. Male earnings are trending down.

University graduates earn much less than their predecessors used to ($1023 a week, down from $1468) and they are much less likely to be in full-time jobs four years later (73 per cent, down from 91 per cent).

Australians with only a high school qualification are even worse off. When the survey started, 81 per cent of them were employed full-time within four years. Now it's 62 per cent.

The survey's custodian, Roger Wilkins, notes dryly that this suggests the payoffs from university education have not deteriorated "relative to the alternatives".

As more and more of us work in part-time rather than full-time jobs, an increasing proportion are combining part-time jobs in order to work full-time. This means that part-time jobs are more common than the Bureau of Statistics survey suggests and that full-time jobs are harder to get.

Home ownership rates for the under-40s have collapsed. In 2002 when the survey began, 32.5 per cent of 18- to 39-year-olds owned a home. It's now 24.9 per cent.

The proportion of men in their early-20s living with their parents has jumped from 43 per cent to 60 per cent. The proportion of early 20s women staying at home has jumped from 27 per cent to 48 per cent.

Those who can buy houses find it hard to pay them off. The average mortgage taken out by a young homebuyer has almost trebled – jumping from $120,813 to $330,687. Going back to the same homeowners year after the year the survey finds that in most years the amount owed climbs as a substantial minority of young homeowners refinance or redraw or fall behind on their loans.

Wilkins says if they continue like this – using their mortgages to fund day to day expenses – there will be "real implications for future aged pension liabilities".

Australians are working longer without waiting for the pension age to rise. The typical retirement age has climbed from 62 to 66 for men, and for 61 to 64 for women. And retirement is less likely to be a one-off event. Thirteen per cent of men who retired between the ages of 60 and 64 find themselves back at work within a year, up from 9 per cent. Seven per cent of the women who retired between 60 and 64 find themselves back at work in a year, up from 4 per cent.

Even now, a quarter of a century after the introduction of compulsory superannuation and 15 years after compulsory contributions of around 9 per cent, the balances of retirees are surprisingly low.

Thirty per cent of men retire without super, and 29 per cent of women.

The men who do have super retire with a typical balance of $325,200; the women with $110,952. That typical balance is the median, meaning half of the retirees will have more, and half less. The mean (average) is much higher, pushed up by very big retirement balances at the top.

Retirees with low balances are highly likely to use them to pay off debts, obliterating 58 per cent of their super (men) or 70 per cent (women) in one go.

Wilkins says a significant proportion of people with relatively low balances are making the decision "not to use their superannuation to help fund their retirement".

Australia remains a wealthy country. But it isn't absolute wealth (or even relative inequality) that matters most when it comes to our feelings. It's whether or not things are getting better. HILDA suggests they are getting worse.

In The Age and Sydney Morning Herald

Tuesday, August 01, 2017

Better under Rudd: Household finances in reverse

The typical Australian family takes home less today than it did in 2009, when Kevin Rudd was prime minister.

The shocking finding, in the latest latest wave of the Household Income and Labour Dynamics survey, helps explain a growing political divide about inequality, even though the survey itself provides mixed evidence on whether things are getting worse.

Unique among Australian surveys, HILDA has been conducted every year since 2001 by returning to the same households and tracking changes in their lives.

Funded by the Department of Social Services and managed by the Melbourne Institute, it is able to reveal what the census and other mass surveys cannot: how the life circumstances of individuals change over time.

More than 7000 households have been surveyed each year. Another 2000 have been added in recent years, bringing the total number of people surveyed up to 17,300, including 5000 children.

The survey finds that real household disposable income (net of tax) peaked just before the global financial crisis at $77,411.

It fell sharply in 2010 and 2011 to $73,531 and then climbed back to $77,143 before sliding in 2014 and 2015 to $76,225.

The figures are medians, meaning half of Australia's households would have earned more than $76,225 and half less.

A measure of inequality, the Gini coefficient, shows little change in household inequality over the entire 15 years of the survey.

But when only earnings from paid work are examined on an individual basis, the survey finds inequality has worsened since 2008, by about 7 per cent for men and 9 per cent for women.INTERACTIVE

Over 15 years the typical inflation-adjusted household income has climbed from $58,956 to $76,225.

Sydney experienced the weakest growth of any region, with the typical household income adjusted for size climbing just $5182.

The typical Melbourne income climbed $9785. Perth household incomes grew $19,276.

The relatively weak performance of Sydney has changed the league table, with Perth now the highest-earning Australian state capital, with a typical real household income of $56,073, up 52 per cent after adjusting for inflation.

Brisbane is in second place on $49,210, followed by Melbourne on $48,494.

Sydney, which had the highest household income of any state capital back in 2001, is in fourth place just ahead of Adelaide at $44,779.

The percentage of Australians in poverty has fallen since 2001, whether measured as the proportion of households earning less than 50 per cent of the typical household adjusted for size, or whether measured as the proportion of households able to afford a limited basket of goods.

Poverty is highest among older Australians, especially women, although the report says the measure will overstate poverty where elderly Australians own their own homes and don't have to pay rent as many do.

Poverty is lowest among couples with dependant children.

Victoria has the most extreme geographical divide, with Melbourne having one of Australia's lowest poverty rates at 7.6 per cent while other Victorian towns and cities have 16.5 per cent.

In NSW the rates in Sydney and other towns and cities are much the same at 10.5 and 11.6 per cent.

South Australian regional towns and cities are the most disadvantaged in Australia with a poverty rate of 21.1 per cent, compared with 10.1 per cent in Adelaide.

Most people in poverty improve their situation in one to two years.

Far fewer Australians live in households that receive welfare payments than in 2001: 32.2 per cent of workforce-aged Australians, down from 38.1 per cent, and most get off it fairly quickly.

The experience of those surveyed suggests that university education is not the ticket to full-time employment it used to be.

Around 86 per cent of those who graduated between 2001 and 2005 were in full-time jobs five years later, compared with just 75 per cent of those who graduated between 2010 and 2011.

They were more likely to be employed part-time or doing further study.

The decline in full-time employment for men who had only completed high school was even worse, from 81 per cent to 32.6 per cent.

In The Age and Sydney Morning Herald