Sunday, January 28, 2018

Cost of tax breaks soars on profits selling homes

Government spending on tax breaks is set to hit a record $170 billion this year, largely as a result of an explosion in the value of concession for the family home.

Treasury's Tax Expenditures Statement required under the Charter of Budget Honesty and released quietly after the close of business on Thursday puts the value of the exemption from capital gains tax for owner occupiers at $74 billion this financial year, up from $66.5 billion last financial year, which was itself $5 billion more than Treasury had forecast.

Four years ago, before house prices shot up, it was worth $46.5 billion. Treasury says by 2020-21 it will be worth $91 billion.

The exemption releases owner occupiers from the obligation to pay capital gains tax on profits made from the sale of their primary residence. Those profits have soared in recent years as prices have climbed, especially in Sydney and Melbourne. Investors pay capital gain at half the income tax rate, a concession the Treasury costs at $10 billion, up from $4.4 billion four years ago.

The cost of tax expenditures is tabulated so that the government can compare the budgetary impact of direct spending in the form of grants with indirect spending in the form of tax breaks.

The government costs assistance to the aged at $64.3 billion and assistance to the unemployed and the sick at $10 billion.

The concession tax treatment of superannuation contributions is costed at $16.9 billion. The concessional treatment of super fund earnings is costed at $19.25 billion. The two figures can't be added together to get a total for super tax concessions, because if contributions were fully taxed the funds would earn less.

The exemption of so-called fresh foods from goods and services tax costs $7 billion per year. Among the items exempt because they are used to prepare food at home is sugar, although commercially prepared products containing sugar such as soft drinks are subject to the GST.

The GST exemption for education services including private school fees will cost $4.55 billion in 2017-18 and $5.65 billion in 2020-21. The exemption for medical services costs $4.1 billion.

The cost of the farm management deposit system, which gives tax advantages to qualifying farmers, is is expected to double from $245 million in 2016-17 to $560 million in 2017-18.

The figures come as the government attempts to find savings to fund personal income tax cuts in the May budget and reduce the deficit of $21.4 billion.


Tax Break Top 10

The 10 biggest tax expenditures identified by the Treasury

Revenue forgone per year

Capital gains tax exemption for family home: $77 billion

Tax relief for superannuation earnings: $19.25 billion

Tax relief for superannuation contributions: $16.9 billion

General capital gains tax discount: $10.27 billion

GST exemption for fresh food: $7.1 billion

GST exemption for education: $4.55 billion

GST exemption for health services: $4.1 billion

GST concession for for financial services: $3.4 billion

Tax relief for termination benefits: $2.4 billion

Concession for superannuation life insurance: $2.37 billion

Source: Commonwealth Treasury 2017 Tax Expenditures Statement 


In The Age and Sydney Morning Herald

Saturday, January 27, 2018

A tick from the IMF but company tax cuts no sure thing

When the International Monetary Fund boosted its forecasts of world economic growth on the back of better prospects in the US this week, Australia's Treasurer Scott Morrison was quick to claim it as an endorsement of company tax cuts.

"These new global growth forecasts demonstrate yet again that the move that's been taken in the United States, but also in other countries, the United Kingdom and France and other parts of the world, to drive their economies and to see their businesses grow, is going to generate growth and jobs," he said.

"Labor is stopping us."

The Fund lifted its forecasts of global growth for this year and the next from 3.7 to 3.9 per cent. It said half of the jump was due to the Trump tax cuts. Its US 2018 US growth forecast climbed from 2.3 to 2.7 per cent and its 2019 forecast from 1.9 to 2.5 per cent.

But much of that boost wasn't due to the most impressive and expensive ($US1.3 trillion) part of the cut; the slicing of the rate from 35 to 21 per cent. It was due to another, cheaper measure: a temporary instant asset write-off. Firms that install new buildings and equipment will be able to deduct the full cost straight away without depreciating it over years. It is similar to, but larger than, capped schemes introduced in Australia by both Labor and the Coalition to boost investment after the global financial crisis and the demise of the mining boom.

Like those schemes, it will be temporary, lasting for five years. Like those schemes, much of it will bring forward investment that most likely would have happened anyway, but later, meaning that when it ends US growth will slump, which is what the IMF expects and one of the reasons it is forecasting weaker US growth down the track.

Australia isn't proposing such a scheme. What the Turnbull government is proposing is a cut in the headline company tax rate from 30 per cent to 25 per cent for all companies, not just those with turnovers of up to $50 million, whose cuts to 25 per cent have already been approved by the Senate.

Will the US cut to 21 per cent, and other cuts including Brtiain's cut to 18 per cent, leave Australia uncompetitive?

It depends on how you calculate competitiveness.

These days John Fraser heads the Commonwealth Treasury. Until 2013 he was head of UBS Global Asset Management and responsible for its worldwide investments. He told a budget forum in Australia in 2015 that while he understood the argument for cutting company tax, his own experience told him that the tax was a "second or third order issue" for would-be investors.

"Generally the internal rates of return that are required – the hurdle rates – are so high it would be false to say the taxation rate, unless they were ridiculous, really large, make a big difference," he said. "It's, frankly, not as important as other issues such as governance and dispute resolution."

Because of the importance of investment allowances, groups such as the US Congressional Budget Office calculates "effective corporate tax rates" that show how much tax will actually be paid on new investments.

Its latest table, released in 2017, but using data from 2012, puts Australia's statutory corporate tax rate at 30 per cent, but Australia's effective rate at just 10.4 per cent. It puts the US statutory rate at 39.1 per cent including state taxes, but the US effective rate at 18.6 per cent. A more recent calculation, from the Oxford University Centre for Business Taxation, put Australia's statutory rate at 30 per cent and Australia's effective rate at 19.1 per cent, below the present US effective tax rate of 23.2 per cent and above the present UK effective rate of 17.1 per cent.

Low rates don't always go had in hand with good business conditions. Oxford identifies Italy, Hungary, Switzerland, Korea, Ireland, the Netherlands, the Czech Republic, Slovinia, Poland and Luxembourg as having the 10 lowest effective rates in the OECD. Most are better known as tax havens than as attractive locations to relocate operations.

To date, Australia has had no shortage of foreign investment, much of it in mining and in Australian shares. Economist Saul Eslake makes the point that if Australia did become starved of investment, the Australian dollar would fall to make it more attractive, which would be a good thing for other reasons.

"Arguably with our currency at 80 US¢ we are attracting too much capital," he says. "Maybe it might be a good thing if we attracted less, because our currency might be more competitive."

He is worried about where the money would come from to pay for the company tax cuts, which would be nowhere near self-funding. Even if they are budgeted for, and Finance Minister Mathias Cormann insists they are, it will be money which isn't available for other purposes, including larger personal income tax cuts.

Director of the Australian National University Tax and Transfer Policy Institute director Miranda Stewart says the company tax cuts could be paid for by abolishing the almost uniquely Australian system of dividend imputation that shields local investors from tax on dividends where the companies have paid tax.

Labor, the Greens and the essential crossbench members of the Nick Xenophon Team simply won't countenance a tax cut for big business however it is funded.

Morrison is going over their heads and appealing to their supporters.

Before Christmas he said while Australians were sitting on the beach enjoying summer, foreign companies would be making decisions and fleeing the country.

This week Qantas chief Alan Joyce pledged to use the windfall that would come from lower tax to lift wages, and Wesfarmers chief executive Rob Scott said he too would pass the benefits on to workers.

In the US, supermarket giant Walmart came good on a similar promise and announced wage rises and cash bonuses for thousands of its workers in the wake of the Trump reforms.

For the moment, Australian voters are not buying the arguments.

The latest poll to ask a question, the Essential survey in December found only 29 per cent of voters approved of the full tax cut for big business. Forty nine per cent rated personal tax cuts as a higher priority.

In The Age and Sydney Morning Herald

Thursday, January 25, 2018

Safe, but scared. How Victoria became a state of fear

There's something weird in the crime section of the report on government services released on Thursday.

The proportions of Victorians who feel "safe" walking at night has dived from 50 to 45 per cent in 2016-17. The proportion of NSW residents who feel safe has also dived, but from 54 to 49 per cent. The figures are for 2016-17. Victoria is now easily the most scared state in the nation, suddenly even more fearful than the traditionally scared states of Western Australia and Northern Territory.

The proportion of NSW locals who feel safe in their own homes at night remains unchanged at 90 per cent, but the proportion of Victorians who feel safe at home has dropped from 87 to 79 per cent, making Victorians now also the most scared on this measure, sharing the honour with Northern Territorians.

The (dated) figures for actual crime released in the Productivity Commission report show an increase in assaults per 100,000 Victorians during 2015-16, but to nowhere near to the level in Queensland, Western Australia and the Northern Territory.

Victoria is far from Australia's most dangerous state on the figures published, but Victorians seem to think it is.

It's understandable. We're more attuned to changes than absolute levels. The more dangerous states are no more dangerous, while the not particularly dangerous state of Victoria has become more dangerous. And the newspapers, especially the most tabloid of them, have been scaring Victorians for months.

Home Affairs Minister Peter Dutton lent legitimacy to their campaign when he said Victorians were "scared to go out to restaurants", a claim he might have clarified by saying that the risk of assault in Victoria (2490 assaults per 100,000 people) is little more than the Australian average (2420 per 100,000 people).

It'll doubtless lead to more police. Victoria already has more than NSW (297 per 100,000 residents compared to 256) without noticeably better outcomes.

NSW residents are more law abiding when it comes to seatbelts (only 2 per cent drive without them compared to 5.6 per cent) and less law abiding when it comes to speed (61 per cent drive more than 10 km/hilometres per hour over the speed limit compared to 53 per cent).

The most lawless part of Australia by far is the Northern Territory. One in 12 of its drivers drive without seatbelts and one in nine drive over the alcohol limit, compared to one in 17 in NSW and Victoria. The Territory has almost twice the rate of assaults as Victoria and more than twice the ratio of police: an extraordinary 732 per 100,000 residents.

An outsized proportion of the Territory is in prison: 898 in every 100,000 adults, an imprisonment rate comparable with the United States. Western Australia is the next-highest with one-third the number: 320 prisoners per 100,000 adults. NSW sits on the Australian average at 215. Victoria has Australia's lowest imprisonment rate: 140 per 100,000, a distinction it shares with Tasmania and the Australian Capital Territory.

Indigenous Australians are far more likely than others to be imprisoned, especially in Western Australia, which has an even higher Indigenous imprisonment rate than the Northern Territory with 3000 in every 100,000 Indigenous adults behind bars. Victoria's Indigenous imprisonment rate is Australia's lowest apart from Tasmania's.

Detention of Indigenous youth is also lower in Victoria than anywhere else, at 190 per 100,000 young people, compared to 360 in NSW and an extraordinary 600 in Western Australia, a rate that exceeds the Territory's 400.

Victoria treats its prisoners better than other states, allowing more than 80 per cent of them to work and 35 per cent to take part in education or training. It gives them an average of 11 hours per day out of cells. On each of these measures it does better than NSW, and on access to work, for prisoners it leads the nation.

Victoria trumps NSW in other respects. It spends more per resident on aged care. It spends more on aged home support, and it warehouses far fewer old people in hospitals while they are waiting for aged care places. It provides more access to disability support services and much more respite support for carers of people with disabilities. It is quicker at investigating and substantiating claims of child abuse and it places more of the children it takes out of home with relatives, the most in Australia, both Indigenous or non-Indigenous.

But it spends less on social housing than NSW and less per tenant. Its public housing is more overcrowded. Conversely, it spends more on support for the homelessness, especially on help with domestic violence.

The staged release of the Productivity Commission's mega report continues next week with comparisons on health, childcare and education.

Expect to hear a lot (too much) in the next few days about Australia. The truth is that we are a collection of states, some of which do things well and others badly. It is only by examining the textures of what we've tried, the successes and failures, that we can make use of what we've done and do better.

In The Age and Sydney Morning Herald

Wednesday, January 24, 2018

How about showing us the TPP we're about to sign?

What's in the revised Trans-Pacific Partnership deal for Australia? There's no way to tell until we've seen the text, and we won't see it until after it's signed, in Chile on March 8. Really. That's the way things normally work.

After that, there's still time to back out if we don't want to ratify it, and there's a precedent. All 12 would-be members signed up to the original Trans-Pacific Partnership in February 2016. Barack Obama found himself unable to get it through Congress and Donald Trump didn't try.

As best as we can tell, the new deal, TPP-11, is the old one with fewer bad bits. Twenty of the most contentious provisions included at the insistence of the US have been "suspended" until the US decides to join. They include enforced protections for the owners of pharmaceutical patents and extensions to copyright law.

There's no guarantee they would come back if the US did decide to join. Each of the 11 other members would have to agree.

Still in the agreement, although somewhat weakened, are the investor-state dispute settlement provisions insisted on by the US and Korea. They will allow private companies to sue national governments in extraterritorial tribunals, as Philip Morris did over Australia's tobacco plain-packaging laws using the terms of an obscure Hong Kong investment agreement.

John Howard successfully resisted having them in the US-Australia agreement and the Abbott government managed to avoid them in the Australia-Japan agreement, but we have apparently agreed to them now, for Japan, Korea and eight other nations.

The upside is that our companies will also be able to sue governments.

The best guess as to what the trade and investment concessions do for Australia financially, from the respected Peterson Institute, is "not much". Australia's national income would eventually be 0.5 per cent higher, a gain of less than half of one-tenth of a per cent per year.

The Productivity Commission wants to do the numbers itself, performing a proper cost-benefit analysis. Under Labor it would, for all future agreements. It's hard to think of a good reason why it shouldn't do it now.

In The Age and Sydney Morning Herald

Monday, January 22, 2018

Trump's sugar hit to boost world economy - IMF

A sugar hit from the Trump administration's US tax cuts is expected to propel world economic growth to 3.9 per cent in 2018, the best result in eight years.

In an update to its forecasts presented to the World Economic Forum at Davos in Switzerland, the International Monetary Fund said the global economy should grow by 3.9 per cent in 2018 and 2019, up from the 3.7 per cent per year it forecast in October.

Half the upgrade was due to the $US1.5 trillion ($A1.88 trillion) in tax cuts. Its forecasts assume that the hit to US tax revenues will "not be offset by spending cuts in the near term" meaning that the economies of the US and the countries it trades with will benefit as the US budget deficit deteriorates.

It has lifted its forecasts for US growth from 2.3 to 2.7 per cent in 2018 and from 1.9 to 2.5 per cent in 2019.

Beyond 2022 it is expects lower than previously forecast US growth as the next US administration attempts to get the deficit under control and as the "temporary exceptional" five-year tax write-off for investment in business assets expires.

"This short-term growth boost will have positive, albeit short-lived, output spillovers for US trade partners," said IMF director of research Maurice Obstfeld. "But it will also likely widen the US current account deficit, strengthen the US dollar, and affect international investment flows."

Treasurer Scott Morrison welcomed the temporary upgrade saying it "directly contradicts Labor's claim that the Trump company tax cuts have nothing to do with the uptick in economic growth around the world".

"This backs up our positive outlook for Australia's economy in 2018. It is why this government will continue to seek support for our enterprise tax plan."

Only half of the government's $50 billion program of company tax cuts has become law. Company tax is set to fall from 30 per cent to 25 per cent for small and medium-size businesses, but not for big ones.

Mr Morrison said he wanted Australians "to seize the opportunities ahead, rather than be left behind".

The IMF believes the US tax cuts will benefit countries such as China that supply goods and machines to the United States and countries such as Australia that supply the raw materials used to make them.

Much of the growth upgrade is due to a strengthening of the coordinated upswing under way since mid-2016.

The economies of 120 countries, accounting for three-quarters of world GDP, grew faster than expected in 2017 in "the broadest synchronised global growth upsurge since 2010".

Growth was especially strong in Germany, Japan, Korea, the United States, Brazil, China, and South Africa.

The report warns that, as important as lower interest rates have been to the recovery, they have left a legacy of debt, both government and private.

Professor Obstfeld said that although inflation and interest rates remained low for now, a sudden rise from current levels, perhaps due to "pro-cyclical developments" such as the US tax cuts, could tighten financial conditions and prompt markets to re-evaluate debt sustainability. Share prices would also be vulnerable.

A PricewaterhouseCoopers survey of 1300 chief executives released at the forum found 57 per cent expect better economic growth over the next 12 months, almost double the 29 per cent that expected it a year ago.

Among US executives the proportion expecting stronger growth jumped from 39 per cent to 53 per cent.

The US had cemented its position as the most attractive location for investment, named by 46 per cent of the executives, up from 43 per cent.

China was the second most attractive destination, at 33 per cent.

Germany, Britain, India and Japan were the next most attractive locations. Australia fell from the 10th to the 11th most attractive location, nominated by 5 per cent of chief executives.

In The Age and Sydney Morning Herald

Sunday, January 21, 2018

Enjoy the Hottest 100, but it's not all it seems

Wanna rig the Hottest 100?

It's surprisingly easy. I am not talking about blatant write-in campaigns of the kind that attempted to push Shake It Off to the top in 2015. They've been headed off by a new rule that says "votes made as part of a competition that promotes a song or artist, or a campaign that undermines the Hottest 100 may be disqualified or ignored".

I am talking about the kind of manipulation that happens all the time, where songs are pushed to the top of the charts and into the crevices of our hearts without us knowing.

Senator Cory Bernardi, who this week took the unusual step of creating his own alternative "Conservatives 100" in protest at triple J moving the Hottest 100 from Australia Day, achieved little. The best way to control what people want to hear is to control what they do hear.

US station manager Todd Storz twigged to the idea in the 1950s. Like most radio stations, his had been playing a bit of everything, what he thought people wanted. Then as he waited in a restaurant to pick up his girlfriend, who was a waitress, he noticed that the other waitresses were programming into the jukebox the same songs they had been hearing all day. They had come to like what they had been forced to hear. He invented Top 40 and never looked back.

But triple J is different. Its listeners have minds of their own, right?

Liam Lenten and Jordi McKenzie, economists and music tragics from La Trobe and Macquarie universities, think not.

They've just completed what is probably the only economic analysis of Australian pop music charts. Published in the Economic Record, it was intended to be a study of what kept songs at the top of the all-time Hottest 100 and what let new ones in.

The Hottest 100 comes in two forms. The annual survey, which these days is limited to tracks released in the previous year, is followed by a release of a double CD. The best tracks of all-time survey, which used to be annual, now takes place once every 10 or so years. Both are decided by popular vote.

Lenten and McKenzie's initial findings were that songs released in the lead-up to the best songs of all time polls did unreasonably well, and that there was something special about Joy Division's Love Will Tear Us Apart. It has been always been at or near the top.

Then a different, one-off, Hottest 100 put them on to something fascinating. It was conducted in 2013 and limited to the best tunes of the previous 20 years. In each of those years triple J had released Hottest 100 CDs, but because of copyright and other restrictions, none had included anything like the entire 100. Many didn't even include the hottest of the 100. In Lenten and McKenzie's words, "a significant proportion of songs featured each year were low-ranked".

Yet these low-ranked songs, not overly liked at the time, turned out to be over-represented in the hottest of the past 20 years list, eclipsing some that had made it to the top five. They only thing they had that many of the better-liked songs did not have was inclusion in the CD. Lenten and McKenzie conclude that "the radio station itself played a significant role in the results" by what it chose to put on the CD.

A decade ago two Columbia University sociologists asked people to rate 48 songs and download those they liked most. Half were told the truth about which had been the most downloaded. Half were lied to and told the reverse, that the least downloaded were the most downloaded. They downloaded the initially unpopular songs surprisingly often.

Enjoy the Hottest 100, it's democracy in action. But democracy is imperfect. We're more easily manipulated than we think.

In The Age and Sydney Morning Herald

Saturday, January 20, 2018

Government grants sloppy, and perhaps corrupt

Before the last election the Turnbull government had an unofficial budget: $20 million for each electorate in play. It could be handed out as picnic tables, fire trails, skate parks, netball courts, disabled toilets, or anything else that made it look as if the government cared about the electorate.

A senior source told me it was clever – Turnbull had managed to cap the financial cost. Labor said little. It couldn't. In office it had done it itself.

That these sort of grants weren't what the Commonwealth was for, as was tacitly acknowledged as Treasurer Scott Morrison tried to keep a straight face in a press conference days before the vote.

Journalist Phillip Coorey had asked him why the Commonwealth was funding dunny blocks.

"People need them Phil, people need them," the Treasurer replied. Addressing community cohesion was important.

But not important enough to have an independent panel access applications and award grants on the basis of need. If that had happened it is highly unlikely that 20 per cent of the funds would have gone to electorates representing just 2 per cent of the population.

Labor used to have such a panel, although it didn't always follow its recommendations. In 2014 the Audit Office recommended that the Department of Infrastructure and Regional Development do the job. The government "agreed" with the recommendation, although it merely "noted" another that said applications should have to meet published merit assessment criteria.

In an almost ideal world we would have an independent body deciding on grants, in the same way as the independent Reserve Bank decides on interest rates, and for the same reason – the government can't be trusted. In an absolutely ideal world the Commonwealth wouldn't hand them out at all.

At a minimum we should have a Commonwealth anti-corruption commission. And we ought to outlaw bigger grants that are just as sloppy, allocated without tender.

In the budget the government awarded Fox Sports $30 million to "increase coverage of sports that receive low or no broadcast exposure". The criteria are so broad it'll meet them easily. The documentation released this month says it's a direct offer, "available only to Fox Sports Australia Pty Ltd".

In The Age and Sydney Morning Herald

Thursday, January 18, 2018

Sugar's tobacco moment as voters call for new tax

Imagine a tax that Coalition voters actually wanted. They certainly don't want more income tax (only 12 per cent do, according to an Essential poll), they certainly don't want more company tax (they want less) and they will cop an increase in GST only if it brings down other taxes.

But then there is sugar. This week's Essential poll reveals the sort of disdain for sugar there is for tobacco.

An extraordinary 57 per cent of Liberal and National Party supporters say they want a special tax on sugar-sweetened drinks. That's more than the 54 per cent of Labor voters that want it.

It is sugar's tobacco moment. When the tobacco question was asked two years ago a massive 70 per cent of Coalition voters wanted higher taxes on it along with 67 per cent of Labor voters. For both tobacco and sugar, it's the university-educated Coalition voters who want the higher taxes the most.

What has sugar done to get lumped in with perhaps the most despised legal substance on the planet?

Nothing it hasn't been doing for decades. It is just that it is doing more of it and we are learning more about what it is. The industry would like us to believe that obesity and the tragic diseases that follow are simply a matter of "energy in and energy out". Those are the words it uses.

Put less into your mouth, do more exercise, and you won't get as heavy.

Here's Geoff Parker, chief executive of the Australian Beverages Council: "All kilojoules matter, it doesn't matter where those kilojoules come from."

It is what I call the "federal budget" approach to maintaining weight. If only the government spent less and taxed more it would bring down the deficit. It sounds true only because it ignores feedback loops.

When countries such as Spain and Italy imposed austerity programs after the financial crisis, they did indeed cut spending, but they also plunged their economies into deeper recession, losing even more revenue.

Sugar sets off the same sort of feedback loop.

It is true that heavy people eat more than others and exercise less, but the causation is not all one way.

It is easiest to see in children. They eat more during growth spurts, but it is not right to say their growth spurts are caused by the extra eating. It is truer to say that whatever it is that brings on their growth spurts does it by bringing on their extra eating.

Here's another example. Someone with an aggressive tumour will eat more in its early stages. That is because the tumour grabs the incoming nutrition for itself, making the host heavier but weaker and hungry for more food. It is as true to say that the extra weight brings on the extra eating as it is that the extra eating brings on the extra weight.

For sugar, the budget analogy misses the point. The point is that our bodies respond to sugar with insulin.

Rosalyn Yalow won the 1977 Nobel Prize for tracking what insulin does. When it is released, our fat cells start to pack in fuel in the form of fatty acids, and close their walls to prevent them escaping. It is why, bizarrely, we often feel weak or hungry after taking in sugar. The energy we expect to get is rendered inaccessible until the insulin dissipates.

And so we are likely to take in more sugar, triggering another flood of insulin, and so on. If we are especially unlucky, the repeated floods of insulin build up our resistance and encourage our bodies to produce more and more insulin until they exhaust their capacity, meaning we need to take it intravenously.

It is worst for refined, dissolved sugar. It is relatively new in terms of human biology and it hits our bodies instantly, which is why soft drinks are being taxed on a worldwide scale not seen since cigarettes.

Twenty-six countries including Mexico, Portugal and Thailand already have in place a punitive tax on soft drinks. Five more will put one in place by April, including Britain.

Introducing the the legislation in 2016, Conservative chancellor George Osborne warned that within a generation, half of all boys and 70 per cent of girls would be overweight or obese.

"I am not prepared to look back at my time here in this parliament, doing this job and say to my children's generation: 'I am sorry, we knew there was a problem with sugared drinks, we knew it caused disease, but we ducked'," he said.

The British tax is ingenious. It will apply at two different rates. Drinks with less than 5 per cent sugar won't face it at all. There is a pay-off for getting concentrations below 5 per cent. Schweppes lemonade has already done it.

In Mexico, sales of sugared drinks dropped by 5.5 per cent in the first year and then 9.7 per cent. In Berkeley, California, which imposed a city-wide tax, sales dived 9.6 per cent.

Our Prime Minister is on record as saying: "if you want to have less of something, you increase the tax on it". His side of politics wants him to do just that.

In The Age and Sydney Morning Herald

Sunday, January 14, 2018

The gang crisis our leaders help create

What is it about the African gang crisis that's so disturbingly familiar?

In case you haven't been paying attention, Melbourne is supposedly in the grip of a crime wave. Not on the basis of statistics, which show arson, property damage, burglary and theft down (sexual offences and robbery are up), but on the basis of a series of front page articles over summer in the Herald Sun and also The Australian about African gangs, most of them South Sudanese.

Victoria's opposition wants to recall Parliament.

Federal minister Greg Hunt, whose day job is Health Minister and who last year had to apologise to the Supreme Court for calling it soft, says African gang crime is "out of control". Prime Minister Turnbull says he is alarmed by "growing gang violence". And Home Affairs Minister Peter Dutton says people are scared to go out to restaurants "because they are followed home by these gangs".

It's feeding on itself. A nationalist group says it's planning a rally on Sunday in order to "take a stand on the streets". African Australians are being harassed and worse by vigilantes who are suddenly emboldened. Police say a Daily Mail photographer helped create the latest "flare-up" by taking close-up photos of a group of Africans socialising.

"The teenagers had been doing nothing of public interest prior to the photographer's decision to move in," a memo reported by The Guardian says. The Mail labelled the scuffle that it helped create "the latest gang flare-up" and boasted that its pictures were "exclusive".

It is familiar because it happened in Sydney with Lebanese Muslim youths (remember the Cronulla riots?) and before that with "Asian gangs" in Cabramatta. In Adelaide a decade ago it was the "Gang of 49". There never was a Gang of 49, but The Advertiser coined the term to describe 49 mainly Aboriginal youths the police said they were looking for.

The catchphrase had incredibly unfortunate consequences. Former police say it created gangs. Dispossessed, often homeless, youths started saying they were part of Gang of 49 and stealing cars and doing ram-raids to prove it.

"It hypes them up, they think they are famous, it's them against the police," a grandmother of one of the self-described members told the ABC. Very young Aboriginals, too young to be part of a gang, started romanticising the idea and looking forward to the day when they could.

It happened after Melbourne's Moomba riots in March 2016, which the media were quick to attribute to the "Apex Gang". More a grab bag than a gang, it grew swiftly as all sorts of petty criminals started scrawling the word "Apex" wherever they had been. The more it was talked about, the bigger it became.

That's why on Wednesday Police Commissioner Graham Ashton rubbished the idea of a gang and referred instead to low-level crime. It was "complete and utter garbage" to suggest, as our leaders have, that Victorians aren't safe.

"The sort of concept that somehow it's unsafe to go out to dinner, how long since you've been out to dinner?" he asked.

Big cities have had aggravated burglaries and home invasions for years, less so in Melbourne in the past two quarters. The perpetrators are overwhelmingly Australian-born. Although Sudanese youths are over-represented in minor crime statistics (as might be expected given high socio-economic disadvantage) and are involved in many more armed robberies than before (98 in 2016-17, up from 20 in 2014-15) the perpetrators of serious assaults are 25 times more likely to be born in Australia or New Zealand than in Sudan or Kenya.

Talk about gangs has probably always created gangs, at least as far back as the Mods and Rockers in the UK in the 1960s. But it's worse now. Would-be gang members can find each other on social media. Words can do even more damage, all the more so when they are used carelessly by newspapers and "leaders" to fill space and score points.

In The Age and Sydney Morning Herald

Friday, January 12, 2018

Axe negative gearing, boost GDP - RBA conference paper

Axing negative gearing would lift home ownership to as much as 72.2 per cent of households, cut home prices by just 1.2 per cent and lift rents "only marginally", a study shown to the Reserve Bank of Australia has found.

Preliminary results from the economic modelling exercise, believed to be the first of its kind in Australia, were presented to a RBA workshop last month and released on Friday.

Melbourne University researchers Yunho Cho, Shuyun May Li and Lawrence Uren conclude that eliminating negative gearing entirely would lead to an overall welfare gain of 1.5 per cent of GDP, making three quarters of the population better off.

The figure compares to a Treasury prediction of welfare gain of 1.2 per cent from Turnbull government's plan to cut the company tax rate.

Speaking after the release of the paper, Dr Uren stressed the research was incomplete and said it was possible the size of the lift in home ownership could be revised down. But he said the directions of change and magnitudes were unlikely to change much.

An ownership rate of 72 per cent would be the highest since 1991, before 1999 when the Howard government cut the headline rate of capital gains tax making negative gearing more attractive. It currently stands at 66.7 per cent.

During the 2016 election campaign Prime Minister Turnbull said a Labor plan to wind back but not eliminate the negative gearing tax concession would "smash up home values", and "pull the rug out from under the property sector".

The claims were at odds with advice to the government at the time released on Monday under Freedom of Information laws that characterised the likely impact of Labor's proposals as "relatively modest".

Negative gearing allows investors in housing and other assets to deduct investment losses from their wage incomes for the purpose of calculating taxable income. The losses can be recouped later when the asset is sold for a profit, which is taxed at only half the rate of wage income.

Treasury found the arrangement predominantly helped high income families, with more than half of the benefit going to the top 20 per cent of earners.

Dr Uren said his modelling examined only what would happen after a transition process that might take several years.

Renters and owner-occupiers would be the biggest beneficiaries. Landlords, especially young, high earning landlords, would be the biggest losers.

Renters would benefit because although rents would climb by 2.4 per cent, the government would be in a position to compensate them and others with the extra $2 billion it would make in increased tax revenue.

"We are comparing two small changes," Dr Uren said. "One would be a small price change for renters and the other would be a small increase in transfers."

Young owner-occupiers would benefit from the lower house prices "as they can move up a housing ladder more easily".

Landlords who rely on borrowings would be "driven out of the market for investment properties".

Most are "young, but rich enough to afford the downpayment requirement for their investment". Other landlords would also scale back their holdings.

Thirty per cent of rental properties would be freed up and bought by Australians who would have otherwise rented. Almost every income group and every age group would increase its home ownership rate.

Acting Treasurer Kelly O'Dwyer disparaged the paper as "preliminary and incomplete", prepared by university academics.

She said Labor should not boast about a finding that house prices would go down and rents go up. It should "be of concern to every Australian, whether they're a prospective first home buyer who rents or they own their own home".

Labor Treasury spokesman Chris Bowen said it supported the direction of Labor's reforms and showed they would boost home ownership.

In The Age and Sydney Morning Herald

Thursday, January 11, 2018

Coal is now the biggest threat to energy security

Worried the electricity system won't keep up over summer? Worry about coal. Seriously.

One of the four giant units at Victoria's ageing Loy Yang A power station broke down on Tuesday night at 11.05, taking out 230 megawatts, and then at 1.10 on Wednesday morning after being partially restarted, taking out what by then was 161 megawatts.

When demand soared during Sunday's heatwave, the Eraring plant on Lake Macquarie in NSW lost 275 megawatts. A few minutes later, Loy Yang A lost 264 megawatts.

On New Year's Day, unit 1 of Millmerran in Queensland stalled, taking out 156 megawatts. On December 28, unit 2 of Tarong in Queensland stalled, taking out 314 megawatts. On Boxing Day, unit 4 at Loy Yang stalled, taking out 528 megawatts. On Christmas Day, unit 1 at Gladstone stalled, taking out 230 megawatts, then unit 1 at the Tallawarra gas plant in NSW, taking out 187 megawatts. And so on, back to the start of summer.

When unit 3 at Loy Yang shut down without warning on December 14 taking out 560 megawatts and imperilling the entire system, the new Tesla battery 1000 kilometres away in South Australia sprang into action ahead of the coal-fired power station that was contracted to restore stability. It proved to be "dispatchable" in a way coal-fired power stations are not.

Age, heat and the steady encroachment of renewables are destroying the only advantages coal-fired power stations ever had.

When Treasurer Scott Morrison stood up in Federal Parliament and waved around a lump of coal in a stunt unworthy of his office, he said coal was an important part of ensuring a "more certain" energy future.

But he was speaking about the past.

Coal-fired power stations didn't used to get critically hot as often as they do now. The February 2017 heatwave that took out 2438 megawatts in one day in NSW might have once been a once-in-500-year event. Now it's a once-in-50-year event and perhaps soon a once-in-five-year event. The calculations are by the Australia Institute's Mark Ogge and Hannah Aulby in a study of the risks to energy security entitled Can't Stand the Heat. Ogge is the person who has been keeping a record of power station outages.

When temperatures in control rooms get as high as 50 or 60 degrees the electronic control systems buckle and the boilers leak. Failures are inevitable, although unfortunately not predictable.

Wind power and solar power are in large part predictable. Yes, they are intermittent, but it is usually possible to tell a day or two ahead of time when and where the wind will blow and the sun will shine. There's time to put batteries, hydro and gas on standby.

But in summer it's becoming impossible to know when and where coal-fired power stations will blow. They are becoming unpredictably intermittent, all the more so each year they age.

And standby power is costly. Tony Wood of the Grattan Institute helped run Origin Energy for 14 years. He says the industry standard is to have as much back-up as the biggest independent unit, so that if it drops out it can be instantly replaced. But the biggest independent coal units are huge. They require big back-up.

The biggest wind and solar farms are much smaller. While they require storage and gas peaking plants to fill in overnight and when the wind's not blowing, they don't need anything like as much back-up for when mechanical problems knock them out of service.

There are caveats. Independent turbines can stop blowing at once, and sometimes unpredictably. That's because most are located together in South Australia and Victoria, where the wind systems are synchronised. It would be better to have more wind farms in NSW, where the weather cycle is different. At times cloud cover is also unpredictable.

A future without coal-fired power stations is inevitable, and entirely manageable. Wind accounts for 40 per cent of South Australia's electricity supply, 8.5 per cent of Victoria's supply, and 2.8 per cent of the NSW supply. One of the many reasons no new coal-fired power stations will be financed or built is they are not well-suited to filling in gaps.

They are good at providing always-on baseload power, but that's not needed in the middle of the night when the wind is blowing a gale and providing all of a system's need for virtually nothing. They are not as good at turning on or ramping up quickly when the wind stops blowing. If they are used repeatedly to do that, they break down sooner.

The Turnbull government's proposed national energy guarantee would require retailers to ensure that a certain amount of the electricity they line up is dispatchable. Critics took this to be a code word for coal, but it can't be, not unless Turnbull wants to misuse the word. Battery storage, pumped hydro, molten salt solar plants that can fire up overnight, and gas peaking plants are far more dispatchable.

And they are more reliable. The more we move away from coal the more secure our power system becomes.

In The Age and Sydney Morning Herald

Wednesday, January 10, 2018

What a job? Move to NSW

It's the easiest to find a job since the mining boom.

The latest count from the Bureau of Statistics shows there were a record 216,000 job vacancies in November and 661,400 Australians out of work, the lowest total since 2012.

The ratio of 3.1 means there were roughly three job seekers for each vacant job, a step up from November 2016 when there were 3.7.

In NSW, the state with the best odds, there were only 2.2 job seekers for each vacant job, one of the lowest ratios ever recorded. A year earlier there were 2.7.

While Victoria has recorded the biggest improvement, the odds remain nowhere near as good as in NSW. There were 3.1 unemployed Victorians trying to get each vacant job in November, down from 4.2 a year earlier.

In Queensland the odds improved from 4.5 per vacant job to 3.9, in South Australia from 6.1 to 5.7, in Western Australia from 4.7 to 4.3 and in Tasmania from 7.9 to 5.7.

In the Northern Territory the odds remained little changed at about two unemployed per vacancy, and in the Australian Capital Territory they slid from 1.6 to just 1.3. But the ACT figures are unrealistic because they are biased downwards by the number of ACT workers living outside of the territory and the number who come from interstate for jobs.

The better odds in every state reflect both a surge in the number of vacancies, from 69,000 to 81,500 in NSW, and from 45,400 to 57,500 in Victoria, and also a drop in the number of Australians identifying as unemployed.

A near-record 383,300 more Australians have found work in the past 12 months, almost all of them full-time.

Construction vacancies have jumped 22 per cent, manufacturing vacancies 46 per cent, retail vacancies 14 per cent, and hospitality vacancies 16 per cent.

Vacancies in Australia's biggest industry group, health care and social assistance, jumped 18 per cent.

The bureau surveys employment door-to-door. It surveys vacancies by submitting questionnaires to businesses. Its vacancies count is regarded as more reliable than those of other organisations because it includes all vacancies, whether advertised or not.

Over the past year the unemployment rate has fallen from 5.8 to 5.4 per cent. Commonwealth Securities senior economist Ryan Felsman said he expected it to slide further toward 5 per cent in the year ahead.

Business Surveys suggested employment growth of about 20,000 per month, well above the 14,400 needed to merely keep unemployment steady.

In The Age and Sydney Morning Herald

Monday, January 08, 2018

Why Treasury told Turnbull about negative gearing

Malcolm Turnbull knew or ought to have known that the claims he made about Labor's housing policy during the election were likely to be wrong.

The Treasury pointed it out in the lead-up to the campaign.

Ramping up his rhetoric in order to win the election, Turnbull said Labor's plan would "devalue every home, every property, in Australia".

It would "smash up home values", "pull the rug out from under the property sector".

It was "a big sledgehammer" aimed at the property prices.

Except that the Treasury didn't think so, and had spelled out its reasoning in a memo delivered to treasurer Scott Morrison as Turnbull was sharpening his lines.

Far from disowning the memo, the Treasury has spent much of the past two years arguing that its contents reflected its genuinely-held opinion.

Fighting to prevent its release to the ABC under the Freedom of Information Act, it told the Office of the Australian Information Commissioner that publication would harm its "ability to provide candid and confidential advice to ministers in the future".

Here is that candid and confidential advice. Labor wanted to limit negative gearing to newly-built homes. Losses from investments in other homes and shares could still be deducted from income, but only from investment income. Existing investments would be unaffected. And the capital gains from those investments would be taxed more heavily, at three-quarters rather than half the income tax rate.

Treasury said the changes would have a "relatively modest" effect on prices.

Returns for investors would fall. But owner-occupiers, unaffected by the changes, would be "likely to limit the extent to which is an impact on prices".

"Overall, price changes are likely to be small, though the composition of ownership may shift away from domestic investors," the candid assessment concluded.

Labor's policy, or cut-down versions of it, has been supported by the Property Council, the Business Council, the head of the Abbott government's Commission of Audit, the head of its review of the financial system, the Reserve Bank governor Philip Lowe, the Institute of Company Directors, and the Committee for the Economic Development of Australia.

Treasury, but not Turnbull, thought they were on the right track.

In The Age and Sydney Morning Herald