Peter Martin Economics: September 2021

Wednesday, September 15, 2021

Delta is tempting us to trade lives for freedoms — a choice it had looked like we wouldn’t have to make

Last year COVID-19 seemed simple. It was horrific, but the arguments about what to do were fairly straightforward.

On one side were people rightly horrified by its rapid spread who wanted us to stay at home and stay away from school and work and socialising in order to save lives.

On the other side were people concerned about the costs of those measures — to jobs, to education, to freedom, to mental health, and to other lives (because if we used too much of our health system fighting COVID-19, other lives might fall through the cracks).

And through it all came a kind of consensus.

The concern about non-COVID deaths turned out to be overblown. Last year Australia recorded fewer than normal doctor-certified deaths, in part because the COVID restrictions stopped deaths from influenza, and in part because they snuffed out COVID-19 early, ensuring hospitals weren’t overwhelmed.

Last year, we didn’t have to choose

Concern about jobs also turned out to be overblown. By locking down hard and early, and paying employers to keep on staff (through JobKeeper) we ensured the lockdowns would be short-lived, with light at the end of the tunnel.

In none of the states for which there is data was there an increase in suicides.

The insurance company ClearView told a parliamentary committee this June its research found things were better than expected in part because of the universal nature of the pandemic. Everyone knew “everyone was in this together”.

Another reason was telehealth. It was easier to get help than before.

And students returned to school sooner than they would have had the lockdowns had been weaker or started later, leaving much of their education intact.

The consensus was that by locking down hard and early we got the best of both worlds — near-elimination of COVID-19 and a quick return to normal life. Anyone who remembers Christmas last year remembers how normal it felt.

Economics is called the dismal science in part because it is about hard choices — situations where we can’t have our cake and eat it too. Last year it seemed as if COVID wasn’t one of them. Starving the virus early gave us both one of the world’s lowest death tolls and one of its shortest recessions.

Hard choices are back in sight

And then came Delta.

Far more contagious than the original, and with fewer immediate symptoms (making it harder to trace) the Delta variant became almost impossible to get on top of in the two big states where it took hold.

And without very high vaccination rates — in the view of the Grattan Institute significantly higher than either the NSW, Victorian or Commonwealth governments are targeting — it became all but impossible to reopen without condemning Australians to COVID deaths.

The new reality is plunging us back toward the territory economists call their own — the world of hard choices.

If the lockdowns don’t end (and there is no sign they can end any time soon without costing lives) education and mental health and jobs will indeed suffer.

There’s only so long businesses can hang on without pulling the pin.

We are getting closer to having to trade off lives against freedoms; getting closer to having to decide how many COVID deaths and how much COVID illness we are prepared to live with in order to return to something more like normal living.

Last week’s NSW “roadmap to freedom” implicitly made those tradeoffs.

Calculations prepared by the Treasury and the Grattan Institute make them more explicit.

There are few important things to note.

One is that we might yet be able to get the best of both worlds. We might yet be able to effectively eliminate the delta strand, restoring both health and freedoms (as we did with the earlier strand).

It won’t happen if we ease restrictions before transmission has stopped, as some states are planning to.

Lockdowns without end are unsustainable

Another is that unending lockdowns are untenable. While last year’s lockdowns didn’t do the psychological and health and educational damage that was feared, lockdowns without end would.

One type of damage clearly evident in the comprehensive report on last year’s lockdowns from the Australian Institute of Health and Welfare is family and domestic violence. The longer lockdowns continue, the longer elevated violence is likely to continue.

And another thing to note is that in a world where we have to make tradeoffs there are no particularly good options. Allowing the disease to spread in order to restore freedom of movement would itself curtail freedom of movement.

An analysis across US states suggests 90% of last year’s collapse in face-to-face shopping was due to fear of COVID rather than formal COVID restrictions. That fear will grow if we lift restrictions and COVID spreads.

The Grattan Institute would lift lockdowns only when 80% of the entire population has been double vaccinated (not 70-80% of people aged 16+ as the NSW and national plans envisage, which amounts to 56-64% of the population).

Grattan believes its plan would cost 2,000-3,000 lives per year; a cost it believes the public would accept because it is similar to the normal toll from flu.

The NSW and national plans (Victoria’s isn’t spelled out) would cost much more.

No option is particularly good

The Commonwealth Treasury finds, perhaps counter-intuitively, that an aggressive lockdown strategy that saved more lives would impose lower economic costs (about A$1 billion per week lower) in part because it would end up producing fewer lockdowns.

They are the sort of calculations we hoped never to have to make.

There’s still a chance we might not. With a Herculean effort NSW and Victoria could yet join Taiwan, New Zealand and every other Australian state in being effectively COVID-free. But they are running out of time.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, September 08, 2021

From October, it will be all but impossible for most Australians to vape — largely because of Canberra’s little-known ‘homework police’

After a misstep, it’s about to become illegal to import e-cigarettes without a prescription, which means that, for most Australians, it’ll become all but impossible to vape from October 1.

The misstep tells us a lot about how the Australian government works behind the scenes — most of it good.

Mid last year, Health Minister Greg Hunt announced plans to ban the import of nicotine-containing e-cigarettes and refills without a doctor’s prescription. Border force would be checking parcels.

To Hunt, the decision made sense. It was already illegal to buy and sell such products without a prescription in every Australian state and territory, and it was illegal to possess them without a prescription in every state but South Australia.

All Hunt was doing was closing a (very wide) loophole.

Government backbenchers revolted, Hunt pointed to a doubling of nicotine poisonings over the past year and the death of a toddler, the prime minister offered less than complete support, saying he was keeping an “open mind”, and Hunt put the idea on the backburner.

That’s the way it played out in public.

But beneath the surface, something impressive was swinging into gear. It’s called the Office of Best Practice Regulation, OBPR, an apolitical body nestled within the prime minister’s department.

Canberra’s ‘homework police’

So what did this little-known entity do that will effectively stamp out vaping from next month? Its executive director, Jason Lange, revealed the back story at an Economic Society of Australia meeting in Canberra earlier this year.

Set up during the 1980s to ensure government decisions didn’t needlessly tie up business in red tape, the office gradually was given other things to consider, including the effect of government decisions on citizens, on the environment, and on the distribution of burdens throughout society.

Then in 2013 Prime Minister Tony Abbott moved it out of the Department of Finance into his own department: Prime Minister and Cabinet.

Prime Minister and Cabinet is the traffic cop: it decides what gets put forward for cabinet to decide, and when. So suddenly the office was working at the centre of government decisions, getting to view every one of the 1,800 or so things put to senior ministers to decide each year.

Seven questions shaping new decisions

For the few hundred proposals it thinks might have significant unintended impacts, the office demands an impact statement.

It doesn’t tell the department or authority putting forward the idea what to put in the statement. But as Lange explained, it “marks the homework”. The proposals behind statements that aren’t good enough find it hard to get to cabinet.

Hunt’s decision on e-cigarettes wasn’t accompanied by an impact statement the first time around. Lange’s office made sure it was on the second.

Each OBPR analysis has to address seven questions.

The first is what problem the agency is trying to solve. Maybe it’s not really a problem. Merely working that out puts what follows into focus.

The second is why government action is needed. Maybe the problem isn’t very big, or maybe it will solve itself.

The third is what options the agency is considering. The agency has to put forward at least three options, including one that isn’t a regulation. In the case of e-cigarettes, that option was a public awareness campaign.

Then it has to estimate the likely benefits and costs of each option, including the costs to people the option wasn’t intended to hit, such as under-the-counter retailers and people using vaping to give up smoking.

The fifth question is the range of people and organisations to be consulted (which is a way of making sure it happens). The sixth is to identify the best option from the list, which includes making no regulation whatsoever.

The seventh is the means by which the measure would be implemented and (importantly) later evaluated.

Grading government ideas, from ‘insufficient’ to ‘exemplary’

Once in, and usually after being sent back for further work, the analysis is graded on a scale from “insufficient” to “adequate” to “good practice” to “exemplary”.

Very few are graded exemplary, and very few that we know about are graded inadequate, because if such a proposal does get adopted by cabinet, the impact statement gets published along with the grade and a statement that describes its failings — a “nuclear option” Lange says can be deeply embarrassing.

All impact statements attached to proposals the government adopts get published along with its OBPR rating. It is often the best opportunity the public has to read about the thinking behind the proposal.

Tellingly, only about 80 of the hundreds of impact statements started each year get to decision makers, which means the process itself knocks out poorly thought out proposals.

But if an idea has merit, as did the ban on importing e-cigarettes without a prescription, the 180-page impact statement can make all the difference.

It sets out the problem clearly, sets out a number of possible solutions and identifies the winners and losers from each, and shows how they were consulted.

It demonstrates someone in the government has thought it through clearly, and provides material for the government to use when selling its decision.

On the Office of Best Practice Regulation website are hundreds of impact analyses on topics as diverse as food standards, protection for car dealers, and the redress scheme for child sexual abuse.

Vaping becomes harder on October 1

That’s why from October 1 it will become illegal to import without a prescription nicotine-containing e-cigarettes, and illegal to supply any liquid nicotine that isn’t in child-resistant packaging.

Behind the scenes, the government got it right.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, September 01, 2021

Four GDP graphs that show how well Australia was doing – before Delta hit

Australia’s economy was performing exceptionally well in the lead-up to the Delta variant lockdowns, propped up by a barrage of government spending in the three months to June and impressive household spending.

The June quarter national accounts published on Wednesday show inflation-adjusted production, income and spending (gross domestic product) climbed 0.7% between March and the end of June, ahead of the NSW lockdown that began on June 26.

Were it not for a surge in imports and a weather-related decline in the volume of exports (each of which cuts measured GDP) gross domestic product would have climbed 1.7% in the June quarter.

Over the year to June economic activity grew a record 9.6%, as it climbed back from a record 7% slide in the three months to June in 2020.

Australian quarterly gross domestic product

Chain volume measures, seasonally adjusted. ABS

At a Parliament House press conference, Treasurer Josh Frydenberg was the first to concede the good news was historical — of “little comfort” to Australians under renewed lockdowns facing difficult days ahead.

The September quarter figures, to be released in three months’ time, were likely to show an economic collapse of at least 2% — the deepest dive since 1974, with the exception of last year’s COVID collapse.

But the starting point for the dive was better than any other developed country. Australia is the only developed country to have gone into this year’s Delta lockdowns with both GDP and employment higher than before COVID-19 struck early last year.

Propping up gross domestic product in the June quarter was a 7.4% surge in public infrastructure spending, driven by state and local governments, which by itself accounted for more than half of the growth in quarterly GDP.

A 1.3% increase in other government spending accounted for the other half.

But household spending accounted for almost as much, jumping 1.1% in the quarter as Australians took advantage of a relatively COVID-free autumn to boost spending on domestic tourism, on one measure by as much as 28%.

Household final consumption expenditure

Australians were in a better position to spend than the published economic growth figures suggest.

A better measure of buying power is real net national disposable income per capita. This takes account of things such as high iron ore prices, which are excluded from the GDP. It shows buying power up 1.8% in the quarter to a new all-time high.

Real net national disposable income per capita

Before the Delta lockdowns, households were continuing to wind back their record high savings rate, which peaked at 22% in June 2020. They saved 9.7% of their income in the June quarter of this year, compared to 11.9% in the March quarter.

Household saving ratio

Ratio of saving to net-of-tax income, seasonally adjusted. ABS

The lockdowns and the growing realisation they won’t have a clear end date, as they did last year, are likely to have already pushed the saving rate back up.

For months to come, today’s good economic news is set to be as good as it gets.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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My super fund just failed the APRA performance test. What’s next?

Failure is only the beginning.

Thirteen of Australia’s 80 closely-regulated MySuper superannuation funds have failed the APRA performance test.

There’s a fair chance you are among the one million people in them.

The results were made public on Tuesday and handed to the funds on Monday. From here on — for the people who run those funds — it’s about to get worse.

APRA is the Australian Prudential Regulation Authority. Landmark reforms introduced in response to a devastating Productivity Commission report into the “mess” that is much of Australia’s super industry require APRA to rate each MySuper fund (and from next year most other funds) with a pass or a fail according to how they have managed their members’ money.

To fail — as one in six funds have — would require the fund to have for seven or eight years managed its members’ funds so badly that when judged by its own stated investment strategy, those members would have been better off investing in the broad categories of assets themselves and paying the managers to stay away.

Under the rules, which go by the name Your Future, Your Super, funds can only be given a “pass” or a “fail”. Those that fail are required to write to their members.

Letters humbling

The letters, which have to be delivered within 28 days, and which APRA will check, are humiliating.

“Hello [fund member],” they begin. “Your superannuation product has performed poorly under an annual performance test”.

As a result, we are required to write to you and suggest that you consider moving your money into a different superannuation product.

By switching into a better performing product, you can potentially save thousands of dollars more for retirement. For example, by earning 1% higher net return over a 30‑year period, you could be 20% better off at retirement.

At the bottom of each letter is a QR code members can use to go to ato.gov.au/yoursuper to compare funds’ performance. If members log in with their MyGov account they will be told exactly what super they have and where it is (I’ve tried it and it works) and get a comparison tailored to their circumstances.

The 13 funds forced to send out these letters will be lucky to see out the year. Once a fund suffers withdrawals and has to pay out members it performs even worse. Within months, many will be taken over.

Killing season

Those that remain are unlikely to last a second year. Once a product fails for two consecutive years (most that fail in the first year are expected to fail in the second) it will be prohibited from accepting new members, which means it’ll be killed.

It may or may not be relevant, but the driving forces behind the revolution are women. Women typically do much worse out of super than men.

Karen Chester chaired the Productivity Commission inquiry that quantified the hundreds of thousands of dollars lost in retirement by each worker who stays in a dud fund, and came up with the first draft of the performance test.

Kelly O'Dwyer, as financial services minister championed it, as did her successor Jane Hume.

In charge of policing the rules is APRA executive board member Margaret Cole, who was known as the “enforcer” during her time as director of enforcement and financial crime at the UK Financial Services Authority.

On Friday she declared bluntly that Australia had too many funds, too many persistently underperforming funds and too many with fees that remain too high.

Industry funds among those failed

Among the chronic underperformers now facing a death spiral are five industry funds — two of them run by members of Industry Super Australia, the organisation that represents funds set up “only to benefit members”.

Rather, they were members. Maritime Super left just ahead of the results. LUCRF, originally set up by what is now the United Workers Union, was terminated on the release of the results. Industry Super scrubbed it from its website.

Australian Prudential Regulation Authority

The other industry funds that failed the performance test are run by the Australian Catholic Superannuation and Retirement Fund, Christian Super and the Victorian Independent Schools Super Fund.

Among the for-profit failures are funds run by Westpac (BT Super) and the Commonwealth Bank (Colonial First State).

The banking royal commission found that funds run by banks often pay money to other parts of the bank for services such as buying and selling bonds, rather than doing it themselves or through brokers who would get better prices.

In the dark, until now

Super customers needn’t know what happens. They don’t get bills.

Whereas electricity bills hurt when they are delivered and have to be paid, the bills for super fees (and hidden fees in the form of relentless underperformance) aren’t seen, and don’t have to be paid — the fees come out of the funds.

And the funds grow every year, even where they are squandered. Compulsory super throws in a fresh 10% of salary each year.

The aim of what’s happened this week is to make visible what is normally invisible, and to prod people into action.

An act of faith… in competition

The government could have gone down a different track.

Peter Costello, the long-serving Coalition Treasurer who now heads the Future Fund which manages government investments, wanted his successor to create a government super fund (run by his Future Fund) which it would default new workers into.

The Future Fund would have protected workers, but to do it, would have played safe. As it became dominant it would have stifled competition and the promise of better returns. Or that was the thinking.

Chester, O'Dwyer, Hume and Treasurer Josh Frydneberg decided instead to supercharge competition — to make crystal clear which are the funds to run from and the funds to run to. They are making running as easy as two clicks.

One in every 11 dollars we earn is funneled into superannuation. Legislated increases mean it will soon be one in nine.

It’s important it’s looked after.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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