How Turnbull can back down on company tax, 'obviously'

How do you walk away from something to which you’ve committed your soul? You say things have changed, “obviously”.

It’s how marriages end in divorce, how deputies abandon their prime ministers and how Labor treasurer Wayne Swan quietly but spectacularly abandoned his absolute commitment to a budget surplus in late 2012.

He had been holding the line for half a decade, promising in his first budget “the largest surplus as a share of GDP in nearly a decade”, and then in his second, after the surplus evaporated during the financial crisis, “hard choices that chart the course back to surplus”.

In his third it was a “return to surplus in three years' time, three years ahead of schedule, and ahead of every major advanced economy”.

In his fourth it was an upgraded surplus, “back in the black by 2012‑13, on time, as promised”.

And then in his fifth, an even grander pledge: “Madam Deputy Speaker, the four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, resilience of our people, and success of our policies.

“This budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time. The deficit years of the global recession are behind us, the surplus years are here.”

Along the way he contorted language to avoid even conceding the possibility that he would never deliver a surplus.

“Let me hear in plain English that the budget is within a hair’s breadth of going into deficit,” the ABC’s Kerry O’Brien asked him as the financial crisis gathered pace. “It seems silly to me that anybody would bother to argue that proposition. Will you accept going into deficit, if you have to, to maintain appropriate stimulus of the economy under the threat of recession and high unemployment?”

Swan: “Kerry, it would be silly to speculate along the lines of your question.”

O’Brien: “Why?”

Swan: “Because I've made it clear. We are projecting modest growth and modest surpluses, but if the situation were to deteriorate significantly it would have an impact on our surpluses and it may well be the case that we could end up in the area that you're speculating about.

O’Brien: “Well, say it. In deficit.”

Swan: “I am not going to say it because we're projecting modest surpluses.”

Incredibly, in October 2012, a year before Labor lost office and four months into the financial year that was meant to deliver the continually forecast surplus, the mid-year budget update still penciled one in, albeit assisted by fancy accounting tricks. It was “absolutely appropriate to stick with our surplus objective”, Swan told reporters.

Until December 20, days before Christmas, at which point Swan opened a press conference expressing dismay that the October tax receipts had been well below forecasts.

“Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13,” he intoned, as if he had been caught unawares. “A sledgehammer hit our revenues.”

I’ve retold that story to make it clear that even the most unlikely backdowns are easy for politicians, even after repeated declarations of undying fidelity.

All through the on-again off-again negotiations with senators over the company tax cuts, Malcolm Turnbull has maintained that he is “absolutely” committed to the remaining $35.6 billion, and, if necessary, will take them to the next election.

“The Prime Minister did not leave any wiggle room at all,” said his chief negotiator, Mathias Cormann, in February at an earlier time when it looked as if hope had been lost. “We are completely and utterly committed to our business tax cuts. They were very necessary at the last election, we took them to the last election. They will be even more important by the time of the next election. If the Senate were not to pass these very important business tax cuts, yes, we will fight for them at the next election.”

No wiggle room.

Until a moment of zen on Tuesday after Pauline Hanson had what is probably her fourth change of heart.

“We might not ever get to that point,” Cormann said when asked if the company tax cuts might ever get through the Senate. He repeated, for emphasis: “It might well be that we won’t ever get there.”

Cormann insists that he wasn’t paving the way for a last-minute backdown, but if it happened, just before the election, the lines would be delivered without shame, as were Swan’s when the economy and his government headed south. Things would have changed, “obviously”. Cormann would have $35.6 billion more to offer in real tax cuts - income tax cuts - to people who vote.

And probably much more. The Coalition won’t reveal the updated 10-year budget cost of its company tax cuts because it doesn’t want Labor to know how much it will have to offer that it can’t.

Like Labor, it could promise to revisit its company tax cuts later, when the budget and the Senate permitted.

It’d be acknowledging reality, shamefacedly, and promising more to voters now, rather than years down the track when the small and uncertain impact of uncertain company tax cuts worked its way through the system.

In The Age and Sydney Morning Herald

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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

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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

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The Bachelorette explained. In praise of online dating

How do you explain The Bachelorette?

I'm not talking about the bachelorette herself, Sophie Monk: she's a topic for another day.

I am talking about the behaviour of the men who were locked in the house with her – her suitors.

Each declared she was the love of their life, presumably because they were locked in a house with her, or perhaps because they were on television.

What other reasonable explanation could there be? Choosing a long-term partner is one of the most serious decisions anyone makes. The odds of each of the housemates picking the same woman in the same house, when there are billions of other people to choose from, and billions of other locations, are infinitesimal.

But their behaviour checks out. Sheena Iyengar met her future husband at a bus stop, and she has been studying the economics of choice ever since.

A professor at the Columbia Business School, she invites her students to heterosexual speed dating sessions, which she uses as mini laboratories. Here's one of her most important findings: men (not women) become increasingly less choosy toward the end of each session. Women set standards and maintain them. They mark their last date as harshly as the first. Men begin with standards and discard them if it looks like they'll go home alone.

To some extent they are looking for different things. She asked each to answer "yes" or "no" to seeing the other again, and to rate them for attractiveness, sincerity, intelligence, fun, ambition, and shared interests./p>

It may not come as a surprise that men highly value physical attractiveness. A woman's physical attractiveness was 18 per cent more important in getting a man to say yes than was a man's attractiveness in getting a woman to yes. Women valued intelligence roughly twice as much as men did, and men did it an odd way. The more intelligent the woman was, the more likely the man was to say yes, right up to the point when he thought she was as intelligent as he was. Beyond that extra intelligence didn't help at all.

It was even worse for ambition. Women valued it. Men valued it up until the point they thought the woman was as ambitious as them. Beyond that, it counted against the women. It made men more likely to say no.

An endearing characteristic of men was that they didn't much care about race. For women it mattered a lot. They were 14 percentage points more likely to say yes to someone of their own race than someone of a different race, which, given that they said yes 38 per cent of the time, made race enough to turn an ordinary no into a definite no or into a moderately strong yes.

But that's changing. Online dating is replacing bumping into people at bus stops and hooking up with friends of friends or speed dating. Almost instantly the universe of potential dates has become massive.

Cornell University economist Josue Ortega and and psychologist Philipp Hergovich have just published a  paper about what ought to happen to society when the universe of potential dates is no longer limited. They say it ought to become racially integrated, really quickly.

Online dating only really began in the mid-1990s, and only really took off in the 2000s. As it happens, at both times there was an upsurge in interracial marriage.

It might be coincidence, but if it's not their model suggests that race itself will break down in the United States, and everywhere else that gives itself over to online dating.

And the marriages will be stronger, another finding that comes from choices no longer being limited.

It's the exact opposite of The Bachelorette. And it's arriving fast.

In The Age and Sydney Morning Herald

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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

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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. Energymadeeasy.gov.au 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

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Victoria fills up as the rest of the nation moves in

In the past 12 months, 82,800 Australians have moved to Victoria from interstate, around 500 carloads a week.
At the same time, 65,600 Victorians have left.
The gap - a net influx of 17,200 - is an all-time record. Victoria's population is being swelled by more migrants from interstate than ever before, and by far more than any other state, even Queensland, which used to be the go-to state for the rest of nation.
Perhaps as a result, or perhaps as a driver, employment in Victoria has surged by 97,300 in the past year, accounting for almost all of the nationwide employment growth of 104,600.
In contrast, the once-booming jobs market in NSW produced only 2000 extra workers.
New population figures show that a jump in interstate migration, in overseas migration and in births lifted Victoria's population by 157,500 to 6.1 million in the year to September - an increase of 2.1 per cent, compared to 1.2 per cent in the rest of the nation.
Victoria now accounts for 25.2 per cent of Australia's population, the most since the share slid during the early 1990s recession.
Net foreign migration to Victoria reached a record 68,600 in the year to September. The natural increase (births minus deaths) reached 41,700, also a record high.
Domestic migrants to Victoria came predominantly from NSW (29,500), Queensland (15,200) Western Australia (11,500) and South Australia (9700).
The main destinations for Victorians moving interstate were NSW (22,900), Queensland (20,800) and Western Australia (7100).

Bureau of Statistics projections released with the population figures show Melbourne overtaking Sydney as Australia's biggest city in 2056.
The central projection puts Melbourne's population at 8.2 million, almost double the present 4.6 million, and Sydney's at 8.1 million, up from 5 million.
The slower growth in Sydney reflects congestion and geographical constraints of the sea and a mountain range.
By 2056, Victoria is projected to have a total population of 9.9 million and NSW 11.1 million.
A faster growth scenario has Melbourne well above Sydney at 9.2 million to 8.4 million, and a slower growth scenario has Sydney slightly ahead of Melbourne at 7.7 million to 7.4 million.
Australia's population is projected to be somewhere between 35 million and 45 million. The central projection is 39.7 million, up from the present 24.3 million.
In The Age and Sydney Morning Herald

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If your wallet is empty, you're part of the new majority

Open your purse or wallet. If it's empty, apart from cards, you're part of something big.

For the first time, cards account for more of our purchases than cash. Whether its payWave or myki or Opal or MyWay for the small things, or Visa, MasterCard and debit cards for the big ones, we are using cards more often than ever before and taking less cash out of ATMs than at any time in the past 15 years.

Often I have not a single piece of cash on me (much to my children's annoyance).

A new Reserve Bank report released on Thursday finds that an astonishing one-fifth of Australians carried no cash whatsoever on the day they were surveyed, up from 8 per cent three years before.

The typical amount carried fell from $55 to $40.

The typical amount secreted away around the home (such as in bedrooms and under fruit bowls) is $100.

An astounding 30 per cent of us keep no cash whatsoever in the house, up from 25 per cent three years ago.

If nothing else, it suggests incredible faith in banks.

The Reserve Bank carries out the survey every three years. In November it gave 1500 people diaries and asked them to record every transaction for a week, more than 17000 transactions in total. In a telling irony it rewarded them with gift cards rather than cash.

Only one-third of the transactions were in cash, down from two-thirds in 2007. The use of cards jumped from one-quarter to 52 per cent, supercharged by a surge in the use of contactless payments for amounts under $20.

Only for payments of less than $10 did cash still hold its own, and predominantly among older and poorer Australians.

The said they used it because it was cheaper (no surcharges) and easier to budget with because it could be seen. Some said they were concerned about privacy and fraud, but not many.

Soon many of them will be abandoning cash. Smartphone payments (made by waving phones instead of cards) accounted for only 1 per cent of transactions in November, but they are about to get big.

For people like us. Different Reserve Bank statistics suggest there's another (smaller) class of people for whom cash is almost everything and becoming even more. The use of $100 notes jumped 9 per cent in the past year, well above the long-term growth rate of 7 per cent.

There are now an extraordinary 12 $100 notes per person in circulation, twice as many as the more widely-seen $20 notes. The Bank knows this because it pumps them out. In an attempted explanation, its annual report limply says they are "used as a store of wealth".

But not by people like you or me.

A raid on the home of the now-jailed NSW Labor powerbroker Eddie Obeid found $30,000 in cash. There are more Obeids around, and their wallets are anything but empty.

In The Age and Sydney Morning Herald

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Melbourne booms while the rest wilts, and it'll get worse

Melbourne has become so important it now accounts for all of Victoria's economic growth, with the rest of the state contributing nothing in net terms.

New regional figures compiled by SGS Economics and Planning show inner Melbourne's economy grew by a blistering 3.9 per cent in 2015-16, the city's north-east grew by 4.1 per cent, its north-west by 4.7 per cent, its south-east by 3.9 per cent, and its west by 3.9 per cent.

In contrast the Ballarat statistical area grew 0.1 per cent, Bendigo 0.4 per cent, Geelong 0.6 per cent and the LaTrobe Valley 0.5 per cent, offset by shrinkage of 2.8 per cent in the north-west, 1.4 in Shepparton and 1.2 per cent in Warrnambool and the south-west.

"Victoria's most important economic asset is what happens within 10 kilometres of the GPO," said SGS economist Terry Rawnsley, who produced Australia-wide and statewide national accounts while he worked at the Australian Bureau of Statistics.

"Our state is increasingly monocentric, as is Melbourne itself, with 40 per cent of its growth generated in the inner suburbs."

"Our graphs show no employment growth in the centre of Melbourne for 30 or 40 years until the early 1990s. In the two decades since, employment in the city has skyrocketed, doubling from around 250,000 to close to 500,000.

"The markers were the development of Southbank and the Docklands and the global financial crisis, which knocked the stuffing out of regional employment, especially in manufacturing, as jobs came to be concentrated in the centre."

Mr Rawnsley said Victoria had become so centralised it was too late to envisage attempts at decentralisation working, as the high-value jobs near the centre had become dependent on other high-value jobs nearby.

"There's no way the Latrobe Valley or Geelong could seriously take those jobs," he said. "Employers of accountants and lawyers and the head offices of firms will kick and scream before they leave they CBD. Those jobs, if they are going to move anywhere, would be more likely to move to central Sydney or central Auckland or central Brisbane than to the Latrobe Valley."

While some agencies such as the National Disability Insurance Scheme, WorkSafe and TAC have already moved to Geelong, Mr Rawnsley said that the really high-end jobs had to be near other high-end jobs in the city.

"You could imagine back office call centre jobs being moved, but high-end jobs need to be clustered. Maybe you could draw the workers away, but the jobs themselves depend on there being other workers in related jobs nearby. The bulk of them are going to be wedged in the city creating income and creating congestion."

Getting into the centre of Melbourne was the biggest constraint on the city's, and Victoria's, growth. There was little more that could be done to "sweat" transport assets by making trains longer or more frequent. Attempts to get people to change the times at which they commuted has already failed.

The Melbourne Metro project, when completed, will help by opening up development in North Melbourne and Richmond and taking pressure off the city loop.

But until then it would be hard to bring as many high-value workers into the centre of Melbourne as will be needed. Commuters begin to turn down jobs when it takes more than half an hour to reach the office by public transport.

Ideally, the state government would immediately begin planning the next generation of Metro projects so construction could commence as soon as the Metro is complete in seven to nine years. One such project could run from the CBD to Fishermans Bend, another from the CBD to the airport.

In The Age and Sydney Morning Herald

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Why Turnbull should split the budget in two

Now that Turnbull's in charge we can all relax, right? We can certainly relax about politics. With the country well-run (and likely to be well-run for some time) there's less to worry about. But it would be a huge mistake not to worry at all.

In the aftermath of the mining boom and the real estate boom our living standards are set to flatline. GDP per head actually fell in the June quarter, for the third time since the financial crisis. Without something to pick up from the mining boom and the receding real estate boom, we will come to resemble Japan. For two decades now Japan's been happy enough and rich enough, but no richer. It's learnt to live with zero growth.

Also, >our budget keeps getting worse. Interest payments on debt will cost $11.6 billion this financial year, a sum the government has to borrow to meet because it is spending more than it earns. Unless we find an escape hatch, debt payments will one day cost as much as defence or education - especially when interest rates rise. Our budget will be so weighed down with debt payments there will be no easy way to get back to surplus.

And despite ultra-low interest rates and an army of soon to be freed construction workers we're not building the kind of things we'll need. Abbott boasted that he was overseeing the biggest infrastructure spend in Australian history. He wasn't. His last budget set aside almost nothing new for infrastructure. He wasn't able to actually spend big because he didn't want to push the budget further into deficit and risk Australia's credit rating (as well as his bragging rights for being tougher on the deficit than Labor).

Whatever he tried blew up in his face. When he talked about boosting productivity, unions saw it (often rightly) as an attack on conditions. When he brought in measures to bring down the deficit he was attacked (rightly) for going after the pension and family benefits rather than the tax breaks enjoyed by the wealthy.

And when he did try to spend something on infrastructure he was attacked (rightly) for his curious determination to spend it on roads even where their costs exceeded the likely benefits.

Turnbull has an opportunity to succeed where Abbott could not, and there's no time to lose.

The budget deficit has to be brought down; not necessarily straight away, but the mechanisms have to be put in place straight away so  they are locked in with a guaranteed improvement over time. Abbott's treasurer was on the right track. Hockey's first budget harnessed the power of compound indexation to restrain spending by more and more as each year passed. Pension and disability payments were to climb more slowly in line with prices rather than wages. The Senate opposed the change because it was seen to be unfair. But if he had created a credible sense of urgency about the budget and imposed the same sort of pain on high income superannuants and investors living off lightly taxed capital gains he might have succeeded.

Turnbull is in a position to create a credible sense of urgency. Unless he does, and unless he does it in the December budget update, the deficit will become harder and harder to fix.

He should do it by openly explaining the problem and saying he wants us all to do our bit, no matter how well off. He should wind back super tax concessions so that high earners no longer get the most (as a proportion of their income). And he should wind back the capital gains tax concession so that investment in housing is no longer particularly tax-preferred and negative gearing no longer particularly attractive.

And he should lift the goods and services tax. Victoria's premier Daniel Andrews has opened the door, saying that if a proposed increase is put to the 2016 election and approved, he won't stand in the way.

But fixing the budget won't allow Turnbull to give the economy a boost by investing in infrastructure. Or it wouldn't, without a revolution in the way the budget is put together.

Two weeks ago the government borrowed $4 billion for 3.345 per cent. What was unusual was that that the loan stretched out to 2039 - almost a quarter of a century. Until recently the government had only borrowed for 10 years. It's now tested the market and found that it is able to lock-in extraordinarily low rates for a generation. That's long enough to be able to safely fund the removal of level crossings or the Melbourne Metro, knowing that payments won't rise.

Turnbull would need to be sure that whatever he funded was the best possible value for money. That would mean listening to Infrastructure Australia, something Abbott didn't do when he poured billions into Melbourne's East West Link.

And Turnbull would need to change the very nature of the budget, starting in December. In modern times all spending and income has been lumped together.

Turnbull could separate "recurrent" spending and the income needed to fund it, from "capital" spending and  the borrowing used to fund it. That way, he could borrow big for demonstrably worthwhile projects while at the same time tightening the recurrent budget.

The ratings agencies are likely to buy it. Labor would too, if it had any sense. Turnbull would be treating us like adults and getting us out of a self-imposed bind.

In The Age and Sydney Morning Herald

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Why going cashless is the next moral challenge

What with myki cards, Opal cards, e-TAGs, epay, payWave, bitcoin and mobile phones, we're using less cash than ever, right? Not on your life.

The latest Reserve Bank figures show there were seven $5 notes per person in circulation in 2015, well up from five per person ten years earlier, and four,10 years before that.

(If those numbers seem small, but climbing, it's because the same notes get used over and over. They are a bit like extras in a movie.)

We have around six $20 notes per person, close to a record high, and far more $50 notes than we used to (25 per person) because of their use in automatic teller machines. But it's the use of $100 notes – the kind most of us hardly ever see, and the kind bank transfers should have rendered redundant – that is exploding.

Twenty years ago there were only five $100 notes per person in circulation. They were less common than $20 notes, which was appropriate given they were far less used. A decade later in 2005 after the introduction of the goods and services tax (the one we were told would kill the cash economy) we had seven per person, and now we have 12. A graph included in the latest Reserve Bank annual report shows the number of $100 notes in circulation climbing faster than any other denomination.

Note that I said "in circulation". They are certainly not in day-to-day use. A few years back I was asked on ABC radio what colour they were. I had to guess, and I guessed wrong. Whereas the lobster-red $20 notes are always in and out of our purses and wallets and last about 12 years before being damaged and returned to the Reserve Bank, the Bank expects the typical $100 note to last 70 years. When they do come back they are often not even unbundled.

Who's got them? According to The Curse of Cash released this week by influential US economist Kenneth Rogoff, they are mainly in the hands of drug lords, human traffickers and tax evaders. We are actually worse than the United States, according to Rogoff. Ninety-two per cent of our currency is in large denomination notes, compared to 84 per cent in the US. Only Switzerland, Israel, Norway and Russia use big notes more than we do.

Rogoff wants us to go "cashless", at least for denominations above $10, and eventually he would turn the $10 note into a coin to make it harder to move around undetected. Phasing out high denomination notes would be painless, for those of us with nothing to hide. We would be invited to deposit them in banks in return for their full value up until a deadline, after which they would no longer be legal tender and worthless.

Naturally, there's a catch. Our Reserve Bank, like the US Federal Reserve, makes money from issuing $100 notes. It's conflicted, being in effect a silent partner in organised crime.

In The Age and Sydney Morning Herald

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While the government dithers, millions can't read properly

In Hitler's Germany and Mao Zedong's China they burnt books. Here, we prevent people from reading them.

Government inaction and fear of doing anything to weaken copyright have denied millions of Australians with print disabilities ranging from blindness to dyslexia the kind of access to books the rest of us take for granted.

In the United States there's BookShare, a web platform that allows visually impaired Americans to listen to high-quality text-to-speech versions of books, to read digital braille and enlarged-font versions and to create physical braille and large-font books directly from the website. So far it has 460,000 titles. Here, our copyright rules restrict us to 193,000.

The best format for making audio copies of books is called DAISY. It allows readers to search, insert bookmarks and regulate speed. But here, if disability organisations try to convert a book into DAISY format the Copyright Act requires them to check first that there are no commercial audio or large-print versions already available. If there are, even if they are not searchable or useful like DAISY, its no dice. If there's a commercial large-print version available and the reader needs a larger-print version, it can't be done. If there's written music or graphs or diagrams in the book it's also no dice for those parts of the book. That's because our Copyright Act is painfully prescriptive, using rigid "blackletter law" rather than general principles such as the US "fair use" provisions. There, if it's fair, it's allowed. Here, it's only allowed if parliament specifically enactis a provision. It can take decades. In the US, home taping of TV programs was recognised fair use in 1984. Here it took until 2006.

Our system of specific copyright exceptions is also why a six-year-old girl might be entitled to save some music to a disk for homework, but it would be illegal for her parent to do it for her. Bizarrely, our blackletter law requires organisations making accessible copies for the disabled to check for commercial alternatives before every single download of the copies they make.

Educational libraries are similarly handcuffed. They are allowed to scan books for conversion into accessible formats, but only if they destroy the scans after each use, even if they know they'll need them for other students.

Last year after decades of lobbying, the government released a draft amendment that would have fixed most of the problems. Nine months on it still hasn't been before the parliament. Minister Mitch Fifield says he'll do it "at the earliest opportunity". He should. But it won't fix the broader problem.

Our current approach means we need to keep amending the Act every time there's a new technological development or use that ought to be permitted.It would be far, far simpler to adopt US-style fair use provisions, as the Productivity Commission recommended earlier this year in a draft report. It'll deliver its final report in September.

In The Age and Sydney Morning Herald

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What's wrong with the Reserve Bank target we've got?

Ever been the victim of a poorly specified target?

I used to be, for years, when I had to change trains. The timetable indicated that the next one would arrive a few minutes after the first. And it nearly always did, except that it often sped past without stopping. It had a target to meet.

Hospitals do it with waiting lists. Told to get them down, they find excuses to knock people of the listf, even if they are still waiting. Chief executives do it with share prices. Incentivised to get them up, they bring forward income, skimp on actually looking after their customers, and act surprised when things collapse. Dick Smith  is an obvious recent example. The target - share price - has ended up driving the enterprise rather than what the target sought to achieve.

And the Reserve Bank might be another.

Until the early 1990s it didn't really have a target, just a feel-good vibe in its Act that directed it to work "to the greatest advantage of the people of Australia". To flesh things out, the Act says it has to work towards the stability of the currency, the maintenance of full employment and economic prosperity.

But too many targets means no target at all, so in the early 1990s, as part of a movement that began in New Zealand, our Reserve Bank joined a number of its international cousins and zeroed in on just one numerical target: inflation. Changes in prices as measured by the consumer price index had to be kept to between 2 and 3 per cent per annum on average over time.

When Glenn Stevens took over as governor in 2006 he formalised the target in a written contract or "statement on the conduct of monetary policy" signed by him and the treasurer Peter Costello.

It justified giving pre-eminence to what had previously been just one of several objectives by describing price stability as a "crucial precondition for sustained growth in economic activity and employment".

The words "over time" allowed it to delay adjusting rates to meet the target if it thought that, say, employment really mattered more. But by being placed at the centre of the document and being the only part of it that had a number attached to it, inflation came to be seen as the bank's number one target, in the same way that running on time came to be seen as the number one role of the railways, at least until commuters complained.

It has stayed the number one target because most of the time it has done the job pretty well. If inflation was climbing it usually meant that the economy was overheating and could do with higher interest rates. If it was falling, it usually meant employment was weak and would benefit from lower interest rates.

But not always.

When prices jumped on the introduction of the goods and services tax and then on the introduction of the carbon tax it meant no such thing. The Reserve Bank suspended its inflation target saying it would "look through" recorded inflation to adjust rates only in accordance with what it thought would have happened without the disturbance. It's done the same for changes in the cost of health insurance and the price of bananas. It has maintained fidelity to its target by suspending it, which gives a pretty good indication there's something wrong with it.

There've been five new contracts since the first (usually after each election or when the governor's term has been extended) and each has put inflation first. There's about to be a sixth, to coincide with the appointment of Stevens' successor, Philip Lowe. This time there's a push for something better.

Senate linchpin Nick Xenophon is the front person for a bevy of exceptionally bright economists including Warwick McKibbin, an internationally renowned member of the Reserve Bank board, and Danny Price of Frontier Economics in Melbourne, who want what bigwigs in the US such as former treasury secretary Larry Summers and former Obama adviser Christina Romer want – a target that explicitly acknowledges economic growth.

The best candidate is so-called nominal GDP, which is real growth plus inflation. The bull's-eye would be 5.5 per cent, which is about the long-run average. If real growth was weak even though inflation wasn't, the Reserve Bank would cut interest rates anyway in order to get either it or inflation up. It'd be a single number, as is the inflation target, but it would serve dual purposes.

Right now it would mean even lower official interest rates, perhaps even negative as happens overseas, in order to get businesses employing and consumers spending. During unsustainable booms it would mean higher interest rates than an inflation target alone would produce. As with the inflation target, it would be a goal to be achieved over time, giving the bank wriggle room to ensure the adjustments aren't too dramatic.

All Xenophon wants is a Senate inquiry to at least talk about it before the governor and the treasurer sign on the dotted line. A government genuinely committed to governance would grasp the opportunity.

In The Age and Sydney Morning Herald

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Wondering whether to end a relationship? Toss a coin, seriously

What's the best thing to do when you are faced with one of those gut-wrenching decisions like whether to quit your job or have a baby or end a relationship?

When I was weighing up whether to leave the Treasury to work as a journalist a few decades back, my mother acted as if it was one of the most momentous decisions I would ever make. My father, who was more relaxed, said it would all be fine.

It turns out dad was right.

The perpetually curious Steven Levitt (best known as the author of Freakonomics) has just published an ingenious study titled Heads Or Tails: The Impact of a Coin Toss on Major Life Decisions and Subsequent Happiness.

Levitt was frustrated that most of the laboratory studies involved small decisions such as whether to take an inconsequential gamble.

So for months he set up his own high-stakes website: FreakonomicsExperiments.com.

His greeting read: Have a problem? We can help. Sometimes in life you face a major decision, and you just don't know what to do. In the end, whatever you choose will essentially be a flip of a coin. Help us by letting Freakonomics Experiments flip that coin for you.

If they went further they were invited to choose a question or write one of their own, take a survey which had buried in it a question about happiness ("How happy would you say you are on a scale of 1 to 10?") then get the machine to toss a virtual coin, and complete follow-up surveys two and six months later.

The most asked question was "Should I quit my job?" followed by "Should I break up?"

As unlikely as it seems, 3869 people used the website to guide them through those decisions. Another 415 asked whether to have a baby  and 22,511 used it in total.

Roughly 63 per cent of those who took part did what the coin said, more than the 50 per cent that would have been expected by chance.

After two and six months the people who had thrown their lot in with the coin were happier than those who had not and must have used some other means to make their decision. And it's not just that they said they were happier. They were also asked to nominate third parties who were asked about their happiness both before and after.

For the really important questions (those about jobs, relationships and babies) the difference in happiness was "especially large – around one full point on a 10 point scale".

Doing what the coin said seemed to really matter. Levitt thinks he knows why. The people who did changed more often than the people who did not. Left to our own devices we've an inbuilt bias against change. Yet more often than we realise it's the best thing we can do. Levitt's no counsellor (he leaves that to his machine) but his advice would be that it's often worthwhile taking a leap into the unknown – far more worthwhile than we think.

In The Age and Sydney Morning Herald

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Housing no impediment as Reserve Bank prepares to cut

Apparent strong house price growth in Sydney and Melbourne is unlikely to dissuade the Reserve Bank from cutting interest rates on Tuesday, in part because it's not what it seems.

The CoreLogic home price index jumped 3.1 per cent in Sydney and 1.6 per cent in Melbourne after the Reserve Bank cut rates in May, and then a further 1.2 per cent and 0.8 per cent in June sparking fears that the Bank had ignited a new house price boom.

The jumps were inconsistent with other data showing that sales volumes and credit growth were weak.

Now Reserve Bank watchers believe they've cracked the puzzle. CoreLogic changed the way it calculated its indexes in May, adding to the apparent increases in cities whose prices had a history of rising quickly.

Until May it had removed extremely low and high prices from its index using bands defined in dollars. In May it switched to using bands defined by the top and bottom few percent of prices. Bank watchers believe the change pushed up the apparent price rises in Sydney and Melbourne, meaning the actual increases are less alarming.

If Tuesday's Reserve Bank board meeting believes this is so, it'll be left with few reasons not to cut its cash rate.

At just 1.7 and 1.3 per cent the Bank's trimmed mean and weighted index underlying measures of annual inflation are the lowest in records going back thirteen years. The headline rate is 1 per cent, well below the Bank's target of 2 to 3 per cent.

Employment is growing more slowly than new entrants to the labour force. Over the past six months employment has climbed 43,000 while the number of Australians looking for jobs has climbed 51,2000. A switch to part-time jobs means there were fewer hours worked in June than in January.

With neither inflation nor the labour market nor real estate prices an impediment, the Bank is likely to move its cash rate from 1.75 to 1.5 per cent on Tuesday, timing that will allow Governor Glenn Stevens to explain the reasons in the quarterly statement on monetary policy due out on Friday and in his final public speech to the Anika Foundation in Sydney the following Tuesday.

Governor Stevens retires on September 17 to be replaced by his deputy Philip Lowe, who is already a member of the board.

Tuesday's meeting will be the first for economic consultant Ian Harper, a former head of the Fair Pay Commission and chair of the government's competition review. He replaces a Labor appointee John Edwards who worked as an advisor to former prime minister Paul Keating.

Betting on the futures market assigns a 64 per cent probability to a cut on Tuesday, and a 100 per cent probability of a cut by November.

The Australian National University's so-called "shadow board" made up of nine market and academic economists including former Reserve Bank board member Warwick McKibbin believes the board should keep rates on hold, citing improved capacity utilisation, steady consumer and business confidence and slowly growing retail sales. It attaches an 18 per cent probability to a rate cut, up from 11 per cent last month.

Veteran RBA watcher Bill Evans said he thought the Bank was on track for a rate cut on Tuesday but that it would be a "close call".

"In my experience, when conditions are this close the better approach is to forecast what you see to be the best policy and that is another cut.," the Westpac chief economist said.

In The Age and Sydney Morning Herald

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Forget about black holes, they're not there

This time last election the Rudd Labor government blew itself up with a document purporting to find a $70 billion black hole in the Coalition's costings.

There wasn't. The error-ridden claim was rated "false" in the first Fairfax-Politifact fact check and set the tone for the rest of the campaign.

Rattled, Labor had jumped at shadows. Twenty billion of its total shouldn't have been there and much of the rest was guesswork based on figures the Coalition hadn't yet provided, or had provided but Labor chose not to believe.

To repurpose the words of Thursday's Australian Financial Review headline: Labor was left with over-egging all over its face.

There's never any point in claiming the other side has a black hole early in the campaign, and hasn't been for more than a decade.

Here's how it has worked since the start of the century: 1. Each side makes promises. 2. Each side publishes an estimate of the cost of each promise over the next four years. 3. At the end of the campaign, when all the promises are public, each side produces a tally of what it proposes to spend (which it has usually proudly trumpeted) and what it proposes to save (about which it has usually been more quiet ).

And guess what? The proposed savings always slightly exceed the proposed spending, leaving the budget slightly better off over four years.

That's not to say that things will turn out that way. Last time the Coalition's costings pointed to a slight $1.5 billion-a-year improvement in the budget deficit. Instead, the projected deficit blew out from $7 billion to $37 billion. That's partly because company tax revenues didn't recover in the way that was expected, and partly because the Coalition never got to implement many of its policies. One was axing Labor's low-income super contribution. It was held up in the Senate for two years and then withdrawn in this year's budget because it was heartless.

But the tally of costings released at the end of the campaign almost always does add up and always puts the budget slightly ahead. There's never a black hole.

Which makes Tuesday's attempt by the Coalition's to find a hole in Labor's program a triumph of hope over experience. Where was Joe Hockey when they needed him? Neither the Coalition's Finance spokesman Mathias Cormann nor its Treasury spokesmen Scott Morrison were in their jobs back in 2013 when Labor self-immolated over its claim of a $70 billion black hole. So they cooked up their own, worth $67 billion.

Much of it was fiction. A whopping $19.27 billion, a quarter of the total, was a misreading of Labor's foreign aid commitment. Labor has promised to boost spending by less than $1 billion over the next four years. Cormann and Morrison penciled in $19.27 billion on the basis of an ill-defined commitment to restore cuts Tanya Plibersek made a year ago in a Newcastle radio interview. On Sunday she released the actual policy, but Cormann and Morrison didn't bother to update their spreadsheet.

They claimed Labor would spend $6.73 billion lifting compulsory super contributions to 12 per cent of salary even though the specifics of the promise weren't announced; specifics such as how quickly Labor would phase in the increase and whether it believed it could afford to do it in the next four years at all. The "commitment" came from an interview Bill Shorten did on RN Drive in which he talked about what he would like to do "over time, over the long run".

The mistakes, and there were many more, say much about the helplessness of government staffers when they are without the support of the bureaucracy. They would be well advised to install a pop-up on their screens reading: "What would treasury do".

But even were there no mistakes, the exercise of looking for a black hole would be pointless. It isn't until the end of the campaign when all the policies and the means to fund them are on the table that a spendometer make sense. And by then it's too late. Last time the Coalition released its tally on the Thursday, 1½ days before the vote.

I can already tell you what Labor's tally will say. Like the Coalition's last time it will show a slight improvement in the budget's position. And like the Coalition's it'll get a tick from the Parliamentary Budget Office when it issues the required report 30 days after the vote. Politicians are good at costing their own promises, bad at costing those of the other side.

If the black hole hunters were serious about bringing us the truth, they would change the law to require the PBO to publish a running total of promises, and also require it to make public the methods by which it arrives at the costings politicians quote.

In the meantime it would be nice if they shut up at the debate between Treasurer and shadow treasurer on Friday. The purpose of what they are proposing is much more important than whether the other side thinks the numbers add up.

In The Age and Sydney Morning Herald

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When milk is cheaper than water, something's wrong

The next time a well-heeled retiree complains to me about the budget's superannuation changes and "retrospectivity"...

Let me tell you about real retrospectivity.

Until a few weeks ago Australia's 6000 or so dairy farmers were paid around $5.60 per kilo of milk solids. Each kilo cost roughly $5 to make, leaving them with a small profit. The milk itself isn't solid, but the solids in it are measured in order to make the payment.

Then on April 27 their biggest customer (for many, their only customer) the sharemarket-listed Murray Goulburn slashed what it was prepared to pay from $5.60 to somewhere between $4.75 and $5. It wanted them to sell to it at a loss.

And it got worse. Here's the (ungrammatical) way Murray Goulburn put it in a missive to farmers: "Due to the timing of the reduction of the milk price from $5.60 kgms to a range of $4.75 to $5 kgms, this wimay 2ll result in suppliers having being (sic) paid more for their milk over the whole year."

It was making the cut retrospective, decreeing that it had started 11 months ago at the start of the financial year, even though it had been paying the farmers at the higher rate right up until then.

It meant the farmers who supplied Murray Goulburn, and the farmers who supplied its rival Fonterra, which followed a week later, suddenly owed it huge licks of money: money they had already been paid and spent.

Estimates put the instantly created debt at $120,000 per Murray Goulburn farmer. Within hours their bank managers started ringing, sometimes at night, reassessing the future of their farms. Some walked off and sent their cows to the abattoirs. Others had not a clue how they would survive. Some of Murray Goulburn's drivers are reportedly too scared to enter farms, frightened of what they might find.

Meanwhile at our supermarkets, milk is cheaper than water. We pay less than we've paid in decades, and our Prime Minister doesn't want to talk about it.

Here's Malcolm Turnbull on Monday, in the only comment I can find. While in Perth making an announcement about shipbuilding, he was asked whether Murray Goulburn and its competitor were thugs.

"The Australian Competition and Consumer Commission is dealing with the issues," he replied.

"We're in the course of strengthening Section 46 to ensure large companies treat smaller ones and smaller suppliers more equitably, but I'm not going to go beyond that. This is something the ACCC has in hand. Can I just say this is such an exciting announcement for Australia's future, these are jobs, this is defence, this is the technology that builds our future and I'd look forward to some questions on that."

What's happening to milk is what happened to iron ore. In both cases Gina Rinehart was involved (she was buying into dairy farms just before the milk price collapsed) and in both cases there was talk of a never-ending boom fuelled by China. The world's biggest economic powerhouse was going to keep demanding ever-increasing quantities of iron to build new buildings and ever-increasing quantities of milk as its citizens became richer and adopted western diets.

But, as it had with iron ore, China cultivated other suppliers in order to flood the market. Murray Goulburn's problem was that it had hired an evangelist. Gary Helou turned what had been a farmers co-operative into a public company and told the farmers to put in even more cows because the price was heading to $6. As a symbol of his faith in the future he drove a Mercedes-Benz and spent the company's money on an industrial scale, parting with $6 million to break an agreement to move into a specially built headquarters because he preferred to work nearer the centre of Melbourne.

When the board faced reality and sacked him, he walked away with more than $10 million. Murray Goulburn is legally entitled to demand back the money it has paid farmers. It runs the risk of going broke if it doesn't. The farmers are talking about a milk levy, but it wouldn't help. Increasing the price of a commodity there's too much of usually sends sales down, not up. Some of the states are offering emergency assistance loans, which will push the farmers further into debt.

We are limited in what we can do. Buying milk and cheese on the scale needed to help wouldn't be possible. Boycotting Murray Goulburn products would make things even worse. Our politicians want to talk about anything else. Enjoy your breakfast.

In The Age and Sydney Morning Herald

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Parliamentary Budget Office: the next election fix

Fixing the Senate voting system is good, but it isn't enough. Unless Malcolm Turnbull goes further and also fixes the rules governing the Parliamentary Budget Office, the election will be a charade.

Here's what happened last time.

The Coalition (then in opposition) released policy after policy, which it said had been fully costed by the PBO. But it didn't release the actual costings.

In effect, it verballed the PBO. The Office assigns each of its costings a reliability rating on a scale ranging from "low" to "highly reliable". Where the costing is unreliable, it says why. And it sets out the assumptions it used to derive it.

While keen to lend the authority of the PBO to its claimed costings, the Coalition, for the most part, sat on the documents that would have allowed us to understand what they meant.

At times, it went to absurd lengths. It had claimed that cutting the public service by 12,000 would save $5.2 billion. When the government and others started questioning the costing, it showed the PBO costing document to select journalists so they could see it was genuine, before whisking it away so it couldn't be photographed...

It was happy for the public to pay for the PBO ($7 million per year) so long as the public couldn't read what it had written.

Now Labor is doing it. It's now in opposition and it is misusing the PBO in the same way that the Coalition did. It has released policies on negative gearing, capital gains tax, superannuation, tobacco tax and school funding, all quoting what it said were the PBO's conclusions but without releasing the documentation needed to assess them.

The Greens have no such reluctance. They often release PBO costings with policies. They've no reason not to.

Labor says its negative gearing policy would raise $32.1 billion over a decade. But without knowing whether the PBO regarded the figure as reliable and without knowing how it got it, its claim is difficult to assess.

It can and should be fixed by requiring the PBO to release each costing (just the final document, no drafts) as soon as the party that commissions it made the costing figure public.

It'd hurt the opposition (whoever is in opposition) but it would make the election make sense. We would be better able to decide who to vote for, as well as better able to fill in the form.

In The Age and Sydney Morning Herald

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The high earners who think they are battlers

High income earners are reluctant to part with their tax breaks in part because they think of themselves as battlers, new research suggests.

Two-thirds of the highest-earning households surveyed by Ipsos Australia for MLC Wealth define themselves as "middle class" or "lower middle class" or "working class".

Each brings home at least $200,000, putting it near the top 10 per cent of households.

Yet, according to the survey to be released on Monday, only 2 per cent of the high earners define themselves as upper class and only 31 per cent as upper middle class.

Almost half (44 per cent), say they are middle class. A further 10 per cent say they are lower middle class, and 13 per cent working class.

Many households in the top 10 per cent struggle to save. The survey finds one in five live "pay cheque to pay cheque", spending everything they earn.

Two out of three say the cost of maintaining their mortgage is "having a big impact on their lifestyle".

"It's a paradox," says Lara Bourguignon, MLC's general manager of corporate superannuation. "The people who are earning more are also spending more and feeling left behind.

"It might be because they are living in the major cities, living in the expensive areas of major cities, or working so hard that conveniences such as eating out seem essential."

Asked to nominate the average income of a household that was genuinely upper class household, high income households nominated $454,000...

Middle earning households were more realistic, nominating $280,000.

Curiously, very low income households defined upper class in much the same way as high income households, nominating $549,000.

But low earning households were realistic about their own status. Four out of 10 described themselves as working class. None described themselves as upper class.

Ms Bourguignon said perceptions about what constituted a comfortable lifestyle were changing.

"It used to mean having access to a home, food, healthcare and schooling," she said. "Now it extends to overseas holidays, private schools and the latest technology. We have come to define comfortable as being able to do whatever we want. We have changed our perception of what normal is."

In The Age and Sydney Morning Herald

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Jobs growth is nothing like the 71,375 Michaelia Cash trumpets

No one can accuse Employment Minister Michaelia Cash of failing to take advantage of an opportunity.

Presented with official employment figures that were literally incredible (impossible to believe), she took them at face value and trumpeted them in tweets and in a press conference as a triumph for her government.

There were 71,375 more Australians in jobs last month and 301,725 more in jobs over the year, and since January the unemployment rate has tumbled from 6.4 to 5.8 per cent.

"It equates to around 2500 jobs per day," she told the press conference. "Over the calendar year, it's the highest jobs growth since 1989."

She could have added that it equates to one new job every 12 seconds, which it does if the jobs were only offered in working hours. It's even more than the 56,100 new jobs created in October, and way above the long-term average of 15,000 per month...

 

Since the Government came to office 425,800 jobs have been created #auspol pic.twitter.com/iBrpkRv4zN

— Michaelia Cash (@SenatorCash) December 10, 2015

 

But it's not the real thing. The Bureau of Statistics makes that pretty clear. It's had a run of misfortune with its sample rotations.

The employment survey is massive - 26,000 houses and flats each month, representing about 50,000 people. But they are not always the same people each month. Every survey one-eighth of the survey is "rotated out" and a new one-eighth is "'rotated in". It stays for eight months.

Occasionally, the one-eighth that is rotated in is very different from the one-eighth that is rotated out, making the number of people in work appear to either jump or fall, even if the employment status of everyone in the survey hasn't changed.

It happened in October, and the bureau was upfront about it. It said then that only half of the reported jump in employment would have been seen if it had examined just the participants present in both surveys.

Now it has happened again, for the second month in a row. The bureau says that if it had restricted itself to comparing like with like, employment would have climbed a mere 5300 in November, a fraction of what was reported.

The dollar soared more than three-quarters of a cent on the news, climbing back up above 73 US cents. The traders weren't waiting to find out the truth, which is probably that employment is growing, but more slowly than we are being told.

The minister was asked whether she had concerns about the reliability of the figures. She said she did not.

In The Age and Sydney Morning Herald

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