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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald

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MYEFO. Call that an improvement? The ratings agencies won't

The ratings agencies won't fall for it, and neither should you.

Treasurer Scott Morrison has revised down tax revenue by $30.7 billion over the next four years in a belated admission he has a revenue problem.

But he says the budget deficits will only deteriorate by $10.4 billion.

We're meant to think the $20 billion difference is the result of cost-control. But it isn't. All up, government measures to make up the difference net out to just $2.5 billion. Over four years, that's a cut in projected spending of 0.13 per cent, barely a rounding error.

Instead it's pulled out the savings from the fiscal equivalent of the back of the couch.

It's discovered that childcare benefits aren't being taken up at the rate expected, so it's lopped $7.6 billion off the amount it expects to pay. It's discovered that pension payments are growing more slowly than expected, so it's lopped off another $2.7 billion. The support for carers program is also costing less than expected, so it's lopped off another $1.9 billion.

All up these "parameter variations," colloquially known as "hollow logs", amount to $12.2 billion. They're handy for making it look as if you're doing something to fight collapsing revenue when you're not doing much.

There's a lot the government could do if was minded to. It could abandon or postpone its largely-unfunded company tax cuts, saving $2.7 billion over the forward estimates, and eventually $8.2 billion per year, it could slash the capital gains tax discount, saving $5.4 billion, it could end negative gearing on newly-purchased assets, saving $2.6 billion, which would grow to something much bigger. They are the type of things the ratings agencies expect from governments just re-elected.

As it is, it is attributing a big chunk of the improvement in the deficit to bracket creep brought on by an arguably implausible lift in wage growth. Right now, wage growth is just 1.9 per cent, the lowest on record. We are asked to believe it will climb to 2.25 per cent and then to 2.5 per cent. We're not told why.

Even with apparently heroic forecasts and hollow logs, the surplus it is forecasting for 2020-21 is now close to nonexistent. It's $2 billion, around 0.1 per cent of GDP, which isn't enough to convince anyone of anything.

In The Age and Sydney Morning Herald

Bad news now in the hope of good news in May

Treasurer Scott Morrison loaded up the mid-year budget update with bad news in the hope that the budget itself, due in May, will appear to contain good news.

At his instruction, the Treasury has included the recent extraordinary jump in commodity prices in its budget estimates for the current financial year, but not for future financial years, even though it would have been perfectly entitled to.

"In recent years, Budget and mid-year update forecasts have used an assumption that commodity prices would remain around a recent average over the forecast period," the Treasury explains in a statement.

"In light of the current exceptional circumstances for bulk commodities, this assumption is not considered prudent at this time. An alternative assumption of a phased reduction in prices from recent levels has been adopted for metallurgical coal and iron ore.

"The metallurgical coal price is assumed to be US$200 per tonne free on board in line with the December 2016 quarterly contract price, before declining through the September and December quarters of 2017 to reach a level of US$120 per tonne in the March quarter 2018.

"This price is consistent with recent industry liaison."

As a result, the budget position has been revised up for this financial year, but revised down for those that follow. It means that, if commodity prices do indeed turn down, as the Treasury expects, the May budget won't contain a nasty surprise.

If they stay high, as is possible, the May budget will look better than expected.

It matters that the May budget will be produced when everyone is watching, while Parliament is sitting and TV networks and newspapers are producing special editions. The mid-year budget update is being released more quietly, days before Christmas in a news event that's likely to be forgotten before its properly remembered.

By bringing forward potential bad news, the Treasurer has ensured it will be barely noticed, compared to what he is hoping will be good news in May.

In The Age and Sydney Morning Herald

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PC: Copyright rules make us break the law 80 times a day

If you are anything like the typical Australian, you probably break the copyright law 80 times a day, according to figures included in the Productivity Commission's final report to the government on intellectual property.

Most of the breaches are harmless, things such as including a copy of an email in the reply to an email. But the commission says that laws that are routinely flouted are bad laws, bringing themselves into disrepute.

In place of the labyrinthine system of complicated rules governing what can or can't be copied, the report released on Tuesday recommends the US system of fair use, under which the use of copyrighted material is legal so long as it is fair, taking into account the purpose of the use, the nature of the work, the amount copied and the effect on the potential market value of the work.

A study released with the report finds that Singapore had fewer copyright disputes after adopting fair use, suggesting the change made copyright easier to understand.

The commission says the change would put beyond doubt the ability of universities to use innovative technologies such as data mining and other technologies that haven't yet been invented, allowing Australia to innovate as quickly as competitors in Israel, South Korea and the United States.

It wants universities, schools, cloud computing services and other suppliers of internet services to be granted the same "safe harbour" status as internet service providers, meaning they cannot be held liable for the actions of their users.

In order to discourage piracy, it wants the government to legislate to guarantee the right of Australians to circumvent so-called geoblocks that prevent Australians accessing music, ebooks and software when it is available overseas at overseas prices. It says Australians subject to geoblocks are typically charged an 'Australia tax' of 13 per cent. Its survey of 1000 books found that parallel import restrictions, which can prevent retailers sourcing books from overseas, typically add 20 per cent to the US or British price. It wants the remaining restrictions removed by 2018, saving readers up to $25 million per year.

The commission has asked the government to urgently remove the anomaly, which grants perpetual copyright to the 13 million unpublished documents and letters held in cultural institutions, meaning they can't be digitised unless the heirs of the authors can be tracked down. It also wants to make it to be easier to make use of "orphan works" for whom the copyright owners cannot be found. It says the National Film and Sound Archive has told it that 20 per cent of its holdings are in a legal "no man's land", meaning it can't use them to celebrate Australia's heritage without tracking down owners who can't be found.

The report recommends a separate small claims list in the Federal Court that would allow self-represented litigants who felt their work had been used unfairly to get redress at low cost.

It is especially critical of the role of collection agencies, including the Copyright Agency chaired by former News Corporation chief Kim Williams, which it says are not open about what they do with the funds they collect on behalf of different classes of rights holders.

It wants them to hand to the government the funds they collect for the use of orphan works rather than distribute them to other rights holders, as happens at present. It wants the Competition and Consumer Commission to review their governance and rules.

The Copyright Agency struck back, saying in a statement the commission's recommendations seemed "to be straight out of the US Big Tech playbook" and would wreak havoc on Australia's creative community. Author Richard Flanagan said the commission was like "a deranged hairdresser insisting their client wears a mullet wig".

Universities Australia welcomed the report, saying the US had had fair use since 1976 and its creative industries were flourishing. The Digital Alliance representing libraries and other users of copyright material said the changes would ensure the everyday behaviour of millions of Australians was no longer illegal.

Minister Greg Hunt asked for comments on the report by February 14. The government will respond in the middle of the year.

 

What the Productivity Commission recommends

• Legislation to enshrine the right of  consumers to circumvent geoblocks
• Repealing remaining import restrictions on books from 2018
• Allowing "fair use" of copyrighted material as in the US
• Freeing up access to orphan works for whom no owner can be found
• Extending "safe harbour" protection to all providers of online services
• Subjecting copyright collecting agencies to a governance review by ACCC
• Raising the inventive standard needed to gain a patent
• Restructuring patent fees so that they climb over time
• Providing open access to publicly funded research
• Introducing a low-cost federal court list for hearing IP claims

Source: Report of the Productivity Commission inquiry into intellectual property arrangements

In The Age and Sydney Morning Herald

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How to help first home buyers, while keeping negative gearing

Malcolm Turnbull made the wrong call defending negative gearing in order to get re-elected. He needs to crawl back slowly. There's no shortage of people on his own side telling him to.

The latest is Jeff Kennett, who was Victorian premier just as negative gearing began to take off at the end of the 1990s. On Wednesday he tweeted: "It is inevitable that the rules affecting negative gearing will change – have a responsible bipartisan discussion in 2017." Victoria's present Treasurer, Tim Pallas, will echo Kennett at a round table of treasurers on Friday.

"It's all very well the feds telling us we need to boost supply, but whenever we do, their negative gearing and capital gains tax rules direct much of it away from first home buyers towards investors," he says he will tell the meeting.

The NSW Coalition Planning Minister and Premier agree with him, saying they can't see why someone buying a second house should get a tax deduction a first home buyer does not.

Graph the proportion of home loans going to investors since the early 1990s (which is as far back as the figures go) and you'll find out it began at 16 per cent, then climbed to almost 40 per cent, before soaring to nearly 50 per cent after the headline rate of capital gains tax was halved and negative gearing exploded. Would-be owner-occupiers (let's call them genuine home buyers) went from having not much competition to having half of all the money lent for housing amassed against them.

Then things improved for a while, especially during the global financial crisis when investors baled out, before lending to investors grew again and soared back way above 50 per cent to a record 55 per cent, at which point the Australian Prudential Regulation Authority (APRA) intervened to impose tougher rules on banks lending to investors, knocking the proportion back to 44 per cent. But it's growing again, and is again approaching 50 per cent.

John Alexander is the Coalition MP who chaired the inquiry in which the Reserve Bank's head of financial stability explained that it was "a truism that if an investor is buying a property an owner-occupier is not".

The inquiry was sidelined in the election campaign but has been reopened and will report by Christmas. Which is where it gets fascinating. Turnbull and Morrison are genuinely concerned about the inability of ordinary Australians to buy houses and are open to ideas.

So long as they can stick to their stated positions that they won't change the capital gains and negative gearing rules, they would be more than happy to introduce changes that would hold back investors and reskew the housing market toward genuine buyers at more reasonable prices, returning the Liberal Party to its historical position of championing a home ownership rate that was the envy of the world.

Within the Coalition's housing work group Alexander has been tossing around an extraordinary scheme derived from the hearings that has the potential to guarantee it the next election.

It's in three parts: The first would require APRA to continually adjust the rules governing how easily banks could lend to investors, each month; just as the Reserve Bank adjusts interest rates each month. But rather than targeting consumer price inflation as the Reserve Bank does, APRA would target house price inflation. Too much – perhaps more than doubling every 10 years – and it would make it harder to lend to investors, too little and it would be more generous. Home price growth would become predictable rather than scary.

The second part would be to advantage genuine buyers. Right now they are required to pump 9.5 per cent of their wages into superannuation. Instead they could allocate that 9.5 per cent to pay off the principal (but not the interest) on home loans, meaning they probably wouldn't need deposits and could start buying early. The usual criticism of any measure that advantages first or genuine homebuyers is that it would push up prices leaving them no better off. But this wouldn't, because of the role of APRA in restraining loans to investors to restrain price rises. It would just tilt the market back towards owner-occupiers.

The super funds would be upset, especially the union-dominated default funds, but they are not the Coalition's concern. The money put into owner-occupied housing instead of super would buy those who chose to do it more security than could super. Which brings us to part three.

Because part of the homes would be owned as "superannuation", that part would count toward the pension means test, keeping a lid on the cost of the pension. And because steadily increasing home prices would be as good as guaranteed, those increases could be borrowed against to fund fortnightly payments in retirement. For someone who bought a house at 25 and then retired at 65, the payments would be big.

It's a genuinely innovative idea, and it needs a lot more discussion. But if Turnbull could pull it off, or something like it, he would stand a chance of becoming the greatest Australian prime minister since Menzies. That's why he is listening.

In The Age and Sydney Morning Herald

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Incredibly good news - action on remote Indigenous ATM ripoffs

From Swan today:

FAIRER DEAL ON ATMS FOR REMOTE INDIGENOUS COMMUNITIES

The Gillard Government today announces a new commitment by the Australian banking industry and two major independent ATM companies to voluntarily provide free transactions at 76 ATMs across very remote Indigenous communities in the Northern Territory, Queensland, Western Australia and South Australia.

In very remote Indigenous communities, people often have no alternative but to pay frequent ATM fees because they cannot access the type of ordinary banking services which most other Australians take for granted. Indigenous people and residents living in very remote communities often rely on a single ATM located in a community store owned by an independent ATM company to access their cash and check their account balance.

This important initiative follows the recommendations from a joint Treasury/Reserve Bank of Australia Taskforce (‘Taskforce’) that looked into issues relating to expenditure on ATM fees and the cost of ATM access in very remote Indigenous communities. The Taskforce has worked closely with the banking industry and the two independent ATM companies on this initiative.

Under the initiative, thirteen banks - ANZ, Bankwest, Bendigo and Adelaide Bank, BOQ, Citibank, Commonwealth Bank, HSBC, ING DIRECT, ME Bank, nab, St.George, Suncorp and Westpac - will work to implement a proposed arrangement to provide their customers in identified very remote Indigenous communities with access to fee-free ATM transactions.

It has taken him a while.

He gave the taskforce one month to report back in January 2011.

But maybe the time he has taken has been worthwhile. He has got the ATM companies to agree not to rip off remote Indigenous communities.

No need for legislation.

Here's what I wrote when he set up the taskforce in january 2011:

Treasurer Wayne Swan has signaled a crackdown down on extortionate ATM fees in the bush setting up a joint Reserve Bank Treasury taskforce and giving it just one month to report.

The government has been told of one automatic teller machine in remote South Australia that charges $10 per withdrawal. Another, in the Torres Strait limits withdrawals to $100 at a time, at a cost of $5 each.

Even the standard $2 fee on checking bank balances can eat up as much as 20 per cent of as a Centrelink payment as recipients check repeatedly to see whether it has been paid into their account.

The Australian Financial Counselling and Credit Reform Association told the government in December that Indigenous Australians in remote communities made smaller and more frequent withdrawals than Australians in cities in order to avoid being "humbuged" or harassed for money by family members.

With no way of avoiding fees by going to an "own bank" ATM they paid far more than Australians in cities.

Mr Swan has asked the task force to report by February 28 on the provision, fees and impact of ATMs in remote communities and to suggest action to fix problems.

He has also asked for a second less-urgent report on the impact of the Reserve
Bank's rules governing the use of ATMs due by late June.

The rules prohibit ATM providers from charging banks for ATM transactions forcing them to bill their users directly.

Although designed to introduce competition into charging, the rules have standardised fees at around $2 per transaction in the cities.

The Reserve Bank has told the Senate banking inquiry the actual cost of an ATM withdrawal is around 74 cents, made up of 25 cents for obtaining the cash and around 50 cents for rent, equipment and processing the transaction.

Published in the Age

ATM Fees in Remote Indigenous Communities

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Australia so far. What to Eat After the Low-Hanging Fruit?

Andrew Leigh reflects in this magnificent speech, not all of which reflects well on earlier positions adopted by his Australian Labor Party.

What Do We Eat After the Low-Hanging Fruit? A Brief Economic History of Australia, With Some Lessons for the Future*

Andrew Leigh MP, McKell Institute, Sydney May 18 2012

"In the Pacific Ocean, off the west coast of South America, sit the Galapagos Islands. Although they straddle the equator, the pattern of ocean currents have a cooling effect, making them an ideal breeding ground for tortoises, iguanas, penguins, finches, albatrosses, gulls, and pelicans.

Because the islands are volcanic, what’s striking about animal life on the Galapagos Islands is that all of it came originally by flying or floating nearly 1000 kilometres from Ecuador. And yet for the species that survived, life on the Galapagos Islands was perfect. Migrating birds lucky enough to be blown off course found an environment with few natural predators. Tortoises that floated here found beaches perfectly suited to their breeding environments. Life flourished.

Looking back across Australian economic history, I am often struck by the extent to which luck has similarly played a part in our success. Politicians are sometimes reluctant to talk about luck – preferring to focus on the things we can control than those we can’t. It is true that ‘chance favours the prepared mind’. But I think it’s still worth talking about the role that luck has played, if only to help understand what preparations we should be making. If we don’t do that, we’re like the Galapagos tortoise, which must have thought itself the luckiest species on earth, until British sailors discovered the islands in the late-eighteenth century, and ate them in their thousands.

Over the 2¼ centuries since European settlement, there have been half a dozen strokes of luck, each of which has tangibly boosted average living standards.[1] Let me take a moment to talk about them in turn.

Six Pieces of Low-Hanging Fruit

The first was plentiful land. By stealing land from Indigenous Australians, white settlers were able to be generous in handing out land to convicts and settlers alike... To them, land was so abundant that it was virtually free. Abundant land became particularly productive with Macarthur’s introduction of Merino wool: a high-value product that could be shipped back to Britain. While Europe was land-scarce in the early-1800s, Australia was labour-scarce. That meant wages were comparatively high, and created huge economic opportunities. For example, Samuel Terry, who was transported to Australia for stealing stockings, ended his life as the richest man in Australia, owning a fifth of all NSW mortgages. Free land (stolen from Indigenous Australians) provided social mobility that would have been undreamed of in nineteenth-century Europe.

Land also provided geographic mobility. Historian John Hirst points out that early Australia was characterised by squatters who journeyed inland, and bushmen who moved readily between country and city.[2] He contrasts this with the more static world of Europe by quoting the scene in Thomas Hardy’s The Mayor of Casterbridge. A young English couple are parting:

‘I’m sorry to leave ye, Nelly,’ said the young man with emotion. ‘But, you see, I can’t starve father, and he’s out o’ work at Lady-day. ’Tis only thirty-five mile.’ The girl’s lips quivered. ‘Thirty-five mile?’, she murmured. ‘Ah! ’tis enough! I shall never see ’ee again!’

Such a scene could never have been set in Australia.

Second came plentiful gold. When Edward Hargraves announced in 1851 that he had found gold in Bathurst, it started an avalanche. Over the next decade, the population nearly tripled and our national income almost quadrupled, as people flooded in to take advantage of Australia’s mineral wealth.[3] The changes were felt most keenly in Victoria, whose population increased by a factor of seven in a single decade.

In 1852, Victorian Lieutenant-Governor Charles Latrobe wrote:[4]

At this time the town and its suburbs, and the villages for several miles around Melbourne, notwithstanding the steady stream setting through it upon the road to the Gold Fields, are absolutely choked with the teeming population. The most extravagant rent is paid for the most indifferent accommodation, temporary or otherwise.

And yet it isn’t much of an exaggeration to say that central Melbourne is largely a product of the Gold Rushes, which continued until the late-1800s. The Royal Exhibition Building, opened in 1880, was modelled on the Duomo in Florence. By the end of the nineteenth century, Australians enjoyed the highest standard of living in the world.[5]

Third came plentiful inventions. As US economist Tyler Cowen has argued, the first half of the twentieth century saw a massive upsurge in inventions.[6] This era saw powerful motors and mass production; in transport, there were cars and airplanes; in communications, there were telephones and radios. In homes, domestic inventions included fridges, washing machines, while in offices there were typewriters and tape recorders. The combine harvester, invented in the late-nineteenth century and widely used in the early-twentieth century, caused Australian grain production to soar.

If it strikes you as odd to say that there was more global innovation in the first half of the twentieth century than today, then consider this thought experiment. Which would you give up first: your iPad, or your indoor toilet? Would you prefer to live in a world without Facebook, or one without Penicillin? In the United States, where most leading-edge inventions are registered, the number of patents per researcher has been falling for most of the twentieth century.[7] Physicist Jonathan Huebner estimates that global innovation per person plummeted after the 1955.[8] But for the first half of the twentieth century, Australia surfed the wave of global innovation to increase our standard of living.

Fourth came plentiful migrants. Prior to World War II, Australia took too few migrants. Our migration program excluded those of ‘yellow’ skin, and to our shame, we accepted just 5000 Jewish refugees. But after the war ended, the floodgates opened. At its peak, in 1949, Australia accepted 185,000 migrants into a population of 7.9 million.[9] On today’s population, that would be equivalent to a migrant inflow of more than half a million people. Well over half of these migrants were from non-English speaking countries.[10]

This was an extraordinary program. Relative to population, Australia’s post-war migration program was the largest sustained migration in the world – bigger than the US peak immigration era at the turn of the twentieth century.[11] Many were sent to work on the Snowy Mountains scheme, which employed 10,000 men at its peak.

Political games were played. Visiting the European displaced persons camps in 1947, Immigration Minister Arthur Calwell reported that ‘Australia would be interested in the more youthful types of Baltic peoples who were capable of doing hard work… We preferred the horny hand of the sons of toil’.[12] He was particularly keen that those on the first ship were blonde and blue-eyed, and so instructions were given to the Department of Immigration to select people from Latvia, Estonia and Lithuania.

For all the racial games that were played with public opinion, the simple fact remains that Australia benefited hugely from post-war migration. For once, the ‘tyranny of distance’ worked in our favour, as people who would never have otherwise moved thousands of kilometres from the country of their birth now wanted to flee as far as possible from the horror that had engulfed Europe.

In other cases, coming to Australia was accidental. The father of a friend of mine was born in a refugee camp in Germany in 1946, the son of Polish and Russian refugees. He was a few years old when his family hoped to emigrate to the United States. The Red Cross moved them by train down to Naples, and he was so excited that he constantly stuck his head out the window. A piece of soot got stuck in his eye, and when they got to Naples, the US immigration officials were worried that he had an eye infection that could be contagious, so they refused to take the family. ‘You might try the Australians’, he said, gesturing to officials in the other corner of the room. And that’s why my friend – some thirty years later – was born in Queensland rather than New Jersey. Like her, half of all Australians either have a parent who was born overseas or were born overseas themselves.

The fifth form of low-hanging fruit that Australia plucked was education. In 1900, education was not taken particularly seriously. The bulk of schools were one-teacher schools. Compulsory attendance laws had only just been enacted in some jurisdictions, and were poorly applied. On an average day, 3 out of every 10 children who were supposed to be at school were absent. Some states charged secondary school fees at the turn of the century, and in an appalling policy mistake, most states increased or reintroduced school fees in the 1930s. Even in 1946, less than 1 in 15 young Australians completed secondary school.[13] Hardly anyone went to university. Today, around 4 in 5 young people complete secondary school.[14] Among Australians aged 25-34, 35 percent have a university degree.[15]

One way that labour economists like to summarise educational attainment is in terms of years of education. For example, someone who has finished primary school has 6 years; someone who has finished high school has 12 years, someone with a diploma has 13 years, and someone who has attended university has 15 years. On this measure, the average number of years of education among the working age population rose from 7 years in 1900 to 9 in 1950 to 13 in 1990.[16] Since then, it’s increased modestly.

Rising education represents low-hanging fruit because education has such a large payoff. On average, another year of education boosts earnings by 10 percent, and there’s no evidence that the economic returns to education have declined as the level of education has risen.[17] We also have good evidence that education pays off in non-economic ways, such as through better health, more happiness, less crime, and more civic activity.[18]

The sixth form of low-hanging fruit is the twenty-first century mining boom. So much ink has been spilled on this topic that I won’t say much today. For reasons entirely outside the control of our miners, world commodity prices have tripled over the past decade. The terms of trade recently reached a 140-year high. Urbanising China and India need steel to make their skyscrapers, and Australia happens to be the world’s biggest producer of iron ore, and a major producer of coking coal. At present, we export iron ore at the rate of 4 tonnes a second.

Treasury official David Gruen recently noted:[19]

The mining and mining-related sectors, which together account for around 20 per cent of the economy currently, were expected to contribute more than two-thirds of this real GDP growth in 2011-12, while the 70 per cent of the economy not directly benefitting from the resources boom was expected to contribute less than a third. … Therefore, while the 2011-12 Budget forecasts imply quite good aggregate real GDP growth, around 70 per cent of the economy is expected to grow at around 1 per cent.

And yet compared with the 1970s terms of trade shock, the benefits of this mining boom are flowing more broadly through the economy. Inflation is low, unemployment has dropped during the mining boom, and even the dispersion of unemployment has fallen. Moving from the old royalty regime to a profits-based mining tax means that when prices rise, tax revenue goes up too. In an environment where parts of the non-mining sector are suffering from ‘Dutch Disease’, this seems a reasonable approach.

The New Productivity Agenda

So Australia picked six pieces of low-hanging fruit: plentiful land, the Gold Rush, abundant inventions, post-war migration, mass education, and the current mining boom. These weren’t all dumb luck; we also made some good policy decisions along the way. In the post-war era, Australia benefited greatly from far-sighted economic reforms such as the scrapping of White Australia, the HECS-funded expansion of universities, floating the dollar, tearing down the tariff wall, enterprise bargaining, and replacing a patchwork of sales taxes with a GST.

The question now is: what next? How do we make sure that our nation continues to prosper economically?

In my view, the only way of ensuring that Australia continues to enjoy rising living standards, is to find ways of raising our productivity.[20] To most economists, the relationship between productivity and growth is as natural as the link between clouds and rainfall. We regard productivity – producing more output with the same inputs – as the main driver of long-run growth.

But from my experience, that’s not the way some of my non-economist friends regard productivity. Scarred by a bad boss who said ‘you should work smarter’ when he meant ‘you should work harder’, some of my friends hear the word ‘productivity’, and immediately feel the hackles rise on the back of their necks.[21]

Yet there’s nothing perverse in the idea of productivity. Productivity simply means being able to do tasks more effectively. In this sense, we’ve all become more productive over our lives. As children, we learn to become better readers – absorbing more information in the same amount of time. When we move into our own homes for the first time, we quickly become better at doing household chores. And after a decade in the workforce, most of us make fewer mistakes in our jobs than we did in the first year.

Productivity growth was lousy in the 2000s, but we can learn something from the previous decade. During the 1990s, Australia managed to double our rate of productivity growth. According to the Productivity Commission’s Dean Parham, there were three main drivers of this increase: 50 percent was due to us having a more open economy, 30 percent to more research and development, and 20 percent to the information technology revolution.[22]

Today, two major productivity challenges for Australia are to keep our economy open to the world, and to boost the quality of our education system.

Australia must pursue openness because our future lies in economic engagement with the world. In terms of migration, Australia benefits when new migrants bring their ideas. But we also benefit when people born in Australia spend time overseas and then return. For the brief period when I headed the economics program at the Research School of Social Sciences, I remember noticing that only one of the approximately 30 researchers was born and had studied in Australia. Everyone else was either foreign-born, or had completed their PhD overseas.

In terms of trade, Australia needs to continue to pursue open markets internationally. Just as we benefited by taking the rocks out of our harbours, we need to encourage others to do likewise. In the 1980s, we established the Cairns Group of agricultural free-trading nations, and in the 1990s, we set up the APEC leaders’ meetings. Now, because momentum has stalled in the consensus-based World Trade Organisation, Prime Minister Julia Gillard and Trade Minister Craig Emerson are working on a new pathway to progress the Doha Round: a Trans-Pacific Partnership. A stepping stone to the APEC goal of a Free Trade Area of the Asia Pacific, the Trans-Pacific Partnership allows other countries to ‘bolt on’ at a later date.

We also need to be honest with Australians about foreign investment. While at least one National Party Senator has claimed that there has been ‘an exponential increase’ in agricultural foreign investment, the facts show otherwise. Between 1984 and 2010, the area of farmland that is foreign-owned rose from 5.9 percent to 6 percent.[23] Rural Australians enjoy more jobs and better pay as a result of foreign investment – just as they have done since CSR helped establish our sugar industry in 1855.

The other challenge is to boost the performance of Australia’s educational institutions, particularly our schools. In research with Chris Ryan, we found that Australian literacy and numeracy scores had failed to improve from 1964 to 2003.[24] Since then, Australia’s scores on the international PISA test have fallen. At the same time, the academic aptitude of new teachers – relative to their classmates – has declined.[25] One possible reason for this is that Australia chose to focus on reducing class sizes rather than attracting the best teachers. Over the past quarter-century, class sizes have been cut by about 10 percent, while teacher salaries relative to other professional salaries have also been cut by about 10 percent.

I said earlier that increasing the quantity of education was low-hanging fruit. By contrast, increasing the quality of education is fruit that’s on a higher branch. But it’s a particularly attractive goal, because it doesn’t involve the same sacrifice. More time in school means less time doing other things. But raising the quality of schooling means packing more learning into every year.

If we’re learned anything from the economics of education over the past few decades, it’s that the relationship between spending and outcomes is extremely weak. You can see this over time in Australia (where spending has risen but scores have flatlined), and you can also observe it by using the MySchool data to compare spending and results. More money creates the potential for improvement, but the relationship is far from automatic.

So the most interesting questions in education are about how money is spent. Among the reforms that Education Minister Peter Garrett has been pursuing in this area are principal autonomy (through the Empowering Local Schools program), Trade Training Centres to teach new skills and boost retention rates, and performance pay to reward the best teachers. I have a particular interest in performance pay, having given a keynote address at an economics of education conference in Munich, in which I summarised what we know about the economics and politics of merit pay.[26] From that, I concluded that anyone who says that merit pay ‘always works’ or ‘never works’ hasn’t spent enough time engaging with the literature. There are clearly merit pay models that are successful, and those that are unsuccessful. The challenge is to build the evidence base to the point where we can confidently tell the difference.

Conclusion

Writer George Megalogenis describes populist politicians who oppose economic reform as ‘playing with the kryptonite’. Both sides of Australian politics must take our share of blame for populist policies. In the 1980s and 1990s, there were those (including the current Leader of the Opposition) who opposed the float of the dollar. And yet without a floating dollar acting as a shock absorber to international events, it’s easy to imagine that the Asian Financial Crisis, the US tech wreck or the mining boom could have had a disastrous impact on the domestic economy.

The same can be said of Labor’s flirtation with populism in the 1990s. In the 1998 election campaign, we promised to abolish the Productivity Commission – the very same body that has now done the essential groundwork for a National Disability Insurance Scheme. In 1999, we also opposed the Goods and Services Tax, a reform that Paul Keating had supported the previous decade. I can’t imagine Labor now promising to go to an election to untax services and reinstate the patchwork of sales taxes that existed in that era.

We can also see more than a hint of populism in Tony Abbott’s campaign against market-based mechanisms such as water buybacks in the Murray-Darling Basin and a price on carbon pollution. And yet we shouldn’t be surprised that these campaigns are finding some receptive ears. In public life, it has always been easier to scare people than honestly inform them. It’s just that most of us choose not to walk the fear road.

Today, animal life on the Galapagos Islands is thriving again. Three decades after receiving World Heritage Listing, the World Heritage Committee has removed the Galapagos Islands from its list of precious sites endangered by environmental threats or overuse. This didn’t happen by chance: it has been due to the hard work of the park service, the Charles Darwin Foundation and the Ecuadorian Government. There are still invasive species, but there are good programs in place to manage them.

After a lucky start, nature on the Galapagos Islands now thrives because of good management, and planning with an eye to the future. Perhaps there’s a lesson in that for the Lucky Country too.


* I am grateful to Peter Bentley for inviting me to give this talk, to the Parliamentary Library for valuable research assistance, and to Macgregor Duncan, John Edwards, Rick Kalowski, John Quiggin and others for insightful comments on an earlier draft. Naturally, they should not be assumed to agree with all its conclusions. The notion of ‘low-hanging fruit’ draws on Tyler Cowen’s excellent book The Great Stagnation.

[1] This section draws on Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition.

[2] John Hirst, 2009, Sense and Nonsense in Australian History, Black Inc, Melbourne, p.27

[3] Angus Maddison, The world economy, Organisation for Economic Co-operation and Development. Development Centre, Vol 1, pp.449 and 462

[4] C.M.H Clark (ed). 1962, Select Documents in Australian History 1851-1900, Angus and Robertson, Sydney, pp.89-90. Another interesting document in this volume is a letter by Tasmanian Lieutenant Governor William Denison, expressing his concerns that the Gold Rush would result in the mass emigration of Tasmanian agricultural labourers. It goes to show that all mining booms create multi-speed economies.

[5] Angus Maddison, 2010, Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD (Horizontal file), University of Groningen

[6] Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition.

[7] Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition, Location 200.

[8] Jonathan Huebner, 2005, ‘A Possible Declining Trend for Worldwide Innovation’, Technological Forecasting and Social Change, 72, p.982 (quoted by Tyler Cowen).

[9] Andrew Leigh, 2010, Australian Social Capital Database (Excel file), available at www.andrewleigh.org.

[10] Andrew Leigh, 2010, Australian Social Capital Database (Excel file), available at www.andrewleigh.org.

[11] Brad Collis, Snowy, the Making of Modern Australia, 1990, Hodder & Stoughton, Sydney, p.195

[12] Quoted in ABC, 2001, ‘100 Years: The Australian Story’, Episode 2: Rise And Fall Of White Australia, http://www.abc.net.au/100years/EP2_4.htm

[13] Statistics in this paragraph are drawn from Gerald Burke and Andrew Spaull, 2001, ‘Australian Schools: Participation and Funding 1901 to 2000’, Year Book Australia, 2001, ABS, Canberra (available at http://www.abs.gov.au/Ausstats/abs@.nsf/0/A75909A2108CECAACA2569DE002539FB?Open). Estimate for 1946 is based on an ACER survey, which found that 7 percent of youth aged 16-17 were enrolled in school. This suggests a year 12 graduation rate of less than 1 in 14.

[14] ABS, 2011, ‘Year 12 Attainment’, Australian Social Trends, Mar 2011, Cat No 4102.0, ABS, Canberra.

[15] ABS, 2011, Education and Work, Australia, Cat No 6227.0, ABS, Canberra, Supplementary Table 8.

[16] Christian Morrisson and Fabrice Murtin, 2009, ‘The Century of Education’, Journal of Human Capital 3(1): 1-42

[17] Andrew Leigh, 2008, ‘Returns to Education in Australia’, Economic Papers: A journal of applied economics and policy, 27: 233–249; Mick Coelli and Roger Wilkins, 2009, ‘Credential Changes and Education Earnings Premia in Australia’, Economic Record, 85(270): 239-259.

[18] See for example Philip Oreopoulos, 2007, ‘Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling’, Journal of Public Economics, 91(11–12): 2213–29.

[19] David Gruen, 2011, ‘The macroeconomic and structural implications of a once-in-a-lifetime boom in the terms of trade’, Australian Business Economists, 24 November 2011. Eagle-eyed readers will notice that 20 and 70 do not add to 100 percent. This is because Gruen is discussing the 90 percent of the economy that is non-agricultural.

[20] For statistics on Australian productivity growth since the 1960s, see House of Representatives Standing Committee on Economics, 2010, Inquiry into raising the productivity growth rate in the Australian economy, House of Representatives, Canberra, Figure 5.1. Over a longer period, see Broadberry, S. N. and Irwin, Douglas A., 1962- (2007) ‘Lost exceptionalism? : comparative income and productivity in Australia and the United Kingdom, 1861-1948’. Economic Record, Vol.83 (No.262). pp. 262-274.

[21] One economist who shares this view is John Quiggin, who contends that the 1990s were a productivity ‘mirage’, on the basis that output rose only through an increase in effort (see Quiggin, ‘The Lost Golden Age of Productivity Growth?’). The difficulty with this argument is that shifting the denominator from hours to effort introduces significant new measurement problems.

[22] Dean Parham, 2004, ‘Sources of Australia’s Productivity Revival’, Economic Record, 80(249): 239-257.

[23] Craig Emerson, 2012, ‘Australia China Business Council 2012 Report Launch - Benefits to Australian Households of Trade with China’, National Press Club, 3 April 2012.

[24] Leigh, A. and Ryan, C. (2011) 'Long-run trends in school productivity: Evidence from Australia', Education Finance and Policy. 6(1): 105-135. For example, one question asked of year 8 students was ‘In the division 24.56/0.04, the correct answer is: (a)0.614 (b)6.14 (c)61.4 (d)614 (e)6140’. The share of students who correctly answered (d) was 39% in 1964, 38% in 1978 and 23% in 1995.

[25] Leigh, A. and Ryan, C. 2008, 'How and why has teacher quality changed in Australia?', Australian Economic Review, June 2008, vol. 41, no. 2, pp. 141–59.

[26] Andrew Leigh. 2012. ‘The Economics and Politics of Teacher Merit Pay’ CESifo Economic Studies, forthcoming http://cesifo.oxfordjournals.org/content/early/2012/03/07/cesifo.ifs007.abstract


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Tomorrow we remember Jimmy Little

There will be a memorial service at the Opera House.

Followed by a celebration concert in the Concert Hall 8.00 pm Thursday.

Musicians are begging to be included. There is a limit of two tickets per person.

All of us who have been touched by Jimmy Little have been forever uplifted.

He is lifting the standards in heaven now, and it's our loss.

Brendah Gallagher created the album Messenger with him.

Here's how he described what happened:

"I met Jimmy Little by accident. I'd gone to an inner-city Sydney venue to see a friend's band and as I breasted the top of the stairs and looked through the front door I could see up on stage a good luoking, fifty-something Aboriginal man resplendent in a red shirt, with a guitar, singing a song. I was instantly drawn to a table in front of the stage by one of the most beautiful voices I had heard. I sat transfixed as Jimmy worked his way through a set of standards with such grace and style that I forgot to go to the bar and buy a drink, very unusual behaviour on my part.

I knew Jimmy's songs from when l was a small boy, particularly "The Royal Telephone" which has become part of the Australian cultural firmament. I'd lost track of him over the years and was pleasantly surprised to find him still performing. All I could think of was getting that voice on tape, so after the gig I introduced myself and solicited his phone number with a view to meeting up in the future. I was won over at once by his trademark gentle nature and courtesy.

In my address book, like most other penple, I write underneath the name and phone number a little note as to who they are e.g. plumber, accountant etc. Under Jimmy Little I wrote 'legend'.

For a long time I'd wanted to cover the Reel's 'Quasimodo's Dream’ as a kind of Texas waliz, very simple and intimate. With Jimmy I had found the perfect interpreter for the song. From that came the idea to revisit other seminal Australian compositions: some well known, others not so. Like Captain Kurtz in Apocalypse Now, it hit me like a diamond bullet. I was very nervous when I first rang Jimmy at home with my idea. It was iike a teenage phone call to your first girlfriend. Will I, won't I, will I ...? I did of course, and Jimmy was very cool about it.

The premiss of the exercise was always that this album should be the grand summit of a very special singer and some very special songs. My job was to be a kind of sonic mid-wife and make a bed for something unique but which was still true to the singer and the songwriters.

Together we began this project in June ‘95 and bit by bit, song by song, between my involvement with Karma County and Jimmy's gngoing touring commitments, we finished it in March '99.

Looking back over the last few years some moments stand out. I remember the day Jimmy recorded the vocal for Down Below at my home studio in Bondi. I asked him to freestyle over the outro, whatever came to mind and was comfortable. I sat back and watched Jimmy, eyes closed, silhouetted against the afternoon sun as he whispered his transcendent monologue, a hot norwester pouring through the open window behind him. If you listen closely you can just hear the fluttering curtains. 0r Jimmy raiding the kitchen cupboard for the honey jar just before a session.

Jimmy always wanted to know what was going on in the songs lyrically. Most of them were unfamiliar to him.

It was an experience muddling my way through explanations of the cynical commentator in Quasimodo's Dream, or the domestic carnage of The Way I Made You Feel, but it was integral to his performance. He ate and breathed these songs.

This is his testament. It is a shining moment in my music career."

Brendah Gallagher Sydney, March 1999.

Now listen:

And listen here live all day Thursday.

@JaneHolley48 ABC Digital Extra will broadcast a celebration concert.

@JaneHolley48‏ And Jimmy Little archival material all day as well. Some lovely interviews and and an Awaye! special.



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Want to improve indigenous lives? Build more houses

Productivity Commission chief Gary Banks has backed a finance department finding that the $3.5 billion the Commonwealth spends on indigenous programs each year yields "dismally poor" returns.

The finance department strategic review, released this month under freedom of information laws after a one-year battle found strong commitments and large investments of government funds had “too often produced outcomes which have been disappointing at best and appalling at worst”.

Launching a biennial report that found outcomes had gone backwards in seven of 45 measures monitored by the commission Mr Banks said “plenty” of polices were not working.

“A recent finance department strategic review of indigenous expenditure has made that clear.”

“I don’t think we should be too critical - it is a very hard area to get right. But the key is to be open about failure and to learn from it,” he said.

The report found a widening of the gap in the rates of child abuse between indigenous and other Australians.

The number of substantiated cases of abuse and neglect climbed from 15 to 37 per 1000 Aboriginal children in the most recent decade, compared to an increase of 4 to 5 per 1000 among other Australians....

Rates of hospitalisation for assault were seven times higher for indigenous men and 31 times higher for indigenous women than for non-indigenous Australians.

The imprisonment rate for Aboriginal men soared 35 per cent over the decade; the rate for women 59 per cent.

“At least now we know more than we did. As recently as two years ago we could only find trend data for about one half of the measures we wanted to examine. Now it’s two-thirds. There’s more to go, but its an improvement.”

Les Malezer, co-chair of the National Congress of Australia’s First Peoples questioned the point of collecting the data when the authorities didn’t seem to notice.

“We have to face the fact that results are not coming,” he told Mr Banks at the launch. “One side of government produces the information and the other side doesn’t get called to account.”

Productivity Commissioner Robert Fitzgerald said one of most important things the government could would be to ease overcrowding in indigenous homes.

The proportion of indigenous houses with more than twice as many people as bedrooms has remained unchanged at 27 per cent for five years. In the Northern Territory the proportion exceeds 60 per cent.

“We have invested heavily in indigenous reading programs at schools with no discernible impact. But what is absolutely unquestionable is that easing overcrowding helps educational outcomes, health outcomes, the home environment and makes communities safe.”

“That one change it would have multiple outcomes.”

Families and community minister Jenny Macklin said since prime minister Rudd committed to closing the gap in 2009 “more than 800 new houses have been completed”.

Australian National University professor Mick Dodson said the houses often weren’t being built where indigenous people wanted to live and weren’t the kind of houses they would want had they been consulted.

Published in today's SMH and Age


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Mixed progress. Our Indigenous gap widens, narrows

Indigenous imprisonment, substantiated child abuse and chronic disease continue to trend higher two years after Kevin Rudd announced an ambitious program to “close the gap” and four years after John Howard announced his Aboriginal intervention.

The latest trend data assembled in a report entitled Overcoming Indigenous Disadvantage show improvement in only 13 of the 45 indicators monitored by the government. In another 10 the report finds “no real improvement”. In seven it finds outcomes going backwards.

Although the first such report since Kevin Rudd committed Australia to “closing the gap” in 2009 much of the data is dated, providing only an indication of the trend at the time the commitment was made or slightly after.

The Indigenous imprisonment rate for men soared 35 per cent in the decade to 2010; the rate for women jumped 59 per cent. By 2010 Indigenous Australians were imprisoned at 14 times the rate of other Australians. In 2009 Indigenous youth were detailed at 23 times the rate of other Australians, a decline from the peak in 2008.

The rate of substantiated child abuse in Indigenous families more than doubled over the decade to 2009-10, a period in when the rate of substantiated abuse among other Australians climbed 25 per cent. The report says while it is possible some of the increase is due to improved child protection action, “some is likely to reflect real increases in child abuse and neglect, given little improvement in the social and economic circumstances of Indigenous people”.

Indigenous Australians remain twice as likely as others to suffer a severe disability, a gap unchanged over the six years to 2008... The gap in hospitalisation rates for most chronic diseases was also unchanged, except for heart disease, diabetes and end-stage renal disease, where the gap grew.

Indigenous employment has climbed in the four years to 2008, but at the same rate as non-Indigenous employment meaning the gap is unchanged.

Indigenous households earn $300 per week less than other Australian households, a gap that is unchanged although real Indigenous incomes have increased strongly, keeping pace with other incomes.

Home ownership rates climbed steadily between 1994 and 2008 with the proportion of Indigenous Australians living in a home that was owned rather than rented (either with or without a mortgage) climbing from 22 to 29 per cent.

The proportion of Indigenous students completing Year 12 climbed from 20 to 26 per cent between 2001 and 2008 and the academic performance of Indigenous Year 12 students improved, but the performance of non-Indigenous students climbed faster, widening the gap.

The proportion of Indigenous Australians working towards or holding post-secondary qualifications climbed from 26 per cent to 34 per cent in the four years to 2008, but the proportion of other Australians holding or obtaining post-secondary qualifications also climbed, leaving the gap unchanged.

Mortality rate among Indigenous Australians appears to be falling, with child mortality falling sharply, but the report’s authors complain good data on life expectancy is unavailable, leaving them unable to judge progress on Kevin Rudd’s 2009 commitment to close the life expectancy gap within a generation.

Overcoming Indigenous Disadvantage will be launched this morning by its principal authors, Gary Banks and Robert Fitzgerald of the Productivity Commission and Professor Mick Dodson of the Australian National University.

Published in today's SMH and Age

Australia's Indigenous Report Card

Indigenous imprisonment - worse

Substantiated child abuse - worse

Chronic disease - worse

Employment gap - unchanged

Education gap - unchanged

Income gap - unchanged

Home ownership rate - improved

Infant mortality gap - improved

Steering committee for the review of government service provision, Overcoming Indigenous Disadvantage, to be launched this morning

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The way we divide the GST cake is a scandal

At the heart of Prime Minister Gillard’s decision to upend Australia’s long-settled system of dividing GST money between the states is a scandal, an outrage.

She hinted at the awful truth when she said it rewarded “underperformance in service delivery”.

At present all the Goods and Services Tax takings are pooled and divided between the states on the basis of their population adjusted by a relativity rating.

For the two biggest states the ratings are close to 1. The NSW rating is 0.95, Victoria’s is 0.93, meaning each gets back somewhat less than they would expect on the basis of population.

Adjusted for special needs and the luck some states have in having a resource base to tax, the ratings range from a low of 0.68 (for Western Australia) to a high of 1.62 (for Tasmania).

Except for one. The Northern Territory adjustment is by a factor
of 5 - 5.07 to be precise, soon to climb to 5.35. Largely because of its special needs in having a large highly-disadvantaged Indigenous population it gets back five times as much from GST as it puts in.

But it doesn’t need to spend the money fixing up Indigenous disadvantage - the grants are untied.

In fact it is in its financial interest for the Indigenous disadvantage to remain... It is in its financial interest to spend the money on something else - offices in Darwin, enviable salaries for its public servants and politicans.

As Australia’s foremost expert on state taxation Neil Warren puts it, “the Northern Territory likes to have a disadvantaged population - it has no interest in removing disadvantage.”

“The money given to them because they need Indigenous housing, they have poured into Darwin.”

If, as Professor Warren has proposed to the government, that money was paid instead in tied grants decided on the basis of performance rather than need, its relativity factor would drop like a stone.

It isn’t such an unusual idea. It is what Kevin Rudd proposed for hospitals. Money would be carved out of the untied GST distributions and handed to the states on the basis that they spent it where it was needed.

Critics of Julia Gillard’s push for a shakeup of the system of dividing the cake miss the point when they say that for every state that is made better off another will be made worse off. If we can get a system that actually makes Australians better off, we’ll all get ahead.

Published in today's Age


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You think your ATM fees are high! Swan gets serious

Treasurer Wayne Swan has signaled a crackdown down on extortionate ATM fees in the bush setting up a joint Reserve Bank Treasury taskforce and giving it just one month to report.

The government has been told of one automatic teller machine in remote South Australia that charges $10 per withdrawal. Another, in the Torres Strait limits withdrawals to $100 at a time, at a cost of $5 each.

Even the standard $2 fee on checking bank balances can eat up as much as 20 per cent of as a Centrelink payment as recipients check repeatedly to see whether it has been paid into their account.

The Australian Financial Counselling and Credit Reform Association told the government in December that Indigenous Australians in remote communities made smaller and more frequent withdrawals than Australians in cities in order to avoid being "humbuged" or harassed for money by family members.

With no way of avoiding fees by going to an "own bank" ATM they paid far more than Australians in cities.

Mr Swan has asked the task force to report by February 28... on the provision, fees and impact of ATMs in remote communities and to suggest action to fix problems.

He has also asked for a second less-urgent report on the impact of the Reserve
Bank's rules governing the use of ATMs due by late June.

The rules prohibit ATM providers from charging banks for ATM transactions forcing them to bill their users directly.

Although designed to introduce competition into charging, the rules have standardised fees at around $2 per transaction in the cities.

The Reserve Bank has told the Senate banking inquiry the actual cost of an ATM withdrawal is around 74 cents, made up of 25 cents for obtaining the cash and around 50 cents for rent, equipment and processing the transaction.

Published in today's Age

ATM Fees in Remote Indigenous Communities

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Henry to Indigenous Australians - some of this should be for you

Aboriginal Australians would have a special claim over the money raised by the proposed Resource Super Profits Tax if the head of the Treasury had his way.

Dr Ken Henry endorsed the idea while selling the tax at the annual post-budget economists briefing in Sydney.

Asked whether the revenue from the tax should really flow to the original people of Australia he replied that Australia's natural resources belonged to all Australians "including people not yet born".

"I don't want to get into a debate over whether the first settlers have a stronger claim than those who are second settlers or in my case those of sixth or seventh generation European extraction," he said.

"But if your question is, is there a case for some amount at least of that income, that revenue going to support Indigenous development, I would say very firmly yes, absolutely yes"...

Dr Henry's idea is not government policy but was yesterday given a cautious welcome by Indigenous Affairs Minister Jenny Macklin who said the proposed tax would boost mining and as result benefit Indigenous communities as native title holders.

Dr Henry told the economists Australia had an abundance of natural resources and should not "undercharge" for them.

What was proposed was a "tax reform" rather than a tax increase and would represent world’s best practice in charging for the exploitation of non-renewable natural resources.

Shortly before he spoke India's Mines Minister announced plans for a windfall tax on iron ore to apply "where prices are substantially higher than the cost of production".

India is the third biggest exporter of iron ore after Brazil and Australia.

Dr Henry said the existing state-based royalties to be replaced by the Super Profits Tax were amongst the most highly distorting taxes his panel discovered in its review of Australia's 125 taxes.

Many of the companies which have consulted with Treasury in the last two weeks "have come in equipped with all of their numbers project by project and very good discussions have place".

"I would have to say as well that in other cases the consultations have been less productive," he told the economists.

"Those who have come to the table have not brought their numbers with them and instead have come along armed with rhetoric."

Dr Henry signaled there would be no compromise on one of the key elements of the plan - the rate of return taken at which the tax cut in.

It was not so much a tax as a joint venture with the Australian government a "silent partner" stumping up 40 per cent of a costs and taking 40 per cent of the excess profits.


Published in today's SMH and Age 


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Who owns the land on which Canbera is built?

Canberra may be built on a falsehood – one the Federal Court will be asked to rule on later this month.

The alleged falsehood is that the ACT (and before it the Commonwealth) actually owns the land on which the national capital sits.

When a long-running Indigenous land claim comes to case management on August 28 the barrister representing the claimants George Villaflor will ask the court to make the determination, claiming that the NSW never actually gave the Commonwealth ownership of the Territory, merely the right to govern it.

In his office above a hairdressing shop in Ainslie the pro-bono lawyer said yesterday that the actions of the Stanhope government had left him with little choice.

“They are actively developing land on the Kingston foreshore and legislating for new power stations as if native title isn't an issue here. So I want to ask the court – has native title been extinguished in the ACT.”

He said the argument that the creation of the ACT extinguished native title was wrong.

There was no evidence that NSW ever handed over its title over the land...

Reading from Quick and Garren’s Annotated Constitution of the Australian
Commonwealth published in 1901, he quotes it as concluding that it is clear
from the construction of section 125 that “the Commonwealth acquires under
this section territorial rights only, not proprietorial rights”.

“The second reading speech of the 1909 NSW Seat of Government Surrender Bill
made it clear that NSW still retained the title to the soil.

“While the NSW Premier Charles Wade didn’t actually say that his state still
owned the land, he implied that it did throughout his speeches. There were
a few that said, well if the ACT fails, at least the Commonwealth will have
improved it for us - that sort of thing.”

Mr Villaflor believes that that is the reason that that land has only ever
been leased in the ACT. “To sell it would mean that you owned it,” he says.

But by granting very long leases over the land – 999 years for residential
blocks, the ACT government was essentially alienating the land anyway, in
the full knowledge that the High Court’s Mabo ruling may have restricted its
ability to do so.

Rather than confront the question and seek a determination from a court, the
Stanhope government was continuing to act as if it - alone among all states
and territories - was immune from Native title claims.

Asked in the Legislative Assembly by Liberal MLA Jacqui Burke two years ago
whether the ACT had the authority to grant and dispose of land while Native
title claims were under way, the Chief Minister replied that the ACT’s
authority was “not affected by the existence of Native title claims”.

“If Native title were found to exist in the ACT then the provisions of the
Commonwealth Native Title Act 1993 would have to be complied with,” he said.

“He was saying he would deal with any problems only after the event. He is
pretending for now that they don’t exist,” said Mr Villaflor.

The barrister advised his clients to terminate their private negotiations
with the ACT government some months ago because he did not believe they were
negotiating in good faith.

“On August 28 I will ask the court to join the Commonwealth and NSW as
defendants and to pay for my clients to be represented.”

“I’ve got senior counsel willing to do it. Continuing to drag this out is
just going nowhere,” he said.

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The summit that will matter

The 2020 Youth Summit - with 100 of our best and brightest - is on right now, on Saturday and Sunday at Parliament House in Canberra.

I'll have the thrill of reporting it tomorrow for our paper. Ten of the participants will take part in the Summit itself next week.

Here's an extract from the excellent opening speech delivered this morning by the Deputy Prime Minister Julia Gillard:

"Recently, Australian archaeologists have been digging up large numbers of interesting objects at a desert site by the Hope Downs Iron Ore Mine, around 310 kilometres from Port Hedland in Western Australia.

They’re just small things: cutting tools that can fit in the palm of your hand; microscopic seed remains; charcoal from ancient fires.

Not much, you would think.

But using complex radiocarbon tests, scientists have dated them as at least 35,000 years old. And they’re confident that just below these finds there is another layer of human-created objects that push the timeline of these discoveries back to 40,000 years.

It’s being regarded by some as one of the most significant prehistoric records of humanity ever found – with the potential to tell us a great deal not only about the people who preceded us, but our ancient climate as well.

I want you to consider the implications of this.

It means that for 1,000 generations, Australians – in this case the Martidja Banyjima people – have been digging, cutting and transforming Australia’s landscape and climate, and creating a civilisation here, where we live.

But in the last 220 years since the arrival of the First Fleet – and most notably during the last century and a half when the industrial revolution was brought to Australia – our impact on the country has accelerated – to the point where, within the space of just a handful of generations, we may have inflicted irreversible and perhaps highly damaging change on our home.

The next couple of decades will confirm whether or not this is true.

Now, we don’t want to idealize Australia’s distant past. Progress has brought untold benefits. But it has also thrown up challenges.

Not just the challenge of dangerous climate change – but new forms of inequality, new health problems, transport congestion and a host of new moral issues for us to deal with. This is the history on which our future has the built – and the issues you must address.

Each of us stands at the end of that 40,000 years of Australian climatic, economic, social, technological and creative change.

My generation is responsible for its fair share of what has occurred – the good and the bad.

And next week some 900 other members, mostly of my generation, along with ten others from today’s audience, will follow you to Canberra.

There will be a lot of expertise and knowledge among them.

They will propose a lot of policy ideas.

But they won’t be the ones who have to carry the most long-term and perhaps most important of their ideas through to completion. They won’t have to live with the consequences.

As the 1,001st generation of inhabitants of Australia, that responsibility will eventually fall to you."

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2020 Questions

The summit "starter questions" are here, at the end of each of the ten pdfs or powerpoints.

Below, myself and Canberra Times colleagues Danielle Cronin, Andrew Fraser, Emma Macdonald, David McLennan and Ross Peake summarise the background papers prepared for each of the ten working groups at the summit:

Who will the next generation of Australian farmers be? What are the responsibilities of individuals and the state in managing behaviour-related illnesses? Can public education only be delivered through public schools?

Those are among the list of about 1,000 questions to be dealt with at next fortnight’s 2020 summit.

Released with the ten background papers that will guide the ten working groups, the papers draw on common themes, among them that Australia is aging - by 2030 one in four of us will be aged 65 and over - and that our climate is set to dramatically change.

The papers also deal with Australia’s future in the world, the place of Indigenous Australians in the year 2020, and the role of our parliament, government and the courts.

Unveiling the papers yesterday the head of the steering committee Professor Glyn Davis said they aimed to tell an evidence-based story about how Australia was faring.

“They are not intended to be definitive or comprehensive, but were put together to stimulate discussion. They do not represent government policy,” he said.

“We hope they will trigger a conversation”.

Some of the papers are notable for what they omit. The discussion paper on Australia’s economy includes no mention of taxation. And Japan, the world’s third biggest economy and Australia’s biggest customer, has been left off of the graph showing the evolution of the global economic landscape. The US, China and the UK are on it, just as they are on the Prime Minister’s present overseas tour...

The Economy

Australia’s productivity growth and public investment in infrastructure have been nose-diving while the demands placed on our infrastructure by export growth and economic growth have been accelerating.

The economy working group to be chaired by the former head of Westpac David Morgan will be told that our ports are stretched to maximum capacity, our road freight traffic is growing dramatically, the costs of road congestion are climbing and that we are in urgent need of new electricity generation capacity.

Two ideas to work our infrastructure harder are road congestion and related charges and water and energy priced to reflect their full economic costs.

Education

Australia spends the least on early childhood education of any OECD country. While our students perform well on international benchmarks, there is a large variation in their performance depending on their socio-economic status.

The education and productivity working group chaired by the former Coalition frontbencher Warwick Smith will be told that Australia’s teachers have low status and low incomes, and that as a result we are facing a looming teacher shortage.

Our TAFE enrolments are in long-term decline declining leaving many Australians without any sort of post-school qualification.

Australia’s private expenditure on research and development is amongst the lowest in the OECD.

While there is a “striking consensus” about the importance of skills and contributing to the workforce, Australia needs to translate that consensus into a real demand for education services that will respond to a changing world.

Sustainability

Australia is more vulnerable to climate change than most other OECD nations and receives less rainfall than most other developed nations, with our rainfall levels projected to fall further. We are one of the most urbanised countries in the world and our cities are growing quickly.

The population, sustainability and climate change working group chaired by Roger Beale of the Allen Consulting Group will be told that one future challenge will be to accommodate our preference for larger living spaces, while providing commutable, liveable cities with appropriate infrastructure.

Another will be to continue to provide water to our cities. Projections suggest that the demand for water in most urban areas - except Canberra – is on track to exceed the sustainable supply by 2025.

Australia is the 3rd highest per capita emitter of carbon dioxide in the OECD and our emissions are forecast to continue to rise even with the already announced measures other than emissions trading.

Our creativity, strong science base, agile economy and renewable resources, including sunshine, “hot rocks”, wind and bio-resources, provide enormous capacity for a shift towards a lower greenhouse footprint.

Clean coal technology could have a profound impact on our emissions and economy. Further development of carbon, capture and storage technology might enable us to reduce our carbon footprint and to maintain our significant coal exports in a carbon constrained world.

Much of the world is re-thinking the acceptability of nuclear power in the light of climate change. Australia has a large share of the world's uranium and a role to play within appropriate safeguards.

Strengthening Communities

While Australia is wealthy, some Australians live in extreme disadvantage. Many people with disabilities and long term health conditions struggle to find employment despite a booming economy.

The communities and families working group, to be chaired by the Australian head of World Vision Tim Costello will be told that there are specific locations in Australia in which poverty, illness, disability, crime and unemployment are concentrated.

These are the places with the worst educational results and the ones where the most children live in families with no working adults.

Many working households have low incomes, and there is an older group of Australians who lack sufficient savings to comfortably retire.

Problem gambling is an added pressure for some Australians and despite declines in the use of some drugs, substance abuse and binge drinking remain significant problems with a range of costs borne by the entire the community.

Australia has a relatively high crime rate, and people feel less safe than in many other countries.

Health

Australians enjoy one of the longest life expectancies in the world. However we live with a significant burden of ill-health and our ageing population will significantly increase the future demand for health care.

These days communicable diseases have given way to lifestyle-related chronic illness, many of them associated with growing rates of obesity.

The health working group, to be chaired by the director of the Queensland Institute of Medical Research Professor Michael Good will focus on whether governments have struck the right balance between spending on treating disease and preventing illnesses.

It will be told that current health funding remains overwhelmingly focused on treatment and that health outcomes are significantly worse for low socio-economic groups and rural and indigenous communities. Lifestyle risk factors are more prevalent in these disadvantaged sectors and the often lack good access to health services.

Australia spends an average amount on health compared to other OECD countries and has the opportunity to improve productivity through new systems and approaches to care.

Indigenous

The government has apologise to the stolen generations and promised to close the 17-year gap in life expectancy within a generation.

The indigenous working group chaired by Dr Jackie Huggins of the University of Queensland will be asked to consider the next steps needed and to overcome a housing shortfall identified as a `”major starting point”.

Australia’s indigenous population is largely urbanised, and is significantly younger than the rest of the population. Indicators of disadvantage are severe across all Indigenous populations and outcomes have not improved significantly in recent decades.
Future efforts must be effective and have real accountability. The paper finds that while mainstream attitudes towards indigenous disadvantage are generally constructive, the public is not well informed and needs a deeper understanding.

Urgency is required if we are to preserve Australia's indigenous languages and traditions. We could learn from effective initiatives overseas

Regional Australia

The agricultural sector accounts for 3 per cent of Australia's gross domestic product and 20 per cent of merchandise exports, but generational change makes it unclear how and whether the next generation will remain on the land.

The working group chaired by the former National party leader Tim Fischer will be told that the average farmer is already older than 50, with the largest proportion of them in the over-65 age group. There are also fewer of them, with their farms getting bigger.

The background paper says that declining rainfall may have consequences for the way we farm in some marginal areas and suggests re-examining the definition of drought.

However it says if managed well climate change could provide opportunities for regional Australia through things such as carbon credit schemes, water trading, wind farms, and possible increased reliance on biofuels.

Creative Australia

More than half of Australia thinks that the arts are “elitist and pretentious”. One third thinks they are irrelevant to their lives.

The ABC stands out as being appreciated - 85 per cent of Australians believe that it provides a valuable service – but it and the SBS are under-funded compared to counterparts overseas.

Cate Blanchett’s Creative Australia working group will be told that Australia trails Europe in the public funding of arts and culture, but exceeds the US where private philanthropy plays a greater role.

It will be asked whether private philanthropy could play a greater role in Australia and whether Australia’ art collections funding should remain fragmented between the states or managed from a national perspective.

Governance

Australia is a world leader in the turn out of registered voters at elections, but we may not be getting a good deal from our elected representatives.

The working group chaired by the head of News Limited John Hartigan will be asked whether ordinary people's views are heard in the Cabinet room, whether governments are too sensitive to opinion polls and whether they get their information from the right places.

The background paper raises the need for a bill of rights and also talks about the way in which interactive technology can change the nature of political engagement.

The role of lobbyists, think tanks and the media are open for discussion as well as the role and limits of freedom of information laws.

The paper asks whether the right structures are in place to ensure that decisions are made in the interest of the nation, rather than just the interests of political victory.

It asks whether we need an Australian head of state, whether the structure of federalism is the right one, and whether the parliament needs fixed terms.

It says that increasing public expectations of government will require an increasingly skilled and flexible public service.

International

Significant shifts in the balance of global power are taking place, with the economies of China and India developing strongly and exercising a greater gravitational pull.

The working group chaired by Professor Michael Wesley of Griffith University will be told that in order to remain effectively engaged internationally, Australia needs to build and maintain high levels of “international literacy”.

Throughout the world the proportion of people speaking English as a first language will decline. By 2050 around two-thirds of the world's population will not speak English as their first language.

Australia should be able to meet the challenge using its unique geographic location, its large educated and multicultural population, its half a million foreign students and the one million Australians who live abroad.

Australia has a long history as a significant development partner in our region, something that will become more important as some of our neighbors deal with the problems of chronic poverty, high birth-rates and stagnating economies.

Australia has benefited greatly from globalisation and it has a very strong interest in rules-based, multilateral international agreements.

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