Frydenberg should call a no-holds-barred inquiry into superannuation, now, because Labor won't

The Coalition is running out of time to do worthwhile things.

Facing overwhelming odds of defeat in the election due within weeks, one of its last throws of the dice should be to do something Labor would never do, but which is urgently needed and would set us on the right course for the future.

It’d also cause some trouble for Labor along the way.

It is to launch a full-blown inquiry into the superannuation system Labor has lumbered us with.

It’s urgent because compulsory super contributions are scheduled to climb from the current 9.5% of salary to 12%, beginning with an increase of 0.5% in July 2021, followed by an extra 0.5% in 2022, 2023, 2024 and 2025.

If that seems rapid, and painful, it is because it is due to happen at twice the rate it has been.

Under the schedule imposed by Labor when it was last in office compulsory contributions were to climb by 0.25% of salary in each of 2013 and 2014 and then at twice the rate, by 0.5%, in each of the five years after that.

Compulsory super is set to jump..

The Coalition hit pause after 2014 just before the rate accelerated, postponing the series of five much bigger increases until 2022, when it might have hoped that wage growth would be robust enough to cope with it, or when it would have been someone else’s problem.

Labor says it will stick to that schedule, presumably regardless of wage growth or other economic conditions or the need for extra super contributions at the time.

Asked, ahead of the release of the Productivity Commission’s report on how to make super funds more efficient, whether Labor would reconsider the schedule if the Commission found other ways to boost retirement incomes, Labor Treasury spokesman Chris Bowen said it would not.

It’s almost as if – to Labor – lifting compulsory super contributions has the status of a holy writ; perhaps because it would “complete the work” of Labor elder statesman Paul Keating who introduced compulsory super, or perhaps because so many union officials are tied up with the running of the funds that would benefit from the schedule of increases.

In the event the Productivity Commission report released on January 10 found ways to massively lift retirement incomes without lifting super contributions.

…whether we need it or not

It found unintended multiple accounts and the defaulting of new workers into entrenched underperforming funds were costing members an astonishing A$3.8 billion per year.

Weeding out the chronic underperformers, clamping down on unwanted multiple accounts and insurance policies, and letting workers choose funds from a short menu of good ones and stay in them for life would give the typical worker entering the workforce an extra A$533,000 in retirement.

Even a typical worker aged 55 today would get an extra A$79,000 in retirement.

What the Commission’s report couldn’t say, but stongly implied, was that if the Commission’s recommendations were adopted an increase in costly compulsory contributions might not be necessary.

Its terms of reference limited it to assessing the “efficiency and competitiveness” of what happened to the contributions that were collected.

Henry was unconvinced

Another inquiry – less hamstrung – was the Henry Tax Review. It found no need to increase contributions. Labor treasurer Wayne Swan dishonoured its findings by announcing the proposed increase in contributions on May 2, 2010, the day he released its report.

But super wasn’t the main focus of the Henry Review. In the 25 year history of compulsory super, there has never been an inquiry into what the rate should be and what the system has achieved. It’s as if governments of both types have been keen to govern blindly.

So in January the Productivity Commission tentatively ventured beyond its brief, in a recommendation Treasurer Josh Frydenberg has promised to respond to before the election.

It is Recommendation 30, for an independent inquiry into the entire system.

The independent inquiry would determine whether or not the system we’ve had for the past 25 years has boosted national or even private savings rates, as well as who it has hurt and who it has helped.

They are the type of questions you would think a government would want to answer before lifting compulsory contributions further from 9.5% of salary to 12%.

Frydenberg could show leadership…

Indeed, Recommendation 30 explicitly asks that the inquiry “be completed in advance of any increase in the superannuation guarantee rate”.

It is possible to guess what the inquiry would find:

• that almost all increases in employers’ compulsory super contributions come out of what would have been wages, depressing workers take home pay, a finding that will not be seriously disputed

• that the system hasn’t boosted national savings - the increase in private savings has been offset by the decrease in government savings brought about by the use of the super tax concessions

• that the increase in private savings has come almost entirely from the middle to low earners who have been unable to escape the impact of the levy, because they have had no other savings they could cut. They are the people who could least afford to save more at the time they were forced to

• the tax benefits have gone overwhelming to the high earners who are saving no more than they would have without them, and without compulsion

In sum, the inquiry is likely to find that the system is regressive and cruel. Or perhaps not. We won’t know until it is held.

It ought to be conducted by an expert panel whose members are highly respected and who will amass evidence the next government won’t be able to ignore.

…ensuring Labor does more than look after mates

Frydenberg ought to appoint the panel now, or within weeks, so that an incoming Labor government can’t dismantle it.

It would be one of his most important legacies. And would give him something to press the next government about should he be in opposition.

In time an incoming Labor government might thank him.

At present, without the scheduled increases in compulsory super, wage growth is just 2.3%. With the scheduled increases of 0.5 percentage points per year, wage growth might fall below the rate of inflation, for five consecutive years.

No sensible treasurer would allow that happen. By doing what’s right, Frydenberg might be giving Bowen an out.

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

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

Read the original article.

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The case for destroying default super in order to save it

So toxic has much of Australia’s superannuation industry become that some at the very top of the government think the Productivity Commission hasn’t gone far enough.

The commission wants to unpick the link between super funds and jobs, meaning everyone would need only one fund for life that they could choose from a dropdown menu of the top 10 (or pick another fund if they want to, or set up their own).

It can be thought of as a way of saving the house, chopping away some of the rotten wood. The alternative, being seriously considered by ministers including Financial Services Minister Kelly O’Dwyer, would be more like burning it down. It would be to set up a single government-run default scheme to which everyone would belong for life, until they decided otherwise.

If it were well run there would be little room for funds run by the scandal-plagued banks and AMP, and less room for industry funds.

The national default scheme would operate like the government-run Future Fund, which invests billions to fund payouts from now-closed public service superannuation schemes.

It might even outsource some of its work to the fund. But it would be much bigger; perhaps as big as $1 trillion, and eventually several trillion, compared to the Future Fund’s $141 billion.

Like the age pension, its payouts would be provided by the government and funded by tax. But, unlike the pension, the contributions wouldn’t be called a tax, just as super contributions aren’t called tax at the moment. And what’s paid out would depend on what was paid in, meaning the highest earners would get the most, unlike the pension, which is meant to be the other way around.

(Going further and abolishing government-mandated superannuation altogether and just paying everyone the pension would be the next logical step, and would easily pay for itself given the cost of the super tax concessions, but as far as I know I am one of the few people suggesting it, and I am fairly sure no one in government is.)

Lying behind the idea is the realisation that the bank-owned funds are far worse than the headline figures presented by the Productivity Commission suggest, and that the banking royal commission is about to make this clear.

What is already well known is that the bank-owned funds perform poorly. Over the past decade the largely bank-owned "for profit" funds have produced annual returns of 4.9 per cent compared with the industry funds' 6.8 per cent and the Future Fund’s 8.5 per cent. Over a lifetime this would mean a typical retail fund paid out less than half as much as a typical industry fund.

The banks have got people into their poorly performing funds by paying their staff commissions, by paying advisers commissions and by buttering up employers with offers of good banking terms.

But those extra costs don’t come anywhere near explaining their poor performance. The commission’s intriguingly named 'Technical Supplement 4: Investment Performance Methodology and Analysis" provides hints. It says retail funds produce annual returns 0.9 per cent worse than would be expected given their asset allocation strategies, and industry funds produce returns 0.2 per cent better given their strategies.

But they are different strategies. As a matter of policy the retail funds have adopted approaches that give less weight than the industry funds (or the Future Fund) to the asset classes that have been shown to perform the best over the long term: things such as toll roads and well-tenanted buildings.

It’s partly because of cost. Being for-profit funds, and charging (hefty) administration fees, they don’t want to use up those fees on the cost of inspecting and directly investing in buildings. It’s cheaper to buy a share index, and cheaper still to buy government bonds.

If your own institution is selling them at a good price for it, so much the better. And shares are more liquid than buildings, which means bits of them can be easily sold and re-bought; something that’s needed if you are offering thousands of different investment options for people to switch into and out of, each time earning you a fee.

It’s got to the point where some in the Coalition believe it is no longer possible to defend the bank-owned funds. They’re saying that if the industry funds are better because they’ve generally got more scale and take the job seriously, a single national default fund would be better still. As Peter Costello, the chair of the Future Fund and Australia’s longest serving treasurer, puts it, “one default fund could make large allocations and use market power to drive down costs”. There’s one in Canada, and in Britain.

The counterargument, put by Productivity Commissioner Karen Chester, is that a government-run fund would acquire an implicit government guarantee which could make it overly cautious, reluctant to lose money. And she says 27 years of compulsory super has given us something worth salvaging: a modicum of interest in what happens to our money.

It’s far from certain that what she is proposing will get the government’s nod. So bad are the ongoing revelations about the funds that Costello is in there with a chance.

In The Age and Sydney Morning Herald

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Portrait of a sick system is chance to put things right

We’re apathetic about super, until we’re not.

On Tuesday phone lines to Australia’s biggest bank-run super funds buckled under a deluge of calls from customers wanting to close multiple accounts. Traffic to the Australian Securities and Investments Commission’s website for consolidating your super jumped 500 per cent.

And in at least one school, Year 12 students were shown two videos; one produced by the Productivity Commission depicting super funds as pigs, and the other prepared by this newspaper, making the point that multiple and poorly chosen accounts can cost members in excess of $400,000 over their working lives.

Asked to check in on their own accounts as homework, some discovered they already had more than one. They had been working casually, flipping burgers and selling clothes. Each new account furnished them with a new insurance policy, which sounds like a bonus until you realise they were getting insured more than once against death and losing their income. They were aged 16 and 17.

Every additional insurance policy, whether junk or not, costs $85,000 over a working life, according to the Productivity Commission report that set off the avalanche of calls. (In reality many wouldn’t cost that much, because they would drain inactive accounts first.) That super funds have knowingly allowed multiple insurance policies to accumulate in the accounts of people too young to benefit is one of a number of scandals uncovered in the report.

The commission’s suggested solutions to the problems of multiple and unsuitable insurance policies are simple: funds would be prevented from foisting them on anyone aged under 25 without their consent; inactive accounts would have their policies stopped. People with inactive accounts are almost certain to have another active account with insurance or no income to insure.

Treasurer Scott Morrison commissioned the inquiry a year ago, at a time when he was still implacably opposed to a banking royal commission. Its head, Producitity Commission deputy chair Karen Chester, refers to it as the “not-so-royal commission”.

Morrison wanted it to examine the costs, fees and net returns of super funds, the role of insurance premiums in eroding member balances, and the antiquated way in which people are pushed into default funds that are tied to jobs, not people. The lines between the two commissions will blur in the coming weeks, as the banking royal commission itself turns its attention to super.

Tuesday’s report is a draft. The Productivity Commission can’t be certain when it will deliver the final report partly because the banking royal commission is taking up so much of bank executives’ time that it would be unfair to ask them to deal with the super report until the banking inquiry is out of the way. But the commission is keen to hear from the rest of us immediately.

On Friday it added a new ‘Brief Comments’ section to its website. Ordinary Australians will be able to upload up to 200 words without the need to make a formal submission. Their names won’t be published but, if they agree, their comments will be. When Chester did this before in an earlier superannuation inquiry, she was able to put the lived experience of Australians to fund representatives in public hearings and get them to concede that things weren’t as rosy as they had been suggesting.

Their investment performance is disheartening. Super funds are made up of asset classes; things such as property, shares, international shares and government bonds, assembled in certain proportions.

By examining the average performance of each of the underlying asset classes and assembling them in the same proportions as each of the regulated funds - in what it thinks is a world first - the commission has been able to compare what the fund’s performance would have been if no special skill had been added with the results they actually delivered over more than a decade, taking account of fees and tax.

Shockingly, it found that the 228 funds taken together (accounting for 93 per cent of all accounts and 61 per cent of all superannuation assets) did worse than if the managers had just set the proportions and then done nothing. Their attempts to pick stocks consistently cost their members money. Without putting too fine a point on it, their members would have been better off paying them to do nothing.

The retail funds, mostly run by the banks, are the worst. Instead of producing the 6 per cent per year they would have if they had just set their asset allocation and sacked their stock pickers, they produced 5 per cent. (Stock pickers in the union and employer-controlled industry funds did add value, but not much, boosting annual returns by 0.2 percentage points.)

The commission says it’s at a loss to understand how the retail stock pickers can be so bad. On the face of it it would take a rare and perverse skill to consistently produce worse results than leaving things alone. Keen readers of the Productivity Commission website will find a clue in one of the submissions, from Kevin Liu and Elizabeth Ooi at the School of Risk and Actuarial Studies at the University of NSW.

Despite their complaints about how the directors of industry funds aren’t independent (most are employer and union representatives), most of the directors of retail funds aren’t independent either. Four out of five are affiliated to the bank or larger entity that owns the fund, often by working for another part of it.

Liu and Ooi find that the more affiliated directors a retail fund had, the worse it performed. And the more related-party service providers it used, the worse it performed. The effect was “both statistically and economically significant, and consistent across different measures of investment performance”. The implication is that affiliated directors put the interests of the bank or larger entity first, perhaps by loading up super funds with products it wanted to shift.

Looked at this way, the superior performance of the industry funds isn’t so much the result of superior skill as it is the result of doing a job well in a straightforward way without a conflict of interest.

It’s also the result of scale. Many of the retail funds are deliberately small. There are around 40,000 of them, a number so big as to almost certainly be designed to confuse and beguile the customer rather than help. It’s no accident that Australia’s biggest industry fund, AustralianSuper, is always one of the top performers.

But some of the industry funds are also small, and are shockers when it comes to performance, sitting alongside the worst of the bank-run funds. Appallingly, new employees and people switching jobs continue to get funneled into them because of the provisions of industrial awards. For as long as that happens their directors will be tempted to keep them open, pocketing board fees for running an organisation that stays subscale but open as the trickle of members leaving is replaced by a stream coming in.

It’s why the commission wants super to follow the person, not the job, with every new labour market entrant (and everyone changing jobs) presented with a list of the top 10 funds and invited to pick and stick for as long as they like, without accumulating multiples. Labor and the Coalition have cautiously welcomed the idea.

It is competing with another model, proposed by Future Fund chair Peter Costello, in which the government would run the only default fund, freezing the top 10 out. It says a lot about how bad the performance of the bank-owned funds has been that some in the Coalition are prepared to countenance it - and also a lot about how much they despise the top-performing union and employer-controlled industry funds.

Australia’s superannuation system is 25 years old. The pool of super savings has climbed to $2.6 trillion. By 2030 it’ll be $5 trillion. It’s important to get it right.

In The Age and Sydney Morning Herald

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The appalling truth about our 'world-class' super

Here’s how you can tell the Productivity Commission was spot-on in its assessment of the superannuation system.

Not a single part of the industry, not one, has explicitly endorsed its key recommendation.

That’s because it is intended to help us: users of superannuation who depend on the industry.

We entrust it with an extraordinary $2.6 trillion (for reference, Australia’s entire gross domestic product, everything we produce and earn in a year, is $1.8 trillion). And the sum keeps growing as we put ever more into super each year through compulsory contributions, which are set to climb to 12 per cent of our salaries.

Yet it treats us with contempt. It has known for decades about the cost to us (and benefits to it) of multiple accounts. The commission says over a working life the extra admin and insurance charges can amount to an entire year’s pay. Yet behind the scenes its representatives have been lobbying Financial Services Minister Kelly O’Dwyer against attempts to stamp them out.

Australia has an astounding 29 million super accounts and only 20 million adults and teenagers aged 15 or more. One in three of our accounts are unwanted multiples.

The insurance fees are particularly egregious. One in four of us with insurance through superannuation don’t know we’ve got it and are unlikely to claim. Those of us with multiple policies can only claim on one of them for things such as income protection because that’s all the law allows, making the others useless. More absurdly, premiums for policies that include income protection continue to be deducted from the accounts of people who are out of work, denuding thier accounts by forcing them to pay to protect income they don’t have.

Many of us (those without specific provisions in our awards or industrial agreements) have had the freedom to choose what fund we want to be in since 2005. But the odds have been stacked against us. Banks have been paying their employees bonuses to switch us into expensive and poorly performing products.

They’ve been paying our financial advisors commissions to do the same thing, and providing attractive banking terms to employers prepared to do the same thing. Those of us who try and examine the market for ourselves are presented with a deliberately large and bewildering array of more than 40,000 individual products. The commission says the more complex the product, the lower the return the fund selling it is able to offer because the less likely we are to understand it.

So badly do the bank-owned funds perform that, taken together, they deliver their members a return around one sixth lower than would "plain vanilla" funds offering the same mix of asset classes and facing the same costs and taxes – an achievement that’s almost impossible to explain, although very large fees and using some of the funds as dumping grounds for poorly performing products might form part of the explanation.

In order to find out whether the funds themselves knew why they performed so badly the commission sent out to a survey, with reminder letters, to the 208 that service most of the population. Only 114 responded. Among those that didn’t respond were the Defence Force Superannuation Scheme and the AMP Eligible Rollover Fund. One attempted to game the survey by providing its name and address (so that it wouldn’t be included in the list of non-responders) and leaving all of the other fields blank, a performance the commission described as “contumelious” – a word that means showing an utter disregard for someone else’s work.

An impressive 81 per cent of the responders said they undertook performance attribution analysis, which means they knew why they were performing as they were. But only five (that’s right, only five of those funds) were able to outline what their analysis said. The rest were either not telling the truth about about whether they undertook analysis or were trying to hide what it showed.

Some of the industry funds performed poorly too. Some are funds into which people are forced to put their money by industrial awards. So bad are they compared to better funds the commission says over a lifetime the difference could amount to $635,000, or nine years' pay.

And yet neither Industry Super, the Institute of Superannuation Trustees or the Association of Superannuation Funds has explicitly backed the Commission’s key recommendation, and neither has the Financial Services Council, although it has come the closest.

The Productivity Commission wants all Australians joining the workforce to be presented with a drop-down menu of 10 best performing funds and asked to pick one. They would be perfectly free to pick from a broader list, or even to pick a fund that wasn’t on a list. And they could stay in that fund regardless of who employed them. An independent panel would refresh the menu every four years meaning funds would compete to stay on it. Financial planners would have to show clients the list as well. Denied an inflow of conscripted or deluded new members, the bad funds would close.

Yet their representatives oppose it. They have “expressed caution”, they say our system is “world class”, they say the Productivity Commission is “badly misguided”.

I reckon it’s got their number.

In The Age and Sydney Morning Herald

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The PC's fix for our multibillion super 'mess'

The biggest shakeup in the history of Australia’s $2.6 trillion superannuation system would see new workers able to choose an approved high-performing fund for life, saving as much as $407,000 by avoiding underperforming funds and multiple accounts.

A landmark Productivity Commission review has found that almost one third of default super accounts are chronic underperformers, actually costing members more than if they had invested in the underlying assets themselves and paid management fees. Another third, some 10 million, are unintended multiple accounts whose extra fees and duplicate insurance policies cost members $2.6 billion per year despite decades of government programs aimed at encouraging members to consolidate accounts.

“The government’s efforts are about sweeping up some of the mess. We want to do that as well, but we also want to stop the mess reoccurring,” said inquiry chairman and Productivity Commission deputy chief Karen Chester.

The Commission finds that “absurdly,” many accounts are tied to jobs rather than members, forcing Australians to accumulate accounts as they switch jobs unless they make active decisions to merge them.

Some of the insurance policies they accumulate are “zombies” unusable because of rules that prevent people claiming more than one income protection payout.

It wants all new workforce entrants to be shown a dropdown menu of up to 10 "best in show" top performing funds when they apply for a tax file number. The 10 would be chosen by an independent panel every four years. Employees would be free to choose a fund not in the top 10 or to make no choice, in which case they would be randomly assigned to one of the 10 best performers.

Laboratory experiments conducted for the Commission showed that 95 per cent of people presented with the drop down menu made a choice, either for one of the top 10 or for another fund they knew about, or for a self-managed fund.

 

The changes would remove the power of the unions, employers and the Fair Work Commission to assign default funds through industrial awards and enterprise bargains.

Indicative calculations by the Productivity Commission suggest that the “overwhelming majority” of the top 10  would be employer and union-controlled industry funds, as they perform much better than bank-owned retail funds.

But industry funds are also well represented among the 26 worst performing default funds, accounting for 10 over the past decade, compared to the for-profit sector’s 12.

Asked to identify the worst performing default funds, Ms Chester said that wasn’t the point of the report. “If we were to name funds it could make things worse by sparking a run on those funds,” she said. The Commission’s draft recommendations would ease bad performers out of the system gradually.

 

Almost half a million people join the workforce every year, accounting for $1 billion of super contributions in that year alone, meaning the changes would deprive poorly performing funds of new members, encouraging the trustees to consider whether they wanted to remain in business. Each of the one in seven workers who change jobs every year would also be shown the list of the top 10 and invited to change or consolidate their accounts.

Financial planners would also be encouraged to recommend funds from the top 10 list or to to show reasons why they hadn’t under a rule known as ‘if not, why not?’

Ms Chester said that of all the inquiries she and her fellow commissioner Angela McRae had worked on, this set of recommendations produced the “best bang for buck”.

“It could be worth 3.9 billion per year. I don’t think you can overstate the impact.” she said.

The Commission believes its analysis of Australia’s superannuation system is a world-first. “As far as we know, nobody in Australia nor anybody internationally has previously assessed the performance of a superannuation or a pension plan system,” Ms Chester said. “One of the reasons it is hard is that there are more than 40,000 super products, a number that makes it hard for consumers to make decisions.”

“We took the stated asset allocation of each MySuper fund and compared its performance to that of the underlying assets, making allowance for fees. It gave us a measure of whether the fund managers added or subtracted value. Astonishing, around a third consistently subtracted value. All were default funds.”

The Commission wants the list of MySuper approved products scaled back by up to one third and the poor performers removed. “The limbo bar has to be significantly heightened,” Ms Chester said, adding that she was not aware of any funds that had ever applied for MySuper authorisation that had failed to get it.

Only 114 of the 208 funds surveyed by the Commission responded, and only 5 were able to detail their net investment returns by asset class.

“I don't think you can overstate our professional disappointment with the content of the responses to the questions that really mattered,” Ms Chester said. “It constrained in doing our analysis. We will be writing to all those who haven’t properly responded on Tuesday morning asking them to complete their homework so that we can complete our analysis.”

Financial Services Minister Kelly O’Dwyer backed the Commission saying the funds that had not properly responded were showing “contempt for the Australian people.

“This is a government mandated system. They are thumbing their noses at millions of Australians, she said.

The Commission had backed the government’s determination to end multiple insurance policies, consolidate super accounts and reunite members with their lost super.

Its ideas were clever and would need to be carefully considered by the government. The Commission’s report is a draft and will be followed by a final report with firm recommendations by December.

In The Age and Sydney Morning Herald

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Let Australians die as they want to, says PC

Tens of thousands of terminally ill Australians are dying in hospitals when they would rather be dying at home, a highly critical Productivity Commission report has found.

A wide ranging inquiry into ways to introduce competition and informed user choice into human services has found that most people want to die in surroundings that are familiar to them, surrounded by their family. Instead they are often rushed to hospital, even though it would be cheaper and more dignified to treat them where they lived.

“Aged care facilities are Commonwealth government funded and the Commonwealth considers palliative care a state funding issue, so aged care facilities receive very little funding for palliative care,” inquiry chairman Stephen King explained.

“It means that if you are in an aged care facility, and you are getting towards the end of life and need an intervention, you will most likely be popped in an ambulance and sent off to hospital.”

“Western Australia is the gold standard. It does state-funded well. Nurses visit homes and family members help with the care. It’s cheaper to set up in homes than in capital-intensive hospitals. After Western Australia it goes rapidly downhill. It wouldn’t be hard for all states to do as well as Western Australia and for the Commonwealth to fund palliative care in nursing homes.”

The report recommends that doctors encourage patients having their "70 plus" health check to create an advanced care plan that spells out ahead of time whether they would like to be revived after death or kept alive artificially. The plans should be updated within two months of entering an aged care facility.

The Commission also recommends that health insurance regulations be amended to make clear that patients can choose their own specialists rather than the ones their general practitioners refer them to. The right is already enshrined in law, but many GPs and specialists are unaware of it.

The MyHospitals website should be transformed into an information source on the performance of hospitals and specialists to make choice meaningful.

Dr King said that when Britain required the publication of of data on results, many poorly performing specialists left the profession or lifted their performance.

Many Australians were unaware of their right to public dental services and scared off by long waiting lists. The report recommends that states shorten waiting lists by contracting private dentists to perform services, which would result in earlier interventions and reduce the need for more expensive interventions later.

It recommends that Commonwealth rent assistance be extended to public housing tenants and that states contract out the provision of some public housing to private providers.

The inquiry was commissioned by Treasurer Scott Morrison. The government is considering its response.

In The Age and Sydney Morning Herald

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A modest proposal for better behaved banks

Suddenly, banks are behaving nicely. They are no longer charging for the use of teller machines, the chief executive of the National Australia Bank took a day out of his $6.6 million a year job to sell copies of The Big Issue, and from this week it’ll be really, really easy to transfer funds. It’ll take seconds rather than days, and you won’t need to look up a BSB. You’ll be able to use a phone number or email address instead.

Could it get any better? Absolutely, and the route is spelt out in one of the submissions to the Productivity Commission’s inquiry into competition in the financial system, which is running in parallel with the banking industry royal commission.

The Productivity Commission has found that, notwithstanding the banks’ belated success in bringing service into the 21st century, they and their competitors aren’t particularly competitive. There’s half as many of them as there used to be in 1999. Instead of charging all their customers the best possible rate as competitive firms would, they charge their existing mortgage holders $66 to $87 a month more than new ones, in what amounts to a penalty for loyalty.

In the words of the commission’s draft report: “rivalry through price competition is rarely evident”. Half of all bank customers don’t switch banks, and the banks count on it.

Over time their prices tend to converge, as might be expected in a competitive industry, but the commission finds that they don’t necessarily converge on the lowest possible price, which is the sign of an industry that is not competitive.

The smaller banks aren’t much help. Their operating costs are much higher than the big ones, and on the occasions when the government has given them a leg-up to cut those costs, they've used it to boost their margins rather than cut their prices.

When the Prudential Regulation Authority prevailed on the banks to cut the flow of interest-only loans to investors, they did it by lifting what they charged on all interest-only loans, new and existing, in an inversion of their usual practice of reserving special treatment for new customers.

Their average margin on those loans climbed from 3.5 percentage points above the cash rate to almost 4.5 points, producing a nice extra profit that they didn’t compete away by charging other customers less.

The commission wants it made easier for new banks to enter the market to take on the old ones, and it wants the competition regulator to police them in the same way it polices petrol stations.

But it hasn’t taken on board – yet – a much more powerful proposal from one of its own, Dr Nicholas Gruen, who used to be a productivity commissioner.

He says we’ve made our biggest productivity gains by destroying the understructures that allowed protected industries to overcharge and provide bad service. We slashed tariffs, ushering in much cheaper prices for clothes and cars. We presented Telstra with a competitor and then with several more. We did away with the two-airline policy. All in the 1990s.

The few cozy restrictions that survived – such as those for taxis, pharmacies and newsagents – are being rendered redundant by technology. It’s increasingly easy to order rides, drugs and news online.

About the only demonstrably non-competitive industry left is banking (although electricity and gas retailers deserve a special mention, which I’ll save for another day).

How much do banks overcharge us? A Bank of England study finds that if the bank itself (the equivalent of our Reserve Bank) offered its own banking services direct to customers on the same terms as it offers them to the banks, which is cost recovery, and if it did it in digital currency, it could permanently lift GDP by 3 per cent.

By way of comparison, our Treasury finds that the proposed cut in the company tax rate (which would have to be financed by increasing other taxes) would permanently lift GDP by 1 per cent.

The Bank of England number may well be an overestimate, but by definition it would cost us nothing. The central bank (in our case the Reserve Bank) would offer deposit and mortgage services at cost.

And it would do it for super, as suggested last year by former treasurer Peter Costello. The government-run super funds (those for public servants) return an enormous 2.2 percentage points a year more than the retail funds, and a handy 0.6 points more than industry funds. The government has advantages others do not. It has massive scale, it actually runs the financial system, and it is trusted in a way the private sector is not.

Gruen isn’t suggesting for a moment that the private banks would disappear. He doesn’t want that. He merely wants them exposed to the same sort of competition that Woolworths and Coles have faced from Aldi – competition from the lowest cost provider.

The competition would have to be fair, there would have to be no tax advantages. But if it is possible to provide an essential service at the lowest possible cost, it is worth asking why we wouldn’t. It's worth asking why we would continue to protect banks when almost every other industry that overcharges us has been made to stop.

In The Age and Sydney Morning Herald

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Who'll face up to the pharmacy protection racket?

Have you heard about the inquiry into the rules governing pharmacies and what they get paid?

I'll let you in on a secret. It's secret, even though the Health Minister received its report six weeks ago. Which is odd, because Greg Hunt has been acting as if there's no report to consider.

Just last week he introduced proposed legislation that would entrench in law one of the key protections the inquiry was examining.

Until now, the so-called location rules have been the result of a contract signed between the Pharmacy Guild and the government, renewed every five years. If Hunt's proposal gets through, they'll remain in place indefinitely, until the law is rescinded or amended.

Hunt and the guild agreed to make the rules indefinite back in the middle of the year while the inquiry was under way.

If its report is critical of those rules when Hunt finally makes it public, he'll be embarrassed, but it will be too late.

Last month at a small gathering of health economists at Old Parliament House in Canberra, the inquiry's chairman, Stephen King, provided an insight into what it will say.

For pharmacy owners the location rules are "the equivalent of falling down a gold mine". But they need to continuously change and refine them because there's money to be made competing with the monopolies that benefit from them and money to be made shutting that competition down. It's like a giant game of Whack-A-Mole.

The 56-page location-rule handbook outlines the need for surveyor's reports (23 times) and the importance of confirmation "that the measurement has been undertaken from the mid point at ground level of the public access door of each of the premises".

The rules originally allowed a qualified pharmacist to set up a new pharmacy with no constraints whatsoever as long as it wasn't within 10 kilometres of an existing one.

"A pharmacy in Gympie in Queensland, a Chemist Warehouse, has set up 10 kilometres out of town," King told the gathering. "And because it provides what consumers think is a great service at a great price, people have been travelling 10 kilometres to get there. It's actually got other shops around it now, because it has drawn customers to it.

"Now obviously that was unreasonable competition," he added, sarcastically. "It had to be stopped. That pharmacist wouldn't be allowed to set up in that location today. Later versions of the rules say there has to be 'enough demand'.

"The rules create local monopolies. If an area grows, an extra pharmacy provider number becomes available. Under the rules the existing owner is allowed to apply for it and usually gets it.

"We have been to parts of Australia where there, I think it was Alice Springs, where there were four pharmacies. We didn't realise they were all owned by the same people. They all had different brands, creating the appearance of competition, but they were clearly not competing.

"In Broome three out of the four pharmacies were owned by the same people. We turned up to the first and said we were going to the next one afterwards. They said: 'Why are you doing that? We own that one as well.' "

Local monopolies mean prescription prices are higher than they should be. But King was unable to find out how much higher.

"Pharmacists are agents of government; the government pays them, on average, $11.50 for each item they dispense. We tried to find out what their costs were. We asked the guild to tell us. It does an annual survey of its members. It said it couldn't give us that information because it was provided only for the purposes of the survey.

"So we said: can you go back to your members and ask if that information can be shared, confidentially. The guild said no, so we did our own survey. Unfortunately, the guild then sent around a message suggesting its members not engage with our survey.

Very few did. But the best information we could get is that the efficient dispensing fee would be beneath $10 and probably somewhere between $8 and $9. The caveat is that the information isn't very good. After two years of looking at this, I still can't get the data. No one can, with the possible exception of the guild.

"But you can get an idea by looking at prices in the inner areas of Sydney and Melbourne where there is competition. They offer dollar discounts which come out of pharmacists' pockets. But they are not offered in the outer suburbs, and they are not offered in rural Australia."

As a "thought experiment" King considered withdrawing the business and tendering it out. "Maybe you could offer two locations on each side of a main street. Would-be dispensers could tender by offering the lowest fee they would be prepared to accept."

On Tuesday the Productivity Commission (on whose board King sits, although he wasn't involved in the latest inquiry) went further. It wants the business taken away from pharmacies and given to machines of the kind that are common in Canada. They dispense quickly and accurately for a fraction of the price.

In The Age and Sydney Morning Herald

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Schools, universities, hospitals holding us back - Productivity Commission

Automatic dispensing machines would replace pharmacies, low-value healthcare procedures would be defunded, people with real-world skills would be made teachers, and drivers would be charged for the use of roads under a series of audacious proposals the Productivity Commission believes could add $80 billion per year to economic growth - an amount it says would grow over time.

The five-year program, requested by the Treasurer Scott Morrison, is designed to jump-start innate, or so-called "multifactor" productivity, which the commission believes has barely grown since 2004.

The productivity boost brought about by economic reforms in the 1990s produced almost all of the decade's spectacular lift in living standards. Since 2004 innate productivity growth has produced almost none, with most of the productivity growth that has been achieved the result of investment spending and most of the income growth the result of the mining boom.

Productivity Commission chairman Peter Harris said the slowdown in Australia's capacity to "do more with the same" was puzzling because scientific and technological knowledge had seemingly advanced. In 2003 there was no "cloud", no "internet of things" or smartphones and music and software were provided in physical forms.

Without action to remove the last big obstacles to productivity, Australia might consign itself to half a century of low income growth.

The obstacles were predominantly in the public sector, in the way it provided health and education and managed cities. It was as ripe for reform now as manufacturing was in the 1980s.

Twenty seven per cent of adults were obese, holding back their ability to contribute to the labour force, although Australians life expectancy was the third-highest in the developed world, the 11 years spent in ill-health was the third worst in the OECD.

Medical best-practice was often ignored. Seventy five per cent of bronchitis was treated with antibiotics, when the correct rate was close to zero, 71,087 knee arthroscopies were performed per year in most cases without evidence of benefits, 27,500 hysterectomies were performed without a diagnosis of cancer. Often it was because doctors didn't know how to say "no" to patients, and because patients didn't know what best practice was.

The commission recommends defunding low value procedures and creating scorecards for the performance of providers to enable patients to compare outcomes.

Medicines would be dispensed by ATM-style machines or by staff without pharmacist qualifications. "This new model would not, under any realistic assumptions require anywhere near the current 20,000 pharmacists who provide clinical services, and so would require a transition to a much smaller employment base," the commission says. Universities would be informed of the need for fewer pharmacists, some of whom could transition to other forms of medical work assisting doctors. The new dispensaries would not be bound by the location rules that prevent pharmacies from competition.

The Pharmacy Guild - one of the country's most powerful lobby groups - instantly rejected the recommendation as "radical and unworkable", saying it would "dumb down" an entire profession.

The commission wants universities to provide honest assessments of the employability of their graduates before enrolment and to be subject to competition law where they could be made to provide refunds or replacement courses.

"If you buy a kettle and it doesn't perform, you've got the right to return it and get a new kettle," Mr Harris said launching the report. "If your education doesn't perform as promised, the same law should apply."

Mr Harris said one-in-five university graduates were underemployed, up from one-in-10 a decade ago. His report discusses, but does not recommend, stopping fees imposed for university teaching being used to fund university research.

The report imposes a five-year timeframe for lifting teaching standards, noting that the performance of 15-year-olds in maths has slipped to the level of 14-year-olds in the year 2000. It says 30 per cent of year 7 to 10 information technology teachers have neither studied the subject at second‑year tertiary level nor been trained in how to teach it at tertiary level.

"Fifteen-year-olds are being taught by people who may not necessarily know the subject and can't answer questions because it's not their field," Mr Harris said.

One solution was to "take people who aren't necessarily trained teachers and train them up". Another was to train teachers in specialist fields such as maths and IT.

Other recommendations include phasing out stamp duties in favour of land tax and trialing pay-peer-drive charges for roads as an alternative to petrol excise.

"None of these ideas are new, we didn't make them up," Mr Harris said. "But when people tell you they are already being implemented, don't believe them. That's what we are trying to achieve."

Mr Morrison said he would work with the states on the ideas, beginning with the treasurers' conference on Friday.

In The Age and Sydney Morning Herald

 

Pharmacists are unfinished business

Why pharmacists? They've got off lightly. Peter Harris, the head of the Productivity Commission, worked for the prime minister's department in the 1990s when the Hilmer competition reforms were ending cozy arrangements for just about everyone, and earlier on prime minister Bob Hawke's personal staff.

Manufacturers lost tariff protection, banks suffered an onslaught of foreign competition and unions were denied industry wide bargaining. Only three industries survived completely unscathed, each due to impressive lobbying.

One was the taxi industry. It has since been buried by the GPS (anyone can find a street) technologically-driven undercutting. Another was newsagents. The cozy rules that prevented one from encroaching on the turf or another and guaranteed they changed hands for high prices have been rendered irrelevant by digital direct delivery.

The third was pharmacies. Incredibly profitable, protected by a thicket of impenetrable rules that prevent one from competing with another within 1.5 kilometres, or 500 metres inside a shopping centre subject to the provision of a surveyor's report, they get guaranteed business "sustained through government fiat".

Like once-valued taxi drivers, they have special skills that are no longer especially special. Machines can read prescriptions, select the right pills and stick labels on bottles. In some parts of the world they operate like ATMs. In others they work with the assistance of sales assistants without a detailed knowledge of pharmacology.

Harris can see what will happen to pharmacists (and is happening already through the online delivery of medicines from overseas). He wants a new less-skilled workforce trained to work with the machines and universities told to produce fewer pharmacy graduates.

It's an inconvenient recommendation for a government that has just signed a new long-term agreement with the Pharmacy Guild, as is the recommendation for a carbon price, a land tax in lieu of stamp duty, a fair use regime for copyright and taxing wine as if it was beer. It is a tribute to the Treasurer Scott Morrison that he commissioned the report without knowing what would be in it.

The traditional targets for productivity reform; unions, industries protected by tariffs, have few further to offer. The big ones left are in the public sector where hospitals, schools and universities operate pretty much as they did in the 1970s.

Harris wants them subject to the same sort of market discipline as manufacturers. They shouldn't be rewarded for producing products that don't work and consumers should have the right and the information needed to shop around. Teachers should know about what they teach and universities should provide refunds if their courses don't work.

Harris is bothering because without a new push on productivity, living standards are likely to stagnate. The targets he has picked are the big ones left.

In The Age and Sydney Morning Herald

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Victoria, NSW to lose billions under Productivity Commission's GST shakeup

Victoria would lose an extra 6¢ out of every dollar of GST revenue collected in the state, Queensland would lose 13¢ and NSW would lose 1¢ under fresh proposals to change how the Goods and Services Tax is carved up between the states.

They equate to a loss of $972 million for Victoria, $1.6 billion for Queensland and $110 million for NSW.

The calculations, in an appendix to the Productivity Commission's newly released draft report on GST distribution, assume that the changes are introduced immediately in order to lift Western Australia's share of its GST takings up from 34 per cent to 87 per cent. If, as the Commission proposes, they were applied later when Western Australia's share has recovered further, the impact would be less severe.

The estimates supplied to Treasurer Scott Morrison have Victoria's GST payout falling from 93¢ of every dollar collected to 87¢. Queensland's share would slide from $1.19 to $1.06, the NSW share from 88¢ to 87¢, South Australia's share from $1.44 to $1.32, Tasmania's share from $1.80 to $1.62, the ACT's share from $1.19 to $1.07, and the Northern Territory's share from $4.66 to $4.55.

The commission found Australia's system of dividing GST revenue is broken, "beyond comprehension by the public" and poorly understood by most within government.

Although it has broad support, it delivers "unfair equity", attempting to bring all states up to the financial strength of the strongest state, even if the GST revenue kept by that state needs to fall to unprecedented lows.

The report also pointed to a "first mover disadvantage" that applies to any state that attempts to introduce a new tax first. At the moment if NSW or Victoria attempted to switch from stamp duty to land tax each would lose more than $300 million in GST payments. If it attempted to introduce a road traffic congestion charge NSW would lose $670 million. Victoria would lose $6 million.

The commission rejected three proposed ideas to ease the burden on Western Australia. One is to hand out extra Commonwealth grants outside the GST process, as the Turnbull government has done. Another is to guarantee that no state's GST share would fall below 70 per cent of what it put in, and another is to allow each state to keep at least 50 per cent of an extra revenue it raised from mining, proposed by the Commonwealth Grants Commission.

Its calculations suggest Western Australia loses in GST adjustments as much as 88¢ of every dollar it raises in mining royalties.

It suggested that instead of aiming to bring the financial capacity of each state up to the financial capacity of the strongest, an updated formula attempt to merely bring it up to the financial capacity of the average or second strongest.

The commission said in normal times the new formula would make little difference to the GST distribution. Only at extreme times such as the present when West Australian's share has dived to extraordinary lows, would it soften the blow.

Mr Morrison welcomed the draft recommendations and said the way the GST revenue was carved up needed a proper fix, rather than more "band-aids and bolt-ons".

"The commission needs to do a lot more work, they have got to firm up what they believe the answer is, although they have given some good hints," he said. "They have also got to work out a transition plan so that we can get from A to B. It's not enough to know where B is, you have to work out how to get there and that is what I have tasked them to do between now and the final report."

The commission rejected a proposal put forward by government ministers and the Grants Commission to penalise states that banned coal seam gas mining by allowing those that permitted it to keep all of the extra royalties they earned.

"Mining revenue is a prime example of a source-based advantage; one a state benefits from by virtue of where its borders happen to be drawn," the commission said. "It should prima facie be included in the equalisation process."

Victoria's Acting Treasurer Gavin Jennings said the commission had poured cold water on the Coalition's plan to discipline states that protected their environments.

"Mr Morrison's thought bubble to punish states like Victoria and NSW who have acted to protect their farmers, their world-class produce and their environment, has been thrown into the bin where it belongs," he said.

NSW Treasurer Dominic Perrottet said it was encouraging to see the Productivity Commission acknowledge what NSW has said all along: that the GST system was in dire need of an overhaul.

"Ultimately the Productivity Commission has acknowledged we need real reform, not just to the GST system, but to the entire federal system when it comes to the taxes we pay, the services governments provide, and the way they are funded," he said. "My number one priority will be to continue to fight tooth and nail for the people of NSW to get the maximum value for the tax they pay."

The commission has called for submissions on its draft recommendations. It will present a final report to the Treasurer by January 31.

In The Age and Sydney Morning Herald

 

Analysis: GST change a softening of the edges rather than a revolution

The Productivity Commission has found that the way the GST is divided up is broken, and much of it "beyond comprehension". But it has also found something more important: that the brokenness doesn't much matter.

Treasurer Scott Morrison asked it to examine the influence of the current system on "productivity, efficiency and economic growth".

In short, the commission found there was none, or none it could find.

"In practice, it is hard to tell whether Australia's system has helped or hindered productivity and growth," its report says.

In part that's because, despite all the angst about the carve-up of the GST, the carve-up is small in relation to the size of state governments.

There's less than $8 billion moved around each year, out of a total GST cake of $60.7 billion. The states themselves, with local governments, raise the best part of $200 billion. The Commonwealth raises almost $300 billion. It's worth arguing about, but it isn't enough drive behaviour.

Morrison asked whether the GST carve-up rules were impeding the movement of capital and labour across state borders. The commission found that people move interstate "for a range of reasons". GST distributions were "unlikely to play a significant role".

So unimportant did the commission find the GST formula that it flirted with the idea of scrapping it entirely and simply doling out the GST on the basis of population. It was a recommendation of Tony Abbott's 2014 Commission of Audit. The disadvantaged states – South Australia, Tasmania, the ACT and the Northern Territory – could apply for extra top-up funding directly from the Commonwealth. The commission rejected the idea only because it thought the top-up funding was "unlikely to be forthcoming".

Instead it has settled for for modifying the extremes of the system we've got. Instead of falling as low as 30 cents out of every dollar collected from Western Australians, Western Australia's GST payment would only fall to 87 cents.

The change would give poor states only the average financial capacity of the other states, or the capacity of the second-best, rather than the best.

The commission's idea isn't new. Up until 1981 it's how the Grants Commission divided the pie, redistributing merely enough to allow states to function "at a standard not appreciably below that of other states".

Morrison is keen. Whereas previous treasurers have treated the distribution of the GST as political Kryptonite, saying it was up to the states to agree on a change (knowing they won't) Morrison is prepared to get his hands dirty. He needs to consult the states on the change but he doesn't need them to agree. Although it wouldn't take effect until 2020, he is likely to get the ball rolling next year.

In The Age and Sydney Morning Herald

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High prices hurt. Why Sinodinos is under pressure over books

Strong governments stand up for little people.

In working-class Brisbane in the early 1970s, no one stood up for the Chesters.

"Working parents, three kids. My mother had been squirrelling away money for two years to afford a return flight to Perth to visit her mother," daughter Karen told a conference late last year.

"The price of domestic air travel at the time was in real terms over fourfold what it is today. The price of clothing, with tariffs north of 40 per cent – think President Trump – was also more than threefold higher in real terms than today. And three kids, each five years apart in age, experienced a simultaneous exponential growth spurt."

"A perfect storm for my mother, who ended up raiding the squirrel tin to re-clothe us. No flight to Perth. She never saw her mother again."

By the early 80s, Chester was studying economics at the University of Queensland. She'd wanted to get into law, but didn't get the marks. One day in the second semester, during microeconomics, what had happened to her family began to become clear. Punitive tariffs on clothes and the two-airline policy had prevented her mother getting to Perth.

Four years further on, hired as an economics graduate at the Department of Prime Minister and Cabinet, a 20-something Chester was sitting in prime minister Bob Hawke's office taking notes.

He asked the assembled officials to tell him why he should cut tariffs.

"Because tariffs screw workers," Chester mumbled, in a voice she had hoped was too quiet to be heard.

But it was heard. Hawke asked the officials to explain how, asked for modelling on exactly how much they hurt workers, and started to drive tariffs down.

Twenty years on, after some years away in the private sector, Chester found herself back in government chairing a Productivity Commission inquiry into (among other things) the price of books.

So-called parallel import restrictions make it illegal for booksellers to import from wholesalers, except in limited circumstances. Forced to go through Australian publishers, even for the big name foreign books by authors such as JK Rowling or Elena Ferrante, the bookshops can be hit up for more and made to charge their customers more.

Except that the Booksellers Association and the Publishers Association told Chester it didn't happen. The booksellers prepared a chart of the price of 75 books in Australia, the US and the United Kingdom and argued there was little difference. The publishers compared 200 titles and said most were cheaper in Australia.

But Chester noticed that the samples were limited, in odd ways. And the booksellers' list compared the price of Australian paperbacks to foreign hardbacks, even where Australian hardbacks were available and more expensive.

She commissioned her own higher-quality survey of the price of 1000 identically matched books from the top 5000 titles sold in Australia and the UK and found the pre-tax Australian prices exceeded the prices charged in the UK by a staggering 20 per cent.

Worse still, limiting her comparison to just the majority of books that were more expensive in Australia (which is what's relevant for examining the effect of trade restrictions) she found the average difference was 30 per cent.

Despite their protestations, the Australian publishers seemed fully aware that they charged more for overseas books than was charged overseas, because they argued before her that they used those profits to subsidise the production of Australian books. But when she asked them for details about the cross-subsidy none returned with an answer, although several promised to.

It's the same argument that was used by Australian record labels right up until 1998, when John Howard (with Arthur Sinodinos as his chief of staff) extended Hawke's program of trade liberalisation by allowing the free import of compact discs. It was going to kill Australian music.

Two decades on, it's an easy claim to assess. Back in 1998 the Triple J Hottest 100 contained 42 Australian recordings, an all-time record. By this Australia Day it contained 66. The industry tally of all genres finds that back in 1998 Australian recordings accounted for 1 in every 5 recordings bought here. After two decades of open trade, it's 1 in every 3.

Sinodinos is now industry minister, and says he is as committed now as he was then to blasting away rules that hurt consumers. "Protection stops you being lean, it leads to companies padding themselves out," he told Fairfax Media this week. He has before him Chester's report, and he wants responses within a fortnight.

The Harper competition review has already recommended removing the remaining import restrictions on books, as has the Competition and Consumer Commission, the old Prices Surveillance Authority and a Senate inquiry. The government accepted Harper's recommendation and asked Chester's inquiry how to do it. She's recommended an immediate end in December this year, with no phase out.

Labor, shamefully, is backing continued high prices as it did for compact discs two decades ago. This time it wants to "support Australian stories".

Chester wants to support Australian consumers. She says there's $15 million to $25 million in it on just the 1000 titles she examined, depending on freight costs. Sinodinos will have to decide whether to back us.

In The Age and Sydney Morning Herald

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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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Our copyright laws are holding us back, and there's a way out

Imagine a land in which everything was outlawed, except for the things that were specifically allowed. Things would more-or-less work, until you tried something new.

It would be illegal at first, perhaps for years, until the parliament got around to permitting it. This slow-moving land (which we'll call Australia) wouldn't stand a chance against competitors that could move quickly.

For the most part, we're not like that. We outlaw killing, rather than specific methods of killing. We permit the earning of income, rather than the earning of income from specific activities. Our laws are based on principles rather than prescriptions.

Except for copyright.

Google couldn't have grown up here because our copyright laws didn't explicitly permit the copying and indexing of the web. Video cassette recorders couldn't have developed here because our laws didn't explicitly allow home taping. Dr Rebecca Giblin of Monash University says if VCRs had been introduced here first instead of in the US, "rights holders may well have succeeded in suing them out of existence".

In the US, Google and Sony were able to rely on "fair use". The law there allows copying so long as it is fair, taking account of what's copied, the purpose for which it is used and whether or not it harms the market for the original work. It's based on principles rather than specifics, which means it copes with change.

In Australia, it's full of specifics. New activities are presumed to break the law until Parliament gets around to changing it, which can take years. Parliament didn't get around to legalising home taping until 2006, decades after the arrival of the video cassette recorder. You are now allowed to copy music from your CDs to play on another device, but only if you own that device. If your phone is leased on a contract, or your tablet is owned by your employer, your copies infringe copyright. You are allowed to take a photograph or scan of a newspaper, but only if afterwards you read only from the photograph or scan and not from the original paper. If you've complied fully with almost 600 words of dense text and succeed in making a legal copy but then lend it to a friend, that's no dice, even though you would be perfectly entitled to lend the paper to the friend.

The law obsesses about details, but never asks the most important question: is what's proposed fair?

Schools are also penalised for attempting to use new technologies. It's legal for them to use small amounts of copyrighted material in printed exam papers, but not in ones they email or put online. For universities attempting to compete with those in agile countries such as Israel, Singapore and the United States, it's a serious restriction. Universities Australia says its members typically spend between 1250 and 1740 staff hours seeking copyright permissions their competitors don't need to.

Like other Australians they're not even sure they can legally back up what they own. Backing up is essential in the age of computers but it involves the making of copies which can be charged for.

Five major inquiries have recommended that Australia future-proof its law by moving to the US system of fair use, as it probably should have as part of the US-Australia Free Trade Agreement.

Shortly, there'll be a sixth. The final report of the Productivity Commission inquiry into intellectual property will come with a detailed analysis from Ernst & Young that eviscerates work done by the main copyright collecting agency on the costs to the Australian economy of adopting fair use.

There would certainly be costs to it. Records tendered to the inquiry by Australian schools show the Copyright Agency is billing them millions of dollars for the display of materials that are freely available on public websites including tourism maps, health fact sheets and the homepages of institutions such as the Commonwealth Bank.

And they are are hit up for the use of so-called "orphan" works for which there is no longer an identifiable owner. The Copyright Agency, a government-mandated collection body, takes the money, holds some of it in case the owner ever comes forward, and distributes the rest to the owners of other works as a windfall, creaming off a generous amount for administration.

Australian schools say they pay 10 times more per student to use copyrighted materials than schools in New Zealand.

Students are entitled to copy small portions of copyrighted works for study – it's a right protected under a clunky alternative to fair use known as "fair dealing". But a quirk in the law means that if a teacher asks the students to make the copies, or presses the button on the photocopier, the school has to pay for them.

You're going to hear a lot in coming weeks about how "fair use isn't fair". That's impossible, by definition, because under fair use, if a use isn't fair it can't be permitted. What a switch towards it would do is move our law away from niggardly technology-specific details towards the one simple principle that's used in the countries that are getting ahead: whether, in all the circumstances, a use is fair. It'd be our entry ticket to the modern world.

In The Age and Sydney Morning Herald

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Productivity Commission: how big data could work for us

What if we were on the cusp of one of the biggest ever advances in productivity and we didn't recognise it?

That's how it must have been for Alexander Fleming with the discovery of penicillin, for university technicians with the development of the internet, and for Bill Clinton, who with the stroke of a pen in the year 2000, made highly accurate military global positioning satellites available for everyone to use for free.

Peter Harris believes we are on the cusp of another transformation about as big – one only made possible by the development of the internet and all the things that surround it.

It's the exploitation of data. On one estimate we are now generating as much digital data every two days (five exabytes) as we generated in an entire year at the start of the 2000s.

Some of it is cat videos. Much of it mundane. But an awful lot is useful, and his best guess is that only 5 per cent of the useful stuff is being used, a figure that puts us way behind the countries we usually like to compare ourselves to, especially Britain and New Zealand.

We are behind partly for privacy reasons, partly because potential users don't know what data government agencies hold, and partly because the machines that hold it often can't talk to each other, even within the same hospitals.

It is an outrage that sick patients still have to act as information conduits between healthcare providers (10 to 25 per cent of the medical tests ordered are thought to be duplicates) and a disgrace that 60 years after the Thalidomide tragedy we still don't link prescription data to hospitalisation records to get insights into the side effects of drugs.

Research that could have saved the lives of Indigenous women was delayed five years while the researchers waited for ethics approval to see cervical cancer screening data; researchers wanting to study the link between vaccination and admission to hospital have had to wait eight years and counting.

Harris runs the Productivity Commission. It is a measure of his belief in the importance of the data inquiry commissioned by the Turnbull government that he decided to chair it himself and personally briefed journalists on the contents of his draft report on Wednesday.

His first recommendation is that all government-funded entities create easy-to-access registers of everything they've got. He wants them published by October 2017. If anyone wants a machine-readable copy of something on a register, they should be able to get it for free or for marginal cost, unless there are powerful reasons for holding it back.

Given how much personal data so many of us willingly or carelessly give away every day, he isn't particularly concerned about the privacy risks of releasing de-identified personal data (and allowing it to be linked to other data, as the Bureau of Statistics wants to do with the census), saying the risks are "likely very small". Where there's a clear public interest, he wants researchers to be given access to private information in secure rooms.

Right now they are often required to destroy datasets they create in medical and other research, a practice he says is akin to "book burning". He would require them to keep it.

Really important information would be curated in "national interest datasets", overseen by a national data custodian who would report to the parliament.

But that's just half of it. Right now, in spite of a widespread belief to the contrary, you and I don't have access to our own data.

If I ask my music streaming service for details of my listening habits, or my search engine for details of my search history, or my insurer for details of my claiming history, or my supermarket for details of my shopping history, or my electricity supplier for details of my usage history, they are perfectly entitled to refuse to hand them over. I might want to take them to a competitor.

Harris wants to enshrine in law my right to take them to a competitor. Even better, he wants my providers to hand them to the competitors or brokers I select at my direction. I probably wouldn't be able to make much sense of a machine-readable account of my electricity use, but a competitor would.

Suddenly, competition could really work. And it would cost almost nothing. There would be no privacy concerns because it could be released only at my direction. Harris would also give me the right to request edits or corrections to the data firms have on me, to be informed about their intentions to sell or pass it on, to be able to order them to stop collecting it (at the risk of losing the service) and to appeal automated decisions that deny me services or charge me more on the basis of it.

He is talking about a revolution. It's a revolution we ought to embrace and direct, rather than sit back and watch.

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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