'Staggering': Young people twice as likely to be on Centrelink benefits if parents were

Children of parents on Centrelink benefits are almost twice as likely to be on benefits themselves by their early 20s as children who are not.

The world-first finding, culled from 18 years of Centrelink records, calls into question the conventional wisdom that it is easy for Australians to escape their upbringing.

The researchers from the Universities of Melbourne and Sydney were granted unprecedented access to the lifetime payment records of 124,285 young Australians born between October 1987 and March 1988.

They examined their payment status at the ages of 18, 20 and 26, and hope to do so again at the age of 30.

They found that 32 per cent of the children born to parents not in receipt of benefits were themselves on some sort of benefit by the ages of 18 to 26. But among those born to parents who were on benefits, the proportion was almost twice as high at 58 per cent, a ratio of 1.8 to 1.

The effect was the most pronounced for the children of parents on single-parent benefits and disability and carer payments.

Young people who had grown up with parents who received disability mental health payments received 2.4 times the amount of social assistance as their peers who had grown up in families that did not receive them, and 4 times the assistance of children who grew up in families with no history of social assistance at all.

Young people who had grown up with a parent on the single parenting payment received 2.2 times the assistance of other young.

In contrast, young people who had grown up in families receiving Newstart or the partnered-parent benefits received just 1.5 to 1.7 times as much assistance as other people in life.

Importantly, the researchers found that young people who had grown up in single parent or disability payment household were far more likely than other young people to be on welfare payments of all types, not just single parent of disability payments.

Researcher Deborah Cobb-Clark of Sydney University said she was shocked by the finding and took some time to be convinced.

"Disability is pretty random. For the children of parents on disability benefits to themselves be on welfare later on life is kind of like lightning striking twice," she said.

"I had thought the biggest correlation would be unemployment benefits, because they are related to investments in education."

Professor Cobb-Clark said she wasn't aware of another team anywhere in the word that had looked at the intergenerational correlation of benefit payments across an entire system.

"There will be other people who follow this with other work, so maybe this is not the end of the story, but I think what is going on is that the disadvantage for kids whose parents are on disability benefits and single parent payments is just really intense, and it is manifested itself in all kinds of things happening to them before they are 26: they are more likely to be on unemployment benefits, they are more likely to be on the caring benefit themselves, they are more likely to be on disability benefits.

"It happens to a fairly small group of people, but if you are one of those people it looks very difficult to overcome."

So large was the Centrelink dataset that the University of Sydney had to build a "virtual computer" linking hundreds of others to process it.

University of Melbourne researcher Nicolás Salamanca said the finding ought to be a "game changer" for the way governments designed social policy. "This isn't survey data. It's almost 100 per cent coverage, drilling down into 126 million fortnightly payments. The results are staggering," he said.

"The government is talking about an investment approach to welfare, funding what works, but until now it has had little idea about what leads to what in subsequent generations".

The paper, to be published by Melbourne University on Monday, makes clear that it has not found that welfare payments themselves lead to more welfare payments.

"If anything, it's the reverse," said Professor Cobb-Clark. "Young people who grew up in disadvantaged families would not be better off had their families never received benefits.

"The benefits are a marker for something that's happened. It is important that people don't jump to the conclusion that we can fix all this by taking them away."

In The Age and Sydney Morning Herald

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Practical love, or worse? Cashless welfare not as advertised

Drug testing is just the start. If you were going to make life much more difficult for people on welfare you'd want to be sure there was a point. You'd want to trial the indignities, you'd want to know they helped.

The so-called cashless welfare card has been tried before. It was called the Basics Card during the Northern Territory intervention. Back then 50 per cent to 70 per cent of each payment was quarantined and put on a card. It could be only be used at certain retailers and it couldn't be used for cigarettes, alcohol, pornography or gambling, or to obtain cash.

A searing government-commissioned evaluation of the $410 million program could not find "any substantive evidence of the program having significant changes relative to its key policy objectives, including changing people's behaviours".

There was no evidence of changes in spending patterns, no evidence of any overall improvement in financial wellbeing, no evidence of improvement in community wellbeing, including for children, and evidence of the kind of learned helplessness that flows from making people dependent on the decisions of others.

The review found that, "rather than building capacity and independence, for many the program has acted to make people more dependent on welfare".

Two years on from that review, the government has tried it again. This time as a trial of a "cashless welfare card" that differs from the Basics Card only in that it doesn't exclude pornography and tobacco and it is meant to be acceptable everywhere.

While that may remove one of the problems, the card not being useable at cheap retailers, such as Aldi, and the retailers that do accept it jacking up prices, it leaves in place many more.

The trial in the East Kimberley and Ceduna in South Australia quarantines even more of each payment: 80 per cent. It applies to everyone of working age who gets a government benefit. Most are Indigenous. Many aren't used to handling cards. Many are unable to use the helpful app that allows them to check their balance. Smartphones are rarer in the outback.

An extraordinary one 1 in every seven 7 transactions are declined, mainly because of "card user errors" or insufficient funds. It makes using the card potentially humiliating, as does the required use of a separate tills at roadhouses and pubs that serve alcohol, identifying card users to other patrons.

It's impossible to use the card to pay for bus fares, school lunches, or goods bought from other members of the community. It's impossible to send gifts of money. And it's darn near impossible to wade through its 80 pages of conditions. I've tried. Anyone who succeeds will find they've agreed to hand over their entire transaction history to the Commonwealth, not that they have any choice.

But it's a success. A report by Orima Research to the federal government is said to say so. Leaked to a compliant media organisation and then released on September 1 by the human service minister Alan Tudge, the report is said to have found positive health and social outcomes "almost without precedent". Forty-five per cent of the of the users surveyed found they were better at saving. Less publicised was that 50 per cent found they were not. Twenty-three per cent said it had made their life better. Less publicised was that 42 per cent said it had made their lives worse.

Forty per cent said they could better look after their children. Less publicised was that 48 per cent said they could not. The negative responses are brave, given the design of the survey. Social researcher Eva Cox found that the interviewers offered $30 and $50 gift cards in return for asking the questions. They recorded IDs. Given the presence of an authority figure, almost all of those interviewed said they didn't didn't drink or take drugs or gamble to excess to start with, which makes it hard to know how to read their assurances that they were doing less.

Melbourne University development specialist Elise Klein says some may have said yes to "consuming less" simply because they didn't consume at all and there was no option to reflect that.

Niceties of survey design and execution were cast aside on the day the survey was released when the Prime Minister declared the scheme an "exercise in practical love", and extended it to the goldfields region incorporating Kalgoorlie and Esperance in Western Australia.

There had been "a big decrease in alcohol abuse, in drug abuse, in violence, in domestic violence".

Except that there may not have been. The finding about domestic violence isn't in the report, and the earlier interim report found both a reduction in the number of injuries domestic violence-style injuries at hospitals and an increase in domestic violence orders. The appendix to the report indicates that the authors had access to police domestic violence records but chose not to include them. Klein is chasing them under freedom of information.

It would be awful if the cashless welfare card was as misguided and damaging as other interventions in Aboriginal Australia, food stamps among them. It would be as awful if our leaders didn't want to know.

In The Age and Sydney Morning Herald

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Myth busted: parents don't get more on benefits than working

Welfare experts have ridiculed a government claim that thousands of parents on government benefits earn more than if they had a job, saying it is built around a mathematical mistake.

The claim, published in The Australian on Friday and backed up by Social Services Minister Christian Porter, is that single parents with four children can get payments totalling $52,523 per year if they don't work but only $49,831 after tax if they work and receive the median full-time wage.

Mr Porter said the data showed taxpayer-funded benefits could be providing a ­disincentive to work, a systemic flaw that required government ­attention. "What is not in any recipients' best interest is to be deprived of the incentives to reduce income from welfare with income from work," he said.

Treasurer Scott Morrison backed him saying it was "a crying shame that some Australians would have to take a pay cut to get a job in this country because of the way our welfare system works".

Former Department of Social Security analyst David Plunkett said the calculation excluded $30,916 in family tax benefits that the parent working full-time would also receive, meaning that when "apples are compared with apples", the parent would receive $80,747 if working and $52,523 per year if not working.

The parent would be almost $30,000 per year better off working than not working, rather than than $2692 worse off as claimed.

Australian Council of Social Service CEO Cassandra Goldie said the claims were part of a disturbing pattern.

"It appears to be a deliberate strategy to generate a story which creates this impression that we've got a social security system which is 'bloated and too generous' when the facts will show it's completely to the contrary," she said.

"It creates an incorrect and misleading impression that single parents are doing well on welfare. This is absolutely wrong."

She believes the claims are aimed to convince the Senate crossbenchers to support government cuts to family payments.

Peter Davidson, research director at ACOSS, said the "glaring omission" was remarkable because family tax benefits were the biggest source of income for the non-working parent. To have cited them as income while not working, but not while working biased the calculation by $30,000.

It also failed to build the case for government plans to scale back family tax benefits, because if those plans were approved by the Senate and legislated the differential would be unchanged.

"This single parent family with four children stands to lose about $4000 a year [$80 a week] in Family Tax Benefit payments if legislation is passed," Mr Davidson said. "That family would lose the same amount whether the parent is out of paid work or employed full-time."

A total government payment of $52,523 was not a lot for a family of five.

"There is a reason a large family receives much more money than 93 per cent of others receiving Family Tax Benefit: children are expensive," he said.

"Excluding rent assistance, those family tax benefit payments average around $7000 per child which has to cover all child-related costs including food, clothing, and school costs."

The $87 per week received in rent assistance would cover only a fraction of a Sydney or Melbourne rent.

A spokeswoman for Mr Porter defended the original figures.

"The point being made is simply that a person receiving the single parenting welfare payment, plus family tax benefits and other welfare payments, gets an amount equivalent to what another person might earn working full-time."

The amount of welfare being received in the example is equivalent to a full-time median wage, she said.

In The Age and Sydney Morning Herald

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Hockey's most dangerous idea: We're neither lifters nor leaners

Of all of the factoids bequeathed to us by departing treasurer Joe Hockey, the most dangerous is that the Australian population can be divided into two:"lifters" and "leaners".

Hockey was following in the footsteps of United States presidential challenger Mitt Romney when he used the words in his first budget speech. Romney had claimed the US could be divided into "the 47 per cent" who were dependent on the government, and everyone else who did the work.

Hockey's opposite number in Britain, George Osborne, made the same point about "strivers" and "skivers".

"Two groups need to be satisfied with our welfare system," Osborne said. "Those who need it – who are old, who are vulnerable, who are disabled, or have lost their job. And there's a second group – the people who pay for this system, who go out to work, who pay their taxes and expect it to be fair on them too."

Hockey and Abbott made it crystal clear which side they backed. Days before Abbott was rolled they unveiled a new slogan: "Backing Hard-working Australians".

Lifters versus leaners is a dangerous notion because it seems to contain an element of truth. Many of Hockey's other claims could be dismissed: that "higher income households pay half their income in tax," that Australia might "run out of money" to pay for health, welfare and education, that "the poorest people either don't have cars or actually don't drive very far in many cases". They were just Joe being Joe.

But the idea that a majority of taxpayers work hard to support a large minority of dependents strikes a chord with many of us who pay tax, all the more so because the treasurer sends us "tax receipts" at tax time showing how much of hard-earned is spent on "welfare", on other people...

Except that it isn't like that. Only in the short-term does money flow from "givers" to "takers", from lifters to leaners. Over a lifetime most of us are both. We fund pensions while we work and then receive them when we retire. At any moment we can lose our jobs or lose our health or become disabled. Later we can recover. We can move from being "lifters" to "leaners" and back again.

All it takes is luck. But we seem to be hard-wired to not recognise the role of luck in our lives and to attribute what happens to either our skill and hard work or to our general uselessness.

Andrew Leigh outlines fascinating instances in his new book, The Luck of Politics. Leigh was an economics professor before entering parliament and becoming Labor's shadow assistant treasurer.

He says that in a series of experiments students were asked to play games and randomly made either "lucky" or "unlucky". In Monopoly the "lucky" ones were given $200 for passing go and a double roll of the dice. The unlucky ones got $100 and could only a single roll. Pretty soon the lucky players began taunting their opponents, banging their pieces and eating more food from the snack bowl. They behaved as though they were superior even though they must have known they were not.

And almost everything that happens to us is a result of chance. Joe Hockey would almost certainly not be the member for North Sydney were it not the result of a principled decision by his predecessor to retire early before he was eligible for the parliamentary pension. Leigh would not have got preselection for the seat in Canberra's north had the Australian National University (and his house) been located in Canberra's south.

All it takes is a tiny difference in a chromosome for someone to be born a woman instead of a man and be less likely to get promotion, or to be born shorter and be less likely to become a politician.

British economist John Hills reckons that in Britain at least most people get back roughly what they put into the welfare system. The wealthier are leaners as well as lifters because they are more likely to live longer and take advantage of subsidised health care and tax breaks on investments. The poor get don't get to put in much, but don't get to take out much either.

His book is called Good Times, Bad Times: The Welfare Myth of Them and Us. It's a myth Hockey might like to consider as he ponders what it's like to be treasurer one day, on the political scrapheap the next.

In The Age and Sydney Morning Herald

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Alright for the rich. Double standards in welfare crackdown

Where will the police turn up next? They are already mixing it with the department of immigration in Operation Sovereign Borders. They're smartening up the place as well. I am told departmental staff have been asked to dress sharply and get haircuts. They've even been directed not to wear their photo IDs when they leave the building. They have to be careful.

Now it's Human Services' turn. Essentially a call centre and payments organisation, the department that runs Centrelink is about to get a "tough cop on the beat". A "senior police officer" is to lead its crackdown on welfare fraud, or so a Sunday newspaper tells us. Never mind that the department's annual report shows it already has nine federal police working with it, apparently appointing an extra one to lead a taskforce could claw back an extra $1.5 billion in overpayments. The minister says so.

It got me wondering what other government departments the police could help. Communications came to mind, although that would have been in the days when the government collected radio and television licence fees. Anyone caught listening or watching without a licence was fined.

Education and Health offer few opportunities - the Commonwealth runs neither hospitals nor schools. And then it struck me. Police could be embedded in the tax office.

But although that does happen for serious financial crime (the tax office is on a joint taskforce with the Federal Police), there are no plans to get police to crack down on ordinary taxpayers claiming deductions.

Instead the tax office has lost 10 per cent of its staff. The Coalition used its first budget to bring forward staff cuts planned by Labor in order to bring about "the largest reduction to public service jobs over the forward estimates".

It makes its crackdown on fraud unbalanced. Australians who misreport their incomes for the purpose of claiming benefits are about to get further hammered but not Australians who misreport their incomes for the purpose of escaping tax.

Even within the department of human services the crackdown will be unbalanced. Minister Marise Payne says it will apply to the recipients of Newstart unemployment benefits and age and disability pensions, but not to the recipients of family tax benefits. That's because family tax benefits are "supplementary payments". They are middle-class rather than life-sustaining welfare.

It's a distinction that is running through everything the Abbott government does.

Within weeks of taking office it set up a Commission of Audit. Its terms of reference required it to "eliminate wasteful spending" but said nothing about tightening up wasteful tax concessions. The commission took the instruction to heart, saying nothing about the wasteful concessions on super but plenty about how to wind back spending on pensions.

When asked why it had examined only one sort of waste - the waste in payments intended to help people survive - the commission said tax concessions would be the subject of a separate tax white paper to be delivered in 2015.

The Coalition's first budget tightened spending on pensions and Newstart as foreshadowed but left superannuation alone. Its turn would come, we were assured.

There were reasons to believe it would. The government had told the authors of the tax white paper that nothing was off limits. They were free to point out waste wherever they found it.

The Murray financial system inquiry found that super tax breaks were not "well targeted to achieve provision of retirement incomes", which is another way of saying much of the money was wasted. The discussion paper released to set off the tax white paper process reached much the same conclusion, finding that despite the tens of billions of dollars offered annually in super tax concessions, the total effect of taxes on savings was "uncertain".

Treasury calculations prepared for this year's budget show the cost of the concession on employer contributions is set to climb from $16.3 billion to $20.15 billion by 2018-19. The cost of the concession on super fund earnings is set to climb from $13.4 billion to $30.4 billion. By way of reference, the cost of the age pension is set to climb from $41.6 billion to $50.4 billion, meaning that by then super tax concessions will cost as much as the age pension and will overtake it unless reined in.

And the bulk of the concession goes to extraordinarily high earners, the type who would be saving anyway. The treasury believes the top 1 per cent of Australian earners, a mere 132,000 people, take home between them 9 per cent of Australia's super tax concessions.

And so Joe Hockey and his departmental head John Fraser began speaking out. On Jon Faine's program on faABC radio the Treasurer called for "a bipartisan approach". Whoever was in government, "whether it's a Liberal government or Labor government, whoever it is, we're going to have the same problems", he said. Fraser told a gathering at the Australian National University it was time for a "fundamental rethink about the interaction between superannuation and tax and the whole welfare system".

And then Abbott decided it was off. Eyes fixed on the next election, be declared there would no changes to the super tax concessions, not now, not ever.

I am just one who's been taken for a ride. Welfare lobbyists who cautiously supported the winding back of pension access in return for action on super; the super industry itself, which offered up modest savings; the opposition, which drew up its own proposals, believing the offer of bipartisanship was genuine - all of us have been waiting for something we are now told won't happen.

Except that it will. After the election whoever wins will (re)discover that tax concessions skewed to Australia's highest earners exceeding the cost of the pension are not sustainable.

In the meantime, welfare cheats on far lower incomes should expect to hear from the police.

In The Age and Sydney Morning Herald

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Means-testing the home could boost pension, study says

Including the family home in the pension assets test could be a political plus if handled properly, a new report suggests.

Calculations by the Centre for Independent Studies suggest that assets-testing the family home and encouraging retirees to borrow against it in order to get the pension could boost typical pension incomes by about $6000 per year while slashing the pension bill by $14.5 billion.

"It could be popular if it's explained carefully," said Matthew Taylor, one of the authors of the report to be released on Monday. "Pensioners would have to overcome their emotional attachment to their homes. They would need to see that they are not just places to live, but untapped assets."

The plan drawn up by the pro-free enterprise think tank would treat family homes the same as any other asset for the purpose of the test. Non-home owners with assets would no longer get lower pensions than homeowners whose assets were tied up in their houses.

The government would create strict rules governing the use of reverse mortgages and then encourage retirees to use them by "deeming" the income they could have got from borrowing against their homes and using it to cut their access to the pension.

The mortgages would allow retirees to borrow up to 80 per cent of their home's value with set fees and a government guarantee that they would not be forced out of their home. The government already runs one such scheme – the pension loans scheme – but it is restricted to non-pensioners wanting to borrow up to the limit of the pension and is little used.

A simpler means test would cut the pension by 60 cents of each extra dollar dollar earned or deemed to be earned rather than the present 50 cents.

The centre believes the changes would force 70 per cent of full pensioners on to the part-pension and between 24 per cent (singles) and 32 per cent (couples) off the part-pension altogether.

They would also allow small increases in the full pension to the Association of Superannuation Funds "modest but adequate" standards of $23,469 per year for singles and $33,766 for couples.

The standards allow nearly $19 per week for "cinema, plays, sport and day trips, $25 per week for "lunches and dinners out" and "$36.97 per week for "domestic vacations".

Mr Taylor said the biggest obstacle might prove to be convincing retirees  that they should use much of the value of their homes rather than pass them on.

"It's noble to want to pass on homes, but completely exempting them from the assets test means homes worth half a million dollars or much more get passed on by retirees who are effectively using taxpayers' money to preserve the asset."

Growing life spans meant an increasing number of children had little use for inherited homes, often receiving them in their fifties when they had children of their own.

"It would need a cultural change, and the government would have to build a case, but it would make the pension sustainable," he said.

In The Age and Sydney Morning Herald

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Reality check. Working one month just to pay for welfare?

It’s the best-remembered phrase of the budget, and it wasn’t even in the budget. Treasurer Joe Hockey used it while selling the budget last week to dramatise Australia’s welfare bill.

“The average working Australian, be they a cleaner, a plumber or a teacher, is working over one month full time each year just to pay for the welfare of another Australian,” he told the Sydney Institute.

The concept is catching on. The Greens say almost half of Hockey’s one month – 11 working days – goes to assistance to the aged. Only 2 days pay for the dole. Another 9 days pay for what the Greens say are tax concessions for well off Australians and fossil fuel industries.

But the calculation is flawed, marred by two mistakes which partly cancel each other out.

The budget papers put this year’s social security and welfare bill at $140.6 billion. Of this around $36 billion goes to families with children, $26 billion goes to help people with disabilities and $10 billion to help the unemployed and the sick. Only around $2 billion goes to help indigenous Australians.

The total does indeed come to near $6000 per head as the treasurer said, but only if all Australians are counted in the population, including those who are too young and too old to work. Limiting the population to workers (Mr Hockey says only 45 per cent of the population pays income tax) the welfare burden per worker is around $13,400.

But that’s way more than one month’s tax...

The latest Tax Office figures show a total of 12.7 million individual Australians paid a total of $144.8 billion in net tax in 2011-12, producing an average tax bill of $11,400 each. Updated for subsequent wage rises the current average individual tax bill would be around $12,200.

Which causes a problem. The welfare burden per worker is greater than the entire year’s tax collected per worker. In the treasurer’s language “the average working Australian, be they a cleaner, a plumber or a teacher” needs to work a bit over 13 months per year to pay for the welfare of others.

Which means something’s wrong.

What’s wrong is the assumption that individual tax is government’s only source of income. This year the government expects to take in from all sources $363.5 billion. Only $164 billion will come from individual tax. Among its other sources of revenue are company tax, petrol, alcohol and tobacco excises, superannuation and fringe benefit taxes and the petroleum and minerals resource rent taxes.

As a proportion of total government revenue (excluding the goods and services tax) the amount the Commonwealth spends on welfare and social assistance will be 45 per cent.

It’s a finding that would only shock someone who didn’t think that welfare was one of the main reasons the government collected revenue.

So where did the Treasurer get his figure?

His office says he calculated the welfare bill at $6000 per head, calculated average monthly income at “around $4,800 to $6,500 per person” and concluded that the average Australian was “working over one month full time each year just to pay for the welfare of another Australian”.

It would be correct if the average tax rate was 100 per cent. But its closer to 20 per cent, meaning the average individual taxpayer would need to work for much longer than one month to pay the welfare bill. Except that the average worker doesn’t need to work that much longer because workers aren’t the government’s only source of revenue. Two mistaken assumptions have partly canceled each other out.

Expect more of this sort of talk. Accompanying each of this year’s tax returns for the first time will be “concise one-page personalised and itemised receipt”. It will show “in dollar terms, how much of a person’s tax bill was spent on each budget area”.

An initiative of the treasurer, it also has the potential to be misleading. Its oddest feature will be the way it treats government debt. Debt will be displayed as a total, rather than an amount per person, and displayed as gross debt rather than net debt. Net debt per person is around $9800;  per taxpayer it’s around $17,200.

In The Age and Sydney Morning Herald


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Radical, gutsy and quick. What to expect from the Commission of Audit

Saturday column

Joe Hockey’s new Commission of Audit will be the most comprehensive in almost two decades. It’ll examine everything the government does.

And what’ll it say?

Well if it’s anything like the last one established by Peter Costello 17 years ago it’ll recommend further inquiries.

Truely. Here are extracts from that last Commission of Audit report delivered to Costello in 1996:

. “The government should undertake a fundamental review...

. “The Government should review its policy...

. “The Government should initiate further work...

And so on.

Why did the Commission recommend further work rather than do it itself?

It didn’t have the time.

It kept saying so, using phrases like:

. “Because of the very tight deadline for completion of this report...

. “In the limited time available...

. “Because of this time constraint...

And so on.

Costello had given it just three months.

If there’s one lesson Hockey might have learnt from the last time the Coalition asked a Commission to examine its entire financial operation, it’s not to give it only three months.

Hockey has listened. He has given it three and a half.

The Commission’s first report examining the scope of government, the efficiency and effectiveness of spending, the state of the Commonwealth’s finances and the the effectiveness of budget controls is due on January 31.

That’s right, January 31. Even working through Christmas with “a lot of resources” the Commissioners will have to tackle really big questions at a breakneck pace.

Their second report, examining infrastructure and public sector performance, is due two months later.

The thinking behind the speed is impossible to fathom. Hockey himself wants the report to be “thorough and comprehensive”. The Henry Tax Review was given more than a year. I’ve a suspicion the lightning-fast timetable wasn’t his.

To keep to it the Commission will have to take shortcuts. The most obvious is to purloin the findings of its predecessor.

But some of those findings will unsettle the Coalition, if the not Commission itself...

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The first Commission was chaired by Professor Bob Officer, an expert in corporate finance from the Melbourne Business School. It took no prisoners. This one is chaired by Tony Shepherd, the president of the Business Council, which is a lobby group for Australia’s top 100 business leaders.

The Officer Commission wanted the government to “urgently review assistance to business and higher income earners”.

It fingered the export market development grants scheme (which survives to this day), the 150 per cent research and development tax concession (only recently closed by Labor) and the non means tested childcare cash rebate (which the Henry Tax Review also wanted means tested and still isn’t).

Its broader concern was that money was being shovelled to businesses and high income earners by means of scarcely visible tax concessions rather than direct payments. That’s how the government shovels outsized support to the superannuation accounts of high earners and the family homes of Australians who are already rich. By contrast measures that support poorer Australians are easy to see in the budget and always in the line for the cop. Just this week the government announced plans to axe the Low income Superannuation Contribution. The more expensive support delivered to high income super accounts was spared.

“The government should comprehensively review all existing tax expenditures programs,” the Commission recommended. It should convert those that were actually worthwhile into direct grants so the public could see where its money was going.

And that was just the start of its attack on privilege. It turned its guns on politicians themselves. Peter Costello was infuriated. Politicians super should be “structured in a similar way to arrangements for senior executives in the rest of the workforce”. It took eight years and campaigning by the new Labor leader Mark Latham for the Howard government to reluctantly act. It replaced the parliamentary super scheme with much like that applying to other other people, but only for new politicians. Howard, Costello and Latham himself continue to receive a super benefit costing around 78 per cent of their salaries for the rest of their lives.

The Commonwealth should abandon its support for private schools. The states could fund them if they wanted to (and there are good reasons why they might, every privately schooled student is a student less the states have to teach). In fact the Commonwealth would get out of school education altogether, keeping responsibility only for tertiary education which it wouldn’t directly fund. Instead it would fund scholarships which students could use to buy education from universities and TAFEs which full fees. Much of what the Commonwealth does in the field of health would be handed to the states as well.

And the Commonwealth would less fully fund pensioners. For obscure historical reasons their payments are linked to 25 per cent of male total average earnings. The government would instead linking them to a lower measure (median total male and female earnings) or lift them only in line with the consumer price index or not lift them at all except following regular reviews which would consider “all relevant circumstances, including budget pressures”.

The unemployed would get no joy from their campaign for higher NewStart benefits. The Commission saw sense in giving them a good deal less than the pension to make sure they weren’t lulled into staying unemployed.

And leaders such as Tony Abbott who wants to build “roads of the 21st Century” would be told bluntly Australia had enough infrastructure. There was “no evidence of overall infrastructure inadequacy”. (Although it should be noted that is a view the Commission might not hold if it revisited the question. What was true in 1996 might not remain true in 2013.)

The Officer Commission was radical, gutsy and quick - so quick it never got the chance to flesh out its ideas. Perhaps that’s why the Coalition has made its successor quick. It might be frightened of what it will find.

In The Sydney Morning Herald and The Age


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Big Data. The former minister wants it, others not so much

Conference website here.

Rudd backer Kim Carr - a casualty of Labor’s leadership turmoil - will use a speech in Melbourne Thursday to attack “bureaucratic blockers” in the public service and his own party’s commitment to open government.

Until March the minister for human services responsible for Centrelink, Medicare and the pharmaceutical benefits scheme, Senator Carr will say most governments start off believing in open government, but that “the will tends to ossify”.

Senator Carr broke new ground by throwing open previously closed departmental records to researchers examining questions such as the link between prescription drugs and birth defects and the health impacts of low incomes.

Invited to open Thursday’s health informatics conference when he was minister, he agreed to open the conference as backbencher after the invitation was re-issued.

“Who isn’t in favour of accountability? Who isn’t a fan of evidence-based policy?” his speaking notes say.

“The trouble is our practice doesn’t always live up to our aspirations.”

“As Sir Humphrey observed in Yes Minister: If people don’t know what you’re doing, they don’t know what you’re doing wrong.”

“The authority to approve data release is usually held by very senior public servants. However this power is often delegated right down to ‘middle management’ positions.”

“I have been told that officers with the delegated authority often ‘sit on’ requests for inordinate amounts of time. Sometimes it’s due to an overblown assessment of the privacy risks. At other times, they simply lack the time to jump through the hurdles"...

The department processes 200 million payments per year. It holds 7 million gigabits of data.

“President Obama has recently announced a great new project to map the human mind. We have here the great map of Australian society: life as it is lived,” Senator Carr will say.

“Public servants need to constantly be reminded and perhaps reassured that government wants them to release data in accordance with legislation.”

“I have approached members of the Coalition on this front, and I have been very pleased with their response.”

In The National Times


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If you are a pensioner you'll get $35.80, but if you're unemployed...

Pensioners are about to get a supersized pay rise while Australians living on Newstart get a comparative pittance.

From Wednesday the take-home pay for single pensioners will jump by an extraordinary $35.80 per fortnight. Couples will get an extra $54.00.

The increase will lift the total fortnightly payment for a single pensioner to $808.40. It is made up of the scheduled half-yearly increase of $22.30 and the new carbon energy supplement of $13.50 per fortnight.

The first nine months of the energy supplement were paid in a lump sum ahead of the start of the carbon tax on July 1.

From Wednesday the supplement will paid each fortnight along with the pension. The Coalition has promised to remove it should it take office and abolish the carbon tax.

But unemployed Australians on Newstart will get much less. The single Newstart benefit will climb by $4.40 per fortnight - a mere fraction of the $22.30 to be given to pensioners.

The Newstart carbon energy supplement is $8.40 per fortnight, much less than the $13.50 given to single pensioners.

The combination means unemployed Australians will get just one-third of the increase offered to pensioners on Wednesday: $12.80 per fortnight instead of $35.80.

Originally in line with the pension, Newstart began slipping in 1997 when the Howard government guaranteed to index the pension by at least the increase in male earnings but left NewStart linked to the consumer price index...

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The consumer price index has climbed little since. In the year to December it grew 2.2 per cent while male earnings climbed 5.5 per cent.

From Wednesday the single Newstart payment will be $497.00 per fortnight. The pension will be $794.90.

Calculations by the NSW Social Policy Research Centre suggest Newstart will shrink to just one third of pension by 2050 unless the system is changed.

Labor backbenchers are lobbying the Treasurer to announce a $100 per fortnight increase in Newstart in the May budget. It would cost $1.2 billion per year.

In the last budget the government gave Newstart recipients an extra $8 per fortnight as part of a “Spreading the Benefits of the Boom” package which was to have been funded by the mining tax. The Coalition will axe the payment if it takes office and repeals the tax.

In today's Sydney Morning Herald and Age


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Middle class welfare, the good news

We're winding it back

Physics and economics are bedeviled by the phenomenon known as “hysteresis”. It’s where, once made, a change can’t be easily undone.

In the physical world it applies to breaking an egg. It’s impossible to run the sequence of events backwards - to unscramble the egg.

In the world of social policy it applies to extending to the well-off benefits that were previously reserved for the poor.

The Baby Bonus is a case in point.

By the end of the Hawke/Keating government in 1996 Australia had one of the tightest social security systems in the world. On one estimate 92 per cent of government payments went to the half of the population that earned the least. By the end of the Howard government a decade later many more of the payments were spilling over to the top half. A lesser 87 per cent went to the bottom half.

Professor Peter Whiteford of the Australian National University who did the calculations is keen to point out that even after the end of Howard era Australian payments were still the most tightly targeted of the rich nations that make up the Organisation for Economic Co-operation and Development. He ought to know. For many years he was in charge of social policy statistics at the OECD.

The Baby Bonus was one of Howard’s most brazen spillovers. Instead of being directed to the parents who had earned the least it was funneled to those who had earned the most. Mothers who had enjoyed high incomes in the year before their child was born were able to claim $2500 per year. Mothers who had been on low incomes got $500.

Two years later it became a fairer flat payment of $3000, which later climbed to $5000. But that was as fair as it got. It was paid to millionaires as well as the very poor. No means test, no cut off. Once extended to the well-off it couldn't easily be pried from their hands.

Kevin Rudd developed courage in 2008 and denied it to families earning more than $150,000 per year.

For his trouble he was accused of being anti-children...

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“Every mother loves her baby,” declared opposition leader Brendan Nelson. “Every baby is valued and Mr Rudd should value all babies equally. We should not live in an Australia where Mr Rudd thinks that some babies are more valuable than others.”

Late last year as the government’s budget woes worsened it decided to trim the bonus for second and subsequent babies. They were each to attract a payment of $3000 instead of $5000. It was rewarded with a reference to China’s one child policy.

"The government seems to want to penalise anyone that has a second or third child," said Coalition Treasury spokesman Joe Hockey. "I think that worked quite well in China, didn't it?"

Private Health Insurance Rebate was the Baby Bonus writ large. Overwhelmingly taken up by the middle to high income earners who could afford private health insurance it was budgeted to cost the Howard government $1 billion in its first full year of operation. Thirteen years on it is costing $5 billion per year. The Bureau of Statistics says Australia’s highest earning families (the top 20 per cent) get $16 a week from the rebate. The lowest earners get $5.

Labor has hacked away at the rebate since taking office, most recently means testing it so that families earning more than $260,000 get nothing. That high threshold says a lot about how scared it has become about taking away a benefit well-off families should arguably never have received. It’s begun a review of alternative “natural” therapies that attract the rebate with a view to knocking them out. (The Howard government can take credit for earlier knocking out insurance for running shoes, gym memberships and relaxation tapes.) This week the Australian Council of Social Service went further and proposed axing so-called “extras” cover altogether.

“Why should the government help fund high-end dental work for people with a chance of affording it, when it doesn’t yet properly fund dental work for people who can’t?” asks ACOSS president Cassandra Goldie.

But in assembling $6 billion of proposed savings for the May budget ACOSS has eschewed even bigger measures such as getting rid of the private health insurance rebate in entirety.

“We would need to convince powerful people,” Goldie says. “We would like to do more, but we need to build a consensus.”

Meanwhile Labor has been quietly eating away at the rebate’s foundations. Until now it has paid a certain proportion of whatever the health insurance funds have charged. As medical costs have soared (by 7 per cent a year) so have the payouts. But from April next year the payout will only climb by the rate of inflation, typically just 2 to 3 per cent each year.

Over time this will mean the government will pay out much less than it would have to families that aren’t particularly needy. A Fairfax analysis suggests that in a decade’s time the government could be paying 30 per cent less. It will have done it without ruffling too many feathers, as it needs to if it is to take away benefits from middle Australia.

Labor has done the same sort of thing with pensions. The Howard government made it easier for middle earners to keep at least a part pension by cutting the rate at which the income test took it away from 50 cents in the dollar to 40 cents. Labor has changed it back to 50 cents.

The ANU’s Peter Whiteford wants Labor to go further and cut the rate at which the pension increases each six months. At the moment it climbs with male earnings. The next increase, due this month, will be $35 per fortnight. But unemployment benefits increase more slowly, with the consumer price index. It’s been happening for so long that the pension is now 57 per cent bigger than Newstart and climbing. The Henry Tax Review recommended finding a midpoint and increasing both at a rate somewhere in between the consumer price index and wages. “It won’t be popular, but in the long run it’s incredibly important,” Whiteford says.

Not being popular is the roadblock facing every attempt to remove a piece of middle class welfare once it is introduced. Richard Denniss of the Australia Institute uses the new insights of behavioural economics to explain why losing a benefit matters far more than gaining one.

“Imagine how good you would feel if you found a $20 note on the footpath. Now imagine how bad you would feel if you lost one on the footpath,” he says. “The sums involved are the same, but the loss hurts much more than the gain helps. It’s true of children when you take away their toys.”

And the number of middle income Australians with benefits to lose has grown. They are better organised than low income Australians, better able to use the political process and sometimes have entire industries such as superannuation and private health insurance behind them.

It took just a week for the Gillard government to back down on a plan floated in January to tax presently untaxed super payouts on balances of more than $1 million. A replacement plan that would more highly tax the earnings of funds held by the top 1 per cent of earners has come under attack on the unlikely ground that it might discourage saving. Treasury calculations suggest the top 1 per cent get an average super tax break of $19,200. Middle earners get $800. Low earners get nothing.

The campaign against taxing super payouts was all the odder because an earlier Howard government measure gave all Australians aged over 65 an effective tax free threshold of $60,000. Even if Labor had taxed super payouts a retiree would need to get $60,000 per year from super before he or she paid a thing.

“It’s not just that middle earners are alarmed at the thought of losing benefits, they’re also alarmed at the thought of high earners losing benefits because they think one day that might be them,” Denniss says. “It gives high earners allies.”

And it makes radical measures unimaginable.

Whiteford would include the family home in the pension means test. “It would be political death, but aged pensions are where we spend the money. “You could do it at a home valuation where most people wouldn’t be affected. It would stop really wealthy people getting the pension where others didn’t, but it would invite hysteria from oppositions and from the media. It would be - as they say - courageous.”

Subjecting expensive family homes to the capital gains tax would also be courageous, as would ending the 50 per cent tax holiday for capital gains, neither of which are being pursued by ACOSS.

Because middle class welfare is hard to unwind, Labor has been moving slowly and for the most part quietly. Future governments may thank it, but not many people will thank it today.

In today's Sydney Morning Herald and Age


GOING... GOING...

Middle class welfare wound back:

. Private Health Insurance Rebate means tested

Annual saving $600 million

. Family Tax Benefit income thresholds frozen

Annual saving $350 million

. High income super contributions taxed at 30% rather than 15%

Annual saving $350 million

. Mature Age Worker Tax Offset phased out

Annual saving $130 million

. Baby bonus means tested

Annual saving $100 million

. Golden handshakes in excess of $180,000 taxed at top marginal rate

Annual saving $60 million


Middle class welfare under threat:

. Private Health Insurance Rebate for extras

Potential annual saving $1.2 billion

. Medical Expenses Tax Offset

Potential annual saving $300 million

. Seniors Tax Offset

Potential annual saving $300 million

. High income super fund earnings

Potential annual saving could exceed $1 billion







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Big Man, Big Data. Kim Carr's incredibly audacious plan

He wants to know what you need before you know it yourself

Kim Carr is impatient. Fiona Stanley is angry. Between them Australia’s new minister for Human Services and the former Australian of the Year want to solve some of Australia’s most intractable problems by mining what could be Australia’s greatest resource – its data.

Unexpectedly, the Victorian senator has found himself sitting on top of more data than any minister before him. In March, Julia Gillard withdrew his beloved manufacturing portfolio a few months after taking away innovation, industry, science and research. Human Services looked like a consolation prize, or a punishment for backing Kevin Rudd in the leadership struggle.

But the former research minister quickly came to see the department (and the data) as a research gold mine. Created just eighteen months ago it not only processes Centrelink payments as its predecessor used to, but also Medicare payments, pharmaceutical benefits payments, rehabilitation support and child support. It knows an amazing amount about each of us and it is amassing that information from cradle to grave.

Its information technology network - built from a number of previously separate networks - is the biggest in the southern hemisphere: five times the size of the Commonwealth Bank’s. It costs $1 billion a year to run. It processes 200 million payments each year, recording each one on a computer system that already holds three million gigabytes. It has twice as much again stored on magnetic tape.

The department has always linked its data to the maximum extent permitted by the law, gaining what some might see as a disturbingly complete picture of our activities. But until now it has done it mainly in order to fight fraud. What it has hardly ever done is to interrogate the data to make its services more effective, or as the minister puts it, to “make Australia work better”.

At a time when the “evidence-based policy” has become a setup line for jokes, Senator Carr uses the phrase proudly even though he knows it exposes him to ridicule. “Every politician loves evidence-based policy,” he says. “Actually for some it's as useful as lamp-posts for drunkards - good for support, not illumination. I am told we have called for it, or claimed to have had it, on more than eighteen hundred occasions in the parliament this year.”

“But if you start from the premise that you are serious about evidence-based policies you realise you can actually develop them by using the data you’ve already got.”

“We know where people live, we know when they’ve worked and how they’ve responded to major shocks. We know what illnesses they have suffered, and how they were treated. We can follow a family’s journey right down the generations. I want to open up that information to researchers who can find patterns. For example I would like to know what type of medical admissions take place ahead of applications for child support. If we knew that we would know where to best direct resources before they were needed”.

Predicting what’s needed before it is needed is one of the mainstays of science fiction. In The Hitchhiker's Guide to the Galaxy elevators can see far enough into the future to arrive at floors before potential passengers realise they need them, saving them from the embarrassment of waiting around.

But Carr has something grander in mind for what he calls “big data” - it’s more like Minority Report where the authorities can use glimpses of the future stop crimes from being committed at all...

“Let's not pretend that there isn't entrenched poverty in this country. Let's not pretend that some people's postcodes don’t predetermine their life chances,” he says in his parliament house office. “I want to find the mechanisms to even up those chances. It’s what the social security system is supposed to be all about.”

On the other of the country in Perth former Australian of the Year Fiona Stanley has been working with an unusually cooperative state government for 35 years to gain glimpses into the future. She has been given access to birth records, health records and educational records - all linked in a way that enables her to build a complete picture of someone’s life that isn’t allowed in other states.

She reckons she’s just discovered a disturbing answer to one of the senator’s questions, although she wishes she had been able to do it with national data and with data sitting on Senator Carr’s pharmaceutical benefits computers.

“Disabled children are much more likely than other children to be subsequently (physically) abused. It’s an important finding.”

“Knowing that, or knowing anything like that, means we can direct resources where they are likely to be needed rather than directing them at random,” she says.

Kim Carr employs one quarter of the Commonwealth public service. He runs a Centrelink office, a Medicare office or an agent in every Australian town. He concedes that until now his department and its predecessor have been seen as a payments organisations - it now shifts two-fifths of the Commonwealth’s budget. But a lot of the payments work is being automated (he calls web-based delivery “home delivery”). Technology is both freeing up staff and making data even easier to collect.

“I want the department to deliver more personalised services, “ he says.

“We deal with people who are homeless, people who are sick, people who are students, people who are thinking about retiring. We are the first boots on the ground with the army after a natural disaster. We help people clean up their circumstances. We offer financial counselling, although I’m not allowed to call it that.”

“It’s a wrap-around service, but I want it targeted where it is needed. To find that out I am going to open our data to researchers.”

Until now they’ve been locked out. Fiona Stanley and her colleagues at the paediatrics and child health unit at the University of Western Australia used to get occasional access to pharmaceutical benefits records until the Commonwealth cut it off with what she says was no explanation. Kim Carr has swiftly approved data requests from RMIT University, the Australian National University and the University of Queensland. He has also inherited an earlier program (set up by himself as research minister) in which the CSIRO mines data in Centrelink records.

Last month he invited researchers from five universities to Canberra to meet officials from his department and the CSIRO to toss around ideas. Professor Stanley’s paper was entitled “Lessons from Western Australia: You can do it and the sky won’t fall”.

“In 35 years of doing this in Western Australia we have never once had a privacy breach,” she says. “We are given anonymised data - it is linked so we can join together health records, birth records, postcodes and the like but it can’t be used to identify individuals. We’re not interested in that anyway.”

Richard Denniss, executive director of the Australia Institute says he understands privacy concerns but says they are outweighed by the good that is likely to come from “joining up” data.

“Sure, privacy is a concern, but the data can be anonymised and you can have sanctions for researchers who try to unpack it. At the moment your bank probably knows an awful lot about you - how much you earn, how you spend your money, when you get fired, when you get divorced, when your loved one dies, whether you pay child support. That data is in no way anonymised. Your bank is free to mine it for any commercial purpose it can dream of.”

“Anyone concerned about privacy would be better off directing those concerns at what profit-seeking corporations can do rather than ways in which researchers can use government data to improve public policy.”

Half a century ago (and far too late) the mourning sickness drug thalidomide was removed from shelves after thousands of mothers gave birth to disabled children. Professor Stanley says if researchers back then had had access to real-time prescription and birth data they would have spotted the link sooner. What really disturbs her is that they don’t have access to that data today.

“The whole reason we set up birth defects registries across Australia was to pick up the next thalidomide,” she says. But until now we haven’t been able to link those registries to the Pharmaceutical Benefits Scheme. It’s insane,” she says.

The anti-arthritis drug Vioxx was withdrawn in 2007 after years in which its users died of heart attacks. Professor Stanley is certain access to Carr’s Pharmaceutical Benefits prescription data and Medicare data would have allowed researchers to spot the link sooner.

“Heart attacks are quite common, so it was hard to see the link. You need data from 100 per cent of the population. Surveys aren’t very good. They are always biased by the people who who choose not to participate. And you never know the extent to which they are biased.”

Professor Stanley and colleagues in Western Australia have drawn unnerving conclusions about the relative effectiveness of schooling in educating children, conclusions they could not have been able to draw without linking the state’s birth, health and education records.

“Parental factors are far more powerful than anything in the school system,” she says.

“Children who are born underweight because their mothers smoke or drink in pregnancy or fail to eat well or have sexually transmitted disease when pregrant, they are likely to have poor education outcomes regardless of the quality of their schooling. Birthweight matters. Resources directed there can make a bigger difference than extra resources directed at schools.”

Another important and previously-unacknowledged finding is that Perth psychiatric patients are much more much likely than others to later suffer from heart disease and diabetes. Targeting resources for preventing those diseases to them would be akin to pre-programing the lifts in the Hitchhiker's Guide to the Galaxy or stopping a crime before it took place along the lines of Minority Report.

Stopping health problems and poverty before they get started is Kim Carr’s holy grail. It makes him part health minister, part minister for social inclusion. He sees his role as improving people’s lives.

Human services may not have been a portfolio he sought, but he gives every indication he is relishing it and is keen not to waste time.

In today's Age


Why not obtaining consent may be best practice


Child Health, Fiona_Stanley



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Elderly Australians: We don't have those $100 bills...

Well, we might have some of them

Older Australians hoard thousands of dollars in cash to pay for their funerals, but they don’t do it to get the pension says Seniors Australia, which has labelled the suggestion seniors use cash to defraud the pension system "unfounded and offensive".

Former senior Reserve Bank official Peter Mair has written to the governor of the Bank suggesting elderly Australians are behind the the extraordinarily high number of $100 notes in circulation.

Reserve Bank figures show there are ten $100 notes in circulation for each Australian compared to only seven $20 notes.

“In broad terms the average value of notes held by New Zealanders is about one third of the $A2000 held by Australians,” Mr Mair writes to governor. “An obvious explanation - means-test free age-pensions in New Zealand - points to the benefits some pension recipients in Australia unfairly take by holding undeclared assets masquerading as $100 notes.”

Mr Mair says the government should consider removing $50 and $100 notes from circulation to make hoarding more difficult.

National Seniors Australia chief executive Michael O'Neill said there was “no doubt” some senior Australians kept large amounts of cash in their homes.

"I know people who have $6000 or $7000 or $8000 put aside for their funeral,” he told the Herald... “They still have that attachment to the folding stuff. And I think part of the attitude is wanting to have money there to pay for the funeral, so the family won’t have to worry.”

But he said he had never heard from any of his members about hoarding high-denomination notes in order to get access to the pension and the prized Commonwealth Health Care Card.

“There' is a view folk strongly have that they have been taxed all their lives and that it is simply unfair that they don’t have access to the card.”

“I don't dispute that people go to their accountants and try and accommodate access, in entirely legitimate ways which they are entitled to provided it is legal. But in terms of large volumes of cash being hidden under the mattress, I find it difficult to accept.”

Finance minister Penny Wong said she had not been looking under pensioners’ beds lately, but that people were “required to declare their assets and their income in order to access the pension”.

In the six months to December only 44 people aged over sixty were convicted of social security fraud out of a total of 826.

Mr Mair has told the Bank he believes it is conflicted in dealing with Australia’s unusually large supplies of currency by the $1.5 billion plus annual profit it makes issuing currency. He will raise the question at the financial system inquiry promised by the Coalition after the election.

In today's Canberra Times, Sydney Morning Herald and Age


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The grey economy. Might pensioners have those $100 notes?

Elderly Australians committing welfare fraud on a massive scale are behind the extraordinarily high number of $100 notes in circulation in Australia, according to a former senior Reserve Bank official.

The Herald revealed yesterday there are now ten green $100 notes in circulation for each Australian, far more than the more-commonly seen orange $20 notes.

One popular explanation is that they are used for illegal transactions as part of the cash economy, something former Reserve official, Peter Mair, rejects as a “furphy”.

But, in a letter to Reserve governor Glenn Stevens dated July 4, Mr Mair laid the blame squarely on elderly people wanting to get the pension and hiding their income in cash to ensure they qualify for the means-tested benefit.

“The Bank is basically facilitating a tax avoidance scheme by issuing high denomination notes,” he told the Herald. “They are not needed for day-to-day transaction purposes, or even as reasonable stores of value."

His best guess is the average pensioner couple holds up to $50,000 in undeclared $50 and $100 notes in order to get access to the pension.

Mr Mair added that when the green plastic $100 note replaced the grey paper note in 1996, the Martin Place headquarters of the Reserve Bank received regular visits from retirees wanting to withdraw large quantities of the new notes. He said the commercial banks had sent them to the Reserve Bank because they didn't have enough $100 notes on hand.

Mr Mair says the return for an Australian close to getting the pension who holds $10,000 in cash, rather than declaring it, is “enormous”...

“If putting it under the bed or in a cupboard means you qualify for the pensioner card you get discounted council rates, discounted car registration, discounted phone rental - in percentage terms the return is enormous,” he said.

Mr Mair is a former senior Reserve Bank manager responsible for the payments system. He assisted both the Campbell and Wallis inquiries into the financial system.
He used comparisons of the per capita holdings of large denomination currency in Australia and New Zealand to back his argument.

“In broad terms the average value of notes held by New Zealanders is about one third of the $A2000 held by Australians - almost all of which by value is in the $50 and $100 denominations,” he wrote in his letter to the Reserve Bank governor.

“An obvious explanation for the difference is means-test free age-pensions in New Zealand.”

His letter to the governor proposes phasing out the $100 and $50 denominations which he says technology has rendered unnecessary.

“Cards and the internet have delivered a body blow to high denomination bank notes, they are redundant,” he told the Herald/Age. “There is no longer any point in issuing them except to facilitate tax dodging.”

“The authorities would announce that from, say, June 2015 every $100 and $50 note could be redeemed but no new notes would be issued. After June 2017 every note could only be redeemed at an annual discount of 10 per cent. It would mean that after two years each $100 note could only be redeemed for $80, and so on.”

The letter acknowledges the proposal would be “contentious” and says it should not be done “in any way precipitously” but says as retail payments become progressively more electronic it will become inevitable.

“What would remain in circulation are coins and a modestly expanded issue of currency notes in the $10 and $20 denominations: there is every reason to expect that a national currency issue of this character would soon be adequate to meet the reasonable needs of a community ever more exclusively making substantial payments electronically,” the letter says.

Mr Mair would also strip the Reserve Bank of authority for issuing notes, handing it back to the Treasury which had it until 1911.

“Treasury already issues our coins. If it issued our notes as well it would be much more interested than the Bank in making sure people didn't hoard them to load up on the pension, because it pays the pension.”

In today's Canberra Times, Sydney Morning Herald and Age

SOME FEEDBACK

...AND LETTERS


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Here's 20 cents, don't spend it all at once. Why we should hang our heads in shame

From today..

Newstart up $2.90 per fortnight to $492.60

Pensions up $17.10 per fortnight to $772.60

Department of Families Community Services and Indigenous Affairs, maximum single rates.

Pensioners will find their wallets $17.10 per fortnight heavier from today, Australians on Newstart or Austudy will scarcely notice any difference.

The disparity in the latest round of half-yearly increases - $17.10 per fortnight for single pensioners and just $2.90 per fortnight for Australians on allowances - is one of the widest on record.

It has come about because pensions are increased every six months in line with average male earnings while Newstart and other benefits are increased only in line with the consumer price index, which in recent months has been looking sick.

The CPI climbed not at all in the December quarter, by just 0.1 per cent in the March quarter and by 0.5 per cent in the June quarter. When Reserve Bank governor Glenn Stevens told parliament in August inflation was its lowest “for some years,” he meant it as good news. But for Australians who rely on the CPI to keep pace with other Australians the good news is anything but good.

Especially so because their own cost of living is climbing faster than the index...

While the consumer price index climbed 0.5 per cent in the three months to June, the living costs of Australians on government benefits climbed 0.6 per cent, according to a separately-compiled Bureau of Statistics survey. Rents, which are particularly important in the budgets of Australians on allowances, have been climbing strongly.

The ABS figures show the living costs of Australians on allowances have been increasing faster than the living costs of Australians on the pension, yet the latest increases will add $1.22 per day to the single pension and just 20 cents per day to the Newstart.

“The gap between pensions and allowances has been growing for over thirty years, it has led to a situation where Newstart is now so low that it creates its own barriers to finding work,” said Greens Senator Rachel Siewert who earlier this year attempted to live for a week on $17.15 per day, her calculation of Newstart after rent.

From today Newstart and student allowances will climb to $35.18 per day while the pension climbs to $55.20 per day.

Roughly equal during the 1980s, the two payments have drifted apart as the different indexation methods have widened the gap each six months. The Rudd government’s 2009 decision to lift the pension by $32 a week while Newstart unchanged widened the gap further.

The Senate is inquiring into the gap and is due to report in November.

In today's Age


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Pension up $17.10 per fortnight, Newstart up $2.90

Surely not. But it's true.

And a national humiliation.

That may be why the government may have dishonestly fed Channel Seven misleading information for its TV news story Friday night.

This is contemptible, on several levels.

1. We entitled to have a government that tells the whole truth - including when it backgrounds journalists.

To compare Newstart (including in the calculation supplementary payments such as rent assistance) to the minimum wage (without including supplementary payments such as rent assistance) is dishonest.

2. It betrays guilt over what is happening to Newstart, which the government is apparently prepared to endure rather than put right.

3. To use a false comparison to further stigmatise already-stigmatised Newstart recipients adds insult to injury.

I do not know which staff member in Shorten or Macklin's office fed Channel Seven the false comparison.

He or she ought to have difficulty sleeping.

Maybe after the election he or she will get to try Newstart.

I've heard it's not that low.







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