And the NBN cost-benefit analysis finds...

No wonder Labor never wanted its National Broadband Network subjected to cost benefit analysis.

For all of its talk about the public benefits that would flow from fibre to the home broadband such as e-health, e-learning and working, those benefits turn out to require very little bandwidth.

The Coalition's independent cost benefit review finds that what does need high bandwidth is high-definition TV. But even that doesn't need anything like what the NBN was going to deliver.

By 2023 the typical household will need just 15 megabits per second, according to the review's bottom-up analysis. The top 5 per cent of households will need at least 43 Mbps. The top 1 per cent will need 48 Mbps. The NBN was going to deliver 100, upgrading later to 1000.

Tech-heads might think those figures are low, but the review explains that the most common household comprises just two people.

"Even if those two are each watching their own HDTV stream, each surfing the web and each having a video call all simultaneously, then (in part thanks to the impact of improving video compression) the total bandwidth in 2023 for this somewhat extreme use case for that household is just over 14 Mbps."

Bandwidth that isn't used is bandwidth that's wasted. If it costs a lot to get it it's money wasted.

The review finds the Coalition's pared-down model will cost $7.2 billion in today's dollars. Labor's fibre-to-the-premises NBN would have cost $17.6 billion. The benefit from the Coalition's model is $1 billion. The benefit from Labor's model is minus $4.7 billion. That's right, minus $4.7 billion. The minus sign is because Labor's scheme would have delayed the spread of fast broadband. The review finds that without it the market would have delivered high-speed broadband to most Australians sooner.

Australians care about speed, but not that much. The review finds we are prepared to pay an extra $1.50 per month for an extra Mbps when our speed is low, but only an extra 70¢ when it climbs to 50 Mbps and nothing when it climbs above 90 Mbps.

On the other hand, we care deeply about getting high-speed broadband quickly.

The Coalition's plan uses a mix of technologies to deliver speeds of 20 to 100 Mbps to all of Australia and does it much sooner than Labor would have delivered 20 in the bush and 100-plus in cities.

The Coalition scheme will cost a net $620 per person in today's dollars. Labor's would have cost $2200.

It's hard to fault the review panel for thoroughness. It's review goes out until 2040, and beyond that using residual value. It developed Australia's first bottom-up analysis of what Australians actually need; something Labor never did, starting instead with a solution and then assuming it was needed. It commissioned the Institute for Choice at the University of South Australia to examine what consumers were actually prepared to pay and it has submitted its work to peer review from an international panel made up of experts from the Brookings Institution and the University of Texas.

It finds that both the Coalition and Labor's NBN needlessly waste money, but that Labor's wastes more.

In The Age and Sydney Morning Herald

Cost benefit analysis shows Turnbull plan has $16b advantage

The Abbott government's pared-back broadband plan is three times more cost effective than Labor's ambitious scheme and would leave Australians $16 billion better off, according to the first independent cost-benefit analysis of the national broadband network.

In a scathing verdict on the Rudd and Gillard governments' plan to introduce fibre directly to 93 per cent of premises, the cost benefit analysis finds the policy is so expensive it would barely leave the community any better off in net terms than if broadband investment remained frozen at present levels.

The much-anticipated report finds households and businesses will benefit from quicker downloads but the much-vaunted societal benefits of fast broadband – such as improvements to health and education services – will probably be extremely limited.

The cost benefit analysis panel, led by former Victorian Treasury head Michael Vertigan, modelled the estimated costs and benefits of expanded broadband access from 2015 to 2040.

Communications Minister Malcolm Turnbull, who commissioned the analysis, will use the findings to justify his decision to pursue a "multi-technology mix" broadband network using a combination of fibre to the premises, fibre to the node, hybrid-fibre coaxial, satellite and wireless services.

Mr Turnbull regularly attacked Labor for failing to commission a cost-benefit analysis before launching the national broadband network, the biggest infrastructure project in Australia's history.

The report finds the multi-technology mix model outperforms a fibre to the premises plan in net economic benefits in 98 per cent of scenarios.

A multi-technology mix NBN would cost $24.9 billion to launch from 2015 compared with $35.3 billion for fibre to the premises (FTTP), the report finds.

A multi-technology mix would deliver download and upload speeds of 20-100 megabits a second, while FTTP would deliver speeds above 100Mbps.

The report finds the most cost-effective option would be an unsubsidised launch in which the free market delivers high-speed broadband to 93 per cent of homes. This would have a net economic benefit of $24 billion, but would leave 7 per cent of premises in regional and rural areas without fast broadband.

Providing fast broadband to the bush through wireless and satellite services – as envisaged under both Labor and the Coalition's plans – will cost nearly $5 billion but produce only $600 million in economic benefits.

This suggests an alternative model for a government committed to fast broadband for all Australians at a low cost: subsidising the introduction to the bush while leaving private providers to serve metropolitan areas.

Compared with the unsubsidised launch scenario, the multi-technology mix model has a net cost of $6 billion ($620 a household) and fibre to the premises has a net cost of $22 billion ($2220 a household).

Australians would be only $2 billion better off, in net terms, than if there was no further launch> of broadband under a fibre to the premises model. They would be $18 billion better off under a multi-technology mix.

The report finds a multi-technology mix is more "future proof" because it can be upgraded to fibre to the premises later if demand for fast broadband booms.

"The [multi-technology mix] scenario leaves open more options for the future because it avoids high up-front costs while still allowing the capture of benefits if, and when, they emerge," the report finds.

The cost benefit analysis finds most of the benefits of fast broadband – most notably video downloads – will accrue to private users within households and businesses. By contrast, hospitals and schools require relatively low bandwidth to deliver services. 

As well as Mr Vertigan, the expert panel members were economist Henry Ergas, former Australian Communications Authority chairman Tony Shaw and former eBay Australia managing director Alison Deans.

Mr Vertigan said the findings of his report show that cost benefit analyses should be mandatory before construction begins on major public infrastructure projects.

Labor communications spokesman Jason Clare said the cost-benefit analysis was "tainted" by the involvement of figures such as longstanding NBN critic Henry Ergas.

"It's hard to take the report seriously when three weeks before the last election Malcolm Turnbull said he would get this report done by the government body Infrastructure Australia and instead what he has done is got some of the most vociferous critics of the NBN, as well as former staff, to write this report," he said.

Mr Clare said the government had a "myopic" view that fast broadband was just about video games.

This is about setting us and Australia up for the future. That is why Japan, South Korea and China and New Zealand are doing it and even in Indonesia." 

In The Age and Sydney Morning Herald SUNDAY EXPLAINER

It was going to be bigger than the Snowy Mountains Scheme and it was going to revolutionise our lives. Four years ago Labor began an audacious program of connecting every house and business in the country to the internet, all over again. It was to cost $43 billion and it commenced without a cost benefit analysis. This week the Coalition released the results of a cost benefit analysis into Labor's NBN, the first. It finds the benefits would never have approached the cost. Who's right, and who's offering the best plan now? Peter Martin runs the numbers.

WHAT WAS LABOR OFFERING?

Every address in every city and reasonable sized town was to be offered the chance to be wired up to an optical fibre cable. Remote locations were to be connected by satellite and wireless. As of June this year NBN Co had connected 210,000 locations and had millions to go. The promised speed for the fibre links was 100 megabits per second, with the whole system upgradable later to 1000 Mbps, each far faster anything that was available at the time.

WHAT COULD IT BE USED FOR?

The cost benefit study finds most uses don't require anything like 100 Mbps. Ultra high definition TV comes closest. The government's advertising stressed instead the unknowable nature of its uses saying the NBN would be used "in ways we only dream of".

WHY NO COST BENEFIT ANALYSIS?

Labor might have felt there was no point after it had given the go ahead. But it was big on claims. The NBN would "boost our economy", it would "open up a world of interactive health care never thought possible". It might have felt these claims couldn't be tested. After all if its uses are unknowable, how can we know what it will be used for?

WHAT IS THE COALITION'S ALTERNATIVE?

A cut-down version. Instead of costing $73 billion (the revised figure for Labor's scheme determined by the strategic review in December, 2013) the Coalition's scheme would cost $41 billion. Instead of connecting every house and business in every city to an optical fibre, it would use a mix of technologies. One quarter of city addresses would get fibre, 44 per cent would get fibre to the basement in apartment buildings, or fibre to a node (a shared connection housed in a street cabinet), with the last link to the residence or business by existing copper wire and 33 per cent would be serviced by Foxtel and Optus Vision cables re-engineered to deliver high speeds.  

The Coalition would deliver 43 per cent of the nation 25 Mbps or more by 2016 and 91 per cent 50 Mbps or more by 2019 (two thirds would get 100 Mbps). By then Labor would have wired up only 57 per cent of the nation.

CAN FIBRE TO THE NODE ACTUALLY DELIVER FAST SPEEDS?

It can certainly deliver speed more quickly than could have fibre to each home. NBN Co says fibre to the apartment test sites in Victoria have delivered download speeds in excess of 100 Mbps and upload speeds in excess of 45 Mbps. Fibre to the node test sites at Woy Woy in NSW have delivered download speeds of 95-97 Mbps and upload speeds of 28-34 Mbps.

HOW MUCH SPEED WILL WE NEED?

The cost benefit review panel headed by the former head of the Victorian Treasury Michael Vertigan> finds we won't need that much.

It says by 2023 the typical household will need 15 Mbps, the top 5 per cent will need 43 Mbps, the top 1 per cent 45 Mbps and the top 0.01 per cent 48 Mbps.

It says the biggest user of bandwidth is high definition video. Even a household watching two HD video streams at once, simultaneously searching the web twice and conducting two video calls will need "just over 14 Mbps".

WHY ALL THE TALK ABOUT HIGH DEFINITION VIDEO? AREN'T THERE OTHER MORE IMPORTANT USES FOR THE NBN?

Too right. But high definition video is the biggest hogger of bandwidth. The review finds other uses including e-health need much less. Hospitals and associated institutions that need serious bandwidth for e-health can connect directly to the internet via fibre.

BUT WON'T WE BE USING THE INTERNET MORE AND MORE?

Yes, even for fridges and air conditioners. But those sort of uses don't require high speeds, and extra use of things that do require high speed doesn't necessitate even higher speed. The panel explains it this way: If a household that previously watched one hour of high definition video a day ramped up its usage to four hours a day the amount of data it needed would have quadrupled, but the speed it needed would have not.

WHAT IF THE COALITION'S NBN DOESN'T PROVIDE ENOUGH FOR ME?

You can connect directly to the internet by fibre, but it'll cost you a few thousand dollars. The review believes few households will bother. It finds that after speed reaches 90 Mbps our willingness to pay for even more flattens to zero.

BUT AREN'T EARLY ADOPTERS ALREADY SIGNING UP FOR HIGH SPEEDS?

Yes. Around 18 per cent of the NBN's first customers have signed up for the top speed. But most, three quarters, want 50 Mbps or less. One third want only 12 Mbps.

WHAT ABOUT THE FUTURE? WON'T WE NEED EVER HIGHER SPEEDS DOWN THE TRACK?

That's Labor's argument, that the future is unknowable. But it cuts both ways. One response to an unknowable future is to build something very expensive in case it will be needed, the other is to build something cheaper which can be expanded later where needed.

HOW MUCH WILL THE COALITION'S CUT DOWN MODEL SAVE?

Converted to present day dollars the panel says the Coalition scheme will cost $7.2 billion. The Labor scheme would have cost $17.6 billion. It says the Coalition scheme will deliver a (disturbingly low) benefit of $1 billion. In contrast Labor's scheme would have delivered a benefit of minus $4.7 billion. The minus sign is because it would have delivered high speed broadband slower than would the market itself. The review found that beyond a certain point we don't much value the extra speed we would get in return for the delay.

WHEN CAN I GET MY NBN?

By 2020 under the Coalition's scheme. By 2024 under Labor's.

Peter Martin is economics editor of The Age

In The Age and Sydney Morning Herald

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Penalty rates: Fair pay or job killer?

SUNDAY EXPLAINER

Fair compensation or job killer? The government has penalty rates in its sights, with one minister claiming it has become impossible to dine at his favourite restaurant on New Year’s Eve.  An impost on your weekend latte and economic handbreak or fair compensation for unsociable hours? Peter Martin blows the froth off a hot topic.

Why do we even have penalty rates?

To penalise employers for making their staff work unsociable hours.

"The norm remains for evenings, weekends and public holidays to be the time when friends, families and social groupings, however constructed, are able to get together,” the Industrial Relations Commission explained in a landmark ruling.

Penalising employers makes work at unsociable hours less likely and compensates staff who have to work at times when their family and friends are not.

Who sets penalty rates?

Fair Work Australia when it approves awards, or employers and employees they make enterprise agreements.

How big are the penalties?

In the restaurant industry they are typically an extra 12 per cent for working after normal business hours, an extra 25 per cent for working Saturday, an extra 50 per cent for working Sunday, and two and a half times the normal salary for working on public holidays.

Health professionals typically get an extra 50 per cent for working on the weekend. Retail workers typically get 25 per cent for Saturdays, double for Sundays and two and a half times for public holidays.

Can employers afford them?

Celebrity chef George Calombaris is one of many restaurateurs who say penalty rates are making their businesses uneconomic, but the restaurant industry keeps growing. Over the past five years spending at restaurants and cafes has climbed at twice the rate of spending in supermarkets.

Employment in the restaurant industry climbed 9 per cent during five years in which overall employment climbed 7.5 per cent.

And restaurants make money. When the Bureau of Statistics examined the accommodation and food service industry it found gross operating profits amounted to 11 per cent of total sales, almost twice that of retail industry (6 per cent) and a good deal more than the construction (8 per cent) and manufacturing (7 per cent).

The industry is twice as profitable as it was 15 years ago.

But aren’t restaurants closing down?

All the time. But new ones are opening in their place. The Bureau says in any one year roughly 15 per cent of accommodation and food service businesses close down and another 15 per cent open. We are spending far more at restaurants than we used to. More than enough are opening.

Aren’t some no longer trading on Sundays?

Several. George Calombaris owns one. His Press Club restaurant in Flinders Street closes on Sunday. But most are open.

Could they charge more to compensate?

Many do, imposing a Sunday surcharge of 10 to 20 per cent. A few years back the Australian Competition and Consumer Commission declared the practice illegal unless the restaurants printed separate weekend menus. Last year Parliament legislated to remove the requirement, but restaurants still need to prominently display the size of the surcharge on their menus.

Would more open if penalty rates went?

Absolutely, unless the standard rates of pay climbed to compensate for the loss of penalties. The base rate for a food and beverage attendant is $17.35 ($26.03 on Sundays). It is entirely possible employers would be pressured to raise the base rate to compensate.

Would meals be cheaper if penalty rates went?

Again, that would depend on whether base rates went up to compensate. Weekend surcharges would certainly go.

Aren’t penalty rates anachronistic? Sunday is no longer a day of rest.

The most recent time use survey showed that in 2006 we only spent 1 hour per weekend socialising, down from 3 hours per weekend in the early 1990s. We spend twice as much time shopping on the weekends as we used to.

The Commission’s view that weekends are the time we “get together” has less force than it used to.

On the other hand, the rise of two-income families makes finding time to get together even more important than it was. Without penalties, couples would be split as one partner worked one set of days and the other a different set of days meaning they rarely “got time off together”.

Why all the fuss about restaurants? Aren’t penalties everywhere?

They are. Nurses, shop attendants, all sorts of workers get penalty pay if they are forced to work overnight or on the weekend. And almost all workers get penalty pay if they are forced to work on public holidays. The whole idea of public holidays is that the public holidays together. Restaurants and cafes are getting most of the publicity because most are small businesses and because wages constitute a big proportion of their costs.

But if they disappear in restaurants they will probably disappear elsewhere.

Is the move against penalties part of a broader industrial relations agenda?

Probably. Many of the politicians and businesspeople who have spoken out against penalties also dislike central wage fixing. Penalties may be more of a battleground rather than an endpoint.

In The Age and Sydney Morning Herald

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Unemployment. It's not as bad as you think

If you are unemployed you are entitled to feel dreadful.

A year ago you were one among 686,000. Now you are among 789,000. An extra 103,000 Australians have joined you in the past year making your chances of being re-employed a good deal worse.

But, read on, it’s probably not as bad as you think.

First, politics. Why politics? Because Tony Abbott himself committed the Coalition to “creating 1 million new jobs within five years”. So far his record is awful. All through the global financial crisis, all through the Rudd and Gillard and Rudd years, all through the political crises, Australia’s unemployment rate never reached 6 per cent. It hit 6 in January and now it’s 6.4. Appallingly, Australia’s unemployment rate is now higher than that of the United States. We’ve passed the US on the way up as it’s on the way down.

Employment minister Eric Abetz has a ready excuse: “The carbon tax was removed just in recent weeks, and it stands to reason that you won't see an immediate overnight economic recovery,” he told the ABC’s PM program.

But an immediate improvement is exactly what the Coalition expected. “I think companies will unleash their balance sheets and I think consumers will as well if there is a change of government,” Joe Hockey told business leaders in the lead-up to the election.

Business confidence did indeed jump after the election but then fell back. Consumer confidence jumped and then plunged. The budget sent it deeply into negative territory. It’s now worse than at any time under either Rudd or Gillard.

But things probably aren’t as bad as you think. I know this because unemployment is one of those unusual fields about which the people closest to it often know the least.

I’ll explain with the help of the Melbourne Institute of Applied Economic and Social Research. It has just published an eye-opening study entitled Re-employment Expectations and the Eye of Providence.

The "eye of providence" is the statistical likelihood of being re-employed based on data. "Expectations" are the predictions made by unemployed people themselves.

Sonja Kassenboehmer, of Monash University and Sonja Schatz of Germany’s University of Duisburg-Essen examined the results of a regular survey that asks unemployed Germans to estimate how likely it is that they will score a job in the next two years.

Of those who had been out of work three to five years roughly two-thirds think they are less likely to be re-employed than they actually are, some of them far less likely. Those who believed they had a zero chance of finding work within two years turned out to have a 40 per cent chance. Those who believed they had only a 35 per cent chance turned out to have a 45 per cent chance.

Oddly, the most hopelessly pessimistic underestimaters were people who had been unemployed before. The next most chronic were married people, people who had worked as managers, technicians or clerks or in shops and then people judged as “agreeable” on a psychological questionnaire.

Underestimation matters because people who underestimate their likelihood of being re-employed accept worse job offers. They are more likely to give up searching altogether and if they do keep searching are more likely to  settle for lower-paying jobs, typically taking home $2000 less than people with realistic estimates of their chances of re-employment. And they are less satisfied with those jobs.

Kassenboehmer and Schatz propose a simple fix: "Case workers should ask individuals about their subjective re-employment expectations and inform them of any discrepancies due to underestimation”.

As they put it: “By providing employment agency clients with objective re-employment probabilities, suboptimal behaviour in the labour market such as accepting low-quality jobs or exiting the labour force may be prevented”.

At first they thought it would be complicated. The computer model used by employment agencies would have to take account of things such as personality, gender (women are more likely to underestimate than men), family circumstances, occupation and so on.

Then they examined what they could leave out and still produce a better forecast than unemployed people themselves. It was nearly everything. They usually only needed one  - the number of years an unemployed person had been in and out of work.

It’s information the agencies already have. Feeding it into a computer program could feed their clients reality and lift their spirits as well.

The government mightn’t be up for it. It might be keener on requiring then to apply for 40 jobs a month.

But even if it's not there's something job service providers can deliver - five short words: It’s better than you think.

In The Age and Sydney Morning Herald

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Hockey said higher-income households pay half their income in tax. He really said it

The Treasurer has made a big mistake.

"Higher-income households pay half their income in tax," Mr Hockey told Channel Nine this week while defending his budget.

He said it twice: "Higher-income households pay half their income in tax".

It's a simple enough mistake. Australians on the top tax rate do indeed pay 45 cents in the dollar. The rate cuts in at $180,000. They also pay the temporary deficit reduction levy (another 2 per cent), the Medicare levy (yet another 2 per cent) and the Medicare surcharge where applicable (a further 1.5 per cent). The total comes to 50.5 cents in the dollar.

But the amount of tax actually collected from those Australians is nothing like that much, as a quick workout of the Australian Tax Office calculator makes clear.

An Australian earning $200,000 pays around 36 cents in the dollar including the Medicare levy and the deficit surcharge, far short of the claimed 50. Even an exceptionally high earner on $500,000 pays no more than 44 cents in the dollar.

Typical high earners pay much less. An Australian on $80,000 pays $19,147. An Australian on $120,000 pays $34,747.

The difference between the quoted rates and the actual rates comes about because all Australians - even the highest earners - enjoy a tax free threshold. They pay no income tax on their first $18,200 of income no matter how much they earn. And they pay just 19 cents in the dollar for the part between $18,200 and $37,000 and 32.5 cents for the slice between $37,000 and $80,000...

Only the part of their income in excess of $80,000 gets taxed at their marginal rate (for really high earners $180,000). Most high earners don't take home that many dollars above the threshold.

Bemused number crunchers on Twitter have been trying to calculate how much someone would need to earn to actually pay half of it in personal tax. One came up with $6 million, another with $3 million. Whatever the figure, it's beyond the reach of most high earners.

The Treasurer was making a broader point, that it is "wrong" to say low-income households are the biggest losers from the budget.

"That story is wrong because it fails to take into account a range of things, like the fact that higher-income households pay half their income in tax, low-income households pay virtually no tax," he said.

But those two things aren't in conflict. It would be quite possible for low-income households to be the biggest losers from the budget and for them to pay less tax than high earners.

Calculations of winners and losers - the sort carried out by the Treasury and included in every budget since 2005 until this one - are a measure of who is made better or worse off than they were, not of how well or badly off they are in absolute terms.

Mr Hockey says high-income Australians pay tax in order to support low-income Australians. This is indeed a feature of the tax system. But it is not relevant to a calculation of the change in circumstances that will result from the budget. Separate calculations released under the Freedom of Information Act show the Treasury believes the change will be negative for lower-income  households, less negative for higher-income ones.

The Treasurer's deeper point is that if you wind back benefits you'll necessarily take some away from people who would have got them. He is right. With the outrageous exceptions of the superannuation tax concessions and the negative gearing tax arrangements, high earners don't get anything like as much government support as low earners. That's the way the system is designed.

Cutting into welfare has to mean cutting into benefits. Unless you cut into high-income welfare, which the budget didn't do.

In The Age and Sydney Morning Herald


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FOFA. How Palmer was conned. The rotten underbelly of Australia's financial advice industry

Clive Palmer has been conned. In the most exquisite of ironies he has allowed the Coalition to water down financial advice rules without first seeking advice.

"I didn't become a billionaire by listening to advisers," he said after he closed the deal, dismissing concerns the regulations he had endorsed would condemn ordinary Australians to years more of seeing advisers partially on the take from the firms whose products they advised on.

He’d insisted on safeguards. Fees and payments would be out in the open. It would help.

Palmer has probably never sought advice from George Loewenstein. The Carnegie Mellon University professor does cutting-edge research in the netherworld where economics meets psychology.

His examination of this very topic is called “The Dirt on Coming Clean: Perverse Effects of Disclosing Conflicts of Interest.”

Loewenstein says if advisers admit they are getting kickbacks their clients often don’t know how to assess the information. The clients don’t know much about the field. That’s why they are seeking advice. Sometimes it makes them more trusting. If an adviser is going out of his or her way to be honest the client might “place more rather than less weight on the adviser’s advice”.

The adviser on the other hand might feel emboldened, “exaggerating their advice in order to counteract the diminished weight that they expect estimators to place on it”.

His experiments find advisers make more money when they disclose kickbacks and their clients make less (because they receive even more biased advice). They are also keener to help out advisers by buying the products that will give them kickbacks.

If you doubt that Australians are extraordinarily bad at appraising the worth of their financial advisers, consider the results of this Australian Securities and Investments Commission survey, detailed in the interim report of the Murray financial system inquiry delivered on the day that Palmer caved...

Eighty six per cent of the Australian customers surveyed said they had received “good quality advice”.  Eighty one per cent said they trusted the advice “a lot”. But when ASIC examined the advice if found only 3 per cent was good, 58 per cent was adequate and 39 per cent “poor”.

The advisers who renounced commissions were the most likely to provide good advice.

“Unsurprisingly, where advice fees were contingent on a product recommendation there were numerous examples where the advice appeared to be structured towards recommending or selling financial products,” ASIC reported.

The regulations Palmer has agreed to will allow banks to continue to reward advisers for shifting their products. The only constraints are that the advisers must work for the banks, they must style themselves as “general” rather than “personal” advisers, the payments can not be ongoing and they must not be made “solely” because of the volume of product they have shifted.

Payments or in-kind payments not linked to the sale of a particular product are fair game, among them payments for training, promotion, conferences in remote locations, the upgrade of computer systems and direct payments to staff who “execute” trades recommended by advisers.

They are generous loopholes. They would have been illegal had Palmer not caved.

The Murray report doesn’t think much of them. It has suggested banning the use of the term “adviser” in such circumstances, relabeling it “sales” or “advertising”.

The inquiry’s chair David Murray knows about what masquerades as financial advice in Australia. He used to run the Commonwealth Bank.

“Advisers” are allowed to practice in Australia with as little as six hours training, although it’s often more - sometimes six weeks. In Canada, Hong Kong, Singapore, the United Kingdom and the United States would-be advisers need to sit a national exam. Not here. I know of one economist with impeccable finance market credentials who wanted to work as a financial adviser to give something back He was turned away because he hadn’t worked in sales.

Unfathomably, there’s not even a public register of who does and who does not have an adviser's licence. (Palmer is on to this one. He demanded a register as a condition of agreeing to water down the rules.)  If there was a register potential clients could see how long an adviser had been practicing and whether they had ever been struck off.

So limited are the regulators powers that when advisers do get stuck off they simply pop up elsewhere. Murray says ASIC can prevent someone being an adviser but can’t prevent them from managing advice firms, something stuck off advisers often do.

In Britain the Financial Conduct Authority has “product intervention” powers. It can review products or product categories and take them off the market. In Australia ASIC can only warn.

And it can do next to nothing about advisers who sell insurance. Incredibly effective lobbying by insurance providers means that under both Labor’s old rules and the Coalition’s new ones advisers can continue to accept commissions from insurance companies. It’s why advisers often ask: “Would you like insurance with that?”. The commission is often as much as 110 per cent of the first year’s premium. It’s a powerful incentive for advisers to advise their clients to switch, regardless of the consequences.

David Murray is on to it, even if Clive Palmer is not. But there’s hope. The regulations Palmer waved through apply only until December 2015. In November 2014 David Murray presents his final report. Palmer’s no fool. He would probably be horrified at the state of the industry if he took wider soundings. He has 18 months in which to do it.

In The Age and Sydney Morning Herald


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Red tape? You ain't seen nothing yet. 40 job applications per month

Red tape? It’s only just begun. Forcing job seekers to apply for 40 jobs each per month will bombard employers with more than one million applications per day, every working day of every year.

Around 740,000 Australians are unemployed. Even at the peak of the mining boom the total wasn’t much short of 500,000. Forcing most to apply for more than one job per day (while also working for the dole if they are under 50) will see them sending out proforma emails at a pointless rate.

Bendigo has 700 unemployed residents. Making them apply repeatedly to the same pool of employers month after month will drain their ability to apply for jobs they might actually get and drive their would-be employers around the twist.

It won’t be that bad for large organisations with well-resourced human resources departments. They have staff they can assign to worthless work.

But small businesses will have no-one to pass the work to.

“They will be inundated,” says Peter Strong, president of the Council of Small Business of Australia. “It’s an embarrassment for everybody and it’s going to make people angry. The small business person might be having a lousy day and no customers are coming in, but she’ll be getting job seekers. In the hospitality industry most of the time you know straight away whether someone can pour a cup of coffee. You don’t want that person coming back month after month.”

As minister Eric Abetz outlined the new rules on Monday the Business Council of Australia launched a major report stressing the need for businesses to “improve their productivity and strip out costs”...

It’s as if he wasn’t listening. Business Council chief executive Jennifer Westacott says while many aspects of the new model are welcome she is “concerned about the practicality of asking people to apply for 40 jobs each month”.

She is concerned too about how little we are paying unemployed people. Currently just $255.25 per week Newstart will be denied to young people during their first six months out of work and then paid at the lower Youth Allowance rate of $207.20 per week until they reach 30.

Without the resources of the time to properly present themselves for jobs many will miss out.

Peter Strong is surprised. He says usually the government has good ideas about getting people into work and is prepared to talk. He says this is an aberration.

In The Age and Sydney Morning Herald






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Abbott and infrastructure. Nation building, one elephant at a time

We're on the road to Utopia. Unfortunately.

The team from Frontline and The Hollowmen is at it again.

This time their angle is “nation building – one white elephant at a time.”

Entitled Utopia their new program is “a satire about the difficult process of taking grand, uncosted, inadequately planned and fundamentally flawed schemes - and passing them off as nation building”.

But it’s not the sort of thing you would see in real life is it? Certainly not repeatedly, deliberately, at the hands of the Coalition.

Here’s the ABC publicity blurb: “Set inside the offices of the Nation Building Authority, a newly-created government organisation responsible for overseeing major infrastructure projects, Utopia explores that moment when bureaucracy and grand dreams collide.  It’s a tribute to those political leaders who have somehow managed to take a long-term vision and use it for short-term gain.”

It couldn’t be happening right now, when we are forever being told the budget is tight...

Tony Abbott has his heart set on becoming Australia’s Infrastructure Prime Minister. Whatever the state of the budget he is determined to spend massive sums building the “Roads of the 21st Century,” NorthConnex, WestConnex and the East West Link and so on.

The one saving grace in the election campaign was his promise that all Commonwealth infrastructure spending worth more than $100 million would “subject to analysis by Infrastructure Australia to test cost-effectiveness”. It was reassuring, until he ditched it.

Two weeks ago Labor tried to force the Coalition to make good its promise moving in the Senate that the reward payments made to states that privatise assets and use the funds for new projects be subject to Infrastructure Australia cost benefit analysis.

It rejected the proposal of hand.

Cost benefit analysis by the Commonwealth on top of whatever the states did was “red tape with no additional benefit”. It would “stand in the way of the government building a stronger more prosperous economy,” minister Mathias Cormann told the Senate.

On climate change the Coalition’s detractors accuse it of being anti-science. On roads they could accuse it of being anti-numbers.

And of providing material for Utopia.

That’s how Infrastructure Australia itself sees it. It has titled its latest report on road spending: “Spend more, waste more”. On the cover is a roulette wheel...

“Australia has a true gambler’s addiction to roads, the money spent is not a rational investment,” it writes in the draft that was leaked to Fairfax Media. “Unlike almost every other agency imaginable."

“Highway funding for example is not predicated on any nationally accepted standard related to the current quality of that highway, to a safety rating or to traffic flow levels.”

“No one community has any ability of knowing whether ‘their’ highway upgrade is more deserving than that of another. Under these arrangements, political success in roads is likely to be reduced increasingly to simply outspending one’s political rivals - regardless of how inefficient or ineffective these spending patterns might be.

“This problem is probably insoluble in the absence of measuring roads against national standards.”

It’s an approach endorsed by the Coalition in opposition then eschewed in government. The $3.5 billion to be spent on highways leading to a yet-to-be-built second Sydney airport is the standout example of a project that wouldn’t pass muster if it had to be graded alongside other more immediately worthwhile contenders.

Conceding that its assessment is “challenging” Infrastructure Australia says Australian politicians routinely prioritise roads over rail.

“Australia is the 12th largest economy in the world, and one of the most dependent on freight efficiency given the wide dispersal of its economy across big distances. Most casual observers would presume that for a freight task of such magnitude a core intercontinental heavy rail freight sector would be the dominant freight mode – as is the case in Europe, Canada, the United States and Russia,” it says.

Yet “road agencies continue to plan and undertake regular expensive upgrades of the highways that are the direct competitors of major commercial rail projects. It would be hard to imagine a way in which commercial rail could be further disadvantaged.”

In the cities Infrastructure Australia says inflated estimates of road congestion are routinely used to direct money away from public transport and into roads.  It has asked the government for more realistic forecasts but hasn’t got them.

It says we need better. Utopia isn’t enough.

Utopia premieres Wednesday August 13 at 8.30pm on ABC TV.

In The Age and Sydney Morning Herald











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HECS. Why the new university rules hit low income earners the hardest

Life Matters Wednesday July 23, 2014

Imagine this. Two students, both going to university at the same time, both charged the same fee and both graduating together, but one has a manageable debt - perhaps 50 or 60 thousand dollars - and the other ends up paying $100,000.

New calculations about the effect of the government's higher education changes suggest it's possible, and the student who ends up paying the most will be the student on the lowest income....

15 minutes, play or RIGHT CLICK to download mp3




Reading:

. Poor graduates to pay about 30 per cent more than rich under Abbott government's university interest rate fee changes

. Unpopular uni debts likely to be reversed

. Overview of Higher Education Budget Changes


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Productivity Commission. Childcare is worth getting right even without an economic payoff

Ask the minister responsible to explain Australia’s present system of support for childcare and she can’t.

“It's impossible to explain,” she told ABC radio on Tuesday. “The current payments are so complicated.”

Sussan Ley isn’t alone. Curtin University Professor Alan Duncan is an econometrician.

When he ran the National Centre for Social and Economic Modelling he asked his programmers to produce graphs of the circumstances in which childcare support peaked and troughed. At first they couldn’t. He says they eventually produced a three-dimensional graph with contours “something like nose cone on a spacecraft”.

The Productivity Commission wants to simplify the graph. Instead of two overlapping benefits its wants one; means tested and related to the number of hours in care rather than what’s charged. Its preferred option would cost an extra $800 million a year. It would help out families on up to $60,000 with 90 per cent of the deemed cost, families on up to $300,000 with 30 per cent.

What it doesn’t do is to pretend its suggestion will much help the economy...

Despite all the talk about how many more women would work if only they could afford childcare it says the likely outcome is tiny, an extra 47,000 workers. As a point of reference an extra 20,000 Australian women gained jobs in the past two months. The claimed one-off benefit of 47,000 is minute.

Remarkably the Commission says it is worth doing anyway. To pay for it it suggests plundering the Abbott government’s proposed paid parental leave scheme. It too promises tiny economic benefits.

But the suggested tradeoff misses the point. Each scheme is worth doing in its own right. Neither is justified on the basis of economics. Paid parental leave at full salary is intended to become a workplace entitlement along the lines of sick leave and bereavement leave. The extra cost would be funded by a levy on big employers. Affordable childcare is intended to ensure that low and middle income Australians get reasonable returns from work. Some things are worth doing even without an economic payoff. Affordable childcare and paid parental leave are two of them.

In The Age and Sydney Morning Herald


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MH17. Why planes and financial systems crash

What does the crash of Malaysia Airlines flight MH17 have to do with the global financial crisis?

One was destroyed by a surface-to-air-missile, the other came about because huge numbers of American housing loans became worthless at once. Enabling each was a bet that the unlikely wouldn’t happen.

It’s usually a good bet.

Qantas, Korean Air, and Taiwan's China Airlines weren't prepared to take it. They rerouted their flights to avoid the Ukraine months ago. Their caution cost them fuel, travelling time and profits.

Airlines such as Malaysia, Singapore and Lufthansa took a punt.

“What logic, what lack of sensitivity, and what lack of basic decency influenced Singapore Airlines and Malaysia Airlines and others to expose their passengers to these risks?” asked aviation journalist Ben Sandilands on his blog Plane Talking.

The logic was that the unlikely probably wouldn’t happen, or at least wouldn’t to them. Being slaughtered while flying well above a war zone is what experts call a low-probability, high-impact event.

Coldly risking something catastrophic in the knowledge that it almost certainly won’t happen (at least not to you) is a way to deliver superior financial returns, right up the point when it is not. And it’s rife in the finance industry.

Fund managers get paid for performance. Well ahead of the financial crisis in early 2008 two academics from Oxford and Pennsylvania universities demonstrated that it was possible for a fund manager to consistently deliver superior performance by betting the fund that an unlikely catastrophic event wouldn’t happen.

If, as was highly likely, the catastrophe never occurred the bet would pay off and they would be rewarded for their superior performance. If it eventually did occur they would have already received their bonuses and could leave the fund to collapse, moving on to a new job.

Because fund managers keep their methods secret professors Peyton Young and Dean Foster said it was “virtually impossible to set up an incentive structure that rewards skilled hedge fund managers without at the same time rewarding unskilled managers and outright con artists”.

As they put it, “anyone can cobble together a car that delivers apparently superior performance for a period of time and then breaks down completely”. Airlines can do it, privatised electricity suppliers can do it by not investing in maintenance as Victoria has discovered to its cost during brownouts, and state governments can do it by continuing to allow building in flood prone locations as Queensland did before its most recent devastating flood.

The entire world can do it by acting as if climate change won’t be too serious (although that’s probably better described as a medium to high probability high-impact event).

And the manufacturers of financial products can do it...

In the leadup to the global financial crisis they created products sprinkled with loans that could never be repaid if housing prices fell. But they bet that prices wouldn’t fall, not all at once. Compliant ratings agencies produced estimates of how unlikely such an event was. When it happened the products and the financial institutions that created them became worthless. The government rescued the important ones and much of the world slid into recession.

There’s no quick fix to stop it.

Part of the solution is better regulation, something the world’s financial authorities are on to after the global financial crisis. But regulation usually only closes a door after a crisis. Then a different unforeseeable event occurs creating another crisis creating another regulation.

As strange as it seems rewards for performance are probably a bad idea. They are what encouraged reckless practices in the United States. If Qantas schedulers were paid bonuses for speed they might have been keener to flirt with danger.

On the other hand real ownership could help. Paying employees in shares that couldn’t be cashed in for years would encourage them to be careful, as would requiring maintenance engineers to engrave their names of the fuselage of the planes they repair - a practice that is said to take place in Japan.

The best antidote is probably a rigorous cost benefit and risk analysis performed by someone whose pay cheque doesn’t depend on the next month’s profit.

The Coalition embraced such an idea in its September election policy. All Commonwealth infrastructure spending exceeding $100 million was to be “subject to analysis by Infrastructure Australia to test cost-effectiveness and financial viability”. Even state government projects only partially supported by the Commonwealth were to face Infrastructure Australia scrutiny.

No longer. On Thursday the government rejected a Senate resolution that would have given effect to its own policy. Labor moved that the reward payments made to states that privatise assets and then use the proceeds for new projects be subject to Infrastructure Australia cost benefit analysis. It would have covered the Metro Rail project and anything else funded by the sale of right to use the Port of Melbourne.

The Coalition said no.

Commonwealth cost benefit statements were “red tape with no additional benefit”. They risked delaying “the delivery of critical infrastructure”. They would “stand in the way of the government building a stronger more prosperous economy and investing in new infrastructure,” according to the finance minister Mathias Cormann.

But when lots of money or lives are at stake, delay is often a good idea. There’s a lot to be said for caution.

In The Age and Sydney Morning Herald


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The carbon tax is gone. Will prices come down?

The good news is that without the carbon tax you won’t paying $100 for a Sunday roast.

But you never did.

Ahead of the carbon tax in 2009 the present minister for agriculture Barnaby Joyce said the carbon tax would be “the end of Australia’s sheep industry”.

“I don’t think your working mothers are going to be very happy when they are paying over $100 for a roast,” he added.

In parliament this week asked whether he had found a $100 leg of lamb Mr Joyce dodged the question. At Woolworths this week a leg of lamb was on special for $15.10. It normally sells for $20.38.

As it happened the Treasury modelled the price of lamb when it modelled the carbon tax. It said the price would rise by 0.4 per cent, suggesting the price might have climbed 20 cents.

It’s impossible to tell what did happen, because for food the expected movements were so small as to be difficult to notice.

In the first consumer price figures released three months after the carbon tax the Bureau of Statistics says the price of lamb fell, sliding 2.3 per cent. It has since fallen a further 10 per cent, making any movement of 0.4 per cent difficult to discern.

This isn’t to say that lamb isn’t slightly more expensive than it would of been had there not been a carbon tax. It is merely to say to say that the effect is impossible to measure.

The Australian Competition and Consumer Commission had some power to restrain price rises attributed to the introduction of the tax. It could take action against false, misleading or deceptive claims linking price increases to the tax.

It has no such power over most prices on the way down. It can merely monitor.

Will the price of a leg of lamb come down by 20 cents because of the removal of the carbon tax? So long as the retailer doesn’t make any claims about the carbon tax it can charge whatever it likes. Last minute amendments to Clive Palmer’s carbon tax amendments make sure of that...

Insisted on by Liberal Democrat senator David Leyonhjelm and Family First senator Bob Day, they restrict penalties to just to just 60 or major energy suppliers.

“They are big enough and ugly enough to look after themselves,” Senator Day told Fairfax Media.

But the treasury expected the electricity and gas component of the carbon tax impost to add just add just $4.80 per week to a typical household budget ($3.30 for electricity, $1.50 for gas).

Total costs would climb $9.90 per week. Although big, the electricity and gas component didn’t account for the bulk of the $9.90. What did account for it was a multitude of small price changes. The treasury counted around 80, many of 0.4 per cent.

If the bulk of the price burden was made of adjustments too small to notice on the way up it will be impossible to notice on the way down. Whether or not retailers pass on lower costs will be up to them, and most of their customers will be none the wiser.

Electricity prices should come down by about 10 per cent, gas prices will be about 9 per cent lower than they would have been, except that the price of gas is unlikely to come down at all. Last week the NSW Independent Pricing and Regulatory Tribunal approved gas price rises of between 14.6 and 18.1 per cent.  A new processing complex at Gladstone in Queensland will allow eastern Australian gas to be sold at world prices for the first time. Eventually our gas price could double.

The prime minister says the saving per household from axing the tax is likely to be $550 per year. It’s more likely to be $250 or less, mostly on electricity. And don’t expect cheaper petrol. Petrol and the fuel used to produce and move it was carbon tax exempt.

In The Age and Sydney Morning Herald


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Superannuation. The financial system inquiry is talking about a revolution

And there were those who said it would favour the banks

The financial system inquiry has proposed a revolution in Australia’s superannuation system that would vanquish high fees and force Australians to take more super as income rather than lump sums.

Unveiling what are officially called “options” rather than recommendations, inquiry chairman David Murray raised the prospect of a 40 per cent cut in fees across the entire sector.

Such a cut would deliver a saving to members of around $7 billion per year. It would boost the average retirement payout by $40,000.

“I’ll take some flack for suggesting this, but it’s too important not to,” Mr Murray told the National Press Club.

Australian fees are twice as high as those in countries with similar sized systems. Superannuation itself is much more heavily weighted to riskier assets such as equities.

The report suggests banning borrowing by super funds and slowing down the process by which members can switch funds which it says encourages providers to hold more short term assets than they should.

Its most radical suggestion is that Australia follow the lead of Chile and auction off the right to be the nation’s default super fund. The firm offering to charge the the lowest fee would become the default provider for all new accounts until the next auction. Chile used the system to cut default fund fees by 65 per cent...

The inquiry also wants some sort of restriction on the ability of Australians to take and spend super lump sums knowing they can fall back on the age pension. It’s most extreme option would mandate the setting aside of a portion of lump sums for so-called deferred annuities which would pay out only after the age of 85 should the retiree live that long.

It is caustic in its findings about superannuation tax concessions observing that most go to the top 20 per cent of earners, people “likely to have saved sufficiently for their retirement even in the absence of compulsory superannuation or tax concessions”. It is likely to recommend changes to the system of super tax concessions that could form part of the white paper on tax reform to be developed next year.

Mr Murray refused to be drawn on whether if super fees come down there would still be a need to lift Australia’s compulsory super contributions from 9.5 of salary to 12 per cent as is presently legislated, saying the inquiry would be happy to receive submissions on the topic before it prepares its final report to be released in November.

Set up by treasurer Joe Hockey to to update the 1997 Wallis inquiry in light of the global financial crisis, the Murray inquiry finds the financial system is at risk from the perception that Australia’s big four banks are too big to fail and would be rescued by the government.

It floated several options to deal with what it calls “moral hazard” one of which is ring-fencing crucial bank functions such as taking deposits and writing home loans from other activities.

Although a former chief executive of the Commonwealth Bank Mr Murray is harsh in his criticism of the banks’ systems for rewarding their financial planners.

“The thing we have been very clear on is our view that conflicted remuneration can weaken advice,” he told Fairfax Media.

“There's not much we can do at the moment. The government is in the middle of having this voted on in parliament. But there is an information asymmetry between an advisor and a client, one we will be addressing in our final report.”

The interim report suggests outlawing the term “general advice” and replacing it with “sales” or “product information” if the people providing it continue to receive payments from the providers of financial products.

A spokesman for Mr Hockey said the treasurer would not be commenting on the report. It was Mr Murray’s and it was up to him to outline it. Labor’s treasury spokesman Chris Bowen said he would give it due consideration.

In The Age and Sydney Morning Herald


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FOFA. Your financial planner is about to send you a letter, but it's not enough

Expect letters. If you’ve had a financial planner steer you into a product in the last few years, that person is about to write to you. He or she will have to, even if they haven’t been in touch. He or she has been taking your money.

The first letter (due on the birthday of you accepting their advice) will do more than simply tell you how much the planner has been taking from your accounts. It’ll also ask if you want the withdrawals to continue. If you don’t you merely need to do nothing. The withdrawals will stop. If you do want your accounts continually drained you’ll have to send back a form. It’s called “opting-in”.

That’s what financial planners and the organisations that employ them have been engaged in a last-ditch battle to stop. Living off ignorance and amnesia, they’ve been desperate to ensure their long-forgotten clients don’t remember what’s being taken from their accounts and can’t easily stop it.

The Coalition has been backing them rather than us under the guise of stopping red tape. So keen has it been to do their bidding rather than ours that it waited until the parliament wasn’t sitting to introduce a regulation that would smother the requirement. The requirement had been due to become mandatory on July 1.

Then, when parliament resumed last week it delayed tabling the regulation. What’s not tabled can’t be disallowed. On Thursday it refused a formal request from the Senate to table it forthwith. Labor ended up tabling the government’s regulation itself and on Monday moved a motion to disallow it.

The disallowance motion is likely to pass. The Coalition’s attempt to appease financial planners will pass into history. Asked by the Australian Financial Review last week what he thought about its rear guard action Clive Palmer replied: “They can stick it up their arse and you can quote me on that.”

The Coalition meanwhile fulminates against “retrospective fee disclosure requirements,” even though the fees that will be disclosed aren’t retrospective, they’re ongoing. And it makes the - correct - claim that any investor who really wants to know what was being taken out of their accounts can look...

The payments are noted in the fine print of the annual statements for each product provider.  But for someone who has multiple annual statements (it is quite common to be signed up for multiple products) it’s quite a bit of effort to look up each one and then ask the provider to stop. One simple “opt-in” box removes the red tape. The Coalition says it’s against red tape, but it’s really against red tape for planners rather than their clients.

Older clients get no relief from red tape whatsoever. Before making explicit payments to planners from their clients’ accounts financial institutions used to pay implicit - hidden - payments known as upfront and trailing commissions. The planner typically received upfront 2 per cent of the amount to be invested and then a further 0.6 per cent per year for as long as the money stayed with the product provider. It provided a powerful incentive to advise in favour of the product paying the money and an even greater incentive not to recommend the client leave it.

Although the upfront part sounds bigger, it isn’t. Rainmaker research reckons that over the past five years upfront commissions have accounted for 8 per cent of annual commission payments, ongoing trailing commissions 67 per cent.

Most of the old trailing commissions aren’t disclosed to the clients. They don’t appear on their annual statements. The product providers say they don’t have the computer systems to recognise them (although curiously their systems recognise the planners to who they are being paid). Labor’s legislation ignored old fashioned ongoing trailing commissions. It applied only to new-fashioned explicit payments.

And the worst part is that many of those payments may be going to no-one at all. They are being taken out of accounts in order to reward long forgotten planners, but the planners themselves may have died or shut up shop.

Institutions remove the commissions, hang on to them and pay them to no-one. More often than not those institutions are owned by banks.

They are called “orphan commissions”. Rice Warner actuaries believes the old-style commissions untouched by both  the Coalition will cost consumers $6.1 billion over the next eight years. A staggeringly high proportion may be orphans. The financial institutions won’t tell us. Mortgage Choice found last month that 89 per cent of us “do not currently have a financial plan in place that was created by a financial planner,” suggesting that most commissions are orphans.

Neither side of politics has had the courage to tackle them. Industry Super has. It wrote to the Australian Securities and Investments Commission last month asking for an urgent investigation to at least determine the extent of orphan commissions.

The government’s financial system inquiry releases its first report on Tuesday. If it is serious about making the financal system work for us it’ll stamp out orphan commissions and stamp out commissions altogether, including the old ones. Anything less will suggest it works for the banks.

In The Age and Sydney Morning Herald


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Carbon tax going, but don't expect big savings

The carbon tax will be repealed within days after a breakthrough in talks between the government and cross bench senators who were concerned at what they believed were draconian provisions in the repeal bill.

An amended bill will be presented to the Senate and the House of Representatives as soon as Monday.

Liberal Democrat senator David Leyonhjelm and Family First senator Bob Day told the government on Friday they were prepared to walk away from the bill if it continued to include provisions that penalised small businesses that didn’t pass on any savings.

“No-one wanted the carbon tax gone more than I did,” Senator Day told Fairfax Media. “But we couldn’t have had those provisions in there. They would have been worse than the tax.”

Describing the penalties as “way over the top” and “just draconian” Senator Day said environment minister Greg Hunt agreed to remove them on Saturday.

“He sent the amendments through and they are fine. The penalties will now only apply to the 60 or so major energy suppliers. They are big enough and ugly enough to look after themselves.”

Mr Hunt said he had had “electronic engagement” with the crossbenchers over the weekend and had offered “some minor edits” to ensure any unintended consequences for businesses were removed.

“I know from my discussions with the Palmer team that they don't want to put impositions on small business,” he told Fairfax radio.

“I expect that by the end of the week it will done and dusted and everybody will have lower electricity bills from Friday onwards.”

A source close to Mr Palmer said although the amendments looked fine it would be up to Mr Palmer himself to approve them. He is holidaying in New Zealand. Independent senator Nick Xenophon said he would read them carefully before deciding how to vote.

The legislation is backdated to July 1, meaning some customers will get partial refunds on their electricity bills.

But they are unlikely to save anything like the $550 claimed by the prime minister Tony Abbott at the Queensland Liberal National Party convention on the weekend.

“It’s adding 9 per cent to your power bills, it’s a $9 billion handbrake on our economy and it’s costing average Australian families $550 a year,” Mr Abbott said, referring to the carbon tax. “So it must go.”

The $550 figure comes from Treasury modelling ahead of the introduction of the tax in 2012. But only $250 of it came from electricity and gas prices. The rest came from much smaller imposts on items such as food ($46), clothing ($29) and rent ($23). Many of the items modelled by the treasury had price impacts described as “less than 10 cents per week”...

The latest iteration of the legislation will include no penalties businesses who don’t pass their energy savings on, making a one-off saving of $250 per household more likely.

“I think that’s an overestimate,” Climate Institute chief executive John Connor said on Sunday. “Gas prices are climbing sharply for reasons unconnected with the carbon tax, so it’s unlikely there will be any cut in the gas price”.

Australia’s largest supermarket chain Woolworths has said that because it avoided price rises when the carbon tax was introduced there would be little room to remove them when it came off.

Coles says it is “working with suppliers to understand the implications of the change and if we identify any savings attributable to the tax changes we will pass them back to our customers”.

Qantas has removed the carbon surcharge on domestic flights but says market conditions do not allow it reduce its standard fares.

Mr Connor said there should be a review, before repeal, of the real price impacts and benefits. It should be conducted by the independent Climate Change Authority chaired by the former head of Reserve Bank Bernie Fraser.

A bill to abolish the Climate Change Authority also comes up for debate on Monday along with an amendment from Palmer United senators that would enable it to recommend a move to an emissions trading scheme when enough other countries came on board.

In The Age and Sydney Morning Herald





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One day we'll laugh about how we used to use notes and coins...

Australia Post was always going to wind back mail deliveries. Think about the absurdity of it... thousands of trucks and bikes traversing the country in order to move something slowly that can be delivered quickly and cheaply by computer.

It’s the same for the newspaper you’re reading right now. Printing it and delivering it by trucks is enormously expensive compared to sending the text by computer.

And it’s the same for video, music and book stores. Why set up a network of trucks and warehouses to deliver something slowly that can be delivered instantly and near costlessly?

The only reason we’ve set up these hideously expensive systems in the past is that we didn’t have computers to do it for us.

But they are not the dated technologies facing obliteration at the hands of computers.

The next big one is so obvious it’s hard to see. It’s under your nose, or in our pockets.

It’s money itself, represented by cash.

If you think cash is costless you haven’t thought about it. It gets to bank branches and ATMs via trucks, warehouses and guards with guns. You might not notice that you’re paying for it because banks burying the costs in fees and retailers bury them in their prices. One of the reasons it’s rare to see a discount for cash is that cash itself is expensive, even compared to credit card fees which are exorbitant.

We ought to be able to do to cash what we are in the midst of doing to printed newspapers and record stores.

But we mightn’t be able to rely on the banks themselves to do it. In the early days of the internet Telstra resisted embracing DSL technology because it wanted to keep making money by renting out extra dial-up phone lines. It and the other phone companies are continuing to overcharge us for text messages when anyone who has ever used a smartphone knows that the real cost of sending a short message through the air is close to zero.

The solution might have come from outside. As unlikely as it seems, it might come from Africa...

Kenya has leapfrogged much of the so-called developed world because it never got too bogged down in banking. With only 6 bank branches per 100,000 adults (Australia has 32) cash is hard to come by in Kenya. It can involves travelling long distances and often getting mugged.

So Vodafone set up m-Pesa. The M stands for mobile, and “pesa” means “money” in Swahili. Villagers pay real money to an agent at a store, get their phone topped up and then hundreds of kilometres away use it to buy and sell produce with neighbours who also have m-Pesa on their phones. About half of Kenya’s population are said to have used it.

It has since spread to Tanzania, South Africa, the Democratic Republic of the Congo, Mozambique, Lesotho and beyond Africa to India, Fiji, Egypt and Romania.

Its anonymous, requiring no bank account, no identity documents and no permanent address.

We’ve already made our big transactions cashless, unless we’ve something to hide.

I confess to being not particularly squeamish about the privacy concerns of the Australians who use briefcases full of high denomination notes to buy houses and cars. And there must be a lot of them. An astounding 92 per cent of all the cash on issue is in the form of $50 and $100 notes. They are not often used for transactions by people I know and I have a feeling I am paying more tax than I should because the people use them are pay less.

In a submission to the financial system inquiry former Reserve Bank official Peter Mair suggests doing away with high denomination notes altogether. They would be given a use-by date. Anyone who didn’t hand them in within, say, five years would get nothing in return.

After that it would pretty easy to abolish small change. Many of us already top up parking meters or buy drinks from vending machines with a wave of our phones. It’s where privacy does matter. I’m not keen the bank or the police knowing where I’ve been minute by minute. But there’s no reason they should. Kenya has shown us how to keep mobile transactions anonymous.

Axing cash ain’t radical. A leading United States conservative economist Kenneth Rogoff has argued the case twice in recent months producing one study entitled Costs and Benefits to Phasing Out Paper Currency and another entitled Paper Money is Unfit for a World of High Crime and Low Inflation.

In The Age and Sydney Morning Herald


Of course it's been said before...



HT: @Don Arthur


Reading:

. Izabella Kaminska, Negative interest in cash, or goodbye banknotes, FT Alphaville, May 20 2014

. Kenneth Rogoff, Costs and Benefits to Phasing Out Paper Currency, NBER Working Paper 20126, May 2014

. Kenneth Rogoff, Paper money is unfit for a world of high crime and low inflation, Financial Times May 28, 2014

. Chartered Alternative Investment Analyst Association, The End of Paper Money, June 8, 2014

. Ken Banks, The Invisible Bank: How Kenya Has Beaten the World in Mobile Money, National Geographic, July 4, 2012 

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