History repeats. Coalition auditor breached standards

Two years on from the Coalition's 2013 election victory, one of the three experts who "independently verified" its campaign costings has been found guilty of breaching auditing standards.

Len Scanlan, a former Queensland auditor general, has been penalised by CPA Australia for failing to uphold professional standards in the work he did for the Coalition.

But in an unusual move reported on the CPA website on May 25 the disciplinary tribunal found there were "exceptional circumstances" involving his work for the Coalition's Joe Hockey and ordered his name not be published.

Mr Scanlan was one of three members of the shadow treasurer's independent review panel. The other two were Geoff Carmody, a former head of Access Economics, and Peter Shergold, a former head of the prime minister's department. Mr Scanlan is the only one who belonged to a professional accounting association, and so the only one subject to sanction.

The panel produced a four-paragraph report released two days before the vote saying it believed the Coalition's costings were "based on fair and reasonable assumptions" and represented "a fair estimate" of their impact on the budget.

It enabled Mr Hockey to claim: "all of our policies are fiscally responsible and independently verified".

But in a complaint to CPA Australia, economist Betty Con Walker and emeritus accounting professor Bob Walker pointed out that the relevant standard requires accountants offering assurance to provide a description of any significant inherent limitations on their findings. One limitation was that the finding was prepared without direct access to Commonwealth records. Another was that several of the Parliamentary Budget Office costings relied on by the panel were themselves described by the office as being of "low to medium reliability"...

The panel itself did not produce a statement of the level of assurance it was prepared to provide for each item costed, as required by the auditing standard, nor did it disclaim responsibility for Coalition's achievement of the results as required by the standard.

The costing endorsed by the panel found the Coalition's program would improve rather than worsen the 2014-15 budget deficit.

Professor Walker and Dr Con Walker's complaint to CPA Australia follows another they made to the Institute of Chartered Accountants after the 2010 election which fined two Perth accountants for breaching professional standards in their work for the Coalition.

The accountants had allowed Mr Hockey to describe their work as an audit which it was not, and to say that they had certified "in law that our numbers are accurate".

A subsequent treasury review found mistakes including double counting amounting to $11 billion.

The CPA Australia disciplinary tribunal decided to impose no monetary penalty on Mr Scanlan in May and instead imposed "the penalty of an admonishment". It "exercised its discretion" to direct that his name not be disclosed.

Mr Scanlan holds the CPA National President's Award and in 2003 he was awarded a Centenary Medal for distinguished service to the public sector.

He told Fairfax Media he did not want to comment on the tribunal's finding.

Professor Walker said it was "hard to think of a more blatant ethical breach than the publication of a defective report on government finances just days before a national election". The primary responsibility of accountants was to act in the public interest.

The Coalition was forced to use an outside panel to cost its 2013 election promises because of a provision inserted in the Parliamentary Budget Office Act by Labor that prevents the office from costing policies confidentially once an election has been called.

It means that Labor will face a similar problem in this election as will any accountant who works for it.

• The report to the Coalition
• The complaint to CPA Australia
• CPA Australia's finding

In The Age and Sydney Morning Herald

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Twin Peaks. The graph that tells Australia's economic story

Ten months ago, surrounded by finance ministers and the financial elite from the world's 20 biggest economies, Australia's Treasurer Joe Hockey was riding high.

"My finance minister colleagues and I are resolute in our determination to use all policy levers to generate growth and jobs," he said. He had just made "Go for Growth" the unofficial slogan of the Brisbane G20 leaders meeting.

The Australian His own economy was growing faster than Britain's, faster than the United States', faster than Europe's, and faster than every other significant developed economy.

He exhorted his colleagues to try harder, to do "whatever it takes to boost growth and create new jobs". And he got them to commit to measures that would boost the size of their combined economies by more than 2 per cent over the next three years, "an unprecedented break from business as usual".

He is back at the G20 this weekend, in Ankara in Turkey. He is no longer the host and he is no longer riding high.

Australia's economy is growing more slowly than Britain's, more slowly than the United States', more slowly than Europe's, and more slowly than just about every other developed economy.

It could be worse, he told a Sydney press conference before he left on Wednesday. Australia could be in recession, like Canada. The figures he presented had Australia just whiskers away from recession. It's economy grew by just 0.2 per cent in the June quarter, mere notches above zero.

How did we get from there to here? If you want just one graph to tell the story, you can't go past the Reserve Bank's monthly update of commodity prices...

It's a picture of twin peaks. The price of the things Australia sells stayed low right up until the mid-2000s, then suddenly doubled, soaring to undreamt of heights in 2008 before collapsing in the financial crisis, then soaring back to an even greater height before collapsing from mid-2011. It's been plummeting nearly every month since, falling a few percentage points each time. Last month it fell 3 per cent.

 

 

The more commodity prices plunge, the more our national income slides unless it is counterbalanced by rising volumes of the things we are selling.

That's exactly what's been happening for the past two years. Rising volumes of exports have been offsetting the lower prices we get for them, until the June quarter when an unusually low volume of exports revealed there wasn't much else driving the economy.

As economist Andrew Charlton puts it: "The underlying data has been weak for at least two years."

Mining firms are slashing their investment and non-mining firms aren't lifting theirs fast enough to take up the slack. Low interest rates have been stoking a housing boom but not an investment or spending one. Consumers are shopping at a restrained pace and putting away money just in case. Household saving is at heights not seen in a generation.

The Reserve Bank governor Glenn Stevens believes there may be little point in cutting interest rates.

"It is not that monetary policy is entirely powerless, but its marginal effect may be smaller, and the associated risks greater, the lower interest rates go from already very low levels," he told a recent gathering.

He would like the government to spend big on infrastructure, but it's not keen to do that for financial reasons, announcing next to nothing new in the May budget. Fortuitously, it did spend big in the June quarter as it took possession of some really big pieces of military equipment. The big whack of cash was probably enough by itself to keep economic growth positive.

The dollar is sliding in line with sliding commodity prices, falling below 70 US cents after peaking at 105. It will help. Our businesses will find it easier to sell goods overseas, but we'll have to pay more for the things we import.

So far employment is holding up. One of the reasons is that we've been making ourselves cheap by accepting extraordinarily low pay increases. Echoing the Treasurer, one of the government departments sent a memo to its staff this week extolling the virtues of a 1.5 per cent pay offer. It's exact words: "It's better than 0.0 per cent."

In The Age and Sydney Morning Herald

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Going down. Why 60 US cents might be just what we need

The Australian dollar has dipped below 70 US cents twice in the last two days. Next time, it's set to stay below 70 and keep falling.

Economist Saul Eslake is talking about 65 US cents in a matter of months. Shane Oliver is talking 60 US cents. Others are talking values in the 50s. If there's one thing that's certain about moves in the dollar it's that they usually continue much further than they should before swinging back, like a pendulum.

Asked where the dollar should be back in December when it was near 85 US cents, the Reserve Bank governor Glenn Stevens said if he had to pick a figure, he would say probably say 75 rather than 85.

Work on the fundamental value of the dollar based on the relative cost of purchases in the United States and Australia suggests 'fair value' is around 73 US cents. It's the level at which after swapping one currency for another you find the prices unchanged when you move between countries.

Just as the Australian dollar was too high a year ago at 95 US cents, it'll be too low at 55 or whatever it reaches before it swings back...

Pushing it low right now are expectations of a hike in US interest rates, the first since the financial crisis, which will make the US a relatively more attractive place to park money and Australia a relatively less attractive place.

The greater uncertainty that'll flow from the change will also make Australia relatively less attractive, as will any further cuts in Australian interest rates. And sliding export prices are weighing on the dollar as well.

Four years ago iron ore was worth $US180 a tonne. Today it's worth $US56. If Chinese and other buyers don't need to pay as much to buy our products they don't need to buy as much Australian currency to make their purchases.

A lower dollar means higher prices (although perhaps not as high as when it hit its all-time low of 47.70 US cents in April 2001).

But it also means that firms the high dollar locked out of foreign markets suddenly find themselves competitive. This week's national accounts showed manufacturing growing for the first time since 2011. Architects, universities and all manner of firms that try to sell overseas are back in the game. It's what we need.

In The Age and Sydney Morning Herald

 

Related Posts

. October 2014. RBA: Dollar overvalued, “and not by just a few cents”

. December 2013. 'Twas the dollar that killed Holden, not the carbon tax

. October 2010. Learn to love the higher dollar

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Economic growth close to zero as living standards slip

A sharp fall in national income has all but obliterated economic growth, pushing down income per head by the most since the global financial crisis and delivering headline growth of just 0.2 per cent.

The best measure of living standards, real net national disposable income per head, slid 1.2 per cent in the three months to June, the biggest slide since the global financial crisis and the 1990s and early 1980s recessions and the mid 1970s oil crisis.

It's the fifth consecutive slide in real net disposable income per head. It is now 5 per cent below its peak at the height of the mining boom in 2011.

Treasurer Joe Hockey attempted to put a positive spin on the result by comparing Australia with countries that are performing worse.

"Canada overnight reported they have now officially fallen into recession," he told a Sydney press conference. "New Zealand had a growth rate of just 0.1 per cent in the March quarter and it's facing significant headwinds. Other commodity-based economies like Brazil are also facing huge challenges."

Australia's economic growth rate is lower than Greece's, lower than Britain's and the United States' and lower than the European Union's...

Had it not been for a surprise 41 per cent jump in government spending on defence equipment in the quarter, economic growth would have been zero. The Bureau of Statistics said the jump in defence spending was responsible for all of the 0.2 percentage points of economic growth.

Asked whether government spending was deliberately brought forward in order to forestall a recession, Mr Hockey replied: "I can promise you it wasn't planned to be that way."

Ongoing government spending also jumped by more than usual, climbing 3.4 per cent in the quarter, more than three times as much as in previous quarters. The Bureau of Statistics said this too was responsible for 0.2 percentage points of economic growth.

Labor treasury spokesman Chris Bowen said none of the weakness in the June quarter figures was due to the sharemarket turmoil in China.

"This all predates that," he said. "If anybody from the government has suggested that to you, they're misleading because to say that events in recent weeks in China could have affected these figures misunderstands the period of time which these figures come from."

The Australian sharemarket slipped 1.5 per cent on the GDP news before rebounding in line with markets overseas. The Australian dollar dipped below US70¢ for the first time in six years, before recovering to close about one third of a cent above US70¢.

Australia's annual growth rate was just 2 per cent, the lowest since the dying days of the Gillard government in 2013 and well below the long-term average of 3.25 per cent. Nominal GDP, a measure in current prices which provides a good estimate of tax revenue, climbed by just 1.8 per cent in the financial year, an increase the Bureau of Statistics said was the lowest since 1961-62.

At his press conference Mr Hockey appeared to take issue with the Bureau of Statistics, saying: "It is wrong to say it's the weakest growth since 1961, it' is just factually wrong.

"The fact is that the economic growth we had in the last quarter was in line with expectations. Of course it bounces around from quarter to quarter but it was in line with our overarching expectation to have 2.5 per cent growth in the last financial year."

GDP per head went backwards in the June quarter, sliding 0.2 per cent, indicating that all of the economic growth was the result of population growth.

Business investment slipped 0.7 per cent in the quarter and 6.8 per cent over the year. Home building activity fell 1.1 per cent, after a surge of 10 per cent in the previous six months. Household spending climbed 0.5 per cent.

Australia's export income slid 3.3 per cent.

In The Age and Sydney Morning Herald

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Slow ahead. Expect 'the equivalent of a recession' every ten years

If we were sleepwalking into a mess, would we know it? Our leaders wouldn't.

Tony Abbott opened last week's national reform summit with a self-congratulatory video in which he talked about cutting red tape, the China-Australia free trade agreement, and the need to protect mining from "vigilantism in the courts". Things were heading in the right direction.

Joe Hockey gave a speech that said even less, talking about the rise of the consumer and observing that his dad once told him, "ideas are free, but good ideas are gold nuggets".

Bill Shorten was better. The deficit had doubled. Wages growth was at record lows. Economic growth was nearly a full percentage point below trend. Australia's transition from the mining boom had been patchy.

Then the politicians left the room.

The summit was told that the economy was set to grow at a mere fraction of the officially projected pace, so slowly that the living standard expected in 2055 wouldn't be reached until 2075, when most of us would no longer be alive...

The intergenerational report had assumed average growth in real incomes of 1.4 per cent per year for each of the next 40 years. It would mean that by 2055 real income per person would be an impressive 75 per cent higher than it is today. We would easily be able to afford any extra tax we needed to fund higher pensions and health costs, and our incomes would be climbing so fast, we wouldn't much mind if the tax system was changed.

Even >in March, when the report was released, Treasury officials regarded the assumption as a stretch. Since then views about the future have changed. The Reserve Bank believes Australia's sustainable rate of economic growth may be lower than in the past, so low as to make the projections in the intergenerational report unachievable.

On Wednesday at the reform summit, economic modeller Janine Dixon from Victoria University put numbers on a rate of income growth she said was more realistic. Instead of growing by an average of 1.4 per cent per year, real income per person would grow by a bit less than 1 per cent, enough to leave us only 44 per cent better off by 2055. We would need to wait another 20 years to be as well off in 2075 as the intergenerational report said we would be in 2055.

Her thinking is that productivity (output per hour worked) will grow far more slowly than it has. To prepare the intergenerational report, the Treasury simply projected the growth rate of the past 40 years to the next 40. She said the past 40 years included "an exceptional period in Australia's economic history – a period which included the major economic reforms of the 1980s combined with unprecedented growth in computing and communications technology and the benefits of the stability brought about by a 23-year run of positive economic growth".

Assuming that we are unlikely to computerise once again, and knowing we can't cut high tariffs to near zero again, and that we are most unlikely to survive yet another generation without a recession, she has come up with a much lower estimate of normal productivity growth by excluding the exceptional years between 1994 and 2004.

Professor Ross Garnaut seized on the implications. On present settings, Australia had no chance of achieving the promised 2020 surplus, and instead faced "ever increasing budget deficits".

Dixon outlined other implications. If incomes don't rise as rapidly, we will need to save more in order to fund the things we could have once relied on income growth and future generations to fund. "Decisions about who should forgo consumption to fund investments become contentious," she said. Baby boomers and generations X and Y and Z will fight among themselves over who should pay the most. Rapidly rising incomes are a lubricant - they stop people rubbing up against each other.

The fighting has already started. Instead of embracing tax reform as our leaders used to, the present lot are frightened, knowing that unless incomes are rising rapidly, tax reform is close to a zero sum game. It isn't possible to make everyone better off.

The former treasury secretary Martin Parkinson said the enormity of what was in store amounted to a recession every decade, as each decade lost 5 percentage points of expected GDP. "It means willingly accepting the impact of a recession," he said. "We are actually going to find ourselves sleepwalking into a real mess."

We might get a foretaste on Wednesday when the Bureau of Statistics releases the June quarter national accounts. One bank is tipping economic growth of just 0.2 per cent in the quarter; another, 0.4 per cent. Either result is pitifully low by the standards we have come to expect and if sustained would drive annual growth below 2 per cent.

It might be something we will have to get used to. Highly aged societies such as Japan and Italy have long been used to low income growth. Highly aged individuals get used to it as well. The transition has probably been under way for some time. Until now it has been masked by the mining booms.

It won't be catastrophic, but it won't be pleasant. Things that have been easy will become more difficult. It would be nice if our leaders even acknowledged the possibility.

In The Age and Sydney Morning Herald

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Parkinson: We're 'sleepwalking into a mess'

Australia is facing the equivalent of a recession in the next decade as incomes grow at only a fraction of the officially forecast pace, the National Reform Summit has been told.

The past head of the Treasury, Martin Parkinson, told the Sydney summit that unless Australia acted quickly, it would sacrifice as much as 5 per cent of the economy in the next ten years, the equivalent of a recession.

"Unless we actually grab this challenge by the horns and really get concrete about what are the priority issues, we are actually going to find ourselves sleepwalking into a real mess," he said.

aug 26, 2015

Economic modeller Janine Dixon from Victoria University had told the summit the Treasury's Intergenerational Report had painted a "rosy" picture of the future, projecting average growth in real income per person of 1.4 per cent, meaning that by 2055 Australians would enjoy real incomes 75 per cent higher.

Her own modelling had real incomes growing by less than 1 per cent per year, meaning that by 2055 incomes would be only 44 per cent higher.

"Put another way, it would take an extra 20 years to reach the income forecast in the Intergenerational Report for 2055," she said.

Her modelling has productivity growing at only half the pace assumed by the Treasury, whose assumption was based on the unusually high decade of productivity growth that followed the economic reforms of the early 1990s.

Melbourne University economist Ross Garnaut said if her estimates turned out to be correct, the budget would "never get back to surplus".

Reserve Bank governor Glenn Stevens said Australia's economic growth rate had mostly started with a "two" instead of a "three", "despite the lowest interest rates in our lifetimes".

Dr Parkinson said if economic growth remained nearer to 2.5 per cent than 3 per cent, as much as 5 percentage points of gross domestic product would be lost over the next decade.

"If this is not happening because our population growth is slow, it means willingly accepting the impact of a recession," he said.

"The loss of GDP from a recession is about 5 or 6 percentage points."

Without acting we would be "sleepwalking into a real mess".

The summit has brought together 100 business and community leaders to try and discuss issues the organisers believe the government is afraid to touch. It is sponsored by KPMG, and both the Australian Financial Review and The Australian newspapers.

Asked to be specific about tax or spending measures that could help boost growth, Dr Parkinson said the most obvious way in which the tax system held growth back was the way in which it skewed tax concessions to the top end of the income distribution.

"It's not a retirement incomes policy, it's a wealth accumulation policy," he said. "That doesn't make sense to me. It's an obvious area we should be looking at."

The draft communique to be refined at the summit notes "widespread concern" that super tax concessions are used for purposes "inconsistent with the purpose of the retirement income system".

Australian National University tax professor Miranda Stewart cautioned the summit against cutting income tax rates in order to emulate either New Zealand or Singapore. She said New Zealand was more heavily taxed than Australia and Singapore housed most of its citizens in public housing.

In The Age and Sydney Morning Herald

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Happy Birthday: How copyright lost touch with reality

The world's most popular song is about to have a birthday.

It's Happy Birthday to You, and it will turn 121 on October 13.

Yet unbelievably, if we are to take at face value the claims of Warner/Chappell Music, it is still in copyright.

An awful lot of people find it easier to take the claims at face value. They pay up, making Warner/Chappell a reported $2 million a year from the song. It even hit up the American Girl Scouts for a fee after they sang it at a camp. Others buckle in different ways. At least one documentary movie has been withdrawn from circulation because it included footage of subjects singing Happy Birthday without authorisation. Most movies avoid it. How long since you've seen it in a birthday scene?

You're safe singing it at home though. That's a private rather than a public performance.

How can it be that a tune almost universally regarded as public property is still be in copyright 121 years after it was composed? Especially given that at the time the initial term of copyright was 28 years. The answers are spilling out in a US court case which is exposing how murky and fear-ridden the world of copyright really is.

One of them is that the world's favourite composition was a composition. Just like Kookaburra Sits in the Old Gum Tree, wrongly listed in the Angus and Robertson All-time Favourite Australian Song Book as "traditional", Happy Birthday was actually composed by a person: two people in fact, Patty and Mildred Hill – one of them a teacher, the other a musicologist. They tried out their compositions on Patty's students.

Somewhere in the late 1880s they achieved something remarkable: a song that fitted the limited vocal range of children yet was meaningful, a bit like Kookaburra.

Initially named "Good Morning to All", they published it in a 1894 book called Song Stories for the Kindergarten.

Decades later it began appearing in other books under a different title: Happy Birthday to You.

Until that point America hadn't had a birthday song.

Legal historian Robert Brauneis​ has made the song his life's work. He says birthday parties only became common in the early-1880s and birthday cakes in the mid-1880s. American schools weren't age-graded until the late 1800s, meaning America lacked "the prerequisites for the development of a standard birthday song – the proliferation of birthday celebrations that involved a dramatic moment at which a group of invitees, often children, addressed the honoree".

Until Happy Birthday.

By rights it ought to be long out of copyright, if it was ever in it. Back in those days authors had to register to stake a claim. The initial term was 28 years, with an extension of 14 years on application. But in 1909 the US extended the term of the extension, then extended it again in 1976 and again in 1998.

Every one of those extensions was retrospective, right up to the present 67 years, making a total of 95. This means that because the version Warner/Chappell claims to own was published in 1935, its multimillion-dollar copyright won't expire until 2030.

Or so it says. The performers it has touched up for money have found it easier to pay than argue, until now.

Touched up for a mere $US1500 in 2013, filmmaker Jennifer Nelson said no. She crowdfunded a lawsuit and has come up with what her legal team describe as a "proverbial smoking gun". Buried within a cache of documents initially withheld and too blurry to read was a copy of a book with the music with birthday lyrics published in 1922, well before the 1935 publication that Warner/Chappell claimed was the first. After finding the original in a library, her legal team determined that it lacked the copyright notice required at the time of first publication, meaning that Happy Birthday to You was probably never in copyright and was merely reprinted in 1935.

If the court rules in Nelson's favour Warner/Chappell might have to repay a fortune. But she has uncovered more than potential fraud. She's discovered how difficult it is for anyone to be sure of what happened so long ago. In Australia scores of songs and books are unavailable for public use merely because no one knows who owns them. They're called "orphan works", locked away forever, just in case.

This week Treasurer Joe Hockey announced a long-overdue Productivity Commission inquiry into Australia's intellectual property laws. It might turn out to be one of his most important decisions.

Peter Martin is economics editor of The Age.

In The Age and Sydney Morning Herald

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Virtual producers, bulk wine masquerading as boutique..

Wine producers face the prospect of losing their generous tax rebates in the wake of a Treasury finding of widespread and systematic rorting of the scheme.

Assistant Treasurer Josh Frydenberg has given the industry three weeks to respond to Friday's discussion paper, which puts forward four options: abolishing the rebate scheme altogether, replacing it with a grant scheme that would be phased out over time, banning bulk and unbranded wine producers from the scheme, and tightening the definition of "producer of wine".

Whereas beer and spirits are taxed per unit of alcohol, wine is taxed on the basis of its wholesale price. The Wine Equalisation Tax is set at 29 per cent, but the first $500,000 of each producer's tax is rebated, effectively exempting $1.7 million of each producer's wine.

The rebate was designed to support small winemakers. But the Treasury paper makes clear it is being used by much bigger winemakers multiple times.

Refund claims have increased each year since the scheme was introduced in 2005, climbing from $119 million to more than $300 million.

The Treasury says some so-called "virtual winemakers" are buying grapes and contracting out the manufacturing process solely in order to claim the rebate.

Other bulk wine producers who have claimed the maximum rebate allow their growers to retain grapes and claim another rebate as if they were the producer, getting a kickback from the growers in the form of inflated processing fees.

Producers are able to claim more than one rebate for the same parcel of wine by blending and remanufacturing in the name of different entities. The Treasury says the arrangements have survived despite legislation in 2012 designed to stamp them out.

Winegrowers are also able to claim multiples of the rebate limit by entering into partnerships. The paper gives an example of  "Jack, John and Jill" who each have a one-third interest in four companies. Each company acquires grapes from the same source and processes them in the same factory but, because none of the trio  neither Jack nor John nor Jill control any of the companies in their own right and because none of the companies control each other, they are each able to claim up to $500,000 in rebates, a total of $2 million.

In The Age and Sydney Morning Herald

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By design. Why super system hurts women

Women put away only half as much super as men, and suddenly we're concerned.

The Senate is holding an inquiry. The finance industry is talking stop-gap solutions. The ANZ wants to give its female staff a $500-a-year top-up. Rice Warner wants to pay an extra 2 per cent into their accounts. Westpac is paying their super while they are on maternity leave. Their umbrella body, the Financial Services Council, wants the law changed so that women can top up their accounts later in life, when presumably they've got income to spare. Other solutions are dafter.

The ANZ is offering free financial advice to female customers with less than $50,000 in super. The Association of Superannuation Funds wants women to "take an hour" to check their accounts each International Women's Day. Newspaper columns suggest skipping coffee, getting spouses to pay into super or working for a company that values women.

Oh, and lifting compulsory contributions from 9.5 to 12 per cent. The industry loves that one.

Every one of these suggestions misses the point. Low income earners get less super than high income earners by design. It's the way the system is set up...

Women are usually low income earners. It's a fact. On average women employed full-time get 20 per cent less than men employed full-time. And because so many are employed part-time, their total wages are on average 33 per cent less. And that's when they are working. Because so many have interrupted working lives their life-time incomes are lower still.

It means lower contributions. Our super system gives the most to those who contribute the most, and then accentuates the difference by giving the greatest tax concessions to those who earn the most. It supports most who need it least. And we are meant to be surprised that it isn't aimed at women.

According to Roy Morgan research, typically, an Australian woman holds just $35,200 in super while a man holds $62,900. A retired woman holds $129,100 in super; a retired man has $192,600.

And because women usually live longer than men, the woman's money has to last longer. It's often said that women are able to rely on their men to get them through retirement. It's one of the tips for how to cope. But many retire without partners. Marriages don't last.

As the Human Rights Commission says: "It is inequitable and impractical that a woman's expectations of financial security in retirement should fluctuate according to her relationship status".

And it's dangerous. The commission says depending on male income "makes the significant number of women in violent or abusive relationships financially vulnerable, particularly as they reach retirement age and the possibility of acquiring an independent income diminishes".

If we were going to devise a system that actually supported those who needed it the most, we would devise nothing like the one we have at the moment.

In large part that's because our system wasn't designed; it grew. In presenting the report of his financial system inquiry late last year David Murray pleaded with the government to define a purpose for super. Is it to help middle-income Australians save a little bit more to supplement the pension? Is it to provide a tax break for the investments of high earners? Is it to replace the pension for all but the lowest of earners?

The system began as a short-term fix for a short-term problem. Retirement incomes scarcely entered into it. Ralph Willis, one of Labor's Treasurers in the Hawke/Keating era, remembers that the building unions had just negotiated a massive pay increase outside of the so-called Accord, under which centralised wage rises were handed out. If the increase had spread to workers within the Accord it would have reignited double-digit inflation.

"It was an open invitation to everyone else to breach the Accord," he told ABC radio years after retirement. "The way of resolving it was to turn it into superannuation."

Workers were given super in lieu of wage rises. Because they were unable to spend it until they retired, it didn't stoke inflation. Before long compulsory super accounted for 4 per cent of each wage, and then 9 per cent. Had the Rudd/Gillard Labor government stayed in office it would have climbed to 12 per cent (and there was talk of 15 per cent). All the while without an examination of what it was actually for.

It isn't supporting the retirements of those most in need. They are forced on the pension. It is helping middle-income Australians put away a bit more for retirement, but at the cost of leaving them with less than they could have in the middle of their lives. And it's serving as a tax dodge for high-wealth retirees who pay nothing on the earnings of their funds or on their payouts for the rest of their lives.

The best way to use super to help low income women would be to abolish compulsion, abolish the tax breaks, and let them access their income when they need it. The extra tax revenue could dramatically boost the pension, and better means testing could ensure the very well off still didn't get it.

It would help women because it would replace the system that hurts them rather than merely ameliorate its worst effects. The worst thing we could do would be to boost their compulsory super contributions, as the industry wants. It would further depress their incomes while leaving the differential on retirement in place.

In The Age and Sydney Morning Herald

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Abbott's own figures show he could have done much more to fight climate change

The striking thing about Tony Abbott's attempt to balance damage to the environment against damage to the economy in choosing an emissions reduction target is how mind-bogglingly small the damage to the economy would be.

Abbott's cabinet endorsed the target last week. Whereas until now Australia has tried to lower emissions to 5 per cent below 2000 levels by 2020, at the Paris conference in December it will offer about the same as the United States". It is true the US is offering a cut of 26 to 28 per cent, but its cut is to be delivered by 2025, five years earlier than Australia's 2030.

Comparing like for like and assuming the US continued its promised rate of cuts beyond 2025, the US is offering 35 to 39 per cent, compared with Australia's 26 to 28 per cent.

Abbott might have been hoping we wouldn't notice...

On a like-for-like basis, we will offer less than Britain United Kingdom, less than Germany, less than the European Union, less than Canada and less than New Zealand; less than most of the countries with which we like to compare ourselves, including those with conservative governments.

The Prime Minister says the offer is better than Japan's target and better than China's.

But Japan has lost most of its low-emission power in the wake of the Fukushima​ disaster and China is a developing nation with living standards a fraction of ours. Its offer to cap its emissions before 2030 is more than we could have hoped for.

What's clever about Abbott's offer is that it's just enough for us to be taken seriously. We're at the bottom of a pack, we are not promising as much as needed, but at least we are in the pack.

And the Prime Minister says he has to be "economically responsible".

"We have got to reduce our emissions, but we have got to reduce our emissions in ways which are consistent with continued strong growth," he said on Tuesday.

Evoking an image of balanced scales, he said the last thing he wanted to do was to "strengthen the environment and, at the same time, damage our economy".

Which would make sense if the scales weren't so outrageously unbalanced. His own economic modelling makes the balance clear.

Abbott says it concludes that the cost of a 26 per cent cut in emissions will be "between 0.2 and 0.3 per cent of GDP in the year of 2030".

That's right, between 0.2 and 0.3 per cent of GDP. Not between 0.2 and 0.3 per cent a year, which would be noticeable, but far less than that – about 0.01 to 0.02 per cent a year, which would mean that in 15 years, the economy would be 0.2 to 0.3 per cent smaller than it would have been.

How big would it have been? By then, the projections in the intergenerational report have the economy being one and a half times as big as it is today.

Some of it will be the result of population growth – our population will be 21 per cent bigger by then – but the rest will the result of a higher standard of living, if the projections in the intergenerational report turn out to be correct.

By 2030, instead of being worth $1.6 trillion, the Australian economy will be worth $2.4 trillion; that's unless something dents that growth.

Abbott's modelling shows that the dent from an emissions target of 26 per cent would be 0.03 per cent. The dent would mean that instead of being worth $2.4 trillion when rounded to one decimal place, the economy would be worth $2.4 trillion when rounded to one decimal place. It'd be hard to see.

And hard to feel.

It would amount to $7 billion in a $2.4 trillion economy.

But by then, even with the emissions target, the economy would be growing at the rate of about $5 billion every four weeks. In six weeks, it would have made up the $7 billion it lost as a result of the emissions reduction target.

If you don't much mind feeling as well off as you did six weeks ago, you're going to not much mind an emissions reduction target of 26 per cent. Nor would you mind one much bigger.

The Climate Change Authority's assessment of what is needed works out at a 45 to 63 per cent cut in emissions on 2005 levels. It might set us back 14 weeks.

That's how small an economic price we would need to pay to do everything that could reasonably be expected to limit the increase in global temperature. That's how easy a confident government would have found it to do more.

In The Age and Sydney Morning Herald

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Revenge, bloodymindedness and gullibility. The untaxing of capital gains

How on earth did we come to be lumbered with a tax rule so bad it is disliked by the Treasury, the Reserve Bank, the Business Council, the Council of Social Service, the Organisation for Economic Co-operation and Development, and both of Tony Abbott's most trusted business advisers?

And why on earth is Abbott still clinging to it?

The storyof how we came to be saddled with a system that taxes wages at twice the rate of profits made from trading real estate is an epic tale of revenge, incompetence, bloody-mindedness and gullibility. Along the way it has forced Treasurer Joe Hockey to set income tax rates higher than he should and fed an explosion in house prices by supercharging negative gearing.

It is, as economist Rory Robertson told his clients in the early 2000s, "almost as though the Australian tax system has been screaming at taxpayers to gear up to earn increased capital gains rather than to work harder to earn increased wages or salaries".

The tale begins in 1985 with what now seem two unremarkable decisions...

As part of the tax white paper process, Labor treasurer Paul Keating made fringe benefits and capital gains subject to tax. Remarkably, up to that point they hadn't been. It meant that if you were paid half your salary in benefits you weren't taxed on it. If you made half your income buying and selling property or shares, you weren't taxed on that. Only ordinary wage earners paid full tax.

These days the Coalition claims to have supported Labor's reforms of the 1980s. But it didn't support those two. The then opposition leader John Howard fumed. "Both should be scrapped – lock, stock and barrel," he said.

Labor made a generous and unnecessary concession. Instead of taxing the entire profit on the purchase and resale of shares or property, it taxed only the profit over and above the rate of inflation. This meant a negatively geared landlord could deduct from their taxable income all their interest payments (including the inflation component) but would have added to their taxable income only their "real" profit (excluding the inflation component).

But over time the rate of inflation fell. More than 8 per cent when Labor introduced the concession, it was heading to 2 per cent by the time Howard took over as prime minister in 1996. Speculators were close to being properly taxed. So under cover of introducing the goods and services tax, he asked his friend John Ralph to conduct a review of "business" taxation, sneaking in a very specific reference to personal tax.

The panel was to examine "capping the rate of tax applying to capital gains for individuals at 30 per cent".

The stock exchange lobbied hard. It commissioned a US economist associated with Reagan-era tax cuts to produce modelling showing that cuts to the capital gains tax rate would be "would be close to self-funding".

They would "yield large revenue feedbacks as holders of relevant assets are provided a greater incentive to sell". Really.

The stock exchange put (rough) numbers on it. At the time capital gains tax collections amounted to 0.4 per cent of GDP. If Australia cut the rate to near where it was in the United States, collections could climb to 0.7 per cent.

Ralph bought it. Under the heading "Rewarding Risk and Innovation", he told Howard to tax only half of each capital gain, and found that on balance the change would bring in more money than it lost.

Fifteen years on, it's possible to assess that claim. Before the cut, capital gains tax accounted for 0.4 per cent of GDP. In the latest year for which we have figures (2012-13) it brought in just 0.2 per cent.

Had capital gains tax been as effective as it was before Howard cut it, it would have brought in an extra $3 billion.

Ralph thought the cut would "encourage a greater level of investment, particularly in innovative, high-growth companies". Instead, it delivered windfall gains to those who had already bought real estate and encouraged everyone else to dive in.

Labor's Kim Beazley waved it through. Only Labor's Mark Latham was prescient, telling a largely uninterested Parliament the cut would "add to the great Australian disease of asset and property speculation, particularly in our big cities".

Reserve Bank official Luci Ellis told a parliamentary hearing last week that the capital gains tax cut boosted property prices more than share prices because property was easier to borrow against.

"It is just more profitable to negatively gear property, because you can gear it more," she said.

The Bank's submission to the home ownership inquiry fingers the capital gains tax cut as one of the key reasons borrowing to buy investment properties exploded from 1999. These days more than half of all the dollars lent to buy houses are snapped up by investors.

Tony Shepherd, handpicked by Abbott to head his commission of audit, says he would scrap the discount. "I can't see any reason for treating capital gains any different from income tax," he told a conference in June.

David Murray, picked by Abbott to head his financial systems inquiry, came out in favour of cutting the capital gains concession. The Business Council has called for a rethink, saying such concessions "distort investor behaviour, particularly at a time of rapid capital gains". The Henry tax review wanted the discount to be cut to 40 per cent and applied to all forms of saving. Labor said no. The Treasury uses its latest tax discussion paper to pose a simple question: to what extent do the benefits of the concession outweigh the cost?

Axing the capital gains tax discount would render negative gearing impotent. It would fund a cut in income tax and take the heat out of the property market. Just about everyone in Abbott's corner agrees, apart from Abbott himself, who's stopped listening.

In The Age and Sydney Morning Herald

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Indefinite copyright is a joke - the recipe for carrot marmalade proves it

I'm suddenly keen on carrot marmalade.

It's sugar-free and "one of the best remedies against the scurvy". I know this because Captain Cook received a letter in 1771 telling him so as he prepared for his second voyage to Australia.

It's in a book of his correspondence in the National Library, complete with the recipe.

About the beginning of October when the yellow carrots are the sweetest, you take fresh out of the ground as many as you intend to make use of. Take care to chose them well, that none with black spots be left between them.

But it's illegal for the National Library to reproduce it. Anyone who comes in to the library is free to look at it, but if the library tries to put it on its website or someone tries to copy it down, they would be in breach of the law. Seriously.

Under Australian law the copyright on published works expires 70 years after the death of the author. In the United States the constitution specifies that copyright shall last "for a limited time". But not so here. Australian copyright on unpublished works never expires.

This means the National Library is unable to digitise the recipe (although a renegade group known as the Australian Library and Information Association has put it on its website along with recipes for rhubarb chutney and muddle cake as part of Cooking for Copyright Day last Friday in which illegally published recipes were used to create treats for morning teas). Useful information is locked away forever. And not only letters to Cook.

If you intend to make but a small quantity of the marmalade you may grate your carrots upon a tin grater but should you want any large quantity, you may mince or hatch the carrots which you put into a kettle and add as much fresh water that your carrots be covered with about four inches.

The National Library also holds original letters written by Jane Austen, Charles Darwin, Henry Lawson, Banjo Paterson and Dame Nellie Melba - about 2 million in all, all of which will never fall out of copyright until the law is changed.

The State Library of South Australia holds the early records of the Holden motor company, including design drawings, from 1853. The War Memorial holds diaries and letters from soldiers who died in World War I. It devotes "enormous" resources to conserving them, but it can't put them online even though that's probably the only way to connect with surviving family members.

When your carrots are boiled enough, you must strain them well through a clean linen, and press the felt well, that all the juice may come out. The dregs are a good food for hogs, geese and ducks.

Australia's copyright term is too long. It was boosted from 50 years after the death of the author to 70 years a decade ago for no reason other than that the United States demanded it in return for granting us a free trade agreement. But that's for public works. The copyright on unpublished works is immortal.

You put the filtrated juice of carrots into another kettle and boil it again over a small fire until it gets the thickness of a fluid honey, at this last boiling you must take great care by constant stirring and by small firing to prevent its sticking to the kettle and burning, which will give to your marmalade a bitter and disagreeable taste.

All our librarians say they want to be able to one day digitise what they've got and share it with us. They've been lobbying the Attorney-General Senator Brandis, but he has other priorities.

In July he rushed through a law that would allow entertainment companies to apply to a court to block sites that illegally displayed programs such as Game of Thrones. It was urgent. Way back in November 2013, he received a series of recommendations from Australian Law Reform Commission report that would open up rather than close down access to information. He was going to carefully consider them.

Brandis is a big supporter of Australia's copyright laws. By waiting rather than acting, he is opening them to ridicule.

Should your marmalade spoil by some accident or other and get some moisture at the top, you take off the moisture with a spoon and boil it again and it will regain its first sweetness.

In The Age and Sydney Morning Herald

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The Trans Pacific Partnership is still alive and still capable of doing us harm

Don't for one second think the Trans-Pacific Partnership is dead.

Talks to seal the mega-deal between Australia and 11 other nations representing 40 per cent of the world's economy broke up without agreement in Hawaii on Saturday, but agreement is close.

Those involved say all it needs is for a few of the parties to give ground on a few sticking points and all 25 chapters are ready to go.

The 12 trade ministers could meet again within weeks, before the end of August, and declare the deal done. The United States is desperate to get it signed before its extended election season gets into high gear. Canada has an election in October.

Australia is holding out for wants an exemption from so-called investor-state dispute settlement (ISDS) rules for decisions concerning health and the environment, and has so far held out against measures that would prop up the extraordinarily high prices of biologic drugs. But they are differences creative language could smooth over.

A draft of the investment chapter published by Wikileaks shows that Australia has asked to exempt four organisations, including the Pharmaceutical Benefits Scheme, from ISDS. But the request is in square brackets, indicating other nations don't agree. As a back-up, the chapter includes language almost exempting decisions designed to to protect objectives such as public health, safety and the environment. They would not be subject to ISDS "except in rare circumstances".

What this means in practice is that our Trade Minister Andrew Robb could agree to the clause and say Australia couldn't be sued in external tribunals over decisions concerning health and the environment (as it is now by tobacco giant Philip Morris under a different agreement) and later then down the track find himself in the middle of a "rare circumstance".

The clause wouldn't stop Philip Morris or its ilk suing Australia, it would just make it more likely Australia would win...

So far Australia has shelled out about $50 million defending its plain-packaging laws, even though it will probably win.

Australia's hard line on data protection for biologic drugs could also be softened. Biologic drugs are those made with living organisms. There are horrendously expensive. Soliris treats a rare immune disease. It costs our Pharmaceutical Benefits Scheme $500,000 per prescription. The PBS onsells it for $37.70, or $6.10 if the patient holds a concession card.

To get a drug approved, the manufacturer has to submit data from trials to demonstrate that it works and is safe. After five years that data is available to other firms that might want to make it after the patent expires. The US wants to lift the restriction to 12 years, locking away the data for an extra seven years and keeping prices high.

Data protection is separate to patent protection, which lasts for 20 years. If there's a big delay between the discovery of the drug and its approval, it can be additional to patent protection.

And it works the opposite way. Whereas patents grant exclusivity in return for handing over data, data protection grants exclusivity in return for not handing over data.

"You would have to sit in a committee room for a long time to work out a worse policy," says Nicholas Gruen, a patent expert who has prepared reports for the Australian government. "It grants a monopoly in return for nothing."

The US is reportedly considering a compromise to placate Australia. It's a base period of five years, followed by an extension of three years "under certain circumstances". However meaningful, it would allow both sides to claim they had won.

But even considering the idea makes plain how debauched the whole concept of trade agreements has become. In earlier decades the past trade agreements were unambiguously good for the citizens of the nations involved. They cut prices. This one puts them up. The US is using it it in an attemptto try to keep medicines expensive and the cost of taking on US corporations high. In Canada the pharmaceutical giant Eli Lilly is using an ISDS clause in the North American agreement to sue the government for failing to grant it two patents knocked back on the grounds that they weren't sufficiently innovative. Eli Lilly wants $500 million.

Somehowwhere along the road from the 1980s, trade agreements morphed from pacts designed to cut trade barriers to pacts designed to erect them. Negotiators who had previously worked to advance free trade started working to advance the interests of US corporations.

We saw it first in the early `90s in an odd request from the World Trade Organisation for Australia to extend its patent term from 16 years to 20 years. The then Labor government waved it through, handing existing patent holders an extra four years of high prices. A Productivity Commission study found the decision cost more than $376 million.

From then on the demands kept building, most of them made in secret. Much of what we know about the pact presently being negotiated in our name comes from Wikileaks. US corporations are allowed to see what's in it, ours are not.

Trade negotiating has become an exercise in fighting off bad proposals rather than enabling good ones. 

Gruen wants us to get back to basics. He says before we even start negotiations we should make three things clear: that tougher intellectual property laws hurt consumers; that they also have the potential to hurt producers who themselves rely on intellectual property; and that they can only ever be justified where the benefits exceed the costs.

It would put economics rather than tradeoffs at the heart of trade negotiations. It would give us an idea of what we are doing.

In The Age and Sydney Morning Herald

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The PC's penalties finding: nothing much wrong here

• Labor, unions in fresh scare campaign on workplace laws

The most important finding of the Productivity Commission's workplace relations inquiry is perhaps the most surprising, given how keen the government was to set it up: "Australia's recent labour market performance does not suggest a dysfunctional system."

Indeed, "strike activity is low, wages are responsive to economic downturns and there are multiple forms of employment arrangements that offer employees and employers flexible options for working".

It's what the OECD found when it visited Australia earlier in the year. Wages respond well to the labour market and the labour market responds well to wages.

Remember how concerned the Coalition was about our unfair dismissal laws back in the early 2000s when Tony Abbott was workplace relations minister? The commission says they are not particularly onerous by international standards. The number of claims lodged is "relatively small". The payouts are "quite low".

The rules are "unlikely to have significant negative impacts on medium to large businesses, especially considering that their purpose is not to minimise costs to employers, but to balance the interests of both employees and employers", it says.

The commission's broader point is that people are not machines. We employ them in accordance with "ethical and community norms".

Without regulation, "employees are likely to have much less bargaining power than employers, with adverse outcomes for their wages and conditions".

While Australia's minimum wage is high by international standards, modest increases in it are "unlikely to measurable affect employment".

The commission reached this conclusion knowing that Labor's shadow assistant treasurer, Andrew Leigh, found otherwise when an academic. But it says his study was conducted when the minimum wage was relatively higher than it is today.

It finds "compelling grounds" for keeping penalty rates. There are "proven adverse health effects" from night work. Public holidays are "by definition, intended to encourage shared community activities".

Not so Sundays. We do one-third of the weekend socialising we did back in the early 1990s, and twice as much shopping. The commission wants to update our workplace relations system. It doesn't want to destroy it.

In The Age and Sydney Morning Herald

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Low growth ahead. Why the Reserve Bank won't ride to Abbott's rescue

Don't expect another cut in interest rates

It's true that Reserve Bank governor Glenn Stevens is holding open the possibility of further cuts. It remains, he said last week, "on the table". But further cuts are far less likely than they would have been, for three reasons also spelled out in last week's speech.

One is that the Australian dollar has plunged to about where the Reserve Bank wants it. In the past Stevens has said it was "too high", overvalued, "and not just by a few cents".

Invited to repeat his comments last Wednesday he said merely that the dollar was "adjusting, as you would expect".

He had previously nominated a target of US75¢. The dollar has since fallen to US73¢, a six-year low. If the wish for a much lower dollar was ever a secondary consideration in Stevens' decisions about interest rates, it isn't now.

Another reason is his fear there will come a point when further cuts encourage dangerously reckless borrowing. "Monetary policy works partly by prompting risk-taking behaviour," he said in Sydney last week. "Beyond a certain point, it can be dangerous."

Although that hadn't been the case to date, Stevens said in the future he would need to look more closely at whether further cuts boosted "sustainable economic growth rather than simply boosted growth".

And another reason – the most important – is that the bank is in the process of lowering its ambition. It is preparing to accept a more modest rate of economic growth than it was only months ago.

Let me explain...

Next Friday the bank will release its latest forecasts for economic growth. It is likely to revise them down, as it has done in each of the past four quarters. This time the revision should bring them so low as to be inconsistent with its widely understood target for economic growth, which is somewhere between 3 and 3.25 per cent.

The bank calls its target "trend growth". The trend for the past decade or so, it is thought to be the sweet spot above which inflation starts to climb and below which unemployment starts to rise.

The bank cuts, or lifts, interest rates until it gets growth back to trend, or so it had been thought. Until Wednesday.

Stevens began his discussion of the trend by pointing out that, oddly, jobs growth has picked up this year even though growth had been, "according to the available statistics, below trend".

It's been well below trend at present 2.3 per cent, although currently forecast by the bank to return to 3.25 per cent in 2016-17 – and it defies conventional wisdom for the unemployment rate to be falling, as it has been all year, while growth remains anaemic.

Stevens said it was possible that either the employment statistics or the growth statistics were wrong. It was possible too that our present unusually restrained wage growth was keeping people in work who otherwise be out of work.

But then he raised another possibility: that the actual trend is "lower than the 3 per cent or 3.25 per cent we have assumed for many years".

If so, the Reserve Bank would have no reason to cut rates from here on, even if it was to forecast growth never reaching 3 or 3.25 per cent, as it may be about to do next Friday.

This isn't as bad as it sounds, he hastened to add. What matters for ordinary Australians is growth per head. This needn't dip much as total growth dips because Australia's population growth is growing more slowly.

It is a measure of how new the governor's thoughts are that until now the bank's quarterly roundup of economic statistics hasn't even included growth per head. The update is scheduled for next Wednesday.

If not 3 to 3.25 per cent, what is the bank's new growth target? Modelling by former Reserve Bank official Paul Bloxham suggests it's 2.50 to 2.75 per cent, which is not too far away from what we have now. He believes that as things stand, growth any higher than 2.50 to 2.75 per cent will push up inflation and not be welcomed by the bank.

If so, an end to rate cuts may be the least of our problems. The budget deficit forecasts are predicated on a rebound in economic growth to 3.25 per cent. If the rebound doesn't happen, if growth misses the target by 0.50 percentage points, future budget deficits will be far deeper than forecast in May – as much as $10 billion per year deeper by 2020 and $30 billion per year deeper by 2025, according to the parliamentary budget office.

Extra tax, whether from the GST or somewhere else, will become essential. Tony Abbott used to say that the former government didn't have have a revenue problem, it had spending problem. Whether that was true or not, it won't be true for Abbott now. He'll have to raise revenue from somewhere.

His efforts to do it will probably depress growth further. The Reserve Bank has made it clear there are limits to how much it can help him out.

In The Age and Sydney Morning Herald

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$50 million up in smoke defending plain packaging

Australia's legal bill for defending its cigarette plain packaging legislation is set to hit $50 million as it battles to contain a case brought by tobacco giant Philip Morris before an extraterritorial tribunal in Singapore.

And that is just for the first stage. If in September the three-person extraterritorial tribunal decides Australia has a case to answer, the hearing will move on to substantive matters and the bills will become far bigger.

The West Australian newspaper revealed on Tuesday that former treasurer Wayne Swan was called to Singapore in February to give evidence for Australia in a secret hearing.

Among the witnesses called by Philip Morris has been former High Court judge Ian Callinan, who was quizzed about administrative law.

Australia has succeeded in getting the case split into two. The first part will decide whether Philip Morris Asia has a right to bring the case.

Philip Morris Asia bought Philip Morris Australia Limited in early 2011 as the plain packaging legislation was being prepared. Australia is arguing this means it can't claim that the law hurt it, because it bought the company "in full knowledge" of Australia's intentions.

If Australia fails in September it will continue to fight the case, calling former health minister Nicola Roxon and her then departmental secretary Jane Halton as witnesses.

Philip Morris has been able to bring the case despite losing an appeal against Australia's laws in the High Court because of a so-called investor-state dispute settlement clause in an obscure Hong Kong Australia investment agreement.

Such clauses have been included in two of Australia's recently concluded free trade agreements, with Korea and China. They allow foreign corporations (but not local corporations) to sue for expropriation.

Such cases were rare until the early 1990s, but the Productivity Commission says there were 42 worldwide last year.

Speaking from Hawaii on the sidelines of talks expected to wrap up the Trans Pacific Partnership agreement with Australia and 11 other Pacific-facing nations, La Trobe University public health specialist Deborah Gleeson said she feared Australia would be unable to carve out sufficient exemptions.

Australia has asked to exempt the Pharmaceutical Benefits Scheme, Medicare, the Therapeutic Goods Administration and the Office of the Gene Technology Regulator from investor-state dispute settlement procedures.

"There is likely to be a lot of unhappiness among other countries about specific Australian programs being carved out, because that begs the question of what happens to their programs," she said.

The United States has secured an investor-state dispute settlement in each of its agreements apart from the 2005 Australia-US agreement, in which the Howard government refused to give way.

Trade Minister Andrew Robb said from Hawaii that Australia was party to investor-state dispute settlement provisions in 29 agreements and "the sun has still come up".

The talks continue until Friday.

In The Age and Sydney Morning Herald

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Done right, negative gearing can work

Spot the odd one out:  the treasury's tax discussion paper, the Murray report into the financial system, the Organisation for Economic Co-operation and Development and the Reserve Bank have all come out in favour of a re-examination of negative gearing or the capital gains tax concession that underpins it. 

It's only the government that is holding back. "We're not going to fiddle with negative gearing because the last time a Labor government fiddled with negative gearing, it destroyed the rental market in most of our major cities", a defiant prime minister told a Liberal state council meeting last week.

Never mind that he's wrong. Readily available graphs show that rent increases slowed in more cities than they rose when Labor temporarily wound back negative gearing in the mid 1980s. Never mind that in every city rents have increased faster since the reinstatement of negative gearing than they did in the years when it was wound back. Never mind that the explosion in negative gearing since the turn of the century has helped push house prices beyond the reach of genuine buyers.

Negative gearing and the associated capital gains tax concession aren't the only reason houses prices are soaring. But they are part of the problem, a part that can easily be dealt with without hurting renters or anyone else (including investors presently negatively gearing).

Tony Abbott's stand is more about differentiating himself from Labor than it is about getting people into houses. It's about rhetoric rather than results.

In order to examine why house prices are soaring beyond the reach of ordinary Australians it's necessary to first establish that they are. After all, didn't research conducted within the Reserve Bank unveiled this month conclude that house prices were actually undervalued?

Last week's Reserve Bank submission to the parliament's home ownership inquiry shows typical homes now cost more of the typical wage than ever before – in excess of five times the average disposable income. Back in 1990 they cost three times the average disposable income. Before negative gearing took off at the turn of the century they cost four times the disposable income.

But the RBA says that doesn't necessarily mean houses are less affordable...

Record low mortgage rates have pushed down the cost of repayments to well below their decade long average. Compared to renting, buying is exceptionally cheap according to the preliminary research. Taking into account the high likelihood of continuing low rates the research finds that, compared to renting, paying off a home is cheaper than it's been in three decades.

Except that that's not the end of it. Cheap repayments aren't much help if you can't afford the deposit.

The RBA's submission shows that the typical cost of a deposit is higher than it has ever been, around 100 per cent of average disposable income – or it would be, were it not for the fact that many lenders have relaxed their standards.

But it says even taking into account of relaxed standards, deposits are more expensive than they used to be, forcing Australians without very good access to cash to either postpone or forget about buying a house. Typically these people are young, and without well-off parents to help them out. High prices are entrenching inequality.

A frightening graph in the Reserve Bank's submission shows the home ownership rate among middle-income Australians has slid since the turn of the century while the rate among high-income Australians has held up.

The turn of the century is when prices took off, climbing faster and for longer than ever before. A few months earlier in September 1999 the Howard government excluded from tax half of every capital gain, making negative gearing suddenly much more attractive (for shares as well as property). Until then, if you used losses to cut your taxable income you still had to face tax when you eventually sold. Afterwards you could deduct 100 per cent of your annual losses but be taxed on only 50 per cent of your eventual profits.

An extraordinary one in 10 Australian taxpayers became negative gearers. In order to get the properties they had to push up prices and elbow out would be owner-occupiers. Sure, they could have built new homes rather than buy existing ones, but they lacked the patience. Fourteen out of every 15 dollars borrowed for investment housing is spent on existing homes.

Labor is considering a proposal to put negative gearing to work. It would allow existing negative gearers to keep doing what they are doing. No-one would be rushed into selling anything. Anyone who wanted a new negatively geared property would have to build it. It's the same rule we apply to foreign investors. They are allowed to build but not to buy. The Melbourne-based McKell Institute reckons it would boost the supply of new houses by 10 per cent while boosting the annual tax take by $1 billion.

Labor ought to be able to sell it. It can rely on the treasury, the Reserve Bank, the OECD and the financial system inquiry for tacit support. Only the government is out of step. Labor can position itself as the party of more affordable housing.

In The Age and Sydney Morning Herald

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Australia flying blind on trade deals says PC

On the eve of negotiations expected to finalise a giant trans-Pacific free trade agreement with 11 of Australia's neighbours, the Department of Foreign Affairs has revealed that none of Australia's existing agreements has been subjected to an independent analysis to work out whether the claims made for it have stacked up.

Australia signed its Closer Economic Relations agreement with New Zealand 32 years ago and its free trade agreement with the United States 11 years ago.

Giving evidence to a parliamentary inquiry on Tuesday, the department's first assistant secretary for trade agreements, Frances Lisson, said economic assessments were sometimes conducted before agreements were signed.

Asked whether any of that modelling had been subsequently checked against the actual outcomes, she replied: "Not that I am aware of."

"I am not aware of any economic modelling that's been, I guess, remodelled," she said. "But certainly the objectives and that are outlined in the feasibility study are very much part of the negotiated outcomes, so the free trade agreements are only entered into when they achieve the objectives that have been set out to begin with."

Labor MP Jim Chalmers expressed incredulity saying that the department was asking Australia to believe claims about future agreements with India and the Pacific bloc when it hadn't checked the claims it had made in the past.

Ahead of the US Australia Free Trade Agreement the department published modelling conducted by the Centre for International Economics that said it would boost Australia's gross domestic product by $5.7 billion. A study conducted a decade later by the Australian National University found it had boosted trade not at all.

The privately-owned centre was retained by the department again this year to examine the free trade agreements with Japan, Korea and China and found they would boost the economy by $24.4 billion by 2035.

Appearing before the inquiry the head of the Productivity Commission Peter Harris said such analysis needed to be genuinely independent of Australia's trade negotiators, otherwise the consensus in favour of trade reform would crumble.

The Commission itself was perfectly capable of doing it, although he said he wasn't using the inquiry "to solicit for work".

It should be conducted before negotiations begin and again in the four or so months after negotiations have concluded but before the deal is ratified.

"We should do better on transparency or we risk losing the consensus that has lasted for decades," Mr Harris said.

The analysis should first identify the problem that the trade agreement was designed to solve and then make clear the costs it would impose on business.

The recently-signed Korea Australia agreement included 5200 separate so-called rules of origin delineating which inputs included in an export in order to give it preferential treatment. An earlier agreement with Singapore had one.

"It's red tape, growing at a very healthy rate," he said.

"It adding to the compliance costs of businesses as well as the costs to governments."

So-called investor-state dispute settlement clauses included in the China and Korea agreements and planned for the Trans Pacific Partnership agreement would allow foreign but not domestic business to sue Australian governments in international tribunals.

"We would like to see analysis conducted that demonstrates the benefit," Mr Harris said. "We are not alone on this. Senior representatives of Australia's legal system have questioned why rights should be made available to foreign parties that are not available to domestic parties."

In The Age and Sydney Morning Herald

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