Cut company tax and you cut national income: Grattan

The Turnbull government's proposed company tax cut would drop national income for years before it boosted it and would never be self-funding, a new analysis from the Grattan Institute has found.

One of the key justifications for the proposed phase down in the company tax rate from from 30 per cent to 25 per cent over 10 years has been that it would boost national income and wages.

"Even assuming you get those things in the long run, there will be a period of time in which national income falls," said the director of the Grattan Institute's productivity growth program Jim Minifie.

"That's because you are giving a tax cut to foreigners, meaning the benefit at first goes overseas".

"The Treasury has cited work that says it would take four or more years for investment to respond, lifting Australian national income but it could take a decade."

"The challenge for government is that it would be trying to do that at a time when if is not quite clear whether it can repair the budget. In other words, it's proposal isn't fully funded."

Write-off solution

The Grattan Institute report, Stagnation nation? Australian investment in a low-growth world finds that a cheaper and more effective measure would be an investment allowance that permitted companies to immediately write-off a portion of their investment before depreciating the rest over time.

"One worry is that some firms might be tempted to rort the system by relabeling operating costs as investment, but it might be manageable," Dr Minifie said.

The government could do both, allowing the investment allowance to fill the initial hole in national income that would be created by the company tax cut, but it would have to specify how it was going to pay for both.

Other measures were even less attractive. A tax cut for small business was "hard to justify" as a means of boosting investment while accelerated depreciation delayed tax payments.

An "allowance for corporate equity" of the kind proposed by the former treasury secretary Ken Henry would treat payments to shareholders in the same way as interest payments, meaning no tax would be paid on projects yielding an ordinary rate of return, and higher rates would be paid on those yielding more.

It would make projects that were only mildly profitable more attractive, but it would be hard to implement because it would create losers as well as winners.

Non-mining investment had fallen from 12 per cent to 9 per cent of GDP, lower than at any time in the fifty years from 1960 to 2010. But it was important to keep the problem in perspective.

In The Age and Sydney Morning Herald

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IP. Schools and unis charged millions for things that are free

Australian schools pay $9 million each year to display web pages that are available freely on the internet. They are even charged for displaying thumbnail images of book covers on their school intranet sites.

They and other institutions pay another $11 million each year to collection agencies for the display of works whose authors can't be found, which the agencies then pool and distribute to members who weren't the authors.

Addressing a copyright forum at the National Library on Friday, the co-chair of the Productivity Commission's intellectual property inquiry, Karen Chester, said she regarded her recommendation that Australia adopt a US-style system of "fair use" as more important than the recommendation that Australia allow the free import of books.

Removing the remaining restrictions on importing books would cut prices by $25 million. On average books bought in Australia are 20 per cent more expensive than identical titles bought in places such as Britain.

Of the $25 million, $15 million flowed overseas.

"So it's hard not to view import restrictions as anything but the least effective way to support local authors, and perversely at the expense of local readers," she said.

"We did listen to the case made by locally based publishers that the additional money they make from import restrictions delivering them higher prices is then used to cross subsidise local authors."

"We requested this evidence – show us the money. But we were met with the sound of deafening silence."

However she said of the recommendations presently before the government, allowing "fair use" was far more important.

"We know with import restrictions that technology, the digital age and new business models have proved a great equaliser. Digital books and real time publishing will continue to discipline the price premium local publishers will extract. So perhaps where we find ourselves today, with import restrictions costing Australian readers around $25 million each year, is about as bad as it will get."

"The same cannot be said for our system of copyright exceptions. And here's the policy rub and where the greatest policy imperative looms largest for government. The inequities and costs the present system are growing and will continue to do so with technological and digital advances."

"Think, no access to data for data mining means no incentive to the workforce to develop those skills — skills which other jurisdictions are developing in spades."

"Think, hampering access to cloud computing means that Australian firms and families are left to use inefficient, antiquated systems in comparison to other markets and countries that can make use of the latest technology."

"Think, schools and universities not paying $9 million each year for material that is freely available."

"The Commission heard from Universities Australia about how institutions were reluctant to use material for Massive Open Online Courses because fair dealing might not extend to them."

"It's not just about the millions of lost export dollars of our universities. It's about what's needed to re-equip our workforce to remain relevant. A university student today will have 17 different jobs. Fair use is a policy lever to avoid the looming education divide of haves and have not's."

At present new uses of copyrighted material are presumed to break the law until Parliament gets around to changing it, which took until 2006 in the case of home taping of television programs.

In the United States, Singapore and Israel new uses are permitted on the condition that they are "fair", taking account of the purpose and nature of the use, how much is used, and whether or not it harms the market for the original work.

The Commission's report was delivered to the government in September and is with the Industry Minister Arthur Sinodinos.

In The Age and Sydney Morning Herald

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Forget rate cuts. RBA chief Philip Lowe overrules his staff

Reserve Bank governor Philip Lowe has no plans to cut interest rates, and worries that if he did, he would make an already indebted nation "more fragile".

Appearing before a parliamentary committee after five months in the role, Dr Lowe conceded that others in the Bank took a different view.

"People on my own staff argue this," he told the hearing.

"The counter-argument is that lower interest rates would mainly work through encouraging people to borrow more. That would probably push up house prices a bit more, because most of the borrowing would be borrowing for housing."

"Household debt is at record levels. Is it really in the national interest to get a little bit more employment in the short-term at the expense of encouraging that fragility?"

Dr Lowe pointed to "green shoots" of economic recovery, even in the poorest-performing state, Western Australia.

"The headwind from falling commodity prices turned into a gentle tailwind as commodity prices lifted," he said. "And the headwind from falling mining investment should blow itself out before too long."

Offering a "personal perspective" on house prices, he said he had two teenage children who would soon need places to live.

"I'll be OK because I am paid a lot of money," he said. "But high prices are entrenching inequality."

In the days of higher wage growth, it was much easier to pay off a home loan. With wage growth now near 2 per cent, buyers were forced to bear the burden of high payments for much longer.

Tightening the negative gearing and capital gains tax concessions would take some heat out of the market.

While negative gearing by itself wasn't the issue, in combination with capital gains tax discounts, it fuelled investor buying, which pushed up prices.

It was too early to tell how the policies of US president Donald Trump would affect Australia and the global economy, but the biggest risk was that he would erect barriers that wound back international trade.

"We will be the big losers if that deteriorates," Dr Lowe said. "Our ability to sell our minerals, and our services to the rest of the world, is critical to our standard of living."

"The idea that we make ourselves wealthier by erecting barriers, it's crazy."

Governor Lowe understood the argument for a lower company tax rate but wasn't advocating it.

"Since the financial crisis other governments have been talking about company tax rates as low as 15 to 20 per cent," he said.

"You could argue that from a global perspective that is not useful. But that's not the world that we live in. The choice for the Parliament is whether to respond."

"Australia has lots of advantages and firms come here for a lot of reasons, but tax is a consideration, and I think if you are uncompetitive you will probably get a few less dollars of capital formation from foreign firms.

"It's a choice for the Parliament. It's a decision about foreign, not Australian investment, because dividend imputation makes a tax-cut effectively irrelevant for Australian companies".

In The Age and Sydney Morning Herald

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Electricity prices are going up regardless

I'll give it to you cold. Electricity prices are going up. They have been too low for too long.

Malcolm Turnbull, Treasurer Scott Morrison and their Energy Minister, Josh Frydenberg, are happy to make political capital out of the inevitable return to normality (by blaming Labor and fondling pieces of coal in Parliament) but they are careful not to say they can stop it.

Frydenberg talks about "reducing pressure" on prices rather than keeping them down.

Prices have been unnaturally low because we've had more generators able to make the stuff than we have had people wanting to use it.

Usage per person started falling in 2010 and has only recently begun to recover. To sell power, generators have had to cut prices. Worse still, three of the biggest were bought by their present owners for next to nothing.

That means they can afford to unload electricity for little more than the cost of making it, pushing down the prices that can be charged by the others who need to also cover the costs of set-up.

One of the lowest-priced is Hazelwood in Victoria. The present owner got it for a song when it acquired its parent company. Another is the nearby Loy Yang A. Australia's AGL bought much of it from the Tokyo Electric Power Company in a fire sale after the Fukushima nuclear disaster.

And the third is the giant Liddell power station in the NSW Hunter Valley, virtually given to AGL by the NSW government as part of a larger deal that enables the government to avoid the clean-up costs when it's shut down.

Hazelwood is closing next month. Its French owner wants to exit coal worldwide. The ageing Liddell plant doesn't have long to go. With fewer of these unusual competitors able to charge unreasonably low prices, the other generators will be able to charge more like what they need and prices will shoot up.

The Energy Market Commission says wholesale prices will jump 20 to 40 per cent in Victoria, South Australia and Tasmania when Hazelwood goes, before falling back somewhat as new wind-powered stations come on-line.

But no new station, be it wind or even coal-powered, will be able to act like the big three have and sell power as if the station itself costs nothing. Nor will they be able to plan to sell power without factoring in environmental costs.

You can't plan to do that if you're building something that's going to last 50 years.

Which isn't to say there's nothing Frydenberg and his state counterparts can do. They are attempting to depress retail prices by changing the rules so they eat into retailing and transmission margins, and they could easily change the archaic and apparently manipulated rules governing how power is sold every five minutes.

That's right. Every five minutes, there are auctions to determine who gets to sell how much and for what price during the next five minutes in different parts of the so-called National Electricity Market, which takes in the eastern states and South Australia.

But a quaint historical rule means what the winners are actually paid is the average price over the six five-minute intervals that make up each half-hour.

So if the generators hold back and offer very little power and demand high prices during the first five minutes of each 30-minute cycle, and push the price per megawatt hour towards the ceiling of $14,000, they can offer much more at lower prices during the rest of the half-hour and still get an average price north of $2000, which is above the odds.

A new "five minutes means five minutes" rule would stop them.

And it would make it easy for battery farms to submit bids when the price gets high. They mightn't be able to bid for a full half-hour to take the edge off high prices, but they could do it for five or 10 minutes. Overseas, and in Western Australia, companies such as EnerNOC act as "demand aggregators" bidding to turn off demand when prices get high.

A zinc smelter might be able to turn off for five or 10 minutes and still keep its zinc molten, but not for half an hour.

And they could change the rules to reward generators that provide "inertia". Old-style coal-fired power stations do it automatically. They alternate the direction of current at 50 cycles per second because their turbines spin at a constant speed.

As coal-fired stations become more scarce, other generators are going to have to be paid to provide that service. Wind farms can do it using electronics, and the government is funding a trial at the massive Hornsdale wind farm north of Adelaide.

Down the track, battery farms should be able to do it as well, providing "synthetic inertia" as good as that created by spinning lumps of iron.

Away from the glare of politicians, the Finkel Review being conducted by the chief scientist, Alan Finkel, for the state and federal energy ministers is examining all of these options. It won't be able to stop prices rising, but it might just be able to make things work better.

In The Age and Sydney Morning Herald

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Why low wage growth hurts

Low wage growth is what the Coalition wanted. Within weeks of being sworn in as employment minister in 2013, Eric Abetz warned "weak-kneed employers" against caving in to unreasonable union demands.

He set the pace himself, axing Commonwealth guidelines for cleaners employed on government contracts, giving them what amounted to pay cuts of around 20 per cent when their contracts expired.

He offered defence force staff just 1.5 per cent, less than inflation and the lowest increase in living memory. His prime minister, Tony Abbott, decreed that no public servant would get more. Abetz offered staff in his own department just 0.5 per cent along with cuts to conditions. Later, under the Turnbull government, the purse strings were loosened as it became apparent that the "wages explosion" Abetz feared had turned into a different sort of problem.

In the December budget update, the Treasury wrote down the tax receipts expected in the budget by $3.7 billion, and by $30.7 billion over the four years, despite higher commodity prices, largely because of what had happened to wages. Instead of growing by the forecast 2.5 per cent, they were growing by 1.9 per cent. It cut its forecast to 2.25 per cent and may have to cut it again.

Lower wage growth means less tax revenue than expected, higher government payments, including Family Tax Benefits, and less consumer spending and perhaps even less economic growth.

On what would have once been thought of as the bright side, it can also lead to lower inflation in a self-perpetuating spiral, as pointed out by Reserve Bank Governor Philip Lowe on Wednesday.

But he's not happy about the prospect because inflation is already below his target, and without the certainty of some price rises, businesses are unlikely to want to expand.

About the only genuine positive is that employers are unlikely to want to move jobs offshore or replace workers with machines. They are cheap enough as they are.

Low wage growth can mean

• Lower tax revenue
• Higher government payments
• Lower consumer spending
• Lower economic growth
• Lower inflation
• Lower investment
• Less offshoring and automation

In The Age and Sydney Morning Herald

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What if the nerds are reading Trump right?

The January meeting of the American Economic Association is to economics nerds what Star Wars conventions are to George Lucas fanatics. It's an opportunity for more than 13,000 of them to cram into hotels to swap ideas, make new friends and catch up on research.

Justin Wolfers prowled the halls. An Australian expatriate who's professor of economics at the University of Michigan, he told the Australian forecasting conference in Sydney this week: "There are more handsome people blessed with amazing social skills in that one building than you'll ever see anywhere else."

He asked them what was going on.

"Over the course of four days I literally did not meet a single North American economist who thought that anything good for the US was going to come out of the Trump administration," he said. "Not one."

Not a single nerd. But outside of the Chicago Hyatt Regency, in the world of actual business ...

Each month, the US National Federation of Independent Business asks 10,000 small business owners whether they think conditions will improve or get worse in the six months ahead.

The month before the election, 7 per cent more thought things would get worse than get better. Two months later, 50 per cent more thought things would improve. "That's an extraordinary turnaround of 57 per cent in two months," Wolfers said. "Small business people are just beside themselves with joy."

There has, he said, never been a more pure test of what matters most: the views of experts, or of real business people putting up real money who can make things happen because they believe things will happen.

"And it's not obvious who's right," he said. "Do we trust the guys who study this stuff for a living, or the guys who bet millions of dollars?"

These are the reasons to trust the experts.

• Trump has signalled interest in a war in the Middle East. The first Gulf war knocked off trillions (15 per cent) from the US stock market.
• Impeachment and all it entails is a real possibility – Trump has already lost a National Security Advisor.
• There's an increased risk of a new financial crisis, with Trump preparing to unwind the Wall Street Reform Act.
• And an increased risk of the US defaulting on its debt. Trump has already said he would consider "renegotiating" it.
• And the possibility of a trade war, and the collapse of a stable financial system.

Too extreme? Perhaps. But his point is we have to put some probability on these events, "just as a couple of years ago we had to put some probability on a reality TV host becoming president".

But how big a probability? Wolfers says before the election, smart people thought we should take Trump seriously, but not literally. They were wrong. Trump's biggest surprise has been his fidelity. "He really has begun to do the things he said he would do." The awful truth is we're going to have to take him literally and work through what that means.

In The Age and Sydney Morning Herald

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Why have our ministers got it in for the unemployed?

What were they thinking? On Monday three members of cabinet called a press conference to pressure the Senate to cut the dole. That's right, to cut the dole. At just $13,750 per year plus an $8.80 per fortnight energy allowance, it's already so low the Business Council believes it "presents a barrier to employment and risks entrenching poverty." The Organisation for Economic Co-operation and Development, the research arm of the world's richest economies, says Australia's unemployment benefit has reached the point where it may no longer be effective in "enabling someone to look for a suitable job".

Even a Coalition-dominated inquiry found a "compelling case" for boosting it.

But the three ministers wanted to deny the energy supplement to new entrants on the spurious ground that this would merely remove "carbon tax compensation for a carbon tax that no longer exists". It wouldn't. The Newstart cost of living increase was cut 0.7 per cent when the energy supplement came in to avoid double counting. If the energy supplement went but the cut remained, new entrants to Newstart would be worse off than if the whole thing had never happened.

And they wanted to withhold Newstart from newly-unemployed Australians aged 22 to 25, paying them instead the lower $11,375 Youth Allowance. The under 25s would have to wait longer too – five weeks instead of the present one.

Rather than spend time arguing the merits of cutting a benefit already so low it can barely be lived on, Treasurer Scott Morrison, Social Services Minister Christian Porter and Education Minister Simon Birmingham delivered instead what amounted to a threat: if the Senate didn't cut the unemployment benefit, they might not fully fund the National Disability Insurance Scheme.

But not at first. In a burlesque twist, they opened the press conference spruiking the case for an unfunded massive company tax cut.

When they turned to the National Disability Insurance Scheme their message was that it had to be funded, that those funds would come from cuts to unemployment benefits, and that the Senate had to back them.

An astounded Nick Xenophon, who leads a team of three in the Senate, labelled it blackmail. "As a negotiating tactic, this is as subtle as a sledgehammer," he said. It was "dumb policy and even dumber politics".

Using the disabled as a human shield to defend cuts to other Australians in need is as dumb as it gets. The ministers seemed to think it would work because it was all welfare.

Later that day Porter relented, saying he hadn't really been holding the disabled hostage, and of course he would properly fund the national insurance scheme.

But that he and his colleagues thought the idea was smart at the time says something about their attitude to people they are meant to support.

Back in October Porter became convinced that they were getting more from staying at home than would if they worked.

"We have found these pockets," he told Sydney's 2GB, "and maybe that's being a bit generous, because they are very large pockets, of payment categories and rules that intersect in a way that mean you can earn as much through the welfare system, and I use the word 'earn' advisedly, you can earn as much as you do from working very hard".

It was evidence he pushed his department to find. "We have been asked to put together a cameo of a parenting payment recipient getting over $45k per year," one of his departmental staff explained in an email released to me under the Freedom of Information Act. "Unfortunately this urgent."

The department exceeded expectations. It came up with an unusual case of a single parent with four children aged 13, 10, 7 and 4 managing to pay $400 per week in rent. She would get $52,523.50 per year.

The next morning The Australian quoted the minister under a front page headline that read: "Parental welfare pays more than work". "Thousands of parents claiming government benefits are financially better off not getting a job" it said, which wasn't what the figure showed at all, as the flurry of departmental emails that followed made clear.

"The article is comparing apples and oranges," said one. "It seems like the author hasn't spent too much time thinking about how the payments actually work, and what their intent is."

Most of the $52,523 quoted was the Family Tax Benefit, which would be paid to a parent with that many children even if she did work, meaning she or he would be much better off working than not.

But in the round of media interviews that followed the Social Services Minister passed up the opportunity to correct the false report, and Morrison backed him, saying it was "a crying shame that some Australians would have to take a pay cut to get a job in this country because of the way our welfare system works".

Asked via Freedom of Information to provide material created in the previous four months that supported the minister's claim, the department could not.

Inept in their dealings with the Senate, Porter, Morrison and other ministers might have also misread the public. Many of of us know someone who has needed Newstart. Almost all of us knows someone who's been monstered by Centrelink. Those Freedom of Information requests are just beginning.

In The Age and Sydney Morning Herald

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Memo Scott Morrison: there ain't no jam jars

What's this about a "locked box"? Treasurer Scott Morrison says the savings that'll be made from cutting unemployment and other benefits will be put into the modern-day equivalent of a jam jar - "a locked box for which the Social Services Minister has full visibility and accountability to ensure that the money that will come from making these changes will go to ensure that the National Disability Insurance Scheme continues to be funded".

It came across as a threat: if the Senate didn't support the $3 billion of spending cuts in the clumsily named Omnibus Savings and Child Care Reform Bill, the National Disability Insurance Scheme mightn't be properly funded.

In reality there are no locked boxes. Clause 81 of the Constitution says "all revenues or moneys raised or received by the executive government of the Commonwealth shall form one consolidated revenue fund, to be appropriated for the purposes of the Commonwealth in the manner and subject to the charges and liabilities imposed by this Constitution".

There are no separate jam jars.

But it hasn't stopped the governments of all persuasion from acting as if there are. The best-known is the Medicare levy, which we are told funds Medicare and the National Disability Insurance Scheme, but which in reality goes straight into consolidated revenue (and couldn't anywhere near fully fund them in any event).

Some of them are silly. In his 2014 budget Joe Hockey promised the increase in the fuel excise would be ploughed back into roads. Not fuel excise itself, just the proposed increase, which was so tiny compared to total road funding that it would have been possible to say it had been ploughed back into roads, even if total road spending was cut.

And shortly after the lunchtime press conference it was conceded in question time that the threat had no force. Social Services Minister Christian Porter said that regardless of what goes into the 'locked box' the funding gap for the disability Insurance Scheme "will be met".

It was his "very strong preference" that it be met by finding savings.

But those savings needn't come from lifting the age of eligibility for the Newstart unemployment benefit from 22 to 25, they needn't come from lengthening the waiting period, and they needn't come from cutting it. It's possible to find other savings. If asked, the Senate crossbench would be happy to come up with suggestions.

In The Age and Sydney Morning Herald

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NAPLAN prepares us for neither the real world nor Trump

Google NAPLAN and you'll get an advertisement taking you to a website that will help you cram for it.

Of course that's not the idea. The standardised National Assessment Program for Literacy and Numeracy introduced by Julia Gillard as education minister is meant to be impossible to prepare for.

But teachers do. The next one is in May, two weeks into term two. The reputation of their students, the reputation of the school and their own reputations depend on it. Time that would have been spent encouraging year 3, 5, 7 and 9 students to ask questions and gain knowledge will instead be spent drilling them in how to pass the test.

That the two aren't the same ought to be apparent from the writing test. It's a hangover from an earlier era, before Donald Trump stood for president.

The persuasive writing test requires the student to introduce a topic, seek to persuade the reader by "for example, listing and describing parts, comparing and contrasting and showing cause and effect" and then to "synthesise" the ideas in order to draw a conclusion".

It might have been an effective technique in the 1960s, but since then decades of research have established what Trump instinctively knew – that clearly set-out arguments don't persuade. If they did, his greatest successes wouldn't have been in town hall rallies and on Twitter.

Fact checkers say 70 per cent of his campaign claims were false, but the method of argument required for students to succeed at NAPLAN couldn't defeat them. It's as if Clinton had on her team Australians who'd aced NAPLAN, and Trump had Americans who knew about people.

They key to convincing people appears to be repetition, something frowned on by those who mark NAPLAN. Study after study has found that the more often something is said the more likely it is to be regarded as true, all the more so if it is said by your side of politics.

In one, voters who were told about a policy assessed it in accordance with its merits and their ideological leanings. Another identically matched group, given the same information but also told that their side of politics supported it, backed it overwhelmingly. The political party effect "overwhelmed the impact of both the policy's objective content and participants' ideological beliefs".

In another, voters were given false information, given a "correction" telling them that it was false and in large numbers continued believed it. It happens because we are lazy. Processing a correction takes effort. Continually evaluating things to determine whether they are false takes effort. Using whatever our party thinks as a rough guide saves time.

And corrections can backfire. By repeating the original claim (as a correction or a fact check has to) they cement it in memory.

We're going to need new techniques of telling the truth from here on. They needn't be manipulative, but they'll have to move beyond the straightforward, beyond what's taught by time-stressed teachers teaching for the test.

In The Age and Sydney Morning Herald

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2017 Economic Survey: Steady rates in better year ahead

The Reserve Bank faces no pressure to adjust interest rates at its first meeting for the year on Tuesday and very little pressure to adjust them at any time during the year as the 2017 BusinessDay Scope forecasting survey predicts a rarity – an entire year of unchanged rates, something that hasn't happened since the survey successfully forecast a year of steady rates in 2014 and before that 2004.

Approaching its 40th year, the exclusive BusinessDay survey is made up of forecasts from 27 leading economists in the diverse fields of financial markets, academia, consultancy and industry. Over time its average predictions have proved to be more accurate than those of any of its individual members.

Against a backdrop of sharply climbing commodity prices, an unusual trade surplus and what's expected to be a rebound in US economic growth, the Scope panel predicts Australian economic growth of 2.4 per cent in 2017, a big improvement on the most recent result of 1.8 per cent, but nowhere near as big as the implied forecast of 3 per cent in the treasury's mid-year budget update.

GDP

Only two of the panel expect growth to exceed the federal treasury's 3 per cent forecast: HSBC's Paul Bloxham, who expects 3.4 per cent, and ANZ's Richard Yetsenga, who expects 3.3 per cent. Five are bunched with the treasury at 3 per cent, including Westpac's Bill Evans and the National Australia Bank's Riki Polygenis. But the two who came closest to getting GDP right last year, Stephen Anthony and Bill Mitchell, are far more pessimistic, each predicting only 1.6 per cent.

"Worldwide, the huge expansion in liquidity is pushing up asset prices instead of sparking investment," Anthony says.

"And in Australia mining investment has further to slide.

"That makes us a one-trick pony. We've got high-density dwelling investment driving the economy; potentially unsustainably as a result of effervescence coming in through China and our interest rate settings. That's really the only driver we've got. It will come off at some point in 2017.

"Other than that, consumption is weak, public investment is weak, public consumption is weak, and while net exports are helping, they are driven by Chinese monetary expansion, which will continue for a while before tailing off after 2017. Our growth rate will stay low, between 1 and 2 per cent."

Most of the panel (although not Anthony) expect a Trump-driven boost in US economic growth to more than 2 per cent. Three of the panel expect growth of 3 per cent. All expect China's reported growth to be close to the official target of 6.5 to 6.7 per cent, in part because of revelations that at least one province has faked data in order to meet the target. Most expect global growth to chug along at around 3.1 per cent.

Trade

Last year's extraordinary jump in the price of iron ore should run out of steam. After climbing from $US40 a tonne to more than $US80 by December, the panel's central forecast is for a retreat to $US70. But six of the 27 expect further increases, two of them, Mardi Dungey and Neville Norman, to about $US100 a tonne.

The panel's central forecast is for Australia's terms of trade – with the nation running a substantial surplus – to close 2017 little changed, but two of the panel, Sally Auld and Margaret McKenzie expect further jumps of 7 and 10 per cent, while Michael Blythe and Paul Dales expect sharp falls of 7 and 8 per cent.

The jump in commodity prices has already eliminated Australia's trade deficit and is poised to as-good-as eliminate its current account deficit in the view of the ANZ's Yetsenga, who is forecasting a rounding-error deficit of less than $1 billion in 2017, after $66 billion in 2016. On average the panel expects $46 billion.

Currency

Most expect a retreat in the Australian dollar from 76 US cents to around 72 US cents. Only one of the panel expects the dollar to move a long way above where it finished 2016, that is Margaret McKenzie of the ACTU who predicts 95 US cents.

Living standards

Most of the panel expect the high commodity prices to inject extra cash into the economy, lifting the increase in nominal GDP to 3.7 per cent. The Reserve Bank's favourite measure of living standards, real net disposable income per capita, should climb 1.5 per cent in 2017 after slipping in 2015 and rebounding 1.7 per cent in the year to September. Two of the panel, Dales and McKenzie, expect mining-boom style growth of 3 and 3.5 per cent.

Prices, wages, jobs

The panel expects inflation to recover from its disturbingly low 2016 range of 1 to 1.5 per cent, hitting 1.9 per cent by December, which is just below the bottom of the Reserve Bank's 2 to 3 per cent target band. Only two of our forecasters, Saul Eslake and Richard Robinson, expect underlying inflation to climb to anything near the middle of the band, 2.4 per cent for Eslake and 2.3 per cent for Robinson.

Wages should mercifully increase by more than prices, in part because of the extra money high commodity prices will give to employers, climbing 2.1 per cent in 2017 after a record-low 1.9 per cent in 2016. The highest wage growth forecast is 2.7 per cent, from Victoria University economic modeller Janine Dixon. Only one of the forecasts is particularly low. It's for a fall in wages of 0.5 per cent, from Steve Keen, who is also the only forecaster predicting a recession: economic growth throughout the year of minus 1 per cent. 

The panel expects the unemployment rate to stay more or less where it is at 5.8 per cent, with only Keen and McKenzie of the ACTU predicting big increases, to 6.5 per cent.

Budget

The boost in commodity prices will help the budget, but not yet. Mining companies still have a lot of investment spending to write off their tax bills.

They'll also help to the extent that they boost wages, but that boost isn't expected to be big. The panel is predicting slightly bigger budget deficits than those forecast by the government: $39 billion for 2016-17 and $35 billion for 2017-18

Interest rates

Money will remain cheap for the government should it decide to shake off its reluctance and borrow big for infrastructure. The panel is predicting a 10-year bond rate of just 2.9 per cent in 2017. Only Paul Dales, Saul Eslake, and Su-Lin Ong predict increases to north of 3.25 per cent. Paul Bloxham expects a dive to 1.9 per cent.

Most expect a steady cash rate throughout the year, with only four predicting an increase. Twelve expect at least one cut, to 1.25 per cent, six expect a further cut to 1 per cent. On average the panel expects a cash rate of 1.4 per cent, which, given that the Reserve Bank only adjusts in increments of 0.25 per cent, means no change at 1.5 per cent.

Investment

After collapsing 40 per cent in 2016, mining investment should slide by a more gracious 13 per cent in 2017. But the range of forecasts is unusually wide, from a collapse of 30 per cent (Polygenis and Shane Oliver) to a rebound of 10 per cent (Shane Garrett).

Non-mining investment should climb a further 3.5 per cent after climbing 3 per cent last year, but the range of these forecasts is also wide, from a slide of 3 per cent (Dales) to a jump of 10 per cent (Koukoulas).

The range of housing investment forecasts is also wide, with the central forecast of just 1.9 per cent masking forecasts as high as growth of 11 per cent (Norman) and as low as a slide of 5.5 per cent (from the Housing Industry Association itself).

Housing

Home prices should take a breather, with the CoreLogic measure growing by just 4.9 per cent in Sydney and 4.3 per cent in Melbourne after an extraordinary 15.5 per cent and 13.7 per cent in 2016. Some forecasters expect home prices to fall (Nicki Hutley, Koukoulas and Keen) and two expect no growth (Jakob Madsen, and Richard Robinson from the property specialist BIS Shrapnel). The highest forecasts are for further growth of 12 per cent (Renee Fry-McKibbin for Sydney and Mardi Dungey for Melbourne).

Share market

The ASX200 should also take a breather, climbing just 2 per cent from 5627 to 5794 after climbing 6 per cent in 2016. Only Anthony and Keen expect falls, of around 10 per cent. Both Anthony and Keen has been forecaster of the year, each more than once.

In The Age and Sydney Morning Herald

The people who saw crazy 2016 coming

In most years there's room for one forecaster of the year. But not in 2016. Hardly any of our panel picked the dive in Australia's growth rate to 1.8 per cent or the dive in the cash rate to a record-low 1.5 per cent. Wage growth was lower than all but the most pessimistic of the forecasts, and house prices ended the year far higher than the highest.

But at their best, three of our panel got just about everything right.

Stephen Anthony of Industry Super (a two-time forecaster of the year) was right about Australia's very low economic growth rate. He picked 2 per cent for the year to December. He was also right about the cash rate, one of only five who expected it to slip 1.5 per cent. And he was right about the timing. He predicted one cut in the first half of 2016 and one in the second.

But like most he was far too cautious on house prices (expecting growth of only 3.5 per cent in Sydney and 6.5 per cent in Melbourne), far too keen on a low dollar (expecting 62 US cents instead of 72) and pessimistic about commodity prices, expecting a slide in the iron ore price to $US33. In fairness, few people expected the late-year surge in commodity prices, and none of our panel.

The ANU's Renee Fry-McKibbin got house prices pretty right. The typical forecast was for the CoreLogic measure of Sydney prices to climb 2 per cent and for the Melbourne measure 3 per cent. The year ended with prices up 15.5 per cent and 13.7 per cent. The Housing Industry Association and the property specialist BIS Shrapnel were as wrong as the rest of them, picking around 6 per cent and 3 per cent. Fry-McKibbin picked 10 per cent and 9 per cent, and she got housing investment pretty right as well.

She says with money cheap she could see nothing that would slow prices down. New home building was high but it takes a while, and a while to provide infrastructure to new suburbs. This year she is going for 12 per cent and 10 per cent.

Bill Mitchell of Newcastle University's Centre of Full Employment and Equity is the third of this year's three-pack. He was darn close on Australian economic growth, the closest on US economic growth, and the closest on record-low wage growth, picking an ultra low 2 per cent, close to the 1.9 per cent recorded in the year to September. He also hit the bullseye on the 10-year bond rate, picking 2.7 per cent, which is where it ended up.

He says low wage growth would have been obvious to anyone who wasn't seduced by the fairly steady unemployment rate. Underemployment had been climbing, tens of thousands of people had left the workforce who would have once been in it, and what jobs growth there was had been concentrated in part-time jobs that were typically non-unionised where workers had low bargaining power. This year he is predicting wage growth of 1.8 per cent, less than the rate of inflation, meaning earning power will shrink.

He says the low bond rate was also obvious, given auction data showing queues of traders wanting to buy risk-free assets. For all the talk about the need to attract foreign capital, Australia's government finds it pretty easy.

There are three honourable mentions: Shane Oliver was also close on wages, Jakob Madsen was spot on in predicting an outsized fall in mining investment of 40 per cent, and Stephen Koukoulas had the highest iron ore price. At $US58 a tonne it was higher than anyone else's, but still far short of what happened.

Arise Bill, Stephen and Renee, and may one of you not need to split the award next time.

In The Age and Sydney Morning Herald

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High prices hurt. Why Sinodinos is under pressure over books

Strong governments stand up for little people.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald

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Australia's biggest tax break: you're sitting in it

The family home has eclipsed superannuation as Australia's biggest tax break, with new figures showing the capital gains tax exemption on family homes cost the budget a record $61.5 billion in 2016-17, well in excess of the $33 billion lost to superannuation tax concessions.

The $61 billion is made up of $27.5 billion the government believes it would have got if it taxed profits made on the sale of family homes at the present capital gains tax rate, plus an extra $34 billion it would have got if the capital gains tax rate were the same as the marginal tax rate instead of being discounted by 50 per cent.

Treasury's annual Tax Expenditures Statement, required as part of the charter of budget honesty and released quietly on Monday afternoon, identifies 25 tax breaks each costing more than $1 billion, which between them cost close to $150 billion.

If abolished, they would close the budget deficit four times over.

The statement was mandated to ensure that so-called tax expenditures received the same scrutiny as cash expenditures. The tax breaks on the family home cost the budget as much as the age pension and Pharmaceutical Benefits Scheme combined. Even after the recently leglislated cuts, the superannuation tax breaks cost the budget as much as defence and foreign aid combined.

Often, government programs are arbitrarily defined as either cash or tax expenditures. The $6.5 billion private health insurance rebate was originally classified as a tax expenditure before being reclassified as a cash expense. The $19.3 billion family tax benefit is classified as a cash expenditure despite its name.

Three of the 10 biggest tax expenditures relate to the goods and services tax. They are the exemptions for fresh food ($6.9 billion), for private education ($4.5 billion) and private health ($4 billion). The concessional GST treatment of financial services costs $3.4 billion.

Other personal tax concessions in the top 25 include the concessional treatment of redundancy payments ($2.6 billion) a tax exemption for family tax benefit payments ($2.2 billion) and the private health insurance rebate ($1.5 billion), a tax exemption for childcare support ($1.6 billion) and the tax deduction for gifts to charities ($1.3 billion).

The budgeted cut in the company tax rate for small businesses will cost $1.1 billion in 2016-17, climbing to $1.8 billion in 2019-20. Separate modelling prepared for the Treasury finds the proposed company tax cut for big businesses would cost $8.2 billion per year by the time the rate fell from 30 per cent to 25 per cent.

 

Australia's ten most expensive tax breaks

• Main residence exemption from capital gains tax: $61.5 billion
• Concessional taxation of superannuation earnings $16.9 billion
• Concessional taxation of superannuation contributions $16.9 billion
• Capital gains tax discount for individuals and trusts $9.6 billion
• Goods and services tax exemption for fresh food $6.9 billion
• Goods and services tax exemption for education $4.5 billion
• Goods and services tax exemption for health services $4 billion
• Goods and services tax financial services concession $3.9 billion
• Concessional taxation of termination benefits $2.6 billion
• Exemption from interest withholding tax on securities $2.3 billion

Source: 2016 Tax Expenditures Statement, Commonwealth Treasury, January 2017

In The Age and Sydney Morning Herald

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Exclusive: how the ATO was lent on to deliver high-end cuts

When Treasurer Scott Morrison rose in Parliament in May to deliver a budget speech promising high-end tax cuts "from July 1", he knew he faced a powerful obstacle.

Bundles of emails released to Fairfax Media under the Freedom of Information Act reveal he had been told in April that Tax Commissioner Chris Jordan was reluctant to agree to the request, believing that in normal circumstances pay-as-you-earn tax scales could only be adjusted after legislation, passed by both houses of Parliament.

Jordan, a former policeman who studied accounting at night and went on to work for both prime minister John Howard and treasurer Wayne Swan on tax matters, wanted to stick to the rules.

But Morrison and Prime Minister Malcolm Turnbull had run out of time. Parliament was due to finish sitting within days of the budget without time to legislate the change and it wouldn't resume until after the election, well into the new financial year.

Asked the morning after the budget whether the tax cuts would be delivered from July 1 as promised, Turnbull replied with more confidence than he might have felt, "that is exactly the goal". The cuts would be delivered "administratively".

Emails between the Tax Office and the Treasury ahead of the budget had all-but snuffed out that possibility, offering only a flicker of a hope that if the legislation was introduced into Parliament and supported by the opposition (the words "introduced" and "and" were underlined) a commissioner might be able to "turn their mind to the circumstances at the relevant time".

To this end, on April 21, a fortnight before the budget, the Treasury told the Tax Office that the Treasurer's Office "was confident that the proposed personal tax changes would secure passage", even though they hadn't yet been announced.

But the opposition gave no such assurance, and Commissioner Jordan's position hardened. In the pre-election budget update released as part of the Charter of Budget Honesty, he inserted a paragraph saying he required "the relevant legislation to be passed" before he would amend the schedule.

The Tax Office went further in an email to West Australian journalist Shane Wright, raising the possibility that even a change in the law mightn't be enough. "If" a change was legislated by the incoming government, the ATO would "consider" the administrative approaches available to implementing new rates. It normally adjusted scales only once each year, and the date had passed.

After the election and after the Coalition was returned without delivering the promised tax cut, the Treasury wrote to the Tax Office pleading for "more specificity", saying: "As you would appreciate, when people actually receive the benefit of the tax cut will be a key sensitivity."

The office backed down just a bit, saying that because it took several weeks for employers to adjust their computer systems to implement new scales, it was prepared to announce them before the legislation had passed, so long as it had been introduced and it was "clear that the measure has sufficient support in Parliament".

But it couldn't find evidence for that support. It scoured newspapers and press releases and determined that Greens were opposed, the position of the new senators was "unclear" and there was "no reliable source indicating Labor's position on this matter since the election".

Then, unintentionally, Labor supplied it. In a press release headed "SloMo on the income tax cuts" on September 1, two months after the promised cuts, Labor's Chris Bowen and Andrew Leigh berated the Treasurer for being unable to prevail over the Tax Commissioner.

It included the words: "Labor immediately gave bipartisan support to these income tax cuts". Morrison's office immediately forwarded it to the Tax Office and asked for it to approve the new schedule straight away. If it could "let us know if possible by 2pm question time that would be great".

Some in the Tax Office weren't convinced. "There is no explicit statement of support here," complained one official. But in the middle of question time on September 1, deputy commissioner Matthew Bambrick relented, writing that he was satisfied the legislation would pass and that he would issue the new schedules.

The tax cut, for Australians earning between $80,000 and $87,000 would be delivered on October 1. Employers would be given four weeks to update their software. The commissioner had been worn down.

In The Age and Sydney Morning Herald

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Centrelink debacle much worse than thought

It has become the most widely cited figure in the Centrelink robo-debt debate: that 20 per cent of the debts identified by its data-matching machine are wrong.

But the figure itself is wrong. The true number of mistakes is almost certainly higher, perhaps as high as 90 per cent.

Twenty per cent has become the accepted truth in part because the figure is big - big enough for critics to use to condemn the data-matching program and big enough for Centrelink to use to fob off requests for the truth.

Even Malcolm Turnbull's disenchanted former digital transformation chief Paul Shelter embraced it.

"All I can say is, if they were a commercial company, you would go out of business with a 20 per cent failure rate, a known 20 per cent failure rate, you would go out of business," he told The Guardian this month.

Labor frontbencher Anthony Albanese backed him up, wrongly saying that "on the government's own figures, 20 per cent of people who've been sent debt letters, often accompanied by threats of debt collection agencies being involved, have been sent them on a false basis".

The 20 per cent isn't the proportion of debt letters sent out that are false. We won't know that for a long time, if ever. Some people have been paying up even when the debt letters are wrong, sometimes because they don't have the records to argue otherwise, sometimes because they trust the government, and sometimes because they can't be bothered dealing with Centrelink.

A Centrelink whistleblower alleges that, disgracefully, staff have been ordered not to use information in Centrelink's possession to correct false debt notices. Another says that of hundreds of debt notices reviewed, only a few dozen (at a "generous estimate") turned out to be correct.

Here is where the 20 per cent figure comes from. Between July and December, Centrelink's computer sent out 232,000 letters asking people to log on to a website to confirm or update their income history. Around 169,000 did so. (An email to Fairfax Media from the office of Human Services Minister Alan Tudge implies that none of the 63,000 who did not log on have been issued with debt notices. Their cases are "are still active and in progress or require further review".)

When the 169,000 logged on and ticked a box or corrected the income information, they were presented with an instant, on-screen estimate of money owed. Despite weeks of requests, the minister's office has been unable to tell Fairfax Media the proportion who were told they owed money. It's likely to be extremely high. The software can't account for income that is exempted from the Centrelink tests and it averages annual income to often falsely conclude that the averaged income is received in the weeks when the recipients are on sickness or other benefits, among other flaws.

But the online estimate isn't a debt notice. That is sent later, after a human assesses the machine's conclusions. A whistleblower says staff are instructed to only lightly assess those conclusions, letting most of them through.

Eighty per cent is the proportion of the 169,000 who are eventually sent letters with demands to pay. Twenty per cent is the proportion who are not. There's no reason to think the proportions who have been wrongly assessed by the computer and wrongly issued debt notices are not much, much higher.

Fairfax Media asked the minister's office three weeks ago for the proportion of computer debt assessments that those who logged on objected to, but despite repeated reminders, still hasn't been told.

The error rate may be even higher than the objection rate. Given what's known about the design of the system, there's no reason to think it is not north of 90 per cent. Twenty per cent would be bad enough (as the Prime Minister's former digital chief says, enough to put a private sector firm out of business) but it's probably far short of the truth.

UPDATE: Department of Human Services spokesman Hank Jongen later responded and said the figure of 90 per cent was wrong. "There is no basis for suggesting the error rate is 90 per cent. This is a figure plucked out of the air that doesn't serve the public discussion well."

In The Age and Sydney Morning Herald

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Turnbull's fearful, pessimistic vision for Australia

Malcolm Turnbull and Donald Trump might be at loggerheads over the Trans-Pacific Partnership, but in other respects they're in sync.

Trump's inaugural address focused on what he was against: elites, Islamic terrorism, crime and gangs.

Turnbull's remarkably dark new year message was about economic challenges, international conflict and "Islamist terrorists". It was about fighting things rather than doing things.

We expect it of Trump. He seems to need to be against things. But Turnbull promised something grander.

Tackling Tony Abbott for the leadership in 2015 he acknowledged challenges, but spoke of "enormous opportunities".

"We need a style of leadership that explains those challenges and and how to seize the opportunities," he said at the time. "Our values of free enterprise, of individual initiative, of freedom; this is what you need to be a successful, agile economy.

"What we have not succeeded in doing is translating those values into the policies and the ideas that will excite the Australian people and encourage them to believe and understand that we have a vision for their future."

The people who were most excited by that promise have been disappointed ever since.

At its best the Turnbull government has been about administration, at its worst its been about opposing things: Labor, the unions, external threats and the previous government.

In welcoming the 16,000 people who will become Australians on Thursday his Immigration Minister, Peter Dutton, made only a perfunctory reference to the good they would do and spoke instead of "unprecedented security threats from terrorists, extremists and criminals who seek to exploit migration pathways to citizenship for their own ends".

"The lesson of terrorism here and in Europe is that we must prevent foreign extremists from arriving in the first place, and remove them once detected."

As a vision for the future, it was fearful.

Turnbull's Human Services Minister speaks rarely about services but often about fraud. His Trade Minister talks about Labor almost as often as he does about trade. His Energy Minister is as likely to score political points as he is to talk about energy. His Attorney-General spent much of last year feuding with the Solicitor-General while his Deputy Prime Minister was moving a division of his department into his electorate.

It's anything but a vision, but I don't think it's entirely Turnbull's fault.

Whether he realises it or not, Turnbull (like Trump) might be in tune with the times.

Australia was indeed bold and optimistic when he was growing up. In 1966, the year decimal currency was introduced, half the population was aged under 30. Only 7 per cent were 65 or older.

Today it's double that: 15 per cent are 65 and older. Seven per cent are 75 and older.

As we get older we usually become less adventurous, more fearful and more inward looking. There's every reason to believe it's the same with populations.

The $2, $5, $10 and $20 notes introduced with decimalisation were vibrant – in your face greens, blues, lilacs and pinks.

When they were replaced with plastic notes a generation later in 1992 the new designs were more muted, the colours more pastel.

In the next upgrade to incorporate new security features another generation later in 2016 the designs changed little. Queen Elizabeth lives on the new $5 note, perhaps because removing her would be controversial.

By 2060 when almost a quarter of the population, and almost half the voting age population, will be 65 and over the designs are likely to be more muted still.

We are already becoming more timid and inward looking. Parliament House is now patrolled by police with machine guns. A 2.6 metre fence is about to go up on top of it to keep terrorists away from the lawns.

Radio Australia is about to turn off the shortwave service used to broadcast emergency information to remote Pacific islanders. Our foreign aid budget has been slashed by 16 per cent during three years in which our defence budget has grown 26 per cent.

And care for ourselves, should we become sick, has become our No.1 priority. The ANU election survey finds that in 1990 only 9 per cent of us nominated health as the top political priority, far fewer than >nominated unemployment or taxation. By 2016 it was 24 per cent, more important than any other priority including the economic ones.

It's natural to want to care for ourselves as we get older, just as it's natural to invest more conservatively. Developing a city from scratch, as we did with Canberra a century ago, or the developing the Snowy Mountains Scheme as we did half a century ago, becomes less attractive the older we get.

We'd welcome vision of course. Some of us felt nostalgic when Turnbull talked about it. But what's becoming really important to us is preserving what we've got. Promising to keep us safe might be almost enough.

Not for all of us of course. But fearless, outward looking Australians are becoming lonelier. Like other ageing nations before us, we are becoming more cautious.

In The Age and Sydney Morning Herald

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

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

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

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

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

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

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

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

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

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

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

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

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

In The Age and Sydney Morning Herald

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Not born to run. Why Springsteen was lucky

People don't see Bruce Springsteen for the music. He says so himself.

Here he is on the New Yorker radio hour in November: "I don't get paid necessarily to play this song or that song. I get paid to be as present as I can conceivably be on that particular night, because if I'm there, and I'm alive, I know you're feeling it too."

That's what we will be paying for over the next few weeks: communion, the opportunity to hang out with Springsteen and have him hang out with us, fully present.

We want to be close to him because we know he is one of us. Although talented and driven as a musician, he almost dropped out of high school, he drove busses. He mightn't have made it at all were it not for an extraordinary stroke of luck, which he details in his autobiography.

Asked what he would have done if it hadn't worked out, he says he would have gone back to New Jersey and played in bars.

I've been privileged to see Peter Allen perform twice. As for Springsteen, I didn't go for the music. I went to see him perform, to have him take me into his life. He was the boy who could have been any of us. Try to listen to Cassie McCullagh's Life Matters documentary about her family's memories of him as a boy in Armidale without crying.

Allen was certain he had what it took to get to the top, but he couldn't get close until, balding, with a failing voice and an act that was getting laughed out of gay bars, he was picked up by a manager who thought he could pull something off.

We want to get close to Allen, Springsteen and the rest in part because what happened to them is so unlikely.

If you need to be convinced, check out the Academy Award-winning documentary 20 Feet from Stardom broadcast on the ABC last month. It's an account of truly excellent singers - all of them as good as or better than the stars - who didn't make it.

As with Allen, back-up singer Merry Clayton felt that "if I just gave my heart to what I was doing, I would automatically be a star". She was wrong. Record companies told her she sang gospel and said: "there can only be one Aretha".

In a legendary paper entitled The Economics of Superstars, economist Sherwin Rosen argues that these days the world only needs a few musical superstars, whereas before modern communications it needed one per village.

In Success and Luck: Good Fortune and the Myth of Meritocracy, economist Robert Frank uses maths to point out that even if most of success is due to talent, the final decisions about who makes it to the top will inevitably be the result of luck.

The implications extend from ministerial entitlements to Centrelink to tax to pay scales. They're worth remembering whenever we are told someone got there by themselves.

In The Age and Sydney Morning Herald

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Harford. A messy symphony that almost hits the crescendo

Messy
Tim Harford
Hachette, $32.99

The best pop songs start by giving you what you want, and then build up to so much more.

Tim Harford is a virtuoso of pop economics. Originally a development economist, and the coauthor of an excellent but little-read book about aid, he flicked the switch to pop a decade ago with The Undercover Economist, an examination of topics such as why Starbucks charged the way it did, why you were always ripped off when you bought fair trade, and why you could never get a good price for a second-hand car.

Like the early work of the Beatles or the Beach Boys, it was fascinating but straightforward. Then a few books later came Adapt, which piled layer upon layer of stories from psychology, evolutionary biology, anthropology, physics, maths and music to build to an unarguable case that success is trivial and ephemeral unless it comes from the ground up, from recovering from the worst mistakes.

Now there's Messy, a book that presents itself as an impossibly simple account of the virtues of a messy workspace, then builds to something extraordinary.

The chapters on workspaces are books in themselves. BHP gets special attention. Its 11-page edict to its office workers in Perth ("If you wish to display an award, that's okay – but only if you remove the A5 photograph") is a gift to proponents of messy workspaces, as are those of the Los Angeles advertising agency Chiat/Day which tried to create a "workforce of the future" by banning paper as well as personal desks. Harford says employees had to improvise ways to keep hold of the paper copies of contracts and storyboards and concept art. "Some staff stashed binders in heaps in the corner, others used their cars as storage, heading to to the car park to file and retrieve important documents."

In contrast, Manhattan's appallingly unorganised Brill Building and the makeshift Building 20 at the Massachusetts Institute of Technology produced some of the greatest music of the 1960s and the greatest technological advances of the 20th century.

Harford sees battles over neatness as battles about control. By browbeating their employees over something that's visible, employers think they'll be able to control what's invisible, which is how well their workers work, although it usually works the other way.

Our own attempts to control our thinking fail for much the same reason. To-do lists are notoriously ineffective, piles of paper are far more efficient than filing cabinets, email search is quicker than logically arranged folders or tags, near-random hookups succeed better than carefully matched dates. Then Harford broadens the field. Generals succeed best in war (and chess) when they are unpredictable, musicians when they are placed in near-impossible situations, hospitals and ambulance services when they abandon clear targets, pilots when they don't always rely on autopilot and great speakers when they depart from the script.

Martin Luther King's most famous phrase "I have a dream" came mid-sentence when he didn't like the next pre-prepared line. Casting around for something better, he heard someone behind him yell: "Tell 'em about the dream, Martin."

But Harford stops just short of the ultimate crescendo. It would be to acknowledge that just as rules can't exert control, neither can we. Most of what we do comes from our unconscious, with our central control unit merely taking the credit. I think he didn't go there because he doesn't believe it. Like most of us with a healthy ego, he likes to think he does it himself.

In The Age and Sydney Morning Herald think he does it himself.

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How Centrelink unleashed a weapon of math destruction

The most frightening thing about the Centrelink malware debacle is the verve with which the government embraced it.

Malware is software designed to do damage under the cover of providing a service.

Unveiling the automated Centrelink debt recovery system mid-year treasurer Scott Morrison and social services minister Christian Porter promised more "accurate and appropriate income testing". They were going to work with the prime minister's Digital Transformation Office to "cut red tape and ensure that mistakes are minimised".

It's theoretically possible for machines to do complex things better than humans. These days chess-playing programs do it (at least they do it to me) but those programs are exquisitely designed and have goals that are properly specified.

What Morrison and Porter promised was an automated system that would issue Centrelink debt notices "better" than human beings.

Humans did the job extremely well. A former Centrelink worker with 30 years experience says they would "look at start dates for employment that customers had declared, see if it was the same for the employer [using Tax Office records] and roughly work out if it lined up."

"If it looked as if a person had possibly been overpaid they would write to the customer and ask them to call and tease out where the discrepancy was, and ask for proof, if it was still available, in the form of things such as payslips. If the customer didn't have them and it looked like there was a possibility of an overpayment, they would write to the employer to ask for the information. If evidence was collected that the customer had not declared the income correctly and a debt existed, then the debt calculator would raise the debt in accordance with the legislation and the customer would be written to."

What's important in this description is the humans charged with applying the law didn't issue debt notices unless they had evidence that a debt existed. To do so without evidence would be to break the law.

But a wrongly-programmed computer need have no such scruples. Even better, its decisions can be presented as objective, hard to overturn. Data scientist Cathy O'Neil outlines scores of examples in her new book Weapons of Math Destruction, from the systems used by credit rating agencies in the lead up to the global financial crisis, to systems that automatically select teachers for the sack on the basis of secret algorithms that grade performance, to systems that deny people job interviews on the basis of proxies for mental health, even though that's illegal.

They are used because they are quick rather than accurate. As an expert told O'Neil, the primary purpose of a workplace hiring system is "not to find the best employee, but to exclude as many people as possible as cheaply as possible".

By necessity, they do it unfairly. People who are wise to the systems will mention the right words in job applications to get to the top of the pile. As she says, they are usually not from racial and ethnic minorities. Here, it's the persistent and well-resourced people who get the better of Centrelink. They are unlikely to be the hardest up.

Many of the automated systems are malicious, created to do harm in the guise of providing a service. The formula used by Centrelink produces consistently false estimates of debts by dividing by 26 the annual wages employers report paying in order to overestimate income received during the smaller number of fortnights claimants get benefits.

The formulas used by for-profit colleges in the US to target internet advertising zero in on single mothers of colour who are poor enough to earn the colleges' valuable subsidies and ill-informed enough not to twig to debt. The formulas O'Neil herself worked on in financial markets presented securities as safe that weren't.

O'Neil says that to be a "weapon of math destruction" a formula has to be used en masse (as the Centrelink formula will be), it has to be difficult to question (as the Centrelink formula will be for many people) and it has to cause damage (as the Centrelink formula is doing).

That isn't to say that credit risk and Centrelink and other software can't be designed to do the job better than humans. It's a worthy aim, one Morrison and Porter apparently thought they had achieved.

The man Turnbull hired to prevent such stuff-ups describes what happened as as "cataclysmic". Paul Shetler left the prime minister's Digital Transformation Office in November as the Centrelink debt collection program gathered pace. 

In The Age and Sydney Morning Herald

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Centrelink's robo-debacle is a litany of inhuman errors

These days the butt of jokes, the Leyland P76 started out as a good car. The only one specifically designed for Australia, it had a roomy interior, good stability, excellent fuel economy for a car of its size and excellent prospects. In 1973 Wheels magazine named it car of the year.

In part that was because of the fanatical devotion of its quality control team. Nothing left the yard unless it was perfect. But then its parent, British Leyland, ran into financial troubles. It sent over a new Australian chief who over-ruled the quality control team and released onto the market a flood of cars with faults. British Leyland got the cash, destroyed the car's reputation, and wound up the entire operation, a year costing 5000 jobs.

The Centrelink robo-debt debacle won't cost as many jobs, but its impact will be worse. It'll dwarf that of the bungled census, for which the Prime Minister declared that heads would roll.

In the lead-up to Christmas tens of thousands of Australians received notes embossed with the Centrelink logo telling them the income their employer had reported to the Tax Office was different to the income they had reported to Centrelink. Unless they explained why within 14 to 21 days, they would have an assessment made against them and be hit by a 10 per cent recovery fee.

Some of the letters dealt with Newstart, sickness and other payments going back six years, beyond when most people keep records, and way beyond the six months the Centrelink website asks people to keep pay slips.

If they could get on to the right part of my.gov.au (which was difficult in the lead-up to Christmas) and if they entered the correct information, they were often still told they owed money, and sometimes told to pay it even if they disputed it in order to avoid debt collection.

In a reversal of the usual onus of proof, they were guilty and sentenced until later proven innocent.

Many are entirely innocent. An internal Centrelink check is said to have found that only 20 out of hundreds of cases reviewed are genuine debts. Social Services Minister Christian Porter uses a different metric to say that eight in every 10 letters has uncovered a legitimate debt. But they've done it by the equivalent of spamming, by sending out thousands of obviously wrong assessments in the hope of getting money while they are contested. They are assessments that never would have got past quality control had humans been in charge of the process, as they used to be until Centrelink put it in the hands of robots mid last year.

One of their stupidest mistakes is to calculate fortnightly income by dividing annual income by 26. If the figure is too high the robots say someone wasn't entitled to benefits during the weeks they received them, even if during those weeks the person earned nothing. In other words, they misapply the law. Another is that they are not too bright. If the name of an employer is spelt one way by the Tax Office and another way by Centrelink, the robots assume it's a different employer and that it's undeclared income. In other words, they shouldn't have been let loose.

How they came to be let loose, how they were allowed to shake down vulnerable people in the lead-up to Christmas, will doubtless be the subject of a Senate inquiry and probably an Audit Office inquiry.

There were clues on the Tuesday before the election. That's when Porter and Treasurer Scott Morrison said they had found billions to pay for their promises. Through "the smarter use of technology" they were going to "improve the capability for the identification and recovery of debt owed to taxpayers".

Automated compliance systems would "minimise red tape, and avoid mistakes that may adversely affect a recipient's payments".

It was a worthwhile aim. None of us should want either overpayments or underpayments. But the delivery was appalling. Morrison and Porter had promised all the P76 promised and somehow delivered what the P76 delivered.

One of the wilder theories is that they intended to. By inflicting a faulty debt recovery system on the public, they wanted to persuade ignorant, scared and busy people to hand over money they didn't owe and dissuade others from ever applying for benefits again.

A more likely explanation is that they didn't know what they were doing. Asked about the letters sent out by his department threatening a 10 per cent recovery fee, a surprised Human Services Minister Alan Tudge told the ABC: "A 10 per cent recovery fee is new to me, and I don't believe that does occur."

But they might not have reckoned on the extent to which people can fight back. Many of those wrongly hit up have in the intervening years qualifiedhave subsequently become lawyersare now as lawyers. They are talking about a class action. They are going to use the freedom of information process to document how robo-debt was set up and to get the medical and other records that the department already had but chose not to share with robo-debt.

Tudge, Morrison and Porter could do worse than look beyond our shores to Michigan in the US. It backed down after sending out tens of thousands of robo-debt notices in error and announced that in future assessments would be overseen by human beings.

In The Age and Sydney Morning Herald

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