Wednesday 30 April 2014

Thomas Piketty: It's the inequality, stupid

The Conversation 29 April 2014, 12:00pm 61

Before taking a big Budget stick to the poor and
underprivileged, Treasurer Joe Hockey should review the research of
economist Thomas Piketty, who shows that increasing inequality
undermines democracy and stifles growth. Professor Thomas Clarke comments (via The Conversation).

THE COALITION GOVERNMENT is currently rehearsing a well-honed
rhetoric on “everyone having to do the heavy lifting” to justify
Treasurer Joe Hockey’s slash and burn budget on social services and
pension entitlements.

But perhaps he might pause a while to consider a new book making
waves around the world, which provides two centuries of financial data
from 20 countries directly confounding Hockey’s central assumptions on
the sources of growth.

French economist Thomas Piketty’s new book, Capital in the 21st Century
has been generating an increasing amount of heated commentary with the
argument that increasing inequality is undermining democracy and
destroying the chances of equitable opportunity and sustainable growth.

Piketty argues – with the support of a massive amount of economic
data – that the problem is not caused by the benefits paid to the poor,
but the increasing wealth commanded by the rich (such as those happy to
pay $500 a plate at Liberal fundraisers).

Hockey is an old-fashioned believer that state intervention crowds
out entrepreneurial initiative, individual enterprise is checked by
state benefits, and that public debt is a continuous drag on economic
growth.

Joe Hockey's "budget emergency" myth blown away by Andrew Neil (24/4/14)

This week Hockey will publish the report of his hand-picked Commission of Audit to support his view that only dramatic cuts in benefits in the medium term can sustain growth.

Piketty demonstrates that Hockey is looking at the problem through
the wrong end of the telescope; the problem is the increasing
concentration of wealth of the rich, not a lack of incentives for the
enterprising.

It is amazing the Financial Times, the Wall Street Journal, The Economist, the Huffington Post and the New Yorker magazine – among many mainstream media – are all earnestly debating Piketty’s devastating critique of increasing inequality.

Any consideration of inequality has been out of fashion for decades.
Reagan and Thatcher cauterised any sensitivity to the causes of
inequality stone dead with their disinterment of a laissez-faire
celebration of free enterprise. Yet Picketty’s book on inequality is now number 1 on Amazon’s top 20 books list.

And Piketty is an economist!

With honourable exceptions such as A.B. Atkinson in the UK, and Paul Krugman, Joseph Stiglitz, Robert Reich and Emmanuel Saez
in the U.S., with regard to the question of inequality, economists have
been trapped in the fatal embrace of the efficient market hypothesis
and studiously pursued quantitative modelling of increasingly obscure
hypotheses.

Nobel prize winning economist Paul Krugman has said Piketty’s Capital inspires

“... a revolution in our understanding of long-term trends in inequality.”

Joseph Stiglitz "How Inequality In Today's Society Endangers Our Future"

From his more productive tunnelling through 200 years of meta-data,
Piketty has emerged with the following dramatic propositions:

There is no general tendency in market economies towards equality.
The reduction of inequality after the Second World War was caused by
enlightened policy including progressive taxation. The erosion of
progressive taxation in which the rich pay proportionately more than the
poor, has in effect recreated the conditions for the return of the
domination of inherited wealth of the 19th century. A new domination by
dynastic wealth.
The drift back to extreme inequality is apparent in all of the advanced industrial countries,
particularly the US and UK. Picketty demonstrates that while in the US
the richest 1% of households took 22.5% of total income in 2012, what is
even more worrying is the trend since: “the richest 1% appropriated 60%
of the increase in US national income between 1977 and 2007.”
Accelerating this trend towards increased inequality is the rapid inflation in the reward of top executives in the US and the return of the system of inherited wealth of patrimonial capitalism in Europe.
These tendencies are worsening as the accumulation of
capital continues to grow while Western economies have slowed in recent
decades. The return on capital has outpaced the growth in economic output.
Piketty’s policy recommendations hark back to a different era
– the democratic reformist zeal of the post-war period when higher
marginal tax rates for the rich, and inheritance taxes were seen as
essential to economic progress, not punitive.
The alternative we are now facing is the return of plutocracy, as Piketty comments: “Inequality
is fine as not long as it is not completely excessive. At the end of
the day, it’s hard to make democratic institutions work if you have 95%
of the wealth in the top 10% of people."
Assumptions that inequality is necessary for economic growth are largely groundless: a more unequal society fails to deliver economic growth.
Austerity measures simply focused on reducing
national debt, by reducing the capacity of other essential services such
as health, education and social support, can compound inequality and further restrain growth.

Thomas Piketty on Economic Inequality

Where will this extreme inequality end?

A recent Oxfam report suggests the richest 85 people in the world – the likes of Bill Gates, Warren Buffett and Carlos Slim – own more wealth than the roughly 3.5 billion people who make up the poorest half of the world’s population.

Inequality is not an accident, it is a result of the way we run our
government and economy. Hockey claims this budget (and his budgets to
come in the medium term when the more serious cuts will be made) is
directly focused on removing the fetters on economic growth. In reality
it is focused on removing the fetters on increasing economic inequality.

This article was originally published on The Conversation. Read the original article.

Abbott and Hockey's twilight war

Bob Ellis 30 April 2014, 12:30pm 174

Politics

227

Signs of a twilight war between Hockey/Cormann and Abbott/Credlin grow by the hour, as Liberal MPs ready for revolt over the unaffordable PPL and the new deceit tax.

Pensions at seventy (Hockey) have tanked after private polling, but
so have the billionaires’ baby bonus (Abbott), and the Great Big New Tax
(Hockey) is now the go — thus proving you can tax your way to
prosperity and it well may be that Abbott no longer has any power over
policy, any more.

It’s likely, too, that both camps will be dangerously stained by the onrolling “culture of criminality” ICAC show
that, in the next month, will start a good few bribesters grassing and
more Liberal MPs resigning their party membership. It’s pretty certain
Abbott has had a meal or two with Di Girolamo
(he’s had a meal or two with me) and pretty likely he’s received, in
the past, good money from that thug’s poisoned water hole for one or
more of his campaigns, and so ‒ perhaps ‒ has Hockey.

Never before has a government eight months in power had so little authority.

Never before has a Prime Minister looked such a dumb-bum.

No Newspoll, though one is due, came out yesterday. This indicates a
precipitous fall in the Lib/Nat vote two-party-preferred in an honest
count that has been suppressed and a big surge to Palmer, who now
controls eleven seats in various assemblies and will control the Federation, pretty much, on July 1. It’s certain his power will grow
and Abbott’s shrink in the next week, and the next month, and the
notion that Abbott has power ‒ power over anything ‒ will be out of date
by June.

By then, Scott Morrison will be in the searchlights of the Senate and
the Governor-General and may be on a slow march to prison for
harbouring two murderers and covering up thirty or forty atrocities that
it was his duty to reveal to the voters, not to mention his new his “Cambodian solution”. By then, it may well become evident that Abbott has drop-kicked to corporate mates not just the universities’ money but the decade-long search for MH370
in the wrong part of the ocean at a cost, over time, of hundreds of
millions of dollars that could have been better spent elsewhere.

Tony Abbott speech at Sydney Institute 28/04/2014

No precedent exists for the present situation, the present crisis in our democracy.

In the Caribbean, in South America, in some former African colonies
there have been governments as hated and mendacious as this one. But
never here.

It’s likely now that, not just Shorten, but Palmer, and Plibersek,
and Albanese, and Hockey, and Turnbull, would beat Abbott in a
face-to-face poll as preferred Prime Minister. It’s likely the Liberals’
‘core’ vote, never more than 32 percent, is down now to 25 or 26, and
the party, long-term, is crashing and burning like the Democrats after Meg Lees signed on to the GST.

It’s hard to imagine a worse lead-up to a Budget in peacetime.

And so it goes.

Sunday 27 April 2014

Contemptuous dismissal

By Kaye Lee on April 28, 2014 • ( 0 )

Terry2

April 28, 2014 • 6:36 am

“I got to wondering why Andrew Neil’s (Spectator Australia) interview with Joe Hockey was
a ‘break through’ moment. After all, he didn’t ask any particularly
probing questions and he certainly didn’t get any revealing answers –
the example given by Joe on the question about ‘entitlement’ was the
school kids bonus.

What was unusual was that Hockey got placed in a forum where he was
actually asked questions and was expected to answer, which obviously
stunned him. I couldn’t think of a comparable situation involving Abbott
or his Ministers where they actually have been grilled or even made
themselves available to account for their leaks and spin.”

The coalition strategy seems to be to leak and work in closely with
News Corp, avoid interviews beyond those with friendly outlets where
quite obviously the questions are scripted and whatever happens don’t
appear on the ABC.

Funnily enough Terry, I had been thinking about exactly the same things.

There were a couple of things to come out of the interview. Joe
Hockey, for all his doom and gloom to local press, was forced to admit
that we are actually in a very good position economically – not only
that, we are vying for best in the world. Why the hang dog look for
Australian audiences, replaced by a satisfied smirk internationally? Why
are we even contemplating austerity measures? Why are you telling us
we are in trouble when we so obviously are not?

We have

AAA credit rating
Debt 23% of GDP
Deficit 3% of GDP
Growth of 3%
22 continuous years of growth
Unemployment around 6%
Strong currency
Vast mineral resources

No other G20 country is anywhere near comparable.

Hockey says “we have dropped the ball”. I actually like sport but I
am sick of hearing sporting analogies rather than factual statistics.
From my spot in the grandstand, I look at the score board and see us so
far in front that I am heading for the bar.

As you point out Terry, the only entitlement cuts that Joe could come
up with the School kids Bonus and the Low Income Allowance – both of
which hit the people who can least afford it, as will the $6 co-payment
to see a doctor. All of a sudden the carbon tax and the mining tax don’t
look so bad do they?

I too had been thinking when was the last time I heard Tony Abbott
interviewed. If you don’t watch Andrew Bolt or Skynews or listen to 2GB
then you only get controlled press conferences or cooking shows – very
occasionally 5 minutes on the 7:30 report where they try to cram in
prepared questions and don’t have time to follow up on anything.
Actually I can’t remember the last time even that happened. Matthias
Corman pops up everywhere and repeats his standard phrases over and over
like a doll having its string pulled regardless of what he is asked.

It is somewhat off-putting to have a Prime Minister who refuses to
face the people he represents. In fact it is way more than off-putting.
The CEO has an obligation to face shareholders and answer their
questions. To continue to avoid it is treating us with contemptuous
dismissal and makes one wonder what he is afraid of.

Want PBS savings? Fix the pricing for combined drugs

28 April 2014, 6.30am AEST

Want PBS savings? Fix the pricing for combined drugs

Fixing the pricing of combination therapies could save around A$120 million a year.
Bart/Flickr, CC BY-NC

Last week, Treasurer Joe Hockey made a “case for change”
in the way government spends money. His focus was largely on macro
policy settings, such as pension entitlements, including access to
schemes such as the Pharmaceutical Benefits Scheme (PBS), which he noted was the tenth-largest category of government spending.

Australians can access medicines listed on the PBS for A$36.90 (or A$6 for concession card-holders) and the government picks up the tab, at just under A$9 billion per year.

If we are to spend money wisely, the federal government will also
need to focus on micro reforms, such as the price it pays for
combination therapies – combinations of two or more pharmaceutical drugs
in a single tablet.

A paper we published today in the Medical Journal of Australia
shows that fixing the pricing of combination therapies would save
around A$120 million annually – a nice windfall for any government
looking for budgetary savings.

Benefits

Doctors are increasingly prescribing combination therapies in
Australia, particularly for people with long-term chronic conditions
such as diabetes and cardiovascular disease. The Pharmaceutical Benefits
Scheme (PBS) spends around A$600 million per year on combination drugs
to treat these two diseases.

Combination therapies have advantages for patients, as they are
generally cheaper than purchasing the drug separately and mean patients
need to swallow fewer pills.

Some studies have shown use of patients given combination drugs are more likely to continue to take them long-term. A recent analysis
of combination blood pressure-lowering agents, for example, found
people were 21% more likely to comply with their prescription than those
taking individual therapies.

Costs

The problem with the use of combinations in Australia is the cost to government. Our Medical Journal of Australia analysis
shows that, while combinations are initially cheaper or an equivalent
price to the individual therapies, they end up costing the taxpayer much
more.

How does this happen?

Initially, pharmaceutical companies seek listing of combination therapies on the PBS after they are evaluated by the Pharmaceutical Benefits Advisory Committee
(PBAC). Most combination drugs are generally listed on the basis of
cost-minimisation, which means the combination produces the same
clinical benefit to the separate components, at the same or lower price.

Pricing problems arise down the track, as any subsequent reductions
in the price of the combination drug are not necessarily linked to
equivalent reductions in the price of the component drugs.

This is a growing problem, as many combination drugs involve using
older, off-patent medication, the prices of which have been declining
over the past few years through a system known as price disclosure.
This is a market-based pricing mechanism for off-patent medications,
which bases future drug prices on the actual cost of the drugs when
supplied to pharmacies. Competition between drug manufactures drives
prices lower, as the manufacturer seeks to cut the supply price in order
to win market share.

When there is only one brand of a combination therapy, the
combination’s cost is linked to its component drug therapy items. So
when prices of the components fall, these price reductions flow onto the
price of the combination.

But when there are multiple brands of the same combination (even if
the brands are supplied by the same manufacturer), the rules change: the
cost is subject to price disclosure but there is no link between the
price of components and the price of the combination drug.

Clopidogrel + aspirin

The current pricing arrangements have had a significant impact on the
way many combinations are priced relative to their component therapies.
A prime example is the combination Clopidogrel with aspirin, which prevents blood clots forming in hardened blood vessels and reduces the risk of heart attack, stroke and premature death.

The PBAC recommended listing the combination on the PBS for the
treatment of heart disease and stroke on a cost-minimisation basis and
it became available in late 2009.

On initial PBS listing, the price of the combination was set at one
cent cheaper than the cost of Clopidogrel. This was maintained until a
month before the PBS subsidy for Clopidogrel was due to decline by 18%,
due to the price disclosure mechanism.

At that time (September 2011), the same manufacturer introduced a new
brand of the aspirin-Clopidogrel combination and this changed its
status on the PBS formulary. From that time onward, the cost of
combination and the individual components were not linked and the
marginal cost of adding aspirin has been as high as A$1.36 per tablet.

Towards reform

We need a new pricing framework to ensure these medications are a
cost-effective option for government and patients. The most obvious
reform is to permanently link the dispensed price of fixed-dose
combination therapies to their individual components, rather than just
for an initial period after its listing on the PBS.

There could be a case for paying more for a combination therapy if
they can be shown to improve adherence in a general practice setting and
thereby reduce risk factors for these chronic diseases. A fraction of
the money saved could be reinvested to evaluate how effective
combination therapies are in practice.

In the current fiscal climate, the A$120 million a year savings that
could come from a new pricing framework are too good to for the Abbott
government to pass up.

Thursday 24 April 2014

Budget emergency or a gambler in trouble?

By Kaye Lee on April 25, 2014 • ( 0 )

During
those first few weeks after the election, as over half a nation sat
there in shock contemplating what had just happened, presumably flushed
with joy at having the keys to the safe, Joe Hockey made the astonishing
decision to borrow $8.8 billion to give to the Reserve Bank.

Hockey tried to sell this as crucial to our economy in giving the
Reserve Bank a buffer zone to address future crises. What a load of
hooey.

The RBA deputy governor, Philip Lowe, said the level of the bank’s
capital reserves had not been keeping him awake at night. The board had
wanted to rebuild the capital level over time but the government wanted
to do it immediately.

In a speech at a Sydney investment conference in October, Reserve
Bank governor Glenn Stevens backed up comments by the RBA deputy
governor that the bank was happy to rebuild its capital reserves over
time. The RBA certainly didn’t ask for Hockey’s $8.8 billion capital
injection and didn’t think it was necessary.

At the current five-year commonwealth bond yield of nearly 3.4 per
cent, the borrowed $8.8 billion will cost taxpayers about $300 million a
year.

There were two reasons that Hockey did this and they have nothing to do with stability.

Hockey is making a shrewd political gamble. Any near-term budget
deficit – made worse initially by the $300 million in interest accruing
on these borrowed funds – will be blamed on the former Government’s
prolificacy as perceived economic mis-management. It added a great deal
to the deficit over the forward estimates which Hockey then blamed on
the previous government. Approximately $68 billion of the deterioration
in the deficit between PEFO and MYEFO is due to policy decisions made by
the Coalition.

Secondly, this was a blatant gamble in the hope the Aussie dollar
would go down. Then as the Australian dollar falls, and dividends from
the RBA reserve fund flow to the Government, Hockey will be better
placed to show improvement in the budget bottom-line and claim himself
as a fiscal super hero. The last time the Aussie had a sharp fall, the
RBA paid the government a dividend of more than $5 billion. Trader Joe
is playing the forex market with borrowed money hoping for a windfall
just before the next election.

Fairfax’s Michael Pascoe suggested that perhaps Hockey was acting on
“in-house advice from the former head of foreign exchange and global
finance at Deutsche Bank, Melissa Babbage. Hockey is Ms Babbage’s
husband.”

Unfortunately, that gamble isn’t going so well so far as the dollar remains persistently high.

The Reserve Bank of Australia’s move to a “neutral bias” on monetary
policy has angered the Abbott government, which believes any upward
pressure on the dollar will make it harder to manage the economy and
Treasurer Joe Hockey’s displeasure was made known to the RBA directly.

The government has become uncomfortable with the Australian dollar’s
upward move since the RBA dropped its explicit easing bias, paving the
way for the currency to rise on the expectation that the central bank’s
next move will be up.

RBA Board member, Dr John Edwards, responded by saying Australia was
in the grip of a “bountiful” mining and energy export-driven revenue
surge.

“It’s very difficult to expect rhetoric to have an impact
on economic forces which are running in the opposite direction. If
you’ve got a mood going on in the currency, then rhetoric alone is not
going change it. The currency argument is that a fall in the terms of
trade should see lower exports and therefore less demand for the
Australian dollar. It’s not working out like that. In fact US dollar
revenues have increased [for local mining companies]. And the balance of
trade has for several months been positive, once again. And that means,
in terms of what happens in foreign exchange markets, you wouldn’t
necessarily expect to see a weaker dollar if it’s associated with,
effectively, a boom in exports.”

An article called Swaggering unarmed in the global currency war
in Macrobusiness suggests that the dollar has turned for a number of
reasons. The US recovery has again disappointed, pushing back rate hike
expectations. China has hit the stimulus accelerator again (albeit
mildly), the EU is clearly in the process of entering the money printing
race as deflation looms, and Japan’s Abenomics burst is slowing and
requires more money printing to get going again.

In short, we’re traversing an echo period of competitive monetary
devaluation in which the US dollar is held down, commodity-intensive
emerging markets are seen as the growth driver and real assets are seen
as value protection. This is putting upwards pressure on all of the
commodity currencies, and gold, not just the Australian dollar. We
aren’t losing competitiveness against commodity competitors, for the
most part. It’s against the manufacturing and service economies that
we’re losing production.

Even before the Reserve Bank indicated it was disinclined to cut
rates again, and more likely to keep them steady, the Aussie dollar had
begun to climb.

Despite pointed references by Reserve officials about an
“uncomfortably high” dollar, financial markets continued on their merry
way, pushing the dollar higher. Regardless of the Reserve’s rhetoric,
currency buyers continued to prefer to buy Aussie dollars and pay a
higher price for them.

That’s not surprising when you remember that the return on many currencies around the world is exactly zero.

The Reserve Bank’s current assessment is that, with signs emerging
that the economy is strengthening, the argument to reduce interest rates
again from already record lows is weak.

The RBA indicated in February that it had finished its easing cycle,
supported by strong inflation readings and finally a rebound in jobs
growth. Most economists now expect rates will be on hold at 2.5 per cent
– a record low – until at least later this year. The RBA is not just
battling with the impact of an Australian dollar trading above fair
value. It is concerned with trying to keep house prices under control
and ward off an asset bubble fuelled by low interest rates.

When it began slashing interest rates two and half years ago, the RBA
explicitly targeted a housing boom. Now it has a growing bubble on its
hands and hence interest rate markets are pricing interest rate rises in
the next twelve months, long before the real economy is ready for them
given the long unwind ahead in mining investment. That has global hot
money flows pursuing the carry trade into the Australian dollar as the
interest rate spread has climbed a long way off last year’s lows.

Some suggest that the RBA should have introduced macroprudential
tools, which would have insured that housing credit was controlled in
this recovery cycle and interest rates could be another 50-100 bps
lower. The recovery we should have had is in tradables with support from
housing construction, not the other way around.

It could still be done and would have an effect. But the risk now is
that it would work too well and cause a housing bust, just as we head
off the mining capex cliff.

Likewise, Joe Hockey need not wait for the RBA. If Hockey really
wants to push the Reserve back to cut interest rates and lower the
exchange rate, he could trash the economy with irresponsible policy
making. He could slash and burn in the Budget and force interest rates
and the dollar lower.

Or he could shift negative gearing to new dwellings only. That would
stall house prices and offer the opportunity for rate cuts to close the
carry trade spread. He could install Tobin taxes on hot money inflows, a
tax on all spot conversions of one currency into another to put a
penalty on short-term financial round-trip excursions into another
currency, which would help take the edge off and raise extra revenue.

As we have seen with the Coalition, they can find money for things
they want – Operation Sovereign Borders, fighter jets, paid parental
leave, roads, bribes to polluters, Tim Wilson, private jet travel for
politicians, businessmen and journalists, tax concessions for the
wealthy – so it is hard to buy the ‘need for austerity’ line. I think
Hockey is sweating bullets because his gamble isn’t working out so well
and he desperately needs to do something to make the dollar go lower.

Joe Hockey signals big changes will come after next election

Joe Hockey signals big changes will come after next election

SURE JOCKEY HOCKEY BIG CHANGES INDEED THE ABBOTT GOVERNMENT WILL BE VOTED OUT NEVER TO RETURN.

Hockey signals big changes will come after next election

As Labor builds its 'broken promises' critique, treasurer says Australians will have opportunity to make judgment at next poll

Katharine Murphy, deputy political editor
theguardian.com,
Thursday 24 April 2014 18.20 AEST
Jump to comments (191)

Joe Hockey is continuing his efforts to soften up voters for
unpopular budget cuts next month – but he’s signalled many of the
controversial changes will be positioned on the other side of an
election.

The treasurer has been giving industrial-sized hints
that the government will move to increase the pension age to 70, and
introduce co-payments for some services, including doctor’s visits, in
an effort to make federal finances more sustainable over the longer
term.

But given that Tony Abbott promised without qualification
during the election campaign not to touch pensions or reduce health and
education spending, Labor has been building up its “broken promises”
critique in response to the Coalition’s pre-budget positioning.

The
ALP has released a new advertisement reminding voters of the prime
minister’s various pre-election statements on the aged pension.

Hockey
on Thursday signalled that some of the big changes would not take
effect in this electoral cycle, but after the next federal poll. “We are
honouring our commitments and in relation to many of the structural
changes that we have to make, the Australian people have the opportunity
to make decisions at the next election,” the treasurer told the ABC.

Seniors
groups have soundly rebuffed the government’s attempts to inoculate
itself from an electoral backlash – warning the government they will
regard any change to the aged pension as a broken promise, regardless of
when it takes effect.

On Wednesday evening Hockey used a major
speech to confirm the long-anticipated Commission of Audit would be
released next Thursday – and to point to efforts by the Coalition over
time to restore budget sustainability with measures including increased
co-payments and means testing for transfer payments.

Hockey all
but confirmed the government would apply a co-payment to GP’s visits.
“Well, that is certainly something that is in the mix – the fact is that
Medicare is growing at twice the speed of the economy,” he said.

“We all have to make contribution because nothing is for free. Nothing can remain for free.”

On
aged pensions, he said: “Well, there is an inevitability that at some
point we have to increase the age pension age, but it is well into the
future.

“We should celebrate the fact that we are living longer.
We should celebrate the fact that effectively one in every three
children born today are going to live to 100. We should also not see
someone's life ending when they turn 65 or 70.”

The shadow
finance minister, Tony Burke, rejected the government’s qualifications.
“The day before the election Tony Abbott made, in no uncertain terms, a
commitment that there would be no changes to pensions, no changes to
pensions,” he said.

“There is no way of reading what Joe Hockey
said last night other than by recognising that they are gearing up to
break that promise.”

Labor's Economic Update with Chris Bowen MP - 24 April 2014

ABOUT THE LIES FROM JOE HOCKEY AND HIS FABRICATED BUDGET CRISIS.

Joe Hockey's "budget emergency" blown away by Andrew Neil (24/4/14)

JOE HOCKEY MAKING A FOOL OF HIMSELF WHICH IT ISN'T VERY DIFFICULT FOR HIM TO DO.

Joe Hockey's heavy lifting — for some

Mark Chapman 24 April 2014, 5:00pm 0

Economics Politics

What the treasurer puts in his Budget night isn't yet
clear, but it seems likely the heavy lifting is to be left to the many
while the few enjoy the ride, says Mark Chapman from Taxpayers Australia.

Speaking in Sydney last night, Treasurer Joe Hockey stated that:

The task of getting the Budget back on track is a
national priority and will require every sector of the community to make
a contribution.

There will be difficult decisions, but all Australians must help to do the heavy lifting.

It will not be acceptable for a few to make the major sacrifices on behalf of the rest of us.

Pre-budget Speech

Fine words and let’s be clear, there really are hard choices which
need to be made over time about how we are taxed and what we spend;
about whether we want, or can have, a European model of social welfare
based on what we’re prepared to pay, or whether we can only afford an
American style model based on low tax and no support, where the most
vulnerable sink ever lower whilst the wealthy continue to prosper.

But there is a hollowness to Hockey’s solutions, a lack of sincerity.

Too many slogans which sound like fine words but crumble on close
inspection. This is an unashamedly political approach, based on
fostering a sense of crisis which only sober, sensible Hockey can solve
by making hard choices on behalf of us all.

It is, in essence, smoke and mirrors.

To prove the point, on the same day that Hockey emphasized that
difficult decisions have to be made, the prime minister and defence
secretary made a commitment to spend $24bn purchasing additional fighter aircraft — a decision the Leader of the Opposition – oddly and mystifyingly – was quick to support.

Defence analysts – including the Liberals own Dennis Jensen - state that the Joint Strike Fighter is, in essence, a lemon,
incapable of doing the job it’s intended to do. There are also concerns
that such an aircraft will have no meaningful role to play, since it
isn’t clear which threat it’s intended to combat and – based on recent
military deployments – what role it could actually have played in the
field.

Was the decision to spend $24bn of taxpayers money a difficult one?

Perhaps the truly difficult decision would have been to walk away
from this dubious deal and use that pot of money to help fix the
so-called “budget emergency” the rest of the taxpaying population is shortly to be tasked with fixing.

Within Hockey’s speech is a table which sets out the expected growth
rates of spending across the public sector over coming years:

Defence spending is expected to grow by 5.2% per annum and, by
2023-24, will be the second largest commitment in real dollar terms, at
$41.4bn per annum — nearly double the expected spend on, for instance,
disability support pensions.

If we’re all doing the heavy lifting, can we expect the Defence budget to be taking its share of the pain?

Take another look at that table.

The second fastest growing commitment is none other than 'Child Care
and Paid Parental Leave', with annual growth of 11.5% per annum between
now and 2023-24.

This, of course, is Mr Abbott’s beloved Paid Parental Leave Scheme
— a wheeze lauded by Hockey for its expected role in boosting labour
force participation amongst working women of child-bearing age, but
dismissed by economists, including the Productivity Commission, on the grounds that it will produce few if any benefits to workforce participation.

So, whilst the highest earning women enjoy a $75,000 handout from the
Australian government – funded by you, the Australian taxpayer – that
same government talks about “increasing personal responsibility”, making “all Australians do the heavy lifting”, and spreading the burden across the many rather than the few.

We await the precise details of what Hockey has in mind on Budget
night but from where we sit now, it looks more like the many will be
doing the heavy lifting whilst the few sit back and enjoy the ride.

Mark Chapman is head of tax at Taxpayers Australia Inc.

Wednesday 23 April 2014

Pension plans won't win many fans

By

Peter Lewis

and

Jackie Woods

Updated
3 hours 56 minutes ago

Photo:
We are living longer - which is a good thing. But that is putting
pressure on pensions as well as health care - which is a bad thing. (AAP)

With big spending planned on fighter jets
and a generous new paid parental leave scheme, changes to the pension
could turn voters off, write Peter Lewis and Jackie Woods.

Tony Abbott is a very black and white sort of leader. He stops the boats. He ends the waste. He cuts the taxes.

But
outside the election cycle, our Prime Minister is discovering
government is less black and white and more grey, not least when it
comes to the budgetary challenge of managing our ageing population.

As three-word slogans go, Stop the Pensions doesn't really cut it.

As
the Government prepares for its tough love "age of entitlement"-ending
budget, Treasurer Joe Hockey has put the sustainability of the aged
pension front and centre of public debate. But while the demographic
forecasts might be straightforward, paying for our ageing population
comes with a whole set of complicated policy challenges.

We are
living longer - which is a good thing. But that is putting pressure on
pensions as well as health care - which is a bad thing if you are
fighting a war on debt.

Many are working in jobs that could see us
remain in the workforce longer. Others work in manual jobs where their
bodies have had enough by their mid-60s.

Compulsory superannuation
means that many people have at least some money set aside for
retirement. But the nature of income-based contributions plus tax
concessions brought in during the Howard era means super schemes
disproportionately benefit high earners.

For generations,
Australians have invested their financial security in the family home;
and booming capital city property prices mean many people have
considerable assets on retirement. Yet the Government doesn't look at
that wealth when calculating an individual's eligibility for a pension.

And to muddy the waters further, older Australians disproportionately vote for the Coalition and are easily upset.

With
these grey areas in mind, this week's Essential Report suggests
Hockey's attempt to transfer his war on the age of entitlement to the
aged pension arena is looking decidedly brave.

Australians reject the proposition that people should wait until 70 before being entitled to retire on an age pension.

Embed:
Raising pension age

The opposition crosses party lines and age
demographics, as does resistance to stricter asset tests to include the
value of the family home.

Embed:
Pension assets test

In the public mind, aged pensioners are considered the most worthy in the hierarchy of welfare recipients.

Australians
hold a firm view that after a lifetime of work and paying tax, it's
only fair that seniors get some public support. Plus, we'll all be old
one day (if we're lucky) - negotiating the financial challenges of old
age isn't just something that happens to other people.

And while
the demographic challenges might be irrefutable, there are still choices
about where and how to find the money to fund our ageing population -
and whose retirements public money should be directed towards.

After
all, the Abbott Government has delayed Labor's planned increase in
compulsory superannuation by two years, taking billions out of the
national savings pool.

And while preparing to tighten the screws
on pensions it has scrapped a tax on superannuation for the 16,000
highest income earners announced by Labor.

As the Australia Institute points out
in its report this week on superannuation the skyrocketing costs of
superannuation tax concessions are leaving the increasing cost of
pensions for dead, with most of the benefits going to the top income
brackets.

Hockey inadvertently touched on the ineffectiveness of superannuation tax concessions in reducing reliance on the pension in a keynote speech this week,
saying that despite spending billions on tax concessions the number of
Australians receiving a full or part pension in 2050 will still be about
four out of five.

Heading towards the budget, the Government is ramping up its entitlement-busting talk.

But
while the public may be convinced there are some unworthy recipients of
taxpayers' support, aged pensioners aren't among them.

And with
big spending planned on fighter jets and a generous new paid parental
leave scheme, cuts to the pension could leave voters decidedly grey
around the gills.

The survey was conducted online from April 18-21, 2014 and is based on 1004 respondents.

Peter Lewis is a director of Essential Media Communications. View his full profile here. Jackie Woods is a communications consultant at Essential Media Communications. View her full profile here.

Topics:
aged-care,
superannuation,
business-economics-and-finance,
government-and-politics

Joe Hockey does want to frighten the horses ahead of May 13

23 April 2014, 11.52pm AEST

Joe Hockey does want to frighten the horses ahead of May 13

Treasurer Joe Hockey has dwelt extensively on the burden of the age pension bill.
AAP/Alan Porritt

If Joe Hockey’s first budget runs into problems, it won’t be for want
of effort to construct a dramatic narrative about pain, personal
responsibility and Australia’s fiscal health.

The Treasurer believes in laying it on thick, whether he’s talking
about the frightening state of the nation’s overall finances or the need
for individuals to carry heavier loads.

It was a “sobering observation” that Australia wasn’t doing as well on repairing its budget as many other developed countries, he told a function hosted by the Spectator.

And to anyone who might gripe about co-payments or other nasties
needed to curb spending there was the stricture: “It is appropriate that
those who use government services should contribute towards their
cost.”

All treasurers engage in pre-budget massage – usually of the remedial
kind - but Hockey, with his end of the “age of entitlement”
philosophical framework, is going to great lengths. His Wednesday night
pitch was backed by details on projected spending growth from the Audit
Commission’s report, which will be released next Thursday.

British journalist Andrew Neil, interlocutor at the Spectator
function, gave him a bit of curry for exaggerating Australia’s troubles
when one looked at those of other countries.

The question is whether the Australian public will buy the story
about how seriously broken the budget is, requiring drastic actions –
including “winding back some spending that people have come to take for
granted” - before it’s too late.

Take the expected increase (in the long term) of the pension age to
70. Polling by Essential released on Wednesday found 20% approve and 71%
disapprove. Asked at what age people should be able to receive the
pension, 58% favoured the present 65.

This indicates that change will be a big selling challenge, but
doesn’t necessarily suggest it is an impossible one. Labor encountered
much flack when it announced the age would rise to 67 by 2023 but
eventually the issue settled down.

Hockey in his speech dwelt extensively on the burden of the age
pension bill, which is nearly $40 billion – 10% of outlays - rising to
$72 billion by 2023-24 – an average annual growth rate of 6.2%.

He pointed out that four out of five Australians over 65 receive a
full or part pension, and if concessionary card holders are taken into
account, only 14% of older people receive no government payments.

While many pensioners are obviously very needy, a lot of these
recipients are getting help from the government because politicians
(such as John Howard) threw out sweeteners to attract or keep the
support of older voters. With the ageing population the situation is
indeed unsustainable over the long haul.

Also unsustainable, in another way, is the argument Hockey tried to
make for the quarantining of Tony Abbott’s paid parental leave scheme
from the slashing and burning.

Leaving aside the planned national disability insurance scheme (46.2%
projected annual average growth over the coming decade), the area with
the largest estimated average annual growth rate in the period is child
care and paid parental leave (11.5%).

Hockey told his audience the PPL scheme (believed to be considered
extravagant by the Audit Commission) would help women remain engaged
with their employer, lift female workforce participation, and provide a
boost to the women’s retirement savings.

It was also a “huge benefit” for many small and medium sized
businesses which would be able to match the PPL offered by larger
companies and the public service.

Even if it does all the things claimed, which experts believe
unlikely, the introduction of such a scheme (providing wealthier women
up to $75,000 over six months) does not fit the budget narrative of the
need for spending restraint over the medium term.

Hockey always knew this plan was over the top and presumably hates
having to pretend otherwise. He’ll be quietly clapping if and when the
Senate trims it back.

The PPL plan was one of Abbott’s most flamboyant promises and he’s
determined to keep it (to the extent the parliament will let him).

Now he is making another, pre-budget promise that seems, on the face
of it, to defy all that is being signalled in the Hockey story.

“We are going to keep our [election] commitments,” Abbott said again on Wednesday.

There was just a slight wrinkle. Asked if he meant no election
promises would be broken he said: “Now, I’m not going to say, well you
know there was 27 and a half commitments and you know 26 and
three-quarters are going to be kept. We will keep our commitments.

“Now, I’m sure lots of people will argue and say, ‘Well what about
this and what about that?’ We will keep our commitments, because the
point I keep making, if there is one thing that we learnt from the fate
of the former government, you cannot say one thing before an election
and do the opposite immediately afterwards.”

Make of this what you will. Presumably a lot of creative timing in
implementing measures and some redefinitions will have to be employed to
avoid a budget that might get away with being seen as mean but can’t
afford to look tricky as well.