Research shows the banks will pass the bank levy on to customers


Fabrizio Carmignani, Griffith University and Ross Guest, Griffith University

Studies of European countries show that bank taxes similar to the 0.06% bank levy introduced by the government in the 2017 federal budget will be largely borne by customers, not shareholders. The Conversation

The levy could also make the banking system more, rather than less risky. The fact that a bank is asked to pay the levy is a confirmation that it is “too big to fail”. This could in turn encourage riskier behaviour. The levy might also trigger a higher probability of default by reducing a bank’s after-tax profitability

But it is difficult to say whether banks will pass the levy on to customers by increasing their loan rates, fees or both.

In its response to the levy, NAB confirmed it will not just be borne by shareholders:

The levy is not just on banks, it is a tax on every Australian who benefits from, and is part of, the banking industry. This includes NAB’s 10 million customers, 570,000 direct NAB shareholders, those who own NAB shares through their superannuation, our 1,700 suppliers and NAB’s 34,000 employees. The levy cannot be
absorbed; it will be borne by these people.

Aware of this problem, the government has asked the Australian Competition and Consumer Commission (ACCC) to undertake an inquiry into residential mortgage pricing. The ACCC can require banks to explain changes to mortgage pricing and fees.

When banks pass on these taxes

The bank levy is similar to taxes recently introduced by some G20 economies, including the UK. These had the dual purpose of raising revenues and stabilising the balance sheets of large banks in the aftermath of the global financial crisis.

An analysis of bank taxes in the UK and 13 other European Union countries shows that the extent to which taxes are passed on to customers depends on how concentrated the banking industry is.

The more the industry is dominated by a small number of banks, the greater the share of the tax that is passed on to customers and the less that is borne by shareholders. In more concentrated industries customers have relatively fewer alternative options and therefore tend to be less mobile across banks. This in turn gives the large banks greater market power to increase interest rates and fees without losing customers.

Australia’s banking industry is quite concentrated. In fact, we’re around the middle of the pack of OECD countries, much higher than the US, but lower than some European countries. From this we can surmise that at least some of the cost of the bank levy here will be passed on to borrowers through higher loan rates, fees or both.

An IMF study of G20 countries suggests that a levy of 20 basis points (i.e. 0.2%, approximately three times higher than the Australian government’s bank levy), could lead to an increase in loan rates of between 5 and 10 basis points. This means that the monthly repayment on a loan (assuming an initial rate of 5.5%) would increase by approximately A$6 for every A$100,000 borrowed.

The IMF also found that the bank levy doesn’t just hit customers. A 0.2% levy would reduce banks’ asset growth rate by approximately 0.05% and permanently lower real GDP by 0.3%.

The impact on customers

If the banks pass on the levy to customers then it becomes just another indirect tax, similar to the GST. The question then is whether this is regressive – does it have a greater impact on those on lower incomes than higher incomes.

Lower income earners are likely to borrow less than higher income earners. However, lower income earners are also less able to bear an interest rate increase. They are also more likely to be excluded from borrowing when the cost of borrowing increases.

In this sense, then, if the bank levy is passed on to customers it could become a barrier to home ownership for some lower income borrowers.

More generally, if the value of bank transactions is a higher proportion of low incomes than of high incomes, then the bank levy would operate as a regressive tax and contribute to sharpening (rather than smoothing) inequalities.

Both of these would be unintended, but undesirable, consequences of the levy.

Fabrizio Carmignani, Professor, Griffith Business School, Griffith University and Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

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

Coalition fails to get post-budget boost predicted by commentariat


Adrian Beaumont, University of Melbourne

After the release of the Federal budget on Tuesday night, much of the political commentariat thought that the budget would be popular, and predicted a lift for the Coalition in the post-budget polls. Graham Richardson in The Australian said the government would “no doubt get a sugar hit from the budget”. The Conversation

All the regular post-budget polls are instead at least 53-47 to Labor, with little change apparent from the pre-budget situation. In Newspoll Labor gained a point, while in Ipsos the Coalition gained two points, leading to different commentary from Fairfax, which sponsors Ipsos, than The Australian, which sponsors Newspoll.

The last Ipsos was 55-45 to Labor in late March; this seemed an outlier at the time. The last Newspoll was 52-48 to Labor three weeks ago, and was probably influenced by the announcements on the citizenship test and 457 visas.

Here is the post-budget poll table. Two separate ReachTEL polls were conducted on 11 May, one for Sky News and one for Channel 7. They are the first public ReachTEL Federal polls since before the 2016 election. Only half of the Essential sample is post-budget, though this week’s additional questions are based on the post-budget sample.

post budget.

The Sky News ReachTEL was reported as 53-47 to Labor, and the Channel 7 ReachTEL as 54-46. However, both these results were based on respondent allocated preferences. To match polls that only give the previous election preferences, I am using Kevin Bonham’s calculated two party vote from the decimal primaries of both ReachTELs. Since the rise of One Nation, ReachTEL’s state polls have leaned to the Coalition, and this lean appears to be happening federally.

While individual budget measures, such as the bank levy and additional Medicare levy, are popular, the budget as a whole gets only a middling rating on a range of measures. Commentary suggesting that the overall budget would be very popular has been shown to be wrong.

While the budget allocated much spending to health and education, voters trust Labor more on these issues. A government that has tried to cut spending for three years, but suddenly has a poll-driven about-face strains credibility. Labor’s fairness criticisms of the termination of the 2% deficit levy for high-income earners, and the now $65 billion for company tax cuts, are likely to be accepted by a large portion of the population.

Kevin Bonham’s poll aggregate is at 52.7% two party preferred to Labor, a gain for Labor of 0.2 points since last fortnight.

Perceptions of this budget

After each budget, Newspoll asks three questions: whether the budget was good or bad for the economy, good or bad for the voter personally, and whether the opposition would have delivered a better budget.

45% thought they would be worse off and 19% better off, for a net of -26. 36% thought the economy would be better with this budget, and 27% worse, for a net of +9. Compared with previous budgets, neither of these scores are very bad nor very good.

Coalition governments do better than Labor ones on whether the opposition would have delivered a better budget. In this Newspoll, by a 47-33 margin, voters thought Labor would not have delivered a better budget. This 14-point margin is about the same as the last two budgets, but better for Labor than any budget in the Howard era, except the 2007 13-point margin, which came shortly before Rudd ousted Howard at the November 2007 election.

In other Newspoll questions, 45% said they would be prepared to see a reduction in taxpayer funded entitlements to pay down debt, while 41% thought otherwise. By 39-36, voters thought this budget was fairer than others under this government. As one of those budgets was the widely hated 2014 budget, this is not saying much. By 71-19, voters thought the banks would not be justified in passing on costs from the bank levy.

In Ipsos, by 45-44 voters approved of the budget, and by 42-39 they thought it was fair; these measure are much better for the government than following the 2014 budget. 50% thought they would be worse off with the budget, while 20% expected to benefit. By 58-37, voters supported increasing national debt to build infrastructure.

The Sky News ReachTEL found that 52% thought their family would be worse off with this budget, with just 11% for better off. 36% thought the government had done a good or very good job explaining its budget, 37% an average job and 27% poor or very poor. 34% of non-home owners thought the budget made it harder to buy a home, 13% easier, and the rest said there was no change.

The Channel 7 ReachTEL found that the budget was rated average by 38%, poor or very poor by 33% and good or very good by 29%.

In Essential, voters approved of the budget by 41-33, though 29% said it made them less confident in the government’s handling of the economy, with 27% for more confident. On both questions, the strongest disagreement with the budget came from Other voters, not Labor and Greens voters.

Explaining why Shorten did not mention punitive measures against the unemployed in his budget reply speech, a crushing 76-14 supported payment reductions for jobseekers who fail to attend appointments, and 69-22 supported a drug trial for jobseekers. The second airport in Sydney was supported by 54-18.

By 51-27, voters agreed with the statement that the budget was more about improving the government’s popularity than the economy. 56% thought higher income earners should bear a greater share of the cost of funding the National Disability Insurance Scheme, while 27% thought applying the Medicare levy for all taxpayers is the right approach. Scott Morrison was favoured over Chris Bowen as preferred Treasurer by 26-22 with 52% undecided.

There was strong support for the bank levy (68-21 in Newspoll, 62-16 in the Sky News ReachTEL, 60-18 in the Channel 7 ReachTEL, 68-29 in Ipsos and 66-19 in Essential). The additional Medicare levy was also well supported (54-36 in Newspoll, 48-34 in the Sky News ReachTEL, 51-28 in the Channel 7 ReachTEL and 49-39 in Essential).

Primary votes, leaders’ ratings and other polling

Primary votes in Newspoll were 36% Coalition (steady), 36% Labor (up 1), 10% Greens (up 1) and 9% One Nation (down 1). 33% (up 1) were satisfied with Turnbull’s performance and 53% (down 4) were dissatisfied, for a net rating of -20, up five points. Shorten’s net rating was -22, down two points.

In Ipsos, primary votes were 37% Coalition (up 4), 35% Labor (up 1) and 13% Greens (downs 3 from an unrealistic 16%). 45% approved of Turnbull’s performance (up 5) and 44% disapproved (down 4), for a net rating of +1, up nine points. Shorten’s net approval increased a sizable 13 points to -5. Turnbull’s ratings in Ipsos have been much better than in other polls. Ipsos skews to the Greens, but less this time than in their first two polls of the new parliamentary term.

The Sky News ReachTEL had primary votes of 37.8% Coalition, 34.2% Labor, 10.3% Greens and 10.2% One Nation. In the Channel 7 ReachTEL, assuming the 9.2% undecided are excluded, primary votes are 37.1% Coalition, 35.0% Labor and 10.8% for both the Greens and One Nation.

Primary votes in Essential were unchanged on last week at 38% Labor, 37% Coalition, 10% Greens, 6% One Nation and 3% Nick Xenophon Team.

In the Channel 7 ReachTEL, both leaders’ ratings tanked from the final survey prior to the 2016 election. Turnbull’s (total good) minus (total poor) score fell 18 points to -24, his record lowest, just ahead of Tony Abbott’s ratings before Abbott was replaced. Shorten’s rating was down 17 points to -21, his lowest since March 2016.

38% preferred Turnbull as Coalition leader, followed by 29% for Julie Bishop, 17% for Abbott, 11% for Peter Dutton and 6% for Scott Morrison. Among Coalition voters, it was 61% Turnbull, 18% Bishop and 14% Abbott.

For preferred Labor leader, Tanya Plibersek had 31% with Shorten and Anthony Albanese tied on 26%. Labor voters had Shorten leading with 40%, Plibersek on 33% and Albanese on 20%. Plibersek was strongly favoured by the Greens, with 51% support from them.

Turnbull led Shorten as better PM by 47-35 in Ipsos and 44-31 in Newspoll, but only 52-48 in the Channel 7 ReachTEL. ReachTEL uses a forced choice question, and this method usually benefits opposition leaders.

ReachTEL’s respondent allocation problem

As noted at the beginning of this article, ReachTEL’s respondent allocated preferences are over a point more favourable to Labor than using the previous election method. It appears that some of this difference is explained by ReachTEL asking National voters which of Labor or Liberal they prefer.

This is a mistake, as in most cases the Nationals are not opposed by a Liberal, and so their preferences are not distributed. In the few cases where National votes were distributed, 22% leaked to Labor at the 2016 election. Applying this rate to the 3.5% National vote in the Sky News ReachTEL would mean that Coalition leakage would increase Labor’s two party vote by 0.8 points; the actual Coalition leakage is worth only about 0.1 points to Labor.

Ipsos also asked for respondent allocated preferences, and had Labor ahead by 53-47 on this measure, the same as when using the previous election method.

Adrian Beaumont, Honorary Associate, School of Mathematics and Statistics, University of Melbourne

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

Australia risks missing out on China’s One Belt One Road


Alice de Jonge, Monash University

Australia is late to the party in only recently expressing real interest in China’s One-Belt, One-Road initiative (OBOR). And if Australian businesses don’t take advantage of the opportunities available in this project now, there are plenty of regional competitors that will take their place. The Conversation

Australia became an unofficial OBOR partner in 2016, with the launching of a public-private NGO known as the Australia-China OBOR Initiative (ACOBORI), less than a year after the signing of the China-Australia Free Trade Agreement.

Australia has so far declined China’s offer to formally link the Northern Australia Project to OBOR. However, more recently Trade Minister Steve Ciobo, has said he sees merit and opportunities for collaboration (particularly around the northern Australia initiative) arising from OBOR, adding the caveat that decisions about such collaborations would be taken “on the basis of what is Australia’s national interest”.

Following the old silk road

China’s One-Belt, One-Road initiative (OBOR) comprises a land belt and a sea road. The land belt connects China’s underdeveloped hinterland to Europe, traversing 65 countries across the land terrain of the ancient Silk Road land route. The sea leg comprises a network of railways and ports crossing an ocean route that connects Europe with the Middle East, Africa and Southeast Asia.

OBOR has significant backing in China, including from the China-led Asia-Infrastructure Investment Bank (AIIB).

OBOR is backed not just by the AIIB, but also by two other recent development finance initiatives – the Silk Road Infrastructure Fund and the New Development Bank. The infrastructure fund is made up from Chinese foreign exchange reserves and will act like a Chinese sovereign wealth fund. The bank was established by the BRICS nations (Brazil, Russia, India, China and South Africa) in 2014.

For the government, OBOR provides a policy tool for channelling investment from China’s wealthy seaboard provinces to the under-developed central and western regions. It channels China’s investment into projects that will have longer-term benefits, and not just into assets that are vehicles for parking hot money. All at a time when China is seeking to curb the flight of money from the country.

Australian business involvement

There are many risks and challenges to be faced in such a vast initiative as OBOR – with its cross-border projects involving a variety of different countries, each with its own historical baggage and current preoccupations.

An inaugural ACOBORI report identified a number of established and emerging sectors of opportunity for Australian industry arising from OBOR. Both inbound and outbound trade and investment with China can, importantly, pave the way for greater diversification of the Australian economy.

University of Melbourne affiliate, Asialink, identifies opportunities in sectors such as: agriculture, financial and legal services, education, tourism, healthcare, energy, architecture engineering and planning expertise.

The Australian services sector has so far demonstrated the keenest interest in OBOR, especially in finance and law. The list of those already involved include three of the big four banks, law firms King Wood and Mallesons and Minter Ellison, and global engineering consulting firms Worley Parsons, SMEC and Norman Disney & Young.

It’s the smaller firms and those in challenged sectors (particularly manufacturing) that appear less willing to investigate the risks and opportunities. This isn’t helped by the Australian government, which appears to be torn between a fear of Chinese influence and a desire not to miss out on potential opportunities for lucrative involvement in OBOR projects.

There are two key reasons why Australia needs to remain involved in both the AIIB and OBOR. The first is the risk of missing out if Australian businesses don’t take advantage of the opportunities available.

Foreign firms are already taking advantage of the situation. For example, Hutchinson Ports, controlled by CK Hutchison Holdings of Hong Kong’s richest man Li Kashing, already operates ports at 22 locations in 18 countries along the OBOR route. Hutchinson Ports is planning to start operations in another three countries along the route in 2017, and enlarge capacities of existing terminal facilities to ride on growing demand.

At the moment researchers describe the situation surrounding China’s OBOR as “contested multilateralism”. This is where states and businesses use new multilateral institutions to challenge established institutions, rules, practises or missions.

The AIIB has been seen as a challenge to the established institutions of the (US-dominated) World Bank and (Japan-dominated) Asian Development Bank. China’s OBOR initiative can similarly be seen as a challenge to the dominance of US and European investment presence in the region.

In such a world, clever businesses are not seeing any need to choose sides. So far as possible, they are playing the field; taking advantage of opportunities as they arise, all the while keeping careful track of changing risks.

The second reason why Australian businesses need to remain actively engaged, is to ensure that the country is in a position to influence the longer-term future of the region. Australia should be using its influence to emphasise the potential for OBOR initiatives to help achieve the sustainable development goals including reducing hunger, poverty and inequality, to name a few.

Alice de Jonge, Senior Lecturer, International Law; Asian Business Law, Monash University

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

The budget is the government’s Plan B, but what’s Plan C if polls stay bad?



File 20170515 6984 1s7a75k
Scott Morrison addresses the media on Sunday.
Julian Smith/AAP

Michelle Grattan, University of Canberra

The government inoculated itself against the post-budget polls. Budgets don’t produce bounces, people said. The Conversation

True for the most part – though there were Newspoll bounces (three points or better) in 1996, 1999, 2000, 2009, and 2012.

Nevertheless the fact that the first four post-2017 budget polls were all bad must have been a disappointment for Malcolm Turnbull. Newspoll and Fairfax-Ipsos on Monday both had the Coalition trailing Labor 47-53%; on Friday two ReachTEL polls, for Sky and Channel 7, had it behind 47-53% and 46-54% respectively.

Given that polling has found that the main budget measures are in themselves popular – from which Turnbull appears to be taking heart – the government might have hoped for something better in the voting results.

“Polls are not news,” Turnbull told a news conference on Monday, though he admitted to John Laws: “I do take notice of the polls naturally”. His throwaway “not news” line just invited a rerun of the clip from the day he challenged Tony Abbott, when he pointed to the Coalition losing 30 Newspolls on the trot. This week marks his loss of a dozen of them in a row.

Accepting, however, that bounces are not the norm, the Coalition backbench will be holding its collective breath in coming months.

Treasurer Scott Morrison said Australians will be absorbing the budget “over time”. From the government’s point of view, he’d better be right, and they will need to absorb it positively.

If there is not a clawback for the Coalition later this year – and of course factors other than the budget will be feeding into public opinion – things will be looking pretty dire. Some predict Turnbull’s leadership will be in the frame unless the numbers improve; on the other hand, another change would be extremely hard.

Budgets disappear quickly but not before an intense selling effort. On Monday night Morrison was mixing it at a Sky News forum on the New South Wales central coast, where the audience ranged from One Nation supporters and the party’s NSW senator Brian Burston to local Labor MP Liesl Tesch, who scored a question.

Morrison was tackled on debt, housing (at length), the banks, immigration and identity politics. A woman bluntly told him his reference to “mum and dad investors” in the property market was “ludicrous – they are all investors”. A man who described himself as editorial cartoonist to Mark Latham’s Outsiders declared the government had shifted too far to the left and wanted to know “when we’ll get the government we voted for”.

As he’s done in and since the budget, Morrison stressed eschewing ideology and just “getting things done”. The Liberals believed in investing in education and sustainable services, he said; the difference between a Liberal and Labor budget was “the Liberal budget is paid for”.

Morrison reiterated that the banks should absorb the levy the budget has placed on them. The audience thought it would be passed on – something Turnbull admitted earlier in the day the government could not actually stop, although “there are plenty of factors that will inhibit them from doing so”.

For those watching the Liberal Party’s internals, one of the notable reaction to the budget has been Abbott’s. Given that, at its core, the 2017 budget is about trashing the remnants of the 2014 Abbott-Hockey effort, one might have expected him to be much more critical, though his words have had an edge.

He said on 2GB on Monday (in the spot formerly occupied by Morrison): “We would have liked to have had a savings budget. The Senate doesn’t like savings budgets as they showed in 2014, so instead we’ve got a taxing budget but this is the best that the budget can do in these circumstances.”

In contrast, his former chief-of-staff, Peta Credlin, has been bitterly critical, saying on Sky “the budget is about the Liberal Party junking everything that it has stood for”.

One assumes Abbott’s views are much stronger than he is expressing. So why is he being careful, when often he’s anything but?

Credlin said she thought “he’s trying hard not to be accused … of fuelling an anti-Malcolm sentiment”.

If those polls don’t turn around, Abbott doesn’t want people being able to point fingers of blame at him. He’d been keen for all the responsibility to be squarely on the shoulders of the prime minister and his treasurer.

The government has been candidly admitting that this budget, so out of character for a Coalition government, is not its preferred choice. In other words, it is Plan B. But if Plan B doesn’t help do the trick with the polls, it is not clear what Plan C would be.

https://www.podbean.com/media/player/55eic-6aa7da?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

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

Shifting the tax burden to middle-income earners will undermine jobs and growth


Patricia Apps, University of Sydney

The government’s idea of raising the Medicare levy, while also removing the 2% budget deficit levy on incomes above A$180,000, is less “transformational” and more signature Liberal policy. It shifts the tax burden towards middle income earners, as opposed to Labor’s plan to direct higher tax rates towards higher income earners. The Conversation

Rather than introducing a simple flat rate rise of 0.5% in the marginal tax rate across all taxpayers, the government has chosen to increase the Medicare levy. The reason lies in the fact that the levy contains the equivalent of a low-income tax offset due to the phasing out of the low-income exemption.

For example, in the current financial year, the thresholds for the phasing out of the Medicare levy exemption is A$21,665 for singles and A$36,541 (plus A$3,356 for each dependent child/student) for families. At these thresholds, tax rates rise by the rate of the withdrawal of the exemption, which works out to be 8% (calculated as 10% less the 2% Medicare levy rate).

In the case of a two-child family, this means an 8% rise in the marginal tax rate at an income from A$43,253, to an upper income limit of A$51,803. If a Medicare levy increase of 0.5% were introduced in the current tax year, the upper income limit for the higher marginal tax rate would rise to A$54,066.

In combining a rise in the Medicare levy with the removal of the budget deficit levy, the government is therefore proposing a rise in marginal tax rates across a wide band of middle incomes and a marginal tax rate cut for the top.

This direction of tax reform is a continuation of the incremental shift in the overall tax burden towards middle income earners over recent decades. And because the threshold for the Medicare levy exemption is based on family income, the reform will reinforce the move towards higher effective tax rates on low income second earners in a family.

This shift in the tax burden from top to middle income earners, and to middle income families, will undermine aggregate demand and, in turn, “jobs and growth” in the future.

In contrast to the government’s policy, Labor’s policy limits the rise in the Medicare levy to incomes above the top two bracket points and retains the budget deficit levy. Raising taxes on top incomes is not only a fairer policy, but a more efficient one in the conventional economic sense.

The impact of taxes on hours worked declines as earnings get higher, and has close to no effect on the hours worked by those with top incomes. And by avoiding higher taxes on second family earners, Labor’s policy should have a less negative effect on second earner hours of work and therefore the tax base.

The government’s and Labor’s tax reforms therefore represent very different policies.

Patricia Apps, Professor of Public Economics, Faculty of Law, University of Sydney

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

Don’t be fooled, the Medicare Guarantee Fund provides no real guarantee



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The Medicare Guarantee Fund appears to be no more than an accounting trick.
from shutterstock.com

Stephen Duckett, Grattan Institute

Treasurer Scott Morrison pulled a health-related rabbit out of his hat on budget night, announcing the government will “guarantee” the future of Medicare. The Conversation

It will do this by allocating revenue from the recently increased (from 2% to 2.5%) Medicare levy, after paying for the National Disability Insurance Scheme (NDIS), into a Medicare Guarantee Fund.

The government will then cover the shortfall to cover the costs of Medicare – defined in these budget announcements as a combination of expenditure from the Medicare Benefits Schedule (MBS) and Pharmaceutical Benefits Scheme (PBS). In Morrison’s words:

Proceeds from the Medicare levy will be paid into the fund. An additional contribution from income tax revenue will also be paid into the Medicare Guarantee Fund to make up the difference.

Based on the sketchy information so far available, this fund appears to be no more than an accounting trick. The size of the fund will be determined each year based on projected MBS and PBS expenditure. The balancing item, which is the extra proportion of non-NDIS revenue, will also be adjusted each year in line with those expenditure projections.

The guarantee part is that only the MBS and PBS expenditures can be paid from the fund, “by law”. This might sound good, but don’t be fooled. The Medicare Guarantee Fund is nothing more than a rebadging exercise: it changes the badge on a policy in the hope people might think it is a new policy.

It merely provides an additional line in the budget papers, supplementing information that was already there for MBS and PBS expenditure, albeit separately. And by defining Medicare as MBS and PBS expenditure, the government has seamlessly airbrushed public hospitals out of the picture.

What is Medicare?

Until budget night this week, most people would have thought of Medicare as the medical services and public hospital scheme, and probably still do.

When Medicare was introduced in 1984, it changed funding arrangements for medical services and public hospitals, removing or reducing financial barriers to access to these services. It did not touch PBS arrangements.

It may now be appropriate to add the PBS as a third component of Medicare, as it is about access to health care. But the PBS should be an addition to how Medicare is defined. It shouldn’t be used to airbrush public hospital access out of any Commonwealth definition of Medicare.

To put it more simply, the Medicare Guarantee Fund does not include the Commonwealth’s contribution to public hospital funding. But it does include the PBS, adopting a unique and idiosyncratic definition of Medicare.

The Medicare Guarantee Fund is being created using a partial statement of Medicare spending: if the public were to assume the Medicare Guarantee Fund is purely about a public commitment to Medicare, they would be misled.

So despite Morrison’s claims the fund will provide “transparency about what it really costs to run Medicare”, Medicare funding will actually be less transparent.

What does the fund guarantee?

The government probably hopes the Medicare Guarantee Fund will be its armour against a revised Mediscare campaign, like the one Labor ran before the 2016 election. The word “guarantee” linked with “Medicare” sounds good, costs nothing and does not bind the government in any way. But it may be enough to ward off the Mediscare vampires.

Mediscare resonated in 2016 because of the 2014 budget decisions. These were seen as a breach of trust as they were policies that had been explicitly ruled out in the previous election campaign.

The controversial 2014 budget proposals aimed to reduce Commonwealth expenditure by shifting costs onto consumers and onto states. One way of doing this was through co-payments that required patients to make an out-of-pocket payment when they see a doctor.

Another cost-shifting policy was the Medicare rebate freeze, which froze MBS rebates for visits to doctors at 2013 levels, despite inflation since then which has been tracking at around 2% a year. Since rebates are also paid to consumers, this was another example of a consumer cost shift, although the burden of this strategy probably fell on providers, particularly general practitioners.

Some of the 2014 changes (like the co-payment) required legislation to implement, while others (like the rebate freeze) could be implemented by administrative action without requiring parliamentary approval.

Importantly, none of the changes that required legislation were successful. The only changes in the 2014 budget that were eventually implemented were the ones that didn’t require legislation, such as the rebate freeze and draconian public hospital budget cuts. These tore up a previous agreement under which the Commonwealth matched cost increases in public hospitals.

Even these two measures have now been partially wound back – the hospital cuts before the 2016 election, and the rebate freeze in the 2017 budget.

What should a Medicare guarantee look like?

A Medicare guarantee worth its salt would be one that protects the public from the administrative assaults of the 2014 budget. This would involve enshrining in legislation the Commonwealth-state health care agreements – as well as the “partnership” payments, which are other Commonwealth grants to the states for health care – and introducing automatic indexation of Medicare rebates.

The Medicare Guarantee Fund as proposed in the 2017 budget does not do this. It provides no guarantee of policy stability, no guarantee of additional funding, and no guarantee that a future budget will not tear into the Medicare fabric in the way that characterised the 2014 debacle.

Stephen Duckett, Director, Health Program, Grattan Institute

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

Budget 2017: welfare changes stigmatise recipients and are sitting on shaky ground


Peter Whiteford, Australian National University

Some of the budget changes on welfare appear to be about sending the message that receiving welfare is undesirable. Whether these changes actually reduce social security spending and encourage independence to any significant extent remains to be seen. While the 2014 rhetoric of “lifters” and “leaners” may have been dispensed with, the dichotomy between “them” and “us” remains an underlying signal. The Conversation

There’s actually little current evidence of an unsustainable growth in spending on social security and welfare. So it begs the question as to why these measures are needed.

One of the areas attracting the most controversy is the focus on payments for people of working age, particularly the unemployed and lone parents. Some of these measures appear to be more about signalling a stigmatising approach to welfare than identifying what works most effectively.

For example, “a commitment to reduce social harm in areas with high levels of welfare dependency,” will continue through the expansion of the Cashless Debit Card to two new locations and an extension of Income Management for a further two years to June 2019. As academic Eva Cox has pointed out, the official evaluations of Income Management didn’t find evidence of significant changes as a result of the policy, even on some its key objectives including changing people’s behaviours.

Then there’s a new approach to compliance for job seekers, a demerits points phase will be followed by a “three strikes” phase to engage with welfare recipients early and prevent them from incurring financial penalties for not meeting their obligations.

The government has also signalled that it will promote “self-reliance before welfare” through changes to the liquid assets test. Currently, there is a waiting period for people making a new claim for Newstart Allowance, Sickness Allowance, Youth Allowance, or Austudy of between one and 13 weeks. It applies if claimants have funds that are equal to or more than A$5,500 for single people with no dependants, or A$11,000 for those who are partnered or single with dependants.

From September 2018, the maximum Liquid Assets Waiting Period will double from 13 to 26 weeks when a claimant’s liquid assets are equal to or exceed $18,000 for singles without dependants or $36,000 for couples and singles with dependants – that is, people with savings above these levels may have to wait up to six months before receiving payment.

Stigmatising welfare recipients, but at what cost?

The government appears to be implementing a number of the substantive recommendations of the 2015 McClure Review of the Welfare System. In particular, from March 2020, the government will introduce a new, single “JobSeeker Payment”, which will progressively replace a number of payments such as the Newstart Allowance, Sickness Allowance, Wife Pension and Partner Allowance.

While this is presented as simplifying the system, over 99% of people will have no change to their payment rates. The government expects there will be around 800,000 people receiving Newstart at the time of the change and between 15,000 and 20,000 receiving all other payments, to be combined into the new payment.

Work requirements for the unemployed will also increase. Jobseekers will also have to spend more time looking for work or working for the dole – around 270,000 people aged between 30 and 49 years of age will be forced to spend 50 hours a fortnight. That’s 20 hours more than they do currently. This is despite a recent OECD report finding that Australia already has the heaviest set of obligations on the unemployed of seven countries.

In the government’s new approach to job seekers, they accrue demerit points for failing to turn up or being intoxicated. Once four demerit points are incurred over a six-month period, they will be assessed for the next phase. This involves escalating financial penalties for each additional failure; with the first strike leading to a loss of 50% of a fortnightly payment, the second strike leading to a loss of 100% of a fortnightly payment, and the third strike resulting in the cancellation of payment with a four-week exclusion from re-applying.

The rhetoric of “three strikes” (and you’re out) is clearly derived from changes in criminal sentencing.

Another of the more striking initiatives in the budget was the announcement that from 2018, 5,000 Newstart Allowance and Youth Allowance claimants, in two trial locations, may be subject to randomised drug testing for cannabis, methamphetamine and ecstasy, as a precondition of their welfare payment.

Job seekers who test positive will be placed on welfare quarantining to reduce the cash available to spend on drugs. After an initial positive test, the recipient would have further random drug tests, a penalty will only be applied for failing to comply with a test request. It’s notable that the cost of this measure is classified as commercial-in-confidence in the budget papers and has not been published.

In a related initiative, the government will close “loopholes” which allow welfare recipients to be exempt from job seeker requirements solely due to drug or alcohol abuse. The government estimated that because of this 11,000 exemptions annually would no longer be granted. This measure will cost A$28.8 million to implement over four years.

From July 1, 2017, people will also no longer be able to qualify for Disability Support Pension on the basis of their substance abuse alone. It’s estimated by the government that 450 fewer people will be granted Disability Support Pension each year due to this measure, saving about A$22 million over five years.

But the testing of welfare recipients doesn’t end there, from January 2018, a stronger “relationship verification process” for existing single parents will ensure people are not getting higher income support payments by claiming to be single when they are not. From September 2018, people applying for the Parenting Payment (single) or single parents claiming Newstart Allowance will be required to have a third party sign a new form verifying that they are in fact single. Penalties of up to 12 months in prison may be applied to referees – presumably families or friends – who provide a false declaration.

There doesn’t seem to be much concrete evidence for the effectiveness for all these types of measures.

An Australian Institute of Health and Welfare report in 2013 did report that use of illicit drugs was more prevalent among the unemployed. It reported people who were unemployed being 1.6 times more likely to use cannabis, 2.4 times more likely to use meth/amphetamines and 1.8 times more likely to use ecstasy than employed people.

But the same report notes that people with the highest socio-economic status were more likely to consume alcohol in risky quantities and to have used ecstasy and cocaine in the previous 12 months than people with the lowest socio-economic status. It also appears these figures don’t control for differences in the demographic profile of the unemployed and those in paid work.

Welfare quarantining policies of this sort have been tried in the United States in recent years. According to the National Council of State Legislatures at least 15 American states have passed legislation regarding drug testing or screening for public assistance applicants or recipients.

Reports of the effectiveness of this testing vary widely.

In the United States, a 2011 review by the federal Department of Health and Human Services estimated the prevalence rate of substance abuse among US welfare users ranged between 4% and 37%. However, a review by US academics in 2005 found substance abuse disorders are less common among welfare recipients there than other serious barriers to self-sufficiency (such as physical health, poor academic skill and transportation difficulties, among a range of factors). These academics argued widespread substance abuse is not a major cause of continued economic dependence.

Earlier research pointed out that in the results of drug testing of welfare recipients there was a large group of “false positives” with no apparent disorder; and that drug-testing could not distinguish “false negatives” who may may be alcohol dependent or experiencing psychiatric disorders and need assistance.

There have also been a number of court cases in the US about the constitutionality of these drug tests when applied randomly, and it has been noted that similar proposals in Great Britain may violate EU based rights to privacy.

It’s worrying that the budget papers do not identify the costs of the proposal nor the expected savings. Overall, it’s difficult to escape the conclusion that this proposal is symbolic, rather than designed to have a positive impact on the well-being of those to be tested.

Budget spending on welfare continues to increase

Social security and welfare remains the largest single component of government spending, and is projected to increase from A$164 billion in 2017-18 to A$191.2 billion in 2020-21, or from 35.3% to 36.6% of total expenses.

Overall social security and welfare spending is projected to grow by 0.22% of GDP over the projection period. Spending on the National Disability Insurance Scheme (NDIS) is projected to grow by 0.46% of GDP, compared to other measures such as the spending on child care by 0.07% of GDP and spending on unemployment and related benefits by 0.05% of GDP. Most other components of social security and welfare expenditure are projected to fall over this period, with the largest impact being on spending on Family Tax Benefits.

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The development of the NDIS is clearly the most significant source of new social spending in this year’s budget. The additional 0.5% increase in the Medicare Levy to guarantee funding for the project will apply from July 1, 2019 and will raise an extra A$3.55 billion in revenue in its first year, rising to A$4.25 billion in 2020-21. There are also positive initiatives in continued funding for valuable longitudinal surveys, such as HILDA and the Parents Next Programme.

The main area of savings is in the area of Family Tax Benefits, where savings are to be used to fund changes in child care – although the savings over the period are more than twice as great, as the increased spending on child care. These savings of A$1.9 billion over five years are made possible by not indexing payment rates to inflation until July 2019.

In addition, a further A$415 million will be saved over five years through adjustments to the rate at which Family Tax Benefit A is income-tested when family incomes exceed the higher income threshold of around $94,000 of joint family income. As a result, around 24,900 families will lose access to Family Tax Benefit Part A, and around 71,800 families will see a reduction in their family payments.

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Overall, the 2017-18 budget has abandoned many of the most regressive welfare measures that have led to their blocking in the Senate since 2014. However, it remains the case that the freezing of payment rates for Family Tax Benefit will have the largest proportional effect on low income families with children, since these payments form a larger proportion of their disposable incomes.

There are projected increases in spending on income support and services for the aged as a result of the ongoing and predictable ageing of the Australian population. There’s also smaller increases in income support for parents and for the unemployed – perhaps partly due to the simplification of support for working age recipients – but these are more than offset by reductions in other areas of welfare spending.

To a large extent, the challenges facing government in providing the services and benefits that the Australian population values are predictable and manageable, so there is a need to base policies on evidence and not myths or stereotypes.

Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University

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

Coalition two-party vote slips in post-budget Newspoll


Michelle Grattan, University of Canberra

The Coalition has slipped further behind in Newspoll, trailing Labor 47-53% in two-party terms, despite a pragmatic budget that moved the government onto ALP ground in a bid to win back voters. The Conversation

Labor slightly widened the gap compared with three weeks ago when it led 52-48%. This makes a dozen Newspolls in a row that have seen the government behind the opposition.

The post-budget Fairfax-Ipsos poll also has Labor ahead 53-47%.

The previous Ipsos poll was in late March, when the ALP led 55-45%.

Both polls show majority support for the budget’s tax increases – the new bank tax and the proposed hike in the Medicare levy. The bank tax was backed by 68% in each poll; the Medicare levy rise was supported by 54% in Newspoll and 61% in Ipsos.

In the Ipsos poll, one in two people said they would be worse off from the budget; only one in five believed they would be better off. In Newspoll 45% thought they would be worse off and 19% said they would be better off. In both polls, Coalition voters were more likely than Labor voters to think they would be better off.

In Ipsos people were evenly split on whether they were satisfied with the budget – 44% were and 43% were not, a net plus one. This is better than the response to last year’s budget (minus seven) but not as good as the reception for the 2015 Hockey budget (plus 17).

Ipsos found 42% thought the budget fair, compared with 39% who did not, a net plus three. Last year’s budget rated a net minus six on fairness. Coalition voters were more likely than Labor voters to rate the budget as fair – 63% to 25%.

Newspoll asked whether it was fairer than previous budgets delivered by this government: 39% thought it was, while 36% did not.

Labor’s primary vote in Newspoll, published in The Australian, is up a point to 36%; the Coalition is static on 36%. The Greens rose a point to 10% and One Nation fell a point to 9%. The poll was taken from Thursday to Sunday.

When budgets do not normally bring a bounce for a government – ministers will argue it will take time for positives to show up in the polls – the result will be a disappointment for Malcolm Turnbull, although his personal ratings have improved.

In Newspoll, his net satisfaction went from minus 25 points to minus 20 points in three weeks, while satisfaction with Opposition Leader Bill Shorten declined from minus 20 to minus 22. Turnbull has also widened his lead as better prime minister from nine to 13 points – he is now ahead 44-31%.

In the Ipsos poll, taken Wednesday to Saturday, Labor’s primary vote is 35%, and the Coalition’s is 37%. The Greens are on 13%. Turnbull’s net approval is plus one, up nine points since March; Bill Shorten’s net approval is minus five, up 13 points since March. Turnbull leads Shorten as preferred prime minister 47-35%

The Ipsos poll found the government’s promised A$18.6 billion boost to spending on schools was supported overwhelmingly – by 86%. Some 58% backed increasing national debt to build infrastructure, but 37% opposed.

Treasurer Scott Morrison on Sunday continued his tough language on the big banks, which are furious about the new tax imposed on them.

When it was put to him that he could not stop them hitting customers with it he said: “In the same way that banks have put up interest rates even when there hasn’t been a move in the Reserve Bank cash rate. I mean, banks will find any way they can to charge their customers more.”

He reiterated that the government would pressure the banks through the regulator not to pass on the tax to customers. “But the best thing you can do is if you are unhappy with how a bank is seeking to fleece you – that’s what they would be doing if they pass this on – go to another bank.”

The tax was just six basis points, he said on the ABC. “Reserve Bank cash rates move by 25 basis points at a time and to suggest that this is the end of financial civilisation as we know it is one of the biggest overreaches in a whinge about a tax I’ve ever seen.”

Michelle Grattan, Professorial Fellow, University of Canberra

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

Mental health funding in the 2017 budget is too little, unfair and lacks a coherent strategy



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Mental health remains chronically underfunded.
from shutterstock.com

Sebastian Rosenberg, University of Sydney

This week’s federal budget allocated A$115 million in new funding over four years. This is one of the smallest investments in the sector in recent years. The Conversation

For instance, the Council of Australian Governments (CoAG) added more than $5.5 billion to mental health spending in 2006. The 2011-12 federal budget provided $2.2 billion in new funding.

This compounds a situation in which, in 2014-15, mental health received around 5.25% of the overall health budget while representing 12% of the total burden of disease. There is no reason those figures should exactly match, but the gap is large and revealing.

They speak to the fact mental health remains chronically underfunded. Mental health’s share of overall health spending was 4.9% in 2004-05. Despite rhetoric to the contrary, funding has changed very little over the past decade.

We lack a coherent national strategy to tackle mental health. New services have been established this year, but access to them may well depend on where you live or who is looking after you. This is chance, not good planning.

Hospital-based services

The general focus of care when it comes to mental health remains hospital-based services. Inpatient – when admitted to hospital – and outpatient clinic care or in the emergency room represent the bulk of spending. (The Australian Institute of Health and Welfare includes hospital outpatient services under the heading “Community”, which makes definitive estimates of the proportion of funding impossible.)

Outside of primary care such as general practice, or Medicare-funded services (such as psychology services provided under a mental health care plan), mental health services in the community are hard to find.

An encouraging aspect of this year’s budget is the government’s recognition of this deficiency. The largest element of new mental health spending was a commitment to establish a pool of $80 million to fund so-called psychosocial services in the community.

As Treasurer Scott Morrison said in his budget speech, this money is for:

Australians with a mental illness such as severe depression, eating disorders, schizophrenia and post-natal depression resulting in a psychosocial disability, including those who had been at risk of losing their services during the transition to the NDIS.

Yet, the money is contingent on states and territories matching federal funds, meaning up to $160 million could be made available over the next four years if the states all chip in with their share of $80 million. But this commitment was made “noting that states and territories retain primary responsibility for CMH [community mental health] services”. Whether the states agree is another matter.

This new funding seems partly a response to the federal transfer of programs such as Partners in Recovery and Personal Helpers and Mentors to the National Disability Insurance Scheme (NDIS). Both these programs offered critical new capacity to community organisations to provide mental health services and better coordinate care.

Partners in Recovery was established in the 2011-12 budget with $550 million to be spent over five years. Personal Helpers and Mentors (along with other similar programs) was established in the same year with $270 million in funding over five years.

With these programs now (or soon to be) cordoned off to recipients of NDIS packages, the 2017 budget measure appears to be designed to offset their loss. However, not all states may choose to match the federal funds. And some may choose to do so but try to use new federal funds to reduce their own overall mental health spending.

States already vary in the types of services they offer. All this raises the prospect that people’s access to, and experience of, mental health care is likely to vary considerably depending on where they live. In a budget espousing fairness, this is a recipe for inequity.

Lack of coherent strategy

The budget does attempt to improve the uneven distribution of mental health professionals by providing $9 million over four years to enable psychology services to rural areas though telehealth. It’s well known mental health services in the bush are inadequate.

This investment seems sensible, but $9 million pales in comparison to spending on the Better Access Program, which I have calculated to be $15 million each week. This program provides Medicare subsidies for face-to-face mental health services under mental health care plans. While this program is available for those in rural areas, accessing it is more difficult than in cities.

This budget’s commitment to mental health shows a lack of an overarching strategy. Rather than offering a coherent approach to mental health planning, this budget continues Australia’s piecemeal, patchwork structure, where the system is driven mostly by who pays rather than what works or is needed.

The development of a national community mental health strategy would be most welcome now. This would demonstrate how the primary and tertiary mental health sectors will join up to provide the blend of clinical, psychological and social support necessary to finally enable people with a mental illness to live well in the community.

You could be forgiven for thinking that, albeit slowly, the well-known problems in mental health across Australia are being addressed. But the small pool of funding in this year’s budget says otherwise. And the lack of coherent strategy is a shame. You can’t complete a jigsaw puzzle if you keep adding new pieces.

Sebastian Rosenberg, Senior Lecturer, Brain and Mind Centre, University of Sydney

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

Is this the budget that forgot renters?



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The budget brought no increase in rent assistance to help low-income renters in the private rental market.
AAP/Tracey Nearmy

Emma Power, Western Sydney University

The measures in the 2017-18 federal budget targeting the supply of lower-cost rental housing are limited. There are no significant funding increases to social housing and homelessness services. There is no increase in rent assistance to help low-income renters in the private rental market. The Conversation

Capital gains tax and negative gearing settings remain largely untouched, and the proposed bond aggregator will support expansion of housing aimed at very specific groups.

For the majority of Australia’s renters, housing will remain unaffordable, insecure and out of reach.

Community housing

If private investors get on board, the bond aggregator may help boost the supply of affordable and community housing by providing cheaper financing to community housing providers.

These two forms of housing are extremely important. However, they do little to help most renters.

Eligibility requirements for community housing mean many who require low-cost housing, where rent is calculated at between 25% and 30% of household income, are not able to gain access.

Single older women are among the fastest-growing group of homeless people in Australia. However, most are unable to access community housing because the only eligibility benchmark they meet is their low-income status.

Women not leaving situations of domestic violence or who do not have a recognised disability will find it difficult to qualify for housing before they reach homelessness.

The private rental market these women face is obscene. There is extremely low housing security with the risk of eviction when the standard lease agreement (of six and 12 months) runs out. High rents place sufficient, nutritious food out of reach of their budget, and they face difficulties paying power bills.

Time spent bringing up children, the gendered pay gap and – for some – relationship breakdown are among the factors that lead to this housing experience.

Long waiting lists for social housing and eligibility restrictions mean this year’s budget proposals are likely to fail this group.

Affordable housing

The second target of the bond aggregator is affordable housing. This is housing that is rented at between 75% and 80% of market rent. It is often described as “key worker” housing, where teachers, ambulance drivers and police officers can live.

Affordable housing has an important place in the housing system. However, below-market rents in central, work-rich regions are still extremely high and out of reach for many.

Of more concern, it is unlikely that many of these lower-income workers would be able to maintain their high rents at retirement. This generates two risks:

  • that the renter is evicted and forced to find housing on the private market, which puts them at high risk of homelessness

  • that the housing provider continues their commitment to house the tenant securely once their income drops, so the risk here is to the housing provider’s bottom line. They will face a loss of income, as they drop rents from 80% of market value to around 30% of the retired person’s pension.

First home buyers

The budget tips its hat to first home buyers; prospective buyers will now be allowed to save up to A$30,000 at a reduced tax rate. But this is barely one-quarter of a standard 20% deposit for most apartments in Sydney.

Renters who aspire to home ownership and have sufficient income to service a mortgage may benefit from this measure. However, it will do little for the large number of low- and moderate-income households. For this group, spiralling housing costs put home ownership well out of reach.

It is also possible that this measure will add to inflationary pressure on housing prices by boosting demand for entry-level homes. Existing owners who are selling their homes would be the primary beneficiaries.

What’s missing?

There remains a need for courageous government action to tackle the structural inequities in the housing market.

Removing tax incentives that keep investor heat in the market will be essential – and so will increases to social housing budgets.

Investment in a large stock of secure low-cost social housing should be prioritised. Failing this, there will be a need to increase rent assistance payments, particularly in high-cost regions.

But this is far from ideal. More rent assistance will help renters in the short term, but amounts to a subsidy for private landlords in the long term.

Does the government care?

Underpinning much budget analysis is a sense that government should be concerned with the needs of the disadvantaged. Sociologist Keith Jacobs argues we should disavow ourselves of that view, describing housing policy in Australia as a “form of reverse welfarism that exacerbates social inequality”.

Jacobs argues:

… the state should be understood as an agency that sustains the conditions necessary for the finance industry, developers and real estate agents, along with well-off householders and landlords, to reap profits.

The failure of the 2017 budget to tackle tax measures that support individual private investment, and its emphasis on funding social and affordable housing through market investment mechanisms while providing little direct support at the bottom end of the market, does little to challenge this argument.

Emma Power, Senior Research Fellow, Geography and Urban Studies, Western Sydney University

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