Government calls for release of costings as Labor unveils trusts crackdown



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Bill Shorten says Labor’s targeting of trusts is about delivering a level playing field in tax.
AAP/Sam Mooy

Michelle Grattan, University of Canberra

Labor has taken another step to put tax and fairness at the centre of its policy agenda by proposing a crackdown on discretionary trusts, which it claims would raise A$4.1 billion over the forward estimates and $17.2 billion over a decade.

A Labor government would apply a minimum 30% rate of tax on discretionary tax distributions to beneficiaries over 18 years old. According to the Parliamentary Budget Office, the change will affect 318,000 discretionary trusts.

The policy would not apply to farm, charitable and philanthropic trusts. Also unaffected would be non-discretionary special disability trusts, deceased estates trusts, fixed trusts, cash management unit trusts, fixed unit trusts, and listed and unlisted public unit trusts.

Announcing the crackdown, Opposition Leader Bill Shorten said it was about delivering a level playing field in tax, “so high-income earners can’t opt out of paying income tax”.

“Tradies and retail workers and mechanics and cleaners don’t get to choose how much tax they pay – and neither should anyone else,” he said.

With the government claiming the change would hit small business, Labor insists “small business will continue to enjoy asset protections”.

The trusts policy comes on top of Labor’s commitment to tighten negative gearing and capital gains tax concessions and to reimpose the deficit levy on high-income earners, among other measures.

The opposition has yet to announce what it will do about the already-legislated tax relief – being phased in – for businesses with turnovers of up to $50 million. It is expected a Labor government would want to retain that only for smaller businesses.

The ALP policy document points out that wealthy people are much more likely to have a trust than those with lesser incomes. The average amount in private trusts by the wealthiest 20% of households is more than $123,000, compared with $4,000 for the next quintile.

Discretionary trusts are used by individuals and businesses to reduce their tax by shifting income to those in a lower tax bracket. “This practice of ‘income splitting’ through discretionary trusts is used frequently by wealthy Australians to minimise their tax,” the policy says.

“Income splitting allows high-income Australians to avoid paying the marginal tax rate that should apply to their income level – something ordinary PAYG taxpayers can’t do,” it says.

The policy gives the example of a surgeon, “Sam”, with a non-working wife “Melissa”, and two non-working adult children. The surgeon earns $500,000 from his work income, and pays PAYG tax at the top marginal rate.

In the example, the couple has a discretionary trust which produces $54,000 from their investments. They attribute $18,000 each to the wife and children, who all pay no tax because their incomes are under the tax-free threshold. “This represents a tax saving of $14,460 had the investment income been attributed to just Sam and Melissa in equal proportions, and a tax saving of $25,380 had the investment income instead been part of Sam’s normal PAYG salary.”

The number of discretionary trusts has nearly doubled since the late 1990s to more than 642,000. The increase in non-discretionary trusts – without the same tax minimisation opportunities – has been much lower. In 2014-15, more than $590 billion of assets were in discretionary trusts.

13% of individuals in the lowest-income tax bracket receive distribution from a discretionary trust. This is much greater than for those on higher incomes.

“This indicates that a significant amount of income is being shifted from the wealthiest individuals to those earning little or no other incomes (for example, non-working members of the family such as spouses and young adults in full-time study) to reduce the amount of tax paid,” the policy says.

Labor says the proposed 30% rate “strikes the right balance between ensuring a fair amount of tax is paid on all trust distributions, while also aligning it with the rate for passive investment companies which also face a 30% rate of tax”.

Labor stresses the reforms “will not affect 98% of all individual taxpayers in Australia, with virtually all the revenue raised from people receiving trust distributions who have little or no other work income”.

Asked why farmers were being exempted, Shadow Treasurer Chris Bowen said they had “issues when it comes to lumpy income and various issues relating to agriculture”.

Michael Sukkar, the assistant minister to the treasurer, called for Shorten to release the full Parliamentary Budget Office costing, including the assumptions Labor had used to come up with the revenue being claimed.

The Conversation“Australians know that Bill Shorten cannot be trusted. This also goes for his latest $17 billion tax-grab that will once again hit small business and their families,” Sukkar said.

https://www.podbean.com/media/player/axx2w-6d8662?from=site&skin=1&share=1&fonts=Helvetica&auto=0&download=0

Michelle Grattan, Professorial Fellow, University of Canberra

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

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There’s far more to the fair go than just economics


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We need to consider whether values are the basis of beliefs about inequality.
Shutterstock

Eva Cox, University of Technology Sydney

Opposition Leader Bill Shorten has often argued that inequality in Australia is the worst it has been in 75 years.

Leaving aside whether that is or isn’t correct, there is a bigger, more pertinent political question: is it inequality itself, or the perception of inequality, that fuels so much of the contemporary mistrust of politicians and political systems?

The growing legitimacy of inequality is a serious problem, even among market advocates like the IMF and World Bank, which seek to confine the fix to more equitable distributions of wealth. They fail to recognise the strong possibility that the push on inequality comes from wider perceptions that the system is so unfair it creates distrust of those in power and their main alternatives, so the damage is social rather than material.

Commentator Ross Gittins has argued that the collapse of the “neoliberal consensus” is as apparent in Australia as it is in Donald Trump’s America and Brexit-ing Britain. Yet the data here do not reveal the serious poverty it brings with it.

The local focus on inequality has very much been more on tax rorts and the presumed sins of the rich than on the poor, either on or off welfare. This looks to be the basis of Shorten’s next policy bid for power, which he promises to release via inequality policies at the New South Wales ALP conference this weekend.

Shorten’s targeting of the voters’ desire for the “fair go” by claiming inequality in Australia creates a “sense of powerlessness that drives people away from the mainstream so creating a fault line in politics”.

His emphasis on the wider effects of inequality suggests he recognises it as a symptom of wider issues, rather than a single economic cause of problems. However, if his proposals are primarily focused on increasing tax takes, he is not tackling the wider damage, such as system distrust, that is widely evident.

He is not alone in this limitation; it dominated the debates on his proposals. The immediate responses from Treasurer Scott Morrison and several economic commentators disputed whether the Gini coefficient (a measure of how wealth is distributed in a society) supported the claims of rising inequalities. They ignored the many other indicators, such as that workers’ share of income is at its lowest level in a half-a-century.

The complex data shown in The Conversation’s factcheck come down mainly on Shorten’s side. These varied sources show the problem of defining what counts as inequality. Are voters very aware of income differentials? Or do most judge inequality by tightening budgets and everyday hardships such as rising utility bills?

It is in fact these perceptions of wider inequality as unfairness that affects how we relate to those in power. These are toxic effects that need to be fixed, not just through adjusting tax or individual payments.

There is considerable evidence that inequality is increasing and, importantly, that it is affecting the views of possible voters. The long-running Australian Election Study in 2016 found voters showed both increased distrust of politicians, and income concerns. More than half – 55% – supported incomes being redistributed versus 19% who did not. There have been other recent polls that show the lack of trust of the mainstream parties.

Who do you trust? Increasingly the answer seems to be: nobody.

After a year when voters worldwide thumbed their noses at mainstream politics and the elite, a landmark annual survey has found trust in major institutions is eroding at a rapid rate. And the effect is particularly pronounced in Australia.

The 2017 Trust Barometer by Edelman, the world’s largest PR outfit, has documented an “implosion of trust”. It found that Australians believe their entire political system is failing and they harbour deep fears of immigration, globalisation and changing values.

We need to consider whether values are the basis of beliefs about inequality. My thesaurus offers eight synonyms of the word: four simply describe it, while four signal negative feelings and perceptions: discrimination, unfairness, inequity, disproportion. None expresses inequality as a material or monetary difference. This indicates how often inequality connects with growing distrust of mainstream parties.

So is inequality a significant but limited indicator of wider issues that need attentions? The current special issue of Australian Quarterly features articles on this topic. The journal’s opening remarks state:

Inequality is arguably the catch-cry of our times, but, when you pick it apart, what does it actually look like in the Australian context? Is it economic, is it political; is it tax breaks for big business, or the everyday homelessness of our capital cities; is it the rot crumbling the sanctified pillar of the ‘fair go’, or has it become a convenient catch-all so broad as to be meaningless?

The ConversationIf this is so, the question will be whether Shorten’s policy options stay within the narrow confines of fairer taxes. If they do, it may be too simply economic to interest voters – unless he creates a broader vision of a trustworthy (fairer) Australia.

Eva Cox, Professorial Fellow, Jumbunna IHL, University of Technology Sydney

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

How history can challenge the narrative of blame for homelessness



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While homelessness is becoming more visible, it is not new in affluent societies like Australia.
AAP/Joe Castro

Anne O’Brien, UNSW

Homelessness is a pressing humanitarian problem – one that is increasingly in the public eye. The evictions, protests, personal histories and statistical profiles of people experiencing it appear regularly in the media.

While some reports are negative, intent on portraying wasters or frauds, most seek to explain how people came to be homeless and show the experience as traumatising. Whatever their politics, almost all use the language of crisis.

But while homelessness is becoming more visible, it is not new in affluent societies like Australia. What is new is the copious evidence showing that it is possible to end – or at least radically reduce – homelessness. And taking the long view can reveal patterns that explain how and why people get caught up in conditions not of their making.

A lack of coherent policy

The concept of “housing first”, which has been in operation in Britain since the early 1990s and in the US since the early 2000s, shows that when people are provided with housing and support, they maintain tenancies.

Its premise is that housing is a human right. It also costs less. Research has found that people who were chronically homeless used A$13,000 less government services annually once they were housed.

So, if the problem is not lack of know-how, and if a more cost-effective option is available, why can’t we decide to end homelessness?

Some steps have been taken in Australia. In 2008 the Rudd government introduced a policy shift from managing to eradicating homelessness, promising to halve it by 2020 through a 55% increase in funding. But the Coalition cut funding in 2013.

While the 2017 federal budget increased funding by $375 million over three years, this is not enough to implement long-term strategies. The uncertainty of the budget cycle severely constrains what service providers can do.

This is a depressingly familiar scenario, but it is not set in stone. Activists and advocates achieved bipartisan support for the National Disability Insurance Scheme and, despite efforts to curtail it, it has survived. So why not bipartisan support for ending homelessness? For reviving and sustaining “housing first”?

But it’s hard to convince politicians that this is both good policy and won’t lose them the next election. And it’s even more difficult to assure voters that people experiencing homelessness are not getting it easy, when much of the tabloid media perpetuates a narrative of blame.

Why can’t we decide to end homelessness?
Homeless Persons Union of Victoria/Facebook

Challenging the narrative

A clear strategy is to challenge that narrative. A recently aired SBS program, Filthy Rich and Homeless, sought to do this by showing how hard it is to lift yourself up if you have nothing. Its interviews with people actually experiencing homelessness showed the brutal combination of circumstances that got them where they were.

Understanding homelessness in historical perspective also undermines the blame narrative. Knowing that homelessness increases as a result of devastating mega-events, such as war and depression, or at times when supplies of affordable housing and paid work diminish, challenges the waster/fraud idea.

Not all become homeless in these contexts. Historical records provide strong evidence that people from violent or luckless families are more liable, that macro and micro conditions intersect to precipitate homelessness.

Showing that homelessness has waxed and waned is a key to changing the narrative, just as fluctuations in employment refute the “dole bludger” label.

Few people applied for “the dole” during the post-war boom – but once the economy retracted in the early 1970s, applications increased. Not surprisingly, this was when the notion of the “dole bludger” took off.

It is difficult to get figures on homelessness in the past. But newspapers and reports from governments and NGOs give a sense of surges in homelessness at various times.

In the 1920s, when so many survivors of the first world war suffered physical or mental disability, reports of “diggers” sleeping in the Domain were common. By the late 1930s, care homes for “burnt-out diggers” were being built in the major cities, and some veterans were utilising the resources of the old city missions.

Civilian homelessness surged in the 1930s depression – and not just among itinerant men, but among the less-visible women and young people. Records of Sydney’s YWCA hostel show women escaping family violence or suffering mental illness, both of which were exacerbated by war and depression.

One of the first surveys of homeless youth in Australia, published by the Brotherhood of Saint Laurence in 1942, shows homelessness being produced systemically across generations. Most of the boys at their hostel had run away from home “because of cruel punishments or unhappiness” or had spent their childhoods in “care”.

So, if there is a crisis of homelessness, it has been going on in Australia for a long time. This should not be cause for despair. Instead, it is a call to deploy the big picture in the campaign to eradicate the narrative of blame.


The ConversationThis piece was co-authored by Heather Holst, deputy CEO of community housing provider Launch Housing, who is the co-researcher on this project.

Anne O’Brien, Professor of History, UNSW

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

Counter-terrorism measures permanently reduce international trade: new study


Chris Doucouliagos, Deakin University and Cong S. Pham, Deakin University

Enhanced counter-terrorism measures help to protect lives, but unfortunately also reduce trade, our study shows. The costs of increased security measures are also not shared equally. While some costs are passed onto consumers, exporters and importers often bear the higher costs.

Since 2000, there have been more than 72,000 terrorist acts causing nearly 170,000 deaths. In our study we analysed the impact of terrorism on trade in over 160 countries from 1976 to 2014.

The effects of terrorism in one country spill over across national borders to reduce the trade of other nations. On average, each terrorist incident reduces trade by about US$6.4 million for each trading partner. The effect is also long lived; a terrorist attack can reduce trade over the next five years.

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How security measures change trade

One way counter-terrorism reduces trade is through time delays. Some security and counter-terrorism measures cause longer delays at airports, ports and borders and thereby increase the time it takes to trade.

Food products are particularly vulnerable to shipping delays and the disruption of supply chains that arise from tighter border controls. Trading delays can be very costly. One study shows trade is reduced by more than 1% for each additional day it’s delayed.

Counter-terrorism measures also increase charges and transport costs. Transport costs in particular are critical for trade.

Terrorism has led to higher security surcharges at ports and airports and higher insurance premiums. Requirements for businesses to report suspicious transactions cause delays, also increasing trading costs.

After the September 11 attacks in the US, many nations applied stricter counter-terrorism measures to combat money laundering and the financing of terrorism. These measures add to the cost of importing and exporting.

Some of the individual cost components may be relatively small. For example, anti-money-laundering compliance costs in Australia are pretty insignificant. Nonetheless, all these delays and charges add up.

As the OECD points out, doing nothing about terrorism is not an option. Preventive security measures are indispensable to secure trade, infrastructure and lives.

However, some counter-terrorism measures are effectively non-tariff barriers that do more to protect specific industries than to protect people. That is, some security measures have a similar effect to tariffs, in that they divert trade from lower cost overseas producers, to higher cost domestic producers.

And some measures are ineffective. For example, a key objective of counter-terrorism policies to control money-laundering is to choke off external funding for terrorists. However, some terrorist groups, most notably insurgents in Iraq and ISIS, are largely self-financed.

Our results also show that terrorism has a greater adverse effect on trade in sub-Saharan Africa in particular. This region is particularly vulnerable to terrorism due to governance problems such as corruption. Ironically, this region is especially in need of the benefits of trade to improve governance and institutions.

Our study also shows terrorism reduces trade by diverting government attention from trade liberalisation and reform. Promoting trade is an even more difficult task in an era of accelerated terrorism.

Trade itself can help counter terrorism

Trade spillover effects created by terrorism highlight the importance of co-ordinating counter-terrorism measures between countries. However, this also requires greater co-ordination between policies.

Trade can play an important role in curtailing terrorism by bringing nations closer and fuelling economic prosperity and development. Combined with other economic policies and strategies, greater co-ordination between security and trade policies can increase safeguards while lowering trade barriers. It can also offset the higher trade costs that result from extra security measures.

The ConversationBy reducing trade, counter-terrorism policies inadvertently drive a wedge between nations and make nations poorer. Making countries poorer in turn makes it harder to combat terrorism.

Chris Doucouliagos, Professor of Economics, Department of Economics, Deakin Business School and Alfred Deakin Institute for Citizenship and Globalisation, Deakin University and Cong S. Pham, Senior Lecturer in Economics, Deakin University

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

Taxing empty homes: a step towards affordable housing, but much more can be done



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Vacant and unlit ‘ghost’ apartments are a source of public outrage in major cities around the world.
leniners/flickr, CC BY-NC

Hal Pawson, UNSW

Vacant housing rates are rising in our major cities. Across Australia on census night, 11.2% of housing was recorded as unoccupied – a total of 1,089,165 dwellings. With housing affordability stress also intensifying, the moment for a push on empty property taxes looks to have arrived.

The 2016 Census showed empty property numbers up by 19% in Melbourne and 15% in Sydney over the past five years alone. Considering that thousands of people sleep rough – almost 7,000 on census night in 2011, more than 400 per night in Sydney in 2017 – and that hundreds of thousands face overcrowded homes or unaffordable rents, these seem like cruel and immoral revelations.

Public awareness of unused homes has been growing in Australia and globally. In London, Vancouver and elsewhere – just as in Sydney and Melbourne – the night-time spectacle of dark spaces in newly built “luxury towers” has triggered outrage.

This has struck a chord with the public not only because of its connotations of obscene wealth inequality and waste, but also because of the contended link to foreign ownership.

Early movers on vacancy tax

Against this backdrop, the Victorian state government has felt sufficiently emboldened to legislate an empty homes tax. Federally, the shadow treasurer, Chris Bowen, recently backed a standard vacant dwelling tax across all the nation’s major cities.

Similar measures have come into force in Vancouver and Paris. And Ontario’s provincial government recently granted Toronto new powers to tax empty properties
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Both Vancouver (above) and Melbourne now have a 1% capital value charge on homes left vacant.
Tim Welbourn/flickr, CC BY-NC

Emulating Vancouver, Victoria’s tax is a 1% capital value charge on homes vacant for at least six months in a year. Curiously, though, it applies only in Melbourne’s inner and middle suburbs. And there are exceptions – if the property is a grossly under-used second home you pay only if you’re a foreigner.

Also, as in Vancouver, tax liability relies on self-reporting, which is seemingly a loophole. This might be less problematic if all owners were required to confirm their properties were occupied for at least six months of the past year. But that would be administratively cumbersome.

This highlights a broader “practicability challenge” for empty property taxes. For example, how do you define acceptable reasons for a property being empty?

In principle, such a tax should probably be limited to habitable dwellings. So, if you own a speculative vacancy, what do you do? Remove the kitchen sink to declare it unliveable?

How can we be sure a home is empty?

Lack of reliable data on empty homes is a major problem in Australia. Census figures are useful mainly because they indicate trends over time, but they substantially overstate the true number of long-term vacant habitable properties because they include temporarily empty dwellings (including second homes).

Using Victorian water records, Prosper Australia estimates about half of Melbourne’s census-recorded vacant properties are long-term “speculative vacancies”. That’s 82,000 homes.

Applying a similar “conversion factor” to Sydney’s census numbers would indicate around 68,000 speculative vacancies. Australia-wide, the Prosper Australia findings imply around 300,000 speculative vacancies – 3% of all housing. That’s equivalent to two years’ house building at current rates.

According to University of Queensland real estate economics expert Cameron Murray, a national tax that entirely eliminated this glut might moderate the price of housing by 1-2%. Therefore, although worthwhile, dealing with this element of our inefficient use of land and property would provide only a small easing of Australia’s broader affordability problem.

Making better use of a scarce resource

Taxing long-term empty properties is consistent with making more efficient use of our housing stock – a scarce resource. A big-picture implication is that tackling Australia’s housing stress shouldn’t be seen as purely about boosting new housing supply – as commonly portrayed by governments.

It should also be about making more efficient and equitable use of existing housing and housing-designated land.

Penalising empty dwellings is fine if it can be practicably achieved. That’s especially if the revenue is used to enhance the trivial amount of public funding going into building affordable rental housing in most of our states and territories.

But empty homes represent just a small element of our increasingly inefficient and wasteful use of housing and the increasingly unequal distribution of our national wealth.

One aspect of this is the under-utilisation of occupied housing. Australian Bureau of Statistics survey data show that, across Australia, more than a million homes (mainly owner-occupied) have three or more spare bedrooms. A comparison of the latest statistics (for 2013-14) with those for 2007-08 suggests this body of “grossly under-utilised” properties grew by more than 250,000 in the last six years.

Our tax system does nothing to discourage this increasingly wasteful use of housing. It’s arguably encouraged by the “tax on mobility” constituted by stamp duty and the exemption of the family home from the pension assets test.

A parallel issue is the speculative land banks owned by developers. The volume of development approvals far exceeds the amount of actual building. In the past year in Sydney, for example, 56,000 development approvals were granted – but only 38,000 homes were built.

In many cases, getting an approval is just part of land speculation. The owner then hoards the site until “market conditions are right” for on-selling as approved for development at a fat profit.

Properly addressing these issues calls for something much more ambitious than an empty property tax. The federal government should be encouraging all states and territories to follow the ACT’s lead by phasing in a broad-based land tax to replace stamp duty.

Such a tax will provide a stronger financial incentive to make effective use of land and property. The Grattan Institute estimates this switch would also “add up to A$9 billion annually to gross domestic product”. How much longer can we afford to ignore this obvious policy innovation?


The ConversationAcknowledgements: Thanks to Laurence Troy for statistics and Julie Street for background research.

Hal Pawson, Associate Director – City Futures – Urban Policy and Strategy, City Futures Research Centre, Housing Policy and Practice, UNSW

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

Three charts on: G20 countries’ stealth trade protectionism


Giovanni Di Lieto, Monash University and David Treisman, Monash University

It is clear that trade protectionism is alive and well in the G20, whose countries account for 78% of global trade. But this protectionism isn’t in the form of tariffs, which are duties placed on imports, making imported goods and services more expensive than they would be otherwise. Instead, trade protectionism is being pursued through “non-tariff barriers” such as import quotas, restrictive product standards, and subsidies for domestic goods and services.

This shows that while countries are reducing the obvious barriers to trade, like tariffs, they are still pursuing stealth forms of trade protectionism through non-tariff barriers.

Our research on trade protectionism in the services sector shows that the lower the barriers to trade, the greater company profits. Lower trade barriers create a larger market for Australian goods and services.

We also found that increased domestic regulation leads to higher profits as standards improve across the sector. For Australia this is very significant because the services sector employs four out of five Australians and accounts for 20% of Australia’s total exports.

Eliminating trade protectionism is also good for consumers, as it means a larger market for goods and services. This leads to lower prices and more choice of goods and services.

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The World Trade Organisation uses the term “trade restrictive activity” for measures like the imposition of a tariff. “Trade facilitation” refers to the simplification of export and import processes, making it easier to trade across countries. “Trade remedies” refers to actions taken by states against certain imports that are hurting domestic industries.

For example, in 2016 the Australian Anti-Dumping Commission slapped duties on Italian tomatoes that were being sold in Australia for less than they sold in Italy.

The data show that tariffs have been declining in the G20 over the past few years, while countries have been easing the processes of exporting and importing. However there have been a lot of trade remedies, as countries try to protect their domestic industries.

But looking at data on non-tariff barriers to trade tells a very different story.

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Until 2015 there was a huge increase in non-tariff measures, which then sharply declined. Since then not many measures have been removed. This shows that non-tariff barriers are currently the major mechanism for trade restrictions in the most developed economies.

As in the case of technical standards and regulations, non-tariff barriers can be used as a form of covert trade protectionism.

Technical standards and regulations can be quite legitimate and necessary for a range of reasons. They could take the form of a limit on what gases cars are allowed to emit, earthquake standards in regions prone to seismic activity, and even nutritional information on food and drinks.

But having too many different standards makes life difficult for companies that wish to access a market, as one product or service will need to comply with different standards in many countries.

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What has occurred in Australia echoes what has happened throughout the G20. There has been little activity recently in tariffs, but a significant use of non-tariff and technical barriers to trade.

This is a huge shift in Australia’s economic policy, which had until recently emphasised trade liberalisation as a recipe for growth.

According to the Australian Productivity Commission, trade restrictions directly raise the cost of both foreign and domestic goods and services, negatively impacting both Australian consumers and businesses.

Where to from here?

President Donald Trump’s trade agenda aims to distance the United States from the World Trade Organisation, which was setup to remove barriers to international trade.

In response, companies in the United States are now filing a huge number of anti-dumping cases against foreign goods and services.

At first glance, Australia appears to be off the hook when it comes to Trump’s hardline approach. We already have a bilateral trade agreement with the United States, not to mention a US$28 billion trade deficit with the US.

The ConversationBut the dangers of Trump’s trade doctrine could affect other countries and this disruption to global supply chains and financial security would eventually flow on to Australia.

Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University and David Treisman, Lecturer in Economics, Bachelor of International Business, Monash Business School, Monash University

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

As an historic nuclear weapons treaty is reached, G20 leaders miss the mark on North Korea



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In North Korea’s eyes, its nuclear program is the only guarantee of regime survival.
Reuters/KCNA

Joseph Camilleri, La Trobe University

Over the weekend, more than 120 countries adopted a treaty at a UN conference that prohibits the production, stockpiling, use or threatened use of nuclear weapons or other nuclear explosive devices. Australia was a notable absentee. So were the nine countries that possess nuclear weapons.

While the UN conference was taking a major step toward the elimination of nuclear weapons, the US and its allies – notably Japan, South Korea and Australia – were hoping to use the G20 summit in Hamburg to focus attention on the danger North Korea’s nuclear ambitions pose.

However, the declaration issued at the end of the G20 does not even mention the issue. We can now expect a UN Security Council resolution that condemns North Korea’s latest missile test and applies slightly tougher sanctions.

The glaring contradiction between the boycott of the nuclear ban negotiations and the preoccupation with the North Korean nuclear threat does not seem to have dawned on the US and its allies.

Kim’s misguided provocation and Trump’s futile bluster

In North Korea’s eyes, its nuclear program is the only guarantee of regime survival.

North Korea’s apparently successful intercontinental ballistic missile test last week is widely seen, and portrayed by the regime itself, as part of a relentless drive to develop a reliable long-range nuclear weapon capable of striking the US.

The US responded to the latest test by declaring the policy of “strategic patience” is now over. In a speech delivered in Poland prior to the G20, US President Donald Trump warned he is considering “some pretty severe things” in response to North Korea’s “very, very bad behaviour”.

Donald Trump’s pre-G20 speech in Warsaw.

Yet America’s options are limited. In the first five months of his presidency, Trump’s strategy was to cajole China into taking a more confrontational stance with North Korea. But there are limits to what China is able or prepared to do.

Trump then intimated the use of tougher sanctions against North Korea, possible financial or trade sanctions against China for failing to do more, and even the direct use of military force.

However, resorting to these coercive tools is unlikely to have the desired result. History tells us harsh economic sanctions are often counter-productive. They impoverish economies, strengthen dictatorships, and drive dissent underground.

As for a military strike on North Korea, it could well lead the regime’s leader, Kim Jong-un, to launch a devastating strike against America’s allies, – notably Japan and South Korea. This might include the use of chemical, biological and possibly nuclear weapons. Such a turn of events may even drag China into the conflict.

More promising is the policy of strategic caution advocated by Russian President Vladimir Putin and his Chinese counterpart Xi Jinping, which they reiterated in their separate meetings with Trump on the sidelines of the G20 summit.

Both Russia and China argue North Korea can be persuaded to halt nuclear and missile tests if, in return, the US and South Korea suspend their joint military exercises. This would be a prelude to the resumption of talks involving the US and North Korea that could lead to undertakings for all sides to refrain from the use of force or other aggressive measures.

This more pragmatic stance is close to the position of South Korean President Moon Jae-in, who argued in Hamburg that the focus should be kept on further sanctions and dialogue.

Why the treaty?

Nothing said at the G20 summit will resolve the North Korean crisis, for it is but a symptom of a deeper ailment.

The US and Russia, which between them account for 92% of the world’s nuclear weapons, are clearly intent on preserving and modernising their nuclear arsenals. They and other nuclear-armed countries have steadfastly resisted repeated calls for nuclear disarmament – even though Article 6 of the Nuclear Non-Proliferation Treaty requires them to do just that.

The nuclear weapons treaty that has just emerged is a direct response to the morally and legally culpable inaction of the nuclear-armed countries – something the G20 summit did not and could not do.

Put simply, the treaty is a comprehensive effort to bring the rule of law to bear on all aspects of the nuclear assault on the planet. It designates a nuclear-weapon-free world as “a global public good of the highest order”, on which depend:

… human survival, the environment, socioeconomic development, the global economy, food security and the health of current and future generations.

The treaty’s provisions are robust and thorough. In addition to prohibiting production, possession and deployment, each party to it undertakes never to test, transfer or receive from any recipient any nuclear weapons or explosive devices, and never to assist anyone or receive assistance from anyone to engage in any such activity.

Countries are further prohibited from ever allowing nuclear weapons or other nuclear explosive devices to be stationed, installed, deployed or tested in their territory, or anywhere under their jurisdiction or control.

But there’s more to the treaty than this. It specifically acknowledges the unacceptable suffering and harm caused to the victims by nuclear weapons, as well as of those affected by the testing of nuclear weapons, in particular indigenous peoples.

The treaty also reinforces the legal obligation of relevant countries to provide appropriate remedies to the victims of nuclear testing, and effective repair of environmental damage.

Those who have been busy drafting and redrafting the treaty have taken great care to make room at a future date for those countries that have not participated in the negotiations – in particular nuclear-armed countries and their allies. A well-crafted set of procedures allows for the progressive, transparent and carefully verified dismantling of their nuclear activities.

Nothing said at the G20 summit will resolve the North Korean crisis.
Reuters/Kay Nietfield

Australia’s negative role

The dramatic events of the last week raise troubling questions for the future direction of Australian foreign policy. Why is it that Australia has been absent from the negotiations leading up to the adoption of this treaty?

More than that, why has it done all in its power to thwart the initiative?

The reasons are not hard to find. There is within Australia a firmly entrenched but dangerous mindset that America’s military might, including its nuclear arsenal, underwrites Australia’s national security.

The Australian government’s opposition to the nuclear ban treaty is the logical consequence of its subservience to US strategic objectives and priorities. It is the extension of longstanding policies that have led Australia to entanglement in protracted, costly and unwinnable wars – in Korea, Vietnam, Afghanistan, Iraq and now Syria.

It is the result of Australia’s psychological insecurity, and the tendency of governments to try to demonstrate at every opportunity that we remain America’s most faithful ally.

Yet there are other options. Australia has much to gain from actively supporting efforts to prohibit and eliminate nuclear weapons, and from collaborating with like-minded countries and international organisations to develop an effective long-term nuclear disarmament agenda.

Such a process would create immense possibilities for easing tensions in the Asia-Pacific region – not just in the Korean peninsula, but in China-US and China-Japan relations, and in the South China Sea.

The ConversationPublic support for such a transition is greater than many would think. The nuclear ban treaty is the beginning, not the end.

Joseph Camilleri, Emeritus Professor of International Relations, La Trobe University

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

When Trump met Putin, and how the Russian won the day



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The much-anticipated meeting between Vladimir Putin and Donald Trump finally took place at the G20 summit in Hamburg.
Reuters/Carlos Barria

Kumuda Simpson, La Trobe University

It was the meeting we’ve all been waiting for. US President Donald Trump and Russian President Vladimir Putin met on Friday during the G20 meeting in Hamburg, Germany.

The key question was whether Trump or Putin would emerge as the stronger leader, with most backing Putin’s ability to manipulate and control the exchange. Trump’s lack of diplomatic or political experience, and his unwillingness to prepare for the encounter, inspired very little confidence that he would walk away with any serious concessions from Putin.

The meeting was scheduled to take half-an-hour. In fact it lasted more than two hours, and an indication the two leaders found a significant amount to talk about. The only other people present were US Secretary of State Rex Tillerson, Russian Foreign Minister Sergei Lavrov, and two interpreters. The little we know of what was actually discussed has come from statements Lavrov and Tillerson gave to the press following the meeting.

Russian interference in the US election

Tillerson said Trump pressed Putin over Russian interference in the 2016 election, but seemed to accept his denial that Russia did any such thing.

President Putin denied such involvement, as I think he has in the past.

Tillerson said the White House was not “dismissing the issue” but wanted to focus on “how do we secure a commitment” that there will not be interference in the future.

The big question going in to the meeting was whether or not Trump would raise the accusation with Putin. While he clearly did, the ease with which he appears to have accepted Putin’s protestations of innocence, and his reassurance that it won’t happen again, is remarkable.

According to journalists’ reports on Twitter, Lavrov had a slightly different spin on Trump’s reaction to the issue. He said:

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In light of Trump’s remarks in Poland the day before, when he called into doubt the reliability of US intelligence on the issue, this has further undermined the credibility of the US intelligence community. That Trump did this during a face-to-face meeting with Putin can only deepen the mistrust between the CIA and FBI have for the White House, and further damage morale.

It can also be read as a clear victory for Putin, who came away from the meeting without having to seriously address charges that Russia systematically engaged in what is a gross violation of the democratic integrity and sovereignty of another country.

Syria

There was a clear opportunity for Trump to use the meeting to pressure Putin over his continuing support for Syrian President Bashar al-Assad.

While any significant agreements over how to resolve one of the most complex conflicts in the region were highly unlikely, the two leaders did agree to support a ceasefire in an area of southwestern Syria. There were no other details, and Tillerson himself admitted that ceasefires in Syria have tended to fall apart very quickly.

While Russia and the US have a shared interest in fighting Islamic State in Syria, they disagree over the almost every other aspect of the conflict, particularly the future of Assad and the role of Iran.

Trump has recently ratcheted up to anti-Iranian rhetoric and it seems the Russian relationship with Iran could become a significant point of conflict between the US and Russia in the future.

No transcript of the meeting is available so it’s impossible to know exactly what was discussed here. But if Putin was not pressed on these points, it is certainly a missed opportunity.

Shared interests

While both Lavrov and Tillerson highlighted the shared interests the two countries have, neither Ukraine nor the ongoing nuclear crisis in North Korea could be counted among them.

North Korea’s testing of an intercontinental ballistic missile guaranteed that it would be high on the list of issues that would be discussed. Russia has contradicted the consensus among the other G20 leaders over the missile’s range, and blocked a resolution by the UN Security Council calling for “significant measures” in response to the test.

So, what do we make of this highly anticipated meeting?

With very little detail about what was actually discussed, and with the narrative firmly controlled by Lavrov, Trump would seem to have gained very little while conceding much.

Putin has come away with an implicit agreement to move on from the question of election meddling, without promising more than “dialgue” on Ukraine, no agreement on how to deal with North Korea, and no real movement on the horrific human tragedy in Syria.

The ConversationAlong with Tillerson’s affirmation that the two leaders shared “a clear positive chemistry”, it’s hard not to recall George W. Bush’s claim to have seen into Putin’s soul, and conclude that Putin has once again expertly played a US president.

Kumuda Simpson, Lecturer in International Relations, La Trobe University

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

What income inequality looks like across Australia


Nicholas Biddle, Australian National University and Francis Markham, Australian National University

With affordable houses increasingly out of reach, wage growth slow and household debt high, Australians are certainly feeling poor. But how do they compare to their neighbours? New Census data confirms there’s a lot of variability in income.

The Census breaks the country up into 349 geographic regions (named in quote marks below), some of which cover more than one major town and some of which group related suburbs within cities. We examined 331 of these regions, excluding those containing fewer than 1,000 households.

The data show there are high levels of income inequality within these regions. A simple way to measure this is to look at the ratio of income between those who are well off (the top 20% within a region) and of those who are relatively disadvantaged (the bottom 20%) in the Census data. In Australia the weekly household income for the top 20% (A$1,579 per week) is 3.5 times the income of the bottom 20% (A$457).


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The “Melbourne City” region has the most unequal incomes in Australia, where the top 20% have an income that is 8.3 times as high as those in the bottom 20%. “Adelaide City” (ratio of 5.5) and the “Sydney Inner City” (4.8) also have quite high levels of inequality.

Two of the poorest regions in the Northern Territory also have very high inequality. These are the vast region that encircles Darwin, called “Daly, Tiwi, West Arnhem” (ratio of 5.2) and the “East Arnhem” region (5.3).

However, there are regions with varying income levels, that also had relatively low inequality ratios. The region of “Molonglo”, in South Canberra (ratio of 2.2), “West Pilbara” in Western Australia (2.4) and “Kempsey, Nambucca” on New South Wales’ north coast (2.5) all have low levels of inequality.

For our analysis, we used equivalised household income. Equivalisation is a technique in which members of a household receive different weightings, based on the amount of additional resources they need.

The Australian Bureau of Statistics assumes that the first adult in a household has a weighting of 1, each additional adult a weighting of 0.5, and each child a weighting of 0.3. Total household income is then divided by the sum of the weightings for a representative income.

Incomes across Australia

For the whole of Australia, the equivalised median household income (the income in the middle of the distribution) is A$878 per week. The region with the lowest median income was “Daly, Tiwi, West Arnhem” in the Northern Territory, at A$510 per week.


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However, several regional areas like “Maryborough, Pyrenees” (northwest of Ballarat in Victoria), “Kempsey, Nambucca” (NSW), “Maryborough” (between Bundaberg and the Sunshine Coast in Queensland), “Inverell, Tenterfield” (in NSW’s Northern Tablelands) and “South East Coast” in Tasmania all had median incomes of A$575 per week or less.

At the other end of the distribution, households in leafy suburbs of North Sydney – “Mosman” (NSW) had a median income of A$1,767 per week. Areas like “South Canberra” (ACT), “Manly” (in Sydney’s east) and the mining-dominated “West Pilbara” (WA) all had median incomes of A$1,674 or more per week.

We also looked at the extremes of the distribution. We define high income as those households with an income of A$1,500 or more per week. This equates to about 22% of the population. We defined low-income households as having an income of less than A$400 per week (about 14% of households).

Around 40% of households in the “Daly, Tiwi, West Arnhem” region were classified as being in poverty compared to around 6% in “North Sydney, Mosman” region. Conversely, around 60% of households in this region were classified as having high income, compared with only 6% of households in “Kempsey, Nambucca”.

How segregated are we within regions and cities?

While government policy is often delivered at the regional level, people live their lives at the local or neighbourhood level. However, the relatively disadvantaged and the upper-middle class are often segregated within these regions.

Richard Reeves of the Brookings Institute argues the segregation of the upper-middle class in Australia means this group “hoards” the benefits in the region they live in. Among the location advantages he lists are: access to the best schools, opportunities to network with the wealthy and powerful and the ability to disproportionately accrue capital gains on housing assets. To avoid this kind of “opportunity hoarding”, the rich and poor would need to be evenly spread within a region.

A simple way to look at this is through a “dissimilarity index”. In essence, this measures the evenness with which two groups are spread across a larger area. It ranges from zero to one, with higher values indicating a more uneven distribution and zero indicating complete mixing.

Looking at the distribution of the high income. Across Australia, the dissimilarity index has a value of 0.27. This means that around 27% of high-income households would have to move neighbourhoods to make the distribution completely even.

This varies quite substantially by region. “Far North” (encompassing Cape York in QLD) has a dissimilarity index of 0.42. “Auburn” (in western suburbs of Sydney, NSW) and “Playford” (on Adelaide’s northern fringe) also have quite large values.

Our richest regions tend to have the most even distribution of the wealthy, with “North Sydney, Mosman”, “Molonglo” and “Manly” having values of 0.06 or less.

“East Arnhem” has a very high level of concentration of low income individuals by neighbourhood, with a dissimilarity index of 0.70. The next two highest regions (“Katherine” and “Alice Springs”) are also in the Northern Territory, with index values of 0.53 and 0.55 respectively.

We can also compare the measures we used, to find out how they relate to each other. The following figure shows that the richest regions tend to be those with the highest level of income inequality.

However, as inequality goes up, there tends to be a greater concentration of low income households by neighbourhood (there’s also less of a concentration of high income households).

Have and have nots

It’s true that the level of income mobility is higher in Australia than it is in the US. However, Australia also has prominent examples of economic policies that disproportionately benefit the upper-middle class, such as the capital gains tax discount and superannuation tax incentives.

Australia also has a geographically concentrated income distribution, with the rich living in neighbourhoods with other rich people. The poor are also more likely to live in close proximity to people who share their disadvantage.

If Richard Reeves is right, and the spatial segregation of high and low income households reinforces inequality across the generations, then policies that encourage the mixing of different social classes in the same neighbourhood and region should be a way forward.


The ConversationThis article was put together with research assistance from Hubert Wu, Australian National University and Harvard University.

Nicholas Biddle, Associate Professor, ANU College of Arts and Social Sciences, Australian National University and Francis Markham, Research Fellow, College of Arts and Social Sciences, Australian National University

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

The G20’s economic leadership deficit


Adam Triggs, Australian National University

Few have heard of the Baltic Dry Index. It measures the demand for bulk shipping carriers, used for international trade. It usually attracts little attention. But nine years ago this index had the undivided attention of the 20 most powerful leaders in the world.

It was when the global financial system was on a precipice. Stock markets were crashing. Credit markets were freezing. Rolling failures across financial institutions were shattering confidence. Unable to wait for monthly trade data, the Baltic Dry Index showed in real-time what many leaders feared: global trade and commerce were grinding to a halt.

Leaders faced the real prospect of another Great Depression. But they were determined not to make the mistakes of the past. They resisted a return to protectionism. They slashed interest rates and buttressed the International Monetary Fund and development banks. Over the next three years, they implemented US$5 trillion of co-ordinated fiscal stimulus, the largest in history.

That leadership is needed again today. The risks leaders face at the latest G20 meeting in Hamburg, Germany, might not be as serious as those the leaders who met in Washington faced back in 2008. But the risks are present, and leaders are disengaging with the G20’s ever-expanding agenda. They are more likely to use the G20 for cheap political point scoring than for advancing co-operation on critical global challenges.

Australia can play a role in helping the G20 to deliver this leadership.

Economic challenges

Protectionist measures are on the rise. Protectionist rhetoric is rising faster. The World Trade Organisation shows that the stock of trade-restrictive measures is growing, up 8.5% in the 12 months to May 2017 alone.

The G20’s growth agenda from 2014 is in tatters. The G20 committed to make G20 GDP 2.1% bigger by 2018. Instead, the International Monetary Fund forecasts it to fall short by almost 6%.

A strong, effective G20 is manifestly in the interests of the global community, but particularly of Australia. Three-quarters of our merchandise trade is with G20 countries. Our banks rely on them for wholesale funding. Our tourism sector relies on them for two-thirds of our tourists. Our universities rely on them for the vast majority of their students.

Critically, the G20 is an opportunity for Australia to have a say in how global governance will be shaped in the years ahead and to be a regional champion for Asia.

Through in-depth interviews with over 40 central bank governors, ministers and officials from G20 countries, my research suggests there are practical things the G20 could do to increase its relevance. Importantly, participants see Australia as a developed economy, closely integrated in Asia and which promotes the values of the open, rules-based international order. This makes Australia well placed to push for pragmatic changes to improve the G20 process, particularly having hosted the 2014 meeting.

My interviewees warned that the G20’s agenda is too heavily dictated by the host country. In 2011, when France hosted the meeting, President Nicolas Sarkozy asked UK Prime Minister David Cameron to produce a report on reforming global governance. This instantly elevated the issue and saw substantial involvement from other leaders. Australia should push for allowing more leaders to champion the issues important to them, rather than leaving it all to the host country.

Participants similarly suggested that the G20’s peer-review process is too weak. This is the process through which countries review and give advice on each other’s policies. It’s critical to the G20’s ability to generate peer pressure, which is how a non-binding forum influences policies.

But participants saw this process as being a “tick and flick” exercise, isolated to junior officials in G20 working groups. Australia should advocate to change this, elevating the peer-review process to the level of ministers, governors and leaders. This will allow the people who have political capital to raise substantive points with one another.

For the G20 to demonstrate global leadership, participants suggest that it needs a genuine agenda for growth, with a stronger focus on making growth more inclusive. The OECD has some suggestions for this, such as investment in infrastructure, education and microeconomic reforms that lift workforce participation and create new opportunities for quality investment. The IMF shows that GDP gains can be 25% larger if structural reforms like this are co-ordinated between countries.

Participants also wanted progress on trade but warned that reaching agreement has been difficult. Recent research suggests the G20 should seek to promote consistency between the plethora of global, regional and bilateral trade agreements and develop a framework for how they can be scaled up into a global, WTO-led agreement.

The research shows that countries benefit most when trade liberalisation happens globally, but the “noodle bowl” of existing trade agreements is a nightmare for exporters to navigate. Australia, as a strong advocate for free trade, is well placed to show leadership on this issue.

Outcomes on trade are also vital for inclusive growth. Research shows that the poor can afford 63% more goods and services because of free trade, more than twice the benefit that flows to the rich.

But talk is cheap. It’s easy to commit to reforms but only half of G20 commitments are being implemented.
Australia should push for a serious accountability framework to monitor implementation and identify the countries that fall short.

The ConversationA weakening of the G20 is a weakening of Australia’s international influence. Few countries have a greater incentive to put solutions on the table.

Adam Triggs, Research fellow, Australian National University

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