NAPLAN results show it isn’t the basics that are missing in Australian education



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AAP/Dan Peled

Misty Adoniou, University of Canberra

The preliminary results of NAPLAN 2017 are out, and the news isn’t good. The annual test of our students’ literacy and numeracy skills shows that not much has changed since 2011, coincidentally – or not – when we began this annual circus of public reporting of NAPLAN results.

In fact, it seems our kids are actually getting dumber – at least as measured by the NAPLAN tests.

Going backwards

The year’s Year 9 students first sat the test back in 2011 when they were in Year 3, so we can now track the cohort’s performance over time.

It is particularly useful to track their performance against the writing assessment task, as all the grade levels are marked against the same ten assessment criteria. Depending upon how they perform against each assessment criterion, they are assigned a Band level – ranging from Band 1, the lowest, to Band 10, the highest.

The minimum benchmark shifts for each year level, because we would expect a different minimum level of writing performance for 16-year-olds than we would of ten-year-olds. So, in Year 3 the minimum benchmark is Band 2, and in Year 9 it is Band 6.

A gifted and talented Year 3 student could easily achieve a Band 6 or above, and it is conceivable a struggling Year 9 student may only reach a Band 2.

This year, a staggering 16.5% of Year 9 students across Australia were below benchmark in writing. Back in 2011, when those students were in Year 3, only 2.8% of them were below benchmark. Somehow we dropped the ball for thousands of those kids as they progressed through school.

The high-performing states of New South Wales, Victoria and the ACT cannot claim immunity from this startling increase in students falling behind as they progress through school. Their results show exactly the same trends. This is a nationwide problem.

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It gets worse

Not only are the numbers of low-performing students increasing, but the inverse is occurring for our high-achieving students: their numbers decrease as they move through school.

This year, only 4.8% of Year 9 students across Australia performed far above the minimum benchmark – that is, at a Band 10 level. However, back in 2011, 15.7% of those same students were performing far above the minimum benchmark for Year 3 – that is, at a Band 6 or above.

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The trend is strikingly similar across all the jurisdictions. As NSW congratulates itself on improving its Year 9 results, it might want to look a little closer to see what the figures are really saying.

In 2011 an impressive 20% of NSW Year 3 students were far above benchmark in writing. But by the time they had reached Year 9 this year, the number of them who were far above the benchmark had dwindled to a depressing 5.7%.

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What is happening?

Why do we start so well, and then lose both high performers and strugglers along the way? Isn’t school supposed to be growing their literacy skills, not diminishing them?

Well, the NAPLAN statistics not only illustrate the problem, they actually provide the explanation.

We don’t have an early years literacy “problem” in Australia. The percentage of students below benchmark in Year 3 converts to very small numbers. In Victoria in 2016, for example, there were around 450 Year 3 students below benchmark.

It should be very easy to locate those children, and provide intensive interventions specifically designed for each student. But apparently we don’t.

By Year 5, those low performers across Australia are simply treading water and our high performers start to slide. Then it all takes a dramatic turn for the worse in Year 7, with a five-fold increase in students below benchmark and a three-fold decrease in those who are far above the benchmark.

So, what is going on?

Well, reading and writing gets harder in Year 4, and every year after that.

The Year 3 test is looking for evidence that the children have learned their basic reading and writing skills. They can decode the words on the page and comprehend their literal meaning. They can retell a simple story that is readable to others.

However, by Year 5, the test begins to assess the children’s ability to infer from and evaluate what they read, and to consider their audience as they write.

In Year 7 it is expected that children are now no longer learning to read and write, but that they are reading and writing to learn. To achieve this they need deep and technical vocabularies, and to be able to manipulate sentence structures in ways we do not and cannot in our spoken language.

And the NAPLAN results suggest that many of them cannot.

Instead, they are stuck with their basic literacy skills, obviously well learned in the early years of school. They can read – but only simple books with simple vocabulary, simple grammatical structures and simple messages. They can write – but they write the way they speak.

What’s the solution?

Raise our expectations of our students. And raise the quality and the challenge of the literacy work we do with them.

There has been a misplaced focus on “back-to-basics” literacy education in recent years. The last ten years of NAPLAN testing shows us we are already exemplary at the basics. It is the complex we are bad at.

It’s time to change tack. Our attention needs to focus on developing the deep comprehension skills of our upper-primary and high school students. And our teachers need – and want – the resources and the professional learning to help them do this.

Teachers must build their own understanding of the ways in which the English language works, so they can teach their students to read rich and complex literature for inference, to use complex language structures to craft eloquent and engaging written pieces, and to build sophisticated and deep vocabularies.

It isn’t the basics that are missing in Australian education; it is challenge and complexity.

The ConversationAnd until we change our educational policy direction to reflect that, we will continue to fail to help our children grow into literate young adults – and that is bad news for us all.

Misty Adoniou, Associate Professor in Language, Literacy and TESL, University of Canberra

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

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With its 2017 budget the government is still discouraging women



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Recent figures show that women are adversely effected by the 2017 federal budget.
AAP Image/Tracey Nearmy

Helen Hodgson, Curtin University

The 2017 federal budget was pitched as a fair budget, but much depends on your definition of fairness. Reviewing the policies through a gender lens, there is little to address the entrenched economic disadvantage experienced by women. The Conversation

Australia was known for being a pioneer of policies that are sensitive to the impacts on different genders, but that 30-year history came to an end in 2014 when the Abbott government announced it was abandoning the practice. Rather than see this analysis disappear, the National Foundation for Australian Women (NFAW) stepped in and partnered with academics like us, to analyse the budget through the gender lens. We review the effect that each announced policy will have on women’s lives: their economic status and well-being.

We found there were no measures designed to specifically address gender inequality and the related women’s entrenched financial vulnerability.

It’s a relief that the government has abandoned the so-called “zombie measures” which included changes to the family tax benefit and paid parental leave measures. These measures would have had a direct impact on women by adding to the effective marginal tax rate. They would also have reduced the female workforce participation rate, having a long-term effect on the economic well-being of women and their families.

However the budget still includes measures that have a disincentive effect in the workforce. The increase in the Medicare levy will affect those on incomes greater than A$21,644. For those with eligible children, the Family Tax Benefit A payment rates are frozen for two years and those who pay child care fees receive will continue to face high effective marginal tax rates (EMTR’s).

A flat increase in taxes or levies will particularly impact low income earners. Women are overrepresented in the lowest income levels, so changes to government benefits and increases in taxes have a disproportionate affect on women. Recently released ATO statistics show the median income for women was A$47,125 in 2014/15, while for men the amount was A$61,711.
And the recent reduction in penalty rates has already been identified as disproportionately affecting women.

These changes hit those earning well below the average wage, and are particularly harsh for women. Combined, these changes could lead to effective marginal tax rates of possibly 100% or higher for some women, particularly as Family Tax Benefit Part A begins to decrease at A$51,903.

The long awaited housing package will have some benefits for women. But community organisations will need to be vigilant in ensuring that the new National Housing and Homelessness Agreement ensures that funding is guaranteed for the homeless and for women fleeing domestic violence.

There has already been criticism of initiative to encourage older Australians to downsize their homes, but when a gender lens is applied, the inherent bias becomes clear. Economic patterns established during a woman’s pre-retirement years mean that women are more likely to be in receipt of the age pension, and are more likely to be receiving the full age pension. They are also less likely to have superannuation, and the balance will be lower.

Where a person is in receipt of the age pension, the downsizing initiative will reduce it, so single women are more likely to lose entitlements if they access this benefit. For example, a widow maintaining a home that is bigger than she now needs, will not be able to benefit from downsizing with this policy.

The increase in the Medicare levy to fund the National Disability Insurance Scheme (NDIS) is also a mixed outcome. The primary carer for a person with a disability will benefit from access to the NDIS, as the additional funds for services will relieve financial and emotional pressure on the carer. But because women are still more likely to be the primary carer for a family member with a disability, this measure will disproportionately improve the lives of women.

Despite the commitment to fully fund the NDIS there are no measures to address workplace conditions. The caring economy is still largely based on women, whether they provide paid care or unpaid care.

Women working in the care sector still endure historically undervalued pay rates and working conditions, whether in the NDIS, childcare or aged care. The current consumer directed care model encourages the use of casual workers, which further reduces economic security for these women.

This year’s budget delivers some significant improvements in infrastructure, disability support, health and housing. These are welcome because they place a higher weight on the provision of government services, than unfair policies aimed at arbitrarily reducing the surplus.

The 2017 budget contains initiatives that help alleviate some of the worst aspects of its predecessors. However, it doesn’t radically turn things around for women.

Helen Hodgson, Associate Professor, Curtin Law School and Curtin Business School, Curtin University

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

Full response from the AiGroup for a FactCheck on how Australia’s top tax rates compare internationally



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original.

Sunanda Creagh, The Conversation

In relation to this FactCheck on the AiGroup’s Innes Willox’s statement that Australia has “one of the highest progressive tax rates in the developed world”, a spokesman for the AiGroup sent the following sources and comment: The Conversation

Innes was referring to top marginal tax rates. Data for 2016 show that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).

Chart created by AiGroup using OECD data.
AiGroup/OECD
Chart created by AiGroup using OECD data.
AiGroup/OECD

The spokesman also sent a screenshot from an OECD report titled Revenue Statistics 2014 – Australia:

A screen shot from the OECD report Revenue Statistics 2014 – Australia.
OECD

Sunanda Creagh, Editor, The Conversation

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

FactCheck Q&A: does Australia have one of the highest progressive tax rates in the developed world?



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The AiGroup’s Innes Willox, speaking on Q&A.
Q&A

Kathrin Bain, UNSW

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9:35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email. The Conversation


Excerpt from Q&A, May 15, 2017. Quote begins at 0.50.

Look, we just need to keep in mind that we have one of the highest progressive tax rates in the developed world at the moment. – Innes Willox, chief executive of the Australian Industry Group, speaking on Q&A, May 15, 2017.

When Q&A host Tony Jones asked if wealthy people should pay more tax, the AiGroup’s Innes Willox said that Australia already has one of the highest progressive tax rates in the developed world.

Is that true?

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Checking the source

When asked for sources to support Innes Willox’s statement, a spokesman for the AiGroup clarified that Willox was referring to top marginal tax rates.

The spokesman referred The Conversation to OECD tax statistics, and two charts built using that data, saying that:

This shows that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).

You can read his full response and see those charts here.

Is it true? Not exactly

Looking at OECD data, Australia’s highest marginal tax rate is higher than the OECD median. Out of the 34 OECD member countries in this data set, Australia ranks 13th for the top marginal rate of tax, meaning 12 countries have a higher top marginal rate, and 21 countries have a lower top marginal rate.

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However, a straight comparison like this can be misleading. More than half (19) of the OECD countries impose “social security contributions”. The OECD defines social security contributions as “compulsory payments that confer an entitlement to receive a (contingent) future social benefit”. It notes that they “clearly resemble taxes” and “better comparability between countries is obtained by treating social security contributions as taxes”.

When social security contributions are taken into account, Australia’s “ranking” in terms of top marginal rate of tax drops to 16 out of the 34 OECD member countries – making it still higher than the OECD median top marginal rate, but not by much.

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The other point noted by the AiGroup spokesman was that Australia’s top marginal tax rate applies at a relatively low level of income compared to most other OECD countries.

Australia’s highest marginal tax rate applies to taxable income above A$180,000, approximately 2.2 times Australia’s average wage. The AiGroup spokesman was right to say this is relatively low, with the majority of OECD countries (20 out of 34) applying their highest marginal tax rate at income levels higher than Australia (that is, at income levels higher than 2.2 times the average wage).

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However, it is worth noting that based on the latest Australian Taxation Office statistics, for the 2014-15 tax year, only 3% of individual taxpayers fell into the highest tax bracket.

Where Australia does rank amongst the highest in the OECD is the percentage of total tax revenue that is derived from individual income taxation.

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In 2014, 41% of Australia’s taxation revenue came from income taxation on individuals. This is the second highest in the OECD (the highest being Denmark at 54%) and significantly higher than the OECD average of 24%.

Verdict

The statement made by Innes Willox that “Australia has one of the highest progressive tax rates in the developed world at the moment” is an exaggeration.

Australia ranks 13th in the OECD for the top marginal rate of tax, and 16th if social security contributions are taken into account.

However, Australia does rely more heavily on personal income tax (when compared to other taxes) than all but one other OECD country. – Kathrin Bain


Review

I agree that the statement is an exaggeration. 13th out of 34 is higher than the median, but it would be equally true to say that more than one-third of the OECD countries have a higher personal marginal tax rate than Australia.

It is always problematic to try to compare tax data across different countries. Although the OECD does try to make the data comparable the differences between tax and welfare systems can lead to misleading comparisons.

It is generally well known that certain Scandinavian countries, such as Sweden and Denmark, have a very high marginal tax rate. However those countries also tend to have a different approach to social and welfare spending. Australia does not have a dedicated social security tax: pensions and income support are paid from general revenue. This structural difference in the tax-transfer systems does limit the comparison.

Australia does have a high reliance on personal income tax, and the top marginal rate is higher than the median OECD level. Although the top marginal rate is relatively low at 2.2 times the median wage, the fact that only 3% of the population are in the top bracket says that we, in fact, have a relatively flat tax structure, with most taxpayers in lower tax brackets. – Helen Hodgson


The Conversation FactCheck is accredited by the International Fact-Checking Network.

The Conversation’s FactCheck unit is the first fact-checking team in Australia and one of of the first worldwide to be accredited by the International Fact-Checking Network, an alliance of fact-checkers hosted at the Poynter Institute in the US. Read more here.

Have you seen a “fact” worth checking? The Conversation’s FactCheck asks academic experts to test claims and see how true they are. We then ask a second academic to review an anonymous copy of the article. You can request a check at checkit@theconversation.edu.au. Please include the statement you would like us to check, the date it was made, and a link if possible.

Kathrin Bain, Lecturer, School of Taxation & Business Law, UNSW

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

Vital Signs: dismal wages growth makes a joke of budget forecasts



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Pay packets rose just 0.5% in the first quarter.
bradleypjohnson/Flickr, CC BY-ND

Richard Holden, UNSW

Vital Signs is a weekly economic wrap from UNSW economics professor and Harvard PhD Richard Holden (@profholden). Vital Signs aims to contextualise weekly economic events and cut through the noise of the data affecting global economies. The Conversation

This week: investor loans continue to rise, unemployment ticks down, wages growth remains distressingly low, and consumers are unconvinced the budget will improve their financial situation.


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Now that Australia’s two major political parties (and the Greens) have decided that robbing banks is legitimate public policy, we return our focus to how the Australian economy is actually functioning.

ABS data released Monday showed that investor housing loans rose slightly, up 0.8% on the previous month. The really interesting figures on this front are still to come, since the Australian Prudential Regulation Authority announced tighter macro-prudential measures – especially on interest-only loans – at the end of March. There are already some anecdotal suggestions that these have started to dampen investor demand, but there is no proper evidence yet. The next round of ABS housing finance data will certainly provide some clues.

The ABS also reported this week that first quarter wage growth was distressingly low, with pay packets rising just 0.5%. That puts private-sector annual wages growth at 1.8%. The main concerns here are, of course, for workers struggling to get by and the fact that rising levels of income inequality are not being dented by robust wage growth.

Added to this, however, is the impact of low wage growth on the budget, and the economy more generally. The RBA has pointed out in recent months that around one-third of mortgage holders have less that one month’s repayment buffer. As the cost of living keeps rising, but wages don’t, people with close to no wiggle room get squeezed more and more.

Last week’s budget, and the forecast return to surplus in 2020-21, was predicated in no small part on very robust wage growth.

On budget night I wrote that these wage growth assumptions were bullish and unlikely to eventuate. 3% going to 3.75% annual wage growth looks really aggressive against a stagnating 1.8 – 1.9% (counting the public sector’s slightly stronger growth). When wage growth is lower than it has been since the mid 1990s, how can one forecast with a straight face that the growth rate will double?

Ratings agency Standard & Poor’s certainly understands this. It almost grudgingly reaffirmed Australia’s AAA credit rating this week, but cast doubt on the projected return to surplus, saying “budget deficits could persist for several years, with little improvement, unless the Parliament implements more forceful fiscal policy decisions”.

Figures released Thursday showed the unemployment rate fell from 5.9% to 5.7%. This is seemingly good news, although this ABS series has been notoriously unreliable in recent times.

The workforce participation rate was steady at 64.8% – and this may be a better and more relevant measure of short-term fluctuations in employment.

There was also a continued shift to part-time employment. Total jobs were up 37,400, but people in full-time work fell by 11,600 and the number of part-time jobs was up 49,000.

Consumer confidence weakened a little in May according to the Westpac-Melbourne Institute Index. It was down a point to 98.0 in May (recall that for indices like these 100 is the level at which optimists and pessimists are in equal supply).

Westpac chief economist Bill Evans said:

Respondents’ confidence in housing and the outlook for house prices deteriorated sharply, while the assessment of the budget around the outlook for family finances was decidedly weaker.

And why wouldn’t it be? The budget contained essentially nothing to address the housing affordability crisis, further fuelling concerns that there will be a messy correction to prices.

Meanwhile, the government’s best ideas for how to grow wages and incomes were to waive a white flag about spending restraint, whine about how the Senate won’t pass their legislation (“this is a Senate tax”, said the treasurer on budget day), and launch a populist attack on our five largest banks.

And that attack – the bank tax – will be passed on to consumers, just like the last increase in regulatory capital required by APRA.

So the government raised the taxes of most Australians and blamed the cross-bench. That doesn’t fill me with confidence. And it seems I am not alone.

Richard Holden, Professor of Economics and PLuS Alliance Fellow, UNSW

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

$89b shipbuilding plan is a major step forward – but sovereignty remains a problem


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The naval shipbuilding plan is undoubtedly a major step forward for industrial capability in Australia.
AAP/David Mariuz

Graeme Dunk, Australian National University

Australia’s long-awaited naval shipbuilding plan, released earlier this week, claims it is a national endeavour: The Conversation

… larger and more complex than the Snowy Mountains Hydro-Electric Scheme and the National Broadband Network.

Irrespective of this particular claim’s validity, the investment of A$89 billion for nine new frigates, 12 submarines and 12 offshore patrol vessels is a substantial commitment to Australia’s security. The plan is a comprehensive approach to establishing a continuous program for building these platforms in Australia.

Apart from the future introduction of these and other vessels into service, one of the plan’s key outcomes is a “sovereign Australian capability to deliver affordable and achievable naval shipbuilding and sustainment”. The development of a sovereign capability is stated as “the government’s clear priority”.

But what is sovereignty in this context? And is it attainable from the naval shipbuilding plan?

Two clear weaknesses

The plan has two interconnected weaknesses when it comes to sovereignty.

First, the Australian defence industry environment is dominated by companies whose parentage and ultimate control rest offshore. This is not necessarily a bad thing. But given the shipbuilding plan’s focus on Australian jobs and resources, it is a reality that needs confronting.

To that end one might have expected to see, both in this document and in earlier ones, a definition of Australia’s defence industry – what it is and, importantly, what it is not.

The UK’s 2005 description of its defence industry embraces the combination of local and offshore companies contributing to defence outcomes in terms of:

… where the technology is created, where the skills and intellectual property reside, where the jobs are created and sustained, and where the investment is made.

A similar definition for Australia would provide a foundation for sovereignty in the shipbuilding environment to be properly assessed. The plan suggests the Australian subsidiaries of offshore companies will be considered as sovereign without discussing how local control might be maintained, and how Australian sensitivities might be tackled.

The proposed definition for defence industry also highlights the second weakness of the shipbuilding plan: it is focused on building and sustaining the structural component (the “float” and “move” aspects), rather than the total capability the ship or submarine represents.

The lists of skills cited as necessary are those primarily associated with building and sustaining the structure. The shipbuilding plan gives scant coverage to the important combat system and weapons elements upon which the war-fighting capability rests.

The plan does not address the industrial capabilities necessary for the local maintenance and improvement of these ships. Access to the detailed design information for the combat and sensor systems in particular is required so that such systems can be upgraded locally if required. An offshore equipment supplier may not give the same priority to our needs.

The plan for naval shipbuilding in Australia says it will source many systems of the future frigate and other naval platforms from the US. However, the closest it gets to recognition of this reality in the context of sovereignty is that:

Australia’s alliance with the US, and the access to advanced technology and information it provides, will remain critical.

The plan therefore implies that sovereignty is sought for the “float” and “move” aspects of the naval capabilities, but not necessarily for the important “fight” aspects. This means the systems elements of ships and submarines will be tackled in some other context – outside the naval shipbuilding plan.

More than just ‘doing stuff’

The naval shipbuilding plan is undoubtedly a major step forward for industrial capability in Australia.

A successful implementation will provide significant benefits for the Navy in terms of force structure, for industry in terms of a long-term enterprise upon which to grow overall capability and capacity, for innovation, for workers in terms of continuity of effort, and for the development of shipbuilding-related STEM skills. These are all worthy outcomes.

But sovereignty is more than just “doing stuff” in the country.

If the plan really wanted to tackle sovereignty, it should have provided a foundation on which aspects of industrial and operational sovereignty could be properly assessed, prioritised and managed. It would also have addressed the systems aspects of ships, rather than just the structure.

Graeme Dunk, PhD Candidate, Australian National University

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

Ratings agency S&P keeps Australia’s AAA rating but doubtful about government’s surplus timetable



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Shadow Treasurer Chris Bowen told the National Press Club that a Labor government would “show the ratings agencies the quality of our plans.”
Mick Tsikas/AAP

Michelle Grattan, University of Canberra

Standard and Poor’s Global reaffirmed a negative outlook and is questioning the government’s projection about when the budget will return to surplus, but has still maintained Australia’s AAA credit rating. The Conversation

The agency’s maintenance of the AAA credit rating following last week’s budget will be a relief to the government, but its detailed outlook is less than confident.

The initial negative outlook from the agency was made in 2016. In continuing it, it points to “risks to the government’s fiscal consolidation plan and risks to the economic, fiscal, and financial stability outlook should the rapid growth of credit and house prices continue”.

The budget projects a return to surplus in 2020-21. But S&P Global says it continued to think surpluses “could remain elusive beyond fiscal 2021”.

“The balance of risks to government revenues remains negative. On the policy front, enacting further savings or revenue policies could remain a challenge, given the Senate’s unwillingness in recent years to legislate many of the government’s fiscal policy measures or doing so after considerable delay.”

“This dynamic, which could continue, presents further downside risk to the outlook for fiscal balances.”

Craig Michaels, director of sovereign & public finance ratings at S&P Global was blunt: “We have seen governments forecast surpluses for many years now and they haven’t materialised. They’ve continued to be pushed back. So we don’t think further pushback on the surplus target is consistent with the AAA rating here on in.”

“We will continue to assess the likelihood or otherwise of whether the government will reach a balanced or surplus budget by 2021 and that will have a large bearing on whether we leave the AAA rating where it is or whether we downgrade it,” he told the ABC.

The S&P Global report cites the potential for low wage growth and low inflation as a “downside risk” for the projections on getting to budget balance. In the wake of the budget many commentators threw doubt on the budget’s wage growth projection – to get to more than 3% – as likely to be too high.

Noting that the outlook has been negative since July last year, S&P Global warns:
“We could lower our ratings within the next two years if we were to lose confidence that the general government fiscal deficit will revert into surplus by the early 2020s.”

S&P Global says “a strong fiscal position is required to offset Australia’s weak external position. It is also needed to allow for a strong buffer to absorb the fiscal consequences if the ongoing boom in the credit and housing market were to abruptly end.”

The report expresses concerns about the financial stability risks in the housing market in Sydney and Melbourne.

S&P Global highlights the debt problem. “Australia’s high level of external indebtedness creates a high vulnerability to major shifts in foreign investors’ willingness to provide capital”, it says. “We consider that strong fiscal performance and low government debt are important to help ameliorate this risk.”

Scott Morrison tweeted:

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Responding to the S&P Global report, Shadow Treasurer Chris Bowen said that if he became treasurer he would talk to the ratings agencies early in the term, taking them through an ALP government’s plans, which would also be clear before the election. “We’ll do what is necessary to work with the ratings agencies and show the ratings agencies the quality of our plans.”

Bowen said the budget showed new record debt for the next three years, a deficit for 2017-18 which was 10 times larger than was predicted in the Coalition’s first budget, and gross debt equivalent to A$20,000 for every man, woman and child in the country.

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Michelle Grattan, Professorial Fellow, University of Canberra

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

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.

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



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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.