View from The Hill: With apologies to Mathias, Hanson blows away government hopes on company tax


Michelle Grattan, University of Canberra

Not so long ago, new South Australian independent senator Tim Storer and Victorian crossbencher Derryn Hinch were set to be the pivotal players determining the fate of the government’s tax cut for big companies.

But after the evidence from the banking inquiry Hinch’s doubts about the measure hardened further, while Storer continued to agonise.

The government then looked towards the Centre Alliance senators, Stirling Griff and Rex Patrick, for the two crucial numbers it needed. The rest of the votes were in the bag.

Only it turned out they weren’t. Pauline Hanson, who commands three Senate votes and thus a veto, has suddenly withdrawn the support she earlier pledged. Hanson has flipped-flopped before but she insists this is for real – that she won’t change her mind again.

Hanson says she’s “so disappointed in this government” after the budget it produced. She has a litany of complaints: inaction on debt; intransigence on immigration; the absence of changes to the petroleum resource rent tax; no appearance of promised apprenticeships, and many more.

Hanson denies her reneging is driven by her political needs in the Queensland seat of Longman, though that claim lacks credibility. Tax cuts for the wealthiest companies, including the banks, would hardly appeal to potential One Nation voters, and this byelection will be a test for Hanson’s party, just as it will be for Labor and the Coalition. Bill Shorten had already been exploiting her closeness to the government.




Read more:
Research check: we still don’t have proof that cutting company taxes will boost jobs and wages


As much as the Senate is unpredictable, this does look like the end of the government’s chances of getting its company tax package through parliament before the election.

Senate leader Mathias Cormann, the government’s chief negotiator, said he hoped “that this is not the last word” but admitted “it might well be that we won’t ever get there”.

Once again, Shorten has had a lucky break. The tax cut for big companies, which Labor has strenuously opposed, is still on the political agenda. If the Senate had passed it, Labor would have a diminished target.

It also remains on the books. Admittedly the cost is way into the future, but in these times when parties like to talk in terms of a decade, those notional future dollars are useful to Labor.

Also, if the package isn’t passed, Labor doesn’t have to cope with the question: how can you be sure a Shorten government could persuade a post-election Senate to repeal the cuts?

Most immediately, the opposition on Tuesday was making merry with questions about what “secret deal” the government had with Hanson to try to get the company tax cut through.

A Senate estimates hearing saw an angry clash between Labor’s Senate leader Penny Wong and Cormann, when Wong pursued whether the government was willing to meet Hanson’s various demands. As she went through these, Cormann retorted “I know that you always like channelling Senator Hanson”.

Wong, of Asian heritage, responded ferociously: “Don’t tell me I channel Pauline Hanson. I find that personally offensive. I can tell you what happened to me and my family and people like us, when she stood up in the parliament, possibly before you were here, saying Australia was in danger of being swamped by Asians. I will never do anything other than fight her.”

Cormann accused Wong of “confected outrage”; Wong countered “How dare you!”.

But a few hours later the two had made up.

Wong tweeted: “I will never do anything other than stand up to Pauline Hanson and her views, but I know Mathias is one of the decent people in this Government and accept his assurance he did not mean to cause offence.”

Cormann replied: “While we are fierce political competitors, I value the fact that we always aim to engage in the political contest professionally and with courtesy and mutual respect.”

It’s notable how much genuine respect Cormann commands in a parliament characterised by the lack of it.

Hanson went out of her way to stress she wasn’t blaming Cormann for anything – “his colleagues and the government” had let him down, she said. She told her news conference, “I know he’s devastated”, and she’s said to be genuinely upset that she’s left him in the lurch.

The government says that if there’s not a new turn of Senate fortunes, it will take the company tax policy to the election.

Although some argue the measure should be ditched, which is the superficially attractive course, that would potentially bring fresh difficulties. Not only would it open a brawl with business, but it would undermine the economic argument the government has been making for two years. Killing an albatross can be a dangerous business.




Read more:
Grattan on Friday: Can the Turnbull government make the election all about tax?


It would, however, be popular with the public. Tuesday’s Essential poll reported that when people were asked which in a list of measures they would support to cut government spending, the top item nominated (on 60%) was “not providing company tax cuts for large business”.

The Essential poll brought mixed news on the tax front for the government.

Asked to choose between the budget’s income tax plan and the alternative outlined by Shorten in his budget reply, Labor’s plan was preferred by 45% to 33%. On the other hand, Labor and the Coalition were equal (on 32% each) when people were asked which party they trusted most to manage a fair tax system.

The ConversationParticularly interesting was the poll’s voting figure. The two-party Labor lead has now narrowed to 51-49% (compared with 52-48% in the last poll). This is the closest result since late 2016, and in line with the most recent Newspoll. It reinforces the point that the contest is tightening.

Michelle Grattan, Professorial Fellow, University of Canberra

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

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Don’t give anyone a tax cut: Greens


Michelle Grattan, University of Canberra

The Greens are standing out against the bipartisan consensus that tax cuts are needed for middle and lower income earners.

They are ruling out supporting all the budget’s tax relief, and say they are also opposed to the package of larger cuts the opposition has proposed, which would be confined to people in the lower and middle income ranges.

Instead, the funds should be spent on services, the Greens say.

The Coalition tax package will be a focus of this parliamentary fortnight, which sees the House of Representatives sitting and the Senate holding estimates hearings.

The legislation will be passed in the House, while estimates will be used by the opposition to seek the annual cost in the latter years of the seven-year plan, which the government has so far declined to provide. Treasury is before the estimates hearings next week; the Prime Minister’s department is up this week.

The opposition has submitted ahead of time a list of detailed questions about the tax package to try to prevent the delay of answers by officials asking for questions to be put on notice.

Labor supports the first stage of the three-part plan, is vague about the second stage, but has expressed opposition to the third stage, which flattens the tax scale and favours high income earners.

The government says it will not split the bill. It is not clear whether the opposition would vote against the legislation if the government holds firm, or whether the government would be flexible if pushed.

The shadow cabinet meets on Monday night, when the legislation is set to be discussed.

Labor’s alternative tax cuts, announced in Bill Shorten’s budget reply, would be confined to those on incomes up to about $125,000.

While the immediate concentration is on the future of the government’s legislation, the uncertainty of a post-election Senate also raises the issue for Labor of whether an ALP government could get its legislation through.

The Greens said in a statement that the government’s proposed income tax cuts were just a bribe to get the massive company tax cuts passed. People on the minimum wage wouldn’t even see $4 a week, while the wealthiest would benefit the most.

“Both parties’ plans will worsen inequality, and see us lose vital revenue for the essential services people rely upon,” the Greens said.

Greens leader Richard Di Natale said with inequality rising, reinvestment in public services should be the priority.

“For years, politicians have been telling Australians that the budget doesn’t have money to properly fund our public schools, build a world-class NBN, or take action on climate change,” Di Natale said.

“Yet when an election is rolling around both old parties are giving away cheques like a breakfast TV show trying to increase their ratings.”

“This reckless tax auction is nothing more than a distraction from the millions of dollars stripped from our schools, hospitals and social safety net over the past decade.

The Conversation“While Turnbull is busy squabbling with Labor over how much they want to rip out of Australia’s institutions, the Greens are proud to stand up for Medicare, our public schools and hospitals and the environment”.

Michelle Grattan, Professorial Fellow, University of Canberra

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

What was missing in Australia’s $1.9 billion infrastructure announcement


Virginia Barbour, Queensland University of Technology

When we think about infrastructure it’s most often about bridges or roads – or, as in this week’s federal government AU$1.9 billion National Research Infrastructure announcement, big science projects. These are large assets that can be seen and applied in a tangible way.

It’s not hard to get excited over money that will support imaging of the Earth, or the Atlas of Living Australia.

But important as these projects are, there’s a whole set of infrastructure that rarely gets mentioned or noticed: “soft” infrastructure. These are the services, policies or practices that keep academic research working and, now, open.

Soft infrastructure was not featured in this week’s announcement linked to budget 2018.




Read more:
Budget 2018: when scientists make their case effectively, politicians listen


Ignored infrastructure

An absence of attention paid to soft infrastructure isn’t just the case in Australia, it’s true globally. This is despite the fact that such infrastructure is core to running the hard infrastructure projects.

For example, the Open SSL software library – which is key to the security of most websites – has just a handful of paid individuals who work on it. It’s supported by fragile finances. That’s a pretty frightening thought. (There’s another issue in that researchers doing this work get no academic credit for their efforts, but that’s a topic for another time.)

There are other high profile, globally used, open science infrastructures that also exist hand to mouth. The Directory of Open Access journals which began at Lund University relies entirely on voluntary donations from supporting members and on occasional sponsorship.

Similarly, Sherpa Romeo – the open database of publishers’ policies on copyright and self-archiving – came out of projects at Nottingham and Loughborough Universities in the UK.

In some ways these projects’ high visibility is part of their problem. It’s assumed that they are already funded, so no-one takes responsibility for funding them themselves – the dilemma of collective action.




Read more:
Not just available, but also useful: we must keep pushing to improve open access to research


Supporting open science

Other even more nebulous types of soft infrastructure include the development and oversight of standards that support open science. One example of this is the need to ensure that the metadata (the essential descriptors that tell you for example where a sample that’s collected for research came from and when, or how it relates to a wider research project or publication) are consistent. Without consistency of metadata, searching for research, making it openly available or linking it together is much less efficient, if not impossible.

Of course there are practices in place at individual institutions as well as national organisations. The soon-to-be-combined organisations -Australian National Data Service, the National eResearch Collaboration Tools and Resources project and Research Data Services (ANDS-Nectar-RDS) – are supported by national infrastructure funding. These provide support for data-heavy research (including for example the adoption of FAIR – Findable, Accessible, Interoperable and Reusable standards for data).

But without coherent national funding and coordination, specifically for open science initiatives, we won’t get full value from the physical infrastructure just funded.




Read more:
How the insights of the Large Hadron Collider are being made open to everyone


What we need

What’s needed now? First, a specific recognition of the need for cash to support this open, soft infrastructure. There are a couple of models for this.

In an article last year it was suggested that libraries (but this could equally be funders – public or philanthropic) should be committing around 2.5% of their budget to support open initiatives. There are some international initiatives that are developing specific funding models – SCOSS for Open Science Services and NumFocus for software.

But funding on its own is not enough: we need a coordinated national approach to open scholarship – making research available for all to access through structures and tools that are themselves open and not proprietary.

Though there are groups that are actively pushing forward initiatives on open scholarship in Australia – such as the Australasian Open Access Strategy Group, the Council of Australian University Librarians, and the Learned Academies as well as the ARC and NHMRC who have open access policies – there is no one organisation with the responsibility to drive change across the sector. The end result is inadequate key infrastructure – for example, for interoperability between research output repositories.

We also need coherent policy. The government recognised a need for national and states policies on open access in its response to the 2016 Productivity Commission Inquiry on Intellectual Property, but as yet no policy has appeared.




Read more:
Universities spend millions on accessing results of publicly funded research


It’s reasonable to ask whether in the absence of a national body that’s responsible for developing and implementing an overall approach, what the success of a policy on its own would be. Again, there are international models that could be used.

Sweden has a Government Directive on Open Access, and a National Body for Coordinating Open Access chaired by the Vice-chancellor of Stockholm University.

The Netherlands has a National Plan for Open Science with wide engagement, supported by the Ministry of Education, Culture and Science. In that country, the Secretary of State, Sander Dekker, has been a key champion.

The EU has had a long commitment to open science, underscored recently by the appointment of a high-level envoy with specific responsibility for open science, Robert-Jan Smits.

Private interests might take over

Here’s the bottom line: national coordinated support for the soft infrastructure that supports open science (and thus the big tangible infrastructure projects announced) is not just a “nice to have”.

One way or another, this soft infrastructure will get built and adopted. If it’s not done in the national interest, for-profit companies will step into the vacuum.

We risk replicating the same issues we have now in academic publishing – which is in the hands of multi-billion dollar companies that report to their shareholders, not the public. It’s clear how well that is turning out – publishers and universities globally are in stand offs over the cost of publishing services, which continue to rise inexorably, year on year.


The Conversation


Read more:
Publisher pushback puts open access in peril


Virginia Barbour, Director, Australasian Open Access Strategy Group, Queensland University of Technology

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

Labor would deliver bigger surpluses than the Coalition: Bowen


Michelle Grattan, University of Canberra

Shadow treasurer Chris Bowen on Wednesday will promise a Labor government would deliver bigger cumulative budget surpluses than the government over the forward estimates and substantially bigger surpluses over a decade.

Outlining the fiscal parameters the opposition will take to the election, Bowen will repeat that the ALP would achieve budget balance in the same year as the government – 2019-20.

He will also undertake that the majority of the savings raised from the ALP’s revenue measures over a decade would go to budget repair and paying off debt.

Bowen will insert a qualifier, saying that the pledges are on the basis of the budget figures released last week. If the government announced “a new secret policy that is fundamentally unfair and is an attack on working people, then we reserve the right to address that”.

Detailed figures of the full impact of Labor policies would be announced before the election, “but we are announcing today that the net result of those policies will be a better budget bottom line in the short term and bigger surpluses in the long term,” Bowen will tell the National Press Club.

He will also say that until a Labor government achieved a strong surplus it would be guided by the principles of

… repairing in the budget in a way that was fair, and did not place the heaviest burden on the vulnerable;

… more than offsetting new spending with savings and revenue measures;

… putting to the budget bottom line any positive changes in revenue and spending that resulted from economic changes.

Bowen will attack the government for not budgeting for larger surpluses.

“The whiff of a surplus, not reaching at least 1% of GDP until 2026-27, does not adequately protect Australia against the potential roiling seas of international uncertainty. Australia needs bigger surpluses, sooner than the government is scheduling,” he will say.

“We can’t afford to let the next four years go to waste in the efforts for a healthier, safer budget surplus”. He will point to the Coalition’s 2013 commitment to a surplus of at least 1% of GDP by 2023-24, criticising the the government for its having “watered down their fiscal rigour with regular monotony”.

Bowen will also emphasise the long term risks of the government’s seven year tax package.

“The government has the most expensive and growing component of their tax package coming in in six years’ time, based on the assumption the good times roll on for another decade.” This was “a budget that bakes in future tax cuts in six years’ time worth tens of billions of dollars, when the revenue may not turn up to fund them”.

Bowen will say that by making a series of tough decisions on revenue measures as well as opposing the corporate tax cuts, Labor is setting out to deal faster than the government with debt and deficit and to fund policies that are important for economic growth, including investment in education.

The ConversationHe will also announce a panel to review Labor’s costings, which have been done by the Parliamentary Budget Office. Its members are Bob Officer, emeritus professor at Melbourne University; Mike Keating, former head of the finance and prime minister’s departments, and James Mackenzie, a fellow of the Institute of Chartered Accountants and the Institute of Company Directors. These three undertook a similar task before the 2016 election.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Post-budget poll wrap: Labor has equal best Newspoll budget result, gains in Ipsos, but trails in Longman



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While this is Malcolm Turnbull’s 32nd consecutive Newspoll loss as PM, the past two have been narrow losses.
AAP/Ellen Smith

Adrian Beaumont, University of Melbourne

This week’s Newspoll, conducted May 10-13 from a sample of 1,730, gave Labor a 51-49 lead, unchanged from three weeks ago. Primary votes were 39% Coalition (up one), 38% Labor (up one), 9% Greens (steady) and 6% One Nation (down one).

This Newspoll is Malcolm Turnbull’s 32nd successive loss as PM, two more than Tony Abbott. However, the past two have been narrow losses.

The total vote for Labor and the Greens was up one point to 47%, while the total for the Coalition and One Nation was steady at 45%. The gain for the left would normally result in a gain after preferences, but rounding probably helped the Coalition again.




Read more:
Poll wrap: Labor’s Newspoll lead narrows federally and in Victoria


39% (up three) were satisfied with Turnbull, and 50% (down three) were dissatisfied, for a net approval of -11, Turnbull’s highest net approval since the final pre-election Newspoll in July 2016. Bill Shorten’s net approval was down two points to -22. Turnbull led Shorten as better PM by 46-32; this is Turnbull’s clearest better PM lead since February.

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

The best news for Labor was on the third question, where it only trailed by seven points, equal to their deficit after the badly perceived 2014 budget. According to The Poll Bludger, Labor trailed by more during all of the Howard government’s budgets.

This budget was seen as good for the economy by 41-26, and good for you personally by 29-27. The Poll Bludger says it is fifth out of 31 budgets covered by Newspoll on personal impact, but only slightly above average on the economy.

Turnbull led Shorten by 48-31 on best to handle the economy (51-31 in December 2017). Treasurer Scott Morrison led his shadow Chris Bowen 38-31 on best economic manager. By 51-28, voters thought Labor should support the government’s seven-year tax cut package.

Turnbull has delivered a well-received budget, while Shorten’s credibility took a hit after four Labor MPs were kicked out over the citizenship fiasco.

Voters were not sympathetic to politicians who held dual citizenships. By 51-38, they thought such politicians should be disqualified from federal parliament (44-43 in August). By 46-44, voters would oppose a referendum to change the Constitution to allow dual citizens to become MPs.

A key question is whether Turnbull’s ratings bounce will be sustained. The PM’s net approval and the government’s two party vote are strongly correlated, so the Coalition should do better if Turnbull’s ratings are good. Past ratings spikes for Turnbull have not been sustained.

While people on low incomes receive a tax cut, it will not be implemented by withholding less tax from pay packets. Instead, people will need to wait until they file their tax returns after July 2019 to receive their lump sum tax offsets. As the next federal election is very likely to be held by May 2019, this appears to be a political mistake.

In last week’s Essential, 39% thought the Australian economy good and 24% poor. While Australia ran large trade surpluses in the first three months of this year, the domestic economy is not looking as good as it did in 2017 – see my personal website for more.

Ipsos: 54-46 to Labor (53-47 respondent allocated)

An Ipsos poll for the Fairfax papers, conducted May 9-12 from a sample of 1,200, gave Labor a 54-46 lead by 2016 election preferences, a two-point gain for Labor since early April. Primary votes were 37% Labor (up three), 36% Coalition (steady), 11% Greens (down one) and 5% One Nation (down three).

Newspoll is no longer using last-election preferences, so it seems better to compare Ipsos’ respondent allocated preferences with Newspoll, not the last election preferences. By respondent allocated preferences, Ipsos was 53-47 to Labor, a three-point gain for Labor.

Ipsos is bouncier than Newspoll, and the Greens’ support is higher. If you compare Ipsos’ respondent allocated two party vote with Newspoll, the difference is diminished.

Turnbull had a 51-39 approval rating (47-43 in April). This is Turnbull’s best rating in Ipsos since April 2016; Ipsos gives Turnbull his strongest ratings of any pollster. Shorten’s net approval was up three points to -12. Turnbull led Shorten by 52-32 (52-31 in April).

By 39-33, voters thought the budget was fair (42-39 after the 2017 budget). By 38-25, voters thought they would be better off, the highest “better off” figure in Nielsen/Ipsos history since 2006. However by 57-37, voters thought the government should have used its extra revenue to pay off debt, rather than cutting taxes.

Queensland Galaxy: 52-48 to federal Coalition, 53-47 to state Labor

A Queensland Galaxy poll, conducted May 9-10 from a sample of 900 for The Courier Mail, gave the federal Coalition a 52-48 lead, unchanged since February, but a 2% swing to Labor since the 2016 election. Primary votes were 40% Coalition (down one), 33% Labor (up one), 10% Greens (steady) and 10% One Nation (up one). Primary vote changes would normally imply a gain for Labor, but this was lost in the rounding.

By 39-33, Queenslanders thought the budget was good for them personally, rather than bad. By 39-28, they thought the budget would be good for Queensland.

The state politics questions gave Queensland Labor a 53-47 lead, a one-point gain for Labor since February. Primary votes were 38% Labor (up one), 35% LNP (down one), 12% One Nation (up two) and 10% Greens (steady).

Premier Annastacia Palaszczuk had a 46-38 approval rating (44-38 previously). Opposition Leader Deb Frecklington had a 31-28 approval rating (29-25). Palaszczuk led Frecklington as better Premier 47-27 (42-31).

Longman ReachTEL: 53-47 to LNP

The Longman byelection is one of five that will be held soon. A ReachTEL poll, conducted May 10 from a sample of 1,280 for the left-wing Australia Institute, gave the LNP a 53-47 lead, about a 4% swing to the LNP since the 2016 election. Primary votes were 36.7% LNP, 32.5% Labor, 15.1% One Nation and 4.9% Greens.

ReachTEL is using respondent allocated preferences. The two party vote in this poll looks reasonable assuming One Nation preferences flow to the LNP.

National polls and the Queensland Galaxy poll show swings to Labor compared with the 2016 election. It would be highly unusual for a seat to swing so strongly to the Coalition when other polling shows a swing to Labor. In the past, seat polls have been far less reliable than national and state-wide polls.

In better byelection news for Labor, the Western Australian Liberals will not contest either Perth or Fremantle. Fremantle has a 7.5% margin with an incumbent recontesting, but Labor only holds Perth by a 3.3% margin with no incumbent.




Read more:
Centre Alliance’s Rebekha Sharkie most vulnerable at byelections forced by dual citizenship saga


Essential: 52-48 to Labor

This week’s Essential, conducted May 10-13 from a sample of 1,033, gave Labor a 52-48 lead, a one-point gain for the Coalition since last week. Primary votes were 38% Coalition (steady), 36% Labor (down one), 10% Greens (steady) and 7% One Nation (up one).

By 44-28, voters approved of the budget overall. 22% thought the tax cuts would make a difference to their household. 39% supported the tax cuts, with 30% wanting more spending on schools and hospitals and 18% preferring a reduction in government debt.

The ConversationBy 44-40, voters disagreed with giving higher income people larger tax cuts. By 79-14, voters agreed that those earning $200,000 should pay a higher tax rate than those earning $41,000.

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

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

Who are the wealthy retirees targeted in Labor’s plans?


Roger Wilkins, University of Melbourne

In Labor’s budget reply speech, Bill Shorten reaffirmed the plan to remove refundability of dividend imputation credits. His pitch was to Australian voters on lower and middle incomes, in which he pledged to look after the country’s ageing population:

We know that giving older Australians the security and dignity they deserve matters more than an $80 billion corporate tax cut.

The issue of whether or not retirees should be able to get a refund in dividend imputation has sparked considerable discussion of retirees’ income and wealth.

The Household, Income and Labour Dynamics in Australia (HILDA) Survey shows that, overall, retired people tend to have lower incomes than the population as a whole, but higher wealth. This is because retirement typically involves ceasing employment and reducing income, while wealth tends to accumulate with age, at least up to the point of retirement, mainly due to paying off the mortgage and accumulating superannuation.

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The different mix of income and wealth for retired and non-retired households means it’s not straightforward to compare their economic well-being. For example, the HILDA Survey data show that only 23% of retirees aged 60 and over have above-median incomes (compared with 50% of the population as a whole); but 62% have above-median household wealth.

That said, retirees are generally wealthy if they have both above-median household income and above-median household wealth. With this definition, 20% of retirees aged 60 and over are wealthy. This compares with approximately 28% of the Australian population as a whole.

What does retirement wealth look like?

Among retirees aged 60 and over, wealthy retirees are on average about two years younger than other retirees, having an average age of 71.8. Nearly 97% of wealthy retirees own their home, compared with 76% of other retirees.

These retirees have net wealth in 2014 (when wealth was last measured by the HILDA survey) averaging over A$2.4 million at today’s prices.

While wealthy retirees have high average holdings of superannuation, investment property and other investments, the home is still the most important component of their wealth. The home is also the most important asset for other retirees, but in 2014 it was worth an average of only A$400,000 (at today’s prices) for these retirees, compared with A$800,000 for wealthy retirees.

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Wealthy retirees get most of their income from superannuation and other investments, although government benefits (mostly the Age Pension) nonetheless average over A$11,000 per wealthy retired household. For other retirees, the Age Pension is the dominant income source, averaging A$24,000 per household.

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The HILDA survey data indicates that both wealthy and other retirees on average pay little income tax – A$4,256 for wealthy retirees and only A$94 for other retirees. Indeed, less than 30% of wealthy retiree households, and only 5% of other retiree households, are estimated to actually pay any income tax.

Moreover, the data show that 42% of wealthy retirees, and 22% of other retirees, have negative income tax because of dividend imputation credits received on their holdings of Australian shares. This does not take into account taxes and imputation credits on dividends received by superannuation funds.

Given the tax-free status of superannuation in people’s “retirement phase” (albeit now only on the first A$1.6 million), it’s likely that more than 42% of wealthy retirees, and more than 22% of other retirees, effectively have negative income taxes.

The ConversationWhether you consider Labor’s plan good or bad policy, given its exemption of pensioners, it is clear that its impact will be most acutely felt by wealthy retirees.

Roger Wilkins, Professorial Research Fellow and Deputy Director (Research), HILDA Survey, Melbourne Institute of Applied Economic and Social Research, University of Melbourne

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

Vital Signs: how inflation in China and the US could affect Australia


Richard Holden, UNSW

Vital Signs is a regular 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.

This week: How the economies of China and the United States will affect what happens in our own.


Business conditions in Australia have been strong enough to see a surge in company tax revenue that led Treasurer Scott Morrison to outline cuts to personal income taxes over the next seven years in Tuesday’s federal budget.

Those same robust business conditions were reflected in the National Australia Bank Business Conditions Index which was up sharply in April to 21 points (up 6 points from the previous month). This puts it at the highest level in twenty years.

NAB chief economist Alan Oster said of the figures:

The record high in the April survey simply reinforces what has been evident since the middle of last year, that business activity in Australia is robust…I see the business survey as indicative as why the government appears to be rolling in corporate tax revenue.

In the United States, the Job Openings and Labor Turnover Survey in March showed a surge of job openings – up 472,000 to 6.55 million. That was the highest reading on record. It also showed more workers voluntarily leaving jobs. This is generally regarded as strong sign of worker confidence and is indicative of looming wage inflation.

The US Producer Price Index rose just 0.1% in April according to the Bureau of Labor Statistics, much lower than estimates of 0.3%, the level of growth in March. This put the index up 2.6% over the last 12 months, down from 3.0%.

This eased concerns about rising inflation that have been a major focus of discussions about interest rates at the Federal Open Market Committee at recent meetings. That could make the Fed less likely to raise rates quickly, though the tightening path still seems likely.

All eyes will be on the May 10, inflation statistics release to see if there is less heat than the Fed has seemed to fear, especially with unemployment now running at 3.9%.

Adding to this, China’s Producer Price Index dropped by 0.2% from February, putting the annual rate at 3.1%, the weakest level since October 2016.

Economists were looking for an annual increase of 3.2%, down from 3.7% in February. Because China is such a significant global exporter, the lower Producer Price Index should ease any inflationary pressures in other countries. In other words, China is exporting less inflation.

China’s Consumer Price Index actually fell 1.1% last month, putting the annual rate at positive 2.1%. Last month’s figures in part reflect the timing of Chinese New Year, so one shouldn’t read too much into them. On the other hand, any softening of the Chinese economy is a big deal for Australian exporters and our economy generally.

The coming months overseas will be very revealing. We will get a better handle on whether there are genuine inflationary pressures in the US – or whether perhaps there is a new normal. That will affect short-term interest rates, but also says something about where those rates are likely to move back to in the cycle.

We will also get a better fix on the Chinese economy, at least in terms of growth numbers. What still remains opaque is the health of China’s financial sector. That remains a significant concern.

Both the US and China will factor heavily into two key things in Australia. The first is, of course, the RBA’s interest rate decisions later this year. The second is the key number in the federal budget – the 3.0% real GDP growth assumption that underpins the forecast return to surplus and the rationale for the personal income tax plan.

The ConversationAt least for the next few months, what happens overseas will be more important for the Australian economy than domestic factors per se.

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

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

Research check: we still don’t have proof that cutting company taxes will boost jobs and wages



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There still isn’t clear research showing company tax cuts will increase employment or wages.
Shutterstock

Ross Guest, Griffith University

If you read these headlines you might think we finally have proof that cutting company taxes will boost employment and investment:

These stories are based on analysis of the 2015 company tax cut by consultants AlphaBeta. But the study, as well as some of the media coverage of it, show a worrying misunderstanding of how company tax cuts work.

Simply comparing companies that receive a tax cut with those that don’t isn’t the right methodology to conclude that the 2015 tax cuts created more employment or higher wages.




Read more:
There isn’t solid research or theory to support cutting corporate taxes to boost wages


Cutting taxes lets companies keep more of their profits, allowing them to invest in new equipment and premises for example. The company then needs to hire more workers to work with these new assets. The newly created jobs require businesses to compete for workers and this increased demand pushes up wages across the entire economy.

Suppose a retail company gets a tax cut and opens a new store. It advertises for workers, many of whom are already employed by a rival store that didn’t get the tax cut. The first company will need to offer the workers higher wages to entice them away. The rival store will need to consider matching the wages in order to keep the workers.

In other words, even workers in companies that don’t receive the tax cut should see a wage rise.

Going through the AlphaBeta report

In 2015, the federal government cut the tax rate from 30% to 28.5% for businesses with less than A$2 million in revenue. Eligible businesses saved around A$2,940 on average because of the tax cut.

AlphaBeta used transaction data from 70,000 businesses to compare businesses just below the A$2 million threshold to companies that were just above it.

The analysis looked at the differences between the two groups of firms in terms of whether they hired new workers, invested in their businesses, increased worker wages, or kept some of the cash as a reserve.

AlphaBeta chalked any differences between companies that received the tax cut and those that didn’t to the company tax cuts.




Read more:
The full story on company tax cuts and your hip pocket


As reported in The Australian, AlphaBeta found that companies that received the tax cut increased their employee headcount by 2.6%. The companies that didn’t receive the cut increased employment by just 2.1%.

This difference turned out to be “statistically significant”, meaning it is very unlikely to be the result of random chance.

As the Sydney Morning Herald pointed out, AlphaBeta also concluded that 51% of the tax cut was kept as cash, 27% went towards new investment, but only 3% was paid to workers in higher wages.

In other words, wages increased by just A$1.44 per week. This is not only a small amount, it was also found to be not statistically significant.

Problematic methodology

The main issue with this study’s methodology is actually noted by AlphaBeta in the report itself (and echoed in the coverage by the ABC and Sydney Morning Herald).

The problem is that we cannot draw any conclusions about the effect of company tax cuts on jobs or wages by studying a bunch of firms that received them and another bunch that did not, even if the firms are only slightly different.

This is because, as noted above, the effect of company tax cuts on jobs and wages take place in the entire labour market. An increase in demand for labour flows through to all business, and therefore, so do higher wages.

So we should not expect to see wages rising only in those businesses that receive the tax cuts. The finding that an increase in wages is small and insignificant is exactly what we would expect to see from this study.

Another problem is that we do not know whether the characteristics of the companies in AlphaBeta’s sample. Were some industries with particularly pronounced employment or wage increases over represented in one group but not the other, for instance?

Studying the effect of company tax cuts on employment and wages also requires a longer time period – sometimes years – and careful control of other factors affecting jobs and wages in some firms relative to others.

Blind review:

The analysis in this review is generally fair and reaches a sound conclusion regarding the AlphaBeta report. However, the logic behind company tax cut raising wages is somewhat simplified.

A cut in company tax lowers the costs of production and can flow to labour, capital (including equipment and buildings) and consumers. Economics tells us that who actually benefits from a tax cut depends on what is more responsive to the tax – labour, capital or output.

The lower production costs from a company tax cut can lead to greater output and lower prices as consumers buy more goods and services. This depends, of course, on how responsive consumers are to changes in price.

In the short-run labour is more mobile than capital, which is usually regarded as fixed. Therefore, in the short-run most of the benefit is borne by owners of capital (the companies) in the form of higher after-tax profits.

However, over the longer term, companies invest their after-tax profits in the business. So most of the benefit of the tax cut goes to workers though higher wages as the increased “capital stock” (such as equipment) makes labour more productive.

The ConversationIt follows that there is no reason to expect a significant increase in wages over a period of one or two years (as the AlphaBeta report covers). Indeed, such a result would be somewhat surprising. – Phil Lewis

Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

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

Most of the benefits from the budget tax cuts will help the rich get richer


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Chris Samuel/Flickr, CC BY-SA

Robert Tanton, University of Canberra and Jinjing Li, University of Canberra

In the federal budget, Treasurer Scott Morrison promised tax cuts to all working Australians in the form of an offset and changes to tax income thresholds. But our analysis of Treasury data shows that while the government advertised these as payments to low and middle income Australians, most of the benefits would flow through to high income earners in future years.

If all of the stages of the tax plan passed parliament, there would be a sharp increase in benefits for people earning above A$180,000, due to the reduction of their marginal tax rate from 45% to 32.5%.

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Taxes in most countries are progressive. This means that the more you earn, the higher your marginal rate (the additional amount you pay for each dollar earned).

There are good reasons for this – progressive tax systems mean those on a lower income pay a lower average tax rate, while those on higher incomes pay a higher average tax rate. This reduces income inequality – as you earn more, for each dollar you earn, you will pay more in tax than someone on a lower income.

With the 2018-19 budget, the proposal is for a “simpler” tax system from 2024-25. This means a reduced number of tax brackets, and a lower rate of 32.5% to those earning between A$87,001 and A$200,000.

Treasurer Scott Morrison said following the budget:

Well, you’ve still got a progressive tax system. That hasn’t changed. In fact, the percentage of people at the end of this plan, who are on the top marginal tax rate is actually slightly higher than what it is today.

However this new tax system from 2024-25 is less progressive than the current system. It means higher income inequality – the rich get more of the tax cuts than the poor.

As part of the new proposal, low and middle income earners get a tax offset in 2018-19, with high income earners getting very little. This part of the plan is progressive – more money goes to lower income earners.

However, by 2024-25, the tax cuts means high income earners gain A$7,225 per year, while those earning A$50,000 to A$90,000 gain A$540 per year, and those earning A$30,000 gain A$200 per year.

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Of course, another factor of tax cuts is that they only benefit those who are employed. Tax cuts don’t benefit people like the unemployed, pensioners, students (usually young people) and those on disability support pensions.

The conversation Australians need to have is how we should be spending the revenue boost we are seeing over the next few years. We can either spend this windfall gain on benefits to high income earners, in the hope that this will flow through spending to everyone else; or maybe we should encourage young people into housing through an increase to the first home owners grant, or increased funding for our schools, universities and health system.

The ConversationWe’ve developed a budget calculator so you can see how your family is affected by the 2018 budget.

Robert Tanton, Professor, University of Canberra and Jinjing Li, Associate Professor, NATSEM, University of Canberra

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

Bill Shorten outbids Turnbull’s tax cut for lower and middle income earners



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Shorten pledged to give bigger income tax cuts for 10 million taxpayers.
Lukas Coch/AAP

Michelle Grattan, University of Canberra

Opposition leader Bill Shorten has launched a tax bidding war, promising to top the government’s tax relief for lower and middle income earners, as he prepares to fight a string of byelections in Labor seats.

The Labor alternative almost doubles the budget’s relief for these taxpayers, incorporating the early part of the government’s plan and then building on it.

Delivering his budget reply in Parliament on Thursday night, Shorten pledged to give bigger income tax cuts for 10 million taxpayers. Some four million would get A$398 a year more than the $530 under the government’s plan.

Labor’s “Working Australians Tax Refund”, would cost $5.8 billion more than the government’s plan over the forward estimates.

Labor’s alternative comes as debate intensifies about the latter stage of the government’s plan, when a flattening of the tax scale would give substantial benefit to high income earners.

The ALP hardened its position against that change as modelling cast doubt on its fairness. The opposition launched a Senate inquiry which will report mid June on the tax legislation, introduced into parliament on Wednesday.

The government says it will not split the bill, which it wants through before parliament rises for its winter break, but will be under pressure to do so including from the crossbench.

Under Shorten’s proposal, the ALP would support the government’s budget tax cut in 2018-19. Once in power, it would then deliver bigger tax cuts from July 1 2019, when it began the refund.

In Labor’s first budget “we will deliver a bigger better and fairer tax cut for 10 million working Australians. Almost double what the government offered on Tuesday”, Shorten told parliament.

The Labor plan would give all taxpayers earning under $125,000 a year a larger tax cut than they would get under the budget plan.

In a speech heavy on the theme of fairness, Shorten said: “At the next election there will be a very clear choice on tax. Ten million Australians will pay less tax under Labor”.

He also pitched his budget reply directly at the campaign for the byelections.




Read more:
View from The Hill: ‘Super Saturday’ voters get first say on tax


“This is my challenge to the Prime Minister. If you think that your budget is fair, if you think that your sneaky cuts can survive scrutiny, put it to the test. Put it to the test in Burnie, put it to the test in Fremantle and in Perth.

“I will put my better, fairer, bigger income tax cut against yours. I’ll put my plans to rescue hospitals and fund Medicare against your cuts. I’ll put my plans to properly fund schools against your cuts and I’ll put my plan to boost wages against your plan to cut penalty rates and I’ll put my plans for 100,000 TAFE places against your cuts to apprenticeships and training and I’ll fight for the ABC against your cuts.”

In the Labor model, a teacher earning $65,000 would get tax relief of $928 a year, $398 more than the $530 offered by the government.

A married couple, with one partner earning $90,000 and the other $50,000 would receive a tax cut of $1855, making them $796 a year better off under Labor than under the government.

Shorten said Labor could afford the tax cuts it proposed because it wasn’t giving $80 billion to big business and the big four banks. Also, it had earlier made hard choices on revenue measures.




Read more:
Politics podcast: Mathias Cormann and Jim Chalmers on Budget 2018


An ALP government could deliver “the winning trifecta” – “a genuine tax cut for middle and working class Australians; proper funding for schools, hospitals and the safety net; and paying back more of Australia’s national debt faster”.

Shorten said that the Liberals were proposing to radically rewrite the tax rules in their seven year plan. Research had revealed that $6 in every $10 would go to the wealthiest 20% of Australians, he said .

“Very quickly, this is starting to look like a Mates Rates tax plan”.

“And at a time of flat wages, rising inequality and a growing sense of unfairness in the community”.

Other initiatives he announced include:

· A plan for skills, TAFE and apprentices costing $473 million over the forward estimates.

· Abolition of the cap on university places, re-instating Labor’s demand driven system, at a cost of $140 million over the forward estimates.

· Reversing cuts to hospitals and establishing a Better Hospitals Fund, seeing an extra $2.8 billion flow to public hospitals. This would cost $764 million over the budget period.

· Invest $80 million to boost the number of eligible MRI machines and approve 20 new licences – which would mean 500,000 more scans funded by Medicare over the course of a first Labor budget.

The Conversation· Provide $25m to the Commonwealth Public Prosecutor to establish a Corporate Crime Taskforce. The Taskforce would deal with recommendations for criminal prosecution from the banking royal commission.

Michelle Grattan, Professorial Fellow, University of Canberra

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