Consumers are biggest losers of Trump’s ongoing war on regulations



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Some worry Mick Mulvaney is putting banks before consumers as head of the CFPB.
Reuters/Yuri Gripas

Jeff Sovern, St. John’s University

President Donald Trump has been waging a war on regulation since he got into office on the ground that government red tape costs the economy billions of dollars a year.

Among the victors in this battle have been energy companies, banks and the president himself, who recently promised he’s “just getting started.” Perhaps the biggest losers, however, have been consumers.

The best illustration of this is the neutering of the Consumer Financial Protection Bureau, which began immediately after Mick Mulvaney stepped in as interim director in November.

So how much harm could he do in two short months? As someone who has written about consumer law for more than 30 years, let me count the ways.

Mick Mulvaney is governing the CFPB very differently than his predecessor.
AP Photo/Alex Brandon

‘Pushing the envelope’

The Consumer Financial Protection Bureau may be best known for levying a US$100 million fine against Wells Fargo in 2016 after the bank opened millions of unauthorized accounts.

But the bureau, originally conceived by Sen. Elizabeth Warren, has done so much more since Congress created the independent agency in 2010. Under Mulvaney’s predecessor, Richard Cordray, the bureau moved forcefully when it concluded companies had cheated consumers.

Through last summer, the bureau recovered nearly $12 billion for more than 29 million consumer victims of everything from illegal credit card fees to auto lenders that discriminated against people of color. In 2016 alone, the bureau announced 42 new enforcement actions, or nearly four new cases a month.

Mulvaney, who is also Trump’s budget director, argued his predecessor’s governing philosophy was to “push the envelope” in pursuing the bureau’s mission. Mulvaney, Trump and other Republicans argue that the CFPB director – who can’t be easily removed by the president – has too much power, making the bureau a prime target in their goal to eliminate regulation they believe puts a strain on the economy and small businesses.

While Cordray had previously never used the “push the envelope” language in describing his mission, he reacted to Mulvaney’s charge by embracing it, tweeting that he did “push hard to see that people are treated fairly by big banks, debt collectors and payday lenders.”

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It seems unlikely that the bureau would take on a bank like Wells Fargo for similar fraudulent conduct or pursue many of Cordray’s other actions now that Mulvaney is in charge. His boss has even praised a bill passed by the House that would strip the CFPB of the authority to go after banks for doing what Wells Fargo did, while Mulvaney himself has co-sponsored legislation aimed at killing the bureau.

Former CFPB Director Richard Cordray, center, embraced the idea that he ‘pushed the envelope’ to protect consumers.
AP Photo/Steve Helber

A new governing mission

While Mulvaney agrees that the bureau’s job includes protecting consumers such as credit card users, he says it also works for credit card issuers – despite the fact that its very name states that it exists to protect consumers, not banks.

One reason Congress wanted an agency to protect consumers was because existing bank regulators in the run-up to the Great Recession had not only failed to prevent predatory lenders from taking advantage of consumers, thus contributing to the subprime fiasco, but at least one even protected them. I believe the U.S. already has enough bank protection agencies, from the Federal Reserve to the Office of the Comptroller of the Currency, without adding the bureau to the list.

In January, Mulvaney told his staff that the bureau’s actions should be guided by how many complaints it receives on a particular matter.

By that measure, the CFPB wouldn’t have gone after Wells Fargo because few consumers seem to have complained to the bureau about the unauthorized Wells accounts. That may be because consumers often don’t bother to complain when they have suffered only a small loss. And yet collectively the Wells customers had much at stake, as demonstrated by the fact that Wells has agreed to settle the case for $142 million, a number that may yet grow.

Sally Greenberg, with the National Consumers League, is among the groups that have voiced strong opposition to Mulvaney taking over the bureau.
AP Photo/Jacquelyn Martin

Enforcement – or lack thereof

So what has Mulvaney actually done since taking over?

While he pledged to be vigorous and consistent in enforcement of federal consumer financial law, he has also said that the bureau should bring cases reluctantly. As such, you might wonder how many he is actually filing.

The answer would be none.

The bureau has instead dropped a case, without explanation, against a group of payday lenders that charged consumers as much as 950 percent interest a year.

It also terminated at least one investigation, though we can’t know for sure how many it has ended because the bureau usually doesn’t publicly announce such actions.

That investigation was against a company that had made several campaign donations to Mulvaney. A ProPublica investigation previously reported that the installment lender, World Acceptance Corp., trapped consumers in a cycle of debt with deceptively expensive loans.

We can’t know whether Cordray himself would have eventually ended that investigation anyway and thus determine if its termination was the result of a lack of evidence. But we can be fairly certain that he wouldn’t have done what Mulvaney did around the same time: say, he may reconsider a rule intended to keep payday customers from falling into endless debt traps. That rule took the unremarkable step of requiring lenders, before extending some loans, to verify that borrowers can repay the debt.

Another noteworthy move by Mulvaney concerns the CFPB’s Fair Lending Office. The law that originally set up the bureau tasked this office with enforcing laws prohibiting discriminatory lending. He has revoked that power, suggesting that preventing discrimination on the basis of race and gender will now be less important at the bureau.

For the next five months – or until the Senate confirms a permanent director – the CFPB is led by someone who once called it a “sad, sick” joke.

The ConversationWhat is sad and sick, in my view, is that an agency established to protect consumers may be more eager to protect predatory lenders than consumers. And that is no joke.

Jeff Sovern, Professor of Law, St. John’s University

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

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Turnbull and the Coalition begin the year on a positive polling note – but it’s still all about the economy



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Malcolm Turnbull makes a point in Question Time.
AAP/Mick Tsikas

Adrian Beaumont, University of Melbourne

The first Newspoll of 2018, conducted February 1-4 from a sample of 1,616, gave Labor a 52-48 lead, a one-point gain for the Coalition since the final Newspoll of 2017 in mid-December. Primary votes were 38% Coalition (up two), 37% Labor (steady), 10% Greens (steady) and 5% One Nation (down two).

While this Newspoll is Malcolm Turnbull’s 26th consecutive loss (four short of Tony Abbott’s streak), it is the Coalition’s best position since April 2017. This is the Coalition’s highest primary vote, and One Nation’s lowest Newspoll vote, since December 2016, before Newspoll started asking for One Nation as part of the party read-out.

As the Coalition’s primary vote gains have come at the expense of another right-wing party, the overall left/right balance is unchanged at 47-43. The two-party vote changes are exaggerated by Newspoll’s assumption, based on the 2016 election, that the Coalition will win only half of One Nation’s preferences.




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At the recent Queensland election, about 65% of One Nation preferences flowed to the LNP. It is likely that previous Newspolls, which had high One Nation votes, overstated Labor’s lead after preferences.

Turnbull’s approval rating bumped up to 37% (up five), and 50% were dissatisfied (down seven), for a net approval of -13, up 12 points. Bill Shorten’s net approval also improved six points to -18, and both leaders are at their highest net approval since August. Turnbull led Shorten by 45-31 as better prime minister (41-34 in December); this is Turnbull’s biggest margin since September.

Voters were given four options for best Liberal leader: Turnbull, Julie Bishop, Abbott and Peter Dutton. Turnbull had 30% support (up five since early December), Bishop 26% (down four), Abbott 13% (down three) and Dutton 7% (steady). Among Coalition voters, Turnbull had 48%, Bishop 19%, Abbott 16% and Dutton 6%. Abbott and Dutton performed best with One Nation voters.

Voters were given three choices for best Labor leader: Shorten, Tanya Plibersek and Anthony Albanese. Plibersek had 25% support, Albanese 24% and Shorten 22%. Among Labor voters, Shorten had 37%, Plibersek 27% and Albanese 23%. Plibersek was the clear favourite among Greens voters (43%).

Both leaders appear to have benefited from the lack of any major controversies over the summer holidays. Turnbull has done better, perhaps due to the absence of hard-right Coalition backbenchers from the media environment.

Shorten’s ratings as preferred Labor leader are so low because conservatives detest him for strongly opposing much that the Coalition is proposing or has done, while many on the left do not regard him as a genuine leftie. Turnbull is helped as best Liberal leader by Abbott and Dutton being more right-wing.




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The most important factor regarding the next federal election, due by early 2019, is likely to be the performance of the economy. Greg Jericho wrote in The Guardian recently that the strong employment growth in 2017 was consistent with the government being re-elected.

The government is inhibited by the continued low wages growth. If wages growth lifts this year, the Coalition would be far more likely to be re-elected. The strong US economy has benefited Donald Trump.

65% supported leaving Australia Day as it is, while just 29% supported referendums on Indigenous recognition and the republic proposed by Albanese.

The ConversationEssential will now appear fortnightly rather than weekly, so there was no Essential poll this week. You can read about last week’s Essential here.

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

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

ASX and Wall Street fall: investors should start to worry when volatility seems low


Lee Smales, Curtin University

Rewind to last week and the volatility index, or VIX, actually predicted low levels of volatility in the share market over the coming 30 days. But the subsequent falls in the Australian and United States share markets should serve as a reminder of the risk of being complacent.

Prolonged periods of low volatility provide ample opportunity for investors to become complacent about risk, and increase the prospect of sharp market corrections. This is certainly what my research has discovered. I found buying stocks when investor fear is highest, and selling when it is lowest, can be a profitable trading strategy.




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Now the US S&P 500 index has fallen by over 6% since Thursday (wiping over US$1 trillion from stock values), the VIX index has more than doubled and now sits at 37.32. While this is the highest level since August 2015, it’s still well below the high of 80.06 we saw during the global financial crisis.

The trigger for this surge in investor fear in the US was Friday’s release of employment data there. Typically, this stronger than expected data would be good for stocks. However, this news follows indications from the Federal Reserve that further rate hikes are likely.

The market has taken strong wage growth as a signal of inflationary pressure, which may lead to more dramatic policy tightening. This is consistent with prior research that suggests the market response to economic news depends on the business cycle.

Unfortunately, owing to reliance on exports to fuel its economy, the Australian market is not immune to what happens in the US. The All-Ordinaries has fallen by 4% (equivalent to nearly A$90 billion of value) and the A-XVI (an Australian fear gauge) has jumped by 60% in two sessions.

Due for a correction

As of the end of January, the US S&P 500 were 320% higher than at the peak of the 2008 financial crisis, having increased 25% in the past year. While the Australian market has lagged, following the end of the commodity boom, the All-Ordinaries is still 98% higher than in 2008 and 8% higher than at this time last year.

Over the same time, the VIX index has been able to shrug off the affects of a rising geopolitical risk – such as President Trump’s tiff with North Korea.

Over the past year, VIX has averaged just 11.06. This indicates that in the next 30 days the market expects prices to rise or fall by 6.3% (on approximately 95 days out of 100). This is lower than the average of 14.9 for the prior year, and 18.8 over the past 15 years.

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While the VIX has continued to predict low levels of volatility in the near-term (it ended Thursday at 13.47), researchers at the New York Federal Reserve pointed out that the term structure of implied volatility suggested volatility will not remain low forever. The term structure shows how implied volatility varies for different time periods, and prior to Thursday this was upward sloping – indicating volatility would rise over time.

It’s difficult to predict when the current market sell-off will end, and after the large increase in values over the past few years it could be said that the market is due a correction. While the futures market is predicting further falls in stock prices (and VIX increases) in the near-term, the term structure (which is now downward sloping) is not predicting a lengthy period of volatility.

One risk could be that ongoing gridlock within US Congress leads to another US government shutdown, and associated geopolitical risk finally starts to feed into investor fear.

The ConversationThe lesson remains: investors should be wary when investor fear is low.

Lee Smales, Associate Professor, Finance, Curtin Graduate School of Business, Curtin University

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

Tasmania can’t only rely on a growing population for an economic boost


Lisa Denny, University of Tasmania

While Tasmania is currently experiencing its highest rate of population growth since the global financial crisis, this won’t necessarily lead to an automatic economic windfall for the state.

Both the Liberal and Labor parties in Tasmania’s election campaign are supporting population targets as a means to boost the economy.




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Some say Tasmania’s smaller population is an asset to the state’s unique character, others believe it condemns the state to mediocrity and holds us back.

But what’s usually ignored in the typical BBQ conversation is that it’s actually the composition of the population that really matters.

It is unrealistic for these political parties to expect population growth rates to be maintained or increase by themselves as population growth is not linear. The drivers of population change in Tasmania are the population age structure and the state’s relative economic performance with the rest of the country. Tasmania needs the ability to retain and/or attract families to live and work there.

A long standing population policy

In March 2013, the then opposition leader for the Liberal Party, Will Hodgman, announced a population target of 650,000 Tasmanians by 2050. This was based on a population growth rate of 0.6% per annum, the average rate of growth over the previous decade.

Previous Labor governments had asserted that population growth would occur naturally alongside a strong economy and so a specific population strategy was not required.

When the Hodgman Liberal government took office in March 2014, it developed and released a population strategy aiming to reverse Tasmania’s projected population decline and put Tasmania on a population growth trajectory.

Population change occurs as a result of natural increase (more births than deaths) and migration (in Tasmania’s case both interstate and overseas migration).

Historically, around 60% of Tasmania’s population growth has occurred from natural increase. However, the state’s population continues to age and the number and proportion of women of reproductive age continues to decline. So the usual natural increase will wane as the gap between births and deaths reduces.

Migration will need to increase considerably to replace this projected slowing down and to achieve both the short term population targets desired by the Property Council and the longer term objectives of the Tasmanian Liberal government. Even with increased migration (interstate and overseas) of families, they will then need to have at least two children to ensure population replacement is possible.

However, historically Tasmania has always gained more older people (those aged 45 and over) and lost more younger, working and reproductive aged people (those aged 19 to 39). This is primarily due to a lack of employment opportunities..

This trend reduces the proportion of the population that is younger – and increases the proportion of the population that is older. In comparison with the rest of Australia, Tasmania is seeing this happen at a faster rate, even in times of stronger population growth.

Impact on Tasmania’s economy

Tasmania’s ageing population matters because as people get older they become more reliant on the services provided by governments (for example pensions, health and aged care). These services are funded by the taxpayer; however in ageing populations, taxpayers are diminishing in supply.

Of course this is not to say that older people are not valuable contributors to the community and economy, particularly those who are active, engaged and self-funded in their retirement.




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Older people can also contribute to the state’s economy as consumers in labour intensive sectors like retail and hospitality and the health and care services. These all create employment opportunities for Tasmanians. Over a third of all new jobs projected over the next five years in Tasmania are in the healthcare and social assistance sector (5,300 additional jobs).

These economic and employment opportunities will need to be carefully managed as the Tasmanian workforce becomes increasingly dominated by industry sectors that are largely publicly funded.

The Tasmanian Liberals’ three-pronged plan focuses on job creation and workforce development, supporting interstate and overseas migration, and promoting Tasmania’s liveability and lifestyle. Labor’s intent is to invest in essential services, build productive infrastructure and promote the creation of secure and stable jobs.

Both plans are laudable in achieving potential growth. However, to effectively change the age structure of the population (and longer term population growth), these policies will need to be targeted to those of working and reproductive age.

While targeted population growth is important for Tasmania in meeting the challenges of an ageing population and a growing economy, population change needs to be planned for. A stable age structure with a population balanced between the working age and non-working age will provide a platform for proactive and consistent economic development policy.

This in turn will provide greater confidence for the private sector to invest in the state over the longer term, increasing the propensity for growth and the potential prosperity for all Tasmanians.

The ConversationPopulation growth for growth’s sake (as a proxy for economic growth), without consideration for the economic and social implications this creates, might actually result in a type which puts at risk the longer term economic viability of the state.

Lisa Denny, Research Fellow – Institute for the Study of Social Change, University of Tasmania

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

Vital Signs: weak inflation means interest rates aren’t rising anytime soon


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.

This week: changes to how inflation is calculated, stagnant housing credit, and the US Federal Reserve keeps interest rates on hold


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It’s not often there are news stories anticipating Australian Bureau of Statistics data a week before it comes out. But Wednesday’s Consumer Price Index was an exception. The data showed a 0.6% rise in the Consumer Price Index for the December quarter, bringing the annual rate up to 1.9% (from 1.8% in the 12 months to September).

This is still below the Reserve Bank of Australia’s target range of 2-3%, but it’s edging closer. Kind of. It was still below what was forecasted.

One reason why market participants follow the Consumer Price Index so closely is the impact it has on the RBA in setting the official cash rate. For the RBA to start raising interest rates would require it to be pretty confident that the disinflationary pressures in the Australian economy have abated.

That still seems unclear, which is why it is a near certainty they will leave the cash rate unchanged at the next board meeting on Tuesday.

Two changes to how the Consumer Price Index is calculated were also introduced. Firstly, the weights that different categories of expenditure receive were tweaked, as they are periodically. This is to make sure that the goods in the “basket” reflect what households are actually spending their money on.

In the new calculation, items like childcare (now 1.35%) and education (now 4.27%) get a larger weighting.

A less routine and more interesting change was to use scanner data from retailers at point-of-sale in calculating the Consumer Price Index. This was spearheaded by the work of my UNSW School of Economics colleague Professor Kevin Fox, who was quoted by the ABS:

I strongly support the ABS decision to implement new CPI methods for the treatment of transactions data… These new methods will enhance the accuracy of the Australian CPI, provide additional analytics and better inform policy formulation.

Scanner data has been used in the Australian CPI since 2014, and makes up about one quarter of the expenditure basket. There were some issues, however, in how that data was incorporated. Roughly speaking (for technical details see the ABS report), the changes involve using all the products available (rather than a sample) and weighting products by their economic importance. A bonus for the cash-strapped ABS is that, as they put it

The use of multilateral methods will require fewer resources in the medium term.

Using more data, and using it better is definitely a good idea. And in the long run it will give us more informative, and reliable inflation figures.




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Reserve Bank of Australia data released Wednesday showed fairly steady credit growth compared to previous months. Housing credit grew at 6.3% for the year to December, as in 2016. Of course, one doesn’t want this to be too high given concerns about property bubbles, not too low given the importance of the housing market to the broader economy.

Meanwhile, in the US, this week marked the final board meeting of outgoing Federal Reserve Chair Janet Yellen. As expected, they left official interest rates unchanged at 1.25-1.50%, issuing this statement.

The Fed continues to be heavily focused on inflation, much like the RBA. The Federal Open Market Committee statement made that point, stating:

Inflation on a 12‑month basis is expected to move up this year and to stabilise around the Committee’s 2% objective over the medium term. Near-term risks to the economic outlook appear roughly balanced, but the Committee is monitoring inflation developments closely.

This is best read as a sign that another rate rise at the March meeting is likely, unless material new information arrives in the interim.

The ConversationOne of the significant economic stories of 2018 seems likely to be the divergence between US and Australian interest rates, what it means for the Australian dollar, and what it means for capital flows to Australia. At the moment, it seems the Fed will steadily raise US interest rates this year, while the RBA will be stuck with hard choices and may be reticent to begin a tightening cycle.

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

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

No clear target in Australia’s 2030 national innovation report



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The new report started as a central plank of Prime Minister Malcolm Turnbull’s 2015 National Innovation and Science Agenda.
from www.shutterstock.com

Leigh Dayton, Macquarie University and Roy Green, University of Technology Sydney

The long wait is over. As of this week, Australia has a strategic plan that promises to rejuvenate the nation’s lagging innovation performance – Australia 2030: Prosperity Through Innovation. But instead of a roadmap for action, it’s more of a sketch with detours, dead ends, and red lights which should be green.

This plan started as a commitment in Prime Minister Malcolm Turnbull’s 2015 National Innovation and Science Agenda. And it has now been prepared and released by an independent public agency, Innovation and Science Australia (ISA), after a Senate inquiry into the Australia’s research and innovation system and broad consultation across the community.

The report offers a range of 30 recommendations categorised into five “imperatives for action”: Education, Industry, Government, Research and Development, and Culture and Ambition. As part of this last imperative, ISA also proposes an ambitious National Missions initiative, comparable with moon shots.

We have a problem

Not only has Australia 2030 been widely anticipated in industry and in the research and education sector, it is much needed. The nation has a problem. On most international measures, such as the widely recognised Global Innovation Index, Australia consistently lags behind international competitors.

In 2017, the index ranked Australia 23rd of 127 countries in terms of its research performance. But on innovation efficiency, which is a measure of how well we translate research into commercial outcomes, we rank a lowly 76th. Even New Zealand beat Australia on both measures. And it gets worse. Australia was last on the 2017 OECD Science, Technology and Industry Scoreboard when it comes to high growth enterprises.

Before he was appointed Chair of the ISA Board, Bill Ferris bluntly declared of the nation’s research and development (R and D) performance,

Australia has internationally competitive R and bugger-all D.




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A curate’s egg

So it comes as a disappointment that the new strategic plan is something of a “curate’s egg” – good in some parts, but with missed opportunities in others. It is perfectly right, for example, in:

  • restating the need for urgent action if Australia is to maintain its social, economic and environmental well-being

  • recognising that the nation’s science and innovation system is a fragmented collection of institutions, programs and enterprises – public and private – cobbled together in a complex array of federal and state jurisdictions

  • identifying a leading role for government in the establishment of the policy and regulation settings within which participants in the innovation system operate, and

  • urging government to take an active role itself in the innovation process by, for instance, encouraging pre-commercial procurement of products from industry and “role modelling” 21st century service delivery.

Implementation not clear

However, the plan’s weaknesses become apparent when considering the policies and mechanisms needed to achieve the goals it outlines. How often is it in these discussions that laudable aspirations struggle to be matched by a coherent and adequately funded implementation strategy?

Consequently, the plan reads like a shopping list of disconnected ideas and initiatives, many of which are jarringly specific – “grow government procurement from Small to Medium Enterprises to 33% by 2022” – while others are sweeping: “increase commercialisation capability in research organisations”.

The problem is that details about how to turn such ideas into reality are less easy to find. This is surprising as there are many programs and approaches, both in Australia and internationally, which offer models and solutions.

An example: many Australian universities are taking steps to ramp up their “commercialisation capability” by hiring people with industry experience, encouraging scientists to collaborate with the end-users of their research, and simplifying the management of their intellectual property.

Similarly, little is said about the broader research and innovation system, and its deficiencies, in which the policy proposals are supposed to achieve results? These deficiencies are noted, not tackled. In contrast, global players like the UK, Germany, Finland, Sweden, South Korea and Singapore are busy reshaping their innovation systems with targeted industry policies to identify areas of current and future competitive advantage.

What are we good at?

While the ISA’s strategic plan paints a broad picture of where Australia needs to be in 2030, it does not provide any guide, let alone analysis, of these areas of potential competitive advantage. What is this country good at doing? What does it need to learn to do to compete in the global markets and value chains, and in which sectors of the economy?

Answering such questions is the job of technology foresight exercises where future scenarios are mapped out and planned for – something ISA seems not to have tried. It certainly had plenty of time to do so. Instead, the plan offers a set of national missions and strategic opportunities, with only isolated illustrations of how they can be achieved.

For example, the plan proposes a national mission to make Australia “one of the healthiest nations on Earth”. Who could argue? But in targeting “genomics and precision medicine”, where Australia does indeed excel, it avoids more controversial issues like controlling the population’s sugar intake.




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Moreover, some of the other major issues facing Australia were seemingly not up for discussion, such as the challenges of renewable energy and super-fast broadband. Though these are mentioned as “beyond the scope of this plan”, can we realistically sell new national missions while current ones are unresolved?

For a plan that is supposed to embody longer term thinking, it is disappointing to see such capitulation to short-term political pressures. Why not try to deal head-on with the reality that the current government – every government – is ruled by politics and the three year political cycle. It’s frustrating for everyone that policies, funding and programs are chopped and changed, according to the government of the day.

Right now, the Turnbull government is moving in the opposite direction to the policies and priorities needed to underpin the ambitions of Australia 2030. It is cutting research and education, ignoring climate change, and clinging to a commodity economy.

Need for clear direction

Of course these are difficult challenges for a body like ISA. However, it is the function of a national science, research and innovation strategy to identify challenges and address them. It must offer not only a clear direction for the future but also coherent and effective pathways that enable those operating in the innovation system to deliver tangible outcomes.

No doubt the ISA strategy contains elements that will hit these targets, which is why we must wish it well. But equally it needs an organisational rethink: what are the national goals? What are the problems, and how do we go about fixing them, step-by-step, in a systematic way? Maybe this can be the next item on its agenda.

The ConversationGlossy plans and lofty ambitions are good, and their educational value for both the political classes and the wider community should not be underestimated. But a blueprint for a constantly evolving, properly funded and joined-up research and innovation system would be better.

Leigh Dayton, PhD candidate, Macquarie University and Roy Green, Dean of UTS Business School, University of Technology Sydney

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

Strong US economy boosts Trump’s ratings, as Democrats shut down government for three days



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Before the government shutdown, Donald Trump exceeded a 40% approval rating for the first time since May 2017.
Reuters/Carlos Barria

Adrian Beaumont, University of Melbourne

On January 20, 2018, exactly one year after Donald Trump was inaugurated as president, the US government entered a partial shutdown for three days – the first shutdown since 2013. This is the second shutdown that has occurred when the same party controlled the presidency and both chambers of Congress; one agency was shut down for one day in 1980.

While Republicans hold a 51-49 majority in the Senate, it usually takes three-fifths of the Senate (60 votes) to invoke cloture and prevent filibustering of legislation. In the House of Representatives, Republicans have a 238-193 majority, and a bill that funded the government passed 230-197.

In the Senate, the same bill won the vote 50-49, but was short of the 60 votes needed for cloture. Five Democrats, all representing states Trump won by at least 18 points in 2016, voted in favour of this bill, and five Republicans voted against, though Senate Majority Leader Mitch McConnell’s “no” vote was technical, to allow him to reintroduce the same bill.

The reason Democrats denied supply was a dispute over “Dreamers” – children who came to the US illegally. Under President Barack Obama, the approximately 800,000 Dreamers were eligible for renewable two-year non-deportation periods, and work permits. Trump rescinded this program in September 2017, but Congress was given until March 2018 to legislate an alternative.

Four months since Trump’s rescission, no legislation on Dreamers has been voted on by either chamber. On January 11, Trump reportedly said “shithole countries” in reference to immigrants from Haiti and some African countries. Democrats clearly believe Trump and Republican congressional leaders will do nothing to stop the Dreamers being deported, so they blocked Supply to try to force action.

On 22 January, the shutdown ended with Democratic support after McConnell promised the Senate would vote on action for the Dreamers. However, the government’s funding expires on February 8. If McConnell fails to honour his promise, it is likely there will be another US government shutdown.

The funding bill agreed to also funded the Children’s Health Insurance Program for six years – a key Democratic priority.

Even if a bill that stopped the deportation of Dreamers passed the Senate, the House of Representatives is more difficult, as there is a large bloc of hard-right Republicans who would detest leaders bringing any pro-Dreamer legislation to a vote. Trump can veto legislation, and it requires a two-thirds majority in both chambers to override his veto.

The strong US economy has improved Trump’s ratings in the last month. According to the FiveThirtyEight poll aggregate, Trump’s ratings were 36.4% approve, 57.5% disapprove on December 16, but they are now at 39.1% approve, 55.9% disapprove.

Before the shutdown, Trump exceeded 40% approval for the first time since May 2017.

The strong US economy also appears to be helping Republicans in the race for Congress. A month ago, Democrats led Republicans by 50-37, but that advantage has shrunk to 46-39 in the FiveThirtyEight aggregate.

Republicans may also be benefiting from a lack of media focus on the controversial bills they had passed or attempted to pass, such as the corporate tax cuts or Obamacare repeal.

The shutdown was not long enough to have a large impact on Trump’s ratings or the race for Congress. According to FiveThirtyEight analyst Harry Enten, the previous two long shutdowns – in 1995-96 and 2013 – had a large negative short-term impact on the Republicans, who were blamed for both. However, once the shutdowns were resolved, voters quickly forgot about the disruption.

Midterm elections will be held this November, in which all 435 House of Representatives members and one-third of the 100 senators are up for election.

Owing to natural clustering of Democrats in cities and Republican gerrymandering, Democrats probably need a high single-figure lead on the popular vote to take control of the House of Representatives. A seven-point lead for Democrats would give Republicans some chance of retaining control.

Commissioned Tasmanian polls stronger for Liberals than December EMRS

The Tasmanian election is expected to be called soon for either March 3 or 17. Tasmania uses the Hare-Clark system for its lower house, with five five-member electorates. A December EMRS poll gave the Liberals 34%, Labor 34% and the Greens 17%.

There has been no media-commissioned polling since this poll, but the Liberals released a MediaReach poll last week that gave them 41.1%, Labor 34.3%, the Greens 12.8% and the Jacqui Lambie Network (JLN) 6.2%.

A ReachTEL poll for the left-wing Australia Institute in the seat of Bass gave the Liberals 49.4%, Labor 27.6%, the Greens 10.5% and the JLN 10.1%.

MediaReach has previously only taken polls in the Northern Territory, so it does not have a track record. ReachTEL’s Tasmanian polls were biased against Labor at the last two federal elections, but the Liberals performed better than ReachTEL expected at the 2014 state election.

Essential 53-47 to federal Labor

The first federal poll of 2018, an Essential poll, was released last week. Labor led by 53-47, unchanged from the final Essential poll of 2017 five weeks ago.

Primary votes were 38% Labor (steady), 37% Coalition (steady), 9% Greens (steady) and 6% One Nation (down one). This poll was conducted on January 11-15 from a sample of 1,038.

According to the Poll Bludger, Essential will be a fortnightly poll this year. Previously, Essential polled weekly, with a rolling two-week sample used for voting intentions.

Malcolm Turnbull’s net approval was minus seven, down four points since December. Bill Shorten’s net approval slumped to minus 17, down eight points since December.

By 44-29, voters would support Australia becoming a republic with an Australian head of state (44-30 in January 2017). By 53-38, voters would support a tax on sugar-sweetened drinks.

More than 50% thought all types of crime had increased in the last few years, including 70% who thought youth gang crime had increased, and 76% who thought drug-related crime had increased. 53% and 40% respectively thought drug crime and youth crime had increased a lot.

The ConversationI expect the first Newspoll of 2018 when federal parliament resumes in early February.

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

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

Vital Signs: what the Davos meeting is good for



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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.

This week: There is more to the World Economic Forum meeting in Davos than celebrities and ski resorts.


The World Economic Forum’s annual meeting in the Swiss resort town of Davos has become a bit like the Academy Awards. There are lots of celebrities and lots of publicity, but there are legitimate questions about the substance of the whole enterprise.

Is the whole thing a palaver? Actually, no.

The theme this year is Creating a Shared Future in a Fractured World – and it reflects legitimate concerns about the breakdown of international institutions.

The institutions that have guided the post-World War II era are under threat from both the left and the right. US President Donald Trump has decried institutions like the United Nations and threatened to withhold funding.

In his campaign he railed against NATO – a vital alliance that has underpinned European security for decades. His nativist agenda, with its America First slogan, is seen by many as a major threat the entire apparatus of international cooperation.

Yet a newly energised and combative left also decry many of these institutions as pushing a “neoliberal” agenda. The hero of the American left, Bernie Sanders, went as far as to blame the International Monetary Fund for the Greek debt crisis. And Britain’s putative Prime Minister Jeremy Corbyn has widespread contempt for the international financial order, even agreeing with the accusation that he is “a bigger threat than Brexit”.

It is unlikely that this clash of ideologies is going to be solved this week. But against this backdrop, there is a more traditional international game being played: lobbying for national interests and positioning for national advantage.

US Treasury Secretary Steve Mnuchin declared that the US “is open for business”, and according to administration officials, Trump will purportedly say similar things when he attends on Friday.

Enter the large Australian delegation at Davos this year. It includes Finance Minister Matthias Cormann and Trade Minister Steven Ciobo, who will be representing Australia’s trade and investment interests. As Cormann put it:

The World Economic Forum is one of the best, most efficient opportunities to engage over a very short period, in one single location, with a very large number of senior political, business and community leaders from right around the world.

It’s a critical time to defend free international trade. The US has pulled out of the Trans Pacific Partnership, but the other 11 countries (including Australia) are set to sign the so-called Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) deal. Yet there are sceptics and critics of such deals at home and around the world.

At Davos yesterday, German Chancellor Angela Merkel rightly warned that despite the challenges faced by the world economy, “protectionism is not the proper answer”. In Australia, it’s unclear yet what Labor leader Bill Shorten’s reaction to the CPTPP will be. He declared the original TPP “dead” when the US pulled out, but the CPTPP still holds significant benefits for Australia.

New modelling by the highly respected Petersen Institute for International Economics suggests that although the overall benefits of the CPTPP may be lower, Australia will do nearly as well as under the larger agreement with the US involved.

The reason is that without the US, Australia will get a bigger share of markets like Japan and Mexico, for products like beef, that it would otherwise have had to share with the US.

Shorten’s response to this good but inconvenient fact (for him) will be telling.

An array of Australian business leaders will also be in attendance, and it’s an important time for Australian business to try to sell Australia as an attractive destination for foreign investment. Australia’s corporate tax rate, at 30%, is now among the highest in the OECD, whereas 15 years ago it was among the lowest. And unless you run a chain of moderately successful smoothie bars and hence have revenues under A$50 million, little tax relief is on the horizon.

The ConversationThe real fireworks from Davos might come from President Trump’s public remarks. But it will be the private remarks between senior Australian business leaders and foreign investors that will likely be the most consequential for the Australian economy in the coming few years.

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

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

Farmers and services industry the winners under the revised Trans-Pacific Partnership trade deal


Giovanni Di Lieto, Monash University

The revived trade agreement, now known as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), has finally made it across the line. It’s a considerable win for Australian farmers and service providers, in a trading area worth about A$90 billion.

The 11 remaining countries from the initial Trans-Pacific Partnership agreement finally agreed to go ahead with the deal without the US, at the annual meeting of the World Economic Forum in Davos, Switzerland.

The deal reduces the scope for controversial investor-state dispute settlements, where foreign investors can bypass national courts and sue governments for compensation for harming their investments. It introduces stronger safeguards to protect the governments’ right to regulate in the public interest and prevent unwarranted claims.




Read more:
Australia’s tenuous place in the new global economy


Despite earlier union fears of the impact for Australian workers, the CPTPP does not regulate the movement of workers. It only has minor changes to domestic labour rights and practices.

The new agreement is more of an umbrella framework for separate yet coordinated bilateral deals. In fact, Australia’s Trade Minister Steven Ciobo said:

The agreement will deliver 18 new free trade agreements between the CPTPP parties. For Australia that means new trade agreements with Canada and Mexico and greater market access to Japan, Chile, Singapore, Malaysia, Vietnam and Brunei.

It means a speedier process for reducing import barriers on key Australian products, such as beef, lamb, seafood, cheese, wine and cotton wool.

It also promises less competition for Australian services exports, encouraging other governments to look to use Australian services and reducing the regulations of state-owned enterprises.




Read more:
The Trans-Pacific Partnership is back: experts respond


Australia now also has new bilateral trade deals with Canada and Mexico as part and parcel of the new agreement. This could be worth a lot to the Australian economy if it were to fill commercial gaps created by potential trade battles within North America and between the US and China.

What’s in and out of the new agreement

The new CPTPP rose from the ashes of the old agreement because of the inclusion of a list of 20 suspended provisions on matters that were of interest for the US. These would be revived in the event of a US comeback.

These suspended provisions involved substantial changes in areas like investment, public procurement, intellectual property rights and transparency. With the freezing of further copyright restrictions and the provisions on investor-state dispute settlements, these suspensions appear to re-balance the agreement in favour of Australian governments and consumers.

In fact, the scope of investor-state dispute settlements are narrower in the CPTPP, because foreign private companies who enter into an investment contract with the Australian government will not be able to use it if there is a dispute about that contract. The broader safeguards in the agreement make sure that the Australian government cannot be sued for measures related to public education, health and other social services.




Read more:
Why developing countries are dumping investment treaties


The one part of the agreement relating to the temporary entry for business people is rather limited in scope and does not have the potential to impact on low-skilled or struggling categories of Australian workers. In fact, it only commits Australia to providing temporary entry (from three months, up to two years) of only five generic categories of CPTPP workers. These include occupations like installers and servicers, intra-corporate transferees, independent executives, and contractual service suppliers.

The above categories squarely match the shortages in the Australian labour market, according to the Lists of Eligible Skilled Occupation of the Home Affairs Department.

Bits of the original agreement are still included in the CPTPP such as tariffs schedules that slash custom duties on 95% of trade in goods. But this was the easy part of the deal.

Before the deal is signed

The new agreement will be formally signed in Chile on March 8 2018, and will enter into force as soon as at least six members ratify it. This will probably happen later in the year or in early 2019.

The geopolitical symbolism of this timing is poignant. The CPTPP is coming out just as Donald Trump raises the temperature in the China trade battle by introducing new tariffs. It also runs alongside China’s attempts to finalise a much bigger regional trade agreement, the 16-nation Regional Comprehensive Economic Partnership.

Even though substantially the CPTPP is only a TPP-lite at best, it still puts considerable pressure on the US to come out of Trump’s protectionist corner.

It spells out the geopolitical consequences of the US trade policy switch, namely that the Asia Pacific countries are willing to either form a more independent bloc or align more closely with Chinese interests.

The ConversationWill this be enough to convince the Trump administration to reverse its course on global trade? At present, this seems highly unlikely. To bet on the second marriage of the US with transpacific multilateral trade would be a triumph of hope over experience.

Giovanni Di Lieto, Lecturer, Bachelor of International Business, Monash Business School, Monash University

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

What Australia can learn from overseas about the future of rental housing



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Over the past year, there has been a surge of enthusiasm in Australia for developing a sector of large-scale institutional landlords.
AAP/David Crosling

Chris Martin, UNSW

When we talk about rental housing in Australia, we often make comparisons with renting overseas. Faced with insecure tenancies and unaffordable home ownership, we sometimes try to envisage European-style tenancies being imported here.

And, over the past year, there has been a surge of enthusiasm for developing a sector of large-scale institutional landlords, modelled on the UK’s build-to-rent sector or “multi-family” housing in the US.

Our review of the private rental sectors of ten countries in Australasia, Europe and North America identified innovations in rental housing policies and markets Australia might try to emulate – and avoid. International comparisons also give a different perspective on aspects of Australia’s own rental housing institutions that might otherwise be taken for granted.


Further reading: ‘Build to rent’ could be the missing piece of the affordable housing puzzle


Not everyone in Europe rents

In nine of the ten countries we reviewed, private rental is the second-largest tenure after owner-occupation. Only in Germany do more households rent privately than own their housing. Most of the European countries we reviewed have higher rates of home ownership than Australia.

In most of the European and North American countries in our study, single people and lower-income households and apartments are heavily represented in the private rental sector. Higher-income households, families with kids, and detached houses are represented much more in owner-occupation. It’s less uneven in Australia: more houses, kids and higher-income households are in private rental.

Two key potential implications follow from this.

First, it suggests a high degree of integration between the Australian private rental and owner-occupier sectors, and that policy settings and market conditions applying to one will be transmitted readily to the other.

So, policies that give preferential treatment to owner-occupied housing will also induce purchase of housing for rental, and rental housing investor activity will directly affect prices and accessibility in the owner-occupied sector.

It also heightens the prospect of investment in both sectors falling simultaneously, with little established institutional capacity for countercyclical investment that makes necessary increases in ongoing supply.

A second implication relates to equality. Australian households of similar composition and similar incomes differ in their housing tenure – and, considering the traditional value placed on owner-occupation, this may not be by choice.

This suggests housing tenure may figure strongly in the subjective experience of inequality. It raises the question of whether housing is a primary driver of inequality, and not the outcome of difference or inequality in other aspects of life.

The rise of large corporate landlords

In almost all of the countries we reviewed, the ownership of private rental housing is dominated by individuals with relatively small holdings. Only in Sweden are housing companies the dominant type of landlord.

However, most countries also have a sector of large corporate landlords. In some countries, these landlords are very large. For example, America’s five largest corporate landlords own about 420,000 properties in total. Germany’s largest landlord, Vonovia, has more than 330,000 properties alone.

These landlords’ origins vary. Germany’s arose from massive sell-offs of municipal housing and industry-related housing in the early 2000s.

In the US, multi-family (apartment) landlords have been around for decades. And in the aftermath of the global financial crisis, they have been joined by a new sector of single-family (detached house) landlords that have rapidly acquired large portfolios from bulk purchases of foreclosed, formerly owner-occupied homes.

In these countries and elsewhere, the rise of largest corporate landlords has been controversial. Germany’s have a poor record of relations with tenants – to the extent of being the subject of popular protests in the 2000s – and their practice of characterising repairs as improvements to justify rent increases.

American housing advocates have voiced concern about “the rise of the corporate landlord” – especially in the single-family sector, where there’s some evidence that they more readily terminate tenancies.

These landlords also don’t build much housing. They are most active in renovating (for higher rents), merging with one another, and – especially in the US – developing innovative financial instruments such as “rental-backed securities”.

“Institutional landlords” are now a standing item on the Australian housing policy agenda. Considering the activities of large corporate landlords internationally, we should get specific about the sort of institutional landlords we really want, how we will get them, and how we will ensure they deliver desired housing outcomes.

Policymakers and housing advocates have, for years, looked to the community housing sector as the prime candidate for this role. They envisage its transformation into an affordable housing industry that works across the sector toward a wide range of policy outcomes in housing supply, affordability, security, social housing renewal and community development.

With interest in the prospect of build-to-rent and multifamily housing rising in the property development and finance sectors, there is a risk that affordable housing policy may be colonised by for-profit interests.

The development of a for-profit large corporate landlord sector may be desirable for greater professionalisation and efficiencies in the management of tenancies and properties. However, this should not come at the expense of a mission-oriented affordable housing industry that makes a distinctive contribution to housing outcomes.

Bringing it home

Looking at the policy settings in the ten countries, we found some surprising results and strange bedfellows.

For example, Germany – which has had a remarkably long period of stable house prices – has negative gearing provisions and tax exemptions for capital gains, much like Australia. But, in Australia, these policies are blamed for driving speculation and booming prices.


Further reading: Three myths on negative gearing the housing industry wants you to believe


And while the UK taxes landlords more heavily than most other countries, it has the fastest-growing private rental sector of the countries we reviewed.

However, these challenging findings should not be taken to diminish the explanatory power or effectiveness of these settings in each country’s housing policy. Rather, they show the necessity of considering taxation and other policy settings in interaction with each other and in wider systemic contexts.

So, for example, Germany’s conservative housing finance practices, and regulation of rents, may mean the speculative potential of negative gearing and tax-free capital gains isn’t activated there.

The ConversationStrategy in Australia for its private rental sector should join consideration of finance, taxation, supply and demand-side subsidies and regulation with the objective of making private rental housing outcomes competitive with other sectors.

Chris Martin, Research Fellow, City Housing, UNSW

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