Scott Morrison says budget will remember the renters


Michelle Grattan, University of Canberra

The proposed housing affordability package in the May budget will target people relying on social housing as well as those trying to break into the market, Treasurer Scott Morrison has said. The Conversation

Morrison said housing would be a very strong focus of the budget and he stressed the rental side.

“It won’t just deal with the challenges faced by first home-owners,” he said. “You have got to remember that over 30% of Australians actually live in homes that are rented, and when people are finding it hard to get into the housing market that puts a lot more pressure on the rental market.”

Noting that the number of people on low incomes in rental stress had gone up, Morrison said: “I am as much concerned about someone who is on a low income struggling with their rent as I am with someone who I know wants to get on the home-ownership market themselves. They are both important challenges for Australians.”

Morrison renewed his criticism of “one of the most disgraceful failures of public spending” – the National Affordable Housing Agreement. This was “a one-way cash ATM to the states which asks for nothing in return.

“We are handing over A$1.3 billion every year and the number of people on public housing waiting lists has gone up. The number of social housing dwellings which are owned by the state governments has gone down. We have basically shelled out billions and billions and billions for a program that isn’t achieving anything,” he told Sky. These were matters that would be addressed in the budget.

“We have to spend that money better. We don’t necessarily need to spend less on that. It is a very important issue,” he said.

He was frustrated as treasurer that while serious money was spent on a lot of problems, “the debate is so often that you need to spend more here. No, just spend what you are spending really well and more effectively and get the outcomes that we are accountable for.”

He said social housing often got overlooked in the debate, and he was “quite passionate” about it.

The Victorian government at the weekend announced relief from stamp duty for first home-buyers purchasing properties below $600,000. Investment properties would not be eligible.

There will be a concession, applied on a sliding scale, for properties between $600,000 and $750,000. The exemption and concession applies to both new and established properties and the state government says it will help 25,000 Victorians with first homes.

Morrison also highlighted the problem of flat wages growth and the consequences that brought.

“Whether it is the NDIS [National Disability Insurance Scheme], whether it is schools, whether it is hospitals, whether it is Medicare – at a time when wages growth is admittedly and regrettably flat, Australians – particularly hard-working Australians on middle incomes – rely more and more and depend more and more on these services,” he said.

“And so the budget does need to signal, and the government has been signalling this, the need to ensure that people can feel confident about the support for those services.”

He made it clear that any improvement in commodity prices or wages growth would be used for budget repair rather than for new spending.

With an eye to the imperative that the budget must be convincing to the ratings agencies, Morrison said: “We have to deal with the political environment that we work in. You can’t just go out there and announce a whole range of things which you don’t have a reasonable prospect of being able to implement.”

He said Labor seemed “to be engaged in a very cynical process of sabotaging the budget to try and crash the AAA rating”.

“They won’t engage in getting spending under control, they want to see the nation’s welfare bill be higher. They want to tax people more to pay for a higher welfare bill.”

https://www.podbean.com/media/player/hb5bg-683276?from=yiiadmin

https://www.podbean.com/media/player/vtwdr-682691?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

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

Grattan on Friday: Penalty rates – Shorten’s own goal becomes Turnbull’s political problem


Michelle Grattan, University of Canberra

The latest reflection on just how appalling things are in federal politics came this week from former Treasury head Ken Henry, who’s now chairman of NAB. The Conversation

“Our politicians have dug themselves into deep trenches from which they fire insults designed merely to cause political embarrassment. Populism supplies the munitions,” Henry told a conference in Canberra. “The country that Australians want cannot even be imagined from these trenches,” he said.

A senior player in reforms under Hawke-Keating Labor and the Howard government, Henry contrasted the current dysfunction “to earlier periods of policy success – where politics was adversarial, every bit as partisan – but when the tribal tensions within parties were generally well-managed and the political contest appeared to energise policy, not kill it”.

Henry may be slightly romanticising the past, as often happens when people look back to that period of policy-rich achievement. There were more than a few unedifying times in the fights of those years. But his general point is right.

He and his fellow heavyweights in the banking industry have just had a close-up view of the Coalition’s ugly tribalism with Treasurer Scott Morrison’s tantrum over former Labor premier Anna Bligh’s appointment to the Australian Bankers Association. It was short-sighted, counter-productive behaviour.

The fact that some in the Coalition saw Bligh’s appointment as the banks writing off the government was revealing. Given the volatility of politics, the bankers would hardly be predicting the next election’s outcome now – the interpretation suggests more about the mindset of alarm in Liberal circles.

When governments are flagging there is always talk of a “reset”. We’ve been hearing it this year, just as we did in the Gillard days.

But looking to a “reset” is more often than not to be staring at a mirage. It’s true that in 2001 the Howard government had a spectacular “reset”. It changed some decisions and crafted a canny budget, but the biggest factors in cementing its turnaround were Tampa’s arrival and September 11.

Some Coalition MPs believe Malcolm Turnbull’s burst of aggression – over Bill-and-the-billionaires and Labor and renewables – will give the government its “reset”. It’s doubtful. People don’t like abuse. And in the energy debate, this week’s Essential poll suggested the government is struggling.

So, looking ahead, there are no quick fixes, or answers based in a superficial change of style. The government faces the toughest slog, as it contemplates a budget that’s difficult to put together and the challenge of delivering an energy policy.

There will be pressure to spend in the budget to gain credibility on health, which cost the Coalition votes last July. Stories are already appearing about ending the freeze on the Medicare rebate. But where will offsetting cuts be found?

And, given the Senate gridlock on savings, can the government produce a budget that doesn’t alienate voters but keeps the ratings agencies at bay and Australia’s AAA rating intact?

As for energy security, the government’s “clean coal” frolic is genuinely hard to understand – beyond fears about regional seats and pressure from the Nationals – given that the word from the sector is that investors won’t go there. Eventually hyper rhetoric will have to give way to concrete measures that can fly.

High electricity prices are a politically sensitive cost-of-living issue and the government is trying to pin the blame for them, and for blackouts, on Labor’s commitment to renewables.

But suddenly there is a new cost-of-living issue, with the Fair Work Commission decision on Thursday to cut Sunday and public holiday penalty rates for those working under the hospitality, fast-food, retail and pharmacy awards.

This is not the government’s decision – the commission is independent and the government didn’t even put a submission to its inquiry.

And, in an ironic twist, Bill Shorten when workplace relations minister paved the way for this decision, with amendments requiring the review of industrial awards to cover the area of “additional remuneration” for employees working on weekends, public holidays, shifts and the like.

The Gillard government thought it was writing protection of penalty rates into the award system. Julia Gillard, addressing an Australian Council of Trade Unions summit, said: “We will make it clear in law that there needs to be additional renumeration for employees who work shift work, unsocial, irregular, unpredictable hours or on weekends and public holidays.”

Labor says it never envisaged the commission would reduce rates. Let alone when the bench members are overwhelmingly ALP appointees.

Although it did not make it, the decision is in line with general government thinking for industrial relations reform. But the government finds itself caught between its base, that will applaud the cut, and many voters whose hip pockets will be hit.

It argues the decision will boost employment, as the commission says. However, the job increases – which neither the commission nor employers can quantify – are likely to be longer in coming and less visible than the pay losses.

Shorten has potential to make hay with the decision, helped by the unions. Those facing smaller pay packets are unlikely to be diverted by the government highlighting his role in getting the review of penalties rolling.

Labor says it will intervene when the commission on March 24 considers transition arrangements; it also is looking to some parliamentary initiative. If (as seems likely) these paths come to dead ends, it is promising legislation if it wins the next election to clip the wings of the commission.

The government faces a dilemma as to whether it intervenes to put a view on how long the transition should be.

There is a parallel here with the problem the government is facing with its omnibus bill which reforms child care while shaving family tax benefits. In each case, people stand to lose something.

The big difference is that with the penalty rates the government isn’t the body making the decision and can say the judgement of the independent umpire should prevail. But if Labor can make the Coalition wear some of the odium for low-paid workers losing dollars, this will be another burden for Turnbull.

https://www.podbean.com/media/player/j795u-67fef0?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

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

What economists and tax experts think of the company tax cut


Jenni Henderson, The Conversation

Prime Minister Malcolm Turnbull and the Treasurer Scott Morrison are still trying to sell their plan to cut the company tax rate to 25% by 2026-27. The current rate is 30% and has been since 2001.

The tax cut was introduced in the 2016 federal budget. The government indicated small to medium businesses turning over less than A$10 million would pay a company tax of 27.5% initially. The company turnover threshold for the tax cut would then increase over time from A$10 to $25 million in 2017-18 to A$50 million in 2018-19 and finally A$100 million in 2019-20.

But before any of this happens, the government needs to convince the senate crossbenchers to pass the legislation. It seems the government hasn’t won over tax experts and economists with this policy, here’s some articles that explain why.

Don’t expect an instant wage increase

In a national press club address Malcolm Turnbull justified the tax cut by saying, “company tax is overwhelmingly a tax on workers and their salaries.” It follows that cutting it would increase salaries right?

However there’s a whole lot of decisions businesses need to make before they even consider raising wages. It’s not just as simple as the government makes out, as professor John Freebairn from the University of Melbourne notes:

Individuals benefit from lower corporate tax rates with higher market wages. But the higher wage rates will take some years to materialise, and the magnitude of increase attributed to the lower corporate tax rate, versus other factors, is open to debate.

Businesses would need to consider the savings of international investors, what resources the business might need, what the return for investors would be on these. All of this before it would consider a wage increase for its workers.

The enlarged stock of capital, technology and expertise per worker becomes a key driver of increased worker productivity. In time, more productive workers are able to negotiate higher wages. Via this chain of decision changes, employees benefit from the lower corporate tax rate.

Any modelling on how much a tax cut could be worth to our economy is up for debate

Modelling is sensitive to whatever assumptions the government makes and these assumptions can be oversimplified. ANU principal research fellow Ben Phillips points out that tax reform like this inevitably has winners and losers and is influenced by powerful lobby groups.

In thinking about tax reform it is important to keep in mind that the gains from modest tax reform are not likely to be a revolution in Australia. The models themselves only estimate relatively small gains from tax reform.

Here’s a little something to bear in mind when hearing any figures thrown around on how much a company tax cut could be worth:

Over the past 25 years Australia’s living standards have increased by around 60% whereas the sorts of gains estimated from tax reform are expected to be little more than 1 or 2%. It remains important that in securing such modest gains we don’t ignore fairness.

The benefit to the domestic economy won’t be that big

The idea behind the cut is that companies will be motivated to provide jobs and other economic benefits because they are receiving a tax break. In theory this kind of tax should boost the economy in the long term, but as John Daley and Brendan Coates from the Grattan Institute explain it’s not that simple.

In Australia, the shares of Australian residents in company profits are effectively only taxed once. Investors get franking credits for whatever tax a company has paid, and these credits reduce their personal income tax. Consequently, for Australian investors, the company tax rate doesn’t matter much: they effectively pay tax on corporate profits at their personal rate of income tax.

The Grattan researchers point out that if companies pay less tax then they might reinvest what they save, but in practise most profits are paid out to shareholders. So the tax cut won’t have much of an impact on domestic investment.

They also pick holes in the Treasury’s modelling on the tax cut’s boost to Gross National Income (GNI).

Treasury expects that cutting corporate tax rates to 25% will only increase the incomes of Australians – GNI – by 0.8%. In other words, about a third of the increase in GDP flows out of the country to foreigners as they pay less tax in Australia. And because most of the additional economic activity is financed by foreigners, the profits on much of the additional activity will also tend to flow out of Australia.

It doesn’t make much of a difference

Another argument for cutting Australia’s company tax rate is to deter companies from shifting their profits to other countries where the tax rate is lower. Recently President Trump promised to cut the United States federal corporate tax rate from 35% to 15%.

Antony Ting, associate professor at the University of Sydney notes most countries have been reducing their company tax rates over the past two decades. This hasn’t changed the incentive for multinationals to avoid taxes.

The tax-avoidance “success” stories of multinational enterprises such as Apple, Google and Microsoft suggest this argument is weak. The fact is that the profits these multinationals shift offshore often end up totally tax-free.

A FactCheck by Kevin Davis, research director at the Australian Centre for Financial Studies, reviewed by economist Warwick Smith, says there’s no point to comparing Australia’s company tax rate with other countries anyway.

Australia’s dividend imputation tax system means that any comparison of our current 30% rate with statutory corporate tax rates elsewhere is like comparing apples and oranges.

Small and medium businesses actually lose out

Due to the way the proposed company tax cut is structured, foreign investors get a windfall while local employers including small and medium businesses cop a cost because they remain uncompensated.

Economist Janine Dixon from Victoria University modelled how the cut would play out.

Local owners of unincorporated businesses are taxed at their personal tax rate. Because of Australia’s dividend imputation system, Australian shareholders in incorporated business are also taxed at their personal rate, not the company tax rate.

She explains that 98% of small businesses (employing four or fewer people) are wholly Australian owned and because of this are indifferent to the cut, but 30% of large businesses (employing more than 200 people) have some component of foreign ownership.

An increase in foreign investment is generally understood to be a driver of wage growth. This is the basis for the argument that at least half of the benefit of a cut to company tax flows to workers… We find that benefit to foreign investors will exceed the total increase in GDP. In the domestic economy, benefits to workers will be more than offset with a negative impact on domestic investors and the need to address additional government deficit.

Other things are just as important

Even if some businesses are keen for a tax cut, meaning more money in the kitty, it’s how these businesses spend this money that counts.

Jana Matthews from the Centre for Business Growth at the University of South Australia says many CEOs are uncertain about what to do in order to grow their business and are fearful of making the wrong decisions.

We need to focus as much attention on the management education of founders, CEOs and MDs [managing directors] of medium-sized companies as we do on providing them with more money. Once they learn how to grow their companies, they will definitely need money to become the engines of growth, and they will certainly hire more people, creating the jobs we all want.

The Conversation

Jenni Henderson, Editor, Business and Economy, The Conversation

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

Brexit rocks Australian sharemarket, worse to come


Jenni Henderson, The Conversation

Professor Richard Holden talks about the economic impact of Brexit.
The Conversation18.2 MB (download)

The UK has voted to leave the European Union but even before all the votes were counted volatility made its way across Asian markets and to Australia.

The S&P ASX200 has finished 3.3% down at the close, wiping off approximately $50 billion in value, while the Australian dollar has dropped 3.4% to 73.4 US cents.

Richard Holden, Professor of Economics at UNSW says the volatility is likely to continue at least for another 24 hours.

“We could see volatility, perhaps not as extreme as the current levels, for a really extended period of time,” Professor Holden says.

One of the major factors in this will be how affected UK banks and therefore Australian banks will be by this decision, as they rely on short term funding for their operations.

“If those markets start to dry up and there’s uncertainty about their funding getting rolled over, one day to the next, then that’s when things can go pear shaped within an incredibly short period of time,” he adds.

The position of hedge funds, banks and other financial institutions in betting on currencies in over-the-counter markets (not regular currency markets) in times like this, also adds to the uncertainty.

“Basically we don’t know, what we don’t know and suddenly there’s a liquidity crunch and someone gets into trouble and that has flow-on effects like we saw in 2008,” Professor Holden says.

The S&P ASX200 index closed -3.3% following the Brexit vote.
S&P ASX 200

He also warns that a drop in the Australian dollar shows that money could flow out of Australia and back to the UK as financial institutions there change their positions.

In the longer term, Brexit could affect the way Australian companies trade with the European Union through the UK.

“All of a sudden that’s going to be more complicated, it’s going to have to go through under some new trade agreement and we know that a series of bilateral trade agreements are always more complicated and have more nuance than large multilateral trade agreements,” Professor Holden says.

All this comes as Australia goes into the last week of an election campaign and this volatility will keep economic management top of mind for Australian voters.

“I don’t think either side of politics in Australia has an exclusive right to say they are going to be the best economic managers, I guess we’ll have to wait and see about that as well.”

The Conversation

Jenni Henderson, Assistant Editor, Business and Economy, The Conversation

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

Brexit stage right: what Britain’s decision to leave the EU means for Australia


Ben Wellings, Monash University

Britain’s decision to leave the European Union has opened a fundamental crack in the western world. Australia’s relationship with the United Kingdom is grounded in the UK’s relationship with the EU.

Given Australia’s strong and enduring ties with the UK and the EU, the shockwaves from this epoch-defining event will be felt in Australia soon enough. Most immediately, the impending Australia-EU Free-Trade Agreement becomes more complicated and at the same time less attractive.

What will happen to trade ties?

The importance of Australia’s relationship with the EU tends to get under-reported in all the excitement about China. We might ascribe such a view to an Australian gold rush mentality. Nevertheless, Australia’s trading ties to the EU are deep and strong.

Such ties looked set to get stronger. In November 2015 an agreement to begin negotiations in 2017 on a free-trade deal was announced at the G20 summit in Turkey. Trade Minister Steven Ciobo said in April 2016 that an Australia-EU free trade agreement:

… would further fuel this important trade and investment relationship.

When considered as a bloc, the EU consistently shows up as one of Australia’s main trading partners. Consider the statistics below:

  • in 2014 the EU was Australia’s largest source of foreign investment and second-largest trading partner, although the European Commission placed it third after China and Japan in 2015;

  • in 2014, the EU’s foreign direct investment in Australia was valued at A$169.6 billion and Australian foreign direct investment in the EU was valued at $83.5 billion. Total two-way merchandise and services trade between Australia and the EU was worth $83.9 billion; and

  • the EU is Australia’s largest services export market, valued at nearly $10 billion in 2014. Services account for 19.7% of Australia’s total trade in goods and services, and will be an important component of any future free trade agreement.

This is all well and good. But when not considered as a bloc, 48% of Australia’s exports in services to the EU were via the UK; of the $169 billion in EU foreign direct investment, 51% came from the UK; and of Australia’s foreign direct investment into the EU, 66% went to the UK.

You get the picture.

The UK was Australia’s eighth-largest export market for 2014; it represented 37.4% of Australia’s total exports to the EU. As Austrade noted:

No other EU country featured in Australia’s top 15 export markets.

In short, the EU is not as attractive to Australia without Britain in it.

Beyond trade numbers

But the Australia-EU-UK relationship cannot be reduced to numbers alone. It also rests on values shared between like-minded powers.

Brexit represents the further fracturing of the West at a moment when that already weakening political identity is in relative decline compared to other regions of the world, notably Asia (or more specifically China).

EU-Australia relations rest on shared concerns such as the fight against terrorism advanced through police collaboration and the sharing of passenger name records. The EU and Australia also collaborated to mitigate climate change at the Paris climate summit. And they work for further trade liberalisation in the World Trade Organisation – but don’t mention agriculture.

Without the UK, these shared political tasks become harder.

Clearly, Australia-UK relations rest on a special historical relationship. However, it has seen efforts at reinvigoration, as British governments buckled under the pressure of the Eurosceptics among the Conservatives.

David Cameron addresses the Australian parliament in 2014.

Beyond everyday trade, historical links have been reinforced through the centenary of the first world war and the UK-Australia commemorative diplomacy that has come with this four-year-long event.

Cultural ties are most regularly and publicly affirmed through sporting rivalries such as netball, rugby and most notably cricket. Expect these ties to be reinforced as the UK seeks trade agreements and political support from its “traditional allies”.

For those with British passports, there will be a two-year period of grace as the UK negotiates its exit. After that, it will be quicker to get into the UK at Heathrow, but this might be small consolation for the loss of a major point of access to the EU.

The vote to leave is a major turning point in Europe’s history. It marks a significant crack in a unified concept of “the West”. It is not in Australia’s interests.

It’s time for Australia to make new friends in Europe.

The Conversation

Ben Wellings, Lecturer in Politics and International Relations, Monash University

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

Australia: Budget 2016


For those yet to see this inspiring piece of economic policy/politics from Australia, or perhaps you just want to see it again (for some reason), here is the Australian 2016 budget being delivered by Scott Morrison.