Government timing tricks hide the real budget story



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Timing tricks help politicians avoid dealing with the substance of their policies. That isn’t going to change any time soon.
Cindy Zhi, CC BY-ND

Richard Holden, UNSW

This year’s budget may not have had a whole lot of surprises, but it was chock full of crafty timing tricks. The government’s new personal income tax plan is implemented over seven years, the much-vaunted return to surplus begins in 2019-20, and support for the “smart economy” involves $2.4 billion over, wait for it, 12 years.

In fact, it seems that timing tricks are now a thing in Australian politics. Revenues are brought forward and spending pushed back for cosmetic effect.

The Coalition’s company tax cuts are scheduled to be implemented over a full decade, Labor’s plan to cut back on negative gearing has modest short-term impact on the budget but ramps up over time, and on and on.




Read more:
Morrison’s budget tax plan is another missed opportunity


This gradual, glide-path approach to fiscal policy is sometimes good, sometimes not so much.

Labor’s negative gearing plan is an example of where the long timeframe is both sensible and appropriate. By grandfathering in existing negatively geared properties the Labor plan ensures that folks who relied on existing tax arrangements when making investment plans are not punished. Similarly, current Coalition policy regarding raising the retirement age for the pension is not retrospective.

Protecting reliance interests in this way is important for both fairness and certainty. The principle applies equally to potential changes in superannuation taxation, indexation of the aged pension, and other budget measures past, present and future.

Having said that, both sides of politics could do a better job of protecting Australians who have relied on existing policy settings when making big decisions. The government’s changes to superannuation taxation last year clearly violated the principle, and Labor’s plan to curtail the use of franking credits also runs afoul of it.

But many of these timing tricks are just that—tricks. Take the company tax cut. It is clearly structured to make sure the big revenue hits happen in years eight to 10.

The hope seems to be that voters don’t focus on things that far into the future, but companies possibly do. Add to that the fact that the federal budget is heavily focused on a four-year horizon — the so-called “forward estimates period”.

Four years is a completely arbitrary time frame with no real economic basis. The idea is that it is far enough into the future to be meaningful, but close enough to the present to be predictable. In reality it is neither meaningful nor predictable.

Treasury forecasts are almost always overly optimistic. In the last 20 years of budgets, from both sides of politics, they are almost always wrong.

From Wayne Swan’s “the four years of surpluses I announce tonight” to Joe Hockey’s hockey-stick GDP growth numbers and Scott Morrison’s fantastic forecasts, the federal budget makes Disney movies look pessimistic.

Yet this forward-estimate timing window, a media that goes along with it, and a public that is starved for time, mean that politicians can get away with pulling good news forward and pushing bad news back; gaming the system.

Indeed, since future parliaments are not bound by today’s legislation, I wonder whether there is any use at all for a government to announce what they plan to do 10 years hence. If history is any judge, then the political party in question probably won’t be in office. Prime ministers and treasurers have a tough enough time surviving to the next election, let alone making it through a decade.




Read more:
Infographic: Budget 2018 at a glance


But there is a purpose to this long-term planning with legislative force. It creates a default that a future government needs to reverse. And we know from the Nobel-prize-winning work of Danny Kahneman and Dick Thaler that defaults can have a powerful psychological and behavioural effect — it can change the choices people make, and how they feel about those choices.

Speaking of defaults and timing, perhaps the most natural thing that could be done with regard to the federal budget would be to index tax brackets to wages growth. This would instantly do away with “bracket creep”, where wages growth and fixed tax thresholds lead middle Australia to pay an ever-increasing average tax rate. Governments of all stripes hate this because it forces them to actually raise taxes rather than get a free kick every year which folks tend not to notice very much. In fact, 80% of deficit reduction in recent years has come from such bracket creep.

Timing is likely to be a constant theme in the run-up to the next federal election. We can expect Labor to emphasise their $200 billion “war chest” that they plan to spend over the next decade. Equally, the government looks set to keep pushing the line that the big banks are paying more tax now and won’t get a tax cut until close to 2030.

The ConversationTiming tricks help politicians avoid dealing with the substance of their policies. That isn’t going to change any time soon.

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

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

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


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Morrison says the budget will deliver tax relief for middle to lower income Australians.
Dan Himbrechts/AAP

Michelle Grattan, University of Canberra

It’s an indication of how politically difficult the terrain is for the Coalition that Scott Morrison has faced a hard time defending the decision to drop a planned tax hike.

Morrison explains abandoning the rise in the Medicare levy – which he insisted only a year ago was vital to fund the National Disability Insurance Scheme – by saying revenue is much better.

It’s relevant, of course, that the levy wasn’t going to get through the Senate in its full form.

Apart from criticism of the speed and suddenness of the backflip, stakeholders fear it means the NDIS’s funding base mightn’t be so secure in the longer term.

Still, most people aren’t going to complain about not having to pay the higher levy.

From the government’s point of view, it is especially important that it has removed a serious contradiction it had faced – on the one hand making income tax cuts a centrepiece of the May 8 budget while on the other proposing to increase the levy on July 1 next year, weeks after the expected time of the election.

The government is pinning its hopes on making this election all about tax – casting itself as champion of lower tax and Labor as signed up to what Morrison dubs the “high tax club”.

It’s shades of John Howard’s 2007 election, when he offered big income tax cuts as the Coalition tried to stave off defeat. Labor matched almost all the cuts. Howard lost the election.

Morrison says the budget will deliver “tax relief to put more money back in the pockets of middle to lower income Australians to deal with their own household and family budget pressures.”

“It is important that when we consider any plan for tax relief, middle to lower income families will come first as part of any broader plan”, he said, in a major pre-budget speech on Thursday, while notably also focusing on how much of the tax burden is borne by higher income earners. “A massive 17% of the A$186 billion collected in personal income tax for 2015-16 was paid by the top 1% of taxpayers,” he said.

Whatever the detail of the government’s income tax package – the Australian Financial Review has reported cuts would be phased in over a decade – Labor has, thanks to revenue choices it has made, the financial capacity to match it.

For the longer term, the ALP also has available money from the company tax cuts for big business. These are not through the Senate at this point but they are in the budget numbers; Bill Shorten says Labor would repeal them (saving multi-billions over time) if they are legislated.

One Labor source says: “We’re not going to let them beat us on income tax cuts. We’re not going to let income tax cuts be a contest”.

Following the government’s move, Labor has dropped its compromise proposal to increase the Medicare levy for those earning more than $87,000. Under its present policy a Labor government would, however, bring back the deficit levy for high income earners. But the “contest” there would be on ground where the ALP doesn’t have so many voters.

In painting Labor as big taxers, the government will home in on multiple fronts including the opposition’s proposed crackdown on negative gearing and the capital gains discount, its planned action on trusts, and its ending (except for pensioners) of cash refunds for franked dividends. Voters are used to the negative gearing policy from the 2016 election. By tweaking its clampdown on refunds, Labor has tried to limit the blowback.

A significant question is how much potency “tax” has in an election these days, especially if the two sides have broadly matching policies on income tax cuts (except at the higher end).

It is relevant to the cost of living issue, but only if one side offers cuts for lower and middle income earners and the other doesn’t.

This week’s Newspoll in The Australian asked voters to name from a list their top priority for the budget. Only 15% nominated cutting income tax rates, well behind reducing debt and deficit (26%) and increasing spending on health (27%).

We should probably apply a discount in interpreting these results – some people might say what they think they should say rather than their actual view.

Nevertheless, it does seem likely that tax cuts are not necessarily the vote-magnet they once might have been. In attracting voters, they can perhaps be described as necessary but not sufficient. People expect them. If they are modest and phased in, they don’t carry great punch. Also, many voters today are often more concerned about services.

While the budget’s focus will be the income tax cuts, the government is still trying to get a favourable Senate vote soon after on its business tax cuts.

How Finance Minister Mathias Cormann must be cursing that he wasn’t able to drag those last couple of crossbenchers across the line before the appalling stories started flowing in the banking royal commission! Cormann is a negotiator par excellence but his task is now tougher.

It may or may not have been encouraging for him that South Australian independent Tim Storer this week said he was looking at the company tax issue separately from what was going on at the royal commission. Storer has raised a wide range of doubts about the legislation.

The evidence at the commission must surely make Derryn Hinch, the other crossbencher who was central to the earlier negotiations, harder to win over. Even before the damning revelations, Hinch called for the banks to be excluded from receiving the cuts. After the government quickly rejected this, Hinch has talked about confining them to companies up to a $500 million annual turnover – another way to skin the bank cat. It’s difficult to see how Hinch can now move.

The ConversationCormann has turned his attention to the two Centre Alliance senators (formerly the Nick Xenophon Team). So far they have firmly opposed the cuts for big business. They are waiting to see the budget before coming back to the issue. Meanwhile the indefatigable Cormann deluges them with material. “I’ve never seen text messages as long as he sends!” says Centre Alliance senator Stirling Griff.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Australian governments don’t work with each other and it’s holding back regional economies in trouble


Andrew Beer, University of South Australia

Even though Australia has enjoyed 25 years of economic growth, many regional communities have either struggled to recover or never recovered from factory closures, declining commodity prices, or a drop in tourists.

My research, with colleagues from Europe and North America, shows Australian development agencies are reluctant, or do not know how, to reach out and work with other government bodies. They are also less inclined than those in Italy, Germany and Finland to build bridges between government departments or tiers of government. Instead, their solutions are constrained by their own resources.

And unlike in the United States, Australia does not have a well-funded economic development agency able to mobilise significant resources in a practised manner. In the United States, local developers often command multi-million-dollar budgets that come from dedicated sales and other taxes, giving them the capacity to bring about change.

Australia’s local development agencies are starved of funding and too often can offer only limited responses to very complex challenges.




Read more:
A housing affordability crisis in regional Australia? Yes, and here’s why


The Productivity Commission says leadership is key to forging a new economic future for these regional communities. But my research shows local leadership, including from business executives, state government and other government agencies, is relatively weak compared with the other countries.

The local leadership gap means Australian regional communities are less able to develop coherent strategies to deal with events like a major plant closure. Even good news, such as the arrival of a new firm, is not guaranteed an appropriate reaction.




Read more:
Here’s 49 small communities innovating as well as the big cities


Part of the challenge lies in the absence of clearly identifiable leaders with the authority to act. Compared with other countries in my study, it is harder to find who in Australia takes ownership of responding to regional economic shocks.

In Australia, mayors often play a role, but have few powers to bring about change. State policitians can be reluctant to associate with adverse news. Few politicians, for example, saw photo opportunities in the closure of Australian car makers.

In Italy, on the other hand, mayors are pivotal in responding to crises like the closure of a car factory. Our research found Italian mayors reach out to the civil sector in times of crisis – the church, non-governmental organisations, unions and even the media. This is done to influence public opinion, build confidence and mobilise private, public and community resources to ensure the well-being of the community.

Transition towns

The American city of Pittsburgh has transformed from a rapidly declining steel town in the 1970s to a prosperous city with an economy built on medical research and services.

Tampere in Finland shifted from being a 19th-century manufacturing base to producing software for Nokia in the 1990s. After 2010 it shifted again to information technology as Nokia itself transformed. The city has also become a hotbed of tech startups.

There are a few reasons these two communities successfully rejuvenated themselves while many Australian communities have spiralled downwards.

In the United States, local development practitioners are important local leaders because they mobilise the support of political leaders at the state and local level. They also provide the intellectual and financial capital needed to shape a new future.

In Finland, local leadership comes from a network of professionals working across departmental lines. In Tampere, for example, they helped to deploy the technical skills of workers. In other places they have moved workers into new technologies and promising new businesses.

Within a few years Chinchilla in Queensland cycled between a gas exploration and development boom, which pushed up prices, to an equally sharp bust as construction crews moved away, leaving excess housing.

Communities in northern Adelaide have been confronted by the need to map out a new future as the car industry closes. What that looks like and how many workers will be able to transition into the defence sector remains very uncertain.

These are not problems limited to a few isolated economies. The southeastern states struggled economically when the nation was in the grip of a mining boom. Communities in Western Australia joined them as real estate prices and labour force growth lagged in the absence of new mine development.




Read more:
Why big projects like the Adani coal mine won’t transform regional Queensland


There are significant leadership deficits within Australia’s regions, towns and communities. These contribute to our failure to promote the vibrancy and resilience of all parts of the nation.

The decision-makers in Australia – largely state and federal politicians – as well as the resources they command, are just too far away from regional centres. Their absence creates a significant gap at the local level.

But all this doesn’t mean that better solutions can’t be found for Australian communities experiencing economic change.

The ConversationWe can give more responsibility to local governments. We can empower communities through the sharing of information and knowledge. And we should give them the resources needed to bring about the changes they see as the bedrock of their future.

Andrew Beer, Dean, Research and Innovation, University of South Australia

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

View from The Hill: Shorten puts heat on government over bank victim compensation, as Coalition gets better poll news


Michelle Grattan, University of Canberra

Sometimes it’s not a bad idea to have a lie-in on Sunday morning. Financial Services Minister Kelly O’Dwyer might wish she’d done so at the weekend.

O’Dwyer should not have gone out – or been put out – on the ABC’s Insiders program with the lines she had on the banking royal commission. The interview was agony to watch, and counter-productive for the government, as she steadfastly refused to admit the Coalition had been wrong in not agreeing earlier to the inquiry, which has produced such devastating disclosures.

So often the government seems to take the public for fools. Scott Morrison’s attempts to turn everything to a discussion of Bill Shorten are ludicrous. O’Dwyer’s effort to avoid any confession of error just drew more attention to the bad call.

Remember O’Dwyer is well-versed in the financial services area. Look at her CV. She was a senior advisor to then-treasurer Peter Costello. Later she worked at the National Australia Bank. She has seen the banking system from inside as well as from her ministerial and advisory roles.

And yet, because of the government’s “admit nothing” strategy, she visibly struggled at every turn in Sunday’s interview.

Asked about her 2016 claim that “for the Labor party to propose a royal commission into banks is reckless and ill-conceived”, she could only fall back to the weak defence that “you can obsess and Labor can obsess about these issues. I’m actually obsessed about fixing the problems”. In other words, the government can be political when convenient but if brought to book, that’s just others “obsessing”.

Labor’s idea of a royal commission had been “a stunt”, she said, but then “there is no question we got it right in establishing the royal commission”. The difference is that the government did it soberly and deliberately, according to O’Dwyer. Grudgingly and belatedly would be a better description.

The alternative strategy would have been for the government to say, “Yes, in retrospect we did not move quickly enough. We were concerned about shaking confidence in the banking system. We did not appreciate how systemic the problems were. We thought we were doing enough but we weren’t”.

Everyone knows the government’s hand was forced in the end by rebel Nationals. Conceding it had been wrong would have been humiliating. But by doing so the government would have gone some way to clearing its own decks. That might have given it a fighting chance of being seen as part of the solution rather than having the attention so sharply focused on its abysmal failure.

Morrison in an interview in AFR Weekend also tried a convoluted avoidance game, as he sought to reconcile being surprised by the royal commission’s revelations with earlier arguing it wouldn’t find issues government didn’t know.

“When I say they were known to government, they were known to government agencies”, he told the newspaper.

“There is a difference between individual ministers being aware of particular things and the regulatory agencies being aware of them.”

Morrison likened his position to that of a police minister not knowing every criminal investigation underway. “I am not aware of every court case and every decision and every practice of every bank in the country any more than anyone else is – indeed than the executives in the banks and they run the things,” he said.

But the issue was not one of knowing “every practice of every bank”. It was a case of being aware of broad malfeasance – and there was plenty of evidence of that, through parliamentary inquiries and what was being said by victims, financial journalists and government backbenchers such as senator John Williams.

When politicians are unwilling to take responsibility, that just adds to the distrust and anger voters feel towards them. It’s a sign they are treating the people with disrespect, so is it any wonder they don’t get respect in return?

This bald-faced refusal to acknowledge their own inconvenient history in part comes from the politicians’ belief that if you just burnish the “spin”, you can get away with saying anything. The idea is that you brainstorm some “lines”, repeat them shamelessly, and hope they will be accepted – regardless of their disconnect from reality.

It might work for an occasional glitch when life generally is going well for a government and the public are in a good mood. These days, neither condition is present.

Meanwhile, as the government implausibly denies being out-manoeuvred over the commission, Shorten is pushing ahead again in the banking debate.

He has released a letter to Turnbull in which he says: “Given the shocking evidence that has been revealed so far, it is time the government gave serious consideration to a compensation scheme for the victims of proven wrongdoing. It’s unacceptable for people to suffer because of the misconduct of others, with no dependable access to justice.”

It will be a popular pitch out in the electorate, just as Labor’s call for a royal commission was.

POSTSCRIPT

The ConversationThe government has received some good news in Monday’s Newspoll in The Australian, with Labor now leading only by a narrow 51-49% in two-party terms. This compares with a 52-48% ALP lead in the poll a fortnight ago, when the Turnbull government passed the 30th consecutive loss landmark. The current poll is the Coalition’s best two-party preferred result since September 2016.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Grattan on Friday: Government’s misjudgement on banking royal commission comes back to bite it



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In light of what is coming out the government should be ashamed of its past performance.
Flickr, CC BY-SA

Michelle Grattan, University of Canberra

If you are a politician, what do you do when your bad judgement – or worse – has been dramatically called out for all to see?

That’s the question which has faced the government as appalling behaviour by the Commonwealth Bank, AMP and Westpac has been revealed this week at the royal commission into misconduct in the banking, superannuation and financial services industry.

Former deputy prime minister Barnaby Joyce went the full-monty confession. “In the past I argued against a Royal Commission into banking. I was wrong. What I have heard … so far is beyond disturbing”, he tweeted.

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Joyce is now a backbencher, and free with his opinions. It’s another story with current ministers. They continue trying to score political points over Labor, which had been agitating for a royal commission long before it was set up.

The ministers claim the government laid down terms of reference that took the inquiry beyond what Labor was proposing. But although Labor never released terms of reference, it flagged in April 2016 a broad inquiry into “misconduct in the banking and financial services industry”.

The real difference between the government and the opposition was the emphasis on superannuation. While Labor’s inquiry would have covered it, the government wrote in a specific term of reference, hoping evidence about industry funds might embarrass the unions and therefore the ALP. The commission has yet to reach those funds.

Revenue Minister Kelly O’Dwyer, pressed about her refusal to admit the government had erred in opposing a commission, told the ABC on Thursday, “Initially, the government said that it didn’t feel that there was enough need for a royal commission. And we re-evaluated our position and we introduced one”.

Well, that’s the short version. In fact, the government was forced to drop its resistance when Nationals rebels threatened to revolt. Take a bow, Queensland Nationals backbenchers Barry O’Sullivan, George Christensen and Llew O’Brien. You did everyone a service.

Indeed, the Nationals were on the case of the banks very early. Nationals senator John “Wacka” Williams for years pursued the rorts, through Senate committee investigations.

The government’s resistance to the royal commission was bad enough but remember its earlier record on consumer protections in the financial services area.

When the Coalition came to power it was determined to weaken measures Labor had introduced. Eventually, it was thwarted by the Senate crossbench, with the upper house disallowing its changes.

Just why the government was so keen to shield an industry where wrongdoing had been obvious is not entirely clear. It appears to have been a mix of free market ideology, a let-the-buyer-beware philosophy, and some close ministerial ties with the banking sector.

In light of what is coming out, the government should be ashamed of its past performance.

This week, the commission heard about AMP, which provides a wide range of financial products and advice, charging for services it didn’t deliver, and deliberately misleading the regulator, the Australian Securities and Investments Commission (ASIC), about its behaviour. By week’s end, AMP Chief Executive Craig Meller had quit.

It also heard how the Commonwealth Bank’s financial planning business charged customers it knew had died, including in one case for more than a decade. Linda Elkins, from CBA’s wealth management arm Colonial First State, agreed with the proposition put to her that the CBA would “be the gold medallist if ASIC was handing out medals for fee for no service.”

A nurse told of the financial disaster after she and her husband, aspiring to set up a B&B, received advice from a Westpac financial planner, including to sell the family home.

Seasoned journalist Janine Perrett, who now works for Sky, tweeted, “I thought nothing could shock me anymore, but in my forty years as a journo, most of it covering business, I have never seen anything as appalling as what we are witnessing at the banking RC. And I covered the 80’s crooks including Bond and Skase.”

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The commission’s interim report is due September 30 and its final report by February 1, not long before the expected time of the election. There is speculation over whether the reporting date will be extended. Bill Shorten says the inquiry should be given longer if needed; Finance Minister Mathias Cormann has indicated the government would do what Commissioner Kenneth Hayne wanted.

Those in the government who think the original timetable should be adequate note that, unlike for example the royal commission into institutional responses to child sexual abuse, this inquiry is not undertaking deep dives into everything, but exposing the general problems.

From the opposition’s point of view, it would be desirable for the inquiry to run on. That would keep the banks a live debate, and leave it for Labor, if elected, to deal with the commission’s outcome. Shorten is already paving the way for a compensation scheme financed by the industry. Given the poisonous unpopularity of the banks, the Coalition could hardly run a scare about what a Shorten government might do.

Ideally, the government needs the issue squared away before the election.

The government insists it has already put in train a good deal to clean up the industry including a one-stop-shop for complaints, higher standards for financial advisers, beefing up ASIC, and a tougher penalty regime.

Treasurer Scott Morrison and O’Dwyer on Friday announced the detail of hefty new penalties for corporate and financial misconduct, including ASIC being able to ban people from the financial services sector.

One argument the government made against a royal commission was that it would just delay action. But of course if it had been held much earlier, by now we might have in place a full suite of reforms.

The ConversationMost immediately, the shocking stories from the commission are adding to the government’s problems in trying to sell its company tax cuts for big business to key crossbench senators and to the public.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Government defers company tax cut vote for want of numbers


Michelle Grattan, University of Canberra

The government has been forced to put off a vote on its tax cut for big business after failing to secure support from the final two crossbenchers it needs to pass the legislation.

The deferral until the budget session in May is a bitter disappointment for the government, which had been hopeful of landing the legislation this week.

It needs nine of the 11 non-Green crossbenchers to pass legislation. It had seven on side but still needed Victorian senator Derryn Hinch and South Australian independent senator Tim Storer.

Hinch has most recently been talking to the government about trade-offs in the areas of help for pensioners, affordable housing, assistance for the older unemployed, and more action to combat paedophilia.

One source said Storer’s inexperience – he only arrived in the Senate last week – was a complication in finalising negotiations.

Storer said lower company tax should be part of broader tax reform. “This bill is a narrowly cast proposition of change to the overall tax and transfer system”, he said.

“I have held numerous meetings and received input from stakeholders including members of the public, South Australian businesses and business-groups, leading economists, national welfare groups, national business councils and their members” and “I am processing my consideration of this bill.”

The legislation is for the second tranche of the tax cuts, which is directed for big business. It would cost the budget A$35.6 billion, apply to companies with turnovers of more than $50 million annually, and bring the rate for them down from 30% to 25% by 2026-27.

Finance Minister Mathias Cormann told the Senate late on Tuesday that the legislation would not be debated further this week.

“It is a matter of public record that, as a result of the work that has gone so far, we have been able to secure the publicly stated support of 37 senators in this chamber for our business tax cuts legislation,” he said.

“Everybody knows we need 39. So, given that proposition and given that’s the situation we are in, the government has made a decision we will need to do some more work.”

He said the government thought it could get the numbers and so was “committed to keep working, to keep engaging”.

Cormann said the government intended to bring the legislation back to the Senate in the next sitting week – which is budget week.

Speaking to a function organised by the Business Council of Australia (BCA) at Parliament House, Malcolm Turnbull said the government was still two votes short and encouraged the businesspeople to keep talking to the crossbench.

He said the government wasn’t fighting for higher dividends or higher remuneration for executives but to give companies every incentive to invest and grow, creating more jobs and higher-paid jobs.

Earlier on Tuesday, Opposition Leader Bill Shorten pledged a Labor government would repeal the legislation if it passed. He said the opposition would decide its position on the tax cuts already passed for businesses with annual turnovers up to $50 million “in the context of the information we receive in the budget”.

The case for the tax cuts received a setback on Tuesday with the reporting of a secret BCA survey finding that fewer than one in five of leading chief executives had said they would use the proposed cut to directly increase wages or employ more staff. The Australian Financial Review reported that “more than 80% said they would either use the proceeds to boost returns to shareholders or invest in the company”.

The BCA played down the survey, saying it had never been finished.

Last week, the BCA released a letter signed by ten business leaders, saying: “If the Senate passes this important legislation we, as some of the nation’s largest employers, commit to invest more in Australia which will lead to employing more Australians and therefore stronger wage growth as the tax cut takes effect”.

The Australia Institute, lobbying against the legislation, wrote to senators with a brief about reaction to the Trump cuts.

The Conversation“Critically, the evidence shows it is not workers and employees who are benefiting most from the tax cuts. In fact, the tax cuts will exacerbate inequality with benefits flowing overwhelmingly to wealthier Americans via, for example, share buy-backs,” the institute’s executive director, Ben Oquist, wrote.

Michelle Grattan, Professorial Fellow, University of Canberra

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

Homeless numbers will keep rising until governments change course on housing


Gavin Wood, RMIT University; Guy Johnson, RMIT University; Juliet Watson, RMIT University, and Rosanna Scutella, RMIT University

Ten years ago the Australian government launched a National Partnership Agreement on Homelessness (NPAH). It injected A$800 million into homelessness services and A$300 million to build 600 new homes for people experiencing homelessness. It was later announced that another A$400 million would be available under the National Affordable Housing Agreement (NAHA) to build new housing and supported accommodation for the homeless. Total recurrent expenditure (at 2016-17 prices) on homelessness services has increased by 28.8%, from A$634.2 million in 2012-13 to A$817.4 million in 2016-17.

But despite this, the number of people experiencing homelessness and the rate of homelessness have both increased. Our research points to problems in the public housing system as one of the more important causes of these increases.

According to census figures released on Wednesday by the Australian Bureau of Statistics (ABS), the number of homeless people in Australia has risen by 14% to 116,427. The rate of homelessness has increased from 47.6 people per 10,000 of the population in 2011, to 49.8 per 10,000 now. (The ABS defines homelessness here.)

There is some good news: the numbers of Indigenous homeless and homeless children and youth (aged 12-18) have declined by 26%, 11% and 7% respectively since 2011. But on the downside, increases are particularly pronounced in New South Wales (where the homelessness rate rose by 27% and among people aged over 65 (by just over 30%) and overseas-born migrants (by 40%).




Read more:
More and more older Australians will be homeless unless we act now


Why are we still going backwards?

Changes in Australian housing and welfare systems and wider social and economic developments appear to have more than offset any benefits from the NPAH and NAHA. Our research sheds some light on the role played by Australia’s housing system. Using the internationally recognised and unique Journeys Home longitudinal survey, we find that public housing is the most important factor in preventing homelessness among vulnerable people.

Public housing is particularly effective because it is affordable. It has also traditionally offered a long-term refuge for precariously housed people. This is because public housing leases provide the benefits of security of tenure commonly associated with home ownership.

It is perhaps no accident that NSW was one of the first states to introduce fixed-term tenancies in public housing. This eroded one of the major attributes of tenure, in a state that has seen relatively large increases in homelessness numbers.

The empirical evidence also suggests that community housing fails to provide the same protection for people at risk of homelessness. While community housing is affordable, the security of tenure is weaker, which may explain these findings.

Despite such evidence, the stock of public housing continued to decline between the 2011 and 2016 censuses. State government-initiated transfers of stock to the community housing sector accelerated this trend. In 2013 Australia had a public housing stock of 325,226 dwellings. This declined by 3.2% to 314,864 usable dwellings in 2017.




Read more:
Australia needs to reboot affordable housing funding, not scrap it


Where are the additional homeless coming from?

One of the more alarming changes is a sharp increase in the number of homeless people over 65. This partly reflects Australia’s ageing population. However, the increase is such that the elderly’s share of the total homelessness count has also risen.

Furthermore, our research suggests that this trend could become protracted. This is because the homeless elderly have much less chance of escaping into formal housing than younger people experiencing homelessness. We have little understanding of the reasons for this, but gaps in service provision to the aged could be partly responsible.

The other group who feature prominently among the homeless are overseas migrants. They now make up 46% of the homeless, despite representing just 28% of the Australian population. The number of homeless overseas-born migrants has soared by 40% since the 2011 Census, from 38,085 to 53,606 people.

It turns out that homeless overseas-born migrants are concentrated among those living in severely overcrowded dwellings – a little over half of those living in these conditions were born overseas. We know little about these homeless people. Discrimination could be a factor, though some characterise this group as students living in group households who should not be considered homeless. But this is speculation and further study is certainly required.




Read more:
Ghost-hunting: will the census reveal the true scale of homelessness in Australia?


In view of the latest census results, it is clear to us that governments need to reassess their approach to what is turning into an intractable social problem.

We do not deny that situational factors, such as drug abuse, domestic violence and so forth, are important here. But equally, there is strong evidence that structural problems in our housing market are a significant cause of growth in the numbers of homeless people.

The ConversationUntil these problems are resolved, service provision and support will remain a band-aid masking deeper social and housing system issues.

Gavin Wood, Emeritus Professor of Housing and Housing Studies, RMIT University; Guy Johnson, Professor, Urban Housing and Homelessness, RMIT University; Juliet Watson, Lecturer, Urban Housing and Homelessness, RMIT University, and Rosanna Scutella, Senior Research Fellow, Centre for Applied Social Research, RMIT University

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

How the government can pay for its proposed company tax cuts



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The government is still attempting to lower the corporate tax rate to compete globally.
Ben Rushton/AAP

David Ingles, Crawford School of Public Policy, Australian National University and Miranda Stewart, Crawford School of Public Policy, Australian National University

There are ways the government can pay for a cut in the company tax rate. In a recent working paper, we worked with researcher Chris Murphy to model three different options: reforming Australia’s system of giving shareholders tax credits, allowing less tax deductions on interest for companies, and introducing a tax on the super-profits of banks and miners.

After taking economic growth into account, the budget cost of the tax cut could be net A$5 billion a year.




Read more:
Race to the bottom on company tax cuts won’t stop tax avoidance


In the US, a company tax cut to 21% continues an inexorable global trend of cutting rates, making international tax competition even more pressing. As our working paper noted, Australia’s rate is now higher than most other countries, making tax avoidance even more attractive and deterring inbound foreign investment.

A cut in the Australian company tax rate to 25 or even 20% is important because it will attract foreign investment, boosting wages and the economy in Australia.

Remove dividend imputation

Australia has an unusual system of integrated company and personal tax, called dividend imputation. It has been in place since the 1980s.

Australian shareholders receive franking (imputation) credits for company tax. If shareholders are on a personal tax rate less than 30%, they receive a refund.

The company tax cut could be financed by removing dividend imputation. Our modelling indicates a company tax rate of 20% would mean the government breaks even, while halving imputation could finance a 25% rate.

It would be simpler to abolish dividend imputation and replace it with a discount for dividend tax, at the personal level.




Read more:
Qantas and other big Australian businesses are investing regardless of tax cuts


Dividend imputation only makes sense if we assume Australia is a closed economy with no foreign investors. In reality, Australia depends on inflows of foreign investment. About one-third of the corporate sector is foreign owned.

The likely source of additional finance, especially for large Australian businesses, is a foreigner who does not benefit from dividend imputation. So the company tax pushes up the cost of capital and domestic investors benefit from franking credits for a tax they don’t actually bear.

But the politics of making a change to the system are difficult, because domestic investors, especially retirees on low incomes and superannuation funds would lose out. But this approach could benefit workers, jobs and Australian businesses.

Broaden company tax by removing interest deductibility for companies

Another approach is to remove or limit deductibility of interest for companies. This can raise the same revenue at a lower rate, by allowing less deductions. Excessive interest deductions are used by multinationals to reduce their Australian tax bill, as shown in the recent Chevron case.

This would be like imposing a withholding tax on interest paid offshore. We explore a comprehensive business income tax on all corporate income. Modelling shows that this tax would finance the rate cut to 25%.

The comprehensive business income tax raises some difficult issues for taxing banks. This is because their profit is interest income less interest expense.

But there are numerous policies to restrict interest deductions already in place, here and around the world. These restrictions could be expanded. For example the thin capitalisation rules limit of the amount of loans a business can have relative to equity.

We still need anti-abuse rules because businesses can use other methods to minimise tax, as canvassed by the OECD in its Base Erosion and Profit Shifting project, including transfer pricing, and deductible payments offshore for intellectual property fees.

A rent tax or allowance for equity

A third option for a company tax cut is to change to a tax with a lower effective marginal rate. This means that the return on a new investment is taxed less heavily than under a company income tax.

We could introduce an allowance for corporate equity, or corporate capital, which provides a deduction for the “normal” or risk-free return for capital investment. This is also called an economic rent tax because it only taxes the above-normal profit.

Modelling shows that the allowance for corporate capital encourages new investment, which helps economic growth, but there is a large budget cost. The extra deduction reduces the overall tax take and so a higher rate is needed for the same revenue.

It is unlikely Australia would want to maintain or increase our company tax rate, as this directly contrary to the global trend and can lead to even more tax planning by businesses.

For Australia, a supplementary rent tax aimed at the financial and mining sectors – where above-normal returns are known to occur – could be combined with a lower company income tax. Modelling this option for the finance sector shows a large welfare gain and sufficient revenue to fund the rate cut to 25%.

The government has a lot of choices

We show that the government has many options available to finance the needed corporate rate cut and improve efficiency of the company tax.

Policymakers could mix and match these options. Dividend imputation could be replaced with a discount and combined with a comprehensive business income tax. Limits on interest deductibility could be combined with a part allowance for corporate capital.

The ConversationReplacing dividend imputation with a dividend discount at the personal level could be the best initial step. Other options for major reform of Australia’s company tax need to remain on the table, as company taxes drop to a new low and systems are reformed around the world.

David Ingles, Senior Research Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University and Miranda Stewart, Professor and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National University

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

Hodgman rides Tasmanians’ disdain for minority government to a second term in office



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The Tasmanian election result was an emphatic win for Will Hodgman, but he lost a fair bit of skin along the way.
AAP/Julian Smith

Richard Eccleston, University of Tasmania

In an era of single-term governments and growing electoral volatility in Australia, the return of Will Hodgman’s Liberal government at Saturday’s Tasmanian election with more than 50% of the primary vote is significant – and will have national implications.

The Turnbull government will take comfort from a result that demonstrates voters – even in left-leaning Tasmania – are prepared to re-elect a competent Liberal government that has delivered strong economic and employment growth.

It was a strong result for the Liberals. However, the outcome was shaped as much by Tasmania’s distinctive political practices and local issues as it was by national trends.

Pokies, housing, hospitals, and – at the 11th hour – watering down gun laws might have been the specific issues that dominated the campaign, but the decisive factor was Tasmanians’ enduring apprehension about minority government.

The legacies of Labor-Green minority government of the early 1990s and between 2010 and 2014 cast a long shadow during the 2018 campaign. Both periods are associated with economic decline, rising unemployment, and budget cuts.

While there is little evidence to suggest minority government has been a cause of poor economic outcomes in Tasmania – it is more that these governments were unlucky and found themselves in charge after national downturns – the fact remains that Tasmanians have a strong preference for majority government.

Given this history, undecided Tasmanian voters tend to back the major party that’s most likely to form majority government. This was evident in both 2006 and 2014, and was always going to be a feature of the 2018 campaign given memories of the 2012-13 recession in Tasmania are still fresh in voters’ minds. And the Liberal government, which was elected in 2014, has delivered strong economic growth.

It is this bandwagon effect that helps explain why support for the government increased by ten points over the course of the campaign, rather than going to minor parties – as has been the case elsewhere.




Read more:
Liberals romp to emphatic victory in Tasmanian election


What now for the Liberals?

The final result was an emphatic win for Hodgman. But it is also fair to say he lost a bit of skin along the way, due to the Liberals’ big-budget, brutally effective advertising campaign seeming to have been funded by gaming interests.

The reality is that Tasmania remains deeply divided on pokies and the means the gaming industry uses to protect its interests.

Tasmanians voted for political and economic stability on Saturday, but an overwhelming majority support Labor’s policy of phasing pokies out of pubs and clubs over a five-year period.




Read more:
Removing pokies from Tasmania’s clubs and pubs would help gamblers without hurting the economy


The pokies debate is far from over. Hodgman must commit to open and transparent government, and subject his gaming policies to full parliamentary scrutiny in an attempt to regain the electorate’s trust. Opposition parties also have a role to play, and must be willing to compromise to find some middle ground.

The election’s losers

The result wasn’t a disaster for Labor.

Rebecca White, after securing the Labor leadership only a year ago, performed strongly during the campaign and has consolidated her credentials as a future premier. That she will be leading a stronger opposition bolstered by handful of up-and-coming new MPs also bodes well for Labor’s future.

The real losers in the election were the Greens and Jacqui Lambie.

In contrast to their success in inner-Melbourne and Sydney, the Greens have been struggling in Tasmania in recent years. The explanation for their decline in their former heartland can be attributed to the legacies of the last government, the absence of a high-profile local environmental issue, and that Labor, under White, has championed many of their core progressive causes.

Lambie and her party could have been the wildcard of this election, but she has had a tough summer and will have to fight hard to salvage her political career. Had Lambie herself run as a candidate on Saturday, it’s likely she would have been elected – and could have held the balance of power in the lower house.

Strangely, given that personalities and name recognition are so important in Tasmanian elections, she ran a ticket of grassroots candidates under her Jacqui Lambie Network banner that, as expected, failed to secure any serious support.

Lessons for the future

As the dust settles, we can draw a few conclusions from the Tasmanian election result.

Above all else, Tasmanians are a pragmatic bunch and are prepared to reward a government that delivers political stability and good economic outcomes.

The campaign also highlighted the power of sectional interests – be they mining, gaming or other actors – in Australian politics. The collective health of our democracy depends on curbing the influence of these groups at both the state and federal level.

The ConversationGiven the distinctive dynamics of Tasmanian politics, not too much can be read into the swing away from minor and protest parties and back to the majors. Perhaps the real test of the national political mood will come in South Australia on Saturday week.

Richard Eccleston, Professor of Political Science; Director, Institute for the Study of Social Change, University of Tasmania

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

Federal government’s foreign donations bill is flawed and needs to be redrafted



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The only effective way of destroying the undue influence of large foreign donations is by placing a cap on all donations.
AAP/Lukas Coch

Anne Twomey, University of Sydney

Preventing foreign influence over Australian elections is important. It is also important that legislation designed to achieve this is effective and does not impose collateral damage or leave itself open to constitutional challenge.

How well does the Turnbull government’s foreign donations bill stack up? Does it achieve its aim of preventing foreign donations from affecting Australian elections?

Not at all. It permits foreign citizens to make as many political donations in as large amounts as they wish, if it is done by a permanent resident or a foreign-owned company that is incorporated in Australia.

To be fair, there are constitutional reasons for this. It is unlikely that a ban on donations from permanent residents or companies incorporated in Australia would survive a constitutional challenge. But it also means any foreign government seeking to influence Australian elections can still easily do so.

The only effective way of destroying the undue influence of large foreign donations is by placing a cap on all donations, as occurs in New South Wales. But the federal government has chosen not to go down this path.




Read more:
Ban on foreign political donations is both too broad and too narrow, and won’t fix our system


It is ironic, then, that Special Minister of State Mathias Cormann says exempting charities from the bill would render the ban on foreign donations “entirely ineffective”. It is ineffective at preventing foreign influence anyway, so excluding charities could hardly make any difference to achieving that aim.

Meanwhile, Prime Minister Malcolm Turnbull argues that only seven out of 55,500 registered charities reported political expenditure last financial year, and that the bill “has no effect on foreign funding for charities’ non-political activity or charities’ political campaigning where it is funded by Australians”.

This is misleading for two reasons.

First, the bill relies on a greatly broadened definition of political expenditure. It now includes any expenditure on the expression of public views on an issue that is “likely to be before electors in an election”, regardless of when the election is held. This could include anything from expenditure on ads supporting same-sex marriage to books on climate change and websites supporting Indigenous constitutional recognition. Given the wide range of issues that may be before electors in an election, the bill is likely to catch a large number of charities, along with universities, corporations and others.

Second, it does not matter whether a charity actually receives any foreign donations or not. It may only receive donations from Australian sources and still be seriously affected by the bill. This is because onerous reporting obligations attach to bodies deemed to be either a “political campaigner” or “third party campaigner”.

For example, spending as little as A$14,000 on the public expression of views on an issue that is likely to be before electors is sufficient to be categorised as a third party campaigner, regardless of whether or not the person or body receives any foreign donations.

A third party campaigner must lodge annual reports detailing:

  • its political expenditure
  • its senior staff and any membership by them of political parties
  • any grants, contracts or payments from Commonwealth, State or Territory governments
  • a signed statement by its financial controller that it has complied with the rules about receiving gifts, such as charitable donations.

If a third party campaigner has received gifts that allowed it to engage in political expenditure, and the amount of at least one such gift (or cumulative gifts from the same donor) was above A$13,500, then it also has to provide an annual return that sets out the amounts of such donations, the date they were made and the name and address of each donor.

Most burdensome of all is the requirement to identify the source of every gift it receives. This includes very small donations, as it has to be able to identify whether the gifts from any single donor cumulatively exceed A$250. It then has to obtain a statutory declaration from each donor of more than A$250 that they are an “allowable donor”, such as a citizen, a permanent resident or a body incorporated in Australia. The penalty for breaching these requirements is up to 10 years imprisonment for the financial controller of the third party campaigner.

If you were a charity, which only collected donations from within Australia, and you wished to spend money on advocacy about government policies on homelessness, what would you do? Would you send lawyers out to accompany every door-knocker when you collect donations? Would you risk insulting your donors by requiring them to sign a legal document declaring that they are citizens or permanent residents?

Would you spend a considerable portion of the donations you receive on administering a complex reporting system, with the risk of imprisonment if you breach the rules? Or would you decide that the only rational solution is not to spend any money on advocacy about homelessness?




Read more:
Green groups and charities could be collateral damage in government’s foreign donation ban


If the purpose of this bill is to prevent foreign donations from influencing elections, it manifestly does not achieve that outcome. Foreign citizens can still donate as much as they like to Australian political parties by donating through a company they have incorporated in Australia.

But if the purpose of the bill is to deter charities and other third parties (regardless of whether they have received a single cent of foreign money) from spending money on the public expression of views that might entail criticism of government policies, then it would very effectively achieve that outcome.

This disconnect between the bill’s claimed purpose and likely effect may cause problems for the government if the legislation is passed and then challenged before the High Court. The Court has already held that limiting the sources of political donations imposes a burden on the constitutionally implied freedom of political communication.

Such a law will only be valid if it passes a proportionality test. That is, the law must be reasonably appropriate and adapted to achieve its claimed legitimate purpose. If its effects go far beyond that purpose, are unnecessary to achieve that purpose and disproportionately damage political communication, then the law will be held invalid.

The ConversationOn that basis, this bill is highly vulnerable to a constitutional challenge and needs to be redrafted so that it achieves its aim but does not impose unnecessary collateral damage on charities and other bodies.

Anne Twomey, Professor of Constitutional Law, University of Sydney

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