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



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

Kathrin Bain, UNSW

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


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

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

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

Is that true?

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Checking the source

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

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

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

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

Is it true? Not exactly

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

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

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

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

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

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

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

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

Verdict

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

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

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


Review

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

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

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

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


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

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

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

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

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

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



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

Richard Holden, UNSW

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

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


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

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

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

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

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

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

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

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

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

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

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

Westpac chief economist Bill Evans said:

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

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

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

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

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

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

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

New Zealand’s Alpine Fault reveals extreme underground heat and fluid pressure



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The drilling project at New Zealand’s Alpine Fault is the first to investigate a major fault that is due to rupture in a big earthquake in coming decades.
John Townend/Victoria University of Wellington, CC BY-SA

Rupert Sutherland, Victoria University of Wellington

An international team that drilled almost a kilometre deep into New Zealand’s Alpine Fault, which is expected to rupture in a major earthquake in the next decades, has found extremely hot temperatures and high fluid pressures. The Conversation

Our findings, published today in Nature, describe these surprising underground conditions. They have broad implications for understanding what happens in the buildup to a major earthquake, and may represent the discovery of a new type of geothermal energy resource.

Seismic forces building up

The Alpine Fault is one of the world’s major plate boundaries and New Zealand’s most hazardous earthquake-generating fault. It runs for 650 kilometres along the spine of New Zealand’s South Island and we know that it ruptures on average every 300 years, producing an earthquake of about magnitude 8.

The last time the Alpine Fault did this was in 1717, when it shunted land horizontally by eight metres and uplifted the mountains a couple of metres. It is expected to rupture in a major earthquake in the next few decades and, even though this may not happen in the next 30 years or even 100 years, we know that the fault is at the end of its seismic cycle.

Other projects around the world have drilled into major faults, but usually just after a major earthquake. The Deep Fault Drilling Project, which involved more than 100 scientists from 12 countries, gave us an opportunity to take a close look at a fault as it builds up to its next rupture. It is the first time this has ever been done on a major fault that is due to fail in coming decades.

Drilling into New Zealand’s most hazardous fault.

Hot water at depth

We drilled two holes and during our second attempt made it to 893 metres deep. As we drilled deeper, the temperature increased rapidly, at a rate of about 15 degrees Celsius per 100 metres in depth. This is much higher than the normal rate of about 3°C per 100m in depth. At a depth of 630 metres, the water at the bottom of the drill hole was hot enough to boil, if it had been allowed to rise to the surface. The high pressures at depth stop it from boiling.

The hottest boreholes on Earth are mostly found in volcanic regions. We discovered a geothermal gradient – a measure of how fast temperature increases with depth – that is similar to the hottest geothermal energy boreholes drilled into volcanoes of the central North Island; but there are no volcanoes near the Alpine Fault.

How does it get so hot

There are two processes we think explain the extreme underground conditions at our drill site. An earthquake on the Alpine Fault has two geological effects: mountains are pushed higher and the shaking breaks up rocks.

During an earthquake and over time, the fractured rocks come down in landslides and rivers carry them to the sea. This limits how high the mountains can get. This process has operated for millions of years, with the height of the mountains staying about the same. Eventually, hot rocks from great depth (about 30 kilometres deep, at 550°C) were transported to the surface quickly enough (on geological time scales) that they did not have time to fully cool. Heat is transported from depth by the rock movement.

The other process that helps explain our findings is the rock fracturing, which allows rain water and snow melt to percolate downwards into the mountains so fast that it can move heat towards the valley, where water wells up and discharges. The flow needs to be fast enough so that the heat is not lost along the way, just as a water pipe in your home moves heat from a hot water cylinder to your bath before having time to cool. Water flowing through the rock concentrates heat and raises fluid pressure beneath the valleys.

The hot, high-pressure water beneath the valleys is mostly invisible at the surface, because it mixes with shallow, cold groundwater that flows to a depth of about 50 metres at our drill site. However, most of the valleys in the region where we drilled have a few warm springs that hint at this deeper source of hot water.

Better modelling of future hazards

The unexpected results of our research are important beyond New Zealand. Other faults around the world that we know are similar to the Alpine Fault may also have extreme conditions that have never been investigated.

Perhaps most significantly, we can now describe and estimate conditions on a geological fault that will rupture in an earthquake. This will help us to develop better computer models of earthquake rupture. It may also help us to explain how some types of geology (for example certain types of gold mineralisation) have formed as a result of similar conditions in ancient earthquakes.

Economic benefits

The extreme underground conditions we discovered may result in substantial economic benefits for New Zealand by providing a sustainable and clean geothermal energy resource that could be used by industry and local communities. We expect that similar hot geothermal conditions exist in other nearby valleys, and maybe in some other places in the world that are geologically similar to western New Zealand.

More drilling and measurements are needed to establish the scale of this local resource, its possible uses, and if it is safe to develop.

Rupert Sutherland, Professor of tectonics and geophysics, Victoria University of Wellington

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

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


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

Graeme Dunk, Australian National University

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

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

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

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

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

Two clear weaknesses

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

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

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

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

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

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

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

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

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

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

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

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

More than just ‘doing stuff’

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

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

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

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

Graeme Dunk, PhD Candidate, Australian National University

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

Challenges persist for multiple legal actions regarding MH17



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Reuters/Michael Kooren

Amy Maguire, University of Newcastle

Multiple parallel actions are ongoing with the aim of achieving truth and justice for the 298 passengers and crew of Malaysian Airlines flight MH17. The flight was shot down over Ukraine on July 17, 2014. The Conversation

An investigative team, led by the Dutch aviation authority and endorsed by the Australian government, concluded that the aircraft was shot down by a BUK missile. More than 100 individuals were identified in the 2016 report as linked to the incident. The investigation is ongoing.

Australia’s foreign minister, Julie Bishop, advocated for a war crimes tribunal to apportion blame for the incident. However, this proposal was vetoed by Russia in the UN Security Council.

This week, focus has turned to an action lodged in the European Court of Human Rights by lawyer Jerry Skinner on behalf of 33 relatives of MH17 victims. Skinner claims that the application has reached the stage of “ready for judicial determination”.

As reported last year, each applicant is seeking A$10 million in compensation from Russia. The claim is that Russia is responsible for violating the right to life of those killed due to its alleged supply of the missile that was launched from Ukraine, bringing down the aircraft.

However, the case lodged by Skinner is not yet listed in the court’s database. It is unclear how far the application has progressed but it certainly faces a range of major obstacles. The status of “ready for judicial determination” does not appear to be an official stage of proceedings in the court.

The European Court of Human Rights

The European Court of Human Rights was established in 1959 and sits in Strasbourg. It has jurisdiction to hear complaints from individuals and countries, alleging violations by countries that are party to the European Convention on Human Rights.

The court has delivered more than 10,000 judgments, which are formally binding on the countries subject to them. It receives more than 50,000 applications each year.

The application from Ayler and others is not the first to be lodged in the court in relation to Flight MH17. The case of Ioppa v Ukraine was lodged with the court in 2016.

The four applicants in that case are family members of three of the passengers killed on board Flight MH17. They have complained against Ukraine, rather than Russia. Specifically, they argue Ukraine violated their relatives’ right to life by failing to close the airspace above the military conflict zone that was active in eastern Ukraine in 2014.

The applicants allege that Ukrainian authorities intentionally failed to close the airspace despite their knowledge of the dangers posed to civilians travelling over Ukraine in passenger aircraft.

The application is currently noted as a “communicated case”, meaning it is awaiting judgment. The court has asked the applicants to identify what they have done to exhaust any available domestic legal remedies before applying to the court – particularly any legal avenues available in Ukraine.

The court has not yet published a preliminary finding on the admissibility of the case. This is the necessary first step before notice will be given to Ukraine to respond to the application. The case is certainly a long way from any potential judgment by a chamber of the court.

The Council of Europe

The European Court of Human Rights is not a creature of the European Union, but rather of the Council of Europe. The Council of Europe is a human rights organisation of 47 members, 28 of which are also EU members. All Council of Europe members have signed the European Convention on Human Rights.

The Council of Europe seeks to promote goals central to the international human rights framework, including freedom of expression and of the press, minority rights, and the abolition of the death penalty.

As a Council of Europe member, Ukraine is subject to judgement by the European Court of Human Rights. The applicants in Ioppa v Ukraine are all nationals of Germany, another member. Other Council of Europe members central to the MH17 situation are the Netherlands – because the flight originated at Amsterdam’s Schiphol airport – and Russia.

Should the European Court of Human Rights find Ukraine liable for a breach of the convention, Ukraine will be bound by that judgment. The committee of ministers of the Council of Europe monitor the execution of judgments by countries subject to them, including compliance with any orders to pay damages to complainants.

However, the European Court of Human Rights and the Council of Europe both lack enforcement capacity within the domestic jurisdiction of members, and would rely on diplomatic pressure to compel compliance with a judgment. Such pressure may be more or less effective depending on the status, power and political stance of a given member.

Prospects of success

Skinner has called on Australia to support the Ayler application. Bishop has responded that such litigation is a private matter for the families involved and those they are taking action against.

Bishop’s position is that Australia’s role is to support the ongoing investigation into the causes of the incident and then to pursue a justice mechanism with other countries.

It is important to note that Australia has no standing to join any action before the European Court of Human Rights, as it is not a member of the Council of Europe. However, Skinner argues Australia could exert diplomatic and political pressure to support the action.

Unfortunately for the families engaged in the European Court of Human Rights applications, litigation before that court appears to be a very indirect and unreliable route to gain compensation for the loss of their loved ones.

In the case against Ukraine, beyond the as-yet-uncrossed jurisdictional barriers, it may be necessary to prove that Ukrainian authorities knew of a direct threat to those on board MH17. This is a much more difficult standard to prove than a general awareness of threat to any civilian aircraft.

In action against Russia, setting aside the considerable jurisdictional issues and matters of proof, there is a major added barrier to satisfaction for the applicants. Russia has passed a law permitting it to overrule the decisions of international courts.

The Russian Constitutional Court subsequently ruled that Russia is permitted to overrule international judicial decisions where these would conflict with the Russian Constitution.

Russia disputes the preliminary findings of the ongoing MH17 investigation and rejects suggestions of its responsibility for the atrocity. This suggests that Russia would not accept responsibility for any finding of human rights violations by the European Court of Human Rights.

Beyond the human rights context, yet another action has been launched in the International Court of Justice. In that application, Ukraine asks the International Court of Justice to find Russia responsible for the MH17 disaster and order reparations.

From an international law perspective, the stakes of such an action are higher for Russia than human rights litigation launched by victims’ families. However, Russia’s response is likely to be the same. While the International Court of Justice has progressed the case beyond the initial stage, a finding against Russia may well be disputed and any orders ignored.

Amy Maguire, Senior Lecturer in International Law and Human Rights, University of Newcastle

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

We don’t have a gas shortfall worth worrying about


Dylan McConnell, University of Melbourne

Australia was warned earlier this year that a shortage of gas could create an energy crisis. A report from the Australian Energy Market Operator (AEMO) suggested a shortfall could occur in 3 of the next 13 years. The Conversation

This report was widely reported in the national media, with sensational headlines like “AEMO warns of blackouts as gas runs out”.

A couple of weeks ago, in a dramatic intervention, Prime Minister Malcolm Turnbull declared that there was a shortage of gas supplies for eastern Australia and that certain restrictions may be placed on gas exports.

But do we really need “more gas supply and more gas suppliers”? In a report published today, my colleague Tim Forcey and I review AEMO’s initial report and its results and recommendations. Our work finds there is a shortage of “cheap” gas, but not a gas supply “shortfall”. Moreover, high gas prices combined with falling renewable and storage costs mean that there are cheaper options than developing new gas resources.

What gas shortfall?

AEMO forecast of electricity generated by fuel source, showing AEMO’s forecast supply gap as a thin red line at the top of the stack.
Author

The AEMO report suggests that eastern Australia face a shortfall in 3 of the next 13 financial years – 2018-19, 2020-21 and 2021-22. The largest gap modelled by AEMO is equal to only 0.19% of the annual electricity supply, or 363 gigawatt hours.

In gas supply terms, this is equivalent to only 0.2% of the annual gas supply. But AEMO’s modelling considers a range of possible scenarios, with a variation of roughly plus or minus 5%, far larger than the possible shortfall.

Just 11 days after the report warning of a supply gap, AEMO published updated electricity demand forecasts. In this update, AEMO reduced its forecast electricity demand by roughly 1%. This reduction in demand is more than four times greater than the largest forecast shortfall.

A day later, Shell announced it would proceed with Project Ruby, a gas field with 161 new wells. This was not included in the AEMO modelling process.

Alternatives to gas

Gas has historically been characterised as a transition fuel on the pathway to a zero-emissions power system. The falling costs of renewable energy and storage technologies combined with rising gas costs means this pathway and may indeed be a detour, particularly when taking into account Australia’s climate commitments.

This is also a sentiment increasingly reflected by the industry, with gas producer AGL suggesting that:

the National Electricity Market […] here in Australia could transition
directly from being dominated by coal-fired baseload to being dominated by storable renewables.

Gas generation generally falls into two categories: open cycle gas turbines (OCGT) and combined cycle gas turbines (CCGT). These two technologies effectively play different roles in the energy sector. Open cycle turbines are highly flexible, and are used occasionally over the year to provide peak capacity. Combined cycle turbines, on the other hand, operate continuously and provide large amounts of energy over a year.

Each of these technologies is now under competitive threat from renewable generation and storage. Flexible capacity can also be provided by energy storage technologies, while bulk energy can be provided by renewable energy. These are compared below.

Energy: renewables vs gas

The chart below compares the cost of providing bulk energy with gas and renewable technologies. We’ve represented the price of new CCGT, PV (which stands for photovoltic solar) and wind as the cost of providing energy over the lifetime of the plant.

The other two gas generation costs illustrated, CCGT and Steam, represent the cost of energy from existing plants, at their respective thermal efficiencies. The steam thermal efficiency is similar to that of a highly flexible open cycle gas turbine.

Surprisingly – and depending somewhat on gas price and capital cost assumptions – new renewable energy projects provide cheaper energy than existing gas generators.

Comparison of energy cost from new and existing gas with new renewable energy generation. The range of solar (PV) and wind costs reflect different capital cost assumptions, while the range of gas costs reflects gas price assumptions. CCGT refers to Combined Cycle Gas Turbine.
Author

Flexible capacity: storage vs gas

The next chart compares the cost of providing flexible capacity from gas and storage technologies (again, taking the cost over the lifetime of the plant).

In this analysis we compare the cost of capacity from OCGT with that from diesel and various storage technologies, including battery and Pumped Hydro Energy Storage (PHES). As can be seen, storage technologies can compete with OCGT in providing flexible capacity, depending on technology and capital cost.

Comparison of flexible capacity cost from gas (OCGT), diesel and storage technologies generation, including battery and Pumped Hydro Energy Storage (PHES) . The range of costs reflect different capital cost assumptions.
Author

Another option, not shown here, is demand response. This is the strategy of giving consumers incentives to reduce their energy use during critical times, and is cheaper again.

What is clear is AEMO’s forecast gas shortfall is very small, and that it may have already been made up by revised demand forecasts and new gas field developments. But the question of how Australia should deal with any future shortfall invites a larger debate, including the role of gas in our electricity system, and whether the falling costs of renewable energy and storage technology mean we’ve outgrown gas.


The short-lived gas shortfall: A review of AEMOs warning of gas-supply ‘shortfalls’ was prepared by Tim Forcey and Dylan McConnell.

Dylan McConnell, Researcher at the Australian German Climate and Energy College, University of Melbourne

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

Anti-Chinese and anti-Christian sentiment is not new in Indonesia


Olivia Tasevski, University of Melbourne

Racial and religious prejudice faced by the outgoing Chinese-Indonesian governor of Jakarta, now imprisoned for blasphemy, is not a new phenomenon in Indonesia. Ethnic Chinese and Christians in Indonesia have endured systematic and long-standing discrimination throughout the nation’s history. The Conversation

Earlier this month, the former governor Basuki Tjahaja Purnama, better known as Ahok, was sentenced to two years in prison for blasphemy.

This conviction follows his defeat in last month’s Jakarta gubernatorial election to a Muslim candidate, former Indonesian government minister Anies Baswedan. Ahok’s opponents ran a campaign against him based on ethnic and religious grounds.

The campaign against Ahok

Ahok acquired the position of Jakarta governor by default. He was deputy governor to Joko Widodo, who vacated the governorship after winning the 2014 Indonesian presidential election.

At an election campaign event last year, Ahok told his audience that religious leaders who were using an interpretation of a verse of the Quran against him were fooling Indonesians. These religious leaders interpreted Verse 51 of Al-Maidah as prohibiting non-Muslims ruling over Muslims.

Large protests demanding Ahok be jailed for blasphemy ensued. These were also laden with anti-Chinese slogans. For example, at a November 16 rally, some protesters chanted “crush the Chinese”.

The Islamic Defenders Front (FPI), an Islamic vigilante group, organised some of these rallies. At one protest, FPI leader Rizieq Shihab asked protesters “would you accept an infidel as governor [of Jakarta]?” – a clear reference to Ahok.

Rizieq’s comment is unsurprising. The FPI consistently opposed Ahok serving as Jakarta’s acting governor due to his non-Muslim background.

During the election campaign, anti-Christian posters and banners could be seen in the streets of Jakarta. One such poster read “it is forbidden to pick an infidel leader”. Another banner stated that “Muslims who vote for an infidel [Ahok] … do not deserve a funeral prayer”.

Discrimination against Chinese Indonesians

Chinese-Indonesians, representing approximately 2% of Indonesia’s population of 250 million, experienced widespread discrimination during the Soeharto era (1966-98).

Soeharto’s regime banned Chinese language, newspapers, schools and cultural expressions. Chinese names were also prohibited. As a result, Chinese Indonesians were pressured to take Indonesian names.

In May 1998, during the devastating Asian Financial Crisis, Indonesians directed their anger against ethnic Chinese who they inaccurately perceived to be universally affluent. Rioters damaged Chinese Indonesians’ businesses in Jakarta’s Chinatown, Glodok, and in some cases burned them. During this period, many ethnic Chinese women were raped and some ethnic Chinese were killed.

Under Abdurrahman Wahid’s administration (1999-2001), Indonesia ended the ban on Chinese language, newspapers, schools and displays of Chinese culture. But discrimination against Chinese-Indonesians remains.

A 1967 decree prohibiting Chinese Indonesians from serving in the Indonesian armed forces remains in place. And, unlike non-Chinese Indonesians, Chinese-Indonesians possess an SBKRI, a document that proves their Indonesian citizenship. This document is still sometimes required for Chinese-Indonesians to obtain passports, enrol in schools and acquire business licences.

Discrimination against Christians in Indonesia

Ahok is part of two minority groups in Indonesia. Christian Indonesians comprise roughly 10% of Indonesia’s population. They, too, have been discriminated against throughout Indonesia’s history.

Since 2006, 500 Christian churches have been shut down in Indonesia. Some Islamists have been using a 2006 government regulation, which requires religious leaders to obtain community support prior to building places of worship, to demand church closures.

Discrimination against Christians also occurred during the Soeharto era. In 1967, Muslim militants damaged Christians’ properties in Jakarta, South Sulawesi and Aceh on the grounds of fighting Indonesia’s purported Christianisation.

Where to from here?

Following his election victory, Anies Baswedan publicly pledged as the incoming Jakarta governor to “safeguard [Jakarta’s] diversity and unity”.

However, to ensure Indonesia remains an inclusive democracy, Anies needs to go further than this. He should directly denounce the ethnic and religious campaign mounted against Ahok, notably by the FPI.

Furthermore, Jokowi’s administration needs to dismantle Soeharto-era discriminatory regulations and policies against ethnic Chinese.

If Anies fails to denounce the ethnic and religious campaign against Ahok and Jokowi does not attempt to remove anti-Chinese laws and regulations, Indonesia’s history of discrimination against Chinese and Christian Indonesians will continue to repeat itself.

Olivia Tasevski, Tutor in International Relations and Political Science, University of Melbourne

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

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



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

Michelle Grattan, University of Canberra

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

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

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

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

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

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

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

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

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

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

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

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

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

Scott Morrison tweeted:

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

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

https://www.podbean.com/media/player/55eic-6aa7da?from=yiiadmin

Michelle Grattan, Professorial Fellow, University of Canberra

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

Research shows the banks will pass the bank levy on to customers


Fabrizio Carmignani, Griffith University and Ross Guest, Griffith University

Studies of European countries show that bank taxes similar to the 0.06% bank levy introduced by the government in the 2017 federal budget will be largely borne by customers, not shareholders. The Conversation

The levy could also make the banking system more, rather than less risky. The fact that a bank is asked to pay the levy is a confirmation that it is “too big to fail”. This could in turn encourage riskier behaviour. The levy might also trigger a higher probability of default by reducing a bank’s after-tax profitability

But it is difficult to say whether banks will pass the levy on to customers by increasing their loan rates, fees or both.

In its response to the levy, NAB confirmed it will not just be borne by shareholders:

The levy is not just on banks, it is a tax on every Australian who benefits from, and is part of, the banking industry. This includes NAB’s 10 million customers, 570,000 direct NAB shareholders, those who own NAB shares through their superannuation, our 1,700 suppliers and NAB’s 34,000 employees. The levy cannot be
absorbed; it will be borne by these people.

Aware of this problem, the government has asked the Australian Competition and Consumer Commission (ACCC) to undertake an inquiry into residential mortgage pricing. The ACCC can require banks to explain changes to mortgage pricing and fees.

When banks pass on these taxes

The bank levy is similar to taxes recently introduced by some G20 economies, including the UK. These had the dual purpose of raising revenues and stabilising the balance sheets of large banks in the aftermath of the global financial crisis.

An analysis of bank taxes in the UK and 13 other European Union countries shows that the extent to which taxes are passed on to customers depends on how concentrated the banking industry is.

The more the industry is dominated by a small number of banks, the greater the share of the tax that is passed on to customers and the less that is borne by shareholders. In more concentrated industries customers have relatively fewer alternative options and therefore tend to be less mobile across banks. This in turn gives the large banks greater market power to increase interest rates and fees without losing customers.

Australia’s banking industry is quite concentrated. In fact, we’re around the middle of the pack of OECD countries, much higher than the US, but lower than some European countries. From this we can surmise that at least some of the cost of the bank levy here will be passed on to borrowers through higher loan rates, fees or both.

An IMF study of G20 countries suggests that a levy of 20 basis points (i.e. 0.2%, approximately three times higher than the Australian government’s bank levy), could lead to an increase in loan rates of between 5 and 10 basis points. This means that the monthly repayment on a loan (assuming an initial rate of 5.5%) would increase by approximately A$6 for every A$100,000 borrowed.

The IMF also found that the bank levy doesn’t just hit customers. A 0.2% levy would reduce banks’ asset growth rate by approximately 0.05% and permanently lower real GDP by 0.3%.

The impact on customers

If the banks pass on the levy to customers then it becomes just another indirect tax, similar to the GST. The question then is whether this is regressive – does it have a greater impact on those on lower incomes than higher incomes.

Lower income earners are likely to borrow less than higher income earners. However, lower income earners are also less able to bear an interest rate increase. They are also more likely to be excluded from borrowing when the cost of borrowing increases.

In this sense, then, if the bank levy is passed on to customers it could become a barrier to home ownership for some lower income borrowers.

More generally, if the value of bank transactions is a higher proportion of low incomes than of high incomes, then the bank levy would operate as a regressive tax and contribute to sharpening (rather than smoothing) inequalities.

Both of these would be unintended, but undesirable, consequences of the levy.

Fabrizio Carmignani, Professor, Griffith Business School, Griffith University and Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

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

The Belt and Road Initiative: China’s vision for globalisation, Beijing-style



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World leaders, led by Chinese President Xi Jinping, meet for the Belt and Road Forum in Beijing.
Reuters

Benjamin Habib, La Trobe University and Viktor Faulknor, La Trobe University

China’s Belt and Road Initiative (BRI) is a multifaceted economic, diplomatic and geopolitical undertaking that has morphed through various iterations, from the “New Silk Road” to “One Belt One Road”. The Conversation

The BRI imagines a US$1.3 trillion Chinese-led investment program creating a web of infrastructure, including roads, railways, telecommunications, energy pipelines, and ports. This would serve to enhance economic interconnectivity and facilitate development across Eurasia, East Africa and more than 60 partner countries.

First proposed in September 2013, it is the signature foreign policy initiative of Chinese President Xi Jinping. It is a project of unprecedented geographical and financial scope.

BRI has two primary components: the overland Silk Road Economic Belt (SREB), and the sea-based 21st-century Maritime Silk Road (MSR). Together, they form the “belt” and “road”.

SREB’s overland infrastructure network encompasses the New Eurasia Land Bridge and five economic corridors: China-Mongolia-Russia; China-Central Asia-West Asia; China-Pakistan; the China-Indochina peninsula; and Bangladesh-China-India-Myanmar. The SREB’s connective sinews will be high-speed rail and hydrocarbon pipeline networks.

The MSR is focused on developing key seaports that connect to land-based transportation routes.

China has been at pains to emphasise the co-operative nature of the initiative and its objective of “win-win outcomes”. In his address to the Belt and Road Forum for International Co-operation in Beijing, Xi framed the BRI in terms of “peace and co-operation”, “openness and inclusiveness”, “mutual learning”, and “mutual benefit”.

Yet behind the rhetoric of harmony and mutuality lies a substantive strategy for growing an emerging China-led operating system for the international economy. This could potentially succeed the US-led Washington Consensus and Bretton Woods system.

What China gets from the BRI

BRI projects are likely to increase China’s economic and political leverage as a creditor.

China has established the multilateral Asian Infrastructure Investment Bank (AIIB) and the $40 billion Silk Road Fund. These are financial vehicles for BRI infrastructure projects, yet the vast bulk of funding to date has come from China’s big state-owned investment banks.

The prospect of access to Chinese financial largesse to fund much-needed infrastructure investments has attracted attention from many prospective partner nations. Many of these appreciate the minimal political conditionalities that come with Chinese finance, in comparison to finance on offer from the International Monetary Fund, the World Bank, and the Asian Development Bank.

The BRI has been viewed as a way for China to productively use its enormous, $3 trillion capital reserves, internationalise the renminbi, and deal with structural issues as its economy navigates the so-called “new normal” of lower growth.

Perhaps foremost among these is the issue of industrial over-capacity. Having maxed out investment-driven growth through a frenzy of domestic infrastructure building following the 2008 global financial crisis, the BRI represents an international stimulus package that will utilise China’s idle industrial capacity and safeguard jobs in key industries such as steel and cement.
This is a significant political dividend for the Chinese government. The Chinese Communist Party’s legitimacy rests on maintaining economic growth and improving people’s standard of living.

In relation to energy security, the BRI will assist China in diversifying its energy sources through greater access to Russian and Iranian oil and gas. This will be achieved by linking with pipeline networks from Russia and Central Asia.

By investing in pipelines from Gwadar, on the coast of Pakistan, to Xinjiang, and from coastal Myanmar to Yunnan, China also can diversify its transportation routes for maritime energy supplies. This reduces its vulnerability to energy supply disruption at maritime choke-points in the Strait of Malacca and the South China Sea.

The establishment of port facilities in the Indian Ocean will also be advantageous to the emerging blue-water capability of the People’s Liberation Army Navy. This would assist in keeping vulnerable critical sea lines of communication open for maritime energy supplies from the Middle East.

Collectively, these measures could reduce the ability of the US Navy to blockade China’s energy supply routes in any future conflict scenario.

Geopolitical implications of the BRI

After more than a decade of conjecture about China’s increasing international assertiveness, the Chinese government has now clearly signalled its intention to assume a more prominent global leadership role through the BRI.

China is aiming to spur a new round of economic globalisation, but in a changed international order that it has a pivotal role in shaping.

The Asian Infrastructure Investment Bank, the BRICS New Development Bank, and the Regional Comprehensive Economic Partnership are the “software of integration” – the financial pillars of trade and investment in this vision.

The BRI is the development vehicle – the “hardware of trade and investment” and the final pillar on which China’s claim to global leadership rests.

Somewhat paradoxically, given the investment focus on hydrocarbon pipelines, the BRI also represents the vehicle through which China is likely to shape the contours of the emerging international post-carbon economy. The Paris Agreement in the UN Framework Convention on Climate Change is a keystone document in this respect.

A combination of the climate emergency and market behaviours are making fossil fuel energy production increasingly uneconomic. This has spurred an accelerating transition away from fossil fuels and toward renewable energy generation.

China is a world leader in green and alternative energy technologies. Through the BIR it is well-placed to be the dominant player in facilitating the transition and roll-out of renewable energy infrastructure across Eurasia. This is especially so since the Trump administration has ceded American influence in international climate politics through its repudiation of proactive climate policies.

Leadership on international climate action is one area in which China can develop significant soft power cache, particularly with developing countries of the global south.

China’s BRI announcement is also reflective of the relative decline of the US as the world’s pre-eminent power. A declaration of intent as bold as that made in Beijing over the weekend at the Belt and Road Forum for International Co-operation would have been inconceivable prior to the 2016 US election.

The Trump administration’s clumsy foreign policy manoeuvrings have damaged US prestige, weakened the integrity of a liberal international order already under duress, and opened a window for China to stake its claim.

The BRI also signals a deepening of the Sino-Russian strategic partnership. This is based on a complementary supplier-consumer energy relationship and a mutual antagonism to the US.

However, not all regional countries see the BRI as a boon. The Indian government has expressed reservations over the BRI’s China-Pakistan Economic Corridor and China’s Indian Ocean ambitions.

The BRI now ups the ante for regional middle powers like Australia that have deftly attempted to hedge between the US and China. Australia’s foreign policymakers must weigh up the case for engaging with the BRI and having a seat at the table as China’s vision takes shape.

Benjamin Habib, Lecturer, School of Social Sciences, La Trobe University and Viktor Faulknor, PhD Candidate in International Relations, La Trobe University

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