Hockeynomics Super Edition!

This week has given us not one, but TWO, examples of why Australia needs The Australia Institute, and why your support is so important.

As a supporter of TAI, you will have heard from us many, many times – since 2009 in fact – that superannuation tax concessions are costing the federal budget billions of dollars ($35 billion this financial year) and are skewed towards high-income earners.

This week, we were no longer a lone voice – the drum beat we have kept up over the past five years was joined by former Liberal leader John Hewson, finance commentator Michael Pascoe and the ABC, just to name a few.

There is now widespread acceptance that the government needs to consider reforming superannuation tax concessions if it’s genuine about finding ways to improve the budget. Even Treasurer Hockey has admitted it!

Example two:

As a supporter of TAI, you will have heard from us many, many times – since early-2013 – that the gas industry was confecting a gas ‘crisis’ to explain prices rises, when in reality, gas prices will rise because they are about to sell gas overseas.

This week, IPART agreed with us.

There is now widespread acceptance that Australian consumers will pay more for their gas once gas companies start exporting to Asia. Even some of the gas companies have admitted it!

These are powerful examples of how ‘research that matters’ can change public debate. They are also powerful examples of how YOUR SUPPORT MAKES THAT POSSIBLE.

Independent ideas can only come from independent funding – the fact that you open our emails, read our articles and care enough about progressive ideas to fund them, means we are able to be a loud and strong progressive voice on your behalf.

Thank you. We’re grateful for your support and we hope this week shows we’ve put it to good use.

Richard and the TAI team

P.S. It’s almost End of Financial Year and donations to The Australia Institute are tax deductible. If you’re in a position to make a one-off, or even better a regular, donation we promise to put every cent towards challenging Hockeynomics with real economics and achieving the type of impact we’ve had this week. 

1. Hockeynomics: Austerity = Tax cuts
2. Why Austerity Kills
3. Poverty in the Elderly – Are Super Tax Cuts Worth It?
4. For Students, Poverty is the New Black
5. Divestment Day
6. Cooking Up a Price Rise
7. Recent Media
8. Recent Publications

1. Hockeynomics: Austerity = Tax Cuts

Treasurer Joe Hockey in his speech last night selectively released parts of the National Commission of Audit, particularly those parts that frame the so-called ‘budgetary crisis’ his government alleges Australia is experiencing. At the heart of his message is a graph showing that on present settings ‘the Budget would remain in deficit throughout the next decade, with the deficit still around 1½ per cent of GDP by 2024’.

Is 1½ per cent of GDP really the stuff of crises?

On figures published in The Economist Australia has one of the smallest budget deficits in the OECD. Crisis?

But it is worth examining how the National Commission of Audit put its figures together. First spending. The medium-term projections are based on an assumed 3.75 per cent real growth in spending from 2016-17 to 2023-24. There is no justification for that assumption, especially as the figures in the mid-year review suggest spending will fall by 0.9 per cent in 2014-15, and grow by 1.4 per cent in both 2015-16 and 2016-17. Then, for reasons which are left unexplained by the Treasurer,  it is assumed to jump to 3.75 per cent growth.

So what about receipts? Here we find tax receipts ‘are capped at 24 per cent of GDP with “bracket creep” being returned to taxpayers through periodic income tax cuts’.

Pardon? We apparently have a crisis that prevents a return to surplus because we expect to give ‘periodic income tax cuts’. Joe Hockey said ‘all Australians must help to do the heavy lifting’ but it seems there is still room for tax cuts!

One of the interesting points Hockey made this morning is that superannuation will not significantly reduce the number of people on the age pension. He told Alan Jones there will not be any change in the proportions of people on the age pension until 2050. Decoded, this as an acknowledgement that super tax concessions are wasted. (More on super policy later in the bulletin).

Joe Hockey mentioned that ‘too many taxpayers’ dollars have been spent on corporate welfare’. He refers to industry policy measures but we could help him by identifying other examples of corporate welfare including:

  • $4.5 billion pa in subsidies to the mining industry,
  • $31 billion pa in franking credits to dividend recipients, and
  • $11 billion pa in subsidies for investment.

Incidentally, Hockey has also said ‘no country has ever subsidised its way to prosperity’. Let’s not mention Japan, Korea, Singapore… We could continue, but the more important point is that austerity has never led to prosperity.

 

2. Why Austerity Kills

We are, Treasurer Hockey tells us, experiencing a ‘budget emergency’. And in such times, tough choices must be made. Such as the choice to spend $12 billion buying new fighter jets;  or the choice to spend $5 billion per year on a new paid parental leave scheme, which mirrors our superannuation system in its determination to deliver the most benefits to those with the most money.

The other side of the ‘budget emergency’ revolves around reducing access to essential services such as health, with a $5 up-front fee to visit the doctor being floated by the government. This shift towards a ‘user-pays’ system highlights the fundamental confusion about health policy in Australia.

Early access to health services saves time, lives and money. Indeed there is evidence that some groups in Australia do not go to the doctor often enough, with cost being one of the major reasons that low income earners cite for failing to seek advice or treatment.

A new book detailing the impact of fiscal austerity on human health provides both case studies and epidemiological data on how cuts to health have cost thousands of lives in developed countries. ‘The Body Economic: Why Austerity Kills‘ by David Stuckler and Sanjay Basu, uses the Global Financial Crisis as a ‘natural experiment’ to compare what happens to health outcomes in different countries when unemployment began to rise rapidly’. Their conclusion is as stark as the evidence they present. It’s not recessions that kill people, it’s the cuts to health spending and reduced access to health services that kill people.

One example cited is of a woman with diabetes who delayed seeing a doctor and tried to treat an infected wound with over-the-counter remedies. As a consequence, and at huge cost to herself and the budget, she ultimately lost her leg, had a stroke and now requires 24 hour nursing care. The human impact of massive health budget cuts in Greece, especially the consequences for a woman who was denied early treatment for breast cancer, is heartbreaking.

The book presents a wide range of data on health spending, public health outcomes and death rates, and concludes that in response to the GFC ‘the British health system performed the best at preventing people from losing access to health care. This is exactly what the founding fathers of the UK National Health Service had designed it to do: provide health care not based on people’s ability to pay, but according to their health care needs. At the time of the NHS’s establishment (1948) UK public debt stood at over 400 per cent of GDP…there is a a lot more to say about why the NHS worked, but the bottom line is the data: the UK system saved more lives with less money during [the GFC]’.

Here in Australia, the bottom line is that we are increasingly pursuing the American approach to health care, with its heavy reliance on private provision, private insurance and private ‘co-payments’. The US spends a greater proportion of its GDP on health than any other developed country and still has poor health outcomes. Introducing so-called ‘co-payments’ has nothing to do with saving money and everything to do with ideology.

 

3. Poverty in the Elderly – Are Super Tax Cuts Worth It?

As Australia’s population ages, government policies that assist people in retirement will become even more essential. Superannuation tax concessions and the age pension are the two key government policies that assist the ageing, but they are becoming increasingly expensive.

The age pension currently costs $39 billion and superannuation tax concessions will cost the budget around $35 billion in 2013-14. These concessions are projected to rise to $50.7 billion in 2016-17, an increase of around 12 per cent per annum. By this time superannuation tax concessions will be the single largest area of government expenditure. The overwhelming majority of this assistance flows to high income earners with low income earners receiving virtually no benefit. The combined cost of these two policies will be $74 billion this year alone.

The Institute has developed an alternative model that could produce a fairer, more adequate and more sustainable retirement system. TAI proposes that we abolish tax concessions for superannuation and create a universal (non-means-tested) age pension. This system is similar to the approach taken in New Zealand where labour force participation among older people is higher than in Australia.

A universal age pension would be particularly beneficial to those groups whose superannuation balances are low; such as low income, seasonal or intermittent workers, the self-employed or those who have long periods of time out of the workforce (predominately women who care for children and/or ageing parents). A universal pension would create a level playing field amongst income groups and reduce the inequality in Australia’s retirement system. Superannuation could then act as a top-up for those who can afford it.

The single pension could be lifted from 30 per cent of male total average weekly earnings to 37.5 per cent, with a consequent lift in the partnered rate. This would raise the pension rate for singles from $21, 018 per annum to $26, 273 per annum and the pension rate for couples from $31, 689 per annum to $39, 611 per annum. This system would cost $52 billion a year, almost 30 per cent less than we currently spend on both the pension and superannuation tax concessions.

Such an increase in the pension rate would help to alleviate poverty among the aged. The present system of tax concessions of superannuation contributions favours high income earners. The new system would more closely reflect the existing taxation rates applicable at each income level.

The cost of a universal age pension will rise over time, however the cost of the existing combination of age pension and superannuation tax concessions will cost more; making the Institute’s policy the more sustainable option into the future.

You can read our research into a universal age pension here: Sustaining us all in retirement

And Richard’s recent Financial Review column here: Target super tax concessions, not pensioners

 

 4. For Students, Poverty is the New Black

Universities are waiting with baited breath for the release of the budget in May. The government is suggesting Australia needs to brace itself for cuts across a range of services. One of many cost-cutting measures floated is raising higher education tuition costs.

There’s a lot wrong with such a proposal.

Full-time students are expected to dedicate 35-45 hours a week to their classes, not taking into consideration independent research for assignments, theses, exam preparation and so on. Studying full-time is equivalent to working full-time. There are only so many hours in a day, so if you’re doing one, you can’t do the other.

The current minimum wage is $622.20 per week. The current weekly allowance for full-time students is $270.40 – assuming receipt of the highest rate for a single, over-18 student, and also the highest rate of payment for rent assistance. To put this into perspective, if your weekly income is less than $504.38, you are considered to be in poverty.

Student debt levels are rising at a faster rate than ever before. It’s predicted that by 2017, HELP/HECS debt will reach $50 billion, overtaking Australia’s total credit card debt in the process.

Students who enrolled in Commonwealth-supported study in 2013 can expect to graduate with $30,000 debt. (That’s if they can afford to study long enough to graduate at all).

Higher education is paramount to an equitable society when all students are on an equal playing field. An equal playing field, however, isn’t what we’re working with. It would be difficult to question that there’s a strong positive correlation between the income levels of a student’s parents and that student’s grades, and a negative correlation between parental income and the hours a student works in paid employment.

Research supports what common sense suggests – if you don’t have to spend your hours outside of class working to pay for the hours you spend in class, you’ve got more opportunities to complete assignments, attend lectures, and revise for exams.

Increasing the costs of education without equivalent increases in support for students threatens to undermine one of education’s great assets – its accessibility. Students on the economic margins will be turned away from studying if the decision to further one’s education means taking on an enormous debt with little guarantee of returns.

5. Divestment Day

As global temperatures rise, so does the sense of urgency from the world’s climate experts. To avoid catastrophic climate disruption, most coal, oil and gas reserves must remain unburnt and in the ground. ‘Business as usual’ is likely to send us past the agreed 2 degree ‘safety guardrail’ by midcentury, well within the lifetime of current generations.

Hearing the warnings about our climate, it’s easy to despair and to submit to “stealth denial”, where we know there’s a problem but feel unable to take meaningful action. Challenging that feeling is the real power behind the movement for fossil fuel divestment.

By calling on individuals and civic institutions to pull their funds from fossil fuels, divestment connects communities with tangible ways to reject the damage these industries cause. Fossil fuel divestment started among churches and university campuses, and is now the fastest growing divestment movement in history. There are now hundreds of campaigns calling for moral leadership around the world, with supporters as diverse as Desmond Tutu and the prestigious British Medical Journal.

Most people are likely to be financing fossil fuels without even knowing it.  Consider your bank account. If, like most Australians, you have a bank account with one of the big four banks – Commonwealth, ANZ, NAB or Westpac – your money is being used to fund fossil fuel projects.

All of the ‘big four’ have loaned billions to coal and gas projects, including mines, ports and power plants, many threatening the Great Barrier Reef. None has suggested ruling out further fossil fuel funding.

That’s why campaigning groups Market Forces and 350.org have organized ‘D-Day’ for 3 May, a day of bank divestment. Thousands of customers will visit their bank to close their accounts, putting their money in any of a long list of smaller banks, credit unions and mutuals that don’t lend to the coal, oil or gas industries. The total amount pledged to divest is approaching $100 million.

The same principle applies to superannuation. Super is supposed to look after us in retirement. In reality, through its support of fossil fuel industries, it is undermining a stable world for us to retire in.

History shows us divestment has worked before. Probably the best sign is working now is the clear concern from the Minerals Council. The industry is especially worried about Norway. Norway has turned oil revenue into an  $800 billion sovereign wealth fund, holding a one per cent slice of global share markets. Ironically, it is now considering divesting from fossil fuels and increasing support for renewables.

For TAI research on why divesting makes financial as well as ecological sense, see our recent report Climate Proofing Your Investments: Moving Funds out of Fossil Fuels

6. Cooking Up A Price Rise

IPART has confirmed what The Australia Institute has been warning since early last year. Gas prices are going to rise because gas companies are about to sell gas overseas. The wholesale gas price is rushing up to meet the international gas price. IPART has recommended that gas prices rise from 1 July 2014 by about 20 per cent. This is mostly because of increases in wholesale prices. As IPART says:

In our view, it is the transition of gas commodity prices towards international levels that is putting upward pressure on wholesale gas prices.

Gas companies want you to believe that there is some kind of gas shortage and this is pushing up the price but the reality is new export facilities in Queensland are the real cause. The Australia Institutes knows it, gas companies know it and IPART knows it.

We first wrote about gas companies Cooking up a price rise back in July 2013. We’ve since exposed their shonky modelling and dishonesty about gas shortages.

Read more of our work on the gas industry:

Debunking Solving for ‘x’ – The NSW Gas Supply Cliff

Fracking the Future

 

7. Recent Media

Boost pensions to save on aged costs – no, seriously Michael Pascoe Yahoo!7 22/04/2014

Super not pensions that’s killing budget Sydney Morning Herald ‎22/04/2014

The real drivers of so much poor health – the inequitable distribution of power and resources Crikey Apr 16, 2014

Government could save $13 bn on mining fuel credits, depreciation Sydney Morning Herald 21/4/ 2014

Dodgy Economics in Coal Mining Submission Radio Adelaide 20/04/14

Farming the footpath ABC Radio National 15/04/14                               

Free trade deals come at a cost to Tony Abbott’s budget Sydney Morning Herald 14 Apr 2014

 

8. Recent Publications (links to PDF downloads)

Sustaining us all in retirement

SUBMISSION: Financial services review

SUBMISSION: Cobbora coal project

SUBMISSION: Senate inquiry into affordable housing

SUBMISSION: Senate inquiry into out-of-pocket costs in healthcare

SUBMISSION: Senate inquiry into the Trade and Foreign Investment (Protecting the Public Interest) Act 2014

General Enquiries

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mail@australiainstitute.org.au

Media Enquiries

Jake Wishart Senior Media Adviser

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jake@australiainstitute.org.au

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