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Why we should worry less about retirement - and leave super at 9.5%
Brendan Coates, Grattan Institute; John Daley, Grattan Institute, and Jonathan Nolan, Grattan Institute
It's conventional wisdom that Australians don't save enough for retirement. Most workers themselves think they won't have enough to retire on, and their concerns are rising.
But the conventional wisdom is wrong.
Our new report, Money In Retirement: More Than Enough shows that most people who are actually retired feel more comfortable financially than the Australians younger than them who are still working.
Retirees of today tend to slow their spending as they age, tend to keep saving in retirement, and often leave an legacy almost as big as the nest egg they had on the day they retired.
Read more: The myth of the ageing 'crisis'
When surveyed today the retirees of the future might be worried about their retirement, but economic growth means they will almost certainly be on even higher incomes than retirees today.
These findings might seem surprising: they contradict the repeated messaging from the financial services industry that Australians won't have enough for retirement.
But that industry's claims are based on research that overlooks two important points.
Retirees spend less over time
Much of the research assumes that retirees need to save enough to enable their incomes to keep climbing throughout their retirement in line with general wage growth.
Implicitly, it assumes that a retiree needs to spend 25% more at age 90 than at age 70, after accounting for inflation.
But our analysis shows that retired Australians tend to spend less over time, even those who have money to spare.
Young retirees might chalk up frequent flyer points, but they do it less as they get older.
Spending tends to slow at around the age of 70, and falls rapidly after age 80, to just 84% of what was spent at retirement age.
Even the wealthiest retirees spend less as they age. At the other end of the scale, pensioners receive discounts on everything from car registration to rates.
Our research finds that retirees spend less over time on food, alcohol, tobacco, clothes, furnishings, transport and recreation.
They spend more on health care as they age, but Medicare largely shields them from the full costs. The modestly higher out-of-pocket costs they do pay are mainly due to rising premiums for private health insurance.
Not only do most retirees not draw down their savings throughout retirement, many add to them.
Even among pensioners, one recent study found that the median (typical) pensioner still had 90% of what he or she retired on after eight years.
Read more: Poor and rich retirees spend about the same
This means that calculations about the adequacy of retirement savings ought to be based on whether they are enough to maintain buying power (at best) rather increase it in line with wage growth.
Many prominent studies also ignore non-super savings, which are material, especially for wealthier households.
They lead to misguided calls for ever-higher super contributions in order to ensure reach the point where super alone is enough to provide an adequate retirement income, even though many households will have income from other sources.
Most will have enough super
Our modelling shows that people starting work today will have adequate retirement incomes: workers of all income levels will retire on incomes at least 70% of their pre-retirement earnings – the so-called replacement benchmark used by the Organisation for Economic Cooperation and Development and the Mercer Global Pension Index.
In fact the median (typical) worker can expect a retirement income of 91% of his or her pre-retirement income.
This means that many low-income Australians will actually get a pay rise on retirement.
Even workers in their 40s and 50s today – many of whom didn't benefit from the present high rate of compulsory super contributions for their entire working lives – can expect a retirement income of about 70% of their pre-retirement incomes.
So compulsory super can stay at 9.5%
It means that that there is no obvious case to lift compulsory super contributions from 9.5% to 12% of salary as presently legislated.
Doing so might further boost retirement incomes (especially among those low and middle earners unable to compensate for the higher contributions by winding back other savings), but at the expense of providing lower incomes while working.
As the Henry Tax Review noted, higher compulsory super contributions are ultimately funded by lower wages than would have been the case, meaning lower living standards while in work.
As it happens, higher contributions would do little to change the retirement incomes of low and middle income Australians. Their extra superannuation income they provided would cut their age pension payments.
Read more: The superannuation myth: why it's a mistake to increase contributions to 12% of earnings
Higher compulsory contributions would also damage pensions in another way.
The age pension is indexed to wage growth which would be lower if employers diverted a steadily increasing proportion of their employee budget to super.
It means the most fervent opponents of a lift in compulsory super contributions from 9.5% to 12% ought be those people presently on the age pension.
The government ought to oppose it as well. Diverting more of what would have been wages to more lightly taxed super will strain its budget. Scrapping the proposed increase would save it an impressive A$2 billion a year.
We can find better ways to help retirees
Even if governments did feel it necessary to boost retirement incomes, lifting compulsory super contributions would be one of the worst ways to do it.
Loosening the age pension assets test taper could boost retirement incomes of around 20% of retirees, climbing to more than 70% over time. It would cost the Budget just A$750 million a year – less than half the cost to it of the proposed increase in compulsory super.
The real priority - by far the biggest bang for the buck in alleviating poverty in retirement - should be boosting Commonwealth rent assistance by 40%, providing an extra $1,410 a year for retired singles and $1,330 for retired couples.
Read more: Renters Beware: how the pension and super could leave you behind
Senior Australians who rent privately are much more likely to suffer financial stress than homeowners. And renting will become more widespread as younger generations on low incomes find themselves less able to afford homes.
Australians have been told for decades that they're not saving enough for retirement. Such claims are inconsistent with the facts. Most of today's workers can already expect a comfortable retirement. Forcing them and future workers to save more money for retirement that they'll never spend is simply a recipe for larger bequests.
Brendan Coates, Fellow, Grattan Institute; John Daley, Chief Executive Officer, Grattan Institute, and Jonathan Nolan, Associate, Grattan Institute
Labels: Conversation, super, ThinkTanks
What the newspapers said about inequality. It's wrong
PETER WHITEFORD
If you were going to reduce a 150-page Productivity Commission examination of trends in Australian inequality to a few words, it would be nice if they weren't "ALP inequality claims sunk", or "Progressive article of faith blown up" or "Labor inequality myths busted by commission".
The editorial in the Australian Financial Review of August 30 says questions about whether inequality is increasing are "abstract", taught in universities as "an article of faith", and a "political truncheon".
Here I should disclose that I teach courses covering inequality as well as undertaking research on the topic. Also, I was one of the external referees for this week's Productivity Commission report.
It adds to a growing pile of high quality research on trends in income distribution in Australia, including a recent Australian Council of Social Service (ACOSS) and University of New South Wales study using data from the Australian Bureau of Statistics (ABS) that provides an in-depth analysis of income and wealth inequality in 2015-16 and an analysis of trends since 2000.
Also released at the end of July was the latest HILDA Statistical Report that analyses how things have changed over time for individuals between 2001 and 2016.
The Productivity Commission survey takes the deliberately ambitious approach of assessing a wider range of outcomes than income, including indicators of household consumption and wealth, their components, and changes over time and in response to events such as transitions to work, divorce and retirement.
Much of the reporting seems to have misread the messages the survey and the Chairman's speech to the National Press Club were trying to emphasise. For example, the editorial in the Financial Review argues the Commission's report shows "economic growth has made everyone in Australia in every income group better off".
Well, no, it doesn't.
The finding that every income group has benefited from income growth should not be interpreted as meaning every person in Australia is better off. The discussion of mobility in the report makes the point that the incomes of households and individuals fall as well as rise.
Put simply, not everyone – in fact very few (about 1%) – stay in exactly the same place. Table 5.1 (page 96) shows more than 40% of the Australian population were in a lower income group in 2016 than they had been in 2001, for reasons ranging from retirement to disability to unemployment to family breakdown.
Single adults on Newstart, although not the same people, have fallen down the income distribution over the past 25 years, from around the bottom 10% to the bottom 5%. As another example, someone who worked on a manufacturing production line until it was closed and then got a job as a sales assistant would be better paid than a sales assistant used to be but most certainly not better paid than they used to be. They would have little reason to believe the Financial Review.
And as the Commission was at pains to point out, the stabilisation and slight decline in overall inequality over the past decade is to a large extent the result of specific government decisions.
One of the most important was the one-off increase in age pensions by the Rudd government in 2009. The 2016 ACOSS report on poverty found the relative poverty rate (before housing costs) for people aged 65 and over fell from around 30% in 2007-08 to 11% in 2013-14, due to the "historic increase" in pension rates.
ABS income surveys show the average incomes of households headed by people aged 65 and over climbed by 16% in real terms between 2007-08 and 2015-16, while for the population as a whole the increase was about 3%. As a result, the average incomes of older households jumped from 69% to 78% of those of households generally.
While economic prosperity was needed to fund that increase, it didn't automatically fund it. That needed deliberate government intervention.
In his speech releasing the report, Commission chairman Peter Harris specifically noted "growth alone is no guarantee against widening disparity between rich and poor".
Some forms of poverty for children "have actually risen".
The slide in inequality resulting from the increase in the age pension is likely to have disguised increases in inequality elsewhere.
According to the Bureau since the global financial crisis the number of workers who are underemployed – working part time and wanting more hours - has climbed from about 680,000 to 1.1 million; from 6.3% to 8.9% of the workforce.
And the ABS finds wage disparities have increased. The ratio of the earnings of a worker at the 90th percentile (earning more than 90% of workers) to the earnings of a worker at the tenth percentile grew from 7.75 times in 2008 to 8.24 times in 2016. This was due to widening wage differentials for both full-time and part-time workers and an increase in the proportion of part-time workers
We often hear about Australia as a "miracle economy" enjoying 27 years of economic growth. In fact, the Commission report (Figure 1.2 page 13) shows real net national disposable income per person – a better measure of individual economic well-being than GDP – actually fell in six out of the last 27 years.
The income survey data show an even more mixed record. The Our World in Data database shows that by 2003 the real income of the median Australian household was only about 5% higher in real terms than in 1989, while the second and third decile households – mainly headed by those on low wages and some on social security – were actually no better-off than in 1989, largely due to the effects of the early 1990s recession.
Virtually all of the increase in real disposable household incomes enjoyed since 1989 (or 1981 for that matter) came in one five-year period, between 2003 and 2008 during the first mining boom.
What is striking about Australia compared to other countries is that since the global financial crisis we have largely maintained the income lift from the boom.
Will we be blessed by another boom to pump up the figures? Or might we be less lucky?
Despite the way it's been spun, the Commission's main message is that in the decades ahead we will need both policies that generate economic growth and policies that ensure it's well spread. One without the other could leave many of us worse off.
Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University
Labels: Conversation, inequality, Whiteford
For the fridge door: Every Morrison minister
Some odd promotions, if you ask me:
Labels: Liberal Party, politics
2018-19 Economic Survey. Rate rise an even-money bet as inflation off the floor
At last, an end to the Reserve Bank's two-year freeze on interest rates is in sight. But not this year, and not because of particularly high wage growth.
For the first time since rates were cut in August 2016, the BusinessDay Scope economic panel gives the RBA an even chance of lifting its cash rate by the end of the financial year. If it happens, it will come after a record 34 months of inaction. And only half of the panel thinks it will.
The bank's cash rate has been steady since RBA governor Philip Lowe's predecessor, Glenn Stevens, cut it to a record low of 1.5 per cent in his last meeting before handing over. In public comments, Lowe has said the next move will most likely be up, but it will depend on inflation and wage growth, which he expects to improve only gradually.
Inflation has been at or below the bottom of the bank's 2 to 3 per cent target band since 2014. Over the year ahead, the BusinessDay panel expects it to climb to a barely respectable 2.2 per cent, with wage growth hitting 2.3 per cent for the first time since 2015. It would mean next to no growth in real wages and produce inflation still below the middle of the target band, but it could allow the RBA to justify a rate rise if it was able to point to forecasts of continuing improvements.
The BusinessDay Scope survey is Australia's longest running, comprising forecasts from 26 leading economists from the diverse fields of financial markets, industry groups, consultants, unions and academia. Over 40 years, its aggregate forecasts have usually been more accurate than those of any of its individual members. For the past 20 years, an average of its forecasts weighted for previous success has proved to be more accurate than those of the Treasury.
The panel expects modest economic growth of 2.8 per cent in 2018-19, a touch below the Treasury's forecast of 3 per cent. Four of the panellists, Tim Reardon, Michael Blythe, Paul Bloxham and Neville Norman, expect as much as 3.2 per cent. Only one, the perennial pessimist Steve Keen, expects a dive in growth to 1 per cent.
They are optimistic about Chinese growth, US growth and world economic growth during 2018, expecting 6.7, 2.8 and 3.8 per cent respectively. But, like Treasury and international organisations including the IMF and OECD, their optimism doesn't extend far ahead. The IMF and OECD expect world growth to turn down as the US scrambles to fund the Trump tax cuts, and they are concerned about the ability of Chinese authorities to deleverage its economy and successfully complete the transition from one driven by manufacturing to consumption.
Asked to weigh up these uncertainties and put a probability on a recession in Australia within the next two years, our panellists come up with an average answer of 21 per cent. It is a jump from the average answer of 15 per cent produced by the panel in January, suggesting it shares the concerns of international organisations. Only two of the panellists assigned a negligible probability to a recession within the next two years: the Melbourne Institute's Guay Lim and JP Morgan's Sally Auld.
The panellists expect another very strong year of nominal GDP growth at 4.2 per cent on the back of high iron ore and natural gas exports and further profit growth. But they again expect the best measure of living standards, real net disposable income per capita, to grow only weakly, climbing 1 per cent.
The span of forecasts is wide because it is a difficult one to measure. At times it has gone backwards. Paul Dales and Renee Fry-McKibbin are the most optimistic, expecting 2.3 and 2.2 per cent. Westpac's Bill Evans is the most pessimistic, expecting living standards to go backwards 0.3 per cent. Evans is a former BusinessDay forecaster of the year.
The panel expects much weaker growth in household spending than Treasury: 2.3 per cent instead of 3 per cent.
The panel expects the next decline in mining business investment to be only 4.4 per cent, the smallest in six years, suggesting the unwinding of the mining investment boom may be near complete. It expects non-mining investment to climb a further 4.6 per cent.
It expects housing investment to slip 1.1 per cent; a less bleak assessment than Treasury, which expects a slide of 4 per cent. Reardon of the Housing Industry Association is less bleak still, expecting growth of 0.5 per cent.
The Australian dollar will be pretty much where it is now in a year's time in the view of the panel, at 74 US cents, but, excluding the outliers, the forecasts range from a low of 69 US cents (Stephen Koukoulas) to a high of 80 US cents (Blythe), a wider range than is usual.
Prices and wages
On balance, the panel expects a further decline in Sydney house prices of 3.9 per cent (on top of the past year's 4.2 per cent) and a decline in Melbourne prices of 2.2 per cent. But the range of forecasts is wide, from a further decline of 12 per cent in Sydney (by Stephen Anthony, a former forecaster of the year) to a recovery of 1.5 per cent (by Bill Mitchell, also a former forecaster of the year). In Melbourne, the forecasts range from a recovery of 3.5 per cent (by Melbourne-based Norman) to a plunge of 8 per cent (by Melbourne-based Anthony).
The central inflation forecast of 2.2 per cent masks a range as wide as 1 per cent to 2.7 per cent. Five of our panel expect inflation above the middle of the RBA's target band: Jeanine Dixon, Blythe, Saul Eslake, Sarah Hunter and Bloxham.
The "trimmed mean" of wage growth forecasts (leaving out an extreme high and an extreme low) ranges from 1.9 to 2.9 per cent, suggesting an improvement on the present 2.1 per cent. The panel is united in saying that until there is a lift in wage growth, there won't be a lift in interest rates.
All but three of our panel expect no move in the cash rate in the rest of 2018. The exceptions are Mardi Dungey and Norman, who expect an early move to 1.75 per cent, and Koukoulas, who expects a cut to 1.25 per cent.
Koukoulas expects the bank to abandon its "glass half full" view of the economy when it realises that high employment growth and a historically low unemployment rate (forecast by the panel to be 5.4 per cent) are cloaking a slack labour market unable to produce much higher wage growth. Sliding house prices are likely to undermine household spending, holding back inflation.
By mid next year, 23 of our 26-person panel expect rates to climb, four of them more than once.
CBA's Blythe adds the caveat that if the royal commission prompts banks to impose tougher credit conditions, the RBA mightn't need to lift rates until 2020, or might even need to cut them.
Su-Lin Ong of RBC Capital Markets says that at 1.5 per cent, the cash rate is a long way below the RBA's estimate that the neutral rate is 3.5 per cent. But she says the labour market will need to surprise on the upside for the bank to be confident enough about the outlook for wages and inflation to move.
The panellists average forecast to three decimal places is for a cash rate of 1.625 per cent by June 2019, exactly halfway between the present 1.5 per cent and an increase to 1.75 per cent. It's an even-money bet.
In The Age and Sydney Morning Herald
2017-18 was like our forecasters, good in parts
The financial year 2017-18 stumped our panel, along with the official forecasters in Treasury and the Reserve Bank.
Economic growth was stronger than expected, as was US growth, world growth and (importantly for the budget) nominal GDP growth. A year ago the BusinessDay panel predicted a budget deficit of $35 billion for 2017-18. The Treasury predicted $29 billion. It looks as if we will get $18 billion, the lowest budget deficit since the financial crisis and enough to put a surplus in sight.
They are developments that would been easy enough to forecast if you assumed a high iron ore price, as some of our panel did. But it would have been almost impossible to forecast what came with them. The best measure of living standards, eal net disposable income per capita, barely grew, climbing by just 0.9 per cent on the latest figures; only half of what the panel predicted. Barely growing living standards sat oddly alongside strong growth in national income and taxabjul 21, 2015 le profits, implying that while companies and governments did well out of stronger export growth, ordinary households didn't, at least not so far.
Only Saul Eslake got living standards right, but, like most of the panel, he failed to foresee the size of the surge in national income.
It kept the Australian dollar higher than expected and pushed the Australian share market much higher than expected. Alone among his colleagues, the Commonwealth Bank's Michael Blythe got the ASX 200 almost exactly right, picking 6200 by June 30, a remarkable jump of 8.4 per cent. Like most of the panelists, Blythe successfully picked another year of Reserve Bank inaction right, predicting a 1.5 per cent cash rate all year.
But he failed to predict the long-awaited surge in non-mining investment. When it finally happened, jumping 10 per cent in a year in which mining investment sank a further 11 per cent, only one of our panel got it right; Margaret McKenzie of the ACTU who picked a fall in mining investment of 5 per cent alongside a jump in non-mining investment of 10 per cent. Richard Yetsenga of the ANZ Bank and Alan Oster of NAB were the next closest.
The sharp divergence in house prices also took the panel by surprise. The latest annual figures show Sydney down 4.2 per cent and Melbourne up 2.2 per cent. None of our panel expected Melbourne to hold up while Sydney slumped, and only two expected Sydney to slump at all: Stephen Koukoulas and Steve Keen.
This year, as in other difficult to forecast years, there's no award to forecaster of the year. Like 2017-18 itself, our panel was good in parts.
Labels: Survey
Never mind the tax, it's wages that are making us glum
Why do they keep going on and on about tax when they must know it's not our real concern? Because the sudden dive in wage growth – the thing that is really worrying us – is beyond their control.
As recently as 2012, just six years ago, wages were growing like they usually had, at a touch under 4 per cent per year. The rapid dive meant that by June 2014, two years later, they were growing at 2.4 per cent, the lowest rate since the last recession, and a good deal less than the lows plumbed during the global financial crisis.
Another two years later they were growing at just 2 per cent; even less than in the early 1990s recession, and on the face of it, the least since the Great Depression in the 1930s.
Yet we weren't in a depression, or even in recession. And we kept buying houses and other things as if wage growth would recover. It needs to recover to make those home loans and car loans manageable.
Banks and finance companies have formulas they use to decide how much to lend. Unchanged since the days when workers could expect solid wage rises, they are based on income and the size of a deposit. Difficult to manage at first, home loans became easier to repay as the borrower's income climbed, meaning many were paid off early. But not now, not unless wage growth picks up.
Banks are advancing 30-year mortgages to 50-year-olds. Without faster wage growth, a lot of those borrowers will remain mortgaged into retirement, and have much of their pension eaten up in payments, a fate their parents escaped.
Reserve Bank governor Philip Lowe touched on the phenomenon in a speech last week. His bank has even coined a name for it: mortgage tilt. Whereas required payments as a proportion of income used to tilt down over time, now they are more horizontal, meaning a long horizon of fairly constant payments. Unless interest rates climb, in which case payments will climb, which would be even worse.
And he pointed to something else. He said low wage growth was "diminishing our sense of shared prosperity". When I first visited Japan in the late 1980s the locals seemed optimistic and proud to be part of something big. When I next visited in the late 1990s after a decade of near zero wage growth, their faces and stories were glum, even though by international standards they were prosperous and had jobs. Glum Australians feeling they are not part of the Australian project can derail the project, as we have seen in Britain and the United States.
Why should wage growth have dropped so suddenly, when the unemployment rate is little different to what it was back when it was high?
The first thing to note is that we are not alone. It's been a shift throughout the developed world, with Japan getting in early. Improved communications have made competition from cheaper workers overseas a potent threat. Also, unions no longer have the bargaining power that they used to.
In the words of Andy Haldane, chief economist at the Bank of England: "There is power in numbers. A workforce that is more easily divided than in the past may find itself more easily conquered." As recently as 1990, 40 per cent of the Australian workforce was in a union. Now it's 14.5 per cent.
Unions no longer have the unfettered right to enter workplaces, or the right to demand special clauses in awards that benefit only their members. Strikes are illegal in most circumstances, and require notice and hard-to-organise ballots in others. The Fair Work Commission can no longer intervene to resolve disputes without the consent of the employer.
And although employment is strong, people are losing their jobs. Telstra is letting go of 8000, many in its Melbourne headquarters. The National Australia Bank is shedding 2000 each year for the next three years. The NSW public service will lose as many as 11,800 jobs as a result of efficiency measures in this week's state budget. Few workers, in any of those organisations, are going to feel game to make themselves expensive.
The way Dr Lowe sees it, a small number of Australian firms are investing massively in the technology needed to do things more cheaply. A much greater number are not, and are having to fight off brutal price competition. The only way they can do it is to hold the line against wage increases, even at the cost of missing out on good staff.
Added to this might be what US economist Paul Krugman calls the scarring effect of the global financial crisis. He says employers discovered during the crisis that they couldn't cut wages, even though they needed to. It wasn't socially acceptable. It taught them that "extended periods in which you would cut wages if you could are a lot more likely than they used to believe".
So they're keeping wage costs low, in preparation for the next crisis. It's an awful response, with political as well as economic implications.
Government forecasts notwithstanding, it is hard to see anything changing for quite some time. Glum is starting to look like the new normal.
Labels: 8, Age columns, column, wages
Work to barely pay for returning mothers, inquiry told
The third and final stage of the government's proposed income tax cuts would overwhelmingly benefit men, late evidence presented to the Senate inquiry shows.
The inquiry will report on Monday that calculations prepared by the Parliamentary Budget Office show 1.894 million men would benefit from the final flattening of the tax scales and only 767,000 women.
The third stage lifts the threshold for the top rate from $120,000 to $200,000 and removes the 37 per cent rate, producing a flat marginal rate of 32.5 per cent between $41,001 to $200,000.
The PBO has previously told the inquiry the final stage would deliver $30.35 billion to men over four years and $11.25 billion to women.
It finds that the impact of the first two stages is much more even.
In a second piece of late evidence requested by the committee, Melbourne University tax expert Miranda Stewart reports that the effective marginal tax rate facing women considering returning to work after having children would remain as high as 95 per cent even after all three stages of the tax cuts and the changes to child care benefits due to begin on July 1.
Effective marginal rates include tax, the Medicare levy, lost family benefits and the cost of the childcare needed to return to work after government subsidies.
On July 1 the two existing childcare subsidies will be rolled into one providing a means tested subsidy of up to $11.77 per hour at an extra cost to the budget of $4 billion over four years.
Professor Stewart said at the moment the effective marginal tax rate for a second earner with two young children paying for childcare at that rate was 65 per cent when returning to work one day a week, 85 per cent on the second day, 95 per cent on the third day and 140 per cent and 160 per cent on days four and five, meaning those families lost income when mothers moved from working part time to full time.
"It was extraordinary that second earners went back to work full time at all," she said. "The reality has been that a proportion of women do go back to work, and the family is essentially bearing the net cost, unless they can use grandparents or friends for care or a cheaper option such as family day care.
The combination of the new childcare system and the first wave of the promised tax cuts would bring down the effective marginal rates to 45 per cent for day one, 65 per cent for day two, 90 per cent for day three, 95 per cent for day four and 90 per cent for day five.
"It means the returning mother will still only be able to keep $10 out of every $100 earned on day three, $5 on day four, and $10 out on day five," Professor Stewart said.
"It will certainly be worthwhile for a second earner, usually a mother, returning to work with young children to go back two days a week; however, for her to work three, four or five days a week would produce a negligible financial benefit."
A separate report to be released by the Australia Institute on Monday finds that since the tax changes that accompanied the introduction of the goods and services tax in 2000-01, most taxpayers have had all of so-called bracket creep returned in periodic tax cuts, whether bracket creep is calculated with reference to the consumer price index or the wage price index.
In real terms, high earners on $200,000 were up to $10,000 per year better off, low to middle earners on $40,000 up to $2000 better off, and middle earners on $70,000 only a few hundred dollars a year better off.
Labels: childcare, tax
Pink vs blue tax: the case for taxing women lightly
If women were to be taxed differently to men, it wouldn't be the first time.
Treasurer Scott Morrison says the idea is absurd.
"You don't fill out pink forms and blue forms on your tax return. It doesn't look at what your gender is any more than it looks at whether you are left-handed or right-handed," he said last week.
He even said, wrongly, that Labor has been suggesting it.
But such a move has happened before.
In Britain right up until 1971, wives weren't usually taxed on their income; their husbands were. A wife's income was deemed to be "stated and accounted for by her husband". It wasn't until 1950 that wives ceased to be classified for tax purposes as incapacitated along with "infants, lunatics, idiots and the insane".
South Australia broke ranks early, in 1884, taxing married women as individuals and giving them the right to own property. By the time the Commonwealth introduced national income tax in 1915, all the states had fallen into line.
What possible modern-day reason could there be for taxing women differently to men, as mentioned by Melbourne University tax expert Miranda Stewart in evidence to the Senate last week?
Morrison himself provided a clue while ridiculing the idea. He said the Tax Act was designed "to treat people's income the same, and so you pay tax according to what you earn".
But we don't. Someone who earns $1000 from wages pays twice as much as someone who earns $1000 by making a capital gain selling an asset. Income from capital gains is taxed more lightly in accordance with what's known as optimal taxation theory. It suggests taxing heavily things that tax is unlikely to stop, such as work, and taxing more lightly things that tax is more likely to stop, such as the movement of capital. It's the basis of the argument for a lower company tax rate as well as a lower capital gains tax rate.
The concession isn't "fair", but it's efficient.
As would be the logical extension, which is to tax female wages more lightly than male wages. Male work turns out to barely react to after-tax pay. Most men will continue to work full-time regardless of what happens to what they take home, regardless of how much they grumble.
Some will work a bit less if their take-home pay falls, because they are offered less of a reward. Others will work a bit more in order to get back the income they lost. On balance the "price elasticity" of their labour is close to zero.
Women are different. Most European and American estimates put the price elasticity of their labour between 0.4 and 1, meaning a 10 per cent boost in their take-home pay will lift their hours of work by between 4 per cent and 10 per cent.
The most efficient way to tax labour would be to heavily tax generally unresponsive male work and more lightly tax generally highly responsive female work, depending on elasticities. Economists Alberto Alesina from Harvard University and Andrea Ichino from the University of Bologna in Italy believe women should be taxed at no more than 80 per cent of male rates in the US, at no more than 68 per cent in Italy and no more than 91 per cent in Norway.
And there's another argument for discriminating on the basis of gender. It's that, for most of us, gender is innate. We won't change it. Tax theorists say that, ideally, we should be taxed on our underlying ability to earn an income rather than the income itself. Otherwise some of us with ability will avoid tax by avoiding earning an income. Although the ability to earn is hard to measure, markers for it are easy to measure, such as height.
In a half tongue-in-cheek paper entitled The Optimal Taxation of Height, Harvard economists Gregory Mankiw and Matthew Weinzierl note that someone who is 183 centimetres tall can expect to earn $US5500 ($7300) more per year than someone 165 centimetres tall. They say tall people should pay several thousands more in tax than short people on the same income. It's a way of getting at their earning capacity, as would be a higher tax on the earnings of men.
And there's yet another practical reason to tax women more lightly. The withdrawal of family benefits and the imposition of childcare costs as mothers return to work mean some face extraordinarily high "effective" marginal tax rates of up to 90 per cent. If ever there were people who ought to be affected by high tax rates, it's returning mothers.
But here's what's odd. Australian mothers are hardy. When the Productivity Commission recommended a new, simpler and more generous formula for childcare support along the lines of the one introduced in this year's budget, it found it would boost employment by just 15,000 full-time worker equivalents in a workforce at present growing by hundreds of thousands per year. More than mothers in the United States, Germany and Britain, Australian mothers seem undaunted by tax rates. The case for treating them gently is strong in theory, weak in practice.
Labels: 10, Age columns, column, gender, tax
The case for destroying default super in order to save it
So toxic has much of Australia's superannuation industry become that some at the very top of the government think the Productivity Commission hasn't gone far enough.
The commission wants to unpick the link between super funds and jobs, meaning everyone would need only one fund for life that they could choose from a dropdown menu of the top 10 (or pick another fund if they want to, or set up their own).
It can be thought of as a way of saving the house, chopping away some of the rotten wood. The alternative, being seriously considered by ministers including Financial Services Minister Kelly O'Dwyer, would be more like burning it down. It would be to set up a single government-run default scheme to which everyone would belong for life, until they decided otherwise.
If it were well run there would be little room for funds run by the scandal-plagued banks and AMP, and less room for industry funds.
The national default scheme would operate like the government-run Future Fund, which invests billions to fund payouts from now-closed public service superannuation schemes.
It might even outsource some of its work to the fund. But it would be much bigger; perhaps as big as $1 trillion, and eventually several trillion, compared to the Future Fund's $141 billion.
Like the age pension, its payouts would be provided by the government and funded by tax. But, unlike the pension, the contributions wouldn't be called a tax, just as super contributions aren't called tax at the moment. And what's paid out would depend on what was paid in, meaning the highest earners would get the most, unlike the pension, which is meant to be the other way around.
(Going further and abolishing government-mandated superannuation altogether and just paying everyone the pension would be the next logical step, and would easily pay for itself given the cost of the super tax concessions, but as far as I know I am one of the few people suggesting it, and I am fairly sure no one in government is.)
Lying behind the idea is the realisation that the bank-owned funds are far worse than the headline figures presented by the Productivity Commission suggest, and that the banking royal commission is about to make this clear.
What is already well known is that the bank-owned funds perform poorly. Over the past decade the largely bank-owned "for profit" funds have produced annual returns of 4.9 per cent compared with the industry funds' 6.8 per cent and the Future Fund's 8.5 per cent. Over a lifetime this would mean a typical retail fund paid out less than half as much as a typical industry fund.
The banks have got people into their poorly performing funds by paying their staff commissions, by paying advisers commissions and by buttering up employers with offers of good banking terms.
But those extra costs don't come anywhere near explaining their poor performance. The commission's intriguingly named 'Technical Supplement 4: Investment Performance Methodology and Analysis" provides hints. It says retail funds produce annual returns 0.9 per cent worse than would be expected given their asset allocation strategies, and industry funds produce returns 0.2 per cent better given their strategies.
But they are different strategies. As a matter of policy the retail funds have adopted approaches that give less weight than the industry funds (or the Future Fund) to the asset classes that have been shown to perform the best over the long term: things such as toll roads and well-tenanted buildings.
It's partly because of cost. Being for-profit funds, and charging (hefty) administration fees, they don't want to use up those fees on the cost of inspecting and directly investing in buildings. It's cheaper to buy a share index, and cheaper still to buy government bonds.
If your own institution is selling them at a good price for it, so much the better. And shares are more liquid than buildings, which means bits of them can be easily sold and re-bought; something that's needed if you are offering thousands of different investment options for people to switch into and out of, each time earning you a fee.
It's got to the point where some in the Coalition believe it is no longer possible to defend the bank-owned funds. They're saying that if the industry funds are better because they've generally got more scale and take the job seriously, a single national default fund would be better still. As Peter Costello, the chair of the Future Fund and Australia's longest serving treasurer, puts it, "one default fund could make large allocations and use market power to drive down costs". There's one in Canada, and in Britain.
The counterargument, put by Productivity Commissioner Karen Chester, is that a government-run fund would acquire an implicit government guarantee which could make it overly cautious, reluctant to lose money. And she says 27 years of compulsory super has given us something worth salvaging: a modicum of interest in what happens to our money.
It's far from certain that what she is proposing will get the government's nod. So bad are the ongoing revelations about the funds that Costello is in there with a chance.
Labels: 10, Age columns, column, productivity commission, super
Portrait of a sick system is chance to put things right
We're apathetic about super, until we're not.
On Tuesday phone lines to Australia's biggest bank-run super funds buckled under a deluge of calls from customers wanting to close multiple accounts. Traffic to the Australian Securities and Investments Commission's website for consolidating your super jumped 500 per cent.
And in at least one school, Year 12 students were shown two videos; one produced by the Productivity Commission depicting super funds as pigs, and the other prepared by this newspaper, making the point that multiple and poorly chosen accounts can cost members in excess of $400,000 over their working lives.
Asked to check in on their own accounts as homework, some discovered they already had more than one. They had been working casually, flipping burgers and selling clothes. Each new account furnished them with a new insurance policy, which sounds like a bonus until you realise they were getting insured more than once against death and losing their income. They were aged 16 and 17.
Every additional insurance policy, whether junk or not, costs $85,000 over a working life, according to the Productivity Commission report that set off the avalanche of calls. (In reality many wouldn't cost that much, because they would drain inactive accounts first.) That super funds have knowingly allowed multiple insurance policies to accumulate in the accounts of people too young to benefit is one of a number of scandals uncovered in the report.
The commission's suggested solutions to the problems of multiple and unsuitable insurance policies are simple: funds would be prevented from foisting them on anyone aged under 25 without their consent; inactive accounts would have their policies stopped. People with inactive accounts are almost certain to have another active account with insurance or no income to insure.
Treasurer Scott Morrison commissioned the inquiry a year ago, at a time when he was still implacably opposed to a banking royal commission. Its head, Producitity Commission deputy chair Karen Chester, refers to it as the "not-so-royal commission".
Morrison wanted it to examine the costs, fees and net returns of super funds, the role of insurance premiums in eroding member balances, and the antiquated way in which people are pushed into default funds that are tied to jobs, not people. The lines between the two commissions will blur in the coming weeks, as the banking royal commission itself turns its attention to super.
Tuesday's report is a draft. The Productivity Commission can't be certain when it will deliver the final report partly because the banking royal commission is taking up so much of bank executives' time that it would be unfair to ask them to deal with the super report until the banking inquiry is out of the way. But the commission is keen to hear from the rest of us immediately.
On Friday it added a new 'Brief Comments' section to its website. Ordinary Australians will be able to upload up to 200 words without the need to make a formal submission. Their names won't be published but, if they agree, their comments will be. When Chester did this before in an earlier superannuation inquiry, she was able to put the lived experience of Australians to fund representatives in public hearings and get them to concede that things weren't as rosy as they had been suggesting.
Their investment performance is disheartening. Super funds are made up of asset classes; things such as property, shares, international shares and government bonds, assembled in certain proportions.
By examining the average performance of each of the underlying asset classes and assembling them in the same proportions as each of the regulated funds - in what it thinks is a world first - the commission has been able to compare what the fund's performance would have been if no special skill had been added with the results they actually delivered over more than a decade, taking account of fees and tax.
Shockingly, it found that the 228 funds taken together (accounting for 93 per cent of all accounts and 61 per cent of all superannuation assets) did worse than if the managers had just set the proportions and then done nothing. Their attempts to pick stocks consistently cost their members money. Without putting too fine a point on it, their members would have been better off paying them to do nothing.
The retail funds, mostly run by the banks, are the worst. Instead of producing the 6 per cent per year they would have if they had just set their asset allocation and sacked their stock pickers, they produced 5 per cent. (Stock pickers in the union and employer-controlled industry funds did add value, but not much, boosting annual returns by 0.2 percentage points.)
The commission says it's at a loss to understand how the retail stock pickers can be so bad. On the face of it it would take a rare and perverse skill to consistently produce worse results than leaving things alone. Keen readers of the Productivity Commission website will find a clue in one of the submissions, from Kevin Liu and Elizabeth Ooi at the School of Risk and Actuarial Studies at the University of NSW.
Despite their complaints about how the directors of industry funds aren't independent (most are employer and union representatives), most of the directors of retail funds aren't independent either. Four out of five are affiliated to the bank or larger entity that owns the fund, often by working for another part of it.
Liu and Ooi find that the more affiliated directors a retail fund had, the worse it performed. And the more related-party service providers it used, the worse it performed. The effect was "both statistically and economically significant, and consistent across different measures of investment performance". The implication is that affiliated directors put the interests of the bank or larger entity first, perhaps by loading up super funds with products it wanted to shift.
Looked at this way, the superior performance of the industry funds isn't so much the result of superior skill as it is the result of doing a job well in a straightforward way without a conflict of interest.
It's also the result of scale. Many of the retail funds are deliberately small. There are around 40,000 of them, a number so big as to almost certainly be designed to confuse and beguile the customer rather than help. It's no accident that Australia's biggest industry fund, AustralianSuper, is always one of the top performers.
But some of the industry funds are also small, and are shockers when it comes to performance, sitting alongside the worst of the bank-run funds. Appallingly, new employees and people switching jobs continue to get funneled into them because of the provisions of industrial awards. For as long as that happens their directors will be tempted to keep them open, pocketing board fees for running an organisation that stays subscale but open as the trickle of members leaving is replaced by a stream coming in.
It's why the commission wants super to follow the person, not the job, with every new labour market entrant (and everyone changing jobs) presented with a list of the top 10 funds and invited to pick and stick for as long as they like, without accumulating multiples. Labor and the Coalition have cautiously welcomed the idea.
It is competing with another model, proposed by Future Fund chair Peter Costello, in which the government would run the only default fund, freezing the top 10 out. It says a lot about how bad the performance of the bank-owned funds has been that some in the Coalition are prepared to countenance it - and also a lot about how much they despise the top-performing union and employer-controlled industry funds.
Australia's superannuation system is 25 years old. The pool of super savings has climbed to $2.6 trillion. By 2030 it'll be $5 trillion. It's important to get it right.
Labels: productivity commission, super
The appalling truth about our 'world-class' super
Here's how you can tell the Productivity Commission was spot-on in its assessment of the superannuation system.
Not a single part of the industry, not one, has explicitly endorsed its key recommendation.
That's because it is intended to help us: users of superannuation who depend on the industry.
We entrust it with an extraordinary $2.6 trillion (for reference, Australia's entire gross domestic product, everything we produce and earn in a year, is $1.8 trillion). And the sum keeps growing as we put ever more into super each year through compulsory contributions, which are set to climb to 12 per cent of our salaries.
Yet it treats us with contempt. It has known for decades about the cost to us (and benefits to it) of multiple accounts. The commission says over a working life the extra admin and insurance charges can amount to an entire year's pay. Yet behind the scenes its representatives have been lobbying Financial Services Minister Kelly O'Dwyer against attempts to stamp them out.
Australia has an astounding 29 million super accounts and only 20 million adults and teenagers aged 15 or more. One in three of our accounts are unwanted multiples.
The insurance fees are particularly egregious. One in four of us with insurance through superannuation don't know we've got it and are unlikely to claim. Those of us with multiple policies can only claim on one of them for things such as income protection because that's all the law allows, making the others useless. More absurdly, premiums for policies that include income protection continue to be deducted from the accounts of people who are out of work, denuding thier accounts by forcing them to pay to protect income they don't have.
Many of us (those without specific provisions in our awards or industrial agreements) have had the freedom to choose what fund we want to be in since 2005. But the odds have been stacked against us. Banks have been paying their employees bonuses to switch us into expensive and poorly performing products.
They've been paying our financial advisors commissions to do the same thing, and providing attractive banking terms to employers prepared to do the same thing. Those of us who try and examine the market for ourselves are presented with a deliberately large and bewildering array of more than 40,000 individual products. The commission says the more complex the product, the lower the return the fund selling it is able to offer because the less likely we are to understand it.
So badly do the bank-owned funds perform that, taken together, they deliver their members a return around one sixth lower than would "plain vanilla" funds offering the same mix of asset classes and facing the same costs and taxes – an achievement that's almost impossible to explain, although very large fees and using some of the funds as dumping grounds for poorly performing products might form part of the explanation.
In order to find out whether the funds themselves knew why they performed so badly the commission sent out to a survey, with reminder letters, to the 208 that service most of the population. Only 114 responded. Among those that didn't respond were the Defence Force Superannuation Scheme and the AMP Eligible Rollover Fund. One attempted to game the survey by providing its name and address (so that it wouldn't be included in the list of non-responders) and leaving all of the other fields blank, a performance the commission described as "contumelious" – a word that means showing an utter disregard for someone else's work.
An impressive 81 per cent of the responders said they undertook performance attribution analysis, which means they knew why they were performing as they were. But only five (that's right, only five of those funds) were able to outline what their analysis said. The rest were either not telling the truth about about whether they undertook analysis or were trying to hide what it showed.
Some of the industry funds performed poorly too. Some are funds into which people are forced to put their money by industrial awards. So bad are they compared to better funds the commission says over a lifetime the difference could amount to $635,000, or nine years' pay.
And yet neither Industry Super, the Institute of Superannuation Trustees or the Association of Superannuation Funds has explicitly backed the Commission's key recommendation, and neither has the Financial Services Council, although it has come the closest.
The Productivity Commission wants all Australians joining the workforce to be presented with a drop-down menu of 10 best performing funds and asked to pick one. They would be perfectly free to pick from a broader list, or even to pick a fund that wasn't on a list. And they could stay in that fund regardless of who employed them. An independent panel would refresh the menu every four years meaning funds would compete to stay on it. Financial planners would have to show clients the list as well. Denied an inflow of conscripted or deluded new members, the bad funds would close.
Yet their representatives oppose it. They have "expressed caution", they say our system is "world class", they say the Productivity Commission is "badly misguided".
I reckon it's got their number.
The PC's fix for our multibillion super 'mess'
The biggest shakeup in the history of Australia's $2.6 trillion superannuation system would see new workers able to choose an approved high-performing fund for life, saving as much as $407,000 by avoiding underperforming funds and multiple accounts.
A landmark Productivity Commission review has found that almost one third of default super accounts are chronic underperformers, actually costing members more than if they had invested in the underlying assets themselves and paid management fees. Another third, some 10 million, are unintended multiple accounts whose extra fees and duplicate insurance policies cost members $2.6 billion per year despite decades of government programs aimed at encouraging members to consolidate accounts.
"The government's efforts are about sweeping up some of the mess. We want to do that as well, but we also want to stop the mess reoccurring," said inquiry chairman and Productivity Commission deputy chief Karen Chester.
The Commission finds that "absurdly," many accounts are tied to jobs rather than members, forcing Australians to accumulate accounts as they switch jobs unless they make active decisions to merge them.
Some of the insurance policies they accumulate are "zombies" unusable because of rules that prevent people claiming more than one income protection payout.
It wants all new workforce entrants to be shown a dropdown menu of up to 10 "best in show" top performing funds when they apply for a tax file number. The 10 would be chosen by an independent panel every four years. Employees would be free to choose a fund not in the top 10 or to make no choice, in which case they would be randomly assigned to one of the 10 best performers.
Laboratory experiments conducted for the Commission showed that 95 per cent of people presented with the drop down menu made a choice, either for one of the top 10 or for another fund they knew about, or for a self-managed fund.
The changes would remove the power of the unions, employers and the Fair Work Commission to assign default funds through industrial awards and enterprise bargains.
Indicative calculations by the Productivity Commission suggest that the "overwhelming majority" of the top 10 would be employer and union-controlled industry funds, as they perform much better than bank-owned retail funds.
But industry funds are also well represented among the 26 worst performing default funds, accounting for 10 over the past decade, compared to the for-profit sector's 12.
Asked to identify the worst performing default funds, Ms Chester said that wasn't the point of the report. "If we were to name funds it could make things worse by sparking a run on those funds," she said. The Commission's draft recommendations would ease bad performers out of the system gradually.
Almost half a million people join the workforce every year, accounting for $1 billion of super contributions in that year alone, meaning the changes would deprive poorly performing funds of new members, encouraging the trustees to consider whether they wanted to remain in business. Each of the one in seven workers who change jobs every year would also be shown the list of the top 10 and invited to change or consolidate their accounts.
Financial planners would also be encouraged to recommend funds from the top 10 list or to to show reasons why they hadn't under a rule known as 'if not, why not?'
Ms Chester said that of all the inquiries she and her fellow commissioner Angela McRae had worked on, this set of recommendations produced the "best bang for buck".
"It could be worth 3.9 billion per year. I don't think you can overstate the impact." she said.
The Commission believes its analysis of Australia's superannuation system is a world-first. "As far as we know, nobody in Australia nor anybody internationally has previously assessed the performance of a superannuation or a pension plan system," Ms Chester said. "One of the reasons it is hard is that there are more than 40,000 super products, a number that makes it hard for consumers to make decisions."
"We took the stated asset allocation of each MySuper fund and compared its performance to that of the underlying assets, making allowance for fees. It gave us a measure of whether the fund managers added or subtracted value. Astonishing, around a third consistently subtracted value. All were default funds."
The Commission wants the list of MySuper approved products scaled back by up to one third and the poor performers removed. "The limbo bar has to be significantly heightened," Ms Chester said, adding that she was not aware of any funds that had ever applied for MySuper authorisation that had failed to get it.
Only 114 of the 208 funds surveyed by the Commission responded, and only 5 were able to detail their net investment returns by asset class.
"I don't think you can overstate our professional disappointment with the content of the responses to the questions that really mattered," Ms Chester said. "It constrained in doing our analysis. We will be writing to all those who haven't properly responded on Tuesday morning asking them to complete their homework so that we can complete our analysis."
Financial Services Minister Kelly O'Dwyer backed the Commission saying the funds that had not properly responded were showing "contempt for the Australian people.
"This is a government mandated system. They are thumbing their noses at millions of Australians, she said.
The Commission had backed the government's determination to end multiple insurance policies, consolidate super accounts and reunite members with their lost super.
Its ideas were clever and would need to be carefully considered by the government. The Commission's report is a draft and will be followed by a final report with firm recommendations by December.
How Turnbull can back down on company tax, 'obviously'
How do you walk away from something to which you've committed your soul? You say things have changed, "obviously".
It's how marriages end in divorce, how deputies abandon their prime ministers and how Labor treasurer Wayne Swan quietly but spectacularly abandoned his absolute commitment to a budget surplus in late 2012.
He had been holding the line for half a decade, promising in his first budget "the largest surplus as a share of GDP in nearly a decade", and then in his second, after the surplus evaporated during the financial crisis, "hard choices that chart the course back to surplus".
In his third it was a "return to surplus in three years' time, three years ahead of schedule, and ahead of every major advanced economy".
In his fourth it was an upgraded surplus, "back in the black by 2012‑13, on time, as promised".
And then in his fifth, an even grander pledge: "Madam Deputy Speaker, the four years of surpluses I announce tonight are a powerful endorsement of the strength of our economy, resilience of our people, and success of our policies.
"This budget delivers a surplus this coming year, on time, as promised, and surpluses each year after that, strengthening over time. The deficit years of the global recession are behind us, the surplus years are here."
Along the way he contorted language to avoid even conceding the possibility that he would never deliver a surplus.
"Let me hear in plain English that the budget is within a hair's breadth of going into deficit," the ABC's Kerry O'Brien asked him as the financial crisis gathered pace. "It seems silly to me that anybody would bother to argue that proposition. Will you accept going into deficit, if you have to, to maintain appropriate stimulus of the economy under the threat of recession and high unemployment?"
Swan: "Kerry, it would be silly to speculate along the lines of your question."
O'Brien: "Why?"
Swan: "Because I've made it clear. We are projecting modest growth and modest surpluses, but if the situation were to deteriorate significantly it would have an impact on our surpluses and it may well be the case that we could end up in the area that you're speculating about.
O'Brien: "Well, say it. In deficit."
Swan: "I am not going to say it because we're projecting modest surpluses."
Incredibly, in October 2012, a year before Labor lost office and four months into the financial year that was meant to deliver the continually forecast surplus, the mid-year budget update still penciled one in, albeit assisted by fancy accounting tricks. It was "absolutely appropriate to stick with our surplus objective", Swan told reporters.
Until December 20, days before Christmas, at which point Swan opened a press conference expressing dismay that the October tax receipts had been well below forecasts.
"Obviously, dramatically lower tax revenue now makes it unlikely that there will be a surplus in 2012-13," he intoned, as if he had been caught unawares. "A sledgehammer hit our revenues."
I've retold that story to make it clear that even the most unlikely backdowns are easy for politicians, even after repeated declarations of undying fidelity.
All through the on-again off-again negotiations with senators over the company tax cuts, Malcolm Turnbull has maintained that he is "absolutely" committed to the remaining $35.6 billion, and, if necessary, will take them to the next election.
"The Prime Minister did not leave any wiggle room at all," said his chief negotiator, Mathias Cormann, in February at an earlier time when it looked as if hope had been lost. "We are completely and utterly committed to our business tax cuts. They were very necessary at the last election, we took them to the last election. They will be even more important by the time of the next election. If the Senate were not to pass these very important business tax cuts, yes, we will fight for them at the next election."
No wiggle room.
Until a moment of zen on Tuesday after Pauline Hanson had what is probably her fourth change of heart.
"We might not ever get to that point," Cormann said when asked if the company tax cuts might ever get through the Senate. He repeated, for emphasis: "It might well be that we won't ever get there."
Cormann insists that he wasn't paving the way for a last-minute backdown, but if it happened, just before the election, the lines would be delivered without shame, as were Swan's when the economy and his government headed south. Things would have changed, "obviously". Cormann would have $35.6 billion more to offer in real tax cuts - income tax cuts - to people who vote.
And probably much more. The Coalition won't reveal the updated 10-year budget cost of its company tax cuts because it doesn't want Labor to know how much it will have to offer that it can't.
Like Labor, it could promise to revisit its company tax cuts later, when the budget and the Senate permitted.
It'd be acknowledging reality, shamefacedly, and promising more to voters now, rather than years down the track when the small and uncertain impact of uncertain company tax cuts worked its way through the system.
Labels: 7, Age columns, budget, column, company tax
Cry for the banks. They'll pay more than they'll save
Australia's big four banks and their shareholders will recover very little of the new major bank levy from the proposed cut in company tax, a Fairfax Media analysis has found.
In fact, the proposed company tax cut and the major bank levy would leave banks more highly taxed than they were before the 2017 budget.
The levy, which came into force in the middle of last year, is expected to raise $1.6 billion a year from each of the big four banks and Macquarie Bank.
After adjusting for one-off restructuring costs incurred by the National Australia Bank, the most recent annual profits of the big four - ANZ, Commonwealth, NAB and Westpac - amount to $43.7 billion.
They paid $13.168 billion in tax, an effective rate of 30 per cent.
The tax cut before the Senate, from 30 per cent to 25 per cent, would cut the big four's tax bill by $2.2 billion. But most of their shares are held by Australians eligible for dividend imputation, meaning that up to three-quarters of the revenue lost as a result of the cut would be clawed back in higher tax collections from Australian shareholders who received lower dividend imputation cheques.
The net cost to revenue is likely to be as little as $570 million per year at current profit levels, only around one-third of the extra $1.6 billion the big four and Macquarie will pay in the major bank levy.
The findings accord with a claim made in parliament last week by Treasurer Scott Morrison that by the time the major banks received the full benefit of the proposed cut in the company tax rate to 25 per cent in 2026, they will have paid an extra $16 billion to the government in the bank levy.
Other tax measures under consideration by the government that would help offset the cost of the company tax cuts and gain favour with crossbench senators include an increase in the petroleum resource rent tax and a new tax on e-commerce giants such as Google, Facebook and Uber. The budget papers provide for $3 billion in "decisions taken but not yet announced".
The Australian Bankers Association declined to comment on whether the major banks would pay more in the levy than they would gain from the proposed cut in the company tax rate, referring questions to the Business Council.
A spokesman for Business Council chief executive Jennifer Westacott pointed to comments she she made this month where she said there was no case for exempting or 'carving out' or banks from the tax cut.
"They are paying a levy of $1.6 billion a year. Are we seriously going to punish the shareholders, the mums and dads?" she asked. "Are we seriously going to punish everyone in the banking system, the regional bank manager who's been helping out a local community for years?"
In parliament on Monday, Mr Morrison again refused to quantity the budget cost of the 10-year program of company tax cuts and the year-by-year cost of his three-stage program of personal income tax cuts.
In a Senate estimates hearing on Wednesday, officials from the department of finance are expected to refer to the Treasury questions about the cost of both sets of tax cuts. The Treasury will appear before the committee next Tuesday.
Labor Treasury spokesman Jim Chalmers said his party would try to split the personal income tax cut bill, supporting only the first wave of tax cuts due to start in July.
He held open the possibility of supporting the second of the three waves of tax cuts set down for 2024.
"We have made our view abundantly clear on the first part of it for low- and middle-income earners; we've said we're not wild about the third stage, which is two elections away, but we have got more discussions to have on that intermediate stage," he said.
Labels: Banks, comp
Here's my big dangerous tax idea: let us keep our money
Suddenly we've wised up. As far back as any of us can remember, all the way back to the beginning of income tax, we've been easy to bribe.
Here's how it has worked in every election and in almost every budget: "You've been working hard and paying too much tax. We feel your pain. We've magically found some money from somewhere. We're pulling a tax cut out of a hat. You can thank us later."
That the rabbit was our own money, taken from us in ever-increasing amounts through an automatic process known as bracket creep, and then only partly returned, was the trick we weren't invited to dwell on.
Here's how it will work this time. In the year ahead wages will probably climb 2.1 per cent. It'll push a greater proportion of our pay into the highest rate of tax we pay. All by itself that will push up the total amount of tax we pay by around $6 billion, even though our actual buying power, our inflation-adjusted wages, might not much change. The budget tax cuts will give us back some of it: around $4.4 billion.
Hey presto. We're supposed to be awed.
Even after 10 years, after the third and most expensive phase of the Morrison tax cuts announced on budget night, middle earners will still find themselves paying 3 per cent more of their income in tax than they do right now: 18 per cent instead of 15 per cent, according to the Grattan Institute. Only the very highest earners - the top 10 per cent - will get their bracket creep back.
(We need to rely on organisations such as the Grattan Institute and the Parliamentary Budget Office for the calculations because the government won't provide them for us. It wants us to be in awe of the trick without seeing how it's done.)
It helps that bracket creep isn't widely understood, certainly not by shock jocks such as Sydney's Ray Hadley ("it simply means that people who were formerly taxed at the lower income rate through no fault of their own go on to the next income rate"), Nor, on the face of it, by the Treasurer himself, who on Monday said that the third and final stage of his plan that levelled the tax rate between $41,001 and $200,000 meant that "for most Australians, who will earn over their lifetime somewhere between $40,000 and up to $200,000, they will never face bracket creep again".
Bracket creep happens even if you don't change brackets. Whenever your income climbs, a greater proportion of it ends up in your highest tax bracket, leaving a lower proportion of it in your lower brackets and beneath the tax-free threshold.
Imagine you had been earning $75,000 and inflation pushed up your wage to $77,000. Your buying power wouldn't much improve and you wouldn't change tax brackets, but your tax bill would climb from $15,922 to $16,572. The chunk of your salary lost in tax would climb from 21.2 per cent to 21.5 per cent. A lower proportion of it would be protected by the tax-free threshold.
It'd be easy to fix. You would index the tax-free threshold and each of the other thresholds to the general rate of wage increases, or to the general rate of inflation, both of which at the moment are near 2.1 per cent. So the $18,200 tax-free threshold would climb to $18,582 and then to $18,972 and so on.
It would be devastating for the budget and devastating for politicians. Without automatic tax increases they would no longer be able to announce regular 'tax cuts' that only partly returned our money in return for applause.
But the applause has stopped. This week's Fairfax-Ipsos poll found that 57 per cent of voters didn't want the cuts they were offered. They would have rather had the money used paying off government debt. Only 37 per cent wanted the tax cuts, and many of them would have regarded them as unsurprising. It's probably Peter Costello's fault. By repeatedly cutting tax rates under prime minister John Howard, he destroyed the magic.
Indexation would make the magic real. And it would make budget choices real.
At the moment we grant the government leeway for indulgences such as spending $50 million commemorating the voyage of Captain Cook, or $247 million keeping chaplains in schools. If those indulgences meant an explicit increase in tax rates we would indulge our politicians less.
As it stands, most of the promised $80 billion cut in the company tax rate is to be funded by bracket creep. If indexation removed that option it would have to be funded by an explicit increase in income tax or another tax, and we would be less accommodating.
On the other hand, we would become keener to accept tax increases where they were the only way of getting things we wanted, such as they were with the National Disability Insurance Scheme. Without bracket creep, if we wanted more spending on something like health we would have to agree to pay for it. Or disagree, in which case we wouldn't get it. We would become prepared to pay more tax where we had to, and keener on getting value for what we paid.
We would start treating our money as if it was ours.
Labels: 10, Age columns, bracket creep, column, tax
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text:
Measurement of Circumstellar Disk Sizes in the Upper Scorpius OB Association with ALMA
Barenfeld, Scott A. and Carpenter, John M. and Sargent, Anneila I. and Isella, Andrea and Ricci, Luca (2017) Measurement of Circumstellar Disk Sizes in the Upper Scorpius OB Association with ALMA. Astrophysical Journal, 851 (2). Art. No. 85. ISSN 1538-4357. https://resolver.caltech.edu/CaltechAUTHORS:20171215-095223826
We present detailed modeling of the spatial distributions of gas and dust in 57 circumstellar disks in the Upper Scorpius OB Association observed with ALMA at submillimeter wavelengths. We fit power-law models to the dust surface density and CO J = 3–2 surface brightness to measure the radial extent of dust and gas in these disks. We found that these disks are extremely compact: the 25 highest signal-to-noise disks have a median dust outer radius of 21 au, assuming an R^(-1) dust surface density profile. Our lack of CO detections in the majority of our sample is consistent with these small disk sizes assuming the dust and CO share the same spatial distribution. Of seven disks in our sample with well-constrained dust and CO radii, four appear to be more extended in CO, although this may simply be due to the higher optical depth of the CO. Comparison of the Upper Sco results with recent analyses of disks in Taurus, Ophiuchus, and Lupus suggests that the dust disks in Upper Sco may be approximately three times smaller in size than their younger counterparts, although we caution that a more uniform analysis of the data across all regions is needed. We discuss the implications of these results for disk evolution.
https://doi.org/10.3847/1538-4357/aa989d DOI Article
http://iopscience.iop.org/article/10.3847/1538-4357/aa989d Publisher Article
https://arxiv.org/abs/1711.04045 arXiv Discussion Paper
Barenfeld, Scott A. 0000-0001-5222-6851
Carpenter, John M. 0000-0003-2251-0602
Sargent, Anneila I. 0000-0002-4633-5098
Isella, Andrea 0000-0001-8061-2207
© 2017. The American Astronomical Society. Received 2017 June 30. Accepted 2017 November 4. Published 2017 December 15. We thank the referee and statistics editor for their useful comments, which improved this manuscript. We are grateful to the ALMA staff for their assistance in the data reduction. The National Radio Astronomy Observatory is a facility of the National Science Foundation operated under cooperative agreement by Associated Universities, Inc. This paper makes use of the following ALMA data: ADS/JAO.ALMA#2011.0.00966.S and ADS/JAO.ALMA#2013.1.00395.S. ALMA is a partnership of ESO (representing its member states), NSF (USA), and NINS (Japan), together with NRC (Canada) and NSC and ASIAA (Taiwan), in cooperation with the Republic of Chile. The Joint ALMA Observatory is operated by ESO, AUI/NRAO, and NAOJ. This material is based upon work supported by the National Science Foundation Graduate Research Fellowship under grant No. DGE1144469. S.A.B. acknowledges support from the NSF grant No. AST-1140063. J.M.C. acknowledges support from the National Aeronautics and Space Administration under grant No. 15XRP15_20140 issued through the Exoplanets Research Progam. A.I. acknowledges support from the NSF grant No. AST-1535809 and the National Aeronautics and Space Administration grant No. NNX15AB06G. This publication makes use of data products from the Two Micron All Sky Survey, which is a joint project of the University of Massachusetts and the Infrared Processing and Analysis Center/California Institute of Technology, funded by the National Aeronautics and Space Administration and the National Science Foundation. This publication makes use of data products from the Wide-field Infrared Survey Explorer, which is a joint project of the University of California, Los Angeles, and the Jet Propulsion Laboratory/California Institute of Technology, funded by the National Aeronautics and Space Administration. This research has made use of the NASA/IPAC Extragalactic Database (NED) which is operated by the Jet Propulsion Laboratory, California Institute of Technology, under contract with the National Aeronautics and Space Administration. This work is based [in part] on observations made with the Spitzer Space Telescope, which is operated by the Jet Propulsion Laboratory, California Institute of Technology under a contract with NASA.
Astronomy Department
NSF Graduate Research Fellowship DGE-1144469
NASA 15XRP15_20140
NASA NNX15AB06G
open clusters and associations: individual (Upper Scorpius OB1) ; planetary systems; protoplanetary disks; stars: pre-main sequence
Scott A. Barenfeld et al 2017 ApJ 851 85

redpajama_set_name: RedPajamaCommonCrawl


Selena Gomez has entered a mental health facility suffering an "emotional breakdown", TMZ reports. She is now believed to be receiving psychiatric care somewhere on the east coast.
And in late September, Gomez raised eyebrows for blasting her interview in Elle's October issue, claiming it had misrepresented her despite being relatively innocuous.
The 26-year-old artist was apparently admitted to Cedars-Sinai Medical Center at the end of September when it was discovered that her white blood cell count was extremely low due to her kidney transplant.
Nearly exactly a year ago, Selena Gomez revealed she had undergone a kidney transplant due to lupus. Not being able to leave, Selena reportedly "freaked out" and was trying to rip IV's out of her arm.
Per TMZ, the singer and former Disney actress has been hospitalized twice in two weeks, and she reportedly suffered the breakdown during her second stint in the hospital.
Gomez has since been taken to psychiatric facility on the East Coast, where she is now receiving dialectical behaviour therapy. The "It Ain't Me" singer started giving away her clothes on Instagram and sent a weird message to Jennifer Lopez on Instagram, which was the final straw before announcing a social media hiatus. "I could've had a stroke", said Gomez of her break in a Billboard cover story.
She was previously admitted to rehab in 2014, following her Lupus diagnosis, and later said it was the 'hardest but best thing she's ever done'.
Bieber rekindled his brief relationship with Hailey Baldwin quickly after his final break with Selena and the pair got engaged just a few months after the split.


Fun, informative and thought-provoking golf features, commentary, and videos, looking at the latest golf news and developments in the female game.
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It's not just the floral caps and animal print shoes that captured the media's attention last weekend! Take a look at the PGA's round-up of an iconic weekend of golf.
Former World No 1 Lydia Ko might only be 21-years-old, but she is the player that many turn to for advice, and as far as her game is concerned, it's back on track.
What Happens When McIlroy Wins on St. Patrick's Day?


1 What exactly is Fluoxetine?
2 What should I know prior to taking Fluoxetine?
3 What happens in case a dose is missed?
4 What are the side effects associated with this medicine?
At this moment in time, there are hundreds of thousands of people from all around the world who suffer from conditions such as depression, anxiety, obsessive-compulsive disorder, panic and more. These issues can cause a large number of problems, which is why researchers have tried their best to come up with medicines which could be used to inhibit the symptoms of these conditions. One such example is Fluoxetine, which has been proven to be highly effective.
To put things better into perspective, Fluoxetine represents a selective serotonin reuptake inhibitor, also known as SSRI antidepressant. The substances that it is made up of work by affecting the brain chemicals in the brain responsible for the symptoms of the conditions. With this in mind, the drug is used to treat a couple of psychological disorders such as major depressive disorder, panic disorder, premenstrual dysphoric disorder, bulimia nervosa, anxiety and more. Together with this, the drug also has a couple of other medical purposes.
What should I know prior to taking Fluoxetine?
To kick things off, it is important to make sure that you only take the medicine if it has been prescribed by a doctor. When patients seek a consultation, they should inform themselves on what medicines are not compatible with Fluoxetine. A couple of examples include MAO inhibitors and other anti-depressants. Make sure to always take your doctor what other pills you are on, in order to avoid a miss-diagnosis and taking a wrong treatment. Do keep in mind the fact that due to the nature of the medicine, some patients have had suicide thoughts when they first started taking the medicine. This is why new patients may be required to have regular physician check-ups, as an effort to make sure that everything is going according to plan.
Additionally, it is also important to keep in mind the fact that the drug should not be taken during pregnancy, due to the fact that it has been proven to cause serious lung problems to the baby. In terms of taking the pills, it is important not to crush, break or chew them prior to swallowing. In case the physician has prescribed liquid medicine, always make sure to take the right dosage.
What happens in case a dose is missed?
In case you happen to miss a dose, simply take the next one as soon as you remember. If the next scheduled dose is nearby, then simply skip this one and take the next one. In the unfortunate case of an over dosage, patients should seek emergency medical help to prevent any serious issues from happening.
Some of the common Fluoxetine include headaches, vision changes, tremors, sleep problems, strange dreams, fatigue and more. In case patients experience more serious side effects, then it's advisable to seek medical help urgently.
In terms of purchasing the drug, this can be done for an affordable price from both online and local authorized pharmacies.


text:
Union activism lays foundation for retirees work with Peace Corps
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Posted August 6, 2018 by Liza Frenette
During his 40 years of teaching biology, anatomy and life science in Orchard Park, Tony Agnello was also busy experimenting with how he could improve the lives of others.
Now in retirement, he is strengthening and mobilizing community outreach through his work with the Peace Corps Alliance for Intercultural Understanding — doing so at a time in which democracy is under attack, and while fear and disillusionment reign.
"My personal intention is to spark the interest of teachers and community members to work with local Peace Corps and volunteer agencies, in stark contrast to the fear-mongering now happening in this country," Agnello said.
Agnello is a Returned Peace Corps Volunteer who served in Afghanistan in the mid 1970s. After the terrorist attacks of 9-11, he became a leader of Orchard Park Educational Outreach, a high school service organization at Orchard Park High School. Through battles of the bands, car washes, dances and other means, OPEO raised money with dozens of high schools in western New York in support of female Afghan students who were denied an education by Taliban extremists.
And now, Agnello has resurrected his involvement in the Return Peace Corps Volunteer to counteract the scapegoating of marginalized people in this country and to re-educate people about the founding principles of our democracy. The foundation of his work as a Return Volunteer parallels the union work that he did for years as past president of the Orchard Park Teachers Association.
The three legs that make up the tripod of Peace Corps Alliance for Intercultural Understanding are education, advocacy and organization.
"I gleaned these concepts and I am dedicated to their importance through my earlier work with NYSUT, the American Federation of Teachers and the AFL-CIO," said Agnello, who became active in the union shortly after being hired in 1975 and taking part a few days into his new job in what was then the longest strike in New York state history.
"During this protracted period, I became aware that only teachers can appropriately look out for, and safeguard, our professional interests," he said. "Today, not only is the right to collectively negotiate the terms and conditions of our service being challenged (in wake of the Supreme Court ruling in favor of Janus), but so is the independence of the free press and the rule of law.
"The American Labor movement has been the most civilizing force for economic and social justice in the history of the world," he said. "American unionism has raised more people out of poverty than any other force in human history, and it sets the standards through which non-union workers also benefited. If we mark the decline in numbers of union-represented employees, one would see an eerie parallel with the decline of the middle class. And that is not accidental."
Agnello was recruited into a Teacher Corps/Peace Corps program through Buffalo State College and the Lackawanna School District. The program was specifically designed for the government of Afghanistan to reform their math, science and English education curriculums. Following the 1979 Russian invasion of Afghanistan — and, into the 1980s — he helped resettle dozens of Afghan citizens through the Afghanistan Relief Committee.
This retired teacher uses the knowledge from his international travels to help inform his work. Following his stint in the Peace Corps, he worked in Kabul for a year as the founder-director of a youth center. Then in 2003, he returned to his Peace Corps host country to oversee the outcome of a Western New York student fund-raising project that provided the resources for building two schools for Afghan girls. Three years later, he returned for a more ambitious visit to Afghanistan and oversaw the completion of four more gender-equity projects.
Agnello's last regional project resulted in students from 20 schools in four districts gathering and sending a ton-and-a-half of school supplies to 10 school systems in Afghanistan.
Agnello also carries forward what he learned on the gridiron as a junior varsity and varsity football coach for four decades, by currently teaching senior citizens about movement, balance and resistance training through the Erie County Senior Volunteer Program. And though he said he might not be asking them to smash into tackling dummies, he does ask them to "go long."
"I always end each class with what I describe as conscious breathing and smile yoga," Agnello said. "Then I review why these apparently spiritual practices are in fact well-established, scientifically based wellness principles."
Meanwhile, his ongoing social justice work includes helping a large Yemeni population in Lackawanna, he is also active in intercultural and anti-bigotry projects coordinated through the Buffalo Return Peace Corps Volunteers.
"I intend to organize a human equity movement among RPCVs that will reintroduce the American Exceptionalism that President Kennedy envisioned in proposing the Peace Corps," he said.
"Retired and mid-career RPCVs can dust off their intercultural and linguistic skills and demonstrate to our fellow Americans that marginalized and new Americans pose no threat to other Americans," he said, noting that as the son of a Sicilian father, the immigrant experience and the prejudice of being described as "the other" was significant for him.
Agnello said he began the Peace Corps Alliance for Intercultural Understanding "to address the rising tide of Islamophobia and bigotry that was being ginned up during the 2016 election cycle."
The group was formed at the request of the Afghan ambassador to the United States, Hamdullah Mohib, and by Vera Coppard Leibovic, a kindertransport Holocaust survivor, who told him:
"I have heard this talk before. You have to do something."
For more information on joining or starting a group, contact Agnello at tony@afghanconnections.org.
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