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This is the 6th sixth post in the series: " Seeking a consensus on GHG reduction targets ". In earlier posts we suggested 4 prop...

Sunday, 29 May 2016

Malcolm must cut through

Lets face it, at this stage the trend for the LNP is down. Turnbull's popularity has peaked and he is facing the serious prospect of losing this 'un-lose-able' election. Shorten is nipping at his heels, the Delcons are biting at him and even his closest supporters express their frustrations. While the media point at marginals saving the day, the trend is clearly not Turnbull's friend.

An aside to the Delcons

While I am very sympathetic with the Delcons, I fear, yes fear, for our country should the ALP/Greens get back into power so soon after their crushing defeat of 2013.

Such a win would bring back the very policies that transformed an economy that was the envy of the world to what is now just one economic shock away from a basket-case.

The carbon tax would be back, the boats would be back, profligate spending would be back, taxes would rise and productivity would continue to dwindle. Federal Government debt would grow at a greater rate, leaving us vulnerable to external shocks, and in the end despite the ALP's rhetoric supporting the working man, wages and job opportunities would suffer. 

The LNP under Turnbull is no panacea. But just consider the alternative! If you really, really want to save Australia then it is time, perhaps not to unite, but at least tone down the rhetoric. Currently you are playing into Labour's hand. Even if Turnbull wins this election he will come out of it very much chastened, and, post election, there will be time to right the port-side list of the party.

Cutting through - refine the message

As for Turnbull, most commentators suggest Turnbull needs to cut through by focusing on the core issues and on those parts of the electorate that are open to persuasion. 

The single key issue for Australia today is the economy, so the LNP's central message should be to "Live within our means" 

I would gradually ditch the "Jobs and growth" mantra. It is too general, does not address the very real budget problem our country confronts. Moreover it is weak because it lacks a call to action.

"Live within our means" aligns with the electorate's acceptance that the LNP are better economic managers.

Yeh, I know they have made mistakes. Yet despite that, they are still better economic managers. Just look at the record.  Notwithstanding ALP/Greens' thwarting Abbot's attempts at proper budget repair, the trajectory of rising debt left by the ALP has been shifted significantly downwards. Debt is rising slower than under Labour. Certainly that is not enough, but much better than under Labour.

Moreover they can point out the measures, the Schoolkids bonus and pension limits, that the ALP promised for years to re-instate, only to break their promises when facing close scrutiny of their Budget 'black hole". Incidentally highlighting the sheer hypocrisy of the ALP.

The LNP are the better economic managers should be the subliminal message underlying all the economic arguments. It is a winner. 

Cutting through - hone the delivery

Turnbull needs to control his verbosity and tendency to drift off topic. He should get back to some simple slogans. Yes, that can be annoying, especially if there is nothing more. But it should be repeated as part of a more complete dialogue. Stick to the simple message when your audience is not that engaged, and roll out the more complete message if it is an appropriate forum.

Cutting through - don't be afraid to attack

Finally Turnbull should get out the attack dogs and do more direct attacking himself.

Remind those with a short memory what it was like under labour!
  • Warn the wavering about Shorten defending lawless Unions, re-running a Carbon tax, ALP's tax-n-spend addiction
  • Remind those forgetting about the various hare-brained schemes/policies dreamt up by the ALP and their tendency to waste tax-payers' money. Mention pink bats, banning of live-cattle exports or the ideafest bringing together the 1000 best brains in Australia.
  • Alert the electorate that the LNP has again cleaned up the mess that Labour created on border control. Given the large split in the ALP on asylum seekers no doubt they will water down current  measures and inevitably the ALP will re-start the boats. Shorten may scream long and loud that this won't happen, but hadn't we heard that from Labor before? Rudd had also said he would protect borders only to weaken protections leading to 50,000 asylum seekers and 2000 drowned at sea. You cannot trust Labour on border protection!
I guess you can see the picture.

In any case I can think of no better cut through attack message than that posted by @jude_francis on twitter the other day

The truth laid bare in but a few short sentences. That is cut through.

Tuesday, 24 May 2016

Empty vessels

Listening to Bowen's interview on ABC AM radio program this morning was painful. He is nothing if not fluent, spewing words at breathtaking speed. Arguments dart this way and that as if a random argument generator has been programmed to change arguments every 30 seconds,
Who cares if he contradicts himself  every now and then, after all even an expert interviewer has trouble following him and even if he does stands little chance of probing some of his answers. I wont even mention the listener, we have no chance. So once he has started we switch off.  Perhaps that is his purpose. If he keeps talking the interviewer has no chance of asking secondary probing questions. Also if you keep talking, the time allotted for the interview will have been used to push your scripted attacks on the government.

The questions were well framed, concise and and targeted.

The answers however simply rapid, verbose, mechanical and scripted.

Consider just this small exchange at the start of the interview;

"MICHAEL BRISSENDEN: Now the Government accuses you of having a $66 billion black hole. Now let's put aside the feverish rhetoric for the moment, but you are spending more than the Government in this campaign so far. Is that a responsible approach.

CHRIS BOWEN: No, and the fantasy that the Government has... where 'no' is the answer to the premise of your question. 

The fantasy that the Government is putting about today just underlines the fact they have no policy vision of their own. 

The Government ministers - the Treasurer, the Finance Minister - are spending a whole lot more time talking about Labor policy than their own.

Now the biggest hit to the budget, the biggest single hit to the budget, during this election period has been this Government's reluctantly costed and completely unfunded $50 billion corporate tax cut. 

Now we will not take any pious lectures from a Government which has at the centrepiece of its budget a tax cut which they wouldn't tell the Australian people how much it would cost - so much for transparency - and is completely and totally unfunded and a piece of fiscal recklessness.
Good straight forward question. But the answer? After all the words what did he say ? I am not sure, but all I can see is that he seemed to agree that Labour's approach was not responsible. I am sure that was not his intention.

The rest seems to be mechanical, scripted attacks on the government, not addressing the question.

Ok maybe that was just an exception, what about the next question.

MICHAEL BRISSENDEN: But you've banked that tax cut as a credit, haven't you? $50 billion credit that you're busily going around spending.

CHRIS BOWEN: No, it's a measure we won't proceed with, obviously. And when our fiscal bottom lines get compared during the election campaign, they will have that black hole and we will have our spending and saving commitments. 

Now we've taken a responsible approach. Now, in that same week in which Scott Morrison and Malcolm Turnbull announced their $50 billion corporate tax cut, Bill Shorten replied on behalf of the Opposition. 

Remember Scott Morrison saying that morning, "When Bill Shorten speaks tonight, every time he moves his lips he'll be spending"? Not one single spending commitment in the budget reply. In fact, a further $70 billion worth of savings. 

So we've taken a responsible approach. We've dealt with issues which have been in the 'too-hard' basket for 30 years, like negative gearing. 

The Government's not had the courage to do that. We're showing that we are a viable alternative government by setting the policy agenda, by having a very responsible approach, and when the two sides' fiscal bottom lines are compared during this election campaign, I think you'll see that Labor has taken a particularly responsible approach. 

We don't see a return to budget balance and a proper investment in our schools, for example, as being a choice. 

We see them as both being complementary and essential for a modern economy, where a proper plan for budget repair which is far, but an investment in the social capital of our nation.

Now, this election is about choices. Yes, we're investing in schools, absolutely. 

We don't hide from that, we're very proud of it. The Government, their big commitment is a corporate tax cut, which is completely unfunded. Now they say they can't afford $37 billion for schools. They say that's completely reckless. They say it can't be afforded. But they magically can afford a $50 billion tax cut for big business, and we are more than happy to have that debate.
Another concise question gets the Bowen word machine going. Most of the response is simply wasting time with Bowen's typical mechanical mindless drivel.

Yes it sometimes returns to the topic, yes there are some relevant points, but in order to maintain the break-neck delivery, thinking, any thinking before talking, is left by the wayside. The result is a barely intelligible flow of rhetoric. And he does it all the time. I am surprised no one has tapped him on the shoulder to change his style.

Empty vessels do make the most noise!

Thursday, 19 May 2016

Inconvenient truth on Fairness

In what has become an unplanned serial I have explored some 'inconvenient truths' behind central policy differences between the ALP and the LNP. Previous posts have covered Education and Superannuation. In this post I want to look at Fairness. While Fairness is not really a policy, it has certainly been a principal war-cry of the ALP and the Greens. It was used very successfully against the first Hockey Budget of 2014 and indeed by the senate cross-benchers to justify their stance against government legislation. So it is not surprising that it has been brought into action in this election battle.

What is the Fairness argument?

The Fairness argument is rarely stated clearly. It is usually purveyed by implication or innuendo and takes many forms.

Some of the ways include;-
  • The distribution of wealth in Australia is inequitable,
  • a small proportion of very wealthy individuals control a disproportionately large share of the country's wealth. 
  • The very wealthy get a disproportionate share of services yet they do not pay their fair share of taxes.
  • Negative gearing is used by the wealthy to avoid paying their fair share of tax 
  • You can always increase taxes on the rich they can afford it.
  • The best private schools have plenty of money so should not receive any government funding
The argument is often dressed in softer terms of  "'equity", "fairness" or "justice", but in essence it appeals to the most base element of human nature, envy.  It appeals both to low income earners and welfare recipients who feel they are victims of an unfair system and also to some extent to the struggling middle income group who see real wealth as unattainable. This is a sizable proportion of the community. As a political tool it serves its purpose well. However there are some inconvenient truths.

Inconvenient truth 1; Incentive drives prosperity for everyone

The idea of raising taxes on the rich to bring "social equity" is not new. It has been tried in small and large measure in many countries over the years. At its extreme the communist doctrine "From each according to his ability to each according to his needs "  embodies the redistribution of wealth from rich to poor to create an "ideal" society. While communism actively supported the poor and weak and resulted in a somewhat more uniform standard of living, it did so by punishing the successful, the aspiring, the gifted, the hard workers. The consequences in all countries where it was instituted, in full or in part, was a stultifying lack of incentive to strive, resulting in lower production and leading to universal poverty. Everyone loses. Recall the sheer poverty of the Soviet Union and its iron curtain vassals at its collapse, or the impact of the 'Cultural Revolution' in China with millions dead through starvation.

Any tax that places a disproportionate burden on 'the rich' reduces incentives for all workers and ends up diminishing the wealth of the society as a whole. On the other hand societies that reward hard work inspire the whole workforce and generate prosperity for all. Consider the miracle economy of Singapore for example.

Inconvenient truth 2: Money has no borders

Today with the globalization of commerce money has no borders. Corporations and individuals can readily re-locate to lower tax countries. High taxes on Australian companies and individuals will simply lead to emigration. Indeed with higher personal income tax rates and higher company tax rates than the average around the globe, this has already been happening. For example a high income earner in a global business can readily relocate to Singapore with a maximum personal income tax rate of 20%. Similarly corporations can pick many competing low tax regions for branch or even their head offices.(BHP, James Hardie, etc.)

The bottom line is that Australian personal and corporate tax rates must compete in the global market and failure to compete will accelerate the emigration of the best most productive individuals and companies and diminish the prosperity of all.

Inconvenient truth 3: The politics of envy generates social unrest
Finally the real downside of the "Fairness", or really "class warfare", argument is the impact it has on society as a whole. The more frequent, widespread, and shrill the calls for social equity, the greater the general dissatisfaction of everyone in a society. By constantly repeating class warfare arguments our politicians engender distrust and resentment against each other. This can, if not managed, lead to social unrest. This is a by-product of the "fairness" argument that is too often ignored by our pollies and the media.

So what does this mean for our election campaign?

Evidently the Fairness argument can be aimed at virtually any policy that the LNP proposes. If it proposes to remove the 'temporary' Deficit levy paid by high income earners then it is pandering to the rich. It does not matter that if the LNP had not removed the temporary levy it would have been breaking its own and the ALP's commitments to the electorate.

If the LNP proposes to reduce Company taxes over a decade, then the ALP declares it is pandering to business interests notwithstanding that reductions in corporate taxes lead to greater employment, high wages and growth in the economy.

Even with the proposed Super changes that have caused widespread resentment among many LNP supporters, the ALP says "its not enough, the rich can pay more".

So the ALP/Greens have plenty to go on about. Australia has many successful, rich people who live in expensive homes and drive expensive cars. They serve as obvious targets to stoke the envy in all of us.

At the same time it must be said the LNP has failed to address these arguments head on. This is not entirely surprising. With half the electorate already paying no net tax, there are many voters with a vested interest in the current state of affairs. They may see any lowering of taxes for "the rich" as a potential extra cost to themselves. Consider the recent QandA 'hero' who by his question concisely embodied this attitude.
"Why are 'the rich' getting a tax cut and I don't get anything"
Forgetting of course that he has not been paying any tax and has been the recipient of welfare that was paid for, at least in part, by those 'rich' he envies. Australia's problem is that this 'entitlement' mentality is becoming increasingly pervasive.

Countering the 'Fairness' argument

Convincing the electorate that by reducing taxes on companies and high income earners will generate incentives that will work to produce growth and "raise all boats", is not an easy task. But there are some non-confrontational approaches to sell the message. Consider these 2 ; -

1. Set an INCLUSIVE vision to which we can ALL aspire

Our PM, Mr T, has tried to sell a vision for Australia with 'Innovation' as the key to 'jobs and growth' in an 'agile' economy.
The problem with this vision is that most older and less educated voters will not feel they are part of this vision. For many it is a warning of potential redundancy in a new, modern world in which they have no part.

The LNP, or Mr T, should carefully phrase his statements to include all Australians. When he talks about aspiration it has to apply to everyone.

Perhaps something like; 
"Australia is a lucky country, with plentiful natural resources and an inclusive culture that takes care of the needy and provides equal opportunity to all to achieve their maximum potential. We want to build on past success in developing not only our resources and agriculture but to develop new industries that employ all our people.  We will aspire to do this through incentives for investment in education, research and development and new industries. At the same time no one will be left behind.  We will strive to provide equal opportunity to everyone to access social services, education healthcare and employment. We will ensure our welfare safety net provides for the needy. While we approach the future with enthusiasm we will not abandon the industries that provide work for the much of our workforce. We will move gradually to create an Australia in which every Australian can participate productively."
Perhaps a bit wordy but then again it may suit Mr T to a T.

2. Repudiate EVERY claim by the ALP/Greens about 'unfairness'

Do not allow any claim of "unfairness" without repudiation. Left without a response gives the impression that the claims are justified and sets long-term perceptions.

There are always good arguments to counter claims of 'unfairness'; -
  • Company taxes are lower in countries that have high growth economies. This leads to more jobs. We want to grow our economy to make everyone prosper
  • Negative gearing is used extensively by low and middle income earners and contrary to ALP arguments they get a higher proportionate tax saving than high income earners. 
  • Lowering the tax rate for middle and high income earners can be addressed with two points; -
    • bracket creep has been eliminating the progressive nature of tax, the tax cut is therefore required to ensure the progressive nature is maintained
    • Super measures in the budget provide benefits to lower income earners and make significant imposts on high income earners
  • and so on
It is important to avoid the technicalities of these arguments, indeed the economists can handle that. The point is be willing to face the claims head-on, present the other side of the argument and not to leave any claims unchallenged.

Time to face Fairness head on

The election is still many weeks away yet the Fairness argument is being actively used as a weapon of choice.

If the LNP fails to speak up and quietly acquiesces to this false narrative, no matter which party wins the election, incentive will continue to be squeezed out of the system and over time our prosperity will dwindle.

Tuesday, 10 May 2016

Inconvenient Truths on Superannuation

In my last post (Inconvenient truths of Education spending) I covered the problems with Education spending election commitments, today lets look at Superannuation.

As with education, Superannuation is another key election battleground with each party claiming they are making the system more sustainable by clamping down on unreasonable concessions to wealthy individuals.

But are they?

Inconvenient Truth 1:

Super is not meeting its core objectives to enable individuals to achieve self-funded retirement and reduce the welfare burden on the state.
In earlier posts (Not so super , Making Super work and Super Solutions ), I wrote at some length about the failures of our Super system so here is just a summary;
  • Under current prevailing conditions of inflation, contribution rates, rates of return, most workers will have to rely on an aged pension in their retirement.
    • A person on minimum wage, after sacrificing 9.5% of their salary for 30 years, will have an annual pension return of a mere $6,000 pa. This is not nearly enough to meet their living costs and well is below the Single Person Aged Pension rate of $20,498 pa. 
    • A person on average earnings will earn $15,000 pa from their super after 30 years, still below the aged pension. 
    • You have to be earning above $150,000 pa to be self funded on retirement.
  • Projection to 2050 shows that this will not improve (see National Commission of Audit
    • By 2050, the same proportion of the workforce will be on pensions as there are today
    • By 2050, Government expenditure on pensions is expected to increase by over 40%

In short, the Super system is broken.

Inconvenient truth 2:
The policies of neither party attempt to remedy the failure of the system. Indeed by their changes they further threaten its viability.

Both parties have prepared a whole raft of changes to Superannuation. So whichever party wins the electtion there will be changes.  The proposed changes are detailed widely (see 2016 Federal Election: What superannuation and retirement policies can you expect? ) but here are just the core elements; -

The LNP plans to ; -
  • Introduce a transfer balance cap of $1.6 million on retirement balances.
  • Lower the concessional contributions cap to $25,000.  
  • Lower the 30% contributions Tax income threshold from $300,000 to $250,000.
  • Introduce a $500,000 lifetime cap for non-concessional (after-tax) contributions. 
  • remove the age and working status limits on contributions
The ALP plans to ; -
  • Introduce a 15% Tax on super pension investment income in retirement when it reaches above $75,000.
  • Lower Contributions caps similar to LNP (but not fully confirmed)
  • is yet to indicate its position on some of the LNP provisions announced in the budget
As we are in the throes of an election campaign these policies are ill-defined and may be massaged given electorate reaction. 

But the direction is clear. Both parties plan to clamp down on what are seen as overgenerous concessions to the wealthy and collect some much needed funds for the very real need for 'budget repair'. 

But are they throwing out the baby with the bathwater?

I have not seen any modelling of the impact of the changes proposed by either party and I suspect we wont during the election campaign. The parties will avoid this scrutiny because their measures are likely to impact negatively on the effectiveness of super for achieving self funded retirement. By targeting high income earners some individuals will no doubt fall below the self funded threshold resulting in an increased number of retirees relying on the aged pension and further increasing the welfare burden on the state. Certainly the constant fiddling with Super has already undermined confidence in the system.

Rating the measures

With a system already failing to meet its objectives what could the government have done? And how do the proposed changes measure up? 

No doubt the treatment of Superannuation has been very generous to the very well off, and capping of the concessions is justified.  The LNP's introduction of an indexed cap on the tax free retirement balance is a sensible way to limit concessions.  If inflation indexed $1.6 m represents the single person threshold for self funded retirement then the government should encourage all contributions up to that point but give no concessions above that value.  

For example consider the following Super rules as an alternative to those proposed by the parties.

While the retirement balance is below the $1.6m threshold;-
  • there should be no limits on the value of non-concessional contributions
  • similarly there should be no limit on the value of concessional contributions. Why limit the contribution in any year when there is a limit to the total?
  • the tax discount on concessional contributions should be expressed as a discount on the marginal rate of the individual, say 50%. This avoids the arbitrary 'class' defining cut-offs between the 'average' and the 'well-off' that seems to be a point of debate by small minded politicians.
  • retain the concessional tax rate on a superannuation fund's earning during accumulation phase, I would stick with the current 15%
Once the balance reaches the $1.6m threshold there should be no tax concessions at all.
  • no compulsory deduction from salary
  • no concessional contributions at all
  • no non-concessional contributions
Withdrawals in any year that would take the balance below the $1.6 m threshold should be limited to at most 5% of the fund.

Of the key measures announced by the parties only two stack up as being beneficial. The balance cap serves to limit tax concessions for the wealthy without affecting the goal of self-funded retirement. Similarly the removal of age and work status related limits on contributions encourages individuals to contribute to their super.

All the other measures impose limits that discourage savers and only undermine what little faith the electorate still has in Super as a source of self-funded retirement.

Looting the electorates'piggy bank

The grab for the glistening Superannuation gold is counterproductive. The industrious will be discouraged from saving, Aged Pension welfare costs will rise, and governments will no doubt have soon spent whatever few dollars they saved from these measures and once again be looking for funds.

Monday, 2 May 2016

Inconvenient truths of Education spending

With the election still (too many) months away there is already so much excrement flying around one must keep their head down. Yet I cannot help raising some inconvenient facts that seem to be ignored in the political brouhaha.

Lets take just a look at education spending. Leave behind all 'opinions' and look at just those facts that are not disputed by any of the political parties or the commentariat.

The inconvenient facts are just these; - 

Inconvenient fact 1:

Australia has substantially increased its education spending in real terms over the last decade. Yet, in the same period, Educational outcomes have not improved but if anything deteriorated.

Inconvenient fact 2:

Across the world educational spending does not correlate with educational outcomes. (see Figure 1 below and the earlier post Education Spending scores an "F" giving some background.)

Given these inconvenient facts how can anyone justify more spending on education?

The LNP has just committed some $1.2B to the states for education, this comes after their more sensible proposition to limit spending at the 2014 budget. Still this is far less than the ALP's commitment of $4.5B over the forward estimates, amounting to ~ $37B over the next 10 years. 

Even if Australia had zero debt, and had money to burn, it would be a reckless politician who simply threw more money at a problem that has undoubtedly become worse despite more money. Yet our politicians are doing just that. Simply ridiculous! Clearly this is not their own money. Even a politician would not put more of their own money into an enterprise that generated less desirable outcomes by his so doing.

And yet our professional media, the 'last bastion of truth', is sitting mum. They are very busy, massaging, organizing and presenting election policies in the manner most convenient for their preferred political party. Yet they ignore the inconvenient truths. As if we were in the fairy tale and no one is willing to say it, "the emperor is naked"!

Spending more money on education is not the answer.