tag:theconversation.com,2011:/global/topics/federal-budget-2015-15493/articlesFederal Budget 2015 – The Conversation2016-05-03T20:34:41Ztag:theconversation.com,2011:article/588132016-05-03T20:34:41Z2016-05-03T20:34:41ZMorrison’s message is light on ideology and strong on soothing ahead of the election<figure><img src="https://images.theconversation.com/files/121010/original/image-20160503-19847-sl5c7h.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Treasurer Scott Morrison insisted this is 'not an ordinary budget', but a 'plan'.</span> <span class="attribution"><span class="source">AAP/Lukas Coch</span></span></figcaption></figure><p>Who among us, watching Joe Hockey deliver his “lifters and leaners” budget speech just one year, 11 months and 21 days ago, would have thought that this first-term Coalition government would so proudly hand down a budget so light on ideology?</p>
<p>There is ideology in the 2016-17 budget, to be sure. Perhaps the best example of that is the redefinition of a small business, up from A$2 million in annual turnover to $10 million, and the cut in the tax rate to the businesses that will populate that dramatically expanded sector. That’s all part of a ten-year tax plan that ultimately promises an across-the-board company tax cut.</p>
<p>But ten-year promises in a country with a volatile three-year electoral cycle aren’t worth much, and there’s also a slug on the superannuation perks enjoyed by the very wealthy and a harder crackdown than last year’s on tax avoidance by big international companies</p>
<p>It’s a heavy contrast with where this government started.</p>
<p>Back when Hockey thought he had a happy future as treasurer, and was taking on the “age of entitlement” in the Abbott government’s first budget, the “budget emergency” created by Labor necessitated drastic action. Industry assistance was killed. University fees were to be deregulated. Pensions and family payments were to be squeezed. People going to the GP were to be slugged with a co-payment designed in part to discourage them from going to see their doctors so frequently.</p>
<p>And then there were the young unemployed. They were told that if they were under 30 and found themselves out of work they would have to wait six months before being able to get the dole.</p>
<p>It was harsh and unexpected, and it was about remaking the nation, reducing the role and the size of government. Australia would be recast as a nation of self-reliant, self-starting types. Voters weren’t interested.</p>
<p>Last year’s budget, which was fashioned in the wake of Tony Abbott’s (and, by implication, Hockey’s) near-death experience in the Liberal partyroom, was the transitional document to this one. It abandoned the deficit hysteria. It had to, if only to lessen the embarrassment to the then prime minister and treasurer, caught out as they were by their previous budget pronouncements.</p>
<p>It trialled the jobs and growth mantra that is central to Scott Morrison’s 2016-17 budget. It set the pattern for this budget. It was big-spending, big-taxing. The wild predictions of a budget surplus inside this term had been well and truly abandoned.</p>
<p>And it decided to be nice to the young jobless, who have come to act as the canary in the budget coalmine for this government. In this budget, young people who are out of work get even more love and attention, with an expanded work-for-the-dole type program offering them internships that purportedly train them to be job-ready.</p>
<p>There is a clear rhetorical gap in Morrison’s message. On the one hand he is saying that Australians – employers, employees, government – must live within their means. On the other, he is delivering a budget program that, far from eliminating the deficit as promised at the 2013 election, is built on an even higher level of spending than the expenditures associated with the previous Labor government.</p>
<p>Government spending in 2016-17 will be the highest as a proportion of GDP outside a recession. The last budget deficit was $33 billion. In this budget it is predicted to be $37.1 billion.</p>
<p>In an interview soon after delivering the budget, Morrison acknowledged that the economy was “difficult” and it had proved to be hard to stimulate investment.</p>
<p>Clearly, it is not a radical budget. The hair shirt has well and truly been cast off. It definitely contains the key characteristics of traditional pre-election budgets. It is not a spending spree, full of big handouts. But there are some for middle-income earners and small businesses, and it has the optimistic settings that any government looking to be re-elected has to take up.</p>
<p>The message is that everything’s OK, the transition from the mining boom is underway, all will be well, your kids will get jobs. Don’t worry. No-one is being robbed by the government – not anyone that most of you would know, anyway.</p>
<p>Is the optimism justified? Growth is predicted to stay at 2.5% in this budget period, rising to 3% next year and the year after that.</p>
<p>It seems a bold assertion given that while the budget lock-up was going on the Reserve Bank cut the cash rate to 1.75%. Interests rate are at an historic low, which suggests that deflation is a danger.</p>
<p>Every treasurer believes their budget is the game-changer. Morrison repeatedly characterised his first budget as “not a typical budget, not an ordinary budget”. Instead, he insisted, it was “a plan”.</p>
<p>Australia has seen a lot of plans in recent years. It has also seen quite a few treasurers of late; Morrison is the fourth inside three years. Hockey’s first budget was a plan but that plan crashed. This was a don’t-frighten-the-horses pre-election budget that will probably be subsumed into the campaign a week from now. </p>
<p>Politically, it could have been worse for a government that hasn’t had a good election year so far.</p><img src="https://counter.theconversation.com/content/58813/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Shaun Carney does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>After two Coalition government budgets heavy on ideology, this one is a quieter, don’t-frighten-the-horses document paving the way for the election.Shaun Carney, Adjunct Associate Professor, School of Social Sciences, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/586272016-05-02T02:47:57Z2016-05-02T02:47:57ZWhere are they now? Tracking down the promises of budgets past<figure><img src="https://images.theconversation.com/files/120800/original/image-20160502-28139-1wd877z.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Treasurer Scott Morrison revive the Ghosts of Budgets Past in this year's budget speech?</span> <span class="attribution"><span class="source">AAP/Mick Tsikas</span></span></figcaption></figure><p>The federal government has a tough task in this year’s budget. After two years of stressing its “spending problem”, it is expected to match its rhetoric by demonstrating genuine progress in reducing government spending as a share of the economy. But it has few easy options for making large savings. </p>
<p>In fact, if it wants to make cuts, it will almost certainly have to revisit some Ghosts of Budgets Past to revive or repackage old reform proposals. But this approach is fraught with political pain. So what is the status of past spending measures? And what might the government do on budget night?</p>
<h2>Higher education</h2>
<p>The government surprised everyone when it introduced such a broad suite of higher education reforms in its 2014-15 budget. </p>
<p>The Senate blocked the major measures – deregulation of student fees and a reduction in per-student subsidies paid by government. Simon Birmingham <a href="http://ministers.education.gov.au/birmingham/keynote-address-times-higher-education-world-academic-summit">announced</a> that the government would delay the package to undertake further consultation after he became education minister in September 2015. Yet the substantial savings from the reduction in subsidies remain factored into the budget bottom line. </p>
<p>The government is <a href="http://www.afr.com/news/politics/election/government-to-try-to-soften-university-fees-blow-20160428-goh1xd">reportedly considering</a> several options in this budget. The first is a modified fee deregulation proposal, with caps on the maximum amount that universities can charge. Caps might take some of the political heat out of the changes, reducing the possibility of a scare campaign around A$100,000 degrees. </p>
<p>If universities are allowed to increase fees by as much as the government cuts subsidies, there will be no change in revenue for universities. But students will pay a greater proportion of the costs of their courses. </p>
<p>Other potential measures include reducing the income threshold at which graduates repay their student debts, winding back Commonwealth scholarships for disadvantaged students, and cracking down on the use of the HELP scheme for the vocational education and training sector. </p>
<h2>Health</h2>
<p>The health policy measures from the 2014-15 budget were among its most controversial. The proposed $7 GP co-payment (and associated cut in the Medicare rebate for GP visits) was shelved by then-health minister Peter Dutton in September 2014. </p>
<p>Three months later, the government announced a new iteration of the policy: a $5 cut to GP rebates, a larger cut for short consultations, and a freeze in rebates until 2017. After Sussan Ley became health minister, the cuts for shorter consultations and the co-payment were officially dropped. </p>
<p>On the other hand, $800 million in proposed savings from increases to Pharmaceutical Benefits Scheme co-payments and the safety net remain on the books despite Ley acknowledging that the measures are “<a href="https://ajp.com.au/news/ley-backs-away-from-safety-net-copay-increase/">not going to pass parliament</a>” because the Senate crossbenchers oppose them.</p>
<p>The fraught politics of co-payments will probably put any further attempts to change these arrangements for GPs and pharmaceuticals into the too-hard basket. Ley’s review of the clinical effectiveness of the 5,700 items on Medicare Benefits Schedule could yield potential savings, but it will not report until the end of the year.</p>
<p>But, tightening up on prices the government pays for <a href="https://grattan.edu.au/report/premium-policy-getting-better-value-from-the-pbs/">pharmaceuticals</a> and <a href="https://grattan.edu.au/report/blood-money-paying-for-pathology-services/">pathology services</a> could yield more immediate benefits.</p>
<h2>Age Pension</h2>
<p>Foreshadowing the government’s <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2015/2015-Intergenerational-Report">2015 Intergenerational Report</a> and its alarming projections of population ageing and budget ruin, it introduced several measures to rein in age pension spending in its 2014-15 budget. </p>
<p>These included lowering the indexation rate of the pension – a change intended to reduce pension increases over time – and increasing the age at which people can access the pension from 67 to 70, with increases starting in 2025.</p>
<p>Again, the pension changes did not pass the Senate. The government abandoned the proposed changes to indexation arrangements in its 2015-16 budget, putting forward an alternative measure to increase the rate at which the pension is withdrawn for wealthier pensioners. </p>
<p>The Greens agreed to pass these changes in return for reinstating a review of retirement incomes, including superannuation tax concessions. </p>
<p>The proposed increase in the Age Pension age to 70 is still unlegislated. While it remains on the books it has no effect on the budget over the four-year forward estimates. </p>
<p>The government is highly unlikely to reform the Age Pension further in this budget. The focus in relation to retirement income will be on superannuation. The Government has confirmed its will somewhat <a href="http://www.abc.net.au/news/2016-05-01/changes-to-way-superannuation-top-ups-taxed-on-budget-agenda/7373712">wind back tax concessions</a> for superannuation contributions made by high-income earners. </p>
<h2>Family payments</h2>
<p>Family payments were one of the few major spending areas the government had not promised to shield from cuts before it was elected in 2013. So, cuts in the 2014-15 budget were not unexpected. </p>
<p>The changes, which included freezing increases in payments to compensate for inflation and ceasing payments for Family Tax Benefit B to families with a youngest child six or older, would have reduced expenditure by over $7.4 billion. </p>
<p>After legislation stalled in the Senate, the government successfully negotiated a redesigned family payment reform package in return for passing a $3.5 billion increase to childcare subsidies in its Jobs for Families package. The combined effect of the family payment and child care changes was a package that was roughly budget neutral. </p>
<p>This budget will probably engage in the time-honoured practice of tinkering with these payments, but potential savings are unlikely to be large.</p>
<h2>Newstart Allowance</h2>
<p>The government has been largely unsuccessful in pushing through the changes to unemployment benefits it announced in the 2014-15 budget.</p>
<p>It has abandoned its proposal to strip young people of their income support for up to six months a year. The Senate had blocked the initiative, along with an alternative proposal for a compulsory four-week waiting period for all income-support payments for young people.</p>
<p>The $620 million in budget savings from other measures – increasing the age before young people can access Newstart Allowance and freezing indexation of means-test thresholds – remain in the budget estimates despite these also failing to get passage through parliament.</p>
<p>There are reports that the government is planning another crackdown on unemployment benefits in this budget. But, it is difficult to see where savings will come from. Welfare groups, economists and business broadly agree that Newstart payments are too low to provide an adequate minimum standard of living.</p>
<h2>Where does this leave the government?</h2>
<p>The government faces a steep challenge to meet its goal of reducing spending. </p>
<p>About $9 billion of spending cuts are <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Budget_Office/Chart_packs">baked into the budget estimates</a> but are unlikely to be passed by the current parliament. And the $10 billion in <a href="http://www.theaustralian.com.au/national-affairs/budget-2016-malcolm-turnbulls-10bn-spree-since-coup/news-story/a884aa42e16f2636aef7ee7991439fa4">fresh spending commitments</a> made since Malcolm Turnbull became prime minister last year has made the task even harder. </p>
<p>To get there, the government will almost certainly have to revisit some of the more sensitive areas that have caused it pain in the past. For a government about to embark on an eight-week election campaign, it’s hard to imagine how its powers of persuasion could be more sorely tested than they will be on Tuesday night.</p><img src="https://counter.theconversation.com/content/58627/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Grattan Institute began with contributions to its endowment of $15 million from each of the Federal and Victorian Governments. In order to safeguard its independence, Grattan Institute’s board controls this endowment. The funds are invested and Grattan uses the income to pursue its activities.</span></em></p><p class="fine-print"><em><span>William Young does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Having made a commitment to reduce spending, the federal government will have its work cut out with this year’s budget, which may require revisiting policy ideas that have caused it pain in the past.Danielle Wood, Fellow, Australian Perspectives, Grattan InstituteWilliam Young, Associate, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/503092015-11-10T19:22:38Z2015-11-10T19:22:38ZThe federal budget is hard to ‘fix’, but here are some solutions<p>Why, after decades of relatively good budgetary management in Australia, is the Commonwealth budget so hard to fix? And why don’t many people seem to care? </p>
<p>We have had 24 years of economic growth, yet are now facing our eighth actual deficit in a row, with Budget Papers forecasting another three ahead, and more may come after that. </p>
<p>The combined recent deficits as this budget year rolls out (2015-16) now total a staggering $320 billion (with almost $40 billion still expected in the forward estimates). Moreover, most economic predictions are for much lower economic growth rates well into the future than occurred with the two mining booms of the 2000s to 2012.</p>
<h2>Have governments given up on a balanced budget?</h2>
<p>While former Labor Treasurer Wayne Swan was ever the muscular “spruiker” of budget surpluses, his promise in May 2010 to do so by 2013 - revised to a small budget surplus of $4 billion by June 2013 in May 2011 - never eventuated.</p>
<p>Following him, Joe Hockey merely spoke of his efforts at reducing the combined deficit from the one left to him by Labor, but sheepishly admitted the Commonwealth would have a projected annual deficit of $7 billion by 2019 under Coalition management. In his 2015 budget speech Hockey claimed the government inherited a running deficit totalling $123 billion by mid-2013 (when it was in fact more like $210 billion) and that he’d would have brought this figure down to $80 billion by 2019.</p>
<p>Both sides of politics have apparently now given up on balancing the budget in the medium term. Labor’s Shadow Treasurer Chris Bowen is now talking of a 10 year fiscal plan to repair the budget and so is not expecting a balance until around 2026! Not only is that date is four parliamentary terms away, it assumes that abstemious governments will actually spend less than they receive in income over all that time – recent track records on both sides suggests this is pure folly. </p>
<p>The Coalition’s new Treasurer Scott Morrison is not setting himself tricky target dates, preferring to accede with the previous Hockey mantra that the Coalition will arrive at a surplus before a Labor government would – a counter-factual we might reflect upon but cannot prove.</p>
<p>The persistent deficit problem is not just down to lower tax returns (the so-called “revenue problem”) because taxes are indeed growing moderately, but perhaps not by as much as Treasury would wish. The problem is largely down to levels of higher spending than we are prepared to pay for (the so-called “expansionary bias”). We seem to be running a structural deficit of around $30 billion per annum, with politicians continuing to spending now and leaving their successors to pay.</p>
<h2>The problem of Consolidated Revenue and “magic pudding” thinking</h2>
<p>The parlous state of the budget is due to systemic dysfunctionality. We have kept an anachronistic system inherited from the Royal Budget (the King’s Chest) – keeping all resources in one consolidated revenue account while separating expenditures from revenues. </p>
<p>For years, this was seen as a good way of keeping accounts clean and providing flexibility in expenditure terms. But now it is supremely dysfunctional to have one “magic pudding” fund against which all manner of claimants make audacious bids. The way we have allowed federalism to develop further compounds this sloppiness – because federal governments want to spend their huge tax take to gain most exposure, while the mendicant states and territories continue to cry poor and have few other tactics than going “cap in hand” to the Commonwealth for “more funds”.</p>
<p>Our central budget institutions no longer hold the line as guardians of the public purse; they are out-manoeuvred. The year-round budgetary bidding system constantly ratchets up spending levels as agencies ask for more like Oliver Twist. Many of our public policies are irresponsibly demand-driven with few caps, so people enjoy goods or services and the Commonwealth pays the eventual bill. </p>
<p>Some 85% of the federal budget is non-discretionary (entitlements, transfers, ongoing grants) which can’t be trimmed without a major fight in parliament. And we have enshrined a culture of compensation all-round (the “no discrimination” mantra) – and this applies to any changes in either entitlements or taxation levels. </p>
<h2>Small fixes that could have big results</h2>
<p>This is paralysing our ability to conduct real reform. If nearly 70% of households are likely to be compensated by a rise in the GST from 10% to 15%, then what is the point in raising the consumption tax at all? And if it doesn’t raise much more growth revenues there will be pressure in a few more years to raise it again.</p>
<p>There are some small incremental fixes that are available to redress our budget problems – such as hunting for savings across the portfolios, or reducing the number of bids, or getting agencies to raise some of their own revenues. More serious temporary fixes might include a complete ban on bids for two years making agencies themselves reallocate their resources to areas of most priority (as we did in 1986-87). </p>
<p>We could go further, like Sweden or Korea, and legislate fixed expenditure ceilings up to four years out which are very difficult to change without subsequent parliamentary approval. Such hard ceilings would force federal and state agencies to manage within budgets over the medium term, because there would be little chance of augmentation. So states running hospitals would have to manage within their imposed allocation and not manufacture waiting lists to claim more money from the Canberra pudding. </p>
<p>Canada uses a different prudential system to limit federal spending within the current budget year by initially only allocating some 70% of the budget outlays in the Main Estimates, and then trickling out additional supplementary allocations as and when its revenues are known and received. It prevents agencies’ overspending against revenue that has not yet eventuated (or will never materialise), and allows governments to direct greater spending ‘in-year’ to any pressing priorities.</p>
<h2>More ambitious solutions</h2>
<p>We might want to extend levies and charges more broadly, imposing costs on direct users rather than generic taxpayers – for roads, health care, GP visits, aged care, vocational education, pharmaceutical drugs, even public transport. Reverse mortgages for elderly home-owners to help pay for government aged pensions is also a proposal being floated around. Another important idea to help manage the provision of public goods or services is to hypothecate funds for dedicated purposes, as most of continental Europe does. </p>
<p>A specific contributory levy, say, for pharmaceuticals would be set and paid into a hypothecated account which could only be used to pay for subsidised prescriptions, and managed actuarially. If people wanted extensive low-cost prescriptions, then the levy would be set to cover that level of spending; if people wanted less subsidised medicine then a lower contribution could be imposed. Hypothecated provision would compartmentalise these items from consolidated revenue, make them self-funding and annually balanced, making the job of funding and managing core government activities so much easier.</p>
<p>More radical measures include a constitutional provision for balanced budgets (no planned deficits allowed to be introduced into the legislature) or a statutory provision for balanced budgets over a three year period (toughening the euphemistic accountancy jargon used in the <a href="https://www.comlaw.gov.au/Series/C2004A05333">Charter of Budget Honesty</a> designed to give governments all the wiggle room they need). Some aspects of Singapore’s budget processes are also worth considering. </p>
<p>Each year accurate projections about economic growth are made which determines a fixed formula of revenue income (roughly 17% of GDP); the expected actual revenue figure is directly transposed into a precise aggregate expenditure limit; no more, no less, it has to balance the revenue. </p>
<p>The expenditure budget is then allocated on a stipulated formula basis whereby each major policy sector of public spending receives a prescribed fixed share; there is no bidding or lobbying for more funds, but agencies have relative autonomy to recalibrate their priorities within their spending envelope. </p>
<p>They can shape their spending strategically. But the only avenue through which any budget growth can occur is if the economy as a whole grows; so agencies have enormous incentive to direct their thinking (and the majority of their funding) towards driving economic growth, from within their own budgets or in conjunction with other stakeholders. </p>
<h2>Systemic change is needed</h2>
<p>Singapore offers a markedly different way of deploying and investing public spending in a developed society; and it is worth remembering that Singapore’s achievements have occurred over the past 40 years of so. Before this it was once one of the destitute basket cases of South-east Asia with very low living standards, but now has a higher standard of living than most of the West and a per-capital income getting close to twice the Australian average.</p>
<p>Proposals to bring about systemic change to the traditional patterns of budgeting will be resisted by the conservative establishment and those that like the present dysfunctional system, or perhaps do well out of it themselves. But the public interest is not served by retaining perverse budgetary practices, or the perverse incentives that riddle the system. It is not served by sticking our heads in the sand in an ostrich-like mindset believing the problems will just go away. </p>
<p>The budget will not correct itself on automatic pilot; and the longer it doesn’t, the more we will pay in interest payments on mounting debt, the more our children will pay in years to come and the less we will have for today’s areas of genuine need.</p>
<hr>
<p><em>John will be on hand for an Author Q&A between noon and 1pm AEDT on Wednesday, November 11, 2015. Post your questions in the comments section below.</em></p><img src="https://counter.theconversation.com/content/50309/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Wanna does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Solving the entrenched problems within our budgetary process is tricky - or is it?John Wanna, Sir John Bunting Chair of Public Administration, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/432432015-06-23T01:42:07Z2015-06-23T01:42:07ZAustralia’s declining investment in quality university teaching<figure><img src="https://images.theconversation.com/files/85010/original/image-20150615-5846-5m0ze5.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">How content is taught at university is just as important as what is taught. </span> <span class="attribution"><span class="source">from www.shutterstock.com.au</span></span></figcaption></figure><p>Teaching is at the core of what Australian universities do, yet it receives nowhere near the attention it should, and is in danger of receiving even less. </p>
<p>In part this neglect can be traced back to university ranking systems that focus predominantly on research. In part it’s a product of increasingly inadequate funding.</p>
<p>In Australia quality teaching is served by a program called Promotion of Excellence in Learning and Teaching in Higher Education (PELTHE), administered through the Office for Learning and Teaching (OLT). </p>
<p>Funding for learning and teaching has suffered cuts in most federal budgets over the last seven to eight years. In the 2015 federal budget the Office for Learning and Teaching had its funding cut by over 36%, or A$16.1m, for the period 2016 to 2019.</p>
<p>This cut is likely to severely constrain our ability to answer challenging questions commonly faced by university lecturers. For example: how do we help students with different levels of preparation to learn chemistry in large first year classes? How do we teach students to understand what they don’t know, and help them improve? </p>
<p>Responses to these questions were developed through the Office for Learning and Teaching and made available for all higher education institutions in 2015. It’s uncertain how much of this work will continue.</p>
<h2>A culture of excellence in education</h2>
<p>A comparatively small investment by the federal government in grants, fellowships and awards through the Office for Learning and Teaching and its predecessor bodies, has led to national innovations in the quality of learning and teaching across higher education.</p>
<p>There is now a significant alumni of national teaching award winners and national teaching fellows. This has benefited students, universities and communities immensely, but unfortunately there are few ways of seeing this success because there are no international rankings devoted to learning and teaching. </p>
<p>Instead, we measure the success of Australian universities increasingly through international rankings that, while important, largely reflect research excellence.</p>
<p>Student retention and success in Australia compares well with similar countries. A <a href="http://www.theaustralian.com.au/business/opinion/why-closing-the-office-of-learning-and-teaching-is-wrong/story-e6frg9if-1227380148945">recent article</a> in The Australian argued the review of learning and teaching for the British Higher Education Academy suggests that the Australian OLT and predecessors has </p>
<blockquote>
<p>produc[ed] and disseminat[ed] a vast body of knowledge and good practice throughout the higher education sector […] with achievements increasingly […] seen as exemplars for other countries.</p>
</blockquote>
<h2>How excellence is promoted</h2>
<p>The competitive peer-review system for learning and teaching excellence is as rigorous as that which distributes competitive research funding.</p>
<p>Each year between 750 and 900 applications are received from across the higher education system for grants, fellowships and awards. </p>
<p>Around one quarter were successful in 2014 - although success rates vary from a low of 12% for grants (similar to the success rates for research grants from the Australian Research Council) to 46% for awards which are given to the best teachers in a field of study and tend to attract a small number of applications from any particular institution.</p>
<p>Funding received by institutions for teaching and learning innovation and excellence is spread across a broad range of institutions. By my calculations the top 10 universities received 46% of total funds awarded.</p>
<p>This is a much lower concentration than seen in research grant funding distributions, where the <a href="https://go8.edu.au/sites/default/files/docs/go8policynote4_researchperformance.pdf">top eight universities receive around 70%</a> of competitive funding between them.</p>
<h2>Evaluating impact</h2>
<p>The evaluation processes say much about how impact is valued. Grants are evaluated on the creativity and innovation of their plans. </p>
<p>How will this add to what we understand about and how we undertake effective learning and teaching? What does this mean for the quality of learning and teaching in a specific discipline? How will it address an issue such as academic integrity, building particular graduate capabilities, or increasing retention of students?</p>
<p>Teaching awards go to the best teachers nationally in particular disciplines, such as science or law or nursing, and to the best teaching teams, whether they are delivering improvements to the first year experience or improving learning outcomes from laboratory work. </p>
<p>The applications require evidence of student evaluations over time, how teaching and learning has improved over a number of years, and of how the innovations and excellence in teaching have influenced others beyond their own classroom or institution.</p>
<p>Fellowships are about how a particular academic will lead a program to have a direct impact on improving the quality of learning and teaching in their institution or across institutions. </p>
<p>To win such a fellowship the program must show what change will happen and how. A key part of these learning and teaching fellowships is ensuring that innovations in learning and teaching are disseminated across many institutions, courses and classes. They must have an impact.</p>
<p>It is time we talked more about what excellent teaching in higher education means for students. Dedicated national investment in learning and teaching in higher education will be just A$28m over the next four years – this is much less federal funding available than at any time over the previous decade. </p>
<p>Quality and innovation in learning and teaching should grow along with increased student numbers and advances in technology. Instead it is diminishing.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=500&fit=crop&dpr=1 600w, https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=500&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=500&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=628&fit=crop&dpr=1 754w, https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=628&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/85820/original/image-20150622-3369-1rezxbc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=628&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Promotion of Excellence in Teaching and Learning Funding by institution.</span>
<span class="attribution"><span class="source">Author Provided</span>, <span class="license">Author provided</span></span>
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</figure><img src="https://counter.theconversation.com/content/43243/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Margaret Gardner is Chair of the Expert Panel of the Office for Learning and Teaching and was a member of the Board of its predecessor body, the Australian Learning and Teaching Council.</span></em></p>Teaching is at the core of what Australian universities do, yet it receives nowhere near the attention it should, and is in danger of receiving even less.Margaret Gardner, President and Vice Chancellor, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/428892015-06-15T20:14:15Z2015-06-15T20:14:15ZHow the small business write-off can make you worse off<figure><img src="https://images.theconversation.com/files/84997/original/image-20150615-26858-v72ola.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">New write-off rules may be too good to be true for some small businesses.</span> <span class="attribution"><span class="source">Image sourced from www.shutterstock.com</span></span></figcaption></figure><p>The $20,000 immediate assets write-off for small business has been widely welcomed and has been <a href="http://jbh.ministers.treasury.gov.au/media-release/057-2015/">passed by parliament this week</a>. However, our modelling shows some small unincorporated businesses could actually be worse off under this measure.</p>
<p>Most unincorporated businesses (that is, individuals, trusts and partnerships) are taxed on the basis of the marginal tax scale for individuals. That is, the more that is earned, the higher the percentage rate of tax.</p>
<p>The proposed measures do not change the overall deductibility of the asset, just the timing of the deduction. Under the existing simplified depreciation rules for small businesses, an asset costing more than $1,000 is depreciated 15% in the first year and then 30% thereafter until the taxable value of the asset pool is less than $1,000, at which point the remaining value can be written off.</p>
<p>But the issue for small unincorporated businesses is that while an up-front deduction may reduce tax in the year that it is made, that business will not benefit from further depreciation deductions in later years, and may be worse off depending on the tax brackets it ends up in. </p>
<p>For example, take an unincorporated business which is subject to individual tax rates. This business has a total taxable income of $21,000 before taking into account any asset depreciation deductions. If this business were to purchase an asset worth $20,000 under the proposed measures, it would end up with a total taxable income of $1000, and as this is less than $18,200 it would pay no tax in 2014-15. </p>
<p>Under the old rule, the 15% deduction (or $3000) would leave it with a taxable income of $18,000, which is also less than $18,200 and as such it wouldn’t have paid any tax anyway.</p>
<p>The problem for this business is that under the new measures it will not be entitled to any future deductions in relation to the asset, while under the previous system it would still have had $17,000 of deductions available, which could potentially lower the amount of tax payable in future years as well.</p>
<p>We have modelled the new measure against the former depreciation rules for the purchase of one asset of $20,000 over a 10-year horizon, using the assumptions that tax rates and thresholds remain unchanged and that there is an annual growth in net taxable income of 2.5%. We use a 2.5% discount rate for the time value of money. </p>
<p>In our initial analysis we ignore the 5% tax discount (up to $1,000) also announced in the federal budget, to see what the effect is without that measure. On that basis, we find that most businesses are worse off under the proposed depreciation rules, with those in the lowest tax brackets and those moving tax brackets in the first year the most penalised.</p>
<p>Adding the 5% tax discount (up to $1,000) into the analysis improves the outlook, with many businesses better off, but not by a great deal. The overall reduction in the amount of tax paid in today’s dollars is less than 1% in many cases – and this is purely driven by the 5% discount, rather than the immediate asset write-off.</p>
<p>Of particular concern is that some small businesses will be substantially worse off. </p>
<p>For example, our modelling indicates that for unincorporated small businesses, those with an assessable income before asset deductions of $30,000 or less will actually pay more tax in real terms if they were to buy a $20,000 asset before June 30, 2015, and fully write it off. </p>
<p>At an extreme level, a business with only $20,000 in assessable income before depreciating any assets would pay 49% more tax with the immediate write-off, compared to the existing rules. This analysis excludes any borrowing costs, which would make the situation worse.</p>
<p>So, while on the face of it an immediate deduction may seem like a positive thing for small business, any benefit is highly dependent on the circumstances of the individual business. </p>
<p>Not all small businesses may be winners and anyone about to step into a showroom for the end of financial year sales should take a moment, and perhaps think about talking to their tax adviser first.</p><img src="https://counter.theconversation.com/content/42889/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bond is a member of the Chartered Accountants Australia and New Zealand</span></em></p><p class="fine-print"><em><span>Anna Wright is a Fellow of Chartered Accountants Australia and New Zealand</span></em></p>The $20,000 immediate write-off for small business has been broadly welcomed, but modelling shows there will be losers.David Bond, Senior Lecturer, Accounting Discipline Group, University of Technology SydneyAnna Wright, Senior lecturer, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/430042015-06-10T20:01:36Z2015-06-10T20:01:36ZBusiness confidence got a post-budget boost … or did it?<p>National Australia Bank’s <a href="http://business.nab.com.au/nab-monthly-business-survey-may-2015-11384/">Business Confidence Index jumped</a> from 3 to 7 points this week, a nine-month high coming on the back of this year’s federal budget. The ANZ-Roy-Morgan <a href="http://www.roymorgan.com/morganpoll/consumer-confidence/consumer-confidence">Consumer Confidence Index also rose</a> after the budget.</p>
<p>This all sounds like good news but it also raises a number of questions. How good is the news? How long is the boost in confidence likely to last? And what might be different this year given more general economic conditions?</p>
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<p>The first thing to note is that these measures track changes in business and consumer expectations. So if everyone knew perfectly what was going to be in the budget then, all else equal, it should have no effect on business or consumer confidence indices.</p>
<p>The second thing to note is that there is a lot going on in the background. The Reserve Bank is often tinkering with interest rates, the economic conditions of trading partners are changing, bond market conditions may be moving around. All sorts of things are going on. And while it is a fool’s errand to try and analytically control for these things – after all, you can’t control for everything – it’s worth remembering that they are going on.</p>
<p>A very dangerous and foolish thing for a Treasurer to do would be to attribute positive changes in business or consumer confidence right after the budget to that budget. That would be a classic illustration of the <em>post hoc ergo propter hoc</em> fallacy (from the Latin, meaning “after this, therefore because of this”).</p>
<h2>Living in the moment</h2>
<p>Lastly, these indices ask people how confident they are now. Ideally that could be interpreted as their best forecast of future economic conditions for the infinite future. But, as has been well documented by social psychologists and behavioural economists, <a href="https://theconversation.com/an-economists-guide-to-business-and-consumer-confidence-37149">people don’t typically act like this</a>. Almost all of us – even those of us who know about it – suffer from some sort of “present bias”. We put more weight on today versus the future than we really should.</p>
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<p>Last year’s budget was widely considered to be a political disaster – one from which the government is still trying to recover – yet it’s correlation with business confidence was hard to see. The NAB Business Confidence index went from 7 to 7 after last year’s budget, and the in the following two months went to 8 and then 10. </p>
<p>All this against the backdrop of it seeming fairly likely that many budget measures designed to reduce the deficit were going to be blocked by the ALP and that the crossbench were hostile. It did drop significantly in September and then further, but it’s unclear that there was a big update about the likelihood of the measures passing by that stage.</p>
<p>Now, correlation isn’t causation, but it would seem hard to make the case that last year’s poorly received budget had a causal impact on business confidence. Interestingly, consumer confidence did fall, perhaps indicating a downward revision in household expectations about disposable incomes.</p>
<p>One conjecture is that budgets have much more of an impact on consumer confidence than they do on business confidence. Perhaps business confidence is driven much more by general economic conditions such as: interest rates, credit availability, and global economic conditions. </p>
<p>But for households, the budget often has a real impact on disposable incomes. Tax and benefit changes have a direct impact on consumers. Moreover, these are often quite a surprise (think pension indexation, the family tax benefit, and the 2% deficit levy from 2014). And as mentioned above, it is surprises in expectations, not the general level of expectations, that affect confidence indexes.</p>
<p>Looking at the historical data, the indices move around a fair amount in the coming months. Perhaps this reflects present bias among the respondents.</p>
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<p>In light of all of this I, myself, would not put a lot of stock in how business or consumer confidence changes after a federal budget is handed down. Maybe changes in consumer confidence give some idea of how households are going to change their expenditures, and that has an impact on the macro economy.</p>
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<p>But if I wanted a quick look at how the budget was received I’d look at revealed preference measures of behaviour. Are business investing in capital and hiring? Not according to the latest <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/5625.0">capital expenditure figures</a>. Are consumers spending on durable goods? </p>
<p>These are not perfect measures, but arguably they are better.</p><img src="https://counter.theconversation.com/content/43004/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden is an ARC Future Fellow.</span></em></p>Business confidence might be up after the budget, but there are more reliable measures of what’s really driving the economy.Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/425442015-06-02T20:04:15Z2015-06-02T20:04:15ZWhy pensioners are cruising their way around budget changes<p>Age pensioners have always gone on cruises. But since the <a href="http://www.budget.gov.au/2015-16/content/bp2/html/bp2_expense-20.htm">budget</a>, we have seen stories emerge of age pensioners changing their behaviour in response to the proposed <a href="http://www.abc.net.au/news/2015-05-07/budget-government-to-outline-changes-to-age-pension/6450946">rebalancing of the age pension asset tests</a>. </p>
<p>Sydney housewife Noelene has <a href="http://www.afr.com/personal-finance/superannuation-and-smsfs/budget-drives-sydney-pensioner-to-spend-25000-on-alaskan-holiday-20150528-gh93jx">bought a holiday cruise to Alaska</a>. Seemingly contradicting sensible living strategies for many older people, financial advisers are now proposing part-pensioners <a href="http://www.propertyobserver.com.au/finding/residential-investment/42675-offloading-assets-and-home-upsizing-the-maze-to-keep-your-part-pension-in-2017.html">upsize and buy a more expensive house</a>.</p>
<p>It’s surprising behaviour, especially in light of <a href="http://www.cepar.edu.au/media/154967/age_pensioner_profiles_a_longitudinal_study_of_income__assets_and_decumulation.pdf">new research from CePAR</a> using government data that demonstrates many age pensioners actually live very frugally. Many pensioners live below even the <a href="http://www.superannuation.asn.au/media-release-6-march-2015">“modest” retirement standard</a> proposed by ASFA ($23,469 for a single and $33,766 for a couple, who own their own home). Indeed, many pensioners are cautious and keep a cushion of assets, whether because of concern about risk, to pay for age care when frail, or to leave a bequest to children or grandchildren. </p>
<h2>What’s changed</h2>
<p>Why would age pensioners choose to spend big now? Well, it’s a rational response by part-pensioners to the proposed budget asset tests. If the anecdotal behaviour is writ large, a lot of the potential revenue gains (estimated at A$2.4 billion over 5 years) from the asset test changes may disappear.</p>
<p>Apart from the home, the financial and other assets of age pensioners are tested above a limit, so as to target the pension. The age pension is also subject to an income test. At the moment pensioners are assessed under both the income test and the asset test: whichever test gives the lower pension rate is applied. This allows considerable scope for sophisticated pension planning.</p>
<p>The 2015 budget includes changes to the age pension asset tests which deliver benefits at the low end but which are quite draconian for those who have accumulated some assets. </p>
<p>For homeowners, the asset free areas are to rise from $202,000 to $250,000 for single home owners and from $286,500 to $375,000 for couple home owners, but the asset test taper rate will double, from <a href="http://guides.dss.gov.au/guide-social-security-law/4/2/3">$1.50 per fortnight</a> ($38 a year) per $1,000 to $3 per fortnight ($78 per year) per $1,000. </p>
<p>Pensioners who do not own their own home – and who are much less well off than those who own a home – will benefit from an increase in their threshold to $200,000 more than homeowner pensioners. </p>
<p>On a superficial view, these seem like reasonable changes. But they may have significant behavioural effects and there could be a better way to achieve the government’s policy goals. </p>
<h2>Savings taxed: how the government is changing behaviour</h2>
<p>The age pension can be thought of as a universal payment combined with an in-built income tax (the income test, which has a 50% tax rate up to the cut out point) and an in-built wealth tax (the asset test). </p>
<p>The effect of the change in policy is to reduce the asset cut-out point where the age pension ceases. Under current asset taper rules, the effective wealth tax rate in the asset test is 3.9% above the threshold. The budget proposal of a taper of $3 per fortnight per $1,000 implies a wealth tax rate of 7.8% ($78 per year per $1,000) above the new thresholds. With real returns of around 5% on many investments currently, the wealth tax effectively confiscates the whole of the real return above the thresholds. </p>
<p>A home-owner couple will see their pension cease at assets of $823,000 compared to over $1.1 million currently. But this home-owner couple with $823,000 in savings would not necessarily have a higher living standard than a home-owner couple with $375,000 in savings; indeed, it could well be lower.</p>
<p>Overall, under the proposed new system, income from savings would be very heavily taxed. Assuming a return to savings of 5%, the effective marginal tax rate could be as much as 160% (the wealth tax rate of 7.8% divided by a 5% return). This creates a disincentive to save. For the conservative investor the situation is even worse, as products like term deposits offer rates only slightly higher than inflation.</p>
<h2>An alternative approach: deeming an income return</h2>
<p>The <a href="http://taxreview.treasury.gov.au/content/FinalReport.aspx?doc=html/publications/papers/Final_Report_Part_1/chapter_12.htm">Henry Tax Review</a> and the Shepherd <a href="http://www.ncoa.gov.au/report/phase-one/part-b/7-1-age-pension.html">National Committee of Audit</a> both recommended that the separate age pension asset test should be replaced by a comprehensive means test that deems income from assets. </p>
<p>A deeming approach disregards actual income from an asset. Only deemed income is included, based on a sensible choice of rate of return, such as the return on bank interest. At 1.75% and 3.25% rates, this is quite a conservative rate of return.</p>
<p>In fact, we already deem income returns in the current pension system, for assets including bank accounts, term deposits, shares, managed funds, loans to family members and superannuation funds (if you are age pension age).</p>
<p>Widening the deeming rules would return us to the “merged means test” which operated in Australia up to the 1970s. Under the test, all assets apart from the home were deemed to yield 10% per annum and actual income from assets was disregarded. The assumed yield on an annuity purchased at age 65 was 10%. Currently an indexed annuity at that age would yield around a third of that in real terms, and even a “growth” investment strategy will yield only 5% to 6%, so a deeming rate around 6% could be justified. </p>
<p>Deeming rates can be set to achieve the sort of budget savings sought by the government with fewer issues for fairness and perverse incentives. A deeming rate of, say, 6% combines with a pension taper of 50% to give an effective marginal wealth tax rate of 3%. This is much less than the effective 7.8% wealth tax rate in the budget measure.</p>
<p>Deeming allows a pensioner to have either modest income or modest assets but not both. It does not unfairly advantage those who maximise their entitlements by planning under both income and asset tests, as the current system allows. A wider deemed base could save as much at a lower effective wealth tax rate than that proposed by the government.</p>
<h2>The bigger picture</h2>
<p>Australia has highly generous tax concessions for retirement saving, but quite harsh treatment on the pension side. Why incentivise savings through super tax breaks and then penalise savers under the means test? </p>
<p>Home owner retirees are much better off than those who do not own their home and the age pension means test does not touch the top cohort of superannuation savers who receive a hugely disproportionate share of superannuation tax breaks. In contrast to most middle income savers who eventually need some level of age pension with its implicit wealth tax, the top cohort who don’t need the age pension are never subject to any wealth or bequests tax.</p><img src="https://counter.theconversation.com/content/42544/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Miranda Stewart has received funding from the Australian Research Council, Academy of Social Sciences of Australia and Australian Treasury.</span></em></p><p class="fine-print"><em><span>David Ingles does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government’s inconsistent approach to pensioners who save is distorting behaviour, but there is a solution.David Ingles, Senior Research Fellow, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityMiranda Stewart, Professor and Director, Tax and Transfer Policy Institute, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/443512015-06-02T14:00:00Z2015-06-02T14:00:00ZPolitics podcast: Bruce Billson on the budget and small business tax cuts<p>Minister for Small Business Bruce Billson sat down to talk to Michelle Grattan about the budget, the small business tax cuts, cabinet leaks, gay marriage and much more.</p><img src="https://counter.theconversation.com/content/44351/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michelle Grattan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Michelle Grattan talks to Minister for Small Business Bruce Billson about the budget, the small business tax cuts, cabinet leaks, gay marriage and much more.Michelle Grattan, Professorial Fellow, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/424072015-06-01T20:08:14Z2015-06-01T20:08:14ZLooking inside the sausage machine: the budget is still unfair<p>NATSEM’s <a href="http://www.natsem.canberra.edu.au/publications/?publication=interim-analysis-of-the-2015-16-federal-budget">analysis of the 2015-16 federal budget</a>, the same as used by the Howard and Rudd–Gillard governments as a policy tool, has been <a href="http://www.abc.net.au/tv/qanda/txt/s4219741.htm">likened by Treasurer Joe Hockey</a> to a sausage machine.</p>
<p>What makes Hockey’s analogy particularly striking is its applicability to this year’s budget process. While the government threw away the very toughest bits of gristle from last year, a number of the most unpalatable cuts are still in the mince, plus some added sweeteners.</p>
<p>Like <a href="https://crawford.anu.edu.au/sites/default/files/news/files/2014-05/sharing_the_budget_pain_background_note.pdf">last year</a>, we have made some calculations showing the impact of the budget measures on disposable income in July 2017, once most of the proposed indexation pauses have taken effect. </p>
<p>Our assumptions are conservative. We consider as status quo the repeal of changes to income tax rates and the low-income tax offset. Like last year, we do not factor in the abolition of the Schoolkids Bonus, or the Income Support Bonus, because this was not strictly speaking a budget measure. </p>
<p>Restricting eligibility for Family Tax Benefit Part B, or FTB-B, may lead to substantial losses of disposable income for families with school-aged children – even before the Schoolkids Bonus is taken away. Our figures show that a couple with two children aged 11 and 8, where one parent earns A$60,000 per year, would lose A$84.43 per week, or 7.4% of disposable income. A single parent with one child aged 8 and no private income stands to lose A$49.93 per week, or 10.9% of disposable income.</p>
<p>Pausing indexation of all FTB payment rates affects the most vulnerable families. A couple with no private income and one 3-year-old child would lose A$11.24 per week, or 1.8% of disposable income, while a single parent would lose A$8.80 per week, or 1.6% of disposable income.</p>
<p>Working families on modest wages face a double hit if indexation pauses apply both to payment rates and thresholds. A couple with one child aged 3, where one parent earns A$60,000 per year, would lose A$21.86 per week, or 2.1% of disposable income. The same family with two children aged 6 and 3 would have A$27.81 per week less to spend, a loss of 2.4 % of disposable income. The losses for a working single parent are A$20.75, or 2%, and A$26.69, or 2.3% respectively.</p>
<p>Families with teenagers will also forgo indexation and receive no compensation for the wind back of FTB-B. For a single parent with one child aged 14, this means a loss of A$63.70 per week – 13.4% of disposable income if the parent is unemployed and 7.4% on an income of A$40,000. A couple on income of A$60,000 with a 14-year -old could lose up to 79.61 per week, or 7.5%.</p>
<p>These figures represent maximum losses of disposable income. Couples may experience lower losses if both members work. Single parents may also have different outcomes if, for instance, their family tax benefits are subject to the maintenance-income test.</p>
<p>Importantly, we do not include the impact of changes to child care, but if families are not currently using child care and do not use it after the changes, then our figures will be a reasonably accurate guide to the impact on these families (for example, those with school age children not using after-school care).</p>
<h2>What NATSEM measured</h2>
<p>Our figures broadly agree with the cameo analysis produced by NATSEM, when tax changes and the Schoolkids and Income Support Bonuses are taken into account. The NATSEM microsimulation model comes to the fore, however, in its ability to model the overall impact of complex policy changes such as the Child Care Subsidy, and its estimation of distributional impacts for the whole population – not just selected family types. </p>
<p>The <a href="http://scottmorrison.dss.gov.au/media-releases/20150510-jobs-for-families">childcare package</a> is the centrepiece of the budget for households. It is estimated to cost A$4.4 billion over 4 years. In isolation, the package appears progressive and increases assistance more for low and middle income families than for higher income families, with the subsidy for childcare costs reducing from 85% to 50% as family incomes rise.</p>
<p>To finance these reforms the government proposes to maintain some initiatives from the 2014-15 budget. These include freezing family tax benefit (FTB) rates for two years, adjusting supplements linked to the benefits and freezing the upper income test threshold so that more people lose payments as their incomes increase, and most significantly to stop paying FTB Part B when the youngest child turns six.</p>
<p>There is uncertainty about the overall size of these savings. Because these changes were factored into last year’s budget they are not identified as new measures in the 2015-16 budget. Just before the budget, the <a href="http://m.theaustralian.com.au/national-affairs/budget-2015/families-lose-94bn-in-benefit-cuts-to-pay-for-childcare-changes/story-fntfbo7f-1227347598346">Weekend Australian</a> estimated these changes would cut payments by A$9.4 billion over four years. In addition, the government is proposing new changes to family payments and paid parental leave that would save more than A$1.6 billion over four years.</p>
<p>Clearly, the total volume of assistance for families is going down. To assess the overall household impact of the budget, it is necessary to balance who wins from the generally progressive child care assistance proposals versus who loses from last year’s and the new savings proposals.</p>
<h2>The impact</h2>
<p><a href="http://www.natsem.canberra.edu.au/publications/?publication=interim-analysis-of-the-2015-16-federal-budget">NATSEM</a> analysed the impact of much more than the changes in family assistance and child care and include 25 changes in the first two Abbott government budgets, comparing these with what would have happened if the previous government’s policy parameters had been unchanged. This distributional analysis involves modelling policy changes for some 45,000 real families included in two years of the Australian Bureau of Statistics Survey of Income and Housing.</p>
<p>NATSEM produces distributional impacts for quintiles (20%) of households by family type – couples with and without children, lone parents and single person households. Both couples with children and lone parents lose on average, with the poorest quintile of couples losing just over A$3,000 a year or 7.1% of their disposable income and the poorest quintile of lone parents losing just under A$3,000 a year or around 8% of their disposable income. Most households without children – except the poorest 20% - are estimated to have minor increases in real disposable incomes by 2018-19.</p>
<p>The government in Question Time has emphasised that the NATSEM calculations do not include any “second round” impacts of the budget changes. That is, the policy package put forward by the government makes work more attractive both by reducing the cost of childcare but also by cutting benefits to families, giving them greater “incentive” to increase their hours of work to make up for the loss of FTB-B in particular.</p>
<h2>Will the Budget increase workforce participation?</h2>
<p>Asked about the modelling during question time, the prime minister said this omission meant the modelling was “a fraudulent misrepresentation” of the government’s budget because returning people to work was “the whole point of the policy measures”.</p>
<p>At one level, this sounds like a reasonable criticism. The explicit aim of the budget changes is to make increased hours of work more attractive to families. </p>
<p>However, Treasurer Joe Hockey has also conceded that <a href="http://www.theguardian.com/politics/2015/may/27/abbott-and-hockey-at-odds-over-labors-economic-modelling-of-budget-impacts?CMP=soc_568">“as a rule second-round effects are not taken into account”</a> in any budget. This is because while there are likely to be some behavioural responses to these changes, the size of that response is unclear. A <a href="http://www.treasury.gov.au/PublicationsAndMedia/Publications/2007/Treasury-Working-Paper-2007-04">2007 Treasury Working Paper</a> points out that estimates of labour supply responses to tax and benefit changes can vary widely.</p>
<p>The <a href="http://www.pc.gov.au/inquiries/completed/childcare/report">Productivity Commission</a> in its report on childcare that formed the basis of the proposed childcare changes in the budget was cautious about the size of the labour supply response to its recommendations, arguing that additional workforce participation will occur, but it will be small, and is estimated to increase the number of mothers working by 1.2% (an additional 16,400 mothers).</p>
<p>It is also worth pointing out that the <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs2.htm">economic parameters underlying the overall budget</a> suggest that employment effects are not likely to be substantial. The labour force participation rate is projected to rise marginally from 64.6% to around 64.75% over the forward estimates, but the unemployment rate is projected to increase from 5.9% to between 6.25% and 6.5%, which implies a small fall in the proportion of the adult population who are actually employed.</p>
<p>Overall, while there will be some second-round positive effects it is highly unlikely that they will offset the losses in disposable income experienced by many families with children.</p>
<p>Governments should welcome the type of evidence-based policy analysis exemplified by NATSEM’s work, and ideally provide it themselves. It focuses the debate on concrete questions of how policy changes affect people’s lives. To criticise the straightforward modelling approach because it yields the “wrong” answer smacks of shooting the messenger. The government should be upfront with the public about exactly what is in the budget sausage.</p><img src="https://counter.theconversation.com/content/42407/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Whiteford receives funding from the Australian Research Council. He is an independent member of the Sustainability Committee of the Board of the National Disability Insurance Agency. He is also a member of the Inclusive Prosperity Commission of the Chifley Research Centre. He is also a PhD supervisor of Ben Phillips of NATSEM whose work is discussed in this article.</span></em></p><p class="fine-print"><em><span>Daniel Nethery does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>If the government had provided analysis on how the budget impacts households it may not have found itself defending its record on fairness.Peter Whiteford, Professor, Crawford School of Public Policy, Australian National UniversityDaniel Nethery, PhD candidate, Crawford School of Public Policy, Australian National UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/424182015-06-01T20:08:10Z2015-06-01T20:08:10ZWhy the small business tax break could pay for itself<p>The immediate tax deduction for small business announced in the Federal Budget has been broadly welcomed, but what may have been missed is the fact that what the Government doesn’t collect now, it will collect later.</p>
<p>As part of the $5.5 billion small business package at the centre of its latest Budget, the Federal Government announced it would allow businesses with turnover less than $2 million to immediately deduct the cost of any individual asset purchased up to the value of $20,000, from Budget night through to the end of June 2017. The estimated cost of this accelerated depreciation measure to revenue is estimated at $1.75 billion over the four years of forward estimates.</p>
<p>But what should be noted about this measure is that it doesn’t change the eligibility for tax deductions of these assets; it simply changes how quickly a small business is able to receive the tax deduction.</p>
<p>Under the existing simplified depreciation rules for small business, an asset costing over $1000 would be depreciated at 15% for the first year, and 30% thereafter, until the taxable value of the asset pool is $1000 or less, at which point the full amount can be written off.</p>
<p>For a $20,000 asset, this would mean a $3,000 deduction would be allowable in the first year, and it would take around 10 years to fully depreciate it for tax purposes. This compares to a $20,000 deduction in the first year under the proposed measure.</p>
<p>Bear in mind, too, that small businesses fall into two general categories: those that are incorporated (companies), and those that aren’t (sole traders and partnerships). The taxable profits of small companies are taxed at a flat rate, which – assuming the announced 1.5% tax cut passes – will be 28.5%.</p>
<p>Unincorporated small businesses don’t get the 1.5% tax cut, as their income is included in the assessable income of the owners and taxed at their marginal rate of tax. Instead they’ll get a tax discount of 5% of business income up to $1000 a year.</p>
<p>Here, we’ll focus on small companies, where the flat rate of tax makes analysis easier.</p>
<p>For a small, incorporated business, and assuming the 28.5% tax rate, its tax bill would be reduced by $5,700 in the first year, as compared to only $855 under the existing regime. This is a total upfront benefit of $4,845, and supports the government’s argument that the change will improve cash flow for small business as compared to existing arrangements.</p>
<p>But the timing aspect also has a benefit for the Government, and there is evidence of this in the Budget Papers. Over the first three years of the forward estimates, the expected cost to revenue totals $1.9 billion. However, in the final year of the forward estimates (2018-19), this cost begins to reverse, and the Government expects to bring in an extra $150 million in revenue.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=237&fit=crop&dpr=1 600w, https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=237&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=237&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=298&fit=crop&dpr=1 754w, https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=298&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/83319/original/image-20150529-24283-ghgisc.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=298&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>The reason for this reversal can be explained with respect to a hypothetical $20,000 asset purchased on July 1, 2015, by a small incorporated entity. Under the proposed rules, the company would have reduced its tax payable by $5,700 in the first year, as compared to only $855 under the existing rules. </p>
<p>This means the Government would collect $4,845 less tax from this company in respect of the 2015-16 tax year. However from the 2016-17 tax year onwards the Government will collect more, under the proposed measure, as this company has no further depreciation tax deductions available to it in respect to that asset.</p>
<p>This means that while over the forward estimates period, allowing this company to immediately deduct the cost of the asset in 2015-16 will cost the Government $1,662, it will subsequently collect $1,662 more in tax in the period beyond the forward estimates.</p>
<p>Mechanically, the total deduction for the asset under either the original simplified depreciation rules for small business or the proposed immediate write-off, will still be $20,000. In other words, whatever the Government doesn’t collect now it will collect later.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=169&fit=crop&dpr=1 600w, https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=169&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=169&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=212&fit=crop&dpr=1 754w, https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=212&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/83320/original/image-20150529-24244-uomlhd.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=212&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="attribution"><span class="license">Author provided</span></span>
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<p>For the Government this is a good outcome politically for three reasons.</p>
<p>First, it allows it to say it is supporting small businesses to “have a go”, as Treasurer Joe Hockey puts it.</p>
<p>Second, even though there is a cost to revenue in the forward estimates period, over the following years this measure will have a positive impact on revenue. However, because this increase in revenue is primarily outside the forward estimates it is not visible in the Budget Papers. </p>
<p>This increase in revenue has to be equal to the cost – so the $1.75 billion net cost in the next four years will lead to an increase in revenue of $1.75 billion beyond the forward estimates.</p>
<p>Third, the Budget Papers contain only information on government decisions that involve changes since the previous Mid-Year Economic and Fiscal Outlook. So while this measure will mean the Government will collect more revenue over the years 2019-20 and onwards, this increase won’t register as a change in next year’s Budget and therefore this increase won’t be quantified there as such.</p><img src="https://counter.theconversation.com/content/42418/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>David Bond is a member of the Chartered Accountants Australia and New Zealand</span></em></p><p class="fine-print"><em><span>Anna Wright is a Fellow of the Chartered Accountants Australia and New Zealand</span></em></p>The small business package allowing firms to depreciate up to $20,000 of assets comes with a hefty upfront cost - but the government collects later.David Bond, Senior Lecturer, Accounting Discipline Group, University of Technology SydneyAnna Wright, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/424872015-05-29T01:24:02Z2015-05-29T01:24:02ZPhilosophy vs evidence is no way to orchestrate cultural policy<figure><img src="https://images.theconversation.com/files/83212/original/image-20150528-11319-b3kiey.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The evidence of cultural consumption and production in Australia does not bear out the claims made by Senator Brandis.</span> <span class="attribution"><span class="source">AAP Image/Mick Tsikas</span></span></figcaption></figure><p>Australia’s cultural sector has been shellshocked by the May budget’s <a href="https://theconversation.com/the-arts-minister-has-wrenched-our-culture-away-from-the-artists-41681">dramatic changes</a> to arts funding arrangements. Arts Minister George Brandis says he will end “arts mediocrity” by slashing more than A$100 million from the <a href="http://www.australiacouncil.gov.au/">Australia Council</a> and reassigning the funds to a National Program for Excellence in the Arts (NPEA).</p>
<p>Citing the precedent of the <a href="http://www.afcm.com.au/">Australian Festival of Chamber Music</a>, Senator Brandis intends NPEA to be a “contestable” funding option for organisations or individuals who are not funded by the Australia Council.</p>
<p>But when Labor’s Jacinta Collins questioned Brandis during <a href="http://parlinfo.aph.gov.au/parlInfo/search/display/display.w3p;query=Id%3A%22committees%2Festimate%2F1691f703-a181-45c6-b912-4e571972691e%2F0000%22">Senate estimates</a> on Wednesday about what evidence actually supports the establishment of this new discretionary fund, he could offer only a “philosophy” (or two):</p>
<blockquote>
<p>This is, I think, when you say what evidence is there, a decision based on a philosophy of governance and a philosophy of the way in which arts funding ought to be administered.</p>
</blockquote>
<p>Brandis also admitted he had concerns about various individual funding decisions, even referring to a list of grants criticised in recent days by News Corporation columnists Tim Blair and Andrew Bolt. </p>
<h2>Performance measures</h2>
<p>So what evidence is there for understanding the Australia Council’s funding decisions over, say, the past decade?</p>
<p>There is actually a considerable evidence base from which to form policy decisions in Australian arts funding. Both the <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/4172.0">Australian Bureau of Statistics</a> and the Australia Council itself collect large amounts of robust data on cultural audiences, cultural events and the output of artists and companies funded by the taxpayer. </p>
<p>One crucial metric of cultural funding is innovation, such as the production of new Australian artworks. Supporting the creation of new Australian product has long been a rationale for cultural decision-making. The Australia Council has developed a complex model it calls “<a href="http://2014.australiacouncil.gov.au/resources/About-Artistic-Vibrancy">artistic vibrancy</a>” that explains how it approaches the difficult task of judging the merit of a particular company or work. </p>
<p>Another available metric is audience numbers: “bums on seats”, as producers like to say. Indeed, in Senate estimates on Wednesday, Brandis used “the audience” as a rationale for the establishment of NPEA: </p>
<blockquote>
<p>As I have always said, one of my misgivings about the exclusive peer-to-peer funding model is: who represents the audience around the table? The minister, being the responsible officer in charge of taxpayers’ money, has to be the voice for audiences. What are the shows, what are the performances, what are the concerts that the audiences go to? </p>
</blockquote>
<p>In answer to his own question, Brandis argued that the major performing arts companies “provide the performances that the great audiences of Australia enjoy”. </p>
<h2>What does the evidence say?</h2>
<p>In terms of audience numbers, the minister is on rather shaky ground. The ABS data tells us that the sorts of things that the major performing arts companies produce – theatre, classical music and dance – are amongst the least attended types of cultural events. </p>
<p>The most popular remains going to the movies, as it has been for decades. Zoos, botanic gardens, art galleries and contemporary music concerts are all more popular than opera, classical music, ballet and mainstage theatre. </p>
<p>Even on an individual company basis, it’s not clear that the major performing arts companies are putting on “the performances that the great audiences of Australia enjoy”. <a href="https://opera.org.au">Opera Australia</a>, our largest performing arts company, sold 539,197 tickets in 2014. The <a href="http://www.comedyfestival.com.au/2015/season/">Melbourne International Comedy Festival</a> (which receives no federal funding) sold more than 630,000. </p>
<p>The 2012 <a href="http://www.musicvictoria.com.au/assets/Documents/Victorian_Live_Music_Census_2012.pdf">Victorian Live Music Census</a> estimated more than 14 million patron visits to small Melbourne music venues in that year. </p>
<p>What about artistic vibrancy? Australia Council data allows us to compare the amount of new Australian work that major companies and the so-called “small-to-medium” sector produce. </p>
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<p>This data shows unequivocally that the smaller companies produce more new Australian works than the majors. They punch well above their weight when it comes to artistic innovation as measured by new work.</p>
<p>While major companies do make a contribution to artistic vibrancy, the data in the above table suggests that major companies are not really providing a national infrastructure for new works. Australia’s major orchestras, in particular, continue to perform a repertoire based on 18th- and 19th-century European composers. In contrast to these well-funded covers bands, it is the small to medium sector that is producing the majority of the new Australian work in the performing arts ecology. </p>
<p>This won’t be a surprise to Brandis. Back in 2007 he announced <a href="http://2014.australiacouncil.gov.au/news/items/pre-2010/smaller_arts_companies_benefit_from_big_funding_boost">an increase in funding</a> for small to medium arts companies precisely because of the “vital role” they played in the sector.</p>
<p>Unfortunately, the 2015 budget will punish the smaller companies supported by the Australia Council with deep funding cuts, while the major performing arts companies continue to have their funding guaranteed. Indeed, the majors could even benefit at the expense of smaller companies, by accessing extra funding from the new excellence program. </p>
<p>The collected evidence of cultural consumption and production in Australia does not bear out the rationale proposed by Brandis for the establishment of a new National Program for Excellence in the Arts. </p>
<p>If we designed a cultural policy based on the available evidence, it would certainly look very different than the vision announced in the budget. But there is evidence available, if we wish to use it. While we neglect it, cultural policy is much more likely to remain beholden to the whims of individual arts ministers and their personal definitions of “excellence”. </p>
<p>What Australian cultural policy urgently needs is a philosophy for evidence, not Brandis’s “philosophy versus evidence”.</p><img src="https://counter.theconversation.com/content/42487/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Ben Eltham has received funding from the Australia Council and the Ministry of the Arts in the past. He is not currently funded by either the Australia Council or the Ministry for the Arts.</span></em></p><p class="fine-print"><em><span>Deb Verhoeven does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What is the premise of recently-announced cuts to Australia Council funding, and the establishment of a National Programme for Excellence in the Arts? There is actually a considerable evidence base from which to form policy decisions in Australian arts funding.Ben Eltham, Research Fellow – Faculty of Arts and Education, Deakin UniversityDeb Verhoeven, Professor and Chair of Media and Communication, Deakin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/419662015-05-25T20:07:10Z2015-05-25T20:07:10ZFactCheck: is tax up every year under the Abbott government?<blockquote>
<p>Tax is up every year under this government and tax as a percentage of the economy is higher under Tony Abbott and Joe Hockey than it ever was under the previous Labor government despite all of their huffing and puffing about tax. – Chris Bowen, Shadow Treasurer, <a href="http://www.chrisbowen.net/media-centre/transcripts.do?newsId=6991">interview</a> with Hugh Rimington on Channel 10 Eyewitness News, May 12, 2015. </p>
</blockquote>
<p>The $A5 billion worth of tax breaks for small business were a centrepiece of the federal budget this year and something the Opposition was <a href="http://www.chrisbowen.net/media-centre/transcripts.do?newsId=6991">keen</a> to frame as a return to Labor policy.</p>
<p>In a post-budget interview, the Shadow Treasurer described corporate tax cuts and lower tax on small business as a good thing, adding that tax as a percentage of the economy is higher now than it was under the previous government. </p>
<p>Is that right?</p>
<h2>The available data</h2>
<p>According to data in the federal budget papers, Chris Bowen’s statement is correct. </p>
<p>He refers to “tax as a percentage of the economy”, which I take to refer to tax receipts as a percentage of GDP. This is indeed a standard measure used in economics to summarise the effective tax burden.</p>
<p>Ideally, Mr Bowen’s statement should be checked against independent data sources like the World Bank and Organisation for Economic Cooperation and Development (OECD). But unfortunately, international organisations update their databases with a lag of up to two years. (The World Economic Outlook Database of the International Monetary Fund has revenue data up to 2014, plus estimates and projections until 2019 but doesn’t distinguish between different levels of government or between tax and non-tax revenues.)</p>
<p>When asked for a data source to substantiate his statement, a spokesman for Mr Bowen directed The Conversation to the 2015 budget <a href="http://www.budget.gov.au/2015-16/content/bp1/download/bp1_bs10.pdf">papers</a>.</p>
<p><a href="http://budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Tables 1 and 2 in Statement 4 of Budget Paper 1 of the Federal Budget 2015</a> report Australian Government receipts in millions of dollars and in percent of GDP. The figures in millions of dollars are comparable to those published by the <a href="http://www.abs.gov.au/AUSSTATS/abs@.nsf/DetailsPage/5506.02013-14?OpenDocument">Australian Bureau of Statistics (ABS)</a>.</p>
<h2>Tax on the rise</h2>
<p>The bar chart below, Chart 1, reports the annual tax to GDP ratio from 2008-09 (the first Labor budget) to 2018-19 (last available projection). It must be noted upfront that data for 2014-15 and the two subsequent years are estimates, while data for 2017-18 and 2018-19 are projections.</p>
<p>If one takes 2014-15 as the reference for the first budget year of the Coalition government, then the evidence indicates that tax revenues in proportion of GDP are higher under the Abbott government than under the two previous Labor governments. </p>
<p>Furthermore, the tax-to-GDP ratio is expected to increase steadily over the next four years.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=356&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=356&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=356&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=447&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=447&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82769/original/image-20150524-32562-1knsuxb.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=447&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Notes: Bars in red refer to actual data; bars in blue refer to estimates, bars in green refer to projections.</span>
<span class="attribution"><a class="source" href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2, Statement 4, Budget Paper 1, Federal Budget 2015.</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The table below provides some more detailed information on the structure of the tax system. The data are again taken from <a href="http://budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2 of Budget Paper 1.</a></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=257&fit=crop&dpr=1 600w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=257&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=257&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=324&fit=crop&dpr=1 754w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=324&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/82770/original/image-20150524-32586-ux1ghu.PNG?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=324&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Note: Indirect includes sales taxes, excise duties, customs duties, and other forms of indirect taxation, Income includes all individuals and other withholding taxes, fringe benefits tax, company tax, superannuation fund taxes, and resource rent taxes; Individual is the total of individuals and other withholding taxes, Company is the company tax.</span>
<span class="attribution"><a class="source" href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">Supplementary Table 2, Statement 4, Budget Paper 1, Federal Budget 2015.</a>, <span class="license">Author provided</span></span>
</figcaption>
</figure>
<p>The most evident change that has occurred between the Labor and Coalition budget periods is the increase in income taxation receipts, while indirect taxes have remained fairly constant.</p>
<p>Within the income taxation category, individual taxes have increased, while receipts from the company tax have been substantially stable. Therefore, it appears that there has been a shift in tax burden to the disadvantage of households.</p>
<p>A few qualifications are necessary. First, being estimates, the data for 2014-15 and subsequent might be revised in the future (but I don’t expect these revisions to be significant, at least for 2014-15).</p>
<p>Second, the tax-to-GDP ratio of 21.9% observed in 2014-15 is not the highest ever. Supplementary Table 2 in the budget papers <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">shows</a> that in 2007-08 the ratio was 23.6%. The peak was reached under the Howard government in 2000-01, 2004-05 and 2005-06, when the ratio reached 24.2%. Over the period 1970-71/2014-15 the average ratio was 21.5%. </p>
<p>Third, the data above refer to cash receipts. Accrual receipts in 2014-15 amount to 23.9% of GDP, as shown Supplmentary Table 4 in the budget papers <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-06_online.htm">here</a> shows. This is only slightly higher than the accrual receipts to GDP ratio in 2013-14 and 2012-13 (23.7% and 23.6% respectively), but still one to two percentage points higher than the ratio in the earlier years of the Labor governments.</p>
<p>Accrual data also show that tax receipts are expected to increase in the next four years. Therefore, the general picture is qualitatively similar to the one produced from cash basis data.</p>
<h2>Verdict</h2>
<p>Mr Bowen’s statement is correct. Based on available Treasury data, the estimated tax-to-GDP ratio in 2014-15 is the highest since 2008-09. The ratio is also expected to increase further over the next four years. Therefore, the statement of the Shadow Treasurer is true.</p>
<p>Data for 2014-15 and subsequent years are estimates and projections and may be revised in future.</p>
<p>Lastly, it is worth stressing that this verdict does not establish what level of the tax-to-GDP ratio is most appropriate or desirable for the Australian economy. </p>
<p>In fact, lower taxes do not necessarily lead to superior socioeconomic outcomes, essentially because a government that raises little revenue is also a government that can supply little in the way of public goods, services and social welfare. </p>
<p>For this reason, rather than just focusing on how to reduce the tax burden, the policy debate around taxes should be concerned with finding the tax level and structures that best meet the needs of Australian citizens.</p>
<hr>
<h2>Review</h2>
<p>I agree with the data reported and its interpretation. The underlying data of Chart 1 and Table 2 is official Australian Treasury data; with important notes that numbers for 2014-15 through 2016-17 are estimates, which will be revised in the future. </p>
<p>It’s also noted that data for 2017-18 and 2018-19 are projections which assume no policy changes and a return to long-run economic growth.</p>
<p>The principal reason for the growth of Commonwealth taxation receipts as a share of GDP under the Coalition government is the growth of personal income tax. Every individual whose income in nominal dollars increases faces a higher average tax rate as a result of government failure to index, or to change, the brackets of the personal income tax rate schedule. This effect of so called “fiscal creep” is in addition to the effect of some people facing higher marginal income tax rates. – <strong>John Freebairn</strong></p>
<hr>
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<p class="fine-print"><em><span>Fabrizio Carmignani receives funding from the Australian Research Council for a project on the estimation of the piecewise linear continuous model and its applications in macroeconomics.</span></em></p><p class="fine-print"><em><span>John Freebairn does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Shadow Treasurer, Chris Bowen, has said that tax as a percentage of the economy is higher now than it was under the previous government. Is that right?Fabrizio Carmignani, Professor, Griffith Business School , Griffith UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/421642015-05-21T20:05:00Z2015-05-21T20:05:00ZCredibility trumps optimism when it comes to growth forecasts<p>One of the most intriguing aspects of the budget announced last week by Treasurer Joe Hockey is the set of macroeconomic forecasts it is based on. Cherry-picking from the <a href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_prelims.htm">Budget papers</a>, non-mining investment is predicted to more than triple in a couple of year’s time, soaring from its current annual growth rate of 2% to 7.5%. </p>
<p>Real GDP growth is expected to get to 3.75% in 2016‑17, a higher value than the 2.75% predicted in 2015-2016. Household consumption is also expected to improve, moving from the current 2.75% to 3.25% in 2016-17.</p>
<p>When questioned if his growth forecasts were too optimistic, Hockey said no - a claim promptly questioned by economists. As correctly pointed out by <a href="http://www.brookings.edu/research/opinions/2015/05/13-economic-reform-versus-political-budgets-mckibbin">Professor Warwick McKibbin</a>, these predictions come in a phase in which global uncertainty is high. Uncertainty is bad for economic growth. Think of investment. Entrepreneurs, in presence of uncertainty, stop investing and prefer to wait until the smoke clears. </p>
<p>The Coalition government has been careful not to return to the “debt deficit disaster” rhetoric which dogged its deeply unpopular first budget and dragged on both consumer and business confidence. But the debt sustainability issue remains. </p>
<p>Although still enjoying one of the lowest debt-over-GDP ratios among industrialised economies, Australia’s public debt has been steadily growing since the onset of the global financial crisis. This calls for medium-to-long run fiscal consolidation plans which point to a reduction in deficit in the next few years and some periods of positive surplus in the medium run. </p>
<p>Now, favourable economic prospects are of help to keep the Australian fiscal train on the right track. But if these forecasts turn out to be indeed too optimistic, fiscal sustainability may be in danger. In this case, Treasury might be forced to redesign its fiscal plans for the years to come by reducing aggregate spending and increasing fiscal revenues. In other words, the government will need to revise its own announcements. </p>
<p>But international academic research suggests such a policy redesign runs the risk of inducing uncertainty in an economic system that can be quantifiable drain on a country’s economic growth. </p>
<p>In their <a href="http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2198490">2013 research</a>, Nicholas Bloom, Scott Baker and Steven Davis found a decline in US GDP of 2.3% in 2007-2009, could be attributed to spikes in uncertainty surrounding tax, spending and healthcare policies from 2006 to 2011.</p>
<p>A <a href="https://sites.google.com/site/efremcastelnuovo/CCG14JMEpdf.pdf?attredirects=0&d=1">2014 paper I co-published with Giovanni Caggiano and Nicolas Groshenny</a> found that a portion as large as 1.8% (in absolute terms) of the increase in the US unemployment during the last economic recession is attributable to spikes in uncertainty. </p>
<p>So it is imperative for the government to keep the policy-induced uncertainty low, especially when it comes to revising economic forecasts. The key to doing so is one and one only: clear, timely, fully informative communication to the public. If variations to the government’s fiscal plan announced a few days ago are needed, Hockey and Tony Abbott will have to communicate them clearly, and equally clearly explain the economic reasons behind such variations.</p>
<p>The interconnections relating to economic forecasts, policy communication, and debt sustainability have been recently discussed in an <a href="https://www.melbourneinstitute.com/miaesr/events/economic_forums/economic_forum_details.html">Economic Policy Forum</a> (organised by the Melbourne Institute). Two main messages arose. </p>
<p>First, <a href="https://www.melbourneinstitute.com/downloads/economic_forums/April_2015/Robinson_Tim_April2015.pdf">the economy will likely feature some spare capacity in the next few years</a>. Second, in spite of forecasts predicting some weakness from the demand side, fiscal sustainability does not seem to be in danger, but some gradual budget adjustments appear necessary. Also, it appears necessary to clearly communicate in a timely way the rationale of such adjustments. </p>
<p>A clear and convincing policy communication can help financial markets form correct expectations over future fiscal deficits and the evolution of the Australian debt, something markets need to know to assess the sustainability of Australia’s fiscal situation. Clear communication can strengthen policy credibility, lower the risk premia paid by the Australian Government on its bonds, and <a href="https://www.melbourneinstitute.com/downloads/economic_forums/April_2015/PFC_April2015_fiscalstuff_7.pdf">enhance the country’s ability to repay its debt</a>. </p>
<p>Communication is a tool that policymakers should wisely employ. If our politicians have something to tell us, Australians are ready to listen.</p><img src="https://counter.theconversation.com/content/42164/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Efrem Castelnuovo does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Any backflip on the Federal Budget’s highly optimistic growth forecasts will have tangible impacts on confidence and in turn, the economy.Efrem Castelnuovo, Principal Research Fellow, Melbourne Institute of Applied Economic and Social Research - Associate Professor, Faculty of Economics and Business, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418872015-05-20T20:06:15Z2015-05-20T20:06:15ZClose look at tax avoidance laws shows they lack teeth<p>Treasurer Joe Hockey’s budget promise last week to “stop multinationals using complex schemes to escape paying tax” suggested a comprehensive regime to address tax avoidance by companies such as Apple, Google and Microsoft, as well as BHP and Rio Tinto. </p>
<p>All these five companies appeared before the recent Senate Committee hearings on corporate tax avoidance.</p>
<p>However, a close look at the draft legislation suggests that the proposal is far from comprehensive. It is a step in the right direction - but possibly not a big enough step. Out of the five multi-nationals mentioned above, only two – Google and Microsoft – are likely to be covered by the proposal. Even for these two companies, it is doubtful if the proposal is powerful enough to be an effective weapon for the Australian Taxation Office to challenge their tax avoidance structures. </p>
<h2>The proposal</h2>
<p>In broad terms, the proposed law will apply if a number of conditions are satisfied. It is important to summarise the key conditions here to highlight the limitations of the proposal. First, a foreign multinational – with an annual global revenue of more than A$1 billion – derives income from sales made to Australian customers. Second, it avoids booking the sales income in Australia. Third, the profits generated from the sales are subject to low corporate tax rate overseas. Fourth, the structure is designed with a “principal purpose” of avoiding Australian income tax.</p>
<h2>Limited targets</h2>
<p>The conditions imposed by the proposal dictates that many multinationals that are engaging in tax avoidance structures are not covered. For a start, the proposal will apply only to foreign multinationals. Local multinationals are immune from the anti-avoidance rule. This is despite the fact that recent news reports as well as the Senate Committee enquiry on corporate tax avoidance have revealed that major domestic multinationals – such as BHP and Rio Tinto – have been shifting profits to their marketing hubs in Singapore.</p>
<p>Many foreign multinationals will also be immune from the proposal. For example, it is unlikely that Apple will be subject to the proposed law. Its tax structure does not rely on avoiding booking sales income in Australia, which is one of the key conditions before the proposed anti-avoidance law will apply. In fact, Apple does book its sales income in Australia, but shifts over 90% of the sales income to Ireland through intra-group sales.</p>
<p>The limited scope of the proposed law also means that it is unlikely to be effective to deal with new tax avoidance structures that inevitably will be invented by multinationals and their highly adept tax advisors.</p>
<h2>Will the proposal be effective to its intended targets?</h2>
<p>It is also doubtful whether it will be a very effective weapon to allow the ATO to challenge tax avoidance structures of companies such as Google and Microsoft. </p>
<p>A key test to satisfy before the proposal law can apply is that in general a “principal purpose” of the structure is to avoid income tax. This is an untested concept in Australian income tax law. It may eventually be subject to interpretation of the courts. However, some lessons may be learnt from the experience of the existing general anti-avoidance rule in the tax law, known as Part IVA.</p>
<p>In an internal ATO document disclosed under Freedom of Information Act and revealed in the Senate Committee enquiry on corporate tax avoidance, the ATO admitted that the Part IVA is unlikely to be effective to deal with most tax avoidance structures of multinationals. The main reason for this shortcoming is that Part IVA will not apply unless in general the ATO can prove that the “sole or dominant purpose” of a tax structure is for a tax benefit.</p>
<p>In practice, it is very difficult for the ATO to substantiate that the “dominant purpose” of a complex tax avoidance corporate structure is for tax avoidance. Multinationals often have substantial resources to engage industry experts and tax lawyers to argue that the structure is driven primarily by commercial reasons, and tax benefit is merely an incidental consequence. </p>
<p>Information asymmetry often dictates that the ATO lacks full information about multinationals and their tax avoidance structures. This issue further tilts the odds against the ATO in applying Part IVA to these structures.</p>
<p>It is likely that the “principal purpose” test in the proposed law may suffer similar problems as the “dominant purpose” test. </p>
<p>For anti-avoidance purposes, a more effective purpose test may be found in an existing provision in Part IVA. While Part IVA in general requires a “dominant purpose”, it has a specific section that in broad terms is applicable if “a” purpose of the structure is for tax avoidance. </p>
<p>In other words, as long as one of the purposes of a corporate structure is for tax benefit, that section may apply. It is unclear why the government does not adopt the “a purpose” test in the proposed law.</p>
<p>Given the limitations and doubts on the effectiveness of the proposed law, it may not be surprising that the Treasurer refused to provide an estimate for the tax revenue that may be raised from the proposal.</p><img src="https://counter.theconversation.com/content/41887/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Antony Ting does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>A close look at Hockey’s tax avoidance laws aimed at multinationals like Apple and Google, shows they can avoid them.Antony Ting, Associate Professor, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/419012015-05-20T20:05:58Z2015-05-20T20:05:58ZWhy forcing Google and other tax avoiders to have a ‘taxable presence’ won’t work<p>One of the critical provisions in anti-avoidance measures aimed at multinational companies announced in last week’s federal budget will be what constitutes a “taxable presence” in Australia. </p>
<p>Treasurer Joe Hockey has specifically targeted 30 companies which artificially avoid having a “taxable presence” in this country. The government will introduce laws in Part IVA of the income tax assessment act and these will be effective from 1 January 2016. </p>
<p>But as QUT’s Professor of Taxation Kerrie Sadiq <a href="https://theconversation.com/not-all-corporate-tax-avoiders-will-be-snared-by-new-rules-41604">wrote on the night of the budget</a>, not all tax avoiders will be caught up in the new rules and <a href="https://theconversation.com/close-look-at-tax-avoidance-laws-shows-they-lack-teeth-41887">Antony Ting has also argued</a> they aren’t a strong enough tool to help the Australian Taxation Office (ATO).</p>
<p>The exact definition of “taxable presence” is not provided, the 30 firms targeted are not named and, according to the Treasury budget papers, the gains from this measure are unquantifiable. The only additional information provided in the budget is that this will apply to companies where:</p>
<ul>
<li><p>the activities of an Australian company or other entity are integral to an Australian customer’s decision to enter into a contract;</p></li>
<li><p>the contract is formally entered into with a foreign related party to that entity; and</p></li>
<li><p>the profit from the Australian sales is booked overseas and subject to no or low global tax.</p></li>
</ul>
<p>Even though these measures are specific and targeted, they are to be included in the Part IVA general anti-avoidance provisions. This is to prevent them being over-ridden by tax agreements with other countries. In all tax agreements, Australia has negotiated for the Part IVA anti-avoidance provisions to over-ride any provisions in the tax agreement. </p>
<p>If these new measures were not included in Part IVA, every tax agreement would need to be renegotiated, with the likelihood that the foreign governments would not agree to the new provisions.</p>
<p>Although not one of the 30 targeted companies are named presumably one clear target of the policy is Google, whose tax avoidance strategies have been widely documented. </p>
<p>When an Australian customer purchases Google’s services online (advertising for example), the revenue is booked through Google Asia-Pacific based in Singapore. A large percentage of an estimated A$2 billion worth of revenue is then directed to Ireland as royalty payments for the use of its intellectual property and subject to a 12.5% tax rate.</p>
<p>The profits are then transferred, via a subsidiary in the Netherlands to avoid Irish withholding tax, to another subsidiary in Ireland. Under the loophole in the Irish tax laws, the second Irish subsidiary is registered as a tax resident in Bermuda where the tax rate is basically 0%. </p>
<p>The net effect is that Google is able to reduce its effective tax rate on overseas profits (that is, anywhere outside North America) <a href="http://www.bloomberg.com/news/articles/2010-10-21/google-2-4-rate-shows-how-60-billion-u-s-revenue-lost-to-tax-loopholes">to around 2.4%</a>.</p>
<p>While Apple and many other multinationals use a similar structure, Google’s revenues are directly booked in a tax haven, eliminating the necessity of transferring them out of Australia. Presumably the “targeted anti-avoidance law” Hockey referred to on budget night aims to bring those revenues back to Australia.</p>
<p>However, two major problems stick out very clearly. One is that the profits are booked to a corporation in a different country, and the Australian government has absolutely no jurisdiction over that entity. </p>
<p>The very obvious question is; how will the ATO make a foreign entity (whether a related party to Google or not) declare revenue in Australia? It is doubtful that any such foreign entity will do this voluntarily, simply to comply with a law in a different jurisdiction. </p>
<p>Of course, the ATO can simply impose a declaration that revenue of any subsidiary, or related party of Google in Australia, is Australian-sourced income by a company with an Australian “taxable presence”. But if they do so, will Google retain any legal presence here? </p>
<p>Perhaps the answer is a withholding tax on Google sales to Australia customers, but then again that will raise legal questions and possibly provoke the United States into retaliating for imposing a specific tax on only US multinationals. Therefore, what is vaguely proposed as a “targeted anti-avoidance law” may simply be very difficult to implement.</p>
<p>For the moment let’s assume a practical and efficient way is found to have Google and the rest declare all Australian sales to the ATO. These companies are then likely to follow the Apple model. Apple does declare all revenues from the sales of its products in Australia, but still manages to shift profits overseas through the use of royalty payments to an Irish subsidiary as outlined above. </p>
<p>Apple books its sales revenues in Australia but loads each product with a high level of intellectual property charges which are then paid to an Irish subsidiary that holds the economic rights to the intellectual property. Google will be probably to do the same if it is declared to have a “taxable presence” in Australia.</p>
<p>It is no wonder that the gains of this measure are unquantifiable. The risk of raising nothing is very high and therefore a question has to be asked: is this measure just a facade to placate the rising adverse public opinion regarding tax avoidance by multinational corporations?</p><img src="https://counter.theconversation.com/content/41901/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>What constitutes a “taxable presence” in Australia lies at the centre of the government’s proposed tax avoidance clampdown on multinational companies.Roman Lanis, Associate Professor, Accounting, University of Technology SydneyRoss McClure, PhD Candidate, casual academic, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/414902015-05-20T02:02:39Z2015-05-20T02:02:39ZEmployers need more than money to hire older workers<figure><img src="https://images.theconversation.com/files/81638/original/image-20150514-28590-o1ctna.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Beyond being told or incentivised to hire older workers, employers need to feel they are making the right decision.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>With Australia’s official retirement age heading to 70 by 2035, this year’s federal budget brings forward incentives designed to encourage companies to employ older workers.</p>
<p>The Restart Program, which provides $10,000 to employers to hire over 50s will have payments accelerated, and the government will also provide incentives to older unemployed people to retrain in order to get a job.</p>
<p>The measures go part of the way to addressing the challenges faced by older workers, but come amid ongoing <a href="http://www.abc.net.au/news/2015-04-23/survey-of-older-workers-reveals-discrimination/6414560">age discrimination</a> in Australia.</p>
<p>Empirical <a href="http://www.tandfonline.com/doi/abs/10.1300/J031v17n03_05#.VVK2Yvmqqko">evidence</a> suggests negative stereotypes are at the heart of this form of ageism. Such <a href="http://www.tandfonline.com/doi/abs/10.1300/J031v17n03_05#.VVK5Nvmqqko">stereotypes</a> are <a href="http://ro.ecu.edu.au/ecuworks/880/">found</a> among employers as well as the community at large.</p>
<p>Ageist attitudes and related stereotypes are a general socio-cultural phenomenon and are not confined to the workplace, meaning employers’ attitudes toward older workers are simply a reflection of a broader worldview. Being in positions where their decisions have direct impact on the lives of older workers, however, means their views attract more attention than those of other people.</p>
<p>It is not the intention of employers, who typically seek the best person for the job, to discriminate against older workers. But stereotypes are activated automatically in response to cues. For example, a person’s age, appearance, or date of graduation from school are all relevant cues that impact perception and judgement. Despite best intentions, employers’ judgement can be automatically biased by ageist stereotypes so they may miss the best person for the job in cases where it happens to be an older worker.</p>
<p>Common interventions to address ageism toward older workers have been in the form of policies, legislation, and fact sheets, with the former aimed at enforcing fair practice and the latter providing information. Policies, however, provoke resistance to change when people are being told to think and/or behave in particular ways and feel their free choice is threatened. Fact sheets, incongruent with employers’ worldviews, are often perceived as incorrect. </p>
<h2>Getting past stereotypes</h2>
<p>There are however <a href="http://ro.ecu.edu.au/ecuworks/880/">ways to promote positive attitudes</a> toward older adults among employers and increase the likelihood of them being hired.</p>
<p>One intervention tested successfully involved inducing cognitive dissonance. <a href="http://www.sup.org/books/title/?id=3850">Cognitive dissonance</a> is a mentally unsustainable state that is evoked when a person holds two contradictory thoughts and/or beliefs simultaneously.</p>
<p>People are naturally driven to reduce cognitive dissonance, so much so that it often results in them either changing their attitude or further affirming their initial positions.</p>
<p>In our study we made employers aware that discriminating against older workers was potentially counterproductive and against our culturally enshrined value of a “fair-go”. Having been asked to endorse this view and provide their names, employers were advised they would be listed as people who opposed hiring discrimination against older adults and who were committed to non-discriminatory practice. This meant they would ultimately experience cognitive dissonance in response to activation of negative stereotypes in subsequent considerations of older workers.</p>
<p>We also developed fact sheets based on common misconceptions about older workers. Combining the cognitive dissonance aspect with the fact sheet produced the strongest effect. </p>
<p>Employers who participated in this part of the study showed more positive attitudes toward older workers overall, stated that they were more than likely to hire older workers, and considered age to be less important in making hiring decisions.</p>
<p>Attitudes are said to be relatively resistant to change, but by refuting misconceptions and enabling cognitive dissonance to be evoked in employers, we enabled them to maintain a sense of self-integrity as well as professionalism because these were now aligned with fair treatment of older workers. </p>
<p>Ultimately, it was the internal motivation of hiring decision makers that made the difference, as opposed to dictating to employers how they should behave. The next phase is to discuss various ways the intervention could be implemented.</p><img src="https://counter.theconversation.com/content/41490/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eyal Gringart does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The government wants to see more older workers in the workforce, but first we need to overcome the ageist attitudes held my many employers.Eyal Gringart, Senior Lecturer and Discipline Leader, Psychology within the School of Psychology and Social Science, Edith Cowan UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/419562015-05-19T02:43:45Z2015-05-19T02:43:45ZConvergence theory explains the lack of choice in Australian politics<p>Economists disappointed by last week’s desultory federal budget and Bill Shorten’s “me too” reply may get some satisfaction by talking to their political science colleagues. For one of the most venerable scholarly theories of Australian politics appears to be making a comeback.</p>
<p>The “<a href="https://books.google.com.au/books?id=DU2no--UszAC&pg=PA116&lpg=PA116&dq=convergence+in+australian+politics&source=bl&ots=jRKBzVr4ZJ&sig=80VKfLVji73W4vLk_NonhmyERDM&hl=en&sa=X&ei=G9JaVZe2O9Di8AXlxYGQAg&ved=0CFEQ6AEwBw#v=onepage&q=convergence%20in%20australian%20politics&f=false">convergence thesis</a>” – which holds that the main Australian political parties will, over time, converge upon near-identical policy positions on most issues – was on full display last week. </p>
<p>The Coalition government did a convincing job of producing a Labor budget, with some sops to small business, while the opposition did its best to promise more of the same, unfunded. Credible plans for a balanced budget and the much more demanding task of intergenerational equity were studiously ignored by both sides.</p>
<p>Media commentators often see this as the failings of our “political class” to step up to the challenges of leadership, and there is definitely some truth to that.</p>
<p>But there are underlying systemic pressures towards convergence that are particularly strong in Australia.</p>
<h2>Vote 1 for the same ideas</h2>
<p>Start with the presumption that politicians are fundamentally “office-seeking” in their behaviour. In other words, their prime motivation is to attain and hold on to power, not necessarily to do anything with it. Think Kevin Rudd and, it appears, Tony Abbott.</p>
<p>To achieve office (that is, a role in government, not just a seat in parliament) politicians need “catch all” parties, such as the modern Liberal and Labor machines. These parties are fundamentally electoralist in nature: their key purpose is to win elections, not to mobilise social groups or bring about social change.</p>
<p>Winning elections requires a focus on the “median voter” – the voter who sits at the exact centre of the political and policy spectrum, and thus offers the best target for election campaigning.</p>
<p>Median voters are assumed to be self-interested, short-sighted and conservative, but also rational, family-focused and personally aspirational. This is common to many developed democracies. </p>
<h2>The power of preferences and compulsory voting</h2>
<p>In Australia, two additional and near-unique electoral institutions – compulsory voting and a preferential ballot – make pressures for convergence even more powerful.</p>
<p>Compulsory voting drags to the polls the 30% or so of the electorate who couldn’t care less about politics. They would not choose to vote unless they had to.</p>
<p>This group essentially decides election outcomes, making it much harder for parties to adopt longer-term reforms that could alienate what political professionals call “low-information voters”.</p>
<p>In the polling booth, compulsory preference marking catches the votes of these and other groups – including highly engaged voters – who support minor parties. These votes are then funnelled back to the two major parties, assuming that they can still gain sufficient first-preference support, in a process that encourages policy aggregation rather than differentiation.</p>
<h2>Reform is possible – with bipartisanship</h2>
<p>Centralist politics does not necessarily mean that the status quo prevails. With bipartisan parliamentary support, such a system can enable serious reform to occur, as was the case for the Hawke-Keating years.</p>
<p>Our current lack of bipartisanship, which owes a lot to the way Abbott conducted himself as opposition leader, makes a repeat of this period much harder.</p>
<p>Parties do maintain a few talismanic distinctions to retain the distinctiveness of their brands. Attitudes towards industrial relations and immigration remain politically salient for voters, for instance, and hence are likely to be the focus of efforts to <a href="http://monuni.academia.edu/ShaunRatcliff">distinguish themselves</a> by the parties too.</p>
<p>Other issues that were previously a model of convergence, such as Israel-Palestine, are becoming less so, in part due to demographic changes in marginal seats in Western Sydney.</p>
<p>However, longer-term challenges such as government debt, intergenerational equity and climate change are increasingly being placed in the too-hard basket by both parties.</p>
<h2>A simple step to deliver greater choice</h2>
<p>Convergence is not necessarily bad. It helps Australian politics avoid the extremes seen in the United States, for instance, and forces the parties to keep a constant watch on bread-and-butter issues. But it also makes serious policy debate extremely difficult, as both parties seek to avoid or neutralise issues that do not resonate with the median voter.</p>
<p>To the extent that convergence is a problem – which will only become clear when the next exogenous shock hits Australia, such as another Global Financial Crisis or El Niño drought – we should consider some modest institutional reforms to encourage more genuine political competition.</p>
<p>A simple one would be to switch to an optional preferential voting system for the House of Representatives, as has been proposed but not yet legislated for Senate elections. Voters in <a href="https://theconversation.com/in-a-tight-nsw-election-optional-preferences-could-win-the-day-38298">New South Wales</a> and <a href="https://theconversation.com/are-queenslanders-in-danger-of-wasting-their-votes-35919">Queensland</a> state elections already have the option to exercise as many, or as few, of their preferences as they choose.</p>
<p>The consequences of this federally would be significant. Both major parties would have to fight much harder for preferences if these were optional and they had to differentiate themselves from their competitors rather than imitating them.</p>
<p>A switch to optional preferential voting would also address the growing problem of informal voting – almost 6% of all votes at the last federal election, most due to numbering errors. </p>
<p>But it would also open the question of why, if we don’t need to compel voters to express preferences that they do not in fact have, we should compel them to vote at all. </p>
<p>While some Liberals have intermittently expressed interest in <a href="http://www.samuelgriffith.org.au/papers/html/volume15/v15chap8.html">ending compulsory voting</a>, this is not a conversation either of the major parties wants. It would require political courage, something in very short supply at the moment.</p><img src="https://counter.theconversation.com/content/41956/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Benjamin Reilly does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Convergence theory – which holds that the main Australian political parties will, over time, converge upon near-identical policy positions on most issues – was on full display during budget week.Benjamin Reilly, Dean, Sir Walter Murdoch School of Public Policy and International Affairs, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418822015-05-18T23:59:28Z2015-05-18T23:59:28ZSignificant Investor Visa misses the mark on VC and innovation<figure><img src="https://images.theconversation.com/files/81780/original/image-20150515-8743-11iijma.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">With new sources of venture capital funding Australia can boost innovation and its economy.</span> <span class="attribution"><span class="source">Image sourced from Shutterstock.com</span></span></figcaption></figure><p>The review of the <a href="https://www.immi.gov.au/faqs/Pages/What-is-the-significant-investor-visa.aspx">Significant Investor Visa (SIV)</a> program was pitched by the government as an initiative to spur innovation in Australia. An outline of the revised SIV scheme was released last week, with full details yet to be released. While the review will lead to some welcome improvements, overall the release represents a lost opportunity to significantly impact Australia’s innovative capacity. </p>
<p>After more than a decade of strong economic growth, powered in large part by extraordinary investment from the mining sector, Australia’s national accounts figures continue to disappoint. The case for government commitment to effective stimulus for innovation in Australia has never been more compelling.</p>
<p>While Australia’s innovation ranking has improved in the last decade, it still <a href="https://www.globalinnovationindex.org/content.aspx?page=GII-Home">lags behind</a> many of the world’s more developed economies. Australia’s innovation efficiency ratio, which measures a country’s ability capitalise on research and other innovation inputs places Australia 81st in the world - well below the global median.</p>
<p>Research has shown that small business contributes a disproportionate share of major innovations. Venture capital (VC) funds are an important source of startup funding for small business. Venture capital also <a href="https://www.businessthink.unsw.edu.au/Pages/Come-Together-How-Grants-Venture-Capital-and-Private-Equity-Lift-Innovation.aspx">supports innovation</a> by funding R&D and providing management skills to commercialise latent technologies and grow the businesses in which they invest.</p>
<p>The Canadian and Singapore governments have implemented similar programs to the SIV, aimed at boosting innovation by channelling new funding to innovative enterprises through venture capital.</p>
<p>Investment in venture capital in Australia is low compared to other developed markets. In the 2013 financial year, the <a href="http://www.ey.com/GL/en/Services/Strategic-Growth-Markets/Global-venture-capital-insights-and-trends-2014">amount of capital invested</a> by Australian venture capital firms was at its lowest level in 11 years - A$111.4 million. In the same year, the investment by venture capital firms in the US was US$334 billion, in Israel US$1.7 billion and in China, US$3.5 billion. Startup financing accounts for only 0.009% of GDP compared to 0.055% for the US and 0.3% for Israel, according to the OECD.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=399&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=399&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=399&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=502&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=502&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81786/original/image-20150515-8749-8dh9ce.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=502&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Pitching to VCs is a big part of US startup culture.</span>
<span class="attribution"><span class="source">Fortune Live Media/Flickr</span>, <a class="license" href="http://creativecommons.org/licenses/by-nd/4.0/">CC BY-ND</a></span>
</figcaption>
</figure>
<h2>Visas and innovation</h2>
<p>The Significant Investor Visa program is the path to residency for international investors that commit investment funds to Australia. The concept is simple. Affluent international investors invest a minimum of A$5 million over four years in “approved” investments, after which they receive permanent residency. </p>
<p>The SIV program, introduced by the previous Labor government, has been in place since November 2012. “Approved” investments under the scheme included ultra-safe government bonds, ASIC-regulated managed funds or shares in blue-chip companies. These provide some extra liquidity to traded markets, but are of doubtful value in providing new innovation capital, or adding real value to Australia’s economy. They accounted however, for the vast majority of funds invested under the scheme. </p>
<p>Since the scheme’s introduction, investors, mostly from China, have invested more than A$4 billion. With only 124 investments made by VC funds in the 2013 financial year (AVCAL), the program review had the potential to dramatically increase the pool of venture capital for thousands of young innovative firms. Unfortunately, it has fallen short in a number of key areas.</p>
<h2>Innovation funding through the SIV</h2>
<p>Under the recently outlined changes, up to 60% or $3 million of the $5 million investment can still be invested in “other” investments which include highly liquid blue-chip investments. While government bonds have been removed from the “approved” list, shares and real property are still on the list. Although the revised program now includes a venture capital component, this represents a mere 10% or $0.5m.</p>
<p>A minimum of 30% is required to be invested in “small cap” firms, with market capitalisation up to A$500 million. There is no specific requirement that any of the “small cap” investments be in companies involved in innovative enterprises.</p>
<p>Most firms in the “small cap” category are in mining, energy, financial services or real estate. Some eligible “small caps” would be considered innovative enterprises, most would not. If the government was serious about supporting innovation, further criteria would have been applied to keep the focus on innovation capital. For example, eligible investments could have been assessed based on innovative inputs (R&D spending, employees or numbers of R&D alliances) or innovation outputs (patents, investment in innovative products and processes).</p>
<p>Similar visa schemes in Singapore and Canada do not allow blue chip share and property investments. Although their schemes have a lower total investment requirement, 100% is channelled into areas that stimulate innovation.</p>
<p>International competitiveness of the SIV has been put forward, as a reason for the relatively low venture capital requirement. Perceived competitiveness of the scheme could have been addressed by reducing the total investment required but increasing the percentage allocated to innovation capital. This would have provided a much bigger boost to innovation. </p>
<p>The government’s release contains reference to the possibility of increasing the VC component of the SIV for new applications within two years. It is hard to understand the logic of pitching the scheme so far below other leading schemes, then waiting for two years to raise the VC component to a more meaningful level. </p>
<h2>Time frame is too short</h2>
<p>The minimum investment time frame of four years remains unchanged under the revised scheme. While the review states that VC investments may set longer terms, this is not a requirement. Venture capital funds typically need an 8‐10 year investment time frame to cover: investigation and selection of suitable investments, development and growth of investee firms and execution of successful exit strategies. </p>
<p>Shorter minimum investment periods, such as the five-year minimum under Singapore’s scheme, have tended to drive the funds to provide convertible bond or mezzanine debt financing rather than equity capital. This restricts the types of firms attracting funding (young start‐ups generally don’t have the cash flow to support debt financing) and the activities funded (debt funding is not suitable for riskier, more innovative ventures). </p>
<p>To truly promote VC funding under the scheme, the government should have set the minimum investment period for the VC component to at least eight years to match a typical fund life. The period for permanent residency qualification does not need to match the investment period, so this could have been kept at four years under the SIV. Canada’s Immigrant Investor Venture Capital (IIVC) pilot program requires a 15 year commitment, with permanent residency granted when the applicant is accepted. </p>
<h2>Other design issues</h2>
<p>The recognition of mid-market Private Equity (PE) funds under the revised program is welcome, albeit under the token VC requirement. These funds invest in enterprises in the $150-200m range and their role is often misunderstood in the context of innovative business ventures. They provide growth capital to firms that have progressed beyond the startup stage. They can play a crucial role in the success of innovative firms by commercialising latent technologies and have struggled to attract capital in Australia.</p>
<p>Quality and transparency of information is another area which is lacking, in terms of designing a scheme that is capable of efficient and effective allocation of innovation capital.</p>
<p>The sensitivity of revealing financial and performance information on individual venture capital funds or firms makes it difficult for individual investors to select funds. Fund performance and investment valuations are considered confidential data and only <a href="http://www.avcal.com.au/documents/item/1010">aggregated performance</a> across the sector is publicly available.</p>
<p>The Singapore scheme uses independent third parties to evaluate eligible funds and the results are publicly available. A mechanism for fund evaluation under the SIV would help investors to make informed choices, providing more effective allocation of capital. </p>
<p>A clear framework for ongoing assessment, monitoring, and reporting is also essential to ensure compliance of participating funds and to track the allocation of funding. Such a framework could form a basis for informed revisions to the SIV investment criteria. The review outline, as with the existing scheme, contains little information on effective monitoring.</p>
<h2>Innovation is the key to our economic future</h2>
<p>As long as Australia ranks highly as a desirable place to live and raise a family, programs like the SIV provide an opportunity to attract innovation capital that we can ill afford to miss. The review released by government was another opportunity lost for Australia’s innovative capability. Properly designed, the program could have made a much more meaningful contribution to innovation in Australia.</p><img src="https://counter.theconversation.com/content/41882/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jo-Ann Suchard receives funding from the Australia Research Council and had previously received an ARC Linkage grant in conjunction with AVCAL.</span></em></p>Australia can attract much needed venture capital funding through its Significant Investor Visa system, but only if a proposed new system is designed well.Jim Smith, Associate Professor, Banking and Finance, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418172015-05-18T20:04:00Z2015-05-18T20:04:00ZThe budget harks back to old ideas for northern Australia<figure><img src="https://images.theconversation.com/files/81969/original/image-20150518-25400-1gvn7vv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Looking over Palmerston and the East Arm of Darwin Harbour to the new $35B Inpex LNG plant. Many resources projects in the north are in beautiful, environmentally important places. </span> <span class="attribution"><span class="source">Andrew Campbell</span>, <span class="license">Author provided</span></span></figcaption></figure><p>Treasurer Joe Hockey’s <a href="http://www.budget.gov.au/2015-16/content/speech/html/speech.htm">announcement</a> of a A$5 billion Northern Australia Infrastructure Facility in last week’s budget has been met with <a href="http://www.afr.com/news/policy/budget/federal-budget-2015-several-rolls-of-sticky-tape-and-a-large-dose-of-chutzpah-20150515-gh1qa0">cynicism</a> in the media. </p>
<p>Bernard Keane writing on <a href="http://media.crikey.com.au/dm/newsletter/dailymail_ac600bcc4c34ba410d13562fafdc6278.html#article_35334">Crikey</a> argued “the ‘infrastructure Prime Minister’s’ second budget containing no worthwhile new infrastructure investment outside a northern Australia boondoggle fund”.</p>
<p>A tad harsh?</p>
<p>The facility plays into a wider discussion around northern Australia, to be laid out in the forthcoming <a href="https://northernaustralia.dpmc.gov.au/">White Paper on Developing Northern Australia</a> (along with an <a href="https://agriculturalcompetitiveness.dpmc.gov.au/">Agricultural Competitiveness White Paper</a>). These may well establish a robust policy framework to guide infrastructure investment.</p>
<p>Northern Australia has 5.6% of Australia’s population (2011), comprises 45% of the land mass and generated 11.7% of GDP in 2013. Determining our share of national infrastructure investment is properly a political judgement.</p>
<p>But how infrastructure funding is invested, on what projects and via what governance and delivery mechanisms, is rightly open to policy, academic and public scrutiny.</p>
<h2>Evaluating infrastructure</h2>
<p>On May 8 Infrastructure Australia released its <a href="http://www.infrastructureaustralia.gov.au/policy-publications/publications/files/IA_Northern_Australia_Audit.pdf">Northern Australia Audit</a>, a comprehensive 300-page analysis of infrastructure challenges and opportunities across the north. </p>
<p>Curiously the audit was not mentioned in Hockey’s budget speech. However, it was referred to in a A$3.8 million <a href="http://www.budget.gov.au/2015-16/content/bp2/html/bp2_expense-18.htm">infrastructure pipeline </a> to look into roads, rail, water, electricity, ports, airports and communications projects. </p>
<p>We could see some much-needed and sensible investment in and consequent development of the north. This would take overall investment to be well designed, soundly governed and competently administered and implemented. It would also need projects to be well chosen on the basis of detailed evaluation of whole-of-life benefits, costs and risks.</p>
<p>Equally, there is a risk of unco-ordinated effort and ill-conceived public investment for short-term political reasons with dubious long-term public benefits – potentially exceeded by long-term costs.</p>
<p>There are sound public policy arguments that decisions about large infrastructure investments with a design life of more than 100 years like ports, bridges or rail lines should not be made just by politicians with an electoral horizon of less than three years. However, the attraction of such arguments tends to fade with a political party’s proximity to the government benches.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81968/original/image-20150518-25417-jet52a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">There are a lot of cattle in the north, but the economy is about much more.</span>
<span class="attribution"><span class="source">Andrew Campbell</span></span>
</figcaption>
</figure>
<h2>Where is the ‘soft’ infrastructure?</h2>
<p>The budget announcement with its explicit mention of ports, pipelines, electricity and water appears to take a narrow view of infrastructure as “hard” engineering and capital works. </p>
<p>This would be a pity, given the breadth of the coalition’s pre-election <a href="http://www.liberal.org.au/2030-vision-developing-northern-australia">2030 Vision for Developing Northern Australia</a> and the <a href="https://northernaustralia.dpmc.gov.au/green-paper">Green Paper</a>. These documents envision vibrant tourism, education, health and defence industries sectors, complementing the north’s traditional frontier image of minerals, energy and agriculture.</p>
<p>A broader definition of infrastructure can include:</p>
<ul>
<li><p>investments that underpin human capital (such as education, training and health services)</p></li>
<li><p>natural capital (maintenance budgets and staffing for national parks)</p></li>
<li><p><a href="https://theconversation.com/northern-australia-should-have-a-say-in-its-own-future-16469">governance</a> (land tenure, property rights, planning)</p></li>
<li><p>disaster resilience (communication technologies and services)</p></li>
<li><p><a href="https://theconversation.com/research-infrastructure-cuts-would-hit-the-top-end-hard-38495">research facilities</a></p></li>
<li><p>deep <a href="https://theconversation.com/the-shipping-news-the-norths-new-frontier-is-a-complex-place-17997">enduring links</a> to neighbouring countries.</p></li>
</ul>
<p>Both the pre-election Coalition 2030 vision platform and the Green Paper propose that northern Australia is about more than mines, pipelines and cattle. In my view the White Paper needs to expand in this direction. </p>
<p>From the limited detail in the budget papers, there is a risk that this infrastructure facility harks back to an earlier primary commodity-based notion of northern development.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81967/original/image-20150518-25403-cehbea.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Reinvestment in national parks could underpin smart tourism development and more resilient northern economies.</span>
<span class="attribution"><span class="source">Andrew Campbell</span></span>
</figcaption>
</figure>
<h2>A better agenda</h2>
<p>From an environmental perspective, noting the strategic need to decarbonise the Australian economy and taking a broader view of infrastructure, I would like to see long-term national-interest investments. This could include:</p>
<ul>
<li><p>multi-decadal commitments to <a href="https://theconversation.com/remote-indigenous-communities-are-vital-for-our-fragile-ecosystems-38700">Indigenous ranger programs</a> for tourism, environmental management, biosecurity, community resilience, cultural resource management and disaster risk reduction</p></li>
<li><p>investment in the underlying governance framework via Indigenous organisations for <a href="https://theconversation.com/savanna-burning-carbon-pays-for-conservation-in-northern-australia-12185">savanna burning projects</a> across all tenures for emissions reduction, habitat conservation and asset protection</p></li>
<li><p>accelerated development and deployment of <a href="https://theconversation.com/the-norths-future-is-electrifying-powering-asia-with-renewables-17286">renewable energy generation</a> to position northern Australia as a world leader in remote, off-grid, mini-grid and tropical renewable energy (a massive and rapidly growing global market)</p></li>
<li><p>substantial reinvestment in protected areas such as <a href="https://theconversation.com/thinking-corporately-getting-national-parks-on-national-balance-sheets-8152">national parks</a> and <a href="http://www.environment.gov.au/indigenous/ipa/">Indigenous Protected Areas</a> – the jewels in the crown of our natural assets – in capital works, staffing and maintenance budgets, to underpin smart tourism development and for <a href="https://theconversation.com/too-good-to-lose-how-to-reverse-the-species-declines-at-kakadu-33679">responsible stewardship</a> of priceless natural heritage. </p></li>
</ul>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81966/original/image-20150518-25415-zc2nx1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The north’s national parks are invaluable natural assets.</span>
<span class="attribution"><span class="source">Andrew Campbell</span></span>
</figcaption>
</figure>
<h2>A view to the future</h2>
<p>Looking more broadly at the budget papers, it seems odd for a government that prides itself on prudent economic management to be proposing a concessional loan fund that the budget papers say will cost the budget “a negative fiscal balance impact” of A$794 million over three years. At the same time the government is proposing to abolish the profitable <a href="http://www.cleanenergyfinancecorp.com.au/about.aspx">Clean Energy Finance Corporation</a> and directing it to make <a href="http://reneweconomy.com.au/2015/hockey-sets-impossible-targets-for-cefc-in-green-investments-62743">commercial returns on investment</a>.</p>
<p>The north is littered with examples of poorly conceived projects, projects with a toxic ongoing legacy left to taxpayers to clean up, and projects where planning and approval processes seem inadequate or at best opaque.</p>
<p>The facility and its fund could play a very useful role in breaking with tradition and buttressing the smart development of northern Australia. But it would need to:</p>
<ul>
<li><p>use the evidence in the Infrastructure Australia audit</p></li>
<li><p>support investment in “soft” and “green” infrastructure</p></li>
<li><p>undertake transparent cost-benefit analysis on a whole-of-life and risk-assessed basis</p></li>
<li><p>appraise projects using an independent, expert body at arm’s length from government</p></li>
<li><p>structure incentives and assistance measures to properly reflect the distribution of public and private benefits over time.</p></li>
</ul>
<p>Right now is too soon to tell. </p>
<p>The forthcoming White Paper, and more importantly the government response to it, will put this initiative in context and allow judgements about whether this fund is intended to subsidise non-commercial projects that hark to the 19th century, or position northern Australia wisely for the 21st century.</p><img src="https://counter.theconversation.com/content/41817/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The Research Institute for the Environment and Livelihoods receives funding from a wide range of government and industry sources and is a partner in several large collaborative environmental research initiatives across northern Australia.</span></em></p>This year’s federal budget outlined plans for infrastructure in northern Australia, but it will need to do more than build roads and rail to sustainably develop the north.Andrew Campbell, Director, Research Institute for Environment and Livelihoods, Charles Darwin UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418272015-05-18T03:25:46Z2015-05-18T03:25:46ZAustralian science is no better off after the 2015 budget<figure><img src="https://images.theconversation.com/files/81973/original/image-20150518-25407-1dlppa0.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Who'll use the equipment if funding for researchers is cut back?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/sk8geek/8318058885/">Flickr/Steven Lilley</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><p>For science, the <a href="https://theconversation.com/au/topics/federal-budget-2015">2015 federal budget</a> is merely a continuation of 2014. The damage that was done has not been undone.</p>
<p>The same threats and uncertainty continue. Behind all the hollow words of support, there is no substantial recognition of the value of science for the knowledge that it brings, for its role as a driving force of economic growth and innovation, or for the empowerment that it gives to individuals to understand and shape a 21st-century future for themselves.</p>
<p>As Australia’s Chief Scientist, Ian Chubb, has pointed out, almost every OECD country has a <a href="http://www.itnews.com.au/News/391653,chief-scientist-calls-for-dramatic-changes-to-innovation-policy.aspx">plan for the strategic growth</a> of its scientific enterprise and to facilitate its translation into technology, innovation and economic development. Every country, that is, except Australia and Portugal.</p>
<p>Australia, instead, will bank the nation’s long-term prosperity on a <a href="https://theconversation.com/federal-budget-2015-small-business-wins-in-grab-for-confidence-41670">boost to small business spending</a> on items under A$20,000 encouraged by some tax breaks. </p>
<p>The wrangles around the National Collaborative Research Infrastructure Scheme (<a href="https://theconversation.com/explainer-the-national-collaborative-research-infrastructure-strategy-ncris-38837">NCRIS</a>) – the A$2 billion system of national research facilities – is symptomatic of the gaps in the government’s understanding of science, how it works, and the impact of decisions on it.</p>
<p>Prior to the 2015 budget, it took a <a href="http://www.smh.com.au/federal-politics/political-news/vicechancellors-blast-dumb-decision-to-axe-research-funding-if-uni-fee-laws-dont-pass-20150311-1406xq.html">concerted public campaign</a> to bring home the level of destruction that the government was about to unleash by apparently regarding NCRIS funding as a <a href="https://theconversation.com/science-infrastructure-funding-is-being-held-hostage-by-government-38423">tool for brinkmanship</a>. </p>
<h2>All very Yes Minister</h2>
<p>Following the budget, the price of a mere two-year extension of funding was revealed as a <a href="http://www.abc.net.au/science/articles/2015/05/13/4234924.htm">A$300 million cut</a> to university research block grants. This is a version of the Yes Minister comedy in which the hospital is built but no patients admitted. We have saved our research infrastructure by cutting the funds that support its use, in a form of budget cannibalism. </p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/Eyf97LAjjcY?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
</figure>
<p>And does the government really think that the highly skilled staff on which NCRIS relies, having been roused by the spectre of a near-death experience, will stick around to see what will happen in two years time? The global <a href="https://theconversation.com/why-i-turned-down-a-decra-to-work-in-the-united-states-37264">mobility of expertise</a> is a hallmark of the 21st-century global economy. Some prompt action will be required following the NCRIS review to avert this new form of brain drain. </p>
<p>The past two budgets seem to be channelling a commonly held but misguided view that basic science research is a luxury that can be cut back in hard times. But what about the translation of science research into innovation and economic growth? For most developed countries this is an imperative. For Australia, with the collapse of its mining income, you would have thought it even more critical. </p>
<p>The government, through its minister for science, <a href="http://www.minister.industry.gov.au/ministers/macfarlane/media-releases/investing-science-research-and-energy-australias-competitive">claims</a> that the 2015 budget reflects a strategic aim to “create stronger connections between research and industry and maximise Australia’s competitiveness”.</p>
<p>This is an extraordinary statement from a government that has not only slashed funding to the CSIRO over the past two years, but cut its key university-industry program, the Co-operative Research Centre (CRC) program, by A$80 million in 2014 – or around 20% – and then a further A$27 million in 2015. </p>
<p>One is tempted to ask what the government knows about the forthcoming <a href="http://www.business.gov.au/grants-and-assistance/Collaboration/CRC/CRC-Programme-Review/Pages/default.aspx">CRC review</a> that we don’t. Will it really be saying that 25% of what the CRCs were doing was not needed? That would be a brave call, indeed one might say a “courageous” call.</p>
<h2>The need for engagement</h2>
<p>Australia is recognised, on all available comparative data, to have one of the <a href="https://theconversation.com/why-a-national-science-strategy-is-good-for-australia-40254">worst levels of engagement</a> in the world between science research and industry.</p>
<p>Given the need to transform the economy following the collapse in mining, if there were any efficiencies available you’d imagine that a strategic government would invest them in facilitating this engagement. The CRC program certainly isn’t the only avenue available for that. It’s just that the 2014/15 and 2015/16 budgets reduced funding to all the other schemes as well.</p>
<p>In politics, scientists are urged to be statesperson-like, play the game and talk to such positives as can be found in the latest two budgets. Indeed there are those who have risen to that call, praising small mercies through clenched teeth.</p>
<p>But the message for science from these budgets has to be that we’re on our own. Both the budgets and budget replies show the paucity of understanding and strategic thinking in regard to science. </p>
<p>The public and the politicians don’t get a very strategic view of science. It is a bionic eye, a cure for cancer, a new exoplanet, quantum computers, nanomaterials etc. Science doesn’t make such a big thing about its synergies with engineering and IT, with the social sciences or with business and innovation. It somewhat takes these connections for granted.</p>
<p>The Chief Scientist, in his discussion papers and allied initiatives, gives these connections a central place. He focuses on the <a href="http://www.chiefscientist.gov.au/2015/05/statement-committing-to-science/">broader role of STEM</a> and its relationship with and benefits for Australian society, its education system and the economy.</p>
<p>It is this kind of vision, rather than particular areas of research, that will build priority for science in the minds of the public and politicians. Perhaps these last two budgets will be an inspiration for scientists to put more energy into this task. Clearly no-one else will do it for us.</p><img src="https://counter.theconversation.com/content/41827/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Rice is the Executive Director of the Australian Council of Deans of Science (ACDS).
The opinions expressed in this article, however, are his own, and do not necessarily reflect
those of the ACDS</span></em></p>The federal government’s 2015 budget has done little to restore confidence in the government’s support for science in Australia.John Rice, Honorary Professor, University of SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418162015-05-18T02:12:21Z2015-05-18T02:12:21ZA $147m budget saving missed: income management has failed<p>The expensive and extensive government-funded evaluation of income management in the Northern Territory clearly failed to find it worth ongoing funding. Note the following significant findings in the <a href="http://caepr.anu.edu.au/sites/default/files/cck_misc_documents/2014/12/Evaluation%20of%20New%20Income%20Management%20in%20the%20Northern%20Territory_summary%20report.pdf">summary report</a> of <a href="http://caepr.anu.edu.au/others/Report-1418859519.php">the final evaluation report</a> on NT income management programs: </p>
<blockquote>
<p>The evaluation could not find any substantive evidence of the program having significant changes relative to its key policy objectives, including changing people’s behaviours.</p>
<p>More general measures of wellbeing at the community level show no evidence of improvement, including for children.</p>
<p>The evaluation found that, rather than building capacity and independence, for many the program has acted to make people more dependent on welfare.</p>
</blockquote>
<p>Yet the 2015-16 budget has not only included a two-year extension of the services to 25,000 recipients, but <a href="https://www.dss.gov.au/sites/default/files/documents/05_2015/2015_budget_fact_sheet_-_income_management_-_final_0_0.pdf">signals more expansion</a> of the basic concept. This makes no sense as most forms of income management fail to show positive outcomes, despite some individuals, mainly voluntary participants, claiming income management has benefited them.</p>
<p>The included funding is for new technology and commercial involvement in the future program, which suggests the Andrew “Twiggy” Forrest version of a cashless <a href="http://indigenousjobsandtrainingreview.dpmc.gov.au/chapter-2-healthy-welfare-card">welfare card</a> is the next step. Why would the Forrest version offer better outcomes, apart from cutting administration costs by removing Centrelink? </p>
<p>The announcement below fails to acknowledge there are any questions about benefits of the program. The budget statement <a href="https://www.dss.gov.au/sites/default/files/documents/05_2015/2015_budget_fact_sheet_-_income_management_-_final_0_0.pdf">claims</a>:</p>
<blockquote>
<p><strong>Income Management 2015 Budget</strong></p>
<p>Income management is a tool that helps people better budget their welfare payments and ensures they are getting the basic essentials of life such as food, housing, electricity and education.</p>
<p><strong>What was announced in the 2015 budget?</strong></p>
<p>Income management will continue for another two years in all locations where it currently operates, with possible expansion to four new communities. This $144.6 million investment will build on the positive impacts of income management; giving participants more control of their welfare money, improving family stability, reducing stress and financial hardship. It will also give Government time to fully test alternative approaches to welfare payments quarantining.</p>
</blockquote>
<p>Returning to the evaluation report, there are further clear statements, backed by data in the <a href="http://caepr.anu.edu.au/others/Report-1418859519.php">body of the report</a> by the Social Policy Research Centre at UNSW, that do not recommend continuing the program in any of its current forms:</p>
<blockquote>
<p><strong>Summarising the impact</strong></p>
<p>Taking the results as a whole, the conclusion is that there is no evidence of any consistent positive impacts on problematic behaviours related to alcohol, drugs, gambling, and financial harassment, in the extent to which financial hardships and stresses are experienced – for example, running out of food, not being able to pay bills, or on community level outcomes such as children not being looked after properly, school attendance, drinking, and financial harassment. (p.307)</p>
<p>Despite the magnitude of the program the evaluation does not find any consistent evidence of income management having a significant systematic positive impact. (p.317)</p>
<p>Data on spending point to continued major problems of diet and poor levels of fruit and vegetable consumption, in particular for Indigenous people living in remote communities. There is no evidence of income management having resulted in changes in spending or consumption, including on alcohol, tobacco, fresh fruit and vegetables. (p.317)</p>
</blockquote>
<p>Given the report was delivered to the government last September and released publicly in December, it is puzzling that there has been no acknowledgement of the flaws. In late March, the <a href="http://www.smh.com.au/federal-politics/political-news/healthy-welfare-card-trials-to-tackle-violence-and-alcohol-abuse-20150322-1m4uk2.html">government announced</a> that welfare recipients would be given cashless cards to stop them spending money on alcohol and drugs in a bid to combat violence against women and children. Parliamentary Secretary to the Prime Minister Alan Tudge said the government was planning trials of the cards “in a small number” of places, which were yet to be decided, later this year. </p>
<p>And now it is in the budget. This decision clearly ignores the findings of the evaluation report, which seriously undermine any government claims that quarantining incomes is effective in changing behaviour or that its new card will affect spending positively and reduce drinking. The report does not recommend continuing the program in any of its current forms.</p>
<h2>Prejudice makes it easier to ignore evidence</h2>
<p>The question arises: why does this particular policy change receive so little attention or objections? Despite the threat that controlling income may well alter the basis for general income support, the possibilities stay beneath the public debate radar. Few in the welfare sector have raised objections or questions.</p>
<p>One can only assume an element of racial and wider prejudice is operating, as the original and many ongoing recipients have been Indigenous. Income management started as part of the Howard government’s NT Emergency Response to a child sexual abuse report. </p>
<p>Originally, the income management program was targeted at all Commonwealth payment recipients in 72 Indigenous communities, controlling 50% of their spending. It required suspending the Racial Discrimination Act. There was no explanation as to how financial controls would fix child abuse.</p>
<p>When the ALP took office some months later, it expanded the numbers and set up a review. Despite the <a href="http://www.abc.net.au/stateline/nt/content/2006/s2400936.htm">Yu report</a> raising some questions and doubts, the new government extended the scheme to the rest of the NT. It was de-racialised but still covers mostly Indigenous recipients in the NT, with smaller mainly non-Indigenous and Indigenous pilots elsewhere.</p>
<p>Now, eight years on and despite all the evidence to the contrary, the budget papers state clearly:</p>
<blockquote>
<p>The Government is investing $147 million to deliver more streamlined and cost-effective income management. Around 25,000 people will continue to benefit from this programme designed to support vulnerable Australians.</p>
</blockquote>
<p>Why? How about some serious economic rationality, both to save taxpayers’ money and improve social well-being?</p><img src="https://counter.theconversation.com/content/41816/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eva Cox does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Various studies, culminating in the final evaluation report of income management in the Northern Territory, have found such programs don’t achieve the claimed benefits. Why did the budget extend them?Eva Cox, Professorial Fellow Jumbunna IHL, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/414922015-05-17T20:09:55Z2015-05-17T20:09:55ZThe $100 billion question: can Australia afford our retirement bill as the ‘grey vote’ booms?<p>Reining in the rising costs of an ageing population is politically perilous, as <a href="http://www.abc.net.au/7.30/content/2015/s4195051.htm">successive federal governments</a> have discovered – and it’s about to get even harder as the proportion of older voters rises.</p>
<p>As the latest budget shows, the age pension is Australia’s single biggest welfare payment. It costs <a href="http://www.budget.gov.au/2015-16/content/overview/html/overview-26.htm">$44 billion</a> in 2015-16 and will grow to <a href="http://www.abc.net.au/news/2015-05-12/budget-2015-cheat-sheet-charts/6446436">$50 billion</a> by 2018-19 - or about 10% of total federal budget spending.</p>
<p>But superannuation tax concessions – which <a href="https://theconversation.com/current-super-concessions-favour-the-wealthy-so-why-arent-we-supporting-reform-12063">benefit</a> wealthier retirees more than others – are fast catching up. </p>
<p>The latest budget shows that forgone revenue from two superannuation tax concessions will cost the federal government $36 billion this coming financial year, jumping to $50 billion in 2018-19.</p>
<p>Within three years, Australians will face a $100 billion-plus bill, just to cover the age pension and super tax breaks. Without action, that bill will be much higher as more baby boomers head to retirement.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=140&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=140&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=140&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=176&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=176&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81643/original/image-20150514-28624-1u1c14w.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=176&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The growing loss of revenue from superannuation tax breaks.</span>
<span class="attribution"><a class="source" href="http://www.budget.gov.au/2015-16/content/bp1/html/bp1_bs4-05.htm">Budget 2015-16, Budget Paper 1 (page 4-21 in the hard copy)</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>By 2025, the Australian Bureau of Statistics <a href="http://www.abs.gov.au/Ausstats/abs@.nsf/mf/3222.0">estimates</a> that one in three Australians will be aged 55 years or older, staying at around that level beyond 2050. </p>
<p>That’s significantly higher than today. Currently, around one-quarter of the population is 55 or older; almost half of this group is aged 55 to 64. Many people in this age group have retired, while the rest are in the final years of their working life and preparing for retirement. </p>
<p>Older workers and retirees are quickly becoming Australia’s most significant age group of voters – and will remain so for many years to come. As such, they will be crucial in shaping the choices future governments make on the road back to budget balance. </p>
<h2>Pension promises and wavering support</h2>
<p>After a <a href="http://www.dailytelegraph.com.au/news/nsw/budget-backdown-treasurer-joe-hockeys-plan-to-slash-aged-pension-and-family-handouts-to-be-blocked-by-the-senate/story-fni0cx12-1227065128960">political backlash</a> against last year’s proposed pension cuts, this year the government is instead promising “<a href="http://www.budget.gov.au/2015-16/content/overview/html/overview-26.htm">a fairer pension system</a>”, with <a href="https://theconversation.com/budget-brief-will-i-lose-my-age-pension-41447">more targeted changes</a> starting in 2017.</p>
<p>Since Tuesday’s budget, Prime Minister Tony Abbott has gone even further to reassure retirees and older workers about <a href="http://www.afr.com/news/policy/budget/federal-budget-2015-well-never-change-super-says-tony-abbott-20150513-gh0czj">superannuation</a>, declaring:</p>
<blockquote>
<p>There will be no changes to super, no adverse changes to super in this term of parliament, and we have no plans to make adverse changes to super in the future.</p>
</blockquote>
<p>But that promise now risks seeing the <a href="https://theconversation.com/government-tightens-pension-assets-test-to-save-2-4-billion-41449">$2.4 billion pension reforms</a> being blocked in the Senate.</p>
<p>The latest budget confirmed that plans to index pensions at a lower rate have been dropped. The more stringent eligibility rules announced last year have also been abandoned in favour of an assets test, which will have more limited impact on most part-pensioners.</p>
<p>Couples who do not own their home will face a cut to their pension once the value of their assets rises above $800,000 ($500,000 for pensioner couples who own their home), falling to zero once their assets hit a little over $1 million ($823,000 for a pensioner couple who own their home).</p>
<p>Single pensioners will lose their pension once the value of the assets hits between $1 million (for non-homeowners) and around $550,000 (for homeowners). </p>
<p>But around 400,000 pensioners will actually enjoy an increase in their pension thanks to this budget. </p>
<p>Those pension proposals initially received in-principle support from key retiree representative groups. But some of that support appears to have <a href="http://www.afr.com/personal-finance/superannuation-and-smsfs/federal-budget-2015-super-stance-risks-support-for-pension-and-tax-reform-20150514-gh19lz">evaporated</a> since the details were announced in Tuesday’s budget.</p>
<p>Council of the Ageing chief executive Ian Yates has indicated that his group’s backing for pension reforms was conditional on the government also addressing super reforms. Criticising “piecemeal tinkering in some areas and neglect in others”, Yates has called for a broad, <a href="http://www.cota.org.au/australia/News/NewsList/2015/a-review-to-design-a-secure-liveable-income-for-older-australians.aspx">independent review of retirement incomes</a> that includes not just pensions but also superannuation.</p>
<p>After the government <a href="http://www.afr.com/news/policy/budget/federal-budget-2015-tony-abbott-puts-on-the-super-shackles-20150513-gh0zg7">ruled out</a> such a review, Yates told The Australian Financial Review:</p>
<blockquote>
<p>Our advice to the [Senate] <a href="https://theconversation.com/the-crossbench-ideology-that-could-bring-reform-unstuck-41425">cross benches</a> is ‘don’t agree to the pension changes without the government committing to a retirement incomes review’.</p>
</blockquote>
<h2>(Not so) super reform</h2>
<p>While significant numbers of retirees will continue to rely on the age pension, the proportion of all retirees who do so is set to decline, as the generation of Australians who have benefited from compulsory superannuation (introduced in the mid-1990s) head into retirement.</p>
<p>These will be the tail-end of the baby boomers and the Gen-X cohort. While this will signal budget relief in the future, this will not be so in this term – or the next – of a federal government. </p>
<p>The benefit of our compulsory superannuation system will not be fully reflected in the budget until around 2045: about the same time the trend towards an ageing of the population begins to reverse.</p>
<p>In the meantime, superannuation tax breaks are burning a growing hole in the budget. As last year’s <a href="http://fsi.gov.au/publications/final-report/chapter-2/super-tax/">inquiry into Australia’s financial system</a> showed, the problem of superannuation is much larger than the current drain on taxation revenues. Current arrangements are poorly targeted and <a href="http://acoss.org.au/media/release/acoss_calls_on_government_to_tackle_sacred_cow_of_super_tax_breaks">favour those</a> who already have the largest superannuation balances. </p>
<p>Looking more broadly, the rules relating to when individuals can access superannuation are out of sync with pension eligibility rules. That creates an incentive for workers between the age of 55 and 60 to leave paid employment early – all at a time when government is promising to spend more in the form of a <a href="http://www.budget.gov.au/2015-16/content/glossy/sml_bus/html/sml_bus-13.htm">$10,000 employment subsidy</a> to encourage employers to retain older workers.</p>
<h2>Bipartisan failure</h2>
<p>Reforming superannuation will be as politically difficult as pension reform has proven to be. It will inevitably create more losers than winners.</p>
<p>Little wonder the prime minister has ruled out any changes to super.</p>
<p>So what would a Labor government do? </p>
<p>Opposition Leader Bill Shorten has <a href="http://www.theaustralian.com.au/opinion/columnists/pension-reform-exposes-labor-as-tony-abbott-turns-dial-to-fairness/story-e6frg74x-1227347540539">already made clear</a> that a Labor government under his leadership would reform tax concessions applying to superannuation, but would do little to address the burgeoning cost of current pension arrangements.</p>
<p>That means the Abbott-led Coalition government only wants to tackle pensions, while Shorten’s Labor opposition only wants to tackle superannuation concessions. </p>
<p>So far, neither has signalled they are prepared to reform <em>both</em> the age pension and super tax breaks – the politically difficult but economically necessary task ahead.</p>
<p>Looking at the future more optimistically, Shorten signalled in his <a href="http://billshorten.com.au/budget-reply-2015">budget reply speech</a> a willingness to take a more bipartisan approach to reduce the budget deficit and promote growth. Hopefully, this commitment extends to a review of retirement incomes.</p>
<h2>Baby boomers were lucky, but still need retirement help</h2>
<p>Right now, ageing workers are the core of the baby boomer generation. It is easy to caricature them as a lucky generation: born in the post-war period, they enjoyed an enviable period of extended economic prosperity and social freedom. </p>
<p>The baby boomers formed families and bought houses at a time when housing was relatively cheap and affordable. Their kids enjoyed free university education. They now benefit from the significant wealth windfall created by the housing boom.</p>
<p>But the reality is that many baby boomers do not have sufficient assets or savings to underwrite even a modest retirement. The ABS estimates that around two-thirds of all retirees still depend on government pensions as their primary source of income.</p>
<p>While the dependency on pensions will decline over time, the reality is this generation spent most of their working life in the period before compulsory superannuation.</p>
<p>So baby boomers also expect that younger generations will continue to honour the “intergenerational deal” by <a href="http://grattan.edu.au/report/the-wealth-of-generations/">underwriting their retirement</a> in the form of pensions, social services and health care.</p>
<h2>Political heartburn</h2>
<p>As successive governments and policy wonks have been warning for at least a decade, the ageing population presents a major budgetary pressure for Australian governments.</p>
<p>Now, as we face an extended period of slow growth, declining tax revenue and <a href="http://www.budget.gov.au/2015-16/content/overview/html/overview-01.htm">budget deficits</a>, the imperative for reform should be clearer than ever.</p>
<p>The challenging thing for any future government is that the same dynamics that are making pension and super concession reform so difficult will increasingly play out in other policy areas. In everything from health and welfare to public transport and workforce participation, the booming population of older Australians will rightly demand better services to meet their needs.</p>
<p>These are all issues that federal governments were better placed to address over the last two decades, before they became so politically fraught and while we were still enjoying the mining boom. </p>
<p>Now, the politics of ageing will cause growing pain for both sides of politics, shaping their chances of gaining and holding government well into the future. </p>
<p>A more bipartisan, evidence-based approach could enable a sensible policy discussion and the development of more durable policy solutions without so much political heartburn.</p>
<p>Both sides of politics say they are ready to do so, but in light of the current state of Australian politics, it is difficult to be optimistic about this happening any day soon.</p><img src="https://counter.theconversation.com/content/41492/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Peter Gahan receives research funding from the Australian Research Council, the Commonwealth Department of Employment, the Department of Industry and Science, and Safe Work Australia.</span></em></p>Within three years, Australians will face a $100 billion bill just to cover the age pension and super tax breaks. That bill is set to keep rising; by 2025, one in three of us will be 55-plus.Peter Gahan, Professor of Management + Director, Centre for Workplace Leadership, Faculty of Business and Economics, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/418902015-05-17T20:05:34Z2015-05-17T20:05:34ZNeutral teaching centre won’t be so neutral once opened for tender<figure><img src="https://images.theconversation.com/files/81793/original/image-20150515-8749-19d7qo7.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Promoting and funding teaching projects needs to be national, and not favour the elite universities.</span> <span class="attribution"><span class="source">from www.shutterstock.com.au</span></span></figcaption></figure><p>Last week’s budget included a substantial cut to the government’s own <a href="http://www.olt.gov.au/may2015-new-institute-promote-excellence-learning-and-teaching">Office for Learning and Teaching</a> (OLT), which exists to support research into learning and promote good teaching. </p>
<p>What is surprising is that the axing has met with so little resistance and less public outcry than is warranted.</p>
<p>According to its website, the OLT is being disbanded to “ensure that the Commonwealth’s investment in improved teaching and learning practices is driven by the higher education sector”. This basically says the government is telling universities to look after the quality of teaching themselves.</p>
<p>The duties of the office will be opened for tender to an Australian university, with a small proportion of the funding the OLT used to receive.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/81795/original/image-20150515-8719-ss5tr4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Who will get the tender?</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/36199303@N04/3826306914/">Geoff Penaluna/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The amount it costs to have a genuinely national body that oversees, supports and showcases outstanding teaching that responds to the changing needs of students and employers and results in empathetic and global citizens is small compared to the benefits.</p>
<p>The recent announcement that it was being put out for tender suggests the government has a flawed understanding of what the role of the office was:</p>
<blockquote>
<p>From 1 July 2016 a new institute will be established, with $28 million in funding, to promote excellence in teaching and learning. This will involve administering the grants, fellowships and awards under the Promotion of Excellence in Learning and Teaching in Higher Education programme.</p>
</blockquote>
<p>But the OLT and its forerunners were meant to be much more than simply “dolers-out-of-money”: it was meant to provide resource-rich support to all who teach in all universities in the country. Importantly, it was meant to be neutral.</p>
<p>By announcing that “universities will be invited to bid to host the new institute”, it seems that one lucky player is going to win the big prize. Only a handful of universities have the facilities and capabilities to host such a centre. </p>
<p>Among the likely candidates is the Melbourne Centre for the Study of Higher Education. Despite it being the place of my employ, I have no idea whether it is throwing its hat into the ring. My prediction is that the tender will be won by one or other of the elite Group of 8 universities.</p>
<p>The body that represents Australia’s universities, <a href="https://www.universitiesaustralia.edu.au/news/media-releases/Teaching-and-learning-excellence-set-to-be-budget-loser-for-higher-education#.VVQQNYvYkyF">Universities Australia</a> has been muted in its response to the abolition of the OLT. </p>
<p>Its CEO, Belinda Robinson, claimed somewhat feebly that the sector as a whole had not been consulted about the changes and that the organisation </p>
<blockquote>
<p>will strongly oppose any moves to downgrade the government’s commitment to teaching and learning excellence in higher education.</p>
</blockquote>
<p>It’s not exactly a call to the barricades; more like resignation and the hope that as long as the new centre gets a new home somewhere, things might still turn out okay.</p>
<p>The <a href="http://the-scan.com/2015/05/12/the-budget-in-their-own-words-regional-universities-network/">Regional Universities Network</a> doesn’t seem all that perturbed either. </p>
<p>Whichever university wins the tender will be hard pushed to be seen as maintaining even-handedness in which initiatives it supports. The OLT not only supported research into teaching and learning, it was a neutral national champion of excellence. That is something the country can ill afford to do without if it wants all its universities to prosper.</p>
<p>I suspect that the move ultimately has little to do with ensuring Australia’s reputation of a leading and progressive higher education sector is enhanced. </p>
<p>Rather, it shows the government is still determined to create a two-tiered higher education sector in which a handful of universities, probably about eight, are free to exploit their international standing by attracting the best and brightest students for the highest fees, while the others service the rural, regional and vocational students.</p><img src="https://counter.theconversation.com/content/41890/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrys Onsman works for the Centre for the Study of Higher Education which could be a potential candidate for housing the new Office of Learning and Teaching. </span></em></p>A government office to support teaching has been put out to tender, but will the university that wins the contract be fair in doling out funds and projects?Andrys Onsman, Lecturer, Centre for Studies of Higher Education, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/417532015-05-15T02:54:25Z2015-05-15T02:54:25ZHow will a 40% cut in Australian aid affect Indonesia?<figure><img src="https://images.theconversation.com/files/81772/original/image-20150515-28633-heu4ks.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">President Joko Widodo is not crying over cuts to Australian aid for Indonesia. </span> <span class="attribution"><span class="source">AAP Image/Eka Nickmatulhuda</span></span></figcaption></figure><p>The Australian government has announced it will cut aid to Indonesia <a href="http://dfat.gov.au/about-us/corporate/portfolio-budget-statements/Pages/budget-highlights-2015-16.aspx">by A$220 million</a>, or 40%, compared to the allocation in last year’s budget. President Joko Widodo responded with a straightforward <a href="http://news.liputan6.com/read/2231843/jokowi-hak-australia-potong-bantuan-masak-mau-nangis-nangis">statement</a>:</p>
<blockquote>
<p>It is the authority of Australia, not ours. Should we cry for that? </p>
</blockquote>
<p>Some people might connect the Australian decision with the execution of Bali duo Andrew Chan and Myuran Sukumaran in April. This theory is understandable for two reasons. First, the deliberations for the budget were carried out at the time when the Australian public was still discussing the executions. Second, Australia’s foreign minister, Julie Bishop, once warned Indonesia of the “consequences” of the death penalty decision. </p>
<p>However, <a href="https://theconversation.com/a-fair-budget-not-for-the-poor-losing-australian-aid-in-record-cuts-41609">cuts in Australian aid</a> have been nearly across the board in Southeast Asia. Countries such as Vietnam, Myanmar, the Philippines and Laos are experiencing 40% cuts too. Aid for Cambodia, which has agreed to accept refugees currently on Nauru, remains the same. </p>
<p>Nevertheless, in regards to Indonesia, how will this aid cut impact on the country’s development and Indonesia-Australia relations?</p>
<h2>Indonesia’s reaction</h2>
<p>Widodo’s response to the aid cut sounds like a soft statement, but it may also imply that “aid is for their interests, not ours”. </p>
<p>Some people in Indonesia might have expected Widodo to have made a stronger statement. Something like President Suharto’s response to the Netherlands in the 1990s for linking human rights to development aid. Suharto told the Netherlands to stop the aid after Indonesia’s former colonial ruler had suspended it following killings by the Indonesian military in Santa Cruz, East Timor. </p>
<p>Widodo, having held government offices for more than 10 years as mayor of the Central Java town Solo and governor of Jakarta, has first-hand experiences working with projects supported by foreign aid. During his governorship, he asked the central government to stop the aid from the World Bank. </p>
<p>The amount of aid is not significant, but the “talks” consume a lot of time and energy, and often offend the recipients’ dignity as a state official and as a nation. </p>
<h2>Indonesia’s policy on foreign aid</h2>
<p>Indonesia treats foreign aid as complementary to the national budget. Foreign aid is only added to the projects that are being financed by the national budget. Without foreign aid, projects will still continue using this budget. </p>
<p>The present budget aid cuts by Australia might affect some ministries’ projects in Indonesia, such as the Ministry of Health and the Ministry of Public Works. If the cuts include projects that have been agreed between Indonesia and Australia, such as those with the Ministry of Health (maternal health and sanitation) and Ministry of Public Works (rural infrastructure and water), these projects may be affected in the short term. </p>
<p>The ministries should restructure their budget allocations. Mostly, this will not be a big issue for the ministries, since the aid funds are only for expanding the reach of the government projects.</p>
<p>Since 2003, the Indonesian government has passed a number of regulations, such as
Law of Finance (No. 17/2003), Law of National Treasury (No. 1/2004) and the National Development Plan (No.25/2004) to create integrated budget, finance and development planning mechanisms and frameworks. </p>
<p>These laws limit the size of foreign aid to Indonesia. In Indonesia’s budget, the government limits foreign aid to be no more than 3% of the national annual budget. This is to ensure that Indonesia’s development does not depend on foreign aid and, most importantly, that the country’s development policies are not dictated by foreign donors.</p>
<p>Since the dismissal of the Consultative Group on Indonesia (CGI), a consortium of countries providing aid in Indonesia under the World Bank’s co-ordination in 2007, Indonesia has prioritised foreign co-operation with the World Bank, Asian Development Bank and Japan. </p>
<p>Although Australia is claimed to be the second-biggest donor to Indonesia in the last few years (after Japan), Indonesia has yet to see it as a priority in this co-operation. Australia is relatively new as a large donor to Indonesia, starting in 2009. Its aid predictability is also not guaranteed; that is a concern for Indonesia after learning from the experience of the CGI process (“pledging big, less actualisation”).</p>
<h2>Biggest losers</h2>
<p>Australian aid cuts in Indonesia will affect two main actors. First, the companies (mainly from Australia) that implement the projects in Indonesia. Second, the consultants who have long been acting as “aid rent seekers” in Indonesia. Both actors in fact significantly reduce the flow of aid funds to the beneficiaries.</p>
<p>Civil society organisations in Indonesia have long discussed and criticised the pool of consultants who are quite powerful in influencing donors and the Indonesian government.</p>
<p>After the dissolution of CGI as a donors’ forum, agencies such as Multi Donors Trust Fund, Decentralisation Support Facility and the most recent one, the National Program for Community Empowerment (PNPM) Support Facility (PSF), were established. These agencies are mainly used by consultants – some former consultants of the World Bank – for rent-seeking activities. The consultants act as intermediaries in aid negotiations, mostly for saving their jobs in the country.</p>
<p>Australian aid also supports these agencies. Support for the PNPM Support Facility from Australia was the biggest. </p>
<p>The budget cuts will affect these agencies more than the people of Indonesia. The government of Indonesia will go on using its own budget and the people of Indonesia might not be aware of Australia’s decision. </p>
<p>The implementation of the 2014 Village Law and the establishment of a special Ministry for Village Development will ensure the promotion of, and more effective budget allocation for, rural development. With the expansive development programs of the present government, Indonesia will prioritise co-operation with China, Japan and Korea and might leave Australia on the backburner.</p><img src="https://counter.theconversation.com/content/41753/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Don K. Marut does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia has cut aid to Indonesia by 40%. That may cause diplomatic displeasure, but the country has restructured its development programs in recent years to be less dependent on foreign money.Don K. Marut, Lecturer in International Relations, Binus UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/416812015-05-15T02:07:40Z2015-05-15T02:07:40ZThe arts minister has wrenched our culture away from the artists<figure><img src="https://images.theconversation.com/files/81768/original/image-20150514-28638-1s4tplp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">George Brandis shocked the arts sector – and particularly the Australia Council – with his overhaul of the allocation of arts funding.</span> <span class="attribution"><span class="source">AAP Image/Dean Lewins</span></span></figcaption></figure><p><em>Budget: The Longer View. The dust has begun to settle on Tuesday’s federal budget – and some key issues and themes are emerging. What are they? This long-read essay is part of a special package intended to answer that question.</em></p>
<p><br></p>
<p>Marx correctly summed up the situation: “Those are my principles and if you don’t like them – well, I’ve got others”. That’s Groucho Marx – not Karl. </p>
<p>Last year’s <a href="https://theconversation.com/au/topics/federal-budget-2014">federal budget</a> was, er, last year. <a href="https://theconversation.com/au/topics/federal-budget-2015">This year’s budget</a> appends another kind of reality. The winners and the losers are different too. After three days of picking over the details, the results for most commentators are clear: the arts lost out. </p>
<p>That is particularly <a href="https://theconversation.com/theres-money-for-the-arts-in-the-budget-but-with-strings-attached-41676">true for the Australia Council</a>, subject to a A$7.2 million efficiency dividend, removal of three core programs, and the reapportionment of 16% of its operating budget to a Minister-led National Programme for Excellence in the Arts. </p>
<p>The “boring” budget is not only about money, however. It is also about trust. At the time of the last election, talk of austerity was a godsend for the Right of the Liberal party, who saw in our changed national circumstances the cue for what they call “further economic reform”. This is only partly economic. The other part is a political vision of Australia in which market deregulation, lower taxation, reduced social services, and transnational trade agreements play an ever more dominant role.</p>
<p>Last year, the wheels fell off the austerity roller coaster big time. The irony is the arts did well out of the situation, at least according to the Minister for the Arts, George Brandis. They were “<a href="http://www.abc.net.au/news/2014-05-24/tony-abbott-says-arts-funding-narrowly-escaped-further-cuts/5475632">protected</a>” from austerity’s financially flattening effects. This year, with the roller coaster in for repairs, they are less “protected”. </p>
<h2>Artists and arts ministers</h2>
<p>Like the warning cackle of ancient Roman geese, the complaints of artists let you know how close to the gates the barbarians have come. Even those who couldn’t give a stuff about cultural policy should pay attention to the changes because how the sector is treated is indicative of the government’s deeper attitudes. </p>
<p>Tone is crucial, as is sound thinking, and flair – important for an area where the goods supplied (art) are heterogeneous and sometimes controversial. </p>
<p>Many people who want to be artists later discover they are not suited to the role. The same is true of arts ministers. Since taking on the portfolio, Senator Brandis has seemed uncomfortable being Australia’s Medici-in-chief, stroppy when dealing with its paradoxes and challenges. </p>
<p>He appears to want to shape the arts agenda but has offered no positive vision for the future, no articulation of what kind of national culture he hopes to see. He sends mixed messages at a time when clarity of purpose and institutional stability are at a premium. </p>
<p>It is through the lens of Ministerial confusion the recent changes to the arts budget should be viewed. The confusion is not all the senator’s making – there are some systemic issues, which I will touch on in a moment. But his time in office isn’t helping these, and seems to be making them worse. He means well (yes, really). </p>
<p>But his attempts to circumvent his own cultural agencies in pursuit of an inchoate idea of “<a href="https://theconversation.com/a-budget-to-rebuild-trust-but-not-trust-in-the-australia-council-41750">excellence</a>” only reflect the underlying inconsistencies in the government of which he is a part. </p>
<h2>The systemic issues</h2>
<p>There has been a lot of <a href="https://theconversation.com/arms-length-forget-it-its-back-to-the-menzies-era-for-arts-funding-41743">talk</a> in the media about the importance of the “arms length principle” in the Council’s disbursement of its annually allocated funds. But the principle isn’t unequivocal. </p>
<p>Is the Council at “arms length” from the government – or from the cultural sector? Or from both? Is it a “double arms length principle”? Does it represent the views of artists to the government or the government’s to artists? </p>
<p>These questions have haunted the Australia Council from the beginning. </p>
<p>In 1975, the Whitlam government granted the agency statutory independence. The very next year, it was the subject of no less than six official reviews, while its then-CEO, Jean Battersby, was deposed in the ugliest of Canberra-induced coups. </p>
<p>Since then the Council’s history has been one of incessant restructure, culminating in the recent <a href="http://apo.org.au/research/review-australia-council-may-2012">2012 Trainor Review</a>, whose recommendations were actioned last year as part of its new Strategic Plan. The Australia Council’s lot is not an easy one. The arms length principle is more like a convention, requiring trust and good faith on all sides.</p>
<p>Added to this are the complications of peer review. One person’s expert panel is another’s closed shop. It is not at all obvious that artists are the only ones capable of making decisions about arts grants. Over the years, this has been another area of controversy for the Council. </p>
<p>Again, the most recent reforms flow from the Trainor Review, which gives increased powers of oversight to the Minister under a new arrangement of assessment committees. Again, to be effective there must be a shared understanding between stakeholders, a collective awareness that the operation of cultural subsidy in modern democracy is a difficult and contradictory process. </p>
<h2>The personal issues</h2>
<p>It is unimaginable that a federal Arts Minister with a mind for his portfolio wouldn’t know this history; wouldn’t know that the Council has been harried and hurried by successive governments of all persuasions and requires a period of calm to recover and redeploy. </p>
<p>Yet Senator Brandis has furnished the opposite, inaugurating another “shake up” and springing it on the agency out of the blue. Apart from anything else, it is shabby way to treat the Chair, Rupert Myers and the CEO, Tony Grybowski, not to mention their no-doubt thoroughly demoralised staff, who must be wondering when the nightmare of arbitrary change will end. </p>
<p>Both <a href="http://www.abc.net.au/news/2015-05-13/eltham-brandis-extraordinary-raid-of-the-australia-council/6467534">Ben Eltham on The Drum</a> and <a href="http://dailyreview.crikey.com.au/brandis-pulls-the-trigger-on-artists/23894">Ben Neutze at the Daily Review</a> have drawn attention to the illogic of some of the statements ensuing from the Minister’s office. </p>
<p>That the majority of arts funding goes to projects “favoured by the Australia Council”, in the words of <a href="http://www.smh.com.au/business/federal-budget/federal-budget-2015-australia-council-loses-104m-funneled-to-arts-ministry-20150512-1mzjxi.html">one of these</a>, is surely no surprise given the Council is responsible for handing the majority of arts funding out. </p>
<p>Nor does Senator Brandis’s desire to “respect popular taste” marry with the core purpose of cultural subsidy, which is presaged on “market failure” arguments. And with good cause. In the last century, it has often happened that work later lauded as “excellent” has been publicly traduced on first appearance. </p>
<p>It is the gap between art’s present reception and its future value that provides the Council with its <em>raison d’etre</em>. </p>
<p>And finally, how will the National Programme for Excellence in the Arts work in practice? There is nothing wrong with a Ministry model of arts funding in theory. But Canberra’s public service has few of the bureaucratic features (size, stability, authority) that make arts ministries viable in Holland or France, for example. </p>
<p>Indeed, the reason the last Labor government transferred the Playing Australia and Festivals Australia programs from the old Office of the Arts to the Council was because of their potential to be pork-barrelled by politicians in marginal seats. </p>
<p>The more the 2015 arts budget is examined the less sense it makes. The changes contribute little strategically – the majority of funding remains locked up by the major organisations. They do nothing politically; just make an entire sector nervous by providing no operational plan. </p>
<p>And they do nothing culturally; save perpetuate uncertainty about which art and artists to support. Not the sort the Council likes to fund, apparently, which is a sizeable cross-section of work and people. </p>
<p>Senator Brandis is a thoughtful man, a true liberal in the Deakin and Menzies mould. He has written eloquently about the tension in his party – a party that under John Howard and Tony Abbott has moved emphatically to the Right – between conservative and liberal traditions. </p>
<p>He reflected on that tension when delivering the 2009 <a href="http://www.theaustralian.com.au/opinion/we-believe-the-liberal-party-and-the-liberal-cause/story-e6frg6zo-1225791120808">Deakin lecture</a>:</p>
<blockquote>
<p>It is easy […] to forget what it is that makes us liberals, and […] the Liberal party has sometimes forgotten it too […] Menzies said it best in five simple words: “We have stood for freedom”. That is our legacy. That is our purpose as a political movement […] And that is our path to the future.</p>
</blockquote>
<p>This sentiment abrades sharply with the autocratic aura of the 2015 arts budget changes. In both the way they have been rolled out, and in their consequences, they do not speak of freedom. They speak of control. </p>
<p>And here the cackling of artist-geese gets louder. This is a government that says one thing and does another. It is a government with iron in its soul, fighting for a view of the world that goes beyond asset write-offs and bankers’ bonuses. Something I suspect that is also true of Senator Brandis, under the sway of a leadership whose motivations he surely does not share. </p>
<p>To amend Groucho: “I’ve had a perfectly wonderful budget – but this wasn’t it.” </p>
<p><br>
<strong>Further reading:</strong><br>
<a href="https://theconversation.com/a-budget-to-rebuild-trust-but-not-trust-in-the-australia-council-41750">A budget to rebuild trust – but not trust in the Australia Council</a><br>
<a href="http://theconversation.com/post-budget-we-need-strong-cultural-leaders-more-than-ever-41680">Post budget, we need strong cultural leaders more than ever</a><br>
<a href="https://theconversation.com/theres-money-for-the-arts-in-the-budget-but-with-strings-attached-41676">There’s money for the arts in the budget – but with strings attached</a><br>
<a href="http://theconversation.com/arms-length-forget-it-its-back-to-the-menzies-era-for-arts-funding-41743">Arms length? Forget it – it’s back to the Menzies era for arts funding</a></p><img src="https://counter.theconversation.com/content/41681/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Julian Meyrick does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The more the 2015 arts budget is examined the less sense it makes. The changes contribute little strategically or politically – they just make an entire sector nervous. And culturally, they will improve nothing.Julian Meyrick, Professor of Creative Arts, Flinders UniversityLicensed as Creative Commons – attribution, no derivatives.