tag:theconversation.com,2011:/global/topics/government-subsidies-6281/articlesGovernment subsidies – The Conversation2020-04-08T15:08:07Ztag:theconversation.com,2011:article/1353732020-04-08T15:08:07Z2020-04-08T15:08:07ZCOVID-19 tax relief: a snapshot of what’s out there<figure><img src="https://images.theconversation.com/files/326076/original/file-20200407-182957-ty8h3g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">COVID-19 public health measures are stalling economic activity</span> <span class="attribution"><span class="source">Getty Images</span></span></figcaption></figure><p>Across the globe, many governments have been forced to lockdown their countries in an attempt to curb the spread of the COVID-19 pandemic. A number of African countries have adopted similar measures. This has stalled, if not brought to a halt, economic activity, resulting in loss of income for businesses, workers (both in formal and informal sectors) as well as the self-employed. </p>
<p>In response, governments worldwide have implemented <a href="https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19">economic and tax relief packages</a> to help businesses and workers mitigate the impact of these measures. </p>
<p>The use of these tools varies across countries making direct comparisons difficult. </p>
<p>To provide some guidance, the <a href="http://www.oecd.org/tax/forum-on-tax-administration/publications-and-products/tax-administration-responses-to-covid-19-measures-taken-to-support-taxpayers.pdf">Organisation for Economic Cooperation and Development (OECD)</a> has developed useful design features based on examples from across the globe. Applicable to both developed and developing nations, they are:</p>
<ul>
<li><p>additional time for dealing with tax affairs;</p></li>
<li><p>quicker refunds to taxpayers;</p></li>
<li><p>temporary changes in audit policy and ways to provide quicker tax certainty; and </p></li>
<li><p>enhanced taxpayer services and communication initiatives.</p></li>
</ul>
<p>So which tax relief ideas are the best? Below I sift through the various options and identify ideas that could be useful examples to policy makers, including those in South Africa.</p>
<h2>Direct payment</h2>
<p>The first type of tax relief measure extends immediate financial aid to taxpayers by virtue of a cash payment from the revenue authority. It can take the form of a grant, subsidy or contribution from the government. A case in point is the recently enacted stimulus payments of the US.</p>
<p><a href="https://www.businessinsider.com/house-passes-coronavirus-stimulus-bill-payments-business-loans-hospital-aid-2020-3?IR=T">President Donald Trump</a> signed a massive $2 trillion economic relief package with the aim of easing the financial burden caused by COVID-19. Known as the Coronavirus Aid, Relief, and Economic Security (CARES) <a href="https://www.congress.gov/bill/116th-congress/senate-bill/3548/text">Act</a> , the relief <a href="https://www.foley.com/en/insights/publications/2020/03/cares-act-summary-of-tax-provision">plan</a> includes assistance to the unemployed, zero-interest loans, stimulus payments to individuals and more. </p>
<p>The stimulus payments will be administered by the Inland Revenue Service and are based on a person’s adjusted gross income. These payments are essentially an advance on a tax credit and will be available for the whole year.</p>
<p>In Germany, a state-funded program dating from World War II and used to great effect during the 2008 financial crisis, is again being implemented. The principle of short-time work (<a href="https://www.bmas.de/SharedDocs/Downloads/DE/kug-faq-kurzarbeit-und-qualifizierung-englisch.pdf?__blob=publicationFile&v=5">“Kurzarbeit”</a>) is aimed at helping companies navigate difficult periods without having to resort to large-scale layoffs, disrupt businesses and the economy. </p>
<p>The employer and employee reach an agreement to cut working hours in accordance with labour law provisions, with the Kurzarbeit covering 60% of lost wages. When the situation improves, working hours can be increased or returned to normal very quickly, without the company having to find and hire new workers. </p>
<p>It’s a win-win for both the employer and employee.</p>
<h2>Tax holiday</h2>
<p>A tax holiday is a period of time during which the collection of a tax is suspended, reduced or postponed. The <a href="https://www.gov.uk/government/publications/guidance-to-employers-and-businesses-about-covid-19">UK</a>, for example, waived business property taxes for retail, hospitality, leisure and nursery businesses for 12 months. <a href="https://www.twobirds.com/en/news/articles/2020/italy/covid-19-extraordinary-tax-measures-in-italy">Italy</a> has extended tax deadlines for residents and companies in the so-called “red zones” of the country.</p>
<p>In the US, a 10% excise tax is usually levied on certain early withdrawals from retirement plans. The CARES Act waives this 10% penalty in respect of COVID-19 related distributions of up to $100 000. Above this amount, the recipient can avoid any income tax by repaying the distributed amount as a rollover within three years.</p>
<p><a href="https://home.kpmg/us/en/home/insights/2020/03/tnf-spain-tax-relief-other-relief-for-companies-response-to-coronavirus.html">Spanish</a> SMEs and self-employed people will be allowed to defer income, corporate and VAT tax obligations for six months, with the first three months not subject to interest. And in Austria, <a href="https://www.roedl.com/insights/covid-19/corona-austria-economy-measures-crisis-management-fund">taxpayers</a> can apply for a reduction of advance payments of personal income or corporate tax if they can demonstrate a loss of revenue as a result of Covid-19 up until 31 October 2020.</p>
<h2>Other tax relief</h2>
<p>Then there are other categories that can be loosely grouped together: reduced tax rates and tax credits (or rebates), which decrease the calculated tax liability, thus resulting in less tax owed to the revenue authority. For their part, exemptions, deductions and allowances all have the effect of reducing the taxable amount on which a tax is levied. Ultimately, it results in less tax paid, but this benefit may not be felt immediately. </p>
<p>These <a href="https://www.internationaltaxreview.com/article/b1kjjn20mxcfyj/china-announces-tax-relief-measures-to-tackle-coronavirus-disruption">forms of tax relief</a> don’t put an instant strain on government funds. But they also don’t offer the same speedy cash flow assistance to taxpayers.</p>
<p>In Italy, businesses will receive a 50% tax credit for sanitation expenditure, for example daily cleaning services, masks and other precautionary measures to curb the spread of the virus. New Zealand taxpayers can opt to receive refunds related to R&D tax credits one year early. </p>
<p>Many countries have reduced Value-added Tax (VAT) rates or introduced exemptions. For example, China has introduced a VAT exemption on “lifestyle services”. This includes medical, catering, accommodation and personal services (such as hairdressing). Norway has temporarily dropped its VAT rate from 12% to 8%, with VAT payments postponed. <a href="https://www.ey.com/en_gr/tax/tax-alerts/covid-19-emergency-tax-measures-adopted-in-greece">Greece</a> has introduced a four-month suspension of VAT payments, and the UK three months. Greece has also lowered VAT on products related to the prevention of the spread of the virus.</p>
<p>Enhanced deductions or allowances serve as an incentive for companies to upscale capital investments. For instance, China allows a 100% deduction for investment in equipment to expand production capacity. Previously, only equipment valued up to $700 000 qualified.</p>
<h2>South Africa’s relief measures</h2>
<p>South Africa’s <a href="https://www.sars.gov.za/AllDocs/Documents/customsandexcise/Tax%20Measures%20FAQs%2003042020.pdf">tax relief package</a> contains four overarching proposals.</p>
<p>First, the existing Employment Tax Incentive regime is expanded by the introduction of a subsidy of up to R500 a month for the next four months. Certain categories of employees qualify. An estimated 4 million workers will benefit from this. The South African Revenue Service will accelerate employment tax incentive reimbursements from twice a year to monthly. This will help compliant employers with their cash flow.</p>
<p>The second and third proposals relate to employees’ and provisional taxes.
Tax compliant SMEs that meet certain criteria will be allowed to delay 20% of the employees’ tax liabilities and a portion of their provisional tax payments without penalties and interest for a number of months. About 75 000 SMEs are expected to be assisted by this intervention.</p>
<p>The fourth proposal creates a special tax dispensation for funds established to assist with the COVID-19 disaster relief effort. These funds, which include the national <a href="https://www.solidarityfund.co.za/">Solidarity Response Fund</a>, may be approved as public benefit organisations. As a result, donations made to such tax-approved funds qualify for the usual 10 percent income tax deduction.</p>
<p>As South Africa finalises its <a href="https://www.sars.gov.za/AllDocs/LegalDoclib/Drafts/LAPD-LPrep-Draft-2020-16a%20-%20Draft%20Disaster%20Management%20Tax%20Relief%20Bill%20-%201%20April%202020.pdf">Disaster Management Tax Relief Bill</a>, a couple of suggestions come to mind. These include allowing a full tax deduction for donations to approved COVID-19 disaster-relief funds and welfare efforts. Another is to grant zero-rated VAT on hand sanitisers and related medical supplies.</p>
<p>Perhaps the examples highlighted in this article could provide inspiration of what is possible in a time of crisis?</p><img src="https://counter.theconversation.com/content/135373/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Dr Lee-Ann Steenkamp is affiliated with the South African Institute of Tax Professionals (SAIT).</span></em></p>Governments worldwide have put in place economic and tax relief measures to mitigate the impact on businesses and workers of drastic public health measures in response to the COVID-19 pandemicLee-Ann Steenkamp, Senior lecturer in taxation, University of Stellenbosch Business School (USB), Stellenbosch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1117832019-03-19T20:34:03Z2019-03-19T20:34:03ZElectric vehicles as an example of a market failure<figure><img src="https://images.theconversation.com/files/264679/original/file-20190319-60972-94akzm.jpg?ixlib=rb-1.1.0&rect=0%2C33%2C1500%2C992&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A Renault Zoe charging. It's currently one of the top-selling plug-in electric vehicles in Europe, but what would happen if subsidies dried up? </span> <span class="attribution"><a class="source" href="https://fr.wikipedia.org/wiki/Fichier:Renault_Zoe_charging.jpg">Werner Hillebrand-Hansen/Wikipedia</a></span></figcaption></figure><p>Electric vehicle revolution is well under way. Norway ambitiously heads toward having all new cars sold as zero-emission by 2025. China continues to be one of the major drivers of EV boom. The US market experiences strong growth, driven by models from <a href="https://www.myev.com/research/comparisons/best-selling-electric-vehicles">Tesla, Chevrolet and Nissan</a>. The United Kingdom and France have announced they would <a href="https://www.nytimes.com/2017/07/26/world/europe/uk-diesel-petrol-emissions.html">ban new petrol and diesel vehicles sales by 2040</a>.</p>
<p>Electric cars are perceived as a <a href="https://econclassroom.com/market-failure-positive-externalities-of-consumption/">positive externality of consumption</a> on the society. To fight global warming, governments have implemented different policies to stimulate consumer demand.</p>
<p>But just how sustainable is demand for electric vehicles and how long will governments fuel it? There is also the question of hidden costs for stakeholders like the Democratic Republic of Congo, major supplier of cobalt used for EV batteries.</p>
<h2>Norway hits new highs with EV market penetration</h2>
<p>A stellar example of a country that’s fully charged to go electric is Norway. It has the highest number of electric vehicles per person in the world, with close to 300,000 registered units in its EV fleet in 2018. According to the <a href="https://elbil.no/english/norwegian-ev-market/">European Alternative Fuel Observatory</a>, almost 50% of the cars purchased in Norway in 2018 are electric.</p>
<p>What lies behind such impressive result that puts Norway ahead of others? Answer seems clear: change of consumer habits through <a href="https://elbil.no/english/norwegian-ev-policy/">comprehensive incentive package</a> introduced gradually since 1990s. One of the key policies is Norwegian car-taxation system, based on the principle that the more you pollute, the more you pay. Tax for a new car is calculated by combining weight, CO<sub>2</sub> and NO<sub>x</sub> emissions. It is progressive, making big cars with high emissions very expensive. This results in most electric vehicles becoming cheaper compared to similar petrol models.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=396&fit=crop&dpr=1 600w, https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=396&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=396&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=497&fit=crop&dpr=1 754w, https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=497&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/260825/original/file-20190225-26184-bk658h.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=497&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Illustration of Norway subsidy scheme, comparison of Volkswagen Golf petrol and electric model.</span>
<span class="attribution"><span class="source">https://elbil.no/english/norwegian-ev-policy/</span></span>
</figcaption>
</figure>
<p>In addition, other incentives are in place such as 25% VAT exemption for new EV purchases, road toll exemption, low annual road tax, free access to municipal parking and ferries, access to bus lanes and good network of public charging stations.</p>
<h2>How long can it last?</h2>
<p>But how long will governments continue incentive schemes and can EV market roll on its own? The main concern with subsidies is they’re addictive – once put in place, they’re difficult to end. Budgets are also tight and incentives of this magnitude put pressure on public finances.</p>
<p>In October 2018, the <a href="https://www.theguardian.com/environment/2018/oct/07/electric-car-prices-to-soar-low-emission-vehicles--subsidies-philip-hammond-budget">UK announced subsidy cuts</a> on electric and hybrid vehicles, making models such as Mitsubishi Outlander PHEV and the Toyota Prius Plug-in no longer eligible for grants. This adds thousands of pounds to the price of these cars, and many are concerned it could <a href="https://www.ft.com/content/760c487a-3a86-11e9-b72b-2c7f526ca5d0">turn customers away from less-polluting vehicles</a>.</p>
<p>China plans to <a href="https://asia.nikkei.com/Economy/China-to-slash-EV-subsidies-30-next-year">terminate EV subsidies by 2020</a>. The phase-out process is already in place, with 30% cuts planned for this year. The rationale is shift toward competitiveness, pushing car producers to find cost reductions of their own, as sales volume grows.</p>
<p>The Trump administration has also signalled a possible end of renewables subsidies in the near future. <a href="https://www.reuters.com/article/us-usa-trump-autos/white-house-seeks-to-end-subsidies-for-electric-cars-renewables-idUSKBN1O22D4">Announcements from the White House</a>, followed by a series of angry tweets from the president, followed General Motors’ announcement that it would end production in five automotive factories in the United States and Canada.</p>
<p><div data-react-class="Tweet" data-react-props="{"tweetId":"1067494682249318402"}"></div></p>
<p>Although Democrats will certainly fight any such eventuality, it brings uncertainty among US car manufacturers, who continue to lobby for additional incentives.</p>
<h2>Who bears the costs?</h2>
<p>Another question is, who benefits most from subsidies? A <a href="https://www.manhattan-institute.org/html/short-circuit-high-cost-electric-vehicle-subsidies-11241.html">Manhattan Institute report on EVs</a> highlights the fact that more than 50% of EV buyers in the United States lived in households with annual income of at least $100,000, and 20% had yearly incomes over $200,000. The conclusion is that subsides come at the expense of lower-income drivers of gasoline-powered cars who cannot really afford to buy any new vehicle, much less an electric one. It is they who end up paying for highway maintenance costs through fuel taxes.</p>
<p>Also, as more electric vehicles hit the streets, electricity replaces fuel consumption. The <a href="https://www.ft.com/content/fe0ce8fc-6394-11e8-90c2-9563a0613e56">International Energy Agency estimates</a> that by 2030, electricity could displace about 4,8 million barrels of petrol and diesel used per day. This could result in revenue loss of close to $100 billion in fuel taxes, major source of financing infrastructure development. Thus, governments need to find alternative taxation income and someone needs to bear this cost.</p>
<p>And while some nations embrace “going green”, others might get left behind. There is a need for discussion on how the shift from internal-combustion motors to electric vehicles can be inclusive of those who need it most.</p>
<h2>Darker side of the electric car bonanza</h2>
<p>While much of the developed world heads enthusiastically toward vehicles that pollute less, the celebration isn’t universal. The Democratic Republic of Congo supplies <a href="https://www.washingtonpost.com/graphics/business/batteries/congo-cobalt-mining-for-lithium-ion-battery/?tid=a_inl_manual">two-thirds of world’s cobalt</a>, essential for EV batteries. This Central African nation chronically suffers from “natural resource curse”: while “blessed” with richness in minerals, it remains among the <a href="https://eu.usatoday.com/story/money/2018/11/29/poorest-countries-world-2018/38429473/">poorest nations in the world</a>.</p>
<p>In the absence of formal employment, hundreds of thousands of Congolese turn to mining. <a href="https://www.amnesty.org/en/latest/news/2017/09/the-dark-side-of-electric-cars-exploitative-labor-practices/">UNICEF estimates</a> there are more than 40,000 children working in mines on jobs such as underground digging, transportation of heavy loads or washing mined cobalt in rivers.</p>
<p>Many adult and children workers have no modern machinery or even basic protective clothing, and the health consequences can be catastrophic. Cobalt even has disease named after it – <a href="https://www.cbsnews.com/news/the-toll-of-the-cobalt-mining-industry-congo/">cobalt lungs</a>, a form of pneumonia caused by overexposure to cobalt dust that leads to permanent incapacity and in many cases, death.</p>
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<a href="https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/262244/original/file-20190305-48444-16ux2q6.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Children working in cobalt mines in the Democratic Republic of Congo.</span>
<span class="attribution"><span class="source">Centre of the American Experiment</span></span>
</figcaption>
</figure>
<p>Years of mining have also taken their toll on <a href="https://www.news24.com/Africa/News/democratic-republic-of-congo-city-poisoned-by-years-of-mining-20160822">Congolese environment</a>. Untreated waste and toxic substances pollute areas near the mines, exacerbating health problems of the locals. In addition, worrying radioactivity levels were reported in some of the mines, as southern Congo has vast deposits of not only cobalt and copper, but also uranium. In <a href="https://www.bloomberg.com/news/articles/2018-11-06/glencore-s-congo-unit-katanga-halts-sales-of-radioactive-cobalt">November 2018, Glencore</a>, one of the world’s leading cobalt producers, temporarily suspended sales of cobalt from its Kamoto mine due to radioactivity detected in supplies.</p>
<h2>The long road ahead</h2>
<p>It may seem that electric cars are on the verge of replacing internal-combustion vehicles. But while their market share is growing, it still represents only 2% of car sales in 2018. Although there is raising awareness on environmental issues, we must remember that people tend to seek to maximise their personal utility. Because of this, electric vehicles can be considered an example of <a href="https://www.investopedia.com/terms/m/marketfailure.asp">market failure</a> – their benefits to society as a whole exceed those to individuals, so they’re undersupplied by a free market. Another example is vaccinations, which may require a shot (briefly painful to one person), but can help provide collective immunity (beneficial for all). Government regulations, subsidies and other methods can help insure that such failures of the free market are compensated for. </p>
<p>In the case of electric vehicles, however, once government subsidies are phased out, it remains to be seen whether consumers will perceive electric vehicles as economically viable option. A lot will depend on the ability of car manufacturers to cut production costs, and also how much countries have advanced in installing related infrastructure such as charging stations.</p>
<p>In any case, we are in for a long ride and a lot of uncertainties along the way…</p><img src="https://counter.theconversation.com/content/111783/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Jovana Stanisljevic ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Electric vehicles are taking off, but will demand remain sustainable once governments phase out subsidies? And as the “hidden costs” of the EV revolution emerge, some might get left behind…Jovana Stanisljevic, Professor in International Business, Department People, Organization, Society, Grenoble École de Management (GEM)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/957452018-05-03T10:41:15Z2018-05-03T10:41:15ZBen Carson’s effort to ‘reform’ housing safety net would deepen poverty by hurting poorest Americans<figure><img src="https://images.theconversation.com/files/217548/original/file-20180503-153891-18dcqwv.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Housing and Urban Development Secretary Ben Carson argues his housing reforms would increase self-sufficiency.</span> <span class="attribution"><span class="source">AP Photo/Pablo Martinez Monsivais</span></span></figcaption></figure><p>The Trump administration recently <a href="https://www.hud.gov/sites/dfiles/Main/documents/RentReformLegislativeText.pdf">proposed</a> fundamental changes to how the federal government helps low-income families pay for housing. </p>
<p>Housing and Urban Development Secretary Ben Carson <a href="https://www.citylab.com/equity/2018/04/hud-ben-carson-work-requirements-rent-hikes/558920/">claims</a> his “welfare reform,” which would jack up rents on the poorest Americans and impose stricter work requirements, would promote self-sufficiency and make federal housing assistance fiscally sustainable. </p>
<p>As <a href="https://scholar.google.com/citations?user=0HRgapQAAAAJ&hl=en&oi=ao">someone</a> who has studied, taught and written about housing policy for more than 25 years, I believe the proposal would do nothing of the kind. </p>
<h2>Housing welfare, by the numbers</h2>
<p>About <a href="https://www.huduser.gov/portal/datasets/assthsg.html">4.8 million</a> of the nation’s lowest-income households currently receive housing assistance from the federal government, a figure that hasn’t changed much over the past decade.</p>
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<p>About 1 million households live in public housing, 2.5 million receive housing choice vouchers that subsidize the rents charged by private landlords and 1.3 million live in apartment buildings that are themselves directly supported by the government. </p>
<p>These households earn very little income. The <a href="https://www.huduser.gov/portal/datasets/assthsg.html">average income</a> of a housing choice voucher recipient, for example, is US$14,454, while only 23 percent earn more than $20,000. </p>
<p>For decades, federal rental assistance ensured that recipients paid no more than 30 percent of their adjusted household income on rent. If income goes down, they pay less. If it goes up, they pay more. The cap is <a href="http://fortune.com/2015/08/04/housing-30-percent-rule/">based on the notion</a>, long shared by policymakers and the real estate industry, that housing is “affordable” when it costs no more than 30 percent of a household’s income. </p>
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<p>The measure for income housing authorities have used has traditionally been adjusted for child care, medical expenses and other <a href="https://www.hud.gov/sites/documents/DOC_35649.PDF">deductions</a>.</p>
<h2>Housing ‘reform’</h2>
<p>The administration’s proposal would greatly raise the rents that virtually all housing subsidy recipients must pay – in three ways. </p>
<p>The rents for subsidy recipients who are not elderly or disabled would increase from 30 to 35 percent of their income. The government would no longer take child care and medical expenses into account in determining rents. And the minimum rent recipients must pay would triple from $50 to $150 a month. </p>
<p>About 423,000 subsidy recipients currently earn less than $2,000 a year and pay the minimum rent of $50. Their rent would triple to $150 a month, which would consume a whole year of income for a household earning $1,800. </p>
<p>Families with higher incomes would also see sharp increases as well. A single-parent family earning $25,000 but with $5,000 in child care expenses would see its rent jump 46 percent from about $500 to $729. </p>
<p>While the plan would keep elderly and disabled people at a 30 percent cap, their incomes would no longer by adjusted for medical expenses and child care. Moreover, in order to qualify for the exemption, every adult in the household must be elderly or disabled. </p>
<h2>A history of ‘reform’</h2>
<p>Most fundamentally, the Trump administration proposal would finally apply the controversial welfare “reforms” that began in the 1990s to federal housing assistance. </p>
<p><a href="http://time.com/4446348/welfare-reform-20-years/">Welfare reform</a> began under the Clinton administration, which in 1996 replaced a decades-old entitlement program that provided aid to poor families with kids with a new one that included work requirements and time constraints. As a result, the number of families on welfare plunged from <a href="https://aspe.hhs.gov/report/indicators-welfare-dependence-annual-report-congress-2001/aid-families-dependent-children-afdc-and-temporary-assistance-needy-families-tanf">4.5 million in 1996</a> to <a href="https://www.acf.hhs.gov/sites/default/files/ofa/2017_family_tan.pdf">1.1 million last year</a>.</p>
<p>The Trump administration has been <a href="https://www.nytimes.com/2018/04/10/us/trump-work-requirements-assistance-programs.html">pushing</a> to extend work requirements and sometimes time limits to other safety net programs, such as <a href="https://www.pwc.com/us/en/health-industries/health-research-institute/publications/pdf/pwc-health-research-institute-medicaid-1115-waivers-insight.pdf">Medicaid</a> and <a href="https://www.cbpp.org/research/food-assistance/house-agriculture-committees-farm-bill-would-increase-food-insecurity-and">food stamps</a>. And now, with the latest proposal, the administration hopes to apply them to <a href="https://www.washingtonpost.com/news/wonk/wp/2018/04/25/hud-secretary-ben-carson-to-propose-raising-rent-for-low-income-americans-receiving-federal-housing-subsidies/?utm_term=.5daf4afd9dd9">housing assistance</a>. </p>
<p>Although the details are yet to be worked out, the administration’s bill would <a href="https://www.hud.gov/sites/dfiles/Main/documents/RentReformLegislativeText.pdf">authorize</a> public housing authorities and private owners of subsidized housing to impose work requirements and time limits – and even increase some rents above 35 percent of income. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=467&fit=crop&dpr=1 600w, https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=467&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=467&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=587&fit=crop&dpr=1 754w, https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=587&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/217352/original/file-20180502-153900-gnro2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=587&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">President Bill Clinton signed legislation overhauling the U.S. welfare system in 1996.</span>
<span class="attribution"><span class="source">AP Photo/J. Scott Applewhite</span></span>
</figcaption>
</figure>
<h2>Wider ramifications</h2>
<p>While some policy analysts have previously advocated that Washington apply time limits and work requirements to housing assistance, these ideas have generally not taken hold. There are good reasons for this. </p>
<p>The United States confronts a housing affordability crisis of epic proportions. By the standard 30 percent of income measure, <a href="https://www.huduser.gov/portal/sites/default/files/pdf/Worst-Case-Housing-Needs.pdf">nearly half of all renters</a> cannot afford their housing, and one-quarter spend at least half of their income on rent. </p>
<p>The problem is far worse among very low-income renters, with 83 percent spending more than 30 more percent of their income on rent and 56 percent spending 50 percent or more. With cost burdens like these, people often struggle to pay for food, transportation, health care and other essentials. They are at high risk of <a href="https://evictionlab.org/rankings/#/evictions?r=United%20States&a=0&d=evictionRate&lang=en">eviction</a> and <a href="https://www.hudexchange.info/resources/documents/2017-AHAR-Part-1.pdf">homelessness</a>.</p>
<p>Employment is often of little help. About half of the 8 million very low-income renters who spend 50 percent or more of their income on rent do in fact work. In only 12 of the nation’s 3,142 counties can a full-time worker earning the <a href="http://nlihc.org/oor">minimum wage</a> afford a one-bedroom home at the local <a href="https://www.huduser.gov/portal/datasets/fmr.html">fair market rent</a> – the rent that the Housing and Urban Development department <a href="https://www.huduser.gov/portal/datasets/fmr.html">deems</a> suitable for a modest but adequate unit. </p>
<p>And average full-time earnings in numerous <a href="https://www.nhc.org/paycheck-to-paycheck/">occupations</a> are also well below the income necessary to afford the fair market rent. For example, a child care worker in the U.S. earns <a href="https://www.nhc.org/paycheck-to-paycheck/">an average of $30,679, compared with the $35,680</a> necessary under the 30 percent standard to afford the national average fair market rent on a one-bedroom unit. </p>
<p>Another reason welfare reform’s emphasis on employment makes little sense for housing assistance is that most subsidy recipients who could work already do. Overall, <a href="https://www.huduser.gov/portal/datasets/assthsg.html">28 percent of all housing assistance recipients</a> in 2017 worked. Two-thirds are either elderly or disabled. And most of the rest are single mothers, many of whom already work – and those who don’t often have young children.</p>
<p>Moreover, the cost of implementing work requirements would be <a href="https://www.urban.org/sites/default/files/publication/95821/work-requirements-in-public-housing-authorities.pdf">substantial</a>. Housing authorities would need to create new data systems and devote staff time to determine which subsidy recipients would be subject to the work requirements, to monitor compliance with the requirements and impose sanctions when the requirements are not satisfied. </p>
<p>In short, the proposed changes in federal housing policy would neither foster economic self-sufficiency nor meaningful fiscal savings. They would deepen poverty and worsen the housing affordability crisis.</p><img src="https://counter.theconversation.com/content/95745/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Alex Schwartz is a member of the National Low Income Housing Coalition and is related to a staff member of The Conversation US.</span></em></p>The administration’s proposed changes to a decades-old housing program supporting the poorest Americans would jack up rents and deepen poverty in the US.Alex Schwartz, Professor of Urban Policy, The New SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/796702017-06-23T01:54:19Z2017-06-23T01:54:19ZTrucks are destroying our roads and not picking up the repair cost<figure><img src="https://images.theconversation.com/files/175084/original/file-20170621-4662-6b7bpm.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A fully loaded semitrailer can cause 10,000 times more damage to roads than a family car. </span> <span class="attribution"><span class="source">AAP Image/Dan Himbrechts</span></span></figcaption></figure><p>It’s high time Australia changed its current road user charges for trucks. The shortfall between the charges for heavy vehicles and the money spent on things like road system maintenance, construction costs, road crashes involving heavy trucks, emissions, pollution and urban road congestion amounts to a taxpayer subsidy for the industry of at least <a href="http://atrf.info/papers/2006/index.aspx">A$3 billion per annum</a>.</p>
<p>The current charges, like those of cars, rely only on annual registration fees and fuel taxation. Instead Australia should be following the lead of New Zealand, Switzerland and <a href="https://www.accc.gov.au/system/files/Paper%20by%20C%20Nash%20on%20Charging%20for%20use%20of%20infrastructure%20by%20road%20freight%20European%20experience.pdf">some other European countries</a> and introducing a charge system based on mass and distance. </p>
<p>There have been many inquiries over the years into changing the system, and there’s yet another one <a href="https://infrastructure.gov.au/roads/heavy/index.aspx">underway by the National Transport Commission</a> and the federal government. In the meantime, heavy vehicle charges have been frozen at 2015-16 levels for an initial two-year period.</p>
<h2>The costs of heavy vehicles</h2>
<p>In Australia, the road user charges for trucks are currently determined on a national basis by the National Transport Commission. The annual registration fees depend on factors including the number of axles and gross vehicle mass. </p>
<p>By way of example, the <a href="https://www.ntc.gov.au/heavy-vehicles/heavy-vehicle-charges/registration-charges-for-heavy-vehicles-2016-17">current annual fee</a> for a six axle semitrailer is A$6,334 and for a nine axle B-Double is A$15,016.
With rebates, most <a href="https://www.ntc.gov.au/heavy-vehicles/heavy-vehicle-charges/road-user-charges/.com%3C/">trucks pay fuel excise</a> of 25.9 cents per litre (this will change to 24.8 cents per litre on 1 July), whilst motorists <a href="https://www.ato.gov.au/Business/Excise-and-excise-equivalent-goods/Fuel-excise/Excise-rates-for-fuel/">pay 40.1 cents per litre</a>.</p>
<p>The registration fee seems steep. However,a B-Double can cause, per kilometre travelled, 20,000 times the road wear and tear that a family car does.</p>
<p>In New Zealand a heavy six axle semitrailer pays 56 cents NZ (about 52 Australian cents) per kilometre in mass distance charges. In Australia, the same truck hauling 100,000 km a year or more pays registration and fuel road user charges of less than 17 cents per kilometre.</p>
<p><a>New Zealand’s</a> road user charges, which are mostly made up of mass distance charges levied on heavy truck operations, account for some 37% of all revenue to their land transport fund.</p>
<p>In Australia, <a href="http://www.ntc.gov.au/Media/Reports/(ADA50ABE-29C9-4B10-94D3-E1B6EC5B1C18).pdf">National Transport Commission data</a> shows that in 2014-15, heavy vehicle operators paid combined road user charges and registration fees revenues of about A$3 billion. However this only makes up about 12.5% of all <a href="https://bitre.gov.au/publications/2016/yearbook_2016.aspx">government outlays on roads that are now over $24 billion per annum</a>.</p>
<p>It’s hard to see why Australian charges for heavy vehicles should continue to be set at about one third of the respective New Zealand charges. Also it’s not the hard working truck driver who benefits from these subsidies, but those companies who choose to consign big loads by road.</p>
<h2>Low charges increasing traffic</h2>
<p>The ongoing hidden subsidies for heavy long distance trucks is one reason why there has been a steady drift from rail to road for interstate freight. </p>
<p>By way of example, more than 15 million tonnes per annum of freight is now moved between Sydney and Melbourne, by more than 3,000 B-Doubles and semi-trailers each day and night. On this corridor, rail now moves about 2% of intercapital <a href="https://inlandrail.artc.com.au/#business-case-3">city freight in containers</a> along with some steel and other bulk freight. This has decrease since the early 1990s, when rail had <a href="https://bitre.gov.au/publications/2006/files/report_112.pdf">over 20% of Melbourne-Sydney freight</a></p>
<p>The decision of Shell Oil in 2009 to cease using rail for long haul movement of petroleum products in New South Wales and to use B-Doubles is yet another shift. It was in part due to the subsidies for most B-double operations, along with ongoing concessions to mass and dimension limits for heavy trucks, leading to heavier and larger trucks. </p>
<p>There have been some minor changes in road user charges for truck over time. However even modest increases have been successfully opposed by the road freight industry, meaning this situation of under-recovery of road system costs has persisted for decades.</p>
<p>Although the necessary reform has proved to be difficult in Australia, there are indications some changes may start to happen. </p>
<p>In July 2016, the Victorian government requested the National Transport Commission review how road costs are allocated for heavy trucks. At the same time the South Australian Premier, Jay Wetherill, called for a national heavy vehicle road-user charging system, run by the Commonwealth. In this proposed system state-based registration and federal based fuel-excise charges would be replaced by a charging system based on mass, distance and location.</p>
<p>In August of that year, Urban Infrastructure Minister <a href="http://minister.infrastructure.gov.au/pf/speeches/2016/pfs007_2016.aspx">Paul Fletcher suggested</a> that trucks weighing more than 4.5 tonnes should pay road user charges that more accurately reflect the damage they do to our roads, with the option of establishing an independent price regulator. </p>
<p>With Australia’s population growing, road outlays now costing more than A$24 billion per year. Road congestion is due to cost over <a href="https://bitre.gov.au/publications/2015/files/is_074.pdf">A$20 billion a year by 2020</a>. This means real progress on road pricing reform for heavy trucks is now long overdue.</p><img src="https://counter.theconversation.com/content/79670/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Philip Laird owns shares in some rail companies and has previously received funding from the two Rail related CRCs and is affiliated, inter alia, with the Chartered Institute of Logistics and Transport, and Engineers Australia. The opinions expressed are those of the author.</span></em></p>Australia should follow the lead of other nations like New Zealand and Switzerland and increase the charges for heavy vehicles on roads, proportionate to the amount of wear and tear they cause.Philip Laird, Honorary Principal Fellow, University of WollongongLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/652332016-10-06T19:10:46Z2016-10-06T19:10:46ZThe US used foreign investment to develop a new car industry, a lesson Australia hasn’t learned<p>In Australia, car makers have come to be seen by many as more of a cost than a benefit, a failing industry that was too reliant on government handouts. But in the United States, many state governments have attracted foreign investment that has provided ongoing economic security.</p>
<p>Now the end of car manufacturing in Australia is fast approaching. Ford Australia will close its production line in Broadmeadows on October 7, where the iconic Falcon has been made for almost six decades. </p>
<p>On the same day, Holden will close Cruze production in Adelaide, and Ford will shutter its engine plant in Geelong. In the course of the next year, Australia’s three car makers – Ford, Holden, and Toyota – will shut down completely. </p>
<p>In all, more than 5,000 production jobs, plus many more white collar and supplier positions, <a href="http://www.heraldsun.com.au/news/car-jobs-at-risk-as-national-employment-crisis-looms-after-federal-election/news-story/4eec69a23b48ac8275aaaf4554498925">will be lost</a>. </p>
<p>The shutdowns come following the 1984 Button Plan, a Hawke government initiative that provided for phased tariff reductions (2.5% per annum) as well as fewer separate manufacturing facilities. After this, industry protections were gradually removed and successive governments also signed more free trade agreements that made it easier for imported brands to penetrate the Australian market.</p>
<p>Prior to the closures, Holden boss Mike Devereux fought for two years for an increase of more than A$200 million in government funding, <a href="http://www.news.com.au/technology/innovation/motoring/holden-shutdown-general-motors-international-boss-stefan-jacoby-says-australia-is-better-without-car-manufacturing/news-story/af4de2d0090baa6c2a0ce24aa0e28729">claiming this would save the assembly lines.</a></p>
<p>By contrast in the US over the past few decades, a series of states have paid large financial incentives to attract foreign-owned car makers.</p>
<p>In 1980, Tennessee officials offered Nissan a US$33 million package to build its first American plant in Smyrna, while in 1985 Kentucky committed US$149 million in subsidies to lure Toyota to Georgetown. Another generous package, including a US$1 a year lease on a US$36 million piece of land, brought BMW to Greer, South Carolina in the early 1990s. From there, the <a href="https://www.amazon.com/South-America-since-World-Wardp/0195166507">incentives continued to escalate.</a></p>
<p>In the mid-1990s, Alabama spent US$325 million to bring Mercedes-Benz to Vance, and also gave generously to secure Honda and Hyundai factories. By 2002, Alabama’s total subsidies to foreign automakers <a href="https://www.amazon.com/South-America-since-World-Wardp/0195166507">were an estimated US$874 million</a>. More recently, Mississippi has paid close to US$800 million to land plants by Toyota and Nissan.</p>
<p>Ironically, the subsidies have been dished out mainly by southern states. The South is the most conservative region in America. </p>
<p>Many of the incentives have been authorised not by Democrats but by conservative, patriotic Republicans. Governing over states that are among the poorest in America, they argued that the cost of landing high-paying automotive jobs was justified. </p>
<p>Twenty-five years ago, for example, the Deep South state of Alabama had never produced a vehicle. By 2015, more than 13,000 people were employed in four major assembly plants, <a href="ww.edpa.org/wp-content/uploads/Alabamas-Automotive-Industry.pdf">while a further 24,000 worked for suppliers</a>. “Whatever it cost,” economic recruiter Ellen McNair asserted, “it was worth it”. </p>
<p>The incentives have established a thriving economic sector. In 2009, foreign-owned automotive factories <a href="http://www.nytimes.com/2008/11/17/business/economy/17impact.html?_r=0">employed 78,000 people</a> and turned out more <a href="http://query.nytimes.com/gst/fullpage.html?res=9503E1D9113BF931A15755C0A9639C8B63&pagewanted=all">than 25% of all vehicles manufactured in the US.</a></p>
<p>Even during and after the global financial crisis, none of these plants closed – unlike their domestically-owned counterparts. Instead, the sector has continued to expand. </p>
<p>Australians now drive many cars, including the high-end BMW X-5 and Mercedes M-Class, made in these US factories. Contrary to popular impressions, there is a thriving car industry in America; it is <a href="http://www.weeklystandard.com/the-other-american-auto-industry/article/17000">foreign-owned and based largely in the southern states.</a> </p>
<p>There are important differences between the Australian and American stories. In the US, a more decentralised political system means that states compete with one another <a href="https://www.amazon.com/SELLING-SOUTH-Southern-Industrial-Development/dp/0252061624">to land industrial investment</a>. Unions are much weaker in the US than in Australia, and southern states used weak labour laws, together with promises to fight organised labour, to lure automotive investment.</p>
<p>Transplant car workers are paid well by the standards of their area, yet not as much as their counterparts in Michigan and other traditional car-making states. The poverty of southern US states also drove their search for car plants, whereas in Australia, economic boosters argue the economy is diversified and displaced car workers can find other employment more easily. The US also has a much bigger vehicle market than Australia.</p>
<p>The US story reminds us, however, that automotive <a href="http://www.cargroup.org/?module=Publications&event=Download&pubID=113">jobs have tremendous value.</a>. In Australia, as in the US, the industry has provided well-paid jobs to generations of new immigrants, giving them upward mobility. Research of automotive plant closings in the US – and of manufacturing shutdowns more generally - shows that they have <a href="http://www.tandfonline.com/doi/pdf/10.1080/00236560903020906">devastating economic and social consequences</a>, as few workers <a href="https://www.amazon.com/Town-Abandoned-Confronts-Deindustrialization-Political/dp/0791428788/">are able to gain jobs that pay as well.</a> </p>
<p>As sociologists and others have demonstrated, displaced car workers - especially women and racial minorities - <a href="https://www.amazon.com/End-Line-AUTOWORKERS-AMERICAN-DREAM/dp/0252061489/ref=sr_1_1?s=books&ie=UTF8&qid=1474349920&sr=1-1&keywords=end+of+the+line+feldman">usually suffer “downward mobility,”</a> a drop in socio-economic status as a result of losing their job. Former automotive communities have <a href="https://www.amazon.com/End-Line-Postindustrial-America-Morality/dp/0226169103">suffered high rates of unemployment and depopulation</a> for years after plant closings. </p>
<p>In 1950, when the industry was booming, Detroit had 1.86 million inhabitants. Today, it <a href="http://www.census.gov/library/publications/2011/compendia/statab/131ed.html">has fewer than 700,000.</a></p>
<p>Unlike Australia, the US has used incentives to maintain a viable automobile industry. While Australia’s car industry was contracting, total domestic vehicle production in the US actually grew, and investments by foreign companies have also kept industry employment levels steady. </p>
<p>Many Americans believe that a viable automotive manufacturing sector is essential for their economy. It remains to be seen whether the Australian car industry can cope easily with the shutdowns.</p>
<p>The US experience, however, suggests that those displaced will not be able to move on so easily, and that Australia might be losing more than many of us realise.</p><img src="https://counter.theconversation.com/content/65233/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Timothy Minchin receives funding from the Australian Research Council to study the foreign-owned automotive sector in the U.S. </span></em></p>Australia can learn from the US where state governments have attracted foreign investment in manufacturing that contributes to local economies.Timothy Minchin, Professor of North American History, La Trobe University, La Trobe UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/603142016-06-19T20:10:55Z2016-06-19T20:10:55ZMajor parties are behind the times – and strangely silent – on social policy<figure><img src="https://images.theconversation.com/files/126672/original/image-20160615-22398-59aa8c.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Many Australians who rely on welfare support have been let down by the major parties.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>As we enter the business end of the election campaign, with pre-polling underway, there is a profound lack of any social welfare policies on offer from either major party. The Greens have now put up proposals, mainly to raise the levels of some of the basic welfare payments in line with wide recommendations, including from the <a href="http://www.afr.com/news/bca-steps-up-newstart-campaign-20130611-jhpfu">Business Council of Australia</a>.</p>
<p>The bipartisan silence suggests that neither Labor nor the Coalition are keen to engage in this area, despite their frequent promises of fairness and trust. Their focus on working families or agile entrepreneurs fails to tackle the needs of those who are not contributing paid work hours. </p>
<p>There are signs of seriously disengaged voters, both here and overseas. For example, voters in the US and EU are rejecting major centrist parties because they are concerned about possible market failures. Even the <a href="https://www.imf.org/external/pubs/cat/longres.aspx?sk=42986.0">International Monetary Fund</a> is suggesting the need to tackle increasing inequalities. </p>
<p>As anxieties about growth and the damaging limits of trickle-down wealth theories are becoming more apparent, it becomes more urgent that financial poverty be addressed. The erosion of social cohesion around the world is creating more populism and rejection of centrist parties, which happened most alarmingly in the 1930s.</p>
<p>In Australia, neither major party seems willing to engage with positive changes to welfare policy and income support, assuming instead that these will be fixed by more jobs and growth. Electorally, this is also shortsighted, as more than one-third of the more than 15 million registered voters are not in the paid workforce. </p>
<p>Many of these voters depend on full- or part-income support payments for a range of reasons: they care for others, there are no jobs for them, or they are excluded by the prejudices of others. Despite these barriers, many also meet a wide range of unpaid needs and support community well-being. </p>
<p>Both major parties, when in power this century, have failed to tackle the increasing gap between the jobs available and the number of job seekers. Now, in what is deemed to be full employment, there are still far more job seekers than jobs: 165,600 <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6354.0">listed vacancies</a> earlier this year were followed by the listing of <a href="http://www.abs.gov.au/ausstats/abs@.nsf/mf/6202.0">726,600 active job seekers</a>.</p>
<p>We need to add to these numbers estimates of perhaps more than a million to account for the “discouraged workers”, many of whom have been on benefits for more than 12 months. These are people that employers won’t employ, the single parents whose incomes Labor reduced in 2011, who still can’t fit together work and care.</p>
<p>This number also includes the extra Newstart recipients, formerly deemed disabled, now dealing with personal limits and employer discrimination.</p>
<p>Both major parties only specifically address the voters who are not substantially in the paid workforce. They exhort them to start or increase their paid activities so they are not deemed to be drains on public funds. This creates long-term damage and undermines social cohesion. </p>
<p>Scaring people about welfare costs is a classic conservative tactic, overlaid with self-interest. This is despite much evidence that Australia has one of the tightest-targeted, and often inadequate, income-support systems. St Vincent de Paul, the Salvation Army and the Australian Council of Social Service are all asking for voters and parties to remember the “poor” and make sure their need are considered. </p>
<p>The Salvos’ Economic and Social Impact Survey showed how:</p>
<blockquote>
<p>… children are hugely impacted by welfare inadequacies, moving house multiple times a year, moving schools and missing out on medications, dental checks and even access to the internet due to extreme poverty with some single parent families living off less than $16 a day after accommodation expenses.</p>
</blockquote>
<p>So far these pleas have had little serious attention – except from the Greens. Labor has suggested another review, which delays any action and is as unlikely to create action as the <a href="https://www.dss.gov.au/sites/default/files/documents/02_2015/dss001_14_final_report_access_2.pdf">two earlier inquiries by Patrick McClure</a>.</p>
<p>Welfare dependency is usually framed as the result of people’s sins and failure to try. But there is little doubt that they also encounter structural barriers. Many lower-level jobs are gone or going, with technology replacing workers and slowing demand for market goods. </p>
<p>These changes suggest the need to reconsider income-support policies, which is recognised in other developed societies. There have recently been <a href="http://www.smh.com.au/business/the-economy/why-a-universal-basic-income-wont-solve-poverty-20160531-gp8o65.html">a number of articles</a> in <a href="http://www.smh.com.au/world/basic-income-to-cover-for-digital-revolution-job-loss-rejected-in-switzerland-20160605-gpc796.html">Fairfax Media</a> on overseas debates on possibilities of introducing new payment types, such as a universal income. Some EU and US trials are underway, and <a href="http://www.abc.net.au/worldtoday/content/2016/s4476319.htm">a recent plebiscite in Switzerland</a> showed nearly 25% of people agreed on such a payment without any formal or official support. </p>
<p>The idea has a long history, but recognition that there may not always be enough adequately paid jobs for everyone has given it renewed momentum. So, the question is how we design universal payments that offer stability and well-being while accommodating change and mobility.</p>
<p>Unfortunately there are no signs of such enlightened views from either major party – in fact, quite the opposite. The only signs of change are backwards moves that impose more controls over recipients. </p>
<p>Despite the lack of any evidence that most of those on welfare benefits are either incompetent or irresponsible, in 2007 the Coalition started trials of the <a href="https://www.humanservices.gov.au/customer/enablers/about-basicscard">BasicsCard</a>, which initially controlled 50% of income in some Indigenous communities. These trials were continued and extended by Labor. </p>
<p>A further “refinement” is being trialled now as the <a href="https://www.dss.gov.au/families-and-children/programmes-services/welfare-conditionality/cashless-debit-card-trial-overview">Cashless Welfare Card</a>, despite none of the evaluations finding significant benefits. </p>
<p>It seems neither major party recognises the structural causes of unemployment and so cannot solve the social problems associated with it. This makes it unlikely that they will explore ideas for universal payments that could reduce the ill-effects of structural poverty and fix the structural inequity problems that create divisive societies.</p><img src="https://counter.theconversation.com/content/60314/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>Neither major party seems to understand the structural causes of unemployment, or how to adapt welfare policy to meet those needs.Eva Cox, Professorial Fellow, Jumbunna IHL, University of Technology SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/248452014-03-31T19:49:28Z2014-03-31T19:49:28ZExplainer: what is capital recycling?<p>Treasurer Joe Hockey has spent much of the year – certainly <a href="http://www.smh.com.au/federal-politics/political-news/treasurer-joe-hockey-to-sell-nsw-model-to-g20-20140219-33100.html">since the G20 finance ministers’ conference</a> in Sydney – talking up “capital recycling”. The idea sounds promising: new projects can be built without any new money being raised through new taxes or fees or debt. </p>
<p>But how does this actually work, and will asset recycling really result in new infrastructure investment?</p>
<p>The concept of capital recycling seems to have been borrowed from property portfolio management where proceeds from sales of some properties in a portfolio are used to finance purchases of new properties, similar to how share investors might rebalance a share portfolio <a href="https://www.propertyoz.com.au/Article/Resource.aspx?p=21&media=2189">without adding additional financing</a>.</p>
<p>The basic idea with public infrastructure portfolios is the same: sell or lease existing public assets – like ports – to a private buyer and reinvest the sale revenues into new assets like roads.</p>
<p>Infrastructure Australia likes this idea: “Governments at all levels need to consider how to maximise the value of their infrastructure portfolio – is it by owning and operating all of the assets currently held, or by transferring the capital value of suitable assets to invest in new, priority infrastructure,” <a href="http://www.infrastructureaustralia.gov.au/coag/files/2013/2013_IA_COAG_Report_National_Infrastructure_Plan_LR.pdf">it asks</a>.</p>
<p>The World Economic Forum is also supportive: “Consider capital recycling … as an effective strategy to attract private capital while bringing new infrastructure online,” <a href="http://www.weforum.org/news/new-report-provides-blueprint-close-infrastructure-financing-gap">it suggests</a>.</p>
<p>Capital recycling seems rather like selling the family antiques and using the money to build a new addition on to the house. This raises three questions: how much money can be raised in this way, is any “new” capital being contributed to the system, and what are the pitfalls?</p>
<h2>Show me the money</h2>
<p>The answer to the first question, how much money could be raised, has been estimated at a number of different levels depending on which assets are included in the calculation. In 2012, Infrastructure Australia estimated the value of various government-owned infrastructure assets at between A$116 billion and A$139 billion. A <a href="http://www.afr.com/p/national/adviser_seeks_bn_privatisation_to_0LDvT11tw50f1sjJRHZzyH">more extensive list</a> compiled by the Australian Financial Review recently put the figure at A$220 billion.</p>
<p>This is a lot of money, but it isn’t new. Things of value are simply being liquidated into cash to be spent on something else. Analogously, you might enjoy your new house extension but you can no longer enjoy the antiques you sold.</p>
<p>But infrastructure is bit different than personal assets. Older facilities may have exhausted most of their returns and there may be cases where “mature” assets, such as ports, would be better privatised so proceeds can be reinvested in new areas, such as urban arterial roads, where need is greater and yields higher. </p>
<p>Infrastructure Australia provides a number of examples to support this view, such as the sale of Port Kembla and Port Botany for A$5 billion to be reinvested in new motorways and regional infrastructure.</p>
<p>Public assets may also be more efficiently run by the private sector and a sale of existing publicly-owned facilities could increase returns even on “mature” facilities. The Business Council of Australia <a href="http://www.bca.com.au/docs/a2bab549-6ff1-406a-b230-ec07ca310da9/Securing_Inv_Aus_Future_Inf_Funding_Financing_FINAL_28.11.2013.pdf">emphasises this point in particular</a>. While capital recycling does not add any new money to the system, it might create greater economic return if done carefully.</p>
<h2>No guarantee</h2>
<p>It sounds good, but there are inevitably potential problems. For a start, there is no guarantee that money from asset sales will actually go back into infrastructure. <a href="http://www.ey.com/AU/en/Newsroom/News-releases/Federal-asset-sales-necessary-to-fund-infrastructure">Analysis undertaken by Ernst & Young notes</a> that past asset sales have gone into various purposes besides infrastructure, <a href="http://www.ey.com/Publication/vwLUAssets/Financing_Australia_infrastructure_needs/$FILE/Superannuation_Investment_In_Infrastructure.pdf">including health and education initiatives</a>. </p>
<p>One solution to this is “hypothecation” of sale revenues, which is a guarantee that there will be reinvestment in infrastructure. Of course promises can be broken, which is one reason the BCA suggests establishing dedicated “Special Purpose Vehicles” for managing proceeds.</p>
<p>Another potential issue is that any asset sale involves giving up public control, including the right to collect any future user fees. In the hunt for quick money, it must always be remembered that even if taxpayers are not hit up initially, the users of the infrastructure will be in the end. </p>
<p>If sales are not structured with public interests in mind, some transactions can end up with higher user charges and possibly adverse social equity effects.</p>
<p>Finally, some states, such as NSW, have more public assets than others, like Victoria. This means recycling has uneven revenue potential across states, a reservation raised in connection with <a href="https://theconversation.com/hockeys-asset-sales-sweetener-could-shift-queensland-thinking-23654">Treasurer Joe Hockey’s recent initiative to incentivise such sales</a>.</p>
<p>Notwithstanding various <a href="http://www.lexology.com/library/detail.aspx?g=5100ebbb-ae38-448e-9c3d-6fac43ac6369">implementation issues</a>, the thrust of capital recycling is simple: better to exchange low yielding shares for higher yielding ones and have the funds managed by a talented professional. But, of course, this is always most easily done with hindsight.</p><img src="https://counter.theconversation.com/content/24845/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Cameron Gordon 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>Treasurer Joe Hockey has spent much of the year – certainly since the G20 finance ministers’ conference in Sydney – talking up “capital recycling”. The idea sounds promising: new projects can be built…Cameron Gordon, Associate Professor of Economics, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/248802014-03-28T01:46:29Z2014-03-28T01:46:29ZThe politics of unshackling the NBN from politics<p>Nobody can ever state with certainty how much it will cost or how long it will take to deliver broadband services to more than 22 million people spread out over 7.6 million square kilometres. Even more difficult to project are the revenues from such a service years from now. Anybody who could know would certainly possess a global monopoly along with their crystal ball.</p>
<p>Likewise, there is no perfect technology that will solve all of tomorrow’s problems. Indeed, it is an iterative process. And network technologies create legacies that are difficult to anticipate. Telstra’s copper network, for example, is a legacy that just refuses to go away.</p>
<p>All of these facts didn’t stop another round of <a href="http://www.itnews.com.au/News/380891,nbn-strategic-review-inaccurate-unreliable8217-says-senate-committee.aspx">bickering</a> between politicians after the release this week of the interim <a href="http://www.aph.gov.au/Parliamentary_Business/Committees/Senate/National_Broadband_Network/NBN/index">report</a> from the Senate Select Committee on the National Broadband Network. </p>
<p>What are reasonable assumptions to make when analysing the progress of the NBN to date? Here’s a few: high-speed internet access is essential for a variety of social, political, economic and familial reasons. Fibre-to-the-premises (FTTP) is better than fibre-to-the-node (FTTN) but it costs more. It is expensive to deliver broadband to the bush. When the market works, it works, and when it doesn’t, government should act. And any broadband is better than no broadband.</p>
<p>So why are there so many reports yet so little action in delivering broadband services? Why should government insist on delivering it exclusively?</p>
<h2>A history of interference</h2>
<p>It is an Australian tradition that politicians use the communications industry as a big policy switch to be flicked when politicking calls for it. Flick the switch one way and provide numerous reports to support the view, then flick it the other and the process starts over again. And then focus so much on the minor short-term issue that the big picture is lost for centuries.</p>
<p>Politicking is the stuff of democracy. But when services that can be delivered by the market are caught up in politicking, the system falters.</p>
<p>Government has always been slow to deliver communications technologies in Australia (you only need to compare Australia with other OECD nations over time to see this). And with about 160 years of experience, Australian businesses have learnt that first movers pay a hefty price for taking the initiative.</p>
<p>Here’s a quick look at governments (of all persuasions) and their long record of failed interference in the telecommunications sector:</p>
<ul>
<li><p>A commercially sustainable private telegraph system was shut down by government when it threatened revenues for the South Australian Government’s network.</p></li>
<li><p>The first Australian telephone exchange was run by a business (established two years before London’s exchange). Government shut it down to improve “quality”.</p></li>
<li><p>Australian designs for telephones and exchanges were overlooked by various colonial governments in favour of foreign imports.</p></li>
<li><p>Wireless was available right from the beginning, but government took control of it, refused to let businesses use it, and then did nothing for more than a decade. Amalgamated Wireless Australasia (AWA) - the first wireless agent in Australia - came about largely because the Australian government had infringed wireless patents trying to build its own systems.</p></li>
<li><p>FM radio didn’t happen for decades because government decided we didn’t need it.</p></li>
<li><p>Who can forget disconnecting all their non-Telecom devices any time there was problem with the phone line, otherwise Telecom made you pay just for turning up. We learnt quickly not to have the audacity to use non-Telecom products, even though Austel said we could.</p></li>
<li><p>The “Rolls Royce” version of Aussat, Australia’s domestic communication satellite system, hardly made a dent in Australia’s poor access to television content. In the far north, you could either watch NQTV or the ABC. Everywhere else in the developed world you could watch hundreds of channels.</p></li>
<li><p>Monolithic Telstra was created by government then prevented from acting like a normal business because government got its privatisation plan wrong.</p></li>
</ul>
<h2>Wasting time</h2>
<p>How did the Rudd/Conroy government try to solve our broadband problems? It took control again, but this time with NBN. Instead of focusing on market failure in the bush, politicians decided to run the whole show.</p>
<p>In every instance more reports trying to figure out why it just wasn’t quite working as the politicians had planned. Always caught up in politics. Always slow and uncertain.</p>
<p>Politicians would hardly instigate a report that didn’t support their own position. And because nobody can ever be certain, we can bicker endlessly about assumptions in reports designed to support a particular political position.</p>
<p>The government’s recent strategic review and subsequently the Senate Committee’s findings are no different. Should we have FTTP or a multi-technology mix? Asking who is right or wrong is the wrong question. We should be asking: what is the point?</p>
<p>Businesses will build whatever the government pays for - they’ve been doing this since the first telegraph network was established. But will we have a vibrant and innovative communications sector? Not if Australians are to have affordable access to effective communications technologies - now and into the future. The question we need to be asking is what role government should play in facilitating the deployment of communications technologies. </p>
<p>TPG is pushing the boundaries and <a href="http://www.itnews.com.au/News/376070,tpgs-fttb-build-enters-construction-mode.aspx">delivering fibre</a> right now. NBN Co wants this to stop. Business is delivering, government is reporting. It’s not hard to work out which approach is addressing our broadband problems.</p>
<p>Let the market work where it works, let government step in where it doesn’t. Nobody should be surprised to learn that it is expensive to provide broadband to remote and regional communities. But instead of transparently setting out how much it costs to deliver broadband to the bush, government gets everyone in on the gig so it can hide the inevitable cross-subsidisation. Never mind the effect on industry, but it sure makes for good politics.</p>
<p>But while the traditional political game continues, the future of our communications industries will remain the subject of more reports, not action.</p>
<p>A long-term industry has been shackled to three-year political terms for far too long. The only way to unshackle NBN from politics is to get government out of the marketplace where it exists. Of course, the legacy of sunk costs will make this difficult. But by the time we stop bickering about the latest lot of reports, it will be time to deal with the next communications technology problem.</p>
<p>Much better to be using an affordable broadband service (regardless of whether it’s FTTP or FTTN) than reading yet another report trying to second-guess the market.</p><img src="https://counter.theconversation.com/content/24880/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael de Percy 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>Nobody can ever state with certainty how much it will cost or how long it will take to deliver broadband services to more than 22 million people spread out over 7.6 million square kilometres. Even more…Michael de Percy, Senior Lecturer in Political Science, University of CanberraLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/243382014-03-17T03:31:35Z2014-03-17T03:31:35ZRental affordability scheme fears are misplaced<figure><img src="https://images.theconversation.com/files/44044/original/2tyxd5hn-1395017536.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The National Rental Affordability Scheme is working as designed, but has failed to meet targets.</span> <span class="attribution"><a class="source" href="http://www.flickr.com/photos/majikshoe/2161920204/sizes/l/">jroyals/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span></figcaption></figure><p>The National Rental Affordability Scheme (NRAS) looks set for a major shakeup by the government, following suggestions it has been <a href="http://www.theaustralian.com.au/national-affairs/rudds-housing-gift-to-students/story-fn59niix-1226843122005">hijacked by universities</a> to develop subsidised studio apartments for wealthy international students, and that foreign investors, brokers and small time investors are <a href="http://www.theaustralian.com.au/higher-education/top-end-of-town-rorted-nras-scheme/story-e6frgcjx-1226855021305">exploiting</a> NRAS tax breaks. </p>
<p>It is true that about 20% of dwellings approved for NRAS subsidies are student accommodation. About 25% of these (5% of all the housing produced, or around 1000 dwellings) are apparently let to foreign students. Whether they are indeed wealthy is another question, though it’s clear some fine tuning of NRAS eligibility might be warranted. </p>
<p>At the same time, it could equally be argued that the increased supply of subsidised units in high rent areas around universities will create some downward pressure on rents to the benefit of all tenants in the area. </p>
<p>Indeed, even if some units are rented to people outside the initial target group, by far the more important concern should be the failure of the scheme to achieve anything like its supply target.</p>
<h2>Failing to meet targets</h2>
<p>To make a real difference for low income renters in major cities, NRAS needs to impact market rents by providing a genuine alternative at the local level. But against an initial target of 50,000 dwellings, more than six years in NRAS has stimulated construction of only about 20,000 new rental properties nationally. At this scale the supply effect of the scheme is minimal. So we are effectively left with another form of welfare housing – albeit for working households – which also means an emphasis on eligibility and targeting, and thus the worry about overseas students. </p>
<p>For more than 20 years governments in Australia have tried to attract private investors in ways that are sometimes creative, and sometimes crude. Examples include public-private toll roads, or the sell-off of once public assets like Qantas. Reducing public debt, increasing efficiency, improved choice for consumers and increased accountability are among the reasons given. </p>
<p>But there are two sides to this ledger, and recruiting market operators to deliver policy objectives carries inevitable costs. This might be in the form and distribution of services, the final cost to consumers, and the ethical behaviour of self-interested investors and providers.</p>
<h2>Australia’s skewed housing market</h2>
<p>NRAS was designed to induce private investors into providing affordable rental housing. The cost of housing is not just a problem for lower income households unable to afford decent and secure accommodation. Unavailability of affordable housing, especially in Sydney, Melbourne, Brisbane and Perth, has much wider social, economic and environmental consequences. </p>
<p>Many lower paid workers are forced to choose between spending more than half their income on rent, or commuting long distances – if they are able to access work at all – and bearing the cost in time, money and family life. When unemployment or family breakdowns happen, the next step is often homelessness, which can so easily begin a cycle of social exclusion.</p>
<p>When the population is growing and there is undersupply of housing, rents rise to meet the repayment commitments of mortgage holders. These in turn are driven upwards by speculation. The same process adds to insecurity for tenants as landlords turn property over to realise their capital gains.</p>
<p>Of course negative gearing already allows investors to reduce the cost of housing investments. By offsetting interest payments, maintenance and other costs, investors reduce their taxable income. Despite plenty of opponents, governments have retained it for fear that investors will desert the rental property sector. But as its critics point out, negative gearing directs the biggest benefits to the most expensive properties and provides an incentive to upgrade property and charge more rent. </p>
<p>NRAS is also a tax benefit, but it provides a fixed rebate of around A$10,000 a year for ten years. Investors can claim the rebate so long as a property is rented through an approved non-profit housing manager at 20% below the market rate. Potential tenants are means tested. In this way NRAS sought to keep investors in the affordable sector for the longer term. If they sell early in order to realise capital gains then the benefit is lost. It also means that low income tenants are less exposed to unexpected rent rises and unscrupulous landlords.</p>
<h2>Beware xenophobia</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=901&fit=crop&dpr=1 600w, https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=901&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=901&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1132&fit=crop&dpr=1 754w, https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1132&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/44045/original/2t9by5qg-1395017734.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1132&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Hong Kong’s Mong Kok has one of the highest population densities in the world.</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/pondspider/4680748063/sizes/l/">Pondspider/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-sa/4.0/">CC BY-NC-SA</a></span>
</figcaption>
</figure>
<p>Concerns about international and small investors exploiting NRAS tax benefits appear to be misplaced if not simply mischievous. The main purpose of NRAS is to make affordable housing at least as attractive to investors as short term capital gains. It was intended to stimulate exactly the kind of activity that its critics describe. Indeed if it was really a “cash cow for canny investors” then a lot more new housing might have been built. </p>
<p>Pointing to international investors and students as somehow ripping off Australian taxpayers through NRAS plays directly into xenophobic fears about Asian interest in Australian property. The question must be asked: is a locally based speculator with an interest in short term capital gains preferable to an international investor committed to providing affordable rental housing in Australia for at least ten years?</p>
<p>In his review Housing Minister Kevin Andrews should carefully consider whether NRAS should be allowed to fulfil its aim of creating a viable long term investment option in affordable rental housing. </p>
<p>Should it be expanded so that it puts downward pressure on rents in our major cities, or should it be reduced to another welfare housing program?</p>
<p>If the government prefers closely targeted housing then a market/private sector driven scheme is surely not the way to go, while if private investment is to power the housing system then we have to accept that the property investment market is now a global one. </p><img src="https://counter.theconversation.com/content/24338/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Darcy receives funding from Pacific Link Housing; and the Australian Research Council. He is a former Board member of NSW Shelter and has had a research partnership with the Tenants Union of NSW. He is a member of the ALP.</span></em></p>The National Rental Affordability Scheme (NRAS) looks set for a major shakeup by the government, following suggestions it has been hijacked by universities to develop subsidised studio apartments for wealthy…Michael Darcy, Director of Urban Research Centre, Western Sydney UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/239612014-03-04T04:01:59Z2014-03-04T04:01:59ZQantas can bleed now or later, but capacity war must end<p>Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to <a href="https://theconversation.com/cabinet-scraps-qantas-foreign-ownership-limits-but-company-split-needed-23936">abolish Part 3 of the Qantas Sale Act</a> in its entirety. This opens the door to foreign ownership above the current 49% cap and more concentrated ownership by one overseas airline, among other things.</p>
<p>Should the proposed legislation pass, will Qantas inevitably split its international and domestic operations, along the lines of Virgin?</p>
<p>The Air Navigation Act requires that for an international airline to be designated “Australian” it must have majority Australian ownership — limiting foreign ownership to 49%. This provision does not apply to domestic carriers, thus allowing majority foreign ownership of a potential “Qantas domestic”. As an example, Virgin’s domestic operations are 66.9% foreign owned (by Air New Zealand, Etihad Airways and Singapore Airlines).</p>
<p>Fine, so it would be possible. But would it happen? Well, as the great American baseball player Yogi Berra said, “It’s difficult to make predictions, especially about the future”. But here goes.</p>
<h2>A dogged strategy</h2>
<p>Qantas CEO Alan Joyce has repeatedly claimed Virgin is being supported by cash infusions from its foreign investors. Those investors: Air New Zealand, Ethiad and Singapore Airlines, clearly see some advantage in holding a majority stake in Virgin, presumably as providing solid linkages with their own networks. And as is often the case in complex industries, such linkages can be more easily and fully achieved by ownership rather than a mere alliance. So does it not stand to reason that British Airways, Emirates or other international airlines want to do similarly with Qantas?</p>
<p>Perhaps, but it’s far from clear. In response to Tony Abbott’s announcement last night, Qantas characterised that foreign support as being designed “to fund a loss-making strategy against Qantas”. That loss-making strategy is designed to provide a strong foothold in Australia, which makes the linkages to the foreign owners more valuable. But Qantas already has more than a foothold: it has two thirds of the domestic market. </p>
<p>Why invest in a loss-making strategy to either retain that share or even try and increase it, especially when there is already a triumvirate that seem committed to preventing that from happening?</p>
<h2>No easy money</h2>
<p>In short, it’s not obvious that there will be a queue of international airlines eager to throw money at a price war in domestic Australian air travel. If there is not then it makes little sense to split Qantas’s foreign and domestic operations, particularly as there are some ongoing costs to doing so.</p>
<p>If the proposed legislation fails to pass the Senate, which seems likely given the stated opposition of Labor and the Greens (and despite possible support from incoming crossbench senators David Leyonhjelm and Bob Day), what options remain?</p>
<p>For Qantas there seems little to do than push forward with the aggressive restructuring program it recently announced and to revisit its stated goal of maintaining 65% domestic market share, regardless of the short term profit consequences. </p>
<p>It may be that ceding market share to Virgin could lead to an equilibrium with less aggressive capacity expansion by both players, and consequently higher ticket prices. Market share does not equal profit, as Qantas’s recent results are testament to.</p>
<h2>Political suicide</h2>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=641&fit=crop&dpr=1 600w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=641&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=641&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=806&fit=crop&dpr=1 754w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=806&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/43042/original/23ntz3mq-1393903034.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=806&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Prime Minister Abbott doesn’t want to “let Qantas bleed”.</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/wheredidgogogo/5908160705/sizes/m/">Anthony Gherghetta/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Perhaps an equally interesting question is what options remain for the Coalition if the legislation fails to pass. </p>
<p>If, when the new Senate sits in July, the legislation still fails to pass then the Coalition will be in a tricky position. Abbott has already made it very clear that the current playing field is not level. The government would then either have to do what Abbott yesterday implored Labor not to and let “Qantas bleed”, or reverse its position on the debt guarantee, or a related option. </p>
<p>Option A: Holden/SPC Ardmona tough love; option B: the Gonski flip-flop redux. Neither of those prospects seem politically enticing.</p>
<p>What’s next for Qantas? A great deal of uncertainty about its ownership, operational structure and the possibility of support from this or future governments. The only thing that seems certain is that 5,000 loyal Qantas staff will lose their jobs.</p><img src="https://counter.theconversation.com/content/23961/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Richard Holden receives funding from the Australian Research Council as a Future Fellow.</span></em></p>Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to abolish Part 3 of the Qantas Sale Act in its entirety. This opens the door to foreign…Richard Holden, Professor of Economics, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/237062014-02-26T03:30:21Z2014-02-26T03:30:21ZQantas needs tough love, not corporate welfare<p>So it begins – a company running to Canberra with a good story and in need of some or other political favour. To be fair, these companies tend to have very good stories – consumer safety, national security, skills development, employment prospects, and the like. It is very hard to say “No” and for a long time Canberra has tended to say “Yes”.</p>
<p>The problem being that the amount of money available to be spent on corporate welfare is finite, the demand for corporate welfare infinite, and the prospects of those companies needing corporate welfare poor.</p>
<p>To its credit the Abbott government has being saying “No” to some companies – but not others. We know that government is poor at picking winners, so while saying “No” is an improvement on previous practice there are likely to be problems with the new practice.</p>
<p>It looks like Joe Hockey has developed a <a href="http://www.afr.com/p/national/qantas_ticks_all_boxes_for_assistance_h6euvzoEkl8bruRjJveJXK">four point test</a> to inform his decisions on corporate welfare.</p>
<p>These four points can be summarised as follows:</p>
<ol>
<li><p>Is the firm subject to unique regulation that impedes its business model?</p></li>
<li><p>Does the firm provide an essential service?</p></li>
<li><p>Does the firm compete against foreign State Owned Enterprises (SOE)?</p></li>
<li><p>Is the firm working to restructure its operations?</p></li>
</ol>
<p>The Abbott government is likely to argue that Qantas meets all four criteria. My opinion is that it meets one, at best, with the other criteria being arguable or irrelevant.</p>
<p>Qantas is subject to the <a href="https://theconversation.com/qanda-qantas-the-australian-airline-or-not-20922">Qantas Sale Act</a> and this does impede its business model. The solution to this problem is to repeal, or at least relax, the Act. This is the course of action that the government should pursue to the exclusion of any other support. Prime Minister Tony Abbott has signalled support for this option. Unfortunately it appears there is little political will in the Parliament for it.</p>
<figure class="align-right ">
<img alt="" src="https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=1205&fit=crop&dpr=1 600w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=1205&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=1205&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1515&fit=crop&dpr=1 754w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1515&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/42520/original/x8tgm2m6-1393378679.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1515&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Who should do the heavy lifting to help return Qantas to profitability?</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/jasoneppink/22649599/sizes/o/">Jasoneppink/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>We need to be clear – Qantas does not provide an essential service. We need to differentiate between the service being provided and the service provider. It is true that the failure of the company would cause a temporary disruption and inconvenience to the travelling public, but very quickly we would find planes flying the same routes and providing much the same service.</p>
<p>Competing against a state-owned enterprise is a furphy. Every single Australian firm that competes in any international market is competing against an SOE on some margin. We in Australia decided long ago that the government had no business running airlines (or most other types of business) - it was a good decision to privatise Qantas and that decision should not be revisited. </p>
<p>Finally there is the question of whether the firm is restructuring its own operations, with Abbott <a href="http://www.smh.com.au/federal-politics/political-news/pm-to-qantas-get--house-in-order-20140222-338oi.html">stating</a> Qantas must get its “house in order”. The Abbott government is looking closely at industrial relations when thinking about this question. Quite rightly so, but that isn’t enough.</p>
<h2>Premium price for premium service?</h2>
<p>Qantas appears to be pursuing a strategy where it will provide a premium service while charging premium prices. I’m not convinced – as a long-time Qantas customer – that it’s succeeding in providing a premium service. Nor do I believe Qantas will be able to maintain its premium prices. As Sam Wylie <a href="http://www.afr.com/p/opinion/qantas_peculiar_case_09kDiXbvek4iPX7qSCmjwL">explained</a> in the Australian Financial Review, the capital markets share this opinion. </p>
<p>Qantas has a book value of A$6 billion and a market value of just A$2.7 billion. Qantas has turned each dollar invested into 45c. Turning that around is going to be a lot harder than being tough on unions or cutting back on the drinks menu.</p>
<p>Allowing Qantas to borrow at the <a href="http://www.bloomberg.com/markets/rates-bonds/government-bonds/australia/">government bond rate</a> – even if it has to pay a fee – will distort the market. The thing is that Qantas can borrow – just at junk bond rates. Borrowing at the government rate would mean Qantas could borrow more and more cheaply than the market thinks it should. That means Qantas would maintain its size and dominance when the market thinks it should contract.</p>
<p>Government has no business propping up businesses that should be contracting. As things stand Qantas is a poor investment. Yes; unique government regulation is partly to blame for that and the Qantas Sale Act should be repealed. Yet I suspect Qantas’ current strategy has more to do with its troubles than the Qantas Sale Act.</p>
<p>By repealing the Qantas Sale Act Qantas will have to survive on its own terms - this is the outcome that would best serve the interests of the flying public (broadly defined). Any other form of assistance is likely to leave Australians worse off in the long run. </p><img src="https://counter.theconversation.com/content/23706/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Sinclair Davidson is Professor of Institutional Economics at RMIT University and a senior fellow at the Institute of Public Affairs. He has previously held research grants from the Australian Research Council.</span></em></p>So it begins – a company running to Canberra with a good story and in need of some or other political favour. To be fair, these companies tend to have very good stories – consumer safety, national security…Sinclair Davidson, Professor of Institutional Economics, RMIT UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/231352014-02-18T02:48:30Z2014-02-18T02:48:30ZAustralian aluminium outgunned by cheap, coal-free global rivals<figure><img src="https://images.theconversation.com/files/41739/original/2bt4z2cr-1392683487.jpg?ixlib=rb-1.1.0&rect=20%2C30%2C3328%2C2198&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Alcoa is to close its Point Henry smelter in Geelong.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>Alcoa’s decision to <a href="http://www.abc.net.au/news/2014-02-18/aluminium-producer-alcoa-confirms-decision-to-close-point-henry/5266330">close the Point Henry smelter</a>, at a cost of almost 1000 jobs in Geelong and elsewhere, comes amid a perfect storm buffeting Australia’s aluminium industry.</p>
<p>Point Henry will be the second of Australia’s <a href="http://aluminium.org.au/australian-aluminium/australian-aluminium">six aluminium smelters</a> to close, after the demise of Kurri Kurri in 2012.</p>
<p>Implications for the industry, its workers and local communities are grave, and the situation is piling pressure onto state and federal governments already reeling from the shrinkage of other Australian manufacturing sectors. Where did it all go wrong?</p>
<h2>A formerly world-class industry</h2>
<p>The aluminium story weaves together three distinct plots. The first is one of an industry based on world-scale bauxite deposits, that built what were once world-class refineries and smelters, and at its peak employed more than 17,000 people. However, raw reserves are never enough and the Australian industry has seen the global sector change around it, with economies of scale achieved by offshore competitors throwing down a tough cost challenge. </p>
<p>The second plot is a classic study in government industry assistance that was once seen as sound strategic policy, but now looks like just another subsidy for an unsustainable industry. </p>
<p>The third and most recent plot revolves around the global challenge of climate change that means an electricity-hungry product like aluminium becomes a villain in countries where electricity generation is particularly emissions-intensive.</p>
<h2>A question of competitiveness</h2>
<p>Aluminium is produced in two stages: first, bauxite ore is refined into alumina, and this alumina is then smelted to produce aluminium. Alumina refineries tend to be located close to the resource, and Australia’s refineries are generally well-located and commercially competitive. The recent exception is at Rio Tinto’s Gove refinery in the Northern Territory, which will <a href="http://www.abc.net.au/news/2013-12-19/rio-tinto-gove-refinery-to-close-in-july/5167992">close this year</a> after struggling with a move from high-cost oil to an alternative such as gas.</p>
<p>For Australia’s smelters, the logistics are different. The raw material, alumina, can be transported relatively cheaply around the world. Aluminium smelting uses huge amounts of electricity, so the cost of that electricity is a key factor in the competitiveness of a smelter. Although China dominates global production, Australia has been among the top five producers in recent years. </p>
<p>When Australia’s smelters were built they benefited from very cheap, long-term electricity agreements with government-owned power companies. These smelters were paying around half to two-thirds of the price paid by other large industrial electricity consumers. The result for aluminium producers was they could be in the top half or even the top quarter in terms of global cost-effectiveness.</p>
<p>In recent years, there have been big – and generally bad – changes. First, global aluminium prices have been sliding since early 2011, threatening the viability of those producers that were struggling to keep costs down. Second, liberalisation of Australia’s electricity market has meant the end of subsidised power contracts. Market-based electricity prices push even the best-performing of Australia’s smelters out of the top 25% of global competitiveness.</p>
<h2>The impact of carbon pricing</h2>
<p>And then there is climate change. With the exception of <a href="http://aluminium.org.au/australian-aluminium/aluminium-bellbay">Bell Bay</a> in Tasmania, which <a href="http://www.examiner.com.au/story/157260/new-power-deal-saves-500-jobs-at-smelter/">uses hydro power</a>, Australia’s smelters produce 15-20 tonnes of carbon dioxide per tonne of aluminium because their electricity comes from fossil fuels, mainly coal. This is two to three times the global average. A carbon price of A$20-30 per tonne has a noticeable impact. </p>
<p>Around the world, newly-built smelters have used gas, hydro, geothermal or nuclear power, with low or near-zero emissions. New production has also been targeted to places such as the Middle East, Canada and Iceland with lower electricity prices because there are relatively few alternative uses for the electricity. </p>
<p>This means that arguments to protect Australia’s aluminium from carbon pricing, based on the idea that the emissions will leak to another country, are likely to be wrong. The emissions may well be driven overseas by cheaper pricing, but those emissions are also likely to be significantly reduced as a result.</p>
<p>Together, these factors drive Australia’s smelters into the bottom 25% of global competitiveness.</p>
<h2>A bleak future</h2>
<p>With two of Australia’s six smelters now gone, what are the ramifications if the other four follow suit? For the electricity sector, which is already under pressure from falling demand, losing a customer base representing around 15% of the market would be a big blow. </p>
<p>As the global aluminium market further evolves and climate change policies become serious, the viability of aluminium smelting in Australia looks challenging. There are clear consequences for a sector that directly employs around 4,500 people and generates some A$5 billion in exports. </p>
<p>An intriguing alternative picture was painted by the <a href="http://www.garnautreview.org.au/2008-review.html">2008 Garnaut Climate Change Review</a>. A long-term positive future could emerge for aluminium production in Australia if rising carbon prices drive a low-cost, emissions-free electricity supply sector in Australia. </p>
<p>But in the context of current climate change politics, with carbon pricing set to be repealed and the Renewable Energy Target now <a href="https://theconversation.com/renewables-inquiry-leader-vows-open-mind-on-targets-future-23305">under review</a>, this prospect seems frustratingly far away.</p><img src="https://counter.theconversation.com/content/23135/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Tony Wood owns shares in Origin Energy directly, and a range of Australian and international equities via superannuation.</span></em></p>Alcoa’s decision to close the Point Henry smelter, at a cost of almost 1000 jobs in Geelong and elsewhere, comes amid a perfect storm buffeting Australia’s aluminium industry. Point Henry will be the second…Tony Wood, Program Director, Energy, Grattan InstituteLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/225872014-02-06T03:19:51Z2014-02-06T03:19:51ZThe next move for SPC Ardmona: rethinking the business model?<figure><img src="https://images.theconversation.com/files/40748/original/ywwy6g36-1391574074.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The future is uncertain for SPC Ardmona, but alternate models provide food for thought.</span> <span class="attribution"><span class="source">AAP</span></span></figcaption></figure><p>The failure of Victorian fruit cannery SPC Ardmona (SPCA) to secure A$25 million from the federal government has led to <a href="http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/sour-taste-for-shepparton/2686504.aspx?storypage=0">heightened fears</a> about the future of the company and the Goulburn Valley fruit growers who supply it. </p>
<p>The response from SPCA’s parent company, <a href="http://ccamatil.com/InvestorRelations/ASX/2014/SPCA%20announcement.pdf">Coca-Cola Amatil (CCA)</a> to last Thursday’s decision is that it “will necessitate a material review of SPCA’s carrying value, and a write down of its assets including brands and goodwill”.</p>
<p>For the growers, this illustrates the risks of depending on markets controlled by large and remote corporate interests that are exposed to global competition. The federal government’s position, applied consistently in this case, is that if your product can’t compete then you need to do something else – your problem.</p>
<p>So what if SPCA does close? The major market channels for fresh fruit are fully supplied and demand is static. Export, the traditional solution for Australian farmers facing this situation, <a href="http://www.depi.vic.gov.au/agriculture-and-food/horticulture/fruit-and-nuts/fruit-industry-profile">is certainly possible</a>, but competition is stiff.</p>
<p>Or orchard land could be used for something else. The dairy industry is keen for more product, but that would represent a loss of economic and skills diversity in the region. Besides, not every fruit grower wants to milk cows, <a href="http://www.stockandland.com.au/news/agriculture/agribusiness/general-news/sour-taste-for-shepparton/2686504.aspx?storypage=0">nor are their farm sizes or infrastructure suitable</a>, so there would be social dislocation with this option too.</p>
<h2>Innovating the food system</h2>
<p>If we have passionate growers who want to keep growing, and passionate eaters interested in more than the price of food, can they be connected in new ways?</p>
<p>The <a href="http://gvfoodcoop.com.au/">Goulburn Valley Food Co-op</a> (GVFC) has been exploring this idea for the last two years. It arose from the closure of the Heinz tomato factory in Girgarre in 2011 and despite several <a href="http://www.theage.com.au/national/never-say-die-20130706-2pj60.html">setbacks</a> it brought two products successfully to market in 2013: a pasta and tomato sauce meal, and a <a href="http://www.theaustralian.com.au/executive-living/pear-shaped/story-e6frg9zo-1226809371000">pear cider</a>. </p>
<p>GVFC has pioneered the concept of “virtual factories”. Rather than developing their own processing facilities they have contracted with existing underutilised factories to produce products that are branded by their producers, but then marketed via GVFC networks, and with its imprimatur. The regional provenance and community values that GVFC represents are something that some consumers value and are prepared to pay for.</p>
<h2>Scaling up</h2>
<p>GVFC is part of a much wider set of experiments in “alternative food networks” that aim to provide new options for growers and consumers. Farmers’ markets and <a href="http://www.foodhubs.org.au/">food hubs</a> are other examples. The standard criticism is that they constitute tiny and finite “niches” in the market. This is a valid and important point. SPCA is expecting to process 150,000 tonnes of produce in 2014, whereas GVFC has so far managed to process and sell less than 100 tonnes.</p>
<p>GVFC’s public officer Les Cameron recognises the challenge, but doesn’t believe it is insurmountable: </p>
<blockquote>
<p>“We’ve shown that a market does exist for credible and superior quality regionally-branded products. I don’t think we should pre-judge what the ultimate size of that market could become. If we move to distribute the cider nationally we’d scale up into the thousands of tonnes pretty quickly.”</p>
</blockquote>
<h2>Back to the future?</h2>
<p>A GVFC media release this week states that “If Australia is to have a viable food processing industry, we need SPCA”. But Les is clear that their business model needs to change: </p>
<blockquote>
<p>“They’ve continued basically with a ‘grower-forward’ model. The fruit arrives, you put it in cans, and wait for someone to buy it. What is needed now is a customer-driven model where you can move nimbly to make new products that people want. We got our cider from concept to bottle in six weeks.”</p>
</blockquote>
<p>The investment in retooling and innovation that the federal government funding was to support is needed to reconfigure the factory for this change. But perhaps the money can come from elsewhere. Les Cameron again: </p>
<blockquote>
<p>“The good news is that raising $25 million is a straightforward task. When negotiating with Heinz we were offered well over $18 million from various investors provided we were taking the Girgarre tomato plant over as a going concern. SPCA is a light year ahead of where Heinz was at that stage.”</p>
</blockquote>
<p>GVFC is interested in exploring possibilities for “a new form of private public partnership” with SPCA and CCA, that might see the Goulburn Valley community own a stake in the factory again, as in its <a href="http://spcardmona.com.au/about-us/our-rich-history">earliest days</a>. GVFC says a number of conditions would need to be in place for such a venture to succeed, including community representation on the board, and an on-going commitment to innovative and short-run products.</p>
<p>Cameron says action is needed from the federal government too: </p>
<blockquote>
<p>“The Abbott government has said they will be "getting the regulatory settings right so that industry can succeed”. The first effort must be to change the “country of origin” labelling laws so that food labelled “Made in Australia” means what ordinary consumers think it should mean – food that is grown here and processed here.“</p>
</blockquote>
<p>CCA and SPCA haven’t yet responded to the community buy-in idea, and why should they? What’s in it for them? That depends how much value they see in the ethical and socially-embedded innovation, branding and marketing reach that GVFC has demonstrated.</p><img src="https://counter.theconversation.com/content/22587/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Michael Santhanam-Martin is a member-supporter of the Goulburn Valley Food Co-op, but is not active in the organisation and receives no financial returns from it.</span></em></p><p class="fine-print"><em><span>Emily Ballantyne-Brodie operates a design studio called Sustainable Everyday and consults on designing local food systems. She receives scholarship funding for her research from Queensland University of Technology (QUT). </span></em></p>The failure of Victorian fruit cannery SPC Ardmona (SPCA) to secure A$25 million from the federal government has led to heightened fears about the future of the company and the Goulburn Valley fruit growers…Michael Santhanam-Martin, PhD Candidate, The University of MelbourneEmily Ballantyne-Brodie, PhD Candidate in Design and Health & Food Systems Designer , Queensland University of TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/226982014-02-05T19:48:58Z2014-02-05T19:48:58ZFarmers are in debt, and more debt won’t help<figure><img src="https://images.theconversation.com/files/40746/original/88hpt3ng-1391573108.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Farm debt is increasing in Australia, but will writing it off make more farms viable?</span> <span class="attribution"><span class="source">Grenville Turner/AAP</span></span></figcaption></figure><p>Farm debt in Australia has increased by almost 75% over the past decade, from A$40.3 billion in 2004 to an estimated A$70 billion in 2014. Barnaby Joyce, the Federal Minister for Agriculture, has <a href="http://www.abc.net.au/news/2014-02-03/barnaby-joyce-tells-farmers-he-wil-take-drought-issue-to-cabinet/5233438">argued</a> the government should take on $7 billion of the riskiest proportion of this debt.</p>
<p>The suggestion by Joyce is that a government Rural Reconstruction and Development Bank be established to buy up bad loans, making the government joint owner of some farm businesses until the loans are repaid.</p>
<p>The federal budget is in deficit by A$47 billion dollars, total net debt is approaching A$200 billion and interest repayments will soon exceed A$10 billion per year. It will be a hard sell to convince the government to take on $7 billion of risky debt, and Treasurer Joe Hockey has already <a href="http://www.afr.com/p/national/victorian_labor_pledges_spc_X6nnOLhqtxl2QZkPRGQkxO">poured cold water</a> on the idea, arguing “there are swings and roundabouts in agriculture all the time”.</p>
<h2>Why help agriculture and not other industries?</h2>
<p>At a time when the motor vehicle and fruit processing industries haven’t received additional government help, why should the agricultural sector? </p>
<p>Agriculture is different to other industries in that it’s characterised by long-term financial viability but short-term vulnerability. Its output and survival depend primarily on the weather, which is not something that most other industries face. Pests and disease also add additional uncertainty and risk.</p>
<p>Therefore it’s reasonable to have short term emergency funding from the government for periods of severe drought to support an industry that exports around two thirds of its output and is estimated to generate A$38 billion in export earnings in 2013/14. Further, the long-term outlook for agriculture is positive as the world’s population grows, along with the increased demand for meat products from the growing middle-income classes in Asia.</p>
<p>The federal government has for decades provided emergency drought relief funding, and in 2013 the Farm Finance Concessional Loans Scheme came into effect. This provides A$420 million in low-interest loans (4.5%) to “eligible and viable” farm businesses. The key point here is that only “viable” farms can receive assistance.</p>
<h2>Equity levels are high</h2>
<p>Debt is an important source of funding for investment in agriculture, for expansion, improved machinery, technology and techniques.</p>
<p>Debt is not usually a problem if sufficient equity is held. Because the value of agricultural land has been rising, the ratio of debt to equity hasn’t changed significantly over the past decade. For example, the average price per hectare in a broadacre farm (crops and/or livestock) was around A$270 in 2000 and is around A$470 per hectare today. While debt has grown significantly, so too have average farm values. It’s similar to owning a home that has increased in value which enables more borrowing against its value to occur.</p>
<p>Equity ratios in Australian broadacre farms are high, averaging around 88%. This rate is similar to 10 years ago (89%), and a little higher than in 2010 (87%). Banks do not usually lend to a farm with an equity ratio of less than 70%.</p>
<h2>Who’s really affected?</h2>
<p>70% of farm debt is held by only 12% of farms. These are mainly larger operations that produce over 40% of total broadacre output and can service their debt.</p>
<p>Around 6% of farms are estimated to be at high risk. This is of great concern, but is lower than the 10.3% of high-risk farms in the early 1990s, which occurred due to extremely high interest rates in 1988-89. More than 80% of broadacre farms hold more than 80% of the equity in their businesses and almost 70% have equity that exceeds 90%.</p>
<h2>The problem is long-term viability</h2>
<p>The current severe droughts in northern Queensland and parts of New South Wales, have led to calls for increased government assistance. In Western Australia, recent droughts in some regions led to similar financial stress. A good season in 2013 meant that many farms recovered, but some farms on the eastern parts of the wheat belt region didn’t receive rain and are suffering long-term drought. The concern is that droughts may also be long-term in parts of Queensland.</p>
<p>Banks won’t lend to farms in this situation as the likelihood of repayment is low. Land values plummet in areas of prolonged drought, and as the land has few or no alternative uses, the situation is dire. Famers either sell their land at a low price, or cannot find buyers at all. Further, farmers are forced to sell animal stock at low prices.</p>
<p>In these extreme circumstances, more government loans or the government buying the bad debts and assuming co-ownership is unlikely to contribute to long-term viability.</p>
<p>Other farms have large debts as they bought more land when interest rates were low in the 2000s. Land purchase is the largest single contributor to the increases in farm debt over the past two decades. In 2012, 44% of debt was due to land purchases. If financial stress is occurring today, when interest rates are at historic lows, repayments will become even more difficult when interest rates rise. Taking on more debt today is not likely to help those in this situation.</p>
<p>Clearly several drought affected regions are facing severe financial pressure. Smaller operations have been surviving for years only due to earning off-farm income. But the farm sector has healthy equity ratios and positive long-term prospects. Drought assistance and short-term loans are important, but government high-risk loans totalling $7 billion are not good use of taxpayers’ money and are not likely to increase long-term farm viability.</p><img src="https://counter.theconversation.com/content/22698/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anne Garnett has in the past received funding from the Australian Research Council and the National Centre for Educational Research.</span></em></p>Farm debt in Australia has increased by almost 75% over the past decade, from A$40.3 billion in 2004 to an estimated A$70 billion in 2014. Barnaby Joyce, the Federal Minister for Agriculture, has argued…Anne Garnett, Senior Lecturer in Economics, Murdoch UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/216102013-12-18T23:51:23Z2013-12-18T23:51:23ZAfter Holden: think national, act local<figure><img src="https://images.theconversation.com/files/38122/original/ykppw2qn-1387336082.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Motoring executives and politicians have met to discuss assistance for the manufacturing sector, but they shouldn't overlook the need for local leaders.</span> <span class="attribution"><span class="source">Joe Castro/AAP</span></span></figcaption></figure><p>The Abbott government has made its first move to assist the regions affected by Holden’s planned closure. A high-profile taskforce, to be led by prime minister Tony Abbott and include two other federal ministers, will have up to A$100 million to assist the process of adjustment in affected regions - primarily South Australia and Victoria. </p>
<p>The loss of industry has hit Australia hard in recent decades and a number of assistance packages have been rolled out to help communities and industries. </p>
<p>Australia, of course, is not alone in being affected by the loss of manufacturing capacity, though some nations, such as the United Kingdom, appear to be witnessing the <a href="http://www.theguardian.com/business/2013/nov/01/uk-manufacturing-demand-exports-employment-pmi">resurgence of manufacturing employment</a> as some firms <a href="http://www.thebiponline.co.uk/bip/uk-companies-consider-manufacturing-return-to-britain/">return</a> from overseas. In large measure this “re-shoring” of manufacturing jobs reflects a fall in the value of the pound stirling, but comparable national-level processes are unlikely to assist Australian manufacturers and their workers as our currency remains relatively strong. </p>
<p>Action at a national level is important in responding to “economic shocks” - only central governments have the resources and money to put forward a comprehensive program of action. But although such measures are necessary, they are not sufficient. </p>
<h2>Local leaders required</h2>
<p>International research suggests local planning and local action needs to be a fundamental component of any adjustment strategy, and essentially it is a matter of empowering local leaders to lead. National governments struggle to award priority to one region over others, even when they face considerable hardship.</p>
<p>Leadership at the local level is something that researchers have considered in detail. Good local leadership is very different from commonly held assumptions about “great leaders” acting in isolation to lead a community to a better future. </p>
<p>Instead good leadership at the local level is collaborative, and involves groups of individuals with a strong connection to the community working together. Ideally, these groups have a diverse range of skills and perspectives. Good leaders are task and outcome oriented, but they are not afraid to pay attention to the socio-emotional side of group dynamics. That is, they care about people and aren’t afraid to show it. </p>
<p>Good leaders at the local level are able to bring resources to the task of leadership - ideas, time, social networks - and are willing to use those resources to advance community wellbeing. </p>
<p>Importantly, local leadership isn’t limited to any group, gender, industry or occupation. There is a considerable body of research that shows effective leaders often come out of industry, but they may also be local government officers, economic development practitioners, students, retirees or members of one or more community groups. </p>
<p>In the 1990s, Port Lincoln on South Australia’s Eyre Peninsula was confronted by stark economic conditions as the tightening of quotas for Southern Bluefish Tuna undermined one of the key industries in the region. Key individuals from the industry transformed production, resulting in a more viable fishery and a more productive economy. </p>
<p>Elsewhere, Western Australia’s <a href="http://www.oilmallee.org.au">oil mallee</a> industry emerged from the efforts of public officials keen to improve the sustainability of farming practices and simultaneously diversify the region’s economic base. </p>
<h2>Anyone can apply</h2>
<p>The positive message here is that anyone within the community has the potential to emerge as a leader and most regions have considerable capacity to develop their local leadership. These leaders in turn can then identify specific actions that complement national programs intended to assist the adjustment process. </p>
<p>Good leaders do not inevitably emerge when a region, city or community is confronted by crisis. Too often external shocks such as the closure of a major plant are accompanied by internal failure, as local and national processes fail to shape a new future for the affected region. </p>
<p>What then does all this mean for those communities affected by the Holden closure? </p>
<p>First, governments should be looking to develop local responses to a challenge that will have very significant impacts at the local scale. Part of their response should include the mobilisation of local leaders and the associated provision of resources to help them with their task. </p>
<p>Second, discussion last week about the intended closure of Holden as a producer of cars generated considerable heat. The energy and commitment directed into posts on this website and others can be redirected into a community resource that assists the process of change. There are ways of capturing these ideas in a positive way and then using them to energise growth. At the very least, local leaders can consider these ideas as they plan for the future of their communities.</p>
<p>Governments and communities alike can encourage the <a href="http://www.tandfonline.com/action/showAxaArticles?journalCode=rsrs20&#.UrIwzmQW3Z5">development of local leadership</a> and the steps needed to foster the emergence of local leaders start with governments and local communities making a genuine commitment to dialouge and action. They then need to establish systems that assist the exchange of information. </p>
<p>It helps if central governments are willing to delegate some powers and responsibilities to the local level, but each must be willing to take action and honour their commitments. Finally, local interest groups need to be realistic and discipline themselves to understand the pressures on government and then work to achieve the best possible outcomes, while still holding high expectations. </p>
<p>Local leadership in the process of industry adjustment does not guarantee positive outcomes for affected individuals or communities. But it does enable those affected by such changes to take control of their lives. </p><img src="https://counter.theconversation.com/content/21610/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Andrew Beer 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 Abbott government has made its first move to assist the regions affected by Holden’s planned closure. A high-profile taskforce, to be led by prime minister Tony Abbott and include two other federal…Andrew Beer, Director, Centre for Housing, Urban and Regional Planning, University of AdelaideLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/214522013-12-13T13:01:29Z2013-12-13T13:01:29ZHow to spread Norway’s success with electric cars<figure><img src="https://images.theconversation.com/files/37613/original/cq3kxzv5-1386886104.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Will Norway's electric car boom out-live the tax breaks that popularised them?</span> <span class="attribution"><span class="source">C.Bry@nt</span></span></figcaption></figure><p>Electric cars have been a huge success in Norway, with more electric cars per capita than anywhere else in the world. Sales are thriving, with Norway’s new car market boasting the largest share of electric vehicles (EV). The country’s top-selling car for the last two months <a href="http://cleantechnica.com/2013/11/30/top-selling-cars-norway-now-electric-cars-two-months-row-7-reasons/">is electric</a>.</p>
<p>So how has Norway achieved this, some would say enviable, situation? Frequently, deploying EVs starts with government-backed national action plans. These involve demonstration pilot projects, “learning by doing”, and introducing EVs as company cars in those firms with big fleets. Not so in Norway. Here, company fleets’ use of EVs lags behind private consumers.</p>
<p>Of course electric vehicles of any kind rely on electric charging infrastructure in order to be useful. Financial incentives, since EVs are relatively expensive, are also common. These, and the need to introduce consistent and institutionalised policies and legal frameworks governing use and investment in EVs, are among the initial challenges faced.</p>
<h2>The Nordic model</h2>
<p>Norway has in place several policies and tools at hand to speed the uptake of EVs. Their rapid expansion to date has most likely been spurred on by <a href="http://www.dw.de/norways-electric-car-market-speeds-ahead/a-17174540">strong financial incentives</a>. For example, considerably reduced taxes, worth around US$8,200 (£5,000) per car each year, have been very important. Due to a strict tax regime, conventional vehicles can be twice as expensive in Norway as in other European countries. While EVs are expensive relative to their size and luxury, the tax breaks they come with bring down their price to around the same as petrol and diesel vehicles, making them a viable alternative for many Norwegian households. Other incentives include free access to public parking, toll roads, ferries and charging stations, and the opportunity to use bus lanes.</p>
<p>So, all in all, the incentives of Norwegian EV policy and the establishment of <a href="http://www.transnova.no/english/">Transnova</a>, which provides finance to build charging facilities, have reduced the barriers to entry considerably, making EVs accessible to buy and attractive to use. It’s important that these incentives have some longevity, and to provide this the government has stated they will continue until 2017, or until the number of EVs on Norway’s streets hits 50,000.</p>
<h2>Peer pressure</h2>
<p>There is a cultural dimension to the enthusiasm for EVs in Norway over and above just saving time and money. The extra benefits of being able to drive in the bus lane, free parking, avoid toll charges and so on add to their cultural cachet, but they are also widely seen as comfortable and efficient due to their small size, electric engine and fast acceleration. They also provide the satisfaction of driving a less polluting car. </p>
<p>Demonstrating environmental concerns by driving an EV is important to some people. As more and more people choose them, it appears to be a more reasonable choice for others – particularly those with environmental leanings. This is at least true for countries like Norway where electricity is mainly produced from renewable sources.</p>
<p>Their range, often a concern of new electric drivers, is seldom found to be a problem. Most daily trips are within the cars’ range – and EV drivers have adopted their usage around it. Many households also have a conventionally powered car at their disposal.</p>
<p>We have also noted that EV drivers tend to act as very enthusiastic advocates, extolling their virtues at work and among friends. So the “show and tell” of positive experiences also contributes to the continued upward trend of EVs in Norway.</p>
<h2>Taking the success elsewhere</h2>
<p>What steps could be taken in the UK to deliver Norway’s success? It’s not easy to replicate the situation in Norway in other countries. Other countries have much less tax on conventional cars, and might deem it too expensive to implement the other favours Norway bestows upon electric vehicle drivers. But there may be other lessons to learn from the Norwegian case.</p>
<p>Hands-on experience driving an electric car seems to be a crucial step towards becoming an owner. So by letting people get first-hand experience driving an EV, through the use of pilot projects, for instance, may lead more people to think that an electric car is the right choice for them. In short, it is important to provide public access to EVs, taking them out of the realms of the hypothetical and onto the station forecourt. This is key – and a critical element of the popularity of EVs is the way each new electric car driver tends to pass their news of the experience and benefits to the next.</p><img src="https://counter.theconversation.com/content/21452/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Marianne Ryghaug receives funding from the Research Council of Norway for the Renergi-programme. She is deputy director of the Centre for Sustainable Energy Studies (CenSES).</span></em></p>Electric cars have been a huge success in Norway, with more electric cars per capita than anywhere else in the world. Sales are thriving, with Norway’s new car market boasting the largest share of electric…Marianne Ryghaug, Professor of Science and Technology Studies, Norwegian University of Science and TechnologyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/157422013-07-04T06:09:59Z2013-07-04T06:09:59ZAfter 50 years, Eurocrats still aren’t sure what the CAP is for<figure><img src="https://images.theconversation.com/files/26811/original/b6kk3fwy-1372860196.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Big farmers win big under agricultural policy, but change is in the air.</span> <span class="attribution"><span class="source">Chris Ison/PA</span></span></figcaption></figure><p>Reforming the European Union’s Common Agricultural Policy has never been easy, and that’s hardly surprising. It’s well established that when interests are concentrated together, such as those of farmers and the agricultural industries, they tend to win out over more diffuse interest groups - like taxpayers in general.</p>
<p>For many farmers the <a href="https://www.gov.uk/the-single-payment-scheme">Single Farm Payment</a> (SFP) subsidy granted to them under the <a href="http://ec.europa.eu/agriculture/cap-overview/2012_en.pdf">Common Agricultural Policy</a> (CAP) is the difference between turning a profit for the year or recording a loss. No wonder then, that they have an incentive to band together to lobby to keep the status quo, and their payments.</p>
<p>They are backed by other beneficiaries of a successful farming sector, such as manufacturers of machinery, agrochemicals, or veterinary medicines. Further support comes from processing firms that themselves also receive substantial subsidies from the CAP, such as sugar processors Tate & Lyle. And at the highest level, some EU member state governments are strong supporters of the CAP - notably Ireland and France.</p>
<p>The <a href="http://www.bbc.co.uk/news/world-europe-11216061">latest reform</a> agreed last week will not come into force until 2015. It has in many respects been driven by the need to curb the amount of money member states contribute towards subsidies - <a href="http://www.reformthecap.eu/sites/default/files/CAP%20net%20payers%20ECIPE.pdf">€58 billion</a> in total last year. This is hardly surprising considering the current drive for austerity, and it would free up resources for other EU objectives, such as promoting research and development. </p>
<p>In that respect, the reform has been a modest success - given the strength of resistance to any reduction at all. Although the final outcome is still unknown, UK farmers are likely to experience a loss from their subsidy of around 10% in real terms. The exact amount would depend on fluctuations of the pound against the euro.</p>
<p>For the first time the CAP will account for less than 40% of the EU budget. For many, that is still far too high a percentage, given the small contribution of agriculture to the Eurozone’s GDP. Even so it’s a considerable improvement from the 1970s, when the figure was more than 70%. The funding is also delivered in a less market-distorting way than in the days when it was based on buying up surplus produce - only to create the <a href="http://www.telegraph.co.uk/news/worldnews/europe/eu/4316726/EU-butter-mountain-to-return.html">butter mountains</a> and <a href="http://www.reuters.com/article/2007/07/04/businesspro-eu-wine-quality-dc-idUSL047213020070704">wine lakes</a> in storage that have gone down in history.</p>
<p>Nevertheless, there has been considerable disappointment with the extent of the reform. Originally, this year’s reform process was to be about efforts to <a href="http://www.bbc.co.uk/news/science-environment-22512726">“green” the CAP</a>, given the potentially harmful effects of intensive agriculture on the environment. But proposals that the CAP also attend to matters of climate change were dropped at an early stage - despite the fact that agriculture and the food chain is a major contributor greenhouse gas emissions.</p>
<p>What remains is a requirement for “<a href="http://capreform.eu/the-biodiversity-consequences-of-the-killing-of-the-ecological-focus-area-measure-by-the-council-and-the-comagri/">ecological focus areas</a>” such as buffer strips - un-farmed areas of vegetation used to help soil and nutrient retention. Requirements for crop diversity have been set to avoid the degrading effects of crop monocultures, and to protect permanent grasslands. Farmers will have to meet these requirements in order to receive their subsidies. However, each member state can implement these greening proposals in a way that suits national circumstances. </p>
<p>The National Trust, among others, <a href="http://ntpressoffice.wordpress.com/2013/06/26/national-trust-reaction-to-common-agricultural-policy-desal/">criticised</a> the deal as a backward step, commenting that it “makes it harder to reward farmers and land managers for the provision of fundamental public goods”. The ability to “lay the foundations of a sustainable farming industry – healthy productive soils, clean water, cultural landscapes and public access” it added, had been “seriously undermined.”</p>
<p>Particular criticism has been directed at the decision to drop the cap on the amount of subsidy that could be received by larger, <a href="http://www.guardian.co.uk/commentisfree/2013/jul/01/farm-subsidies-blatant-transfer-of-cash-to-rich">and therefore richer</a>, landowners. This proposal was strongly opposed by Britain and Germany who, along with the Czech Republic, would see a considerable drop in their overall income from the CAP as they have more large farms.</p>
<p>This really takes us to the issue of what the CAP is for - an issue that has never really been resolved. The original objectives embodied in the <a href="http://www.britannica.com/EBchecked/topic/508886/Treaty-of-Rome">Treaty of Rome</a> were to boost productivity, increase farm incomes, stabilise markets, maintain food security, and ensure reasonable consumer prices. Contradictory, declared without an order of preference, and never been formally revised despite all the changes that have taken place in agriculture in the years since.</p>
<p>One view is that the CAP is a form of social subsidy for smaller, more marginal farmers, albeit one delivered in a rather inefficient way, that allows them to stay on the land. Another view is that it’s a means of allowing EU farmers to compete globally, in which case large farms, more economically efficient farms are required, which often have better records on environmental protection and animal welfare too.</p>
<p>So instead of tawdry scenes of wrangling over subsidies when the policy reform process comes around every ten years, politicians should be brave enough to decide what the CAP is supposed to achieve, or if it should exist at all.</p><img src="https://counter.theconversation.com/content/15742/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Wyn Grant 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>Reforming the European Union’s Common Agricultural Policy has never been easy, and that’s hardly surprising. It’s well established that when interests are concentrated together, such as those of farmers…Wyn Grant, Professor of politics, University of WarwickLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/155602013-07-01T04:45:45Z2013-07-01T04:45:45ZThings you should know about private health insurance rebates<figure><img src="https://images.theconversation.com/files/26582/original/9rw7wn4s-1372652870.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">The loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate.</span> <span class="attribution"><span class="source">LUKAS COCH/AAP</span></span></figcaption></figure><p>The government will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30.</p>
<p>The removal of the rebate from the lifetime health cover loading, once again, raises questions about the efficiency and equity of public subsidies for private health insurance. </p>
<p>This is not the first cut to government rebates for private health insurance. From July 2012, the tax rebate for private health insurance has been means tested. Individuals with incomes below $84,000 now receive a 30% rebate, and the subsidy gradually reduces to zero for incomes greater than $124,000. </p>
<p>And from today, the loading paid by people over the age of 30 who are insuring for the first time no longer attracts a government rebate.</p>
<h2>What do the rebates mean?</h2>
<p>The private health insurance rebate has been growing at over 6% per year and is <a href="http://www.aph.gov.au/Parliamentary_Business/Bills_Legislation/bd/bd1213a/13bd123#_ftn11">estimated to be around</a> $5.56 billion in 2012–13. This is a significant proportion of the health budget that could, for example, cover <a href="https://theconversation.com/labor-plugs-the-gap-in-dental-health-care-9169">a national dental scheme</a>, or over a third of the cost of the <a href="http://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/rp/BudgetReview201213/NDIS">National Disability Insurance Scheme</a> or could be used to reduce the waiting list in public hospitals.</p>
<p>The main argument for the rebate is that it sustains a viable health insurance industry in Australia. In turn, private health insurance ostensibly supports private hospitals and increased patient choice, and reduces waiting times for elective surgery in public hospitals.</p>
<p>But does the rebate actually sustain private insurance?</p>
<p>After the 1975 introduction of a universal public health scheme (now known as Medicare), it was expected that private health insurance membership would decline. And that’s exactly what happened.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=364&fit=crop&dpr=1 600w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=364&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=364&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=457&fit=crop&dpr=1 754w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=457&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/26579/original/w7cdb62w-1372652566.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=457&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
<span class="attribution"><span class="source">PHIAC 2013/http://phiac.gov.au/wp-content/uploads/2012/08/membershipall.zip</span></span>
</figcaption>
</figure>
<p>The graph above shows that private health insurance membership declined sharply, from nearly 80% to just over 30% by the late 1990s. </p>
<p>In response, the then-Liberal government (with John Howard at the helm) introduced a suite of measures to encourage private health insurance membership. These included: </p>
<ul>
<li><p>a government-funded rebate on private health insurance premiums, </p></li>
<li><p>a means-tested tax penalty for those without insurance, </p></li>
<li><p>a premium surcharge for people taking out membership after the age of 30, and </p></li>
<li><p>a prominently advertised “Run for Cover” scheme that waived the surcharge for those taking out insurance before June 30 2000.</p></li>
</ul>
<p>These threats of higher premiums, coupled with the “Run for Cover” campaign, were the main drivers of the jump in membership from 30% to 45% in 2000. Membership levels have remained steady since then. </p>
<p>It’s too early to tell if the means-testing of the private health insurance rebate will have an impact on membership levels but, so far, it has not. That is, people don’t seem to have stopped their private health insurance because they no longer receive funding from the government for it.</p>
<p>In fact, membership seems to have increased by more than 1% between July 2012 (when means testing was introduced) and March 2013. </p>
<p>But while membership went up in the aftermath of the Howard government drive, it’s not clear that subsidising private insurance from 1999 was successful in reducing pressure on public hospitals – its main expressed intention at the time.</p>
<h2>Funding the rich?</h2>
<p>New insurees who responded to the financial incentives <a href="http://econpapers.repec.org/paper/herchewps/2006_2f11.htm">did not significantly reduce</a> their use of the public hospital system. Waiting times in public hospitals did not fall when private insurance take up increased and national median waiting times <a href="http://www.oecd-ilibrary.org/social-issues-migration-health/waiting-times-for-elective-surgery-what-works_9789264179080-en">rose in the subsequent decade</a>.</p>
<p>Some people who would have been treated in public hospitals shifted to private beds, but the resources went with them. The result was <a href="https://www.mja.com.au/journal/2000/172/9/new-health-insurance-rebate-inefficient-way-assisting-public-hospitals">no significant overall increase</a> in treated patients. </p>
<p>Indeed, since government still paid for public hospitals, and now paid a rebate on private insurance for treatment in <a href="https://www.mja.com.au/journal/2000/172/9/new-health-insurance-rebate-inefficient-way-assisting-public-hospitals">less efficient private hospitals</a> the net effect was to increase government expenditure</p>
<p>At best, there may have been some short-term saving in direct government spending from increased membership, but that was offset by patients paying out-of-pocket costs, or in premiums. In this context, premiums are like a <a href="http://cpd.org.au/wp-content/uploads/2012/01/CPD_DP_Menadue_McAuley_PHI_2012.pdf">tax but without the variation</a> with income - private insurance “reshuffles money and reshuffles the queues”.</p>
<p>Private health insurance and access to private hospitals are <a href="http://ideas.repec.org/p/yor/hectdg/11-22.html">the main reasons</a> why people who are better off wait less time for surgery. What has actually happened is that Medicare’s equity-of-access principle has been eroded by a tax subsidy of over $5 billion for the financially better off to jump the queue for elective surgery (and to use more dental or optometry services). </p>
<p>Our tax dollars would be better and more equitably spent on prevention, improving hospital services, and widening access to other services.</p>
<h2>Why have private health insurance at all?</h2>
<p>Even without the government subsidy, there remains the question of why we want to a parallel private health system for the quality of health service that we agree should be available to everyone paid from their taxes under Medicare.</p>
<p>Private insurance premiums are a cost to individuals just like taxation. And they cost more than a tax-funded system without producing better quality health outcomes. Medicare has advantages of scale (it is accessed by everyone) and purchasing power that enable lower costs and improved quality control.</p>
<p>In contrast, private health insurance is generally unsuited to pooling resources across people of different health needs and income, while actively ensuring equity of adequate care. This is especially so in Australia where insurance companies have regulated premiums and very limited scope to tie member contributions to their insured risk.</p>
<p>If we want high quality health care with choice, private insurance is not the only way we can have it – and is relatively expensive. Private hospitals could be subsidised from taxes at lower cost to the public budget.</p>
<p>More importantly, reducing the number of health funders increases the potential for better and more efficient health outcomes by integrating health-care provision – a feature that is sorely lacking in our fractured health-care system.</p><img src="https://counter.theconversation.com/content/15560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anthony Harris 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 will no longer refund 30% of the cost of the loading paid by people who take out private health insurance after the age of 30. The removal of the rebate from the lifetime health cover loading…Anthony Harris, Director of the Centre for Health Economics, Monash UniversityLicensed as Creative Commons – attribution, no derivatives.