Who’s paying for this?

download (2)If being forced to have a third of trustees be classified as independent (including the chair) – note that Cbus calls John Dawkins an independent director (Cats: stop that laughing) – is not bad enough, the mean federal government now wants to remove the monopoly position of union industry super funds in respect of default funds specified in Modern Awards.

Chief shrill lobbyist, David Whitely (pictured), gives the game away by declaring that 80 per cent of workers don’t make a choice  of super fund (this figure is completely rubbery; virtually all workers on union enterprise agreements are given no choice at all, eg. universities).  But let’s run with that figure.  It makes the exclusive positioning of industry super funds listed in Modern Awards (there are hardly any others) the key to the massive automatic flow of funds to these favoured funds.

Of course, the solution is simple: remove superannuation from the industrial relations regulation (it should never have been there) and simply provide employers with a list of MySuper funds from which to choose.  In the meantime, the government might want to run a campaign encouraging workers actually to make the choice of super fund themselves.

But the industry super funds are not having a bar of it.  They will quote their higher returns (ignore the duds and ignore the dubious valuations put on direct investments in which industry funds can invest because they have few liquidity constraints because of their monopoly position in respect of default funds) as a defence for their ongoing monopoly position.

And now they are using industry superannuation members’ money (Industry Super Australia has no money of its own) to campaign for the retention of the default fund monopoly.

Is this appropriate?  The super fund trustees have a sole responsibility to maximize the financial benefits of members; it is neither here nor there for existing members whether the default fund arrangement continues.

Now no doubt there will be some fudging of the information – the money is coming from Administration Fees levied on super funds members not from members’ investment accounts.

I just don’t think this is good enough.  The use of Administration Fees (used to fund the dud newspaper venture, the unloved and unread New Daily – remember that fiasco) should still be used for purposes to benefit existing members, not to defend the empires of industry super funds.

So APRA – step up to the plate.  You need to kill off this inappropriate spending by the industry super funds before it commences.

(I can easily take this stand because David Whitely’s pathetic defence of industry super fund, NUW’s LUCRF’s contribution to IR21 to fund Bill Shorten’s campaign against Anthony Albanese to be Labor leader is that APRA will take a look at it if there is anything untoward.  Oh please.  Some teenagers in APRA wrote a report that governance in superannuation was pretty OK back in 2012.  Oh please again.)

Here is the story:

Industry superannuation funds are launching an aggressive advertising campaign against what they fear is an imminent move by the Abbott government to make it more difficult for them to be the “default” for employees who do not nominate a fund for their superannuation.

These contributions are estimated to be worth between $6bn and $9bn a year and because historically the “default” fund was set as part of industrial negotiations, the union funds dominated.

The recent financial services inquiry recommended a continuation of the most recent system – where a “default” fund is decided through the Fair Work Commission – but the big banks have been lobbying for employers to have free choice.

And in a recent speech, the assistant treasurer, Josh Frydenberg, said he wanted to unleash the “strongest possible competitive forces for the benefit of every superannuation fund member”.

Industry Super cites research showing that over the last decade industry funds have delivered higher returns to their members and accuse the big banks of “embarking on a major government lobbying campaign to design superannuation regulations to suit their business model.”

The chief executive of Industry Super, David Whiteley, said the banks wanted to be able to “bundle” their business banking services and the super arrangements for a business’ employees – an offer he said would benefit the business but not the workers.

The Financial Services Council – which represents the bank-backed retail funds – said more competition over default funds would bring down fees.

“The banks seem to stop at nothing to get their hands on Australians’ super savings,” Whiteley said.

“The retail and bank-owned super sector has failed to deliver competitive investment returns and are seeking to create an unlevel playing field that suits their business model potentially at the expense of Australians’ super savings”.

The government’s response to the financial services inquiry headed by David Murray is expected within weeks.

The Industry Super ad campaign will run through October and include billboards, digital airport screens in Qantas business lounges, online videos, social media and TV sponsorships in the AFL and Sky News.

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Monday Forum: August 31, 2015

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Tax reform: Australia could do without a CGT

Today in The Australian

If there is an iron law of Australian public policy, it is that you can’t keep a bad idea down. And never was that clearer than in the ­National Reform Summit’s ­discussion of capital gains tax.

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Makes sense: I wonder what the Australian figures look like?

11923603_10152977674971401_2962599299196437121_nThe Distributional Effects of U.S. Clean Energy Tax Credits

Severin Borenstein and Lucas W. Davis

Energy Institute at Haas

University of California, Berkeley

July 2015


Since 2006, U.S. households have received more than $18 billion in federal income tax credits for weatherizing their homes, installing solar panels, buying hybrid and electric vehicles, and other “clean energy” investments. We use tax return data to examine the socioeconomic characteristics of program recipients. We find that these tax expenditures have gone predominantly to higher-income Americans. The bottom three income quintiles have received about 10% of all credits, while the top quintile has received about 60%. The most extreme is the program aimed at electric vehicles, where we find that the top income quintile has received about 90% of all credits. By comparing to previous work on the distributional consequences of pricing greenhouse gas emissions, we conclude that tax credits are likely to be much less attractive on distributional grounds than market mechanisms to reduce GHGs.

While the luvvies in Australia are always banging on about tax expenditures being snaffled by the well-off, my guess is that they have no problem with the climate change action subsidies being snaffled by high income earners.  If you are saving the planet, that’s just the way it is.

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The gospel according to Bill: do as I say, not as I do

Senator Lisa Singh, pictured during an estimates hearing at Parliament House, has been dropped to the fourth spot on Labor's Senate ticket in Tasmania.All that guff about Emily’s List and having half of all Labor parliamentarians women within a decade – and Bill Shorten has a chance to step up to the plate and he trips over. This is what happens when you are running a wholly owned subsidiary of the trade union movement – the trade union bosses call the shots and you just suck it up.

So here is the story: Tasmanian Labor Senator, Lisa Singh, has been dropped to an unwinnable spot on the ticket because AMWU official, John Short, requires a retirement job in the Senate and the unions dominate the voting.

We should not think that this is the only example of jobs for males dictated by the union bosses.  We had the unseemly arrangement whereby David Feeney – aligned with the HSU (pause for laughter) – had to be found a safe seat after his Senate position looked perilous.  And so he was given one – Batman, Marn Ferguson’s old seat (a bit of irony there).

And then we had Conroy’s man imposed on the good burghers of Gellibrand, Tim Watts, replacing Nanny Roxon.  That makes sense – a man replacing a woman.  That really helps make up the 50 per cent.

And then Penny Wong was dropped down the Senate list – by a man, no less (remember the Godfather, Don Farrell of the Shoppies), but there was such a hullabaloo that there was a last minute switcheroo.

And then there was Joe Bullock, also of Shoppies fame, who made Senator Louise Pratt shove over (and lose her position) – because the unions said so.  Woman replaced by man. That makes sense.

And we should not forget the unseemly unseating of sitting members by Bill Shorten himself and Richard Marles, with union backing.

What’s good for the goose is clearly not good for the gander when it comes to handing out the jobs for the (mainly) boys.

Here’s the story:

Dumped Labor senator Lisa Singh was the preferred choice of her party’s rank and file in a pre-selection race but lost her spot on the Senate ticket in a factional power-play to a little-known union official.

The Tasmanian result, which has some within Labor calling for federal intervention to protect a sitting female senator, is another example of how union and factional bosses are able to use their superior voting strength to overwhelm party members’ preferences in the allocation of prized parliamentary positions within the ALP.

A tally of the votes cast in the June Senate pre-selection race obtained by Fairfax Media reveals, Ms Singh received the strong backing of ordinary Tasmanian ALP branch members, and would have been retained at the winnable third spot were it not for a weighted union component of the ballot.

This part of the vote saw the Australian Manufacturing Workers Union secretary, John Short, leapfrog Senator Singh into the third place behind the two other incumbent senators, the left’s Ann Urquhart and the right’s Helen Polley.

Of the 542 votes cast by members, senators Urquhart and Polley received 221 and 123 respectively, with the unaligned Senator Singh close behind on 110. Mr Short was some way back with 74 votes, with the remaining 14 going to others.

However, that tally made up only half of the final result because under state ALP rules the 100 union votes are then combined with another 100 conference delegates – both of which are factionally organised – and their combined total of 200 is weighted to make them equivalent to the 542 rank-and-file votes.

Based on a loading formula in which each union-conference vote is worth 2.72 rank-and-file votes, the two halves resulted in Mr Short jumping ahead by a wafer-thin four votes, on 158 to Senator Singh on 154.

That meant he won the third and final winnable position, relegating her to the unelectable fourth spot.

Disquiet within the party over the outcome continues as Labor MPs note the inconsistency of the leader Bill Shorten pledging half of Labor’s parliamentarians will be made up by women within a decade, while union power continues to be deployed to find sinecures for officials – most of whom are male.

Last week Fairfax Media reported that the former Hawke government minister Margaret Reynolds backed intervention to rectify the situation by the party’s powerful National Executive.

“When factions just divide up the spoils between themselves, to the detriment of the image of the party and the potential for government and the potential for maintaining numbers in the Senate, it becomes a federal responsibility,” she had said.

Attending the Apple Isle’s state Labor conference last weekend, Mr Shorten appeared impervious to the grievance, telling reporters, the rank and file had “spoken”.

“It is inevitable in any engagement that not everyone is successful in being able to get the spots they want to do to be able to represent Labor,” he said.

“Lisa Singh has served Labor well in the Senate and our new Senate team will also do the same thing.

“Labor’s had its processes, the rank and file have spoken. It is always a difficult matter but the rank and file have spoken, according to the rules of the Tasmanian branch.”

However sources in the Tasmanian party and within the federal parliamentary sphere, say the problem is that the rank and file had spoken and then been ignored.

Last week, former ACTU boss and Rudd government minister, Martin Ferguson, said union power within the ALP was now so excessive that individual MPs could not act without union say-so.

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Tipping in Australia

Do you tip? Should you tip? Here is a chance to discuss the merits and demerits of tipping in Australia.

According to Cornell’s Michael Lynn, tipping was first practiced in the 17th century in English taverns to obtain faster service. Lynn says that many aristocratic 19th century Americans travelling to Europe brought back the custom to ‘show off’.

But this produced a backlash in the 1890s with arguments that it went against the American ideal and would lead to a servile class. Some State legislators attempted to ban the practice.

William Scott’s 1916 book, The Itching Palm, includes:

In the American democracy to be servile is incompatible with citizenship. Every tip given in the United States is a blow at our experiment in democracy. The custom announces to the world…that we do not believe practically that “all men are created equal.” Unless a waiter can be a gentleman, democracy is a failure. If any form of service is menial, democracy is a failure. Those Americans who dislike self-respect in servants are undesirable citizens; they belong in an aristocracy. … If tipping is un-American, some day, some how, it will be uprooted like African slavery.

Scott was wrong, and tipping is now embedded in the US. While there are isolated efforts to criticise the practice, there is no substantive movement against tipping, with the percentages recommended ever increasing (20 per cent now considered normal in many cities).

The national minimum wage for tipped workers in the United States is $2.13 per hour and for non-tipped workers $7.25 per hour. State minimum wages are either at or above the national minimum. For example, the New York minimum wage is $8.75 per hour for non-tipped workers and $5 per hour for waiters.

A recent survey by the New York City Hospitality Alliance found the average hourly wage (including tips):

The pay survey, which was taken by employers at 486 New York City restaurants and bars employing approximately 15,000 tipped employees, revealed that besides the average $23.34 hourly wage for servers, bartenders earn approximately $27.48 per hour, and bussers and food runners earn about $17.11 per hour. Cocktail servers and bartenders at clubs and lounges make approximately $31.21 an hour and $32.35 an hour, respectively, and bussers and food runners at those nightlife establishments make an average of $18.84 per hour.

Payscale states that the hourly wage for waiters ranges from US $2.18 to US $9.74 with tips ranging from US $1.43 to US $15.20 per hour – a range including tips of US $3.61 to US $24.94.

This can be compared with the current hospitality award in Australia in the table below, which do not include tips. The rates have been converted to USD at 0.72. Importantly these apply throughout Australia irrespective of the type of establishment – which is why family owned and run businesses often have a competitive advantage.

PT/FT Casual PT/FT Casual
 $    20.13  $    25.16
Mon-Fri  $    20.13  $    25.16  $    14.49  $    18.12
Sat  $    25.16  $    31.45  $    18.12  $    22.64
Sun  $    35.23  $    44.03  $    25.36  $    31.70
PH  $    50.33  $    62.90  $    36.23  $    45.29
Are you a tipper? Is this a pernicious activity or should it be encouraged to improve service? 
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Open Forum: August 29, 2015

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Rafe’s Roundup 28 August

Hendo and the media watchdog [Updated on Friday afternoon].

Find of the week h/t Rob and johanna. The radical capture of the Democratic Party in the US. See also Schumpater’s analysis of the anti-capitalist role of the intelligentsia in his book Capitalism, Socialism, Democracy. Published in 1942, Schumpater might have been surprised how rapidly the process happened due to the explosion of higher “education” after the war. Not that the vast majority of the intelligentsia, or the political and chattering classes, are intellectuals in any serious sense because they dominate and degrade the standard of public discourse. And it is mostly done at the expense of the public, including the producing classes who make it all financially possible.

The Invasion of Europe. Life imitates art, invasion anticipated in 1973.

The demographic challenge in the US.

The joy of saving the world with the help of the United Nations.

Over the last three years, the United Nations has been working to establish a global sustainable development agenda to succeed the eight Millennium Development Goals, which are about to expire. Unlike the MDGs, which were drawn up by bureaucrats behind closed doors, the new Sustainable Development Goals have been subject to the largest consultation in UN history. Negotiators came up with 17 goals and 169 targets covering everything from abolishing poverty to achieving gender equality to rescuing the planet from climate catastrophe. They are due to be adopted at a UN summit in New York in September. In Addis Ababa last month, member states met to agree on ways to pay for them. The cost of achieving the SDGs is estimated at between two and three trillion dollars a year for fifteen years: roughly 15 per cent of annual global savings, or 4 per cent of world GDP.

Late into the night on the penultimate day, the G77 blinked and it was settled: there would be no global tax reform, no new debt relief and no new money on the table. The following morning, the UN hailed the agreement as bold and groundbreaking but in private, G77 ministers were furious, describing the proceedings as ‘bullying’, ‘blackmail’ and ‘a new wave of colonialism under UN auspices’.

The USA and EU may have got their way in Addis, but they have also pushed the developing world closer to Russia and China, shifting power from the World Bank and International Monetary Fund to China’s Asian Infrastructure Investment Bank and the BRICS’ New Development Bank. And the damage goes further: the diplomatic tensions will continue into future intergovernmental negotiations, threatening both the SDG summit in New York next month and the COP21 climate summit in Paris in December.

Books. Bookshops in Japan. Bookstores off the beaten track. Bookstores in the city of Chicago. Some beautiful places to find books. London Review of Books Blog.

For nerds. Melvyn Bragg’s radio program. Stephen Hicks, always interesting for nerds.

Great piece on Medawar and Popper’s philosophy of science. Popper and technical troubleshooting. How entrepreneurs learn.

Around the town. Hendo and the media watchdog [Updated on Friday afternoon]. The Australian Institute for Progress, (AIP) “because the future does not look after itself”. IPA HEY. The Sydney Institute. Australian Taxpayers Alliance, Quadrant on line, Mannkal Foundation, Centre for Independent Studies.

Don Aitkin. Jim Rose, feral and utopian! Jo Nova, climate realist par excellence. Sean Gabb’s site.

Sites of interest. Spiked on line . Richard Hammer, Free Nation Foundation. Aust NZ libertarian students. Powerline. The British libertarian alliance.

Education, accuracy in academia.

Posted in Rafe, Rafe's Roundups | 5 Comments

Priceless at half the price

1440654242269Now it’s not particularly clear what came of Craig Emerson’s National Reform Summit. This is what editor-in-chief of the Fin had to say:

Amid 17 pages of waffle, business, the unions, welfare groups and seniors organisations agreed on some telling points. Policy reform was now ‘urgent’. The economy’s competitiveness was slipping. Action was needed before problems became crises. Productivity growth needed to be revived in order to lift living standards.

On budget policy, they agreed that federal and state governments were likely to post substantial deficits for many years on current settings. Rising public debt would reduce scope for spending on social and economic infrastructure. All government spending and tax concessions needed to be subject to rigorous scrutiny. Australia’s AAA credit rating and fiscal credibility needed to be preserved.

And, on tax, they agreed that ‘all options’ should be on the table. A competitive corporate tax system was essential for attracting capital and growing the economy, putting company tax cuts on the table. Inefficient taxes such as stamp duties on conveyancing should be replaced with ‘more efficient, uniform taxes’.

These are not the sort of sentiments that typically get passed at ACTU Congress or at leftie welfare conferences. To get there, business had to support various forms of ‘inclusive’ economic growth, including to lift the dole for jobless singles, and to accept much of the waffle.

Yet, amid all this, the left was required to listen to some difficult home truths from the economists.

The hard facts were that per capita national income was falling and the economy’s growth potential had slipped. The only way to reverse this was to lift productivity growth. And the best way to do that, said Stevens, was to increase competition in the economy, including in the labour market.

‘The question is how to have suitable rules that offer basic fairness, but with minimum adverse effects on enterprise, employment, and the scope for free agents to come together in ways that mutually suit them – and that grow the economy,’ Stevens said.

The Reserve Bank governor urged the summit to question whether Australia had got the balance right. To the unions, that sounded too much like ‘a race to the bottom’, aka Work Choices, and they weren’t having it. Workers were not ‘free agents’; they’re the oppressed, or at least they were in the 1890s and 1930s.

But Parkinson went further, by demolishing the left’s case against the GST. It was ‘indisputable’ that the bias in the Australian tax system toward taxing income rather than consumption was undermining productivity and hence workers’ living standards.

For a Treasury secretary, the left doesn’t mind Parkinson because he helped design Labor’s carbon price and was effectively sacked by Abbott for his sins.

But, on Wednesday, Parkinson said that about half the benefits of any cut in the 30 per cent corporate tax rate would actually go to workers represented by Oliver, ACTU president Ged Kearney, transport workers boss Tony Sheldon and the maritime union’s Paddy Crumlin. Lower corporate tax would attract foreign capital and improve workers’ productivity.

Then Parkinson delivered a stinging GST slapdown to ex-nurse Kearney that had the left groaning ‘stop’. ‘You’re too tricky by far,’ Kearney protested. ‘That’s not me being tricky. It’s economics,’ retorted Parkinson.

It was simply too much for the class struggle to bear. The economy just doesn’t have a soul, declared Oliver in reverting to labour movement folklore.

You would have to agree that trying to explaining to our Ged, former nurse, the difference between the legal and economic incidence of taxation made the day worthwhile.  Tricky to the power of n.

Here’s the write up of the interaction:

Former Treasury boss Martin Parkinson and ACTU president Ged Kearney have clashed over the best way to raise more tax revenue without punishing the poor.

Mr Parkinson, who was Treasury secretary until late last year, took a swipe at Ms Kearney after she declared herself to be open to changes to payroll tax but disinclined to support a GST increase.

He argued the taxes were similar because both are paid at a flat rate and not according to a person’s capacity to pay.

“You’re too tricky by far,” said Ms Kearney, who was on stage.

“That’s not me being tricky, it’s economics,” he retorted.

Moments earlier, Mr Parkinson had welcomed Ms Kearney’s comments about being “happy to look at things like payroll tax”.

He said he “couldn’t agree more and the reason why I couldn’t agree more is because a payroll tax with no concessions is identical to a GST”.

“So I heard you say that you’re open to a GST increase as part of an overall package and I’d like to congratulate you on that.”

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Some positive news about the Chinese economy

Here’s the story: China likely to drag the world into global recession, Citigroup says. Here’s how it begins:

China is sliding into recession and the leadership will not respond quickly enough with large-scale fiscal policies that could avoid a major slowdown and stimulate demand, Citigroup’s top economist Willem Buiter said.

The only thing to stop a Chinese recession, which the former external member of the Bank of England defines as 4 per cent growth on “the mendacious official data” for a year, is a consumption-oriented fiscal stimulus program funded by central government and monetised by the People’s Bank of China, Buiter said.

“Despite the economy crying out for it, the Chinese leadership is not ready for this,” said Buiter, the man who coined the term “Grexit” during the Greek debt crisis.

So what’s positive about that, you might ask. If it is a deliberate decision not to reflate but to go through the adjustment that is obviously required, there will be about a year of mess, possibly not even that, and growth will resume on a stronger basis. It will also be a sign that the Chinese leadership understand how useless Keynesian economic theory is and are now biting the bullet and will endure the pain of the next twelve months. This is all speculation from both Mr Buiter and myself, but it will be interesting to see how things do unfold. If there really is a recession and no stimulus and the Chinese economy comes out of it in 2016-17 stronger than ever, we will be re-writing our textbooks, although the first editions of these new texts might not be written in English.

Posted in Economics and economy | 30 Comments