Progressive ideas

by Karl Fitzgerald

All other things being equal, the owners of the earth have a comparative advantage over those in business or earning a wage. With $21 trillion hidden in global tax havens revealed this year (), and Starbucks, Amazon and Google being grilled in the UK Parliament this week, the need for a fairer tax system is growing.

The clamour for the expansion of the GST is at fever pitch here in Australia. What are the motivations behind this?

Few have noted the spree of government reports advocating for a fairer system via the ‘transfer of tax bases’ – the move from mobile to fixed tax bases. Such a move would wipe out the ease of using tax havens and tax trickery. This is code for saying ‘those who own the land must pay for the governing of the land’.

Ken Henry’s Australia’s Future Tax System, the NSW Lambert report, the ACT’s Quinlan Report, the UK’s Mirlees Report and the NZ Tax Working Group have all advocated to some extent the need to move to fixed tax bases.

In effect they are discussing the ability of people like Gina Rinehart to make $2 million an hour whether she gets out of bed or not.

In economic parlance, this is a discussion about economic rents – in broad terms the naturally rising value of the earth (or licensed monopolies). Bureaucrats are trying to awaken the people to the fact that the tax system can be used to harness these powers of monopoly for the common good.

But what have been the policy responses?

With austerity pressures blindsiding the people in mass sackings, the IMF has been busy installing the next layer of inequality. The global land bubble has blown the world economy apart but yet the answer has been to hit the consumer with regressive sales taxes. Someone earning $20,000 pays the same amount as someone on $20 million. Sounds great right?

This is the plan set out by far right think tanks such as the Cato Institute and the Heritage Foundation.

Rising sales taxes have occurred in the UK, France, NZ, and Japan to name a few. American consumers experienced 542 increases across jurisdictions in (2010).

However, this won’t stop the property speculation that was the catalyst to these problems.

It is only a matter of time until the same bubble mentality takes hold of the most precious asset – our homes. This is in effect what Bernanke’s QE3 is trying to trigger – the next land bubble.

Economists have long acknowledged that ‘asset bubbles always end in tears’. Why then are we encouraging the same mistakes?

Considerable resources must be spent educating society about the advantages those with monopoly rights have over the rest of the economy. Similar to climate sceptics, property bubble sceptics see nothing wrong with First Home Owners committing to a lifetime of historically high mortgage payments. A blind eye is turned from the $100′s of extra dollars fleeing local communities each week and heading towards deep pockets in the banking and real estate industries. The multiplier effect of such behaviour is damaging small local business, our largest employer.

TV shows such as Location, location location feverishly promote the value of prime locations as an investment strategy.

Why then does the economics profession ignore the role of location?

The advantage of living near a new train station or public hospital is delivered in higher land values. These publicly funded advantages result in private windfalls, leading to the deadweight losses of inefficient taxation. The recent Committee of Melbourne’s Moving Melbourne report identified the need for ‘value capture policy’ to finance the infrastructure deficit. Lucy Turnbull has advocated for similar policies in Sydney’s Cities Expert Panel.

Meanwhile small business struggles with rising rents, while surrounding them here in Melbourne is a commercial vacancy rate of some 24% (PDF, Appendix C). Such speculative supply kept off the market forces up rents, undermining our export competitiveness.

Treasurer Swan’s recent business tax reform initiative asked the corporate community to orchestrate their own tax cuts. They threw in the towel early when competing lobbyists couldn’t come to an agreement within the terms of reference. The stalemate was a call out to government to tax those without a strong lobby group – the consumer, with a higher GST. Chris Jordan, the head of this body, has now been appointed the lead of the ATO.

Those locked out of the housing market see some $2.6 billion per year given to negative gearing property investors over the last decade, 92% of which is spent on existing housing. The latest addition to Treasurer Swan’s ‘price of inequality’ is the booming Self Managed Super Fund industry. All other things being equal, those who already own a home are now permitted not just negative gearing write-offs, but a capital gains tax exemption for residential property investments via an SMSF vehicle.

Gen X, Y and Z will soon realise that baby boomers own nearly half of housing wealth. The latest empowerment of SMSF’s announced in the MYEFO will only enhanced this generational inequity. Treasurer Swan seemed genuine in his pre-budget moves to remove the capital gains exemptions for SMSF’s barely two years after their introduction into the residential sector. Unfortunately the lobbyists cornered him and single mums were hit with the cutbacks instead.

The power of organised oligopoly was dramatically demonstrated in the challenge to pokie reform when PM Julia jumped at the thought of a $20 million campaign across marginal seats by the Australian Hotels Association. The blight on democracy was compounded by the revelation that only $3 million was required for the desired policy outcome.

Lest we forget – the Victorian pokie licence auction, slammed by the auditor general as a $3 billion giveaway.

For the level playing field to truly exist, the power of monopoly must be broken down for all to see. The cheekily titled ‘digital dividend’ Senator Conroy is proposing could well hold the key. Instead of a fee simple auction of the electromagnetic spectrum’s 700 khz bandwidth, an annual lease could be charged for what is described as ‘the waterfront real estate’ of the EMS. This lease would be based on an annual valuation of the bandwidth’s value. The value of these property rights is destined to escalate once iphone 10 allows individuals to holographically transport themselves to the other side of the globe. Over time, government could share in the rising value of the earth, the economic rent, to keep price overheads low as classical economists once championed.

Within this lease could be a caveat that X amount of free airtime be provided to each political party in a campaign year, as New Zealand allows. Politicians would then face less pressure to pawn their principles as they wouldn’t have to pay for advertising on the once public airwaves.

The scientific community have been very open in accepting its failure to simplify core messages to the public over climate change, allowing breathing room for climate sceptics to control the debate. Similarly in the economics profession, some responsibility must be taken for the current situation where the global property bubble has been ignored as a catalyst for the credit crisis (falling land prices → bank write downs).

To be a science, economics must relate to reality. Thankfully economists such as Joseph Stiglitz, Michael Hudson and Martin Wolf are raising the flag as we re-frame economics as the essential science, never dismal.

In closing, the pot of gold at the end of each property flip must face closer scrutiny if we are to give equal opportunity to future generations. The tax system must be directed to equalise the opportunities between those who own our common wealth and those who are contributing to the community. Otherwise, rent seeking in the race for the rising value of the Earth will distort both economic and political decision making.

Karl Fitzgerald is the Projects Coordinator for Earthsharing Australia.

This article was first published at www.onlineopinion.com.au

by James Farrell

The number of Australians who were homeless on census night increased by 17% to 105,237 in the five years to August 2011. When adjusted for population growth, the increase the increase is still worryingly high, at around 8%. It’s clear we need a stronger commitment to address this significant social issue.

The census data, released this week by the Australian Bureau of Statistics (ABS), continues to shatter the stereotype of homelessness: the middle-aged alcoholic or drug-addicted man sleeping in a park.

Rather, 60% of people experiencing homelessness were under 35 years old, and an incredible 17% were aged under ten. The ABS acknowledges that census methodology is likely to underestimate youth homelessness, so the number is probably higher than the estimated 44,083 Australians under 25 currently recognised as homelessness.

As subsequent research from the Australian Institute of Health and Welfare shows, these young people will be more likely to be involved in child protection and juvenile justice services, further entrenching their disadvantage.

Almost half (44%) of homeless Australians were women; with women and children the fastest growing group seeking assistance from specialist homelessness services. This number, however, does not include women and children remaining in unsafe housing and continuing violent relationships. The ABS recognises that data sources other than the census must be used to better understand the incidence of family violence and the consequences on housing security and homelessness.

In welcome news, the number of people “sleeping rough” (in improvised dwellings, tents or sleeping out) decreased from 7,247 in 2006 to 6,813 in 2011. But more people are sheltered in such substandard overcrowded housing as to warrant being classed as being homeless; this group increased from 31,531 in 2006 to 41,390 in 2011.

The homelessness rate grew by more than 20% in New South Wales, Victoria and Tasmania, with a gob-smacking 70% rise in the ACT. Meanwhile, the largest fall was in the Northern Territory, which still has (by far) the highest proportion of people experiencing homelessness (731 people per 100,000 population, compared with a national average of 48.9).

The ABS has acknowledged it has further work to do to understand and measure homelessness experienced by Aboriginal and Torres Strait Islander people, which goes a long way to explaining the NT’s massive homelessness rates.

The ABS report has been the subject of significant media coverage, much of it couched in terms of the failure of governments to reduce homelessness. But given the social and economic changes since 2006, it’s surprising that the growth wasn’t higher.

Rather than whacking governments, the ABS data shows a need for governments to continue their efforts to address homelessness.

 

 Committing to end homelessness

The Commonwealth’s 2008 white paper on homelessness, The Road Home, boldly aims to halve homelessness by 2020 and offer accommodation to all rough sleepers. Similarly, states and territories have introduced bold and targeted action plans to address homelessness.

These commitments have been underpinned by important agreements between the Commonwealth and the states and territories. The National Affordable Housing Agreement (NAHA) focuses on early intervention and prevention strategies, better assistance for people with multiple support needs, and providing ongoing assistance to ensure stability for clients post-crisis. The National Partnership Agreement on Homelessness (NPAH) outlines funding arrangements for specific projects and commits partners to addressing agreed outcomes through program delivery.

But these agreements end in June 2013, making the next few months a vital time for the agreements to be renegotiated. At his address to the National Press Club this week, Housing Minister Brendan O’Connor committed to providing half the funds required for another year while the NPAH is renegotiated.

The states are yet to meet this commitment and are seeking additional resources from the Commonwealth. Details will be discussed at today’s meeting of housing ministers in Brisbane.

In addition to resourcing, more work needs to be done to ensure homelessness services are sufficiently funded and effectively delivered. To achieve this, we need to establish a monitoring system with nationally consistent, evidence-based measures to assess the effectiveness of homelessness services. This will allow us to focus on the outcomes of people experiencing or at risk of homelessness, rather than just on the number of people being provided with services.

As the ABS figures show, homelessness continues to be a social crisis in Australia today. Governments, and the broader community, must redouble their commitments to address, and ultimately end, this significant social policy challenge.

James Farrell is currently a Director of the Council to Homeless Persons, Treasurer of the Federation of Community Legal Centres and the National Association of Community Legal Centres and a member of the StreetSmart Australia grants committee.

This article was first published at www.theconversation.edu.au

 

by Michael Salter

There has been a great deal of focus on the role of a Royal Commission in delivering “justice” for victims of sexual abuse. Justice is a powerful, symbolic principle, and being listened to can be a moving and meaningful experience for survivors. My experience interviewing child abuse survivors suggests the opportunity to tell their story in a validating and comfortable environment can have a range of emotional benefits for them.

However, once the drama of the Royal Commission is over, survivors must return to their day-to-day lives. Some recover well, but many continue to experience high rates of depression, anxiety, substance abuse and suicide. They suffer in silence or are bounced between health and welfare services that are not funded to meet their needs. The worst affected wind up in prison or on the streets.

NSW premier Barry O’Farrell said that sexual abuse has “robbed young children of their futures”. The implication is that the lives of child abuse survivors have been irrevocably compromised and the only substantive action we can take is to prevent abuse from occurring in the first place; once it has happened, it’s too late to do much. This represents the state’s failure to provide adequate health services to child abuse survivors.

Ensuring the quality of life of survivors into the future should be a key focus of the recommendations of the Royal Commission. Safety and justice are fundamental human rights, but so are health and wellbeing. The World Health Organisation defines health as an individual and collective “resource for everyday life”. We build and preserve this resource as a community, first by creating healthy environments in which people can live happily and safely, and second by ensuring that care and support are available.

In both regards, Australia has failed child abuse survivors. They grew up in spaces where they were not safe or protected. Many were not provided with the opportunity to disclose what had happened to them, or when they did, they were ignored. Now, as adults, they find themselves unable to access health care that addresses the impact of trauma and abuse on their lives.

As a result, they are often subject to inappropriate, ineffective or even dangerous forms of treatment that compound the harms of abuse. But effective treatment does exist for child abuse survivors. The fact is that successive governments have not invested in them, made them available or provided enough abuse-specific training to the health workforce.

Royal Commissions have the power and scope to address systemic policy issues. The prevention, detection and reporting of child abuse is one such issue. Providing and ensuring access to effective mental health care in the aftermath of abuse is the other side of the coin – and it has long been neglected. Child abuse is at the very centre of the burden of mental illness in the community. Until steps are taken to address the health needs of survivors, this burden will remain, at a significant financial cost to the community, not to mention the personal cost to survivors, their friends and families.

When it comes to child abuse, justice, safety and health are inextricably linked. Children protected from abuse are less vulnerable to mental illness. Where they are abused, early detection and intervention can result in better outcomes for the child, and the identification of offenders and protection of other children.

For those victims enduring the long-term impacts of abuse, however, real justice must deliver more than the symbolic opportunity to attest to their victimisation. It must provide them with access to the care and support that has previously been denied them.

This is one of the main challenges that faces the Royal Commission and, in my view, if this challenge is not addressed then the current rhetoric about justice and safety will remain just that – rhetoric.

Michael Salter is a lecturer in criminology at the University of Western Sydney.

This article was first published at www.theconversation.edu.au

 

by Flavio Menezes

News that BrisConnections, which operate Brisbane’s Airport Link M7, has suspended trade on the ASX as it continues to talk with its debtors is likely to again lead to a debate about the role of Public-Private-Partnerships – or PPPs – in providing government infrastructure.

PPPs have been criticised in the wake of several high profile failures including Sydney’s cross-city tunnel, Brisbane’s Clem 7 tunnel and the consortium building the Ararat prison in Victoria, as well as the high cost to the public of PPPs undertaken in the 1980s and 1990s.

Supporters will argue that the PPP model works because ratepayers will be protected if the company that built and operated the tunnel fails.

Both sides are mistaken. Economic research suggests that PPPs can deliver better outcomes than traditional procurement but often governments choose PPPs for the wrong reasons and fail to take key steps to ensure their success.

Under public procurement, the government finances the construction phase of the infrastructure, tendering the construction to private parties. The operation and maintenance of the infrastructure also may be contracted to private parties.

Under a PPP, a government tenders a “bundle” consisting of financing, construction and operation to private parties. The contract is usually for a fixed period at the end of which the asset reverts back to the government.

An important advantage of PPPs is the potential efficiency gains from bundling the construction and operations/maintenance.

When bundling occurs, the winning firm minimises the total of construction and maintenance/operating costs. So design and construction are undertaken in a way to minimise the total cost of the project over its lifetime.

Another potential advantage from the involvement of private financing under a PPP is in avoiding the construction of politically motivated white elephants. Private parties will find it difficult to obtain financing for a project that is not commercially sound. Arguably, the PPP failures reported above could be related to the particular structure of those PPPs rather than the underlying economics of the projects.

There are also, however, wrong reasons for selecting PPPs over traditional procurement. For example, governments may favour PPPs over public tendering to alleviate its budget constraints. This argument is clearly wrong when PPPs involve direct government transfers, such as minimum income guarantees or other types of payments. It is also wrong to the extent that the PPP project is financed by user fees — a revenue stream which the government gives for the duration of the PPP contract.

Governments can be also attracted to PPPs because they perceive this model shifts the demand risk from the government to the private parties. This argument for choosing PPPs is erroneous for several reasons. Firstly, the private parties bearing demand risk do so in exchange for a risk premium. To the extent that they cannot influence demand, the government may be the best party to hold the risk. Secondly, the upshot of the financial difficulties with projects such as the M7 Airportlink is that it will be very difficult to find investors willing to finance similar ventures in the future.

Third, in a number of cases in Australia and overseas, governments have bailed out failed projects, for example, by renegotiating payments or taking equity stakes. In such cases governments ended up bearing at least some of the demand risk.

There are ways in which PPP tenders can be modified to allocate risk appropriately. For example, research developed over the past decade suggests a tender process that allocates risks appropriately. The key idea is to run a least-present value of revenue tender. The winner of the tender is the firm that has submitted the lowest required revenue (expressed in present value terms). The innovation of this process is that the duration of the concession is variable.

The contract only expires when the winner of the tender recovers the amount of revenue bid. This type of tender allocates the demand risk to the government, reducing financing costs and ensuring that the benefits of PPPs over public tender are realised. This approach has been successfully tested in Chile.

In the past decade, we have learned a lot about what works and what does not in PPPs. To avoid previous mistakes with PPPs, governments need to ensure that there is a robust process for evaluating PPPs. Moreover, closer attention needs to be paid in the design of PPP tenders and contracts, as suggested by both economic theory and international practice.

Flavio Menezes is a Professor of Economics and currently the Head of the School of Economics at the University of Queensland.

A longer version of this article is at Australian Policy Online.

by Adam Corner

There are few cardinal sins in politics – but campaigning on behalf of your opponent has to be one of them. So when news broke this week that the British Conservative Party MP Chris Heaton Harris had boasted on camera of providing resources and support to an opposition anti-wind farm candidate in order to “cause some hassle”, it was widely expected that the axe would fall.

But instead, as the story developed, it transpired that this was a trail that led to the very centre of the Conservative Party.

In the end, the manouverings came to naught – Labour won the by-election easily, the first time it has taken a seat from the Tories in a by-election since just before Tony Blair’s seismic 1997 general election victory.

Heaton-Harris was caught in an undercover sting by the environmental campaign group Greenpeace. He was bragging that he had backed the anti-wind farm election campaign of the blogger and self-publicist James Delingpole, a far-right commentator whose pantomime-villain outbursts are typically treated as undeserving of serious engagement. Among the climate-sceptic elements of the Conservative Party, however, Delingpole appears to have carved out a role for himself as the mouthpiece for views that they dare not air in public.

Delingpole stood down as a candidate in the Corby by-election several weeks ago, prior to the video emerging. But not before the energy minister, John Hayes, gave an interview declaring that “enough was enough” for on shore wind. This was seemingly in direct contrast to official government policy, which favours a range of renewable technologies as part of an increasingly low-carbon energy mix.

And in potentially even more serious developments, a second Greenpeace film appeared to show the Chancellor, George Osborne, implicated in a plot to withdraw government support for onshore wind. This is despite its huge value to the British economy as a fully operational low-carbon technology.

When David Cameron boldly proclaimed that his would be the “greenest government ever”, following his election in 2010, he must have known the boast would come back to haunt him. And, although the UK is (currently) a world leader in terms of legally binding carbon reduction targets, some members of the Conservative Party look like they are doing everything they can to ensure these targets are unlikely to be met.

The Conservative central command would like to paint anti-wind zealots like Heaton-Harris as existing on the lunatic fringe of the party. But increasingly, it is looking like the MPs who represent the rural constituencies where wind turbines are typically sited are having a disproportionate effect on the Conservative Party. Although there has been no formal shift in energy policy, the “mood music” around the environment on the British right is worrying.

To be clear: opposing the siting of a wind farm cannot be equated with climate change scepticism. But the willingness of Conservative party representatives to promote and publicise the views of hardline anti-environmentalists like James Delingpole does not send out a good signal. And opposing on-shore wind without suggesting an alternative policy for reducing levels of carbon dioxide is tantamount to dismissing the risks that climate change poses.

The relationship between climate change scepticism and political ideology has been documented repeatedly and consistently in the US, the UK and Australia. But how to address it is an altogether trickier question.

There is a proud tradition of conservation and respect for the natural environment in the history of British Conservatism. But the “conserve” part of conservatism currently seems to apply only to the hyper-local, with debate focusing on the aesthetics of wind-farms instead of the value of clean, green energy for the whole of the UK.

Ultimately, the Conservative Party will lose its hard-fought status as an (allegedly) moderate, modern, compassionate, centre-right group if it associates itself with the extreme views of individuals like Delingpole. If the Conservatives don’t want wind farms across the UK, their challenge is to identify and implement another set of policies that will allow Britain’s carbon targets to be achieved – with the consent of the electorate.

Despite the noises coming from climate-sceptic Conservative MPs, wind farms – and renewable technologies in general – are very popular with the public. They are certainly more popular than nuclear power or fossil fuels.

Few credible energy future scenarios see no role for on-shore wind. If the Conservatives have evidence to the contrary, they should speak up. If not, they need to find a way of convincing their voters that climate change is the biggest threat to the environment that they supposedly want to conserve so much – not the wind turbines that can provide clean, abundant energy for the future.

Adam Corner is  a Research Associate in the Understanding Risk research group at Cardiff University.

This article was first published at www.theconversation.edu.au

 


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