97 thoughts on “Weekend reflections

  1. The Australian Industry Group’s opposition to the ETS and MRET is unsurprising. Conservatives always want business-as-usual even when you’d think it is no longer in their interests. The timeline if I have it right was that the ETS was conceived in late 2007, discussed at length in 2008 (Garnaut et al), watered down to near irrelevance and renamed the CPRS in late 2008, discussed even more (like now) in 2009 and is scheduled to start mid 2010. That’s indecent haste according to the AIG and they need more time to get the paperwork sorted out or something. Meanwhile Melbourne suburbs get to 48C while swathes of Queensland are underwater. I suggest the issues no longer represent business-as-usual nor can they be postponed.

  2. The opposition to an ETS, and the parallel reluctance of the US to admit its banks are dead and nationalise them, illustrates to me how much debate about political economy has degenerated in recent decades and how slavishly bound to market solutions we have become. Markets are usually the best solution, but not always. So when we have a serious problem the market can’t fix, shouldn’t we have a government solution instead?

    I was struck by this link from Tim Lambert’s blog recently:
    http://www.thebigmoney.com/articles/hey-wait-minute/2009/02/11/surprise-economists-agree
    So most economists agree global warming is a problem, the fix is affordable, and inaction costs more. Plus we know a majority of voters want action too. We also know its an example of market failure. So why do we have to find a market solution?

    If we can solve global warming with that level of spending, government should regulate to prohibit the harmful causes, spend to replace them with new infrastructure etc, and tax us to pay for it. If other countries don’t do the same we tax their imports to reflect the cost of their emissions to us. Some of our exports will be less competitive, but only by a few %, except for industries we too must restructure anyway if we are serious about solving this. If this sounds crazy, it seems from my reading that the cost is no more than the world is currently spending to (barely) fix the GFC. The spending to fix global warming would probaby restart our economy anyway.

    So I think the problem with global warming is not scientific (we know the problem), not technical (we know the solution), not economic (we can afford it), nor social (there are game theoretic solutions) but ideological (we are obsessed with finding a market solution).

    Please note this is not a criticism of those working on an ETS. If an ETS could be politically accepted that would be fine. But if it can’t (seems to be the case) then we need a Plan B. I say that is direct government action.

    Off to do the shopping.

  3. More evidence that China is in recesssion:
    China Tax Receipts Show Marked Fall in Incomes

    “Tax data show much sharper deceleration in income and consumption in the past few months than suggested by official retail sales or income growth figures,” Goldman Sachs analysts Joshua Lu, Caroline Li and Fiona Lau wrote in a note today.

    Also, Setser on China’s falling exports:

    China’s 17.5% y/y fall in its January exports is far smaller than the falls in the exports of other major Asian trading powers. Japan is down 46%. Korea, 33%. Taiwan, 44%.

    That strikes me as one of the key puzzle’s of today’s global economy. One potential explanation is that China is taking market share. One potential explanation is that the big fall in China’s exports is in the pipeline, as China is the last stop in Asia’s assembly chain. And one potential explanation is that a significant domestic downturn in China is adding to the downturn in the exports of other Asian economies.

    Which prompted this amusing comment:

    Another potential explanation: the Chinese government figures are lies.

  4. Regarding the idea of a boycott of Pacific brands, last year I remember reading about legislation in the Australian Parliament that would make the advocacy of such a boycott illegal. Is this the case?

    A related but separate question, would the TWU fall afoul of the law by blockading the transport of Pacific Brands machinery out of Australia.

  5. All this hand wringing about executive salaries is just silly. Companies should be able to pay whatever they like for their executives. All the government needs to do is add a marginal rate to the tax scales of 90 cents in the dollar for any compensation package (including share options etc.) over $500K.

    You can live a very good life in Australia on $490K per annum. But if a company wants to spend more than that on its executives then that’s fine – the government can always use the extra tax revenue for the good of the common wealth.

  6. Socrates says, “So most economists agree global warming is a problem, the fix is affordable, and inaction costs more. Plus we know a majority of voters want action too.”

    This is the case and yet we cannot get any meaningful action. This tells us much about the current ineffectiveness of our democracy and the stranglehold that undemocratic corporate influence has over public policy.

    Rudd’s “do-almost-nothing” policy gives free kick after free kick to the big corporate polluters and shafts the public twice over. One, we pay for the current (in)action in dollar terms and then we pay again as climate change decimates our economy, our environment and finally us.

    The key struggle of our time is to wrest power democratically away from the corporations and back to the people. Corporate power must be severely restricted and effective democratic power re-established.

  7. Ikonoclast

    I agree. Hayek only got it half right. There are two road to serfdom; one is a too big government trampling over individuals. The other is a too small government not stopping powerful private interests trampling over individuals. Ironically, serfdom was largely created in Russia by the Boyars, because the central state was too weak.

  8. #8 Socrates, I agree with your comment.

    “There are two road to serfdom; one is a too big government trampling over individuals. The other is a too small government not stopping powerful private interests trampling over individuals.”

    Economists amongst us should recognise that to ignore a broader concept of equilibrium is a danger. The holy grail economists seek is not so small as to be restricted to mere equilibrium in the market for goods and services.

  9. This tells us much about the current ineffectiveness of our democracy and the stranglehold that undemocratic corporate influence has over public policy.

    I doubt it is corporate influence that gives pause to the Rudd government after all they rolled back Work Choices. I suspect it is the likely corporate response to an aggressive ETS and the subsequent knock on effect to voters that gives them pause.

  10. Rudd has been snookered by the same people who caused trouble in the late 80’s early 90’s on dealing with AGW – the Fergusons and Grays in the Labor party. And Heather Ridout simply played the usual waiting game – make soothing noises until the deadline is near, and only then start to say that there is a problem with the legislation/conditions/implementation blah blah blah. The Waiting Game is well known among experienced politicians but Rudd seems to have been blind-sided and has panicked. Furthermore, in setting such a low initial target Rudd and Wong have played into the psychology of people going “Why make an effort if that is all we are aiming for?”

    I have taken Kevin Rudd at face value on this election promise. If he is unable to deliver a meaningful cut by a meaningful deadline, then there isn’t going to be another chance at this. With the way the current targets are going, I’m beginning to wonder if Rudd wanted to back out of ETS all along since winning the election. I suspect that the government is effectively counting on AGW being totally incorrect, meaning that the government hopes there is no anthropogenic component to any warming, and also that there is no warming (via CO2, methane, etc) anyway.

    Am I being too harsh on Labor here, or are others feeling discouraged too?

    [PS: Personally I reckon AGW is quite correct to the degree of understanding that we can have at the present time: meaning that there is a warming trend that is statistically significant, that CO2, methane, etc provide the forcing via the greenhouse effect, that the human contribution to GHG is statistically significant YoY, that we have adequate models for quantifying the response of the atmosphere, ocean and land, and water in all of its phases, to have qualitatively correct results from simulations and boundary value problem formulations. As measurement technology improves so too will the models.]

  11. John, the Pacific Brands saga is in its infancy but until the government’s audit of the company’s finances become public, Australians will be in the dark as to whether any fraud was involved. However I do believe the whole of Australia is behind the unions collective action in trying to stop the company from moving its machinery overseas unless as TWU national secretary Tony Sheldon says ‘the company repays $17 million in Federal Government assistance’ back.

  12. A lot has been said about the corrupt or unethical practices of bankers, ratings agencies, regulators and deregulators. Bonuses paid by directors to themselves is another case in the news. The Coalition says that the problem would be solved if legislation made shareholder approval necessary. As institutions are major shareholders, and these institutions are run by peple who vote eachother bonuses, isn’t this another market failure?

  13. Bruce @14

    I believe there have been a few celebrated instances where shareholders have rejected the remuneration report presented at the annual general meeting (Telstra?). If the vote was binding directors may think twice about their recommendations for bonuses. But your right, major institutions are probably going to side with the directors. There is nothing so sanguine as a chairman with a pocketful of proxies from a compliant institutional investor.

    If we were really going to be radical we would change the corporations law to give each individual shareholder one vote independent of their actual share holding. Now that would turn the shareholder/director power arrangement upside down!

  14. Pacific Brands behaviour compares poorly to Mitsubishi. When they closed their Adelaide plant I recall they paid back some of the government funding they had received, and paid workers full entitlements too. So much for our patriotic Aussie companies.

  15. Bruce

    Exactly. The directors have much to answer for in corproate excess. The problem si the way they are appointed. Most shareholding is tied up in funds. How can fund members complain about the behavior of their fund managers? Retail funds still only have a vountary code of conduct. It doesn’t matter what we do with corproate regulation as long as this loophole is left open.

    Interestingly, after the collapse of Enron, only one investor sued the directors (successfully) for breach of fiduciary duty, recovering some millions. It was the trustees of the California Schools Board Pension Fund. None of the retail fund investors pursued it. Some of the directors were their appointees of course.

  16. Re Pac Brands,
    buried in the corner of a newspaper last night , was a Gillard statement on about secondary boycotts being illegal, blah, blah.
    A sort of IR equivalent to Garrett’s pro Gunns environmental nonsenses or Wong’s “conservation” measures and rhetoric re Darling/Murray. And we never learn, when it comes to Labor.
    “…new boss, same as the old boss;
    won’t get fooled again”.

  17. re carbonsink #4
    US GDP shrinks 6.2%
    Age website

    February 28, 2009 – 9:03AM

    Do note that this figure, like the 3.8% figure, is one quarter’s figure times 4 (‘annualised’). So in 6 months the US economy has contracted by 2.5%, which is still severe, but not as scary as figures quoted by journalists (who generally forget about the “annualised” bit).

  18. Socrates i am coonfused as to why the political barriers which stop an ets would dissolve for direct government action. I think that the correct goernment actions are no more likely than the correct market mechanisms.

  19. What i mean to say if the lobbies are gonna lock us in to 5% reduction then it will not matter if we use an ETS, Carbon tax or direct government actions we are still gonna fall well short of what needs to be done.

  20. El Mono

    True but I suppose it depends on whether the obstacles are internal or external. If internal what you say is true. If external then perhaps we need to resort to a unilateral approach, rather than trying to get multi-lateral agreement. It seems to me that the task of getting an ETS to work makes it harder because its too easy to defect at every stage. Whereas with direct action, once the commitment is made, it will proceed. Either way though, I agree with previous comentors that the whole ideology of free markets for everything needs to change.

  21. Hi all – Im chaning my nom de plume to Alice (and thats because at times I think Im living in wonderland) eg Bruce #14 says (referring to excessive executive remunerations..)

    “The Coalition says that the problem
    would be solved if legislation made shareholder approval necessary.”

    Then why didnt they do it when they were obscenely excessive and when they had the chance when they were in government? Lets not kid ourselves.

    This is politicking only.

  22. I put a submission into the Henry Tax Review for the Retirement Income System and they acknowledged receipt, so eventually it will probably appear here. Later, I will make a submission for the other part, but meanwhile here is the body of this one with my contact details removed:-

    Submission to the Henry Tax Review – Retirement Income System

    P.M.Lawrence

    A phased approach to increasing age pension adequacy and improving personal saving for retirement

    Background

    In Australia as in many developed countries, demographic changes indicate the possibility of stress on pure age pension systems in future. This would arise from the combination of a higher ratio of retired to working age people, and/or an insufficient increase in productivity and production to make up the shortfall. Heading this off would involve more investment to increase productivity and production, and/or changes to migration and family policies to address the demographics directly (but these would also involve more investment for the needs of those demographic cohorts). These issues apply whether the needs of the retired are met through the age pension system or through superannuation, private savings and investments, or in any other way.

    From the narrow perspective of age pensions alone, there is an obvious remedy: simply raise the age pension entitlement age, so that recipients form a smaller group and workers a larger one, so restoring a ratio that provides adequacy. However, this moves many problems to other policy areas and to the other pillars of the system. In particular, it does not address the investment issue or the need to maintain employment levels, both for the older workers and for the wider population. At the individual level, people coming up to retirement would face a major hurdle in planning and providing for retirement and/or continuing to work if they faced a large or abrupt increase in the entitlement age.

    In the following material I outline recommendations to address these other problems, apart from employment levels, which I shall cover in another submission to the main part of the tax review.

    Recommendations

    For present purposes, I am assuming that there will be an increase in the entitlement age for age pensions. This is no great assumption, as it covers a wide range of possible increases and phasing in, including making no change. Exploring this range permitted comparison with present arrangements and led me to definite recommendations:-

    (1.) Commencing as soon as practical, phase in an increase of the entitlement age, by 1 year for every 2 (say) calendar years that pass until the entitlement age reaches 70 (say). The precise numbers may vary, and the upper age need not be determined straight away. Age pensions for this smaller group should be increased to maintain adequacy for them as needed, based on CPI rather than wage levels but not means tested so as not to create adverse incentives for the other pillars. This strengthens the adequacy of the age pension pillar fast enough to head off problems in that pillar while providing time for the other recommendations to strengthen the other pillars, flowing through further saving in those to investment. This measure targets the age pension pillar.

    (2.) Cut personal income tax in step with reductions in outgoings on the age pension system to allow individuals to save more through the other pillars, superannuation and voluntary saving. To encourage this, and to target the savings so that they flow through to investment of the sort that will support the lifestyles of people becoming more dependent on these pillars, implement much of these cuts by increasing superannuation income tax concessions, indexed to a proportion of the average wage. Ideally this could be as high as (say) 16% or approximately one sixth, but this is likely to be too high to be realistic in the near future because of the need for the tax base to fund other policy objectives outside the retirement area and because funding needs for age pensions will only fall gradually. Therefore this proportion should be increased from time to time as circumstances warrant, rather than determined and set up from the beginning of these reforms. This measure targets the superannuation pillar.

    (3a.) Target personal income tax cuts further, to people approaching retirement, by setting up a tax cut age matched actuarially to the entitlement age. This age would fall in step with increases in the entitlement age, in such a way that younger people would be largely unaffected while older people would have a window allowing them to save for retirement more effectively. This is more equitable as so much of their financial planning for retirement has already taken place without being able to anticipate these reforms, yet it does not come at the expense of younger groups as these will also benefit from this window in their turn. As this window corresponds to a shorter time horizon until retirement, the older group falling within the window has a greater incentive for saving over current consumption. This measure targets the voluntary savings pillar.

    (3b.) Alternatively, rather than target tax cuts by age, set up a distinct SAYE (Save As You Earn) fund somewhat like those found in Singapore and other countries and make compensating income tax cuts across the board. This reduces the complexity of the tax system itself by separating various things off – modularisation. This fund should have three main features: a progressive contribution structure (say, 10% of income above a threshold); a cap, savings above which could be drawn down (say, of the order of the $289,000 cited in note 2 of page 8 of the Retirement Incomes Consultation Paper, suitably indexed); and, a cap reset age actuarially matched to the age pension entitlement age as described above, when the cap would be reset to zero allowing people to draw down their savings (if they predeceased this age, their savings would be freed up for their estates at the date at which they would have reached that age). Additionally, it may be convenient to do any or all of the following: shift superannuation income tax concessions to this scheme, crediting these superannuation savings towards the cap, to assist the modularisation; rather than credit interest to individual accounts, waive fees and apply interest/usufruct to the age pension pillar or even to consolidated revenue generally (reducing the degree of hypothecation); and, integrate it with other funds like the Future Fund to the extent that this gives true synergies rather than a reduction in modularisation. This allows more flexibility, both in regard to existing political commitments to personal tax cuts which would not apply to the SAYE scheme, and in regard to how people could direct their income (as they would not be constrained once they reached the target set by the cap). This measure also targets the voluntary savings pillar.

    Effects on the areas of equity, risk, myopia and institutional failure

    Clearly recommendations (3a.) and (3b.) above address intergenerational equity that would otherwise be adversely affected by recommendation (1.), and all the recommendations address equity broadly.

    The Retirement Incomes Consultation Paper describes the risks as political risk, investment risk, inflation risk and longevity risk (page 31 and elsewhere). Recommendation (3b.) addresses political risk by increasing transparency so that “raiding” would be visible, and by reducing incentives for raiding by making usufruct available to governments. Recommendation (1.) addresses investment risk at the upper end, by minimising longevity risk so that individuals do not face adverse incentives to over-invest. Recommendations (2.), (3a.) and (3b.) address the rest of investment risk, also providing suitable incentives and opportunities to avoid institutional failure. Inflation risk is addressed partly by the indexing explicitly present in the recommendations or implicit in their increases of individual discretion to allocate funds and in the shorter time horizons needing to be covered because of recommendation (1.), and partly by increasing the scope of governments to increase the adequacy of age pensions because recommendation (1.) reduces the size of the group needing them over time.

    Between them, all the recommendations address myopia. However, a rational response to investment risk may be misunderstood as myopia; the value of savings and investments depends on future revenue streams, which may be uncertain. There is a little known feature of this variation, that it may well grow exponentially even faster than the exponential growth of the savings and investments (I have confirmed this for simple cases, using the repeated composition of Probability Generating Functions). This means that, no matter how much an investment portfolio is diversified, eventually any investment strategy collapses. In many cases, what appears to be myopia is in fact a sound approach to exponentially increasing uncertainty over longer time horizons, particularly for superannuation with fees and charges (we may be seeing some of the consequences of this now). The combination of recommendations above mitigates this difficulty as much as is practical, by providing a mixed approach. The very longest time horizons are covered by the age pension pillar, using the greatest possible diversification through the resources of the whole politico-economic system. Medium time horizons are covered by the superannuation pillar, with some diversification, and shorter time horizons are covered by the voluntary saving pillar.

  23. Socrates – from now on Im Alice. You never know who sits in your classes – I could get the baby rottweillers……as unrounded as young undergrads can be, I have a job to do and that is to teach them not what to think, but how to think and I dont want tribal troublemakers for the sake of the rest of the class (not that I cant deal with it….Im long practised at dealing with troublemakers).

  24. Im sorry PM Lawrence

    but

    “Cut personal income tax in step with reductions in outgoings on the age pension system to allow individuals to save more through the other pillars, superannuation and voluntary saving.

    and you write

    implement much of these cuts by increasing superannuation income tax concessions,

    I rather think super and super concessions to the already very rich in many cases has increased inequality, created an overblown financial sector and contributed to the GFC.

    I really dont think wee need anymore superannuation income tax concessions. Costello did that before we melted down. I think what a lot of people need is their super in their hand, thankyou and to have real choice where they want to put it, not where the employer wants to put it and where the government wants you to put it (really why should people listen now?). If they want to pay off the family home with it – good. It will reduce private sector debt levels.

    Im not sure I would support your recommendations.

  25. Alice, “what a lot of people need is their super in their hand, thankyou and to have real choice where they want to put it” is what recommendations (3a.) and (3b.) are about. To the extent those get implemented, recommendation (2.) won’t be. Notice also, recommendation (2.) only provides tax concessions that people don’t have to take up, unlike the approach other people are pushing of forcing people to contribute, and I’m also suggesting that those tax incentives be small to start with (I’m hoping they will end up having a smaller effect than the present approach, but I want to sell this).

    “I rather think super and super concessions to the already very rich in many cases has increased inequality, created an overblown financial sector and contributed to the GFC”.

    Inequality, in itself, is harmless, although it can be a symptom of other problems. I will address those in my later submission. I referred obliquely to the rest in my remarks about myopia actually being a sound response that shouldn’t be overridden by forcing people to save on the wrong time horizons.

  26. Socrates/Bruce, just on the topic:

    I wrote to my super fund last year, and after a lot of wrangling, found out that they have never once voted against executive payrises. Unless ordinary super holders put pressure on their trustees, executive pay will go up and up.

  27. PM Lawrence, I am going to be brutally frank. Have you sat down with a bunch of 70 year olds recently? Do you really want 70 year olds in the work force?

    Point 1. I doubt that 1 in 20 seventy year olds could do a labouring job, machinery operators job or a job that involved standing most of the day.

    Point 2. I doubt that 1 in 10 seventy year olds could absorb and learn the new technologies and the endless managerial changes (90% of the latter being pointless) in the modern office.

    Point 3. Health problems and sick leave in the 65 to 70 cohort would be a cost no employer would want on their books.

    The formal productivity from this cohort (if forced to remain in the workforce) would be very poor. Traditional family and grandparenting roles, volunteeing work and some part-time paid work for the spryest ones form the best options for this cohort and for society.

    Don’t force them all into one box and say they all have to work till they are 70. It won’t do the individuals or the workplaces any good.

  28. I’ll add another brutally frank point. If people are not working, they are economic parasites no matter how they get their income.

    It makes no difference whether non-personal effort income comes from shares, superannuation or a government pension that person is a non-productive parasite so far as the formal economy goes.

    I can say this because I am now one of these non-productive parasites in the formal economic sense. I live off a combination of my superannuation and my wife’s income from her full time job.

    Now, I happen to do all the cooking, cleaning, washing, shopping, house maintenance, lunch making, teenage taxi servicing and 2 half-days a week of tasks for my ageing parents. In my spare time I am trying to research and write a novel and a short philosophical work both of which are mediocre and will never be published but they keep me mentally occupied.

    BUT in formal economic terms I am an unproductive parasite. And proud of it! The late stage capitalist workforce today is so full of bulls**t and pointless and even negative activity why would one want to be part of it? Not this little black duck I can tell you.

    People who have lived on shares and rents and the work of others for most of their lives (capitalists and rentiers) are the biggest parasites of all. I despise them.

  29. #7, #8, #9 I agree with your sentiments. However, I think there is a solution that satisfies both the free market people and those that want more regulation.

    The solution is in the way we regulate. What we now do is to build markets then try to regulate them. What we can do is to build the regulations into market places (and other systems) so that the market places will do our “will”. That is, let us build market places that through their operation enforce compliance and the achievement of other objectives.

    Senator Faulkner in a speech http://www.smos.gov.au/speeches/2008/sp_20081002.html said “If we want other values – such as privacy – to be ‘programmed on the bare metal’ of technological development, we will need new and innovative ways of doing so, ways other than legislative fiat or paternalistic scolding.”

    This is the idea I have been trying to express in my discussions on Energy Rewards etc.

    We have achieved Senator Faulkner’s objectives in the area of personal identification. We have built and are selling a system that has privacy principles built into the id system. If a company uses our system to identify people they will obey privacy principles.

    If a person uses the Energy Rewards market place I propose they will reduce ghg emissions.

    That is, we build the regulations and objectives into the system.

  30. #31 Ikonclast have you sat down with a group of 18 to 25 year olds, or any other age cohort.

    I would go further than you and I would not require anyone to work if they did not want to. That is I believe our society will be much better off if we condone and support people who do not want to work.

    That is, give everyone a living wage, but give them extra if they work.

    People if they do not work will either do things of benefit to themselves and others or they will do nothing. They rarely do “bad things”.

    People if they have to work will do things but many of those things are very bad for society. Think of all those poor souls enforcing government regulations in places like the Department of ….. (fill in the blank yourself)

  31. Thanks PM Lawrence for your recommendations.

    However a lot of people will suffer if the CPI is used instead of Average Wages (Howards Audit Commission also wanted to destroy this benchmarking).

    More will suffer if they are forced to work to 70. A few will relish the opportunity.

    Great difficulties will arise if taxes are cut as you suggest.

    The problem is that workers have been promised prosperity through the capitalist welfare state. This was introduced by the Beveridge Report. As we now know, this welfare program was in part based on exploitation of the Third World and in part on exponential growth in debt and population.

    Under Keating, with the ACTU clapping, Australian wages were cut with promises that workers would be better off because superannuation contributions were increased in lieu of wage rises. This money has now been lost. Stupid ACTU.

    If workers spend 30 to 40 years building bridges, roads, ports and developing and delivering new goods and services, then the society they built needs to guarantee them a comfortable retirement before spending ridiculous amounts on FA18’s, frigates, and submarines.

    If the economy is being globalised (for some benefit) then this benefit needs to be Tobin-taxed to fund comfortable retirements.

    It is undesirable to subtract superannuation from workers wages as they then do not have the appropriate purchasing power of the ocean of goods and services presented to them in shops. So they are tempted to use debt – which then grows exponentially.

    I fully expect that taxes on profits and foreign financial flows will easily fund moderate retirement incomes – without deduction from workers wages. Increasing workers final consumption expenditures assists the economy generally.

  32. PM Lawrence – You write

    “Inequality, in itself, is harmless, although it can be a symptom of other problems”.

    Then even given you think inequality is harmless I must ask you. Is that always the case? To what degree? When I look about since even as short time ago as 1990 there now is study after study showing how the rich have got richer and PM, that is, very much richer.

    I understand the balancing act, in terms of economic policy responses, implicit in
    inequality. Too much kills entrepreneurial initiative and too little creates social disharmony. To ignore rises or falls in this measure once again ignores trends that may become dangerous to the econonmy. Therefore inequality, and measuring it, does matter.

    I would argue that just such views as yours have awarded policy makers with the freedom to not even consider the level if inequality and thus tacit approval to ignore the widening gap between the rich and the poor since the mid 1980s. In Australia and in the US and in other countries that gap has permitted the already rich to extract excess surplus in excessive remunerations from the firms that they are engaged with.

    Super tax concessions granted by Costello no doubt continued this view and allowed the already rich to get richer. The wealthy have higher income, earn more super and thus get better tax treatment than the poor PM.(neoliberalism taken to an extreme?)

    At all stages of the superannuation game, the rich have done much much better, whilst the super flowing to the middle and the poor have accrued at a lesser rate. Super flows have maintained employment levels in the financial sector, and that may be a good thing but super has also allowed some (? many) of those employed in the financial markets to rort the financial system and bring it down in a heap through types of unethical behaviour that runs the full continuum.

    Trapped money is what I call super, PM and I always thought a situation would happen one day, where people woke up after many years of work to find it gone. That pool has been just way too tempting for private sector managers and governments alike.

    Im against the whole notion of super that is enforced and locked away. I know the argument, ageining population, who is going to pay for them. Most people are responsible, fear of poverty is enough for them and they do not need to be treated like children (come hither little children….we will hold your hand and make you save and then we will help to rob you of your savings).

    It may have been the case that instead of super flowing on auto pilot to the sharemarket, their super investment in their house would have put many more people in a more secure position now, added to economic activity and thus returned more tax to the government even permitting us all to enjoy a less run down infrastructure now.

    Those poorer and middle income earners should have been given the opportunity to pay off their house with their superannuation, if they choose to do so, without it being transferred to an employee in the financial markets first, for his cut for fees and charges.

    That is real freedom of choice, PM.

    In some ways super has been a nice little game, for some. Tax concession treatment has made it even nicer. The government also suffers loss of resources when tax concessions or cuts are granted. Resources that provide schools, roads, health or education initiatives etc.

  33. Ikonoklast, yes, I have sat down with 70 year olds recently, and I shall probably do so again on Monday when I have lunch at my club.

    You have partly misread what I suggested, and partly haven’t followed through what the recommendations deliver. The age pension entitlement age will eventually reach 70, but that’s a generation or so off. People will still be retiring earlier, but on the back of superannuation and personal savings which they will be set up to have. What you fear is what would happen if the government simply raised the entitlement age.

    I’ll reply to Alice later, when I have time.

  34. Like Alice it never occured to me that I’d get my super. I always assumed it would be too tempting for government. But wasn’t super always set up to increase inequality by being based on % income rather than scaled contributions biased toward lower incomes.(Much fairer as it assumes low incomes can save less for retirement)
    And weren’t the ACTU powerbrokers excited by the prospect of sitting on boards that controlled billions of dollars? I don’t think they were being stupid (@Chris Warren)

    Overall the super idea was not a good one for ensuring retirement incomes. Much better would have been public housing, health care and pensions funded by a fair tax system.

  35. Hermit#1 –

    Relevance of CPRS.

    From the recent devastation in Victoria, greatly exacerbated by a lengthy drought, to the deluge in Queensland – is there any hope of a locally [read national] concocted CPRS, with all of its encumbering financial penalties, achieving a reduction in these climatic catastrophes?

    Evidence would record a loud NO, as the events causing our suffering are happening far from our shores.

  36. Hermit#1

    further to my entry #38 – which managed to get away before completion. I would draw your attention to a 2006 report

    http://www.csiro.au/news/ps2l5.html – 30k –

    from which I have extracted the following –

    “What we have seen in our latest climate simulations is that the ‘Asian haze’ is having an effect on the Australian hydrological cycle and generated increasing rainfall and cloudiness since 1950, especially over northwest and central Australia. The effect occurs because the haze cools the Asian continent and nearby oceans, and thereby alters the delicate balance of temperature and winds between Asia and Australia. It has nothing to do with Asian pollution being transported directly over Australia.”

    I believe this weather imbalance ties in with the state of the Indian Ocean Dipole and accounts for the sustained drought of the southern half of OZ.

    Therefore, it appears to me unless the Asian Haze can be removed any steps we take with a CPRS will not amount to much.

  37. Oceanic assuming this theory holds up to scrutiny I still think there are several reasons why Australia is in the box seat to influence Asian emissions. Firstly it appears that Asian coal exporters Indonesia and Vietnam now wish to conserve coal for domestic use rather than assist China. An extrapolation made a year ago suggested China would be a major coal importer by 2010 or so. The recent downturn may only shift out that timeline. There is talk in Europe (eg by Sarkozy) of putting carbon tariffs on imports from China. Australia could decline to approve Chinese acquisition of Rio Tinto coal and iron ore offshoots. We could also make uranium exports conditional on coal use reductions by China and India.

    Generally I think there are ways around such issues. While Asia is crapping on us climatically we remain the lolly shop of resources and we should call the shots.

  38. Hermit#40

    We may be the candy store but it’s not enjoyable selling the produce if we are continually flooded or drought ravaged.

    I believe the 2006 CSIRO report quoted is fairly good authority and if read in conjunction with the June 1999 discovery of the Massive Haze over the Indian Ocean, an acceptable conclusion can be reached that their contention of changes to weather patterns was a reality and expected to intensify.
    The problem with this area of science is a coupling of complexity and considerable time lag before a positive conclusion can be reached.

    Extrapolating, [don’t you just love the breadth that word gives] the proof of intensification is consistent with the torrential rains moving eastward from the 2006 reported position of
    northwest and central Australia.

    Although aerosols within the haze undoubtedly comprise particulate matter from coal-fired burning, which should and could be eliminated, others are from large scale forest fires in Indonesia; age old practices in India burning dung etc and wildfires generally, to mention a few. Those countries contributing to the haze need to be encouraged to change their ways before the air will clear.

  39. Nanks#37 – says

    But wasn’t super always set up to increase inequality by being based on % income”..?

    Nanks, I agree.

  40. The solution proposed by Malcolm Turnbull, Joe Hockey and Tony Abbott for action against excessive executive salaries would be as ineffective as their use of the outrage over salaries paid to Pacific Brands chief executives reeks of political opportunism.
    Former Pacific Brands chief executive Paul Moore was reportedly paid $1.2 million a year in 2007 which went up to $1.5 million in 2008, even thr0ugh he left halfway through the financial year, according to The Australian. That paper reported he collected $5.8 million when he retired in January 2008.
    In the scale of executive salaries in Australia, this is relatively small beer. Think Sol Trujillo, who is on more than $10 million a year and, according to Ian Verrender in The Sydney Morning Herald persuaded the board to pay him a $3 million “termination bonus”, even though he was not being terminated.
    Verrender points out that if Trujillo stayed more than four years in the Telstra job, he would have to pay tax in Australia.
    Where is the outrage of Turnbull, Hockey and Abbott about this, not to mention the abuse of stock options to chief executives in many of Australia’s largest companies?
    To suggest that executive salaries be subject to shareholder approval has a major flaw. With large companies, institutional shareholders mostly have the numbers to decide the result.
    These institutional shareholders nearly always support the board.
    If the proposal ever came into being, all it would do would be to legitimise obscene salaries. The quid pro quo mentality from captains of industry would be at work. Then Turnbull, Hockey and Abbott would wash their hands and say the shareholders have spoken.

  41. Ikonoclast#31 and PM Lawrence#36

    I doubt whether most 70 year old would want to be in the workforce full time and if they are spry enough would only want part time work at most.

    Raising the entitlement age, now or in the future in some sort of phase in period doesnt hide its effect. It will only cause greater hardship on the neediest. The wealthier will have retired.

    I see little merit in your suggestions PM all round and wonder who they really benefit? Employers and governments who are simply not looking at the bigger picture of why a growing number of people have insufficient savings for retirement as a factor of their income levels, loss of workforce protections, the inequity in tax scales, and their outgoings like housing costs such as mortgages and interest payments over their life.

    If your strategy requires people to work longer into their infirm years and within a work environment that realistically will not want to employ them anyway, its not much of a strategy to me.

    Ageism in employment starts to creep in even after 40 years of age – I know a few people who have lied about their date of birth seeking employment effectively and my stepson was briefly a recruiter. He told me that ageism exists because employers want young people. They get electronic applications and they just pile them as too old, too old, too old not after 60 but after 40! That is the real world and what jobs would be left for 70 year olds? The hard (perhaps physically demanding even) low wage jobs no one else wants.

    Picking and packing in warehouses?

    Its fine to have a plan that suits employers and governments but if that plan is going to make the poor worse off and require the wealthy to pay less income tax given where we are already at now with inequality, then its going to make things, frankly, worse.

  42. Yes, but this is all a part of the ‘neo-liberal’, largely incoherent in my view, belief structure.

    Note: neo-liberal was never a part of mainstream conservative thinking. Rather it was extremely radical and determined to change, overthrow or even junk whole institutions that had steadily developed since (roughly) the 1890’s.

    More a rejection of modernity and a wish to return to some imagined late 1800’s England, that never actually existed. Aided by its handmaiden, also incoherent, neo-classical economic ‘theory’, and later followed by its much more aggressive neo-conservative offspring.

    The nonsense peddled over the last 30 years was appalling to behold, only matched by the credulity of the middle classes, the chattering classes and the media.

    “Dual deficits”, remember that howler. The other, more sinister, was the explicit acceptance of 2 classes of people. Those who need to be incentivised to do their best, ie the elite who were only being held back because they couldn’t get richer, Gillivers held down by the threads of the ‘little people’. The rest, needed ‘labour market flexibility’, their code for longer hours, lower pay, less benefits and job insecurity. They get the carrot, we get the stick.

    Contrary to their propaganda, they were never against large Govt. What they wanted was a realignment of Govt to towards their vested interests, which in the Anglo-Saxon countries they largely achieved.

    Unfortunately, for us that is, the ‘internal contradictions’ have caught up.

    One such example was that untrammelled elite power = untrammelled corruption, just as in any 3rd World nation with a ‘strong man’ in charge. I knew the gig was up for the UK when the Govt sold off the Inland Revenue (tax dept) buildings to a property magnate who operated out of a tax haven. This simply meant that the whole system was totally and rottenly corrupt, but that the arrogance of the ‘elite’ was so great by then they simply didn’t care. No society or economy can last long like that.

  43. Those calling for increased financial regulation need to consider the facts; the costs of regulation may far exceed any benefits.

    Look at Operation Wickenby, $300m spent to get back $3m with one aging rocker spending some time in gaol – hardly a good use of taxpayers money. Reforming taxation could obviate the need or the opportunity for these complex tax avoidance schemes to exist.

  44. I regularly employ over 65’s for seasonal work and they require shorter days and longer, more frequent rest breaks. We have a flexible agreement on wages.

    Over 65’s, generally, have a work ethic, initiative, are resourceful, punctual, reliable, patient and good team workers. For these reasons I prefer them over the under 25’s any day even for the extra trouble of accomodating their shortcomings.

    None of these older people have super.

    It makes me angry that these and so many others have and are missing out on super. Women, part time workers, the unemployed and small businesses struggling along since Economic Rationalization are missing out through no real fault of their own.

    Successive Governments have failed to treat the disadvantaged fairly while creating and furthering a system which allows corporate pigs to determine their own diets and then to gorge themselves on what could be other people’s livelihood and retirement income.

    This debate on corporate greed is most welcome but it must be realized that it is only one symptom of a sick economic system which, while it is still hooked on debt, growth and consumption, provides the perfect culture for these corporate parasites.

  45. re executive remuneration # 15-17, 23-24, 30, 43 etc.

    Kevin missed an Alice in Wonderland possibility when the Libs suggested a change in the law so that shareholders would need to expressly approve the Board’s remuneration:
    “So I’ll take that as bipartisan support!”

    We would then have had the pleasure of watching the Libs howl and backpeddle. (Or Kevin squirm and backpeddle if the Libs were brazen enough to keep a straight face.) Political analysts are really just theatre critics.

  46. Rog at 46

    Here is a release by the ATO. Your quote

    “Look at Operation Wickenby, $300m spent to get back $3m with one aging rocker spending some time in gaol”

    is blatantly incorrect. Firstly, the 300 mill for Operation Wickenby to fight tax haven abuse is over 7 years and I suggest you read the correct results. This is a very positive initiative with very positive outcomes.

    http://www.ato.gov.au/corporate/content.asp?doc=/content/00169431.htm&mnu=43278&mfp=001

    Wickenby

    As at the end of November 2008, Wickenby has raised $265 million in liabilities, collected more than $84 million and restrained over $75 million from the proceeds of criminal activity. An additional $74 million has been achieved through increased tax collections in subsequent years by those who have been subject to action by the Wickenby taskforce.

    So far, 28 people have been charged, and 23 criminal investigations involving multiple parties are underway. Several defendants have indicated that they intend to plead guilty to charges.

    Three people have been convicted, and two more are to face sentencing in the New Year. We expect other prosecution results as Wickenby’s investigations continue.

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