Peter Martin Economics

Wednesday, September 15, 2021

Delta is tempting us to trade lives for freedoms — a choice it had looked like we wouldn’t have to make

Last year COVID-19 seemed simple. It was horrific, but the arguments about what to do were fairly straightforward.

On one side were people rightly horrified by its rapid spread who wanted us to stay at home and stay away from school and work and socialising in order to save lives.

On the other side were people concerned about the costs of those measures — to jobs, to education, to freedom, to mental health, and to other lives (because if we used too much of our health system fighting COVID-19, other lives might fall through the cracks).

And through it all came a kind of consensus.

The concern about non-COVID deaths turned out to be overblown. Last year Australia recorded fewer than normal doctor-certified deaths, in part because the COVID restrictions stopped deaths from influenza, and in part because they snuffed out COVID-19 early, ensuring hospitals weren’t overwhelmed.

Last year, we didn’t have to choose

Concern about jobs also turned out to be overblown. By locking down hard and early, and paying employers to keep on staff (through JobKeeper) we ensured the lockdowns would be short-lived, with light at the end of the tunnel.

In none of the states for which there is data was there an increase in suicides.

The insurance company ClearView told a parliamentary committee this June its research found things were better than expected in part because of the universal nature of the pandemic. Everyone knew “everyone was in this together”.

Another reason was telehealth. It was easier to get help than before.

And students returned to school sooner than they would have had the lockdowns had been weaker or started later, leaving much of their education intact.

The consensus was that by locking down hard and early we got the best of both worlds — near-elimination of COVID-19 and a quick return to normal life. Anyone who remembers Christmas last year remembers how normal it felt.

Economics is called the dismal science in part because it is about hard choices — situations where we can’t have our cake and eat it too. Last year it seemed as if COVID wasn’t one of them. Starving the virus early gave us both one of the world’s lowest death tolls and one of its shortest recessions.

Hard choices are back in sight

And then came Delta.

Far more contagious than the original, and with fewer immediate symptoms (making it harder to trace) the Delta variant became almost impossible to get on top of in the two big states where it took hold.

And without very high vaccination rates — in the view of the Grattan Institute significantly higher than either the NSW, Victorian or Commonwealth governments are targeting — it became all but impossible to reopen without condemning Australians to COVID deaths.

The new reality is plunging us back toward the territory economists call their own — the world of hard choices.

If the lockdowns don’t end (and there is no sign they can end any time soon without costing lives) education and mental health and jobs will indeed suffer.

There’s only so long businesses can hang on without pulling the pin.

We are getting closer to having to trade off lives against freedoms; getting closer to having to decide how many COVID deaths and how much COVID illness we are prepared to live with in order to return to something more like normal living.

Last week’s NSW “roadmap to freedom” implicitly made those tradeoffs.

Calculations prepared by the Treasury and the Grattan Institute make them more explicit.

There are few important things to note.

One is that we might yet be able to get the best of both worlds. We might yet be able to effectively eliminate the delta strand, restoring both health and freedoms (as we did with the earlier strand).

It won’t happen if we ease restrictions before transmission has stopped, as some states are planning to.

Lockdowns without end are unsustainable

Another is that unending lockdowns are untenable. While last year’s lockdowns didn’t do the psychological and health and educational damage that was feared, lockdowns without end would.

One type of damage clearly evident in the comprehensive report on last year’s lockdowns from the Australian Institute of Health and Welfare is family and domestic violence. The longer lockdowns continue, the longer elevated violence is likely to continue.

And another thing to note is that in a world where we have to make tradeoffs there are no particularly good options. Allowing the disease to spread in order to restore freedom of movement would itself curtail freedom of movement.

An analysis across US states suggests 90% of last year’s collapse in face-to-face shopping was due to fear of COVID rather than formal COVID restrictions. That fear will grow if we lift restrictions and COVID spreads.

The Grattan Institute would lift lockdowns only when 80% of the entire population has been double vaccinated (not 70-80% of people aged 16+ as the NSW and national plans envisage, which amounts to 56-64% of the population).

Grattan believes its plan would cost 2,000-3,000 lives per year; a cost it believes the public would accept because it is similar to the normal toll from flu.

The NSW and national plans (Victoria’s isn’t spelled out) would cost much more.

No option is particularly good

The Commonwealth Treasury finds, perhaps counter-intuitively, that an aggressive lockdown strategy that saved more lives would impose lower economic costs (about A$1 billion per week lower) in part because it would end up producing fewer lockdowns.

They are the sort of calculations we hoped never to have to make.

There’s still a chance we might not. With a Herculean effort NSW and Victoria could yet join Taiwan, New Zealand and every other Australian state in being effectively COVID-free. But they are running out of time.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, September 08, 2021

From October, it will be all but impossible for most Australians to vape — largely because of Canberra’s little-known ‘homework police’

After a misstep, it’s about to become illegal to import e-cigarettes without a prescription, which means that, for most Australians, it’ll become all but impossible to vape from October 1.

The misstep tells us a lot about how the Australian government works behind the scenes — most of it good.

Mid last year, Health Minister Greg Hunt announced plans to ban the import of nicotine-containing e-cigarettes and refills without a doctor’s prescription. Border force would be checking parcels.

To Hunt, the decision made sense. It was already illegal to buy and sell such products without a prescription in every Australian state and territory, and it was illegal to possess them without a prescription in every state but South Australia.

All Hunt was doing was closing a (very wide) loophole.

Government backbenchers revolted, Hunt pointed to a doubling of nicotine poisonings over the past year and the death of a toddler, the prime minister offered less than complete support, saying he was keeping an “open mind”, and Hunt put the idea on the backburner.

That’s the way it played out in public.

But beneath the surface, something impressive was swinging into gear. It’s called the Office of Best Practice Regulation, OBPR, an apolitical body nestled within the prime minister’s department.

Canberra’s ‘homework police’

So what did this little-known entity do that will effectively stamp out vaping from next month? Its executive director, Jason Lange, revealed the back story at an Economic Society of Australia meeting in Canberra earlier this year.

Set up during the 1980s to ensure government decisions didn’t needlessly tie up business in red tape, the office gradually was given other things to consider, including the effect of government decisions on citizens, on the environment, and on the distribution of burdens throughout society.

Then in 2013 Prime Minister Tony Abbott moved it out of the Department of Finance into his own department: Prime Minister and Cabinet.

Prime Minister and Cabinet is the traffic cop: it decides what gets put forward for cabinet to decide, and when. So suddenly the office was working at the centre of government decisions, getting to view every one of the 1,800 or so things put to senior ministers to decide each year.

Seven questions shaping new decisions

For the few hundred proposals it thinks might have significant unintended impacts, the office demands an impact statement.

It doesn’t tell the department or authority putting forward the idea what to put in the statement. But as Lange explained, it “marks the homework”. The proposals behind statements that aren’t good enough find it hard to get to cabinet.

Hunt’s decision on e-cigarettes wasn’t accompanied by an impact statement the first time around. Lange’s office made sure it was on the second.

Each OBPR analysis has to address seven questions.

The first is what problem the agency is trying to solve. Maybe it’s not really a problem. Merely working that out puts what follows into focus.

The second is why government action is needed. Maybe the problem isn’t very big, or maybe it will solve itself.

The third is what options the agency is considering. The agency has to put forward at least three options, including one that isn’t a regulation. In the case of e-cigarettes, that option was a public awareness campaign.

Then it has to estimate the likely benefits and costs of each option, including the costs to people the option wasn’t intended to hit, such as under-the-counter retailers and people using vaping to give up smoking.

The fifth question is the range of people and organisations to be consulted (which is a way of making sure it happens). The sixth is to identify the best option from the list, which includes making no regulation whatsoever.

The seventh is the means by which the measure would be implemented and (importantly) later evaluated.

Grading government ideas, from ‘insufficient’ to ‘exemplary’

Once in, and usually after being sent back for further work, the analysis is graded on a scale from “insufficient” to “adequate” to “good practice” to “exemplary”.

Very few are graded exemplary, and very few that we know about are graded inadequate, because if such a proposal does get adopted by cabinet, the impact statement gets published along with the grade and a statement that describes its failings — a “nuclear option” Lange says can be deeply embarrassing.

All impact statements attached to proposals the government adopts get published along with its OBPR rating. It is often the best opportunity the public has to read about the thinking behind the proposal.

Tellingly, only about 80 of the hundreds of impact statements started each year get to decision makers, which means the process itself knocks out poorly thought out proposals.

But if an idea has merit, as did the ban on importing e-cigarettes without a prescription, the 180-page impact statement can make all the difference.

It sets out the problem clearly, sets out a number of possible solutions and identifies the winners and losers from each, and shows how they were consulted.

It demonstrates someone in the government has thought it through clearly, and provides material for the government to use when selling its decision.

On the Office of Best Practice Regulation website are hundreds of impact analyses on topics as diverse as food standards, protection for car dealers, and the redress scheme for child sexual abuse.

Vaping becomes harder on October 1

That’s why from October 1 it will become illegal to import without a prescription nicotine-containing e-cigarettes, and illegal to supply any liquid nicotine that isn’t in child-resistant packaging.

Behind the scenes, the government got it right.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, September 01, 2021

Four GDP graphs that show how well Australia was doing – before Delta hit

Australia’s economy was performing exceptionally well in the lead-up to the Delta variant lockdowns, propped up by a barrage of government spending in the three months to June and impressive household spending.

The June quarter national accounts published on Wednesday show inflation-adjusted production, income and spending (gross domestic product) climbed 0.7% between March and the end of June, ahead of the NSW lockdown that began on June 26.

Were it not for a surge in imports and a weather-related decline in the volume of exports (each of which cuts measured GDP) gross domestic product would have climbed 1.7% in the June quarter.

Over the year to June economic activity grew a record 9.6%, as it climbed back from a record 7% slide in the three months to June in 2020.

Australian quarterly gross domestic product

Chain volume measures, seasonally adjusted. ABS

At a Parliament House press conference, Treasurer Josh Frydenberg was the first to concede the good news was historical — of “little comfort” to Australians under renewed lockdowns facing difficult days ahead.

The September quarter figures, to be released in three months’ time, were likely to show an economic collapse of at least 2% — the deepest dive since 1974, with the exception of last year’s COVID collapse.

But the starting point for the dive was better than any other developed country. Australia is the only developed country to have gone into this year’s Delta lockdowns with both GDP and employment higher than before COVID-19 struck early last year.

Propping up gross domestic product in the June quarter was a 7.4% surge in public infrastructure spending, driven by state and local governments, which by itself accounted for more than half of the growth in quarterly GDP.

A 1.3% increase in other government spending accounted for the other half.

But household spending accounted for almost as much, jumping 1.1% in the quarter as Australians took advantage of a relatively COVID-free autumn to boost spending on domestic tourism, on one measure by as much as 28%.

Household final consumption expenditure

Australians were in a better position to spend than the published economic growth figures suggest.

A better measure of buying power is real net national disposable income per capita. This takes account of things such as high iron ore prices, which are excluded from the GDP. It shows buying power up 1.8% in the quarter to a new all-time high.

Real net national disposable income per capita

Before the Delta lockdowns, households were continuing to wind back their record high savings rate, which peaked at 22% in June 2020. They saved 9.7% of their income in the June quarter of this year, compared to 11.9% in the March quarter.

Household saving ratio

Ratio of saving to net-of-tax income, seasonally adjusted. ABS

The lockdowns and the growing realisation they won’t have a clear end date, as they did last year, are likely to have already pushed the saving rate back up.

For months to come, today’s good economic news is set to be as good as it gets.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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My super fund just failed the APRA performance test. What’s next?

Failure is only the beginning.

Thirteen of Australia’s 80 closely-regulated MySuper superannuation funds have failed the APRA performance test.

There’s a fair chance you are among the one million people in them.

The results were made public on Tuesday and handed to the funds on Monday. From here on — for the people who run those funds — it’s about to get worse.

APRA is the Australian Prudential Regulation Authority. Landmark reforms introduced in response to a devastating Productivity Commission report into the “mess” that is much of Australia’s super industry require APRA to rate each MySuper fund (and from next year most other funds) with a pass or a fail according to how they have managed their members’ money.

To fail — as one in six funds have — would require the fund to have for seven or eight years managed its members’ funds so badly that when judged by its own stated investment strategy, those members would have been better off investing in the broad categories of assets themselves and paying the managers to stay away.

Under the rules, which go by the name Your Future, Your Super, funds can only be given a “pass” or a “fail”. Those that fail are required to write to their members.

Letters humbling

The letters, which have to be delivered within 28 days, and which APRA will check, are humiliating.

“Hello [fund member],” they begin. “Your superannuation product has performed poorly under an annual performance test”.

As a result, we are required to write to you and suggest that you consider moving your money into a different superannuation product.

By switching into a better performing product, you can potentially save thousands of dollars more for retirement. For example, by earning 1% higher net return over a 30‑year period, you could be 20% better off at retirement.

At the bottom of each letter is a QR code members can use to go to ato.gov.au/yoursuper to compare funds’ performance. If members log in with their MyGov account they will be told exactly what super they have and where it is (I’ve tried it and it works) and get a comparison tailored to their circumstances.

The 13 funds forced to send out these letters will be lucky to see out the year. Once a fund suffers withdrawals and has to pay out members it performs even worse. Within months, many will be taken over.

Killing season

Those that remain are unlikely to last a second year. Once a product fails for two consecutive years (most that fail in the first year are expected to fail in the second) it will be prohibited from accepting new members, which means it’ll be killed.

It may or may not be relevant, but the driving forces behind the revolution are women. Women typically do much worse out of super than men.

Karen Chester chaired the Productivity Commission inquiry that quantified the hundreds of thousands of dollars lost in retirement by each worker who stays in a dud fund, and came up with the first draft of the performance test.

Kelly O'Dwyer, as financial services minister championed it, as did her successor Jane Hume.

In charge of policing the rules is APRA executive board member Margaret Cole, who was known as the “enforcer” during her time as director of enforcement and financial crime at the UK Financial Services Authority.

On Friday she declared bluntly that Australia had too many funds, too many persistently underperforming funds and too many with fees that remain too high.

Industry funds among those failed

Among the chronic underperformers now facing a death spiral are five industry funds — two of them run by members of Industry Super Australia, the organisation that represents funds set up “only to benefit members”.

Rather, they were members. Maritime Super left just ahead of the results. LUCRF, originally set up by what is now the United Workers Union, was terminated on the release of the results. Industry Super scrubbed it from its website.

Australian Prudential Regulation Authority

The other industry funds that failed the performance test are run by the Australian Catholic Superannuation and Retirement Fund, Christian Super and the Victorian Independent Schools Super Fund.

Among the for-profit failures are funds run by Westpac (BT Super) and the Commonwealth Bank (Colonial First State).

The banking royal commission found that funds run by banks often pay money to other parts of the bank for services such as buying and selling bonds, rather than doing it themselves or through brokers who would get better prices.

In the dark, until now

Super customers needn’t know what happens. They don’t get bills.

Whereas electricity bills hurt when they are delivered and have to be paid, the bills for super fees (and hidden fees in the form of relentless underperformance) aren’t seen, and don’t have to be paid — the fees come out of the funds.

And the funds grow every year, even where they are squandered. Compulsory super throws in a fresh 10% of salary each year.

The aim of what’s happened this week is to make visible what is normally invisible, and to prod people into action.

An act of faith… in competition

The government could have gone down a different track.

Peter Costello, the long-serving Coalition Treasurer who now heads the Future Fund which manages government investments, wanted his successor to create a government super fund (run by his Future Fund) which it would default new workers into.

The Future Fund would have protected workers, but to do it, would have played safe. As it became dominant it would have stifled competition and the promise of better returns. Or that was the thinking.

Chester, O'Dwyer, Hume and Treasurer Josh Frydneberg decided instead to supercharge competition — to make crystal clear which are the funds to run from and the funds to run to. They are making running as easy as two clicks.

One in every 11 dollars we earn is funneled into superannuation. Legislated increases mean it will soon be one in nine.

It’s important it’s looked after.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, August 25, 2021

The official figures say wages aren’t growing — here’s why they’re wrong

Have you heard about the latest wage figures? I hope not. They’re meaningless.

What the widely quoted measure of average weekly earnings purports to show is that wages grew a mere 0.1% over the year to May. It’s not true. It’s not what happened. For most of us, wages grew by much more.

That’s not to say wage growth has been high — the best estimate is that private sector wages have climbed 1.9% over the past year and public sector wages a record low 1.3% — but both are still well above nothing, and generally well above our near-record low rates of consumer price inflation.

A check-in with reality would tell you that mid last year the Fair Work Commission lifted award wages 1.75%. Mid this year it lifted them 2.5%.

So how could it be that the official figures, published by a trusted organisation, the Australian Bureau of Statistics, show average earnings static, climbing just 0.1%?

The first thing to say is that the bureau is probably embarrassed by the figures.

They are “not designed to produce movement in earnings data” it says on its website, before acknowledging that’s exactly what they are used for.

‘Not designed’ to measure wage growth

Australia’s pensions are adjusted twice a year in accordance with a formula that includes average weekly earnings.

The figure is built into private contracts. If it wasn’t published, many contracts wouldn’t work.

To create it, the bureau surveys about 5,130 employers every six months, asks what they are paying their workers, and uses the answers to calculate an average female wage, an average male wage, an average part-time wage, an average full-time wage, and a lot of other averages besides.

The ‘average wage’ isn’t typical

One problem is that averages are not representative. The survey suggests the average full-time wage is A$90,330, whereas in reality six in ten earn less.

The mid-way (median) full-time worker earns $10,000 less. The average is boosted by a few enormously high earners and can’t be taken seriously.

An entirely separate problem arises when you try to use averages to calculate growth. The average is only an average of what’s averaged, and that can change.

When low-wage workers lose jobs…

Here’s an example. What would happen if a recession caused everyone working only four hours per week to lose two hours? It would push their earnings down and push down average weekly earnings, which would be about right.

But what if each of those people lost a further two hours, taking their hours down to zero. Their low hours would no longer be included in the total to be averaged, and (without them in it) average earnings would climb.

…the average wage goes up

That’s what happened a bit over a year ago. The bureau says COVID restrictions “led to a large decrease in the number of jobs, people employed and hours worked, with lower-paid jobs and industries particularly impacted, including jobs in accommodation and food services, arts and recreation services”.

The loss of those lower-paid and low hours jobs in catering, the arts and other industries “had the effect of increasing the value of average weekly earnings”.

Layoffs pushed the average wage up.

Fortunately, the bureau says by November many of the low-wage workers laid off got some hours back, depressing growth in the average wage (but not growth in any actual wages) resulting in recorded growth of just 0.1% in the year to May.

Many have probably since lost hours with this year’s renewed lockdowns, pushing average wages (but not actual wages) higher again.

It’s enough to make you think the legislation and contracts should switch from a measure that’s close to worthless to one that actually measures wage growth.

The bureau offers such a measure. It’s called the wage price index, and the bureau has been trying to encourage people to switch to it since 1998.

It is also built around a survey of employers, but rather than asking how much they pay each worker, it asks how much they pay for each job title and classification. The bureau calculates growth by comparing like with like, regardless of how many people were employed in each classification at the time.

Wage Price Index

Annual growth in total hourly rates of pay excluding bonuses, public sector and private sector. ABS

The results are believable: private sector like-for-like wages climbed 1.9% over the past year, and public sector wages 1.3%.

But even they are not right when it comes to the wage growth of individuals.

Individuals get promoted, and (much less often) demoted. They change jobs, usually for better ones.

People aren’t positions

So if you were trying to use the recent like-for-like wage growth of around 2% per year as a guide to what will happen to your own wage (in order, for instance, to work out whether you could afford a mortgage) you would probably guess too low.

It’s why many Australians — those who’ve got not only regular pay rises but also promotions — wonder what the fuss about low wage growth is about.

A good measure of the actual wage growth of Australians doesn’t yet exist, although it might soon. The bureau is working on tracking individuals through the use of payroll data reported to the tax office.

In the meantime the (HILDA) Household, Income and Labour Dynamics in Australia survey that tracks 17,000 Australians over time finds that the actual wage growth of full-time workers is indeed higher than the like-for-like figure suggests (which might help explain soaring home prices) although it too is weakening.

Part time workers don’t seem to get the same benefit.

As Mark Wooden, director of the HILDA survey puts it, “Australians in full-time work are doing pretty well – provided they remain in employment”.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Tuesday, August 24, 2021

Top economists in no rush to offer cash incentives for vaccination

Australia’s top economists are reluctant to endorse the use of either cash incentives or lotteries to boost vaccination rates.

A survey of 60 leading Australian economists selected by the Economic Society has instead overwhelmingly endorsed a national advertising campaign (90%), vaccine passports for entry to high-risk settings such as flights, restaurants and major events (85%) and mandatory vaccination for high-risk occupations (81.7%).

Offered six options for boosting uptake once supply was in place and asked to pick as many as they liked, only 35% picked cash incentives and only 31.7% lotteries.

Many said advertising and vaccine passports should work on their own.

Others, such as Uwe Dulleck from the Queensland University of Technology, suggested that while cash and lotteries might also work, “maybe a little bit”, they were ethically no better than coercion.

The panel selected by the Economic Society includes leading experts in the fields of behavioural economics, welfare economics and economic modelling. Among them are a former and current member of the Reserve Bank board.

Michael Knox of Morgans Financial said the most important thing for getting Australians vaccinated was “trust”.

Trust could be built through a national advertising campaign delivered via doctors and chemists as well as the media.

Others supported advertising in principle, but doubted the government’s ability to do it well.

The Australian government’s A$3.8 million “tacos and milkshake” campaign about sexual consent did not inspire confidence, said RMIT’s Leonora Risse.

The University of Sydney’s Stefanie Schurer said an easy and effective measure would be to simply reduce “transaction costs”. Many vaccinations don’t take place simply because they are difficult to arrange.

‘What’s in it for me?’

Former OECD director Adrian Blundell-Wignall said as a child in the 1950s, if you turned up on the day the polio or smallpox caravan was at school, you were either lined up and injected with a vaccine, or else given a lump of sugar with vaccine on it to swallow. “There was no debate, thank heaven.”

Underlying the reticence of two-thirds of those surveyed to endorse vaccine payments — along the lines of the $300 suggested by Labor or “VaxLotto” suggested by the Grattan Institute — was a concern that it would change the debate to “what’s in it for me?”.

Reserve Bank board member Ian Harper said “what’s in it for the rest of us” was at least as important.

Macquarie University’s Elisabetta Magnani said cash incentives could “validate mistrust”. The University of Sydney’s Susan Thorp was concerned they might set a precedent.

“Would people expect another cash incentive in future for COVID vaccination boosters or for flu shots or childhood diseases?” she asked.

‘My body, my choice’

Two of the 60 economists surveyed backed “no additional measures”. UNSW Sydney economist Gigi Foster said the choice should be an individual’s, made without social shaming, goading, moralising or outright coercion.

But others strongly disagreed about individual choice. The University of Melbourne’s Leslie Martin said while personal choice mattered, it “should not come at a cost to others”. And Stefanie Schurer said in a world where individual freedoms were already wildly curbed, vaccination mandates and passports did not seem off the charts:

A requirement for children to meet immunisation schedules has been attached to childcare payments since 1998 and for the Family Tax Benefit A supplement from 2012. Families can access their family-related Centrelink payments only if their child’s vaccination schedule is up-to-date. In 2015 exemption rules were tightened to make it harder for so-called conscientious objectors. States such as NSW have also introduced vaccination mandates for children to access childcare centres.

Several of the economists who supported cash payments and lotteries said they should be held in reserve and used only as a “last resort”.

The Grattan Institute’s Danielle Wood said even if they only shifted the dial a few percentage points, there was a big difference between getting 75% of people vaccinated and 80%.

Eighty per cent might be enough to get a re-opening of the economy to “stick” without the need for further lockdowns.

Detailed responses:

<a href="http://web.archive.org./web/20211127131505/https://theconversation.com/profiles/peter-martin-682709">Peter Martin</a>, Visiting Fellow, <a href="http://web.archive.org./web/20211127131505/https://theconversation.com/institutions/crawford-school-of-public-policy-australian-national-university-3292">Crawford School of Public Policy, Australian National University</a> This article is republished from <a href="http://web.archive.org./web/20211127131505/https://theconversation.com/">The Conversation</a> under a Creative Commons license. Read the <a href="http://web.archive.org./web/20211127131505/https://theconversation.com/top-economists-in-no-rush-to-offer-cash-incentives-for-vaccination-166560">original article</a>.

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Wednesday, August 18, 2021

Australia is at risk of taking the wrong tack at the Glasgow climate talks, and slamming China is only part of it

Buried within the prime minister’s response to the latest report from the Intergovernmental Panel on Climate Change is just about everything we’re at risk of getting wrong at the Glasgow climate talks in October.

After slamming China — whose emissions per person are half of Australia’s — for not doing more to cut emissions, Scott Morrison said the Glasgow talks were the “biggest multilateral global negotiation the world has ever known”.

If he treats the talks as just another (big) negotiation, we’re in trouble.

The way the Department of Foreign Affairs and Trade usually treats negotiations is hold something back, hold out the prospect of “giving it up,” and then only make the concession if the other side gives something in return. Even if holding back damages Australia.

Cars are a case in point. From an economic point of view, there is no reason whatsoever to continue to impose tariffs (special taxes) on the import of cars — none, not even in the eyes of those who support the use of tariffs to protect Australian jobs. Australia no longer makes cars.

Yet the tariff remains, at 5%, making it perhaps A$1 billion harder than it should be for Australians to buy new cars (although nowhere near as hard as it was in the days when the tariff was 57.5%).

The tariff seems to be in place largely to give the Department of Foreign Affairs and Trade something to negotiate away in trade agreements: for use as what the Productivity Commission calls “negotiating coin”.

Here’s how it worked in the 2014 Australia-Korea Free Trade Agreement. Australia agreed to remove the remaining 5% tariff on Korean cars, “with consumers and businesses to benefit from downward pressure on import prices”.

But Australia didn’t remove the tariff on car imports altogether, which would have given us a much bigger benefit but denied the department negotiating coin.

The next year the department did it again, agreeing to give up the tariff on imported Japanese cars in the Japan-Australia Economic Partnership Agreement (but not on other cars) so Australians could “benefit from lower prices and/or greater availability of Japanese products”.

Two years later, it did it again, with cars from China.

When the UK and European agreements are negotiated, it’ll do it there too.

Australia holds back reforms

Eventually Australians will get what they are entitled to. But the point is that rather than advancing the cause of free trade, the department has held back, treating a win for the other side as a loss for us, when it wasn’t.

The Centre for International Economics believes the much bigger earlier set of tariff cuts lifted the living standard of the average Australian family by A$8,448.

Had our trade negotiators been in charge, we would still be waiting. Instead the Hawke and then the Keating governments pushed through unilateral reductions, asking for nothing in return.

As former Trade Minister Craig Emerson put it, this gave Australia “credibility in international trade negotiations way beyond the relative size of our economy”.

Does that sound like the sort of thing Australia might need at Glasgow, to have enough credibility to urge even bigger emitters to deliver the kind of cuts on which our futures and future temperatures depend?

It won’t work with China

The prime minister is right to say that China is the world’s biggest greenhouse gas emitter, even though its emissions per person are low. Its high population means it accounts for 28% of all the greenhouse gases pumped out each year. The next biggest emitter, the United States, accounts for 15%

But China’s status is new. Until 2006 it pumped out less per year than the United States. Because the US has had mega-factories and heating and so on for so much longer, it is responsible for by far the biggest chunk of the greenhouse gasses already in the atmosphere: 25%, followed by the European Union with 22%.

China might reasonably feel that countries like the US that have done the most to create the problem should do the most to fix it.

Like Australia, the US pumps out twice as much per person as China and has much more room to cut back.

On the bright side, China knows that being big means it is in a position to make a difference to global emissions in a way that other countries cannot on their own. And that’s a position that can benefit its citizens.

China’s latest five-year plan, adopted in March, commits it to cut its “carbon intensity” (emissions per unit of GDP) by 18%. If it beats that five-year target by just a bit (and it has beaten its previous five-year targets) its emissions will turn down from 2025.

It is aiming for net-zero emissions by 2060.

Australia needs China’s help

The Intergovernmental Panel on Climate Change finds that Australia is especially susceptible to global warming. We’re facing less rain in winter, longer heatwaves, drier rivers, more arid soil and worse droughts.

We are right to want China to do more, but the worst way to achieve it is to say “we won’t lift our ambition until you lift yours”.

Hardly ever a worthwhile strategy, it is particularly ineffective when we don’t have bargaining power.

The only power we’ve got is to set an example, unilaterally, as we did with tariffs. And to ramp up our ambition.

If Australia said it would do more, and didn’t quibble, it might just count for something.

It’s all we can do, and it’s the very best we can do.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, August 11, 2021

Casino operator Crown plays an old business trick: using workers as human shields

Casino operator Crown Resorts must be desperate or think we’re dumb.

Last week, before the royal commission into its right to hold a casino licence in Victoria, Crown resorted to one of the oldest, most discredited, tricks in the book. It used its workers as shields.

“More than 20,000 people work across Crown’s resorts. Over 11,600 of those work in Melbourne. The vast majority of them were of course not complicit in the misconduct,” its lawyer Michael Borsky told the commission.

Revoking Crown’s licence would sentence Crown’s employees to “enormous disruption and possibly financial hardship” at a time when many were already “living through great uncertainty and hardship”.

And not only Crown’s employees. Among Crown’s shareholders were “tens of thousands of small shareholders and, indeed, superannuation funds”.

Removing Crown’s licence would not only endanger Crown’s workers, it would have “a significant impact on the Victorian tourism industry”.

Crown provided 10% of Melbourne’s hotel rooms. Before COVID-19 hit, it contributed A$1.2 billion per year to Victoria’s economy.

It’s a logically flawed defence of the kind I first heard from Alan Bond’s Bond Corporation in the late 1980s, several years before he was imprisoned for fraud.

Trying to fend off an attempt to have his breweries placed in receivership, the company said Bond had 20,000 employees. They might not “have a job to go to on Tuesday”.

The logical flaw was the suggestion that if Bond didn’t own the breweries, the breweries wouldn’t exist.

The beers made by those breweries — Tooheys, Swan and XXXX — are still being made today.

Similarly, if Crown loses its casino licence, its 10% of Melbourne hotel rooms will still be there, most likely run by someone else. Its casino (or one like it) will also still be there, also run by someone else.

Clive Palmer tried it as well

The use of this flawed argument reached its peak early last decade during the battle over Labor’s proposed resource super profits tax.

Despite its name, the tax was designed as a profit-sharing arrangement. The government would be on the hook for 40% of the cost of each project and would take 40% of the profit.

If a project was profitable for a mining company, then 60% of the project would also be profitable, meaning the tax ought to make no difference to its willingness to invest.

Yet mining magnates such as Clive Palmer and Andrew Forrest threatened to abandon Australia and take their money elsewhere, to Africa or to China.

Their threats were no more a threat to Australian mining than Alan Bond’s was to Australian brewing.

If Forrest and Palmer had walked away (or even BHP and Rio Tinto, which talked along similar lines), someone else would have walked in.

The arrangement might not be to their liking, but it would be to the liking of someone else prepared to take the profit in their place.

Crown, as Royal Commissioner Ray Finkelstein pointed out on August 3, is profitable. Its casino operation is very profitable: “maybe on the decline a little bit, but very profitable”.

“The way industry works is somebody will always step in, so I don’t treat 12,000 employees [as] at risk. ” Finkelstein said.

“They might change their employer, but they are not at risk of losing their jobs.

Nor were suppliers or tourists at risk.

"When we have a profitable operating business, there will be an operator there out in the world, a suitable one.”

A line that used to work — on television

That Crown thought it could spin this line might have something to do with the experience of its largest shareholder, from whom Crown is now distancing itself.

James Packer used to own Channel Nine (as in an earlier era did Alan Bond).

For most of its life, Australia’s television owners have played chicken with the bodies meant to be policing them — the Australian Broadcasting Tribunal and then the Australian Communications and Media Authority.

Each body was given enormous power: the power to suspend or cancel a licence, but with a catch. It lacked lesser powers.

If it suspended or cancelled an operator’s licence, the station would go off the air (at least for a while). The authority would be deluged with complaints.

Packer, Bond and the other owners could use their viewers as human shields.

Time after time (11 times in five years) the authority found Nine had breached the industry code of practice. Time after time it failed to invoke the ultimate sanction.

In a 2005 report for the authority, Professor Ian Ramsay said this meant that in effect it had “less enforcement powers” than other authorities.

Crown’s workers don’t place it beyond the law

Blessedly, in 2006 (as Packer was selling out of Nine) the government acted on Ramsay’s report. The authority can now issue fines and seek enforceable undertakings, without fear of blow-back.

For Finkelstein to accept that if Crown’s licence was revoked its workers or the tourist industry would suffer would be to accept that, like the television industry was for many decades, Crown is beyond the practical reach of the law.

He is giving every indication he thinks no such thing.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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Wednesday, August 04, 2021

Paying Australians $300 to get vaccinated would be value for money

I reckon Albo’s on the right track. The opposition leader wants to pay A$300 to every Australian who is fully vaccinated by December 1.

The Grattan Institute is on a similar theme. It has proposed a $10 million per week lottery, paying out ten $1 million prizes per week from Melbourne Cup day. One vaccination gets you get one ticket. Two gets you two tickets.

The costs are tiny compared to what’s at stake. Treasury modelling released on Tuesday puts the cost of Australia-wide lockdown at $3.2 billion per week.

Paying people to get vaccinated fits the government’s criteria of a response that’s “temporary, targeted and proportionate”.

And the published research on small payments shows they are extraordinarily effective, often more effective than big ones.

A few years back, Ulrike Malmendier and Klaus Schmidt of US National Bureau of Economic Research discovered that a small gift persuaded the subject of an experiment to award contracts to one of two fictional companies 68% of the time instead of the expected 50%.

Small payments can be more effective than big ones

A gift three times as big cut that response to 50%, which was no better than if there had been no gift at all.

The effect of small payments to pregnant British smokers has been dramatic.

Offered £50 in vouchers for setting a quit date, plus £50 if carbon monoxide tests confirmed cessation after four weeks, £100 after 12 weeks and £200 in late pregnancy in addition to the counselling and free nicotine replacement therapy given to the other pregnant smokers, those offered the payment were more than twice as likely to quit — 22.5% compared with 8.6%.

Never mind that these small sums ought to have made no financial sense.

The gifts were minuscule compared with the money the recipients would have saved anyway by not smoking, yet they worked so well that the researchers estimated the cost of the lives saved at just £482 per quality-adjusted year.

Around 5,000 British miscarriages each year are attributable to smoking during pregnancy. The participants randomly assigned the offer of a payment not to smoke gave birth to babies that were on average 20 grams heavier.

The incentives can be even smaller.

Mai Frandsen at the University of Tasmania has trialled offering smokers half as much — a A$10 voucher on signing up, then $50 per checkup in addition to support from a pharmacist. The results are encouraging.

Lotteries are cheaper still. The Grattan Institute’s suggestion of a $10 million per week payout sounds like a lot, but it isn’t when divided by Australia’s population.

A preliminary analysis of Ohio’s Vax-a-Million lottery found it increased takeup by 50,000-80,000 in its first two weeks at a cost of US$85 per dose.

Beer, doughnuts, dope

Other incentives offered with apparent success in the US include free beer, donuts and (in Washington state) free cannabis.

They needn’t work for everyone. A survey conducted by the Melbourne Institute in June found that of those who were willing to get vaccinated but hadn’t got around to it, 54% would respond to a cash incentive.

Of those who weren’t willing or weren’t sure, only 10% would respond to cash.

If you were paid a cash incentive, would you get vaccinated as soon as possible?

Melbourne Institute Pulse of the Nation survey

But the important thing about vaccination is that not everyone needs to do it.

The Grattan Institute believes 80% of the population needs to be vaccinated before we can reopen borders.

The national cabinet has adopted a lower target: 80% of Australians over 16, which is 65% of the population.

Vaccination expert Julie Leask says when it comes to child vaccines, most non-vaccinating parents are simply “trying to get on with the job of parenting”. If it’s made easy for them, they’ll do it.

There’s not a lot to be gained by trying to reach these who actually don’t want to be vaccinated. Try too hard, and you’ll get their backs up.

The tragedy of the government’s COVID vaccine rollout (aside from the difficulties with assuring supply) is that the government hasn’t made it easy.

Vaccination ought to be easy

The government could have made it easy. When it sought advice last year from departments including the treasury, it was told to do what’s done for the flu vaccine — to distribute it through employers and pharmacies as well as general practitioners, so as to make it almost automatic.

The best part of a year later, it’s a view the prime minister is coming round to. Most of us don’t go to the doctor very often — it’s out of our way.

For a government that came to office promising to slash red tape for business and offered businesses incentives to invest, this government appears not to have fully grasped the importance of red tape and incentives when it comes to health.

It might yet. Prime Minister Scott Morrison said yesterday he had investigated something along the lines put forward by Albanese. General Frewen, in charge of the COVID taskforce, said it wasn’t needed “right now”.

When the time comes, if we remain under-vaccinated, Morrison can reach for it.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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