Wednesday, October 02, 2019

The pension should not be protecting mansions

Adam Creighton below must be young.  He is an economist and speaks good economic sense.  But he seems to know nothing about politics. The tax exempt family home is untouchable.  Any politician who proposed reform to it would get a barrage of opposition and abuse and would lose the next election.

No matter how logically, you present your argument, what you present will be seen as dangerous and will easily be exaggerated by your political opponents. Note what happened to the Labor party at the last election when they proposed various economically reasonable tax reforms

It’s a bit pathetic the Coalition, far from the next election, is already ruling out options only days after announcing a broad review into the retirement income system.

Treasurer Josh Frydenberg ruled out “ever” including the principal residence in the eligibility test for the pension.

If the age pension is going to be means tested, then the “family home’’ must be included.

How can people respect the social security system when a pensioner in a Toorak mansion, clearly with vastly greater resources, is treated the same as one in a fibro in Sydney’s Bankstown.

No one should ever be forced to move but if a pensioners’ total assets (housing and financial) exceed some high bar, say $2m, then surely any age pension payments should be deducted from the ultimate inheritance.

A $2m tax free inheritance might become, say, $1.9m. Oh the horror!

Ask any financial planner; retirees often use their superannuation to upsize their home or fund renovations, which ensures the wealth is shielded from the eligibility test. This induces yet more money to flow into housing than otherwise would.

Perhaps the most ridiculous argument against including the principal residence in the eligibility test along with other assets is that it isn’t retirees’ fault their home is now worth so much.

It’s true: the extraordinary tax-free capital gains (“unearned” in the old nomenclature, because no one really lifted a finger to generate them) enjoyed by many boomers probably will never be repeated.

Surely that’s all the more reason for some of these gains to be used to fund retirement, allowing taxes to be lower for the current generation of workers who face an ever higher personal income tax burden.

When the Fisher government introduced the old age pension in 1908 it was about alleviating poverty — most people died before they were eligible and even then only the genuinely needy received it. Indeed, the family home was included in the eligibility test until 1912.

Today the pension is as much about subsidising inheritances as alleviating poverty.

The Callaghan review is a good opportunity to bring this fact, and the extraordinary cost to the economy of lifting the compulsory saving rate to 12 per cent, to light.

Indeed, there are good arguments for scrapping distorting means-testing, giving the age pension to everyone, scrapping super concessions and using the net savings to dramatically cut income tax.

But based on comments by the Prime Minister and Treasurer in recent days it looks like more pusillanimous fiddling at the edges is all we can expect.


Australia's export share to China hits record high 38pc

Any political tensions between Australia and China have not been borne out in trade – Australia's share in the value of exports to China reached a record 38 per cent or $117 billion – more than any other country – according to new analysis.

The rapid increase in Australia's share has been driven by higher iron ore prices. However, research by the Australian National University shows that this has not just been owing to a supply shock from Brazil's Vale dam disaster but also to China increasingly looking overseas to fulfil its thirst for commodities.

"We have had a trough in the political relationship with China in the last few years, yet the trade has continued to trade robustly," said ANU's head of the East Asian Bureau of Economic Research, Peter Drysdale. "So any intentions to interfere in trade restrictions has had very little effect on trade itself," he said.

Exports to China in the first seven months of the year have reached $84 billion. That works out to roughly $12 billion a month – 22 per cent higher than the monthly exports of about $9.8 billion in 2018.

Australian exports to China as a percentage of total exports now stand at 38 per cent, up from 34 per cent.

Japan is the second-biggest export destination but its share was just 16 per cent in 2018. It peaked at a share of more than 30 per cent of Australian merchandise exports in 1976.

Iron drives exports higher

Professor Drysdale said that while the supply shock to iron ore from the Brazil dam disaster had contributed to Australia's increased exports to China, Beijing had already been increasing its demand for foreign commodities.

"China has increased its external procurement for its steel industry from 81 per cent to over 90 per cent and that has led to increased demand for Australian exports independent of the Brazil effect," he said. "Australia's competitiveness in the Chinese market has been steadily rising."

The increase in Chinese incomes had also contributed to stronger and more diverse demand for Australian exports. "Incomes have risen so much in China and that has led to an increase in the demand and the range for Australian exports including everything from beef, wine and dairy to education," Professor Drysdale said.

It is worth noting that the United Kingdom peaked at a share of 60 per cent of Australian exports during World War I and held 38 per cent of Australian exports in 1954.

Goldman Sachs chief economist Andrew Boak has studied the China-Australia trade relationship and expects that any changes to the quantity and value of Australian exports to China would boil down to two key factors.

Downside risks

"The relative risk is likely a function of a combination of one, how easily China can substitute away from Australian goods and services, and two, how large of a share Chinese demand of a given Australian good or service is," Mr Boak said.

"The downside risks associated with Australia’s strong trade linkages to China have increased and bear close monitoring.

"However, our base case is that these linkages deliver an ongoing large positive income shock which will support Australia’s public finances and increase the prospect of scheduled income tax relief being brought forward to 2020."


Australia’s temporary graduate visa attracts international students, but many find it hard to get work in their field

The number of international students who stay in Australia after graduating on the temporary graduate visa – often referred to as the 485 visa – is growing fast. There were nearly 92,000 temporary graduate visa holders in Australia as of June, 2019. That’s up from from around 71,000 in June 2018 – a 29% increase.

The 485 visa was introduced in 2008 and updated in 2013, taking on recommendations from the 2011 Knight Review, which recognised post-study work rights for international students as crucial for Australia to remain competitive in the education export market.

Under the visa, international recent graduates of a degree or qualification from an Australian institution can stay in Australia for two to four years, depending on the qualification. The government points to the visa as providing an opportunity for international students to remain in Australia for a limited period of time and gain international work experience.

In our recent study, we examined the effects of the 485 visa policy on international students in Australia and on the labour market.

Out of the visa holders we surveyed, 76% said access to the visa was an important factor in their decision to study in Australia. And the majority of past (89%) and current (79%) 485 visa holders in Australia participated in the labour force. (Past holders of the visa refer to either those who have returned to their country or remained in Australia but moved on to another visa).

But many graduates did not work full-time, and they did not necessarily work in their field of study. A considerable number of graduates were employed in retail, hospitality or as cleaners.

The numbers

We collected data through an online survey from 1,156 international graduates, some of whom are in Australia and others back in their home countries. We also conducted in-depth interviews with students and other key stakeholders such as employers.

Our analysis included that of government figures and policy.

The top five citizenship countries of 485 visa holders in Australia (India, China, Nepal, Pakistan, Vietnam) have also been the top five source countries of international enrolments in Masters by coursework (China, India, Nepal, Pakistan, Vietnam) programs since 2013.

Up to 56% of current visa holders either worked outside their field of study (35%) or were unemployed (21%), which puts these groups at risk of financial stress and vulnerability.


Costs balloon in disability scheme

A huge slice of the disability money has gone to the bureaucacy, not disabled people

The National Disability Insurance Agency has overseen a three-fold spending increase on external contractors, recruiters and lawyers as it copes with a flood of new participants in the $22bn disability scheme.

To combat a "dramatic surge" in the number of National Disability Insurance Scheme participants — increasing from 30,281 to 298,816 in three years — the NDIA has been forced to rely on employment agencies for temporary and contract staff.

Analysis of individual contracts worth more than $100,000 reveals the ballooning cost burden for taxpayers, with the NDIA engaging private companies to provide staff, call centres,legal, media and writing skills advice, training and security. Spending for temporary staffing and recruitment support dramatically rose in the past financial year, constituting 49 per cent of the total spending on major contracts, with costs increasing for call centres and legal services.

NDIS spending data reveals 18 law firms and other legal consultants were engaged at a cost of almost $30m to support the NDIA in its response to three royal commissions and the introduction of the Administrative Appeals Tribunal Applications and Decisions Division.

To avoid further clogging the AAT with NDIS-related cases, support has been provided to facilitate an early resolution model, encouraging participants and legal representatives to resolve matters earlier in the process. A list of individual contracts worth more than $100,000 shows Hays Specialist Recruitment was engaged to provide staff support at a total cost of almost $100m

Between July 1 last year and June 30 this year, the number of new participants entering the NDIS totalled ll7,307. According to the NDIA, growth in spending has risen from $1lbn in 2015-16 to $ll.9bn in 2018-19, but operating costs as a percentage of the total cost of the scheme fell 'from 14.2 per cent in 2017-18 to a projected 8.2 per cent in 2019-20. The Australian understands this saving has been achieved by reducing the use of consultants and transitioning roles 'from contract work to Australian public service positions.

Consultancy firms Ernst & Young, KPMG, McKinsey Pacific. Rim, Deloitte Touche Tohmatsu, PwC and Healthconsult were also engaged by the NDIA, netting contracts exceeding $40m. A one-year contract with Serco Citizen Services worth almost $70m for the "provision of call centre" — paid out $12.4m in the last financial year.

The move to an external call centre, currently averaging more than 90,000 calls a month, achieved cost savings of 23 per cent in 2018-19.

An NDIA spokeswoman said spending on contractors and consultants — as a percentage of total scheme costs — was decreasing from 2.6 per cent in 2017-18 to a projected 1.6 per cent in 2019-20.

The Australian understands a majority of major contracts with consultancy firms covering the period between 2016 and 2019 have been finalised and paid for and that a further reduction in contractor costs was likely to occur when the NDIS hits 500,000 expected participants.

From "Courier Mail" of 30/9/19

 Posted by John J. Ray (M.A.; Ph.D.).    For a daily critique of Leftist activities,  see DISSECTING LEFTISM.  To keep up with attacks on free speech see Tongue Tied. Also, don't forget your daily roundup  of pro-environment but anti-Greenie  news and commentary at GREENIE WATCH .  Email me  here

1 comment:

Paul said...

So the NDIS is a financial black hole?