Friday, May 1, 2009

Earn Or Learn... Or Starve

The Council Of Australian Governments has agreed to a Federal Government plan to stop young people dropping out of school only to end up on the dole. The basic thrust of the plan is for people under 25 to be either earning or learning, and if they do neither they will be punished by having their Government benefits cut off. It includes a guarantee that training places will be made available for young unemployed people aged between 20 and 25, while those under 20 will be required to be completing a year 12 or equivalent qualification. Just what happens to people who have completed year 12 before they turn 20 I am not quite sure, but I presume they too would be guaranteed some sort of training opportunity.

For those who fail to conform to the requirements, not only will they lose their Centrelink benefits, but if they are still eligible dependents, their parents will also lose their family tax benefit payments. Obviously this is supposed to provide a fairly substantial motivation to stay in school, but there are always square pegs who simply do not fit into the round holes, and no doubt there will be some people who fall foul of the system. Whether there are unusual family circumstances where for example a young person is the only one available to stay home to care for a disabled family member, or at the other end of the spectrum if a teenager is simply unresponsive to parental influence, is it really helpful or productive to simply cut off family tax benefits?

As we have already seen with some of the unduly harsh outcomes from the mutual obligation regime, the question will be whether it is fair to penalize people by removing income support at a time when they are already struggling. Due to factors beyond anyone’s control, unemployment is rising and will continue to rise as job opportunities become more and more difficult to find. The risk is that a draconian system of enforcement will create cases of people falling through the proverbial cracks and becoming even more marginalized than ever. When the choices are earn, learn or starve, there will unfortunately be some who starve.

Of course, the numbers of any such misfits would be likely to be small, and most people would probably see the wisdom of either earning or learning. The idea of keeping kids in school until the completion of year 12 is basically a good one, and anything which encourages that should be seen as a positive step. In uncertain times, the worst thing a young person could do would be to abandon school only to wind up without a job, without purpose, and without prospects. Common sense would dictate that unless there is a solid job opportunity, then even the roughest of square pegs would be better off completing school.

Thursday, April 30, 2009

E.T.S. Horsetrading Could See Delay

Don’t be at all surprised if the Federal Government agrees to postpone the introduction of the Carbon Pollution Reduction Scheme. Up until now, the Government has been adamant that the scheme should commence operation on the 1st of July 2010. While they have not backed away from that date, the plain facts are that the legislation will not pass the Senate without the agreement of either the Greens, or the Opposition. Neither of those parties will support the plan in its current form, so something has to give.

While it might be assumed that the Greens would support an Emissions Trading Scheme, the trouble is that they are thoroughly unsatisfied with the scheme that is proposed. From their point of view, the emissions reduction targets are simply inadequate to the point of being unacceptable. They do have a point when they suggest that the 5 to 15% target nominated by the government falls short of what is required to achieve a meaningful environmental outcome, and they have insisted on a target of 40% reduction by 2020. More importantly they insist that such a target should be unconditional.

This intransigent position has led the Government to declare the Greens to be irrelevant, accusing them of being completely unrealistic in terms of both the prospects for international agreement, and on the matter of industry assistance. At the same time, the Opposition also refuses to support the current scheme, but for very different reasons. They have concerns about the levels of industry assistance, as well as the effectiveness of the chosen targets, but the biggest dispute that they have with the government is the matter of timing.

The opposition is not alone in suggesting that the advent of the Great Recession means that this is perhaps not the most opportune time to introduce a scheme which will impose further financial burdens upon business. Many industry leaders recognize the need to introduce a scheme, and to do so in a way which provides a clear and certain framework for moving forward, but they also support postponing the introduction until such time as economic recovery begins.

This fits with the position which the opposition has maintained for some time now, that is to delay the introduction of the scheme until 2012. The opposition says this will allow for the scheme to be designed and implemented in a considered fashion, and also fits with the timetable for economic recovery which most observers are forecasting. It also places the commencement date well after the next election, opening up the opportunity for environmental policy to once again be put to the test with the voting public.

Despite all of the posturing, the Government and the Opposition are not really all that far apart on this issue, and interestingly both sides have indicated that there is room for negotiation. This is in stark contrast to the Greens who have left little if any room for negotiation, leaving the Government and the Opposition to deal with each other in a dance that neither one can afford to sit out.

Given that the recession is causing a reduction in industrial activity and that in turn means a reduction in emissions, there does seem to be a little more breathing space when it comes to the timetable. It is unlikely that the opposition will agree to allow the plan to start in 2010, so either the government will reach an agreement to delay the introduction, or they will take the issue to the next election to seek a clear mandate from the people.

Either way, a start date in 2012 looks a lot more realistic than the 1st of July 2010.

Wednesday, April 29, 2009

Extreme Measures To Prevent An Extreme Outcome

All of a sudden there is a new threat which has emerged seemingly from nowhere. Actually, it comes from Mexico. Concern about Swine Flu has swiftly transformed from “What the heck is Swine Flu?” to “Oh my God let’s close the borders!” Already reports of deaths in foreign countries are prompting fears of the infection spreading out of control. Thank goodness we have a plan, devised in the wake of the Avian Flu crisis of 2006, which sets out the steps to be taken to help contain the threat and treat the victims.

It might seem extreme to empower health authorities to detain and disinfect individuals, to turn away ships and planes arriving from overseas, to close down schools and childcare centres, and to postpone elective surgery to provide room in the hospitals to deal with an influx of flu sufferers, but that is exactly what has happened. The authorities now have the power to do all of the above and more, should it be deemed necessary, and it does all sound overpoweringly over the top. But it’s not time to panic yet.

Just because those steps can be taken doesn’t mean that they will. The chances are that the more extreme measures won’t be necessary, but at the same time it is important that protocols are in place to deal with events as they unfold. At this point, although there are more than 100 possible cases in Australia, none have yet been confirmed. It seems likely that at least some of those cases will be genuine, and if so then they will be treated accordingly. At this point, the things which might seem to be an over-reaction are actually the things which could prevent a far worse outcome, which should come as a reassurance, not an indication that disaster is at hand.

Of course, disaster is possible, but things have changed greatly since the Spanish Flu pandemic almost 100 years ago which killed around 50 million people worldwide. Although the modern day ease of travel means that disease can be spread around the world more quickly, modern medicine and modern knowledge of hygiene make a tremendous difference. Although we do not have a specific vaccine at this moment, one will be developed. Although antibiotics have no effect on the flu, we now have antiviral drugs. The point is that while the threat is serious, we should be confident that proper precautions will result in minimizing the impact.

Sometimes it seems that there is always a new threat for us to worry about, and which demands urgent action. The threat of climate change, the threat of the global financial crisis, the threat of people smugglers transporting asylum seekers into our country, and now the threat of a new virus. Now, instead of worrying about the next boatload of desperate people arriving from the Middle East, we can worry about the next aeroplane arriving from Mexico.

The truth is that, with sensible precautions, most of us will have nothing to worry about.

Tuesday, April 28, 2009


Uncertainty. It’s pretty much the only thing about which we really can be certain, aside from the obvious old observations about death and taxes. The Great Recession which has emerged from the cataclysm of the Global Financial Crisis is a monumental reminder that forecasting the future is by its very nature unreliable. Of course, there are ways to improve the accuracy of forecasting, such as by the careful study of past events, current trends, and all the variable factors that we might be able to imagine. Cause and effect are concepts that are instinctively understood, and we are tempted to believe that if we understand all the causes we can predict the effect. When it comes to economics, those who can boast a better strike rate than others in their predictions develop a reputation for prescience and can increase their consultancy fees accordingly.

But “cause and effect” is a concept from Newtonian physics, while economics, often considered to be more dark art than science, might be seen to have qualities more closely related to quantum physics. In quantum physics, reality becomes more bizarre than fantasy, and it turns out that uncertainty is inherently built into physical existence in such a way as to make it utterly impossible to make certain fundamental predictions at the sub atomic level. The so called real world that we perceive works because it represents an aggregate of all the quantum probabilities that underpin it. Because of this, one of the fundamental concepts of quantum theory is that merely observing a phenomenon changes it. This same principle applies to both politics and economics.

Treasurer Wayne Swan has been telling us for some time now that the economic downturn is worse than expected. With each new announcement, forecasts are revised to become more gloomy than before. And it’s not just the government. The O.E.C.D., the I.M.F., and now Access Economics have all warned that the situation is worse than previously thought, the recession will last longer, the eventual recovery will be more subdued, and that unemployment will become worse than expected. None of this is doing much to help restore confidence. But now, it seems the Treasurer is changing his tune.

It has been reported (by The Australian) that the Treasurer has advised his State Government counterparts that the Federal Government is preparing a budget based on a scenario of rapid recovery with above trend growth once the recession comes to an end, sometime towards the end of 2010. While this assessment might seem at odds with the more pessimistic forecasts elsewhere, it is consistent with recovery patterns after the downturns of the early eighties and early nineties. It is also consistent with what we could call the quantum theory of economics which requires governments to provide some cause for optimism which itself can inspire an improvement in the economy. In other words, it is part of the Government’s job to talk it up.

There is only one catch as far as Wayne Swan is concerned. While Australia remains in good shape overall, and certainly much better off than almost anywhere else, the influence of any optimism projected by our own government’s rosy outlook is unlikely to have much impact on the recovery process in the United States. Given that it is the United States from which the chill winds of recession are blowing, it is possible that Mr. Swan is being a little too optimistic. But that’s where the politics comes into play.

Uncertainty and perception are also at play in the political arena, and it is important that our government is seen to be both acting now to reduce the impact of the recession, as well as planning for a future which is both rosy and not too far distant. It is also important to realize that the projected recovery from the end of 2010 is after the next election, which means that we will go to the polls with the idea that our government has done its best to look after us through the bad times, and at the same time is about to deliver its promise of recovery… but only if we keep them in office.

It’s a good plan, but of course in politics, like economics and quantum physics, the only thing that’s certain is uncertainty.

Monday, April 27, 2009

Pensioners Before Politicians

Last week, speculation began to emerge that the much anticipated increase to the age pension may not be as much as everyone has been, well, anticipating. It all began with recognition that the level of income for pensioners, and especially single pensioners, was simply not enough to keep them out of poverty and provide for a decent standard of living. Calls for action were followed by the Harmer Review, which in turn provides part of the overall picture for the Henry Review. Out of all this emerged the idea that any increase would have to be at least around $30 per week. It was an idea that somehow turned into a widely held expectation, even though the only specific promise the Government ever made was to give pensioners “something”. So far the only thing pensioners have got from the government is anxiety.

Of course, the whole saga began well before the extent of the unfolding Great Recession became sufficiently obvious for the politicians to realize that all was not well. Having successfully raised expectations, and for that matter actively encouraging those expectations, the Government now finds itself confronting a deficit bigger than Malcolm Turnbull’s ego. As the drain on the budget got bigger and bigger, the Government did nothing to alter those expectations.

With the budget now mere weeks away, it is suddenly crunch time. Giving single aged pensioners an extra $30 a week will cost around $1.3 billion per year, and giving all pensioners and carers the same boost would be closer to $4 billion. That’s every year, and it would increase over time as more baby boomers become pensioners, even before accounting for inflation. At the same time, the once sizable budget surplus of around $20 billion has been swallowed up in the black hole of the Global Financial Crisis and transformed into a deficit which may already be as much as $50 billion. We won’t know for sure until Budget night in a couple of weeks.

In the light of the deteriorating conditions it would be no surprise if the government was looking for a way to soften its commitment to a pension increase, and last week’s speculation that perhaps the pension increase could be more modest so as to allow more support to the increasing numbers of unemployed has sent a shiver through the pensioners of Australia who have been led to believe that they will be looked after. It might be a red herring, but it might also be a genuine indication of what to expect in the Budget. Once again, there is no way to be sure until the big night itself. But the bottom line is that after all of the song and dance it would be a massive breach of faith to let the pensioners down now.

Adding insult to injury, the Independent Remuneration Tribunal has awarded federal politicians an increase to their electorate allowances amounting to $90 per week. Regardless of the reasoning and rationale for such an increase, the timing of the announcement is appalling. Here we have the pensioners not even certain of getting the miserable $30 per week, and yet the politicians are in line for $90. What’s worse is that although the allowance is supposed to cover the costs of servicing the electorate, any money not spent can be kept by the politician as income. That’s a tremendous incentive NOT to service the electorate isn’t it? Now, that’s just the electorate allowance. The decision on politicians’ base salaries is still in the works, but when that comes through it’s likely to award even more cash to the very people who are telling the rest of us that times are tough and we all have to share the burden.

The truth is that giving pensioners a fair go is going to cost a lot more than salary increases for a handful of politicians, but most Australians have no trouble working out which group deserves priority at a time like this. Denying the politicians a pay rise won’t save the world, and it won’t especially make the rest of us any better off. But it will at least mean that they too are making the sacrifices that they expect of everybody else.