Commonwealth Pensions

I spoke last week about retirement benefits for military personnnel and former public servants.
Indexation of Military Pensions, 23 May 2011

The indexation of military pensions and superannuation is an issue that, as the member for Fraser, I am very familiar with. Over at least the last year I have been working with colleagues Senator Kate Lundy, Mike Kelly, the federal member for Eden-Monaro and Gai Brodtmann, the member for Canberra, along with the Defence Force Welfare Association, the Superannuated Commonwealth Officers Association and the Australian Council of Public Sector Retiree Organisations, in making representations regarding the indexation of military superannuation pensions as well as those for Commonwealth employees. This is an important issue that affects the lives of many in my electorate and others who have given committed service to the Australian public and the interests of our nation. Reforms to the indexation of military superannuation pensions must be undertaken in a responsible and sustainable manner, one that requires the economic understanding and responsibility that the Labor government has shown in guiding Australia through the global financial crisis and returning the budget to surplus in 2012-13.

The Defence Force Retirement and Death Benefits Amendment Bill 2011 demonstrates yet again the divisive approach of the opposition and the fact that once again they cannot be entrusted with fiscal matters and matters as important as the ongoing funding of military superannuation pensions. Those who have served in the protection of our nation deserve better than fiscal incompetence and recklessness in their retirement livelihoods.

Military service is a special vocation with unique requirements. These include the compulsory and continuous liability for combat operations; being subject to both the civil legal code and a separate Defence Force disciplinary code to support command structures for effective conduct of combat operations and training; the requirement to work long and irregular hours for which no overtime is payable; separation from families, sometimes for considerable periods of time, which as I know with many Defence Force members in my electorate can be a cause of stress to both members and their families; the posting of members at regular intervals to meet Australian Defence Force manning requirements; and the requirement to maintain a high standard of both physical and mental fitness required to meet operational tasks and training for combat.

In recognition of the demands these requirements place on Defence Force personnel, military superannuation is one of the key elements in the competitive remuneration and conditions of service package provided to Australian Defence Force members. Established by the Keating government in 1991, the Military Superannuation and Benefits Scheme was introduced to address major changes the government had made to both the regulatory system and the regulations governing superannuation. The Defence Force Retirement and Death Benefits Scheme provides an indexed pension calculated on a combination of salary and length of service. Members who discharge after 20 years are able to take an immediate lifetime pension based on 35 per cent of the member's salary at discharge. These pensions, which can be taken as early as 38 years of age, continue to be paid even if the former member returns to the workforce. The percentage of final salary increases with each year of service. For example, at 30 years of service the pension is 51.25 per cent of final salary and at 40 years of service it is 76.5 per cent of final salary. As at 30 June last year, there were 3,978 pensioners in the Defence Forces Retirement Benefits scheme, and 4,246 contributors and 53,003 pensioners—15,193 of those under the age of 55—in the Defence Force Retirement and Death Benefits scheme. Military superannuation arrangements are based on salary and the length of a member's period of service. They are not based on, nor do they aim to reflect, a member's needs in retirement. To change military superannuation indexation arrangements would effectively mean a change to a member's preretirement conditions of service after the member has retired.

If allowed to proceed, the opposition's bill would present several issues. Firstly, a proposed law that would appropriate revenue or moneys cannot originate as a private member's bill, and a bill for such a law cannot originate in the Senate. Secondly, the Defence Force Retirement and Death Benefits Amendment (Fair Indexation) Bill as introduced by Senator Ronaldson would have a fiscal cost of $1.7 billion over four years and an underlying cash cost of $175 million over four years. It would increase the Commonwealth unfunded liabilities by $6.2 billion. Yet it would provide nothing more to recipients of the Commonwealth civilian superannuation pension. Indeed, the opposition's view of public servants was made clear by the member for Fadden, who clearly suggested that savings to pay for these pensions should be made up by Public Service cuts. The opposition's bill would also provide nothing to many recipients of military pensions.

On 9 February 2011, along with Senator Lundy and the members for Canberra and Eden-Monaro, I wrote to Senator Penny Wong asking that the Department of Finance and Deregulation estimate the costs regarding indexation changes in Commonwealth government civilian and military superannuation scheme pensions. The department's estimate stated that, firstly, the cost of indexing military and civilian pensions by the age pension methodology would be $322 million for the period 2011-12 to 2014-15, with an immediate increase in unfunded superannuation liabilities of $32.9 billion. Secondly, the cost of indexing military and civilian pensions by the higher of CPI, the pensioner and beneficiary living cost index and the increase in male average total weekly earnings would be $614 million for the period 2011-12 to 2014-15, with an immediate increase in unfunded superannuation liabilities of $47.8 billion.

Thirdly, and most importantly, the proposals in this bill would only benefit a minority of military superannuants. The bill does not provide any indexation change for the 3,978 benefit recipients from the Defence Forces Retirement Benefits scheme. The bill does not provide any change for any of the 7,684 pensioners under the Military Superannuation and Benefits Scheme. Nor does this bill provide for the 15,193 Defence Force Retirement and Death Benefits scheme recipients under age 55. Nor does it provide for the needs of Commonwealth civilian superannuants.

The coalition's policy to index military pensions for members of the Defence Forces Retirement Benefits scheme and the Defence Force Retirement and Death Benefits scheme who are aged 55 and over would not provide financial security for Australian Defence Force personnel. Superannuation pensions paid by the government to its retired military personnel are indexed twice annually to reflect quarterly changes in the price of a basket of goods and services which account for a high proportion of expenditure by the consumer price index population group.

The Gillard government honoured its 2007 election commitment to review the indexation arrangements for superannuation pensions that it pays to retired civilian employees and military personnel. The review of pension indexation arrangements in Australian government civilian and military superannuation schemes was conducted by Mr Trevor Matthews. In December 2008 the Matthews report of the review of pension indexation arrangements in Australian government civilian and military superannuation schemes recommended that pensions continue to be indexed against CPI to protect against inflation increases. The report also identified very significant additional costs that would be incurred if indexation methodology were changed. The Australian Government Actuary has also pointed to significant additional costs if the coalition policy, the subject of this bill, were adopted. The significant costs of higher indexation would have to be found from the Consolidated Revenue Fund or from the existing defence budget. This would jeopardise the funding of other initiatives. Over recent years, various groups have campaigned to change the indexation of public service and military pensions from the CPI to an analytical cost of living index. They have argued that compared to other pensions their level of indexation is not fair or equitable in terms of being able to maintain contemporary living standards, and that the CPI is ineffective as a measure of the change in the cost of living. Recommendation 4 of the Matthews report indicated that if a more suitable index became available the government should consider its use. With the adoption of the pensioner and beneficiary living cost index for age and other pensions, I am hopeful that such an index for Commonwealth superannuants, including those on defence pensions, will soon be developed.

ADFA and the Royal Military College of Australia are in the electorate of Fraser, and on 10 April I represented the Prime Minister and laid a wreath commemorating the 70th anniversary of the siege of Tobruk at the Rats of Tobruk memorial. I had the privilege of sitting next to Peter Collins, a veteran who was a signal operator at Tobruk. I am proud of the commitment and dedication of the men and women who provide military service to our nation every time I meet with them in my role as federal member.
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Taking off from Gloomy World

Back in 2006, Justin Wolfers and I took issue with a pair of UK researchers who'd claimed that Australians ranked poorly on international surveys of happiness and life satisfaction. I'm delighted to say that new OECD findings back up our optimism. A good news story indeed.

Update: For a fair dinkum shake of the sauce bottle, have a geeze at Justin Wolfers bonzer post.
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Tax Reform

I spoke in parliament this week about the long-term tax reforms in the budget - particularly the phasing out of the old-fashioned Dependent Spouse Tax Offset, removing perverse Fringe Benefits Tax incentives for cars, and replacing the Entrepreneurs' Tax Offset with more effective measures.
Appropriation Bills, 23 May 2011

David Lloyd George, the founder of the modern welfare state, said:

'We put no burden upon the necessities of life of anyone. We are taxing surplus. We are taxing luxuries. If a man has enough after maintaining his wife and family, and can spare something upon whisky and tobacco, why should he not afterwards contribute towards the pensions and defences of the country?

'We propose a great scheme in order to set up a fund in this country that will see that no man suffers from hunger in the dark days of sickness, breakdown in health, and unemployment which visits many of us This is what we are going to do. These schemes for the betterment of the people ...'

This government is also putting in place schemes for the betterment of Australians. We are implementing a carbon price to deal with dangerous climate change—a carbon price that will operate by taxing the 1,000 biggest polluters—putting a price on pollution that recognises the damage that that carbon pollution does to future generations. We are helping families by providing assistance in those crucial times of need. We are implementing a minerals resource rent tax so that Australians get a fair deal for the subsoil resources that are their birthright. The Labor government helped Australia to navigate the global financial crisis. When the largest downturn since the Great Depression beckoned, we listened to Keynesian economics. We put in place a timely, targeted and temporary fiscal stimulus that protected around 200,000 jobs and tens of thousands of businesses. We used the opportunity to invest in long-term infrastructure, roads and school infrastructure that future generations will benefit from.

This budget is delivering the fastest fiscal consolidation of the modern era. Just as we implemented Keynesian economics in the downturn, we are implementing Keynesian economics in the upswing, through rapid fiscal consolidation. We are reforming our system of taxation. We want the Australian taxation system to be simpler and fairer. We want it to be a system that most efficiently delivers essential social, educational and health services while providing the incentives to keep our economy growing.

I want to focus today on the tax incentives introduced in the most recent budget, because I think that these are initiatives which have received too little attention and that this budget that is marked by its deep commitment to lasting tax reform. The government has announced 12 measures since the 2010-11 budget to reform our taxation system, including (1) a measure that removes the unintended tax incentive for people to drive further than they need to in order to obtain a larger tax concession by reforming the statutory formula method for valuing car fringe benefits. That measure implements recommendation 9 of the Henry tax review. (2) We have improved participation incentives for couples without children by phasing out the dependent spouse tax offset, consistent with recommendation 6(a) of the Henry review. (3) We are better targeting tax incentives by replacing the entrepreneurs tax offset, consistent with recommendation 6(c). (4) We are improving small business tax rules by replacing the entrepreneurs tax offset with a small business tax package that includes a $5,000 immediate deduction for motor vehicles, consistent with the intent of recommendation 29. (5) We are improving certainty for investors by allowing infrastructure projects of national significance to carry forward losses with an uplift factor to maintain their value. (6) We are increasing support for families by increasing family tax benefit part A payments for 16-to-19-year-olds, recognising that the cost of looking after teenagers does not go down. (7) We are reforming family payments by reducing the overlap between family tax benefit part A and youth allowance. (8) We are improving regulation and reducing red tape for the not-for-profit sector by establishing the Australian Charities and Not-for-profits Commission. (9) We are improving certainty for the not-for-profit sector by introducing a statutory definition of 'charity'. (10) We are improving tax system governance by committing to a principles based approach to tax law design. (11) We are allowing the Board of Taxation to initiate its own reviews of how tax policies and laws are operating. (12) We are establishing a New Tax System Advisory Board.

Entrepreneurs' Tax Offset

This budget and these important tax measures build on the Gillard government's long-term plan to strengthen our economy and make the Australian tax system simpler and fairer for business and the community. In the case of the entrepreneurs tax offset, it has long been recognised that it is poorly targeted for small businesses. There is little evidence that it has acted to encourage the establishment of small businesses. More than 80 per cent of small businesses were eligible for the offset. Rather than allowing a small business to grow, the entrepreneurs tax offset encourages businesses to structure affairs in a particular way despite the market opportunities which might be present. The assistance provided is a fairly low level of assistance to very small businesses. The maximum claim is $2,500 but the average entrepreneurs tax offset claim was less than $500, with 70 per cent of claims being below $600. That is a small amount of money for a fair bit of paperwork. The vast majority of claimants have income from sources other than business income and nearly all are individuals. Under the entrepreneurs tax offset, it is possible for taxpayers to recharacterise their income as business income—for example, by working as a contractor instead of as an employee in order to claim the ETO.

The entrepreneurs tax offset is difficult to administer and adds to the complexity of our tax system. There are better and more effective ways to help small businesses: such as the $5,000 immediate deduction for motor vehicles from 2012-13 that was a hallmark feature of this government, such as reducing the GDP adjustment factor for pay-as-you-go instalment taxpayers to four per cent for 2011-12, such as simplifying and increasing the instant asset write-off threshold to $5,000 from 2012-13, and such as providing a head start to the reduction in the company tax rate for small businesses from 30 per cent down to 29 per cent from 2012-13. Around 2.7 million small businesses stand to benefit from these measures. The savings from abolishing the entrepreneurs tax offset will fund those progressive measures for assisting small businesses. Those savings will be reinvested into the small business tax reform package.

Dependent Spouse Tax Offset

We are also modernising Australia's taxation system by removing antiquated notions about gender roles. The dependent spouse tax offset was introduced back in 1936 at a federal level, although some of the states had their own small programs at the time. During the second reading debate in this place, one member justified the measure, saying that he felt it was the duty of a husband to maintain his wife and therefore it was right and proper that he should receive a deduction for it. I do not think these are sentiments that would be shared by most 30-somethings in the labour force today. This is a measure for families without children, and I think that most modern-day couples would not expect the government to provide a tax break in the case where one partner chooses not to work. This measures is not just about removing antiquated notions but about encouraging greater workplace participation, because it phases out the dependent spouse tax offset, which penalises work for stay-at-home spouses. And, as we know, increasing participation is absolutely critical in a modern Australia with our businesses facing skills shortages. Work is a good way of maintaining contact with the community and a first job is a stepping stone to a better job. We in the Labor Party are strongly committed to the dignity and value of work.

If a dependent spouse earns more than $282, under the current program the entitlement reduces by $1 for every $4 that the dependent spouse's income is above this threshold. The effect of that is to put in place a 25 per cent tax rate additional to current marginal tax rates on the first $10,000 earned by a so-called dependent spouse. This measure will be progressively phased out for those aged 40 years and below. And, importantly, those taxpayers who are invalid or permanently unable to work or are carers or who are aged 40 or above will not lose their benefits.

Fringe Benefits Tax on Cars

The budget also introduces important measures to fix the current system of fringe benefits taxation for cars. The existing statutory formula method for determining the taxable value of car fringe benefits delivers a greater tax concession the further a car is driven. Anecdotes in my own electorate about people who pass the keys onto their teenage child to drive to the coast for a weekend do not reflect the way in which most Australians would want to see their tax expenditures used. Car fringe benefits arise when an employee uses a salary sacrificed or employer provided car for private use. Under the statutory formula method, a person's car fringe benefit is determined by multiplying the relevant statutory rate by the cost of the car. These statutory rates are designed so that a person's car fringe benefit decreases as the distance travelled by their vehicle increases. People can therefore increase their tax concession by driving their vehicle further. The AFTS Review reported evidence that this is exactly what people do.

We are removing the current incentive for people to drive salary sacrificed and employer provided vehicles further to increase their tax concession and in the process burn more fuel and damage the atmosphere. We are reforming the statutory formula method by replacing the current statutory rates with a single rate of 20 per cent that applies regardless of the distance travelled. This reform will only apply to new vehicle contracts entered into after announcement on budget night. It will not affect people who have already entered into contracts, and will be phased in over four years.

People who use their vehicle for a significant amount of work related travel will still be able to use the operating cost and log book method to ensure that their car fringe benefit excludes any business use of their vehicle. Over the forward estimates, this reform will result in an increase in revenue of $970 million, an increase in GST payments to the states of $50 million and a reduction in other expenditure of $33.9 million.

We are also helping small business through the immediate depreciation deduction, which now applies to motor vehicles. The additional benefits that we are putting in place will assist many small businesses in Australia. The vast majority of businesses operating in Australia, around 96 per cent, are small businesses. They often experience greater cash flow difficulties than their larger counterparts. The Gillard government looked after those small businesses when the global downturn happened. We did that because we recognised that small businesses were much more vulnerable than large businesses, which are better able to smooth over the economic cycle. Our economic reforms recognise that small businesses are very much the lifeblood of the Australian economy. We are reforming things like the entrepreneurs tax offset in order to assist small businesses and to give small business owners the certainty that they need in assisting our economy.

Conclusion

With taxes, we build society. Tax reform needs to be grounded in good, strong economics. It needs to reflect the values of Australian and we need to recognise when those values change. When values about environmental protection change, we need to reform fringe benefits systems that create perverse incentives to drive cars further. When norms about dependent spouses change, we need to reform old tax laws that are based on outdated 1930s notions. We need to keep on making these updates because we in the Labor Party recognise that economic reform is not something that we do once and then forget about. It is an ongoing process. It is important that we engage in that ongoing process and use opportunities like the Henry tax review, which has laid down many of the key principles important in devising the architecture of Australia's tax system. It is important that—as we in the government do in the case of climate change—we listen to the advice of economists and take into account that our tax system needs to be shaped by expert advice. Those in the opposition are sometimes too willing to go for the quick sound bite and too willing to ignore expert advice on climate change and tax reform. We in the Labor Party are committed to ongoing economic reform and to improving our tax system so that it is simpler, fairer and as efficient as possible.
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Climate Change & Carbon Farming

I spoke in parliament yesterday about climate change and carbon farming.
Carbon Credits (Carbon Farming Initiative) Bill, 25 May 2011

Once upon a time in a country far, far away a world leader stood up and discussed three environmental challenges that faced the world: acid rain, the hole in the ozone layer and greenhouse gases. The first, a nation solved through an innovative approach, an approach the member for Flinders championed in his honours thesis. It was a market based approach, which was the same market based approach George Bush Snr put into place, that made companies pay for the privilege of putting noxious gases into the air. The results of market based mechanisms tend to be better than were envisaged by policy makers at the time. Industries put in place innovative solutions to ensure that the economic cost was minimised and the environmental problem was solved.

The second of those problems—the hole in the ozone layer—was resolved through nations being good global citizens, acting in the knowledge that other nations were acting, as well. That process culminated in the Montreal protocol and has seen the hole in the ozone layer gradually shrink over recent decades.

On the last challenge, this leader in a land far, far away, Margaret Thatcher, pledged to make drastic cuts to her nation's greenhouse gas emissions and set up a centre for research. Thanks to the work of research centres such as the Hadley Centre for Climate Prediction and Research, there is a consensus among climate scientists that dangerous climate change is occurring and that dangerous carbon pollution is the cause. Yet many of those opposite continue to be silenced by those who do not accept the evidence. The Minister for Climate Change has on many occasions put on record the comments of the sceptics opposite. Indeed, yesterday, on the very day the Climate Commission was meeting in this building to outline the scientific consensus, the likes of Senators Joyce and Macdonald were in Senate estimates challenging the Bureau of Meteorology on climate change.

Anthropogenic climate change is of course backed by the Australian Academy of Sciences, the Bureau of Meteorology, CSIRO, NASA, the US National Oceanic and Atmospheric Administration and the vast majority of climate scientists. Yet there are many in the coalition party room who still cannot accept the overwhelming scientific evidence.

If the Leader of the Opposition is the political love child of John Howard and the member for McKellar, then Margaret Thatcher would surely be his political godmother. Yet Margaret Thatcher accepted the scientific evidence for climate change as far back as the 1980s. The UK Conservatives—the role models and political cousins of those opposite—have accepted there is no debate about the science of climate change and the necessity of acting. The British Tories have accepted this. They are using a market based approach to secure the future of Britain and that of the globe. The bill before the House is part of the government's commitment to act on dangerous climate change to secure our future so that future generations can continue to enjoy our golden soil and wealth for toil.

A creed of the farming sector is to ensure that farmers leave the land in better shape than that in which they inherited it. Our farmers are some of the most passionate advocates for environmental protection. The Carbon Credits (Carbon Farming Initiative) Bill creates opportunities for farmers, foresters and landholders to access carbon markets and help to reduce emissions. We know that Australians are among the highest per capita emitters in the developed world. We also have among the highest agricultural emissions. Protecting biodiversity, helping to regenerate landscapes, improving soil quality through increased carbon storage and helping to address salinity through tree planting are just some of the opportunities available to us.

Some of these things are not new, but this bill will help us to drive innovation, to find better ways of using our agricultural and land assets to reduce our emissions. The bill will help us to create a market for carbon permits and provide investment certainty. Credits will be given for every tonne of carbon stored. Schemes will need to go through an approval process that will ensure the integrity of the abatement being undertaken. We are balancing regulatory simplicity with environmental integrity.

Projects will need to be recognised. The offset methodology will need approval. Projects will need to be done in accordance with the approved methodology and any other eligibility requirements. Once project managers have reported on the projects, they will be issued with Australian carbon credit units, or ACCUs. These units can be used to offset emissions or can be traded on the market. To ensure the integrity of the abatement, an expert committee, the Domestic Offsets Integrity Committee, has been established to make sure we get real and verifiable abatement.

Other elements of the design of the scheme to ensure the integrity of credits include issuing credits after the sequestration or emissions reduction has actually occurred; tracking credits through a central national registry—that is included in the registry bill; transparency provisions, including the publication of a wide range of information about approved projects; appropriate enforcement provisions to address noncompliance; and a robust auditing scheme based on the National Greenhouse and Energy Reporting System.

The scheme, not surprisingly, has received backing from a range of organisations. CSIRO experts told the House of Representatives Standing Committee on Climate Change, Environment and the Arts looking at the bill:

'… industry and community individuals and groups as well as the private sector have much to offer in terms of innovative ideas on greenhouse gas abatement.'

Carbon Neutral said:

'This initiative has the potential to drive funding into rural communities, increase green collar jobs and improve the natural environment whilst simultaneously contributing to domestic climate change adaptation and mitigation measures.'

Greenfleet, who have established 450 forests and planted more than 6.8 million native trees since 1997, said:

'We believe that carbon forestry projects are unlikely to displace high-value agricultural production on the nation's most productive soils. We believe that carbon forestry projects are and will remain peripheral to prime agricultural production and in fact may improve, but not replace, sophisticated farming systems.'

The scheme is also backed by the Wentworth Group of Concerned Scientists, named after William Wentworth, whose name seems to crop up quite frequently on the science based side of the climate change debate.

Today the Minister for Agriculture, Fisheries and Forestry and the Parliamentary Secretary for Climate Change announced that Indigenous land managers across remote regions will be able to earn carbon credits through improving fire management under the government's carbon farming initiative. The methodology is a world first and represents a unique combination of traditional Indigenous ecological knowledge, cutting edge modern science and the substantial economic potential that is emerging in carbon markets as governments around the world take action on climate change. This world action is also reflected in part of these bills today. The Australian National Registry of Emissions Units Bill 2011 is part the government's commitment under the Kyoto protocol. The registry will help ensure accurate accounting of emissions, consistent with the Kyoto protocol.

But those opposite continue to deride action on climate change. They miss the fact that the world is moving. They miss the fact that 32 countries now have emissions trading schemes. They miss the fact that India and China, despite having far lower emissions per capita than Australia, are making substantial investments in renewable energy. They miss the fact that the UK, as part of the European Union, is engaged in emissions trading.

At the same time, we are listening to the economists just as we are listening to the scientists. We are recognising the benefits of market based mechanisms over command and control. I think it is often recognised in this place that there is an overwhelming consensus among scientists, but the overwhelming consensus among economists is sometimes missed. I quote from two senior economics professors. John Quiggin wrote in his blog on 10 May:

'I had a call from a local business organization asking if I would talk at a breakfast about the carbon tax to be held in a few weeks. The date was fine, so I said yes, then came the kicker—they wanted an economist on each side of the issue. The organizer said they had plenty of economists willing to speak for the tax, but they couldn't find any willing to speak against it. I gamely offered to present the case for an emissions trading scheme as opposed to a tax (even though, at the moment, I lean to a tax). But they wanted an actual opponent of any kind of carbon price, who was also an economist. This has proved to be impossible, which is pretty impressive testimony to the quality of the Queensland economics profession, and to the underappreciated fact that economists are among the strongest supporters of good environmental policy.'

Joshua Gans, currently at Melbourne Business School and now moving to the University of Toronto—Canada's gain and Australia's loss, I have to say—wrote on the website of The Drum on 7 April:

'Sadly, there are plenty of people who aren't climate change scientists who are comfortable disbelieving the general consensus from climate change scientists.

'But perhaps it is more disturbing when people—especially politicians—ignore or deny the evidence on how to actually achieve lower emissions. Why is that more disturbing? Because it could be that politicians want to actually reduce emissions but instead advocate policies that are likely to do the opposite.

'Of course, when I am talking of advocating opposite policies I am talking mainly, but not exclusively, of the Federal Opposition. What they want to do is take direct action. It's not big on specifics but it will cost a lot of money ($10 billion plus) and will award that money to people who claim they are going to do good things in reducing emissions.'

Joshua Gans goes on to say:

'It is ironic that on climate change policy, politics are in the bizarro-world where the supposedly anti-market Greens side with Hayek while the supposedly pro-market Coalition sides with Lenin. The economic evidence strongly suggests that the Greens policies match their goals while the reverse is true for the Coalition. I can't parse the dual hypotheses that either the Coalition just deny economic evidence or that they actually want more emissions and handouts to business. Perhaps one of their number can enlighten us.'

Finally, I want to go to the amendment moved by the member for Flinders. As I have noted in my speech, the government's legislation will create new, real and lasting economic opportunities for regional communities. Stakeholders in the land sector are desperate for a mechanism to credit their actions to reduce and store carbon pollution. Farmers and landholders want access to carbon markets worth hundreds of millions of dollars each year for regional and rural Australia. But the coalition are currently holding them back.

With the amendment moved today, the member for Flinders has essentially told farmers that the coalition wants to delay the farmers from receiving benefit. He is signalling that the coalition would rather play politics than support farmers. Farmers and landholders want politicians to end the gamesmanship so that they can know the framework that they will be working under. They want us to resolve the detail and put in place a framework that measures the savings that they are making.

There has been extensive consultation on this initiative over a number of years. It builds on the work of other offset mechanisms. Let us look at what key groups like the National Farmers Federation submitted to the House inquiry. They said that the legislation addresses NFF concerns around potential perverse outcomes in relation to food production, water, local communities, environment and biodiversity as well as reduces some of the uncertainty and administrative costs surrounding crediting periods, reporting timeframes and offsets compliance. They said that the government deserves credit for listening to the farm sector and modifying its proposals to ensure that genuine abatement opportunities under the CFI are not unnecessarily overlooked.

The CFI is based on the science of climate change but developed with a key focus on practicality. The department is releasing over the next few weeks a number of the first detailed methodologies showing in practical terms how particular landholders can put projects together. We have been consulting extensively on the regulations to establish the positive and negative lists. We will be providing details of those lists shortly. The regulations deal with technical matters required to be based on independent advice from the Domestic Offset Integrity Committee. It is essential to the credibility and value of the offsets credit that are created by the initiative. The coalition's amendment is for a scheme in which the activities added and credited are based on politics, which appears to be the preferred approach advocated by the coalition, rather than science. That approach has not credibility in carbon markets and no credibility in the community. The government calls on the coalition to stop playing politics and to support the government's efforts to reward farmers who are taking action on climate change.

In closing, I note the sad fact that, as scientists often note, climate change can be dominated by tipping points—sudden moments like the melting of polar icecaps, at which point the progress of climate change, the warming, becomes more rapid. Perhaps the best example of a tipping point was, alas, the Leader of the Opposition's one-vote ousting of the member for Wentworth as the Leader of the Liberal Party in 2009. That tipping point moved us from a path on which the coalition were, as they had been in the 2007 federal election, advocating market based mechanisms supported by sensible conservatives around the globe. That moved us into a bizarro world in which the current Leader of the Opposition advocates command and control policies, policies unsupported by serious scientists or serious economists. That tipping point has left the Australian debate over carbon pricing in a world that is well adrift from what you see in mainstream debates all around the globe. Even when I go into schools in my electorate I find young children in Australia deeply concerned by the lack of willingness to act on climate change and deeply concerned at the fact that at the moment carbon pollution is free and that the opposition is attempting to block the government's sensible and practical move to put a price on carbon pollution.
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Reserve Bank of Australia

I spoke in parliament this week on new appointments to the Reserve Bank of Australia, inflation, and public debt.
Reserve Bank of Australia, 24 May 2011

I would like to speak about three things today: the recent appointments to the Reserve Bank board and the members who are stepping off the Reserve Bank board; the broader outlook for inflation in the Australian economy; and the current low levels of government debt.

Appointments

Firstly looking at appointments to the Reserve Bank board, I want to use the opportunity to put on the record my thanks to Don McGauchie and Warwick McKibbin for their service to the Reserve Bank board. Warwick McKibbin is not only an extraordinary Australian economist but was also my immediate boss before I came into parliament. Warwick is the director of the Research School of Economics at the Australian National University and in my last position at ANU I was his deputy director. Warwick is an extraordinary economist, someone who was awarded his PhD from Harvard University studying under Jeffrey Sachs. He has been awarded the Centenary Medal for service to Australian society for economic policy in tertiary education, and was made a fellow of the Australian Academy of Social Sciences at the age of 40. I wish him well in the next public endeavours that will occupy his now freed-up weekends.

I also note that joining the Reserve Bank board are Ms Catherine Tanna, who is currently the executive vice-president of BG Group and managing director of its Australian unit QGC Pty Ltd, and also Dr John Edwards. Dr Edwards is somebody who has a long and distinguished career in economic policy-making. He has served the Australian public well as a senior economic adviser to then Prime Minister Paul Keating. He has been actively engaged in policy debates for a number of decades and has also produced a number of terrific books over this period. He is in every sense a public intellectual and the Australian public are fortunate to have his skills joining the Reserve Bank board.

Inflation

The second issue I want to speak about today is the issue of inflation. I want to draw the attention of the House to some of the statements made during our last Reserve Bank hearing regarding Australian inflation. On the headline number, I would like to quote from the Governor's opening statement when he said:

'It is worth recording that a combination, on the latest figures, of a 5 per cent unemployment rate and an inflation rate clearly 'in the 2s' is a pretty favourable one by the standards of recent decades.'

In questioning, the Governor was drawn out on the issue of inflation perceptions and made some comments that I think are particularly salient in the current policy debate. It is always important to focus on the cost of living but we need to do so by looking at the facts rather than some of the spin that is occasionally heard from those opposite. The Governor said:

'People do, though, tend to overlook prices that fall a little bit, and 30 per cent of the CPI items actually had a negative price change in the latest quarter. There are certain things that people do not buy quite as often as the weekly groceries and it is human nature that we tend to forget that those prices go down in many instances. So I think that is a factor and it is understandable. But, in the end, the consumer price index samples 100,000 prices every quarter. There is a far better sampling there than any of us could do by keeping a casual tab on our grocery bill ...'

The governor went on to say:

'The prices of many goods at the moment are declining. If you go through the CPI over the past year, you see that the price index for clothing is down six per cent, the price index for major household appliances is down four per cent, the price index for audiovisual equipment is down 18 per cent, the price index for furniture is down two per cent and the price index for linen, manchester, is down around two per cent. Almost all the goods in the CPI are down quite significantly. I think many people, because they do not buy these goods on a regular basis and have in their mind a clear concept of what the actual price is for a shirt or some Manchester, do not feel price declines but they are real and they are happening. What people are noticing is the higher price of utilities in particular.'

The governor went on to speak about some of those prices. But as we know, households make a set of consumption purchases and we need to look at those consumption purchases as a whole, not simply cherry pick parts of the consumer price index but look at the overall picture that Australian households are facing. For example, if we look at the year-on-year percentage change for the current March quarter, the latest figures available at the moment, we have a fall over the last year in clothing and footwear prices of one per cent, in household contents and services of around half a per cent, in communications of 0.2 per cent and in recreation of 1½ per cent.

So it is important to keep all of those factors in mind when we are looking at the overall picture for inflation. I think it is that overall picture which has naturally led the governor to point out that Australia's inflation rate is clearly in the twos, certainly not a picture that one would receive if one were to listen solely to pronouncements from those opposite. I think this is important and goes to the very heart of the economic challenge. If those opposite intend to be taken seriously as economic managers then it is important that they focus on the facts rather than the spin.

Public Debt

Finally, I said that I would go to the issue of government debt. Here again, I think it is important to lay out the facts. Ross Gittins, in an opinion column on 15 November last year, wrote as follows:

'Even the press gallery is buying the Libs' propaganda about excessive, wasteful spending and the need for swingeing spending cuts to get the budget back on the rails. Nonsense. The real story is how amazingly responsible the government's been.'

He goes on to say:

'From the start, the government adopted a "deficit exit strategy" to bank all revenue growth and limit real spending growth to 2 per cent a year until the budget was back in surplus. No government has ever voluntarily donned such a chastity belt.'

Those opposite would have you believe that Australia's government debt is out of control, and they would do so because I sometimes believe they live in a little bubble, a little bubble in which climate change is not real, a little bubble in which you can ignore everything happening in the rest of the world, a little bubble in which the only thing that drives asylum seeker arrivals is Australian policy rather than wars going on overseas. Of course, if you take a global perspective, and any responsible economic manager does take a global perspective, you are immediately struck by how low Australian public debt is.

A special report on the world economy in The Economist quoted research by Carmen Reinhart of the University of Maryland and Ken Roghoff of Harvard University looking at the effects of a couple of centuries of sovereign debt. It reads:

'Their verdict is that public debt does little discernible harm until it reaches about 90% of a country’s GDP, but then the effect on growth can be sudden and big.'

This is relevant because there are OECD countries that are looking at debt loads at that level. Every member of the G7, according to The Economist report, will go over a threshold of 77 per cent of GDP. The article noted:

'The IMF says governments should aspire to cut their debt ratios back to 60% by 2030. To do so they will have to perform some fiscal heroics.'

Australia is simply not in that ballpark. Our debt level remains well below 10 per cent of GDP and will continue to do so. The government will bring the budget back into surplus in 2012-13. Australia is better off for having taken on that public debt. That is what mainstream economics tells you. When faced with the largest global downturn since the Great Depression, it was the right decision to put in place a timely, targeted and temporary fiscal stimulus—saving 200,000 jobs and tens of thousands of small businesses—and then to responsibly pay back that debt. At the end of that, not only do we have lives that were not blighted by periods of unemployment and small businesses that did not go to the wall but we also have public assets future generations will look back to: public assets such as some of the valuable school infrastructure in my own electorate of Fraser; infrastructure such as the Amaroo school's investments that allow their teachers to do team teaching; and infrastructure such as a school hall that allows all of the children in Black Mountain special school to attend the same assembly. It is infrastructure of which I am proud, and I wish those opposite were equally proud of it.
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ABC24's Capital Hill

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A Nudge in the Right Direction

I'm not in the habit of linking to corporate press releases, but given how many people find themselves falling foul of unduly complex mobile phone plans, this is a welcome announcement:
Telstra consumer mobile customers soon will be able to use their phone’s data service without the risk of an unexpectedly high bill, commonly known as “bill shock”.

They will be among the first in the world to have their data speeds slowed when they exceed their mobile data allowance and not be charged for excess domestic data usage.  The changes are in development and will be launched by year’s end.l
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Centenary of Canberra


Centenary of Canberra, 23 May 2011

When Canberra turns on its charm and offers that perfect day—the sun shines, the water glistens and the temperature is neither too cold nor too hot—it is easy to see how this city charmed the federal parliamentarians who visited in 1906 and 1907 on their tour of potential sites for the new nation's capital. Originally Canberra was not the preferred location of either the media or the politicians. But for the perfect Canberra day on 13 August 1906 and then again on 23 August 1907, the parochial interests of a Premier and the change of heart invoked by a Victorian senator, our nation's capital could have been somewhere entirely different.

On 23 May 1912, entry No. 29 by Walter Burley Griffin, a landscape architect from Chicago, Illinois, was declared the winner of the competition to design Australia's new federal capital. Walter Burley Griffin heard about the Australian government's competition to design the national capital while on honeymoon with his wife, Marion, in 1911. Although it was Walter's name that headed the entry, theirs was very much a collaborative effort. Without Marion's elegant drawings, it is unlikely that Walter's design would have grabbed the judges and lifted it above the 136 other entries in the competition. The winning design incorporated leading international ideas of the day in the science of town planning, such as the 'city beautiful' and 'garden city' movements. Yet, for the city to flourish, Griffin believed it also needed a community with 'great democratic civic ideals'. He wanted Australia's capital to be a place where citizens enjoyed a high quality of life based on 'egalitarian legislation, genuine public spirit and organic, scientific cities'. The 13th March 2013 marks the Centenary of Canberra. The Australian government recognises the national importance of the Centenary of Canberra as the national capital. We have been working closely with the ACT government to develop a program of events in the lead-up to and in the centenary year. The Australian and ACT governments have established an intergovernmental working group under an agreement signed in December 2008.

Along with the support of the Centenary of Canberra creative director, Robyn Archer, the working group have identified centenary national program activities, activities that have national reach and engage communities right around Australia, not just residents of the ACT. For example, the draft program includes the construction of the Canberra Centenary Walking and Cycling Trail. The trail will guide walkers and cyclists through urban and nearby rural areas, incorporating a variety of iconic and lesser known locations that tell the story of Canberra. The ideal for the trail was raised from community submissions received as part of the Canberra 100 call for centenary projects. Taking in existing fire and walking trails, it will merge with new ones. It will start here at Parliament House and loop around the ACT through locations including Anzac Parade, the Australian War Memorial, Lake Burley Griffin, Mount Ainslie, Mount Taylor, Red Hill, the National Arboretum, Stromlo Forest Park and Mulligans Flat Sanctuary. A result of the partnership between the Australian government and the ACT community, the Centenary Trail will be a gift to Canberra and visitors to our city for years to come.

The Australian government's commitment to the Centenary of Canberra is evidenced by the recent announcement in its 2011-12 budget of $6 million over three years as a contribution to the centenary national program. The Australian and ACT governments are keen to collaborate with all stakeholders to ensure the success of this activity and the entire national program. The final size and shape of the program is currently being negotiated with the ACT.

Our national capital is a source of pride for all Australians. The Centenary of Canberra is a unique opportunity to celebrate this historic moment and for the Australian government to continue its conversation with the Australian people about the kind of nation we want over the next 100 years. As the federal member for Fraser and father of two young boys who proudly call Canberra home, I welcome the positive attention being paid to this city by the member for Menzies. I would also encourage the opposition to support the initiatives being put in place by the Australian government to celebrate the Centenary of Canberra, such as the Centenary Trail and new investments in the National Arboretum. I know they will join other national institutions in enriching the lives of the city and the nation.
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Indigenous Affairs

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AM Agenda 23 May 2011


Transcript (courtesy of JB)

GILBERT: Welcome back to AM Agenda, with me now is Jamie Briggs and Labor MP Andrew Leigh. Guys, thanks for being here. Jamie, first to you. The Climate Change Commission report has said that the science is done, the debate has been had. Yet you still have some Liberals this morning, Dennis Jensen on the doors this morning said that temperatures are actually levelling out. You do have a number of climate sceptics, is that damaging for the Coalition?

BRIGGS: Our policy is that we accept the science and we have got a bipartisan target with the Labor party. Both parties agree that their needs to be action on climate change. Both parties have agreed to a five per cent reduction by 2020. And all we disagree on is the method on which we get there. We have a policy which is about direct action carbon, green carbon so speak, and the soil, about cleaning up the dirtiest of power stations to reduce our emissions by 5 percent.

GILBERT: So you obviously believe that the science, although a number of your colleagues don’t?

BRIGGS: Oh look well it’s a free country still Kieran, last time I checked, people are entitled to a view. But ultimately it is the policy that matters. Now we have had the same policy for about 18 months now. When we first announced the policy we took it to an election and we stuck with it after the election. I know that is an unusual concept and I know that the Labor Party aren’t that finding that something that they do, because of course at the election the Labor Party announced one hundred and fifty people from a phone book to tell them what your climate change policy is. They said they would not have a carbon tax. Just after the election they announced a carbon tax and today we hear that that is going to put up electricity prices by double, from the electricity industries. So the story here is that we both have a target, it is five percent reductions by 2020. We just have a different method of getting there.

GILBERT: Andrew, I spoke to Professor Steffen earlier who worked for the ANU, he is the lead author of the Climate Commission. He was not at all scathing of the direct action approach, he said it needs to be part of the solution, but he was not critical at all of this idea of taking direct action.

LEIGH: Well Kieran you have got to recognise where this report is coming from. It is very clearly stating that there is overwhelming scientific consensus that the world is warming and humans are causing it and yet we have this frightening situation where every other seat in the Coalition Party Room is taken by a climate change denier, somebody who doesn’t believe that global warming is happening. That is incredibly dangerous because it means that Tony Abbott has now put in place a policy that is designed to be easily repealed as Malcolm Turnbull pointed out last week. The thing is, if you look across economists the consensus is as strong as it is across scientists. Economists almost universally back the idea that you should use a market based mechanism pricing carbon. I will be curious if the Jamie can name one, even two economists who would back a direct action plan. I have not been able to find any and frankly Tony Abbott has had the same problem.

GILBERT: Well if it is such a compelling case, why has the Government struggled to prosecute it, so badly to this point?

LEIGH: Well look Tony Abbott is very good at doing one thing and that is saying no, he is running a small target strategy at the moment. He is running a strategy as saying no, no, no to absolute everything and he has been prosecuting that very strongly. You see him at weetbix factories talking about climate change; I mean this is frankly ludicrous. Where by contrast, we have Tony Abbott’s colleagues in the UK, the British conservatives, to Margaret Thatcher, who are entirely comfortable with the idea that you would have an emissions trading scheme.

GILBERT: There are a lot of people who seem like they have stopped listening though;

LEIGH: Use the market to price carbon.

GILBERT: A lot of people have seemed to stop listening to you and your government. What, how do you turn them around? I mean that’s a compelling and a very easily argument to prosecute and one which Mr Abbott has been very successful at thus far.

LEIGH: Well Kieran, somebody said to me last week ‘good policy is good politics’. And I think frankly that is exactly the right way to go. We have to be absolutely clear that this is going to be a tax on the thousand biggest polluters. At the moment they can put as much pollution into the atmosphere as they want to. We are saying that if they are putting carbon pollution into the atmosphere, they should pay for it. We should provide assistance.

BRIGGS: That’s interesting.

GILBERT: Jamie, you can respond to that as well, but Will Steffen said that on its own, direct action is not enough to deal with this. Now what do you say to your kids and the next generations, that’s two generations apparently this report says, unless there is action now in the next ten years…

BRIGGS: Well let’s get to basis here, five percent target, bipartisan. Five percent reduction by 2020 that is the bipartisan target. We can get there with direct action by cleaning up the dirtiest of power stations, by investing in soil carbon, the Labor Party want to have it with a tax. Now I would say to Andrew, who is compelling in his argument, he seems convinced by his own arguments that if they are so convinced, take it to an election, do the right thing. I mean the problem here is good policy is good politics. And I think it is being told in the story at the moment about how people are receiving this. About how good of policy this is. If they are so convinced about this policy and about how people are receiving this about how good of policy this is, if they are so convinced, if they are so convinced that this is the way to go, do the right thing and take it to the election.

LEIGH: Well Jamie it is very clear why you would make that argument because when the carbon price comes in next year, then this scare campaign that Tony Abbott has been running around the country will be exposed as hollow.

BRIGGS: That’s complete rubbish.

LEIGH: It will be very clear that the sky has not fallen.

BRIGGS: Do the right thing.

LEIGH: Carbon pricing has modest price impacts. We can see that, I mean the Labor Party has been consistent…

BRIGGS: Why was the Prime Minister not honest at the last election? Why did she not tell the Australian people that this is what she wanted to do?

LEIGH: We have been consistently pointing out that Tony Abbott scare campaign is entirely overblown. The impact of the CPRS on a weetbix, is a tiny fraction of one cent. This negativity that we see relentlessly from the Opposition is now starting to have blow back. I mean we can see first Malcolm Turnbull, now Joe Hockey, deeply concerned that the Coalition is nothing but negativity. Just driving a small target.

BRIGGS: I think this sums up the desperation of the Labor Party. The really personal vicious attacks on Tony Abbott, I think it sums up exactly where the Labor Party is at.

GILBERT: Asylum seekers. Scott Morrison is calling for another enquiry. Why not have another inquiry into the broad system because it is obviously enormous pressure if not dysfunctional right now?

LEIGH: Well Kieran, we have had particular enquiries into the Christmas Island affair and into the Villawood affair, but if we are going to look at the broad inquiry, I suppose you would want it to encompass the entire range of issues that have been faced in the detention centre. The Cornelia Rau affair, the children over board affair, the break outs from Baxter and Woomera, all of which occurred under the Coalition. The fact is that at the moment you have isolated incidents, the rate of those incidents is not tangibly higher than it has been in previous years, the Government is pursuing a very clear policy which is to send a tough message to people smugglers to make sure that they don’t put little kids on boats to come to Australia and also an humane way to slightly expand our refugee intake by about a thousand a year.

GILBERT: Jamie, as Andrew said a number of inquires already under way, is this not a stunt? As Chris Bowen says it is.

BRIGGS: No, not at all.

GILBERT: As Chris Bowen says it is.

BRIGGS: No, this is a very serious issue and I respect Andrew doesn’t have a detention facility in his electorate like I do, and the stories coming out in the media last week in Adelaide about allegations that SERCO officers have been rough with young people, allegations that SERCO officers have been having violence against them. It is a detention facility remember in which the Labor Party claims is their family friendly facility. Now if this is true and reports are true that are coming out, we really do need an inquiry into this. I think it reflects on the consequences of the mismanagement of Australia’s borders what is happening within these centres and from what we hear I think it is very disturbing, I think it is very concerning and I think Scott Morrison yet again is on the money with this call.

GILBERT: Okay, well one last, one last issue before we wrap up, you have got a big day ahead with Parliament back. Joe Hockey and Tony Abbot apparently had a clash over the phone. Jamie, Joe Hockey was angry at being hung out to dry over the tax treatment of trust. Is this just healthy robust discussion among the leadership or is there something more here?

BRIGGS: Well look I don’t have the benefit of being patched into conversations between our senior colleagues. As a very junior, you know insignificant back bencher, I don’t get to play part of the broader debates. Look at you know I think there is a big difference between the Labor Party and the Liberal Party at the moment, we are getting along and getting on with the job very well. We have of course from time to time, debates about policy issues, that is normal for anyone. We don’t have the Foreign Minister running around the world, making prime ministerial visits day after day, meeting with world leaders week after week, not turning up to community cabinets, acting like he is some sort of lone wolf leader of the Labor Party while building his rankings. I noticed the Galaxy Poll on the weekend had him about five lengths clear, sort of a black caviar of the political industry of the Labor Party at the moment. That far clear, so I think there is only one party at the moment that has got some leadership.

GILBERT: In terms of the PM’s position at the moment, obviously there has got to be a few nerves on the back bench with the polls as Jamie said looking so bad as they are.

LEIGH: Look Kieran, I think the Prime Minister is getting on with the job that focusing on long term reforms that is long term reform in the area of education, long term reform in the area of climate change. It is an extraordinary comment that the successor to Alexander Downer has just made, that the Australian Foreign Minister shouldn’t be meeting with foreign leaders.

BRIGGS: Foreign leaders?

LEIGH: I mean this is deeply concerning. That our foreign minister should some how just be confined to staying in Australia, I don’t understand that one.

BRIGGS: Alexander loved the Adelaide Hills.

LEIGH: We certainly talk about that. But certainly the Opposition is really having a debate at the moment as to whether it is going to small target negativity or whether it will actually come up with ideas.

BRIGGS: I think the obsession that the Labor Party has with us is quite profound.

GILBERT: I am sure it is. I am sure it will continue throughout the day and throughout the week.

LEIGH: There's a difference between Opposition and opportunism.

ENDS
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8/1 Torrens Street, Braddon ACT 2612 | 02 6247 4396 | Andrew.Leigh.MP@aph.gov.au