Andrew Leigh

I spoke in parliament yesterday about Private Robert Poate, a young Canberra man killed in Afghanistan.

Private Robert Poate, 10 September 2012

Among the fallen that we remember today is Canberra-born Private Robert Poate. This young, promising and highly qualified soldier's life was cut short by a rogue Afghan solider in Oruzgan province last month. He was on his first tour of duty. Today we offer our deepest condolences to Private Poate's colleagues, friends and, most of all, his family: Hugh, Janny and Nicola. As a soldier, a mate, a brother and a son, this tragic loss has been keenly felt by Canberra's close-knit community.

After enlisting in 2009, Private Poate rapidly earned a reputation for his professionalism and his leadership qualities. Private Poate completed specialist training as a Protected Mobility Vehicle Driver one year after his initial employment training and went on to complete training as Protected Mobility Vehicle Commander last year.

He was also renowned for his strong leadership skills, completing a promotion course for corporal, also in 2011. Private Poate was recognised for his achievements and was awarded the following awards: the Australian Active Service Medal with clasp ICAT, the Afghan Campaign Medal, the Australian Defence Medal, the NATO Non-Article 5 Medal with clasp ISAF, and the Infantry Combat Badge.

But, beyond the official acclamations, Private Poate will also be remembered for his larrikinism. His close friend rugby paralympian Cody Meakin remembers Private Poate as being 'just a lad'. He said:

‘He was cheeky, always had a cheeky grin. Nothing ever phased him … He was just a top bloke, one of the most genuine and loyal blokes I had the pleasure of hanging out with. He always had time for me. Not because he felt sorry for me, but because he genuinely wanted to hang out.’

Cody Meakin has since had his wheelchair inscribed with a special tribute to his fallen friend. He says:

‘… hopefully it'll give me a bit more in the tank, to try that little bit harder …’

Private Poate's brothers by choice in the 6th Battalion of the Royal Australian Regiment offer a similar portrait:

‘Private Poate had a reputation for creating mischief without getting caught and was proud of his family, his military service, his Canberran origins, and his red hair, which he vehemently defended as being strawberry blonde.’

The broader Canberra community also share warm memories of Private Poate. Justin Garrick, the head of Canberra Grammar School, where Private Poate spent 15 of his too short 23 years, recalls:

‘… an open and purposeful young man and an all-rounder in the academic, sporting and co-curricular life of the School. He was also the son of Mrs Janny Poate, who recently retired as receptionist at the front office of the Senior School after more than two decades’ association’

The service that was held at Canberra Grammar to remember Private Poate reminds me of that quote sometimes attributed to the Duke of Wellington that the Battle of Waterloo was won on the playing fields of Eton. All the descriptions of Private Poate paint a portrait of a talented, spirited and fiercely loyal young man. His death is a loss for the whole nation.

He died in a green-on-blue attack, part of a worrying trend in Afghanistan. This year over 30 NATO troops have died from such attacks, more than twice as many as last year. The leader of the US war effort in Afghanistan, Marine General John Allen, is convening a meeting of all US and NATO flag officers to assess the phenomenon. I am not sure that we know everything about what is causing these green-on-blue attacks, but I do think in part that they reflect our success in changing the Afghan military for the better. I think what we are seeing with these green-on-blue attacks is the desperate attacks of an extremist movement that knows it has run out of all other options apart from infiltrating the Afghan military. I do hope we are able to revamp the screening processes for Afghan soldiers, because the abuse of trust that these green-on-blue attacks cause is extraordinarily damaging for Australia in Afghanistan.

The loss of Private Poate reminded me of those classic words from Pericles's funeral oration—2,500 years back, but they ring through the ages. He said:

‘… for the Athens that I have celebrated is only what the heroism of these and their like have made her … none of these allowed either wealth with its prospect of future enjoyment to unnerve his spirit, or poverty with its hope of a day of freedom and riches to tempt him to shrink from danger … reckoning this to be the most glorious of hazards, they joyfully determined to accept the risk …’

As Pericles said:

‘So died these men as became Athenians. You, their survivors, must determine to have as unfaltering a resolution in the field, though you may pray that it may have a happier issue.’

The selfless bravery of Private Poate and the other brave men who have lost their lives in Afghanistan, their dedication and their service should provide this House with a great perspective on our own responsibility. His contribution has made a difference. It will not be forgotten. May he and his fellow soldiers rest in peace.

I opened the new national office of the Australian Republican Movement last night.

Opening the National Office of the Australian Republican Movement
10 September 2012

[Acknowledgements omitted.]

There is no more appropriate place for the ACT National Office than in Canberra, the one jurisdiction in Australia that voted for a Republic in 1999.

Of course, Canberra also voted for Waltzing Matilda as our national song.

So if the rest of Australia was like Canberra, we’d be a Republic with a national song about a sheep rustler.

This is also a great suburb in which to have the ARM office.

Not only are we a stone’s throw from my home in Hackett, but the suburb of Watson carries a great lineage.

Chris Watson was Labor’s first Prime Minister.

He only lasted 3 months in the job but I am sure your term of office here will far exceed this.

There are also similarities between the ARM and Watson.

Courtesy and tact.

The ability to turn defeat into victory.

Having lost office to George Reid’s conservatives, Watson later helped to end Reid’s Government.

In similar fashion I know the next referendum for an Australian Head of State will favour Republicans.

Watson is also home to the Australian Catholic University. And ACU Vice Chancellor (and Republican) Greg Craven has a neat line in his book Conversations with the Constitution that sums up the challenge of the Republican cause.

‘Saying the Australian Constitution does not have a strong hold on our popular imagination is like saying fish survive better in water than on land: a statement so obvious as to be remarkable only because someone could be bothered making it.’

But that does not make it an insurmountable challenge.

The more time I spend observing and studying politics, the more I realise the importance of opportunity and timing.

I do believe that when the opportunity presents itself for change our Constitution will have a stronger hold on the imagination of Australians.

The challenge is create a sense of urgency and need for Constitutional reform.

However, I fear the task just got more difficult.

Prince Harry might be doing too good a job of promoting the attractions of the Monarchy.

But more seriously, we are now in a new media space that will require a new and innovative strategy if we are to create the desire for change.

Inane repetition of slogan and appeals to the lowest common denominator are an easy path for Monarchists, and frustratingly do gain traction though the media.

Phrases like ‘Don’t know? Vote no.’, and ‘Vote no to the politicians’ Republic’ were used effectively against the Republican cause.

Their architect, Tony Abbott, is still putting to use the strategies he first deployed in 1999.

The good news is that they eventually lose their potency.

It proved true – over a century on – for the anti-Billites who opposed federation.

It is proving true now with the Coalition.

It will prove true for our progression to being a Republic.

Conclusion

People often suggest that the timing of Australia’s Republican revival depends on the demographics of the Royal Family.

But I think Australia’s demographics matter more.

Australia’s future lies in our region. We have been enriched by Asian migrants, and so many of us now work, study and holiday in Asia.

In a submission to the Asian Century White Paper process, Senator Lisa Singh and I argued that a corollary of our engagement with Asia is Australia becoming a Republic.

The other demographic change is generational.

I want the children here today  to be able to aspire to be Australia’s head of state.

They deserve no less.

It is with the greatest pleasure that I open the new national office of the Australian Republican Movement.

And while I am pleased to do this, I will be even more delighted when we return to close it.

When the work of the ARM is done, and Australia has finally become a Republic.

I recently surveyed the Fraser electorate on their experiences with local child care.

The headline results? Most people are happy with their child’s care, many still collect the Child Care Rebate either quarterly or annually despite fortnightly now being an option and it’s about a 50/50 split as to whether parents are prepared to pay higher fees for reduced staff turnover and higher salaries.

Child Care Rebate

To me, the most surprising result was the number of people collecting the Child Care Rebate either quarterly or annually. On the face of it, it seems to make sense that receiving the benefit either fortnightly or paid directly to the centre might make it easier to balance household budgets.

While different financial arrangements obviously work for different families, it may just be that some families aren’t aware that you can receive the Child Care Rebate fortnightly or have it paid directly to the child care centre.

Even more concerning is that Kate Ellis, the Minister for Early Childhood and Child Care, said earlier this year that an estimated 1400 families in the ACT are eligible for the Child Care Rebate but not receiving it. I’d encourage all families to check whether they’re eligible for this support.

Happiness with care

The results showed a generally positive experience, with 79% of respondents saying they were ‘happy’ or ‘very happy’ with their child’s care. The experience across the electorate was relatively homogenous, at 81% for the Inner North, 79% for Belconnen and West Belconnen, and 74% in Gungahlin.

I’ve met many hard-working Early Childhood Educators, particularly through the Big Steps in Early Childhood Education and Care campaign run by United Voice and it’s great to see that parents recognise their hard work and dedication.

If you use formal care, would you be willing to pay higher fees in order to increase the salaries of staff and reduce staff turnover in centres?

While the overall split on this question was 55% in favour and 45% against, this was the one part of my survey that showed the strongest geographic difference within the electorate of Fraser. Belconnen/West Belconnen and Gungahlin showed remarkably different results on this question.

I’m aware of the strain that child care can place on a family’s budget, but one of the iron rules in politics is that there is never enough money for all the good things government wants to do. So I wanted to canvass parents’ views about the right trade-off between price and salaries.

In the free text area, many parents noted they already pay higher fees for their care and several also asked for the Government to contribute to better wages.

Working arrangements

I also asked respondents to tell me their working arrangements, and (if applicable) their partner’s working arrangements[1]. As most of the responses to my survey came through local child care centres distributing this to parents, it’s unsurprising to see responses generally skewed towards people working full-time and part-time using formal care.

There were again some slight differences within the electorate. 42% of families in Gungahlin had two parents working full-time, while in the Inner North this was 26% and only 20% in Belconnen/West Belconnen.

Conclusion

Early childhood education and care is a big policy challenge for government. The Prime Minister and Minister Kate Ellis have been working with the sector and I’ll pass on my findings to them to let them know about local experiences with child care. I’m very grateful for the feedback in this survey. You may also be interested to read Stephanie Peatling's writeup in the Sun-Herald.

I’d love to see more eligible families collecting the Child Care Rebate. Each year I host a ‘Welcoming the Babies’ event and I’ll make sure I provide more information on who is eligible for the Child Care Rebate and how parents can receive it.

If you didn’t take the survey, you’re still welcome to tell me your views. Send an email to Andrew.Leigh.MP{at}aph.gov.au to let me know what you think.

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[1] Fewer than five respondents did not state working arrangements for a partner

And if you'd like to watch Jan's other interviews (including with Eric Leeper and Don Brash), they're available on his YouTube channel.

Transcript



Dr Jan Libich: Welcome to La Trobe University in Melbourne. My name is Jan Libich and I’m privileged to have Dr Andrew Leigh here. Welcome Andrew. Thanks for joining us.

Dr Andrew Leigh: It’s a pleasure.

Dr Jan Libich: People see you now as a politician, due to your seat in the Australian House of Representatives for the Labor Party. But it should be mentioned that you were actually previously an Economics Professor at the Australian National University. I think one of the most prolific economics researchers. So, what we’re doing today: we’re going to try and merge your expertise in both economics and politics, and we’re going to focus on economic policy.

Specifically, we’re interested in how academic research can actually contribute to policy design and improve policy outcomes. Let’s start with education. In one of your papers, I think in 2006 with Chris Ryan, you’re looking at the quality of school teachers in Australia. You find a downward trend, you find a decline in the quality of the teachers. Then you look at possible explanations and you come up with teachers’ pay as one of the variables. Can you tell us what happened to teachers’ pay over time, and how it may link to teachers’ quality?

Dr Andrew Leigh: Absolutely. So the story of the academic aptitude of new teachers is that in 1983 the typical teacher was at the 70th percentile of the aptitude distribution – in the top 30 per cent of her class. By 2003, she was at the 62nd percentile – the top 38 per cent of her class. Chris (Ryan) and I talk about a number of possible explanations. One is this trade-off that policymakers made from the late 1980s to the early 2000s between cutting class sizes, but not increasing the overall salary budget commensurately. So roughly you saw a 10 per cent cut in teacher pay, relative to other occupations, and a 10 per cent cut in class size. So it’s almost like the new teachers were being paid out of the wallets of the existing teachers.

Then, you had some other factors going on. You had the fact that gender pay discrimination in the professions was rampant in the 1950s and 1960s. So it was almost like we were corralling Australia’s most talented women into teaching and nursing and as those gender pay gaps fell, we then saw a drop off in the share of suitably talented women entering teaching.

Thirdly, I think there’s also an increase in earnings inequality in the rest of the labour market, which posed a particular challenge for teaching. Teachers traditionally operated off uniform salary schedules.

Dr Jan Libich: Let’s think of the consequences. You have a 2009 paper where you’re actually looking at student outcomes. You look at the numeracy and literacy scores for Australian school children and you find a worrying trend. You find that there has been a decline in the scores. Given the increases in the expenditure per student, at face value it would imply a fall in the school productivity.  Can you tell us a little bit about that and how it actually links to your previous study about lowering of teachers’ pay?

Dr Andrew Leigh: Yes. School productivity is one of these ugly phrases that economists love and educational policy makers hate. But essentially, what you described is the trend we found. We went back through the dusty archives to try and find instances in which precisely the same maths or English question had been asked of successive cohorts. So, same wording, certain share of kids get it right in one test, another share of kids get it right in another test. We find flat or perhaps even declining test scores across a couple of different tests. One possibility is that the trade-off between dropping teacher pay relative to other professionals, and cutting class sizes, was actually the wrong trade-off to be making in that period.

Then there’s other possibilities, such as potentially changes in curriculum affecting outcomes.

There’s also a set of social changes, but to the extent that Chris (Ryan) and I can hold them constant, it doesn’t look as though things like more TV watching or a rise in single-parent households, or rise in kids from non-English speaking backgrounds explains much of it.

You’ve actually got trends that go in the opposite direction. Not just the spending, but also the fact that more kids than ever before have a parent with a tertiary education. So, it’s a bit of a black box. We can tell that Australia’s school kids in Year 8 or 9 aren’t scoring better than they did a generation ago, and I think that poses a pretty big challenge for policymakers like me.



Dr Jan Libich: If you combine the two findings, it kind of seems like a no-brainer. You have lower teachers’ pay, you’ve got lower quality teachers and then you have worse student outcomes. You’re suggesting that might be too simplistic. It may not explain the whole story.

Dr Andrew Leigh: I certainly think that teacher quality is important. One of the things that always surprises me is that parents worry a huge amount about which school their child attends. Yet, they worry very little about which teacher their child is taught by within a school. Yet, we know that the within-school variance is higher than the between-school variance. So I think that does suggest that we ought to be focusing on teacher quality. I think programs such as ‘Teach For Australia’ and ‘Teach Next’ are important in attracting alternative career entry. I think it’s also really important to think about retention of great teachers in the profession. That’s a key issue for policymakers. It’s not the only one. Test score accountability and the right level of principal autonomy matters as well, but teacher quality is pretty much my number one educational issue.

Dr Jan Libich: Okay, so what would be some of the policies to try to reverse this. You mentioned class size. Does that matter so much, as much as it was believed?

Dr Andrew Leigh: Certainly, we know that cutting class sizes down from 40 to 30 has a big impact on student outcomes. Cutting class sizes once they fall below 30 probably has smaller impacts. The research is varied. You have ‘Tennessee Project STAR’ suggesting still positive effects going from 22 down to 18. But I think now you’re probably down to a point where you want to think about teacher quality and teacher pay as being the top priority.

Dr Jan Libich: One of the critiques of the approach, and it’s not just the Labor Party’s approach, it’s the approach across the globe, is that it’s more of a top-down approach. The politicians kind of have an idea what the education system should look like. They try to impose it and a lot of critique is around school autonomy and there is some evidence that it is important for schools to have the autonomy to set various things like exams and other things. What do you think about this trade-off?

Dr Andrew Leigh: I think determining the right level of school autonomy is the most important thing. That partly turns on what principals feel they’re able to do. If you’ve got a principal who is comfortable managing the lawn mowing contracts and wants the flexibility to save money on lawn mowing so they can spend it on textbooks, then that’s fine. But if you’ve got a principal who mainly wants to be an educational leader and actually doesn’t want to spend a lot of their time working out how the budget’s going to look, then you don’t want to thrust upon that principal more autonomy than they’re ready to handle. So I think this is one of these areas where the people who become principals are important to thinking about the autonomy we should give them.

Dr Jan Libich: Let’s move to tertiary education because there are similar themes that apply. You have a study from 2007 where you look at the various returns to education. Specifically regarding tertiary education, you find that there’s a high personal benefit. Something in the order of 15 per cent increase in salary for every year of tertiary education. Now in regards to that, there’s a recent Grattan Institute report that is making the very same findings. And they argue based on that, that we can actually start reducing the education subsidies because students are basically getting all the private benefits, so we don’t need subsidies. What’s your view on this?

Dr Andrew Leigh: So clearly the private benefits are very large, as you said, 15 per cent a year. So a three year Bachelor’s degree is earning a student something in the order of (up to) 50 per cent increase in earnings. Most of that is through productivity.

Then the question is: how much are the private returns also matched by social returns? And sadly the social returns are easier to list than they are to measure. So you can list returns such as better productivity, so if you have more education and we’re sitting next to each other in adjoining cubicles, I might learn a lot from you and become more productive. A higher education might also mean that you have less of an impact on the health care system. It’s probably unlikely to have much of an impact on crime. Increased secondary schooling I think could well have social payoffs in crime. I’m less sure about universities.

And there might be political participation payoffs of which I think we’re fairly uncertain. So all of that adds up to, I think, big confidence intervals around what the social payoff to education is.

The Grattan Institute report seems to take a strongly rational view on debt. It seems to say we can ramp up student contributions without affecting equity outcomes. But what I worry about is there might be some degree of debt-aversion which even if it isn’t backed up by a rational model, could still lead kids from disadvantaged backgrounds to balk at a high sticker price. And to refuse to take on a university education. It would be good for them and would have big social payoffs.

Dr Jan Libich: Well I think the report does a pretty good job to try to present evidence that people from lower socio economic backgrounds would not be disadvantaged and it wouldn’t impact too much on them actually entering university. Also, there’s international evidence to that effect. So you still worry that that could occur?

Dr Andrew Leigh: But they’re testing out of sample, Jan. So the two best experiments we have are the ones that Bruce Chapman and Chris Ryan look at. The introduction of HECS and then the introduction of differential HECS in the late 1990s, which sees higher HECS bills again. But those increases are of a much smaller magnitude than is proposed in the Grattan Institute report. So students now may be asked at the end of their university education to pay back a debt equivalent to a small car. I don’t think that then tells us that we could increase their debt to be enough to pay off a small plane, and they wouldn’t balk at it.

Dr Jan Libich: Okay. Let’s move to other microeconomic policies. You were quite instrumental in your research in highlighting the fact that some government policies badly implemented can have severe distortionary effect on people’s behaviour. The study that pops into my mind is your 2006 study with Joshua Gans where you look at the introduction of the baby bonus and the timing of births. Can you tell us what it was about?

Dr Andrew Leigh: Sure. The baby bonus study centres around a policy change put in place by the Howard Government. They said any baby born on or after the 1st of July will receive $3,000. They were asked: what about a baby born on the evening of the 30th of June? And the Minister was very clear that such a family would not receive the baby bonus. There were rumours around this time that this had caused shifting of births and overcrowding in maternity wards. Joshua (Gans) was very close to the issue because his wife had one of their children in the July just after the baby bonus came into effect.

Dr Jan Libich: Was his child one of those that was moved?

Dr Andrew Leigh: Well, they had some difficulty getting an obstetrician at the time and that’s indeed what we find from the data. This is one of those studies where you actually don’t need much fancy econometrics. There is one day in Australia in which more babies were born than any other day in Australian history. And that’s the first day the baby bonus was introduced. You just see the graph spike up and then what’s troubling is that you see the birth rate higher even in the second week of July than it should have been. Suggesting, that of the thousand births that were shifted from June into July, a non-trivial share - may be a few hundred - were shifted by a couple of weeks. Generally, when we’re thinking about the health of babies, we’re worried about premature births but there’s also some evidence that babies that are in the womb well past term might suffer health consequences as well. So, while we didn’t find anything that was conclusive, we were concerned that the sharp introduction of the baby bonus had actually had adverse health consequences.

Dr Jan Libich: You basically warned against this, but then there was another step increase in the level of the baby bonus, I think twice, and the same thing happened. Although the spike was a little bit less.

Dr Andrew Leigh: That’s right, yes. So the Howard government then went and increased the baby bonus. Having introduced it in July 2004, increased it in July 2006, and just in case you’d thought the first result was a fluke, we saw the same effect in July 2006 again. We had released our study just prior to that in order to try and persuade the government to just step in the change. They didn’t and you again saw births shifting.

Dr Jan Libich: So, you’re basically now moving onto the question of how we can improve the design of policies to avoid these kind of distortionary outcomes.

Dr Andrew Leigh: Yeah, I think we want to think about introduction effects - it’s what Joshua (Gans) and I call it. So normally when we think about policy distortions, we think about the steady state effect of a policy. I think we ought to also make sure that when a policy is put into place, it doesn’t generate perverse incentives. Those introduction effects are not as critical as the enduring effects, but they matter and there’s simple ways to get around it. So for example, the Health Minister wrote to obstetricians prior to Labor’s increase of the baby bonus to make them aware of the fact that there had been births shifting previously and to encourage them to make sure that birth timing was only done with the health of the baby and the mother in mind. I hope that had some effect in reducing the degree of births shifting.

Dr Jan Libich: It’s peculiar because the government could easily change the policy. But instead they’re going to write an email to all those obstetricians asking them to do something, rather than actually changing the policy.

So far we’ve assumed that the baby bonus was actually a good policy, but is it really the case? Do you think that it’s something that’s desirable?

Dr Andrew Leigh: Well the best argument you can make for the baby bonus is that if families are credit constrained at the time of the birth, then this provides extra liquidity for families at the time the baby is born. And that any drop in expenditure at the time of the birth could have substantial adverse consequences. So, think about a family that has difficulty keeping the heat on, providing enough food, making sure that the parents are in good harmony. If you can stop there being shouting in the household in the first few months of a baby’s life, you might well improve the child’s life overall.

Dr Jan Libich: But this effect’s kind of reduced now that there’s not a once-off bonus, but it’s actually phased out over time – it’s paid fortnightly I think. So that’s probably not going to be very helpful to a credit constrained family.

Dr Andrew Leigh: Well, why so? It just means that family then has payments that they receive through the ensuing six months or so. Either through a baby bonus or paid parental leave. I would’ve thought potentially that’s even better for liquidity constraints, if you’re worried that a lump of cash might not be spent entirely on baby-related things.

Dr Jan Libich: Okay.

Now, in terms of the baby bonus, the original assumption, at least on my part, was that it’s trying to do something with the undesirable demographic trends. The fact the populations are aging in Australia as well as in other advanced countries. So that’s not the intention you think, trying to provide extra incentives for people to have kids?

Dr Andrew Leigh: I think it was always principally income support, trying to top up payments at around the time of the birth. To the extent that it was a birth incentive, I think that was given life by then-Treasurer Peter Costello’s statement to radio on budget night: that mums and dads should have one for him, one for her and one for the country. That, I think, is probably a pretty weak argument for the baby bonus. Joshua (Gans) and I didn’t look at it, but there’s a Melbourne Institute study by Mark Wooden and co-authors that estimates that for every extra baby born thanks to the baby bonus the cost to the budget is over $100,000.

Dr Jan Libich: So, talking about the demographic trends, are there any other policies you can think of that can be implemented or reformed to try to cater for the fact that when baby boomers retire it’s going to have a pretty big negative impact on the budget. Can you think of any policies that should be implemented?

Dr Andrew Leigh: So the aged-care reforms that are going on at the moment are aimed at a lot of that. One of the things that we just announced yesterday, which I think is quite clever, is thinking about training of aged care workers. At the moment we train aged care workers and doctors very differently. Doctors are trained in teaching hospitals, which have regimented curriculum programs and experienced doctors to mentor them. Aged care workers tend to just find themselves in whatever aged care home they work in. So we’re actually setting up teaching aged care centres to try to improve the quality of care. And try and also think about the way in which aged care is financed. I think it’s also important.

Dr Jan Libich: Yeah, because this is only going to impose more expenditure on the budget. It’s not actually going to help solve the situation.

Dr Andrew Leigh: Well it imposes more expenditure on Australians as a whole. And I think one of the ways in which you’ve seen the debate shift in the last 15 years is away from the notion that government ought to pay for everything, to the notion that if an elderly couple finds themselves in a situation where they have substantial assets and they want a better quality of aged care, it might be appropriate to ask them to pay for it. Because, really who’s ending up paying for it is the children who are receiving slightly smaller inheritances while their parent receives a better quality of aged care.

I think that conversation’s gotten better in Australia than it was in the 1990s. And structuring sort of appropriate bonds, protections around reverse mortgages – to make sure reverse mortgages can work. These are natural policies to economists to make sure the tax system doesn’t generate perverse incentives not to make a contribution, for those that can afford it, to getting better quality aged care.

Dr Jan Libich: I think the extent of the demographic problem is much bigger than even most people realise. I mean if you look at the projections over the next 25 years, the proportion of people over 65 in Australia is going to increase by about 50 per cent. From about 0.2, to maybe 0.35. So, it’s a major impact, and it’s not only on the pension scheme – Australia’s done a pension reform, which has been copied by many other countries – but it’s mainly health care. I mean, most of the health expenditure occurs in the last year or two of life. So if we had 50 per cent more aged people, that’s going to have a severe impact on the health care budget.

Dr Andrew Leigh: But I think one of the good things that economists have brought to this debate, Jan, is the notion that we ought to not just think of a 64 year old as a 64 year old. In some sense, you know, as Paul McCartney actually said when he turned 64, it’s quite different from what he thought it would be. And you see this. David Cutler has some nice work where he looks at the functional physical mobility of someone who is 64 now and someone who was 64 a generation ago. And you’re finding increases in the order of about 10 years. So today’s 64 year old is as mobile as a 54 year old a generation ago. And so that means people enjoy longer life spans. And another thing I think the demographers miss is that demographers often ignore price effects. As prices change, you also see demands change as well. So I worry that a little bit too much of this modelling is driven by simple age structure and not enough by the way in which we would think about it as economists with the prices included.

Dr Jan Libich: Okay, let’s move onto a different microeconomic policy which regards the minimum wage legislation. You have a 2007 study where you’re trying to assess to whom the minimum wage actually goes. Who’s the recipient? And surprisingly to some people, you find that it’s actually not the low income families but it’s the medium income families. And when you run the simulations the scenario that I found most realistic is actually going to lead to an increase in income inequality rather than a decrease. So, we think of minimum wages as a way to reduce poverty and reduce inequality, but it seems your research would imply that that’s actually a bad idea. So as a politician now, where do you see the minimum wage legislation?

Dr Andrew Leigh: So I find the minimum wage debate enormously frustrating. There’s one side of the debate that doesn’t acknowledge that there’s benefits in terms of earnings - to raising the minimum wage. And there’s another side of the debate.

Dr Jan Libich: Income effects?

Dr Andrew Leigh: Yeah. You raise the minimum wage, a bunch of people get wage rises and while they’re not all poor, they are disproportionately poor. And then there’s another group of people that don’t accept that there could be any dis-employment effects. I think both of those extreme cases don’t make much sense. I think there’s dis-employment effects and I think they’re probably fairly small. I think there’s also positive wage effects, although it actually turns out we have no studies in Australia looking at what the wage effect is, and understanding better how much a minimum wage increase flows through into wage packets is really important. You can write theoretical models in which the answer is ‘none’, or in which the answer is ‘all’, therefore theory tells us nothing and we’d like to have some more empirics. So, I think it is part of an anti-poverty toolkit but I think it will never be the only effective part of alleviating poverty. Things like earned-income tax credits, focusing on the impact of payroll taxes and income taxes, and of course education, are all going to be at least as important in fighting poverty as the minimum wage.

Dr Jan Libich: You have a very interesting study, I think with … just remind me … about predicting …

Dr Andrew Leigh: Ah, with Justin Wolfers.

Dr Jan Libich: Justin Wolfers, yeah, about forecasting election outcomes. And one of the things you do, you compare economic models. You compare the polls and you compare prediction markets. The interesting finding to some people is that you actually find that the prediction markets do very often give you a better answer than the polls. So now as a politician, is your party paying more attention to prediction markets?

Dr Andrew Leigh: Yeah, so you always learn good things from co-authors. With the baby bonus study I was sure when we began it that we wouldn’t find any effects and with the election forecasting paper, I said: Justin why do you want to include this prediction market stuff, isn’t it more interesting just to look at the economic models and the polls? And then he persuaded me that prediction markets were truly fascinating to look at. I certainly look at them, but there’s a large degree of path dependence in politics. That’s true in the commentariat. That’s also true within political parties themselves and so I think the temptation to continuing surveying and the kind of mid-20th century wave is going to be with us for quite a time to come. Despite the fact that it is so extraordinarily volatile. You and I know if you’re measuring something that has a margin of error of a couple of percentage points either way and you want to look at the change in that thing, then if two things measured with a two percentage point margin of error differ by two percentage points then chances are, you’re just looking at noise. But that’s not the impression you’d get if you looked at the front of a major broadsheet on the day they brought out their in-house poll.

Dr Jan Libich: Let me ask you about the influence of academic research, your personal research, on your personal life. So far we’ve looked at policy.

Dr Andrew Leigh: Yes.

Dr Jan Libich: You have an interesting study where you look at how divorce rates, and generally happiness, how it’s affected by the composition of children. You find that if people have a boy and a girl, they are less likely to get divorced. So given that your first child was a boy, I think I can disclose that, were you wishing for a girl as the second child?

Dr Andrew Leigh: So this is what economists would call having convex preferences over child gender. You can tell models in which people ought to enjoy having two children of the same kind for example because they can pass down the blue clothes or the pink clothes to the next child. But in general, you see convex preferences. So, you know, this is partly exhibited in the fact that parents with two kids of the same gender are more likely to go for a third than parents of two kids of different genders. My research also showed they were more likely to split up, not by a great a deal, but 1.7 percentage points which accounts for maybe a thirtieth of the total variation in marriage rates among those families.

But I don’t know whether this is because we’ve talked ourselves into it or whether it was always our preferences. So we’re delighted by the fact that we’re expecting a third boy. I feel like I know how to raise boys. I feel as though I know what sort of holidays we’ll have. They’re going to be active holidays in which we try and all exhaust one another. And I feel as though I know what kinds of empirical lessons I’ll be sitting down to teach my sons. And making sure by the time they turn 10, they understand the fallacy of the sunk cost and they can think at the margin.

Dr Jan Libich: Well, congratulations very much. And I have to say that your wife is due in about a week or so, and it’s exactly the reason why we have to pack up now because you’re catching a plane in about an hour.

We would like to thank you very much for joining us and for your ongoing efforts to contribute to public policy, not only in Australia, but worldwide. So, good luck for the birth – to you and your wife – and we’re looking forward to more of your ideas. And if things don’t work out for you in politics, we’d be very happy to have you back in economics.

Dr Andrew Leigh: Thank you very much. I think there’s maybe an absorbing state but I very much enjoy dabbling in economics and I think the popularisation of economics is enormously valuable and important to the future of our discipline.

Dr Jan Libich: Thank you.

Dr Andrew Leigh: Thanks, Jan.

In the latest Quarterly Essay, I've penned a response to Laura Tingle's discussion of the role of government, social spending, and whether Australians are congenitally cross.

Response to Laura Tingle’s Quarterly Essay ‘Great Expectations’
Published in Quarterly Essay #47 (2012)

In 2002, David Moss described the role of government as being the ultimate “risk manager.”[1] Governments, Moss believed, ought to act as a backstop for things that might go wrong in our lives. Just as we buy private insurance to pool our risk with other customers, so governments allow us to pool social risk across other citizens. You can think of your taxes partly as an insurance premium.

The notion of government as risk manager doesn’t cover the full gamut of what governments do, but it does encapsulate many of their important roles. For example, governments help guard against overseas threats and keep our streets safe. Managing risk explains why we have a social safety net to guard against the risk of poverty, a public health care system to deal with the risk of illness, and a public education system to remove the risk that a poor family might not be able to afford to educate their child.

In the personal tax system, progressive taxation reflects the fact that those of us who earn above-average incomes tend to have been fortunate in our family background, educational opportunities and career breaks. The company tax system considers risk in the way it allows a firm to carry forward losses from bad years to offset profits in good years. The rubric of risk also reminds us that governmental responses to floods and bushfires need to be compassionate, yet not perversely encourage people to build homes in even riskier places.

Risk isn’t the only framework through which to view policy. For example, my colleague Bill Shorten prefers to describe government as consisting of four pillars: the minimum wage, the age pension, compulsory superannuation and Medicare, to which we have now added a National Disability Insurance Scheme. But as an economist, I’d prefer to view the NDIS as a form of risk management. Each of us is just a car crash away from a profound disability, a dice roll in the genetic lottery from giving birth to a child with a congenital abnormality.

If government is the ultimate risk manager, then society needs to decide which risks should be borne by citizens, and which should be taken on by governments. There’s no right answer to this, but it’s easy to see differences across countries. Many of the risks that are borne by individuals in the United States are carried by the government in Sweden. In some contexts, governments should be encouraging risk-taking (we want our scientists and entrepreneurs to take a chance). In other situations, we need to ensure that we don’t privatise the gains and socialise the losses, as Wall Street seems to have done over recent decades.

How a government manages risk says a lot about its values. Reading Laura Tingle’s analysis of Howard-era social policy, I was struck by how daily politics utterly dominated good policy. In place of risk management, we got – in Tingle’s memorable phrase – “endless avuncular tax cuts and new cash entitlements.” I am yet to meet anyone who can persuade me that the proper role for government includes providing the Baby Bonus to a millionaire.

All this came at a cost. As John Howard expanded non-means-tested benefits, he once said: “People like getting a cheque from the government.”[2] What he failed to mention was something known as the deadweight cost of taxation. For every $100 raised in revenue, around $20 is lost in decreased work effort and entrepreneurial activity.[3] Churning money for its own sake means that there’s less to go around. As George Megalogenis noted recently, “The competition for handouts affected the [Howard] government itself.”[4] On social policy, Howard seemed incapable of lowering expectations when the times called for it.

Tingle is right to focus on the difficult politics of who gets what in Australia. Her story of the Adelaide family that earns over $258,000 and rails against the government for means-testing the private health insurance rebate reminds me of several constituents who wrote to make the same point. And yet our government is not the first to have made hard decisions on means-testing. When the Hawke government put an assets test on the pension in the mid-1980s, Opposition leader Andrew Peacock called it “the latest of this Government’s assaults on the elderly,” and promised to repeal it if the Coalition won office. Today, the pension assets test is an accepted part of our social policy.

What I find a bit harder to cop is Joe Hockey lecturing from London about the need for the “Age of Entitlement” to cease. When Labor froze indexation on a Family Tax Benefit supplement and scaled back the out-dated Dependent Spouse Tax Offset, Hockey fulminated in parliament: “Your budget is indifferent to the plight of your people.” On Sky TV, he said, “I think this is madness.” To the Australian newspaper, he said, “I despise this envy; this envy and this jealousy.” His former leader Malcolm Turnbull used similar language when we means-tested the Baby Bonus to families earning under $150,000 (excluding the richest 6 per cent of parents).[5] Hockey’s London speech raises some interesting questions, but when you put it together with his views about means-testing, it’s hard to avoid the conclusion that Hockey wants the Age of Entitlement to end for the poor, but continue for the rich.

Former New York governor Mario Cuomo once said that politicians campaign in poetry, but govern in prose. A corollary is that while politicians campaign in “and,” we govern in “or.” Each decision to spend in one area makes it harder to devote resources in another area. And every government decision to spend requires that money be raised from taxes on land, labour or capital. As Milton Friedman famously put it, “to tax is to spend.” These trade-offs – these “or” questions – mean that a government with a thousand priorities might as well have no priorities at all. Tingle might have usefully pointed out that on this score, the Gillard government has been more willing to make trade-offs than our predecessors. For example, Stephen Koukoulas recently observed that during their combined total of more than twenty years in office, the Fraser and Howard governments never once cut their real spending. By contrast, Labor governments have cut real spending on five occasions since the mid-1980s.[6]

Tingle writes fondly about the Hawke–Keating reform era, in which, ‘The political debate was not taking place at the level of what the reforms might mean for the individual, or what citizens could expect of governments in the future; it was being fought at the level of institutions, such as the centralised wage-fixing system, and the national economy.” This is a good principle for reform, particularly as a counterpoint to the “everyone’s a winner” reform mantra of the Howard government.[7] Reforms without losers are rare, but that doesn’t mean governments should eschew all reform.

This dynamic is particularly complicated when one realises that politicians are often forced to carry out reforms during an economic crisis. At this point, leaders can more credibly say, “The system is broken; we cannot go on like this.” And yet from an economic standpoint, it is far preferable to carry out reforms in boom times, since there are more resources available to compensate those who are made worse off. In the mid-1980s, the strong economy allowed tariff cuts to be accompanied by a Steel Plan, a Car Plan, a Textile, Clothing and Footwear Plan, a Shipbuilding Plan, and a Heavy Engineering Adjustment and Development Program. And yet there were many who looked at the strength of the macro-economy and wondered why we needed to reduce industry protection at all.[8]

Perhaps I’ve spent too long walking on the sunny side of the street, but I think the ‘angry Australian’ Tingle describes is a passing mood rather than a national trait. Yet that doesn’t take much away from her astute analysis of the challenge of reform. Governments will always be able to think of more good ways to spend government dollars than the Treasury coffers permit. So rationing our spending – and clearly explaining the reasons for our choices – is a challenge that will always be with us. It will probably also place more challenges on parliamentarians like me to define the boundaries of a good government. For that, the notion of government as risk manager may not be a bad spot to start.

Andrew Leigh is the federal member for Fraser, and a former professor of economics. His most recent book is Disconnected (2010).

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[1] David Moss, When All Else Fails: Government as the Ultimate Risk Manager, Harvard University Press, Cambridge, MA, 2002. See also Nicholas Barr, The Welfare State as Piggy Bank: Information, Risk, Uncertainty and the Role of the State, Oxford University Press, Oxford, 2001; Bruce Chapman (ed.) Government Managing Risk: Income Contingent Loans for Social and Economic Progress, Oxford University Press, Oxford, 2006.

[2] Interview with Alan Jones on radio 2GB, 19 April 2006.

[3] Harry Campbell and K.A. Bond, “The cost of public funds in Australia,” Economic Record, Vol. 73, No. 220, 1997, pp. 22–34.

[4] George Megalogenis, The Australian Moment: How We Were Made for These Times, Penguin Books, Melbourne, 2012, p. 302.

[5] Baby Bonus statistics from Wayne Swan, “Means Testing Report Misleading,” media release, 18 May 2008.

[6] Stephen Koukoulas, “That’s the last big myth blown,” Australian Financial Review, 9 May 2012, p. B32.

[7] At this point, it’s also worth acknowledging the contribution of the Labor Opposition, which spent much of 1999–2000 talking about which individuals would lose out from the introduction of the GST, rather than whether the tax reform package as a whole was in the national interest.

[8] On the fragile public support for some of the 1980s reforms, see Possum Comitatus, “What Australians Believe,” 11 June 2012 http://blogs.crikey.com.au/pollytics/2012/06/11/what-australians-believe/

I wrote to all of my local schools in the Fraser electorate in May this year encouraging them to apply for grants under the National Solar Schools Program for solar energy systems, rainwater tanks and other energy efficiency measures. It must have paid off because 17 schools were successful under the final round. The media release from last week is below.

Andrew Leigh MP

Member for Fraser

MEDIA RELEASE

30 August 2012

CLEAN ENERGY SCHOOLS GO SOLAR WITH FEDERAL GOVERNMENT GRANTS

Member for Fraser, Andrew Leigh, is pleased to announce that 17 schools from the Fraser electorate will receive grants as part of the final round of the Australian Government’s National Solar Schools Program.

Deputy Prime Minister Wayne Swan, together with Parliamentary Secretary for Climate Change and Energy Efficiency, Mark Dreyfus, recently announced 804 schools from around Australia had been awarded grants of up to $50,000.

These grants are being used to install renewable solar energy systems, rainwater tanks and other energy efficiency measures to cut pollution and save money on electricity bills.

This program’s popularity shows that schools are keen to reduce their energy consumption and conserve water, giving students and local school communities the opportunity to experience renewable energy generation first-hand.

Since the program began, more than 5,400 schools (close to 60%) across the nation have received a grant. In this round, 17 schools in the Fraser electorate received grants, well above the national average of 5 grants per electorate.

Funding under the Solar Schools Program is used to install a either solar power system, rainwater tanks and/or other energy efficient items.

Applications were assessed using merit-based criteria. Schools demonstrated value for money, as well as environmental and educational benefits.

Further information about the National Solar Schools Program including a list of successful grant recipients is available on the Department of Climate Change and Energy Efficiency website: www.climatechange.gov.au/nationalsolarschools/

School	Funding amount
Ainslie North Primary	$25,000
Mount Rogers Primary School	$25,000
Latham Primary School	$25,000
Charnwood-Dunlop School	$25,000
Maribyrnong Primary School	$25,000
Fraser Primary School	$25,000
Miles Franklin Primary School	$25,000
University of Canberra High School Kaleen	$25,000
St Vincent's Primary School	$49,818
Gold Creek School	$15,000
Campbell High School	$25,000
Palmerston District Primary School	$25,000
Ngunnawal Primary	$25,000
Macgregor Primary	$25,000
Jervis Bay Primary	$23,636
Hawker College	$25,000
Florey Primary	$25,000

Gai Brodtmann and I today welcomed yesterday's announcement by the Prime Minister about the National Plan for School Improvement. Our media release is below.

Remember to complete my education survey to let me know what issues in education matter to you most.

Gai Brodtmann MP

Member for Canberra

Andrew Leigh MP

Member for Fraser



MEDIA RELEASE

Tuesday 4 September 2012





Government releases plan for Better Schools



The National Plan for School Improvement

All Canberra local schools will benefit under the Gillard Government’s National Plan for School Improvement. Member for Canberra, Gai Brodtmann, and Member for Fraser, Andrew Leigh, said today.

Prime Minister Julia Gillard released the plan yesterday in response to the first comprehensive review of schools education undertaken in 40 years.



“We want to make sure every young Canberran has access to a great education. And we want to provide school principals and teachers with the support they need to deliver this, through better funding and resources, and ongoing training opportunities,” Ms Brodtmann said.

For the first time, funding for every school in Canberra would be calculated based on the needs of every student, in every classroom and will continue to rise under the plan.

“Our National Plan for School Improvement will give Canberra kids the best start so they can get the high-skilled, high paid jobs of the future,” Ms Brodtmann said.

“The National Plan for School Improvement isn’t just about more money – that’s why any additional funding will be tied to changes that improve the education students receive.

“That means putting the best teachers in Canberra classrooms, giving Canberra principals more power and getting better results for Canberra students.”

Gai Brodtmann said that Canberra schools and teachers were already doing a great job and the National School Improvement Plan would help them achieve even more.

Andrew Leigh recognised the importance of education to Australia’s economy.

“If we want to raise living standards, we need to increase the productivity of Australians. The best bet for raising productivity is to improve education and skills. This means that our education reforms are also economic reforms.

“I’ve done plenty of research into inequality and know that by targeting our reforms to help the neediest students, we’re also helping to reduce the gap between the rich and the poor,” Dr Leigh said.

Andrew Leigh’s education survey can be found at https://www.research.net/s/NorthCanberraEducation

The Prime Minister’s speech announcing the National School Improvement Plan can be found at www.pm.gov.au.

For more information on the Plan visit www.betterschools.gov.au.

Last week, I did the 'Big Interview' with James Lush from ABC Perth. We spoke about strengthening community, and the findings in my book Disconnected. You can podcast the full interview here.

I’ve appreciated hearing from hundreds of Canberrans about your views on childcare and migration. Since education is a passion of mine, I’m now running a survey on schooling. It should take about 3 minutes if you don’t have schoolchildren, or 5 minutes if you do. I look forward to hearing your views. For those on a mobile device, you can find the survey here

Ashleigh Gillon hosted Liberal MP Kelly O'Dwyer and me on the AM Agenda program this morning. We discussed the dreadful news of recent asylum seeker deaths at sea and how to prevent further drownings, as well as Labor's important new policy in providing Government-subsidised dental assistance for low-income, rural and remote Australians.

http://www.youtube.com/embed/wnCVUTB20HI