Andrew Leigh

Committed to dividing society by eroding basic principles, Daily Telegraph, 6 May 2014

A few years ago, after trashing yet another hotel room so badly that he was barred from the hotel, actor Charlie Sheen simply got his publicist to do the talking. There’s nothing to see here – he told the newspapers – just a quiet night out with some friends.

Perhaps Joe Hockey has been watching too many re-runs of Two and a Half Men, because his fiscal strategy since the election has a touch of Sheen about it. After winning office, the Coalition manufactured a budget crisis, doubling the budget deficit by rejecting 55 Labor tax measures. Going soft on multinationals. Scrapping the mining tax. Ending the carbon price. A billion here, a billion there – and soon you’re talking real money.

In the election campaign, Mr Abbott promised that he would not raise taxes, and that his government would keep its word.  ‘There should’, he said, ‘be no new tax collection without an election.’

At election time, a report from the public servants who head the departments of Treasury and Finance made clear that Labor would have had the budget back in surplus in 2016. After Joe Hockey’s first budget update, we had red ink as far as the eye could see.

The Commission of Audit recommendations are what you might expect from a report that asks big business to write our social policies. Higher fees to see a doctor will – as the Australian Medical Association and the Doctors’ Reform Society have said – make us a sicker society. The Commission wants bricklayers and nurses to wait until 70 to get the basic pension.

If the government must break a promise, it could start with its unfair parental leave scheme, which gives the most to those who have the most. Australia currently has a scheme, which recognises that a baby born into a poor family is worth as much as a baby born into a rich family.

Since the early-1990s, CEO pay has risen three times as fast as the minimum wage, but the Commission of Audit thinks the ‘wage problem’ is at the bottom. It’s hard to see the fair go from the fairway.

The question for Australia is whether we let this continue. With a government as committed to cuts at the bottom as it is to giveaways at the top, Australian egalitarianism is under threat like never before.

Andrew Leigh is the Shadow Assistant Treasurer.

MEDIA RELEASE

No support for Government’s regressive ACNC repeal

Public submissions to the Senate inquiry into the abolition of the Australian Charities and Not for Profits Commission (ACNC) have been clear in sending a message to the Abbott Government not to scrap the Commission.

In March, the Senate referred the ACNC (Repeal) (No. 1) Bill 2014 to the Senate Economics Legislation Committee for inquiry and report. Submissions closed on Friday with a range of organisations including The Shepherd Centre, Australian Women’s Health Network and Associated Christian Schools having their say about the important role the Commission has played for the sector.

Organisations have labelled the repeal legislation a backward step and criticized the lack of consultation with the sector about the changes.

E&OE TRANSCRIPT

TELEVISION INTERVIEW - SKY AM AGENDA

SUBJECT/S: Federal Budget; Debt tax; Political donations

KIEREN GILBERT: This is AM Agenda. Thanks for your company this Monday morning. With me now, the Shadow Assistant Treasurer, Andrew Leigh.

Andrew Leigh, you've heard a lot of what Josh Frydenberg has had to say and the Liberal Party of the last couple of days about getting the budget back. This is normal for pre-budget season, that ideas are floated and if it's going to be a tough budget of course, it's not going to be that popular.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Kieran, what's normal at this stage is that the budget is off at the printers and what's extraordinary is that the Government is still clearly trying to work out what's in the budget. I mean, the idea that Mr Abbott couldn't go to Indonesia at the personal invitation of the Indonesian President does indicate that there's a real sense of crisis in the Government about the budget. And, they're engaging in what troubles me, because it's such a misleading campaign about the true state of nation's finances when the Coalition took over. Since then, the Government's added $68 billion to the four year deficit, doubling that deficit and as Josh Frydenberg noted, getting the IMF to blow the whistle on rampant spending. But that's the IMF blowing the whistle on Joe Hockey who has now taken off the spending cap that existed when Labor was in government.

GILBERT: You've watched politics and been close to it for a long time now. You know full well that budgets are deliberated on, worked on, until the last days. It's very rare that you would have a budget go a week out to the printers. That's not accurate is it?

LEIGH: It ought to be done and dusted at this stage Kieran and the notion that the Government’s still trying to decide whether or not it's going to break its promise on the debt tax, whether it's going to break a promise on a GP tax, whether it's going to break a whole range of range of promises to pensioners and vulnerable Australians really ought to be concerning to anyone who wants to see good public policy done in Australia.

GILBERT: But what the Government argues and what the Prime Minister has argued this morning, we played the comment at the start of the program, is that for equity basically, they're suggesting that you've got to look at the idea of a debt tax for those on higher incomes because. And I'll put it to you, that if you do target those on welfare and welfare payments at the lower income scale, why shouldn't you target those wealthier Australians to also make a contribution?

LEIGH: What the Government is doing, is basically unravelling the carbon price mechanism. So, the carbon price raised the tax on pollution and lowered the price of work at the same time. The Government is doing the reverse.  They want to raise the price of work and the want to lower the price of pollution. So, we'll get less participation and more pollution as a result of what the Government's doing. And it has to do that because it loses such a large amount of revenue in scrapping the carbon price. Scrapping the carbon price isn't just bad environmental policy, it's bad economic policy as well.

GILBERT: In terms of the equity scenario, if they are trying to reduce debt and deficit, and you're going to reign in middle class welfare and welfare for those on lower incomes, shouldn't those on higher incomes also make a contribution?

LEIGH: It's such a clear broken promise Kieran from a man who criss-crossed the country for three years saying that if people should know anything about him, it would be that he wouldn't break his promises. To take a simple example, if we have a one per cent levy on people earning over a $100,000 that raises less than $2 billion a year in an environment in which the Government has already added $68 billion to the deficit.

GILBERT: I want to look now at the front page of the Sydney Morning Herald and The Age. This is the story on Joe Hockey. 'Treasurer for sale' is the headline. The Prime Minister has responded to this story this morning. Let's play you a little of Tony Abbott on the Nine Network Today Show.

TONY ABBOTT: I haven’t actually seen the story but I do want to make the point that all political parties have to raise money. Typically you raise money by having events where senior members of the party go, and obviously they meet people at these events. The alternative  to fundraising in this time-honoured way is taxpayer funding at a time when we’re talking about a very tough budget indeed. The idea that we should scrap private fundraising and fund political parties through the taxpayer I think would be very odd.

GILBERT:Is there anything wrong here? This is something that has gone on for a long time isn't it? Peter Costello had a very similar Club 200 in his seat of Higgins for years.

LEIGH: Joe Hockey likes to give the impression that he is everyone's friend. But now we learn it costs $5,500 to be a friend of Joe's, or $11,000 if you want to be a friend with benefits. And you can see the sorts of benefits that flow. For example, one of the government's first decisions on coming to office was to go soft on the taxation of multinational companies, to take away a $700 million measure that Labor was going to put in place that would have seen those companies fairly taxed.

GILBERT: So, you're alleging that Joe Hockey has been bought by big business?

LEIGH: I'm not alleging a specific link between a specific payment but this is a Government which is clearly running schemes in which they get corporate donations from the top end of town and then run a Commission of Audit by the big end of town and then institute policies that benefit the top end of town such as going soft on multinational taxation.

GILBERT: Isn't this just donations being paid for access, and the Labor Party has functions where you have companies and other groups like the unions having to pay to attend and sit at the table of a Shadow Minister for example.

LEIGH: We worked to bring down these disclosure thresholds. Don't forget John Howard took the disclosure threshold from $1,500 to $10,000. It's now indexed up to $11,500, coincidentally, just a bit higher than the payment amount of friends of Joe Hockey club. The result of that is very large donations can be made without being disclosed.

GILBERT: He's within the rules though. That's what you're saying.

LEIGH: He is certainly within the rules from everything that we have read so far. But I don't think it's appropriate for people to be making such large donations and for them not to be publically disclosed because I think ultimately cash of that scale does cause challenges for the effective operation of our democracy. And this is a Government which is taking away the income support bonus, the Low Income Superannuation Contribution, the School Kids bonus from low and middle income families and then it's giving tax breaks to mining billionaires, tax breaks to multinationals who are profit shifting. It's refusing to even fairly tax people with super balances over $2 million. So, for the top end of town, the age of entitlement is just beginning.

GILBERT: Andrew Leigh, thanks for your time.

LEIGH: Thank you Kieran.

ENDS

E&OE TRANSCRIPT
TELEVISION INTERVIEW

ABC LATELINE
FRIDAY, 2 MAY 2014

SUBJECT/S: Deficit Tax; Commission of Audit Report; Federal budget; GP Tax; Federal ICAC.

EMMA ALBERICI, PRESENTER: As we heard earlier, the Prime Minister has cancelled his trip to Bali, rejecting an invitation by the Indonesian President that many had seen as an olive branch extended after a period of strained relations between the two countries.

That news broke just after we recorded our political forum tonight which was dominated by discussion of the Government's first Budget.

We were joined from Melbourne by Coalition's Kelly O'Dwyer and in Canberra by Labor's shadow assistant Treasurer Andrew Leigh.

Welcome to you both.

ANDREW LEIGH, SHADOW ASSISTANT TREASURER: Thanks Emma.

KELLY O'DWYER, LIBERAL BACKBENCHER: Great to be with you.

EMMA ALBERICI: Kelly O'Dwyer, on the deficit tax, why is it okay for the Coalition to break an election promise but when Labor did it Tony Abbott said it brought our democracy into disrepute?

KELLY O'DWYER: Well, Emma, I think we're getting a bit ahead of ourselves here. While there's been a lot of reportage about a deficit or a debt tax or a levy, we've seen that reportage be quite different in all of it papers and the Budget yet hasn't been delivered. It will be delivered...

EMMA ALBERICI: Are you saying we're not going to get such a tax or levy?

KELLY O'DWYER: The Budget's going to be delivered on the 13th of May and I haven't seen it yet Emma, so I can't tell you exactly what's in it but the Treasurer will deliver it on the 13th of May and at that time we'll know exactly what is part of it Budget rather than the fevered speculation that we have seen to date. We also know that Labor is running a pretty strong scare campaign on all sorts of issues but I don't know that that's terribly helpful or constructive.

EMMA ALBERICI: Hold on, back to the deficit tax, the Prime Minister and Treasurer have both had ample opportunity to deny it and they haven't done so, in fact the Prime Minister has been at pains to defend the idea.

KELLY O'DWYER: All prime ministers and treasurers a couple of days out before a Budget - and I think we're something like 10 days out before the Budget now - they don't rule in or rule out anything that may or may not be in the Budget. I mean this is pretty standard practise.

EMMA ALBERICI: It is step further to defend it though, isn't it?

KELLY O'DWYER: That's your assessment of what's being done here. I think the fundamental point to note here is we have been having a discussion over the last little while about the legacy we have been left by the Labor Government and that is a pretty serious one. They trashed our Budget, they refused to fix it and they locked in spending in the future years.

EMMA ALBERICI: Let's go back to the question though because otherwise we're going to run out of time. And it was about breaking promises. Andrew Leigh?

ANDREW LEIGH: Tony Abbott had the opportunity over past years to say that he was going to increase income taxes or he could have said promises don't matter all that much because situations change.

He did neither of those two things. He criss-crossed the country talking about the importance of promise-keeping and in fact at one stage he said that there should be no new taxes without a new election which does make you wonder whether he's about to take us back to the polls.

Fundamentally, Mr Abbott needs to stand up to the test that he set for the former Government which he castigated for putting in place a temporary fixed-price period on the carbon price. I'm really concerned we're seeing the unravelling of the carbon price which increased the taxes on pollution and lowered the taxes on work. Mr Abbott's discovering that once you forego the substantial revenue from the carbon price, now he's going to have to increase taxes on work. That's the wrong recipe for an Australia in which we should be seeing more people in the workforce but less pollution.

EMMA ALBERICI: Andrew Leigh, in Government Labor spent money it didn't have in every one of its six years in power. How can you now criticise it Coalition for trying to be more responsible with taxpayers' money?

ANDREW LEIGH: Emma, you know if you look around the world that Australia's public finances are in extraordinarily good shape. When we left office debt around a 10th of GDP and we were one of just three developed countries to avoid recession through the global financial crisis.

In half a year in office Joe Hockey has managed to double the deficit, adding $68 billion to the deficit through things like going soft on multinational profit shifting, not being willing to pursue modest labour measure to more fairly tax the superannuation of people with more than $2 million in their super balances.

Collectively, those decisions have doubled the deficit and now the Government is turning around and saying, well, it's going to have to be those with chronic disease, people with disabilities, low-income Australians who bear the burden of the fact that Mr Abbott and Mr Hockey haven't been willing to fairly tax multinational companies when they try and shift profits to other jurisdictions.

EMMA ALBERICI: Kelly O'Dwyer?

KELLY O'DWYER: Well what Andrew Leigh didn't say is where Australia started on the journey when Labor was actually elected. We started in a very strong position because we'd paid back all of Labor's debt. That's the reason we went through the global financial crisis very well and that's the reason we're in a stronger position today when you compare us to a number of other economies.

What Andrew fails to appreciate is what people have been saying all along and people including organisations like the International Monetary Fund and that is that we have a huge spending problem. Labor got us into a huge spending problem. Of the 17 most advanced economies that they looked at recently, they said that Australia was increasing spending at the fastest rate.

That's ahead of Canada, that's ahead of the USA, that's ahead of France, that's ahead of Germany. I just don't think that Labor gets it. They're not accepting any responsibility for the position that they left us in. They talked about delivering surpluses. They didn't deliver one in the six years that they were in Government, in fact they delivered the highest deficits, five of the highest deficits that we have ever achieved in our nation's history and they added huge debt burdens to future generations. Looking forward, up to $667 billion that we know about if we do nothing today.

That's why the Commission of Audit was so important in being able to provide recommendations to Government. It was to actually look at how do we go about fixing this problem that we have inherited by Labor? And the fact is Labor don't want to be part of the solution. They in fact want future generations to pay for their recklessness.

EMMA ALBERICI: Kelly O'Dwyer, we wouldn't be facing this so-called Budget emergency if John Howard hadn't got the ball rolling on middle-class welfare, things like the unmeans-tested baby bonus and the Family Tax Benefit.

KELLY O'DWYER: We'd actually delivered surpluses. We could afford to pay for the money that was...

EMMA ALBERICI: So it was okay to introduce those measures just because you could afford them at the time because we were in a mining boom?

KELLY O'DWYER: The point I was about to make Emma is we were balancing the Budget and doing more than that. We were in fact putting money aside so after we'd paid off Labor's...

EMMA ALBERICI: Aren't the structural problems with our Budget on account of the fact that this middle-class welfare started under John Howard?

KELLY O'DWYER: If you'd let me finish Emma, I was just saying after we'd paid back Labor's $96 billion they left us with, we'd put $45 billion aside which forms the Future Fund today which is a net asset. We actually delivered a net asset to the Australian people. The Labor Party certainly have not done that. They have in fact left future debt for future generations and they have locked in spending. The truth is that they actually received more revenue, despite what they have said in the past, they received more revenue than the previous Coalition Government, $70 billion more. It's just that they doubled spending. That's why we are in the situation that we're in today.

ANDREW LEIGH: Emma, there's a number of points to respond to there. The first is that as you correctly identified, the proceeds of Mining Boom Mark I were largely squandered by the Howard Government because it was locking in spending that was not sustainable so in Government we made the decision to end the baby bonus. We got little help from the Coalition there. Joe Hockey at one stage comparing it to China's one-child policy to scale back the baby bonus and we means tested the private health insurance rebate.

It's still Coalition policy to take away that means test despite the fact that the private health insurance rebate's one of the fastest-growing areas of Government expenditure. Now Kelly refers the to the recent IMF report but of course that report is based on Joe Hockey's recent fiddling of the figures. While we were in office we kept a two per cent real spending cap on Government spending after the global financial crisis.

KELLY O'DWYER: But you didn't achieve it Andrew.

ANDREW LEIGH: We achieved it every year.

KELLY O'DWYER: No, no it was 3.5.

ANDREW LEIGH: When Joe Hockey became Treasurer, he took that cap off and of course when you take that cap off then you see a big blow-out in spending so the IMF is assessing Joe Hockey's Budget update which is a worrying Budget update. It's an extraordinary Treasurer who can manage to double the deficit in just six months.

KELLY O'DWYER: What Andrew's said is not correct.

ANDREW LEIGH: Now going back to trying to balance the Budget off the backs of the poor and what really worries me about this Commission of Audit is that we've had 20 years in which CEO pay has risen twice as fast as average wages and three times as fast as the minimum wage. But what does a CEO-dominated Commission of Audit say is their recommendation? They think there's a wages problem and it's the minimum wage that needs to be cut. It is this dystopian vision of Australia I think and one that hurts the poorest and most vulnerable in the area of fighting an equality.

KELLY O'DWYER: I didn't realise this was a monologue Andrew.

EMMA ALBERICI: Let me bring, let me bring... let me bring Kelly O'Dwyer in here because you have made a number of points which clearly Kelly O'Dwyer is taking offence to so let's have a listen to what she has to say.

KELLY O'DWYER: Well they talk about this cap that they put in place, this cap on growth in real spending. They say, 'wasn't it fantastic? We put this cap in place and it was two per cent.' The problem is they didn't abide by it. On average it was 3.5 per cent and when you look beyond the forward estimates, when you look in...

ANDREW LEIGH: After the global financial crisis.

KELLY O'DWYER: Andrew, let me finish. I listened to your monologue. In 2017/2018, in the fifth year beyond that forward estimates period in fact the real growth was six per cent. That's going to be encapsulated in this Budget this year which was a tripling of their supposed cap. They want to talk about Budget forecasts, they want to talk about projections. Let me tell you they, for instance, projected they were going to get a surplus almost every year. The deficits that they started with in some years were $12 billion which turned into $44 billion. They had heroic assumptions in there regarding growth. We really, coming into Government...

EMMA ALBERICI: We can't ignore the facts that there was a global financial crisis during their years-

KELLY O'DWYER: That was only part of their spending. They doubled spending ongoing. It wasn't just a one-off. It was entrenched within the Budget and this is the problem we need to address today.

EMMA ALBERICI: Let's talk about some of the issues we assume will form part of the Budget thinking. On the GP co-payment, Andrew Leigh, when you were a PhD student at Harvard you argued co-payments were sensible because it would make people think twice before going to the doctor. What or who changed your mind on that?

ANDREW LEIGH: Emma, I've changed my views since university days, as have many other people, and fundamentally on this I think it's the evidence coming forward from health professionals who weren't represented on the Commission of Audit, like the Australian Medical Association, the doctors reform society, they've said that the real challenge in Australia is that if you deter people with chronic disease from both going to the doctor, you end up having more people in hospitals.

EMMA ALBERICI: Can I just point out what you had said in a paper back then. Yes it was 10 years ago but you're a PhD student and you argued that as economists have shown "the ideal model involves a small co-payment, not enough to put a dent in your weekly budget but enough to make you think twice before you call the doctor."

ANDREW LEIGH: A co-payment might have been right when the Hawke Government proposed it in 1990 and maybe it was right in 2003, but we've seen massive increases in out of pocket costs in Australia and we know when we look across developed countries the real challenge for Australia is we have too many people in hospitals. If you curtail access to private health care you end up getting into a situation where you blow out a number of people in hospitals and a hospital is far more expensive than a GP.

I've spoken to a large number of GPs in my electorate, to friends who deal on the front line as doctors with people with chronic disease and I'm strongly persuaded that a GP tax would be a bad idea and that we ought to listen to the health experts on this.

EMMA ALBERICI: Is there anything in the Commission of Audit, Andrew Leigh, that you do support?

ANDREW LEIGH: I think the Commission of Audit suggesting that Tony Abbott shouldn't go ahead with his parental leave scheme is wise indeed.

EMMA ALBERICI: I don't think it says quite that, does it?

ANDREW LEIGH: They don't go as far as the Productivity Commission when we asked the Productivity Commission whether a wage replacement scheme would be appropriate they said no, that wouldn't boost productivity or participation and you've got independent experts like Saul Eslake saying the same thing.

The reason for saying that the flat rate scheme is better is that it fits also with Australia's social safety net which is either giving more to the most disadvantaged or having flat-rate payments across the board. This is an unusual payment that gives the most to those who have the most. It was described by the Liberal Party as being appropriate because parental leave is an ‘entitlement’. So much for the end of the age of entitlement - if you're a millionaire family having a baby then the age of entitlement's just beginning it seems.

EMMA ALBERICI: I want to move on because we are running out of the time. Let's talk about the corruption inquiry in NSW. It's claimed the scalp of the State's Police Minister today and this afternoon Kelly O'Dwyer, your fellow Federal MP Karen McNamara has been accused of electoral fraud. Given what's already happen to former assistant Treasurer Arthur Sinodinos, how unsettling is all of this for your Government?

KELLY O'DWYER: Look, my understanding is that both Karen McNamara and also Senator Arthur Sinodinos were called as witnesses to ICAC and both of them have been involved in presenting evidence to them but not been directly accused of any corruption and I think that's an important point to make. There have been other allegations made at ICAC regarding corruption. That needs to be fully investigated and those people who have been found to be corrupt need to face the full force of the law. Corruption is a terribly corrosive aspect to our democracy and our society and it's not something that any one of us can stand for.

EMMA ALBERICI: Just finally and briefly, former Federal Independent MP Tony Windsor has called on Clive Palmer and the other Federal Independents this week to call for a Federal corruption inquiry. I'm wondering from you both, would you be in support of such a move? Andrew Leigh?

ANDREW LEIGH: I think it's an idea worth exploring and people have noted that the Federal level it's the stand-out on not having a corruption panel. I do think that as Kelly has rightly said, corruption is insidious because it cuts into confidence, confidence that people can rely on those with whom they're doing deals, that contracts will be fair, that they can rely on getting a fair go from the Government. Also as a former judge's associate, I have a strong view that no-one should be above the law but that everyone's entitled to the presumption of innocence, and that certainly goes for the Coalition members that Kelly mentioned before.

EMMA ALBERICI: Kelly O'Dwyer?

KELLY O'DWYER: I certainly think that there has been no allegations of corruption Federally and if there were then obviously they need to be investigated by the appropriate bodies and my understanding is that that can be investigated currently so my view would be any criminal activity should be investigated and anybody who does the wrong thing should face the full force of the law.

EMMA ALBERICI: Kelly O'Dwyer, Andrew Leigh, thank you both very much.

ANDREW LEIGH: Thanks, Emma. Thanks, Kelly.

KELLY O'DWYER: Terrific to be with you.

MICHELLE ROWLAND MP, SHADOW MINISTER FOR CITIZENSHIP AND MULTICULTURALISM and MEMBER FOR GREENWAY

ANDREW LEIGH MP, SHADOW ASSISTANT TREASURER and MEMBER FOR FRASER

DR CHRIS BOURKE MLA, MEMBER FOR GINNINDERRA



MEDIA RELEASE

CANBERRA COMMUNITY CONCERNED BY RACIAL DISCRIMINATION ACT CHANGES

Members of Canberra’s multicultural community are concerned by the Abbott Government’s plans to weaken the Racial Discrimination Act, ACT MLA Chris Bourke said today.

Dr Bourke was speaking after attending the Canberra Multicultural Community Forum last night where a range of community leaders condemned the Government’s proposed watering-down of the Racial Discrimination Act.

“Giving a green light to racial abuse will have dire consequences for our country and people targeted including increased mental and other health issues,” Dr Bourke said.

The forum also heard from Dr Helen Watchirs, the ACT Human Rights and Discrimination Commissioner; Australian National University law professor Simon Rice; and Mr Rod Little, chair of the ACT Aboriginal and Torres Strait Islander Elected Body.

“Protection against racist hate speech is fundamental to Australia’s success as a multicultural nation,” said Dr Andrew Leigh, who was among the 50 Canberrans at last night’s forum.

“If the Government bothered to properly consult with the community, as the Opposition is doing, then it might come to appreciate the lasting damage that racism has on many individuals and why these proposed changes to the Racial Discrimination Act are so abhorrent,” said Shadow Minister for Citizenship and Multiculturalism, Michelle Rowland.

Ms Rowland encouraged people to tell  the Abbott Government what they think of the proposed changes by sending a submission to [email protected]. Submissions close today.

WEDNESDAY, 30 APRIL 2014

The remarkable persistence of power and privilege, Inside Story, 30 April 2014

IF YOU WANT to know who made up Australia’s elite in the nineteenth century, a useful place to look is the Australian Dictionary of Biography ^[2]. In its many volumes, you’ll find business leaders, scientists, media barons and politicians who have featured among the upper echelons of Australian society.

Now, suppose we take the first cohort of significant Australians – those who died before 1880 – and identify those with unusual surnames like Ebden ^[3]or Maconochie ^[4]. People with those names were overrepresented among the elite in the nineteenth century. Are they still at the top of society, or are they mixed through?

The answer to this question will depend on the level of social mobility we have in Australia. In a very mobile society, privilege dissipates quickly. Children of doctors become labourers, and children of cleaners become lawyers. “Class-jumping” is the norm. Conversely, in an immobile society, we should expect to see privilege perpetuated across generations. If wealth can easily be passed down to one’s children, if education is costly, and if jobs are based on old school ties rather than ability, then the same surnames will stay at the top across generations.

For Australia, it turns out that if we look at the register of modern-day medical practitioners, we find the privileged names of the nineteenth century overrepresented by a factor of nearly three. In other words, if your ancestor was at the top of Australian society six generations ago, you are three times more likely to be a doctor today than the average Australian.

In The Son Also Rises: Surnames and the History of Social Mobility ^[5], economist Gregory Clark uses rare surnames to learn more about the extent to which societies are fluid or static. Take the case of Samuel Pepys (1633–1703), the famous diarist who was secretary of the English Admiralty. Pepys has been a rare name since it entered the ranks of the elite in the late 1400s. And yet in the past 500 years, Pepyses have attended Oxford or Cambridge universities at a rate at least twenty times that of the general population. On average, those of them who’ve died over the past decade left wealth of at least five times the British average. Four of the eighteen living Pepyses are medical doctors. Only in a society with extremely low levels of social mobility would we expect a name to persist among the elites in this way.

Analysing mobility in medieval England, Clark finds that people with names derived from jobs (Cook, Butler, Thatcher and so on) were more likely to move upwards, while those with names that derive from towns (including Baskerville, Pakenham and Walton) tended to move downwards. And not much changed after the industrial revolution. Surnames of Oxbridge graduates in the early 1800s, for instance, are three times as common among British MPs in the late 1900s.

In the United States, tax return data for the top taxpayers was publicly reported in 1923–24. Nearly a century later, people with the same surnames as those who featured on the list are three to four times as likely to be doctors or lawyers, while those with lower-status names are underrepresented. People with the high-status surname Katz are twelve times as likely to be doctors and lawyers as those with the low-status surname Washington.

In Japan, samurai surnames date back to before the 1868 Meiji restoration. Even today, they are overrepresented at least fourfold among doctors, lawyers, professors and writers. In China, Qing surnames overrepresented among the nineteenth-century elite are overrepresented among today’s corporate board chairs and government officials. In Chile, surnames overrepresented among landowners in the 1850s are still overrepresented among high-earning occupations.

Strikingly, Clark finds persistence even in Sweden, one of the world’s most egalitarian societies. The 1600s and 1700s saw the creation of a set of “noble surnames,” which today have twice their expected share of doctors, five times their expected share of lawyers, and three times their share of members of the top 1 per cent of income earners. This degree of persistence of status across ten generations demonstrates the power of inherited privilege.

~

GREGORY CLARK’s analysis of intergenerational mobility signals a marked shift in the way economists think about social mobility. In his 1988 presidential address to the American Economic Association, Gary Becker argued that “earnings are not strongly transmitted from fathers to sons.” Four years later, Gary Solon showed that prior researchers had been overestimating the degree of social mobility because they were using just a single year of data.

To see how this happens, imagine a high-earning barrister who happens to take six months off work in the year of the survey. Now suppose his son becomes a high-earning barrister too. A study that used just one year of data might wrongly assume that this was a case of someone moving from rags to riches. But a study that used several years of data would see that both father and son were well-off.

At this point, I need to introduce a few numbers. The standard measure of mobility across generations is the “elasticity” of children’s earnings with respect to their parents’ earnings – in other words, how closely the former reflects the latter. Because women have tended to have much lower rates of paid work, researchers have focused on the father–son earnings elasticity. An elasticity of zero means there was no relationship between the earnings of fathers and sons, while an elasticity of one would mean that a 10 per cent rise in fathers’ earnings was associated with a 10 per cent rise in sons’ earnings. The closer the elasticity gets to one, the less mobile the society.

Elasticity measures aren’t confined to income. The elasticity of height, for example, is about 0.5, which means that if a father is ten centimetres taller than average then we expect his sons to be five centimetres taller than average. Sure, there are tall fathers with short sons (and vice versa), but basketball dads are generally taller than gymnast dads.

In the case of earnings, economists’ best estimate of intergenerational elasticity went from 0.2 when they used a single year of earnings (as did the studies Gary Becker was relying on) to 0.4 when they used a few years of earnings (Gary Solon’s approach). Over the next decade, US researchers threw better and better data at the problem, and each time they found less and less mobility. Using more than a decade of earnings data, Bhashkar Mazumder estimated in 2005 that the intergenerational earnings elasticity for the United States was 0.6. That would put it higher than the father–son height elasticity. Among American sons, fathers had a larger impact on their earnings than on their stature.

Using similar techniques, researchers began estimating father–son earnings elasticities for other countries. As one survey showed, Scandinavian nations tended to be extremely mobile, with elasticities below 0.2. In Latin America, there was much less class-jumping, with elasticities over 0.5. Compared with other nations, the United States is extremely immobile, a fact that Barack Obama has thankfully switched from denying (“In no other country on earth is my story even possible”) to decrying (“It is harder today for a child born here in America to improve her station in life than it is for children in most of our wealthy allies”).

In 2006, while I was working as an economist at the Australian National University, I produced the first (and so far, only) estimates ^[6]of the father–son earnings elasticity in Australia, putting the intergenerational elasticity at around 0.25. This means that a 10 per cent increase in a father’s earnings translates to a 2.5 per cent increase in his son’s earnings. My estimate implied that we are more socially mobile than the United States but not as mobile as Scandinavia. Looking back through the twentieth century, I found no evidence that we had become markedly more or less mobile.

So what does the surname approach add to our understanding of mobility? Simply put, there are two reasons for using surnames. The first is that we only have good data on earnings (from surveys or administrative records) for the relatively recent past. If we want to understand mobility in centuries gone by, surnames may be the best torch for seeing into an otherwise dark statistical corner.

The second, and more important, reason for using surnames is that they may help to take out some of the transitory fluctuations. Recall how we got more precise estimates of the intergenerational earnings elasticity when we used data that smoothed out the fluctuations in an individual’s earnings over a career? Call it the “odd year” problem. Now let’s think about a different problem: a family where the social status dips down for one generation, before reverting to the long-run average. You might call this the “black sheep” problem. By looking at surnames, we are able to look not just at single father–son pairs, but also at patterns for entire lineages.

So once we take out the odd years and black sheep, how easy is it to jump between classes? Several assumptions need to be made in order to estimate an intergenerational elasticity from surnames. But if we accept Gregory Clark’s methodology, his results imply a very static society. For Britain, the United States, India, Japan, Korea, China, Taiwan, Chile and even Sweden, he concludes that the intergenerational elasticity is between 0.7 and 0.9. This would mean that social status is at least as hereditable as height. It suggests that while the ruling class and the underclass are not permanent, they are extremely long-lasting. Erasing privilege takes not two or three generations, but ten to fifteen generations. If you cherish the notion of a society where anyone can make it, these results are disturbing.

How do we break the pattern? Part of the answer must lie in a fair tax system, a targeted social welfare system, effective early childhood programs, and getting great teachers in front of disadvantaged classrooms. We need banks willing to take a chance on funding an outsider, and it doesn’t hurt to maintain a healthy Aussie scepticism about inherited privilege.

Yet Gregory Clark’s results also remind policy-makers that this is no easy nut to crack. Part of the transmission of social status occurs through genes. On top of this, people tend to marry those with similar levels of education; and researchers have also documented significant differences in parenting approaches among different social groups. Making the system a bit fairer is within our reach – but a complete transformation may prove elusive. •

Andrew Leigh is the Federal Member for Fraser and the Shadow Assistant Treasurer. His most recent book is Battlers and Billionaires: The Story of Inequality in Australia (2013). The Australian analysis that begins this article is a preliminary result of research that the author is carrying out in collaboration with Gregory Clark and Mike Pottenger.

E&OE TRANSCRIPT

TELEVISION INTERVIEW
BREAKING POLITICS - FAIRFAX MEDIA
MONDAY, 28 APRIL 2014

SUBJECT/S:  Flagged income tax levy;  Unfair PPL Scheme; Grattan Institute Superannuation Report

CHRIS HAMMER:  Well, the budget is now just two weeks away and pre-budget speculation is running hot, not least because the Government continues to float ideas out into the public. On the weekend the Prime Minister Tony Abbott declined to rule out a special income tax levy designed to get the budget back into surplus.

To discuss this and other issues, I'm joined by Andrew Leigh, here in the studio. He's the Shadow Assistant Treasurer as well as the Labor Member for Fraser here in the ACT. And Liberal MP, the member for Bowman in Queensland, Andrew Laming, joins us by Skype...

Andrew Leigh, to you first. There's this idea of an income tax levy. Is it a good idea given that, shouldn't the Government be looking at the revenue side of the budget and not just spending cuts?

SHADOW ASSISTANT TREASURER, ANDREW LEIGH: Chris, according to reports the Prime Minister is going to tonight compare himself to John F Kennedy. To that I have one simple response: Prime Minister, you’re no JFK.

HAMMER: That's a good line but what about the subject at hand? Should the Government be addressing the revenue side of the budget.

LEIGH: Absolutely, and you can start by not getting rid of the mining tax and carbon price, the removal of which has blown a massive hole in the goverment coffers.

HAMMER: How much of a hole has getting rid of the mining tax [created]. It hasn't raised very much money.

LEIGH: Let's not look at my estimates of that. Let's look go to Joe Hockey's estimate of what it will raise in 2016-17. He says it will raise $1.8 billion. So this is significant tax - according to Joe Hockey - which he intends to remove. Add on top of that, that he is not proceeding with 55 different tax measures which Labor had announced but was yet to enact. So all together, the Government has effectively doubled the deficit since they came into office. And now, having gone weak on the strong, they're turning round and saying, we are going to get tough on the weak. We're going to hurt pensioners, we're going to charge people with chronic disease more to go to the doctor and we're going to push up income tax rates, all of which are clear breaches of promises. JFK would have never have done that.

HAMMER: What essentially is the problem with an income tax levy? Is it that it's bad economic policy or it simply that it's a broken election promise.

LEIGH: Well certainly it's a broken election promise. This is a Prime Minister who has been telling us for many years that keeping promises is vital and he would certainly not increase income taxes. Now, having manufactured a budget crisis, he's discovered his economic strategy and his political strategy are in conflict: because he has foregone such large amounts of revenue, because he has willy-nilly given $9 billion to the Reserve Bank. He's ended up with a much bigger deficit, a deficit twice as large as Labor had over the forward estimates.

HAMMER: So, the money given to the Reserve Bank, will-nilly not necessary, not desirable?

LEIGH: Certainly, we have no evidence they asked for it Chris. We've asked for the paper work on that to be produced. Joe Hockey is currently defying a Senate order to produce those papers. He says it's because Labor took large dividends out of the Reserve Bank, but when you adjust for inflation, Labor took half as much from the Reserve Bank as the Howard Government did.

HAMMER: Okay. Andrew Laming, this idea that's being floated over an income tax levy to help restore the budget, what do you think of it?

ANDREW LAMING: It's obviously just speculation, that's the first thing to say. Secondly, the principle of a levy is usually to address a specific concern over a defined period of time. That's what separates a levy from a tax. Look, ultimately, we know that if we can get the economy going, and get Australians into work, highly productive activity, then of course we increase our tax yield. And that's by far the preferable way of doing it is having a strong economy. But you can see that turning the Titanic around after six years of Rudd-Gillard government isn't going to be easy. Those large accumulated deficits over six years, in excess of $100 billion are mind-boggling figures that puts Paul Keating in the shade. So, you can understand that every option is being considered. And of course, Australians are familiar with levies including the flood levy in recent years. I can appreciate it's part of the mix but I can't say much more than that.

HAMMER: As you pointed out, levies are usually hypothecated. This is a very general hypothecation, if I can put it like that, to get the budget back into health. Do you support such a levy?

LAMING: Well, that's right. Convincing the Australian people of any strategies to reduce the debt that Australia has accumulated over the last six will be politically challenging. People will want to see that everyone is taking their share. That will be the first concern. Secondly, those that benefitted most over the last six years are also going to be facing the reality, that these are going to be a couple of lean years ahead. You're quite right, we don't know how many, but one things for sure, if you don't start your political term with a tough budget in year one, it becomes more and more difficult in subsequent years to do it. This is an important year for Joe Hockey and obviously for Tony Abbott.

HAMMER: Let me have another crack at that. Would you support such a levy?

LAMING: Well, it's in the balance, within the context of all the other decisions, I don't have a problem with a well-conceived and well-constructed levy if it's fixing a problem of national significance. But, I mean that's a very general answer. You'd have to look at what the other measures are; that there's a reasonable balance and that everyone's contributing towards solving what is a national problem. We can't simply say the Australia Labor Party pay off the deficit. It's being born on the shoulders, like a heavy cloak on every Australian and that's why we're going to need everyone's shoulder to wheel to fix it.

HAMMER: But you would agree that you can't tax your way to prosperity?

LAMING: In a general sense no, and in a Liberal philosophy, definately not. But, currently we know that the settings for income tax, the result of years of Costello and Howard economic management, tweaking down the tax rates as low as we possibly could for Australians, well, that may not always be the situation. It's a hard decision which ever government comes up against that fiscal squeeze. You could argue it's here now.

HAMMER: Did the Costello-Howard tax cuts go too far?

LAMING: No. I think they were spot on. We have one of the lowest GSTs in the world at ten per cent. And my focus at the moment, within welfare, and health and social services spending is getting that as effective as possible, well-targeted as possible. We don't have that at the moment. So, at the moment we're writing large cheques that are quite ineffective and that's government money wasted and as long as you're doing that, it's hard to justify taxing Australians more.

LEIGH: Chris, I agree with Andrew's sentiment of a common purpose. But let's be very clear. Andrew didn't support a flood levy to help rebuild his home state of Queensland. Yet he's now effectively arguing for an additional levy which will go to give a tax cut to mining billionaires, which will give $75,000 to millionaire families when they have a child, which will go to multinationals because this is a government that is going soft on multinational taxation. That seems like a very strange set of priorities and I don't see anything in that that suggests that we're sharing the burden evenly across the community or in proportion to the benefits people have gained. Because let's face it, we've had a big rise in inequality and yet all the give-aways from this government go to the top and all of the cuts hit the bottom.

HAMMER: Andrew Laming, if you going to have a hypothecated levy, why not do it for the paid parental leave which is a very defined but rather expensive area of new government spending?

LAMING: Certainly I'm one of the biggest supporters of Tony Abbott's paid parental leave [scheme] and I think it's essential that we do it and I think that people that most gain from this policy are extremely supportive of it. So, I wouldn't want to see that touched and I don't think we need to. I think the numbers of high income earners that get PPL are relatively small, we've made this argument before. No, we have to look at large nation-wide measures and Andrew makes a fair point. I'm not in any way arguing for a levy but both, having done a bit of economics, I appreciate it's one of the options available.

HAMMER: Can I ask you this, if the Prime Minister pushes ahead with his paid parental leave, would it make it no sense then to help people in the first six months of having a baby but then cut back say Family Tax Benefit B, that helps stay at home mums essentially.

LAMING: I think the point that's missed in paid parental leave is the very, very strong force of pulling working parents back into the workforce after six months. When you've got some continual income at wage replacement you set up your household in such a fashion that at the end of six months the propensity to return to work is so much higher. Australia has a very low rate of returning to work after having children. We're low with OECD comparisons and that's what's missed in this debate. It's vital we get these young parents back into the workforce. They are highly-skilled and it's what makes a productive difference to our economy and it's one of the great untold stories of the Tony Abbott scheme unlike Labor's minimum wage scheme that considers every working woman worth no more than the minimum wage.

HAMMER: Is there then a major shift in the philosophy of this government as opposed to the Howard-Costello government? That government seemed to support stay-at-parents. Is the emphasis now, not on stay-at-home parents but getting working mothers back into the workforce?

LAMING: Well, the emphasis is to get people to choose their own paths in life and try and reduce any disadvantage in choosing one area over the other. I'd simply say, that if you've been in the workforce before, it's a national priority to get you back into the workforce. If you've never worked before and you're a stay-a-home mum and you choose to work then we want to make it as easy as possible for you to make that transition. The problem at the moment is we have a nation that often goes off, has children and doesn't return to the workforce. That comes at an enormous economic cost to Australia.

HAMMER: Andrew Leigh, what's your reaction to all this speculation. Every couple of days there seems to be a new idea floated in the public... What do you think is going on here?

LEIGH: I can't work out this government's economic strategy or political strategy to be honest Chris. But certainly I think that this is a government which is quite confused about what it wants to do. You’ve got Joe Hockey talking about the importance of means-testing, but then their signature policy - as Andrew has pointed out - is a parental leave scheme that's the opposite of means testing. Means testing means you give more to those at the bottom. The Government's parental leave scheme gives more to those at the top. And if you look at an independent economist like Saul Eslake, he finds no evidence that it will boost productivity or participation. They are worthy goals, as Andrew as outlined, but there's no evidence that this government's policy, effectively a baby bonus for the rich, will do anything to boost participation.

HAMMER: Given the trouble the budget is in, there's a lot of new spending coming through in future years. There's education spending, health, disability. The government has an emphasis on infrastructure spending. Does that infrastructure spending need to be put on hold because of the budget situation?

LEIGH: I think infrastructure spending is important Chris. We took Australian from being 20^th in the developed world for infrastructure spending to being 1^st in the developed world in our last two years of office. So, I really hope that this government maintains that record. And it needs to do so while looking at decade estimates. If you look at Labor's last budget, you'll see charts there outlining how the long term spending on schools and DisabilityCare would be paid for, not just over four years, but over ten. The thing is the government has played some odd fiscal tricks. It's weirdness on foreign aid is the strangest, where the Prime Minister said during Question Time, that he wouldn't give 0.5 per cent of national income to foreign aid at the end of forward estimates, and yet that's exactly what his budget numbers say. And then, on more substantive things, the big tax breaks to mining billionaires, the give-aways to high income superannuants have, by doubling the deficit, really caused the vast bulk of the problem the Government finds itself in.

HAMMER: If I can change subjects slightly to superannuation. There's a report you're both aware of by the Grattan Institute, which shows essentially that people are being fleeced on their super contributions because of default funds; they don't shop around essentially and the suggestion is that the government should run some sort of auction for default funds. Andrew Leigh, is this a good idea?

LEIGH: We focussed a lot on superannuation fees in office. The MySuper reforms focussed on bringing down fee costs.

HAMMER: So why are the fees in Australia some of the highest in the world?

LEIGH: Well this is a big challenge in our super system. We've emphasises choice, but I think - as behavioural economics advances over the last two decades have taught us - most Australians are in the default fund and they're in the default plan within that fund, because we give too little attention to shopping around. One of the good things that might come from the Grattan Institute report, which I've read, and I think is a good report, is a greater attention by all of us to making sure that we're not losing too much of our superannuation to fees. But I also think the Grattan Institute raises some important proposals around minimising the overheads that we lose to superannuation.

HAMMER: Well given that the behavioural economics is teaching us that less than two per cent are shopping around, some market failure? People have the choice but they're not taking it. Should the Government step in? Should it tender for these default funds?

LEIGH: I'm not sure I agree with where Jim Minifie ends up in his final proposal. But I think we need something to put downward pressure on fees. The challenge in this area is that sometimes continual tinkering with the system to get the perfect outcome generates more uncertainty that it's worth, which is why we went to the last election saying we wouldn't change superannuation tax treatment for five years beyond the announcements we'd already made.

HAMMER: Andrew Laming, what do you think of this report and is there a role for government?

LAMING: Well, they're fair points by Andrew Leigh. Look Australia led the way with Chile with compulsory employer contributions into super and building superannuation up early. It was one of the shrewd moves made by the Hawke-Keating Government. Of course, to look at the fees that are being paid and that we're higher than the OECD must be a big concern because, as you've pointed out, to most Australians, superannuation is a black box. You set it up and it just ticks away and if we're paying 2-3 times more in fees. That's of enormous concern and the inefficiency potentially within default superannuation firms is something we have to look at because it amounts to billions and billions of dollars of Australians' savings that they are going to need in retirement.

HAMMER: Do you think there's a role...

LAMING: ...Those numbers will be a big surprise and let's hope it's a wake-up call.

HAMMER: So do you think there's a role for government?

LAMING: There's certainly a role for increasing competition between default firms and ensuring they compete. By simple definition, if you're a default firm and you know that only two per cent of people are shopping around, then it gives a fair bit of head room for administrative fees and we need to be pushing those down and certainly government has a role if it's not happening in the market.

HAMMER: Gentlemen, thank you for your time this morning.

LEIGH: Thanks Chris, thanks Andrew.

LAMING: That's great. Thank you.

ENDS