Reforming the World Bank

I spoke in Parliament yesterday on reforming the World Bank.

International Financial Institutions Legislation Amendment Bill 2010 
Second Reading
17 Nov 2010

Dr Leigh (Fraser) (10:04 AM) —According to the World Bank, there are currently around 900 million people in the world living on less than a dollar a day. The World Bank calls this extreme poverty. That means there are 900 million people who woke up today to try to feed a family on approximately what many of us in the room would have spent on our morning coffee.

Oxford development economist Paul Collier, who is visiting Australia next week, has referred to this challenge as that of lifting what he calls the ‘bottom billion’ out of poverty. These are the people living in countries that have experienced stagnant growth rates and where flows of aid in the past have frankly not done what we hoped they would. On balance, aid has raised living standards but we know that mistakes have been made. We know that foreign aid requires more than good intentions.

Effective development economics requires an ongoing assessment of what we do and a critical focus to balance the optimism and the best of intentions that go with our aid programs. I very much appreciated having the opportunity to speak with various groups in my electorate about these challenges we face in overseas aid—groups such as Micah Challenge, World Vision and Oxfam.

Essential to what Australia does in the foreign aid portfolio is the modernisation of the multilateral banks. These institutions have been critical in the fight against global poverty and it is important we make sure that we as Australians do what we can to make sure that the multilateral banks continue to respond to new challenges. Australia’s engagement with multilateral organisations extends the reach and scope of Australia’s country and regional aid programs.

The World Bank is one of the central partners in Australia’s aid program. Its convening power allows it to lead donor coordination at a country level and a sectoral level. In days like these it is worth mentioning that the World Bank is a bank that we can be proud of.

The International Financial Institutions Legislation Amendment Bill 2010 will do two things. Firstly, it will give effect to Australia’s G20 commitments to ensure that the multilateral banks have sufficient capital to be as responsive and flexible as possible in the environment that follows the global financial crisis. Secondly, the bill will also allow Australia to adopt a proposed amendment to the articles of agreement to the International Finance Corporation—the IFC—and four amendments to the Multilateral Investment Guarantee Agency Convention that have recently been adopted by that agency’s council of governors.

Australia’s increased investment will also allow the World Bank to provide lending to middle income countries, such as Indonesia and China, to support their recovery. The investment will provide greater resources for those in the ‘bottom billion’ and will also allow for more rigorous evaluation of what works in increasing living standards and what does not work.

Growth in developing countries during the period of the global financial crisis fell from an average of about seven per cent in the preceding five years before the GFC to just 1.6 per cent in 2009. That has meant that an additional 64 million people around the world have been thrown into extreme poverty—the equivalent of feeding a family on less than the price of a cup of Australian coffee.

World Bank lending is playing a critical role in supporting recovery in developing economies and therefore supporting recovery in the global economy. Some developing countries are doing well—China of course comes to mind—but the crisis is going to have significant lasting impacts by increasing the poverty of the most vulnerable people in the world.

The World Bank and the IMF played a key role in the crisis. Indeed, I cannot resist pointing out on this occasion that when the IMF looked at Australia’s policy response, it was one of the international organisations—though by no means the only one—that noted that Australia’s fiscal stimulus was timely and appropriate to the needs of the crisis. Direct responses included US$750 billion by the IMF and US$235 billion by the World Bank. In its recent meetings, the G20 has committed to achieving an extra $US350 billion in capital increases for the World Bank, which will allow the World Bank to nearly double its lending.

The G20 is also committed to ensuring that developing countries increase their voting power within the World Bank. It is these voice reforms which the legislation today is going towards. It is important that Australia demonstrates commitment to the G20 agenda by ensuring prompt implementation of these reforms.

Australia has much to gain by increasing its support for the World Bank. Subscription to more shares shows Australia acting as a good international citizen, particularly in response to the global financial crisis. It is also in our national interest to live in a world with less poverty. Australians have shown through their individual contributions to non-government aid that they believe passionately that a world without poverty is a goal worth striving towards. I believe Australians want their government to work towards the same goal. The capital increase demonstrates the government’s willingness to be a global leader on issues related to development and our commitment to the World Bank. It fulfils the G20 commitment to ensure adequate capital resources. In this sense, the reforms we are speaking about today are of a piece with the review of the aid program announced by the Minister for Foreign Affairs this week.

These amendments introduce no substantial changes to Australia’s obligations to either the IFC or the MIGA. Australia’s actual shareholding will remain unchanged as a result of the increase in basic votes, while its voting share will decline marginally—and I will come to that issue in a moment.

First, I want to briefly mention what the World Bank and its various arms do. The overall goal of the World Bank is to provide financial and technical assistance to developing countries around the world, but it does that through five separate arms: (1) the International Bank for Reconstruction and Development, IBRD, is the oldest arm of the World Bank and its goal is to reduce poverty in middle-income countries and creditworthy poorer countries, operating in the traditional way that the World Bank has since its inception; (2) a newer arm of the World Bank, the International Development Association, IDA, focuses on the world’s poorest countries. Their work is complemented by that of the International Finance Corporation, IFC, the MIGA and the International Centre for Settlement of Investment Disputes; (3) the IFC contributes to the World Bank’s overall poverty reduction mandate by operating with the private sector in both middle- and low-income countries. The IFC is the largest provider of multilateral financing for the private sector in the developing world; (4) the MIGA promotes foreign investment into emerging economies by offering political risk insurance or guarantees to investors and lenders. It also provides technical assistance and advice to help developing countries attract and retain that critical foreign investment that can allow them to grow out of poverty; and finally (5) the International Centre for Settlement of Investment Disputes is an autonomous institution that supports foreign investment by providing international facilities for conciliation and arbitration of investment disputes between foreign investors and their host countries.

The World Bank’s work focuses on overcoming poverty through inclusive and sustainable globalisation. The World Bank seeks to alleviate poverty in developing countries by building the climate for investment, jobs and sustainable growth and by investing in and empowering poor people to participate in development. Participatory development is a critical arm of the new strategy to bring more people in the world out of poverty. Together, the arms of the World Bank provide low-interest loans, interest-free credits and grants to developing countries for a wide array of purposes that include investments in education, health and public administration; infrastructure; financial and private sector development; agriculture and environment; and natural resource management.

The reforms that this bill envisages are part of a new World Bank strategy that arose in its 2010 meetings. The World Bank has set its strategic priorities as follows: to target the poor and the vulnerable, to create opportunities for growth, to promote global collective action, to strengthen governance, to manage risk and, importantly, to prepare for crises. Australia is a strong supporter of the new World Bank strategy. Australia is supporting the World Bank’s key role in promoting development. It is worth remembering that the World Bank only employs about 10,000 people—half the number of the Australian Taxation Office—and over 3,000 of those employees work in the more than 100 country offices in the developing world. Many of my friends, including Patrick Barron, have spent time working in those different World Bank offices. I have seen firsthand, in visiting the World Bank offices in Jakarta, the important work that is done in those field offices as well as in the central office in Washington, DC.

I mentioned that I would come to the issue of reduced voting power, because it is obviously an issue that raises an eyebrow to be bringing forward legislation which reduces Australia’s voting share. The first point that is worth making about this is that the reduction is very small. Australia currently holds 1.49 per cent of voting power, and this will be reduced to 1.33 per cent following the second phase of voice reforms implemented in this bill. It is a small decrease which is part of a large package of reforms, recognising that the World Bank has to keep pace with changes in the world economic environment and that, if we do not modernise the World Bank, the institution risks becoming out of date and not serving those who need it the most.

Shareholding in the World Bank, including the IBRD and the IFC, is subject to periodic capital increases. Australia last subscribed to additional shares through the International Bank for Reconstruction and Development (Share Increase) Act 1988 and the International Bank for Reconstruction and Development (General Capital Increase) Act 1989. Australia’s total shareholding in the IBRD totals 24,464 shares and in the IFC totals 47,329 shares.

In conclusion, Australia has been part of the multilateral banks since the very beginning. Indeed, you might ask why we were not there from 1944. The answer actually comes back to the history of my own party when it was first faced with the Bretton Woods agreement in 1944. In his biography of Ben Chifley, David Day points out that it was Chifley who wanted his colleagues to ratify the Bretton Woods agreement immediately in 1944. But he delayed it because he faced considerable opposition within caucus, particularly from Eddie Ward, and he eventually pushed back. As David Day writes:

Chifley had a vision of a postwar Australia that would put the 1930’s depression behind it forever. It would be an outward looking country engaged with the world through trade, diplomacy and economic aid.

After his caucus colleagues supported the Bretton Woods agreement—though only by 33 votes to 24—Chifley told this House:

Perhaps the experiment will fair. But no country which has any regard for the cause of humanity can, for some selfish reason or because some ghosts of the past happen to walk or because of fears created by their experience of a financial and economic depression, refuse to become parties to this agreement. If we have any love for mankind and desire to free future generations from the terrible happenings of the last 30 years, we must put our faith in these organisations.

Australia has done that. The ninth World Bank president—and one of its most successful—was Australian-born James Wolfensohn, who served from 1995 to 2005. More broadly, Australia as a nation has been a consistent supporter of the work of the multilateral banks. As the bank modernises, so must our policy response. We owe nothing less to the world’s poorest.
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Operation Santa

 Operation Santa

Dr Andrew Leigh, Federal Member for Fraser, today launched the 2010 UnitingCare Kippax 2010 Christmas Appeal. 

Operation Santa, a combined effort of UnitingCare and Target Australia will help bring Christmas joy to people in need throughout Australia. This year is the 19th year of the partnership between UnitingCare and Target and the partnership has helped 1.7 million Australians in this time.

“There are too many in our community who struggle in the festive season and I encourage all Canberrans to help bring a bit of Christmas cheer to those less fortunate,” said Dr Leigh.

“This year’s campaign is being launched early to ensure we can get the help of as many Canberrans as possible and get the gifts distributed in time for Christmas.

“UnitingCare is working with Anglicare, the Salvation Army and St Vincent De Paul. The appeals aren’t about any one organisation but rather it’s about the children, making sure they have a smile this festive season.

“A gift not just a gift, the experience of receiving a gift – especially from an unexpected act of generosity – has a lasting positive impact.

“I hope we all think about those less fortunate than ourselves this festive season,” concluded Dr Leigh.

Gifts can be left at any Target store in Canberra as well at UnitingCare Kippax in Luke St Holt where financial donations can also be made. 

In 2009 UnitingCare Kippax distributed over 1100 gifts which had been donated by Canberrans through the Gift Appeal. UnitingCare Kippax also provided nearly 500 Christmas gift hampers and 470 movie packs for teenagers in the Teenage Gift drive.
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Economic Reform

I spoke yesterday on the Matter of Public Importance debate - on the topic of economic reform.

Matters of Public Importance - Economy
16 November 2010

Dr Leigh (Fraser) (4:38 PM) —In rising to speak on this matter of public importance I want to make three points to the House today. Firstly, the strength of the Australian economy is testament to Labor’s good economic management. Secondly, Labor is committed to economic reform in the future. Thirdly, that those opposite have no commitment to economic reform.

Let us turn first to the strength of the Australian economy and Labor’s track record. When it came to dealing with the global downturn, Labor delivered household payments to low-income households and much-needed infrastructure to everyone. It is unclear whether the coalition would have done anything at all in response to the greatest global downturn since the Great Depression. But if they had, it probably would have been tax cuts for the rich. In contrast, Labor’s strategy was exactly what international groups such as the G20, the OECD and the IMF recommended: ‘timely, targeted and temporary’ fiscal stimulus. We should always be trying to get the level of unemployment below what it is today, but we can be proud of our successes. There would be another 200,000 unemployed Australians today were it not for the fiscal stimulus that the Labor government put in place. We did that with remarkably little debt. Australia’s net debt will peak at six per cent of GDP in 2011-12. By contrast, the average net debt of the G7 countries is expected to peak at nearly 100 per cent of GDP.

Moreover, our debt load has at least as much to do with revenue falls as it has to do with spending increases. The global financial crisis stripped $110 billion out of the budget. Anyone who argues that we should not have taken on a small amount of debt to accommodate this is effectively saying that when the global financial crisis came we should have cut spending or raised tax rates. If that is the position they are taking, it is up to them to tell us which programs they would have cut and which taxes they would have raised.

But when it comes to talking about the current state of the Australian economy, don’t just take my word for it. Let us look at the Reserve Bank minutes of 2 November, just released, which note:

The labour market remained strong.

They go on to say:

Consumer sentiment remained at a high level …

And further:

Business conditions remained generally favourable …

Or we can look at the latest OECD report on Australia, which begins with the opening paragraph:

The Australian economy has been one of the most resilient in the OECD during the global economic and financial crisis.

It then says:

The strong policy response and encouraging outlook restored confidence rapidly, and exit from the stimulus is underway.

Historically, Labor can claim credit for many of Australia’s major economic reforms. The Curtin government put in place uniform personal income taxation and laid the foundations for a post-war full employment policy. The Whitlam government implemented universal health insurance and began the process of lowering Australia’s tariff walls. Hawke floated the dollar and negotiated the accord. Keating introduced the superannuation guarantee and enterprise bargaining. It is timely to note that many of these reforms were opposed at the time by the coalition. Labor has always been committed to economic reform. This Labor government stands committed to a new wave of economic reform in the future. In her speech in Brisbane, on 12 October 2010, the Prime Minister said:

In Government, we must walk the reform road every day, and minority Government is no excuse.

The Prime Minister then went on to set out the new agenda for economic reform. She went through five important aspects of the modern economic reform agenda: the most significant fiscal consolidation in at least 50 years, with a budget back in surplus by 2013. They included:

… cutting the company tax rate to make our businesses more competitive; better sharing the benefits of our commodity boom; superannuation reform to lift national savings and support domestic investment …

… investing in roads, rail and ports, and the National Broadband Network to build productivity and economic capacity …

And then in relation to the critical reforms in education, she said, ‘Taking the market based tools that have made our financial and industrial capital so much more productive and applying them to schools, providing choice, information and incentive structures.’ She went on, ‘Our structural reforms will drive efficiency across the hospital system. Instead of states receiving block grants, hospitals will receive activity funding.’ That is fundamental economic reform in the modern age and sets the Gillard Labor government squarely in the great Labor tradition of economic reform.

Finally, it is important to refer to the position that those opposite take when it comes to economic reform. The Leader of the Opposition has been reported as saying that economics is a bore. It is as though he thinks that saving Australian jobs, improving our tax system and dealing with climate change are all sideshows to the main game: coming up with a snappy, three-word slogan for the evening news.

And, worse, the Leader of the Opposition does not even seem to have bothered to understand Economics 101. In February, he told ABC Radio National:

… in New Zealand they have tried to reform their way through the global financial crisis under the new government’s leadership and they seem to be doing pretty well.

Actually, New Zealand’s unemployment rate at the time was seven per cent compared to Australia’s five per cent. If we had had New Zealand’s unemployment rate, we would have had another 200,000 jobless. As respected economic commentator Peter Hartcher put it:

The opposition leader has shown that he can’t tell a kiwi from a kangaroo, a plus from a minus, wreckage from recovery.

There were a series of Superman comics, and one of the characters in those Superman comics was Bizarro. Bizarro was an ‘imperfect duplicate’ of the Man of Steel. His face resembled white faceted stone, and he said things like, ‘Me am going away now.’ Eventually, Bizarro settled on his own planet and peopled it with thousands of imperfect duplicates of himself, Lois Lane, and the rest of the Superman family. The Bizarro code was:

Us do the opposite of all Earthly things! Us hate beauty! Us love ugliness! Is a big crime to make anything perfect on Bizarro World!

Today, the coalition is taking us into Bizarro world economics. In Bizarro world, the party of the right does not believe in free markets. Its shadow finance minister does not like floating exchange rates, its shadow Treasurer wants to reregulate interest rates, and the opposition leader does not believe in a market mechanism to tackle climate change. It is Bizarro world all right: ‘Us hate markets. Us love regulation.’ Of course, the Leader of the Opposition has form on this. In the Adelaide Review in November 1994, he said:

The floating dollar remains an article of faith with the leadership of both main parties notwithstanding its exceedingly dubious outcome for Australia and the damning verdict of the Economist magazine … that the experiment with floating exchange rates had failed and it was time to return to pegged rates.

I have taken a keen interest in a certain aspect of the first speeches in this parliament. As an economist, I am interested in what new members of parliament have to say about economics. I could not help noticing an interesting fact, which is that the first speeches from this side of the parliament have been much more pro-market than those from the other side of the parliament. The member for Chifley referred with pride to the trade liberalisation that took place under Labor. The member for Canberra talked about the over-regulation of the Indian economy and her pride as a small-business worker. The member for Greenway referred to her background as a corporate lawyer working on telecommunications, competition and broadcasting laws.

On the other side of the House, we had a clear demonstration of what those opposite think about markets. The member for Riverina said in his first speech that Australian agriculture ‘needs protection—fair trade rather than free trade’. The member for Flynn said that the fishing industry required assistance and should not be swamped with imports. The member for Aston said that he did not believe the taxes on binge drinking, pollution or congestion had any impact on behaviour. And the member for Dawson said:

I believe income tax should go.

This is despite the fact that the income tax is generally regarded as one of our most efficient taxes. In the interests of time, I will skip over on this occasion some rather unorthodox views about economies of scale from the member for Hughes and some particularly unusual views about how capital markets work from the member for Forde.

Like the US Republicans, the Coalition are increasingly becoming a party of conservatism, not a party of liberalism. The result is that there is only one party in this House any longer committed to economic reform, and that is the Australian Labor Party.
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Jolly Good Fellows

A congratulatory message to the latest batch of ARC Future Fellowship recipients.

17 November 2010

27 ACT Researchers have received Federal Government fellowships for ground-breaking research to be carried out in the Canberra community.

The twenty-seven recipients of Australian Research Council Future Fellowships will share approximately $18.8 million dollars to undertake research to help secure Australia’s future prosperity.

“Sustainable agriculture in a changing climate, understanding ecosystems of grassy woodlands to better help protect them, working to save our Tassie Devils, electrical and optical couplings for use in energy transformations, and helping to bring quantum technologies closer to market are just a few of the innovative but important research being undertaken by these Fellows,” said Dr Leigh.

“The Future Fellowships scheme is specifically designed to promote research in areas of critical national importance by giving outstanding researchers incentives to conduct their research in Australia.

“The aim of Future Fellowships is to attract and retain the best and brightest mid-career researchers, such as these 27 Fellows, in Australia and avoid the movement of these highly qualified researchers overseas.

“Top class research is important to make sure that people stay well, maintain a good quality of life and have the skills to compete for high quality jobs.

“When I was an economics professor at the Australian National University, I was fortunate to be partially supported by ARC grants for my own research. So I am well aware of the benefits that flow from today’s announcement.

“These grants are great news for the ACT. Our community will benefit from new opportunities these research projects will provide,” concluded Dr Leigh.

A total of 200 Future Fellowships have been funded for 2010 at a value of $143.8 million.

For more information on the schemes, and a full list of successful projects, visit

Media contact: Shobaz Kandola
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University reform

I spoke in parliament yesterday about higher education reform.

Higher Education Support Amendment (2010 Budget Measures) Bill 2010

Second Reading

15 November 2010

I rise today to speak on the Higher Education Support Amendment (2010 Budget Measures) Bill 2010. This bill is about expanding universities and modernising Australia’s university system so that it is really fit for purpose to match the needs of the labour market of the next generation. Students graduating from Australian universities in 2010 are going to be entering a labour market which is fundamentally different from the labour market of their parents. It is important is that our universities provide them with the skills and opportunities necessary for this new and changing labour market.

There is a great Labor legacy of adapting the educational system to meet the needs of the Australian labour market. One of the key features of the first speeches on this side of the parliament has been the issue of education. Many, like myself, have spoken about the power of education to raise living standards throughout Australia. Many others have also spoken about the role that education plays in breaking the intergenerational poverty cycle. You need only to read a few autobiographies of kids from the wrong side of the tracks who have made it to see that consistent theme of a great education being Australia’s best leveller. I am proud today to rise in support of a bill which follows very much the education reforming legacies of the Chifley, Whitlam and Hawke governments, all of which brought about substantial expansions to Australia’s higher education system. The Rudd and Gillard governments have followed very much in that tradition.

I am very proud to have within my own electorate of Fraser a number of Australia’s great tertiary institutions. The Australian National University, the University of Canberra, the Australian Catholic University and UNSW at ADFA are just a few of the terrific institutions in my electorate. But it is important to remember, whenever we are talking about higher education, where we are today and where we could have been. In 1996 Australia ranked seventh out of OECD countries in terms of attainment of undergraduate or higher qualifications amongst 25- to 34-year-olds. By 2006 Australia had dropped to ninth position, according to the Bradley review. That is because other countries surpassed us in their share of young people who have attained a tertiary qualification. Countries such as Finland, Sweden and New Zealand have increasing tertiary participation at a faster rate than Australia and have set targets for tertiary participation of up to 50 per cent. The Bradley review noted that:

These policy decisions elsewhere place us at a great competitive disadvantage unless immediate action is taken.

One of the things that we saw under the former Howard government was an increase in student-staff ratios. Back in 1996 there were 15 students for every tertiary staff member. By 2006, which is the final year the Bradley review uses in its analysis, that number had risen to 20 to one. We saw a substantial increase in class sizes in universities over the period of the Howard government, and that is probably a contributor to low student satisfaction levels. According to the Bradley review, from 1996 to 2007 the levels of university graduates’ satisfaction on the good teaching, appropriate workload, clear goals and standards, and learning community scales remained either about or below 50 per cent for this whole period. In other words, at least half of Australia’s university students were dissatisfied with the quality of teaching they received, with workload, with goals and standards, and with their institutions as learning communities.

The Bradley review noted:

Australia is falling behind other countries in performance and investment in higher education.

So what this legislation does today is bring about critical changes in indexation. I am pleased today to be following on this side of the House the member for Robertson, who, like me, has had substantial experience in seeing how Australian tertiary institutions struggled to cope in the old environment. I have seen firsthand, as a professor at the Australian National University, the tough decisions that have to be made when wages increase substantially faster than Commonwealth indexation. That gap between wage growth and Commonwealth indexation means that universities have to make tough choices. The more wages outstripped funding the more we had to cut positions, forcing young researchers who were doing terrific work at the frontiers of their fields to go and find jobs elsewhere. That was good perhaps for the institutions that snapped them up but bad in the long run for students and for the research being carried out by our Australian tertiary institutions.

The Bradley review noted that:

… Commonwealth funding per subsidised student in 2008 was about 10 per cent lower in real terms than it was in 1996 … This was the result of a combination of direct cuts, constrained indexation and shifting of the balance towards higher student contributions.

That steady reduction in real Commonwealth funding had dramatic and painful impacts on Australia’s tertiary institutions. I am pleased to note that the bill that we are speaking to today responds to a recommendation of the Bradley review. Specifically it responds to recommendation 27 by implementing a new indexation arrangement to ensure that universities’ revenue does not continually decline. As the Bradley review said, there are ‘increased sources of non-government revenues that universities have developed since 1996’ and ‘those sources of revenue cannot viably be increased at historical rates’. That is a recognition that some of those substantial shifts that we have seen in the tertiary education sector over the last 20 years are one-off shifts. It is not reasonable to assume that they are going to occur again.

So the indexation factor within this bill is going to be determined through a combination of two sources. Three-quarters of the indexation factor will be derived from the Professional, Scientific And Technical Services Labour Price Index, which will be discounted by 10 per cent, as recommended by the Bradley review, to ‘require higher education institutions to pursue ongoing productivity gains’. That is not putting in place an unreasonable funding gap but is recognising that a 10 per cent difference is something that can encourage productivity enhancements within higher education institutions. The other quarter of the indexation factor will derive from the CPI to account for the non-salary component of the higher education index factor. That reflects the fact that not all of tertiary education funding is going to staff; something in the order of a quarter is going to capital funding and so the CPI is an appropriate indexation for that portion. The university sector has welcomed the improved indexation formula. As a result, the indexation is going to increase funding for the Commonwealth Grant Scheme, other grants and the Commonwealth scholarships.

The legislation that we are debating today is part of a long economic and educational legacy of successive reforming Labor administrations. One of the reforms of which I am most proud was the HECS reforms put in place in 1989 and now known as the HELP scheme. I would like to use this opportunity to pay tribute to my former colleague at the Australian National University Professor Bruce Chapman for his integral role in putting in place what I will probably always refer to as HECS.

The key to HECS was to recognise that a university education raises private incomes. My own work as an economist has looked at the quantum of that increase. It is in the order of a 50 per cent increase in take-home pay for a university graduate compared to somebody who has just finished high school with no further qualifications. It is fair, and it is in accordance with basic Australian principles of egalitarianism, that students who graduate from universities should make a contribution. But it is also critical to make sure that as students make that contribution it does not stop them attending university. They only make that contribution under the income contingent loan scheme when their earnings pass a certain threshold, set at around average earnings.

Recognising that a university education has a social benefit, the income contingent loan does not cover the full cost of tuition. We recognise that we as a society are better off from rising tertiary attendance rates and so we, in the form of the government, kick in a portion of the bill to allow students to attend university. There has been some careful research done on the impact of HECS on the socioeconomic mix of students who attend university. In particular, I am thinking here of a paper by Bruce Chapman and Chris Ryan which showed that the introduction of HECS in 1989 had no impact on the socioeconomic mix of university students. The number of low-SES students attending university increased because we saw, thanks to HECS, a substantial rise in the number of university students across Australia. But the share of university students who were from low SES backgrounds stayed unchanged. So I regard HECS in that sense as a pro-poor measure and a measure which increased equality of opportunity across Australia.

This next stage of reforms follows very much in the same tradition. Under the student centred funding system, the government will fund a Commonwealth supported place for every eligible university student accepted into an eligible course at a public university—a substantial shift in our higher education system and one that I am delighted to hear that those opposite support. They were not, alas, able to bring it home during their 11½ years in government, but I am glad to hear that they are supporting it now that a Labor government is putting it into place.

This will be a reform which recognises that the labour market of, say, 2050 is going to be one which increasingly requires high levels of abstract thinking skills and where we will naturally want to increase the number of young Australians who have a tertiary qualification. It is estimated, as the member for Kooyong has noted, that there will be an additional 115,000 Commonwealth supported places over the period 2010-2013. That is 115,000 young Australians who would not otherwise have got a chance to go to university but for this bill. That is a terrific thing and one of which all members of this House should be greatly proud.

Finally, I would like to use this moment to acknowledge Peter Davidson of the National Tertiary Education Union. Peter, a fierce advocate of better universities, alas passed away on 29 October of this year. I extend my condolences to his family and in particular to his widow, Tanya. I also use this opportunity to thank Emily Murray, a volunteer in my office, who has been a tremendous help in preparing my remarks today. I commend the bill to the House.
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What I'm Reading

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World Diabetes Day

Today is World Diabetes Day - a chance to recognise the enormous burden that type 1 and type 2 diabetes places on Australians and our health system. More information on the World Diabetes Day website.
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Out and About in Fraser

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Whitlam Without the Dismissal

Last night, I gave the guest lecture at Werriwa FEC's 35th anniversary dinner to remember the Dismissal. My theme was 'Whitlam Without the Dismissal' - taking a guess at how Australia might have looked if Kerr hadn't acted. Counterfactual history isn't new - one of my favourites is Mark Lawson's Idlewild (which imagines a US in which Marilyn and JFK survived). And there was even an Australian book titled What If? that was published a few years ago.

I'm not sure that I'll get a chance to turn my speech notes into a transcript, so let me give you the short version. Whitlam survives until 1983, carrying out major economic reforms, a vast arts renaissance, and a treaty with Indigenous Australians. The Peacock government rules from 1983-93, and is socially liberal but economically inept. The Beazley government takes over from 1993 and continues economic reform, while deftly defusing the Hanson phenomenon. (I resisted the temptation to go past the Beazley government.)

Under this theory, Australia stays in sync with the US and UK political cycles: left-wing in the 1980s, and right-wing from the mid-1990s. That said, luck still plays a major part in my story - it's just that instead of Bertie Miliner's heart attack and Vince Gair's love of prawns, it's the global recessions of the early-1980s and early-1990s that cause power to change in Australia.
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Behind Bars

My AFR opinion piece today is on incarceration rates.

Too Many in the Lock-Up, Australian Financial Review, 9 November 2010

I spent the morning behind bars last week: a relatively unusual experience for a sitting politician. Opened in 2008, Canberra’s new jail is one of a dozen or so correctional facilities that have opened across Australia in the past decade.

Building prisons is a growth industry because the number of inmates continues to grow. As James Eyers pointed out in this newspaper recently, the growth in Australia’s prison population has been driven not by a rise in crime, but by law changes such as tougher bail conditions and mandatory non-parole periods.

As a result, Australia has 175 prisoners per 100,000 adults, up from 112 prisoners per 100,000 adults in 1990. For Indigenous Australians, the rate is up from 1758 to 2310 prisoners per 100,000 Indigenous adults. Put another way, one in 43 Indigenous Australians are presently behind bars. Among young Indigenous men, the share is 1 in 15.

As with many things – good and bad – the United States suggests what the future might hold for us. In a recent analysis, sociologists Bruce Western (Harvard) and Becky Pettit (University of Washington) point out that US jails currently hold over 2 million people, or 762 prisoners for every 100,000 adults. 

For some, the rate is substantially higher. Among men aged 20-34 who did not complete high school, the US imprisonment rate is a jaw-dropping 12 percent for whites and 37 percent for blacks.

And that’s just the proportion behind bars on any given day. By the time black high school dropouts reach their mid-30s, Western and Pettit estimate that 69 percent will have been imprisoned. In other words, if you’re a black man who doesn’t finish high school, the odds are two in three that you’ll see the inside of a prison cell. Overall, African-American incarceration rates are higher than for Indigenous Australians.

As Western and Pettit point out, one of the things that a high incarceration rate does is to make other statistics look good. For example, official employment surveys exclude the prison population. Among young black dropouts, the effect of adding prisoners back in is to reduce the employment rate for this group from 40 percent to 25 percent. The same is likely to be true of other measures, such as income inequality and ill health. Because numbers often drive policy, this kind of invisible disadvantage can readily be missed in public debates.

Another feature of persistently high incarceration rates is its intergenerational impact. In the US today, 2 percent of white children have a parent in jail. Among African-American children, the figure is 11 percent. In the US, around 1.2 million black children have a parent behind bars. While I was unable to find comparable statistics for Australia, anecdotal evidence suggests that a substantial proportion of Australian prisoners have children outside. Whatever your view on the impact of jail on those locked up, mass imprisonment of parents should be a concern to anyone who cares about breaking the intergenerational poverty cycle.

For the US, tight fiscal circumstances can have two possible impacts on prisons: less spending per inmate, or fewer inmates. So far, states seem inclined towards the former (a New York Times report last year revealed that Alabama budgets $1.75 per prisoner per day for food). However, it is possible that as the US downturn continues, it may prompt a broader rethink of the nation’s prison policy.

In the Australian case, the total cost of prisons is nearly $3 billion per year, or about $100,000 per prisoner. Yet the real cost of incarceration comes afterwards, with ex-prisoners more likely to commit further crimes and less likely to find a job. While prison is a place of rehabilitation for some, others are scarred by the experience. Sexual violence in prison probably isn’t as common as in the 1990s (when NSW magistrate David Heilpern estimated that one-quarter of young male prisoners were raped), but the rate is likely higher than in the outside world. And the median sentence length in Australia is 3 years, which means released prisoners often find that the only friends who haven’t deserted them are the ones they made inside.

Getting prison policy right isn’t easy, but if there’s one country that can show the way, it should be Australia: the nation that showed the world that if they’re given a chance, convicts can do just as well as anyone.

Andrew Leigh is the federal member for Fraser.
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Cnr Gungahlin Pl and Efkarpidis Street, Gungahlin ACT 2912 | 02 6247 4396 | [email protected] | Authorised by A. Leigh MP, Australian Labor Party (ACT Branch), Canberra.