Talking public finance on Sky with Arthur Sinodinos

On Sky's Lunchtime Agenda program, I joined host David Lipson and Liberal Senator Arthur Sinodinos to discuss how a budget surplus puts downward pressure on interest rates, and why a National Disability Insurance Scheme is a higher priority than tax cuts for millionaires and billionaires.
Add your reaction Share

Living Longer, Living Better

I wrote in today's Drum about the government's aged care reforms.
Choosing Life Over Money in Our Old Age, The Drum, 2 May 2012

Quiz time. Over the past 40 years, average real incomes in Australia have doubled and life expectancy has increased by a decade. If you could have only one of those developments, which would you pick? Would you prefer twice the income, or to live a decade longer?

I've asked the 'your money or your life?' question of dozens of people, and I'm yet to find anyone who would take the money. As an economist, that suggests to me that the longevity gains that have taken place in my lifetime are worth even more to Australians than the income gains.

But because Australians will live longer, policymakers need to spend more time thinking about issues that affect senior Australians. We need to boost minimum superannuation contribution rates. We must make sure our hospital system operates as efficiently as possible. And we need to fix our aged-care system.

When the Gillard Government asked the Productivity Commission to look into the care of older Australians, they reported back to us that the system was often inflexible and limited in supply, and had too many unmet needs.

Most Australians want to stay in their own homes as long as possible. But for those entering a nursing home, quality is variable and choices can be limited. The Productivity Commission pointed out that a viable solution to improving the quality of nursing homes would inevitably have to involve users paying more.

Improving the residential aged-care system involves removing some of the perverse incentives that currently exist. By significantly relaxing supply constraints on nursing home places, we are recognising the reality that more Australians will require an aged-care place in decades to come.

By requiring accommodation providers to publish their fees on a My Aged Care website (both as a daily rate and a bond), we're providing more information to consumers. And by introducing assets tests plus setting a lifetime limit on what people can be required to pay, we're making the system more equitable.

The assets tests won't apply until 2014, and if one partner is living in the family home, it will remain exempt.

Older Australians are also funding their retirement in different ways from previous generations. One of these is 'reverse mortgages'. Just as a regular mortgage allows families to live in a house while slowly paying money to the bank, a reverse mortgage lets people continue to live in a house while the bank pays them regular instalments.

A regular mortgage stops once you've paid off the house. A reverse mortgage typically ends when both members of a couple die.

At present, the market is small (a 2007 report counted just 31,000 reverse mortgages, compared with the 3 million regular mortgages). But as it grows, it's important to make sure that customers are protected. So we're improving disclosure provisions, to make sure that people who take out reverse mortgages know exactly what they're getting into. And we're placing limits on what lenders can recover, so banks cannot ask seniors to pay more than the value of their home.

It's hard to trace the origins of all the problems in our aged-care sector. Partly, they're a product of overlapping state and federal government responsibilities. There has also been plenty of political laziness, with Howard government aged-care ministers often preferring to tip a few more dollars into the system rather than consider whether the structures themselves were actually fit for purpose.

One of the big problems has been a lack of rigorous economic analysis. Sometimes, the proper role of government is to correct market failures. At other times, we need to think carefully about whether government is stifling the ability of markets to help us.

What's striking about the aged-care system is that the Productivity Commission identified both market failures and over-regulation. It's time to build a system that's more equitable, more efficient, and provides users with more choice and more control. Because as they say, living longer certainly beats the alternative.

Andrew Leigh is the federal member for Fraser.
Add your reaction Share

Why Inequality Matters, and What We Should Do About It

I spoke tonight at the Sydney Institute on the topic of inequality. The embedded video is a short version, and the long-play version of my speech is below.

(See also reports in the SMH and Canberra Times, and an op-ed version in the National Times.)

Why Inequality Matters, and What We Should Do About It*

Andrew Leigh MP
Federal Member for Fraser

Sydney Institute
May Day 2012


Imagine a ladder, in which each rung represents a million dollars of wealth.[1] Imagine the Australian population spread out along this ladder, with their distance from the ground reflecting their household wealth.

On this ladder, half of all households are closer to the ground than they are to the first rung.

The typical Australian household is halfway to the first rung.

Someone in the top 10 percent is at least 1½ rungs up.

A household in the top 1 percent is at least 5 rungs up.

Gina Rinehart is 5½ kilometres off the ground.

‘The rich are different from you and me’, wrote an awestruck F. Scott Fitzgerald.[2]

‘Yes’, wrote the laconic Hemingway. ‘they have more money.’

But why should we care about the gap between rich and poor? Shouldn’t we focus on raising the bottom, rather than how much wealthier the top are than the rest? Aren’t discussions of inequality merely – shudder - ‘the politics of envy’?

Certainly, there are eminent economists who have taken this position. The University of Chicago’s Robert Lucas has argued that ‘of all the tendencies that are harmful to sound economics, the most seductive, and in my opinion, the most poisonous, is to focus on questions of distribution’. Harvard’s Martin Feldstein says ‘there is nothing wrong with an increase in well-being of the wealthy or with an increase in inequality that results [solely] from a rise in high incomes’.[3]

Contrary to Lucas and Feldstein, I want to persuade you that inequality matters, that the gap between rich and poor really is an important public policy issue, even apart from the question of poverty. Inequality has costs and benefits, and policymakers need to think hard about the right level of inequality. This is an issue that Wayne Swan has put squarely on the national agenda, and I commend his article in The Monthly to you.[4]

To begin, let me take a moment to review what we know about inequality in Australia. There are many measures of inequality, but I’m going to focus on top income inequality, because it allows me to look at a much longer period, and because it’s very clear that when we’re talking about top incomes, the topic is inequality rather than poverty.[5]

Read more
Add your reaction Share

Talking Politics on ABC 666

I spoke yesterday on ABC 666 with Ross Solly about the events of recent days, and took calls from listeners. Here's a podcast.
Add your reaction Share

Free Computer & TV Recycling

From 15 May, Canberans will be able to drop off old computers and TVs free of charge at the Mugga Lane and Mitchell recycling stations. It's part of a joint ACT/Federal government scheme, funded by the computer and television industries. The ACT is the first jurisdiction to take it up. More details here.
Add your reaction Share

Effective Aid

In a short program on the ABC's Radio Australia network, I spoke about foreign aid with Girish Sawlani. Here's a podcast.
Add your reaction Share

The Asian Century Beckons

Senator Lisa Singh and I have an opinion piece in today's Canberra Times on the implications of the rise of Asia for Australia. The full text is over the fold. It's based on our submission to Ken Henry's Asian Century white paper.

The Asian Century Beckons, Canberra Times, 25 April 2012

In the 21st century, we can confidently predict two trends. First, Australia will become more ethnically diverse. And second, we will become more enmeshed with Asia. The next generation of Australians will be more likely to have been born in Asia, travelled to Asia, worked in Asia, or married someone from Asia.

That's why the Asian Century White Paper which the government has commissioned from former Treasury secretary Ken Henry is so important. Rapid economic growth in China and India isn't just drawing millions of people out of poverty - it's also placing Australia closer than ever to the economic centre of gravity of the world economy. This isn't just a mining story (Australia's service exports to China exceed our coal exports), it's a story that illuminates the evolution of our national character.

We believe that the Asian Century has five big implications for Australia.
Advertisement: Story continues below

First, we should focus on the opportunities, not the threats. Straightforward trade theory tells us that Australia will be most prosperous if we focus on our comparative advantage - the things we do better than other nations. This means that as the outputs of other countries change, it will invariably affect our comparative advantage. Managing industrial transformation is an important challenge for our nation. It is also important that we maintain a bipartisan discussion about how structural change is vital if we are to continue increasing living standards. Every day, thousands of Australians lose their jobs, and thousands find a new job.

No government can - or should - try to prevent every job loss. And no opposition should seek to block change by engaging in partisan politics over job churning. It is often said that Australia is ''competing'' with Asia. But in our reflections on industrial change, we must acknowledge that Asia is our most significant export destination, and that eight of our top 10 trading partners are already in the Asian region.

Demands for services like education, tourism and technical expertise, and goods like high-quality agricultural produce, will only increase as the preferences of consumers adjust to their new middle-class status. The Organisation for Economic Cooperation and Development projects that the proportion of the world's middle class residing in Asia will increase from 28 per cent in 2009 to 66 per cent by 2030. The growth of the Asian middle class means a massive increase in consumption and spending on imported goods and services, the supply of which Australia is well placed to provide.

Second, we should revitalise the push for a republic. As the only Anglo-Celtic country in the Asian region, we have an extraordinary opportunity to harness the rise of Asia. Yet there is a mentality that when we punch out at the end of our time working in or visiting China, we come safely home to the Anglosphere. For example, only 20 per cent of Australians currently working in China can speak Mandarin. Our political and cultural institutions reflect an attitude in which Australia is a dependant of the British Crown.

Despite the world's economic centre of gravity shifting towards the Asian-Pacific, the notion still persists that Australia is located far away from where the important decisions are made. We can no longer afford to think of ourselves as simply visitors to this region, when it is from this region that the future will be shaped. By becoming a republic, we would be able to stand proudly independent of Britain, and announce to our neighbours our readiness to be involved in our region.

Third, we must improve the Asia-literacy of all Australians. Increasing Australia's skill base in Asian languages must be a strategic priority. Better language capacity is crucial to trade negotiations and grasping business opportunities. Just as compelling are the social and cultural benefits of enabling people to communicate with people from other backgrounds. A strong command of language allows listeners to far better understand differences in culture; to understand not just what is said, but why. If we want Australia to have a place at the table in the Asian Century - to even understand the opportunities available - we will need to adjust our Asian language competence from a level suitable for backpackers to one that fits the boardroom.

While we agree that it would be a good thing for more Australians to speak Mandarin, Hindi or Vietnamese, it is also vital to take a hard-headed look at the reasons behind the low take-up of such languages. Such an analysis should take into account the basic economic principle that acquiring a language is not costless, and recognise that for our nation, Asian language study is an investment in a safer, affluent and more engaged nation.

Fourth, we should increase the Asia-literacy of our politicians. At the federal level, we can be proud to have some parliamentarians of Asian descent, who speak Asian languages, and who have lived in Asia. But there is more work to be done to ensure that our politicians continue to look like the electorate. Too few members of Parliament are absorbed in Asian art and literature, and too few travel regularly in our region. There are plenty of parliamentarians who follow every twist and turn of United States or British politics, and but not enough who understand party politics in India and Malaysia.

Fifth, we should engage our neighbours in trade, aid and diplomacy. As Hugh White's provocative Quarterly Essay has illustrated, the rise of China creates significant challenges for Australia. We do not believe that Australia should resile from our deeply-held support for open markets and open societies. Allowing the renminbi to rise to an appropriate level would be good for Chinese consumers, as it would increase their buying power and help to curtail domestic inflation.

Encouraging China to deliver more of its foreign aid through multilateral institutions would help donor coordination and poverty reduction. Similarly, while the Association of South-East Asian Nations has built a strong and generally progressive community of nations, its policy of non-intervention in national affairs must not be used as an excuse for social reforms to languish. Australia must focus its diplomatic and development capacity on encouraging Asian nations to harness their growth for the benefit of their own populations, the region and the world.

Andrew Leigh is the federal member for Fraser (, and Lisa Singh is a Labor senator for Tasmania ( This article draws on their submission to the Asian Century White Paper.

Add your reaction Share

Gallipoli: Shooting History

On the eve of ANZAC Day 2012, I thought I'd post one of the finest pieces I've read about Gallipoli: Peter Weir's 2001 lecture, titled 'Gallipoli: Shooting History'.

So far as I can work out, it's not online, so thanks to Leonie Doyle for scanning it, and I hope the copyright holders won't object.
Add your reaction Share

Science Breakthroughs on ABC

Here's a podcast of my chat this morning about science breakthroughs on ABC 666 with Alex Sloan.

And here's a short version of the speech that was published on the ABC's Drum website.
Add your reaction Share

Loneliness in the Digital Age

On ABC Radio National's Sunday Extra program this morning, I spoke with host Jonathan Green and the aptronymous Helen Razer about social isolation and new media (Facebook, Twitter, email). Here's a podcast.
Add your reaction Share

Stay in touch

Subscribe to our monthly newsletter


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.