Nowcasting

My Australian Financial Review column today is on Google, and particularly its ability to forecast the present.
Google's on Top of Today, Australian Financial Review, 20 September 2011

Some days, it seems that everyone has a crystal ball. Bank economists boldly predict exchange rate movements. Political pundits use polls to predict the next election. And fund managers vie to be the best stock-picker.

Alas, many of these forecasts aren’t much good. Exchange rates are equally likely to rise as to fall. Polls years out from an election have little predictive power. And the typical managed fund underperforms the All Ordinaries index.

Faced with the dismal performance of forecasting the future, one firm is taking a more modest tack. The wonks at Google are hoping that their new project will tell us what’s happening today.

If it sounds unambitious, consider that economic statistics are typically released with a substantial lag. The Australian Bureau of Statistics produces unemployment figures about six weeks after the end of the month, inflation numbers about eight weeks after the end of the quarter, and growth numbers 12 weeks after the end of the quarter. As the saying goes, this makes counter-cyclical policy like driving a car down a winding road while watching out the rear vision mirror.

One of the main forces behind what Google calls its ‘nowcasting’ project is its chief economist, Hal Varian. Formerly at the University of California Berkeley, Varian is a doyen of the field known as ‘the economics of information’.

In a recent presentation to the Australian Conference of Economists, Varian showed how the firm went about creating ‘Google flu trends’, which provides real-time measures of influenza prevalence based on searches for flu-related terms (such as symptoms and medication).

Since the Australian Influenza Surveillance Reports generally appear with a two week lag, Google flu trends can provide early warning of a sudden spike in flu cases. Search data won’t beat government statistics for accuracy, but its value is to provide a decent proxy that’s available in real time.

In the realm of economics, UK house prices have been shown to track searches for ‘estate agents’, while Australian consumer confidence fits closely the number of searches for new vehicles (and, surprisingly, crime).

In the case of unemployment, searches for ‘welfare’ and ‘unemployment’ spiked in the US in mid-2008, just as the national jobless rate passed 5 percent. Before the welfare data and labour force surveys had been compiled, search data could have indicated to economic policymakers that storm clouds were gathering. And given the well-known lags in fiscal policy, search data is worth using anytime we’re worried about a future downturn.

A cute feature of using search data to look at joblessness is that it also points to distinct patterns of search terms among the unemployed – many of whom are young men. Varian finds that the first set of terms to spike are labour market related (eg. ‘jobs classifieds’, ‘unemployment benefits’). The second phase sees an increase in searches for new technologies (eg. ‘ipod apps’, ‘free ringtone’). The third stage of unemployment searches are for low-cost entertainment (eg. ‘guitar scales beginner’, ‘home workout routines’). The fourth stage of unemployment searches are for adult content (eg. ‘adult video’, ‘porn tube’).

Rivalling Elisabeth Kübler-Ross’s ‘five stages of grief’, Google’s ‘four stages of unemployment’ is a touching story about how the US recession has affected everyday life. The stages of unemployment searches are as much a part of life as the fact that increased search volume for ‘vodka’ is followed by a spike in searches for ‘hangover cure’.

Some companies (such as credit card firms and travel agents) already use real-time data to monitor their businesses. But others might benefit from drawing on search data. For example, in a demand-driven system, universities should take notice if search volumes suddenly shift from ‘accounting ATAR’ to ‘engineering ATAR’.

Nowcasting is just one of the features that makes Google an interesting company to watch. In human resources, the firm has a policy of giving all employees a day each week to work on their own projects. In evaluation, it makes extensive use of randomised policy trials; as Varian points out, ‘any time you use Google you are in many treatment and control groups’. It runs many laboratory projects, including self-drive cars, which navigate using Google Street View.

It may not get everything right, but in its 13-year history, Google has shown itself to be one of the world’s most progressive companies. Its future is hard to forecast, but right now, the folks at Google are producing more than their share of the world’s innovative ideas.

Andrew Leigh is the federal member for Fraser.

See also a terrific piece (gated) by Michael Dwyer on this topic back in May.
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Lost Superannuation



I spoke today in parliament about the campaign that Chris Burke and I are running to help Canberrans find their lost superannuation.
Lost Superannuation
19 September 2011


According to the Australian Taxation Office, Australians have around $19 billion in lost superannuation accounts. That is a bit over $1,000 for every adult in the country. Lost superannuation accounts arise when people change jobs and forget to update their superannuation accounts or when they take a career break. When you have your money spread across more accounts, you might end up paying excess fees or having your money invested in the wrong assets. Many people never claim lost superannuation so they do not enjoy the standard of living in retirement that is rightfully theirs. If superannuation is a nest egg then lost superannuation is like those eggs at the bottom of the garden that you never find at the end of a treasure hunt.

To address the issue of lost superannuation, Chris Bourke MLA suggested that he and I run a campaign to let Canberrans know how to find their lost superannuation. Chris pointed out that lost superannuation is a particular problem in postcode 2615. In that postcode alone - which covers suburbs like Dunlop, Holt, Flynn, Melba, Spence and Macgregor - there is $45 million in lost superannuation. So we launched a campaign to let Canberrans know about the ATO SuperSeeker website and the hotline (13 28 65).

In Civic we chatted to a part-time actor, who had recently found $6,000 in lost superannuation from a previous job. In Kippax we met Kevin Rourke, who had read about our campaign in the Northside Chronicle. Kevin logged on to our laptop on Saturday and found lost superannuation for a job he had as a panel beater in the mid-1980s. The employer had died and Kevin had not known which superannuation fund he had put the money in. Thanks to the ATO's SuperSeeker website, Kevin has been reunited with his retirement savings from a quarter of a century ago.

My thanks go to Louise Crossman and Barbara Phi from my office and Margaret Watt from Chris Bourke's office, who came up with the idea. I am also grateful to Lisa Mosley from WIN News, who helped us publicise the campaign locally. Quote of the day went to a shopper outside Charnwood Woolworths. Chris Bourke said to her, 'Did you know there is $45 million in lost superannuation in this postcode alone?' Quick as a flash, she replied, 'I'll take it!'

Finally, I want to use this chance to mention Eddie Sharp, who had been selling the Big Issue magazine in Canberra for over a year, working through the Woden Community Service. Eddie came up to say g'day when we launched the superannuation campaign in Civic. We were shocked to learn that he died of a heart attack the next day. Eddie was just 44. My condolences go to his family and his large circle of friends for their loss.
http://www.youtube.com/embed/Fr3BpgMGIZw?hl=en&fs=1
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ACT Black Spots Announced

One of the jobs I most enjoy is chairing the ACT Black Spots consultative panel. The Black Spots program uses federal money to fix dangerous corners and intersections, with the proviso that we can't approve a project unless the public benefit is at least twice as big as the cost of doing the road work.

We've just announced eight new sites where work will be done, totaling $1.1 million (which means that the public benefit is at least $2.2 million).

  • intersection of Drakeford Drive, Summerland Circuit and O’Halloran Circuit at Kambah: $210,000 to upgrade traffic signals, provide additional pedestrian lighting and replace existing poles;

  • intersection of Hindmarsh Drive, Athllon Drive and Callam Street at Phillip: $187,800 to install traffic signal mast arms;

  • intersection of Tharwa Drive, Box Hill Avenue and Woodcock Drive at Conder: $63,000 for visibility enhancements, including improved directional signage, improved hazard signage and upgraded street lighting;

  • intersection of College Street and Haydon Drive at Bruce: $310,000 for improvements to the pavement surface and traffic signals; upgrade of existing light columns; and improvements to kerb, sign and line marking;

  • intersection of Southern Cross Drive and Kingsford Smith Drive at Belconnen: $161,800 to install traffic signal mast arms;

  • intersection of William Hovell Drive and Bindubi Street at Belconnen: $120,200 to install traffic signal mast arms;

  • intersection of Coppins Crossing Road and William Hovell Drive at Belconnen: $52,600 to reduce speed limit on William Hovell Drive; and

  • intersection of Girrawheen Street and Limestone Avenue at Braddon: $21,400 to move the limit lines forward to be flush with Limestone Avenue.


Thanks to all the members of the public who nominated sites for consideration. We're continuing our work, so please keep those nominations coming in to me - by mail, phone or email.
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Australia's First Early Childhood Randomised Trial

I spoke in parliament today about Australia's first randomised trial of an early childhood program.
Randomised Evaluation of Early Childhood Programs
15 September 2011


Improving the life chances of young Australians is a key priority for this government, and I acknowledge the important work done particularly by the Minister for Employment Participation and Childcare and the Minister for School Education, Early Childhood and Youth. Under this government, we have boosted the childcare rebate from 30 to 50 per cent. We have created the MyChild.gov.au website. We first collected information for the Australian Early Development Index in 2009, and this census of five year-old children will be run again in 2012.

I would like to acknowledge the work of experts in this area, including Frank Oberklaid, from the Centre for Community Child Health, Royal Children's Hospital, Melbourne; Matthew Gray, from the Australian Institute of Family Studies; Lance Emerson, from the Australian Research Alliance for Children and Youth (ARACY); and Pam Cahir, from Early Childhood Australia.

The Gillard government is committed to evidence based policy making. We know a lot about the importance of early years interventions but we still have much to learn. That is why I would like to pay particular tribute to the team that is running the Early Years Education Research Project: Nichola Coombs, Jeff Borland, Yi-Ping Tseng, Anne Kennedy, Janet Williams-Smith, Dave Glazebrook and Brigid Jordan.

This is Australia's first randomised trial of an early childhood program. It has received ethics approval and it is following in the footsteps of the great randomised early childhood evaluations: the Perry Preschool program, the Abecedarian Project and the Early Training Project – all begun in the 1960s in the United States. The Early Years Education Research Project will provide valuable lessons about what works in the early years. It will allow us to improve our policies and it will do it using the most rigorous evaluation methodology available. I wish the team all the best of luck.
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September 11 - A Decade On



I spoke in parliament yesterday about the tenth anniversary of the September 11 tragedy.
United States of America: Terrorist Attacks
14 September 2011


Last Sunday, Peter Negron once again stood before a crowd gathered in Lower Manhattan to remember and pay tribute to the victims of the September 11 tragedy. Two years after losing his father in the attacks, Peter, then a slight 13-year-old barely able to reach the microphone, had read the children's poem Stars, including the lines:

'I felt them watching over me, each one
'And let me cry and cry till I was done.'

The enduring acuteness of the loss and sorrow felt by the nation was captured by the boy's shaking voice.

At the time of the attacks, I was living in Boston. On the morning of 11 September 2001, standing in the atrium of the Littauer Building at the Harvard Kennedy School, I looked up at the television screen and saw smoke pouring out of the Twin Towers. Around me were students from all over the globe, including many Americans. Some had friends who had boarded flights leaving Boston at eight that morning—friends they would never see again.

That morning we were supposed to choose our classes. To help us decide, Harvard had each professor give a short overview of the course they were offering. By chance, I entered the room where Michael Ignatieff was presenting his overview. After a minute's silence to remember those who had died that morning, Ignatieff spoke eloquently about international law and the challenges of deciding when to intervene in another nation for humanitarian reasons. He balanced the head and the heart: the need to honour those we have lost while thoughtfully considering the circumstances to justify sending our military overseas. When I left his classroom, one of the Twin Towers had fallen. The second would fall minutes afterwards.

This week, Peter Negron spoke of how he has tried to be a father figure to his younger brother, and his plans for the future. Ten years have passed since Peter's father's death and, while the depth of his heartache was still visible, it was heartening to see the young man's fortitude. Nearly 3,000 families lost a son, daughter, sister, brother, father or mother on September 11.

Ten Australians are known to have died. From New South Wales, Alberto Dominguez, from Lidcombe, age 66, was a Qantas baggage handler; Yvonne Kennedy, 62, was on American Airlines flight 77, which crashed into the Pentagon; Craig Gibson, 37, from Randwick, was working in the World Trade Center's north tower, in the offices of insurers Marsh & McLennan; Steve Tompsett, 39, from Merrylands, was in the north tower; Elisa Ferraina, 27, from Sydney, who had just taken out UK citizenship, having been born in Australia, was in the north tower; and Lesley Thomas, 41, was also in the north tower. From Victoria, Leanne Whiteside, 31, a lawyer from Melbourne, was in the south tower; and Peter Gyulavary, 44, born in Geelong, was in the south tower. From South Australia, Andrew Knox, 29, from Adelaide, was in the north tower. I remember Andrew's friend Kirsten Andrews coming to stay with me in Boston shortly afterwards as she worked through the experience of losing such a close friend. From Queensland, Kevin Dennis, 43, from the Gold Coast, was a US based stockbroker with Cantor Fitzgerald, a firm which lost two-thirds of its employees on that fateful day.

In the 10 years after the September 11 attacks there has been something of a trend among academics and commentators to focus on where to place blame—blame for the initial attacks, blame for the subsequent fighting. Christopher Hitchens, while describing Osama bin Laden as 'the proud of beneficiary of the export of violence', highlights the indecency of trying to act as a mouthpiece of terrorists and engaging in apologist rhetoric. As Hitchens notes, there are legitimate grievances held by the Palestinian people. United States foreign policy is sometimes imperfect. But to link these with al-Qaeda's primeval, totalitarianism, misogynist, anti-modern ideology is deeply wrong. Hitchens points out that after Salvador Allende was murdered on 11 September 1973, the Chilean opposition had legitimate grievances against the United States. But the Chilean opposition never dreamed of pursuing their goals by committing atrocities against civilians on United States soil. Nothing justifies the mass murder of civilians.

Hitchens emphasises the duty we owe to others who continue to suffer, such as 'Afghanistan's people, whose lives were rendered impossible by the Taliban long before we felt any pain'. Australia has a proud history of upholding this responsibility by serving around the world as peacekeepers. Since 1947, more than 30,000 Australians have worked for the cause of international peace and security. Today marks the 64th anniversary of our involvement in international peacekeeping. I pay tribute to one of my predecessors as the member for Fraser, John Langmore, who has been a strong advocate for the global role played by Australian peacekeepers.

Our peacekeeping efforts were recently recognised by United Nations Secretary-General Ban Ki-moon, who acknowledged the work of Australians in Africa, Europe, Central America, the Middle East and the Asia Pacific region. Australian peacekeepers saved lives, helped communities and worked to rebuild nations. Those efforts are continuing today in Afghanistan—about which I spoke in much more detail in parliament last October.

To say that September 11 changed the world is no exaggeration, but it also reinforced some absolutes. Australia continues to share the United States' vehement opposition to terrorism. Together we remember the lives that have been lost and together we will work to ensure that such a tragedy does not occur again, be it in our own country or elsewhere. It is our responsibility to ourselves and to the world to work towards a peaceful future.
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Climate Change Legislation



I was pleased to speak today on the government's climate change bills (aka the Clean Energy Future plan package):
Clean Energy Bill 2011 and related bills
14 September 2011


Over the past few decades, as we in this place have debated solutions to climate change, climate science has become increasingly unequivocal: the world is warming and human beings are causing that warming. This parliament sits in a city that shares a close connection to the natural environment. The bush capital is particularly vulnerable to climate change. Unchecked climate change over the next five decades could subject Canberra to more high and extreme fire danger days, more frequent droughts, more scorching hot days when elderly people and young kids cannot go outside, and less water in our dams. We cannot blame climate change for any single extreme event but we know that more of them will impose a greater cost to households. Canberra's devastating bushfires in 2003 delivered a damage bill of a third of a billion dollars to what was then just a $16 billion economy. If you increase the probability of extreme fire danger days then you increase the expected cost of bushfires.

One way of regarding climate change mitigation is as a form of insurance. I am not in the habit of regularly quoting Rupert Murdoch, but he says:

'Climate change poses clear, catastrophic threats. We may not agree on the extent, but we certainly can't afford the risk of inaction.'

If you accept that asbestos is very likely to cause malignant mesothelioma and that bad cholesterol is very likely to increase the risk of a heart attack then you should accept that our greenhouse gas emissions are very likely causing global warming.

The coalition likes to flirt with climate change deniers. Their Western Australian branch recently called for a royal commission into climate change science. But in their official policy the coalition have recently accepted the science and agreed to an emissions reduction of five per cent on 2000 levels by 2020, so the question we in this chamber have to think about is: what is the best way of getting to that bipartisan target? The choice is clear: ‘Direct Action’ or a market based approach.

The problem is that the coalition's policy is indirect and it will not take action in the most effective way. When you reject a market based mechanism and place your faith in command-and-control you lose a lot of flexibility. You can see this if you look, for example, at Australia's projections of renewable energy growth in the decade from 2000 till 2010. At the start of the decade experts projected that two-thirds of the renewables growth would come from bagasse and none from wind. By the end of the decade bagasse had contributed less than one-tenth of the renewables increase while wind had contributed nearly half.

When you reject the market based mechanism you do not tap the ingenuity of the market. You lock yourself into an inflexible system. We should never forget that a price on carbon pollution is not just a disincentive to polluters but also an incentive to investors and entrepreneurs looking to invest in renewables. Joshua Gans, one of Australia's brightest economists, said about the two contrasting policies:

'The point is that this game could go on and on with very little impact and possibly negative impact on total emissions. And there is example after example of this. Think of the taxes required to employ all the inspectors and personnel to ensure that regulations are doing what you wanted without unintended consequences. Sure, it can be done but you will need a government that would make Lenin blush to make it happen.

'Contrast that with a carbon price—by tax or trade. That requires none of this because it hits directly on the problem: emissions create external costs so we need everyone to build that cost into their decision-making. The problem is, as right-wing economist Frederick Hayek pointed out, that no-one has the information required to plan out what individuals might do themselves. By placing the decisions of environmental management in the hands of the people, you can let things work themselves out in a way the heavy-handed Government involvement cannot.'

He went on to say:

'I can’t parse the dual hypotheses that either the Coalition just deny economic evidence or that they actually want more emissions and handouts to business. Perhaps one of their number can enlighten us.'

Professor Gans is not alone in favour of an approach which prices carbon and allows business to innovate in their solution. A poll of members of the Economics Society of Australia, released at the July Australian Conference of Economists, found that 79 per cent agreed with carbon pricing and only 12 per cent supported direct regulation.

This is not some complicated economic theory. It is based on lessons from first-year economics. The best way of addressing a negative externality is to put a price on it. And it is not unproven theory either. In 1989 when US President George HW Bush proposed the use of a market based mechanism to deal with acid rain, the electricity generators warned that costs would skyrocket. Today, that market based emissions trading program is universally regarded as a success. It achieved its emissions targets at around one-third of the projected costs.

Why was it so successful? Researchers found that firms used a variety of approaches to reduce emissions. Some of them retrofitted emissions control equipment. A number switched to cleaner fuels. Others retired their dirtiest generators. Because each firm took the lowest cost approach to abatement, the social cost was minimised. Those opposite used to subscribe to such an approach. In 2007, their election manifesto said, 'A re-elected coalition government will establish the world's most comprehensive emissions trading scheme.'

Whenever I speak at schools and universities, I meet young Australians who are optimistic about a clean energy future and want us to get on with pricing carbon. They get the science and they want us to act. Young people can and do make a positive contribution on environmental debates.

Indeed, in 1990, one young person argued that a 'pollution tax is both desirable, and, in some form, is inevitable'. That young person pointed out that the national interest must be favoured over sectional interests, saying 'even if some of the Liberals' constituents do respond negatively, a pollution tax does need to be introduced to properly serve the public interest'. Who was this young person? It was the member for Flinders [Greg Hunt], and his remarks were from his law honours thesis.

I cite his work not as some cheap political trick in this place but rather as demonstration that there are still some opposite who deep down know that the advice of experts and economists is right, that acting on climate change using the most efficient means possible is the right thing to do. As recently as 28 April 2008, the member for Flinders told a Sydney audience:

Perhaps the most important domestic policy was the decision of the Howard Government that Australia will implement a national carbon trading system.

But the reluctance of conservatives to listen to the best advice is not new. We know that former Senator Minchin, political godfather for many of those opposite, did not accept the scientific evidence on the need to act on smoking or on climate change, which he believes to be some 'vast left-wing conspiracy to de-industrialise the world'.

Former Liberal Premier of New South Wales Nick Greiner lamented this approach, saying in 1990:

'Regrettably, too many people on the conservative side of politics still view environmental consciousness as some sort of left-wing conspiracy Amongst both the Liberal and National Parties there is still a cringe when the environment is mentioned, a subconscious aversion that arises, I believe, from a misconception that there is some fundamental philosophical inconsistency between environmental consciousness and democratic capitalism.'

More than 20 years on, those remarks have never been more relevant.

Recent history, including the Liberal Party's leadership change in December 2009 by one vote—which is a great example of the fact that tipping points really do matter in climate change—lays bare this reality. Pricing carbon is in the traditions of capitalism. Business recognises this and has been calling for certainty in this policy area. For example, the Energy Supply Association of Australia called for a well-designed emissions trading scheme back in February 2007. Nathan Fabian of the Investor Group on Climate Change has said:

'Delaying the introduction of a carbon price is a false economy. We know we must achieve lower domestic emissions, send clear investment signals and support a stronger international agreement. It's time to get on with the job.'

Like the former Carbon Pollution Reduction Scheme, the Clean Energy Future Plan that we are debating today has a fixed-price period which, yes, operates like a tax, followed by a floating-price emissions trading scheme. For those who dislike fixed prices, also known as carbon taxes, I have good news for you. After 2015 there will be no carbon tax.

Under a carbon price, our economy will continue to grow. More than 1.6 million jobs will be created, jobs in clean and renewable industries, jobs in industries that are yet to develop.The revolution is already taking place. In my own electorate we have students in industries taking advantage of this. Earlier this year I was with the Minister for Resources and Energy—who I am pleased to see in the chamber today—at the Australian National University for a launch of a major project to increase the efficiency of photovoltaic solar cells. The project secured investment from Trina, a Chinese company that is a world leader in global energy.

Late last year - with my friend Andrew Barr, a member of the ACT Legislative Assembly - I opened the Sustainability Hub at the Canberra Institute of Technology. That facility allows Canberrans to get practical experience in the latest green building applications, materials and new products for residential and commercial sectors as well as in renewable technologies, like wind and solar. Canberra is already pioneering an electric car grid, with battery charge stations provided by Better Place—and I acknowledge the work my friends Evan Thornley and Macgregor Duncan do at that company.

The world is also harnessing these advantages and we cannot afford to be left behind. Reviews have been conducted for governments of both persuasions and they have been crystal clear on this fact. China's wind energy industry is projected to top 150 gigawatts by 2020, up from earlier projections of 30 gigawatts. China is introducing emissions trading schemes in some of its largest cities—including Beijing and Shanghai—and is reported to be planning a nationwide trading scheme to commence in 2015. That is right: a nominally communist economy is more committed to the market than the Liberal Party of Australia.

In Canada, four provinces—British Columbia, Manitoba, Ontario, and Quebec—are partners in the Western Climate initiative which aims to introduce emissions trading in phases. British Columbia's carbon price is already at $25. In the United States, a coalition of eastern states—with a combined population twice that of Australia's—participate in an emissions trading scheme covering the power sector. California will start a carbon trading scheme in 2012 and is working with the four Canadian provinces to progressively establish a regional trading market from 2012 onward. International linkage makes economic sense. Climate change is a global problem and we want to get the lowest cost abatement.

Japan and South Korea are piloting voluntary emissions trading schemes. South Korea introduced economy wide mandatory emissions trading legislation into its parliament in April 2011 to commence in 2015 and it is seeking to pass the legislation this year. All European countries and Australia's top six trading partners—China, Japan, the United States, Republic of Korea, the United Kingdom, and India—have implemented or are piloting emissions trading schemes, carbon taxes or coal taxes at the national, state or city level. The fact is the world is acting and Australia has a role to play in that action.

In December 2009, Christina Ora, a young person from the Solomon Islands stood up in front of the world at the United Nations Climate Change Conference in Copenhagen and said:

'I am 17 years old. For my entire life, countries have been negotiating a climate agreement. My future is in front of me. In the year that I was born, amid an atmosphere of hope, the world formed the United Nations Framework Convention on Climate Change to solve the climate crisis.'

I am confident we can answer Ms Ora’s challenge, that a global solution can be found, that collectively we can stabilise our emissions while allowing economies to grow and, importantly, allowing development that will see millions of people brought out of poverty.

The Australian government has been debating acting on carbon pollution since Graham Richardson brought a submission to Bob Hawke's cabinet in 1989 to reduce Australia's greenhouse gas emissions. We have had 35 parliamentary reviews into climate change.

I am a proud supporter of this economic reform. This is economic reform that sets our nation up for the challenges of the future. It is the stuff of which Labor governments are made. Labor governments brought down the tariff walls in Australia, Labor governments floated the dollar, Labor governments put in place Medicare and Labor governments implemented universal superannuation. For each of these reforms it has taken a Labor government to harness the prosperity of the future. None of these reforms were uncontroversial at the time of their enactment but all of them have increased our nation's prosperity. I am confident this reform will stand the test of time and secure our clean energy future in the low-pollution world of tomorrow.
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Parliamentary Budget Office



I spoke in parliament on Monday on the government's legislation to create a Parliamentary Budget Office.
Parliamentary Budget Office, 12 September 2011

Over 100 years ago, Alfred Deakin could have been describing the Labor vision when he said:

'We look forward to social and unemployment insurances, to improved health services, to a wise control of our economy ...'

Providing support for those in need, making sure that every Australian has access to health care and the responsible management of our economy continue to be foremost for the Gillard Labor government. It is in the words, 'wise control of the economy' that I believe Deakin would have approved of the establishment of a Parliamentary Budget Office—an independent institution will bring greater accountability and transparency to the policy costing process and strengthen Australia's fiscal and budget frameworks. It will be an institution that stops parties avoiding scrutiny of their election policy costings as the coalition did at the last election.

We are not the first nation to establish such an institution. In the United States they have the Congressional Budget Office. Operating since 1975, the Congressional Budget Office provides congress with: objective, non-partisan and economic analysis; information and estimates for the budget process; and assistance in economic and budgetary decisions. The Congressional Budget Office also advises congress in relation to: budget, microeconomic and taxation analysis; health and human services; management and business; and national security. When in opposition, the Conservative Party in the United Kingdom made plans for an office for budget responsibility. With their victory last year the Cameron government have established the Office for Budget Responsibility. Now operational, the UK office provides economic forecasting that is independent of government.

If only those opposite displayed the foresight and economic responsibility of their conservative cousins in the UK; instead what they have to offer is a $70 billion hole from a swathe of uncosted and untested policy thought bubbles and an unwillingness to support sensible revenue measures like the fuel tax reforms, first brought into parliament by Peter Costello in 2003, and the perfectly reasonable move to means test the private health insurance rebate. This is, of course, the very same coalition that tried to conceal an $11 billion policy costing shortfall at the last election. Given that the Leader of the Opposition has been trying since that last election for a rerun of that election, it is no surprise that the member for Goldstein walked into this place deciding to refight the costings debate. The member for Goldstein just told this chamber that the work Treasury did in assessing the coalition's costings and coming up with their $11 billion hole was fabricated. That is right—when they do not like Treasury boffins, they just say, 'Their work is fabricated; they are politicised.' They do not provide a sense of respect for Treasury, which traditionally has been what conservatives have done in Australia; they attack the bureaucrats and say that they are politicising everything.

The Parliamentary Budget Office will shine a spotlight into the coalition's costings which even they will not be able to hide from. It will make sure the Australian community is better informed about the budget impacts of policy proposals and impose greater budget accountability. The Parliamentary Budget Office will prepare election policy costings upon the request of authorised party representatives and the Independent members of parliament, who played a critical role in bringing the PBO into being. It will be able to prepare policy costings outside of the caretaker period. It will prepare responses to budget-related, non-policy costing requests of individual senators and members of parliament. It will initiate its own work program with regard to research and analysis of budget and fiscal policy settings. It will provide formal contributions on request to relevant parliamentary committees. It will provide non-partisan and policy neutral analysis of the budget cycle, fiscal policy and the financial implications of policy proposals. It will also help ensure the Australian public can be better informed about the budget impacts of policies proposed by members of parliament. In short, the Parliamentary Budget Office will have a busy agenda.

The Parliamentary Budget Office will promote greater understanding in the community about the budget process and fiscal policy. Accountability and transparency are at the heart of democracy and at the heart of a government's relationship with the public. This is something the United States and the United Kingdom have realised in establishing their independent budgetary offices. Accountability and transparency were the very values that the Joint Select Committee on the Parliamentary Budget Office spoke of in formulating their recommendations for a parliamentary budget office. The committee recommended that the office have mechanisms that could ensure transparency of process, equality of access to its services and maintain the separation of the parliament and the executive. Currently there is no independent body that specialises in high quality research and analysis on fiscal policy for the parliament. That is the critical role the Parliamentary Budget Office will fill.

The joint committee also found that the election costing provisions of the Charter of Budget Honesty Act had significant shortcomings. As it stands, the act does not enable the electorate to be better informed about the financial implications of election commitments. We in this place owe it to voters to provide them with independent information that gives everyone in Australia more information about policy proposals during an election campaign. That is why the joint committee unanimously recommended measures to provide incentives for parties to use a costings process—a costings process that better informs the wider public and enhances accountability and transparency. With the Parliamentary Budget Office and the independent costing of election policies we will avoid the farcical situation the coalition found themselves in at the last election.

Rather than follow the provisions of the Charter of Budget Honesty Act ,the political party that had been relying on leaks from Treasury decided that Treasury could not be trusted. The shadow Treasurer infamously claimed: 'The coalition's numbers are exactly right.' That was despite the $11 billion discrepancy between what was being promised and how it was going to be paid. This kind of dishonesty and disregard for proper costings processes should not continue. The Australian public deserves better than having to make a judgment on the responsible management of the country's budgetary and fiscal frameworks according to figures provided by private accounting firms. That is not good enough for the Australian people; they deserve a proper, transparent and accountable parliamentary budget office.

Under this bill the election costings function of the Parliamentary Budget Office will complement that of Treasury and the Department of Finance and Deregulation. The costings service will be fully transparent and consistent with similar processes under the Charter of Budget Honesty Act. The bill also amends the Charter of Budget Honesty Act so that parties with at least five members in the parliament will be able to request election costings from Treasury and Finance. Previously only the government and the opposition were able to access this service. ,Independent members of Parliament and political parties with less than five members in the Parliament will also be able to have their policies costed by the Parliamentary Budget Office. To ensure independence from the executive the appointment of a parliamentary budget officer will be made by the presiding officers following approval by the Joint Committee of Public Accounts and Audit. This way the Parliamentary Budget Officer will be accountable to the parliament via the presiding officers rather than to the executive.

In respect of its annual work plan, draft budget estimates and annual report, the Parliamentary Budget Office and officer will be overseen by the Joint Standing Committee on Public Accounts and Audit. This was the model for a parliamentary budget office and officer that was unanimously recommended by the Joint Select Committee on the Parliamentary Budget Office. Compare this to the kind of budget office the coalition wants. I spoke earlier today in this place about the private member's motion moved by the member for North Sydney, and I noted there that that model would undermine the office by making it accountable to ministers, not the parliament. It would reduce the level of transparency and public accountability that a parliamentary budget office brings to the election costings process. Under the proposal put forward by the member for North Sydney, election policy costings can remain confidential and hidden from the public. This is not the right thing to do.

This government is committed to increasing transparency and accountability, but the coalition cannot seem to kick the habit of poorly-thought-through policies—a habit that showed itself at the last election, with their $11 billion black hole, and a policy that shows itself at the moment with the coalition's $70 billion costings hole.

I also want to use this opportunity to note an additional issue which goes to the mechanics of the costings process—an issue which has not been raised in the debate so far. It is the issue of dynamic scoring. Dynamic scoring has been politically controversial in the United States, where the issue of how to analyse the cost of tax policy changes has arisen. Essentially what is behind dynamic scoring is predicting the impact of tax changes by looking at the effects of individuals' reactions to policy. It is an adaptation of static scoring, which is the traditional method for analysing policy changes. The problem with dynamic scoring is that there is little agreement about how to model long-run economic growth and the effect of tax cuts on the economy. We have some reasonable estimates of multipliers as a result of fiscal policy such as the fiscal stimulus put in place by the Rudd-Gillard governments in 2008-2009, but the impact of taxation changes is highly controversial.

I draw the House's attention to the 2003 report by the Congressional Budget Office commissioned under Douglas Holz-Eakin, who worked for the Bush White House and then went on to run the Congressional Budget Office. The study that the CBO did under his direction estimated the impact of a reduction in personal taxes and the claim that some in the Republican Party were making that such a tax cut would pay for itself. The CBO concluded that the free-lunch mantra—the so-called Laffer effect, which has been around for many years—is just plain wrong. The most optimistic assumptions the Congressional Budget Office could come up with were that tax cuts might stimulate enough economic growth to replace 22 per cent of lost revenue in the first five years and 32 per cent in the second five. But the CBO noted that that was the most optimistic case and, on pessimistic assumptions, the growth effects of tax cuts did nothing to offset revenue loss.

My point is that, if this legislation is enacted and a parliamentary budget office is set up, I would strongly urge that office to steer clear of dynamic scoring, to be pessimistic in their assessments of the impact of taxation changes on economic growth and not to get into the free-lunch mantra—the idea that tax cuts can pay for themselves. We have little evidence for that, and it is particularly dangerous because it sets up the potential for a government to simply suggest we can cut taxes and get the revenue back. That is not what careful economic studies have found. We have to be vigilant to the potential politicisation of the Parliamentary Budget Office in this way and in others. Its independence and its non-partisan character is paramount. By having an independent agent providing the costing and analytical services for policy proposals, I hope we can take away some of the embarrassment that the coalition currently finds themselves in with their $70 billion black hole.

It is a lot to hope for. Only last week the shadow Treasurer was telling 2GB listeners the number was not $70 billion, but at the same time the shadow finance minister was confirming that $70 billion was not a furphy. That was the gap that the coalition had to make up. This inconsistency and uncertainty does not befit a team that would like to have themselves regarded as the alternative economic policymakers in Australia. The accountability and transparency of the Parliamentary Budget Office will bring to an end this kind of deception—these kinds of attempts to claim that parties have closed the gap when, in fact, their costings simply do not add up.

A parliamentary budget office will be an important new institution. It will bring greater accountability and greater transparency to the policy costings process during election periods. I hope it will continue to draw on the academic expertise in Australia in public finance. This is an area to which I made a small contribution when I worked at the Australian National University, but, frankly, when you look at Australian economics overall, we have traditionally been stronger in macroeconomics and labour economics than we have in public finance. And the Parliamentary Budget Office will make an important contribution there. I hope they will engage thoroughly and deeply with Australian academic economists on this, as this government is seeking to do, for example, through the tax forum that will take place in early October.

The Australian people put their trust in us. They expect us to be honest with them about the policies we intend to implement that impact on their lives. Our respect for them means they deserve nothing less than a government that is accountable and transparent in presenting what Alfred Deakin called 'its wise control of the economy'.
http://www.youtube.com/embed/ZkddN0qitC0?hl=en&fs=1
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Tax Forum Submission

I'm attending the government's Tax Forum in Canberra on 4-5 October. Participants have been asked to supply a Statement of Priorities. Here's mine:
Tax Forum - Statement of Priorities
Andrew Leigh MP


A wide range of participants have been invited to the Tax Forum, and we can expect that many diverse ideas will be brought to the table. This statement aims to set out some of the guiding principles that should be at the heart of tax reform in Australia.

In the last parliamentary term, the Australian Government commissioned a major review of the Australian tax system, the first in a generation. The 2009 Australia’s Future Tax System report (‘the Henry Review’) is a seminal document, which outlines the core principles that should be at the centre of tax reform.

As a nation, we need to identify the opportunities and challenges facing us and then target reforms to meet them. The Australian Government has identified the mining boom and climate change as major issues that require tax reform. We have introduced the Clean Energy Future legislation into parliament, and will soon be introducing legislation for a Minerals Resource Rent Tax.

Among the core principles for taxation reform are the following:

  1. Taxes should be shifted away from mobile tax bases to immobile tax bases.

  2. Taxation of savings should be more neutral and sustainable.

  3. Polluters should internalise the social cost of environmental damage.

  4. Disincentives to labour force participation should be reduced.

  5. The tax system should be as simple as possible.


The Australian Government is already acting on these priorities. For example:

  • we are shifting the tax burden from mobile to immobile tax bases by cutting business investment taxes and introducing a mining tax;

  • we are ensuring more neutrality and sustainability in savings decisions by increasing the compulsory superannuation contribution rate, increasing the incentive for low-income earners to contribute to superannuation, and cutting the tax rate on interest earnings;

  • we are ensuring that polluters internalise the social cost of environmental damage by implementing a carbon price, and reforming the Fringe Benefits Tax regime on cars in order to remove the incentive to drive excess kilometres;

  • we are reducing disincentives to labour force participation by phasing out the dependent spouse tax offset, making income tests more generous for single parents and introducing a pensioner work bonus; and

  • we are simplifying the tax system by tripling the tax free threshold and replacing the ineffective entrepreneurs’ tax offset with more straightforward measures such as an improved instant asset write-off.


The tax forum is a valuable chance to continue a national conversation about tax reform. That conversation takes place at a time when Australia’s economic fundamentals are among the best in the world. Our unemployment rate is around half the level of the United States and the European Union, and government debt is a small fraction of that in most developed nations. Australia’s geography has us in the fastest-growing region of the world, and demand for our exports is higher than it has been for a century. Not everyone is sharing in the benefits of the boom, but as a nation, we approach the task of reform from a position of strength.

I look forward to engaging in this discussion, guided by the principles outlined above.

Other submissions will soon be published on the Tax Forum website.
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Sky News AM Agenda with Andrew Leigh and Mitch Fifield



Ashleigh Gillon hosted Mitch Fifield and I on the AM Agenda program on Sky News yesterday.http://www.youtube.com/embed/eHPSnDuJHYE?hl=en&fs=1
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In praise of public sector workers

I spoke in parliament yesterday about the important role played by public sector workers - particularly teachers and public servants.
House of Representatives, 12 September 2011

I rise to speak in praise of public sector workers in the ACT and throughout Australia. It was my pleasure recently to attend a roundtable event hosted by Slater and Gordon Canberra and the Centre for Policy Development, to discuss a new report by the CPD authored by James Whelan, and commissioned by Miriam Lyons, CPD’s executive director. The report, titled The state of the Australian Public Service: an alternative report, is an insightful analysis of the role that the Australian Public Service plays today. It notes that the Australian Public Service's employment - currently 163,778 people as at the end of 30 December 2010 - lies somewhere between the number of people employed in Coles and the number of people employed in Woolworths.

The report discusses, in a real broad sweep of history way, how the Australian Public Service has developed and some of the major challenges currently facing it. Its findings would make interesting reading, I imagine, for the member for North Sydney, who has repeatedly claimed that the increase in public servant numbers since Labor came to office has been 20,000. The member for North Sydney continues to sprout this figure despite having been repeatedly corrected by the Special Minister of State for the Public Service and Integrity. As the minister has pointed out, the change in Australian Public Service numbers since this government came to office has been 8,355, rather than 20,000. But it is not these inaccuracies that most worry my constituents; it is the repeated promise from the member for North Sydney to slash 12,000 public service jobs out of Canberra. This lies in contrast to the views of those from the Centre for Policy Development.

The Centre for Policy Development Research has delved into a range of important issues for the Public Service. For example, it tabulates the Australian Public Service retrenchments since 1995. When one looks at that graph, a clear spike stands out. That is in the years 1997, 1998 and 1999. Australian Public Service retrenchments in no other year exceed 4,000 but in those three years the annual retrenchments were 10,070, 10,238 and 9,061 respectively. It is very clear what happens to numbers in the Australian Public Service when a coalition government comes to office. They are slashed.

The report also focuses on the role that the Big Society reforms are having in the United Kingdom. The report notes:

'The Coalition's desire to reduce the size and cost of the Australian Public Service taps into 'small government' movements that have been prevalent here and in other western countries since at least the 1970s. The values, vision and policies of these movements are currently expressed by the Tea Party in the United States and 'Big Society' in the United Kingdom.'

You can see a clear contrast of values in the report. For example, the member for Fadden has told parliament:

'I want the government to be small, I want the public service reduced.'

The member for Wannon has said:

'… the government needs to put a freeze on Public Service recruitment.'

But not all of those opposite take this simplistic view to the Public Service. The member for Wentworth says:

'Squeezing public servants probably appeals to some people. I think the critical thing is to ensure that Government delivers its services efficiently at every level but you've just have to be smart about it.'

The member for Kennedy says:

'They have done a good job and their Public Service has done a good job.'

Those are words that I commend to this House.

It is important that we continue to recognise the great work occurring in the Public Service. Nicholas Gruen's Government 2.0 report suggests some ways in which innovation could be rewarded, including the novel notion of a policy idol competition. When I was in the United States I was privileged to be a judge for the ‘Innovations in American Government’ awards that are run annually to recognise innovation within local, state and federal government. There are also major challenges in this sector. One of the challenges noted by James Whelan's report is increasing the share of Indigenous workers and the share of workers with a disability in an Australian Public Service where recruitment now typically starts at the APS 3 level or above.

We need to recognise that public servants are critical to the quality of service delivery. One of the reasons that Australia avoided the global financial crisis was the rapid fiscal stimulus put in place thanks to the work of the Treasury, the Australian Taxation Office and Centrelink. On this 10th anniversary of September 11, it is worth remembering that on that fateful day it was the government workers who were running up the stairs. And when the Queensland floods hit earlier this year, the Minister for Human Services noted the tragic death of Centrelink worker Gillian Harman who spent a month volunteering in flood hit Queensland in Dalby. As the minister said, Ms Harman returned home on Sunday night. She went straight back to work in her Centrelink office in Guyra in northern New South Wales on Monday and tragically was killed on Monday going home from the office. It is this sort of dedication to work of the Public Service that we on this side of the House recognise.

Public sector workers more broadly benefit from the representation of their unions. I pay tribute to the CPSU, the AEU, the ASU, the ANEF, United Voice, the UFU and the Police Federation among others for the work they do every day in representing public sector workers.

Finally, I would like to turn to another type of public sector workers and pay tribute to the many teachers in the electorate of Fraser who day in, day out do work that is enormously valuable; which inspires the next generation of Canberrans to learn and to understand the world around them.

I also want to pay tribute to the Teach for Australia program. I had the pleasure recently of having dinner in Canberra with, and speaking in Melbourne to, Teach for Australia associates, as they are known—the new teachers who teach in the classroom. I would like to thank Melodie Potts-Rosevear for giving me that opportunity. Teach for Australia is an extraordinarily selective program. In 2009, over 750 applications were received for only 50 places. Of those selected for the program, the average UAI/ENTER score was 97. This selective program means that Teach for Australia associates are placed into classrooms after an intensive pre-placement education and then teach for two years in disadvantaged schools while they continue to complete their education through a two-year postgraduate diploma of teaching at the Melbourne Graduate School of Education at the University of Melbourne. This program has built on the success of similar programs in the United States and the United Kingdom and works to get as many talented people as we can into the classroom. Not all teachers will be Teach for Australia associates, but it is another flexible pathway into teaching.

I acknowledge in particular to the Teach for Australia teachers who have been working hard in the ACT this year: Lia van den Bosch at Hawker College, Imogen Byrne at Belconnen High, Corey McCann and Igraine Ridley-Smith at Calwell High, and Felicity Oliver at Erindale College. In the ACT, we are grateful to them for joining the teaching workforce and for working alongside the many great teachers who enrich the lives of young Canberrans every day. I know that this is not always an easy job. I know that walking into the classroom when you are tired, when the kids are not always behaving at their best, can be a challenge, but it is essential work for the future of our nation and I pay tribute to the many teachers who do it every day.
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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.