Capital Hill on ABC24

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SkyNews AM Agenda 4 April 2011

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Talking Climate Change

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The Simple Street Party

As my engineering friends might say of politics, the negative feedback loop works better than the positive feedback loop. So I was chuffed to receive an email from Melbournian Belinda Pearson, who'd followed up on one of the suggestions in the final chapter of Disconnected.
Having heard you talk about street parties ('By Design' I think?) and talked to older residents in our small Melbourne street about 'once-upon-a-time street parties', we decided to go with it - simple, no alternatives for rain, no  suggestions or prescriptions about morning tea.  To our delight about 60 people wandered up and mingled.  What a feeling to know that most of the people in our street want to know others in the street.

If you'd like to follow in Belinda's footsteps, my simple template invitation is here, or you can use Andrew Heslop's slicker version, designed for 'Neighbour Day'.
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What I'm Reading

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Work for the Headline

So Tony Abbott wants to expand Work for the Dole. I wonder whether he might want to pick up a report commissioned by the Howard government, which concluded that the program reduced the chances of jobseekers finding employment?

Jeff Borland  & Yi-Ping Tseng

This study examines the effect of a community-based work experience program - Work for the Dole (WfD) - on transitions out of unemployment in Australia.   To evaluate the WfD program a quasi-experimental exact matching approach is applied. Justification for the matching approach is a ‘natural experiment’ - limits on WfD project funding - that it is argued constituted a source of random assignment to the program.  Participation in the WfD program is found to be associated with a large and significant adverse effect on the likelihood of exiting unemployment payments.  The main potential explanation is existence of a ‘lock-in’ effect whereby program participants reduce job search activity.

Then again, maybe Mr Abbott is more interested in policies that sound good than those which actually deliver results. That certainly seemed to be the approach of former Minister Mal Brough, who clearly felt that the test of a good policy was whether you could find a talkback listener who liked it.
Questions without Notice, 27 May 2004

Mr ALBANESE (Grayndler) (3:09 PM) —Is the minister aware that Work for the Dole participants are painting murals, making candles and putting on puppet shows? Is the minister also aware of the Borland and Tseng report commissioned by the government, which concluded the Work for the Dole program's `effect on exit from unemployment payments becomes progressively more negative'? When will the government get serious about preparing the unemployed for real jobs by adopting policies like Labor's Youth Guarantee: Learn or Earn policy? Why did the minister yesterday announce more `play for the dole' projects, including kite making?

Mr BROUGH (Longman) (Minister for Employment Services and Minister Assisting the Minister for Defence) —This is not an unexpected attack from the member for Grayndler. He is a member who just cannot say anything positive, does not understand or appreciate the positive nature of Work for the Dole—what it does for individual self-esteem and employability and what it does for the community. I invite the member for Grayndler to actually sit down with some of these purposeful individuals, who are trying to do something for themselves and their community and build a better self-esteem and a better opportunity for themselves. That is what Work for the Dole does.

I am very well aware of the report in today's Melbourne press, which went on to be on 3AW today. And it was interesting, because a number of personnel that are participating in those particular programs rang the program. I have got some of them here. One was a 58-year-old. As a 58-year-old she, or this person, volunteered. Now she or `Dale'—I don't know whether Dale is male or female; I did not actually hear, I am just reading from the Media Monitors report—says: `I am 58 and I don't have many qualifications.' She, oh it is she, says she is unemployable and is defending Work for the Dole. This is the person that we are here to help—a 58-year-old, mature worker who wants a hand. We make no apologies for helping these people and for what they are doing.
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Clean Environment, Dirty Politics

I'm speaking this afternoon at an ANU conference on climate change.
Clean Environment, Dirty Politics
Speech delivered to the ‘Australia’s Climate Policy Options’ Conference
Australian National University
31 March 2011
Andrew Leigh MP
Federal Member for Fraser

I acknowledge the traditional owners of the lands on which we meet today, the Ngunnawal peoples, and pay my respects to their elders past and present.

As the federal member representing the northern half of the ACT, I’m pretty proud of this city. In fact, last year, I gave a speech at the Sydney Opera House arguing that ‘Canberra is the Best City in Australia’.

But one of the things that makes this city so extraordinary – the close connection between city and natural environment – is also what makes the Bush Capital particularly vulnerable to climate change. Over the next five decades, climate models suggest that dangerous climate change could subject Canberra to:

  • a 50% increase in high or extreme fire danger days;

  • more frequent droughts;

  • more hot days; and

  • less water in our dams.

Each prediction is necessarily imprecise, but together they add up to a degraded natural environment, and greater costs 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 dollar economy. Increase the probability of extreme fire danger days and you increase the expected cost of bushfires.

One way of regarding climate change mitigation is as a form of insurance. As Rupert Murdoch has noted:

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

Just as we know that asbestos is very likely to cause malignant mesothelioma and bad cholesterol is very likely to increase the risk of a heart attack, we know that society’s greenhouse gas emissions are very likely causing global warming.

Will Steffen has pointed out that we know with 100% certainty that climate change is occurring and 95% certainty that it is human induced.

The science is slightly less confident is the extent of risk for individual regions. Yet if carbon emissions continue unabated and we reach ‘tipping points’, the risks are high.

When speaking with sceptical electors, I often use the medical analogy. If your child was sick, and 95 out of 100 doctors told you that the child needed a life-saving drug. Would you follow the advice of the other five doctors?

The best way of achieving action on climate change would be through a broad consensus across the political spectrum. Yet as one premier noted on World Earth Day 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 from a subconsciousness aversion that arises, I believe from a misconception that there is some fundamental philosophical inconsistency between environmental consciousness and democratic capitalism.’

That was Liberal Premier Nick Greiner. I hope that Premier O’Farrell can follow this advice and lead the Liberals down the path of action – accepting the advice of both mainstream scientists and mainstream economists.

In teaching environmental economics, the case study we often use to support market-based mechanisms is acid rain. When US President George HW Bush proposed the use of market-based mechanisms to deal with acid rain, electricity generators warned that costs would skyrocket. Today, the program is regarded as a success, having achieved its emissions targets at around one-third of the projected costs.

One reason the costs were lower than expected is that firms used a variety of approaches to reduce emissions. Some retrofitted emissions control equipment. A number switched to cleaner fuels. Others retired their dirtiest generators. Because each firm took the lowest-cost approach, the social cost was minimised.

For environmental economists, this result merely reaffirmed theoretical work going back to Arthur Pigou in the 1930s and Ronald Coase in the 1960s. By the time Coalition climate change spokesman Greg Hunt penned his 1990 university thesis (‘A tax to make the polluter pay’), the economic theory was widely recognised.

Hunt pointed out that ‘An attraction of a pollution tax regime is that it produces a strong incentive for firms to engage in research and development’. For consumers, ‘goods which do not generate [pollution] in their production will become relatively cheaper and therefore more attractive’.

Discussing the politics surrounding pollution taxes, Hunt argued out that ‘a pollution tax is both desirable, and, in some form, is inevitable’. He also suggested ‘even if some of the Liberals’ constituents do respond negatively, a pollution tax does need to be introduced to properly serve the public interest’.

Hunt’s thesis represents the view that most small-l liberals held for decades. The UK Conservatives are proud champions of their nation’s emissions trading scheme. As recently as 2007, the Liberal Party of Australia’s election platform promised: ‘To reduce domestic emissions at least economic cost, we will establish a world-class domestic emissions trading scheme in Australia (planned to commence in 2011).’

Scientists like to point out that climate change is dominated by tipping points. Tony Abbott’s one-vote ousting of Malcolm Turnbull as Liberal Party leader in 2009 is perhaps the best example of such a tipping point. Some of us still hope that the climate in the Coalition party room might experience another change in the future.

The benefits of market-based mechanisms over command-and-control is that by pricing carbon, we can unleash the creativity of the market.

This is already happening in Europe. For example:

  • Tesco (the world’s third-largest retailer) has opened its first zero-carbon store, and is aiming to be carbon-neutral by 2050.

  • Sorption Energy has developed an absorption heat pump for use in houses and in cars.

  • Ecobutton has developed a software program that allows computers to hibernate more efficiently (and tells the user the amount of CO₂ emissions saved).

  • Ecogen technology will generate electricity while generating heat and hot water, thus significantly reducing the carbon emissions of the household.

  • Cement manufacture is an emissions intensive industry. So Novacem has developed a cement that it claims is actually carbon-negative. That means it absorbs more carbon than it emits, because it is based on non-carbonate raw material.

  • Airline travel is something that people demand more of as their incomes rise – yet it is highly emissions-intensive. Airbus recently developed ‘Sharklets’ - specialised wing-tips which are designed to reduce fuel consumption, emissions and engine maintenance, while improving the range, take-off performance and rate of climb of the plane and assist in achieving a higher altitude.

Under a market based mechanisms it is entrepreneurs and households who decide the best path to reducing emissions. Because even the best-intentioned governments are unlikely to anticipate all the possible channels for abatement.

For all the scepticism of science and economics in the Coalition, it’s easy to miss the fact that they have actually signed up to the same emissions reductions targets as the Government. But they have committed to achieving those targets using an extremely inefficient policy. On our calculations, the Coalition would need to spend an additional $20 billion buying permits on the international markets in order to meet the 5% emissions reductions goal.

The only way of raising that $20 billion is through taxation. If the Coalition didn’t raise consumption or company taxes, they would probably need to get the revenue from personal income taxation. That means that under the Opposition’s plan, income taxes would need to go up to pay for the Opposition’s various subsidies. Put simply, while the Government is proposing to price carbon pollution, the Opposition’s scheme will most likely raise the price of work. While we want to tax polluters, they want higher taxes on workers.

If we are successful in legislating a carbon pricing scheme this year, this difference will come into stark relief. The Opposition has pledged to scrap a market-based mechanism, and replace it with their much less efficient way of reaching the 5% emissions target. In addition, they will also need to reverse the government’s assistance package. If our assistance package includes an increase in the pension, the Opposition will cut the pension. If our assistance package includes income tax cuts, the Opposition will raise income taxes.  If our assistance package improves incentives to move from welfare to work, the Opposition will reverse those improvements.

The Government’s scheme is based on an essential lesson from first year economics: the best way of addressing a negative externality is to put a price on it. But as many speakers today have discussed – the design details are critical. For households, we need to craft an appropriate assistance package. For businesses, it will be vital to ensure that emissions-intensive trade exposed industries remain competitive. And for energy generators, it will be important to provide certainty as they go about transforming themselves into cleaner producers.

The politics of climate change is never easy. But as an economist-turned-politician, I have to say that arguing for good economic policy in the face of a ferocious scare campaign is exactly why I ran for parliament. If we can make this reform, Australia’s economy will be better off. Our environment will be better off. And, as a result of engaging with citizens in an honest debate about our nation’s future, our politics will be better off.

Because of that, conversations like this one are a vital investment in a better polity. Thank you all for being part of it.
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Consistency isn't everything, but it's astonishing to see how far some members of the Liberal Party have shifted from their commitment to market-based approaches to deal with climate change. So I gave a speech last week that drew together some (very recent) statements by Liberal Party members on the topic.
Carbon Pricing
22 March 2011

Tonight I rise to speak about the Liberal Party’s backflip on using market mechanisms to deal with dangerous climate change. We have heard in parliament today quotes from the honours thesis of the member for Flinders, Greg Hunt—a work titled ‘A Tax to Make the Polluter Pay’. We have heard in the media from the member for Wentworth, Malcolm Turnbull, who articulately argued that the most cost-effective way of reducing Australia’s greenhouse gas emissions is through a market based mechanism. The Liberal Party in their 2007 election policy document informed us:

Climate change means we must undergo a fundamental transformation to a low-carbon economic future.

A re-elected coalition government will establish an emissions trading system, the most comprehensive in the world, to enable the market to determine the most efficient means of lowering greenhouse gas emissions.

These views were held by Liberal Party representatives as recently as 16 months ago. Senator Alan Eggleston on 30 November 2009 said:

One way of avoiding the volatility of an emissions trading scheme would be to have a carbon tax. A carbon tax provides a very steady and known price for carbon, if you like, which is only varied by varying the tax. That tax can be set at a level that allows renewable energy systems to be competitive.

Senator Sue Boyce said on 30 November 2009:

My own background is as a manufacturer. In that sphere, I know the benefits of early adoption. I would just like to point out to the Senate that it was the Shergold task force, commissioned by the Howard government, who said, long before we got to this place, that Australia should not wait until a genuinely global agreement has been negotiated, because there are benefits which outweigh the costs in early adoption by Australia of an appropriate emissions constraint.

Senator Judith Troeth said on 30 November 2009:

By having a price on carbon, people can decide whether they really want to use these carbon-intensive products. It is an effort to move people away from carbon towards other alternatives, and the most effective and efficient way to do this is through a price signal.

The member for Dunkley, Mr Bruce Billson, claimed credit for the last market based mechanism, saying on 29 October 2009:

It was actually the coalition that instigated work on the emissions trading scheme. In fact, I have in my hand a report that I helped author back in 1998 which talks about regulatory arrangements for trading in greenhouse gas emissions—1998!

The member for Mayo, Mr Jamie Briggs, said on 3 June 2009:

I believe an emissions trading scheme is one of the policy levers that can be used to change the energy mix in Australia. An ETS will be, by definition, a price on carbon.

The member for Cook, Mr Scott Morrison, said on 3 June 2009:

There are a suite of tools we need to embrace to reduce emissions. I believe an emissions trading scheme is one of those tools in one form or another. Placing a price on carbon, as the Leader of the Opposition has said, is inevitable.

The member for Paterson, Mr Bob Baldwin, said on 3 June 2009:

I would like to make it clear: the coalition will support an emissions trading scheme …

We know the Liberal Party used to stand up for the market. Former Prime Minister John Howard told Tony Jones on 5 February 2007:

That doesn’t sound very much to me like a market mechanism, when you compel somebody to apply a particular technology. It is far better, if you want to keep faith with the market approach, to develop a carbon pricing or carbon trading system …

The member for North Sydney, Joe Hockey, was quoted in the Sydney Morning Herald on 17 April 2010 as saying:

There has been a distortion … There’s an argument that over time we haven’t paid a proper price for water. We haven’t paid a proper price for fossil fuels. We haven’t paid a proper price for land, etc. You would hope you can remove the distortions.

Climate change is real and it is not only happening in the environment but also happening in the Liberal Party room. A party that once had a proud tradition of supporting markets has now fallen victim of the populism of direct action. As the temperature goes up on the Leader of the Opposition, let us see whether the Liberal Party can again find its faith in markets.
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Community Roundtable

I spoke in parliament last week about a roundtable that I organised with some of the community leaders in my electorate.
Statements by Members
Fraser Electorate: Social Justice Summit
21 Mar 2011

The community sector is vital to helping disadvantaged Australians. It is often overlooked in politics. In my time in office I intend to make it a priority to connect with and support community organisations in the ACT.

On 1 March I held a breakfast round table discussion in Parliament House with 13 community leaders in my electorate. The purpose of the discussion was to learn more about the unmet needs in Canberra, the public policies that are working to help the disadvantaged, and changes that should be made to help them more.

Those who attended were Lynne Harwood from Galilee, Annie Madden from the Australian Injection and Illicit Drug Users League, Clare Doube from Companion House, Roslyn Dundas from ACTCOSS, Frances Crimmins from the YWCA, Dira Horne from Belconnen Community Service, Gordon Ramsay from Canberra Region Uniting Church, Sue-Anne Muggleton from UnitingCare, Shannon Pickles from St Vincent de Paul Society, Jenny Kitchin from Anglicare, Amy Kilpatrick from the ACT Human Rights Commission, Simon Rosenberg from Northside Community Service and Jackson Dunkley from Catholic Care. I was also joined by Alicia Payne, convenor of the ACT ALP’s Community Services and Social Justice Policy Committee.

Many attendees argued that Canberra’s most pressing social policy problem is housing affordability. We discussed homelessness, which is becoming a growing problem, especially for large families and youth. We discussed the importance of reducing the stigma and discrimination that is often directed towards disadvantaged Australians. Through preventive measures some of the participants expressed their belief that we can address poverty and disadvantage at its source rather than simply trying to react to homelessness, drug overdoses and mental health problems after the damage has been done. Some participants expressed concern about the balance of spending between proactive and reactive measures.

We also discussed the infrastructure of the community sector. Some participants believe that amalgamations or mergers are efficient and practical, whereas others argued that maintaining small, values-based organisations is the best way to run the community sector.

From my perspective, and hopefully that of other attendees, the summit was a tremendous success. The discussion was constructive and enjoyable and I hope it will be the start of an ongoing conversation. I want to publicly thank all of those who attended for their willingness to speak on these important issues so early in the morning and for their constructive and respectful attitude to their colleagues during the discussion.

Finally, I would like to thank Matt Hunter from Carleton College in Minnesota. Organising this event was the major project of Matt’s internship in my office and he did it with diligence and modesty.
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A Super System

I spoke in parliament last week about the government's Stronger, Fairer, Simpler superannuation reforms, and the importance of making sure our superannuation policies are equitable as well as efficient.
Abolition of Age Limit on Payment of the Superannuation Guarantee Charge Bill 2011
Second Reading (21 Mar 2011)

Thoughts of superannuation naturally lead us to thinking about the future. When I think about the superannuation system of the future I think about my one-year-old son, who will probably enter the labour market somewhere around 2030 and work until maybe 2070 or 2080, a year when most of us in this chamber will have shuffled off this mortal coil. Superannuation involves thinking about the retirement savings that my son will accumulate. It involves thinking about the retirement savings that I will accumulate and how that will impact on him and his brother.

Why do we have superannuation? We have it for two simple reasons. The first is that, as a spate of studies from behavioural economics has shown us, human beings have a tendency to undersave. We have a tendency to focus too much on the present and not enough on the future. Therefore, we can make people better off through a system of compulsory retirement savings. The other reason is to reduce the impact on the age pension. We want to encourage Australians to save for their retirement, if they can, so that the public purse does not have to pay for those who can afford to support themselves in retirement.

The history of superannuation reform, therefore, has been in two parts. There have been great reforms brought about by the Labor government, first through the introduction of the superannuation guarantee in 1992 and now through the important package of My Super and the increased compulsory contributions. Then there have been tinkerings—and I will go to some of those tinkerings in a moment. The tinkerings are the approach that those opposite take to superannuation.

But it is important also to recognise what those opposite do when big reforms are put up. Those opposite will place themselves in this debate as the friends of older Australians, as supporters of a strong retirement saving system. But that is not the history. Allow me to quote from Senator Bishop, as she then was, addressing the other place on 18 August 1992:

On this side Opposition members argued very logically and meaningfully that the imposition of this compulsory superannuation tax is a de facto federal payroll tax.

They were running their ‘great big new tax’ argument against compulsory superannuation. And then Senator Bishop, as she then was, told the Senate of a conversation with a small business person, who had said:

But now that this compulsory superannuation payment has gone through, yesterday I had to sack a part time employee and turn a full time employee into a part time employee.

The late Senator Peter Cook was moved to interject by this statement that, because the law had not yet come into effect, it was difficult to see how small business people would be affected by it. But Senator Bishop, as she then was, was unmoved. Senator Bishop finished up the 1992 debate as follows:

I heard Senator McMullan say, ‘The difference between our systems on superannuation is that ours is compulsory and theirs is voluntary’. That is very true. That is an essential difference. Our policy is designed to make it attractive for people to provide for themselves in later life whereas this Government’s is designed to penalise business, to regulate it out of existence.

Of course, if you carry on with that logic then the member for Mackellar should today be saying to this chamber that superannuation is penalising business—and, if it is penalising business, why would we want to extend it?

But of course such an argument is nonsense. As we know, superannuation does not penalise business, and that is why the government announced in May last year that we intend to raise the superannuation guarantee contribution age to 75 from 2013. We intend to do that to provide certainty for business in transition and to recognise that there are costs associated with this. An initial upper age limit of 65 was increased to 70 in 1997. There has been an argument by the member for Mackellar that the abolition of the age limit on the superannuation guarantee will encourage older workers to remain in the workforce. However, done in this manner, there is a high chance the opposite will occur. It is possible workers may be enticed to work longer but it is also possible that employers may be less willing to hire older workers. The bill provides no adjustment time for employers, resulting in a $150 million immediate cost to employers of workers over 70 years old. Secondly, the bill requires that the payments of the superannuation guarantee charge are not tax deductible for businesses. It is estimated that corporate profitability could therefore fall by up to $150 million in 2011-12 were this bill to be passed.

The abolition of this age limit may also lead to a push for other limits to be abolished. It is important that there is an age limit on superannuation contributions. This stems from the significant tax concessions from saving through superannuation compared to other forms of saving. The purpose of these concessions is to encourage savings and maximise retirement income from superannuation. Were there to be no age limit, there would be an incentive for people to maximise tax payments through making voluntary superannuation contributions.

We have to be careful of inequity in the superannuation system. The Henry review went to some of these equity issues in superannuation, pointing out that a 15 per cent flat tax on superannuation contributions is one of the few flat income taxes that exist in our system. This tax is much lower than some taxpayers’ marginal rates—for example, a person earning over $100,000 faces a marginal tax rate of 45 per cent. The consequence, according to the Henry tax review, is that in 2005-06 only five per cent of taxpayers earned over $100,000 but those taxpayers accounted for 24 per cent of concessional contributions to superannuation. On the other hand low-income earners enjoy the least tax concessions. Most face effective marginal tax rates of zero to 15 per cent. That means they receive little or not tax concessions from superannuation. In 2010 over three million low- and middle-income earners did not obtain any tax concession, so abolishing the age limit would only worsen their position.

Another source of inequity is the much lower cap on tax concessions for co-contributions than on salary sacrifice contributions. Although co-contributions provide a higher rate of concession, it only applies to the first $1,000 of voluntary contributions as compared to the $25,000 cap on salary sacrifice contributions. That means that low-income earners still receive much less in tax benefits than high-income earners.

I spoke about the reforms that we on the Labor side implement on superannuation compared to the tinkerings that those on the opposition benches tend to put in place. These tinkerings can have substantial equity implications. I will mention in the context of this debate the changes in 2007, when the Howard government allowed most workers of age 60 and above to withdraw their superannuation tax-free. Retirees who previously earned high incomes were the ones who benefited. In addition, people were allowed to transfer up to $1 million in their superannuation accounts before 30 June 2007. Wealthier people took advantage of this, topping up their accounts with large amounts of funds so they could later be claimed back tax-free. The result was $22.4 billion transferred to superannuation accounts by individuals in the June quarter of 2007—triple the amount transferred in the June quarter of 2006. Many commented at the time that that was doubtless going to lead to a substantial redistribution of income towards richer individuals. So, while the coalition place themselves in such debates as the friends of older Australians, as supporters of the superannuation system, history tells us quite the opposite.

What the government will be doing instead is implementing a package of reforms that builds on our legacy in superannuation. We will be increasing the superannuation guarantee rate from nine to 12 per cent and introducing a new contribution for low-income earners—reforms that those opposite oppose.

The government’s Stronger, Fairer, Simpler superannuation reforms and the reforms flowing out of the Cooper review into superannuation will see an increase in replacement rates for a worker on median wages, who is currently aged 30, from around 71 to 76 per cent. Put in dollar terms, that worker could expect an additional $108,000 in their retirement benefits.

These are reforms which are holistic and which take into account the entire superannuation system. These are not reforms that are opportunistic, that are tinkering or which potentially introduce inequities into the system. These are reforms that reflect Labor’s ongoing commitment to a fair superannuation system for all Australians.
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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.