Politics

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GUEST OBSERVER
It’s become a truism of Australian politics that important economic reform peaked in the 1980s and 1990s.
Sometimes the early years of the Howard government in the late 1990s are given credit as well.
This Grattan Institute map of important reforms illustrates the story.
<a href="https://images.theconversation.com/files/355743/original/file-20200901-18-1sru2fr.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/355743/original/file-20200901-18-1sru2fr.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
 Notes: Reforms that were not passed, or that were subsequently substantially wound back or repealed, are shown shaded out. A/T/M = Abbott/Turnbull/Morrison. FTAs = Free Trade Agreements. PBO = Parliamentary Budget Office. GBE = Government Business Enterprise. CBA = Commonwealth Bank of Australia. Airline IPO = the sale and Initial Public Offering of Qantas in 1993 and 1995. <a class="source" href="https://blog.grattan.edu.au/2020/08/oecd-track-record/">Access Economics (2019); The Economist (2011); Grattan analysis</a>
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Indeed, it looks like Australian governments have merely ‘improved’ at unwinding the reforms of their predecessors, and the reforms they propose for themselves.
But it’s possible that this is all just the rosy-hued memories of former <a href="https://www.ceda.com.au/CEDA/media/General/Publication/PDFs/CEDA-Top-10-Speeches-of-2017-Paul-Keating-Final.pdf">politicians</a>, <a href="https://treasury.gov.au/speech/reflections-on-australias-era-of-economic-reform">public servants</a>, and <a href="https://www.afr.com/opinion/australia-must-rediscover-the-spirit-of-the-1980s-reformers-20180222-h0whbg">journalists</a>.
It might also be that today there are fewer policy reforms worth doing – perhaps most of the big ones have already been done.
<a href="https://images.theconversation.com/files/355750/original/file-20200901-14-m6y0gv.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/355750/original/file-20200901-14-m6y0gv.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=237&amp;fit=clip" alt=""></a>
To test whether previous governments really were better at reform than more recent governments, we would need a running list of reforms proposed in advance, so we could see what proportion were adopted.
Between 1972 and 2018, the Organisation for Economic Co-operation and Development produced 31 <a href="https://www.oecd.org/economy/australia-economic-snapshot/">Economic Surveys of Australia</a> – roughly one every 18 months.
Each publication put forward reforms that the OECD believed would increase economic growth and living standards.
The good old days were better
Our <a href="https://blog.grattan.edu.au/2020/08/oecd-track-record/">analysis of the full series</a> finds that between 1984 and 2001 the overwhelming bulk of these recommendations were taken up by the Hawke and Keating governments, and by the Howard government in its first two terms.
But from roughly 2003 onwards, the record is a lot more patchy: many more of the reforms recommended by the OECD have been either rejected, only partially implemented, or (in the case of carbon pricing) implemented and then unwound.
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Fate of OECD Economic Survey recommendations
<a href="https://images.theconversation.com/files/355776/original/file-20200901-24-wqmkwn.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/355776/original/file-20200901-24-wqmkwn.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a> 
Policies that the OECD recommended but which ran into the sand include reducing the gap between the company tax and top personal income tax rates, implementing a mining resource rent tax, reviewing negative gearing, creating competitive neutrality among Australian ports, aligning the eligibility ages for superannuation and the age pension, including more of the value of owner-occupied housing when calculating eligibility for the age pension, and raising Newstart.
 
A number of other proposed reforms continue to sit in the too-hard basket, including increasing the rate and coverage of the goods and services tax, swapping stamp duties for property taxes, congestion charging for roads, and the use of smart meters for time-of-day electricity pricing.
An imperfect measure, that tells us something
As a means to evaluate the history of reform, the OECD Economic Surveys aren’t perfect, but they’re guide.
It’s true that the scope and number of OECD recommendations has expanded over time, but that expansion was already underway during the Hawke/Keating and Howard eras.
And it’s arguable that these days, the OECD recommends smaller reforms - it certainly recommended many more between 1997 and 2010.
It’s likely that the OECD’s recommendations are partly influenced by the views of the government of the day. But many recommendations have been suggested under one government and implemented by the next.
And while OECD recommendations aren’t gospel, many policy experts support most of them. For instance, all of the policies that are on the OECD’s continuing wish-list are <a href="https://grattan.edu.au/report/commonwealth-orange-book-2019/">also advocated</a> by the <a href="https://grattan.edu.au/report/state-orange-book-2018/">Grattan Institute</a>.
Our review of what happened after the OECD surveys is broadly consistent with popular wisdom, or at least the recollections of old men (usually men) that the good old days really were better.
 
And it is consistent with work in progress by <a href="https://www.afr.com/policy/economy/official-reform-efforts-hit-multi-decade-low-20200811-p55kp9">Alphabeta</a> reviewing the history of Australian economic reform.
Our review also shows that it often takes a long run-up of research, advocacy, and detailing before a government implements a major reform. Many reforms were only implemented after sitting on the slate for well over a decade, including the goods and services tax, lower tariffs, a more flexible award system, lower company tax, and competition in utility industries. Reforms often require patient advocacy.
It’s hard to prove beyond reasonable doubt that Australia has got worse at it. But our review of the OECD’s recommendations for Australia over the past 48 years is consistent with the oft-cited view that governments in the most recent 20 years have rejected many more significant reforms than governments in the 20 years before them.
There’s plenty still on the slate for the 20 years to come.
<a href="https://theconversation.com/profiles/john-daley-1870">John Daley</a>, Senior Fellow, <a href="https://theconversation.com/institutions/grattan-institute-1168">Grattan Institute</a> and <a href="https://theconversation.com/profiles/rory-anderson-1151011">Rory Anderson</a>, Researcher, <a href="https://theconversation.com/institutions/grattan-institute-1168">Grattan Institute</a>
This article is republished from <a href="https://theconversation.com">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/when-it-comes-to-economic-reform-the-old-days-really-were-better-we-checked-145296">original article</a>.
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j.ballantyne1990-6AQqhLzZaK

When it comes to economic reform, the old days really were better

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EXPERT OBSERVER
Australians as a whole expect prices to increase by only 3.9% annually over the next two years, according to Roy Morgan surveys conducted in January. This is a slight decrease of 0.1% on December, but down 0.3% on a year ago.
This is the lowest expectation of future price increases to start a year since the series began in 2010 and compares to price expectations of 6.6% annually over the next two years in January 2011.
Comparing price expectations by Federal voting intention shows the highest price expectations are held by those voting for Independents/Others at 4.4% annually over the next two years equal to those who can’t say who they would vote for – also 4.4%.
In terms of supporters of the major parties ALP supporters expect annual price increases of 4.1% over the next two years which is slightly higher than the national average of 3.9% and significantly higher than both L-NP supporters on 3.5% and also Greens supporters on 3.7%.
Roy Morgan’s Inflation Expectations Index measures what Australians believe the future trajectory of prices will be over the next two years. Every Australian brings a unique perspective to the anticipated movement in prices, including which prices are important to them in particular – whether that be food and drink prices, the price at the pump, prices for clothing and footwear, the cost of going to the footy, or prices for financial products, education, housing or transport.
Price expectations in January have dropped to only 3.9% and are now below the record low yearly average of 4% in 2019. Importantly, there are clear differences in perceptions of price increases between supporters of different parties. ALP supporters are the only major party supporters with price expectations above the national average at 4.1% whereas there are significantly lower price expectations for both Greens supporters (3.7%) and L-NP supporters (3.5%) that provide a significant drag on the overall index.
Inflation Expectations by Voting Intention: January 2020
<img src="https://meltwater-apps-production.s3.amazonaws.com/uploads/images/57312c304f003481ed1f1231/image_4679910221582605124165_1582605127519.png" width="525" height="342" data-imagetype="External">
Source: Roy Morgan Single Source: January 2020, n=4,052. Base: Australians 14+.
Price expectations again highest in Queensland and Tasmania, lowest in WA and NSW
There are significant regional differences for price expectations over the next two years. Those in both Tasmania (5.4%) and Queensland (4.4%) continue to have far higher price expectations than anywhere else.
Price expectations in South Australia (4.0%) are marginally above the national average whilst they are slightly below the national average in Victoria (3.8%), NSW (3.7%) and WA (3.7%). 
Inflation Expectations Index long-term trend – Expected Annual Inflation in next 2 years
Click <a href="https://meltwater-apps-production.s3.amazonaws.com/uploads/images/57312c304f003481ed1f1231/image_76785245631582605124167_1582605127842.png">here </a>to enlarge:
<img src="https://meltwater-apps-production.s3.amazonaws.com/uploads/images/57312c304f003481ed1f1231/image_76785245631582605124167_1582605127842.png" width="690" height="420" data-imagetype="External">
Source: Roy Morgan Single Source: Interviews an average of 4,000 Australians per month aged 14+ (Apr. 2010 – Jan. 2020).
January Inflation Expectations are based on personal interviews with a nationally representative sample of 4,052 Australians aged 14+. Price expectations in 2019 averaged a record low 4% across the year slightly beneath the previous low of 4.1% averaged throughout 2016 and the mark of 3.9% for January represents the lowest price expectations to start a year since the series began in April 2010.
MICHELE LEVINE is the CEO of Roy Morgan
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Inflation expectations much higher among ALP supporters than Liberal, National or Greens supporters: Michelle Levine

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GUEST OBSERVATION
In 1961, the Australian Labor Party came within a whisker of an unlikely victory.
At the time, the ALP was still recovering from a split with the Democratic Labor Party and was not viewed as a serious threat to the Liberal-Country Party Coalition. The <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BN/2011-2012/DPLOverview" target="_blank">DLP</a> was a conservative, Catholic-based, anti-communist party that consistently gave its preferences to the Coalition over the ALP.
In the 1958 federal election, aided by DLP preferences, the government of <a href="http://adb.anu.edu.au/biography/menzies-sir-robert-gordon-bob-11111" target="_blank">Robert Menzies</a> was returned to power in a major swing against the ALP. The Coalition gained 54% of the two-party preferred vote, with 77 seats in the House of Representatives to the ALP’s 45.
What nearly cost the Coalition the next election, though, was the Menzies government’s “credit squeeze”.
The end of import restrictions and the credit squeeze
Despite its huge electoral advantages, the Menzies government began to encounter political problems in the early 1960s. From 1952 to 1960, the Menzies government had been forced to license imports because Australia’s rural exports did not earn enough to pay for its imports. An opportunity to abolish import licensing came at the end of the 1950s, when <a href="https://www.rba.gov.au/publications/confs/1992/stevens" target="_blank">inflation</a> started to rise.
<a href="http://primeministers.naa.gov.au/primeministers/holt/" target="_blank">Harold Holt</a>, the then-treasurer, urged the government to end import licensing to boost imports and thereby dampen inflationary pressure. <a href="http://adb.anu.edu.au/biography/crawford-sir-john-grenfell-jack-1391" target="_blank">Sir John Crawford</a>, the secretary of trade, disagreed. He feared a blow-out in the balance of payments, and urged caution and a gradual easing of import controls.
Despite Crawford’s objections, the Cabinet preferred Holt’s plan and abolished import restrictions in February 1960. The result, as Crawford predicted, was a balance of payments crisis. In November 1960, Menzies took drastic action, sharply increasing sales taxes and imposing restrictions on credit to bring the economy back into balance.
The consequence of the “credit squeeze” was a minor recession. <a href="https://melbourneinstitute.unimelb.edu.au/downloads/working_paper_series/wp1997n24.pdf" target="_blank">Unemployment</a>, rose to 53,000 people at the end of 1960, and 115,000 at the end of 1961. The Menzies government’s longevity after 1949 had partly been due to its achievement of high levels of employment. Even moderate levels of unemployment posed a significant danger for a government that would have to face re-election in 1961.
But <a href="https://www.propertyobserver.com.au/https://catalogue.nla.gov.au/Record/56067?lookfor=author:%22Martin,%20A.%20W.%20(Allan%20William),%201926-2002%22&amp;offset=10&amp;max=31" target="_blank">Menzies</a> remained optimistic. He said: "I do not think we will be beaten. There are no circumstances which would suggest even a remote possibility of the opposition winning 17 seats."
The 1961 election
<img src="https://images.theconversation.com/files/269258/original/file-20190415-147487-g1ygt3.jpg?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt="">
Gough Whitlam meets with Arthur Calwell. L. J. Dwyer, National Library of Australia, nla.obj-142691238
The ALP, led by Arthur Calwell and Gough Whitlam, seized the opportunity given them by the Menzies government’s apparent mismanagement of the economy. Calwell, despite being a far less impressive television performer than Menzies, campaigned doggedly on the economy. Calwell also received support from the Sydney Morning Herald, whose owner, Sir Warwick Fairfax, had become disenchanted with Menzies.
Calwell promised that, if elected, the ALP would reduce unemployment through a series of selective import controls and expanded social services. <a href="https://www.propertyobserver.com.au/https://catalogue.nla.gov.au/Record/56067?lookfor=author:%22Martin,%20A.%20W.%20(Allan%20William),%201926-2002%22&amp;offset=10&amp;max=31" target="_blank">Menzies</a> lampooned Calwell’s ideas as pie-in-the-sky rhetoric, and broadened his attack to include the ALP’s alleged closeness to the Communist Party.
Queensland was the key state. The Coalition held 15 of the 18 Queensland seats in the House of Representatives, and the ALP needed to win a swag of them to have any chance of victory. But election observers predicted that the ALP would not pick up more than two or three in Queensland, and that the ALP’s overall gains would be limited to seven or nine seats.
Following a frantic whistle-stop tour by Whitlam to north Queensland, the results of the December 9 election surprised everyone. For days, the election hung in the balance.
In the end, the ALP won a total of 15 seats, eight in Queensland. But the vote count finally tipped in Menzies’ favour when Billy Snedden was returned in Bruce and <a href="https://www.smh.com.au/national/killen-dies-aged-81-20070113-gdp8i6" target="_blank">James Killen</a> in Moreton, both supported by DLP preferences.
Menzies was so shell-shocked by the results that he did not congratulate Killen on his victory, forcing Killen to concoct a story that the prime minister had famously <a href="http://www.andrewbartlett.com/blog/?p=1286" target="_blank">greeted him with the words</a>: "Killen, you were magnificent."
Consequences of the election
In the long-term, Menzies and his colleagues were able to turn the near-defeat in 1961 into another decade of Coalition rule, aided by further electoral victories in 1963, 1966 and 1969.
When <a href="https://www.propertyobserver.com.au/https://catalogue.nla.gov.au/Record/3545835?lookfor=author:(SExton,%20Michael)&amp;offset=1&amp;max=42" target="_blank">Labor</a> was finally able to win office in 1972, it faced three years of unremitting hostility from the Senate, non-Labor states and an opposition that regarded an ALP government as so exceptional as to be illegitimate.
If Labor had won in 1961 and lasted until 1964, or perhaps longer, could this have had a longer-term impact on the country? Would Australia have entered the Vietnam War? Would conscription have been introduced? Would Australia have officially recognised the People’s Republic of China a decade earlier?
Menzies’ legacy also would have been cut short by what would undoubtedly have been considered one of the biggest election upsets in Australian history.<img src="https://counter.theconversation.com/content/115140/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1">
David Lee, Associate Professor of History , UNSW
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/issues-that-swung-elections-the-credit-squeeze-that-nearly-swept-menzies-from-power-in-1961-115140" target="_blank">original article</a>.
Main photo: Arthur Caldwell almost defeated Robert Menzies in the 1961 federal election, dominated by debate over the economy and unemployment. National Archives, National Library of Australia, Wikimedia, <a href="http://creativecommons.org/licenses/by/4.0/" target="_blank">CC BY</a> 
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The ‘credit squeeze’ that nearly swept Menzies from power in 1961

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The retiring Federal Labor politician Jenny Macklin has sold the home in her Melbourne electorate.
Her East Ivanhoe home (above) secured $3.15 million for the member of Jagajaga.
Macklin has now has bought in Parkville.
She's spent $2,075,000 on an upper level apartment in <a href="https://www.realestate.com.au/sold/property-apartment-vic-parkville-128876606" target="_blank">the Fender Katsalidis-designed Arcadia block</a> (below) with her partner Ross Turner.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/18/Fender.jpg" alt="">
The apartment has three bedrooms and two bathrooms.
Macklin had called Ivanhoe East home since the mid 1990s when she paid $365,000 for the 1950s, three bedroom home in 1,415 sqm of native gardens back in 1996, the year she was first elected.
Macklin was a minister in the Rudd and Gillard Governments from 2007 to 2013, having previously been her party's deputy leader from 2001 to 2006.
This article was first published in the Weekend Australian. 
 
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Retiring Labor politician Jenny Macklin moves out of electorate

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EXPERT OBSERVATION
When I was in my early 20s I thought socialism might be the way to go. Two things happened. One I studied economics which led me to the conclusion that socialism/heavy state intervention doesn’t lead to the best outcome in terms of living standards for most. Second, I had the benefit of a trip to the USSR before it and the eastern bloc disintegrated. It must have been Paul McCartney’s faux Beach Boys’, “Back in the USSR” that got me interested! Sure the history and scenery were fantastic and I like the fact that I saw it before the wall came down – but economically it was a mess. And trying to spend excess roubles before we left the USSR was a struggle (nothing but off chocolate to spend them on). “Socialism” seemed to work a bit better in the Deutsche Democratic Republic - but not really and it was a relief to come through Checkpoint Charlie knowing decent food (McDonald’s) was waiting.
So I ended up gravitating to the centre with the view that the best approach is to allow a market economy with the government providing a good safety net, education and intervening where there are market failures. But a wise man told me when I was young that it’s best to start off on the left when you are young otherwise you will end being like Attila the Hun, as you move to the right as you age. Given the tendency for the young to start off on the left its no surprise to see younger generations favour a bigger role for government in what The Economist magazine has dubbed “millennial socialism”.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/14/role%20for%20government%20.jpg" alt="">
If the millennials and Gen Z follow the normal pattern they will shift to the right as they age like their forebears. So nothing new! Well maybe but there is a big difference now compared to the 1980s. Back in the 1980s the political pendulum (or technically the median voter) was moving to the right. So my ageing was in tune with a big picture political cycle. Now the pendulum is swinging left. We first looked at this three years ago. Since then it’s become more evident. This note looks at what’s driving it and what it means for investors.
Political cycles beyond elections
Just as the weather, economies and financial markets go in cycles so it is with politics, even beyond standard electoral cycles. This has been clearly evident over the last century:
1930s-1970s - the Great Depression gave rise to a fear of deflation and high unemployment and a scepticism of free markets. The political pendulum swung to the left and culminated in the economic disaster of the high tax, protectionism, growing state intervention and the welfare state of the late 1960s and 1970s that gave rise to stagflation.
1980s-2000s – stagflation and the failure of heavy government intervention gave rise to popular support for the economic rationalist/right of centre policies of the 1980s. Thatcher, Reagan and Hawke and Keating ushered in a period of deregulation, freer trade, privatisation, lower marginal tax rates, tougher restrictions on access to welfare, measures to reign in budget deficits and other supply side economic reforms designed to boost productivity. The middle class didn’t support higher taxes on the rich because they aspired to be rich. This was all helped along by the collapse of communism and the integration of the old USSR and China into global trade. The political pendulum swung to the right and there was talk of “The End of History” with general agreement that free market democracies were the way to go.
2010 - ? – but post the global financial crisis (GFC) it seems the pendulum is swinging to the left again and support for economic rationalist policies seems to be fading if not reversing.
What’s pushing the political pendulum to the left?
This reflects a range of factors, in particular:
<ul>
<li>the feeling that the GFC indicated financial de-regulation had gone too far;</li>
<li>constrained and fragile economic growth in recent years;</li>
<li>stagnant real wages and incomes for median households;</li>
<li>high household debt levels preventing individuals from</li>
<li>taking on more debt as a way to boost living standards;</li>
<li>rising levels of inequality and perceptions that “it’s unfair”;</li>
<li>the perceived failure of the baby boomer generation of political leaders to do much about climate change;</li>
<li>examples of big business doing the wrong thing;</li>
<li>a backlash against immigration in some countries; and </li>
<li>a backlash against globalisation.</li>
</ul>
Of course, it’s being aided by a dimming of memories of stagflation of the 1970s and its causes and the failures of socialism as highlighted by the USSR (although Venezuela provides a current example). So government related solutions or socialism seem more attractive. Allied to this are economic theories like Modern Monetary Theory (or rather, Magic Mushroom Theory) that contends governments can borrow and spend freely in the current environment of spare capacity globally spurred along by the crazy argument that quantitative easing did not cause hyper inflation and higher interest rates so why should bigger budget deficits.
Of these rising inequality and perceptions of stagnant living standards are the big ones. The next chart shows the Gini coefficient, which is about the best measure of income inequality, calculated on incomes after taxes and transfers. It ranges from zero or perfect equality to one indicating perfect inequality with one household/individual, receiving all income.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/3/14/inequality%20.jpg" alt="">
The key point is that there has been a general trend higher in inequality during the past 30 years. This is particularly evident in the emerging world but also the US, UK and Australia. Rising levels of income inequality also appears to have come with increase in wealth inequality. Rising inequality may have been more bearable or “masked” in the 1990s and 2000s as nominal income was rising faster and households took on debt to boost their living standards. But in recent times this has become harder and so rising inequality is leading to a backlash.
The political response
In this environment (often populist) politicians have been able to easily tap into voter anger and argue the case for greater public sector involvement in the economy.
This was evident in support for self-declared socialist Bernie Sanders and Donald Trump in the US in 2016 (although Trump’s focus on deregulation and tax cuts look like a temporary deviation right). It’s now even more evident in the Democrats with the Green New Deal (that plans to rid the US of carbon emissions – and planes &amp; cows – in a decade) and 2020 Democrat presidential aspirants adopting variations of Bernie Sanders’ policies, with proposals for wealth taxes and a 70% tax rate for income above $10 million (which is supported by 59% of Americans). It’s also evident in less US public concern about rising public debt.
It’s been evident in the Brexit vote in the UK which represented a backlash against globalisation and the left wing turn in the British Labour Party under Jeremy Corbyn.
In Australia, we are seeing an intensification of theleft right divide not seen since1970s. The ALP is far from the economic rationalist policies of Hawke and Keating. Policies of higher taxes for the “big end of town” (bringing back the Budget Repair Levy and winding back various tax concessions), significantly increased spending on health and education, some reregulation of the labour market and talk of raising the minimum wage to become a “living wage” all suggest a populist focus reflecting a change in voter preferences. The same pressures are also evident in some ways in proposed intervention in the energy sector.
Qualifications
Of course, there are various qualifications to this leftward shift. First, it’s most evident in Anglo countries because it's here that the swing to the right and economic rationalism was most pronounced in the 1980s and 90s and where inequality is more of an issue. Europe never fully bought into the supply side revolution of Thatcher and Reagan and inequality has not risen much. In fact, France under Macron looks to be embarking on its own version of Thatcherism (with the yellow jacket protests proving nothing more than that Macron is actually doing something) which should augur well for its long-term prospects if Macron stays the course. Second, it’s arguable that if the Democrats are to win the US presidential election next year they have to win the mid-west and a socialist presidential candidate may not cut it there. Third, even many on the left are sceptical of ever larger budget deficits – eg in Australia the ALP has been talking of a stronger budgetary position. Finally, there is an argument that a modest move left is necessary to curb the rise in inequality and so save capitalism – much as Keynesian economics “saved” it after the Great Depression.
But what does it all mean for investors?
The risk over time is that a more left leaning electorate will mean a tendency towards bigger government, bigger budget deficits, more regulation, higher effective top marginal tax rates, less globalisation and tougher rules on immigration in some countries. Or it may just mean a stalling in economic reforms. The risk is that it will act as another constraint on productivity and economic growth and eventually see higher inflation if the supply side of the economy suffers.
It's worth putting this in context. The swing in the political pendulum to the right and the economic rationalist/supply side policies – of deregulation, privatisation, smaller government, tax cuts, low inflation, globalisation - that followed along with the peace dividend from the collapse of communism and attractively high starting point dividend yields and bond yields created a powerful tail wind that drove strong returns in shares and bonds starting in the early 1980s.
Now the environment is very different. Starting point investment yields are ultra-low for most assets and a reversal of economic rationalist policies in favour re-regulation, higher taxes and more government risk slowing productivity growth and eventually resulting in higher inflation.
The key point is that the powerful tailwind from the economic rationalist policies (deregulation, smaller government and globalisation) is now behind us and is contributing along with a range of other factors to a much more constrained return environment for investors. Our medium-term projection for the investment return from a balanced mix of assets have been steadily declining in recent years and is now running around 6.4% pa, which is down from over 10% a decade ago.
In this environment, there is a strong case to focus on investment strategies targeting the achievement over time of goals defined in terms of returns, investment income or whatever is required and using a flexible approach to do so as opposed to relying solely on set and forget strategies that depend heavily on market-based returns. There is also a case to look out for assets that may buck the trend of constrained returns as support for economic rationalist policies recede. French shares may be worth looking at!
DR SHANE OLIVER is the Head of Investment Strategy and Chief Economist for AMP Capital
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soliver-smf6LQXgW9

The political pendulum swings back to the left - what it means for investors: Shane Oliver

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GUEST OBSERVATION
Former federal trade minister Andrew Robb says he has quit his A$880,000-a-year consultancy job with Chinese-owned Landbridge Group because <a href="https://www.smh.com.au/politics/federal/andrew-robb-quits-china-linked-firm-before-foreign-interference-law-kicks-in-20190219-p50yv0" target="_blank">it didn’t have anything</a> for him do.
Former Victorian premier John Brumby says he has quit as a director of Chinese tech giant Huawei in Australia because <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2019-02-01/former-victorian-premier-john-brumby-resigns-from-huawei-board/10772144" target="_blank">he has too much else</a> to do.
Former federal foreign minister and ex-NSW premier Bob Carr has quit his job as director of the Australia-China Relations Institute, <a href="https://theconversation.com/the-australia-china-relations-institute-doesnt-belong-at-uts-78743" target="_blank">an organisation bankrolled by a Chinese billionaire</a> with a history of using donations to cosy up to politicians.
It might be just a coincidence that these decisions have come just days before new foreign influence transparency laws come into effect on March 1.
The new laws are supposed to make visible the “<a href="https://www.ag.gov.au/Integrity/foreign-influence-transparency-scheme/Pages/default.aspx" target="_blank">nature, level and extent</a> of foreign influence on Australia’s government and political process”. There is more than enough evidence that greater transparency is needed. But the extent to which the new rules will achieve this is questionable.
Money talks
Federal parliament passed the Foreign Influence Transparency Scheme Act (FITS) in December. The Act obliges individuals to register if they act on behalf of “foreign principals” – be they governments, government-related entities, political organisations or government-related individuals.
Failing to apply for (or renew) registration, providing false and misleading information or destroying records may lead to a prison term of up to six years for individuals and fines of A$88,200 for companies.
Registrable activities include:
<ul>
<li>parliamentary and political lobbying on behalf of a foreign principal</li>
<li>communications activities for the purpose of political or government influence</li>
<li>employment or activities of former cabinet ministers.</li>
</ul>
An example of the latter is Andrew Robb.
In February 2016 Robb resigned as federal trade minister and announced he would not recontest his seat. He left parliament in July. Three months later he had his new job, getting paid <a href="https://www.smh.com.au/politics/federal/at-528-000-a-year-turnbull-s-pay-is-highest-of-any-leader-in-oecd-20180526-p4zhp5" target="_blank">way more than the prime minister</a> as a consultant to the Landbridge Group.
It is always instructive to note the first jobs taken by politicians after they leave parliament. Those appointments generally reflect relationships already well-groomed.
Landbridge is a privately owned Chinese company, but like many Chinese companies has strong ties to the ruling Chinese Communist Party. Its substantial interests in petrochemicals and ports includes a 99-year lease over the <a href="http://theconversation.com/darwin-ports-sale-is-a-blueprint-for-chinas-future-economic-expansion-108254" target="_blank">Darwin port</a>, which is considered of strategic importance in China’s diplomatic dance with the United States.
Qualitative differences
China isn’t the only foreign power interested in having influence in Australia, of course. Historical ties have meant that Britain once dictated Australia’s foreign policy. Since World War II the United States has had almost as much power.
Now China, Australia’s largest trading partner, taking <a href="https://www.aph.gov.au/About_Parliament/Parliamentary_Departments/Parliamentary_Library/pubs/BriefingBook45p/AustraliaTrade" target="_blank">about 30% of our exports</a>, looms large. But the power exercised by the Chinese regime is qualitatively different.
For all its economic liberalisation since the death of Mao Zedong in 1976, China remains a one party state, with repression worsening under Xi Jinping. On <a href="https://rsf.org/en/ranking" target="_blank">freedom of the press</a>, for example, China ranks 176 out of 180 countries.
Commercial, military and political influences are wrapped up together. Lines between state and private enterprises are blurred. When Chinese business interests curry favour with foreign politicians and officials, there’s a high chance that statecraft is also being advanced. <a href="https://theconversation.com/soft-power-goes-hard-chinas-economic-interest-in-the-pacific-comes-with-strings-attached-103765" target="_blank">“Soft power” is used extensively</a>.
Agent of influence
This is what made the tawdry scandal involving former NSW senator Sam Dastyari so alarming.
Though a humble senator, Dastyari was a key Labor Party fundraiser and powerbroker. He later admitted that <a href="https://www.theaustralian.com.au/national-affairs/dastyari-reveals-how-huang-xiangmo-courted-politicians/news-story/85c0592569a3d4583108b9a1cd64c13d" target="_blank">vanity and arrogance</a> made him susceptible to the charm offensive of Huang Xiangmo – the billionaire <a href="https://theconversation.com/the-australia-china-relations-institute-doesnt-belong-at-uts-78743" target="_blank">who courted Bob Carr</a> to head up the Australia-China Relations Institute.
Dastyari accepted financial gifts from Huang’s company, including a A$44,000 payment to settle a legal dispute, along with payments from other donors connected to the Chinese Communist Party.
Such payments made it obvious why he defied his own party’s policy and defended China’s militant stance in the <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/news/2017-11-29/sam-dastyari-secret-south-china-sea-recordings/9198044" target="_blank">South China Sea</a>. He was subsequently labelled a Chinese “<a href="https://www.afr.com/news/politics/sam-dastyari-is-a-chinese-agent-of-influence-exintelligence-chief-20171203-gzxktb" target="_blank">agent of influence</a>”.
These revelations resulted in Dastyari resigning from parliament in 2017. Earlier this month it was revealed the federal government had rejected Huang’s bid to become an Australian citizen and stripped him of his <a href="https://www.propertyobserver.com.au/https://www.abc.net.au/radio/programs/pm/australia-denies-citizenship-chinese-businessman-huang-xiangmo/10787052" target="_blank">permanent residency visa</a>.
On the basis of these examples highlighted above, there’s a strong case for making influence peddling open and transparent.
Whether the new laws can achieve that is another matter. They may curtail flagrant scenarios where those leaving public office sell their wares to the highest bidder. But to work effectively, the laws and their enforcers will need to constantly adapt and evolve as agents look for creative ways to wield influence from the shadows.<img src="https://counter.theconversation.com/content/112403/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
John Garrick, Senior Lecturer, Business Law, Charles Darwin University
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/agents-of-foreign-influence-with-china-its-a-blurry-line-between-corporate-and-state-interests-112403" target="_blank">original article</a>.
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New laws can shine light on foreign influence, but agents will remain in the shadows

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GUEST OBSERVATION
Populism is driven by the view that everyday people are suffering economic hardship as the corporate and political elites prosper. A sense of rising inequality and injustice is the foundation stone of populist rhetoric.
In Australia, the <a href="https://theconversation.com/banking-royal-commission-no-commissions-no-exemptions-no-fees-without-permission-hayne-gets-the-government-to-do-a-u-turn-110974" target="_blank">financial services royal commission</a> has lent credence to these concerns across a large part of the Australian community. Its hearings and reports give weight to the view that Australia’s middle and working classes have been systematically ripped off by their financial service providers.
What is of concern for us here in Australia is not so much the lightning rod that has been the findings of the royal commission, but the prospect of much harder economic times ahead.
Australia is not used to tough economic times. It has been 27 years since our last major recession. In the past 26 years, the annual average unemployment rate has climbed on only five occasions. It has been steady or fallen in 21 of the past 26 years.
The economic tide could well turn against us over the next three years. This, as much as anything, will give vigour to the kinds of populist voices that are wreaking so much havoc in other Western societies right now.
Populism is toxic to democratic societies. It preys on people’s worst fears and appeals to their darker instincts. Populism brings poor policy decisions and entrenches political dysfunction.
We are already seeing the effects that growing discontent with the major parties has on our political system. A surge of support for populist candidates and parties will magnify these problems.
Australian populism
Defining the concerns of populism is a tricky business. The most common is that economic and political elites benefit at the expense of the public, whether that be because the system is rigged against them or because those elites break social convention and even the laws to extract from the rest.
An extension of this perennial theme is that the elites, particularly in the business world, get away with it. The authorities do not pursue them and they are rarely held to account by the law.
Populism tends to be cultivated in an environment of poor economic performance and is exacerbated by growing inequality, real or perceived.
Australia’s democracy has a long history of stable centrist parties dominating the parliament and public policy. Since our Federation in 1901, the two or three major parties at the time of each federal election have averaged about 90% of the primary vote.
These moderate tendencies are regarded as a hallmark of our nation, and key to the resilience of Australia as a society. But, as the accompanying chart shows, there have been periods when voters have drifted away from the major parties with considerable enthusiasm.
<hr>
<a href="https://images.theconversation.com/files/260588/original/file-20190224-195864-iwn6wt.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=1000&amp;fit=clip"><img src="https://images.theconversation.com/files/260588/original/file-20190224-195864-iwn6wt.JPG?ixlib=rb-1.1.0&amp;q=45&amp;auto=format&amp;w=754&amp;fit=clip" alt=""></a>
<hr>
For the first 30 years of our federal parliament, minor parties and independent candidates captured just 5% of the vote on average. The peripheral candidates were just that; peripheral and insignificant. That all changed in the 1931 election with the onset of The Great Depression and lasted right through to the second world war.
We experienced another extended period of major party dominance in the 1950s and the 1960s. In the 1970s a rising share of the vote started going outside the major parties and this has continued to this day. We now are in a situation where minor party and independent support is near the levels seen at the height of the Great Depression.
There also appears to be a greater polarisation within the major parties, particularly when they are in government. Not a single prime minister elected in the past decade has survived his or her first term of office – an unattractive milestone for a relatively young democracy.
Populism is always lurking below the surface of Australian society. It rears its head from time to time, but the broader community is pretty good at resisting its urges. A strong economy and low unemployment are critical ingredients in this success.
It could be argued that Australia is less susceptible to populism than other Western democracies. Just look at the contrast between what has happened here in the past ten years and the experiences of the United States or Europe.
Sure, the minor party vote has increased and some of that has been to candidates pushing a populist agenda. But these forces have largely operated at the margins of Australia’s policy agenda.
Complacency is dangerous
The once-in-a-century commodity boom supported our economy through both the global financial crisis and its destructive aftermath. It was a luxury not afforded the US or Europe.
The end of the mining boom was greeted by a residential construction boom. That too looks like concluding. The forces of weak income growth, high debt levels and sluggish economic activity are upon us.
Income and output growth are going to be much harder to come by in Australia in the years ahead. We cannot assume that just because we have avoided a significant recession for 27 years, we will avoid another one.
The last thing the Australian economy needs in this environment is greater political discord.
The major parties’ share of the vote is already at post-war lows. A new wave of populism that takes the vote of “others” to further heights could have serious consequences for effective management of our economy.
We have an open economy heavily burdened with debt and reliant on immigration and trade to provide a healthy underpinning to future economic growth. We don’t know how our economy would cope with a reversal of these key pillars of our modern prosperity.
Curtailing populist anger is a priority
Whether we like it or not, the evidence of misconduct in the financial services industry has become a flashpoint for popular discontent within Australia.
The financial services industry most certainly is not the root of all economic evil in our society, but that is irrelevant to the public mood and those who seek to take advantage of it.
The fact that the royal commission has laid bare such widespread abuse of market power means that right now the banking industry is the prime example of elites taking advantage of everyday people. Its extraordinary revelations have left Australians in a state of shock.
The broader community wants action, not just to prevent what was uncovered happening again, but to make sure that the people responsible are held accountable for the damage done.
Real or imagined, a lack of genuine accountability will mean people lose faith in the capacity of mainstream political forces and institutions to serve the broader community.
What is to be done?
If the moderate forces that operate in our parliament and government institutions are not seen to be delivering for the broader community, people will justifiably look elsewhere.
The immediate priority is to act following the final report from the royal commission. Commissioner Kenneth Hayne has made it perfectly clear that it is the role of the regulators, specifically the Australian Securities and Investments Commission.
There is every likelihood that more dangerous economic waters lie ahead. Policymakers will need to be both decisive and agile to deal with the malaise, whatever form it takes.
We are not facing a new financial crisis, at least we hope we are not. We don’t need to throw the kitchen sink at the economy right now. But the government we elect will have to work closely with the parliament and our key economic institutions to guide the country through new and uncertain economic times.
An effective parliament will be more important than ever.
Warren Hogan, Industry Professor, University of Technology Sydney
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/australias-populist-moment-has-arrived-111491" target="_blank">original article</a>.
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Australia’s populist moment has arrived: Warren Hogan

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GUEST OBSERVATION
Governments change priorities all the time. Some argue governments will focus on developing regional areas at one point in time and then refocus on major cities at another.
Our research shows that there are cycles in how much priority governments attach to regional issues. But these fluctuations are overshadowed by a larger, long-term trend towards greater involvement with regional communities.
Our findings show that regional Australia matters more today than it has at any other time since the 1940s.
Cycles of regional commitment
Inattention to particular constituencies can be costly. Victoria’s Kennett government lost office in 1999, when regional communities such as Ballarat and Bendigo became disillusioned with what they saw as a Melbourne-centric government.
This was a time when governments in other states, and nationally, were paying more attention to regional voters, with the Howard Coalition government nervously watching One Nation as a growing political force. In Queensland, the pressure was more acute, with a few regionally focused conservative politicians claiming seats in parliament.
Appointing a minister with regional responsibilities is one clear marker of intent in the government of the day. John Sharp, the Howard government’s first minister for transport and regional development, released a budget statement with 19 major investments in regional areas. These included money for drought assistance, rural roads, and counselling and support services for young people and families.
There are now six ministers and one parliamentary secretary for regional development in Australian parliaments. Bridget McKenzie (federal), Michael McCormack (federal), Tim Whetstone (South Australia), Jaclyn Symes (Victoria), John Barilaro (New South Wales), Alannah MacTiernan (Western Australia) and Mark Shelton (Tasmania) are the most recent expression of a trend that started almost 30 years ago.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/2/21/regional%201%20.jpg" alt="">
Our research
We examined all state and Australian government gazettes from 1939 to 2015 to find out how many “regional” ministers were in place over time. Our criteria were for the term “regional” to be in the title and for the representative to have responsibilities associated with improving the well-being of rural and remote communities.
We then used our data to develop an index, in which we gave a score of 1 for each month in the year where an identifiable regional minister held office.
For each jurisdiction the maximum possible score in any year was 12. For Australia, with six states and one federal government, the maximum possible score was 84.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2019/2/21/regional%202.jpg" alt="">
Our results, in the table above, came as a surprise. It is clear that political engagement with the regions has grown rapidly since the late 1980s.
Previous research has suggested the 1940-1960s period was one of strong governmental commitment to the regions. This was reflected in announcements on the need to “decentralise” the population.
But our data suggest the notion of a “golden era” of regional policy and government support prior to the 1970s is misplaced.
Nation-wide policies in support of agriculture, mining or infrastructure development supported regional communities. But the well-being of these places was not the primary goal.
From 1972 to 1975, the Whitlam government was committed to addressing inequalities associated with where people live. This brought fresh enthusiasm for regional portfolios in state governments, but that tide quickly waned as the political climate changed.
Australian governments did not begin to appoint regional ministers as a matter of course until the late 1980s. This was a period linked to the end of old-fashioned, class-based politics and the rise of our more complex political landscape.
The trend has continued since and the presence of the six regional ministers and one parliamentary secretary in the halls of political power means there has never been a better time for regions to lobby governments.
There are now more ministers than ever before ready, able and willing to receive delegations and advocate for country towns, rural industries and remote Australia.
This means regional leaders have an opportunity to be heard in the run-up to the NSW and federal elections. The challenge is to determine the key messages and how they should be delivered.
Andrew Beer, Dean, Research and Innovation, University of South Australia, University of South Australia.
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Regional Australia is calling the shots now more than ever: Andrew Beer

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GUEST OBSERVATION
The losers from Labor’s capital gains tax policy aren’t all where you would expect them to be, whatever you expect. 
Labor is going into the election promising to tax capital gains more heavily. Depending on who you listen to, it’ll either hit the very highest of earners, or middle earners – people such as teachers and nurses. The same critics have claimed different things at different times.
The truth is even stranger. In part because people who present as being part of one income group are often better described as being part of another.
It’s certainly stranger than fiction.
What are capital gains?
Capital gains are the profits made from buying something at one price and selling it at another. These profits are typically taxed at only <a href="https://www.ato.gov.au/general/capital-gains-tax/working-out-your-capital-gain-or-loss/working-out-your-capital-gain/the-discount-method-of-calculating-your-capital-gain/" target="_blank">half the rate of other income</a>. (Technically, only half of each capital gain is taxed.)
The discount, introduced by <a href="https://www.theage.com.au/opinion/revenge-bloodymindedness-and-gullibility-the-untaxing-of-capital-gains-20150810-giv8zg" target="_blank">Prime Minister John Howard</a> in late 1999, was sold as ensuring that profit takers wouldn’t be taxed on the workings of inflation, a concession that was already built into the system, although in a more complicated way.
But because inflation had fallen so dramatically, the 50% discount went much further. It taxed capital gains, so-called “unearned income”, at a much lower rate than income earned in the form of wages and salaries, and also at a lower rate than bank interest and other forms of income.
In the lead up to the coming election (and the last one) the Labor Party has promised to wind back the discount, cutting it from 50% to 25% for newly-purchased assets held for more than a year, meaning that for those assets <a href="https://www.alp.org.au/negativegearing" target="_blank">three quarters</a> of each gain will be taxed instead of one half.
There are two (apparently contradictory) views about who the changes will hit, both of them spelled out in the pages of The Australian, and both sourced to the treasurer Josh Frydenberg.
On January 5 the treasurer said investors would pay the “<a href="https://www.theaustralian.com.au/national-affairs/treasury/investors-to-pay-worlds-highest-capital-gains-tax-under-alp/news-story/0e5fdcfd4c942f7346c5385a2848dc67" target="_blank">world’s highest tax</a>” under Labor’s changes.
But that would only be the case if they were the very highest earners, on more than A$180,000. And it would only be the case for a short time where the capital gains are a one off.
Mr Frydenberg quoted a rate of 36.75% for capital gains tax, which would be three quarters of 49%, which itself would be made up of the top marginal rate of 45% plus the 2% Medicare levy plus the 2% temporary budget repair levy that Labor plans to reintroduce for two years.
That top marginal rate only applies to Australians on more than A$180,000.
Then ten days later on January 15, Mr Frydenberg said most of the workers hurt would be on much lower incomes, of up to A$80,000.
Then shadow treasurer Chris Bowen entered the debate, calling Fyrdenberg’s second claim “silly”. He said 70% of the total amount of capital gains tax discounts claimed was claimed by the top earners.
But he didn’t address the treasurer’s contention that most of the beneficiaries are lower earners.
What the data says
The Australian National University’s microsimulation model of the tax and social security system, <a href="http://csrm.cass.anu.edu.au/research/policymod" target="_blank">PolicyMod</a>, and the Australian Tax Officie’s <a href="https://www.ato.gov.au/About-ATO/Research-and-statistics/In-detail/Taxation-statistics/Taxation-statistics-2015-16/" target="_blank">Taxstats 2015-16</a> enable us to get at the truth.
Using a 2% sample of the tax returns submitted, including the information about capital gains and capital losses, we are able to work out who is the hardest hit by capital gains tax by income, age and gender.
At first blush we find that almost all capital gains tax collected - 85% - is paid by the top 10% of income earners. The bottom 10% (and also the bottom 20%) pay nothing.
It shouldn’t be surprising. High earners pay more tax than low earners because they earn more. The top 10% of earners also pay 51% of personal income tax.
Not many people pay capital gains tax
Around 900,000 Australians report capital gains per year, a figure <a href="https://www.theaustralian.com.au/news/inquirer/labors-capital-gains-tax-hike-will-hurt-the-economy/news-story/5f8c61d6b57c107dc70bad55553e8de7" target="_blank">used by the treasurer</a> to suggest capital gains are widespread.
But after taking losses into account, the number reporting net capital gains falls to 670,000. Only about 540,000 of them pay capital gains tax. The others have taxable incomes below the tax-free threshold.
Of the 540,000 who do pay capital gains tax, 29% are in the top 10% of earners by taxable income.
A very high 12.7% are in the top 3% of earners, meaning they are on the very highest tax bracket, earning A$180,000 or more.
Small in number though they are, the Australians in the top 3% who pay capital gains tax, pay 74% of it. They pay 30.7% of all personal income tax.
They’re often retirees, and women
Older Australians pay only 5.6% of all personal income tax but about 29% of all capital gains tax.
Surprisingly, partnered women are also over-represented, paying 19.4% of personal income tax but an outsized 28.7% of capital gains tax. This is what you would expect if couples planning to minimise tax put the asset they were planning to buy and sell in the name of the lower paid partner.
Persons with wages and salaries are underrepresented, paying around 88% of personal income tax but only around 47% of capital gains tax.
But these figures are misleading.
Partnered women pay 19.4% of personal income tax but an outsized 28.7% of capital gains tax. 
It gets stranger still
By definition, most people’s incomes will be high in the year in which they pay capital gains tax. Examining their total income in that year, as we have done, will wrongly make it look as if it is mainly high income people who pay capital gains tax.
An alternative measure would be to rank people by their taxable income after deducting their capital gains. It’d rank them by something more like their normal income.
When we do that we find that the share of capital gains tax paid by the top 10% of earners is nothing like the 85% we first found. It’s a much lower 38%.
This measure produces another, very odd, result.
The bottom 10% turn out to pay, not none of the capital gains tax collected as we had thought, but an overweight 20%.
Stranger still, the next-bottom 10%, the people who fit somewhere between the bottom 10% and the 20%, pay only 4% of the capital gains tax collected.
Our lowest earners embrace capital gains…
There’s something odd at the bottom for those reporting capital gains. The clue lies in what they are at the bottom of. They are at the bottom of the taxable income scale.
And they are indeed odd.
The bottom 10% claim an awful lot of capital gains - an average of A$161,000 per capital gains tax payer, which is more than that claimed by any other income group, including the top 10%.
Capital gains make up a large share of their taxable income, larger than for higher income groups, and far lower than for other low income groups. Only around 8% receive government pensions or allowances.
Although their taxable incomes, after deducting net capital gains, are in the bottom 10%, their actual wealth and living standards are likely much higher up the distribution. Many own shares and businesses or have negatively geared investment properties. They get dividend imputation cheques and report business losses.
…although they don’t act like low earners
To get closer to the unvarnished truth, we would need to compare capital gains by household, examining the combined income of each household, which is less easy to manipulate than the income of an individual. But Australia’s tax system is built around individuals, so it’s hard to do. We would also like to know more about their typical income and whether capital gains were likely a one off or something more permanent.
Here’s what we can say:
Labor’s change will “grandfather” existing assets, meaning they will continue to be taxed under the present, more generous, arrangement. This means Labor’s change won’t have much of an effect for years, making any simple guess of how much money it makes an overestimate.
At the moment, personal taxpayers pay A$6.7 billion per year in capital gains tax. Labor’s changes could potentially reap half that amount, but they would build up to it slowly, and by the time they got there, fewer people would look for capital gains as a means of escaping tax, meaning they would never get there, and giving a boost to other kinds of tax revenue.
It’s pretty certain that those who would feel it most would be higher income earners, older Australians, partnered women, quite often on behalf of their higher income partner.<img src="https://counter.theconversation.com/content/109657/count.gif?distributor=republish-lightbox-basic" alt="The Conversation" width="1" height="1" style="border: none !important; box-shadow: none !important; margin: 0 !important; max-height: 1px !important; max-width: 1px !important; min-height: 1px !important; min-width: 1px !important; opacity: 0 !important; outline: none !important; padding: 0 !important; text-shadow: none !important;">
<a href="https://theconversation.com/profiles/ben-phillips-98866" target="_blank">Ben Phillips</a>, Associate Professor, Centre for Social Research and Methods, Director, Centre for Economic Policy Research (CEPR), <a href="http://theconversation.com/institutions/australian-national-university-877" target="_blank">Australian National University</a> and <a href="https://theconversation.com/profiles/matthew-gray-229834" target="_blank">Matthew Gray</a>, Director, ANU Centre for Social Research and Methods, <a href="http://theconversation.com/institutions/australian-national-university-877" target="_blank">Australian National University</a>
This article is republished from <a href="http://theconversation.com" target="_blank">The Conversation</a> under a Creative Commons license. Read the <a href="https://theconversation.com/stranger-than-fiction-who-labors-capital-gains-tax-changes-will-really-hurt-109657" target="_blank">original article</a>.
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Who Labor’s capital gains tax changes will really hurt: Ben Phillips & Matthew Gray

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Dave Sharma, the likely Liberal candidate in Wentworth in next year's federal election, has bought a home in the pricey electorate.
Sharma only started looking after losing the by election in late October. He exchanged contracts this morning.
The family, including wife Rachel and their three daughters, are to settle into Paddington, snapping up a Victorian terrace pre-auction for around $2.6 million.
The three level property had been a boarding house up until 2014 when it was rebuilt as a four bedroom, two bathroom family home.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/11/23/Sharm3.jpg" alt="">
It retains original elements that come with the more established Paddington terraces, such as a period facade and stained glass windows.
There's traditional formal rooms and a custom-built entertainer's kitchen as the hub of the home.
A courtyard sits at the rear of the 125 sqm parcel.
<img src="https://res.cloudinary.com/dz9xllyip/image/fetch/c_scale,w_580,q_auto:good/https://s3-ap-southeast-2.amazonaws.com/po.images/2018/11/23/Sharm2.jpg" alt="">
Last month he told the Daily Telegraph he had been looking at houses in Woollahra, Bellevue Hill and Paddington.
Local agents suggested the aspiring politician was willing to spend up to $3 million.
There had been a $2.5 million guide for its December 1 auction.
Sharma rented in Bellevue Hill after he won Liberal Party preselection for the seat vacated by former Prime Minister Malcolm Turnbull.
Sharma, who lost the vote count by a 1783 margin to independent Kerryn Phelps, retains a longtime Turramurra base.
 
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