RBA got it wrong and regulated credit card fees upwards

Few consumers would have noticed a very important reform discussion taking place in Australia.  It is a debate relating to credit card interchange fees.  The fact that most consumers have never heard of interchange fees is the reason regulators think that they might be a problem.

Interchange fees are the fees banks pay to each other when their clients engage in a credit card transaction.  Credit cards operate in what economists call a two-sided market.  Consumers must want to pay by credit card, and merchants must want to receive payment by credit card.  Payment mechanisms include cash, debit cards, and credit cards.  Consumers often have to be incentivised to hold credit cards, and banks offer various inducements such as interest-free periods and loyalty points for using credit cards — and that is where the interchange fee comes in.

Increased use of credit and debit cards increases the size of the market — everyone is better off as a result.  The interchange fee operates to share those gains from an increased market between the banks that provide the cards and the consumers who use them.  Merchants sell more goods and services, banks get profits, and consumers enjoy various credit card rewards.  This sounds like a win-win-win situation.

But, not so fast.

Everyone wants something for free.  So merchants would like to enjoy the benefit from the increased size of the market but not share those gains with consumers and their banks.  The interchange fee that incentivises consumers to use credit cards — and their banks to issue them — is ultimately a cost to merchants.  Any cost saving flows straight through to their profit.

TOO MUCH CREDIT CARD USE

By the early 2000s the Reserve Bank of Australia had formed the view that there was too much credit card use in Australia.  Not necessarily that consumers were running up too much debt per se, but that consumers should rather be using cash or debit cards for their transactions.  Their view was that banks could profit more from credit card interchange fees and so offered excessive rewards for using credit cards.  The RBA has always felt credit cards are an expensive payment mechanism relative to cash transactions.  So, all up, excessive usage of a high-cost payments mechanism was believed to be adding unnecessary costs to the economy.

The "villain" in this piece is the interchange fee.  It was said to be opaque and excessive and because consumers didn't know about it, or even care, interchange fees were labelled as being "anti-competitive" and then regulated.

Since then credit card users will have noticed many changes.  Credit card fees have increased, reward programs have been scaled back, merchants often charge excessive credit card surcharges, and the gap between credit card interest rates and the cash rate is higher.  To be fair, the increase in the interest rate gap isn't entirely, or even mostly, because of the RBA regulations, but we think nearly 1 per cent of the increased gap is because of the regulations.  Consequently there has been a relative decline in credit card use since the early 2000s.  That was the policy intent.

What of the promised benefits?  One benefit was that retail prices should have declined.  The argument being that cash customers were subsidising credit card customers through higher prices.  Not only is there no evidence to support the notion that retail prices are lower as a result of the RBA regulations, but it now concedes that it would be impossible to measure the magnitude of any flow-through benefits to consumers.  By contrast, the RBA has been able to determine that merchants have saved $13 billion as a result of their regulations.  However that saving, not having been passed on to consumers in the form of lower prices, must simply have gone to increased merchant profit.

So all up we have had a "reform" that led to higher consumer costs and higher business profit.

DIDN'T UNDERSTAND

The reason for that outcome is simply that the RBA didn't understand the underlying economics of the issue.  To be fair, it wasn't alone in that, but the RBA was a pioneer in regulating interchange fees.  We know now that it got it wrong and we know why it got it wrong.

As the famous economics laureate Ronald Coase observed, when economists see something they don't understand they tend to look for monopoly explanations.  The RBA didn't understand that the long-term relationships between banks and their customers — be they credit card users or merchants — are competitive, efficiency-enhancing relationships.  The RBA didn't understand that consumer sovereignty is not monopoly power in need of regulation.  It didn't understand that if and when it weakened consumer sovereignty merchants would simply pocket the so-called savings and not pass them on to consumers in the form of lower prices.  It didn't understand that the alternative to a credit card transaction isn't a cash transaction, but rather the merchant having to offer credit, or no transaction at all.

In short, the RBA credit card regulatory interventions were based on wishful thinking and anti-bank prejudice.  It has added costs to consumers but there were few, if any, benefits and the move should be reversed.

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Ideology adds heat to the debate on climate change

For the true believer, it is too awful to even consider that the Australian Bureau of Meteorology could be exaggerating global warming by adjusting figures.  This doesn't mean, though, that it's not true.

In fact, under prime minister Tony Abbott, a panel of eminent statisticians was formed to investigate these claims detailed in The Australian newspaper in August and September last year.

The panel did acknowledge in its first report that the bureau homogenised the temperature data:  that it adjusted figures.  The same report also concluded it was unclear whether these adjustments resulted in an overall increase or decrease in the warming trend.

No conclusions could be drawn because the panel did not work through a single example of homogenisation, not even for Rutherglen.  Rutherglen, in north­eastern Victoria, is an agricultural research station with a continuous minimum temperature record unaffected by equipment changes or documented site moves but where the bureau nevertheless adjusted the temperatures.

This had the effect of turning a temperature time series without a statistically significant trend into global warming of almost 2°C a century.

According to media reports last week, a thorough investigation of the bureau's methodology was prevented because of intervention by Environment Minister Greg Hunt.  He apparently argued in cabinet that the credibility of the institution was paramount — that it was important the public had trust in the bureau's data and forecasts, so the public knew to heed warnings of bushfires and ­cyclones.

Hunt defends the bureau because it has a critical role to play in providing the community with reliable weather forecasts.

This is indeed one of its core responsibilities.  It would be better able to perform this function, however, if it used proper techniques for quality control of temperature data and the best available techniques for forecasting rainfall.

There has been no improvement in its seasonal rainfall forecasts for two decades because it uses general circulation models.  These are primarily tools for demonstrating global warming, with dubious, if any, skill at actually forecasting weather or climate.

Consider, for example, the millennium drought and the flooding rains that followed in 2010.

Back in 2007 and 2008, David Jones, then and still the manager of climate monitoring and prediction at the Bureau of Meteorology, wrote that climate change was so rampant in Australia, "We don't need meteorological data to see it", and that the drought, caused by climate change, was a sign of the "hot and dry future" that we all collectively faced.

Then the drought broke, as usual in Australia, with flooding rains.

But the bureau was incapable of forecasting an exceptionally wet summer because such an event was contrary to how senior management at the bureau perceived our climate future.

So, despite warning signs evident in sea surface temperature patterns across the Pacific through 2010, Brisbane's Wivenhoe dam, originally built for flood mitigation, was allowed to fill through the spring of 2010, and kept full in advance of the torrential rains in January 2011.

The resulting catastrophic flooding of Brisbane is now recognised as a "dam release flood", and the subject of a class-action lawsuit by Brisbane residents against the Queensland government.

Indeed, despite an increasing investment in supercomputers, there is ample evidence ideology is trumping rational decision-making at the bureau on key issues that really matter, such as the prediction of drought and flood cycles.  Because most journalists and politicians desperately want to believe the bureau knows best, they turn away from the truth and ignore the facts.

News Corp Australia journalist Anthony Sharwood got it completely wrong in his weekend article defending the bureau's homogenisation of the temperature record.  I tried to explain to him on the phone last Thursday how the bureau didn't actually do what it said when it homogenised temperature time series for places such as Rutherglen.

Sharwood kept coming back to the issue of "motivations".  He kept asking me why on earth the bureau would want to mislead the Australian public.

I should have kept with the methodology, but I suggested he read what Jones had to say in the Climategate emails.  Instead of considering the content of the emails that I mentioned, however, Sharwood wrote in his article that, "Climategate was blown out of proportion" and "independent investigations cleared the researchers of any form of wrongdoing".

Nevertheless, the content of the Climategate emails includes quite a lot about homogenisation, and the scientists' motivations.  For example, there is an email thread in which Phil Jones (University of East Anglia) and Tom Wigley (University of Adelaide) discuss the need to get rid of a blip in global temperatures around 1940-44.  Specifically, Wigley suggested they reduce ocean temperatures by an arbitrary 0.15°C.  These are exactly the types of arbitrary adjustments made throughout the historical temperature record for Australia:  adjustments made independently of any of the purported acceptable reasons for making adjustments, including site moves and equipment changes.

Sharwood incorrectly wrote in his article:  "Most weather stations have moved to cooler areas (ie, areas away from the urban heat island effect).  So if scientists are trying to make the data reflect warmer temperatures, they're even dumber than the sceptics think."

In fact, many (not most) weather stations have moved from post offices to airports, which have hotter, not cooler, daytime temperatures.  Furthermore, the urban heat island creeps into the official temperature record for Australia not because of site moves but because the record at places such as Cape Otway lighthouse is adjusted to make it similar to the record in built-up areas such as Melbourne, which clearly are affected by the urban heat island.

I know this sounds absurd.  It is absurd, and it is also true.  Indeed, a core problem with the methodology the bureau uses is its reliance on "comparative sites" to make adjustments to data at other places.  I detail the Cape Otway lighthouse example in a recent paper published in the journal Atmospheric Research, volume 166.

It is so obvious that there is an urgent need for a proper, thorough and independent review of operations at the bureau.  But it would appear our politicians and many mainstream media are set against the idea.

Evidently they are too conventional in their thinking to consider such an important Australian ­institution could now be ruled by ideology.

Turnbull can learn from Gillard's transition

It feels like a new Government, so different is the changed tone from Tony Abbott to Malcolm Turnbull.  Yet tone counts for little in any policy sense.

The new Prime Minister may brag about a boost in business confidence but markets don't run on tone.  Optimism can dissipate quickly.

Turnbull's challenge right now is in many ways a lot harder than that faced by a newly formed government.  Just ask Julia Gillard.

A new government carries into office a folder full of election promises.  A new government is free to discover the disastrous state of the books, to uncover the horrifying truth about major programs, and just generally remind voters they made the right electoral choice.

Turnbull can do none of that.  He both inherits the accumulated decisions of his predecessor and is unable to disinherit them — even if he wanted to.  First, half his cabinet signed off on those decisions, including himself.  Second, maintaining the decisions of the Abbott government was one of his promises to get into power.

Yet despite limiting his criticism of Abbott before the spill to Abbott's failure to communicate on economic matters, it is clear that Turnbull wants to alter policy.  Hence his recent lines that all policy is subject to scrutiny.

It has been blindingly obvious for months that Turnbull's issues with Abbott were not limited to his communication style.  Take Turnbull's anti-"death cult" speech from July — while couched in a criticism of the government's language, it was as clear a signal of policy dissent from a cabinet minister we've seen.

Anyway, the policy direction of the Government would have had to change regardless of who is leader.  The 2015 budget was a purposeless document unsuited to the times.  The Abbott government had been in constant policy retreat ever since the failed spill attempt in February.  This was unsustainable.

So right now we're in a peculiar limbo.

A number of critics of Turnbull have pointed out that his much-praised communications skills can often devolve into waffle — something that was most obvious in his interview with Leigh Sales on 7.30 last week.  Policy uncertainty is why Turnbull waffles.

When Turnbull has something to say he is sharp and clear.  But the Government hasn't settled on what to say yet.  Indeed, policy change can't happen quickly if everything has to go to cabinet along with formal submissions.

So when asked about — say — his foreign policy priorities, the Prime Minister fills the air, trying to be interesting rather than decisive.  When he defends positions against his better judgment — like the gay marriage plebiscite — he looks unconvinced and unconvincing.

It's a fine rope to walk, to distance yourself from the prime minister you rolled and still defend their legacy.

How this is done can make or break a government.  To say that in 2010 Gillard handled the transition poorly would be an understatement.  Voters were never offered any explanation for why Kevin Rudd had to be removed.  We were told a "good government had lost its way" but we were not told where the government was supposed to be heading.  We were supposed to "move forward" because asking questions about the leadership change would be crass.

Eventually we found out that Rudd had been rolled because his office was disorganised.  Politics is a tough business.

Gillard kept policy change to a minimum.  She renegotiated the mining tax.  She promised to rearticulate the case for Labor's moribund climate change policy.  Keeping Rudd's cabinet exactly in place underscored a sense of continuity, giving the impression that toppling the prime minister was simply a minor adjustment to the status quo.  When she called an election without affecting any substantial policy change, the sense of surrealism was enhanced.

Gillard scraped through 2010 but never recovered from the impression she made in her first days as prime minister.

Turnbull should be studying the Gillard years closely for what not to do.  Not only does a new prime minister need to accumulate the power of incumbency — to be prime minister and be seen being prime minister — but they need time to shape the government in their own image.

More importantly, Turnbull needs to bed down all those questions about where his government will differ from Abbott's.  That means working out all those awkward questions about how and whether asylum policy will change, whether climate policy will change, where the government stands on tax reform, the deficit and spending cuts.  Those changes will tell an implicit story of why the spill had to occur when it did.

We're still in a transition period, as one government turns into another government.  But as Gillard discovered, this is one of the most dangerous places to be.

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Leaving legacies behind: arts policy for the here and now

Malcolm Turnbull wants to be a 21st century leader of a 21st century government with a 21st century frontbench.  So how might that translate into a 21st century Australian arts policy?

First, let's take a look at how we got here.

Arts policy began in the depths of World War II Britain with the formation of the Committee for the Encouragement for Music and the Arts, the forerunner of all modern Arts Councils, the first chair of which was the arts patron and economist John Maynard Keynes.

Modern arts policy has never really departed much from this initial charter of Keynesian-type tax-and-transfer justifications and centralized elite representation.

This can be observed plainly in the International Federation of Arts Councils and Cultural Agencies, which, for all its new-management speak of "good practice guides", is still an industry lobby devoted to spending taxpayer money on its clients.  This is not the place to look for 21st century solutions.

To bring arts policy into the 21st century, we need to update and correct the basic economic flaws that were baked into the mid-20th century model.

We must recognise that:  (1) the once plausible market failure justification is no longer, (2) producer-focused industry protection has systematically failed, and (3) that an elite, protectionist focus is unsustainable.

End of Market Failure

A standard justification for government spending through the 20th century was market failure.  Market failure occurs when market incentives (i.e. prices) are insufficient to induce the "correct" level of private consumption and investment evaluated from a social welfare perspective.

The solution to this alleged failure is for government to step in.  Arts and culture was widely argued to experience market failure because of what economists call uncompensated positive externalities and endogenous preferences.

Simply put, uncompensated positive externalities means the private production and consumption of art benefits the broader community, who can experience that benefit without paying for it.  Endogenous preferences refers to the age old belief young people don't really know what is good for them and will tend to choose the "wrong" culture.

Former minister for the arts, George Brandis, introduced funding policies that prioritised "heritage arts" such as opera and classical music.  It's the same type of argument parents make about broccoli.  The upshot was a raft of direct subsidies to elite cultural producers.

But in the 21st century, are these market failures still there?  There is a strong case to say no — they have mostly vanished, and as the US arts and cultural economist Tyler Cowen argues, for reasons largely associated with market-driven economic growth and technological change.

New information technologies of search, coordination and payments, and digital technologies of production, storage and dissemination — think crowdfunding platforms such as Kickstarter, Pozible, Indiegogo and GoFundMe — have phenomenally lowered the costs to both finding niche audiences and producing content for them.

Technological change has shifted the margin of the range and scope of artistic production that is now profitable.  The market no longer fails.

The classic funding model in the arts is patronage, which was taken over by government mid-20th century, in what appeared at the time to be the crisis of capitalism.  But capitalism has well and truly come back, and created vast wealth that can be recycled through effective patronage and philanthropy, whether corporate or private.

It is also far from clear that the arts are a public good, benefiting the general public and deserving public subsidy, but might rather be better understood as an industry designed to primarily benefit its own members.

Consumers not producers

A further great lesson from 20th century economics is that policy should focus on seeking to create benefits for consumers, not for producers.

Producer-focused policy, which was an outgrowth of the economic socialist planning models of the mid-20th century, was standard practice across the economy until relatively recently.  In industry after industry, these were the models of subsidy and protection that caused producers to devote great efforts to lobbying agencies and politicians — a wasteful activity that economists call "rent seeking".

What they didn't need to do was to devote resources to producing better products, or new technologies, or new business models, or cheaper products.  So producers were focused on courting government, not consumers.  This turned out to be very bad for consumers.

These economic policies did benefit producers, who could organise to seek these benefits, but invariably harmed consumers, who were not so well represented.  They were, in other words, politically but not economically successful.

The same argument applies if we substitute artists for producers, audiences for consumers, and Arts Council Boards for government.

The basic problem with the current 20th century arts funding model is that it remains producer- or artist-centric, rather than focusing on audiences and citizens.  This makes it ripe for capture and lobbying.

It almost guarantees that it will only produce what the artists want to produce, because of what benefits them, or what the Arts Councils want them to produce, not what the audiences and the citizens who pay for it all actually want to see.

Creative industries

A major global shift in the policy perception of the arts and culture began in the UK in the late 1990s, with the gradual rebranding from a backward looking cultural heritage model and toward an innovation, design and content focused "creative industries" model.  This was lead by the UK Government's Department of Culture, Media and Sport.

This has manifested in the movement of the arts and culture portfolio from the periphery of strategic politics to ever closer to the central portfolios of innovation and economic growth and development.

The basic idea here is to recognise that a 21st century economy is no longer a mass industrial economy, but one that is increasingly dominated by knowledge intensive services.  The arts and culture can thrive in such an economy when it engages and interacts with it.  The old protectionist model is a very poor fit here.

A new arts policy approach

So let's shed the legacy of the 20th century.  That means being utterly clear about what that legacy was:  it was a producer-centric, subsidy-based model.

A better approach will be one that recognises the new power artists have to appeal directly to their potential audiences for funding.  The government no longer needs to create tax-payer-provided havens for the profit of artists and producers.

As an Internet commerce pioneer, Mr Turnbull, of all Prime Ministers, should be aware of this.

We need to shed the old fashioned, crude and wasteful subsidy model, and instead embrace an approach centred on audiences and citizens, and that works with philanthropic benefactors.

Finally, while the branding of the creative industries tends to associated with New Labour (and Labor) policy, it's a good policy idea.  The Coalition government should have no shame in stealing this.

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Our new ''innovation PM'' needs policies to match

While it's wonderful to hear the new Prime Minister wax lyrical about disruption and productivity, the real test will be putting some policy flesh on those rhetorical bones.

The recently ousted treasurer, Joe Hockey, used to talk a lot about innovation and disruption, and in much the same language as Prime Minister Malcolm Turnbull did announcing his new ministry.

Innovation was Hockey's theme addressing the National Reform Summit in August.  At a small business summit in July he declared that "global disruption is the new black".  In an address in March, he marvelled at the possibilities and challenges of Uber, Airbnb and ASOS.

But for all that oratory, Hockey's policy for these new firms was simply to bring them into the GST net, as happened with Uber and all online purchases.

And it's not immediately obvious what the ideal role for government in innovation is.

We already sponsor, support and subsidise science, engineering, technology, invention and innovation in many different ways.  The research and development tax incentive offsets R&D costs against corporate taxation.  The patent system is meant to give inventors an incentive to invent things.  In 2001 the government introduced an "innovation patent" for incremental changes to business practice.

The Commonwealth Scientific and Industrial Research Organisation (CSIRO) receives $750 million a year to conduct scientific research for the good of industry and encourage commercialisation.  Then there's all the money we give to universities for research — which Ian MacFarlane, the now-former industry minister, wanted to tie to commercialisation.

Innovation policy can easily become as much a boondoggle as any Alice to Darwin railway.  State governments have been burning money on wasteful "innovation" policies for decades.  Every new premier wants their capital to become Silicon Valley.  But who now remembers ComTechPort?

We actually know very little about why economies innovate, let alone how we might encourage them to innovate more.

Take the oldest innovation policy on the books — the patent system.  Patents might in fact discourage innovation as much as they encourage innovation.  In the classical model of innovation market failure, inventors won't invest in inventing unless they are protected from free-riders copying their invention for a period of time.  Hence patents offer a temporary monopoly.

But if that monopoly is too long or too strict it could prevent new inventions leap-frogging old ones, or prevent inventions being adopted across the economy.  We have no reason to believe governments have struck the correct balance here.

Last month the Productivity Commission launched an inquiry into intellectual property.  Hopefully under the Turnbull Government this inquiry might be able to make a difference.

I have challenged the idea that there is a market failure even in basic scientific research.  The assumptions underpinning the standard blackboard arguments for market failure in science do not hold up.  I find that government spending on science is probably a net drain on the economy — despite the fantastic claims of supporters of science spending.

Whether you accept this or not, the fact remains that while we know that technology and innovation is at the heart of economic growth, there's no off-the-shelf policy to suit.

Refashioning 1970s-style industry policy with a technology and science focus isn't going to cut it.  Christopher Pyne should be cautious with his new role as Minister for Industry, Innovation and Science.  The position could easily become a useless financial black hole.

What's more prospective is Turnbull's focus on the "rapidly changing, disruptive environment".

Ever since he launched his challenge, you get the impression he's been restraining himself from blurting out "Uber" at every press conference.  Over the last year both sides of politics have been trying to grab the future-y high ground of the sharing economy (like Labor's Andrew Leigh, Clare O'Neil and Tim Watts).

But the lesson of sharing economy firms like Uber is that innovation comes from below.  The political battle we're seeing now between Uber and the taxi industry is a peek at a future where technology butts up against regulation — and the wealthy economic interests that regulation supports.

At the very least a focus on disruption and change is a base on which Turnbull can revitalise the Government's lagging deregulation agenda.  Not just because deregulation will save firms money, as the Abbott government argued, but because it will unleash their potential.

But it's also a firm intellectual base on which Turnbull can pursue his broader innovation agenda.

Rather than looking to pour more money into government commercialisation and science programs, the new Prime Minister should be looking at this issue from the other side of the glass.  What does the Government do right now that prevents industry from innovating itself?

Turnbull opened his bid for leadership with an argument:  "Our values of free enterprise, of individual initiative, of freedom, this is what you need to be a successful, agile economy in 2015".

Fine, heartening words.  But it will be quite a trick to turn those words into a reform agenda, let alone a productivity boost.

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Occupational licensing hinders job creation and economic growth

Government restrictions forcing people to get licenses for work poses as a massive barrier to labour mobility, and is costing Australian consumers dearly.

A great policy tragedy in this country is that our extreme reticence to undertake any meaningful workplace relations reform means our main debates in this area have transcended into a circus.

Should Dyson Heydon stay or go as the head of the trade unions royal commission?  Is the recent draft report by the Productivity Commission into the workplace relations framework a Trojan Horse for WorkChoices or not?

These sorts of arguments make for great media coverage, and animate key players in the "Industrial Relations Club" such as unionists and employer associations, in ways that nobody else comprehends, but all they do is avert our attention from real problems.

Our unemployment rate is becoming uncomfortably high, especially for young people and others on the fringes of the labour market, as economic growth slows and regulations inflating labour costs, such as minimum wages and penalty rates, consign some people who want to work on the scrapheap.

Other key defects within our policy arrangements continue to lurk beneath the surface of discourse, not receiving the attention they fully deserve.

One of the more pressing matters needing scrutiny are the government licensing and permit restrictions concerning who can work in what occupations, invidiously destroying the ability for people to freely pursue their own livelihoods as best they see fit.

These days governments require individuals to obtain licences, either through a government licensing authority or professional association, for a mind-boggling array of occupations.

These include, but are certainly not limited to, the likes of air-conditioning mechanics, bricklayers, doctors, driving instructors, electricians, forklift operators, legal practitioners, nurses, plumbers, property conveyancers and valuers, and weed controllers.

Investigations for a national occupational licensing system by COAG in 2008 found more than 800 licences nationally across a limited group of manual trades, and subsequent investigations in Victoria alone found almost 400 licences, permits, approvals, certification and registration schemes.

There are basically three key problems with existing regimes of occupational licensing as imposed by governments.

First of all, it effectively acts as a labour market barriers due to the usually hefty training requirements and fee obligations, disproportionately affecting low income earners, young people and immigrants who might find it more difficult to find the requisite cash and time to get licensed.

Making it more difficult for more people to find work than is presently the case, occupational licensing restrains the supply of service providers in the market.

As a consequence of this supply restriction, costs are raised for consumers irrespective of any improvements in service quality.

Finally, it is unclear that occupational licensing in of itself can drive the substantial improvements in quality that is desired.

This is because the incentive for already licensed incumbents to provide even better products is dulled due to the labour market barrier entry effects.

Perversely, inflated prices offered by licensed providers may force some consumers to seek unlicensed providers, or do jobs themselves, in some cases increasing accident risks.

Using the work of American economist Morris Kleiner as a guide, it is possible to roughly estimate the potential gains to reform in this area.

Assuming a low-end labour demand elasticity of -0.2 and referencing international studies showing individuals in licensed occupations earn 10 to 12 per cent more than in unlicensed, the deadweight efficiency costs of licensing in this country could range between $1.4 billion to $14.6 billion.

The final magnitude depends on the share of licensed people in the workforce, so if that share is between 40 to 50 per cent (noting in the US it is a lower 20 per cent) the estimated deadweight losses range from $5.4 billion to $8.1 billion.

To submit that the occupational licensing regime, as it stands, is problematic is not an act of ideological flourish from classical liberals seeking a smaller state, come what may.

Support for reform has in fact come from numerous sources, both here and abroad.

The recent competition policy review chaired by Ian Harper made the point that licensing may "restrict who can provide services in the marketplace.  Such restrictions can prevent new and innovative businesses from entering the market and limit the scope of existing businesses to evolve and innovate".

The Productivity Commission has indicated in the past that occupational licensing pertaining to, for instance, consumer protection is "an area where there is ostensibly considerable scope to reduce burdensome regulation".

Even the Council of Economic Advisers under the US Obama administration recently said, "by making it harder to enter a profession, licensing can ... reduce employment opportunities and lower wages for excluded workers, and increase costs for consumers".

In the end the issue is not about whether we want to ensure consumer safety or not, but that occupational licences have stretched too far in the directions of prescription and cost, preventing upward labour mobility, better economic growth, and lower prices for services.

Previous efforts through COAG to usher in a harmonised licensing regime have gone begging, in favour of fresh policy efforts in invest in mutual recognition arrangements across the states.

An emphasis on mutual recognition is certainly no bad thing since this helps maintain policy diversity among the states, which would otherwise be nullified by harmonisation or centralisation, but even more should be done to empower livelihood freedom for those who seek to work.

For a start, governments should reduce the costs of the licences and permits they issue, making licensing less of a revenue-raising grab, and professional bodies ought to be encouraged to consider similar steps where appropriate.

Consistent with those initiatives, consideration could also be given to moving towards more competitive models of quality certification through which job holders voluntarily attain state or profession-issued certifications distinguishing them from their competitors.

This sort of idea is hardly utopian.

After all, many Australians presently test the credentials of various service providers by assessing their guarantees and warranties, relying on trusted brand names, using information brokers, referring to social media and word of mouth testimonials, and so on.

Reforming occupational licensing should be a matter transcending the political divide, since the interests of the left in lifting up the poor converge with the interests of the right in promoting economic freedom.

But does the Australian political system have the capacity to go beyond the flim-flam which passes as reform debate these days, and enact genuine occupational licensing regime change?

Only time will tell on that score.

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Tax is Turnbull's boat problem

The pity of Tony Abbott's prime ministership is that when he did what he believed in, he achieved things and was successful.  It was when he did what he did not believe in that he came unstuck.

The shorthand label of "Stopping the boats" doesn't do justice to the extent of Abbott's achievement.  If the public lacked confidence in this country's migration program, there is absolutely no way the community would have accepted his announcement last week that the number of refugees to be settled in Australia would be almost doubled.  Abbott's success is all the more significant when considering that so many "experts" said what he ultimately accomplished could not be done.

The same applies to scrapping the carbon tax and mining tax.

Although few will now acknowledge it, there once was a time in Australia under Kevin Rudd and Julia Gillard, when it was the deliberate policy of the government to increase the cost of electricity to business and households.  Many politicians, corporate leaders, and media commentators believed it was both a good idea and electorally popular.  Many people, including the staff at the Department of Treasury also thought we should have higher taxes on one of the few industries in which Australia is internationally competitive.

Abbott led the Coalition to stand against the conventional wisdom.  Almost single-handedly he changed the debate on border protection and the carbon tax and the mining tax.  A significant part of Abbott's political legacy will be both these policies themselves, and his demonstration that having a good argument is the best way to overturn the prevailing wisdom.  Argument and evidence is what Abbott and his Trade Minister Andrew Robb were using to defeat the trade unions' xenophobic campaign against the China free trade agreement.

The energy, enthusiasm, and forcefulness Abbott had displayed in fighting against Labor's policies was unfortunately not always brought to bear in advocating for his own policies — especially on economic reform.  What the country needs now is a leader brave enough to argue against the prevailing wisdom that the solution to Australia's budget problem is simple — higher taxes.

LITTLE CHANCE OF SUCCESS

In a way Abbott never gave himself a chance to win the argument for reform given he'd basically ruled out making budget cuts and or changing industrial relations before he was even elected.

The man who became Prime Minister on the back of his opposition to Labor's higher taxes then proceeded to raise taxes himself, giving Australia one of the highest top marginal rates of personal income tax in the world.

In opposition, Abbott was a passionate defender of freedom of speech.  In government, at the first sight of resistance from the prevailing wisdom, he buckled on his promise to amend section 18C of the Racial Discrimination Act which makes it unlawful to offend or insult someone because of their race.  Abbott appreciates more than most the existential fight for the values of the democracy and liberalism in which the West is currently engaged — and will be engaged in for many years.  Freedom of speech and freedom of thought are core values of democracy and liberalism.  To many of his supporters, Abbott's abandonment of freedom of speech was an act from which he could never recover.

The challenge is now for Malcolm Turnbull to develop and present a program of economic reform.  On tax Turnbull will have to do what Abbott did on border protection and climate change.  He'll have to defy the conventional wisdom that he should just raise taxes.

Many of the building blocks for that program are already in place thanks to the enquiries already initiated by the Abbott government into tax and federalism.  The missing part of that trifecta is of course industrial relations which is probably the most pressing policy area of the three.

"What ifs" haunt life and politics.

It's futile, but interesting nonetheless, to ponder how Tony Abbott's term in office would have turned out if, instead of spending his time defending himself against claims that he'd broken his election promises, he'd used his many outstanding personal qualities to fight for economic freedom, freedom in the workplace, and freedom of speech.

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Without economic nous, Abbott was doomed

Tony Abbott has never had a taste for economics, and that ultimately was his downfall.

It wasn't the gaffes, or the self-indulgences, or his loyalty to Bronwyn Bishop, or the aimlessness of the Government since the last budget that led to yesterday's drama.  Each of these could be survived.

It was that his attempts to reset the agenda on "jobs and growth" were empty.  It was the right message — finally the right message after so much flailing about.  But it was a message without any substance.  People don't want to hear politicians talk about "jobs and growth".  They want actual jobs and actual growth.  At the very least they want a credible story about how those jobs and growth will be achieved.

By people here, I mean both the voters and the parliamentary Liberal Party.  There is no one in the party room, apart from Joe Hockey apparently, who has really believed for the last six months that the Abbott Government has a jobs plan and that plan is working.

In the back of their mind, this economic vacuum was laying the foundation for a devastating election loss.

For any other government the China-Australia free trade deal would be a minor diplomatic success.  For the Abbott Government it became, by necessity, the great lynchpin of Australia's future posterity.

The Government announced in August that its plan for South Australian jobs was to build ship after ship after ship for the Navy.  This is the sort of big government industry policy that would make Labor traditionalists like Kim Carr proud.  Government funded ship building is not a plan for growth.

Here so much of the blame for Abbott's fall has to be laid on his loyalty to his Treasurer.  The 2014 budget needed a story and an advocate.  But it had no one who could explain the budget's rationale — outside the old opposition cry of Labor's debt and deficits — or how it fit into the big economic picture.  Abbott wasn't interested in it.  Hockey seemed embarrassed by it.

Liberal parliamentarians knew when they voted last night against Abbott they were casting a proxy vote against Hockey.  Abbott has goodwill in the party room.  He was an incredibly strong opposition leader.  He is an incredibly strong campaigner.  Hockey has no such goodwill.  An Abbott without his Hockey might have survived.

For the last six months I've been reading that Abbott's parliamentary support was entirely resting on the "right".  This is probably how it has looked from the press gallery, as conservative positions on national security and gay marriage became central to the party room numbers.

But the right wasn't a very stable platform.  Abbott's relationship with the right has been complicated at best.

Yes, Abbott's rise to the leadership was on the back of Malcolm Turnbull's support for Kevin Rudd's emissions trading scheme, and it was the right that resigned in protest, sparking the leadership challenge.

But this support was first tested early on by the paid parental leave scheme — Abbott's first exercise of the leader's prerogative.  When he abandoned this policy in February to protect himself, it showed he was willing to Year Zero his own leadership in the same way Rudd did with the emissions trading scheme in 2010.

The most devastating blow for his support among the right was abandoning the promise to repeal section 18C of the Racial Discrimination Act in August 2014.  The press gallery has never understood how significant this original promise was to Abbott's prime ministership.  Abandoning it — and describing free speech as a "needless complication" no less — was very damaging.  Abbott came to realise this.  Hence his strong words in the wake of the Charlie Hebdo massacre.

The final test of his relationship with the right was yet to come.  His personal support for Indigenous recognition in the Australian Constitution — deliberate constitutional amendment for an uncertain and entirely symbolic end — would have torn his base apart.

Without a credible economic story, without a credible treasurer, and without stable support from the right, Abbott was going to go.  Whether this week or next month or next year.

So what does this assessment mean for the new Prime Minister?  Obviously Turnbull's message before and after the spill was that he would bring a renewed focus on the economy.  But two phrases stuck out in his press conferences last night.  Turnbull chooses his words carefully.

The first was the declarative emphasis on "freedom" as a key to economic growth.  The echo of the language of George Brandis and Tony Abbott's "freedom agenda" in opposition was surely not accidental — and all the more powerful for now being used in the service of economics.

The second was his statement that his would be a "thoroughly liberal government" (assuming he meant "liberal" as opposed to "Liberal").  It's indicative Turnbull said this publicly after the vote, not before.  Abbott's was an intentionally conservative government.  Abbott sought to remake the party into a conservative party.

What these statements mean for government policy is anyone's guess.  Turnbull has promised not to pursue higher climate targets, and he has apparently reaffirmed the plebiscite plan for gay marriage.  Turnbull proposes a new tone, but has no agenda that we are aware of.  It's going to be a long road from here.

At the very least, his choice of language is an unsubtle reminder that Turnbull will have to navigate the Liberal Party with far more skill and diplomacy than he did when he was opposition leader.

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The Abbott Government's real problem is that it's not ideological enough

The Abbott Government is getting bad reviews.  This week's two year anniversary offers a neat little hook for members of the press gallery to take stock of the Government's performance.

Among the unforced errors and stumbles, we read that the Abbott Government is far too "ideological".  In an encyclopaedic piece, the Guardian's Lenore Taylor bemoans their "ideological over-reach".  This is indeed an old complaint.  This time last year Liberal Party strategists were counselling the government "no more ideology".

But if the Abbott Government is too ideological, then its ideology is of a new species hitherto unknown to political taxonomists.

It's an ideology that prioritises convenience over consistency, and refuses to spell out the principles which guide its decision-making.  That is, the Abbott Government appears to have no distinct "ideology" at all.

One should not be too critical of a government for failing to hem to abstract doctrine — democratic government functions through compromise and conciliation.  Political philosophy has to give way to practicality.

Yet even on these forgiving standards, it's hard to see what picture of the world — or vision of the future — animates the Coalition.

The Government's apparent "war" on the ABC is often used as Exhibit A for its ideological fervour.  This began very early in their term.  It seems to have reached its zenith with the prolonged Zaky Mallah affair.

Yet consider the absence of any consideration in this "war" of the role of public broadcasting in an age of media diversity, any critique of the media as a public good, or even a simple comment on the trade-off between ABC funding and lower taxes.

Rather, the Government's critique of the ABC seems to be nothing more complex than that the public broadcaster has too many left-wing journalists and is insufficiently pro-Australia.  Perhaps fair enough.  But if this counts as "ideology", then it is a superficial and empty ideology.

The irony of the Zaky Mallah affair was that it trivialised the substance and intractability of the modern terror threat by making it about the internal organisational structure of the ABC.

A keener focus on the principles at stake — that is, a more ideological approach — might have left the Abbott Government looking less like it was defeated by a chat show.

Taking a more ideological approach in each of these cases would have made the Government seem less obviously self-interested.

Nor has the criticism of the Human Rights Commission chief Gillian Triggs been obviously connected to any ideological perspective on human rights or the Human Rights Commission.  The early promise of a debate from the top about the nature of human rights that was the appointment of Tim Wilson to the commission and the establishment of the Law Reform Commission's inquiry into "traditional rights and freedoms" has gone unfulfilled.

Likewise, any pretence of a serious industrial relations agenda has been abandoned to focus on the Trade Union Royal Commission.  The royal commission has revealed some serious wrong-doing in the union movement, and continues to highlight the Labor Party's relationship with unions.  But it is hardly a substitute for a debate about how much the state should be involved in workplace contracts.

Taking a more ideological approach in each of these cases would have made the Government seem less obviously self-interested.

Exhibit B for too-much-ideology is the 2014 budget.  Here we have to distinguish between the Commission of Audit — which reported just before the budget was released — and the budget itself.

At the time, the two blurred into one.  And it is certainly the case that the Commission of Audit was deeply ideological, in the sense that it applied philosophical principles to policy questions, and did so in a way hopeless ideologues like myself could admire.

But there was little trace of that ideology in the budget.

If Christopher Pyne's legislative agenda is too ideological for the Australian public to forgive, then the scope of future reform is truly limited.

The two standouts in the budget were the $7 co-payment and the higher education reforms.  Only the latter was really ambitious.  The Government made the former seem more ideological than it was.  For all their banging on about a "price signal", the co-payment revenue was to be funnelled into a research fund.  This hardly counts as devolving health provision to the market mechanism.  Neoliberal Friedmanism it ain't.

Credit where credit is due for higher education.  This was — or still is to be — a significant change to the way higher education is funded.

Yet it's hard to see how the reforms being proposed are really of an order of magnitude greater than previous market-based reforms to tertiary education under past Coalition and Labor governments.

If Christopher Pyne's legislative agenda is too ideological for the Australian public to forgive, then the scope of future reform — from any side of politics, on any philosophical grounds — is truly limited.

Ideology is of course endemic to all human thought.  We all have our frames through which we understand the world.  A non-ideological person is a conceptual impossibility.

Yet it is not ideological over-reach which plagues the Abbott Government.  The Coalition lacks exactly what a clearly ideological approach would give them:  not just consistency or narrative, but purpose.

I know nobody who manned polling booths for the Coalition in 2013 in order for Joe Hockey to introduce first a deficit levy, then (as is now being seriously proposed) swap a higher GST for lower income taxes.

Two years into their three-year term, voters must be scratching their heads wondering what this Government is for.  That is not a sign of too much ideology.  It's a sign of too little.

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Fiscally punishing non-government schools not a smart move

Using fiscal policies to target private schools threatens an educational system that is serving Australians well.

With government budgets around the country in such a parlous financial state, there is no end to suggestions about how to get our public finances back in shape.

But in recent months we have seen a rising chorus of voices asserting that non-government schools should be making more of a contribution to the fiscal consolidation task.

For example public education advocates are trying to dispel the notion, based on estimates provided by government bodies, that the average public cost of educating a child in a non-government school is less than in a government school.

Researchers Chris Bonnor and Bernie Shepherd released a study disputing the size of the implied savings to taxpayers which arise when parents enrol their children in Catholic and independent schools.

The implication of this line of thinking is that since non-government school education isn't so cheap after all governments can readily claw back public subsidies for Catholic and independent schools, without doing a great disservice.

But after sorting schools on the basis of the socioeconomic status of school community, Bonnor and Shepherd still conclude average per student public funding in non-government schools is less in both low and high SES areas.

State and federal governments provide students in low SES independent schools an average of $10,870, and Catholic schools $12,330, lower than the average subsidy of $13,125 afforded to a student in a low SES government school.

Even if we accept their analysis at face value, and that is contestable given other valid ways to statistically group schools, that taxpayers saved more than $2 billion in 2013 remains a significant implied amount of savings in the current fiscal environment.

Also notable is that after-tax parental contributions, donations and other incomes for non-government schools in low SES areas are, on average, quadruple that received by government schools.

Another curious feature of the Bonnor-Shepherd analysis is their criticism of figures used by the Productivity Commission for the cost of capital used by schools, which they decry adds at least 15 per cent to the apparent cost of government schooling.

The figures are certainly imputed estimates of cost, but it is unreasonable on accountability grounds to not establish at least some estimate of the costs of maintaining school buildings and facilities.

Indeed, it is often ignored in the schools funding debate that, unlike in government schools, capital investments at non-government schools are largely funded by parents directly through school fees.

And as education academic Brian Caldwell has highlighted over many years, the government school sector has long been afflicted by gross capital mismanagement with taxpayers wearing the long-term burdens of this.

Attempting to estimate the true costs of capital certainly does more good than harm, even if the estimates are open for discussion, because it encourages us to consider whether parents and taxpayers are receiving decent value for money on investments.

Alongside the calls to scale back public funds to non-government schools have been arguments that new taxes should be imposed upon the schooling sector, to end the so-called mollycoddling of schools from tax-free "protection".

In particular it has been suggested that the GST should extend to school education services, with a particular emphasis on non-government schooling in an apparent effort to minimise the pain of GST base broadening on poorer families.

Such an idea, though, is without warrant if we are concerned about investing more in our young people.

It is well established in the conventional "optimal taxation" literature that investment activities should be excluded from taxation treatment, because this would help optimise the production of final goods and services in the economy.

The GST is designed to tax the final consumption of goods and services and not investments cascading through the production process and, so, multi-year human capital investments in young people should remain out of the GST base.

Numerous studies published both here and abroad show that more and better schooling is associated with improved individual productivity, translating into an enhanced performance of a national economy as a whole.

Within this, researchers at the University of Melbourne have also quantified improvements in long-term wage rates for students at independent schools compared with their peers in government schools.

Even so, parents of students in non-government schools may be quite sensitive to increases in school fees, given the abundance of "free" government schools whose operations are primarily funded out of general taxation revenue.

It has been estimated on a national level that more than 113,200 students would be re-enrolled in government schools around Australia if the GST is broadened to include school education, at great cost to public education authorities.

A recent study conducted for Independent Schools Queensland demonstrates similar effects at a state level, with a broader GST likely to induce switching of about 22,700 students from non-government to government schools in Queensland alone.

As mentioned previously such an outcome would be self-defeating from a budgetary perspective since the public sector, and in the end taxpayers who pay for it, will struggle even more to accommodate enrolment demands for government schools.

To be certain, this shift in student enrolment is also likely to hurt the poor in the long run, given the empirically established wage premiums earned by non-government school graduates.

Investing in human capital, and the physical capital needed to support investing in young people, is too important to be negated by spending clawbacks and tax grabs grounded in erroneous analysis and false assumptions about the role and contribution of non-government schools.

Preparing young Australians for economic and social participation in a changing world through quality education is vital for our future prospects.

Non-government schools have long played a fundamental role in this educative task, with responsibility for providing schooling services for more than 1.28 million students in more than 2700 schools across the country.

Students in non-government schools are excelling in national literacy and numeracy testing and, despite claims to the contrary, enrolments in non-government schools are saving taxpayers money.

Far from protecting Catholic and independent schools from the rigours of parental choice and the need for innovation and flexibility, resisting demands to target non-government schools for special fiscal punishments is one of the better investments we can make in our future.

The National Reform Summit that forgot Menzies' forgotten people

In 1942 Robert Menzies delivered a speech over the radio entitled "The Forgotten People".  For him the "forgotten people" were the middle class — "salary-earners, shopkeepers, skilled artisans, professional men and women, farmers and so on".  According to Menzies the "rich and the powerful:  those who control great funds and enterprises" could look after themselves, while unskilled workers had unions and laws to protect them.  Meanwhile the middle class was left to fend for itself.

Menzies pronounced on a key insight.  The members of the middle class "are envied by those whose benefits are largely obtained by taxing them".  He went on to explain that the "great vice of democracy" is that too often "we have been busy getting ourselves on to the list of beneficiaries and removing ourselves from the list of contributors, as if somewhere there was somebody else's wealth and somebody else's effort on which we could thrive".

At the National Reform Summit in Sydney last week there were representatives of the rich and the powerful, unions, and the beneficiaries of the tax system.

The "forgotten people", the people who actually pay the vast bulk of the taxes, were forgotten.  In the absence of the voice of Australia's 12.7 million individual taxpayers it's hardly surprising that representatives of the "Big Four" — big business, big unions, and big welfare, plus big government — concluded that one of the ways to fix Australia was to increase taxes.  Big unions don't pay tax (trade unions are exempt from income tax), big welfare spends taxes, and big government collects taxes.  The only group out of the big four that actually pays tax is big business.  What little discussion there was at the summit about cutting taxes was limited to reducing the company tax rate — which of course would be offset by increasing taxes somewhere else.

By far the biggest source of tax are individual taxpayers.  Company tax receipts are projected to be this year $71 billion (and that includes taxes collected from all businesses not just big business).  Meanwhile individual taxpayers will pay $194 billion in tax.  And big welfare really is big welfare — $154 billion will be spent on social security and welfare.  The famed "military-industrial complex" is anything but in Australia — $26 billion will be spent on defence.

PROBLEM SOLUTIONS

The summit did some useful and important work in identifying some of the country's economic challenges, particularly around productivity and the ageing population.  But the problem with the summit was the solutions it suggested.  When it came to productivity there was little consideration of industrial relations reform, and the answer to the ageing population was almost universally regarded to be higher taxes on superannuation.

Much of the conversation at the summit assumed as Menzies put it "there was somebody else's wealth and somebody else's effort on which we could thrive".  The absence of any real-life taxpayers from the summit meant there was no one to stand up and shout "hang on a minute!  That's my wealth and my effort you're taxing.  How much more tax do you want to take from me?"  If a representative of flesh-and-blood taxpayers had been at the summit they could have pointed out that 50 per cent of all income tax in Australia is paid by 10 per cent of the working population.

Most of the summit participants happily assumed Australia was still a low-tax country.  In fact the reality is that we're not and we've never really been such a place.  On a like-for-like comparison Australia's tax to GDP ratio in 2012 was 33.5 per cent and the OECD average was 33.7 per cent.

And government is going to get bigger and the share of the economy that taxes take will get bigger too.  The share of federal government taxes to GDP is forecast to go from 21.4 per cent in 2014 to 23.4 per cent in 2019.  That's nearly a 10 per cent increase in five years.  If taxes do go up like that we won't be an average taxing country — we'll be a high tax country with all the consequences that entails.  The only way of stopping Australia going down that that path is if we stop forgetting about the "forgotten people".

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ChAFTA: Union campaign misses the point

The union campaign against the China-Australia Free Trade Agreement (ChAFTA) is a mixture of misinformation, confusion and xenophobia.

But it does hide an uncomfortable truth.  Labour market protectionism encourages the exploitation of foreign workers.  We'll come to that shortly.

The ACTU argues that ChAFTA will "shut out locals from jobs".  They point to three controversial provisions.

The first is the elimination of labour market testing for Chinese workers in the 457 visa program.  Labour market testing requires employers to advertise locally before they employ foreigners on in 457 visas.  But the requirement has always been a tick-the-box waste of time.  An independent review last year found it was pointless and cumbersome.  There's no evidence that unemployed Australians in any way benefit from this regulatory hurdle.

Another controversy relates to skills requirements.  The unions say ChAFTA means foreign tradies could come to Australia who do not meet Australian standards.  But the skills requirements under ChAFTA are exactly the same as for most other countries we accept skilled workers from.  ChAFTA just removes a discriminatory higher bar for Chinese workers.  (The higher bar still applies to a small number of other developing countries)

The final controversy concerns major projects.  A side memorandum to ChAFTA establishes a new type of labour agreement — "investor facilitation agreements" — that allow major infrastructure projects to bring in foreign workers.

But we already have similar labour agreements.  The essentials of the law haven't changed, as the Migration Council's Henry Sherrell notes.  All agreements have to be approved by the immigration minister.  And major projects have to pay foreign workers Australian market rates.  Claims that ChAFTA changes existing major project wage requirements are simply wrong.

The unions can get away with these fudges because migration law is extraordinarily complicated — a byzantine regulatory environment of quotas and controls.  The Immigration Department offers dozens of different types of visas for different types of people.  Each have their own criteria and conditions.  The Migration Act is a behemoth:  currently 1048 pages, not including supporting regulations.

There are lots of reasons for this complexity.  But one big one comes from the unions, who want migration to be heavily controlled to protect Australian jobs.  If we were more open to migration — if there was wider acceptance of the evidence that immigrants do not steal jobs — then these rigid and regulated visa schemes would not have to exist.

This is the political economy behind union stories of foreign workers being exploited in Australia.

To the extent that there is exploitation in Australian immigration, it is because employers are able to use restrictive visa conditions — demanded by unions to protect Australian workers — as a stick to wield against foreign visa holders.

For instance, on the weekend Fairfax papers and Four Corners uncovered what they say is widespread exploitation of 7/11 workers.  No doubt the story has a way to run before we learn all the facts.  But notice how many allegedly exploited 7/11 employees are working on student visas.

The visa conditions on one student "gave the franchisees leverage to threaten to go to the authorities to have his visa cancelled if he complained about his salary or working conditions."

At least student visa holders might be able to find other work.  Workers on 457 visas have just a single sponsor, with correspondingly greater leverage.

It is possible to be opposed to foreign workers from China and not be xenophobic.  But you'd have to be blind to miss the undercurrent of xenophobia in the anti-ChAFTA campaign.  Just as the union campaign against poles and wires privatisation in March this year leant heavily on anti-Chinese sentiment, so too does this month's spectre of Chinese workers.

Our highly regulated migration system is better than none at all.  Immigration is the most powerful anti-poverty tool we have.  People who migrate from poor countries to rich countries dramatically improve their wellbeing and those of their families.

We ought to be accepting more foreign workers.  And we ought to be reducing the visa restrictions that make them vulnerable to exploitation.

Because when we talk about immigration policy we need to keep the focus on the immigrants themselves — and why they would want to come to Australian in the first place.

When unions campaign for Aussie jobs — when they campaign for crackdowns on visa categories, for more rules on who cannot work in Australia, for limiting foreign workers on projects — they are campaigning not against business or "capital" but against people who are less well-off than they and who were born in countries poor than ours.

International solidarity, it seems, only goes so far.

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