Why we're seeing less pork barrelling this election

Sure, there's still the usual cash splash on playgrounds and intersection upgrades, but for the first time since the GFC our major parties realise the seriousness of the budget deficit and are toning down campaign spending promises.

When you boil them down to their essence, Australian election campaigns are really just elaborate pork barrel road shows.  For all the talk about vision and ideology, politics is about what pleases marginal electorates, not philosophy.

Bill Shorten was in Western Australia last week doling out $45 million for Perth's Wanneroo Road.  Malcolm Turnbull was there a few days later, announcing his own Wannaroo Road upgrade, but a slightly cheaper one — just $20 million.

I complained about this pattern in the 2013 election.  Shorten and Turnbull are competing to head the government of a $1.6 trillion economy — Australia is one of the richest countries in the history of the world — and their job application involves dribbling out money for grade separations.

And yet there's something different about this election.  It's not that the pork barreling isn't happening.  Coalition and Labor candidates are dutifully travelling their electorates to announce minor environmental projects, CCTV installations and community centre upgrades.  But at a national level there's a slight feeling of embarrassment about the whole charade.

Fundamentally both major political parties know that every new spending promise — every new security camera, every new fence around a local park — is a further setback to repaying the national debt.

This week Shorten announced that Labor would not promise to restore the Schoolkids Bonus, which had been scrapped by the Coalition, and refused to guarantee it would restore money to the pension that the Abbott government had cut.

These announcements constitute a dramatic reversal of years of Labor rhetoric.  Both the Schoolkids Bonus and the pension changes were essential elements of the attack on the Coalition as being unfair to low and middle income earners.

Tony Abbott and Joe Hockey made the changes on the grounds that cuts had to be made to the Commonwealth budget if it was ever to return to surplus.  Now finally at the end of the Coalition's first term in government Labor has conceded the point — yes, perhaps cuts, even uncomfortable, unpopular cuts, need to be made.

No doubt Shorten has known this for some time.  Labor in government was unable to restore the surpluses they promised, but were nonetheless willing to reduce spending in ways that hurt them politically.  Recall the cuts to single parent payments which so agonised Labor's own supporters.  Shorten must feel he has a non-trivial chance of becoming prime minister, and needs to start tamping down expectations.

This is the first election since the Global Financial Crisis in which the reality of deficit politics is beginning to dawn on both major parties.  Neither party has a plan to bring the budget back to surplus, but they are starting to accommodate it.  It seems unlikely either side will give the sort of blanket "no cuts to health, education, the ABC, SBS" promise that Abbott did so fatefully on the eve of 2013.

Both Labor and the Coalition announced tax increases before the campaign begun.  We saw in the debate on Sunday night that the Coalition is still trying to deal with the fallout from its retrospective superannuation changes.  Tax increases are not ideal electoral politics, and the last thing the economy needs is a heavier tax burden.  But the increases were probably necessary to give at least some patina of credibility on all the spending promises that were to be announced — at least in the absence of expenditure reduction.

Shorten says that his backtrack on the Schoolkids Bonus and pension changes came after the release of the Treasury's Pre-Election Economic and Fiscal Outlook.  This is nonsensical.  PEFO — one of the rituals which makes up Australian elections — did not forecast anything significantly different from the 2016 budget.

But PEFO represents Treasury's "best professional judgement" on the state of the economy, undiluted by the political needs of its masters.  The Coalition in opposition is sometimes willing to second-guess Treasury.  Labor is not.

PEFO made two claims that have been obvious for a while but look particularly devastating when expressed in an official Commonwealth document.  First, without either tax increases or spending reductions there will be no sustained budget surplus.

Second, budget forecasts are based on an assumption that economic growth will return to its long run average.  If that assumption does not hold — if, say, we go into an economic downturn — then the budget is going to be in a dire state.

The upshot of PEFO is that no side can believably maintain the traditional laissez faire approach to campaign spending promises.  Sure, there's the usual money for playgrounds and intersection upgrades.  But the 2016 election carnival has an unusually depressing tone.  The Australian political class is learning to live with deficit politics.

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Time to call compulsory super experiment off

The compulsory superannuation system is a policy experiment failing everyday Australians and should be scrapped.

The Turnbull government's Budget-time announcement of tax increases applied to superannuation accounts has not only aggrieved Liberal Party supporters, who thought their leaders stood for lower taxes.

The superannuation tax increases, including a $500,000 lifetime cap on non-concessional contributions backdated to July 1, 2007, have sparked a broader discussion within the community about the efficacy of Australia's unique compulsory superannuation regime.

Mandating all employers to contribute a portion of wages to a superannuation fund, presently 9.5 per cent and expected to incrementally rise to 12 per cent by 2025, compulsory superannuation has undeniably shifted from its inflation-fighting rationale during the 1980s Accord era.

The defenders of the system these days invariably refer to the need to underwrite a decent income for Australians in retirement, to take fiscal pressure off the age pension and to augment our national savings.

It is probably unreasonable to pin so many public policy ambitions upon one initiative, but when all is said and done the compulsory superannuation regime, now into its 24th year, is, nonetheless, falling short of the numerous hopes set for it.

Of course, it is impossible to appreciate the full extent to which compulsory superannuation equips older Australians with a financially secure retirement, at least until after the full complement of the "baby boom" generation elect to finish working.

But the best actuarial forecasts show that, under compulsory super, many Australians will miss out on being able to retire on an adequate stream of income, replacing between 60 to 80 per cent of their working income.

Lower income earners will, by and large, receive their pension, and high income earners should be able to fund their own retirement, leaving middle income earners (often with large, outstanding mortgages upon retirement age) struggling with retirement income inadequacies.

Making matters worse, successive governments have undermined adequacy by taking it upon themselves to tax superannuation, both at the contribution and accumulation stages, mainly for recurrent spending purposes of questionable value.

There is a myth that the policy progenitors of compulsory superannuation wanted to tear down the Age Pension retirement income pillar, in other words ensuring that superannuation acts as a substitute for the tax-financed public pension.

But former prime minister Paul Keating originally indicated that compulsory superannuation is actually meant to stand as its own retirement income pillar, alongside the pension.

It was a deliberate policy act that workers lose wages for an eventual superannuation payout yet at the same time, as taxpayers, feel the financial pinch of propping up the pay-as-you-go pension system as the population ages.

The 2015 Intergenerational Report illustrates that without reform, commonwealth spending on the pension is projected to rise from 2.9 per cent of GDP in 2014-15 to 3.6 per cent in 2054-55, even in the presence of compulsory super arrangements.

The share of part-rate pensioners in the Age Pension pool is expected to rise over coming decades but exactly what a part-pension will look like, and how affordable it would be, as elderly Australians become even more politically influential by mid-century is an open question.

The $2.046 trillion (roughly 127 per cent of GDP) in assets held by superannuation funds is widely seen as a triumph for the system's capacity to augment our national savings, increasing the pool of funds potentially investable in productive capital.

But one person's augmentation of the national savings pool through financial repression is another person's artificial expansion of the Australian finance sector, reminiscent of a "picking winners" policy diminishing funds competition and impeding financial flows to more productive uses.

Even if we accept that compulsory superannuation improves aggregates savings, it should also be understood this outcome has come at the cost of crowding-out private, voluntary savings — the third, and final, pillar of retirement income that is all too often ignored.

Australian estimates suggest an additional dollar of money forcibly transferred from pay packets into superannuation accounts has been offset by reduced voluntary savings by between 17 cents and 75 cents, with official estimates settling at 30 cents in the dollar.

Compulsory superannuation distorts other elements of economic choice in important ways.

The current superannuation arrangement reduces the capacities of working individuals and families, particularly those on low and middle incomes, to use their rightfully-earned income for more consumption, or for additional investment in education and training programs.

The effective liquidity constraints upon consumption, investment, or voluntary savings would most certainly represent significant welfare losses for those affected, as indicated in a 2002 study by academics Ross Guest and Ian McDonald.

Labour market economists have also noted the superannuation guarantee poses as an additional on-cost associated with employing labour, in turn reducing the demand for labour on the part of employers.

Rather than governments keep making workers lose salary to save more, apparently for their own good, much later in life, and having those forced savings vulnerable to tax grabs, perhaps we should take retirement income policy in a different direction?

The alternative suggested here would be to end compulsory superannuation altogether, ensuring Australians who best know their own circumstances can save as much for their retirement as they see fit.

Instead of increasing the superannuation guarantee rate to 12 per cent, or even 15 per cent as some suggest, in the medium term, the rate should be wound back over time.

This reform wouldn't abolish superannuation but, rather, change the second retirement income pillar to make super contributions voluntary, instead of mandatory, encouraging fund managers to compete for our superannuation dollars.

People with their wages locked up in super accounts against their will should have a right to access at least a part of these funds during their working lives, say, for the purpose of laying down a first house deposit or to finance their higher education expenses.

Reformers should tighten up Age Pension means tests and raise eligibility age to life expectancy to make welfare affordable and well-targeted, and radically cut taxes on saving (including for superannuation) to encourage, but not mandate, thrift.

Australian politicians, deeply afflicted by the short-termism of triennial election battles, lack sufficient knowledge to determine the "optimal" rate of saving for a population, against the background of international financial mobility, in the longer term.

In that vein, we should eschew the political mentality that it is legitimate, even dignified, for governments to paternalistically dictate our most important economic decisions, including when, why and how to save.

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Savings from cutting prison population could put more police on the street

The number of people in Australian prisons has increased 40 per cent over the past 10 years.  In South Australia the prison population has increased by nearly 75 per cent over the same period.

Certainly a great many of these people deserve to be in prison.  But almost half the people serving prison sentences in SA were convicted of nonviolent offences.

Jailing nonviolent offenders is a waste of taxpayer funds, and can create serious unintended consequences that make the community less safe.

This is why there are good reasons to support the Weatherill Government's recently passed sentencing reforms, which allow courts the power to permit some nonviolent offenders to serve their sentences in home detention.

Under these measures, people can serve their sentences at home with a combination of supervision and satellite monitoring if the court is satisfied that they pose a low risk to the community.

The main purposes of criminal justice are to protect the community from offenders, to deter others who might be considering offending, to aid offenders' rehabilitation, and to give victims and the public a sense of retribution.

The first of these is non-negotiable:  where the safety of the community cannot be assured, prison for offenders must be the result.  It is not only proper but necessary to imprison those individuals who have demonstrated a propensity for criminal violence or a habit of criminality.

But prison is terrible at rehabilitation.  If the success of rehabilitation is measured by the frequency with which prisoners reoffend upon release, then the recent data shows that imprisonment is neither particularly effective nor becoming more effective.  The nationwide proportion of prisoners who have been imprisoned before has stayed steady at about 60 per cent for a decade.

If imprisonment is failing to fulfil its deterrent and rehabilitation functions, is it sufficient to say that jail is necessitated by outraged public sentiment and that, to mean anything, criminal punishment must include a custodial sentence?

To answer this, consider the circumstances of offenders in home detention.  They lose much of their liberty, must sustain themselves despite likely having lost their employment, and accrue the lifelong stigma of a conviction.

In many cases, they will have had to pay large fines and make restitution to their victims.  And rather than being a drain on the budget, their fines contribute towards reducing the cost of criminal justice.

Every prisoner costs the taxpayer almost $100,000 per year.  And with SA's prisons already at capacity, increasing the size of the prison population further would require building a new prison.  Even if alternative punishment is only equally effective to prison in deterring crime, it would constitute a large saving to the public purse.

Indeed, the only people who really stand to gain materially from an ever-burgeoning prison population are the people who run and staff prisons.  Unsurprisingly the Public Service Association is opposed to these reforms.  But we shouldn't allow union self-interest to prevent the realisation of better outcomes.

The savings from reducing the prison population could be redirected to putting more police on the street, targeting the worst offenders and known centres of crime.

Studies show that criminals respond more to the chance that they will be caught than to harsher consequences for being caught.

Rack, pack and stack doesn't work.  With an appropriate emphasis on safety, there is good reason to believe that alternatives to prison for nonviolent offenders can be just as effective in achieving the ends of criminal justice.

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The minimum wage is holding prisoners back when they leave jail

Former prisoners have some of the worst health, economic and social outcomes of all Australians.

Sixty-five per cent of former prisoners are still without a job six months after release, and one in five lack stable housing, according to a 2014 study by Melbourne University researchers.  This is against a backdrop of low education levels, low proficiency in literacy and numeracy, patchy work histories, and relatively high drug and alcohol use.

These factors make it more difficult for former prisoners to re-integrate into society and avoid going back to jail — a problem clearly shown in the figures.

About 60 per cent of people in prison have been there before, with nearly half the prisoners released in 2012-13 returning to jail within two years, according to the Productivity Commission.

With the social, economic and financial stakes so high, you would think that all government policy would be pushing in the same direction to make it easier for former inmates to find work.

But there is one policy that actually renders many unemployable and locks them in a permanent underclass:  the minimum wage.

Minimum wages make it uneconomic for businesses to employ people with lower productivity, which is why the less educated and less skilled are hardest hit.  Indeed, the law already recognises this problem by allowing disabled people, apprentices and youth to be paid a portion of the full adult rate.

The same problem exists for former prisoners.  It's not just that businesses are reluctant to employ someone with a criminal record.  But criminals are also typically less productive than the average worker — many of the attributes that make them statistically more likely to commit crime also make them statistically less productive.  They tend to have poor work histories.  They tend to be worse educated than their peers.  A period in prison means they might have lost relevant skills.  Their higher drug and alcohol use and higher likelihood to be in unstable housing make matters even worse.

Put the minimum wage on top of this and it becomes virtually impossible for many former prisoners to find work — particularly those locked up for a long time and on numerous occasions.  And if someone can't find work they start to entertain alternatives, such as crime.  That's not an excuse — of course.  But it is part of the explanation for the worryingly high reoffending rates.

A 2013 study by two economists at Boston College, Andrew Beauchamp and Stacey Chan, found compelling evidence for a relationship between the minimum wage and crime.  Looking at evidence across the United States between 1997 and 2010, they found that one effect of an increased minimum wage was an increase in theft, drug sale and violent crime.  The effect was even stronger for people with low skills and prior criminal connections — exactly the sort of people who have been incarcerated.

Even for people who are employed, Beauchamp and Chan found an increase in criminal activity as they lost income due to reduced hours — precisely what economists believe occurs when a minimum wage is increased.

Far from supporting re-integration, the minimum wage exacerbates our crime problem by making it more difficult for former prisoners to get work.

Some people argue, to the contrary, that an increase in the minimum wage will reduce crime by making paid work more attractive.  But this gets the problem the wrong way around.  Yes, higher wages make working more attractive.  And yes we want people to earn more.  But the problem for former prisoners is obtaining a job.  By increasing the cost of employing former prisoners the minimum wage reduces the number of them employed, some of whom will look for alternatives such as crime.

Why should we care about this now?  One of the least discussed stories is the fact Australia's prison population is ballooning out.  There are 36,000 prisoners across the country.  At 196 prisoners per 100,000 adults, this is the highest since just after federation.  The imprisonment rate has increased nearly 20 per cent since 2012.

And prison is expensive.  Every single prisoner costs the taxpayer $100,000 per year.  Every prisoner is a loss of human potential.  It is in everyone's interest — the ex-prisoner, community and government — for someone who has served their sentence to engage in productive activities, such as employment, rather than ending up back in jail.

None of this excuses the crime.  The victims of crime are the victims, not the criminals.  Indeed, what a growing body of research highlights is that many criminals consciously choose to commit crime.  That's a decision they make as individuals.  No-one forces them to break the law.  And when they do, they should be punished, both for their offence and as a deterrent to others.

We need to be tough on crime.  But once criminals have served their sentences, we should allow them to work.

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People or profit: How does the Greens' corporation plan stack up?

The Greens want to establish a new class of corporation that focuses on social good as much as profit.  It's a nice idea, but perhaps not for the reasons the Greens might think.

It is turning out to be a very peculiar election.  Last week the Greens wholeheartedly embraced the notion of personal choice — and in the realm of corporate law no less.

The new Greens innovation policy, launched on Friday, is for the most part the standard set of spending boondoggles, new bureaucrats and empty jargon that constitutes deep thinking about innovation these days.

But buried in the policy document is a proposal to create a new class of corporation in the Corporations Act:  the "benefit corporation", which, as the Greens describe it, will "consider the collective good, generate public benefit and generate profit."

This is not a bad idea — but not for reasons the Greens might think.  With this policy, the Greens may have subverted a few decades' worth of left-wing agitation about corporate social responsibility, the idea that firms need social licenses to operate, the stakeholder model of capitalism, and the campaign for ethical divestment.

We'll come to all that in a moment.

The idea of a benefit corporation is simple.  The Greens argue Australian companies are too focused on profit.  The Corporations Act says company directors have a duty to act in the best interests of the company as a whole, which has long been interpreted to mean that they should act in the best interests of the shareholders who own the company.

In a benefit corporation, by contrast, directors are required to take other goals into account alongside profit — typically social and environmental goals.

Right now, directors' duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire.

Since 2010, some 31 American states have started to offer the benefit corporation with a standard model.  This is almost certainly the model the Greens are thinking about.  To ensure transparency — it's easy for shareholders to see when firms are maximising financial value, but not so easy to see when they are maximising social value — firms sign up to third party standards which measure their work against agreed criteria.

But the idea that company directors are narrowly interested in profit is a myth.  Yes, it is true that Milton Friedman once famously said that the sole social responsibility of business is to increase its profits.  But good luck finding an Australian company director that agrees with Friedman.  A 2006 survey of company directors found that nearly 95 per cent believed that they had a duty to take account of the interests of stakeholders other than shareholders.  An astonishing one in five did not consider shareholders to be among their top three priorities.

The simple fact is that, right now, directors' duties are vague enough to allow them to pursue virtually any sort of philanthropic, corporate social responsibility agenda they desire, just as long as it can loosely be justified as a public relations measure.  This is why we get firms jumping on board political campaigns like Recognise.

Directors are human.  It is unsurprising that they would like their friends and families to see them doing good as much as doing well.  But it's not their money they are playing with.

One basic problem facing any organisation is how to ensure that the people who run it do so in the interests of the people who own it.  The duty to maximise shareholder value is an institutional mechanism to try to get shareholder and management interests to align.

This is why the benefit corporation is such a powerful idea.  Not because corporations are only interested in profit, as many progressives claim, but because they're not only interested enough.

In effect, the Greens policy would offer for-profit companies a choice:  do they want narrow shareholder-focused, profit-first directors duties, or do they want to pursue broader social and environment goals?

Firms interested in the latter could convert to benefit corporations — to pursue ethical investment strategies, to donate to fashionable social and political causes, to talk about community and social licenses and the environment.

But those that remain would have a much clarified mission.  Promote shareholder value.  Ignore all the other stuff.

Shareholders too would have a choice — higher returns from profit maximising companies or potentially lower returns from benefit corporations.

This is, indeed, the basis of left-leaning critiques of the benefit corporation model, in that it strengthens the profit maximising goal among firms that do not convert.

Of course, to make the benefit corporation meaningful, the Greens should be advocating stronger shareholder rights to ensure that normal companies actually focus on increasing shareholder value.

For decades the corporate form has been a target of anti-capitalist sentiment.  Corporations have been depicted as "psychopaths" for pursuing profit on behalf of shareholders.

Basic liberal theory tells us if society disagrees on an issue we should create institutions that allow people to make choices for themselves, according to their own values.  How wonderful to see the Greens embrace that principle when it comes to corporate social responsibility.

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Federal election 2016: The folly of the NBN continues

No country has essentially renationalised their telecommunications network as Australia has.

The focus on the Australian Federal Police raids over National Broadband Network leaks misses the policy point of contention of Australia's broadband debate:  that the NBN was the worst conceived infrastructure project in federal history.

It is a truism that the private sector is much better at major project development than government.

Private firms are accountable to investors and a board.  Public companies are accountable to politicians.

With such a broad original mandate — rollout fibre to the premises everywhere, at virtually any cost — the NBN is effectively accountable to no one.  Is it any wonder we hear of blowouts in the billions of dollars?

In this light, Labor's original policy in 2007 — to tender out a fibre to the node network to the private sector — was a far superior policy.

Today, Labor claims it couldn't do so because the Australian Competition & Consumer Commission said it couldn't.

But the ACCC is a government body governed by commonwealth legislation.  The ACCC was hardly an insurmountable hurdle.

Nevertheless, Labor made the disastrous decision instead to have the government do the whole thing itself — and, following ACCC advice, go one further by rolling fibre all the way to the premises.

Anyway, it is not clear why the Labor government felt hemmed in by the ACCC's advice.  After all, the competition regulator had no experience as a telecommunications technology consultant.

As telecommunications analyst Ian Martin has reflected, "the ACCC knew, or should have known, that its advice in favour of FTTP was both wrong and inappropriate but gave it anyway in order to help bring about a preferred structural outcome for better or worse".

Martin wrote to the ACCC pointing out:  "This is a view widely held among those long-term value investors with a good knowledge of the sector."

Anyone who works in the communications sector in Australia will tell you that the minute the Labor government announced it was going it alone in building a nationalised broadband network, private sector investment in telecommunications ground to a halt.

In short, telecommunications investors blame the ACCC for creating disincentives to invest in telecommunications infrastructure.

Looking back with the hindsight of more than a decade of telecommunications politics, it is now clear that the ACCC — and the Howard government — should have granted a regulatory holiday to Telstra to build a fibre to the node network, and then required the new network to be open competition after a reasonable grace period.

Instead, Australian politics is stuck on a path where no alternative telecommunications industry can be conceived.  Either the government builds telecommunications networks, or no one does.

Telecommunications activists and even some Labor MPs will claim that, internationally, fibre to the premises is being built everywhere.

This is not true.

Most of Europe is connected via fibre to the node and pay-TV cables.  Taiwan effectively has abandoned its fibre to the premises network.

In the US, pay-TV cables are the technology of choice.

Last-mile copper networks are a critical part of the technology mix in the Asia-Pacific region.

Operators deploy a range of fibre to the node technologies.

Emerging technologies are blasting out lightning speeds over existing copper wire and pay-TV cables.

The claim that Australia's copper network is "second rate" is proving completely false.

Many activists latched on to the recent State of the Internet report by Akamai, the content delivery network and cloud services provider, to say that Australia's decline from 30th to 60th in global rankings for average peak internet speed was because of Malcolm Turnbull's approach to the NBN.

This is misleading.  Akamai's 2015 fourth-quarter data suggests there is basically no correlation between available peak speeds and average speeds.

Akamai shows Singapore ranked 16th globally for average speeds of 13.9 megabits per second — only 5.7 Mbps faster than the average broadband speed in Australia.

This is despite Singapore having one of the only full fibre to the premises networks and ranking No 1 for peak speeds with 135.7 Mbps.

That people are still using this report to argue Australia should spend billions more on a full fibre rollout is economic lunacy.

NBN Co's 2016 corporate plan suggests that reverting to an all-fibre approach would take six to eight years longer to roll out and cost $30 billion more.

In fact, 80 per cent of users connected to the gold-plated fibre to the premises network are signing up to plans of only 25 Mbps or less.

Australia's telecommunications policy is a regulatory, economic and political quagmire.

The sooner the government finishes rolling out — as cheaply as possible — the NBN, the sooner we can try to reform the industry to encourage investment and innovation again.

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The Coalition is joining Labor as a ''soak the rich'' party with super policy

The Coalition's 2013 election policy on superannuation makes for uncomfortable reading.

"We encourage as many Australians as possible to actively plan and save for their retirement, to take full advantage of the benefits the superannuation system provides and to work toward a self-funded retirement ... Labor's raids on superannuation have made it difficult for Australians to plan for their future.  Restoring stability and certainty to superannuation is a key part of the Coalition's plan to build a strong and prosperous economy ... The Coalition makes this pledge:  we will not make any unexpected detrimental changes to superannuation.  We will deliver greater stability and certainty on superannuation — we won't move the goalposts.  We will ensure that no more negative, unexpected changes occur in the superannuation system so that Australians planning for their retirement can do so with confidence."

Up until two weeks ago this was still the Coalition's policy.  And then at 7.30pm on May 3 as the Treasurer rose to his feet and delivered his budget speech, it became clear everything had changed.  Without warning or notice the Turnbull government announced a series of draconian and retrospective changes to superannuation policy that did much more than just break the Coalition's absolutely clear and unequivocal election promises.

What the government announced on budget night threw into turmoil the financial plans of potentially hundreds of thousands of Australians.  And when an individual's financial plans are thrown into turmoil so are their lives.  People had planned how they would pay for the healthcare of their elderly spouse, where they would live to be close to their children, and how they would afford the school fees for their grandchildren.

That's why the Coalition's superannuation changes have provoked such a response.  Lives have been turned upside down in an effort to raise taxes.  And what is so galling to so many people is that in 2013 the Coalition explicitly recognised just how important the security and stability of the superannuation system was.  This was precisely why, three years ago, the Coalition made such a big deal about "we won't move the goalposts".

SUIT YOURSELF CHANGES

Now, not unreasonably, people are asking what's the point of attempting to plan anything when government, regardless of who is in power, is just going to keep on changing the rules to suit themselves — it would all just be easier to take pension that's paid for by someone else.

For government ministers to claim that there's nothing for most of the public to worry about because only "1 per cent" or "4 per cent" of "rich" people are affected by these measures, reveals a disdain for anyone who has worked hard, made sacrifices, and become successful.

The language the government uses to justify its changes basically implies that anyone with more than $1.6 million in superannuation is somehow engaged in a rort or a tax dodge.  But what the Coalition doesn't acknowledge is that up until a fortnight ago it was deliberately encouraging to do exactly what people are now being blamed for.  In any case, anyone with $1.6 million in superannuation has most likely spent the majority of their working life paying nearly half of their income to the government in taxes.

Some of those most worried by what the government has done are not affected by these changes to superannuation.  Those not immediately targeted by the government in this budget don't know what's going to happen next.  Now that the Coalition has opened the door to blatant and retrospective changes to superannuation, there's the potential for a future Labor/Greens government to do what the Coalition is attempting — but only worse.

People are not stupid.  They know that if today the government is going after the "top 1 per cent", tomorrow government will go after the top "5 per cent" and so on and so on.

The debate about superannuation is starting to serve as a proxy for a large debate about the long-term future of Australia.

There's a concern that what's been done to superannuation represents a tipping point in our history.

There's a real fear of the consequences for Australia if the Coalition follows the lead of the ALP down the path of imposing ever-higher taxes on the ever-shrinking proportion of the population who don't work for the government and who don't receive welfare.  To put it bluntly, the Coalition risks becoming just another "soak the rich" party.

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The case for cutting company tax remains strong

The argument that dividend imputation or US tax treaties make a company tax cut pointless does not stack up.  A company tax cut will deliver significant gains to Australian business and workers, even in the presence of dividend imputation.

One of the bright spots in an otherwise lacklustre 2016-17 federal budget was the Turnbull government's plan to reduce Australian corporate income taxation rates.

The reform consists of a lower statutory tax rate of 25 per cent for all companies over 10 years, eventually replacing the existing progressive tax structure of 28.5 per cent for small business entities and 30 per cent for large corporates.

The budget papers say that the reasoning behind cutting company taxes is to "encourage investment, raise productivity, and over time raise real wages and living standards".

This claim is backed up by economic theory, not to mention empirical studies, highlighting the potentially immense gains associated with reducing the burden of a notoriously inefficient company tax regime.

The Coalition outlined its lower-tax path and even Labor in recent times, most notably through its shadow treasurer Chris Bowen, has endorsed the economic case for lower company taxes.

But there still are some holdouts who argue certain features of the Australian company tax mitigate the benefits of tax rate reductions.

The Australia Institute and Grattan Institute suggest dividend imputation arrangements, providing a tax credit to domestic shareholders for the company tax already paid on dividends paid to them, imply the benefits from tax cutting largely goes to foreigners.

From that standpoint, any reduction in our company tax, let alone a 10-year program to modestly shave the headline tax rate, is not worth the effort.

But modern Australia was undeniably built on foreign capital, and our continuing development will depend critically upon making this country a more attractive destination for overseas investors in the future.

"GIFT" CLAIM DUBIOUS

A recent Minerals Council paper by respected tax economist Jack Mintz suggests that cross-border investment decisions may be positively influenced by taxes, "with foreign direct investment flows growing as much as 2.5 per cent for each one-point reduction in the corporate income tax rate".

Since non-resident investors are unable to claim franking credits, a good way to attract their productive capital is to reduce the Australian corporate tax rate, alongside ensuring a stable, pro-growth economic environment underpinned by the rule of law and less red tape.

But the proposition mounted by the Australia Institute, that a company tax cut represents a massive funds transfer to the US Treasury by virtue of our lower tax rate, is questionable.

The 2010 Henry tax review indicated that for countries with worldwide income company tax regimes, such as the United States, "the ability to avoid or defer taxation can reduce the value of credits and may limit the extent of the 'treasury transfer' effect".

The institute's claim of an Australian "gift' to the IRS is undermined to the extent that tax avoidance on repatriated profits actually takes place, and in any case a lower Australian tax rate would encourage US firms to reinvest here.

As for domestic investors, the intent of the dividend imputation regime is to eliminate the double taxation of dividends and reduce corporate bias towards debt financing, both laudable goals in their own right.

"MOST INEFFICIENT" OF TAXES

But with the passage of time some economists have engaged in revisionist thinking, suggesting that the tax benefits of imputation may encourage Australians to invest greater funds in domestic firms than would otherwise be the case.

It might be claimed that reducing the company tax rate would reduce such funding allocation distortions faced by domestic investors, at least at the margins, though it isn't necessarily the case that Australian shareholders would miss out on benefits arising from a company tax cut.

Corporate taxation still distorts decision making and investment choices on the part of domestic firms and, indeed, modelling previously commissioned for the Australian Treasury has shown that company tax is the most inefficient of commonwealth taxes.

A company tax cut would be expected to encourage incumbent firms to seek additional value-added investment opportunities, potentially yielding greater earnings which are then distributed back to shareholders through higher dividends.

Reduced taxes also encourage new domestic business entrants to challenge the incumbents with better value propositions and deepen the domestic capital stock, and there is sufficient empirical evidence illustrating that lower corporate tax burdens bolster entrepreneurial activity.

The arguments for reducing Australia's company tax are compelling, and are a reform that should be pursued vigorously.

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Why the super debate is a Liberal flashpoint

The debate around superannuation changes and retrospectivity may seem technical nitpicking, but it goes to the scepticism many Liberal Party supporters have about compulsory super and opens up Labor attacks on fairness.

Casual observers might be confused why what appears to be a technical legal debate — what counts as retrospectivity for the purposes of superannuation policy — has been so emotive within Liberal circles over the last fortnight.

The answer is historical and philosophical.

For the last two years Labor has been beating the Coalition up on "fairness", arguing that its economic policy favours the rich.  The superannuation changes are intended to counter this attack, hitting the Coalition's own supporters in their retirement accounts.

But with the retrospectivity debate the Government just dropped itself into another fairness debacle.

Retrospective law changes the legal status of actions that were performed before the law was passed.  The issue here is that the new lifetime cap of $500,000 on after-tax concessional superannuation contributions is backdated to 2007.

That means there are Australians who have been planning their retirements on the basis of the law of the day and who have suddenly been informed that the law was, in retrospect, different, and that they were working towards a contributions cap that they never knew existed.

That retrospectivity feels unfair, in the sense that it is unjust to rewrite the past in a way that negatively affects the future.

(Retrospectivity is not inherently unfair or unjust.  No one could object to posthumous pardons of men convicted of homosexual offenses in the 20th century.  And no one should object to the post-war convictions of Nazi war criminals, even though, given they had not violated German law, their offenses had been retrospectively created and applied.  But people planning for retirement are neither of those.)

As much as Bill Shorten has tried to suggest otherwise, fairness is not just a question of how heavily the rich are taxed.  It encompasses the feeling that a citizenry acting in good faith will be reciprocated with good faith actions by the state.

Particularly since the Howard government, Australians have been told to put superannuation at the centre of their future planning — to contribute as much and as often as they can.  Making superannuation the central pillar of retirement income has been a deliberate policy and political position of government after government.

It is hard to exaggerate how much pushback the Coalition is getting from its own supporters on the unfairness of retrospectivity.

In part this is because retrospective law has a particularly sensitive history in the Liberal Party.  The Fraser government's 1982 legislative volley against the bottom-of-the-harbour tax minimisation schemes (where companies stripped all their assets just before their tax was liable) included a provision that required these companies to pay all the tax that would have been due between the years 1972 and 1980, when the bottom-of-the-harbour schemes were believed to be legally sound.

This created a firestorm among the business community.  The issue wasn't so much that the loophole was being closed.  It was that people who had made decisions under the law as it was were suddenly being told that they had actually been acting unlawfully.  It was, fundamentally, a fairness battle fought against the government's supporters.

In his autobiography, John Howard spends a big chunk of his account of his time as Malcolm Fraser's treasurer detailing the political havoc that the legislation created.  Fourteen Coalition members crossed the floor against the bill.  Howard told a radio interview in 2006 that he still carried a few scars from the debate.  As prime minister he regularly made hostility to retrospective law a basic liberal value.

Twenty-four years after it was introduced, compulsory superannuation is still a policy experiment vulnerable to tax grabs and policy change.  While this has been obvious from a theoretical perspective for a long time, the 2016 budget confirms the uncomfortable fact: superannuation is an unreliable store of our retirement money.

Retirement savings are unique in that they constitute fixed investments made with a time horizon of 40 or 50 years.  The Coalition Government seems determined to demonstrate that they can fiddle apparently unhindered and consequence-free with the tax treatment of this long-term asset.

Are we supposed to believe that this will be the last change to superannuation?  Under the Turnbull Government's new policy, the accumulation accounts that are supposed to hold super balances above the $1.6 million lifetime cap will be taxed at 15 per cent.  It is virtually certain that here will be a government soon that decides that 15 per cent is too low.  That it ought to be equivalent to the company tax rate (30 per cent) or the top marginal income rate (45 per cent).  Or decides that the money should be taxed when withdrawn at the equivalent marginal income rate.

If it was any other investment, of course, we would be free to move out of this now provably unreliable asset and put our money elsewhere.  But that is against the rules.

There are a lot of people — and many Liberal Party supporters — who are quietly sceptical about the whole idea of compulsory superannuation for this reason.  It is fundamentally unfair to prevent people by law from accessing until retirement money they have legitimately earned.

And as Labor knows, once people have it in their mind that a policy is unfair, that impression is hard to budge.

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Why public funding of the arts should always be temporary

Last Friday, the Australia Council announced what it called "a $112 million investment over four years to focus on small and medium sized arts companies".  Let's skip past the misleading polly-speak use of the word "investment" in that announcement (it's a grant, not an investment), and focus on the other clause "over four years".

The Australia Council's funding announcement contained some pleasant surprises for some organisations, and much disappointment for others.  One of the unfunded was Quadrant, a right-of-centre literary magazine, whose editor-in-chief lamented how unfair it was that the Australia Council continued to fund left-of-centre literary magazines.

But it's not the distribution of favours here that is the problem.  Rather, it is the unquestioned expectation of perpetual funding, whether from the right or the left irrespective of however worthy.

So it was good to see Arts minister Mitch Fifield emphasise, in a follow-up press release, not the case for the level of funding or the justice of the distributional consequences, but rather the temporary nature of Australia Council funding:

"It was always intended that slightly fewer companies would be funded at a higher level ... The Australia Council's funding contracts are for fixed terms, and are not in perpetuity.  Four year funding rounds provide new organisations the opportunity to apply for funding in a competitive environment, based on the Council's independent assessment.  A third of those receiving funding are new organisations."

Economic theory suggests that this is indeed the right way to frame this issue.

Government funding for arts organisations should always be viewed as temporary because there are significant costs and dangers that arise from an implicit contract to permanent funding.

Some government activities certainly should be permanent wards of the State.  National defence is a good example, and the Courts and Justice system is perhaps another.  And in a democracy with the power to tax and redistribute income, there may certainly arise a stable equilibrium about what that particular level of public funding for the arts should be (i.e. about AU$7 billion in Australia it seems).  But the idea that certain organisations should have perpetual access to that funding is anathema.

It is perfectly consistent to say that the Australian taxpayer should generously fund public arts and culture while at the same time arguing that no organisation should ever receive funding twice.  Why is that?

A central reason is the costs of capture.  Any organisation that is permanently publicly funded is much better integrated into government so that it can be effectively governed, brought under control, and subjected to voter scrutiny.  The exceptions to this rule mostly fall under the headings of national security.  The arts are not among them.

The offer of a permanent arms-length funding commitment veritably invites corruption.  Not the stashing-millions-in-a-Panama-account type of corruption, but the softer sort that happens as sinecures pile up on governing bodies, creating fiefdoms that entirely benefit the insiders who run them.  The benefit of temporary funding is that it minimises the window of capture.

This is not to say that temporary funding is inherently better than ongoing funding, but that governments are not the best source of ongoing funding.  Governments are much better suited to a temporary seed funding approach in order to get something started.  This can generate a public benefit without the expectation of a quid pro quo relation with the government of the day.

Ongoing patronage is much better suited to corporate or private funding, where building a close relationship is a good thing because it invites mutual monitoring and reduces transactions costs.  This is because both parties do indeed expect to benefit from the relationship.  A close relationship between a private organisation and a government patron, however, is inherently open to abuse and corruption because the relation is completely one-sided in terms of benefit.

Another reason is that turnover of funding creates competition that incentivises all parties to bring their best work forward.  Those in favour of permanent funding say it brings certainty to enable long term planning.  But in reality it has the opposite effect by removing all consequences for institutions that fail to engage in effective long term strategic planning for growth.

Permanent funding removes the hard incentive to develop new business models to grow the operation or organisation beyond the initial period.  It militates against long term thinking.

So how long is temporary?  This is the question we should be asking.  One or two years is too short to get anything started, and to get beyond initial experimentation.  Eight to ten years is probably too long, as it invites complacency.  Four years is probably about right, because it's long enough for things to be tried and for learning to take place, but short enough to concentrate the mind on ongoing viability from day one.

So I'd like to suggest an addition to the Minister's emphasis that Australia Council contracts not be imagined in perpetuity.  Why not consider a lifetime cap, such that for any organisation there is a maximum number of years beyond which it could never draw upon public funding.  A variation on this is a lock-out principle, where if you not only received but even applied for funding in one round you would be locked out of the next.

This sounds harsh, but the logic to this is the problem of asymmetric information.  Governments and funding bodies do not know (and cannot know) what the true capabilities and intentions of any arts organisation really are:  all they can know is what the organisation tells them.

The organisation's incentives are to express maximum need, and to promise only delightful outcomes when funded.  To get the incentives right, there has to be a cost to seeking public funding.

Adding further layers of paperwork and panels only causes organisations into invest more heavily in grants writing.  But a hard cap or lock-out, incentivises organisations only to put their very best work forward.

A better principle for government funding of arts and culture is that it should only be temporary.

The idea of celebrating that "one-third of those receiving funding are new organizations" means that we still have "two-thirds" of the way to go.

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The crunch keeps coming on Fairfax — but does the blame lie solely with management?

Last week a reported 20 to 30 Fairfax Media journalists were made involuntarily redundant.  While recognising in a dynamic economy that businesses will contract and expand all the time, we should never lose sight of the human cost of that process.  Getting sacked must a traumatic event for anyone — getting sacked through no fault of your own, doubly so.

The journalists at Fairfax blame current management, describing CEO Greg Hywood as being "overpaid and underperforming".

And the latest Australian Bureau of Circulations (ABC) Paid Media Audit Data can be cited in support of the notion that Fairfax management are to blame.

Year-on-year quarterly circulation figures for the January to March 2016 period show print numbers for the Monday to Friday editions of the Sydney Morning Herald fell by 8.7%, while The Age fell 7.9%.

Certainly, declining print circulations are a feature of the continuing disruption of traditional publishers, not just for Fairfax.  The Monday to Friday editions of the major NewsCorp tabloids the Daily Telegraph and Herald Sun also fell by 5.3% and 3.10% respectively.

Sales of the two national dailies fell too — but the Australian Financial Review's sobering fall of 10.5% (even factoring in that the January period is a quiet time for business and it didn't publish for some of this period) dwarfed that of The Australian, which declined by 2.1%.

The picture for Fairfax isn't any better if we look at digital sales.  The Sydney Morning Herald showed flat growth of 0.9%, while The Age declined by 3.4%.

This contrasts to significant increases in digital sales for the Rupert Murdoch-owned NewsCorp competitors, The Australian and Herald Sun — albeit these were from a much lower base.

These numbers, however, don't speak for themselves.  It appears that Fairfax newspapers are under-performing their competitors, but we really want to understand why that is so.

In addition to the global disruption the print media industry is experiencing, there are local factors at work too.  There is no shortage of "centre-left" (or small "l" liberal) news and opinion in Australia.  So the market position occupied by The Age and SMH is highly contested space.

The ABC, the Guardian, and (dare I say) The Conversation, for example — there are others, are all direct competitors in that space (and it's important to make the distinction that none of these have commercial paywalls).  Each of those media outlets haven't just taken Fairfax consumers, they very often employ former Fairfax staff too.

More importantly Fairfax's print media competitors all have patrons with deepish pockets willing to underwrite media losses.  Fairfax has failed to attract (or keep) such a patron.

So there are at least three sets of factors that can explain the relative decline of Fairfax's newspapers.  Global disruption — something that is impacting all media — local industry conditions, and poor management.  As indicated above, the data suggest poor management — yet I'm not entirely convinced.

It isn't clear that the current Fairfax management are to blame for their predicament.  In 2014, former Fairfax CEO Brian McCarthy blamed the decline of the Fairfax papers on the Board of Directors.

But the other point to bear in mind is that while Fairfax has adopted a "digital first" strategy which has underpinned the latest orgnaisational changes and redundancies, its newspapers are still considered by many readers as Fairfax's public face.  In recent years readers have seen the broadsheet papers become tabloid size papers, the departure of many and often much-loved journalists and as the printing arrangements modified.  They have seen grammatical and spelling errors increase as sub-editing functions are sub-contracted out.

Even while Fairfax journalists can point to a number of large and important news stories it has broken in the last 12 months, there is a perception of a decline in quality standards and quality control overall.

Clearly cost-cutting has not always allowed Fairfax management to deliver the outcomes they had hoped for, or expected.  Talk that print versions of The Age and Sydney Morning Herald will be discontinued (on weekdays) has intensified.  But overall, Fairfax has returned to profitability and corporate debt has been reduced.  To be sure the glory days of a share price above $4 many not return anytime soon, but the company may well survive — just not (some of) the newspapers.

With the disruption in the media market it is difficult to know what more Fairfax management could have done to keep the newspapers going.  Nobody can deny that costs were cut — it has been brutal.  At the same time nobody can deny that many readers are unhappy with the product they now get.  It could well be that given industry conditions Fairfax cannot deliver the papers that their readership expect.  Yet the Australian Financial Review (albeit with a smaller, specialist business audience) remains a good quality paper, and the Fairfax radio stations remain popular.

As an outside observer it is difficult to untangle the net effects of poor industry conditions, global disruption, and poor management.  While employees are blaming management, they too are not well-suited to making those distinctions.  This brings us back to the patronage model.

One of the benefits of having a large shareholder on the register is that they get to perform a monitoring role.  What Harold Demsetz and Kenneth Lehn call "control potential".  Large shareholders are in a position to closely examine the market conditions a firm face and the management responses to those conditions and form well-informed opinions as the causes of good or bad performance.  Demsetz and Lehn also speak about patronage (they refer to this phenomenon as "amenity potential") in the media industry.

If anything the biggest failure of Fairfax's current management is in attracting a major large shareholder.  Some years ago Gina Rinehart almost took on that role but, rightly or wrongly, she was an unacceptable choice to the Fairfax staff.

It will be sad to see the end of venerable mastheads such as The Age and Sydney Morning Herald.  In their heyday they were fine newspapers — changing economic conditions may well explain more of their decline than does poor management.

In that sense, of course, print media (with its large workforce) may become like so many other obsolete industries — we're sad to see them go and experience some nostalgia, but no matter how good or bad the management, the business model could not survive change.

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Free Speech On Campus Audit 2016

Freedom of speech is under serious threat at Australian universities.

The Free Speech on Campus Audit 2016 is a systematic review of intellectual freedom on Australian campuses using a methodology adapted from American and British assessments of university free speech.  Each Australian university has been assigned a red, amber, or green speech ranking, based upon their policies and past actions.

Thirty-three (79 per cent) of Australian universities have received a red ranking; eight (19 per cent) have received an amber ranking;  and just one (2 per cent) have received a green ranking.

This audit is a first-of-its-kind review of the state of debate at Australian universities.  It assess both formal university policies that restrict speech, and previous university administration and student actions that have suffocated the diversity of ideas on campus.

The ghosts of deficits past, present and future haunt this election

The budget deficit will be the unspoken theme of the election campaign — always there, never really acknowledged.  After all, both parties have wrestled with it recently and neither is confident it has a solution.

Is it impolite, at the very start of the election campaign, to talk about the budget deficit?  Impolitic?  It's certainly unfashionable.

Budget night was so long ago.  Neither Labor nor the Coalition want to bring up this old chestnut.  You can understand why.  Each have in turn declared their intention to return the budget to surplus and each have failed, at great political cost.

Yet we must talk about the budget deficit.  Steel yourself.  It would show great disrespect to the treasurers of our ancestors if we were not to briefly acknowledge the land on which they fought and died, at least before the election carnival marches forward.  Anyway, the deficit will be the unspoken theme of the whole campaign — always there, never really acknowledged.

Treasurer Scott Morrison declared in the budget speech that the Government was on a "sustainable path" to surplus.  This language has become such a cliché that it's easy to miss how sad it is.

Last Tuesday's budget declared that the deficit would be just 0.3 per cent of GDP by 2019-2020 — the last year of the forward estimates.  Morrison's predecessor Joe Hockey declared in May 2015 that the deficit would be almost exactly the same (0.4 per cent of GDP) a year earlier, by 2018-19.  And in the 2014 budget Hockey argued we'd hit 0.2 per cent of GDP by 2017-18.

The clear reason for this sustained failure to return to surplus is Treasury's long-standing belief that economic growth will — very, very, very soon — jump above 2 per cent per year.  They've been predicting this growth leap for half a decade now.  No doubt Wayne Swan was very impressed when he first saw growth forecasts with a three in front of them in Treasury's 2010 outlook.  But Morrison's heart must have dropped when he saw the same numbers again — still just a few years away.

Yes, the budget has to have forecasts.  And treasurers can only accept what Treasury's models tell them.  But waiting for a growth spurt that never seems to come is hardly a comforting economic plan.

I'll admit to some schadenfreude.  The deficit has been a major political issue for nearly a decade.  Every commentator has refined their arguments on the topic over and over and over.  Here's the hissy fit I had on the eve of the 2013 election, when Hockey changed his promise of a surplus to a promise to be "on track" for a surplus.

But in the latter half of the Labor government it was commonplace to hear that there was no need to rush back to surplus.  Take this Australian Financial Review piece, or here in The Drum.

Many analysts and interest groups warned that the economy either could not handle the necessary budget cuts, or that the surplus was an irrational obsession cultivated by Peter Costello fan fiction.  The budget would balance itself in good time.  No need to stress about it.

The argument for a single-minded return to surplus was never that the small deficit — yes, our deficit is relatively small as a percentage of GDP compared to many other rich economies — was causing immediate and direct harm to the economy.  It was that unless there was pressure on the government to balance the books the government would never feel the need to do so.

And a long-term budget deficit is harmful.  Market economies are cyclical.  It might not feel that way — growth is sad and sluggish — but it is very possible that these are the good times.  When we face the next downturn the budget balance will plunge.  It will plunge even deeper if the government of the day decides to stimulate the economy, believing Kevin Rudd's program to have been a success.

A small deficit always threatens to be a large deficit.  And a large deficit is costly, harms macroeconomic stability, and undermines economic confidence.  It might not be much fun to cut spending during the good times, but, as Greece has shown, it's far worse to be forced to cut spending during the bad times.

No doubt we are tired of talking about debt and deficits.  Neither party will make it an issue during the campaign as neither party is confident it has a solution.  Where tax increases are proposed — such as the tobacco excise hike — they are proposed in order to fund new promises, not pay back old ones.

And spending cuts?  Not a chance.  It appears that the government has locked in a permanently higher spending plateau.  This year it is estimated the government will spend 25.8 per cent of GDP, just a fraction off the 26 per cent of GDP that Rudd spent on his extraordinary stimulus package.  Under the Howard government this figure hovered around 23 and 25 per cent.

Elections are always full of spending promises — gifts of road upgrades and sports fields dropped into struggling marginal electorates.  If the budget feels long ago now wait until we've had two months of pork barrelling.  Neither party will want to spoil the fun by talking about their embarrassing deficit.  But it will be there, uncomfortably shadowing every minute of the campaign.

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Why Scott Morrison's budget super changes are retrospective

In September last year Treasurer Scott Morrison promised:  "What we want to make sure of with superannuation is that we need to respect the fact that people have been saving under particular rules over a long period of time, that there is nothing that punishes or penalises them retrospectively on any of these things."

On budget night the government announced more than a dozen changes to superannuation law.  Some of them are retrospective.

In the process it threw the financial planning of hundreds of thousands of Australians into turmoil.

While the Treasurer claimed that only four per cent of superannuation holders would be impacted by his changes, in fact a much higher percentage of Australians will be affected in future years as people's retirement savings grow.

Indirectly everyone with superannuation is affected, because the government has made the country's superannuation regime unstable and uncertain.

IT'S UNFAIR

Two changes to superannuation announced in the budget are particularly significant.  They are the introduction of a lifetime cap of $500,000 on post-tax contributions, and the introduction of a $1.6 million cap that can be put into a retirement savings account.

Both changes are clearly retrospective.  The evil of retrospective law is that it's unfair.  People can't go back in time to change the decisions they made.

As John Daley of the Grattan Institute explained after the budget, "'Retrospectivity', a legal concept, applies if government changes the legal consequences of things that happened in the past."

Daley is correct.  The retrospectivity of the government's superannuation changes is quite easily demonstrated, taking the $500,000 lifetime post-tax contributions cap as an example.

The government has said that any amount contributed to the cap between July 1, 2007, and budget night will count towards the cap.  At the most simple and basic level, a law that imposes a cap and counts contributions made before the law was announced is retrospective, because it affects an action made before the law was announced.

Or put another way, before budget night a post-tax contribution made between July 1, 2007, and last Tuesday did not count towards a lifetime cap.  After the budget the cap did count towards a lifetime cap.  The tax treatment of the contribution has clearly been changed.

The introduction of a transfer cap on retirement accounts is similarly retrospective.

Those who argue these changes are not retrospective use two main arguments.

The first claim is that in the case of the post-tax contributions cap, any contributions made over the cap will not be subject to a financial penalty imposed by the government and therefore it's not retrospective.

FINANCIAL PENALTY

This argument is beside the point, because regardless of whether a financial penalty is imposed, the character of the contribution has been changed.  In any case the superannuation holder has suffered a detriment because where once the contribution did not count towards the lifetime cap, after Tuesday night it did.

If the government had announced on Tuesday night that it was introducing a lifetime cap and that contributions made from that day onwards would count towards the cap then the law would have been a prospective law.  But counting contributions made before the announcement makes the law retrospective.

The second argument in support of the claim that the changes are not retrospective is one that John Daley and others have made which can be summarised as "the government makes these sorts of changes all the time".

As Daley wrote — "The objection is that these changes retrospectively affect superannuation investments made in the past.  But lots of changes affect investments made in the past, and no-one suggests they are retrospective."

The number of times the government changes a law doesn't determine whether those changes are retrospective.

The government should admit that its superannuation changes are retrospective, and that it's doing it because it needs the money.

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Internships Are Not Exploitation, They're An Opportunity

The government's new internship program, which, combined with skills training, replaces work for the dole, has been heavily criticised in recent days.

The hyperbolic detractors have gone as far to label the scheme exploitive "slave labour", despite job seekers still receiving Newstart and an additional $200 a fortnight.

Internships are not coercion or exploitation.  It is a voluntary, mutually beneficial activity where one party recognises that, due to inexperience, their labour is not yet particularly valuable.  And the other party, considering the costs and benefits behind training a low-skilled employee, cannot yet afford to pay them a full wage.

Ideally, internships would not require government subsidy.  Nevertheless, giving young people, especially those who are already unemployed, workplace experience is a good policy.  This is intrinsically linked to Australia's high minimum wage, at $17.29 per hour, compared to the effective full-time wage on Newstart, $6.93 per hour.  The minimum wage is fantastic for those who are employed, however if someone's labour produces less value, let's say $16.50 per hour, and a business is required to pay them more, they will simply not get hired.

The difference between the minimum wage and Newstart creates a big gap where people with low skills are prohibited from earning more.  This leaves them stuck, unemployed, with a lower standard of living.  Internships help address this problem by supporting practical understanding and skills development that increases the value of their labour.

Internships give young people a better understanding of the workplace, as well as the opportunity to complete real work tasks, and learn directly from those who could be their future colleagues.  It is only through this experience that they can get well-paid jobs.  This is why internships have provided countless Australians their first start.

Five years ago, I undertook workplace experience at the organisation where I now work.  My labour, at the time, was not worth a full salary.  Instead, I was given an exceptional opportunity to learn about public policy that substantially helped my personal development.  This experience is directly linked to my current employability.

Despite the Greens complaints about the government's internships policy, their own treasury spokesperson, Adam Bandt, operates an extensive unpaid internship program.  According to his call for applications, interns undertake constituent work, research, outreach, community campaigns, as well as support Bandt's election campaign.  For an aspiring public servant or political advisor of the Greens persuasion this is an unparalleled opportunity.

Internships like these are vital in our competitive labour market where young people, who inherently have less experience, are the ones missing out on jobs.  Australia's youth unemployment rate is 12.7 percent, more than double the overall unemployment rate of 5.8 percent.

A survey by Bloomberg Businessweek found that of students who completed an internship, 61 percent had a job, compared to 28 percent of students without an internship.  Meanwhile, a study by researchers at the University of Wisconsin found internships are associated with a 14 percent increase in interviews for job seekers.  In fact, an internship is a better predictor of a call-back for a job interview than a business degree.

This is because internships address the gap between education and the workplace.  While schools and universities can impart generalist knowledge, it is impossible to simulate the reality of the workplace.  Work experience is in itself a key determiner of one's employability.

An internship is also far less costly compared to other paths to find a job.  It takes years and tens of thousands of dollars to complete higher education and other training courses.  Often an internship can be a much quicker and more effective way to get one's foot in the door.

We should be encouraging young people to complete internships and be sympathetic to businesses who take on inexperienced people in their workplaces.

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This tax-raising budget kicks the fiscal can down the road

On budget night you could hear the sound coming from Parliament House.  It was the sound of a can being kicked down the road.  And by all accounts most Australians are happy to keep kicking the can down the road.

A budget that increases government taxing and spending, does nothing about the deficit, and enshrines a permanently bigger role for government in the economy has almost universally been described in terms such as "modest", "cautious", and "prudent".  Maybe Greece's budgets were also once called "modest".

This supposedly "cautious" budget is built on Treasurer Scott Morrison's hope that in three years' time government spending will be 25.2 per cent of GDP.  That means that, at best, government will be nearly 10 per cent bigger in 2020 than it was under John Howard.  That's hardly the triumph of "neo-liberal economics".

What Tuesday's budget actually demonstrates is just how far the political pendulum has swung to the left.  And it shows what happens when nearly half of the electorate gets its income from the government — either directly as public servants, or indirectly through welfare.  The figure would be even larger if the number of people employed in the private sector but who received more in welfare than they pay in taxes were included.

The legacy of the Rudd/Gillard/Rudd years on our political culture can be seen in the way the Coalition government is now in a battle with the Labor Party over who can levy the highest taxes on rich people and multinational corporations.

In its eagerness to raise taxes on the rich it seems the Coalition is even willing to tolerate doing away with one of the fundamental principles of the rule of law — that legislation should regulate what people do in the future, not retrospectively punish or tax them for things they were allowed to do in the past.

The new lifetime cap for after-tax superannuation contributions will take into account all contributions made on or after 1 July 2007.  That's retrospective law — pure and simple.  It's no different from the Treasurer saying on Tuesday night that he's decided to raise the level of income tax payable on any income earned in the 2008 financial year and he's going to ask the Australian Taxation Office to start collecting that additional tax next week.

When the Treasurer justified his increase in superannuation taxes by saying it would "only" hit 4 per cent of superannuation account holders he came perilously close to replacing political principle with a narrow utilitarianism.  A policy should be judged to be good or bad on its merits, not according to the percentage of the population affected by it.

The shift of the pendulum to the left is not only seen in regards to the budget.  A few weeks ago the industrial relations minister Michaelia Cash famously said the Coalition would not "swing the pendulum to the right" on industrial relations.

Leaving aside the question of whether any Liberal MP should ever simply dismiss policies giving individuals more choice and more freedom as merely being of the "right", there's the substantive issue of the quality of the policies that the minister says she only wants to incrementally change.

The minister is ignoring just how far left the pendulum has shifted.

The industrial relations system is now more slanted against employers and individuals who want to make their choices about their own employment than at any time since the 1980s.  Yet it seems a Liberal minister for industrial relations is happy to accept the status quo.  Just as a Liberal Treasurer is willing to accept Australia's budgetary status quo.

As Tony Abbott discovered with his first budget in 2014, it is now almost possible to take away any benefit from any voter relying on a salary or a welfare payment from the government.  The new politics of budgets, at least as far as the Coalition is concerned, is to increase taxes on people who the Coalition believes are going to vote for the Coalition anyway, and then give that money to voters who'll support whichever party promises them the biggest handouts.  For sheer electoral logic it's hard to fault the Coalition's tactics.

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Identity politics is the enemy of equality

There is a growing obsession with victim politics on campus.  It seems that certain groups are protected and everyone else is ignored or punished.

Take the recent events at one of Australia's top universities.  Outrage spread across the University of Melbourne campus following the discovery of anti-Islam graffiti.  The chalked slogans, which were swiftly removed, stated "Islam is not a race", "Stop the mosques" and "Trump for president".

The response was swift and furious.  The vice-chancellor published a statement on Facebook within hours, asserting that the distressing and hurtful slogans "run counter to the vision of a safe, inclusive, connected and respectful university community".

The University of Melbourne Students' Union chimed in, denouncing the "hate speech and discrimination" evident in the graffiti.  The union proceeded to organise a "Chalk for Diversity" morning, providing a free breakfast to students who wrote positive messages around campus.

But furious reaction to the graffiti was in stark contrast to way in which students and the university administration responded to another case of bigotry, just weeks earlier.

Hundreds of anti-Semitic flyers were distributed at the University of Melbourne during the first week of this academic year.  The flyers, which were anonymously placed on car windscreens, stated that the Holocaust was "the greatest swindle of all time" and that Holocaust Studies is "replete with nonsense, if not sheer fraud".

In this case, the vice-chancellor did not take to Facebook to condemn them.  In fact, the formal response to this disgraceful act was near silence.  Neither the university nor the students' union have condemned the flyers, and no events were organised to educate students about the Holocaust.

This isn't just the case in Australia.  At its recent annual conference, the UK National Union of Students (NUS) debated whether it should stop commemorating Holocaust Memorial Day.  Unlike Muslims, women and gays, it seems Jewish students are not a chosen victim group.

In the name of justice and equality, certain identities are now given preferential treatment over others.  Students' union officials will often openly state that a white, male heterosexual has different political interests than a black, female homosexual, and so should be treated differently.

This is a tragedy.  Identity politics diminishes both individuality and autonomy.  You are defined by your category, speak for your group, and are responsible for the actions of others who share your identity.

And where a victim identity entitles you to special treatment, a privileged identity permits you to be punished.  The recent bake sale organised by the University of Queensland Union illustrates this new mentality.

The union charged different amounts for cupcakes based on a student's identity.  If you were a white male, you had to pay a dollar.  If you were a black woman in the legal profession, it cost just 55 cents.  Rather than uphold equality, students were intentionally treated differently based on their supposed privilege, or lack thereof.

Such actions damage intellectual freedom on university campuses.  Rather than consider views and ideas on their own merits, the identity of the person proposing them is now the first and foremost consideration in assessing their worth.

If a white male expresses a disagreeable opinion, they are instructed to "check their privilege" before continuing.  This argumentative technique presupposes whether or not a perspective is valid, purely based on who is expressing it.

Some people have also been forbidden from speaking altogether.  At the Australian National Union of Students' conference, men cannot speak during debates about women's policy, nor can white people speak about ethno-cultural issues.  Your identity is considered enough to silence your viewpoint.

Every individual should be judged according to their actions and the content of their character, not assessed collectively based on factors they cannot control.  In the long run, treating everyone equally is the best guarantee against discrimination.  But, in today's student politics, equality is out of fashion.

Rejecting a Chinese bid for land is in "the national interest"? Show me how

If it wasn't clear that "the national interest" was a pretty hazy criterion on which to deny foreign investment approvals, then Scott Morrison confirmed it last Friday.

The first time the Government rejected a Chinese bid for the S Kidman & Co. estate — Australia's largest private landholding — it was because part of the property, Anna Creek, was next to a sensitive defence site.

In fact, some of Anna Creek is in the least important green zone of the Woomera Prohibited Area, which is infrequently used by the Woomera Rocket Testing Range.  Nevertheless, the Foreign Investment Review Board was skittish about a Chinese company owning property nearby, so the deal was scuttled in November 2015.

The Kidman deal was then restructured to exclude Anna Creek.  Last week, Morrison announced that this wasn't enough — the property is just too large to be sold to a Chinese firm.  Kidman and Dakang Australia Holdings have until Tuesday to come to another arrangement, otherwise Morrison's "preliminary decision" to prevent the sale will become a permanent decision.

It's easy to present the Kidman sale as a big deal.  It is, indeed, an enormous collection of properties, spread across Western Australia, South Australia, the Northern Territory and Queensland.  It was put together in the 1890s by Sidney Kidman, to whom the words "baron" and "legendary" are usually affixed.

But the land is in fact some of Australia's least productive.  We're talking about desert.  The Kidman holdings are enormous because they have to be — to run cattle across such stark landscape you need space.

As David Uren pointed out in The Australian over the weekend, S. Kidman & Co wouldn't even rank in a list of Australia's largest 2000 companies.  It has nowhere near the largest number of head of cattle of Australian companies.  Geographic size isn't everything.

Still, you might object, size does matter.  But how?  Why?  Morrison's press release announcing his preliminary decision is completely empty on this point.  It states simply that the sale of a property of Kidman's size is not in the national interest.

How so?  Is it because, as Morrison points out, there are some Australian companies that are interested in the property?  This assumes what needs to be shown — that large scale foreign investment is against the national interest, but domestic investment would not be.

Usually governments feel the need to offer arguments in defence of their position.  Morrison's press release offers no justification — just "the national interest", an empty signifier with no qualification or clarification.

If Kidman is sold, the land would remain in Australia, obviously.  The property's new foreign owners would be able to do no more or less with it than any Australian owners would.

Some have claimed that the sale might result in the loss of Australian jobs, if the new owners brought in Chinese workers.  But any Australian purchaser could do the same.  The thing that is stopping them is our strict immigration system, and the heavy regulatory constraints around the 457 skilled worker visa program.

Simply put, land owned by foreign investors continues to be governed by Australian law.  It is private land so it can be used for private purposes, within those legal constraints.  To be afraid of foreign ownership of land is to be afraid of private ownership of land.  And to punish it.

Two things are going to happen if Morrison fails to approve the sale of Kidman.  First, Kidman's owners are going to get less money for their property than otherwise.  Less money is less investment in Australia — with its superior bid, we can assume that Dakang believes it can run a more efficient and profitable enterprise than any other bidder.  Australia is still desperate for capital investment, particularly in the vast interior.  Investment brings jobs.  Investment brings growth.  Blocking investment harms both.

Second, any failure to approve seriously damages Australia's reputation for stable and reliable investment, and the marketability of other properties that might be sold in the future.  Hence the concern from farming groups — WAFarmers and the Northern Territory Cattlemen's Association, for instance.  All this populist handwringing about foreign investment in agriculture actually harms the real farmers who want to maximise investment and sale prices.

We have a clear national interest in attracting investment;  a clear national interest in promoting investment certainty;  a clear national interest in developing the interior;  a clear national interest forging tighter economic links with China;  and a clear national interest in allowing Australian property holders to get the best deal for their property.

All of these things encourage economic development and growth, with flow-on effects that enhance our living standards.  The Coalition understood this, when, after the 2013 election, they declared that Australia was open for business.  How are potential investors in Australia supposed to see that promise now?

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