For good measure In their paper, Agriculture and Emissions Trading: The impossible dream, Hugh Saddler and Helen King discuss the reasons why agriculture will not fit comfortably into an emissions trading scheme. The discussion paper by Dr Hugh source (say, methane from the Saddler and Helen King entitled digestive systems of animals). But Agriculture and Emissions Trading: the measuring methane from animals is impossible dream? was released by The an imprecise science, to say the least. Australia Institute in late October and Including estimated emissions in an generated a great deal of interest from ETS would not provide the level of many different groups of stakeholders, certainty necessary for market both in Australia and overseas. The credibility and would fail to send the feedback only served to highlight the right price signals. No. 57 December 2008 disparate views about imposing emissions trading on to the agriculture 2. The nature of agricultural For good measure sector. emissions themselves makes it difficult Hugh Saddler and Helen King for farmers to establish practical Reclaiming your time from the The thrust of the paper refutes the abatement systems. The three main telemarketers suitability of including agriculture in gases produced from agricultural Josh Fear an emissions trading scheme (ETS) or, enterprises are carbon dioxide, as it will be called in Australia, the methane from the digestion systems Comments on intrusive Carbon Pollution Reduction Scheme of livestock and nitrous oxide from marketing (CPRS). There are several reasons for chemical processes and microbial Spare parts this. activity in agricultural soils. They are Hilary Bambrick generated, to a large extent, by natural phenomena totally outside Truth in advertising The amount of management control. The amount of Leigh Thomas agricultural agricultural emissions depends on a Making super work for all emissions depends on number of factors, many of them not Australians anthropogenic (human-induced) in Josh Fear a number of factors, nature. Under these circumstances, many of them not including agricultural emissions in an Accelerating renewable energy human-induced. ETS is effectively a tax on production, David Richardson because farmers will find it difficult New top tax rate to lower their carbon emissions as a Richard Denniss 1. It is very difficult to measure result of price signals due to the fact agricultural emissions with any that the options open to them for Great ideas for Christmas reasonable degree of accuracy or cost- doing so are limited. Militarism or health services effectiveness. Yet, in order for an ETS John Langmore to be robust and credible, 3. In order to reduce the measurement of the emissions traded administrative burden of the CPRS, The floor in the ETS needs to be accurate and cheap in the Government has elected to Richard Denniss order to provide a level of comfort include only those polluters emitting Channel Nine’s artifical campaign for those operating in the market. more than 25 kt CO -e per year. The 2 Josh Fear Emissions need to be fungible, that is agriculture sector is made up of commercially interchangeable, so that 130,000 predominantly small Institute notes a tonne of carbon from one source businesses, which collectively emit 16 (say coal-fired power) can be traded per cent of total Australian emissions, for a tonne of carbon from a different Continued on Page 13 THE AUSTRALIA INSTITUTE
Reclaiming your time from the telemar keters Everybody has a story to tell about telemarketing. Sales calls at dinner time, often from overseas and sometimes using a recorded message, are infuriating. Josh Fear examines a modern scourge.
Telemarketing is one form of ‘direct Telemarketing is the target of a great take every opportunity to marketing’, along with junk mail, spam deal of public criticism. More than one ‘unsubscribe’ from mailing or emailing and face-to-face marketing. Direct billion telemarketing calls are made lists. marketing differs from ‘traditional’ in Australia each year, and advertising in making a much stronger telemarketing was identified as the claim on our attention. We can switch most annoying ‘event or situation’ in Direct marketers off the television or the radio if we a recent study by the Australian spend around $12 find an advertisement too annoying, Psychological Society. but it is virtually impossible to avoid billion per year in intrusive marketing altogether. Responding to community concerns, Australia. in May 2007 the Australian Government established a Do Not Telemarketing was Call (DNC) Register to enable We asked some members of The recently identified as members of the community to opt Australia Institute to describe their out of unsolicited phone calls. experiences with direct marketing. the most annoying However, under the new system some Their comments (some of which are event or situation by organisations (including charities, reproduced on Page 3) confirm that the Australian political parties and companies with there is a great deal of negative feeling Psychological Society. ‘inferred consent’) can continue to in the community about direct make such calls. marketing. This resentment stems from the invasion of personal space The direct marketing industry in In fact, Australia’s response to (including that most personal of Australia is big business, spending telemarketing is more relaxed than spaces—our homes), the use of around $12 billion per year—or more India’s, where exceptions to its Do personal details without permission, than one per cent of GDP. According Not Call regulations apply only to the waste of precious time, and the to the Commercial Economic messages ‘relating to charities, sheer absurdity and futility of much Advisory Service of Australia, in 2005 national campaigns or natural direct marketing. 695,430 people worked in direct calamities transmitted on the marketing, including 229,000 in directions of the Government’, and Member comments also revealed telemarketing, 184,000 in catalogues messages ‘in the interest of the frustration about other forms of direct and 217,000 as ‘stuffers’ (that is, sovereignty and integrity of India, the marketing. Residential letterboxes envelope stuffers). If these figures are security of the State, friendly relations continue to receive massive amounts correct, there are more people with foreign States, public order, of junk mail, even where a ‘No Junk working in direct marketing than decency or morality’. Mail’ sign is displayed, and real estate there are school teachers, nurses and agents are identified as common doctors combined. A distinctive feature of telemarketing culprits. In addition, the increasing in the US is the use of prisoners to use of face-to-face marketing conduct telemarketing work. One techniques in public spaces, shopping telemarketing manager said he hired centres and other busy areas is prisoners because ‘I need people who changing the way that we perceive are there every day’, although the real and interact with other people outside reason seems to be that prison labour of home and work. is cheap. Telemarketing earns inmates less than $2 a day in the US. As well as talking to members about their experiences with direct Some people will go to great lengths marketing, we conducted an online to avoid being ‘marketed’. They buy survey of 1,000 Australians to explore answering machines or caller ID community attitudes to telemarketing devices, disconnect their phone and to measure the impact of the altogether, display ‘No Junk Mail’ signs, DNC Register since its introduction. send junk mail back to its source, and cross the road when a marketer is in The findings show that Australians, their path. Millions of people have on average, receive 8.5 unsolicited joined the DNC Register, and many telemarketing calls per month, and the
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Intrusive marketing The Australia Institute conducted a survey of some of its members on the subject of telemarketing and junk mail to assist its research. Here are a selection of comments that were made during that survey.
There are people who enjoy having telemarketers call because they’re lonely. I’m not one of those.
I am a bit ashamed to say but whenever there is a lengthy delay after the phone rings and I pick up and a sub-continental voice comes on, I hang up immediately. I feel guilty about this because sub-continental call centres are relatively good jobs in these areas and they are just trying to make a living.
One of the main reasons I gave up my landline was the intrusion of telemarketing. This strategy worked well and in the end saved me a lot of headaches and money. ... I hate telemarketing with a vengeance.
Once I got so angry with repeated calls in one day that I slammed down the phone and broke it. This obviously fixed the problem in the short term.
The worst but easiest to handle are the recorded voices, for example telling you that you have a won a prize. Obviously some people fall for this nonsense, a depressing thought.
Telemarketing infuriates me. I hang up in their ear before they can get going. The only exception is when I find it is the Wilderness Society or Amnesty who are doing it—which tests my loyalty to these wonderful organisations rather severely.
One way to combat junk mail is to send the stuff back in their own return envelopes—you chuck all the junk mail in there.
From an environmental and consumer perspective, I hate [junk mail]. In this age, when we should be concerned about natural resources, I find it offensive that companies do this to me. I don’t even look at it. It goes straight in the recycling.
My No Junk Mail sign works with everyone but real estate agents. They say it’s not junk, it’s information. I’ve had a lot of arguments with real estate agents over this.
With regard to public/street spruikers, I find that they present one of the rare situations when being disabled offers an advantage. I walk with a stick and need to watch the ground to maintain my balance and movement. I thus completely ignore them and focus on the task of ambulating. If they are particularly aggressive or insistent (which is very unusual), the accidental placement of the stick on a foot or instep tends to be useful.
I’m fed up with the government pretending they’re not in the business of regulating, and bowing to corporate pressure. They can find a way to generate business without ringing me up or spamming me or sticking things in my letterbox. They’re clever. They can figure it out.
They ask ‘How are you’ which annoys me as they could not care less. I do not answer but when they ask again, I reply ‘eighty and dying’ (which is nearly true) and they get off quite quickly. n
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Spare parts Research Fellow Hilary Bambrick is researching the attitudes of Australians towards the supplying of body parts for payment and asks: ‘Would you sell a kidney to save the life of a stranger?’
In May this year, transplant specialist and too entrenched. It promotes only Sydney’s rental crisis when she’s Gavin Carney caused a media frenzy ‘pure’ altruistic motivations for older’. by suggesting that healthy young donation and, in the case of live people should be able to sell a kidney. donation, affords too little recognition For this dad, there was no question There’s a serious shortage of donor of the real physical and financial costs about either the dollar value of his organs in Australia, and Australia falls (six weeks off work, for example). Nor kidney or that money would motivate well behind other countries. does it allow enough room for him. But how many other Australians recognising wider motivations, in feel the same way and should it even particular financial incentives. be permitted?
Dr Carney and other proponents of We recently conducted an internet paid donation expect that offering a survey of 1,000 people (nationally substantial amount of money for a representative by age, sex and state) kidney will decrease the waiting list about a whole range of social and and reduce the number of desperate economic issues. We included patients travelling overseas to obtain questions on the buying and selling a transplant. These people also of organs in order to get a picture of increase their chances of infection and real community attitudes to putting other complications. However, If body parts on the Australian market. paying people for one of their kidneys Half the respondents to the survey were to become legal in Australia, reported that they were registered would it actually increase the number organ donors. Seventy percent were of donors? against the idea that Australians should be able to sell an organ while In September, the Federal On the day after the original reporting 20 per cent were in favour. Government announced a $151 of Dr Carney’s comments, there was million advertising and counselling a large photo on Page 1 of the Sydney campaign to boost organ donation; if Morning Herald showing a dad on the Seventy per cent of it works, it will increase donations by beach with his two-year-old daughter. respondents rejected 50 per cent to 15 donations per The headline read: ‘Please, buy my the idea that million people. This is half the rate kidney to secure her future’. The dad achieved in Spain. said he would readily sell a kidney to Australians should purchase ballet lessons for his be able to sell an The focus of the new approach has daughter and considered that the organ. been criticised as being too narrow money would ‘help her to avoid
Although an overwhelming majority Per cent of respondents by household income who think it of respondents thought that should be acceptable to sell the organs of dead relatives introducing a payment would entice other people to become live organ 30 donors of a kidney, nearly half thought that they themselves would be less 25 likely to donate if they could be paid for doing so. Only 11 per cent thought 20 that a payment would make them more likely to donate an organ. 15
Per ce nt Respondents were largely against the 10 proposition that families should be able to sell the organs of relatives 5 who had died (80 per cent), while 20 per cent were in favour. Male 0 respondents were more likely to be <$40K $40-$80K $80-$150K >$150K Continued on Page 6 Household income
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Truth in advertising On 2 July this year, the Rudd Government released new guidelines, which will govern the practice and content of government campaign advertising. Recently, Kathy MacDermott’s study for the Democratic Audit of Australia, Marketing Government: The public service and the permanent campaign, was published prompting Leigh Thomas to look at the old regime and the new. On 2 July 2008, the Labor Government released its Guidelines on Campaign Advertising by Australian Government Departments and Agencies. By doing this, it fulfilled an election promise to curb the more egregious advertising practices that occurred under the Howard Government. The Opposition has scoffed that, in fact, the new guidelines do nothing more than preserve the status quo, perhaps a hint that the status quo was somewhat less than desirable. Cartoon by Nicholson from “The Australian” newspaper: www.nicholsoncartoons.com.au Traditionally, there have been two during the latter years of its MacDermott’s study for the categories of advertising where incumbency. Taxpayers contributed to Democratic Audit of Australia, governments are concerned: campaigns that were ostensibly Marketing Government: The public government advertising, for example service and the permanent campaign, · Political advertising, which sings on the GST and industrial relations finds that in the 2007 election year, the praises of the advertiser, is partisan campaigns, but in reality smacked the Australian Government outspent in nature, usually highly ‘emotive’ and rather seriously of party political Coles, Telstra, Harvey Holdings and must be paid for by the political party advertising. Nestlé Australia/l’Oreal to become itself; the highest-spending advertiser in This distortion was assisted by an Australia. · Government advertising, a astonishing lack of regulation in the legitimate method of informing the areas of both government and political electorate about policies and advertising. Countries such as the US, There has been an initiatives that it needs to be aware the UK, Canada and New Zealand of. This sort of advertising should be regulate such advertising far more astonishing lack of factual, apolitical and is paid for out stringently than does Australia. regulation in the areas of taxpayer funds. Politicians here enjoy a great deal of of both government latitude in how much they spend, and political where the funding comes from and advertising. ‘The public service is a what they can actually say in their advertisements. lot more conscious now of the need to explain, Despite the lack of formal regulation, A further failure to observe tradition the need to justify, the however, there used to be an occurred in the way the Coalition need to defend’ (John understanding that a line separated Government involved the public Howard). political advertising and government service in its advertising campaigns. advertising and directed how each According to the APS Values, public should be managed and paid for. It is servants are responsible for helping Over the past couple of decades, estimated that the Howard to explain the implementation and however, the distinction between Government spent over $1 billion on operation of the policies and these two categories has become advertising during the years it held programs undertaken by the decidedly blurred. Both the Hawke office and for many of its campaigns government but they should avoid and Keating governments were guilty this line was not observed. Australian any involvement in policy publicity of contributing to the general taxpayers kindly contributed to the campaigns. They are to remain interpretative fuzziness but it reached Coalition’s ‘permanent campaign’, apolitical and impartial; they are not the level of high art under the which generally went into overdrive to ‘sell’ government policy. Howard Government, especially as elections neared. In fact, Kathy Continued on Page 6
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Spare parts from Page 4 in favour of selling the organs of payment. Contrary to past assertions, relatives than female respondents (25 it seems that those on lower incomes per cent versus 16 per cent), and the might be less motivated by financial acceptability of this proposition reward than those on higher increased with household income (see incomes. the graph on Page 4). The buying and selling of blood and This preliminary look at community organs is highly contentious. In attitudes in Australia suggests that addition to looking at the effect the notion that introducing payment financial incentives might have on for blood and organs would increase increasing the supply of blood and contribution rates might be nothing organs, The Australia Institute will be more than a fantasy; it seems that examining the public health, people tend to perceive others as Also of particular interest is the economic, social and equity being motivated more by financial differential motivation for donating implications of selling body parts in incentives than they think themselves blood and organs displayed by its ongoing research. n to be. income groups when contemplating
Truth in advertising from Page 5
However, in the words of John the Government Communications · Campaigns over $250,000 will be Howard: ‘[The] public service is a lot Unit, which ran the advertising scrutinised by the Auditor-General. more conscious now of the need to program for the Howard explain, the need to justify, the need Government, have been abolished. Unfortunately, these are guidelines to defend’. While the need to explain only; they have not been legislated. · Coordination of procurement may fit snugly into the APS guidelines, And while the aspirations are worthy, contracts and development and the need to justify and the need to incumbent governments, once they implementation of government defend do not. Nevertheless, during hit their stride, are apt to lose sight advertising campaigns will be the the Howard Government’s of their initial idealism and lapse into responsibility of the Department of incumbency, public servants pragmatism. n Finance and Deregulation, thereby increasingly became involved in increasing accountability and justifying and defending government transparency and encouraging policy and were even expected to greater efficiency and savings. appear in advertisements extolling the virtues of the IR laws and the · Responsibility for campaign HAPPY CHRISTMAS organisations put in place to regulate development will be undertaken by them. the commissioning department with FROM assistance from the Department of THE AUSTRALIA It is to be hoped that the new Labor Finance and Deregulation and INSTITUTE Guidelines on Campaign Advertising ministers will be briefed on progress. by Australian Government · Campaign expenditures will be Departments and Agencies will published twice a year. redress some of these transgressions. The guidelines are based on those · Government advertising and developed by the Auditor-General in information campaigns will provide 1998 and salient features include: objective, factual and explanatory information free from partisan · The Ministerial Committee for promotion of government policy and Government Communications and political argument. Political imagery and slogans are banned. · Politicians and staffers will no The guidelines are longer be able to influence taxpayer- based on those funded ad campaigns. developed by the · Government cannot advertise a Auditor-General in proposed election policy as 1998. ‘government policy’.
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Making super work for all Australians The Choice of Superannuation Fund policy was introduced in 2005 but it has confused people more than it has helped them. Josh Fear explains how greater choice has been bad for the superannuation system.
How did you decide which doing so. Since Choice of Fund was superannuation fund was best for you? introduced, employers have Chances are someone else did it for increasingly seen the selection of an you—either your employer or the appropriate fund as the responsibility award that covers your occupation. of individual workers. While some people make active choices about their super, most do If an employer chooses the wrong little or nothing about it until the fund—one that has high fees and low prospect of retirement begins to loom returns—workers who are not large. engaged with their super arrangements may never realise that Since July 2005, the great majority of their retirement savings are not what Australia’s ten million workers have they could be, at least until it is too been able to choose their super fund. late. When it was introduced, the Coalition Government represented Our financial systems have been built the Choice of Fund policy as a major on the assumption that consumers victory for consumers. In reality, the are utterly rational creatures who majority of Australians have derived that consumer-driven competition in always make decisions in their own little benefit from greater choice and the super sector is deficient. Instead best interests. But a new discussion competition in the superannuation of competing to attract individual paper from The Australia Institute sector. members, funds compete for the written in collaboration with the attention of intermediaries such as Industry Super Network, Choosing Not financial planners. to Choose, suggests that more realistic Low rates of switching behavioural traits such as apathy, between funds raise This ‘distribution-side’ competition procrastination and profound imposes additional costs on the super serious doubts about disinterest in financial matters need system and explains why Choice of the effectiveness of the to play a greater role in determining Fund has not resulted in lower fees how the superannuation system Choice of Fund policy. and better performance. operates.
Choice of Fund is the most recent Instead, recent changes have benefited initiative in a long-term shift towards only some sections of the community, greater individual choice in a largely Recent changes have such as the financial services industry compulsory system, yet the principles benefited only some and highly-engaged consumers. of choice and compulsion sit sections ... such as the uncomfortably together. financial services The fact that fewer than ten per cent industry and highly- of workers actively choose their fund Choice of Fund was based on the engaged consumers. should not come as a surprise. The assumption that consumers are superannuation system is enormously interested in and able to make complicated, and people a long way sensible decisions about their Default arrangements are a highly from retirement usually have more retirement. Compulsion, on the other effective policy option because they pressing things to think about. hand, assumes that most individuals can improve financial outcomes for need help to save adequately for those who decline to make an active The key economic rationale for the retirement. What has been missing choice, while retaining flexibility for Choice of Fund policy was to increase is a set of policy arrangements that those who want it. competition for the benefit of fund promote the interests of disengaged members. Unfortunately, low rates of consumers. On a practical level, this means that switching between funds raise serious super funds should be required to doubts about the policy’s effectiveness If workers decline to choose a fund, meet certain standards before they in stimulating competition. the choice is made for them. Small can be nominated as eligible default businesses in particular find it difficult funds for workers who choose not to Widespread disengagement on the to nominate the default fund for their choose. part of many fund members means employees and often need help in Continued on Page 8
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Making super work from Page 7 For example, ongoing fees and fund, by definition they have not made The Australia charges for default funds should be an active decision about their fund. It Institute capped at a level determined by an is therefore unlikely that they have independent body such as the received any formal financial advice Members of the Institute Australian Prudential Regulation and they should not have to pay for receive our quarterly Authority. it. newsletter, our e-bulletin, updates on all new These standards would benefit research and free hard Choice is only employees by lowering fees and copies of recent beneficial where people protecting savings, and would benefit employers by reducing the costs publications upon want more flexibility associated with administration and request. and where they have selecting an appropriate default fund. clear notions of what If you would like to they want. Maximising choice remains at the heart of superannuation policy in become a member of the Australia. Yet choice is only beneficial Institute please go to our Entry and exit fees should be where people want more flexibility website at prohibited, since these act as a major and where they have clear notions of www.tai.org.au barrier to consumer choice and what they want. This is evidently not distort competition. the case for many Australians. Phone: 02 6162 4140 Governments therefore have a Fax: 02 6162 4144 Ongoing fees and commissions for responsibility to examine how people financial advice should be prohibited. really behave and to structure policy Email: [email protected] If workers are placed in a default accordingly. n
Accelerating renewable ener gy Renewable energy infrastructure is going to be expensive and Australia is going to need it soon. In his paper entitled The tax treatment of capital investments in renewable energy, David Richardson argues that accelerated depreciation will help to get it moving. Over the next ten to 20 years, a large contemplating the introduction of the until the cost of the asset is investment in renewable energy Carbon Pollution Reduction Scheme completely used up. infrastructure is going to be (CPRS) in 2010, there will be an added necessary in Australia. Governments incentive for organisations to switch need to think about ways to facilitate to renewable energy if they can and a this investment, as it will be corresponding increase in demand for expensive and will take place against the infrastructure to provide it. a background of rapidly developing technology and changing cost Depreciation is the process by which structures. The research paper, the ATO taxes the acquisition of entitled The tax treatment of capital assets. When a company buys a investments in renewable energy, service, the ATO assumes that it will examines some of the ways the use that service immediately and it will government might help to address be able to claim the complete cost as this state of affairs. a tax deduction at the end of the financial year. However, if the Allowing organisations to depreciate company were to buy a wind turbine, Accelerated depreciation would their assets more quickly than for example, the ATO assumes that allow the company to expense the current ATO rules allow is one of the turbine will have an effective life complete cost in, say, the first five or the ways discussed. Where of 20 years. Under current ATO rules, ten years rather than over the life of investment in renewable energy is the company will only be able to claim the asset. Organisations would be concerned, there are several very a depreciation expense of one happy to do this because the more good reasons for introducing twentieth of the cost each year over cost that can be written off each year accelerated depreciation of the assets that time. So if the wind turbine is in the early stages of an investment, purchased, especially in the initial priced at $1 million, the company is the greater their after-tax profits will stages. And with the government able to depreciate $50,000 each year be . Continued on Page 10
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New top tax rate The top income earners in Australia pay the same level of tax as those on relatively modest incomes. Richard Denniss advocates a change.
How much do you have to earn to Much is made of the fact that · the top one per cent of income stop being a ‘working family’ and start Australia is an egalitarian nation in earners earns 38.6 per cent of all being rich? Is it $100,000 per year or which everyone deserves a fair go— capital gains income in Australia. $150,000 per year? so much so that we are supposed to be prone to cutting down our ‘tall While the extreme inequity of the The Rudd Government has worked poppies’. This may still be true for income and wealth distribution hard to avoid answering this question. those ‘elites’ so despised by the shown in the table should be of Such questions are never easy, Howard boosters past and present, concern, what is of greater concern especially when people start asking but it certainly does not seem to apply is the way that the tax system has follow up questions like ‘How many to our ‘captains of industry’. When changed over time to exacerbate it. children do they have?’ and ‘What do it comes to income levels, and income you mean by family?’ growth, there is nothing egalitarian For example, the top marginal tax rate, about the way Australia rewards its which by definition is paid by the At the upper end of the spectrum, CEOs. highest income earners, has shown however, things get a bit easier. While the most rapid rate of decline over many may have heard that Sol Trujillo But it is not just the distribution of the past decades, falling from over 60 was paid more than $13 million last wages and salaries that are so per cent in the late 1980s to 45 per year, few people probably realise that unevenly distributed. In recent years, cent today. that means he earns $250,000 per Australia has been described as the week, or $50,000 per day. Not many ‘greatest shareholder democracy in people have difficulty concluding that the world’ by those who seek to imply such an income is sufficient to make that the benefits of economic growth While executive you rich. and, until recently, the growth in the salaries have grown value of the Australian share market, spectacularly in While executive salaries have grown were shared somewhat evenly across recent years, the spectacularly in recent years, the society. As the table below from the Australian taxation Australian taxation system has not Commonwealth Treasury shows, the system has not kept kept up. The top tax rate of 45 per facts are quite different. up. cent now kicks in at $180,000 per year, which means that Sol Trujillo is To summarise, the table shows that: into the top tax rate fewer than four days after the beginning of the · the top one per cent of income The impact of the reductions in the financial year. earners earns more than twice as tax rate for high earners is even more much from wages and salaries as the significant where the distribution of According to the ATO only 5,605 bottom 20 per cent combined income is concerned. The figures in Australians earned more than $1 the table show that for every $1 million in 2005–06, the latest year for · the top one per cent of income billion spent on reducing the which detailed data is available. While earners earns more than a third (35.7 corporate tax rate, $357 million ends small in number, these annual per cent) of all dividend income in up in the bank accounts of the millionaires collectively earned more Australia wealthiest one percent of Australians, than $10.7 billion in that same year. $644 million ends up with the
Continued on Page 14
Estimated distribution of income, by source, 2006–07
Bottom 20% Bottom 50% Top 20% Top 10% Top 1% Salary and wages 2.4 17.6 45.9 28 5.3 Gross interest 8.4 34.7 39.4 28.2 9.4 Dividend income 3.2 11.7 75.2 64.4 35.7 Net capital gain 4.2 13.3 73.7 64.2 38.6 Source: Treasury (2008)
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Great ideas for Christmas
Struggling to find presents for friends and family? Dreading another trip to the shopping mall?
Why not give the gift of great ideas this Christmas?
Included in our Newsletter is a gift certificate for six months of free membership to the Institute for you to give to a friend or family member.
Simply pass on the certificate and let us know the details of the person you have nominated.
Thank you for your support this year and your dedication to progressive thinking in Australia.
All of us at The Australia Institute wish you a safe and relaxing festive season.
Accelerating renewable energy from Page 8 comfort to organisations planning to as they can in the initial stages. This is The renewable energy industry is invest in renewable energy what the government should be capital intensive. It will need vast sums infrastructure. To begin with, as more aiming for and benign taxation of money to create the infrastructure energy is derived from the renewable regimes will assist it to get there. that is going to be needed for energy sector, it is logical to assume Australia to become more reliant on that the initial cost of the Policy-makers need to recognise that clean energy into the future. But, infrastructure will diminish. The investors in renewable energy will be unlike current fossil-fuel-driven energy importance of this lies in the fact that facing quite profound and systems, its running costs will be very no organisation will, under these unpredictable changes in the value of low. Apart from maintenance, there circumstances, want to be the first their assets, changes that are much will be, by definition, no ongoing fuel ‘cab off the rank’. The situation will larger than the expected physical life costs required to power renewable be subject to a ‘first mover of their assets would suggest. The energy sources. Therefore the disadvantage’ as organisations wait introduction of accelerated economics of the renewable energy and see. But, with global warming depreciation provisions would both sector will be driven by capital costs, accelerating, this situation constitutes recognise the problem and encourage making depreciation an important market failure and it should not be increased investment in renewable component for organisational permitted to endure. energy sources. planning. Secondly, technology too will play its Of course, unless the government Accelerated depreciation would go part in reducing the cost of renewable imposes a science-based target as part some way towards providing some energy infrastructure. As the of the CPRS or finds some way of technology develops, more efficient providing a trading nexus between the plant will be produced at increasingly 1,000 organisations covered by the The renewable energy lower cost, again creating a situation scheme and those not covered by it, where organisations will deem it it will be immaterial how much industry will need prudent to wait and see what renewable energy infrastructure is vast sums of money to happens. Accelerated depreciation built, because emissions will not fall create the can help in this situation as well. It below the cap imposed by the CPRS. infrastructure that is will make it more attractive for This problem is explained on Page 12 going to be needed. innovative companies to get in first of the Newsletter. n and capture as much of the market
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Militarism or health services By John Langmore
A side effect of the global financial policies, health services, fair industrial crisis is that developed as well as relations and education than with developing countries will be forced defence. Australia’s future security to review much more sceptically the and prosperity is more seriously claims of their military for increased threatened by climate change, the funding. This should apply to global financial crisis and potential Australia as well where the disease pandemics than by possible Australian Government is already military action. As a parliamentary spending more on defence than is committee concluded some years warranted. ago, there is only one country with the capacity to invade Australia, the Collaboration with the US in the illegal US, and it has no reason to do so. and misjudged invasion of Iraq The effect of increased the motivation for terrorist exaggerating military The effect of exaggerating military interest in Australia. There are far more threats to Australia threats to Australia has been to cost-effective ways of reducing such justify increases in defence has been to justify risks by contributing to reducing expenditure larger than are increases in defence despair, alienation and poverty necessary, to the level of over $60 through the pursuit of equitable expenditure that are million a day. What external threat larger than necessary. development. Restraint of military justifies spending $60 billion on the expenditure would release funds for purchase of sophisticated weapons desperately needed increases in aid as such as Joint Strike Fighters, well as for high priority economic and The Australian Strategic Policy destroyers and other military social programs in Australia. Institute Special Report, Public opinion hardware? Does Australia really need in Australia towards defence, security far higher military spending per and terrorism, published in August person than Japan, Germany or The global financial Canada? 2008, concludes that ‘support for crisis provides an ideal more defence spending has dropped The IMF and World Bank have opportunity to review to its lowest level since the end of repeatedly emphasised the current defence the Cold War’. The reason is that importance of minimising military strategy. ‘[t]he proportion of voters seeing a spending so as to maximise outlays security threat to Australia has that do more to stimulate economic declined consistently since the late and social development. United The global financial crisis provides an 1960s’. Nations summits and global ideal opportunity to review current conferences have repeatedly come defence strategy, starting with a When, after the 2007 federal election, to the same conclusion. thorough assessment of external respondents were asked which issue ‘Experience has repeatedly shown threats. This might lead to identifying was most important to them, the that the emphasis of the world ways of cutting military outlays, making environment (including global conferences on minimizing military way for more cost-effective means of warming and management of water) expenditures is completely justified defending ourselves, reducing was identified as most important by because of the implications of such international conflict and releasing 21.7 per cent; health and Medicare spending on the availability of finance resources for constraining greenhouse by 20.5 per cent; industrial relations for desperately needed human gas emissions and improvements in by 16.3 per cent; taxation by 11 per services and infrastructure’ (The higher priority health and education cent; education by 10.5 per cent; United Nations Development Agenda, services. What do the majority of interest rates by seven per cent; ST/ESA/316, New York 2007). Australians really want when the choice immigration by 2.9 per cent; and Restraining military spending also has is between spending $22 billion a year defence and national security by the benefit of avoiding provoking on the military or improving the quality only 2.7 per cent, closely followed retaliatory increases, in the form of of health and education? by the war in Iraq at 2.4 per cent. an arms-race, by countries in the Terrorism was the greatest concern region. for only 1.8 per cent. It is therefore Additionally, increases in military John Langmore is a Professorial Fellow in the reasonable to conclude that most spending contribute little to the Social and Political Sciences Department of voters are far more concerned with campaign against terrorism. In fact, the University of Melbourne and President of improvements in environmental they may add to the dangers. the UN Association of Australia. n
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The floor in the ETS It is probably true to say that the majority of people do not understand in any great detail how an emissions trading scheme will work. Richard Denniss discusses a major flaw that is not immediately apparent, the floor in the ETS.
The most poorly misunderstood feature of the Rudd Government’s Carbon Pollution Reduction Scheme (CPRS) is this: once the government sets a national emissions reduction target it will mean that no matter what action individuals, households or community groups take, the level of Australia’s emissions will remain exactly the same.
To restate, once the CPRS comes in,
every tonne of CO2 that households save by installing solar hot water systems, riding bikes or avoiding air travel will simply free up an extra permit, which will enable the permits that can be sold to another which emissions cannot fall. Once the aluminium industry, the steel industry polluter who wants to pollute more. government decides to allocate a fixed or the cement industry to increase number of permits to pollute, that is their levels of pollution. Unfortunately it gets worse. Not only the amount of pollution we will get. does a household’s reduction in It works like this. After emissions energy use fail to result in a Households can, however, do trading begins, a family decides to corresponding reduction in total something to reduce Australia’s install a solar hot water system on emissions, the main beneficiaries of emissions but it has nothing to do their roof, pack some insulation in the household ‘doing the right thing’ with catching the bus or flying less— their ceiling and use their air are the big polluters. This is because households will be able to buy permits conditioner less during the summer. the price of pollution permits is and rip them up. As a result of their efforts, their determined by the level of demand electricity consumption falls by 30 per for them; just as prawns get dearer at cent. Christmas time when everyone wants Households will be to buy them, permits also get dearer able to do something Because of their reduced demand for at times when everyone wants to buy to reduce Australia’s electricity, the power station that them. supplies their electricity needs to emissions—they will be able to buy permits burn slightly less coal. As the power So if households all ‘do their bit’ and station has to buy permits for every reduce demand for energy, the and rip them up. tonne of coal it burns, if it burns a bit demand for pollution permits will fall less coal it doesn’t have to buy so and the price of the permits purchased many permits. This means that, as a by the big polluters will fall as well. An emissions trading scheme works result of the household reduction in Under the CPRS, households are by issuing a fixed number of permits energy use, there are now some spare presumed to spend summer sweating to pollute, which companies can then it out without their air conditioners buy and sell. Under such a scheme, in order to keep the price of pollution households, community groups or permits down. even companies who want to be A national emissions carbon neutral can purchase reduction target will There is much confusion about how pollution permits and put them in a mean that no matter an emissions trading scheme will drawer, rip them up or mount them what individuals do, work, and it is not generally in a frame on the wall. If people buy the level of emissions understood that the emissions target permits to pollute and then choose in Australia will set by the Government acts not just not to use them, there will be fewer remain exactly the as a ‘cap’, above which emissions permits available for the real same. cannot rise, but also as a ‘floor’, below polluters. And because, under
Continued on Page 13
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The floor in the ETS from Page 12 emissions trading it is illegal to pollute busy trying to buy back the so-called without a permit, fewer permits mean ‘right’ to extract water. To avoid less pollution. having to buy permits back from polluters in the future, we should be But buying permits and ripping them careful not to hand out too many in up is a bad idea for three reasons. the first place. First, it is absurd that the government is preparing to introduce a scheme Demand for large cars is declining, that says to people willing to spend demand for solar hot water systems thousands of dollars on reducing their is growing and Carbon Cops was a top demand for energy, ‘Don’t waste your rating TV show. Clearly, millions of money on that, buy some permits and Australians want to be a part of rip them up instead’. reducing Australia’s emissions and clearly, millions of Australians will be Second, and more technically, the disappointed when they learn that ‘marginal abatement cost’ in the emissions trading does not energy efficiency credits in which household and small business sector supplement their individual efforts— individuals, small businesses, schools is likely to be much lower than the it replaces them. or community groups who want to price of CPRS permits. The result is ‘do their bit extra’ are able to capture that, as well as being demotivating, Fortunately the solution is the benefits of their actions for the telling people to buy permits means straightforward. Step 1 is to make sure environment rather than just freeing that they will actually be ‘buying’ a that the Government goes for an up more permits for the big polluters. smaller reduction in greenhouse ambitious target based on science, gases than if they spent the same not the five or ten per cent target Much will be written about the CPRS amount of money around their homes being pushed by the big polluters. in the coming months, but little of or in their communities. clarity will be said. For those who are The second step is to make sure the interested in reducing Australia’s The third problem is one of equity— CPRS is designed in such a way that emissions, the main question they why should households have to pay the efforts of households deliver need to ask when evaluating what polluters not to pollute? Over the past additional reductions to Australia’s others are saying is: ‘How will that ten years we have watched the greenhouse emissions rather than reduce the number of permits in disaster of the Murray River unfold just freeing up permits for big circulation?’ If you want to avoid all as, year after year, too much water polluters. This can be done by the pea and thimble tricks, just keep was extracted. Now the taxpayer is creating a ‘secondary market’ for your eye on the number of permits. n
Agriculture and emissions trading from Page 1 it considers that the exclusion of accreditation standards and voluntary agriculture will place a larger burden markets. but individually emit far less than 25 on those sectors that are included. While the Government is eager to -e per annum. The CPRS kt CO 2 Although the authors cast doubt include agriculture, but not before proposes to ‘upstream’ responsibility upon the wisdom of believing that 2015, the sector’s position reflects for carbon emissions from individual agricultural emissions will ever be its diversity; some sub-sectors drivers, for example, to the oil measured accurately enough for an consider their inclusion to be self- companies that initially supply the ETS, they do not suggest that the defeating and are lobbying to be fuel. But there is nowhere to sector should be exempt from other exempted from having to abate ‘upstream’ responsibility for carbon processes aimed at reducing emissions at all while others are emissions from the small businesses emissions. The paper explores a lobbying for the inclusion of that make up the agriculture sector. number of options for achieving agriculture from the start of the CPRS. ‘Downstreaming’ has been suggested, emissions abatement outside an ETS, perhaps to the abattoir or the grain including: terminal, but the administrative costs This paper suggests that both sides 1. herd management and nutrition involved in taking account of the of the debate are inaccurate: while it where methane is concerned different practices and emissions might prove counter-productive to patterns of individual farms would be 2. soil and fertiliser management include agriculture in a formal ETS, substantial. where nitrous oxide is concerned it is imperative that the sector be 3. carbon sequestration in both encouraged to adopt best-practice The government wants to include plants and soil and the ways to methods of emissions abatement as agriculture in the CPRS because it sees increase this soon as practicable. n the market as being the lowest-cost 4. alternative policy instruments method of reducing emissions. Further, such as levy and incentive payments,
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New top tax rate from Page 9 wealthiest ten per cent, and more than mechanisms that create an ‘incentive’ three quarters, $752 million, is for the rest of us to join the top one captured by the wealthiest 20 per cent per cent. of citizens. Dr Henry has made it clear that It gets worse. Despite decades of reducing the complexity of the tax trying to simplify the tax system and system is a high priority. While most remove incentives for taxpayers to people interpret this as a rationale structure their finances in ways for abolishing taxes, a more equitable designed to reduce their tax bills, the and efficient way forward would be Howard Government introduced a 50 to remove the wide range of tax per cent discount for tax payable on exemptions, including the capital gains capital gains. What that means is that tax concessions discussed above. The if you buy some shares for $1 million abolition of tax concessions would, and sell them for $2 million you don’t by definition, simplify the taxation have to pay capital gains tax on your system while simultaneously entire $1 million profit; instead you generating billions of dollars in only have to pay tax on $500,000 of additional revenue and increasing after the Henry Tax Review makes its it. equity—all without having to recommendations and in the lead up introduce any new taxes! to the 2010 federal election. What is Again, the Treasury figures in the table not inevitable, however, is that any show just how much this tax The next step should be to make the proposed changes will help address concession benefits the very wealthy, income tax system more progressive the growing gap between the very with 38.6 per cent of all income from by introducing a new top tax rate for wealthy and the most disadvantaged. capital gains being received by the those earning more than $1 million Nor is it inevitable that the tax wealthiest one per cent of the per year. The Institute recently made concessions and exemptions granted population. The decision to halve the case for such a threshold in a to the most wealthy will be removed the profits paid on capital gains, a paper entitled The case for a new top in order to fund higher quality policy that has the support of the tax rate. services for those most in need. current Rudd Government, costs an estimated $7.83 billion per annum. The paper found that the introduction However, although genuine reform Of this, $3 billion goes directly to the of a 50 per cent tax rate on incomes is not inevitable, it is possible. To that wealthiest one per cent. over $1 million would raise more end the Institute has made a number than $435 million in 2008–09. The of submissions to the Henry Tax As luck would have it, the Secretary rapid rate of growth in CEO salaries Review and has assisted several of the Commonwealth Treasury, Dr would also ensure that a new top tax community organisations, including Ken Henry, is currently undertaking rate would provide a rapidly growing Uniting Care, to prepare their own a review into the Australian tax source of revenue into the future. submissions. We will continue to system. It is unclear, however, conduct and disseminate our whether the disparities listed above It is inevitable that the Rudd research in order to inform debate are seen by government as a problem Government will announce changes around this most important area of that needs to be fixed or as to the Australian taxation system government policy. n
Telemarketers from Page 2 telemarketing call volumes by around average telemarketing call lasts for 30 per cent. 1.45 minutes. Based on these figures, The value of time wasted we estimate that the value of time This would be an indication of success on tele-marketing calls wasted on unsolicited telemarketing if it were a ‘Call Me Less’ Register, but across Australia is calls across Australia is $1.58 billion as a ‘Do Not Call’ Register it signals $1.58 billion per year. per year. Two in three survey the partial failure of current measures respondents said that telemarketing to mitigate the impact of intrusive should be prohibited in Australia. marketing, which operates almost reducing the social costs of direct exclusively on an ‘opt-out’ approach. marketing. Such a system would People whose number is on the DNC assume that most people do not wish Register said they received fewer calls Currently, members of the public have to receive direct marketing, and on average than those not on the to take deliberate action if they wish would prohibit unsolicited Register (seven calls per month to avoid direct marketing, but our telemarketing calls to anyone who has compared to ten calls). In other words, research indicates that an ‘opt-in’ not indicated their desire to receive the Register appears to have reduced system would be more effective in such calls. n
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Channel Nine’s artificial campaign Channel Nine’s recent stunt to bring down petrol prices is a benign example of the insidious phenomenon of ‘astroturfing’. Josh Fear explains.
Channel Nine viewers may have This case of astroturfing was more having no political affiliation’ which noticed A Current Affair’s recent ‘Fuel overt and less harmful than most. takes ‘an evidence-based, solution Fightback’ campaign, which involved Picking on big oil touches a nerve with focused approach to environmental several independent petrol stations in many people, and it is safe to assume issues’. It represents itself as a Sydney, Melbourne and Brisbane that the primary motivation for ‘Fuel movement of ‘practical slashing their prices below $1 per litre Fightback’ was to attract a larger environmentalists—people who for a number of hours each day. share of the TV audience. actively use and also care for the environment’. Channel Nine cameras dutifully arrived on the scene to document the traffic snarls caused by the lengthy A particularly effective tactic in the corporate queues of motorists waiting to fill up. public relations war is astroturfing (Ross Irvine). A Current Affair represented the campaign as a grassroots movement against the big oil companies, which, The motives for astroturf campaigns In reality, the AEF is a collection of they argued, kept petrol prices high are not always so benign. For climate change denialists and sceptics. even as the global oil price was in example, during the 2006 Tasmanian Its founders include Jennifer Marohasy decline. According to presenter state election, it was reported that from the Institute of Public Affairs (a Tracey Grimshaw, the campaign business interests had created a front right-wing think tank which, according ‘sends a blunt but very clear message group called Tasmanians For a Better to SourceWatch, has accepted money to the oil giants to stop milking Future, which undertook a major from BHP Billiton, Western Mining, drivers and finally give them a fair go’. advertising campaign aimed at Telstra, Philip Morris, British American undermining support for the Greens. Tobacco, Monsanto and Gunns The campaign was organised by Limited), Tom Bostok from the The motives for public relations firm Corporate Lavoisier Group (an organisation Communications Tasmania, which known for lobbying government to astroturf campaigns revealed only that funding came from ignore the scientific evidence on are not always ‘a group of concerned Tasmanian climate change), and Mike Nahan, benign. business and community people’. also from the IPA. Nahan has called AEF’s stance ‘pro-biotechnology, pro- It was later reported that Michael nuclear power, pro-modern farming, Punters at the bowser seemed to Kent, a prominent Tasmanian pro-economic growth, pro-business agree. ‘Join in. Do something for businessman (and Chairman of the and pro-environment’. When the Australia’, said one. ‘Keep the Tasmanian Chamber of Commerce AEF’s website was registered it shared bastards honest and let’s get the prices and Industry), provided some of the an address and phone number with down’, said another. funding for Tasmanians for a Better Timber Communities Australia, a Future. Timber company Gunns pro-logging industry group with A Current Affair’s ‘grassroots’ campaign Limited refused to comment on its strong links to Gunns Limited. The is, in fact, reminiscent of another kind involvement in the campaign. inaugural chair of the AEF, former of movement. ‘Astroturfing’ refers to television presenter Don Burke, apparently grassroots community More dangerous again has been the recently left to work as an campaigns or groups that are work of the Australian Environment ‘environmental adviser’ for Gunns. primarily conceived, created or Foundation. The AEF describes itself funded by corporations, industry as a ‘not-for-profit, membership- In the September 2005 issue of this associations, political interests or based environmental organisation newsletter, Katherine Wilson wrote public relations firms. Continued on Page 16
In this case it was Channel Nine that funded the campaign. Reporter Howard Gipps acknowledged on air All participants in our democracy must question that ‘A Current Affair picked up the the real motivation behind any person or group tab for today’s fightback’. that purports to speak on behalf of the community.
15 THE AUSTRALIA INSTITUTE Institute notes New Publications S Harris Rimmer, The Dangers of Character Tests, Discussion Paper 101, October 2008. H Saddler and H King, Agriculture and Emissions Trading: The impossible dream? Discussion Paper 102, October 2008. J Fear, Choosing Not to Choose: Making superannuation work by default, Discussion Paper 103, November 2008. J Fear, Go Away, Please: The social and economic impact of intrusive marketing, Discussion Paper 104, December 2008. R Denniss and J Fear, The role of a higher age pension in stimulating the economy, Research Paper 56, October 2008. D Richardson, The tax treatment of capital investments in renewable energy, Research Paper 57, October 2008. R Denniss, The case for a new top tax rate, Research Paper 58, October 2008. E Denniss, Fixing the Floor in the ETS, Research Paper 59, November 2008.
Forthcoming Publications * Superannuation tax concessions * How emissions trading works * Equine influenza * Buying and selling blood and organs
The Australia Institute welcomes David Ingles as a part-time researcher. David is an economist whose career has been spent in the public service working within various departments. He will research and write on economic subjects of interest to the Institute, particularly tax and superannuation.
In October 2008, the Institute also welcomed Leigh Thomas back as Business Manager. Leigh was the Office Manager for the Institute from 2002 until early 2006. She says she is delighted to be back and we are all very happy to be working with her again.
Channel Nine’s artificial campaign from Page 15 of her experiences at a Melbourne opposes astro-turfing practices’ and Ironically, it is exactly such mistrust workshop given by Canadian public insists that its members ‘adhere to of community groups that relations consultant Ross Irvine and the highest standards of ethical organisations such as the IPA have sponsored by the IPA. practice’. encouraged. The Australia Institute has a long-held interest in how vested Irvine, well known for his hostility to Fortunately, astroturfing is a new and interests attempt to silence dissent, community groups and NGOs, relatively rare phenomenon in and the practice of astroturfing is an briefed attendees on the best ways to Australia. In the US, by contrast, the emerging battleground in this area. n derail community campaigns that public relations war over the threaten commercial interests. Most response to climate change has for of those at the workshop were years been distorted by the corporate representatives, although involvement of front groups with advisers to then Treasurer Peter links to big oil and other commercial Costello and then Minister of State interests. Eric Abetz were also in attendance.
According to Irvine, one particularly The creation of fake community effective tactic in the corporate public groups means that all participants in relations war is astroturfing. The IPA our democracy, including citizens, appears to have taken his advice to governments, non-government heart. organisations and the media, must question the real motivation behind For the record, the Public Relations any person or group that purports Institute of Australia ‘strongly to speak on behalf of the community.
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