Month: December 2001

SOME very encouraging research was published by the Australia Institute at the weekend that debunks some of the myths about the ageing population.

The fear of policy-makers in Australia and other developed countries is that with declining fertility rates, the average age of the population will increase and that this will result in more dependent people in the community who require more income support, home help, aged accommodation and draw more on health services.

The Australia Institute research suggests that this will not be the case and that we need not fear a society that cannot afford to support its old people.

At present only 3.5 per cent of people over 65 required public assistance for daily living. There is no need to assume this percentage will go up.

The research quite rightly suggested that we should look at the plus side of the ageing population, as well as just the cost side. The standard dependency ratio is misleading. It takes people aged 15 to 65 and assumes they are working and supporting those aged over 65 and under 15. In fact, we can expect many older people to work beyond the age of 65, particularly as the pool of younger workers get proportionately smaller and employers are forced to draw on whatever labor is around or go without. As employers do this, they will soon find out that older employers tend to be very good ones. They have experience and their mental agility does not markedly decline with age. Moreover they often have a good work ethic. Older people tend to contribute to voluntary work – both it he family and the community. These contributions are likely to increase with the ageing population.
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The reserve Bank of Australia is on the right track in calling for reform of the credit-card system. the system is shrouded in secrecy, ridden with unfairness and lacking in the competitive forces that help consumers.

The four major banks are taking perhaps as much as $500 million a year in credit-card transaction fees. It is a hugely profitable system for the banks at the cost of consumers, particularly those who cannot manage to pay off their bill each month.

At present merchants are paying 1.2 per cent commission on credit card transactions. Surely, the processing costs to the banks are not related to the amount of the transaction, but the number of transactions. In any event the amount is too high. Merchants are also prohibited from charging the 1.5 per cent to customers who use the cards, or even a flat fee, though anecdotally some bargaining goes on. The upshot is that the cost charged to merchants is shared by all consumers, including those who do not use cards, because costs are passed on in uniform prices whether one uses a card or not. This is quite unfair.

Then there are the high interest rates. Some of the cuts in base interest rates have not been passed on to card users in the same way that home-mortgage rates have been cut. Banks have been far more responsive to the home-mortgage market because there is more competition from home-mortgage operators outside the bank system. It clearly indicates that competition is needed. The Reserve Bank has indicated that it might introduce more competition in the form of allowing retailers and others to issue major credit cards.
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There may well be lies, damn lies and statistics. All that means is that some people can misuse statistics. Statistics can also be used for great good. The Australian Bureau of Statistics gathers large amounts of data, collates it and then publishes in a form that tells us something about ourselves. The more we know about ourselves the better chance we have of working at changing what is bad and enhancing what is good.

Last week the bureau published a series on causes of death and life expectancy. Typically, the bureau splits it statistics into states and territories. It is a convenient way of doing things because each of the legal and administrative authorities in each jurisdiction collects data for its own jurisdiction. This is mere happenstance, but it is very informative happenstance.

Often the ACT stands out like a sore thumb. Usually, that is used to bait the national capital as being the odd place out. The Northern Territory is often the other extreme.
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The United States is behaving with blatant hypocrisy when it comes to farms subsidies. It trumpets the virtues of free trade when it comes to getting its products into foreign markets and takes other nations to the World Trade Organisation seeking penalties if other nations subsidise their trade products or attempt to exclude US products on the grounds of health or safety. The US acts tough on enforcement of pharmaceutical patents when another nation attempts to make generic drugs to meet national emergencies (such as AIDS in southern Africa immediately threatening millions of lives), yet as soon as the US has a national emergency (such as anthrax posing a remote threat) it starts talking about breaching patents so it can make generic drugs.

And so it was this week that the US ignored pleas from Australia and others and continued with its plan to massively subsidise US farmers. The US support package to farmers will run to the equivalent of $A340 billion. It will mean that Australia’s unsubsidised farmers will have little chance to compete in the US market.

Australian Trade Minister Warren Truss points out that US farmers – once the most efficient in the world – are now dependent on the taxpayers for half their income.

US President George Bush is right to trumpet the virtues of free trade, because it carries significant benefits. The benefits are not only for exporting countries, but also for consumers and taxpayers in importing countries who pay twice over. They pay through their taxes to subsidise their farmers who can then put produce on the shelf more cheaply. In this environment foreign competitors cannot get a toehold. It means there is no competition in the US to give their farmers an incentive to achieve efficiencies. Instead, they just put their hand out for more government money and the taxpayer and consumers pay.
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The new ACT Government should be very careful on the fiscal front. But it does not appear as if it will be.

Labor may argue over the detail of the figures, but the fact remains that when the Liberals came into office under Kate Carnell in 1995, ACT finances were in a pretty parlous state. Having been handed an almost debt-free territory at self-government in 1989, the Follett Labor Government and the Liberal-led Alliance Government under Trevor Kaine indulged in a spending spree. That was bad enough, but it was no matched by increased revenue.

The Carnell Government – for all its other faults – put the territory into the black and redefined public finance under the accrual accounting system to make public finance more transparent.

Now, within a short time of being sworn into office, the new Labor Government is already squandering the legacy. Treasurer Ted Quinlan is suggesting that return on investments might not be as high as earlier thought and therefore a deficit might be inevitable. The commitment to not running a deficit has now been watered down. In the lead up to the election here was no suggestion of “”reviewing” revenue – with its implication of raising taxes.

But now in office, fiscal responsibility is about to be thrown out the window.
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A survey by the insurance company AAMI has shown some worrying attitudes among young drivers. The survey was not based on actual road behaviour or accident statistics. Rather it was a survey of what young drivers are thinking and what older drivers think of younger drivers. What older drivers think of younger drivers is of little moment. The alarming thing about the survey was what young Canberra drivers thought of themselves.

Nine per cent of drivers under 25 thought is was okay to drive after using “‘a little bit of recreational drugs”; 74 per cent admitted they got mad at other drivers cutting in, compared to 64 per cent of other drivers; 29 per cent admitted impatience compared with 12 per cent of others; and 30 per cent admitted to using rude gestures compared with 21 per cent of others. This is capped off by 80 per cent of the young people surveyed saying they are better drivers than anyone else.

An immediate response would be, “The arrogance of youth”.

Another immediate response is that of the Victorian Government – to propose that P-plate drivers loose more demerit points that others for the same offence.

But that is too easy. Those concerned with safety on the roads should address the issues with more subtlety if the response is to be effective.
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It seems some tidying up in the law and practice of bonds, suspended sentences and parole is in order.

Last week Chief Justice Jeffrey Miles criticised the system of setting dollar amounts on good behaviour bonds.

He said setting the amounts was useless because the money was never claimed by the court if the bond was breached. It made a mockery of the court process. He thought the law should be changed to get rid of this useless element of the system.

“”What the court ought to do really is require sureties, but there is no point in that either because no-one would take any action to ensure the sureties,” he said.

A surety is where someone guarantees that an offender will not breach a bond to be of good behaviour or breach bail on pain of being forced to pay the amount of the surety.

Also last week Justice Terence Higgins pointed out some anomalies in the action of the Parole Board which had resulted in a man being sent back to jail when the law did not require it.
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The Governor of the Reserve bank, Ian Macfarlane, expressed concern last week that major Australian companies might react in a knee-jerk way to any signs of a downturn in the economy. He warned them against wielding the scalpel to workforces if profits looked like falling. He said chief executives might think that being tough with lay-offs would protect share prices because the market would think well of such conduct. It might be true if only one company did it, but if a lot of major companies did it, it would be an error. Earnings were meant to fall off in economic circumstances like those at present, but the more jobs were cut the deeper the downward cycle would be. There would be fewer people out there spending.

It was all standard economics. Indeed, similar words are used by economic historians to describe the lead into the Great Depression. But there are differences. We have better economic information gathering these days, so we are in a position to take pre-emptive action. And this is precisely what Mr Macfarlane has done. Last week the Reserve Bank reduced interest rates by a quarter of one per cent, and indicated another cut was possible early in the new year. That should encourage companies to accept that earning can fall in the short term without needing to cut jobs. However, in a fairly ruthless, market-driven world, we cannot expect individual boardrooms to act in the broad community interest, despite the urgings of the Reserve Bank Governor.
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