Climate change policy scare campaign does the rounds again

A scary headline from 7 West Media and Kerry Stokes^**….

Fossil fuel industry analyst and economist  Dr. Brian Fisher has issued another warning about what he apparently believes is the folly of tackling climate change……

The Sydney Morning Herald, 2 May 2019, p.1:

Opposition Leader Bill Shorten is facing an explosive political row over his climate change policy as industry warns of rising costs and a new economic study predicts 167,000 fewer jobs by 2030 under the Labor plan.

Business groups backed the ambition to reduce greenhouse gas emissions but said they deserved more detail given they would pay for the scheme, in a rebuke to Labor's claim it was "impossible" to model the costs of its policy on employers and the economy.

The new warning from economist Brian Fisher, which is hotly disputed by Labor and countered by other experts, marks a dramatic escalation in the political fight over the cost of taking action on climate change compared to the cost of inaction.

Dr Fisher concluded that the Labor emissions target would subtract at least 264 billion from gross national product by 2030 and as much as26 4billion from gross national product by 2030 and as much a s542 billion, depending on the rules for big companies to buy international carbon permits to meet their targets.

"Negative consequences for real wages and employment are projected under all scenarios, with a minimum 3 per cent reduction in real wages and 167,000 less jobs in 2030 compared to what otherwise would have occurred," he concluded.

"Labor's plan results in a cumulative GNP loss over the period from 2021 to 2030 that is over three times larger than that occurring under the Coalition policy. Turning to other results, the wholesale electricity price under Labor's climate policy is around 20 per cent higher than that resulting from the Coalition policy."

Labor has been bracing for Dr Fisher's report after weeks of conflicting claims over the cost of its policies.

But Australian National University professor Warwick McKibbin cautioned against some of the claims, telling the Herald two weeks ago that the impact of Labor's proposals would be a "small fraction" of the economy by 2030.

Professor McKibbin estimates the Coalition and Labor policies would subtract about 0.4 per cent from the economy by 2030.

The cumulative value of economic output has been broadly tipped to be about $30 trillion by 2030, which means Dr Fisher's worst-case scenario equates to less than 2 per cent of output over that period.

An earlier version of Dr Fisher's modelling triggered headlines of a "carbon cut apocalypse" in March but was questioned by other economists, who said he had assumed very high costs for renewable energy generation and the cost of reducing emissions.

ANU professor Frank Jotzo said in March that Dr Fisher's work had used "absurd cost assumptions" about emissions abatement.

Dr Fisher was the executive director of the Australian Bureau of Agricultural and Resource Economics for many years and conducted the modelling at his firm, BAEconomics. He said this was not commissioned or paid for by the government.

While heavily disputed, Mr Morrison is expected to use the results to mount an escalating campaign against Mr Shorten ahead of the May 18 poll….

However Fisher’s original research did not appear to be using Labor’s current climate policy to produce his ‘results’ and his current effort published on 1 May 2019 is still deliberately misleading.

Fisher gets called out….

Mirage News, 2 May 2019:

THE CLIMATE COUNCIL is calling on Brian Fisher to come clean about his links to the fossil fuel industry, following the release of his “independent” modelling looking at the cost of Labor’s climate policy.

“Mr Fisher has a history of working closely with fossil fuel industries. How can his research be ‘independent’?” asked the Climate Council’s Head of Research, Dr Martin Rice.

“Mr Fisher’s work has been at odds with credible economic literature which shows that strong action on climate change can be achieved at a modest price, while the costs of inaction are substantial,” said Dr Rice.

“We should be having a conversation about the escalating costs of climate change and the very real economic pain Australia will suffer for failing to act,” said Dr Rice.

“Since the Coalition has been in government, greenhouse gas emissions have gone up and up and up. Meanwhile, Australians are on the frontline of worsening extreme weather as the climate is changing,” he said.

“We urgently need to reduce our greenhouse gas emissions There’s credible, independent research that finds Australia can drive down its emissions by more than 45% with minimal impact on the economy,” he said……

The first report in a nutshell….

Climate Council, 20 March 2019:

What’s the story?

Fossil fuel industry consultant Brian Fisher has released so-called “independent” modelling looking at the economic cost of reducing greenhouse gas emissions, but his research is deeply flawed.

Who is Brian Fisher?

Brian Fisher is the fossil fuel industry’s go-to consultant. The industry has paid for much of Fisher’s so-called ‘research’.

Is the modelling credible?

No. Fisher’s report fails to consider the economic benefits for Australia from investing in renewable energy and new technologies as well as failing to quantify the costs of not acting to prevent climate change. 

Several of his findings are implausible. For example, his findings on electricity prices are contrary to a range of detailed Australian studies showing more renewable energy means lower wholesale electricity prices.

This is a distraction.

The Federal Government has a poor record on climate change and is running a scare campaign to distract from this. Since the Liberal National Party has been in government, pollution has gone up, electricity and gas prices have gone up and extreme weather events have worsened.

An explanation of how economic modelling is used….

The Guardian, 21 February 2019:

Whenever Australia starts to have a serious conversation about addressing climate change, headlines appear in newspapers of an economic apocalypse. This happened again in the Australian this week based on work by a long-standing economic modeller of climate policy, Brian Fisher.

So, what do economic modelling exercises tell us of the impact of reducing Australia’s contribution to global warming, and more importantly, what do they not? Should we cower in fear of action or embrace the inevitable change and manage the human and economic costs of transition?

Firstly, economic modelling results are not predictions. They are based on hypothetical future worlds. Economists try to capture the dynamics of economic systems in their models to understand the relative impact of different policy options. This means they are always wrong because economists can’t predict the future. 

Economic modellers are not the crystal ball gazers we read about in fantasy books……

This does not mean the economic models are not useful, it just means they should be used to test the relative impact of different policy options and not be presented as predictions of the future. They have a long history of overestimating the costs of environmental regulations because people and markets can innovate faster than they often expect.

Secondly, the way economic modelling results are presented is very important. Industry groups in particular like to attach themselves to particular results and scream that thousands of jobs will be lost, or wages will be slashed. This is designed to scare people into not acting on climate change by making them feel insecure in their lives. The headlines in the Australian did just this.

It is also dishonest because they also don’t clearly put the results in the context of the broader change in the economy. (David Gruen, one of Australia’s top economic officials gave a great speech about this in 2008 to illustrate how long this silliness has been going on.)

To illustrate my point, the economic impacts Fischer has projected for different emissions targets are in the same ballpark of those projected for work commissioned by the Department of Foreign Affairs and Trade a few years ago. This work also presented results in a similar way to the Australian. However, what is also showed is that the economy, jobs, income, etc continued to grow regardless. We keep getting richer and have more jobs, we just do so at a slightly slower rate.

Thirdly, because Australia exports a lot of coal and other emissions-intensive products to other countries, what they do matters an awful lot to the Australian economy. As other nations reduce emissions, demand for these products falls regardless of what we do. It has been established for some time that a significant part of the economic impacts of climate change on Australia comes from things we can’t control and this is generally presented in the results (see here for an example). While he does not report this, Brian Fisher knows this because he spearheaded economic analysis in the 1990s that was targeted at convincing Japan, one of our major coal markets, it would be too costly for them to reduce emissions.

Lastly, whenever these headlines are blasted across the papers one point is always lost: these results don’t include the cost of climate change itself. This summer, we have again seen a glimmer of what climate change will mean for Australia. Recent economic analysis indicates the benefits of limiting global warming far outweigh the cost of doing so, in one case by 70-1 (a good summary is here). (Again, this is something Fisher has considered in the past as he once said it would be cheaper to move people from the Pacific and put them in condos on the Gold Coast than act on climate change.)

So, as we head into another cycle of climate change politics in Canberra, beware the economic doomsayers and the threats from industry groups that credible action will be a “wrecking ball” to the economy. To be glib, no one said saving the Earth would be free. Acting on climate change will have costs but the costs of not acting will be far, far larger. Better that we come together and manage a fair and effective transition than continuing to delay and pay a much, much greater bill later…..

Dr Fisher feels the heat....

Fisher now accuses the Morrison Government of sitting on a second report modelling cost to the mining and resources sector of climate action, which was commissioned in the lead up to the federal election campaign and, which the Department of Industry, Innovation and Science confirms it has received.

Fisher appears to believe that this report to which he was a contributor will buttress his claims and silence his critics.

However, to date Morrison and Co have not released this report so two possiblities exist: (i) the report's conclusions tend to support Labor climate action policy or (ii) the report's conclusions are based on such flawed assumptions that it will be easily unpicked by genuinely independent experts.

* * Mr Stokes is the Executive Chairman of Seven Group Holdings Limited, a company with a market-leading presence in the resources services sector in Australia and formerly in north east China and a significant investment in energy and also in media in Australia through Seven West Media. Mr Stokes has held this position since April 2010. He is also Chairman of Australian Capital Equity Pty Limited, which has substantial interests in media and entertainment, resources, energy, property, pastoral and industrial activities.

Scott Morrison and his cronies want to buy your vote ahead of the May 2019 Australian federal election

Despite there being a growing urgency to invest in the full range of climate change mitigation measures, in the face of evidence that it is going to take billions of dollars to step back from the developing environmental, social and economic disaster developing in the Murray-Darling Basin, regardless of constant cost cutting in the welfare sector leading to a fall in services for older Australians and those with disabilities, while all the while failing to confront a growing public debt which now stands at est. 679.5 billion, the Morrison Lib-Nats Coalition Government intends to try and buy votes ahead of the May 2019 federal election.

Brisbane Times, 28 January 2019:

The Morrison government is now more focused on protecting its electoral chances than the nation's finances with claims it is going on a pre-poll spending spree based on a short-term boost in tax collections.

Deloitte Access Economics said in a quarterly report out on Tuesday that Scott Morrison is looking to buy back disappointed voters, with the government sitting on $9.2 billion worth of tax cuts and handouts that were included in the December mid-year budget update but not announced.

Deloitte Access partner Chris Richardson said the government had promised $16 billion in extra spending and tax cuts in the past six months, the biggest short-term spend by a government since Kevin Rudd in 2009 in the depths of the global financial crisis.

He said with the budget in a reasonable condition on the back of strong global growth and a surge in company tax profits, the Morrison government had made a decision to woo back voters with taxpayers' cash.

"Of late, the government has been busily taking decisions that add to spending and cut taxes, thereby worsening the bottom line rather than repairing it," he said.

"After all, they've got the dollars to do it, they're behind in the polls and the election is just around the corner.

"That powerful combination of motive and opportunity means that the government's focus has shifted to shoring up its electoral standing rather than shoring up the nation's finances."

News.com.au, 24 January 2019;

Pensioners and some families could receive one-off cash payments from the Morrison government in a pre-election sweetener.

Senior advisers are looking at two one-off payments that could be included in the April 2 budget, the Australian Financial Review reported on Thursday.

If the government decides to go ahead with the plan, the payments could be distributed before the federal election, which is due by mid-May.

The first option is a one off handout to age pensioners and the second is a cash injection for families.

It’s believed the single payments would be aimed at luring those who won’t directly benefit from the Coalition’s $144 billion personal income tax cuts being phased in over the next six years.

“Shit Life Syndrome” is sending Britons and Americans to an early grave…..

With Scott Morrison as the new prime minister, the Abbott-Turnbull era persistent attacks on the social fabric of the nation are bound to continue. Thus ensuring that Australians follow down the same path as Britain and America?

The Guardian, 18 August 2018:

Britain and America are in the midst of a barely reported public health crisis. They are experiencing not merely a slowdown in life expectancy, which in many other rich countries is continuing to lengthen, but the start of an alarming increase in death rates across all our populations, men and women alike. We are needlessly allowing our people to die early.

In Britain, life expectancy, which increased steadily for a century, slowed dramatically between 2010 and 2016. The rate of increase dropped by 90% for women and 76% for men, to 82.8 years and 79.1 years respectively. Now, death rates among older people have so much increased over the last two years – with expectations that this will continue – that two major insurance companies, Aviva and Legal and General, are releasing hundreds of millions of pounds they had been holding as reserves to pay annuities to pay to shareholders instead. Society, once again, affecting the citadels of high finance.

Trends in the US are more serious and foretell what is likely to happen in Britain without an urgent change in course. Death rates of people in midlife (between 25 and 64) are increasing across the racial and ethnic divide. It has long been known that the mortality rates of midlife American black and Hispanic people have been worse than the non-Hispanic white population, but last week the British Medical Journal 

published an important study re-examining the trends for all racial groups between 1999 and 2016.

The malaises that have plagued the black population are extending to the non-Hispanic, midlife white population. As the report states: “All cause mortality increased… among non-Hispanic whites.” Why? “Drug overdoses were the leading cause of increased mortality in midlife, but mortality also increased for alcohol-related conditions, suicides and organ diseases involving multiple body systems” (notably liver, heart diseases and cancers).

US doctors coined a phrase for this condition: “shit-life syndrome”. Poor working-age Americans of all races are locked in a cycle of poverty and neglect, amid wider affluence. They are ill educated and ill trained. The jobs available are drudge work paying the minimum wage, with minimal or no job security. They are trapped in poor neighbourhoods where the prospect of owning a home is a distant dream. There is little social housing, scant income support and contingent access to healthcare.

Finding meaning in life is close to impossible; the struggle to survive commands all intellectual and emotional resources. Yet turn on the TV or visit a middle-class shopping mall and a very different and unattainable world presents itself. Knowing that you are valueless, you resort to drugs, antidepressants and booze. You eat junk food and watch your ill-treated body balloon. It is not just poverty, but growing relative poverty in an era of rising inequality, with all its psychological

side-effects, that is the killer.

Shit-life syndrome captures the truth that the bald medical statistics have economic and social roots. Patients so depressed they are prescribed or seek opioids – or resort to alcohol – are suffering not so much from their demons but from the circumstances of their lives. They have a lot to be depressed about. They, and tens of millions like them teetering on the edge of the same condition, constitute Donald Trump’s electoral base, easily tempted by rhetoric that pins the blame on dark foreigners, while castigating countries such as Finland or Denmark, where the trends are so much better, as communist. In Britain, they were heavily represented among the swing voters who delivered Brexit.

Read the full article here.

NOTE: The last time the United States saw a prolonged life expectancy decrease due to natural causes was during the Spanish Influenza pandemic of 1917-1919 when life expectancy fell by twelve years. 

How Trump's corporate tax cuts played out in the US economy

Crikey.com.au, 10 July 2018:

Evidence is now emerging of just how extraordinarily wasteful Donald Trump's trillion-dollar corporate tax cut has been as the results -- or lack thereof -- filter into the real US economy.

It's now well-established that the bulk of the tax cuts have gone into record-breaking share buybacks and increased dividends by US companies, with hundreds of billions of dollars flowing or set to flow back to investors. But not a lot of the rest is flowing into extra investment -- the raison d'etre of company tax cuts. New investment data shows US equipment investment fell in the first quarter of the year compared to the final quarter of 2017. How about wages, which are supposed to increase due to company tax cuts (at least according to Mathias Cormann)? In June, monthly wage growth in the US fell to 0.2% from 0.3% in March, lower than expected and leaving wage growth at 2.7% for the 2017-18 year. Inflation in the US was 2.8% for the year to May, suggesting US workers are actually going backwards after inflation.

US unemployment is at 4% (up a tad) — far below our own level of 5.5%. Like the Kiwis, the Americans can’t get wages to grow even with full employment — or even with tax cuts that have massively inflated the US deficit at a time of peak employment.

The fact that Trump and his GOP cronies have pushed the US budget deficit toward $1 trillion a year (remember when the Republicans were the party of fiscal restraint?) at a time of such strong employment also has implications for the stimulatory effect of such largesse. New research from the San Francisco Federal Reserve shows that fiscal stimulus is significantly weaker at times of expansion than during recessions, and that the Republican tax cuts will not meet what the paper terms the “overly optimistic” expectations of boosters. Instead of the boost to US GDP growth this year of about 1.3 percentage points estimated by the Congressional Budget Office and other forecasters, they write, “the true boost is more likely to be less than 1 percentage point,” with some studies pointing to as little as zero.....  

Read the full article here.

In the same week Wall Street was finally spooked by the sheer weight of Donald Trump's inadequacies as the 45th US President.....

.....and the Dow Jones Index indicated that financiers and big business might be seriously worried about possibly higher than expected interest rates, rising national debt and the size of the US federal budget deficit Trump created in his first twelve months in office - he also rather unwisely performed in front of the cameras on the subject of treason.

YouTube, Time, 5 February 2018:

CNN, 5 February 2018:

 (CNN)President Donald Trump wasn't -- and, apparently, still isn't -- happy that Democrats in Congress didn't stand to applaud him in his State of the Union address last week.

Here's what Trump told a crowd in Cincinnati in a speech on Monday afternoon:

"They were like death and un-American. Un-American. Somebody said, 'treasonous.' I mean, Yeah, I guess why not? Can we call that treason? Why not? I mean they certainly didn't seem to love our country that much."

So, here we are. Again.

Let's quickly define "treason," shall we?

Here's how Merriam-Webster does it:

"The offense of attempting by overt acts to overthrow the government of the state to which the offender owes allegiance or to kill or personally injure the sovereign or the sovereign's family."

Trump loyalists will dismiss all of this as much ado over nothing. He was joking! He didn't even say that it was treasonous! He was just agreeing with people who said it was treasonous!

Fine. Also, wrong. And missing the point in a major way.

The point? It's this: Not standing during applause lines for the State of the Union isn't treasonous or un-American. Not even close.

If it was, all of the Republicans in that chamber are treasonous and un-American as well because when former President Barack Obama would tout his accomplishments in office -- as Trump was doing last Tuesday night -- lots and lots of Republican legislators would sit on their hands while the Democratic side of the aisle erupted in cheers. And so on and so forth for every president before him (and after).

The Washington Post, 6 February 2018:

This isn’t the first time Trump has used the T-word as president. Just last month, he accused FBI agent Peter Strzok of treason for sending negative text messages about him during the 2016 election to a lawyer at the FBI who he was having an affair with. “By the way, that’s a treasonous act,” the president told the Wall Street Journal. “What he tweeted to his lover is a treasonous act.”

A warning about tax cuts

Something for an Australian Coalition Government  to ponder, as it slavishly adopts the political blunders of the current US Republican Government.

The Guardian, 27 January 2018:

Donald Trump's huge tax cuts are a threat to the stability of the global economy, the managing director of the International Monetary Fund has warned.

Christine Lagarde singled out Trump's tax reforms as one of three risks that could destabilise the current economic recovery, especially given the boom in stock markets in the past year.

"While the US tax reforms certainly will have positive effects in the short term, for the US and other countries around, it might also lead to serious risks," Lagarde told the World Economic Forum in Davos.

 "That has an impact on financial vulnerability, particularly given the high asset prices that we see around the world, and the easy financing that it still available," she added.

She was speaking shortly after the US president told Davos that his tax reforms had created "a big, beautiful waterfall" of pay rises for US workers, as American companies passed the tax cut on.

However, the IMF is concerned that cutting taxes will lead to a bigger US budget deficit, and that extra borrowing by the US Treasury will force up long-term American interest rates. As a result, it fears growth could be choked off in the longer term, making the stock market vulnerable to a sudden downward lurch.

Lagarde cautioned against people becoming too complacent about the pick-up in global growth reported by the IMF at the start of the WEF's annual meeting. The IMF raised its forecasts for global expansion to 3.9% this year and in 2019, reporting that all major economies – the US, the eurozone and Japan – are doing better.

 "I don't think that we've completed the job," said Lagarde, who fears that the growing economic inequality in many countries is creating "fractures".

"Having growth is good, improving productive is good, but [policymakers should] make sure that the results of that growth are properly allocated," said the IMF chief, adding that inequality is growing in many advanced economies, and very high in emerging markets.

In addition to financial instability and inequality, Lagarde said a third risk was the lack of international cooperation and the geopolitical risks that could be created as a result.

Effect of proposed company tax cuts according to Australian Prime Minister Malcom Bligh Turnbull - "All boats will rise"

As households across the country began the count down to the holiday season, Australian Prime Minister Malcolm Bligh Turnbull smugly informed an ABC interviewer that as a result of a proposed cut in the company tax rate* everyone’s income will increase – “All boats will rise”.

This is another way of referring to that now legendary faux economic theory popular with right-wing politicians – the Trickle Down Effect.

This assertion is tested in an Australian Treasury working paper ANALYSIS OF THE LONG TERM EFFECTS OF A COMPANY TAX CUT (May 2016) which modelled a tax cut reducing company tax from 30 per cent to 25 per cent – presumably implemented over the 10 years to 2026-27 proposed by government.

Yes, this working paper estimates that for “a static representative household” “calibrated to match the expenditure, income patterns, and taxes faced by aggregate Australian households” real wages will rise if all other factors in the economy remain unchanged.

So it seems that Turnbull's claim is genuine - or is it?

What Turnbull fails to say is that this “real” wage rise will probably be a paltry est. 1.0-1.1% in total, will take at least 20 years to achieve and will only come about if the average individual also works longer hours.

Based on ABS May 2017 All Employees Average Weekly Total Earnings and an optimistically estimated average annual wages growth of 1.9 per cent; at the end of those 20 years an average worker will have received a total wage increase of est. $851 to $929. Spread out over those 20 years that works out to between 81-89 cents a week extra in his/her pay packet as a direct result of the Turnbull Government’s company tax cut.

Because in real life these company tax cuts are staged and, each stage would have a lag time, no-one is going to see 81-89 cents in their pay packets anytime soon. Indeed a great many people will probably never see this meagre increase at all as the real wages of many low-skilled workers haven't increased alongside higher-skilled workers for the last seven years and there is no indication as to if or when this trend will end.

Over this same twenty-year time period any increase in company income as a result of a 5 per cent cut in the company tax rate would result in millions to one billion plus being added to the bottom lines of a significant number of medium to large corporations. With such savings being just as likely to be diverted into bonuses paid to senior management or paid as dividends to shareholders as they are to being reinvested in a business.

Once more proving that tax cuts for industry, business and those individuals wealthy enough to incorporate their landholdings/investments, have what is essentially a neutral outcome for rest of the population.

Company tax cuts will hardly stir the water beneath those metaphorical boats belonging to ordinary workers.

Therefore this classic illustrative meme still stands under the Turnbull Coalition Government:

Image from Perry Street Palace

Something to remember when it comes time to vote in the next federal election.

* A company tax rate very few companies actually pay. A tax rate that an estimated 36% of more than 2,000 of the biggest corporations doing business in Australia ignore entirely given they unilaterally decided that under current taxation law and for accounting purposes they should pay no tax at all.

More evidence that the far-right in politics and industry are determined to drive working class Australians into generational poverty?

The Sydney Morning Herald

Wage fraud, wage freezes, cuts to penalty rates and companies scrapping enterprise agreements will reduce the retirement savings of millions of workers by $100 billion by the time they retire, a report has found.

The report, the Consequences of Wage Suppression for Australia's Superannuation System by the Australia Institute's Centre for Future Work, says the government will pick up more than one third of the cost, equivalent to $37 billion in lost taxes due to lower super contributions and higher age pension payouts.

It estimates that three million people, or one in four workers, have experienced some form of wage suppression, which will adversely impact their super payout.

The author of the report, Jim Stanford, describes wage suppression as an economic "time bomb". He says while individual families are grappling with the immediate impact of wage cuts, the long-term impact when they retire is yet to play out.

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.9]

Centre for Future Work at the Australia Institute, Jim Stanford, Ph.D., The Consequences of Wage Suppression for Australia’s Superannuation System, September 2017, excerpt from Summary:

Wages and salaries in Australia’s labour market are exhibiting their weakest growth in the history of the relevant statistics. Hourly wages are growing at less than 2 percent per year, and real wages (adjusted for consumer price inflation) are stagnant or falling. The unprecedented stagnation of wages reflects many factors, including chronic weakness in labour demand and the erosion of traditional wage-setting institutions (such as minimum wages and collective bargaining). But it also reflects, for millions of Australian workers, the aggressive efforts by employers (both private- and public- sector) to deliberately suppress wages below normal levels. These wage-suppression strategies take many forms: from the imposition of temporary wage freezes, to the unilateral termination of enterprise agreements, to the outright theft of wages through below-minimum payments. These pro-active measures to suppress labour incomes, breaking the normal link between labour incomes and labour productivity (which continues to grow at over 1 percent per year1), impose great harm on affected workers, their families, government budgets, and Australia’s macroeconomic performance.

There is another important consequence of these wage suppression strategies that is often not sufficiently understood by workers, employers, policy-makers and regulators: their flow-through impact on Australia’s retirement income system. When workers’ wages are unduly suppressed, then the normal flow of employer contributions into their superannuation accounts is also constrained. They will have smaller superannuation balances when they retire, and will consequently experience a lasting reduction in post-retirement incomes. Moreover, governments will share a significant portion of the resulting damage: they will collect less in taxes on superannuation contributions and investment income, and will pay out more in means-tested Age Pension benefits (since workers’ superannuation incomes will be smaller). These significant, lasting consequences from wage-suppression strategies should be documented and considered. They provide a powerful motive for all stakeholders to challenge employers’ wage-cutting initiatives. They also should be of direct concern to superannuation trustees and administrators – since the capacity of the superannuation capacity of the superannuation system to provide decent, secure retirement incomes for its members is being undermined by this growing pattern of wage suppression.

This report presents results from several quantitative simulations of the impact of wage suppression on superannuation entitlements of affected workers, their long-run retirement incomes, and corresponding fiscal effects on government. The report considers several specific scenarios, corresponding to different instances of pro-active wage suppression strategies that have been experienced by Australian workers in recent years. It traces through the impact of those policies on workers’ wages, superannuation accumulations, and retirement incomes. The simulations also describe the spill-over impacts on government (arising from reduced taxes collected on superannuation contributions and investment income, and increased Age Pension payouts). The simulations confirm that:

* Wage suppression undermines superannuation accumulations by automatically reducing employer contributions. Moreover, the damage is compounded over time due to the subsequent loss of investment income.

* Even temporary wage restraint measures (like temporary wage freezes) have lasting negative impacts on superannuation balances, by altering the trajectory of a worker’s wages for the rest of their career.

* The most dramatic instances of wage suppression – the termination of enterprise agreements by employers, and resulting large wage reductions as workers are placed back on minimum award conditions – can reduce the superannuation balance of a retiring worker by as much as $270,000.

* More modest wage suppressing policies (such as temporary nominal wage freezes, producing real wage reductions that are then sustained through a worker’s remaining years of service) reduce retirement superannuation balances by $30,000 or more.

* Government bears a share of the resulting losses, through both reduced tax collections before affected workers retire, and increased Age Pension payouts after they retire. In the worst-case scenarios, governments can experience fiscal losses of over $50,000 per worker (in real 2017 dollar terms).

* Millions of Australians have been confronted with one or more of these forms of wage suppression from their employers, so the aggregate impacts across the economy are enormous. Based on plausible estimates of the number of workers confronted with each form of wage suppression, the aggregate loss of superannuation balances on retirement (if the pattern of wage suppression is maintained) could ultimately exceed $100 billion (in real 2017 dollars) by the time affected workers retire, and the aggregate fiscal cost to government could reach $37 billion (in real 2017 dollars)………..

1 A recent Department of Finance research paper on productivity trends confirms that labour productivity continues to grow at typical historical rates – advancing at an annual average rate of 1.8 percent over the last five years alone. See Simon Campbell and Harry Withers, “Australian Productivity Trends and the Effect of Structural Change, “ August 28 2017, http://treasury.gov.au/ PublicationsAndMedia/Publications/2017/ Australian-productivity-trends-and-the-effect-of-structuralchange

[THE CONSEQUENCES OF WAGE SUPPRESSION FOR SUPERANNUATION, p.10]

No sign of an increase in employees' share of Australian economic growth

Financial Review, 6 September 2017:

Wage growth is showing no sign of the increases the Reserve Bank of Australia is banking on, with average employee compensation going backwards and hourly pay growth at record lows.

The economy's overall wages bill rose a modest 0.7 per cent in the June quarter and 2.1 per cent for the year, according to the latest national accounts figures, but fell per non-farm employee by 0.3 per cent on a quarterly and annual basis.

The data, released by the Australian Bureau of Statistics on Wednesday, suggests that while more people are getting into work, with 240,000 jobs created over the year, the jobs are also lower paid on average.

Capital Economics chief economist Paul Dales said the wage figures were even worse when broken down to average employee compensation per hour.

Annual growth in compensation per hour fell over the June quarter from 1.1 per cent to negative 0.3 per cent, the weakest growth in almost 25 years.

While the hourly figures are volatile, the Reserve Bank last year cited strong compensation growth per hour as a cause for optimism in the face of persistent low wage growth.

Mr Dales said that "there is no evidence whatsoever that wage growth has started to rise as the RBA expects".

Professional and technical services, covering engineers and IT workers, as well as health care drove the overall growth in the nation's wages bill.

History of monetary compensation for number of hours worked - 1985 to 2015

OECD Data

Quotes of the Week

“I am the world’s greatest person”

[US President Donald J. Trump, 28 January 2017]

“Common sense tells you that when you have an industry that pays less than others, employs more young people than others, and has a much higher level of underemployment than others, it is not really in need of policy that will have 10,000 young people working for less than the minimum wage and for which the employer will not only not have to pay them, but will be given $1,000 from the government.”  [Greg Jericho writing in The Guardian, 6 August 2017]

“That the era of deregulation is exhausted should no longer be an issue. Free market fundamentalists rebounded from the global financial crisis with a remarkable ease, treating it like a mere flesh wound. But almost a decade later, the game is up. The twin business strategies of suppressing wages and side-stepping taxation obligations to benefit those at the top of the wealth distribution curve is no longer acceptable. The economic and political damage is too great. The other 90% are joining the dots. They are many and they are angry.” [Lawyer Josh Bornstein writing in The Guardian, 27 July 2017]