Welcome to Finance and Fury the Furious Friday edition. This is part 4 of the mini-series. Hope you all had a good Christmas. In the last episode, we talked about how the population is mobilised in a political spectrum. Today we talk about what the population is currently being mobilised for:  

Australian politicians/interest groups – the idea of the “fair go”

  1. Australia’s last four prime ministers have all used the term at some point. (Hard to keep track of them now)
  2. Rudd used it on Howard’s WorkChoices reforms. Gillard said it in “we are the people who hold onto mateship and the fair go”
  3. Turnbull used it when saying “We have a very unique culture in Australia and we have a very good mixture of capitalism and the free market, but we also have a culture of fair go, of looking after each other.”
  4. What is this ‘fair go’? Well it’s impossible to associate the idea of the “fair go” with any precise meaning.
    • It is essentially whatever the person using the term regards as fair or just from their frame of reference.

Genius in this is it takes individual perception and weaponises it

  1. Plus the government assumes a lot of responsibility for looking after each other. It’s an easy solution for us if someone else will solve the problems in society
  2. Do we have a problem with fairness? What is fair? The definition: “treating people equally without favouritism or discrimination”
    • Does this mean the same rules for all? Or same position and outcome? It depends on the definition
  3. The definition in society is using the egalitarian flavour to look at fairness and justice (Fair go)
    • Concepts at a basic level: egalitarians agree that all citizens have their basic needs met
      • Infrastructure, healthcare, education, ending extreme poverty. These are good and have beneficial social consequences. Providing everyone with equal access to these resources.
  4. Equality of opportunity is also regarded as another important requirement of “Fair Go”
    • This means that all citizens should have the same chance to develop their natural abilities, regardless of their backgrounds, this is great. It’s shown in Western countries through the measurement of mobility of wealth
    • In 2007, Andrew Leigh did a study on Australia. The conclusions were that Australia has a higher level of mobility than the US, which is extremely high. The study looked at inheriting wealth vs self-made wealth.
      • “in the United States, the heritability of income is similar to the heritability of height.
      • Australia, income is only about half as heritable as height”
  5. Some take the idea further and suggest it requires an equal distribution of resources (equality of outcome)
    • Housing as an issue. Housing for all, but how do you solve inequality when it comes to housing?
      • Bill Gates has a very nice house, so to take away his equality of opportunity, gates no longer allowed in his nice house. This is the implementation of equality of outcome. Does this sound fair?
    • Income distribution is another issue. If ending poverty is the goal, then we have already succeeded in that. But, is ending poverty the goal? Or equalising incomes?
  6. Income inequality vs poverty, there will always be inequality in equal opportunity
    • Australian relative poverty rate is over 26% of population (before taxes and transfers),
    • Falls to under 13% after taxes and transfers. The relative poverty rate has been between 10% and 14% of the population since 2000 (where the poverty rate is set at 50% of median income)
      • Poverty is measured by the middle-income amount halved. So for 1 – 5: the middle point (median) is 3
        • Halve it and get 1.5. If every quintile was the same income spit, then this would be the poverty measure
        • If the median is the same as average? It shows equality in distribution. The average of 1-5 = 3, 15/5
      • What is the line here? The disposable income of less than $400 per week for a single adult (changes) or about $22,612 annually
      • You can increase poverty under this measure by using disposable income first. The more equal things get, the more the baseline measurement for poverty gets.
        • I had a look at the incomes and halved everyone’s income in the bottom 80% and gave it to the top 20%
        • This gave a median of $393 = $197 (or half) base. So as things get more equal, the relative poverty rate increases. This is ridiculous.
      • Stats are easy to represent nothing of meaning, which is part of the reason disposable income is used. Under these statistical representations, the greater equality in Australia produces more poverty. This is due to a higher median being used.
    • Absolute poverty: A Comparison from the Australian Welfare Report 2017. Those who can’t afford to buy set basics in country
      • This is currently 3.9% of households in Australia. Known as the “deep exclusion” zone
      • Decreased massively! In 2001 it was 13%, which is a 70% drop since 2001 to 3.9% of the current population
        • In 1973, the relative poverty mark was $62.7 p.w. That is a growth in the measurement of 4.5% p.a. but ‘absolute poverty’ has still decreased
        • If it had grown with inflation for 45 years at 2.5% it would = $191 in today’s money and not $400
      • How long do they stay there in absolute poverty? Well, about 70% are out the next year
        • Those who didn’t make I out, the remaining 30%? Well, about 63% are out the next year. This shows how mobile wealth is in Australia.
        • Sadly it gets painted that the 4%, who seem to be a current average, struggle year on year.
      • Why? What they share in Common ‘disadvantages’
        • It all comes down to unemployment, where half of all Australians aged 15+ in poverty
          1. Health-related/disability about 11.2%
          2. Highest Education Year 11 or below
          3. Higher chances of dependence on government income support and public housing
    • Look at extreme poverty $1.9USD p.d.. in the 1950s: world population of 2.5bn, 1.8bn in extreme poverty and 700m are not
      • 1970, world population of 3.7bn, 1.5bn not while 2.2bn are in extreme poverty
      • Today, world population of 7.5bn, 700m in extreme poverty and 6.8bn not. So, over the past 50 years, extreme poverty levels dropped (as a percentage of population) by 85%.
      • Real reason poverty dropped so heavily is China (a fairly socialist nation) adopting some free market principles, like property rights
        • It was government policies to create equality that put them into poverty. Why isn’t this obvious?
        • Surveys from the US and Canada show only 8%, and from the UK only 12% believe extreme poverty has reduced, 60% think it has gotten worse
        • Comes from the narrative that things aren’t as good as they are, and that’s due to inequalityExtreme poverty chart
    • Why? Inequality and poverty have been changed in how they are represented
  7. Measurement: the Gini coefficient where 0 has complete equality in incomes and 1 has complete inequality.
    • Measured by the Lorenz Curve: Square with a line from the corner from bottom left to top right. On the bottom line, break it into quintiles of 20% each
  8. Australian disposable household income, the Gini coefficient today is 0.352. After redistributions, it’s 0.22 which is very equal
    •  Concern: Increasing – the Gini coefficient in 1980 was 0.2 – 0.309 in 1995, 0.334 in 2010
    • But what else is increasing? The overall wealth! Absolute poverty has dropped Percentage of population by age
    • Population ages: More people in age bracket 35-65. So there’s a general trend to earn more later in life
      • In 1980, 21% fewer people of prime earning age, which has shifted the stats
  9. Fair is in the eye of the beholder. Are things being unequal fair?
    • It depends on the cause, inequality is a by-product of freedom
  10. But what is being done under the Fair Go Action Plan to fight this:

Policy list and outcomes 

A Look at Labor and Fair Go Action Plan. Only Focus on 3 of 5 ‘campaigns’
  1. Ease pressure on family Budget
    • Give workers a tax break of up to $1,063 each year, instead of giving handouts to the top end of town.
      • Great for cutting tax, but what are the handouts to the rich? Tax cuts as well?
    • Level the playing field for first home buyers by reforming tax concessions for property investors so they don’t have an unfair advantage when purchasing existing homes.
      • I’ve talked about this a lot already. Check out ep 114 – 9/11/18 on Housing Policy
      • ‘Existing Homes’ is still an unfair advantage for new properties
    • End the Medicare Freeze and addressing rising out-of-pocket costs and keeping healthcare affordable
      • Affordable for who? There is no free lunch. There are two situations – What happens when the tax runs dry?
        • Force doctors to work for free (no doctors), or cap prices resulting in worse healthcare
      • Over 25 years, since 1989 the cost of the system has gone up from $50.3bn to $154.6bn in 2014 (in real dollars – i.e. accounting for inflation)
        • Partially due to age and size of the population, purchasing parity expenditure. Spending of 124% increase, started using more as the system is essentially free under Medicare.
    • Cap private health insurance premiums, with increases capped at no more than 2 percent for the next two years.
      • Fewer benefits and worse cover for people. Insurance companies won’t lose money on this, but you will
    • Better regulate power prices with a new regulated capped offer protecting families and small business from price gouging by big energy companies.
  2. Stand up for workers
    • Restore penalty rates to deliver fair pay for up to 700,000 retail and hospitality workers.
      • ‘fair’ pay, is when work is completed fair? Certain industries do well when people aren’t at work
    • Crackdown on dodgy labour hire. Ensuring labour hire companies must provide workers the same pay and conditions as those employed directly
      • Labour hire companies go out of business as they must pay temp staff the same as directly employed employees.
    • Close the gender pay gap, taking action to deliver equal pay for equal work by forcing big business to report on their pay gap publicly.
      • Already law to pay equal amounts and companies already have to lodge their pay gaps
      • Making companies post these as well cannot do any good
  3. Build a stronger economy that works for us all
    • Make multinationals pay their fair share and close the loopholes exploited by multinationals and stop profits being stashed away in tax havens.
      • Good luck with this, if they wanted an effective way they’d lower the company tax rate and incentivise companies to pay tax here
    • Wind back the excesses in dividend imputation and end cash refunds on share dividends for investors who don’t pay tax.
      • This isn’t going to hurt the ‘wealthy’ but it will hurt a lot of people.
        • Non-industry super (pension environment 0% tax) and Industry super already doesn’t do it
        • Lower income pensioners E.g. Retired 20 years ago, no super, saved for own retirement
      • No aged pension as $50k of cars and home content, $800k of investments so they fail the asset test
        • Income from shares (5%) – $40k, split between the couple. Inc FC = $57k assessable
          1. $3,794 tax payable – Net income of $53,350
        • No Franking credits – $40,000 (can vary depending on market, e.g. TLS)
          1. Compare to a couple with $0 – $35,916 p.a. in Aged Pension
    • Cap deductions for use of accountants with a maximum $3,000 deduction for using accountants to prepare personal tax returns.
      • Achieves very little as the ultra-wealthy have companies/trusts to pay for accounting
    • Close loopholes used by the top end of town to stop the use of family trusts to avoid paying fair share of tax
      • The ‘top end’ well who is it? It’s lots of people. They have investments for their family. But there are no loopholes, it’s just redistributions. Tax is still paid somewhere.
      • Fair share is convoluted. How much should they pay? These are honest questions
    • Reverse Morrison’s tax cut for millionaires, ask the top tax bracket to pay a little more so we can pay down the Liberals’ debt in a responsible way.
      • Touché on the debt point: Liberals haven’t done great on this but it seems a little rich coming from Labor though
      • Top Tax Brackets: About 4% of the population, next bracket down is 6%, so a total of 10% of the population
        • Already paying 52% of total income tax. Plus, additional taxes for consumption (GST, Stamp Duty)
      • Remember the Gini coefficient for income equality? What about tax equality?
        • 0.7 when looking at tax paid, which is not very fair when income is at 0.35 – Remember 0 is pure equality
  Do these really help? Will it make things equal and fair? I know it has been a heavy episode, so here’s a quick recap
  1. Easing budget pressures and standing up for workers. They all help to achieve their goal, but everything has a consequence
    • Destroying competition and free market forces can lead to worse off living conditions
  2. Does this build a stronger economy? All of these were ways of getting more money out of people
  3. Nothing in it that helps companies, which is heartless right? What if business was the main focus? Hear me out
    • 10.6m people employed in Australia, 1.9m public service and 8.7m in companies (82%)
      • More legislation won’t help wages grow long-term, forcing it doesn’t make it sustainable
      • Create wage growth with an increased need. If there are lots of companies that need skilled labour and there isn’t enough supply, then wages go up
    • 2.1m companies in Australia and over 97% are small business, 2.4% are medium (20-199) and 0.2% are large (200+)
      • Greater competition between companies and greater services as well will lead to a stronger economy, higher wages and overall more prosperous society
  4. Nature of government reduces ‘fairness’ in an economy: Free Market Vs Capitalism, they are not the same. The free market is the exchange of goods and services and is equal with no regulations
    • Capitalism revolves around wealth creation. However, if someone controls the free market (like the government) influence can then be bought from the government
      • When the free market gets hijacked by Capitalism, It will always happen. If there is something with power over this structure, by nature you get super large companies that can buy regulation and influence policy with their control.
      • Company Stores where workers are the consumers
    • Both sides are guilty of this, where there is money in politics, which is needed to win. Becomes a pay to play situation
      • 30-40% of donations are from untraceable sources ($62m last FY) Most donations from high regulated industry
      • Only 10% are clearly disclosed and the rest use some creative accounting and redistributions somehow
    • Bill Shorten and Negative Gearing policies to help new construction back when he was in the Construction union AWU
      • Franking credit policy helps industry super, to which he was on the board of AusSuper in 1998-2007
      • Feel free to do some research on donation history of payments from AusSuper to AWU, to Shorten 2007
    • If you pay more, you tend to get more meetings and typically your wishes are fulfilled

The reason why I talk about this so much is I actually do care

I just think that the issues won’t be solved through any of these policies. It will just make life harder for those actually trying to accumulate their own wealth
  1. Truth can hurt but it can help: If we believe that just taking more money and restricting what people can do is the solution, then it is a race to the bottom
  2. If we spend all time not looking at the real issue
    • Nothing is fair: Examples of the fair go
    • There will always be differences
      • Some people are 7ft tall, others 5ft.
    • Is it fair most of you would be paying a fairly hefty chunk to pay for politicians
      • Salaries and expenses ($100m each year) and totals around $506m each year
Sorry, that was such a large episode, I hope you enjoy the rest of your day. Resources: Chapter 3 – Poverty and inequality in Australia https://www.aph.gov.au/Parliamentary_Business/Committees/Senate/Community_Affairs/Completed_inquiries/2002-04/poverty/report/c03 Persistent disadvantage in Australia: extent, complexity and some key implications https://www.aihw.gov.au/getmedia/9592571c-801c-46be-9c9d-75d0faffbb5b/aihw-australias-welfare-2017-chapter1-6.pdf.aspx Australia’s political parties got $62m in ‘dark money’ donations last year https://www.theguardian.com/australia-news/2018/sep/03/australias-political-parties-got-62m-in-dark-money-donations-last-year  Access and influence in Australian politics https://grattan.edu.au/wp-content/uploads/2018/09/908-Who-s-in-the-room-Access-and-influence-in-Australian-politics.pdf    

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