Tim Harcourt | The Airport Economist

The Asian white paper is a great chance for Australia to explore the opportunities our closest neighbours offer us, and education is the key: as it offers great points of engagement with Asia and longer lasting and deeper relationships.

The long-awaited Asian Century white paper was released on Sunday. Ken Henry’s paper covered a broad range of issues including education, language skills, technology and security in the fastest growing region on the planet.

Australia has been earning big dollars through rocks and crops – now we’ve got to do a bit more learning through education and service exports. But I argue that now it is vital for Australia’s trade that the white paper lifts our engagement with Asia, and identifies opportunities for government and business.

Just speaking an Asian language whilst helpful is not sufficient – we need to be Asian business literate, and understand the economies of our Asian partners to succeed in our engagement.

As younger Australians engage with Asia through education and exchange, technological advances and social media, the nature of their relationship with Asia will be different from that of previous generations. Demographic change in Asia will mean more opportunities for Australian services providers in the traditional areas of education and tourism but also in areas focused on wellbeing.

We should be at the forefront of offering financial services to Asia, and Australia could become the dominant financial centre in the region. Australian capability in financial services will be critical in the fourth wave of our economic engagement with Asia, as finance is the fuel that lubricates international trade. Financial services trade volumes picked up substantially in 2011 after four years of stagnation, rising by 22 per cent.

Tim Harcourt is the JW Nevile Fellow in Economics and an adjunct professor in International Business Strategy, at the Australian School of Business, the University of New South Wales (UNSW) & author of The Airport Economist:  www.theairporteconomist.com.

From the Knowledge@Wharton today blog.

Austerity in Spain and most of Europe has failed, according to Wharton management professor Mauro Guillen.

Further proof came this week with the announcement that the Spanish economy’s downward spiral continued, with GDP shrinking by 0.4% in the third quarter — the fifth-straight quarterly decline — and unemployment hitting a record 25%.

Despite the government’s attempt to put off a eurozone-led bailout of public debt, expect Spain to accept terms within two to three months, says Guillen.

In this video, he addresses the question: Have attempts at economic reform in Spain worked on any level?

This post was previously posted in Knowledge@Wharton today blog: Spain Sputters as a Bail-out Moves Closer

From the Knowledge@Wharton today blog.

Skyrocketing sales of tablets and mobile devices have hinted at the notion that desktop and laptop PCs — once the staple for home computing — are beginning to collect dust in many households. And now, the numbers are starting to show that: Last week, Microsoft, a company whose business depends heavily on sales of PCs and related software, announced that its first-quarter net income dropped by 22%, with revenue down 8% from a year before. That followed an earlier report by research firm IDC that global PC shipments fell by 8.6% in the last quarter.

For many observers, such data suggest that the “death of the PC” is imminent. To get some perspective on that grim outlook, KnowledgeToday asked three Wharton faculty members if they envisioned a time when the humble personal computer as we know it will no longer exist.

Peter Fader, professor of Marketing:

Declining earnings at Microsoft are one thing — they are now facing viable competitors when it comes to operating systems and office tools, so that’s all part of the natural ebb and flow of competing firms. But I don’t see any signs of a declining market for PCs. Okay, maybe the forms are changing, but I view a tablet plus optional keyboard as a PC. Maybe a smartphone is different, but anything with a screen that is frequently operated with a two-handed keyboard is a PC in my book, and that seems to be a very healthy growing market.

I predict that the forms will continue to evolve — we ain’t seen nothing yet — but for the foreseeable future, I see strong demand for a device that does the kinds of things that a PC currently does. Microsoft may continue to fade away, and even the mighty Apple will fall, but that kind of device has a very healthy future.

Eric K. Clemons, professor of operations and information management:

“Death of the PC” is like death of the mainframe: Neither is likely to occur, and, indeed, the move to the cloud has made “big iron” [mainframes and servers] more important as a share of global computing, rather than less important. The PC serves a function. Sometimes I do not want to rely on the Internet, as when I am at 37,000 feet. Sometimes I do not want to rely on the cloud, as when I am working on a first draft of a legal opinion. Where we do our computing has for a decade or more been determined by telecom speed, local PC processor speed, need for storage and local PC storage capacity, software costs, and the need for privacy and security. The balance will keep changing. [The young] “digerati” will continue to mock old guys who write coherent emails on laptops instead of sending short tweets from an iPhone. Both smartphones and tablets will have a place, but so will laptops and desktop PCs.

Daniel A. Levinthal, professor of management:

Technologies, even ones that suffer an enormous degree of substitution, tend to survive in particular niche applications. Indeed, while the volumes will shrink, so will competition, and modest margins over modest volumes can be earned.

Also, the definition of the distinct category of “PC” may be (or is getting) a bit blurred. In what ways are the new Microsoft devices PCs or not PCs? Is the definition a function of the nature of the operating system? What fraction of processing is done on the machine versus (via an app) on a server? Is it a super narrow definition which implies a microprocessor made by Intel and operating system by Microsoft?

This post was previously posted in Knowledge@Wharton today blog: Has the ‘Death of the PC’ Been Greatly Exaggerated?

From the Knowledge@Wharton today blog.

Frugal engineering, or the process of trying to reduce the complexity and cost of a particular product, has been fashionable in India for some time now. Today, even as Apple’s iPad, Samsung’s Galaxy and Microsoft’s Surface battle it out at the pricey end of the spectrum, the tablet wars in India are being fought at the bottom of the pyramid.

Prices are falling to very low levels. Canadian company Datawind has launched a $40 tablet, with schools in India being its target market. However, this isn’t Datawind’s first foray in the country. The Indian government ordered close to 2 million tablets, branded Aakash (sky), from Datawind as part of the National Mission on Education. These tablets were priced even lower — with subsidies, they cost $35 for students and teachers. But delivery delays, failure to provide customer support and other problems resulted in the government ending its association with Datawind. The company is now offering its tablets — branded Ubislate — on its own.

Unfulfilled promises might have toned down the hype around Aakash, but Union HRD Minister Kapil Sibal has announced that a new version — the Aakash 2 — will be available for students soon. “Hopefully, on November 11, you will see the President of India talking to 20,000 students from across the nation, who will have their hands on [an] Aakash,” Sibal said at the Economic Editors’ Conference held in New Delhi in early October. “At the moment, we are actually formulating a Cabinet note for the manufacture of five million Aakash tablets without any financial burden on the Ministry of Finance,” he added. Sibal hopes to price the tablet at $35 by setting up manufacturing facilities in India.

The tablet market, traditionally dominated by global leaders Apple and Samsung, is already beginning to feel the heat from local players. According to a Cyber Media Research (CMR) report released in mid-October, Indian company Micromax enjoys the lead in the country with an 18.4% market share. Second is South Korea-based Samsung with 13.3% and Apple with 12.3%. (Market share has been measured in unit shipments between April and June of this year.) Rounding out the top five are local players HCL and Karbonn. All the Indian companies have “affordable” (nobody uses the word “cheap”) devices. The Micromax range starts at slightly more than $100. Apple and Samsung tablets cost at least five times as much.

Other manufacturers have also recently entered tablet territory. The CMR report states that until the second quarter of this calendar year, around 90 vendors had launched tablets in India. The report also says the ASV (Average Sale Value) of the tablets in the second quarter of 2012 dropped to around $240 from $480 in the first quarter of 2012; most vendors have launched their products in the $90 to $180 price range. For example, startup WishTel priced its tablet — IRA Thing 2 — at $120. Noida-based Zync Global has a range that starts at $75. The government-owned Bharat Sanchar Nigam is selling the basic model of the Penta T Pad (manufactured by Delhi-based Pantel) for $75.

According to the report, “Landscape of Tablet PC market in India” released in mid-October by MAIT, the representative body for the Indian information technology and hardware sector, the market for tablet PCs in India is set to grow at 40% every year for the next five years. Last year, tablet sales stood at 1 million units. India is the “new blue-eyed growth opportunity”, says MAIT president Alok Bhardwaj. “[The tablet] is fast becoming one of the drivers of rapid growth in the IT content consumption and hardware sector in India.”

But does frugal engineering work for technology products? The “affordable” car — the Nano — is selling below expectations. The Simputer, a hand-held computer developed in 2002 for India as a low-cost alternative to PCs, was a disaster. Priced at $230, it was too expensive for the rural consumer. There were technological glitches, too. But frugal engineering seems to have worked for sectors including cell phones and printer cartridges, however.

Faisal Kawoosa, lead analyst for telecom at CMR notes that low-cost tablet vendors “have tried to put in everything in terms of features and functionality — even those not present in Apple. For instance, [the tablets] have USB slots. But whether that is working well performance-wise is a question mark. It is too early for us to judge.”

This post was previously posted in Knowledge@Wharton today blog: Tablets in India Take to Frugal Engineering

Dale Boccabella

There are changes to taxation law, which are being introduced as part of the Mid-Year Economic and Fiscal Outlook. Company tax, the baby bonus and private health insurance are being targeted by the federal government.

The budget has lost $3.9 billion in tax receipts for this financial year since the May budget and $21 billion over four years. In particular declining commodity prices have led to a crash in forecast receipts from the mining tax from $13.4 billion over four years to $9.1 billion. As a result, the government has increased some taxation.

Corporations will have to pay company tax monthly, rather than quarterly. While this will ensure that instalments are closely aligned to fluctuations in these businesses’ income, it isn’t exactly going to be helpful to firms which are already struggling under a bureaucratic workload.

On the cuts to the baby bonus from $5000 to $3000 for the second and each subsequent child, this is a relatively minor item for the government – however it will impact on parents. Expensive items such as the cot, pram, change table and baby capsule can sometimes be reused for subsequent children, but they are often hit by other costs.

There are changes to private health insurance starting in April 2014. This will increase the cost of all premiums. Under the latest round of cuts, the government’s 30 per cent rebate will no longer automatically be increased to match the annual increase in premiums. Instead the rebate will be indexed to inflation, which is normally less than the premium increases. There’s a double whammy too – if the premium increase is less than inflation, the rebate will be indexed to that.

We already saw increases in the May budget. At the time, the government means-tested the private health insurance rebate, which will save it about $2.8 billion over four years. This further measure will save $700 million over three years. For those people who thought they had escaped by being under the private health insurance means testing limit, they will now be hit by having the rebate indexed to inflation. However I expect this measure may put a bit of pressure on the funds to try and cap their premium increases.

Dale Boccabella is an Associate Professor of Taxation Law at the Australian School of Business.

From the Knowledge@Wharton today blog.

The often oddly illogical behavior of insurance buyers and sellers has long fascinated Wharton health care management professor Mark V. Pauly and his colleague Howard Kunreuther, Wharton professor of operations and information management.

During their decades-long collaboration on market studies, the two compiled notes on the ways that insurance companies, consumers and regulators get it wrong — Pauly describes it as “a rogue’s gallery of insurance anomalies.” That collection ultimately became so substantial that they turned it into journal articles and then into a book titled, Insurance & Behavioral Economics: Improving Decisions in the Most Misunderstood Industry, to be published in December.

Why “misunderstood?” In an interview in the LDI Health Economist, a publication of the Leonard Davis Institute of Health Economics at the University of Pennsylvania, Pauly identified some of the reasons insurance buyers and sellers misconstrue each other’s intentions and responses so frequently. Topping the list is consumers’ widespread uncertainty about predicting risk or estimating probability, and a time-lag sense of entitlement to things that weren’t actually purchased in a transaction.

“Insurance is a contract where you pay your money up front and then whatever you’re going to get from it, you get later on,” Pauly said. “But just like a pre-paid vacation, that can be a recipe for frustration: People arrive at the hotel and believe they are entitled to free Mai Tais even though the fine print of their confirmation says they’re not. The thing I think people do understand — but want to pretend they don’t understand about insurance — is that if you didn’t pay for it and it was not specifically in the contract, you’re not entitled to it. Once consumers have paid their insurance premiums, many really do want to think they’re entitled to be paid for anything bad that happens to them.”

Insurers, Pauly said, “have just the mirror image. They see themselves as promising a certain number of things for a certain amount of money; and if you didn’t pay them for it, they shouldn’t be required to deliver it to you.”

However, he pointed out that the book doesn’t just target consumers’ foibles. “There’s plenty of blame, stupidity and irrationality to go around” for insurers and government regulators as well, he noted.

“We’re aiming this book partly at scholars and partly at people in the insurance industry who are sometimes inept in explaining what they do and why,” Pauly stated. “We say, ‘You’re often as irrational as consumers even though you have much more at stake.’ Hopefully, the book will make insurers think more carefully about what they do and also give them a little bit of defense for some of the things that need to be explained to consumers, regulators and policy types.”

Another goal of the book is to establish a benchmark for good insurance performance, then explore how various markets succeed or fail at meeting that benchmark.

“The majority of insurance dollars spent in the U.S. are spent in markets that are functioning fairly reasonably, but there are some markets where it’s totally nuts,” he said. The book makes an effort to compare the two different kinds of markets to identify characteristics that predict potential problems…. The book not only discusses anomalous insurance markets, it also discusses non-anomalous insurance markets because it wants to identify the characteristics that tend to predict anomalous behavior.”

One of the markets the authors scrutinize is health insurance, and their conclusions may surprise many.

“I don’t feel as bad about health care insurance after writing this book as I did before,” said Pauly, “because compared to a lot of other insurance markets, it’s not nearly as messed up. The kind of insurance sold even before the Affordable Care Act [ACA] provided pretty good coverage against low probability catastrophic events, which, in this case, is the potentially bankrupting circumstance of becoming a hospital in-patient.”

Health insurance performance behavior “was better than other kinds of insurance,” he said. “For instance, in terms of flood insurance, a consumer could say, ‘It will never happen to me because I haven’t seen a flood in my neighborhood in quite a while.’ But they do see catastrophic health events often enough to know that these aren’t that low a probability. So, from that point of view, health insurance looks better than average.”

One of the things the ACA is trying to address is that “if you buy your health insurance as an individual, there are really high administrative ‘loading’ and selling costs,” Pauly pointed out. “But the percentage of that for health insurance is about the same as other kinds of insurance people buy as individuals, like auto collision or homeowner coverage. That doesn’t mean it’s either bad or good. It just means that the imperfection and waste in the individual insurance market isn’t something unique to health insurance. It seems shared by virtually all insurances that people buy on a one-on-one basis.”

Pauly notes that many economists have their doubts about the ACA’s health insurance exchanges – competitive marketplaces designed to allow patients to buy insurance directly from a pool of different health plan options. He tells an economist joke to make his point: An economist and non-economist are walking down the street when the non-economist says, “That looks like a $20 bill over there. Why don’t you go pick it up?” But the economist keeps walking. The non-economist asks, “Why didn’t you go pick it up?” The economist says, “Don’t be ridiculous. If it was a $20 bill, somebody would have already picked it up.”

The moral, said Pauly, is that economists often suspect that if something isn’t happening, it shouldn’t; if exchanges were a good idea for individual insurance, wouldn’t there already be automobile insurance exchanges and homeowners’ insurance exchanges and life insurance exchanges? So how much can they add for health insurance?

But he is keeping an open mind. “I try not to be an economist one day a week,” he said. “Then I say there might be some good new ideas in the exchange concept, but they will have to be invented from scratch.”

Another focus of the book is “deductible aversion” — consumers’ tendency to automatically select insurance plans with the lowest out-of-pocket costs, despite the premium reductions from reducing coverage a little.

“The typical homeowner’s policy,” said Pauly, “will have a US$500 deductible. It turns out that if you bumped up that deductible to $1,000 or $2,000, the amount of premium you could save is generally much more than anything close to the average amount more you would lose in benefits. But people just like low deductibles.”

Ditto in health insurance, he said. “Many consumers and most policymakers are wary of increasing deductibles. But there’s a camp that believes that a more rational health insurance system would be one with high-deductible health plans of the kind that are, at the moment, winning the marketing battle in the group market. We will have to wait and see what kind of rationality or irrationality wins out.”

This post was previously posted in Knowledge@Wharton today blog: When Insurance Buyers and Sellers Speak Different Languages

From the Knowledge@Wharton today blog.

China’s economy may be bottoming out in the face of a weak third-quarter GDP growth rate of 7.4%. It was the seventh straight quarterly decline. Although this and some other recently released indicators look gloomy, they have been partially offset by more positive economic news, all of which suggests that the hoped-for soft landing for China’s economy may be underway.

But for the Chinese economy to revive in a sustainable way, the household consumption portion of GDP “has to reverse course and start going north,” says Wharton management professor Marshall W. Meyer. Given China’s stage of development, “household consumption is extremely low, about 34%. Neither exports, given the parlous state of the EU and, to some extent, the U.S., nor capital formation, given there has been so much of it, can provide the path to sustainable growth at this point.”

China has relied on investment activity to grow more than any economy in modern history. The country’s disappointing third-quarter numbers were foreshadowed earlier in the month when the World Bank cut its growth forecast announced just five months ago from 8.2% to 7.7% for all of 2012. Still, the Bank now projects GDP growth next year will tick upward to 8.1%, albeit a bit below its May forecast of 8.6%. Holding economic growth above 8% will be possible next year because of additional liquidity injections and higher spending by the government, World Bank economists say.

Local Chinese governments have been spending heavily to grow local industry. Various reports note that some 7 trillion yuan in spending has been set loose since July.

“When you throw a trillion dollars into the Chinese economy something is bound to happen,” says Meyer. “Whether it’s a good thing is another matter.”

Already there are signs that, despite the third-quarter’s overall letdown from the second quarter’s growth rate of 7.6%, other indicators are starting to turn around. For example, China also reported this week that exports unexpectedly jumped 9.9% in September compared with a year ago. There were additional reports that retail sales, industrial production and investment all rose toward the end of the quarterly reporting period, which prevented the numbers from deteriorating even further.

But as Meyer suggests, the short-term challenge to China’s economy seems to be one of stopping the bleeding rather than offering hope of resuming the robust growth of recent years. As he notes, the Baltic Dry Index (a measure of prices for shipping basic materials and commodities) is still far below its all-time high in May 2008, and HSBC’s China purchasing managers index “was pretty low, 47.9, at the end of September.” (A number below 50 typically suggests economic contraction, while a number above 50 suggests expansion.) The August consumer confidence level, meantime, was below that of August 2011.

The World Bank also cut its forecast for the whole of East Asia this week from 7.6% to 7.2%, acknowledging the drag China’s economy is exerting on the region. That outlook marked the lowest level of GDP there in more than 10 years.

This post was previously posted in Knowledge@Wharton today blog: China’s Third Quarter Turns Down — Again

Gina Anderson| CSI Blog

We often talk about the role of philanthropy as ‘venture capital for the not for profit sector,’ able to take risks on new ideas, innovation and social change. However for many in the not-for-profit arena, the problem with philanthropy is the lack of ambition and lack of purpose.

A fascinating new report by The Resource Alliance, supported by the Rockefeller Foundation, entitled  ’Risk and Philanthropy‘ examines how risks in international development philanthropy are defined, assessed and managed. It reports the conclusions from a series of 27 interviews conducted with development philanthropists, philanthropic intermediaries, grant makers from leading international foundations and sector academics in April 2012.

The report argues that philanthropy needs to become better at understanding the relationship between risk and opportunity, cognisant of the distinctive contribution that effective risk strategies can play in creative solutions to the most intractable development and social problems. It also argues that philanthropists need to be much more accepting of failure and recognise that to achieve large-scale change much of the resource may be ‘wasted’ along the way. Occasional failure should be seen as the acceptable cost of innovation.

In the report they seek to understand more about why so many individuals and foundations are seemingly risk averse with their philanthropy. While the focus of the report is on international development philanthropy, their examination of risk assessment, risk management and how philanthropists and philanthropic institutions use different decision rules depending on categories of risks experienced, is very useful for understanding all types of philanthropy.

The report defines the two main risks that are of primary concern to philanthropists engaged in international development:  Impact Risk and Operational Risk.

Impact Risk is most often cited as the critical risk and is defined as the risk of not achieving the required impact given a specified level of philanthropic investment – in short, is the money making a difference? There appears to be three drivers of impact risk in international development:

• It is often difficult for philanthropists to articulate how they define impact
• It is often difficult for philanthropists to decide a priori how to design an effective social innovation system to achieve the desired impact
• It can be difficult to establish meaningful metrics to measure success and/or to encourage those being funded to report on the impact achieved in a meaningful way.

Operational Risk often goes hand in hand with impact risk and is defined as not having the right operational approach to support sustainable impact – in other words, is the money being spent appropriately? As part of the discussion of operational risk, I particularly enjoyed their examination of the selection of appropriate business models and of the importance of developing a diversified risk profile, an organisational learning culture and adequate control mechanisms.

Other risks identified in their interviews were financial, reputational, political and personal risks. However, these were rarely considered as important and typically only became a concern when they were perceived as increasing either impact or operational risk.

The report also highlights the importance of trust on the part of both beneficiaries and funders.  So much of risk is subject to trust with the corollary that little trust often means big risk.  In most cases, the perception of risk is based on the philanthropist’s past experience. In reality the risk in philanthropy is often a lot less than imagined and the possibility of failure not as great as imagined. The onus falls to the not-for-profit organisation to manage and mitigate risks, while understanding the philanthropist’s biases and educating the philanthropist on the field of endeavour.

However, as learning begets learning, the pragmatists among us plead:  don’t over intellectualise philanthropy – just do it!

Gina Anderson is a member of The George Institute Board and was Executive Director and Chief Executive Officer of Philanthropy Australia from 2005- 2010. This article first appeared on the CSI Blog.

 Jeffrey Knapp

Largege Australian companies which have previously complied with all disclosure requirements in accounting standards are now claiming that they do not have public accountability and are doing less disclosure.

The auditors of these companies are going along with this treatment. The reduced disclosures under AASCB 1053 include the removal of information about remuneration for key management, financial risk management, and audit firm remuneration.

The new Australian Accounting Standards for ‘Reduced Disclosure Requirements’ , or AASB 1053, remove the requirement to publish much of the detail about a company, if they have no ‘public accountability’.  It does not officially commence until July 1, 2013, however some companies have already implemented the new standards.

I do not understand how a public company complying with all accounting standards overnight becomes an entity with no public accountability, thereby reducing its disclosures. It’s not a good look when the management of a public company is responsible for reduced disclosures of management remuneration or an audit firm agrees that the disclosure of audit firm remuneration should be removed from the accounts.

Under AASCB 1053 a company must have no ‘public accountability’ to take advantage of the new reduced disclosure requirements. Public accountability is defined to mean “accountability to existing and potential resource providers and others external to the entity who make economic decisions but are not in a position to demand reports tailored to meet their information needs.”

A large Australian company that is economically significant employing hundreds of employees or with hundreds of creditors has public accountability because those stakeholders and resource providers cannot command specific financial information from the company. Employees and creditors of such a company are entitled to information about how the company is managing financial risks, especially given the current economic environment.

I will issue a challenge to the big audit firms to show leadership when interpreting the meaning of “public accountability” for the purpose of accounting standards disclosures. 

The accounting profession must act in the public interest and it fails in this regard when it reads down definitions in accounting standards and meekly concedes to fee-paying clients. If the big audit firms are weak when interpreting the meaning of ‘public accountability’, then they make the case for less professional judgment and more hard and fast rules like audit firm rotation.

Jeffrey Knapp is a lecturer in financial accounting at the Australian School of Business.

Professor John Piggott

All around the world, governments are trying to get workers to work longer. Australia is no exception.

Population ageing – increasing longevity combined with lower fertility – will generate massive increases in the per worker fiscal cost of supporting people in retirement and old age, unless we work for longer. This is a calculus most governments now appreciate, at least in theory.

By 2050, the 65-plus population of Australia will have doubled, and the 85-plus group will have increased by a factor of four.

So how is it that the average Australian retirement age, according to figures from the Organisation for Economic Co-operation and Development (OECD), is lower by three years compared with 40 years ago? It now stands at 23 years for 60-year-old males, and 26 years for females, among the world’s highest, and our healthy life expectancy’s been going up too.

International experience indicates, and Australian experience supports, the idea that the single most important determinant of retirement age is the age you can access your retirement income. The OECD estimates that Australian labour force participation moves from a highly respectable 82 per cent for the 50-54 age group to 53 per cent for those aged 55-64, and then plummets to 25 per cent for ages 65 to 69.

Australia has three access ages: 55 (about to start moving to 60) for superannuation access; 65 (about to move to 67) for age pension access; and 60 for tax-free superannuation benefits. Two sticks and a carrot.

This alignment between access age and falling labour force participation is no coincidence.

To take just one cross-country comparison, New Zealand’s mature labour force participation rate climbed rapidly over the last 20 years, to 76 per cent for ages 55-64, as age pension access there increased from 60 to 65, with no widespread superannuation to buttress it. It is now higher than Australia’s, whereas 20 years ago it was lower, at least for males.

Australia is adjusting the access ages for the two sticks. But the access age for tax-free superannuation is stuck at 60. Once the standard superannuation age reaches 60, in 2024, the carrot will have lost its crunch.

The social cost of this policy paralysis is very high. Professor John Piggott from the ARC Centre for Excellence in Population Ageing Research and Senior research fellow Rafal Chomik calculate that GDP would be 4 per cent higher if our mature age participation rates were like New Zealand’s.

But there are other costs too. Mature age unemployment is lower than among the young, but duration in unemployment is much longer. Nearly half of the unemployed in their early 60s have been unemployed more than a year.

It follows that once you leave the labour force at a mature age, re-entry is likely to be difficult.

These hazards will occur much more frequently when there is a seven-year gap between tax-free superannuation and the age pension, which is where we’re heading on current settings.

Relative to 40 years ago, current mature age workers are healthier and can expect to live much longer. And for the most part, the work they do is less physically demanding. Retiring should be happening later, not earlier. And we should use the policy levers we have to make this happen.

John Piggott is Director of the ARC Centre of Excellence in Population Ageing Research (CEPAR), and Scientia Professor of Economics at the University of New South Wales.  A version of this article was previously published in The Australian Financial Review.