Bradley Kalgovas

New research shows that the head of IT within an organisation – the Chief Information Officer or CIO – needs to become ambidextrous to deal with all the conflicting demands placed on them.

Business needs CIOs who are as comfortable managing people, systems, and budgets as they are with the technology, and CIOs should be capable of juggling all the complex tasks that come their way. To do that they need to use both ‘arms’ of their skills: hence we call it ambidextrous.

My research found that CIOs need to develop a deep understanding of the organisational implications of technology decisions – in particular where it hits the company’s bottom line. Their focus is on project management, delivering IT and business strategy, as well as human resource and change management within their teams. Their role has changed from an ‘IT Manager’ to an executive who is responsible for mitigating the ‘complexity gap’, whereby they are expected to pioneer technology in an area that is rapidly changing.

They need to be business people first, managers second, and of course also deal with the technology and ‘keep the lights on’.

Ambidexterity is a framework that aims to resolve the tension between conflicting roles and skills. This type of management theory has been examined extensively at an organisational level, but has received little attention when it comes to the individual. And yet for a CIO it is vital.

Of course the CIO is very different from an IT manager: the CIO reports to the board, whereas the IT Manager deals with the technology.

A key finding for CIOs is that ambidexterity will result in delivering a quality product. Over the past decade there has been a transition to ensure that the CIO is no longer a data processor: they are very strategic. They are part of the planning process, as opposed to hearing about it second hand and being told to implement it. Part of this is because the profit at many companies comes from their website. They are not just a company that uses IT: IT is core to ensuring they make money.

Bradley Kalgovas is an Honours Bachelor of Commerce Student at the Australian School of Business.

Professor Raja Junankar

Calls for reforms of the contentious 457 skilled entry visa – used by the mining industry to bring in long-stay temporary workers – may not work.

Plans to fast track migrants for the mining industries won’t help these industries find workers – because few people using a 457 work in mining. Changing the rules for the 457 visas would be an odd, short-sighted decision.

Over 93,000 overseas skilled workers are currently living and working in Australia on 457 temporary visas. Australian trade unions are pressurising the government to create legally binding agreements that would require employers in the mining industry to advertise jobs to try and find Australian workers and Australian residents before being allowed to recruit international workers to come to Australia on temporary work visas.

If there is really a shortage in workers due to the mining boom, then we should look at bringing in more plumbers and electricians, whereas the 457 visas mainly go to professionals.

 Looking at the data on the ‘class 457’ visas in 2011 72% of class 457 visas went to managers and professionals, and only 21% to trades and technicians. The Australian states that received the vast majority of class 457 visa applicants was in New South Wales – which isn’t known as a big mining area. WA gained 23%, and Victoria 20%. Not Queensland, or the Northern Territory.

 The data for the 457 visas seems to go against what we are told they are for. The 3 main industries getting 457 visas are construction, health services and ‘other services’: nothing connected to mining. Also if we look at where people have come from that get a 457, the list in order is the UK, India, Ireland and then at 4^th, the USA.

Professor Raja Junankar is a Professorial Visiting Fellow in Economics at the Australian School of Business, and an Honorary Professor in the Industrial Relations Research Centre at the University of New South Wales.

Professor John Piggott

Presenting a comparative analysis of Australia’s pension fund scheme in Frankfurt this week, Professor John Piggott demonstrated that Australia’s unique private pension system (superannuation) had the country well placed to meet the rising costs of the ageing population compared to other OECD countries. However, he says the Australian system is not without its issues.

Australia’s private pension assets total 95% of GDP placing us fourth among OECD countries – behind the Netherlands, Iceland and Switzerland and ahead of the United Kingdom, United States and Canada. This private investment, alongside a means tested Age Pension, reduces the burden on the public purse as the ‘dependency’ ratio of working to non-working Australians increases.

Countries like Greece, France, Italy and Spain have pension systems with little to no private assets, meaning that their retired and older populations are much more dependent on public funding.  This is a situation that, if unchecked, threatens the long term sustainability of pension systems in these currently fragile economies. Even Germany, regarded as the economic bedrock of Europe, has a system as reliant on publicly funded pensions as Italy and Spain. While Germany’s modelled net replacement rate is far more frugal and it has instituted a politically controversial sustainability adjustment to its pension benefits, the risk remains largely in the public sphere.

 While we are yet to see the results of the recent changes to the Australian system, it is expected that the decision to boost contributions from 9% to 12% and raise the retirement age by two years from 65 to 67 will continue to keep Australians in a well-balanced private/public funding position. Along with a stronger means test, it will offset the increase in public risk arising from the recent 11% real increase in the Age Pension.

The fiscal strength of the Australian system is also evidenced by its modest but adequate 59% net replacement rate for average earners and the fact that the strong private asset base provides a better risk balance between private and public provision. This stands in contrast to Greece’s current system which is set to provide 110% of pre-retirement income entirely through public funding.

That is not to say that the Australian system is home and hosed. Our heavy investment in private assets for retirement places increased pressure on individuals to be literate in investment strategies and jargon.

The ABS (2006) survey found that only 37 per cent of Australians have the minimum literacy and numeracy required “to meet the complex demands of everyday life and work in the emerging knowledge-based economy”. Despite the introduction of simpler default investment products through MySuper, there are many choices that remain with the individual. For example, the options for decumulation are still deficient and complex. In the absence of adequate private pension income, individuals might wish to access private housing wealth. But here too they find available products, such as reverse mortgages, daunting.

Our OECD counterparts will have difficulty navigating the treacherous waters of cultural expectations if they attempt to shift their much-loved publicly funded systems to ones encouraging private assets. But as our own private pension system demonstrates such structures have their own unique challenges.

In addition to the temptation for the Government  to continue to tinker with superannuation rules, the Australian system will need to grapple with new and emerging issues. The architecture of choice across the life-course, investment education, even the issue of cognitive impairment in older populations attempting to understand and undertake these complex financial decisions, will be our sticking points in the coming years.  Different issues but no less challenging.

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. 

Dale Boccabella

A major anomaly in the capital gains taxation should be the target of a federal government seeking to increase tax revenue. Discount capital gains tax for individuals is very odd.

A wage earner on income above $37,000 will face a tax rate of 34% on income above that amount. When the income reaches $80,000, every extra dollar is taxed at 38.5%. Yet, the most that is payable on a discount capital gain is 23.25%.

Discount capital gains for an individual means that a person only gets taxed on half of the capital gain they make – only $5,000 of a $10,000 gain would be taxed. The effect is that a person on the top marginal rate of tax (earning income over $180,000) would only pay a rate of 23.25% on a capital gain (50% of the top marginal rate of tax of 46.5%). A person on the tax rate one down from the top marginal rate (income above $80,000 but below $180,000) would only pay a rate of 19.25% on a capital gain (50% of the 38.5% marginal rate band).

Why do we have such anomalies or differential treatment in the tax law? After all, isn’t a buck a buck, and therefore they should all be taxed in a similar way? Yes, a buck is a buck in terms of economic well being, and for accounting purposes, but for tax purposes, not every buck is quite the same.

This begs the question why?

Governments and the Henry Tax Review have come to accept that different taxes may have different effects on taxpayer behaviour, and that as far as possible, tax measures that have a damaging effect on investment and economic growth should be avoided.

Anomalies can therefore arise from this desire to avoid the damaging aspects of a tax measure. Badly designed taxes can have the effect of changing the behavior of taxpayers to the detriment of the economy.

But, fairness is at the top of many peoples’ wishlist when it comes to the design of a tax, and fairness is all about contributions to the public revenue. The ‘Warren Buffett’ type anomaly – whereby the billionaire Warren Buffett faced a lower tax rate on his income than the rate faced by his secretary – should be seen in the light of this tension between minimising damaging taxes and fairness.

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

From the Knowledge@Wharton today blog.

Technology has altered consumer product marketing from a top-down, somewhat paternalistic enterprise to an immediate experience that has more in common with a door-to-door salesman. Within the last decade, hordes of middlemen or third-party distributors have been obliterated from corporate flow charts. Instead, major manufacturers are hearing their products praised and castigated directly from consumers. And many of those consumers have a potentially powerful and infinite network of “friends.”

Measuring and managing that constant flow of feedback is the greatest challenge facing modern marketing managers, according to Peter Fader, a Wharton marketing professor and co-director of the school’s Customer Analytics Initiative. Fader moderated a panel discussion on the topic at the recent Wharton Marketing Conference.

Within the 90-minute discussion, six experts from leading consumer products companies described technology in general and social media in particular in a variety of ways, ranging from gift to burden. They toyed with words like “enabler,” “channel, partner,” “buzz meter,” “tsunami of data” and “problem generator.” One panelist hailed digital technology as a teaching moment because companies that monitor the web may uncover misinformation about their products and respond.

“There’s way more data now, and it’s a lot more work. Those days of meeting once a year to launch a single marketing campaign are over,” said Ryu Yokoi, senior brand manager for Unilever, a multinational company with headquarters in Rotterdam and London. “On the other hand, the feedback is very tangible and a lot more fun.”

A self-described “pop culture junkie,” Yokoi begins his day scanning the digital landscape for innovative promotions from Amazon to Living Social, and for online chatter about Lipton Tea, his major responsibility for the company. Other Unilever brands include Hellmann’s, Dove, Breyers, Ben & Jerry’s, Skippy and Vaseline. “The one place I don’t want to see our name is the “Condescending Corporate Brand” page on Facebook, [which] rips companies for posting what they consider dumb and insulting content on their Facebook pages.”

Frequently characterized as the word-of-mouth platform, Facebook is a critical tool, but not the only tool for getting out a marketing message on social media, noted Janis Fratamico, director of client experience for IBM Global Client Centers. “The truth is a lot of these Facebook pages have no value. It’s easy to be overwhelmed by the quantity and we recognize that we are not effectively using all the social media that is out there already.”

According to Amy Saunders, director of Johnson & Johnson’s digital center of excellence, the New Brunswick, N.J.-based company uses everything from old-style marketing, such as putting promotions on hospital maternity ward TV networks, to new media-influenced strategies, like analyzing skin problems based emailed photos from consumers.

As online buying continues to grow, so does showrooming, a trend in which consumers shop around at retail stores to examine products and pick the brains of sales clerks before actually buying from an online source offering cheaper prices. “It is a concern because we don’t want to be competition for our retailers,” noted Saunders, who has crafted multi-channel marketing strategies for J&J brands including Neutrogena, Aveeno, Listerine, Visine and Zyrtec.

Her concerns were echoed by Jeremiah Marble, a product manager for Microsoft. ”People want to touch a new phone and experience it in a tangible way,” he said. “Striking that balance between virtual and real customer contact is a challenge.”

Jeff Bedard, marketing director for Chase Sapphire, shared an anecdote that revealed the potential hazards for marketers from an annoyed customer with time to burn and a smartphone in his or her hand. Chase Sapphire is the credit card division of New York-based JPMorgan Chase.

A customer, he recalled, was annoyed with the long line ahead of her at a Chase bank branch. She grabbed her phone and began trashing the bank’s service in a tweet. A Chase social media monitor responded immediately to the tweet and asked if he could help her transact her business online instead of waiting for a teller.

While Chase Sapphire strives to be cutting edge in a competitive business, Bedard calls new technology “a gift to marketers,” but inevitably problematic. “The challenge is to uncover those problems and solve them before they get out of hand,” he said.

Technology can introduce moral dilemmas as well, noted Avi Mannis, vice president of marketing for Hawaiian Airlines. To illustrate, he proposed a common scenario in his business: lost luggage. “Do we go out of our way to help the customer with thousands of Twitter followers or the person who has none?” he asked. “Sometimes, technology can be a burden.”

This post was previously posted in Knowledge@Wharton today blog: Navigating the Multi-channel World of Modern Marketing

From the Knowledge@Wharton today blog.

Last week, Facebook announced that it was stepping up its efforts in the job search and recruitment arena by offering a new app that allows users to peruse employment opportunities aggregated from existing job boards such as Monster, Jobvite and BranchOut. Although Facebook is already viewed as an active but informal platform for job seekers who want to network, the company’s “Social Jobs” app will allow users to search approximately 1.7 million jobs by keyword and location, and then apply for positions without leaving the site. Facebook users can also share open positions with others in their networks by “liking” those jobs. The app is the culmination of a yearlong partnership with government agencies and human resources consortia, including the U.S. Department of Labor and the Direct Employers Association.

What does this new development mean for Facebook, its users and major players in the job search market, such as LinkedIn? K@W Today asked Wharton marketing professor Pinar Yildirim and Wharton emeritus management professor Lawrence G. Hrebiniak for their take.

K@W Today: Strategy-wise, is this a good move for Facebook?

Pinar Yildirim: Since its IPO, Facebook has been feeling the pressure to make business moves that will bring in quick money for its shareholders. This pressure results in some moves with short-term benefits but long-term costs.

Facebook started out as a social platform for a homogenous clientele. It had college students who shared similar interests and lifestyles. Users on Facebook felt comfortable sharing information and networking with close friends. It allowed for an easy and time-efficient way of keeping in touch. As Facebook gradually got larger and larger, the average user started adding her boss, parents, colleagues, neighbors or the random stranger she met at a party to her network. Her network was no longer homogenous. The quality of information shared among friends also went down significantly. Overall, users started to share less and less personal and intimate information.

Trading in quality of information for volume was a mistake, because the archive of personal information is the biggest value of Facebook to advertisers. Imagine what an opportunity it provides when a consumer shares personal information; [an advertiser is] able to target a consumer as soon as she shares information on everyday events — like where she is going out that night, what TV show she is hooked on, etc. — or life events like getting engaged, becoming pregnant, breaking up with a boyfriend and so on. Yes, Facebook added features like lists and friend groups to prevent the quality of information shared from going down, but let’s be honest: The average consumer is lazy, busy and not keeping up to date with settings on every website she uses. Most people would rather post less private information than spend hours creating lists of friends.

Facebook missed an opportunity and has been seeing disappointing advertising numbers. As a result, it is now turning to other options. Social jobs is one of them. Integrating ads into feeds is another attempt. I expect many others to follow.

In the short term, the Social Jobs app might help Facebook raise money as corporations will pay for posting jobs on Facebook, particularly given the unemployment numbers. Many firms are interested in getting personal information on a candidate. But in the long term, this move is likely to further degrade the quality of information people share. Users will be more careful about what they say or post on Facebook, because it might be evaluated by a potential employer one day. And this might further hurt the advertising dollars.

In summary, it is a good short-term move, but likely to have negative consequences on advertising in the long term.

Lawrence G. Hrebiniak: The Social Jobs app is a good strategic move by Facebook…. Facebook has a massive user base, and the Social Jobs app allows it to build on its people-reaching capabilities and grow in an area in which the company currently has a minor presence. This clearly is a strategic move [for Facebook] to test its mettle against LinkedIn, and the targeted company shouldn’t take Facebook’s actions lightly.

K@W Today: What will this mean for LinkedIn?

Hrebiniak: LinkedIn’s Talent Solutions unit is its bread-and-butter, revenue-producing division, and Facebook would like a big bite of this lucrative market. Of this there is no doubt. The drop in LinkedIn’s stock price after Facebook’s announcement is strong evidence that investors clearly see the looming threat to the company.

LinkedIn currently has good working relationships with headhunters and a history of effective performance serving them. It needs to use these contacts to continue differentiating its capabilities in the marketplace. It must work hard to ensure that Facebook doesn’t become more than a simple list of jobs, and must use its strengths to keep Facebook from gaining traction with its headhunters and other allies. This is a strategic shot across LinkedIn’s bow, and it had better respond to the warning. This will be a battle of muscle vs. muscle, and it will be interesting to see how it plays out.

Yildirim: LinkedIn will have competition, but users of LinkedIn created more than just resumes in the past years. They created communities; they established interest groups. And there are consumers with existing subscriptions. Switching will be costly.

On the other hand, Facebook can become a serious rival for jobs where social skills matter. Sales positions and jobs in the entertainment industry are examples. Facebook can offer years of proof of leadership, communication and social interaction information history and photos. LinkedIn cannot yet offer such information or information on the personality of a person outside of the work environment.

K@W Today: Are traditional job boards like Monster.com and Indeed likely to disappear altogether?

Yildirim: It is important to listen to what past bosses, clients and co-workers say about a candidate during the hiring process — but not necessarily for every position. There are many positions where firms simply do not have the time or desire to collect information on a person’s social life. Or they prefer to evaluate the candidates through their own filtering mechanisms. Similarly, for highly skilled or specialized jobs, resumes matter more than what others say about you. There will be traditional hiring for such jobs, and traditional job sites will survive.  

K@W Today: Do you see any privacy concerns for Facebook users with this development?

Yildirim: I see many privacy concerns with online social networks and search engines, simply because they sit on too much private information and they archive it. Personal information is collected over the course of one’s life. Kids born today will have a digital archive of their entire lives online — initiated by their parents posting baby pictures on Facebook, [followed by those kids] creating a Facebook page at a very young age.

Such archives might become very useful one day for advertisers and researchers, but at the same time, they will be a headache for some others…. It is up to people and policy makers to say “no” to the archiving of their personal data beyond their approval.

A final note: I expect markets to create paid alternatives to firms that violate privacy. The number of such alternatives and small initiatives are increasing. DuckDuckGo (a search engine focusing on privacy) is an example

This post was previously posted in Knowledge@Wharton today blog: Facebook’s New ‘Social Jobs’ App — Like or Dislike?

From the Knowledge@Wharton today blog.

For any family business facing a transition from its founders to the next generation, several fundamental questions must be addressed: What are the assumptions behind the company’s culture and values? Are these assumptions helpful or harmful to succession? Do the culture and values lead to artifacts that serve as physical evidence of the company’s mission? 

To uncover some helpful assumptions, consider two companies that have enjoyed multiple successful generational transitions: SC Johnson and Son and the J.M. Smucker Company. SC Johnson was founded in 1886 when Samuel Curtis Johnson, at the request of his customers, created a preservative for hardwood flooring sold by his company. To create the product, he studied how Europeans preserved the wood floors in manor houses, and then he developed a formula that he perfected in his bathtub. The company’s culture, in part, is based on an underlying assumption of “doing.” The resulting value is, “We will not stop doing until the customer is satisfied.” The artifact is the founder’s bathtub, which played a central role in the company lore. 

Johnson also assumed that people and communities were essential to his success. The resulting value around employee practices is, “We care about you.” The value around community involvement is, “We are part of [the] communities in which we work and, therefore, believe in paying our civic rent.” Artifacts include a pamphlet titled, “This We Believe,” given to all employees. The pamphlet starts with the following powerful statement: “The goodwill of people is the only enduring thing in any business. It is the sole substance…. The rest is shadow.” 

J.M. Smucker dates to 1897, when Jerome Monroe Smucker began producing apple cider and apple butter from trees growing near his Orrville, Ohio, home. He was so obsessed with quality and fairness in his pricing that he added a bit more product in his jars to ensure that the customer was not being cheated. He also personally signed every lid of every jar he produced. Smucker assumed that in a business that bore his name, people had to be treated fairly and with respect. From this assumption, the values of quality products, fair treatment of employees, responsibility for the well-being of the communities where the company operates and customer satisfaction had their roots. An artifact that flowed from this basic assumption is the J.M. Smucker signature, which still appears on all jars of Smucker’s products. 

Both SC Johnson and J.M. Smucker perpetuate the memory of their founders with artifacts that remind all employees, both family and non-family, of what values the businesses holds dear. Both companies have created a participative culture in which customers, suppliers, family, employees and community all take part in decision making. 

Since a participative culture is essential to multigenerational success, how do you keep that type of culture in place through generational change? Knowing that future generations of children will be raised in different economic and social environments than their parents — and marrying spouses whose upbringing may be foreign to the culture of the business family — what is today’s business leader to do? 

The answer to this question can be summed up in one simple word: stories. Telling and codifying stories can distinguish a family business and promote its longevity. These stories can share the folklore of the company’s founding. They can explore the rationale for critical decisions that shaped the company’s development. They can recount the achievements, and failures, of past business cycles. They can recount meaningful or silly events that led to employee bonding. As a company’s leadership is being handed from one generation to the next, the stakes are raised for the company to articulate its culture — the assumptions, values and artifacts that have served as the “glue” over the years. 

In Made to Stick: Why Some Ideas Survive and Others Die, brothers Chip and Dan Heath write that one key to success is the use of stories, especially those that are emotional or inspirational. Hearing and internalizing stories from a company’s past can fundamentally change the way next-generation members will act when confronted with difficult situations. 

Storytelling can also benefit the company’s employees. Stories add color to the principles espoused by the company’s leaders and the assumptions underlying these principles. They help employees identify with the values and culture. A recent Reel Tributes client, a CEO of a family business turning 120 years old, cited his employees as a motivation for storytelling. As he explained early in the film project, “I want my staff to know how special the history of our company is, and how special they are to the history of the company. It’s this link that I want to establish with these stories.” A chapter of the film titled, “Finding and Keeping Passionate People,” is dedicated to the company’s staff. 

A company’s customer base is another key audience for its stories. Consumers prefer to buy from companies that share their values. But if the company doesn’t express what its values are, how are customers to know whether they are shared? For this reason, companies are increasingly presenting “Our History and Values” as a central part of their websites and marketing materials. Showing that a certain store has been in the same location for four generations, or that a company has raised millions of dollars for local charities, is a powerful sales tool. However, it is not enough to just list this information. Tying the history and values to stories, such as a personal anecdote from the CEO explaining why his daughter’s struggle with cancer led him to support the local cancer hospital, makes the connection with customers that much deeper. 

The key to encourage storytelling is to find the right people and ask the right questions. Chances are, the older generation holds a wealth of knowledge. Ask about the company’s founding, its background and its challenges. Find out what values were established early on, and how those values have changed over the years. 

Avoid limiting the storytelling to management and family. Invite employees to participate in the conversations. Multiple perspectives on the same story will emerge, and new information will be revealed about the company culture. This information may be glowing, or it may be difficult to swallow, but it will certainly be enlightening. 

Once the stories are told, the question then becomes, “What do we do with this information?” Technology has provided many options for recording and preserving stories. Companies can post their stories on their website. They can publish a book detailing the history and values of the company, and present copies to employees and customers. Digital tape recorders can collect oral histories for the company archives. Social media presents an engaging outlet for telling a company’s stories to its network of followers and receiving valuable feedback. And video documentaries allow for the compilation of interviews, photographs and other memorabilia in an engaging format. 

No matter what method is chosen, the process of sharing stories should start today. The reality is that while companies and their cultures can live on, founders and family members will not. Recording stories will ensure that the business — and the culture it has created – will not be forgotten.

This post was previously posted in Knowledge@Wharton today blog: The Power of Storytelling

Rosemary Howard

Not the big end of town, but not small either, Australia’s  mid-market (defined by companies with revenue of $10-$250mil)  makes up just 1.4 percent of Australian businesses yet contributes more than a third (37 per cent) of Australian business revenue, contributes 21 per cent of deposit and borrowings and employs one in five Australians (23 per cent).

These businesses contribute around $425 billion in added value, compared to large and small businesses – which contribute $393 billion and $373 billion respectively.

The mid-market is the fastest growing sector in our economy, yet it often flies under the radar. By focusing on this sector, we can support its growth — not only here but into Asia, which is where the growth lies.

Recently, the Australian Government released the “Asian Century” whitepaper which addresses how to ride the wave of Asia’s continual growth. This is about government investment in education, infrastructure, workplace change and assisting companies find bigger markets for 2020+.

For mid-market businesses in Australia, the Asian Century whitepaper signifies the need to network and be open to the world, particularly to Asia. Geographically, Australia is intrinsically linked to Asia and we are in an enviable position given the tremendous growth of China and the Asian tigers.

Australia is now at a very important point in its history.  The world is changing dramatically and a strong Asia focus is required.  This applies at the general economic and society level as well as at the company level.

Let’s have confidence and stay positive.

Leadership. Innovation. Collaboration. Openness. Investment.

These areas are critical to the future of Australia’s mid-market sector.

Rosemary Howard is the Executive Director and Conjoint Professor of Executive Education at the Australian Graduate School of Management.

Rosemary has over 30 years experience in senior management with executive leadership positions in public and private sectors. Prior to joining AGSM, Rosemary was CEO at TelstraClear and inaugural Managing Director, Telstra Wholesale. Previously, Rosemary was Executive Director, NSW Department of State Government.

Rosemary holds a Bachelor of Science from Sydney University, Masters of Science and Society from UNSW and Graduate Diploma of Management from AGSM.  In 2003, she was awarded an Australian Government Centenary Medal for ‘Service to Australian Society in Business Leadership’.

Michael Sherris

The latest figures from the ABS show significant jumps in longevity.

This, on the one hand, should be celebrated. The jump in our lifespan is enormous. Just last year a man turning 50 could expect to live an extra 31.7 years – now it is 32 years and well up on the 29.9 years a decade ago.

However it is causing serious concern for Australia’s superannuation system.

Quite simply, most of us will run out of money before we die. Australians who get their super in a lump sum – or even if you take it out gradually – will almost certainly exhaust it before they are dead.

However financial planners who are setting savings levels for old age just don’t understand the risk.

The longevity tables released by the Bureau of Statistics say a girl born today can expect to live 84.2 years and a boy 79.7 years, but if they survive the first few decades (which are relatively dangerous) the figures are even higher.

Most people’s ideas of what they need to live on in retirement are outdated.

When many people retire their superannuation accounts will let them draw down what they want, but they typically live for maybe 20 years after retirement, and so they soon run out of money. They should buy lifetime annuities – or what is called longevity insurance – and self-insuring their future lifetime risk, but most people do not because the annual income it gives is small, compared to drawing on your super savings.

Also remember that while 20 years is what the tables say retirees have left, longevity is improving all the time – and someone just starting to work now may last much longer than the tables show.  Allowing for future improvements in mortality due to better healthcare etc, a girl born today is quite likely to live to 100, with about half the girls born this year likely to live beyond 100.

There is also enormous variability about the core figure of how long you’ll last – remember this is an average, and some people will live much longer. When their super runs out most people fall back on the old age state pension – but that will represent a sharp drop in income for most people, and also the state may change what or when you can collect. For some people, there may be no safety net at all in the future.

Michael Sherris is a Professor of Actuarial Studies at the Australian School of Business, and a Chief Investigator at the ARC Centre of Excellence in Population Ageing Research.

Dale Boccabella

The federal government is tipped to be eyeing the online world in a bid to shore up­ collapsing federal tax revenues. This move has more to do with squeezing “little areas” to get more tax, and ensure a surplus – and less to do with redressing unfairness that brick and mortar retailers may perceive.

Australian brick and mortar retailers would love to see a tax on “large” overseas internet sales through a lowering of the $1,000 tax-free threshold. However, given the difficulties of collection, it is not clear that it will help raise much revenue in the short term. While the government could argue that raising the threshold is an equity measure, it would be viewed by many as an exercise in shoring up the federal budget. Indeed, every revenue measure over the next 10-months will be viewed with such suspicion, even if a sound tax policy rationale underlies the measure.

Last week retailers conceded tax exemptions on internet shopping were unlikely to be scrapped, and some now argue it was wrong for them to push so hard for GST to be levied on online purchases. Their push may have alienated their customers, and their advertising campaign made them look largely out of touch. Consumers like being able to shop around for cheaper prices. However the new move as part of the GST review has raised brick and mortar retailers’ hopes again of imposing GST on what are called ‘low-value imports’.

It is going too far to say under all scenarios, it would cost more to collect the tax than it would raise. It will depend on where the new threshold is set. For example, look at the level in other countries where the low value import thresholds (in $A) is in New Zealand: $300; Canada: $20; UK: $30; Singapore $300. The Australian position of $1,000 is way above those. The question is why.

Prior to November 2005, the Australian threshold was only $250. The tax saving and therefore revenue lost to government on a $1,000 purchase is roughly $100. Simply reverting to the old standard of $250 would, at least in theory, bring in a lot of tax revenue.

However, there is little point in having a tax rule for purchases over the internet if there is no practical way of collecting it. In terms of a taxing point or tax collection point, this is very difficult.

Australia could make every online retailer in the world register for Australian GST if they export Down Under. While technically feasible in today’s world of tax cooperation, this is unlikely in the short-term.

More likely would be the imposition to collect the tax on the recipient of the overseas parcel. However the idea of having the purchaser pay tax as a separate transaction would be complicated, create a load of hassle and red tape for ordinary consumers, and is certainly not a model used under the income tax system.

The GST threshold of $1,000 is high by world standards, and lowering it to say $250-$400 is likely to raise more tax. The question is whether there is appetite on the issue among politicians. You would create a load of hassle for every voter that has begun to shop online in a big way, and the government would not be guaranteed a healthy revenue collection.

If the surplus is the goal, there are many better targets for the federal government. For example the treatment of discretionary trusts, uncapped negative gearing, and the continuation of the uncapped exemption on the family home and superannuation payouts. These are crying out for an overhaul that would raise significant revenue.

Regrettably, it appears that these ideas – that have a sound policy reason to them – are in the ‘too hard’ basket at the moment.

Instead, what we are seeing is the government trying hard to “reform” areas where the return to revenue is minor. While this may improve the tax system marginally, politicians should really be looking at the bigger items that are a major source of unfairness and inefficiency in out tax system. This is what the Henry review was all about.

Alas, with the current government majority, politicians of all persuasions seem to be sitting on the fence about tacking areas that are screaming out for reform – which is why GST on internet imports is once again under consideration.

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