Chris Evans|Knowledge@ASB

Who would be the winners and losers if Australia simplified its tax system? As tax time looms, many Australians with relatively simple tax affairs are once again preparing to file a return in the hope of receiving at least a small sum back. And accountants and tax agents also are bracing for the annual onerous round of compliance activity on their behalf. But it doesn’t have to be like this! In the UK and New Zealand, the personal tax system has been simplified, so most “wage slaves” who are taxed at source no longer need to fill in a return. While taxpayers are spared the obligation for frequently negligible returns, accountants are able to focus on the more interesting activities of adding value and creating greater wealth for clients. In an interview with Julian Lorkin of Knowledge@Australian School of Business, Chris Evans, professor of taxation, outlines why the case for simplified tax adds up.

An edited transcript of the interview follows.

Knowledge@Australian School of Business: Many people loathe tax time, having to fill in a tax return every year and go along to an accountant. Is there an easier system?

Chris Evans: In many countries in the world you don’t fill in a tax return. Take the UK or New Zealand, for example, very few taxpayers in those countries have to fill in returns. It’s only taxpayers with more complicated tax affairs that have to complete and submit an annual return. Otherwise the tax system takes the right amount of tax at the right time during the year. At the end of the year, you neither owe money to the taxman, nor are you owed money.

In Australia, we could look at changing our system away from what we call comprehensive filing, in which everybody has to file a return, into one where there’s much more selective filing – only those with more complicated affairs need to submit a return. Those of us who are straightforward “wage slaves”, that is, people who have only employment income and have had the right amount of tax taken at the right time during the year would have nothing more to worry about.

Knowledge@Australian School of Business: I’ve been talking to Michael D’Ascenzo, the commissioner of the Australian Taxation Office, and he was saying that people enjoy filling in a tax return simply because they get money back as a result. They consider it almost like Christmas when they get the cheque in the post.

Chris Evans: That’s a rather strange way of looking at it. I don’t prepay my electricity so that I can enjoy getting money back at the end of the year. Why would I enjoy prepaying my tax, paying it before I need to and then getting a nice cheque back at the end of the year? It used to be a tradition in Australia that those cheques, the tax refunds, paid for the annual holiday, or the fridge, or something big. From the commissioner’s point of view, he’s obviously interested in getting everybody to submit a return because it’s sort of command and control and it means you know what’s going on. But the point is the tax office already knows most of that information anyway because the employers have sent in the amount of tax that they have deducted. If they wanted to, the tax office could find the information from the banks about the amount of interest that’s been paid to taxpayers, or from companies the amount of dividends that have been paid. So, a lot of the information is already there in the tax office. It seems very strange that they want us to then send in an annual return and confirm most of what they already know. It would be much simpler just to wash us out of the system.

Knowledge@Australian School of Business: Tax professionals argue that not only would thousands of them be out of work if we adopted the UK system, but also that people love finding ways of claiming back just a little bit of extra tax – and, effectively, that fun would go out of the system.

Chris Evans: That’s interesting because tax agents would be concerned about the loss of work. But we did this national survey with accountants about four years ago, and a lot of them said: “Yes, get this trivia out of our lives and let us get on with what we’re supposed to be doing, which is adding value to the businesses’ and to personal taxpayers’ wealth, rather than having to deal with everyone’s little refund each year.” The tax agents who do nothing else may well be losers and we would no longer have this same tax agent dependency that we have currently in Australia, but a lot of other tax agents and accountants would be able to get on with some serious value-adding work, rather than wasting time on petty compliance.

Knowledge@Australian School of Business: Can we assume that if we scrap the annual tax return, then the cost for individuals will go down? While people may not be claiming so much back, they would actually be paying less tax upfront?

Chris Evans: We’d be paying less to external advisors, and if we cleaned out and simplified the system we’d probably be paying less tax – so there could be a win-win all around.

Knowledge@Australian School of Business: I’m sure many people are crossing their fingers hoping that we will change the system

Fariborz Moshirian

The latest developments in the Greek crisis make it clear that there is no easy answer. Financial markets and European banks are preparing for Greece to leave the 17-member euro bloc, with the ongoing struggle to form a coalition government weighing heavily on global equity and currency markets.

The inability to form a coalition government has pushed the country closer to a costly and tumultuous exit from the euro zone. If you had asked me even a few months ago, I would have said this wasn’t a possibility, but now eurozone policymakers are ready for it, the banking system is ready for it, and the market has priced in this possibility, so it’s not going to be as bad as it would have been last year, when the possibility of one country leaving the eurozone was going to lead to a major catastrophic event. It will no longer be a disaster, but it will still be uncomfortable, particularly for Greece, which may well end up to be worse off if it exits from the Euro-zone to avoid some of the austerity measures and badly needed restructuring work.

Perhaps the Euro-zone leaders should think about policy measures other than austerity to generate economic growth and encourage private sector investment?

The parties have until Thursday to try and reach a consensus: if they don’t, there are likely to be new elections which could result in European Union officials cancelling loans required to stave off bankruptcy, forcing Greece’s ejection from the single currency.

European policymakers have worked hard to ring-fence Greece from the rest of the region and contain any fallout from its political instability – now, they are ready for what was considered the worst possible scenario. However if there is an exit, this will cause further turmoil on the world’s financial markets.

The Australian dollar is struggling to maintain parity with the United States dollar as investors return their money to safe-haven currencies amid fears Greece will exit the eurozone.

There’s is now a return to an aversion to risk in global markets, with our currency dipping below parity – the first time it has done so since December, when the collapse of the eurozone also appeared likely. Now, it looks as if it is heading towards 98 cents by the end of the week – and maybe even lower than that if there is no resolution to Greece’s political impasse.

Professor Fariborz Moshirian is the Director of the Institute of Global Finance at the Australian School of Business.

Anil Hargovan

The High Court decision in the James Hardie case has put corporate boards in Australia on notice that just ‘rubber-stamping management decisions’ can result in directors unwittingly breaching their duty of care and diligence.

It will send shockwaves through corporate boards and company officers throughout Australia. The James Hardie directors face banning orders for breach of ‘duty of care and diligence’. They will also face financial penalties over their failure to pay attention to key aspects of corporate governance, including risk-management, due diligence and regulatory compliance.

The landmark High Court decision sends a strong message to all boards across Australia not to underestimate the importance of the minutes of meetings. He says “the decision sheds light on the value and importance of the proper recording of minutes.

The board’s approval and recording of a resolution, even by informal means, can have what is called ‘probative force’ in contentious disputes, such as those arising in James Hardie where the entire board failed to recollect the existence of minutes which were crucial to allegations that the directors and officers breached their duty of care and diligence.

The James Hardie judgement is a lesson for passive or compliant boards which approve resolutions, without exercising the degree of care and diligence required.  The decision signals that there is no place for a ceremonial board which merely serves to rubber-stamp management decisions. It shows the need for boards to be more vigilant and diligent in the conduct of its monitoring role, particularly in light of substantive developments in the company – such as the restructuring of James Hardie – which should be taken seriously by the board and vetted for accuracy.

The James Hardie litigation, and High Court decision, shows the need for the board to take care to avoid risks. Company officers, such as the secretary who in this case was performing a dual role as general counsel, have also been put on notice – the court will judge and evaluate their performance when determining liability for breach of duty of care and diligence, with reference to the actual tasks that they exercise, rather than by the title they wear or the capacity in which they act.

Anil Hargovan is an Associate Professor at the Australian School of Business

Peter Swan

According to the Australian Labor Government quick action to instigate Keynesian pump priming stimulus policies saved the Australian economy from the ravages of the Global Financial Crisis (GFC). In the March Quarter 2008, GDP per Capita stood at $14,651 and fell to only $14,462 in June Quarter 2009, a fall of only 1.28%. A remarkably good result for what was billed as the worst global crisis since the Great Depression. The Keating “recession we had to have” was far more severe with a fall of 3.1%.

The real story is rather different and in order to focus on the impact on Australians I report only per capita series from the Australian Bureau of Statistics (ABS). Per Capita Net National Disposable Income in real terms fell from $12,161 in the September Quarter 2008 to $11,387 a year later in the September Quarter 2009. This was a massive real deterioration in living standards of 6.4%. Australians suffered more during the GFC than for many decades.

What accounts for the divergence between these GDP and Income measures with an approximate 500% difference? In a recent issue of the Australian Economic Review, Alan Hall points out that due to a measurement inconsistency, the ABS (and other agencies) excludes the change in the terms of trade from the GDP estimates. That is, the real GDP accounts reflect values (or should reflect values) and not physical volumes.

Thus, production computed from the GDP accounts fails to equate with real incomes and expenditures because the ABS neglects the real purchasing power gain in exports relative to the price of imports (i.e., the terms of trade).

If the price of our exports doubles or import prices halve, a dollar of exports purchases twice as much. This improves our income, production, and productivity. To pretend that terms of trade changes in the real production economy are not happening is to behave like an ostrich. Having one’s head in the sand is perilous to our continued prosperity.

In the June 2008 Quarter Australia experienced a massive 15.9% improvement in the terms of trade followed by a deterioration of 13% from December Quarter 2008 to September Quarter 2009 during the GFC that contributed the most to loss in income. It is far from clear how ‘Pink Bats’ and other stimulus measures counteracted this GFC induced deterioration in the terms of trade.

It is certainly convenient for the Treasurer, Mr Swan, (no relative) that he can paper over the GFC period using misconceived GDP figures. These mistakenly attempt to measure real production changes while ignoring the relevant price changes. The resulting charge laid against the Gillard Government and its predecessors of destroying productivity growth is unfair. Dean Parham, The Australian, April 20, finds that productivity growth has disappeared in recent years, if not become negative.

The displayed Figure showing growth rates in Per Capita GDP and Income from March Quarter 2004 to the December Quarter 2011 reveals the true story. Consistent with Parham’s story of productivity failure, Per capita GDP has stagnated with almost zero growth over this period (actually about 1%) while true productivity growth as reflected in the per capita income numbers has hardly missed a beat, with the exception of the GFC period.

The overall growth rate in per capita disposable income is 2.35% over this period, comparable with the 1990s even after taking into account the GFC. This higher income and productivity growth once again reflects better terms of trade that have improved by a massive 34.1% since the September 2009 Quarter.

In fact, Parham (p.10 of the Productivity Commission Report) recognises that his pessimistic score card is largely driven by productivity improvements: “to the extent that the favourable shift in the terms of trade has brought about a productivity decline (especially via mining), that decline does not bring the usual concern in terms of its effect on the prosperity of Australians.”

Once these sustained terms of trade improvements cease, it is only then that we will find out if Parham’s “productivity-sapping regulations” have been allowed to take hold. In the meantime, the ABS needs to report a more honest and transparent set of GDP accounts in the in time to inform the forthcoming post-Budget debate.

Peter Swan is a professor of finance at the Australian School of Business, University of NSW.

This article first appeared in The Australian 7 May 2012.

Professor Chris Evans

As we look ahead to the budget, and the possible changes in the taxation that may bring, it may also be worthwhile to look at the cost of complying with tax obligations for small business.  This has increased by an average of 60% in the past seven years for the average small business owner. It is clear small businesses are spending too much time under the paperwork burden of complying with our tax system. This represents a large burden on Australian business which is impacting on profits and jobs.

Indeed, there are many special concessions introduced to benefit small business but which are too complex for their intended audience, such as the entrepreneur’s tax offset. This was a 25 per cent income tax reduction available to small businesses which was recently scrapped because the federal government argued it was ineffectual.

The various small business concessions had very little impact on the burden of compliance for small businesses, as has been shown by the way it was quickly introduced, and then scrapped. Sadly, most business owners didn’t even know they were eligible for it.

The cost of complying with tax obligations for small business has increased to almost $30,000 per company, which represents nearly 500 hours a year for the average small business owner.

Much of this is largely due to the necessity of record-keeping for GST collection on behalf of the government. It is quite clear that aspects of the tax system need to be reformed to ease the compliance burden for business owners, which is growing significantly over time.

There is however find one unexpected result in a survey of small business owners as a part of the report.

Many small business owners were used to keeping their receipts in a shoe box, and trying to work out if they had even made a profit at the end of the tax year. Now, as a result of the government’s tax laws, business owners have had to invest in proper book keeping methods to ensure their tax returns are accurate. As a result they now have a much better idea as to how their company is faring. Indeed, many may now be able to work out if they are making a loss, and if so, what is causing that loss, for the first time.

Alas small companies tell us that firms are still spending too much time under the paperwork burden of complying with our tax system.

Chris Evans is a Professor at the Australian School of Business

Professor John Piggott | CEPAR

Australia is lauded throughout the world for its retirement income structure. Although it is largely unappreciated at home, we are in an enviable position when compared to the implicit pension debt being racked up among our OECD counterparts. As a paradigm, it has everything going for it – income protection for the less well-off, cost containment, and mandatory minimal levels of mandatory self provision for those who can afford it.

But successive governments put the whole structure at risk by tinkering with super taxes.  No country has borne more capricious changes to the taxation of its private pensions than Australia.

It’s worth taking a step back from the current controversy to reflect on three questions. First, what should a pension tax system look like? Second, why should Australia’s pension tax system be subject to so many more changes than its counterparts elsewhere? And finally, why does it matter if Canberra fiddles?

Almost all countries offer tax concessions for pension saving. The implicit deal is, preserve your savings until you retire, and get a tax break.  The most common break is exempting the investment earnings of the pension fund. Then either contributions are deductible under the personal income tax, or benefits are tax-free.

On the whole, taxing benefits is the better way to go. This avoids complexities around employer deductions for pension contributions, and bad investment outcomes are cushioned through lower taxes, while investment outcomes above the norm pay some extra tax. The government shares the risk. The timing of tax collections is better too – tax revenues will increase when an expanding older population cohort is driving public expenditure up.

But whether contributions or benefits are taxed, as long as investment earnings are exempted, economic efficiency is well served. You have a system that closely aligns the tax treatment of super with the tax treatment meted out to the other major life-cycle asset – owner-occupied housing. This is a critically important aspect of the policy design.  In their roles as retirement saving vehicles, these two retirement assets should be treated similarly under the tax system. And by exempting earnings, the price distortion between consumption during working life and consumption during retirement is largely eliminated.

Australia’s super tax departs from both these standard paradigms. Instead, it separates superannuation taxes from personal income tax altogether. Contributions are income tax exempt, but taxable at a flat rate in the pension fund; earnings on those contributions are also taxed. And benefits used to be taxed as well, until the 2007 Better Super reforms exempted benefits paid to those over 60. The result is that there is no link with the progressivity inherent in the personal income tax.

Separating superannuation taxes from the personal income tax makes tinkering with pension taxes tempting for governments. Changes can be made without their showing up in a pay packet the next week.

This has happened several times since the Superannuation Guarantee was introduced, and it looks like it’s about to happen again. What is proposed may be a small step in the direction taken by the Henry Review on this issue, which accepted contributions taxes were here to stay, but recommended that the rebate be linked to the personal rate schedule. It also recommended a reduced earnings tax to help the power of compound interest generate more accumulations.

If that’s the direction of change, then it would be better to take the proposal in its entirety, rather than just apply it to the top 1%, as news reports suggest is likely. And this should be well thought out, converging to something stable, with discussion and consultation, not a last minute cash grab.

Not that the top 1% is taxed especially harshly in Australia. A somewhat higher marginal tax rate for the top 1%, say 49% above $250,000, maybe on a temporary basis, would be a better response.

So, why does the tinkering matter? Two important reasons. First, this is a whole-of-life issue, and long-term planning is part of it. Although some rules are bound to change with time, surprises are bad and should be avoided whenever possible. Once you get to a point where arbitrary policy surprises are expected, credibility in the system evaporates. The top 1% today, the top 5% tomorrow, who knows the day after?

People will likely reduce their non-mandatory contributions, saving will fall, eventual reliance on the age pension will be higher than it would otherwise have been, and most importantly, many people will have a less satisfying retirement.

Second, change increases administrative costs and charges. More records have to be kept, checked, and transferred when the worker changes funds. Australia’s pension costs are already on the high side. Through a full career, increasing charges by just a half percentage point can reduce the eventual accumulation by more than 10%. That impacts on everyone’s super outcomes, not just the top 1%.

Professor John Piggott is director of the ARC Centre of Excellence in Population Ageing Research at the University of NSW.

This article first appeared in the Australian Financial Review 30 April 2012.

Peter Shergold| CSI

Many of us in academia still perceive university as a gateway to lifelong learning. We judge the inclusiveness of society by the opportunity that we provide to our citizens to access its manifold benefits.

We extol freedom of thought and speech, see academic learning as their cornerstones and imagine universities as the institutional protectors of such ­liberal values.

Perhaps, though, in a Google world in which crowd-sourced (and often unprovenanced) opinions become the source of wiki-authority, our expectations have become too grand.

Those we teach often make more material assessments. Students routinely work out if it’s worth investing in a university degree. There is a range of websites that allow people to estimate the earnings value of a degree over a working life, apply an algorithm to compute the net present value of both financial and opportunity costs (using an online annuity calculator) and in quick-smart fashion assess the dollar return. “On average”, asserts one such American site, “getting a bachelor’s degree is just like paying $US126,000 for the right to claim extra earnings with a net present value of $US383,000”. (Thankfully in Australia the provision of low-interest loans under HECS-HELP and FEE-HELP shifts the equation decisively in favour of undertaking a university education.)

Education in this brave new world often appears to be just another variety of commercial transaction. The unspoken premise is that the offerings of university have a utilitarian value, based on the acquisition of predominantly vocational skills which, through improving labour force productivity, offer private returns to the individual.

Judged through instrumentalist eyes, one can make an economically rational decision on whether to go to university and, perhaps more importantly, which subjects to study.

Before we despair at the material values of Generation Y, let’s remember that they have learnt what we have taught. Ministers and, indeed, prime ministers, routinely quote figures from the Australian Bureau of Statistics to show the ­earnings advantage of acquiring certification from vocational and higher education institutions. Universities seek to promote their quality in a competitive environment, often on the basis of rankings that reflect the increased salaries that their graduates achieve.

Of course, the private gains are matched by public benefits. Estimating the relative returns to each is a crucial part of the evidence base that informs government higher education policy.

The graduate receives higher post-tax lifetime earnings as a result of increased salaries and lower levels of unemployment. At the same time, the state benefits from larger tax receipts, lower welfare costs, higher labour force participation and greater workplace productivity.

In addition, university-led research makes a major contribution to innovation, with benefits extending far beyond those that accrue to private sector funders.

Lateral Economics has estimated the economic value of Australia’s health and medical research. Using a 50-year simulation analysis they calculated a positive revenue-cost ratio of 1.66 and a health-based benefit-cost ratio of 3.37. One might expect similar returns on research in science and engineering.

Even in the arts and social sciences, where benefits are less quantifiable, it is reasonable to expect a positive turn on public funding.

Australia also gains trade advantages. Opening our universities to ­overseas students earns the nation $15.8 billion a year, making education our third-largest export industry. Governments, which tend to see public support for university education as expenditure rather than investment, need to acknowledge these economic benefits.

The real danger is not so much that students, universities and governments seek to monetise the value of higher education but that the framework of evaluation is generally conceived far too narrowly. A university does create financial value but at the same time it also builds social benefit.

Universities UK recently contracted the New Economics Foundation to assess the social returns on investment in universities. Degrees of Value sets out the individual social outcomes that often accrue to university graduates beyond the financial rewards that they gain. These include being better able to manage finances, feeling healthier, being more tolerant, having greater capacity to form meaningful friendships, showing more political interest and exhibiting stronger independence.

These less quantifiable private benefits also contribute to public good. Social returns are achieved by the creation of a more civic and civil society, with higher levels of citizen participation, stronger interpersonal trust and more social cohesion. If you believe the methodological calculations of the report, the public value generated by these societal values is worth £1.31 billion ($2 billion). Frankly, I find the audit of benefits persuasive but the accounting unconvincing: the value of social mobility, for example, still falls back on measuring the uplift in graduate wages as its key financial proxy.

One profound finding from such studies is that the social benefits of university education are significantly greater to the extent that access to university is sufficiently wide to create a fairer and more meritocratic society.

Unfortunately, in Australia it is students from higher-income, less disadvantaged families who continue to be the most likely to gain the private benefits of education. The present level of participation by lower socio-economic status (SES) students, about 15 per cent, has remained virtually unchanged through successive governments.

Yet the greatest private, public and social benefits are achieved by increasing participation by lower-SES students. Relative to the outcome if they did not graduate from university, they gain more financially and socially – and so does society. Otherwise, as the Harvard sociologist Christopher Jencks mused back in 1972, the main function of a degree may be to “certify people who were different to begin with”.

It was the explicit social mission to be an open university serving its community which made it so easy for me to accept the position as chancellor of the University of Western Sydney. UWS has about 7500 lower-SES students, the highest number of any Australian university, representing 23 per cent of our domestic intake. Most are first in family to go to university. Better still, and against the trend, they have a higher retention rate than their better-off colleagues. That success has a positive influence on the distributional impact of higher ­education.Providing access to lower-income, disadvantaged students significantly increases social mobility, creating a more productive and cohesive community. Dollars invested in the success of a low-SES student provides a higher rate of private and public return that for their more advantaged colleagues.

I have no doubt that in time it will prove possible to measure more persuasively the dollar value of equal opportunity. Yet many of us recognise that in doing so we risk losing something more powerful.

What inspires, and what many of us seek to convey to students, is the ­importance of fairness and equity to the participatory ethos of a tolerant, open, respectful, engaged and democratic society. We know widening access to university can help ensure that an accident of birth does not determine destiny.

Peter Shergold is chancellor of the University of Western Sydney and Macquarie Group Foundation professor at the Centre for Social Impact UNSW.

This article first appeared in the Australian Financial Review 30 April 2012.

Tim Harcourt

Today’s comments by Prime Minister Julia Gillard – in which she said the Reserve Bank of Australia has room to lower interest rates – would counter the recent rises in mortgage rates by retail banks.

The unilateral increase by ANZ has prompted the latest round of Government-Banker tension. Whilst the Banks are claiming that funding issues have increased sharply and in the short term they have to recover costs, they should also consider the customer. The banks did receive a guarantee from the same Government at the height of the Lehman Brothers Crisis – so maybe now is the time to consider thanking the government and borrowers by not raising rates. Their reasons for raising rates become ever more tenuous as funding costs fall, and if the government does deliver a budget surplus it would provide room for more cuts by the RBA – plus giving a buffer to international economic instability and could help protect jobs.

The ANZ has raised its interest rates on mortgages and small business lending by 6 basis points, blaming continued cost pressures from deposits and wholesale funding, lifting the ANZ’s standard variable mortgage interest rate to 7.42 per cent. However no other major bank has followed this increase.

The ANZ becomes increasingly isolated in its decision to set interest rates independently of the RBA, because it is clear that although lending costs did rise earlier in the year, they also fell again recently. Funding issues have changed sharply and although in the short term they have to recover costs, there is not that much evidence to back up the latest hike – and there are questions as to whether the banks decisions are justified or wise.

We also have to ask what does unilateral action by ANZ and the others mean for the Reserve Bank’s potency in terms of monetary policy? Can the private banks ignore the RBA? In many ways the RBA has already answered this question, with one of its leading lights, Assistant Governor Guy Debelle saying in a recent speech that the RBA did take into account the funding pressures the banks are experiencing. If they have done that – there is no case for any more rate hikes by the retail banks.

Tim Harcourt, is the JW Neville Fellow in Economics at the Australian School of Business

Tim Harcourt | The Airport Economist

When I went to the University of Adelaide, I received a stroke of luck. Under the Colombo plan, which enabled south-east Asian students get scholarships to Australian universities, the grand old man of Singapore,Lee Kuan Yew, sent a number of very bright Singaporean students, who were meant to go to Oxford to study nuclear physics, to Adelaide to do economics with me. As a result, through having very smart classmates, I got good grades in mathematical economics and econometrics, I helped them with their honours essays, and we had noodles every night.

Of course, we know how well students from south-east Asia and the rest of the region do at university and how much life and vitality they have added to our campuses. But we have a new wave of overseas students from a new frontier, South America, with Brazil at the forefront.

This is one reason I was recently recruited to the University of NSW to teach international business strategy in the Australian School of Business. As part of the MBA programs, I will develop an international business strategy course for South America. This follows on from the book on Brazil and Australia I am co-authoring with Mark Thirlwell from the Lowy Institute and a distinguished Brazilian economist and past adviser to the government in Brasilia, Fernando Carvalho, from the Federal University of Rio de Janeiro. The book will focus on Brazilian-Australian economic opportunity and will be published to take advantage of Brazil’s “double header” hosting of the FIFA World Cup and the Olympics in Rio.

So why all the interest in Brazil and South America from Australian universities in general?

Firstly, the numbers are growing. Brazil’s growing middle-class are hungry for education. For Australia, Latin America now makes up just over 5 per cent of total enrolments, with Brazil ahead of the pack with just over 16,000 enrolments (followed by Colombia at 10,000, Peru at 2200, Chile 1700 and Mexico 1500).

Secondly, South America is coming of age economically, and Brazil is leading the pack. In 2002, on my first trip to Brazil, times were tough. Neighbouring Argentina was in the midst of economic crisis, and Brazil was concerned about contagion. It was also facing a presidential election, with the perennial candidate, Lula (Luiz Inacio Lula de Silva) from the Workers’ Party, running for the fourth time.

Lula won in 2002, was re-elected in 2006 and left office at the end of 2010 with a huge 80 per cent-plus approval rating, which is an amazing result for a democratically elected politician at the end of their term anywhere. Even his successor, Dilma Rouseff, has an equally healthy approval rate of 73 per cent.

Education is a key reason for Lula’s success in Brazil. The success of the macroeconomic and fiscal performance of his administration has been accompanied by a commitment to improving social conditions and human capital – mainly through education. According to Carvalho, there has been “a once in a generation increase in education participation – particularly among the lower classes. Around 32 million people have been added to the middle-class, and education is a key reason”.

To be fair, Carvalho adds, these education measures were part of an expansion of social programs, essentially an extension of the comunidade solidaria started by Lula’s predecessor, President Fernando Cardoso. Carvalho says: “Lula extended the program and made it effective. He also bypassed local and state government and made more use of community organisations and churches for delivery. This policy effectively has doubled the income of the very poor and at the same time has expanded the Brazilian middle-class, adding to the power of Brazilian consumers at the same time. As a result, education retention levels are higher, and the overall standard of living of the average Brazilian has increased.”

Thirdly, education is a key foundation for building stronger economic ties between Brazil and Australia. People ties matter as today’s students are tomorrow’s political, business and community leaders and will be important as Australia forges stronger relationships with Brazil and South America. For example, in Singapore, many of my classmates from the University of Adelaide are now cabinet ministers (even the new President of Singapore, Tony Tan, went to Adelaide), and this pattern has been extensive across south-east Asia as trade and investment ties have followed business and political relationships built at university. Hopefully, we will see similar patterns with South America as more Brazilians and their neighbours study in Australia or participate in MBA courses across Asia, Australia and South America. But there’s work to be done at the Australian end. For as Brazil plays a stronger role in the world economy, and the 2014-2016 World Cup-Olympics double approaches, we will have to do more than just woo the girl from Ipanema; we’ll have to woo the hearts and minds of a globally very strong and popular Brazil.

I am sure many Australian students will now get the positive experience of studying with many students from South America, just as I did from south-east Asia. And with all due respect, there is better dancing in Rio than there is in Singapore but I am sure the intellectual and social benefits will be on par.

Tim Harcourt is the JW Nevile in Economics at the Australian School of Business, UNSW and author of The Airport Economist: www.timharcourt.com

This article first appeared in the Australian Financial Review, 16th April 2012.

Professor Chris Styles

If you can’t measure it, you can’t manage it.

Therefore, managers need a formal, cascading set of KPIs (key performance indicators), KPTs (key performance targets), and annual performance reviews to keep staff accountable. It’s hard to argue with that. And with quarterly reporting, the need to meet market expectations, and bonuses up for grabs, it’s no surprise that this is management’s default mode of operation.

But what motivates our top talent? How do we get the most of out of our high performers? What gets them out of bed every day and late to bed every night? Making budget? Meeting KPIs? And do we really want to “manage” them?

I’m not so sure.

Curiosity, experimentation, achieving the unachievable, and pushing boundaries tend to be the things that turn top talent on. Sure, they have to make their numbers: if we don’t have cash flow today, there is no tomorrow. But that’s not what really drives them.

The traditional corporate mindset drives the need to find answers – tackling the known knowns, and solving the known unknowns, to coin a phrase. But the real challenge – and the challenge top performers love – is to go beyond this. What are the interesting and challenging questions? What don’t we know? How do we discover what we don’t know?

Managers have learnt over the past decade that the world is far less linear and predictable than it ever was – if that ever was the case. Perhaps the true skill of the leader is not to know the right answers, but rather to know the right questions to ask, before creating the organisational environment conducive to experimentation and finding pathways through these challenging questions.

This means getting things wrong is OK. Failing often but failing fast is the catch-cry. Knowing what doesn’t work means at least we know something. If we know it before the competition, we have an advantage.

For many organisations, this requires a change in mindset. A tight style of management through KPTs is comforting and probably an element of that is necessary. But perhaps it is not always conducive to real innovation.

One interesting example is what is happening at AMP. Senior management has recognised that there is a significant level of staff passion for making changes at AMP. They have introduced an innovation program, where one component of it is based on the “wisdom of the crowd” – its staff. This means that everybody can post an idea on a platform that is visible and accessible to all employees. Employees who do not have their own idea can collaborate with their colleagues’ ideas and earn points together, which they then redeem for something tangible. AMP acknowledges every idea that is implemented by recording a short video of the idea owner and announcing it through the organisation. They believe that peer recognition is very important for people who dedicate their time to advocating change.

In addition, AMP has recently established an Innovation Board, but in quite an unusual way. Senior leaders have invited all staff to apply for nine seats on the board and have asked them to submit one page or short video to demonstrate how they are going to make difference at AMP. Two key objectives are set for them: a) to shape an innovation program which will help to reinvent AMP and b) embed a creatively restless culture in everyday activities across AMP. After accomplishing a set of agreed activities, the board members will get funding for their personal leadership development with the leading innovation institutions.

By establishing the Innovation Board, AMP has created innovation ambassadors, who have significant influence among their peers and the capacity to stimulate the crowd to collaborate on making changes for AMP. These ambassadors are the key to exploring the unknown.

Letting go, knowing you won’t know, and creating the conditions in which the unknown unknowns can be explored, is perhaps a big part of the answer.

Professor Chris Styles is Deputy Dean and Director Australian Graduate School of Management (AGSM).