Richard Holden

In the lead-up to Australia’s federal budget on May 13, there have been the usual test balloons floated by the government. Raise the aged-pension eligibility age? A $6 co-pay for GP visits? Cuts to the ABC? And so on.

But the prize for the most “interesting”— and I mean that in the ancient Chinese curse kind of way — is the idea of a “debt levy”.

It’s a little hard to tell exactly what the idea entails since neither the Treasurer nor the Prime Minister will really talk about it, but it seems to be simple enough. Tax those Australians earning over a certain income level a special “one-off” amount and use the proceeds to pay down government debt.

Just like the flood levy and the East Timor levy, right? Actually, no.

The flood and East Timor levies were one-off responses to unusual budgetary shocks — one a natural disaster and the other a geopolitical necessity. They made sense because they dealt with transient fiscal problems. But structural problems require structural solutions— not one-time levies.

When your local surf club has a fire not covered by insurance, it makes sense, painful though it may be, for the members to kick in for the repairs. When the committee says they need a special levy to pay for recurring expenses like petrol for the inflatable rescue boat, there’s a change of committee at the next annual general meeting.

Labor’s response to the proposed levy is as revealing as it is disconcerting. Shadow treasurer Chris Bowen has barely stopped for air in repeating the line: “But they said they wouldn’t raise taxes.” Really, Mr Bowen? That’s your problem with it? You’re OK with bad policy if it’s announced in advance?

I do give the shadow treasurer partial credit for borrowing a line from Ferris Bueller’s Day Off — but he missed the real voodoo in the government’s economics.

First, Australia does not have a debt crisis. Or, to put it another way, Australia does not have a debt crisis. Far from it. Commonwealth net debt is about 11% of GDP, the third lowest in the OECD (the average is 50%), and low by historical standards. Government borrowing rates are at all time lows. Indeed, it was only a few years ago that we were discussing how Australia’s debt being so low was a serious problem because it might lead to the government bond market drying up.

But isn’t all debt bad? I mean, shouldn’t the country live within its means and not spend more than it “earns”?

As Nobel Laureate and New York Times columnist Paul Krugman has pointed out repeatedly: government finances are fundamentally not like personal finances, for multiple reasons. One of them is the huge payback that social investments can deliver.

Government debt levels should typically not be zero. The Commonwealth government can borrow long term at around 5%. The social returns on wise social and infrastructure investments are often more than 15%. Not borrowing at 5% and lending at 15% is to miss huge opportunities.

Governments can invest in projects that we never can as individuals: healthcare, schools, major infrastructure, national defence — and that’s what makes the large returns possible. It is just very different than thinking about maxing out your Visa card to go skiing.

But suppose you don’t believe any of that. The debt levy is still a bad idea. It won’t raise very much money, and it will set a terrible precedent.

Suppose there is a 1% levy on all incomes over A$105,000, for one year — that is, the top 10% of tax payers. This would, by my back-of-the-envelope calculation, yield about $1.9 billion in revenue, all else being equal. That would reduce federal government debt by about three-quarters of 1%. That’s basically a rounding error in the scheme of things. So is it going to be bigger, longer, apply to more tax payers? It gets you thinking …

And there’s the “all else being equal” part, so often overlooked in public discussions about taxes. If announced for the coming year, workers will rationally adjust the amount they work, hence earn, and hence pay in taxes. Economists of all stripes know that labour supply adjusts to taxes. The result would be not only less revenue than might naively be predicted, but slower growth and private spending as well.

Of course, it could be made to apply retroactively to avoid the labour supply issue. And this brings us to precedent. In this respect a debt levy would be truly disastrous.

If it becomes acceptable for governments to simply jack up taxes because they don’t approve of the policies of the previous government, then public confidence will be shaken. It will create a climate of fear and uncertainty that will deter investment in physical and human capital — with potentially severe economic consequences.

One should feel a bit for Hockey. He has got a really bad job. This budget won’t please many people, and it will entail some tricky politics. But it can, at least, be good, grounded in good economics.

When it comes to the debt levy the Treasurer should heed the Reagan mantra. Nancy Reagan, that is, and “Just Say No!”

Richard Holden is a professor of economics at the Australian School of Business. A version of this post has appeared on The Conversation.

Fred Hilmer

The proposal by NBN Co that it should be freed up to allow it to compete with rival private operators such as TPG Telecom highlights the dilemma facing government when it seeks to achieve a social goal by creating a monopoly.

The NBN’s competition policy problems began from its conception when it was established as a legislated monopoly. The justification was that a monopoly, given its substantial power to set prices, would be able to offer an equivalent service at an equivalent price to all Australians, whether in the remotest outback or the high-density parts of the cities.

This goal, to be met via a monopoly (rather than a competitive model with transparent subsidies) was argued to be the best approach to establishing universal high-speed broadband access.

The NBN, however, is not a natural monopoly. The basis of the NBN monopoly is regulation, not economics. Natural monopolies – such as the electric power grid, the rail track or gas and water distribution networks – cannot be economically replicated by a competitor. Natural monopolies have considerable power to set prices without needing legislative protection and, hence, are subject to structural separation and price regulation.

Monopolies created by regulation rely on the regulatory barrier to be able to set prices and price structures. Without regulatory protection, much of what monopolies such as the NBN would like to do can be picked off by competitors, as TPG has demonstrated.

Hence, the only way the NBN monopoly can be protected is by cast iron, loophole-free regulation. However, monopolies created by regulation are inherently fragile. As George Stigler wrote, “Competition is a tough weed, not a delicate flower”. And tough weeds find even small cracks in the pavement to break through.

In the case of the NBN, there are two major “cracks in the pavement” that are becoming apparent even before the NBN is built. The first is cross-subsidy. Urban users have to pay more than the costs of serving them, while remote users pay less than cost. As a result there is an enormous incentive for potential competitors to break the monopoly and serve urban users at lower prices that nevertheless produce good profits. TPG may have found a loophole that allows this.

But I can confidently say that even if this loophole is closed, others will emerge. The reason is because of an even larger crack in the monopoly pavement – new technologies that erode monopoly power.

We have seen how legislated restrictions on competition can be blown away by technology. One need look no further than the media industry where cable and the internet have eroded the value of legislated TV licences. Importantly, these new technologies have created jobs and supported economic growth.

These two forces complement each other, as the financial incentive in serving the most attractive customers triggers technological innovation.

And herein lies the real dilemma, so often ignored when competition policy is debated. It is generally clear what competition, if allowed to work, will do to inefficient competitors or the products and services that are overpriced.

These consequences are highlighted as doomsday scenarios — the end of important and much loved activity and employment, such as an aircraft maintenance base or a call centre. Moreover, the pain is felt acutely by few, who can be quite vocal, while the benefits are diffuse.

But what is left out, and is generally unforeseeable, is the range of new jobs and new opportunities a competitive environment creates. Recall what happened when airlines were deregulated. Jobs were lost in the airlines, but far more jobs were created as coastal communities developed tourism and the second home market on a scale not imagined when the deregulation was proposed.

What then should the government do — keep cementing over cracks in the pavement, or accept that the monopoly is neither sustainable nor in the public interest? In the latter case, look after the remote users by direct subsidy rather than relying on an unstable monopoly? Maybe it is too late for such a fundamentally different approach.

But maybe the adage, “the first loss is the best loss” will again be proved right.

Professor Fred Hilmer is the vice-chancellor of the University of NSW. This post has appeared in The Australian Financial Review.

Geoffrey Garrett

As I prepare to take up the deanship of The Wharton School, I have been reflecting on the differences between business education and higher education more generally in Australia and the US.

The structural forces shaping universities are the same as those changing business. The combination of globalisation and technological change represents a brave new world, but with dislocations too. But there are at least four key differences between Australia and the US when it comes to the on-the-ground realities of higher education.

First, while the growth of Asian enrolments in Australian universities has slowed in recent years, Asian students are flocking to the US. Australian universities largely had Asia, particularly China, to themselves for much of the past decade. Now the high dollar and better Asian universities seem to have capped Australia’s (large) market share.

Elite US private institutions such as Wharton have long recruited students globally. But they are more concerned with quality than revenue, using big scholarships to attract the best talent.

In contrast, US public universities have jumped into Asia to compensate for reduced public support following the financial crisis, becoming very Australian, very quickly.

UNSW and its Australian peers offer quality education. But we don’t have the global brand power of Berkeley or Michigan, a problem in hyper-brand-conscious Asia. If Australia wants to defend its place in the global higher education market, it will have to think about new ways to attract Asian students.

Australian universities are already using dual degrees with Asian universities. They are also improving residential facilities and student services. But innovative uses of technology and more opportunities for “doing” rather than just studying must be added.

The second difference concerns philanthropy, with private giving to US universities at least an order of magnitude greater than here. The University of Pennsylvania, of which Wharton is a part, recently completed a five-year philanthropy campaign that raised more than $4.5 billion.

In a vanguard campaign, the University of Sydney attracted gifts worth about $300 million during the same period. With a few outstanding exceptions — Frank Lowy at UNSW, then John Grill at the University of Sydney and, most recently, Andrew Forrest at the University of Western Australia — we simply do not have a strong and deep philanthropic culture of giving to universities.

Westpac’s $100m fund to provide 200 university scholarships a year is a fillip that should not be used to justify federal funding cuts. With tight government budgets likely for a decade or more, growing philanthropy is a critical priority for Australian higher education.

My third observation concerns research. The Group of Eight has shown that the funding available to our best researchers falls far short of the US and Europe. But there is another, crucial, piece of the puzzle where Australia lags well behind the US — supporting the full costs of research. In addition to the direct costs (research time and equipment), research requires lots of indirect support (from buildings and laboratories to accounting and custodial services).

According to the Association of American Universities, the “indirect cost rate” US universities receive from government funding agencies is about 50%. That is, for every dollar in support a research team receives, the university employing the team gets an additional 50c to defray the costs that make the research possible. The comparable indirect cost rate for Australian universities is about 20%.

If we assume US research is realistically funded, that means Australian universities have to add 30c for every dollar in support they win from the Australian Research Council and National Health and Medical Research Council. The better a university does in attracting research grants, the more money it has to find to make this research possible.

This is where business schools enter the story. Australia has the largest business schools in the world in terms of student numbers, and they have the largest proportion of full-fee paying students in Australia. Teaching revenues support research in our universities and much of the funding burden falls on our business schools.

This puts Australian universities in an invidious position. Focusing more tuition revenue on teaching would damage research. But cross-subsidising research leaves less money to focus on imperatives like smaller class sizes. The only way out of this double bind is for ARC and NHMRC competitive grants to include the appropriate indirect cost recovery rates.

My final observation concerns the funding of university courses in Australia. One way to free up government money to fully fund research would be to reduce direct government support for teaching — by deregulating the fees our students pay.

This would be a double win. The cost of teaching born by government would be reduced. But the revenues available to universities to improve teaching would increase. The focus here should be on degrees that have large private benefits — that is, which substantially add to a student’s lifetime earnings.

Business schools are largely “private benefit” educators. Yet we charge Australian students nothing like the market price for our undergraduate business degrees. The Australian government gives the Australian School of Business a little more than $12,000 a year for each (full-time) Australian undergraduate student. Of this, students pay about $10,000. Only about $2000 of a “Commonwealth-supported place” is actually paid by government. At the same time, our international students pay more than $30,000 to sit in the same classes. Wharton undergraduates pay about $50,000 irrespective of where they’re from.

A UNSW business degree is “worth” more than $12,000; just ask the very large number of the best Australian students who apply. Deregulation of fees would allow us to charge closer to the market price. Any adverse impact on access would be mitigated by the Higher Education Contribution Scheme.

HECS allows Australian citizens and residents to defer all the costs of their undergraduate degrees until they are in full-time employment following graduation. Repaying educational costs is then subject to progressive taxation.

So my take on the future of Australian higher education as I get ready to return to the US: Asia will be tougher; philanthropy will be more important; research should be fully funded; and undergraduate fees should be deregulated.

Everyone knows universities are at the heart of improving society, from educating better citizens to driving job growth to inventing the future.

We sometimes forget that business schools are integral parts of our universities, too.

This Opinion Piece previously appeared in The Australian. Geoffrey Garrett is dean of the Australian School of Business. He joins The Wharton School of the University of Pennsylvania on July 1.

Jenny Buchan

The Australian government is moving to introduce a new Franchising Code of Conduct as part of wide-ranging reforms to how franchising arrangements are regulated, claiming it will be fairer for small operators and cut red tape. Whether that will happen is far from certain.

The proposed changes will only apply to franchise agreements signed from the start of 2015. The biggest changes are the introduction of a specific duty of “good faith”, and the requirement for franchisors to give prospective franchisees an “information statement”.

These changes are accompanied by legislation that will give the regulator, the Australian Competition and Consumer Commission, the ability to impose financial penalties on franchisors that breach the code, whereas it wasn’t able to before.

But the changes would leave some of the fundamental problems affecting the relationship between franchisors and franchisees – namely knowledge and power imbalances – unfixed.

Knowledge and power imbalances are the Achilles heel of franchise relationships. A franchisor builds a business, creates a blueprint of it, and licences franchisees to replicate it using the blueprint. With power over the content of the agreements comes scope for abuse. Franchisees sign the agreements with little ability to negotiate changes.

The first Franchising Code of Conduct in 1998 attempted to bring balance to franchise relationships. It mandated pre-contract disclosure, specific rights such as a cooling off period for franchisees and established a dispute-resolution system based on mediation.

However, eight more franchising reviews have been conducted since the code was introduced, suggesting it has not achieved its objective of raising standards of conduct in franchising.

The current proposals have come out of the 2013 Wein Review. It made recommendations in eight broad areas: disclosure, franchisor failure, transparency of financial information, good faith, the end of a franchise agreement, dispute resolution, enforcement and “other matters”.

Most recommendations weathered the subsequent change of government.

The most significant change, Wein’s recommendation for a “good faith” clause, has been adopted. But a party to a franchise agreement does not have to act in good faith if this would get in the way of their legitimate commercial interests.

This means, for instance, that if a franchisor’s duty to its own shareholders is best met by selling the franchisor’s business to a property developer who wants the franchisor’s sites (even though this would mean the franchisees lose their businesses), the franchisees’ rights become secondary. This will only create a false sense of security for franchisees.

Another major change, the proposed information statement, is intended to address knowledge imbalances by providing franchisees with more information. But the change will only require a generic information statement, which assumes all franchise networks are the same, and that franchisees can already conduct adequate due diligence.

This overlooks the fact that every franchise is structured differently. Even within the same network different franchisees can be exposed to different risks.

A prospective franchisee, attempting to conduct due diligence, will still meet numerous impediments. Neither a franchisor’s disclosure documents nor its franchise agreements are on a public data base. This means potential franchisees cannot compare the offering before them with what is usually offered for franchisees in the same network, or with the franchise agreements of comparable businesses.

This is even worse if a franchisor operates through a trust, because the franchisee cannot discover who is behind the trust. And because dispute resolution processes are confidential, it is difficult to identify problems in the network.

Franchising has changed since 1998. Franchisors used to establish a successful business before franchising it. Now, according to the Franchising Australia Survey 2012, one-third of franchisors have operated their business for less than 12 months when they start selling franchises.

How can a business operating for less than 12 months be described as successful? And franchisors now exist within networks of, say, 40 related entities. Any due diligence on the franchisor is not indicative of how sound the franchisor’s related entities are.

The franchisor may itself be a “$2” company. If it is not performing well it can be placed in administration and restructured by shedding franchisees. The code should require disclosure of a full organisation chart showing how the franchisor fits into the group.

Perhaps the worst of the overlooked opportunities for reform is that of franchise failure. The franchisor retains the right to terminate the franchise agreement if the franchisee enters administration, but no reciprocal right exists for the more vulnerable party – the franchisees.

The government has returned the complex challenges that franchisor failure presents to the “too hard” basket. This is a missed opportunity to alleviate the knowledge and power imbalances that make life for franchisees that much more difficult.

Jenny Buchan is an associate professor in the school of taxation and business law at the Australian School of Business. A version of this post appeared on The Conversation.

http://theconversation.com/new-franchising-law-no-code-for-fairness-25154

Dale Boccabella

Abolishing the sacred cow of negative gearing – where losses can be used as a deduction against other income – is considered by governments of all persuasions as electorally unpalatable.

But this part of the income tax system is one of the few areas left which confers this highly favourable treatment. In many other important areas of our public finance and income tax system, negative gearing is effectively abolished in favour of quarantining of losses.

Negative gearing is allowed on passive rental property and share investments and for “large” businesses. Both the pros and cons of negative gearing are well-known. Its most immediate advantage is allowing taxpayers to use a loss on one investment as a deduction against a profitable investment, or other source of income. But it is accepted that it undermines the progressive nature of the income tax, does little to increase housing supply stock and is a significant cost to government revenue.

In contrast to negative gearing, quarantining is where the loss on an investment cannot be used in the year it is made, but can be used in future years, against profits from the same investment from which the loss arose. Usually, but not always, if the investment is sold while there are quarantined losses, these can be used to reduce the taxable profit on exiting the investment.

In our tax system, quarantining is used when determining whether a taxpayer is liable to pay the Medicare levy surcharge; for loan repayments under the higher education loan program (HELP); and assessment of income under the child support regime, particularly Family Tax Benefit Part A and B.

Quarantining also applies when the tax office is assessing means-tested concessions such as the dependent (invalid and carer) tax offset, or senior and pensioner tax offsets.

Small businesses that make a tax loss in a non-corporate form are not permitted to use that loss against other profits (so-called non-commercial loss rules). While these measures are in part a response to the ridiculous hobby tax loss claims of the past, these rules apply quarantining to genuine small businesses, including those in the start-up phase. Quarantining also applies to certain boating activities.

In the social security system, quarantining applies where a particular benefit is means tested, such as Seniors Health Care Card, or the parental income test for dependant youth allowance. Like the income tax though, quarantining is not universally applied under this legislation (for example, it does not apply to the income test for aged pensioners). Also, the current paid parental leave scheme also uses quarantining in its relevant income measurement.

So one can see that quarantining applies in numerous areas of our public finance system. The starting point for debate should focus on economic capacity. By allowing negative gearing, the loss is being treated as a genuine signification of reduced economic capacity to either contribute income tax (or other contribution), or to receive welfare assistance. On the other hand, if quarantining applies, the loss is not regarded as signification of reduced economic capacity to either contribute tax or to receive welfare assistance.

Unfortunately, there are credible arguments both ways. And the fact that countries around the world do not take a uniform approach to the issue under their respective income tax systems supports this.

However, our public finance framework ought to be internally consistent so that similar things are treated in a similar manner, unless there is a sound explanation for differential treatment. This should be the case within the social security and income tax system, as well as across both, as the social security system is the mirror of the income tax system, or a negative income tax.

Both systems have economic capacity at their foundation. Those with sufficient economic capacity make an income tax contribution, and those who lack it receive payments (and other non-money benefits) for economic support. Given the shared foundation of the income tax and social security systems, or that they are really one system, it is hard to see why a different measure of economic capacity should be used within each system or across systems.

Another lesser dimension is that tolerating negative gearing in parts of the income tax and social security systems, but not tolerating it in others parts of those systems, adds complexity. Differential treatment of the same thing necessarily adds to administration and compliance costs.

In the end, there is a real argument that negative gearing should either be restored in the areas where it is currently prohibited, or should be scrapped across the board.

Given where the debate is now, I doubt anyone will seriously argue the former. That tends to leave movement towards the latter, because no one would seriously argue that the current differential treatment is a principled position with credibility.

Dale Boccabella is an associate professor in the School of Business Law and Taxation at the Australian School of Business. This post appeared on The Conversation.

http://theconversation.com/why-its-time-to-quarantine-negative-gearing-24265

Dale Boccabella

In the lead-up to Australia’s crucial federal budget in May, it could be argued that requiring the National Commission of Audit to identify revenue trends that could pose a risk to the budget’s structural integrity could encompass tax expenditures.

While the commission’s terms of reference expressly mention levels of direct government expenditure, such as grants and transfer payments, there is no express reference to tax expenditures and secretariat Peter Crone has confirmed that it will not deal with them.

Tax expenditures are “expenditure programs” of the Commonwealth that are delivered through the tax system, rather than the direct expenditure side of the budget. They mainly take the form of deductions, rebates, exemptions and concessional valuation rules.

The essence of tax expenditures is that they involve under-taxation compared to the nation’s benchmark income tax system. What the benchmark should be within our income tax is debatable, so not everyone will agree with Treasury’s view on that. Treasury mainly works with the idea that most gains and profits should be fully taxed under a benchmark system, and that is why tax-free gains made on the sale of family homes is listed as a very large tax expenditure.

On the other hand, the generous tax treatment of discretionary trusts (family trusts) is not included in the tax expenditure statement – but there are good reasons why it should be. The negative gearing loss on rental properties and share investments is not included either. For 2012-13, the Commonwealth has around 280 tax expenditures under the income tax, worth around A$100 billion. This is around 6% of GDP. Direct expenditure of the Commonwealth for the same period was around A$360 billion, which is about 24% of GDP.

The point is that tax expenditures are significant in size. While characterising tax expenditures is problematic, they deliver concrete economic advantages and, in numerous cases, significant advantages to their recipients in the form of deliberate non-collection of taxation.

Given this, why aren’t tax expenditures expressly within the terms of reference of the commission? After all, keeping tax expenditures out of the its deliberations necessarily means it is not looking at all government expenditure items.

Does this matter? Yes, because any deliberations and ensuing recommendations may not be based on full information. If the commission will not examine the full scale of government assistance being received by a sector or a category of taxpayer, how can a credible recommendation be made about the level of direct assistance that should be scaled back?

Attaining the goals of fairness, equity and efficiency through our public finance system dictates that all the main value exchanges between a sector or taxpayer grouping and government should be taken into account when determining whether the current level of “expenditure” is appropriate.

A good example is housing, where there are both substantial direct payments provided to taxpayers (such as housing grants and rental assistance) and considerable tax expenditures (such as negative gearing). How can the commission make fair and efficient recommendations about the proper level of rent assistance and pensions in the direct expenditure system when it does not consider the level of assistance provided to homeowners and others through tax expenditures? There are many more examples in both the private and business sphere.

The commission’s response is that tax expenditures will be taken into account in the tax review, promised by Treasurer Joe Hockey. The problem with this is that direct expenditures are hardly ever comprehensively examined in tax reviews, which means the same partial or disjointed examination problem is present again. Further, the tax review and associated measures are some way off, whereas the 2014 budget is just months away.

It is hard to predict what the political landscape will be in three to four years time. Indeed, given the risk of an inevitable voter disenchantment following any savage budget cuts, it is very unlikely that the government will have the same reserves of political capital to move on tax expenditures with a similar degree of vigour that will be brought to bear on direct expenditures.

In any event, the directive in the commission’s terms of reference to aim for savings that will deliver a surplus of 1% by 2023-24 is a strong indication the government intends for savings to mainly come from reducing direct expenditures, and not reducing tax expenditures.

Yet the problems of not dealing with tax expenditures are compounded because the political dynamics are quite different between examinations of direct expenditure programs and tax measures.

What can happen is that the proposed removal of a tax expenditure can easily be seen and presented as a tax increase. The failed attempt to remove the tax expenditure on the car fringe benefits tax in the lead-up to the 2013 election is a recent case in point.

The “age of entitlement is over” doctrine outlined by Hockey implies that before entitlements are reduced (or less likely, increased), a fairly accurate account of the level and spread of entitlements will be established.

It is hard to see how such accuracy can be attained if tax expenditures are not subjected to the same standard of scrutiny and the same political accountability mechanisms that are applied to direct expenditures.

Dale Boccabella is an associate professor in the School of Business Law and Taxation at the Australian School of Business. A version of this post appeared on The Conversation.

Vic Edwards

Chinese Premier Li Keqiang may have slid comfortably into the spotlight in his rousing speech to Beijing’s Great Hall of the people on Wednesday, but there is another spotlight that needs to shine for China to maintain sustainable growth – and that is on the country’s inadequate economic infrastructure.

China has high saving rates, an ageing population and lack of welfare safety nets – and will have to build a sophisticated wealth management sector to support healthcare, aged care and education.

Unfortunately the expectations of some of its political and financial leaders seem to be that educational institutions around the world should have detailed knowledge of its economic systems and provide a quick fix.

Sending hundreds of thousands of students overseas to study may help them to gain an insight into how the rest of the developed nations work – but overseas universities cannot   undertake all facets of research and teaching to remediate weaknesses in the future development of the Chinese economic, financial and socio-political system.

Among G20 nations, the US and China wield the greatest economic power. In China’s case, it combines massive purchasing power and the sort of can-do attitude (perhaps minus the personal freedoms) that characterised the building of the US economy during the 20^th century.

But China’s desire to succeed is racing ahead of the economic infrastructure essential to realise its ambitions – and of the education and training needed to guarantee the effectiveness of the systems it puts in place to solve ageing, welfare, taxation, environmental and other issues.

International Accounting Standards Board member Dr Wei-Guo Zhang said recently that Australian universities were not capitalising on China’s desire to learn from our experience. Not enough research was being done to adapt Australian laws and institutions to China, while graduates’ were returning with western qualifications not useful or relevant, he said.

 However, China needs to drive more research and education itself.

Most of the students that come to the first tier Australian universities enrol in business or engineering. Very few enrol in law or economics where they teach tax, public finance or social welfare issues. So Chinese students are not seeking knowledge in some of the crucial areas in which China needs to develop knowledge and skills.

China also needs to fund research in areas of need. It has largely thrown the onus of funding for research back upon foreign universities. Foreign universities are cash strapped enough after the global financial crisis. They are increasingly less likely to come up with funds for solving Chinese economic, financial and social problems, particularly so as China was only a minor casualty of the global financial crisis and has not missed a growth target since 1989.

Linked to this is the fact that, until very recently, research on China issues were not considered relevant to top rate academic journals (mainly American or European).

Chinese databases are generally unreliable. Reasonably accurate data rarely extends back more than 10 or 15 years.  In finance, accounting and economics, there is one central data collection covering the Shanghai, Shenzhen and Hong Kong Stock Exchange databases over 20 years. This database, built up by a single, very dedicated Professor from Tsinghua University, is used by accounting and finance staff from the University of New South Wales.

The official Chinese data from government departments is unreliable, flawed and manipulated – so there are very real concerns about results from research conducted outside China using this data.

And in all likelihood the real worth of many of these foreign-trained students may be going unrecognised. Some returning students have analytical skills their bosses don’t have, but the bosses will sign their names to it as if they did it – so these younger people don’t get the recognition.

The Australian School of Business is doing a considerable amount of research into the issues facing modern China – in ageing and welfare, environmental issues (e.g. emissions trading schemes), finance and revenue, post GFC Issues and Australia-China relations, as well as broader economic, financial and socio-political global-Chinese issues.  UNSW has also given significant assistance to China in medical research, fuel cell and energy research as well as developing biochemical means for mopping up pollution spills etc.

Academics sometimes have to update textbooks (as I have done recently with an American textbook on Bank Management) so that it is “Asianized” to account for the impacts and outcomes of the global financial crisis upon China, but also other ASEAN economies. This involved dealing with the differences in government regulation, competition, as well as the ring-fencing of Asian economies from external bubbles and weak but significant financial institutions of western nations. There is no equivalent text coming from China.

Chinese Premier Li Kerbang has acknowledged the “deep-seated and structural problems” facing their economy, saying there was a need to build an “upgraded version of the Chinese economy, focusing on improving the quality and efficiency of development.”

“While growing the economy, our top concerns are raising personal income in tandem with economic growth, strengthening the social safety net and continually improving people’s livelihoods,” he said.

At his Great Hall speech on Wednesday he foreshadowed “painful structural adjustments” needed for the economy to meet the 7.5 per cent growth target.

If the country does not tackle the structures needed to channel private wealth into adequate health care, aged care and education, many in the nation will also have to wear some long term pain.

 Vic Edwards is a Visiting Fellow at the Australian School of Business

Renee Adams

In a clever marketing move, Facebook’s finance chief Sheryl Sandberg and stock photography supplier Getty Images recently released a series of photos which represented women in “more empowering ways”.

What Sandberg, the author of “Lean In: Women, Work and the Will to Lead”, is trying to counter is the narrow range of images used to portray women, work and family – the businesswoman with briefcase, the mother with children and the one juggling both.

Society’s focus on women and work appears fixated on these kinds of stereotypes – and government policy settings are squarely aimed at them. Think paid maternity leave, tax rebates for child care, gender balance reporting requirements for corporations with 100 or more employees.

The corporate sector is required to report annually to the federal sex discrimination commissioner on diversity and gender balance (although there are moves to roll this back), but the reports are inconsistent, include data on issues that may be irrelevant for senior women (such as breastfeeding in the workplace) and often incomplete. They don’t seem to produce the desired outcome of rectifying the imbalance, especially at senior levels.

One neglected corner of the working women debate is that of female academics – the women who teach the new generation of leaders, produce valuable research and take part in what is commonly referred to as “thought leadership”.

Women have played a big role in academia (in expert opinion and research), in the arts and the not-for-profit sector, where significant contributions are too rarely recognised and rewarded.

Female academics have reached some dizzying heights. Elizabeth Blackburn won the 2009 Nobel Prize in Physiology or Medicine; Condeleeza Rice was a political scientist at Stanford before and after her time as US Secretary of State.

In finance and economics, my field, only a handful of women are at very senior levels. Janet Yellen is head of the US Federal Reserve. Christine Lagarde (in fact, a former lawyer, not an academic) is managing director of the IMF.

Yet their input is essential. Not simply to contribute a “female” perspective on economic issues, but because women represent over half the world’s population and should be heard in every debate that impacts on their livelihood.

Women are plentiful at the lower levels of academia but they get stuck there and rarely advance to professor. It is a lonely field and a lot of women feel very isolated. In many jobs, there is paid leave to support women who take time off to care for sick children. In academia, when your time is effectively your own, the flexibility is often envied. But time off eats into research, reduces publication rates and limits promotion possibilities.

An academic job for a woman is different to an academic job for a man. Community-wide expectations that women will be represented on all boards or working parties have created a situation where women at very senior levels spend large parts of their time in meetings and other activities that take them away from their research and, by extension, their prospects of promotion.

And no matter how many programs there are to support women’s advancement, women still shoulder the largest part of the childcare and home responsibilities.

Women can also hinder themselves by their own attitudes. Senior women should not be waiting around for the right male mentor to come along, but they do need support to network and create their own opportunities.

If we want to have women at the most senior levels, taking part in decisions that impact on the nation’s and the world’s economy – or carrying out research that influences those decisions – they need funding for networking and mentoring programs. And they need support at the broadest possible level, not just within their own institutions.

Federal and state governments should take some responsibility for supporting women who want to help themselves to become senior opinion leaders and researchers. By funding formal mentoring programs, networks and fellowships, governments would be acknowledging the fact that universities are incubators of ideas that have far-reaching implications.

Women spend too much time chasing the money for these programs instead of doing the productive work of research, teaching and supervising PhD students.

The private sector is reluctant to contribute without a clear benefit – they need a return on investment. The not-for-profits can’t afford it. Universities are living in straitened times.

Formal mentoring programs for female academics in finance and economics currently exist in the US, UK, China and Canada, but receive little support in Australia.

At the Australian School of Business at UNSW, there are programs to support women but the benefits of senior academic women spread far wider than the campus.

Low numbers of women in the field have flow-on effects in business. Harvard Business School Dean Nitin Nohria recently apologised for his school’s treatment of female students and professors, promising to double the number of case studies in which women are portrayed as central leaders in business problems.

Sometimes perception is part of the problem. Women need to put themselves in the centre of the picture, or the business problem.

To do that they need to connect with other women, share success stories, get access to conferences, fellowships and other opportunities.

Renee Adams is the Commonwealth Bank Chair in Finance at the Australian School of Business. A version of this onion piece appeared in The Conversation.

Richard Holden

Tony Abbott has thrown a curve ball at Qantas in refusing to offer up the debt guarantee it wanted, but seeking to abolish Part 3 of the Qantas Sale Act in its entirety. This opens the door to foreign ownership above the current 49% cap and more concentrated ownership by one overseas airline, among other things.

Should the proposed legislation pass, will Qantas inevitably split its international and domestic operations, along the lines of Virgin?

The Air Navigation Act requires that for an international airline to be designated “Australian” it must have majority Australian ownership — limiting foreign ownership to 49%. This provision does not apply to domestic carriers, thus allowing majority foreign ownership of a potential “Qantas domestic”. As an example, Virgin’s domestic operations are 66.9% foreign owned (by Air New Zealand, Etihad Airways and Singapore Airlines).

Fine, so it would be possible. But would it happen? Well, as the great American baseball player Yogi Berra said, “It’s difficult to make predictions, especially about the future”. But here goes.

Qantas CEO Alan Joyce has repeatedly claimed Virgin is being supported by cash infusions from its foreign investors. Those investors: Air New Zealand, Ethiad and Singapore Airlines, clearly see some advantage in holding a majority stake in Virgin, presumably as providing solid linkages with their own networks. And as is often the case in complex industries, such linkages can be more easily and fully achieved by ownership rather than a mere alliance. So does it not stand to reason that British Airways, Emirates A380 Seatmap or other international airlines want to do similarly with Qantas?

Perhaps, but it’s far from clear. In response to Tony Abbott’s announcement last night, Qantas characterised that foreign support as being designed “to fund a loss-making strategy against Qantas”. That loss-making strategy is designed to provide a strong foothold in Australia, which makes the linkages to the foreign owners more valuable. But Qantas already has more than a foothold: it has two thirds of the domestic market.

Why invest in a loss-making strategy to either retain that share or even try and increase it, especially when there is already a triumvirate that seem committed to preventing that from happening?

In short, it’s not obvious that there will be a queue of international airlines eager to throw money at a price war in domestic Australian air travel. If there is not then it makes little sense to split Qantas’s foreign and domestic operations, particularly as there are some ongoing costs to doing so.

If the proposed legislation fails to pass the Senate, which seems likely given the stated opposition of Labor and the Greens (and despite possible support from incoming crossbench senators David Leyonhjelm and Bob Day), what options remain?

For Qantas there seems little to do than push forward with the aggressive restructuring program it recently announced and to revisit its stated goal of maintaining 65% domestic market share, regardless of the short term profit consequences.

It may be that ceding market share to Virgin could lead to an equilibrium with less aggressive capacity expansion by both players, and consequently higher ticket prices. Market share does not equal profit, as Qantas’s recent results are testament to.

Prime Minister Abbott doesn’t want to “let Qantas bleed”.

Perhaps an equally interesting question is what options remain for the Coalition if the legislation fails to pass.

If, when the new Senate sits in July, the legislation still fails to pass then the Coalition will be in a tricky position. Abbott has already made it very clear that the current playing field is not level. The government would then either have to do what Abbott yesterday implored Labor not to and let “Qantas bleed”, or reverse its position on the debt guarantee, or a related option.

• Option A: Holden/SPC Ardmona tough love.
• Option B: the Gonski flip-flop redux. Neither of those prospects seem politically enticing.

What’s next for Qantas? A great deal of uncertainty about its ownership, operational structure and the possibility of support from this or future governments. The only thing that seems certain is that 5,000 loyal Qantas staff will lose their jobs.

Richard Holden is a professor of economics at the University of New South Wales, Australian School of Business.  A version of this opinion piece appeared on the Conversation.

Tim Harcourt

In Australia the car industry is unique. It has unique Australian characteristics and capabilities, and its closure is a self-inflicted wound.
 
The exit of Toyota from Australia really symbolises the way the Australian economy has now moved on from the days when it was a manufacturer, and it now has more of a dependence on the resources sector.

Toyota has confirmed that it will cease all production in Australia by 2017. Approximately 2,500 jobs are expected to be lost when the Japanese car maker closes its Altona plant in Melbourne.

The exit of Toyota is very sad, and really signals the death knell of car making in Australia. In hindsight we should have focused on export orientation and trade promotion, supporting the free trade agreements, and building on our export success in Asia and the Middle East and emerging markets.

When I was on the Bracks Review, I made it clear the government could intervene with tariffs or support, but despite that changes in the global economy are had a huge impact Australian car industry. One crucial issue was until recently the very high Australian dollar which would have wiped out any impact of a tariff freeze and the protectionist lobby would have only had a pyrrhic victory of a few months.

However in the current debate over the future of the industry there are two extremes hogging the limelight. There’s one camp that says protect the industry no matter what the cost – and indeed protect manufacturing at whatever the cost – and there’s another camp that sees it as a badge of honour to say Australia should not produce cars and they belittle any outcomes by the industry to raise international competitiveness. I recall a former Australian ambassador in Washington, loudly and proudly telling an American audience that the optimal number or car companies in Australia is zero. Fortunately, Bracks, like Button before him, eschewed both extremes and advocated a moderate path of reform for the industry.

This steady reform is what we should have had; instead, we had Ford, GM, and now Toyota falling like dominos. If only GM had gone Ford & Toyota might have just hung on. Alas maintenance of manufacturing and the constant changing of promotional gears as global economic and environmental conditions change was very important.

Australia failed – and to hang out the car industry to dry is very sad.

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.

Tim Harcourt was also an economic adviser to the Bracks Review of Australia’s Automotive Industry.