Ideas@TheCentre – The Centre for Independent Studies

Ideas@TheCentre

Ideas@TheCentre brings you ammunition for conversations around the table.  3 short articles from CIS researchers emailed every Friday on the issues of the week.

Vultures circling super

Simon Cowan

03 September 2020 | Ideas@theCentre

In the wake of recent legislated changes improving choice of super fund, the government must not assume the job of super reform is done. Next on the chopping block should be the planned increases to the super guarantee.

The compulsory super rate, already at 9.5%, is scheduled to increase to 10% in July next year.

There is strong evidence — both empirical and theoretical — that superannuation is largely ‘paid for’ through wages forgone.

Wages growth, already weak prior to the Covid recession, simply cannot afford to suffer another hit in the misguided aim of boosting retirement balances.

Where then will the increase come from? Cutting take-home pay is one option — one that is only too real in the Covid recession. Further job losses are another potential way to pay for increased super. Neither is desirable.

The point is not that cancelling the increase will give workers a 0.5% pay rise. It is about limiting the harm that will occur by taking 0.5% from workers’ wages to pay for super. Regardless of claims to the contrary, nothing the government does with super will create, or remove, a wage increase.

While advocates of increasing compulsory super argue the point of the increase is to reduce old-age poverty, this is far more about the adequacy of the age pension than the nature of the super system.

It is worth noting it’s not actually clear the age pension is inadequate in the first place. Our research from 2014 indicated the pension was sufficient on most consumption based poverty measures, and even fared okay on relative income measures.

Moreover, no evidence has been advanced that the compulsory nature of the system is key to generating age pension savings. The bulk of pension savings almost certainly come from those on average or above-average incomes; who would be likely to save for retirement anyway.

Of course there is the even more fundamental point that, if anyone believes 9.5% of wages is insufficient to fund their retirement, they could voluntarily increase their contributions to 10% or 12% of their wages without forcing everyone else to do the same.

That this solution is dismissed out of hand shows that much of the motivation for the increase is really about satisfying the vested-interest vultures that feast on compulsory super.

NAPLAN can ensure better outcomes

Glenn Fahey

03 September 2020 | Ideas@theCentre

Parents are increasingly aware that schools need better assessment and accountability if there’s to be improvement in educational outcomes.

In effect, the latest in a series of NAPLAN reviews — initiated by education ministers of the eastern states — proposes modifying NAPLAN and renaming it as the Australian National Standardised Assessment (ANSA).

The new tests would cover maths more narrowly, literacy more broadly, and introduce a new creative and critical thinking assessment.

It does, however, double down on the need to keep standardised testing and for all schools and students to participate. This will disappoint education unions and state governments that routinely scapegoat NAPLAN rather than address the need for fundamental education improvement.

Ongoing divisive debates over NAPLAN have diverted attention from making it work better. One of the opportunities to upgrade it is the time of school year and grades that are tested.

It’s appropriate to get the timing of the tests right. They are currently held in mid-May each year for students in grades 3, 5, 7, and 9. Testing students in these grades doesn’t provide schools with the most practical information on students’ capabilities. And by the time results become available to teachers, they can’t always make adjustments to best meet students’ needs.

The review’s plan to address this is for students to sit the tests near the start of the school year. That would be a mistake because it will basically test how much learning was forgotten over the summer holidays, rather than how much has been learned in a given year.

Instead, the tests should be held towards the end of the year — better aligning with curriculum. That would provide schools and teachers a clearer picture of incoming students’ capabilities with each year’s intake — better supporting their remedial efforts. It will also make it easier to hold individual teachers accountable for performance, rather than passing the buck.

To ensure NAPLAN better matches with students’ and schools’ key transition points, tests could be held at the end of Years 2, 4, 6, 8, and 10. That would provide markers of achievement as they finish primary schooling years (and enter secondary school), enter senior secondary, or leave school.

Rather than replace or rebadge NAPLAN, constructively upgrading it is key to it becoming a more effective resource for students, educators, parents, and policymakers.

There’s been substantial commitment made in recent years toward a national curriculum, national assessment, and a tool for tracking performance.

Seeing that these all work better in advancing student outcomes has clear benefits to all who have a stake in Australia’s educational performance.

Extra infrastructure spending not an economic panacea

Tony Makin

03 September 2020 | Ideas@theCentre

Increased government spending on infrastructure has been proposed yet again to revive the economy from the government-imposed recession. However, there are good reasons to be sceptical.

Spending big on infrastructure to create employment is a straight replay of Keynes’ 1930s advocacy of increased spending on ‘public works’ during the Great Depression.

Yet today’s labour force is far more specialized than the workforce of the 1930s would have been.  Back then, labour was more homogenous and hence more substitutable across industries.  It would have been easier for displaced farm or factory workers, for instance, to be re-deployed to other manual work on labour-intensive projects — and there was greater incentive to do so as there was no equivalent to today’s JobSeeker.

In contrast, the Australian economy — like all advanced economies — is now far more services-oriented; and currently-unemployed baristas or beauticians, for instance, are unlikely to be keen to switch to now more capital- intensive projects with their shovels at the ready.

It is true that interest rate payable on public debt to fund new infrastructure are at rock bottom, but given the massive surge in public and private sector borrowing globally, they must surely rise in coming years when the ballooning public debt has to be refinanced.

Instead of focusing on government spending to boost aggregate demand, structural reform measures aimed at the supply side of the economy would be more effective in hastening economic recovery. This should most notably target deregulation of business red and green tape, industrial relations reform, lower company tax and/or increased investment allowances.

Tony Makin is professor of economics at Griffith University, a former IMF economist, and an author of the Centre for Independent Studies papers Lower Company Tax to Resuscitate the Economy and A Fiscal Vaccine for COVID-19 and the book, The Limits of Fiscal Policy.