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.

How fake was the ‘fake’ chocolate study?

Helen Andrews

05 June 2015 | Ideas@TheCentre

News outlets across the globe were embarrassed last week when Dr John Bohannon announced his widely publicised study on chocolate and weight loss was fake.

Stories about the Bohannon study had appeared in dozens of outlets from Shape magazine to theTimes of India, under headlines such as “Scientists Say Eating Chocolate Can Help You Lose Weight” and “Dieting? Don’t Forget the Chocolate.”

The study itself was real enough, in the sense that it involved real test subjects, randomised trials, and honest data. When Bohannon says his study was junk, he means that “it was terrible science. The results are meaningless.” His team deliberately went fishing for statistically significant differences in a way that virtually guaranteed they would find one, and they packaged their results in a way designed to keep lazy journalists from asking too many questions.

But the story gets even more complicated: Bohannon’s study may have been a gonzo prank, but real studies involving hundreds and even thousands of subjects have found that moderate chocolate consumption is associated with lower BMI and better health. People who found Bohannon’s study plausible were not necessarily gullible dupes.

So does chocolate help you lose weight or doesn’t it? Unfortunately, there is no conclusive proof either way just yet. That’s one reason why government should stay out of people’s diet decisions—nutritional science is constantly evolving. The diet bugaboo of yesterday often becomes the diet hero of tomorrow. There is very little we know for certain, even about something as simple as whether chocolate is good for you.

 

A possible market solution to appropriate bank capital levels

Patrick Carvalho

05 June 2015 | Ideas@TheCentre

Following the Financial System Inquiry recommendations, the Australian Prudential Regulation Authority (APRA) is on a course to increase bank capital levels.

The logic is simple: a stronger buffer capital net will lead to a more resilient system. Yet its implementation is tricky at best; and deceptive at worst.

As highlighted before, there is no agreed yardstick to measure capital levels. The reason is that every capital asset class has its own risks and costs, which cannot be inferred without subjective assumptions. There is as much art as science behind this issue. Notwithstanding, APRA still seems to prefer unilateral regulation, disregarding the bank industry concerns.

Yet, a new class of convertible bonds — the so-called Equity Recourse Notes (ERNs) — seems to come to the rescue, promising to avoid taxpayer-funded bailouts without the heavy-handed and costly regulations on the private sector.

ERNs (similar to other contingent convertible bonds) are issued as a debt liability, yet its currently-due payments can be easily converted into equity shares in times of financial distress, therefore saving taxpayer funding to the ailing bank.

The vital difference between ERNs and other contingent convertible bonds is on the timing of conversion. The latter is decided by the regulation authority, which generates uncertainty and political fiddling; whereas the former has its conversion trigger clearly pre-defined as a percentage of the bank’s share price at the moment of the bond issuance.

The real benefit of ERNs is in their possible market-oriented solution with low financing costs, but with buffer features of equity-like assets.

The Australian financial watchdog should embrace the newcomer, allowing banks to use these novel convertible bonds to meet higher capital levels. And hear the refreshing winds of change: not more regulation, not less regulation, but a better regulation environment for a safe and thriving Australia.

 

Taxpayers should not have to pay for parental leave twice

Matthew Taylor

05 June 2015 | Ideas@TheCentre

MT_ideasIf the latest opinion polls are anything to go by, Budget 2015 has done more for the government’s primary vote than Budget 2014 — even if it has done little to improve the nation’s fiscal position.

But one budget measure that has not been well received by working parents is the government’s proposal to restrict taxpayer funded Paid Parental Leave (PPL) payments to those whose PPL workplace entitlements are less generous than 18 weeks of the full-time minimum wage ($11,500).

The government argues this reform is `a fair response’that will stop parents from `double dipping’ — receiving the PPL payment on top of parental leave provided by their employer – and will save $1 billion.

If the government is interested in PPL fairness it should consider abolishing the Maternity Leave (Commonwealth Employees) Act 1973 which legislates a minimum of 12 weeks of parental leave at full pay for Commonwealth employees.

As I outlined in an earlier piece, for most parents PPL payments are effectively a subsidy that allows private sector employers to cut back on PPL entitlements and offer higher wages or other workplace entitlements in lieu.

The first panel in the graph shows how the percentage of women employed under collective agreements in the private sector, who were entitled to more than 12 weeks of parental leave, declined with the introduction of taxpayer funded PPL payments in 2011.

This did not happen in the public sector for two reasons.

For federal employees, the fact that these minimum conditions are legislated limits the extent to which the government – as employer – can convert the subsidy into wages or other conditions.

While this is not the case for state government employees, who are also included in the figure, the federal and state governments are able to shift the cost of their workplace conditions onto taxpayers in a way that private sector employers are not.

As a result, federal public servants – and their political masters – are in a unique position to `double dip’ in a way that private sector employees cannot.

As it stands the budget measure has some serious design flaws but restricting taxpayer support to those who do not have access to parental leave workplace entitlements is a step in the right direction.