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.

Right idea, wrong approach

30 November 2012

The Queensland government has the right idea: Aboriginal people living on Indigenous land should have the same opportunities for private homeownership as all other Australians. Unfortunately, in proposing to make Indigenous land freehold, it has not taken into account concerns that land will slip away from Aboriginal control.

As Noel Pearson pointed out in The Australian recently, the Queensland government’s proposal is ‘naive’ and unlikely to succeed. According to the Queensland government’s discussion paper, to make Indigenous land freehold, native title would have to be extinguished under an Indigenous land use agreement (ILUA). This is unlikely to appeal to many Aboriginal people living in these townships and communities.

Although existing Aboriginal DOGIT (Deed-of-Grant-in-Trust) land should be replaced by freehold title to provide more long-term security, this should be communal freehold as per the Aboriginal Land Rights (Northern Territory) Act 1976 as that would not require native title to be extinguished.

There should also be provision for communities to grant 99-year subleases to give security of title for private homeownership and private businesses. To prevent alienation of their land, communities could have covenants over the 99-year leases to prevent sale, inheritance and other transfers to non-Aboriginal or non-residents of their community. This would be a serious concern for communities like Yarrabah, an Indigenous community 30 minutes from Cairns, which could risk losing its land to development if it was made freehold.

Freehold title could potentially lead to greater prosperity on Indigenous land but it arguably is too soon to go down this path. Perhaps the reason why the Newman government is focusing on freehold title is the existing legislation for 99-year leases on DOGIT land has proved to be unworkable and not led to private homeownership.

The Queensland Aboriginal and Torres Strait Islander Land Amendment Act 2008 permits trustees of Aboriginal DOGIT land to issue 99-year residential leases. Although trustees are given licence to lease all or part of the DOGIT land, trustees must not mortgage the land without ministerial approval. Applicants for a lease are also required to make an upfront payment for the value of the land as determined by the Queensland government.

Before a 99-year lease can be issued, the Queensland government has to value the land and any dwellings on that land. If there is no house on the land, the leaseholder is required to build a house within eight years of the lease being granted. If there is public housing on the land, the lease cannot be issued until the housing chief executive has agreed to the lease and has had the dwelling valued.

These bureaucratic processes have made acquiring individual title and private homeownership on DOGIT land unnecessarily difficult. If the DOGIT land was converted to freehold communal land, communities themselves could decide what conditions to place on 99-year leases, and whether a purchase price for the lease of the land to cover service costs is necessary.

Sara Hudson is a Research Fellow at The Centre for Independent Studies.

Making people worse off

30 November 2012

In January 2013, around 84,000 parents (mostly single mothers) of school-aged children will receive their fortnightly cheques from Centrelink that are up to $223 less than in December 2012.

This payment drop is a result of changes to eligibility for Parenting Payment recipients protected from the Howard government’s 2006 reforms and will save taxpayers $728 million over four years.

The reforms are a case study in the political risks inherent in any welfare reform that reduces payments to recipients, or generally makes people worse off than without the reforms.

The government’s reforms to Parenting Payment have seen an outpouring of grief and anger from affected parents fuelled by a scare campaign linking the impact of the reforms to the Christmas and New Year ‘holiday festive period’ because the reforms come into effect on 1 January 2013. The welfare lobby also labelled the reforms as an abuse of human rights.

With a saving of $728 million over four years, these reforms are a paltry sum compared to the $560 billion the Commonwealth will spend on social security and welfare from 2012–13 to 2015–16. Any substantial reform to welfare payments in Australia will have to tackle this rapidly increasing spending on welfare payments, particularly the Age Pension and Family Tax Benefits.

Herein lies the problem. The relatively modest changes to Parenting Payment have led to loud cries of future poverty and financial distress … just imagine the venom that would come with a serious attempt to reform welfare payments, like abolishing Family Tax Benefit Part B or including the family home as part of age pension assets tests.

If we are going to be serious about reducing government spending and getting people off welfare and into work, we need to acknowledge that some people will need to be made worse off as a result of those reforms.

Politicians choosing to go down this route will no doubt entail the voter’s wrath but political bravery is no longer an optional extra, it is now a fundamental requirement for getting this country back on the path to prosperity.

Andrew Baker is a Policy Analyst at The Centre for Independent Studies.

Compulsory super is a captive tax base

30 November 2012

Speaking at this week’s annual Association of Superannuation Funds conference, Treasury Secretary Martin Parkinson noted that ‘the fiscal sustainability of all policies, including superannuation, will demand greater public scrutiny.’ In the lead-up to this year’s Mid-Year Economic and Fiscal Outlook, there was also speculation that superannuation tax concessions would be curtailed.

This points to a major tension in the approach of Australian governments to retirement incomes policy. On the one hand, government wants to promote superannuation as a tax-advantaged saving vehicle to reduce future demands on the budget from an ageing population. On the other hand, governments are increasingly reluctant to forgo revenue today through superannuation tax concessions. How the government resolves this tension will be an important determinant of whether compulsory superannuation achieves its objectives.

Much of the tinkering with the taxation of superannuation – for example, the 1988 changes – has been motivated by a desire to bring forward revenue to meet recurrent expenditure and improve the budget balance at lower political cost relative to raising other taxes. It illustrates the vulnerability of what is a captive tax base to even greater depredations on the part of future governments. As the pool of superannuation assets grows, the temptation for politicians to increase taxes on earnings will also increase.

Superannuation could also become a vehicle for financial repression by spendthrift governments – for example, by forcing super funds to hold government bonds. Until 1981, Australian superannuation funds were forced to hold at least 30% of their assets as government bonds, so there is ample historical precedent for such directed lending to government. The taxation of super to meet demands for recurrent expenditure has been working at cross-purposes with the objectives of retirement incomes policy. Rather than reducing future demands on the federal budget, compulsory super may end up feeding current demands for government expenditure in the absence of reforms to make the taxation of super more transparent.

Dr Stephen Kirchner is a Research Fellow at The Centre for Independent Studies and a Senior Lecturer in Economics at the University of Technology Sydney Business School. His policy monograph Compulsory Super at 20 was released this week.