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Where are your tax dollars going?

Ross Greenwood speaks to Senior research fellow at the Centre for Independent Studies Robert Carling after new data has revealed the top 20 per cent of earners are propping up the majority of households.

Introduction: Where are your tax dollars going?

Ross Greenwood:  I want to take you to something else that might get you going and that is just how much tax do you pay and where does it go. Over the past couple of days the government has put out, well, yesterday at the national accounts showing Australia’s growing faster than anticipated. Now given the fact Australia is growing faster than anticipated it is highly likely when the government hands down other than Mid-Year Economic and Fiscal Outlook which is normal in December. There is some sense that the government might go to a mini budget earlier to really set the tone for where Scott Morrison wants to see the country going before he heads into an election period.

Now, what could happen at that time is I believe that the government is going to get pretty close to announcing that even this year the government could get the budget back into surplus. That means if it’s back in surplus once you are making a profit you can start to pay down some debts and or the government could have more money to be able to spend on other programs. Maybe one reason for example why Scott Morrison felt that the government could afford to cut the long term pension age from 70 back to 67 also takes away a political problem for him as well if you think about it. Then you go to the actual breakdown of our society and that is, who is actually paying for the welfare that others receive.

I’ve often told you the spend in the budget just to show that really there is a disproportionate burden on those at the top end of town. Now maybe that’s fair. That’s absolutely fair. Of course they should pay more, but should they pay that increasing burden? What you do not want is your brightest smartest entrepreneurs, scientists, sporting people and others to lead the country because, well, they’re propping up the rest of the country and they’re being taxed to the hilt for it.

Well, there’s been new research which has come out basically done by the research fellow at the Independent or rather the Center for Independent Studies. That’s Robert Carling. I’ll talk to him in a moment, that says the top 20% of households, think about this, the top 20% of households by income almost entirely support the bottom 60% of earners. The top 20% support the bottom 60%. It basically says that there’s a dwindling share of net tax payers in the country. Robert Carling senior fellow at the Center for Independent Studies is on the line. Hello Robert.

Interview with: Robert Carling, Senior Research Fellow, Center for Independent Studies

Robert Carling: Good evening Ross.

Ross Greenwood:  This can’t go on because ultimately you’ll get down to four taxpayers supporting the rest of the country because everybody’s got some sort of welfare cheque they’re reserving back from the government.

Robert Carling:  [laughs] Well, that’s right. That seems to be the way we’re heading.

Ross Greenwood:  If we have an aging population, more people becoming retirees, fewer people actually of working age, fewer people really earning and paying net tax. That’s a fundamental problem for Australia.

Robert Carling:  Yes. We’ve we’ve crunched the numbers with help of the Bureau of Statistics numbers actually and we think that if you add up the people who are net beneficiaries that is the benefits they receive from government minus the taxes they pay, so net beneficiaries plus those on the public sector payroll. Let’s call all of these people beneficiaries of government in a sense. They now comprise probably a small majority of voters but whether it’s a majority or not quite a majority. They are a very powerful force in politics for more of the same.

Ross Greenwood:  Okay. Isn’t the problem that if we’re talking about the 60% of taxpayers and earners who are at the lower end who are receiving net more than what they’re paying out in tax. 60% is a majority.

Robert Carling:  Well, look it’s [crosstalk]

Ross Greenwood:  It’s very hard to argue about it if you’re a politician because the numbers don’t lie. 60% is going to beat 20% every day of the week.

Robert Carling:  These are averages, Ross. Some of the households within these groups would be plus and some of them would be minus. When you add them all up individually it comes to just over 50%, but the point is that there are a lot more than you think there might be. Now it’s fair enough that in the the bottom income say 20% of the population of households they would be net beneficiaries clearly and then maybe even the next 20%, but once you get into the middle 20%, would you expect them to be net beneficiaries also? On average they are and even in the next 20% they’re almost line ball. It’s only the top 20% that clearly are net contributors.

Ross Greenwood:  This is fundamentally a structural flaw in what’s called our Tax and Transfer System. The transfer system being Family Tax Benefits A and B, it can be pensions that are paid out. It can be disability pension, whatever it might be, childcare support, all of those things add up into that transfer system don’t they.

Robert Carling:  We’re also going into this calculation. Things like health benefits, Medicare benefits and education benefits. All of that goes into the calculations.

Our point is that it has created a constituency, a very large constituency to demand more of the same. We’ve seen that with Gonski Funding and we’ve seen it with childcare subsidization and as you mentioned we’ve seen it very recently with the governments decision on the pension eligibility age. It’s created that constituency, it’s also created the strong incentive for our political parties to cater to this group. They are coming up with policies that are essentially buying votes.

Ross Greenwood:  What you’re doing by this piece of work is effectively billing the cut that this can’t go on forever. That the easy political argument that we can’t give the rich any tax cuts because they can afford it, they are okay, they’re all going well up there. We’ve got to give it all down to the bottom end, but at some point this all runs out because as you continue to give it to the middle and lower income earner desperately though they might feel that they need it, if you don’t ultimately spread the love, spread the wealth out around the place you’re going to have a situation where you don’t have enough net tax payers in the country.

Robert Carling:  Exactly. It’s a very short sighted approach. The government policies are being driven by short term-ism. Again the decision on pension eligibility age is a great example of that short term-ism. It’s going to be a problem in the long term. Pushing it up to age 70 it wasn’t going to help the budget even the next eight years. It was a long term benefit to the budget, helping to close that long term fiscal gap, but we don’t seem to have that capacity now to look that far ahead. It’s all driven by short term-ism.

Robert Carling:  You’re welcome. Ross.

Ross Greenwood:  There you go, Robert Carling, senior fellow at the Center for Independent Studies. Well, if you’re in the top 20% or if you’re in bottom 60% of income earners give us a call on 1-3-1-8-7-3. Is there fairness? Is there common sense in what Robert Carling says? From the political class remember the easy argument is, “Oh, well let’s take from the rich give to the poor>” It’s what we have always done until ultimately you make the wealthy poor by virtue of your tax system and they decide to take their skills and their ideas and move overseas where it might be a bit cheaper. 1-3-1-8-7-3 is our number. Robert Carling many thanks for your time.


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Why are people working later?

Ross Greenwood speaks to Deputy Director of the Melbourne Institute Roger Wilkins after Prime Minister Scott Morrison has abandoned plans to increase the pension age to 70 by the year 2035.

Introduction: Why are people working later?

Ross Greenwood:  First up, to start the program tonight just talking about that retirement age and why the government might find the reason now to drop it, the pension age from 70 to 67. The big story of the day is Scott Morrison. Prime Minister Scott Morrison, saying on the Today Show today, that he’s going to dump the idea that the pension age in Australia–

Now I’m quite specific about those words. The pension age, that is the age at which you can receive an age pension. It’s not the retirement age. That’s a totally different thing. That’s your choice as to when you retire. The pension age will be dropped back from 70 which was a proposal by Joe Hockey in his 2014 budget back to 67. Let’s just pick up a little bit of the prime minister today.

Why do you think prime minister it’s a good idea to have everybody working until they’re 70?

Scott Morrison: I no longer think it is. Look, I was going to say this next week but I might as well say it here, Karl. I’ve already consulted my colleagues on that and next week cabinet will be ratifying a decision to reverse taking the pension, the retirement age to 70. It will remain at 67 which is what labor increased to 2.

Ross Greenwood:  Let’s now go to Roger Wilkins, one of the foremost experts on the way in which Australia is ageing and indeed in the way in which Australia is working. He’s the deputy director of the Melbourne Institute and also director the deputy director of research of the HILDA survey program. Now the HILDA survey does really look at the way in which Australians work and the way in which they are ageing. He’s on the line. Many thanks for your time, Roger.

Interview with: Roger Wilkins, Deputy Director, Melbourne Institute

Roger Wilkins: You’re welcome.

Ross Greenwood:  The decision to cut the pension age from 70 to 67, I can see from an economic point of view the reasons why you would raise that age to 70; as Australians basically are living longer, as Australians have got a big rump of population going through and will qualify for the pension. Explain to me the reason why the Prime Minister might have thought it’s a good idea to wind it back to 67.

Roger Wilkins:  Well, I think it’s probably politically popular. I suppose it would have been fairly ineffective anyway having the pension age at 70, if your goal was to make people work longer. I think if you want to make people work longer you’ve got to be looking more closely at superannuation and when you can access that.

Ross Greenwood:  There’s a few things here. Let’s just go and think about a few of them because even some of your surveys have shown that Australians are working to older ages. In March 2016 you said Australians aged 65 and over had a workforce participation of 13%. 17% for men, 9% for women compared with 8%, 10 years earlier.

Now the recent employment numbers that have come out have showed that the number of people aged over 65 continuing to workforce has grown even higher than that. Whatever reasons Australians are already coming to the conclusion that they need and can work later into their lives.

Roger Wilkins:  Yes, that’s right. Independent of what the government is trying to do, people are making the choice to work to older ages. It’s not everyone. I guess if we look now about say, you look at the 65 to 69 age range, probably about two-thirds of men and over three-quarters of women are retired but there’s still a significant proportion who aren’t. They tend to be people working in jobs the way you can do them to older ages.

If you’re doing physically demanding work it’s probably a bit harder to work to those older ages. If you’re doing professional type jobs particularly jobs where you’re using your brain more than your brawn, then people are choosing to stay in those jobs to older ages.

Ross Greenwood:  Few bits of pieces of demographics coming to this as I said, Australians are living longer. That means that they are conscious of the fact that they’ve not got enough money in their superannuation funds. As a result of that, they are understanding the longer they work, the longer they can work, the better of their circumstances are in their eventual retirement years.

Roger Wilkins:  Yes, that’s definitely a factor. I think also the nature of work is more conducive to working to older ages. I mentioned the jobs that are more suited to working at older ages. We’ve got relatively more of those jobs now, they’re growing. The old manual backbreaking jobs are becoming a smaller share of employment.

One thing that really comes out of the HILDA data even since 2001 we’ve seen a big decline in the proportion of people saying they retire because of their health. That can be both because the job doesn’t require him to be in his good health but it could also be because of progress in terms of the health care system as well.

Ross Greenwood:  There’s no doubt. There’s a couple of other bits and pieces. Superannuation might be one reason and ability to work longer is another reason. I would have imagined that maybe house prices would be another factor here. That a lot of Australians as they even get into their 60s still have a mortgage. They’ve got to make choices about where they live, how they’ll live in retirement and so as a result, we say often on this program you can’t go into retirement years with a mortgage and so if you keep on working, of course, your chances are you might be able to pay off the mortgage or have better economic circumstances.

Roger Wilkins:  We certainly are seeing a growth in the proportion of people hitting their 50s and 60s with significant mortgage debt. I think that that is right, that’s also playing a role there. There’s lots of what we say, heterogeneity out there. There’s lots of different pathways to the same outcome. That’s going to be part of it as you said that the ability to work to older ages is part of the story as well. I think there’s a few things going on that are driving this.

Ross Greenwood:  One other the aspect of this, if you had to wait until you were 70 to get an age pension you may very well consider that the Newstart Allowance is too onerous and actually is insignificant. Remember with Newstart one other reason why younger people are increasingly getting into the workforce taking any work they can, is because Newstart eventually drops out.

Newstart is indexed differently to the age pension. The age pension is more generous than the Newstart Allowance. If you’re, let’s say for example 64, you’ve got to wait 6 years on some sort of Newstart Allowance before you get the age pension. That would have been a big stretch for a lot of people aged 64 or over to.

Roger Wilkins:  It’s not just that they get the much lower rate of pay. It’s that you have these hoops, you have to jump through in terms of looking for work and potentially doing various activities to meet the requirements. It’s all around, wouldn’t have been a good prospect for those beneficiaries that are having to wait till they’re 70.

Ross Greenwood:  Roger if you put your own brain to this, what age do you imagine you might work to?

Roger Wilkins:  [chuckles] I think I’ll just keep working as long as I can. It will be really out of my hands. I don’t think I’ll ever make a real decision to retire. I guess I’m in the fortunate position of quite enjoying what I do and as long as I can keep doing it, I will.

Ross Greenwood:  I tell you what, we are going to put that out to our listeners as well on 1-3-1-8-7-3. How long can you work? What are the circumstances under which you would continue to work or indeed the opposite is, if you’ve found yourself without work in your 50s and 60s is it easy to get back into the workplace as well? These are all big issues for Australians. This decision by the Prime Minister and his cabinet to cut the pension age from 70 to 67 is a very important one.

I’ve got to say as always great to have you on the program Roger. Roger Wilkins is the deputy director of the Melbourne Institute. Also, the deputy director of the HILDA program which is the household income and labor dynamics in Australia survey. Great to have you in the program.


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What are the dangers behind Reverse Mortgages?

Ross Greenwood speaks to ASIC’s senior executive for deposit-takers, credit and insurance Michael Saadat after the watchdog issued a warning that reverse mortgages will rise as the aging population increases, and it could put consumers at risk of being unable to meet their long-term needs.

Introduction:  What are the dangers behind Reverse Mortgages?

Ross Greenwood:  Great to have your company here on Money News going right around Australia. For those people who have listened to this program for a long time, you might understand that I have had a common theme for many years. It actually dates all the way back to the 1980s. We’re talking about this for 30 years now and that is, in that period of time, I have never seen a reverse mortgage that I like.

That’s not to say that they won’t be one in the future. The reason why I have always felt that reverse mortgages are potentially dangerous for aging Australians is because of the negative of compounding interest, in other words, the interest on interest on interest that accumulates as you age and if you live too long, ultimately the equity in your home disappears.

That might be something that’s okay for some people but the genuine danger is, for many people, if it is missold in any way, shape or form to you or if you go in at the wrong time or if your circumstances change, it can have a significant and detrimental impact on your life and even potentially your ability to go into aged care or a nursing home when you need it. ASIC, the Australian’s Securities and Investments Commission, has been very conscious of the increasing number of reverse mortgages that are coming into the market now, including from some of their major banks.

I’ve done a review of the reverse mortgage lending industry. Michael Saadat is with the Australian Securities and Investments Commission. He’s been basically leading a lot of this. Senior executive leader and regional commissioner at ASIC is on the line right now. Many thanks for your time, Michael.

Interview with: Michael Saadat, Senior executive for deposit-takers, credit and insurance, ASIC

Michael Saadat: Thank you, Ross.

Ross Greenwood:  My problem with the reverse mortgage, I can understand the logic of a reverse mortgage where a person who might be retired, has a house, wants to stay in the house but has no other form of income, maybe an aged pension, and so as a result, takes a bit of the equity out of the home. I see the logic in it. The problem I have is the other side of it, is the selling of these products and also the circumstances of the individual who buys it if something goes wrong.

Michael Saadat: There are certainly challenges for any consumer who’s thinking about a reverse mortgage. What we found is that reverse mortgages have a role to play. They do help consumers achieve their immediate financial goals, whether that to renovate the house, go on a holiday, consolidate some existing debts and supplement their income in retirement to increase the quality of their life, but the challenge here is balancing your long-term needs with your short-term needs, because some of these reverse mortgages can go on for 20 or 30 years depending on how long you live as a consumer that it’s hard to predict how much equity you’ll have left over and whether that equity will be enough, for example, to fund an accommodation deposit for an aged care facility or whether you have other needs as well. There is a long-term challenge with reverse mortgages.

Ross Greenwood:  My other slight problem is, a person may very well take out a reverse mortgage in their 60s or early 70s with really good judgment and really good but by the time that person is 93 or 94, they might not have the faculties or indeed the support around them to be able to understand what they are in and therefore, to be able to manage it. I would imagine that also is something a person potentially buying one of these things has to be conscious of.

Michael Saadat: Yes, absolutely. Even for people who are in the early stages of retirement, the risks of elder abuse are real and something that banks have been trying to manage better. This is a situation where, for example, you’ve got family members who might be influencing the home owner to maybe get that equity out of the home and use it in a particular way. There are certainly risks in that sense as well. What we say to consumers is they do need to think very carefully about this because when you take out a reverse mortgage, it is a long-term product and your ability to make decisions about your short-term needs and your long-term needs does need to be balanced.

Ross Greenwood:  There’s always another situation, if you’ve had a reverse mortgage for 25 years, which is a typical term for a loan, where you’re trying to pay off a mortgage, the opposite clearly is going to be happening as your equity in that property is deteriorating. There are a lot of variables here. Number one is the interest rate you are going to pay and the interest rate that might be incurred on that property and that loan in the future. There’s also the value of home process. It’s the way that they move faster or slower, the interest rate you’re paying yourself.

If the problem here is even though there are laws now in Australia where you can’t have negative equity, in other words, you can’t go backwards with these products or all of that, is potentially compromising a person. I don’t know if the house needs restumping, they need a new roof, they need a new hot water service and they’re 88, 89 and really all of a sudden the equity is gone on their home.

Michael Saadat: Yes, that’s right. We did some modelling actually. We looked at 17,000 reverse mortgages that have already been provided in the last couple of years. We looked at the value of the property. We looked at how much has been borrowed. We looked at the interest rate. We did some modelling to forecast how much equity these consumers would have left in their property by the age of 84. We made some assumptions. We made assumptions about property prices, we made assumptions about interest rates. Depending on what happens to interest rates and property prices, a decent proportion of these consumers won’t have much equity left in their home.

These variables can make a big difference to what consumers will have left over at the end of the day and that’s an important part of it. This is why we think it’s really important to have a really good conversation with your lender, really think about what your needs are. In particular, we think if you are looking to boost your quality of life in retirement, taking out a line of credit where you’re not drawing down a big chunk of money in one go is probably a better way to go because then you’re not accumulating interest on that balance from the beginning. You’re slowly drawing down that money and therefore, the interest doesn’t accumulate as quickly, whereas if you take out a lump sum at the beginning, you’re starting to accumulate interest, I should say, from the very beginning.

Ross Greenwood:  On a very large lump sum of money it really is a problem. Is the issue of Misselling of reverse mortgages, I know it’s been an issue in the United States, partly in Europe as well. I know that there’s been really no scandal about reverse mortgages here in Australia thus far. There have been some people who have not been happy with the outcome from the reverse mortgage but is it a situation where there has been any evidence of misselling in Australia so far?

Michael Saadat: No, we haven’t really seen that in Australia. The market isn’t very big. We had a market back before the JFC which had about 15 lenders in it. These days there’s only a couple of lenders offering this product. It’s been growing slowly over the last couple of years. This is why we’ve done this review proactively. We do think the market will grow as the population starts to age and as life expectancies increase. There are lots of people out there that have equity in the home. They own their home by the time they’re retired but they may not have enough money to sustain the quality of life they’re looking for in retirement.

We do think that as the population ages, there will be greater demand for this type of product and so this is why we want to make sure that the lenders are doing a good job in providing these products safely for consumers and making sure that consumers understand what they’re getting themselves into and are making good choices about that.

Ross Greenwood:  I’m always very wary about these products only because of the potential consequences when a person reaches their late 80s or 90s, also that issue of elder abuse, financial abuse of elderly Australians is a very real one. People should head to the ASIC Money Smart website for more information about how they work and some of the warnings about them as well. The senior executive leader at the Australian Securities and Investments Commission for deposit takers, credit and insurance, Michael Saadat, I appreciate your time in the program this evening.

Michael Saadat: Thanks very much.


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Where to now with energy policy?

Ross Greenwood speaks to Director of the energy program at the Grattan Institute, Tony Wood, about what the Morrison Government and the new Energy Minister Angus Taylor should be focusing on

Introduction: Where to now with energy policy?

Ross Greenwood: Somebody else who’s also watching energy levels. That man is Tony Wood from the Grattan Institute. The reason for that is, if you think about the National Energy guarantee, which was one of the key policies, which meant that the government ultimately, under Malcolm Turnbull, lost its power and was moved across to Scott Morrison, was really about energy policies.

Now, the interesting part about what’s taking place right now is that you’ve actually got a situation where the new energy minister is Angus Taylor, when they were doing the big photocall today, and you may be aware that the former Minister for Energy and the Environment, Josh Frydenberg, has become the new Treasurer. Well, it was all a bit of a laugh because then the Prime Minister Scott Morrison turned to Angus Taylor and said to him, “Energy prices are going down, down, down.” Made it very much a point for Angus Taylor.

The other interesting part about this is that Angus Taylor, who is a Rhodes Scholar and worked at Port Jackson Partners. You go back into 2013, he distributed a policy paper within the coalition at that time, arguing that the renewable energy target needed to be overhauled. Imagine that this could be part of the government’s new plan.

I’ll say Tony Wood from the Grattan Institute is director of the energy program there you’ll be watching this quite closely Tony. At the moment, the government barely has an energy policy that’s got to devise one fairly quickly under Angus Taylor.

Interview with: Tony Wood, Director of Energy Program, Grattan Institute

Tony Wood: Indeed, and I was just wondering whether or not Hussein Bolt could have been asked to see if he’d stand for leadership in the Liberal Party. That would have been interesting though.

Ross Greenwood: Actually, that probably would have worked, but he’s sure of the path at the moment. Tony, he needs a couple of rounds.

Tony Wood: [laughs] Indeed, indeed. Look, I think there are some interesting developments here, Ross. Certainly, I was always very supportive of combining energy and climate policy because they are so fundamentally linked and I think it’s disappointing they’ve been separated, but maybe politically that’s what Morrison decided he had to do as the new prime minister. When you look at what is likely to happen, and I think the momentum towards a much stronger focus on prices had already begun with the release of the ACCC report, a few weeks ago. Malcolm Turnbull as Prime Minister certainly was pushing that very, very strongly, and I think, clearly, Angus Taylor is expected to take that up as the number one priority. I don’t necessarily think that some people seem to, that that means they’re going to abandon any attempt to address climate change. Is going to be a very different environment for a little while.

Ross Greenwood: The other point also is, under Angus Taylor, given the fact that he has previously said that the renewable energy target needs to be overhauled, given the fact light needs prime ministership, that the prime minister himself basically said that the renewable energy target was out the door.

It’s one of these points right now trying to work out, what is the right and consistent policy long term, that is going to encourage people to start to invest in the energy sector.

Number one, I think most Australians would say right now Tony, that they want to make sure the lights are going to stay on and that the energy is affordable. That would be primary, the whole climate change thing would be completely and utterly secondary to many people and negligible to others. The most important thing is making sure that there’s plentiful energy, and also at the right price.

Tony Wood: Absolutely, right. Except in that one extra caveat on that, Ross, and that is that they don’t necessarily have to be exclusive.

I completely understand why the government needs to focus on prices. That does not mean however, that they ditch climate change because we can do both, maintain electricity affordability, and also make sure we start to address climate change steadily, which is what the National Energy guarantee was designed to do in combination with the actual.

Ross Greenwood: Okay, take me back to the robustness of supply, because that’s the other thing that people want to know, because if you don’t have a policy set in concrete to allow the investment to take place, then the supply of electricity becomes potentially compromised in the wrong conditions.

Tony Wood: Absolutely, and that’s one of the reasons why the National Energy guarantee had two pieces. One was to reduce emissions and the other was to make sure that we maintain reliability of supply.

The second one, is still needed regardless of what we do about our emissions targets, and so Angus Taylor was going to have to work with the states and territories and the energy security board to work out how we’re going to do that, because no matter what he does on renewable energy and climate change that’s still going to be fundamentally important as we’ve seen from the market operators report released only last Friday, which was suggesting that in some states of Australia, particularly Victoria, were now under increased threat of blackouts this summer, because of the increasing unreliability of the existing coal-fired power station.

Ross Greenwood: Okay, there’s a final part about this, and this is only again over the past weekend, where you’ve had lightning strikes, in other words, weather events which clearly as we go back a couple of years ago, contributed to the blackouts across South Australia. Also then there was the interconnector between South Australia and Victoria, that tripped, which meant that there was a shortage of electricity capable of getting into the state causing the blackouts. Over the weekend lightning strikes again caused outages to those interconnectors between the states, and again, you had a compromise of the supply. If we are relying effectively on being able to move electricity between the states, doesn’t that make the robustness of the supply or the vulnerability of a lack of supply become even greater between them?

Tony Wood: Well, did they. Again, the market operator has very clearly identified that there are, in very specific needs to improve the connectivity at the same time as working on the interstate reliability because it could easily be times when it doesn’t make sense. All of these to bring electricity from or to another state from somewhere else, because it’s the most cost-effective way to do it, but obviously when you rely on that too much, and it goes down and you get a problem.

Increasing the interconnectedness of the state, and making sure we have the interstate reliability, whether we’re talking Queensland or New South Wales or the two-pronged approaches, and that both of those apply regardless of what the actual technologies are that provide our electricity whether it’s renewables or gas or coal.

Ross Greenwood: Tony Wood, always good to have a chat. He is the director of the Energy Program at the Grattan Institute, and that is one of the key challenges right at the very outset for not only the Prime Minister Scott Morrison, but also to Angus Taylor. From the seat of Hume, and who had previously pushed the government regards of its energy policy. He’s now in charge of it. We always tell you that this is the peak time for electricity usage, as families go home after a day at work, turn the heaters on, turn the telly on, start to cook dinner.

At the moment, electricity on the wholesale markets $299.80 per megawatt hour in New South Wales and Queensland, $254.66 per megawatt hour in Victoria, $289.90 per megawatt hour, in Tassie where the hydro is pumping flat out and pushing it across the Bass Link interconnector $45.21.


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Image source: 2GB

Where to find the cheapest petrol

Ross Greenwood speaks to ACCC Chairman Rod Sims as petrol prices reach new highs

Introduction: Where to find the cheapest petrol

Ross Greenwood:  Welcome back to Money News right around the country. Well, of course, electricity right now is highly timely as a political issue. There’s no doubt that what’s occurred over the past or couple of weeks at least anyway has led to the events we saw in Canberra today as we detailed. One of the big issues is all about, “What is the right electricity policy and energy policy for Australia?”

The National Energy Guarantee was put in place to make certain that, number one, consumers had a ready supply. Number two, they knew what price they were going to pay. Three, that there was downward pressure on that price. Now, this also came about partly because of recommendations that had come from the Australian Competition and Consumer Commission. The ACCC today also put out a separate report on fuel prices.

We’ll come to that very shortly. In the meantime, let’s go to the Chairman of the ACCC, Rod Sims, who’s on the line. Many thanks for your time, Rod.

Interview with: Rod Sims, Chairman, ACCC

Rod Sims: Good day, Ross.

Ross Greenwood:  Right. I want to take you to a couple of recommendations that you made which the government appeared to be taking up with some gust. One of which was default electricity pricing. Rather than having these standing offers which nobody knew what they’re based upon, having a default electricity price that you monitored, that meant that everybody will understand if there was a discount, what the discount was based off.

Rod Sims: That’s right, Ross. There’s two parts of it. One is there’s currently standing offers set by the retailers which are at differing but also at very high levels. If you take electricity prices, Ross, they’ve gone up by 56% after inflation in the last 10 years. The standing offers have gone up by more a 100%. People left on those offers are really paying way too much for electricity and something’s got to be done about that. Then separately, at the moment you just can’t compare discounts, because they’re off different bases. Giving a common base, will really help competition and help consumers.

Ross Greenwood:  One of the things you and I have perhaps argued about in recent interviews we’ve done, is my question about whether it is right for a Generator to also be a retailer of electricity, whether in fact, their ability to have market power is too great. Again, you see argument in that, but when you came down to recommendations, you said you thought it was almost a step too far to actually order divestment in these big energy companies.

However, when the government came out with its policy, it said, “As a final straw, it could actually order the divestment of power assets.” Just in regards to where your recommendation came from, why did you make the recommendation you did?

Rod Sims: Well, Ross, we were totally focused on getting electricity prices down. We came up with 56 recommendations to do just that. We think we came up with a blueprint that was workable, that addressed all the issues we saw. Now, divestment, as I think indicated by the press conference that the Prime Minister, the Treasurer and the Minister for Energy held, is in their minds, if I heard them correctly, very much a last resort, a very big issue.

Our job under our monitoring role is to make sure that the market is working in the interest of consumers, make sure that when policy changes are made, the expected improvements in affordability are there. If that’s not happening, to make recommendations. They had, I think, listed a range of things that could be considered by them. I think they mentioned this is very much a last resort. I think there’s a lot of focus on that, Ross. It has been described as very much a last resort almost if everything else fails.

Ross Greenwood:  It’s going to be interesting to watch exactly where that now goes, given where the politics lies. That’s not your area, of course, Rod, and I’ll move on. Let’s go to petrol prices. Petrol price in your latest report have hit a four-year high in Australia’s largest cities. You’re also saying there’s been a 7% jump in fuel prices over the past three months. Hitting in real terms about a $1.45 per liter.

Are you concerned? Do you believe that this is because of real reasons, in other words, increases in the wholesale price or the increase in oil prices? Or do you believe also there’s ongoing profiteering from the oil companies and the fuel stations themselves?

Rod Sims: Yes, Ross. It’s the right question. I think most of the reasons for the increase has to do with the OPEC cartel, the oil-producing nations. International cartel which, of course, given its essentially governments, it’s not something we can deal with. It just shows how badly cartels do affect consumers. Australian motorists are paying too much for petrol because of the actions of the OPEC cartel. That’s really extremely bad. That’s the main driver. We also had a weaker Aussie dollar which also pushed up the price, given that we essentially import the petrol. Those are the two dominant things.

Also, Ross, yes, there was a further increase in margins. Margins are now probably four cents greater than what we thought typically they should be. There may be some cost increase in there. There’s no doubt, there’s two or three cents I think where retailers are charging more than they should and that’s costing motorists real money. Two to three cents is $400 million to $600 million across the Australian economy. We’re talking about real money.

Ross Greenwood:  If the retailers are capable of pushing up their margins, does that mean that there has been a lessening of competition which is clearly not good for consumers?

Rod Sims: I think, Ross, a couple of issues. There’s some markets where there just isn’t enough competition. Brisbane is a classic one, where there just aren’t enough players who are interested in volume rather than just maximizing the price. Brisbane motorists pay more than other cities do. Of course, you’ve got that problem perhaps even larger in some of the regional centers. I think it’s just due to the fact that prices have gone up, that has allowed motorists, petrol retailers too– the gyrations in the international price have allowed retailers to make a bit more extra money.

Our advice to motorists is very much, use either our website or some of the apps to work out when to buy because of the massive fluctuations in these petrol prices, 20 or 30 cents in a couple of days. Also, look around and work out where to buy.

Right now, Ross, in all the capital cities, the gap between the highest and lowest is about 20 cents a liter. If you look at the map of the city, there’s different prices all over the place. A little bit of extra effort can save you a lot of money at the petrol pump and more than make up for those excess margins.

Ross Greenwood:  The Chairman of the ACCC, Rod Sims. As always, Rod, we appreciate your time.

Rod Sims: Thanks, Ross.



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