Tag archive: The Conversation

Do You Really Need Private Health Insurance? Here’s What You Need to Know Before Deciding

Sophie Lewis, UNSW and Karen Willis, La Trobe University

Every year at the end of March and early in April, the 11 million Australians who have private health insurance receive notification that premiums are increasing.

Premiums will increase by an average of 3.95% from April 1 and will vary with the insurer and the product. The increase is lower than previous years but still higher than any wage growth, leaving consumers wondering if they should give it up or downgrade to save money.


Read more:
Private health insurance premium increases explained in 14 charts


Why go private?

Australia has a universal health care system, Medicare. Health care is available to all and is financed, in part, through a 2% tax on our wages (the Medicare levy). Access to general practitioners and public hospitals are just some of the benefits.

The Commonwealth government encourages Australians to have private health insurance. It imposes penalties for not taking it out (paying more income tax: the Medicare levy surcharge) and offers incentives for those who do (rebates on premiums).

Some 45.8% of Australians have private health insurance, a rise from 31% in 1999.

Australians have different reasons for taking out private health insurance. For some, it makes financial sense to take out policies to avoid paying the Medicare levy surcharge.


Read more:
Explainer: why do Australians have private health insurance?


Others choose to take out policies to avoid waiting times for elective treatment (predominantly surgery); to choose their own specialist or hospital; or to have the option of a private room, better food or more attractive facilities.

Some people perceive that private health insurance will give them access to better care in the private system. Many are fearful they won’t get the services they need in the public system.

Shorter waits than the public system

A universal health system is based on people with the most clinical need gaining access to the services required.

Most emergency treatment is provided in public hospitals. The case is different for “non-urgent” or elective surgery, with patients encouraged to use their private health insurance, mainly because of waiting times for such surgery in the public system.

Elective surgery waiting times for public hospitals vary according to whether patients are publicly or privately funded. In 2015-2016, the median waiting time (the time within which 50% of all patients are admitted) was 42 days for public patients, 20 days for patients who used their private health insurance to fund their admission, and 16 days for those who self-funded their treatment.

Bear in mind, however, that waiting times vary according to clinical urgency. In 2016-17 in New South Wales, 98% of public patients were admitted within the clinically recommended time frame.

Differences in waiting times also vary according to the type of procedure. In 2015-2016, cardiothoracic (heart) surgery had a median waiting time of 18 days for public patients and 16 days for all other patients. In contrast, the median wait for public patients needing total knee replacement was 203 days, and 67 days for all other patients.

The question of choice

Choice of provider is a leading reason people take out private health insurance.

The idea that consumers should have choice in the services they receive has been promoted by government and private health insurance companies for some years, with great success. Many consumers now believe that more choice is better and private health insurance is an “enabler of choice”.

But do people really have choice? Choice is not equally distributed, and not everyone with private health insurance gets the choices they desire.


Read more:
Private health insurance and the illusion of choice


Private health insurers reserve the right to restrict benefits, or provide maximum benefits for using their “preferred providers”. This, in fact, limits the choices consumers can make.

A recent example of this is the announcement from Bupa that, from August 1, members will face higher out-of-pocket costs in private hospitals that don’t have a special relationship with the company, and some procedures will be excluded from particular policies.

Finding the best policy

If you decide to keep your private health insurance, make sure you’re getting the best deal on a policy that’s right for you. Shop around for a policy that meets your needs.

Take note of what is excluded. If you are thinking about starting a family, you may want to look at whether obstetrics care is covered. For those who are older, inclusions such as hip replacements and cataract removal may be more important.

The Australian government website PrivateHealth.gov.au or the Choice health insurance finder are good places to start. These include all registered health funds in Australia and allow you to compare what is covered in each policy.

Other “free” comparison sites may compare only some health funds and policies, or earn a fee per sale from insurers.


Read more:
Here’s what’s actually driving up health insurance premiums (hint: it’s not young people dropping off)


Before taking out extras cover, see whether you are better off to self-insure: setting aside money for if and when you need to pay for extras such as dental or optical care.

Review your policy each year and talk to your health insurance fund about your changing needs. Seek redress if something goes wrong.

If you need a procedure, find out the waiting period in the public system, rather than assuming it will be quicker in the private system. Check the out-of-pocket costs if you choose to use your private health insurance. Then you can assess whether the price tag is worth getting your surgery a few weeks earlier.

The Conversation* This article originally said more than half of Australians had private health insurance. This has now been corrected to 45.8%.

Sophie Lewis, Senior Research Fellow, Centre for Social Research in Health, UNSW and Karen Willis, Professor, Allied Health Research, Melbourne Health, LaTrobe University, La Trobe University

This article was originally published on The Conversation. Read the original article.

How to Ask for a Pay Rise

Mara Olekalns, Melbourne Business School

When Reserve Bank governor Philip Lowe argued that the real source of workers’ unhappiness was an unwillingness to lobby for higher wages, he overlooked a key tenet of negotiation: we negotiate most successfully when we have highly valued (and scarce) skills.

Negotiation is all about who has the power. If your skills are not in high demand or are readily found elsewhere, you have less power. It would be unrealistic, for example, to suggest a secondary school student working on an hourly rate, or a semi-skilled factory worker whose industry is in decline, is able to negotiate higher wages.

To assert, as Lowe has, that the low jobless rate should encourage workers to ask for higher wages ignores the possibility that the jobless rate is not evenly distributed across sectors. You would only know who had the power to negotiate if you found out where the demand for skills was, sector-by-sector.

If you have skills in high demand, you should be able to negotiate a personalised employment contract that offers you a mix of economic and other benefits based on your skills. Much of the advice about renegotiating employment contracts is aimed at people who have skills to offer.

You can make your case for a pay rise by highlighting your unique skills and contributions to the organisation. You should provide a well-reasoned case for increased wages and explore some non-economic ways to enhance your overall remuneration package. A caveat on this approach is that it works better for men than for women, who violate the stereotype-based expectations that they display warmth and concern when they ask.

However, if your skills are the type that’s found elsewhere, a different strategy is called for. The traditional advice is to build your negotiating power by identifying alternative options, so you’re less dependent on your current employer.

The risk with this is your employer may decide they also have many alternatives and may be willing to lose an employee who asks for a wage increase. So the usual advice for these employees is to build alliances to strengthen their position – in short, collective bargaining.

The big ask

Here are some practical tips for negotiating a pay rise.

Prepare

Start from the perspective that more of the world is negotiable than you might expect. Be clear about what you want. Help the other person to understand what you want and why you want it.

Do your homework. Gather information about what is a reasonable pay rise and use this information to develop a strong rationale for your request.

Build the relationship

We are better able to influence others when they like us. You should establish a rapport with whomever you’re asking. Try to send them signals that you’re trustworthy and approachable. This will not only help you now but down the track.

Be sure that you don’t damage your relationships when tensions surface in a negotiation. Rather than respond negatively or competitively, use points of tension to gather more information about your boss’s rationale.

Show them you’re listening

Understanding the other person’s concerns and constraints usually results in better outcomes for both negotiators. If your boss doesn’t agree with your proposal, try to understand if something is holding him or her back. Are there external constraints that make it difficult for them to agree?

Frame your requests from the other person’s perspective. How will agreeing to your pay rise benefit them? And try to understand the reasons behind their questions.

The moral question

In the absence of a strong collective voice, recent research suggests that low-power workers may improve their outcomes if they elicit concern from their employers by, for example, expressing sadness or seeking sympathy. Appealing to an employer’s emotions may make them more open to renegotiating wages, because it shifts the framing of the request from a pragmatic (economic) perspective to a moral one.

Lowe’s comment actually raises a broader moral question: where does the onus for fair compensation lie? Placing responsibility on employees is likely to disadvantage the already disadvantaged: groups such as women, who are reluctant to ask and who are derogated when they do.

So perhaps organisations, which have a duty of care towards their employees, bear some of the responsibility for ensuring fair compensation. Employment relationships are underpinned by a social (psychological) contract and the expectation that each party will “do right” by the other.

The ConversationAt a time when company profit shares are at an all-time high and wages growth is flat, perhaps organisations should think a little harder about their side of the social contract.

Mara Olekalns, Professor of Management – Negotiations, Melbourne Business School

This article was originally published on The Conversation. Read the original article.

New Zealand Experience Shows Same-Sex Marriage Could Provide Huge Economic Boost for Australia

Andrew Gorman-Murray, Western Sydney University

Even though it’s still uncertain as to when Australian same-sex couples will be able legally to wed, New Zealand’s example shows how much this could be worth to our economy.

New Zealand has long been a destination for international wedding tourism. This was boosted from August 2013, when New Zealand same-sex couples could also marry. The majority of same-sex weddings between overseas couples conducted in New Zealand have been between Australian couples unable to marry at home.

In 2016, 2,490 heterosexual couples from other countries celebrated marriages or civil unions in New Zealand, comprising 11% of all heterosexual couples’ ceremonies. The proportion of same-sex couples from other countries entering into marriage or civil union in New Zealand has been even higher.

In 2016, 49% of same-sex marriages or civil unions in New Zealand were between overseas couples, and Australians accounted for 58% of these couples. Altogether, Australian couples comprised 29% of same-sex marriages or civil unions celebrated in New Zealand in 2016.

The figures for 2016 are not an outlier: since 2013, Australian couples have made up 25% or more of same-sex weddings celebrated per annum.

All the business of marriage

This phenomenon has both social and economic implications. Trans-Tasman same-sex wedding tourism underlines a real desire for marriage by Australian same-sex couples.

New Zealand wedding operators have been willing and able to absorb this demand. While of course the significance of marriage lies in the couple’s enduring commitment and love, supported by family, friends and community, there is also tangible economic value from the wedding celebration.

The wedding industry is a complex network of small and medium businesses. It includes everything from planners, celebrants to florists, photographers and entertainers. Beyond the ceremony itself, the industry also includes operators of honeymoon destinations.

In 2015, ANZ economists Cherelle Murphy and Mandeep Kaura crunched some numbers on the economic benefits of same-sex marriage in Australia. They used 2011 Census data on the number of same-sex couples in Australia, and we might update their estimate using the more recent 2016 Census figures.

Murphy and Kaura estimated the average spend on a wedding ceremony and reception at A$51,000. The 2016 Census counted 46,800 same-sex couples.

They applied other survey findings from 2010, and further assumed that out of the half of all same-sex couples who will want to marry, half will do so in the year after same-sex marriage is legalised.

The sentiments expressed in the 2010 survey findings may have shifted since then, especially in light of the marriage equality postal survey. But let’s use that proportion for consistency.

We might suppose 11,700 same-sex couples will marry within one year of the legalisation of same-sex marriage, spending on average A$51,000, totalling almost A$597 million dollars in wedding and reception costs.

This does not include honeymoon spending. For those couples choosing to honeymoon within Australia, we can add spending on travel and accommodation.

A 2015 survey by Bride To Be magazine found the average spend on wedding and honeymoon at A$65,482. This figure is clearly biased towards dedicated bridal magazine readers – those who might be willing to save up and fork out more for their perfect wedding and honeymoon.

Arguably many would not be able or willing to spend this amount. Nevertheless, A$65,482 would be equivalent to an annual salary for many, so this is suggestive of how lucrative some segments of the wedding and honeymoon market are.

Apart from what the couple (and their families) spend on the wedding and honeymoon, we might also consider guest spending. Obviously, purchasing wedding gifts contributes to the retail sector.

Out-of-town guests also have to pay for travel, accommodation, food and beverage, and other expenses. Some couples opt for destination weddings, with benefits for tourism operators.

Some operators hope that Australia, like New Zealand, might become a destination for international same-sex wedding tourism, and so provide a boost to the tourism industry.

In addition to this, Murphy and Kaura found other economic benefits of same-sex marriage, such as increased state government revenue from marriage licence fees and ceremonies in state-run births, deaths and marriages registries.

The ConversationWith the debate on same-sex marriage now turning to whether or not businesses will be able to refuse couples based on moral objections, it seems at least the economic case incentive is there for these businesses to say “yes”.

Andrew Gorman-Murray, Professor of Geography, Western Sydney University

This article was originally published on The Conversation. Read the original article.

Australians Are Working Longer So They Can Pay Off Their Mortgage Debt

Rachel Ong, Curtin University; Gavin Wood, RMIT University; Kadir Atalay, University of Sydney, and Melek Cigdem-Bayram, RMIT University

Rising mortgage debt is affecting everything from employment to spending, as Australians approach retirement, our study finds. Higher levels of housing debt among pre-retirees are linked to them working for longer.

We found for a home owner aged 45-64 years, the chances of being employed are around 40% higher for every additional A$100,000 in mortgage debt owed against the family home.

There’s also a link between house price changes and household spending. For every A$100,000 increase in the value of a person’s house, annual household spending of home owners increased by around A$1,500. These home owners are willing to increase their spending because they’re able to borrow more against their home to finance it.

Long-run trends in mortgage debt

Australians are paying down their mortgages later in life. The percentage of home owners aged 25 years or over who are carrying a mortgage debt climbed from 42% to 56% between 1990 and 2013.

Mortgage debt burdens among pre-retirees have soared. For home owners aged 45-54 years, the incidence of mortgage debt has nearly doubled from 36% to 71%. Among those aged 55-64 years, this incidence has more than tripled from 14% to 44%.

These trends reflect at least two things. Higher housing cost burdens have resulted in a decline in home ownership rates among young people. Those able to access home ownership are doing so later in life and by taking on higher levels of debt relative to their incomes.

Flexible mortgage products also now allow home owners to unlock wealth stored in the family home whenever required, and not just their retirement years.

Higher mortgage debts, longer working lives

Australians are working longer because they are paying down their mortgages later in life.

Our modelling, based on the 2001-2010 Household, Income and Labour Dynamics in Australia (HILDA) survey data, shows that pre-retirees aged 55-64 years are 18% more likely to continue working for every A$100,000 increase in their mortgage debt.

On the one hand, unexpected increases in housing prices could have caused buyers considering home ownership to borrow more in order to buy a house, and encouraged homeowners to spend more by withdrawing the equity from their homes. These mortgagors then have to extend their working lives to meet higher mortgage repayments.

On the other hand, longer life expectancy may have encouraged many Australians to plan longer working lives. Carrying higher levels of mortgage debt later in life could be a financial tactic to finance their spending over a longer lifespan.

Borrowing more, spending more?

Our analysis found some differences between subgroups of home owners and between periods preceding and following the global financial crisis.

Before the global financial crisis highly indebted home buyers were more prepared to use their mortgages in order to bridge the gap between spending plans and income. After the crisis, home buyers with large mortgages were less willing to use their mortgages in this way.

In contrast, the spending plans of indebted households who both own their home and a second investment property seem more sensitive to house price movements since the global financial crisis. Property investors with mortgage debt increased their average yearly spending after the crisis from A$1,700 to over A$2,800 for every A$100,000 increase in their housing wealth.

On the other hand, for home owners with no investment properties, average yearly spending tightened from A$1,700 to A$1,500 for every A$100,000 increase in their housing wealth. This suggests investors with debt are not so risk-averse as other homeowners.

Housing, productivity and the economy

Mortgage debts have important economy-wide effects through interactions with labour markets and consumer spending.

Ageing is often associated with lower rates of labour force participation and declining physical and mental health, which can result in reduced productivity growth. If people are extending their working lives to repay higher mortgage debt, this could mitigate some of the productivity consequences of population ageing, albeit at the expense of greater exposure to debt in later life.

When real house values are rising, home owners and property investors are able to borrow more against their home to finance their spending. In the short run this can help offset the effect of stagnant wages (on their spending) and thereby sustain growth momentum in the economy.

But if wages fail to pick up, these higher levels of debt can be a drag on growth. High levels of indebtedness also increase exposure to house price and interest rate risk, and pose a threat to macroeconomic stability.

The ConversationOur research makes a compelling case for considering housing differently, as essential economic infrastructure. Housing needs to be re-positioned from the periphery to a central place within national economic policy debates. This could be crucial to an understanding of how our housing system can promote rather than curb economic growth in Australia.

Rachel Ong, Deputy Director, Bankwest Curtin Economics Centre, Curtin University; Gavin Wood, Emeritus Professor of Housing and Housing Studies, RMIT University; Kadir Atalay, Senior Lecturer in Economics, University of Sydney, and Melek Cigdem-Bayram, Research Fellow, RMIT University

This article was originally published on The Conversation. Read the original article.

‘The Way They Manipulate People is Really Saddening’: Study Shows the Trade-Offs in Gig Work

Sarah Kaine, University of Technology Sydney; Alex Veen, RMIT University; Caleb Goods, University of Western Australia, and Emmanuel Josserand, University of Technology Sydney

Uber driver Michelle, thinks her job is fantastic when she’s only after part-time hours. But she’s given it a couple of months and she says she’s not getting anywhere.

To be able to earn A$800 she has to actually pull in A$1,500, averaging 70 hours a week. The money per hour can be good, but only when it really picks up. Looking at the current job market, she doesn’t want to do two full-time jobs to make the same amount of money that she used to earn in an office, working half the time.

She feels exhausted. She used to think people in Melbourne were good drivers, but now that she’s been driving all day, she sees a fair amount of aggression. Six weeks ago she was trying to merge into traffic and a man in a ute next to her showed her a crowbar.

Her latest day off she spent sleeping because she was so tired.

Michelle (not her real name) was one of our study participants. We interviewed 60 ridesharing and food delivery workers like her. And the reality of their experiences is far more nuanced than others make out.

Work in the “gig economy” is often depicted as flexible by businesses and those who run the platforms that offer work, or as exploitative by labour activists and commentators.

A key finding is that gig workers arbitrate between the costs and benefits of gig work. Many interviewees preferred their gig work over other forms of low-paid work (most commonly cleaning, hospitality, retail) because of abusive bosses, underpayment, and underemployment. In comparison, gig work is seen by these workers as providing a more appealing work environment.

While some rideshare drivers note they need to work long hours to earn the equivalent of a full-time wage, they also emphasise their enjoyment of their rideshare work. One food delivery worker summed it up:

It is more flexible. You can do whatever you want. You are on the street talking to the people enjoying. You can do exercise as well on the bicycle. And, it is good money.

Despite these workers’ sense that there are opportunities in gig work – their experience was not overwhelmingly positive. There was a group of workers who felt marginalised, had few choices, and the gig work was a last resort.

These workers saw gig work as a stopgap measure while they looked for “real” jobs. In these cases they were doing it because it got them out of the house, to supplement their income or before starting their own business.

Social versus isolating

The workers in the study saw social interactions as part of their gig work as one of the more enjoyable aspects. What varied between rideshare and food delivery workers was how these interactions took place.

Food delivery drivers often end up crossing paths during their shifts and informally waiting together. As one worker summed up:

You end up knowing most of the riders, because you see them pretty often. You kind of speak with each other, and there is a social club.

By contrast rideshare drivers noted that their work could be quite physically isolating. Some drivers engaged in online forums with other drivers but would never meet up with them. Despite limited social interaction with other drivers, rideshare drivers reported that this is where they derived most of their job satisfaction.

Freedom versus control

The drivers we interviewed expressed a sense of freedom and flexibility because they had “no boss, no set hours”. However, the flip side of this was a sense of limited control over work. As one food delivery worker described:

I currently fit my life around their work…obviously I have to work around busy times – lunch and dinnertime.

Both delivery riders and rideshare drivers – found that only particular pockets of time across the day were profitable. This was usually lunch and dinner times, especially weekends for food delivery, and weekends and evenings for rideshare drivers. So while their options to sign on or off the app (the platform that employed them) were flexible, realistically their productive working hours were determined by patterns of consumer demand.

Both the rideshare and food delivery platforms also unilaterally changed the terms and conditions of engagement, which directly affected earning potential. Both groups of workers expressed particular concern about the periodic increases in the commission taken by the platform, reporting cuts to earnings of up to 15%. One driver lamented:

The way they [the platform] manipulate people….is really saddening.

Ridesharing workers were also concerned about being financially over-committed due to the cost associated with purchasing and running a vehicle. This financial burden, coupled with continued changing rules of game, and the capacity for these platforms to arbitrarily “deactivate them” led to anxiety and frustration. One worker described this:

It used to be good before they did all the price cuts and started treating their drivers like trash. We have had 30% cuts since I came on board whilst demand hasn’t matched supply. I make around $10 an hour.

Best of a bad lot

Our emerging findings suggest gig workers often understand the trade-offs between the positive and negative features of their work but see this as a reality of their position within the labour market.

A number of our interviewees felt exploited and/or would prefer better paying “real jobs”, validating the concern on regulation, pay and conditions in this industry. But, gig work allows these workers to meet their immediate needs and gives them a sense of being their own boss.

The ConversationThe gig workers enjoyed the high levels of autonomy in their work, and many of them saw their gigs as the best in a market characterised by low paid jobs.

 

Sarah Kaine, Associate Professor UTS Centre for Business and Social Innovation, University of Technology Sydney; Alex Veen, Lecturer – Early Career Development Fellow, RMIT University; Caleb Goods, Lecturer – Management and Organisations, UWA Business School, University of Western Australia, and Emmanuel Josserand, Professor of management, University of Technology Sydney

This article was originally published on The Conversation. Read the original article.

FactCheck Q&A: Does Australia Have One of the Highest Progressive Tax Rates in the Developed World?

Kathrin Bain, UNSW

The Conversation fact-checks claims made on Q&A, broadcast Mondays on the ABC at 9:35pm. Thank you to everyone who sent us quotes for checking via Twitter using hashtags #FactCheck and #QandA, on Facebook or by email. The Conversation


Excerpt from Q&A, May 15, 2017. Quote begins at 0.50.

Look, we just need to keep in mind that we have one of the highest progressive tax rates in the developed world at the moment. – Innes Willox, chief executive of the Australian Industry Group, speaking on Q&A, May 15, 2017.

When Q&A host Tony Jones asked if wealthy people should pay more tax, the AiGroup’s Innes Willox said that Australia already has one of the highest progressive tax rates in the developed world.

Is that true?

Checking the source

When asked for sources to support Innes Willox’s statement, a spokesman for the AiGroup clarified that Willox was referring to top marginal tax rates.

The spokesman referred The Conversation to OECD tax statistics, and two charts built using that data, saying that:

This shows that Australia has a relatively high top marginal tax rate (49%) but not the highest among OECD countries (Sweden is top, at 60%). The rub is that our top marginal rate cuts in at a relatively lower level of income than most other OECD countries (2.2 times our average wage).

You can read his full response and see those charts here.

Is it true? Not exactly

Looking at OECD data, Australia’s highest marginal tax rate is higher than the OECD median. Out of the 34 OECD member countries in this data set, Australia ranks 13th for the top marginal rate of tax, meaning 12 countries have a higher top marginal rate, and 21 countries have a lower top marginal rate.

However, a straight comparison like this can be misleading. More than half (19) of the OECD countries impose “social security contributions”. The OECD defines social security contributions as “compulsory payments that confer an entitlement to receive a (contingent) future social benefit”. It notes that they “clearly resemble taxes” and “better comparability between countries is obtained by treating social security contributions as taxes”.

When social security contributions are taken into account, Australia’s “ranking” in terms of top marginal rate of tax drops to 16 out of the 34 OECD member countries – making it still higher than the OECD median top marginal rate, but not by much.

The other point noted by the AiGroup spokesman was that Australia’s top marginal tax rate applies at a relatively low level of income compared to most other OECD countries.

Australia’s highest marginal tax rate applies to taxable income above A$180,000, approximately 2.2 times Australia’s average wage. The AiGroup spokesman was right to say this is relatively low, with the majority of OECD countries (20 out of 34) applying their highest marginal tax rate at income levels higher than Australia (that is, at income levels higher than 2.2 times the average wage).

However, it is worth noting that based on the latest Australian Taxation Office statistics, for the 2014-15 tax year, only 3% of individual taxpayers fell into the highest tax bracket.

Where Australia does rank amongst the highest in the OECD is the percentage of total tax revenue that is derived from individual income taxation.

In 2014, 41% of Australia’s taxation revenue came from income taxation on individuals. This is the second highest in the OECD (the highest being Denmark at 54%) and significantly higher than the OECD average of 24%.

Verdict

The statement made by Innes Willox that “Australia has one of the highest progressive tax rates in the developed world at the moment” is an exaggeration.

Australia ranks 13th in the OECD for the top marginal rate of tax, and 16th if social security contributions are taken into account.

However, Australia does rely more heavily on personal income tax (when compared to other taxes) than all but one other OECD country. – Kathrin Bain


Review

I agree that the statement is an exaggeration. 13th out of 34 is higher than the median, but it would be equally true to say that more than one-third of the OECD countries have a higher personal marginal tax rate than Australia.

It is always problematic to try to compare tax data across different countries. Although the OECD does try to make the data comparable the differences between tax and welfare systems can lead to misleading comparisons.

It is generally well known that certain Scandinavian countries, such as Sweden and Denmark, have a very high marginal tax rate. However those countries also tend to have a different approach to social and welfare spending. Australia does not have a dedicated social security tax: pensions and income support are paid from general revenue. This structural difference in the tax-transfer systems does limit the comparison.

Australia does have a high reliance on personal income tax, and the top marginal rate is higher than the median OECD level. Although the top marginal rate is relatively low at 2.2 times the median wage, the fact that only 3% of the population are in the top bracket says that we, in fact, have a relatively flat tax structure, with most taxpayers in lower tax brackets. – Helen Hodgson


Kathrin Bain, Lecturer, School of Taxation & Business Law, UNSW

This article was originally published on The Conversation. Read the original article.

Why you shouldn’t fear your finances (you’re probably richer than you think)

Jay L. Zagorsky, The Ohio State University

Do you procrastinate about taking care of financial matters in your life? Recently a fascinating article about financial procrastination appeared online.

The author publicly admitted that “after years of procrastinating,” he finally logged on to his retirement account. It took him years to get around to dealing with it because the entire task made him anxious.

Moreover, he stated he didn’t remember his password, and his account choices were a mess.

For many of us there is nothing special about any of this. Most people dread and put off dealing with financial matters.

However, what was astonishing about this story is that the writer is an eminent economist who does research in personal financial matters such as savings, annuities and mortgages. If this man has trouble dealing with his retirement accounts, is there any hope for the rest of us?

Do you have to be smart to be rich?

There are many reasons people procrastinate on dealing with financial matters. There is even a new special field in psychiatry that deals with the issues people have surrounding money, spending and saving. Unfortunately, while many of us have issues about money, the specialized help that is available is primarily useful for people with lots of wealth or income.

Some of my research can help people who procrastinate about dealing with their finances. One reason many people don’t want to deal with money issues is because they think they are not smart enough. However, when I looked into this, the results were very clear: there is no relationship between intelligence, measured by IQ, and a person’s wealth. It’s generally true that the smarter you are, the more income you earn. However, earning more doesn’t give you any special advantage in saving or building wealth.

Sendhil Mullainathan, the economist who wrote the column on procrastinating, appears to be a poster child for the lack of a relationship between IQ and wealth. He is clearly very smart: he won a MacArthur genius award and is a full professor at Harvard.

But he probably doesn’t have much wealth since he states in the article, “I want to reach my retirement with a nest egg that allows me to maintain my current lifestyle and to travel a bit.” Rich people don’t dream of retiring with just enough money to take a few trips.

If you are putting off dealing with money issues because you don’t think you are smart enough, don’t wait any longer. Being smart isn’t going to make you rich. Whether you are dumb or smart you can save. The secret is simple: just spend less than you earn.

Are you richer than you think?

Many people don’t want to deal with their financial issues because they expect the news to be depressing. Most of us are experts at avoiding bad news. However, another research paper I wrote shows that for most people, the financial news is actually much better than expected, which is perhaps another reason not to procrastinate.

The National Longitudinal Surveys, a long-running research project sponsored by the Bureau of Labor Statistics, asked people to estimate their net worth. Then the survey took them step by step through the value of all of their assets and the value of all their debts. From this information I was able to calculate their actual net worth. The result for most people was much better than they feared. For every dollar of wealth actually held, the typical individual believed they only had 62 cents.

In simple terms, the research showed that the typical person underestimates their financial position by more than a third. The financial unknown is scary but the actuality for most people is not as frightening as they fear.

I encourage all of you to sit down, close your eyes and ask yourself: are we in debt, break even or do we have money? Write down your best guess for how much you are in debt or how wealthy you are. Then add up all of your assets and subtract all of your debts (an easy online calculator is available here). The results will pleasantly surprise most of you.

Why should you avoid procrastination?

Research suggests people who avoid procrastinating do financially better. A recent working paper by two economists Jeffrey Brown and Alessandro Previtero shows that people who procrastinate are less likely to participate in savings plans, take longer to sign up when they do decide to participate, and contribute less money to their retirement plans than non procrastinators.

You will not become rich or suddenly have enough money to retire by reading just one article. However, know that lots of people procrastinate about financial matters. If you have been procrastinating because you don’t think you are smart enough or because you fear the results, research suggests you will find the news is not bad.

So make that first step and try to deal with that financial task you have been putting off. It is like jumping into a pool, lake or ocean; the water is really not as bad as you fear, and taking the jump will likely make you (feel) richer.

The Conversation

Jay L. Zagorsky, Economist and Research Scientist, The Ohio State University

This article was originally published on The Conversation. Read the original article.

How Alternative Finance Can Offer A Better Banking Future

Do you know where your money is? If you immediately think of cash, then there’s a good chance you’ve just patted a pocket or looked in a purse to reassure yourself. But if you thought of your savings and investments, then there’s actually a good chance you have no idea where your money is – other than to draw the quick (and misleading) conclusion that it is “safely in the bank”.

After all, where else would it be?

We recently saw the revelation that another major bank – this time Germany’s Deutsche Bank – could collapse. According to Germany’s economy minister, Sigmar Gabriel, it “made speculation its business model”, though now claims to be the “victim of speculators”.

But there is an alternative to this banking model that isn’t based on financial speculation. Research that colleagues and I have done into economic resilience would suggest that many people might be better off investing in alternative finance and, to encourage them, the government should guarantee alternative finance investments up to a maximum of £5,000.

Finally, an alternative

The UK is the home of Europe’s rapidly-growing alternative finance (or “alt fin”) movement, which is fast becoming a major player in the financial sector. Valued at £3.2 billion in 2015, a big part of its appeal is that we can often know more precisely where our money is and what it is doing. Whereas with mainstream banks, your money is used to fund various investments, often on financial markets that you have no control over, investors in alternative finance projects tend to invest in a specific project.

Alternative finance has been around since at least 2004, with the founding of online peer-to-peer lender, Zopa. But a far broader range of options have sprung up since the financial crisis. In our research, we found online peer-to-peer platforms that bypass the banks entirely, community share schemes that allow both direct investment in and democratic influence of a given project, and crowdfunding to support a local SME business take off. Greater transparency so that people know exactly where their money is and what it is doing is key.

Beyond this there are many different financial arrangements, all with different implications for funders and fundraisers. Peer-to-peer loans, bonds and debentures have to be repaid with interest. Community shares are regulated to keep dividend payments low, but give shareholders a say in the governance of the fundraising organisation.

Government backing?

Despite the very public loss of reputation suffered by high street banks following the financial crisis in 2007, we still seem to trust them with our money. In wondering how mainstream banks were able to return so quickly to “business as usual”, one answer is that we did too. A big reason for this might be that we didn’t know what else we could do with our money and the perceived risks of new ways of investing.

There are understandable anxieties about alternative investments at a time of significant restraints on household budgets, especially when two in five of the UK workforce have less than £100 in savings. This is why the government should step in and guarantee retail investments in alternative finance.

It’s a relatively small ask compared to the Financial Services Compensation Scheme, which is the current guarantee of cash deposited in UK-regulated accounts in banks and building societies up to a limit of £75,000 – even though such investments provide very little financial return to savers or deliver tangible social or environmental value from this money.

Alt fin tries to provide us with a way of diverting our money away from habitual patterns of economic behaviour. And it is delivering real social and environmental benefit to communities. These include renewable energy schemes, community home building, or renovating disused land into play spaces for children.

One of the banks that has been bailed out by the government since the financial crisis.
Elliott Brown, CC BY

We argue that the government should help the process of building trust in alternative finance investments by providing this maximum guarantee with the condition that investment is directed into the “real economy” and not just financial markets.

Proceed with caution

Of course, any such guarantee should be approached with caution. After all, this suggests a breaking of the “risk/return” cycle – a basic tenet of banking that with any investment comes risk – and potentially opens the way to abuse, with people making risky investments with the comfort of a government backstop.

But if we are to build a more resilient financial system, we need a far greater range of options for where to direct our money. Alternative finance is not perfect, and a growing entanglement with mainstream finance may see the sector start to resemble mainstream practices. To manage the process of truly democratising finance and providing genuine alternatives to putting our money “safely in the bank”, the Financial Conduct Authority should play a leading role as regulator.

And if a taxpayer guarantee sounds contentious, it is worth remembering that the risk/return cycle was significantly broken by the process of bailing out the banks in 2007-08. Banks, too big to fail and to jail, currently create 97% of “money” through credit, preferring to speculate on money and financial markets in the hope of creating profit, rather than investing in the “real economy”.

If the practice is good for safeguarding the hidden financial speculation of the few, why not for safeguarding the transparent material social and environmental gains for the many?

In continuing to assume the mainstream banks are the safest place to invest, we might be missing the opportunity to make our money do good by working harder for us and our communities.

The Conversation

Mark Davis, Associate Professor of Sociology, University of Leeds

This article was originally published on The Conversation. Read the original article.