Fintech Spotlight – What’s On the Cards?

I caught up with the Co-Founder and CEO, David Boyd of Credit Card Compare, on their announcement of expansion into Singapore.

 Kwok (A Co-Founder of Finty), David & Andrew Boyd.

Credit Card Compare does what it says on the tin, by providing a website for prospective credit card customers to select and compare the features and benefits of a wide range of Australian credit cards. In fact, the business, which started in a domestic setting a decade ago has thrived, and now has around 150,000 people seeking advice each month via the site.

When customers get a card approved from the bank, they receive a referral fee but do not handle the application or credit assessment processes, so Credit Card Compare is essentially a lead generating platform for lenders. The trick of course is to get current data passed back from the banks and David said that given the legacy systems in some organisations, this can be a challenge. They have some additional enhancements in the works, which we will see down the track. As yet they do not provide advice on which card is best, but simply make it possible for consumers to compare cards on a range of standard parameters and prioritise the features which they believe are most important.

The announcement of Credit Card Compare’s acquisition of Singapore based start-up, Finty.com highlights their desire to reach out and expand into selected Asian markets. Singapore has a unique credit card market, in that as well as card applicants being enticed with cash back, rewards and points, Finty enriches the rewards they receive, and as a result has a significant footprint in the market, despite relatively modest numbers of applications. In that market, customer rewards for taking a card are paid once approved, and most card holders possess a battery of separate cards for different purposes, for example, travel, expenses, and shopping. The average Singaporean would somewhere between six to eight cards, a much higher number than in Australia where most people only have one or two cards.

David sees significant growth potential across Asia, and also potentially some leverage from Finty.com back into the Australian business, seeing a win-win between the two businesses, with niche expertise from Singapore paired with executional capability in Australia.

Given the release of the ASIC report into Credit Cards, where they underscore the fact that many households have the wrong cards for their purchase and repayment behaviour, it seems to me that Credit Card Compare is well placed to bring greater sophistication into the local Australian market, whilst growing across the region. A nice trick to pull off if they can do it.

Another Day, Another Data Breach

Reports of data breaches are an increasingly common occurrence. In recent weeks, Ticketmaster, HealthEngine, PageUp and the Tasmanian Electoral Commission have all reported breaches.

It is easy to tune out to what is happening, particularly if it’s not your fault it happened in the first place.

But there are simple steps you can take to minimise the risk of the problem progressing from “identity compromise” to “identity crime”.

In 2012 former FBI Director Robert Mueller famously said:

I am convinced that there are only two types of companies: those that have been hacked and those that will be. And even they are converging into one category: companies that have been hacked and will be hacked again.

The types of personal information compromised might include names, addresses, dates of birth, credit card numbers, email addresses, usernames and passwords.

In some cases, very sensitive details relating to health and sexuality can be stolen.

What’s the worst that can happen?

In most cases, offenders are looking to gain money. But it’s important to differentiate between identity compromise and identity misuse.

Identity compromise is when your personal details are stolen, but no further action is taken. Identity misuse is more serious. That’s when your personal details are not only breached but are then used to perpetrate fraud, theft or other crimes.

Offenders might withdraw money from your accounts, open up new lines of credit or purchase new services in your name, or port your telecommunication services to another carrier. In worst case scenarios, victims of identity crime might be accused of a crime perpetrated by someone else.

The Australian government estimates that 5% of Australians (approximately 970,000 people) will lose money each year through identity crime, costing at least $2.2 billion annually. And it’s not always reported, so that’s likely a conservative estimate.

While millions of people are exposed to identity compromise, far fewer will actually experience identity misuse.

But identity crime can be a devastating and traumatic event. Victims spend an average of 18 hours repairing the damage and seeking to restore their identity.

It can be very difficult and cumbersome for a person to prove that any actions taken were not of their own doing.

How will I know I’ve been hacked?

Many victims of identity misuse do not realise until they start to receive bills for credit cards or services they don’t recognise, or are denied credit for a loan.

The organisations who hold your data often don’t realise they have been compromised for days, weeks or even months.

And when hacks do happen, organisations don’t always tell you upfront. The introduction of mandatory data breach notification laws in Australia is a positive step toward making potential victims aware of a data compromise, giving them the power to take action to protect themselves.

What can I do to keep safe?

Most data breaches will not reveal your entire identity but rather expose partial details. However, motivated offenders can use these details to obtain further information.

These offenders view your personal information as a commodity that can be bought, sold and traded in for financial reward, so it makes sense to protect it in the same way you would your money.

Here are some precautionary measures you can take to reduce the risks:

  • Always use strong and unique passwords. Many of us reuse passwords across multiple platforms, which means that when one is breached, offenders can access multiple accounts. Consider using a password manager.
  • Set up two-factor authentication where possible on all of your accounts.
  • Think about the information that you share and how it could be pieced together to form a holistic picture of you. For example, don’t use your mother’s maiden name as your personal security question if your entire family tree is available on a genealogy website.

And here’s what to do if you think you have been caught up in a data breach:

  • Change passwords on any account that’s been hacked, and on any other account using the same password.
  • Tell the relevant organisation what has happened. For example, if your credit card details have been compromised, you should contact your bank to cancel the card.
  • Report any financial losses to the Australian Cybercrime Online Reporting Network.
  • Check all your financial accounts and consider getting a copy of your credit report via Equifax, D&B or Experian. You can also put an alert on your name to prevent any future losses.
  • Be alert to any phishing emails. Offenders use creative methods to trick you into handing over personal information that helps them build a fuller profile of you.
  • If your email or social media accounts have been compromised, let your contacts know. They might also be targeted by an offender pretending to be you.
  • You can access personalised support at iDcare, the national support centre for identity crime in Australia and New Zealand.

The vast number of data breaches happening in the world makes it easy to tune them out. But it is important to acknowledge the reality of identity compromise. That’s not to say you need to swear off social media and never fill out an online form. Being aware of the risks and how to best to reduce them is an important step toward protecting yourself.

For further information about identity crime you can consult ACORN, Scamwatch, or the Office of the Australian Information Commissioner.

If you are experiencing any distress as a result of identity crime, please contact Lifeline.

Author: Cassandra Cross Senior Lecturer in Criminology, Queensland University of Technology

Royal commission shows bank lenders don’t ‘get’ farming, and rural economies pay the price

From The Conversation.

The Financial Services Royal Commission has exposed the fraught relationship between farmers and financiers. We have heard about loan terms being changed without notice or consultation, loans revalued to suit the agendas of financiers, and heartless and harsh treatment of farmers once the loans are revoked.

A number of factors have contributed to this, including instability in the market value of farms, policy changes that make farms more reliant on financial instruments, and shifts in the global positioning of farm land relative to other forms of property.

The commission has heard that local lending brokers were not qualified to value farm properties, and that farm valuations have become fluid and unpredictable.

Sometimes farms and farmland were deliberately overvalued. Higher values enable farmers to borrow more money for farm improvements, and the local lending branch manager to earn higher commissions.

Not only do the central administrators in banks lack the information and expertise to question these assessments, their business models have encouraged overvaluation and overborrowing as a means to grow their businesses.

Across the Murray Darling Basin banks have taken the separation of water from land – a precursor to the marketisation of water – as a cue to devalue land.

This has provided a reason to void existing loan agreements and to offer refinancing under more arduous conditions. Farmers have no option to refuse, and so borrow with the expectation that a couple of good years will put them back on track.

And if the good years don’t materialise, farms fall into financial stress.

This confronts a third issue, which is that in the bad years farms are harder to sell so their market value plummets. This compounds the problem.

Farmers are more reliant on banks

Policy changes have made farms more reliant on banks.

Since Australia adopted open-market policies in the 1980s and agricultural markets have become global, farmers have been exposed to global price changes.

The removal of single-desk marketing boards like the Australian Wheat Board, which protected farms from price fluctuations, increases the impact of price changes. Farmers are now expected to purchase financial products to reduce the risk of this volatility.

Drought assistance has also been reoriented to rely on market-based instruments, such as loans from banks rather than grants from governments. In the wake of the deregulation of the financial system, and the post-financial crisis consolidation of the farm lending sector, many farm-specific loan products have disappeared. So banks tend to treat farms as businesses like any other.

The open-market policies also create an imperative to expand landholdings (“get big or get out”) and to invest in the latest equipment and technologies. Since this requires borrowing, it thrusts farmers onto a credit treadmill.

Of course, low interest rates have also stimulated borrowing for farm expansion.

Increasing corporate control of farm inputs (seeds, fertiliser etc.) and outputs is squeezing farmers’ capacity to earn enough to service their loans.

To make matters worse, the declining terms of trade impel farmers to increase productivity just to stand still.

The farmers before the royal commission have mostly managed to stay on the treadmill, but only until the banks’ rule changes cranked up the speed to throw them off.

It’s clear that despite their crucial role, many banks still don’t really “get” the vagaries of farming. They don’t understand how different farm lending is – or should be – to commercial and housing lending. Neither do they seem to appreciate the broader social and economic dimensions of the role they have in managing farm risks.

Dramatic revisions to land valuations, as discussed in numerous cases described in the commission, can undermine an entire farming region’s equity.

The accelerated thinning out of the farming population impacts on local economies and sporting teams, among others. In the lead-up to and during the whole process of deregulation, farmers were continually reassured – in reports by the Productivity Commission, for example – that the credit market would evolve to meet their needs.

The evidence that the commission has heard in many respects represents a case of market – and regulatory – failure.

Since the global financial crisis, farm land has become an attractive investment for wealthy families and institutional investors, and for governments worried about food security.

As this pushes up land values, banks can be more aggressive towards failing farms. Foreclosures free up land for deep-pocketed investors.

It would be a mistake, then, to conclude that the stories coming out of the commission are an isolated issue relating to the one bank’s heavy-handed mopping up after the failure of a specialised rural lender – as was the case with ANZ and Landmark.

On the contrary, there are many stories of different banks imposing financial risk frameworks on farmers that are ill-equipped to accommodate the vagaries of farming production and pricing.

When farmers jest about being owned by the banks, they aren’t joking.

We should ask why the government took so long to acknowledge the problems of rural finance and the effects on farming communities.

 

After the commission concludes, it is likely that banks and regulators will tighten the risk parameters on farm lending and make it harder for smaller family farmers to access finance.

Vulnerable farms will not be able to borrow as much money as in the past. This might be prudent from a financial risk perspective.

However, if city bankers don’t understand farming and don’t make allowances for the volatile and uncertain economies of farming, there’s still no guarantee that tighter rules will translate into better decisions and more positive outcomes.

Rather, tighter rules are likely to have uneven consequences, further disadvantaging smaller family farms relative to deep-pocketed agribusinesses. So, in effect, restricting credit is likely to accelerate the transfer of farmland from family farms to more corporate entities including transnational corporations.

Author: Sally Weller Reader, Australian Catholic University; Neil Argent Professor of Rural Geography, University of New England

Hardship Customers Protected in New Credit Regime

The ABA says Australia’s four major banks have reached an agreement to protect vulnerable customers from being unfairly treated in the new mandatory Comprehensive Credit Regime.

The four major banks, who will be required to report the credit history of 50% of customers by the end of September, will not include customers who have reached agreement on hardship arrangements with their bank. This will continue for the first 12 months of the regime while the Attorney-General is conducting a review into this issue.

CEO of the Australian Banking Association Anna Bligh said this was a critical issue for Australia’s major banks who were united behind this arrangement to ensure all customers are treated fairly in what will be an important change in credit history reporting.

“Australia’s banks have been working closely with the Federal Government and other stakeholders to ensure we get this major reform right, without unfairly treating some customers, and implemented without delay,” Ms Bligh.

“Australia’s banks are fully behind this new regime and see the great benefit it can bring in helping customers quickly and easily get a great deal on their personal loans, home loans and credits cards. The four major banks are committed to meeting the start date of 30 September in accordance with the CCR regime.

“Currently if you have a great credit history, the only organisation who knows this is your bank.

“This new regime takes that powerful information and places it into the hands of customers who can ensure they get the best deal possible from a financial institution.

“As with all major reforms in banking it’s important we don’t leave people behind.

Those who have experienced hardship through no fault of their own such as losing a job, sickness, natural disasters or relationship breakdown need to be protected in this new regime.

“Unexpected events happen in life, which banks understand, therefore it’s important that we can discreetly show this on credit histories to make sure customers don’t have further difficulty in the future,” she said.

Nine Does Mortgage Stress

We ran some custom analysis for Nine, looking at mortgage stress in and around Sydney. Here is a map showing the relative number of households now in stress – based on their cash flows.  This is data to end May, we will run the June update in early July.

Nine ran a short segment last night.

To recap, stress continues to rise:

How superannuation discriminates against middle income earners

From The Conversation

While all workers benefit from the 9% superannuation guarantee, those on middle incomes benefit significantly less than lower and upper incomes, according to my research.

I ran simulations on the financial assets accumulated over a working life, comparing this to what would have been earned on the same amount saved but invested outside the superannuation system and earning the same rate of return. I’ve added back the last few words here as this is an important assumption in my analysis

People on low, middle and high incomes are all better off under the superannuation guarantee levy. This is due largely to the concessional tax rate (a flat 15%) on income earned in the super fund.

But lower income earners see a lifetime gain 9% higher than for the medium earner. The high income earners receive a gain 8% greater than those on medium incomes.

Ghosts in the system

About 80% of Australian government spending on cash benefits to individuals and families is subject to means-testing. This includes the low income superannuation tax offset (LISTO), as well as unemployment benefits, pensions and family tax benefits.

LISTO provides a refund of the 15% tax paid on the super contributions. It is a way of compensating low earners for the greater sacrifice they make in forgoing current spending in favour of superannuation saving.

However, means-testing of the LISTO and other cash benefits is a double-edged sword. It may promote some level of fairness, but it can also discourage work through high effective marginal tax rates.

This is because benefits are phased out or cut completely once income reaches a certain threshold, costing the person a benefit they had been entitled to. This is essentially the same as paying a tax.

Means-testing of the LISTO is one way in which our compulsory superannuation levy (SGL) discriminates against middle income earners. Only employees with a taxable income up to A$37,000 are eligible for the refund and it’s capped at A$500 per year.

The super tax offset is lost once taxable income exceeds A$37,000, creating a jump in the effective marginal tax rate paid. This means, according to my simulations, the superannuation guarantee levy provides significantly greater gains to low income earners than middle earners over a working lifetime.

And there are a lot of low income earners. In 2016, roughly 2.9 million employees (28% of all employees) were eligible for the LISTO. This figure is probably an underestimate, as the ABS data used here refers to cash earnings while LISTO is based on taxable income.

The top 20%, or 2 million earners, also gain more than middle earners from their superannuation. This is due to the flat 15% tax on super fund earnings, which represents a significant drop from the marginal tax rate that the high income earner would pay for equivalent savings outside superannuation.

A person with taxable income over A$180,000 will pay 47 cents in tax for every additional dollar earned over A$180,000. But the tax payable on additional income from superannuation earnings is just 15%. This represents a 32% concession (47% minus 15%).

What we could do differently

There is no reason why the superannuation guarantee levy should discriminate against one income group over another. We already have a public pension scheme to support retirement of low income earners – there is no need for superannuation to do this.

New Zealand’s super system, KiwiSaver, offers a great example. KiwiSaver is an “opt out” model of superannuation. Employees are automatically enrolled when they are first employed but they can choose to withdraw their savings.

And unlike Australia’s superannuation guarantee, KiwiSaver allows members to suspend their contributions for between three months and five years after one year of membership. KiwiSaver funds can also be withdrawn to buy an owner-occupied house, provided certain requirements are met.

The flexibility afforded by KiwiSaver means that low income earners are not forced to save through superannuation. In turn this means there is less reason to have tax concessions like LISTO to compensate low earners.

The absence of means-testing benefits in Kiwisaver also avoids the high effective marginal tax rates that act as a disincentive to earn higher income through employment.

KiwiSaver contributions and returns are taxed the same as other savings. This eliminates the gains to high earners from the concessional rate of tax on super fund earnings enjoyed in Australia.

The combination of these KiwiSaver features is that neither the low or high earners are advantaged relative to middle earners.

This is one of several aspects where the New Zealand system of taxation and government benefits is superior to Australia’s in terms of disincentives and complexity, while still allowing New Zealand to have slightly less inequality than Australia.

Author: Ross Guest, Professor of Economics and National Senior Teaching Fellow, Griffith University

Australia’s Debt Bomb

I discuss the state of the Australian economy with economist John Adams.

Links to his series of articles:

Ten signs we’re heading for ‘economic armageddon’ (Feb 2018)

Ten myths making Australians complacent about looming ‘economic armageddon’ (May 2018)

Six pathways to Australia’s ‘economic armageddon’ (June 2018)

How to prepare for economic Armageddon (June 2018)

What makes up your credit report? Hint – it’s not what you think

Research from consumer education website, CreditSmart, has found that many of us hold misconceptions about what goes into our credit report, and what credit providers look for when checking a credit report.

The CreditSmart website is owned by the Australian Retail Credit Association (ARCA), which is the peak body for organisations involved in the disclosure, exchange and application of credit reporting data in Australia. ARCA’s members are the most significant credit providers including the four major banks, credit reporting bodies (CRBs), specialist consumer finance companies, and marketplace lenders. A list of companies that support the CreditSmart education campaign is listed below.

They say that almost nine in ten Australians (88%) understand that banks and lenders check their credit report when they apply for a loan or credit.

Mike Laing, CEO and Chairman of ARCA, which founded CreditSmart, said that, unfortunately, too many people in Australia misunderstand their credit report and the information it contains.

“Accessing credit is part of everyday life and yet alarmingly, most consumers are unaware of the information included in their credit report. Your credit report will influence whether your application for credit or a loan is approved as your credit report forms part of a credit provider’s assessment of your application for credit or a loan,” said Mr Laing.

The research, undertaken by YouGov Galaxy, was done ahead of the upcoming changes to the credit reporting system.  Known as comprehensive credit reporting (CCR), from July 2018, the four major banks will be required to share 50% of customers’ data with lenders, to ensure a complete picture.

What does my credit report include?

A huge 63% of Aussies believe how much money they make is included in their credit report. Further, 40% think the balance on their savings account is also on their credit report.

“Your income and bank balance isn’t included in your credit report. When you apply for credit or a loan, the lender will ask you about your income, expenses and your financial assets, as all of this is taken into consideration, but it will not come from your credit report.

“You could have a lot of savings in the bank, but a bad credit report because you were careless about paying your financial accounts on time”, said Mr Laing.

Separately, more than half of Australians believe that gender and marital status are included in their credit report, and one-third think that their place of birth and car insurance claims are also shown. All of these are incorrect.

A further 63% of consumers thought their credit report already shows whether or not they make their monthly credit card and loan payments on time. This is a change that is only starting to happen now as part of CCR.

According to CreditSmart, a credit report is made up of:

  1. Identifying information (e.g. name, address, date of birth, employment and driver’s licence number)
  2. Information about the credit accounts you have and, for credit cards, personal loans, mortgages or car loans, your repayment history on these accounts over the last two years
  3. Credit applications over the last five years
  4. Default information (if any) over the last five years (payments at least 60 days overdue)
  5. Personal insolvency information and serious credit infringements (if any) for up to seven years

Who can access my credit report?

While most of us know that a bank or lender will look at our credit report when we apply for a loan, many are unaware that our credit report can be checked when we apply to open a new gas or electricity account (46%) or contract a mobile phone (46%).

“Most credit providers, which can include gas, electricity and phone providers, will carry out a credit check to find out how you’ve handled your debts in the past – something to keep in mind,” said Mr Laing.

Your credit report can’t be accessed when you apply for a job or take out or make a claim on insurance, which is not well known by Australians.

According to CreditSmart, your credit report will likely be requested from a credit reporting body by a credit provider when you:

  1. Apply for a loan from a bank (or any other finance provider)
  2. Apply for a store card (e.g. when you buy a TV on interest free finance)
  3. Rent items like a TV, fridge or computer, but not home rental
  4. Apply for a car loan
  5. Buy a mobile phone on a post-paid mobile plan
  6. Sign up for a phone, gas or electricity account

Checking your credit report frequently

Mr Laing stresses the importance of checking your credit report annually.

“A popular misconception is that checking your credit report can negatively impact your credit score, but that is not true. As a security measure your credit report will show who has looked at your credit report, including you, but this is done to protect your privacy and is not shown to a credit provider when you apply for a loan.

“Every consumer should check their credit report annually. Monitoring your credit health regularly – like your physical health – lets you confirm you’re managing your credit well and are able to access credit when you need to,” concluded Mr Laing.

For more information on how to get your free credit reports, and to understand what is on them or fix any errors, consumers should go to http://www.creditsmart.org.au website, set up by credit experts to provide clear information on the credit reporting system to assist consumers to optimise their credit health.

Companies that support the CreditSmart education campaign include:

ANZ
Bankwest
Bendigo and Adelaide Bank/ Delphi Bank
BOQ
Citi
Commonwealth Bank
Compuscan
Credit Savvy
Credit Simple
CUA
Customs Bank
Experian
Firefighters Mutual
Bank/Teachers Mutual Bank
Genworth
GetCreditScore
Good Shepherd Microfinance
HSBC
Keypoint Law
Macquarie
ME Bank
MoneyMe
MoneyPlace
NAB
Now Finance
Pepper Money
Police Bank
QBE
SocietyOne
Suncorp
Toyota Finance/Hino Financial Services/Lexus Financial Services/Power Torque Financial Services
Unibank
Westpac/ Bank of Melbourne/ BankSA/ StGeorge/ RAMS

 

How incomes, taxes and benefits work out for Australians

From The Conversation.

The Australian Bureau of Statistics has just released its latest analysis of the effects of government benefits and taxes on household income. Overall, it shows government spending and taxes reduce income inequality by more than 40% in Australia. Disparities between the richest and poorest states are also greatly reduced.

The ABS analysis provides the most up-to-date (to 2015-16) and comprehensive figures on the impacts of government spending and taxes on income distribution. As well as direct taxes and social security benefits, it estimates the impact of “social transfers in kind” – goods and services that the government provides free or subsidises. These include government spending on education, health, housing, welfare services, and electricity concessions and rebates.

The figures also include a wide range of indirect taxes. Among these are GST, stamp duties and excises on alcohol, tobacco, fuel and gambling.

The 2015-16 results are the seventh in a series published every five to six years since 1984. The methodology is based on similar studies by the UK Office of National Statistics since the 1960s. The latest UK analysis coincidentally also came out on Wednesday.

How do the calculations work?

The ABS analyses income distribution in a number of stages.

First, it calculates the distribution of “private income”. This includes wages and salaries, self-employment, superannuation, interest, dividends and income from rental properties, among other items. It also includes net imputed rent from owner-occupied dwellings and subsidised private rentals.

Next the ABS adds social security benefits, such as the Age Pension, unemployment and family payments, to give “gross income”.

Then it deducts direct taxes – primarily income tax – to give “disposable income”.

The next stage is to add the estimated value households derive from government services. This is mainly the value of public health care and education spending.

The final stage is to deduct the estimated value of indirect taxes.

So what are the impacts on income inequality?

It is possible to calculate measures of economic inequality at different stages in this process. By implication, the difference between inequality measures is the result of the different government policies taken into account.

Figure 1 shows the Gini coefficient, which ranges between zero – where all households have exactly the same income – and 100% – where one household has all of the income. The Gini coefficient for private income in 2015-16 was 44.2. The addition of social security benefits, which mainly increase the incomes of low-income groups, reduces the coefficient by 8.1 percentage points.

Deducting income taxes – which are progressive – further reduces inequality by 4.5 points. Government non-cash benefits reduce the Gini coefficient by nearly as much as the social security system. However, indirect taxes slightly increase income inequality.

The Gini coefficient for final income is 24.9. So, compared to a coefficient of 44.2 for private income, government spending and taxes reduce overall income inequality by more than 40%.

Figure 1: Effects of government spending and taxes on income inequality, measured by Gini coefficient Australia 2015-16. Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16, Author provided

While most of the reduction in inequality is due to government spending, taxes are obviously important to pay for this spending.

The social security system reduces income inequality (and poverty) because Australia targets benefits to the poor more than in any other high-income country.

Figure 2 shows the distribution of social security benefits and government services across income groups, from the poorest 20% to the richest 20% of households. The poorest 20% receive about seven times as much in benefits as the richest 20%. The average for OECD countries is close to one, with rich and poor receiving about the same amount.

Figure 2: Distribution of social spending ($ per week) by equivalised disposable household income quintiles, Australia 2015-16. Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16, Author provided

Government spending on social services is also progressively distributed. This spending is considerably greater than social security spending and includes both Commonwealth and state spending on education and health.

The poorest 20% receive about 70% more in non-cash benefits than do the richest. This is not due to income-testing. Instead, it’s largely a result of the greater value of public health spending on hospitals and Medicare for older people, who tend to be in the bottom half of the income distribution.

Taxes, of course, work to reduce income inequality, as high-income groups pay a higher share than low-income groups. Figure 3 shows that the poorest 20% pay about 5% of their disposable income in direct taxes, while the richest 20% pay about 30% of their disposable income.

In contrast, indirect taxes – particularly those on tobacco and gambling – are regressive. Low-income groups pay more than high-income groups as a share of their disposable income. However, the undesirable effects of smoking and gambling on the wellbeing of low-income households need to be borne in mind.

When direct and indirect taxes are added together the overall tax system is less progressive, but the richest 20% still pay nearly twice as much of their disposable income as do the poorest 20%.

Figure 3: Distribution of direct and indirect taxes (% of disposable income) by equivalised disposable household income quintiles, Australia 2015-16. Data source: ABS Government Benefits, Taxes and Household Income, Australia, 2015-16, Author provided

Redistribution also happens between age groups and states

In addition to reducing inequalities between income groups, government spending and taxes redistribute across age groups. Government spending is much higher for households of Age Pension age than for younger households. This is because of both the Age Pension and older households’ use of the healthcare system.

For example, households where the reference person is 75 or older receive on average just over $1,000 a week in government spending but pay about $180 a week in direct and indirect taxes. Households with a person aged 45 to 54 pay the highest taxes on average – about $800 per week – and on average receive about $620 a week in social spending.

There is also redistribution across states and territories. For example, average private income is about 65% higher in Western Australia than in Tasmania. However, on average, Western Australian households receive about two-thirds of the social security benefits that Tasmanian households get. This reduces the disparity in gross income to about 45%.

Western Australian households pay about twice as much in income taxes as Tasmanians, reducing the disparity to 35%. Households in the West receive only about 3% more in spending on social services than in Tasmania, which reduces the disparity in average incomes to 28%. West Australian households also pay about 20% more in indirect taxes than Tasmanian households (although as a percentage of disposable income, this is a higher share in Tasmania).

These figures suggest that while the financing of fairly equal social services across most parts of Australia reduces inequality between states, the income tax and social security systems also significantly reduce disparities. This is because income tax and social security are national systems and because Tasmania is the poorest state largely due to the higher share of age pensioners in its population.

Overall, this publication provides an invaluable picture of how government spending and taxes affect household economic well-being. Its results are relevant not only to the political debate about tax cuts, but also to long-term policy development to prepare Australia for an ageing population.

Author: Peter Whiteford, Professor, Crawford School of Public Policy, Australian National University

ABA Calls Time On Elder Financial Abuse

Australians can now get on board the drive for change to tackle Elder Financial Abuse in a new campaign launched today by the Australian Banking Association, National Seniors, the Council on the Ageing, the Older Persons Action Network and the Finance Sector Union says the ABA.

The campaign invites Australians to write to their state or territory Attorneys General demanding change to empower bank staff to properly detect and safely report Elder Financial Abuse.

In February, Australia’s banks renewed their push for change and called on the Federal, state and territory governments to have key policy changes decided by Christmas. These changes are:

  • Standardised Power of Attorney orders across state and territories
  • An online register of Power of Attorney Orders
  • A designated safe place for local bank staff and members of the public to report suspected abuse.

CEO of the Australian Banking Association Anna Bligh said this was a chance for all Australians to show their support and call on lawmakers to make the changes needed without further delay.

“While elder abuse can take many forms, elder financial abuse is one of the most common forms and one that local bank branch staff witness regularly,” Ms Bligh said.

“The Australian public can now take part in our campaign by logging onto our website and writing directly to their state or territory or Federal Attorneys General calling on them to take urgent action.

“Bank staff unfortunately all too often see people who are their customers being pressured to give access to their accounts, all too often see their accounts being drained by family members, by friends that they trust and care about.

“This is a really difficult, complex problem, but there are things that can be done about it.

“We need a standardised power of attorney order, with an online register and a designated safe place to report suspected abuse to help address this growing problem in our community.

“Australian banks, along with seniors’ groups and the Financial Services Union, are calling on the Federal Government and the states and territories to take these actions to empower local branch staff to detect and report suspected Elder Financial Abuse.

“The last meeting of Attorneys General was an important step in taking action, however every day we delay the problem continues and grows in our community,” she said.

To get on board with the campaign go to www.ausbanking.org.au/elderabuse and show your support.