Some good policy ideas

CEDA have proposed a gradual extension of the age at which you qualify for the pension from 65 to 67.  What with all that hard policy lifting that Peter Costello’s been doing on behalf of intergenerational equity (at the same time as lining the pockets of the country’s aged superannuation policy holders, it’s surprising he didn’t take that next bold step and increase the pension age.  The ALP did it (I’m pretty sure – then again I think it was the ALP that lowered the pension age also – under Whitlam).  I wonder if the Fraser Government increased it – I don’t think so.

And John Quiggin proposes something that seems very smart to me.

My proposal is the purchase of renewal or reversion rights. The idea is that holders of water rights would be offered a payment now, in return for which those rights would be returned to the public at some point in the future, say ten years from now.

Such a delay would have a number of advantages. Most obviously, farmers facing financial stress as a result of severe drought conditions would receive an immediate cash payment, which could be used to repay debt and finance new investments. By allowing farmers a substantial period of time to plan for reduced water allocations or a shift out of irrigated agriculture, purchase of reversion rights would reduce the adjustment costs. More significantly perhaps, the increased predictability of future demand would facilitate planning of investment in irrigation infrastructure and thereby mitigate the problem of stranded assets.

The same considerations imply that the delayed repurchase plan would be fairly cost-effective for the public. Comparison of prices for temporary and permanent trades of water suggests that the value attached by irrigators to rights is higher in the short run than some years in to the future (Quiggin 2006).

The main drawback with the proposal is the delay in resolving the problem of allocation, in restoring adequate environmental flows, and in allowing urban water users access to a relatively low cost source of water. This is, I believe, a manageable problem. While the need for additional environmental flows is acute in some locations, other problems such as increasing salinity levels are projected to develop over a longer period. Hence, under a policy that allowed for a gradual, predictable increase in the allocation available to the environment, acute needs could be addressed first, and other needs later.

Though he draws implicit attention to the high discount rates that irrigators would apply to the transaction in the second quoted para, he doesn’t draw attention to the other side of the ledger – which is the low discount rates that governments could apply- the ten year bond rate.  So it’s a very efficient trade of a long term asset from one party that doesn’t value it much, to one that is in a position to value it very highly.

And remember – you read about it first on Troppo. Well perhaps second.  But then the spell checker wanted me to change ‘irrigators’ to ‘alligators’ – which gives you some idea of how hard it is to get hired help around here.

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observa
observa
14 years ago

JQ also notes-
“It might be objected that, having issued allocations free of charge, the public should not have to pay to reduce those allocations to sustainable levels. Whatever the merits of this view, it has been rendered irrelevant by the conversion of water licences into tradeable property rights, one of the less fortunate aspects of the enthusiasm for market-oriented reform that prevailed during the 1990s.”

And this is the bloke that fancies cap and trade like Kyoto, where the rights are given away to big polluters to flog in the marketplace?. I’m glad he’s seen a bit of light here and can perhaps appreciate its close cousin with CO2 emission rights.

Suppose the govt offers reducible rights(certificates) to emit CO2 where say each tonne permit reduces by say 2% per year for the next 30 years(ie after 30 years each certificate permits 0.4 of a tonne) They can then issue our total tonnage face value certificates now for an annual fee of say $25/tonne (an immediate carbon tax offset by income tax cuts perhaps) and allow them to be freely traded on the new exchange set up for the purpose(ASX?) At the end of 30 years notice the govt (we) still own all the emission certificates, with the power to increase/decrease the annual fee at any time.

observa
observa
14 years ago

And notice we don’t care if they get flogged overseas, so long as the revenue keeps rolling in. Don’t pay the annual licence fee and it gets cancelled and we flog the replacement certificate on the open market again. I don’t think you’d need to bother sending out any renewal notices. In fact, I’m sure we wouldn’t.

derrida derider
derrida derider
14 years ago

The Whitlam government didn’t touch the age pension age – it was set at 65 for men and 60 for women at its introduction in 1902, based on German practice. Most of the poor (at whom it was aimed) did not live that long then, so it made the thing very cheap.

I can’t see the point of raising the age pension age, at least at present. Middle class people won’t be depending on the pension and working class people will almost all qualify for DSP at that age.

spog
spog
14 years ago

Nick,

You might be thinking of the removal of means testing for people aged 70+. From October 73 it was removed for people aged 75+; from May 75 for people 70+. It was gradually reintroduced starting from November 78.

Mark Heydon
Mark Heydon
14 years ago

An interesting paper was presented at the Institute of Actuaries recent convention arguing (very convincingly in my opinion) for the abolition of a retirement age entirely. Link: http://www.actuaries.asn.au/IAA/upload/public/5.b_Conv07_Papers_Wickham_Its%20time%20to%20abolish%20retirement.pdf