Westpac’s Chief Economist, Bill Evans, commented “This is a disappointing result. It follows a surprise 0.5% cut in the official cash rate by the Reserve Bank and extensive media coverage that the unemployment rate had fallen from 5.2% to 4.9%.”

“However, other factors appear to have offset these positives. Firstly there might have been a degree of disappointment amongst households that the standard variablemortgage rate was reduced by ‘only’ an average of 0.37%. Secondly, increasingly disturbing news around Europe and specifically Greece is likely to have unnerved households. We saw some similar evidence around these two factors in December last year. At that time, despite a 0.25% reduction in the official cash rate, the Consumer Sentiment Index actually fell by 8.3%. A number of issues appeared to unnerve households. Firstly, and most importantly, concerns around the situation in Europe and secondly some confusion around the flow on to the mortgage rate as banks delayed their decisions after having responded rapidly following the first official rate cut in November”.

“An additional explanation for this weak response of the Index is around the Federal Budget. We asked a supplementary question in the survey, “What impact do you expectthe Federal Budget to have on your family finances over the next 12 months? ” The results were disappointing with only 9.9% of respondents indicating that the Budget would ‘improve’ family finances while 36% indicated the Budget would ‘worsen’ family finances”.

Both  Associate Professors highlight how Australia has a high female labour force participation compared to other OECD countries but has a low participation rate by mothers in the workforce, but they also underline that there are measures in the budget that can assist in this regard. Below is the full analysis.

Budget Measures Demonstrate Continued Agenda to Increase Female Labour Market Participation

Associate Professors Guyonne Kalb and Duncan McVicar

The 2012 budget includes a number of seemingly ad-hoc measures and payments relating to parents. But a closer look demonstrates a continuing agenda to increase female labour force participation, in particular mothers’ labour force participation, building on earlier welfare reforms and the introduction of the Paid Parental Leave scheme.

Although Australia’s female labour force participation rate of 72% is higher than that in many other OECD countries, and has been rising, its labour force participation rate for mothers is still lower than for most other OECD countries.

Women who are out of the labour force for long periods can lose some of the skills valued by employers. This can make re-entry to the labour market more difficult and can limit employment options in both the short term and the longer term, thus negatively impacting on women’s future prospects. Further, research evidence from studies of intergenerational transmission of disadvantage demonstrates the potential for knock-on effects on the child’s prospects.

One budget measure that, although relatively small, can be expected to facilitate the labour force participation of mothers with young children at an early stage is the extra money to assist parents with childcare costs under the expanded JET Child Care scheme. The program provides extra help with meeting the costs of approved childcare for eligible parents in receipt of parenting payment (PP), over and above Child Care Benefit, reducing the hourly cost of childcare to less than $1 per hour. The assistance is conditional on the parent voluntarily engaging in job search, paid work, or training. 

Research has shown that low-wage households, particularly low-wage single parent households, are the most responsive to childcare costs. So high childcare costs are likely to have a disproportionate negative impact on the labour supply of low-wage women. Research evidence also shows that welfare reforms aimed at encouraging parents of young children to participate in the labour market work best when combined with childcare assistance. And common sense tells us that by reducing the cost of childcare to the parent to a negligible amount, employment becomes a real alternative for mothers of young children currently not employed, rather than an illusory alternative that may leave parents worse off financially, particularly low-wage parents.

Such schemes can also have more immediate positive impacts in terms of child development. Research evidence suggests that, as a complement to parental care, high-quality formal childcare has positive impacts on both cognitive and non-cognitive development of the child, particularly when compared to alternative low-cost non-parental childcare options.

So by making high-quality childcare more affordable for low-income parents, the expanded JET Child Care scheme can be expected to impact positively on child development, facilitate mothers’ labour supply at an early stage, and help to break a potential cycle of inter-generational transmission of disadvantage. We therefore welcome the extension of this program.

Another budget measure aimed at increasing mothers’ labour force participation, albeit for mothers of school-age children, is the transfer of the remaining “grandfathered” parents of children aged eight or over who are currently on PP on to Newstart Allowance (NSA). Although women on PP with children aged eight or over were also required to work at least part-time or search for work for at least 15 hours per week, incentives to work will now be stronger because NSA is paid at a lower rate than PP.

The Government has also avoided a potential negative impact of this change on labour supply incentives by bringing the taper rate for single principal carers on NSA – what you lose in benefits for every $1 you earn in wages (previously 50 cents in the dollar) – into line with the more generous taper rate for PP for single parents (40 cents in the dollar). Again this has been shown to affect labour supply, with high taper rates resulting in lower participation than would be the case with low taper rates.

A number of other budget measures can be expected to have indirect effects on women’s labour force participation. One example is the boost in funding for home care for older Australians. Plausibly this measure could help reduce demands on women who might otherwise have to progress from caring for children to caring for elderly parents or parents in law, thereby providing better opportunities to participate in the labour market.

These three budget measures that at first glance appear unrelated to one another can all therefore be expected to boost female labour force participation, for mothers with young children, for mothers with school-age children, and for women whose labour supply might be constrained by the need to care for elderly relatives. Opening up women’s opportunities to participate in the labour market more continuously over their life-time is good for the women’s (and their children’s) outcomes, as well as for society more broadly, since an increased labour force participation rate also implies faster economic growth.

What are you doing this Thursday, the 17th, from 5.30pm to 7pm?  If you have had to think about that, then come to this talk.

Fernando Tamayo is one inspiring guy. He is a past student here who studied the BCOM after winning the AG Whitlam scholarship due to his academic studies back home in Lima, Peru.

Fernando’s experience at this Faculty changed both his whole outlook on life and his career direction. He came here looking to be an investment banker but after a number of experiences and opportunities he is now a social investment banker. During this time here ee set up the Melbourne Micro Finance Initiative. This is Australia’s only micro finance organisation and students from this Faculty give their expertise to developing communities across the globe so that the correct funding model for projects can be delivered.

Fernando is back in Melbourne to raise awareness of these activities, micro financing in general and at this talk he will challenge some common assumptions about the poor. But  don’t take it from me, listen to Fernando in his own words describe what you can expect to hear.

Date, time, venue: May 17^th, 5.30pm -7pm, ICT Theatre 3, ICT Building – refreshments provided

How many times have you been to your bank this week? None? Once? What did you do there? How long did you spend there? What was your experience? Questions such as these have been occupying the minds of banks for years as they have wrestled with what to do with one of the costliest elements of their business.

Bank branch costs can take a hefty bite from profit statements. Recent research from Royal Bank of Scotland found reducing the average size of branches by 30 per cent and branch staff by 20 per cent would cut up to 7 per cent off the big banks’ cost base. This cost issue has led banks to have perplexing relationships with their branches throughout the years.

‘The focus in the 1980’s and 1990’s was taking cost out. Many banks in the western world removed the role of branch managers'

Rewind to the 1950’s and the bank branch held an exalted position within the community. Due to the technology of the period, both commercial and social transactions was conducted across the counter. The bank manager held a position of respect and authority and the bank was a hive of activity for the community. But in the late 70’s, particularly in the 80’s and right through to the late 1990’s, this essential function that the bank branch and their staff held in the community was eroded, both by the advance of technology and the polices that the banks themselves pursued.

‘The focus in the 1980’s and 1990’s was taking cost out. Many banks in the western world removed the role of branch managers and they didn’t have someone who could make decisions at a local level’ underlined Matt Sale, Head of Retail Transformation at the National Australia Bank (NAB).

It was a policy relentlessly pursued by banks and contributed to a disconnect between banks and the local community that was accelerated by advances in technology. ‘Banks became very commercial, very lending focused and very transaction led, they were looking to minimise cost per transaction and the branch network through the eighties and nineties was really about how do we reduce the cost of the branch.

A focus at this time, for example, was ATM’s and now that they branches had them, it was all about how do we get people to use them more and reduce the amount of people we employ in our branches. Then the internet turned up and all the banks saw another chance to move staff out of branches, so there has been this trend of divestment’ explained Sale. These policies drove the power of decision making away from local branches and accelerated the public viewing of local bank branches as a relic of a slower, stuffier commercial era.  

Wheel comes full circle

But in recent years the proverbial wheel has come full circle and bank branches are fighting back. Banks have realised that their branches are not just a functional presence on the high street, but are a real world opportunity to live the expressions of their brands. The global financial crisis perhaps contributed to this awakening as banks sought to restore faith in their brands and reconnect with the community.

‘We believe in a return to the good old days, the power of the store manager or branch manager in this case who is very well connected to the whole community and is a member of the community and the people who work in that branch are trusted advisors. There is a growing appetite in society for a better understanding of managing one’s own finances and banks have lost that community connection and trusted expert position in communities in the last twenty years, and we are working to restore that connection with the community’ highlighted Sale.

The change in banks attitudes is certainly evident when you walk into branch today. Consumers have witnessed the general ‘disarming’ of banks and banks in essence have become friendlier. The atmosphere is more akin to gentle discussion in a library than a nervous tremble before a stern bank official through perplex glass. The change is most visible in their marketing and is a central business strategy deployed by some banks.

Handelsbanken, the Swedish bank, expanded rapidly across Europe by offering a more traditional banking service. Experienced local managers run independent bank branches that have the power to make lending decisions rather than having to refer customers to processing centres. NatWest, the retail banking arm of Royal Bank of Scotland set itself the target of becoming “Britain’s most helpful bank “ while here in Australia, Westpac, launched a campaign to “bring back the branch”.

Graduate students with NAB's head of retail transformation, Matt Sale

This resurgence in the importance of bank branches is occurring as banks also seek to capitalise on the emergence of new technologies and on opportunities to implement such technologies throughout their business.

Our students lend a hand

This semester Masters students participating in the Graduate School of Business and Economics’ bi-annual Pre-Semester Program (PSP) helped NAB with this very subject. 190 students spilt into 37 teams sought to address the issue of bridging banking service delivery with emerging technologies. Over several days, the teams participated in a series of workshops anda team coaching session and the PSP week concluded with teams presenting their case solutions to panels of senior Faculty staff on the final afternoon of the program.

Ideas and strategies proposed by the winning teams included an ‘ATM of the Future’ that is personalised to the specific needs of the customer, an online queue tracking and booking system and ‘visions’ for future stores that incorporated more use of user tailored information technology.

‘The challenge presented to us of integrating information and communication technologies (ICT) into the physical retail service delivery environment was a difficult one. Our research showed that customers enjoy the advances in modern technology in banks, but they do not want them to be in place of interacting with a human. We took this as our central goal, to use ICT to further aid staff-customer interaction, not to replace it’ explained Alana Moreillon, a Master of Management student and a member of one of the winning teams.

The ideas proposed by the students were in attune with the issues that NAB is exploring. As Matt Sale noted, ‘the explosion in mobile and touch interface mobile devices has changed the opportunity to now create really engaging experiences through digital. The anthropology of technology is what makes the real difference. The experience is now that there will be a continued explosion of interactive surfaces and mobile applications because anthropologically we as human beings have now embraced this technology. Previously it was pushing buttons and it was a cumbersome experience but now we have mobile devices that are of a pleasing tactile nature and ones that people enjoy using. For banks this is a really interesting area to explore.’

This rapid explosion in user friendly technologies will continue to offer opportunities and threats to bank branches but perhaps the ideas proposed by our graduate students will assist bank branches in their continued fight back.

The conference was held to coincide with the 10th anniversary of the Treasury’s first Intergenerational Report (IGR). The IGR has had an important role in shaping the public discourse and policy debate on population ageing in Australia and the Melbourne Institute desired to highlight the importance of the three IGR’s that have been produced in the last decade.

 The panel of speakers gathered in the Shine Dome in Canberra examined a number of different economic and social aspects of ageing policy and the debate got heated as two of Australia’s leading macro economists argued about growth rates.

Adrian Pagan, Professor of Economics, at Sydney University and David Gruen, the Treasury’s head of economics had a spirited debate after Professor Pagan, who is a former member of the Reserve Bank board, said the Treasury had used the ‘unbelievable’ budget forecasts that the global financial crisis would be followed by a run of 4 per cent to 4.5 per cent growth in its 2010 Intergenerational Report.

 Leading figures from the business and economics media were in attendance at the conference and the debate was covered in a news and editorial comment in the Australian. Have a listen to the audio below to hear the debate.

Petrol is the lifeblood of daily life and the springboard for economic activity. In Australia the average Australian spent $51.02 per week on petrol, or 4.1% of their total weekly expenditures. After food and rent or mortgage costs, petrol is usually the next major item in the budget of most consumers. 

The average Australian spends $51.02 on petrol every week

As such a common feature of our lives and as a vital ingredient to our economic strength, it is highly advisable that we gain a deeper understanding of the dynamics of petrol pricing.  Australia through the Australian Competition and Consumer Commission (ACCC) closely monitors competition in Australian petrol markets, but additional economic research in this area can prove beneficial as Dr Byrne outlines, ‘policymakers need to benchmark economic models that predict how prices should behave if stations set prices competitively. With such a model, authorities can effectively monitor petrol stations’ conduct, identify collusive behaviour, and design policies that help ensure consumers pay fair petrol prices.’

Extensive academic research has been conducted in this field and it has found that petrol price cycles occur in markets where there is more prevalence of smaller independent stations. In effect smaller independent stations look to undercut the prices of some larger petrol retail brands and this leads to occurrence of price cycles as the price of petrol goes up and down over a period of time. Dr Byrne and his team within the Faculty are building on this research and are providing insightful information from the Australian marketplace.

For example their initial research shows exactly at what time during the week that petrol prices rises occur in the major cities of Sydney and Melbourne and how the dynamics of these markets work as Dr Byrne explained, ‘75% of the petrol market in Melbourne and Sydney is held by four large petrol chains and due to the dominance of such large petrol brands, both these cities experience regular petrol price cycle. You can think of price cycle like a conductor and an orchestra. The conductor is the big brands who typically lead the jump in prices and everyone follows, the independent petrol retailers are the ones who usually lead the price cutting as they seek to gain business. Independents in the marketplace lead to a disciplining of the big brand petrol retailers.’

Dr. Byrne is currently using data he has obtained from working with industry partners such as gasbuddy.com in North America and Motormouth.com.au in Australia to create an econometric model that will be of benefit to policy organisations such as the ACCC. In addition Dr. Byrne and his colleagues are examining the commonly held assumption that petrol prices are increased over long weekends. 

All this research when concluded will provide sharper insights into the dynamics of the petrol price market in Australia, will assist in creating anti-trust policy that achieves its aims and will allow consumers to make an informed decision when purchasing petrol.

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The budget at a glance - click to expand

‘The announced surplus is suspect, wafer thin, and extremely brittle. We were wrong to promise a budget surplus for the coming financial years. The slippage in our economic growth makes it inappropriate and unattainable, without disastrous cuts in public spending, punitive tax increases, or specious manipulation of the budget estimates’ stated Professor Neville Norman. ’Australia had little or no internal debt arising from budgets when the Global Financial Crisis hit everyone in 2007. We are still better placed than any other developed country to sustain deficits for another year or two. Moreover, only the stimulus packages, implemented by us in 2008 against the protests of our official advisers, enabled us to resist recession at that time’ outlined Professor Norman.

Meanwhile Professor Colin McLeod in the Department of Management and Marketing pointed out that ‘the increased family payments are likely to flow through to the retail industry quickly. While household savings are at a record high, low income earners need money to help with daily living expenses, not to save, so we should regard this as positive news for the families concerned as well as the retail sector’.

Professor McLeod also underlined that ‘many retailers are also small businesses, and they have mixed news. While they will see some increases in retail spending, many small businesses aren’t in a position to buy the sort of assets that now benefit from increased write offs. However, the opportunity to get a refund on taxes paid in previous years if the business makes a loss may help some small businesses who are finding it especially tough at the moment. The fact that this policy is only limited to incorporated small businesses means that it will only apply to less than 10% of all small businesses, so there is no widespread effect’.

Professor McLeod feels that there will be long term costs to this budget ‘ I don’t think there is any doubt that the budget is aimed at some immediate issues like stimulating spending, helping people in need such as people on low income, people with a disability and giving better access to education for people who are disadvantaged. However, this short term focus has a long term cost. It is widely accepted that the corporate tax system needs to be overhauled and as a country we need to find ways to support innovation. We don’t have any trouble innovating, we have problems in commercialising innovation, partly due to a lack of resources and partly due to a lack of expertise. These are long term issues that will need to be addressed if Australia is to be internationally competitive, particularly in the growth sectors of the new global economy’.

Over at the Melbourne Institute, Associate Professor Guyonne Kalb, highlighted aspects of the budget that has gone unnoticed  ‘One aspect of the budget which has not had much attention relates to the measures that have the potential to increase female labour force participation, which is still relatively low in Australia compared to other countries. They include the additional funding on the JET Child Care scheme,  a reduction in the income support level for principal carers of school-age children, and additional funding for Home Care for older Australians. These may be a relatively small component of the budget measures, but taken together and getting these right is important for Australia’s future’.