Yes, the government does believe what companies do you to online

How often have you had trouble cancelling a subscription to a streaming video site or some other service? When you’re trying to do something online, how often have you ticked a box to say you’d read the terms and conditions, when you hadn’t?

I do it all the time. And my guess is that almost everyone else does too. Why? Because the site won’t let you get on with making a restaurant booking or buying something until you do.

You don’t have the time to read the terms and conditions, which probably run to several pages of fine print. And how would you benefit if you did? It will be written in legalese – by lawyers, for lawyers.

What little you could understand would give you a clear impression: you have few rights, but the company has loads. Ah, it was written by the company’s lawyers to cover its backside, but not yours.

Say you were mad enough to wade through all that guff. Can you imagine the reception you’d get if you rang the company’s call centre and told someone in Manila that you’d like them to explain what term 3(b) means, and could they strike out clause 9(f) because it’s unacceptable?

No, it’s a take-it-or-leave-it deal. The company knows you won’t have read or understood the terms and conditions, and it doesn’t care. All it wants is to be able to tell the judge you said you had, so you’ve got no grounds for complaint.

But can companies really get away with those kinds of stunts? Are the unfair conditions they write into their contracts legally enforceable? In most rich economies – even the US – no they’re not.

And in Australia? In a speech last week, Dr Andrew Leigh, Assistant Minister for Competition, gave the answer: maybe, maybe not.

He told a small business conference that those leasing printers from Fuji Xerox may have received notification that certain terms in their contracts were void.

That’s because, on application by the Australian Competition and Consumer Commission, last August the Federal Court found that 38 contract terms in 11 of Fuji Xerox’s small business contracts were void and unenforceable. These included ones providing for automatic renewal, excessive exit fees and unilateral price increases.

You may not know that the commission protects small businesses as well as consumers. Leigh reminded us that one of the government’s first acts last year was to prohibit the use of unfair terms in standard-form contracts.

From November this year, the commission and the Australian Securities and Investments Commission can ask the court to fine big businesses that try to push small businesses around in this way.

But unfair contract terms are one thing; unfair trading practices are another. Although the Australian Consumer Law bans several specific unfair practices, there’s no general ban on them. The government is working on this.

One form of unfair trading practice is the “dark patterns” used by companies on their websites. Leigh says these are subtle tweaks in the way sites are designed, intended to trick users into doing things they didn’t intend to do. They discourage consumers from doing things that would reduce the company’s sales.

Efforts to make it hard for you to unsubscribe from digital streaming services are so notorious the Norwegian Consumer Council wrote a whole paper about them, Leigh said.

It compared how hard it was to sign up for Amazon Prime with how hard it was to cancel a subscription. “Consumers who want to leave the service are faced with a large number of hurdles, including complicated navigation menus, skewed wording, confusing choices, and repeated nudging,” it found.

(What I found, before I switched to the ordinary taxis’ app, was how hard it was to cancel a ride with Uber, even though drivers were playing pass-the-parcel with your order. And how hard it was to query a surprisingly high fare, only to have my complaint considered and dismissed in a nanosecond.)

The commission lists other examples of dark patterns: false reminders such as low-stock warnings and false countdown timers, preselected add-ons to what you purchased, and illogical colours, such as a red button for yes and a green button for no.

Then there’s the manipulation of search engines, such as when food delivery companies impair the ability of restaurants to attract customers by ensuring the delivery company’s site appears above the restaurant’s in internet searches.

There’s nothing new about unfair trading practices. But, with the law as it stands, the commission has had mixed results getting firms prosecuted. It alleged Medibank had engaged in misleading conduct in what it told members about its benefits. The Federal Court said Medibank had acted “harshly” and “unfairly”, but still ruled against the commission.

In another case, the commission was unsuccessful in bringing an action against a vocational education and training provider that used door-to-door selling in disadvantaged communities, promising students a free laptop, and promising the courses were free if the students’ earnings stayed low. Such behaviour was found not to breach the act.

The US, European Union, Britain and Singapore simply prohibit unfair trading practices. The US, of all places, has been doing it since 1938.

The Albanese government is working on plans to do something. Leigh says the government knows that effective competition depends on strong safeguards for households and small businesses.

“When laws allow a firm to get away with ripping off consumers, it can create the wrong competition incentives. Other firms in the market see bad behaviour go unpunished and protect their own patch by employing the same dodgy tactics. Soon enough there’s a race to the bottom in dodginess,” he said.

Consumer protections are intended to improve the wellbeing of consumers – and small businesses. But consumer protections also foster effective competition.

They help drive a race to the top in service quality. “But that race to the top can only occur if there’s enough competition,” Leigh said.

True. So, what we also need is stronger merger laws.

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Inflation: workers being unreasonable, or bosses on the make?

When you think about it clearly, the case for minimum award wages to be raised by 5.1 per cent is open-and-shut. So is the case for all workers to get the same. This wouldn’t stop the rate of inflation from falling back towards the Reserve Bank’s 2 to 3 per cent target zone.

But if, as seems likely, the nation’s employers contrive to ensure that this opportunity is used to continue and deepen the existing fall in real wages, the nation’s businesses will have shot themselves in the foot.

What, in their short-sightedness, they fondly imagined was a chance to increase their profits, would backfire as this blow to households’ chief source of income, crimped those households’ ability to increase or even maintain their spending on all the things businesses want to sell them.

The recovery from the “coronacession” would falter as households’ pool of savings left from the lockdowns was quickly used up, and their declining confidence in the future sapped their willingness to run down their savings any further.

Should the economy slow or even contract, unemployment could rise and the hoped-for gain in profits would be lost. Cheating your customers ain’t a smart business plan.

Such short-sighted thinking by businesses involves a “fallacy of composition” common in macro-economics: what seems “rational” behaviour by an individual firm doesn’t make sense for firms as a whole. It’s a form of “free-riding”: it won’t matter if I screw my workers because all the other businesses won’t screw theirs.

But back to wages. If all workers got a 5.1 per cent pay rise to compensate them for the 5.1 per cent rise in consumer prices over the year to March, thus preserving their wage’s purchasing power, surely that means the inflation rate would stay at 5.1 per cent?

Firms would have to raise their prices by 5.1 per cent. But many small businesses wouldn’t be able to afford such a huge pay rise and would give up, putting all their workers out of a job.

Is that what you think? It’s certainly what the employer-group spruikers want you to think. But it’s nonsense. Hidden within it is a mad assumption, that wages are the only cost a business faces.

Unless all those other costs have also risen by 5.1 per cent, the business can pass on to its customers all the extra wage cost with a price rise of much less than 5.1 per cent.

How much less? That’s a question any competent economist could give you a reasonably accurate answer to by looking up the Australian Bureau of Statistics’ most recent (for 2018-19) “input-output” tables and doing a little arithmetic.

The tables divide the economy into 115 industries, showing the value of all the many inputs of raw materials, machinery, labour, rent and other overheads to the process by which the industry produces its output of goods or services.

Any competent economist (which doesn’t include me, I’m just a journo) could do this, but only two economists from the Australia Institute, Matt Saunders and Dr Richard Denniss, have bothered, in a paper forthcoming this week, Wage price spiral or price wage spiral?

The official tables show that the proportion of total business costs accounted for by labour costs (that is, not just wages, but also “on-costs” such as employer super contributions and workers comp insurance) varies greatly between industries, ranging from less than 3 per cent in petroleum refining to almost 71 per cent in aged care.

But this “labour/cost ratio” averages just 25.3 per cent across all 115 industries.

Now, let’s assume all workers in all industries received a 5 per cent pay rise, and all businesses chose to pass all the extra cost through to prices. By how much would prices rise overall? By 1.27 per cent.

That’s going to keep inflation soaring? It’s well below the Reserve’s 2 to 3 per cent target range.

Of course, that’s just what economists call “the first-round effect”. What about when all a firm’s suppliers put their prices up to cover their wage rises? The “second-round effect” takes the overall rise in prices from 1.27 per cent to 1.85 per cent – still below the target.

Do you remember when the ABC quoted some spruiker saying the cost of a cup of coffee in a cafe could rise to $7? The authors use the tables to show that passing on a 5 per cent pay rise could increase the retail price of a $4-cup by 9 cents.

(Such people are always telling us a crop failure in South America has doubled or trebled the price of coffee beans. It’s the same trick: they never mention that the cost of beans is the least part of the price of a coffee. The biggest cost is often renting the cafe.)

Now get this. That 1.85 per cent rise in prices probably overstates the effect of a universal 5 per cent wage rise, for three reasons.

First, because it assumes zero improvement in the productivity of labour. It’s not great at present, but it’s not non-existent. Second, it assumes firms don’t respond to higher costs by shifting to cheaper substitutes.

And third, because six of the 10 “industries” with the highest labour cost pass-through are either government departments (which don’t actually charge a price that shows up in the consumer price index) or are heavily subsidised by government. Effect on the budget isn’t the same as effect on inflation.

Note that whereas the Fair Work Commission has the ability simply to order a 5 per cent rise in the many minimum award rates covering the lowest-paid quarter of the workforce, should it choose to, the public and private sector employers of the remaining three-quarters of workers are unlikely to be anything like that generous.

That’s a fourth reason the effect of wage rises is likely to be (a lot) less than the authors’ simple calculation of a 1.85 per cent rise in retail prices.

But don’t get the idea wages are the only reason consumer prices rise. Wage rises would explain little of the 5.1 per cent rise in consumer prices over the year to March.

The great bulk of the rise is explained by businesses passing on to retail customers the higher prices of imported goods and services caused the pandemic’s various supply disruptions and the Ukraine war’s effect on energy and food prices.

But some part of that 5.1 per cent rise in prices is explained by businesses deciding now would be a good time to raise their prices and fatten their profit margins. This may not be a big factor so far, but I won’t be surprised if it’s a much bigger one this quarter and in future.

For months the media have been telling us how much a problem inflation has become, with a lot worse to come. Top business leaders and industry lobbyists have used naive reporters to, first, send their competitors a message that “we’re planning big prices rises so why don’t you do the same” and, second, soften up their customers. “Prices are rising everywhere – don’t pick on me.”

It’s quite possible we’ll have trouble getting inflation back into the target range. If so, it won’t be caused by big pay rises – but it’s a safe bet people will be using a compliant media to blame it on greedy workers.

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Cutting real wages will help inflation, but weaken the economy

At last, as the election campaign reaches the final stretch, we’ve found something worth debating. Anthony Albanese has found his spine and supported a big rise in award wages, while Scott Morrison says a decent rise for the masses is a terrible idea that would damage the economy.

First the politics, then the economics. My guess is history will judge this to be the misstep that did most to cost Morrison the election. Successful Liberal leaders – John Howard, for instance – know never to be caught within cooee of a sign saying “wages should be lowered”. It’s not the way to woo outer-suburbs battlers to the Liberal cause.

That Morrison should defy this precedent in a campaign where the cost of living has become by far the biggest issue is all the more surprising.

Between them, the two contenders have revived and highlighted the oldest stereotype in Australia’s two-party politics: the Labor Party is - surprise, surprise – the party of ordinary workers, and will always champion their interests, whereas the Liberals are the party of business, and will always champion the interests of business.

It’s because the Libs are seen as the bosses’ party that they’re instinctively regarded as better at managing the budget and the economy – a mindset Morrison is desperately seeking to exploit in “these uncertain times”.

But the other side of the penny is that Labor, the party of the workers, is the party that cares, and will spend more on providing government services. Which party’s best at industrial relations and wages? One guess.

But how do the minimum wage arrangements work? And what are the broader economic implications of a rise high enough to cover the 5.1 per cent rise in consumer prices over the year to March - or not high enough, so that wages fall in “real terms”?

The Fair Work Commission conducts an annual wage review to determine the increase in the national minimum wage on July 1. Last year’s increase of 2.5 per cent applied to the 2 per cent of employees on the national minimum rate, but also the 23 per cent of employees whose wage is set by one of the various minimum rates for workers in different job classifications set out in each of the more than 100 industrial awards established by the commission.

The national minimum wage rate is about $20 an hour, or about $40,000 a year for a full-time worker. About 2.7 million workers have their wage set in this way.

A 5 per cent increase in the national minimum wage would be worth about $1 an hour or about $2000 a year. Note, however, that many of those in more skilled award classifications would be earning much more than that.

The rises the industrial parties ask for in hearings before the commission are always “ambit claims”. The Australian Council of Trade Unions wants a rise of 5.5 per cent.

On the employer side, the Australian Industry Group says the most its member businesses could possibly afford is 2.5 per cent. The Australian Chamber of Commerce and Industry says the most it could run to is 3 per cent.

Morrison has implied it would be quite improper for a federal Labor government to seek to influence the decision of the independent commission. But the fact is federal and state governments routinely make submissions to provide information about the state of the economy and indicate how generous or tight-fisted they think the commission should be – though they rarely suggest a specific figure.

The commission will give due consideration to a government’s submission but, rest assured, it will do as it sees fit, usually awarding an increase somewhere between the employers’ lowball and the unions’ highball.

My guess is this year’s decision will be a lot higher than last year’s 2.5 per cent, but not nearly as high as 5.5 per cent.

That’s particularly because the commission can be expected to allow for the 0.5 percentage-point increase in employers’ compulsory contributions to their workers’ superannuation accounts this July. The unions would love to have their cake and eat it, but I doubt they’ll be allowed to.

Albanese says, “the idea that people who are doing it really tough at the moment should have a further cut in their cost of living is, in my view, simply untenable”.

Morrison claims a minimum-wage increase sufficient to stop wages falling behind the rise in consumer prices would be “reckless and dangerous”.

The Ai Group warns that “an excessive minimum wage increase would fuel inflation and lead to higher interest rates . . . than would otherwise be the case”. It would be detrimental to economic growth and job creation.

The chamber of commerce says “any increase of 5 per cent or more would inflict further pain on small business, and the millions of jobs they sustain and create. Small business cannot afford it”.

So, what do I think? I think it’s easy to exaggerate the economic cost of giving our lowest-paid workers a decent pay rise. Small business always cries poor and warns jobs will be lost. But there’s little empirical evidence that higher wages lead to job losses.

It’s true that giving a quarter of our workers little or no compensation for the jump in prices caused by pandemic supply disruptions and the Ukraine war would be the quickest and easiest way to get inflation back down to the Reserve Bank’s 2 to 3 per cent target range.

But it would also be hugely unfair to load that burden onto our lowest paid workers, while business profits escaped untouched. The Reserve will just have to be more patient if it doesn’t want to crunch the economy with big rate rises.

And here’s the bit the business lobby groups seem too short-sighted to see. The more we cut the real incomes of our businesses’ customers, the less businesses will be able to sell to them, and the more the economy will be in anything but the “strong” condition Morrison keeps claiming it’s in.

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Budget is a guide to who's a Morrison mate and who's not

Despite all the accusations being hurled at Scott Morrison, to my knowledge he’s never done what so many election-winning leaders do and promised to “govern for all Australians”. A promise not made, and thus not broken. All governments tend to look after their party’s friends and supporters, but Morrison has made this a defining feature of his reign.

There was a brief period early in the pandemic when he was in all-in-this-together mode. That was when, utterly uncharacteristically, he doubled the level of unemployment benefits – JobSeeker, to use its latest label – for a few months.

But it wasn’t long before it became clear he was playing favourites. The lockdown left many overseas students without part-time work and eligible for no government support. They were told to find their own way home, which many did.

Suddenly, the universities became public enemy No. 1. The same party that had gone for years urging the unis to find new sources of income and be less reliant on the federal taxpayer were attacked for becoming too reliant on revenue from overseas students.

While businesses large and small lined up for the JobKeeper wage subsidy scheme, our publicly owned universities were declared ineligible. Thousands of jobs were lost and, unlike with most other industries, are unlikely to return any time soon.

Our few privately owned universities were eligible, however. Similarly, public schools weren’t eligible, but independent schools were.

The government’s disdain for universities continued in last week’s budget. While Treasurer Josh Frydenberg was handing out prizes as though at a Sunday school anniversary, the universities got next to nothing.

True, the new “investing in Australia’s university research commercialisation payments” program will cost $1 billion over five years. But almost all of that will involve transferring money from existing programs.

The funny thing about the budget’s centrepiece, the cost-of-living package, is that though it doesn’t seem all that generous – a one-off $250 cash payment to pensioners and other welfare recipients, an extra $420 to those eligible for the low and middle income tax offset, and a 22c a litre cut in petrol excise for six months – at an overall cost of $8.3 billion it’s the most expensive new measure in the budget.

Because its intention is to mollify all those feeling pain from the recent jump in living costs, this is the most inclusive of the budget’s measures, with most families standing to benefit.

But though the $250 payment is aimed at those at the bottom of the income ladder, and the extra tax offset will help more than 10 million taxpayers, the cut in petrol excise will be of greater benefit to businesses and higher income-earners, simply because they use more petrol.

One group of big winners favoured in the budget are the tiny minority of people and businesses in the regions. Frydenberg announced “an unprecedented regional investment that includes transformational investments in agriculture, infrastructure and energy in the Hunter, the Pilbara, the Northern Territory and North and Central Queensland”.

Do you remember Barnaby Joyce’s Nationals demanding rural assistance in return for allowing Morrison to sign up to net zero emissions by 2050? At the time, the assistance wasn’t disclosed. Now it is.

They’re getting $7.4 billion for dams, a $2 billion “regional accelerator program” to accelerate growth in the regions, and a $1.3 billion regional telecommunications package to expand mobile coverage across 8000 kilometres of regional transport routes. Thanks a billion.

No budget would be a pre-election budget without further tax breaks to that huge voting bloc, small business. This time they’ll be getting a $120 tax deduction for every $100 they spend on training their employees, and on investment in digital technologies. That’s $1.7 billion over three years.

No doubt many small businesses will benefit from another measure to encourage more apprenticeships. The new apprentice gets $5000 and the employer who takes them on gets a wage subsidy of up to $15,000. I’ve read that tradies are the new key political demographic.

Sometimes, groups get special treatment not because they’re mates, but because governments fear offending them. A prime example are West Australians and their government. Under a deal done by Morrison when he was treasurer, because they’d convinced themselves they weren’t getting a fair share of the annual carve-up of GST revenue between the states, federal taxpayers will be paying the West Australians an extra $18.6 billion over the six years to 2025-26.

This despite the surge in iron ore royalties making Western Australia the only government in the land running a budget surplus. Tough times.

So, who wasn’t on the budget’s receiving end? The help for first-home buyers was token, and for renters, non-existent. There was a bit more to ease the continuing problems in aged care, but Frydenberg was easily outbid by Anthony Albanese.

Frydenberg has greatly reduced childcare costs for second and subsequent children, but Albanese is promising to make it free for virtually all families.

As voter loyalty to particular parties declines, politicians encourage a what’s-in-it-for-me approach to elections and pre-election budgets. If so, it’s important to know whether you’re a mate or a non-mate.

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It’s not business-bashing, it’s the public’s moment of truth

With the federal election campaign being fought over which side will do the better job of re-regulating the banks, the energy companies and business generally, big business seems to be going through the stages of grief. It’s reached denial.

According to the Australian Financial Review, the Business Council of Australia is most put out that the Morrison government has yielded to pressure from Labor and some Nationals to support a bill making it easier for smaller businesses to take legal action against big businesses.

Apparently, Scott Morrison and his lieutenants had the temerity to make the decision without giving the council an opportunity for private lobbying.

Which would have been intend to avoid “harmful unintended consequences,” including any possible drag on the economy. Of course.

Apparently, it’s just another instance of the growing level of “business bashing” in this campaign.

Sorry, guys, you’ve got to have a better argument than that. Accusing your critics of business-bashing or teacher-bashing or bank-bashing is what you say when you haven’t got a defence and are succumbing to a persecution complex.

It makes you and your mates feel better, but that’s all.

It’s a refusal to accept any responsibility for the bad performance of which people are complaining. Since it’s entirely the fault of others – usually, the government – any attempt to make me and my mates bare our share of responsibility can be explained only by ignorance and malice.

Such denial offers big business no way forward. Much better to admit there’s a fair bit of truth to the criticisms and accept that your performance will have to be a lot better.

The Business Council needs to admit to itself that this is not some passing phase of populist madness, it’s the end of the line for the “bizonomics” that micro-economic reform degenerated into – the belief that what’s good for big business is good for the economy.

The simple truth is that, when you go for years abusing your market power, the electorate eventually wakes up and hits back, threatening to toss out any government that isn’t prepared to set things to rights.

Now the scales of economic fundamentalism have fallen from our eyes, who could doubt that big businesses use their superior power – including their ability to afford the best legal advice – to unreasonably impose their will on smaller businesses, just as they impose incomprehensible and utterly non-negotiable terms and conditions on their customers. Like it or lump it.

One of the greatest weaknesses of “perfect competition” – the oversimplified model of market behaviour that permeates the thinking of economists, both consciously and unconsciously – is its implicit assumption that the parties to economic transactions are of roughly equal bargaining power.

In the era of oligopoly, however – where so many markets are dominated by four or even two huge corporations - nothing could be further from the truth.

It’s thus perfectly reasonable for governments to intervene in markets to bolster the bargaining power of the smaller and weaker parties – whether employees permitted to bargain collectively and go on strike, small businesses helped to seek legal redress from much bigger businesses, or customers protected from misleading advertising, high-pressure selling and other abuses.

It’s because economists’ thinking is so deeply infected by their model’s unrealistic assumptions that they fell for the notion that merely providing consumers with more information on labels and in “product statements” (quickly sabotaged by being turned into pages of legalese) would protect them from exploitation.

Though oligopolies have existed for decades, economists have put remarkably little effort into studying how they work and, more particularly, how they can be regulated to ensure the economies of scale they have been designed to capture are passed through to their customers.

The trouble is that oligopolies do all they can to avoid competing on price.

A part of this is offering a range of products that are almost impossible to compare with other firms’ products.

In the complex, busy world we live in, it’s utterly unrealistic to expect ordinary consumers to devote hours of precious leisure time to checking to see whether their present provider of bank accounts, credit cards, mortgages, mobile phones, electricity, gas and even superannuation is quietly taking advantage of them.

This is the case for government regulation to impose standardised comparisons and default products, statutory guarantees, legal obligations to act in the client’s best interests, and much else.

The other thing we’ve learnt in recent times – from the banking inquiry and many other examples – is that if businesses large and small are confident they won’t get caught, there’s no certainty they’ll obey the law.

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Indigenous small business is on the rise

It’s the season of good cheer, so let me give you some good news: we’re not making the progress we should be in Closing the Gap between Indigenous and non-Indigenous Australians, but when it comes to increasing the ranks of Indigenous small-business people we’re doing surprisingly well.

The number of Indigenous owner-managers is conservatively estimated to have increased by 32 per cent between 2006 and 2011, and by 30 per cent between 2011 and 2016.

That’s coming off a low base but, even so, the number increased from 10,400 to 17,900 over the decade to 2016. This took the proportion of Indigenous owner-managers in the over-15 population from 3.2 per cent to 3.4 per cent.

This may not seem much, but it occurred while the proportion of non-Indigenous owner-managers actually decreased from 10 per cent to 8.6 per cent – a fall that probably reflects the difficulties affecting the economy since the global financial crisis in 2008.

It says Indigenous small businesses are making headway in the economy despite its relatively low growth over the past decade.

The figures have been derived from census data in a paper by Siddharth Shirodkar and Dr Boyd Hunter, of the Centre for Aboriginal Economic Policy Research at the Australian National University, and Professor Dennis Foley, of the University of Canberra.

The authors note that the historical exclusion of Indigenous Australians from mainstream economic life has led to low accumulation of wealth across many Indigenous communities. Only a relative few gained formal business experience before the past decade.

The result is that the vast bulk of entrepreneurially inclined Indigenous Australians probably lack the key preconditions to start a business and prosper in our capitalist economy, they say.

Today, however, things are improving – to some extent as a result of government policy. In 2015, the Indigenous Procurement Policy established targets for federal government departments to buy what they needed from Indigenous suppliers.

The value of successful tenders by Indigenous business owners has grown from about $6 million in 2012-13 to more than $1 billion in the policy’s first two and a half years to the end of 2017. Today, more than 1000 indigenous businesses are contracting with the feds.

This year the government also announced the Indigenous Business Sector Strategy, which includes measures to provide greater business support, improved access to finance, stronger connections to business networks and better sharing of information about commercial opportunities.

But all of that is insufficient to explain the rise in Indigenous enterprise over the past decade. And get this: official analysis of the register of Indigenous businesses suggests that Indigenous-owned firms are between 40 and 50 times more likely to hire Indigenous employees than are non-Indigenous firms.

So the establishment of Indigenous businesses is an important mechanism to deliver economic development and increased Indigenous participation in the workforce. And this, the government tells us, is shifting the narrative from welfare and dependence to aspiration, empowerment and independence. (A lovely thought – if only it had more substance.)

Certainly, “Indigenous entrepreneurs offer their community an avenue for greater and long-overdue economic self-determination, create positive role models within families and communities, and can serve as mentors to young, entrepreneurial Indigenous Australians,” as the authors say.

The businesses these owner-managers run are spread across Australia, but the vast majority of owner-managers are located on the east coast, particularly in greater Sydney and the rest of NSW. Large numbers also live in Brisbane, the rest of Queensland and in Melbourne.

The growth in capital cities over the past decade has occurred at double-digit rates except in Darwin, where the number of Indigenous businesses fell over the five years to 2016.

But the pattern in the regions was mixed. In regional parts of NSW, Queensland and Victoria there was double-digit growth over the decade, with the number in regional NSW doubling to more than 2700.

In regional South Australia, Western Australia and Tasmania, however, numbers remained flat between the censuses of 2011 and 2016. And they actually fell by 44 per cent in regional Northern Territory.

This could partly reflect the reduction in business opportunities following the end of the resources boom, though the same effect isn’t apparent in regional Queensland, probably because its business activities are more diverse.

But mining doesn’t fully explain the falls in the NT. Here the feds’ NT “intervention” may be to blame.

The largest declines in the number of owner-managers were in remote regions of the NT and very remote parts of WA. This reinforces the story that remote areas, where about 20 per cent of the Indigenous population lives, are underdeveloped in terms of access to markets. Clearly, it’s getting worse.

Abolition of the Community Development Employment Projects scheme may be another part of the explanation. These involved local community-run organisations creating work experience for participants and opportunities to work in communities and meet community needs through small-scale activities not otherwise funded.

Funding provided for the scheme was used to support the on-costs for these community organisations. Its abolition led to the closure of many of them. Even if they were unlikely to have owner-managers associated with them in the census, they may have supported other local enterprises by providing them with low-cost or subsidised labour.

You can argue that, by giving people subsidised jobs and solutions to community needs, the scheme robbed them of the incentive to find real, better-paid jobs and start unsubsidised businesses but, as the decline in owner-managers suggests, that doesn’t justify simply pulling the plug without providing a better substitute.

Smacks to me of controlling the growth in government spending at the expense of the most disadvantaged people in the most remote parts of the country, where opportunities to lift yourself up by your bootstraps are even rarer than in comfortable middle-class electorates.

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Sorry, small business has no special sauce for jobs

Scott Morrison is surely on a winner with his decision to step up pursuit of jobs and growth by bringing forward the time when small and medium businesses have their company tax rate cut to 25 per cent.

Certainly, it’s likely to be a popular decision, not just with the owners of the more than 3 million businesses who’ll be paying a bit less tax, but also with a lot of ordinary voters.

After all, as everyone knows, small business is the backbone of the economy and its engine room. It’s where most of the economy’s jobs are.

How does everyone know it? Because that’s what politicians – and the small business lobby – keep telling us.

This is why Morrison is so confident of getting the bring-forward passed by the Senate.

Cutting the smaller-business company tax rate to 25 per cent by 2021-22 rather than 2026-27 will have an additional cost to revenue of $3.2 billion over four years.

Only about $1.3 billion of this would be offset by the government’s abandonment of its plan to cut the tax rate for bigger businesses. The rest would be covered by repaying government debt more slowly than previously projected.

There’s likely to be enough cross-benchers keen to push the fast-tracking through – big business may not be judged worthy of a tax cut, but smaller business is - even if Labor isn’t playing ball.

But it seems Labor will be. Why? Because it, too, professes to believe small business is what the economy revolves around.

According to its official policy: “Small businesses make a huge contribution to national prosperity and supporting Australian jobs. Small businesses play a central role in the economy.”

There’s just one problem with all this stuff. It ain’t true.

When you study the facts and figures, there’s no reason to believe small business has any economic virtue not possessed by businesses of any other size. If anything, the reverse.

I’ve spent my whole career as an economic journalist refuting the delusional claims of this or that part of the private sector to be more worthy than the rest of it.

If it’s not small business claiming to be the economy’s engine room, it’s farmers claiming to be the bedrock on which the rest of the economy is built, or manufacturing claiming that making things is more virtuous than doing things (providing services).

There are all those ads telling us it’s mining the country most depends on. (They’re trying to draw attention away from the truth that mining is hugely profitable, about 80 per cent foreign owned, avoids as much tax as possible and employs surprisingly few workers.)

Then there are the exporters claiming that producing things for sale to foreigners is more important than producing things for sale to locals.

Plus, of course, the common delusion that the private sector is “productive” whereas the public sector is unproductive and even parasitic. Do you really think curing the sick or teaching the young – or even directing the traffic – is unproductive? That people in the private sector pay taxes, but workers in the public sector don’t?

It’s all economically illiterate hype. And it’s used to try to justify demands that the government give my bit of the economy a special deal not available to other bits. Economists’ name for it is “rent-seeking”. (Though, as recent events remind us, no one does rent-seeking better than the Catholic schools.)

But back to measuring against the facts the claims that small business has a special sauce when it comes to jobs. It’s complicated by the fact that the usual way of measuring the size of businesses is according to the number of their employees, whereas eligibility for the lower company tax rate is determine by the size of a business’s turnover (sales, not profits).

Morrison says there are more than 3 million businesses with turnover of less than $50 million a year, employing “nearly 7 million Australians”.

If so, that’s more than half of our total “employed persons” of 12.6 million. But about a third of those 7 million would be in medium-size businesses, not small.

According to the latest figures from the Australian Bureau of Statistics, for 2016-17, small business (defined as firms with fewer than 20 employees) has 4.8 million workers, medium-size business (20 to 199 employees) has 2.6 million workers and large business (200 plus) has 3.5 million.

That means small business employs just 44 per cent of the private sector workforce and about 40 per cent of the total workforce.

But just because a sector employs a lot of workers, that doesn’t necessarily mean it's creating jobs faster than other sectors.

Over the two years to June 2017, small business may have had 44 per cent of the existing private sector jobs, but it accounted for only 18 per cent of the growth in jobs.

Overall, private sector employment grew by 2.3 per cent, but small business employment grew by just 0.9 per cent. Combine small and medium and they grew by 2.3 per cent, about the same rate large-business employment growth.

And this during a period when smaller businesses were paying a lower rate of tax, supposedly to encourage them to create more jobs.

Actually, the lack of apparent response shouldn’t be a surprise. The typical tax saving is small. Morrison himself says that an independent supermarket or a pub that makes a $500,000 annual profit would save $12,500 in 2021-22 “to invest back into the business or staff, or help to manage cash flow”.

That doesn’t buy many jobs, nor many pay rises. And since businesses are free to use their tax saving however they see fit, there’s no reason to think they’ll favour more jobs or higher wages. No more than big businesses would.

If Morrison’s on a winner, it’s a political winner, not an economic one.

But if there’s nothing special about small business, why do politicians on both sides keep spreading the sector’s propaganda that it is special?

Because the many more owners of small businesses have far more votes than the relatively few bosses of big businesses do. It's politics, not economics.

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Business lobbies sell out Aussie shareholders

One thing we've learnt from this election campaign: whoever's interests our business lobby groups represent, it's not Australian shareholders.

That's clear from their vociferous defence of Malcolm Turnbull's hugely costly promise to cut the company tax rate from 30 to 25 per cent, even though our system of dividend imputation means local shareholders have little to gain from the cut.

Local shareholders would have the present 30 per cent rate of their "franking credits" cut back in line with the fall in the company tax rate. Something similar would affect all Aussie workers with superannuation.

The business lobbies carry on about the company tax cut as if the loss of revenue to the budget had no opportunity cost. In truth, the gap would mean higher budget deficits (and a higher interest bill to taxpayers) unless it was covered by cuts in the provision of government benefits and services, or by higher taxes.

It would probably be some combination of the three, with most weight taken by higher income tax, brought about by further bracket creep in the absence of tax cuts.

The budget's tiny tax cut for income-earners on more than $80,000 a year was almost a tacit admission that this was the last tax cut any of us would be seeing for many a moon.

Point is, while local shareholders have little to gain from the company tax cut, they'll bear their share of its cost.

There could be no more convincing refutation of the eternal fiction that company executives represent the interests of their shareholders. Economists have recognised this conflict of interests since the work of American economists Berle and Means in 1932.

So what's motivating the business lobby groups in their enthusiasm for a company tax cut? Well, though Australian shareholders would be little better off, the company itself would be paying less tax, which its executives may regard as an improvement.

Of course, the shareholders who would benefit from a lower tax are the foreign owners of Australian shares, since they receive no imputation credits to be reduced.

Provided, however, their home country doesn't have a company tax rate higher than ours. This means American shareholders – who supply at least a quarter of our equity capital – ultimately have nothing to gain from the cut.

The Internal Revenue Service taxes US owners of foreign shares at the American company tax rate of 36 per cent, less whatever tax they've already paid to a foreign government.

So, in principle, cutting the tax we extract from them actually benefits the IRS, not our foreign shareholders.

Of course, many big American multinationals turn legal cartwheels so as to have their Australian profits taxed at a nominal rate in some tax haven. But they escape paying the US's higher tax rate on those profits only for as long as they keep them offshore (and thus unable to be passed on to their US shareholders).

It's not so surprising that the most untiring urger of the company tax rate cut, the Business Council, should be so uncaring about its lack of benefit to local shareholders.

It's a club of the chief executives of our biggest companies. Its conception of what's good for business is what's good for company executives.

What's more, many of the council's Australian chief executives would be answerable to head office executives in foreign countries. So they'd be pleased to see a tax change the primary beneficiaries of which were foreign shareholders.

Similarly, it's not surprising to see the Minerals Council so supportive of the proposed cut. It's dominated by the three foreign global mining giants that dominate our mining industry: BHP-Billiton, Rio Tinto and Xtrata-turned-Glencore.

To those guys, Oz is just a place to be exploited – in both senses of the word.

What's harder to comprehend is why the other business lobby groups – the Australian Chamber of Commerce and Industry and the Australian Industry Group – have been so enthusiastic about a cut that would bring so little benefit to local shareholders.

It's surprising because both groups purport to represent the interests of small business. Almost by definition, small business is Australian-owned.

And with a genuinely small business – where the owner-manager is also the chief shareholder – the business's profits (those not taken as salary and perks) will always ultimately be taxed in the owner's hands, meaning most of the benefit from the lower rate of company tax is lost through the equivalent cut in franking credits.

But so great was AiG boss Innes Willox's lust for a lower company tax rate that at one stage he proposed paying for it by abolishing dividend imputation. Not sure he'd thought that one through.

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Media get budget wrong

As an exercise in media manipulation, this week's budget scores top marks. The government's spin doctors managed to convince the media it was a "stimulatory budget" when it was actually mildly contractionary.

With financial markets trading virtually continuously, the old need to lock the media up on budget day until the markets had closed disappeared decades ago. The only reason for continuing the practice is to maximise the government's ability to influence the media's initial reaction to its budget.

It does this by keeping journalists locked up for six hours, during which time the only experts they can approach for opinion and clarification are Treasury and Finance officers. Then you let the journos out just before deadline, when it's too late to contact independent experts.

The theory is that influencing the media's initial reaction is half the battle in influencing the electorate's ultimate reaction. Didn't work last year, of course.

If you wonder why governments habitually leak or announce so many of the budget's measures ahead of time, it's all part of the media manipulation. You announce measures you know will be popular so they get more attention than they would if you announced them all together on budget night.

You announce unpopular measures ahead of time to soften voters up and also so the media will regard them as old news on budget night and thus won't say much about them.

This year, the good news announced early was the changes to childcare subsidies, plus the decisions to make savings in the cost of pensions and Medicare in much less painful ways than had been proposed in last year's budget.

But you always save a bit of good news to act as the "cherry", taking care not to breathe a word of it in advance. Making this the only measure the media regards as "new" ensures they make it the centrepiece of their coverage. And, of course, you've made sure it's good news.

This week the cherry was the "Growing Jobs and Small Business package". And, boy, didn't the media go to town. The cut in the rate of tax imposed on small business was terrific, but the plan to allow multiple asset purchases of up to $20,000 each to be "written off against tax" was mind-blowing.

The next day's headlines showed how easily the media were manipulated: Joe's Jumpstart, Kickstarter, and Road to Recovery?

Don't be misled. The 1.5 percentage-point cut in the company tax rate for small businesses is itself small. The equivalent cut for unincorporated businesses will yield a maximum saving of less than $20 a week.

And the two-year offer of an immediate 100 per cent write-off for newly purchased business assets costing less than $20,000 each is nothing like the rort-inducing "bonanza" imagined by innumerate journos and economists who don't know as much accounting as they should.

You don't get up to $20,000 a pop taken off your tax bill - making the asset essentially free - you get it taken off your taxable income, meaning the taxman picks up 30 or 40 per cent of the cost, leaving you to pay the rest.

In any case, the cost of assets purchased for business purposes has always been 100 per cent deductible. The difference is that usually this "depreciation allowance" is spread over five years or so, whereas this special deal accelerates the full deduction to the end of the first year.

So it will probably induce a noticeable increase in small business investment spending, but that's unlikely to be big enough to make much difference to the economy's rate of growth.

It's a classic example of the things governments do when they're trying to apply fiscal stimulus, being similar to a measure in Kevin Rudd's stimulus package of 2009 after the global financial crisis.

But note the measure's downside: because it's temporary, its main effect will be to draw forward into the next two financial years spending that would otherwise have occurred in subsequent years, leaving a vacuum in those years. And because most motor vehicles and business equipment are imported, much of the increased investment spending will "leak" into imports.

Another part of the hype is the government's claim that small businesses are "the engine room of the economy". Nonsense. Big business is. As the budget's fine print admits, small business accounts for only about 38 per cent of the workforce and about a third of production.

The most important point, however, is that just because a budget contains a few small but sexy measures doesn't make it a "stimulatory budget" to anyone but a journo after a good headline.

To an economist, you have to put the few stimulatory measures into the context of the net effect of all the new measures taken in the budget.

When you do that you find they are expected to add $2.2 billion (or 0.13 per cent of gross domestic product) to the budget deficit in the coming financial year, but subtract $1.6 billion from the deficit over the five years to 2018-19.

Either way, the expected net effect of the budget's measures is too tiny to matter. That's the old, strict Keynesian way to determine the "stance" of fiscal policy adopted in the budget.

The Reserve Bank's way of determining the budget's overall effect on the economy (which adds to the above change in the discretionary or "structural" component of the deficit the expected change in the "cyclical" component caused by the operation of the budget's "automatic stabilisers") shows that, measured as a proportion of GPD, the coming year's deficit is expected to be 0.5 percentage points lower than for the financial year just ending, with expected falls of 0.6 points, 0.7 points and 0.4 points in the following years.

In my book, a change of 0.5 percentage points is right on the border between insignificant and significant. That makes the budget only mildly contractionary.

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