Wednesday, March 05, 2008

Ken Henry "buckets" Coalition policies

The head of the Treasury Dr Ken Henry has moved to distance himself from former Coalition masters, including John Howard, Peter Costello and Malcolm Turnbull, attacking their election program of “aspirational nationalism” and the thinking behind their $10 billion water program.

Delivering the annual Ian Little memorial lecture in Melbourne last night in honour of a former Secretary of the Victorian Treasury Dr Henry said the Secretary would have rejected the policy of “aspirational nationalism” put forward by John Howard in the lead up to last year's election.

Mr Howard launched the policy when announcing that his government would take over the Mersey Hospital in Tasmania in order to stop the state government from closing it down.

The Prime Minister promised that if the Mersey takeover was successful “aspirational nationalism” would be applied more widely...

Dr Henry said last night that the policy implied “a startlingly new concept of vertical competitive federalism – that is, competition between the Commonwealth on the one hand and the States and Territories on the other.”

He said his Victorian colleague would have been “never in any doubt that the national reform agenda had no hope of being implemented” under such a polciy.

The Treasury was excluded from the Mersey Hospital decision and also from the discussions that led to the Prime Minister's announcement of his $10 billion water program in January last year.

In a speech to Treasury staff later leaked to the media Dr Henry suggested that the plan was flawed saying “water has got away from us a bit in recent times, but it will come back for some quality Treasury input at some stage – it will have to”.

Mr Costello rebuked him at the time saying that “Treasury is no water expert. Treasury is good at Treasury, but Treasury has not been engaged in water”.

The Water Minister Mr Turnbull attacked him for “not knowing how much it costs to pipe a channel, how much it costs to replace a Dethridge wheel with a computerised flume gate, and how much it costs to line 10 kilometres of leaky channel along the Murrumbidgee River”.

Last night Dr Henry hit back saying telling his audience it had “been said that while I know about Treasury, I don’t know about water”.

“Instead of talking to you about water, then, I’ll talk to you about Treasury.”

He explained that when he joined the Treasury in 1984 and applied for a home loan he was told that I had to join a queue. A previous Coalition government had capped the price of home loans, forcing banks to ration their supply.

“Remarkably, people in power were surprised to find that the interest rate cap was having a regressive impact. It’s a wonder the political response wasn’t to set up a bureaucratic apparatus.”

“An innovative minister might even have proposed using vast sums of taxpayers’ money to develop imaginative programs that would have reduced the funding needs of borrowers with larger houses as a means of releasing more funds to go around the system.”

“Think that far-fetched? If you do, then you don’t know much about water either,” Dr Henry said.

The Australian water market was beset by “administered prices, legal protections on restraint of trade and, as a consequence, rationing”.

“In the irrigation areas the Dethridge wheels stop turning and the computerised flume gates run bone dry.”

Dr Henry called for a national market in water where free trade would allow it to flow to the people who valued it the most.

He said Australia needed leadership that had “a clear sense of the national interest”.


LETTERS said...


Treasury secretary's views about pricing water make sense

The views of Treasury secretary Ken Henry on water are most welcome (''Time we valued water with a realistic price system'', March 5, p11).As he says, what we should be paying here is the amortised cost of our water storage and reticulation and its rainfall-linked scarcity value in any year.Putting the issue of sunk costs to one side, the costs of our dams, etc would be amortised over a very long time and shared among many hundreds of thousands of close-living Canberra and Queanbeyan residents.

On the other hand, the relatively few farmers irrigating downstream would face considerably higher shares of amortised costs and their total consumptionwould, of course, be adjusted upwards to account for their losses through evaporation and leakage from their open canals/channels.So it would be reasonable to expect that their per-unit water price, currentlymuch lower than ours, to rise sharply and ours to fall.

Sounds good to me. Time to replant the lawn.

Jim Taylor, Kaleen

LETTERS said...


Ken Henry (''Time we valued water with a realistic price system'', March 5, p11) puts the case for a realistic price for water. Most would agree with his article.

Unfortunately, it will not happenin the ACT because ACT Treasury, supported by all political parties, is not willing to give up the taxes that come from being a monopoly water supplier.The arguments against a free market in water are that it is efficient to have a single supplier, restrictions are socially equitable and that the extra money we get from the scarcity value of water is spent on socially desirable services.

ACT water restrictions can be removed tomorrow if we increased the price of water to high consumers, give all the extra money collected to low water users and require the money they receive to be spent on water supply infrastructure as a surrogate market for water.

This would be socially equitable, would get widespread support, is simple and cheap to introduce. It does not happen because all political parties won't give up monopoly taxes. In a true market the money collected from the scarcity value of water would go to increasing the supply of water, but the ACT Treasury calls this hypothecationand does not let it happen.So Henry's call for a market-based water supply system will remain just a call while his state colleagues continue to believe taxing water is better governmentpolicy than a free market in water or the surrogate water infrastructure market.

Kevin Cox, Ngunnawal

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