Saturday, February 28, 2009

SATURDAY INSIGHT: Tanner on governing

"The last time I looked I had more TCF companies in my electorate than any other in the country." The speaker is about as inner-Melbourne as could be. Lindsay Tanner represents Richmond, Collingwood, Fitzroy and Melbourne itself in the federal parliament - the heartland of Australia's clothing industry.

As an officer of Federated Clerks Union in the 1980s and early 1990s he used to regularly visit one of the northern suburbs factories that Pacific Brands this week closed down.

"It's terrible," he says. "But it isn't just the economic crisis. It's also the way this company has been run; its debt levels, its acquisition strategy, its large number of brands, many of them little impact, and what we now know about very large pay increases given to management."

Australia's Finance Minister isn't completely powerless to help - the day before Pacific Brands sacked 1,800 workers he and colleague Julia Gillard ditched the 3 month waiting period for retrenched workers seeking to use government services.

And he is talking tough about executive salaries. "They've gone through the roof, they're out of control," he says at the end of a week in which Telstra revealed plans to pay its outgoing chief executive $11 million.

But he believes the best way to help is one of the least direct...

"It will always be the case that a slowdown will tend to hurt first the companies that already have problems."

"The most important thing to do is to strengthen the economy generally; to spend money on infrastructure and associated activity that helps sustain growth."

If the prescription sounds boring, the reality isn't. Tanner is part of the small group of four (the others are Rudd, Swan and Gillard) that has nutted out each of Australia's multi billion dollar stimulus packages as well as each of the other emergency measures.

Since Lehman Brothers collapsed in late September it's been a white-knuckle ride.

"It's been like fighting a series of emergencies. There are huge sums of money involved and it's not an exact science," he says.

"You have to make judgement calls based on the best advice, from the Treasury and the Reserve Bank and other places, but we're not doing physics experiments - these are highly complex constantly changing circumstances where most of the factors that are involved are external and we often don't have all the information."

"People say, you know 'here's what happened in the Swedish banking system in the early 1990s and here's how they responded, so do what they did'. Well inevitably the Swedish banking system is different from the American banking system and in turn the British banking system and our banking system, and the differences can be critical."

Does he ever wish he could just "wait to see," rather than making emergency decisions that throw around billions of dollars on the basis of imperfect information, an idea infamously put forward by the Opposition's Treasury spokesman Julie Bishop shortly before she lost the job.

Tanner was, after all the Finance spokesman in opposition who derided his predecessor as "Santa Minchin" and on taking office promised to wield "Tanner's Axe."

"Our problem is that we can't sit around staring at our navels," he says. "We have to act quickly because of the lags involved. Even when we're making bonus payments, it takes time to get the money out of the door."

"These are in unprecedented circumstances. The responsibility that is weighing particularly on the four of us is pretty heavy, but that's what we spent a lifetime aiming for."

"One of my party colleagues straight after the famous meetings of that weekend in October when we announced the stimulus pacakge and the bank guarantee, said to me, 'I hope you're taking lots of notes in all these meetings mate, this is history being made,' and I looked at him and laughed and said, you've got to be kidding - who'se got time to take notes about anything?"

"In the middle of this you don't think about things like that."

Some of what were to be Tanners biggest tasks have been put on the back burner. The results of Razor Gang Mark II, his second go at shaving spending, were expected by Christmas.

They now won't be ready until the May Budget.

"We have been forced to move away from the serene steady roll out of policy. The wider context has become so turbulant that it has become clear it is going to be difficult to deal with these things sensibly. We've been literally spending so much time on the global economic situation."

"It's one of the interesting lessons I've learned in government, he confides. "When you are in Opposition you have virtually no resources and you are used to thinking of Government and its resources as infinite; its people, resources, its brain power, its capacity to dream up ideas, to get answers, provide briefing papers, get teams working on problems."

"One of the things you realise when you are in government is that they are not infinite. You need to allocate resources to where you want your effort, and not only with the public service."

"Because it's the same small group of people at the top who ultimately have to make the decisions - who have to be informed and make decisive calls - there's only so much capacity that those people have to absorb, to think, to toss around."

Do you mean that if you are fighting a fire, you can't redecorate?

"Yes, we were about to start a budget process, and had the world been vaguely normal in September and October, then things would have proceeded as they were going to. We had got one already got one thing out of the door with the Gershon report on information technology. We thought let's proceed with that, but lets fold the rest of the razor gang into the ordinary budget process."

As Tanner sees things, his first budget as Finance Minister was about making the easy cuts, "things that didn't require a huge amount of complex groundwork," what economists call low-hanging fruit.

The cuts in his second budget will be more difficult, and by themselves won't look like much.

"It's low-profile work and it doesn't excite much interest, except in Canberra," he says. "But I'm a devotee of that old saying, look after the pennies and the pounds will look after themselves. I'm the guy looking after the pennies."

Just because the budget is expanding, doesn't mean that the budget shouldn't be frugal in the way it spends money, Tanner says.

"I see a central part of my role being to liberate resources that can be dedicated to more valuable purposes - whether in the current climate it's sustaining jobs, sustaining economic activity or whatever."

But he is frustrated that there isn't yet a good way of measuring how good he will be at that job. Finance Ministers are normally judged on the toughness of their first few budgets. The cuts expected in Tanner's first budget were toned down at the request of the Treasurer Wayne Swan who was concerned about the looming economic downturn. The cuts in the second won't be seen in a bottom line that will swell well into deficit in order to keep fighting the downturn.

"The two things actually aren't in conflict. We are very clearly now in the domain of a very substantial deficit. My work is to ensure that whatever the quantity outcome, the quality keeps improving."

"There isn't a way of measuring this yet, but it is something about which I have had initial discussions with my department. The concept is simple: for a total amount of money that the government spend in a given year, how much is devoted to it merely functioning and how much ends up as outcomes?"

"For instance what percentage of tax receipts is used up just in the administering and collection of tax? It's very low, around half a per cent. I know it is difficult and I don't know whether it has been done overseas, but I want to develop a broader measure against which our budgets can be judged."

"A classic area where I think it would be hugely beneficial is in somewhere like the ABC, to get an understanding of what proportion of its resources actually end up directly providing content versus running the organisation. That kind of metric will give you a very good idea, even though it's not capable of being done absolutely scientifically, particularly over a number of years, of whether governments and their organisations are getting flabby or inefficient and whether citizens are getting value for money."

"I try to keep my partisan sledging down to a dull roar, but the Howard government was essentially uninterested in managing government. It tried a few things early in its term and then gave up. I was dimly aware of this in Opposition, but I only became fully aware of it on taking office.

"It essentially created the government as a giant holding company or conglomerate and got individual agencies to mimic private companies. Each had a CEO with very wide responsibility, and virtually all across-government functions, purchasing and so, were abandoned. The end result was massive inefficiency."

The Gershon report, prepared for Tanner by Tony Blair's British cost-cutter Sir Peter Gershon, is one the "consultants reports" that the Opposition bagged in Question Time this week. Tanner says Gershon donated his fee to charity.

"We adopted Gershon's recommendation in full. They give you a good idea of what we are trying to do. Here's just one small positive outcome: The Department of Defence has a history of being a very good purchaser of Microsoft products and getting good deals from Microsoft because they are a big purchaser. We have reached an arrangement with Defence to lead a collective buying effort between all agencies and departments and Microsoft. That is saving us $15 million a year across departments. Microsoft isn't complaining because although its price goes down the cost of dealing with us goes down as well."

"We've decided to allow departments and agencies to keep the savings from that one because they are thinly spread. That's just one small example of where across-government collaboration, provided you don't go too far to a centralist model and try to get an intelligent balance, produces better outcomes."

"It's just a start. We have 45 data centres outside the Defence department. That's 45, wholly devoted to different arms of the Australian government. Individual agencies have been doing their own thing with no attempt to aggregate and deal with sustainability, redundancy, power supplies and so on. It's massively inefficient."

"Gershon estimated that if we develop a whole of government strategy, over 15 years we can save $1 billion - just by being more intelligent in the way we do things."

"We are methodically working through all of these areas; travel, the purchasing of office equipment, property. At the moment individual agencies compete against each other to rent office space, pushing up the price. There is no common standard on how much space an individual employee needs, as there is in the US and the UK."

"What you have is this elegant private sector theory applied completely inappropriately to government and it has produced absolutely perverse outcomes; waste, inefficiency and poor performance."

The Finance Minister is warming to his topic. It may seem a long way from helping those who lost their jobs their jobs this week at Pacific Brands, but it isn't to him. The job he does matters to him, even if much of the work is unnoticed more broadly. The Member for Melbourne is applying himself to making sure government works.

He seems to be enjoying it.

Tanner's quiet revolution

. saving money while spending more

. adopting an all of government approach

. saving $1 billion on IT alone

. extending savings to travel, purchasing

. a "value for money" scorecard

. unveiling savings in the May budget

Click to Read More...

TAXING TIMES: Why Henry will cut the corporate tax rate

It's on. The Henry Review is set to recommend a lower corporate tax rate, unless there's a groundswell of complaints as well as good arguments raised against it.

That was the Treasury Secretary's purpose is taking the idea public in a speech Monday night and in announcing a roadshow of "town hall" style meetings that will travel to centres including Melbourne and Geelong next month.

Ken Henry isn't running with the idea on his own. His boss Wayne Swan said it had much to commend it when he spoke at a different tax conference on Wednesday.

An organiser of that conference, the Australian Council of Trades Unions, muttered darkly that it was the sort of idea to be expected from a panel on which business was represented, but workers and Australians on welfare were not.

But that misunderstands the genesis of Ken Henry's idea...

Australia's self-claimed "largest and most representative organisation" didn't even ask for a lower corporate tax rate in its submission to the Henry Review. The Chamber of Commerce and Industry instead asked the review to "gradually reduce the top marginal personal tax rate to the same level as the corporate tax rate," a stance that raises questions about who the Chamber actually represents.

Its argument was that "higher income earners are more responsive to taxes than lower income earners," a questionable assertion for which it offered no supporting evidence.

By contrast the evidence that foreign capital is responsive to a lower corporate tax rates is overwhelming.

Cutting Australia's headline corporate tax rate from 30 per cent to 19 per cent could be funded by abolishing Australia's almost unique system of dividend imputation. Estimates before the Henry Review suggest such a cut would boost foreign investment in Australia by one quarter.

This isn't the sort of dodgy estimate made the Ralph Review in the late 1990s that reported that halving Australia's headline rate of capital gains tax would be self-funding and would lead to a surge in investment in "innovative, high-growth companies". (What it lead to was a surge in negative gearing and real estate prices.)

The wise heads in the Treasury were locked out of that review, precisely because the then Treasurer Peter Costello wanted it to recommend a cut in Australia's capital gains tax rate. He even put it in the terms of reference.

The Treasury's thinking about that idea is driving its thinking about this one.

Dr Henry said Monday that if markets were efficient, any change in the taxation of Australian income from shares, "primarily through the taxation of dividends and capital gains at the personal level" would affect the total level of capital invested in Australia not at all.

That's right. In terms of pure theory Australia will get (got) next to no benefit from halving its headline rate of capital gains tax back in 1999, and no benefit from the up to $20 billion dollars it spends each year handing locals their much-loved dividend imputation cheques.

The locals who get the concessions certainly benefit - often handsomely - but to the extent that they invest in Australian companies as a result, they merely displace investment by foreigners.

But contrast cutting company tax will lift the profitability of Australian companies and genuinely suck in foreign investment, boosting national income and real wages as a result.

Dr Henry was careful to point out that these arguments don't apply to Australian small and medium-sized private companies which don't get capital from overseas in any event.

He seems happy for them to continue to face a 30 per cent tax rate and retain access to dividend imputation if they want.

See Also: TAXING TIMES - Could Henry be thinking really big? November 29, 2008

Tax revenue to GDP over time - from Budget - (click to enlarge)


Tax revenue to GDP over time - from November update - (click to enlarge)


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Friday, February 27, 2009

Recession? You’re standing in it!

From Stephen Koukoulas at TD Securities:

"In Australia and other places too, there is a quite whacky debate going on over whether the economy will avoid a ‘technical recession’.

"Those peddling this snake oil analysis seem to be more worried about whether the statistician’s calculation of GDP avoids falling for two straight quarters rather than looking at the human misery which is unfolding with each job that is being lost, each fall in share prices that is elimination wealth and each bankruptcy which is seeing the business sector all but stop.

The idea of recession or for that matter economic growth, slow-down, hard landing or boom, is what economic management, policy changes and the current recession discussion should be focusing on.

The ‘two consecutive quarters of falling GDP’ definition of recession is a useless concept. There is, at the moment, a very good chance that Australia will avoid recording consecutive quarters of falling GDP. The snake oil merchants will likely herald this as a sign of the miracle economy shining through.

Nothing could be further from reality...

The economy is already in recession and it looks like a pretty deep one at that.

Even IF Australia muddles through without consecutive quarters of negative GDP growth, try telling the self funded retirees who have lost around 50% of their wealth that Australia has avoided a technical recession.

Try telling those retirees with their retirement incomes down 70% or 80% that a technical recession was avoided.

Try telling the 104,700 people made unemployed since February 2008 that a technical recession was avoided.

Tell the 300,000 people or more who will lose their jobs over the next year or so that a technical recession was avoided.

This list could go on and on, but the message is clear.

It is important to be practical in any assessment of the performance of the economy and avoid the distraction of some cute but useless definition of recession. Australia is in recession, the wealth destruction has been immense, the rise in human misery has been shocking and even for those who retain their jobs, there must be a large element of insecurity about the economic outlook.

Global comparison

The ‘two consecutive quarters’ tosh also makes now allowance for a country’s potential GDP. If Japan records zero GDP, it is doing OK. If China records 4% GDP growth, it’s a disaster. Why? Because of things like population growth, the stage of industrialisation and productivity are important drivers of a country’s potential GDP.

Without wanting to be too particular on the nuances, for Australia, a run of quarterly GDP at or below about 0.25% would be recession. This is because we know that growth, if sustained at these levels, would see profits slide, unemployment rise and would signal a very poor growth performance where capacity would be freed up and inflation would fall.

The profile

The two consecutive quarters definition also makes no allowance for statistical volatility, or orders of magnitude, of the quarter-on-quarter changes in GDP. Here’s a simple example.

Look at two countries with the same long run potential GDP growth rate. Here is the run of quarterly GDP growth over a year and a half.


Country 1: -0.2% -0.4% -0.3% -0.4% -0.1% -0.4%

Country 2: -1.2% +0.3% +0.1% -1.4% +0.3% -0.9%.


Under the whacky two consecutive quarters definition, Country 1 is clearly in recession (it has six straight quarters of falling GDP) while Country 2 avoids that stigma. Yet this is misleading and should dismiss for ever the two quarter codswallop.

To be sure, both countries are in recession.

But interestingly, Country 1’s GDP has fallen 1.8% over 18 months. And while Country 2 has avoided ‘two consecutive quarters’, GDP has fallen 2.8% over the same period. In this circumstance, there would be utterly no doubt that unemployment would be higher in the ‘recession proof’ Country 2 and the wealth of Country 2 would have fallen further than in Country 1. Inflation would also be lower.

Oh, and what is a recession?

A recession is an extended period of broadly based falls in wealth and living standards that results in a sustained lowering in inflation. Australia and just about every other country are going through this pain right now.

And what is a boom?

Why don’t we have a similarly silly debate over an economic boom? Is it as period of four straight quarters of positive GDP growth? Does quarterly GDP have to be above 1.0%? Or is a boom when there is an extended period of broadly based and extreme increases in wealth and living standards that produces a sustained acceleration in inflation? In a way, it doesn’t really matter about the definitions; it is the performance of the economy that matters."

Click to Read More...

The Systemic Failure of Economics

Wow! These guys have a point.

"The economics profession appears to have been unaware of the long build-up to the current worldwide financial crisis and to have significantly underestimated its dimensions once it started to unfold.

"We trace the deeper roots of this failure to the profession’s insistence on constructing models that, by design, disregard the key elements driving outcomes in real-world markets."

“In our view, economists, as with all scientists, have an ethical responsibility to communicate the limitations of their models and the potential misuses of their research. Currently, there is no ethical code for professional economic scientists. There should be one.”

“Given the established curriculum of economic programs, an economist would find it much more tractable to study adultery as a dynamic optimization problem of a representative husband, and derive the optimal time path of marital infidelity (and publish his exercise) rather than investigating financial flows in the banking sector within a network theory framework.”


HT: Steve Keen

Click to Read More...

Thursday, February 26, 2009

From the ANZ's preview of the week ahead

"Australia should post one of the strongest Q4 GDP results in the OECD. Our current forecasts are for GDP growth to be flat in the quarter."

Click to Read More...

Want to get people to save?

Scare them. It's working.

Graph from Saul Eslake's presentation to ANZ board of directors, Feb 24.

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A lower company tax rate? Swan wants it.

TREASURER Wayne Swan has backed a push by the head of his tax review for a much lower corporate tax rate.

Announcing a series of "town hall" consultations to take place next month in every Australian capital and also in Geelong and Wagga Wagga Mr Swan said that Australia's 30 per cent corporate tax rate was becoming uncompetitive.

The ninth-lowest rate in the OECD at the start of the decade, it had become the eighth-highest.

An OECD official speaking at the same Canberra conference said Australia's position was even less competitive than those figures suggested. Australia's reliance on corporate tax was exceeded only by Norway's which very heavily taxes the income from North Sea oil...

The conference was told that that the typical corporate tax rate is falling by one percentage point per year, a decline which if continued would result in a zero rate before the middle of the century.

Throughout the OECD developed nations were moving away from taxing corporate profits towards taxing the income of the shareholders that benefited from that those profits.

The UK and all of mainland Europe had abandoned Australian-style dividend imputation schemes that provided tax breaks to shareholders and instead cut the tax rates applying to the companies themselves.

Australia and New Zealand and the only two developed nations to retain such schemes.

Calculations by the Melbourne consultancy Lateral Economics reported in The Age Tuesday suggest that abolishing dividend imputation would fund a cut in Australia's corporate tax rate from 30 to 19 per cent.

Lateral Economics says the ultimate corporate tax rate could be cut even lower if the new rate boosts the size of the Australian economy in the way it expects.

The experience of Britain and Ireland suggests that such a cut in Australia's would boost foreign direct investment in Australia by as much as one-quarter.

Economists from the Australian School of Business warns that such a benefit needs to be balanced against a move away from equities by local investors who value imputation credits.

"Also the reduction in after-tax returns for local investors would create an incentive for local firms to either reduce dividends or abolish dividends altogether, said Senior Lecturer Dr Ronan Powell. "This could have the positive effect of freeing up funds for internal investment, but there is a trade-off that needs to be carefully considered."

Mr Swan backed an claim by the head of the Henry Review, Dr Ken Henry that a competitive corporate tax rate could boost economic growth by increasing the quality and quantity of investment, boosting productivity and real wages.

"We need a tax system that is internationally competitive and the arguments
for reducing company tax rates are something the review panel will need to consider," the Treasurer said.

Mr Swan told the conference he regarded it an incitement of the Australian tax system that almost tow thirds of Australians used a tax agent to file their returns. In other countries the figure was 30 per cent.

"Surely we can design a tax return system simple enough to make this
sort of cost to working families unnecessary. As a matter of principle, working families should not have to pay hundreds of dollars per year to accountants to fill out their tax return," he said.

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Wednesday, February 25, 2009

We've had tax cuts, right? Right?

IF SIX straight years of tax cuts have left you feeling bemused, it could be because you're earning an average income.

Figures prepared for tax conference to take place in Canberra today show that average earners hand over in tax about the same proportion of their income as they did two decades ago.

In 1986 an average earner paid out 21 per cent of his or her income in tax. After this year's July tax cuts the figure will remain little changed at 20 per cent.

By contrast high income earners pulling in two and a half times the average wage will be much better off. In 1986 they had to hand over 43 per cent of their earnings. By July this year it'll fall to 30 per cent.

The subsequent tax cut penciled in for July 2010 will benefit high income Australians even further...

...but will again scarcely change the outlook for middle and low income Australians.

The academic group Tax Watch warns that its figures overstate the extent to which ordinary Australians have a hope of benefiting from tax cuts because or a statistical quirk which means that most Australian workers earn less than 80 per cent of the average wage.

"We want to state the facts and not get too much into expressing a view," says the group's conveyor Professor Julian Disney of the University of New South Wales.

"This isn't about politics, it's about being fair and rigorous.

When the group attempts to compare the Australian tax take with those overseas it finds that we are in the low-tax third of OECD countries and also in the low tax third of the nine most important OECD nations. We would need to pay to pay $40 billion extra in tax each year in order to reach the OECD average.

The group also reports that we are becoming less keen on tax cuts. Back in 1987 two thirds of Australians surveyed said they would prefer tax cuts to increased government spending. By 2006 less than one third said yes to the same sort of question.

Today's conference will be addressed by Treasurer Wayne Swan, tax specialists from the OECD in Paris and the Washington-based Brookings Institution.

Addressing a Sydney tax conference the chair of the Henry Review, Treasury Secretary Ken Henry attempted to build expectations for change, declaring that "times of economic weakness are often also the best times to implement large change".

He has proposed scrapping Australia's system of dividend imputation and using the savings the sharply cut Australia's company tax rate.

Click to enlarge:

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Tuesday, February 24, 2009

Why not axe dividend imputation? Henry gets serious.

And how. The Review is taking shape.

MILLIONS of Australian mum and dad investors face the loss of their imputation tax credits as part of what Treasury head Ken Henry says is shaping up to be the most comprehensive policy review ever undertaken in Australia.

Ramping up expectations of his Henry Tax Review, the Treasury boss told a Sydney conference it was considering axing the system of dividend imputation introduced by former Treasurer Paul Keating more than 20 years ago.

It has ensured that investors in Australian icons such as Telstra, BHP, CSR and Coles Myer paid no or little income tax on their dividends in those in years in which the companies paid the full rate of company tax.

It has also provided benefits to Australian superannuation funds.

Dr Henry told the conference it was "not surprising" that Australian investors and superannuation funds liked the tax-free dividends.

But he said it and other Australian tax provisions made little sense in a world of massive global capital flows...

By extending to Australian investors a concession not available to foreign investors, it made it harder for Australian companies to get access to funds - a process he referred to as "capital shallowing".

A cut in the company tax rate funded by axing dividend imputation would boost the
would also attract more foreign investment, increasing real wages and boosting share prices and Australia's gross domestic product.

The Melbourne consultancy Lateral Economics believes axing dividend imputation would free up $20 billion per year, enough to fund a cut in Australia's corporate tax rate from 30 per cent to 19 per cent.

The company tax rate could then be cut even lower if the new rate boosted the size of the Australian economy in the way expected.

Lateral Economics believes a cut in the headline corporate tax rate to 19 per cent would boost foreign direct investment in Australia by about one-quarter.

It says the resulting boost in share prices should more than compensate the Australian mum and dad investors who missed out on their imputation credits.

The UK and Ireland have already abolished their dividend imputation schemes leaving Australia and New Zealand as two of the only nations to retain them.

Dr Henry said he did not want to be interpreted as "arguing the case for doing away with imputation".

"Our system has some distinct advantages. For one thing as imputation credits are only provided for Australian tax paid Australian multinationals have fewer incentives to shift profits offshore."

The Treasury Secretary also raised the possibility of abandoning Australia's existing system of corporate taxation in favour of "more dramatic, far-reaching change".

One idea would be to tax by destination rather than origin so that imports would be taxed and exports would be tax free. Another would be to tax business spending rather than profits.

He said while such changes would involve significant costs, "sometimes change is necessary.

The Henry Review will report to the Treasurer in December. It is accepting submissions until May.

Background:

Taxing Times,
November 29, 2008

Henry Review speeches

Ken Henry briefing, December 3 2008, podcast

Click to Read More...

Monday, February 23, 2009

Sometimes Question Time works well

Hardly ever, actually

But there were 2 such instances today (edited):

Mr TONY WINDSOR (Independent) — My question relates to the Prime Minister’s comments at yesterday’s memorial service that successive governments have failed in terms of bushfire management, and also comments made by Wurundjeri elder, Aunty Joy Murphy, from Healesville who said that Aboriginal people historically burned the land every seven years for ‘cleansing and regrowth’, but Black Saturday was a ‘torture of the land’.

Prime Minister, could you elaborate on your comment and, given that every inquiry since 1939 has focused on fuel reduction in fire-prone areas, do you believe it is time we learnt from Aboriginal Australians, whose firestick management practices created the bush environment that white Australians are attempting to modify to a landscape that has never existed?

Mr RUDD—I thank the honourable member for New England for his question. He is right: there is now a legitimate debate about what we do about vegetation management over time and how we deploy effectively what used to be described when I was a kid growing up as ‘periodic burn-offs’. I am reluctant, from the position that I occupy, to dictate what the answer should be.

I listened carefully, as I am sure the Leader of the Opposition did yesterday, to the comments made by the Aboriginal elders as they provided their sombre welcoming to those attending the service yesterday. Given that our Aboriginal brothers and sisters have occupied this continent for 40,000 years, there is great wisdom to be learned.

As a little kid growing up my memories of being with my father are of every so often going out with him with the hip burner to burn off. I am always reluctant to generalise from my experience of growing up in one part of Australia to what happened and to what is appropriate elsewhere. Let us draw all of this knowledge—from settler communities, from farming communities, from Indigenous communities—together through the deliberative processes which have been established by the government of Victoria. Once that has concluded, let us as a government, through the parliament, act in concert with the states and territories and through instruments, including financial instruments, which can make it work in the future.

NOLA MARINO (Liberal) — I refer the Treasurer to recent cuts in official interest rates. Treasurer, a company in my electorate has a business overdraft facility with Westpac Bank. With the current cash rate at 3¼ per cent, why is this company still paying 10.1 per cent interest?

Mr SWAN — I share the same concerns as the member for Forrest. It is the case that a lot of business loans are linked to market rates but some are not. So I would be very interested in seeing the details of this example, which has been mentioned by the member for Forrest, and I will take it up with Westpac Bank.

I recently took up another example that had been raised with me, because I was concerned about what was going on, where there was a failure to get credit. On that occasion, with that example, there was a successful outcome. Certainly, our response cannot always be on an individual basis. We are looking to a systematic solution that we can put in place to deal with these issues where people are unjustifiably being denied credit when they should get it. Of course, trying to establish that has some difficulties, but the government are serious about it, and I look forward to hearing the details from the member.

Wow!

Click to Read More...

Ideas for getting the world) banking system working


Martin Wolf and Will Hutton discuss some ideas in a gripping MP3 I have just pointed to on my pod page.

Here's another one:

"Governments should promise to buy twice the number of outstanding bank shares in 5 years at twice their recent prices. Markets would immediately price-in this pledge, and the resulting price boom would allow banks to raise necessary capital from private sources."

It's neat, but the problem - as I see it - would be moral hazard. Why run a bank well or safely when you know its share price will double anyway?

Here's a better one:

"Capitalize half a dozen start-up wholesale banks with government money – call them Hamilton, Jefferson, Franklin, Madison, Adams and Washington. Get them borrowing and lending freely, purchasing assets from legacy banks, and then, equally swiftly, sell them off – privatize them."

The idea would be not to help out the bad banks. Let 'em die. Instead start new ones which would form the backbone of a working financial system.

I like the sound of it. A lot.

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Just about the strangest letter,

written by Wayne Swan - just days after he wrote asking the House Committee to inquire into

- the choice of emissions trading as the central policy to reduce Australia's carbon pollution, taking into account the need to:

a) reduce carbon pollution at the lowest economic cost;

b) put in place long-term incentives for investment in clean energy and low-emission technology; and

c) contribute to a global solution to climate change.


Enjoy! (Click on image below to enlarge)




"Unfortunate politicisation"?

As Kenneth Davidson writes today

"The original decision was either a cock-up, or the cabinet is split on whether the Carbon Pollution Reduction Scheme is so badly flawed that it should be abandoned in favour of a carbon tax."

Click to Read More...

Hockey - the carbon target is too low

Shadow Treasurer Joe Hockey has opened an apparent division within the Opposition, describing the government's carbon emissions reductions target as "very low".

The proposed emissions trading scheme was condemned as recently as Friday by Shadow Attorney General George Brandis who said it would send jobs offshore.

The government has put forward a scheme designed to cut emissions by 5 per cent by 2020, and by up to 15 per cent depending on the outcome of the United Nations conference on climate change to be held in Copenhagen in December.

The scheme is due to go before the Senate in May.

Speaking on ABC TV Mr Hockey described the Opposition's position as detailed and comprehensive...

"We believe that global warming is occurring and we believe that human beings have contributed to it," he said.

"The question is how you get about doing something about it."

"And now that China is the biggest emitter in the world and yet made no commitment to Kyoto or subsequently, everything does depend on Copenhagen at the end of this year, and yet we've got an Australian Government that is in that grey twilight area of having a very low target but wanting to lead the world."

Greens Deputy Leader Christine Milne welcomed the Shadow Treasurer's observation that 5 per cent was "very low" but asked what higher target he had in mind.

"Playing politics with climate targets is a dangerous game. The Australian people are impressively informed. They will not be impressed by an Opposition trying on green clothing but with coal dust still all over its hands," she said.

“The fact that the Opposition is clearly in disarray over climate change is bad for Australia's democracy."

"It makes no sense that, while some key frontbenchers are calling the Government's emissions target weak, others are still bizarrely attacking one of the Government's few sensible climate policies – the roll-out of ceiling insulation across the country."

Treasurer Wayne Swan last week asked a parliamentary committee to inquire into the government's proposed emissions trading scheme and then asked it to cancel the inquiry because of what he called "unfortunate politicisation".

The turnaround created the impression that the government might delay or water down its scheme and disrupted Australian trading on the international carbon market.

Mr Swan said Sunday the government strongly supported the scheme and would proceed with it "enthusiastically," releasing an exposure draft of legislation within weeks.

Challenged about the Coalition's position Mr Hockey said "we don't know what we're voting for at the moment because there's no legislation."

The on-again off-again inquiry had been a "clown show''.

Mr Hockey also attacked Mr Swan for talking up inflation shortly after taking office inadvertently pushing borrowers into fixed rate mortgages.

The Treasurer said the world had changed since then and some people "unfortunately, been left with fixed rates".

NOTE

Here's what
Hockey said:

"We found out from the governor of the Reserve Bank on Friday in Friday's committee hearings that there was a 20 per cent surge in the first half of last year in the number of Australians who fixed their home loan rates."

Here's what the Governor
actually said:

Mr ANTHONY SMITH — Governor, I have got a series of questions. If I could go back to the issue of fixed mortgages, what proportion of mortgages are fixed in Australia?

Mr Stevens — About one-fifth.

Mr ANTHONY SMITH — And the US is much higher, isn’t it?

Mr Stevens — Most of them.

Mr ANTHONY SMITH — And what was the magnitude of the increase last year in that context?

Mr Stevens—The increase of what?

Mr ANTHONY SMITH — Fixed mortgages. I think you said —

Mr Stevens — For the flow of new mortgages the share rose by how much, Malcolm?

Dr Edey — It is normally about 10 per cent or a bit higher. It went up to over 20 per cent for a while early last year.

Mr ANTHONY SMITH — And what was the level before then?

Mr Stevens — Of the total stock outstanding—I cannot quote the figures as I do not have them in my head—it would have raised it a bit, though, the monthly flow is of course not that big compared to the total stock that is out there so —

Mr ANTHONY SMITH — How would that compare with previous cycles?

Mr Stevens — I am not really sure; I have not done the sums. It usually happens that when interest rates rise, and some people expect they may rise further, the share of fixed rate loans goes up, though that hinges of course on the pricing because the pricing has got embodied in it a set of expectations about the future path of interest rates.

I read the Governor as saying that there was a doubling in the share of new mortgages that were fixed. That's rather more than a 20 per cent surge.

Click to Read More...

Sunday, February 22, 2009

Joe Hockey - where angels fear to tread

Ian Verrender writes in Saturday's Sydney Morning Herald:

"Sticking your neck out can be a dangerous business. Professional gamblers offset their bets, financial types hedge their investments and politicians usually err on the side of caution by never actually answering a question.

But sometimes a pollie goes out on a limb. Take this little missive to a constituent from Joe Hockey, the federal member for North Sydney who this week was elevated to the role of Opposition spokesman on Treasury.

Dear Mr M…

Thank you for your letter of 12 August, 2007 concerning the global finance system.

I have noted your views. I however disagree vehemently with your analysis that the world is facing a collapse of the financial markets. The last few days have indicated that the financial markets, with the support of the central banking institutions, are able to meet the demands that have been placed on them.

Yours sincerely, Joe Hockey.



Oops. August 2007 was the beginning of the greatest meltdown in financial markets that the world has ever seen. August 2007 was when credit markets froze completely and the Australian sharemarket officially went into a "correction", a 10 per cent fall.

In Hockey's defence, no one could have foreseen the extent of the collapse..."

Hockey was busy at the time.

Fresh from questionable administration of a $1 billion plus information technology project, he was ducking and weaving in an attempt to sell WorkChoices.

Ross Gittins has some advice for him in his new role.

Click to Read More...

Saturday, February 21, 2009

Good times could be just around the corner. Really. In the view of Governor Stevens.

And who is going to argue with our Reserve Bank Governor?

His building, and the Treasury - which is even more optimistic - house some of the best economic brains in the country.

Also below, the Governor's thoughts on

. heavying bank CEOs over lending to business
. an entire redesign of monetary policy
. upfront charges for the use of ATMs

The full transcript of the marathon interegation is
here


RESERVE Bank governor Glenn Stevens has defied the doomsayers and predicted that Australia's struggling economy will begin to recover in the second half of this year.

Although next month's national accounts are expected to show negative growth, Mr Stevens believes it will begin to rebound within months and says Australia's key customer, China, may already be emerging from its slump.

Governor Glenn Stevens' surprisingly upbeat assessment of Australia's prospects delivered to the parliament's economics committee saw financial markets back away from predictions of further interest rate cuts and pushed up the dollar.

"There aren't indications of recovery yet, that would be a bit soon," Governor Stevens told the committee.

"But I would expect that after just a little while that households who are in a reasonable financial situation will want to borrow more, and we will see that flow through into the housing sector."

"Loan approvals are already climbing...

I think they will continue climbing and that will have an impact later in the year - not yet - on demand for construction of new dwellings."

"At the moment it's contracting, but I think it will probably bottom out and start to pick up later this year."

His remarks were backed up by ANZ chief executive Mike Smith who separately told the American Chamber of Commerce he thought Australia might - just - escape the consecutive quarters of negative growth taken to define a recession.

"Last February I said it was a bloodbath out there, armageddon. I want to again buck the trend and say I have renewed optimism. Australia's downturn may not be as deep and as protracted as many now fear."

Reserve Bank Assistant Governor Malcolm Edey told the parliament's committee there were "tentative" signs China's economy had bottomed.

"Although there was a very sharp reduction in all indicators in the December quarter, China's industrial production appears to have stopped falling in the last month or two."

"These are tentative signs and the numbers are volatile," he said.

Stevens said he was optimistic about China, and as a result optimistic about Australia over the long run.

"What has happened is a reminder that China has business cycles like all of us. It was never going to grow at 12 per cent a year the way it did until recently. It seems to me still the case that the emergence of China as a large industralised economy has years and years to run. It will be a volitile ride on occasions, but Australia has potential to benefit over the long run as we did over the last couple of years."

The Governor's optimism did not extend to Japan whose performance he said would drag Australia down.

He credited the government's two economic stimulus packages and the
Bank's aggressive rate cuts with the expected recovery, saying he expected half of each package of stimulus payments to be spent.

"Even if people save more than that it just means that the balance sheets of households improve a bit faster than we thought which means that some way down the track households are likely to resume spending in a stronger way a bit quicker," he said.

Asked by the Coalition's Treasury spokesman Joe Hockey whether there were dangers in going "too hard, early" with stimulus measures, Mr Stevens replied that he saw greater dangers in waiting.

"It may be that the longer you wait, the more ammunition you'll end up needing to use, because these things can get a sort-of self-fulfilling momentum behind them and you should try to head that off if that's possible," he said.

Governor Stevens defended the government guarantee of bank deposits introduced in October rejecting reports that he had opposed it.

"I think in the circumstances we faced where you had governments around the world having to do this, where you had people starting to ring up radio and TV shows asking whether they should take their money out of Australian banks, you don't want to let that run. You have to act, and the sooner you act the better."

"It was obvious ahead of time that whoever isn't guaranteed isn't going to like it, but you can't guarantee everyone, you have to preserve the core of the system."

"Yes, there were some boundary issues. I appreciate that many people found that upsetting, but now we see the banking system retains the confidence of the austrlaian public, we never got the queues in the street, but you don't want to go near that," the Governor said.

While Treasurer Wayne Swan had no comment to make about the Governor's relatively upbeat assessment, his opposite number Joe Hockey took the opportunity to thank him for the way he handled the economic crisis.

"It has been a challenging time for Australians and we are very lucky that even though we might not always agree with what the Reserve does, we appreciate your professionalism" he said.

"There aren't indications of recovery yet, that would be a bit soon," Governor Stevens told the committee.

"But I would expect that after just a little while that households who are in a reasonable financial situation will want to borrow more, and we will see that flow through into the housing sector."

"Loan approvals are already climbing. I think they will continue climbing and that will have an impact later in the year - not yet - on demand for construction of new dwellings."

"At the moment it's contracting, but I think it will probably bottom out and start to pick up later this year."

His remarks were backed up by ANZ chief executive Mike Smith who separately told the American Chamber of Commerce he thought Australia might - just - escape the consecutive quarters of negative growth taken to define a recession.

"Last February I said it was a bloodbath out there, armageddon. I want to again buck the trend and say I have renewed optimism. Australia's downturn may not be as deep and as protracted as many now fear."

Reserve Bank Assistant Governor Malcolm Edey told the parliament's committee there were "tentative" signs China's economy had bottomed.

"Although there was a very sharp reduction in all indicators in the December quarter, China's industrial production appears to have stopped falling in the last month or two."

"These are tentative signs and the numbers are volatile," he said.

Stevens said he was optimistic about China, and as a result optimistic about Australia over the long run.

"What has happened is a reminder that China has business cycles like all of us. It was never going to grow at 12 per cent a year the way it did until recently. It seems to me still the case that the emergence of China as a large industralised economy has years and years to run. It will be a volitile ride on occasions, but Australia has potential to benefit over the long run as we did over the last couple of years."

The Governor's optimism did not extend to Japan whose performance he said would drag Australia down.

He credited the government's two economic stimulus packages and the
Bank's aggressive rate cuts with the expected recovery, saying he expected half of each package of stimulus payments to be spent.

"Even if people save more than that it just means that the balance sheets of households improve a bit faster than we thought which means that some way down the track households are likely to resume spending in a stronger way a bit quicker," he said.

Asked by the Coalition's Treasury spokesman Joe Hockey whether there were dangers in going "too hard, early" with stimulus measures, Mr Stevens replied that he saw greater dangers in waiting.

"It may be that the longer you wait, the more ammunition you'll end up needing to use, because these things can get a sort-of self-fulfilling momentum behind them and you should try to head that off if that's possible," he said.

Governor Stevens defended the government guarantee of bank deposits introduced in October rejecting reports that he had opposed it.

"I think in the circumstances we faced where you had governments around the world having to do this, where you had people starting to ring up radio and TV shows asking whether they should take their money out of Australian banks, you don't want to let that run. You have to act, and the sooner you act the better."

"It was obvious ahead of time that whoever isn't guaranteed isn't going to like it, but you can't guarantee everyone, you have to preserve the core of the system."

"Yes, there were some boundary issues. I appreciate that many people found that upsetting, but now we see the banking system retains the confidence of the austrlaian public, we never got the queues in the street, but you don't want to go near that," the Governor said.

While Treasurer Wayne Swan had no comment to make about the Governor's relatively upbeat assessment, his opposite number Joe Hockey took the opportunity to thank him for the way he handled the economic crisis.

"It has been a challenging time for Australians and we are very lucky that even though we might not always agree with what the Reserve does, we appreciate your professionalism" he said.


Riding shotgun on business lending

Reserve Bank Governor Glenn Stevens has been personally lobbying the heads of Australia's banks to reign in zealous behaviour by their lending officers.

In evidence to the parliament's economics committee Friday Mr Stevens said he believed that in no banks had an edict has come down from the board or the CEO to say, "let’s get tough on business," but he said he was worried that lending officers would be tempted to get tough in in order to keep their jobs.

"The CEO will not be saying ‘Get tough on these guys,’ he told the committee.

"But the phenomenon one would like to see them try to guard against is the one where the lending officers at the coalface do not need to be told to be more cautious because they fear for their own job if they make a bad loan. It is human nature."

"In my private conversations with bankers I say, ‘Make sure they don’t overreact.’ That is the credit crunch that you do not want to have," he said.

The Governor acknowledged that "on any given set of objective credit standards" there might be fewer borrowers acceptable than there would have been a year ago".

"That's because the economy has slowed. It is inevitable that the credit worthiness of some of the borrowers is going to deteriorate. That's normal."

"We are also aware that banks are looking at the pricing of facilities as they roll off. You might have a facility that is in place over a period of years and eventually it ends and you then sit down to negotiate new terms, that is inevitable."

"The key thing is for the banks not to overdo that."

Deputy Governor Ric Battellino said that unlike in some other countries, Australian banks were at least continuing to lend to businesses.

"In a lot of countries the banks will not lend. In Australia it has not been a problem. Our four major banks, particularly, have continued to lend very strongly to the corporate sector," he assured the committee.

Asked why banks hadn't fully passed on the Reserve Bank's cuts to businesses in the same way as they mostly had to mortgagees Mr Stevens said," frankly they have not been under quite the same public pressure on those rates as they have been on housing rates".

"That is probably not the whole explanation but it may be part."

He confirmed that the special purpose vehicle set up to provide finance to car dealerships had so far been "tapped very little if at all so far".

But he said it was "probably sensible to have thought about what you might do if there were a sudden withdrawal of funding from a sector and to have that ready in case".

To be clear, I did not think that plan was about just holding up the values at some particular level; I thought it was about avoiding a set of fire sale prices. If the prices really are too high they will come down, and you cannot stop that, actually. But I think it is about avoiding a fire sale sort of situation.


Rethinking why rates are pushed up

The Reserve Bank has flagged the possibility of rewriting its contract with the government in order to avoid the next asset bubble.

While making clear that his immediate priority was dealing with current problems, Assistant Governor Philip Lowe told the parliament's economics committee that the bank might need to ask for a change its guidelines in order to better deal with "the next cycle of fear and greed".

"In various international groups that we are involved in these things are already under discussion," he told the committee.

The present guidelines require the bank to keep the underlying rate of inflation to an average of 2 to 3 per cent over the economic cycle.

Dr Lowe said the bank would need to consider extending them to also target asset prices, even where inflation was low.

Governor Stevens said the target should be leverage.

"My guess is that if you have an asset bubble in, say, some new exotic art, and there is no borrowing, it is not going to do a lot of damage to the economy."

"It is the bubble where you have leverage and then the collapse happens — the borrower is under water and then so is the lender — where you have a big problem."

"Should we lean into that bubble with tighter monetary policy, even though that would mean slower growth and inflation below target? We are debating that at great length. Should we do both, and how would we explain it?"

"It's not easy to do."


Why using a foreign ATM is cheap

The Reserve Bank has put a figure on the cost - to banks - of letting a customer from another bank use one of their automatic teller machines.

The service for which banks have charged each other and their customers more than $1.00 actually costs the bank "no more than 10 cents".

"On our estimates it would be at most 10 cents, and quite possibly a lot less, to do the electronic processing of sending the signal along the wire and back to square up the accounts. We see no logic for there being a so-called foreign user fee, certainly no more than that much," Bank Governor Glenn Stevens told the parliament's economics committee.

Under new rules due to start on March 3, banks will no longer be able to charge each other for the so called "foreign" customers who use their ATMs but will be able to charge foreign users directly on the condition that they make the charges clear before the transaction is made.

Some ATM owners are reportedly planning to charge as much as $2.50 for a balance inquiry and $5 per withdrawal. In addition some banks are considering "disloyalty fee" for customers who use rival ATMs.

Governor Stevens said he was powerless to stop such charges but hoped that competition would bring them down.

"Our approach has been to make as explicit and transparent as possible what is really going on here, and it never has been transparent. That itself is a big step because it puts the spotlight on what fees are reasonable and what are not," he told the committee.

"I think information brings that empowerment. Whether or not it is enough to get rid of fees I do not know, but that is as good as I can do for you at the moment."

Click to Read More...

Friday, February 20, 2009

Governor Glenn Stevens is being grilled by the House Committee


Well he was.

Until 12.30pm.

It's finished.  Here's the text of his opening statement.

And now, here's the complete transcript. Not bad. A good idea of how he is thinking.

To sum up - more relaxed. He feels he is getting things under control.

If so, we can all be thankful.

Click to Read More...

$8.7 billion? Let's pay down our cards

The mystery of what happened to the government's $8.7 billion in December stimulus payments is becoming clearer.

Australians spent at least $3 billion of them making extra payments on their credit cards.

Credit card repayments reached an all-time high in December, topping $21 billion - some $3 billion more than is typical.

At the same time Australians took their credit cards shopping more than ever before, pulling them out an extraordinary 145 million times during the month - 12 million more than in the previous December.

The Reserve Bank figures provide evidence for both sides in the stimulus payments debate...

Supporters can argue that the payments had us spending big in December, putting a record $20 billion on plastic. Opponents can argue that we used a big chunk of the payments to pay the plastic off.

Nomura Australia chief economist Stephen Roberts said it wasn't surprising that Australians used the handouts to pay down credit card balances.

"Clearly nobody has any incentive to pay 20 per cent interest. With rising unemployment, paying exorbitantly high real interest rates makes no sense," he said.

The $8.7 billion in December bonus payments will be followed from April by the $10.5 in payments approved by the Senate this month.

Available to Australians earning up to $100,000 a year and worth up $900 each, most will be made automatically through the Tax Office. Some Australians will be entitled to more than one payment.

New car sales continued to climb in January after surging as the bonus payments hit wallets in December. But sales of non-passenger vehicles such as utilities, vans, trucks and buses slid 7.5 per cent.

"This looks like businesses cutting investment plans, particularly in the resources sector, said Commonwealth Securities economist Savanth Sebastian.

Australia-wide, vehicle sales are down 17 per cent over the year.

Sales in Victoria are down a more modest 11 per cent, and jumped 2 per cent in January, twice the national average.

Click to Read More...

Thursday, February 19, 2009

We're dining at home


Craig James of CommSec mines the quarterly retail figures and unpublished ABS data to find that spending at cafes and restaurants is growing at the weakest pace in records going back 25 years. 

By contrast sales of recreational goods such as sporting equipment and toys jumped 11.9 per cent in the December quarter – the largest rise in 15 years.

As he says, "people are still spending, but they are looking for the specials".


Quarterly changes:



Annual changes:

Click to Read More...

Wednesday, February 18, 2009

Reserve Bank: Could this really be the end?

The Reserve Bank has signaled that it is losing enthusiasm for cutting rates, declaring that further interest rate cuts will be ineffective in the short-term.

The minutes of the February board meeting that cut rates by 1.00 percentage points describe the halving of the official rate to date as "very significant" and "early", leading to lending rates that will soon hit generational lows.

But the Bank says the cuts and the government's two stimulus packages will "take time to be effective" and will have "only a modest effect on the near-term outlook in Australia".

"Given the speed at which the global contraction had occurred, short-term prospects were thus still for weakness in demand and output," the board's minutes say, implying that there is little more the Bank can do...

"The Bank has re-framed policy around medium term growth prospects, which gives them some scope to look through short-term weakness," said Westpac economist Anthony Thompson.

"They appear to be emphasising that we need to be patient for the policy stimulus in the pipeline to work."

Financial markets displayed little patience in the wake of the board minutes, continuing to price in a cut of 0.50 to 0.75 points at the board's next meeting.

"In the fortnight since the board meeting reported in the minutes, global data has deteriorated further, Australia's unemployment rate has risen, and confidence has relapsed," said UBS economist Scott Haslem. "We still look for a 0.50 points cut in March."

Westpac told clients that while it was still expecting a cut of 0.75 points next month the board had clearly indicated that in future cuts would be be smaller than in the past and that it was "nearing the end of its easing cycle".

The ANZ also expects a cut in the cash rate from 3.25 to 2.50 per cent. Economist Katie Dean said that by shifting its focus to the future the Bank had held open the option of further "preemptive" cuts.

The minutes indicate that the bank believes that the effect of the government's December stimulus package may already be fading. They say liaison with retailers suggests that sales "picked up noticeably in December, but it seemed that they weakened again in January".

"This highlights the risk of intensification of the Australian economic downturn in the second half of this year, when the impact of the Government's second set of cash handouts wash through," said the ANZs Katie Dean.

The Bank's governor Glenn Stevens will will quizzed about his thoughts at his half-yearly appearance before the parliament's economics committee on Friday.

Data releases separately Tuesday showed a collapse in wage expectations.

The Melbourne Institute said total pay over the year to February had climbed 4.2 per cent.

Expected pay rises in the year ahead amounted to just 2.5 per cent.

Melbourne Institute research fellow Edda Claus said the more modest expectation was “consistent with a slowing economy".

Click to Read More...

So, what's this Joe fellow like?

Hockey's first day

Australia's new Shadow Treasurer was matey in a whirlwind round of interviews in his first day on the job, but his questioners weren't.

"What sort of knife did you knife Julie with?" was among the most brutal, delivered by the breakfast team from Nova FM.

Joe Hockey replied that while politics could be a blood sport, it wasn't as cutthroat as morning radio.

In makeup at Channel Seven's Sunrise studio where he once did a regular double act with Kevin Rudd he was asked why Julie Bishop wasn't any good.

He replied that inevitably there were changes in personnel in politics, just as in TV.

The host replied that he hoped there wouldn't be any changes for a while and reminded him that Julie Bishop was caught out early as Shadow Treasurer by not knowing the official interest rate, adding, "what is it?"...

"It's 3.25 per cent, Kochie. But no body is paying it. Maybe you’re paying it, but I’m not," replied the new Shadow Treasurer, passing what was to be the first of many such tests in his first test in the job.

He made mistakes as the day wore on, telling the interviewer from AM that the man who was offered the job ahead of him Peter Costello left the country debt-free as Treasurer, quickly adding "err you know certainly the government debt-free".

Asked by 3AW's Neil Mitchell whether he agreed with Julie Bishop that tax cuts could increase government revenue he replied that it depended on the circumstances.

Ashed whether tax cuts could increase government revenue in the current circumstances he replied that it depended where people spent the money.

"If they spend the money and they spend it on retail goods, you know it might come back in Goods and Services Tax, increased GST revenue."

When Neil Mitchell tried to pursue this line of reasoning Joe Hockey told him he was one of the best interviewers in Australia.

He was full of love too for the man who could have elbowed him aside.

"From my perspective I love Peter Costello," he told an astonished Neil Mitchell.

"You love him?"

"Well it's a special kind of love," he said, echoing the line used by the 1970s Labor Treasurer Jim Cairns to describe his controversial relationship with his executive assistant Junie Morosi.

"It's not a physical love," he added quickly.

Asked how the Coalition would manage the economy differently he told several interviewers he asked several interviewers to "back to the beginning of last year."

Asked what he would do differently without going back over history he said he wouldn't behave like Kevin Rudd and Wayne Swan.

"You're telling me what you wouldn't do, not what you would do," Steve Price persisted.

Joe Hockey would spend wisely, not recklessly, and "exude confidence that we can get out of this".

He'll get a chance tomorrow (Thursday) night. The ABC had invited Treasurer Wayne Swan and his Shadow Julie Bishop to take part in this week's Q&A live forum. Hockey has agreed to step in in her place.

Q&A: 9.30 pm Thursday


Click to Read More...

I was wrong - Andrew Robb has company

The Age calls its column "We Were Wrong". But I am the one who was was wrong.

Tony Abbott phoned me and was very nice about it. An anonymous commenter alerted me.



Click to Read More...

Tuesday, February 17, 2009

What if Joe Hockey is Julie Bishop in new clothes?

The Coalition's new economic supremo may not be the ticket to credibility it urgently needs.

His predecessor Julie Bishop was ineffective not only because of what she calls the "ongoing commentary" about her role, but also because she didn't understand economics.

Within weeks of last year's May budget she was calling on the Prime Minister to "explain the reasons behind the budget forecast that 134,000 jobs will be lost in Australia by June next year."

But the budget hadn't made such a forecast. Quite the opposite. It had forecast a continuing increase in the number of Australians in jobs, albeit a smaller one that would be needed to stop the unemployment rate climbing.

The Shadow Treasurer had failed to understand the relationship between employment and unemployment. And she appeared not to have read the forecasts in the May budget...

She kept making the claim until November.

In December as the government began running down its projected 2008-09 surplus she said it had "spent virtually the entire reserves of the budget, the $21 billion that was built up over ten years - that money has now gone".

But the reserves that had been built up over ten years (far more than $21 billion) hadn't gone. They were still sitting in the Future Fund where the Coalition had left them. She had confused one year's budget surplus with an accumulation of budget surpluses. She had confused part of a flow with a stock.

It's the sort of confusion common among people who have difficulty getting their heads around mathematical concepts - people who have chosen not to specialise in the study of mathematics or science or economics.

This doesn't mean that the rest are innumerate, but it does mean that they haven't been drawn to the study of mathematical concepts.

As Julie Bishop said yesterday, she asked for the Treasury portfolio because "it had been something of a tradition in the Liberal Party for the Deputy Leader to hold that portfolio".

An astonishing 13 of the Coalition's 17 tertiary-educated frontbenchers are lawyers, among them Julie Bishop and Joe Hockey.

Lawyers can master economics, although it may not come easily. Peter Costello managed it. But it requires a different way of thinking and a genuine feel for mathematical relationships.

A week ago on Lateline Joe Hockey failed to demonstrate that feel. Confusing the current account deficit with the budget deficit he insisted that it had never reached 6 per cent of GDP, which is where it is. He's looking like a Julie Bishop.

The man he pipped at the post for the top economics job, Andrew Robb is one of the few Coalition frontbenchers to have an economics degree.

HT: Anonymous commenter

Edited, see
correction

Click to Read More...

Land of the shrinking sun

AUSTRALIA'S biggest and most reliable customer, Japan, has plunged into depression, with federal Treasurer Wayne Swan now warning of the worst global downturn "in our lifetimes".

Japan's economy shrank an annualised 12.7 per cent over the December quarter, its worst result since the 1974 oil shock.

Japan is by far Australia's biggest export customer, accounting for one in every five container ships that leave Australia's shores.

The new figures put it among the worst-hit casualties of the global crisis.

The annualised contraction of 12.7 per cent, or 3.3 per cent in quarterly terms, dwarfs those of the United States and Europe and is much worse than anything that happened to Japan during its so-called "lost decade" of recession in the 1990s.

The collapse in growth fits the profile of a depression — a deep recession in which annual GDP falls by 10 per cent or more...

Australia's other big customer, China, has had its growth rate almost halved from 13 to 6.8 per cent.

"These figures reveal just how serious the global recession is becoming," Mr Swan said. "They follow on the heels of the worst contraction in the euro area since records began in 1980.

"The last three months of 2008 are likely to have seen the sharpest synchronised downturn in the global economy in our lifetimes.

"It's is a sobering backdrop for Australia as we seek to do everything we can to cushion the impact the global downturn will have here," Mr Swan said.

A 14 per cent collapse in exports in the December quarter led Japan's plunge.

Toyota, Sony and Hitachi are forecasting losses and have begun firing thousands of workers, heightening the risk that a slump in domestic spending will deepen the downturn.

"At one time, it looked like Japan had escaped the brunt of the financial crisis," said Hideo Kumano, chief economist for the Dai-Ichi Life Research Institute. "This shows how feeble Japan's economic fundamentals were in the first place."

Access Economics director Chris Richardson said Japan's plight showed there was "no place for Australia to hide".

"It is true that Japan's statistics are more dodgy and more volatile than those of other large nations, but this fits what know about the reach of the crisis," Mr Richardson said. "It is very big and very nasty.

"It is impossible for Australia to avoid a recession; perhaps not absolutely impossible, but it is incredibly hard for Australia to hold against the tide, and the tide pulling us down is getting stronger every day.

"This is confirmation of what's facing us," said ANZ chief economist Saul Eslake. "Japan is a more important and more diversified export market than China.

"Australian GDP per person is already running backwards. What happens over the next few months will determine how bad things get."

The impact of the downturn in Asia was felt in Albury yesterday when 400 workers at cars parts company Drivetrain Systems International were stood down without pay.

The business was hit hard by last month's collapse of South Korean vehicle manufacturer SsangYong, a major customer.

Finance figures released on Monday suggest that Australians resumed borrowing in December in the wake of a further interest rate cut and the Government's $8.7 billion fiscal stimulus hand-outs.

New lending commitments climbed 3.5 per cent. All forms of personal lending increased, including a solid 24 per cent lift in loans to buy new cars. But the bulk of the new loans were for refinancing or for debt consolidation. Lending remains 27 per cent down over the year.


Australia's collapsing customers

Japan: 24% of exports - In depression

China: 18% of exports - Growth plunging

Korea: 11% of exports - Recession looming

India: 8% of exports - Growing strongly

United States: 7% of exports - In recession

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