Sunday, October 31, 2010

High speed rail? Not quite a cost-benefit analysis.


That would be too embarrassing

Media Statement

HIGH SPEED RAIL STUDY: TERMS OF REFERENCE RELEASED

The Gillard Labor Government has commissioned an open, extensive feasibility study to determine the economic benefits and financial viability of a new multi-billion dollar high speed rail network connecting the cities along Australia’s east coast.

As a first step, I am today releasing the Term of Reference which will guide this $20 million feasibility study – see attachment.

In the coming weeks my Department will call for tenders to undertake specialist tasks such geotechnical investigations as well as financial and economic modelling.

The feasibility study will build on previous work by determining the optimum alignment of a high speed rail network after taking into account the needs of potential users as well as possible engineering, planning and environmental challenges.

As well as determining the route alignment, the feasibility study will provide information which will help guide future public and private investment decisions, including likely demand and an estimated construction cost.

Given the high level of interest in the study, my Department will also establish a formal reference group to make sure the views of organisations such as the Australasian Railways Association and the CRC for Rail Innovation as well as state and territory authorities are taken into account.

The Gillard Labor Government has put high speed rail back on the national agenda.

As well as helping to build a more productive, prosperous and sustainable Australia, high speed rail has the potential to significantly cut travel times for commuters travelling between our capital cities like Sydney and regional centres such as Newcastle and Gosford.

The study will conducted in two stages with the first to be completed by July 2011 and second by the middle of 2012.

As well as planning for the future, the Gillard Labor Government is investing in Australia’s existing rail infrastructure. Indeed we’ve already lifted spending on rail tenfold, made the first significant Federal investment in urban passenger rail and begun rebuilding more than a third of the interstate rail freight network.

The release of the Terms of Reference delivers on one of Labor’s key 2010 election commitments as well as an undertaking in the agreement with The Greens.

Sunday, 31 October 2010

Terms of reference

A strategic study will be undertaken on the implementation of a high speed rail network on the east coast of Australia.

The study will focus on identifying possible routes, corridor preservation and station options, including city-centre, city-periphery and airport stations. This will provide a basis for route development, indicative transit times and high-level construction costs.

As part of the core network element at the centre of the east coast corridor, the Newcastle–Sydney ‘spine’ will be a central aspect of this work. Options for links northwards to Brisbane and southwards to Canberra and Melbourne will also be considered.

Specifically the study will:

· Identify undeveloped land corridors and/or existing corridors that could be considered for a high speed railway, and preservation strategies;

· Identify the main design decisions and requirements to build and operate a viable high speed rail network on the east coast of Australia;

· Present route and station options, including indicative construction costs and interaction with other transport modes;

· Provide costs estimates of undertaking the next stages of work, such as detailed route alignment identification and corridor resumptions;

· Identify potential financing and business operating models for the construction and operation of a high speed railway;

· Provide advice and options on relevant construction, engineering, financial and environmental considerations.

The study will be managed by the Department of Infrastructure and Transport. It will draw on expertise from the public and private sectors, as well as international experience, growth forecasts and other contemporary data. Stakeholders will be consulted and contribute views through a formal reference group, which will include representatives from relevant Commonwealth, state and territory agencies and other key stakeholder groups.

The high speed rail implementation study will by July 2011:

· Identify the requirements for implementation of a viable HSR network on the east coast;
· Identify strategic route and station options, including high-level costing.

This initial phase will provide a basis for consultation and inform the specific direction of a second phase, including consideration of the specific corridors, routes and associated issues to be targeted for more detailed examination.

Further work from July 2011 will include:

· Detailed corridor alignment identification;

· Identification of preliminary geotechnical issues;

· Development of comprehensive robust cost estimates for preferred options;

· Further investigation of investment and (public and private) financing options;
· Detailed patronage and revenue forecasts;

· Consideration of preferred options in relation to other modes (for example, airport capacity implications resulting from diversion of air traffic to train).

This final work and report will take approximately 12 months to complete and inform the Australian Government and state and territory governments’ consideration of next steps for high speed rail in Australia.



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Friday, October 29, 2010

Bank declares war on politician. Real wise

Consider closing your account

Australia's third largest bank has declared war on Coalition Treasury spokesman Joe Hockey saying he has "hijacked" the Liberal Party's economic credentials and comparing him to the communist president of Venezuela.

Announcing a $4.5 billion net profit, up 53 per cent, ANZ chief Mike Smith said Mr Hockey was "bashing" an industry that employed tens of thousands.

"Peter Costello was a very good Treasurer, people like Malcolm Turnbull understand this stuff and are very creditable," he said.

"But the Liberals' economic credentials have been hijacked by out-there proposals. Mr Hockey seems to be on some kind of personal vendetta, it would appear he has been taking economics lessons from Hugo Chávez."

Mr Hockey this week warned that in the wake of the financial crisis Australia's banks were expanding overseas and taking on risk in a way that might endanger the financial system.

The ANZ has the most ambitious plans for the big four, announcing yesterday a goal to expand its Asian earnings from 14 per cent of its business to 30 per cent in five years.

"I don't know why he has attacked me personally," Mr Hockey told the Herald. "But he has form"...

"He launched a vicious personal attack on Malcolm Turnbull prviously when he was leader and he went on to describe him as an investment banker who wouldn't understasnd banking."

"I am disappointed with the base level of response. But I will not be deterred."

Mr Hockey scored a win Thursday when the Senate agreed to set up an inquiry into bank fees and margins to report by March.

He also received high level indirect support in Washinton overnight with the release of an International Monetary Fund staff report on Australia.

It expressed concern that given the realively good peformance of Australian banks in the crisis "they may be emboldened to take on risker strategies".

Mr Smith scoffed at the idea of a Senate inquiry, asking "what are they going to inquire about?"

"The system is not broken. In fact the system is in extremely good shape," he said.

The Bankers Association released a graph it said showed there was nothing unusual about this year's record bank profits, but to the naked eye showed an enormous increase in bank profits, more than making up for the profit downturn during the global crisis.

"They seem to be saying that regardless of how much competition there is, regardless of whether they scrap some fees or not, their profits should be expected to grow at 15 per cent per year in an economy growing at 6 per cent in nominal terms," said Australia Institute executive director Richard Denniss.

"It's like saying they will decide what profits they make and who they will gouge them from."

The statement, from Association chief Steven Munchenberg said that "around three quarters of bank profits each year are paid back into the community," az reference to dividends paid to bank shareholders.

"They are trying to justify the enormous transfer of wealth from their customers to their shareholders by pointing out that their shareholders actually live among us in our communities," said Dr Denniss who will be making a submission to the Senate inquiry.

The Association of Building Societies and Credit Unions welcomed the inquiry saying customers needed to know they could "switch with confidence".

"It is unfair that big banks benefit from entrenched misconceptions that they are somehow safer than banks when all banks, credit unions and building societies are subject to the same strict prudential framework," said chief executive Louise Petschler.

Published in today's SMH and Age


False Banks Making Record Profits Due to Reduced Competition


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Nice new mining tax. It's not enough - IMF

The International Monetary Fund has declared Australia's dollar overvalued and our proposed tax on mining inadequate.

In a generally glowing assessment of the Australian economy released overnight the Washington-based organisation says the Australian economy is set to grow at 3 to 3.5 per cent, well above the 3 per cent predicted by the Treasury in its pre-election forecasts just three months ago.

The report says the mining boom will continue with iron ore and coal prices "expected to remain high in the near term".

"Sound management of the boom in Australia could permanently raise household incomes," it says. But "growing dependence on mining may amplify the business cycle as the economy will be more vulnerable to swings in commodity demand and make government revenue more volatile."

The report strongly backs Australia's new mining tax but laments that it will be "less effective" than the originally-planned resource super profits tax...

"Consideration should be given to broadening the coverage of the new tax to other mineral resources beyond iron ore and coal," the report says, arguing the tax would give Australia much-needed economic resilience.

The Fund would also like to see a higher Goods and Services Tax with the proceeds used to eliminate "inefficient state taxes and make room fro reductions in personal income taxes that would encourage increases in labour supply and saving."

The views of Fund staff often reflect the views of the Australian Treasury and Reserve Bank who they consult in preparing their reports.

The report says the dollar is "mildly overvalued," with staff estimates suggesting it is due for a fall of 5 to 15 per cent as conditions in the United States improve.

Big miners yesterday intensified pressure on Canberra to resolve the dispute over the detail of the mining tax, calling on the government to set a ceiling on all future mining tax revenue.

In its submission to the mining tax transition group the Minerals Council of Australia calls for the government to cap the total of all minerals taxes and charges including state royalties at 45 per cent of profits.

Such a commitment would require the government to reach a deal with the states or to refund miners all future increases in state royalties – a position Prime Minister Gillard has ruled out.

The Council also criticised a discussion paper published by the transition group, saying it thought it failed to reflect the deal struck on the minerals resource rent tax.

Published in today's SMH and Age


IMF Report on Australia

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Thursday, October 28, 2010

Ring the tills. Steady rates, low prices, so many more consumers...

Retailers are facing the prospect of their best Christmas in years after a surprise dip in inflation all but removed the prospect of a pre-Christmas rate hike.

The high dollar and the breaking of the drought kept kept consumer price inflation down to just 0.7 per cent in the September quarter, with the Reserve Bank's preferred measure of so-called underlying inflation inching ahead a mere 0.55 per cent -- one of the lowest rates in five years.

Reserve Bank staff had been keen to push up rates, inserting into the minutes of each of the last two board meetings the unusual warning that "interest rates would need to rise at some point" if their forecasts came to pass.

The unexpectedly low inflation rate raises the possibility the Bank will instead revise down its forecasts when it issues an update next week.

The figures show Australia's annual and underlying inflation rates chugging along at 2.8 per cent and 2.4 per cent, both down on previous rates and within the Bank's 2 to 3 target band...

Treasurer Wayne Swan said while the setting of rates was a matter "entirely for the independent Reserve Bank" its most watched measure of inflation had fallen to the middle of its target band.

"Reserve Bank staff have elegantly painted themselves into a corner," said Credit Suisse consultant Sean Keane. "The inflation figure leaves the rate gun not only smokeless, but looking rusty and unusable. Both the trajectory and the absolute level of inflation would make it a challenge to hike."

The Aussie dollar slid more than one US cent on the news and frenzied futures trading pushed down the implied probability a Melbourne Cup day rate hike from a 45 per cent chance to a 14 per cent.

The prices imply no rate hike until at least February when the Reserve Bank will meet again armed with December quarter inflation data.

Boosting Christmas trading further will be low prices brought on by the higher dollar and an the extra 209,000 Australians now earning incomes as a result of the surge in employment since January.

The consumer price figures show the price of petrol down 3.7 per cent and electronic goods 2.7 per cent in the quarter as a result of the high dollar. The breaking of the drought helped push down the price of vegetables 5.4 per cent and the price of bread 0.8 per cent.

Working the other way were exceptionally big increases in utility charges including electricity up 6 per cent, water and sewage up 12.8 per cent and property rates up 6.2 per cent.

Sydney electricity prices climbed faster than the national average, jumping 9 per cent, and water rates lower, jumping 7 per cent.

Analysis of the figures shows that had it not been for the electricity and water increases the overall consumer price index would have barely moved.

"The economy appears almost Goldilocks in nature," said RBC Capital Markets economist Su-Lin Ong. "Things may change, but the Reserve Bank has breathing room."

The Coalition and independent Senator Nick Xenophon yesterday pushed for a Senate inquiry into the banks, pressuring them not to widen interest rate margins should the Reserve Bank move. The inquiry would report by March.

Treasurer Wayne Swan ruled out an new financial system inquiry to update the work of the landmark Wallis inquiry of the mid 1990s as proposed by Shadow Treasurer Joe Hockey saying the banks needed time to bed down recent changes.

Published in today's SMH and Age


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Wednesday, October 27, 2010

Let's see. The lowest underlying inflation in five years... Swan's chirpy

Treasurer Wayne Swan has delivered an upbeat address to his Labor colleagues saying that if they thought the economy looked good during the election they should see it now.

The mid-year budget update due within weeks will lift the official forecasts for both growth and employment delivered in the pre-election update just three months ago.

The July 26 pre-election update predicted employment growth this financial year of 2.25 per cent. So far it is running at an annualised rate of 3.8 per cent. The pre-election update predicted economic growth of 3 per cent. The Treasury now believes that's on the low side.

In recent years mid-year update has been delivered on or around Melbourne Cup Day but significant revisions and the opportunity of announcing spending cuts in the update may delay its release.

Mr Swan told the Labor caucus that while the economic forecasts would be better it would not necessarily follow that the government's financial position would be better...

The high Australian dollar had the potential to dent the profits of trade-exposed businesses, cutting or changing the makeup of corporate tax collections.

He told the caucus, "Less profitable exporters mean less tax from companies, obviously when economic conditions change, that needs to be taken into account".

It is unclear whether the Treasurer was suggesting lower than expected government revenue in this financial year in future years. Changes in company revenue typically take a year or more to hit tax collections because of the backward looking nature of the tax system.

Mr Swan's comments follow calls from opposition finance spokesman Andrew Robb for the government to reassess spending and hold a mini-budget before Christmas.

While not referring to the regularly-scheduled update as a mini-budget, Mr Swan is believed to be considering announcing spending cuts in the statement to help fund the $2.4 billion of extra spending announced after the election to help win the support of independent and Green MPs.

He stressed he would keep the budget on track to get the back to surplus by 2012-13, well ahead of other major advanced economies.

He rejected dismissed suggestions that spending cuts were needed in order to conatain the high Australian dollar.

Published in today's Age


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Joe Hockey is right. It's time to talk banks

Has Joe Hockey had a brain explosion?

Six months ago at the Press Club I asked him about Australia Post.

He replied, "I send this warning to Australia Post: do not go into banking, do not be conned into the Rudd government rhetoric about going into banking, because we would strongly oppose any attempt by the Rudd government to set up a government bank. Australia Post should continue to do the good job that it’s doing, it should not be going into banking."


Which was commendably clear.

Until this week when he unveiled a 9-point plan to improve banking. Here's his point 4:

"Let's investigate David Murray's proposal for Aussie Post to make its 3800 branches available as distribution channels for smaller lenders... To be clear, the Coalition does not endorse Australia Post assuming balance-sheet risk and getting into the banking business itself."

Which modifies somewhat his absolute opposition to Australia Post going into banking.

He has changed in other ways.

A year ago when six leading economists called for a new financial system inquiry I asked whether he would be prepared to back it.

He wasn't quite. "We can't be policy lazy, this is a debate worth having," was the best I got out of him.

Only later when his leader Malcolm Turnbull embraced the idea did he actually back the call for a new financial system inquiry.

But this week he came out in favour of a new inquiry, "a son of Wallis, or granddaughter of Campbell, whatever you will," with all guns blazing. It was point 9 of his nine points, the one that "wrapped up" his whole program.

Which is fine. Consistency is overrated. As far as I am concerned it is better to be wrong then right than it is to be consistently wrong.

But that's just me. Labor had a field day. Their cheat sheet of Hockey quotes shows that in 2010 he said he called for a "social compact between taxpayer-guranteed banks their shareholders and the government", but in 2000 said "imposing social obligations comes at a cost." In 2010 he wanted the government to take on the banks with measures "punative in nature," but in 2001 warned that over regulation would make consumers pay "more for their mortgages, higher fees." And so on.

None of which means Hockey is wrong now.

And, although Labor's record in bringing the big four banks to heel was ordinary at best it scarcely bothered to suggest he was.

During the financial crisis Wayne Swan allowed Westpac to swallow St George and the Commonwealth to swallow BankWest. Westpac was allowed to grab RAMS, and the Commonwealth Wizard and 30 per cent of Aussie. NAB grabbed the lending business of Challenger and tried to merge with the ANZ.

The end result as Hockey said this week is that our "four major banks have largely become the Australian financial system".

Which would be okay except that each of those big four can now dictate terms of the government instead of the other way around.

Let's go back to the last financial system inquiry led by Stan Wallis in 1997, the one the government apparently doesn't think needs rethinking (although it is actually silent on that point, a strategy it prefers when dealing with the substance of what Hockey is saying rather than engaging).

Wallis recommended against guaranteeing any financial institution under any circumstances. It'd lock them together in a monkey grip. The government could never let go no matter what the institution did.

A decade on that's exactly what the government did, in extraordinary circumstances. It guaranteed both the deposits and borrowings of the big banks in such a way as put beyond doubt that it would do it again.

The banks meanwhile want to expand overseas and into new fields. (As an aside Hockey said that with the big banks now effectively constituting the financial system “aspirations to grow more rapidly than that system seem challenging”.) But why not? Each of the big four now rightly believe the government will rescue them if their adventures put their core business at risk. Taxpayers are now hostage to overseas adventures in a way never previously envisaged.

An alternative would be to have banks “more akin to bullet-proof utilities focussed on delivering stable returns to shareholders”.

Hockey says one solution would be “to quarantine the risks that taxpayers insure, for example allowing banks to expand offshore and engage in riskier business profiles, but ensuring that it is impossible for their offshore activities to in any way, directly or indirectly, undermine their Australian operations.”

It would be a bit like separating Telstra, another position the Coalition has arrived at late. We would have adventurous dynamic organisations risking capital but also safe government-backed and regulated service providers of exactly the kind beloved by conservative investors.

Brain explosion or not, Hockey is now making sense.

Of course we need a new financial system inquiry. Of course we need to ensure we are no longer hostage to the banks.

Labor needs to say more than that Hockey once said something else.

Published in today's SMH and Age


2010 10 25 Address to the AIG Annual National Forum


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Broadband vs broadband - the Coalition's new policy

Now we can compare and contrast

The Coalition plans...

. Telsta splits into retailer and wholesaler

. Wholesaler required to provide all Australians with broadband of at least 12 Mbps

. Where 12 Mbps not commercial, wholesaler gets government subsidy

. 12 Mbps can download audio within seconds, movies within 10 minutes. Fast enough for video conferencing

. To be provided using a mix of technologies including existing Foxtel cables

Labor plans...

. Telstra becomes retail only using NBNCo fibre

. Telstra dismantles existing phone system and agrees not to use Foxtel cables for internet.

. NBNCo becomes wholesaler delivering at least 100 Mbps to 93 per cnet of the population via fibre.

. 100 Mbps could carry high definition video, provide near-instant downloads of movies.

. Eight years to build, $43 billion estimated cost

The Coalition's policy ain't costed, but it sure wouldn't run into tens of billions


The Coalition has adopted a new high-speed internet policy that would render redundant the proposed National Broadband Network.

The policy adopted by the joint parties meeting would separate Telstra into two companies, a retailer free of onerous regulation and a wholesaler, code-named CANCo enjoying regulated pricing required by law to provide all Australians with broadband at a minimum speed of 12 megabits per second.

Fast enough to allow video conferencing and the download of movies within minutes 12 Mbps is faster than most Australians enjoy at present but slow enough to be usually achievable using existing infrastructure such Telstra's copper network and Foxtel coaxial cables and satellite and wireless technology.

By contrast Labor's plan would see Telstra relinquish its wholesale role and shut down its copper network, agreeing not to use its Foxtel cables to compete with the National Broadband Network...

The NBN would provide 100 Mbps to 93 per cent of the population via fibres direct to each door at a cost of $43 billion, some of which would come from private investors.

Speeds of 100 Mbps or more are faster than are need for most presently envisaged services and would allow the broadcast of high definition television.

The briefing presented to the Coalition party room by Communications Shadow Minister Malcolm Turnbull indicates he consulted both the Greens and independents in drafting the polic, as well as Telstra management and key Telstra shareholders including the government's Future Fund.

The new policy potentially also renders redundant Mr Turnbull's private members bill calling for Productivity Commission inquiry into the NBN. Mr Turnbull said on Sunday he would find a tick for the project from the Productivity Commission"incredibly persuasive".

Last night the independent MP Tony Windsor said he would ‘‘probably not’’ vote for Mr Turnbull's bill, because he doubted the Commission could take into account the range of uses the NBN could be put to.

"I don’t know whether Gary Banks [chairman of the Commission] has a crystal ball in terms of what the fibre optic cable will be used for in five, ten, fifteen or twenty years,’’ he told the SBS program Insight.

A spokeswoman for Communications Minister Stephen Conroy said she could not respond to a Coalition that had not been formally announced.

"In the meantime, the Gillard Government will get on with delivering the NBN, and reforming telecommunications regulation to will deliver affordable high speed broadband to all premises across Australia," she said.

Mr Turnbull told the Insight program everyone in politics was "committed to having fast broadband across Australia at an affordable price."
"The question is how do we do that most cost effectively, how do we do that in a way that promotes competition," he said.

The Coalition also decided to oppose key elements of the government bill which would exempt parts of the deal stuck between Telstra and NBNCo from scrutiny by Competition and Consumer Commission.

This amendments would allow the ACCC to reject an agreement between the two to tun off Telstra's copper network or restrict the use of the Foxtel cable as anticompetitive.

They would also allow the parliament to disallow any ministerial direction to the ACCC regarding Tesltra and NBNCo.

Published in today's SMH and Age and BusinessDay


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Tuesday, October 26, 2010

Hockey explains himself on banks

It's an excellent speech

Once regarded as the party of business, the Liberal Party yesterday took its biggest step towards redefining itself as a party representing consumers and small businesses ripped off by banks.

Launching a nine-point plan to reign in the power of the banks which he said was endangering the financial system Shadow Treasurer Joe Hockey assured an audience at a business conference his views were shared by the Shadow Cabinet.

"Don't believe everything hear," he said. "This is a debate we have to have. We have seen an almost irrevocable reduction in competition in some areas of banking. The smaller banks are finding it hard to get funding. The foreign banks that were once aggressive are in intensive care."

The new manifesto positions Mr Hockey as firmly to the left of Treasurer Wayne Swan when it comes to regulating banks. It would give the Prudential Regulation Authority the power to investigate whether banks are taking risks that endanger taxpayers, allow the Competition Commission to investigate collusive price signalling and establish a new inquiry to update the work of the landmark Wallis inquiry into the financial system in the 1990s...

"Wallis was predicated on the efficient markets hypothesis, which has proven to be an imperfect assumption. The crisis taught us that financial markets can fail and liquidity can disappear. Entire banking systems can collapse. It would be a mistake to attribute Australia‘s good fortune in skirting the worst of the crisis purely to policymaking skill."

So many financial institutions had disappeared or been taken over by the big banks that the four major banks had "largely become the Australian financial system".

"Aspirations to grow more rapidly than that system therefore seem challenging."

Labor responded by suggesting this was a new-found conversion, circulating a list of quotes from Mr Hockey a decade ago that appeared to say the opposite.

Assistant Treasurer Bill Shorten said Mr Hockey's comments had themselves "put pressure on interest rates".

Published in today's Age

2010 10 25 Address to the AIG Annual National Forum


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Governator Stephens: No compromise on inflation

So Melbourne Cup looks live (again)

Increasingly fevered speculation about a Melbourne Cup Day interest rate rise has put a rocket under the Australian dollar, sending it close to parity with the US dollar in early European trade for only the second time since the float.

The Aussie hit 99.72 after the Australian close before slipping to 99.50 after soaring more than a cent on a key inflation figure and tough talk from the Reserve Bank Governor Glenn Stevens.

The producer price index, a key component of the consumer price index due out tomorrow jumped 1.3 per cent in the September quarter, more than double economists expectations.

Governor Glenn Stevens told an Australian Industry Group forum in Canberra there was no chance of him easing the Bank's 2 to 3 per cent inflation target to cope with the resources boom.

"We didn't do any better coping with previous booms by letting inflation go to 25 per cent like we did in the 1950s - that was followed by a deep recession," he told the business audience.

"In the 1970s inflation went to 20 per cent followed by ten years of not very good economic performance. Tolerating inflation didn't help us, it hurt us"...

Even relaxing the target marginally would take Australia "back to a world of much more uncertainty in the economy and much higher nominal interest rates than we presently have - it's not a world you want to go to".

Furtures market traders, previously pricing a 37 per cent chance of a rate next Tuesday, upped their guess to 49 per cent. The dollar jumped more than 1 US cent.

Mr Stevens said the resources boom was flodding the economy with "serious money".

"It's 12 per cent of GDP, roughly $150 billion - that's serious money and that's expansionary. It is an expansionary shock, which is why we have been talking the way we have about the need for monetary policy that recognises that."

"It will also force structural change in the economy."

"Minerals, energy, parts of construction that help them and all the other parts of the economy that feed into the resource sector, they are going to grow. Other parts of the economy will get smaller, not necessarily absolutely but in relative terms - they will not grow as fast. That's hard for people to adapt to. It is what peple are talking about when they refer to a two speed economy."

Mr Stevens said although the Bank expected Australia's export prices to come off their current highs, economic stress would be "unavoidable".

Asked to venture an opinion on Australia in ten years time Governor Stevens said ten years ago was told repeatedly that Australia was part of an "old economy" that had missed the high tech boom.

"The point is that forecasting is very hard. We can probably can make a few very general observations about the decade ahead, but not much more. Real income per head has generally been on an upward trend and most likely that will continue. Australia's per capita GDP will probably be roughly 15 per cent higher in real terms than it is now."

"In 2020, there will probably be an extra couple of million people working, but exactly how all those people will earn their living is considerably less predictable. Some will be in industries or occupations that barely exist. No one can give you a blueprint, any more than the pundits a decade ago, at the height of the so-called new economy fad."

Published in today's SMH and Age

Cross-Currents in the Global Economy - 25 October 2010


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Monday, October 25, 2010

High anxiety. Superannuation scares us

It should. Our system callously exposes us to risk

Australia's superannuation system, touted as among the world's best, is little understood and a cause of "high anxiety" at home.

Previously secret research prepared for the Tax Office involving 16 focus groups, 50 in-depth interviews and more than 2400 phone interviews finds us bewildered, guilty and with "deep-seated fears" the aged pension will be abolished.

Conducted in the midst of the financial crisis and published Sunday on the Treasury website the research finds us "shocked" by the collapse in superannuation savings brought about by the crisis.

"People had assumed that superannuation amounts were somehow guaranteed and separate from market fluctuations," says the report by Colmar Brunton Social Research. "There was little understanding that superannuation is an investment portfolio like any other."

"I think it has had a deflating effect," said one small business employer. "You are expecting the thing to be working away in the background and then you get a statement and you are worse off than when you started."

"It's unpredictable," said a worker aged 30 to 44 years. "It's good now, but who knows in 20 years time?"

"The pension won’t last much longer, pensions are a luxury,"... said another young worker. "It's a user-pays system now."

The "deep-seated fears that the aged pension will be abolished and that there will no safely net" are at odds with moves by both the Howard and Rudd governments to boost access to and the size of the pension.

The report finds "a high level of anxiety" among Australians aged 30 to 44 who "see their children being disengaged with superannuation and also see their parents deferring retirement or reverting to pensions due to superannuation losses".

"There is a sense of guilt about superannuation among this group," the report says. "They know they should understand superannuation and be more active in managing it, but they make myriad excuses for why they will do it later."

Releasing the research Assistant Treasurer Bill Shorten said it provided support for the government's plan to lift compulsory super contributions from 9 per to 12 per cent.

But while consumers do say 9 per cent will not be enough, the overwhelming impression is one of ignorance about what is enough.

The Henry Tax Review found against increasing lifting compulsory contributions reporting this put pressure on low to middle incomes.

Labor announced plans to legislate for higher super contributions on the same day as it unveiled the Henry recommendations.


NOT SO SUPER

"A few years ago I had more. It doesn’t seem like it’s gone up at all." - Young worker

"I don’t think there will be a pension in years to come. The rules will change again and again." - Older worker

"Why on earth would you contribute to super if you didn’t have to? They have mortgages on homes, young children." - Small employer

"I don’t think about it until retirement. You worry about it later." - Young worker

"If you tell an employee to go with a particular fund and it doesn’t work - that leaves you open to being sued." - Small employer

"You place a lot of trust in people to manage your money on your behalf. I haven’t really looked into it." - Older worker

"I read what they send me but it doesn't make much difference." - Older worker

"the super funds know our ages. They could send information more suited to our age." - Young worker


Source: Understanding Superannuation, Colmar Brunton reports to the Australian Tax Office.


Published in today's SMH and Age

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Cost-benefit analysis: Samuel versus Treasury

Treasury (Red book):

"More can also be done to improve the regulatory and governance frameworks for the efficient provision of national infrastructure. Reform of Infrastructure Australia would be a significant first step, reinforcing the need for rigorous cost-benefit analysis of project proposals and enhancing the pipeline of ready projects for investment."

ACCC Chair Graeme Samuel (RN Breakfast):

"What I did indicate was that I had some real question marks over the value of a cost benefit analysis only in the sense that a cost benefit analysis which in this context is a social cost benefit analysis is subject to so many assumptions Fran that even the best in the world will tell you that if the assumptions are then queried what you do is raise a whole range of skepticism over the value of the cost benefit analysis. What happens is you have a cost benefit analysis done by whoever it might be and then someone says yes but we don't agree with that assumption and therefore that makes that cost benefit analysis worthless."



Social Cost Benefit Analysis Samuel



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Agreement on an NBN? It's almost within sight

Tim Madden, ABC News Online
After a relatively short inquriy

Bipartisan support for the $43 billion national broadband network is in sight after the Coalition declared it would find a tick of approval from the Productivity Commission "incredibly persuasive".

Until now Coalition spokesman Malcolm Turnbull has been arguing for a cost-benefit analysis of the nationwide project but has declined to say whether even such an inquiry would make his parties support it.

But speaking to Network Ten Sunday he said the inquiry he is proposing might do the trick.

"I would not as a matter of principle give a blank cheque to anyone, even the Productivity Commission," he said. "But if the Productivity Commission were to report on the NBN as they should, and if they were to give it a big tick from a cost-benefit point of view, it would be incredibly persuasive, I think it would obviously change a lot of people's perceptions."

Mr Turnbull will introduce a private members bill this week calling for the Productivity Commission to inquiry into the project and report by May 31.

The Commission's administrative Michael Kirby told a Senate hearing Thursday he was prepared to conduct the inquiry and would be able to do it while work on the network proceeded.

Communications Minister Stephen Conroy knocked back the olive branch... saying an inquiry would "waste money".

"All around the world cost benefit analyses have been done into the productivity boost of a broadband network. And it's all been positive, overwhelmingly positive," he told the ABC.

"This is just another time-wasting proposal by an opposition that are desperate to stop the rollout of the national network. Even though Malcolm said he might be prepared to accept it, Tony Abbott has made it very clear they are not going to change their policy and they're going to demolish it."

The bipartisan support offered by Mr Turnbull holds out the prospect of network being completed. Scheduled to take eight years, the proposed rewiring of more than 90 per cent of Australian households and businesses will be interrupted by two elections.

Mr Turnbull said he did not oppose new technology but wanted a "hard-headed businesslike" approach to delivering it.

"What the government is proposing to do is to spend $43 billion without any cost-benefit analysis to create a massive government owned monopoly placing a bet on one technology," he said.

"If you are concerned about what people are choosing today, they're actually choosing wireless. The government is using $43 billion of our taxes to back one technology where every indication from the market is that it is moving in another direction."

Published in today's SMH and Age


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Hockey to spell it out at 10.55 am: "It's time to talk Banking"

Shadow Treasurer Joe Hockey will today call for a full-scale inquiry into Australia's banking system ahead of expected record profit results from the National Australia Bank, Westpac and the ANZ.

In an address to the Australian Industry Group entitled "It's time to talk Banking" Mr Hockey will argue that 13 years on from the landmark Wallis inquiry into the Australian financial system Australia's banks are beyond effective control and are engaging in behaviour that will put the nation at risk.

While the big four are telling investors they want to be "growth stocks" expanding overseas, Australia's interests would be better served by them sticking to their knitting as they did before the financial crisis.

The Reserve Bank has repeatedly argued that the biggest single strength of Australia's banking system going in to the crisis was the absence of overseas exposures.

Mr Hockey will take up a call made by six prominent economists mid last year for a new public inquiry into the financial system... to be led by a respected figure such as former Reserve Bank Governor Ian Macfarlane.

The open letter said it remained uncertain whether Australia's successful navigation of the crisis was due to foresight or good luck.

"We would do well not to discount the possibility that a good roll of the dice left us without more significant system failures," the letter said. "In future crises, we may not be so lucky."

Rejected at the time by Treasurer Wayne Swan the call for a new inquiry garnered support from independents and the Greens.

Should the Coalition introduce legislation in the current parliament, it may well pass even if opposed by the government.

Mr Hockey will argue that banks are unlike other companies receiving taxpayer guarantees of their deposits and borrowings and enjoying access to the Reserve Bank as a lender of last resort.

Published in today's SMH


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Saturday, October 23, 2010

Really, really good news if you loved the 1970s. Casey's back!

And in my city on 2CA in my city of Canberra of all places.

But here's what's important. The original 1970's American Top 40s can be heard on line at 2ca.com.au from 4.00 pm each Sunday.

The originals. Week by week. Endless summer. Endless 5KA teenagehood.

Sure, there are US radio stations that broadcast it on line, but the broadband links to the US are generally limited to 2Mbps, which Conroy reckons is way too slow. (And Conroy's NBN won't change it.) Within Australia they are often much faster, which makes Canberra's own 2CA the best bet.

Want proof that I am a big Casey Kasem fan? As I mentioned when he retired one of my proudest possessions is a boxed set of the LPs that constituted an actual Casey Kasem program, diverted by a 2SM staffer who knew how much it would mean to me.

Here's the rundown from July 1984. Prince and Bruce Springsteen were at 1 and 2.

At 40210784

Thanks Dominic.

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Friday, October 22, 2010

"Where the brains are"

Apart from us, and Japan, they are pretty clustered:


Details in The Atlantic.


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We might get a National Broadband Network AND a cost benefit study

NBN Co

The Productivity Commission is ready

Odds have shortened on a public inquiry into the costs and benefits of the proposed National Broadband Network with the Productivity Commission saying it would be prepared to conduct the inquiry even though the project is already under way.

Asked at a Senate hearing whether such a project should be subject to a cost benefit analysis as the Coalition contends, the Commission's administrative head Michael Kirby said it had always supported "strong policy-making procedures".

"The key steps are considering the objectives you want to achieve, considering the full
range of options that might help, considering the impacts and the costs and benefits of the various alternatives and then making a selection that leads to the greatest net benefits to the Australian community."

"That's the way to go." It would not be too late to conduct the inquiry even though the work had started.

Asked whether some projects were too big and too visionary to be assessed by a cost-benefit inquiry... Dr Kirby said the Commission had a good deal of experience examining proposals with social or unknowable benefits.

"We document known costs and benefits and there's an elemnet of judgement about the rest."

"It's the approach we applied examining gambling, non profit organisations, disabilities and aged care. These are important issues with a social dimension. They are well suited to our processes."

Coalition communications spokesman Malcolm Turnbull will Monday introduce a private members bill that would direct the Commission to inquire into the current availability of broadband and to consider the most cost effective and quick means of extending it to all Australians.

The government will oppose the bill arguing it is an attempt to delay the network.

"It won't delay it at all," Mr Turnbull told ABC TV's Lateline. "Work has started and would continue. It's an eight-year project. The Commission would report by May."

Asked what the Commission might uncover Mr Turnbull said as many as 30 per cent of Australian households were already passed by cables capable of being upgraded to 100 Megabits per second. "It is a big question whether we should subsidize those speeds, but if we decide to it might make sense not to dismantle cables that are already able to deliver them."

Dr Kirby told the Senate committee the Commission would convene public hearings around the country if asked to conduct the inquiry.

Published in today's SMH and Age


Note the key steps:

. Considering the objectives you want to achieve,

. Considering the full range of options that might help,

. Considering the impacts and the costs and benefits of the various alternatives, and then

. Making a selection that leads to the greatest net benefits to the Australian community.


But they would already have done this, right?



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It's not only Hockey. Treasury wants to take on the banks

The Commonwealth Treasury is on a war footing preparing for a public assault on any bank that attempts to push up its mortgage rate in excess of the expected Reserve Bank rate hike on Melbourne Cup Day.

The department's executive director (markets) Jim Murphy revealed the plans as Coalition Treasury spokesman Joe Hockey called on the government to punish any banks that imposed an excess increase using "punitive" measures such as higher registration fees.

"The banks are testing the water to see how the public will react to an excess rate rise," Mr Murphy told a Senate hearing. "At the moment they are constrained. The Treasurer has made a number of very strong statements and they are paying attention. They don't welcome it, it is a form of discipline."

Asked whether more needed to be done to restrain the banks on Melbourne Cup Day Mr Murphy said the Treasury was amassing information... on each bank's cost of funds and would use it to hold them to account.

Treasury data showed banks including Westpac had lost market share to the National Australia Bank as a result of its decision to break from the pack and impose no excess hikes during the last round of Reserve Bank rate rises.

The government's bank switching package may have helped, although it "still could be improved a bit".

The comments suggest the government is planning further action to lift competition in banking in addition to publicly attacking any bank that imposes a top-up rate rise.

Asked whether Treasury would like to invoke Section 50 of the Banking Act giving the Commonwealth the power to control rates as proposed by the Coalition Mr Murphy said "no, that section is for emergency circumstances".

"Those circumstances may arise, but if you are running an open market economy I cannot see where you would need to do that."

The Treasurer had other plans to hold the banks accountable.

"They are operating in the Australian community and they are largely operating with the goodwill of the Australian public, they have to take note of that."

Many Australian businesses had lost profits as a result of the global financial crisis. Banks should not be immune. "Before the financial crisis money was cheap, it was cheaper than it should have been. We are in a better world now where the cost of funds is back to its right level. The banks should not be compensated for that."

Published in today's SMH and Age

Bank Account Switching Package FOI Documents


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Wednesday, October 20, 2010

Gear up Australia. Our government needs more debt


Stephen Halmarick at Colonial First State:

- While Australia’s low net government debt position is seen as a strength, there exists a strong case for MORE government debt in Australia to help fund productivity enhancing infrastructure.

- Some estimates put the infrastructure shortfall in Australia at around $A600bn. The case could be made for the Commonwealth and States to increase their combined debt level by over $A200bn, which would increase net government debt from a projected peak near 16% of GDP to a still internationally low level of 30% of GDP.

- The increase in Commonwealth and State bond supply that this implies would likely be meet by strong international demand (especially from central banks) and the need for Australian banks to meet new global liquidity requirements.

- The increase in government debt would be unlikely to have a negative impact on Australian interest rates or ‘crowd out’ the private sector, while the positive benefits to the economy from a ramp up in infrastructure could be substantial.

Why Australia needs MORE government debt

In global financial markets, there is legitimate concern that the level of government debt in many countries is too high. These concerns are either currently impacting on markets, such as in the case of Greece and Ireland, or these concerns are raised in the context of longer-term structural issues, such as in the UK, US and Japan.

This is not the case in Australia. Indeed, we argue in this paper that Australia has a unique opportunity to INCREASE its level of net government debt, both at a Commonwealth and State government level, to help fund much needed productivity enhancing infrastructure.

As shown in Chart 1, Australia’s net government debt (ie. Commonwealth government gross debt less assets) is expected to peak at just on 6.0% of GDP in 2012/13 (or just under $A90bn). This level of net government debt compares with the expected OECD average of a peak of over 90% of GDP in 2015.

While it would be wrong to suggest that Australia’s net government debt level should be allowed to approach anywhere near the levels currently saddling many OECD nations, it seems clear that an opportunity exists for Australian governments, both Commonwealth and State, to increase their level of net debt to help fund part of the national need for a meaningful increase in productivity enhancing infrastructure and other assets.



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Writing. It's hard.

For many.

Julia Baird tweets:

"Writing is like getting married. One should never commit oneself until one is amazed at one's luck." Irish Murdoch.

Now JK Rowling has apparently made public one of her "spreadsheets"

"Her approach to spreadsheet plotting is to divide the columns by chapter number, story timeline, chapter title, main plots and subplots":





Click. Enjoy. Wallow.

HT: famulan via Samantha Maiden, VexNews, Kottle.Org


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Hallelujah! At last we might put the NBN horse before the NBN cart

As any sane person would, before committing tens of billions

Malcolm Turnbull's private members bill is so reasonable it might just get up.

"The Coalition Joint Party Room today agreed to support a Private Members Bill – the National Broadband Network Financial Transparency Bill 2010 – which will bring the Government to account over its $43 billion NBN project.

A notice of motion for the Bill will be tabled by the Shadow Minister for Communications and Broadband Malcolm Turnbull.

The Bill would require NBN Co, the Commonwealth-owned company that is rolling out the NBN, to produce and publish a detailed 10-year business plan, including key financial and operational indicators.

It also requires the Productivity Commission to conduct a comprehensive cost-benefit analysis of the NBN and report back to Parliament by 31 May 2011.

The Productivity Commission inquiry will include:

• Analysis of the current availability of broadband across Australia, including the identification of suburbs and regions where services are of a lower standard or higher price than in the capital cities;

• Consideration of the most cost-effective and speedy options by which fast broadband services can be made available to all Australians (particularly those in regional and remote areas and underserved metropolitan areas).

• Consideration of the economic, productivity and social benefits likely to flow from enhanced broadband around Australia, and the applications likely to be used over such networks.

• A full and transparent economic and financial assessment of the proposed NBN.

An associated motion to be moved by Mr. Turnbull will create a Joint Select Committee drawn from both Houses to oversee the rollout of the NBN. The proposed Committee would include Government, Opposition and cross-bench Members and Senators.

The Coalition will be seeking Government and cross-bench support for the Private Members Bill and Motion in both houses."


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The Buddy Holly Hike


Every day it's a getting closer

Australia's Reserve Bank is preparing to lift interest rates, declaring in its latest board minutes "rates will need to rise" and that it can't "wait indefinitely".

The unusually hard language follows an October board meeting that was "finely balanced" with three of its nine members absent, including the academic Warwick McKibbin who is believed to support pushing up rates.

Increasing the chance of a hike at the next meeting on Melbourne Cup day will be inflation data due out next Wednesday days before the board meets.

The minutes say rates will have to rise "at some point" as inflation climbs as a result of pressures flowing from the mining boom.

But "the timing" is a matter of judgment.

"While the board recognised it could not wait indefinitely... to see whether risks materialised, members judged that they had the flexibility to do so on this occasion," the minutes say. "It would be appropriate to hold the cash rate steady for the time being pending evaluation of further information at the next meeting."

Market analyst Sean Kean from Triple T Consulting said it was clear the decision was "an extraordinarily close call".

"The Bank was very close to hiking rates by a further 0.25 points. The minutes suggest there was a split in the ranks and those who were opposed to the hike won a stay of execution".

Tipping the balance in favour of waiting was unexpectedly weak business borrowing in July and August and the higher Australian dollar which would itself put downward pressure on inflation.

Treasurer Wayne Swan commended the Bank for noting the "beneficial effects" of the high dollar and said Australia had done well from its floating exchange rate.

"It has been an important shock absorber, it is one of the reasons we have had 20 continuous years of economic growth; something no other country can claim," he said.

But the Reserve Bank believes the effect of the high dollar on prices will be only temporary and notes that our currency is fairly steady against a broad basket of currencies, the US dollar being the key exception.

A pre-Christmas interest rate hike of 0.25 points would lift the Reserve Bank's cash rate to 4.75 per cent and Westpac's standard variable mortgage rate to 7.76 per cent, the highest of the Australian banks. If banks such as Westpac took the opportunity to further widen their margins the standard rate would approach 8 per cent for the first time since the onset of the financial crisis in 2008.

Financial markets were late yesterday pricing in a 37 per cent chance of a rate hike at the Melbourne Cup Day meeting and the certainty of 2 rate hikes within the next year.

Two further hikes would lift the monthly cost of servicing a $300,000 mortgage by $96 and the cost a $400,000 mortgage by $128.

Published in today's SMH and Age





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RBABM

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