Saturday, March 31, 2007

The Treasurer vs the treasurers

I've got this theory: That Australia's Treasurer invents a dispute at each of his annual meetings with Australia's state and territory treasurers in order to give the meeting something to talk about, to make it last, and to keep the press from writing about anything real.

See what you think. Here's today's (silly) story:

Australia’s eight states and territories have stood firm against a demand by the Treasurer that they abolish the last remaining tax in contention over the introduction of the GST.

Peter Costello yesterday asked his state and territory counterparts to honour what he said was an commitment to abolish stamp duty on business property conveyancing struck at the time of the introduction of the new tax system.

The state and territory Treasurers deny that there was such a commitment saying that they only agreed to consider abolishing the tax, that they did so last year and decided against it.

The ACT treasurer and chief minister Jon Stanhope said yesterday that abolishing it would cost his government $40 million which in the context of the ACT was “an awful lot of money”...

“None of us can make cuts of that order to our budget without dramatic
impacts on our capacity to deliver services,” he said.

Western Australia raised $600 million form the tax and South Australia $150 million.

At yesterday’s meeting Mr Costello told the treasurers that if they remained intransigent the Commonwealth would “consider its options” in relation to state financing.

“I wouldn’t call it a threat, but there was a not very subtle suggestion that the Commonwealth had ways and means,” said Mr Stanhope.

The Treasurer after the meeting that he would continue the discussions on a state-by-state basis and that one state, which he would not identify, had indicated that it was considering breaking ranks.

“Because they are all Labor States and the bulk of the Labor States don’t want anybody to break, there was a lot of pressure on the individual State concerned and so I won’t go into that,” he said.

Mr Costello said he would be prepared to consider offers from states or territories that want to abolish or reduce another tax in place of the stamp duty.

“If the States put forward the abolition of $2.5 billion of other different taxes we would be perfectly prepared to speak to them and to entertain such an offer, and we will deal with them on an individual basis,” he said.

“The Australian taxpayer was promised that in return for the introduction of GST, ten State taxes would be abolished. Eight Labor States and Territories today refused to cut taxes and in the room there was one person sticking up for the taxpayer and that was me,” he said.

Jon Stanhope said after the meeting that he could not understand the Treasurer’s suggestion that states substitute cuts in a different tax for the abolition of the tax the Treasurer said he opposed.

“I am suspicious of the complete lack of rigor in the process now with the federal Treasurer coming to a treasurer’s conference and saying that the Commonwealth is absolutely adamant that the states and territories must abide by what he regards as a deal struck at the time of the GST for which he insists he has a mandate, but then when the states say, we are not going to do that, he says well, take it from

”Is there some rigor in this tax reform that he is attempting to impose or not? He is essentially saying well I don’t care where it comes from - cut your tax. It doesn’t matter what it is, just cut it,” he said.

Despite spending much of Thursday claiming that the states and territories were hatching a secret plan to increase the rate of the GST, The Treasurer said nothing about it in his meeting with those treasurers.

“He was bashfully quiet,” said Mr Stanhope. “It wasn’t raised or mentioned.”


Friday, March 30, 2007

Will rates go up next week? The market says 50-50. I say 80-20

Australians borrowed at the fastest rate in three years last month despite two interest rate hikes in August and November. The news, released yesterday by the Reserve Banks is believed to increase the likelihood of yet another hike in interest rates after the Bank’s board meets next Tuesday.

The weight of money on financial markets puts the odds of a hike next Wednesday at 50-50.

Total borrowing grew 15 per cent. over the year to February. Borrowing for housing climbed 16.8 per cent.

“These numbers are so strong as to suggest there are few if any reasons for the RBA to hold off hiking interest rates for another month,” said TD Securities Stephen Koukoulas.

“Indeed, the odds are quickly moving to a scenario where the Reserve Bank might have to hike twice more.... to bring back credit growth, lower inflation expectations and free up capacity in the economy,” he said.

“The Reserve Bank does not want to see credit growth at these levels," said RBC senior economist Su-Lin Ong. “If they are thinking of hiking, they have got a pretty strong case to do so.”

The briefing papers sent out to Reserve Bank board members ahead of Tuesday’s meting were finalized on Thursday. It is not known whether today’s news about borrowing was included in them.

An interest rate hike next Wednesday is not a foregone conclusion. The Bank’s assistant governor Malcolm Edey indicated earlier this month that it was a possibility by saying that the Bank was worried about inflation and that it would be taking its decisions month by month.

The Secretary to the Treasury Ken Henry, a member of the Reserve Bank Board, has in the past opposed a number of decisions to hike rates, and may do so again next Tuesday, given the proximity of the April board meeting to the May Budget.

Supporters of rate hike next week will argue that there are increasing signs of inflation, that the Australian economy can stand it, and that it is best to get any hike out of the way ahead of the Budget and the expected October election.

A keen Reserve Bank Watcher, Rory Robertson of the Macquarie Bank said yesterday that while a rate hike in April remained a serious possibility he was expecting the Bank to keep rates on hold. “We are nearer to an RBA board meeting that we have been in years without the outcome close to being a forgone conclusion,” he said.

A survey of 19 economists by AAP on Friday found that 7 expect a hike next week. 10 expect a hike some time this year.

The Australian dollar climbed to $US80.70 late yesterday on the back of speculation about a rate rise.

Thursday, March 29, 2007

How to misrepresent a report

The report is entitled Australia's Federal Future.

Section 3.7 has attracted the eye of the Treasurer.

Here's my account of a day of nonsense:

The Treasurer Peter Costello has been accused of spreading Da Vinci Code fantasies ahead of what is expected to be a fiery meeting today with with state and territory treasurers.

Mr Costello yesterday used question time to claim that a report commissioned by each of Australia’s eight state and territory governments contained within it a plan to increase the rate of the Goods and Services Tax from 10 per cent to 17.2 per cent.

But one of the authors of that report, the ANU’s Professor Glenn Withers has told the Canberra Times that it contains no such suggestion. “It is a simple and sad misrepresentation”, he said.

The Treasurer seized on a passage in the report that read “If the Commonwealth had been serious about giving the states fiscal autonomy, it would have ensured that the states had access to revenue that covered, and eventually exceeded, the loss of state taxes plus the combination of financial assistance grants and the specific purpose payments. It did not do so.”

Mr Costello took that to mean that the authors wanted the GST to increase to 17.2 per cent...
a figure not mentioned in the report.

“I think the Treasurer is playing some Da Vinci Code game in reading things into the text,” Professor Withers said.

“It is just plain misrepresentation of what our report said. It makes no recommendation on tax at all, let alone the GST.”

The rate of Australia’s GST could only be increased with the agreement of each of Australia’s states and territories and the Commonwealth which would have to get legislation through both the House of Representatives and the Senate.

Mr Costello told Parliament that if Labor came to power federally he expected that to happen.

“You would have an inexperienced Labor Prime Minister with eight Labor premiers and chief ministers, all with a lot more clout and experience than him, putting the weights on him for an increase in GST, which they would get the benefit of. There would be no checks; there would be no balances. When the state premiers say ‘jump’, the Leader of the Opposition cannot jump high enough,” he said.

Professor Withers who ran the Commonwealth’s Economic Planning and Advisory Committee during the 1980’s told the Canberra Times that only once had any of his 72 reports been misrepresented so badly. The report was about aging and noted that over time there would be growing public discussion about the question of euthanasia. It was headlined in one newspaper “Federal Government considers euthanasia”.

Professor Withers said he found it particularly odd that the Treasurer had not addressed the central finding of his report which was that Australia’s federal system of government probably increases Australia’s prosperity by about $4,500 per head compared to a system of central government.

At today’s meeting with state and territory treasurers Mr Costello will demand that they abolish stamp duties on business property transfers, which he says they undertook to do when the GST was introduced.

“As far as the government is concerned, the GST was introduced to get rid of other taxes, not in addition to other taxes. The people of Australia deserve to have all of those taxes abolished. That is something that the Commonwealth will require the Labor states to do,” he said.

The Treasurer did not elaborate on how he would require the states and territories to abolish those taxes.

The ACT will be represented at today’s Treasurer’s meeting by the Chief Minister and Treasurer Jon Stanhope.

Mr Costello has said previously that he wants Mr Stanhope to abolish the new Utility Land Use Permit Fee introduced in January. Dubbed the “Stanhope charge” it requires all infrastructure companies to pay for their use of ACT land and if passed on is expected to add $27 per household to the cost of phone and internet bills.

The Treasurer said that while the Labor Party federally was saying it wanted more investment in broadband “here we are in the ACT, where a new tax is being proposed on all utilities including broadband”.


Wednesday, March 28, 2007

Australia: the pinup for Kyoto recalcitrants

The world’s leading authority on the economics of climate change says Australia is “seriously damaging” international efforts to fight global warming.

Sir Nicholas Stern, the author of Britain’s Stern Report told the Press Club yesterday that the example of Australia was quoted to him in discussions around the world.

He said people who are skeptical about coordinated efforts to fight global warming tell him: “You are going to have a problem with countries peeling off. Look at Australia. It won’t sign the Kyoto protocol”.

Australia is one of only two of the original parties to the protocol not to have signed. The other is the United States.

“People take Australia not signing as a strong statement. It is very often quoted at me”.... Sir Nicholas said.

“And then I have to start explaining that Australia will probably meet the Kyoto targets, that it is reforesting rather than deforesting, that there is lots of exciting moves being done in technology and so on. But is often quoted as a symbol of the difficulty of getting other nations to do things.”

The Kyoto protocol requires signatory countries to cut their emissions to an average of 5 per cent below 1990 levels by 2008 to 2012.

Sir Nicholas said that far deeper cuts were needed beyond that. He said that in order to stabilise global temperatures by 2050 greenhosue gas emissions would have to fall by 30 per cent. Rich countries, which have already had the benefit of centuries of high emissions should shoulder most of the burden, cutting their emissions by between 60 and 90 per cent.

He said that that with the expiry of the Kyoto agreement in 2012 now around the corner Australia’s signature on it would now be “more symbolic than anything else” but he said the symbolism was important.

“Australia produces about 1 per cent of the world’s greenhouse gasses. If each producer of 1 per cent said it would not agree to anything until everybody else did, nothing would happen.”

“More and more countries are prepared to move on the judgment of their own responsibilities in the light that others are also moving, and that is gaining momentum, but if some countries peel off, the momentum is seriously damaged,” he said.

The Press Club address was attended by a number of politicians and public servants, including Senator Bob Brown, Labor’s environment spokesman Peter Garrett and the Secretary to the Treasury Ken Henry.

Later at Parliament House Sir Nicholas briefed the Prime Minister and Opposition leader and also the Treasurer Peter Costello and Environment Minister Malcolm Turnbull.

In question time John Howard defended Australia’s decision not to sign the Kyoto protocol saying that the Stern Report and the Kyoto agreement were “prescriptions from Europeans that come from a European perspective.”

“Nations that do not have vast reserves of fossil fuel have a different view about this matter than nations that do. Australia is in a very unusual position: we have a small population but we have been blessed by providence with large reserves of fossil fuel. We should play to our natural advantages and I am simply not going to agree to prescriptions that are going to damage the future of the Australian economy, and I am not going to agree to prescriptions that are going to cost the jobs of Australian coalminers.”

“The reason the Australian government has not signed Kyoto is that if we had entered into the Kyoto protocols in their present terms it would potentially have put this country at a competitive disadvantage. I note, incidentally, that unlike many of the countries that have ratified the Kyoto protocol, this country is on track to meet its Kyoto target, unlike many of the countries that presume to lecture Australia on what she should be doing,” the Prime Minister said.

Ahead of his meeting with Sir Nicholas The Treasurer Peter Costello told the parliament that his department had examined the Stern report and knew of criticisms of the assumptions that underpinned it. “I am not even aware that the UK government has accepted all of the findings of that report,” he said.

Tuesday, March 27, 2007

Stern ahead!

The man who turned climate change into a mainstream economic issue flies in to Canberra Wednesday morning to brief both the Prime Minister and the Opposition Leader and appear at the National press Club...

Sir Nicholas Stern, a British Treasury economist, is the author of the Stern Review on the Economics of Climate Change, presented to the Britain’s Prime Minister Tony Blair last October.

It found that unless action was taken to limit climate change in the next few years, after about a century the annual cost would exceed 5 per cent of global income, most of it borne by the world’s poorest people.

By contrast it found that the cost of taking action would amount to just 1 per cent of annual global income.

The report found that market mechanisms such as carbon trading were the least-economically damaging means of cutting greenhouse gas emissions.

In the wake of the report the Australian Prime Minister John Howard set up a taskforce to examine emissions trading. Most of the submissions it has received from resource and energy companies have been positive. It is due to report at the end of April.

In contrast to the Britain’s Treasury, Australia’s has not examined the economic impact of climate change.

The official in charge of macroeconomic policy, David Parker, told the Senate economic committee in February that climate change was “an issue of potential relevance in the future, but hitherto it has not been something which has been a large feature of macroeconomic development”.

Other issues with potential future impacts are being examined by the Treasury. On Monday the Treasurer Peter Costello will launch the Treasury’s latest intergenerational report, updating figures on the economic impact of aging.

After addressing the press club at lunch today Sir Nicholas will meet the Prime Minister John Howard and the Environment Minister Malcolm Turnbull and then the Opposition Leader and frontbenchers including the Shadow Minister for Environment Peter Garrett.

The Opposition will hold its own climate change summit in Parliament House on Saturday.

Among those taking part are Sir Rod Eddington, the head of Labor’s Business Advisory Council, Nobel Laureate Professor Peter Doherty, , Climate change specialist and Reserve Bank Board member Professor Warwick McKibbin of the Australian National University, and Charlie Lenegan, the Managing Director of Rio Tinto Australia.


Monday, March 26, 2007

Tuesday Column: Why not just make insider trading legal?

We expect our politicians to lie. Or at least we expect them to only to tell us those parts of the truth that suit them.

But we hold the directors of our public companies to a higher standard.

It is absolutely illegal under Australian corporate law for the directors of companies such as Qantas, The Coles Group, James Hardie, or AWB to mislead the share market by withholding information or presenting it in a misleading way.

In theory a pensioner managing her investments at home should have as much access to corporate information likely to affect a share price as the company’s own executives or a firm of highly-paid fund managers.

On the whole Australia’s system works well. Most company directors wouldn’t dare mislead the market (the penalties for doing so are far higher than for politicians misleading electors) and nor would most “insider trade”, that is – buy or sell shares on the basis of privileged information that they had before the market.

But recently it is easy to get the impression that the system is breaking down...

Coles told the market in November that the 45 Bi-Lo stores that it had rebranded as Coles supermarkets were “experiencing an average sales uplift of around 7 or 8 per cent.”

Earlier this month the ABC reported that the day before that announcement the Coles finance department had emailed executives saying that in fact those sales had been climbing by only half as much – 3.9 per cent.

The ABC has possession of the emails, and also another internal email from the corporate affairs department stating that notwithstanding the 3.9 per cent figure Coles had decided to “keep 7 per cent in the news release issued to the market and to mention that it was early days”.

Yesterday Coles’ Chairman Rick Allert blamed the leaking of the emails on “disaffected, disgruntled and disenchanted” former employees. He said Coles had misled no-one, although he conceded that as it turned out 7 or 8 percent was not a good guide. Sales in the rebranded Bi-Lo’s are scarcely increasing at all.

Meanwhile Qantas has been accused of attempting to play down a spectacular profit outlook. After recommending a takeover bid in December the Qantas Board gave little away until a fortnight ago when “substantial media commentary” forced it to issue upgraded more positive forecasts.

There is now a very good chance that the belated information will embolden up to three substantial shareholders not to sell and wreck the $1.1 billion takeover - along the way depriving the airline’s executitives of the $91 million in payouts they were expecting had the takeover succeeded.

Also, casual observers of last year’s Cole royal commission might have formed the view that the AWB misled its shareholders about the nature of its wheat sales to Iraq, and the Australian Securities and Investments Commission has formed the view that the then directors of James Hardie Limited misled the market about the health of the fund it had set up to compensate asbestos victims. ASIC has begun action in the NSW Supreme Court seeking bans and fines and it hasn't ruled out criminal charges.

It is enough to make ordinary Australian share holders begin to wonder whether they are being played for mugs. And enough to make me understand why so many of us put our money into real estate instead. At least we can see and touch it and get a good idea for ourselves about what we are buying.

One way to make us feel better about share market trading would be to beef up enforcement of the laws. Yesterday the Treasure Peter Costello gave ASIC an extra $1.6 million to do just that. But even with the money ASIC finds prosecutions difficult. Its claim against James Hardie’s former directors took years to prepare, runs to 200 pages and is backed up by discs full of documents. The former director’s first line of defence is that ASIC didn’t properly serve them in time.

It could be that there is a better way to make us feel confident about share market trading, but it is one that it is the exact opposite of what we are used to. You might not like it.

It is to make insider trading legal.

Michael Adams, the Professor of Corporate Law at the University of Technology, Sydney is promoting the idea. He wants us to get away from what he calls our particularly Australian “underlying concept of fairness”.

In a paper prepared for the Company and Securities Law Journal he argues that insider trading, universally accepted, could actually help ordinary shareholders see what was going on inside Australian companies.

Here’s a hypothetical example. A big retailer says that its sales are going up. The executives collecting the figures feel that that the claim is overblown and so sell their shares in anticipation of a dive in the share price when the truth comes out.

As a result, the price dives straight away and all investors get a wider perspective on what the people on inside actually think.

Or perhaps an airline is keeping quiet about its profit outlook. The executives to whom things look rosy buy shares in anticipation of a price hike, and push the price up straight away.

As Adams puts it: allowing insider trading would move the company’s share price “more quickly to its equilibrium.”

He also says it would “compensate and motivate management”.

Japan and Germany both scarcely enforce insider-trading laws. Australia effectively allows it in betting on politics. If a Labor insider thinks that the party’s leadership is about to change, that person will place a big bet on a change and in so doing let the rest of the country know that a change is brewing (which is what happened in December).

Advanced corporations are now using internal betting markets to tell them what the official chain of command will not. They are inviting their employees to anonymously bet on when projects will really be completed. The results are more accurate.

If at times Centrebet seems better informed about what’s happening in Australian politics than the Australian share market does about what’s happening to shares, it might be time for a new approach – to treat the share market as no more or no less than a betting market and to follow the money rather than try to guess the truth of pronouncements.

Labor's $4.7 billion broadband bonanza

Doesn't Labor have higher priorities?

Ross Gittins weighs in this morning.

It is a cynical bribe to the powerful media proprietors and to country voters, and a come-on to punters who want to download their porn faster, disguised as a far-sighted, imaginative initiative to make us internationally competitive in the productivity-oozing new world of e-everything.

Here's a tip: when you hear a pollie talk about Nationbuilding projects it's a sure sign he wants to waste money. The last Nationbuilding project was the now patently uneconomic Adelaide to Darwin railway.

As does Alan Mitchell in the Financial Review (no link):

The biggest problem is not that Labor is proposing to take part of the money from the Future Fund, but that it is proposing to invest the money at all.

It is all very well for Rudd to conjure up images of 19th century nation-building, and for the internet cheer squad - including the media companies that would benefit directly from the investment - to wax lyrical about the economy-transforming benefits of broadband. Rudd is proposing to spend public money on a project that the telcos are quite capable of doing without additional taxpayer assistance.

More from Mitchell...

As is too often the case with grand public investments, Rudd's political commitment to the high-speed broadband network has been made without any serious evaluation of the likely costs and benefits.

Rudd complains about the back of the envelope preparation of the government's water initiative. So where is his detailed analysis?

His broadband proposal is... a populist initiative, dressed up as nation-building, that is designed to win votes while doing Labor's media mates a very generous favour.

And Joshua Gans recaps.

Polluters to government: Emissions trading now, please.

Australia’s most important resource companies, among them BHP Billion, Rio Tinto, Woodside, AGL and Alcoa have come out in support of a national system of carbon emissions trading as a way of fighting global warming.

Their submissions to the Prime Minister’s emissions trading taskforce are among 200 posted on the web on the weekend. Almost all call for the introduction of some form of emissions trading.

The Electricity Supply Association of Australia, representing more than 40 energy suppliers, says investments potentially worth $100 billion will remain in limbo until such a scheme is introduced.

“Coal-fired power stations have physical lives well in excess of 50 years and, if there is an expectation that there may be a future price on greenhouse gas emissions, investors may be unwilling to risk investment in a coal-fired plant,” its submission says. “On the other hand, a gas-fired plant may not receive adequate reward in the absence of a greenhouse gas emissions price signal to warrant investment. Without a clear greenhouse gas emission policy framework there is a risk that investment in baseload capacity may be deterred.”

BHP Billiton says it already assesses how each of its new investments would withstand a high, medium, and low price for carbon emissions..

It wants a national system of emissions trading that “removes the plethora of state and Commonwealth emissions reduction schemes”...

The coal and iron ore miner Rio Tinto says it wants the government to set a long term carbon price in order to “provide some certainty for long term investors” as well as “an initially low price, increasing over time” in order to ensure “an orderly transition to a carbon constrained future”.

AGL says it already factors carbon considerations into all of its major investment decisions. “However, the lack of certainty around future carbon pricing policies is creating significant investment uncertainty throughout the energy sector. It is critical that Australian governments establish long term emission reduction targets and implement market-based policies to support them. Because of the long-lived nature of many assets in the energy sector, targets should be set until at least 2050,” its submission says.

Woodside, the operator of Australia’s largest resource development on the North West Shelf says it wants a scheme that is consistent across all sectors of the economy and streamlines the currently separate state-based targets and reporting systems. It says it wants Australia’s system of trading to connect with those overseas.

The Prime Minister set up the emissions trading taskforce late last year to advise him on whether it was possible to introduce a system of trading in pollution permits as a way of cutting greenhouse gas emissions without harming Australian businesses.

Its members include Mr Peter Coates of Xstrata Mining, Mr Chris Lynch of BHP Billiton, Mr John Stewart of National Australia Bank, and Dr Ken Henry, the head of the Australian Treasury. It submitted an issues paper supporting of the concept last month and is due to report to the Prime Minister on April 31.

Sunday, March 25, 2007

Sunday dollars+cents: Hating winners

Do you die a little inside each time a colleague gets a promotion? Would you rather other people didn’t have bigger houses than you? Would you actually be prepared to give up some of your own money in order to stop other people getting more money than you?

Surprisingly, for most of us the answer appears to be “yes”.

Two UK economists Daniel Zizzo and Andrew Oswald set out to uncover what they called the “dark side” of human nature by creating a computer game using real money in which each of the players had the opportunity to anonymously “burn” or destroy the winnings of others.

Here’s how it worked. The four players were separated by screens and never met. But by using graphs on their screens they could each see how much each of the others was winning.

Much of the game involved gambling, a bit like playing a poker machine. But every so often, out of the blue, one of the players received an “unfair” windfall. And throughout the game, and also at the end, each player was given the opportunity to “burn” another player’s winnings. The price varied between 10 cents to burn a dollar and 25 cents.

Textbook theory says no one is going to pay good money to “burn” another player’s winnings. It costs money and can’t possibly make money...

And yet Zizzo and Oswald discovered that an astonishing two-thirds of the players gave up real money in order to burn another player’s. Surprisingly it didn’t seem to matter how much the burning cost. The decision to burn was unrelated to the price.

Two types of players were burned the most - those that were the richest and those that were seen to have made their money “unfairly”.

Zizzo and Oswald conclude that equality and fairness matter a lot to ordinary people – so much so that in the language of the street we are prepared to live in much worse houses in order to make sure that no-one lives in a house that’s much better.

For taxation, the implication is that we like it when we tax rich people the most, even if it harms our economy (in the burning game half of all the earnings were burned).

For industrial relations the implication is that we don’t much like the idea individual contracts – no matter how much the designers of WorkChoices insist we should.

Zizzo, D.J. & Oswald, A., 2000. Are People Willing to Pay to Reduce Others' Incomes?, The Warwick Economics Research Paper Series 568, University of Warwick, Department of Economics.


Saturday, March 24, 2007

The ABC was Santo's undoing...

...but not in the way the unelected Queensland Senator perhaps feared.

The wonderful Adele Horin shows us the tip of the Santo iceberg in today's SMH.

If only he had been as anal-retentive about his business affairs as he was over the ABC's use of the word "our" he might still be minister today. Why was there a directive to presenters, he thundered, not to use the word "our" in relation to troops in Iraq. This prohibition on "our" troops (as distinct from the more professional "Australian troops") was another instance of left-wing bias.


Thursday, March 22, 2007

Why we feel rich:


Wednesday, March 21, 2007

Broadband. Labor gets taken for a ride.

Thirty years ago Kerry Packer took the Coalition for a ride. Insisting to its leader Malcolm Fraser in 1977 that Australia was falling behind, he sold him on the idea of a national communications satellite.

The government-owned and built AUSSAT did indeed make life easier for Mr Packer. He was able to network his TV programs more cheaply. AUSSAT lost almost $1 billion and died as an unloved piece of “space junk”.

30 years on his son James Packer is doing it to Labor.

He has convinced its leader Kevin Rudd that Australia is being held back by “antiquated broadband infrastructure”. Labor wants to spend almost $5 billion putting high-speed broadband within reach of 98 per cent of the population.

The Packers wouldn’t be wanting to use taxpayers money to look after their own interests again, would they?

Rupert Murdoch backs them up... He is cited twice in Labor’s new policy document as an authority for the statement that broadband in Australia is a “disgrace”, and that "we are being left behind”.

Communications Minister Helen Coonan might be wiser to their tricks than is Labor.

She said yesterday: “Quite clearly they’ve got a vested commercial interest in selling their content, and they would like to do so on the back of some infrastructure that they don’t have to pay for.”

Labor’s policy document is a credulous one.

Try subjecting this claim, repeated with approval in the Labor document, to the “laugh test”. That is – try reading it out loud without laughing: “Broadband is just as necessary as water and electricity”.

Even if that was true it fails to justify spending $4.7 billion of taxpayers money to speed broadband up. Nine out of ten of us have access to broadband faster than 256 kbps at the moment, and it is being extended to most of the rest of the population.

Who would a public-funded increase in speed to 12 megabits per second benefit?

Labor says it would help small businesses - of a certain sort. It cites “graphic designers, software programmers, and architects transmitting fully rendered 3D models of buildings”. True enough I suppose, but it hardly seems to justify spreading the very high speed to the entire population.

It talks about education (although my eldest daughter seems to get her homework done with the broadband speed she’s got.)

And it talks about the wonders of blogs, youtube and myspace, - all of which are booming with our existing broadband speeds.

It doesn’t talk about the really biggest beneficiaries (except when quoting them and reports they have commissioned as authorities). James Packer, Rupert Murdoch and the Fairfax organisation want high-speed government-provided broadband in order to push television-quality vision into every laptop and PC. They want the government to pay for it.

Earlier this year Professor Joshua Gans of the Melbourne Business School examined high-speed broadband for the Committee for the Economic Development of Australia. He found no case for a government-funded national speed up. After reading Labor’s document last night he stood by that conclusion describing it as “massive overkill”.


Tuesday, March 20, 2007

80 US cents and rising. Good for some.

The Australian dollar jumped to its highest level in a decade Tuesday and every sign suggests it will climb higher still. The Aussie hit 80.33 US cents early on before falling back on profit taking to 79.65 US cents. It closed back up at 80.00 US cents - a feat achieved only once before in the last ten years.

Much of the buying came from Japan, spurred on by talk of an imminent hike in Australian interest rates. Japan’s own money market interest rate is extraordinarily low – 0.5 per cent interest after a recent hike - and so Australia’s 6.25 per cent looks incredibly attractive.

If, as is now expected, Australia’s Reserve Bank increases our rate to 6.5 per cent, our rates will look better still.

It is that expectation which has pushed up the Australian dollar by around 2 US cents in the last week - that and the fact that our rates are now about the highest in the world.

The US equivalent is 5.25 pct, and there is a chance that it’ll be cut this week.
The Chief Economist at TD Securities Stephen Koukoulas told me last night that if you excluded New Zealand and maybe Turkey, and some emerging markets, Australia’s interest rate structure is the world’s most attractive.

But there’s much more to the sudden buying of Aussie dollars than the immediate outlook for interest rates... There is an emerging consensus that the commodity price boom sparked by China has a long way to run. That means even higher prices for Australian iron ore, gold, coal and gas and as resource projects get up to speed quite possibly very big increases in export volumes.

Some of the currency traders buying Aussie dollars right now are buying them in the near certainty that the inflow of foreign money that will be used to buy our iron ore, gold, coal and the like will keep the Aussie at or above 80 US cents for a very long time.

The higher dollar is disastrous for Australian firms that manufacture goods that try to compete with imports.

Only last week Labor’s Industry spokesman Kim Carr bemoaned the fact that a small Japanese car that used to cost $20,000 to import when the Aussie dollar traded at 60 Japanese yen need cost only $13,793 with our dollar at ¥87.

It would be even cheaper today. With our Japanese exchange rate at ¥93 that car need only cost $12,900.

This problem for Australian manufacturers - the downside of being blessed with mineral riches during a resources boom - has been predicted before. The ANU’s professor Bob Gregory pointed to it in the lead-up to late 1970’s resources boom. He unwittingly gave lent it his name – the “Gregory effect”.

He says what is different, and better, this time is that there are no longer as many manufacturers to be hurt.

“In the 1970s when we made huge income gains there was a very large manufacturing sector that could be hurt,” he told me. “That is not true this time to the same degree. All of those areas of the economy that were exchange rate sensitive have more or less been adjusted down as a result of earlier episodes and lower tariffs.”

That there is still some Gregory effect, is seen in the uneven way the resources boom is affecting different states. NSW, Victoria and South Australia, all homes to car, textiles, and white goods manufacturers, are doing relatively worse than Australia’s minerals-rich west and north.

Gregory says there’s another big difference this time as well. The current resources boom doesn’t look cyclical.

“Last time it was a result of world upswings that looked as if they were going to disappear. It was the result of an oil crisis, partly related to oil demand. This time it is a China story. Unless China really slows down, which looks very unlikely, we are going to be a much higher exchange rate country than in the past.”

The current exchange rate of 80 US cents looks to be the new bedrock. 82 and 83 US cents look entirely possible in the months ahead. Our dollars will go further but they’re likely to be spent even more on cheap imports and even less on the things we make ourselves.

When you know it is time for a change

The Prime Minister addressed his flock in the joint parties meeting a short time ago.

He said that each time Australia had changed government – in 1949, 1972, 1975, 1983 and 1996 it was because the government was “either no longer seen as competent or because people had stopped listening to it”.


Monday, March 19, 2007

Up in April.

Australia’s Reserve Bank is set to push up interest rates at its next board meeting on April 3.

A rate hike in two week’s time would cast a pall over the Treasurer’s pre-election Budget due in May and would further erode the key claim made the Prime Minister during the last election – that he was best able to keep interest rates low.

Since John Howard delivered his 2004 policy speech from a lectern that read “Keeping Interest Rates Low” the Reserve Bank has pushed up interest rates once in 2005 and three times in 2006. Another hike in April, the fifth since the election, would see the holder of a $400,000 mortgage paying $380 more in interest per month than at the time the Prime Minister made the interest rate promise.

When parliament resumes today the Prime Minister is expected to come under attack over the resignation of two Ministers in the fortnight since parliament last sat: Kelvin Thompson over having met the former Labor Party power broker and lobbyist Brian Burke and Santo Santoro over having failed to disclose his share trading. The Reserve Bank’s consideration of an April interest rate hike will dent John Hoard’s ability to claim superior economic management as a defence...

On Friday the Reserve Bank used a long-standing speech engagement by its assistant governor Malcolm Edey to signal that the Bank was alarmed about wage inflation, something that the Prime Minister and Treasurer had claimed was in check as a result of WorkChoices.

Dr Edey said that while annual growth in Australia’s wage price index appeared moderate, that figure had been “artificially held down” by a change to the timing of last year’s minimum wage decision. The growth in wages for the December quarter, unaffected by the change, was 1.1 per cent, “at the top end of its historical range”.

The assistant governor stressed that Australia’s inflation outlook was “higher than ideal”. He said inflation was now “more likely to be too high than too low in the period we can foresee.”

In an unusual phrase specifically designed to send a signal to financial markets the assistant governor said the Bank would review inflation prospects “month by month”.

It had been thought that the Bank would not hike rates until at least May after the next quarterly inflation figures came out or June after the next quarterly wages figures were released.

The likelihood of a move in April has been strengthened by the very strong economic growth figures released two weeks ago. They have persuaded staff within the Bank to believe that they were right to think the Australian economy had easily withstood the double-barreled ratcheting up of rates in August and November.

The Bank is encouraged to believe that economy could withstand another hike by news that consumer confidence is at a 19-month high, business confidence is trending up, retail and car sales are climbing and that full-time employment has climbed to another record high. It is also conscious of upward pressure on Australian iron ore prices, which has the potential to boost wages and employment further.

The Macquarie Bank’s interest rate strategist Rory Robertson, on Friday a skeptic about an April rate hike, said yesterday he now believed the Bank was well on the way to having decided to push up rates in April.

“If the Reserve Bank no longer needs to wait for the next inflation result then is there any real need for it to wait beyond April 4 before hiking again?” he asked.

Wednesday April 4 is the day after the Reserve Bank’s board meeting. An announcement will be made at 9.30am Eastern Time.

It will most signal an increase in interest rates of an extra 0.25 per cent, bringing the standard bank variable mortgage rate to 8.32 per cent and adding an extra $70 a month to payments on a $400,000 mortgage.

The Australian dollar climbed to a three-month high of 79.54 US cents late yesterday on the expectation of an imminent hike.


Tuesday Column: Is it time to turn off life-support for Australia's car industry?

Politicians love Australian carmakers. What they can’t understand is that Australians don’t.

On Thursday Labor’s Ken Rudd promised another handout of another half a billion dollars to Australian carmakers, this time to encourage them to build ‘greener’ cars.

We already hand Australia’s big four car manufacturers assistance worth more than $1 billion a year – and that’s just from the Commonwealth government. No one knows quite how much South Australia and Victoria chip in as well.

Yet the sad truth that for all the repeated talk about how important it is to have Holden, Ford, Toyota and Mitsubishi here in Australia making new cars - ordinary Australians won’t buy them.

What if it was another industry – with four manufacturers were there probably should be two, production in some plants slowed to a trickle and buyers turning away at the rate of 20 per cent in the last year - would politicians be standing in front of its factories offering even more support?

But then the Australian car industry is unlike any other industry, both in the strange way it operates and in the rate at which Australians are shunning its products...

Australians bought just short of 1 million new cars last year. Back a decade ago half of all of the new cars sold were made in Australia. But last year out of the 1 million total only 201,623 were Australian-made.

We are moving en masse to buying foreign-made cars because they are cheaper, smaller and use less petrol.

And that sales figure of 201,623 hugely overstates our interest in buying Australian-made cars.

One of the oddities of car sales in Australia is that even where new Australian cars are sold, for the most part ordinary Australians don’t buy them.

When the Productivity Commission examined the issue 10 years ago half of all new Australian cars sold went to government and private fleets. Telstra was the country’s biggest car buyer.

Jump forward a decade and 88 per cent of Ford Falcons, 87 per cent of new Mitsubishi’s and 81 per cent of Holden Commodore’s go to fleets.

Only new Toyota Corolla’s are bought in any numbers by ordinary Australians. They are 60 per cent sold to fleets.

Companies, governments and charities buy at these sorts of levels for tax reasons - they can help with salary packaging – and then offload them for a good price while they are still nearly new.

Very few individual Australians buy new Australian cars from the showroom. They buy them “near-new” from corporations, or more likely buy cars made overseas.

When he came to office in 1996 the Treasurer Peter Costello tried to crack down on the bizarre tax-driven ritual of corporate car trading. He asked Australia’s state and local governments to pay sales tax on the cars they bought. He was overruled by his Prime Minister.

Since then the rituals seem to be getting stranger.

If you see more traffic on the road between Sydney and Melbourne this month you could well be watching the drivers of salary-packaged cars trying to get their miles up before March 31.

That’s the cut-off date for calculating their rate of fringe benefits tax. The more kilometers they drive the lower their fringe benefits tax rate.

The accounting firm Deloitte has even sent out a note to clients advising them to “Drive your benefits further – before it’s too late!”

It reads: “Many employees may be on the cusp of the next kilometre threshold used to calculate FBT.... Where this is the case, increasing the kilometres driven can also significantly increase your savings.”

It says an employee who drove 24,000km during the FBT year would owe $6,720 in FBT. Increasing the number of kilometres to more than 25,000km would cut the bill to $3,696 – “a saving of more than $3,000”.

Removing all of the convoluted, expensive and environmentally stupid hidden supports for the Australian car industry would force the manufactures to face up to the reality that Australians don’t want to buy their products at the price they are charging.

It would doubtless force at least one of them to close, most probably Mitsubishi whose daily output is now embarrassingly low. But if that is going to happen, from an economic point of view now is probably a good time. There is a skills shortage in many parts of the country (if not in Adelaide) and it should be as easy as it will ever be for retrenched workers to get new jobs.

Mitsubishi itself is reported to have drawn up plans to close its Australian car manufacturing operations after this year’s election under the code-name “Project Phoenix”. After the ABC quoted from the document Mitsubishi denied that it represented its official position.

Officially the industry wants a freeze on the next round of tariff cuts due in 2010 – perhaps indefinitely. The Labor Party says it is prepared to consider the idea and it gone further and held out the prospect of an extra half a billion for research into ‘green’ vehicles, to be matched by manufactures three dollars to one.

Holden has already done that research. With the CSIRO in the late 1990’s it developed what it called its ECOmmodore. Powered by both a conventional and an electric motor it was said to have twice the fuel economy and half the emissions of a conventional Commodore. It drove the Olympic flag on the first leg of its journey from Uluru in 2000.

Little has been heard of it since.

With continuing tariff, taxation and direct government financial support for the Australian car industry (if not consumer support) Holden might have seen only risks in bringing to market a product Australians might want.

Kevin Rudd is to be commended for attempting to get the Australian car industry to do the sort of thing it should be doing anyway.

But I can’t help thinking that away from an election a forward thinking political leader would tell this sickest, most unloved and perpetually needy of Australian industries to stand or fall on its merits.

Sunday, March 18, 2007

Read this. Weep for our shcools

Kevin Rudd will today junk that part of federal Labor policy that favours spending on government over private schools.

His new policy, to be unveiled in Adelaide, will provide Commonwealth funding to all schools on the same basis, regardless of whether those schools are public or private.

An advisor told The Canberra Times last night that the policy would “remove the bias in favour of public education”.

In announcing the historic shift the Labor leader will say that where parents decide to send their children to school “is entirely a matter for them. It is their choice”.

“A Rudd Labor government will be concerned about the quality of education rather than engaging in a government versus non-government schools debate. That is behind us,” his speaking notes say.

One-third of all students now attend non-government schools. In the ACT more than 40 per cent of students attend non-government schools...

Mr Rudd will repudiate previous approach of creating a so-called “hit list” of non-government schools that would have funding cut.

“Labor will not cut funding to any government or non-government schools. We are about supporting schools rather than taking money away from them,” he will say.

In the last election Labor’s leader Mark Latham put 67 of Australia’s richest private schools on a hit list and announced that he would their cut their funding by a total of half a billion dollars over five years.

He promised to shift their grants to 2,500 more needy Catholic and other non-Government schools.

He said schools with vast playing fields, museums, rifle ranges and boatsheds were getting money that poor were being denied.

The new Labor Leader Kevin Rudd will not spell out today exactly how he will allocate Commonwealth schools funding, saying only that funding for all schools will be on the basis of “need and fairness”. The type of school will no longer be relevant.

The Labor leader’s policy is an implicit endorsement of the Howard Government’s approach which has increased the flow of Commonwealth funds to private schools and decreased the flow to state government schools as parents have moved their children out of government schools.

An interest rate hike in May?

I wouldn't rule it out.

This is in tomorrow's CT:

Financial markets are bracing themselves for yet another hike in interest rates, most likely ahead of the Budget in May.

It would be the fifth hike in rates since the 2004 election, taking the standard variable mortgage rate from 7.07 per cent when Australia last went to the polls to 8.32 per cent.

As recently as last month the Reserve Bank signaled that a further hike was unlikely when it downgraded the inflation forecast in its quarterly economic statement.

But on Friday the Bank’s assistant governor Malcolm Edey signaled that inflationary pressures were not easing in the way the Bank had expected. He told a conference in Sydney that “information that has become available since that forecast suggests that some of the factors pushing up underlying inflation last year remain in place.”

He said that he was particularly concerned about wages, which on one measure were now growing faster than at any point in the ten years the Bureau of Statistics had been calculating the wage price index.

The interest rate strategist at the Macquarie Bank Rory Robertson responded by saying “warning lights are now flashing”...

He noted that both employment and economic growth had climbed since the two interest rate hikes in August and November, suggesting that the Australian economy could absorb another hike in rates.

Mr Robertson, who had previously been predicting steady rates, said he was now “not anywhere near as confident of that”.

Financial markets which had previously been pricing in a zero chance of a rate rise in April are now giving that an 8 per cent probability with a 30 per cent chance of a rise by the middle of the year, and a 60 per cent chance of a rise over the course of the year.

The topic of Dr Edey’s speech was “Australia in the Global Economy”, but in words that seem to have been added to send a message to local interest rate markets he described Australia’s inflation outlook as: “higher than ideal: it implies that inflation is more likely to be too high than too low in the period we can foresee.

The market paid particular attention to the assistant governor’s statement that the Bank would review inflation prospects “month by month”, something it had previously been assumed to be doing only quarterly.

“It looks like a bit of a tap on the shoulder for domestic interest rate markets, warning them that the Bank board meets three times each quarter, not just once after the consumer price index and that every meeting is ‘live’,” Macquarie’s Rory Robertson said.

The Reserve Bank board meets again in two weeks on March 3. It is thought likely to use that meeting to begin consideration of a rate hike to be implemented after its meeting on May 1, should inflationary pressures not have eased.

The increase would come one week before the May Budget and so would not be interpreted as a response to that budget. However, by indicating that the Bank was concerned about inflation, it might send a message that the Bank wanted spending restrained.

The Cabinet's Expenditure Review Committee began its deliberations last week.

The Shadow Treasurer Wayne Swan claimed yesterday the government appeared to have stashed away $20 billion in its ‘contingency reserve’ for use as a re-election honey pot.

He called on the Treasurer to come clean about how much money he has allocated to its contingency reserve and what it plans to do with it.

A pre-Budget hike in Australian mortgage rates would push up the repayment on a $400,000 mortgage by an extra $67 per month.


Sunday dollars+sense: Are successful investors not quite the full quid?

What’s the secret of investment success? Part of it could be brain damage. Most of us are notoriously and unreasonably cautious when it comes to taking risks.

Try this: Toss a coin. If it comes up heads, I’ll give you $250. If it doesn’t, you will have to pay me $100. Not prepared to take me on? You should. The odds favour you.

Perhaps that’s because there is too much money at stake. What about a series of smaller bets? What if I give you 20 one-dollar coins. If you want to you can toss each one of them. I’ll turn it into $2.50 each time it comes up heads, and you will lose if it comes up tails.

Researchers from Stanford University have found that around 80 per cent of people accept the bet at least once, but only 50 per cent accept it on all of the time. Which is odd, because accepting the risk all of the time is the best way of making money.

Then researcher Baba Shiv and his colleagues played a hunch...

They performed the same test on a group of Americans who had suffered a stroke or survived brain surgery. All had a damaged prefrontal cortex, the part of the brain that processes emotions.

The brain-damaged Americans turned out to be much better investors than the Americans with their brains intact. Given the same $20 each and the same 20 chances to accept the attractive bet, 83 per cent of them accepted all the time. They made more money than did the Americans with the emotional part of their brains intact.

When the study was published in the Journal of Psychological Science in 2005 one newspaper headline asked: "Are successful investors emotionally brain damaged?" Another declared: "Psychos best investors".

But being fearless isn’t always the best way to make money. As it happened several of the brain-damaged volunteers in the study were bankrupt. Being wary is good for us much of the time because it prevents us being taken advantage of. The important finding is that people with normal brains tend to be wary even when they shouldn’t be.

One secret of investment success might be to outsource your investment decisions to someone who isn’t wary. Superannuation fund managers take large but well-calculated risks all the time. They do it without emotional attachment, because it is not their money.

Investment Behavior and the Negative Side of Emotion
Shiv, Baba; Loewenstein, George; Bechara, Antoine; Damasio, Hanna; Damasio, Antonio R.
Psychological Science, Volume 16, Number 6, June 2005, pp. 435-439

Friday, March 16, 2007

Saturday Forum: How on earth did the Medicare card nearly morph into a universal national ID card?

Tensions are raw within the Government over its stalled plans to turn the Medicare card into an Access Card.

A scheme that the government said was essential for Australia, on which it has already spent millions of dollars and encouraged the private sector to spend millions more, has been blocked by four of the government's own senators

In a unanimous recommendation on Thursday the Senate’s Finance and Public Administration Committee asked the government to withdraw the Access Card legislation already passed through the House of Representatives and start again.

It is a sign of how seriously the Minister Chris Ellison takes the Committee’s report that within an hour he had agreed...

As the Opposition Access Card spokeswoman Tanya Plibersek put it on Friday: “Seldom do Coalition senators make recommendations that are critical of a government program, let alone multiple critical recommendations... but the Access Card is so bad they have swallowed their fears and spoken out.”

Right now the Liberals on the Committee are lying low, not wanting to inflame passions further.

As it happens, the Chair of the Committee, Queensland Liberal senator Brett Mason, is an expert on privacy law. A barrister and an academic before joining the Senate he wrote his PhD thesis on privacy, and last year published a book entitled Privacy Without Principle: The Use and Abuse of Privacy in Australian Law and Public Policy.

Launching the book in Parliament House in March Mason’s friend and Canberra flat mate Peter Costello said the Senator knew “more about privacy than practically anybody else in this building.”

Also active in the inquiry was the ACT’s Labor Senator Kate Lundy along with three other Labor senators, three other Liberals, and Senator Andrew Murray of the Australian Democrats.

All supported the recommendation that the legislation go back to the drawing board and throughout the inquiry all worked as a team trying to come to grips with what the government was doing in a very tight time frame.

The government didn’t make it easy for them. The literature it presented to the Committee implied that a new-generation Access Card would cut welfare fraud by between $1.6 billion and $3 billion, but these figures were over 10 years and they were not net of the very substantial costs of setting up and running the card system. The Australian Privacy Foundation told the committee the government could get a better return by putting the access card expenditure in the bank.

And the committee found it impossible to work out how the $1.6 billion dollar figure had been arrived at. It was told only that the accounting firm KPMG had arrived at the number and that the details could not be disclosed.

When it asked a representative of one of the companies bidding to build the scheme to tell it how many new cards it could add to the scheme in a day the representative replied: “You can ask, but we can’t answer”. He had signed a deed of confidentiality with the government that prevented him from providing those details to the Senate.

Two tenders to build different parts of the Access Card system were underway at the same time as the the Committee was conducting its investigation and before the legislation had been approved by the Senate. In understated language the Committee reported that the government’s action “could be seen as undermining the authority of the Committee by creating the impression that passage of this legislation is preordained, rendering Senate oversight superfluous”.

The reason why the scheme was so urgent had never been made clear. As one Committee member exclaimed in frustration: “Where’s the fire?”

At the heart of the scheme proposed by the government was an unresolved conundrum. On one hand the government insisted that new card was to be used only for the purpose of replacing the existing Medicare and Commonwealth benefits cards. Under no circumstances was it to become a national identification card. The Minister introducing the Bill even described the bill as an “anti-ID card Bill”.

On the other hand every detail about the design of the card appeared to facilitate it becoming a national ID card.

In its unanimous report the Committee mocked the “well-intentioned” clause in the legislation that specified a five-year jail term for anyone who demanded the card as proof of ID. It said the penalty attempted to criminalise behaviour that was “an almost inevitable consequence” of the card’s design.

“It is logically questionable for the government to create a document that can serve perfectly as a high quality identity document, and then to penalise those in the private sector who would want to use it for precisely that purpose,” the Committee reported.

“It will be entirely logical for persons whose job entails requiring proof of identity to prefer the most authoritative and high quality document possible. So from nightclub bouncer to airline check-in clerk, the temptation to ask for the access card as a form of ID will only be exceeded by the willingness of individual Australian citizens to produce that same document in the face of such a request.”

The Committee said it was easy to envisage a scenario whereby after almost universal registration for the card, the penalty for private use was demonstrated to be both ineffective and excessively punitive.

“There will be widespread pressure on the government from a business community that is highly dependent upon reliable identification documents to repeal the dead letter, draconian prohibition against requiring the access card for that purpose,” it predicted.

In fact, the Committee noted that the Australian Bankers Association had already asked it to delete the five-year jail term during its hearing in Melbourne.

Individually, the Committee members were not necessarily against the idea of a universal national identification card, particularly in an era of heightened security concerns. Mason’s own book makes the point that no-one has an absolute “right” to privacy in modern times.

But the government’s problem and the Committee’s problem was that the government deliberately decided not to make the case for a national identification card. It kept saying that the card was designed only to replace the Medicare and Commonwealth benefit cards.

Every time a representative of ASIO or the Federal Police told the Committee of the ways in which the card could be used for surveillance the Chair had to remind them that the government had explicitly said that the card was not intended for that purpose.

The Committee reported that while access to a single database covering the great majority of the Australian population complete with biometric facial recognition data “would no doubt greatly facilitate the work of the law enforcement and security agencies” it seemed to exceed what was required to achieve the stated objective of the bill.

In fact the stated objective of the bill and the design of the Access Card were poles apart.

The Committee found that in order to replace the Medicare and benefits cards all that was needed was a new generation high security card with the cardholder’s name on the front. No printed photo, no printed signature, no printed ID number. It would then be impossible for bouncers at hotels or call-centre staff at phone or gas utilities to ask for a number or ask to see the card. The piece of plastic would tell them nothing. Photographic and all sorts of other information including a representation of the cardholder’s signature could be embedded in the chip, but it would only be readable by the people authorized to read it.

That is actually a description of the card design recommended to the government by an advisory committee headed by the former head of the Competition Commission Professor Allan Fels. It rejected the recommendation.

The Committee also heard that for the Access Card to replace the existing 17 different cards used by different agencies there was no need for a new unique identification number. Each agency already had a number that could be stored in the ample space on the card’s chip and each agency was to store its information separately in its own data “silo”.

Using one unique number to identify each Australian for every government purpose would create the risk that “the ease of matching those records may in the future increase the temptation to change existing restrictions on information sharing between agencies and create the framework for large-scale data matching.”

The Committee heard as well that there was no need for the central database that administered the system to keep digital photographs of the original birth certificates and other documents that most Australian adults would submit in order to get the card. Keeping them on file, after a card had been granted would turn the central database into a “honey pot” for identity thieves and unauthorized access.

The Department of Human Services responded that it had a high degree of confidence in the security measures designed to protect the central database. The Committee noted that even if the database was completely secure when set up future technological advances were likely to present it with threats.

It was concerned as well that the bill before it appeared to allow the rules governing the storage of data to be changed administratively without further reference to parliament.

Imprecise wording in the bill also appeared to open the possibility of state government agencies gaining the right to use the access card without further parliamentary approval. All that was needed was for a Commonwealth agency to be “involved”.

The Committee surmised that the Commonwealth’s role in such things as deciding concession status for veterans might allow public transport providers such as the NSW railways to require veterans to show it their cards when getting on trains.

This “would further enhance the ubiquity of access card usage, and would
materially contribute to its emergence as the dominant identity document in day to day use through out Australia”.

At nearly every turn the Access Card architects appeared to insist on the retention and display of more rather than less information, on more rather than less latitude for the bureaucrats storing it, and on the creation of a unique national identification number for each Australian adult.

They also insisted that the creation of the card was urgent. So urgent that the process couldn’t wait for parliamentary approval. Or even for the drafting of the rest of the legislation.

The Human Services (Enhanced Service Delivery) Bill that would allow creation of the Access Card was only one of two planned pieces of legislation. The Senate had been asked to pass it before seeing the second bill which was to “deal with the review and appeal processes for administrative decisions, further elements of information protection and legislative issues relating to the use of the card, including in relation to dependents”.

The Committee concluded that it was being asked to approve the Access Card on “blind faith without full knowledge of the details or implications of the program”.

This was “inimical to good law-making and unlikely to encourage public confidence in the access card proposal, particularly as the missing measures are essential for providing the checks and balances needed to address serious concerns about the bill.”

The biggest mystery for the Committee members is how the whole thing happened.

Why did a government that insisted it was determined not to introduce a universal ID card fast-track legislation that was only half drafted and issue contracts ahead of parliamentary approval for a system that had all the makings of a universal ID card?

The best guess is that the Access Card began with good intentions. The magnetic striped Medicare card that lives in most of our wallets is now ancient. It is easy to read, easy to forge and in need of a technological update. From this worthwhile aim came a proposal that grew, and then continued to grow without effective ministerial oversight.

It didn’t help that the portfolio went through three ministers while the bill was being prepared for and shepherded through parliament.

The first, Joe Hockey was genuine technological enthusiast, which may not have helped when it came to rigorous skeptical oversight.

He was anxious to promote a personal data storage zone on the card’s chip that he described variously as being like an ipod, a car, and somewhere to store a shopping list.

There is no doubt that the use of an electronic chip on the Access Card opened up these possibilities, but they are uses that would have encouraged rather than discouraged its evolution into an all-purpose identification card.

There was also talk about the use of the personal area of the chip to store medical data even medial histories, but these plans were undeveloped at the time the legislation was presented to the Senate. They were downplayed by Joe Hockey’s successors.

Ian Campbell took on the portfolio after Joe Hockey was promoted, oversaw the introduction of the legislation to the House, and then resigned after admitting that he had met the Western Australian lobbyist Brian Burke.

His replacement Senator Chris Ellison barely had time to get up to speed before the Senate inquiry began.

The proposal was without continuing and effective Ministerial oversight during its most critical phase. It was pushed by the Office of Access Card in the Department of Human Services and developed a life of its own. If an agency such as Veterans Affairs or the Australian Federal Police insisted that a feature be added, it was. If the Office wanted to issue tenders ahead of parliamentary approval, it got its way.

The Access Card became a multi-humped, continuingly evolving and self-sustaining camel. If a government Minister of any strength had taken a hard look at what was evolving and measured it against the government’s stated objectives the Senate committee would never needed to have produced this week’s humiliating report.

As an exercise in public administration, ministerial oversight and parliamentary accountability the evolution of the Access Card is not a process the government can be proud of.

And yet what was being proposed – a database of biometric and other information on 16.5 million Australians – had the potential to become the Howard government’s most-remembered achievement.

By killing the Access Card bill this week the government members of the Finance and Public Administration Committee probably did the Howard government a favour (although it would be fair to say they are not being thanked for it at the moment).

The new Minister for Human Services Senator Ellison says he will examine the legislation afresh and then reintroduce a revised package in one part rather two later this year.

He may be dismayed at what he finds. Senator Ellison was an opponent of the less-intrusive Australia Card proposal put forward by the Hawke government in the mid-1980’s.

His office says he hopes to have the new bill ready by June. But even if he does, it is unlikely to pass into law before the election. Labor has promised not to proceed with the card. For the moment it is dead.

The private sector contractors who have spent millions of dollars preparing tenders to run the system at the encouragement of the Office of Access Card may well be angry. They shouldn’t be. Dealing with a government is always a risk, especially if it is acting ahead of an authorisation from its own parliament.
When after the last election the Coalition gained a majority in the Senate there were many who said it would mean an end to effective Senate oversight of what the government was doing. This week they were wrong, and four government Senators can take a lot of the credit.

Great quotes

Seldom do Coalition senators make recommendations that are critical of a government program, let alone multiple critical recommendations ... but the Access Card is so bad they have swallowed their fears and spoken out.

Opposition Access Card spokeswoman Tanya Plibersek.
The Australian, March 16, 2007

Peter Debnam is running an amazing campaign and I think there's going to be a very strong reaction.

Pru Goward, Liberal candidate for Goulburn on her leader's performance in the NSW election.
AAP, March 15, 2007

Coles has always kept the market fully informed.

Sarah McNeil, Coles Group Corporate Affairs.
AM, March 16, 2007


Thursday, March 15, 2007

Like the Australia Card before it, the Access Card is dead... for now.

The government’s contentious Access Card legislation at present before the Senate is effectively dead. The Human Services Minister Chris Ellison last night agreed to withdraw and recast it in the wake of a scathing report by a Senate Committee half of whose members are Liberal Party senators.

The Human Services (Enhanced Service Delivery) Bill passed through the House of Representatives last month. The government had already issued two tenders for running the scheme and had planned to roll it out early next year. It is understood to have spent millions of dollars on the scheme on the assumption that it would be passed into law.

The Bill was to have been put to a vote in the Senate next week.

In a report tabled out of session late yesterday the Senate’s Finance and Public Administration Committee recommended that the entire scheme go back to the drawing board for redrafting.

The Committee, chaired by Queensland Liberal Senator Brett Mason complained that it had been asked to approve the scheme on “blind faith” without knowing what was to be in a second related piece of legislation yet to be drafted.

In strongly critical language it said that the fact that two tenders were taking place while it conducted its inquiry could be seen as undermining its authority “by creating the impression that passage of this legislation is preordained, rendering Senate oversight superfluous”...

The committee rejected the government’s claim that proposed card would be used only for the purpose of accessing Medicare and other government services. It found that “the inclusion of a photograph on the face of the card virtually guarantees its rapid evolution into a widely accepted national form of identification”.

It recommended that to prevent the card from becoming a national identity card the government consider including no information on its face other than the cardholder’s name.

The Bill makes it a criminal offence punishable by up to five years in prison for any unauthorized person to require a cardholder to produce a card.

But the Committee found that while those penalties were well intentioned, they could in practice achieve the opposite result of turning the card into a de facto national identity card.

“These provisions of the bill will criminalise behaviour that is an almost inevitable consequence of this same legislation. It is logically questionable for the government to create a document that can serve perfectly as a high quality identity document, and then to penalise those in the private sector who would want to use it for precisely that purpose.”

“From nightclub bouncer to airline check-in clerk, the temptation to ask for the access card as a form of ID will only be exceeded by the willingness of individual Australian citizens to produce that same document in the face of such a request,” the committee found.

It noted that although in NSW it is technically illegal for businesses to require the production of a photographic drivers license as proof of identity the practice was widespread.

It said that after almost universal registration for the Access Card it was easy to imagine that there would be “widespread pressure from a business community that is highly dependent upon reliable identification documents to repeal the dead letter draconian prohibition against requiring the access card.”

The Committee also expressed concern about the collection of biometric facial recognition data from each cardholder. It said while biometric photographs “would no doubt greatly facilitate the work of the law enforcement and security agencies” no previous Australian government, even in wartime, has effectively
required all of its citizens to give it a physical representation of themselves, nor contemplated storing it in a central database.

All eight members of the Finance and Administration Committee supported the recommendation that the legislation be redrawn for reconsideration. Labor, Democrat and Green members submitted additional more critical comments. Only one member, Liberal senator Concetta Fierravanti-Wells submitted additional comments supportive of the scheme.

The Minister Senator Chris Ellison said last night that he would withdraw the legislation in its present form but that he was committed to having a new bill passed before the end of the year.


By Peter Martin
Economics Editor

The Human Services (Enhanced Service Delivery) Bill is a landmark piece of legislation with incredibly widespread implications. If implemented it may well become the action for which this Coalition government is most remembered.

That is why the quality of the legislation, already passed in the House of Representatives, is a scandal.

Witness after witness told the Senate committee that the Bill was poorly drafted, had ill-defined terminology and appeared to reflect policy discussions still taking place.

The Bill was actually only part one. The parliament was asked to pass it before seeing part two which was to “deal with the review and appeal processes for administrative decisions, further elements of information protection and legislative issues relating to the use of the card, including in relation to dependents”.

Little wonder that the Senate Committee concluded that it was being asked to approve the Access Card “on blind faith”.

Among the organisations concerned or simply bulldozed by the rapid and continually evolving nature of scheme are the government’s own Privacy Commissioner, the Victorian Privacy Commissioner, the Australian Medical Association, Carers Australia, the Royal Australian College of General Practitioners, Legacy, MedicAlert and Vision Australia.

Yet in his second reading speech introducing the Bill the Minister Mal Brough labeled its opponents “friends of fraud”.

In trying to fast track the creation of one of the world’s largest biometric information databases the government itself has defrauded the parliament. Tender documents were issued before the Bill was even introduced. When Senators asked what was in them, they were told they were not to know.

If there is a case for what the database the government is planning it should make it slowly and calmly, probably after the next election.

Extra jobs are now being created at the rate of 1,000 a week...

...most of them full-time.

What's not to like about the Australian economy at the moment?

Kenneth Davidson has some ideas.

But in the here-and-now things look better than they have ever been.

Here's my report for tomorrow's CT:

An extra 22,000 Australians found jobs last month pushing employment to yet another all-time high. The official figures released by the Bureau of Statistics yesterday suggest that almost all of the new jobs created in February were full-time.

A record 294,000 new jobs have been created over the last year.

In welcoming the news the Treasurer Peter Costello said extra jobs were now being created at the rate of 1,000 a day, all them under the new WorkChoices industrial relations system. “So, far from the new industrial relations system leading to a decline in jobs or worse conditions, it has been consistent with strong jobs growth. This industrial relations system is good for job creation, it is not adverse for job creation,” he said.

Asked whether a shortage of workers to fill the jobs would put pressure on wages, Mr Costello said: “It is a problem – but it is a good problem. Yes, there will be more pressure on wages, but it is better to have that problem than the problem of mass unemployment, people unable to get work and no pressure on wages.”

The Treasurer conceded that Australia’s official unemployment rate was likely to climb later in year after new regulations due in July forced up to 90,000 Australian parents off pensions and onto the jobs market...

“We are encouraging some people who traditionally have not looked for work to do so – people who have been on the single parents’ pension, people who have been on the Disability Support Pension. So as you get more people looking for work, because of the way these statistics are compiled, your unemployment rate could edge higher,” he said.

Australia’s unemployment rate remained broadly steady in February at 4.6 per cent, just 0.1 per cent above the three-decade low of 4.5 per cent recorded in January.

In the ACT just 6,300 people were unemployed last month, down from 7,200 in January.

The ACT shared with Western Australia the distinction of having the lowest unemployment rate in the country, at 2.8 per cent.

At 6.3 per cent, Tasmania and South Australia shared the highest unemployment rate in the country.

Victoria’s rate of unemployment fell from 5.3 to 5.0 per cent, while the NSW rate climbed from 5.7 to 5.9 per cent.

The Salvation Army’s employment agency Employment Plus yesterday released the results of a survey of employers that found that despite a shortage of workers most employers remained reluctant to offer jobs to the long-term unemployed.

The survey, conducted by Roy Morgan Research, found more than 60% of businesses believed the tight labour market had not made the long-term unemployed any more attractive as employees. One third of those surveyed believed the long-term unemployed had a poor work ethic, 24% said they were potentially lazy, and 14% said they were are potentially unreliable.

The Salvation Army’s Communications Director Major Brad Halse said it was disappointing that Employment Plus had to continue to have to battle negative stereotypes that were are simply wrong.

Employment Plus had found that of those businesses which had hired one of the long-term unemployed in the last year, nine out of ten would consider doing it again.

A job-seeker is defined as long-term unemployed when out of work for more than 12 months. The number of long-term unemployed has fallen from 108,000 to 83,400 in the last year.