Thursday, June 28, 2007

Don't think of it as spending more on mortgages, think of it as "buying more expensive homes".


Actually I think the Prime Minister and Treasurer have something of a point, just.

I wrote this for this morning's paper laced with perhaps too much poorly-signalled sarcasism.

Worried that you are spending more and more of your income on mortgage repayments? Don’t be. According to the Treasurer yesterday at the launch of the census it is just that “people are using increased wages to buy more expensive homes”.

It is a line the Prime Minister rehearsed last week. After the release of data suggesting that mortgage payments were eating up more take-home pay than ever before he said people were “buying ever more expensive houses, and they are doing that because interest rates are lower and people can borrow more”.

So it is a sign of prosperity.

Renters might be feeling more prosperous as well. They are taking on more expensive rents...

In the last ten years the typical weekly rent reported on census night jumped from $123 to $190. The typical rent in the ACT, once on a par with the rest of the nation, has soared way above the pack to $260 per week, the highest in the country.

But it is hard to explain the changed behaviour of young Australians in terms of increased prosperity. The census reveals that the number of young people aged 15 to 24 still living with their parents has jumped 9 per cent in the last ten years. It is more likely that they can’t afford the increased rents.

And it is hard to use increased prosperity to explain the dramatic slide in the proportion of Australians who have paid off their homes revealed in the census. Ten years ago 41 per cent of us had paid-off fully owned houses. Today it is only 33 per cent.

Indeed 179,704 houses that were debt-free back in 1996 are now mortgaged. We are actually remortgaging previously unmortgaged homes. Yesterday Mr Costello said that his suspicion was that people were “unlocking equity in homes, particularly amongst those older people who traditionally would have paid off their mortgage in its entirety”.

Two forces are at work. One (unacknowledged by the Treasurer and Prime Minister) is that housing is becoming harder to afford. The other (trumpeted by them) is that even with the recent hikes in interest rates, finance is more easily available.

There is another sign of this in the lower proportion of people renting. In the last ten years that proportion has slipped from 29 per cent to 27 per cent, perhaps because homeownership has come to be seen as more important. People who would have once would have felt happy renting for some years might now be feeling that if they don’t attempt to get into the housing market immediately they will have lost their chance of homeownership forever.

Wednesday, June 27, 2007

Ken Henry on aboriginal welfare: "We must deal honestly and analytically with the underlying causes"

Another excellent speech from the head of Australia's Treasury.

It is not the first time Ken Henry has tackeled aboriginal issues.

The head of the Treasury has entered the debate over aboriginal welfare, claiming that Australia’s social security system has helped consign aboriginals to economic and social exclusion.

Delivering a speech to the Cape York Institute in Cairns at the invitation of aboriginal leader Noel Pearson Dr Ken Henry said that he was aware that his statements were controversial, but that “we will never make progress – in any area of policy – unless we are prepared to deal honestly and analytically with the underlying causes of the problems we face”...

“Indigenous welfare has been provided passively. It has encouraged a state of dependency. And that dependency has contributed to the undermining of Indigenous development,” the Treasury Secretary said.

“Governments have allowed many income recipients to receive support without being required to seek work. For instance, in the past, many Indigenous Australians were granted Remote Area Exemptions, people with disabilities could avoid work obligations unless they were assessed as being able to work for 30 hours a week at award wages for two years, and parents didn’t have to seek work until their youngest child was aged 16.”

“Governments that designed these policies were no doubt
motivated by compassion. In practice, they were consigning many Australians to a life of economic and social exclusion. And there is increasing evidence of these impacts affecting successive generations in some families.”

Dr Henry spoke of the need for a changed set of incentives where aboriginal parents were rewarded for ensuring that their children stayed at school. For its part the government had to provide good education and health care and do what it could to provide good jobs.

But in communities without jobs, indigenous Australians needed to be encouraged to move, at least temporarily.

“I know this is controversial, but it can’t be ignored. Where remote locations simply cannot produce sufficient job opportunities for local people, there is no point in relying on miracles. A better strategy is to ensure that people have the opportunity to move to take up work if that is what they want to do.”

The Treasury secretary said a sensible model would be for indigenous people in remote locations to spend part of the year earning income in other places, returning to live part of the year on their country.

Tuesday, June 26, 2007

Tuesday Column: If it happened to Hew, it could happen to you

Most of us have an opinion about the way the Australian government has treated David Hicks. Few of us have ever heard of Hew Griffiths.

Now in his forties, he has lived in Australia since the age of seven, most of the time with his father on the central coast.

Early one morning in 2003 the Australian Federal Police raided the weatherboard house and arrested him for breaking a US law.

Hew Griffiths had never even been to the United States. He didn’t own a passport...

Like most of us he might have felt entitled to believe that he was subject to Australian law.

His crime (which many of us would think of as civil rather than criminal in nature, however reprehensible) involved cracking codes and distributing computer copies of copyright-protected films, music, games and software.

Charged in his absence by a US grand jury, and languishing in Sydney’s Silverwater jail, he had an early win.

Magistrate Daniel Reiss found that the case broke new ground. No-one, anywhere in the world had ever been extradited to the US to face on-line copyright charges. He refused the request for extradition, finding that Griffiths was not “a fugitive fleeing and hiding from the extradition country” and that the case did “not involve the usual situation where another country… seeks the return of a person convicted, or charged with, an offence physically committed in that other country".

The US appealed and won. Justice Jacobson of the Federal Court found as he needed to in order to approve the extradition request that the alleged conduct would have been illegal had it taken place in the state of NSW.

He appeared to be unmoved by the irony that the conduct did take place in NSW, and so on his own reasoning could be dealt with under Australian law.

Griffiths fought the extradition all the way to the High Court, which found it could not hear the appeal, and to Australia’s then Justice Minister Chris Ellison who had the power to refuse the US request but chose not to do so.

In February this year two US officials brandishing a one-way travel document bundled him onto a United Airlines flight to Los Angeles and then to a US jail ahead of his trial in Virginia.

As far as I can tell, Australia’s politicians said not a thing. I receive every press release issued by Australia’s Shadow Ministers, hundreds each week, and I can’t find a single mention of Hew Griffiths among them.

Justice Peter Young, the NSW Chief Judge in Equity, was concerned enough to write to the Australian Law Journal describing as “bizarre” the fact that “people are being extradited to the US to face criminal charges when they have never been to the US and the alleged act occurred wholly outside the US”.

Doubly bizarre was that Griffiths had accomplices, eight of them British. Yet they were tried under British law. The US didn’t try to extradite them to the United States.

The attitude of the British government in the past suggests that it would not have succeeded. Britain got its citizens out of Guantanamo Bay to have them tried at home. Australia did not.

It is possible to stretch the parallel between Australia’s terror suspect David Hicks and Australia’s cyber criminal Hew Griffiths too far. One trained to kill people, the other helped distribute software. But in both cases, our Government surrendered them to the US legal system rather than insist they be tried by our own.

On Friday the unemployed broke former Australian resident (no-one alleges that he made money from his hobby) was sentenced to 15 months in an American jail.

The US is crowing about what it is able to achieve with Australia’s help.

Attorney Chuck Rosenberg of the state of Virginia declared in a statement that “for those inclined to steal intellectual property here, or from half-way around the world, they are on notice that we can and will reach them”.

It is an unsettling prospect. How many of us who have teenage children with access to computers know whether or not our children “steal intellectual property”? How many of us even know what that means? And how many of us would have assumed that what mattered was the Australian, rather than US law.

Rosenberg was happy to help with a definition. According to the attorney “whether committed with a gun or a keyboard -- theft is theft”.

He is wrong. Just as is the Australian recording industry which has sought jail terms for Australian students who download music.

After university students Charles Kok Hau Ng and Peter Tran were given suspended jail sentences for organising a music sharing site a few years back the recording industry claimed they had cost it $200 million. A spokesman declared “clearly if you steal this much music from the store, you go to jail”.

But copying and downloading is different to stealing, and most of us sense it. That’s why those anti-copying ads at the cinema that remind us that we “wouldn’t steal a car” don’t ring quite true.

For something to be stolen, there must be something missing. Often there is very little missing as a result of illegal downloads. In some cases the “buzz” created by the downloads actually increases legal sales.

The Australian students alleged to have stolen $200 million, and Hew Griffiths, alleged to have helped steal $60 million almost certainly didn’t.

Australians have been downloading and sharing music since the end of the 1990’s, in massive and increasing amounts. Yet the Australian Recording Industry Association reports that last year legitimate sales of music soared 27 per cent.

Hew Griffiths and his crew may have given away copies of Microsoft programs and new release movies, but I would be interested to hear how much Microsoft and the movie companies believe those giveaways have actually hurt their sales. (It is data they might have been asked to provide if Griffith had faced a civil suit rather than a criminal trial as arguably he should have).

The zero-sum approach to the theft of intellectual property adopted in the US is the wrong one. I fear that the laws based on it are ultimately unenforceable.

In Australia we have agreed to replicate it as part of our obligations under the Free Trade Agreement.

The fate of Hew Griffiths suggests that we are doing so enthusiastically.

Sunday, June 24, 2007

Sunday dollars+sense: Why do brides buy their dresses, rather than rent?

Lets see what kind of an economist you are. Why do brides spend so much money - often thousands of dollars - on wedding dresses that they will never wear again, while grooms rent cheap suits, even though they will be able to wear them again?

Here’s another one: Why do some bars charge for water but give away bowls of peanuts for free?

Why do >diners at restaurants who split the bill typically spend more than those who don’t?

And some apparently non-economic questions: Why does a light come on when you open the refrigerator, but not when you open the freezer? Why do the doors> on 24-hour convenience stores have locks?

If you can come up with answers... are probably a good economist. If the questions occurred to you in the first place, you are probably brilliant.

Robert Frank is one of the world’s leading economists. But a lot of his work has nothing to do with formulas. My favourite is about the employment arms race.

It helps to wear an expensive tailored suit at a job interview. But as soon as everyone discovers that the money will be wasted, and quite a lot of it. The outcomes will be the same as if no-one wore the expensive suits. It would make sense to ban them.

A few years back Frank noticed that his students seemed to be taking in very little. So he started asking them questions about the real world. Then he asked them to set the questions. Questions such as “Why do ads in newspapers sometimes include the phrase ‘as seen on TV’?

He wanted them to behave like David Attenbroughs, economic naturalists who asked questions about and describe the world they saw. He has just published the questions and answers in a book entitled The Economic Naturalist which might just help you discover that you’ve been an economist all along, or open your eyes to economics if it hasn’t yet happened.

(It is not available here yet. You’ll have to order it, a mystery I would like him to explain.)

Brides buy rather than rent expensive dresses because each is usually a unique fashion statement. It would be too hard for a hire company to store them in case anyone wanted that exact one again. Men are more comfortable conforming.

The other answers are in the book, although you might just want to fire up your inner economist and work them out yourself.

Robert H. Frank THE ECONOMIC NATURALIST: In Search of Explanations for Everyday Enigmas, Basic 2007 ISBN 046500217X

Friday, June 22, 2007

Saturday Forum: Telstra's worst nightmare just got worse.

Telstra’s worst nightmare just got worse. Until this week it had been understood that if ever there was big money to be spent building phone and broadband networks in the bush, Telstra would do it.

And if ever Australia was to get a rolled-gold replacement for its copper-wire based network in the cities Telstra would build it. It owns the network we already have, and more importantly it owns the wires going into each home that would have to connect to the new network.

On Monday John Howard and his Communications Minister Helen Coonan rendered the first assumption obsolete. A new consortium made of Optus and Elders was given almost $1 billion to help it provide broadband and associated phone services in the bush.

For the first time where big government money was at stake Telstra lost out. It says the government “ignored Telstra’s bid altogether, refusing approaches to meet on the matter and not once asking for any further information or clarification”...

Optus and Elders will be able to make Telstra irrelevant in the bush if they want to, using their own equipment and radio transmitters to bypass Telstra’s ownership of the wires that go into houses and farms.

Work on the network will start in eight weeks. When it is finished in two years time Telstra’s old slogan “Advancing Australia” will be quaint and wrong.

In the cities Telstra believed it had the government in a headlock. It said only it could build a fibre-to-node broadband network that would connect that would reach every house in every street. Again, its trump card was that only it owned the wires going into the homes.

It said unless it was freed form the oversight of the Competition and Consumer Commission it wouldn’t build it, and it imposed a deadline. It gave the government until July 31.

On Monday Howard and Coonan ignored it on that as well. They up an expert committee to more broadly examine ideas on broadband with no fixed deadline.

They called Telstra’s bluff. Telstra had threatened to walk away in the belief that no-one else would be able to build a network that would supersede its own.

On Wednesday Telstra’s nightmare turned toxic.

Europe's largest telecommunications company Deutsche Telekom was named as one of several international corporations keen to build a new broadband network in Telstra’s place.

In the ACT we know that despite the conventional wisdom it is possible to build a broadband network and take it into homes without Telstra.

TransACT puts it into ACT homes by putting in its own wires. Telstra sockets sit unloved on ACT skirting boards, presumably still connected to the network but irrelevant.

It is a very expensive exercise for TransACT and it is able to do it only because one of its parents ACTEW already owns the electricity poles from which it strings the cables. (It can’t do it where it doesn’t have the poles, which is why it can’t service parts of the Canberra suburb of Gungahlin. The electricity wires put underground.)

With enough money behind it a corporation such as Deutsche Telekom could render Telstra’s entire network irrelevant.

Operating as a new Australian company with new equipment it could secure greenfields industrial agreements and employ only the minimum of highly skilled staff it needed to make its network work. Unburdened by thousands of telephone exchanges, call centres, retail shops and creaking IT systems, it would be a cheaper network than Telstra’s to run.

If a company such as Deutsche put a fibre wire into every home instead of a wire (a very expensive undertaking), it would have a network that ultimately would cost very little to maintain.

As the aging Telstra network became more expensive to run and as the new corporation paid down its debt and gained more users its network would keep getting relatively cheaper.

And far from trying to keep other companies off its network, as Telstra has done, it would welcome them. The new network owner wouldn’t be in the complicated and expensive business of retailing. It could make more money by selling access to the network wholesale, at reasonable prices. With practically unlimited capacity on the network it would make more financial sense for it to charge a low price and get a lot of customers than to charge a high price and get few.

All Deutsche Telekom would need would be the money. The worst part of the scenario for Telstra is that it would be find it in spades.

Australia’s Macquarie Bank and Babcock and Brown have made fortunes finding the money for these sort of deals. Macquarie does it for radio and TV transmission towers and for toll roads. Babcock and Brown is part of 3 groups bidding for the right to build Singapore’s high speed broadband network.

Right now the world is awash with superannuation and pension fund money looking for safe, reliable and ultra-long-term returns. Investment banks such as Macquarie and Babcock use this money to build or buy infrastructure designed to last a very long time. A fibre broadband network covering every city in the country would last longer than most of the assets Macquarie packages into trusts, and the income from it would never stop.

For putting such deals together (contracting the builders, working with a company such as Deutsche and spruiking the trusts to funds) organisations such as Macquarie and Babcock and Brown charge healthy fees. But the investors in the trusts don’t mind. Boring, stable income earning-earners are exactly what they need.

(Those investors would however be very alarmed if the trusts started behaving like Telstra and sprayed around billions in ill-conceived ego-boosting expansion plans.)

The plain but unlikely-sounding truth is that an infrastructure company that only provides infrastructure is worth more to a certain type of investor than one combined with an aggressive and market-leading retailer.

Telstra had and still has the opportunity to structure itself as such a company. It could either split itself into two shareholder-owned companies, one operating the wires and other using them or split itself internally. One of its business units would chase business from the likes of Optus, iiNet, and Telstra Retail while the other one would compete agressively against them.

To date Telstra has resisted structural separation at every turn. It persuaded the former Communications Minister Senator Richard Alston to do the same. Late in 2002 he set up a parliamentary inquiry into the idea in an attempt to discredit it and then shut the inquiry down when it looked as if it was not going his way.

The government and Telstra’s shareholders may now be wishing that Richard Alston had been less successful. In private hands and conflicted as both Australia’s dominant wholesaler and retailer Telstra has behaved like a bully. It won’t turn on the high-speed equipment it already installed in many of Australia’s exchanges for fear that competitors will try to buy access to it. It charges so much for its impressive Next-G wireless broadband service (through excess download fees) that neither its competitors nor most of its retail customers can afford to use it for true broadband. And it lobbies and delivers ultimatums in order to keep its competitors away from its wires.

The group that Senator Coonan has set up to examine ideas for broadband is likely to be extremely receptive to proposals from stand-alone operators such as Deutsche with Macquarie. They would be proposing a network that stood alongside, rather than replaced the existing one. Telstra wanted to disconnect each of us from its existing network, reconnect us to its new higher-priced one and turn the old network off.

With the new network and Telstra’s old one operating side by side Australians would have a choice - old technology or new, Telstra’s prices or those of the companies using the new network. The competition would hold prices down, at least until Telstra’s network died of old age.

12 consortia are bidding for the right to build the Singapore network. It is highly likely that they would be interested in doing so here as well.

Telstra’s 1.7 million shareholders stand to lose a lot from the decisions announced by Howard and Coonan this week, especially Telstra’s management makes good its threat to walk away from its offer to build a fibre-to-node network after July 31.

Those shareholders might take the view that Telstra’s management has served them incredibly badly, that Telstra’s lobbying and its threats have unleashed processes that Telstra can no longer control.

The Labor Party might be feeling bruised as well. Its “nation-building” plan to kick $4.7 billion into a consortium to build a national fibre-to-node network looks redundant. Now that Elders and Optus have been given money to fix up the bush, a fibre-to-node network in the cities looks commercial without government money.

As far as I can tell Labor’s Communications spokesman Senator Steven Conroy put out only one press release after the Minister’s announcement this week, complaining that it defined Hobart and Launceston as regional centres rather than as cities.

Like Telstra, Labor appears to have been blindsided.

Mortgage payments eat up more income than ever.

Mortgage payments are eating up more of Australian income than ever before. Figures released by the Reserve Bank yesterday show that an all-time record 9.5 per cent of household disposable income is being spent meeting mortgage payments, well up on the 8 per cent of take-home pay devoted to repayments at the time of the last election.

That election was fought and won by the Coalition on a promise of “keeping interest rates low”.

During the 2004 televised election debate the Prime Minister claimed that “paying off a home is easier now then it would have been” had Labor’s interest rates remained.

But the household finance figures released yesterday cast doubt on that claim. They show that under Labor in 1989 mortgage payments peaked at just 5.1 per cent of household income.

The new all-time record of 9.5 per cent of disposable income devoted to mortgage payments is an average rather than a representative figure. Most households make no mortgage payments. Many of those that do are now in “mortgage stress”, devoting in excess of 30 per cent of their income to repayments...

Mortgage payments have climbed despite generally lower interest rates as house prices and the amounts borrowed have soared.

The data shows that payments began climbing sharply as a proportion of household income at the turn of the century 7 years ago and have barely slowed since. Mortgage payments now eat up twice as much of household income as they did back then.

One contributing factor is thought to be the government’s effective halving of the headline rate of capital gains tax late in 1999 which bought investors into the housing market pushing up prices.

As well mortgage rates have been lifted 8 times since then, 3 of them last year. Should the Reserve Bank lift interest rates again later this year as is expected the holder of a $400,000 mortgage will be paying $380 more in interest per month than at the time of the last election.

Total interest payments on all types of loans have also hit a new record high, climbing to 11.9 per cent of household disposable income in March, up from 7.6 per at the turn of the century.

Labor’s Treasury spokesman Wayne Swan said the figures showed how deeply out of touch the Prime Minister was with large sections of when he claimed that “Australian working families have never been better off”.

Mr Howard replied that Australians were buying more expensive houses and that by a different measure “the average mortgage repayment on a new owner-occupied loan as a share of average disposable income” was below its 1989 peak.

But he said he recognised that some families were doing it tough. “No matter who is in office, there will always be some families who miss out. But if you look at overall wages, if you look at unemployment, you will find that if fairness in Australia is at a 32-year high”.


It's back!!! Australia's Access Card returns.

Infringement notices will be part of a new armory of weapons proposed by the government to ensure that its planned Access Card is not used improperly.

The Human Minister Chris Ellison yesterday released an exposure draft of the government’s revised Access Card Bill, prepared after the earlier one was withdrawn in the wake of a hostile report by a Senate Committee.

The new draft Bill resubmits many of the proposals criticised by the committee including the display of identifying information including names, photographs, ID numbers and signatures on the face of the card.

The Committee suggested that including this information on the face of the card when it would already be digitally embedded in the card would encourage its use as a general identification document outside of the government...

The draft bill says that it will be illegal for anyone not associated with the provision of government benefits to demand that the card be produced as evidence of identity.

In an attempt to make this restriction more enforceable it proposed a system of infringement notices enabling fines to be imposed on people such as nightclub bouncers or call centre operators who demanded production of the card of the use of its ID number.

The director of the No ID Card Campaign Anna Johnston said last night that the bill was effectively unchanged and ridden with loopholes.

The card could still be requested as identification by private service providers – it just could not be “required”.

“And government officials from police officers to bus drivers to social workers will be able to demand production of the card. Indeed, immigration officials have already suggested that the card could be used to identify missing or detained persons – a purpose unrelated to the delivery of health or welfare benefits”.

She said banks already planed to use the Access Card as part of the “100 points of ID” system to monitor financial transactions. The only way to stop the card becoming an all-purpose identification card was to “remove the features that make it an all-purpose ID card.”

The Minister has asked for comments on the exposure draft by 21 August.

Thursday, June 21, 2007

Wow! Australian politics just got REALLY interesting.

You will be hearing a lot more about this throughout the day, so tune into the radio or TV, esp The 7.30 Report and PM.

Howard had just announced an incredibly impressive push to end abuse of aboriginal children.

At first blush, as went through the list of actions his government is going to take, I couldn't have been more proud.

Google will have news here (when it is written).

And the Prime Minister's office will have news here.

Australian politics just got genuinely interesting.

UPDATE: Rudd jsut expressed his support and asked for a briefing. Howard will give it to him.


Well, ladies and gentleman, Mr Brough and I have called this news conference to announce a number of major measures to deal with what we could only describe as a national emergency in relation to the abuse of children in indigenous communities in the Northern Territory.

Anybody who's read or examined the report prepared by Pat Anderson and Rex Wild entitled, Little Children Are Sacred , will be sickened and horrified by the level of abuse. They will be deeply disturbed at the widespread nature of that abuse and they will be looking for the responsible assumption of authority by a government to deal with the problem.

We are unhappy with the response of the Northern Territory Government. It is our view that if it hadn't been for the persistence of Mr Brough in elevating this as an issue, the inquiry conducted by Rex Wild and Pat Anderson would never have been commissioned. The report was in the hands of the Northern Territory Government for some eight weeks before it was released.

And subsequently the Chief Minister has indicated that they would have a response in a period of six weeks and it's only today that I've received a letter from the Chief Minister and Mr Brough has, indicating that there is a desire on the part of the Northern Territory Government to work with us to deal with the issue. We're very happy to work with the Northern Territory Government, but it will need to be on the terms that I am about to announce.

We regard this as akin to a national emergency. Mr Brough's put it to me this way; that if this set of circumstances had been disclosed as taking place in the suburb of Dickson, can you imagine what the local response from police, from medical authorities and from the State Government would have been? It would have been horror and immediate action and a demand by the community that something be done.

That has not happened in relation to the Northern Territory and we therefore believe that the action I'm about to outline is totally justified and warranted, given our overarching responsibilities for the welfare of children throughout Australia.

These measures are going to be overseen by a taskforce of eminent Australians. It will include logistics and other specialists and child protection spec... experts. The measures involve a number of actions.

Firstly, in relation to alcohol, the intention is to introduce widespread alcohol restrictions on Northern Territory Aboriginal land for six months. We'll ban the sale, the possession, the transportation, the consumption and broader monitoring of takeaway sales across the Northern Territory.

We will provide the resources and we'll be appealing directly to the Australian Medical Association to assist, but we will bear the cost of medical examinations of all indigenous children in the Northern Territory under the age of 16 and we'll provide the resources to do with any follow up medical treatment that will be needed.

We're going to introduce a series of welfare reforms, designed to stem the flow of cash going towards [coughs], excuse me, alcohol abuse and in -- to ensure that the funds meant to be used for children's welfare are actually used for that purpose.

The principal approach here will be to quarantine as from now, through Centrelink, to be supported by legislation. Fifty per cent of welfare payments to parents of children in the affected areas, and the obligation in relation to that will follow the parent wherever that parent may go, so the obligation cannot be avoided, simply by moving to another part of Australia and effectively, the arrangements will be that that 50% can only be used for the purchase of food and other essentials.

We're going to enforce school attendance by linking income support and family assistance payments to school attendance for all people living on Aboriginal land. We'll be ensuring that meals are provided for children at school with parents paying for the meals.

The Commonwealth Government will take control of townships through five year leases to ensure that property and public housing can be improved and if that involves the payment of compensation on just terms, as required by the Commonwealth Constitution, then that compensation will be readily paid. We'll require intensive on-ground clean-up of communities to make them safer and healthier by marshalling local workforces through Work for the Dole arrangements.

We will scrap the permit system for common areas and road corridors on Aboriginal lands. We're going to ban the possession of X-rated pornography in the prescribed areas and we're going to check all publicly funded computers for evidence of the storage of pornography.

Law and order will be a central focus of the measures I've announced. There will be an immediate increase in policing levels. They're manifestly inadequate. The existing laws, even with their shortcomings, are not being adequately enforced.

We'll be asking each state police service to provide up to 10 officers, who will be sworn as police in the Northern Territory. We will provide the additional cost, and we will provide special incentives and bonuses for the police around Australia to participate in this activity.

We're going to provide additional resources to set up an Australian Government s-xual abuse reporting desk. And we'll appoint managers of all government businesses in all communities.

And there are two other very important actions. Next Thursday, there will be a meeting of the Inter-Governmental Committee on the Australian Crime Commission to formally -- and at that meeting, I'm sorry, our minister will ask the ministerial council to formally refer this issue to the Australian Crime Commission to allow the Crime Commission to locate and identify perpetrators of s-xual abuse of indigenous children in other areas of Australia.

And this will be a precursor, we hope, to the effective prosecution of those people by the relevant state and territory law enforcement authorities.

I should also indicate to you that Mr Brough is bringing to Cabinet at its next meeting some proposals to further extend the conditionality of welfare payments to all Australians receiving income support to ensure that these payments are used for the benefit of their children.

I should indicate that, if necessary, Parliament will be convened during the winter break for a special session to deal with the legislation that will be needed to give effect to the announcements I have made. These announcements will involve amendments to the Northern Territory land rights legislation. And also amendments to the Territory self-government legislation.

They do represent very dramatic and significant Commonwealth intervention. We're doing this because we do not think the Territory has responded to the crisis affecting the children in the Territory, and we believe that our responsibility to those children overrides any sensitivities of Commonwealth Territory relations.

In the end, the duty of care to the young of this country is paramount, and nobody who has any acquaintance with that report could be other than appalled by its contents, appalled by what it reveals, appalled by the cumulative neglect of many over a long period of time, and frustrated in the extreme at the inability of governments to come to terms with an effective response to do with this problem. We are dealing with children of the tenderest age who have been exposed to the most terrible abuse, from the time of their birth, virtually. And any semblance of maintaining the innocence of childhood is a myth in so many of these communities.

And we feel very strongly that action of this kind is needed. It is interventionist. It does push aside the role of the Territory to some degree. I accept that. But what matters more: the constitutional niceties, or the care and protection of young children?

We believe the latter is overwhelmingly more important. We hope that the Northern Territory Government will cooperate and see the wisdom of working with the Commonwealth Government.

But our resolve to implement these measures is firm, and we intend to set about them from the time of this announcement. I -- can I pay tribute to Mr Brough for the way in which he has identified this issue and pursued it, and as a result, ensured that the Northern Territory Government appointed the inquiry. And his contribution to this has been immense, and without his efforts, I wouldn't be making the announcement that I just have. Any questions?

How to brief a leader.

The opposition leader Kevin Rudd wanted to know 'what all this productivity stuff is about'.

His staff told him.

Monday, June 18, 2007

Tuesday column: Calling Telstra's bluff, with malice.

Telstra says it is “unbelievable” and I am inclined to agree. The government has called Telstra’s bluff. With malice. In an election year. It was about time somebody did.

Imagine if you can a really big company, absolutely dominant, with access to the very best lobbyists money can buy.

Used to getting its own way, it decides to take advantage of the political tension in the lead up to an election to extract a really big prize from the government – one bigger than it has ever reached for before.

Perhaps because it is so audacious it asks the government to keep the details secret.

It says it will invest billions of dollars in a new cables and equipment that will give its city customers access to pretty much the same sort of service that they had before, but at a much higher price.

In order to do it will disconnect each of its customers from its existing cables and exchanges, ensuring that they have no option but to pay the higher price...

Competitors who have attached their own equipment to those cables and exchanges in order to sell a competing product will have their investment made worthless.

Its new cables and exchanges will be all but impossible for its competitors to use, and in order to make it hard for them to even to even buy its service wholesale and compete as retailers it demands the right to set its wholesale price prohibitively high and demands a guarantee that the competition regulator won’t order it to cut it.

Naturally, the government has doubts.

So the company ramps up a PR campaign so crude and so expensive that it makes the government’s own workplace blitz look modest.

(And with economic arguments so dodgy it makes you hope the company doesn’t believe them. As recently as this month the company’s Chief Financial Officer was quoting an estimate of a $30 billion economic benefit from national broadband exposed as a furphy by this newspaper back in April.)

The company delivers brochures to each of its millions of shareholders and customers asking them to lobby members of parliament on its behalf. It creates a fake “grassroots movement” and takes out full-page ads, all aimed at publicly pressuring the government to adopt a proposal it has demanded that the government keep secret.

And it imposes a deadline.

A self-respecting government would tell the company where to get off.

I am proud to say that ours just has. With malice.

It has told Telstra that in future it should take its ideas to an expert panel, not to the Minister. And it has loaded that panel with experts likely to be appalled by those ideas.

The government put carbon emitters on its emissions trading taskforce. It has put no-one friendly to Telstra on its telecommunications taskforce.

Instead it has appointed Dr Ken Henry, the head of the Treasury and an economic rationalist whose belief in the virtues of competition and views about corporate welfare are well known.

He will be joined by the head of the Department of Communications and a Deputy Secretary in the Prime Minister’s Department. Yesterday Telstra complained that the government had stopped talking to it, something that might provide a clue as the stance of those departments.

Also on the panel will be three experts on competition, all of whom have either worked or still work at the Australian Competition and Consumer Commission, the organisation from who’s oversight Telstra wanted to be freed. It is a fair bet that they don’t believe in special deals.

Rounding out the expert group will be business figure Len Bleasel, a former head of AGL whose partly-owned subsidiary TransACT took on Telstra in the ACT, and company director Dick Warburton who has run businesses including David Jones, Southcorp and Tabcorp; firms for whom communications costs mater.

Even worse for Telstra (and for the Opposition which had wanted to make the differences between the parties an election issue) the expert taskforce has been given no set deadline. It will almost certainly keep considering the proposals put to it until well after the election when the time for political pressure has passed.

There is no reason why the taskforce should have a deadline. Almost anyone in an Australian city who wants access to broadband already has it. There are some black spots, parts of Gungahlin amongst them. But they can be fixed locally. They don’t need a new multi-billion dollar national network. It may be that such a network is never needed, and it may be that the longer the expert group waits the more likely it that time, technology and the market solve whatever problems there are.

That’s how it has been to date. Reading back over the documents written at broadband at the turn of the century a few months ago I was astonished at the extent to which self-interested parties urged the government to “do something” to boost its take-up. As it happened the government did nothing, and the take-up of broadband in Australia’s cities far exceeded the most optimistic of the urgers’ forecasts.

If urban Australians genuinely want faster broadband they are likely to get it, with or without Telstra’s grand plan. Telstra itself could help by turning on the high speed equipment that it has already installed in its exchanges and is holding back for tactical reasons.

In the bush it is different. It costs real money to get broadband to some of those places, and the government has put it up. It is handing over almost $1 billion to a consortium created by Optus and Elders (named Opel) with the express purpose of providing broadband outside of Australia’s cities.

Telstra didn’t get the gig. It is livid and says that the government ignored its own lower-priced bid “refusing approaches to meet on the matter and not once asking for any further information or clarification on what Telstra could have achieved”.

If so, the government has done us all a favour. Telstra’s present behaviour can arguably be traced back to a Cabinet win by Kim Beazley, Communications Minister in the Hawke government in 1990 who pushed for the creation of a “megacom” made up of Telecom Australia and the previously separate Overseas Telecommunications Corporation. The Treasury and the Treasurer Paul Keating condemned the move and wanted the OTC to form the nucleus of a competitor that would stand up to Telstra.

Beazley won and the megacom has thrown around its weight ever since.

Opel will encourage it to behave.


Sunday, June 17, 2007

Sunday dollars+sense: The tax system already discriminates, so let's discriminate in favour of women

It started as something of a joke. A fortnight ago I wrote that women should be taxed less than men.

My thinking was that women are much more responsive to changes in income than men. Really. Think about it. What man do you know who is going to be more likely to take up a job (or more likely to stay in work) if his tax rate is lower?

Despite all the talk about Australia’s “punishing” high rate of personal taxation, I’ve yet to meet a man for whom the tax rate makes much difference when it comes to staying in or getting into work. Having a job is just too important to most men’s identity.

But for women things are much more finely balanced...

Often at home with children, or knowing that they could be at home with children and avoid childcare fees, the after-tax rate of pay matters. Women are much less likely to be in work regardless.

So if we want to design a tax system that will get people to get into work without scaring away people who are already in work, why not tax women less than men.

We do sillier things. We tax money made from capital (capital gains) at half the rate of money made from wages on the more-or-less plausible assumption that capital is footloose and will be frightened away overseas by a high rate of taxation, but that work will not be.

But people rort the system by finding ways to convert income into capital gains.

The only way to rort a gender-based concession would be by a sex change, and changing sex isn’t easy.

It turns out that I am not the only person thinking along these lines. Economics professors Alberto Alesina from Harvard and Andrea Ichino from the University of Bologna have just have put forward the idea seriously in a 30-page academic paper and in a persuasive article in the London Financial Times.

They have even worked out the optimal difference in tax rates, based on the sensitivity of each gender to take-home pay. They say that in Italy the female rate should be 32 per cent less than the male rate; in the US at least 20 per cent less.

If you find the idea unfair, bear in mind that in Australia after decades of equal pay leglislation, most women are still paid less than most men. Think of it as a way of evening things up.

Alberto Alesina and Andrea Ichino, Gender based taxation: A 100 euro bill left on the table? Fleshed out version of FT article, Vox (beta) blog 8 June 2007

Alberto Alesina and Andrea Ichino, Gender Based Taxation, Harvard and Bologna University paper in progress 2007


Friday, June 15, 2007

Saturday Forum: Costello puts his foot to the floor

Hold in your head while you still can the image of Australia's Peter Costello as a sober, responsible, besuited economic manager. It vanished on Thursday last week, replaced by a new image of the Treasurer as a leather-jacketed daredevil Grand Prix speedster.

What caused the Treasurer’s brain to snap was economic news that was literally extraordinary.

After an amazing run of employment growth, the jobs market had gone into overdrive. The Statistician reported that an extra 66,800 full-time jobs were created between April and May, roughly half at the expense of part-time jobs and roughly half completely new.

The implications sank in. More than 2,000 new full-time jobs had been created each and every day of the month, including weekends.

During working hours Australians had been signed on to new full-time jobs at the rate of 400 per hour – roughly one every 10 seconds...

The Treasurer threw away the suit and grabbed the metaphorical jacket.

“This is like a highly engineered racing car - one missed cue, you take one corner a foot too wide and it will crash. You need a good experienced driver in control of this highly calibrated economy, I wouldn’t be putting an ‘L’ plate driver in the cockpit at the moment”.

He liked the line so much he refined it and used it again and again when parliament sat this week.

On Tuesday Australia had become “a supercharged economy, like a Formula One racing car. If a driver in this highly calibrated Formula 1 racing car takes a bend at six inches or six centimetres too wide, he is going to have a crash."

By Wednesday if the trade union movement got itself “back in the driving seat of this Formula 1 car, it will be heading to a crash as sure as night follows day”.

The metaphor is a good one. The Australian economy is speeding and accelerating. Where it the metaphor breaks down is the notion that the Treasurer or the Treasury is in control.

In the budget papers the Treasury’s best guess was that unemployment would average 4.75 per cent during the current financial year. This is the kind of forecast that the Treasury should have been able to get right. It already had 10 months of economic data. But so fast has the spurt of jobs creation been that in order to meet that forecast Australia’s unemployment rate would need to climb from 4.2 per cent to more than 8 per cent right now as the Bureau of Statistics conducts its final survey for the financial year this weekend.

Asked this week whether he thought Australia’s present rate of economic growth was sustainable the Governor of the Reserve Bank Glenn Stevens said flatly “Not forever, no. The economy’s trend capacity to produce output is probably 3 point something. I would consider it to be unlikely that year-in, year-out 4.5 per cent domestic growth is going to be feasible”.

We are indeed in overdrive. The new governor is about the only official advisor able to speak freely. The 49-year old has just been put on a 7-year contract that will see him outlast every member of the Cabinet that appointed him.

On Thursday at a seminar in Brisbane he as good as pleaded with Australian businesspeople and policymakers to remember that the bigger the boom the more likely it is to bust.

“The business cycle isn’t dead. It can never be abolished and sooner or later there will be a downturn. I can’t tell you when, but there will be. And structures and strategies that pay no regard to those possibilities will turn out to be damaging to the people who have got them. The longer the prosperity goes the more risk we run of that kind of behaviour occurring,” Governor Stevens said.

His Prime Minister isn’t helping. When I asked Mr Howard in April how Australia would cope in the event of a downturn he replied that there was “no reason why with careful economic management by experienced people we should contemplate a downturn. I don’t believe in recessions you have to have, I believe in continued economic prosperity you are entitled to have”.

And the daredevil Formula 1 racing driver isn’t helping much either. Rather than taking his foot off the accelerator as the economy goes into overdrive Peter Costello is pushing it down harder.

Right now $2.1 billion is being shoveled out of the Treasury and into the economy in one-off bonuses and rewards in a furious rush to meet the end of financial year accounting deadline.

Each veteran is receiving a letter from the Minister advising them that a cheques is on the way and saying that it “only fitting that the dividends of a strong economy are returned to you’.

And after we switch to a new financial year at the end of this month the Treasurer will be throwing in tax cuts worth an extra $5.3 billion, likely to push spending (and employment) to an even higher plane.

Ask the only public servant game enough to express his doubts what he thinks could go wrong and Glenn Stevens will tell you that “the danger is that people become so confident that nothing can go wrong that they put in place financial structures, in particular higher leverage, and they make all sorts of other decisions which turn out to be very costly on the day when something does go wrong. And something will, sooner or later.”

We are spending as if nothing could go wrong. National spending is up 8 per cent, borrowing up 15 per cent.

On Thursday in Brisbane Governor Stevens was at pains to correct the belief that all of this extra spending was good.

“Anything that stimulates demand is thought to be ‘good for the economy’, he explained. But in an economy more fully employed than it has been in decades “unless additional supply is somehow forthcoming, expanding demand just produces overheating and inflation.”

When he thought he was speaking privately earlier this year the head of the Treasury Ken Henry put the point with even greater force. In a leaked internal address to his staff at the Canberra Hyatt Dr Henry warned them to prepare for a flood of spending proposals that were “frankly, bad”.

He warned of a “temptation to think that all problems can be solved by government spending. Such spending adds to aggregate demand, but in a full employment economy it will almost always be the case that government activity that doesn’t expand the economy’s aggregate supply potential will indeed reallocate resources from higher to lower productive areas”.

Dr Henry advised his officers that “the next time any of you get an opportunity to write a coordination comment on a Cabinet submission that proposes a taxpayer-funded handout for some stunning new investment proposition – and I predict that some of you won’t have to wait very long for such an opportunity – I suggest you draw attention to the submission’s failure to identify the businesses that will lose labour, and be forced to reduce output, if the proposal is agreed to”.

The stream of “stunning investment propositions” may be just beginning.

Yesterday the government announced a $15 million land, engineering and environmental study to determine the best route for an inland Melbourne to Brisbane railway. It is not the first time it has announced such a study. It announced a similar one ahead of the 1998 election.

It is not known what the Treasury thought about the proposal then or now. It is known what the Treasury thought about the Prime Minister’s $10 billion Australia Day water plan.

In the words of Dr Henry when he thought he was speaking privately, “water has got away from us a bit in recent times, but it will come back for some quality Treasury input at some stage – it will have to.”

At the time the Treasurer’s co-pilot, the Finance Minister Senator Nick Minchin confirmed that his department had barely been given a chance to look at the spending, but appealed for understanding saying it was only “one billion a year, which is less than half a per cent of Commonwealth government expenditure, let’s keep it in perspective”.

The government is shoveling out money as if it doesn’t really believe that the economy is finely calibrated or that it might crash.

It is hard to work out what its strategy is. An truly awful possibility would be that it doesn’t care whether or not there will be a crash after the election. It will deal with that if it has to.

Another possibility might be that it really does think it is expert at fine-tuning an accelerating economy, although the rate at which its budget forecasts are becoming obsolete should give it reason for doubt.

And a more machiavellian possibility would be that it is putting its foot on the accelerator in order to make the ride scary so that we become frightened of changing drivers.

The Reserve Bank Governor made it clear on Thursday that he wishes things would slow down. He probably wishes that there wasn’t an election this year. He knows he might have to pick up the pieces when it is over.


Thursday, June 14, 2007

Governor says Australia's growth rate "unsustainable".

I was in Brisbane today to hear the first public speech from Australia's newest Reserve Bank Governor. With a seven-year tenure, he can speak without fear. He will outlast the politicians who appointed him. And as my piece in tomorrow's paper indicates, he does.

Australia's Reserve Bank Governor Glenn Stevens has delivered an apocalyptic wake-up call, declaring our present rate of economic growth “unsustainable”.

He has warned as well that he may need to push up interest rates soon to slow it down, but at a seminar in Brisbane yesterday he said that Australia’s current low rate of inflation had bought him “extra time”.

Market analysts interpreted the Governor’s words as indicating that the Bank was almost certain to push up rates this year, but in August or beyond rather than in July as many had thought.

A rate hike after August would come within months of the federal election expected in October...

But the Governor said that would cause him no problem.

“There's a sort of urban myth that is going around that it's understood that we wouldn't raise rates in the year of an election,” he told the Queensland University of Technology Business Leaders' forum.

“I object to this notion.We are not interpreting our decisions through the prism of the election. Whatever has to be done has to be done.”

Asked whether Australia’s present rate of growth in non-farm GDP of around 4.5 per cent was sustainable Governor Stevens replied “Not forever, no. The economy’s trend capacity to produce output is probably 3 point something. I would consider it to be unlikely that year-in, year-out 4.5 per cent domestic growth is going to be feasible”.

He said that his biggest concern was a dangerous belief among businesspeople that Australia’s 16-year economic boom would continue without end.

“The danger is that people become so confident that nothing can go wrong that they put in place financial structures, in particular higher leverage, and they make all sorts of other decisions which turn out to be very costly on the day when something does go wrong. And something will, sooner or later,” he said.

“The business cycle isn’t dead. It can never be abolished and sooner or later there will be a downturn. I can’t tell you when, but there will be. And structures and strategies that pay no regard to those possibilities will turn out to be damaging to the people who have got them. The longer the prosperity goes the more risk we run of that kind of behaviour occurring.”

Attending his first public seminar as Governor, the former Deputy Governor was careful to stress that he believed that both sides of politics were aware of the importance of long-term fiscal discipline. But he said too much attention was being paid to “boosting demand”.

“Anything that stimulates demand is thought to be ‘good for the economy’, he bemoaned. “But unless additional supply is somehow forthcoming, expanding demand just produces overheating and inflation.”

In particular the Governor warned that productivity appeared to be barely growing. “If you look at it industry by industry, productivity has actually collapsed in the mining industry, which seems odd. You can probably tell stories about short-term disruption in mining, but it isn’t just mining.”

Asked how he determined interest rates Governor Stevens said that there was no set formula but that Australia’s current extremely high rate of economic growth had caused him to ask “whether current settings are restrictive enough”.

He said the low rate of inflation probably gave him “a bit of extra time to assess trends”.

Asked when that time would run out, the Governor replied: “Every month we assess whether time as run out or whether it hasn’t. When it has we will let you know”.


Tuesday, June 12, 2007

Garbage in, garbage out. What Joe Hockey specifies in economic modelling.

The Department of Workplace Services is seeking economic modeling designed to make the government’s industrial program look good and the opposition’s look bad.

One request for tender seeks a consultant to model what it calls “the economic benefits” of the Coalition’s agenda. The other seeks a consultant to model what in that case is called “the economic costs” of Labor’s program.

Both tenders are due to be awarded on Thursday.

The process came to light in question time yesterday when the Labor’s Deputy Leader Julia Gillard brandished the 2 tender documents she said were distributed to economic modelers early last month. Both set tight timetables for the work, demanding final reports by mid-July.

The Workplace Minister Joe Hockey confirmed that the documents were genuine and described them as requests for “standard economic research”.

But the document dealing with the Coalition’s program asks the tenderer to include in the modeling the impact of a higher working age labour force participation rate – 78 per cent instead of the present 76 per cent - apparently on the assumption that is what the Coalition’s program would bring about.

The document dealing with Labor’s program asks the tenderer to include a lower participation rate – 74 per cent as opposed to the present 76 per cent – again on the apparent assumption that that is what Labor’s program would do.

Including those participation rates as specifications in the tenders rather than allowing them to be determined by the modeling would as good as guarantee that the modeling would conclude that the Coalition’s program boosted employment while Labor’s harmed it...

The document dealing with Labor policy asks the tenderer to also assume it brings on an explosion in “pattern bargaining and/or industry wide bargaining as opposed to having collective and individual agreements that are able to take account of firm-specific circumstances”. In truth neither pattern nor industry-wide bargaining is Labor Party policy.

The tenderer is also asked to model the effect of an increased number of working days lost due to industrial action under Labor’s policy even though it is little different to the Coalition’s in its approach to strikes.

The brief is also quite specific about the type of damage it expects the tenderer to find as a result of Labor’s proposed abolition of Australian Workplace Agreements.

It says it expects the cost to include “the loss of flexibility and the ability to negotiate mutually beneficial outcomes that are currently available in AWAs. Regional and industry differences are expected to be substantial - for example the impact on productivity in the Mining industry in Western Australia”.

Julia Gillard said the tender documents laid bare plans for a “negative, blatant misinformation campaign against Labor’s industrial relations policy”.

The Minister Joe Hockey said Ms Gillard was attempting to “twist standard economic research into some kind of workplace relations conspiracy theory”.

The leaked brief relating to the Coalition’s workplace policy also provides insights into the direction the department believes it might develop.

It asks the tenderer to determine the likely economic benefits of universal coverage under which every state government transferred its remaining power over industrial relations to the Commonwealth.

And it asks for an examination of a drop in award coverage from 19 per cent to 10 per cent of Australian workers, and an increase in the proportion of workers on Australian Workplace Agreements from around 5 per cent to 20 per cent.

The change is expected to “further enhance the flexibility of the workplace relations system and allow employers and employees to tailor agreements to suit their individual needs”.

Monday, June 11, 2007

Tuesday column: The WorkChoices fantasy

Last Wednesday in an attempt to promote the government’s workplace legislation the Workplace Minister Joe Hockey donned green ears and pretended to be the ogre Shrek.

The program’s host Kerri-Anne Kennerley played the part of Shrek’s sidekick Fiona. Princess Fiona explained that she was pregnant and her boss had begun giving her fewer shifts. She asked what her rights were under the new Australian Workplace Agreements.

Hockey replied: “I'll protect ya, Fiona. I'll protect ya. It's unlawful, Fiona. The good government is gonna rescue you, Fiona.”

Away from the fantasyland of Channel Nine, the Minister has been less helpful..

SBS TV broadcasts real programs featuring real people.

On Monday its Insight program examined the government’s workplace laws for the best part of an hour.

The program’s host Jenny Brockie explained twice to the assembled audience that there was a gap in the line-up: The Minister Joe Hockey “unfortunately chose not to accept a longstanding invitation to join us.”

His opponent Julia Gillard took part, as did employer and union representatives and real employers and real workers.

Had the Minister made the time he would have been able to advise Bill Schultze, who at the age of 17 was told to sign an AWA that cut his pay rate from $9.09 an hour to $7.17. He didn’t, and lost his job.

As it happened his father did complain to a Coalition MP and says he got no response.
The Minister would also have been able to advise Jocelyn James whose 16-year-old son Christopher worked for six weeks without being paid. When she complained he was sacked.

Jocelyn approached Hockey’s Office of Workplace Services and said she was sent a bundle of paperwork “so involved there was no way Christopher could have done it”.

And Hockey would have heard from both workers and employers happy with AWAs. But he would have been disturbed to discover that as the hour progressed the guests became increasingly comfortable with the changes Julia Gillard was proposing. Freed from the need to provide soundbites or entertainment Gillard was able to explain the details of her policy and win people over.

So why on earth didn’t Hockey take the same opportunity? Surely it can’t be because he felt that his policy sounded better when expressed as sound bites or entertainment - that it couldn’t withstand detailed scrutiny.

I had assumed that it was just a problem with scheduling - the Minister happened to be available on the morning of the Kerri-Anne show but not on the night Insight recorded.

But the program’s executive producer Paul Williams assured me that he and his team had been trying to get Hockey to appear on the show for seven weeks.

At first Hockey’s staff simply said that he was unavailable. Then one of them explained that he needed to spend more time in his electorate now that he was facing a challenge from a high profile Labor candidate. (The candidate is a weatherman. Hockey’s margin is 10 per cent.)

As it happens the SBS studio is smack bang in the middle of Hockey’s electorate, down the road from Kerri-Anne Kennerley’s Channel Nine studio, so appearing in it at a date of his choosing need not have been too taxing for the Minister.

In the meantime the SBS went through the alphabet soup of organisations set up under WorkChoices – the Fair Pay Commission, the Office of Workplace Services (renamed the Workplace Ombudsman) and the Employment Advocate (renamed the Workplace Authority) in an effort to find someone in authority who would go on the program and explain the government’s rules. Each one said no, that was a job for Hockey.

Insight’s final conversation with the Hockey’s office was on the actual day the program was recorded. Paul Williams rang and said “Look – you are putting the employer representatives into an unfair position, effectively leaving them to argue the government’s case, some of which they don’t believe in. They don’t think the fairness test is necessary. Without you on the show we won’t have anyone putting the case for your policy.”

Williams never did find out why Hockey wouldn’t take part. His best guess is that the Minister didn’t feel the format was the best one for him. When I asked what he meant Williams said he thought Hockey “didn’t like the idea of being confronted by genuine people’s stories”.

I can think of another reason. I think it is also the reason why the government rammed through WorkChoices after an election in which it never mentioned it, why it never commissioned an economic analysis of its effects, why it stopped releasing data on what it was doing to working conditions, and why it preferred to explain its new amendments through 30-second advertisements rather than by tabling them in parliament.

It is worried about what an economic analysis of WorkChoices would show.

It would show that since WorkChoices the proportion of national income going to wages has fallen to an all time low. (At the same time the proportion of income going to profits had climbed to an all time high.) At the release of last week’s national accounts I asked the Treasurer whether he wanted the wages share of income to fall further. He replied that it was a trick question.

That might been a price worth paying if WorkChoices had unleashed “a new burst of productivity growth” as the Prime Minister promised. In fact after WorkChoices productivity growth slumped and went negative for a time.

And it would certainly be worth it if the alternative was a return to centralised wage fixing that spread inflation throughout the economy as the Treasurer has claimed. But it is not. Labor’s alternative is a return to enterprise bargaining – the system that Australia adopted in the 1990’s that restrained inflation while boosting productivity.

An economic analysis would show that WorkChoices has changed the division of Australia’s cake (more to profits, less to wages) but done little to increase its size.

The cake is getting bigger, but for other reasons largely beyond our control, notwithstanding the unlikely claim made by an employer in the program that : “If you want to kill off the resources boom, get rid of Workplace Agreements”.

Last week’s Insight program was its highest-rating ever (even without Joe Hockey or a pair of green ears).

In the words of its executive producer: “It shows that people are really interested in industrial relations, it’s not bullshit.”

“They are turning on because they want to know. And I suspect that the government senses that as much as we do”.

Sunday dollars+sense: speed versus life

Drivers beware, cyclists breathe easier. The ACT is getting more speed cameras. Yes, I know it will slow drivers down. It'll probably take you slightly longer to get where you are going. On the other hand, cyclists like me are more likely to live.

How do you weigh the cost of the change (extra travelling time for some) against the benefits (fewer people such as myself killed or injured)?

NSW and Victoria do it differently.

NSW is intentionally lax in its enforcement of speed rules. It is thought to allow a margin of 10 per cent over the speed limit before issuing a fine. Victoria is strict. As little as 3 km/h over the speed limit and you're gone.

The free-and-easy approach of NSW appears to come with a cost... We can't be sure that road rules are the reason, but it has a higher rate of road deaths than Victoria. It gets a benefit of saved travelling time but at a cost: extra lives lost.

Using the hourly wage rate it ought to be possible to put a dollar value on the benefit it gets from each life lost, in other words to work out the value that NSW places on human life.

As far as I know, no-one has done the calculation. But it has been done in the United States, in circumstances that were more clearcut. As a fuel- saving measure during the energy crisis of 1974, the Nixon administration imposed a low nationwide speed limit of just 55 miles an hour (88km/h). Road deaths plummeted.

After 1987, each state again became free to lift the limit on its rural interstate roads. Most boosted their limit to 65mph (104km/h). But seven left it unchanged at 55mph (88km/h).

Princeton economist Orley Ashenfelter and Chicago economist Michael Greenstone examined what happened in the states that boosted the limit. Their findings are chilling.

First, the actual increase in speed in the states that boosted the limit was low, averaging just 2mph (3km/h) on the roads affected. That's because a lot of the drivers on those roads were already speeding.

Second, that small increase in speed pushed up deaths by an astounding 36 per cent.

The states that boosted the limit appeared to have valued each life it destroyed at around $2million. I think I am worth more than that. I want more cameras.

Orley Ashenfelter and Michael Greenstone, Using Mandated Speed Limits to Measure the Value of a Statistical Life. Princeton University, Department of Economics, Working Paper number 463, April 2002.

Thursday, June 07, 2007

2,000 new full-time jobs per day! No wonder we'll have a rate hike by August.

The Treasurer Peter Costello has raised the prospect of Australia running out of workers after the release of official employment figures that have blown his budget forecasts out of the water intensified speculation about a hike in interest rates.

According to the statistician, an extra 66,800 full-time jobs were created in the month of May – an extraordinary rate of growth that if correct would mean that more than 2,000 new full time jobs were created each day, roughly half of them new and roughly half at the expense of part-time jobs.

The surge brings the number of Australians in jobs to a new record high of almost 10.5 million.

Australia’s rate of unemployment has plunged to another generational low, sliding to 4.2 per cent, the lowest rate in 33 years.

In some parts of Australia the rate is even lower. Western Australia and the ACT have unemployment rates close to 3 per cent. Late yesterday Westpac forecast that within the financial year ahead Australia itself would have an unemployment rate beginning with the number 3...

The May budget had forecast of an average unemployment rate of 4.75 per cent during financial year (a figure that will now be impossible to achieve) and 5 per cent next financial year.

Mr Costello said he had been taken by surprise by the news and that at some point Australia would “just run out of employees”.

“People were saying in the mid-1990s that we would be at full employment if we were at 6 or 7 and now we are at 4.2 per cent. How low can unemployment go? Well the critical question is – how low can unemployment go without setting off inflation?”

The Treasurer said that the economy had become highly calibrated and highly delicate. “One missed cue, one misfire on industrial relations will set off inflation and bring this all to an end. This is like a highly engineered racing car. One missed cue, you take one corner a foot too wide and it will crash.”

Asked whether that was a proposition that should make people feel nervous he replied that was is “a proposition that says you need a good experienced driver in control of this highly calibrated economy. And I will tell you what I wouldn’t be doing, I wouldn’t be putting an ‘L’ plate driver in the cockpit at the moment”.

Financial markets now consider the Reserve Bank certain to push up interest rates, with the weight of money now pointing to a hike before the election. Trading on the futures market after the employment numbers pointed to a 45 per cent possibility of an interest rate in July and an 85 per cent likelihood of a hike in August.

The Reserve Bank Governor Glenn Stevens is expected to give an indication of the Bank’s thinking at a keynote address in Brisbane next Thursday.

The expected interest rate hike of 0.25 per cent would push up the monthly repayment on a $400,000 mortgage by $60, making it $320 higher than at the time of the last election, fought and won by the Coalition on the promise of “keeping interest rates low”.

It's on again... another bout of interest rate speculation!!

Economic growth figures described as “red hot” have sparked a new wave of speculation about an imminent interest rate rise and created a pre-election headache for the government.

News yesterday that Australia’s annual rate of growth in non-farm GDP had soared to 4.6 per cent, way above what had been thought of as its long-term speed limit, saw betting on the futures market put the chance of rate raise next month at 25 per cent, the chance of a rise by August at 55 per cent, and the chance of a rise by November at 100 per cent.

It pushed the Australian dollar up above 84 US cents for the first time since 1990. It closed at 84.37, a 17-year high.

The two interest rate hikes towards the end of last year appeared to have little effect on consumer spending which surged 1.5 per cent in the first quarter of this year, a rate the ANZ Bank described as “feverish”...

In a note to clients it said it that the effect of the rate hikes appeared to have “been offset by Federal Government personal income tax cuts”.

The chief economist at Credit Suisse Asset Management Dr Barry Hughes said spending was “back with a vengeance”.

“Wherever you say the limits to economic growth and employment growth are, the Reserve Bank is going to get very, very nervous,” he said.

“The unemployment rate is now lower than it has been in the working experience of many of the top brass of the Reserve. They are navigating the ship in a fog.”

“Hasten slowly is clearly what they want to do. But we are not hastening slowly, we are hastening quickly and they know that if it carries on they are going to wake up one day with egg on their faces”.

Dr Hughes believes that August is the most-likely month, after the release of the next inflation numbers late in July.

He said the looming October or November election was unlikely to stop it.

Asked by a parliamentary committee in February whether the Reserve Bank would feel able to push up interest rates in August notwithstanding an election campaign the Governor Glenn Stevens said that no central bank could accept the notion that its hands were tied.

“That would be crazy. So the answer to the question is if in August it needs to be done, it will be done,” he replied.

Australia’s Gross Domestic Product grew by 1.6 per cent in the March quarter, well above the 1.2 per cent rate expected. The annual growth rate was 3.8 per cent.

Non-farm GDP grew faster, climbing 4.6 per cent throughout the year and grew by an annualised rate of 6.0% over the six months to March.

In an urgent update to clients issued last night TD Securities warned that this was the fastest growth rate since 1994.

The note said “Overlay this with the boom in employment and the 32 year low on unemployment. Then consider 14% credit growth, a housing sector where prices are jumping, the stock market is strong, the terms of trade are at record levels and rising, and it is clear where all the inflation and monetary policy risks lie”.

“The Australian economy is overheating and the pressure cooker response is all but certain to show up in a blow out in inflation – unless the Reserve Bank acts soon.”

TD Securites said that it expected as many as 3 interest rate rises in the year ahead, at least one before the election.

Tuesday, June 05, 2007

The ACT: "like a tiny boat tossed around in an ocean of unimaginably large Commonwealth spending"

If you are looking for false reassurance you will find it in ACT budget paper number 3. It declares that “the Territory economy, while not immune to risk, tends to be insulated from many of the uncertainties faced by the national economy due to its significant public sector activity”.

Anyone who has lived in the Territory for more than a few decades will remember that we are not so much insulated as totally at the mercy of the whims of whoever is running the Commonwealth government of the day.

At the moment we are seeing it in a (mostly) good way. An sudden unforeseen boom in the public service has seen our unemployment rate fall to what the budget says is a “record low”; it has brought on a surge in office construction “unprecedented in the Territory’s history”; it has kept our house prices high due to “pent up demand”.

Surely a change of government, or a change of mind by a reelected government right after the October election couldn’t bring it all crashing down?...

Few people know better than Jon Stanhope that it could. He delivered his own horror budget 20 months after an election. His federal counterparts might deliver a horror budget sooner.

I am not necessarily predicting that there will be a post-election purge in public service numbers (although if there is to be a purge, the most-likely time is after an election). I am saying that there are countless precedents and that no-one would be able to prevent the carnage that would follow.

The budget papers tell us in reassuring tones that the “associated employee job security that arises from low unemployment in the ACT also supports sustained demand for housing”. But what if that feeling of job security ended? It has happened before in the ACT.

The papers show that for every 1 per cent that Canberra house prices rise Jon Stanhope’s government gets an extra $4.6 million in revenue. The same logic suggests that if house prices slide 10 per cent (as they well might if a razor gang is set loose on Commonwealth public servants) his government would lose $46 million – roughly half of its budgeted surplus.

It would happen right at the time the much-delayed new houses and new housing blocks are pouring on to the Canberra market. Just as the ACT was caught flat-footed by the unexpected boom in Commonwealth hiring and spending, it would be caught out when it went into reverse.

Almost every aspect of the ACT’s income depends on decisions made by the government on the hill. In a budget appendix headed “Statement of Risk” the Treasury names some. It says “Payroll tax, stamp duty, rates and land tax are exposed to risk associated with employment levels and wages in the ACT, which are driven largely by expenditure in the public sector.”

The ACT is like a tiny boat being tossed around in an ocean of unimaginably large Commonwealth government spending. It can neither control the tide nor do much to lean against it.

Jon Stanhope gave an indication of just how exposed the ACT is to even small shocks yesterday when he revealed that as he was preparing to deliver his budget speech the Bureau of Statistics had made its numbers obsolete. It released census data showing that the ACT had 5,709 more residents than had been previously believed.

The more residents the Territory has, the more GST revenue it gets to keep. Apparently an extra 5,709 residents means an extra $10 million of income and an extra $10 million of budget surplus.

(It’s little wonder that the Chief Minister has announced plans to spend $120,000 on a campaign to encourage new Canberra residents to update their Medicare addresses. By my reckoning he would only need to get 60 of them to change their registered addresses to make the campaign pay off.)

Faced with complete uncertainty about what the Commonwealth is going to do next year Jon Stanhope’s budget planners have assumed more of the same, but at a less hectic pace. They say our employment growth should ease back to its long-term average of 1.5 per cent next after its present extraordinarily fast growth of 3 per cent.

It is the sort of forecast almost guaranteed to be wrong. No-one, not even the Commonwealth Government itself, has any idea of the direction in which it will send ACT employment next year. It would be most unlikely if Mr Rudd, Mr Howard, Mr Costello or whoever gets the top job decides merely to return public service employment growth to its long-term average.

Faced with this near-total uncertainty the only correct thing to do is what Jon Stanhope has done – accumulate a surplus. The ACT economy is better than it has ever been thanks to the Commonwealth’s loose purse strings. That means the odds are it’ll get worse again soon. Economists call this pessimistic way of thinking “reversion to mean”. They would argue that we need to build up savings now to spend when things turn down, in much the same way as Peter Costello has managed to do (while spraying money around) during good times at the federal level.

If there is a criticism to be made of this Stanhope’s budget it is that it hasn’t salted away enough money. Its surplus is paper-thin. If the drought continues and ACTEW can’t pay a dividend much of it will vanish. But it would be an unfair criticism. Jon Stanhope has done more to turn around the ACT’s finances (and caused more pain doing so) than has anyone else in our short self-governing history.

The Opposition yesterday did nothing to instill confidence that it would do it better. Astoundingly, given the uncertain future direction of the ACT’s economy and the importance of salting away a surplus its Shadow Treasurer Richard Mulcahy suggested giving much of the surplus away in tax cuts. I am hoping he didn’t mean it.