Wednesday, October 31, 2007

Australia's Report Card: Coasting, could do better.

The Prime Minister’s claim that Australia’s economy is one of the world’s strongest has received a setback as indications strengthen that the Reserve Bank is about to raise interest rates.

The Global Competitiveness Index released overnight by the World Economic Forum in Switzerland has awarded Australia a bare pass, leaving it in 19th place, down from 10th place two years ago.

The assessment complied from interviews with more than 11,000 business leaders worldwide finds Australia wanting in the fields of tax, regulations, infrastructure and education.

The quality of Australia’s maths and science education was ranked only 24th out of the 131 nations surveyed, our staff training 20th, and education spending 45th.

Our national savings rate was bettered by more than half of the nations surveyed, putting us in 73rd place, and our interest rate spread (a measure of the extent to which our lenders overcharge) was bettered by around half of the nations surveyed...

Australia’s budgetary performance, often touted by the Prime Minister as one of the best in the world was only the 38th best.

In other areas Australia’s performance was assessed to be well above par. Our internet use is the world’s 4th highest (although the proportion of Australian using broadband to access the internet is only the 30th highest).

Australia was also found to have the world’s fourth strongest auditing standards and to be the easiest place in the world to set up a business.

Our employment regulations were judged to be about the least rigid in the world, bettered by only 3 other countries, but paradoxically our wage setting structure was judged to be among the world’s most rigid, bettered by 86 countries.

Overall Australia was ranked and France, Belgium, Malaysia, and Ireland on global competitiveness, well down from the top rung of nations – the US, Switzerland, Denmark, Sweden and Germany.

The news came as pressure mounted on the Reserve Bank board to lift interest rates again at its meeting next Tuesday.

Building approvals figures released yesterday jumped by a surprise 6.8 per cent in September with home sales up 9.9 per cent, just one month after the Reserve Bank’s August interest rate hike.

The Chief Economist of the Housing Industry Association Harley Dale said the jumps suggested the industry was “more resilient to the rate rise than thought”.

Other figures released by the Reserve Bank yesterday showed private borrowing continuing to grow strongly with business borrowing now climbing at an annual rate of 23.3 per cent - an 18 year high.

Lending for housing slowed in September and personal lending actually fell as some borrowers paid off debts.

Futures trading late yesterday pushed up the market’s expectation of a Melbourne Cup day rate hike from 86 per cent to 90 per cent. The likelihood of a follow-up hike one month later doubled, jumping from 10 per cent to 20 per cent.

Tuesday, October 30, 2007

Costello versus Swan: The love-in


We were promised a debate.

Instead we were presented with two men in identical ties who smiled at each other across desks angled together on the National Press Club stage and agreed with almost everything the other one said.

The long handshake for the cameras at the end seemed genuine. “We will have to stop meeting like this”, quipped Wayne Swan. Or perhaps they were both just expressing relief that it was over, and that neither had made a mistake.

Actually Wayne Swan made several...

But they were minor, the result of nervousness. He said “15 per cent” when he meant 50 per cent, and then corrected himself. He said he was looking forward to being the Treasury Secretary when he meant Treasurer, and then corrected himself, and so on.

Peter Costello, much more used to answering questions after eleven years of Question Time, was at ease. As questions were asked he thumbed through a book of briefing notes one centimeter thick accessing information divided into topics by coloured cardboard tabs.

Unlike the Peter Costello we see in Question Time, this one had decided not to attack. Without venom he was positive, at times humble, and almost confessional.

He said the election wasn’t just about experience, although as with any job “after you have survived a few challenges you know what to look out for.”

“There is always an unforeseen event coming,” he told us.

“Just when you think you are sailing into clear water, just when we were getting our budget back into balance the Asian financial crisis came along, just as we were getting out of the Asian financial crisis there was US recession in 2000-01, and then you had all that instability coming from the World Trade Centre attack. Look at where we are now, a one in 100 year drought, world oil prices the highest they have ever been, there’s always something coming.”

Wayne Swan was keener on the small picture. He wanted to pay attention to “the kitchen table, not just the boardroom table”.

He would put “a cop on the beat” to keep petrol and grocery prices in line.

But he agreed with the Treasurer about most of the big picture and said so. As a practice run for the big job, he did fine. No-one watching had any doubt that he was across all of the issues and would manage them well. Even the Treasurer seemed to think so.


The Treasurer Peter Costello has ramped up the Coalition’s tax pledge, committing himself to cut the top marginal rate to 40 per cent and to ensure that no-one earning $20,000 pays any tax by July 2012, regardless of the economic conditions prevailing at the time.

Taking on Labor’s Treasury spokesman Wayne Swan in a televised election debate at the National Press Club the Treasurer turned what had previously been only an “aspirational goal” into a firm commitment.

When he launched the tax policy at the start of the campaign he said the five-year goal could only be met if “expected strong economic and fiscal conditions continue”.

Asked toward the end of the debate whether he could guarantee that the five-year goal would be implemented he replied: “I am saying precisely that to you. I wouldn’t have announced it if I didn’t have that intention”.

“Can we deliver it? I would answer the question this way. Did we deliver what we promised in 2003, in 2004, in 2005, in 2006? Yes we did. Not even Wayne Swan would say we didn’t. He would say yes, they announced all of those tax cuts and they delivered them in full”.

“So there it is. We make responsible promises. We wouldn’t make them if they weren’t responsible and we will deliver them”.

The Coalition has so far only costed its lesser promise of cutting the top marginal rate to 42 per cent and lifting the effective tax-free threshold to $16,000 by July 2010.

That promise, costed at $34 billion over three years, has been largely matched by the Labor Party which has promised to adopt all of it but the cut in the top marginal rate which would stay at 45 per cent for the time being.

On several occasions during the debate Mr Swan said that Labor supported the thrust of the Coalition’s tax cuts, describing them as “the government’s adoption of our proposals.”

There was very little heat or criticism during the debate, with both spokesmen agreeing on the importance of tax cuts, education and health.

But when asked by the Canberra Times whether they believed the finding of this week’s Canberra Times poll that 88 per cent of voters in the seat of Eden-Monaro would prefer the $34 billion of promised tax cuts to be directed instead to hospitals and schools, both indicated they did not.

Labor’s Wayne Swan said he thought people wanted both tax cuts and spending on hospitals and schools. When asked by the Press Club Chairman Ken Randall to answer the question with a yes or no, he replied that Labor would do both.

Mr Costello replied by saying that in his experience people wanted the government to be careful with their money and wanted assistance in their household pockets.

The spokesmen agreed as well about the importance of keeping Australia’s budget surplus at one per cent of GDP. Neither accepted the proposition that it should be higher during the current economic boom to allow the government to save for a downturn.

When each was asked to give a guarantee that they would not challenge their leader for the next 18 months should they win office, Wayne Swan readily agreed, saying he wanted to serve as Kevin Rudd’s Treasurer for the next 10 years. Mr Costello refused to give such a commitment during the lunchtime debate, although he did later in the afternoon when opening the campaign office of the member for Eden-Monaro Garry Nairn in Queanbeyan.

Tuesday Column: The Coalition's gift to Labor - a smashed piggy bank

When colonial governments in Africa withdrew they are said to have made things difficult for the administrations that succeeded them by allowing power stations to fall into disrepair, removing air conditioners, and filling in sewage pipes with concrete.

Sometimes it was simply loading up the nation with debt. It’s an accusation that has been leveled at George W Bush in the United States. By cutting taxes in a way that couldn’t possibly be funded long-term he has ensured that his successors will either have to slash government spending (something he probably wants), sharply raise taxes or suffer a debt repayment crisis.

It couldn’t be happening here, could it?...

The $34 billion of tax cuts announced at the start of the campaign are “eminently affordable” and “costed, funded, responsible”. The Prime Minister and Treasurer have told us so.

But their own budget figures suggest that the tax cuts are only affordable for as long as Australia’s extraordinary once in a half-century minerals boom continues.

There is no doubt that the government is being flooded in money at the moment. In the five months since the budget it has found an extra $5 billion it didn’t expect.

Most of the windfall is coming in the form of company tax. In almost every year since Australia came out of recession in the early 1990s company tax has accounted for around 14 per cent of government income. That is, until Australia’s resources boom got under way a few years back.

The last few years have seen company tax climb to 18 per cent and then to 20 per cent and now to an estimated 25.6 per cent of government revenue during the current financial year.

If things continue the way they have been it’ll climb higher still.

No wonder the government feels it has money to splash around on tax cuts.

But there’s a problem.

Its promised tax cuts are permanent. Once the effective tax-free threshold climbs to $20,000, it is hard to imagine anyone earning less than $20,000 ever paying tax again. Once the tax rate applying to millionaires falls to 40 cents in the dollar it is hard to imagine millionaires’ ever paying more.

The last five years of tax cuts have pushed down the contribution of personal income tax to government revenue from 52 per cent to 48 per cent. They have pushed down the contribution of superannuation tax from 2.2 per cent to 1.6 per cent.

None of this need be a problem if Australia’s minerals boom and the boom in company tax collections continues.

The Prime Minister used to say that he did expect the good times to continue. According to him there was “no reason why with careful economic management by experienced people we should contemplate a downturn”.

An encouraging thought. Even more encouraging was his planning maxim: “I don’t believe in recessions you have to have, I believe in continued economic prosperity you are entitled to have”.

But just in the last week he has been expressing doubts. By Friday we were in “an increasingly hostile financial environment”.

His Treasurer Peter Costello acknowledged the possibility of a recession and also a financial market “tsunami”, presumably in an attempt to scare us out of voting for the other side.

But he is right. The resources boom will end, and there will be a recession.

The Reserve Bank Governor thinks so. His warning, to a business seminar in June, is especially relevant to a round of tax cuts funded on little more than faith that good times will continue.

As Glenn Stevens put it in June: “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”.

His warning: “Structures and strategies that pay no regard to those possibilities will turn out to be damaging to the people who have got them.”

Businesses that committed themselves to long-term expenditure on the basis that that current short-term boom in income will continue will get themselves into trouble.

And so will governments. Permanently slashing income tax rates on the basis that Australia’s short-term boom in company tax collections will continue is also a recipe for trouble.

Actually, it is a recipe for trouble for the next government or the one after, whichever one is left holding the ball when the resources boom stops.

When company tax collections return to what they used to be or even fall lower. as they have in previous recessions, the government will be left without income it has come to rely on.

Lifting personal income tax rates back up to where they were will not be politically palatable. That government will have to slash spending (potentially magnifying the effect of the economic downturn and being blamed for it) or abandon surplus budgeting and be accused, perhaps even by the Coalition, of being economically irresponsible.

In fact the economic irresponsibility is taking place right now. Our government is taking action that will permanently spend a temporary boost in income.

It knows full well that Australia’s tax take is going to have to rise over time. Its Intergenerational Report says so. It could be salting money away for that future. Instead it has decided to limit its budget surpluses to around one per cent of GDP.

Our countries do much more.

New Zealand’s budget surplus will exceed 3 per cent of GDP this year. Norway is shooting for 10 per cent. Not that you’ll hear that in Norway. The discussion there focuses on the “non-oil structural budget deficit”, a measure of what would be really happening to government finances were it not for the North Sea oil boom.

I would love to find out the size of Australia’s “non-resources boom structural budget deficit”.

Our government is certain to have just made it a whole lot worse.

Not that you’ll hear that from Labor’s Wayne Swan as he debates Peter Costello at the National Press Club today.

Labor supports the Coalition’s tax cuts, almost every one of them.

Wayne Swan even described the last lot as “quality spending”.

Labor is complicit in the Coalition’s attempt to mortgage its future.

It is even prepared to help John Howard and Peter Costello adjust the millstone being applied to its neck.

Costello versus Swan: Head to head, today

Political junkies looking for a rematch after the Rudd versus Howard leaders’ debate in week one will get the closest thing lunchtime today.

Swan versus Costello will be treated in the same manner as the big clash. It’ll be broadcast by Channel Nine as well as the ABC and Sky News (most probably with the worm) and hosted by the National Press Club.

The broadcast will begin at 12.30pm, displacing Nine’s Midday Movie and will continue for 90 minutes rather than the typical one-hour after both Mr Swan and Mr Costello agreed to extend the usual format.

For Labor it will be an opportunity to extend the dominance that Mr Rudd gained over Mr Howard during the leader’s debate.

For the Coalition it will be a chance to give John Howard’s anointed successor Peter Costello a Prime Ministerial platform...

Wayne Swan will be making the most of the Coalition’s apparent broken promise to keep interest rates at “30 year lows” and the imminent increase in rates due next Wednesday. He will also be making use of research by Canberra’s National Centre for Social and Economic Modeling that has found that most families with school-age children would be better off under Labor's tax plan than under the Coalition's.

In research commissioned by the Labor Party NATSEM has found only the highest-earning 10 per cent of parents - those earning more than $124,775 - would be better off under the Coalition.

The remaining 90 per cent of families with school-age children would be up to $15 a week better off under Labor, according to NATSEM.

The Treasurer yesterday attacked the premise of the analysis labeling it “garbage in, garbage out”.

“Instead of comparing the two tax policies, it compared tax and education announcements of the Labor Party and tax, excluding welfare announcements, of the Liberal Party,” Mr Costello said.

But the analysis also excluded a number of Labor’s welfare measures in a bid to compare like with like, limiteing itself to the measures announced in each of the $34 billion tax packages.

Widely acknowledged as one of the Coalition’s best debaters, Peter Costello is likely to attempt to land a knock out blow on Mr Swan, as he did when he debated Labor’s then Treasury spokesman Simon Crean during the last election campaign in 2004.

In that debate Mr Costello claimed to have discovered a $700 million hole in Labor’s tax plan, a hole that was subsequently found not to exist.

His difficulty in debating Mr Swan today will be that many of the points he might want to make are technical or obscure, involving such things as the tax thresholds that would apply well into the next decade and the distinction between the underlying and headline rates of inflation.

One of Wayne Swan’s difficulties will be that he supports much of Coalition’s fiscal policy. He approved of the Coalition tax cuts in May Budget, describing them as “quality spending”. He has adopted as Labor policy 90 per cent of tax cuts promised by the Coalition during the current campaign.

The order of speaking will be decided by the toss of a coin with each speaker given eight minutes before questioning by press gallery journalists.

Each reply will be limited to two minutes, with a one minute response from the other side.

Monday, October 29, 2007

Please, no tax cuts. We mean it.

This morning's Canberra Times outlines the results of its exculsive Eden Monaro poll:

"An overwhelming number of voters would prefer money spent on health and education than tax cuts, according to an exclusive Canberra Times poll.

Almost nine out of 10 voters surveyed in the marginal seat of Eden-Monaro would have preferred the budget largesse directed to hospitals, schools and such services, suggesting the Coalition and Labor have miscued their election strategies by promising more than $30billion in tax cuts.

The results held true for both Labor and conservative voters, with 88 per cent of all those polled in favour of health and education spending, 10 per cent preferring tax cuts and only 2 per cent undecided. Coalition voters wanted spending on services instead of tax cuts by a ratio of 4:1. "

My comment:

You’re kidding me! Nine out of ten voters don’t want tax cuts?

That’s the usual response to poll findings of this kind (and they are becoming increasingly common).

The politicians clearly don’t feel comfortable with them.

The offer tax cuts regardless, perhaps too scared to test whether people really mean what they say by actually directing their election money to hospitals and schools rather than tax cuts.

Even pollsters don’t feel comfortable with their findings...

When Newspoll found in the lead up to the last election that voters preferred spending on health and education to tax cuts by a very wide margin its then head Sol Lebovic suggesting that voters might be giving his interviewers “socially acceptable” answers rather than the truth.

But people do usually tell the truth to interviewers (except when asked about their alcohol consumption) and the arguments put forward to suggest that they are not telling the truth this time don’t stack up.

One is that when asked in isolation whether taxes are too high most people say yes. It is an answer that only appears to be inconsistent with a desire to spend money on health and education rather than tax cuts. But there is really no inconsistency. It is quite possible to think that tax rates are high while also believing that there are more important priorities than cutting those rates.

Another argument is that tax relief might be a bit like alcohol. We don’t want to admit how much we want it. Just as market research companies adjust up people’s claimed consumption of alcohol when trying to get at the truth, it might be wise to also adjust up their claimed enthusiasm for tax cuts.

Except for two things. One is that the reported enthusiasm for tax cuts in the place of spending on schools and hospitals has fallen so low – 10 per cent in this morning’s Eden Monaro poll - that it would have to be adjusted up an implausibly long way in order for it to look as if we actually preferred tax cuts.

The other is that voters’ answers to that question have changed. From 1974 until about 2001 a clear majority of us said we wanted tax cuts at election time, not promises of more government spending.

The lust for tax cuts began slipping in the mid 1980’s and the desire for desire for spending began climbing from 1990. In 2001 they crossed over. Since then spending on hospitals and schools has become more popular than tax cuts and the gap has been steadily widening.

It’s unlikely to be the result of us becoming less honest than we used to be. It is more likely that our priorities are changing, perhaps as a result of increasing wealth.

Still don’t believe me? Here’s the assessment of one of the Prime Minister’s favourite think thanks, the Centre for Independent Studies, delivered in a policy paper on tax in 2004.

According to its social research director Peter Saunders, the polling reveals “a population which feels more prosperous after years of sustained economic growth, and which wants to use some of this prosperity to buy better health care (and to a lesser extent, better quality schooling too)."

Saturday, October 27, 2007

Sunday Dollars+sense: Careful on your trip to work

Daylight Saving began early this morning. (You might have to trust me on that too, unless you want to check by turning on your TV or radio and discovering that you have already missed your favourite programs.)

Early this morning we were meant to put our clocks forward an hour in order to help us get up and get on the road an hour earlier tomorrow, at a time when it will be darker and we will have had less sleep than usual.

It’s a recipe for accidents.

A Canadian psychologist, Stanley Coren has found a 7 per cent jump in road accidents the day after daylight saving begins, balanced by a 7 per cent drop in accidents when it ends.

When asked to explain why such a little change could have such a big effect he says, “We are all sleep deprived anyway so that extra loss of sleep is enough to lead to an accident”. His advice: “treat yourself as if you have jet lag”...

The changeover brings on more than accidents.

(And by the way, over the entire period road accidents are actually down during daylight saving time perhaps because of the extra light during the evening trip home.)

Economists examining the drop in US stock market prices between the end of trade on most Fridays and the start of trade on a Monday (yes, there is typically a drop) have found it to be twice to five times as big on the weekends after daylight saving comes in.

They say the change in the traders’ circadian rhythms gives them “greater anxiety about a given situation, all other things equal. They may prefer safer investments and shun risk in trades”.

The damage from the switchover in the United States: US$31 billion wiped off the value of stocks according to the researchers, although much of it would probably be recovered in subsequent days as the traders got back into their stride.

Andrew Worthington from the University of Wollongong has looked for the effect in Australia and can’t find it. Nor can he find a weekend effect of the kind documented in the US.

Perhaps we are more robust.

All the same, it’d be wise to take extra care on the roads tomorrow, and to try really hard not to be grumpy at work.


Mark J. Kamstra, Lisa A. Kramer, Maurice D. Levi, Losing Sleep at the Market: The Daylight Saving Anomaly, The American Economic Review, Vol. 90, No. 4 (Sep., 2000), pp. 1005-1011

Worthington, Andrew C., Losing Sleep At The Market: An Empirical Note On The Daylight Saving Anomaly In Australia. Economic Papers 22(4):pp. 83-93.

Stanley Coren, Sleep Deficit, Fatal Accidents, and the Spring Shift to Daylight Savings Time, University of British Columbia. 1998

Peter Martin, What if extending Daylight Saving didn't save electricity?, Canberra Times Monday, January 15, 2007


Friday, October 26, 2007

Saturday Forum: Luck's end

Luck, diligence and a lot of support have given the team of John Howard and Peter Costello an enviable reputation for economic management over the last 11 years.

They have been trashing it for the last 12 days.

Day one began with a joint launch of Australia’s biggest-ever election giveaway – tax cuts worth $34 billion over three years, an average of $2,500 per voter.

By comparison the entire 2004 campaign produced promises worth only $1,000 per voter.

Standing in front of a backdrop that read “Go for Growth” the Prime Minister declared them “eminently affordable”; the Treasurer declared them “costed, funded, responsible”.

Neither made any references to what must have been a nagging detail in the Treasury’s Mid-year Economic and Fiscal Outlook which they released at the same time...

The Treasury had quietly boosted its inflation forecast from the middle of the Reserve Bank’s target range to the top quarter.

The next morning on AM the Treasurer denied that the tax cuts would boost inflation still further and by implication denied that his previous tax cuts had boosted inflation and would put pressure on interest rates.

“Let me make the point,” he said. “If you had spent the money you could have inflationary consequences, but to return it to people and to help them with their bills at a time when they are facing cost of living pressures, I think is a very responsible thing to do.”

He was two days away from the issuing of writs for the election and, under the caretaker conventions, losing access to advice from the Department of the Treasury.

It appeared to show in his panicky and reality-defying response to the very alarming set of inflation figures released on Wednesday.

The underlying figures, the ones especially calculated by the statistician to guide the Reserve Bank showed inflation already at or beyond the top of the Bank’s target band and heading higher.

Presumably acting without the benefit of his usual briefing from the Treasury the Treasurer welcomed “a very low average inflation rate, annual inflation rate, at 1.9 per cent and the 0.7 per cent in the September quarter, really right bang in the middle of the target range which the Government has set for consumer price inflation.”

The headline rate that he referred to was even more suspect than usual, and the Treasurer should have known it. In an unusual move the statistician had spent 5 pages of the 40-page document explaining why the headline rate was wrong.

A change to the way the childcare tax rebate was incorporated into the index meant that for that quarter and that quarter only the headline rate had been reported as being 0.2 percentage points lower than it really was; at 0.7 per cent rather than 0.9.

There was not a word from the Treasurer that on this occasion the figures he quoted couldn’t be taken seriously (on face value they implied that the price of childcare had fallen 33.4 per cent in three months!).

Instead the Treasurer denigrated the more figures dismissing them as “other measures of inflation, more technical measures”.

By Thursday the Reserve Bank’s preferred measure was being painted as suspect. Campaigning in Perth the Prime Minister said that it was “not entirely clear publicly how the underlying rate is determined.”

It is certainly clear to readers of the Canberra Times. The method of calculating the Bank’s preferred inflation measure was outlined on the editorial page on Tuesday.

But more importantly, for it not to be clear to the Prime Minister, himself a former Treasurer, and perhaps not clear to the current Treasurer calls into question how much they have really understood all along.

And then came the recession.

It is a sensational charge not usually bandied about during election campaigns (except for 1990 when Australia really was heading into a recession).

Peter Costello was trying to make the point at his press conference that Australia’s rate of inflation would be higher under a Labor government which he said would introduce union control of workplaces and an award system of wage setting.

He said it would “unleash such inflationary pressures in this economy as would end in recession”.

Once he had uttered the word he couldn’t take it back.

The journalists at the press conference had a new story. How soon would the recession come about? What exactly would bring it on? Could the Treasurer guarantee that under a continued Coalition government Australia wouldn’t have one?

The Treasury’s Mid-Year Review which Costello had released just days before said nothing about a recession. The Australian stock market wasn’t anticipating one. Even though Labor was odds-on favourite to win the election the market index wasn’t too far off its all time high.

Asked on Friday whether he agreed with his Treasurer that there would be a recession if Labor won the Prime Minister refused to back him up.

He said instead that if Labor presided over a wages breakout there could be “very significant falls in economic activity”.

Asked if this meant a recession he replied that there could be “recessionary tendencies” if there was a wages breakout. That was the closest he woulc come to using the word.

And he wouldn’t use the word tsunami either.

In a Friday morning newspaper interview the Treasurer warned of a “huge tsunami” he said was set to engulf global financial markets when China floated its currency.

He explained later in the day that when China decided to float its currency “you are going to get huge reversals of financial flows around the globe, which will affect all exchange rates, that's why I compared it to a tsunami.”

A real tthreat or not, it was a possibility not mentioned in his own department’s Mid-Year Economic Outlook which he had released days before, nor in its assessment of risks to that outlook.

When asked later to describe the time frame he had in mind for the tsunami he replied inpenatrably, “It could happen in a matter of years, it could take longer”.

The Treasurer denied that his prediction was aimed at persuading the Reserve Bank not to increase interest rates at its meeting on Tuesday week, but said he did want to make the point that a Labor Government “with no experience in economic management” would be ill-equipped to handle such a tsunami.

By the end of the week it was looking as if the Treasurer himself was somewhat ill-equipped, at least while temporarily denied access to the 850 people who work for him in the iconic Parliamentary Triangle building across the road from the National Library.

His relationships with Australia’s financial community weren’t looking good either.

On Tuesday the head of the National Australia Bank John Stewart said that cost pressures would soon force his and other banks to push up interest rates on mortgages and other loans by 0.10 to 0.20 percentage points over and above whatever rate hike the Reserve Bank imposed.

They hadn’t done it yet in deference to the election campaign.

“You don't want to stick your head above the parapet,” he said, but “once things settle and probably once there is no election looming prices will rise.”

The Treasurer’s response bordered on threatening.

“My reaction is it hasn't happened and it won't happen whilst I'm the Treasurer he told the ABC’s Kerry O’Brien.

Asked how he could stop a private bank chief such as Mr Stewart from setting prices as he saw fit the Treasurer replied, “the message that I have already given him has stopped him to date and the message will continue whilst we are in office.”

He appeared to be painting a picture of a government prepared and able to control prices through intimidation, or perhaps just a picture of a government rattled at the way in which the strength it campaigned on in the last election, its ability to keep interest rates “at record lows” now looks like a weakness.

This week the ANZ Bank declared that it expected the Reserve Bank to lift interest rates three more times before the middle of next year, along with an extra rise imposed by the ANZ bank itself which would take its standard variable mortgage rate up towards 10 per cent.

The Prime Minister denied that he had ever promised to keep interest rates at “record lows”. He said the words had been used in a television advertisment that was broadcast for two nights only “and then it disappeared and you didn’t get out of my mouth.”

Asked whether that Coalition advertising now looked dishonest he agreed but said that “what really matters now is which side of politics is better able to manage an increasingly hostile financial environment”.

Late on Friday the Labor Party pointed out that the election advertisement disowned by the Prime Minister had been launched by the Treasurer himself who played it to assembled journalists at a 2004 press conference lauding it as putting “squarely, front and centre of this campaign, the question of economic management”.

With four weeks of the current campaign to go there is still time for the Prime Minister and Treasurer to recover from the early largely-self inflicted damage to their reputations as economic managers, but working against this will be the timing of the Reserve Bank’s Melbourne Cup day board meeting.

It comes on Tuesday week. The rate hike will be announced the next morning, just 17 days before Australians go to the polls. A few days later every mortgage lender in the country will announce a hike in its rates, and perhaps even an extra hike over and above that set in train by the Reserve Bank.

The Bank’s move will expose both the Treasurer and Prime Minister as being wrong when they claimed this week that inflation was under control and that there was no reason for the Reserve to push up rates.

They will also be unable to credibly claim that it will be a one-off. The ANZ is predicting two extra rate rises. On Friday Westpac warned its clients to expect the next in December.

The Opposition has been able to languish in the economic shadows in recent days as the Treasurer and Prime Minister have inflicted damage upon themselves. That probably isn’t a bad strategy given Kevin Rudd now infamous statement a few weeks back that when it comes to fiscal policy “there is no slither of light between” Labor and the government.

It now looks as if a bolder strategy could have paid bigger dividends. Instead of endorsing most of the Coalition’s promised $34 billion of tax cuts in week one Kevin Rudd could waited until after the inflation figures in week two and promised instead to put the $34 billion into an infrastructure and social services fund, to be invested when inflation eased and no longer posed a threat to interest rates.

That fantasy would have come closer to good economic management than anything we are likely to see in the real-life campaign.

HT: anonymous commenter

What would Menzies think?

What would Menzies think?

John Howard's hero, the founder of the Liberal Party and Australia's longest serving Prime Minister, Sir Robert Menzies fought the Labor Party's attempt to nationalise Australia's private banks with every fibre of his being.

His success in the late 1940s propelled him into government and record 16-year continuous run as Australia's Prime Minister.

The man who would like to become the next leader of the Liberal Party, Australia's Treasurer Peter Costello is acting as if Menzies had never won...

All week he has been talking as if he can give directions to Australia's private banks.

On Monday he said that the National Australia Bank would not lift its mortgage rates “ whilst I'm the Treasurer”.

Asked on ABC TV how he could stop the head of the bank John Stewart from lifting rates he said, “the message that I've already given him has stopped him to date and the message will continue whilst we are in office”.

On Wednesday he declared that there were “no grounds whatsoever for banks to raise variable mortgages, right”.

And yesterday, when asked whether he would butt out of the banks' business he said again that there was “no reason for banks to move standard variable mortgage interest rates.”

The fact is the banks can move their rates wherever they like (so long as they don't collude). Menzies made sure of it.

The government's Reserve Bank does has to take directions from the Treasurer, but he chooses not to give them.

He says he respects its independence.

Thursday, October 25, 2007

Rate rises: Not one, but three says a major bank.

The Prime Minister's interest rate woes have deepened with a major bank predicting a series of three interest rate rises in the months ahead - in November, February and May.

The ANZ bank has told its clients that the increases will be needed in part to combat price pressure fueled by the $40 billion election campaign.

In the note to clients delivered late yesterday the bank's Head of Australian Economics Tony Pearson warned that “election promises to date point to a substantial further fiscal stimulus over the next few years, irrespective of the election outcome”...

He expected the Reserve Bank to follow its November rate rise with one in February after the release of the December quarter inflation figures and then one in May after the release of the March quarter figures.

Even with the “more aggressive” program of tightening the Reserve Bank's preferred measure of inflation was likely not to return to the middle of the Bank's target band before 2009.

The forecast highlights a widening gulf between professional economists and the Prime Minister and Treasurer with both leaders yesterday continuing to maintain that inflation was under control.

Focusing on the headline rate, regarded as of little consequence by economists, the Treasurer Peter Costello said Australia's rate of inflation was the lowest it had been for eight years.
“It has been between 2 and 3 per cent over the course of this Government. Now, there are other statistical measures which you can use to inform yourself about prices but what we are shooting for is to keep consumer price inflation between 2 and 3 per cent over the course of the cycle,” he said.

The Reserve Bank's preferred measure of underlying inflation came in at 0.9 per cent for the second successive quarter in the September figures released Wednesday, implying an annualised inflation rate of 3.6 per cent, well beyond the bank's comfort zone.

Campaigning in Perth the Prime Minister supported his Treasurer, saying, “you can't ignore the CPI and focus entirely on the underlying rate.”

The new head of the ANZ Bank, Mike Smith backed up his economists and went further telling analysts at his first profit briefing that his bank might have to increase its mortgage rates over and above the increases it passed on from the Reserve Bank because the collapse of some US credit markets was pushing up its funding costs. “That is something that cannot go on forever,” he said.

The head of the National Australia Bank John Stewart delivered a similar warning on Monday telling the Australian Financial Review that “once things settle - and probably once there is no election looming - prices will rise because credit is underpriced”.

The Treasurer Peter Costello disagreed, claiming yesterday that there was “no reason for banks to move standard variable interest rates in Australia”.

“The banks in Australia have a large deposit book, they are well capitalised, they are extremely profitable. It may well be that the level of discounting is reduced and it may well be at the margins in relation to some business lending there would be an effect, but not in relation to standard variable mortgage interest rates.”

The three interest rate rises predicted by the ANZ bank would take Australia's standard bank variable mortgage rate up to 9.05 per cent, or even higher if the banks add on increases of their own after the election as they say they will need to.

They would add at least another $213 to the monthly cost of servicing a $400,000 mortgage - $531 more than at the time of the last election.

Denial: The Treasurer was at it again... this morning's interview with AM's Chis Uhlmann.

My favourite question: "Treasurer, the market will have already factored in a possible Rudd Labor Government and nothing has happened. There's been no stampede for the lifeboats."

Below :

CHRIS UHLMANN: Peter Costello, good morning.

PETER COSTELLO: Good morning, Chris.

CHRIS UHLMANN: Treasurer, why did you gloss over the rise in the underlying rate of inflation yesterday, when you know that that's the figure the Reserve Bank are watching?

PETER COSTELLO: Because, for most people, Chris, the important thing is whether they're facing price rises, and the news that we got yesterday was that for consumers, inflation is at 1.9 per cent, in fact it's the lowest in eight years.

The second point, of course, is that monetary policy is targeted at keeping consumer price inflation between two and three per cent, consumer price inflation. And in fact, it has been between two and three per cent over the course of this government.

Now, there are other statistical measures which you can use to inform yourself about prices, but what we are shooting for is to keep consumer price inflation between two and three per cent over the course of the cycle.

CHRIS UHLMANN: But you use those other statistical measures when they suit you, Treasurer. In July last year, when the headline rate of inflation hit four per cent, you chose to highlight the underlying rate. Why is that the right number one day, and the wrong number the next?

PETER COSTELLO: Well, as I said yesterday, you use the other statistical measures to inform, when you take out volatile items, and the other statistical measures showed that inflation was towards the upper level of the band, around three per cent.

CHRIS UHLMANN: Forcing the Reserve Bank to move?

PETER COSTELLO: Well, I don't think that's the right understanding of monetary policy. The monetary policy which I have set with the Reserve Bank governor is to keep consumer price inflation between two and three per cent over the course of the cycle.

Now, there will be times where it goes below it, in fact, consumer price inflation is below it now. There will be times when it goes above it. But the important thing is that over the course of a cycle, over the course of an economic cycle, that it averages at two to three per cent, which is what it's done, compared to the Labor Party average of 5.2 per cent, when the Labor Party was in government, where inflation was on average double what it is today.

CHRIS UHLMANN: If we look at what's happening now, and the people who really watch these things closely, the futures market now has an 83 per cent chance of a rate rise on November 7. Now surely, the people who hedge millions, in fact, billions, of dollars, know what they're on about?

PETER COSTELLO: Well, sure, they move their positions on a daily basis.

CHRIS UHLMANN: It jumped from 57 per cent to 83 per cent yesterday.

PETER COSTELLO: Yeah, they're trading on a daily basis. And they move their positions on a daily basis. They're taking positions, and they're trying to make money out of it, that's for them. But I'm managing a $1.1 trillion economy, and my objective is to get as many people in work, and to keep inflation low, and to make sure the Australian economy grows.

Now, let me make this point, Chris, I think it's a very important point, that we have inflation around two to three per cent on the lowest unemployment in 30 years. Now, we couldn't have maintained anything like this inflation rate when we didn't have the important economic reforms that have been put in place.

And, I make this point, if you turn your back on those economic reforms, with an unemployment rate which is now at 30 year lows, you will get, as you got in Australian economic history in the past, a blow out in inflation.

CHRIS UHLMANN: Treasurer, the market will have already factored in a possible Rudd Labor Government and nothing has happened. There's been no stampede for the lifeboats.

PETER COSTELLO: Oh, well, let me make the point, because I think every economist who's thought about it, and successive Reserve Bank governors have made this point, if you reverse industrial relations reform in this country, you will set off wage inflation, just as we had in the 1970s and the 1980s, and the 1990s, when the last time the Labor Party tried to cope with inflation, you recall, they said, we had to have a recession.

That's what Paul Keating said, we had to have a recession. That was their only way of controlling inflation. Now, industrial relations reforms have given us the capacity to have much stronger employment, and keep inflation between two and three per cent, and if you turn your back on that, Chris, you are turning your back on Australia's future economic prosperity.

CHRIS UHLMANN: Treasurer, could you survive an interest rate rise? Would that not be the final nail in the coffin of the Coalition?

PETER COSTELLO: Well, I make this point, that home mortgage interest rates at 8.3 per cent are, what, I think they were 10.5 per cent when I became Treasurer, so they're two per cent lower, and the unemployment rate had halved. Now, to think you could halve the unemployment…

CHRIS UHLMANN: More rate rises are on the way, Treasurer…

PETER COSTELLO: To think you could halve the unemployment rate, and still have interest rates lower than when unemployment was double what it is, shows you how far we've come in this economy.

CHRIS UHLMANN: Treasurer, the major banks are also telling anyone who cares to listen that they'll raise interest rates no matter what the Reserve does because of the credit squeeze now, in the United States.

PETER COSTELLO: Well, for those banks that borrow in the United States, their cost of funds has gone up, because the United States economy is in trouble, and this is going to take a lot of management, by the way. They say, because their costs of funds have gone up, they're entitled to charge borrowers more.

There may be a case for that, in relation to some business loans, where, let's say, if the costs of funds has gone up 10 or 15 basis points, that's about 0.1 per cent or 0.2 per cent. But there is no basis whatsoever for any of those banks to change their standard variable mortgage interest rates.

Those standard variable mortgage interest rates are flexibly funded out of their deposit book, and their deposit rates have not risen, and they have no grounds whatsoever to move those interest rates without any change, any changes coming out of the financial markets in the United States.

CHRIS UHLMANN: We'll leave it there, thank you.


SPIN DOCTOR: Everything old is new again...

Now we are being promised technical colleges “with a special defence twist”. What next? It is certain to be something else new.

Its becoming clear that there aren’t votes in making work things we already have. There are votes in introducing partial replacements that are new.

Consider technical colleges.

Australia’s TAFE colleges probably weren’t perfect, but they could have been improved.

Instead in the last election the Prime Minister promised a new alternative system to sit alongside them, to be called Australian Technical Colleges...

That system has barely gotten off the ground (Queanbeyan’s is due to open next year, but when I checked a few weeks back it had yet to hire teachers) and the Prime Minister has now promised a third system to sit alongside it – Australian Defence Technical Colleges to be set up in the politically sensitive locations of south-east Queensland and Adelaide.

The Coalition has made an art form of it. During the last election it wanted to cut childcare costs, but instead of upping the existing Child Care Benefit it introduced (you guessed it) a new system to sit along side it, the Childcare Tax Rebate.

Unfortunately the Rebate had a design flaw. Parents couldn’t get hold of it until the best part of two years after they had incurred the expense, but at least it was new.

In this year’s budget they moved to fix it up. It’ll now be paid by the same agency that pays out the Child Care Benefit, but at a different time. The Benefit will be paid to the centre to reduce their bills immediately; the Rebate will be paid about a year later.

Labor’s caught the bug. It wants to get laptops to children who would otherwise go without. But instead of handing over money to schools to buy and hand out the laptops it will introduce an Education Tax Refund, also to be paid through the tax system and largely missing the children who really need the computers. But at least it’s new.

There are parts of Australia (not that many) that lack access to high-speed broadband. But instead of fixing things in the black spots where there is a real problem (such as Gungahlin) Labor is proposing to invest $4.7 billion in a shiny new fibre-to-node network to sit alongside out existing ones.

It mightn’t be needed, but its new. And this is an election.


Wednesday, October 24, 2007

Let's see, it's about economic credibility, right?

Laughter rang out in dealing rooms across the country at the start of the Treasurer’s press conference after 12.30pm.

A news flash on screens had him saying that Australia’s rate of inflation remained "within the band agreed by the federal government and the central bank”.

He turned out to have really said it, with a straight (if somber) face, and for good measure he plucked from the air the concept of a recession should the other side of politics get elected, a prospect previously not evoked lightly during election campaigns.

The Treasurer’s argument was that headline rate of inflation was well behaved. The fact that the Statistician had devoted 5 pages of yesterday’s 40-page release to explaining that changed arrangements for pricing childcare meant that this time the headline rate couldn’t be taken seriously appeared not to move him. Perhaps he missed it...

And perhaps he forgot his earlier entreaties at press conferences in August, June, April and February for Australians to focus on the underlying rate of inflation, not the headline rate.

Perhaps credibility with people who actually understand these things doesn’t matter, and nor does it matter with journalists who yesterday egged him on by asking how quickly he expected a recession.

His own department’s mid-year review released a week ago said that Australia’s economy remained sound and had strengthened.

His suggestion that if Australia went “back to pattern bargaining and moving wages by awards from profitable to unprofitable sectors of the workplace” there would be a recession is disingenuous.

As a barrister he may know that that is not what Labor is proposing. Labor moved wage setting away from awards at the start of the 1990’s.

When the Government’s deputy whip asked the Reserve Bank Governor at hearing in August about the wisdom of returning to centralised wage fixing, the Governor replied: “is anybody actually proposing that system?”

The Prime Minister is no better. He welcomed the headline 1.9 per cent annual inflation figure, which he must have known was flawed, observing it was “the lowest we’ve had since December of 1999. That’s a fact”.

The most honest, unguarded statement came from the Treasurer when he was asked whether his government could still win.

Instead of answering “yes” he replied that “there is still something like four and a bit weeks to go and a lot can happen in four and a bit weeks.”

Going Up. And the Coalition is rooted.

In a nightmare scenario for the Coalition the Reserve Bank is set to make history by increasing interest rates on Wednesday November 7 - two weeks before Australia goes to the polls.

It is then expected to increase them again by a further 0.25 per cent shortly after the poll, bringing Australia’s professional cash rate to 7.0 per cent - within striking distance of the 7.5 per cent bequeathed to Australia by the outgoing Keating government in 1996.

Australia’s Reserve Bank has never before lifted interest rates during an election campaign and until this year had not even increased during the year of a campaign...

The measure of inflation most watched by the Bank, the so-called “trimmed mean” calculated for it by the Bureau of Statistics, came in at 0.9 per cent for the September quarter, the second successive quarter it has done so, and sharply more than the 0.5 per cent and 0.6 per cent reported in earlier quarters.

The result suggests that Australia’s annualised rate of inflation is already at or beyond the top of the Reserve Bank’s 2 to 3 per cent target zone.

The other measure of underlying inflation calculated for the
Bank, the so-called weighted median, came in even higher at 1.0 per cent – the worst quarterly result since 1991.

For the Bank to take no action at its board meeting on Wednesday week would be to invite a third successive such result and to concede that it had lost control of inflation.

In immediate reaction to the news yesterday economists from the ANZ bank said it “sealed the deal” for November rate rise, the National Australia Bank said for the Reserve not to act would be “against its charter” and TD Securities said if the Bank did not move, it would mean “unambiguously” that it was politically biased.

Its global strategist Stephen Koukoulas added that “given that this is the not the case and that the Reserve Bank Governor Glenn Stevens is a man of the utmost integrity and professionalism, it is 100% certain that interest rates will be raised at the next board meeting”.

Westpac, the National Australia Bank, the ANZ and the Commonwealth Bank are all warning of the possibility of a further interest rate rise beyond November’s, with Westpac telling clients that given that the Reserve Bank board does not meet in January the only question was whether it will wait until February or do it in December.

The interest rate outlook pushed up the Australian dollar by more than one US cent to a high of 90.49 cents as futures market trading priced the likelihood of a pre-election rate hike at 83 per cent.

The Treasurer Peter Costello at first focused on the headline inflation rates of 1.9 per cent for the year and 0.7 per cent for the quarter declaring them “really right bang in the middle of the target range which the government has set for consumer price inflation” before conceding that “other measures of inflation, more technical measures, are up around the upper limit of the band”.

The headline rates were artificially depressed by a change in the way the Statistician accounted for the 30 per cent childcare tax rebate. Previously paid though the tax system it was not regarded as reducing the price of childcare, but since July it has become a direct payment and been incorporated in the measured price. The change cut 33.4 per cent off the apparent price of childcare in the figures released yesterday, when in fact the price was broadly unchanged. Bureau staff told the Canberra Times that without that technical change Australia’s headline rate of quarterly inflation would have been 0.9 per cent rather than 0.7 – the same as Reserve Bank’s preferred measure.

Mr Costello said he would not be drawn on how the Reserve Bank would react or whether a pre-election rate hike would sound the death knell for the Coalition, invoking instead the prospect of a recession if Labor was elected.

“If we were to go back to union control of workplaces and go back to pattern bargaining and moving wages by awards from profitable to unprofitable sectors of the workplace, you would unleash such inflationary pressures in this economy as would end in recession as has always happened in past periods of economic growth,” he said.

Asked how soon Australia would run into trouble should Labor be elected the Treasurer said that would depend on how militant unions became.

The Labor leader Kevin Rudd described the response as “a remarkable piece of political stagecraft by Mr Costello, Academy Award-winning in terms of avoiding responsibility.”

A November rate rise will be the sixth since the Prime Minister went to the last election promising to keep interest rates at record lows. It would increase the monthly repayment on a $400,000 mortgage by a further $67.00.

Laughter in dealing rooms throughout the country

Peter Costello has just opened a press conference saying that inflation is well within the Reserve Bank's target band.

I have put the entire transcript of his press conference below. It is quite something.

Also below is his press release. My favourite phrase reads "underlying inflation is expected as demand pressures ease".


The Consumer Price Index rose by 0.7 per cent in the September quarter and by 1.9 per cent over the course of the year. The major contributors to inflation were food, particularly fruit and vegetables and this is largely a result of the drought and low water allocations in the Murray-Darling Basin. Contributors were also in the housing area. Those things that detracted from inflation in the September quarter were fuel prices which decreased in the course of the September quarter and in addition childcare. Childcare prices decreased in the September quarter – largely a result of the fact that the childcare tax rebate changes which the Government announced in the Budget, bringing forward a rebate in relation to out-of-pocket costs.

This of course is a very low average inflation rate, annual inflation rate, at 1.9 per cent and the 0.7 per cent in the September quarter is really right bang in the middle of the target range which the Government has set for consumer price inflation. Other measures of inflation, more technical measures, are up around the upper limit of the band, although the band is in fact the consumer price band that the Government has set.

The fact that Australia is still running a Consumer Price Index inflation rate below 2 per cent at a time when unemployment is at 33 year lows is really quite remarkable in the sense that it shows that notwithstanding continuous growth and notwithstanding very strong job growth over recent years, inflation is still moderate in the economy. To give you an example, in previous terms of trade rises in the 1950s, inflation peaked out at 22 per cent, in 1974 it peaked out at 16 per cent. And the fact that we are still around 2 to 3 per cent at a time when we had strong terms of trade increases and very low unemployment is really a very strong achievement.

The difficult news I think for consumers in relation to fruit and vegetable prices is that they have contributed to inflation, that there are pressures there. The pressures are principally arising out of the drought and unfortunately, until such time as water allocation comes back and production increases, there is going to be pressure in relation to fruit in particular.

The Australian economy is undergoing a very, very significant investment phase at the moment. And it is our view that as this investment starts to work out in stronger capacity we will see rising growth and rising productivity as we have already seen in the last few quarters.

Let me make it clear that in order to manage an economy which is now running strongly with very low unemployment, it is important to have a plan to build capacity. The plan that I announced Monday week ago is all about building capacity for the Australian economy – in particular, encouraging people to join the workforce; making it easier for working mothers to take part-time work – it is a plan which will build and deliver additional capacity. That is the way it has been designed and its implementation will build capacity in the Australian economy.

Secondly, the plan for Australia’s economic future involves a flexible industrial relations system. If we were to go back to union control of workplaces and go back to pattern bargaining and moving wages by awards from profitable to unprofitable sectors of the workplace, you would unleash such inflationary pressures in this economy as would end in recession as has always happened in past periods of economic growth in Australia.

The industrial relations changes which have been out in place are absolutely critical for managing the economy into the future. And a political party which wants to reverse those changes is a political party that would unleash inflation and ultimately, as a consequence of that, economic downturn on the Australian economy.

I can’t stress enough how important it is in a situation where we now have unemployment at 30-year lows and where we have a strong terms of trade, that we have an industrial relations system which is flexible and can handle that. And anyone who wants to be a political leader who doesn’t understand that, doesn’t understand a fundamental reform of this economy and doesn’t understand what is required to manage it in the days ahead. That is why the Government has been reforming in industrial relations and that is why those industrial relations changes are important for Australia’s economic future.


Can you just (inaudible) Mr Costello, you are saying that if Kevin Rudd gets elected and Labor implements its industrial relations policy, the Australian economy will go into recession?


I am saying that if the industrial relations policy of the Labor Party is implemented and if we abolish AWAs and we return to award fixation, you will get in this country a breakout of inflation, as you have done in previous times when unemployment has been low. And a breakout in inflation ends in economic downturn. Now, there is a reason why the economy has grown continuously over the last near 12 years and that is because we have been putting reforms in place including industrial relations. If those reforms are replaced, it is a risk to inflation. And inflation generally ends in an economic downturn.


But you mentioned recession before, is that what you are saying?


Well, an economic downturn, yes. Where growth would decline and where you would be at risk of growth going negative, yes. If you got a breakout of wage inflation you would see a return as we saw in the ‘70s, in the ‘80s and in the ‘90s to an economic downturn. And the reason why we haven’t had one in the last 11 and 12 years, is because we have been putting in place reforms to handle continuing economic growth. And if you turn your back on those reforms you will go back to where we were.


Treasurer, can we take the flip side of that argument, the reforms that you have laid out, are they going to make Australia recession-proof?


I am never going to stand up and say that there is no risk, that Australia will never have a recession in the future. You can have external effects which can shock an economy. But let me make this point: we had an Asian financial collapse and we kept the Australian economy growing. We had a US recession and we kept the Australian economy growing. We had a one in a 100 year drought and the Australian economy kept growing. So we have had some big external shocks. Now we are having an increase in our terms of trade and it will require very delicate and experienced management. And if you want to turn your back on industrial relations reform, you won’t be able to manage it.


Mr Costello, if the Reserve Bank chooses to raise interest rates at the next board meeting, does the Bank risk appearing political to raise rates during a campaign?


Well, I am not going to get into advising the Bank. The Bank is independent. I put it on an independent basis, that was my decision. And I gave it a charter and the charter is ‘to have consumer price inflation between 2 and 3 per cent on average over the cycle.’ That is its charter and that is what it is charged with doing. Now, consumer price inflation was 0.7 per cent in the September quarter. Annualised that is well within the band for consumer price inflation of 2 to 3 per cent. Now, all of these things will be taken into account but I won’t be advising the Bank on how to conduct its role.


But your opinion looking at the figures, your own analysis is that there is not a need, an economic need for an interest rate rise?


Well when I look at these figures I see Consumer Price Inflation at 0.7 per cent in the September quarter. I see other measures which are a little higher but I see all of these measures of inflation 2 to 3 per cent and the target that we are aiming for is 2 to 3 per cent. And when I look at these figures I also note that with this strong investment cycle we are now building additional capacity in the Australian economy and I see that capacity working out in increased productivity and I see it working out by enlarging the capacity of the Australian economy in the years ahead.


Treasurer, (inaudible) inflation (inaudible). I am sorry, on the Reserve Bank’s measure of core inflation which is the first number they look at when they are setting the policy, it is pushing to that 3 per cent boundary, it is about 2.9 I think, the target for the (inaudible).


Yes, as I said, the Consumer Price Index is 1.9, there are other measures that are towards the upper band, towards 3 per cent. When you look at all of these measures you can vary bit by bit. But all of them are around 2 to 3 per cent. That is the point I make.


The Reserve Bank very clearly focuses on the weighted and mean average and they are at 2.8 and 3 per cent which is right at the top of the band. Why are you focussing on the headline figures?


Well I am just reminding you what the monetary policy is in Australia which is keeping consumer price inflation between 2 and 3 per cent on average over the cycle. That is the goal. That is the goal of monetary policy in Australia.


Do you regret giving the Reserve Bank its independence?


No, I think it was a very essential reform for Australia. It is something that I did in 1996, it is something that I re-endorsed when I appointed the new Governor, Glenn Stevens. I think it has been a very critical reform for Australia. It was very controversial when I did it. The Labor Party threatened to sue me. But you will notice that now, Kevin Rudd supports that policy. It would have been nice if he had supported it at the time but it is another case of ‘me too’ from Rudd and I think that illustrates the fact that it was a good policy.


If there was an interest rate rise during the campaign, that would certainly mean that the death knell for the Government’s campaign, wouldn’t it?


Well I think it is a strange question.


But how damaging would an interest rate rise be for the Government?


Well let me make this point: interest rates are lower today then when I became Treasurer and that is after 2.2 million more jobs. Now, you know, to think that after 2.2 million more jobs interest rates could still be lower than they were when we had, I think, 8.6 per cent unemployment shows you how far the Australian economy has come. Normally what would happen is as you get more jobs you would expect to there to be more pressure and interest rates to be higher. But to think we’ve had 2.2 million more jobs in Australia, the unemployment rate has halved, and the official interest rate is lower than it was in 1996.


What is the message for spending in these figures?


Well, I think the message here for consumers is that …


No, government spending, or political party spending.


I will just finish my answer, if I may. I think the message here for consumers is that consumers are confident. There is no doubt about it. And consumer demand is quite strong. But there are areas where supply is driving up prices and I think fruit and vegetables, particularly because of the drought, is one of those areas. And unfortunately there is just not much you can do about that. I sympathise with people.

From the point of view of Government spending, this is the point I would make. We are going through a huge investment surge in Australia at the moment. The private sector is putting more money into investment than we’ve ever had. That’s a good thing. That is building capacities. But the Government ought to be quite careful that at a time when you are having a huge private sector investment surge, it isn’t in there heating up costs. I think that is very, very important. This is the point I’ve been making as to why governments should be running surplus budgets. It is all very well for State Governments to say ‘oh, we’re running up a $70 or $80 billion worth of debt but that’s okay because we’re out there in the business of infrastructure’. You have got to bear in mind the private sector at the moment is building infrastructure as never before in our country. And if the Government is adding to that, that does, in areas of shortage, put price pressure. So I would say the message for government, Commonwealth Government and State Government is that at this particular time you should be running a budget surplus. That’s the message. That’s why the Commonwealth does run a budget surplus but the Labor Governments are running budget deficits. That is not a wise decision at a time like this in my view.


Treasurer, (inaudible) banks raising their interest rates ahead of rises in official rates?


Well you’ve got different markets. You have got the home mortgage market and you have got business lending. Now, the point I make is in the home mortgage market there are no grounds whatsoever for banks to raise variable mortgages, right. They have a big deposit book. They have not had any increase in official interest rates. It may well be that they don’t discount as much as they used to do but there are no grounds whatsoever to move variable mortgage costs.

Now, in the business lending market, the banks may well be suffering increased cost of funds and in that market there may be grounds for some banks - some banks - if they are exposed particularly to raising their funds internationally, to take that into account. I am not making any comment in relation to the business lending market, but I am making a comment in relation to the mortgage market. There are no grounds at all.


…inflation figures is a rise in bank fees. Is that a concern to you?


Well I think it is important that banks do keep their fees low, yes. I have written to the Australian Bankers Association. I have raised the issue of bank fees with them. I welcome the fact that most of the banks now have cut their – I think they call them – exception fees. These are the fees that they charge you for a cheque bouncing. The fees that they were charging bore no relation to the actual cost to the bank. As a consequence of that, most of the banks have now reduced those fees. But I do think that there is still room for more competitive products from the banks, I do. And I have written to them and urged them to consider them. Now some of the banks have actually gone some way to having more competitive products.


Are you concerned that the election campaign has become a very expensive auction?


Well, I don’t regard it as an expensive auction. Look, the Government announced a tax plan on Monday of last week, which will get more people into the workforce at lower marginal tax rates and build capacity. It is a plan for Australia’s economic future. Five days later, the Labor Party copied 91.5 per cent of it. Now, if someone copies your work 91.5 per cent you can’t complain, can you, because they are basically saying that you had it right and they are saying they would like to join you.


But there has been other spending…


I complain that the 8.5 per cent that they didn’t copy is far worse than my plan. I complain about that. And in fact it will leave 45 per cent of Australian taxpayers worse off, those people between $37,000 and $102,000, so I complain about that. Now in relation to other matters, it is our objective to keep the Budget in surplus and to have surpluses around 1 per cent of GDP. I think that is prudent and responsible.


Treasurer, taken your harping about the inflation risk under a Labor Government, under their workplace amendment, if you could put a hypothetical hat on for a moment, if I could just ask you…


Very dangerous thing to ask me to do, George.


…. Kevin Rudd becomes Prime Minister. Do you think the Reserve Bank, having heard what you’ve said, will probably think the same way and greet an incoming Labor Government with an interest rate rise, to head off, or a shot across the bow in inflation?


Let me answer the question this way. Glenn Stevens, and before him, Ian Macfarlane made it perfectly plain that flexible industrial relations was absolutely critical for managing monetary policy. The quote that Ian Macfarlane had was to the effect that the more flexible your industrial relations system, the more it makes the task of monetary policy easier. Glenn Stevens has said the same thing. There will be no doubt at all that a reversal of industrial relations policy, under the direction of the trade union movement by Kevin Rudd, would cause problems for the Australian economy and would cause problems for inflation. That is my view, it is the view of reputable economists and it is the view of the Governors of the Reserve Bank.


Would that be quick? How long would it all take in your view?


Well, it depends…


You know their timetable for putting legislation into…


Well, look, it depends, you know, how quickly they move to reverse industrial relations and, you know, how aggressively they go, the unions go about using the new …


So we’ll be in a bad way in a year’s time?


Well, it depends as I said on how quickly they go about reversing industrial relations and how militant the unions get. You know, you’d begin to feel it first on building sites, I would think, where the militant unions would be first out of the blocks. Joe Reynolds and others – Kevin Reynolds, Joe McDonald. All right, we’ll make this the last question.


Mr Costello, can John Howard win the election?


Well I think this election is very open and I think this election could still be won by either side of politics. I think there is still something like four and a bit weeks to go and a lot can happen in four and a bit weeks. Okay. Thanks.


Today’s All Groups Consumer Price Index (CPI) rose by 0.7 per cent in the September quarter 2007, to be 1.9 per cent higher than a year ago. Major contributors to inflation in the quarter included housing, food (in particular fruit and vegetables), financial services and recreation. These increases were partially offset by lower household services, automotive fuel and audio, visual and computing prices.

Excluding volatile items (fuel, fruit and vegetables) the CPI rose by 0.7 per cent to be 2.6 per cent higher through the year. The Reserve Bank of Australia’s Trimmed mean and Weighted median measures rose by 0.9 and 1.0 per cent respectively in the quarter, to be 2.9 and 3.1 per cent higher through the year.

The food component of the CPI increased by 1.9 per cent in the September quarter and contributed 0.3 of a percentage point to quarterly inflation. This was largely driven by strong increases in fruit and vegetable prices (up 8.8 per cent), reflecting unseasonal weather conditions. Current pressure on food prices reflects unfavourable weather conditions and low water allocations in the Murray-Darling Basin.

Housing costs rose by 1.8 per cent in the September quarter and contributed 0.4 of a percentage point to quarterly inflation. This reflected increases in both rents (up 1.6 per cent) and house purchase prices (up 1.0 per cent).

Financial and insurance services prices rose by 2.0 per cent and contributed 0.2 of a percentage point to quarterly inflation. This was due to significant increases in both deposit and loan facilities and other financial services prices.

Automotive fuel prices decreased by 3.7 per cent in the September quarter and subtracted 0.2 of a percentage point from quarterly inflation. Other major subtractions from quarterly inflation include household services (down 9.0 per cent) and audio visual and computing prices (down 1.2 per cent).

Child care prices decreased by 33.4 per cent in the September quarter and subtracted 0.2 of a percentage point from quarterly inflation. This was due to the impact of the inclusion of the Child Care Tax Rebate in calculating the “net” change in childcare cost for the first time and the additional 10 per cent indexation of the Child Care Benefit on top of the usual annual CPI indexation.

Looking forward an easing in underlying inflation is expected as demand pressures ease and growth in unit labour costs slows as productivity strengthens. The current surge in investment is delivering increased capacity, now starting to show in strong output and productivity growth.

The Government’s sound economic management has ensured that the Australian economy has the flexibility to adjust to substantial price fluctuations. Decentralised industrial relations is preventing an outbreak of unsustainable wage demands as has happened in previous times of large rises in the terms of trade. Australian households are benefiting from the higher standard of living that comes with solid economic growth, sustainable wage growth, near record labour force participation and the lowest unemployment rates in 33 years.

Morning campaign thoughts

This is a mop-up operation to ensure that no voter is left unbribed. Even the title gives the game away: “More support for pensioners, self-funded retirees, people with disabilities and their carers.” George Megalogenis

When a conservative government starts chucking money at pensioners, carers and the disabled, you know the government is really in trouble. Christian Kerr

I've just had a thought that will disturb the committed on both sides of the political fence: maybe with Kevin Rudd, what you see is what you get.. a younger John Howard. Ross Gittins

Tuesday, October 23, 2007

Wednesday: Howard's end?

Politicians, economists and Reserve Bank staffers are on tenderhooks ahead of inflation figures due for release this morning expected to provide the trigger for a pre-election rate rise.

An interest rate rise decided at the Bank’s Melbourne Cup day board meeting would come just 17 days before polling day and most likely deal a fatal blow to the Coalition’s re-election campaign.

The Treasury’s Pre-Election Economic and Fiscal Outlook released yesterday continued to forecast an annual headline inflation rate of 2.75 per cent in the year ahead implying a quarterly rate of 0.68 per cent, low enough to allow the Reserve Bank to leave interest rates unchanged.

But the so-called “trimmed mean” inflation rate that the Bank uses to guide its deliberations jumped sharply to 0.9 per cent in three months to June, well in to the Bank's danger zone...

If the trimmed mean inflation rate for the three months to September to be released today is also close to 0.9 per cent as is thought likely, a Melbourne Cup week rate hike will be almost automatic.

To delay would be to risk a third successive 0.9 per cent quarterly rise and to lose control of inflation.

Late yesterday private sector economists were forecasting a trimmed mean rate of 0.9 per cent for the September quarter, with some suggesting it could be higher.

Several had boosted their forecasts in the wake of the producer price index released on Monday which showed that the price of Australian-produced goods jumped 1.5 per cent in the quarter.

A rate rise on Wednesday fortnight would be the sixth since the Prime Minister launched his campaign for the last election from a podium that read “keeping interest rates low”.

It would push up the standard bank variable interest rate to 8.55 per cent, lifting the monthly repayment on a 25-year $400,000 mortgage to $3,167.

The head of the National Australia Bank John Stewart yesterday told the Australian Financial Review that further increases in mortgage rates were likely over and above those dictated by the Reserve Bank once the election was out of the way.

“Once things settle - and probably once there is no election looming - prices will rise because credit is underpriced,” he was quoted as saying.

Campaigning in Adelaide yesterday the Prime Minister said that banks' lending practices were “entirely a matter for them” and that the most important question facing voters was “who is better able to manage our $1.1 trillion economy”.

Mr Howard added to the $34 billion of tax cuts he promised last week an extra $4 billion in additional payments to old-age pensioners, carers and disability support pensioners.

Asked whether the injection of so much exra cash would fan inflation further and force the Reserve Bank to push interest rates still higher he replied: “I don’t regard it as inflationary to make sure that pensioners are protected against the impact of cost of living increases. I think, you know, economics has lost its meaning if you regard something like that as inflationary.”

The Coalition and Labor campaign promises, each exceeding $47 billion, are unlikely to influence the Reserve Bank board's immediate decision at its Melbourne Cup day meeting.

But they are likely to help determine how many more times the Bank feels it needs to increase interest rates beyond November.


How (not) to interview.

Alan Jones with Peter Costello on 2GB this morning.

"JONES: I mean, where is there, this vision for the future which is different from yours?

TREASURER: Well this is the point I would make..."
Ad nauseum.

JONES: Peter Costello, good morning.

TREASURER: Good morning Alan. Good to be with you.

JONES: What do you think, what do you make of all of these figures today, the so-called polls? Do you talk about polls?

TREASURER: Look Alan, you are going to have a poll a day in this election and if we sit down and we analyse a poll a day then we are not going to be talking about the issues which are of concern to Australians.

JONES: Well didn’t Kevin Rudd – talk about issues, say – I have to say I have real concerns about all of this and my job I think, as a broadcaster is to ventilate those concerns...

Didn’t Kevin Rudd say that 45 per cent of his electorate would be paying under him, whether it is aspirational or not, but aspirational for the benefit of my listeners as much of this stuff is about what we aim to achieve in 2013. But that is not the issue. The issue is, well even if it is 2020, do you get your figures right? He said 45 per cent of the electorate would be paying under him, 15 cents in the dollar. Now, the threshold for 15 cents is $37,000, isn’t it? So does that mean 45 per cent of Australians would be on $35,000 or less?


Well this is where he made the error. You will recall we put out our tax policy on the first day of the election. Kevin Rudd waited five days and then he copied 91.5 per cent of it. Now, you know, I can’t complain of him copying our policy – because it was a good policy – what I am complaining about is he didn’t copy 100 per cent. He copied 91.5 per cent and then he decided to change 8.5 per cent. And it is the 8½ per cent that he got wrong. The 8½ per cent is where he laid down what he thought the taxation system should be in six years time. He made a fundamental error because he didn’t take into account that you need to raise thresholds over that period and the consequence of that is that 45 per cent of Australian taxpayers would be worse off under Mr Rudd’s proposal.


Because (inaudible) go past until $37,000 and the 15 per cent in the dollar goes up.


That’s right. And these are all of the people…


He keeps saying: ‘we will just stick the thresholds where they are.’ Doesn’t this man understand the tax system?


Well he doesn’t understand the tax system you see. Because if you want to keep middle income Australians – those that are earning between $37,000 and $102,000, that is middle income Australians, if you want to keep them in an improved position you have got to move that threshold.


Well he says it will be $37,000.


He says it will be $37,000 because he didn’t understand the tax system.


Well okay, let’s take it to the next step. I mean, as aspirational stuff and I am not worried about that. I am worried about whether a person is saying things that he doesn’t understand and expects us to buy. And now, his aim aspirationally is to reduce the $80,000 to $180,000 from 40 cents in the dollar to 30 cents in the dollar. You have said 35 cents. Now this means basically, that whether he knows it or not he is arguing that there be bigger tax cut under him to the $80,000 to $180,000 than there would be under you. But it is a $10 billion shift, isn’t it?


Look you see, again he doesn’t understand it. What he thought he would do is he thought he would put out something that would sound good and then he would be able to say, well you see, I didn’t copy them in their entirety – he only copied 91.5 per cent – and I changed the remaining 8½ per cent. But the 8½ per cent that he has changed will mean that middle income earners are worse off. 45 per cent of Australians worse off. He might say…


Because once they go past $37,000 they go into a higher tax bracket because…


That is right.


…he is leaving the threshold at 37, yep.


These are the people that are worse off. Anybody who goes above $37,000 gets worse off because he doesn’t move that threshold. So he leaves middle income earners worse off. Now, when I alerted him to this problem – I put it out on the weekend – he had the opportunity to say: ‘well look, I made a mistake, I will move that threshold, I will make sure that middle income earners aren’t worse off.’ He had an opportunity to do that but when the press asked him whether he would move those thresholds he said: ‘no, they stand.’ So rather than actually help middle income earners by correcting the mistake, he has now confirmed the mistake and Alan…


Do you seriously think he understands this or not?


Well this is the whole point. He didn’t understand it. And he was okay while he was copying 91.5 per cent of our policy…


Is it valid to offer a tax policy which is a replication of someone else’s policy and call it your own?


Well, you, I can hardly complain if Kevin Rudd wants to adopt our policy. I mean, it is a good policy. But the point…


But on Aboriginal care in the Northern Territory adopts that policy, on the Medicare levy, he adopts that policy…




…I mean, where is there, this vision for the future which is different from yours?


Well this is the point I would make. I mean, when he adopts your policy you can hardly complain but the point is he wants to be Prime Minister and if he is Prime Minister we won’t be there writing the policy for him to adopt. He will be on his own. And that is the risk. If he is on his own, whose policy would he actually copy?


Well we are told today that the ratings have gone up or the polls have gone up because of the educational revolution which is linked to his tax policy release. Now what is the educational revolution? Is this providing a refund for families who are receiving Family Tax Benefit A if they get themselves a computer or something such? Now, this doesn’t come into being until the second half of 2009…




So in other words a family has to fork out the dough first by July 2008 and they won’t get a rebate until way down in 2009. How is that an educational revolution?


Well there are two things that are wrong with his policy. The first is as you say, you won’t get any money for two years. So you have got to spend money now to get a rebate in two years’ time. That is the first point. The second point of course is this only applies to things like laptops and computer connections and books. Now, it is all very well to say we will have a rebate if you buy your primary school child a laptop. How many primary school kids are going to take laptops to and from school? Certainly not kids in grade one, two or three…


But is a laptop dearer, is a laptop cheaper for a primary school child than for a secondary school child?


Well but, how many laptops does one child get, by the way? Because he says you have got this rebate every year which you can use to buy a laptop. I doubt if you would be buying a laptop for a child every year…


But the rebate is for a laptop for educational use. Now is the Tax Office going to knock on every door to determine whether the laptop in that home or the two laptops are used for education or for business?


Well, a very good question. I doubt that he has thought about this either. Because if a parent buys a laptop they may well be claiming it as a tax deduction. Under his rebate it could well be claimed on behalf of the child as well.




Now, has he thought about that? Has he thought about the possibility that these laptops could be claimed under different provisions of the Income Tax Act and has he actually given any consideration to the detail?


Well there are no details.


Now these are…


Can I ask about childcare? Now he is going to give a childcare rebate of 50 per cent so that the cap will go from your $4,250 to his $7,500 per child. It will be paid every three months. Won’t this just encourage childcare operators to bump up their costs? I mean, childcare costs already are soaring faster than the CPI. I saw some figures where they have increased 65 per cent over the past five years when household income has gone up by 17 per cent. Now, how on earth is this going to do anything other than say to people oh well, if the Government is going to subsidise all of this, we will jack up the cost?


Again, a very good point and again a point that he hasn’t thought about and a point he hasn’t addressed. If all you do is you increase the rebate, you do run the risk that the value will be captured by the provider. I don’t think he has thought about that. I don’t think he has given any consideration. He wasn’t asked the question. He hasn’t laid down any markers as to how the value would actually be translated out to the parents themselves. It is the same when you get onto the laptop. It is the same when you get onto the tax system. This is someone who hasn’t thought about policy. When he actually writes his own policies – we found with tax he got it wrong, he got it wrong – he was all right while he was actually copying ours but he got it wrong.


Okay, well then why shouldn’t the electorate have a debate between you and Wayne Swan? That is what they are asking for – Treasurer versus Treasurer – have you extended that invitation to debate?


I would like to debate Mr Wayne Swan. I would like to debate him next Tuesday. I have offered him the opportunity for a debate and I think we ought to talk about the economy. I think we ought to talk about the way in which he and Mr Rudd have opposed economic reform.


But would you be prepared to debate both of them on the economy?


…and I think we ought to talk about the influence that…


Would you be prepared to debate both of them?


Well look, I am prepared to debate who ever will debate me…


And what is their response?


I am offering Mr Swan the opportunity to debate me next Tuesday at the Press Club and I hope to see him there.


What is the worth of a debate though when the people asking the questions ask nothing about water – about harnessing it, recycling it and transporting it – nothing about carers, nothing about the mentally ill? Is Canberra so out of touch with reality they don’t understand this is what struggle street is talking about?


Well you know, you have seen the response to the debate, you would have thought there was two worms debating from the coverage after.


Let me ask you a question I asked you last week which I must say, listeners here weren’t happy about your responses. I mean, if you wanted a knock-out punch there are 2.6 million people out there doing it tough, they are the carers. Their care is worth $31 billion. 170,000 of them are under 18. Two million of them are of workforce age but they can’t work. The Carers Allowance plus the Carers Payment if they got the lot and one of them is means tested would qualify them for only $318 a week, $200 bucks underneath what average weekly earnings might be. Why not double the carers allowance? Why not introduce a superannuation scheme for carers receiving Centrelink support and the Government would contribute to the scheme? Why not extend medical benefit schedules to include annual health check for carers? I mean, there is a golden opportunity waiting for someone.


Well as I said to you last week, I have enormous respect for the carers in our community. As you know in recent Budgets we have paid a bonus to carers and I have said to you that we are looking at ways that we can increase the facility for carers. We are actively looking at ways that we can (inaudible)…


2.6 million of them.


…and we value them very much in the community.


But are you going to be doing something in this election campaign?


Well as I said to you Alan, I am looking at it very closely and I value the work that they do and I want to help them as we have economic circumstances to do so.


Kevin Rudd says he will create affordable housing without depressing the value of neighbouring properties. And my understanding the real problem in Western Sydney is that housing pricing have fallen by 15 per cent over the past two years. I mean, does his audit of Commonwealth land actually include Parliament House?


Yes, this is a very interesting one. Of course, when I said we ought to look at land, not just Commonwealth land by the way but State land and private land for release for housing. He said that was no good. And then a couple of months later, guess what? He announces he is going to have an audit. So he has an audit. He says: ‘oh well there is $6 billion of Commonwealth land. Oh well, we can sell off all of that land. Well we will make all of the people that are on that land justify their land on a yearly basis and if they can’t justify it, we will sell it off.’ Well, what he was talking about there was selling off all of the Air Force bases, all of the Army bases, all of the Navy bases, the High Court and Parliament House. That was all included in the $6 billion.


But housing affordability, where do State Governments fit into this? In this State, it is State imposts which are the major constraint on housing affordability in places like Western Sydney, not land availability.


Exactly right. One of the reasons, well the main reason in Sydney of course why land isn’t being released is by the time you release it the State Government charges are adding something like $160,000 to the block. That is in taxes and charges. Now, you have got to, if you really are serious about getting land released so young people can buy, you wouldn’t be putting taxes and charges of that dimension…


Well just a quick one…


…on those blocks.


…just a quick one before you go. I mean, he says he is going to scrap individual employment agreements. I note the west Australian branch of the Australian Nursing Federation says it will accept your system of individual contracts and they are saying it is unrealistic for Labor to oppose the Government’s Australian Workplace Agreements when employees wanted them.


Well exactly right. And I think you are finding now that many employees who are looking at this very carefully know that under an improved industrial relations system they have a chance for better wages – for better wages. And I think you are seeing that in Western Australia with the nurses. And I would say to nurses: think about this very carefully. I know that some of the nursing unions are taking an active role in this campaign but look at what is happening in Western Australia and think about it carefully. There is an opportunity to actually do very, very good agreements that will help nurses – people who we value very much in our community.


Okay, you have got to go. I have got to go. Thank you for your time.


Thank you very much Alan.