Thursday, February 28, 2008

2020: Want to be in it?

The deadline is 5.00pm tomorrow, Friday.

Wednesday, February 27, 2008

Prepare for a Gruen world

Dr Nicholas Gruen has lots of good ideas. Ross Gittins wrote about several of them this week.

Ross, and me as well, think he would he great at the 2020 Summit.

But bigger, more important things are already happening. Nicholas has thought a lot about the scourge of regulation and how to smartly tame it. A Gruen world would be different to the one we are in. The default would be no regulation.

Last night, in a speech on deregulation, Australia's first Minister for Finance and Deregulation Lindsay Tanner said:

"A key to our success in advancing this deregulation agenda will be our capacity to be open with the community and facilitate compliance rather than just waiting to punish breaches.

Even small changes to practices can make a big difference. Regulators should work with industry to identify improvements to regulatory practices.

I want to encourage a culture of continuous regulatory improvement in the same way manufacturers seek to continuously refine production processes.

As US diplomat and economist Chester Bowles once remarked “government is too big and too important to be left to the politicians”.

I have asked leading economist, Nicholas Gruen, to work with me on this. Nicholas has championed the application of continuous improvement and total quality management processes to regulation."

Congratulations, Nicholas Gruen.

Below the fold is my story for this morning's CT:

The Treasurer Wayne Swan has signaled that his first budget due in eleven weeks time will cut entire government programs rather than just shave the cost of administration.

Addressing the Business Council of Australia in Melbourne last night Mr Swan said that in order to deliver high quality programs he was prepared “to cut or reprioritise” poor quality ones.

It is the first time that the Treasurer has confirmed that entire government programs are under the axe.

Declining to identify any particular government programs Mr Swan said that he was determined to ease the burden that had been placed on interest rates by undisciplined government spending.

“Let’s be honest – the previous government’s lax fiscal policy made the Reserve Bank’s job harder,” he said.

“We want to make it easier, with a new era of fiscal discipline.”

The already-promised surplus of $18 billion or 1.5 per cent of GDP was just the beginning. In addition ,Mr Swan would “let the automatic stabilisers that are built into the budget do their job”. That meant that any upward surprises in revenue would be banked, rather than spent as the previous government had done.

Previous upward surprises in revenue have been in the order to $8 billion to $12 billion, suggesting that the surplus unveiled on budget night could be as big as $30 billion.

The Treasurer stressed that the tax cuts promised during the election would be delivered despite continuing criticism from economists, most recently a former Reserve Bank board member and ANU economist Bob Gregory who claimed on Monday the cuts were “bad news”.

“Nobody in their right mind would be having these tax cuts,” he told Dow Jones Newswires.

Mr Swan said the tax cuts would add an extra 2.5 million hours of work to the economy each week as a result of the 64,000 people they would entice into the workforce.

Professor Gregory told Dow Jones that “the idea that the tax cuts will boost participation, and therefore you don't have to worry, is a story that doesn't have any serious credibility.”

He said the best way to boost labour supply was to keep economic growth strong by containing inflation, which meant canceling the tax cuts.

In Sydney last night the Minister for Finance Lindsay Tanner indicated that the budget would include an attack on red tape.

He said that every new measure that was presented to Cabinet would have to come with a Regulatory Impact Statement and satisfy a “one-in one-out” rule.

Ministers proposing new a regulations would have to specify which existing regulations they would remove.

Among the results of excessive regulation were 50 and 80 page financial product disclosure statements and a requirement that pesticide manufacturers lodge an application to change the colour of their product labels.

Mr Tanner announced the appointment of a private-sector economist Dr Nicholas Gruen to work with him on changing the nature of regulation. Dr Gruen is an advocate of contestable regulation, whereby businesses have the ability to object to regulations they can demonstrate have no point.

The government also announced the appointment of the former head of Ansett and British Airways Sir Rod Eddington as the first head of Infrastructure Australia, the new body that would prioritise infrastructure needs.

Mr Swan told the Business Council that Australia's ports, roads and railways were straining under the weight of the commodities boom.

“You see this lack of foresight in the ships sitting off our ports or the job ads that fill our papers,” he said.


Monday, February 25, 2008

Tuesday Column: Please, please, don't put it into super

Who'd want to be Wayne Swan? Besieged by suggestions about how to draw up the budget, half of them say “put it into superannuation”.

Got a problem with promised tax cuts that will only feed inflation and push up interest rates? Put the money into super instead.

That's what the former Reserve Bank Governor Bernie Fraser is saying (and being one of the fathers of Australia's system of compulsory superannuation as well as the face an industry advertising campaign he knows a thing or two about the topic).

Other economists suggest giving Australians the option of taking their tax cuts as superannuation – which can't do much harm, but is not likely to do much good either. The people who accept the option would most likely be those who either weren't planning to spend the tax cut anyway or who have the resources to move funds around and spend money from a different bucket to compensate.

Got a problem with an ever-growing surplus that needs to be parked somewhere once the Future Fund and its kindred mini-funds get full up? Put that into super.

According to the Australian Financial Review, handing out the surplus as superannuation contributions is an idea being seriously considered in the upper echelons of the Treasury...

We're told it would boost national savings, avoid inflationary tax cuts, cut reliance on the pension and infuriate the Coalition by genuinely locking away the surplus where it couldn’t get at it.

Oh, and it would boost even further what is easily the most subsidised, protected, and essentially unproductive industry (although it is productive at lobbying) in Australian history.

Back in the days before compulsion the superannuation industry was worth $60 billion. It's now worth $1 trillion, about as much as Australia's entire annual GDP, and is set to climb even higher, mainly as a result of compulsory contributions. Australia’s motor car industry never dreamed of such a scam.

And it would never have asked for such tax concessions.

Presently costing $26 billion, and ballooning at the rate of an extra $2 billion each year, the annual cost of the tax incentives offered to encourage people to put extra money into super dwarfs that of actual government programs. By way of comparison the Commonwealth government spends $16.6 billion on education. The entire ACT government spends less than $3 billion on all of its services rolled in together.

What’s wrong with further feeding the ever-growing superannuation monster, as just about everyone who has Wayne Swan’s ear seems to be suggesting?

Super is already big enough.

Perhaps not for you, right now, but by 2050 every retired Australian will have locked away 9 per cent of their salary in super contributions for their entire working lives.

Will that be enough? A good deal more than enough, according to calculations performed by the Parliamentary Library. It says that under current arrangements, before retirement an Australian on $50,000 can expect to take home $39,140 after tax. Post retirement that will jump to $50,013.

That’s correct. Under present arrangements Australians who make compulsory superannuation contributions throughout their working lives will get a pay rise when they retire. For a worker on $50,000 it will be a pay rise of 28 per cent. For a worker on a lower salary it’ll be higher.

Even Australians earning $100,000 will get a pay rise of 15 per cent on retirement. Only from a salary of $200,000 will the present compulsory super arrangements deliver a pay cut. At that level a retired worker will get “just” $123,324 a year, compared to $124,791 after tax while working.

We do Australians no favours by withholding their income until they no longer need as much of it.

It is while working that we need our incomes the most. We have to buy houses, educate, feed, clothe and house children, buy work clothes and drive a car or take public transport into work each day.

Locking even more money away in superannuation as a gaggle of Wayne Swan’s would-be advisors are now suggesting isn’t smart for most Australian workers, and for low-income earners who need money now, it’s positively cruel.

The Australian Association of Superannuation Funds won’t have you believe this. Its has prepared its own estimates of what a retiree needs in order to lead a life with “enjoyment, comfort, style, holiday travel and health insurance cover”.

It has catered for an economy overseas trip every five years and up to ten domestic trips each year “to visit family, friends or holiday”.

As Dr Richard Denniss has noted in the Australian Journal of Political Economy, comfort in retirement appears to require “Gold frequent flyer status”.

The super supporters respond by arguing that things will be different in 40 years time. As Australians get older there will be “too many consumers and too few producers”. The hairdressers, aged care nurses and so on that are working will be more expensive.

It’s true. But the other sad truth is that universal extra superannuation will do little to change that.

Economists call this faulty line of thinking the “fallacy of composition”.

We see it in the stands at the football. If one person takes along a fruit box to stand on, they get a better view. But if everyone does it, no-one gets a better view.

An individual putting a lot of money in super will have a better chance of buying the services of scarce workers in the year 2050. No doubt. But if everyone does it, they will not.

Extra superannuation can’t do much at all to change the shape of Australia in 2050. It can’t summon up workers who won’t exist.

And in any event there’s scant evidence that Australians as a whole don’t save enough.

Professors Ian McDonald and Ross Guest from the University of Melbourne and Griffith University pose this question: Do Australians save enough to allow future generations to enjoy increased living standards?

Their answer is that for the last 100 years or longer we have.

On current projections the living standards of Australians in 2050 will be almost double what they are today, so long as climate change doesn’t wreck things.

The government does need to take money out of the economy on a temporary basis at the moment in order to tame inflation.

But it doesn’t need to lock it away in super where we won’t be able get it when we need it, whatever the Treasurer’s new friends are telling him.


Sunday, February 24, 2008

The surplus that isn't

Access Economics and the Business Council of Australia have warned the Treasurer Wayne Swan that the previous government left the nation's finances in much worse shape than had been believed.

Calculations prepared by Access for the Business Council's pre-budget submission show that the Coalition left Australia with an “underlying” or “structural” budget deficit of $11 billion, rather than the surplus it had claimed.

The Treasury calculates but does not publish its estimate of the structural deficit, which indicates where the budget would be had Australia’s terms of trade been growing at their long trend rather than jumping as a result of the minerals boom.

The Treasury was projecting a $14.4 billion budget surplus for 2008-09 in the last months of Coalition rule, but Access says that once “$26 billion in boom effects” is stripped away the Australian budget is heading for a structural deficit of $11 billion...

Around $7 billion of that deficit will result from the $7 billion in tax cuts promised by the Coalition during the election and due to be delivered by Labor in July.

“The previous Government’s fiscal policy so far through this amazing cycle could be summarised as ‘spend the lot’,” Access says in this morning’s report.

“As fast as the boom in profits has generated a tax windfall, the previous Government parceled it back out again as tax cuts and increased spending, notably the ‘barbeque stopper’ increases in family benefit payments and baby bonuses.”

“The resultant recent mix has seen lax fiscal policies as federal and state governments have spent their share of the commodity and housing booms together with tight monetary policies as the Reserve Bank attempts to reduce capacity pressure in the economy.”

“That combination – with one policy accelerating and the other braking – is almost the exact opposite of what is required in an economy with stretched housing prices and a large current account deficit amid a commodity boom.”

Access says that if commodity prices stumble, “it will be evident that the huge policy spend of recent years has been made on the back of a temporary surge in revenues.”

If commodity prices return to their long-term trend government revenues will fall $24.7 billion and expenses will climb $1.5 billion.

While demand for Australian commodities is likely to remain strong in the period ahead - perhaps permanently – the report says “that won’t save today’s commodity prices”.

“For most commodities, supply is still barely bigger than it was a handful of years ago. Yet that is increasingly changing. And when supply does start to catch demand, then commodity prices could fall – perhaps substantially so”.

The Access Economics report says that while the Australian Treasury has assumed in its pre-election forecasts that coal and iron ore prices will fall, it has also bravely assumed that company tax collections will remain high.

“The Treasury is assuming profit tax collections will permanently rise faster than profits themselves,” it says.

“Booms are often assumed to last forever. The official fiscal forecasts emanating from the US at the height of the boom proved to be wildly optimistic. So too did those in Japan at the height of its late 1980s property boom.”

“The policy response of recent years has been to spend this windfall. And the windfall is still getting larger rather than smaller.”

“But economics – the iron triangle of demand, supply and price – suggests that this windfall will ultimately prove to be temporary.”

In its pre-budget submission the Business Council calls on the government to freeze spending for the next three years in real terms in order to deliver cumulative savings of $32 billion.


Sunday dollars+sense: Who works the hardest in your office?

Who works the hardest in your office? I’ll make a bet. It’s likely to be either a childless woman or a woman whose children have become teenagers.

Seriously. That’s how it is for lawyers in Canada.

Law firms are particularly good places for determining who puts in the most hours. Private-sector lawyers keep records - so-called “billable hours” - and 670 of them were happy to also answer questions from Jean Wallace at the University of Calgary about the time they spent on tasks at home and whether they had children.

For men, children make little difference...

Men actually put in more hours at work if they have children, but not hugely so. Each man in a law firm typically puts in around 1,500 billable hours a year.

For women it depends. Before having children women typically put in far more billable hours than men – as many as 1,600 – perhaps because, as Dr Wallace suggests, they feel compelled to demonstrate exceptional work commitment in order to have any hope of being as successful as a man.

Going back to work after having had children they typically put in far fewer hours - around 1,400 a year - although my own observation suggests they get about as much work done as before. Parenthood necessitates efficiency, at least for women.

Women who have become mothers take on much more work at home than men. The Calgary survey suggests they spend more than three hours each day in childcare-related activities compared to men’s less than two.

But something surprising happens to Canadian female lawyers after their children become teenagers. They boost their hours at work again, putting in more hours than men and even more than they did before they had children.

Women with teenagers become by far the most productive workers in the office, and even more so if I am right about them having become ultra-efficient.

Dr Wallace had expected family-friendly workplace polices to dent the hours women put in - if an employer made it easier to work fewer hours, women would be more likely to do it.

Curiously she found that women didn’t typically take advantage of easier conditions where they were offered, but men did.

Men, but not women, put in less time where it was made easy for them to do it, and disturbingly for the advocates of family-friendly workplaces they tended not to use it to see their children.

“Leisure” is how she described the purpose to which men put their extra free hours. She could have said “golf”.

Jean E. Wallace, Parenthood and productivity: A study of demands, resources and family-friendly firms, Journal of Vocational Behavior, Volume 72, Issue 1, February 2008, Pages 110-122

Saturday, February 23, 2008

Saturday Forum: “Labor Can’t Manage Money” three months on

“Labor can’t manage money” we were told in the election advertisements.

“They’ll stuff the economy” was the grim forecast.

Three months on Labor are looking okay as economic managers, although problems await, and it looks as if the Coalition couldn’t manage money.

Its not just this week’s revelation that the Coalition ordered 100,000 WorkChoices Mousemats and then locked away in storage for $930 a month, although that’s emblematic.

There is also this week’s Audit Office report about the Coalition’s ghost rail projects. According to the Office just before the end of July in 2004, 2005 and 2006 the Coalition government authorised special grants to the Australian Rail Track Corporation “so as to reduce the budget surplus”.

The Rail Track Corporation hadn’t asked for the money and wasn’t able to properly use it. It invested it while it drew up plans in a series of transactions that the Office believes will cost $141 million in lost interest earnings...

The Coalition also cut the efficiency dividend it demanded of the public service, again in an apparent attempt to stem the growth of the surplus.

Days before the November election was called, at the time when it was running those “Labor can’t manage money” ads, the Coalition shoveled $5.5 million of government grants to 28 of its own electorates as part of its Regional Partnership Program. The figures presented to parliament this week suggest that it was a particularly productive week for the Ministers approving those grants.

The revelations coming out both in parliament and at this week’s Senate estimates hearings paint a picture closer to that of a government showered in riches spraying money around without regard for the consequences than that of a responsible economic manager.

The Coalition’s new Treasury spokesman Malcolm Turnbull has seemed anything but responsible.

His performance on The Insiders on the eve of parliament’s return two weeks ago was excruciating.

In the face of absolutely clear evidence that inflation was accelerating and moving well beyond the Reserve Bank’s 2 – 3 per cent target band during the Coalition’s last months in office he denied it.

“The great credit of the Coalition government is that throughout the entirety of its period in office, including the December quarter for last year, inflation was maintained within the Reserve Bank’s 2 to 3 per cent target band,” he said.

As for the December quarter result that he insisted was only 3 per cent, the Reserve Bank pointedly noted in its Quarterly Statement a week later that it was only a fiddle to do with the way in which the childcare rebate was paid that kept it there. The true rate was much higher.

When told by The Insider’s Host Barry Cassidy that the underlying rate of inflation was 3.6 per cent the Shadow Treasurer replied that it wasn’t.

“That is a complete untruth. I challenge you, invite all of your viewers to go to the Reserve Bank website. You will see there that the headline consumer price index was 3 per cent. In fact, it was 2.96 per cent. The other measurers of inflation, so-called underlying inflations, none of them were 3.6 per cent, not one.”

The Treasury’s senior domestic economist David Gruen was only too happy to take up the challenge and inform the Coalition of where the much-quoted 3.6 per cent figure had came from when he appeared before the Senate’s economics committee on Wednesday.

Here’s how he put it: “The Reserve Bank is focused on two measures of underlying inflation. They both rely on lining up all of the prices in the consumer price index from the smallest increase to the largest, and then either chopping off the two tails - 15 per cent from either side – and averaging what is left (that is known as the trimmed mean) or simply picking the rate of increase of the price that is growing right in the middle of the distribution, that is called the weighted median.”

“The weighted median is running at 3.8 per cent, and the trimmed mean at 3.4. The Reserve Bank takes the average of those two, which is where you get the number 3.6 per cent. You will find the 3.6 figure discussed in the latest statement on monetary policy that was released a week ago.”

What must have been humiliating for Malcolm Turnbull is that this information was widely known. He was either pretending to be ignorant or he really didn’t know very much about how the inflation rate was calculated.

Things got worse when he accused Wayne Swan and Kevin Rudd of making dangerous remarks about inflation “so reckless that in effect by talking up inflation they produce a self-fulfilling prophecy”.

A week later the Reserve Bank itself came out with forecasts and language about inflation that made the Prime Minister and Treasurer seem timid.

But in other areas the Shadow Treasurer has been on the right track.

In Question Time he has honed in on the genuine economic problems that are facing the Tresurer in ways that have unnerved him.

Monday’s question about Australia’s non-accelerating inflation rate of unemployment (NAIRU) wasn’t simply designed as the “pop quiz” that Wayne Swan said it was when he was unable to answer it.

It went to the heart of the process that the government and the Reserve Bank are taking part in.

After noting that Australia’s present rate of unemployment was 4.1 per cent he asked: “given the Reserve Bank’s stated intention to tighten monetary policy in order to lower inflationary pressures, what does the Treasurer regard as Australia’s current non-accelerating inflation rate of unemployment expressed as a percentage?”

“If the Treasurer regards that rate to be higher than 4.1 per cent, how many Australian jobs does he believe should be sacrificed to achieve it?”

There is a rate of unemployment below which inflation will accelerate. Above it inflation should be stable.

The Treasury believes that that rate is around 4.7 per cent. By pushing up interest rates until inflation stabilises the Reserve Bank will implicitly be also pushing up interest rates until enough people get thrown out of work to push the unemployment rate above 4.7 per cent.

Malcolm Turnbull’s question invited Wayne Swan to make that implicit truth explicit.

Rather than do so the Treasurer waffled.

The correct answer was around 66,500 jobs. If the Treasury’s estimate of NAIRU is correct, roughly that many jobs will need to be sacrificed in order to get inflation back under control.

His question the next day went to the heart of another dilemma facing Mr Swan and the Reserve Bank.

The unemployment rates in Queensland and Western Australia are low. But they are higher elsewhere: “Given that the export-driven mining industry in Western Australia and Queensland is not likely to be materially affected by domestic interest rate rises, how will you ensure that your fight against inflation will not have a very uneven impact with a heavy cost in jobs outside of Queensland and Western Australia?”

Again the Treasurer’s answer was unintelligible.

Malcolm Turnbull asked a similar question to the Finance Minister, Lindsay Tanner: “What is the government’s plan to ensure that its inflation-fighting proposed budget cuts will not further reduce growth and jobs in those sectors of the economy outside mining?”

His answer was similarly unhelpful.

Mr Turnbull told the Speaker of the House that there seemed to be “a contagion on the government benches of inability to address the questions asked”.

The questions are difficult to address. Managing the Australian economy is truly difficult at the moment, in part because the tools available to the government – tax, spending, and interest rates – are blunt and hard to apply.

Right now Mr Swan and Mr Tanner have two ready answers: “That’s the job of the Reserve Bank”, and “You’ll find out in the budget”.

But Australians will blame the government when the Bank starts pushing up unemployment, as it will have to in order to get inflation back under control. And they will blame it when the cuts in spending growth resulting from Labor’s increased efficiency dividend and the outcome of the razor gang directly push them out of work.

And the Budget is shaping up as an almost impossible balancing act.

Mr Rudd and Swan have promised a big surplus of around $18 billion and have created an expectation that it will be bigger still.

They can’t get it by banking on an increased tax take. They have promised not to allow the tax take to increase “as a proportion of GDP against the standard already set by the Howard Government.”

Yet if mining taxes boom or if GDP itself falters that proportion could increase automatically.

The government might have to cut tax rates further while cutting spending while boosting the surplus while keeping an eye on unemployment.

Rudd, Swan and Tanner have inherited difficult challenges.

It won’t be possible to assess their ability to handle them until after the May budget.

Friday, February 22, 2008

What's conservative?

Garnaut tackles this question in his report.

“Many would argue that the uncertainty requires a conservative rather than ambitious approach to mitigation. But what is conservative in a context where the possible outcomes include some that most humans today would consider catastrophic? Conservatism may in fact require erring on the side of ambitious mitigation. After all, prudent risk management would suggest that it is worth the sacrifice of a significant amount of current income to avoid a small chance of a catastrophic outcome.”

I can see his point.

A conservative would take out fire insurance even if they thought there was only a small chance of their house burning down.

Garnaut: 'It's like reducing protection'

No-one is better qualified than Professor Ross Garnaut to drive the changes that will be needed to help Australia withstand the worst of the ravages of climate change.

Not because the ANU economist knows anything much about the topic.

He is the first to admit that until Kevin Rudd and Australia's eight Labor leaders asked him to examine climate change last April he knew little about it.

But he is perhaps Australia's ultimate economic rationalist.

The Green's leader Bob Brown who was singing his praises yesterday probably hates a lot of the other things Ross Garnaut has to say.

As an advisor to prime Minister Bob Hawke in the 1980's Garnaut recommend and then drove the deep cuts in tariffs that have by now almost completely opened Australia's economy up to the rest of the world.

As he points out in his interim Garnaut Report, industry screamed at the time, but it wasn't compensated.

The change required Bob Hawke and Ross Garnaut to look beyond what seemed to be politically possible to what would ultimately be necessary...

Ross Garnaut said much the same sort of thing about climate change yesterday.

He said that getting things right was “always a challenge in a democracy”.

The current government might adopt the sort of emissions targets that were needed, only to have a future government bankrolled by those who would lose out sweep into office and undo them.

“You might remember the trade policy reforms of the 1980s did not have universal support and one might have feared that they would turn out to be temporary,” he told me yesterday.

“But they were based on a lot of good public discussion and they were well-designed so that after a number of years they demonstrated their value to the Australian community. I hope that this will be the same,” he said.

That's why he is preceding carefully. The current interim report will be followed by an outline of his preferred emissions trading system in March, by a draft final report in June and by the absolute final report in September.

He wants a lot of discussion and hopefully genuine bipartisan agreement by the time the government makes its decision in December.

If he pulls it off he will have helped transform the Australian economy twice in three decades.

Garnaut: Cut by 90 per cent and don't compensate most polluters

Australia will need to go way beyond the Rudd Government's target of a 60 per cent cut in carbon emissions by 2050, according to the interim report of its Garnaut Climate Change Review.

The report, presented to state and Commonwealth leaders yesterday describes the Kyoto Protocol as "only a starting point" and says that while the government's 60 per cent target is acceptable right now, as soon as developing countries sign on to emissions targets Australia will need to go "considerably further" cutting emissions by 90 per cent by 2050.

The interim report says the world is moving toward dangerous climate change much more quickly than had been thought. Australia, with a generally hot, dry and variable climate had more to lose than just about any other developed country.

It recommends that Australia this year set a interim emission target for 2020 and controversially recommends that existing polluters generally not be compensated for the cost of the permits they would need to buy...

The Howard government's emissions trading task force recommended that
existing polluters be handed for free enough permits to allow them to
continue to pollute as before for up to 20 years.

The Garnaut report notes that "there is no tradition in Australia for
compensating capital for losses associated with
economic reforms."

Among the reforms for which it says business has not been compensated
have been the floating of the dollar, the introduction of the Goods
and Services Tax and the program of tariff cuts overseen by the
report's author, Ross Garnaut as an advisor to the Hawke government in
the 1980s.

It also notes that there is no tradition of taking away from
businesses the windfall gains that have flowed from other reforms such
as cuts in the corporate tax rate.

"In the case of this particular reform, the business community has
been aware of the risks of carbon pricing for many years
and many businesses have sought to re-engineer their
production processes to reduce their reliance on emissions," the report says.

Businesses exposed to overseas competition would get special
compensation, but only for as long as the countries they were
competing against held out against adopting emissions targets.

Dr Garnaut said yesterday that it would be important to be
disciplined in calculating whether those circumstances really existed.

"You need an independent body that is authoritative, that can do the
analysis independently of political pressure," he said.

Senator Wong yesterday played down the interim report, saying even the
final version due in September would be only one of a number of inputs
to decision making.

"We will make our decisions after receiving not only Professor
Garnaut's advice but also the modeling from Treasury and other
considerations," she said.

She also appeared to reject the call for deeper cuts saying that the
60 per cent 2050 target that the government took to the Australian people
would be the one it would adopt.

The Greens leader Bob Brown accused the Minister of reducing Ross
Garnaut to input.

"It sounds to me like the Rudd government is subject to coal capture," he said.

"There are huge vested interests at play here - the coal industry, the
aluminum industry, the forest logging industry, and it is up to the
Rudd government to put this country ahead of those vested interests."

Thursday, February 21, 2008

Garnaut: 60 per cent is just the beginning!

“Australia should be ready to go beyond its stated 60 per cent reduction target by 2050 in an effective global agreement that includes developing nations.”

And there's to be an interim target in 2020 as well!

The full thing is here.

The executive summary:

This Interim Report seeks to provide a flavour of early findings from the work of the Review, to share ideas on work in progress as a basis for interaction with the Australian community, and to indicate the scope of the work programme through to the completion of the Review. There are some important areas of the Review’s work that are barely touched upon in the Interim Report, which will feature prominently in the final reports.

Adaptation to climate change, energy efficiency and the distribution of the costs of climate change across households and regions are amongst the prominent omissions from this presentation.

Many views put forward in this Interim Report represent genuinely interim judgements.

The Review looks forward to feedback from interested people before formulating recommendations for the final reports.

Developments in mainstream scientific opinion on the relationship between emissions accumulations and climate outcomes, and the Review’s own work on future “business as usual” global emissions, suggest that the world is moving towards high risks of dangerous climate change more rapidly than has generally been understood. This makes mitigation more urgent and more costly. At the same time, it makes the probable effects of unmitigated climate change more costly, for Australia and for the world...

The largest source of increased urgency is the unexpectedly high growth of the world
economy in the early twenty-first century, combined with unexpectedly high energy
intensity of that growth and continuing reliance on high-emissions fossil fuels as sources
of energy. These developments are associated with strong economic growth in the
developing world, first of all in China. The stronger growth has strong momentum and is
likely to continue. It is neither desirable nor remotely feasible to seek to remove
environmental pressures through diminution of the aspirations of the world’s people for
higher material standards of living. The challenge is to end the linkage between
economic growth and emissions of greenhouse gases.

Australia’s interest lies in the world adopting a strong and effective position on climate
change mitigation. This interest is driven by two realities of Australia’s position relative to
other developed countries: our exceptional sensitivity to climate change: and our
exceptional opportunity to do well in a world of effective global mitigation. Australia
playing its full part in international efforts on climate change can have a positive effect on
global outcomes. The direct effects of Australia’s emissions reduction efforts are of
secondary importance.

Australia has an important role to play alongside its international partners in establishing
a realistic approach to global mitigation. Australia can contribute to the development of
clear international understandings on the four components of a successful framework for
global mitigation: setting the right global objectives for reduction of the risk of dangerous
climate change; converting this into a goal for stabilisation of greenhouse gases in the
atmosphere at a specified level; calculating the amount of additional emissions that can
be emitted into the atmosphere over a specified number of years if stabilisation of
atmospheric concentrations is to be achieved at the desired level; and developing
principles for allocating a limited global emissions budget among countries.

Australia should make firm commitments in 2008, to 2020 and 2050 emissions targets
that embody similar adjustment cost to that accepted by other developed countries. A
lead has been provided by the European Union, and there are reasonable prospects that
the United States will become part of the main international framework after the
November 2008 elections. Some version of the current State and Federal targets of 60
per cent reduction by 2050, with appropriate interim targets, would meet these

Australia would need to go considerably further in reduction of emissions as part of an
effective global agreement, with full participation by major developing countries,
designed to reduce risks of dangerous climate change to acceptable levels. Australia
should formulate a position on the contribution that it would be prepared make to an
effective global agreement, and offer to implement that stronger position if an
appropriately structured international agreement were reached.

The process of reaching an adequate global agreement will be long and difficult.
Australia can help to keep the possibility of eventual agreement alive by efficient
implementation of its own abatement policies, and through the development of
exemplary working models of cooperation with developing countries in regional
agreements, including with Papua New Guinea.

Australia must now put in place effective policies to achieve major reductions in
emissions. The emissions trading scheme (ETS) is the centre-piece of a domestic
mitigation strategy. To achieve effective mitigation at the lowest possible cost, the ETS
will need to be supported by measures to correct market failures or weaknesses related
to innovation, research and development, to information, and to network infrastructure.
Establishing an ETS with ambitious mitigation objectives will be difficult and will make
heavy demands on scarce economic and finite political resources. The difficulty of the
task makes it essential to use the most efficient means of achieving the mitigation
objectives. That means efficiency both in minimising the economic costs, and in
distributing the costs of the scheme across the Australian community in ways that are
broadly seen as being fair.

To be effective in contributing as much as possible to an effective global effort to avoid
unacceptably high risks of dangerous climate change, soundly based domestic and
international policies will need to be sustained steadily over long periods. Policy-makers
will need to eschew short-term responses that seem to deal with immediate problems
but contribute to the building of pressures for future policy change. The Review aims to
provide the basis for steady long-term policy at Commonwealth and State levels, and for
productive long-term Australian interaction with the international community on climate
change policy.

Climate Change: From the horse's mouth

Garnaut's interim report is out at 2.00pm AEDT today, here.

Sorry - I was misled. It's now 3.00pm.

And Super could lock up the surplus as well

Laura Tingle, in this morning's Financial Review:

Budget plan to funnel surplus into superannuation

The Rudd government is examining ways to convert the fiscal surplus into private savings as part of its first budget, a measure that may result in part of the surplus being distributed to millions of Australians as government superannuation contributions.

The revelation comes as Labor has continued to staunchly defend - and insist it will deliver - its proposed $31 billion tax cuts, including reductions worth about $7 billion due on July 1, despite increasing concern from private sector economists about their potentially inflationary impact...

The transfer of public-sector savings to private-sector savings would not of itself directly boost the overall level of national savings.

However, there is a view that the transfer would more efficiently lock the savings into place for the future, where they would be unable to be raided by future governments.

Politically, this is a good idea, if it could be done. It would be seen to enrich Australians and would infuriate the Coalition. Labor really would have locked away the surplus - from it.

(Nick Gruen has another great idea about super. Give people the option of taking their tax cuts in that form. But making it the default option.)

Personally, I don't think super is the answer for very much. We've already got about enough in super, the money is creamed off by middlemen, boosting it inflates asset prices and lowers returns, and while saving money will help an individual retiree cope with a future world short of workers (the can buy preferred access to their services) it can't help an entire society in the same way.

But then I am just a superannuation stick-in-the-mud. Everyone else, especially Labor, is on the bandwagon.

Wednesday, February 20, 2008

Super would save us from inflation - Treasury

Australia's tax cuts would be better delivered as contributions to superannuation if the government wanted to fight inflation according to a senior Treasury official.

The official, Dr David Gruen, also told yesterday's Senate Estimates hearing that unemployment would have to rise in the months ahead as part of the fight against inflation.

His comments about unemployment lend weight to a claim made by the Opposition Treasury Spokesman Malcolm Turnbull that Australia's rate of unemployment is set to increase.

Dr Gruen, the acting executive director of the Treasury's Macroeconomic Group was asked by the Senate Economics Committee what he regarded as an an acceptable non-accelerating rate of unemployment – the so-called NAIRU above which inflation will climb.

He replied that one his colleagues in the Treasury Dr Steven Kennedy believed that the rate was 4.7 per cent, well above the current unemployment rate of 4.1 per cent implying that Australia's unemployment rate would need to climb in order to stop inflation accelerating.

He said the estimate was extremely imprecise.

“But I certainly think it would be fair to say that evidence is accumulating that the current rate of unemployment may be inconsistent with steady inflation,” he added...

“The evidence is stronger now that in was, but that's the situation.”

Dr Gruen represented the Treasury Secretary Ken Henry at the Reserve Bank board meeting that earlier this month decided to put up interest rates by 0.25 per cent and considered putting them up by 0.5 per cent.

His comments suggest that the Bank and the Treasury believe that they will have to push unemployment higher in order to stabilise inflation.

Dr Gruen said the the Treasury had been taken by surprise by the recent growth in inflation. Its benign forecast released before the election in which it predicted that inflation would average 2.75 per cent during the coming financial year was influenced by a few good inflation figures, now superseded by two bad ones.

“Those inflation outcomes now look like a bit of an elaboration,” Dr Gruen said.

The Prime Minister's promise to aim for a bigger budget surplus of 1.5 per cent of GDP in the May budget would help the fight against inflation, although Dr Gruen couldn't say by how much.

More important was Mr Rudd's accompanying promise to bank any upward surprises to revenue rather than spend them.

Dr Gruen said it was possible that upward surprises to revenue could make the surplus much bigger than the targeted $18 billion.

Asked whether the government's promised tax cuts, worth $31 billion over three years, would be inflationary Dr Gruen replied that “in principle if you didn't give any of the tax cuts there would be a substantially greater tightening of fiscal policy, that's true”.

Asked whether the $31 billion would cause less inflation if it was instead paid into superannuation accounts he replied: “I suspect that if the money went into compulsory superannuation it would have less impact on aggregate demand. Yes, I suspect that's right.”

Market expectations of an interest rate hike next month eased a fraction yesterday after the release of figures suggesting that wages growth had not been as high as had been feared.

The Bureau of Statistics' Labour Price Index showed that private sector wages had increased by 4.3 per cent over the last year, public sector wages by 4.1 per cent.

Around 90 per cent of traders now expect a further rate hike next month, down from 92 per cent. Fewer expect a double hike of 0.5 per cent instead of 0.25 per cent.

Tuesday, February 19, 2008

Going up. The RBA nearly did it twice

Australia’s most recent interest rate hike of 0.25 per cent was nearly double that.

The minutes of the Bank’s February board meeting reveal that it actively considered pushing up rates by 0.5 per cent in one hit this month - something it hadn’t attempted for eight years.

The news late yesterday pushed up money market expectations of a further rate hike when the board next meets in a fortnight to almost 100 per cent, with some economists predicting that that hike will be 0.5 per cent.

A 0.5 per cent hike would take the standard variable mortgage rate to 9.5 per cent, its highest level in twelve years.

It would add a further $138 to the monthly cost of servicing a $400,000 mortgage - an increase of $400 in the space of a year...

The minutes reveal extreme concern among board members about inflation, forecast in papers prepared for the meeting to remain beyond the Bank’s target band for the rest of this decade.

The forecasts - more severe than those subsequently published by the Bank - were prepared on the assumption that it left rates unchanged.

They had Australia’s underlying rate of inflation climbing to 3.75 per cent in the early months of this year and not returning to 3 per cent until mid 2010.

The headline rate of inflation - the one used for indexing government benefits and the one preferred as a measure of inflation by the Coalition during its last months in office – would climb to 4 per cent within months.

The minutes reveal that the board’s members were concerned that even that forecasts might prove to be optimistic.

Among those present at the meeting were the former head of Woolworths Roger Corbett, the Chairman of Telstra Donald McGauchie, the ANU’s Warwick McKibbin and a senior Treasury official David Gruen standing in for the Treasury Secretary Ken Henry.

The members noted that a “good case” could be made for an 0.5 per cent hike in February order to send a sharp signal that the board would do whatever was necessary to regain control of prices.

Some members argued that, adjusted for inflation, professional interest rates were arguably “noticeably below what might be expected” given Australia’s economic circumstances.

In the event the board decided to lift rates by only 0.25 per cent in February in the knowledge that the private banks themselves had boosted rates the previous month independently of the Reserve.

It noted that “additional tightening could be implemented at the March and/or subsequent meetings as judged necessary”.

The decision to lift rates by 0.25 per cent rather 0.5 per cent was said to be “finely balanced”.

The board’s thinking next month will turn on labour price figures due to be released by the Bureau of Statistics this morning.

The board will also take into account news of what appears to be a 65 per cent increase in the price of iron ore negotiated by one of the world’s biggest miners which appears set to boost Australia’s export income by a further $30 billion, pushing Australia’s terms of trade to a new all-time high.

The Bank’s Assistant Governor Malcolm Edey noted at a conference in Sydney yesterday that for the last four years Australia’s terms of trade had climbed by 8 per cent per annum – the largest cumulative run-up since the 1950s.

In Parliament yesterday the Opposition’s Treasury Spokesman Malcolm Turnbull claimed that in the face of the resources boom further hikes in interest rate hikes would be unlikely to dent inflation in the resource-rich states of Queensland and Western Australia.

Tuesday Column: We are short of kidneys. So why not buy them?

What kind of society would routinely bury or burn its most valuable resources rather than use them?

I am talking about our own body parts. The Nobel Prize winning economist Gary Becker reckons that each still-usable kidney we bury is worth $US15,000; each still-usable liver: $US35,000.

Don’t doubt that there are people prepared to pay that much money. Right now more than 1,800 Australians are waiting for kidneys, livers and so on - hooking themselves up to equipment each night and gradually getting sicker while waiting for that phone call that may never arrive.

Some of them live in Canberra.

One in every five will die before the phone call comes.

To an economist, it’s a straightforward problem of matching supply to demand.

Big promotional events such as the current National Organ Donation Awareness Week notwithstanding, the supply of usable kidneys, livers and corneas is actually falling - in the main because fewer or us are dying in road accidents.

Meanwhile the number of people whose lives (or sight) could be saved continues to climb...

Non-economists put forward non-economic means of boosting the supply to match demand. On this page today a former ACT Health Minister Gary Humphries comes out in favour of “presumed consent” – changing the legal assumption that says if a dead person didn’t explicitly decide to donate, their organs can’t be used to one that says unless they explicitly forbad donation, their organs are available for recycling.

For reasons that haven’t been made clear the Commonwealth Health Minister and her Parliamentary Secretary have ruled out changing the presumption of consent, as has an expert committee whose report they are yet to release.

In Britain by contrast the new Prime Minister Gordon Brown is pushing ahead with the idea.

It may be that our leaders are worried about upsetting the families of accident victims. It may be that they care more about them than they do about the lives of the people their inaction could be condemning to death. If so, it sits poorly with our Prime Minister's claim that his decisions will be “evidence-based”.

For economists, presumed consent is just one of a number of good ideas for boosting supply to match demand. Most of them involve money.

One argument against presumed consent is that is that it isn’t real consent. Andrew Oswald of the University of Warwick wants to use money to make it real.

He has suggested that each year’s UK income tax form include a box that taxpayers can tick to unequivocally grant the authorities the right to harvest their organs after they die. In return they would get a small tax deduction. Oswald guesses that as little as 10 UK pounds or $A20 would do the trick. Most of us are surprisingly amenable to small bribes.

In Australia such a scheme would cost less than $200 million, chickenfeed compared to the billions the government spends annually on a Private Health Insurance Rebate that as far as anyone knows doesn't save a single life.

It would save the government money as well. It wouldn't need to buy all those dialysis machines. The net cost to Wayne Swan's budget could be close to zero.

If you want to keep money out of it economists can help there as well. Alexander Tabarrok of George Mason University sees the whole thing as a trade: I agree to give you something after I die if needed in return for you agreeing to give me something after you die. But he says if there’s no trade there should be no deal.

His slogan would be “no give, no take”. Spare parts would be available only to people who had signed up some years before to donate their own. A less severe rule would move people who had previously signed up as donors to the top of the queue. It would motivate me.

And then there’s live trade. Most of us have two kidneys. We only need one. If I sell one I don't need to someone who has none in return for money, both of us have been made better off, probably a lot better off. Economists call this a gain from trade.

It is true that I would be taking a risk in order to earn the money. But people take risks in return for money all the time, construction workers on building sites and coal miners among them. Most of the time we don't seem to mind.

In any event the risk of dying from such an operation is small - apparently about the same as the risk of dying during cosmetic surgery.

Doctors are naturally resistant to the idea of removing kidneys from healthy people. Their oath requires them to do no harm. But they are already taking kidneys from healthy brothers, sisters, wives and husbands who donate their organs out of love.

All that the Nobel Prize winning economist Gary Becker proposes that that they also do it for people who sell their organs for money.

If you find the idea abhorrent you are in good company at the moment. But our idea of what is abhorrent changes over time. Once it was widely regarded as abhorrent to lend money for interest. Life insurance (where I make a bet that my loved one will die early) was similarly regarded as beyond tasteful.

The US Economist Virginia Postrel argues that by restricting living donations to friends and family (and sometimes helicopter pilots like Kerry Packer's) we are discriminating against people who don’t have friends or family.

She means it. Two years ago she donated one of her kidneys to an acquaintance because she knew no-one else would. She says it would have felt better had money changed hands.

She has an answer too for people who say that the poor would be the most likely to lose their organs in a legal trade in living kidneys, creating a one-way traffic in body parts to the rich.

She says we could give anyone who donated a living kidney a one-year tax holiday. That's not worth much to a poor person but it's worth an awful lot to a rich one. “Suddenly all of the founders of Google would be lining up” she says.

They are ideas worth taking seriously. What's happening now is an appalling needless tragedy.

While writing this article I logged on to and typed in my Medicare number. I'd signed up as a donor in 45 seconds.


Gary Becker,
Should the Purchase and Sale of Organs for Transplant Surgery be Permitted? The Becker-Posner Blog, January 01, 2006

Gary Becker and Julio Jorge ElĂ­as,
Introducing Incentives in the Market for Live and Cadaveric Organ Donations, The Journal of Economic Perspectives, Volume 21, Number 3, Summer 2007 , pp. 3-24(22)

Stephen Dubner and Steven Levitt,
Flesh Trade, New York Times, July 9, 2006

Alexander Tabarrok,
A Moral Solution to the Organ Shortage, The Independent Institute, February 19, 2001

Alexander Tabarrok,
How to Get Real About Organs, Econ Journal Watch, Volume 1, Number 1, April 2004, pp 11-18

Virginia Postrel,
"Unfair" Kidney Donations, Forbes Magazine, May 6, 2006

Virginia Postrel,
The surgery was simple; the process is another story, USA Today, October 25, 2006

Sally Satel,
Death's Waiting List, New York Times, May 15, 2006

Sally Satel,
A living donor let me live on, USA Today, October 25, 2006

Alvin E. Roth,
Repugnance as a Constraint on Markets, Journal of Economic Perspectives Volume 21, Number 3—Summer 2007—Pages 37–58

Tim Harford,
Repugnant Markets, BBC Radio, July 12, 2007

Ian Walker,
The greatest gift, Background Briefing, ABC Radio National, 17 September 2006

Catherine Waldby,
The logistics of altruism, Australian Review of Public Affairs, June, 2007


Saturday, February 16, 2008

Sunday dollars+sense: Why sex means the city

...for women.

When I wrote about Valentines Day last week I neglected to mention the role of money.

Believe it or not, money is important for women on the lookout for men and, believe it or not, the distribution of money seems to help explain why these days women are marrying later.

Economist Lena Edlund of Columbia University outlined the thesis a few years back in a study provocatively entitled Sex and the City.

She argued that it was no coincidence that throughout the Western world there is a shortage of nubile women in the country, and yet a glut (they outnumber men of the same age) in the cities...

It could be that women are rushing to the cities in order to find better jobs.

While Professor Edlund can’t entirely discount that possibility she notes that the jobs that women end up getting in the cities are less well paid than the men’s.

She thinks the women are after something else. Using regional data from Sweden she has found that they tend not to move to those regions that have the highest female incomes, but those that have the highest male ones.

And she finds that the effect is the most pronounced the more fertile the female age-group.

How can that help explain why women are marrying later?

There are other reasons of course; among them the contraceptive pill and a growing realisation amongst women that the heath and other benefits from marriage aren’t as strong for them as for men.

But a growing inequality in male incomes is also important.

As Hebrew University economists Eric Gould and Daniele Paserman put it in their recent study entitled Waiting for Mr Right, there has been “an increase in the dispersion of husband quality” - there is a greater potential pay-off than there used to be in waiting for a real high-earner.

They used census data to rank 300 US cities. The most unequal city in male incomes was Stamford, Connecticut. It also happened to be the one with the highest proportion of women in their upper 20s who were not yet married.

They found that female “waiting” or singleness closely followed male wage inequality, both between different cities and over time.

After running the stats they concluded that “increased inequality may account for up to 30 per cent of the overall decline in female marriage rates in the last few decades.”

Which makes me feel pretty good. Money comes into it for women, but about two-thirds of it has to do with something else.


Lena Edlund,
Sex and the City, Scandinavian Journal of Economics, Vol. 107, No. 1, pp. 25-44, March 2005

M. Daniele Paserman and Eric Gould,
Waiting for Mr. Right: Rising Inequality and Declining Marriage Rates, Journal of Urban Economics, 53(2), March 2003, pages 257-281

Peter Martin,
Love, marriage, contraception and money, Sydney Morning Herald, January 21, 2004


Thursday, February 14, 2008

Unemployment gets a '3' in front of it!

So rates up in a fortnight.

A further hike in mortgage rates next month is now inevitable following a slide in unemployment to its lowest level since the mid-1970s.

Australia's unemployment rate fell to 4.1 per cent in January – a result not bettered since November 1974, when economic turmoil flowing from the world's first oil crisis pushed the rate above 4 per cent for the first time since the great depression.

In 33 years the rate has never again approached 4 per cent until now. The figure released yesterday by the Bureau of Statistics holds open the prospect of Australia obtaining a national unemployment rate with a '3' in front of it within months - a goal set by the outgoing Prime Minister John Howard during the November election.

The unemployment rate of Australians looking for full-time work has already fallen below 4 per cent. It hit 3.8 per cent in January.

In Parliament the Treasurer Wayne Swan welcomed the news declaring that “on this side of the House the creation of jobs goes to the very core of our being.”

But it has also made inevitable a further hike in the Reserve Bank's cash rate target to a 13-year high of 7.25 per cent, and an accompanying hike in standard variable mortgage rates to a 11-year high of around 9.25 per cent.

Late yesterday financial markets were assigning an 85 per cent probability to the hike.

The Reserve Bank will meet to formally approve the hike in a fortnight on Tuesday March 4. It will be the fifth in eight months.

Concern about inflation forced the Reserve Bank to pushed up rates in August and November, a worldwide shortage of capital forced the the private banks to push up rates independently of the Reserve in January, and the Reserve Bank itself pushed up rates again in February.

Economist John Edwards of HSBC Capital Markets said said he expected the Reserve Bank to follow its March interest rate hike with another in April or May, taking the increase in mortgage rates since August to 1.4 percentage points.

A mortgage that cost 8.1 per cent in August and took $3,100 a month to pay off would then cost 9.5 per cent and take $3,500 a month to pay off.

Dr Edwards said the Reserve Bank wasn't planning the interest rate hikes because yesterday's employment figure was by itself spectacular, but because it showed “absolutely no sign of the slowdown in jobs growth” that the Bank expected following the recent hikes.

The resilient jobs market gave the bank confidence that it could afford to tighten rates a few more times without too much risk of going too far.

An extra 26,000 Australians found jobs in January in Australia's 15th consecutive month of jobs growth, the longest on record.

The number of unemployed Australians fell to 458,500 - a 26 year low and less than half the peak of nearly one million reached in 1993.

Commonwealth Securities reported yesterday that the dole queue – the number of Australians on either NewStart or Youth Allowances was much lower. In December it fell to 302,000 people, creating what ComSec calls a “core” unemployment rate of 2.8 per cent.

The ACT's unemployment rate remains the lowest in Australia at 2.3 per cent on a trend basis, with only 4,442 people out of work. Only 2,262 of them are receiving NewStart or Youth Allowances.


Pick of today's maiden speeches: McKew

What fired Maxine

“Part of what I care about - friendship, beauty, the life of the mind – was nurtured by my teachers at All Hallows Convent, a school that sits high above the Brisbane River and overlooks the bridge built by my Grandfather.

The older I get the more I appreciate that I was taught by women, by lay and religious staff, who seemed to me to know what was worth knowing.

When one considers the deep provincialism of Queensland during this period this seems extraordinary.

But the best of these women were not bound by borders or prejudice. They did what all good teachers do, they took their charges on a journey and they fired the imagination.”

State against State? Give us a break!

Here we go. Rudd has embraced the conventional wisdom that we should eliminate the money "wasted" by duplication between the states and territories... eight education systems and so on.

I have written about this before quoting a document entitled Australia’s Federal Future produced for the states last year by the ANU’s Professor Glenn Withers and Dr Anne Twomey of the University of Sydney.

Now the Committee for the Economic Development of Australia has taken this work further in a new paper outlining Six Federal-State Myths.

Alan Mitchell summed up its central argument well in Wednesday's Financial Review:

Competition, the economist Jonathan Pincus reminds us, is messy. There is lots of expensive duplication but we happily accept that duplication because the benefits of competition outweigh the costs.

Yet, while we may all wish the new chief executive of Coles many happy years of Woolworths-challenging duplication, few of us have ever looked through the "waste and duplication" between the state and federal governments to notice the benefits of inter-government competition.

Yet Pincus, in an interesting new paper published by the Committee for Economic Development of Australia, argues that competition - among the states and between the states and the federal government to find the best policies - is a major benefit of our federal system. Pincus argues that "Australia has got most of the big things right".

Ross Gittins in Wednesday's Sydney Morning Herald takes up the theme:

His article is entitled It's messy, but at least it works.

Sorry. One of the best pieces of writing from the lawn

My colleague Andree Stephens in this morning's Canberra Times.

You could brush past a woman, smile, get chatting and discover that "Aunt Chrissy" was a stolen baby.

Taken at nine months from her Bundjalung people near Maclean in Northern NSW and deposited in the Bomaderry Children's Home until she was 16.

It was that easy, that simple.

Turn and look and there was another story, and another and another.

Thousands of stories gathered on the lawns of Parliament House yesterday, being shared with strangers, friends, relatives.

To say Australia has been in some inexplicable denial for the past century is an understatement.

To suggest it "never happened", or that we must forget that past, an even more curious problem-solving tactic.

Here they were, generations of Aboriginal people side by side with non-indigenous Australians a melting pot of nations Asian, Indian, African, European, Anglo Saxon old, young, frail, cheeky, loud, happy, white, brown.

There were children on bikes, old couples with folding chairs, suited-up public servants, schoolchildren, hippies, activists the deep tones of didgeridoos pulsing through hearts....

Wednesday, February 13, 2008

The pick of Question Time: Gillard

...on using IR to fight inflation:

"If the Shadow Treasurer wants to advance to the Australian people that the way to fight inflation is to take away a safety net from low-wage, predominantly young workers in those industries - some of the horror stories we’ve seen, with 17-year olds, 18-year olds and 19-year olds having basic conditions ripped off them, like redundancy pay which can still be ripped off people today - if he wants to put the case to the Australian people that young workers in those low-wage industries should have those conditions ripped away from them because that’s something about fighting inflation, well he can put that case."

The Prime Minister's gripping, well-judged Sorry speech

(The less said about Brendan Nelson's speech the better. I was interviewing girls from a Canberra school who had come to watch. I had asked one about Rudd's speech, and then just as I asked about Brendan Nelson's Speech In Reply, the Principal intervened to cut me off. "I don't want them to say anything negative", she said.)

Mr Rudd:

"There comes a time in the history of nations when their peoples must become fully reconciled to their past if they are to go forward with confidence to embrace their future. Our nation, Australia, has reached such a time. That is why the parliament is today here assembled: to deal with this unfinished business of the nation, to remove a great stain from the nation’s soul and, in a true spirit of reconciliation, to open a new chapter in the history of this great land, Australia.

Last year I made a commitment to the Australian people that if we formed the next government of the Commonwealth we would in parliament say sorry to the stolen generations. Today I honour that commitment. I said we would do so early in the life of the new parliament. Again, today I honour that commitment by doing so at the commencement of this the 42nd parliament of the Commonwealth. Because the time has come, well and truly come, for all peoples of our great country, for all citizens of our great Commonwealth, for all Australians—those who are Indigenous and those who are not—to come together to reconcile and together build a new future for our nation.

Some have asked, ‘Why apologise?’ Let me begin to answer by telling the parliament just a little of one person’s story—an elegant, eloquent and wonderful woman in her 80s, full of life, full of funny stories, despite what has happened in her life’s journey, a woman who has travelled a long way to be with us today, a member of the stolen generation who shared some of her story with me when I called around to see her just a few days ago. Nanna Nungala Fejo, as she prefers to be called, was born in the late 1920s. She remembers her earliest childhood days living with her family and her community in a bush camp just outside Tennant Creek. She remembers the love and the warmth and the kinship of those days long ago, including traditional dancing around the camp fire at night. She loved the dancing. She remembers once getting into strife when, as a four-year-old girl, she insisted on dancing with the male tribal elders rather than just sitting and watching the men, as the girls were supposed to do.

But then, sometime around 1932, when she was about four, she remembers the coming of the welfare men. Her family had feared that day and had dug holes in the creek bank where the children could run and hide. What they had not expected was that the white welfare men did not come alone. They brought a truck, two white men and an Aboriginal stockman on horseback cracking his stockwhip. The kids were found; they ran for their mothers, screaming, but they could not get away. They were herded and piled onto the back of the truck. Tears flowing, her mum tried clinging to the sides of the truck as her children were taken away to the Bungalow in Alice, all in the name of protection...

A few years later, government policy changed. Now the children would be handed over to the missions to be cared for by the churches. But which church would care for them? The kids were simply told to line up in three lines. Nanna Fejo and her sister stood in the middle line, her older brother and cousin on her left. Those on the left were told that they had become Catholics, those in the middle Methodists and those on the right Church of England. That is how the complex questions of post-reformation theology were resolved in the Australian outback in the 1930s. It was as crude as that. She and her sister were sent to a Methodist mission on Goulburn Island and then Croker Island. Her Catholic brother was sent to work at a cattle station and her cousin to a Catholic mission.

Nanna Fejo’s family had been broken up for a second time. She stayed at the mission until after the war, when she was allowed to leave for a prearranged job as a domestic in Darwin. She was 16. Nanna Fejo never saw her mum again. After she left the mission, her brother let her know that her mum had died years before, a broken woman fretting for the children that had literally been ripped away from her.
I asked Nanna Fejo what she would have me say today about her story. She thought for a few moments then said that what I should say today was that all mothers are important. And she added: ‘Families—keeping them together is very important. It’s a good thing that you are surrounded by love and that love is passed down the generations. That’s what gives you happiness.’ As I left, later on, Nanna Fejo took one of my staff aside, wanting to make sure that I was not too hard on the Aboriginal stockman who had hunted those kids down all those years ago. The stockman had found her again decades later, this time himself to say, ‘Sorry.’ And remarkably, extraordinarily, she had forgiven him.

Nanna Fejo’s is just one story. There are thousands, tens of thousands of them: stories of forced separation of Aboriginal and Torres Strait Islander children from their mums and dads over the better part of a century. Some of these stories are graphically told in Bringing them home, the report commissioned in 1995 by Prime Minister Keating and received in 1997 by Prime Minister Howard. There is something terribly primal about these firsthand accounts. The pain is searing; it screams from the pages. The hurt, the humiliation, the degradation and the sheer brutality of the act of physically separating a mother from her children is a deep assault on our senses and on our most elemental humanity.

These stories cry out to be heard; they cry out for an apology. Instead, from the nation’s parliament there has been a stony, stubborn and deafening silence for more than a decade; a view that somehow we, the parliament, should suspend our most basic instincts of what is right and what is wrong; a view that, instead, we should look for any pretext to push this great wrong to one side, to leave it languishing with the historians, the academics and the cultural warriors, as if the stolen generations are little more than an interesting sociological phenomenon. But the stolen generations are not intellectual curiosities. They are human beings, human beings who have been damaged deeply by the decisions of parliaments and governments. But, as of today, the time for denial, the time for delay, has at last come to an end.

The nation is demanding of its political leadership to take us forward. Decency, human decency, universal human decency, demands that the nation now step forward to right an historical wrong. That is what we are doing in this place today. But should there still be doubts as to why we must now act, let the parliament reflect for a moment on the following facts: that, between 1910 and 1970, between 10 and 30 per cent of Indigenous children were forcibly taken from their mothers and fathers; that, as a result, up to 50,000 children were forcibly taken from their families; that this was the product of the deliberate, calculated policies of the state as reflected in the explicit powers given to them under statute; that this policy was taken to such extremes by some in administrative authority that the forced extractions of children of so-called ‘mixed lineage’ were seen as part of a broader policy of dealing with ‘the problem of the Aboriginal population’.

One of the most notorious examples of this approach was from the Northern Territory Protector of Natives, who stated:

Generally by the fifth and invariably by the sixth generation, all native characteristics of the Australian aborigine are eradicated.

The problem of our half-castes, to quote the protector—

will quickly be eliminated by the complete disappearance of the black race, and the swift submergence of their progeny in the white...

The Western Australian Protector of Natives expressed not dissimilar views, expounding them at length in Canberra in 1937 at the first national conference on Indigenous affairs that brought together the Commonwealth and state protectors of natives. These are uncomfortable things to be brought out into the light. They are not pleasant. They are profoundly disturbing. But we must acknowledge these facts if we are to deal once and for all with the argument that the policy of generic forced separation was somehow well motivated, justified by its historical context and, as a result, unworthy of any apology today.

Then we come to the argument of intergenerational responsibility, also used by some to argue against giving an apology today. But let us remember the fact that the forced removal of Aboriginal children was happening as late as the early 1970s. The 1970s is not exactly a point in remote antiquity. There are still serving members of this parliament who were first elected to this place in the early 1970s. It is well within the adult memory span of many of us. The uncomfortable truth for us all is that the parliaments of the nation, individually and collectively, enacted statutes and delegated authority under those statutes that made the forced removal of children on racial grounds fully lawful.

There is a further reason for an apology as well: it is that reconciliation is in fact an expression of a core value of our nation—and that value is a fair go for all. There is a deep and abiding belief in the Australian community that, for the stolen generations, there was no fair go at all. There is a pretty basic Aussie belief that says that it is time to put right this most outrageous of wrongs. It is for these reasons, quite apart from concerns of fundamental human decency, that the governments and parliaments of this nation must make this apology—because, put simply, the laws that our parliaments enacted made the stolen generations possible.

We, the parliaments of the nation, are ultimately responsible, not those who gave effect to our laws. And the problem lay with the laws themselves. As has been said of settler societies elsewhere, we are the bearers of many blessings from our ancestors; therefore we must also be the bearer of their burdens as well. Therefore, for our nation, the course of action is clear: that is, to deal now with what has become one of the darkest chapters in Australia’s history. In doing so, we are doing more than contending with the facts, the evidence and the often rancorous public debate. In doing so, we are also wrestling with our own soul. This is not, as some would argue, a black-armband view of history; it is just the truth: the cold, confronting, uncomfortable truth—facing it, dealing with it, moving on from it.

Until we fully confront that truth, there will always be a shadow hanging over us and our future as a fully united and fully reconciled people. It is time to reconcile. It is time to recognise the injustices of the past. It is time to say sorry. It is time to move forward together.

To the stolen generations, I say the following: as Prime Minister of Australia, I am sorry. On behalf of the government of Australia, I am sorry. On behalf of the parliament of Australia, I am sorry. I offer you this apology without qualification. We apologise for the hurt, the pain and suffering that we, the parliament, have caused you by the laws that previous parliaments have enacted. We apologise for the indignity, the degradation and the humiliation these laws embodied. We offer this apology to the mothers, the fathers, the brothers, the sisters, the families and the communities whose lives were ripped apart by the actions of successive governments under successive parliaments. In making this apology, I would also like to speak personally to the members of the stolen generations and their families: to those here today, so many of you; to those listening across the nation—from Yuendumu, in the central west of the Northern Territory, to Yabara, in North Queensland, and to Pitjantjatjara in South Australia.

I know that, in offering this apology on behalf of the government and the parliament, there is nothing I can say today that can take away the pain you have suffered personally. Whatever words I speak today, I cannot undo that. Words alone are not that powerful; grief is a very personal thing. I ask those non-Indigenous Australians listening today who may not fully understand why what we are doing is so important to imagine for a moment that this had happened to you. I say to honourable members here present: imagine if this had happened to us. Imagine the crippling effect. Imagine how hard it would be to forgive. My proposal is this: if the apology we extend today is accepted in the spirit of reconciliation, in which it is offered, we can today resolve together that there be a new beginning for Australia. And it is to such a new beginning that I believe the nation is now calling us.

Australians are a passionate lot. We are also a very practical lot. For us, symbolism is important but, unless the great symbolism of reconciliation is accompanied by an even greater substance, it is little more than a clanging gong. It is not sentiment that makes history; it is our actions that make history. Today’s apology, however inadequate, is aimed at righting past wrongs. It is also aimed at building a bridge between Indigenous and non-Indigenous Australians—a bridge based on a real respect rather than a thinly veiled contempt. Our challenge for the future is to cross that bridge and, in so doing, to embrace a new partnership between Indigenous and non-Indigenous Australians—to embrace, as part of that partnership, expanded Link-up and other critical services to help the stolen generations to trace their families if at all possible and to provide dignity to their lives. But the core of this partnership for the future is to close the gap between Indigenous and non-Indigenous Australians on life expectancy, educational achievement and employment opportunities. This new partnership on closing the gap will set concrete targets for the future: within a decade to halve the widening gap in literacy, numeracy and employment outcomes and opportunities for Indigenous Australians, within a decade to halve the appalling gap in infant mortality rates between Indigenous and non-Indigenous children and, within a generation, to close the equally appalling 17-year life gap between Indigenous and non-Indigenous in overall life expectancy.

The truth is: a business as usual approach towards Indigenous Australians is not working. Most old approaches are not working. We need a new beginning—a new beginning which contains real measures of policy success or policy failure; a new beginning, a new partnership, on closing the gap with sufficient flexibility not to insist on a one-size-fits-all approach for each of the hundreds of remote and regional Indigenous communities across the country but instead allowing flexible, tailored, local approaches to achieve commonly-agreed national objectives that lie at the core of our proposed new partnership; a new beginning that draws intelligently on the experiences of new policy settings across the nation. However, unless we as a parliament set a destination for the nation, we have no clear point to guide our policy, our programs or our purpose; we have no centralised organising principle.

Let us resolve today to begin with the little children—a fitting place to start on this day of apology for the stolen generations. Let us resolve over the next five years to have every Indigenous four-year-old in a remote Aboriginal community enrolled in and attending a proper early childhood education centre or opportunity and engaged in proper preliteracy and prenumeracy programs. Let us resolve to build new educational opportunities for these little ones, year by year, step by step, following the completion of their crucial preschool year. Let us resolve to use this systematic approach to build future educational opportunities for Indigenous children to provide proper primary and preventive health care for the same children, to begin the task of rolling back the obscenity that we find today in infant mortality rates in remote Indigenous communities—up to four times higher than in other communities.

None of this will be easy. Most of it will be hard—very hard. But none of it is impossible, and all of it is achievable with clear goals, clear thinking, and by placing an absolute premium on respect, cooperation and mutual responsibility as the guiding principles of this new partnership on closing the gap. The mood of the nation is for reconciliation now, between Indigenous and non-Indigenous Australians. The mood of the nation on Indigenous policy and politics is now very simple. The nation is calling on us, the politicians, to move beyond our infantile bickering, our point-scoring and our mindlessly partisan politics and to elevate this one core area of national responsibility to a rare position beyond the partisan divide. Surely this is the unfulfilled spirit of the 1967 referendum. Surely, at least from this day forward, we should give it a go.

Let me take this one step further and take what some may see as a piece of political posturing and make a practical proposal to the opposition on this day, the first full sitting day of the new parliament. I said before the election that the nation needed a kind of war cabinet on parts of Indigenous policy, because the challenges are too great and the consequences are too great to allow it all to become a political football, as it has been so often in the past. I therefore propose a joint policy commission, to be led by the Leader of the Opposition and me, with a mandate to develop and implement—to begin with—an effective housing strategy for remote communities over the next five years. It will be consistent with the government’s policy framework, a new partnership for closing the gap. If this commission operates well, I then propose that it work on the further task of constitutional recognition of the first Australians, consistent with the longstanding platform commitments of my party and the pre-election position of the opposition. This would probably be desirable in any event because, unless such a proposition were absolutely bipartisan, it would fail at a referendum. As I have said before, the time has come for new approaches to enduring problems. Working constructively together on such defined projects would, I believe, meet with the support of the nation. It is time for fresh ideas to fashion the nation’s future.

Mr Speaker, today the parliament has come together to right a great wrong. We have come together to deal with the past so that we might fully embrace the future. We have had sufficient audacity of faith to advance a pathway to that future, with arms extended rather than with fists still clenched. So let us seize the day. Let it not become a moment of mere sentimental reflection. Let us take it with both hands and allow this day, this day of national reconciliation, to become one of those rare moments in which we might just be able to transform the way in which the nation thinks about itself, whereby the injustice administered to the stolen generations in the name of these, our parliaments, causes all of us to reappraise, at the deepest level of our beliefs, the real possibility of reconciliation writ large: reconciliation across all Indigenous Australia; reconciliation across the entire history of the often bloody encounter between those who emerged from the Dreamtime a thousand generations ago and those who, like me, came across the seas only yesterday; reconciliation which opens up whole new possibilities for the future.
It is for the nation to bring the first two centuries of our settled history to a close, as we begin a new chapter. We embrace with pride, admiration and awe these great and ancient cultures we are truly blessed to have among us—cultures that provide a unique, uninterrupted human thread linking our Australian continent to the most ancient prehistory of our planet. Growing from this new respect, we see our Indigenous brothers and sisters with fresh eyes, with new eyes, and we have our minds wide open as to how we might tackle, together, the great practical challenges that Indigenous Australia faces in the future.

Let us turn this page together: Indigenous and non-Indigenous Australians, government and opposition, Commonwealth and state, and write this new chapter in our nation’s story together. First Australians, First Fleeters, and those who first took the oath of allegiance just a few weeks ago. Let’s grasp this opportunity to craft a new future for this great land: Australia. I commend the motion to the House.