Monday, November 30, 2009

Supersized. Our McMansions lead the world

Australians are piling on sitting rooms, family rooms, studies and extra bedrooms at the fastest rate in the world, with our homes overtaking those in the United States as the world's biggest.

The news comes as a leading forecaster predicts an acceleration in rents with Sydney rents climbing 22 per cent over the next three years.

Bureau of Statistics data compiled for Commonwealth Securities show the typical size of the new Australian home hit 215 square metres during the last financial year, up 10 per cent in a decade.

By contrast US figures show the size of new American homes sliding, shrinking from 212 square metres before the financial crisis to 202 square metres in September.

New homes in other parts of the world are far smaller, with Denmark the biggest in Europe at 137 square metres and the UK the smallest at 76 square metres...

The figures lend weight to a claim by Reserve Bank Deputy Governor Ric Battellino this month that Australian house prices were high in part because Australian houses were better.

Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions with 1 in every 7 new houses "simply replacing existing houses that have been demolished."

The Deputy Governor said Australians had so many holiday houses that the latest census found 8 per cent more dwellings than households.

Sydney houses are by far the nation’s biggest with new free-standing houses now typically spanning 263 square metres - providing more than 100 square metres of indoor space per person.

But the high proportion of townhouses and apartments in Sydney pushes the average dwelling size down to 205 square metres, just below the Australian average and about the same as in the United States.

"Another way of looking at it is the number of bedrooms," said Commonwealth Securities economist Craig James. "Around 20 years ago only 1 in every 6 homes had four or more bedrooms. By 2006 it was one in every 3.5 homes."

"While the fast pace of population growth points to the need for more and more homes, we are are living in the biggest homes in the world. The simple fact is they could be better utilised."

Mr James is encouraged by slight increase in the number of Australians living in each home. The average household size has crept up from 2.52 to 2.56 people during 2007-08.

It may not seem remarkable, but it appears to be the first increase in at least a century, and perhaps the first since European settlement."

"It makes sense – population is rising, as is the cost of housing and the cost of moving house, so we are making greater use of what we’ve got. Children are staying at home longer ,and more people are opting for shared accommodation. The key question is whether it's permanent or temporary. If sustained it'll save us building 166,000 homes."

In a report released this morning (Monday 12.01 am) forecasting group BIS Shrapnel says Sydney's rental market will tighten still further next year with the vacancy rate dropping below 1 per cent.

"Medium and high-density dwellings starts plunged an estimated 28 per cent in 2009, reaching the lowest level since 1987," the report says. "Housing supply is set to fall due to the low pipeline of new apartments."

BIS Shrapnel says after climbing 6.2 per cent this year and by an average of 3.5 per cent per annum in earlier years, Sydney rents should leapfrog 7.1 per cent a year for the next three years, climbing 22 per cent by 2012.

Published in today's SMH

Graphic: SMH

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Sunday, November 29, 2009

Two of the likely candidates Tuesday are competent public administrators

The third is Joe Hockey

As Workplace Minister he oversaw a system that couldn't even tell employers what they had to pay...

He spent $585,000 a day promoting at "fairness test" that at the time wasn't being applied...

He commissioned economic modelling with terms of reference so rigged it was never released,

He said young people were perfectly capable of negotiating pay with their employers, but repeatedly refused to appear in front of an audience of them to defend the claim...

As Human Services Minister in charge of a $1 billion plus information technology project he eschewed a pilot program declaring pilots were “for planes, not for technology"...

He called for tenders for two IT projects each worth hundreds of millions of dollars ahead of submitting the legislation to parliament (a process that caught the attention of the Audit Office) and spent $3 million advertising the program before it had Senate approval (which it never got)...

As Shadow Treasurer his record has been mixed.

But as an alternative Prime Minister?

I suppose it would be okay to put him up if there was little risk of him getting his fingers near the levers of power.

Perhaps that's the idea.

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Friday, November 27, 2009

The new Coalition leadership will need policies. Godwin Grech has been drafting

On the Treasury computer.


Policies for the Coalition.

Treasury found them after a search of its hard drives and presented them to the Senate Privileges Committee.

I've photocopied them and put them up here so we can take a look.

After all there is a policy vacuum in the Coalition...

National Forecasting Commission Grech

Savings Measures Grech

Bank of Australia Economic Action Plan Grech

Dangerous double life of Grech

Michelle Grattan
November 27, 2009

If you were writing a novel he'd be a difficult character to construct. A senior Treasury official, slightly odd but competent, credible and respected, who has a separate secret persona as a political player, trying to bring down the Government for which he works.

The strange affair of Godwin Grech hogged the headlines for weeks, wounding Malcolm Turnbull terribly. The story struck again at Turnbull this week, with documents in a tabled parliamentary committee report about Grech's explosive appearance before the OzCar Senate inquiry.

This documentary evidence of the dangerous double life Grech led is spine-tingling. How did he manage to live such a lie? Was he often fearful, or high on the excitement of being part of the political game, a confidant of powerful Liberals?

The electronic trail shows that Grech was deeply involved not just with Turnbull, but also with John Howard's former right-hand man Arthur Sinodinos, now in the banking sector, and others with political connections. For Turnbull, the material is double-edged. It helps explain how Turnbull was taken in by the fake email - why would he suspect Grech? Yet someone more cautious might have wondered about such blatantly improper behaviour by a public servant.

It wasn't just that Grech leaked to the Opposition. He saw himself as a Liberal secret agent embedded with the enemy, spiriting out intelligence and advice, reassuring, exhorting, analysing.

He'd been groomed for the task during the years of Coalition government, developing special relationships with key figures. But now his friends were in exile and as they fought their political war, he wanted to serve.

''My immediate motivation is to place myself where I think I could be of most value to MT and the Party,'' he wrote to an anonymous recipient in a November 7, 2008, email about Turnbull's office staffing. ''At this stage I am probably more value here in Treasury (albeit the personal risks I am taking). I am also doing some fund-raising for MT - he tells me that the cupboard is bare!''

Grech's correspondent had suggested: ''I think MT would welcome you with open arms if you wanted to work with him.''

The emails, found on the Treasury computer, show Turnbull brief and to the point in his exchanges with this man who was feeding him political gold. But Grech let it all hang out, gushing to Turnbull, filled with bile about Kevin Rudd. He saw his Treasury colleagues in cahoots with Labor - but did he ever stop to think about the irony of that claim?

''Malcolm,'' he wrote on Sunday, June 14, 2009. ''Thanks for giving me some time on Friday. You looked really good. As I was trying to say on Friday - and this is not a negative reflection on you - I really don't believe our polling will improve until the punters start to feel a bit of pain.'' He went on to spell out a ''Punter Pain Profile'' (involving higher interest rates, a weakening labour market and the like). ''Many of these things will come together roughly at once . . . As for you - you have nothing to prove to anyone. Be true to yourself as much as you can.

''If we can contain a loss to roughly the margin we have now - you will be very well placed in 2012-13. You will still be a prime age for the highest office and can serve at least two terms.''

A couple of days later, Grech was advising Turnbull on strategy for dealing with the emissions trading scheme legislation: ''[S]poke with Sinodinos tonight. He very much agrees with my view that we should neutralise the ETS issue ASAP by supporting Rudd's bill - but by pointing to those areas that we would fix in government.'' He added boldly, ''With Costello out of the way, I think you should press this issue home sooner rather than later.''

Earlier, Grech - suspicious about Costello's intentions - wrote on March 13, 2009, to John O'Sullivan, head of Credit Suisse and a donor to Turnbull, ''We need to do something about the leadership farce urgently. MT may need to contemplate some dramatic moves because Costello will bleed this out with only Rudd winning.''

Grech eagerly offered policy work to the Liberals, sending Sinodinos on May 18 a proposal for a ''National Economic Forecasting Commission'' (the paper was headed ''Turnbull Government'') in an email that also welcomed ''not a bad'' Age/Nielsen poll of that morning.

''Thanks mate,'' replied Sinodinos cheerily, but pointed out that creating a ''new mini-Treasury'' would bring resistance from Treasury. Within the hour, an undeterred Grech replied that Treasury's opposition would be seen as ''turf protection''. He went on, ''This is in part what I want - to establish a clear tangible motive that we can point to so as to help us prove that Treasury is pro-ALP. This I believe is critical to removing Rudd's Treasury fig leaf, thereby getting to his economic credibility.''

Grech was determined the ''fig leaf'' must be ''stripped away'', and leave Treasury's alleged Labor bias exposed. Writing to O'Sullivan on May 13, he said ''the Treasury Executive Board has very close links with the ALP. It is an arm of the ALP. KH [Treasury secretary Ken Henry] was on the personal staff of [Paul] Keating . . . He still takes counsel from Keating, who calls him regularly and did so during the Howard years.''

Grech adds he is ''happy to speak with JA [Janet Albrechtsen, O'Sullivan's columnist wife] for background if she wants''.

He ended the email saying, ''I am deleting this as soon as I send it through to you.'' Unfortunately for Turnbull, in the age of modern technology, tracks are never completely covered. On the day his leadership was falling apart, the Grech emails were back haunting the unwise Turnbull. But he was probably beyond caring.

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"The Liberal Pary risks becoming a political billabong"

Typically brilliant - tough but fair - analysis from Chris Uhlmann:

At the heart of Joseph Heller's novel Catch-22 is a brilliant paradox: if you plead insanity to avoid suicidal bombing missions then you must be sane and can't be excused.
"There was only one catch and that was Catch-22, which specified that a concern for one's safety in the face of dangers that were real and immediate was the process of a rational mind.

"Orr was crazy and could be grounded. All he had to do was ask; and as soon as he did, he would no longer be crazy and would have to fly more missions...

Yossarian was moved very deeply by the absolute simplicity of this clause of Catch-22 and let out a respectful whistle.

"That's some catch, that Catch-22," he observed.

"It's the best there is," Doc Daneeka agreed.
There is an Australian inversion of Catch-22: if you want to lead the Liberal Party now you must be insane and shouldn't be allowed to.

By that measure, Joe Hockey is the sanest person in the Opposition because he genuinely does not want to lead it now. But he may not be able to avoid it.

Read the full thing here.  Do it now.

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Thursday, November 26, 2009

An election campaign like no other

Whoever fights it

Finance Minister Lindsay Tanner has signaled an austerity election campaign, saying he'll approve new spending in the May Budget only where it is offset by new savings.

"It's hardly a great secret that governments tend to like to go to elections off the back of generous Budgets and, of course, over the past decade there have been numerous examples of which I'm sure you're all aware," he told the National Press Club.

"But the commitment we have made is to offset any new spending with savings, and to ensure that once normal levels of economic growth have resumed, and at this stage that looks like that's about a year or so away, that we will ensure that Government spending does not increase by any more than 2 per cent in real terms until the budget returns to surplus."

"That means the loosen-the-purse-strings, giveaways, type of Budget that in popular mythology tends to be associated with election years is just simply not feasible... We do not have the luxury in May of saying, well, we'll be tough on spending maybe next year and we're going to have a big splash now. That simply is not feasible."

Asked how Labor could compete with the Opposition under such circumstances he said it would be challenging, but "even more challenging for the Opposition".

"We don't know whether Malcolm Turnbull is going to continue to be leader of the Opposition, but he certainly has made very strong statements that the Liberal Opposition would have smaller Budget deficits and a lower of level of debt than is currently projected by the Government. What that means is that however tough we are, they're promising to be tougher."

The Finance Minister said he believed the Australian public would welcome an election campaign free from big-spending promises.

"You've got obviously a wide variety of views. But I would say this. In the 2007 election campaign, when Kevin Rudd stood up at his campaign launch and said the spending spree has got to stop and the commitments he made that night would be less than 25 per cent of the commitments that Mr Howard had made at his launch a couple of days ago. I felt then, and I still feel it, that was the time when we won that election, because that amounted to a statement to the Australian people that we had the wherewithal to withstand pressures."

"People will debate these things. I'm sure that some of my caucus colleagues when they're confronted with the prospect of whether or not a particular project or program should be financed in their electorate, will give slightly different views. But I believe the bulk of the Australian community understand that this is not free money and that electoral bribes, if not past their use-by date are at least nowhere near as potent as some in the past have argued they are."

Ahead of the May Budget the governmment would release the third Intergenerational Report detailing "significant pressures to the Budget, with rising health, pension and aged care costs the main drivers".

Published in today's SMH

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Malcolm Turnbull - impressive by any measure

Tonight's complete 7.30 pm press conference:


Now I think we all recognise that most Australians expect their political leaders and their political parties to take effective action on climate change. This is about the future of our planet and the future of our children and their children. It is one of the great challenges of our time. Now I know there are many people, including many people who are supporters of my own party, who have doubts about the science and grave reservations about it. I understand that and I respect it. But as Margaret Thatcher said, right back nearly 20 years ago in 1990, this is about risk management. Or as Rupert Murdoch said, we have to give the planet the benefit of the doubt. Matt Franklin smiles, from The Australian. He is very pleased when I quote his boss.

But the fact is we have to take a prudent approach to this. Saying that we are not going to do anything about climate change is irresponsible, and no credible, responsible political party can have a ‘no action on climate change’ policy. It is as simple as that.

Now the Liberal party room meeting here, Coalition party room in fact, meeting here and, of course, the shadow cabinet asked Ian Macfarlane and I to negotiate a package with the Government, to take amendments approved by the party room to improve the Government’s emissions trading scheme. And we did that with the full, the overwhelming authority in fact, of the Coalition party room. And it was a set of amendments that were designed to make the scheme more environmentally effective and to save tens of thousands of jobs.

We achieved enormous concessions from the Government and indeed when they were announced many of you wrote it up as an enormous win for the Coalition. Many of you were surprised that the Government made such big concessions as they did, and those concessions, those improvements will save tens of thousands of jobs and, in addition, make the scheme more environmentally effective. Then the shadow cabinet endorsed that deal, the party room endorsed that deal.

Now this has now become a question not simply of the environmental responsibility of the Liberal Party but of its integrity. We agreed with the Government on this deal. We must retain our credibility of taking action on climate change. We cannot be seen as a party of climate sceptics, of do nothings on climate change. That is absolutely fatal. And we also must be seen as men and women of our word. We entered into a bargain. There was offer and there was acceptance....

Now I know, and I just repeat this, this is a difficult issue for many Liberals, many Australians. But I repeat most people who doubt the science also know that it makes sense to take out insurance, to manage the risk, to give the planet the benefit of the doubt. Now at the moment, as you know, some of my colleagues have found it necessary to resign from ministerial positions so they can cross the floor on the issue. That is their right and I respect it. But I believe we must maintain this course of action. It is the responsible thing to do. It is the honourable thing to do.

Australians expect their political leaders to act responsibly, to take action on climate change, to protect and safeguard the future of our planet, the future of our children. That is the challenge for us now and I am committed to it. We must be a party committed to action on climate change. Anything else is irresponsible.

Any questions?


Will you commit yourself to the leadership of the party? Will you stand and do you intend to remain the leader of the Liberal Party?


Well I am the leader of the Liberal Party and I was confirmed as such little more than 24 hours ago in this very room.


Are you prepared to face a new ballot if these frontbenchers who have resigned and gone to the backbench chose to try to trigger one?


Well the fact is that people can move a spill… it is not often that people move a spill motion within a few days of one already being resolved but if people wish to move a spill motion it is a matter for them.


Do you think you have the numbers over Tony Abbott, Mr Turnbull?


Well I have no doubt that the party room will make the right decision. But let me just say this – it is not a question, I know you guys love getting into the personalities and the numbers and it is terrific fun. Can I tell you something? I came here to make Australia a better place. I came here because of my commitment to political action to make Australia a better place for my children and your children to grow up in. And one of those issues is action on climate change, just as the historic reforms we achieved in the Howard Government on water policy and water management were part of that agenda. I am committed to real reform. I am committed to real environmental action. So you guys write about the numbers. I am focused on the policy. I am focused on our children’s future.


It would be unprecedented, would it not, for a leader to face such a series of front bench resignations? Do you seriously think that you can continue to lead the Liberal Party under those circumstances?


I am very serious about everything I do.

Yes, Dennis.


Mr Turnbull, at issue here is the numbers not of the leadership but of that Coalition room... Many of your colleagues dispute your call as a majority and say that they did not endorse it, that it was evenly split.


Dennis, I think I said this yesterday or the day before. There was a clear, albeit a slender majority in the joint party room in favour of the shadow cabinet’s recommendation – that included the Nationals. Now the Nationals on this issue don’t regard themselves as bound by the views of the joint party room as we know. There was a very substantial majority in the Liberal party room and I think, as many of my colleagues have said, and they’re right, it was very similar to the numbers in the ballot yesterday.


What’s the position in the Senate Mr Turnbull, will you need a new Senate Leader and Deputy Leader?


I’ve met with Nick Minchin. As you know, he has conveyed to me his offer to resign and that of his deputy Eric Abetz and the Opposition whip Senator Parry. They have undertaken to continue to fulfil their positions in the Senate until the rising of the Senate – that is to say until we finish for the year.

Nick has given me a solemn undertaking not to frustrate the passage of the legislation and he will use, he has assured me, his best endeavours to see that it goes through its final, to its final committee stage by I think 3.45pm on Friday.

He has said that if there is a motion to defer the legislation he would vote for it and he would vote against the bill, assuming that wasn’t carried and it then came back to the House, passed in the House, went back to the Senate he would then vote against it. So he is, well I don’t think any of us had any doubt about this position.


Does that then leave the numbers in the Senate to carry the bill?


Well look the position is that there are certainly more than enough Coalition senators who have supported the shadow cabinet’s recommendation for the bill to be carried but, you know, the party made a decision, it was if you like confirmed yesterday in the ballot here over the spill, but you know there are obviously some people who don’t agree with it.

But can I just say to you, if where we are heading is for an election on the issue of should Australia take action on climate change or not, and if the Coalition is on the take no action side then it will be a catastrophe for us – and that is perfectly clear.

We cannot be a responsible or credible political party unless we are committed to taking responsible action on climate change.


Mr Turnbull is sounds from there as if you are not absolutely certain yourself tonight, standing here that the ETS in its amended form will pass?


No I am confident it will pass. There has been no change to the decision of the party. We had a meeting in the party room here earlier in the week which endorsed the shadow cabinet’s recommendation and as you know there was a spill motion moved to spill the leadership and that was soundly defeated.


Mr Turnbull what do you think it says about your leadership authority and the powers [inaudible] that so many of your backbench but also now these senior frontbenchers have not accepted your argument and your right as leader to tell the party what you think it should do?


Well there was a vote in the party room yesterday. It was 48–35, supporting my leadership.


But you have to admit things have changed Mr Turnbull since then?


Nothing has changed as far as the leadership is concerned. My leadership was confirmed only yesterday but it is, as John Howard used to say, always something in the gift of the party room and on that…


So you wouldn’t call this a crisis of your leadership?


I’d love to award a prize for somebody that asks a question that isn’t inviting me to comment on myself.


Have you accepted the resignations, how many have been offered to you and when and will you conduct a reshuffle?


Well we have to have a reshuffle anyway because a number of people are not recontesting the election and so forth. What I am going to do is assess all of that after the Parliament rises and I will let you know in due course and on that note have a great night.

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Reserve Bank to public: Don't complain about the house prices you're pushing up

Worried that $607,000  is too much to pay for a Sydney house? The Reserve Bank isn't worried and it expects prices to climb higher still.

In a speech that amounted to a defence of Australia's historically high house prices Reserve Bank Deputy Governor Ric Battellino told a housing conference yesterday to expect worse and to recognise that home buyers were getting value for money.

Prices would climb further because the global economy was growing again and because Australia had entered "a new upswing" that would further extend its record 18 years of continuous economic expansion...

House prices would be boosted by increased population growth and immigration, solid increases in household incomes and "substantial competition" for construction industry workers from the mining sector.

Australians had been spending more of their income on housing than ever before but had been getting bigger and better houses as a result.

Almost half of the $250 billion shelled out on housing each year was spent on alterations and additions.

Around one in every seven new houses constructed were "simply replacing existing houses that have been demolished," up from one in every ten new houses a decade ago.

And we're buying holiday houses like never before.

"Census data shows at 2006 there were 8 per cent more dwellings in Australia than there were households. Presumably, most of this surplus reflects holiday houses and second houses."

"In short, a high proportion of dwelling investment is going into improving the quality of existing dwellings and building accommodation additional to primary residences. If as a nation we want to continue to do this, while at the same time providing enough dwellings for the growing population, the overall amount of dwelling investment undertaken will need to increase relative to GDP," Mr Battellino said.

While there was "a common perception that house prices relative to household income in Australia are high" Australia's population was "more concentrated in a few large cities" than were other populations and Australians had more free income with which to pay for housing.

"Australians seem to spend less of their income on non-housing consumption than is the case for US households, with a significant part of this difference explained by lower health costs in Australia," the Deputy Governor said. "Australian households as a whole appear to have the financial capacity to sustain a relatively high ratio of housing prices to income."

"It is certainly the case that the ratio is higher now than it was 20 years ago. However, this is largely explained by the fact that lower interest rates have allowed households to take out bigger home loans without increasing housing loan repayments. In turn this has given households more buying capacity in the
housing market, which has been reflected in house prices.

Mr Battellino conceded that not all Australians were getting better housing for their money, noting that first home owners - typically those under 35 years of age - have experienced a "noticeable decline" in home ownership.

"It may be that this is being driven by demographic factors - such as the fact that young people are staying in education longer and delaying the formation of new households - but it may also be financially driven," he said.

The latest RP Data research puts the typical price of a Sydney House at $607,000 after climbing $39,000 over the past year and the typical price of a Sydney unit at $457,000 after climbing $35,000.

Published in today's SMH and Age

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We've freed the Future Fund

The $64 billion Future Fund will continue to be free to invest through tax havens such as the Cayman Islands and will also freed from a raft of restrictions relating to pay scales, freedom of information laws and the use of its $4.3 billion Telstra shareholding under reforms unveiled by Finance Minister Lindsay Tanner in the presence of the Fund Chairman David Murray.

Mr Tanner told the National Press Club Speaking at the National Press Club that given the structure of the industry and complexity of international tax law, investing asset managers domiciled in the Cayman Islands was "a common practice and often difficult to avoid".

"And the Cayman Islands is changing," the Finance Minister said. "It is negotiating a tax information treaty with Australia...
and joined the OECD list of jurisdictions that have substantially implemented the internationally agreed tax standard."

The Fund's annual report revealed that in the past year it had opened five subsidiaries in the Caribbean tax haven at a time when the Prime Minister had been part of the global push to crack down on the use of tax shelters.

Mr Tanner said instead the Fund would act in accordance with the so-called Santiago Principles covering governance, transparency and accountability for sovereign wealth funds drawn up by the International Forum of Sovereign Wealth Funds which was chaired by Mr Murray.

Mr Murray would be advising the Papua New Guinea Government on the creation of a sovereign wealth fund to handle some of the expected $35 billion it was expected to receive from the PNG LNG project.

But Australia itself would stop short of setting up such a fund to handle the proceeds of its next mining boom.

"A resumption of mining boom tax revenues is by no means certain," Mr Tanner said. "Any windfall increases in revenue will need to be dedicated to returning the Budget to surplus and paying down debt."

"It is possible to paint a picture of the future perhaps in 10 years time where that kind of proposal might be appropriate, but I think the variables that are involved are such that I wouldn't care to speculate on the merits of it," he said.

The reforms will remove from the remit of the Freedom of Information Act information "which if made publicly available would place at risk the return that could be earned for the Funds or limit the range of investments the Board can access".

"The exclusion is not dissimilar to the exclusion granted to the Reserve Bank, including for its open market operations, and to a number of Commonwealth agencies for their commercial operations," the Minister said.

Removing the Fund from coverage of the Public Service Act would enhance its independence from Government and make it easier to recruit specialised fund managers. The Fund will continue to report the size of the pay packages for its top executives, but would be freed from the threat of ministerial intervention over pay rates.

The Fund will also no longer face the threat of ministerial direction over the use of its 10 per cnet shareholding in Telstra.

Mr Tanner said the Australian Government had no involvement in its decision earlier this year to see part of tis shareholding ahead of the annoucnement of the National Broadband Network.

"The Australian Government had no involvement in this decision. Nor did the Future Fund have any prior access to or knowledge of Government plans in relation to Telstra or the national broadband network," he said.


. Use of tax havens permitted

. Investment decisions not subject to FOI

. Staff not subject to Public Service Act

. Telstra shareholding free from ministerial direction

Lindsay Tanner, National Press Club, The Future Fund: Delivering for Australia, October 25 2009

Published in today's SMH and Age

Graphic: James Fox

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Wednesday, November 25, 2009

Wong's $7.3 billion gift to dirty power stations

I wrote this column in June 2008. The only update is the size of the gift. It's doubled.

Never once on the countless occasions that Australian governments have restricted the sale of tobacco have they felt compelled to compensate the manufacturers for ''significant reductions in their profitability''.

Why would they? The cigarette manufacturers knew what was coming (and had decided to invest anyway) and were blessed with rusted-on customers.

But there was another more important reason why our governments didn't offer ''compensation'' to the industry they were trying to cripple.

To do it would have been to accept that the existing tobacco manufacturers had continuing ''rights'' that the government had to buy out in order to proceed.

It would have helped create a precedent that would have undermined the right of Australia's parliaments to act as they saw fit.

It would have undermined our sovereignty as voters...

The Government's independent climate change adviser, Ross Garnaut, saw the danger clearly in his interim report delivered earlier this year.

As he put it, ''There is no tradition in Australia for compensating capital for losses associated with economic reforms.''

Among the reforms for which he pointed out Australian businesses have not been compensated were the floating of the dollar, the introduction of the goods and services tax and the massive tariff cuts that Garnaut himself oversaw as Bob Hawke's economic adviser in the 1980s.

By the same token he pointed out that there had been no tradition of taking away from businesses the extraordinary windfall gains that they had enjoyed as a result of government decisions, including cuts in the company tax rate.

In the case of emissions trading, businesses had been ''aware of the risks of carbon pricing for many years''. Many had ''sought to re-engineer their production processes to reduce their reliance on emissions''.

He must have been worried that the argument wasn't getting through. In his draft report released just days before last week's Government green paper, he devoted an entire appendix to applying the argument explicitly to coal-fired electricity generators.

There was ''no basis'' for the claim that generators had a ''right to emit carbon dioxide and this right is being taken away by a policy change''.

As he put it ''governments always retain the absolute right to vary policy and industry is generally cognisant of the risk''.

There's no doubt that Australia's coal-fired electricity generators have been cognisant of the risk. They have been lobbying on the basis that their businesses have been at risk since way back before Australia took part in the Kyoto negotiations a decade ago.

But last week, despite all they'd done, and despite all that Garnaut had said, they succeeded in convincing the Australian Government that its 2010 emissions trading scheme was unexpected and that they needed compensation.

In her green paper, Climate Change Minister Penny Wong justifies the idea this way: ''If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.''

Try submitting that sentence to the laugh test.

That is, try to read it out loud without laughing.

The truth is that when it finally makes a decision on the type of emissions trading system that Australia will have from 2010, Parliament will have ended, not added to, the uncertainty that has been making Australia's electricity market a risky investment proposition.

Does Wong really think that investors will stay away from Australia's electricity market when they know what the rules are? Does she really think they haven't had a fair idea of what was coming for a decade?

Apparently she does. Her green paper proposes making cash payments or payments in the form of free pollution permits to all of the coal-fired power stations that were in existence or planned before June 3, 2007.

Why that date? Because it was the day on which former Prime Minister John Howard came out in support an emissions trading scheme, the day the idea ''became bipartisan policy in Australia''.

The Minister says that Sunday, June 3, 2007, was ''the point beyond which investors could not reasonably argue that they had no knowledge of a potential carbon constraint''.

Where's the laugh test?

It's actually worse than funny. By giving a gift to a class of firms that neither needs it nor deserves it (quite separate to the grant of free permits to exporting and import-competing carbon-intensive firms such as aluminium producers who will need them), Wong has opened the door to all sorts of special pleading.

Woodside Petroleum is just the first cab off the rank. If dirty coal-burning power stations can get compensation, why not cleaner natural gas producers?

It's the sort of endless special pleading for access to ever-widening and ever more complex loopholes that killed the goods and services tax the first time the Coalition proposed it.

John Hewson was unable to explain why he would be taxing a cold pie but not a hot pie and lost the 1993 election.

Australia's existing coal-fired power stations won't need the compensation anyway. They will be able to pass on the extra cost of the emission permits. They will be encouraged to. It is how the scheme is meant to work.

Eventually the higher price of power will prod some of us to use less of it, and eventually wind and commercial solar power generators will become competitive against coal because they won't to buy emission permits.

But none of that will happen in a hurry. In the short term we will have no choice but to buy our power from the existing coal-fired generators. It is where our power comes from.

It is likely that by the time those plants are out of commission they would have been out of commission anyway.

The generators will doubtless pocket the gift Wong plans to give them (the NSW Government will be one of the biggest beneficiaries, owning many of the generators) but it won't encourage them to give up lobbying.

Why should they when another part of the minister's plan has the parliament resetting the five-yearly carbon-reduction target each year?

The tobacco industry would love the opportunity. It shouldn't be given to a dinosaur industry that has served and will continue to serve Australia well and has known for years that its days were numbered.

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Tuesday, November 24, 2009

I work. The crisis has left me better off

What was it Kylie said?

It's been a great financial crisis in which to have a job. The latest especially-tailored "employed persons" cost of living index shows the prices facing Australians who had jobs actually fell 1 per cent in the year since the collapse of Lehman Brothers in September 2008.

It's the biggest fall in the decade since the figures have been compiled.

By contrast the living costs facing age pensioners climbed 2.4 per cent and those facing self-funded retirees climbed 1.6 per cent.

Employed Australians have benefited from the big reductions in mortgage interest rates and petrol prices that flowed form the crisis.

Financial charges and transport costs are much less important in the budgets of retirees, making up only 16 per cent of the costs faced by aged pensioners compared to 25 per cent of those faced by Australians with jobs...

The Bureau of Statistics says employed Australians also benefited from the cheaper overseas travel and sliding costs of electronic equipment that flowed from the higher Australian dollar.

By contrast aged pensioners had "a relatively higher proportion of expenditures on electricity, house repairs and maintenance, property rates and charges and health services - all of which recorded large annual increases".

Other beneficiaries including the unemployed faced a living cost hike of 1.6 per cent "mainly due to increases in rents, electricity, insurance and tobacco".

Alcohol and tobacco are much more important in the budgets of beneficiaries than employed Australians, accounting for one in every 10 dollars of the living cost of Australians on welfare compared to one in every 12 of the cost for Australians with jobs.

Self-funded retirees were hit hardest by increases in the prices of electricity and water, medical services, insurance and house repairs.

During the financial crisis the four different living cost indexes have been as far apart as they have ever been, but have been moving back together in the most recent quarter with each increasing by around 1 per cent between June and September.

The Bureau was advanced $18 million in the May Budget to refine the pensioners and beneficiaries index used to assist in calculating pension increases.

It has also begun work on perhaps the ultimate tailored statistic, a personal inflation rate which would vary according to the spending pattern of the person who used it.

Users would key in monthly spending on things such as food, alcohol, newspapers and transport as well as annual spending on insurance and air travel and longer term spending on appliances to calculate how their own cost of living had changed.

It is displaying a mockup of the calculator on its so-called "BetaWorks" website.

The ups and downs of financial crisis

Living costs one year on

Employed Australians:
down 1%
Aged pensioners:
up 2.4%
Other beneficiaries:
up 1.6%
Self-funded retirees:
up 1.6%

Transport and finance make up 25% of an employed Australian's budget; 16% of an aged pensioner's budget

Source: ABS Analytical Living Cost Indexes, September 2009, Pensioner and Beneficiary Living Cost Index, September 2009

Published in today's SMH

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"The deal will ensure that Australia can achieve its ambitious unconditional target of 5 per cent"

Rudd spells it out:


Australia has today moved a step closer to action on climate change, after the Rudd Government this morning delivered a deal to the Opposition aimed at securing the passage of the Carbon Pollution Reduction Scheme this week.

The package is the culmination of over a month of detailed negotiations between the Government and the Opposition, and over a decade of policy development.

Under the package, industry will receive significant new assistance to help make the transition to a low carbon future, reflecting the Opposition’s demands.

The Government has also ensured the package delivers for the environment and households...

This final package on the Carbon Pollution Reduction Scheme is in the national interest: it is both environmentally credible and economically responsible.

Key elements of the package include:

• Emissions-Intensive Trade-Exposed Industries: permanently incorporating the Global Recession Buffer – which provides industries eligible for 60 per cent assistance with a 10 per cent buffer, and industries eligible for 90 per cent assistance with a 5 per cent buffer – into assistance rates. The 1.3 per cent Carbon Productivity Contribution has been retained to ensure all industries reduce their emissions.

• Coal Sector: A total of $1.5 billion in transitional assistance will be provided to the coal sector over five years. This is an increase from $750 million previously. The Government will commit $270 million to the Coal Mine Abatement Fund through the Climate Change Action Fund to assist gassy coal mines reduce emissions. In addition, the current COAG Renewable Energy Target (RET) review process will consider whether new waste coal mine gas projects should be eligible.

• Voluntary Action: The Government will ensure the CPRS takes into account voluntary action by households. Voluntary action by households will now allow Australia to go beyond our 2020 emissions reduction target. In addition, the CPRS will be amended to ensure that all existing and future purchases of GreenPower will be counted, and allow Australia to go beyond our 2020 national targets.

• Electricity Sector Adjustment Scheme: An increase of $4 billion in assistance under the ESAS, increasing the total value of permits under the ESAS from $3.3 billion to $7.3 billion. A further three new measures – a Low Emissions Transition Incentive, an Energy Security Assurance Mechanism and deferred payment arrangements - will be introduced to maintain energy security and drive the transition to a low pollution future.

• Electricity Prices: A Transitional Electricity Cost Assistance Program of $1.1 billion to assist medium and large manufacturing and mining businesses with CPRS-related increases in electricity prices in the early years of the Scheme.

• Agriculture: As previously announced by the Government, agricultural emissions will be excluded from the CPRS and offsets for agricultural emissions abatement will be included.

The deal will ensure that Australia can achieve its ambitious unconditional target of 5 per cent; conditional target of up to 15 per cent and top-end target of 25 per cent off 2000 levels by 2020 if a global 450 parts per million outcome is achieved.

The deal put to the Opposition is fiscally responsible. The Government’s commitment to ensure that around 90 per cent of low-income households receive assistance equivalent to 120 per cent or more of their cost of living increase has been maintained. Although the level of assistance has been modified to reflect the new carbon price estimated in the Mid Year Economic and Fiscal Outlook.

The Carbon Pollution Reduction Scheme is a major economic and environmental reform that will take Australia to a low carbon future.

It will place a limit on the carbon pollution we produce and make those that produce carbon pollution pay for it.

In early 2008, the Government made clear that it intended to fulfil its election commitment by passing the CPRS in mid 2009.

The Government first released this legislation in draft form in March.

This package has been presented to the Opposition on the basis that a vote on the Bill must be held before Parliament rises this week – six months after the Government’s intended passage.

Passing the CPRS this week will give Australian businesses the certainty they need to make investments.

It will also mean Australia goes to Copenhagen with a means to deliver its targets and provide a much-needed boost to negotiations on a global deal.

We have delayed action on climate change too long.

It is now time to act.

We call on the Opposition to support this negotiated package and ensure a vote on this package before Parliament rises this week.

Details of Proposed CPRS Changes

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...some words from Tim Colebatch:

Defenders of the status quo fought against working people having the right to vote: it was only in 1950 that all Victorians got the right to vote for the Legislative Council. Sir Winston Churchill in the 1930s was obsessed not only with combating Hitler but also with combating Gandhi, opposing any suggestion that India be given independence.

Under John Howard, the Coalition in the 1980s opposed the introduction of Medicare and compulsory superannuation with the same kind of wacky overstatement some of them now use on climate change (such as Joyce telling us we won't be able to buy steaks).

Remember the fear campaign waged against the introduction of unleaded petrol?

BTW: I still wonder whether the scheme is worth supporting.

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What could possibly unite Henry Ergas and John Quiggin? Criminally dodgy work by Queensland's government.

In fact it's united a veritable Who's Who

An extraordinarily high-powered group of academic and private sector economists from across the political spectrum have released an open letter attacking the Queensland government's $16 billion port, rail and motorway privatisation program and the $1.9 million television and letterbox advertising campaign that supports it.

Labeling the case presented by Queensland Premier Anna Bligh "economically unsound" and "based on spurious claims" the letter says the people of Queensland "deserve a robust and well-informed public debate over the costs and benefits of privatisation and so far have not received it"...

Signed by economists identified with Labor such as John Quiggin and Nicholas Gruen and others identified with the Coalition including Henry Ergas and Warwick McKibbin the letter says they have a range of views about merits of privatisation in particular cases but "share the view that these questions should be resolved on the basis of well-informed discussion of the economic and social costs and benefits of privatisation, and not on the basis of spurious claims that asset sales represent a costless source of income to governments."

Attacking the arguments in the taxpayer-funded booklet Facts and Myths on Asset Sales  it says they compare "apples with oranges" and understate the value of keeping the assets up for sale.

Twelve of the signatories are are professors of economics. Two have served on the board of the Reserve Bank. The Queensland Council of Unions has launched its own anti-privatisation TV campaign and sought advice from accounting professor Bob Walker.

Statement by academic and business economists on the Queensland government’s case for asset sales

Decisions on the sale or retention of public assets have important implications for competition and public policy, as well as for the fiscal position of governments. These decisions cannot be resolved on the basis of general ideological arguments for or against public ownership, and require informed public debate in each case. The normal lines of economic debate include whether a given business is more efficiently operated in the private or public sector, the appropriate allocation of risk and the extent to which the enterprise is required to pursue social as well as financial objectives.

The signatories of this statement have a range of views on the appropriate balance between the public and private sectors and on the merits of privatisation in particular cases. However, we share the view that these questions should be resolved on the basis of well-informed discussion of the economic and social costs and benefits of privatisation, and not on the basis of spurious claims that asset sales represent a costless source of income to governments.

The arguments put forward by the Queensland government in its booklet ‘Facts and Myths on Asset Sales’ do nothing to promote a well-informed debate. Two central claims are particularly, and sadly, noteworthy. In relation to five public assets proposed for sale, the "Facts and Myths" booklet states

Keeping these businesses would cost the Government $12 billion over the next five years. That’s $12 billion spent on new coal trains and new wharves that can’t be spent on roads, schools or hospitals.

This claim is economically unsound. Forgoing income generating investments, and borrowing an equal amount to fund investments that return no additional revenue, leaves the government with no flow of income to service the associated debt. The necessary income must be raised by increasing taxes or cutting expenditure.

Selling public assets will improve the public sector’s fiscal position only if the price realised for the assets exceeds the value of the income stream that the asset would otherwise generate for the public sector. In this respect, the ‘Facts and Myths’ booklet states

The total return from all five businesses in 2008-09 was approximately $320 million … When the sale process is completed, it is anticipated the Government will save $1.8 billion every year in interest payments.

This is an invalid, apples-and-oranges comparison. The $320 million figure consists solely of dividend payouts, excluding retained earnings, tax-equivalent payments and the interest paid by the government business enterprises to service their debts.

The $1.8 billion represent the interests that would be saved, at a rate of about 6 per cent, if the state realised $15 billion from the asset sale and avoided $12 billion in new investment. Most of this interest would be serviced out of the revenues of the GBEs, and can therefore not be compared with dividends derived from earnings after the payment of interest and tax.

The people of Queensland deserve a robust and well-informed public debate over the costs and benefits of privatisation. So far they have not received it.


Harry Campbell, Professor of Economics, University of Queensland

Tim Coelli, Adjunct Professor of Economics, University of Queensland

Henry Ergas, Economic Consultant, Canberra

John Foster, Professor of Economics, and former Head of School, University of Queensland

Paul Frijters, Professor of Economics, QUT

Joshua Gans, Professor of Economics, Melbourne Business School

Ross Guest.Professor of Economics, Griffith University

Nicholas Gruen, CEO, Lateral Economics

Christopher Joye, Managing Director, Rismark International

Stephen King., Dean, Faculty of Business and Economics, Monash University, former Commissioner ACCC

Andrew McLennan, Australian Professorial Fellow in Economics, University of Queensland

Flavio Menezes, Professor and Head of School of Economics, University of Queensland

Christopher O’Donnell, Professor and Deputy Head of School of Economics, University of Queensland

Andrew Leigh, Professor of Economics, ANU

Adrian Pagan, Professor of Economics, QUT, former member RBA Board

Rohan Pitchford, Australian Professorial Fellow in Economics, University of Queensland

John Quiggin
, Federation Fellow in Economics, University of Queensland

John Rolfe, Professor of Economics, Central Queensland University

Prasada Rao, Australian Professorial Fellow in Economics, University of Queensland

Rabee Tourky, Professor of Economics, University of Queensland

Warwick McKibbin, Professor of Economics, ANU, current member RBA Board

Published in today's Age

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Monday, November 23, 2009

"Cease payments from product manufacturers to financial advisers"

I never thought I would see the day. So soon.

That's what has just been recommended by the Joint Parliamentary Inquiry set up after the collapse of Storm Financial.

Recommendation 4

The committee recommends that the government consult with and support industry in developing the most appropriate mechanism by which to cease payments from product manufacturers to financial advisers.

Here's what the Committee Chair Bernie Ripoll just told me at his 9.00 pm news conference:

"The word cease means stop".

"This is a big, big change that we have recommended. It is huge. For it to happen it has to be done in consultation with the sector."

"A clear message has come from the sector to us that this is what they want... We need to work on ensuring that what we want to deliver in intent is actually delivered in practice."

Would this apply to mortgage brokers, insurance brokers? I asked.The answer: Not yet.

"They are not defined as financial advisors under the Corporations Act at the moment."

But I'm happy. Very happy. Let's get busy.

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Fruit store - the musical

This was filmed with hidden cameras and genuinely took people by surprise.

Enjoy. For four minutes.

HT: Elise Davidson

It's all explained here.

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Saturday, November 21, 2009

"Dust, Mud and Shit" - one of the best interviews I have ever seen on Australian televison

Here is the 16 minute extended version of Hungry Beast's ABC TV interview with 'Tom', an Australian soldier.

Tom was willing to share his story about what being on the ground in Afghanistan is actually like. This is the first, unvarnished account of its kind on Australian TV.

To protect his identity, ‘Tom’ was played by actors Aden Young, Dan Wyllie, Lewis Fitz-Gerald and Rodger Corser...

"Chances are, most of what you have heard about the war in Afghanistan has come via the Australian Defence Force’s Public Relations department. Unlike other coalition forces, Australian journalists find it exceedingly difficult to gain access to our soldiers. Many resort to embedding with our allies to cover conflicts we’re involved in. And while there have been a number of first-person accounts of our allies’ soldiers’ experiences published abroad, we’ve heard almost nothing from the Australian perspective.

When Hungry Beast decided to do a story on the war in Afghanistan, we wanted to focus on personal stories. But when we approached Australian soldiers to ask them what it’s like to fight on the frontline, we were consistently met with one of three responses: polite refusal, open hostility or a referral to Defence PR. We found it increasingly bizarre that our soldiers wouldn’t discuss even the most trivial details of their time at war, and the story became as much about the army’s control over the media as it was about the war in Afghanistan.

Eventually, we found one currently-serving soldier who has served in Afghanistan, who was willing to talk. He offers a rare insight into the mind of someone who, quite literally, puts his life on the line in the name of this conflict. His reasons for speaking out are telling:

“It appalls me that whinging frauds are able to gain the bulk of the media access and press their bogus claims… I can’t change the course of a cultural tsunami of myth making and superficial story telling, but that doesn’t mean I have to accept it.”

Hungry Beast spoke to ‘Tom’ at length. In this recreation, we have edited and restructured that interview for the sake of length and comprehensibility, but all the words you hear are entirely his own."

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Friday, November 20, 2009

Sometimes the Senate is really, really funny

If sad

Here's Senator Fielding Thursday setting up a joke.

With admirable restraint Senator Wong holds off on delivering the punchline.


Senator FIELDING (2.44 pm)—My question is directed to the Minister for Climate Change and Water, Senator Wong. I refer to the article in The Weekly Times on 11 November which revealed that the government has diverted over 60 per cent of the environmental water bought by the federal government to the minister’s home state, South Australia, and that the bulk of funding under the National Urban Water and Desalination Plan has also gone to South Australia. Can the minister explain why so much of this water has been directed to South Australia instead of to areas in Victoria, like the Murray Goulburn region, where the seasonal allocations of water to places such as Campaspe, Loddon and Bullarook Creek are zero per cent?

Senator WONG—I thank the senator for his question. I can advise that the use of environmental water is undertaken by the Commonwealth Environmental Water Holder. It is an independent statutory authority. I do not direct how that authority chooses to use the water the Commonwealth purchases. That is a judgment that that body makes. In future years, environmental watering will occur in accordance with the Basin Plan, which is being prepared by the Murray-Darling Basin Authority. Prior to that plan being in place, the Commonwealth Environmental Water Holder, from memory, has been consulting with basin state governments, including the Victorian government, to develop the plan for the utilisation of the Commonwealth environmental water holdings. It is important in relation to the use of environmental water that the public have confidence both in the transparency of the use of that water and in the process. We as a government are very clear about ensuring that that process is credible, is based on sound science and sound policy, and is undertaken appropriately. As I said, my recollection—but I will check on this—is that state governments were also consulted in the use of that water.

In relation to the second point, the funding of the Adelaide desalination plant was, from memory, an election commitment of this government. If the senator is referring to the stormwater grants, I have announced the first round results and it is true that the majority of the first round went to South Australia. That was as per what was recommended to me through departmental advice. I would make the point that it may be that a number of South Australian councils had already undertaken quite a lot of work in planning for stormwater grant applications. (Time expired)

Senator FIELDING—Mr President, I ask a supplementary question. Is it true that none of the money promised to Victoria under the federal government’s National Urban Water and Desalination Plan has been handed over yet and that Victoria has received no federal funds for the Wonthaggi desalination plant, and yet the South Australian government has already been given $328 million in federal funds for its desalination plant? Given this, can the minister explain the reason for this bias against Victoria in favour of South Australia?

Senator WONG—I want to make it very clear that our view in relation to water in the Murray-Darling Basin has been that the finger pointing and blame shifting of the past, where state governments who had control of these rivers simply blamed each other for what was wrong, should not continue. As the federal water minister, that is what I have ensured. I have always said that what we need is an approach to the basin that is predicated on science. That is what the Commonwealth is seeking to deliver. A significant step towards that was the passage through this parliament of the Water Act.

In relation to Victoria, my recollection—and I do not have the details here—is that there was a Victorian project funded in relation to stormwater. I would again remind the Senate that it is only the first round of the stormwater funding which has— (Time expired)

Senator FIELDING—Mr President, I ask a further supplementary question. Given that the government is treating Victorians like mugs and favouring South Australians in the allocation of water and environmental funding, will the government look at setting up a fairer independent body to deal with the assessment and allocation of environmental water so that a fairer and more transparent—

Government senators interjecting—

The PRESIDENT—Order! Senator Fielding, just halt. You are entitled to be heard in silence. Continue.

Senator FIELDING—Will the government look at setting up a fairer independent body to deal with the assessment and allocation of environmental water so that a fairer and more transparent decision-making process can occur and so that Victorian farmers will not be treated like second-rate citizens and forced to play second fiddle to their South Australian neighbours?

Senator WONG—What I said in my first answer is correct—that is, the allocation of environmental water is not an issue for political direction. I want to make that very clear. We approach the Murray-Darling Basin on the basis of what is best for the basin and on the best scientific advice. We are working through the development of the Basin Plan, and really the senator’s suggestion that there is somehow some bias in how environmental water is allocated is frankly unfair. That is not how we are approaching the management of the basin. I would suggest to the senator that if we are serious about advocating for a better outcome in the Murray-Darling Basin we actually need to get over pointing the finger at different jurisdictions.

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Green light - Reserve gives banks the all-clear to nudge up rates

The Reserve Bank has given Australia's banks a green light to top up their mortgage rates declaring that their mortgage margins "have actually declined a little over the past two years".

The assessment by Reserve Bank Assistant Governor Guy Debelle delivered to a banking conference in Sydney is at odds with jawboning by the Treasurer who has attacked banks over attempts to widen their margins.

Mr Debelle told the financial services forum that as the Bank saw it, "margins on variable rate housing lending relative to bank funding costs have actually declined a little over the past two years".

While acknowledging that the margin between standard variable home loan rates and the Reserve Bank's cash rate had widened as banks held on to some of the Reserve Bank's official interest rate cuts, he said that was only part of the story...

When all of their mortgage funding costs were taken into account "their overall margin has declined".

When the Commonwealth Bank attempted to claw back some of its margin in June and lifted its standard variable mortgage rate from 5.64 per cent to 5.74 per cent to bring it into line with the National Australia Bank Wayne Swan said it was unjustified and could endanger the effort needed to sustain economic recovery.

"I think we can really see as we’ve been through this difficult period over the last six months or so what Australians can do when we all work together," he said after the bank's move. "Which is why it has been so disappointing to see this decision from the Commonwealth Bank to raise interest rates. I don’t believe that decision is justified, and I believe that if any other bank were to take a similar decision, there would be understandable community outrage."

His words appear to have had an effect. No bank has since attempted to push up its standard variable mortgage rate by more than increases in the Reserve Bank's cash rate.

But the Reserve Bank's new assessment - opposed to the Treasurer's - suggest such a move could be justified and will make it harder for the Mr Swan to argue against future independent rate hikes.

The Bank believes the banks including Westpac, the Commonwealth, the ANZ and National Australia are paying more for money sourced from overseas and are paying substantially more for Australian deposits.

Its quarterly review released earlier this month noted that the average rate offered by the major banks for so-called term deposit specials had "risen by 0.72 percentage points since July to 5.43 per cent, and is up about 1.75 points since early 2009."

The Reserve Bank has pushed up its cash rate twice since it started tightening, and on neither occasion have the big banks used the opportunity to push mortgage rates up further and recoup lost margins.

It's likely to next push up rates after its meeting in December or in February.

Dr Debelle told the conference the private banks gentle treatment of mortgage holders had been "more than offset by a widening in business and personal loan margins, so that overall bank margins have widened, as is evident in the banks’ most recent profit statements."

Mr Swan is understood to continue to believe that there is no justification for the private banks to push up rates outside of Reserve Bank movements.

Published in today's SMH and Age

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