Saturday, December 31, 2011

2011. Goodbye to all that.

From Associated Press.

Enjoy, if that's the word:

Oh, and here are the 45 Most Powerful Images of 2011.


Friday, December 30, 2011

2012 Economic Survey. We'll do okay, thanks to China

Read on

Interest rates are headed down, our stock market will climb, and we’ll survive whatever Europe throws at us.

That’s the consensus of the 20 economists polled for The Age end-of-year economic survey. Our terms of trade will slip in the year ahead, but not by enough to derail the Treasury’s and Reserve Bank’s pleasing forecast of economic growth close to trend.

China - the key to Australia’s prosperity - will be hit by a downturn in Europe, but not by as much as it would have been a few years earlier.

“Regional Asian growth is now much less dependent on strong external export markets,” Commonwealth Bank chief economist Michael Blythe told The Age. “Asia will be the stronger part of the global economy in the year ahead whatever the outcome elsewhere. A very high proportion of Australia’s exports to Asia are tied in with that domestic story.”

“Chinese planners have already announced an intention to de-emphasise capital formation and promote private consumption,” said Richard Gibbs of Macquarie Securities. “This should mean a less aggressive approach to maintaining resource stockpiles, but resilient underlying demand. Even in the event of a US and European recession, China’s demand for commodities would moderate, but would be unlikely to collapse.”

The panel expects Chinese economic growth of 8.1 per cent in 2012, not too far down on the most recent annualised reading of 9.1 per cent. World economic growth should slip to 3.3 per cent, lower than the most recent International Monetary Fund forecast issued in September ahead of renewed concerns about European debt, but above the 3 per cent benchmark it uses to define a global recession.

Several of our panel raised the possibility of the United States following Europe into recession...

“Europe is probably already in a mild recession, but if it deepens dragging the US into recession it will risk a sharper slowdown in Chinese demand for commodities and pose a real threat to Australia,” said the AMP’s Shane Oliver.

“Our assessment is that while Australia is not immune to a return to global recession, we do have plenty of ammo to fight it off – interest rates have a long way to go to zero, the $A will fall sharply if things really fall apart globally and there is more room for fiscal stimulus if absolutely needed.”

Ernst & Young’s David Cochrane said he expected a US recession.

“Our most recent forecast, prepared with Oxford Economics, predicts a Eurozone crisis that would result in 2012 European GDP sliding 1.1 per cent and United States growth slipping to 0.9 per cent. Both Europe and the US would have negative GDP in 2013. It would have a flow on impact on China, but we are confident about China’s long-term demand for commodities.”

The panel’s mean forecast has Australia’s terms of trade slipping 6.4 per cent as commodity prices slide, roughly in line with the projection in the government’s mid-year budget review, but the average disguises a wide range of forecasts - from zero change throughout the year to a collapse of 15 per cent. None of the panel expects the terms of trade to climb.

Interest rates will have to fall further to shield the economy from the weaker international environment, with the Reserve Bank likely to slice a further 0.45 points off its cash rate by June and 0.65 points by years’ end according to the average forecast. Significantly every one of the 20 economists on The Age panel expects at least one further cut before the middle of the year. Steven Keen of the University of Western Sydney has the most aggressive forecast - an entire 1.25 points worth of cuts, taking the cash rate down from 4.25 per cent to 3.0 per cent, all within the next six months. Richard Robinson of the consulting firm BIS Shrapnel is punting on the highest cash rate by year’s end - a jump to 4.5 per cent after a cut to 4.0 per cent by June.

None of our forecasting panel are particularly concerned about inflation in the year ahead with the 2 to 3.4 per cent forecast range closely matching the Reserve Bank’s 2 - 3 per cent target band.

The benign outlook for inflation gives the panel confidence that the Bank will be able to cut interest rates as needed should conditions sour more than expected.

“There is little doubt that the Reserve Bank would cut rates again if required,” said Michael Blythe. “More importantly, lower interest rates would work. Recent rate cuts have shifted the interest-rate sensitive parts of household sentiment.”

“The Bank can cushion any major slowdown emanating from Europe,” said BIS Shrapnel’s Richard Robinson. “It has considerable scope to cut rates, with lower underlying inflation now enhancing that likelihood. The government also has scope to cut taxes and boost spending, perhaps with a productivity-enhancing investment. And the dollar has plenty of scope to fall, perhaps even by 20 to 30 per cent, boosting internal Australian demand and helping exports.”

The Australian dollar will drift lower in the view of all but two of the panel, sliding from its present perch just above 100 US cents to perhaps as low as 90 US cents and more likely the mean forecast of 96 US cents. Only Richard Robinson and the ANZ’s Katie Dean are predicting a higher dollar at year’s end, opting for 102 and 105 US cents.

Australia’s Gross domestic product will grow a healthy 3 per cent over 2012 according to the mean forecast - close to its long-run trend, but well below the 4 per cent implied by the latest Treasury and Reserve Bank forecasts. The range of predictions is wide with former Reserve Bank economist Paul Bloxham of HSBC the most optimistic, sticking with the Bank’s forecast of 4 per cent and Neville Norman of the University of Melbourne and Steve Keen of the University of Western Sydney the most pessimistic, predicting 1.6 and 1.7 per cent.

There’s more unanimity about the unemployment rate, with none of the panel straying too far from the Treasury’s forecast of a climb from the present 5.2 per cent to 5.5 per cent by June where it would stay for the rest of the year.

The Australian share market will improve next year in the view of all but three of the panel. The mean forecast has the S&P/ASX 200 rebounding 10 per cent to 4494. But that won’t be enough to regain the losses of the past year, or even the losses since August. The index would climb to a mere two-thirds of its peak in 2007 before the global financial crisis.

Our panel’s central forecast is that good management in China and good management at home will help us dodge the next financial crisis as it did the last one, but anyone looking to claw back the enormous chunk taken from their super fund since 2007 will have to wait well beyond the year ahead.

Published in today's Age and SMH

About last year's forecasts. 'Twas the weather that did it.

Who’d have thought it? Certainly none of the 20-odd members of The Age economic forecasting panel this time last year.

The rate of inflation turned out to be higher than the highest of their predictions, the budget deficit bigger than the biggest, and the share market far lower than all but two thought likely.

It is trite to say it, but they didn’t know what was coming. Days after their forecasts were printed Queensland was hit by massive floods, and then a cyclone. Soon after, Christchurch faced an earthquake and Japan a tsunami.

The cyclone alone was enough to push inflation out of their ballpark. In the year to September it came in 3.5 per cent. Without sky high fruit and vegetable prices pushed up as the trees were torn down it would have been 2.9 per cent, which was exactly their average forecast. Underlying inflation is now very low and headed down and bananas are being picked again making this year’s average forecast of 2.8 per cent look pretty reasonable. Unless there’s a surprise.

The panel expected a hefty budget deficit 2010-11, but they reckoned without the cyclone, which help push it to $47.7 billion instead of the central forecast of $35.3. The panel thought the 2011-12 deficit would be $11.7 billion. Lower than expected coal income as mines are cleared of water, lower capital gains and higher than expected reconstruction spending are now projected to push it to $37.1 billion.

Don’t blame the government for failing to pick the share market malaise that stalled capital gains. Most of our forecasting panel had their heads in the clouds. The index began the year at 4970. The panel members who worked for stockbroking firms expected 5500 or more, among them Tim Toohey from Goldman Sachs, John Rothfield of Merrill Lynch, Annette Beacher of TD Securities and Shane Oliver of the AMP. The average forecast was 5169. In the event the market drifted down, not up as the panel had expected and then collapsed 200 points in August on renewed concerns about financial turmoil recurring. Only two members of the panel had expected the index to fall - Jakob Madsen of Monash University and Steve Keen of the University of Western Sydney, both academics. They had punted for 4000, more than one-thousand points south of the central forecast, which is about where it will end up.

By and large the panel overestimated the rate of economic growth and underestimated the rate of unemployment, which was to be expected given that they didn’t know about the natural disasters. Where they were too pessimistic was in their expectations about commodity prices. They expected terms of trade to fall rather than climb further, as did the Treasury, although they are slipping now.

It’s not fair to pick a winner out of last year’s panel. Those that were right about some things were right for reasons they couldn’t have imagined. Some of those that were wrong were wrong for the same reasons. No one could have got 2011 right. No one did.

Published in today's Age and SMH

Swan might make the surplus, he probably shouldn't:

It’ll be line-ball whether Wayne Swan gets his promised 2012-13 budget surplus, according to The Age economic panel.

Nine of our forecasters think he’ll get there, six think he won’t and one - Chris Caton of BT Financial Group - sits right on the fence, predicting a surplus or deficit of zero - a budget that is exactly balanced.

All think a return to surplus matters, although most think it is not crucial it happens in 2012-13.

“Whether its achieved in 2012-13 or a year or so later is neither here nor there given that Australia’s budget deficit is small by global standards and net public debt is trivial,” says Shane Oliver of the AMP. “What matters is going in the right direction over time.”

“Swan has put a lot of political capital into regularly announcing that a surplus is on the cards for 2012/13, especially on the global stage,” says Annette Beacher of TD Securities. “However, as we believe global growth is approaching stall speed, a slippage into 2013/14 should not be seen as a weakness, but as a platform for growth.”

Richard Robinson of BIS Shrapnel believes the economy will be much healthier in 2013-14 with unemployment heading below 4.5 per cent. “That’s the time for a surplus, it can be larger than has been budgeted,’ he told The Age.

One panel member supports Treasurer Wayne Swan in his apparent determination to achieve a surplus in 2012-13 no matter what.

Jakob Madsen of Monash University told The Age it was “vital that the government aims for a surplus regardless of the international and the domestic conditions”.

“Europe and the United States face deep recessions almost entirely because of their large foreign debts. Australia has excessive foreign debt due to excessive consumption and demand for private property. The only way to stay afloat in the long run is to run a significant surplus to make up for the excess spending in the private sector.”

“Financial markets react adversely to excessive debt through lower stock prices, lower willingness to lend and higher bond rates. These adverse effects overrule the positive effects of government demand.”

Professor Madsen isn’t too confident his advice will be heeded. He is predicting a $10 billion deficit in 2012-13, the year Wayne Swan has promised a small surplus.

But the weight of numbers is with Mr Swan. The median (middle) forecast is for a small surplus of between $100 million and $1 billion. The average forecast is for a deficit of $3.6 billion, but it is weighed down by three very big deficit forecasts; those of Professor Madsen and Melbourne University’s Neville Norman and Western Sydney University’s Steve Keen. Professor Norman foresees a deficit of $20 billion; Professor Keen, $30 billion.

Published in today's Age

Past surveys

. A normal year ahead? The July 2011 survey

. Before the flood. The December 2010 survey

. The July 2010 Age Economic Survey

. "Happy New Year" - the December 2009 Age economic survey


Wednesday, December 28, 2011

"Terrible" - Gittins on the Gillard government's first first full year

Looking forward, looking back.

Here's his annual talk to the business economists
forecasting conference.

Ross Gittins:

"Taken as a whole, the first full year of the Gillard government has been terrible.

Julia Gillard has hardly taken a trick all year and her present standing in the polls is worse - much worse, consistently worse - than it was at last year’s election, when she failed to attract enough votes to form government in her own right. Her present primary vote in the low 30s would give her zero hope of winning an election. Only if she could get it up to at least 40 per cent would she be in the hunt. This time last year - three years out from the next election, assuming the government runs full term - I fearlessly predicted Labor would lose it, because ‘this generation of Labor is terminally incompetent’.

Having made that call, I’m sticking to it. I’m doing so even though I know full well how easily the political outlook can change over a period as long as a year, let alone two years. After all, who would have predicted in October 2009 that the election would be months early and fought not between Kevin Rudd and Malcolm Turnbull, but between Gillard and Tony Abbott, that Abbott would come within a whisker of winning and that Labor would be forced into an alliance with the Greens and rag-tag independents?

But I have to add that, at the end of her first year, Gillard and her government are looking in better shape than they did half way through it. The first point to acknowledge is that she’s held her minority government and its alliances together for a year - longer than many people expected - and it’s never seriously looked in trouble. The second is that it’s been a year of great achievement. The opposition has frequently criticised Labor for being unable to actually do anything but, as was always Gillard’s intention, this has been a year of ticking off items on the to-do list - in particular, the various items inherited from Rudd. Of the three big problems he left her, the carbon tax has been put to bed, the mining tax is well on the way and only the asylum-seeker issue remains chronically unresolved. Along with Gillard’s opportunity to be seen looking like a leader on the international stage with other leaders, these runs on the board do much to explain her recent slow improvement in the polls, in the two-party preferred and, particularly, as preferred prime minister.

While the polls continue moving in the right direction - however slowly and with however far to go - Rudd is unlikely to mount a challenge. There’s no reason to doubt his desire to return, and should the poll recovery falter, we’re likely to hear from him. Would the caucus ever turn back to him? There is so much continuing dislike of him they’d have to be terribly desperate, but it’s not impossible. Would it help? No. His grass-is-greener popularity in the polls would soon evaporate as voters were repulsed by this ultimate proof of Labor’s disloyalty, ruthlessness and lack of principle...

Read On...

Next year should be a year of consolidation and less frenetic policy making, with the government needing to be sure the introduction of the carbon price arrangements goes smoothly. Should the world economy stay on track, the government will press on with its priority of returning the budget to surplus - as, in all the circumstances, it should. Should things go really bad in Europe, the primary response will be from the Reserve Bank, but the government will at least have to reverse its rhetoric and allow the budget’s automatic stabilisers to widen the budget deficit, and may need to consider a new round of fiscal stimulus. For Abbott and the opposition it will need to be a year where, finally, they make their contribution more constructive, outlining their own plans for improvement - even if, as ever, they leave the revelation of their detailed policies until much closer to the election. The longer Abbott continues with his relentless negativity, the more he risks trying the patience of voters.

Can we be sure the minority government arrangement will hold together for another year? No. But the grubby deal to install the former-Liberal Peter Slipper as speaker means it now would take two by-election losses to bring Labor undone. It also reduces Labor’s dependence on any particular independent. And by now it ought to be clear to all that the independents on whose votes Gillard relies have much to gain by continuing to prop her up and much to lose by deserting her. It should also be clear that achieving continued co-operation from the people whose votes she needs is one of the things Gillard is good at.

Why Labor is so bad at it

I have no problem putting the boot into politicians who are flying high, but I don’t enjoy kicking people when they’re down. If for no other reason than that I prefer to be ahead of the conventional wisdom. But I can’t take a look at the political scene and not address the obvious challenge for political analysts: why exactly is this version of Labor so bad at governing?

A host of explanations has been offered, many of which have only some degree of truth and some of which are more in the nature of excuses. One we can dispense with is that it’s all down to the personal failings of Rudd. He had many failings and he left Gillard with a terrible inheritance of a far too long agenda of half-finished policy projects, but we’ve seen enough to know things didn’t immediately look up after his departure.

A favourite excuse of Labor and its supporters is that it’s been turned on by the Murdoch press. It’s true The Australian has turned from being a newspaper to a product aimed at gratifying the prejudices of a particular segment of the audience, but it is - by commercial design - preaching to the already converted. Its influence is limited to those silly people in Canberra who continue to take it seriously, imagining it still to be a newspaper. As for the depredations of Sydney’s Daily Telegraph, it was ever thus. That organ has been a vehicle for foisting the bosses’ views on workers since it was owned by Frank Packer. It’s true the radio shock jocks often take their line from those two outlets, but were they not available the jocks would just have to work harder to find their sources of daily indignation. So, sorry, but I think the Murdoch excuse is greatly overdone. It falls into a class of argument politicians trot out to sustain the faith of the party faithful, not because they believe it or expect the uncommitted to believe it.

I think part of the problem attaches to Gillard herself. The brutal circumstances in which she came to power count against her in the mind of many voters. I don’t doubt there’s an element of misogyny in the electorate’s failure to warm to her and that many people find her voice grates. But her deeper problem is her inability to come over on television as a warm and likable person. Some pollies have that ability, others don’t. Other politicians manage to substitute an air of paternal authority - don’t worry, father is in charge - for likeability (eg Malcolm Fraser, Maggie Thatcher), but Gillard can’t manage that, either.

Lack of an air of authority - leaders who look like leaders and hence command respect and compliance; leaders who seem legitimate - has plagued the Rudd-Gillard government. I’ve come to the conclusion that - at the federal level, at least - the Liberals really are the natural party of government. That’s what the electorate thinks, what business thinks, what the media think, what the Libs themselves think and what, deep down, even Labor thinks. On the central polling question of which party is best to handle the economy, the Libs always win. The Hawke-Keating government managed to out-poll the Libs for a while, but Rudd and Gillard never have. This is not a question of track record, but of long-held and deeply held stereotypes. The party of the bosses will always be better at managing the economy than the party of the workers.

This is what allows Abbott to turn opposition to outright obstruction without attracting criticism. It’s what allows Abbott to take the support of business for granted, while Labor knows it must always be seeking business’s approval. It’s what has allowed business to conclude Labor is anti-business even while Labor modifies its policies - including Fair Work - to avoid offending business. It’s what, in the battle over the mining tax before Rudd’s overthrow, allowed the public to believe the foreign mining giants’ ads claiming the tax would destroy the economy over their own government’s ads assuring them the tax wouldn’t be a problem.

It’s what explains the Libs’ ability to wind up the electorate over Labor’s mountainous deficits and debt and why few economists intervened to dispel the nonsense. It explains why the opposition has had an excessive influence over the government’s fiscal policy and why Labor is obsessed by returning the budget to surplus in 2012-13. It also explains why only at this point have economists entered the debate to attack the government’s deficit mania.

Labor’s universally assumed inferiority - combined with journalism’s highly selective approach to quoting evidence - explains the success of The Australian in convincing almost everyone - punters, gallery journalists and even Labor politicians - that most of the money spent on Building the Education Revolution was wasted.

Associated with Labor’s lack of apparent authority is the phenomenon of the slippery slope. When you’re in power and on top you get a lot of co-operation, compliance and tacit support from interest groups and the public generally - all of which help you stay on top. These benefits of incumbency give you the strength to stand up to particular vested interests and tide you through the ups and downs of the polls. But when your weakness in the polls becomes sustained, you hit the slippery-slope part of the curve where it becomes a lot easier to fall further than to claw your way back up. Where things start to unravel as people who formerly accepted the reality of your continuing authority begin to wonder how long you’ll survive, whether they should give you a push on your way and whether they should start cosying up to your likely vanquisher.

Though she seems to have made a little progress back up the greasy pole in recent days, Gillard has spent most of her time as PM sliding down the slippery slope. It’s a situation that emboldens your critics and opponents while making your supporters more cautious. So things have been unravelling. The denizens of the House with the Flag on Top - pollies on both sides, staffers and journalists - revere success, fear the successful and despise failure. Lindsay Tanner says the press gallery is either at your feet or at your throat. It shifts when it sees you languishing in the polls, emboldened to be a lot more probing and critical and take a lot less on trust. The denizens take the polls so seriously that everyone starts expecting anything you do will fail, and their expectations tend to be self-fulfilling.

One interest group that’s particularly susceptible to this behaviour is business. Business will live with a housetrained Labor government with a steady grip on power. But it does so against its natural preferences. Big business people expect Labor to court them, while quietly accepting it when the Libs choose to ignore or pressure them. Business is very unhappy with Labor and I have no doubt its disenchantment and its increasing willingness to make its unhappiness known is magnified by its perception the Gillard government is not long for this world. It’s willingness to accept the carbon tax has been diminished by Abbott’s success in turning public opinion against the tax. Its complaints against Fair Work - which don’t seem to have great substance - are directed mainly at persuading the next government to shift the balance back in favour of employers. If this does collateral damage to Labor between now and the election, so much the better.

Both the Rudd and Gillard governments seem remarkably inexperienced. This shouldn’t be an excuse because it’s unusual for incoming federal cabinets to have many members with previous ministerial experience. Labor doesn’t seem to realise that maintaining good relations with business isn’t just a matter of senior ministers trying to fit in as many boardroom lunches as possible, or even keeping in touch with the business lobby groups. It means having big business chiefs feel they can ring the PM about a problem and their being on the receiving end of calls from the PM to inquire about their views on relevant matters. The main union leaders would have such a relationship with the PM, but I doubt the business chiefs do. They’d know this and would feel alienated from Labor, especially because Howard was such a great private phoner of power-holders.

Similarly, Labor’s failure to make sure the big miners knew what to expect well before the unveiling of the resource super profits tax is a sign of inexperience. The name of that tax - chosen by Labor’s spin doctors - did much to convince the rest of the business community Labor was anti-profit and anti-business, without doing much to arouse the punters’ resentment of foreign mining giants. Labor’s PR people have been far too young, lacking much journalistic experience, let alone political experience. It should have recruited some old hands. Rudd treated his staff so badly he burnt through a generation of good advisers.

But Labor’s chronic inability to sell its policies to the electorate can’t be explained simply in terms of the inexperience of its spin doctors. It isn’t primarily about spin doctors. I think the root of this generation of Labor politicians’ problem - the key reason they’re so bad at governing - is their background. Unlike earlier generations, almost all of them are apparatchiks; they come from Labor’s professional political class: people who start working for ministers or unions straight from university and climb the Labor career path, never making a success of a career in the outside world or even spending a lot of time as an on-the-ground union official dealing with ordinary workers and disparate employers.

The trouble with this system is that it seems to be breeding a generation of politicians who don’t have a good feel for human nature and, above all, don’t give up their profession and enter parliament with a burning desire to make the world a better place. Their burning desire is to make cabinet minister. Their entry to parliament is a promotion and a pay rise, not any sacrifice. These guys don’t have deeply held values and convictions they’re prepared to fight for and run risks for. Their lack of conviction robs them of the ability to explain policies that arise from their framework of belief. They can’t fashion a compelling narrative of what drives them and where the government wants to take us. They lack the missionary zeal of someone like Paul Keating; they have no desire to convert. They think ‘selling’ policies is a matter for spin doctors and advertising agencies, not of working tirelessly to help people understand the vision and see why it’s so important. When you’re not passionate about explaining your policies, when you’re just a political player, you do what Labor has done from the moment it took office: focus on attacking your opponents, thus conferring them and their criticisms a status they wouldn’t otherwise have. When you’re not a passionate explainer, you avoid answering questions and merely repeat prepared lines.

The problem with all this isn’t just that you fail win public support for your policies, it’s also that the public can sense your lack of commitment and conviction, your preference for self-preservation over leadership, your interests over theirs. You lose authority and respect in the eyes of voters. Courage comes from convictions; public confidence in governments comes from people’s perceptions of your courage and conviction. As John Howard demonstrated with the GST, voters are perfectly capable of giving you grudging respect for pursuing a policy they don’t like the sound of.

Minority government may be the making of Gillard

But having said all that, I now have to highlight a qualification. At the end of its fourth year, Labor has now amassed an impressive list of achievements. Leaving aside its remarkably effective response to the global financial crisis, we have: paid parental leave, equal pay for community workers, plain packaging for cigarettes, the foundations for a national disability insurance scheme, a price on carbon, the likely passage of the minerals resource rent tax, and the continuing pursuit of compulsory pre-commitment on poker machines. (Admittedly, the mining tax was butchered and Labor’s health and hospital changes fell far short of their billing.)

Some of the items on that list may not greatly appeal to you, but they would to the Labor heartland. And it’s noteworthy that some of the items wouldn’t have been there had it not been for the insistence of those whose votes Labor has depended on to stay in government. On the carbon price, in particularly, Gillard had no choice but to press on with its early introduction. See what’s happened? The circumstances of minority government and the ferocious opposition of Abbott have left Gillard with no option but to take principled positions and stick to them through thick and thin. If her improvement in the polls proves lasting, it will be because her failure to win a majority has forced her to exhibit all the impressive qualities she seemed not to possess. Her steadfastness and ultimate achievement may be we winning her the grudging respect of the electorate.

Provided she can hold the numbers in the House for another two years, Gillard should benefit from the effluxion of time. It will give people more time to get used to her idiosyncrasies and more time to tire of Abbott’s. And there’d be something very wrong if more than a year of living under the carbon tax didn’t cause people to lose their fear of it.

It’s interesting to observe the way conservatives have transferred the mantle of bogyman from the ALP to the Greens. Labor’s greatest crime is not being typically wrongheaded Labor, but falling under the spell of the demonic Greens. Exhibit A would have to be the carbon scheme. But, apart from its higher levels of compensation to industry, it was little different from Rudd’s carbon pollution reduction scheme, which the Greens rejected out of hand. It’s not politic to say so but, in the end, it was the Greens who changed their tune, much more than Labor did.

The prospect of Abbott

Abbott has been far more effective as opposition leader than I and other smarties expected. He quickly learnt to keep disciplined and avoid putting his foot in his mouth, and quickly displayed his greatest, most enviable strength as a politician: an ability to ‘cut through’ - to have the things he says noticed and broadcast by the media.

His policy of blanket opposition to all the government’s policies has served him well. Many expected the electorate to tire of his relentless negativity, but it hasn’t happened yet. Even so, some strains are beginning to show. His autocratic style has put noses out of joint within the party and, should his standing in the polls ever slip, we will hear from his detractors. There is much discontent within the party and in business over his refusal to criticise Fair Work and propose any changes that could reawaken the spectre of Work Choices.

Despite the opposition’s remarkably strong standing in the polls, Abbott is not personally popular. He has a 55 per cent disapproval rating for his job as opposition leader. And the authoritative Australian Election Study, in which ANU political scientists surveyed voters soon after the last election, found that Abbott’s unpopularity was the main reason he failed to win enough seats. Though Gillard’s popularity rating was low, Abbott’s was a lot lower - lower even than Keating’s in the 1996 election.

Abbott has little interest in economics and no commitment to economic rationalism. His policy positions reek of populism, protection and direct controls. His solemn promises to roll back the carbon and mining taxes, but not reverse the goodies they will be paying for, leave him with a funding gap of many tens of billions he has, as yet, made no attempt to fill. How such a man could bring himself to outline the sweeping spending cuts needed to make good his promise to return the budget to surplus without delay is hard to imagine. He has, however, taken the precaution of refusing to use the services of the new Parliamentary Budget Office to cost his promises. There is no precedent for parties promising to abolish major new taxes already in operation, nor for governments actually doing it. I find it very hard to believe it would happen.

Should Abbott be elected, we face either a monumental breaking of promises or a government totally consumed by the effort needed to turn back the clock. Why the part of the electorate that cares most about good macro management and micro reform has had so little to say about Abbott’s incredible performance I don’t know. Perhaps they’ll have more to say as the reality of an Abbott-led government draws closer.

Observations on monetary policy

I normally begin this section observing that the market and the business economists have had another bad year in their efforts the second-guess the Reserve Bank’s moves in the cash rate, but this year I have to declare the second-guessers to be ahead on points. The notion that the Reserve might cut rates entered the futures market’s head a lot earlier than it entered the Reserve’s head, so the market has to get credit for that. I’m not sure the market was particularly prescient on size and timing - suggesting it might have been right for the wrong reason. I suspect the market was dominated by foreign players who merely projected North Atlantic conditions onto the Antipodes, making insufficient allowance for local conditions. But, as all of us in the prediction business know full well, a win’s a win. I wouldn’t make those criticisms of the other great hero of this episode, Bill Evans. He stuck his neck out ahead of all of us, we marvelled at his folly, but he turned out to be right and he deserves all the accolades he got.

From where I sit it’s clear to me that to make a legendary call like Bill’s you have to get well ahead of the game, well ahead of the data - and you have to be right. When I saw Bill make his call I thought, that’s not in the Reserve’s plan, so he’ll only be right if he foresees developments the Reserve doesn’t foresee and those developments are big enough to change the plan. He did and they were.

The Reserve begins each year with a view of how the year’s going to pan out and a rough idea of the policy adjustments the outworking of that view will necessitate. It must have such a view because it has an on-the-record forecast, and that forecast is its view. The trick for you guys is to work out what its forecast tells you about the policy adjustments needed to bring the inflation forecast about, given the growth forecast.

This year the Reserve was expecting growth to accelerate as the effects of the resources boom spread through the economy, adding to inflation pressures at a time when we were already close to full employment. It was therefore expecting to have to tighten a few times as the year progressed. But here’s the point: it’s continuously testing its forecasts and its expectations against the data as they roll in. And it makes its judgments about whether policy needs to be adjusted one board meeting at a time. As events unfolded, the economy didn’t accelerate in the way it had been expecting, and so the Reserve never reached a point where saw the need to act on its ‘bias to tighten’. At first there was the temporary setback of the Queensland floods - which proved less temporary than first thought - and then there was the backwash from the growing sovereign debt problems in Europe, mainly on business and consumer confidence. By November it was clear the economy wasn’t taking off the way the Reserve had expected - mainly because of the confidence backwash from Europe - so the Reserve wasn’t going to have the trouble keeping inflation within the target range it had expected to have, thus allowing it to make what it expects to be a once-off reduction in the cash rate to get it back to neutral. It’s worth noting that part of the scope for this move came not from the effects of Europe but from the past and future revisions to the underlying inflation figures arising from the Bureau’s reweighting of the index.

I don’t think the Reserve has very firm ideas about where the stance of policy goes from here. The economy is pretty much in equilibrium, policy is set at neutral, so the rate will stay where it is until developments occur that knock the economy off its equilibrium path - and off the Reserve’s forecast - in one direction or the other and require a policy response. Clearly, the balance of risks is very much to the downside.

But Bill has made another call and, as I understand it, is predicting another three cuts -presumably 25-basis-point cuts - next year. Here again you see him getting well ahead of the game; well ahead of the Reserve’s thinking, as expressed in its forecast. He can see something coming down the pike the econocrats can’t, and he may again prove himself to be more prescient than them. What would fit Bill’s call of three further cuts over the course of 2012 would be for the economy to slow down rather than speed up as forecast - for it to run out of gas, presumably because of growing caution and uncertainty on the part of business and consumers in response to continued turmoil in Europe. This would be manifest in a continuing rise in unemployment and an inflation outlook that was even more benign, thus allowing the rate to be lowered another click. Of course, were Europe to turn into the full catastrophe, we all know from the events of late 2008 how the Reserve would react. In that case I wouldn’t be surprised to see three cuts next year, but they’d probably come thick and fast, and each be nearer 100 points than 25.

I remarked in my column in November that when the news is full of stories about some economic issue and the authorities pop with a policy change, all the instincts of the media and the punters are to assume that A caused B. In this case, we hear all this bad stuff from Europe, which makes us think the European economy is stuffed, therefore we must be stuffed and that must be what caused the Reserve to slash its forecast and cut the rate. I think all humans have a tendency to string together chains of cause and effect in this way and for our thinking to be unduly influenced by those events that have ‘salience’ (prominence in our consciousness) because they are so dramatic, so highly publicised or so recent.

My point is that this defective reasoning may be very human, but economists need to do better. Because the markets and business economists spend so much time studying developments overseas - usually the US, but these days, Europe - and they do that because national financial markets are so highly integrated - these developments have great salience in their minds, which can tempt business economists to over-weight them when forming views about likely developments in our economy - our real economy.

We need to remember that overseas events may be very exciting and very important, but they’re only relevant to us, our forecasts and our policy stance to the extent that, by some clearly identified channel, they have an effect on our real economy. They may be big in Europe, but are they still big by the time they reach us? Our real economy isn’t nearly as well integrated with the world as our financial markets are. Our domestic demand (GNE) accounts for almost all of our aggregate demand, sometimes more than all. As I keep reminding my readers, roughly 80 per cent of what Australians produce they sell to other Australians and roughly 80 per cent of what they purchase they buy from other Australians. Of course, the sharemarket is a more important channel than it used to be, and so - thanks to an ever-more globally integrated media - are confidence effects. I say all this simply because I keep hearing business economists making predictions about what the Reserve will do, and explaining why it’s done what it’s done, much more in terms of overseas development than I see in all the Reserve’s detailed exposition of why it did what it did. You’ve got to get your direction of causation right. The Reserve is managing our economy, it’s responsible for our inflation rate. Its highest consideration will be what’s happening in our economy and its interest in what’s happening in other people’s economies is limited to assessing the extent to which those events impinge on our economy. That’s obvious, but people who know a lot about what’s happening in other economies seem to keep forgetting it. Sometimes I think the traditional order in which the econocrats set out their analysis - start with the world, then move on to the domestic - may confuse people as to which is the more important.

Last year I advanced my theory that the timing of rate changes is influenced by ‘bureaucratic neatness’. At the time I said:

Over the past five years the Reserve has changed rates 20 times. Since there are 11 meetings a year, if decisions to change rates occurred at random, each month would have a 9 per cent chance of being chosen for a rate change. The four meetings a year that are preceded by the release of the CPI and followed immediately by the release of the statement on monetary policy, would account for just over 36 per cent of random chances. But, in fact, the SoMP months - February, May, August and November - accounted for 65 per cent of rate changes, with November alone accounting for 25 per cent. The point is that the Reserve has set up a pattern in which the SoMPs come soon after the meeting that comes soon after the CPI release, and two of the SoMPs come not long before the Reserve’s twice-yearly appearance before the parliamentary committee. Remember, too, that the release of the CPI is a key influence on the revision of the Reserve’s inflation forecasts, which are published in the SoMP and which heavily influence decisions about rate changes. The SoMP serves as the main vehicle the Reserve uses to explain and defend its rate decisions. Is it surprising that, having carefully set up the timing of its key publication and parliamentary appearances, the Reserve is more inclined to fit its decisions into that timetable? But why in the past five years has the November pre-SoMP meeting had more than twice the hits that the other three pre-SoMP meetings have had? Perhaps because of an unconscious desire to get the books straight before the end of the year and the knowledge that what you’ve done has to tide the economy over until February.

That was a year ago. What’s happened since then? We’ve had just one rate move and it happened on . . . Melbourne Cup Day, making it the sixth cup day move in a row. Still think it’s mere coincidence? Last year when I advanced my crazy, utterly economics-free theory, my mate Rory Robertson was the first to express his scepticism. So I asked some relevant econocrats what they thought of it. They thought it had some validity. Provided the Reserve hasn’t got behind the curve, and thus needs to catch up ASAP, it will be more inclined to move in those months that fit its carefully constructed reporting cycle.

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Monday, December 26, 2011

Cover versions. Time to get out the LPs


Sunday, December 25, 2011

Controversial Christmas music

Sounds of Silence: John Cage’s 4’33″ Performed by the BBC Symphony Orchestra.


OpenCulture: The American experimental composer John Cage (1912–1992) composed 4′33,″ a three-movement composition for any instrument, in 1952. It was Cage’s most famous and controversial piece, a four-and-a-half minute reflection on the sound of silence, on the sounds you hear when the music goes silent and the attention shifts to the audience in the concert hall. The cough at the 4:44 mark is deafening.


Friday, December 23, 2011

Last minute gift? Here are the 5 best toys of all time - you'll be surprised

From GeekDad

1. Stick

What’s brown and sticky? A Stick.

This versatile toy is a real classic — chances are your great-great-grandparents played with one, and your kids have probably discovered it for themselves as well. It’s a required ingredient for Stickball, of course, but it’s so much more. Stick works really well as a poker, digger and reach-extender. It can also be combined with many other toys (both from this list and otherwise) to perform even more functions...

Read on, please.


Wednesday, December 21, 2011

Christmas spending by country

From The Economist:

Freakonomics writes:

Despite their considerable wealth, the Dutch have clearly maintained their minimalist austerity chic. Not the case in Luxembourg, which has the highest GDP per capita in the EU, and the third highest in the world. So, while you may get a pair of wooden shoes for the holidays from that Dutch relative of yours, that Luxembourgian uncle stands to be much more generous.

It’s also worth noting America’s position. Despite considerably less per capita wealth, we appear to be spending only about $70 less per person than the Luxembourgers.

My guess is we are like the United States. But who knows? Especially this year.


Monday, December 19, 2011

What economists know about Christmas - lots, enjoy

From Frontier Economics

Download the whole thing.

"It’s easier to think of economists as the prophets of trading doom than as Santa’s little helpers – too busy telling everybody what’s happening to productivity, energy demand and like-for-like sales to provide any insights into the annual exchange of goodwill and good-or-ill gifts to family and friends. So Frontier Economics has been scouring the academic literature of behavioural economics for tips to make that last struggle with your present list a little easier…"

Frontier Economics - Present Values

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Friday, December 16, 2011

We're richer than ever, richer than the US - Gregory on the mining boom

Living Standards, Terms of Trade and Foreign Ownership:
Reflections on the Australian Mining Boom

R G Gregory

Australia is experiencing its largest mining boom for more than a century and a half. This paper explores, from a national perspective, important economic differences that arise when a mining boom, such as the current one, is generated by sustained export price increases (trading gains) rather than export volume increases. Since 2003 the terms of trade changes – through their direct trading gain effect and indirect real GDP effects - have increased Australian living standards. The increase, measured from official data and relative to the US, is about 25 per cent; an increase which probably places Australian living standards well above those of the US. But official data inadequately adjusts for foreign ownership of mining resources suggesting that this estimate is probably a little too high.

Gregory on the Mining Boom

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Thursday, December 15, 2011

Stone dead? Iron ore and coal exploration surge to new highs

We are searching for coal, iron ore and on-shore gas as never before despite claims the minerals resource rent tax would kill those industries “stone dead”.

Bureau of Statistics figures released yesterday show exploration for each at record highs.

Coal, iron ore and on-shore petroleum are the three commodities that will be hit by the new 22.5 per cent super-profits tax when it comes into force in July.

In parliamentary debate opposition leader Tony Abbott said the tax was “almost guaranteed to kill the mining boom stone dead.”

But the figures show September quarter spending on exploration for coal up 12 per cent to a new record high of $227 million, spending on iron ore exploration up 9 per cent to a new record high of $235 million, and spending on on-shore petroleum exploration up 33 per cent to a new record high of $249 million.

Over the year to September spending on coal exploration jumped 167 per cent, spending on iron ore exploration jumped 54 per cent, and spending on on-shore petroleum jumped 18 per cent.

The total number of metres drilled exploring for minerals climbed 28 per cent in the year to September... Total minerals exploration spending jumped 47 per cent. Spending in NSW and Queensland and South Australia more than doubled. Exploration spending in Victoria jumped 56 per cent, and spending in Western Australia 25 per cent.

The ABS figures follow Tuesday’s Bureau of Resources and Energy Economics forecast of record energy and minerals export earnings of $206 billion in 2012. If realised it will boost government revenue making its forecast surplus easier to attain.

The Bureau says capital expenditure by resource companies stands at a record high of $232 billion.

“Tony Abbott said the minerals resource rent tax would cripple the mining industry, but these figures show mining is booming,” said a spokesman for Treasurer Wayne Swan. “He voted against the benefits of the mining boom flowing through to all Australians so these very profitable mining companies can make even bigger profits.”

Published in today's Age

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Bleak Christmas? Europe is scaring us

Christmas is looking bleaker after the latest cut in interest rates failed to lift consumer confidence.

The Westpac Melbourne Institute consumer sentiment index slipped 8 per cent after last week’s interest rate cut instead of bouncing as usually happens following interest rate easings.

“The most likely explanation is that concerns over the reasons behind the cut have overwhelmed the perceived benefits of the cut” said Westpac chief economist Bill Evans.

Asked which news items they recalled in the past month only 31 per cent remembered hearing about interest rates. But 60 per cent had heard about economic conditions and 56 per cent about international conditions.

“The constant stream of news on developments in Europe will have had an impact. The news on economic conditions, international conditions and budget and taxation was considered the worst since 2008,” Mr Evans said.

The proportion of people believing now was a good time to buy a major household item slipped 10 per cent, meaning pessimists outweighed optimists for the first time since the 2008...

Views about economic conditions in the year ahead slipped 19 per cent, views about economic conditions over the next five years slipped 14 per cent.

“Risk aversion increased markedly. When asked about the wisest place for savings 27 per cent nominated paying down debt, up from 19 per cent in September. It’s the second highest result on result on record.”

ComSec economist Savanth Sebastian said the the new conservatism was disturbing.

“Consumers are clearly batting down the hatches, using savings to cut their debt levels, unwilling to take on risk and curbing spending.”

“They harbour reservations about what lies ahead. If consumer sentiment doesn’t lift, retailers and policymakers alike will have genuine reasons to be very worried.”

Reserve Bank deputy governor Ric Battellino told a Sydney conference the European problems were likely to worsen and spill over into the Australian economy.

“It is possible a combination of credible fiscal commitments by governments and short-term support from the European central bank and International Monetary Fund will provide a solution that is relatively benign,” he said.

“However, other outcomes, including some disruptive event such as a change in the composition of the euro area, cannot be ruled out.”

“We need to remain alert to the risks.”

Published in today's SMH

European Financial Developments - Ric Battelino

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Wednesday, December 14, 2011

If I hear one more person tell me to bring down the dollar - straight talk from Parkinson

Treasury boss Martin Parkinson is losing patience with people who call for action to bring down the dollar.

“I will be completely open with you,” he told the Sydney Institute last night. “Anybody who thinks you talk down the dollar or talk up the dollar is a fool.”

“I mean what drives the dollar? What’s driven it up is the rising terms of trade. The world is trying to give us a massive amount of wealth.”

“If I tried to lower the dollar I would be really saying I am going to take part of that wealth, pour petrol on it, and I’m going to burn it.”

“If you want to live in that world, that’s fine, but I don’t think it’s sensible for the long-term living standards of the Australian people.”

The Treasury secretary also took a swipe at ratings agencies who he said were trying to overcompensate for past mistakes...

“They are becoming mechanistic and excessively simplistic, running the risk of moving from excessive optimism to excessive pessimism every time they look at a country or firm. If you’ve got a small check list of indicators and you bang through it, you never really understand the circumstances.”

China was succeeding in slowing its economy without a hard landing. “I am not worried about it,” Dr Parkinson said. “The more we can get them to start to using proper instruments of monetary policy rather than direct lending controls the better we will all be.”

Europe would almost certainly enter recession next year. The only question was about how deep it would be and how long it would last.

“Our assessment is that if everything goes well the recession could be shallow and over soon,” he said. “ If it doesn’t it could be protracted indeed.”

Greece in particular was in a vicious circle. Every time it reassessed its economic situation it revised down growth and wound back its budget, pushing down economic growth further.

Its economy was now expected to sink 8 per cent over two years and the budget would need to shrink almost 25 per cent over three years.

Fortunes in the United States appear to have turned, but the failure of the Congressional committee tasked with finding budget savings has triggered automatic spending cuts that were likely to cut US GDP by up to 0.75 percentage points in 2013, “a potentially significant shock to what was still likely to be only a still modest recovery”.

Published in today's SMH and Age

A Year in Retrospect, A Decade in Prospect - Dr Martin Parkinson

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Tax. Think of the Business Council as a dog chasing a car

Wednesday column

The Business Council has selective amnesia. Last week its chief executive Jennifer Westacott sent an email to members distancing herself from an “inaccurate tax report in this morning's media”.

The Age had reported that Business Council had in the past spoken in favour of a widely applied super-profits tax.

As it had.

Its submission to the Henry Tax Review, Unrealised Gains: The Competitive Possibilities of Tax Reform commended a system that taxed normal returns differently to so-called pure profits saying it had “the potential to deliver significant benefits”.

Known as Allowance for Corporate Equity (ACE) the system would allow companies to deduct from their income a “normal return on their equity” before paying tax in the same way as they can presently deduct interest payments.

“The effect of such an arrangement is that companies would incur tax only on above normal returns,” the Business Council wrote, recommending Henry examine it in more detail.

So why the amnesia? It could be because the idea is gaining traction.

Dogs like to chase cars, but they get uneasy if they catch them... Umbrella organisations, especially responsible ones, like to propose good policies. But they get uneasy if they might become law.

The Minerals Council proposed a profits-based tax as an alternative to royalties in its submission to the Henry Review. It reversed course when Wayne Swan took the idea seriously and drew up legislation.

The Business Council has the same problem the Minerals Council had. Some of the companies it represents - the biggest high-profile ones - would be hurt by a tax that fell only on super-profits. Most would benefit, but it is no position to represent them. It needs the big mining companies and the banks. Without them it would have no clout.

The Business Council went cold on ACE just as the Treasurer was warming to it.

Its position paper ahead of the October tax summit said “few other countries in the world have introduced an ACE and the Henry review did not recommend moving to an ACE at this stage, instead suggesting that international developments should be monitored, with Australia being a fast follower rather than a pioneer in this area”.

It believed that was “the right approach for now”.

Henry himself thought he had opened up discussion rather than closed it down.

Weeks after the release of his report he said of all of the proposed refinements to company tax, ACE appeared to “offer the most promise”.

It also offered “the most in the way of empirical evidence, with variants having been used in
Croatia, Brazil, Italy, Austria, Belgium and Latvia; and it appears to offer the least resistance path of reform, probably being the easiest system to integrate into existing company income tax systems”.

Then the UK tax review called for an Allowance for Corporate Equity. It wanted tax on ordinary profits cut to zero and tax on super-profits to remain at the current rate. The lost revenue made up by extra taxes on consumers. Because the zero rate on ordinary profits would bring more capital into the country, it said in the long run the change would be partly self-funding, pushing up GDP 1.4 per cent.

Wayne Swan began to pay close attention. At the tax summit Melbourne University’s John Freebairn, a former research director of the Business Council, said Australia’s super-profits tax rate might be “more towards 40 or 50 per cent”.

It would only be paid by firms earning “monopolistic-type rent”.

“And lets rub it into the banks,” he added. “They seem to make much higher returns than anyone else.”

Swan liked the idea so much he set up a working group to examine changes to corporate tax, "particularly an allowance for corporate equity”. He made Freebairn a member, asked for worked examples and costings, and set a deadline of the end of next year.

The Business Council’s Westacott is also a member of the working group, as is ACTU secretary Jeff Lawrence. She will have to confront the Business Council’s previous support for the idea pretty quickly, even if it slipped her mind last week.

Raising the tax take for some businesses while cutting it for others would split her membership, but that doesn’t make it a bad idea.

Investment propositions that are marginal with company tax rates as they are will become viable if their tax rate is cut to zero. Australia will attract more capital and the workers that work with it will become more valuable. Businesses that make massive returns on equity (in the case of banks, with little accompanying downside risk) will stay.

If they are minded to, they will expand. As parliament debated the minerals resource rent tax this year spending on iron ore exploration jumped 49 per cent and spending on coal exploration 84 per cent; all in the space of three months.

Taxing only super-profits rather than ordinary profits looks like a win-win. It would bring in and keep the capital we need while raising money from firms that won’t leave. That’s why Swan’s attracted to it, that’s why he’s set up a working group to sort out the details, that’s why he has put the Business Council on it.

Published in today's Age

Business tax working group

Wayne Swan
October 12, 2011

Today I am pleased to announce the terms of reference and appointments to a working group that will look at how our tax system can best help businesses respond to the pressures of a changing economy.

The working group will look at reforms that can increase productivity and deliver tax relief to struggling businesses in our patchwork economy and develop a set of savings options within business tax, such as broadening the base and addressing loopholes or unnecessary concessions.

Dealing with the challenges of an economy where different sectors are growing at different speeds has been central to our tax reform agenda both in terms of what we have done so far and what we need to do next.

At the Tax Forum last week, I announced that Chris Jordan, the chairman of the Board of Taxation, had agreed to head the working group.

It will focus on reform options that relieve the taxation of new investment:

• in the near term, by looking at changes to the tax treatment of business losses; and

• in the longer term, by looking at options like reducing the corporate tax rate further or alternatives such as allowances for corporate equity.

The working group will also be required to identify options to fund any proposals from within the business tax system.

The tax system will continue to play a critical role in helping our economy adjust to change and spreading the benefits of the mining boom to all corners of our patchwork economy.

Terms of reference


1. The Working Group will make recommendations on how the Australian business tax system can be improved to make the most of the challenges and opportunities arising from transformations in the broader economic environment, including the patchwork economy.

2. The revenue neutral reforms to the business tax system will aim to increase productivity, while delivering tax relief to struggling businesses.


3. The Working Group will focus on reform options that relieve the taxation of new investment:

3.1. in the near term, by reforming the tax treatment of business losses; and

3.2. in the longer term, by reducing the corporate tax rate further or moving to a business expenditure tax system, particularly an allowance for corporate equity.

4. For its final reports, the Working Group will provide specific analysis of these business tax reform options, including:

4.1. descriptions of how these reform options operate overseas and evidence on their effectiveness;

4.2. potential priorities for reform, including transitional paths;

4.3. worked examples of how these options would affect business taxpayers, including their financial and tax accounts;

4.4. revenue integrity provisions, such as measures necessary to limit: the inappropriate claiming of tax losses; the equity allowance to new equity; and small and closely held businesses converting labour into business income;

4.5. how the reform options integrate with the rest of the tax system now and in the future;

4.6. impacts on national income and macroeconomic risks; and

4.7. costings.

5. The working group will also identify a range of off-setting budget savings from existing Commonwealth business taxation (or spending) measures. Changes to the GST should not be considered.

5.1. The savings to be generated by the particular options will be costed by the Treasury in accordance with the budget rules.

6. In developing its recommendations, the Working Group should have regard to the report of the Australia’s Future Tax System Review and relevant international experience and expertise.


7. The Working Group is required to provide the Treasurer with:

7.1. an initial report on the proposed directions for improving the tax treatment of losses and offsetting savings in mid-November 2011;

7.2. a final report on the treatment of losses and the offsetting savings in March 2012; and

7.3. a further report on longer-term business tax reform options and offsetting savings by the end of 2012.


8. For its final reports, the Working Group should consult widely with industry and the broader community.

9. The Working Group may establish technical sub-groups to consider specific issues or seek input from other sources of expert advice.


10. The Working Group will be supported by a Secretariat within Treasury.



Chris Jordan is a Fellow of the Institute of Chartered Accountants, the Taxation Institute in Australia, and the Australian Institute of Company Directors and is a Solicitor of the Supreme Court of New South Wales.

Chris is the NSW Chairman of KPMG. He is the Chairman of the Board of Taxation which is an advisory body to the Federal Treasurer and is a board member of the Sydney Children’s Hospital Foundation and the Bell Shakespeare Company.

Chris was awarded the honour of Officer of the Order of Australia in the 2005 Queens Birthday Honours list for high-level advice to Government.


Jennifer Westacott took up the role of Chief Executive at the Business Council of Australia (BCA) in April 2011.

Jennifer has extensive policy experience in both the public and private sectors. She has held critical leadership positions as the Director of Housing and the Secretary of Education in Victoria, and most recently was the Director-General of the New South Wales Department of Infrastructure, Planning and Natural Resources.

Jennifer was a Director and National Lead Partner at KPMG and provided advice and assistance to some of Australia’s major corporations on climate change and sustainability matters, and provided advice to governments around Australia on major reform priorities. She previously chaired the Public Sector Performance Commission in South Australia, and was a member of the Commonwealth Grants Commission.


Jeff Lawrence was elected as Secretary of the Australian Council of Trade Unions (ACTU) in August 2007.

Prior to that, he was National Secretary of one of Australia’s largest unions, the Liquor Hospitality and Miscellaneous Union (now known as United Voice). Jeff is a Director on the AustralianSuper trustee board.

Under Jeff’s stewardship, the ACTU was a key negotiator in the drafting of the Fair Work Act, which features a guaranteed safety net of rights and conditions, improved protection from unfair dismissal, the abolition of Australian Workplace Agreements, an independent umpire, and rights to collective bargaining.

During his time as Secretary, Australian unions have successfully advocated for economic stimulus measures to protect Australian jobs during the downturn, won the first national paid maternity leave scheme, and received government commitment to increase superannuation guarantee to 12 per cent to ensure all workers have financial security in retirement.

Jeff has devoted his entire career to advancing the interests of working Australians and their families, particularly the low-paid.


Rob was appointed Ernst & Young’s Oceania Managing Partner and CEO in 2010 and was previously Ernst & Young’s New Zealand Country Managing Partner. He has more than 30 years experience in corporate and international tax.

Rob has held a number of high profile roles in New Zealand including Chairman of the New Zealand Business Roundtable. In 2001, he conducted the most recent comprehensive New Zealand government tax review – the McLeod Review. In 2009, he was appointed to the government-sponsored Tax Working Group and the Capital Markets Development Taskforce, both of which had a strong focus on tax reform. He was also a member of the New Zealand Government appointed Consultative Committee on Capital Gains Tax in 1989.

He has been appointed to numerous government committees, the latest ones focusing on defence, infrastructure and Maori economic development.


Teresa Dyson is a Tax Partner in Blake Dawson’s Brisbane office, specialising in providing income tax advice on corporate and financing issues to domestic and international businesses. Teresa is a member of the Board of Taxation and the Resource Taxes Implementation Group.

Teresa is the National Chairman of the Law Council of Australia, Business Law Section, Tax Committee and, in that capacity, represented the Law Council of Australia at the Tax Forum. She is currently recognised as a leading individual in tax in Chambers Global 2011 and Best Lawyers 2011.


Dr Peter Burn, Director of Public Policy, Australian Industry Group (Ai Group), has extensive experience in taxation policy through his role at Ai Group since 2002 and as Director – Policy at the Business Council of Australia with particular responsibilities for taxation policy from 1997. Peter was also the Secretary of the Business Coalition for Tax Reform in the years around the Australia's New Tax System.

Prior to these roles, Peter lectured in public finance and microeconomic policy at the University of Queensland and the University of Newcastle and still earlier served in the Tax Policy Division of Treasury during the 1980s reforms to Australia's tax system.


Frank Drenth has been in the role of Executive Director of the Corporate Tax Association (CTA), since 1998. The CTA represents the taxation interests of about 120 of Australia’s largest companies. He is also Deputy Chair of the Business Coalition for Tax Reform, which brings together the views of the broader business community on tax reform issues.

Over a period of many years Mr Drenth has had extensive experience as an external stakeholder in the development of Australia’s tax policy and law, as well as aspects of tax administration that are relevant to large companies. Mr Drenth has previously occupied corporate tax roles in large Australian companies. He has also worked a large chartered accounting firm after starting his career with the Australian Taxation Office.


John Freebairn holds the Ritchie chair in economics at the University of Melbourne. He has degrees from the University of New England and the University of California, Davis. Prior to joining Melbourne in 1996, his preceding career includes university appointments at the ANU, LaTrobe and Monash, and periods with the NSW Department of Agriculture and at the Business Council of Australia. John is an applied microeconomist and economic policy analyst with current interests in taxation reform and environmental economics.


Executive Director, Revenue Group, The Treasury

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Tuesday, December 13, 2011

Nick Sherry: The man who knew too much

This was Gillard, yesterday:
"Nick’s personal interest and more than 20 years experience in the Australian superannuation system made him a valuable asset as an economic Minister during the Global Financial Crisis when he oversaw elements of the superannuation system."

She is right. Nick Sherry knew more about superannuation than anyone else in the government.

So he was removed from that portfolio and given another one so minister after minister could get on with the business of ramping up compulsory superannuation, something Nick didn't agree with and the Henry Review recommended against.

If only he had known less.

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Monday, December 12, 2011

Ten predictions guaranteed in 2012

Nathan Bell in The Age:

1. A lot of things will happen that no forecaster thought to include in their predictions for 2012. These events will be the obvious consequences of the current economic and political environment. So obvious, in fact, that they weren’t included in the predictions.

2. Many things won’t happen that forecasters did include in their predictions for 2012. This will be a result of unforeseen circumstances and six sigma events, annual anomalies that crop up one in a million years.

3. A small number of the vast number of predictions about 2012 will randomly come true and the predictors will be proclaimed gurus. This will be despite the fact that it was their 1000thprediction and the first one they got right.

4. All predictions will be adjusted throughout the year so that the forecaster’s final prognostications, announced on Christmas Eve, will be very close to accurate.

5. Those fund managers that outperform for the year will cite their skills, systems, intelligence and uncanny ability to time the market as the reasons for their outperformance. While acknowledging that past returns are no guarantee of future returns, the past returns will be included in advertising materials in very large font.

6. Those that underperform will cite the randomness of markets and that any one bad year will obviously be followed by a good one, because underlying it all they have superior skills...

Continued at The Age.

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. Most forecasts are crap

. Perhaps the funds should ramp up their advertising

. Super is a con, perpetrated by people who con themselves


Return of the Master. Keynes won.

"Since 2010, a Europe-wide experiment has conclusively falsified the idea that fiscal contractions are expansionary."

Paul Krugman points to this piece by economic historian Kevin O’Rourke:

"One lesson that the world has learned since the financial crisis of 2008 is that a contractionary fiscal policy means what it says: contraction. Since 2010, a Europe-wide experiment has conclusively falsified the idea that fiscal contractions are expansionary. August 2011 saw the largest monthly decrease in eurozone industrial production since September 2009, German exports fell sharply in October, and is predicting declines in eurozone GDP for late 2011 and early 2012.

A second, related lesson is that it is difficult to cut nominal wages, and that they are certainly not flexible enough to eliminate unemployment. That is true even in a country as flexible, small, and open as Ireland, where unemployment increased last month to 14.5%, emigration notwithstanding, and where tax revenues in November ran 1.6% below target as a result. If the nineteenth-century “internal devaluation” strategy to promote growth by cutting domestic wages and prices is proving so difficult in Ireland, how does the EU expect it to work across the entire eurozone periphery?

The world nowadays looks very much like the theoretical world that economists have traditionally used to examine the costs and benefits of monetary unions. The eurozone members’ loss of ability to devalue their exchange rates is a major cost. Governments’ efforts to promote wage cuts, or to engineer them by driving their countries into recession, cannot substitute for exchange-rate devaluation. Placing the entire burden of adjustment on deficit countries is a recipe for disaster.

End of argument?

And here's an excellent long piece from the NewYorker on the return of the master.

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