Tuesday, May 31, 2011

Garnaut. The final report.

It's on line now


I was explaining to the Multi-Party Climate Change Committee early in 2011 how I had worked out the costs and benefits of reducing emissions for the 2008 Review. The costs of reducing emissions will come straightaway.

The benefits of reducing damage from climate change will come later—many of them to later generations of Australians. In fact there will be more and more benefits for later and later generations. So I needed a way of comparing the value of income to Australians who are alive right now with incomes of young Australians later in their lives and Australians who are not yet born. ‘So we had to choose the right discount rate’, I said. ‘We can’t use the discount rates that determine values in the share market, because they take into account risks of a kind that are not relevant here.’

I got the feeling that the mention of discount rates had set Prime Minister Gillard’s mind towards what she would say to Hillary Clinton about Afghanistan, Bob Brown’s to the grandeur of the Styx Valley, and Tony Windsor’s to the good rain that was falling on the Northern Tablelands.

But then I said something that brought back the prime minister’s attention:

‘If we used the share market’s discount rate to value the lives of future
Australians’, I said, ‘and if we knew that doing something would give lots of
benefits now but would cause the extinction of our species in half a century,
the calculations would tell us to do it.’

The beginnings of a smile on her face became a hearty laugh.
‘You’ve got us there, Ross’, she said, as the others were infected by the
lift in spirits and joined the laughter. ‘That’s a unanimous decision of the
committee. We’re all against the extinction of the human species.’

The 2008 Garnaut Climate Change Review compared the costs and
benefits of Australia taking action to reduce the damage of climate change
caused by humans. It concluded that it was in Australia’s national interest to
do its fair share in a strong global effort to mitigate climate change.

The 2008 Review accepted the central judgments from the mainstream
science about the effects of changes in greenhouse gas concentrations in the
atmosphere on temperature, and about the effects of temperature changes on
climate and the physical earth. I formed the view that the mainstream science
was right ‘on a balance of probabilities’, and that errors were as likely to be
in the direction of understatement of damage to human society as in the
direction of overstatement.

I used the results of the science to model the impacts of climate change
on the Australian economy, including impacts on agricultural productivity,
our terms of trade, and infrastructure. The model included links to the global
economy and was based on Australia doing its fair share in a global effort to
reduce the damage from climate change.

The modelling showed that the growth rate for Australian national
income in the second half of the 21st century would be higher with mitigation
than without. The present value of the market benefits this century fell just
short of the value of the costs of mitigation policy. However, when we took
account of the value of Australians’ lives beyond the 21st century, the value of
our natural and social heritage, health and other things that weren’t measured
in the economic modelling, and the value of insuring against calamitous
change, strong mitigation was clearly in the national interest.

New developments

And so we come to today. The purpose of this book is to examine how
developments in science, diplomacy, political culture and the economy have
affected the national interest case for Australian climate change action.
Since the 2008 Review, the science of climate change has been
subjected to intense scrutiny and has come through with its credibility
intact. The findings continue to be sobering. Unfortunately, new data and
analysis generally are confirming the likelihood that outcomes will be near
the midpoints or closer to the bad end of what had earlier been identified
as the range of possibilities for human-induced climate change.

Global average temperatures have continued to track a warming
trend. The year 2010 ranked with 2005 and 1998 as the warmest on
record, with global average temperatures 0.53°C above the 1961–90
mean. For Australia, 2009 was the second-warmest year on record and the
decade ending in 2010 has easily been Australia’s warmest since record
keeping began.

I noted in the 2008 Review the curious Australian tendency for dissenters
from the mainstream science to assert that there is no upward trend in
temperatures, or that if there had been a warming trend it has ceased or
moved into reverse. Such assertions were prominent in some newspapers
and blogs, but also appeared in serious policy discussions. The assertions
were curious because the question of whether the earth is warming or not is
amenable to statistical analysis.

It so happens that answering questions of this kind comes with the
professional kitbag of economists who work on statistical analysis of series
of data that cover periods of time. For the 2008 Review, I asked two leading
Australian econometricians who are specialists in this area, Trevor Breusch
and Fashid Vahid, to analyse the data on temperature. Their conclusion was
clear. There is a statistically significant warming trend, and it did not end in
1998 or in any other year. I had the analysis repeated with three more years of
data for this book, with the same conclusions.

New observations of a changing climate include an increase in extreme
weather events. The Black Saturday fires in Victoria in 2009 and recent major
cyclones in Queensland are both consistent with expected outcomes in a warming
world, although we cannot draw conclusions about direct cause and effect.
Other studies since 2008 have confirmed that Australia is also seeing
historically unprecedented periods of wet and of dry in different areas of
the continent.

Globally, rising sea levels continue to track the upper levels of
modelling. Considerable debate is under way about the causes and potential
extent of sea-level rise. The latest research suggests that, beyond the effects
of thermal expansion, the melting of the great icesheets of Greenland and
West Antarctica may contribute much more than was previously thought
to sea-level rise. The debate is unresolved but oriented towards higher not
lower outcomes.

New research has also contributed to our understanding of ‘tipping
points’ in the climate system. These are points at which warming of the climate
triggers irreversible damage and a feedback loop for further warming. The
new research has focused on identifying and testing potential early warning
indicators of an approaching tipping point.

Progress has also been made on ruling out other possible causes of
warming, such as changes in the amount of solar radiation reaching the
earth. Scientists have identified ‘fingerprints’ of warming that confirm human
influence. A primary example is the pattern of warming in the layers of the
atmosphere. Under increased greenhouse gas scenarios, climate models
predict that the lowest layer of the atmosphere (the troposphere) should
warm, while the next layer up (the stratosphere) should cool. This has been
confirmed by recent observation. If increased output from the sun were the
cause, both layers could be expected to warm. These developments and more
are examined in Chapter 1.

Since 2008, advances in climate change science have therefore broadly
confirmed that the earth is warming, that human activity is the cause of it
and that the changes in the physical world are likely, if anything, to be more
harmful than the earlier science had suggested. This has led me to shift my
judgment about the reputable science from being right ‘on a balance of
probabilities’ to ‘beyond reasonable doubt’.

Chapter 2 focuses on likely amounts of greenhouse gas emissions in the
absence of mitigation. It examines the effect on emissions of the big global
economic developments following the global financial crisis—the Great Crash
of 2008.
Emissions under business as usual are on a somewhat lower trajectory in
the developed countries, mainly as a result of the loss of growth momentum
after the Great Crash. This is roughly balanced in the period to 2030 by
continued strong growth in the developing countries.

The result is a global emissions trajectory in the event of business as
usual that is little changed from 2008, but is constitutionally very different.
The share of emissions growth attributed to large developing nations like
China and India has grown as developed countries’ growth has shrunk.

Australia is an exception among the developed countries. Following
the Great Crash, Australia’s rich endowment of natural resources has helped
fuel the outstanding growth in the large developing countries. The resulting
high terms of trade project a strong growth performance based around high
levels of investment in mines, including for coal and gas. The projection
of Australia’s emissions trajectory without mitigation to 2020 has grown to
24 per cent above 2000 levels—4 per cent above the levels expected in
2007—despite new policy measures in the intervening years.

The shift of the centre of gravity of growth towards developing
countries is wonderful for human wellbeing so long as we can manage the
consequence: that mitigation becomes more difficult. By 2030, the average
income in developing economies will be slightly more than a quarter of that
of the United States. The potential for further catch-up growth in incomes
and emissions is stark.

However, there has been a major positive development. The world has
already moved considerably beyond the business-as-usual case described
above. Chapter 3 examines important developments in the global framework
for action that give hope of holding global emissions to levels that avoid
dangerous climate change.

The 2009 Copenhagen and 2010 Cancun conferences of the United
Nations Framework Convention on Climate Change led to an important
new direction in global mitigation policy. The diplomatic fiasco of the
Copenhagen conference disguised a breakthrough new agreement that
addressed the great failing of the Kyoto Protocol. It incorporated mitigation
targets for the United States and the large developing economies, notably
China. All countries also agreed to contain global warming within 2°C.

The Copenhagen agreement had its weaknesses. The new targets were
voluntary, not ruled by legal obligation and delayed the prospect of the
trading of carbon permits between countries. But they did establish a new
‘pledge and review’ system that included new mechanisms for measuring
and tracking emissions.

The meeting at Cancun consolidated and extended the new agreement,
as well as the mitigations targets pledged by developed and developing

The pledged targets of all countries that play substantial roles in
global emissions are evaluated in Chapter 4. The ranges for the United
States, the European Union and Japan together correspond to entitlements
for the early stages of a moderately ambitious—if not strong—global
agreement. On average, developed countries’ pledged 2020 targets are
somewhat less ambitious than are needed to hold the concentration of
greenhouse gases in the atmosphere to 550 parts per million (ppm) of
carbon dioxide equivalent.

For developing countries, targets are measured not in absolute
reductions but in reductions in emissions intensity. The modified contraction
and convergence framework described in the 2008 Review implied a targeted
reduction in China’s emissions intensity of 35 per cent between 2005 and
2020 if global concentrations of carbon dioxide were to be limited to 450
ppm. At Copenhagen and Cancun, China pledged to reduce its carbon
intensity by 40 to 45 per cent between 2005 and 2020.

China has already achieved considerable success in the implementation
of its pledged targets with sweeping regulatory actions in energy and
innovation. Chinese leaders have been pleasantly surprised at the pace and
cost of change and are growing in confidence that they will later be in a
position to offer more aggressive pledges still.

In this new world of concerted unilateral action, countries closely
examine each other’s efforts to confirm that each is contributing its fair
share. Freeloading may contribute in only a small way to overshooting
global targets, but it threatens the entire global effort as all countries look to
one another for reassurance that the pledged progress is being made.


So, developments in science, global emissions profiles and shifts in the
structure of global climate change agreements have all strengthened the
national interest case for a stronger Australian mitigation effort.

What domestic policy response should we take? Once we know what
our fair share is in the global effort to reduce greenhouse gas emissions, we
can work out how to do it at lowest cost. This exercise was undertaken in
detail and with great care for the 2008 Review. There are two basic approaches
to achieving the required emissions reduction: a market-based approach, built
around putting a price on carbon emissions; and a regulatory approach, or
direct action.

In the market-based approach, carbon can be priced in two ways. Fixedprice
schemes, or carbon taxes, set the price and the market decides how
much it will reduce the quantity of emissions. Floating price schemes set the
quantity of emissions and permits to emit are issued up to that amount. The
permits are tradeable between businesses and so the market sets the price.
There are various hybrid approaches that combine fixed prices for a period
with floating later on, and floating prices at some price levels with a price
floor or a price ceiling or both.

In the alternative route, regulation or direct action, there are many ways
that government can intervene to direct firms and households to go about
their business and their lives. The Chinese Government’s direct action includes
issuing instructions for factories with high emissions to close, subsidising
consumers who buy low-emissions products like solar electricity panels and
electric cars, and restricting new investment in industries judged to have
undesirably high emissions.

Chapter 5 explores these options and argues for a three-year fixed
carbon price followed by a carbon trading scheme with a floating price.
This confirms the approach proposed in the 2008 Review for circumstances
similar to those in which we now find ourselves. This is Australia’s
best path forward towards full and effective participation in humanity’s
efforts to reduce the dangers of climate change without damaging Australian

One distinct advantage of addressing climate change mitigation through
a market-based carbon price is that it raises considerable revenues. These
can be used to buffer the transition to a low-carbon economy for Australian
households on low and middle incomes, as well as to offer security to the
most vulnerable low-income households.

A carbon price of $26 will raise approximately $11.5 billion in the first
year and rise over time. Efficiency and equity objectives would be best served
by allocating the majority of this revenue to households, perhaps modelled
on the kind of tax and social security reforms envisioned in the Henry review.

At the same time, slices of this revenue should also be used to support
innovation in low-emissions industries, provide incentives for biosequestration
in rural Australia and prevent export industries from being placed at a
disadvantage against international competitors that are not yet subject to
comparable carbon constraints. Chapter 6 is a national interest analysis of
how compensation should be deployed to each of these groups.

Of course, under a direct action or regulatory approach, costs are
imposed on households and businesses but none of these benefits are
available to balance them.

National versus vested interests

Yet, as clear as the case for carbon pricing may seem, the political basis
for such policies has weakened since 2008. Alongside the central discussion
of climate policy, this book is a guide to another struggle that is deeply
colouring the climate change debate—the struggle between special interests
and the national interest.

This conflict is not new. Indeed, it is always with us, and always will
be. But there are periods when the special interests have had the strongest
hold on policy, and others in which policy making is strongly grounded in
the national interest.

It is salutary to recall that Australia, with New Zealand, had the poorest
productivity performance of all the countries that are now developed through
the 20th century to the mid-1980s. The long period of underperformance
had its origins in the domination of policy by business and union vested
interests. Political leaders responded to democratic pressures with protection
and regulation. There was little competition to prompt firms to seek new,
more productive ways of doing business.

We managed to break out of that from 1983 onwards, and entered a
remarkable period of productivity-raising reform. After a while, suggestions for
policy reform were not taken seriously by anyone unless they were placed in a
sound national interest context. The leadership of the Australian Council of Trade
Unions responded quickly to the circumstances offered by a new approach to
government. To remain relevant to the policy process, the old, protectionist
business lobbies were reformed as the Business Council of Australia.

Protective and regulatory constraints on higher productivity were
progressively reduced.

The period of policy reform oriented to the national interest lasted
until the turn of the century. Productivity responded to the new political
culture and the policies that it supported. Australian productivity growth in
the 1990s after the recession at the start of the decade was the highest in the
developed world.

The end of the era of reform can be dated fairly precisely. No major
market-based productivity-raising reform has survived the political process
since the tax reform package of 2001. That package was itself deeply
compromised by the increased distortions in federal–state financial relations
that had been introduced as the political price for reform. And it was bought
with ‘overcompensation’ amounting to about a percentage point of Australian
national income.

From the beginning of the 21st century, Australian policy making has
reverted to type. Business and union organisations refocused on securing
sectional gains. Governments responded. There could be no policy change
if there were any losers, so there could be no productivity-raising change at
all. There has been little increase in the productivity with which resources
(capital and labour together) are used in Australia so far in the 21st century,
and none at all since 2003.

The absence of total productivity growth over the last decade was
covered up for a few years at the beginning of the century by an extraordinary
boom in housing and consumption, mainly funded by unsustainable foreign
borrowing by our banks. That boom would have ended quickly in tears had
we not been rescued by a resources boom—much higher export prices and,
after a while, investment in resources—of historic dimensions. Now it will end
in tears after a longer period.

This is the problematic political context of the climate change policy

Some business leaders have recently drawn attention to the need for
long views and hard decisions in policy making. They say that the minority
Labor government elected by the Australian people in 2010 is weak and lacks
long time horizons.

A more accurate accounting would recognise that the current government
has taken on the most difficult and long-dated policy reform that has ever been
attempted. It has taken on a reform in the national interest that must overcome
stronger pressures from sectional interests than any since the contests over
protection in the 1980s and early 1990s. That part of big business that is
active in the debate has taken on the role of spoiler. Chapter 7 examines this
phenomenon and notes that in a political economy already dominated by
vested interests, a transparent, market-based carbon price is far less likely to
be unduly influenced by private interests than a regulatory approach which
provides recurring opportunities for lobbying. A market-based approach will,
for this among other reasons, cost Australians substantially less.

The same calculation applies to adapting to the degree of climate
change that is already locked in regardless of mitigation efforts from this time
forth. Chapter 8 looks at the likely adaptation measures that will be required.
The key to success and greatest efficiency will be maintaining a productive,
flexible, market-oriented economy.

The independent centre

I noted in the 2008 Review that the diabolical policy issue of climate change
had a ‘saving grace’ that may make all the difference—that climate change
is an issue in which a high proportion of Australians are deeply interested.

This provided an opportunity for the exercise of authority by an independent
centre, against the claims of interests that see themselves as being negatively
affected by mitigation. My consultations and community engagement through
the update of the Review have confirmed the continued presence of the
saving grace, although it has been tested by the bizarre quality of the public
discussion of recent times.

In confronting the spoiling voices, we must remember that rejection of
current proposals for carbon pricing would not end the debate over climate
change policy. It might, however, end the possibility of action at relatively
low cost.

The increasing impact of climate change as well as policy developments
abroad would prompt continued pressure for new policy in Australia. Inaction
by Australia, with the highest emissions per person in the developed world,
would invite retaliation in trade and other areas of international cooperation.

If current efforts on carbon pricing failed, debate would continue over how
much Australia should do and how we should do it. This would continue to
raise the supply price of investment in businesses that might be affected by
restrictions on emissions. The political system would respond to continued
community interest in and pressure for action on climate change by myriad
costly interventions. The failure of current efforts to place a price on carbon
through much of the economy would open the way to a long period of policy
incoherence and instability.

There is no reason why carbon pricing should continue to be a matter
of partisan political division in Australia. In much of the world—perhaps
everywhere except Australia and the United States—concern for global
warming is a conservative as much as a social democratic issue. The
conservative governments of Germany, the United Kingdom, France and the
Republic of Korea are playing important global leadership roles. Even in the
United States, the most effective political leadership on climate change has
come from a Republican governor of California and a Republican mayor of
New York.

A concern to avoid dangerous climate change fits naturally within the
conservative tradition. It may be rational for the radical to risk the institutions
of human civilisation in a throw of the climate change dice, just as Lenin saw
merit in inflation in the capitalist countries. The radical may hope that the
outcome will open the social and political order to new shapes. It is strange
for the conservative to embrace such risk.

Nor do the characteristic divisions between the conservative and social
democrat argue for conservative opposition to carbon pricing. Market-based
approaches to mitigation sit as easily with a conservative party that is selfdescribed
as liberal, as they do with social democratic parties.

It would be open to current or future leaders of the conservative side of
Australian politics to take over ownership of carbon pricing arrangements
once they are in place. The interests of their future governments, as
well as those of Australia, would be served well by the continuation of
carbon pricing.


The Member for New England in the House of Representatives, Tony Windsor,
has commented that if the whole world really were doing nothing, there
would be no point in Australia seeking to reduce greenhouse gas emissions.
We might as well join the other lemmings as they rush over the high bluff.

Fortunately for humanity—and in particular for Australians as residents
of the country in the developed world that is most vulnerable to climate
change—much of the rest of the world is not behaving like lemmings.

Despite the raucous disputation and associated inaction in Australia,
other countries have kept alive the possibility of effective global action. There
is substantial action in many countries to constrain greenhouse gas emissions,
but the future shape of international action could evolve in a number of
different ways. Australian policy should seek to shape that evolution in line
with our national interest in effective mitigation of climate change, while
calibrating Australian policy to what others are doing.

Both the Australian Government and the Opposition have committed
themselves to a minimum reduction of emissions of 5 per cent by 2020. This
book defines a process through which we would adjust that share over time
in light of what others were doing.

If we commit ourselves to doing our fair share, and maintain that level
of commitment through the governance mechanisms recommended in this
book, there can be a smooth adjustment to increased international effort.

The targets would be tightened as other countries became more ambitious in
reducing emissions. Carbon prices would rise on international markets and
that would be reflected in the Australian price. There would be certainty for
business about the process, although the carbon price would change over
time. But price fluctuations are the kind of uncertainty with which business
is familiar—like the uncertainties in commodity and financial markets that are
managed in the normal course of business.

How much the transition costs depends on Australians’ success in
innovation. The carbon price will make it profitable to do new things in
new ways. Some Australian businesses and individuals will do those things
and fund those ways, and others will learn from them. We need a lot of
technological change over a short period of time. Chapter 9 discusses policies
to make sure we get it.

The effect of the carbon price upon the two industry sectors that are most
enmeshed by climate change and mitigation—agriculture and electricity—are
covered in chapters 10 and 11.

The Australian rural sector will be challenged greatly by climate change,
which will generate higher prices for farm products but place barriers against
making good use of them. A world of effective global mitigation would
provide many opportunities for Australian farmers, as they would be in a
better position to take advantage of higher world prices resulting from other
developments in the global economy. Farmers should be able to sell the full
range of legitimate biosequestration credits into the carbon pricing scheme,
providing the basis for a new industry of considerable potential.

The evolution of the electricity sector under carbon pricing should
not cause the community anxiety. Australia has an incomparable range
of emissions-reducing options. The early stages of the transition will see
expansion of gas at the expense of coal alongside the emergence of a range
of renewable energy sources. The carbon price will arbitrate between the
claims of different means of reducing emissions as the profitability of each
is affected by many domestic and international developments. Whether or
not coal has a future at home and as an export industry depends on the
success of technologies for sequestration of carbon dioxide wastes. There is
little reason for concern about the physical security of energy supply during
the transition to a low-emissions economy, but I propose some cost-effective
measures to ease anxieties in parts of the community.

This book is the story of Australia’s national interest in contributing
our fair share to a global mitigation effort. It is a story of how market-based
approaches to mitigation can bring out the best in Australians, and a return
to regulatory approaches the worst. Both best and worst lead us to the same
conclusion: that a broad-based market approach will best preserve Australian
prosperity as we make the transition to a low-carbon future.


The Full Report is here

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GDP how negative? Minus 0.4% median

And getting worse by the day:

A surprise dive in company profits has all but confirmed Australia will record negative economic growth when the March quarter figures are released Wednesday, quite possibly an even worse result than during the global financial crisis.

Official statistics released Monday show company profits slid 2 per cent during the first three months of the year, led down by a 6.6 per cent collapse in mining profits.

A build up of mine inventories during the quarter suggests miners were simply unable to shift much of what they dug up as floods and Cyclone Yasi closed ports and cut off mines.

Forecasts for the official economic growth figure due tomorrow (WED) now centre around a contraction of 0.4 per cent in the March quarter resulting in growth for the year of just 1.7 per cent.

Australia’s economy most recently shrank during the global financial crisis, losing 0.9 per cent in the December quarter of 2008.

Westpac expects a worse result this time, forecasting negative growth of 1.0 per cent. TD Securities is tipping negative 1.3 per cent.

If so it will be the worst result for 20 years, since the Hawke and Keating administration brought on the recession Australia “had to have”...

Economists say unlike that downturn the effect of this one will be erased quickly as Australia rebounds from the effect of the floods and Japan’s earthquake and tsunami.

Whereas the government had to spend furiously to avoid a second successive quarter of negative economic growth during the 2008 crisis, this time the natural rebound in production after the floods should do the work for it, ensuring Australia records only one and not two consecutive contractions, which is popularly described as a recession.

Ahead of tomorrow’s (WED) figures Treasurer Wayne Swan is trying to frame them as old news saying they will provide a “look back” at “how the economy performed” at the start of the year.

“We all know the heavy toll that natural disasters had on so many families, businesses and communities in the first few months of this year,” he said in a note to journalists.

“No matter the outcome on Wednesday, the encouraging medium-term picture for our economy doesn’t change our task ahead.”

The Reserve Bank board will meet to consider its approach on interest rates six days later on June 7.

Published in today's SMH and Age

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Monday, May 30, 2011

At last, some sense about Cate


News Limited doesn't like ads made by millionaires

If they are about climate change

Michael Caton is seething inside his two bedroom Sydney flat.

“I have a gas heater and two fans - that is me,” he told the Herald after reading the pro carbon tax advertisement in which he features rubbished because it also features a multi-millionaire, the more famous actress Cate Blanchett.

Like Blanchett, the star of the The Castle and Packed to the Rafters agreed to front the ads for free. They will air for a week as part of campaign that cost a coalition of groups including the Australian Conservation Foundation and the Council of Trades Unions around one million dollars.

“I did it because I think Australia can make a difference. We were the first to give women the vote, we were the first to come up with the conciliation and arbitration commission, we developed the cochlear ear implant, but we’ve been becoming timid.”

“And look what happened. Cate Blanchett appears in an ad and gets her head kicked for being a rich bitch.”

“Can I be ironic? Cate Blanchett is in favour of the carbon tax because she is rich... Malcolm Turnbull is in favour of an emissions trading scheme because he is rich, Kevin Rudd is in favour of one because he has a rich wife - it’s a conspiracy. Apparently rich people aren’t entitled to express a view unless they are billionaires complaining about a mining tax.”

News Limited papers yesterday attacked Ms Blanchett for self indulgently campaigning for a tax she would find it easy to pay.

Coalition Senator Barnaby Joyce yesterday backed away from quoted remarks attacking Ms Blanchett saying he hadn’t seen the ad when he was asked for his opinion and now thought the only problem with it was that it was not labelled political advertising.

Ms Blanchett is overseas and did not want to comment.

Mr Caton said he wasn’t in her league financially and would probably would feel the tax. “I’m doing well at the moment but actors have ups and downs. I’ve been a bouncer, a nightwatchman, I’ve worked at a carwash, before The Castle came along I was painting houses. Electricity prices are going up anyway. If this helps it’ll worth the extra cost.”

Another participant in the advertisement, Ryde mother of three Lilia Bazzi says she agreed to take part because she became enraged by radio shock jocks while at home caring for her 21 month old daughter.

“It was angry fearful rhetoric playing on people's fears, and I’m sitting at home thinking these people don’t care about our kids,” she told the Herald.

“I come from Sydney’s south west. I am not rich enough not to feel the carbon tax, but I know it’s important.”

As part of the campaign 140 Australian leaders and community groups have signed an open letter published today pledging their support for a carbon tax.

Published in today's SMH and Age

Tom Arup in The National Times: Who knew Cate Blanchett was so wicked?

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Friday, May 27, 2011

Where jourmalism went wrong: The view from nowhere

Jay Rosen:

The profession of journalism went awry when it began to adopt the View from Nowhere.

It’s Bill Keller insisting that “torture” is the wrong word for the New York Times to use in describing torture because it involves taking sides in a dispute between the United States Government and its critics. It’s Howard Kurtz suggesting that Anderson Cooper was “taking sides” when he called the lies of the Egyptian government lies. But it’s also the reporter who has to master the routine of “laundering my own views [by] dinging someone at some think tank to say what you want to tell the reader.” And it’s that lame formula known as he said, she said journalism. It’s the way CNN “leaves it there” when two guests give utterly conflicting accounts.

Long ago, something went awry in professional journalism the way the Americans do it, and it left these visible deformations. In my own criticism I have given various names to this pattern: agendalessness, the quest for innocence — most often, the View From Nowhere. The problem is not what it is usually said to be: that the press is supposed to remain “objective” but no one can be totally unbiased. The problem is equating trustworthiness with the prohibition on taking sides, when the actual result may be exasperation with he said, she said, rage at the helplessness that “leaving it there” creates, and mistrust of the formulaic ways in which journalists try to advertise their even-handedness.

“Harsh interrogation” isn’t a more objective term than torture. Rather, it appears to offer more protection against charges of bias. But these stratagems haven’t worked. The View from Nowhere is increasingly mistrusted. Journalists have to go back and fix the wrong turn they took.

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The carbon tax, the mining tax, they'll kill mining right?

Abbott said the carbon tax would close 16 mines.

Neither the mining tax nor the prospect of a carbon tax has made a dent in mining expansion plans with the industry reporting plans that would double spending in the year ahead.

Capital expenditure plans collated by the Bureau of Statistics show mining companies intend to lift spending from $35 billion in 2009-10 to $51 billion in 2010-11, an increase of 45 per cent.

Plans for 2011-12 suggest a further boost of 63 per cent to a record $83 billion, a figure economists say is almost certainly an underestimate.

“This far out the estimates usually understate the investment that happen by 25 per cent,” said ANZ economist Julie Toth. “If the traditional realisation ratio applies mining investment will top $100 billion in 2011-12 - a more than doubling.”

Whether $83 billion or $100 billion, the planned investment in 2011-12 is well in excess of the $76 billion predicted in this month’s budget.

A separately-released count of exploration and investment projects from the Bureau of Agricultural and Resource Economics and Sciences shows 94 projects at an advanced stage of development, costing between them a record $174 billion...

Leading the pack is the giant Gorgon liquefied natural gas project off North West Australia costing a $43 billion. The Gladstone LNG project in Queensland approved earlier this year will cost $16 billion.

Roughly $109 billion of two thirds of the spending is in Western Australia, with a further $49 billion in Queensland and $8 billion on 15 projects in NSW and $5 billion on 5 projects in Victoria.

A further $256 billion of projects are “less advanced”, including 57 in NSW, 6 in Victoria, 98 in Queensland and 99 in Western Australia, the biggest “investment pipeline” on record.

In parliament Treasurer Wayne Swan said “the fact is industry understands that carbon is going to be priced and is continuing to invest - we have an unprecedented investment boom”.

The danger was wage and inflation pressure as projects competed for scarce workers.

“We have this strong investment pipeline, we cannot compound the inflationary pressures that will flow from that,” he said calling on the Coalition to pass budget savings measures.

The ABS figures suggest mining companies are finding it hard to spend money as fast as they had planned with investment intentions for this financial year revised down from $55.5 billion to $51.2 billion since December, the planned spending effectively pushed into 2011-12.

The figures show the boom confined to mining with manufacturers expecting investment to climb 4 per cent this financial year before sliding 7 per cent in 2011-12. Construction firms expect investment to slide 13 per cent this finaical year and more than 50 per cent in 2011-12.

Reserve Bank Deputy Governor Ric Battellino told a stockbrokers conference yesterday prices for Australian commodities were at record levels and global demand high. It would be impossible for Australia to insulate itself from global inflation.

The Reserve Bank board will meet to consider interest rates in 11 days a week after the release of economic growth figures expected to be negative as a result of Cyclone Yasi the Queensland floods.

Freedom of Information documents released yesterday show Treasury believes the natural disasters sliced $4 to $5 billion from coal production, $1 billion from agricultural production, $2 billion from retail and related industries and $300 to $400 million from tourism.

Published in today's SMH

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Thursday, May 26, 2011

Poetry from the OECD

The English version of yesterday's Economic Outlook was late.

So I used translate.google.com to convert the French:

The Australian economy should rebound after the disturbances caused by the natural disasters to at the beginning of 2011. Growth, stimulated by terms of trade historically raised, of 3% in 2011 to 4 ½ percent in 2012 should accelerate. Unemployment should drop, but the existence of still unutilised production capacity in the economy will prevent the inflationary tensions. Continuation of the budgetary cleansing, in spite of the cost of the bad weather on the accounts public, is welcome, including point of view of the economic situation. The current orientation of the monetary policy seems suitable, in the absence of potential indirect effects on inflation due to the bad weather and the rise of the oil price. The authorities must benefit from the favorable economic conditions to continue the structural reforms of long run, including in favour of one less intensive production in CO2 emissions.


OECD: You're set for recovery alright, and higher rates

Rapidly accelerating inflation and economic growth will bring on two more rate rises in the year ahead according to the Organisation for Economic Co-operation and Development, enough to push up the cost of repaying a typical $100 per month.

The OECD’s annual forecasts released overnight in Paris pencil in a professional short-term rate of 5.6 per cent by March 2012, some 0.5 percentage points above where it is at the moment.

If fully passed on it would push up the price of a standard Commonwealth Bank variable mortgage to 8.31 per cent and the price of a standard National Australia Bank mortgage to 8.17 per cent.

Repayments on a $300,000 mortgage would climb from $2250 to $2349 per month.

The OECD says Australia’s economy is “set to rebound” after natural disasters with economic growth soaring from 2.9 per cent this year to 4.5 per cent in 2012...

Economic growth throughout the OECD should reach 3 per cent and economic growth in the United States 3.3 per cent.

Australian inflation should climbiwell above to Reserve Bank’s target band to 3.4 per cent this year before being brought back to 2.5 per cent next year by higher interest rates.

The organisation says while the Reserve Bank’s current interest rate stance “seems appropriate” there is a risk of inflationary pressure from the mining-driven acceleration in economic growth as the year develops.

Welcoming the spending restraint in the May budget it calls on the Australian government to go further and “take advantage of the favourable economic situation to pursue long-term structural reforms, including those that favour output involving less carbon emissions.”

The OECD’s words often reflect the thinking of the Australian Treasury which has an officer stationed at the organisation’s Paris headquarters.

Treasurer Wayne Swan labelled the forecasts “a strong endorsement” saying while the global outlook remained fragile the Australian forecasts provided reasons to “remain confident about the strength and future health of the Australian economy”.

The forecasts provide no clear guidance as to whether the Australian budget will return to surplus in the financial year 2012-13 as promised, predicting a small deficit in the calendar year 2012, the furthest year out it forecasts.

Published in today's SMH

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Wednesday, May 25, 2011

How do we rate? Take the index for a spin

We’ve lots of space to ourselves, but comparatively little time. A new OECD survey of living standards across the leading 34 industrial nations finds Australia at or near the top on almost every measure, but toward the bottom on the question of free time.

Designed to go beyond the narrow yardstick of GDP per person the survey finds the average Australian house offers 2.4 rooms per person, well above the OECD norm of 1.6 rooms and the United Kingdom offering of 1.8. Only Canadian houses offer more at 2.5 rooms per person.

We enjoy the forth longest lives in the Organisation for Economic Co-operation and Development, expecting 81.5 years on birth, a span bettered only in Japan, Switzerland and Italy. And we are the forth most satisfied with our lives, being beaten only by Denmark, Canada and Norway when asked about satisfaction, and New Zealand, Canada and the United States when asked about perceived health.

We are relatively safe, being half as likely to face assault as is typical in the OECD . But oddly we feel just as much as risk with 27 per cent of us feeling unsafe on the streets after dark, about the OECD average.

We are among the nations most able to rely on friends, with 95 per cent of us believing we know someone who could help in a time of need. Around 65 per cent of us say we helped a stranger in the past month.

Although ninth in terms of household disposable income... we are well above the OECD average and would be near the top were it not for the outsized disposable incomes in the tax haven of Luxembourg and in the United States.

We are no more likely to have completed school than the OECD average, but those of us in school are much more likely to be able to read, with gap between high and low performing students unusually narrow.

Where we stand out at the bottom of the pack is in the hours spent at work. We are the sixth most likely to put in more than 50 hours per week - a keenness exceeded only in Turkey, Japan, Korea and Mexico. And we devote the sixth least time to sleep and personal care.

Professor Robert Cummins of Deakin University says the finding doesn’t point to low quality of life. “Our jobs are more interesting these days,” he said on being told of the OECD survey. “We used to want to get out the door. But now many of us find jobs are where we get our satisfaction. We are usually not working more hours because we are being watched but because we want to.”


Out of 34 OECD nations

Living space per person: 2nd

Life satisfaction: 4th

Life expectancy: 4th

Perceived health: 4th

Safety from assault: 5th

Strong social networks: 6th

Student reading skills: 6th

Employment: 8th

Air quality: 9th

Household income: 9th

Educational attainment: 23rd

Sociable working hours: 28th

Time to ourselves: 28th

OECD Better Life index

Published in today's SMH

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Monday, May 23, 2011

Big men behaving badly

From Phil Dorling in Saturday's Canberra Times.

He was writing about Dominique Strauss-Kahn. Then...

Are such cases common in Australia? Not very. But it's also true that quite a few politicians conduct their private lives in ways that would not stand too much public scrutiny. This was certainly a conclusion I reached after seven years service as a federal Labor staffer between 1996 and 2003.

I hasten to add that this is in no way a reflection on my two employers in this period, NSW Labor MPs Laurie Brereton and Daryl Melham, who to my knowledge conduct themselves with the highest probity in public and private. However there were other Labor MPs and staff who took the view that public office and official privilege was licence to indulge themselves. Parliament House is rife with gossip and rumour, often vicious and politically motivated. Consequently considerable caution is required in relation to reports and claims about MPs and their staff.

However on the basis of the my own observations and conversations with colleagues, I concluded that cases of sexual harassment of female staffers by male MPs and staff were disturbingly frequent. Such cases often occurred within the claustrophobic confines of small political offices, with long working hours and heavy drinking. In most cases the victims either suffered in silence, quietly departed to work elsewhere or else were sacked on some spurious grounds.

To my knowledge at least four MPs were obliged to quietly settle unfair dismissal cases, with accompanying non-disclosure agreements, to avoid a scandal. In one case the victim suffered a breakdown and did not return to the workforce for a number of years. One senior Labor adviser with influence over staff appointments was well known for propositioning junior female staff in his office, and referred to the sofa in his office as ''the casting couch''.

A prominent Labor backbencher was in the habit of referring to female Labor and parliamentary staff as ''the smorgasbord.'' Another MP was in the habit of emailing choice examples of internet pornography to friends using his parliamentary email (he once accidently selected the wrong address list.)In correspondence I recently received, a former federal Labor MP privately described how one of his married colleagues would ''boast about having five women in one parliamentary week''.

The former MP described his friend as ''the Alvin Purple of Parliament House in his time'' who would ''root a lamppost given half a chance''. Recalling the MPs conduct while travelling on parliamentary business, I would say the description was not unfair.

There are many, including prominent members of our federal parliamentary press gallery, who argue that the private conduct of politicians should remain private unless it directly impacts upon their public duties and responsibilities. This is broadly true, though how people conduct themselves in private may indeed tell much about their character which is indeed relevant to their stewardship of public office.

In Australian political life there is a marked reluctance to probe too deeply into the private conduct of public figures. For some years there was a ''gentlemans' agreement'' between Labor and the Coalition to quietly manage these matters since neither side wanted their dirty secrets revealed. But there should be no protection for sexual harassment or worse conduct. It is in the absence of scrutiny that abuse, of all sorts, tends to flourish.


Treasury to retailers: You'll force up rates

The Treasury has rubbished calls from high profile retailers for a tax on on-line imports saying it would shield them from competition and help force up interest rates.

Confidential briefing notes released under the Freedom of Information Act show Treasury is concerned mainstream retailers are not fully passing on savings they have made from the higher dollar.

“The fact that a high exchange rate shifts spending from domestic to foreign sources and increases competitive pressures on businesses that face foreign competition is an integral part of its role,” says an executive minute to Treasurer Wayne Swan dated November 2.

“If measures are taken to protect domestic businesses from these effects, the exchange rate will be less effective in dampening inflation. This may mean that monetary policy needs to do more than otherwise, which would further appreciate the currency, and force more of the burden of adjustment onto other sectors.”

“While retailers argue that they only seek equal GST treatment for imports, it is not possible to collect GST on all imports without imposing significant costs on importers,” the minute says.

At the moment overseas orders of less than $1000 are exempt from the 10 per cent goods and services tax... and also an import duty of up to 5 per cent where it applies.

Retailers including Harvey Norman and Myer and the retail workers union want the exemption scrapped to protect them from what they say is unfair competition.

But Treasury has told Mr Swan the exemption may be “inconsequential” and has commissioned its own survey to make the point.

It finds that while a Toshiba laptop sells in retail stores for $1340 retail it can be bought online through an Australian website that pays GST for $967.

A Panasonic digital camera that sells for up to $487 at Myer can be bought online from a GST-free website for $287, a price that would remain much cheaper even if GST was charged.

“The absence of GST and customs duty is unlikely to be the main reason for strong price competition,” an October 2010 minute says.

“Since the beginning of 2010 the $A has appreciated 11 per cent against the $US, 13 per cent against the Euro and 11 per cent against the pound. If local retailers have not passed on their own exchange rate savings in their local retail prices of imported goods, price differentials will be exacerbated.”

Lowering the $1000 tax-free threshold would require every good above the new threshold to be “stopped, assessed and have tax collected before forwarding to the addressee”.

If the current arrangements applied they would also be subject to a $42 to $65 import processing fee and possible customers brokerage of at least $100.

The Productivity Commission has begun an inquiry into retail competition and reported earlier this year that even a large reduction in the GST-free threshold might not make a "significant impact" on the competition facing big retailers.

Preliminary data from Customs showed the average value of parcels claiming the GST exemption was "less than $100" - well below the the $1000 threshold the retailers want to cut.


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Thursday, May 19, 2011

Turnbull describes his party's climate change policy

Lateline, last night:

TONY JONES: OK. Let's move on to another subject. It was reported today that the main coal-fired power generators in Australia expect to continue their operations well into the 2030s, so another 20 years or more.

Do you believe that coal-fired power needs to be phased out in Australia in order to reduce emissions?

MALCOLM TURNBULL: Well there is no way that you can reduce your emissions from energy generation without a fuel switch from brown coal to black coal to gas and, you know, a combination of those.

There are other ways of cutting emissions; obviously people can use energy more efficiently so less energy has to be generated in the first place and you can also buy carbon offsets.

TONY JONES: Alright. But can I just stick with that point, though, because I think you basically are saying that you have to phase out or change the energy source or main energy source?

MALCOLM TURNBULL: You've got to fuel switch, yeah. Well, Tony, Tony, Tony ...

TONY JONES: So how would a Coalition government do that when there's no disincentive to continuing the high levels of greenhouse emissions built into your policy?

MALCOLM TURNBULL: Well, the Coalition, as you know, no longer supports an emissions trading scheme or a - what you would call a market-based mechanism for putting a price on carbon.

The Coalition's policy, as laid out by Tony Abbott and Greg Hunt, involves spending taxpayers' money, taking out of the budget, so many billions of dollars, to pay farmer in particular ...

TONY JONES: Do you know how many billions of dollars, by the way. Is that clear at this point?

MALCOLM TURNBULL: Well there's a budget set out for that and I'll leave Greg Hunt to identify it, but it is certainly a multi-billion-dollar exercise.

But the way it works is that the taxpayer - the taxpayers' money would be used to buy carbon offsets from farmers, so that as industry pollutes, the Government would then spend taxpayers' dollars to buy carbon offsets to offset that pollution.

At the same time - so that's one part of it. So the taxpayer would fund offsetting ...

TONY JONES: Well can I just stick with that part of it. That's the principal part. Can I stick with that for a moment.


TONY JONES: Is that direct action policy, that aspect of it, is that a market-based mechanism?

MALCOLM TURNBULL: Well, you know, you could say it is in the sense that they would - there would be competition for farmers and landowners to provide the cheapest abatement, but, no, it's not a market-based mechanism in the way that an emissions trading scheme is, which is ...

TONY JONES: Because much of your speech - if I can just take you back to 8th February last year, much of your speech was devoted to the argument that it's not a market-based mechanism - you've just repeated that - but rather a recipe for fiscal recklessness on a grand scale.

If it was fiscally reckless back at the beginning of last year, is it still fiscally reckless?

MALCOLM TURNBULL: Ah, well, look, I won't repeat the speech I gave. That was a very - that was a tough moment, when I crossed the floor. In the Liberal Party we respect the right of members to cross the floor, but it's not a right that I'd ever exercised before and I don't anticipate exercising it again.

But I have to say to you Tony that that was very difficult, but you've got to remember this: ...

TONY JONES: Well, no, but can I just ask you to remember what you said, since you said this ... ?

MALCOLM TURNBULL: No, I remember very ...

TONY JONES: You can't rewrite history, you can't un-say what you said.


TONY JONES: "I've always believed the Liberals reject the idea that governments know best. Schemes where bureaucrats and politicians pick technologies and winners. Doling out billions of taxpayers' money is neither economically efficient, nor will it be environmentally effective."

That was your assessment of the - as I understand it, of the Liberals' direct action policy back then. Is it still your assessment?

MALCOLM TURNBULL: Well, Tony, honestly, I don't want to comment on my - on the direct action policy. I'm happy to describe it to you. If you want a commentary run on it, you should ask Tony Abbott or Greg Hunt about it.

It is what it is. It is a policy where, yes, the Government does pick winners, there's no doubt about that, where the Government does spend taxpayers' money to pay for investments to offset the emissions by industry.

That's the - and the virtue of that - I think there are two virtues of that from the point of view of Mr Abbott and Mr Hunt.

One is that it can be easily terminated. If in fact climate change is proved to be not real, which some people obviously believe - I don't. If you believe climate change is going to be proved to be unreal, then a scheme like that can be brought to an end.

And also, on the other hand, if you believe that the world is going ...

TONY JONES: So this is a scheme which actually is built effectively to cater for sceptics?

MALCOLM TURNBULL: Well, I think it - let me just go on.

Or if you believe that there is not going to be any global action and that the rest of the world will just say, "It's all too hard and we'll just let the planet get hotter and hotter," and, you know, heaven help our future generations - if you take that rather grim, fatalistic view of the future and you want to abandon all activity, a scheme like that is easier to stop.

Now I think those are arguments that some of the supporters of the scheme take, but it obviously - if you want to have a long-term solution to abating carbon emissions and to achieve - if you want to have a long-term technique of cutting carbon emissions, you know, in a very substantial way to the levels that the scientists are telling us we need to do by mid-century to avoid dangerous climate change, then a direct action policy where the Government - where industry was able to freely pollute, if you like, and the Government was just spending more and more taxpayers' money to offset it, that would become a very expensive charge on the budget in the years ahead.

TONY JONES: Are you then envious of your conservative colleagues in the British government who yesterday signed up to a carbon emissions reduction target of 50 per cent of 1990 levels by 2027? 50 per cent - 10 times what you and the Government have signed up to.

MALCOLM TURNBULL: Well, it is - the British Conservative Party has got a very different approach to climate change to the Liberal Party of Australia, which of course is its counterpart.

TONY JONES: But how do you account for that basic philosophical difference with two conservative parties?

MALCOLM TURNBULL: Well, it's an interesting one, but David Cameron took the view, as did his - you know, obviously his colleagues, that the Conservative Party had to be seen to take climate change seriously, that they had to be pro-active, that they had to be environmentally responsible.

And indeed, one of David Cameron's campaign slogans was "Vote blue, go green", or "Go green, vote blue". And he in fact was, if anything, greener than the Labor Party in the UK political context.

And the conservatives and David Cameron in particular take the view that there is an enormous opportunity to get onto the front foot and get into a leadership role in terms of clean technology, low-emission technology, that this is a coming technological revolution, it's going to be - just like the information revolution or the industrial revolution, the green tech or clean tech revolution will be as significant as that as we hopefully move to de-carbonise the world's economy.

Now, that is a very important technological shift. Britain has a prime minister with vision who wants to be part of that change.

TONY JONES: The obvious takeaway, political takeaway in Australia, is that you don't believe your leader, Tony Abbott, your party, your conservative party, has vision.

MALCOLM TURNBULL: Oh, no, I think there is a lot of vision. It's just a question of whether you agree with it, or whether you find it appealing. And that's something that, you know, obviously people will decide at the next election.

At the moment, it's difficult to identify any vision or any real idea of what Australia should look like in the future coming from the Labor Party. They seem to be lacking both competence and conviction.

TONY JONES: The 50 per cent target in Britain will be enshrined in law and conservatives have negotiated to give tax breaks to energy-intensive industries like steel manufacturers to compensate them for higher electricity prices.

How is it possible to do this in Britain, but evidently, according to your party, not possible to do it in Australia?

MALCOLM TURNBULL: Well, you really should talk to - you really should talk to Mr Hunt about that. I'm sure he's right across the detail of the comparative economics between Australia and Britain.

TONY JONES: What's your view, though? I mean, do you believe that ...

MALCOLM TURNBULL: Well I'm not ...

TONY JONES: You already struck a deal once where manufacturers in Australia were going to be compensated to have an emissions trading scheme, you struck a deal with the then Labor Government.


TONY JONES: So you must think it's actually possible to do it.

MALCOLM TURNBULL: Well, I - look, I certainly, I certainly did. There's no doubt it was possible, because the deal was struck and if you go back to the end of 2009, the business community was perhaps not unanimously, but the vast majority were very supportive of the arrangements that I struck with - or that we struck with the Labor government led by Kevin Rudd.

And this really is the point, Tony. I mean, you were quoting to me back a speech I gave when I crossed the floor to vote for that legislation. For me, it went beyond an environmental policy issue. For me it was a matter of integrity and principle, because I had reached an agreement in good faith with the Labor Party, led by Kevin Rudd, to support an emissions trading scheme, which was not a Labor Party policy in the sense of being a Labor Party idea; it was in fact a policy that John Howard had taken to the 2007 election, an election in which I was his Environment minister and responsible for the emissions trading scheme policy.

So for me it was very much a matter of personal integrity and principle, and that was why I took that very, very painful, anguished step of crossing the floor and voting against my own party.

TONY JONES: Malcolm Turnbull, so much to talk about, so little time. We thank you very much for coming to join us on Lateline tonight.

MALCOLM TURNBULL: Great to be with you.

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The budget that gives to Australia, takes away from us

We sort-of like it

We are in two minds about the budget - literally. The survey conducted in the week of its release saw confidence about personal finances plummet to a near three-year low while confidence about the broader economy improved.

The Westpac Melbourne Institute survey found confidence about family finances down 5 per cent in the month to a low not seen since mid 2008 in the lead up to the global financial crisis.

By contrast our view about economic conditions in the five years ahead ticked up 3.5 per cent suggesting grudging approval for the impact of the budget if not for its effect on us.

Optimists outweigh pessimists when asked about the economy one year ahead and roughly balance pessimists when asked about it five years ahead.

Labor voters are far more optimistic than Coalition voters... and more so after the budget.

Optimists among Labor voters outweigh pessimists by 24 percentage points while pessimists among Coalition voters outweigh optimists by 6 points.

At the National Press Club yesterday shadow treasurer Joe Hockey said there was “resentment growing” in middle Australia about the budget and the feeling the government had lost touch with it.

The Westpac survey shows high earners on more than $60,000 broadly optimistic, their outlook apparently little shaken by the budget.

Workers earning between between $40,000 and $60,000 suffered a sharp loss of confidence, their index sliding 14 per cent from positive into deeply negative territory.

Separate wage cost figures released by the Bureau of Statistics show broad pay increases contained the March quarter at 0.9 per cent, climbing 3.9 per cent over the year.

High increases in the mining industry and in two of the states dominated by mining appear not to have flowed on to other workers.

NSW and Victorian private sector wages climbed 3.9 and 4.0 per cent and public sector wages 3.6 per cent.

In the mining states of Western Australia and Northern Territory private sector wages jumped 4.9 and 4.3 per cent, with the wages paid to Western Australian miners climbing 4.9 per cent, far in excess of the 4.1 increase achieved by Queensland miners.

A spokesman for workplace minister Chris Evans said the Labor innovation of enterprise bargaining and the Fair Work Act were keeping spillovers in check.

ANZ chief economist Warren Hogan said the wage news “failed to deliver the Reserve Bank a smoking gun”.

“There is little urgency to follow up with further tightening. We now favour the next rate rise to occur in August, rather than June,” he said.

Reserve Bank board member Roger Corbett told the Dow Jones news wire Tuesday the economy was “bipolar,” the economic outlook “complex” and “the average Australian could quite rightly ask, how is it we are going through the biggest resources boom in the nation's history and at the same time I am finding it quite hard to make ends meet?”

"The consumer is definitely feeling the pinch in New South Wales and Victoria," Dow Jones quoted him as saying. "This ongoing debate about the economy, and the obvious implication that if things continue there will be further increases in interest rates, is very sobering for most Australians."

Mr Corbett is a former chief executive of Woolworths, chairman of Fairfax Media (publisher of The Herald) and has served on the Reserve Bank board since 2005, being reappointed for a further five year term in December.

Published in today's SMH and Age

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Wednesday, May 18, 2011

Live and let live - as long as it's elsewhere

Tim Colebatch, today:

The NIMBY syndrome (Not In My Back Yard) has won Melbourne. A new survey finds 52 per cent of the city's residents oppose having more people in their suburb, and only 11 per cent favour it.

In a survey with bleak implications for governments, planners and developers trying to create a new Melbourne by building up rather than out, a Nielsen survey for the Productivity Commission has found a clear majority oppose residential redevelopment in their suburb.

The survey, of more 3000 Melbourne residents, found 53 per cent oppose redevelopments that replace single dwellings with units or apartments...

Such redevelopments have generated half of Melbourne's building approvals in the last year. The Brumby government had planned for them to house half the city's growth to 2030.

The ever-widening gap between housing prices in inner, middle and outer suburbs suggests that the big unmet demand for housing in Melbourne is from people wanting to live in inner and middle suburbs. But resident opposition has blocked many redevelopment plans to house them.

The survey, conducted for a commission report that benchmarks the states in planning, zoning and development assessments, suggests the resident activists reflect the views of their neighbours - not only in Melbourne, but almost everywhere.

People in Sydney were even more hostile to redevelopment, while Geelong was the most hostile of all. The only place where supporters outnumbered opponents was Mount Gambier.

Of Melbourne residents against having more people in their suburb, 86 per cent fear it would lead to increased traffic congestion, 56 per cent to increased noise, 48 per cent fear loss of street appeal, 37 per cent more crowded public transport, 35 per cent shadows from tall buildings, and 27 per cent fear it would lower their property's value.

Those who want more people around them say this would create more vibrant suburbs, attract more services, retailers and public transport, and lift property prices.

Some oppose not just redevelopment, but any development. The survey found 29 per cent oppose residential development in new areas - underlining how hostile Melbourne has become to population growth. It comes as the Bureau of Statistics reports that lending to rental investors in Victoria fell by 4 per cent in March from a year earlier.


This tough, but no tougher - Parkinson

The new Treasury boss is scared

The head of the Treasury has outright rejected claims his budget should have been tougher, saying if it had cut any harder jobs would have been placed at risk.

Fronting up to Sydney business economists in his first public appearance since taking over from Ken Henry, Dr Martin Parkinson addressed “some in this room who may argue for more rapid tightening, both now and into the future”.

“I respect your view, but I in turn disagree,” he said.

“A few of you have wanted tighter fiscal policy all along - as indicated by the criticisms
of policy as being excessively stimulatory in the midst of the global financial crisis, or not being withdrawn before now.”

“As some of you know I was Treasurer John Dawkins deputy chief of staff dcuring the early 1990s recession"...

“Let me be clear. As one who chased the economy down in the early 1990s with repeatedly inadequate policy responses, I do not believe we can be precise about the extent of stimulus required in the midst of a crisis”.

“If the response is inadequate, we consign more Australians to sustained unemployment and lower living standards - not for the short-term, but for the long-term.”

“My own sense is that doing significantly more to tighten fiscal policy at the moment would inject the risk of slowing the economy excessively.”

Dr Parkinson said the dollar was set to stay “persistently high for some time”.

“Most Australian businesses are well equipped to deal with short-term volatility of the exchange rate. But what we are dealing with now is a very different type of event — not a temporary appreciation, but a sustained shift,” he said.

“This will challenge a number of existing business models. The manufacturing and other trade-exposed sectors that are not benefiting from higher commodity prices will come under particular pressure, but all sectors
will be affected.”

“Many people have said to me all the government needs to do is to cut middle class welfare.”

“Well in the budget the government attempted to make some structural improvements to the underpinnings of the budget; we have all seen the response. So I think as a practical question this is a pretty significant tightening.”

“I think in the circumstances trying to tighten faster over the next two years introduces an added degree of risk that we don’t need to.”

“Beyond two years - after 2012-13 - I think the argument around what’s an appropriate stance of policy is one that’s legitimately more open.”

It would be important to build on what had been characterised as move against middle class welfare in future budgets.

Suggestions Australia needed to reduce its dependence on China made no sense because China set world prices. Australia would be dependent on China whoever it sold to.

It was important that Australia received an adequate return for swapping non-renewable mineral and energy assets for income. That was an argument for a mining tax.

Published in today's Age

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Wednesday column: Henry's not dead, not resting.

Ken Henry had a good budget. The wombat-loving bureaucrat turned nomad spent some of that week at the Sydney caravan and camping show, his thoughts road miles away from the process that used to consume him.

In his Treasury office amid half-packed cardboard boxes as he was preparing to leave he told me he didn’t know what he would do with the rest of his life.

Aged 53, he had never previously not had another job to move to.

It was a good budget because it confirmed the painstaking work he put in with colleagues Heather Ridout, Greg Smith, John Piggott and Jeff Harmer wasn’t wasted.

Henry never expected his recommendations to pass into law from day one.

Australia’s only previous broad tax review, conducted by Kenneth Asprey as the Whitlam government was falling apart in the leadup to 1975 didn’t have all of its big recommendations written into law until the end of the century - a generation later.

Treasurer Paul Keating, advised by Ken Henry and Greg Smith, won the battle for fringe benefits tax and capital gains tax in 1985, a decade on.

John Howard and Peter Costello, also advised by Ken Henry, gave us a goods and services tax in the 2000, 25 years after Asprey lit the way.

Asprey won, years after his death as it turned out, because ideas once committed to paper are powerful things... They lie on the shelf, waiting to be picked up.

John Maynard Keynes famously observed that “the ideas of economists and political philosophers, both when they are right and when they are wrong, are more powerful than is commonly understood”.

“Indeed the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influence, are usually the slaves of some defunct economist.”

They are the slaves of long-dead economists because economics is not their specialty. They are often politicians - busy, under pressure and when looking for ideas forced to reach for ones alreayd on the shelf.

Wayne Swan did it again in this year’s budget.

One year on from adopting Henry’s recommendations for a mining tax and a lower company tax rate, he breathed life into a further 12 of Henry’s recommendations dealing with the design of the fringe benefits tax, the anachronistic tax offsets for dependent spouses, proper support for families with children aged 16 to 19 and defining what is and what is not a charity.

Sure, he could have done more. But at this rate Ken Henry won’t have to wait a generation to see his package come to pass. He certainly won’t have to wait until he is long dead.

The October tax summit (it’s okay to call it a summit now, the Treasurer did so - twice - in his post-budget address at the press club before correcting himself and using his preferred term “forum”) won’t make decisions that that will be implemented straight away.

Neither did Henry, for most part.

It’ll do something more important - refine ideas and test Henry’s package in a way that will add to a sense of inevitability.

Henry’s biggest recommendation, his first, has become the template for future changes.

Most taxes - the small ones - shouldn’t exist unless they improve social outcomes or market
efficiency through price signals.

Nuisance taxes that merely raise revenue should be abolished.

While naturally reluctant to give away income, state governments are already using this to guide their general thinking. It’s achieved that status of a Biblical ten commandment; always there, sometimes flouted, but an acknowledged enduring goal.

Henry wanted most of what was raised to come from just four broad simple taxes without exemptions; on personal income, on business income, on rents for the use of land or resources and on private consumption.

His second recommendation has already been claimed as an aspiration by both the government and the Coalition.

He wants the personal income tax system to be progressive, but not as a result of using the stepped system of different rates we have now.

All personal earners would pay no tax on their first, say, $25,000 of income after which they would face a flat 35 per cent rate of tax right up until, say, $180,000.

Tony Abbott gave a nod to it during his election policy launch. Wayne Swan has talked about it since. It’s developing the aura of an idea whose time is approaching.

Philosophically, tax should be paid by individuals rather than by couples as has become the creeping trend over recent decades. (Have you noticed how many times these days the questions on the tax form ask about your partner’s income in a way they never used to?) Labor took a move back toward individual tax in the May budget by moving to end the dependent spouse tax offset as recommended by Henry.

The Medicare levy and all of the tax offsets would go, replaced if necessary by direct untaxed government payments.

Swan is hastening slowly, but he is listening.

The only outright exception - Labor’s biggest blind spot - is superannuation where Henry would have taxed super contributions as income in the hands of the person who received them just as he would tax fringe benefits, at the taxpayer’s marginal rate. He’d have the government throw in a tax offset of up to $25,000 (indexed) to make sure noone paid too much tax on super contributions except the well off - the opposite of Labor’s approach.

Henry’s actuarial work suggested that the present compulsory 9 per cent of salary super contribution will be enough for most people. Those who wanted to pay more could, and those who could not afford to pay more should not be compelled to. It makes sense, but Labor and ever-increasing compulsory super contributions seem inseparable.

Elsewhere Labor has already moved towards taxing income from savings more lightly as recommended by Henry. It has moved in the direction of cutting company tax to 25 per cent - which was all Henry ever recommended, moving in that direction.

And it has taxed mining, the one-off removal of our natural resources, as recommended by Henry. Whatever the Opposition says, it’s safe to guess they will let the measure stand.

The fact that Henry hasn’t won every battle - yet - shouldn’t worry him in the least.

He’ll win in the long run, well before he ends his love affair with wombats and the great Australian open road.

Published in today's SMH and Age

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