Friday, November 25, 2011

Europe ought to be a wake up call. David Murray on the future

Future Fund chief David Murray has backed Qantas in its dispute with its workforce saying unless it and companies like it tackle entrenched union privilege Australia risks the same fate as Europe. And he says the government is aping Europe by borrowing to buy votes.

“My European banking counterparts tell me they can’t cut jobs without offering three years redundancy,” he told an forecasting conference in Sydney. “We are creeping towards that in the new industrial relations framework. It gives unions a right to bargain in areas traditionally the management's prerogative.”

“Australia started out after the second world war making work arrangements a little bit more reliable, introducing the rule of law, but the process has gone too far - it gets to the point of unaffordability.”

“Qantas management have no option but to do what they are doing. They are running an unviable airline. With terrible productivity internationally they are hostage to competitors domestically.”

“The stakes are high. Qantas is not the only companies,” Mr Murray told the business economists.

Appointed chairman of the Future Fund in 2004 by Coalition Treasurer Peter Costello the former Commonwealth Bank chief steps down in April. He has already accepted a part-time role with the global investment bank Credit Suisse.

“I don’t see anything concrete on productivity,” he said. “I don’t see governments trying to wind back their debt positions rapidly, I don’t see people coming off subsidy arrangements for industry, in fact new arrangements are more the norm.”

“I would have thought what is happening in Europe would be one of the most timely wake up calls in Australia's history... Yet it is being completely ignored because we’ve had twenty years of growth. The size of complacency here is outrightly dangerous.”

“What is it that’s wrong? It is the process by which public debt is used to buy votes with the promises of entitlements. If you borrow to buy votes you are expropriating the savings of other people.”

Asked whether now was the right time to slash spending and cut back on debt Mr Murray said it was better to do it when unemployment was around 5 per cent than later when it went higher.

The carbon tax and the mining tax were also badly timed.

“Irrespective of what you believe about climate change, given what’s happening in the world the timing of the the policy response is not good at all. The timing of introduction of a mining tax when the terms of trade boom was just about to end is not good at all either.”

Mr Murray said a simpler way of redistributing mining income would have been to end the tax deductibility of royalty payments and use the proceeds to cut company tax. “It could be done in two lines of code, a few lines of legislation,” he said.

Mr Murray acknowledged that government debt was low by world standards, but he said Australia’s net foreign liabilities were high by world standards. “And its the second one that matters, because it’s all got to be repaid.”

Treasury chief economist David Gruen disagreed telling the conference later Australia had high foreign liabilities because it was investing a huge amount in order to “most likely generate future export earnings”.

“We have yet to get the output from the mining boom that we expect to see. Some of our productivity will recover naturally as those investments coming to fruition,” he said.

Published in today's SMH and Age

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