Let Australians die as they want to, says PC

Tens of thousands of terminally ill Australians are dying in hospitals when they would rather be dying at home, a highly critical Productivity Commission report has found.

A wide ranging inquiry into ways to introduce competition and informed user choice into human services has found that most people want to die in surroundings that are familiar to them, surrounded by their family. Instead they are often rushed to hospital, even though it would be cheaper and more dignified to treat them where they lived.

“Aged care facilities are Commonwealth government funded and the Commonwealth considers palliative care a state funding issue, so aged care facilities receive very little funding for palliative care,” inquiry chairman Stephen King explained.

“It means that if you are in an aged care facility, and you are getting towards the end of life and need an intervention, you will most likely be popped in an ambulance and sent off to hospital.”

“Western Australia is the gold standard. It does state-funded well. Nurses visit homes and family members help with the care. It’s cheaper to set up in homes than in capital-intensive hospitals. After Western Australia it goes rapidly downhill. It wouldn’t be hard for all states to do as well as Western Australia and for the Commonwealth to fund palliative care in nursing homes.”

The report recommends that doctors encourage patients having their "70 plus" health check to create an advanced care plan that spells out ahead of time whether they would like to be revived after death or kept alive artificially. The plans should be updated within two months of entering an aged care facility.

The Commission also recommends that health insurance regulations be amended to make clear that patients can choose their own specialists rather than the ones their general practitioners refer them to. The right is already enshrined in law, but many GPs and specialists are unaware of it.

The MyHospitals website should be transformed into an information source on the performance of hospitals and specialists to make choice meaningful.

Dr King said that when Britain required the publication of of data on results, many poorly performing specialists left the profession or lifted their performance.

Many Australians were unaware of their right to public dental services and scared off by long waiting lists. The report recommends that states shorten waiting lists by contracting private dentists to perform services, which would result in earlier interventions and reduce the need for more expensive interventions later.

It recommends that Commonwealth rent assistance be extended to public housing tenants and that states contract out the provision of some public housing to private providers.

The inquiry was commissioned by Treasurer Scott Morrison. The government is considering its response.

In The Age and Sydney Morning Herald

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Public-private sector partnerships a mirage. The PC says so

Of all the strange things to have flowed from the corruption inquiry engulfing the former assistant treasurer, few are stranger than his use of the word ''passionate''. Arthur Sinodinos says Australian Water Holdings is a ''company whose mission I believed in and was passionate about''.

Passionate? Australian Water Holdings built pipes, tanks and pumps for Sydney Water that it could have built itself.

It's easy to imagine getting passionate about such a mission if it was the only means of getting pipes, tanks and pumps to Sydney's north-west. Or if AWH could do it more cheaply than Sydney Water itself.

Both are claimed by spruikers of public-private partnerships. In fact they are often asserted as universal truths.

Joe Hockey did so shortly after the election when he asked the Productivity Commission to inquire into ways to use the private sector more. ''The capacity of government to meet expectations for improved infrastructure services is always limited,'' he said. ''Options involving the private sector can reduce the call on government.''

The father of NSW public-private partnerships, the late 1980s and early 1990s premier Nick Greiner, made it a mantra.

Opening the privately built (and then privately run) M4 motorway, he said: ''The choice is very simple. Either have the road as a privately owned tollway or not have the road at all.''

It's complete nonsense, and a draft Productivity Commission report delivered to Hockey spells out the fallacy in excruciating detail. The private sector can't do anything the public sector can't, unless it charges. And the government itself could do that if it wanted to.

Sometimes the private sector will do things better than the public sector. The commission cites three studies that find private projects are more likely to be completed on time and near budget than government ones.

Often it'll do things worse. Borrowing is more expensive for firms such as AWH (chaired by Sinodinos) and the firm that built the M4 (whose board Greiner later joined). And the salaries are more expensive. Sinodinos was paid $200,000 for a part-time job as AWH chairman. Eddie Obeid jnr was paid $350,000. If AWH had scored the contract it was angling for, Sinodinos was set to get a bonus that would take his shareholding to about $20 million.

The fallacy is the view companies such as AWH can get access to money the government can't - what the commission calls the ''magic pudding'' fallacy.

Private sector money has to come from somewhere. Most often the private firm will siphon it out of the government, as AWH did when it billed Sydney Water for expenses including limousine rides, pornographic movies and Sinodinos' salary. Or it might borrow the money and later siphon it out of the government, meaning the government will face the same sort of costs as if it had borrowed itself.

Or it might charge tolls, which the government itself could do if it had the guts.

Either way there's nothing stopping the government borrowing more than it has for worthwhile projects. The commission thinks it can. On that point it thinks Hockey and Greiner are wrong. And probably also NSW Treasurer Mike Baird.

His plan is more subtle. It's called ''recycling''. He has sold the leases on Port Botany and Port Kembla to use the proceeds to build the first stage of WestConnex. When that's built, he will sell it and then use the proceeds to build the second stage, and so on.

As a piece of financial engineering, it's admirable. But the commission thinks it confuses two very different questions: whether something is worth building and whether it's better off privately run.

It's not happy with Baird's view of the world, but it reads as if it is much happier than it would have been with Greiner's, during whose term as premier the company that is now AWH gained the Sydney Water contract.

In The Age and Sydney Morning Herald

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Australia Post. Why it no longer needs to deliver daily

When I was young the postman came twice a day. You could post a letter in the morning and if you were lucky have it delivered across town by the afternoon.

It was the only way to send messages (apart from telegrams, which were expensive).

Then came the phone (and the increasing usefulness of phones - they weren’t very useful at first when only a few houses were connected). Deliveries were cut back to once a day, and the Saturday service was axed.

The nature of the post changed. Short messages arranging meetings were no longer needed. Longer 'essays' were still the preserve of the post as was the delivery of documents, parcels and bills.

Then came mobile phones and text messages (and with them the gradual disappearance of Doctor Who style telephone boxes). You could send messages from almost anywhere. Even away from home there was no need to send a letter.

At first the arrival of email made little difference to the post. As with the phone it was of limited use when few of us had email addresses. And we couldn't send big documents.

Then email addresses became ubiquitous, as did social media. The much forecast 'digital divide' never happened. Every strata of Australia is now connected, from the elderly to farmers to school children. And the capacity of the system has grown. Almost all of us can send big documents and long letters with ease. We don't need to post them.

Australia Post says back in the 1980s almost all written communication was carried by the post. Today it’s less than 1 per cent...

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And most of it is bills or notices from various levels of government.

Late to the party, businesses are abandoning the post big time. They are using email to send us bills and even ‘junk mail’. Links to websites mean they can get an instant response, or instant payment.

The Coalition has pledged to put virtually all government services and interactions online by 2017. By then there will be scarcely anything left to post.

Mail deliveries are plummeting at the rate of 4 to 5 per cent a year. Twelve years ago Australia Post delivered an average of 2.2 local letters or bills per day to each street address per day. It is now 1.7 and on track to fall to 1.3 by 2016, sliding further beyond that.

When the national broadband network is complete there will be no excuse whatsoever for daily mail deliveries. Australia's really remote locations are already limited to two deliveries per week. That should become the standard for the rest of us, as a precursor to eliminating local deliveries. If the spread of the telephone was responsible for halving the frequency of mail deliveries, the spread of the internet should be responsible for eliminating them.

It would be absurd to have spent $40 billion building a world-class system to instantly deliver messages while hanging on a system poorly replicating it that hardly anyone used.

Delivering mail used to make Australia Post money. It now costs it $150 million per year. The loss is on track to blow out to $1 billion, and then perhaps $2 billion, far exceeding the profits from delivering parcels and making the entire organisation an albatross around the taxpayers necks.

Delivery twice a week is more than adequate for most parcels. If someone wants one sooner, they can try a competitor to Australia Post or pay a premium.

Australia will soon stop paying Holden and Ford to make cars Australians aren't keen to buy.

If we are serious about getting value for our taxpayer dollars we will also stop paying postal workers to make deliveries Australians no longer need.

Australia Post employs 33,000 workers and provides work for another 10,000 contractors. Twice-weekly deliveries would slash the wage bill (and the rubber burnt and the petrol poured into tanks) and give us a chance of making good on our investment in the NBN.

It’s not only a question of money. Right now there are roughly 2 Australians of traditional working age for each Australian who is older or younger. The Intergenerational Report says by 2050 there will be just 1.5.

Australia will need to make good use of every worker it has. Employing someone to do something we no longer need merely because we always have will be a waste of a scarce resource. In most fields the market will handle the transition. Banks are moving us away from tellers, supermarkets invite us to check out our own groceries, and the baker and the milkman no longer call.

But Australia Post is stuck with a government-imposed requirement to deliver mail five days a week to 98 per cent of Australian addresses. Changing it will require a government decision. It’ll mean taking on unions and the National Party.

The Business Council tackles the question obliquely in its submission to the Commission of Audit by saying there’s a case for selling Australia Post. But that's beside the point. The point is that we are asking Australia Post to do things we no longer need. Passing the parcel to a private owner who can take on the unions and lobby for weaker service standards is passing the bucks.

In The Sydney Morning Herald and The Age


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False. Abbott wants to privatise public schools

"Tony Abbott and Christopher Pyne want to follow Premier Colin Barnett's lead in WA by privatising our public schools.”

Bill Shorten, press release, July 26 2013

If elected the Coalition will be “rolling out independent public schools as our preferred principal autonomy model around Australia,” according to its education spokesman Christopher Pyne. Labor’s Bill Shorten says Abbott and Pyne want to follow Western Australia in “privatising our public schools”.

Could Abbott really be planning to privatise schools?

Supporting evidence

The first point to note is that the schools in question are owned by the states and territories, not the Commonwealth. It can’t sell them because it doesn’t own them. Pyne himself says he hates “central command and control from Canberra”. But he says he will “work with the states and territories to encourage state schools to choose to become independent schools”.

So it wouldn’t be privatisation as such. But would what he is proposing amount to privatisation, where the states agreed to allow their schools to become independent?

How it stacks up

Victoria has had a semi-autonomous school system for many years. Western Australia introduced an option for “Independent Public Schools” in 2010. About one third of the state’s government schools are now partly managed by local boards.

The Oxford dictionary says to “privatise” is to “transfer (a business, industry, or service) from public to private ownership and control”. There would be no transfer of ownership in what the Coalition is suggesting, and only a limited transfer of control.

Kylie Catto, President of Western Australian Council of State School Organisations explains the system like this: “Independent Public Schools are still government schools. The way they operate gives them slightly more autonomy, but they still must comply with the main policies of the Western Australian Department of Education.”

The principal and the board are unable to expel students, for instance. But they are able to hire staff and manage their (government-provided) budgets.

Almost everyone Politifact spoke to said privatisation was the wrong way to describe what the Coalition was proposing. And it carries specific (and often negative) connotations in states such as NSW and Queensland which are actually selling assets. Australian Education Union president Angelo Gavrielatos said the Coalition’s plan was “part of a privatisation agenda”. But he didn’t call it privatisation.

Finding

Politifact finds Shorten’s claim “false”.

With Michael Koziol, in Politifact and The Sydney Morning Herald

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

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

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

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

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

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

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


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

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

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

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

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

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

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

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

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

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

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

Signatories

Harry Campbell, Professor of Economics, University of Queensland

Tim Coelli, Adjunct Professor of Economics, University of Queensland

Henry Ergas, Economic Consultant, Canberra

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

Paul Frijters, Professor of Economics, QUT

Joshua Gans, Professor of Economics, Melbourne Business School

Ross Guest.Professor of Economics, Griffith University

Nicholas Gruen, CEO, Lateral Economics

Christopher Joye, Managing Director, Rismark International

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

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

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

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

Andrew Leigh, Professor of Economics, ANU

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

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

John Quiggin, Federation Fellow in Economics, University of Queensland

John Rolfe, Professor of Economics, Central Queensland University

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

Rabee Tourky, Professor of Economics, University of Queensland

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

Published in today's Age

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Refuted economic doctrines

Now here's a countdown!

What "truths" has the global economic crisis rendered crap?

Professor John Quiggin is up to Number 4 and still counting.

Refuted economic doctrines #1: The efficient markets hypothesis

Refuted economic doctrines #2: The case for privatisation

Refuted economic doctrines #3: The Great Moderation

Refuted economic doctrines #4: Individual retirement accounts

Enjoy!

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Who ran up and who paid off debt

Commenter Marek asked whether Julie Bishop could possibly be right when she said that it took the Coalition ten years to pay off $96 billion of debt left by Labor.

The figures are here, and below - click to enlarge.

Julie Bishop is right. The Coalition paid off Labor's debt. It did it by selling just about everything it could lay its hands on apart from Australia Post.

Telstra accounted for the bulk of it (although the government got a bad price for the first lot of Telstra).

Selling Telstra meant that the government missed out on its dividends. It helped government finances not at all.

It was as if a farm sold it cows to pay off its debt. It would become debt-free, but would miss out on milk and the earnings from selling it.

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What kind of idiots does the NSW government think we are?

Here's the promise, in today's Daily Telegraph:

"A train every five minutes, whisking millions of struggling commuters from the inner west into the Sydney CBD on an underground metro rail link.

It sounds like a fantasy. But this is Premier Morris Iemma and Treasurer Michael Costa's promise to the long-suffering people of western Sydney - if they secure the $15 billion sale of the NSW electricity industry."

Here's the reality, as explained by John Quiggin:

"There is no meaningful sense in which selling an income-generating asset allows you to pay for anything.

As a matter of public policy, either a metro rail line is a good investment or it isn’t. Whether or not electricity assets are sold can make no difference to this."

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Unsentimental about Qantas

Thirteen years ago Labor’s Deputy Prime Minister and Minister for Finance Kim Beazley stood in front of a Jumbo on at Sydney Airport and declared that all Australians would have a chance to share in the success of their own airline.

He launched an emotion-laden advertising campaign fronted by a raft of celebrities not normally thought of as investment advisors, among them Kate Ceberano, James Morrison, James Blundell, Hayley Lewis and Ian Kiernan.

As he put it, they were well-known Australians talking about “the chance that all Australians have to invest in Qantas, one of our great national companies”.
It made the idea of privatization not seem so bad. Qantas would still be publicly owned....

Not Now. If, as is inevitable given the offer price, enough Qantas shareholders accept the takeover offer in February Australia’s national carrier will become truly private. It won’t be possible to own any of it and it will be pretty hard to find out what it is up to. The new owners won’t need to report to the stock exchange or hardly anyone else.

If it had been known this was how things would turn out back in 1995 Kim Beazley would have found it far harder to sell the concept of Qantas going private, no matter how many celebrities he coaxed into miming “I still call Australia Home”.

He and his successors as Ministers would have found it hard to vote as they have done repeatedly to keep out competitors to Qantas on international air routes. Most recently a year ago Singapore Airlines was blocked from flying between Australian and the US in what was believed to be the national interest.

It wasn’t a decision taken in travelers’ interests; it was a decision in the interest of Qantas and its 100,000 Australian shareholders, most of them mums and dads.
Government MP Bruce Baird is a former Chief of the Australian Tourism Council and until now one of Qantas's great supporters.

He has argued strongly for foreign airlines to be kept off Qantas's routes.
Last night he put the airline on notice that he might do so no longer.
``If Qantas becomes just another company, and for instance start moving jobs offshore, all bets are off,'' he told me.

The new Qantas will find it hard to play the patriotism card. The government might start acting in the interests of travelers instead.

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Tuesday Column: Telstra sold too cheaply??

The government thinks it has just sold Telstra.

I think it’s done much more.

Let me explain. When the T3 process began, just six weeks ago, it looked anything but revolutionary. Senator Minchin and his colleagues expected to offload another sliver of Telstra (about one sixth of the company), which in addition to the half of the company they had already sold would leave private owners with around two-thirds of Telstra, and the Government through its Future Fund with one-third.

One-third was important because it would have given the Government continuing control. By control I don’t mean the ability to direct the company about the way it made its day-to-day decisions – the Government wouldn’t want to do that – but the ability to veto any major change of direction.

(If you are one of those people who believe that a government committed to getting out of the telecommunications business would never want to step in throw around its weight in Telstra, you haven’t been paying attention. That’s exactly what it did at last week’s Telstra AGM when it used its voting block to install its nominee on the Board against the wishes of the Board itself.)

There is one particular change of direction that the Government has been extraordinarily keen to prevent. It is the splitting of Telstra into two separate companies – a boring “utilities” company and an exciting “digital media” player.

On one estimate a decision to do that could double the value of the resulting shares.

But just before the T3 launch the Government demanded and got an assurance from the Telstra Board that it wasn’t planning to split the company.

That assurance would have been enforceable if after the T3 sale the Government had, as expected, kept control of one-third of the shares. It could have reminded the Telstra Board of the assurance and used the threat of the veto power its one-third shareholding gave it to make sure the Board stayed in line.

It no longer has that threat... The weekend success of the share offer has left the Government through its Future Fund with just one-sixth of Telstra, which given the way I am assured these things work, gives it no hold over the Board whatsoever.

Melbourne University’s Professor Ian Ramsay explains it this way: Corporate control is an all-or-nothing game. If you own enough of a company to get one person elected to the Board (and in a company like Telstra one-third is enough) you own enough to replace the entire Board. You hold the biggest of sticks.

But if you own less than a certain threshold (and one-sixth of the company is certainly less than the threshold) you don’t have the power to get a single person onto the Board unaided. You have no stick whatsoever.

Telstra is now free to decide to split in two if it so chooses. It is generally held legal view that an undertaking given by one board cannot bind a future board (in the same way as an undertaking given by one Prime Minister cannot bind a future Prime Minister).

If shareholders do decide on a split they could double their money.

According the telecommunications guru Paul Budde the maths work like this: Right now each Telstra share is worth a little under $4.00. If each shareholder was given instead, one $2.00 share in a dull infrastructure company that charged for the use of its wires, and one $2.00 share in an exciting digital media corporation that used those wires and offered TV, the internet, mobile and fixed phone calls to consumers, the shares in second company could triple in value. After about a year the shareholder who used to own one $4.00 Telstra share would be holding instead one $2.00 infrastructure company share and one $6.00 digital media corporation share. $2.00 + $6.00 = $8.00.

Why would the shares in the digital media corporation triple in value?

Its Bigpond, Sensis, Foxtel and fixed and mobile call businesses could be combined and unleashed. Right now they are limited in what they can do because of regulations – regulations imposed because of Telstra’s sensitive position as the dominant communications wholesaler.

In Paul Budde words: “Right now Sensis cannot move into video and Foxtel cannot move into telecommunications and Bigpond can’t use television.”.

But he says unleashed, “the $2.00 digital media company would find itself valued in the same mind boggling category as YouTube, a Yahoo or an E-Bay”. Its share price could triple.

And the dull $2.00 infrastructure company would be valuable too, to a certain sort of investor. Australia’s Macquarie Bank has shown that as part of their portfolio investors and funds love the security of owning toll roads. The returns are never exciting, but they are consistent. Cars pay to use the roads every day, just as phone companies pay to use wires and exchanges every day.

The Macquarie Bank is already extending its model for setting up toll road trusts into the field of communications. This year put together a consortium to buy and split up the Hong Kong telephone business which was knocked back the Chinese government.

Right now Australia’s other big packager of infrastructure trusts Babcock & Brown is working on splitting the Irish telecommunications firm Eircom.

It is beyond doubt that both are running their rulers over Telstra right now, and are delighted that our Government can’t stop them.

The Telstra Board could. And given that the present board’s whole strategy is built around keeping the company together, it is a fair bet that it will try. But boards and superstar imported CEOs don’t last forever. If Macquarie and/or Babcock & Brown start do buying shares in Telstra there are likely to be changes at the top.

If all goes to plan Telstra’s one-million plus shareholders would be enriched, Macquarie and/or Babcock would pocket very well earned commissions and our Government which on Sunday was very pleased with the $15.5 billion it had raised from T3 would look as if it had unloaded our communications company for a song.

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Unpalatable as it is, we need a bond market

I spoke about the threatened demise of the Bond Market on Life Matters on Monday, which is where you will find several good references.

I am philosophically inclined to agree with Alex Erskine who refers to bond traders as "basket weavers and candlestick makers" who almost deserve the same fate as they've been prescribing for others workers made redundant by the progress of technology and new work practices.

If they weren't so arrogant (arrogant as a bunch - a few individuals in the bond market are humble) it'd be easier to feel sorry for them.

BUT the more I thought about this preparing for Life Matters the more I realised that, unpalatable as it is, we need a bond market.

And more. We need, yes we really need, the government to invest for the sake of it, and to borrow to raise the money.

Nicholas Gruen of Lateral Economics makes the point in a paper not on the net, although a dot-point version of it is.

He says for the Australian Government, as for any organisation, there is an optimal level of debt and an optimal level of funds invested. These should be decided quite separately from the question of whether or not the government should own a phone company.

Given the government's long-term investment horizon it makes sense to borrow at around 5 per cent and invest for an average return over the longer term of 10 per cent. Who wouldn't?

More importantly: there can be big benefits to the wider economy from the government doing so.

Buy buying Australian stocks when they are cheap and selling when they look pricey (an sensible practice) the government can deepen and smooth out volatility in the Australian stock market.

This is what the Reserve Bank of Australia does in the Australian Foreign Exchange market.

To the extent that the arms-length government investor put funds into the Australian stock market it would also would be helping to raise equity prices closer to their true value, reducing the debt-equity premium.

Everyone wins? That's how it looks.

I can see no good reason why the government should deny itself the right to invest and deny itself the right to raise funds. Indeed, it seems to me that the business of government is too important to deny it these rights.

What if a real crisis arises and the government suddenly needs to borrow - without a bond market it would find it hard. Australian might well regret the boldness of the brash Australian Treasurer who paid off his debts.

Update: Nicholas Gruen's paper IS on the web - here.

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