It'll be on the Tax Review website.
Read more >>
Wednesday, August 06, 2008
Going down
One rate cut at a time
Australia’s Reserve Bank has put beyond doubt its desire to cut interest rates, saying in a statement after its Board meeting that the scope for cutting rates is increasing.
The confirmation, in the final paragraph of the statement, reads, “with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.”
“There is now an explicit bias to ease,” said BT Group’s chief economist Chris Caton on reading the statement.
“The Bank has cleared the way for a September rate cut,” said Wespac’s chief economist Bill Evans.
Within minutes of the statement the futures market had priced in a 100 per cent probability of a cut at the Reserve Bank’s next board meeting on Tuesday September 2...
Before the statement the market priced in an 86 per cent probability of a September cut and a 14 per cent probability of no change.
The turnaround reflects the statement’s unusually direct hint that the board is considering cutting rates and also the absence of the usual assertion that “the current stance of monetary policy remains appropriate”.
Mr Evans said the last time the bank changed direction on rates in February 2005 it used similar wording to prepare the markets for a move the following month.
“We would put this statement firmly in that same category, and therefore expect a rate cut in September, as long as the intervening data does not warrant a substantial upgrade of the outlook for demand,” he said.
The bank will spell out its intentions more clearly in its major quarterly report on the economy next Monday.
Tuesday’s statement confirms that the Bank expects inflation to remain near its current long-term high of 4.5 per cent for some time before falling back to the Bank’s 2 to 3 per cent target zone in 2010.
It says household spending is “subdued” and credit growth has slowed significantly. Business activity is “softening”, and there are early signs of an easing in labour market conditions.
The statement makes clear that this is the sort of slowdown the bank has been trying to achieve with its series of four interest rate hikes since August last year.
It says additional hikes imposed by lenders themselves have resulted in “further tightening” over the past couple of months.
“The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs and lower asset values has restrained demand,” the Bank said.
The statement notes that Australia’s rising export income “is working in the opposite direction” but it says on balance it expects Australia’s economic growth to be “fairly slow”.
The Treasurer Wayne Swan said it was unhelpful to talk about recession that the government would “use all the levers that we have, that we control, to get the desired outcomes”.
The Chief Executive of the Australian Industry Group Heather Ridout called on Australia’s banks to fully pass on any interest rate cuts instigated by the Reserve Bank and not to increase rates in the meantime.
Read more >>
The confirmation, in the final paragraph of the statement, reads, “with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.”
“There is now an explicit bias to ease,” said BT Group’s chief economist Chris Caton on reading the statement.
“The Bank has cleared the way for a September rate cut,” said Wespac’s chief economist Bill Evans.
Within minutes of the statement the futures market had priced in a 100 per cent probability of a cut at the Reserve Bank’s next board meeting on Tuesday September 2...
Before the statement the market priced in an 86 per cent probability of a September cut and a 14 per cent probability of no change.
The turnaround reflects the statement’s unusually direct hint that the board is considering cutting rates and also the absence of the usual assertion that “the current stance of monetary policy remains appropriate”.
Mr Evans said the last time the bank changed direction on rates in February 2005 it used similar wording to prepare the markets for a move the following month.
“We would put this statement firmly in that same category, and therefore expect a rate cut in September, as long as the intervening data does not warrant a substantial upgrade of the outlook for demand,” he said.
The bank will spell out its intentions more clearly in its major quarterly report on the economy next Monday.
Tuesday’s statement confirms that the Bank expects inflation to remain near its current long-term high of 4.5 per cent for some time before falling back to the Bank’s 2 to 3 per cent target zone in 2010.
It says household spending is “subdued” and credit growth has slowed significantly. Business activity is “softening”, and there are early signs of an easing in labour market conditions.
The statement makes clear that this is the sort of slowdown the bank has been trying to achieve with its series of four interest rate hikes since August last year.
It says additional hikes imposed by lenders themselves have resulted in “further tightening” over the past couple of months.
“The evidence is that the tightening in financial conditions, in conjunction with other factors including rising fuel costs and lower asset values has restrained demand,” the Bank said.
The statement notes that Australia’s rising export income “is working in the opposite direction” but it says on balance it expects Australia’s economic growth to be “fairly slow”.
The Treasurer Wayne Swan said it was unhelpful to talk about recession that the government would “use all the levers that we have, that we control, to get the desired outcomes”.
The Chief Executive of the Australian Industry Group Heather Ridout called on Australia’s banks to fully pass on any interest rate cuts instigated by the Reserve Bank and not to increase rates in the meantime.
Tuesday, August 05, 2008
The Reserve Bank is moving towards cutting rates
It just said so.
The key quote from thisafternoon's announcement:
...with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.
Read more >>
The key quote from thisafternoon's announcement:
...with demand slowing, the Board’s view is that scope to move towards a less restrictive stance of monetary policy in the period ahead is increasing.
Grocery price alert!
Not this time.
At 2.15pm in Melbourne the The Assistant Treasurer Chris Bowen and the ACCC Chair Graeme Samuel will release and offer immediate responses to the the 642-page report of the ACCC's inquiry into grocery prices, completed only last week.
Will The Reserve Bank move today?
We'll know at 2.30pm:
Fresh signs of an economic slowdown have raised expectations that the Reserve Bank will move soon to cut official interest rates, providing struggling home buyers with their first rate relief in seven years.
In the latest indicators of a faltering economy, new figures have confirmed that the jobs market is deteriorating, and that house prices have been falling in big cities including Melbourne.
The Reserve Bank board will meet in Sydney today, and discussions are expected to focus on the timing of a cut in official interest rates.
The meeting will be asked to consider whether there are clear signs that the economy and inflation pressures are easing or whether it should wait for more confirmation before beginning to cut rates...
The bank will announce its
decision at 2.30pm.
RBA staff believe that
although inflation remains high,
the worst of the prices pressure
has passed and the inflation rate
should fall back to within the
bank’s 2 to 3% comfort zone by
2010. They also believe there is
no need to wait until that happens
before cutting rates.
A report sent to board members
on Friday said that since the
last time they met there had
been confirmation that retail
sales had plunged, that credit
growth had fallen to a six-year
low and that business and consumer
confidence were close to
recession levels.
Yesterday, the Bureau of
Statistics released figures revealing
that prices of established
houses fell in four of the nation’s
eight capitals in the June quarter.
In Melbourne, the index of
established house prices fell by
0.3% — its first quarterly fall
since March 2005.
The index of established
house prices is considered more
reliable than others prepared by
estate agents as it compares ‘‘like
with like’’ — similar-size houses
in a similar mix of suburbs.
ANZ economist Alex Joiner
said he was not surprised at the
deterioration, saying the housing
market had been pummelled by
‘‘a perfect storm of higher mortgage
rates, poor affordability,
high petrol prices, increases in
the costs of living and the beginnings
of a broad-based economic
slowdown’’.
However, he expected that
underlying demand and supply
conditions would shield the market
from further sustained falls.
Also indicating a slowing
economy was the ANZ’s measure
of job advertisements, which slid
a further 0.3% in July after falling
3% in June.
Read more >>
In the latest indicators of a faltering economy, new figures have confirmed that the jobs market is deteriorating, and that house prices have been falling in big cities including Melbourne.
The Reserve Bank board will meet in Sydney today, and discussions are expected to focus on the timing of a cut in official interest rates.
The meeting will be asked to consider whether there are clear signs that the economy and inflation pressures are easing or whether it should wait for more confirmation before beginning to cut rates...
The bank will announce its
decision at 2.30pm.
RBA staff believe that
although inflation remains high,
the worst of the prices pressure
has passed and the inflation rate
should fall back to within the
bank’s 2 to 3% comfort zone by
2010. They also believe there is
no need to wait until that happens
before cutting rates.
A report sent to board members
on Friday said that since the
last time they met there had
been confirmation that retail
sales had plunged, that credit
growth had fallen to a six-year
low and that business and consumer
confidence were close to
recession levels.
Yesterday, the Bureau of
Statistics released figures revealing
that prices of established
houses fell in four of the nation’s
eight capitals in the June quarter.
In Melbourne, the index of
established house prices fell by
0.3% — its first quarterly fall
since March 2005.
The index of established
house prices is considered more
reliable than others prepared by
estate agents as it compares ‘‘like
with like’’ — similar-size houses
in a similar mix of suburbs.
ANZ economist Alex Joiner
said he was not surprised at the
deterioration, saying the housing
market had been pummelled by
‘‘a perfect storm of higher mortgage
rates, poor affordability,
high petrol prices, increases in
the costs of living and the beginnings
of a broad-based economic
slowdown’’.
However, he expected that
underlying demand and supply
conditions would shield the market
from further sustained falls.
Also indicating a slowing
economy was the ANZ’s measure
of job advertisements, which slid
a further 0.3% in July after falling
3% in June.
I've joined The Age
I have started work as the Economics Correspondent for The Age, still based in Parliament House in Canberra.
It feels good, but I sad to leave behind my very close Canberra Times colleagues Danielle Cronin, Andrew Fraser, Emma MacDonald, David McLennan and Ross Peake.
I'll be working with Age's Economics Editor Tim Colebatch and bureau chief Michelle Grattan and colleagues Josh Gordon, Chris Hammer, Katherine Murphy, Brendan Nicholson, Leo Shannahan, Sarah Smiles and Tony Wright.
Here's what they put in this morning's Age:
Today Peter Martin joins The Age as its economics correspondent.
A former Treasury official with an honours degree in economics, Peter has reported economics for the ABC and the SBS and comes from The Canberra Times where he has been the economics editor.
Peter has contributed to three books about economics and in 1996 was Journalist in Residence at the Melbourne University’s Department of Economics.
He will report from the Age’s Canberra bureau.
Sunday, August 03, 2008
Sunday dollars + sense: Not leaving Canberra
I felt that I had found “home” when I arrived here from my original home of Adelaide back at the start of the 1980s.
Canberra seemed to be everything that other parts of Australia were, but more so.
It had more trees, more openness, a greater sense of belonging.
And yet Canberra was Australia's newest city, derided by people in bigger towns who couldn't understand why we would want to be part of the landscape rather than looking away from it towards the sea.
Since returning here to work as The Canberra Times' economics editor two years ago I've noticed that much has changed, some of it for the worse...
The once magnificent ACTION bus service is a parody of what it was. It looks as if more effort has gone into producing the new shiny signs that say we have a bus service than actually providing one.
Self-government was a mistake, but one that's impossible to take back. The Commonwealth won't have us and it would be wrong to hand the home of the Parliament to NSW.
The new substandard housing blocks in Gungahlin appall me. The blunder that deprived them of proper access to the internet is an added insult.
The government is arrogant and at times doesn't even seem interested.
The Live in Canberra campaign is a joke, and a cruel one. It reeks of an inferiority complex. What other Australian city apart from Adelaide would even try such a stunt? Where are the houses that the new arrivals would live in?
But the things that I first fell in love with in Canberra are still here.
On our first morning back two years ago my daughter Grace said “people smile at you here”.
We marveled at the birds, the expanses of (brown) grass, and the relaxed spacious nature of the environment.
We felt wanted, cared for, among friends.
I'll miss the personal contact with readers after I leave The Canberra Times – many of them neighbours, people I see at the shops.
Although I'll be staying in Canberra, I'll be writing for a newspaper far away, with readers in a city in which I don't live.
I'll no longer feel that we are sharing the same things, that we breathe the same air, that we are all part of something really special.
So if you see me on the street, riding my bike or trying to change busses, or picking up the kids, say “hello”. I'm not going anywhere.
This is Peter Martin's last column as Canberra Times economics editor.
Saturday, August 02, 2008
UNFINISHED BUSINESS - Paul Keating's interrupted revolution
UNFINISHED BUSINESS. Paul Keating's interrupted revolution. By David Love. Scribe Publications. 272pp$32.95.
Reviewer: PETER MARTIN
The biggest mistake Australia’s Reserve Bank ever made was to push up interest rates to insane heights at the end of the 1980s and keep them there, eventually forcing Australia’s then Treasurer Paul Keating to declare that we were in the recession “we had to have”.
Did they know what they were doing? Did they see what was coming? Did anyone – Keating himself perhaps – beg them to stop?
Until Unfinished Business to be launched by Keating himself this week, we’ve had no clear answer.
As this quasi-biography reveals, in part this has been because Keating doesn’t like ratting on friends.
At one point the author David Love, his scribe and muse – they’ve been meeting together in restaurants and coffee shops for decades – says to Keating: “For Christ’s sake Paul, you must stop making allowances for mates”...
David Love is a legendary economics writer – a former economist at the World Bank and press gallery veteran who has reported politics since the 1950’s, he went on to found and run the economic consultancy Syntec before retiring to seek out people such as Keating in attempt to get at the truth.
Keating must have found Love’s questions hard to avoid. Love understands the big picture and also the importance of personalities in economic history, something that lesser economics journalists (such as myself) don’t pay enough attention to.
Keating told Love that he was betrayed by Bernie Fraser, his handpicked Reserve Bank Governor. Twice, in fact.
Keating appointed his then Treasury Secretary to the top job in the Reserve Bank over the heads of others in September 1989.
It was at the time imperative that rates be cut. As Keating tells it, Bernie Fraser also believed that they should be cut, as did most of the members of the Reserve Bank board.
“But there was one senior businessman vehemently against this: in his view, after the property boom, Australia had to take a squeeze. Because keeping rates up was a matter of not acting, Bernie opted for signaling a desire for unanimity on the board by not acting.”
Insecure, and feeling his way into the Reserve Bank job, Fraser refused to act on Keating’s pleas.
‘I said to Bernie, “We’ve got to be quick and flexible. This is the time to go into reverse.” Keating says.
‘But there was on the bank board at that time a standout against this. I’ve got the picture of him still fixed in my mind: he wore black suits and looked like a bad priest. I said to Bernie, “Take no notice of him, he has become an old fool”.
‘But Bernie wanted to keep his board in unison. He said he had to put a high priority on holding the board as one. And I wanted to strengthen Bernie’s faith in himself as an independent central banker.’
Keating says Fraser betrayed him a second time in 1994 when Australia was coming out the recession and the headline inflation figure nudged up a few points.
Fraser rammed up interest rates by 0.75 percentage points in October, by 1.00 percentage points in October and by 1.00 percentage points in December.
They are jumps that seem extraordinary now, and seemed extraordinary then to the trade union leader on the board Bill Kelty.
‘Kelty said at the board, you know, what do you want to do this for? The underlying inflation rate is not changing. What we have got to worry about here is wages, and the accord is holding wages. Why are your tilting at windmills?’
‘But Bernie said to Bill, “No, no. We’ve got the inflation rate down and we are damn-well going to keep it down”. In effect he was saying that the moment we see any sort of green shoot of inflation we are going to burn it.’
Increasing mortgage payments by 60 per cent just 18 months before an election was certain to kill the Keating government. Keating begged him to bring them down.
‘And he said that to cut rates so close to an election would be seen as political. Can you believe that? Political. By saying that to me they implied that they should have been cut. They’ll be political alright, by giving Howard a starting advantage he isn’t entitled to.’
The result was the end of the Keating government and also an end to an extraordinary unprecedented economic revolution.
Keating began it by floating the dollar, cutting tariffs and using the Accord and enterprise bargaining to limit real wage growth to productivity growth. None of these measures was part of the Labor tradition. Each was part of something bigger.
He was in the process of continuing the revolution by setting up what he called he his “golden circle” - rising compulsory super contributions, leading to rising household savings, leading to a rising stock of capital, leading to rising international strength, leading to stable interest rates, leading to rising household net wealth.
His only consolation on leaving office was his belief that his successor John Howard had promised to complete the circle by lifting superannuation contributions from 9 per cent to 12 per cent to 15 per cent in accordance with the Keating timetable.
Love’s book is about a giant – a “rare bird, who knew he was rare, as all rare birds do” – who was torn down by lesser people who failed to grasp the importance of his vision.
The public service and the Reserve Bank “had no ill will towards us,” Keating says.
“But they didn’t realise that they had to help a great reforming government stay alive. They assumed that I would just continue to run with whatever stones I was carrying on my back. There is no malice in it, just miscalculation.”
It is also about Keating’s untutored gift for grasping the importance of something, fitting things together, and winning people over.
It quotes Ted Evans, the present chairman of Westpac, later the head of the Treasury and at the time a senior Treasury officer, describing how Keating worked within in days of taking office.
Evans had warned him the budget deficit had to come down. Keating said he needed an argument to put to the Labor caucus.
Evans recalls, ‘He sent my paper back and said, “I don’t fully understand this myself. I know my audience, and I know this won’t go over with caucus. Try again”. I sent a second minute and he sent that back. On the third try he was happy. But he sat down and wrote it out long hand into his own words. When he went to the caucus he took me along to sit in the background. And as I listened to him present it I thought to myself, I could not have hit the mark as nicely as he did. I saw immediately what he meant by knowing his audience.”
Keating wanted Howard to lift super contributions to 15 per cent, not for his own place in history but because he believed it was vital.
Love says that, unreported, “after the 1996 election Paul Keating went cap in hand to both the Coalition and his own party, telling the story of the golden circle and the benefits that would accrue from it, and stressing that a quick movement to the 15 per cent savings ratio was required.”
“So much for the supposed innate arrogance of the man.”
“There was an almost child-like trust on Keating’s part that his peers would grasp his points. But his reasoned humility counted for nothing. Powerful people turned away; they simply did not want to know about it.”
I disagree with Love (and Keating) about the merits of compulsory 15 per cent superannuation, and I don’t think he makes the case for it persuasively.
But he does come close to getting inside Keating’s head, something earlier biographers have failed to do and the wider population has lost interest in doing.
One of his chapters is called “The Process of Forgetting”.
Unfinished Business will help us remember.
Paul Keating will launch Unfinished Business at the State Library of NSW on Wednesday August 6.
It will be launched in Canberra on Wednesday August 13 at the ANU Co-op Bookshop. 5pm for 5.30.
Who owns the land on which Canbera is built?
The alleged falsehood is that the ACT (and before it the Commonwealth) actually owns the land on which the national capital sits.
When a long-running Indigenous land claim comes to case management on August 28 the barrister representing the claimants George Villaflor will ask the court to make the determination, claiming that the NSW never actually gave the Commonwealth ownership of the Territory, merely the right to govern it.
In his office above a hairdressing shop in Ainslie the pro-bono lawyer said yesterday that the actions of the Stanhope government had left him with little choice.
“They are actively developing land on the Kingston foreshore and legislating for new power stations as if native title isn't an issue here. So I want to ask the court – has native title been extinguished in the ACT.”
He said the argument that the creation of the ACT extinguished native title was wrong.
There was no evidence that NSW ever handed over its title over the land...
Reading from Quick and Garren’s Annotated Constitution of the Australian
Commonwealth published in 1901, he quotes it as concluding that it is clear
from the construction of section 125 that “the Commonwealth acquires under
this section territorial rights only, not proprietorial rights”.
“The second reading speech of the 1909 NSW Seat of Government Surrender Bill
made it clear that NSW still retained the title to the soil.
“While the NSW Premier Charles Wade didn’t actually say that his state still
owned the land, he implied that it did throughout his speeches. There were
a few that said, well if the ACT fails, at least the Commonwealth will have
improved it for us - that sort of thing.”
Mr Villaflor believes that that is the reason that that land has only ever
been leased in the ACT. “To sell it would mean that you owned it,” he says.
But by granting very long leases over the land – 999 years for residential
blocks, the ACT government was essentially alienating the land anyway, in
the full knowledge that the High Court’s Mabo ruling may have restricted its
ability to do so.
Rather than confront the question and seek a determination from a court, the
Stanhope government was continuing to act as if it - alone among all states
and territories - was immune from Native title claims.
Asked in the Legislative Assembly by Liberal MLA Jacqui Burke two years ago
whether the ACT had the authority to grant and dispose of land while Native
title claims were under way, the Chief Minister replied that the ACT’s
authority was “not affected by the existence of Native title claims”.
“If Native title were found to exist in the ACT then the provisions of the
Commonwealth Native Title Act 1993 would have to be complied with,” he said.
“He was saying he would deal with any problems only after the event. He is
pretending for now that they don’t exist,” said Mr Villaflor.
The barrister advised his clients to terminate their private negotiations
with the ACT government some months ago because he did not believe they were
negotiating in good faith.
“On August 28 I will ask the court to join the Commonwealth and NSW as
defendants and to pay for my clients to be represented.”
“I’ve got senior counsel willing to do it. Continuing to drag this out is
just going nowhere,” he said.
Friday, August 01, 2008
It's on - this month or the next
News Limited's Terry McCrann spelt out his view this morning.
Macquarie's Rory Robertson has arrived at pretty much the same conclusion:
"One suspects that recent mortgage-rate top-ups by major lenders and their resort to "credit rationing", on top of weak local and global economic data, and the sharp recent turndown in commodity prices, have forced the RBA to think very hard about a lower cash rate sooner rather than later.
The RBA's published plan always has been for a "soft landing".
Another policy-induced recession would reflect a major miscalculation, a major embarrassment the RBA would prefer to avoid.
I expect the RBA will cut by 50bp.
There is an apparently widespread view that lenders may not follow an initial 25bp cut by the RBA.
A 50bp initial cut would reverse the various mortgage-rate "top ups" - some expected, some not - by the major lenders' since January.
There now is a real momentum towards an RBA cut sooner rather than later, a momentum that will only grow if next week we see further weakness in ANZ job ads and a further deceleration in employment growth in the former boom states of Queensland and WA.
I'm not a big buyer of an RBA cut next week (August), but I wouldn't bang the table and say it can't happen."
Read more >>
Macquarie's Rory Robertson has arrived at pretty much the same conclusion:
"One suspects that recent mortgage-rate top-ups by major lenders and their resort to "credit rationing", on top of weak local and global economic data, and the sharp recent turndown in commodity prices, have forced the RBA to think very hard about a lower cash rate sooner rather than later.
The RBA's published plan always has been for a "soft landing".
Another policy-induced recession would reflect a major miscalculation, a major embarrassment the RBA would prefer to avoid.
I expect the RBA will cut by 50bp.
There is an apparently widespread view that lenders may not follow an initial 25bp cut by the RBA.
A 50bp initial cut would reverse the various mortgage-rate "top ups" - some expected, some not - by the major lenders' since January.
There now is a real momentum towards an RBA cut sooner rather than later, a momentum that will only grow if next week we see further weakness in ANZ job ads and a further deceleration in employment growth in the former boom states of Queensland and WA.
I'm not a big buyer of an RBA cut next week (August), but I wouldn't bang the table and say it can't happen."
We're shutting our wallets!
Sales figures for June show that spending collapsed 1 per cent nationwide, with the ACT leading the nation down with the biggest dive in the nation – 1.6 per cent.
Over the six months retail spending fell 0.3 per cent – the biggest six-monthly dive since records began some 30 years ago.
Spending in department stores dived 5 per cent, as did spending on clothes and shoes.
The volume of goods sold collapsed 0.3 per cent in the first quarter of the year and 0.6 per cent in the second, meeting the definition of a “retail recession”.
“Just like in the last recession, Australians are ‘cocooning’, that is saving money by going out less”...
...said Commonwealth Securities economist Savanth Sebastian.
“Spending at cafes and restaurants has fallen each quarter for the past year, visits to hotels and clubs have slumped, while spending on takeaway food has fallen over ten per cent over the past year.”
“Probably the only thing holding up retail sales at present is the boom in migration. Australia is experiencing record migration but spending has been going backwards. If it hadn't been for the population boom, the figures would look even worse.”
The figures mean that consumer spending is likely have to make no contribution at all to economic growth when the National Accounts are released in September.
Banker’s Trust economist Chris Caton said the tax cuts which took effect this month might improve things “but there is no reason to expect a rapid turnaround”.
Other figures released by the Reserve Bank yesterday show that credit growth fell to a six year low in June – hitting an annualised 3.7 per cent, well down on the long-run average of 13.5 per cent.
“This is a sign of how high interest rates and concern about the credit market is affecting lending decisions and ultimately economic output, said TD Securities economist Joshua Williamson.
“Households have quickly moved to reduce consumption in response to higher interest rates, petrol prices, essential living costs and an erosion of wealth from falling house and share prices.”
“Spending is unlikely to recover without some interest rate relief. But don't expect this from the banks without help from the Reserve Bank.”
TD Securities has brought forward its earlier forecast that the Reserve Bank would cut interest rates in December.
“Don’t discount a September or October stabilisation cut and even the chance of an August cut should not be ruled out,” said Mr Williamson.
The Reserve Bank’s August board meeting is next Tuesday, August 5.
If the board does decide to cut interest rates at that meeting it will announce its decision that afternoon.
Other banks are more cautious in their forecasts. The ANZ yesterday described the retail news as “awful” but said that it “doesn’t mean rate cuts are around the corner”.
“Inflation is at a 16-year high. The Reserve Bank needs to see a sustained slowdown in spending before it will be convinced that inflation has eased,” said the ANZ’s Katie Dean.
The slump in spending has contributed to an improving the balance of trade. Spending on imports is sliding at the rate of 0.9 per cent a month, while income from exports is soaring. The Bureau of Statistics reported that export volumes soared 3.7 per cent in the three months to June– the strongest gain since the Sydney 2000 Olympics.
Australia recorded its second trade surplus in June after years of deficits.
Thursday, July 31, 2008
Groceries, Vehicles, Textiles
Today is D-Day for all three.
. The ACCC presented the 642-page report of its grocery price inquiry to the Assistant Treasurer Chris Bowen today;
. The Bracks Review presented the report of its inquiry into the automotive industry to the Industry Minister Kim Carr today; and
. The Roy Green review presented the report of its inquiry into Australia's textile, clothing and footwear industry to the Industry Minister Kim Carr today.
The government will pubish each and respond to each within weeks!
Read more >>
. The ACCC presented the 642-page report of its grocery price inquiry to the Assistant Treasurer Chris Bowen today;
. The Bracks Review presented the report of its inquiry into the automotive industry to the Industry Minister Kim Carr today; and
. The Roy Green review presented the report of its inquiry into Australia's textile, clothing and footwear industry to the Industry Minister Kim Carr today.
The government will pubish each and respond to each within weeks!
Free Trade Agreements that are anti-trade
That's what we are in for after the collapse of Doha
The symbolism is appalling. Just when the world most needed a breakthrough on climate change, its seven-year battle to get one on trade at the Doha talks broke down.
And then just hours later Australia signed its own one-on-one Free Trade Agreement with Chile.
What's wrong with separate one-on-one side deals of the kind that became ubiquitous under the previous government?
We're going to see a lot more of them. Without a worldwide trade agreement the only way to break down trade barriers will be through a patchwork of one-on-one and regional agreements.
What's wrong with such “free trade agreements” is that they often anti-trade.
Don't take my word for it...
Researchers at the Productivity Commission have found that separate side deals more often hurt trade than help it.
A few years back the Commission examined the effects of 18 of the world's major Free Trade Agreements - or “preferential trade agreements” as it more accurately called them – and found that 12 had actually been anti-trade.
It's because while free-trade agreements such as the one between Australia and the US confine allow each special access to each others' market and so increase that trade, they cut back other trade. One way this happens is through “rules of origin”. Under the agreement the US will only allow Australian goods into its country on preferential terms if they are “substantially” Australian. That means that Australian goods that could once freely include imported content are made to restrict it in order to get preferential access to the US.
Complicated? You bet. The US-Australia Free Trade Agreement includes a “yarn-forward” rule that requires the yarn that is used to make fabric that is preferentially traded between Australia and the US to be “formed” within one of the two. Australia is no longer free to source its yarn from the cheapest supplier – unless it wants to miss out on “free” access to the US.
And when the growing patchwork of individual free-trade agreements begin to overlap the complications multiply.
That's why Kevin Rudd has described what we are left with as an absolute tragedy.
Australia's Trade Minister Simon Crean who has been working 18-hour days in Geneva in an attempt to ensure there is a global trade agreement described what a world would be like without one a few months ago.
“It would be a world built around preferential trade blocs, further favouring large powerful nations at the expense of smaller ones. Small countries would be locked out of deals with major trading partners and left to languish,” he said.
“It would be a world where the benefits of trade are not shared widely, where trade is heavily distorted, and where the economic performance even of major trading nations is constrained by reduced opportunities to exchange goods and services.”
It's what's in store, and once it takes hold it will be very hard to undo.
References:
Richard Adams, Philippa Dee, Jyothi Gali and Greg McGuire, The Trade and Investment Effects of Preferential Trading Arrangements - Old and New Evidence, Productivity Commission Staff Working Paper, July 2003.
Paul Gretton, Jyothi Gali, The Restrictiveness of Rules of Origin in Preferential Trade Agreements, Productivity Commission, Paper presented at the 34th Conference of Economists 2005 University of Melbourne
Productivity Commission, Trade & Assistance Review 2003-04
Read more >>
The symbolism is appalling. Just when the world most needed a breakthrough on climate change, its seven-year battle to get one on trade at the Doha talks broke down.
And then just hours later Australia signed its own one-on-one Free Trade Agreement with Chile.
What's wrong with separate one-on-one side deals of the kind that became ubiquitous under the previous government?
We're going to see a lot more of them. Without a worldwide trade agreement the only way to break down trade barriers will be through a patchwork of one-on-one and regional agreements.
What's wrong with such “free trade agreements” is that they often anti-trade.
Don't take my word for it...
Researchers at the Productivity Commission have found that separate side deals more often hurt trade than help it.
A few years back the Commission examined the effects of 18 of the world's major Free Trade Agreements - or “preferential trade agreements” as it more accurately called them – and found that 12 had actually been anti-trade.
It's because while free-trade agreements such as the one between Australia and the US confine allow each special access to each others' market and so increase that trade, they cut back other trade. One way this happens is through “rules of origin”. Under the agreement the US will only allow Australian goods into its country on preferential terms if they are “substantially” Australian. That means that Australian goods that could once freely include imported content are made to restrict it in order to get preferential access to the US.
Complicated? You bet. The US-Australia Free Trade Agreement includes a “yarn-forward” rule that requires the yarn that is used to make fabric that is preferentially traded between Australia and the US to be “formed” within one of the two. Australia is no longer free to source its yarn from the cheapest supplier – unless it wants to miss out on “free” access to the US.
And when the growing patchwork of individual free-trade agreements begin to overlap the complications multiply.
That's why Kevin Rudd has described what we are left with as an absolute tragedy.
Australia's Trade Minister Simon Crean who has been working 18-hour days in Geneva in an attempt to ensure there is a global trade agreement described what a world would be like without one a few months ago.
“It would be a world built around preferential trade blocs, further favouring large powerful nations at the expense of smaller ones. Small countries would be locked out of deals with major trading partners and left to languish,” he said.
“It would be a world where the benefits of trade are not shared widely, where trade is heavily distorted, and where the economic performance even of major trading nations is constrained by reduced opportunities to exchange goods and services.”
It's what's in store, and once it takes hold it will be very hard to undo.
References:
Richard Adams, Philippa Dee, Jyothi Gali and Greg McGuire, The Trade and Investment Effects of Preferential Trading Arrangements - Old and New Evidence, Productivity Commission Staff Working Paper, July 2003.
Paul Gretton, Jyothi Gali, The Restrictiveness of Rules of Origin in Preferential Trade Agreements, Productivity Commission, Paper presented at the 34th Conference of Economists 2005 University of Melbourne
Productivity Commission, Trade & Assistance Review 2003-04
Wednesday, July 30, 2008
Cheap wine revisited.
The Neuromarketing blog picks up where I left off, putting it all together.It makes sense to serve cheap wine in expensive bottles. Neuromarketing explains why, using graphs!
"He or she would be serving the wine that he knew they would find most appealing in a blind test, and further enhancing their satisfaction by convincing them that the wine was a costly vintage. Best of all, he or she would have the research to prove it."
Things are getting worse - unless you're in the business of mining
The latest IMF Global Financial Stability Report released yesterday describes worldwide financial markets as “fragile” and says that credit quality across many classes of loans has begun to deteriorated...
The report came as the giant US investment bank Merrill Lynch announced plans to unload its mortgage-backed securities at fire sale prices, selling securities it bought for $US30 billion for under $US7 billion.
On Friday the National Australia Bank wrote down the value of its $1.2 billion of mortgage-backed securities by 90 per cent. On Monday the ANZ increased its provision for bad loans by $375 million.
Both share prices plunged further yesterday, the NAB falling a further 4 per cent and the ANZ a further 1.8 per cent. The Commonwealth Bank fell 4.3 per cent.
The National Australia Bank has lost 8 per cent of its value in the last week; the ANZ 12 per cent.
The latest NAB quarterly survey finds businesses throughout the country gloomy with confidence down to levels not seen since the 1991 recession.
The bank said the medium term viability of firms was under question as slowing demand and rising interest rate and oil costs ate into profitability. The profitability index fell a further 6 points over the June quarter to just above the zero line.
“The Reserve Bank will take this as a sign that the rate hikes are working,” said Commonwealth Securities economist Savanth Sebastian.
“Any further tightening of interest rates would need careful consideration. The signs are that the economy is slowing and the housing market is unable to attract strong investor interest.”
The All Ordinaries share market index lost 15 per cent of its value in the year to June and has lost a further 6 per cent since then. The typical Australian balanced superannuation fund lost 6.4 per cent of its value during the financial year and has probably lost another 3.5 per cent since then.
The head of investment markets research at Colonial First State Hans Kunnen said investors were asking whether the slump was likely to be protracted like the early-mid 1970s or shorter and sharper like the early 1990.
“Many of them long-term investors and superannuation-type folk who are prepared to hang in there, but for a lot of the smaller investors I think fear has overcome them and if you look at the market it seems to be pricing in recession,” he told ABC radio.
The Treasurer Wayne Swan said that while Australia was not immune from global developments, it was “better placed than most countries to withstand the current turmoil.”
“The IMF’s assessment is that risks to the stability of the global financial system remain elevated, particularly given increasing concerns over the global economic outlook,” he said.
“While most of the expected losses on US sub-prime mortgage exposures now appear to have been taken, funding costs for global financial institutions have risen and structured credit markets remain effectively shut.”
“Our banking sector is taking prudent steps by putting in place provisions to cover off the potential impact of the difficult global financial conditions and poor investment decisions of the past.”
The NAB survey found that business conditions deteriorated in most sectors except for mining. Businesses had wound back their hiring plans for the next 12 months.
Tuesday, July 29, 2008
"Compensation, we want carbon reduction compensation!"
Tim Colebatch today makes the point that Europe is already on board, the US will start moving that way as soon as Obama or McCain moves into the Oval Office, and that Japan is likely to do the same.
"That leaves China and India — whose emissions per head are a fraction of ours. Nelson has yet to spell out what he will demand that they do."
Meanwhile Australia's poor oppressed energy companies want "compensation!"
The West Australian's Shane Wright takes great pleasure in taking up the story:
The bare bones of the Federal Government’s emissions trading scheme have been released — and it took about 10 minutes for poor, oppressed and innocent companies to put out the begging bowls.
Woodside’s Don Voelte was warning within two days that he and every other LNG producer in the country would pull up stumps and head somewhere else. Chevron, working on its $20 billion WA Gorgon project, suggested it might just follow Woodside out the door if its special needs weren’t recognised.
Power companies, particularly those public-owned enterprises trying to be sold by the NSW Government, cement manufacturers, oil refiners and others were also quick off the mark to warn of either their imminent demise or a mass exodus to the carbon-polluting badlands of China and India.
Premier Alan Carpenter went public within hours of the release of the ETS arguing that the threshold for free pollution permits should be reduced from 1500 tonnes per $1 million of revenue to 1200 tonnes.
Not surprisingly, industry insiders suggest Woodside and Chevron fall short of the 1500 tonnes threshold but get over the line at 1200 tonnes.
At almost every turn, there are warnings that if a certain industry doesn’t get a free permit, then the nation will be lost in the dust as they flee for a country where there is no carbon cost...
But — and this is a big but — is that true? There has been some research into this very question overseas, mostly focused on Europe where a carbon emissions scheme has been running for some time and the price of carbon is around €35 ($60) a tonne, much higher than the expected $10-$20 a tonne in the Australian scheme.
And they’ve found that there’s been almost no movement from ETS-affected nations to non-ETS nations.
Even the aluminium industry, which under the Federal Government’s scheme would get 90 per cent of its required permits free, has stayed put in Europe rather than rush off to Russia, China or India.
Why? Because the benefits of being close to customers, previous investment, good environmental standards, reliability of inputs supply (electricity or businesses aren’t shut down periodically or collapse as happens in certain other nations) outweigh the extra costs of an ETS.
A recent report out of the US called Levelling the Carbon Playing Field estimated that the companies potentially affected by an emissions trading scheme in America amounted to 3 per cent of GDP and 2 per cent of total employment.
Australia’s economic make-up is slightly different from that of the US, but not by that much.
The very fact no one has disputed the Government’s claims that the total number of companies that will need permits under its proposed ETS is just 1000 suggests that full impact — and potential threat to the economic future of Australia — is so far greatly over-stated.
Put it this way.
Is Mr Voelte really going to surrender the $15 billion sunk into the North-West Shelf and the potential billions in the Pluto LNG project which already has 15-year sales agreements with Kansai Electric and Tokyo Gas over the free permit issue?
Makes you wonder what a couple of bit-player companies like ExxonMobil and BHP Billiton are doing spending $1.3 billion on an oil and gas project in Bass Strait. Production is due to start in 2011 — after the ETS is operational.
Mr Voelte is simply doing what his shareholders would expect of him — trying to get the best possible deal out of the Government to maximise the potential profits accruing to Woodside.
At the truly macro-economic level, the profit share going to companies is at an all-time high and the share of profits returning to workers is at a near all-time low. And those enjoying the best gains in profits also happen to be those who are pumping the most greenhouse gases into the environment.
While there might be some sympathy for trade-exposed companies which fall short of the free permit threshold, have a look at the bigger picture. For every free permit, the cost borne by every other industry, by every other individual taxpayer, increases.
While LNG is important, it pales in comparison to the $292 billion retail sector that employs around 1.2 million Australians.
There’s Buckley’s chance of retailing getting protection even though it is worth far more to the national economy than LNG.
The ETS is not the only policy issue where the Chicken Littles of certain industries have been squawking.
The Federal Government’s move to end the excise-free arrangement on condensate out of the North-West Shelf has provoked some simply amazing claims by the affected companies.
This was best illustrated by evidence from the Shelf’s joint venture companies to a recent Senate committee in which it was suggested the Government’s Budget decision had undermined Australia’s sovereign risk standing.
By changing a tax arrangement close to 30 years old, the joint venture complained Australia was as risky as Papua New Guinea when it came to big-scale investment.
By the way, Australia remains ranked among the most secure nations in which to invest by authorities such as the OECD, while PNG remains just above Iraq and Afghanistan.
Again, you have to wonder where the joint venture would rank the Rudd Government compared with Hugo Chavez and his nationalisation campaign of Venezuela’s oil, cement and steel industries.
There’s been no complaint from the joint ventures for tax changes over the past 30 years that have reduced their payable tax.
So, the real argument is that you can make a change to a tax arrangement, as long as they’re better off for it.
Again, there’s nothing wrong with companies trying to protect their bottom lines and the share price. You’d be worried if they didn’t.
Ultimately, it looks like the condensate tax change will stand. But the LNG companies stand a good chance to get a change in the threshold rates for free permits that will satisfy their demands or some sort of handout to offset some of the costs they will face.
For taxpayers, it’s probably a one-all draw and the same for the environment.
What it highlights is just how many pitfalls there are in change, especially when so many vested interests are at stake.
The bare bones of the Federal Government’s emissions trading scheme have been released — and it took about 10 minutes for poor, oppressed and innocent companies to put out the begging bowls.
Woodside’s Don Voelte was warning within two days that he and every other LNG producer in the country would pull up stumps and head somewhere else. Chevron, working on its $20 billion WA Gorgon project, suggested it might just follow Woodside out the door if its special needs weren’t recognised.
Power companies, particularly those public-owned enterprises trying to be sold by the NSW Government, cement manufacturers, oil refiners and others were also quick off the mark to warn of either their imminent demise or a mass exodus to the carbon-polluting badlands of China and India.
Premier Alan Carpenter went public within hours of the release of the ETS arguing that the threshold for free pollution permits should be reduced from 1500 tonnes per $1 million of revenue to 1200 tonnes.
Not surprisingly, industry insiders suggest Woodside and Chevron fall short of the 1500 tonnes threshold but get over the line at 1200 tonnes.
At almost every turn, there are warnings that if a certain industry doesn’t get a free permit, then the nation will be lost in the dust as they flee for a country where there is no carbon cost...
But — and this is a big but — is that true? There has been some research into this very question overseas, mostly focused on Europe where a carbon emissions scheme has been running for some time and the price of carbon is around €35 ($60) a tonne, much higher than the expected $10-$20 a tonne in the Australian scheme.
And they’ve found that there’s been almost no movement from ETS-affected nations to non-ETS nations.
Even the aluminium industry, which under the Federal Government’s scheme would get 90 per cent of its required permits free, has stayed put in Europe rather than rush off to Russia, China or India.
Why? Because the benefits of being close to customers, previous investment, good environmental standards, reliability of inputs supply (electricity or businesses aren’t shut down periodically or collapse as happens in certain other nations) outweigh the extra costs of an ETS.
A recent report out of the US called Levelling the Carbon Playing Field estimated that the companies potentially affected by an emissions trading scheme in America amounted to 3 per cent of GDP and 2 per cent of total employment.
Australia’s economic make-up is slightly different from that of the US, but not by that much.
The very fact no one has disputed the Government’s claims that the total number of companies that will need permits under its proposed ETS is just 1000 suggests that full impact — and potential threat to the economic future of Australia — is so far greatly over-stated.
Put it this way.
Is Mr Voelte really going to surrender the $15 billion sunk into the North-West Shelf and the potential billions in the Pluto LNG project which already has 15-year sales agreements with Kansai Electric and Tokyo Gas over the free permit issue?
Makes you wonder what a couple of bit-player companies like ExxonMobil and BHP Billiton are doing spending $1.3 billion on an oil and gas project in Bass Strait. Production is due to start in 2011 — after the ETS is operational.
Mr Voelte is simply doing what his shareholders would expect of him — trying to get the best possible deal out of the Government to maximise the potential profits accruing to Woodside.
At the truly macro-economic level, the profit share going to companies is at an all-time high and the share of profits returning to workers is at a near all-time low. And those enjoying the best gains in profits also happen to be those who are pumping the most greenhouse gases into the environment.
While there might be some sympathy for trade-exposed companies which fall short of the free permit threshold, have a look at the bigger picture. For every free permit, the cost borne by every other industry, by every other individual taxpayer, increases.
While LNG is important, it pales in comparison to the $292 billion retail sector that employs around 1.2 million Australians.
There’s Buckley’s chance of retailing getting protection even though it is worth far more to the national economy than LNG.
The ETS is not the only policy issue where the Chicken Littles of certain industries have been squawking.
The Federal Government’s move to end the excise-free arrangement on condensate out of the North-West Shelf has provoked some simply amazing claims by the affected companies.
This was best illustrated by evidence from the Shelf’s joint venture companies to a recent Senate committee in which it was suggested the Government’s Budget decision had undermined Australia’s sovereign risk standing.
By changing a tax arrangement close to 30 years old, the joint venture complained Australia was as risky as Papua New Guinea when it came to big-scale investment.
By the way, Australia remains ranked among the most secure nations in which to invest by authorities such as the OECD, while PNG remains just above Iraq and Afghanistan.
Again, you have to wonder where the joint venture would rank the Rudd Government compared with Hugo Chavez and his nationalisation campaign of Venezuela’s oil, cement and steel industries.
There’s been no complaint from the joint ventures for tax changes over the past 30 years that have reduced their payable tax.
So, the real argument is that you can make a change to a tax arrangement, as long as they’re better off for it.
Again, there’s nothing wrong with companies trying to protect their bottom lines and the share price. You’d be worried if they didn’t.
Ultimately, it looks like the condensate tax change will stand. But the LNG companies stand a good chance to get a change in the threshold rates for free permits that will satisfy their demands or some sort of handout to offset some of the costs they will face.
For taxpayers, it’s probably a one-all draw and the same for the environment.
What it highlights is just how many pitfalls there are in change, especially when so many vested interests are at stake.
Sunday, July 27, 2008
Sunday dollars+sense: We are being offered lower class sizes
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Why?There isn’t a parent, there isn’t a teacher, who wouldn’t like lower school class sizes.
The ACT Opposition is counting on it.
At a cost that will eventually climb to $14 million per year they are promising to cut the size of every government primary school class to 21.
All that’s missing is the money and the evidence.
Put another way, what’s missing is evidence that cutting the class sizes would be value for money.
The concept of “value for money” is hard to grasp when you are an anxious parent (like me) being offered a gift during an election campaign...
It only makes sense if you compare it to the value that could be got if the $14 million per year was spent in another way.
It could be spent on salary bonuses for teachers who are really good. An extra $10,000 or an extra $20,000 per year might keep and attract the teachers that we really need as well as fostering a culture of excellence.
The Liberals say they’ve got evidence that lower class sizes would improve educational outcomes. But it is so weak as to be embarrassing.
Quoted with approval in their policy document, it a study undertaken for the NSW government that asked parents, principals and teachers “whether they thought the class size reduction had had an impact upon student attainment in literacy and numeracy”.
Guess what? They did. But there was no objective measure in the study of whether those outcomes had improved and the answers received were a bit like those you would expect to a question phased along the lines of, “we have just spent more money on you – has it helped?”
Lower class sizes often seem to help. We see them in special classes for poorly-performing students and for gifted children. But that doesn’t mean they help generally.
Project Star in the United States was the biggest attempt to answer the question. It cut class sizes in a randomly selected group of Tennessee schools and then compared the results of their students to the results of those in schools whose class-sizes hadn’t been cut.
The results were impressive, but tainted.
The teachers knew about the trial and knew that if it succeeded class sizes would be cut statewide.
Andrew Leigh of the ANU points to a better more recent study by Harvard University's Professor Caroline Hoxby who compared the results of students in classes that just happened to be large with those that just happened to be small.
As he puts it, her massive study found the effect of class size on performance to be “precisely nil”.
So we won’t miss out on much if the Liberals don’t win.
References:
Canberra Liberals, First Class Education Policy, July 2008.
Bob Meyenn, Class size pilot evaluation report, NSW Department of Education and Training, 2003
Krueger and Whitmore, Student/Teacher Achievement Ratio (STAR) study, Tennessee Department of Education, 2001
Caroline M. Hoxby, "The Effects of Class Size and Composition on Student Achievement: New Evidence from Natural Population Variation," NBER Working Paper 6869, National Bureau of Economic Research, 1998
Andrew Leigh and Justin Wolfers, Smaller classes become big issue, June 2002
ACT Council of Parents & Citizens Associations, Research Findings on Class Size Reductions, 2005
Ludger Wößmann, Martin R. West, Class-Size Effects in School Systems Around the World: Evidence from Between-Grade Variation in TIMSS, March 26, 2002
Peter Martin, Lessons must be learnt if we are to keep teachers, Sydney Morning Herald, January 12, 2005
Peter Martin, Paying teachers for performance, Canberra Times, March 5, 2007
Got something to say about Tasmanian water?
Should it flow to Melbourne, freeing Victoria's water to flow to Adelaide?
Commentator Dave Bath says the inquiry into Melbourne's Future water supply, set up by the Vic Victorian Legislative Council is now open for submissions.
So get them in.
Some details on the inquiry here.
Kenneth Davidson in the Melbourne Age continues to promote the idea.
Read more >>
Commentator Dave Bath says the inquiry into Melbourne's Future water supply, set up by the Vic Victorian Legislative Council is now open for submissions.
So get them in.
Some details on the inquiry here.
Kenneth Davidson in the Melbourne Age continues to promote the idea.
Friday, July 25, 2008
Saturday Forum: Taking stock
Are we in a boom, or a recession, or what?
You could be forgiven for not recognising your own country.
On one hand we are continually being told that we are on the edge of recession.
Two of the recent headlines have warned us of a “recession mentality” and “fears of recession”.
And they’re just the ones in The Canberra Times.
The National Australia Bank says interest rates will have to be cut five times in the next year in order to avoid a recession; TD Securities says up to seven times.
On the other hand we are we are being told we are being showered with money. Rio Tinto has just scored a near doubling of its iron-ore prices. Our income from coking coal is expected to jump 123 per cent; our income from natural gas 67 per cent.
So much of foreign money is sloshing around that it is pushing up our prices on a scale not seen since the start of the 1990s. On Wednesday we heard that inflation had touched 4.5 per cent – way beyond the Reserve Bank’s 2 to 3 per cent target band.
Both the ANZ and Access Economics say interest rates may have to rise next year in order to rein it in.
So who’s right? Which country are we in?..
The first thing to say is that the talk of a recession is overblown. The ACT illustrates this well.
On the figures we are closer than any other state or territory to recession. Our State Final Demand actually fell in the three months to March and may have fallen again in the months to June. Everyone else’s is climbing. Our spending in our shops has stalled. Neither our house prices nor our rents are rising.
And yet it doesn’t feel like a recession to those of us who live here. We may be being more careful about our spending than we were before mortgage rates and petrol prices bit, but we aren’t on the street. In fact Canberra is the only city in which there are more job vacancies than people able to fill them.
And there’s another reason why a recession is most unlikely. Australia has better tools to avoid one than just about any other developed nation.
The Reserve Bank’s so-called “cash rate” which it can cut to boost the economy is about the highest there is. At 7.25 per cent our Reserve Bank has room to cut the rate again and in order to avoid a recession. The US, with a Fed Funds Rate of 2.00 per cent, can’t do it as much. Japan, whose rate is 0.5 per cent, can do even less.
It’s the same with government spending. Our budget surpluses parked in vehicles such as the Building Australia Fund are frighteningly large.
Should a recession look likely our government is in a position to deliver tax cuts and spending programs big enough to stop it before it starts.
Of course, no nation is recession-proof. We have avoided one since the start of the 1990’s – our longest run ever. Eventually our luck and skill will run out.
But our decision-makers are more skilled than they were. Among the Reserve Bank officials who misread things at the end of the 1980’s and helped push Australia into recession was the present Reserve Bank Governor, Glenn Stevens.
The Macquarie Bank’s Rory Robertson, a colleague of Glenn Stevens’ back then, tells how in the second half of 1989 a gaggle of them would huddle around the sole news-screen each time the employment figures came out and marvel at the on-going strength of the economy only to learn later that it had been heading south and that employment hadn’t caught up.
They won’t make that mistake again.
The Reserve Bank has made it clear that it is prepared to cut rates well before employment turns down this time, even while inflation is still high. It understands the importance of avoiding a recession and it knows what to do.
It has done it before. In 2001 it was worried about a recession and cut rates repeatedly in order to make sure it didn’t happen. The US and much of the rest of the world were not so fortunate. Australia skipped the global turn-of-the-century recession.
So are we headed to the other extreme, an uncontrollable boom as the inflation and commodity price figures suggest?
The latest news is that that pressure is easing.
Only Norway has enjoyed the boom in export prices that Australia has. Over the past four years we have enjoyed a 40 per cent jump in our terms of trade - a measure of the price we receive for exports compared to the price we pay for imports.
Our trade balance is set to turn positive for the first time in years.
The Budget papers forecast an extra jump in our terms of trade of 20 per cent in this year alone.
But just recently commodity export prices have been slipping. The Commonwealth Bank’s measure has slid 11 per cent so far this month. The more-widely quoted Baltic Dry Freight index has fallen 24 per cent in two months.
Demand for Australia’s iron ore, coal, gas and so on is easing.
Much of the developed word is in something close to a recession. Most of the big nations will struggle to report an economic growth rate too far above 1 per cent this year. Even China’s growth is slowing.
The key question for Australia is whether China will continue to shower our mining companies with wealth regardless.
China will if it is now growing under its own steam, producing goods for its own Chinese workers as much as it does for export. It won’t if it its growth is still dependent on the United States.
The answer will give us a clue as to which country we’re going to be living in in the years ahead – one heading dangerously up or worryingly down.
Or perhaps we’ll muddle through the middle. Our Reserve Bank will be doing everything it can to make sure that we do.
Read more >>
On one hand we are continually being told that we are on the edge of recession.
Two of the recent headlines have warned us of a “recession mentality” and “fears of recession”.
And they’re just the ones in The Canberra Times.
The National Australia Bank says interest rates will have to be cut five times in the next year in order to avoid a recession; TD Securities says up to seven times.
On the other hand we are we are being told we are being showered with money. Rio Tinto has just scored a near doubling of its iron-ore prices. Our income from coking coal is expected to jump 123 per cent; our income from natural gas 67 per cent.
So much of foreign money is sloshing around that it is pushing up our prices on a scale not seen since the start of the 1990s. On Wednesday we heard that inflation had touched 4.5 per cent – way beyond the Reserve Bank’s 2 to 3 per cent target band.
Both the ANZ and Access Economics say interest rates may have to rise next year in order to rein it in.
So who’s right? Which country are we in?..
The first thing to say is that the talk of a recession is overblown. The ACT illustrates this well.
On the figures we are closer than any other state or territory to recession. Our State Final Demand actually fell in the three months to March and may have fallen again in the months to June. Everyone else’s is climbing. Our spending in our shops has stalled. Neither our house prices nor our rents are rising.
And yet it doesn’t feel like a recession to those of us who live here. We may be being more careful about our spending than we were before mortgage rates and petrol prices bit, but we aren’t on the street. In fact Canberra is the only city in which there are more job vacancies than people able to fill them.
And there’s another reason why a recession is most unlikely. Australia has better tools to avoid one than just about any other developed nation.
The Reserve Bank’s so-called “cash rate” which it can cut to boost the economy is about the highest there is. At 7.25 per cent our Reserve Bank has room to cut the rate again and in order to avoid a recession. The US, with a Fed Funds Rate of 2.00 per cent, can’t do it as much. Japan, whose rate is 0.5 per cent, can do even less.
It’s the same with government spending. Our budget surpluses parked in vehicles such as the Building Australia Fund are frighteningly large.
Should a recession look likely our government is in a position to deliver tax cuts and spending programs big enough to stop it before it starts.
Of course, no nation is recession-proof. We have avoided one since the start of the 1990’s – our longest run ever. Eventually our luck and skill will run out.
But our decision-makers are more skilled than they were. Among the Reserve Bank officials who misread things at the end of the 1980’s and helped push Australia into recession was the present Reserve Bank Governor, Glenn Stevens.
The Macquarie Bank’s Rory Robertson, a colleague of Glenn Stevens’ back then, tells how in the second half of 1989 a gaggle of them would huddle around the sole news-screen each time the employment figures came out and marvel at the on-going strength of the economy only to learn later that it had been heading south and that employment hadn’t caught up.
They won’t make that mistake again.
The Reserve Bank has made it clear that it is prepared to cut rates well before employment turns down this time, even while inflation is still high. It understands the importance of avoiding a recession and it knows what to do.
It has done it before. In 2001 it was worried about a recession and cut rates repeatedly in order to make sure it didn’t happen. The US and much of the rest of the world were not so fortunate. Australia skipped the global turn-of-the-century recession.
So are we headed to the other extreme, an uncontrollable boom as the inflation and commodity price figures suggest?
The latest news is that that pressure is easing.
Only Norway has enjoyed the boom in export prices that Australia has. Over the past four years we have enjoyed a 40 per cent jump in our terms of trade - a measure of the price we receive for exports compared to the price we pay for imports.
Our trade balance is set to turn positive for the first time in years.
The Budget papers forecast an extra jump in our terms of trade of 20 per cent in this year alone.
But just recently commodity export prices have been slipping. The Commonwealth Bank’s measure has slid 11 per cent so far this month. The more-widely quoted Baltic Dry Freight index has fallen 24 per cent in two months.
Demand for Australia’s iron ore, coal, gas and so on is easing.
Much of the developed word is in something close to a recession. Most of the big nations will struggle to report an economic growth rate too far above 1 per cent this year. Even China’s growth is slowing.
The key question for Australia is whether China will continue to shower our mining companies with wealth regardless.
China will if it is now growing under its own steam, producing goods for its own Chinese workers as much as it does for export. It won’t if it its growth is still dependent on the United States.
The answer will give us a clue as to which country we’re going to be living in in the years ahead – one heading dangerously up or worryingly down.
Or perhaps we’ll muddle through the middle. Our Reserve Bank will be doing everything it can to make sure that we do.
Tears inside the Tax Office
Today's Australian Financial Review produces facinating detail about the battle between the Australian Tax Office and Australia's property billionaire Frank Lowy:
"In February 1988, Bob Fitton, an officer at the Australian Taxation Office, was photocopying in the Sydney offices of Greenwoods & Freehills when he spied a log book recording the details of faxes sent out by the accountancy firm.
The log book was none of his business. It contained information relevant to the firm's entire client base and Fitton was in the offices to conduct audits against a handful of companies.
He began leafing through its pages and recognised the dialling codes for tax havens against some client names..."
In Crikey today a former Tax Office auditor gives an inside story:
It seemed like a normal day working in the tax office. Then the phone rang.
"Ms Brady, the Commissioner is on the line," said Jan Brady’s secretary.
Jan Brady was the Deputy Commissioner of Taxation at the infamous Chatswood branch of the ATO located on Sydney’s north shore. I worked closely with Brady and was in close proximity to her office.
Less than one minute later Ms Brady emerged from her office and requested her secretary to get Margaret Oates, Deputy Commissioner Audit and Senior Tax Council Ian Young to come and see her as soon as possible.
When Ms Oates arrived the message was simple.
"Michael has settled the case," said Ms Brady.
That person was Michael Carmody, who was Commissioner of Taxation at the time. Oates replied in a flash, "What the f-ck for?"...
"He said he had his reasons."
Oates was devastated. After spending three and a half years on the case she burst into tears. Brady placed a consoling arm around her and said, "I understand Margaret, I’m upset too."
After many years working in the ATO I had never seen a senior officer cry before and Oates was a pretty tough woman.
Later, Ian Young made an appearance. The mild mannered brilliant lawyer who is now a leading Sydney tax barrister looked shattered. He looked like he had just swallowed a bottle full of angry ant pills as he stormed past me.
Later that day I ran into one of the auditors involved in the case and I asked him what all the commotion was.
"The c-nt from cowards’ castle (meaning Canberra) has settled our case," he said.
I know nothing about the Lowy tax case except what I have read about in the papers. But that particular day I will never forget. It was as if the tax office had lost its innocence. The majority of tax officers are hard working professionals who take seriously their job of protecting the revenue.
To have someone from Canberra who had nothing to do with the progress of the case suddenly come in over the top and settle the matter has eaten away at tax officers since that eventful day. So much so that it appears officers involved in the case have spoken privately to journalists. The investigation into the Lowys had not been completed. It was premature to settle.
To my knowledge, Michael Carmody settled two cases in his lifetime as Commissioner. The other one was the Robert Gerard matter. Ironically both matters were settled prior to the two gentlemen being appointed to the Reserve Bank Board.
Bob Fitton, star of today's Financial Review front story on the Lowy settlement, highlighted the same reservations in his submission to federal parliament’s Public Accounts and Audit Committee.
The Committee Chair Sharon Grierson MP said last month there was no compelling evidence to change the ATO’s settlement guidelines. She might regret those words.
Read more >>
"In February 1988, Bob Fitton, an officer at the Australian Taxation Office, was photocopying in the Sydney offices of Greenwoods & Freehills when he spied a log book recording the details of faxes sent out by the accountancy firm.
The log book was none of his business. It contained information relevant to the firm's entire client base and Fitton was in the offices to conduct audits against a handful of companies.
He began leafing through its pages and recognised the dialling codes for tax havens against some client names..."
In Crikey today a former Tax Office auditor gives an inside story:
It seemed like a normal day working in the tax office. Then the phone rang.
"Ms Brady, the Commissioner is on the line," said Jan Brady’s secretary.
Jan Brady was the Deputy Commissioner of Taxation at the infamous Chatswood branch of the ATO located on Sydney’s north shore. I worked closely with Brady and was in close proximity to her office.
Less than one minute later Ms Brady emerged from her office and requested her secretary to get Margaret Oates, Deputy Commissioner Audit and Senior Tax Council Ian Young to come and see her as soon as possible.
When Ms Oates arrived the message was simple.
"Michael has settled the case," said Ms Brady.
That person was Michael Carmody, who was Commissioner of Taxation at the time. Oates replied in a flash, "What the f-ck for?"...
"He said he had his reasons."
Oates was devastated. After spending three and a half years on the case she burst into tears. Brady placed a consoling arm around her and said, "I understand Margaret, I’m upset too."
After many years working in the ATO I had never seen a senior officer cry before and Oates was a pretty tough woman.
Later, Ian Young made an appearance. The mild mannered brilliant lawyer who is now a leading Sydney tax barrister looked shattered. He looked like he had just swallowed a bottle full of angry ant pills as he stormed past me.
Later that day I ran into one of the auditors involved in the case and I asked him what all the commotion was.
"The c-nt from cowards’ castle (meaning Canberra) has settled our case," he said.
I know nothing about the Lowy tax case except what I have read about in the papers. But that particular day I will never forget. It was as if the tax office had lost its innocence. The majority of tax officers are hard working professionals who take seriously their job of protecting the revenue.
To have someone from Canberra who had nothing to do with the progress of the case suddenly come in over the top and settle the matter has eaten away at tax officers since that eventful day. So much so that it appears officers involved in the case have spoken privately to journalists. The investigation into the Lowys had not been completed. It was premature to settle.
To my knowledge, Michael Carmody settled two cases in his lifetime as Commissioner. The other one was the Robert Gerard matter. Ironically both matters were settled prior to the two gentlemen being appointed to the Reserve Bank Board.
Bob Fitton, star of today's Financial Review front story on the Lowy settlement, highlighted the same reservations in his submission to federal parliament’s Public Accounts and Audit Committee.
The Committee Chair Sharon Grierson MP said last month there was no compelling evidence to change the ATO’s settlement guidelines. She might regret those words.
In news just to hand... it's over
THE Nine Network has axed two of its high-profile news and current affairs programs, Nightline and Sunday, in dramatic changes to its line-up announced today.In a statement, Nine said today the Sunday program would close on Sunday, August 3, and be replaced by a weekly hour-long news bulletin on Sundays from 8am.
Nine's late-night news program, Nightline, will finish tonight.
Director of news and current affairs John Westacott said the decision to close Sunday was "difficult but inevitable".
"There is no joy or feeling of professional achievement to end programs with such illustrious histories, " he said.
"During its 27 years on air Sunday has been at the forefront of ground-breaking and award-winning television: much envied for its journalism bravery and professional diligence."
Thursday, July 24, 2008
Who did the Howard years help?
This is from the latest NATSEM AMP report out today. The incomes of Australians in the highest-income ten per cent of suburbs and towns rocketed up compared to the rest of us.
It gets better for the top ten per cent. Housing costs in their suburbs increased more slowly than they did for most of the rest of us:
...meaning that their "after housing-costs" income soared compared to everyone else.
Fortune blessed them (and lets face it, they were well-off to start with).
Relax. Governor Stevens does not want to tighten rates
Here's why:
Only a year ago Australia’s inflation rate was 2 per cent - at the bottom of the Reserve Bank’s target band.
The relentless march of petrol prices, food prices, mortgages and rents has now pushed it up to 4.5 per cent and may push it even higher.
So should we be worried?
Probably not, in the view of the Reserve Bank and its Governor Glenn Stevens.
They are focused instead on thier own measures of the so-called underlying inflation rate that either discard or downplay the really big price movements in both directions.
Right now those are the increase in fuel prices – up 8.7 per cent in the quarter, and the slide in fruit prices – down 7.4 per cent.
Ignoring those in attempt to understand the more general forces at work, the Bank has concluded that Australia’s underlying quarterly price pressure is probably 1.1 per cent...
...well above the 0.6 per cent it would like, but importantly down on what it was in the previous quarter.
Believe it or not, that means the Bank is pretty pleased with itself right now. Its two interest rate hikes last year and its two this year (plus the extra hikes imposed by the banks) appear to restraining our spending and restraining price pressure.
If that continues, inflation should fall back to where the Reserve Bank wants it – not quickly, but eventually.
The Reserve Bank isn’t in a hurry.
So long as the underlying rate keeps falling, or keeps looking as if it will fall, it would be unfazed if it took until the end of 2010 for the underlying rate of inflation to get back to 0.6 per cent.
It won’t be pushing up interest rates in order to hurry it along.
Mortgagees, and Kevin Rudd and Wayne Swan can rest easy.
The Bank might even be prepared to cut rates if needed without waiting for inflation to finish falling back to within its target band and without waiting for serious evidence that the economy is in trouble.
The Reserve Bank looks ahead when it makes its decisions.
If it can see that Australia’s economy is about to turn down (as has the ACT’s) or if it can see that unemployment is about to climb, it will cut rates ahead of time.
It is tasked with avoiding a recession as well as controlling inflation. It takes both responsibilities seriously.
Read more >>
Only a year ago Australia’s inflation rate was 2 per cent - at the bottom of the Reserve Bank’s target band.
The relentless march of petrol prices, food prices, mortgages and rents has now pushed it up to 4.5 per cent and may push it even higher.
So should we be worried?
Probably not, in the view of the Reserve Bank and its Governor Glenn Stevens.
They are focused instead on thier own measures of the so-called underlying inflation rate that either discard or downplay the really big price movements in both directions.
Right now those are the increase in fuel prices – up 8.7 per cent in the quarter, and the slide in fruit prices – down 7.4 per cent.
Ignoring those in attempt to understand the more general forces at work, the Bank has concluded that Australia’s underlying quarterly price pressure is probably 1.1 per cent...
...well above the 0.6 per cent it would like, but importantly down on what it was in the previous quarter.
Believe it or not, that means the Bank is pretty pleased with itself right now. Its two interest rate hikes last year and its two this year (plus the extra hikes imposed by the banks) appear to restraining our spending and restraining price pressure.
If that continues, inflation should fall back to where the Reserve Bank wants it – not quickly, but eventually.
The Reserve Bank isn’t in a hurry.
So long as the underlying rate keeps falling, or keeps looking as if it will fall, it would be unfazed if it took until the end of 2010 for the underlying rate of inflation to get back to 0.6 per cent.
It won’t be pushing up interest rates in order to hurry it along.
Mortgagees, and Kevin Rudd and Wayne Swan can rest easy.
The Bank might even be prepared to cut rates if needed without waiting for inflation to finish falling back to within its target band and without waiting for serious evidence that the economy is in trouble.
The Reserve Bank looks ahead when it makes its decisions.
If it can see that Australia’s economy is about to turn down (as has the ACT’s) or if it can see that unemployment is about to climb, it will cut rates ahead of time.
It is tasked with avoiding a recession as well as controlling inflation. It takes both responsibilities seriously.
Wednesday, July 23, 2008
Inflation - not so bad
Today's number was 1.5 per cent for the quarter, 4.5 per cent annual - which looks bad.
But as CommSec says:
"Strip out housing and financial services and the inflation result improves dramatically – down from 4.5 per cent to 3.3 per cent. And if you go further and take out petrol (another factor outside Reserve Bank influence), all of a sudden the inflation reading doesn’t look so bad after all."
Here's how it sees the outlook:
Today's Canberra Times inflation story is below the fold:
The ACT’s weakening economy has seen it defy the nation on inflation -
recording a slide in its annual rate at the same as Australia’s rate has
surged.
Only one other state – Tasmania – reported such a slide.
Australia’s annual rate of inflation jumped from 4.2 to 4.5 percent in the
June quarter – a rate even further above the Reserve Bank’s target band of 2
to 3 per cent.
The ACT’s rate fell from 4.6 to 4.4 per cent.
The Bureau of Statistics figures show that Canberra prices increased by only
1.2 per cent in the June quarter - a rate bettered only in Hobart.
Nationwide, prices climbed 1.5 per cent – the biggest quarterly jump since
the introduction of the Goods and Services Tax in 2000.
Leading national prices up were an 8.7 per cent jump in the price of petrol
in the quarter, a 3 per cent jump in the price of clothes, and a 2.1 per
cent jump in the price of alcohol.
The Opposition was quick to blame the alcohol price increase on the
government, with its Treasury Spokesman Malcolm Turnbull saying the
“alcopops” tax introduced ahead of the May Budget pushed up spirits prices.
“We’ve seen the spirits component increase by over 6 per cent thanks to the
tax as we said it would,” he said.
“That’s the highest increase since 1980. The Budget is putting up the price
of alcohol, putting up the price of private health insurance, putting up the
price of luxury cars. The Government could have chosen not to put up the
price of alcohol, but it did and that has flowed into the inflation numbers”
.
The Treasurer Wayne Swan said he had inherited inflation at a 16-year high.
“It didn’t happen overnight. It has been building for a long time and it
will take time to deal with. There is no point in trying to sugar-coat it,”
he said.
Most Canberra price rises were weaker than the national average. Canberra
clothing prices increased by 1.7 per cent, well below the national average
of 3 per cent. Canberra household goods prices moved hardly at all while
national prices climbed 1.6 per cent. Canberra fresh fruit prices fell by
18.7 per cent, far more than the national average of 7.4 per cent.
The weaker consumer prices reflect a weaker ACT economy.
The ACT was the only state or territory whose economy contracted in the
March quarter according to state final demand figures released last month.
On an annual basis economic activity in the ACT scarcely grew at all.
At the time the Acting Chief Minister Katy Gallagher blamed the election of
the Rudd Labor Government for the downturn saying that “a change in
government nationally has resulted in a temporary slowdown in public
spending which was confirmed by the efficiencies announced in the federal
budget.”
The so-called underlying rates of inflation watched by the Reserve Bank were
lower than the headline rates and fell in the June Quarter, raising the
possibility that inflationary pressures have peaked.
“Strip out housing and financial services and the inflation result improves
dramatically, down from 4.5 per cent to 3.3 per cent,” said Commonwealth
Securities chief economist Craig James.
“If you go further and take out petrol - another factor outside Reserve Bank
influence - all of a sudden the inflation reading doesn’t look so bad after
all.”
“The main worry for the Reserve Bank is that the community may start to get
used to inflation readings above 4 per cent and they start to become the
norm rather than the exception.”
The Reserve Bank board will meet to consider the future of interest rates in
two weeks time on Tuesday August 5.
Read more >>
But as CommSec says:
"Strip out housing and financial services and the inflation result improves dramatically – down from 4.5 per cent to 3.3 per cent. And if you go further and take out petrol (another factor outside Reserve Bank influence), all of a sudden the inflation reading doesn’t look so bad after all."
Here's how it sees the outlook:
Today's Canberra Times inflation story is below the fold:
The ACT’s weakening economy has seen it defy the nation on inflation -
recording a slide in its annual rate at the same as Australia’s rate has
surged.
Only one other state – Tasmania – reported such a slide.
Australia’s annual rate of inflation jumped from 4.2 to 4.5 percent in the
June quarter – a rate even further above the Reserve Bank’s target band of 2
to 3 per cent.
The ACT’s rate fell from 4.6 to 4.4 per cent.
The Bureau of Statistics figures show that Canberra prices increased by only
1.2 per cent in the June quarter - a rate bettered only in Hobart.
Nationwide, prices climbed 1.5 per cent – the biggest quarterly jump since
the introduction of the Goods and Services Tax in 2000.
Leading national prices up were an 8.7 per cent jump in the price of petrol
in the quarter, a 3 per cent jump in the price of clothes, and a 2.1 per
cent jump in the price of alcohol.
The Opposition was quick to blame the alcohol price increase on the
government, with its Treasury Spokesman Malcolm Turnbull saying the
“alcopops” tax introduced ahead of the May Budget pushed up spirits prices.
“We’ve seen the spirits component increase by over 6 per cent thanks to the
tax as we said it would,” he said.
“That’s the highest increase since 1980. The Budget is putting up the price
of alcohol, putting up the price of private health insurance, putting up the
price of luxury cars. The Government could have chosen not to put up the
price of alcohol, but it did and that has flowed into the inflation numbers”
.
The Treasurer Wayne Swan said he had inherited inflation at a 16-year high.
“It didn’t happen overnight. It has been building for a long time and it
will take time to deal with. There is no point in trying to sugar-coat it,”
he said.
Most Canberra price rises were weaker than the national average. Canberra
clothing prices increased by 1.7 per cent, well below the national average
of 3 per cent. Canberra household goods prices moved hardly at all while
national prices climbed 1.6 per cent. Canberra fresh fruit prices fell by
18.7 per cent, far more than the national average of 7.4 per cent.
The weaker consumer prices reflect a weaker ACT economy.
The ACT was the only state or territory whose economy contracted in the
March quarter according to state final demand figures released last month.
On an annual basis economic activity in the ACT scarcely grew at all.
At the time the Acting Chief Minister Katy Gallagher blamed the election of
the Rudd Labor Government for the downturn saying that “a change in
government nationally has resulted in a temporary slowdown in public
spending which was confirmed by the efficiencies announced in the federal
budget.”
The so-called underlying rates of inflation watched by the Reserve Bank were
lower than the headline rates and fell in the June Quarter, raising the
possibility that inflationary pressures have peaked.
“Strip out housing and financial services and the inflation result improves
dramatically, down from 4.5 per cent to 3.3 per cent,” said Commonwealth
Securities chief economist Craig James.
“If you go further and take out petrol - another factor outside Reserve Bank
influence - all of a sudden the inflation reading doesn’t look so bad after
all.”
“The main worry for the Reserve Bank is that the community may start to get
used to inflation readings above 4 per cent and they start to become the
norm rather than the exception.”
The Reserve Bank board will meet to consider the future of interest rates in
two weeks time on Tuesday August 5.
Tuesday, July 22, 2008
Tuesday Column: Wong's gift to lobbyists
This column is about the coal-fired power industry, but it could have been about the asbestos industry, or the tobacco industry
Never once on the countless occasions that Australian governments have restricted the sale of tobacco have they felt compelled to compensate the manufacturers for ''significant reductions in their profitability''.
Why would they? The cigarette manufacturers knew what was coming (and had decided to invest anyway) and were blessed with rusted-on customers.
But there was another more important reason why our governments didn't offer ''compensation'' to the industry they were trying to cripple.
To do it would have been to accept that the existing tobacco manufacturers had continuing ''rights'' that the government had to buy out in order to proceed.
It would have helped create a precedent that would have undermined the right of Australia's parliaments to act as they saw fit.
It would have undermined our sovereignty as voters...
The Government's independent climate change adviser, Ross Garnaut, saw the danger clearly in his interim report delivered earlier this year.
As he put it, ''There is no tradition in Australia for compensating capital for losses associated with economic reforms.''
Among the reforms for which he pointed out Australian businesses have not been compensated were the floating of the dollar, the introduction of the goods and services tax and the massive tariff cuts that Garnaut himself oversaw as Bob Hawke's economic adviser in the 1980s.
By the same token he pointed out that there had been no tradition of taking away from businesses the extraordinary windfall gains that they had enjoyed as a result of government decisions, including cuts in the company tax rate.
In the case of emissions trading, businesses had been ''aware of the risks of carbon pricing for many years''. Many had ''sought to re-engineer their production processes to reduce their reliance on emissions''.
He must have been worried that the argument wasn't getting through. In his draft report released just days before last week's Government green paper, he devoted an entire appendix to applying the argument explicitly to coal-fired electricity generators.
There was ''no basis'' for the claim that generators had a ''right to emit carbon dioxide and this right is being taken away by a policy change''.
As he put it ''governments always retain the absolute right to vary policy and industry is generally cognisant of the risk''.
There's no doubt that Australia's coal-fired electricity generators have been cognisant of the risk. They have been lobbying on the basis that their businesses have been at risk since way back before Australia took part in the Kyoto negotiations a decade ago.
But last week, despite all they'd done, and despite all that Garnaut had said, they succeeded in convincing the Australian Government that its 2010 emissions trading scheme was unexpected and that they needed compensation.
In her green paper, Climate Change Minister Penny Wong justifies the idea this way: ''If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.''
Try submitting that sentence to the laugh test.
That is, try to read it out loud without laughing.
The truth is that when it finally makes a decision on the type of emissions trading system that Australia will have from 2010, Parliament will have ended, not added to, the uncertainty that has been making Australia's electricity market a risky investment proposition.
Does Wong really think that investors will stay away from Australia's electricity market when they know what the rules are? Does she really think they haven't had a fair idea of what was coming for a decade?
Apparently she does. Her green paper proposes making cash payments or payments in the form of free pollution permits to all of the coal-fired power stations that were in existence or planned before June 3, 2007.
Why that date? Because it was the day on which former Prime Minister John Howard came out in support an emissions trading scheme, the day the idea ''became bipartisan policy in Australia''.
The Minister says that Sunday, June 3, 2007, was ''the point beyond which investors could not reasonably argue that they had no knowledge of a potential carbon constraint''.
Where's the laugh test?
It's actually worse than funny. By giving a gift to a class of firms that neither needs it nor deserves it (quite separate to the grant of free permits to exporting and import-competing carbon-intensive firms such as aluminium producers who will need them), Wong has opened the door to all sorts of special pleading.
Woodside Petroleum is just the first cab off the rank. If dirty coal-burning power stations can get compensation, why not cleaner natural gas producers?
It's the sort of endless special pleading for access to ever-widening and ever more complex loopholes that killed the goods and services tax the first time the Coalition proposed it.
John Hewson was unable to explain why he would be taxing a cold pie but not a hot pie and lost the 1993 election.
Australia's existing coal-fired power stations won't need the compensation anyway. They will be able to pass on the extra cost of the emission permits. They will be encouraged to. It is how the scheme is meant to work.
Eventually the higher price of power will prod some of us to use less of it, and eventually wind and commercial solar power generators will become competitive against coal because they won't to buy emission permits.
But none of that will happen in a hurry. In the short term we will have no choice but to buy our power from the existing coal-fired generators. It is where our power comes from.
It is likely that by the time those plants are out of commission they would have been out of commission anyway.
The generators will doubtless pocket the gift Wong plans to give them (the NSW Government will be one of the biggest beneficiaries, owning many of the generators) but it won't encourage them to give up lobbying.
Why should they when another part of the minister's plan has the parliament resetting the five-yearly carbon-reduction target each year?
The tobacco industry would love the opportunity. It shouldn't be given to a dinosaur industry that has served and will continue to serve Australia well and has known for years that its days were numbered.
Read more >>
Never once on the countless occasions that Australian governments have restricted the sale of tobacco have they felt compelled to compensate the manufacturers for ''significant reductions in their profitability''.Why would they? The cigarette manufacturers knew what was coming (and had decided to invest anyway) and were blessed with rusted-on customers.
But there was another more important reason why our governments didn't offer ''compensation'' to the industry they were trying to cripple.
To do it would have been to accept that the existing tobacco manufacturers had continuing ''rights'' that the government had to buy out in order to proceed.
It would have helped create a precedent that would have undermined the right of Australia's parliaments to act as they saw fit.
It would have undermined our sovereignty as voters...
The Government's independent climate change adviser, Ross Garnaut, saw the danger clearly in his interim report delivered earlier this year.
As he put it, ''There is no tradition in Australia for compensating capital for losses associated with economic reforms.''
Among the reforms for which he pointed out Australian businesses have not been compensated were the floating of the dollar, the introduction of the goods and services tax and the massive tariff cuts that Garnaut himself oversaw as Bob Hawke's economic adviser in the 1980s.
By the same token he pointed out that there had been no tradition of taking away from businesses the extraordinary windfall gains that they had enjoyed as a result of government decisions, including cuts in the company tax rate.
In the case of emissions trading, businesses had been ''aware of the risks of carbon pricing for many years''. Many had ''sought to re-engineer their production processes to reduce their reliance on emissions''.
He must have been worried that the argument wasn't getting through. In his draft report released just days before last week's Government green paper, he devoted an entire appendix to applying the argument explicitly to coal-fired electricity generators.
There was ''no basis'' for the claim that generators had a ''right to emit carbon dioxide and this right is being taken away by a policy change''.
As he put it ''governments always retain the absolute right to vary policy and industry is generally cognisant of the risk''.
There's no doubt that Australia's coal-fired electricity generators have been cognisant of the risk. They have been lobbying on the basis that their businesses have been at risk since way back before Australia took part in the Kyoto negotiations a decade ago.
But last week, despite all they'd done, and despite all that Garnaut had said, they succeeded in convincing the Australian Government that its 2010 emissions trading scheme was unexpected and that they needed compensation.
In her green paper, Climate Change Minister Penny Wong justifies the idea this way: ''If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.''
Try submitting that sentence to the laugh test.
That is, try to read it out loud without laughing.
The truth is that when it finally makes a decision on the type of emissions trading system that Australia will have from 2010, Parliament will have ended, not added to, the uncertainty that has been making Australia's electricity market a risky investment proposition.
Does Wong really think that investors will stay away from Australia's electricity market when they know what the rules are? Does she really think they haven't had a fair idea of what was coming for a decade?
Apparently she does. Her green paper proposes making cash payments or payments in the form of free pollution permits to all of the coal-fired power stations that were in existence or planned before June 3, 2007.
Why that date? Because it was the day on which former Prime Minister John Howard came out in support an emissions trading scheme, the day the idea ''became bipartisan policy in Australia''.
The Minister says that Sunday, June 3, 2007, was ''the point beyond which investors could not reasonably argue that they had no knowledge of a potential carbon constraint''.
Where's the laugh test?
It's actually worse than funny. By giving a gift to a class of firms that neither needs it nor deserves it (quite separate to the grant of free permits to exporting and import-competing carbon-intensive firms such as aluminium producers who will need them), Wong has opened the door to all sorts of special pleading.
Woodside Petroleum is just the first cab off the rank. If dirty coal-burning power stations can get compensation, why not cleaner natural gas producers?
It's the sort of endless special pleading for access to ever-widening and ever more complex loopholes that killed the goods and services tax the first time the Coalition proposed it.
John Hewson was unable to explain why he would be taxing a cold pie but not a hot pie and lost the 1993 election.
Australia's existing coal-fired power stations won't need the compensation anyway. They will be able to pass on the extra cost of the emission permits. They will be encouraged to. It is how the scheme is meant to work.
Eventually the higher price of power will prod some of us to use less of it, and eventually wind and commercial solar power generators will become competitive against coal because they won't to buy emission permits.
But none of that will happen in a hurry. In the short term we will have no choice but to buy our power from the existing coal-fired generators. It is where our power comes from.
It is likely that by the time those plants are out of commission they would have been out of commission anyway.
The generators will doubtless pocket the gift Wong plans to give them (the NSW Government will be one of the biggest beneficiaries, owning many of the generators) but it won't encourage them to give up lobbying.
Why should they when another part of the minister's plan has the parliament resetting the five-yearly carbon-reduction target each year?
The tobacco industry would love the opportunity. It shouldn't be given to a dinosaur industry that has served and will continue to serve Australia well and has known for years that its days were numbered.
Friday, July 18, 2008
Everything old is new again. On line.
(With apologies to Peter Allen)Like this - now familiar - Budget critique:
"The Budget is passed; and it only remains for those whom it is designed to rob to use every means in their power to resist the gross injustice... and the fraudulent cruelty, that this political juggler is inflicting on the poor."
It is a response to the British budget of 1869 from the satirical weekly Tomahawk.
Colin Steele of the ANU found it for me on the Nineteenth-Century Serials Edition (ncse), a new free fully-searchable online collection of nineteenth-century periodicals and newspapers, presently in beta.
It is even indexed for people, places, institutions, and subjects.
Right now I am reading the 1858 English Woman’s Journal.
Also in it are the Monthly Repository (1806-1837), the Unitarian Chronicle (1832-1833), Northern Star (1838-1852), Leader (1850-1860) and the Publishers’ Circular (1880-1890).
The website is http://www.ncse.ac.uk/
Start browsing here.
Thursday, July 17, 2008
The Green Paper is "a reasonable start"
So says Tim Colebatch in today's Age.
"YOU can think of yesterday's green paper as a sandpaper job. Labor had already committed to introduce emissions trading as the best way to reduce our greenhouse gas emissions. Such a plan has sharp edges that stand to hurt voters and business alike. The green paper is about keeping the design while smoothing off the sharp edges."
"YOU can think of yesterday's green paper as a sandpaper job. Labor had already committed to introduce emissions trading as the best way to reduce our greenhouse gas emissions. Such a plan has sharp edges that stand to hurt voters and business alike. The green paper is about keeping the design while smoothing off the sharp edges."
Wednesday, July 16, 2008
What's the most dodgy part of the emissions trading green paper?
I reckon it's this: A promise of special direct assistance to existing coal-fired power stations on the grounds that it will encourage companies to invest in Australia.
Excuse me!
The existing generators have already invested. And quite a long time ago. Anyone who built a coal-fired power station recently would have known what was coming.
(In any event, the emissions trading scheme will hardly hurt the existing coal-fired generators. They are encouraged to pass on their higher costs. When they can't, it will be because competitors such as wind-power are taking their market, which is some time off, but what we want.)
Wong's paper justifies the handout this way:
"If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.
An increased perception of risk would increase the expected returns required by investors before they would invest, potentially delaying new investments in the generation sector.
The extent of this risk is unquantifiable as it is based on the subjective views that investors may have held in the past and the view that they may take of the stability of the new investment environment in electricity."
Pardon me while I laugh.
Come to think of it, it these sentences fail to pass Professor Garnaut's "laugh test". Can you read them out loud without laughing?
As Garnaut has reminded us, when tariffs were cut Australia didn't compensate existing manufacturers, because it wouldn't cop crappy arguments like this one.
This is a handout resulting from lobbying. Nothing more.
Much of it will go to the beleaguered NSW government which owns coal-fired generators.
Read more >>
Excuse me!
The existing generators have already invested. And quite a long time ago. Anyone who built a coal-fired power station recently would have known what was coming.
(In any event, the emissions trading scheme will hardly hurt the existing coal-fired generators. They are encouraged to pass on their higher costs. When they can't, it will be because competitors such as wind-power are taking their market, which is some time off, but what we want.)
Wong's paper justifies the handout this way:
"If the change in regulatory arrangements was unanticipated and implemented without compensation, and investors viewed this as evidence that the Government was likely to change the regulatory regime in future in an unpredictable way, then investors might regard Australia's electricity market as a riskier investment proposition.
An increased perception of risk would increase the expected returns required by investors before they would invest, potentially delaying new investments in the generation sector.
The extent of this risk is unquantifiable as it is based on the subjective views that investors may have held in the past and the view that they may take of the stability of the new investment environment in electricity."
Pardon me while I laugh.
Come to think of it, it these sentences fail to pass Professor Garnaut's "laugh test". Can you read them out loud without laughing?
As Garnaut has reminded us, when tariffs were cut Australia didn't compensate existing manufacturers, because it wouldn't cop crappy arguments like this one.
This is a handout resulting from lobbying. Nothing more.
Much of it will go to the beleaguered NSW government which owns coal-fired generators.
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