Everyone wants to be part of saying sorry

As I cycled up to Parliament House at 8.00am the roads were like car parks. People were walking up to Parliament House and the screens erected nearby with incredible goodwill.

The air is crisp, and so was the gray hair on the heads of the aboriginal people approaching the Parliament as if this is their day.

One hour before the building is due to open there is a queue. I took this photo on my mobile phone.

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Australia says sorry

Here's how

The text of the formal apology to Indigenous Australians to be made in federal parliament by Prime Minister Kevin Rudd at 9am AEDT, Wednesday February 13:

Today we honour the Indigenous peoples of this land, the oldest continuing cultures in human history.

We reflect on their past mistreatment.

We reflect in particular on the mistreatment of those who were stolen generations - this blemished chapter in our nation's history.

The time has now come for the nation to turn a new page in Australia's history by righting the wrongs of the past and so moving forward with confidence to the future.

We apologise for the laws and policies of successive Parliaments and governments that have inflicted profound grief, suffering and loss on these our fellow Australians.

We apologise especially for the removal of Aboriginal and Torres Strait Islander children from their families, their communities and their country.

For the pain, suffering and hurt of these stolen generations, their descendants and for their families left behind, we say sorry.

To the mothers and the fathers, the brothers and the sisters, for the breaking up of families and communities, we say sorry. And for the indignity and degradation thus inflicted on a proud people and a proud culture, we say sorry...

We the Parliament of Australia respectfully request that this
apology be received in the spirit in which it is offered as part of
the healing of the nation.

For the future we take heart; resolving that this new page in
the history of our great continent can now be written.

We today take this first step by acknowledging the past and
laying claim to a future that embraces all Australians.

A future where this Parliament resolves that the injustices of
the past must never, never happen again.

A future where we harness the determination of all Australians,
Indigenous and non-Indigenous, to close the gap that lies between
us in life expectancy, educational achievement and economic
opportunity.

A future where we embrace the possibility of new solutions to
enduring problems where old approaches have failed.
A future based on mutual respect, mutual resolve and mutual
responsibility.

A future where all Australians, whatever their origins, are
truly equal partners, with equal opportunities and with an equal
stake in shaping the next chapter in the history of this great
country, Australia.

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Tuesday Column: Savings incentives don't boost savings!

Australia's newest prime minister has been good at keeping his promises. Here's one he should ditch.

Two months after the election at a time when he no longer needed to pledge to do anything silly, Kevin Rudd promised as part of his five-point attack on inflation “attractive incentives” to help foster a culture of saving.

Those of us who know about incentives buried our heads in embarrassment.

The money-grabbers who run Australia's banks and superannuation funds and also Australia's high income earners lapped it up.

The idea has form...

Back at the start of the 1990's the Coalition put it forward in Fightback! Anyone who put up to $1,000 into a bank account would have their tax on its earnings cut by 30 cents in the dollar.

John Howard took a variant of the idea into the 1996 election but then dropped it on taking office, as had his predecessor Paul Keating a few years earlier. (That didn't stop Mark Latham resurrecting it in 2003, promising “nest-egg accounts” to create a “new culture of savings”.

Keating had listened to Dr Vince Fitzgerald, Australia's foremost expert on saving whose landmark 1993 report examined financial incentives and concluded that “an increased return on saving is an incentive to save more, but also an incentive to save less.”

That's right. A financial incentive can encourage saving, but it can also send it backwards.

Here's what can happen. On one hand the tax break increases the return for every dollar saved in that particular vehicle and so makes saving through that vehicle more attractive. It encourages people to shovel more of the money that they were going to save anyway into it. Economists call this the price effect.

On the other hand, the increased return for saving reduces the need to save as much. If I know that I need so many thousand dollars for when I retire or in order to buy a house and if the tax break helps me get there sooner, I'll be able to wind back my savings rate sooner. The tax break will reduce the need to save as much. Economists call this the income effect.

Fitzgerald found that neither theory nor evidence could provide much guidance as to which effect would predominate.

Since then, the growth of compulsory and tax-advantaged superannuation has given us a very good idea of which effect is the most important. The more money we have been forced or cajoled to put into superannuation the more we have taken away from other forms of saving. Our total savings rate has plummeted as the amount we have been forced to pump into super and the payoff for doing it has been hiked. Why save even more, when we can see that the nest egg we've got is building up nicely?

High returns from the share market have been doing much the same sort of thing. They haven't so much encouraged us to pump more money in as to spend more freely, knowing that we've become richer.

All of this would be an idle curiosity - a few wasted billions on incentives here, a few wasted billions there - were it not for the fact that tax incentives for saving eat into national savings.

National savings are what actually matters when it comes to an economy's health . They are the sum of private and public savings. Tax incentives probably achieve little one way or the other when it comes to private savings – they might help, they might hurt - but they rip the heart out of public saving.

Just last month the Treasury reported that our existing and recently expanded tax concessions for superannuation were on track to climb from costing $27 billion to $32 billion in three years.

The tax-advantaged First Home Saver Accounts already announced by Kevin Rudd will over time add billions more.

And, as with super, the tax breaks on the First Home Saver Accounts will directed to the well-off. That's how savings incentives work.

Anyone putting up to $5,000 into one of Rudd's new accounts will get a government contribution that will cut the effective tax rate on its earnings to 15 per cent.

But low-income earners can't put that money in. As a letter-writer to a Sydney newspaper put it, it's like offering a low-income family a 50 per cent discount on a Rolls Royce: “How on earth can a family struggling to make ends meet save $5,000 a year?”

The well-off do incredibly well out of the superannuation tax concessions, not only because they are the only people who have the spare cash to pump into extra contributions, but also because the 15 per cent concessional tax rate is a concession to them but not to a low earner already paying only 15 per cent tax.

The Opposition says it is worried that Mr Rudd will axe some of the super tax concessions. He should. It would boost national savings while making the tax system fairer.

It is unfortunate that as an “evidence-based” politician he is at the same time flirting with the idea of new tax incentives for saving.

Nowhere in yesterday's 56-page Reserve Bank Quarterly Statement did it bemoan the lack of an extra incentive to save. It bemoaned our neglect of infrastructure, it bemoaned capacity constraints, it bemoaned the latest round of tax cuts. It didn't mention incentives to save because it knows that we are broadly impervious to such incentives.

With good reason. Most of us are saving about what we should right now given our income and the demands on it and what we will need in the future.

The super industry likes to say that we are going to need a lot. It told a Senate Committee that we would need between 60 and 65 per cent of our pre-retirement gross income on retirement.

But we know that's not true. Most of us never get that much money to spend on ourselves while we are working.

While working our income goes into our mortgage, our children and the very large expenses involved in actually going to work.

These are genuinely more important priorities for us than putting money away for a future in which our needs are going to be lower.

“Attractive incentives” won't change that. But they will divert the government's attention away from the really important things it should be doing.

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"Every further rate rise takes Australia closer to the economic abyss"

My colleague Shane Wright, economics editor of the West Australian:

Only a collapse in the Australian economy will spare homebuyers, businesses and the Federal Government more interest rate pain this year.

That’s the only view to be taken from the Reserve Bank’s most hawkish statement on monetary policy released yesterday. As one economist said, the bank has dipped a brush in blood and painted on a wall — interest rates will rise in three weeks.

The inflation problems are many.

Wages are starting to rise, the terms of trade will increase, there are not enough workers for an economy going at full tilt, businesses still struggle with capacity constraints, tax cuts help consumers spend like there’s no tomorrow and not even a US recession is likely to slow Australia.

The Reserve holds out some hope that its previous rate rises, together with increased business investment which has eased export bottlenecks and a global slowdown may take some sting out of the inflation pain.

But it knows this is a forlorn hope...

Only a collapse in the Australian economy will spare homebuyers, businesses and the Federal Government more interest rate pain this year.

That’s the only view to be taken from the Reserve Bank’s most hawkish statement on monetary policy released yesterday. As one economist said, the bank had dipped a brush in blood and painted on a wall — interest rates will rise in three weeks.

The inflation problems are many.

Wages are starting to rise, the terms of trade will increase, there are not enough workers for an economy going at full tilt, businesses still struggle with capacity constraints, tax cuts help consumers spend like there’s no tomorrow and not even a US recession is likely to slow Australia.

The Reserve holds out some hope that its previous rate rises, together with increased business investment which has eased export bottlenecks and a global slowdown may take some sting out of the inflation pain.

But it knows this is a forlorn hope.

Its inflation forecasts show the consumer price index not coming down to the top of its target range until June 2010. In fact, its forecast horizon doesn’t extend long enough to take in an inflation rate starting with a two.

While some of the blame can be sheeted home to the previous government and its failure to curb spending, the Reserve also must take some responsibility.

The bank must be kicking its collective self that rates were not lifted even higher last year, and that it did not warn the Howard-Costello government against further tax cuts.

There may have been some political pain in such a move but the economic pay-off would have been seen by now.

Unfortunately for the bank, it is now in the position where it knows every further rate rise takes Australia closer to the economic abyss.

A hard landing is growing more likely, one that will knock the economy hard.

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Our Parliament, made right.

My Great Grandfather was at the opening of the first Parliament House in Canberra in 1927 - he was what we would now call a Coalition MP.

My Grandma was at the opening ceremony.

To my deep regret I missed out on the opening of the new and permanent Parliament House in 1988.

But I was in its Members Hall today, when things were put right.

Ngambri elder Matilda House Williams welcomed the House to her country.

"A Welcome to Country acknowledges our people and pays respect to our ancestors spirits who've created the lands," she said.

"In doing this the Prime Minister shows that we call proper respect, to us, to his fellow parliamentarians and to all Australians.''

"For thousands of years our people have observed this protocol, it is a good and honest and a decent and human act to reach out and make sure everyone has a place and is welcome."

The Prime Minister Kevin Rudd said in reply: "It has taken 41 parliaments to get here - we can be a bit slow sometimes - but we got here."

"I don't think the openings of our parliaments will ever be the same again - and that is good."

The Opposition Leader Brendan Nelson said, to Matilda House Williams, on behalf of Indigenous Australians:

"You made involuntary sacrifices. They were different, but they were no less important than the pioneering sacrifices of those who came to live here."

"I can assure you that whatever happens in future, so long as I have anything to do with it, Parliaments will be opened like this."

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Going up: In order to save the economy...

When it says in its latest Quarterly Statement that “labour market conditions are tight, and there is some evidence of higher growth in aggregate wages” it means that our unemployment rates have fallen too low.

It is planning to push up interest rates until it gets Australia's unemployment rate back up and Australian wage pressure down.

In the November election the outgoing Prime Minister John Howard said he would like Australia's unemployment rate to have a '3' in front of it. The Reserve Bank won't rest until it has achieved a '5' or a '6'.

Whereas Howard promised to “Go for Growth”, the Bank regards Australia's present fast rate of economic growth (“with domestic demand expanding by 5.5 per cent, well in excess of the trend growth in the economy’s productive capacity”) as the cause of its inflation nightmare...

That, and the way the Howard government and business seemed to sit on their hands during those most of those 16 years of continuous economic growth.

“Given the relatively low share of investment as a proportion of GDP over the 1990s, it may not be surprising that capacity pressures have now become an important issue,” the Bank says.

Twice it mentions the government's tax cuts as part of the problem – fueling the economic growth fire.

And it mentions boom conditions overseas.

As the Macquarie Bank's Rory Robertson put it in a note to clients: “The Bank remains worried not that the economic fallout from events offshore and in financial markets will damage our economy, but that the damage will be too small.”

The Bank believes we are about to get a further boost in our buying power courtesy of still-higher increases in the prices of iron ore and coal, and it is terrified about what it'll will do to inflation, given the way we handled the last one.

It makes the point that the margins charged by shops have soared absurdly and that the prices of goods and services that don't face import competition are climbing at an annual rate of 4.4 per cent.

Almost two decades ago the Reserve Bank brought on a recession in order to get inflation back under control. It doesn't want to have to do it again.

It's prepared to do a lot of damage – anything short of bringing on a recession – in order to whack inflation back down now while it still can.

Among the deliberately unsettling messages in the Bank's Statement – don't assume you will continue to find it easy enough to keep paying off your mortgage and spending as before, and don't assume that if you lose your job you will find it as easy as it has been to find another one.

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Going up. What the Reserve Bank Statement says

Australia's Reserve Bank has effectively pre-announced its next interest rate hike.

Declaring that only something approaching a collapse in the economy would prevent it from acting, the Bank yesterday broke with tradition and used its Quarterly Statement to explicitly set out its plan to push up rates.

It said that “absent a further shift in economic risks to the downside” interest rates would “need to be tighter”.

The Bank also sharply lifted its inflation forecasts and for the first time set out detailed projections for the next three years, concluding that without a further hike in interest rates, inflation would stay beyond the reach of its target band until into the next decade.

It expected inflation to hit to 3.5 per cent by the middle of this year and not to fall back to 3 per cent (the top of its band) until June 2010...

The Statement expressed alarm that even that forecast might prove to be optimistic.

It said that if the economy was to prove stronger than expected even the forecast of a return to 3 per cent by mid-2010 would be “unlikely to eventuate with the current policy settings.”

Signaling that it has become worried about losing control of inflation altogether the Bank's Statement said, “most importantly, if it is not reversed reasonably quickly, the recent pick-up in inflation carries the risk of generating an upward drift in inflation expectations”.

The Bank reported that when surveyed households now typically say they expect an inflation rate of 4.3 per cent, well up from the average of 3 per cent over the inflation-targeting era.

Westpac's Chief Economist Bill Evans said he was “shocked” by the Bank's obvious extreme concern.

“Even by June 2010, the expectation is only that inflation will be back at 3 per cent, the top of the target band. The decision to highlight specific point forecasts so far out emphasises how worried the Bank must be,” he said.

Dr Evans expects another interest rate hike in March when the Bank's board next meets in three week's time.

“There would appear to be no longer any doubt within the Bank that Australia has an inflation problem. Consequently, waiting for further news on the current inflation data would appear to be unnecessary,” he said.

A further rate rise in March – the fourth in just seven months - would result in mortgage rates more than one complete percentage point higher than they were in August. A $400,000 mortgage would have become in excess of $300 a month more expensive to service.

The Treasurer Wayne Swan said that the Bank's Statement steeled the Government’s resolve to attack inflation.

“These forecasts are up to half a percentage point higher than those contained in the November Statement. The higher expected inflation is the result of price increases that have already occurred and the expectation that pressures on capacity will remain for some time,” he said.

The Prime Minister Mr Rudd said it was a “disturbing warning”.

The Bank Statement said that Australia's iron ore and coal prices were set to climb a further 40 to 50 per cent in the year ahead, adding a further 5 to 10 per cent to Australia's already historically high terms of trade.

Average wage earnings were now increasing at 5.9 per cent per annum, the fastest rate since 1996.

The Shadow Treasurer Malcolm Turnbull called on the government to guarantee that its planned industrial relations would not fuel inflation further.

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Tuesday and Wednesday: Two big days for Australia's Parliament

Here's how it will pan out. Much of it will be televised:

Following a Welcome to Country ceremony for members and senators in Members’ Hall at 9am, the Clerk of the House of Representatives, Ian Harris, and Clerk of the Senate, Harry Evans, will begin proceedings in their respective chambers at 10.30am by reading the proclamation from the Governor-General, Major General Michael Jeffery, calling Parliament together.

In the House, the Usher of the Black Rod will arrive from the Senate to invite the 150 House MPs to the Senate chamber to hear the Governor-General’s appointed deputy, the Chief Justice of the High Court of Australia, Anthony Murray Gleeson, declare open the 42nd Parliament at 10:40am.

The MPs will return to the House at about 10:55am to be sworn in and then elect their new Speaker.

Once the new Speaker is elected, he or she is dragged “unwillingly” to the Speaker’s Chair (centuries ago Speakers in the United Kingdom risked being beheaded by the Monarchy), and then the Mace is placed on the Table to signify the House of Representatives is properly constituted...

The Prime Minister, Kevin Rudd, then informs the House that the new Speaker and the other MPs will be presented to the Governor-General at 2.30pm in the Members’ Hall.

Soon after the MPs return to the House at about 3pm, the Usher of the Black Rod will knock three times on the chamber door before announcing the members are required in the Senate to hear the Governor-General’s opening speech. This speech is a formal declaration of the causes for the calling together of the Parliament, which outlines the agenda of the 42nd Parliament.

His speech is followed by a 19-gun artillery salute fired from Federation Mall at about 3:50pm.

“Whereas many nations have endured bloody battles to secure their democracies, we are fortunate that the stable democracy we have enjoyed for more than a century was founded through peaceful negotiation and vote. The parliamentary procedures and traditions we inherited from Westminster in some way represent the bullet holes of our democracy,” Clerk of the House Ian Harris says.

The House resumes formal business at about 3.55pm, when the Prime Minister announces the Ministry and Whips, the Leader of the Opposition announces the Shadow Ministry and Whips, and the Leader of the Nationals announces Whips followed by the first reading of a formal bill.

On Wednesday morning (13 February), a motion will be moved in the new Parliament offering an apology to Australia’s Indigenous people, shortly after commencement at 9am. The new Parliament will sit for two weeks until Friday 22 February.

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First reaction: "shock"

"The Reserve Bank has shocked us with their obvious extreme concerns about the inflation outlook.

While the Governor's Statement last week referred to inflation moderating next year, we note that the degree of moderation in their forecasts points to it falling from 3.5% in 2008 (RBA and Westpac forecast) to 'only' 3.25% in 2009. That means that on the Bank's own forecasts, inflation will hold above the top of the 2 to 3% band for more than two years. Even by June 2010, the expectation is only that inflation will be back at 3%, the top of the target band.

The decision to highlight specific point forecasts so far out in contrast with the previous policy of defining ranges, emphasises how worried the Bank must be. For example, we would have expected them to have at least maintained the forecast we had for 2009 in the last SoMP of 2.75%-3% for the June 2010 projection. We have consistently argued that the inflation picture has become so concerning for the Bank that a very early additional rate hike will be required.

That action seems to be very clearly signalled in the concluding paragraph of the introduction to the Statement, where the Bank concludes that " ...the risk of inflation remaining uncomfortably high for some time is considerable. Absent a further shift in economic risks to the downside, therefore, monetary policy is likely to need to be tighter in the period ahead."

We expect that the next move is likely to be in March. This closing paragraph to the introduction does give the Bank an 'out' if the domestic data or the global economy (specifically the developing world) was to show some very sharp reversal in momentum over the next few weeks. However, we cannot reasonably expect such a significant development in such a short period of time that would convince the Bank, which by its own forecasts is facing more than two years of inflation exceeding the top of its target range, to delay further action."

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Strewth! The Reserve Bank tells us its about to push up rates again

I have read crime novels, but none as gripping as this morning's 56-page Statement from the Reserve Bank. Truly.

The Reserve Bank has effectively preannounced its next interest rate hike.

It has broken with tradition in its Quarterly Statement on Monetary Policy released yesterday just released by including explicit guidance about its plans for higher rates.

After expressing grave concern about inflation, which the Bank expects to stay beyond its target zone for at least two years until 2010 the Statement says that absent a further shift in economic risks to the downside, interest rates are "likely to need to be tighter in the period ahead".

It is the first time the Bank has been explicit about its plans an official communication.

It reflects move reflects despair within the Bank about developments in in inflation and is itself an attempt to shift expectations.

Read the full thing.

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Sunday dollars+sense: How we love the one we're with

If you are planning to celebrate Valentines Day this Thursday, you’ll either do it with someone who looks hot, or someone who does not.

Economists have discovered that contrary to the claims in popular songs most of us have a pretty objective idea about whether our true love looks hot or not. We even know the truth about ourselves.

Leonard Lee of the Columbia Business School has published his findings in his new paper entitled: If I’m hot, are you hot or not?

The website Hot or Not invites members to rate each other’s photos and then to ask for dates.

Examining 450,000 ratings Lee and his team have discovered near-universal agreement about who looks hot (those of us with large eyes, symmetrical faces and so on) but big differences in who we try to date...

Women are much more selective than men. One way of thinking about this is that looks matter more to women than to men. Another is that women are more focused than men on finding “the one”.

And good-looking people (both men and women) are much more selective. They can afford to be.

As a result good only good-looking people tend to score dates with other good-lookers and the rest make do.

(In fact most of us don’t even try to date real stunners. Lee says our ideal date tends to be someone who looks just a bit better than we do.)

So how do those of us who aren’t dating stunners reconcile ourselves to that reality? It had been thought that “smoke gets in our eyes” or that “love is blind” – that we imagined our dates and partners to be better-looking than they were. Shakespeare talks about fairy dust in our eyes.

But Lee finds that we are cleverer than that. As he puts it, “whereas less attractive people are willing to accept less attractive others as dating partners, they do not delude themselves into thinking that these less attractive others are, in fact, physically attractive.”

He says rather than change what we see, we broaden what we think we want.

Examining questionnaires from a speed dating event he found that those of us who are less-good-looking are much more likely to say we are not particularly looking for looks in a date – we say we are looking for other things: kindness, intelligence, a sense of humour.

And we find them.

As Lee say, using a line from another popular song: we find ways to love the one we’re with.


ECONOMICS OF DATING:

Leonard Lee, Dan Ariely, James Hong, Jim Young. If I'm Not Hot, Are You Hot or Not? Physical Attractiveness Evaluations and Dating Preferences as a Function of Own Attractiveness, Columbia Business School Working Paper 2007.

Raymond Fisman, Sheena Iyengar, Emir Kamenica, Itamar Simonson, Gender differences in mate selection: Evidence from a speed dating experiment, The Quarterly Journal of Economics, May 2006

Michele Belot , Marco Francesconi, Can Anyone be The One? Evidence on Mate Selection from Speed Dating, University of Essex, Economics Discussion Paper 620.

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Actually, Swan flogs the banks... with a damp lettuce

The Treasurer says he wants his new “listing and switching” system to make the banking system work for Australian families rather than against them. It scarcely begins to do that.

Sure, it will help if our regular deductions and credits can be smoothly transferred when we change banks.

But what about the daunting steps we will still have to face before that stage?...

Proving our identity all over again, providing to the new bank all the guff
we provided to the old one outlining our employment history, our salary, our
superannuation status, our banking history and the like, getting our
property revalued, paying for a copy of the title and so on, and so on.

If Mr Swan thinks that transferring deductions and credits are the only
things stopping Australians switching between mortgage providers, I invite
him to try all of the other steps. Starting now. Over the next few weeks.
Let’s see how much of his ministerial time it takes up.

And lets see whether he would actually do it in order to shave perhaps 0.5
per cent off the cost of his mortgage, with no guarantee that the rates won’
t change again removing the cost advantage while the cost is underway.

Australians have good reasons for not “voting with their feet” on mortgages
and the banks know it.

They’ll still know it after this morning’s well-intentioned but limited
reforms.

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Swan takes action on mortgage switching, sort of

The Treasurer Wayne Swan has launched an inquiry into bank exit fees and a package of measures to smooth the process of switching between banks as yet another bank defied him and lifted its mortgage rate by more than that mandated by the Reserve Bank.

The National Australia Bank late yesterday boosted its standard variable mortgage rate by 0.29 per cent – 0.04 per cent more than the 0.25 per cent hike instigated by the Reserve Bank on Tuesday.

It followed the lead of the Commonwealth Bank, which on Wednesday boosted its standard variable rate by 0.30 per cent – 0.05 per cent more than prompted by the Reserve.

At that time Swan described the Commonwealth Bank’s decision as “completely unacceptable” and its customers would be “rightly furious”...

While the National Australia Bank was announcing its decision on Friday afternoon Mr Swan was locked in talks with the heads of the Treasury, the Reserve Bank, the Securities and Investments Commission and the Prudential Regulation Authority drawing up a package of measures to force the banks to make switching easier.

After the latest increases the Commonwealth and Westpac are charging 8.97 per cent (up 0.30 and 0.25), the National Australia is charging 8.98 per cent (up 0.29) and the ANZ and St George are each charging 9.02 per cent (up 0.25).

But the ANZ bank says that adjusted for service fees and loan approval fees, its product is the cheapest of the big five, with its so called “comparison rate” working out at 9.07 per cent, well below the 9.18 per cent charged by Westpac and St George.

Mr Swan told the Canberra Times after the meeting that it was more important than ever that customers were able to “vote with their feet” to get he best possible price.

It was important that had information about their mortgage charges, including entry and exit fees, and were able to compare them. It was important too that they be able to switch between banks easily.

The four-point package drawn up by the Treasurer in co-operation with the Reserve Bank, APRA, ASIC and the Treasury will require lenders to set up a central “listing and switching” service that will make the process of changing mortgage providers as simple as possible.

The service will be able to obtain from each lender a list of each customer’s direct debits and credits over a 13-month period and pass it on to any new lender that takes over their mortgage.

The listing and switching service will also ensure that lenders provide their customers with information on how to avoid exit fees and don’t charge those fees unfairly.

Mr Swan said that while he expected the computer systems to be fully operational by November he would ensure than an interim paper-based service was running within weeks. It would be supervised by the Reserve Bank.

The Treasurer has also directed the Securities and Investments Commission to inquire into mortgage entry, exit and early termination fees in order to “shine a light” on charges and rates and expose them to downward pressure.

In addition he has asked ASIC to set up a central consumer complaints hotline for banks and has asked the Financial Literacy Foundation to set up a website providing advice on how to switch between banks and the costs of switching.

The Opposition’s Treasury spokesman Malcolm Turnbull yesterday offered support to the Treasurer.

“Anyone who provides services is always going to try to make their customer relationship a sticky one, it is up to governments to do whatever they can to free the market up,” he said.

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Your mortgage now

I prepared this table for tomorrow's paper:

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Tanner's Axe. How he'll wield it

The Finance Minister Lindsay Tanner yesterday declined to rule out forced redundancies while unveiling a two-stage razor gang process beginning with immediate cuts of more than $640,000.

Update: The complete savings list is here.

A total of 13 programs announced by the previous government in the lead up to the November election will be axed, among them extra funding for the Human Rights and Equal Opportunity Commission, an Innovation Ambassador Programme, and grants to Chamber Music Australia, the Rugby League Hall of Fame and the Australian National Rugby Academy.

A further 30 of the Howard Government's pre-election commitments will be wound back, among them an ethanol production subsidy, infrastructure related to Canberra's Griffin Legacy and government advertising promoting drought assistance, childcare reforms, on-line safety, and simplified superannuation.

The savings will amount to $243,000 this financial year and $642,900 by 2010-11.

The Minster expects the first stage of the razor gang exercise to be completed for the May budget to save $3 billion to $4 billion.

It will be followed by a second “intensive program-by-program review of government spending and tax concessions”...

...to be completed by the end of the year.

“The first stage will focus on things where it is possible to make quick decisions. The second stage will be to dig deeper. There will be more red pen marks, thicker folders,” the Minister told the National Press Club yesterday.

“If we tried to cram in all of the detailed structural analysis between now and May the risk of missing good opportunities, the risk of making mistakes, the risk of not producing optimal outcomes would be high.”

Mr Tanner said his department suggested the two-stage process in its its first briefing to him just days after the election.

“I think it's important to emphasise that the department that I have inherited is outstanding,” he said.

“I have been absolutely rapt at the quality of the work that I have received and the dedication. There's an awful lot of hard work going on in the bureaucracy in Canberra with all that's happening at the moment.”

But he said that it was essential that taxpayers got value for money.

“A tax dollar is a dollar that a family can’t spend on petrol, schoolbooks, groceries or holidays,” the Minister said.

“There is a great lesson burned into the soul of the Australian Labor Party over twenty years. It is that you have to manage the economy well. If you don't you lose.”

When announcing the one-off additional two per cent efficiency dividend applying to most government departments just before the election Mr Tanner said that while he was unable to guarantee it would not lead to forced redundancies, he believed that it would not.

At the Press Club yesterday he said he stood by that position and that it would also apply to the first round of razor gang cuts to be announced in the budget.

“I would expect that natural attrition and turnover would enable agencies to absorb any reductions in their head counts. There will be increases in other areas because we have election commitments to follow through, so to some degree there will be swings and roundabouts.”

But the Minister said there would “be instances where individual agencies, particularly smaller agencies will find it difficult to absorb people no longer needed because they won't have enough turnover to enable them to redeploy internally.”

“Myself and John Faulkner as the Minister for the public service believe that ordinary growth and ordinary redeployment opportunities will enable us to absorb those difficulties without involuntary redundancies of any consequence.”

The National Secretary of the Community and Public Sector Union Stephen Jones said he was encouraged by the comments and encouraged that so far the razor gang appeared to be targeting programs, not people.

But he wanted remind Mr Tanner and Mr Rudd that public sector workers were “ordinary working Australians with families, grocery bills and mortgages”.

There was concern and disquiet across the public service about the potential cuts, particularly in the smaller agencies with less capacity to absorb cuts and redeploy staff internally.

Mr Tanner also promised yesterday that all spending decisions would be taken through the annual budget process unless there was “a genuine and urgent need” for decisions at another time”.

The Expenditure Review Committee would meet year-round meaning that never again would a program like the previous government's $10 billion water plan get approved without proper scrutiny by Treasury or Finance and without consideration by Cabinet.

In addition public sector purchasing would be recentralised.

“The Liberals treated departments and agencies as individual private companies with the government as a kind of giant holding company. Agencies were effectively bidding against each other without adequate advice or support,” the Minister said.

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Australia's new number one bureaucrat is...

...Terry Moran.

Just in from the PM:

I am pleased to announce the appointment of Mr Terry Moran AO as the new Secretary of the Department of Prime Minister and Cabinet.

Mr Moran will begin his appointment on 3 March 2008.

Mr Moran is currently Secretary of the Victorian Department of Premier and Cabinet and has led four public sector organisations as CEO over the last 20 years...

In a public service career which began in Canberra in early 1973 as a Commonwealth Public Service Board Administrative Trainee, Mr Moran has worked at the Commonwealth level twice. In all, nearly half his public service career has been at the Commonwealth level.

In Victoria he was CEO of the Victorian State Training Board, later CEO of the Australian National Training Authority and then Director General of Education for Queensland. His leadership roles have involved substantial contributions to public policy, development of major reforms and the management of very large public sector organisations.

More recently, Mr Moran has played a strong role in the emergence of the National Reform Agenda and a succession of plans for the state which provide a strategic framework for all departments and agencies. Within and between Governments he has consistently advocated a new approach to Commonwealth, State and Territory Governments working together to improve the delivery of basic government services for all Australians.

As the senior Victorian public servant Mr Moran has also played a key central role in developing plans to guide the State Government's major infrastructure investments. He and his department are the point for the coordination across Government for Victoria's responses to emergencies, natural disasters and terrorist threats.

As Secretary of DPC, Mr Moran has led the State Coordination and Management Council of Secretaries and fostered strategic improvements in service delivery. At the request of the Premier he carried out a major review of public administration. The Public Administration Act, which established a new governance and improvement framework for the public sector, was the most significant result.

Mr Moran has led the development of a range of significant Arts initiatives in Victoria. He is committed to the central importance of a strong, innovative and diverse cultural sector to Australian life.

In the Victorian context he is seen as a champion of a professional public service devoted to constant improvement in services for the Victorian community. The capacity and skill of the Victorian public service is recognised in Australia and abroad. At a national level he was instrumental in establishing the Australian and New Zealand School of Government. It is a joint initiative of six governments and ten universities and in four years has enrolled over 1,000 public servants in programs designed to prepare them for future leadership roles in public policy and public sector management. In June 2006 Mr Moran was made an Officer of the Order of Australia for service to public sector leadership in key policy areas and program implementation at state and national levels.

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The Bank's brutal message: It will hurt

There will be another interest rate hike and it will hurt. If it doesn’t, there will be yet another.

That’s the brutal message delivered by the Reserve Bank in its statement announcing this morning’s rate rise, a statement that indicates that any concerns raised at yesterday’s board meeting about the damage that might be done to Australia’s economy by a continuous series of quarterly rate rises failed to win the day.

Put starkly, something far more important than the health of the Australian economy is at stake in the mind of the Reserve Bank right now.

It is whether it loses its battle against inflation. The outlook is disastrous, and the Bank says so...

The Melbourne Institute’s privately-calculated measure of inflation is approaching 4 per cent - way above the Bank’s target of 2 to 3 per cent.

The Bank says in its statement that it expects inflation to “remain relatively high and probably rise further” this year and to only “moderate somewhat” during 2009.

In such a circumstance it will “continue to evaluate whether the stance of policy will be sufficiently restrictive to return inflation to the 2 to 3 per cent target.”

Stripped of what is only a very thin veneer of bankers’ language the Bank is saying that it is by no means sure it has yet done enough to bring inflation down.

It is prepared to whack rates up again and again until it hurts us enough to dent our spending, dent our borrowing, dent economic growth and dent inflation.

No wonder the Prime Minister is unable to offer any reassurance that today’s rate hike will be the last.

The real wonder is that the previous Prime Minister felt able to campaign on the slogan “Go for Growth” in the election when he must have known that was the last thing his advisors in the Reserve Bank wanted.

Today’s statement says explicitly that the Reserve Bank wants a “significant slowing” in growth.

It will cause pain and it will almost certainly push more Australians out of work.

How much pain and how much extra unemployment depend on what’s needed to get inflation back into the Reserve Bank’s target band.

Its up to us. If we keep borrowing and keep bidding up prices there will be even more pain.

The Reserve Bank salvaged just one good thing from the wreckage of the early 1990’s recession - a stable inflation rate of 2 to 3 per cent.

It has no intention of giving it up, and its statement signals that it’s not too concerned about who it hurts along the way.


Note: The Bank's 70-page Quarterly Statement containing its updated forecasts and detailed thoughts will be released on Monday.

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Rudd: For now, we can't prevent more rate hikes

Australia’s Reserve Bank has signaled that it will continue to increase interest rates until it hurts enough to dent inflation in an aggressive statement defending its latest rate hike – its third in six months.

The 0.25 per cent increase, due to take effect this morning, will lift Australia’s money market cash rate to 7 per cent - about the highest in the western world.

The standard variable mortgage rate will climb to 9 per cent, also one of the highest in the world and the highest for twelve years.

The increase will add a further $68 a month to the cost of servicing a $400,000 mortgage on top of the increase of around $50 imposed by the banks themselves when they widened margins last month.

Taken together the Reserve Bank’s three hikes along with the bank’s wider margins have added $237 to the monthly cost of repaying such a mortgage since August.

A further hike of the kind now contemplated by the Reserve would add another $68 a month...

In its statement the Bank said that it wanted a “significant slowing” of the
economy in order get inflation back under control and that it would continue
to evaluate whether interest rates were “sufficiently restrictive”.

The Prime Minister Kevin Rudd held out no prospect that today’s rate hike
would be the last saying that inflation would “take a long time to get back
under control”.

“I am being blunt with you. The problem took a long time to build, it will
take a long time to turn around. If you read the Governor’s statement
carefully you will see that inflationary pressures are still on the build.
I don’t intend to guild the lily on that, they are on the build,” he said.

The Reserve Bank statement said that despite an expected slowdown in global
economic growth it expected Australia’s terms of trade to climb higher
putting further pressure on inflation.

It expressed concern about what it said were reports of high capacity usage
and shortages of suitable labour.

Kevin Rudd used the opportunity to attack the Coalition saying that until
November it ran a “government of short-termism, as demonstrated by no action
on skills, no action on infrastructure.”

“They seemed to think that these ideas were interesting exercises in social
policy or what happened out in the regions. Our predecessors didn’t quite
grasp that these were core elements in the overall fight against inflation,”
he said.

“The Reserve Bank is not made up of a bunch of pussy cats who sit there and
make the odd sort of fleeting observation about a few skills here and a bit
of infrastructure there. If in 20 warnings over a three-year period they
are saying to government - will you please pay attention to this because it’
s building inflationary pressure in the economy, you would have thought
someone would have done something.”

The Prime Minister said that the tax cuts promised during the election would
be delivered but held out the prospect of greater cuts in government
spending than have already been signaled.

“The Budget Committee has been meeting in long session, line by line,
program by program, item by item. This is a very tough business. I
understand the Finance Minister may have more to say about this,” he said.

The Finance Minister Lindsay Tanner is booked to speak at the National Press
Club today.

Asked whether politicians should show restraint by accepting a lower pay
rise level than that suggested by the Remuneration Tribunal he replied that
he had an open mind on the question.

“It depends how this year starts to unfold. But restraint is restraint and
we’ll have something further to say about that.”

Read more >>

How much more per month?

This is the table that I have prepared for tomorrow's paper:

Read more >>

Going up. The Reserve Bank lifts rates

Here's the announcement:

"At its meeting today, the Board decided to increase the cash rate by 25 basis points to 7.0 per cent.

Recent information points to significant inflation pressures. CPI inflation on a year‑ended basis picked up to 3 per cent in the December quarter, with underlying measures around 3½ per cent. This was a little higher than was expected a few months ago. Indicators of demand remained strong through the second half of 2007, and reports of high capacity usage and shortages of suitable labour persist. In the short term, inflation is likely to remain relatively high and will probably rise further in year‑ended terms, though the Bank expects it to moderate somewhat next year.

The Board took careful note of recent events abroad and developments in financial markets. The world economy is slowing and it now appears likely that global growth will be below trend in 2008. Recent trends in world commodity markets suggest, however, that Australia’s terms of trade are likely to rise further.

The pressures in short-term money markets seen late last year have eased in recent weeks, but sentiment in international capital and equity markets remains fragile. In Australia, financial intermediaries have passed on higher costs to their customers over the past couple of months. There has also been some tightening of lending standards to risky borrowers, a process which may yet have further to go.

These developments, together with the effects of earlier changes to monetary policy, can be expected to exert a moderating influence on private demand in Australia over the period ahead. But given the extent of pressure on capacity and the build up in inflation, a significant slowing in demand from its recent pace is likely to be necessary to reduce inflation over time.

Having weighed both the international and domestic information available, the Board concluded that a tighter monetary policy setting was needed now. In future meetings, the Board will continue to evaluate whether the stance of policy will be sufficiently restrictive to return inflation to the 2-3 per cent target. "

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Ken Henry to head PM&C?

That's the apparent hot tip from Alan Koher in Business Spectator.

UPDATE: KEVIN RUDD APPEARED TO RULE THIS OUT IN HIS JUST-CONCLUDED PRESS CONFERENCE, TUESDAY 4.00PM

Kohler wrote:
"Treasury Secretary Ken Henry is firming as a near certainty in the race to replace the retiring Peter Shergold as head of Department of Prime Minister and Cabinet, effectively the chief of the Australian public service.

The head of the Victorian Premier’s Department, Terry Moran, has been attracting some speculative money with the bookies, but it’s understood Ken Henry is clear favourite now that the Vice-Chancellor of the University of Melbourne, Glyn Davis, has been scratched.

The two problems with the Treasury Secretary are that he might regard a move from Treasury to PM & C as a demotion – taking him, as it does, from a policy job to a more administrative one - and that he would be hard to replace in the nation’s most important economic policy role."

Henry would be formidable.

Here's what he told his troops in the lead-up to the election:

"Divisions will be under pressure to respond to the growing number of policy proposals leading up to the calling of an election and once the election is called. At this time, there is a greater than usual risk of the development of policy proposals that are, frankly, bad."

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Tuesday Column: Inside this morning's meeting of the Reserve Bank Board

If you thought that Reserve Bank board meetings got a lot of attention before, wait until today.

At 2.30pm the heart of the nation will momentarily stop. The Bank will announce the outcome of a meeting that has concluded just moments earlier.

Most probably the board will have decided to hike rates. What’s special this time is that we won’t need to wait until the next morning to find out.

As far as I know the Bank didn’t make the change because it was worried about leaks. It made it in order to push its board meetings even closer to the centre of Australia’s decision-making process.

The discussion taking place at the Bank’s Sydney headquarters this morning will be serious indeed. And the result isn’t a lay down misere. The board will have before it a series of papers from Reserve Bank officials setting out the arguments for and against a rate rise and also a recommendation...

I think that the recommendation will be to push up rates. But as recently as a fortnight ago that was no sure thing. International share markets were tumbling and it looked as if the turmoil could knock enough stuffing out of our economy to relieve the Bank of the need to do more.

Since then world share markets have uneasily stabilised and we have been presented with the worst inflation figures in 16 years. My feeling is that the board will be presented with a recommendation to lift rates once again – for the 11th successive time - and also a draft statement explaining the decision for release at 2.30pm.

But that doesn’t mean the board will necessarily accept the recommendation. Seven of its nine members don’t work for the Bank. One of them - the Treasury Secretary Ken Henry - has in the past argued and voted against recommended rate hikes.

Other members whose judgment is immensely respected may be successful in convincing the board to exercise caution.

Roger Corbett, the former CEO of Woolworths has been a retailer for a generation. He would have a better feel than anyone else at the Reserve Bank board table for the point at which higher interest rates and a tumbling share market make consumer confidence snap.

Every successive hike rates increases the likelihood that it will be one too many.

We have been spending as if we haven’t needed to worry about prices. In the last year we have managed to buy an extraordinary nine million new mobile phones and one million (mostly imported) new cars. Five straight years of tax cuts and a guarantee of three more to come have hardly encouraged restraint.

The consumer price figures released by the Bureau of Statistics are replete with examples of retailers either not passing on the benefits of movements in the exchange rate or increasing their prices by more than their costs. The head of the Australian Competition and Consumer Commission Graeme Samuel is convinced the oil companies are doing it.

Why wouldn’t they have been? We have hardly been resisting. But at some point one of the Reserve Bank’s rate hikes is going to hurt too much. If that point comes at a time when financial institutions are imploding, when share market wealth is evaporating and when China’s demand for the things Australia sells is looking shaky, the Bank might - in the tasteful words of one of its former employees, the economist Rory Robertson – find “its fingerprints all over the next recession”.

There is a respectable case for waiting and seeing how things pan out before hiking rates - a case that is respected within the Bank itself. That case could win the day at this morning’s meeting.

The board has influenced the timing (and amount) of rate adjustments in the past.

The former Governor of the Reserve Bank Ian Macfarlane described the process of getting his board to approve rate hikes this way in 2006: “You might feel there is a bit of a case to go now, but it is really not strong enough when you put it down on paper to be convincing to people who might be skeptical and may not have the same intellectual framework in their mind.”

He saw the board as a jury, able to reject or postpone recommendations put before it, a bit like the board of directors of a public company.

“You don’t have specialists on the board of a company. They are people who approach the issue with a lot of practical knowledge - but do not necessarily have the same intellectual framework as the professionals who are proposing the action,” he said.

Among the more formidable members of the board are Jillian Broadbent, a former senior executive at Bankers Trust, and Warwick McKibbin, an independent-thinking ANU economists who once worked at the Bank.

Other members include a former head of the National Farmers Federation Donald McGauchie who has demonstrated his independence as the chairman of Telstra, and two industrialists, John Akehurst and Graham Kraehe.

As they weigh up this morning’s recommendation to increase rates they will be aware of claims that as many as 300,000 homes may soon be earmarked for repossession and reports from Tokyo that Australia’s forth-biggest car maker Mitsubishi is about to close its doors.

The Bank can’t and won’t allow inflation to get away from it, but it could decide to wait another month before taking action to see whether something else dents the economy first.

In earlier times the board members and the Governor retired for a quiet lunch after their monthly meetings. Not today. As soon as the meeting ends and today’s decision is taken the Governor and his senior staff will adjust their draft announcement to take account of what’s actually been decided, load it into their computer and ensure that it is released to the public at exactly 2.30pm.

They will adhere to the new schedule even when Parliament is sitting, meaning that politically embarrassing announcements will sometimes be made half way through question time.

A fortnight after each board meeting they will release a complete set of minutes reminding us once again of their deliberations.

And as usual each quarter (next Monday is the next occasion) the Bank will release a 70-page account of its thoughts.

It will be hard to avoid hearing about the Bank’s deliberations in throughout 2008. We can expect to hear as much from it about the economy as we can from the government.

Which is as it should be. Its responsibilities are as onerous.

Read more >>

Rudd: "The Bank will do what it has to do"

The Prime Minister Kevin Rudd has washed his hands of today's expected interest rate hike saying that there is nothing he can do or should do to prevent the Reserve Bank acting.

The Bank is considered certain to announce another hike - its third in six months and the eleventh in a row - at 2.30 this afternoon.

It will take the professional cash rate to 7 per cent for the first time since 1996 and the standard variable mortgage rate to 9 per cent.

When the standard rate was last at 9 per cent, in October 1996, the typical home loan was only half as big as it is today...

The increase will add a further $67 on to the monthly cost of servicing a $400,000 mortgage - $465 more than before the Reserve Bank began pushing rates up in 2002.

Speaking on The 7.30 Report late yesterday Mr Rudd offered support and understanding to the Bank saying that he wouldn't seek to direct it and describing inflation as the ultimate enemy of working families.

The Treasury Secretary Ken Henry is a member of the Reserve Bank board and will take part in this morning's vote in Sydney.

Mr Rudd said he wouldn't be directing Dr Henry to vote against the hike and nor would he be asking Dr Henry to speak against the hike.

“If you accept the independence of the Reserve Bank you don't go around trying to provide either public lectures or trying to convey some type of internal message,” he said.

“I believe the responsible course of action for the Secretary of the Treasury is to make sure that the Bank is completely familiar with where we are going in terms of the government's budget policy. They will then decide on a policy setting. Beyond that the deliberations of the board and what may or may not be said within the board are logically the province of the board.”

Signalling that he understood the need for the Bank to put up rates today Mr Rudd said that working families would suffer if inflation got out of control.

“Inflation is the ultimate enemy of working families. We have always said if we deal front and centre with inflation we are acting very responsibility in dealing with the challenges not just for the economy but for working families as well.”

Australia's underlying rate of inflation surged to 3.6 per cent in the year to December, well beyond the Reserve Bank's target band of 2 to 3 per cent and higher than it had been since Australia was last in recession in 1991.

A privately-calculated update released yesterday by TD Securities and the Melbourne Institute suggests that inflation kept climbing during January and is now running at an annual rate of 3.9 per cent.

In an effort to show that it was concerned about the impact of rising interest rates on home buyers the government chose yesterday to unveil the details of the tax concession it has promised to people saving for a deposit on a first home.

The Treasurer Mr Swan conceded that the scheme would do nothing to ease the stress faced by the one-third of Australian households already paying off mortgages.

“This is a scheme for people out there who battle to put away a modest deposit to get a toehold in what is a very difficult housing market,” he said.

“There are no silver bullets, no short-term solutions, but we’re using every arm of policy to put in place the policy that is needed in the long-term.”

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The 2020 Summit - get ready

The announcement:

The Rudd Government will convene an Australia 2020 Summit at Parliament House on 19 and 20 April to help shape a long term strategy for the nation’s future.

The Summit will bring together some of the best and brightest brains from across the country to tackle the long term challenges confronting Australia’s future –challenges which require long-term responses from the nation beyond the usual three year electoral cycle.

To do this, the Government will bring together 1000 leading Australians to the national Parliament to debate and develop long-term options for the nation across 10 critical areas:

1. Future directions for the Australian economy – including education, skills, training, science and innovation as part of the nation’s productivity agenda

2. Economic infrastructure, the digital economy and the future of our cities

3. Population, sustainability, climate change, and water

4. Future directions for rural industries and rural communities

5. A long-term national health strategy – including the challenges of preventative health, workforce planning and the ageing population

6. Strengthening communities, supporting families and social inclusion

7. Options for the future of indigenous Australia

8. Towards a creative Australia: the future of the arts, film and design

9. The future of Australian governance: renewed democracy, a more open government (including the role of the media), the structure of the Federation and the rights and responsibilities of citizens

10. Australia’s future security and prosperity in a rapidly changing region and world...

Participants will be selected by a 10 member non-government Steering Committee. The Summit will be co-chaired by the Prime Minister and Professor Glyn Davis, Vice Chancellor of the University of Melbourne.

This Steering Committee will select up to 100 participants in each of the Summit areas who will attend in a voluntary capacity. The participants will be drawn from business, academia, community and industrial organisations, the media and include a number of individual eminent Australians. Summit participants will be invited in their own right rather than as institutional representatives from any particular organisation. Each of the 10 Summit areas will be co-chaired by a Federal Government Minister and a member of the Steering Committee.

The Summit will have the following objectives:

To harness the best ideas across the nation

To apply those ideas to the 10 core challenges that the Government has identified for Australia – to secure our long-term future through to 2020

To provide a forum for free and open public debate in which there are no predetermined right or wrong answers

For each of the Summit’s 10 areas to produce following the Summit options for consideration by government

For the Government to produce a public response to these options papers by the end of 2008 with a view to shaping the nation’s long-term direction from 2009 and beyond.

In providing this response, the Government in providing may accept some options and reject others – but will provide its reasons for embracing its course of action for the future.

The Government has no interest in a talkfest. The Government’s interest is in harnessing and harvesting ideas from the community that are capable of being shaped into concrete policy actions.

Government, irrespective of its political persuasion, does not have a monopoly on policy wisdom. To thrive and prosper in the future we need to draw on the range of talents, ideas and energy from across the Australian community.

For too long Australian policymaking has been focused on short-term outcomes dictated by the electoral cycle. If Australia is to effectively confront the challenges of the future, we need to develop an agreed national direction that looks at the next ten years and beyond.

For these reasons, the Government will also be inviting the Leader of the Federal Opposition to participate in the Summit, together with State Premiers, Chief Ministers and their Opposition counterparts.

In addition to those participating in the Summit, all Australians will be invited to make submissions on each of the 10 future challenges. These will be submitted to the Department of Prime Minister and Cabinet which will act as the secretariat for the Summit. An Australia 2020 website will provide a digital forum for this purpose.

The Rudd Government believes Australians, whatever their political views, can come together to build a modern Australia capable of meeting the challenges of the 21st century.

More details

Read more >>

Sunday dollars+sense: The happiness con

So, you're extremely happy. Don't be so smug. You'd be better off if you had more edge.

Economists who were once obsessed with money are now obsessed with happiness. It's become the new money - to be maximized using equations, the goal to which we are all meant to aspire.

Fortunately for economists it's as easy to measure. Ask people “all things considered, how satisfied would you say you are with your life these days on, a scale of one to ten?” and you get answers that line up with other measures such as facial expressions, the likelihood of suicide and where brains light up when placed under a scanner.

But whereas happiness is nice, just as money is nice; just as with money after a certain point more of it can actually harm us...

While most studies find that happier people live longer lives, a new paper in the journal Perspectives on Psychological Science points to some that find that beyond a certain level, extra happiness can actually shorten lives.

Children who rated themselves at 7.5 or above on the happiness scale were found to be 21% more likely to die in any future year than those who rated themselves at 2.5 or below.

As they grew up they were more likely to drink, smoke and to take risks.

Shigehiro Oishi and his colleagues wonder about a 77-year-old California woman who went out bike riding during a deadly heat wave even though her family begged her not to. She died of heat stroke.

They wonder about extremely happy people who don't feel the urge to move from jobs that don't fulfil their potential.

And the American academics use data from an Australian study that examined the happiness of those of us born in 1961 at the age of 18, and then our success in a number of fields in later life.

The happier those people had been as teens, the more they earned, but only up to a certain point (point 8 on a 10 point scale). Beyond that their earnings fell.

It was the same with education. Moderately happy people studied more than did people who had been very happy.

Only in relationships was extreme happiness found to be a clear asset. The happiest children went on to have the longest lasting intimate relationships.

Their point is that it's a mixed scorecard. Happiness is only one of things that matter in life. If you're missing some, you're likely to get ahead.


Shigehiro Oishi, Ed Diener, Richard E. Lucas, The Optimum Level of Well-Being: Can People Be Too Happy? Perspectives on Psychological Science 2 (4) December 2007, 346–360

Don't worry, be (moderately) happy, research suggests. University of Illinois at Urbana-Champaign press release, January 24,2008

Dave Munger, If short-term happiness isn't always best, what about long-term? Cognative Daily, December 27, 2007

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Saturday Forum: Labor - whose party is it?

Prepare to adjust your view of Australian politics. Much of what we’ve been told is no longer true, and the eye-opening list of donations released by the Australian Electoral Commission on Friday explains why.

During 2006/07 businesses provided more funds to the Labor Party than did unions, roughly twice as much.

The Labor Party may or may not be run by “union fanatics” as the Coalition’s election ads repeatedly told us, but it is not bankrolled by them.

It does however have considerable financial resources of its own. It’s biggest donors were its own investment corporations - Labor Holdings Pty Ltd, Labor Resources Pty Ltd, and John Curtin House Limited, between them stumping up $9 million.

The Labor Party comes across as something of a business machine, quite at home in the world of capital.

Its seventh-biggest donor nationwide was the ACT’s own Canberra Labor Club, a commercial venture that turned over $31 million last financial year - mainly generated from poker machines, its TAB commissions and rents...

It earned $24,000 from cigarette vending machines.

The Canberra Labor Club appears not to concern itself with raising money from Labor supporters in the conventional sense. Neither in the last financial year when the threshold for reporting donations was $10,300 nor in the previous two years when the threshold was $1,500 did it report receiving any donations to advance the Labor cause.

The Liberal Party has been less enthusiastic about running business enterprises. Its Cormack Foundation, set up to invest the proceeds of the sale of the Melbourne radio station 3XY, is the chief exception. It handed $2.2 million to the Liberal party during 2006/07, much less than the $4.9 million Labor Resources handed over to the ALP.

The Liberal Party receives donations from individual businesses, but not that many more than does Labor.

The ANZ Bank was among its biggest donorsin 2006/07, handing over $150,000. But it gave the ALP $75,000.

Similarly while the ethanol producer Manildra gave the Liberals $173,900 and the Nationals $59,450, it handed Labor $150,000.

Westfield handed Labor and the Liberals each $150,000 - even-handed treatment practiced also by Meriton, Coles, the Walker Corporation, Tabcorp, Grocon, Mirvac, and Leighton Holdings.

At times the evenhandedness must have hurt. Westpac was run at time by David Morgan, husband of the former Labor Minister and member for Canberra Ros Kelly. It made sure that its combined donations to the Liberals and the Nationals roughly matched its donations to Labor.

Evenhandedness would also seem to have hurt for Employers Mutual, on the face of it an organisation with the interests of employers, not labour at heart. But it donated $61,000 to the Labor in addition to its $80,000 for Liberal, perhaps in the knowledge that its workers compensation business could do with support from state labor governments.

Other firms made only a show of even-handedness. Village Roadshow showered Labor with $203,700 while keeping the Liberals and the Nationals happy with much smaller amounts of $30,000 and $20,000.

The common thread linking most of these big donors is their vulnerability to government decisions. Many are retailers or developers subject to planning decisions. Tabcorp is vulnerable to decisions made about gambling.

Playing both sides of the street may be a way of attempting to ensure that they still get listened to should there be a change of government.

But taken together with Labor’s business acumen and its support from trade unions, this evenhanded approach on the part of business has ensured that the Liberal Party - once thought of as the party of capital - had less of it during 2006/07 than did Labor.

Some of the Liberal donors are rusted on. Gerard Corporation is run by the South Australian manufacturer Robert Gerard who was forced to resign from the Reserve Bank board in 2005 when it was revealed he was in dispute with the Tax Office. His corporation still gives to the Liberal party, andonly to the Liberal Party, but last financial year it gave just $50,200, compared with $150,000 in 2004/05 when Robert Gerard was flying high and on the Reserve Bank board.

Adelaide Brighton Cement is another company that is keen on the Liberal Party only, giving it $150,000 in 2006/07. Ramsay Health Care is similarly keen, if bashful, pumping $125,000 into the Liberal party through a conduit called the Free Enterprise Foundation. Inghams, the chicken company gave to only the National Party, handing it $100,000.

The new rules about what has to be reported introduced at the start of 2005 mean that there is now a lot that is not now reported.

Before 2005 only donations worth less than $1,500 escaped the net. Now it’s donations worth less than $10,300.

Back then more than 1,200 donors owned up. In the financial year just finished it was only 218.

Donating just a bit less than the maximum may be common. The 500 Club, which raises money for the Liberal Party, reported giving it $246,000 but reported none of the individual donations made to it.

And some of the really big donors are hardly household names.

Ferrara Holdings Pty Ltd and Mulpha Australia each gave the Labor Party $200,000. Hong Kong Kinson Investment Limited and Marbal Pty Ltd each gave it $100,000.

Ferrara Holdings is run by Western Australian businessman Allan Blood who was hoping to establish a power plant in the Latrobe Valley. It sent its donation to the Victorian branch of the Labor Party.

Mulpha is the Australian subsidiary of a Mayaysian property developer. Hong Kong Kinson Investment Limited and Marbal Pty Ltd are more obscure.

Other donors are politicians.

Evan Thornley founded the technology company LookSmart. He gave the Labor’s Victorian branch $232,700 at about the time was elected to the state’s upper house and became Parliamentary Secretary to the Premier.

Senator Julian McGauran gave the Liberal Party $20,000 at about the time he defected to it from the National Party.

Taken together the electoral returns paint a picture of a Labor Party that courts and gets very big donations from business, often from businesses that it has the power to hurt or help at the state level.

Labor is also good at running businesses - much more lucratively than the Coalition.

In government in every jurisdiction in the country, Labor is not only the traditional party of the workers, it is now - to a greater extent than its opponents - the party of capital.

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"Pain" and "hard decisions". Stand by for a shocker budget

The Finance Minister and head of the government's razor gang Lindsay Tanner has warned of “pain” and “hard decisions” in the May budget, saying that some of its spending cuts will be politically controversial.

His warning comes as new figures show that private borrowing grew its fastest rate in 19 years in the year to December climbing 16.5 per cent - more than at any tine since the eve of the 1990’s recession.

Household credit grew by 11.8 per cent over the year; business credit by 24.3 per cent. In its commentary the ANZ bank said that business appeared “impervious to consistent interest rate hikes over the past few years and continued to increase levels of debt unabated"...

The Federal Reserve cut US interest rates by a further 0.5 per cent on Thursday morning Australian time, taking the total cut over the last week to 1.25 per cent in a bid to stabilise the US economy.

The Australian share market traded nervously closing up 0.56 per cent weighed down by news that the ratings agency Standard and Poor’s was considering downgrading a number of US banks and news that the Australian futures broker Tricom had been unable to settle its accounts when they fell due.

Australia’s Reserve Bank is expected to lift interest rates at its board meeting next Tuesday unless concern about the stability of the financial system or the US economy forces it to stay its hand.

Mr Tanner said yesterday that he expected to cop flak for his budget cuts, but they would be needed to stave off the prospect of still higher Australian interest rates.
So far he had only exploratory talks about the cuts but the real “hack work” was about to begin and with the hard decisions taken in February and March.

The achieve the government’s target of boosting the budget surplus to at least 1.5 per cent of GDP he would need to cut spending by $3 billion to $4 billion, perhaps more, on top of the cuts already announced.

“That’s a big task, we’ve set the bar high, and there will be pain,” he said.
“There inevitably will be pain when you cut spending but it is critical that we get inflation back in check. If we allow the inflation genie out of the bottle we will have a really major economic problem in this country.”

In Opposition Mr Tanner outlined $10 billion of budget cuts including a 2 per cent increase in the public service efficiency dividend that would take it from 1.25 per cent to 3.25 per cent for one year only.

Asked yesterday whether those cuts were the easy ones and the hard ones were to follow he replied that to some extent that was true.

“Inevitably there were things that we identified in opposition that were less politically painful than may have been”.

“But its also important to keep in mind that a major constraint in opposition is lack of information,” he said.

“We could only proceed with proposed spending cuts in opposition that we were absolutely certain and clear about. And in some cases we just did not have enough information to proceed.”

“By and large we are likely to be pushed towards areas that will be politically controversial, but that’s not automatically going to be the case.”

Mr Tanner confirmed last week that the $22 billion budget for the Department of Defence would be exempt from razor gang cuts saying that during the election he had made a commitment to maintain the totality of defence spending and he would honour that commitment.

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