Why is Gina importing workers direct? Because we won't go there

COMMENT

Why was Gina Rinehart given special government approval to bring around 1700 foreign construction workers to Western Australia’s remote Pilbra? Because Australians won’t go there - not in big numbers, no matter how big the mining boom.

The Bureau of Statistics says in the past financial year a net 6163 Australians crossed the Nullarbor to live in Western Australia. That’s a trickle of just 18 Australians per day - slap bang in the middle of the biggest mining boom in a century.

By contrast a net 30,800 overseas migrants streamed into Western Australia - 84 per day. The new workers servicing Western Australia’s mining boom overwhelmingly come from overseas, not because Australians can’t move to Western Australia (there are no legal restrictions on movement between states) but because Australians won’t.

So fast is direct overseas migration to Western Australia swelling that in the most recent quarter for which figures are available Western Australia welcomed almost as many net migrants as NSW, Australia’s traditional gateway.

Asked Friday why when workers were being laid off in eastern states there was any need for Western Australia to import its own an exasperated special minister of state said he would “love workers to come to Western Australia from across the Nullarbor”...

Sadly, “the reality of the Western Australian resources sector is we tend to carry out more successful recruitment across the Indian Ocean than we do across the Nullarbor,” said Gary Gray.

Before taking up his current role as special minister of state Mr Gray was the parliamentary secretary for western and northern Australia. In 2010 he presented the report that recommended the creation of Enterprise Migration Agreements.

The problem it found was huge undersupply of the skilled workers needed to build resource projects, made all the worse because Australians were reluctant to head west. Enterprise Migration Agreements weren’t a particularly important part of the solution. The important things were skilling up Australians, funding a fly-in fly-out coordinator and building affordable housing.

For most projects the existing so-called 457 visas worked well in sourcing skills from overseas. But for a small number of “mega” projects an enterprise agreement struck ahead of time could ensure there was a project at all.

Gina Rinehart’s Roy Hill project is the first. It is unlikely to deprive Australian workers of their jobs.

In today's Sydney Morning Herald and Age



Me on JJJ Hack, Monday May 28:

6 minutes, play or CLICK THEN CLICK AGAIN to download mp3




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Incredibly good news - action on remote Indigenous ATM ripoffs

From Swan today:

FAIRER DEAL ON ATMS FOR REMOTE INDIGENOUS COMMUNITIES

The Gillard Government today announces a new commitment by the Australian banking industry and two major independent ATM companies to voluntarily provide free transactions at 76 ATMs across very remote Indigenous communities in the Northern Territory, Queensland, Western Australia and South Australia.

In very remote Indigenous communities, people often have no alternative but to pay frequent ATM fees because they cannot access the type of ordinary banking services which most other Australians take for granted. Indigenous people and residents living in very remote communities often rely on a single ATM located in a community store owned by an independent ATM company to access their cash and check their account balance.

This important initiative follows the recommendations from a joint Treasury/Reserve Bank of Australia Taskforce (‘Taskforce’) that looked into issues relating to expenditure on ATM fees and the cost of ATM access in very remote Indigenous communities. The Taskforce has worked closely with the banking industry and the two independent ATM companies on this initiative.

Under the initiative, thirteen banks - ANZ, Bankwest, Bendigo and Adelaide Bank, BOQ, Citibank, Commonwealth Bank, HSBC, ING DIRECT, ME Bank, nab, St.George, Suncorp and Westpac - will work to implement a proposed arrangement to provide their customers in identified very remote Indigenous communities with access to fee-free ATM transactions.

It has taken him a while.

He gave the taskforce one month to report back in January 2011.

But maybe the time he has taken has been worthwhile. He has got the ATM companies to agree not to rip off remote Indigenous communities.

No need for legislation.

Here's what I wrote when he set up the taskforce in january 2011:

Treasurer Wayne Swan has signaled a crackdown down on extortionate ATM fees in the bush setting up a joint Reserve Bank Treasury taskforce and giving it just one month to report.

The government has been told of one automatic teller machine in remote South Australia that charges $10 per withdrawal. Another, in the Torres Strait limits withdrawals to $100 at a time, at a cost of $5 each.

Even the standard $2 fee on checking bank balances can eat up as much as 20 per cent of as a Centrelink payment as recipients check repeatedly to see whether it has been paid into their account.

The Australian Financial Counselling and Credit Reform Association told the government in December that Indigenous Australians in remote communities made smaller and more frequent withdrawals than Australians in cities in order to avoid being "humbuged" or harassed for money by family members.

With no way of avoiding fees by going to an "own bank" ATM they paid far more than Australians in cities.

Mr Swan has asked the task force to report by February 28 on the provision, fees and impact of ATMs in remote communities and to suggest action to fix problems.

He has also asked for a second less-urgent report on the impact of the Reserve
Bank's rules governing the use of ATMs due by late June.

The rules prohibit ATM providers from charging banks for ATM transactions forcing them to bill their users directly.

Although designed to introduce competition into charging, the rules have standardised fees at around $2 per transaction in the cities.

The Reserve Bank has told the Senate banking inquiry the actual cost of an ATM withdrawal is around 74 cents, made up of 25 cents for obtaining the cash and around 50 cents for rent, equipment and processing the transaction.

Published in the Age

ATM Fees in Remote Indigenous Communities

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Mining boom? Not compared to what's to come

A mere shadow

All of the investment in the mining boom to date is but a shadow of what’s about to come according to the latest update by the Bureau of Resources and Energy Economics.

The analysis identifies “advanced projects” worth a jaw-dropping $260.8 billion, as well as a second category of less-advanced projects worth $242.4 billion.

The total - the investment Australia would get if all the projects came to fruition - exceeds half a trillion Australian dollars, easily a new investment milestone.

By way of comparison the Bureau totals all of the resource and energy investment to date in both of the mining booms since the turn of the century. It amounts to $138.4 billion. (That’s an inflation-adjusted figure, the dollar figure is lower.)

Like-for-like the Bureau is saying the value of projects already locked in is roughly twice everything that’s been spent in the past decade. Add in the projects that are less advanced, and it’s more than three times all that’s been spent to date - but there are good reasons not to do that, BHP and many others are having second thoughts.

The surprisingly large value of the projects at an advanced stage is matched by their surprisingly small number... A mere 98 projects account for the $260.8 billion - 39 in energy, 38 in minerals, 19 in infrastructure and two in processing. The big money is in energy projects: seven of them are liquified natural gas projects worth a combined $164 billion.

The latest addition, the Ichthys LNG project off north Western Australia will pipe gas to Darwin via a 900 kilometre underwater pipeline, the world's longest. Owned by the Tokyo-listed Inpex Corporation and the French oil and gas multinational Total, it has the potential to meet 10 per cent of Japan’s LNG needs, needs that are likely to grow as Japan turns away from nuclear power.

Western Australia accounts for half of the investment at an advanced stage. When taken together with Queensland and the Northern Territory it accounts for 94 per cent. Less than $1 billion of the investment is in NSW, less than half a billion in Victoria.

In today's Sydney Morning Herald and Age

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How do we shape up? Play with the sliders, have fun

Go here: oecdbetterlifeindex.org

Pick what's important to you, and see how we do:

Australia, as seen by the OECD Better Life Index

Population 21.0 mil.
Visitors per year 5.6 mil.
Renewable energy 5.20 %

Australia performs exceptionally well in measures of well-being, as shown by the fact that it ranks among the top countries in a large number of topics in the Better Life Index.

Money, while it cannot buy happiness, is an important means to achieving higher living standards. In Australia, the average person earns 26 927 USD a year, more than the OECD average of 22 387USD a year. But there is a considerable gap between the richest and poorest – the top 20% of the population earn five times as much as the bottom 20%.

In terms of employment, over 72% of people aged 15 to 64 in Australia have a paid job, above the OECD employment average of 66%. Some 79% of men are in paid work, compared with 66% of women. People in Australia work 1686 hours a year, less than most people in the OECD who work 1749 hours. Almost 14% of employees work very long hours, much higher than the OECD average of 9%, with 21% of men working very long hours compared with just 6% for women.

Having a good education is an important requisite for finding a job. In Australia, 71% of adults aged 25-64 have earned the equivalent of a high-school degree, close to the OECD average of 74%. This is truer of men than women, as 74% of men have successfully completed high-school compared with 68% of women. This difference is higher than the OECD average and suggests women’s participation in higher education could be strengthened. Australia is nonetheless a top-performing country in terms of the quality of its educational system. The average student scored 519 in reading literacy, maths and science in the OECD’s Programme for International Student Assessment (PISA). This score is higher than the OECD average of 497, making Australia one of the strongest OECD countries in students’ skills. On average in Australia, girls outperformed boys by 9 points, in line with the average OECD gap.

In terms of health, life expectancy at birth in Australia is almost 82 years, two years higher than the OECD average of 80 years. Life expectancy for women is 84 years, compared with 80 for men. The level of atmospheric PM10 – tiny air pollutant particles small enough to enter and cause damage to the lungs –is 14 micrograms per cubic meter, considerably lower than the OECD average of 22 micrograms per cubic meter. Australia also does well in terms of water quality, as 92% of people say they are satisfied with the quality of their water.

Concerning the public sphere, there is a strong sense of community and high levels of civic participation in Australia, where 97% of people believe that they know someone they could rely on in time of need, higher than the OECD average of 91. Voter turnout, a measure of public trust in government and of citizens' participation in the political process, was 95% during recent elections; this figure is the highest in the OECD. The average is 73%. There is little difference in voting levels across society; voter turnout for the top 20% of the population is 96% and for the bottom 20% it is 94%, much narrower than the OECD average gap of 7% and suggesting there is broad social inclusion in Australia’s democratic institutions.

In general; Australians are more satisfied with their lives than the OECD average, with 74% of people saying they have more positive experiences in an average day (feelings of rest, pride in accomplishment, enjoyment, etc) than negative ones (pain, worry, sadness, boredom, etc). This figure is higher than the OECD average of 72%.

Play around, here.



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BRW Rich 200: Congratulations Therese Rein

My favourite multimillionaire

Former prime minister Kevin Rudd may for the moment no longer be A-list material, but his wife Therese Rein today joins one of the most exclusive clubs of them all.

Weighing in at $210 million she elbows her way into the BRW Rich 200 list at position 199.

Being a woman puts her in even rarer company. Only 16 women feature in the Business Review Weekly Rich 200, up from 15 last year.

Rarer still, she’s done it herself. BRW editor in chief Kate Mills says most of the people in the list do it from inherited wealth.

Even Gina Rinehart, the richest woman in the world with $18.87 billion (who again tops the list) did it after inheriting $75 million and mining royalties.

“That should not take away from Gina’s achievement,” says Ms Mills. “She could have done nothing, she could have taken the money and lived a good and happy life. We celebrate the fact that she didn’t. She took on a male-dominated industry and now she sits on top of it.”

Ms Rinehart yesterday suffered an unusual setback, being passed over for a seat on the board of Fairfax Media, publisher of BRW and The Age. The seat went to accountant James Millar, a former head of former Ernst & Young. Ms Rinehart owns 12.8 per cent of Fairfax.

“Therese is different from Gina,” say Ms Mills. “It is very difficult to build up enough wealth to get on the list within a generation. That’s why there are so many families and dynasties on it"....

“Mining magnate Nathan Tinkler is an exception. He has build massive wealth in a single lifetime, but he has done it in a booming sector. Therese is in the welfare sector, it isn’t booming and it is regulation-driven. Every time a law comes out about occupation health and safety, organisations like Therese Rein’s think there is going to be work out there explaining it to people.”

The size of Ms Rein’s wealth was unclear until the election of her husband’s government in 2007 forced her to sell the Australian arm of her employment services agency for what BRW believes was $170 million.

“Not all of that went to her, some of it would have been covered by debt,” says Ms Mills who will not confirm whether she spoke to Ms Rein in preparing the list. “In some ways it is what she did next that was more extraordinary. She went to United Kingdom and took advantage of opportunities opening up under the Blair Labour government and then under the Cameron conservatives.”

“In the past year she has done an employment services deal with Cameron’s government worth $1.4 billion over five years. The UK arm of her firm Ingeus is a joint venture with the consulting firm Deloitte, so the income will be shared.”

“She has ridden on the back of what you might call the outsourcing of the state, things such as welfare to work programs. It has happened throughout the West, and Ingeus is now in eight nations.”

Ms Mills is farm from certain Ms Rein will stay in the list. There’s a lot of movement at the bottom as some people join the top 200 and the wealth of others slip below it. The top is more stable, although even there there are surprises. Mining entrepreneur Clive Palmer slipped around $1 billion in the latest survey following a number of deals that didn’t work out.

In an extreme sense membership of the list is voluntary. Some years ago when BRW approached philanthropist Dick Smith to confirm his wealth for the list he said he would would give away assets rather than be on it, which he did, slipping below the cut-off point.

In today's Age


BRW Top 5

Name WEALTH INDUSTRY
Gina Rinehart $29.17 b Resources
Ivan Glasenberg $ 7.40 b Resources
Frank Lowy $6.47 b Property
Andrew Forrest $5.89 b Resources
Anthony Pratt & family $5.45 b Manufacturing, investment

Women – Top 5

NAME WEALTH INDUSTRY
Gina Rinehart $29.17 b Resources
Angela Bennett $2.03 b Resources
Vicky Teoh $525 m Technology
Charlotte Vidor $485 m Property
Imelda Roche $440 m Property

Families – Top 5

NAME WEALTH INDUSTRY
Smorgon $2.63 b Investment, property
Liberman $2.20 b Investment
Besen $2.15 b Property, retail
Wright $1.95 b Resources
Myer $1.94 b Retail, property



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OECD: Outlook mixed, even for Australia

Real estate prices are under threat from the high Australian dollar along with confidence and jobs, but the Organisation for Economic Co-operation and Development says Australia is set to grow at just about the fastest pace in the developed world for decades to come.

The OECD Economic Outlook released overnight in Paris puts Australia near the top of the tree for economic growth during 2012, behind Korea, Mexico and Chile. While Australia’s economy is set to grow at 3.1% this year, close to the budget forecast, the United States should grow at a lower 2.4 per cent, the United Kingdom 0.5 per cent, and Italy and Greece should slide further into recession.

The report credits the mining boom for keeping Australia ahead of the pack but says consumer caution and the “persistently high exchange rate” are holding other parts of the economy.

Dislocation caused by high dollar is “generating substantial uncertainties that could weigh on employment, confidence and growth, with potential negative spillovers on house prices”.

Australian house prices along with those in Canada, France and Sweden are still “very high relative to rents and incomes,” pointing to further falls...

Welcoming the report Treasurer Wayne Swan acknowledged it painted a picture of a patchwork economy.

Tackling those pressures was central to the Spreading the Benefits of the Boom package in the May budget.

The report endorses the budget strategy saying the decision to concentrate budget cuts on defence and foreign aid should “limit the negative impact on activity”. It finds Australia’s combined state and federal government debt amongst the lowest of any member nation.

The OECD finds global prospects “somewhat brighter” than six months ago, with the immediate risks “contained so far”. It says the United States and Japan are enjoying a gradual “post-crisis healing,” but in Europe confidence is weak and financial markets volatile.

The Outlook forecasts no economic growth in the euro region this year, a more optimistic assessment than that of Australia’s Treasury which expects a recession of 0.75 per cent. It says China’s economy should grow 8.2 per cent, India’s 7.1 per cent, and the OECD as a whole 2.2 per cent.

Projections to 2050 give Australia the highest growth rate in the developed world after Chile and Mexico. China is set to overtake the United States as the world’s biggest economy in 2017. India and Indonesia will grow faster than China from 2020.

Australia’s trade minister Craig Emerson yesterday signed a free trade agreement with Malaysia promising immediate tariff-free entry of 97.6 per cent of Australian exports, climbing to 99 per cent by 2017. In return Malaysia will enjoy the same access to Australia as Singapore.

The agreement holds back several Australian exports. Large Australian cars of the kind not usually exported to Malaysia will get immediate duty-free access. Smaller more competitive cars such as the Holden Cruze will wait until 2016. Tariffs on Australian rice meant for retail sale in Malaysia will remain until 2023. Tariffs on wholesale rice will remain until 2026.

In today's Canberra Times, Sydney Morning Herald and Age

Australia OECD 2012 Economic Outlook

BUT FOR NOW...

Developed nations economic growth in 2012

Mexico 3.6%
Korea: 3.3%
Australia: 3.1%
United States: 2.4%
Canada: 2.2%
Japan 2%
New Zealand: 1.9%
Germany: 1.2%
France: 0.6%
Ireland: 0.6%
United Kingdom: 0.5%
Netherlands: - 0.6
Italy -1.7%
Greece -5.3%

OECD Economic Outlook, 2012




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Why not extend the the GST to food?

Me on ABC Adelaide 891, Wednesday May 23

14 minutes, play or CLICK THEN CLICK AGAIN to download mp3




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Why do we negotiate free trade agreements in secret?

COMMENT

Prepare to discover what we have signed.

At 11.30 this morning Kuala Lumpur time our trade minister Craig Emerson and his Malaysian counterpart will sign a free trade agreement that promises “a new chapter” in the Australia-Malaysia relationship.

Only then will we find out what’s in it.

It’s standard procedure, according his minder.

“All the final details about what’s agreed will be published once both parties sign it,” is how he puts it.

Pressed as to whether it might be better for Australians to see what has been agreed to in their names and perhaps assess it before it is signed he replies: “this is the way it’s always been”.

Only because Craig Emerson insisted on it.

In December 2010 after a year long investigation the Productivity Commission recommended the government “commission and publish an independent and transparent assessment” of future free trade agreements “at the conclusion of negotiations but before an agreement is signed”.

Emerson said no, on the odd ground that “quantitative analysis can be highly misleading”.

Which it can be. One of the reasons Australia needs more free trade agreements is because of the impact of its previous free trade agreements...

After the Howard government signed the US-Australia FTA last decade China hit back by stitching up its own agreements with Malaysia and New Zealand. Their meat, wine, fruit, vegetables and oil seeds can enter China duty free. Ours cannot.

Emerson says we will have plenty of time to examine the Malaysia-Australia agreement after its signed. He’ll table it in parliament for 20 sitting days along with a national interest analysis. Only then will it be ratified.

Next off the rank will be the Trans-Pacific Partnership Agreement encompassing Australia, Brunei, Chile, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam. We won’t see that until its signed either.

In today's Age


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Is Gillard about to do a PBS with childcare?

The union representing childcare workers has warned the Gillard government not to jeopardise quality in any deal it strikes with childcare centres to freeze fees.

Government minister Craig Emerson fed speculation about a deal yesterday telling reporters to “be assured this government is aware of the cost of childcare in contributing to cost of living pressures, and we have taken measures to ease those pressures - this is something to which we are very strongly committed”.

The government is reportedly considering an accord along the lines of the Pharmaceutical Benefits Scheme that would directly subsidise childcare centres in exchange for guaranteed fees. Until now the government has paid money to parents to subsidise fees rather than funded the childcare centres themselves.

In Chicago attending a summit on the future of Afghanistan Ms Gillard refused to elaborate on the scheme saying “others back in Australia” were better positioned to talk about Labor’s plans than her.

United Voice, the union representing carers, says while it supports the idea of a freeze on fees in return for funding the deal would sell parents short it if didn’t also ensure that childcare educators were properly paid.

“At the moment an educator with a Certificate 3 qualification gets $18.06 per hour"... assistant national secretary Sue Lines said. “With a further diploma the educator gets $21 per hour. In other industries professional wages start at $26 per hour.”

“We are seeing around 160 educators leave the sector every week - they can’t afford to stay, they want to be able to buy homes and set up families of their own.”

Ms Lines called on the government to model its childcare deal on the aged care deal unveiled in the budget and its . It will fund wages directly as means of lifting quality.

“An aged care worker with a Certificate 3 is paid is exactly the same as a childcare educator with a Certificate 3 – $18.06 an hour. It it is good enough for the Commonwealth to lift one set of wages in order to lift quality it is good enough for it to lit another,” she said.

“Parents want both affordability and quality. They don't want to go into a centre and find the person teaching their child has left. They don't want to see new faces every day.”

News Limited papers report that another option being considered by the government is to better index the Child Care Benefit paid to low income parents.

In today's Age


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"percentage point" - discuss.

Here is a reader's letter:

Here is my reply:

Thanks very much for writing.

The Reserve Bank’s “0.50 percentage point rate cut” is the cut in its cash rate from 4.25% to 3.75%.

Here’s how it looks expressed in numbers: 4.25 – 0.50 = 3.75

You can see that a cut from 4.25 per cent to 3.75 per cent is a cut of 0.50 percentage points.

But, perhaps surprisingly, it is NOT a cut of 0.50 per cent.

Expressed as a per cent, a move from 4.25 to 3.75 would be much bigger: a cut of 11.1%.

If I wrote the Reserve Bank cut its cash rate 0.50 per cent I would be (hugely) wrong.

That’s why I use percentage points, a factually correct term that I until now had thought people understood.

Can you think of a better way to do it? I am open to suggestions.

Please discuss.

Read more >>

VIDEO. The tax that dare not speak its name

What's the compensation for?

"This is just brain-dead" - Phil Coorey, Insiders.


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Australia so far. What to Eat After the Low-Hanging Fruit?

Andrew Leigh reflects in this magnificent speech, not all of which reflects well on earlier positions adopted by his Australian Labor Party.

What Do We Eat After the Low-Hanging Fruit? A Brief Economic History of Australia, With Some Lessons for the Future*

Andrew Leigh MP, McKell Institute, Sydney May 18 2012

"In the Pacific Ocean, off the west coast of South America, sit the Galapagos Islands. Although they straddle the equator, the pattern of ocean currents have a cooling effect, making them an ideal breeding ground for tortoises, iguanas, penguins, finches, albatrosses, gulls, and pelicans.

Because the islands are volcanic, what’s striking about animal life on the Galapagos Islands is that all of it came originally by flying or floating nearly 1000 kilometres from Ecuador. And yet for the species that survived, life on the Galapagos Islands was perfect. Migrating birds lucky enough to be blown off course found an environment with few natural predators. Tortoises that floated here found beaches perfectly suited to their breeding environments. Life flourished.

Looking back across Australian economic history, I am often struck by the extent to which luck has similarly played a part in our success. Politicians are sometimes reluctant to talk about luck – preferring to focus on the things we can control than those we can’t. It is true that ‘chance favours the prepared mind’. But I think it’s still worth talking about the role that luck has played, if only to help understand what preparations we should be making. If we don’t do that, we’re like the Galapagos tortoise, which must have thought itself the luckiest species on earth, until British sailors discovered the islands in the late-eighteenth century, and ate them in their thousands.

Over the 2¼ centuries since European settlement, there have been half a dozen strokes of luck, each of which has tangibly boosted average living standards.[1] Let me take a moment to talk about them in turn.

Six Pieces of Low-Hanging Fruit

The first was plentiful land. By stealing land from Indigenous Australians, white settlers were able to be generous in handing out land to convicts and settlers alike... To them, land was so abundant that it was virtually free. Abundant land became particularly productive with Macarthur’s introduction of Merino wool: a high-value product that could be shipped back to Britain. While Europe was land-scarce in the early-1800s, Australia was labour-scarce. That meant wages were comparatively high, and created huge economic opportunities. For example, Samuel Terry, who was transported to Australia for stealing stockings, ended his life as the richest man in Australia, owning a fifth of all NSW mortgages. Free land (stolen from Indigenous Australians) provided social mobility that would have been undreamed of in nineteenth-century Europe.

Land also provided geographic mobility. Historian John Hirst points out that early Australia was characterised by squatters who journeyed inland, and bushmen who moved readily between country and city.[2] He contrasts this with the more static world of Europe by quoting the scene in Thomas Hardy’s The Mayor of Casterbridge. A young English couple are parting:

‘I’m sorry to leave ye, Nelly,’ said the young man with emotion. ‘But, you see, I can’t starve father, and he’s out o’ work at Lady-day. ’Tis only thirty-five mile.’ The girl’s lips quivered. ‘Thirty-five mile?’, she murmured. ‘Ah! ’tis enough! I shall never see ’ee again!’

Such a scene could never have been set in Australia.

Second came plentiful gold. When Edward Hargraves announced in 1851 that he had found gold in Bathurst, it started an avalanche. Over the next decade, the population nearly tripled and our national income almost quadrupled, as people flooded in to take advantage of Australia’s mineral wealth.[3] The changes were felt most keenly in Victoria, whose population increased by a factor of seven in a single decade.

In 1852, Victorian Lieutenant-Governor Charles Latrobe wrote:[4]

At this time the town and its suburbs, and the villages for several miles around Melbourne, notwithstanding the steady stream setting through it upon the road to the Gold Fields, are absolutely choked with the teeming population. The most extravagant rent is paid for the most indifferent accommodation, temporary or otherwise.

And yet it isn’t much of an exaggeration to say that central Melbourne is largely a product of the Gold Rushes, which continued until the late-1800s. The Royal Exhibition Building, opened in 1880, was modelled on the Duomo in Florence. By the end of the nineteenth century, Australians enjoyed the highest standard of living in the world.[5]

Third came plentiful inventions. As US economist Tyler Cowen has argued, the first half of the twentieth century saw a massive upsurge in inventions.[6] This era saw powerful motors and mass production; in transport, there were cars and airplanes; in communications, there were telephones and radios. In homes, domestic inventions included fridges, washing machines, while in offices there were typewriters and tape recorders. The combine harvester, invented in the late-nineteenth century and widely used in the early-twentieth century, caused Australian grain production to soar.

If it strikes you as odd to say that there was more global innovation in the first half of the twentieth century than today, then consider this thought experiment. Which would you give up first: your iPad, or your indoor toilet? Would you prefer to live in a world without Facebook, or one without Penicillin? In the United States, where most leading-edge inventions are registered, the number of patents per researcher has been falling for most of the twentieth century.[7] Physicist Jonathan Huebner estimates that global innovation per person plummeted after the 1955.[8] But for the first half of the twentieth century, Australia surfed the wave of global innovation to increase our standard of living.

Fourth came plentiful migrants. Prior to World War II, Australia took too few migrants. Our migration program excluded those of ‘yellow’ skin, and to our shame, we accepted just 5000 Jewish refugees. But after the war ended, the floodgates opened. At its peak, in 1949, Australia accepted 185,000 migrants into a population of 7.9 million.[9] On today’s population, that would be equivalent to a migrant inflow of more than half a million people. Well over half of these migrants were from non-English speaking countries.[10]

This was an extraordinary program. Relative to population, Australia’s post-war migration program was the largest sustained migration in the world – bigger than the US peak immigration era at the turn of the twentieth century.[11] Many were sent to work on the Snowy Mountains scheme, which employed 10,000 men at its peak.

Political games were played. Visiting the European displaced persons camps in 1947, Immigration Minister Arthur Calwell reported that ‘Australia would be interested in the more youthful types of Baltic peoples who were capable of doing hard work… We preferred the horny hand of the sons of toil’.[12] He was particularly keen that those on the first ship were blonde and blue-eyed, and so instructions were given to the Department of Immigration to select people from Latvia, Estonia and Lithuania.

For all the racial games that were played with public opinion, the simple fact remains that Australia benefited hugely from post-war migration. For once, the ‘tyranny of distance’ worked in our favour, as people who would never have otherwise moved thousands of kilometres from the country of their birth now wanted to flee as far as possible from the horror that had engulfed Europe.

In other cases, coming to Australia was accidental. The father of a friend of mine was born in a refugee camp in Germany in 1946, the son of Polish and Russian refugees. He was a few years old when his family hoped to emigrate to the United States. The Red Cross moved them by train down to Naples, and he was so excited that he constantly stuck his head out the window. A piece of soot got stuck in his eye, and when they got to Naples, the US immigration officials were worried that he had an eye infection that could be contagious, so they refused to take the family. ‘You might try the Australians’, he said, gesturing to officials in the other corner of the room. And that’s why my friend – some thirty years later – was born in Queensland rather than New Jersey. Like her, half of all Australians either have a parent who was born overseas or were born overseas themselves.

The fifth form of low-hanging fruit that Australia plucked was education. In 1900, education was not taken particularly seriously. The bulk of schools were one-teacher schools. Compulsory attendance laws had only just been enacted in some jurisdictions, and were poorly applied. On an average day, 3 out of every 10 children who were supposed to be at school were absent. Some states charged secondary school fees at the turn of the century, and in an appalling policy mistake, most states increased or reintroduced school fees in the 1930s. Even in 1946, less than 1 in 15 young Australians completed secondary school.[13] Hardly anyone went to university. Today, around 4 in 5 young people complete secondary school.[14] Among Australians aged 25-34, 35 percent have a university degree.[15]

One way that labour economists like to summarise educational attainment is in terms of years of education. For example, someone who has finished primary school has 6 years; someone who has finished high school has 12 years, someone with a diploma has 13 years, and someone who has attended university has 15 years. On this measure, the average number of years of education among the working age population rose from 7 years in 1900 to 9 in 1950 to 13 in 1990.[16] Since then, it’s increased modestly.

Rising education represents low-hanging fruit because education has such a large payoff. On average, another year of education boosts earnings by 10 percent, and there’s no evidence that the economic returns to education have declined as the level of education has risen.[17] We also have good evidence that education pays off in non-economic ways, such as through better health, more happiness, less crime, and more civic activity.[18]

The sixth form of low-hanging fruit is the twenty-first century mining boom. So much ink has been spilled on this topic that I won’t say much today. For reasons entirely outside the control of our miners, world commodity prices have tripled over the past decade. The terms of trade recently reached a 140-year high. Urbanising China and India need steel to make their skyscrapers, and Australia happens to be the world’s biggest producer of iron ore, and a major producer of coking coal. At present, we export iron ore at the rate of 4 tonnes a second.

Treasury official David Gruen recently noted:[19]

The mining and mining-related sectors, which together account for around 20 per cent of the economy currently, were expected to contribute more than two-thirds of this real GDP growth in 2011-12, while the 70 per cent of the economy not directly benefitting from the resources boom was expected to contribute less than a third. … Therefore, while the 2011-12 Budget forecasts imply quite good aggregate real GDP growth, around 70 per cent of the economy is expected to grow at around 1 per cent.

And yet compared with the 1970s terms of trade shock, the benefits of this mining boom are flowing more broadly through the economy. Inflation is low, unemployment has dropped during the mining boom, and even the dispersion of unemployment has fallen. Moving from the old royalty regime to a profits-based mining tax means that when prices rise, tax revenue goes up too. In an environment where parts of the non-mining sector are suffering from ‘Dutch Disease’, this seems a reasonable approach.

The New Productivity Agenda

So Australia picked six pieces of low-hanging fruit: plentiful land, the Gold Rush, abundant inventions, post-war migration, mass education, and the current mining boom. These weren’t all dumb luck; we also made some good policy decisions along the way. In the post-war era, Australia benefited greatly from far-sighted economic reforms such as the scrapping of White Australia, the HECS-funded expansion of universities, floating the dollar, tearing down the tariff wall, enterprise bargaining, and replacing a patchwork of sales taxes with a GST.

The question now is: what next? How do we make sure that our nation continues to prosper economically?

In my view, the only way of ensuring that Australia continues to enjoy rising living standards, is to find ways of raising our productivity.[20] To most economists, the relationship between productivity and growth is as natural as the link between clouds and rainfall. We regard productivity – producing more output with the same inputs – as the main driver of long-run growth.

But from my experience, that’s not the way some of my non-economist friends regard productivity. Scarred by a bad boss who said ‘you should work smarter’ when he meant ‘you should work harder’, some of my friends hear the word ‘productivity’, and immediately feel the hackles rise on the back of their necks.[21]

Yet there’s nothing perverse in the idea of productivity. Productivity simply means being able to do tasks more effectively. In this sense, we’ve all become more productive over our lives. As children, we learn to become better readers – absorbing more information in the same amount of time. When we move into our own homes for the first time, we quickly become better at doing household chores. And after a decade in the workforce, most of us make fewer mistakes in our jobs than we did in the first year.

Productivity growth was lousy in the 2000s, but we can learn something from the previous decade. During the 1990s, Australia managed to double our rate of productivity growth. According to the Productivity Commission’s Dean Parham, there were three main drivers of this increase: 50 percent was due to us having a more open economy, 30 percent to more research and development, and 20 percent to the information technology revolution.[22]

Today, two major productivity challenges for Australia are to keep our economy open to the world, and to boost the quality of our education system.

Australia must pursue openness because our future lies in economic engagement with the world. In terms of migration, Australia benefits when new migrants bring their ideas. But we also benefit when people born in Australia spend time overseas and then return. For the brief period when I headed the economics program at the Research School of Social Sciences, I remember noticing that only one of the approximately 30 researchers was born and had studied in Australia. Everyone else was either foreign-born, or had completed their PhD overseas.

In terms of trade, Australia needs to continue to pursue open markets internationally. Just as we benefited by taking the rocks out of our harbours, we need to encourage others to do likewise. In the 1980s, we established the Cairns Group of agricultural free-trading nations, and in the 1990s, we set up the APEC leaders’ meetings. Now, because momentum has stalled in the consensus-based World Trade Organisation, Prime Minister Julia Gillard and Trade Minister Craig Emerson are working on a new pathway to progress the Doha Round: a Trans-Pacific Partnership. A stepping stone to the APEC goal of a Free Trade Area of the Asia Pacific, the Trans-Pacific Partnership allows other countries to ‘bolt on’ at a later date.

We also need to be honest with Australians about foreign investment. While at least one National Party Senator has claimed that there has been ‘an exponential increase’ in agricultural foreign investment, the facts show otherwise. Between 1984 and 2010, the area of farmland that is foreign-owned rose from 5.9 percent to 6 percent.[23] Rural Australians enjoy more jobs and better pay as a result of foreign investment – just as they have done since CSR helped establish our sugar industry in 1855.

The other challenge is to boost the performance of Australia’s educational institutions, particularly our schools. In research with Chris Ryan, we found that Australian literacy and numeracy scores had failed to improve from 1964 to 2003.[24] Since then, Australia’s scores on the international PISA test have fallen. At the same time, the academic aptitude of new teachers – relative to their classmates – has declined.[25] One possible reason for this is that Australia chose to focus on reducing class sizes rather than attracting the best teachers. Over the past quarter-century, class sizes have been cut by about 10 percent, while teacher salaries relative to other professional salaries have also been cut by about 10 percent.

I said earlier that increasing the quantity of education was low-hanging fruit. By contrast, increasing the quality of education is fruit that’s on a higher branch. But it’s a particularly attractive goal, because it doesn’t involve the same sacrifice. More time in school means less time doing other things. But raising the quality of schooling means packing more learning into every year.

If we’re learned anything from the economics of education over the past few decades, it’s that the relationship between spending and outcomes is extremely weak. You can see this over time in Australia (where spending has risen but scores have flatlined), and you can also observe it by using the MySchool data to compare spending and results. More money creates the potential for improvement, but the relationship is far from automatic.

So the most interesting questions in education are about how money is spent. Among the reforms that Education Minister Peter Garrett has been pursuing in this area are principal autonomy (through the Empowering Local Schools program), Trade Training Centres to teach new skills and boost retention rates, and performance pay to reward the best teachers. I have a particular interest in performance pay, having given a keynote address at an economics of education conference in Munich, in which I summarised what we know about the economics and politics of merit pay.[26] From that, I concluded that anyone who says that merit pay ‘always works’ or ‘never works’ hasn’t spent enough time engaging with the literature. There are clearly merit pay models that are successful, and those that are unsuccessful. The challenge is to build the evidence base to the point where we can confidently tell the difference.

Conclusion

Writer George Megalogenis describes populist politicians who oppose economic reform as ‘playing with the kryptonite’. Both sides of Australian politics must take our share of blame for populist policies. In the 1980s and 1990s, there were those (including the current Leader of the Opposition) who opposed the float of the dollar. And yet without a floating dollar acting as a shock absorber to international events, it’s easy to imagine that the Asian Financial Crisis, the US tech wreck or the mining boom could have had a disastrous impact on the domestic economy.

The same can be said of Labor’s flirtation with populism in the 1990s. In the 1998 election campaign, we promised to abolish the Productivity Commission – the very same body that has now done the essential groundwork for a National Disability Insurance Scheme. In 1999, we also opposed the Goods and Services Tax, a reform that Paul Keating had supported the previous decade. I can’t imagine Labor now promising to go to an election to untax services and reinstate the patchwork of sales taxes that existed in that era.

We can also see more than a hint of populism in Tony Abbott’s campaign against market-based mechanisms such as water buybacks in the Murray-Darling Basin and a price on carbon pollution. And yet we shouldn’t be surprised that these campaigns are finding some receptive ears. In public life, it has always been easier to scare people than honestly inform them. It’s just that most of us choose not to walk the fear road.

Today, animal life on the Galapagos Islands is thriving again. Three decades after receiving World Heritage Listing, the World Heritage Committee has removed the Galapagos Islands from its list of precious sites endangered by environmental threats or overuse. This didn’t happen by chance: it has been due to the hard work of the park service, the Charles Darwin Foundation and the Ecuadorian Government. There are still invasive species, but there are good programs in place to manage them.

After a lucky start, nature on the Galapagos Islands now thrives because of good management, and planning with an eye to the future. Perhaps there’s a lesson in that for the Lucky Country too.


* I am grateful to Peter Bentley for inviting me to give this talk, to the Parliamentary Library for valuable research assistance, and to Macgregor Duncan, John Edwards, Rick Kalowski, John Quiggin and others for insightful comments on an earlier draft. Naturally, they should not be assumed to agree with all its conclusions. The notion of ‘low-hanging fruit’ draws on Tyler Cowen’s excellent book The Great Stagnation.

[1] This section draws on Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition.

[2] John Hirst, 2009, Sense and Nonsense in Australian History, Black Inc, Melbourne, p.27

[3] Angus Maddison, The world economy, Organisation for Economic Co-operation and Development. Development Centre, Vol 1, pp.449 and 462

[4] C.M.H Clark (ed). 1962, Select Documents in Australian History 1851-1900, Angus and Robertson, Sydney, pp.89-90. Another interesting document in this volume is a letter by Tasmanian Lieutenant Governor William Denison, expressing his concerns that the Gold Rush would result in the mass emigration of Tasmanian agricultural labourers. It goes to show that all mining booms create multi-speed economies.

[5] Angus Maddison, 2010, Statistics on World Population, GDP and Per Capita GDP, 1-2008 AD (Horizontal file), University of Groningen

[6] Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition.

[7] Tyler Cowen (2011), The Great Stagnation: How America Ate All The Low-Hanging Fruit of Modern History, Got Sick, and Will (Eventually) Feel Better, Kindle Edition, Location 200.

[8] Jonathan Huebner, 2005, ‘A Possible Declining Trend for Worldwide Innovation’, Technological Forecasting and Social Change, 72, p.982 (quoted by Tyler Cowen).

[9] Andrew Leigh, 2010, Australian Social Capital Database (Excel file), available at www.andrewleigh.org.

[10] Andrew Leigh, 2010, Australian Social Capital Database (Excel file), available at www.andrewleigh.org.

[11] Brad Collis, Snowy, the Making of Modern Australia, 1990, Hodder & Stoughton, Sydney, p.195

[12] Quoted in ABC, 2001, ‘100 Years: The Australian Story’, Episode 2: Rise And Fall Of White Australia, http://www.abc.net.au/100years/EP2_4.htm

[13] Statistics in this paragraph are drawn from Gerald Burke and Andrew Spaull, 2001, ‘Australian Schools: Participation and Funding 1901 to 2000’, Year Book Australia, 2001, ABS, Canberra (available at http://www.abs.gov.au/Ausstats/abs@.nsf/0/A75909A2108CECAACA2569DE002539FB?Open). Estimate for 1946 is based on an ACER survey, which found that 7 percent of youth aged 16-17 were enrolled in school. This suggests a year 12 graduation rate of less than 1 in 14.

[14] ABS, 2011, ‘Year 12 Attainment’, Australian Social Trends, Mar 2011, Cat No 4102.0, ABS, Canberra.

[15] ABS, 2011, Education and Work, Australia, Cat No 6227.0, ABS, Canberra, Supplementary Table 8.

[16] Christian Morrisson and Fabrice Murtin, 2009, ‘The Century of Education’, Journal of Human Capital 3(1): 1-42

[17] Andrew Leigh, 2008, ‘Returns to Education in Australia’, Economic Papers: A journal of applied economics and policy, 27: 233–249; Mick Coelli and Roger Wilkins, 2009, ‘Credential Changes and Education Earnings Premia in Australia’, Economic Record, 85(270): 239-259.

[18] See for example Philip Oreopoulos, 2007, ‘Do dropouts drop out too soon? Wealth, health and happiness from compulsory schooling’, Journal of Public Economics, 91(11–12): 2213–29.

[19] David Gruen, 2011, ‘The macroeconomic and structural implications of a once-in-a-lifetime boom in the terms of trade’, Australian Business Economists, 24 November 2011. Eagle-eyed readers will notice that 20 and 70 do not add to 100 percent. This is because Gruen is discussing the 90 percent of the economy that is non-agricultural.

[20] For statistics on Australian productivity growth since the 1960s, see House of Representatives Standing Committee on Economics, 2010, Inquiry into raising the productivity growth rate in the Australian economy, House of Representatives, Canberra, Figure 5.1. Over a longer period, see Broadberry, S. N. and Irwin, Douglas A., 1962- (2007) ‘Lost exceptionalism? : comparative income and productivity in Australia and the United Kingdom, 1861-1948’. Economic Record, Vol.83 (No.262). pp. 262-274.

[21] One economist who shares this view is John Quiggin, who contends that the 1990s were a productivity ‘mirage’, on the basis that output rose only through an increase in effort (see Quiggin, ‘The Lost Golden Age of Productivity Growth?’). The difficulty with this argument is that shifting the denominator from hours to effort introduces significant new measurement problems.

[22] Dean Parham, 2004, ‘Sources of Australia’s Productivity Revival’, Economic Record, 80(249): 239-257.

[23] Craig Emerson, 2012, ‘Australia China Business Council 2012 Report Launch - Benefits to Australian Households of Trade with China’, National Press Club, 3 April 2012.

[24] Leigh, A. and Ryan, C. (2011) 'Long-run trends in school productivity: Evidence from Australia', Education Finance and Policy. 6(1): 105-135. For example, one question asked of year 8 students was ‘In the division 24.56/0.04, the correct answer is: (a)0.614 (b)6.14 (c)61.4 (d)614 (e)6140’. The share of students who correctly answered (d) was 39% in 1964, 38% in 1978 and 23% in 1995.

[25] Leigh, A. and Ryan, C. 2008, 'How and why has teacher quality changed in Australia?', Australian Economic Review, June 2008, vol. 41, no. 2, pp. 141–59.

[26] Andrew Leigh. 2012. ‘The Economics and Politics of Teacher Merit Pay’ CESifo Economic Studies, forthcoming http://cesifo.oxfordjournals.org/content/early/2012/03/07/cesifo.ifs007.abstract


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Wages move further west

NSW workers have slipped further in the earnings rankings. Right up until mid-last decade NSW and ACT workers were the highest paid in the nation. Western Australia inched ahead of NSW in 2006, slipped during the global financial crisis and has jumped well clear of NSW since.

The latest Bureau of Statistics figures show the average Western Australian full-time worker taking home $84,276 per year - some $12,000 more than the average NSW full-timer on $72,431.

The widening gap has pushed NSW into fifth place in the earnings league table, behind Western Australia, the Australian Capital Territory, the Northern Territory and Queensland.

NSW full-timers earns just $31 per week more than their counterparts in Victoria. Over the past ten years NSW wages have climbed 49 per cent, Victorian wages 53 per cent and Western Australian wages 85 per cent.

The figures show mining now by far Australia’s highest-paid industry, offering full-timers an average of $121,102 - up from $112,892 a year earlier... By contrast workers in accommodation and food services, Australia’s lowest paid industry, get an average of $50,378 - up from $48,656 a year earlier.

Full-time pay in the finance sector climbed just 2.3 per cent over the past year to $83,689. Pay in real estate scarcely moved, climbing 0.4 per cent. Average pay in the administrative and support industry went backwards, slipping 1 per cent.


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Hockey wants to hold down the debt ceiling

What could possibly go wrong?

The Coalition has raised the prospect of a United States style move to block government attempts to lift the debt ceiling, raising the prospect of turmoil on financial markets.

While not saying outright the Coalition would block the increase to $300 billion proposed in the budget, shadow treasurer Joe Hockey told the press club yesterday enough was enough.

“Labor has now sought increases in the debt limit of the Commonwealth from $75 billion to $200 billion, to $250 billion and now $300 billion. On each occasion they promise not to exceed the limit. Well, enough is enough - we are going to keep them to their promises,” Mr Hockey said.

Australian Office of Financial Management chief Rob Nichol has asked for an increase in the limit to cover seasonal peaks in need for finance. While the government will be gin the financial year with less than $250 of debt on issue and the end the year with less than $250 it projects a peak during the year in May 2013 of $260 billion. Without an increase of the $250 ceiling and without some headroom for contingencies the Commonwealth runs the risk of being unable to meet its obligations.

Mr Hockey said yesterday the Coalition would move an amendment to the appropriations bills to excise the debt ceiling measure in order to bring on a separate debate.

Financial markets consultant Stephen Koukoulas, a former advisor to Prime Minister Gillard, warned things could get “ugly” if the debt ceiling was held down.

“Think back to what happened mid last year. Congress was going to block a required increase in the US debt ceiling. The US government was going to miss its bills. I don’t want to overstate it, but things got pretty ugly... Around 80 per cent of our bond market is held by foreigners. We can’t afford to alienate these people by playing silly buggers with the ceiling.”

Pleading the with the Coalition to leave the issue alone he said there were “a million and one things the opposition can argue about, and should argue about, but the debt ceiling is one of the few things in my views that should be depoliticised. The opposition can politicise anything else it wants.”

Mr Hockey also promised to inject outsiders into the top echelon of the Tax Office, adding four so-called Second Commissioners to the existing three. The would be part time and have “deep experience in the private sector”. All would be based outside Canberra and ideally some would be from regional Australia and small business.

Monash University professor Rick Krever, a former visiting academic at the Tax Office said he doubted the outsiders would make much difference. “They will discover as I did that most of the problems are with the tax laws, not the way they are administered. The tax laws are the responsibility of Treasury.”

In today's Sydney Morning Herald and Age


Stephen Koukoulas on this morning's RN Breakfast:

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Hold on to your hats. Hockey takes us through the budget fiddles

It's not pretty.

From Wednesday's National Press Club address:

"The Treasurer is projecting an extraordinary drop in spending in just one year, which happens to be the year he promises a surplus:

"A large chunk of this spending pause is achieved by artificially bringing forward spending into the current financial year which finishes on June 30. Of course the taxpayer money will still be spent…it is just an accounting trick to cook the books.

We already know that the Government is taking a novel approach to compensation for injury by paying $1.5 billion to people this year before the carbon tax actually starts on 1 July.Although if you believe their ads it has nothing to do with the carbon tax….they just want to believe their ads it has nothing to do with the carbon tax….they just want to give you money.

"We also know that the Coal Sector Jobs Package seems to save jobs this year, give up on jobs next year but then it has a change of heart and starts saving jobs the year after and in
subsequent years.

It seems as though nation building also takes a holiday in 2013 as the Government brings forward $1.3 billion of spending a few months so it does not appear in next year’s accounts.

"And of course there seems to be just one year, the first surplus year, when we don’t have to spend money on clean energy, but every other year we need to spend over $1 billion.

"But wait there is more. By paying Local Councils $1.1 billion in grants just a few weeks earlier, the Government is able to further artificially reduce expenditure next financial year.

Other money shuffles such as the panicked changes to the Schoolkids cash splash have increased expenditure this year and artificially reduced expenditure next year.

Additionally the Government is relying on a surge in revenue in its surplus year. They expect to collect an extra $39 billion in revenue in the next twelve months and this magic carpet will take them from a $44 billion deficit to a $1.5 billion surplus.

"As you can see revenue next year is also artificially inflated with special one off dividends such as those from EFIC and the Reinsurance Pool Corporation.

In addition to these fiddles the Government is pushing expenditure out into future years. It is a burden we will have to deal with.

The “delay” in the Joint Strike Fighter program along with other adjustments to the Defence
capital equipment program delivers savings over the four years of $5.5 billion. But it still
must eventually be paid.

Then there is the pipeline of big new spending commitments but with only nominal funding
provided."


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Lift the GST. The arguments are mounting

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Parkinson's Paradox: The tight budget that's not economically tight

Treasury boss Martin Parkinson says the economy will survive one of the tightest budgets in years in part because its economic effects are more mild than is widely believed.

In answers to questions at the annual Australian Business Economists lunch in Sydney Dr Parkinson said taking the budget from a $44.4 billion deficit to a $1.5 billion surplus amounted to a fiscal contraction of 3.1 per cent of GDP.

But much of the money saved would not have been spent in Australia anyway. It would have gone overseas on defence equipment and foreign aid.

And other decisions in the budget moved spending and concessions from people not likely to spend to people keener to consume.

“We haven’t modelled this formally, so there’s no point looking for it under Freedom of Information,” Dr Parkinson told the audience. “But the macroeconomic effect of the fiscal contraction is probably less than a per cent of GDP.”

“That’s a ballpark figure - 1 per cent of GDP. The fiscal consolidation is 3.1 per cent of GDP, the economic contraction is 1 per cent.”

“This does not mean the fiscal consolidation is not real. The outlays to GDP share will step below 24 per cent and stay there for the next four years. It will be the longest period of outlays below 24 per cent since the late 1970s and early 1980s.”

Responding to commentators who have argued there is no great need for an urgent return to surplus and that the urgency is “political” Dr Parkinson said if the time was not right now when unemployment was low and growth was moving back to trend it might never be right...

“It is surprisingly under‑appreciated that fiscal consolidation in Australia is happening in a far healthier environment than the circumstances facing many other advanced economies. With substantial risks remaining in the global economic environment, it is critical that we move now to recharge the fiscal batteries while circumstances remain favourable.”

Company tax revenue, capital gains tax revenue, and goods and services tax revenue had all been less than expected, for reasons not fully understood. An early return to surplus would help address early one of the key challenges facing government - the gap between the expectations of government and the public’s willingness to pay to meet those expectations.

For the foreseeable future all levels of government faced “razor-thin surpluses at best in the absence of conscious decisions to raise additional revenue or cut outlays”.

Asked whether achieving a forecast surplus by shifting spending from one year to another was best practice, the Treasury secretary said every budget saw “money moved across financial years”.

“It happens all the time, always does. The idea that somehow there is a tablet that says how you must construct your budget, and that the government or the Treasury did something inappropriate this year I completely and utterly reject.”

Dr Parkinson spoke after the release of Reserve Bank minutes showing the board believed conditions in many sectors were “weak” and “soft” when it decided to cut its cash rate 0.50 points on May 1.

The minutes indicate the board decided on 0.50 points rather than 0.25 partly to counteract rate hikes of 0.10 to 0.12 points imposed by the retail banks in February and April.

In today's Sydney Morning Herald and Age


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Rate cuts ahead. Jobs can grow faster - Reserve deputy

The Reserve Bank has fuelled hope of further rate cuts saying inflation should stay low and that the non-mining economy will need to create more jobs in order to contain unemployment.

Deputy governor Philip Lowe told a Davos Connection forum in Melbourne employment in the non-mining-related part of the economy would need to grow 0.75 to 1 per cent per year to keep the unemployment rate from climbing.

He said the mining-related economy was far bigger than commonly realised. Reserve Bank research showed it accounted for for 16 to 17 per cent of GDP rather than the widely accepted 10 per cent.

“Our analysis shows mining investment draws significantly on construction activity, which in turn generates activity in industries such as business services, manufacturing, transport and wholesale trade,’ he said.

“Defined this way, mining-related employment accounts for around 8 per cent of total employment, although only around 2.75 per cent of the workforce is employed directly.”

“It would not be surprising if over the next few years growth in mining-related employment, broadly defined, was as high as one-half of the total growth in the Australian workforce.”

In order to keep pace, non-mining employment would need to climb far faster than it had been, by up to 1 per cent per annum, rather than flatlining as the official figures suggest it had throughout 2011...

Inflation was far less of a concern than the Bank had expected. More of Australia’s domestic demand was being met offshore than had been predicted putting “less pressure on domestic capacity than earlier expected”.

Abstracting from the effects of the carbon price, inflation was set to stay near the bottom of the Bank’s 2 to 3 per cent target band for the next one to two years.

Answering questions Dr Lowe said the Australian dollar was likely to stay high for “a number of years to come”.

"If that is the case, large parts of our economy have to undergo adjustment. The key to making manufacturing, higher education, parts of tourism competitive is in human capital accumulation," he said.

Futures traders nudged up the likelihood of an imminent rate cut within minutes of his speech.

ANZ economist Justin Fabo said Dr Lowe’s figuring suggested the Bank believed employment could safely grow by 15,000 per month (180,000 per year) rather than zero as the ABS figures showed it had during 2011.

This would be consistent three more rate cuts of 0.25 per cent in coming months.

Housing finance figures released yesterday showed borrowers more cautious - 15 per cent of mortgages taken out in March were fixed, the highest proportion in four years.

Loans to owner-occupiers climbed 0.3 per cent in March after falling 2.5 per cent in February and 1.5 per cent in January. The value of the loans fell a further 0.3 per cent.

In today's Sydney Morning Herald and Age


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