Immigration slumps, population growth plunges

AUSTRALIA'S population growth is in free fall, with net immigration slumping 37 per cent year on year in the March quarter to its lowest level in years.

The Bureau of Statistics reports that net immigration plummeted from 98,138 in March 2009 to just 61,780 in the same quarter this year. It is the lowest figure for a March quarter since the bureau adopted new definitions in 2006.

For the entire year to March, net overseas migration plunged by 25 per cent, from 320,362 in 2009 to 241,352 this year. Most of that fall was in the last six months, after the Rudd government closed the back door allowing foreign students in low-level courses to stay on as permanent migrants.

Opposition Leader Tony Abbott pledged in the recent election campaign to cut net overseas immigration to 170,000 by 2012. The bureau figures suggest most of that had already been achieved by March, with the trend suggesting further falls in coming months.

Total population growth for the year to March fell by 15 per cent, from a record 471,475 in the year to March 2009 to 403,082 a year later. Australia's population growth rate dropped from 2.2 per cent to 1.8 per cent.

Lower population growth reduces pressure on house prices and urban infrastructure, such as crowding on trains and traffic congestion. But it also implies slower economic growth, and means fewer skilled workers for business. The plunge in immigration was partly offset by a record number of births, which soared to 303,585 as Australia's fertility rate continues to climb towards an average of two children per woman.

By contrast, the death rate has continued its fall to new record lows. Despite the rapid population growth, deaths in the year to March fell from 143,347 to 141,755. Victoria's death toll fell by 2.2 per cent, twice as much as the national average.

The slump in migration and population growth was most intense in resource states. In the March quarter, net overseas migration to Victoria and New South Wales was down 34 per cent in both states, compared with a 48 per cent fall in Western Australia and a 44 per cent fall in Queensland.

It comes as net interstate migration to Queensland has almost ground to halt. In the March quarter the bureau estimates only a net 1430 people moved north, the lowest quarterly figure since 1981.

In an almost unprecedented event, Queenslanders moving to Victoria in the March quarter outnumbered Victorians moving to Queensland. While 4280 Victorians moved north, 4471 Queenslanders moved south.

For the year to March, overall, 2004 more people moved to Victoria from other states than moved out of Victoria to other states. The state's population has now topped 5.5 million, growing by 106,790 or just under 2 per cent. WA was the fastest-growing state for the year to March, growing 2.3 per cent.


POPULATION GROWTH FALLING FAST

YEAR TO MARCH CHANGE

2009 2010 TOTAL %

AUSTRALIA

Migration 320,362 241,352 79,010 25

Natural increase

(Births minus death) 151,113 161,730 10,617 7

TOTAL 471,475 403,082 68,393 15

VICTORIA

Migration - o/s 85,422 68,175 17,247 20

Interstate 288 2004 2292

Natural increase 34,670 36,611 1941 6

TOTAL 119,804 106,790 13,014 11

ALL FIGURES NET

SOURCE: BUREAU OF STATISTICS.

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Make banks pay for risk: IMF

BIG banks with a serious mismatch between their asset and liability maturities could be forced to pay a surcharge or take out insurance against the risks they pose to the financial system, the International Monetary Fund has suggested.

In a review of the October 2008 liquidity crisis that forced governments to guarantee trillions of dollars of bank debts not least in Australia the IMF calls for wide-ranging reforms to reduce systemic liquidity risks in future.

The proposals were revealed overnight in a chapter released early from its Global Financial Stability report, to be published next week at the annual meetings of the IMF and the World Bank in Washington.

The IMF singles out the Australian banks as examples of financial institutions that lent long term but borrowed heavily short term and then were stranded in October 2008 when lenders would not roll over their debts.

At the onset of the crisis, it says, 32.2 per cent of Australian banks' funding came from short-term borrowings, on domestic and global markets. While the banks used the period of the government guarantee to diversify their funding sources and lengthen their maturity structure, at the end of 2009, 25.6 per cent of their funding was still short term.

"Any robust systemic liquidity framework would need to encourage appropriate pricing of liquidity risk in good times to limit its negative impact in times of market stress, and minimise the moral hazard problems", the IMF argues.

"Market participants should be paying the full price of their idiosyncratic liquidity risk".

It urges consideration of an insurance fee or surcharge where the mismatch between asset and liability maturities exceeds a set safety limit.

The IMF also proposes bigger buffers against risk, tighter matches between maturities on each side of balance sheets, more rigorous valuation of collateral and due diligence into the credit risks posed by counterparties, and more use of central counterparties for clearing.

In a second chapter from the report, the IMF also takes on the three global credit ratings agencies Fitch, Moody's and Standard & Poor's calling on them to issue estimates of the probability of default and expected losses by borrowers.

Amid widespread concern, particularly in Europe, over the ratings agencies' failure to warn of the crisis, and of the contagion effects of their downgrades of one country on others, the IMF finds the agencies have done better than their enemies suggest but worse than their own guidelines suggest.

On one hand, it reports, all sovereigns that have defaulted since 1975 were rated below investment grade a year earlier.

On the other hand, the record shows almost one in 1000 corporate bonds given AAA ratings by Moody's has defaulted, roughly 30 times its own estimate of default probabilities.

The IMF urges government investment agencies and central banks to eliminate regulations that "hard-wire" their investment portfolios to ratings changes, warning that these tend to amplify the "cliff effects" of a change on the borrower's access to credit.

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Tread warily on rates: IMF

AS HOME owners brace for an expected rate rise next week, the International Monetary Fund has challenged the Reserve Bank's forecasts that the economy faces a boom ahead, and implied that it should wait and see before acting.

In its latest report on Australia, released at midnight, the IMF also endorses the government's timetable for reducing the deficit now under fire from leading economists and Treasury itself.

The IMF does not directly criticise the RBA. But in pointed comments, it suggests the economy's future is more clouded and uncertain than the Reserve implies. It forecasts that Australia's growth next year will be between 3 per cent and 3.5 per cent, not the 3.75 per cent forecast by the RBA.

Moreover, the IMF says, the risks from the global economy "are tilted to the downside", so there is more chance that Australia will end up below its forecast than above it.

"It was appropriate for the RBA to start withdrawing stimulus in late 2009," it says. "However, capital market turbulence generated by European sovereign debt concerns has increased uncertainty about prospects for a world recovery next year.

"With lending rates in Australia close to their recent historical averages, and economic activity responding quickly to cash rate adjustments, the RBA has scope to wait for the outlook to become clearer."

Following a series of bullish speeches by RBA chief Glenn Stevens and other senior officials, the markets now expect the Reserve's board to raise rates again on Tuesday its seventh rate rise in a year.

Private bank economists are also tipping an eighth rate rise before Christmas, as the central bank tries to offset inflationary pressures from a boom in mining investment in WA by slowing the rest of the economy.

The IMF warns Treasury and the government that "the growing dependence on mining may amplify the business cycle", with bigger booms but also bigger busts when commodity prices fall. It advises them to be ready to move in either direction.

The IMF also backs the mining tax in principle, but says the original version of the tax was better than the watered-down version. In particular, it urges the government to extend the tax to all minerals, not just iron ore and coal.

Macquarie Bank economists, meanwhile, criticised calls for faster spending cuts, pointing out that existing deficit reduction plans, if delivered, would see the fastest cut in the deficit since records began.

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IMF to stress test 25 nations

THE world's 25 biggest financial systems, including Australia's, will be stress-tested by the International Monetary Fund every five years, in a key reform to try to head off another global financial crisis.

In a compromise announced on Monday, the US and other big economies finally agreed to a five-yearly exam after blocking the IMF's plan to conduct stress tests every three years.

The refusal of the Bush administration to allow the IMF to independently stress test the US financial system was a key reason why its collapse caused vast losses worldwide.

The Howard government, by contrast, invited the IMF to join the Australian Prudential Regulation Authority to stress test its banks in 2005-06. The financial system came through the financial crisis intact.

A spokesman for Treasurer Wayne Swan yesterday welcomed the deal, which could see the IMF back in Australia next year. "Our banks are well capitalised and well managed after years of strong supervision by our world-class regulators," he said.

APRA ran its own stress test on the banks last year. Chairman John Laker says that even with a 25 per cent fall in housing prices and a recession worse than 1990-91, all institutions would survive.

The IMF's stress testing to be conducted with the World Bank in developing countries will also test the regulators' own policy framework, and their capacity to manage and resolve a crisis.

An IMF report yesterday urged Britain to accelerate reform of its financial sector while praising the stringent spending cuts imposed by the new Cameron government. In its annual report on Britain, the IMF board said its economy was on the mend. And it said the benefits of bringing the deficit under control outweighed the costs.

The Asian Development Bank has lifted its growth estimate for developing Asia to 8.2 per cent this year, but forecasts it will slow to 7.3 per cent next year as stimulus measures are withdrawn.

Growth next year is forecast to be 9.1 per cent in China, 8.7 per cent in India, 6.3 per cent in Indonesia and between 4 and 5 per cent in South Korea, Taiwan, Hong Kong and Singapore.

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Don't listen too closely to Treasury, PM

AUSTRALIA is catching up with New Zealand. After an election, NZ departments put on the web their briefings to incoming ministers. Last Friday, Treasury became the first Australian department to do the same and what a briefing it was.

Treasury's red book, as it is known, tripped across almost every policy portfolio federal or state with criticisms, hints, warnings and reform plans. It was terse, just 80 pages of which 10 per cent was blacked out. But it was engrossing stuff: flawed but forceful, pointed and positive.

But pity the PM seeking guidance as to what should be her top priorities, when her government could be forced into a sudden-death election at any time. The red book is a great big Treasury wish-list, with no sense of priorities.

But some messages come through loud and clear: most of them important, a couple misguided.

As I read it, these are Treasury's priorities:

. To persuade the government to make room for the mother of all mining booms in WA by shepherding resources finance and workers there from other states and industries.

Treasury argues (ludicrously) that the economy is now close to full employment. To avoid inflation, manufacturing and tourism must shrink so mining can grow. It urges the government to speed this by scrapping support for "inefficient industries", apparently meaning cars and shipbuilding.

If adopted, this advice would shut down car manufacturing in Australia: the Ford plant at Broadmeadows, the Toyota plant at Altona and the Holden plant in Elizabeth, SA, where unemployment is already 19 per cent.

Treasury offers no proposals to address the devastation this would cause in Melbourne and Adelaide. It seems to assume that the unemployed workers would migrate to the WA mining towns.

. The projected budget surplus in 2012-13 is uncertain. If the world economy slows and mineral prices fall, it might not happen. Treasury wants the government to cut spending and resist pressure for tax cuts, both to secure the surplus and to generate savings to pay for difficult reforms.

As Access Economics director Chris Richardson puts it, the government's surplus forecast "is a pure punt that China and India will keep growing faster than the world's miners can keep digging deeper . . . If that punt is wrong, then Australia and its budget have big problems ahead."

. Australia needs to introduce emissions trading as soon as possible. It is clearly the cheapest way to reduce emissions. And without it, we will not reach the bipartisan target to reduce emissions to 5 per cent below 2000 levels by 2020.

. Tax reform must be tackled hard, with reform of state taxes, taxes on investment income, trusts, superannuation (especially tax dodges by self-managed super funds), welfare traps, and simplification as priorities.

. Welfare reform to increase workforce participation is a priority. But Treasury warns that this is likely to cost big money, which could rule it out until the budget is stronger.

. Co-operation between the Commonwealth and state governments is essential to reform. But Treasury's agenda is 100 per cent centralist. One thing it sees no need to reform is the mismatch of federal and state taxing powers, which has made the states beggars needing Canberra's money to do their job.

There are many vague hints and warnings: unstated fears about the national broadband network; patients should pay more of their own health bills; the navy should buy its ships overseas; and private investors should build more of our infrastructure.

These issues are important for Australia's future, especially tax, climate change and the budget. Between 2000 and 2008, governments cut income tax far more than we could afford, badly weakening the budget.

Chris Richardson points out that income tax as a share of wages and salaries has fallen 25 per cent since 1999-2000, to its lowest level in decades. He warns that global supply of minerals will catch up with demand in future, putting minerals prices back on their long-term declining trend.

That means we will not be able to rely on taxing mining profits to fund the long-term entitlements we have created. The budget will be in trouble.

But the implications of a future minerals bust go well beyond the budget. As Ross Garnaut put it two weeks ago: "The resources boom is not sustainable". Mining prices and investment will fall sharply at some point, putting pressure on the budget and on the economy. And industries being weakened by higher interest rates and the high dollar might not be there to rescue us.

"We've been pulling resources out of other sectors of the economy," Garnaut told a Melbourne Institute lunch. "Other trading sectors will have been very substantially weakened when they will be asked to make a bigger contribution".

Garnaut cited tourism and education, but the same is true for manufacturing and agriculture.

Treasury wants an economy where we put all our eggs in one basket: mining. That will be more volatile, more recession-prone, and massively disruptive.

Wrong way. Go back.

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Labor banking on surge in tax take

THE federal government is banking on the improving economy to lift its tax take by close to $100 billion a year over the next three years, after 2009-10 saw the take collapse to almost the lowest level in 30 years.

Treasurer Wayne Swan and Finance Minister Penny Wong reported yesterday that the underlying budget deficit the budget's bottom line ended up at a record $54.75 billion, or 4.2 per cent of the nation's GDP.

The government's balance sheet went from net assets of $16 billion to net debt of $42 billion, or 3.3 per cent of GDP. It is expected to peak at 6 per cent next year.

Mr Swan and Senator Wong reaffirmed the government's goal to return the budget to surplus by 2012-13. But the budget figures show this assumes a huge increase in tax revenue, and a big fall in spending as a share of GDP.

"Our budget position is in far better shape than most comparable countries," Mr Swan said. He described the deficit as "the inevitable consequence of the most serious global downturn since the Great Depression".

Before the global financial crisis, the government had been forecasting a surplus of $19.7 billion. But the crisis and the government's stimulus programs to fight it combined to turn that around by almost $75 billion.

Revenue collapsed by $48 billion from the forecasts before the crisis, as company profits shrank and Australians earned less and spent less.

Taxes shrank to just 20.1 per cent of GDP, down from 23.5 per cent over the previous decade and only marginally higher than at the bottom of the 1991-92 recession.

The government is counting on a quick rebound in tax collections, along with severe restraints on spending, to lift the budget back into surplus as promised in 2012-13.

With no tax cuts ahead, it forecasts that tax collections will rise by $93 billion over the next three years, lifting the total tax take from $261 billion to $354 billion by 2012-13, when the budget is to be back in surplus.

While taxes shrank, spending boomed to 25.9 per cent of GDP, the highest level for 23 years. Most of this was on temporary stimulus programs ($23 billion), while an extra $11 billion was spent on other programs such as schools and hospitals.

Shadow treasurer Joe Hockey said the government had created the biggest deficit in money terms Australia had seen, and this new financial year would be the second biggest. "The more they spend, the more the upward pressure on interest rates," he said.

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Treasury's main fear: good times

TREASURY has warned the federal government that the economy has entered a mining boom running at close to full employment and manufacturing and tourism will have to shrink to make room for it. In an unprecedented burst of open government, Treasury yesterday released a censored version of its confidential "red book", briefing the new government on a range of policy problems and steps it should take.

While about 10 per cent of the report was blacked out, the rest treads on hot coals on a wide range of issues. It urges the government to move quickly and boldly to introduce an emissions trading scheme, tackle tax reform, increase consumer taxes, consider making patients pay more of their health bills and stop "propping up inefficient industries".

A key theme in the book is that Treasury fears the economy is at risk of overheating. It urges the government to make more spending cuts, close tax rorts singling out self-managed superannuation funds as "the tax minimisation vehicle of choice" and institute reforms to get more bang for buck.

It warns that Australia's huge foreign debt, housing debt and high housing prices make it vulnerable if foreign lenders lose confidence or if a new global financial crisis erupts when most Western countries have used up their means to fight it.

But Treasury's big fear is not that things will go badly, but that they will go too well. It fears the mining boom, coupled with the shortage of skilled workers, could drive up inflation and interest rates, intensifying damage to the rest of the economy.

"For an economy at or near full capacity, this requires a relative decline in trade-exposed sectors like manufacturing and tourism," it says.

It urges the government to slash industry support which bolsters jobs in Victoria and buy more defence equipment overseas rather than building it.

It also urges more "measures to lift labour force participation and productivity" to reduce pressure for interest rate rises.

"A number of policy settings will also require adjustment, tax in particular," it says. "It will be important to shift taxes away from domestic investment towards other less mobile tax bases such as land, resources and consumption."

It urges sweeping reforms of state taxes, scrapping stamp duties on house sales and business deals, reforming payroll and land taxes by removing exemptions, and introducing traffic congestion charges.

Treasury says our housing, water and infrastructure markets are "chronic failures" in need of reform. And it urges speedy introduction of emissions trading, saying it is "the most cost-effective way" to cut emissions, and the direct action both sides propose "will not do the job".

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No compromise on surplus: Wong

FINANCE Minister Penny Wong has warned that whatever policies the government has to compromise on to get bills through Parliament, it will not compromise on getting the budget back into surplus by 2012-13.

In her first interview since taking the finance portfolio, Senator Wong said while the new minority government would have to negotiate every piece of legislation with the crossbenches and the Senate, any extra costs would have to be offset by savings.

"We remain committed to our election policies. But the reality is that we are a minority government, and we will have to negotiate our policies through the Parliament," she said. "Our absolute priority is to return the budget to surplus. We will negotiate on everything, but we're not able to negotiate on returning the budget to surplus."

Her warning comes as she and Treasurer Wayne Swan are expected to reveal today that last year's budget deficit came in significantly smaller than forecast.

In May, Treasury forecast a 2009-10 deficit of $57.1 billion. But in July, Mr Swan and former finance minister Lindsay Tanner said it would be more like $55 billion. The final figure today is expected to be smaller again.

A spokesman for Mr Swan said yesterday the figures would show Australia's budget position is far better than that of comparable countries.

"Our No. 1 commitment is to get the budget back into surplus in 2012-13, and the final budget outcome will show we're on track to meet that commitment," he said.

Senator Wong said the independents had taken "a reasonably responsible approach" in their negotiations with the government, but anything given away would have to be paid for by savings elsewhere. "There's an overriding savings objective that will have to be met," she said.

While the government planned to offset most of the cost of the pledges to the independents by postponing the tax break for bank savings, she said, "there's more work to do".

All of Labor's election commitments, including the widely criticised "cash for clunkers" program which would take funds from renewable energy programs to give $2000 each to car owners trading in old cars for new ones will have to go through the expenditure review committee, she said. And the committee would need to be "very disciplined" for the government to reach its target of a $3.5 billion surplus by 2012-13.

After a torrid term in a high-profile role as minister for climate change and water, Senator Wong is clearly delighted to have been given the low-profile but influential role as Minister for Finance. "It's a great job to have," she said. "It puts you at the centre of decision-making: what is spent, where it's spent, and how you spend it and also what, where and how you save. It's fundamentally about the government's strategic priorities.

"This job gives you the opportunity to be in the room when the decisions are made. So that's a privilege."

In private life, Penny Wong is no big spender. She could call on the VIP fleet to fly her between Canberra and her Adelaide home, but prefers to manage her timetable around the one daily Qantas flight.

So, we ask, is she instinctively a frugal person?

She considers it, then laughs loudly. "I always try to be. I am the eldest daughter of a Chinese family. We are very responsible people!"

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A tale of two economies: it's all in the figures, Guv

"Yes, I think it is going to be a two-speed economy . . . I think all those issues of geographical differences and industry differences are likely to re-emerge with a vengeance. The relative price of resources is high, that of manufactures is low. There are structural adjustment implications of this for our economy . . . they will, I think, probably intensify in the years ahead."

- Reserve Bank governor Glenn Stevens, February 19

"While some events can lead to a divergence in economic conditions across Australia, overall these differences have not been especially large in recent times . . . What is remarkable, in fact, is that the differences are not, in the end, larger."

- Reserve Bank governor Glenn Stevens, September 20.

IN MY next life, I want to be a central bank governor. People fawn on you, whatever you say is taken as gospel, and others rarely challenge it.

In Shepparton on Monday, Glenn Stevens had two messages. The first was to restate the Reserve's big-picture view of the future: a "fairly robust" mining-driven upswing ahead, requiring monetary policy action, better known as interest rate rises.

No argument there. Far more striking is the blunt language in the minutes of the Reserve board's September meeting, declaring that if that big picture is right, "it was likely that higher interest rates would be required". That means soon.

But his second message was more tendentious. The Reserve chief played down the risk of that resources boom dividing Australia into a two-speed economy. Indeed, he tried to persuade his audience that this hadn't happened, and wouldn't happen.

The only evidence he presented was a handful of graphs demonstrating that over a 10-year or 15-year time period, movements in prices and unemployment rates had differed less in the six Australian states than in the 50 states of the US or the 27 countries of the European Union. You don't say. I wonder if that might have something to do with the fact that states are always more alike than countries. Or that six units of anything offer less scope for differences than 27 or 50.

The Guv's choice of time frame also missed the point. We were not a two-speed economy 10 or 15 years ago. This emerged in the past five years, as mining investment and export revenues grew exponentially, the Reserve responded by driving up interest rates, which drove up the dollar, which made significant parts of our manufacturing, agricultural and tourism industries uncompetitive.

That is why the two-speed economy became an issue. It is why we in Victoria fear the consequences of an even larger mining boom, and an even higher dollar, ahead.

It is why Stevens himself warned just seven months ago that the problems of a two-speed economy "are likely to re-emerge with a vengeance" and "will probably intensify in the years ahead".

Look at the data for the past five years, as shown in the adjoining table, and you see why. Inflation, on average, was within the Reserve's band of 2 to 3 per cent in NSW, Victoria, South Australia and Tasmania. Only in the resource states was it over the Reserve's limit, yet that dictated interest rates for us all.

Or look at where the demand pressures on the economy were generated. In round figures, demand grew 45 per cent in WA, but 18 per cent in Victoria and NSW, and even less in SA and Tasmania. The overheating the Reserve feared did not happen here, yet the Reserve's response to it higher interest rates and a higher dollar pushed businesses here to the brink. Or take average weekly earnings: growth in WA over the past five years was almost double the growth in Victoria. The overheating was not happening here.

Take industry growth: over the five years to 2009-10, manufacturing output actually fell, albeit marginally, while growth in the hotels and restaurants sector averaged just 0.1 per cent a year. That's the real cost of a mining boom, and it's what people fear ahead.

Remember: the slowdown in the Australian economy began in the first half of 2008. It was not a consequence of the global slump: it began as our export revenue soared to a new high. It was the consequence of the Reserve's interest rate rises and the higher dollar they created.

Our fear is that is going to happen again now, with a vengeance, and intensify as Glenn Stevens forecast in February. The new Glenn should listen to the old one.

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How we voted - the big city divide

LABOR won almost 60 per cent of the two-party vote in metropolitan Melbourne at last month's election, its highest share since World War II.

But the Liberals scored a rare win in Sydney, polling 51 per cent of the two-party vote and creating the widest gap in political views between the two cities for decades.

Results issued by the Australian Electoral Commission show an unusually wide division between Australia's regions. Labor won the south-eastern states with its highest share of the vote for more than 60 years. Yet the north and the west voted just as overwhelmingly for the Coalition.

The contrast was massive. In Hobart, Labor won 63 per cent of the two-party vote, a swing of 3.6 per cent, and 59 per cent in the rest of Tasmania, up 5 per cent. Is it a coincidence that Tasmania is where the national broadband network is now being rolled out?

In round figures, Labor also won 62 per cent of the vote in Canberra, 60 per cent in Melbourne, and 58 per cent in Adelaide. But in terms of seats, it ended up no better off. It lost inner-city seats in Hobart and Melbourne to independents or Greens, and gained just two outer-suburban seats in Melbourne from the Coalition.

By contrast, Labor's vote plummeted in the north and the west. In rural Western Australia, it ended up with just 35 per cent of the two-party vote. In Perth, it won less than 46 per cent, and just three of the West's 15 seats in the House.

Labor did only slightly better in Queensland, suffering a swing of 5.6 per cent against it in Brisbane, and 5.5 per cent across the rest of the state. It lost nearly all the seats it won in 2007, leaving it with just eight of Queensland's 30 seats.

But in the 25 elections since 1949, Labor has won on the votes only three times in Queensland and four in WA. What was unusual was the size of Labor's win in the south-east and the Coalition's win in Sydney.

New South Wales, normally Labor territory, went for the Coalition this time. In metropolitan Sydney, it won a 6.6 per cent swing. But one of the keys to the election result was that this huge swing saw it gain only two new seats: Bennelong and Macquarie. Four other Labor marginals in NSW swung to Labor against the trend.


HOW AUSTRALIA VOTED

Two-party preferred vote and swing


FOR LABOR

LABOR % COALITION % SWING %

HOBART 63.3 36.7 3.6

CANBERRA 61.7 38.3 1.7

MELBOURNE 59.7 40.3 1.3

REST OF TASMANIA 58.8 41.2 5.0

ADELAIDE 58.0 42.0 2.1

REST OF NT 53.8 46.2 7.4


FOR COALITION

LABOR % COALITION % SWING %

SYDNEY 49.0 51.0 6.6

BRISBANE 48.7 51.3 5.6

REST OF NSW 48.7 51.3 2.8

DARWIN 48.2 51.8 1.9

REST OF VICTORIA 46.6 53.4 0.7

PERTH 45.7 54.3 2.4

REST OF SA 45.0 55.0 1.3

REST OF QLD 41.9 58.1 5.5

REST OF WA 34.8 65.2 6.5

AUSTRALIA 50.1 49.9 2.6

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The great election turnoff

MORE than 14 million Australians were on the rolls for the 2010 election. But almost a million of them decided not to vote. And of those who did, almost 730,000 voted informal.

Combine the two, and the conclusion jumps out at you. This election campaign turned off more voters than any other election for decades.

More precisely, it turned off more Labor voters than any other election for decades. Some voted for the Greens. Some voted informal. Some didn't bother to vote at all. But few crossed over to vote for the Coalition.

The official figures show a swing of 2.6 per cent from Labor to the Coalition. But that's just among those who lodged formal votes. And it misses two of the main reasons why Labor's vote fell. Hundreds of thousands of former Labor supporters either stayed away from the booths, or voted informal.

Election 2010 was the great turnoff: for Labor voters everywhere, and for Liberal voters in the south-eastern states: Victoria, South Australia and Tasmania. It set records of all kinds. For example:

More voters refused to vote than at any election since 1925, the first election at which voting was made compulsory. While the Australian Electoral Commission has yet to declare the count complete, the number of new votes being added is now minuscule, and the number not voting has risen from 5.2 per cent last time to 6.8 per cent, an 85-year high.

The boycott rate rose in every state and almost every electorate. But overwhelmingly, it rose most in safe Labor seats. Of the 30 seats with the biggest growth in the numbers not voting, 23 were Labor seats, six Coalition and one independent (Kennedy).

The informal vote was the second highest on record, rising from just under 4 per cent in 2007 to 5.6 per cent in 2010. Last time 511,000 voters cast informal votes. This time 729,000 did so. If Mark Latham has had no other influence on Australians, his suggestion on the 7.30 Report that Labor voters vote informal resonated powerfully all over the country.

But nowhere did it resonate more powerfully than in Latham's heartland of Western Sydney. In Blaxland, the Bankstown seat once represented by Paul Keating and now by the NSW Right's rising star Jason Clare, 14.1 per cent of votes cast were informal, up from 8.9 per cent in 2007. The 14 seats with the highest informal votes were all Labor seats in western Sydney.

The rising informal vote was not confined to western Sydney. The informal vote also rose in every state, and in almost every electorate. But again, of the 30 seats with the biggest growth in the informal vote, 25 were Labor seats and just five Coalition.

The only time more Australians have voted informal was at the 1984 election, but that was just a colossal mistake. That was the first election under the new system allowing us to number just one box in the Senate. The Electoral Commission advertised it heavily, but many voters were confused, and numbered just one box in the House as well.

This time the sharp increase in informal voting was clearly deliberate. It was a host of voters turned off by both sides and refusing to vote for either. But the electorate data shows clearly that, like those who stayed away, most of the 2010 informal voters were people who once voted Labor, and now were voting for nobody.

The Coalition gained huge swings its way in Sydney, all of Queensland and Western Australia. Yet despite its assertion that it somehow won the election, the reality is that it lost narrowly on the two-party preferred vote, because it polled disastrously in Melbourne, Adelaide, Victoria's regional cities and Tasmania.

In the three south-eastern states as a whole, it was the worst result for the Coalition since the 1940s. It polled just 44.7 per cent of the two-party preferred vote in Victoria, its lowest on record (and the Parliamentary Library's records go back to 1949). It polled 46.8 per cent in South Australia, where six months ago the state Liberals had won 52 per cent. And it won just 39.4 per cent of the vote in Tasmania the lowest vote the Coalition has ever recorded in any state.

In all three states, except in the handful of true rural seats left, the swings were to Labor. Had it even held its ground in these states at 2007 levels, the Coalition would now be in government. It was the loss of McEwen and La Trobe in Melbourne's outer suburbs that cost it the seats it needed to give the independents no real choice as to which side could provide stable government.

Yet the Coalition's post-mortems have not even acknowledged its collapse to record lows in south-eastern Australia, where three in every eight Australians live. Unless it admits its failure, and asks why it happened, there is a danger it will not learn the lessons.

The bottom line of all this was that, despite the very rapid growth in Australia's population, we cast fewer formal votes in the 2010 election than we had in 2007. And the only party to score a significant increase in its vote as a share of the enrolled voters was the Greens, itself primarily a protest party.

Election 2010 saw a massive turnoff from Labor. In 2007, 39.5 per cent of enrolled voters voted for Kevin Rudd. In 2010, only 33.4 per cent, just one in three, voted for Julia Gillard. That should have been an electoral landslide, but it didn't go in the usual way.

The Coalition's vote rose only by the barest margin. In 2007, 38.3 per cent of enrolled voters voted for John Howard. In 2010, a virtually unchanged 38.4 per cent voted for Tony Abbott. Instead, those deserting Labor voted Green, voted informal, or stayed at home.

The Greens' vote rose from 7.1 per cent of enrolled voters to 10.4 per cent. The informal vote on this measure rose from 3.7 to 5.2 per cent. And as we have seen, those refusing to vote rose from 5.2 to 6.8 per cent.

Two electorates tell the tale of disillusioned Labor voters. In the outer western Sydney seat of Fowler, where Labor has traditionally won massive majorities, barely 80 per cent of voters on the roll actually cast formal votes, down from 88 per cent in 2007. Of those who did vote, the commission's figures record a swing against Labor of 13 per cent, which tells you it was Labor's voters staying away or dropping empty ballot papers in the box.

In Blaxland, the percentage of enrolled voters casting formal votes was even lower, at 77 per cent. But the lowest turnout of all was in another Labor electorate where many people felt they had little to vote for: the outback Northern Territory seat of Lingiari.

In 2007, Lingiari achieved a historically high turnout of 77 per cent, as Aboriginal communities flocked to the booths to cast their votes against the Howard government's controversial intervention policies. The Coalition's vote in the communities, already a low 21 per cent in 2004, sank to 12 per cent in 2007.

In 2010, by contrast, many voters in Lingiari felt Labor had made little difference. The turnout rate alone dropped 5.4 per cent, the informal vote rose 2.7 per cent, and just 70 per cent of those on the roll cast a formal vote. Among those who did, the swing against Labor was 7.4 per cent.

Fowler had the biggest swing against Labor of any seat, but there were other big swings in a wide variety of places: 11 per cent in Malcolm Turnbull's seat of Wentworth (one of the few Liberal seats where the stay-at-home rate surged), 10.4 per cent in the outer Brisbane seat of Bowman, 10.3 per cent in Ian Macfarlane's seat on the Darling Downs, and 11.1 per cent in the WA wheatbelt seat of O'Connor, as Labor voters flocked to help rebel National Tony Crook unseat Wilson Tuckey.

Even in Gippsland, first-term National Party MP Darren Chester consolidated his hold with a 5.5 per cent swing. But that was untypical of Victoria, where the biggest swing was in Julia Gillard's own seat. There too, the turnout rate fell and the informal vote rose, but the Prime Minister still won a 6.6 per cent swing from grateful locals.

There were also safe Liberal seats where there are signs that disillusioned Liberals might have taken up Mark Latham's suggestion to vote for nobody. There were clusters of them on the Sunshine Coast and the Gold Coast, where formal votes plunged and the swings to the Coalition were minuscule. And in inner Adelaide, Labor almost pulled off an unprecedented win in Boothby, where the non-turnout rate doubled to 8.5 per cent.

Election 2010 was a negative campaign, where the leaders stood for less than ever before, and insulted voters' intelligence more than ever before. Both sides asked us to vote against their opponent, rather than giving us reasons to vote for them. And more than ever, voters especially, but not only, Labor voters responded by refusing to give their vote to either side.


ELECTION 2010: THE POST-MORTEM

2007 % 2010 % change %

Of those enrolled

VOTED LABOR 39.5 33.4 -6.1

VOTED COALITION 38.3 38.4 +0.1

VOTED GREEN 7.1 10.4 +3.3

VOTED OTHERS 6.1 5.8 -0.3

VOTED INFORMAL 3.7 5.2 +1.5

DID NOT VOTE 5.2 6.8 +1.6

NO FORMAL VOTE 9.0 12.0 +3.0

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Treasury backflip: Deficit no impact on rates

A TREASURY paper has endorsed the federal government's stance that Australia's debt and deficits have no significant impact on interest rates either short-term or long-term.

In a stunning backflip from Treasury's earlier views, a new paper by two economists finds no causal link between movements in Australia's budget balance or government debt levels and the margin between Australian and US interest rates.

An earlier Treasury paper was quoted by the opposition during the election campaign to support its argument that the government's deficits were responsible for the Reserve Bank's six interest rate hikes in the past year.

But incongruously, the new paper concludes that the variables that really decide Australia's interest rates are all born in the USA.

It found not only are US Treasuries the global benchmark for interest rates, but the margin between them and Australian rates is determined primarily by shifts in US core inflation and the US current account deficit.

"All else equal, the results suggest that, in the long run, the real interest margin rises by around 3 basis points in response to a 1 percentage point (100 basis points) of GDP increase in the stock of Australian general government net debt", the paper reports.

The margin also rises by 10 basis points if the US government net debt falls by a percentage point something that, at this point, appears unlikely to happen any time soon.

"In the short run, Australian fiscal variables do not have a statistically significant impact on the interest margin," it concludes.

The paper, by Yong Hong Yan and Shane Brittle from Treasury's macroeconomic group, carries the usual disclaimer that its views are not necessarily those of Treasury. But they do match those of Treasury secretary Ken Henry, who has consistently played down any link between the budget deficits and rising interest rates.

Reserve Bank governor Glenn Stevens has also played down any link, arguing that it is the trends developing in the economy that influence setting short-term interest rates, and fiscal policy changes are rarely big enough to have an impact.

But the Treasury paper challenges a large body of work by other economists that find a strong link between fiscal policy and interest rates. A review published last year by the OECD suggested a strong, if highly variable, relationship, with long-term rates forecast to rise by between 10 and 60 basis points if the budget balance declines by 1 per cent of GDP.

Treasury Working Paper 2010-04: Reconsidering The Link Between Fiscal Policy And Interest Rates In Australia, Friday, 17 September 2010

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Victoria's in the sweet spot, but free ride is over

FOR a state Treasurer, it doesn't get much better than this. You raise spending on services by $5 billion, or 12.5 per cent. You raise investment to a record $8.6 billion. And you don't even have to raise taxes to pay for it.

Instead, your fairy godmother puts that new spending on her credit card, while you declare a surplus of $644 million. Sweet!

That is the budget outcome for 2009-10, unveiled yesterday by Treasurer John Lenders. Only a brief word here and there thanked his fairy godmother: the Rudd government, which put most of the new spending on its credit card, as part of its stimulus. But that won't last. If last year was as good as it gets, that means it's going to get harder from here.

Last year, the Commonwealth donated just over half the Victorian government's operating revenue. It paid for most of Victoria's infrastructure spending, including $2.5 billion for upgrading government schools and $1.3 billion for public housing.

But the Commonwealth stimulus is already phasing out. The big tax cuts of 2005-08 have weakened its revenue base, and the nation has three years of austerity ahead as it strives to get back into surplus. And so Victoria, too, must tighten its belt.

The state is in good shape. Treasury estimates that gross state product grew 2.25 per cent in 2009-10, far above the 0.25 per cent originally forecast. People kept pouring in, drawn here for both education and jobs. Employment grew by 100,000, spending by 6 per cent, and Victoria was the only state to avoid a housing slump.

The state's debt is rising, but low. Net public sector debt (excluding financial agencies) is just $15 billion, or 4.7 per cent of gross state product. The operating balance sheet has a healthy surplus.

Debt is rising only to fund infrastructure investment as it should. Better roads and rail cost money, but they're worth it.

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Put GST on tax table, pleads Business Council

BIG business wants a rise in the GST to be on the table at next year's tax summit.

Releasing a five-point list of priority actions for the Gillard government to take in its first 100 days, Business Council president Graham Bradley called on it to release all modelling and revenue estimates by the Henry tax review, and spell out its plans for tax reform.

Mr Bradley joined the independent MPs in insisting the government should not rule out tax options at this stage. "You can't have a tax summit without having all the options on the table," he told the National Press Club. The government excluded the GST from the Henry review's terms of reference, fearing the political fallout if it proposed an increase.

Other priorities for the first 100 days should include:

Setting out a plan of reforms to encourage better use of existing infrastructure, open up opportunities for private investment in infrastructure, and identify priority projects that would lift productivity.

Develop a national energy security policy as a way to build consensus for an emissions trading scheme. Nuclear power should be one of the long-term policy options.

Reduce the Council of Australian Governments' agenda to give it "a sharper focus on a smaller number of reform areas with the greatest potential to drive productivity growth".

Set up a Commission of Budget Integrity to assess whether spending programs provide value for money. He denied that this would duplicate the work of the Finance Department and the Auditor-General.

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Home ownership out of reach

IN 1986, 68 per cent of middle-income Melbourne households headed by people aged 25 to 44 owned their own home. By 2006, only 57 per cent of the equivalent group were home owners. The slide was even sharper in Sydney: from 60 per cent to 45 per cent. The blame game over Sydney's problems have missed a basic point: young people have left Australia's biggest city to go somewhere they can afford to buy a home.

One day, they could have to leave Melbourne, too.

What is so remarkable about this slump in home ownership rates, say Flinders University housing experts Joe Flood and Emma Baker, is that it happened in an era of rising employment and prosperity. Gross household income rose 23 per cent in the decade to 2006. Workforce participation rates hit record highs. Normally, that creates more home ownership. This time we saw less.

"It appears that the benefit of higher household incomes in the benign decade 1998-2007 went into pushing up house prices and debt, rather than improving home ownership or increasing the stock of housing," they conclude in a new paper for the Australian Housing and Urban Research Institute.

"The country that promised limitless land, cheap housing and near-universal home ownership to all comers now has some of the most expensive housing in the world.

"High house prices act as a drag upon growth and competitiveness, have exaggerated inequities of wealth and intergenerational equity, and they will eventually increase the welfare burden on the community."

Anyone disagree with that? All of us who own a home feel good about seeing its value rise until we have to buy another home, when we find it's just inflation. The wealth it confers is illusory, unless you take your money out of housing, and invest it somewhere else.

And the cost of those prices is that a million or so young and lower-income Australians who want to buy a home of their own are now unable to afford a home that suits them. It has been a classic case of policy failure the more so, as the Reserve Bank has pointed out, because the tide of rental investment that has pushed up prices is essentially tax-driven.

It's one of the big problems that a bold, reformist government should take on. Yet the new Gillard government no longer has a minister for housing. Social housing has gone to Mark Arbib, and hopefully that means the senior portfolio minister, Jenny Macklin, amid all her other responsibilities, will now take charge of the issue herself to drive reform.

Housing prices are primarily an issue disadvantaging the young. But Flood and Baker highlight other lesser-known victims. In the 45-to-64 age group, between 1986 and 2006, the proportion of lower-middle income households in Melbourne without their own home rose from 19 per cent to 28 per cent, and in Sydney from 26 per cent to 40 per cent. And in the lowest income group of that age, 53 per cent are no longer home owners in Sydney and 40 per cent in Melbourne.

That implies, they warn, that in future many, many retirees will not own their homes, and will require costly rental assistance.

Flood and Baker see three ways to tackle the problem. As the libertarians argue, we could end zoning, and allow people to build anything, anywhere: but any government that did so would not be re-elected. And the huge price rises in Melbourne despite ample zoned land shows that's not the problem.

A second option is to limit finance, as China has. With reports that banks are now offering close to 100 per cent of loan valuations again, one serious option is to bring back the old 80/20 rule, requiring borrowers to put up 20 per cent of the property's value as a deposit. But, as Flood and Baker note, in the short term that would hurt the groups you want to help.

They argue instead for a range of targeted solutions. Some would require tax reform and a lot of political courage: taxing the capital gains on owner-occupied homes, and quarantining negative gearing by preventing owners using rental losses to reduce tax, except for new housing projects.

Other proposals include programs to build more affordable housing, and to tackle the rapid fall in home ownership among lower-income over-45s.

The weakness of their paper is that it looks for demographic reasons for the fall in home ownership, when it is clearly the result of competition from housing investors.

In the 1980s, 85 per cent of finance to buy existing homes went to owner-occupiers and 15 per cent to investors. In the '00s, investors' share averaged 41 per cent. In Victoria, in May and June 2010, investors buying existing homes got 51 per cent of bank finance, and owner-occupiers 49 per cent.

You cannot have investors increasing their share of the market without squeezing out the first home buyers. It's a zero-sum game, and politicians such as Wayne Swan who give $5 billion a year in tax breaks to investors are in effect blocking young and low-income buyers from owning a home.

Oh no, they say, you can't take away the negative gearing tax break without creating a shortage of rental housing. Yes, you can.

Aspiring first home buyers are mostly renters. When they buy a home, they cease to rent. There is one less home to rent, but one less household wanting rental housing. Supply falls by one, demand falls by one, and the net balance is unchanged. The market does not tighten. Rents do not rise. Families are not thrown out on the street.

This is an issue ripe for a reform government that is prepared to lose some skin to make Australia work better.

The paper is at www.ahuri.edu.au

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Deal won't break the bank

WITH the fiscal cupboard almost bare, how can Labor really afford to spend an extra $10 billion on regional Australia? And will it be spent on good projects, or electoral pork?

Beware of spin: this is far less than it sounds. Most of that money will simply be allocated from programs already budgeted for and already earmarked for regions.

Essentially, this deal promises to:

Raid the funds set up by Peter Costello to finance future health and education infrastructure, taking up to $2.3 billion to invest in regional health and education facilities.

No doubt country centres have many worthy contenders for those projects: moving the rundown University of Ballarat into the heart of its city would be high on my list . But Labor needs a long-term plan to refill the funds it is draining.

Guarantee regional Australia defined as all of Australia outside the built-up suburbs of the 10 "major cities" a third of new investments in programs to upgrade primary health care, skills and schools.

That's in line with its population, so no one can complain about that. And it suits Labor's deal with Andrew Wilkie that Hobart is not one of the 10 cities excluded.

Set up an $800 million fund for "priority regional infrastructure". That's a worry, given that we've seen that Labor's priorities for regional funding are where it has seats to protect. Hopefully, Rob Oakeshott as minister might bring more integrity to the process.

Promise the same broadband prices, at least from the national broadband network to suppliers, for all Australians wherever they live.

That's a big one, and no wonder Tony Windsor was happy. It's the same rule we've had for yonks for local phone calls and postage stamps. But this will be a serious subsidy, paid for by broadband users in the cities.

But little of all this actually impacts on the budget bottom line: only $763 million of new spending over the next four years. That will be paid for by postponing the promised tax break on interest from bank deposits so it starts only in 2013. There's another $362 million of new spending after 2014, and $1.02 billion which has various "ifs" attached to it, to ensure it's not wasted. But most of the $10 billion are old promises recycled. They won't break us.

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Minority rule quite workable

YESTERDAY was the end of the beginning. We now have a minority government, and a set of agreements about reforms it will make. The new ministry and those supporting it now face the long haul: making it work.

We have had many minority governments, and we have learnt a few things about them. First, and most important, they usually work. Second, they can take tough decisions. But third, like all relationships, to work and to take tough decisions, they require self-discipline and focus from both sides.

When that doesn't happen, the idealistic agreements gradually erode, the old ways return, and governments can fall.

But all Australian states have had minority governments in recent years. Except in Tasmania, all have seen out their terms and most have left lasting reforms.

Canberra itself has had nothing but minority government since 1989. South Australia has had minority governments for most of that time. We had one in Victoria from 1999 to 2002, which permanently changed the state to make government more accountable. There are now minority governments in Western Australia, Tasmania, the ACT, the Northern Territory and Federal Parliament.

Let's drop the idea that this is something extraordinary and unworkable. It's actually very ordinary and workable if all players want it to work.

The agreements Labor has signed with the Greens and independents simply guarantee supply and confidence to the new government. They do not assure that any particular legislation will be passed. That will have to be negotiated bill by bill.

Labor will need four votes from the six crossbenchers to pass any legislation opposed by the Coalition. Each side will have 72 members in the 150-seat House of Representatives, with four independents, one Green and one West Australian National.

From July 1 next year, Labor will also need the support of the Greens in the Senate to pass any legislation opposed by the Coalition. Labor will have 31 of the 76 senators, the Greens nine, the Coalition 34, with new DLP senator-elect John Madigan and South Australian independent Nick Xenophon on the crossbenches but without power.

It won't be easy. In 1999, like Tony Windsor and Rob Oakeshott now, Russell Savage and Craig Ingram were country independents who supported Labor. Today they have mixed feelings about it. Mr Savage feels bitter disappointment, Mr Ingram is more philosophical.

Their agreement with Labor leader Steve Bracks brought about major reforms: restoring the independence of the Auditor-General, fixed four-year terms, reform of Parliament, increased spending for regional Victoria and, most importantly, reform of the Legislative Council to elect members by proportional representation.

That has deprived the government of a majority, and turned the council into a real parliamentary check on the power of governments.

Ingram, still the MP for Gippsland East, feels proud of what they achieved. "Most of the outstanding reforms of Parliament came as the result of minority governments," he says. "We got a significant change of direction in spending towards the regions. The most positive thing about this federal election is that there will be much greater focus on regional Australia."

Ingram won the restoration of passenger trains to Bairnsdale, increased water allocations to the Snowy River and the Gippsland Lakes, and a pledge to rule out a dam on the Mitchell River.

Savage was less fortunate. He speaks bitterly about betrayal as Labor broke its promises to him. Passenger trains never came back to Mildura. Its hospital remained in private hands, and then Labor chose the Mallee for a toxic dump, sealing his defeat in 2006.

He has some pithy advice for Mr Windsor and Mr Oakeshott. "Don't trust anything they say get them to put it in writing," he says. "Watch your back all the time from both sides."


HOW THE NEW HOUSE WILL LOOK

150 SEATS

GILLARD

LABOR 72

INDEPENDENTS 3

GREEN 1

TOTAL 76

ABBOTT

COALITION 72

WA NATIONAL 1

INDEPENDENT 1

TOTAL 74

THE NEW SENATE

TOTAL SEATS 76

LABOR 31

GREENS 9

COALITION 34

DLP 1

IND (XENOPHON) 1

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It's about the skills, stupid

TODAY the three rural independents are expected to end the political uncertainty hanging over Australia since the August 21 election, and decide who, if anyone, will govern us for the next three years. But last week, amid the fog of uncertainty engulfing federal politics, the Bureau of Statistics sent out a burst of light to illuminate the economy. It issued new figures on GDP growth, surprisingly strong figures that dispelled some of the uncertainty that the new government will have to deal with.

In so doing, they made it obvious that the biggest economic issue confronting the government is not going to be deficits and debt, the subject of obsessive focus of both parties during the campaign. It's not even going to be interest rates, or infrastructure.

No, the key economic issue of the next three years will be skills training. The test of how well we handle the years of economic recovery will not be how fast we get the budget back into surplus, but how many Australians acquire the new skills employers will need as the recovery rolls on.

Assuming China's economy keeps expanding fast, then our economy too will expand at a reasonable clip. The risk to it will be inflation. And the best way to minimise that risk is to find ways to attract more workers, young people, unemployed and workforce dropouts into skills training so that we do not run out of skilled workers, forcing employers to bid up wages.

It would be an even bigger challenge if the three rural independents opt today to entrust the Coalition with government. Tony Abbott's seriously silly pledge to cap net migration at 170,000 a year would limit the ability of companies to bring in skilled workers from overseas, making it even more urgent to find ways to catch and skill our own.

It's not the only big challenge we will face. We need to apply the bipartisanship of recent days on parliamentary reform to the task of putting in place an agreed system of carbon pricing, either an emissions trading scheme or a carbon tax. Without it, we will be at risk of power shortages as electricity companies delay investment until they can make long-term decisions with confidence.

The next government will need to come up with solutions to the growing crisis of young and low-income Australians being priced out of home ownership. It will have to do everything it can to offset the real danger of Australia becoming a two-speed economy, in which the mining sector crowds out everything else. And the budget outcomes matter.

Three months ago, the economic outlook for the world and Australia seemed less certain. The Greek debt crisis had exposed how serious the debt problems facing European and US governments had become. Even China's growth seemed at risk. Markets went wobbly, banks hung on to their cash and for a while there were shades of the panic of 2008.

Those global fears have now receded, notwithstanding the deteriorating outlook for the US economy. Given the Reserve Bank's success in tipping the economy's path over the past year, I see no good reason to challenge its forecasts that we are heading for above-trend growth of 3.75 per cent in 2011 and 4 per cent in 2012.

But that's not all the good news. The Reserve is forecasting and the Bureau of Statistics confirms that the record prices being paid for Australia's mineral exports will trigger the biggest mining boom we've ever seen. And that will have serious downsides and challenges.

Mining investment in the '00s trebled in size to become 3 per cent of today's economy. But, on their own estimates, mining companies plan to lift investment by a further 58 per cent over 2010-11. They won't be able to, of course, but it will trigger a bunfight as they compete furiously for scarce resources of skilled labour and equipment to invest in developing new mines, expanding old ones, and improving their transport links.

One way of dealing with this is the way the Reserve dealt with it in 2007-08: by raising interest rates as needed to ensure that if mining is running hot, then the rest of the economy must be cooled to keep the whole engine from boiling over. That could have serious implications for Victoria, and the south-east in general, as higher interest rates and a higher dollar press down on consumer spending, and investment and jobs in other industries.

A better way would be for the next government, and the mining industry, to recognise that the problem the Reserve is tackling is largely generated by a lack of skilled workers, and to work out how government and industry can change their current policies to open up more pathways for Australians to develop the skills the industry needs.

One of my concerns about the election campaign was that this issue, so central to our economic future, was essentially ignored by both sides. Rather, growth was taken as a given, and Labor and the Coalition competed on offering new entitlements to distribute the rewards of growth, rather than on how to ensure that growth is sustainable.

A classic example was pointed to by David Murray, chairman of the Future Fund, in the way Labor has designed its mining tax package. Yes, tax the miners on their excess profits, he said, but lock that money away for future needs, rather than using it to finance tax cuts, superannuation benefits and other entitlements which will have to be paid whether the miners are making super profits or not.

I'm not nostalgic about the '80s. But it is simply a fact that both sides of politics in those days were far more aware of our economic vulnerability, and knew that leaders had to make tough decisions to deny benefits today so they could invest in ensuring prosperity tomorrow.

Whoever forms government today, they need to govern for the long term.

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Back to the Future: DLP to gain Senate seat

BALLARAT blacksmith John Madigan has taken an iron grip on Victoria's last Senate seat, and appears set to become the first Democratic Labor Party senator in 36 years.

With 87.5 per cent of the vote counted, Mr Madigan has widened his lead over Family First senator Steve Fielding and is maintaining a big margin over Liberal senator Julian McGauran.

The DLP has polled only 68,702 votes or 2.3 per cent. But preferences from One Nation, Christian Democrats and the Liberal Democrats will see it leapfrog Family First, whose preferences will help it leapfrog the Coalition.

ABC analyst Antony Green's ready reckoner shows Mr Madigan has doubled his lead over Senator Fielding to 6000 votes (0.2 per cent) at the point where one or other is eliminated. He still leads Senator McGauran by 19,000 votes (0.6 per cent) at the point where one or other is eliminated.

Senator McGauran said that if he were in Mr Madigan's position he would "call it for myself now", but there were still hundreds of thousands of votes to be counted. "I'm in the worst position of my 20 years in politics; I have no false bravado. You might say there are two shows going on: Broadway, with Tony Abbott and the three independents, and off-Broadway arthouse, which is the Senate battle. Both require holding your nerve."

But Mr Madigan refused to claim victory. "We're patient people," he said. "We have been patient for 36 years, so what's another two days? We've got a great country. What other country wouldn't have descended into chaos in the past fortnight."

The DLP held the balance of power in the Senate in the early '70s but lost all its seats in 1974.

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Lopsided growth a real risk

BEWARE of getting what you wish for. The June-quarter GDP figures suggest Australia has entered the mother of all mining booms and, if so, a lot of today's businesses will not be around when it ends.

The 1.2 per cent growth in the June quarter, and 3.3 per cent over the year, sent the dollar back over 90¢ and had economists forecasting rate rises, as the Reserve Bank tries to rein in the rest of the economy to make room for the mining boom.

Wouldn't it make more sense to rein in the mining boom to make room for the rest of the economy? Yes, but we don't do things that way here.

The figures will vindicate the Reserve's confidence that it has read the economy right, and that the danger ahead is inflation. It might wait for more inflation data before moving rates up on Melbourne Cup Day, but the rise could be the first of several.

Growth is good, but what leaps out of these figures is that we have lopsided growth, with many areas hurting.

The big surprise was consumer spending booming in the June quarter, soaring 1.6 per cent, according to the Bureau of Statistics, roughly as much as it grew in 2008-09.

Retail sales are still flat. The bureau said we've been spending on things you don't buy in stores: entertainment and gambling, new cars, financial services, healthcare and transport (plane trips).

These areas make up just a third of consumer spending, yet they generated 84 per cent of spending growth in the quarter. Add in rent, and these six areas made up 90 per cent of spending growth in the year to June. Lopsided growth.

Now take industry. Half the growth in the June quarter was in just three sectors: construction, mining and hiring professional consultants. Lopsided growth.

Look at incomes. You will find corporate profits took an incredible 57 per cent of growth in income over the year to June. Small business took 11 per cent, and wages and salaries just 32 per cent. Workers' share of national income is now the lowest for 45 years. Lopsided growth.

It is not enough for governments to tell us they feel the pain of those doing it hard. They need the courage to change the way our dollars are shared.

A second surprise came from state data. It tells you that in the year to June, quarterly spending grew by $1.16 billion in the ACT but just $953 million in Queensland.

Queensland's population is growing at 2.4 per cent, but spending at 1.6 per cent. These figures suggest that at least until March, its economy was in deep recession.

They help explain why Labor lost nine seats there.

A third surprise. Our savings are shrinking. In 2009-10, national net savings dropped to 5 per cent of GDP, a nine-year low. Even household savings dipped to 1.4 per cent in the June quarter. It's not a good sign for our ability to finance the mining boom ahead.

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Wilkie's winning tally of 21% not the smallest ever

DID Andrew Wilkie set a new record by winning Denison with just 21 per cent of the vote?

No, some well-informed readers were quick to point out after we raised the question yesterday. In 1972, the then Country Party won the Gippsland seat of McMillan with just 16.6 per cent of votes.

Age reader and electoral addict John Lenders was first on the phone. In 1972 he was a 14-year-old living on his parents' dairy farm near Drouin. These days he is Treasurer of Victoria, but he still remembers the numbers back then.

What made McMillan 1972 special was that the conservative vote split four ways. Since 1955, the seat had been held by Liberal backbencher Alexander Buchanan, but by then he was 67, and lost Liberal preselection to Barrie Armitage. He then decided to stand as an independent.

With no sitting Liberal MP, the Country Party (as the Nationals were then known) nominated Warragul councillor and dairy farmer Arthur Hewson. And Michael Houlihan stood for the DLP.

With the Latrobe Valley towns booming, Labor's Frank Mountford won 45.8 per cent of first preferences. Mr Armitage, the official Liberal candidate, won 24.1 per cent, Mr Hewson came only third with 16.6 per cent, with the DLP on 7.2 per cent and Mr Buchanan 6.3 per cent. But a vengeful Mr Buchanan directed preferences to the Country Party.

So did the DLP. Between them they lifted Mr Hewson to 13,406 votes, 180 ahead of his Liberal rival. Liberal preferences then went to their ally, giving him 52.5 per cent to Labor's 47.5 per cent. Mr Hewson did it again in 1974, winning re-election with just 24.2 per cent of the vote. But in 1975 the Liberals stood the talented young Barry Simon against him, and the tide to Malcolm Fraser swept him to an easy win.

Since then, McMillan has alternated between Liberals and Labor, although the Nationals still put up candidates when Coalition rules allow.

In 2004, young university lecturer Bridget McKenzie polled 11 per cent before she was eliminated.

But on August 21, she finally made it into Parliament as the Nationals' rep on the Coalition's Victorian Senate ticket the first Nationals member from the area since Arthur Hewson.

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Labor should win two-party seesaw

ON ELECTION night, the Australian Electoral Commission's website showed Labor well ahead of the Coalition in the two-party preferred vote. Yet by Monday night, the Coalition had surged to the lead. And last night, Labor was back in front.

Which figure is right? None of them. They track the count in the seats where the final two candidates come from Labor and the Coalition. But they don't, and can't, include the eight seats where officials are counting some other contest.

These eight seats are the three seats won by the rural independents (Kennedy, New England and Lyne), the three inner-city seats (Melbourne, Batman and Grayndler) where Labor battled the Greens, Andrew Wilkie's seat of Denison, and West Australian National Tony Crook's seat of O'Connor.

In 2007, in the other 142 seats, Labor won 52.57 per cent of the two-party preferred vote that is, our votes after preferences have been distributed to Labor or the Coalition.

This time the two sides were so close that last night both sides had 50 per cent of votes in those seats a swing of 2.57 per cent to the Coalition.

But when the other eight seats are added in as they will be, when officials have time Labor's vote will grow.

In 2007, they lifted its total two-party vote by 0.13 percentage points, to 52.70 per cent. If it's the same this time, that would give Labor 50.13 per cent, and the Coalition 49.87 per cent.

Why assume the same this time? There was a big swing against Labor in some areas. Might that have wiped out its 2007 lead?

Not if you look at voting for the Senate. In those eight seats, both sides went backwards: Labor's Senate vote fell 4 per cent, the Coalition's by 2 per cent. The Greens vote rose 3 per cent, and those of minor parties, mostly on the right, rose 3 per cent. Net all that out, and it's a swing of less than 1 per cent.

But I read that in the independents' seats, Labor's vote was as low as 8 per cent?

On first preferences, yes, because in Lyne and New England, Labor voters tend to vote first for the independents. In New England in 2007, Labor polled 10 per cent on first preferences, yet 35 per cent in the two-party preferred. In other words, 72 per cent of people who voted for Labor over the Coalition voted for Tony Windsor first.

The same in Lyne. In 2007, Labor won 32 per cent of first preferences. This time it won just 13 per cent in the House, but 30 per cent in the Senate. The Greens polled 4 per cent in the House, 8 per cent in the Senate. So at least half the Labor and Greens supporters voted for Oakeshott.

And what about Andrew Wilkie winning Denison with 21 per cent of the vote? How did he do that?

On preferences. Labor got 36 per cent of the vote, the Liberals 23, Wilkie 21 and the Greens 19. Greens preferences lifted Wilkie above the Liberals, and Liberal preferences then lifted him above Labor.

We think it's a record low for a winning candidate in the House of Representatives. But no one has had the time or energy to check.

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