Thursday, June 30, 2011

Think smaller on roads

VICTORIA should build fewer mega-road projects such as the proposed freeway under the Maribyrnong, and invest instead in more small road projects to clear choke points in the network, a report to a state government inquiry has recommended.

In findings that implicitly criticise the former Labor government's approach to decision-making, economic consultant ACIL Tasman reports that the headline-grabbing big road projects in Victoria have barely paid their way, returning benefits no bigger than the costs.

By contrast, it says, evaluations published by the industry's research arm, Austroads, show that smaller road projects in Victoria typically deliver benefits worth two to four times the cost of the project.

The report says the decision to build Australia's biggest desalination plant in one hit, rather than adopt a staged approach, has been "quite costly" for the state. It also finds that too much emphasis was put on water restrictions, when raising the price of water would have done the job more simply.

Tackling a wide range of topics, the report also suggests that the Baillieu government should:

Consider a historic tradeoff to cut stamp duties, such as those on property sales, and raise more revenue from land tax, by overhauling the exemptions that mean most land goes untaxed.

Introduce congestion pricing on Melbourne's roads, and earmark the money to pay for improving roads and public transport.

Allow private operators to run Manila-style jeepneys, minibuses or group taxis on routes poorly served by public transport, or at times when trams, trains or buses are rare.

Offer 2500 to 3000 lucrative postgraduate scholarships to the world's best and brightest, to attract them to Melbourne, where they could become generators of future opportunity.

ACIL Tasman prepared the report for the Victorian Competition and Efficiency Commission, the state's equivalent to the Productivity Commission, which has been asked by Treasurer Kim Wells to prepare a state-based reform agenda.

The report, Victoria's Productivity, Competitiveness and Participation, finds that in general Victoria's infrastructure is in good shape, relative to that in other states, and well-run. But it warns population growth is putting it under more pressure, intensifying the need to get value for money.

It says the avoidable costs of congestion of Melbourne roads are on track to double by 2020 and urges the government to build the case publicly for congestion taxes, with proceeds earmarked for road and rail projects, to dissuade people from driving at peak hours.

On taxes, it points out that Victoria has the lowest land tax revenue of any state but the highest reliance on stamp duty on property sales, taxes on insurance and gambling taxes.

It says Victoria could achieve real productivity gains by shifting its tax balance to get more from land tax which "has a broad and immobile base, thus minimising the effect on economic decision-making" and less from taxing business transactions.

The report says Melbourne's public transport compares well with that in other capital cities, but it urges the government to relax restrictions to allow informal minibuses to operate where there are unmet needs.

It also warns the Baillieu government that to put a rail link into the proposed container port at Hastings "would be challenging" and it might have to settle for a port serviced only by trucks.


Tuesday, June 28, 2011

Tax on carbon won't break us

IN SOUTH Korea, government and opposition have reached agreement on the design of an emissions trading scheme, to start from 2015. It shows us that others are acting to stop climate change, and that political rivals can work together to create big reforms.

It could have been that way here. But the Rudd government, rather than work with the Liberals to create an emissions trading scheme that both parties would own, tried to use climate change to divide them. It succeeded. By the time it finally sat down with Malcolm Turnbull, the damage was done, and it ended up with Tony Abbott, sworn enemy of any carbon price.

South Korean President Lee Myung-bak is a conservative, a former chief executive of Hyundai Engineering and Construction. In South Korea, the left prevaricated on climate change, whereas the right has begun an ambitious agenda to make the country a leader in ''green growth'', and the technologies and skills that create it.

In most of the West, climate change is not a left/right issue. If the science is right, global warming will wreak its effects whoever is in power. Tory Prime Minister David Cameron plans to halve Britain's greenhouse emissions by 2025 from 1990 levels. Governments of the centre-right in Germany, France, the Netherlands, Denmark and Sweden are all strong supporters of putting a price on carbon. It's a bipartisan issue in Europe, in South Korea, in New Zealand. Why not here?

Rudd's decision to play it hard when he could have negotiated with Brendan Nelson and Malcolm Turnbull is one reason. Abbott's decision to play it hard and rule out any price on carbon under his leadership is the other. Rudd's hardball play ended in unexpected, fatal consequences for him. What will be the ultimate impact of Abbott's hard line?

The very data source Professor Bob Carter relied on yesterday reports that from the 1960s on, every decade has been hotter than the decade before - and since 1980, significantly so. The average global temperature in the decade to 2010 was 0.7 degrees hotter than in the half century to 1950. If that trend continues, then climate change is an issue that governments cannot brush off.

Abbott promises that in government, he will deliver the bipartisan target of cutting Australia's greenhouse emissions by 2020 to 5 per cent below 2000 levels. But he aims to do so by spending just over $1 billion a year to bury carbon in the soil, plant more trees, capture waste methane gas from coal mines and tips, increase the use of composting and recycling, and pay electricity generators, industry and building owners to reduce their emissions.

Those all sound like good ideas, which his environment spokesman, Greg Hunt, has been advocating for years. But that target of a 5 per cent cut in emissions by 2020 is far bigger than it sounds. Official monitoring shows Australia is still on track to increase its emissions in 2020 to 24 per cent above 2000 levels. Add in population growth, and to reverse that to 5 per cent below will require us to cut our per capita emissions by 33 per cent - by 2020.

Scrapping a tax on carbon emissions may be a viable strategy to win the 2013 election: time will tell. But it is not a viable strategy to reduce per capita emissions by 33 per cent by 2020, which is what Abbott has pledged to do.

Treasury advice released in April warns that to meet its target, the Coalition plan will need to be ''scaled up'' and is ''likely to have major fiscal costs''. An Abbott government taking office in 2013 on a platform of tax cuts will not have buckets of money handy.

Labor is now at its low point: unable to spell out what its carbon tax will cost, what compensation will be given to households and industry, and what if anything will be invested to bring on low-emissions technologies. In this limbo, Abbott can go round Australia quoting any figure he likes on how much the scheme will cost, how much worse off it will make us, while Labor cannot refute him.

But we saw with the GST debate that once the details are settled, the tax introduced, and the compensation rolled out, the public anger whipped up by an opposition's scare campaign fades. If Labor, the independents and Greens stick to their resolve, the same is likely this time.

Treasury notes that a carbon tax set at $20 a tonne would be less than a third the size of the GST. Its preliminary estimate is that a tax of $20 would lift consumer prices by just 1 per cent - $11.10 per household per week.

If 50 per cent of the money comes back to households through tax cuts and pension rises, as pledged, the net cost would be about $5 billion a year, or 0.6 per cent of their income. That will rise over time, but it won't break us, or the economy.


Friday, June 24, 2011

Immigration numbers plunge by almost half

NET migration to Australia is in free fall. In two years, migration has plunged by almost half, intensifying the skills shortages that threaten to drive up interest rates.

The Bureau of Statistics reports that net migration was just 171,000 in 2010, down sharply from 316,000 in 2008, and the lowest since the bureau changed its measuring system in late 2006.

Australia's population growth fell to 325,500 in 2010, down from 467,300 in 2008.

On New Year's Eve, the bureau estimates, Australia had 22,477,400 residents, up 1.5 per cent over the year. There has been no let-up in the fall. In the six months to December, net migration slumped 37 per cent year on year, from 121,500 to 77,000, while the Reserve Bank said the economy was close to full employment.

Net migration into Victoria fell even more sharply. In 2010 it slumped 37 per cent, from 76,000 to 48,000, partly reflecting the impact of Indian media coverage of violence against Indian students.

Since 2003, Indians had been the main source of permanent settlers in Victoria.

But in 2009-10, their numbers slumped 14 per cent, and China became the state's main source of settlers.

Chinese (8151) and Indians (7739) easily outnumbered settlers from Britain (4282) and New Zealand (3696).

They were followed by Sri Lankans (2484), Filipinos (2112), Malaysians (1638), South Africans (1477) and Vietnamese (1347). Other bureau figures show the slump in migration has continued in 2011.

The government planned for an unchanged 168,700 family and skilled migrants in 2010-11, and 13,750 humanitarian refugees, but arrivals data shows a far different trend.

In the 10 months to April, excluding New Zealanders, just 83,750 people arrived as permanent settlers, down 20 per cent from 104,700 a year earlier. In 2011 alone, the number is down 17 per cent. The figures suggest that the anti-immigration rhetoric of the ALP and the Coalition in the 2010 election campaign has influenced either the way immigration applicants are being assessed, or overseas interest in coming in the first place, or both.

Opposition Leader Tony Abbott demanded a ceiling of 170,000 people a year on net overseas immigration (which measures the balance between arrivals of permanent and long-term settlers, and permanent and long-term departures from Australia). The Coalition has gone quiet on the issue since, after sharp criticism from its business allies.

A spokeswoman for the Immigration Minister, Chris Bowen, said the sharp decline in net overseas migration reflected immigration reforms that had tackled the potential abuse of student visas and shifted the focus to high-value occupations.


Thursday, June 23, 2011

Qantas overlooks Victora

THE backlog of tens of thousands of passengers stranded by flight cancellations due to the Chilean volcanic plume is set to grow in Tasmania and New Zealand today, where the airspace remains choked by ash.

As Qantas, Jetstar and Virgin resumed services across the Australian mainland yesterday, services to Tasmania and New Zealand continued to be grounded as the plume drifted east across the Tasman Sea.

The Volcanic Ash Advisory Centre said the ash would remain over Tasmania until late this afternoon, while New Zealand could be shrouded for the next 24 hours.

The main airlines have cancelled flights to Tasmania and NZ until at least 10am today.

Qantas cancelled about 200 flights yesterday, bringing to about 50,000 the number of travellers who have been affected over two days.

Virgin cancelled 166 flights, affecting 13,500 people, while Tiger Airways axed 24 flights, affecting 3500 passengers.

Qantas chief executive Alan Joyce said the cancellation of flights had cost $21 million so far but said the airline valued its reputation for safety more than profits. ''We will not put passengers' safety at risk,'' he said.

Meanwhile, Mr Joyce flagged big changes to international operations. But the plans will not end Melbourne's second-class status in the Qantas line-up.

In a preview of changes to be revealed in August, Mr Joyce indicated that Qantas planned to start flying routes within Asia, as well as to Asia, in a joint venture that observers believe could be based in Singapore.

Addressing the National Press Club, Mr Joyce said Qantas had lost about $200 million on its international operations in 2010-11, and had to restructure. He said it would focus more on alliances with other airlines and ''cast a ruthless eye over'' non-performing routes.

While declaring his own love of Melbourne, the Qantas chief held out no prospect of operating more foreign services out of Australia's second biggest city.

Qantas and its offshoots operate only 12 overseas flights a day from Melbourne, against 35 from Sydney.

Mr Joyce said Qantas had tried to improve services from Melbourne, but said: ''It doesn't have the premium traffic that Sydney has ? It doesn't have the international traffic that Sydney has, because Sydney is where the international tourists want to go.''

Recent figures, however, show foreign tourists increasingly are going to Melbourne - on airlines other than Qantas.

In the past 10 years the number of foreign tourists spending most of their time in Victoria jumped by 458,000, while the number based in Sydney dropped by 62,000.


Tuesday, June 21, 2011

New Zealand proposes joint emissions scheme

NEW Zealand Prime Minister John Key has flagged that permits for greenhouse gas emissions could be traded across the Tasman to cut the cost of reducing emissions highlighting differences between Australian and New Zealand conservatives.

Mr Key, who introduced emissions trading in New Zealand last year, yesterday became the first New Zealand Prime Minister to address the Australian Parliament. But he found himself jammed between Prime Minister Julia Gillard and fellow conservative leader Tony Abbott on the issue dominating politics here.

While declining to take sides, he was enthusiastic about New Zealand's scheme, and joined with Ms Gillard in setting up a group to work out how the two countries might link their emissions trading schemes.

"What I can tell you about the emissions trading scheme is that it's worked," Mr Key said.

"In the time that we've had it in place, all applications for new electricity generation have been in renewables, as opposed to 50/50 coming from thermal energy. Secondly, we've now had a period of afforestation . . . as opposed to a substantial period of deforestation. So those price signals are working in the marketplace.

"Generally speaking, the feedback we're getting from business and the NGO sector is that they are more positive now that the scheme is actually in place, because it gives them surety of investment."

Mr Abbott hit back subtly when welcoming Mr Key to Parliament. While praising him for "dramatically watering down the ETS that you inherited from Labor", he added: "In this country, your sister party will go further and do better. Should we inherit any carbon tax, we won't just reduce it, we will rescind it."

Earlier, Mr Key said his government would rebuild earthquake-shattered Christchurch, even though one in three buildings in the CBD, and more than 10,000 houses, would have to be demolished, leaving New Zealand with a bill equal to 8 to 9 per cent of its GDP.

"It's an enormous cost, but it's also an opportunity," he said. "We are no more earthquake-prone than San Francisco. Christchurch was subject to a one-in-2500-year quake, and most of the modern buildings held up very well."

Mr Key said rebuilding would lift New Zealand's growth rate next year to 5 per cent.

He told Parliament that Australia and New Zealand were "family", and should collaborate even more closely. "We have no better friend and closer ally than Australia. We are stronger for each other."


Early intervention crucial. Ask the NZ PM

AUSTRALIA'S former chief scientist, Penny Sackett, resigned in February after eight months without meeting her boss, Prime Minister Julia Gillard. Across the Tasman, her counterpart, Sir Peter Gluckman, has a far closer relationship with Prime Minister John Key and it has led to an engrossing report on something that matters.

Its title is very dry: Improving the Transition: Reducing Social and Psychological Morbidity During Adolescence. But its goal is to explain why so many teenagers, particularly boys, fall off the rails. It asks what peer-reviewed science has to tell us about how to make it easier for them to find their way through to adulthood undamaged.

It's an issue we don't talk about. But anyone who has been to too many funerals of teenagers knows how important it is, and how many families it touches. Its reach ranges from teenage depression and suicide to drug addiction and alcohol abuse, violence and bullying, obesity and other health problems, sexual abuse, criminal activity and failure to acquire the social, educational and technical skills needed to get through life successfully.

Policy on these fronts is failing, and the cost is high. The report warns: "At least 20 per cent of young New Zealanders will exhibit behaviours and emotions or have experiences that lead to long-term consequences affecting the rest of their lives."

Together with a second report commissioned by the Key government on how to move people from welfare to work, it is challenging. Both reports cut across everyone's prejudices: the first because of its peer-reviewed evaluations of what works and what doesn't, and the second because it advocates a "tough love" approach focused on getting people off welfare and into jobs and spending more on them to save in the long term.

Their findings are complex but one message rings out strongly: prevention is better than cure, in cost and success rates. Early intervention to head off problems saves money in the long term. We need more programs that invest now to help create families that work, and in which people work.

The message has fallen on sympathetic ears. John Key, who in Canberra yesterday became the first New Zealand prime minister to address Federal Parliament, is an unusual man. He grew up in welfare housing in Christchurch after his father died, leaving his mother penniless. An Austrian-Jewish refugee, she fought her way back into the workforce, sent young John to university and then watched in admiration as he became a successful foreign exchange trader in Auckland, London, Singapore and Sydney.

By the age of 40, Key had made his fortune and decided to enter politics. He quickly became shadow finance minister, then National (Liberal) Party leader, then prime minister. He leads a middle-of-the-road coalition government that has proved very popular.

Key has never forgotten where he came from. His first speech in Parliament warned that New Zealand had developed an "underclass" of unemployed families, particularly among the Maori and Pacific Islander minorities. He is determined to reverse that. "In New Zealand now we are getting a third and fourth generation of families on welfare," Key told me yesterday.

In 2009, the OECD reported that New Zealand had the highest rates among Western societies of youth suicide and other measures of youth alienation. Key asked his chief scientist to investigate why.

Originally a paediatrician, Sir Peter is a global leader in research on the development of the brain. He recruited New Zealand's best and brightest to review the scientific literature in their fields, and report on what it tells us about why young people become alienated and what programs work to prevent or cure this.

The results are impossible to summarise in a column: the report is at It tells us that while adolescence now starts earlier than ever 50 per cent of NZ girls have their first period at primary school new research shows the brain does not fully mature until the mid-20s, and the last skills to mature are those to do with judgment, risk assessment and self-control.

Poor judgment and self-control is the central problem of troubled teens, and depression is far more widespread than we realise. While there is no single solution, Sir Peter warns, "the research shows the best way of advancing self-control and protecting the young person in their transition to adulthood lies in focusing on the preschool years (and creating) quality early-childhood environments and education".

The welfare working group report (on the web at similarly finds that the best way to stop unemployed young people becoming unemployable is to intervene early. It says the welfare system needs to be targeted at getting people back into work, and to be given more funding to fix the problems that make them unemployable, whether it is lack of technical skills, illiteracy, alcohol abuse, obesity, poor personal skills, whatever.

Key's ministers are considering both reports, but he agrees that early intervention is the way to go. "It will cost the government more, but in the long term it will produce much better outcomes. Without that, I don't think there is a long-term solution," he says.


Friday, June 17, 2011

Asian migration a tour de force

AUSTRALIA is now home to more than 2 million people born in Asia - and they are on the brink of overtaking the European-born population for the first time in our history.

New figures from the Bureau of Statistics estimate the number of Asian-born residents in Australia has virtually doubled in the past decade from 1.03 million in mid-2000 to 2.01 million in mid-2010.

In that time, they have made up a third of Australia's population growth. Roughly half have come as students and half as skilled workers and family members settling here to fill gaps in Australia's workforce.

The Bureau estimates that in that decade alone, the number of Chinese-born people living in Australia has more than doubled from 148,000 to 380,000 by the middle of last year.

The number of Indian-born residents has more than trebled in that time from 96,000 to 340,000.

The largest number live in Melbourne, where they now outnumber Italians to form the city's largest non-Anglo community.

The Bureau figures exclude West Asia (from Iran westwards), which the Bureau classifies as part of the Middle East. Migration from that area too has risen sharply, partly due to refugees from the Iraq war.

It is a stunning transformation from the old reality of White Australia, the policy that banned Asians from settling in Australia from the late 19th century until it was gradually dismantled between the mid-50s and mid-70s.

In 1947, only 0.3 per cent of Australia's population had been born in Asia. But their numbers have roughly doubled with every decade since, rising to 2.5 per cent of the population by 1981, 5.5 per cent by 2000, and 9 per cent by mid-2010.

By contrast, Australia's European-born population effectively peaked several decades ago, when Europe became rich enough to remove the incentive to emigrate. It has basically hovered around 2.4 million since, shrinking from 17 per cent of the population to just 10.8 per cent.

British migrants now make up roughly half that total, numbering just under 1.2 million in mid-2010. New Brits keep arriving as the old pass away, but for some years, the number of Australians born in Italy, Greece, the Netherlands, Germany, Malta or the old Yugoslavia have been steadily shrinking.

Within two or three years, the number of Asian-Australians is likely to overtake the number of European-Australians.

New Zealanders remain the second biggest migrant community and just keep coming. By mid-2010 there were 544,000 living here and in 2010-11 they have been the main source of migrants. Migrants from China (380,000) and India (340,000) are now the biggest non-Anglo communities by a large margin. Vietnamese (204,000) are closing the gap on Italians (219,000) to be the next largest.

Net migration overall slumped to 215,500 in 2009-10, down from 300,000 a year earlier. The financial crisis cut the need for skilled workers and the closing of immigration loopholes, the rising dollar and violence against Indian students all cut student numbers.


Tuesday, June 14, 2011

Carbon change can be cheaper than we think

TWO conclusions ring out clearly from the Productivity Commission's report on what other countries are doing about climate change. First, the world is moving to tackle climate change, with Australia in the middle of the pack rather than out front. And second, the cheapest way to bring down carbon emissions is by introducing an emissions trading scheme.

Some may be surprised that the commission, Australia's high priest of economic rationalism, should endorse raising costs for business and consumers by putting a price on carbon. I humbly suggest they have misunderstood both economics and the commission.

Economics certainly aims to minimise costs and maximise output. But its horizons are long-term, and universal. Any economics student learns that if the act of production creates costs for others (what economists call externalities), then government should impose taxes to sheet those costs back to the producer.

With rough justice, that is what a carbon tax or emissions trading scheme aims to do. Unless you want to ignore the findings of climate science, there is no clearer example of an externality than companies, mines, consumers or cows pumping their waste gases into the air to heat up the atmosphere, if that will threaten the future livelihoods of millions of future inhabitants of our planet.

The point of a carbon tax or emissions trading scheme is to maximise our long-term welfare - the welfare of future generations, particularly those at risk from rising seawaters (think Bangladesh, or the Pacific islands) or from hotter temperatures and rising evaporation (think farmers in Australia's food bowl, the Murray-Darling Basin).

They work by raising prices. But remember: when the price of emissions rises, it creates the incentive for producers and consumers to change the way they operate, to shift to technologies or ways of life that produce fewer emissions. You face the full impact of the price rise only if you stand still and change nothing. And the purpose of charging for carbon is to drive change.

Take an example that has nothing to do with climate change. The steep rise in world petrol prices (along with traffic congestion and rapid population growth) saw passenger trips on Melbourne public transport jump 36 per cent in four years. People didn't stand still to cop the full brunt of the petrol price rise: many of them dodged it by finding a cheaper way to get to work, to sport, or to a night out.

Or take an example where carbon pricing (or the threat of it) is central. In the past, coal fuelled around 80 per cent of Australia's electricity supply. But in the four years to 2008-09, more than half the growth in power generation came from gas and renewables (mostly wind). And at last count, coal-burning stations make up just 10 per cent of all generating capacity now under construction or committed across Australia.

Gas and wind have taken coal's place, not least in Victoria. Origin's new 550-megawatt (million watt) gas-fired plant is about to come on stream in Mortlake. An hour west, AGL is building Australia's biggest wind farm (420 MW) at Macarthur. The switch from coal is not costless - the commission cites estimates by the Electric Power Research Institute that gas costs roughly 10 per cent more than coal, but wind roughly twice as much - but it will cost us far less than the upgraded transmission system, smart meters and solar subsidies that are now driving up power bills.

The wind stations are being built to comply with the federal government's renewable energy target. The commission estimates that even the best renewable projects will cost us $37 for every tonne of greenhouse gas emissions they save, whereas Europe's emissions trading scheme is doing the job for $20 a tonne in Germany, and $29 in the UK. Its core conclusion is clear: the most efficient path to reduce carbon emissions is to allow the market to find the cheapest ways to bring them down.

Australia's tragedy is that, for purely political reasons, the Coalition has now locked itself into turning its back on the market, and rejecting emissions trading, or the carbon tax that would lead into it. It plans to reduce emissions by paying producers to take ''direct action'' - yet the commission's finding is that direct action is the most costly policy of all.

It focuses on two examples: the incentives for Australians (and overseas households) to put solar panels on their roofs, and laws requiring biofuels such as ethanol to be added to petrol. It estimates that ''excessive'' federal subsidies and state feed-in tariffs mean taxpayers and consumers are paying between $431 and $1043 for every tonne of greenhouse gas emissions saved. It estimates the same cuts could have been achieved by a carbon price of $9 a tonne.

Biofuels were another idea that looked attractive, if you ignore the price tag. The commission estimates the cost in Australia at $532 per tonne of emissions saved by using ethanol, and $186 a tonne from biodiesel. At least that's better than China, where it estimates the biofuels program has actually increased emissions. No doubt you could argue with the numbers, but the conclusion is unavoidable: these schemes deliver very poor value for money.

Tony Abbott should read this report, and think hard about what it is telling him to do if he becomes prime minister. The Coalition needs to find a way back to trusting the market. The task ahead is colossal: both parties have committed to reduce Australia's emissions by 2020 to 5 per cent below 2000 levels, yet to get there would require us to cut emissions by almost 25 per cent in eight years from the current trajectory. Mickey Mouse schemes won't do it.

The bottom line is that change is inevitable, but it can be cheap. For most of us, it means using commonsense around the home: switching off lights not in use, wearing warm clothes in winter and opening up to the breeze in summer, buying energy-efficient cars and appliances, keeping tyres full of air, all that stuff.

Change is what this is about. Embrace it, and it'll cost less than you think.


Senate urged to block budget

THE Senate should refuse to pass the 2011-12 budget until the government redrafts it to make it conform to proper budgetary standards, former Democrat senator Andrew Murray has urged.

Mr Murray, who led the crusade for financial transparency and accountability during his 12 years in the Senate, said the "appalling" confession by former finance minister Lindsay Tanner of deliberate misrepresentation in government finance should force Parliament to make a stand.

"The 2011-12 budget has examples of significant new policies included in the ordinary annual services appropriation bill, such as the allocation of $1.3 billion over eight years to reward payments for great teachers," Mr Murray said in a lecture convened by the Senate. Yet both the constitution and a 1965 "compact" between the government and the Senate agreed that spending on new policies should be excluded from appropriation bills and proposed as separate legislation, which could then be amended.

"Short of rejecting the annual appropriation bills, there is presently no mechanism for resisting breaches of the compact by the executive," Mr Murray said.

"A direct challenge by the executive to the unambiguous intention of the constitution, and a blatant disregard for budgetary propriety, will likely again go unchecked by the Senate."

In 2008, Mr Tanner as finance minister commissioned then senator Murray to report on how to improve budgetary transparency and accountability. But last month in his book, Sideshow, Mr Tanner revealed that as finance minister he deliberately misclassified annual spending as capital allocations, mixed up figures from different accounting systems to confuse debate, and allowed spending to overrun the budget estimates.

"I became adept at these dark arts," Mr Tanner wrote.

Mr Murray told the Senate forum that of his 45 recommendations to make government finances more open and truthful, the government has accepted only 10, rejected 21, with the fate of the other 14 still in doubt.

He urged Parliament to be "more critical and assertive" to force the government to obey the rules. Specifically, he called on the Greens and the crossbenchers to demand that Parliament set its own budget and that of the Auditor-General saying governments of both sides had starved them of the resources they need as watchdogs.

"Parliament has to do battle against the dark arts, against that which is wrongly hidden, that which is not what it seems, and performance that is not good enough," he said.


Tuesday, June 7, 2011

Reserve Bank risks a bust to stop boom

THE markets think there is only a 16 per cent chance that the board of the Reserve Bank will lift interest rates today. You hope they're right - but it's far from certain.

Our central bank is on a mission. It believes Australia is springing into a new boom that threatens to lift inflation. Its job is to stop inflation getting out of hand, and its one real weapon is interest rates.

And the boom it foresees is not ''five minutes of sunlight'', as John Howard memorably called the post-recession growth bounce in 1994 (of which, more later). The bank believes we have entered a new era in which global supply of minerals will be unable to meet the booming growth in demand, driven by China and India. And that will entrench high minerals prices for years, and possibly decades.

How does that change life for you and me? Well, high minerals prices over time will mean we also get full employment, and more: a high Australian dollar over a long period, making many producers uncompetitive, and the perennial risk of high inflation - which the Reserve will shield us from by high interest rates.

And if you're in debt (as most households are), that could make life uncomfortable. If the minerals boom unfolds on the scale its advocates envisage, life could become very uncomfortable.

Essentially, the Reserve and Treasury believe the other 90 per cent of the economy will have to shrink - in relative terms, and in some parts, in absolute terms - to free up the resources for the minerals sector to fulfil its destiny to dig up Australia's rocks and sell them to the world.

We are not talking about small tweaks here. The Reserve's most uncritical fans among market economists predict that in the next 15 months, it will deliver at least four interest rate rises, and possibly five. If they are right, that would wreak big changes in the Australian economy.

Many companies would shut down, especially in trade-exposed areas such as manufacturing, tourism and higher education. Many workers would lose their jobs. That would not be accidental ''collateral damage''. It is how the policy works.

The Reserve and Treasury believe (in my view, wrongly) that we are close to full employment. The mining companies say they plan to double their investment in 2011-12 from current levels. Even if that is exaggerated, the Reserve sees its role as ensuring that the companies do not bid up wages so high they create a wages breakout that would spread across the nation, and create the inflation it is there to stop.

To be blunt, it sees its role as to create unemployment - or at least, slow employment - in the rest of the economy, so that more of our scarce skilled workers go to build and operate the mines, where their work will bring the greatest return.

As Treasury secretary Martin Parkinson argued last month in a speech in Sydney, this is structural change. The factories and tourist ventures they close will not come back. In their view, the long boom in mineral prices means Australia will not need them. Others are less sure.

These rate rises would have damaging consequences for many, in a wide range of areas. Melbourne, and south-eastern Australia, would take the brunt of the damage, if firms here are shut down by high interest rates and an ever-higher dollar. Ross Garnaut is right: if the Reserve follows this course, then the carbon tax is a minor issue. Firms will be shut down anyway.

We need to talk about this - and before the Reserve jumps the gun by lifting interest rates for the eighth time in less than two years. Is there a better way to handle the problem? If so, what?

The first step for the Reserve is to guard against hubris. It is not enough to convince itself that it knows what lies ahead. It was right in 2009 when it said the recession would be short and shallow. But forecasting the future is fraught with danger and, recently, the Reserve has got more calls wrong than right.

A year ago, its forecasts significantly overestimated both non-farm growth in 2010 (by a full percentage point) and underlying inflation (by half a percentage point). I don't blame the Reserve for not foreseeing things that few if any saw coming, but look back at its forecasts at this time in 2009, or 2008, or 2007, and you can see its crystal ball is all too fallible. It needs to tread warily. In 1994, it ended that ''five minutes of sunshine'' with three big interest rate rises. Some of us warned this was overkill, and we were right. Unemployment stopped falling, and remained stuck around 8.5 per cent until late 1997, after the Reserve had relented. Let's not repeat that mistake.

As Oliver Cromwell put it: ''I beseech you, in the bowels of Christ, think it possible you may be mistaken.''

There are alternatives. If our choice is between giving mining companies a free hand to import the skilled labour they need, or shutting down growth in the rest of the economy in the hope that some of the displaced workers will migrate to the Pilbara, the first is obviously a better solution. With the Immigration Department predicting net overseas migration to be just 170,000 to 180,000 a year from now to 2014, there is room for more.

We seem to have lost the best option: a comprehensive, well-designed tax on mining profits that would keep the mining boom in check. A golden opportunity to do that was blown away: first, by the Henry review, which proposed an excessive, impractical tax that required taxpayers to pay for mining companies' losses - and then by the Gillard government, which backed down so far that it stripped the tax of any bite or universal coverage.

But the Reserve should try a strategy that parents use (within limits): let nature take its course. If mining companies and contractors get into a bidding war over wages, fewer mines will be built. The risk of a wages breakout in the Pilbara triggering breakouts in Melbourne or Sydney is remote. Let them solve their own problems. Don't shut down the rest of the economy to try to solve their problems for them.


Saturday, June 4, 2011

Australians taking strong dollar out of the country

THE high dollar is driving Australians out of the country. In April, there was a stunning 20 per cent jump in the number heading overseas, with almost 700,000 flying out.

In breathtaking evidence of how the high dollar is shifting Australians' spending overseas, the Bureau of Statistics reports that three Australians went overseas in April for every two overseas visitors coming here.

Unreported bureau figures this week suggest that even before the April surge, more than a fifth of the growth in consumer spending in the March quarter was spent overseas by Australian tourists.

While the national accounts showed household spending up 3.4 per cent in the year to March, the detailed figures suggest the growth in household spending within Australia was only 2.8 per cent.

In the March quarter, consumer spending locally grew only 0.46 per cent. Yet in a year, net consumer spending overseas almost doubled, rising in real terms from $1.05 billion to $2 billion.

These figures exclude online purchasing from overseas websites, so actual growth in local spending was even lower.

The shift of consumer spending overseas is accelerating. Visitor arrivals in Australia grew only 3 per cent in April, and were down 3 per cent in the April quarter.

But Australians are making the most of the strong exchange rate, taking their dollars overseas, and spending them when they buy more.

A record 78,000 Australians spent April in Indonesia, which is challenging New Zealand (93,000) as our top overseas destination.

But there were also record departures for the United States (71,000), Thailand (46,000), China (33,000), Fiji (29,000) and almost everywhere else - except Australia.

The high dollar discourages foreigners, since their currency buys less in Australian stores, hotels and restaurants. In April, only 462,000 tourists came here but more than 690,000 Australians travelled overseas.

Year on year, tourist arrivals rose by by only 19,000, whereas Australian tourist departures rose by 137,000. The growth in arrivals is mostly from Asia, where soaring airfares have diverted tourists from America or Europe to nearby Australia.

Tourism and Transport Forum chief executive John Lee expressed alarm at the trend and urged the government to give tourist operators transitional help with the carbon tax.

''If international aviation is exempt, but the tax applies to domestic travel, that will encourage more people to head overseas, as travelling locally will be relatively more expensive,'' Mr Lee said.

The strong dollar had already meant that fewer Australians were taking their holidays in Australia, he said.