Nick Coleman: politics

Australia's Fiscal and Monetary Policies: How They Work

Nick — Sat, 19 May 2012 10:21:00 -0700

The Sydney Morning Herald's Ross Gittins has a good article on how monetary policy and fiscal policy as implemented by Australia's Reserve Bank and the Dept of Treasury interact over both short and medium terms to produce low inflation and good economic growth.

Australia has seen both for a few decades, much of it built on the foundations of Treasurer Paul Keating in the 1980s.

The article, which is pretty much a summary of key points made by Secretary of Treasury Dr Martin Parkinson in his annual post-Budget speech, gives a good overall view and is worth a read for a layman's summary of how it all works.

In a nutshell, Australia's fiscal policy includes automatic stabilisers that offset periods of low or high growth, and monetary policy includes the ability to change things in the immediate short term with adjustments that can be small or large if needed.

Both of these things combined have provided stability and continued growth with low inflation.

The key point to understanding what we want is that, "while keeping inflation low may be the target [Ed: and is what the press so often focusses on], the goal is non-inflationary growth—growth that should keep unemployment low."

The result is a sustained period, over 20 years, of low inflationary growth that is the envy of the rest of the world. We have avoided the worst of the busts and have (relatively) few negatives from the booms. This is why you so often see Australia's Treasurer at the time voted as world's best treasurer by Euromoney magazine and others.

A robust Treasury and an independent central bank have played important key roles, but we should also give credit to both sides of politics for keeping to the game plan in their successive budgets.

Kevin Rudd the Divider

Nick — Mon, 27 Feb 2012 12:56:00 -0700

There is a great divide between the public's perception and the insiders' perception of Kevin Rudd.

Rudd has a much higher public approval rating than Julia Gillard. Yet the Labor Party has now twice voted for Gillard against Rudd. In the lead up to today's leadership challenge, some Labor parliamentarians were even quoted as saying they would vote for Gillard although it might mean they would lose their seats at the next election.

How can this be so? Why would a politician commit suicide rather than reinstate a leader who is popular with the public?

The answer is that those that knew Rudd when he was Prime Minister knew that he was completely dysfunctional in that role. He was an accident waiting to happen and, more importantly, a potential train wreck for the Party.

He is not a team player, a fatal flaw as a politician and especially so for one in the Labor Party.

He would declare policy, apparently without having consulted Cabinet or the Department responsible. Who knows where it came from.

He is a compulsive micro-manager to the extent that important policy work was being neglected while he obsessed over comparatively trivial points in briefs and other policy documents.

He forced his public servants to work extremely long hours to produce just-in-case briefs, then would never use the documents, all without a word of thanks to their authors. By the end, there were strong chatter in Canberra that this could not continue. Everyone has a burn-out point, and late nights and weekends for month after month to produce brief after brief that were never used was it, especially for those in the middle levels and not particularly well-paid.

It could not last. His fellow cabinet members and the public service knew it.

The public never knew those things. They saw a smart, intelligent happy fellow who talked the talk, perhaps even in the Obama mold. They had great hopes.

This is why there is a disconnect between the public and those who knew him. He was an accident waiting to happen. He was deposed as PM because everyone on the inner knew the chickens would come home to roost and there would be a giant crash of long-neglected policy and disregarded loyalty.

After two years, it was only a matter of time before the train wreck. The party apparatchiks could see it, and they took the axe and chopped before it could happen.

DNA Testing Means More Elderly Prisoners

Nick — Sun, 04 Sep 2011 09:02:00 -0700

New technology and science in crime fighting means that old crimes from 20 or 30 years ago are now being solved, mainly from DNA evidence.

One of the perhaps unexpected outcomes is that there are more elderly prisoners than before, to the point that prisons are having problems coping with them.

An example of the change is in Victoria's prison system where the number of prisoners over 50 has doubled in the last ten years, and there are more new prisoners in their 70s and 80s, which used to be a rare event.

Australia Bureau of Statistics figures show that over the last ten years the number of Australians over 50 has grown by 31%, whereas in prison it has grown by 84%.

The implications are wide: some of elderly prisoners can't use the top bunk, can't wash themselves and can't get around to do exercise without a frame. It also means that prison hospitals are increasingly being used as aged-care facilities.

We might end up like the U.S. and have special nursing home prisons. More in The Age.

Australia Debate on Cyber Data Retention

Nick — Tue, 30 Aug 2011 10:15:00 -0700

Australia is "debating" changes to the law that will force ISPs and telecommunication companies to keep data on their users. I put "debating" in quotes, because the government is forcing the bills through without any sort of meaningful public input.

The bills are a disgrace. As one commentator (see link below) says, we don't accept that the government can open our letters and read them, so why should email or text messages be any different? We also haven't been told whether a history of our day-to-day browsing the Web will be kept, or for how long, or who would have access to that information.

The trouble with broad-reaching legislation is that, despite reassuring comments at first, the legislation inevitably gets used in the widest possible way, much beyond what the original intent was. For this reason alone, we should be concerned about it.

In the interests of fairness, I link to The Age's opinion piece by Robert McLelland, the Federal Attorney-General, who is replying to a previous critical piece. Make sure you read the comments to McLelland for several very good reasons why the legislation should be rejected.

US Debt Ceiling Crisis and Divine Inspiration

Nick — Sat, 30 Jul 2011 09:55:00 -0700

The U.S. debt ceiling crisis gets weirder. For what was initially a three party squabble (Democrats, moderate Republicans and the Tea Party), it has a new party. The latest addition is God.

As reported in The Age's story Tea Party Calls the Tune and Republicans Dance to the Right Senator Tim Scott is now claiming that divine inspiration leads his vote.

''Divine inspiration already happened,'' said Mr Scott, a liaison to party leadership for Republicans newly elected to the House. ''I'm a 'no'.''

I suppose some religious people could accept divine guidance in ethical matters, but to think that God has inspired guidance for a simple squabble over economics? It's a measure of the limited mindset of these Senators that they haven't considered hubris instead of God.

We Should Use Debt to Pay For Floods

Nick — Sat, 22 Jan 2011 11:59:00 -0700

Now that the mop-up is taking place after the overwhelming Queensland and Victorian floods, we are starting to talk about how to fund the rebuilding.

Prime Minister Gillard won't give an unequivocal answer, but has floated the idea of a one-off tax levy and some tight budget constraints on government spending elsewhere.

My first reaction is to ask why nobody is mentioning the dreaded "debt" word.

It is a failure of Australian politics, both at the State and Federal levels, that debt has become a complete pariah. It is a hangover from the 1980s and 1990s when Labor State governments were fiscally irresponsible and had to be brought to account. But the pendulum has swung too far when the very mention of the word sends politicians running away.

There is nothing wrong per-se with government debt. It is the cheapest funding available. It is the right way to fund projects that have huge capital costs and where the benefits to the nation from those projects are realised over decades. There is no reason why current generations should pay the full cost of benefits that they and future generations will receive.

This is standard economics and completely uncontroversial.¹

However, a one-off tax levy would mean that the current generations would pay the full cost of all benefits, both present and future. There is no reason for that.

There is also no reason why current generations should bear the full brunt of reduced government services, which is what would happen with budget constraints.

The sensible, fair thing would be to issue new government debt with a range of medium and long term maturities. This way, current generations would pay a share and so would future generations.

[Later] I notice that other people are starting to say the same thing. Michael Gordon at The Age has a good article questioning the need to maintain a budget surplus now.

[1] One of the reasons it doesn't get much play any more is because governments believe that private partnerships bring better results. One of those results is to move the debt off the governments balance sheet on to private corporations. Of course, the interest cost is then higher and it ends up costing the general public more. Governments claim other efficiencies make up for that, plus they get to have a debt-free balance sheet. ↑

Retailers Don't Get It

Nick — Sat, 08 Jan 2011 11:24:00 -0700

There's been some kerfuffle in the last week when retailers mounted a campaign to lower the duty-free tax threshold. They claim they are unfairly losing business to on-line offshore sellers because buyers don't have to pay GST on imports less than $1,000. The argument is summarised in The Age here. According to that, the retailers have been stunned by the backlash against them.

The retailers just don't get it, and it shows in the major tactical blunder they made. They argued that their prices were disadvantaged because local shoppers had to pay GST, whereas on-line shoppers going offshore did not.

Their blunder was that on-line shoppers, by definition, are internet savvy and quite used to doing price comparisons on the web. These shoppers know that on-line prices are not cheaper by the 10% or 15% of the GST, but by 30% or 50% or even 75%.

Shoppers immediately called foul and filled newspapers comments. Soon the retailers' push was swamped by a counter-avalanche of complaints of unnecessarily high prices here in Australia.

Back in the days of the cultural-cringe, we were used to paying more and we sort of accepted it. We accepted the arguments of high transport costs due to distance, high wholesale costs due to low domestic market size, and so on. But when you have been to America and seen how cheap are Nike shoes, or a polo shirt, or a suit, in comparison to here, and you know you could import them yourself with full transport costs and still come out ahead, something is wrong. We've known this for years, but, before the internet, lacked the ability to do anything about it.

The groundswell built and it looks like we are willing no longer to put up with it. Those retailers who don't recognise the pent-up backlash are the ones who are surprised by its volubility. They are stuck in old-retail thinking and, unless they adjust, risk being seriously marginalised. Retail now is two things and two things only: service and price. You can survive with higher prices if you provide a superior service that customers are willing to pay for. Everything else is price.

Wikileaks and the Bank of America

Nick — Sat, 18 Dec 2010 12:56:00 -0700

Bank of America announced last week that it will no longer process payments that could end up at Wikileaks. It gave no real reason other than Wikileaks "may be involved with activities that are inconsistent with our internal policies", which could mean anything since BoA did not explain which internal policies or what they were.

Combined with similar actions by PayPal, Visa and MasterCard, this is a worry. When I first read it, I immediately thought that America seems to be returning to a form of McCarthy-ism. Previously, I would have thought it impossible for America to turn back to those bad days of trial-by-innuendo and character assassination.

Why am I singling out BoA from the others? The answer is that BoA is a bank and banks are the core of the payments processing that is a fundamental necessity of any economy. (Credit card companies are also payment processors technically, but ultimately must settle via a bank.) Because BoA is a bank, it has a much higher standard to meet to ensure it is neutral in transaction processing. It should not take sides. In fact, in my country it would probably attract the attention of the regulator for this action.

If BoA's view is that Wikileaks is harming national security, then why isn't it refusing to process payments for The Wall Street Journal, New York Times or The Washington Post, who all have published classified documents going back decades?

If BoA is taking the moral high ground, then why is it processing payments for organisations such as the KKK?

Bank of America isn't taking on the big media organisations because it knows they will fight back. It knows Wikileaks doesn't have the resources for a legal battle. It is being disingenuous when it claims to be acting in America's national interest and its bullying should be condemned.

[Later addition]: The gossip is that it is Bank of America that Wikileaks has been talking about when it said that a major U.S. bank will be the subject of a leak in 2011. If that is the case, I guess it goes some way to explaining BoA's action.

[Later again]: The New York Times agrees with me in its Christmas Day editorial.

Liberals Win Victorian Election, What Now For NSW

Nick — Mon, 29 Nov 2010 19:26:00 -0700

The result is in at last after 3 days of waiting for recounts in marginal seats. Labor has conceded and the Liberal/National Party coalition will form the new government in Victoria.

I suspect most Victorians will be surprised that the result was a change in government. I think this result was a strong protest vote against the insular and stale Labor rule, and particularly against the remote Premier, Brumby. I'm not so sure Victorians definitely intended to change government.

All I can say now is that the NSW Labor party must be quaking in its boots. It is going to get absolutely creamed in next year's election. Not without due cause, either.

The NSW Labor Right faction has dominated policy making in the Labor party for years, way more than its strength in numbers and way more than a naive viewer might expect it to. It's reach extends beyond NSW state politics into the national Labor party and most state Labor branches. It is ruthless in ensuring that loyalties hold, favours are repaid and that its viewpoint dominates, sometimes even at the expense of the party's good.

This is not news and most people in NSW know this. They have had a succession of lame duck Premiers foisted on them by Labor factionalism, and they are sick of the partisan nature of the Labor Party in NSW. They are tired of the Labor government's internal power struggles while the business of government and policy is left to wait. They have been building up a groundswell of anger and they are ready to vent.

I expect the reaction against the Labor Party in NSW will be so vicious that the Labor Party there will take years to recover. And it serves them right.

Australia's Mining Tax

Nick — Sun, 30 May 2010 10:31:00 -0700

Ross Gittins in The Age writes an excellent artice on the new mining tax that the Government is proposing to replace royalties.

It's worth a read in full, but I'll summarise a couple of the key points that aren't being widely discussed:

Royalties are inefficient. They make no distinction between low-cost and high-cost mining: think open-cut versus underground, the royalty is the same. As well, they are usually fixed price which means in poor times they can contribute to a mine's shutdown since they add to the ore's extraction cost.
Royalties are unfair: the fixed price per tonne means we, the owners of the ore, don't get the benefit of higher prices in boom times.

The good thing about the new mining tax is that the tax will be high when prices are high and low when prices are low. As well, mines with high extraction costs will pay less than mines with low extraction costs. This will encourage mining, not discourage it as the mining lobby group would have you believe.

As I said, read the article in full. Gittins goes into some details about the difference between an accounting profit and an effective tax rate, which will help make clear why the miners' negative campaign is not quite as it seems.