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The problem was not whether Gillard should but what was announced

Comments on Christopher Pearson “Cabinet leaks show depth of Gillard's problems”, 31/.07/2010, http://www.theaustralian.com.au/national-affairs/polling-centre/cabinet-leaks-show-depth-of-gillards-problems/story-fn5asavh-1225899248390
It is not wrong or problematic to announce a new climate change policy by a new prime minister, given that Rudd and his government had been in serious trouble by his ETS retreat.

However, what has been announced is a problem. Instead a convincingly effective and practical policy, she announced almost no change to her predecessor’s policy. Worse still, adding a talkfest - a citizens' assembly.

Given that they were prepared to go with the/a mining tax, what she could have done is a modest carbon levy/tax with redistribution to consumers, i.e. all residents to offset the effects of the levy/tax.

That could have distinguished her from Rudd's policy and recapture the support of the majority of the public.

So two of the 3 issues she identified at the time of her prime ministerial address have not been satisfactorily dealt with by her even though the handling of the mining tax wasn't too bad.

Of course, if those leaks are true her political judgement may be an issue for her leadership as prime minister in the longer term.


East Asia likely to be another pillar

Comments on Amy King “China and the lessons of the past”, 29/07/2010, http://www.eastasiaforum.org/2010/07/29/china-and-the-lessons-of-the-past/
While obviously it is Japan that determines and will continue to determine its foreign policy, how China behaves will also be an important factor that may have a bearing on Japan's choice.

It is in every country's interest that the Northeast Asian countries, namely China, Japan and Korea become the cornerstone of a successful East Asian community, given the sizes of their economies.

If China can't get the Northeast Asian countries close to a successful regional community, how can it become an effective and responsible global leader in the future? It has to consider what the best long term strategy should be for its position as a world leader to be consistent with its growing economy.

The idea of zero sum game by any of the key players will be unhelpful to the interests of the Northeast Asian countries.

Closer relations and further economic integration of the region is likely to become another pillar to complement the North America and Europe Union as the three most important pillars in global affairs in the 21st century.

PS: I have suggested in the past that a federation model for the reunification China and Taiwan under which each would choose its own political system. Hong Kong and Macau could be given special status under that federation. The federation's role is to strengthen the common interests of all members as a federation by coordinating matters related to national defence, external security and foreign affairs, but leave its members to run virtually almost all its internal affairs.
The model for East Asia regional organisation could be between those of the United Nations and the European Union. The European model seems to have an undesirable feature in terms of another layer of bureaucracy.

A simple way to reduce carbon emissions is better

Comments on David Hetherington “Market design may define PM's green legacy”, 30/07/2010, http://www.theaustralian.com.au/news/opinion/market-design-may-define-pms-green-legacy/story-e6frg6zo-1225898687883
While market design, if done properly, may overcome some market failures, it should be noted that the best way to deal may not be as that complex as David thinks or implies.

Carbon emissions, for example, represent a market failure and can be best addressed by simply levy a carbon emissions tax to reflect their true costs, as opposed to complex market designs involving carbon trading.

A key issue is what to do with the tax revenue. Given that it is the consumers who bear the ultimate costs of emissions trading, the best option is to distribute the revenue to every resident.

Another way to consider it is that people are the owners of the climate environment, so they should be compensated for the costs to it.

Why do we have to design complex things while in fact simple things can work better?

Let's not overstate the role of "market design" and adopt the most appropriate policy response for each case where there is a need.


Stiglitz was wrong on government wastes

Comments on “Troubles ahead for world economy”, an interview of Joseph Stiglitz by Kerry O’Brien, ABC’s 7.30 Report program, 27/07/2010, http://www.abc.net.au/7.30/content/2010/s2965891.htm
Joseph Stiglitz is a Nobel Prize winner and well known and respected American economist. He has made outstanding contributions to public economics. He commands my highest regard and respect.

I agree with most of what he said during that interview. However, I found a particular point a bit hard to agree to, when he was answering the following question:

“There's been a lot of criticism of waste in the way some of Australia's stimulus money was spent. Is it inevitable if you're going to spend a great deal of government money quickly that there will be some waste and can you ever justify wasting taxpayers' money?”

His answer:

“If you hadn't spent the money, there would have been waste. The waste would have been the fact that the economy would have been weak, there would have been a gap between what the economy could have produced and what it actually produced - that's waste. You would have had high unemployment, you would have had capital assets not fully utilised - that's waste. So your choice was one form of waste verses another form of waste. And so it's a judgment of what is the way to minimise the waste. No perfection here. And what your government did was exactly right. So, Australia had the shortest and shallowest of the downturns of the advanced industrial countries. And, ah, your recovery actually preceded the - in some sense, China. So there was a sense in which you can't just say Australia recovered because of China. Your preventive action, you might say pre-emptive action, prevented the downturn while things got turned around in Asia, and they still have not gotten turned around in Europe and America.”

The issue I have is that it is not an issue of binary waste as Stiglitz put it, unless he meant the waste associated with government expenditure is any deadweight loss in its normal understanding. But Kerry O’Brien’s question was clearly about different wastes.

Stiglitz either missed the point of the question or he was defending the wrong thing, that is, avoidable wastes in Australian government’s expenditures in its stimulus packages.

Some wastes may have not been completely avoidable, but clearly some of the wastes could have been avoidable if the government had done properly and/or responded quickly when reports raised issues of wastes and rip offs in those programs, such as the building the education revolutions program – the often labelled school halls program.

Government has a duty to be diligent in spending taxpayers’ money and ensure “value for money” in any expenditure. Government must be prudent.

Managing the economy including emergency responses to financial or economic crisis is not green light for waste and should never justify reckless spending and wastes.

Stiglitz’s misunderstanding of those wastes implied in that question and framing it as an unavoidable trade off with waste of alternative economic recession was unfortunate.

It is not the binary or bipolar case of extremes, either this or that. Successful governments can and should use fiscal policy prudently to achieve both economic and budgtary goals.

Forget people's assembly and get on with carbon pricing

Comments on Robert Gottliebsen “Why carbon consensus won't work” 28/07/2010, http://www.businessspectator.com.au/bs.nsf/Article/Climate-the-heat-is-on-pd20100728-7RTSE?OpenDocument&src=rot
It is correct to say that the community consensus is unlikely to work. So the government is either playing delaying tactics or does not understand it.

It should not be too difficult to solve the issues involving mainly the distribution of proceeds from either a carbon tax or caps you identified, through the following measures.

1. Adopt an explicit carbon price on emissions.

2. Distribute the revenue to residents/consumers on an equal per capita basis, because they cannot pass the higher costs associated with the carbon price, unlike businesses that can at least partially do that. Such a scheme should purely be a mechanism to change the relative price and revenue neutral.

3. No revenue should be pocketed by the government.

4. Give no or little subsidies to businesses including power generation companies. It is gradual process and most businesses should be able to adjust. No favour and special treatment to any businesses. Any subsidies should come from a reduction in renewable expenditure by the government.

5. Impose a carbon equalisation tax on imports and reimbursement on exports, but do it in a simple fashion.

6. Return the department of climate change business to Environment and remove redundant personnel.

Gillard's lost opportunity

Comments on Paul Kelly “Campaigns characterised by complacent timidity”, 28/07/2010, http://www.theaustralian.com.au/news/opinion/campaigns-characterised-by-complacent-timidity/story-e6frg74x-1225897742178
The mining tax compromise neutralised that issue and was positive to Gillard. Another issue could have further shown Gillard as an effective prime minister, that is, climate change policy in terms of carbon pricing.

But unfortunately, she has not adopted the most effective strategy, that is, a modest carbon price with an equal distribution of revenue proceeds to residents, due largely to the fact that it could be perceived as risky by ALP strategists. A very good opportunity has been lost. Instead, she has got a talkfest, a community assembly to deal with an issue that should be dealt with in the parliament.

If she had done that, she would have shown that she has a very effective and efficient climate change policy that also would have popular support (why wouldn’t the public support that policy? Many voters would return from the Greens). That would distinguishingly have been Gillard’s, visionary, pragmatic, effective and flexible for a very difficult issue.

It would be difficult for the opposition to attack that as a big new carbon tax, because to most residents it is no tax for them due to return of tax income.

It could also be called an interim levy (before a permanent market based carbon pricing mechanism is introduced) to further diminish opposition’s potential ammunitions.

PS: As I mentioned a number of times before, the flexibility of a carbon tax can also make it to deal with one country having a carbon tax while others don't by imposing a general equalisation carbon tax on imports and reimbursement of such tax for exports from Australia.

Risky $A was a key lucky factor for Australiain the GFC

Comments on Tony Makin “Fiscal stimulus did not save us”, 28/07/2010, http://www.theaustralian.com.au/news/opinion/fiscal-stimulus-did-not-save-us/story-e6frg6zo-1225897744621
This is a very interesting empirical finding.

I have two quick questions for Professor Makin:

1. How did monetary policy loosing in Australia compare with other advanced economies relatively?

2. Was it the case as long as the relative monetary settings are the same between Australia and others, the risk nature of the $A would do the trick to be stimulative by depreciating due to rising levels of global risks? The risk nature of the $A is a lucky factor for Australia in down turn times in the global economy or when risks are high, though when the global economy is good it plays the opposite role. That is to say the exchange rate played the most important part.

PS: expectations and confidence were also important. Issue is how to model and capture their effects.


Questions on effects found of regional financial integration

Comments on Jenny Corbett, ANU, and Christopher Findlay “Getting the sequence right in regional financial markets”, 27/07/2010, http://www.eastasiaforum.org/2010/07/27/getting-the-sequence-right-in-regional-financial-markets/
It is an interesting study and useful findings.

A few quick questions on some details:

1. The finding that a higher level of financial integration is not associated with an increase in business cycle synchronicity: does that have anything to do with different output structures associated with different stages of their economies i.e. diversity in their output structures, would the results vary according to the degree of output similarity? And how long is the data for: is there any potential of delayed impacts?

2. Consumption smoothing of the 23, 2 and 75% effects of the three factors: how do the 23 and 2 correlate with the proportions of domestic and overseas financing? Do they vary with countries' saving and consumption patterns, i.e. the a quarter smoothing offset by saving ratios, or the degree of finance availability or easiness? Also, how does that reflect effects of expectations and error corrections?

3. How can social engineering learn from mechanical engineering, such as shipbuilding, by including some cushioning mechanisms, like some apartments in large ships (I do not know if they have that, but some movies suggest they have those, so if some parts of a ship are damaged, they may be contained to a certain degree? Could global and regional financial architecture include such mechanisms, so it can contain shocks and prevent them from spreading?

Rising tensions surrounding the Korea peninsular

Comments on Rowan Callick “Cheonan sinking brings larger spat to surface”, 27/07/2010, http://www.theaustralian.com.au/news/opinion/cheonan-sinking-brings-larger-spat-to-surface/story-e6frg7e6-1225897171800
While many may think it was North Korea that sank the Korean warship based on what the so called international investigation, it is by no means certain that was conclusively the case.

Was the international investigation completely neutral and unbiased? Were there any North Koreans, Chinese or Russians included in that international investigation team, or at least as observers in the investigation?

Why did the Korean government said shortly after the sinking that was quite different from the investigation report's result?

What were the likely motives for the North to do that, should the investigation result be correct?

While we may have no reasons not to believe the investigation result, the Chinese may have every reason to be suspect of it.

There are no short of history that the truth of a significant event was never clear at the time.

Rudd has both weaknesses and strengths

Comments on Barry Cohen “No one assassinated Rudd, he simply topped himself”, 27/07/2010, http://www.theaustralian.com.au/news/opinion/no-one-assassinated-rudd-he-simply-topped-himself/story-e6frg6zo-1225897188218
While it is likely that Rudd had undone himself in the end, it could also be the case that when he was in power, few nasties about him were said and after he fell from grace, many people may vent their displeasure of him in volumes and say excessively on his nasties and not mention any of his virtual if any had existed. Both are exaggerating.

It is just like the pendulum swings, left and right but seldom in the right spot.

So the true is likely somewhere in between.

Rudd definitely has both enormous strengths and significant weaknesses. But in the end, his weaknesses became dominant that led to his falling from grace.

However, one should acknowledge both his weaknesses and strengths if to be objective and unbiased. That seems lost at the moment and he is all engulfed in negativity. That is a bit unfortunate.

It appears now that some people within the government and possibly the Unions who want to see Rudd completely destroyed and leave no place for him in the cabinet if the government is returned.
That is understandable, but can be nasty too.


How can real progress be made on denuclearisation in the Korea peninsular?

Comments on Geoffrey K. See “An East Asian development fund for North Korea?” 25/07/2010, http://www.eastasiaforum.org/2010/07/25/an-east-asian-development-fund-for-north-korea/
The issue of North Korea has been in a vicious cycle: it is weak and becomes weaker and weaker and worries about its own security and survival; as a result, it has been developing nuclear weapons; its nuclearisation led to sanctions; any dialogues have not assured North Korea's fear of its security.

It is unlikely that a North Korea development fund would be able to allay its security fears in the current international circumstance.

There is currently no mechanism for North Korea to believe its security can be guaranteed.

Until it really feels that, it is unlikely to trust such a development fund. It may feel threatened by that.

Is there any way to assure North Korea’s security and leads to its giving up nuclear weapons and programs?

Maybe the parties involved in the six parties should make a collective guarantee of the security of both Koreas and the US then withdrawal its forces from the Korea peninsular as a gesture.

The international community including global and regional powers have tried various methods and so far they have shown unsuccessful. A collective security guarantee may be the only pragmatic way to successfully resolve the tension in the Korea peninsular.

A denuclearised and stable Korea peninsular is in every party’s interest.

Once North Korea feels no external threats to its security, it may see the benefits of trade and engagement with the outside world. That may lead to its integration with the international community.

Citizens' assembly - an opportunity for initiatives lost

Comments on Dennis Shanahan “.Citizens assembly has lost Labor crucial support”, 26/07/2010, http://www.theaustralian.com.au/national-affairs/citizens-assembly-has-lost-labor-crucial-support/story-fn59niix-1225896780474
The danger of announcing such a citizens' assembly is that it may remind the public of the 2020 Summit and Rudd's many undelivered promises, when they seriously consider what it would mean.

It may be perceived as a delaying tactics with no real substance on climate change to get over the election. This would be especially alarming to some in the context that Labor has dumped its ETS policy and in the wake of it its elected first term Prime Minister.

Some would take it as the current Prime Minister had the same policy as its predecessor and has not got any new, effective and substantial climate change policy.

If that happens, it would be negative for Gillard and the government.

But that is out of Gillard’s hand now and there does not seem to have other room to move or change. If she had not done that, she could have a policy of moderate carbon tax with revenue distribution to residents, so it would not be a real tax but a price signal. That would be a real initiative and could also counter the argument of a big tax. It was an opportunity lost from her.

Now it is up to the public and how they will take this strategy by Gillard. Is her honeymoon period strong enough so the public will give her the benefit of doubt on this policy treatment?


Gillard's climate announcement disappointing

Comments on Paul Kelly “Labor can't be serious about citizens plan”, 24/07/2010, http://www.theaustralian.com.au/national-affairs/labor-cant-be-serious-about-citizens-plan/story-fn59niix-1225896322003
Paul Kelly has made excellent points in assessing Gillard's climate change policy.

It is disappointing that Gillard's climate change announcement does not make much progress to an effective policy.

The idea of having a citizens assembly of 150 people in a year-long process to build a consensus on climate change along with a climate commission of experts to guide debate is rather poor thought.

There is considerable public support for actions on climate change in Australia and we need to take real and effective actions. China, the largest emitter in the world but a developing country has set out an ambitious target to reduce its emission intensity by 40-45% by 2020 from 2005 level.

What we need is an effective moderate carbon tax to start with and states the intention to increase it to the appropriate level to fulfil out obligation.

Abbott's scare campaign is myopic politics, because sooner or later and one way or another a real carbon tax has to be either explicitly imposed or reflected in higher prices through carbon caps. Even government direct measures will involve the inevitable costs, because government expenditure or tax incentives are expenditure from tax paid by taxpayers.

Politically, Gillard could deal with the tax scare campaign by imposing an interim modest carbon levy on emissions and distributing the levy proceeds to every resident to make it purely a change in the relative prices with no income effects on residents.

To offset the impact on Australia's international competitiveness, an equivalent carbon tax on all trade products could be introduced. That should be able to calm concerns by Australian businesses.

The equivalent carbon tax on trade could be accompanied by a compensation for those countries with low per capita emissions to make it internationally more equitable.

A carbon levy/tax done this way would represent a real and effective climate change policy and a closure to the government's failures in its ETS. It will have the support of most Australians.

The policy framework outlined here should assist greatly the policy credibility.

It is a pity that the two main political parties can’t develop an effective and real climate change policy.

PS: see also "Critics hot over climate spin", The Australian, 24/07/2010, http://www.theaustralian.com.au/national-affairs/critics-hot-over-climate-spin/story-fn59niix-1225896320702
"Great procrastinator takes reins of inaction on climate change" by Peter Hartcher, SMH, 24/07/2010, http://www.smh.com.au/opinion/politics/great-procrastinator-takes-reins-of-inaction-on-climate-change-20100723-10oqw.html. This article has more information on Gillard's stance on a potential early election in February and March and the ETS latter on, as well as the latter coup.


A laptop revolution from India?

It is reported that India has unveiled world's cheapest laptop costing only $US35. It seems another revolution that will benefit many people especially poor people who can't afford more expensive computers.
See http://www.abc.net.au/news/stories/2010/07/23/2962729.htm?section=justin

The following is a copy of the ABC report:
India has come up with the world's cheapest "laptop," a touch-screen computing device that costs $US35 ($40).

India's Human Resource Development minister Kapil Sibal this week unveiled the low-cost computing device that is designed for students, saying his department had started talks with global manufacturers to start mass production.
"We have reached a [developmental] stage that today, the motherboard, its chip, the processing, connectivity, all of them cumulatively cost around $35, including memory, display, everything," he told a news conference.
He said the touchscreen gadget was packed with internet browsers, PDF reader and video conferencing facilities but its hardware was created with sufficient flexibility to incorporate new components according to user requirement.
Sibal said the Linux-based computing device was expected to be introduced to higher education institutions from 2011 but the aim was to drop the price further to $US20 and ultimately to $US10.
The device was developed by research teams at India's premier technological institutes, the Indian Institute of Technology and the Indian Institute of Science.
India spends about 3 per cent of its annual budget on school education and has improved its literacy rates to over 64 per cent of its 1.2 billion population but studies have shown many students can barely read or write and most state-run schools have inadequate facilities.

- Reuters

Small party holding balance of power

Comments on Kenneth Wiltshire “Dangerous hands to be holding balance of power”, 23/07/2010, http://www.theaustralian.com.au/national-affairs/dangerous-hands-to-be-holding-balance-of-power/story-fn59niix-1225895823244
While that happens if a small party holds the balance of power, why the main governing political party don't and can't be more flexible to be a little more genuine to maximise its policy achievement by willing to having both the main opposition party and the small party on board to develop its policies?

If the government of the day is interested in having the small party on board to accommodate its demands, then surely it should also have the main opposition on board if the opposition's stance is better than the small party's, shouldn't it?

The implication is that the government, while hampered by its minority as opposed to majority in the house, needs to be more pragmatic and inclusive and be less ideological.

That is not necessarily bad and in fact may be good for the nation.

Gillard to ban any new but dirty power stations

Comments on Matthew Franklin “PM vows to ban 'dirty' power stations”, 23/07/2010, http://www.theaustralian.com.au/news/climate-protesters-disrupt-pms-speech/story-e6frg6xf-1225895949173
Prime Minister Gillard is reported to ban new coal-fired power stations that use "dirty" technology and require that any power station built can be retro-fitted with developing clean coal technology.

While it may also be able to contribute to reducing emissions and help the environment, it is government direct intervention as opposed to efficient market mechanism.

It is far more efficient to leave the decisions to the private entrepreneurs to choose the most efficient technologies following or anticipating emissions prices.

Government is better off to make sure market mechanism works properly to reflect true costs including known externalities instead off direct interventions.

Further, the report mentioned that "She also said that the next phase of her policy, to be announced within days, would involve new ways in which average Australians could make their own contributions to reducing emissions."  This reminds people the way Rudd managed the release of his health reforms plan, drip by drip and day by day slow feed. It does not portray a confident leader who is on top of the policy, apart from managing the media and manipulating the public.

However, one should understand the context, that is, this is an election campaign and the Gillard government did not have enough time to develop its climate change policies. It is a short term political message. She has to have something on climate change out to the public.
PS: Franklin’s report starts with the following:

JULIA Gillard will ban new coal-fired power stations that use "dirty" technology and require that any power station built can be retro-fitted with developing clean coal technology.
The Prime Minister has also committed $1 billion over 10 years to create an “efficient and strongly regulated” national renewable energy market.
And, in a speech at the University of Queensland in Brisbane, Ms Gillard has also pledged $100 million to fund market-based projects designed to develop renewable energy technology.
“We will never allow a highly inefficent and dirty power station to be built again in Australia,” she said.
“If we are reelected, Labor will ensure that all new power stations have to meet world's best practice.”
Ms Gillard said she wanted to ensure that during her search for a national consensus on climate change action that the nation did not “lock in” new power stations or energy sources that would last 30 years and continue to contribute to pollution

Afghanistan and the Taliban

Comments on Frud Bezhan “Reconciliation plan unlikely to bring peace”, 23/07/2010, http://www.theaustralian.com.au/news/world/reconciliation-plan-unlikely-to-bring-peace/story-e6frg6ux-1225895825085
I have little expertise in Afghanistan and the Taliban, to be blunt to start.

However, while you argue that the Taliban does not have popular supports, your third point to support your argument seems contradict and undermine your argument.

You appear inadvertently acknowledge that the Taliban may be better than some warlords, that indirectly implies that the Taliban may have some popular support in some regions.

One should not compare the Taliban with an ideal situation. Rather, one should take into the Afghanistan broad environment in which the Taliban operates into account when consider to do a deal or not with the Taliban.

The current population debate in Australia needs to be full and honest

Comments on Oliver Marc Hartwich “Europe shows the alternative to growth is decline”, 23/07/2010, http://www.theaustralian.com.au/news/opinion/europe-shows-the-alternative-to-growth-is-decline/story-e6frg6zo-1225895851365
While Oliver Marc Hartwich talks about Europe in the wake of the global financial crisis to say how bad the situations are that attempts to attribute problems to low or no population growth, he does not mention the case in the US. Neither does he mention per capita growth that is the key to living standards.

Are the situations in the US any better than those in Europe?

Further, the current debate on population growth in Australia is far from stagnant or decline in population - it is about how rapid the growth should be.

Such attempt to scare people with stagnant or decline in population is unhelpful to a proper debate and is highly misleading.


Election is the high point of politics

Comments on “Blame it on Tampa”, see Mumble Blog, 22/07/2010, http://blogs.theaustralian.news.com.au/mumble/index.php/theaustralian/comments/blame_it_on_tampa/
Election is the high point of politics and political parties will use whatever issues that can benefit them to their advantages, as long as it is within a reasonable boundary.

Given that Rudd's big Australia and the illegal boat arrivals had caused alarms in the public, Gillard should take a stance try to neutralise that.

However the two main parties prefer in their population and immigration policies, it would be better left unspoken, especially if it is for a big Australia. It is an issue that you can do it quietly but better not talk about it loudly.

If they discuss it openly, then it is likely that either the voters or businesses will find issues with them, that is not what they would like to see unless it is like Tampa they would see it as a winner.

Seriously, talking population level in 40 years time in Australia is a bit of nonsense irrespective the merit of the issue. It is impossible for any government in Australia to plan for that far. Government can change frequently, so can their policies.

What any government can do is to combine infrastructure services and immigration level at any time to best meet the needs of residents.

PS: comments on other related articles as follows:

Gary Johns “You can't move forward when you hit the brakes, http://www.theaustralian.com.au/national-affairs/you-cant-move-forward-when-you-hit-the-brakes/story-fn59niix-1225895302953
While governments may have failed in their responses to population growth and infrastructure supply, there is still a point in demand management of population growth and settlement.

Both supply and demand management should be used by governments in an integrated framework to meet the needs of their residents.

Paul Kelly “Julia's mixed messages reduce debate to absurdity”, http://www.theaustralian.com.au/national-affairs/julias-mixed-messages-reduce-debate-to-absurdity/story-fn59niix-1225895336778
It is nevertheless an election going on now, so short term election politics cannot be avoided.


An interesting election

Comments on Paul Kelly “Abbott waves white flag on labour reform”, 21/07/2010, http://www.theaustralian.com.au/national-affairs/abbott-waves-white-flag-on-labour-reform/story-fn59niix-1225894775175
This election appears to be one that both main parties duck their real colours.

The Prime Minister has just been on the job for a month or so. Admittedly, the past policy mistakes and the way the leadership changed are a factor.

The opposition leader has had image issues, especially with female voters. Besides, the main reasons and lessons of the last election defeat are not forgotten.

It is an election and an interesting one. Understandably they are both cautious, even though both have been strong in their beliefs.


Relativity in international affairs

Comments on Tommy Koh “Asia-US bond remains strong”, 19/07/2010, http://www.eastasiaforum.org/2010/07/19/asia-us-bond-remains-strong/
While readers may get the impression that Koh and Tay have quite different views on this issue when reading this post, it may be the case that both may be correct.

So how one can reconcile their different and possibly contradictory views as both correct? The answer may lie in whether one takes a relative or absolute view. Another way to view it is dynamic versus static.

From absolute point of view, Koh is correct.

From relative point of view, Tay is correct.

The US is the most powerful country in the world and will remain so for a long time to come.

However, its share in the world is also declining. The faster the world excluding the US grows, the more rapid that decline will be.

Both are facts and correct. It depends on one's perspectives.

However, irrespective of its decline or not, the US will be an important factor for the world including Asia.

Let’s acknowledge that and open to the reality of the world today and its tomorrow.


The election will be close

Comments on Paul Kelly “Labor stakes its reputation”, 18/07/2010, http://www.theaustralian.com.au/national-affairs/labor-stakes-its-reputation/story-fn59niix-1225893681467
This election will be very interesting indeed.

Gillard is the first female PM and this is still Labor's first term. She is also a competent minister, even though she has been part of the Rudd core. Usually, she should have been given the chance to run in her own right. But the BER has been a serious problem and that may have a deep effect on her image. The government's failures in the past two years are not too distant from voters' mind.

Abbott is a conviction politician and is honest for whatever his image may have been. Yes, his past may have been polarising to voters. He now has promised no change to IR laws, which is likely to soften his hardline image a little bit.

On big issues it is hard to distinguish the two parties. On the economy, the coalition had traditional strengths, but Labor avoided a recession for whatever costs it incurred for the future. So it is close for the two parties.

On asylum seekers, Labor is moving closer to the coalition's position and they become very close too.

On climate change, no one can tell what differences they have, and both can be seen as equally negative from general voters' point of view.

On health, it seems another close call.

So, it is likely that how Gillard and Abbott rebadge some of the key issues, such as climate change, although ironically Labor may have more flexibility in terms of changing policies (making new policies).

If they can't make a difference in doing that, then it may become how their personality and character come to play in the campaign that will determine their fate.


Optimal future population path in Australia

Comments on Oliver Marc Hartwich “Australia's choice between growth and decline”, 15/07/2010, http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-Tony-Abbott-population-immigration-m-pd20100714-7C5GT?OpenDocument&src=sph
The lessons from European demographic changes in the past decades should not be just that as Dr Oliver Marc Hartwich implied.

The most important lesson is how to respond to future population changes, as opposed to continuing a growth path as Dr Oliver Marc Hartwich suggests.

For Australia, there are three potential demographic paths for future: growth, stable or decline.

Given that it is the per capita growth in GDP or wealth that is most important to the population at large, each potential scenario can be managed reasonably in Australia as long as the population decline is not too rapid and certainly that can be managed to achieve without too much difficulty.

Australia has the luxury of time to consider and plan for future population path and the flexibility of immigration if needed at its disposal that was not necessarily all available to the European nations at that time in the past.
In my view, Dr Oliver Marc Hartwich's view misses the most important point and lacks a clear strategic version.

Given the challenges from climate change and natural resources, my gut feeling is that the best path for future Australian population is more likely to be a relatively stable one.

Having said that, I must qualify that statement by saying that we need more studies before we can firmly decide what will be best for us.

Treasury changed assumptions need an explanation

Comments on Stephen Bartholomeusz “The fly in Treasury's ointment”, 15/07/2010, http://www.businessspectator.com.au/bs.nsf/Article/budget-economy-Wayne-Swan-MRRT-pd20100714-7CAML?OpenDocument&src=sph
While it is perfectly normal to change and update assumptions used in modelling or forecasting, any change or update must reflect changed circumstances.

What is unclear to the changed assumptions of commodity prices by Treasury is what had changed between the budget and its new update that has constituted material changes to cause an upward revision of commodity prices.

The world economy has not changed for better. Nor have the Chinese economic prospects.

Treasury should have an obligation to explain to the public what has caused its changes to its assumptions. Otherwise, its reputation will be seriously damaged. That would not be in the interest of good public policy advice and decision making.


China and western democracy

Comments on Ron Huisken “Relations with China: Can the imperfect deal with the ideal?” 12/07/2010, http://www.eastasiaforum.org/2010/07/12/relations-with-china-can-the-imperfect-deal-with-the-ideal/
China is different from western democracy and there is no question about it.

On the other hand, China has also been reforming, even though the pace of political reforms has been much slower compared to its economic reforms.

The fixed maximum of two 5 year terms for the top national leader position now seemingly well entrenched is a very important step politically that significantly constrains the behaviours of any top leader.

It is likely that China will move to some kind of more democratic governance than the current form, even though it is uncertain what that will be and how long it will take for it to achieve it.

While the western democracy is prized here, some of the poor policies and wastes by the Rudd government in the past two and a half years suggest that there may be significant room to improve.

One way may be to strengthen public institutions and restrict or limit politicians' power or the processes they have to go through to make policies and implement policies.

Rudd could be an excellent foreign minister

Comments on Malcolm Colless “Lack of tact would make Rudd poor diplomat”, 13/07/2010, http://www.theaustralian.com.au/news/opinion/lack-of-tact-would-make-rudd-poor-diplomat/story-e6frg6zo-1225890927529
Rudd clearly has some weaknesses in his leadership style. But those weaknesses are likely to be magnified when the scope of issues expands. Conversely, when the scope of the issues is narrow as in one ministry, Rudd could be performing well even with those weaknesses.

Further, the public humiliation of being dumped from PM and the public revelation of his weaknesses are likely to force him to improve his leadership style.

Another point is that if Rudd is not in the supreme position such as the Prime Ministership, his weaknesses may be constrained because he himself is constrained.

In short, Rudd is intellectually very talented and should be afforded another chance to contribute to the nation. Rudd could be an excellent foreign minister after all.

We should all take a notice how scarce of talented politicians are in Australia politics, especially now. Let's not waste scarce political human resources we have got.

Tanner and Faulkner's actions decent and honourable

Comments on Henry Ergas “Faulkner, Tanner fell short of lofty aims”, 13/07/2010, http://www.theaustralian.com.au/news/opinion/faulkner-tanner-fell-short-of-lofty-aims/story-e6frg6zo-1225890927669
There are two aspects to the story here.

One is that there were inevitable failures of Tanner because he was one of the gang of four that were the core of the Rudd government's decisions, so he cannot escape those responsibilities. But I am not sure about Faulkner's because he was not one of the inner circle decision makers even though he has been a senior minister or ALP politicians.

The other aspect of the story is that both probably felt uncomfortable with the sudden change to the ALP leadership and are willing to show it and to take their shares of responsibility for the failures of the Rudd government as senior ministers to fall together with Rudd in some sort of way.

If the second is true, it indicates at least they have shown some courage to be accountable for their positions.

And that is much more decent action than some who might have done otherwise.


The new economic agreement between China and Taiwan

Comments on Stuart Harris “Taiwan and its new economic agreement with China”, 9/07/2010, http://www.eastasiaforum.org/2010/07/09/taiwan-and-its-new-economic-agreement-with-china/
The majority of Taiwanese are likely to weigh up the agreement with alternatives and see whether the agreement is in their interests.

As the shift of world economic weight towards Asia continues and China’s economic size becomes bigger and bigger and further integrated with regional economies, such agreement is likely to be more and more important for Taiwan.

As Harris mentioned, this agreement can not only diminish the potential disadvantage to Taiwan in an expanding Asian market by the regional economic integration underway through the expansion of preferential trade arrangements from which Taiwan would be excluded, but also bring further significant economic benefits to Taiwan to the tune of 4.5% of GDP.

A cooperative economic relationship will be better for both sides.

From political point of view, I think China is likely to adopt a very generous attitude toward Taiwan as long as the two sides maintain a reasonable relationship and no serious separation is contemplated.

China has enough internal ethnic issues, problems and tensions to attend and the resolutions to those internal ethnic issues are likely to contribute to a better relation with Taiwan.

Given that some options to allow Taiwan have its own troops and system were floated by high level Chinese leaders in the past, it is likely that some sort of federation might be possible.

Maybe a first step is to have a peace agreement between the two sides. Then they could discuss a new constitution for a new federation.

Link between carbon price and ETS unnecessary

Comments on Frank Jotzo “Climate action an issue that will not fade”, 10/07/2010, http://www.eastasiaforum.org/2010/07/10/climate-action-an-issue-that-will-not-fade/
The proposal to allocate more of the revenue from carbon tax to consumers rather than to shareholders is a sensible one in the right direction.

The middle way proposal to have a low carbon price with an ETS structure does not appear to be so sensible – why should a carbon price be necessarily linked to an ETS? It will have the same problems with any ETS.

A clean carbon tax can stand on its own to achieve all important objectives of emission reductions and does not need an unnecessary ETS to mess up the system.

A carbon tax coupled with returning the revenue to all residents will be far better and superior option than a limited and often heavily distorted ETS. It is highly likely to have strong public support.

An equivalent carbon tax on border trade can avoid or reduce carbon leakage. Coupled with compensation for low emission countries on per capita basis, it will be internationally acceptable as well.

Nulear nod too risky and carbon price better

Comments on Glenn Milne “PM could signify change with a nuclear nod”, 12/07/2010, http://www.theaustralian.com.au/news/opinion/pm-could-signify-change-with-a-nuclear-nod/story-e6frg6zo-1225890474484
It will be too difficult for the ALP to embrace the nuclear option just so close to the election that will be like another policy on the run without consultation and could rapture the ALP internally. It will also further alienate anti-nuclear and pro Greens voters.

So it is extremely high risk strategy and I would heavily discount the nuclear option for the ALP for climate.

It appears that the best option is to announce an intention to introduce a carbon price and put it as an election issue to have a mandate to do it after the election.

But in order to have the majority of the voters on side, Gillard needs to neutralise the tax issue as a potential target for the opposition.

The best strategy to do that is to distribute the revenue to all residents, so it is virtually not seen as a tax, but a price signal for the consumers to make a choice to switch to lower emission energies.

By announcing such a policy intent and leaves the details including consultation to be worked out after the election would be a cleaver policy and election strategy.


Issues of RSPT and MRRT again

Comments on Christopher Findlay “Australia’s new taxes on minerals”, 7/07/2010, http://www.eastasiaforum.org/2010/07/07/australias-new-taxes-on-minerals/
It appears to me that both the original but failed RSPT and the new and largely agreed MRRT would have some bad legacy.

The original RSPT in the form as it was had a number of design flaws, such as the retrospectivity, the relationship between the uplifting rate and tax rates.

Of course, it also was unclear why the tax rate should be at 40%, that is, why it should not be higher or lower, even though some economists would say it was an elegant tax.

The efficiency of that tax would have been offset by the existence of two taxes (the RSPT and state royalties though the latter would be credited to offset the RSPT) in addition to the company tax.

The MRRT, softened some of the issues in the original RSPT, but as Findlay said it was agreed in a negotiation and a very short negotiation indeed due to the particular political environment.

Of course, the MRRT has a much narrower scope that is another serious shortcoming to start with that tax.

On a different note, if the purpose is to replace the royalty with a profit tax, then why would or could it not be done by just adding an appropriate percentage point to the company tax rate for mining companies?

The company tax is a profit tax and the new tax is another profit tax and why to have all the fuss to have two profit taxes on the same mining companies but using different accounting? Wouldn't one profit tax be more elegant in terms of simplicity and efficiency to both the government and mining companies in terms of accounting and bookkeeping?

Some may say that companies may have different content of mining. But that could be accounted for at least as easily as the two different company profit taxes applied to those mining companies.


From RSPT to MRRT - significant improvement

The Gillard government has reached an agreement with three big miners on a profit based resoruces tax regime. It is called mineral resoruces rent tax.

It represents a significant improvement from the Rudd government's original RSPT proposal.

The main features of the tax:
The headline rate is changed from 40 to 30 per cent
Only applies to iron ore and coal
Mineral valued at mine gate
Miners can use either book value or market value
The uplift rate is long term government bond rate if market value used and plus 7 per cent for if book value used
Small miners with profit less than $50 million don't pay the tax
PRRT will continue for oil and gas and will apply to both onshore and offshore production

More details can be seen from:


School funding issues

Comments on Jack Keating “Funding key to school reform”, 1/07/2010, http://www.theaustralian.com.au/news/opinion/funding-key-to-school-reform/story-e6frg6zo-1225886406917
A funding model fair to all people and students must be fundamentally guarantee total funding for public schools first, that is why they are public or government schools. They are open to every student who wants to attend and every student have the same option to or not to attend.

To attend a non-public school is a choice.

On top of that, funding for other types of schools should be based on the needs of each type of schools and their selections of students. The needier the schools are (the less other funding resources they can get) and fewer restrictions on selection, the higher the funding should be.

Of course the government should consider the best mix of public and other types of schools and make the choices available for students and parents to choose.

An important point missing among controversies

Comments on Tim Costello “Like a death in the national family”, 1/07/2010, http://www.theaustralian.com.au/news/opinion/like-a-death-in-the-national-family/story-e6frg6zo-1225886408476
With all respect for Tim Costello, it seems he has got some incorrect views on the event of Rudd's demise from his Prime Ministership.

It was not just the polls but also his leadership style and poor political judgement and bad policy proposals that brought him undone. He is reported as a control freak, does not consult even the senior ministers, let alone the caucus and other people, his people and management skills are also reported to be very poor sometimes showing little or no minimum courtesy to others.

He clearly had made a few bad policy choices and or poor implementation of policies or programs.

It is unfortunate that the former PM lost in such a way, but given the facts and the way he dealt with issues and policies why should a nation stick with a poor leader? A related question, why should a person's own fault affect or even determine the fate of a party? Isn’t the nation better off if an incompetent national leader gives way to better leaders?

We all may have some sympathy for Rudd, but we should also find and accept a way for better national governance.

If looking from that point of view, there is nothing too bad from that event of changing the prime ministership.

However, given the controversies that event has caused, it is worthwhile to consider how the national governance can be improved and what institutions and mechanisms we need to ensure that can happen under the current model of democracy and election system.

It is a pity that few Australians have discussed this important issue.

Not bad politics from the opposition

Comments on Joe Kelly "Coalition 'will rescind mining tax' if Tony Abbott defeats Julia Gillard", 1/07/2010, http://www.theaustralian.com.au/politics/coalition-will-rescind-mining-tax-if-tony-abbott-defeats-julia-gillard/comments-e6frgczf-1225886559093
It is normal politics, given that the government is likely to make significant changes to the mining tax it proposed.

By saying it will rescind the tax, the opposition will add further pressures on to the government to back down.

The opposition could change its stance once the tax has changed significantly as expected. They can say it is not the RSPT, the big tax on mining as it once had been announced.

Of course, the more the changes to the original RSPT proposal, the more the government back down and the better it would be for the opposition.

Not too bad political tactics from the opposition.

It may also have an effect forcing the government to improve the tax more significantly to make it better.