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BCA should be clear about economic growth

Comments on Ben Packham “CEOs say Australian lifestyle is under threat without moderate population growth”, 28/02/2011, http://www.theaustralian.com.au/national-affairs/ceos-say-australian-lifestyle-is-under-threat-without-moderate-population-growth/story-fn59niix-1226013441955

It should be no surprising that BCA is calling for this, because it is in business interests to do so. After all, BCA represents businesses.

However, it can be an entirely different matter for the Australian public at large.

For the latter, it is per capita that matters more and also there is a distribution of the nation's wealth between business owners and the general public. They can have very different implications.

The argument that a 36 million population by 2050 is a "sensible" target that will strengthen the economy and improve communities lacks convincing factual backup, if the current lack of infrastructure and the consequential deterioration of real living standard taking that into account is used as a guide.

Growth without productivity means little to the majority of the Australian public. Most residents would prefer higher productivity or higher per capita growth than lower productivity growth and lower per capita growth with a larger population.

BCA should not confuse the public with weasel words like economic growth, because it means very differently to different people. It must be upfront with the Australian public on what it means too.

Ergas is wrong on carbon actions

Comments on Henry Ergas “Unilateral action creates costs without benefits”, 28/02/2011, http://www.theaustralian.com.au/national-affairs/unilateral-action-creates-costs-without-benefits/story-fn59niix-1226013133637

Henry Ergas is an accomplished and highly respected economist and I enjoy most of his writings.

However, this one seems an exception.

To deny that many overseas countries are taking actions is simply to ignore facts and does not hold any water.

To use narrow minded nationalistic sentiment in painting this issue of carbon actions is myopic at the extreme.

This just undermines his reputation.

Ergas does not need to oppose everything the government is doing as the opposition does.

This is particularly so if he has to rely on distorting the facts.

That is simply suicidal.

PS: of course, my criticism of Ergas does not mean that I think the government's policy design is necessarily the best.


Carbon price and Australian manufacturing

Comments on Alan Kohler “Carbon will crush manufacturing”, 25/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Carbon-will-crush-manufacturing-pd20110225-EDRPG?OpenDocument&src=sph

Alan, this is a rather simplistic and alarming view of what might happen.

Comments on by Ian Higgins and Andrew Punch are useful alternatives, even though the government may have not carefully thought through about the necessity of trade neutrality.

Further, Australia is not along to have a price on carbon and many other major economies have or will have an effective carbon price. The overall impact on Australian manufacturing industry is not necessarily that doomed as you put it.

It is not just a structural adjustment in Australia alone, but in many countries.

How they affect the comparative advantages is equally unclear yet.

Carbon price and jobs

Comments on “Gillard says carbon tax will create jobs”, 25/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Gillard-says-carbon-tax-will-create-jobs-EDTEX?OpenDocument&src=hp6

It is true that a carbon tax will create some jobs in some sectors.

Equally, it is true that it will destroy more jobs than it will create, because the tax will be an additional constraint that reduces the optimality achievable compared to without such a tax.

Emissions reduction has its costs and that is the price we pay for the hope of limiting adverse climate changes.

Politicians like the Prime Minister are unlikely to tell the whole truth and be frank with the public.

They just want to tell the good side of the story and hide the not so good side of it. That is the art of spin by politicians.

Leadership or no leadership?

Comments on Dennis Shanahan “Gillard stakes leadership on a carbon tax”, 25/02/2011, http://www.theaustralian.com.au/news/opinion/gillard-stakes-leadership-on-a-carbon-tax/story-e6frg75f-1226011599594

This puts the Gillard government in the best term possible, but is likely to miss the point that Gillard has been forced into this, or has become hostage of the Greens as opposed to Gillard's pre-election pledge that there will be no carbon tax under the government she leads.

The timeline for the legislation to pass by 1 of July this year is uncertain at the best, or Gillard has to trade costly concessions with the Greens, given that they know after 1 of July they will be on the driver seat in the parliament.

Gillard has to design compensations to businesses and households very skilfully to satisfy all sides - the Greens, the other independents and big businesses, as well as the voters.

I see enormous difficulties for Gillard and it is extremely difficult to get the design right for voters that Labour needs to win the next election if Gillard can survive to that statge.
PS: it is paradoxical to Gillard's leadership, as reflected in her role in persuiding Rudd to dump the ETS, the pledge of no carbon tax under her government and compromise with the Greens to stay on as the PM and being forced into humiliating broken promise of no carbon tax to introducing a carbon 'price'.
Is it leadership? Or is it ruthless lust for power?


Get the IR balance truly right

Comments on Peter Reith “With unions flexing muscles, Libs must fight back”, http://www.theaustralian.com.au/news/opinion/with-unions-flexing-muscles-libs-must-fight-back/story-e6frg6zo-1226010964144

Clearly Howard era's Work Choices had its own problems, as reflected in Rudd's historical win of the 2007 election. Equally, there are problems of over corrections with Gillard' new IR laws.

There should be a balance between flexibility, individual agreements, collective agreements, decent conditions and adequate protections, as well as appropriate union roles.

It is pity and regrettable that both major political parties tend to go into one of the two extremes and not be able to get the balance right. The main reasons for that to have been the case include that each party has not tried to govern for the whole nation, but instead they all become a particular special interest group.

The best strategy for them and especially the opposition coalition is to move to the centre and get the balance right and articulate in that way.

The government could also initiatives some self correction to get the balance right to avoid potential coalition attacks.


Howes is likely damage the interests of Australian consumers and achieve nothing to protect his union

Comments on Paul Howes “China's free trade cheating threatens our jobs”, 17/02/2011, http://www.theaustralian.com.au/news/opinion/chinas-free-trade-cheating-threatens-our-jobs/story-e6frg6zo-1226007170647

Howes is the national secretary of the Australian Workers Union.

He claims "The AWU represents workers in numerous sectors harmed by China's policies, including steel, aluminium extrusion, glass and timber products."

He said "That's why the union's national conference voted yesterday to back a campaign to promote Australian companies, capabilities and jobs. We worry about the future of work opportunities for our 135,000 members."

He claims that "Unfortunately, China continues to adopt many dumping and subsidy practices that are in direct violation of the obligations it signed up to when it joined the WTO."

If that is the case, then it should have been very easy to use anti-dumping provision to deal with them.

But then he also alleges that "Unfortunately, the evidence is clear that our anti-dumping system is simply weak - and other nations take advantage of our weakness."

He appears to find problems with all others including out customs services and anti-dumping agencies. But could it be he is the source of those problems?

It raises a question whether any of those is true or not, or whether he is creating new 'WTO rules' in terms of anti-dumping.


Kelly is right: no big bang health reform, just realism

This is an expanded version of my comments online. There is a limit of 1200 characters for comments online for the Asutralian.

Comments on Paul Kelly “No big bang health reform, just realism”, 16/02/2011, http://www.theaustralian.com.au/news/opinion/no-big-bang-health-reform-just-realism/story-e6frg6zo-1226006577132

While the basic framework of equal partnership with 50-50 of increased funding can stick, there is no guarantee that the core concept of the single national pool will survive.

Equal partnership clarifies the role of funding by each layer of government. That will save potential future arguments between the federal and state governments that exist under the current funding arrangement. In that sense, it is good for the federation. It also separates the funding responsibility and operational responsibility. So the state and territory governments will be accountable for hospital outcomes.

Further, it was never a good approach to take money from the States and brand it as Commonwealth funding that was the sticking point with the Rudd package last year. Asking the states to give up 30% of their GST revenue to give that to the Commonwealth and to enable to have 60% of funding was simply a very crude political joke.

But there is still the question of hospitals versus primary health care and the cost shifting between them. Better primary care can reduce the high hospital rates existing now and reduce hospital costs.

The states and territories are unlikely to give up their control over their own potion of the health fund. More importantly, they don’t want their funds redistributed among the states and territories. So it is highly likely that it will be either a single fund in name only with eight separate accounts, eight separate pools, or nine (8+1) pools.

The efficiency argument can be empty without substance if the rise in hospital costs is from increasing demand. Further the concept of efficiency funding is easy to say but very difficult to do.

Wages are different between the states and locations within a state. Transport costs are different. Other costs can also be affected by location within a state and between the states. So the notion of a single efficiency price does not exist in reality. You can only compare likes with likes. You cannot compare pears with apples.

It is likely there are many efficiency prices for the same medical treatment between hospitals across different locations and states to reflect those underlying cost differences beyond the control of individual hospitals.

These kinds of cost differences are best reflected in the costing of state services by the Commonwealth Grants Commission in its work to distribute the GST revenue among the states and territories.

Whether it is the Productivity Commission, the proposed to be created newly independent authority or another agency to do the efficiency pricing, it will be a difficult job and there will be a lot of arguments from different states and different hospitals on how their efficiency price needs to be higher.

The jury is still out on whether Gillard can deliver and the crucial test if the single national funding pool where it is likely that serious problems can arise.


MRRT should be given to the states

Comments on Rob Burgess “Gillard's risky MRRT splurge”, 14/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-politics-government-MRRT-mining-heal-pd20110214-E2RW6?OpenDocument&src=sph

Maybe a compromise for the use of the mining tax inclusive of state mining royalties is that a proportion of the total revenue be spent on current expenditure and the rest being put into a future fund.

It is difficult for the current governments to put aside all the mining revenue for future use.

But it is also prudent and indeed a must to have this resource rent that is depleted for the use of future generations.

Hence the compromise comes.

However, the federal government got it wrong in the first place in terms of the RSPT and MRRT - it simply is grabbing the revenue from the states and use it for its own purpose, as opposed to propose to put it aside for the future.

It shouldn’t have done that way.

On the one hand, it pressures the states by saying that their future revenue is not enough to foot the health bills, on the other hand it chokes the states off one of their very important own revenue source, that is, mining royalty in the guise of RSPT or MRRT.

Strictly speaking it is not a reform for the benefit of the nation, but a revenue grab by the federal government!

Can you have poorer government than that?

The Australian becomes a business lobby on carbon

Comments on The Australian “Towards certainty on carbon”, 14/02/2011, http://www.theaustralian.com.au/news/opinion/towards-certainty-on-carbon/story-e6frg71x-1226005389774

The quality of this editorial by the Australian is highly questionable.

For example, in the second paragraph, it seems to suggest or imply that that a carbon tax is not a market-based efficient approach. What a joke it is!

The second point the editorial misses the point is when it says: the government is opting for a "real-world approach" that will include compensation for the coal and electricity industries.

Why should they be compensated while the residents/consumers pick the higher power bills as a result of the carbon tax?

It sounds just like a business lobby from a special interest group!

PS: The Australian online should be commended for allowing comments on its editorials, albeit only for a limited ones instead of all its editorials.

Editorials reflect the editor's view. Whether that view is of high or low quality is out of the editor's hands. So it is useful to the editor to get some feedback by allowing comments.

Gillard health model signed but not sealed

Comments on Matthew Franklin “Strong stand on scrutiny shows PM's mettle”, 14/02/2011, http://www.theaustralian.com.au/news/opinion/strong-stand-on-scrutiny-shows-pms-mettle/story-e6frg6zo-1226005398639

Is this another copy of the mining tax fix just before the last election to show Gillard can achieve as the PM?

Since then we have seen 'all' is not all drama in terms of the mining tax promises.

Subsequent election see Gillard lose the majority and she negotiated very hard with broken promise on carbon tax to just get the Greens and some independents on side to form a minority government.

What is likely to come after this heads of agreement?

One has to wait and see.

But I would bet that the national pool is unlikely to be different from the previous eight pools in practice.


A long way ahead for Gillard on her model of carbon

Comments on Dennis Shanahan “Aggressive Labor pressures Greens”, 12/02/2011, http://www.theaustralian.com.au/news/opinion/aggressive-labor-pressures-greens/story-e6frg6zo-1226004698801

It is only the beginning rather than the end of the difficult negotiations the minority Gillard government has to do with the cross benches, including the Greens on both houses of the parliament.

The government, of course, does not want to capitulate at the beginning to the Greens.

Its climate change advisors of course does not want to see that either.

But the current starting stance does not guarantee any end result will be anything like it.

I think it will be difficult in two major points:

1. The no target approach does not appear to be tenable, both domestically and internationally.

2. The huge amounts of subsidies to the mining and power industries don't appear to be reasonable, given that it is the consumers who will bear the rising costs of electricity and energy.

Both would not probably be passed by its own advisor.

The government will have to make big changes or concessions on both to satisfy the Greens and the pubic.

Further, the fixation with an ETS is irrational. So the hybrid model is ridiculous.

If a carbon tax works, why is there any need to move to a more costly and less coverage ETS model?

Transprent health funding commit both layers of government

Comments on Adam Cresswell “Shortcomings aplenty in tempting proposal”, 12/02/2011, http://www.theaustralian.com.au/news/opinion/shortcomings-aplenty-in-tempting-proposal/story-e6frg6zo-1226004693697
It is so misleading to talk about 50-50 funding when it is only applied to growth funding instead of the total funding.

I think the proposed single national pool of health fund may not be accepted by the states - they are unlikely to give up the control of their money.

An acceptable model is for the federal money to be operating in the single pool model that Gillard has proposed and leave the states' money to the states to manage their own money and adopt the national reporting and efficient funding at least for the federal funding part.

The federal government can, together with the states, implement the reforms of transparency and efficiency funding.

It can also demand the states their 50% must exclude their bureaucratic health administration costs.
This fixed funding model commit both layers of government in terms of funding. It also saves the difficult negotiations between the two layers on funding in the absence of a transparent model.
The federal government needs to make sure that it will not reduce its share of contribution to health funding.


Garnaut and Ergas on the economics of climate actions

Comments on Henry Ergas “Climate adviser misses the point”, 11/02/2011, http://www.theaustralian.com.au/news/opinion/climate-adviser-misses-the-point/story-e6frg6zo-1226003951163

While the logic that Henry Ergas has used is apparently and seemingly appealing, especially the discount approach for costs and benefits of climate actions, there is deep hole somewhere in his article that may heavily discount the powerfulness and persuasiveness of his whole thesis.

To start with, he didn’t not assess the likely scenario that although an international agreement for all international players to act may not be reached as he suggests, many countries may still take actions to have a measurable effect on climate change.

The second point is that he didn’t examine or analyse the possibility that Australia could take ‘unilateral’ actions that is trade neutral and therefore will not change too much Australia’s international competitiveness, especially when trade is concerned.

Third, he didn’t examine and analyse the likely advances in alternative energy technologies in the future and the impact on the costs of emissions mitigations, and the continued long term benefits of climate change actions – they are not just one year but will continue forever. Both can change the result of cost and benefit analysis of climate change actions.

Fourth, he didn’t examine and analyse the real costs of the likely depletion of fossil fuels. It is highly likely that market mechanism alone may significantly underprice the current use of fossil fuels.

PS: However, the above does not necessarily mean automatic endorsement of the Garnaut recommendations.

There are issues with trade neutrality and revenue neutrality, as well as carbon tax versus ETS that the Garnaut report or updates may have been rather unsatisfactory and disappointing.


Current international monetary gaming

Comments on Karen Maley “Prisoners of global inflation”, 10/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/China-US-global-inflation-Bernanke-pd20110210-DWS4D?OpenDocument&src=sph

A small point in the international monetary gaming.

While China may be regarded as having no monetary independency with its currency fixed to the $US according to the conventional economics textbook, China is not a conventional economic entity that operates as the conventional textbooks assumes.

For example, China tends to use credit control (and sometimes through administrative orders), as compared to interest control as the main tool of monetary policy to control money supply. So it has considerable room of monetary autonomy even with a fixed exchange rate regime. One can buy off the $US to increase money supply and reduce credits to reduce money supply at the same time with little expansionary money policy, should one wish to do so.

The second thing is that when the excessive $US flows to China, the Chinese monetary authority can simply shifts it back to the US by buying more US securities, or other countries securities. That translates the excessive international liquidity back to the US or to other countries.

So Bernanke can’t simply win out of this simple monetary game for two reasons. One is that inflation pressure will build up in the US and force him to act to raise interest rate and to reduce liquidity that is money supply. The other is that international pressure against loose US monetary policy will increase and international politics will come back to bite the US authorities to cease its loose monetary policy.

Swan and Gillard's low lines

Comments on Wayne Swan “Levy helps us to pay as we go”, 10/02/2011, http://www.theaustralian.com.au/news/opinion/levy-helps-us-to-pay-as-we-go/story-e6frg6zo-1226003217719

Swan is repeating the line that "Even someone on an annual income of $80,000 will pay only $2.88 a week - less than the price of a cup of coffee." But a one per cent increase in Medicare levy is more than 2 or 3 per cent increase in their tax bills.

He ignores the fact that the $1.8 billion is about 0.5% of federal revenue. And more importantly, it is less than the waste the federal government has done in its BER programs, along!

He and Gillard have been saying in terms of how many cups of coffee for those being hit, but they just hid the fact or the picture in percentage terms.

They conceal their poor management of taxpayers’ money.

How hypocritical is that!

It appears that Gillard and Swan have been trying to divide and conquer the public and taxpayers by this levy.

They divide states against states.

They divide taxpayers against taxpayers.

It is trickery in behaviour.

It is low politics.

It is demeaning.

PS: Swan says “Levy helps us to pay as we go”. It could also be said "Levy helps us (the government) to manage as they waste”.


Not OTS but better governance by government and politicians needed

Comments on Ziggy Switkowski “Take politics out of assessment”, 9/02/2011, http://www.theaustralian.com.au/news/opinion/take-politics-out-of-assessment/story-e6frg6zo-1226002437243

While it may be attempting to establish a similar organisation to OTA model, we should realise that there is a significant degree of public goods nature of those agencies and it may not necessary to have such an agency in Australia after all. One can use those public goods when considering issues.

You have government departments. You have Productivity Commission. You have CSRIO and the alike. There are enough bureaucrats to do the things that Ziggy Switkowski argues for.

You don't need to inflate the bureaucratic agencies even further to make the government decision making more efficient!

The government has enough resources to make the right decisions if it so chooses. The problem is that many governments just don’t want to make the best decisions for the nation but for their own interests!

We have the Productivity Commission, but the government has chosen not to have the NBN studied! Was that because of lack of resources? Definitely not!

The real issue is to make the politicians work in the nation’s interests, not in their own interests!

How can we achieve that? That is what both politicians and the public should focus their attentions on.

We need to find better ways.


Fahey is good choice - both for politics and business

Comments on Joe Kelly “John Fahey makes 'no carpetbagger' pledge on disaster reconstruction”, 8/02/2011, http://www.theaustralian.com.au/in-depth/queensland-floods/john-fahey-makes-no-carpetbagger-pledge-on-disaster-reconstruction/story-fn7iwx3v-1226002023187

Fahey is a respected figure on the other side of politics.

It is good politics and business by the Gillard government to have him oversee the reconstruction fund from the federal government.

It would be even better politics and business for Gillard and her government if she now allows the Productivity Commission, with the support of the Communication department, to review the NBN policy.

Gillard is bold enough to change the Rudd era health agreement with the states.

She would strengthen her leadership greatly if she does the same for the NBN.

And the savings would be also tremendous and long standing.

PS: Increasingly more and more communication experts have voiced their opposition to the government's NBN project. Today's article by Ian Martin on the Australian online, entitled "Tied to cable yet future is wireless", follows yesterday's piece on the Businessspectators online.

Gillard should wake up and act decisively and quickly on this hugely and extremely important matter, with billions of dollars at stake. More importantly, at stake is Labor’s credibility of economic and business management skills, and Gillard’s leadership.

Now is a perfect opportunity for her.


Only the title of Cohen's article is correct and at half at best

Comments on Barry Cohen “All Australians are entitled to be insured against natural disasters”, 7/02/2011, http://www.theaustralian.com.au/national-affairs/all-australians-are-entitled-to-be-insured-against-natural-disasters/story-fn59niix-1226001071520

While your idea of government help on insurance may attract some applauds, it will in fact make the matter worse and will result in more losses of lives and properties.

With government assistance on insurances, people may falsely think that they will be safer and may take less responsibility to take the most appropriate measure to mitigate risks to natural events.

Government must learn lessons from those natural disasters. But there is the right way and wrong way to lean them.

Government should never encourage people to take unnecessary risks and should never create moral hazard problems for the public and taxpayers.

Instead, it should provide sufficiently the required and appropriate information for residents to make the correct decisions as to where to live, to buy and/or build their properties and bear the consequences of their own decisions.

Further, your idea that the costs of some government or local councils decisions or mistakes should be shared by all taxpayers is grossly unfair to those governments or councils that have done the right thing and those people who have avoided to take those risks, or insured by themselves out of their own pockets.

Complex history and relations of China and Mongolia

Second comments on Justin Li “Chinese investment in Mongolia: An uneasy courtship between Goliath and David”, 2/02/2011, http://www.eastasiaforum.org/2011/02/02/chinese-investment-in-mongolia-an-uneasy-courtship-between-goliath-and-david/#comments

Questions for Bold (who posted a comment there on 4 Feb 2011):

While the Mongolians may be bitter in terms of the parts lost which they may think belonged to them, much more Chinese may think that Mongolia should have never been allowed to split from China. And indeed many mainland Chinese have been very bitter towards the communists and the communist government that had ‘agreed’ to the independence of Mongolia in the first place.

In that context, the Mongols should be grateful to the Chinese communists and the communist government, because the other major political party in the last century in China was the Gomindang that is now in government in Taiwan and it has been said that they did not accept Mongolia’s independence. Should they be in government in the mainland, they may still want Mongolia back to China!

It is true that the Han Chinese and Mongolians may have fought each other for many centuries, but it is equally true and a fact they became one for hundreds of years until the Mongolia’s succession from China in the first half of the last century, whether it was the Mongols conquered China or China colonised Mongolia does not matter much. The time they were one is longer than the time the history of the current USA, and certainly than current Australia!

It is clearly difficult to evaluate the opinion polls you cited without knowing the detailed sources of those polls.

But for many Chinese, both mainland and in Taiwan, they may not trust those polls and the purposes of those Western organisations. They may think some Westerners simply want to divide China and make it weaker. And by that logic, they suspect that some Westerners clearly don’t want to see China becomes any territorially larger.

Bernake will have more international opponents to its policy

Comments on Karen Maley “Bernanke's inflated rhetoric”, 7/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/Bernankes-inflated-rhetoric-pd20110207-DTS77?OpenDocument&src=rot

I think international monetary game is not played just between the two largest economies, namely the US and China.

The US can use loose monetary policy as a tool to try to export its domestic economic problems.

China can use nearly fixed exchange rate to counter or neutralise this effectively competitive devaluation.

For China, while inflation can pose a serious problem, its effects can be partially offset by rapid wage increases, albeit it will be a double edged sword for even higher or persistent inflation in the future.

So the end result in terms of the relative competitiveness between the two countries does not change much.

But the effects will be felt by the US and China in terms longer term inflation in both countries.

Further, any countries with flexible exchange rates can feel the effects of low $US and the rmb on their economic growth, even though they may have a problem with deflation as opposed to inflation.

Rising commodity price is inevitable, as a means of international adjustment to income realignment as a result of the rise of large emerging economies and their rise demand for almost everything.

How that income realignment will affect the international economic structure and employment is yet to be seen.

It may be that the unemployment will be persistently high in the US for some time to come. That, through its impact of its fiscal affairs, can further erode the international competitiveness of its other industries.

Change the NBN plan now

Comments on Andrew Harris “Bringing NBN investment undone”, 7/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/NBN-Co-business-case-wireless-Gillard-Yasi-pd20110204-DQVU4?OpenDocument&src=sph

It is high time for the government to drastically change its NBN plan to a much more economically competitive one.

It should go back to the initial plan of to the nods before the current NBN concept to homes.

It should leave to the private sector for the rest part of any connection to homes using whatever the most competitive technologies are. It may be a combination of fibre to the home for some, or use the existing copper to the homes, or wireless with newly built fibre infrastructure as the its support, or even use the newly built fibre infrastructure for a small area wireless facilities, as well as use satellite wireless.

What this means is that it should only proceed with a flexible plan of fibre for the long haul and backbone infrastructure.

If Labor continues with its current NBN plan, it will waste tens of billions taxpayers money. That is not only extremely irresponsible, but also border to economically criminal behaviour.

For that matter, politicians who continue to support the current NBN plan in the federal parliament will be equally guilty.

Both the Greens and MCA must play positive roles in pricing carbon

Comments on Sid Maher “Greens, miners hit carbon bid from both sides”, 7/02/2011, http://www.theaustralian.com.au/national-affairs/greens-miners-hit-carbon-bid-from-both-sides/story-fn59niix-1226001110919

While the Greens attitude towards the mining industry is wrong and hardly sustainable, given the role of the industry plays in the Australian economy and its contribution to Australians' economic fortune, the MCA also needs to be careful about its tactics.

The MCA should be positively participating in the process of pricing carbon, as opposed to an opposition to it.

What it should do is to ensure that a competitive carbon price that can achieve emissions reduction but does not disadvantage Australian industries in their international positions.

In that regard, it should argue for trade neutrality of carbon pricing. It should also argue for a consideration of the carbon pricing on the proposed new mining profit tax to avoid double hit on the mining industry.

It, however, should not unreasonably ask for subsidies to the industry.

Carbon emissions reduction has been on the agenda for many years. The Kyoto Protocol, an international agreement on emissions reductions, has been in place for more than a decade.

Any industry, or firms should have taken that into account in terms of investment decisions. There is little ground for any of them to ask for subsidies or compensation.


Gillard's changes for changes sake?

Comments on Dennis Shanahan “Just the latest Rudd project to be junked”, 5/02/2011, http://www.theaustralian.com.au/news/opinion/just-the-latest-rudd-project-to-be-junked/story-e6frg6zo-1226000468745

This reflects very badly on all the federal Labor involved in the various Rudd era projects/reforms, including Gillard then as the deputy PM, Swan as the Treasurer, Roxon as the health minister.

It also reflects very poorly on top federal bureaucrats, such as the key people in PMC, Treasury and Health, given that they were closely involved in advising and developing those projects and policies/reforms.

Of course, it is still very early to know whether the changes will be good for Australia or not until the alternative plans are proven to be better. Having said that, the junk of some of the so called greens projects such as the cash for clunkers will be good for the nation as long as the alternative spending is managed well.

It appears, though, that Gillard, Swan and Wong may be more concerned with short term budget bottom line as opposed to real reforms that would create long term benefits to the nation.

Gillard needs to articulate clearly that her changes are not aimed at short term budgetary pressures but in the nation's long term interest.

She must do that with sound reasons and convince the sceptical public.


A bit too early for saying that now

Comments on Frank Jotzo “Climate change policy resurrected in Australia”, 4/02/2011, http://www.eastasiaforum.org/2011/02/04/climate-change-policy-resurrected-in-australia/comment-page-1/#comment-539990

It does not appear to be clear why the following is the case:

"For carbon pricing design, a fixed-price permit system that allows a later shift to market trading, as suggested by the 2008 Garnaut Review, is receiving increasing support."

One would have thought that a carbon tax has increased its likelihood in Australia following the political development of the hung parliament and the role of the Greens with its preference of a carbon tax and no subsidies to big polluters.

And arguably, a carbon tax is superior to a trading scheme where some emissions are hard to be included in a scheme and the very high costs involved in any trading schemes. The fixation with trading schemes is hardly rational.

Secondly, while Professor Garnaut has made a strong argument that Australia's action will be in its interests, yet many Australians may still need to be convinced.

Garnaut's argument relies heavily on two points: 1. Australia's approach to other international issues including sending troops to overseas missions; and 2. Australia is a high per capita emission country and it is also likely to be more heavily and adversely affected by climate change.

The first one may have difficulties in that many Australians may not regard sending troops to Iraq as the right action.

The second one has to depend on international players will follow if Australia is to take actions. But there is not necessarily guarantee for that, especially given the US domestic political situation.

In my view, a moderate carbon tax that is revenue neutral and trade neutral will be most efficient and is likely to gain greater support from voters. And it is in Australia’s interest too.

Revenue neutral should be accompanied by equal per capita distribution of the revenue from the carbon tax to Australia residents, but businesses should not be compensated given that they can pass part of their costs to residents, the consumers.

Trade neutral should ensure that Australia's tradable sector is not unduly affected, if other countries are not real taking actions.

About new GDP estimates

Comments on Arvind Subramanian “Is China already number one? New GDP estimates”, 3/02/2011, http://www.eastasiaforum.org/2011/02/03/is-china-already-number-one-new-gdp-estimates/

The size of the Chinese economy may be catching up with that of the America's in PPP terms, but it is probably not quite close to that point yet.

It is unclear whether your calculation is correct, given that some and possibly a large portion of the Chinese growth from 2005 to 2010 is from tradable sector - it implies that its PPP growth should be lower than its headline GDP growth.

If my reasoning is correct, then the part you didn't say but probably used in your calculation may have overstated China's PPP level.

Gillard needs a change of soul

Comments on Dennis Shanahan “Back to work junking two-speed economy”, 4/02/2011, http://www.theaustralian.com.au/news/opinion/back-to-work-junking-two-speed-economy/story-e6frg6zo-1225999763767

The key to achieving those policy objectives is to have a flexible and efficient workforce that is appropriately incentivised and rewarded through a low and flat tax, together with some regional and sectoral reorganization.

Government should create the most conducive environment for people to learn, re-skill, work in and move to most reward sectors and locations.

To complement that, if there is a real labour shortage, with temporary working visa with no permanent residency attached.

If the record is a guide, the current government is not well positioned for achieving those goals. It has the class warfare mentality - to tax the rich (high and middle incomes) and to provide high welfare to others. That mentality and approach to governance is unlikely to be compatible with Gillard’s recent apparent policy shift.

The flood levy, for example, clearly and unambiguously demonstrates this point.

Unfortunately, Gillard is captive to this outdated Labor ideology.

How Australia should act on climate change?

Comments on Graham Lloyd “There's good news and bad news”, 4/02/2011, http://www.theaustralian.com.au/news/opinion/theres-good-news-and-bad-news/story-e6frg6zo-1225999813436

There are a number of things that are fairly clear.

1. Australia needs to take actions.

2. Carbon tax is the most efficient means to do it.

3. It should start with a low price and needs to be responsive to international actions.

4. It needs to be both revenue neutral and trade neutral. The government should never use the carbon tax as a means of revenue grab, bribe businesses and for income distribution purpose.

5. People, as opposed to businesses should be share the revenue from the carbon tax, since they own the environment and they can't pass on costs of higher energies to others while businesses can, at least partially.

6. There should be a carbon tariff and refund mechanism for trade with no carbon action countries.

PS: While Australia is used to very lengthy reports running hundreds or even possibly thousands pages, many issues are not that complex to tackle. What is needed is a bit of sanity and common sense.


Mongolia needs to come out of isolation

Comments on Justin Li “Chinese investment in Mongolia: An uneasy courtship between Goliath and David”, 2/02/2011, http://www.eastasiaforum.org/2011/02/02/chinese-investment-in-mongolia-an-uneasy-courtship-between-goliath-and-david/

Energy and commodities are highly globally traded products, and there is no need to diversify for diversification's sake.

No matter how diversification could be done, China is the largest user and importers for many commodities and that does put a limitation on diversification.

Rather than fearing being too dependent on China, Mongolia needs to meet the challenges associated with its geographical location by joining regional organisations and participating in regional and global economic integration and be an organic part of it and benefit from it.

There is no easy escape from economic integration into isolation and benefit from isolation.

If Mongolia continues to resist regional economic integration, it runs the risk of paying a high price.

PS: It is interesting to see that now Mongolia is afraid of Chinese influence while in history the Mongols conquered China and ruled it for hundreds of years.


Gilalrd needs to show leadership

Comments on Dennis Shanahan “Delivering on a good plan will be the test”, 2/02/2011, http://www.theaustralian.com.au/news/opinion/delivering-on-a-good-plan-will-be-the-test/story-e6frg6zo-1225998370997

Gillard's vision and plan for her government is commendable, though the key issue is whether they can be carried out as she planned in her speech.

The government's record is not very reassuring. Her record since becoming PM hasn't either.

Despite that, let's hope Gillard can deliver this time, this year and this term.

That is the chance for her. She’d better grab it.

Start with a meaningful carbon tax, then proceed with solid and meaningful tax and welfare reforms to provide better incentives for people to work, earn and save more.

Another example of poor analysis by commentators

Comments on Ross Gittins “Floods expose national loss of loyalty and respect for leaders”, 2/02/2011, http://www.smh.com.au/opinion/politics/floods-expose-national-loss-of-loyalty-and-respect-for-leaders-20110201-1acbw.html?posted=successful

This is another piece of commentators' poor analysis, similar to that by Peter Hartcher today.

It is so shallow!

Why don't mention the very high ratings of Rudd, before he fell on his own sword?

He, as the national leader of the time, had a lot of national loyalty and respect.

Why Gillard does not have the similar degree of national loyalty and respect?

You should clearly ask her for the reasons and answers, though hers, similar to yours, may not necessarily be accepted by the public.

Loyalty and respect are two way street – both the leaders themselves and the public. If a person does not demonstrate he or she should be given loyalty and respect, why do they deserve them?

Clearly, Gillard so far has not demonstrated that effect yet. What she has done is the contrary.

The flood levy has shown a poor leader cared for only her government or unable to move out of her incompetent political colleagues in terms of policies and strategies.

Maybe it also reflects her deep classical approach to income distribution and her desire to hit the rich and the not so rich! If that is true, it would be more dangerous and would drag Australia backwards many decades.

It is simply and absolutely no need for such a levy at this time.

To institute such a poor levy, and shamelessly arguing that at booming times needing budget surpluses is so hypocritical!

Not all government reforms are good for the nation!

Comments on Peter Hartcher “Give us $52m, and we will decide who runs the country”, 2/02/2011, http://www.smh.com.au/opinion/politics/give-us-52m-and-we-will-decide-who-runs-the-country-20110201-1aceo.html?posted=successful

The article, while interesting to some, demonstrates the shallowness of some commentators in their analysis.

While it is not wrong to call any changes a government makes reforms, it is misleading to imply all reforms are good for the nation.

Just consider Peter Hartcher's concluding statements: "One of the central reasons that Australia's economy is outperforming the entire developed world at the moment is that we had two decades of bold reform. The reform era has been ended cheaply for unions and capital, but at enormous potential cost to Australia."

Howard lost his last election not because of Unions campaign advertisements, but because of its own longevity and his stubbornness to pass the leadership to younger ones. Voters were tired of Howard, and his IR reforms went too far for many voters' comfort.

Rudd lost his PM position, not because of miners’ advertisement campaign against the RSPT, although that was the last straw. The RSPT itself, of course, was poorly designed and the processes deeply flawed, a reflection of his management style of strong control and leadership shortcomings of lack of consultation.

He essentially lost his own credibility long before that. And his management style and leadership skills did help his fortune at the late stage of his Prime Ministership.

So, in both cases, there were much more fundamental reasons why each of them lost the leadership. Saying their lost means losses of reforms at enormous potential cost to Australia is simply misleading at the best.

OF course, Peter Hartcher appears to be politically biased towards the current government.

Is this a disguised show of support?


Better ways to milk the BHP cash cow

Comments on Stephen Bartholomeusz “Milking the BHP cash cow”, 1/02/2011, http://www.businessspectator.com.au/bs.nsf/Article/BHP-Billiton-Rio-Tinto-copper-gold-iron-ore-pd20110201-DN3SR?OpenDocument&src=sph&src=rot

It appears that the big mining companies might need to establish capital assets management teams within.

Clearly they have the expertise in their own mining industry.

But they probably lack the expertise to fully take advantage of their cash or liquid assets and the world equity markets over both shorter and media terms.

Further, this type of assets management teams can combine the flexibility of movement between equity markets and merger and takeovers to generate returns that are not available without such synergy. It is the economies of scope, perhaps.

In that respect, Telstra is probably in the same basket in terms of cash flow, although it should have diversified much earlier.

Globalisation fruits

Comments on Michael Stutchbury “Globalisation's fruits sweet and sour”, 1/02/2011, http://www.theaustralian.com.au/business/opinion/globalisations-fruits-sweet-and-sour/story-e6frg9p6-1225997666249

In Australia we talk about the two speed economy associated with the mining boom.

The mining boom is a result of the two world speed economy, one booming large developing economies and the more industrialised economies.

The world economy is and will continue to display very different dynamics over the next two decades as Asian economies continue to achieve high growth.

This world economic dynamism has just caused a re-alignment of world prices including wages, but its impact on that process will be increasingly greater and accelerated over the coming years.

It is likely to be a significant change in wealth allocation in the sense that some developing countries will be able to buy assets world wide more cheaply while most industrialised countries will have to pay comparatively more for their needs.

The euro zone will pay a greater price for its inflexible monetary system than if it were not a monetary union of fiscally independent countries.

There will be larger labour movement from more problematic countries to more sound economies in the euro zone. That movement could be smaller under a more flexible monetary arrangement. That forced larger labour movement will cause more dislocation of other resources that is why it is suboptimal financial arrangement.

However, even if the euro zone can overcome this crisis without too much damage on itself, then in the longer run, its member countries will be forced to be more prudent in their individual fiscal affairs and possibly more coordination between the members.

ERA rating again

Comments on Luke Slattery “Absence of top-flight experts”, 1/02/2011, http://www.theaustralian.com.au/news/opinion/absence-of-top-flight-experts/story-e6frg6zo-1225997725270

Presumably, the methodology and standard used are also released with the ERA release itself, so people can examine how the rating was done and how it could be improved in future ratings.

One area of particular interests is whether how different the standard is from the standard for only advanced/industrialised countries. The latter should be more comparable given the income and wage levels are similar among this group of countries.

Poorer countries have difficulties in attracting top researchers, as reflected as the brain drain phenomenon.

PS: see also my earlier comments on Professor Margaret Sheil's article today.

First Australian ERA rating

Comments on Margaret Sheil “Big picture reveals impressive achievements”, 1/02/2011, http://www.theaustralian.com.au/news/opinion/big-picture-reveals-impressive-achievements/story-e6frg6zo-1225997656630

Obviously, it is an interesting and difficult exercise and admittedly it is impossible to be perfect in rating.

A number of comments on general rating of research.

Firstly, what the standard used in this is matters a lot.

What is the world standard used in the comparison? Is it including all universities from both industrial and developing countries, or is it excluding developing countries in which most universities have lower standards?

Secondly, the staff to student ratio should also be considered as the impact of excessive burdens of teaching on research and incorporated in some way into the rating to have universities compete on the same footing.

A closely related factor is the cost levels of inputs, such as wages and salaries and capitals used.

Thirdly, some commercialisation of research may also warrant some consideration, as not all applied may attract the same citations in journals.