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How to fix USA Inc.'s Red

Comments on Mary Meeker “USA Inc.: Red, White, and Very Blue”, 24/02/2011, http://www.businessweek.com/magazine/content/11_10/b4218000828880.htm

It shouldn't be that difficult at all if the USA Inc can change its own thinking and behaviour to a more realistic level.

First, for example, if it does not continue the thinking it still has the means to keep its military dominance to the degree it has got now and reduce its military spending so just to be the same as the current world second largest military spending, then it can save a lot its taxpayer's money and contribute significantly to repairing its budget deficits.

It will not cause any security and defence danger to itself at all.

Secondly, it could take urgent actions in tackling climate change and reducing carbon emissions by applying a carbon tax and gradually increasing the tax.

This tax has dual functions: a. to join the other nations in action to limit adverse climate change or at least to act as insurance for the future of its citizens; b. it can raise revenue and reduce budget deficits.

They are only two of many options that the USA Inc has. The only question is: is it prepared to do the right and reasonable things?

A new way, new model and new framework to tap into the NBN possibility

Comments on Rob Burgess “A model to unlock NBN profits, 31/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/NBN-e-health-Medibank-Private-Jo-Wright-pd20110331-FFRUH?OpenDocument&src=sph

Dare I say that on top of that model, productivity can be further boosted by developing and applying more intelligent softwares to analyse and model cases such as a person's historical medical conditions to generate results otherwise not available or difficult to derive either on a consistent framework and basis or at all. It would be able to assist in the diagnose and form a whole integrated health wellbeing care in the medical case for example.

It will require the cooperation of experts in any fields and modelling and software professionals. But it will raise productivity and quality of many services to a whole new level.

Such a model would be truly an expert intelligence system.

Such an expert intelligence system can, of course, be applied worldwide, with even unprecedented economies of scale.

Reforming GST carve-up needed but no need to resort to misinformation

Comments on David Uren “PM warned over state tax reform, GST carve-up”, 31/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/pm-warned-over-state-tax-reform-gst-carve-up/story-e6frgd0x-1226031000584

While a review of the horizontal equalisation system is overdue to make it keep up with other tax and economic forms and changes of time, it is important not to use wrong and misleading information on the current methods and principle of equalisation.

The report says - "If governments, through their policy decisions, wind up raising more tax, or lowering their costs compared with the average, they lose GST revenue."

It appears that this statement is problematic at the best and is incorrect and wrong and misleading at worst.

My understanding of the Commonwealth Grants Commission's principle and methods suggests that the above statement is untrue and false.

The CGC reports indicate that states with an above average effort in raising tax revenue are allowed to keep that part of the revenue from redistribution.

Equally, states operate more efficiently than the average in providing services are allowed to be rewarded for that efficiency gain as opposed to be punished as the report says.

The CGC states it achieves this by assessing each state's revenue 'capacity' and 'costs' of services using the state average tax effort and average efficiency in service provisions irrespective a state's own effort and efficiency.

PS: The CGC principle and methods, however, rely on full equalisation not only on revenue but also on expenditure, that differs and distinguish itself from most other federations' equalisation approaches.
For example, in both Canada and Germany the scope of fiscal equalisation includes only revenue but not expenditures,. Further, neither fully equalise revenue to 100%.


Post Hillary era

Comments on Ernest Bower “‘After Hillary’ era concerns Southeast Asia”, 30/03/2011, http://www.eastasiaforum.org/2011/03/30/after-hillary-era-concerns-southeast-asia/

It is interesting to see that Ernest Bower talks as if deficits are not part of the national interests!

Deficits, especially government ones, are a deep problem for the US, potentially for a number of reasons.

1. Should international investors lose faith on the ability of the US government to manage its deficits, then problems, not quite to the scale of Greece, and some other countries in the euro zone but nevertheless could be serious enough, will emerge.

2. Once international issues arise, then gradually it will turn to domestic political and monetary problems, because it will become difficult even for the Fed to use its QE tools.

3. The current abnormally unusually low interest rates cannot continue, and once interest rates return to their more normal levels, the burden of large government deficits will show and further exacerbate the deficit problems.

4. When the US government is forced to tackle budget deficit and cut it, services will be reduced and the Americans public will experience pains and how they will react to those pains will affect the US economy as well.

The point is that the US has enough problems at hand and the recent hesitations of the US president in dealing with the recent unrests in the Middle East and the Arab world, while criticised by many, is likely to be reflection of the constraints he has or foresees while others feel unburdened by any of those constraints can say the US should do this or that.

That is not too dissimilar to the situation in Australia where the Greens can be very radical and extreme in their views because they are not government and don’t need to balance the budget or face voter’s revolt over pains that would arise out of those extreme policy proposals.

The world has changed significantly and is having rapid and profound changes now and over the coming decades. In a changing and changed world, it is unlikely that the US will continue to have both the economic power and influence to continue its role as it has had so far.

It is a matter of wish and ability or capacity.

Whether that will be good or not so good for the world depends on two things: a. how the US behaves and b. how other big players behave in such a changed and changing environment.

MRRT, company tax cuts and personal taxpayers

Comments on Rob Burgess “We need better taxes, not bigger taxes”, 30/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/tax-reform-Bob-Brown-revenue-MRRT-mining-tax-pd20110330-FES3V?OpenDocument&src=rot

This article seems like a confused argument that may cause more confusions.

In terms of the relative position of Australian company tax rate, the article appears self defeating but refused to concede that it might be a case that it does not need to be lowered at present.

In terms of impact of mining and higher $A on the tax revenue from other businesses, the article lacks a coherent and consistent logic too.

If the tax revenue from other businesses were to fall by mining boom and high $A, then further lower the company tax rate will do nothing to keep the government budget unaffected or neutral or its integrity.

Even from equity point of view between business and labour, the argument for reducing the company tax rate only stacks up if businesses are indeed have to provide higher superannuation for employees without effectively lower employees wages or slowing the growth of them, so all taxpayers benefit from a lower company tax rate. There is no guarantee that employees will not be negatively affected or worse off in that process.

If it is to consider the future, then there is a strong point not to lower the company tax rate and instead to put the MRRT into a future fund.

To conclude, while it has been taken as a faith to lower company tax rate, the arguments in this article are not convincing.

Having said that, I find some attraction from its title.

Garnaut understands business realities

Comments on Dennis Shanahan “Garnaut ignores business realities”, 30/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/garnaut-ignores-business-realities/story-e6frgd0x-1226030335593

On this issue of compensation or no compensation to power companies, Garnaut is correct and right.

He should be applauded and supported whole heartedly on this point. Any suggestion that he does not understand businesses is a self serving spin from power companies and just ignores the fact he was the chairman of the former Lihir Gold as recently as a few months ago before it was taken over by Newcrest Mining.

Any argument in terms of effects of carbon tax on asset value is purely serving the interests of those companies that were aware of climate change and the likelihood of actions to reduce or limit emissions, including potentially a carbon tax.

If they were to be compensated, how should the consumers be compensated for higher energy prices due to actions on emissions?

No matter how a compensation scheme including for consumers is designed even when all the revenue from the carbon tax is returned to consumers exclusively that would leave each and every consumer's norminal income unchanged, it cannot change the fact that their purchasing power will be reduced when they have to consume energy at a higher price.


Population growth definitely not essential for our large capital cities

Comments on “Population growth 'essential for capital cities'” reported by Jennifer Hewett, National affairs correspondent from The Australian, 29/03/2011, http://www.theaustralian.com.au/business/opinion/population-growth-essential-for-capital-cities/story-e6frg9if-1226029658946

There is nothing essential at all in that, namely "Population growth 'essential for capital cities'"!

It defies common sense, logic and facts in Australian largest cities, leaving aside small capital cities such as Darwin, Canberra and possibly Hobart.

Why can’t a constant population be good or better than a growing population for capital cities, given that it is per capita output or the productivity that matter to people’s living standard, and there are already significant infrastructure problems that cause traffic jam, poor and expensive housing and living conditions in our large capital cities like Sydney?

If the Urban Taskforce Australia a special interest group tied to some businesses that just want to pursue more and extra profits with little regard to living conditions of the average Australians?

Or is it a government agency?

If the latter, it needs to consider whether its methodologies are correct or not.

To me it is a poor and biased report with a wrong focus. Clearly, it has ignored the views and suffering of the residents in large capital cities.

It is interesting that why there is so little opportunity in Australia for the public to participate in public forums to air their views for this issue or to debate those special interest groups or even public agencies.

It is a pity and it is disappointing only those minorities representing businesses that have the opportunity to lobby and influence the government or bureaucrats!

John Lee's confusion of short versus long terms

Comments on John Lee “Haunted by China's ghost cities”, 29/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/China-property-Australian-economy-pd20110325-FA9SR?OpenDocument&src=rot

It seems that John Lee may have either inadvertently and unknowingly, or intentionally and wilfully confused two important issues that have quite different implications, that is, the shorter term and longer or long term of Chinese housing market and urbanisation.

He mentioned that “a small but increasing number of notable investors such as Jim Chanos and Garry Shilling are shorting China”. To me those investors are more likely to look at the short term but very unlikely to look at the longer term, especially when the purpose of those investors is “shorting”. The fact is that some financial investors can change their position from long to short or vice versa very quickly.

It remains a fact that there is still a very large proportion of Chinese, far exceeding that in any of the industrialised countries now, living in rural areas and as Chinese industrialisation proceeds further they will become part of the urban resident cohort – that is, part of further urbanisation. That longer term urbanisation trend in China is unlikely to be disrupted by shorter term housing market corrections.

And dare I say that the big miners are looking at the longer term trends as opposed to shorter term fluctuation in the markets for their investments in mines and mining production.

By confusing those two very different issues unfortunately, John Lee is confused himself and is confusing others at the same time.

I would predict that it is extremely unlikely that any big miners will employ him to assist in their decision making.

However, there is a limit to industrialisation and urbanisation in any country including China. Besides, once industrialisation and urbanisation is complete or near complete, the demand for commodities may well fall, sometimes significantly. That obviously needs to take into account in any long term mining investments and metal production and supply.

PS: it appears that John Lee likes to paint China negatively in almost everything, that is probably a form of serious bias. And that is likely to result in mistakes in his analysis and conclusions in most of the times.

Price carbon easier for a country than for many countries in the world

Comments on Martin Feil “The truth is, you can't put a price on carbon - no one can”, 29/03/2011, http://www.smh.com.au/opinion/politics/the-truth-is-you-cant-put-a-price-on-carbon--no-one-can-20110328-1cdei.html?posted=successful
I have difficulties in understanding Martin Feil's point.

Yes, it is true that Australia can't put a price on carbon in the world as a whole, but it can put it in Australia, can't it?

It would be a huge task and would involve a lot of assumptions that may not necessarily be reliable to model the world carbon price, but it should be a fairly easy matter to model a price on carbon in Australia alone, shouldn't it?

I hope Martin Feil clarify his points in the post to clear the confusions generated from it.

Need to fundamentally reform federal financial relations

Comments on George Williams “O'Farrell needs to prove that states can do things better”, 29/03/2011, http://www.smh.com.au/opinion/politics/ofarrell-needs-to-prove-that-states-can-do-things-better-20110328-1cddj.html?posted=successful

It is true that money is the key determinant in the federal state relations.

Assuming that will continue to be true into the future, then what the states should and can do is to renegotiate with the federal government to iterate the state's role in many of the existing services and to realign revenue responsibilities between the two levels of government to relinquish some of the federal's financial power over the states by specifying more revenue sources transferred to the states as their own revenues.

For example, the MRRT is a resource rent tax, that is, a mineral royalty supposedly to be in a more efficient form, should belong to the states. Equally, the states should be given a fixed share of the income taxes, agreed by inter-governmental agreement, or a constitution reform, should it be necessary.

Past experiences from the performances of both federal and state governments indicate that each of them has provided poor services and wasted taxpayer’s money and neither has been perfect. For the federal government, the wastes and some disasters in the more recent pink batts and the BER programs have demonstrated its serious deficiencies in providing services.

Only when the financial resources of each and every level of the two levels of government in Australia are guaranteed to be adequate to the tasks of services, the Australia federation would function properly and in the most efficient way to provide the best services to all Australians.

There is no point for either the federal or the states to have an unfair advantage over the other, especially from the financial point of view.

While health reforms, education, infrastructure can all be short term targets for O’Farrell to work on in his fight with the federal government to reclaim state rights, he, and all other state and territory leaders should set their eyes on the longer term solution.

PS: of course, these fundamental reforms in the federal financial relations should be considered in the overall tax reforms that may include reforms to some state taxes to make the tax system more efficient and reduce distortions.

A potential structural deficit in using MRRT to fund company tax cuts

Comments on Joe Kelly “Industry attacks Greens vow to oppose company tax cuts”, 29/03/2011, http://www.theaustralian.com.au/national-affairs/industry-attacks-greens-vow-to-oppose-company-tax-cuts/story-fn59niix-1226029856403

Leaving aside whether the Australian company tax is international competitive or not, the tax cuts to company tax rates MAY ACTUALLY COST more than the MRRT would collect.

Remember that there are reports that the big three mining that did the deal MRRT with Gillard might not believe the MRRT would collect as much as Treasury study forecast? They are big companies and it's their money at stake, so they were unlikely to have made a mistake in their calculation. I'd bet they were/are correct.

Further, remember Treasury's number changes in the tax revenue estimates between Rudd's SPRT and Gillard's MRRT? It was suspicious then and it is still suspicious now. It looked like a joke and it has been one.

If an independent audit was done for the Treasury estimates, it would shed some light on the issue.

All they suggest is that the MRRT will not collect the amount of revenue that the Gillard government has been saying.


Putin's opportunity created by the west

Comments on STRATFOR “Putin finds opportunity in Libya”, 28/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/Putin-finds-opportunity-in-Libya-pd20110328-FD682?OpenDocument&src=sph&src=rot

Although many people in the west support the military operations including bombing government ground limitary facilities, assets and troops, it may eventually turn out to be disastrous for the world as a whole including the west countries.

Libya and many other middle east and Africa countries are likely to experience much more instabilities and unrest. Civil wars as well as anarky are likely to occur in some of those countries.

World oil price will be much higher than otherwise.

Further, the influence and power of the US in the middle east and Africa is likely to diminish rapidly once those governments recognise that the US will give them away and not only switch supports to oppositions but also to facilitate military operations in support of oppositions, they will consider alternative powers for support.

Russia, China, India and Germany are likely to feel the void if the US loses its influence.

The US president was prudent in his hesitation of military actions, but eventually was hijacked by the French and the Brit leaders acted to divert their own domestic woes and overwhelmed by some US interest groups that seemed to have misjudged the situations in the middle east and the Arab world for short term gains, but at the expense of the US long term interests in the region and the world.

Interesting time lies ahead!

Power generators should not be compensated at all for carbon tax

Comments on Dennis Shanahan “Power generator InterGen tells Ross Garnaut to drop 'rhetoric'”, 28/03/2011, http://www.theaustralian.com.au/national-affairs/power-generator-intergen-tells-ross-garnaut-to-drop-rhetoric/story-fn59niix-1226029075815
Why should the power generators be compensated at all, given that the needs for or that talk of reducing emissions have existed for many years now?

Why shouldn't any commercial companies have already factored this in their investment decisions long ago?

It appears that the vested interests have been holding the taxpayers as their hostage and ask for ransoms.

Where are consumer groups in this carbon tax debate? They should stand up for the consumers and personal taxpayers to stop those vested interests to grab more money from taxpayers.

It is appalling for government to give in to powerful vested interest groups at the expenses of ordinary consumers and taxpayers.

Sadly and unfortunately, most governments act like that – highly influenced by special interest groups, and the stronger those groups, the higher the degree governments are influenced.

PS: it is important to note further that power generators, like most trading companies, can pass on most of the costs to users/consumers, while most individual consumers don't have any means to pass on the higher costs due to a carbon tax, or an ETS, but to absorb them and adjust their consumption bundle to minimise the impact.

This point needs to be clear and brought into any debate on carbon.

NBN design's fundamental flaw

Comments on Paul Budde “The NBN's wires are crossed”, 28/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/NBN-Co-Stephen-Conroy-broadband-pd20110325-FAA4E?OpenDocument&src=rot

For whatever reasons, why is there a need to replace the copper wire between an exchange and most households?

It is understandable that there may be a need for the bulk of a communication system to be fibre-optical where capacity and speed are required because there can be many households to use it.

But for an individual household, if there is only a line for a household that only affects the speed for that household, copper wire by any means should be able to satisfy the needs mentioned even based on current technologies?

I think it is a fundamental mistake to have the NBN as to the households, as opposed to the nods. And that is where the huge wastes will occur, rather unnecessarily.

New technologies and the increasingly more use of wireless just make the current NBN design more problematic.

Gillard needs to be reasonable and flexible on NSW rail funding

Comments on “Gillard vows to work with NSW”, see NEWS – Politics & IR – comments 28/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/PM-Gillard-pledges-to-work-with-OFarrell-FD26W?OpenDocument&src=hp1

Gillard may be right to believe "the people of NSW know the difference between state issues and federal issues."

But it is also true that sometimes both state and federal issues can get together in a state election.

Unfortunately for Gillard, her announcement of the carbon tax plan during the NSW state election campaign just made the issues of the two levels of government combined by the heightened concerns over costs of living and taxpayer's reluctance to see more taxes.

It was appalling for her to do that. It worsens Labor's internal divisions. It showed Gillard's weakness in leadership and political judgement.

She should learn from it to avoid more policy blunders.

If she refuses to learn from it, her numbers as prime minister may be further diminished.

To the NSW rail transport issue, Gillard should allow the policy priority of the O'Farrell government to change to the different link in Sydney's North West, even though the health deal and education issues may be different beasts altogether. The election outcome gives a clear endorsement for the NSW coalition government's policy package.

Need to define Australian federal state relations clearly

Comments on Imre Salusinszky and Matthew Franklin “I'll take fight to PM, says Barry O'Farrell”, 28/03/2011, http://www.theaustralian.com.au/national-affairs/state-politics/ill-take-fight-to-pm-says-barry-ofarrell/story-fn7r7bxz-1226029077595

Federal-state relation is an important issue to consider and to get it right, although it now appears to have a partisan look that shouldn't have to be like that.

Over the past years, federal government of both main political persuasions has centralised or attempt to centralise too much power unnecessarily to Canberra. The most typical was Rudd's now failed health reform package that would take 30% of GST from the states to enable the federal government to be the dominant funder of public hospitals and primary healthcare.

There should be clearer demarcation of federal and state responsibilities and revenue power. Canberra is not suited to provide many services that states do and cannot and shouldn’t invade state issues too much. The debacles and wastes in federal government’s pink batts and even the BER programs are just reminders of how federal government could do worse than state governments.

It is astonishing and extraordinary to see that some people would think that the federal government could do it better when most state government that are equally subject o electoral test and also have inter-state competition as benchmarks couldn’t fix certain services to the satisfaction of the residents.

It is just like to some ill persons having difficult to cure the disease may go to any alternatives in the hope to find a cure. It is more likely to make the matter worse rather than improve it.

Gillard is in hotter water now

Comments on Dennis Shanahan “Stinging loss sends federal message”, 28/03/2011, http://www.theaustralian.com.au/national-affairs/stinging-loss-sends-federal-message/story-fn59niix-1226029032745

It now looks that Gillard's rush announcement of a carbon tax at a time when the NSW state election campaign was going on was a big mistake, for two important reasons:

First, it mudded the water of the issue between state and federal policies for not only the election, but also for the ongoing debate on the carbon tax and making it unnecessarily harder for the Gillard government to win the debate and get its policy through the parliament.

Second, it has created further division among Labor, many in NSW will continue to recent Gillard and the federal Labor government for doing it to undermine the NSW Labor election campaigning and to attribute the losses as larger than otherwise.

It is hard to understand why Gillard did it. That seems to further prove that Gillard's lacking leadership skills.

China’s current account

Comments on Yang Yao “China’s current account surplus and inflation”, 27/03/2011, http://www.eastasiaforum.org/2011/03/27/china-current-account-surplus-and-inflation/

While Prof. Yao argues the following:

"As a result, external demand for China’s exports will be strong. While there was a trade deficit in February, this was transitory, likely caused by the spring festival holidays, and China will continue to accumulate large reserves of foreign exchanges this year.

China is moving back toward what happened between 2004 and 2008 where inflationary pressures were high due to large trade surpluses. It is predictable that the Chinese authorities will now deploy a combination of tools to stabilise domestic prices."

While everything is possible, whether China's current account will keep being surplus or will turn to deficit is an open question and there is no certainty for it to be in surplus in the not so distant future, given that so many people have been arguing the so called Lewis turning point in terms of China's rural labour surplus.

It is important to get that judgement right before rush to policy prescriptions.

Having said that, however, it would be prudent to temporarily lift certain import duties effectively by reimburse consumers for buying those goods, before a potential permanent lift.

Another point is that should the US recovery is sustained at a reasonable pace the prevailing international pressure on trade imbalance is more likely to subside substantially. That will have policy implications for both surplus and deficit countries.

In terms of Wong's comments, yes China should have considerable room to consider some direct measures to increase its imports from the US. The question is that China may like to increase more imports of high tech products that the US is not willing to export them.

The US has a policy dilemma in its hands, to contain China's rapid technological advance and limitary spending on the one hand, and to export more to China on the other.


Australian Climate Commission suffers imbalance

Comments on Tim Flannery, Will Steffen and Gerry Hueston “Separating myth from fact in a heated debate”, 25/03/2011, http://www.smh.com.au/opinion/politics/separating-myth-from-fact-in-a-heated-debate-20110324-1c8gc.html?posted=successful

The Australian Climate Commission has been set up by the current Gillard government with the prime minister who has always have rush in blood in announcing people's assembly, this commission, that commission, this committee and that committee, this task force and that task forces.

While there might be a need for a neutral body to provide balanced information to the public on climate change sciences and facts, as well as the economics of any policies on climate change, it should have a balance in the sense that it should have a voice from people who may have a different view, and interpretations as well as strategies for different and alternative actions or options for actions.

It is unlikely that the current composition of the Australian Climate Commission allows that balance and the voice of different views within the commission.

Having said that, this is by any means any reflection of the current commissioners, either positively or negatively.

Uncertainties and opportunities

Comments on Michael Stutchbury “Sting in tail of climate analysis”, 25/03/2011, http://www.theaustralian.com.au/business/opinion/sting-in-tail-of-climate-analysis/story-e6frg9p6-1226027690257

While Gary Banks made some points on the uncertainties and impreciseness of the Productivity Study, it may actually help the government to design a clever package and to sell it partially based on the results of that study.

Because it will be uncertainty, then one justifies one's own design taking advantage of that uncertainty.

Were it completely certain, then the government's hands would be tied tightly and would have little room to manoeuvre to satisfy different constituents.

The uncertainties identified by Banks represent both challenges and opportunities to the government on the issue of carbon tax.

To conclude, it is not all bad but some positive from Gray Banks' points for the government.

Gillard should be happy about that.

The return of some sanity on carbon tax compensation

Comments on Dennis Shanahan “Generous tax cuts exposed as a fraud”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/generous-tax-cuts-exposed-as-a-fraud/story-e6frgd0x-1226027692033

Now some common sense seems to be returning, over clever-by-half academics and silly politics, over the carbon tax and how to return the revenue to Australians, the legitimate owners of the environment and the compensation for the damages to their rights.

It reminds us the silliness and impracticality of the dead SRPT tax proposal, and its original designers – whoever they are/were.

Combine clever politics, economics and simple practicality

Comments on Dennis Shanahan “Experts undermine government's climate policy”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/experts-undermine-governments-climate-policy/story-e6frgd0x-1226027668840

The government should adopt an easy yet effective strategy on the carbon tax, but that strategy is not what Garnaut has recommended to use the carbon tax for tax reform.

Rather, the government should return the carbon tax revenue to the residents on an equal per capita basis.

Such a strategy would make it clear that the carbon tax is purely a carbon pricing mechanism, because the government would not grab the revenue from taxpayers as it is revenue neutral, as well as it is based on the user pay principle - if you buy more carbon products you have to pay for them, but it is your money and you can decide on what to spend.

It will also have the feature of not to disadvantage the poor and needy, because they are highly likely to get more money from such a simple distribution of the carbon tax revenue than they actually spend on carbon products, without actually purporting it as income redistribution!

While Garnaut's linking of tax reforms with such a carbon tax attempts to make it easier politically to sell the carbon tax, what it will actually do is to make the carbon tax more difficult to sell by introducing more uncertainties to the minds of most people due to the inherent complexity of any tax reforms and income redistribution.

The level of the tax could be based on what Garnaut recommended with a simple formula, but reviewed periodically, say every 2-3 years, to ensure it achieves Australia’s international obligation on emissions reduction.

If combined also with a simple trade neutral measure, such a carbon tax will be the best way to reduce emissions reduction in Australia.

And the public would embrace it without too much difficulty.

That would be really clever politics and economics too.

Potential carbon poison to tax reform and to emissions reduction

Comments on Henry Ergas “Carbon is poison to tax reform”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/carbon-is-poison-to-tax-reform/story-e6frgd0x-1226027671416

It is extraordinary that Professor Garnaut, the government's key climate change adviser, has taken such a step to link the carbon tax with tax cuts.

While it has some merits to link the two, it violates some sound economic principles, makes the carbon tax case even more complex to the public and clouds the emissions reduction issue unnecessarily.

Some commentators have been quick to applaud such an idea as politically ingenious, whether to link the two is politically clever or not is yet to be seen. Once the revenue from the carbon tax is used to address other issues which are unrelated to the objective emissions reduction, many normal political issues arise.

For example, the issue of fairness associated with any equity, efficiency and incentives of any income redistribution emerge and it is likely that the majority will perceive they will be disadvantaged one way or another out of uncertainty of the outcome.

It will be much easier if the proceeds from the carbon tax are allocated to the public on an equal basis to recognise both the rights to the environment belong to them and the fact that they will have to bear the higher energy costs associated with such a carbon tax. Politically it will be an easy job to sell such a carbon tax package as a pure price mechanism.

That will have another advantage in that it will not cause structural damage to the underlying budget in the future when the tax proceeds may decline when emissions are reduced.

Of course, such a simple solution will also address the various issues Henry Ergas has identified in this article.

Time for Gillard tp deliver

Comments on Joe Kelly “Ferguson calls Greens basket-weavers and labels leader 'soapbox' Bob”, 25/03/2011, http://www.theaustralian.com.au/national-affairs/climate/ferguson-calls-greens-basket-weavers-and-labels-leader-soapbox-bob/story-e6frg6xf-1226027938159

Now some real cracks have emerged between the Labor and the Greens coalition, over both issues of the MRRT and the carbon tax.

Can the ever changing Gillard solve the seemingly insoluble issues with the Greens on the one hand and the public (including the formidable larger miners) as well as the independents on the other?

She could offer promises over promises in negotiations with the Greens and the independents in the period to form the government, but that period is well and truly over and now she has to deliver or not to deliver.

Although it would be better if she goes to the voters and ask for a mandate to have the rights for introducing a carbon tax, she would be a really formidable political leader and prime minister should she resolve both her MRRT and the carbon tax issues successfully, to the satisfactions of both the Greens and the public and the independents.

It would not really matter whether she does it with the real or fake Julia as long as she did it.


US-China relations: China more likely to seek harmony

Comments on Ron Huisken “US-China relations: The outlook for harmony”, 24/03/2011, http://www.eastasiaforum.org/2011/03/24/us-china-relations-the-outlook-for-harmony/

Ron Huisken' point that "In one way or another, governments strike a bargain with the governed", seems helpful to understanding the rulling politics in China.

Any government has to try to find ways to keep in power.

In the first 30 years, there was no effective challenge from other political parties to the communists rule and all difficulties came from within the ruling communist party itself.

To be frank, they were unlucky in many ways during that period:

1. The Korea war not only caused China dearly in human and economic terms, but also politically as well as militarily that laid a long term underlying problem, made it impossible to unify Taiwan and further increased external threats so it had to have spend more on military, as well as more reliant on the former USSR and prolonged difficulties in its diplomatic relations with the US and the West.

2. The failure of the Great Leap Forward campaign both economically and politically - the internal struggles between Mao and Peng first, then against Liu through the launch of the Cultural Revolution campaign, and subsequent with Lin, as well as with Deng on and off.

3. The double waming of its worsening relations with the former USSR that turned each other to enemies and the continued isolation from the West since the late 1950s to about early 1970s.

4. The Cultural Revolution brought China to the edge of nearly total economic collapse.

Notwithstanding those internal difficulties and some external military threats, the legitimacy of the Chinese communist rule was not in serious question.

Since the late 1970s, however, the fortune of the Chinese communist rule has changed, experiencing much more challenges within China, but externally they had more luck than the first period.

The 1980s was characterised by contrasting economic growth between China and the former USSR. China benefited from faster economic growth, but unfortunately ended with the Tiananmen Square unrest. The faster growth and the existence of the USSR and East Europe communist states meant the the legitimacy of communist rule was not really question.

The collapse of the former USSR initially caused the Chinese communists great shock, but the persistent problems in the disintegrated former USSE countries particularly in Russia in the many years in the 1990s provided a breathing space for the Chinese ruling communist party. The initial threats by the collapse of the former USSR turned to relief for them.

In the past decades, the 9/11 and the war against terror led by the US, in Afghanistan and subsequently the invasion of Iraq, has created further opportunities for them. The joining of the WTO improved China's access to the world market and enabled the rapid growth to continue. The GFC may turn out to be positive to China in justifying its economic approach.

All these have been accompanied by breath taking rapid economic growth that has greatly raised the living standards for more than a billion people.

Now China has become world's second d largest economy, probably effectively producing more manufactured goods than any other single country in the world.

What will be in store for the Chinese communist ruling party in the coming decades and how will they bargain their way ahead to continue their ruling legitimacy? It is likely continued rapid economic growth to catch up with the industrialised countries on the per capita terms would be the main political strategy to reconcile the continued one party rule with a sea of liberal democracy.

No matter what the advocates of liberal democracy can do all over the world, the fact will continue that it is impossible to change the economic fortune for the majority of the world population over a short period of time faster than what the Chinese government could. That would always provide a very strong argument for the continuation of its current rule.

Will the external environment be favourable to them, as they have been over the past 20 years or so?

The future is uncertain and unexpected events, like 9/11, could emerge. Probably no one can answer that now.

The danger for the Chinese communist government is that it may make mistakes either in dealing with the external world or to deal with its governed, to cause difficulties for itself.

Only one way for Gillard to prove her conviction

Comments on Dennis Shanahan “No doubt about it, Julia's a believer”, 24/03/2011, http://www.theaustralian.com.au/national-affairs/commentary/no-doubt-about-it-julias-a-believer/story-e6frgd0x-1226027038168

For the sake of her own interests to win the respect of the Australian public, she needs to have the courage to go to the voters to ask for a clear mandate to do so on a carbon tax that would be the consensus she has argued for and she has persisted with the argument that the public understand and support her carbon tax.

She should not be assuming what she says is what the public believes.

She should not be a ‘dictator’ to the public by saying that the public support her without actual proof that is a form of imposing her will and idea and tax on the public.

Should she go to the poll before legislating a carbon tax and argue that she will introduce a carbon tax if she wins that election, and if and only if she has done that, then she would have the rights in saying that the public support her tax.

Failing to do that, she cannot avoid the fate of being accused as a liar.

Now let’s return to Dennis Shanahan’s title, yes, ‘no doubt about it she is a believer’, but that makes her persuasion of Rudd to dump the CPRS more cynical and her conviction so shallow, and makes her pre-election pledge of no carbon tax under the government she leads so damaging to her reputation and conviction.

And that seems to add further to the confusions the public have over the real and not real Julia.

MRRT has become a revenue grab by Commonwealth

Comments on James Massola "Gillard government's warning to states on mining royalties”, 24/03/2011, http://www.theaustralian.com.au/national-affairs/gillard-governments-warning-to-states-on-mining-royalties/story-fn59niix-1226027467391

The main idea of this tax was to replace the so called inefficient price based royalty regime with a profit based royalty regime. The states have the rights for mineral royalties, therefore the MRRT revenue should belong to states, as opposed to being a monopoly by the Commonwealth.

This whole drama by Swan et al, dressed up as a reform, has been a sham and a tax grab by the Commonwealth from the states.

The Commonwealth has talked about how the states would not have the resources to meet future health spending needs. Judged by this, they are correct, because they choke the states to death by steal their revenue.

It makes any reforms proposed by the Commonwealth in terms of federal relations a subject of cynicism, on the part of the Commonwealth.

Shame, isn’t it?


Apply the well founded user pay principle for carbon tax

Comments on Robert Gottliebsen “A dangerous Australian dollar-carbon combo” 23/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/Bluescope-Steel-Graham-Kraehe-carbon-tax-pd20110323-F7SF5?OpenDocument&src=sph

A border adjustment for carbon tax will be much more complex than Robert Gottliebsen argued for.

Firstly, how will the so many different products be differentiated for their different carbon contents?

Secondly, how will the different actions in different countries be accounted for?

Thirdly, how will the huge differences in the levels of per capita emissions be accounted for and adjusted for through the user or polluter pay principle?

This is because how international compensations should be done is not a matter for Australia alone to decide whether it is fair or not. One must use an internationally accepted framework.

The main reasons why it has been so difficult to reach an international agreement on how to reduce emissions and why Copenhagen had failed, are that the rich and high emitting countries didn’t want people to apply the principle of user pay for pollutions.

While the principle has merits, one has to design a scheme very carefully, be internationally equitable and fair, and avoid complexity in its implementation.

Don't resort to China bashing on carbon tax

Comments on Rob Burgess “Labor's return to protectionism”, 23/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/carbon-tax-climate-change-Garnaut-Kraehe-pd20110323-F7RMU?opendocument

While I agree with the essence of the argument for a proper, fair, effective and simple border mechanism to account differences in emission reduction regimes and I have advocated for a simple border trade adjustment, the mentality of China bashing or demonising China to attract sympathy and support used in this article is grossly inappropriate and simply ignores the facts that China is doing much more than Australia's proposed carbon tax.

The real costs of China's measures to reduce its emissions intensity of GDP are much higher than the cited $16 per ton.

China has a higher target for the share of renewable energies. China forces heavy emitting factories to close down and stop the supply of electricity to its residents and industries to achieve its targets.

Do anyone with an independent and rational mind think it does not have costs to do those? How did the assumption of $16 per ton factor them into account?

China has done more than Australia has and is likely to do much more than Australia would in the future, even though Australia emits many times than China does on the per capita.

Besides, how would Australia account for and pay for its much higher per capita emissions to those countries that emit much less per capita?

Taking a holistic view, China bashing and demonising China in the area of emissions is extremely unwise and will unfortunately harm Australia’s national interests and international standing. It shows a lack of intellectual intelligence and narrow mindedness, possibly stupidity, by some.

PS: A border carbon adjustment scheme must be supplemented with another international adjustment scheme to account for the differences in per capita emissions between countries. Only when they go hand in hand, a border adjustment for carbon tax can be justified.


The 'trade-not-aid' strategy versus other strategies

Comments on Kevin P. Gallagher “China challenges Washington’s ‘trade-not-aid’ strategy in Latin America”, 19/03/2011, http://www.eastasiaforum.org/2011/03/19/china-challenges-washingtons-trade-not-aid-strategy-in-latin-america/

The different approaches are likely to coexist for a very long time to come.

Undoubtedly, there will be some approaches that are between the US one and the China one.

The US has not only elements of containment of other systems, but also elements of spreading its own system through various means.

On the other hand, China's approach is consistent with its non-interference principle in international dealings. It does not have a strategy to export its system, at least since the end of the Mao era.

Will the US attempt to contain such influences of China to conduct another form of containment?

If it does, will it be likely to be successful?

BRIC should be really golden

Comments on Mauricio Mesquita Moreira “Brazil and its Chinese challenges”, 17/03/2011, http://www.eastasiaforum.org/2011/03/17/brazil-and-its-chinese-challenges/

There are holes in the BRIC?

The speed of growth of China's economy and its impact on many markets can be huge and may cause economic and industry dislocations, some short term, some along new emerging international competitiveness and comparative advantages.

However, Brazil may realise that the shares of both its exports to and imports from China have risen significantly, that is a result of China's rapid economic growth and external trade.

One should look at both the positive and negative sides of increased trade - mostly likely the benefits overweigh the negative side.

It is unrealistic to expect that such rapid changes in trade don't have any costs associated with them. Standard trade theories suggests there are political economy implications of trade due to changes in international competitiveness. They also point out gains from trade.

One has to manage changes.

Is Australia going-it-alone?

Comments on Richard Blandy “All pain, no gain in go-it-alone carbon tax”, 21/03/2011, http://www.theaustralian.com.au/news/world/all-pain-no-gain-in-go-it-alone-carbon-tax/story-e6frg6ux-1226025644660

Blandy’s article title, "All pain, no gain in go-it-alone carbon tax", is undoubtedly right in logic and in isolation with the real world.

However, the real world is not that Australia is going-it-alone. China, the world's largest developing economy and the largest emitter, has taken many measures to limit its emissions and plans to reduce its intensity, or emissions per unit of GDP / output in Blandy's terminology, by 40-45% by 2020.

That fact alone does not accord well with Blandy's 'go-it-alone' description.

Further it also suggests that it is possible to decarbonise by 80-95% by 2050, in terms of carbon per unit of output, contrary to Blandy paints impossible.

Richard Blandy cited Garnaut's reports/papers, but only very selectively by saying that "Ross Garnaut's cost-benefit analysis (Garnaut Climate Change Review final report, chapter one) accepts there will be such costs", and even without stating how high the costs would be.

Clearly the costs Garnaut estimated would not be as high as Blandy implies.

More seriously, many people are misleading the Australian public with misinformation and distortion of world facts.

That would not look good for the world’s highest emitter per capita, especially when it comes from people who are from academia.

Will the Libya intervention benefit Sarkozy?

Comments on Charles McPhedran “Sarkozy play a bid for survival”, 21/03/2011, http://www.theaustralian.com.au/news/world/sarkozy-play-a-bid-for-survival/story-e6frg6ux-1226025633235

The international intervention in Libya, especially large scale bombings of Libya whether it is current Libya government troops or civilian casualties, will complicate the Middle East and the Arab world.

While the Libya situation has some elements of Kaddafi's dictatorship against oppositions to his rule, there are also the unease characteristics of internal tribal and regional conflicts.

Further, although there were international backings from the African Union and the Arab League, those supports may reflect internal politics among those regional organisations. The tide can turn very quickly once the situation in Libya changes one way or another.

France's adventure might have short term benefits, but is likely to incur longer term losses in the Middle East and Arab world.

Sarkozy's calculation and attempt to use external conflicts for his personal gains in domestic political affairs may prove to be a serious mistake and an error in judgement with the rush of blood.

History will be the judge and the judgement day may not be too far away for Sarkozy.

The Princeling camp?

Comments on David Kelly “Chinese political transition: split in the Princeling camp?”, 21/03/2011, http://www.eastasiaforum.org/2011/03/21/chinese-political-transition-split-in-the-princeling-camp/

One has to wonder whether there has ever been a unified Princeling camp in China, ever since the Cultural Revolution, or the end of it.

Further, as in Australia here, the word 'reform' has been used in China literally for change at the best by many people and should be supported without any reservation, irrespective whether it is for the better or the worse. An example in Australia was the 'building the education revolution' projects that have been reportedly wasted billions of Australian taxpayer’s money in the wake of the GFC.

If reforms, such as privatisation of state owned firms, in China resulted in state assets corruptly becoming some privileged persons’ private assets, should they be good for the Chinese as a whole? Many Chinese have complained that past privatisation has produced many billionaires who were connected directly or indirectly to people in power.

A lesson learnt from Australian politics is not to believe spins, especially political ones.


Bloxham's possible correct conclusion based on wrong theory

Comments on Paul Bloxham “The Australian housing bubble furphy”, 18/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/Australian-property-prices-housing-bubble-pd20110317-F24WP?OpenDocument&src=rot

Paul Bloxham's use of the less than two decades data to justify his theory is a bit over reach, or over stretch.

In the late 1990's, many people were used to the theory of new valuation for the dot com tech companies. But that didn't prevent the market fallout in 2000 or thereabouts.

Before the recent global financial crisis, many people, including many financial genius, thought probably new paradigms of finance. But we just have had the Great Recession, not to mention the near death (collapse) of global banking and finance industry.

However, I think Paul might have had a point right even though his theory is wrong. Australia is different from the US and many other European countries. It is related to international geography, populations and immigration as well as relative external and internal demand and supply.

It has small population with a large land and located in Asia where people density is so high and populaitons are so large. Any demand from Asians for Australian houses and land can potentially sustain an otherwise serious housing bubble.

Therefore, the effects of external demand for Australian housing market can cause serious dislocation of house valuation, because for many Asians, it may be relatively cheaper to have houses with land that is so scarce in their home lands.

So, I think Paul has a wrong theory, wrong diagnose, but a possibly correct conclusion.

That itself is an irony, but it often happens to the so called experts. And it is not very unusual after all. I would give a mark of 50% to Bloxham's work.


An unintended effect of fiscal equalisation

Comments on Gary Johns “Tasmanian worker is a threatened species”, http://www.theaustralian.com.au/news/opinion/tasmanian-worker-is-a-threatened-species/story-e6frg6zo-1226022768108

It appears that the horizontal fiscal equalisation in Australia by the Commonwealth Grants Commission may have inadvertent effects on artificially increasing the Greens support base in Tasmania.

Tasmania receives GST distribution significantly above its population shares due to fiscal equalisation, so it has the same fiscal capacity to provide government services.

Imagine that it only received its population share, or only got back the GST revenue from Tasmania, would those Greens supporters in Tasmania, faced with poor government services than other States, still support the Greens as they have?

Fiscal equalisation through the distribution of the GST by the Commonwealth Grants Commission has far reaching implications than most people have realised so far, even though very few people in Australia understand it. It affects so many things around us.

That is perhaps another reason to have a fundamental review of federal financial relations and fiscal equalisation in Australia.


Jeremy Sammut has good points

Comments on Jeremy Sammut “Cure Medicare mess”, 16/03/2011, http://www.theaustralian.com.au/news/opinion/cure-medicare-mess/story-e6frg6zo-1226022070655

The following idea of Jeremy Sammut's is worth considering:

"Bulk-billing should be scrapped and the budget savings used to establish a national system of individualised Health Savings Accounts. Consumers will become cost-conscious and overuse will be minimised when they spend their own money on GP and other non-hospital services."

Two points are important in terms of health care. Firstly, its expenses cannot be open ended and funded freely by government alone, because it has some characteristics of luxury goods besides its normal functions of cure needs. There must be effective constraints on them.

Secondly, the best health care system is to have each person in charge of his or her own care needs and the priority of health care spending with a budget constraint that is funded through taxation. Each one can be different and has different needs. It is impossible for a government to be in charge and to provide tail-made health care for everyone.

Rapid growth in healthcare spending is a big problem for governments. Population aging will add further pressure to it. The government should reform the current Medicare system. And it’d be better to start it as early as possible.

Tensions in Aisa, unrests in Arab world and conspiracy

Comments on Paul Kelly “High food prices feed unrest in developing world”, 16/03/2011, http://www.theaustralian.com.au/news/opinion/high-food-prices-feed-unrest-in-developing-world/story-e6frg6zo-1226022066955

It sounds like a high level conspiracy theory in working here.

The US and most western economies have been in crisis and still in deep trouble to generate significant employment growth to lower unemployment. The tension in Asia last year and the Arab unrests and revolutions now seem a nice distraction to the west's economic, budgetary and political problems.

Apart from the link of food prices and rising costs of living in developing world, is there any other factors underlying them?

The US has shown aggressiveness in Asia in the guise of re-engagement and apparent hesitation and seemingly inconsistency over the Arab unrests and revolutions.

What is really behind the scene?

Julie Bishop's hypocrisy at extreme!

Comments on Julie Bishop “What the Government Does Not Tell You (Part 2) - China and Climate Change”, 16/03/2011, http://www.smh.com.au/opinion/blogs/the-bishops-gambit/what-the-government-does-not-tell-you-part-2--china-and-climate-change/20110316-1bw8l.html

Julie Bishop is making a huge mistake and a serious error of judgement here in denying China's ambitious actions and efforts and demanding that China should instead reduce its emission levels absolutely now.

It just shows her innocence in international affairs and her lack of knowledge of international politics of climate change and actions on emissions reduction.

Her article will actually undermine her party’s cause in fighting Gillard’s carbon tax. To the most, she might get a few supporters at the expense of losing more.

She should quickly get on top of her portfolio including on international politics of climate change. Otherwise she is more likely to lose her portfolio of shadow foreign affairs and possibly her deputy position out of non-performing and a negative drag.

China is a developing countries and its level of emissions is only a fraction of that of ours on the per capita level!

However, it has planned huge reductions in its emissions intensity over the coming decade.

Even with Bishop’s hyperbole on the growth of China’s emission levels by 2020, its per capita level of emissions will still be a fraction of that of Australia’s.

She is talking about what the government does not tell us. But why Bishop doesn’t mention the per capita level differences now and in 2020 between ours and China’s?

Isn’t it hypocrisy at the extreme?

How to sell a carbon tax in Australia?

Comments on Peter van Onselen “Gillard running out of options on carbon tax as attempts to sell it fail”, 16/03/2011, http://www.theaustralian.com.au/business/opinion/gillard-running-out-of-options-on-carbon-tax-as-attempts-to-sell-it-fail/story-e6frg9if-1226022081600

Gillard and her government is making decisions and policies on the run, sometimes out of their silliness, sometimes forced by minor parties.

While it is uncertain whether voters will forgive Gillard's broken promise of no carbon tax, it is still possible for Gillard to get a carbon tax and have the public accept the need for it.

The main issue is whether she, under the pressure of the minor parties particularly the Greens but assisted by Minister Combet, can really rationalise it and design the most acceptable compensation package and ensure both revenue neutrality with no perceived revenue grab and using it for redistribution purposes and trade neutrality.

It is completely possible for a mild carbon tax to start with, and with all the most revenue used to compensate consumers, and with a simple but effective trade measures to make the international competitiveness largely unaffected by such a tax.

But the key is to abandon any ideologies that the ALP and Gillard have to use the carbon tax for income redistribution, and to resist the Greens push for unrealistic actions at this stage.

However, a carbon tax should be flexible enough to cope with any international development on climate change.

PS: There is no need to over compensation, but it is important not to create winners and losers out of carbon tax compensation, that is why redistribution is harmful and unacceptable.

How likely is a ‘Jasmine revolution’ in China?

Comments on Feng Chongyi “‘Jasmine revolution’ in China over the horizon”, 16/03/2011, http://www.eastasiaforum.org/2011/03/15/%e2%80%98jasmine-revolution%e2%80%99-in-china-over-the-horizon/

It appears that Professor Feng may have over-stated the problems existing in China, though that does not mean the problems aren't serious and that they don't need careful solutions.

For the majority of people in China, the choice is between an ideal democratic system that may not necessarily be practical in China but may disrupt its economic development and limited democracy under one party rule but that can have stability and rapid economic development.

Most of them are realistic and pragmatic enough to choose.

Yes, there are more than 1.3 billion people in China and there are always very different views.

But is that enough for a revolution?

I personally doubt it, especially given China's history before the communist party and since the reforms began.


China has some independence of monetary policy

Comments on Karen Maley “A seismic shift for China”, 15/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/debt-deficit-emerging-economies-China-Wen-Jiabao-pd20110315-EXSXC?OpenDocument&src=sph&src=rot

This post shows both the author and Dalio had a poor understanding of China's use of reserve ratio as one of main methods to conduct its monetary policy in addition to its control of interest rates.

What China is doing is different from the conventional monetary policy prevailing in most western countries.

China's methods of conducting its monetary policy means it is not quite a free money market and there could be a need to ration credit one way or another, by banks.

But at the same time it also means it has its own independent monetary policy, unlike what Dalio's view is.

It is important to understand the facts and the mechanism of China's monetary policy to analyse how its policy should evolve, as opposed to simply apply conventional economics textbook approach to a different subject – the latter approach is wrong and gives the wrong conclusion.

Peter Hartcher's strange use of words

Comments on Peter Hartcher “Battle of Pacific rim reshapes the world”, 15/03/2011, http://www.smh.com.au/opinion/politics/battle-of-pacific-rim-reshapes-the-world-20110314-1bue3.html

Peter Hartcher uses the word of battle, as opposed to the words of ''work together" used by the Chinese ambassador to India.

It is interesting why Hartcher has such a 'warring' mentality, but it could reflect a reluctance of a rich person to see the developing world to catch up with the industrialised world.

What a poor sentimentality and inhumane wish! What a poor sentimentality and inhumane wish! In the face of a changing world it is of no use to lament and complain about changes.

Hartcher, as an international editor, could and should do better than that!

Further, his description of China’s plan to build more nuclear power stations is a reflection of the appallingly strange state of some Australians who are strongly opposed to nuclear power no matter what the science and technologies are.

To refuse the use of nuclear power in Australia - the world most geologically stable place - is simply irrational that just assumes they are more intelligent and clever than the Americans, the Europeans and the Japanese who presumably they admire very much!

What contradiction it is!


Major parties need to be major in policy

Comments on Penny Wong "Major parties better than irresponsible minor ones", 14/03/2011, http://www.theaustralian.com.au/national-affairs/major-parties-better-than-irresponsible-minor-ones/

Senator Wong has some valid points.
However, those are precisely what Gillard should have had in mind when she formed the alliance with the Greens to form the minority government.
At that time, unfortunately, Gillard only thought about her power and possibly that of the ALP at the expense of the national interest.
That is why voters are so cynical about the current government.

True that "The carbon tax is no RSPT" - but more than it

Comments on Rob Burgess “The carbon tax is no RSPT”, 14/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/carbon-tax-Julia-Gillard-Tony-Abbott-RSPT-pd20110314-EWRLU?OpenDocument&src=sph&src=rot

I think Rob Burgess is too optimistic on the relativity of carbon tax versus RSPT.

The political difficulties of a carbon tax and sell it to the public, businesses and political parties are no easier than the RSPT.

Yes, Rudd and Swan made huge mistakes in being inflexible in their approach to the RSTP, though as the subsequent MRRT showed it would be a much easier job to achieve a mineral tax even though it was arguably possible to do better than Gillard's MRRT.

For a carbon tax, the political interests diverge to a much greater extent. There are differences between businesses and consumers in terms of impact and compensations. There are differences between political parties in terms of how much the tax should be to achieve a particular goal.

Further, while a mineral profit tax only targets a sector of the economy, a carbon tax affects the whole society, businesses and consumers alike.

Who or what business does not consume energy that has emissions attached to it?

As well, the carbon tax is supposed to tackle global warming and there is a legitimate point about the effectiveness of Australia's action alone.

There are uncertainties about the science. There are uncertainties about the effectiveness. There are about the management of the current government in terms of policy delivery and project management in terms of waste of public money.

Those are not so easy to overcome as Rob Burgess suggests.

Source of difficulty climate agreement lies in ignoring simple economic principles

Comments on Peter Drysdale “Regional movement on the global problem of climate change”, 14/032011, http://www.eastasiaforum.org/2011/03/14/regional-movement-on-the-global-problem-of-climate-change/

The fundamental weaknesses of the approaches to international climate change agreements in recent years are the lack of application of sound economic principles of "users pay".

It is strangely incredible that there are well agreed economic principles in dealing with pollutions and the negative externalities of local pollutions that are equally applicable to global pollutions such as emissions, but they have been ignored in this global issue.

Most economists including mainstream economists in industrialised countries especially in the US have been silent on this. It is a remarkable display of international political economy in which even most respected economists are well aligned with their national interests at the expense of the global climate.

Imagine that the users pay principle was applied, the heavy polluters have to pay for their emissions and those less users will receive their benefit from the compensation of those who damaging their property rights. Then there is no need for any industrialised countries to be acting like a donor in favour of developing nations. No need even for them to mention such a thing.

It should not be too difficult to reach an acceptable international agreement and control emissions levels, by all countries.


China's trade surplus is likely to disappear sooner than later

Comments on news from BusinessSpectator “China swings to shock trade deficit”, 10/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/WRAPUP-2-China-trade-swings-to-largest-deficit-in--ET7DR?OpenDocument&src=hp6

I am not as optimistic on China's trade surplus as some of those people mentioned in the piece.

I would see that it will be a trend for China's trade surplus to decrease and to turn to deficit possibly as early as next year.

China's costs of production are rising and rising fast. Wages are rising and will rise more to address the issue of inequality and will also be a result of diminishing rural labour surplus.

Commodity prices are rising too.

Energy prices will do the same and perhaps rise more than commodity prices due to reduction in emissions intensity.

To ease social problems, the real costs of land may also rise, because government has to pay more compensation to using rural land.

On top of those, the Chinese currency is appreciating.

Other countries especially the US will also do more to increase their exports and reduce their trade deficits.

In short, it will be inevitable that China will see its trade surplus reduced and turned into trade deficit. Only then it will stop its currency appreciation and possibly to depreciate its currency for a short while to facilitate its further economic and structural transformation.

The recent uprising and unrest in the Arab world will accelerate China's government's push to increase the wages/income of Chinese workers and speed up the rise of China's costs of exports relative to its imports.

Yes, its productivity will undoubtedly also rise, but that is likely to be more than offset by the rise in costs for some time to come.

Any claim of China's trade surplus will continue is likely to be a simple extrapolation of the past without taking into account of the changed circumstances both inside and outside China that will feed into the Chinese economy and its economic costs.


Is "China challenge" imagination of the US to keep power?

Comments on Geoffrey Garrett “China challenge will bind us closer to Washington”, 10/03/2011, http://www.theaustralian.com.au/news/opinion/china-challenge-will-bind-us-closer-to-washington/story-e6frg6zo-1226018636983

The so called China challenges are likely to be highly exaggerated and appear to be a product of an extension of the cold war mentality.

Don't get me wrong and China is and will be different in some areas from the west, but it will surely be responsible stakeholders of the global affairs.

It is bizarre that the failure of Copenhagen has been largely and singly attributed to China. It is beyond belief that China had that power then and could single handed bring down Copenhagen. It was more likely that the divide between the industrialised and developing especially the emerging ones that resulted in the failure of reaching an agreement, particularly in terms of binding reduction targets for them.

Since the collapse of the former USSR, the US was keen to target China, even though 9.11 temporarily changed its priority.

Now it is getting out of Iraq and Afghanistan wars, so it may resume its earlier priority of targeting China.

But the world has changed so much and China has largely integrated into the global economy, all that makes it difficult for the US to contain China.

Further, the shift in the global economy means it is virtually impossible for it to do it, even if its wishes to.

PS: the TPP is likely to be a distracter for the DOHA round and is likely to be another US strategy to bypass global institutions to achieve its narrow the narrow objectives of the US. It is uncertain whether the main west pacific economic powers will join it or not. If they don’t, then it is unlikely to be a true TPP.

Besides, the world is changing and both the US and Australia also need to keep with it. The mentality of past and the desire to keep it unchanged that way may not be realistic and achievable, and is seriously out of date.


A Sovereign fund from resources good but hard to secure its proper use

Comments on Peter van Onselen “Greens' support for a sovereign wealth fund to quarantine mining proceeds deserves praise”, 9/03/2011, http://www.theaustralian.com.au/business/opinion/greens-take-a-bow-for-the-sovereign-wealth-fund-policy/story-e6frg9if-1226018002862

A sovereign wealth fund is not a bad idea, though it would be better called a sovereign natural resources fund.

There are a number of issues related to such an idea.

Firstly, the Greens may want to increase the tax for mining much more heavily than reasonable, that can cause enormous damages to the Australian mining industry and hence the whole economy.

Secondly, the current government is only interested in suing the mining tax for its own budgetary purpose, and is not really interested in the long term, especially for the future generations. The Future fund set up by the previous coalition government has been used already by the Rudd/Gillard Labor government. That is a very bad precedent.

Thirdly, there can hardly be real guarantee that the current and any future government do not use it to cover its own short term budgets.

Should such a fund be established, there must be much stronger and more stringent conditions for any government to use it.

Funding for Indigenous education should be explicit and exclusive to achieve results

Comments on Helen Hughes and Mark Hughes “Protecting bad teachers produces chronic failure”, 9/03/2011, http://www.theaustralian.com.au/news/opinion/protecting-bad-teachers-produces-chronic-failure/story-e6frg6zo-1226017996627

The education of Indigenous children is extremely important, but sadly the current results are not encouraging.

There are many reasons for that and some can be very complex.

Both the commonwealth and state and territory governments need to develop an overarching strategy. Government funding should be explicitly identified and used exclusively for the purpose of educating Indigenous children and should not be shifted to any other purposes.

Competition should be encouraged and introduced to improve efficiency and results.

The current management of Indigenous education is not achieving the results that most people including Indigenous people have hoped. There is not much accountability in terms of funding, use and results.

This must change and the earlier that occurs, the better for Indigenous education.


Canberra bureaucracy capacity aside, trade impact difficult to remedy

Comments on Robert Gottliebsen “Gillard's caught in Rudd's carbon trap”, 8/03/2011, http://www.businessspectator.com.au/bs.nsf/Article/Julia-Gillard-Tony-Abbott-carbon-Kevin-Rudd-pd20110307-EQ89B?OpenDocument&src=rot

Adjustment to trade including both exports and imports is very complex and easy said than done.

For example, Robert Gottliebsen says that "Until the US and China start taxing carbon, if our tax is to work then it must be confined to Australia. Exports should be free of tax and imports should be taxed."

China and the US are different in terms of either climate change actions or the per capita level of emissions. How to take account the Chinese ambitious actions to reduce its emission intensity through direct actions and administrative orders and regulations? The effects of Chinese government emissions control policy can be more taxing than Australia's proposed explicit carbon tax! And how to take account the differences between China and the US when they have different measures to tackle climate change?

Further, how to deal with the differences in per capita emissions between countries and have international equity in terms of emissions rights? Do we need to pay for our much higher per capita emissions to developing countries that have lower emissions per capita?

These are very complex issues to consider and to implement in terms of border trade policy to deal with climate change and emissions policies.

Until they are carefully thought through, it will remain as difficult as bordering impossibility, even though trade impacts are a legitimate issue to argue by the affected parties and special interest groups alike.


Peever of Rio has a point in a complex issue

Comments on David Peever “Industry urges, get tax right”, 7/03/2011, http://www.theaustralian.com.au/national-affairs/industry-urges-get-tax-right/story-fn59niix-1226016756940

This is a very complex issue.

There is international competitiveness for trade exposed Australian firms.

However, there is also an international equity issue in emissions or emission allowance/permits. Australia emits much more CO2 per capita than most other countries especially developing countries. International adjustment must take that into account.

Besides, it is not only a bilateral trade issue and can be much more complicated than just between two countries. For example, in terms of iron ore exports to China, Australia is competing not only with Chinese local producers (though they may be increasingly less important), but also with Brazil producers.

Further, other countries may take direct actions without an implicit price or tax on carbon and how to take that into account is also extremely difficult. For example, China has ambitious programs for the reduction of its emission intensity, including ordering the closure of some plants and stopping electricity supply.

Nevertheless, there is an issue of border adjustment to reduce trade distortion, to make good on international equity and to account for actions of other countries.

The case is complex, and the policy should take account that complexity but makes the implementation simple.

PS: it is probably true that most firms can pass the increased costs on in full or in part, that also further complicates the issue of industry compensations. On the other hand, most consumers have little means or power to pass any of their higher energy bills including electricity and petrol.


What exchange rate regime will be better for both flexibility and stability?

Comments on Barry Carin "Prospects for France’s presidency of the G20", 4/03/2011, http://www.eastasiaforum.org/2011/03/04/prospects-for-france%e2%80%99s-presidency-of-the-g20/

It is interesting to note that the original French agenda includes exchange rate instability and commodity price volatility.

What does exchange rate instability mean?

And what does it mean for the US or some other countries push for floating exchange rate for China?

Wouldn’t that suggest that free floating can be as problematic as completely fixed exchange rate regime?

PS: While at the moment there is no universally accepted solutions to exchange rate instability and commodity price volatility, it does not mean that excessive volatility and instability are good for the world economy or businesses.

Economists and government officials and advisors must consider what regime will work better.

Reforming the Australian election system

Comments on Kenneth Wiltshire “Early election the only way out”, 4/03/2011, http://www.theaustralian.com.au/news/opinion/early-election-the-only-way-out/story-e6frg6zo-1226015579768

I think it is time to consider reforms of the election system to do away with preference allocation and simply accept the election of the most votes.

Smaller parties will not be funded by the same degree by larger parties by taxpayers to avoid excessive fragmentation.

Minority government has to work hard to win both the voters as well as the minority parties for policy and governance.

In that way, the responsibility is clear.

If minority government can't pass legislations, then it is business as usual to continue, as opposed to distorted policies.


History in shorter and longer terms

Comments on Jennifer Chen “Vietnam’s open port policy: strategy for keeping China at bay”, 1/03/2011, http://www.eastasiaforum.org/2011/03/01/vietnams-open-port-policy-strategy-for-keeping-china-at-bay/

Vietnam's strategy may or may not necessarily work.

Russia is in the picture as an important player in the background, though at the moment many people have not mentioned it.

Further, as the relative strategic strengths between the US and China shift, both will rethink their own strategies, or will have to do so in the mean time.

In such as big theatre with the US, China and Russia in play, any very short term strategies may not be consistent with longer term interests.

Although history has not always shown to be rational or planned in any rational manner, sometimes history has some inevitability.

There are many issues and areas that bilateral dealings have to be made.

PS: the best strategy for the future of Asia is to have an Asian organisation that can deal with Asian regional issues.

Wang Guangwu's theory may not be like by Chinese leaders

Comments on Wang Gungwu “A change in Egypt’s political weather filters through to China”, 1/03/2011, http://www.eastasiaforum.org/2011/02/28/a-change-in-egypt%e2%80%99s-political-weather-filters-through-to-china/

The Tian An Men event on the June Fourth 1989 came before the fall of Berlin Wall, and the collapse of the former USSR.

After the collapse of the former USSR and the east Europe communist block (some before the fall and some after, but they were after all the Tian An Men event), Deng adopted the so called "dao guang yang hui" strategy, so China kept a very low international profile and was largely focused on its internal economic growth.

Now the events in the middle east and north Africa are still unfolding and the eventual outcomes remain uncertain.

How the Chinese communist government and leaders will view and learn from these events and what strategies they will adopt in the future are anyone's guess at the moment.

Wang's 'bian tian' has very different meanings to different Chinese. And I am sure he understands that very well, though in the post he has put it in the best light possible for outsiders to see the logic.

Will the communist government allow ‘bian tian’ to take place?

PS: Deng's strategy to focus on domestic economic growth made China a small target for the US and also brought about real economic benefits for many Chinese. Both were in China's interest and especially were helpful to the Chinese government in difficult times in the wake of USSR collapse.