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Bold reforms should start from government governance

Comments on Graham Bradley “We need to have faith in the government's sums”, 30/05/2011, http://www.theaustralian.com.au/national-affairs/we-need-to-have-faith-in-the-governments-sums/story-fn59niix-1226065153933

Bold reforms are needed and leadership to reforms is essential.

If the federal government is serious in reforms, it should start from reforming the governance of the government as the first step, or at least in conjunction with other reforms.

In terms of reforming government governance, maybe a national commission on economic policy should be established. Such a commission should have a component in budget integrity, as well as other economic policies, such as the desirable macroeconomic setting for both fiscal and monetary policies.

In terms of other bold reforms, while the Henry review report could be used as the starting point, its shortcomings should be recognised, such as the exclusion of GST in the review, as well as the lessons learnt from the RSPT/MRRT processes.

The tax forum should also include the carbon tax and related compensation measures, or ETS in its agenda.

Further, there should be a body to make sure the forum produce good outcomes and be implemented, as opposed to the 2020 summit.

To meet the challenges from population aging, there must be enough incentives provided for people to work longer, save more and optimise spending on healthcare and other consumptions.


China and Japan are vastly different

Comments on John Lee “Japan's economic demons dog China”, 25/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Why-Japans-past-haunts-China-pd20110524-H6AP4?OpenDocument&src=sph&src=rot

John Lee's article is interesting, although it may be a bit simplistic to extrapolate the implications of the Japanese case to China.

The Japanese suffered not only from lack of innovation in policy approaches to its bubble burst in the late 1980s and the early 1990s, but also the lack of successful experience and precedence in dealing with that.

Further, it was a victim of its earlier success in rapid catch up with the US and in many areas exceeding the latter.

Another point is that lacked the political strength to do what it should have done in standing up against the US and other, re the Plaza Accord that forced its currency too much too rapidly.

The US fed response to the GFC has been different to that of the Japan’s, though its ultimate success still remains to be seen. If it’s successful, it will be an innovative approach and a precedence for policy approaches.

While China’s story may have some limited similarity to that of Japan’s, the two cases are vastly different.

It is inevitable to have large share of investments in the economy if it starts with very low infrastructure, low physical capitals and low housing stocks, as a low income developing economy has.

They are two countries with very different social, cultural and economic affairs and structures.

By the way, the income level and the level of infrastructure are still low now and have a long way to go to catch up with industrialised countries.

PS: while China may not fall into the same trap that troubled Japan, it does not necessarily mean that it will not encounter problems of its own.

Discord over WA increase in royalties and the Review of GST Distribution

Comments on Julie Bishop “Swan conjures up a Black Swan from the West”, 25/05/2011, http://www.smh.com.au/opinion/blogs/the-bishops-gambit/swan-conjures-up-a-black-swan-from-the-west-20110525-1f2y4.html

Maybe, the reactions by Swan, Gillard and Ferguson could be explained by the review of GST distribution commissioned by Gillard and Swan and announced in Perth by Gillard on 30 March 2011.

There might have been some understanding/misunderstanding or expectations (or false hopes) that that review would have WA to rethink about its scheduled increase in royalties of its fines iron ore.

The timing for that review is a draft report by February 2012 and the final report by August/September 2012 for consideration for 2013.

It is interesting to note that the final report is expected to be available after the introduction of the MRRT and the carbon tax, assuming both legislations will pass the parliament.

WA may think it will be too uncertain to rely on that review to secure a better funding for it.
Of course, the WA government is a liberal/coalition government and on the opposite political side of the Gillard ALP government.

PS: this fascinating discord involves politics, economics and taxation, as well as federal financial relations. Arguably, it is a very difficult issue even at the best of times of federal politics, not to mention the fact it is at a time the federal government has been experiencing serious difficulties.


Incentives alone not enough to solve the problems

Comments on Cassandra Wilkinson “Mollycoddling jobless is not compassionate”, 24/05/2011, http://www.theaustralian.com.au/national-affairs/commentary/mollycoddling-jobless-is-not-compassionate/story-e6frgd0x-1226061416518

While incentives are important themselves, they are not enough.

The government, society, the employers and the unemployed need to tackle this holistically.

The Australia's employment system can be very strange in some respects. For example, many employers require employment experience even for the most basic labour work.

Maybe that reflects some inherent deficiencies in the work relations system that may prevent flexibility because of some explicit or implicit/hidden costs in hiring and firing.

It has been reported over and over again that people work to work but just could not be accepted by any employers. Some are in perfect working age.

So, simply taking about incentives will not solve the problem. The government must look at the issues from those who are unemployed or on welfares and then design policies/strategies, and also put in place the real assistance available to those who need it or in need of it. Work in partnership with them.

PS: If people who want to find a job very actively can't get one, it is no wonder many on welfare can't get employment, or get off from the welfare system.


Respect the constitutional rights of states

Comments on Kenneth Wiltshire "WA pays heavy price for a problematic federation", 23/05/2011, http://www.theaustralian.com.au/national-affairs/wa-pays-heavy-price-for-a-problematic-federation/story-fn59niix-1226060664190

Professor Kenneth Wiltshire is one of few rare voices to acknowledge the constitutional rights of the states in mineral resources in the mining royalty/tax debate.

Most people ignore the constitution issues and simply argue that mineral resources belong to all Australians. It has become a complex issue with the MRRT/RSPT.

The MRRT/RSPT should have been designed as a replacement of the current less efficient state royalties and belong to the states, as opposed to the designs adopted by Canberra. In that way, the states including WA would have been on side and land their strong support.

In terms of further tax reforms, it is important that the Commonwealth learn from the GST experience to focus on national efficiency and national outcomes, as opposed to attempt to use it to further strengthen the revenue power of the Commonwealth as typified by the MRRT/RSPT designs.

As Professor Kenneth Wiltshire argued, it should consider how to address the vertical fiscal imbalances between the Commonwealth and the states and territories, currently to the tune of about $100 billion.

Swap the GST and personal income revenue is an option. Alternatively, a well designed income tax sharing arrangement may also work, still leaving the GST revenue to the states and territories as currently the case.

This, together with a new design of GST distribution, hopefully resulting from the current review Commissioned by the Prime Minister and the Treasurer, will rationalise the federal financial relation, to make it more efficient by better aligning service responsibilities with adequate revenue sources at the two levels of govenrment in the federation.


Challenges and opportunities for Australian federal relations

Comments on Rob Burgess “WA opens a new front for Abbott”, 20/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Coalition-Treasury-budget-MRRT-GST-revenue-mining-pd20110520-GZT5S?OpenDocument&src=sph&src=rot

To a person with little knowledge of federation politics, I would think the front that Rob Burgess identified should be handled with a similar principle to the GST agreement that Howard/Costello reached with the state and territory governments.

And that is, in the national interests of reforms to be more efficient, Canberra should provide more growing resources to the states and territories as not only incentives but also an implicit recognition of the rights of the states and territories in the federation.

Further, this front could be combined with the tax reforms front.

In that perspective, it would be wise for Canberra to reconsider its approach to the MRRT proposal.

PS: we have on the one hand that Canberra has been saying that the states and territories would not have the required financial resources to meet the future challenges of healthcare, on the other hand Canberra has been trying to get more and more revenue sources from the states and territories, such as the MRRT or its immediate philosophical predecessor, the RSPT.

Under this kind of approach, how can and will the states and territories have the required financial resources to provide sources including healthcare like public hospitals?

Isn’t the message from Canberra contradicting itself and confusing to the public, knowledged in the field or not alike?

It is other way round - Wayne stole states revenue

Comments on Peter van Onselen “Wayne, they stole your surplus”, 20/05/2011, http://www.theaustralian.com.au/national-affairs/commentary/wayne-they-stole-your-surplus/story-e6frgd0x-1226059271800

The MRRT should be the revenue of the mining states in the first place, given that it was designed and sold as a more efficient form of royalty regime to replace the current less efficient price based royalties.

The federal government has stolen this revenue from the states.

It is not a tax reform any more but a revenue grab by Canberra.

With this as a precedence, it will be more difficult for the federal government to proceed or introduce more national tax reforms involving the states from now on.

PS: the federal government could have involved the mining states for the RSPT or MRRT on a revenue sharing basis, say 50-50.
That would get all the mining states on board and saving the need for them to jack up their own royalty rates.
More importantly, that would mean the MRRT would be a really national tax reform.

PPS: Additional comments:
The wording in the title of the post does not appear to be correct or appropriate.
Mineral resources in each state belong to that state and imposing royalty on mining production is a right of the state.
Rather than they stole surplus from Wayne, Wayne's surplus proposition has been based on the inclusion of revenue that is rightfully the states'!
Who stole from whom?
The author probably should get some advice from constitution layers on the issue.


Daniel Gros' solution to Irish sovereign debts no credible

Comments on Daniel Gros “How to make Ireland solvent”, 19/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Ireland-foreign-debt-bail-out-Irish-pension-funds--pd20110518-GY97D?OpenDocument&src=rot

Daniel Gros appears to have been confused by different ownerships and their implications.

A/the government of a country is different from its individual constituency. Their interests may be the same on some matters, but can differ in a whole range of other matters.

In another word, their interests may converge on some and diverge on some others. Further, the interests of different constituent members are different.

This is no different to taxation.

A country (or rather its government) may bankrupt, but some of its constituency members may not be affected by that, or may even benefit from that.

Even in the context of Daniel Gros concerns, those funds may actually do better if they avoid poor Irish government bonds altogether, given the risks associated with them.

It is the risk weighted returns that matter, not what Daniel Gros simply argued.

Daniel Gros may have assumed away those risks, but those funds are unlikely to do the same.

Daniel Gros may argue that the GFC cannot happen because there are always credits for any debts owed, so if all parties come together, there will not be any credit crunch and shortages.

Is that line of argument credible in the real world? Even Daniel Gros must admit it is not.

Moody's poor work of rating

Comments on Michael Stutchbury “Downgrade points to risk, but banks still AA”, 19/05/2011, http://www.theaustralian.com.au/business/opinion/downgrade-points-to-risk-but-banks-still-aa/story-e6frg9p6-1226058539934

This is another poor rating by an old rating agency.

Those rating agencies have completely lost their creditability.

They almost universally missed the global financial crisis in terms of large countries and big global banks and financial institutions.

Now they are cutting the ratings for world’s best banks whose profits have been good including the period during the dark times of the GFC. Their profits are record and increasing.

What the Moody's credit downgrade does is to increase the costs of Australia's big banks unnecessarily and with it the costs to their customers/borrowers.

The rating agencies need to be rated and best be discarded altogether!

They are as incompetent as any poor performing agencies or firms in the world.

A rather poor thought bubble from Sinodinos

Comments on Arthur Sinodinos “Turn carbon price into a GST with tax cuts”, 19/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/turn-carbon-price-into-a-gst-with-tax-cuts/story-fn8gf1nz-1226058476248

I am afraid to say that this piece appears to represent a very poor thought bubble.

A carbon tax is a price signal to change behaviour and emissions.

To turn it to a general tax like the GST does not have any price signalling effects, let along the public resentments on increases in taxes.

It sourced the idea from Geoff Carmody, a founder of Access Economics. Carmody may be a good economist, but it does not mean is a saint and every of his idea is best or equally.

A link to direct action by government has some merits, but having the government instead of the market to do the work and select the winners is equally poor thought bubble.

This is a fairly partisan view, as opposed to a general good advice to the government or an excellent commentary from a respected independent commentator.

The government’s approach to the carbon tax has been poor, but it does not mean that any other idea is automatically and necessarily better than it or can improve it.

Abbott's direct approach without explicitly charging a tax or changing existing taxes, though having its own deficiencies and shortcomings, is far better than what Arthur Sinodinos' proposal.


Government revenue in two speed economy

Comments on Rob Burgess “Gillard's unhedged liability”, 17/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/federal-budget-Treasury-trade-MRRT-Gillard-pd20110518-GXT3T?OpenDocument&src=sph&src=rot

While I agree with the main argument of the post, I find it amusing that many people including commentators don't apply the same logic of the two speed economy for its reversing effect.

Why isn't the current revenue, with the current extremely high terms of trade, is as high as past expected? Many say it is due to the high $A, that reduced the profits of many firms (the low speed part of the economy), including miners (the high speed part) because a high $A translates the same amoung of profit in $US to a lower profit in $A.

If that is true, wouldn't the $A also fall with it then when the terms of trade falls at some stage?  As a result, wouldn't the effect (a fall) on government revenue also be smaller than what most now fear, due to a lower $A? In another word, the part of now low speed economy will become more competitive and increase in speed.

Of course, there may be a lagging effect that should also be taken into account and it would be useful to estimate how long that may likely be.

PS: It appears that the two speed economy has some in-built hedge in it due to the floating exchange rate.

A show of Rudd's influence

Comments on Annmaree O'Keeffe “Aid sector all go but no direction”, 17/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/aid-sector-all-go-but-no-direction/story-fn8gf1nz-1226057773073

The large increase in foreign aids money at a time of restrained increase in the budget total may have something to do with Rudd as the Foreign Minister.

Gillard and Swan probably didn't have the courage to refuse any reasonable demand by Rudd, given the current situation with the Gillard's minority government in the parliament.

The government commissioned review in last November could also have something to do with Rudd as the foreign minister, after losing his prime ministership and the election outcome.

The fact, that Rudd didn’t do it during when he was prime minister, but did it soon after he became the foreign minister, indicates his interesting role in the Gillard government.


Greg Combet is disappointing too

Comments on Joe Kelly “The Greens say the carbon tax will need to be far above $40 a tonne, while the Government says it will be 'well south'”, 17/05/2011, http://www.theaustralian.com.au/national-affairs/the-greens-say-the-carbon-tax-will-need-to-be-far-above-40-a-tonne-while-the-government-says-it-will-be-well-south/story-fn59niix-1226057359647

Greg Combet is becoming less and less competent in his role as the climate change minister which has the key role in setting the policy for the proposed carbon tax, although his job is inherently and undoubtedly very difficult.

All the time he has been saying that the carbon price has not been set, yet now he is also saying that the tax will be well south of $40 per ton.

Does he know or not know the likely tax?

If what he is now saying is correct, then he has been misled the public all the time.

If he has been right all the time in terms of the tax, then he is kidding himself now.

Such a display of politics by a minister is unhelpful to the debate on climate change and the carbon tax and very disappointing.

The public had high hopes for Combet to advance or at least to resolve the issue of ETS or a carbon tax. He appeared to be more flexible than his predecessor, Senator Wong, in terms of dealing with other parties in the failed negotiations for the Rudd/Wong ETS.

But it seems those have been misplaced.

Moran may add more confusion to climate debate

Comments on Alan Moran “We emit less carbon than Combet gives us credit for”, 17/05/2011, http://www.theaustralian.com.au/national-affairs/commentary/we-emit-less-carbon-than-combet-gives-us-credit-for/story-e6frgd0x-1226057027444

This post appears to add more confusion to the debate rather than make it clearer, by introducing this nonsensical and unclear emissions imbedded in trade into the picture.

It is not too different from using whatever arguments available to suit own statement irrespective its logic and soundness.

So what implications for climate change policies would Mr Moran want to draw from the introduction of this issue?

PS: Mr Moran quoted a statement from a chapter of a recently published anthology, Energy, Sustainability and the Environment, edited by F.P. Sioshansi and says ‘I observed: "International trade means countries that export energy-intensive products incur emissions on behalf of other countries.’

“This tends to reduce the national emission levels of many developed countries, while exaggerating those of some developing countries and resource rich countries like Australia.”

What does that mean? It means that the developed countries as a whole emit more than the current country statistics show. It points to more responsibility for the developed countries including Australia to reduce emissions and to pay for their above world average emissions they have.

Reforming macroeconomic institutions

Comments on Michael Stutchbury “Swan hides budget risk”, 17/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/swan-hides-budget-risk/story-fn8gf1nz-1226057027131

There is indeed a need for reforming macroeconomic management institutions, including not only fiscal policies and management, but also the integration of fiscal and monetary policies.

similar to the independence of the Reserve Bank, there should be an independent fiscal authority that sets important parameters within which the government and Treasury should operate and set its actual fiscal policies.

Further, there should be a joint body of that independent fiscal authority and the RBA to coordinate broad fiscal and monetary policies, operating in a similar line as macroeconomics would suggest, to have optimal combination of fiscal and monetary policies to achieve full employment/economic growth and price stability.

Taxes, welfare and the middle-class

Comments on Gerard Henderson “Middle-class welfare tag insults the noble art of raising children”, 17/05/2011, http://www.smh.com.au/opinion/politics/middleclass-welfare-tag-insults-the-noble-art-of-raising-children-20110516-1eps8.html

There are excellent and pointed points in the article.

The quote of tax relief is worth noting.

Although unconventional, people should also realise that people who are middle class but on a bit higher income also pay more taxes, not just in terms of per person or per dollar, but proportionately more per dollar of income. That is the nature of progressive tax, as compared to a flat tax rate regime.

On per person basis, higher income people pay much more taxes than they could receive back from government services.

That is an important feature of the modern tax system to note.

Further reforming IMF

Comments on Peter Hartcher “Perfect time to reform the IMF”, 17/05/2011, http://www.smh.com.au/opinion/politics/perfect-time-to-reform-the-imf-20110516-1eps7.html?posted=successful

Peter, this is a very good article with excellent insights.

Some reforms IMF could include:

1. to introduce some franchise into the IMF system, by having some regional sub-committees, which have decisive says on their regional economic affairs, perhaps similar to a federation structure. For example, an Asia sub-committee to have more power to oversee Asian economies.

2. The voting rights should incorporate more than existing or past financial contributions, with some sort of the nature of a senate introduced into it. More could be considered.

3. Of course, there should be some automatic redistribution of voting rights according to and in line with changed circumstances.

4. Rotating arrangement for top IMF candidates, by at least broad regions, or the top X number of voting countries, unless they agree to not exercise their rights.

An important is to initiate this sort of reforming discussions in the right circles.


More specific would be helpful

Comments on Henry Ergas “America takes us back to the seventies”, 16/05/2011, http://www.theaustralian.com.au/news/opinion/america-takes-us-back-to-the-seventies/story-e6frg6zo-1226056356121

Henry Ergas stated that "No doubt, China's economy is deeply flawed, not least because of a distorted exchange rate."

How is China's economy flawed or deeply so? In what way or ways? China is a developing and transitional economy. It cannot be compared to most of world's developed economies.

But does it mean that developing or transitional economies are flawed?

It would help the reader if Ergas was more specific or provided some detail.

It might be the fixed exchange rate, although Ergas argued that was the least of the flaws.

If that were the case, Ergas may consider the fact that free exchange rate regime has also its flaws too and some are quite serious too, such as excessive movements and fluctuations in exchange rates, causing seriously dislocations of currencies and resulting in excessive impacts on businesses and economies.

Economists, however, just accept it as the best, because it's market determine.

But are all market determined good? Why is there a need for macroeconomic theories and policies to correct the market, albeit its failures? Doesn't mean market can have its problems too?

Quality of analysis and journalism

Comments on Alan Kohler “Swan's sins of ambition”, 16/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Wayne-Swan-Federal-Budget-Budget-spending-surplus--pd20110516-GVSZ9?OpenDocument&src=sph&src=rot

Alan, there are many things that can be said in relation to your points.

Let me start with a minor one: the 'if' question you mentioned, or the 1% real growth in government spending.

The analysis by George Megalogenis of government spending growth under various treasurers since John Howard in 1978-79, has a serious flaw that you didn't notice, that is, what is/was the base for growth at different times?

When a government that has stood on historically large spending as its response to the GFC (rightly or wrongly), a 1% real growth can be very excessive than a higher real growth if the base year spending was lower and normal.

Let me dramatise this a bit. If the base year spending were twice as it should normally be, then even a reduction in spending or a negative growth in real spending may not necessarily be responsible enough.

It appears that George has some in built biases in his analysis, such as the so called structural deficits argument he is used to bang on.

He may simply follow some government saying or some Treasury bureaucrats saying, but he is wrong.

If you simply follow what George is saying, you are wrong too, because what he said is wrong.

Chris Evans empty claims

Comments on Chris Evans “Industry backs our skills plan”, 16/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/industry-backs-our-skills-plan/story-fn8gf1nz-1226056357593

Chris Evans is selectively using opinions to back up his claims.

One does not need Evans' post to know that business has always supported for higher immigration, because higher immigration benefits businesses in two ways:

1. It depresses wages as labour supply increases

2. It increases domestic market demand for goods and services

Of course the bottom line is to increase business profits.

However, if one looks from the welfare of Australians' point of view, the picture can be different. Real wages and productivity may not grow as rapidly with higher immigration. So wouldn't be their welfare and well being, as per capita income is diluted and infrastructure becomes inadequate, such as traffic congestions, worsening housing market.

Further, by increasing labour supply through immigration, government can hide its inadequacy and shortcomings in training and education of our own labour.

So political rhetoric, particularly selective use of opinions by politicians is harmful to our society and our collective welfare.

Australia is undoubtedly a lucky country

Comments on Mumble blog “Australia’s miracle economy: fact or fiction?”, 16/05/2011, http://blogs.theaustralian.news.com.au/mumble/index.php/theaustralian/comments/australias_miracle_economy_fact_or_fiction/

While the points could be regarded as well made, it would be more helpful to or clearer to readers if a table showing period averages for the three countries were presented.

Secondly, while worldwide forces affect many countries, the charts, particularly the budget balance one, do show that Australia has been lucky due to the mining boom, so has been Canada. Improved and higher terms of trade helped to achieve better budget outcomes in both countries.

Thirdly, the chart with employment shows Australia benefited more than Canada, due to labour shortage as a result of the mining boom.

In contrast, Britain has not got this luck. And it is still struggling in the wake of the GFC, while we Australians are riding on another mining boom as commodity prices rise through the roof again and even higher!

Should we index tax threshold?

Comments on Peter Anderson “Bracket creep is the budget's real inequity”, 16/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/bracket-creep-is-the-budgets-real-inequity/story-fn8gf1nz-1226056354689

Most of Anderson said is fair and rational in cold comfort.

The point about indexation of the tax free threshold to avoid bracket creeping and preventing over taxation is excellent, though it may benefit from more careful analysis and considerations.

For example, it could be introduced with a partial indexation and a periodical adjustment mechanism to make sure there is enough taxation revenue for government to carry out its basic duties. Maybe it should be a yearly 2/3 indexation with the CPI, and a 3-5 yearly adjustment.

However, one point about equity between family welfares and small business welfares is that if small businesses have low income, their owners are entitled to family welfares if their family income is low as Anderson said to be. Small business owners have dual roles, business and family, and could benefit from both welfares.

Rare earth metals and China

Comments on Ming Hwa Ting “Rare metals after the Japanese nuclear crisis”, May 14th, 2011, http://www.eastasiaforum.org/2011/05/14/rare-metals-after-the-japanese-nuclear-crisis/

Can the author supply some hard data on the world rare earth market please, including consumption, production and prices?

Have the prices of rare earth metals been relatively higher or lower than that of other commodities like oil, coal and iron ore, in recent years?

That sort of information would be more helpful to readers than the media rhetoric and west countries' banging on China's restriction on supply/exports.

China, as a main source of supply of rare earth metals, has the right to consider the prices of those metals, for both environmental and economic reasons, just as private companies do.

That is particularly the case given that China has been faced with huge environmental problems with relatively low net benefits.


Development models

Comments Sandy Gordon “India and China: Mega-population, mega-corruption, mega-growth”, May 10th, 2011, http://www.eastasiaforum.org/2011/05/10/mega-population-mega-corruption-mega-growth/

Sandy Gordon's post indirectly raises a question, that is, is there a best model for a very large and developing or under-developed country to develop?

A large country is different in many respects to a small or perhaps a city country.

Professor Gordon suggests that "The Indian one delivers economic delay, but its long-term promise is rule of law and relative transparency. The system in China has provided for rapid, command-driven economic growth. When needed, land is quickly, and often corruptly, appropriated. But the Chinese system contains little promise of a long-term amelioration of the grievances of affected people."

Obviously neither is perfect, but Professor Gordon appears to prefer the India one for its long run promise.

There is nothing wrong with that, except when one considers Keynes’ remark that in the long run we are all dead.

But to be a little serious, the post exposes the difficulties with development. Countries are different in their histories, cultures and social traditions, as well as values. Let’s leave ideology aside and ask a question: is there a way to optimise development, subject to the initial conditions?

Further, let’s go a step further than simple linear paths and assume that nonlinearity can be achieved, can the optimal path for development for a country mean non-democratic for some and possibly a significant period or periods on the way to final prosperity?

If the answer is yes, what would it mean for some ‘universal values’?

World full of diversity

Comments on Andy Yee “Autocratic peace and the Shanghai Cooperation Organisation”, May 11th, 2011, http://www.eastasiaforum.org/2011/05/11/autocratic-peace-and-the-shanghai-cooperation-organisation/

It is unclear the following interpretation or characterisation is correct: the success of the Shanghai Cooperation Organisation (SCO) "as a multilateral organisation provides support for the notion of ‘autocratic peace.’ Where democratic peace theory posits that democracies do not go to war against each other, autocratic peace theory holds the same for autocracies. This implies that it is not the political features of democracy that are important for peace, but rather the shared preferences for stability that stem from similarities in regime type."

There are many differences in the political and social systems in the world. Even within the western democracy, there are differences in the way democracy is achieved.

If one mechanically applies the simplistic approach to the extreme based on whether it is the same or different, then one could go to an extreme in the end there would only one very narrowly defined and practiced system, so all others that are different from that particular one is problematic and should not exist.

Isn't that absurd?

The world is rich, complex and diversified. The narrow minded and purest view of a singular world is unlikely to be helpful to advancing the welfare of all human beings, western and eastern included. It reduces the value of human kind.

Singaporean election system Interesting

Comments on K Kesavapany “Reflections on the Singapore general election”, May 12th, 2011, http://www.eastasiaforum.org/2011/05/12/reflections-on-the-singapore-general-election/

I have difficulties in understanding the Singaporean election system: "The People’s Action Party (PAP) was returned to power with a credible 60.1 per cent of the vote in a promise of economic growth and political stability in the next five years. With 81 out of the 87 seats in Parliament, the Government will enjoy a strong electoral mandate on which to plan and pursue policies decisively for the long term."

How do 60.1% of the vote translate to 81 out of the 87 seats in Parliament?

81 of out of 87 means more than 90%, doesn't it?

The system must have some rather interesting features of some sort of biases to produce these results. Or the election was distributed in a way that channelled the results to favouring the PAP.


Government tactics - clever, coward or irresponsible?

While all the arguments may be true, the government is skilful in trimming the APS by increasing the efficiency dividend.

So I would add some cautions to the post, even though I agree that the government created a false impression in the first place.

What the government is doing is to force or let the agency heads to do the nasty part of reducing employment in their own individual agencies without the government saying it is reducing APS jobs. It is clever politics, although it will damage and hurt some agencies more than other due to different conditions they have and whether they really have fats left or they are already being left with bones. So some may say it is lack of courage to do the right thing in the right way by a government.

The numbers of likely changes in some areas cannot show the dark side of some agencies that will have to reduce its staff numbers due to much slower than inflation increase in funding as a result of the increased efficiency dividend requirement.

Further, arguably, the increase in the pay in the APS over the last few years may not have match the increases in the private sector, even though there have been skill shortages from time to time across Australia.

Gillard government is wasting taxpayer's money again - the set-top box program

Comments on Joe Kelly “PM defends 'quality' digital set-top box scheme for pensioners”, 12/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/julia-gillard-defends-war-on-middle-class-welfare-in-budget/story-fn8gf1nz-1226054548578

Gillard is defending the indefensible: "Defending the value of the $350 per box scheme, the Prime Minster said the cost included installation, a lesson on how to use the technology and a 12-month support package.

The opposition has likened the scheme to the government's ill-fated insulation scheme, saying set-top boxes can be bought at electrical retailers for as little as $40."

The set-top box program by the government clear is not value for money and will never be.

This is not only common sense, but also back up by business people: "Retailer Gerry Harvey slammed the scheme as overpriced, saying he could sell the boxes and install them at far lower prices."

Gillard, its cabinet ministers especially those who have responsibilities for spending control and in the area of communication and businesses, should have some common sense back, get into the real world, and be responsible for taxpayer's money.

That program shows gross irresponsibility and is bordered on neglecting their duties to the taxpayers.

Clearly, they have not learned enough or at all from the government's disastrous home insulation program debacle. That was not too long ago and the memory should be still very fresh indeed.

PS: It should be interesting to know what government advicers have advised and recommended on this program, in terms of $350 per box. Freedom of information should allow one to access that information.

Gillard better than Swan on some details

Comments on Joe Kelly and James Massola “Wayne Swan can't say which year Labor achieved its last surplus”, 12/05/2011, http://www.theaustralian.com.au/national-affairs/budgets/julia-gillard-defends-war-on-middle-class-welfare-in-budget/story-fn8gf1nz-1226054476115

Prime Minister Gillard has done some home work and was prepared for the issue of when ALP government last had a budget surplus, obviously much better than her Treasurer had been.

The PM should be commended for that and by implication Swan needs to improve a lot in this area, not the least to avoid breaking a glass with water spilling over a table of paper.

Having said that, I'd like to raise two points.

Firstly, while it is politicians' tradition to portray their political opponents as no policy detail and no substance in arguments, it should be noted that it is the government not the opposition that is responsible for government budget, with the supports of the full machinery of the APS. So demanding for the opposition leader to come up with details of an alternative budget should they question the government's budget is not the correct approach by a prime minister.

Secondly, the superficial figures of tax revenue as a percentage of GDP are only part of the story of whether a government is high or low tax one. There are other relevant issues, like how the tax revenue is spent, transferred or saved, and etc.

For example, a government may actually be a low taxing government even the proportion is X percentage points higher for a government in a year if it returns an amount of revenue more than X percentage points of GDP to the taxpayer, than an alternative scenario, and vice versa. The same thing can be said if government saves part of the revenue in a fund or pays off debts.

Further, arguably, a particular year’s government revenue can be affected by many factors, such as a sudden economic boom or improvement in compliance and enforcement, and etc.

In another word, it is government spending that is a better indicator of a government size.

On that account, ALP government generally perform poorly, especially if its larger spending was also related wastage.


Way of efficiency cuts means lazy government and central agencies

The efficiency dividend policy has been a clever disguise of the government and top central bureaucratic agencies of their own incompetency and managing the budget and the public services.

It cuts the budgets of all agencies indiscriminately, so inevitably it will cause unnecessarily the decline of the much needed good services and that is an unnecessary price that all Australians are ended up in having to pay.

The other side of the problem is that it still leaves some wastage unaffected by much.

The government, assisted by the central agencies, should be able to identify where savings should be made and they should not to deliver better and improved outcomes and to be accountable to the taxpayers in terms of value for money!

Instead, they are lazy, and adopt this shamble and irresponsible policy of milking indiscriminately efficiency dividend of every agency.

The public is left bewildered on what the central agencies are doing as well.

Canada not necessarily a good carbon copy for Australia

Comments on Gerard Henderson “Look to Canada for a good carbon copy”, 10/05/2011, http://www.smh.com.au/opinion/politics/look-to-canada-for-a-good-carbon-copy-20110509-1efp1.html

While Canada might be an example to look at, it is unwise to set the lowest denominator and to race to the bottom in terms of the order of international citizenship.

There are better examples, there are worse examples than Canada in terms of climate change policies.

Arguably Australia should aim at an effective and efficient climate change policy that not only fulfil its international obligations as one of the heaviest emitters to contribute to the reductions of carbon greenhouse gases emissions, but also do so that does not unnecessarily disadvantage its own economy much in the process.

It is not an unattainable goal or an unachievable task.

For example, to have a broad based, simple, broadly trade neutral and explicit carbon tax, and also to have it revenue neutral by returning all the revenue from the carbon tax to residents who have the rights to better environment in terms of collective ownership to the environment.

Of course, to be fair internationally, the trade neutrality principle should be supplemented with appropriate regime of international compensation or reimbursement by country (as opposed to individual firms) according to the level of their emissions per capita.

To conclude, I would urge our commentators to think more broadly and strategically than just simply seek an easy solution of non-actions. Non-action is unlikely to be in Australia’s own interest, given that even the Kyoto allowed Australia to have an increase in emission levels while most other OECD countries had a target of reduction in emissions. Australia should recognise the international goodwill shown to it at Kyoto and don’t spoil it by unwiseness.

Irresponsibility and incompetence of a government

Comments on “The budget that got away”, see Mumble Blog, 10/05/2011 on the day of federal budget, http://blogs.theaustralian.news.com.au/mumble/index.php/theaustralian/comments/tough_budget/

It is hard to understand why we have to had such levels of deficits, to the tune of $51 billion this financial year and $20 billion next financial year, given that, first we didn't experience a recession, second we have very good terms of trade and external demand for our commodities is extremely high, third, we have unemployment rates at or below 5%.

Yes, Rudd/Gillard/Swan didn't have the guts to reduce government expenditure in their first budget and used the GFC as an excuse to ramp up their own spending and wastage.

More ironically and or hypocritically, they didn't dare to stop the tax cuts that Howard/Costello introduced and continued to the Rudd years. Although that may not necessarily have been a bad thing compared to their wastage, they nevertheless blame Howard/Costello for causing the so called structural budget deficits.

The fact is that Howard/Costello had budget surplus, repaid government debts and created future fund, as well as cut taxes.

What Rudd/Gillard/Swan has done? Deficits and large deficits, debts and increased debts. Wait, there are more, new taxes and more new and big taxes.

For them to blame their predecessors is a bit too rich in politics and political incompetence and spin at the extreme!

It is a shame of them. But they don’t have a sense of shame and they don’t and can’t feel it.

That is a government out of touch, and senseless!


Gillard is "refelcting the power of education for better life"!

Comments on Julia Gillard “Reflecting the power of education for better life”, 9/05/2011, http://www.theaustralian.com.au/national-affairs/reflecting-the-power-of-education-for-better-life/story-fn59niix-1226052142343

Gillard says "TOMORROW Australians will see the first budget of the government I am proud to lead.
It is a budget right for our times and a budget that reflects my beliefs in the transformative power of education, the benefits and dignity of work and the need for us to treat one another with respect."

And “This budget will move us back into the black. It is about getting our economic settings right as Australia moves from the lingering effects of the global financial crisis to the economic expansion we know is coming as the massive mining investment boom comes on stream.”

We've heard many similar statements from Gillard, such as they have got the balance right, this right, that right and so on.

But how many things have gone wrong under Rudd/Gillard and Gillard governments?

Few if any independent minded people in Australia would believe these sorts of statements from creditability seriously damaged prime minister.

Where is the statement "there will be no carbon tax under the government that I lead" a few short days before the last election?

We need a prime minister who is honest, not someone who lusts for personal power and prestige at the expense of the nation and would pursue it by any means.

But let me be more seriously picking some points from her post.

Firstly, Gillard argues that “We will rebuild large parts of our nation following devastating floods across our eastern states and Western Australia and Cyclone Yasi, which followed shortly after.

Finding the money to meet this urgent national priority has added budget pressure at a time of reduced revenue. But in the long term, we face a whole new set of challenges as the mining investment boom is unleashed with all the price pressures that come with it.”

Why does a prime minister of a country blessed with a mining boom talks about it as “face a whole new set of challenges”?

It is beyond belief to talk down such a good fortune, isn’t it? Doesn’t indicate some sort of hopelessness of a leader unable to handle even good fortunes, not to mention any real and true challenges?

Secondly, she talks about: “As the economy gathers strength and moves to full capacity, it is vital we return the budget to surplus and do not add to inflationary pressures. This budget will honour this commitment to return to surplus in 2012-13.

This is the right economic strategy and the right thing to do by families facing cost-of-living pressures. As a government we are determined to make the right choices to restrain spending, deliver a surplus and not exacerbate those inflationary pressures.”

Has her government really tried hard enough in reducing inflationary pressure? For example, why couldn’t the government find more savings instead of imposing a flood levy that will inevitably further increase the pressure of “families facing cost-of-living pressures”? She gracefully ditched some wasteful government programs such as the cash for clunkers program. Surely there are more wasteful government programs that could have been stopped. But she didn’t and the government she proudly leads didn’t.

She was the minister and the deputy prime minister who was responsible for the already reported huge BER wastes.

She has been the prime minister who could make her government mush less wasteful.

The problem is that she is addicted to government largess and she is one of the sources of government wastage.

Gillard talks about: “In government you don't have the luxury of simply opposing everything as we see from the opposition. Governments must sit around the cabinet table and decide which program is more deserving and which services are more worthy than others. Inevitably these choices require us to make tough and unpopular decisions as we place some priorities before others.”

The outcomes of her government and the Rudd/Gillard one have shown that either the government was or has been seriously incompetent in deciding “which program is more deserving and which services are more worthy than others”, or she is talking about nonsense to spin around and around and around!

The cash for clunkers was her announcement in the first place, but later on was ditched as a poor idea (and presumably a non-deserving one). The people’s assembly for consensus on climate change and on carbon price was her announcement (and not to forget that she solemnly declared a few days before the last election there will be no carbon tax under the government she leads), and was replaced with her climate change committee to introduce a carbon tax after all.

Did she get the priority right? More deserving versus less deserving right? Even where to draw the line for cut off of which to fund and which not to fund right? Or anything right at all, one has to doubt?

Question of least consequence?

Comments on Rob Burgess “The real reason to bash Swan”, 9/05/2011, http://www.businessspectator.com.au/bs.nsf/Article/Wayne-Swan-Federal-Budget-2011-Treasurer-deficit-s-pd20110509-GNSW3?OpenDocument&src=sph

Question of least consequence, are you kidding?

Rob Burgess argues that questions about “how big is the deficit, could it have been smaller, and how long will it take to erase”, are the most likely source of the bashing for Swan’s fourth budget at the budget night, but they are also the question of least consequence.

I would question why?

One should ask a serious question of why those are the only main reasons for increasing budget deficits for 2010-11:

“From the MYEFO figure of $41 billion, the budget deficit is now expected to come in at $51 billion. Roughly a third of the blowout is from funding natural disaster relief in Queensland, Victoria and WA. The remainder is largely split between a drop in capital gains tax (housing falling, shares drifting) and weaker corporate tax receipts as the China-led terms-of-trade boom continues to punish non-resources-related businesses.”

Why shouldn’t one ask about the quality of budget in the first place? That is, why didn’t the government expect some possible impact on its revenue sources when it made that budget? Or was the government too optimistic than warranted at that time?

Besides, has there any positive side story of revenue impact that that should be included, or there has been none during 2010-11?

If one looks from this aspect, then those are not least consequence questions any more.

A win or a loss?

Comments on Dennis Shanahan “A win, but move smacks of rush for solution at any cost”, 9/05/2011, http://www.theaustralian.com.au/national-affairs/a-win-but-move-smacks-of-rush-for-solution-at-any-cost/story-fn59niix-1226052150739

Was that a win? Get 4000 refugees to here and move 800 in processing to Malaysia from Australia?

If that was a solution, there will be more in future in Malaysia waiting to come to Australia, not by boats, but by planes.

Was that a secure border?

Let’s not aim at having the lowest denominate for policy standard in policy and congratulate and reward the poorest solutions.

Ending government wastage

Comments on Henry Ergas “Ending waste even more important than deficit”, 9/05/2011, http://www.theaustralian.com.au/national-affairs/ending-waste-even-more-important-than-deficit/story-fn59niix-1226052136291

Ergas is obviously correct in stating that ending wastes is more important than ending deficits.

Both are required in general, although the general theory and practice for budget balance is over a reasonable timeframe to achieve.

Most western government, due largely short term politics and irresponsible fiscal policy have abused the general policy prescription and resulted in rather large government debts and persistent budget deficits.

Government wastes should by all means be avoided in the first place and eliminated when they are discovered, even though some would argue that they are impossible to completely avoid in the first place no matter how hard a government may try to do it.

Here the short term politics comes to play. Few governments if any are selflessly working in the interests of their whole nations and virtually all governments have their own political interests that are not necessarily always the same as their national interests.

When the two conflict with each other, many government can pursue their own political interests but do it in the disguise of the national interests, or they say are in the national interests.

Australia has some good examples of government wastes recently – the bungled home insulation programs, the wastes in BER programs, and the NBN is most likely to be a much larger measure of government wastage.

The government, however, have all its reasons. And that is hardly surprising, isn’t it?

In terms of budget deficits, if the benefits to the government of the day outweigh the costs to it, then it is not too difficult to understand the incentive to have it.


Don't take mechanical approach to financial standard

Comments on Andrew Sheng “Strengthing the Asian financial system: To look forward, look back”, May 6th, 2011, http://www.eastasiaforum.org/2011/05/06/to-look-forward-look-back/

A couple of questions:

Firstly, if the global standard was not able to avoid financial crisis at an almost global scale in which Asia weathered pretty well, what is the point for Asia standard to reach that global standard? Is that for the superficial purpose to look good only?

Secondly, do we really need a global central bank? Look at the euro zone crisis one will probably not feel any need for it.


The 1999 Chinese embassy bombing and international injustice

Comments on Patrick Chin-Dahler “The anniversary of the 1999 Chinese embassy bombing”, May 7th, 2011, http://www.eastasiaforum.org/2011/05/07/the-anniversary-of-the-1999-chinese-embassy-bombing/

The US explanation or excuse of due to mistake of using old map was never credible and convincing, at least to virtually all Chinese on the mainland.

Most Chinese believed (and still do probably) that the US purposefully and deliberately targeted Chinese embassy to teach China a lesson to show China the differences in military power between the two countries. Many believed that the US and NATO might have used this action to retaliate China for its opposition to their military action against Yugoslavia and to teach other countries that dared to oppose a lesson too.

Off course China was powerless then to respond in military terms due to the lack of projection power and the much inferior military fighting power and technologies.

That was an international military power display to humiliate China by the US and NATO possibly


A better aid for battling families

Comments on Matthew Franklin “Battling parents to get extra cash”, 4/05/2011, http://www.theaustralian.com.au/national-affairs/battling-parents-to-get-extra-cash/story-fn59niix-1226049430654

The tax and benefit/welfare systems are a mess and any new measures will undoubtedly make them more complex, unyielding and worse.

Why doesn't the government create a study loan category available for high school and college students, similar to the HECS style loan to university students but is mainly for helping with living expenses?

You can even have conditions on the loans, such as a means test.

Of course, it is optional and no people would be forced to use it.

To make it even better, the loan debt for students who are from low socio-economic status family background and have achieved very good results (with pre-defined criteria) could be wholly or partly be deemed as scholarships and the obligation of pay back the loans be waived. That will provide more incentives for better learning and contribute to better future skills.

To be more accountable to Australian taxpayers, any person with such an Australian government loan should have the obligation to pay even if they migrate to other countries, as long as their income is above the threshold.


Doha round difficulties and approaches to WTO negotiations

Comments on Ann Capling “The end of Doha as we have known it: what next for Australian trade policy?” 3/05/2011, http://www.eastasiaforum.org/2011/05/03/the-end-of-doha-as-we-have-known-it-what-next-for-australian-trade-policy/

I have to say that I am very unfamiliar to WTO Doha round negotiations, not to mention the causes of current difficulties.

I would like to ask a question however. Why could WTO adopt a rather different approach to member negotiations by having a forward opt in strategy?

Such a strategy would be to advance a version of forward and make it an agreement among them first if there are at least a set minimum number of countries or with a set minimum share of world trade agree to a clause, with it open for other members to opt in at a later stage. Once opting in, a country should only move forward.

This strategy would settle on agreements and leave disagreements aside.

With proper provisions or revision to existing rules, it could avoid the current cumbersome negotiations and make gradual and steady advancement and could potentially replace the needs for regional trade agreement for many countries.

In fact, such a strategy could be applied to some other international organisations, such as different UN bodies.

More specifically, UN climate change negotiations.


Why need more bureaucracy!

Comments on “Call for a carbon RBA”, reported by Giles Parkinson, 2/05/2011, http://www.climatespectator.com.au/commentary/call-carbon-rba?cookie_check=1&=

It is an interesting but a very poor idea from a possibly heavily vested interest group.

Why do we need more bureaucracy for carbon tax?

Why can't we have the ATO collect the tax and then have the revenue simply distributed to residents on an equally basis to compensate for their rights to the climate environment?

Food security - not that simple in real world

Comments on Shenggen Fan “Urgent actions needed to prevent recurring food crises”, 1/05/2011, http://www.eastasiaforum.org/2011/05/01/urgent-actions-needed-to-prevent-recurring-food-crises/

While many of the points in Fan's article may sound good in theory, or in a hypothetical world, the reality of the world suggest there may be many problems that may render good purely economic argument in the absence of world reality ineffective or unusable.

For example, when a country starts experiencing some sorts of problems, whether it is inflation, food, energy and so on, there are diverging international political interests regarding to the situation of that particular country.

It would be suffice to look no further than the reactions and actions of different international communities in the recent and ongoing unrests in the Middle East and North Africa.

One could imagine that even the mother nature does not produce causes for concerns to some and possibly many countries, some nations would create problems in some other countries to advance own interests.

That is unfortunately a sad reality in world politics.

Any talks of food security must not be too naïve and must take into account the complex international politics and its implications.