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Saturday 30 January 2016

Common sense prevails!

Thank goodness, common sense has prevailed. I should not sound surprised, and I am not, but more than a bit relieved. The government has rejected the ALP's request to peruse the confidential volume of Dyson Heydon's final report on the TURC, and the earlier confidential volume. Despite  the ALP's promises to keep it all confidential, scouts' honour, hope to die, promises. Alas as I noted in "Ay there's the rub", given the intimate, perhaps even unholy, relationship between the ALP and the Unions, releasing documents that DH had specifically recommended "be kept secret to protect the physical well being of several witnesses and their families" (from Labor blocked from seeing secret union volumes) was a risk not worth taking.

Michaelia Cash released the decision yesterday citing "concerns ...that information about several witnesses could be leaked and investigatio­ns compromised" (from Labor blocked from seeing secret union volumes).

The ALP is predictably outraged and we will no doubt hear much more of this from ALP/Union acolytes. Behind the scenes, however, I am sure there is some understanding that this was a likely outcome. 

I am still waiting for some sensible voices in the ALP/Unions to come out and react appropriately to the widespread corruption in Union ranks. It could start with distancing itself from the CFMEU, the Union most clearly tainted by widespread corruption.

Friday 29 January 2016

School spending spree

The ALP is at it again. Yesterday, proudly with grins and great flourish, the ALP committed to spending of "$4.5 billion, over the forward estimates" and "reversing all of the (LNP) government's cuts over the next 10 years (totaling) some $37 B in spending provisions" to fully fund the Gonski education reforms.

Without even a hint of embarrassment, the pre-election spending spree is off to a flying start.

Aware that it is facing an increasingly skeptical electorate, still wondering how and when the last Labour bill will be paid off, the announcement was sprinkled with well repeated declarations that this is all paid for by savings that have already been announced. Yes, it all brings back images of Treasure Swan and his declarations of "Surplus in our time". Or the many spending commitments that were to be paid by the Mining tax. But lets suspend incredulity for the time being and assume that the new school spending will be paid for by cuts or by borrowing. Is such spending worthwhile?

No doubt education is seen by the ALP and indeed the electorate as a cause worthy of investment. Who can argue with the need for a country to educate its future workers, especially when it want to generate a society of innovators. Indeed, even if it is paid for by borrowing there is a poetic irony that the cost burden will be borne by those receiving the education. A case of accidental cosmic justice.

However such additional spending on Education ignores a critical inconvenient fact. The inconvenient fact that education expenditure does not correlate with educational outcomes. You can seem my earlier post Education spending scores "F" for the details but it is summarized most  simply in the following table.

Countries with lower "investment" in education are achieving better education outcomes than Australia and countries with higher expenditures are achieving lower outcomes.

Any teacher will tell you this does not support increased spending on education! Well perhaps not a teacher but our proverbial "fair-minded lay observer" certainly would.

Education outcomes are the result of a complex melange of factors, spending being just one. Simply throwing money at the problem will not guarantee an improved outcome. In fact recent Naplan results show the opposite.

In any case, any objective look at the table shows that Australia is not faring well. It is well down the list in 16th place with many of our neighborhood countries beating us "hands down", and with lower education spending than ours. So lets stop throwing money at the problem but really go and find how to get more bang for the bucks we are already spending.

My advice to the ALP, save that money that you say "has already been saved" and pay off some of the debt you burdened the country with after your last spending spree.

Tuesday 26 January 2016

Australians all

"Australians all let us rejoice". Whether young or old, short or tall, indigenous or immigrant or here born. No matter the colour or creed, the sexual orientation, or religion we are Australians all.

Let us all rejoice for what we have, the wonderful land we share, the wealth of the soil, the sunshine, and the sea and whenever it comes, the rain.

Let us rejoice our common touch, our egalitarian values, our larrikin spirit, our shared values.

Today is not a day for differences or reflection on failure. Sure our land is not perfect and we can see even better days ahead,  but our land is as good as any other on earth and a damn sight better than most.

Australians all let us rejoice!

Aye, there's the rub.

Over the past 18 months the Trade Union Royal Commission (TURC)  played out on our media like a slow motion Shakespearean tragedy. With all the accouterments of these plays; human vices writ loud and large; greed, duplicity, double dealing, leading to falls from grace and of course piles of bodies. We have yet to see the final body count as we are but midway through the play, but they are already piling up.

In recent days the drama has again come front and center as, rumors have it that, the Turnbull government in order to woo cross-bench support for mooted new legislation, is considering giving these accidental powerhouses of decision making access to the confidential volume(s) of Commissioner Dyson's final report.

Now Labor wants to get into the act and has asked for similar access. Ay there's the rub.

What type of information would be confidential?

No doubt Dyson Heydon (DH) had good reasons to make one volume of his 6 volume final report confidential. What would be good reasons? Admittedly I am only speculating, but I can see at least three, and there may be many more.

1. It names sources.
It could contain the names of sources who have provided information to the TURC. Some of this may have been only been made in exchange for a guarantee of anonymity.  The sources may have been exposed to corrupt Unions in their dealings and may remain in positions that would leave them vulnerable if they were identified.

Sources may be ; -
  • serving members of a Union in senior roles who could lose their position or even worse. Unions have been known to resort to plain old thuggery.
  • employer's who fear retribution from their Unions through industrial action or worse.
  • past or even currently serving MPs, who could face retribution in various forms including loss of pre-selection. 
  • current or past legal representatives of Unions who are passing on client confidential information. The consequences again can be serious.
  • ex Union officials who are appointees to government and semi government authorities. eg Fair Work Australia just to consider an example. I seem to recall a certain Fair Work judge who did give evidence to the TURC. Who knows what else could be under the covers.

In short, sources could come from any sphere that has insider knowledge of Union corruption. Many if not most of these sources have very good reasons to protect their anonymity. Exposure of their names would put them at grave risk of various forms of retribution.

2. Evidence in progress
There may be evidence of Union corrupt dealings not yet in the public domain that DH would like to share with law enforcement authorities, to allow them to act on the evidence before its general release. Such evidence may be vital to ensure success in persecuting offenders but its uncontrolled release by alerting offenders as to its existence may make prosecution more difficult.

3. Cases not covered
No doubt as DH sifted through the vast volumes of material over the 18 month duration of the enquiry he had to select which cases to cover. In this selection he would have come across many instances of potential corruption that needed further exploration. The confidential volume may contain details of potential corruption that required further investigation. Exposure of these could allow the perpetrators to 'cover up' and make prosecution impossible.

Would you trust the keys to your house to a potential burglar?

Now we can return to the question whether to give or not to give the confidential volume to the ALP?

The ALP is wedded to the Union movement. More than Half federal Labor MPs have union origins, and affiliated unions take a leading role in setting ALP policies at the national conference. Quite simply it is sometimes hard to tell the difference between an ALP MP and a Union official. They seem to talk as two faces with one creature.  None typifies this close relationship between ALP and the Unions more than the brothers O'Connor. Brother Brendan is the ALP's Opposition Employment spokesman. Brother Michael is the National Secretary of the CFMEU, which happens to be the Union with the dubious honour of having the largest number of corruption charges identified by the TURC.

Given this close relationship should the government release the confidential report to the ALP? In all good conscience could the ALP be trusted not to leak, accidentally or otherwise, any of the potentially damaging information to its brother the Union movement?

Would the proverbial 'fair minded lay observer' think it reasonable to give the confidential volume on Union corruption to the Labor party? I think not.

ALP must jettison Union ties

I guess this is the pointy end of the problem for the ALP. Its close relationship with the Union movement has made it difficult for it to be seen as an independent judge of Union corruption.

The ALP's dealing with the TURC has been totally irrational. Rather than enthusiastically siding with the workers as opposed to corrupt Union officials, and supporting the TURC, it has done the opposite. It has simply echoed the Unions' repeated calls to stop the TURC  or to discredit the commissioner. Its apparent hysteria and repeated denial of corruption despite overwhelming well documented evidence, seems to be counterproductive. It seems to be 'running a protection racket' for corrupt Union officials against their members.  This strategy is not serving the ALP nor the country. Australia needs two strong, independent, political parties. When Unionism represents under 15% of the workforce how can the ALP justify 50% of its MPs having Union backgrounds.

Isn't it time for the ALP to jettison those close Union ties and really become the party of the workers.

Tuesday 19 January 2016

Beware the self serving finger waggers

After the big bang of the final declaration at the Paris climate change conference we have barely heard a whimper. Yes, there have been distractions, with terrorism monopolizing headlines at least for the past few weeks. But have no doubt Climate change will return once again. Have no doubt we we will hear the all to frequent, the all too shrill calls to action supported by exhortations to save the planet before the rapidly approaching tipping point. Yes you detect my skepticism. My issue is not with Global Warming (see my earlier post Credo on Climate Change re my personal position) but with the whole circus that seems to be the way the modern world approaches and executes change.

Consider COP21. The wash-up is a range of 'historical', 'unprecedented', global commitments by almost 200 nations to stop the world heating by 2 degrees over the next 85 years. It sounds fantastic and I guess I believe it is. Without getting into the plausibility of the result, the real miracle of COP21 is not just getting any agreement at all, although that is admittedly an achievement, but the swifty that the largest emitters have pulled on the rest of the world. Yes I called it a swifty, a sleight of hand, a subterfuge. The largest contributors to global warming have gained commitments from smaller contributors that are clearly far in excess of their contribution to the problem.
"The largest emitters have pulled a swifty on the rest of the world"

Consider the facts

The greatest contribution to climate change since industrialization has come from USA and Europe with significant contributions by China , Russia and Japan. (see graphic below.)

China is most notable for the speed with which it has become the largest annual emitter and a significant driver of global warming in its own right, despite its much more recent industrialization.

The historical contributions of just 5 countries, if you will permit me to call Europe a country, to global warming is approx 75%. Three quarters of all global warming (to 2011) is due to just these 5. One would therefore expect that the contribution to the mitigation effort should be commensurate. Quite simply if you caused 75% of the problem you should clean up 75% of the problem. You clean up your own mess. Well, let's see.

A vast majority of the pledges made at Paris were based on a nominated percentage reduction of GHG emissions below some baseline rate by a nominated deadline. The actual percentages and baseline dates vary but do not really impact on the problem. At first glance it may seem quite reasonable that each country makes commitments that reduce their own emission rates, especially if the reductions are of the same magnitude, and indeed most countries have chosen roughly similar reductions. So each country is effectively making equal commitments based on their own contribution. That's ok, isn't it?
 No it isn't.
Climate change is the result of the cumulative impact of emissions over decades. So any mitigation should relate to the cumulative impact of a country.

But all Paris pledges are based on emissions rates as opposed to cumulative historical emissions.

And here is the problem. The large emitters, Europe and the US, and to a lesser extent Russia and Japan, went through industrialization a long time ago and have had high emissions for a much longer time. Their current annual emissions may still be high, but nowhere near their cumulative impact.

Lets look at the numbers. While the top 5 contributors to climate change represent 75% of cumulative emissions they only represent 50% of current emission rates. (see below)

So pledges based on current emission rates will always favor the earlier industrialized countries. 

But wait there is more

If that were not bad a enough there is a second problem.  GHG emission rates do not take into account the impact of imports and exports. The GHG generated in the production of goods is generally not included in the emission rates attributed to a country. So the producing country  has the burden of the emissions which are enjoyed by the consuming country. Countries like the US and Europe are major importers of high GHG products and therefore benefit from this error, while exporters like China bear the burden in their emission figures.

China is the elephant in the room

But let's not start feeling sorry for poor China. Yes, China can rightly expect an adjustment in their emission rates for the impact of exports, and it is not insignificant. It amounted to some 22% in 2005 and would, I guess be similar today (see my earlier post Seeking a fair GHG reduction target - Part 5: Who is responsible? which presents some of these figures with sources). However, even after adjusting for the exports error, China remains the largest annual emitter, by far.

In any case, China has virtually opted out of any reduction commitments. It has agreed to decrease the carbon intensity of its economy by 60-65% by 2030. But it had already committed to a 40% reduction by 2020, and it seems its extended commitment is really 'Business as usual', requiring it to simply continue along its current path of building more gas/nuclear power stations than coal fired ones.

China has justified its stance on the basis that its industrialization is relatively recent and that it should be accorded the same 'free emissions ' that the rest of the industrialized world enjoyed over the decades. That too may sound like a reasonable argument, but the figures don't stack up. China's Emissions per capita is already equal to that of Europe and also rising fast. So it should increase the standard of living of its citizens as is the case for Europe with no greater emissions than Europe's.

So like many arguments posed in this messy battle for the moral high-ground, it is self-serving, deceptive and false.

Everyone is complicit

Given these rather blatant errors in the accounting of emissions and the specious justifications for low pledges, why haven't the strong CC adherents and their media hangers-on called this out? Let's face it the chatterati are not really good at nuances. They don't fit well into a 15 second grab. As for the strong CC adherents, it is a silent acquiescence. Given that the errors in emissions accounting serve to apply more pressure to more countries for ever higher commitments, they choose to let it run. In short they are tacitly complicit.

So beware! Beware the self-serving finger-waggers wielding their dagger of shame at the smaller countries. Don't be seduced by false measures and beguiling justifications, and face the unpalatable truth, that despite the inspiring words uttered. Despite the wide acclaim by the cheering masses. Despite their much lauded commitments at Paris, our leading polluters, the United States, Europe and China, have not accepted their fair share of the burden of GHG mitigation. Shame on them.

Monday 11 January 2016

It is simply a deficit problem.

Are you a 'big-endian' or a 'little endian"? Some may recognise this as a reference to the inclinations of the Lilliputians and Blefusci of Jonathan Swift's classic Gulliver's travels. The two 'countries' had an, err, endless conflict over which side of a soft-boiled egg you break. Swift certainly took an extreme example of the trivial to illustrate the stupidity of politics. No one would think real grown-ups would have passionate and interminable arguments about such trivia.

Not so it seems! The on-going passionate disagreement between the Coalition and the ALP whether our ever extending budgetary problem is a Revenue Problem or a Spending Problem seems to fall into this category.

The ALP argue that we have a revenue problem, the government's coffers have not grown as expected, or,  indeed more recently have fallen (eg see You do have a revenue problem, Mr Morrison )

While the Coalition has argued our budgetary problem is due to expenditure (eg see Spending problem, not revenue, says new Treasurer.)

Is there a problem?

This argument has persisted for much too long. Lets try to get some perspective.

Figure 1 below (from Budget explainer: what is a structural deficit and why does Australia have one?) puts some light onto the argument.

The budgetary problem is the deficit resulting when government expenditure is greater than government revenue, ie the red line is higher than the blue dashed line in the graph above. Clearly since 2008 when the lines crossed there has been a deficit, indicated by the large and generally widening gap between Revenue and Expenditure. Moreover, without significant and ongoing reform, projections indicate the deficit is set to continue for decades! (see Australia on track for a decade or more of deficits, without major policy change)

All deficits are funded by borrowing, generally from overseas benefactors. Over time on going deficits result in an ever increasing burden due to debt servicing, and indeed with increasing interest rates as the benefactors become more nervous.

"an on going structural deficits is a failure of government."
Debt inevitably has to be repaid by some future government(s). So in effect such long term debts are left to our children. It is no way to run an economy. An going structural deficits is a failure of government. 

Yes, we do have a problem and any government must take action to eliminate it over time!

But is it a Revenue problem or an Expenditure problem?

What difference does it make? The reason that our Big Endians and Little Endians focus on this is to justify their preferred actions to resolve it, and in the case of the ALP, to obfuscate, in order to deflect criticism since, at least on the spending side, they created the problem.

The graph itself shows there was a budget surplus and indeed there was no net debt when the Howard government left office. Soon after the ALP took over expenditure rose steeply and then leveled off at around 26% of GDP. ALP argues this was necessary due to the GFC to safeguard the economy from a deep recession. While the coalition accepts some increase in spending was justified at the time of the GFC, it argues that too much was spent and that high expenditure was 'locked in' in new on going programs that would not be supported even when revenues returned to 'normal'. 

The graph also shows that after a steep fall during the GFC Revenues  recovered to the level they sustained in the past, ie within the period from 2000-2007 around 24% of GDP. 

It is therefore hard to deny that unsustainable long term expenditure initiated by the ALP has been the major cause of the current structural deficit.

At the same time, since the collapse of the mining boom over the last year, there has been a fall in Revenues that are now at the lower end of the historical range.

Yes, we definitely have a Spending problem caused by the ALP's long term expenditure commitments during the GFC, and ,
Yes, we now also have a Revenue problem as tax collections have dropped with the collapse of the mining boom. 

Yet the argument still goes on. It is simply amazing how so many politicians can talk so much about the budgetary issue with such little clarity.

It is simply a deficit problem

The professional and social media and the commentariat are just as bad. They have shed little light  but have added a lot of heat to these arguments. Invariably siding strongly with one side or the other according to their own political leanings.

Our experts, the economists, have also let us down. Instead of simply and persistently pointing out that; -

  • it doesn't matter who caused the problem, 
  • it really doesn't matter whether it's due to a revenue shortfall or too high expenditure, 
  • just admit there is a problem
  • then act to correct it, over time.

No, they have preferred not to upset their benefactors and simply said it is 'both', emphasizing the component that their interviewer prefers. Sometimes, worse still, they introduce red-herrings by pointing to tax collection and expenditure patterns in the OECD. While all that may be interesting, it only gives oxygen to an argument that should have been settled quickly by the two observations; -
Yes, we definitely have a Spending problem caused by the ALP's long term expenditure commitments during the GFC, and ,
Yes, we now also have a Revenue problem as tax collections have dropped with the collapse of the mining boom.
This pandering by the media and the experts has allowed the pollies to continue with their nonsense.

But are all deficits bad?

Many in the ALP refuse to accept there is a problem. They argue that deficits are acceptable and give examples of countries that have sustained deficits over long periods. 

There is some truth in this assertion. There are two circumstances under which government deficits can be justified. If an unforseen event, such as the GFC or the collapse of the mining boom, causes a severe and sudden downturn in revenues, a government is justified in running a deficit for the short term. This provides for an orderly adjustment of the country to the new circumstances. However such deficits are only justified in the short term eg a year or two, and certainly cannot justify the introduction of new long term operational expenditures

The second circumstance is where the country goes into deficit only to finance expenditure which increases future government revenues. If the Revenue on which this deficit is predicated is realised  within the expected expenditure budget then the deficit can be justified. However this depends on getting all your sums right and can be very risky.

Australia's deficit is the result of excessive on-going operational expenditure. It is not due to investment into projects which will generate future government revenues. Given the recent mining collapse the goverment can justifiably move slowly to address the structural deficit, nevertheless the structural deficit remains as an on-going 'challenge' and it cannot be ignored by any responsible government. 

Even if some level of action is postponed, the problem needs to be faced directly and openly!

Government must address problems

Governments are elected to legislate in the long-term best interests of the country. Responsible governments must identify any future problems, devise strategies to address them and then inform and educate the electorate to bring them on side. Clearly our structural deficit is an issue crying out for a solution.

Alas reform has been sadly absent in recent governments and our politicians have been letting us down.

The Turnbull government cannot simply ignore the economic reality that is facing the country and focus on blame-shifting and kite-flying. It cannot continue to raise, then discard potential policies when they attract harsh scrutiny. The government must act to address the deficit.

But the opposition does not get off scot free, the ALP/Greens cannot simply reject all government proposals without submitting alternative proposals of its own. These should not be the current batch of half baked solutions that offer some minor savings but do not address the massive spending black hole. As to the accidental power brokers, the minority senators, they should not sabotage a coherent legislative agenda by cherry-picking popular policies.

It is time to show real responsibility, fess up that we have a serious deficit problem, and accept the harsh medicine that is required to address this harsh reality. The continued mindless debate by our politicians over whether we have a revenue problem or a spending problem only makes them look more and more like the dwarfs of Lilliput.

Tuesday 5 January 2016

Credit card surcharge humbug!

My all too relaxed post holiday reverie was jolted rudely into reality at the hotel check-out, by one of the more recent scourges of modern consumerism, the credit card surcharge. It is not the first time that consumers have faced such direct challenges to, let's call it, "sensible product design". Who can forget the Leyland P76, especially if you owned one. Or the infamous cling wrap that cannot be cut by the device specially provided for the purpose, leaving consumers far from .. happy. Or, leaf-blowers that somehow manage to generate more noise than a jumbo jet. What is more appropriate in a device likely to be used outdoors on peaceful week-end afternoons. Or the, dare I even use the word, 'comfort' of passengers in 'cattle class' on today's economy airlines. This is tough competition.  But of all the indignities foisted on the poor consumer, the credit card surcharge stands out as a pervasive assault on our hip-pockets and an insult to our intelligence.
"Would you like surcharge with that?"
It seems reason alone has not sufficed to stamp out this blatant exploitation of our ovine tendencies. Right now there must be hundreds of straight-faced hospitality employees asking their patrons "would you like surcharge with that?" And we poor schmucks take it. Oh yes, you could rationalise that "it is reasonable to pass on a charge, after all the organisation must pay this charge". 

Oh no it isn't! Not at all.

Firstly the organisation is usually passing on a disproportionate charge. Merchants' service fees are on average less than 1% for Visa and MasterCard and about 2% for American Express and Diners. While most surcharges are ~1.5% -3% respectively and for some organisations, think airlines, the charges are even more exorbitant (see Are you being charged to charge?). So at the very least some part of this surcharge is a grab for money with the 'excuse' that a charge is just being passed on.

Secondly, companies seem to single out credit card fees to pass on to consumers. There are many costs of doing business and many of these vary depending on a whole range of factors; wages, costs of materials, transport, electricity and so on. Yet we don't receive a toilet paper usage surcharge at a hotel, or an overtime penalty surcharge when we buy petrol. All these costs are bundled into the price of goods and services and there is no reason it should be different with credit card surcharges. 

Finally and most significantly a credit card surcharge is total blarney, since it is doubtful that the cost of processing a transaction by credit card is more than processing it by cash. If you consider the additional costs that would be incurred if the transaction were paid by cash; the employee's time for collating, recording, checking the takings, transporting, banking, 'shrinkage' and bank costs. It would be fair to suggest that cash may cost more than a card. So instead of charging us for the use of a card they should be offering a discount!

Well this is one consumer who has had enough. I will henceforth take great wads of cash to pay for all my heretofore credit card charges. Imagine the look on the restaurateur as I hand over a bag of 5c coins to pay for my dinner ! I am looking forward to it.

Will you join in my crusade? Who will be strong and stand with me?
It may take a whole decade , but we can make sales surcharge free?
Come and burst your piggy banks, Lets use cash for every sale
All consumers will give thanks,  without doubt we will prevail!
(with apologies to Les Miserables)

You can see I am still in the holiday spirit - don't worry it will wear off soon.