The Morrison government has flagged tax cuts and aggressive deregulation as part of a pro-business road to economic recovery. A focus on stimulating rapid growth on the other side of the coronavirus pandemic is expected to guide October’s federal budget. — AAP report, April 20. Future government action must focus strongly upon savings as a result of the 15 per cent of GDP ($340 billion) that has been spent on combating coronavirus
The Australian economy has been flagging for many years now. Over the past year we actually saw a decline in GDP per capita and per hour worked. There are many reasons for this but all come back to government intervention – excess spending on unproductive welfare measures, over-taxation of business income and the general regulatory morass that has come to characterise economic management.
Getting back to parochial matters, the following is my take on the Victorian Andrews Government political playbook as published in the Herald Sun this morning A benefit of election campaigns is that while they are in progress politicians don’t have access to the legislative and regulatory levers. Election campaigns and caretaker government mean politicians can only talk about “fairness” or “reconciliation” or how they are going “to create the modern dynamic 21st century economy”. Governments
The debate ignited by the Productivity Commission over the effectiveness of superannuation funds as pension funds contains some enigmatic facets. One is that the funds themselves, especially the trade union dominated “Industry Funds”, tend to make their investment choices overwhelmingly at arms-length on the advice of professionals. Many funds use the same advisers hence might be expected to have a similar portfolio. Moreover, in that respect, the work of the trustees is confined to selecting
Like a border skirmish that develops into a global conflagration, John Howard’s policy to require “two per cent additional energy” be met with renewables has escalated into a measure destroying the electricity market. Back in 1998, the idea sounded good: give renewables a leg-up while they march to their inevitable destination involving cost-competitively displacing fossil fuels in electricity supply.
The unions have found a cause in Barry’s– a brother and sister run café in Melbourne’s Northcote. United Voice got a big enough crowd to fill a TV screen to protest against “wage theft”. The café was paying casual staff the (lower) permanent staff rate but giving them free coffees and meals. The ABC, which as a taxpayer financed supplier can readily afford to pay the wage rates designated by some isolated umpire, was offering great publicity to the union campaign.
The attention attracted by US import duties is important on many dimensions. Alan Kohler, in the process of suggesting that Trump might be deliberately trying to start a trade war, pointed out that the policy communication came at a press conference, following talks with steel executives. Right at the end of the press conference, the President unexpectedly announced, “Twenty-five per cent for steel. It will be 10 per cent for aluminium. And it will be for a long period of time.” The act
Many of us have a nostalgia for the days, commencing with the Hawke-Keating competition reforms, when there was a phalanx of business people calling for deregulation, privatisation and smaller government. Prior to the 1980s the manufacturing groups were calling for more support against imports, including stopping “dumping” a policy approach that Australia took to global heights. Farmers were not too bothered about import protections, which raised their costs, but certainly wanted more subsidie
Gas and electricity crises need deregulation not more interventions
Catallaxy Files, 27 September 2017
It is perhaps a little cruel to apply the epithet, “The best energy minister we have” to the likeable Josh Frydenberg, especially since he alone with Tony Abbott actually writes his own media pieces. In today’s AFR he writes about the unfolding gas crisis. While he cannot blame the Queensland government, where the ALP has followed the Coalition in permitting gas exploration, he blames the ALP under Gillard for permitting too many exports and the Andrews government for forbidding gas exploratio
Yesterday the Commonwealth government gave environmental approval to Project Sea Dragon, a $2 billion scheme involving prawn farming in the North. According to reports it will increase the national prawn catch by 55 per cent and employ 1400 people in activities that deliver real worth involving willing customers. Revenues of over $1.25 billion a year are expected. This involves a welcome change from the negative value-adding that has been par for the course with subsidised wind farms, Snowy
Each year the energy regulator, the Australian Energy Market Commission (AEMC), publishes data on the make-up of electricity costs for households. This breaks down costs into three categories: environmental, regulated networks and wholesale/retail. In Queensland federal environmental policies cost the average household $63 and state based schemes a further $128, adding 7 per cent to household electricity bills. NSW consumers get off more lightly: Commonwealth environmental schemes cost them $72 with state schemes a further $37. Victorians pay only $48 in subsidies for the Commonwealth schemes and $33 for the state schemes, while South Australians pay $62 for the Commonwealth schemes and $93 for those of the state government. But these are only the direct costs. The environmental regulations bring three other classes of cost. The first of these is resulting in the closure of coal-fuelled power stations because increasing amounts of volatile subsidised “must-run” wind forces them into stop-start operations. This undermines the economics of generators designed to provide stable supplies of base load power. The latest forced closure is the Victorian Hazelwood facility. Hazelwood’s shut down is estimated by the AEMC to bring about wholesale price increases of 55 per cent next year in Victoria and Tasmania, and lesser price rises in other jurisdictions. That comes to about $200 per Victorian household. The renewables subsidies will drive further such closures which will add to these costs.
According to research commissioned by The Australia Institute if we ban all new coalmines, allowing coal production to fall from 420 million tonnes annually to under 50 million tonnes, we would see a trivial 0.6 per cent fall in GDP. To arrive at such numbers TAI commissioned Victoria University to use a garbage-in-garbage-out analysis with fungible labour, capital and technology. The model’s construction means that any industry’s demise assumes factors of production just slip back to their next best use. Other industries will fill coal’s export hole and renewables will replace it in domestic electricity production. Under such assumptions we could prove trivial losses from other capital embargos. This would be the case, for example, if we were to pursue another TAI objective and ban all investment in agriculture (leaving the industry to comprise only wine and organics on the non-irrigated slivers of land not reserved as natural parks or aboriginal reserves). Comparable modelling outcomes would emerge from the TAI’s more ambitious anti-mining objective whereby new investment in mining as a whole was to be banned.
Support from vested interests a cost to the economy
Herald Sun 24 June 2016, and Catallaxy Files 24 June 2016
A benefit of election campaigns is that while they are in progress politicians don’t have access to the legislative and regulatory levers. Election campaigns and caretaker government mean politicians can only talk about “fairness” or “reconciliation” or how they are going “to create the modern dynamic 21st century economy”. Governments already take nearly 40 per cent of our income, mainly for welfare spending, and Commonwealth regulations cost us an additional 11 per cent. Come July 3, whoever wins the federal election will inevitably add to the already towering tax/spending and regulatory burdens. For Victorians the Commonwealth’s impositions compound those of a state government addicted to ever increasing levels of spending and regulation.
The fraud and spending excesses behind the Road Safety Remuneration Tribunal
Catallaxy Files, 21 June 2016
Addressing independent truckers, Malcolm Turnbull announced that the $4 million saved from the abolition of the Road Safety Remuneration Tribunal (RSRT) will be diverted to the National Heavy Vehicle Regulator, with extra money pumped into road safety programs such as Roads to Recovery. I wrote about the issue a couple of months ago, as did Judith. The RSRT was set up by Gillard government’s Minister for Workplace Relations, Bill Shorten, with an ostensible agenda of reducing road accidents by forcing owner-drivers, but not unionised businesses, to set prices for carriage at levels above market rates.
MARK Twain said, “No man’s property is safe while the legislature is in session.” That was at a time when government took less than 10 per cent of people’s earnings compared with today’s 40 per cent. Even so, the present federal election campaign proves him wrong. Parliament isn’t sitting but the major parties’ spendathons and regulatory excesses are growing like burgeoning tumours, devouring the only areas where wealth is created — private businesses and their employees
A re-affirmation of small government, ideally including constitutional limits on its size and regulatory authority within the economy, is necessary if stagnation is not to become the way of the world. Or we could ape Japan's example and learn to live with little or no growth, not now or ever
Removing specious road safety regulation two steps forward two steps backward
Catallaxy Files, 18 April 2016
The safety of road transport by heavy vehicle has, like all transport, mightily improved over the years. Better trucks and better road are the chief contributors. Australia, in spite of having a geography that entails a great many long distance heavy truck journeys, is about average within the OECD with 5 deaths per 100,000 people per year – that’s down from over 13 per 100,000 in 1990
One significant change Malcolm Turnbull has introduced is the creation of a mini-department for Cities. This is in spite of the Commonwealth having few city specific taxation and regulatory responsibilities. The original ministerial choice, Jamie Briggs, has yet to be replaced after being sacked for unwanted familiarity with a female public servant in a Hong Kong bar. The Gillard government had previously developed a Cities policy and issued a 90 page glossy publication, “Our Cities, Our Future”. This had catch-all goals of “productivity, sustainability and liveability”. The ALP policy featured a range of “positive” programs to promote its objectives including creating jobs to green the cities, incentives for green buildings and promoting healthy lifestyles. The program’s credibility was undermined by the ludicrous claim that it was building upon the ALP’s non-existent deregulatory program!
The break-neck growth of the Chinese economy over the past 25 years generated the Australian mining bonanza. This transformed us into a virtual economic province of China. It brought significant economic growth, though this was diluted by the offsetting effects of wasteful government welfare spending and regulatory controls over business. The many domestic political extravagances that offset the benefits of the mining boom included energy policies that demoted the Australian electricity industry from world efficiency leadership to world price leadership, and regulatory measures that undermined agricultur
In the lead-up to December’s Paris conference on climate change, more than 100 major firms have promised the White House they will lower their emissions of carbon dioxide. BHP, Alcoa and Rio have joined 11 other firms in undertaking to “mobilise the technology, investment and innovation needed to transition to a sustainable low-carbon economy”.
It comes as no surprise that Wotif founder Graeme Wood should be funding a group of Aborigines as one of the bow strings for prosecuting the case against the development of Adani’s Carmichael coal mine. Wood and his associates sought out, financed and organised the Aborigines group to claim that the Indian owned coal mining was engaged in racial discrimination. That was going nowhere but it adds to the cacophony that the ACF led forces are creating around the mine, a cacophony that is the vanguard of the general attack on coal and modern development generally
Tapping coal seam gas reserves has been among the most challenging political issues around the world. Perhaps this is because the mineral extracted is new and those ranged against such activities can mobilise opposition and invent new dangers from a novel form of mining
Fracking for gas in Victoria: Another useful idiot prevents progress
Published on Catallaxy Files, 19 August 2015
The Victorian Auditor General, John Doyle is another key state government identity (actually appointed by the Coalition) who is under a “personal grievance” cloud, having left a previous position in British Columbia following expense fiddling allegations. He was somewhat controversial in his previous post in criticising the BC government’s performance in preserving biodiversity, which he declared was “.. like a canary-in-the-mine situation. Declining biodiversity is like a litmus test, a warning sign, that tells you about an environment under stress.” With such statements under his belt, his report on fracking to tap “unconventional gas” in Victoria is unsurprising. In it he, “concluded that Victoria is not as well placed as it could be to respond to the risks and impacts that could arise if the moratorium is lifted allowing unconventional gas activities to proceed in this state.”
Red tape killing the investment that will pay for our future
Australian Financial Review, 23 July 2015
Fifty years ago Western Mining made encouraging exploration finds at Kambalda in Western Australia and proceeded to get two government approvals and build a mine that was operating within 17 months. It became one of the biggest nickel mines in the world. Contrast the regulatory approach 50 years ago with the obstruction faced by Shenhua's Watermark mine on the Liverpool Plains. At a cost of $1 billion, this is planned to add 10 million tonnes a year to Australia's existing coal production of 500 million tonnes.
The White Paper on Agriculture has been a long time coming. Its gestation would not have been helped by departmental changes. Barnaby Joyce fired the Department head he inherited, Andrew Metcalf, who had no experience in the portfolio prior to his appointment in 2013. Barnaby unaccountably acquiesced in or was forced to accept as the new Departmental Secretary Paul Grimes, who also had no experience in the portfolio. Presumably someone thought Mr Grimes, as a former head of the Department of Sustainability and What Not, might be an ideal leader for a department that fosters rather than combats production.
A DECADE of stagnating output and sluggish productivity growth in agriculture screams out for reform but a foreshadowed Commonwealth policy review is behind schedule. The farm sector’s malaise stems from government regulation. This has prevented land clearing and blocked new technology like genetically modified crops, which now dominate global agriculture. Above all, it has denied agriculture the water supplies, which in Australia are its lifeblood. Endless bureaucratic and environmental barriers together with determined opposition from mindless green activists prevent rivers in northern Australia from being used
Regulations to Loot the Customer: the energy game
Text.Published on Catallaxy Files, 19 February 2015
Business Spectator’s writers are a queer bunch. Bartholemuesz is among Australia’s top half dozen business writers and both Kohler and Gottliebsen are often bang on the money with insightful and interesting pieces. And, heavens above, they even publish Sinclair. But its energy team, Tristan Edis and Matthew Wright, often write as though they are bag men for the renewable industry.
Regulations prevent agricultural output from supplying markets opened by trade negotiations
Published on Catallaxy Files, 29 January 2015
“I can feel a dam coming on” was the refrain made famous by the Modest Member. A new dam, new road, additional water rights, were among the baubles seemingly available from governments to be scattered among the voters when favours were needed. Their urban counterparts were job subsidies, new training schemes to counter the high regulated youth wage, and even more darkly, trade restraints and subsidies to manufacturing. Although few of these expenditures actually added more value than they cost, at least in the case of the majority, they added some value. All that has changed. Starting with the Hawke Government campaigning against the Tasmanian Franklin dam in 1982, governments have seen the route to the voters’ support as being a promise to stop some productive activity:
Christmas Eve is the ideal time to announce a policy that is old news before anyone can digest it. True to form, yesterday, the parliamentary secretary for agriculture, Richard Colbeck, said the government would stop vessels longer than 130m from fishing in Australian waters. The ban is aimed at integrated factory fishing vessels that harvest the catch faster and more efficiently.
Bill Carmichael in an op ed piece in today’s The Australian promotes many of the right policies for sound government. He suggests we should have a level playing field – though in citing business leaders in support of this he is being rather selective. And he rails against the appalling anti-dumping arrangements that we have which we use as protectionist tools. Indeed, he is rather soft on this, saying the reversal of the onus of proof is the problem
Government "industry" policy in Australia has a dismal history. In the past, policy was dominated by tariffs that sought to provide a domestic market for local firms in the hope that these would eventually become internationally competitive. Supporting that approach was "positive" assistance with research, including advising firms about how to conduct their businesses. These Government measures simply frittered away wealth in subsidies to failing firms, high prices, and in staff costs to government agencies.
Prime Minister Tony Abbott and his energetic parliamentary secretary, Josh Frydenberg, have delivered the government's first bonfire of regulations, together with guidances designed to arrest the flow of new regulations. Modern-era deregulation began in the 1980s with United States president Ronald Reagan. He required a systematic appraisal of new regulations and a deregulatory oriented review of existing ones.
In electricity supply, Victoria is widely regarded as the most competitive jurisdiction in the world. Supply comes from dozens of generators including from three major businesses producing within the state. Victoria's "poles and wire" networks are all privately owned and operate far more cost-effectively than those of other states. Indeed, former prime minister Julia Gillard, though a lifelong socialist, urged New South Wales and Queensland to privatise their networks and thereby match Victoria's cost reductions.
Prime Minister Julia Gillard, in promoting the case for Budget deficits, says, "Imagine a wage earner, John, employed in the same job throughout the last 20 years". She reckons that, if faced with reduced income this year but hopeful of future increases, John should cover his expenditure by borrowing. There you have the Government's spending strategy. This does not work for individuals. Still less can firms follow her advice and, faced with losses, keep chugging along as before on borrowed money.
This year thousands of pages in government reports have addressed electricity supply policies. Electricity is also at the eye of the carbon emission restraint storm that continues to blow, even after the latest fiasco at Doha. Having started this century with deregulatory and privatisation measures that elevated Australian industry to world leadership in low-cost supply, the electricity sector is reverting to its over-regulated condition before the Kennett and Keating reforms of the 1990s.
Australia has thrived by achieving high productivity levels, especially in our agricultural and mining industries. Commercial fishing has had a more mixed success, partly because Australia's catch quotas are set extremely conservatively. As a result, we are a net importer of fish despite having the one of the world's largest oceanic territories. Aggravating this is the Commonwealth Government banning the Abel Tasman, one of a new more productive class of trawlers, from taking part in Australia's fish harvesting. The ban has no effect on the catch because it is already limited by a fixed quota.
Caltex has seen its share price value outperform that of similar stocks in recent weeks. Usually it is a promising new investment that drives a firm's improved stock value but in the Caltex case it is disinvestment that has prompted the share price to rise. This involves a contemplated closure of the firm's Brisbane and Sydney oil refineries, first foreshadowed in December 2011 and followed by an announcement last month. The Caltex refineries are old but have been continually modernised. Their inefficiency in producing petroleum products relative to imports is due to economies of scale. Compared with the 500,000- 1.5 million barrels per day (bpd) of modern refineries, Australia's seven refineries have 80,000-140,000 bpd capacity. Mobil closed its Adelaide refinery in 2003 and Shell will do the same for its Sydney site.
How many separate approvals are required before an owner can move into a new house in Melbourne's designated urban growth area? Twenty? Fifty? According to Victoria's Growth Area Authority (GAA), 540 different ticks are needed from regulators. It's no wonder that not enough houses are being built and that completed houses cost so much. It's miraculous that 35,000 new houses actually get built each year in Victoria. We have lots of land and an efficient building industry so there should be plenty of new houses available on Melbourne's urban fringe at under $200,000. This is the case in many major US cities - even those like Dallas with booming populations.
Nobody is accusing the Baillieu Government of intemperate haste in rectifying the Bracks-Brumby era's unrestrained spending programs and regulatory excesses. In real terms, between 2000 and 2010, Victoria's government spending increased by 57 per cent. We got scant value from this, thanks to ballooning public service numbers and a wasteful infrastructure program, including the desalination plant and the Sugarloaf pipeline. The Productivity Commission estimated excess costs from Labor's water policies at $3 billion, though it also said the Baillieu Government's regulatory proposals for water recycling were excessively expensive.
Free trade provides the cheapest goods and services for the consumer and increases real living standards. But pressures for increased industry protection from overseas suppliers are re-emerging in Australia. In broad terms, the average Australian tariff, and its subsidy equivalent, has been reduced from about 35 per cent to 5 per cent over the past 40 years. Other specific assistance measures like government purchasing preferences, local content arrangements, air travel, and agricultural marketing arrangements have also been substantially dismantled. The two most protected industries are textiles clothing and footwear with support at 13 per cent (down from 20 per cent in 2003) and motor vehicles at 11 per cent (down from 17 per cent in 2003).
Last month's Productivity Commission report on the retail industry came when the industry is under increasing pressure. Sales, especially household goods and clothing, are sharply down over the past six months. This tailspin in demand stems from economic uncertainties created by perilous global economic conditions. But these have been exacerbated by the Federal Government introducing wealth-sapping avalanches of costs and regulations that reduce efficiency and undermine the ability of business to operate profitably. Economy-wide, these include the carbon tax, government debt-financed spending on school halls and green power, a $44 billion white elephant telecommunications network, industrial relations measures that restore workplace control to unions, taking water off irrigators, preventing cattle exports to Indonesia and yet another forest accord to stifle Tasmanian business.
Gillard is no Hawke or Keating: in economic policy or market economics
Online Opinion 11th July, 2011
Julia Gillard has adopted a polar extreme policy approach to the Hawke-Keating Governments. The ALP regained power in 1983 on the back of Bob Hawke, who was catapulted to the party's leadership on the very day the election was announced. Having solid recognition and facing a haughty, unpopular Malcolm Fraser he sailed into office. In contrast to the turmoil of the Whitlam period of office, Labor in 1983 courted solid performance as a key to parliamentary longevity. To assist its policy development it recruited a host of friendly economic rationalists into a government think tank: the Economic Planning and Advisory Commission (EPAC).
The annual report of the Victorian Competition and Efficiency Commission demonstrates the regulatory burden imposed by the State Government increases every year. In an attempt to get benefits from new or changed regulatory proposals, the Government requires a Regulatory Impact Statements (RIS). In practice, these reports are often whitewashes that justify the prejudices and regulatory preferences of politicians and bureaucrats.
The China boom has continued to lift Australian income levels via mining demand and this has been supplemented by general increases in primary product prices. But our success has been due to the investment environment of the past two decades and earlier. The "micro-economic reforms", started in the early 1980s by the Hawke government, dismantled many of the government-imposed restraints that added costs to enterprise, and injected greater competition into a range of products and services. The Howard government built on these with labour market reforms, while privatisations amplified the benefits.
Julia Gillard told us last week why it is imperative to get the legislative program started. Unfortunately. absent from this was the need to put Parliament to work removing the crushing regulatory and tax burdens the government imposes. Instead, she promised us new and expanded quangos, with their collateral damage of an increased public service staffed by people attracted away from productive activities. Gillard's legislative agenda foreshadowed one new bureaucracy to set national safety and quality standards for Australia's hospitals and health services. Another is to improve access to services and representation for university students. And there's to be a body for "national preventive health".
Shoppers better off if building red tape is cut
Herald Sun 18th September, 2010
Herald Sun 17th April, 2010
Easter in Melbourne this year was a throwback to the 1970s, with closed shops and empty streets. Interstate visitors looking for bargains in the city's fashionable precincts had to settle for a cup of coffee. Effectively outlawing shopping on three of the year's prime trading days has a particularly adverse effect on Melbourne's attraction as a tourist destination. Enforcing shop closures considerably reduces the city's draw as a visitor destination, undermining a considerable amount of economic activity
Mr Bracks must have considerable wisdom. He has examined the car manufacturing industry, had a damn good natter with its workers, managers and shareholders and concluded that more support is necessary. Currently the industry has taxpayer subsidies valued at $4 billion between 2006 and 2015. In addition, it has tariff protection which increases import costs by 10 per cent. Together, these measures are worth the equivalent of more than $20,000 annually per automotive industry worker. Mr Bracks recommends increasing the direct subsidy by a further $1.5 billion, re-orientating it towards green cars and extending it to 2020. Tariff assistance is scheduled to be cut to 5 per cent and he supports this
Sector-specific policies a brackish solution to car industry's woes
The Age 19th February, 2008
Paying the price for our regulatory zeal