Friday, March 19, 2010

It’s Not Just The Alcohol, It’s The Attitude

When you go out to celebrate a happy occasion or just celebrate the end of the week, there are a few things that most of us take for granted. One is that everybody else who is also out will share a simple desire just to have a good time. Instead, it seems that there is no shortage of idiots who get aggressive when they get drunk. Another thing that we like to take for granted is the idea that the people who are employed as security guards, doormen, or bouncers are there to protect us from those idiots and to look after our safety. Unfortunately these are not necessarily things that we can, or should, take for granted.

Figures released yesterday by the New South Wales Bureau of Crime Statistics and Research show that more than 10 percent of assaults that take place on licensed premises are perpetrated by employees of those premises, usually security guards – the very people who are supposed to be looking out for our safety and well being. The Deputy Director of the Bureau, Jackie Fitzgerald has been quoted by the Telegraph as describing this as a “serious concern”. She said, “It seems some security guards are performing their jobs with a lot more enthusiasm than they need to. That is really concerning because these people are in a position of authority and a position of power. Some of these people seem to be abusing that.”

This has led to calls for further improvements to both training and regulation of security guards. While security guards in New South Wales are already required to undergo more training than most other states, there are concerns about the consistency of the quality of that training. Just clocking up the required number of hours in a training course isn’t enough if the individual involved isn’t someone who is equipped with a suitable temperament or sufficient wits. Having the appropriate attitude is just as important as having the right aptitude.

Of course, the majority of assaults on licensed premises are not committed by security guards, but by members of the public who become violent thugs when they are drunk. Once again it is the minority who cause the trouble, but when they do it becomes a problem for everyone. As I have said many times before, plenty of people can drink without becoming violent, so it’s not just the alcohol, it’s the attitude. While regulating trading hours, increasing police numbers, improving public transport, and restricting the use of glass can all play a part in making a night out safer for us all, the only real way to fix the problem is to fix the attitude.

Thursday, March 18, 2010

The Price Of Emissions Trading Is More Than $300 A Year

Some of the reporting in the press about today’s announcement of increased electricity prices has clearly implied that consumers will be slugged with bigger bills to pay for an emissions trading scheme that hasn’t even been passed by Parliament yet, let alone come into operation. That implication is wrong. The announcement made by the Independent Pricing And Regulatory Tribunal C. E. O. Jim Cox today clearly states that customers will not be footing the bill for the Carbon Pollution reduction Scheme until and unless it is introduced. What the announcement does tell us however is just how much the CPRS will cost if it does go ahead.

In 2013, Energy Australia customers can expect to be paying about $754 more for their electricity if the CPRS is introduced, and $448 more if it is not. Integral Energy customers will pay about $577 more with the CPRS, and $246 more without the CPRS. Country Energy customers can expect the biggest increases with a bill of $918 a year more with the CPRS, or $601 without. In every case the difference between having an emissions trading scheme and no emissions trading scheme is more than $300 a year. In the overall scheme of things it may not sound like a lot, but for some people it makes the difference between a decent meal and toasted sandwich.

The well defined impact of the CPRS on the price of electricity can only drive home Tony Abbott’s message that it amounts to “a great big tax on everything.” It’s a clear message to ordinary everyday Australians that we will all be picking up the cost of climate change policy, whether we believe in it or not. Of course, it is unlikely that the CPRS will be passed by the Senate anytime soon, and it is possible that it might never be introduced at all. But even without the emissions trading scheme the price rises will still outstrip inflation, and income growth. That’s because of increased “network costs”, over which IPART has no control.

It is clear that these prices disadvantage country customers more than anyone else, and any price rises will obviously disadvantage low income earners disproportionately. If you are a low income earner in the country then you’re just dead unlucky. IPART has recommended that the State Government should increase and extend its assistance to more low income earners to counter the social impact of these ever increasing prices. With just over one year left until the election the New South Wales Government cannot avoid, they would be foolish to ignore that recommendation.

Wednesday, March 17, 2010

Kiss Goodbye To The Australian Dream

Maybe I have been wrong about real estate prices. Not that they are too high, but that at some stage some sort of correction must take place. My assumptions have been based on the growing divide between average incomes and average prices. That gap has long since reached the point where a family with an average income can no longer buy an average house. Not even close. While supply and demand pressures are generally the factors considered in looking at prices, there are also other factors at play. While everyone else has been saying that while a shortage of supply persists prices will continue to rise, I have taken the view that capacity to pay and social cohesion are also factors that will have an impact.

The assumption is that ultimately, if nobody can afford to buy a house, society as we know it cannot continue to function. This pressure must eventually force a price correction, whether it is achieved gradually by a long period of price stagnation as it was after the boom of the late Eighties, or a more pronounced market collapse as has occurred recently in the United States. Both present difficulties, with a long flat spot creating a drag on the economy, and a crash causing widespread financial damage to vested interests, including anyone who has bought a home just before everything turns to custard. Either way though, the balance is restored and life goes on. But the idea that a price correction is inevitable is itself based on yet another assumption. It’s the assumption that the Australian way of life, and the living standards to which we feel we are entitled, will be preserved. But what if they’re not?

The Managing Director of Stockland, Matthew Quinn yesterday delivered a speech addressing what he described as the “ticking time bomb” of home affordability. He pointed out quite rightly a number of contributing factors including what he called the “complete disconnect” between federal, state, and local governments who all have responsibility for different parts of the problem. But he also pointed out that home buyers’ expectations are also a consideration, and made the comparison between Australian cities and places such as Los Angeles, Paris, and Tokyo. Housing density in Australia is nowhere near what it is in some of those cities and we have the capacity to accommodate far more people per square kilometer than we currently do if only we accept higher density development. Stockland, he said is already successfully selling smaller houses on smaller blocks of land.

To some degree he is right, but it still doesn’t address the fundamental reasons why an average family cannot buy an average house. Instead it is asking that family to accept something less. While it is true that in the past Australians were happy with smaller houses, they were on bigger blocks of land. We didn’t need a double garage because we didn’t have two cars. We didn’t need two bathrooms, a media room and a home office. But, at the same time, we weren’t asked to give up the quarter acre block of land either. Sure we might be able to make housing more affordable for first home buyers by offering smaller simpler dwellings, but there is no need to force people onto smaller blocks of land, except perhaps in metropolitan areas. And it is the land price more than anything else which is making homes unaffordable.

That’s the most astounding point of all. Why should land in Australia be so expensive? This is a huge country with a small population. There is plenty of land. The problem is that not enough of it is released for development, and when it is the process is too slow, too complicated and too expensive. The truth is that the most significant factor making land too expensive is the huge government fees and charges that are imposed. According to Mr Quinn’s figures the average Australian family can afford to buy a house at $330 000 at today’s interest rates. At the same time, the median house price is around $480 000. That’s a gap of $150 000, but the truly outrageous reality is that around $115 000 of that is government taxes, fees, and charges. In other words, if you take away the tax component, homes are not out of reach at all.

But that’s not all. The reluctance of planning authorities to allow the release of land for development keeps supply under a tightly sealed cap. That means high demand cannot be met, and hey presto, prices go up. But under my original assumption, if nobody can afford to pay those high prices, actual sales will fall resulting in that most horrible of economic monsters, stagflation. Besides, if developers cannot sell their product they would go broke, leading to the likelihood of discounting just to get cashflow and thus resulting in lower prices. That’s why it is reasonable to consider that capacity to pay is a factor which will eventually result in some sort of correction bringing prices back into balance.

Well known economist Steve Keene has another reason why there should be a price correction. It is his view that house prices are being propelled by an unsustainable spiral of ever increasing debt, creating an asset price bubble. He famously predicted a dramatic decline in house prices in the wake of the Global Financial Crisis. It didn’t happen, but he says that the reason it didn’t happen was because the government stepped in with its economic stimulus plan, and in particular the boost to the first home buyers grant. The plan worked, and there was no price crash, but the cost of doing so was even more debt, adding to the national total. Don’t forget that it was debt that caused the global financial crisis in the first place, so it does seem a little risky to solve the crisis by encouraging even more debt. But why would the government want to keep prices high, when there is an acknowledged problem with affordability? Surely it would be better to allow prices to deflate, gently if possible, to restore the balance.

But, I have now realized that I could be wrong. Because there is another way that the imbalance can be corrected. That is if our standard of living is allowed to fall. What if our governments and their agencies are more concerned about protecting asset prices than they are about helping ordinary Australians to be able to afford their own homes? The unholy alliance between governments and developers means that there are tremendously powerful vested interests who depend upon prices continuing to rise. Those interested parties depend upon asset values for their wealth, not cashflow. It doesn’t matter to them if families cannot buy houses, because wealthy landlords will, possibly foreign investors, leaving ordinary Australians to become lifelong tenants, just like serfs in Medieval times, forever in the thrall of their lords and masters.

So yes, I was wrong. It is not inevitable that there will be a price correction. But if there isn’t, then we can kiss goodbye to the Australian Dream.

Tuesday, March 16, 2010

Time To Make Super More Super

While we don’t yet know the contents of the Henry Review of Taxation, the interim report indicated that Dr. Henry would not advocate an increase in the 9% compulsory superannuation guarantee. It is possible that the final report may make a different recommendation but that remains to be seen. Regardless of what the report might have to say about superannuation, there is a growing campaign to increase the contribution rate to 12% in order to better provide for retirement incomes. Even that doesn’t go as far as the plan originally created by Paul Keating which was designed around contributions at 15%. Thanks to John Howard, the gradual increases were frozen at the 9% level in 2002, and we’ve been stuck there ever since.

With the much talked about ageing population not only becoming older but also more numerous, the pressure on retirement incomes is obvious. The smart solution is to make sure that the superannuation system is sufficiently robust as to make individuals independent of the need for government income support, or to at least reduce their reliance upon it. That was Paul Keating’s intention and it remains just as pertinent now as ever, if not more so. The only hitch is the question of who should pay for it.

It’s no secret that employers feel that they already carry their fair share of the load, and are reluctant to pay more. And that’s fair enough. That leaves two more options: employees, and the government. A plan to combine both to boost superannuation contributions has been floating around in one form or another for years, and would seem to be a practical solution if everyone could be persuaded to agree to it. Interestingly, research by the Australian Institute of Superannuation Trustees has shown that more than 60% of Australians both believe that the contribution rate should be increased to at least 12% and they are prepared to pay for it out of their wages.

That leaves the government to kick in a further 3% to finally get the system up to the level originally prescribed by Paul Keating. Now, 3% sounds like a relatively modest amount, but when you consider that there are about 10 million people in the workforce it starts to add up. In fact, if it was introduced today it would cost the budget something approaching $20 billion. Interestingly, the bill for the age pension is not much more than that. Now, it’s just not possible to flip from one to the other instantly, but with the certainty that if nothing is changed more and more people will depend on the age pension, surely it makes sense to begin some sort of transition. By starting to invest government money now into superannuation there will be fewer people in the future who will depend on the government for a pension, and that’s a win for everyone.

Of course, there are other things that can and should be done to make superannuation more effective. Fees and commissions are already under scrutiny, and the taxation treatment of superannuation should also be overhauled to leave more of the nest egg intact for its owner. But even if the Henry Review does nothing for superannuation, it’s time to look seriously at improving the system to allow it to do what it was originally intended to do, and that is to give Australians security and dignity in their retirement.

Monday, March 15, 2010

Power Prices Punish The Poor

It’s no surprise that more people are calling on the New South Wales Water and Energy Ombudsman for help because they are concerned that they face having their electricity disconnected. It’s no surprise that more people than ever are entering into bill extension or payment plans with their electricity provider. We have been told loud and clear to expect the price of electricity to keep going up, regardless of the lack of similar increase in our income and our capacity to pay. We have been subjected to a softening up process to convince us that rising prices are not only inevitable but they are justified.

It’s true that there are genuine cost pressures behind the price increases. Even without considering the impact of climate change policy, which won’t kick in for another few years anyway, there is the reality that energy infrastructure is in desperate need of renewal. Older facilities need to be replaced, and newer ones need proper maintenance, just to keep up with current demand, while demand itself is also increasing. Over the years, state governments have happily taken massive dividends from state owned utilities without reinvesting in future capacity, or even in some cases adequate maintenance. As a result, prices will have to go up just to pay for the upgrades that should have already been in the pipeline.

Already this is resulting in more people than ever before struggling to pay for their electricity needs. We have all been told that we need to do more to become energy efficient, by turning off the lights, investing in more efficient appliances, and cutting back on the use of air conditioning and heating. That way we will save ourselves money, as well as reduce our carbon footprint. But it’s tempting to ask why should we have to? Shouldn’t the government have managed our utilities better? Shouldn’t we be able to enjoy the benefits of 21st Century technology? Why should we have to inconvenience ourselves because our governments and their bureaucrats haven’t adequately planned for the future… a future which is now on our doorstep?

Of course, it’s only sensible to stop being wasteful and to save ourselves some money by becoming more energy efficient, and there’s nothing wrong with that. But for the most vulnerable people in our community, the people with the lowest and most uncertain incomes, the options are not so many. If people are already forcing themselves to get by on two light bulbs and a toaster oven, and finding it difficult to pay the bill, what more do they sacrifice? Pensioners have been stretching their budget for years and can just barely pay their bills now, so what are they supposed to do when their power bill goes up by 20, 30 or even 40% over the next few years?

Part of the problem is the failure by the authorities to adequately plan for the future needs for the community. Part of the problem is the wave of privatization which has overwhelmed political thinking. And part of the problem, if we are to be completely honest, is the sense of entitlement that we all have to enjoy the benefits of our big screen TVs, dishwashers, and air conditioners. Nevertheless, we confront a future of growing inequities with the less well off becoming increasingly marginalized and dependent upon charity for survival. That’s not fair, it’s not just, and it’s not the Australian way. But it appears to be exactly where we are going.