Friday, April 11, 2008

Compensation Plan Proves The Point

The latest installment in the power privatization saga is the plan announced this week to provide funding to assist consumers to the tune of $272 million, as well as a further $100 million for a clean coal fund. The measures are part of the government’s response to the Unsworth inquiry into the proposed privatization. Those who oppose the sell off have long maintained that it would result in job losses, and increased prices.

In an effort to address those concerns, the government is now offering an increase in the rebate paid to pensioners, along with rebates for carers of sick children and low income families. It has guaranteed a “no disconnection” policy, and it has guaranteed existing jobs will be retained.

At the same time the government has refused to accept the recommendation that prices should be regulated.

It’s not a great feat of logic to understand that any private owners of electricity providers will be seeking to maximize their profits. Of course, if they were permitted to, they would reduce staff if they believe it to be more efficient. Of course they will increase prices if they believe that the market will sustain it. And the refusal to regulate prices leaves that possibility open. On top of that is the obvious truth that climate change measures are also going to push prices up.

Despite claims that increased competition will keep prices down and provide better customer service, many people just don’t believe it. And the fact that the government is prepared to spend so much money to address the concerns is readily seen as a frank admission by the government that those concerns are well founded.

In other words, if privatization is going to deliver so many benefits, why would they need to pay compensation?

Thursday, April 10, 2008

The Thoughts Of Chairman Mao

It’s not everyday that a western political leader stands in front of a group of students at the Beijing University and addresses them in their own language. Our Prime Minister Kevin Rudd appeared to surprise and delight his audience when he did exactly that. The students apparently laughed in the right places, and had no trouble understanding what he had to say. However, they may not have agreed with what he had to say.

In the speech, Mr. Rudd took the opportunity to once again highlight his concerns over the Chinese human rights record in Tibet. Although it might seem impolite to be criticizing one’s hosts, it would be hypocritical to not be forthright. It appeared that the students in his audience who spoke to the Australian media afterwards mostly were impressed with Mr. Rudd, but very politely disagreed with his views on Tibet. We may never know if they do that from fear of their own government, or because they actually believe it.

The response from Chinese officials has been more blunt, describing Mr. Rudd’s statements as “totally unfounded”. The Chinese Governor of Tibet claimed that more than 95% of Tibetans enjoy “probably the best human rights on record”. Of course, the problem with that argument is the 5%. What sort of humans rights are they accorded?

While China today is vastly different from the old days of Chairman Mao, it seems that one thing is still the same: the belief that all power comes from the barrel of a gun.

Wednesday, April 9, 2008

Interest Rates Have Already Stung The Economy

There seems to be quite a wide range of views about where the economy is heading, and just what the impact will be on you and me. When the United States sub-prime crisis began to hit last year only the very pessimistic predicted that the effects would flow on to Australia in any meaningful way. The majority of opinion seemed to be that a combination of a supposed “disconnect” between the United States and the rest of the world, along with a booming Australian economy driven by resource sales into China meant that we could quite safely ignore the whole thing.

Tell that to investors in Centro or MFS.

Even now, the conventional wisdom is that Australia can still be shielded from the worst of the fallout by a combination of the resources bonanza and the massive Federal Budget surplus. It’s true that those factors are providing considerable comfort, but at the same time the evidence is suddenly piling up that the rapid succession of interest rate increases has triggered an abrupt slowdown. The number of observers now prepared to contemplate the idea that we have thrown the brakes on too hard is growing daily.

Equally, the doomsayers are still telling us that our housing prices continue to be massively over-inflated, which combined with high debt levels is a recipe for a market correction of United States proportions. In my view, the only thing preventing that is the massive undersupply of new housing, which has been artificially constrained to ensure continued price growth, and returns for developers. While availability remains a problem, so will affordability. But as soon as availability is addressed, and it has to be, then all bets are off.

It has reached the stage where the International Monetary Fund is warning that the Australian property market is ripe for a correction of the order of 25%. Despite this, most mainstream economists are still suggesting we are somehow immune from such a prospect. The fact is that we are not. With a slowing economy it is likely that we will see profits fall, unemployment rise and mortgage defaults increase. If the downturn is severe enough it will trigger a slide in property values.

That’s why even the optimists are starting to feel nervous.

Tuesday, April 8, 2008

Brendan Who?

The leadership of Brendan Nelson is already dead. It just hasn’t fallen over yet. On so many fronts Dr. Nelson has failed to make a convincing impact as opposition leader. Of course it was always going to be difficult taking over the reins in the wake of a devastating election loss. No matter who got the job, there was always going to be a period of wandering in the wilderness. And it was always likely that whoever got the job would be a seat warmer for somebody else.

While the Prime Minister has been touring the world talking to other world leaders, Brendan Nelson has been traveling around Australia supposedly listening to the people. His opinion poll ratings have fallen, while Kevin Rudd’s have risen.

While the treasurer Wayne Swan has taken a swipe at the banks over their decisions to increase interest rates independently of the Reserve Bank, Brendan Nelson has addressed a business luncheon of bankers, telling them that people should be more sympathetic to the difficulties faced by banks when they repossess peoples’ houses. Alright, that’s not exactly what he said, but the important thing is that’s the impression he gave.

Now, belatedly, Brendan Nelson has accused the Reserve Bank of going too far too fast in lifting interest rates. While many might agree with him, it’s becoming difficult not to suspect that he is resorting to populism in his effort to make some sort of impact. Whether he’s right or wrong no longer matters, because nobody is listening to him. Even the people who believed he should be given a fair go have lost interest.

It’s interesting that rumours have now been reported that some coalition members are trying to convince Peter Costello he should stick around for one more try.

After all, that strategy worked for John Howard.

Monday, April 7, 2008

Punishing The Parents

For the second time in two weeks it has been reported that the New South Wales government is planning to punish parents over the behaviour of their children. Last week it was the idea that parents could be jailed for not ensuring that their kids are in school. This week it’s the threat to fine parents of teenage binge drinkers if they do not attend counseling with their kids. It sounds harsh, it sounds unfair, and it sounds counter productive. It’s also not the real story.

It has been legally compulsory to send our kids to school since before you and I were born. Sometimes kids play hooky, and ditch school, but that is not the sort of circumstances that would lead to Mum and Dad going to jail. In the majority of cases, Mum and Dad are tearing their hair out trying to get their kids to do the right thing. Truly delinquent parents are a small minority, despite the fact that they seem to make front page headlines on a regular basis.

It’s much the same with the teenage drinking issue. Most parents of teenage binge drinkers would be desperate to try anything to rescue their kids from their own bad behaviour. Most parents in such a situation would welcome the opportunity to attend counseling with their kids and have the opportunity to actually sit down together and work through the problem.

In some cases it may be true that the parents are the problem, and in those circumstances, it’s not unreasonable to fine the parents. The trouble is that it fails to address the real problems of parents who are doing the best they can with kids who are out of control. Those parents need help, not threats. The “Your Choice” program is not just about fining parents, and to focus on that aspect alone not only misses the point, but it also misrepresents the purpose of the scheme.