Petrol Prices Are Changing Our Life

We can whinge about it. We can demand that our government do something about it. But it seems the only thing we as individuals can do about the high price of fuel is to stop driving. For most people this impractical, for many impossible. But already it seems there is evidence that people are prepared to dramatically change their lifestyles to accommodate the higher price. According to demographer Bernard Salt, people have already increased their use of public transport, leaving the car at home. It is anticipated that people may even consider changing jobs or moving house to cut down on their commuting time, and some are expected to downsize the two car family to just one vehicle.

Of course, measures such as those are workable in the city, but where does that leave the rural community? For many Australians, public transport just isn’t available, and the distances between towns mean that people will simply become even more isolated.

Adding to the pressure on the family budget is the fact that increased fuel prices will also lead to increases in the price of almost everything else. It will cost more to deliver the eggs, milk and bread to local stores as the cost of transport is driven up by the price of fuel. This is where the inflation problem is coming from, not from profligate consumers spending recklessly. The high prices are driven by a combination of insatiable demand and arrogant oil producers. Both the oil producing nations and the multinational oil companies are harvesting money from a market which is captive to them. And while our government continues to collect tax on fuel, countries like Indonesia and Malaysia are actually subsidizing it.

It’s time for a radical rethink. Either our government reduces the tax on fuel, and perhaps even uses the bonanza from minerals profits to fund a subsidy, or it looks like a permanent change to the Australian way of life.

Then again, with the environment barrow now being pushed so firmly, maybe that’s the whole idea anyway.

Housing Less Affordable Than Ever

Despite reports of house prices plunging in some parts of Sydney as homeowners forfeit on their mortgages, the big picture shows that average house prices overall continue to increase. It is true that price growth has slowed in many areas, and virtually stopped in some, but prices are not showing any sign of collapsing anytime soon.

Add to the already high price of housing the ongoing increase in interest rates and housing affordability is still falling dramatically. Although there is a shortage of supply, which is the main reason prices are still high, that shortage is not being met by investors willing to meet the demand. That’s because despite the demand, the cost of actually building new accommodation remains excessive.

Thanks to a number of factors, including high development costs and red tape, investors just can’t get the rental return to justify the capital outlay. Now that seems odd at a time when rents are increasing rapidly and are themselves creating an affordability crisis for tenants. If we follow the chain all the way down to the last link, we come to the fact that average wages are no longer enough to buy an average house, or even it would seem to rent one.

We’ve arrived at this situation in part because of the increasing number of user pays fees and charges that afflict our society. In the case of new housing developments the fees and charges alone can add as much as 20 percent to the price. On top of that the cycle of speculative gains depends on ever increasing prices, resulting in overvalued properties.

To get things back into balance, either wages must rise or prices must fall, or some combination of the two. There is no short cut, and it can either happen quickly or slowly. It’s like ripping off a bandaid: quickly involves short term pain before recovery, while slowly results in a less acute pain drawn out over time.

But one way or the other it has to happen.

So How Much Is Too Much?

Much has been made of the reported $80 million handed to Alan Moss as he retires from running the Macquarie Bank. As might be expected, people from the Prime Minister down to ordinary everyday people have criticized the payout as excessive, even obscene. But is that simply envy?

Would taking this money away from Mr. Moss make any difference to pensioners struggling to get by on $270 a week? Would it mean the government would invest one extra cent into hospitals or schools? Would reducing the wealth of Mr. Moss make the rest of us better off? The answer is no. In fact I would expect that the taxes paid by Mr. Moss are helping to pay for those pensions and hospitals.

To label this payout as obscene is to miss the point entirely. It’s not illegal or even immoral for people to pursue wealth, and in fact our success as a free enterprise economy depends upon it. It’s a free country and he, like everybody else, is entitled to be rewarded for his efforts.

Having said all that however, the rapid increase in the level of executive remuneration over the past decade or two is an alarm bell ringing loudly. As an economic indicator it is a figure which represents part of the larger economic eco-system, and that eco-system is becoming badly out of balance. At a time when wage earners are expected to be satisfied with growth around 3 or 4 per cent, executive remuneration has been growing by 20 per cent or more. Company profits have also been growing at a rate well above inflation. The gap cannot simply keep getting wider without social consequences, and that in turn means political consequences. If wealth distribution continues to become more and more top heavy, eventually the whole pyramid will fall over.

In a repressive regime such as Zimbabwe, it results in the degradation of human rights and destruction of society. In a democracy such as Australia it results in political action.
Already we are seeing a ground swell of pressure for increased pensions and wages. From there, higher inflation is likely to ensue, undermining everybody’s wealth. But unless we elect a government which is prepared to actually legislate for legal restrictions on remuneration, and of course that will never happen, the market will find its own level.

The payment of executives like Mr. Moss is a matter for the shareholders who pay him. After all, it’s their capital which is on the line.

Et Tu Brute?

They say that any publicity is good publicity, and in show business that might be true. But in the world of politics things are different. Lately it seems that the only way Brendan Nelson can dominate the headlines is when it’s bad news. So far this week it’s all been bad news for Brendan. First the revelation that Malcolm Turnbull opposed the policy to reduce petrol excise, then the confrontation over who leaked that e-mail, and now the latest opinion poll figures which have been described in the headlines as “The Biggest Hammering In History”.

According to this weeks Herald/Neilson poll, Kevin Rudd is now even further in front of Brendan Nelson than John Howard was in front of Simon Crean five years ago. The Labor Party is even further in front than they were at the election. According to Newspoll, Wayne Swan is now the preferred treasurer over Malcolm Turnbull, despite Mr. Turnbull’s credentials as a self made millionaire and a former investment banker.

Despite the fact that the government produced a lacklustre budget which disappointed both the aged and disabled pensioners who wanted more support as well as the hardline economists who wanted real expenditure cuts, the opposition has missed the opportunity to score some points. Instead, it has been tearing itself apart over silly things like the petrol excise policy.

Of course it’s not really about the excise. It’s about Brendan Nelson’s leadership. It is unsustainable. It cannot last. It will not last. And while Malcolm Turnbull clearly covets the job, I think even he realizes that it’s too soon for him to make a serious move. But thanks to the e-mail affair he is now well and truly on the radar as setting himself apart from the current leadership, regardless of what he might say about supporting it.

With support like that, it’s a wonder Brendan Nelson is still leader at all.

Liberals Lost in the Leadership Vacuum

A poll conducted by Galaxy Research shows that many Australians have been underwhelmed by the Wayne Swan’s first budget. About one quarter of families with children feel that they will be worse off, while 41 per cent of people aged over 50 feel pessimistic about the budget. Even more Australians are undecided, while a small minority feel they will be better off. At a time like this you would expect that the opposition would be scoring some political points at last. Far from it.

Instead, the opposition leader wasted his right of reply speech with an ill-considered populist promise to cut five cents from the excise on petrol. While I’m sure such a cut would be welcomed by motorists, it would ultimately do nothing to alleviate the long term increase in petrol prices, and would cost the government more revenue than it’s worth. Malcolm Turnbull, along with others in the Liberal Party told Brendan Nelson as much, but he ignored the advice. We know this because the email from Mr. Turnbull to Dr. Nelson has been leaked. Clearly, Dr. Nelson’s leadership is actively being undermined.

Add to that the confusion around the announcement by Margaret May, Shadow Minister for Ageing, appearing to promise an increase in the base rate of the age pension. It’s a great idea, but apparently neither Dr. Nelson nor Mr. Turnbull knew anything about this policy.

Of course, Margaret May is right. Pensioners do deserve an increase to ensure they are able to maintain some semblance of a dignified existence in the face of rising living costs. These people deserve it, and this country can afford it. The government has failed utterly to address this issue in its first budget, and the opposition should have kicked a free goal. Instead, the leadership of Brendan Nelson is in the process of disintegrating, and Malcolm Turnbull is waiting.

What a pity the Liberal Party won’t elect Margaret May to the leadership… At least she has some idea of what’s really going on in the electorate.