Crunch Time For Power Plan

So now it’s crunch time for the proposed privatization of electricity in New South Wales. This weekend the ALP conference will consider the matter, and until now it has been widely expected that the delegates would overwhelmingly oppose the plan. The unions and many within the Labor Party have long held concerns about the effects of the sell off, not only for workers and consumers, but also for the political backlash that might come back to hurt the government at the next election.

Central to the opposition arguments have been three issues: Jobs, prices, and customer service. While concerns on these issues may well be valid, they may also be nothing more than the arguments employed to support an ideological position flatly opposed to any privatization of public utilities. If that is the case, then the Premier’s latest proposal will do nothing to change the minds of the critics.

In an effort to address the concerns of the critics, the Premier has now proposed to create a joint venture power company which will remain half owned by the State, and which will be one of a number of competitors in the marketplace. In addition, the promise to regulate prices until 2013 has been extended to permanent price monitoring by the Independent Pricing and Regulatory Tribunal.

These proposals add to the assurances that have already been given over employment issues, and together address most of the criticisms. But there will be some who are simply opposed to privatization of any kind. It’s going to be an interesting weekend at the ALP conference.

Suddenly It’s Gloomy…

It seems that a great deal has changed in the past twelve months. This time last year John Howard was Prime Minister, the share market was reaching new highs, and Australia was painted in the warm glow of prosperity. Only a few dared to point out that not all Australians were sharing in the benefits of that prosperity, and were being left behind to struggle while all around them were enjoying the good times. But they were there all along, while the Howard government ignored them and chose to chant the mantra of national security and economic management.

Twelve months later, and the new government of Kevin Rudd is talking about the struggles of working families, conducting inquiries into petrol and food prices, and promising to deliver a “Robin Hood” budget, taking from the rich to help the poor. The impact of the United States credit crunch is continuing to push Australian interest rates up, while the global price of oil is bleeding us all dry at the petrol pump. On top of that, grocery prices are also escalating at well above the rate of inflation.

The truth is that the sunshine did not just suddenly disappear. The problems we now confront have been brewing for quite a long time, with interest rate increases stretching back for the last five years. While it is true that some sectors of the economy are now reaching a kind of critical mass, with mortgage stress mounting, and retail sales plunging, the change of fortunes is not as abrupt as it might appear, nor as uniform. Indeed, some sectors of the economy are still powering ahead.

At the same time, it is not surprising that the Unisys Security Index has shown a dramatic increase in the numbers of people concerned about their financial wellbeing. All of a sudden, 5.2 million Australians are seriously worried about making ends meet. However, it’s not just economic conditions that have been shifting, but also the focus of attention. In other words, things didn’t just suddenly get worse, we’ve just suddenly noticed something which has been in the wind for some time.

The Inflation Merry Go Round

It has been pointed out that one of the factors driving up the rate of inflation is actually interest rates themselves. The Reserve Bank had been expecting an inflation figure of 4%, but instead the recently announced number turned out to be 4.2%. Data from the Bureau of Statistics has shown that finance costs account for .2%, which means if you ignore the impact of interest rates the RBA was spot on. Unfortunately, it is likely that the inflation rate will be seen as a reason to increase interest rates even further.

Craig James of the Commonwealth Bank has also pointed out that high interest rates are also stifling the supply of new house construction, which in turn is pushing up rents, another big component in the inflation figure. It all adds up to a very vicious circle. Inflation prompts the RBA to increase interest rates. Interest rates contribute to increased inflation.

The worst of it is that the people who are being hurt most by increasing interest rates are contributing least to the causes of inflation. People who are stretched to the limit on their mortgages are not indulging in an orgy of consumer spending. Far from it. The real causes of inflation are to be found in the high petrol prices which most people consider to be profiteering by the big multinational oil companies, along with the sustained resources boom, which also benefits big multinational companies, as well as the fall out from the United States credit crunch. Once again, that is also an international influence.

So if the consumer is not driving inflation, how is caning the consumer going to fight it? Of course, it’s not. It will only make matters worse for those who can least afford it.

Skilled Migrants Not The Solution To Skills Crisis

The citizenship test is a waste of time. Almost everyone who sits the test will pass it, although immigrants who come to Australia on humanitarian grounds are less likely to pass than those in the family stream, who in turn are less likely to pass than skilled migration candidates. All up, 95% of applicants pass the test on their first or subsequent attempt. And yet, the government now plans to review the test to make it even easier.

At the same time it has been revealed that the skilled migration program is actually contributing to the skills shortage rather than reducing it. According to research done at Monash University, about 213000 people came to Australia as skilled migrants between 2001 and 2006. Of those, almost three quarters came from non-English speaking countries, and of those, fewer than 30% found work in their area of expertise.

Many of these were international students who attended Australian Universities, so you would think they would be appropriately qualified to find employment. However, it seems that in many cases their opportunities are limited by a perception of communications difficulties. These people then wind up working in lower skilled administration or sales jobs.

While the shortage of skilled workers is a pressing challenge, it seems that the importation of workers hasn’t really plugged the gap. That demonstrates once again how important it is that we as a nation invest more wholeheartedly in our own education and training.

Tax Alone Won’t Stop Alcohol Abuse

The campaign against teenage binge drinking has taken another step forward with the announcement over the weekend of the increase in tax on premixed drinks. Health experts and social policy advocates alike have welcomed the move enthusiastically with claims that it will reduces alcohol abuse. I’m not so sure of that.

It is reasonable to expect that the increased price will reduce consumption, but that is not the same thing as reducing abuse. The fact is that hard core alcohol abusers, the ones who deliberately get smashed and often become aggressive or violent, will continue to binge. They will find a way to pay the increased prices, or simply switch to a different drink. It has even been suggested that some might be more likely to steal in order to come up with the money.

Having said that, the tax increase still remains a valid measure to discourage excessive drinking, especially as it simply brings the tax treatment of this class of product into line with other forms of alcohol. It is a reasonable step to take when combined with other measures to make up a complete strategy to target alcohol abuse, not just in teenagers, but throughout the community.

The other important measures that must be addressed include trading hours, competition policy, education and support services, and social policy that promotes positive attitudes and activities.

On its own, increasing the tax is not the answer. In fact, unless it is matched by a serious effort to address those other issues, it is little more than a revenue raiser.

Petrol Prices Fueling Inflation

The latest inflation figures have hit the front pages and the news is not good. At 4.2% for the year to March, inflation is still well outside the desired range as decreed by the Reserve Bank Of Australia. So does that mean we should expect more increases in interest rates? Perhaps. But at the very least it means we can’t expect interest rates to fall anytime soon. The problem is that successive interest rate rises so far don’t seem to have stopped inflation. Maybe there’s a lesson in that.

If we look at where the CPI is rising most quickly it’s easy to see that petrol is at the top of the list. The price of petrol has increased 18.9% in the past year. Far from indicating an economy that is overheating, the rising price of petrol is more likely to actually be putting the brakes on the economy overall as both people and businesses struggle to cope with increased costs. Worse than that, because the price of fuel is largely determined by international factors, interest rate increases are unlikely to cause the price of petrol to fall. The result is that overall inflation will be seen to continue to rise, even in the face of higher interest rates.

There are also signs of an economic slowdown, with reports that retail sales figures have dramatically slumped. Add to this the uncertainty of the global credit crunch, and it’s not a big leap of the imagination to start worrying about a possible recession.

All of this leaves Treasurer Wayne Swan confronting a significant challenge in constructing his first budget. The notion that the government needs to preserve a budget surplus is only part of the picture. While inflation is making it increasingly difficult for Australians to make ends meet, it will be seen as arrogant and out of touch to sit on $20-Plus Billion while pensioners go without groceries. It is impossible for budgetary measures to prevent the effects of a global downturn, but it is possible to help cushion people from them.

The battlers of Australia are depending on Wayne Swan not to let them down.

Keeping The Olympic Dream Alive

Well the Olympic flame has arrived in Canberra for the Australian leg of the torch relay for the 2008 Beijing Olympic Games. Whether or not that also means that trouble and rowdy protests will overshadow the event remains to be seen, but it has certainly been the case elsewhere in this relay. Around the world, protestors have disrupted the relay, and regardless of the validity of their concerns, have in some cases taken their protests too far.

The so called Olympic Spirit is one of peace, harmony and goodwill. It’s a bit like the Christmas spirit… it only exists if we all believe in it and work to make it happen. Instead, at every stage around the world the torch relay has been dogged by excessive protests, draconian security, and a disconnection with ordinary people. In some ways, it might have been better not to have the relay at all. But of course that would be an admission by all concerned that the Olympic Dream did not extend to the people and government of China, who have after all accepted the honour of hosting the games.

What should be a proud moment for China has become an embarrassment, but ironically the more the Chinese authorities seek to defend the flame using attendants described as “thugs”, the more obvious it becomes that they have missed the point. Rather than defending the “Dream”, they themselves serve to devalue it. It is also clear that they simply don’t understand the concern that people around the world have for Tibet.

Despite the tremendous progress made by China it still remains a totalitarian communist regime. So for those who want to believe in the Olympic Spirit the question is this: are the ideals of peace, harmony and goodwill best served by supporting the torch relay as it passes briefly through our nation, or by protesting against it?

Right or wrong, the International Olympic Committee made its choice a long time ago when it awarded the games to China.