Reduce GST to mitigate Coronavirus impact in Australia

There is no doubt that COVID-19 is going to impact the world's economy. International tourism will be hit very hard. There's even a chance that governments will halt airline arrivals and maybe even set up more stringent border crossings. Japan has already closed schools.

In times like this, the parts of any economy that are directly based on tourism will suffer the most. Businesses will go bankrupt, employees will be retrenched. Retail and service industries, very much related to tourism, will also be badly affected. A world wide recession seems highly likely.

Government responses to such problems have varied over the decades. Increasing government spending (Keynesian "Pump Priming") is a very good way to react to this problem. Kevin Rudd's school hall building program of 2008/2009 in the face of the GFC ensured Australia survived the crisis without a recession and helped save the building industry from collapse.

This time around, though, the LNP is in charge, and they are unlikely to respond to the crisis by spending. The LNP has historically relied upon monetary policy to even out the peaks and troughs of an economy, but unless monetary policy changes to have a more direct and radical effect, any changes in interest rate by the RBA are unlikely to make much of a difference at the moment.

Nevertheless one Keynesian solution does present itself for the LNP to seriously consider -a temporary lowering of the GST.

My suggestion is that, faced with a looming economic and financial disaster as a result of the Coronavirus, the LNP should temporarily reduce the GST from 10% to 1%. This large reduction in sales tax will help stimulate the retail and services sector, the sector most likely to be hit by any precipitous decline in tourism. A reduction in the GST would help businesses survive the decline by reducing the amount they need to pay the tax department. With less tax needing to be paid, businesses are less likely to go bankrupt, and more likely to keep employing people. A drop in retail prices will also stimulate more consumption by Australia's households.

Of course the GST is linked to state government revenue. It is a tax administered by the Federal government that is transferred to state government coffers. Would such a reduction in tax end up hitting state governments? My suggestion is that the Federal government still pay the states as though it were 10%. This would mean that every $1 the 1% GST brings in will result in $10 being paid to the states.

So who foots the bill? Reducing government spending is not something I support, so in this case I would simply argue that the best solution would be for the Federal Government to go into debt. The money lost from lowering taxes will be covered by borrowing from the financial market. This will result in higher levels of government debt, but this can be paid back over the long term as follows:

Once conditions have improved, the GST will then be gradually lifted back over 1-2 years to 10% and then finally set at an increased rate of 12%. The extra 2 percentage points means that two twelfths (16.67%) of GST revenue will be used to pay off the debt accrued under the 1%. Once the money has been paid back, the GST resets back to 10%.

Effects of the Kurnell Desalination Plant

Sydney's Kurnell Desalination Plant began operating during the first week of February 2010. At full capacity it produces some 250 megalitres a day of potable water. As I flew from Sydney to Launceston yesterday, I managed to glimpse it through the window as we flew over Kurnell.

It has not been a great time for proponents of desalination plants, at least in Australia. Popular opposition to the plants focuses upon the greenhouse gases produced by the increased energy needed to operate the plant (a problem offset by the co-construction of a wind farm that produces more kW-h over a 12 month period than is consumed by the desalination plant), the added cost it places upon tap water (which is only a problem when water supplies are not low) and the pollution caused by pumping brine back into the sea (a process which causes increased salinity in the affected area but is also a natural part of the water cycle).

Another problem is that the plant has begun operating during a severe La-Nina event which is known to cause high rainfall levels in Australia. The plant was conceived and built during an El-Nino period when Australia was suffering prolonged drought and low rainfall.

Over the past year I have been collating data from the Sydney Catchment Authority which runs a weekly data series on Sydney water storage and supply - specifically the amount of water gained and pumped by Sydney's network of dams. When compared to the previous six years (2004-2009), 2010 stands out as the year the least amount of water was delivered from dams - a direct result of the increased supply of the Kurnell Desalination Plant.

According to the Data I have collated, the average amount of water delivered from the first week of February to the second last week of December is 466,438.91 megalitres. In 2010, the water delivered in this period was 387,674.83 megalitres, which means that the Desalination plant prevented up to 78,764.08 megalitres from being pumped from Sydney's dams.

At the time that this article was published, Sydney Dam levels have risen to 1,863,500 megalitres, mainly as a result of increased rainfall. This represents 72.2% of capacity, the highest since 2002. If we do the math, we prove that, since 78,764.08 megalitres was saved due to the desalination plant, then we can expect the current dam levels to be 3.1% less than what they currently are - 69.1% - if the desalination plant was not operating.

Moreover, simply by crunching the numbers already shown above, we can see that the desalination plant produces around 17% of Sydney's water - at least if we compare 2010's results with the averages of 2004-2009.

The Kurnell plant was built with the understanding that it would be "mothballed" during periods of high dam capacity. It was also decided that the plant would run continuously for two years to iron out any problems before any "mothballing" would occur, so the chances are that the plant will continue to operate throughout 2011 no matter how full the dams get.

The Kurnell plant has been designed to allow for a doubling of capacity if needed - land has been set aside at the site for more buildings and the piping to and from the plant has been designed to allow for a doubling of capacity. If rainfall levels in Australia and Sydney continue to decline (despite the recent wet weather) then increasing the capacity of the plant will be a cost effective solution to any declining dam levels.

Since it would be more efficient to operate the plant for long periods and mothball it for long periods (as opposed to short periods for both), I would suggest some sort of "trigger" mechanism to be put into place:

* 75% Capacity: The plant will be shut down and mothballed once stored water supplies reach 75% capacity.
* 50% Capacity: The plant will begin operating once stored water supplies dip below 50% capacity.
* 25% Capacity: The plant will be doubled in size once stored water supplies dip below 25% capacity, or else another desalination plant built if this has already happened. (This assumes that the plant has been operating continuously since supplies dropped below 50%)

Advantage Australia

Byron Smith explains three advantages that Australia has over the US when it comes to elections:

1. An independent Electoral System
2. Compulsory Voting
3. Preferential Voting
   

I agree with them all. Here's why:

An Independent Electoral System
Electoral boundaries are determined not be political parties but by bureaucrats. There's no perfect way of doing this sort of thing but I would argue most vociferously that bureaucrats are better at doing it because they are neither advantaged nor disadvantaged by any changes in boundary. Simple rules can be set up - such as keeping electoral districts populated by approximately the same amount of people and ensuring that the area is more or less a sensible "shape". By contrast, electoral boundaries in the US can be stretched out all over the place to make the seat "safer" for the incumbent or more likely to fall to the party in power.

Another good thing about the AEC is that they control all elections in Australia. This means that when Australians vote in Federal, state or local elections, the AEC, a Federal body, looks after all the details. This also means that the way people vote remains the same all over the country. When I walk into a voting booth here in Newcastle I am doing exactly the same thing as a person in North Western Australia - the names on the voting slips might be different, but the manner in which I vote is the same. This is in contrast to the US system where local governments control how people vote in all elections. This means that one county might have paper ballots while the neighbouring county has computer touch screens while the county next to that pulls levers. The "hanging chads" of the 2000 election showed up just how silly this had become.

Compulsory Voting
I find it amazing that Americans argue that it is our civic duty to vote yet are aghast at the idea that the state should compel its citizens to vote. If I'm an American who chooses not to vote, I am looked down upon and criticised yet if the law requires me to vote then somehow that is a breach of my freedom? As Byron points out, jury duty is a civic duty that is compulsory - so why isn't voting? There's no money wasted here in Australia on "get out to vote" campaigns. Compulsory voting doesn't stop people from choosing not to vote - all they do is turn up at the polling place, get their name marked off and then they can leave without voting if they want to. About 95% of people in Australia vote. The 5% who don't are either too sick (and who can get a medical waiver) or who don't care and are willing to pay the small fine for not voting.

Preferential Voting
Preferential voting is what Australia calls Instant Runoff Voting. It enables the voter to send his/her vote to another candidate if he votes for a 3rd/4th/5th/etc party candidate. This would've enabled Ralph Nader's 2000 presidential election votes to be redistributed according to the voter's second choice - in this case, Al Gore. It also would've redistributed Ross Perot's 1992 votes, which would've probably been redistributed to George HW Bush and given him the election.

The real advantage of preferential voting is that the major parties have to ensure that they modify their policies to prevent third parties from becoming too powerful. If they don't, the third party can convince voters to send preferences to the opposing party. Preferential voting allows voters to communicate their wishes more accurately to the parties in power, giving them information about what policies they should change or keep in order to remain in power. So while a two-party system is still maintained, preferential voting ensures that policies get changed if the parties wish to stay in power. The great news is that voting for a third party is NOT a waste of a vote.

The last time I voted for a major party was in 1996 when I voted for John Howard and the Liberal Party. Since then I have given my "primary vote" to either the Australian Democrats or The Greens.

BUT

Even though I like the way we do things here, I still prefer Demarchy. Imagine having a Democracy without political parties or elections, where the people in power are expected to let their reason and their conscience determine what laws to pass?

Claytons change

For my Australian readers, it comes as no surprise that Kevin Rudd's short time as PM has not been one to gush about. Even back in 1996 I was cynical enough to know that John Howard's shine would eventually wear off but in 1997 he was still, in my mind, quite liked by most, including myself. And that wasn't due to clever marketing but substantial policies that had been initiated but had yet to bear any fruit.

Rudd, on the other hand, is suffering from a bit of malaise. I use that word deliberately because he reminds me slightly of Jimmy Carter's late 1970s problem. Rudd is unlucky enough to become PM during the cusp of a world recession while Howard was "lucky" enough to be PM during a period of great expansion.

But, even when factoring in these issues, what exactly has the Labor government actually done? Said sorry to Aboriginies... that's good. But are there any substantial policies in place to help them? Signed Kyoto Accord... that's good, but any substantial policies in place to reduce carbon emissions? Well there's the whole carbon trading thing but that's not substantial enough in my books.

One thing which invigorated the early Howard years was the conservative rhetoric that went along with it. Despite much of it being mere blabber, there was enough substantive statements to make it "feel" as though Australia was headed by politicians who had clear goals in mind. It doesn't feel this way presently. I know that centrist ideas are typically difficult to energise people because they are so, well, "complex"... but there's no real debate that I can see going on about Australia's future on behalf of the ALP. Maybe I'm out of touch... I know more about US politics than Australian politics these days.

What I do know is that the ALP is in power in every state government in Australia and controls the Federal government. Despite being "new" to power in Canberra, there is a jadedness about the ALP that I feel at the moment. The Coalition may have been a toxic mixture of racists and populists but at least they had some brilliant policies that bore fruit. The ALP seems filled with political operatives who are more concerned about their own position within the party than with good governance. The Coalition always seemed to produce political "Mavericks" who, for good or ill, roiled the party and the nation with ideas. The ALP, on the other hand, just seems bereft of ideas.

As Australians all know, "Claytons" is a brand of non-alcoholic beverage that looks like Whiskey but tastes like anything but. Back in the 1970s Claytons created a brilliant marketing campaign that has entered the national psyche. This campaign had the message "Claytons - the drink you have when you're not having a drink". Ever since then the term "Claytons" has been used as a perjorative term. In this case, the ALP government is indulging in "Claytons change" - the change you have when you don't have change. It means a cheap rip-off, a pale, weak and despised copy of what should really be there.

Ross Gittins, a noted economic commentator at the Sydney Morning Herald, says this:

Kevin Rudd fought the election by promising "fresh leadership" that would make our lives better without involving unpopular change. Indeed, he promised to retain vast swathes of John Howard's policies. In short, he promised change without change.

The public's slowly growing disillusionment with the Rudd Government represents its dawning realisation that change without change isn't possible.

Rudd left us with the impression there was something he could do about high petrol and grocery prices. As it turns out, what he's able to do is of little consequence. Somehow that's a lot clearer now than it was then.

Rudd promised us an Education Revolution that would bring us better schools, universities and technical colleges and so more of the highly skilled, better-paid jobs we need to prosper in a more competitive world.

But not to worry, this would not involve interfering with the Howard government's scheme for making grants to public and private schools.

I respect Gittins as a commentator. Apart from "saying it like it is", he is more concerned with good policy than with political ideology. He was one of the first respectable expert commentators to question John Howard's economic policies back in the late 1990s. Although I often disagree with Gittins' economics these days, I think his article is spot on and fleshes out everything I am feeling towards Rudd and the ALP these days.

If Rudd and the ALP continue in their do-nothing, "Claytons change" ways... and if the Coalition flips on climate change and the environment... I would be more than willing to endorse the Coalition at the next election.

Lessons from Italy and Australia

If the United States is to avoid a long term fiscal disaster, it needs to learn from other nations. America cannot continue to ignore the lessons learned from other countries in the blinkered belief that manifest destiny or divine intervention somehow makes it different from the rest of the world and not subject to the same set of rules.

Now usually when I say this sort of thing I am often pushing forward something wonderful that is present in non-American countries that America could use. Universal health care, increased public education and stricter gun laws come to mind here.

This time, however, I am going to use a negative example as well as a positive one. Rather than just showing America what it could become if it does the right thing, I am also going to show what America could become if it does the wrong thing.

In previous posts (here and, more recently, here) I have pointed out that the fiscal irresponsibility of the US Federal government is, by itself, a clear threat to medium-long term economic growth. When combined with other factors (namely Peak Oil, the subprime mortgage crisis and an unsustainable current account deficit), its negative effect is amplified.

When a government does not have enough tax revenue to fund its expenditures, it turns to the market to borrow the required amount. Government bonds are an integral part of credit markets worldwide and function as a baseline measurement for corporate bonds and mortgages and other forms of debt-based activity.

Notwithstanding the part that government debt plays within the world's financial markets, if a government runs deficits over the long term then the debt to GDP ratio increases. In the case of the United States, this number is probably somewhere between 40 and 60% of GDP.

The country that I am setting up as a warning for America to heed is Italy. The following image is one I scanned from a pdf file about the 2007 Italian Budget (download here. pdf, 627.2kb):

This is obviously not a detailed report on the budget, but it gives more than enough information for our purposes.

There are two very important figures in this budget summary. The first is the section marked burden of national debt, which totals €74,564 million. The second is the bottom section marked redemption of national debt, which totals €189,099 million.

That first figure - burden of national debt - represents the interest repayments that the Italian government has to make on its borrowings. Like all bonds, government bonds first have to pay back interest and then, once it matures, the principal. This figure in the budget represents the amount of interest they have to pay on bonds owing. The second figure - redemption of national debt - is the amount of money the government pays back on maturing bonds.

Together, the amount of money the Italian government spends on debt servicing (interest plus paying back principal) is €263,663 million.

Now let's put that number in perspective.

€263,663 million represents a whopping 41.2% of the Italian government's spending in 2007. According to the same document, Italy's GDP in 2007 was estimated to be €1.475 trillion, which means that debt servicing also represents 17.9% GDP.

Such figures almost defy comprehension. Italy's net public debt is around 107% of GDP. Moreover, Italy's public debt has been at this size or even higher for more than a decade (it was 113.6% in 1999).

By way of comparison, America's fiscal irresponsibility is mild. Debt servicing so far represents 15.75% of government spending and 3.13% of GDP - figures that are dangerously high but not as extreme as Italy's.

This is not the place to discuss in detail the reasons for Italy's fiscal nightmare - the nature of Italian politics is probably a major contributing factor. The fact that Italy's political leaders have been unable to find bipartisan support to control government spending has meant impoverishment for their nation.

But just how impoverished is Italy? After all, they are a sophisticated and educated western nation with a high standard of living. That may be true, but the key to understanding how impoverished they are is to examine the opportunity costs of such massive debt servicing.

From a leftist point of view - the point of view which supports high levels of government spending to support universal health care, free and/or cheap public education and so on - the €263,663 million in debt servicing (41.2% of the budget) is money that could have been used for public spending. Education spending in 2007, for example, was €50,066 million. Health spending was €11,661 million. Public order and safety spending was €21,122 million. Every Eurodollar spent in debt servicing was money not spent on improving the nation's social services.

But the leftist view is not the only valid one. From a more economically conservative point of view, that €263,663 million was money that could have been returned to people and businesses in the form of lower taxes. And imagine what sort of tax rates they could have been - 17.9% of GDP not taken up by the taxman.

The message here is clear - governments that have run long term deficits have, over the long term, created a combination of less government services and higher taxes. Money that could have gone into government spending or lower tax rates are instead being used to pay back a national credit card bill that, in the case of Italy, defies logic.

Fiscal responsibility is therefore not a left/right issue. From whatever ideological position you come from, ensuring that public debt does not spiral out of control must be a common goal.

Italy does, of course, have a number of natural advantages. As part of Europe they are in close proximity to an immensely rich and wealthy group of nations that have enriched it through trade. The fact that Italy has adopted the Euro means that any concerns that investors have in Italy's financial position are cushioned by the economic strengths of other nations that have adopted the Euro as well. This fact is tempered, however, by the fact that many other nations in the Eurozone have problems with fiscal irresponsibility as well - though nowhere near that of Italy's (with the notable exception of Belgium).

The good news is that it is possible for politicians - even those in Italy - to work together in a bipartisan way to fix their budgets. The solution is actually simple - either increase revenue or decrease expenditure and run a fiscal surplus over many years. When it comes to politics, however, this is easier said than done, especially when increasing revenue means raising taxes and decreasing expenditure means cutting spending on health, education and public welfare.

While the Clinton years are often seen as a period of intense political partisanship, it is important to remember that the Democratic president and a Republican Congress - for all their bitter fighting - were able to agree very early on to fix the nation's public debt. The result was a series of budget surpluses late in Clinton's second term (helped in no small part by the 1990s Tech boom) and a reduction in national debt. Although Bush and the Republican Congress have ruined this since 2001, there is every reason to believe that a bipartisan solution can be found. Sadly, however, the current political discourse rarely mentions the fiscal imblances which means that, when the next US president takes office in 2009, neither Republicans nor Democrats will see balancing the budget as a priority.

There is one country that has, however, managed to eliminate net public debt - and has done so without resorting to profits from oil but from pure budgetary discipline. That nation is Australia.

Australia's fiscal example should stand as an example to other nations. In 1996 when the conservative Howard government came to power, net public debt was around 20% of GDP. While this was quite small in comparison to other nations - both now and at the time - steps were taken very early to cut spending. So although net debt was comparatively small, it was never allowed to increase. Importantly, cuts to spending were made when unemployment was moderately high - at around 8%. This meant that, when the economy recovered from the effects of the spending cuts, economic growth in the years that followed produced large and growing budget surpluses and steady improvements in unemployment. Moreover, the government could then afford to make incremental tax cuts on an annual basis - a process that was quite politically rewarding. Since 2005, unemployment has dropped below 5%, big budget surpluses are run regularly, income tax rates are lower than ever and net public debt is now negative.

The Howard government did, of course, lose power in 2007, which shows that no poitical party should rely solely upon economic performance to drive their political fortunes. Nevertheless, Australia should serve as an example of what can be achieved if politicians take a long view on important things like fiscal responsibility.

It is likely that the effects of Peak Oil and the subprime meltdown will be far reaching. Countries that are fiscally weak like Italy will either be forced into making painful fiscal readjustments or else run their nations into bankruptcy-in-all-but-name by increasing their deficits. On the other hand, countries like Australia will be in a more flexible position and will have room to cut taxes or increase public spending.

What will become of America, though? While I would like to think that America could avoid Italy's fate I am not at all certain that bipartisan steps can be made to rectify the situation before net public debt hits record levels - say between 75-85% of GDP.

One thing is certain, however, and that is that America's fiscal position will determine its influence in the world over the next 20 years. If America should go down Italy's route, you can almost guarantee that America, as a society and as an economy, will be a pathetic reflection of what it was for most of the 20th century.

In the face of a semi-permanent energy crisis along with the spectre of global warming, what the world of the 21st century needs is a strong, free America. Being fiscally responsible is an important step in that direction.

Couldn't have said it better myself

From the department of copying the US in new and exciting ways:

As I mentioned a couple of posts back, the claim that mainstream science is totally wrong about global warming is an orthodoxy that is almost universal among commentators, bloggers and thinktanks on the political right in Australia, even though the great majority of ordinary Australians, including Coalition supporters, believe the science.

The great majority of Australians,, take the view that, while scientists aren’t always right, it’s much better to act on the basis of the best available science than to assume that the scientists are wrong. For this, they are attacked by rightwing commentators as religious fanatics or, at best deluded innocents.

One limited exception to this appeared to be the Centre for Independent Studies. A while back Andrew Norton got stuck into Clive Hamilton for listing CIS in the delusionist camp on the basis of some fairly tenuous links. As Norton observed, the CIS had never published much on the topic (though what it did publish was in line with delusionist orthodoxy) and had published nothing since 2003.

CIS has made up for it now, with this piece by Arthur Herman (also published, less surprisingly, in the Oz). It’s got everything - “global warming as a religion”, Al Gore conspiracy theories, Godwin’s Law violations on eugenics, the Spanish Inquisition and so on, backed up by some typically dodgy Internet factoids. As with much in this genre, it’s important to note the call for the replacement of science, as it currently exists, with “real science” in which people like Herman (self-described as an historian) will lay down the rules.

What’s striking here is the contrast between the willingness of just about everyone on the political right to sign up to a set of beliefs that are dictated entirely by political tribalism and their self-perception as brave heretics, spelt out in more than usually ludicrous fashion by Herman.

When politics trumps reality, reality eventually bites... hard. Any political commentator who chooses to deny reality will one day find that no one wants to read their political comments any more.

Malcolm Turnbull - idiot or misquoted?

From the department of it bodes ill for Malcolm if this was accurate:

The Opposition has blamed the Government's alcopop tax for pushing up inflation.

Figures released today show that inflation surged ahead in the June quarter to stand at 4.5 per cent for the year, well ahead of economists' forecasts.

Mr Turnbull says the tax increase on pre-mixed drinks, is adding to the rising cost of living because CPI figures show the price of spirits rose by 6.1 per cent in the June quarter.

"One thing the Government could have done was choose to not put up the price of alcohol but it did and it has flowed into the inflation numbers," he said.

The Government imposed the tax in what it said was an effort to curb binge drinking.

Mr Turnbull says planned increases in the cost of luxury cars and changes to the Medicare levy will also push up inflation.

"How can you be fighting inflation when you're putting up the price of alcohol, putting up the price of health insurance, putting up the price of motor cars?" he said.

If Malcolm Turnbull thinks that putting a tax on a small segment of alcoholic drinks is somehow responsible for pushing inflation up to 4.5% he's an idiot.

NSW Politicians cynically create media storm

From the department of look at the evil painting:

The Premier and the Prime Minister are again appalled, but a young girl photographed nude by her mother says the image, on the cover of the latest Arts Monthly Australia, is her favourite.

In the latest row over the depiction of nude children, Morris Iemma and the state Opposition Leader, Barry O'Farrell, are so offended by the nude pictures of a young girl they want the magazine that published them stripped of federal funding. Kevin Rudd said he could not stand them.

But the girl says the picture is her favourite image and still hangs in the house.

"She just enjoys it. It's acting. She just loves it," said the 11-year-old girl's father, Robert Nelson. "Poli [Polixeni Papapetrou, the girl's mother] wrote a doctoral thesis on this. It's a highly researched body of work."

The images, part of a practice in which Papapetrou works with her daughter, were reproduced in an edition of the magazine that explores the storm over the Bill Henson photographs that were to be shown in Sydney in May.

Here is the offending painting:

That picture is NOT a form of paedophilic pornography. It's just a painting of a kid at the beach. It has nothing remotely to do with the Bill Henson photographs. The state government, so embroiled in other more worthy scandals, has basically created this media storm to deflect people's attention from them to the dirty paedophile elitist artistic community.

If that painting is pornographic, then this album cover is as well:

Time to burn our Led Zeppelin albums... 35 years after they came out onto the shelf.

Update:
The 1st picture above was sourced from The Sydney Morning Herald. It is different to the one that is actually on the front cover of the magazine. Here is the original:

So it's a picture of a child on a painted background, rather than a painting. Nevertheless there is nothing terribly offensive about this picture.

AAAAAAAAA

A blog post with every single category marked (I'm doing this for scribefire)

The ALP today - it stinks

As the years have passed by, I have become more firmly entrenched in a centre-left political stance. This means, of course, that I am more likely to vote for parties that subscribe to my politics. This is why I am more likely to support the Australian Labor Party and the Greens when it comes to elections.

I am not a partisan, however. I am not a member of any political party and I see principle and ideas to be far more important than supporting a particular political party. This is why I can, for example, praise the Howard government for its fiscal intelligence while also criticising them for their immoral stance on immigration and the Iraq War.

Yet despite Howard's success, and the success of the Liberal/National coalition in Federal politics, Australia is now governed entirely by the Australian Labor Party. Not only is Kevin Rudd the new PM in charge of an ALP government, but every single state government in Australia is Labor as well. Despite the apparent ascendency of the Liberal/National Coalition since 1996, the hard fact is that Australia is dominated by the ALP. More than that, the chances of a revival in the coalition's electoral success is increasingly slim. The Liberal Party, for example, took around 37% of votes in the last Federal Election. The National Party is in even worse shape, getting only 5.5% of votes.

Of course part of the reason why these figures are so low for the coalition is because of the rise of the Greens to being Australia's third largest political party. Yet the party which has been affected least by the Greens is the ALP.

The ALP has been enormously successful in surviving the Howard years at state level by positioning themselves as a centrist party. The dominant right faction of the ALP has ensured that the more progressive/leftist members of the ALP have not had any real power since the days of Gough Whitlam.

Yet I would have to say that the price of this success has been corruption and inaction. The NSW Labor Party, for example, is enduring all sorts of political fallout - all of it the result of their own stupidity and greed. NSW Labor politicians have been threatening restaurant staff, sexually abusing teenagers, taking money from property developers and mismanaging state funds for quite some time now.

I can't remember the last time I voted for the ALP. I think it was in the 1980s. Ever since then I have voted Liberal, Democrat or Green. The survival of the ALP and its reputation does not concern me in the slightest. I abhor any form of politics that results in inefficiency and corruption. Even though I was deeply angry with Howard's treatment of immigrants and his position on the Iraq War, I cannot think of any major scandal rocking his government during his 11 years in power.

One of the most frightening things I can think of is the potential for Kevin Rudd to turn into a federal version of Morris Iemma, leading a federal version of NSW Labor. That would be complete disaster. Unfortunately I can't see anything positive yet about Kevin Rudd's (albeit short) time as PM. So far Rudd has been strong on words but low on actual, measurable outcomes. Unless Rudd actually starts doing something, I can't see anything beyond a descent into a long term NSW-type Labor activity. And that will do nobody any good.

Reactions to the Budget

I was working tonight so I didn't get to watch it live and have instead had to rely upon the SMH's less than stellar online coverage and comment. So here's my comments:

1. Surplus of A$21.7 billion. I still can't find on the SMH website what Rudd and Swan are going to do with this money. It represents 1.8% of GDP and Australia's net public debt was erased 2-3 years ago so I'd like to know what they're going to do with it. Is it going into Howard's future fund? Will it be invested overseas?
   
2. The income tax cuts are modest but are likely to be universal in scope, thus reducing the tax burden upon every Australian wage earner, but affecting low wage earners the most (a nice change from all the tax cuts for the rich made under Howard). High wage earners do get a cut as well, which doesn't really bother me much.
   
3. Environmental spending is a joke. Rudd's environmental credentials have been shot out of the water with this budget. A$2.3 billion sounds like a lot, but it is peanuts compared to other areas of spending. If Peter Garrett doesn't resign in protest at this there is no point in supporting the guy's political career any further. Bob Brown is rightly "concerned".
4. $250 million on roads isn't really a huge amount but there's little, if any, money going towards any form of post peak oil infrastructure. It's as though oil is still around $25 per barrel in Rudd's mind.
   

In short, there is nothing in this budget that could be called daring or far-sighted. There are some good things but there's a whole heap of incorrect assumptions they have made over the environment and the effects of high oil prices. Cutting spending and keeping a big budget may sound nice from an inflationary perspective, but does little in actual solutions.

Don't get me wrong - I'm glad that Howard is gone - it's just that Rudd and the ALP have not managed to go beyond the symbolic (saying sorry to Indigenous Australians, signing Kyoto) and actually done anything of substance. The budget was the ALP's chance to do something really different - instead we got a few nice things thrown together with a bunch of blinkered decisions.

My verdict? 4 out of 10. Fail.

Mercy Ministries in trouble

From the department of church and state not separate:

They call themselves the Mercy Girls. And after years of searching they have found each other.

Bound by separate, damaging experiences at the hands of an American-style ministry operating in Sydney and the Sunshine Coast, these young women have clawed their way back to begin a semblance of a life again.

Desperate for help, they had turned to Mercy Ministries suffering mental illness, drug addiction and eating disorders.

Instead of the promised psychiatric treatment and support, they were placed in the care of Bible studies students, most of them under 30 and some with psychological problems of their own. Counselling consisted of prayer readings, treatment entailed exorcisms and speaking in tongues, and the house was locked down most of the time, isolating residents from the outside world and sealing them in a humidicrib of pentecostal religion.

This is a very damaging news report. I have heard a lot about Mercy Ministries - they are an arm of the Hillsong church in Sydney's North West.

The fact that a report has come about detailing alleged abuse is not surprising to me. Within the church today - especially amongst Australian Pentecostal or Charismatic churches - there has developed a "semi-cult" mentality that is not truly part of biblical Christianity. This mentality has resulted in many damaged lives.

This is not to say that Hillsong, Mercy Ministries or Australian Pentecostal churches are some gigantic cult trying to harm people. Such an idea is rubbish. What I am saying is that there are tendencies in these groups to have controlling behaviour.

I have no doubt that there are many women who have been helped by Mercy Ministries... and I also have no doubt that there are many women who have been harmed by it. This is not as strange as it seems. Throughout recent history - pretty much since the early 1970s - new religious movements within Christianity that evolved out of societal change have tended to develop very authoritative structures. This has been felt in, for example, Youth With a Mission and Jesus People USA, over many years. Moreover, churches like The Potter's House have also developed similar controlling behaviours. All of these groups have well documented cases of abuse and control - but also people who have benefited greatly from their work.

What is different about this issue is that, from what I understand, Mercy Ministries is both a charitable organisation that advertises in the Gloria Jean's coffee shop chain (which is owned by Nabi Saleh, a member of the Hillsong Church), and receives some form of federal government funding for the welfare work they do.

That tales of abuse should be present in Christian organisations is one thing - that such tales of abuse should come from a charitable and government-funded organisation is another. If these allegations prove true, it will bring the matter of the separation of church and state here in Australia to a head. After all, if an organisation receives money from the "world", shouldn't they have to run by the "world's" rules? Moreover, are people giving charitably to an organisation whose religious beliefs do match those of the giver? It would be like me - an evangelical Christian - giving charitably to an Islamic welfare group whose first priority would be to convert its clients into Muslims.

These reports are disturbing. They have not been created out of thin air by Christian-hating reporters in the media. There is obviously some truth in them, and there needs to be a further investigation.

What to do with the Coalition?

Brendan Nelson is proposing a merger:

Federal Liberal leader Brendan Nelson says there is a strong case for the party to merge with the Nationals.

Some National Party members say their support will be dependent on the creation of an entirely new federal party rather than a takeover.

The Nationals are doing their own review of the party's future.

On Sunday Dr Nelson raised the prospect of a merger, and has today told AM the parties have similar aspirations, but he is not rushing into anything.

"I am waiting, as is [Nationals leader] Warren Truss, for John Anderson's review to come forward," he said.

"We also know that there is a push in Queensland and at a state-based level for a merger between the National and the Liberal parties.

"My view is it needs to be federally or nationally led.

"It needs to one that's led by the organisational leadership and executive of our two parties."

One natural result of the 2007 election loss is that the coalition will, hopefully, never be the same again. Both parties suffered not only electoral defeats, but continued an unsustainable decline in support.

Of the two parties, it is the Nationals who are in serious trouble. As I pointed out in April 2007, the National Party is not national, which means that it is only getting votes from 3 of 6 Australian states. Moreover, the National Party managed to procure only 5.5% of the primary vote in the 2007 election, and has been suffering from a declining voter base ever since Pauline Hanson came along and permanently turned 3 out of every 8 National party voters against the party in 1998 (which I examine here).

The Liberals aren't doing well either. The last election saw 36.7% of the primary vote going to the Liberal Party. It's increasingly hard to argue that the Libs are an important political party when voters represent only a little more than one-third of the voting public.

Nelson's solution is to merge the two parties. I don't think that would work.

For starters, the two parties are very different. In essence, the two parties together as a coalition are similar to the US Republican Party, in that there are a mixture of libertarians, free-market lovers, (some) protectionists and (many) social conservatives.

The National Party, though, is the more socially conservative party. Drawing upon its traditional base of rural farmers, there is a natural moral conservatism within them. Moreover, I would also hazard a guess that the Nationals are very firmly planted in the Monarchist camp and wish to keep Queen Liz as our head of state.

The Liberal party is quite different, drawing upon the support of businesses and those from the higher socio-economic end of the spectrum. These supporters are urban and are more likely to support the idea of a Republic (which is obvious considering Malcolm Turnbull's prominence in the party). Moreover, while the party does have a number of social conservatives within it, they are not ascendant... yet.

Having said that, both parties are happy to espouse and practice conservative economic policies, which gives them their link.

I don't think the two parties should merge - the differences will be too great. There needs to be a better way, and that is for a "loosening" of the strings that bind the two together.

The most important step is for the National Party to truly become a national party and place candidates up for election in every seat in Australia. They should do this, even competing with the Liberal Party candidates that are there. Moreover, they can do this by promoting the dual message of economic and social conservatism. The Liberal party, on the other hand, can promoted themselves by being economically conservative and more socially liberal - after all, they are called the "Liberal" party for a reason. Because of their ties, each party would place the other second on the ballot paper, to ensure that one or the other party ends up being supported through the whole preferential process.

Having said all this, I would much rather Australia embrace Demarchy and the benefits that it offers. In the meantime, however, I would suggest that this would be a good way forward for both parties.

Meanwhile, in Parliament today

Tony Abbott produces a cardboard cutout of Kevin Rudd.

The full report from the ABC is here.

That bloke to the bottom left of Tony Abbott - he looks like Kel Knight from Kath & Kim.

Update:
The Kel Knight lookalike is National party member Luke Hartsuyker, and was the one who brought the cutout in. He was ejected from the chamber as a result of his stunt.

NSW Labor - as corrupt as you can get

Morris Iemma was battling an escalating corruption scandal last night that threatened to draw in two of his most senior ministers and to bring down one of the state's biggest Labor-controlled councils.

Joe Scimone - a close ally of the Minister for Ports and Waterways, Joe Tripodi, and a friend for 30 years of the former Wollongong lord mayor and current Police Minister, David Campbell - stood down from his job managing property within NSW Maritime yesterday pending the outcome of an Independent Commission Against Corruption inquiry.

There are allegations before the commission that Mr Scimone, a former Wollongong Council officer, paid $30,000 last year to conmen posing as commission officers who were offering to destroy evidence against him.

Mr Tripodi's office confirmed last night that Mr Scimone, a former federal Labor preselection candidate and Labor branch president, had been stood down on full pay.

The future of Wollongong City Council was in doubt last night as some of its ALP councillors were further implicated in the growing sexual and corruption scandal inside the council.

And that's why I don't vote for the ALP. I am sick of how easy it is for corruption to infiltrate politics. I may be down on John Howard and his government, but at least there was little evidence of this sort of corruption. If the Rudd government gets drawn into a corruption scandal in the next few years, I wouldn't be surprised.

Sorry

I just watched Australian PM Kevin Rudd give his "sorry" speech. It was stirring stuff, even for a cynic like myself. Of course I will always believe that only actual, real, measurable change is needed in order to improve the lives of indigenous Australians, but at least we've gone one important step in that direction.

It was also great to see so many people in parliament wiping away tears, including the indigenous visitors.

Unimpressed with Labor

From the department of wrong-move:

Federal cabinet today approved a scheme offering an effective tax break for aspiring first home owners, giving them incentives to save a deposit.

Treasurer Wayne Swan said cabinet had agreed on the first home saver account, first flagged during the election campaign.

"This is a modest long-term measure to assist more young Australians to achieve their dream of home ownership," he told reporters following a cabinet meeting.

"Young Australians saving for their first home will attract a government contribution equivalent to 15 per cent discount on their marginal tax rate."

The scheme will start in the second half of this year.

The housing bubble has blown up all over the world. There are various reasons for this, but here in Australia the housing market has become overheated due to two bits of government legislation: The first homebuyers grant and negative gearing.

These two policies, designed to supposedly "help" the housing industry, have only made house prices higher. In other words, the stated reason for their existence - helping people to own homes - has made it more difficult. There's an irony there to be sure.

I believe that government can and should intervene in the normal functions of the marketplace if it can be shown clearly that such an intervention would benefit all (government, buyers, sellers, stakeholders). At this present moment in time I do not believe that the government should have any say at all in the housing market (except, of course, ensuring that houses are built according to the rules). The government should basically butt out of the market altogether. The Coalition helped to overheat the housing market because of the first homebuyers grant and negative gearing. Now the ALP is continuing this overheating by giving first home buyers a "tax break".

In order for the property market to act properly, it needs to cool down. House prices have to decrease to more sustainable levels. This act by the ALP will do nothing to help the market cool down - in fact it will simply inflate the bubble and stoke inflation. It may provide a short term "boost" to house prices - which are completely unsustainable as it stands already - but will end up hurting everyone in the end.

By enacting this policy, the ALP have essentially shown themselves to be either a) ignorant of economic facts, b) overly political, or c) both.

Not happy Kev.

Sorry Day coming up

From the department of it's-a-good-beginning:

The Federal Government has set the date for a formal apology to the members of the Stolen Generation.

The apology will be the first item of business for the new Federal Parliament.

It will be delivered by Prime Minister Kevin Rudd on February 13.

Indigenous Affairs Minister Jenny Macklin says the apology is on behalf of the Australian Government and will not be attributing guilt to the current generation of Australians.

Ms Macklin says the content of the apology is still subject to widespread consultation, but she says it will form a necessary step to move forward.

A traditional Welcome to Country will be held as part of the Parliament's opening ceremony by members of the Ngunnawal people.

It will be interesting to hear what Rudd has to say. I'm hoping that his "formal apology" is neither trite nor overbearing, but simple, heartfelt and to the point. Obviously, though, I am hoping for actual, measurable changes rather than just mere words - but at least it's a start.

Indigenous Australians are this country's poorest people. How they fare under the Rudd government over the next few years will help define whether this new government is a success or a failure in the eyes of history. After 11 years of Coalition rule, history will not be kind to John Howard when it comes to his dealings with Aboriginal people.

The Australian Republic

Malcolm Turnbull and the Australian Republic Movement are at it again:

The architect of 1999's failed republican referendum says the Queen would have to die or abdicate before Australians would vote out the monarchy forever.

Malcolm Turnbull, who is now Opposition treasury spokesman, said today the Queen's departure from the throne would be a "watershed event that would galvanise the population" into debating what type of head of state they wanted.

"I said at the time of the 1999 referendum that if we voted 'no' it would mean 'no' for a very long time," Mr Turnbull said on the Australia Day holiday.

Asked when a new vote would be held, Mr Turnbull said: "My own judgment is that the next time when you would have your best prospects is at the end of the Queen's reign - when she dies or when she abdicates.

"We have got to have a very serious discussion about what we want our head of state to do," he said.

Like many Aussies I think Australia should have its own Head of State. We should have some form of president rather than leaving executive duties in the hands of an English Monarch (and his/her appointed lackey). Like a minority of Australians, I voted "yes" in the 1999 referendum, confident that, once a Republic was underway, we could change it to suit our needs more. Republicans who voted "no" during the 1999 debate - who argued that the model presented wasn't the one they wanted - essentially prevented Australia from being a Republic. Moreover, by voting "no", they indicated that they preferred an English Monarch over a flawed but fixable Republican model.

Having said all that, I must give my 2 cents regarding this current little debate. Changing Australia from a Constitutional Monarchy into a Republic is a major deal. Once a decision has been made, it is foolish to keep "flogging a dead horse" until at least some time has gone by. The 1999 referendum seems an age ago but it was only 9 years. Australia needs to progress for another generation before any changes get voted on again.

I therefore support another referendum on the Republic - but 25 years after the previous one. I'm happy for a Republic referendum to go ahead in 2024 but not in 2008 or 2009 or any years in between. The fact is that in 1999 we voted to remain as we are and it seems ridiculous to think that the opinions of Aussies have changed much in 9 years.

Kevin Rudd wants us to save more

From the department of ho-hum:

Householders could be offered incentives to cut spending and save more of their income as part of the Federal Government's drive to control inflation.

Mapping out a five-point plan to fight inflation yesterday, Kevin Rudd said he wanted to build a national savings culture to help reduce demand pressures which were pushing up prices.

"Providing attractive incentives to save can help take the pressure off inflation, help people save for their future and help lift national savings," the Prime Minister said.

While he did not give details, measures likely to be examined include encouraging higher superannuation contributions and tax breaks for savings.

Mr Rudd also promised to increase the budget surplus to around $18 billion next financial year and to speed up policies to train more skilled workers and get more people into the workforce.

Kev's been in power for a short amount of time. It's too early to judge him for his performances but, I have to say, I'm not impressed as yet.

Rudd wants Australian households to save more money. That's an admirable goal. It's an important goal as well since a) Saving instead of spending will reduce inflation, and b) Australia's household savings rate is not as strong as it should be. As the figures show, Australian Households have been on a borrowing and spending binge for a number of years, and have only in the last 12-18 months begun to reverse that trend. Servicing debt now accounts for about 12% of gross disposable income.

Rudd's solutions, though, are not going to work terribly well. In order for Australian households to increase their savings rate, they need to value money more. In other words, the value of money has to increase in relation to all the goods and services it can buy. This means that inflation has to not just be fought against, it has to be defeated.

A person with money has a choice - they can either spend their money or save it. How each individual makes this choice differs from person to person as some will save more than others while another will spend more than others. This is how markets work, in all their flawed glory. Yet this behaviour will only continue so long as things remain equal - change the equations and the market will change its behaviour.

If the Reserve Bank increased interest rates, it would make money more valuable. That change in the equation will lead a significant amount of net spenders to become net savers. The reason is simple - these people will choose to save their money to increase their personal wealth rather than spend the money on goods and services.

As I have argued many times before, any form of price instability is going to hurt the economy over the long term. Keeping inflation between 2-3% may seem to be the Reserve Bank's prerogative, but any form of inflation will result in cumulative levels of overspending and over-borrowing. If the Reserve Bank increased rates and aimed at keeping the price of money absolutely stable, the result will be a) a slowing economy initially, b) a decrease in the current account deficit, c) increased personal saving rates and d) a more sustainable economy over the long term.

Economics is about balance. A country's government should neither be in huge debt nor be a huge saver; A country's current account should neither be in continual surplus or in continual deficit; Prices should neither drop nor rise.

Of course, Rudd and the Reserve Bank do not consider Absolute Price Stability to be a worthwhile policy, mainly because they are probably completely unaware of it (and probably because I am the only person in the world who seems to champion it). Nevertheless, it is to Rudd's detriment that he does not link high household savings with higher interest rates.