Month: February 2000

Prime Minister John Howard should resist the knee-jerk reaction of his back-benchers to change in any significant way the quarterly Business Activity Statement. Anything new is bound to attract opposition. Anything new is bound to cause a certain amount of difficulty until the new becomes the routine. The BAS system has simply not had enough time to be bedded down to become routine. Businesses have only had to present two BASs, so business owners and their staff have hardly had time to familiarised themselves with the procedure. It would be like turning on a spreadsheet program on a computer and after giving it a couple of starts pushing it aside and returning to a calculator or manual adding-up.

Australia has one of the easiest financial reporting standards fior business in the developed world. Most require monthly reporting. The BAS is not especially onerous. Indeed, a lot of welfare recipients have to lodge forms not much simpler and more regularly. For too long much of Australian small business has slopped along with a shoebox attitude to accounting. The shoboax of receipts comes out towards the end of the financial year for the annual tax return. It is not good enough. The BAS has imposed some welcome discipline on small business. Many business have very little idea how they are travelling through the year. The BAS will help them track not only liability and credits for GST and income tax, but also profit and loss, outstanding creditors and the like. The requirement for quarterly reporting has made many businesses update their accounting procedures and the computing used to do it. Having come this far, the Government should hold out. The vast majority of businesses are coping well with the BAS. More than 90 per cent got the first one in on time and that is likely to be exceeded the second time around.
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Australian politicians from both sides of the political fence are consistent indeed in explaining Australia’s economic fortunes. When growth rates in Australia falter, external factors like events in the US or Asia are pointed to as the key cause for blame by those in Government (whether Coalition or Labor) and those in Opposition blame inept economic management by the Government. When growth and employment are up those in Government put it down to excellent internal economic management, while those in Opposition either deny it is happening or put it down to good luck or flow-ons from external factors. Thus the economic mutterings and explanations on the causes of the current economic must be taken with a grain of salt. Moreover, economic forecasting and explanations by politicians has to be seen in the light of the electoral cycle. The closer the election the more panicked the response.

It is fortunate, indeed, therefore that one of the main levers of economic management – setting official interest rates — is in the hands of the Reserve Bank, more particularly, the monthly meeting of the Reserve Bank Board. It will meet tomorrow.

When it meets it will be bearing in mind that the United States seems set for a slowdown in growth, or maybe a mild recession. A recession in the US will affect our export markets, so Australia will need to boost domestic demand to replace it, if we are to avoid a worse downturn than otherwise in store. It can do that by lowering interest rates. Further, the US has already reduced interest rates by a full percentage point in the past month. This means that Australia can afford to lower interest rates without causing international investors to flee Australia, putting pressure on the currency by lowering the exchange rate.

The Reserve Bank has to perform a delicate balancing act. It must ensure that demand is not boosted to artificially high levels with low interest rates so as to fuel inflation. Conversely, it must not put the breaks too hard on with high interest rates to cause unnecessary business retraction and consequent unemployment.

The bank must also act within the context of the Government’s fiscal position. If government itself has boosted demand by increasing spending, then interest rates would have to stay higher than would otherwise be the case. However, the fiscal position is a slow-moving beast. Interest rates act on the economy more quickly.

The signs are that the Reserve should reduce interest rates, but some caution is warranted. The US economy, coming off a greater high, is slowing more quickly than the Australian economy. The US is going through a dot.com bust after a dot.com boom – a boom Australia never had. Also, retail figures issue last week indicate that the Australian economy is not as weak as commentators had earlier suggested.

Prime Minister John Howard and Treasurer Peter Costello have changed their tune since late last year when they were saying everything was rosy. Now they are warning that Australia is in for a slow-down and only the good economic managers – the Coalition – can be trusted to manage the economy in difficult times. It was self-serving twaddle. Much of it was insurance so that if the economy does slow in this election year, they can say that it was expected and predicted and there is no cause for alarm. The Reserve should to listen to the over-stated case by Mr Howard and Mr Costello. Nor should it get too alarmed at the US position, despite statements by its own deputy governor, Glenn Stevens, that the us slump could have a serious impact on Australia.

Rather it should hark back to the position of its Governor Ian Macfarlane late in 1999. Then he argued that it was better to engage in a constant fine tuning rather than fewer short, sharp shocks. Moreover, Australia has gone through a couple of local one-off events – the GST and the Olympics – the effect of which has not been worked through.

The Reserve should opt for a cautious quarter to half percent reduction, rather than attempt to engage in a big-boosting statement which it might have to partially reverse later. That would have an unnecessarily negative impact on business confidence.

The great conundrum of democracy is being tested in Austria. What if the people vote for representatives who do not uphold democratic values and who, in an extreme situation, move to end democracy? What if those representatives get a majority or a balance of power?

It is happening in Austria in the wake of last year’s stalemated election. It is what happened in German in 1933 and led to Hitler coming to power. In Germany in 1933, however, Hitler had fewer obstacles. The president at the time, former World War I general Paul von Hindenburg was an old man with little power of resistance. Austria is in a better position with President Thomas Klestil. Mr Klestil is in an invidious position, largely brought about by the actions of the centre-right Austrian People’s Party which has signed a coalition with the far-right People’s Party. Together they have a majority in the Parliament. Mr Klestil therefore has no choice but to let them form government. However, he has not been completely compliant. He has required the People’s Party, headed by Joerg Haider, to sign a pledge to respect democratic values. Perhaps this will give him some armoury later if Mr Haider abuses his power. It will also go some way to reducing fears elsewhere in Europe about trends in Austria.
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Prime Minister John Howard has given two reasons why the remaining 51 per cent of Telstra in public hands should be privatised. The first is that the money realised could retire public debt and the proceeds be used for things that only governments can do, like health and education. The second is that it is a conflict of interest for the Government to be at once the regulator of Telstra and its half owner.

Both these arguments have some merit, subject to some qualifications. Until the 1970s, it would have been difficult for private enterprise to run a telecommunications company in Australia. Only government could mount the capital to build and run the infrastructure. Nowadays there is enough private capital about to do the job. A counter to Mr Howard’s argument is that Telstra is such a successful company that the Government should keep its share and keep the profits rolling so it has more money for education and health. But that counter-argument has dangers. Under that theory, Government could engage in all sorts of commercial activity for profit. The better position is that taxpayers money should not be put at commercial risk. Further, one of the main reasons Telstra is doing well is that the Government changed the regulatory environment. There is now more competition in telecommunications. The competition delivered efficiencies, profit and risk to capital at the same time. The logical outcome of deregulation and competition is privatisation, or at least privatisation of the parts of Telstra that are subject to competition. The Government should not have its capital tied up in Telstra. It should retire debt.
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The call by Greens MLA Kerrie Tucker for an increase in the size of the ACT Legislative Assembly has merit and should be viewed on the merits. Unfortunately, this does not appear to be happening. The snag is the attitude of Labor leader John Stanhope who says he does not want to do anything “”that would reverse the painfully slow acceptance of the Assembly in the minds and hearts of the people”.

Mr Stanhope’s approach reveals a Catch-22. If the Assembly retains its present 17 Members, it is likely that the quality of representation will suffer and that the talent pool for Government Ministers and the Opposition members who shadow them will be shallower. If that happens, the people will take even longer to accept the Assembly.

In any event, the doubts over the acceptance of the Assembly arise as much out of its history as out of the performance of current members. A core of doubt arises from the fact there was a referendum in 1977 that voted against self-government and that the Federal Government enacted self-government without a further vote and hammered the place financially. That in turn resulted in a fractured first Assembly when people foolishly voted for people who stood under the anti-self-government banner but with other agendas. Mr Stanhope is right to be concerned about the doubts, however. They must be dealt with by pointing out that the 1977 referendum is not longer a valid gauge of ACT opinion. The people who voted then would make a small proportion of today’s population. Further, the halcyon days of direct rule with lots of spare money for Canberra were going to end self-government or not, so self-government should not be seen as the cause of later ACT Governments having to tighten the belt. Indeed a directly ruling federal government would have tightened the belt more.
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True to his word, Prime Minister John Howard has started to talk about social issues and less on economic matters, as he promised in his new year’s message. Last week he gave a broad-ranging Federation address. Like his pre-election headland addresses, the Federation address was long on generalities and short on specifics, with one notable exception. The exception was Mr Howard’s call for a change in school hours to mirror work hours more closely. He suggested that schools be open from 9am to 5pm.

Changes to school hours should not be dismissed out of hand. Knee-jerk reactions that Mr Howard is attempting to convert schools to glorified child-minding centres are unfair may have been made more out of self-interest by teachers than out of concern for parents and children.

Mr Howard has flagged the question of school hours before, in 1994. He suggested, then, that schools should more closely reflect work hours. But maybe Mr Howard is looking at the problem from the wrong end. He acknowledges that his idea of the extended school day stems from the fact that many women are working. He may have an idealised world where women are there to look after the children. The essential difficulty, though, is that both men and women have to work too long to keep families at a reasonable standard of living so there is less time for families, for being with children. That is unlikely to happen.
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When Dr Paul Hogan got a court award a couple of weeks ago of $2.9 million for being belted over the hand with a strap, the cry went up that Australia was going the way of the US.

Well, I was in the US at the time, otherwise I would have hopped on my hobby horse (the madness of juries) last week.

In some ways we are going the way the of the US. Meanwhile, some legislatures in the US have had enough of overblown awards to plaintiffs and are gong the other way.

Since the strapping case, the letters and talk back have been filled with ex-students talking about how beatings made men of them or how corporal punishment leaves psychological scars forever. Of equal import, however, is the question of whether juries should be allowed near the courts of justice.

Te jury had obviously seen too many episodes of LA Law and the The Practise (yes Americans spell it like that). In these programs, over-acting lawyers play it up to juries to give humungous awards to plaintiffs to “”send messages” and to respond to “”emotional” needs and so on, irrespective of the justice of the case or the fall-out for the public who have to pay, usually in the form of higher insurance policies or higher prices.

Juries are supposed to bring commonsense and a community view to legal outcomes. Yet here is a case where everyone you talk so says was over the top and at odds with everyone – no commonsense and no community view. The jury awarded Dr Hogan $1.5 million in future economic loss, among other damages, despite the fact that since his strapping he managed to get through a PhD which would have increased his future earning capacity. The jury – as is so often the case – was out of its depth.
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Beaver Run in Breckenridge Beaver Run Resort, Breckenridge Ph: 970 453 6000

Tuesday Wednesday Feb. 13-14

East/West Resorts in Beaver Creek. Check-in at Highlands Lodge. : 970 949 5071

Thursday, Feb. 15

Vail

Friday, Saturday, Feb. 16, 17

Denver Westin Tabor Center.

Continue reading “2000_02_february_itin. kill later”

THE tussle of wills this week between Prime Minister John Howard and Treasurer Peter Costello was eerily similar to that between Prime Minister Bob Hawke and Treasurer Paul Keating.

Costello, like Keating, has (to use Keating’s phrase) his head down and bum in the air working on tax detail. Meanwhile, (again to use Keating’s phrase) Howard is out there tripping on television cables at shopping centres.

Costello seems to be suffering the same frustration as Keating. His leader is ready to undo his work at the slightest, transitory, popular backlash.

On the Business Activity statement this week, Costello defied Howard, at least initially.

Costello wants an efficient tax system and efficient small businesses. It means upsetting a lot of small businesses who have run their accounts out of a shoebox and slopped cash about without paying proper tax.

They need upsetting. Some of these cash businesses will have to start paying proper levels of tax for change. Perhaps that is why they are squealing.
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The Federal Government’s health rebate scheme was bound to be an expensive exercise in futility. The initial estimate of the cost of the scheme was $1.3 billion a year. This financial year it has cost $1.6 billion and next financial year it will cost $2.2 billion — $740 million more than in the forward estimates of 1998-99 when the scheme was first proposed.

The scheme was aimed at attracting people to private health insurance by giving them a tax rebate on their premiums if they earned under a certain amount of income. The scheme has failed dismally. The number of people in private insurance has hardly moved since the scheme was introduced, though it went up slightly with the introduction of two other schemes – heavy penalties (of one per cent of income) for high-income earners and the new age-rating scheme. These two scheme had a slight effect in increasing the number of people with private insurance.

But the rebate scheme has just thrown good money after bad. All the evidence suggests that nearly all the money has gone to people who already have private insurance and who had no intention of stopping it. The scheme was conceived in a cloud of ideology with stupidity as a midwife.
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