Australian Financial Review

December 16, 2002

Costello’s populous path to prosperity

Capital moves column
Treasurer Peter Costello will argue to federal cabinet today that Australia’s prosperity relies on population growth and, as a result, on a significant increase in skilled migration.The last cabinet meeting of the year, to be held over two days in Sydney, will be another strategic overview of the government’s priorities, receiving papers on several issues including work and family issues and national demographics.Costello will present a paper on demographic trends which builds on both the intergenerational report released with the budget, and on themes he first put publicly in a speech to an Australian Financial Review Leaders’ Luncheon in Sydney in August.But the Treasurer has broadened his push, arguing that the key to Australia’s postwar prosperity has been an expanding population and that if this were not recognised and addressed, Australia faced long-term decline.Costello’s intervention will mark a return to primacy of the economic arguments for higher immigration, which in the past decade has been argued as a political, social and environmental issue.

The case study Costello will offer cabinet is Japan, where he believes declining population and productivity have helped doom the economy to long-term contraction.

It is also a significant intervention considering the potency of the Liberal leadership issue in Canberra.

Costello’s push on economic grounds for increasing immigration obviously bumps against the political considerations of increasing tensions over crowding in Sydney, and against the Prime Minister’s well-remembered record on immigration going back to 1988.

But there are signs that a pragmatic John Howard has already been signalling to the business community for some months that he acknowledges the economic need for higher productive immigration. Some very politically well-connected business sources even claim that senior ministers in the government recognise higher immigration as a way of propping up the economy, should the housing bubble look to be in trouble.

They say the potency of economics is now recognised in the Prime Minister’s office, even with the political baggage it carries.

In May this year the government announced a significant increase in the non-humanitarian immigration program, which Immigration Minister Philip Ruddock described as “a very substantial increase” and an expansion which would “give us the largest and most rigorously tested skill stream on record and the biggest migration program in more than a decade”.

He announced a planning level of 105,000 places, up from 93,000 the previous year.

This included 60,700 skilled places and a family program of 43,200, but the numbers were part of a four-year program which could keep migration at these levels and which Ruddock said was an initiative designed to give planners a greater degree of certainty.

On the same day, Howard described the increase as “measured” and said it struck “the balance between harvesting the benefits of increased skilled migration, while at the same time taking care to ensure that the rate is not such as to impose too great a strain on the environment or all the other things you take into account”.

Costello is talking about a longer-term picture. He told the AFR lunch in August about “the three factors that determine GDP growth” population, increasing participation and productivity.

On population, he had this to say: “Building a higher proportion of working age increases GDP per capita. A lot of attention has focused recently on fertility rates as a way of rebuilding the working age population and decreasing the ratio of dependants to workers.”

Costello went on to point out that fertility rates had fallen in all advanced industrial societies in recent years, and that all had failed to turn this around.

“Boosting fertility rates actually reduces the proportion of the population of working age at least for a generation,” Costello pointed out.

“It increases the dependant to worker ratio with a number of children. It has a negative effect for around 30 years before you get the payoff.”

By contrast, he noted “migration has a positive effect on the population factors, if it is skilled migration focused on those of working age”.

His speech and his paper today put him at sharp odds with ministerial colleagues who have been pushing efforts to solve Australia’s ageing population problems by encouraging a higher birth rate.

The question now is who will capture the debate within the government?

Costello is in something of an inevitable ascendancy.

He is also determined to push the message of the intergenerational report into each budget from now on, though how it might affect the 2003-4 budget remains unclear.

There are also signs that ministers responsible for other policy areas relevant to the population debate have either been resting or not getting a hearing.

Workplace Relations Minister Tony Abbott and Family and Community Services Minister Amanda Vanstone released a paper on welfare reform last week that was portrayed as a significant development in the debate.

In fact, it was essentially a reprint of the McClure Report on welfare reform, published almost 2 1/2 years ago.

The only change in the discussion paper is to abandon McClure’s emphasis on community action for Abbott’s obsession with self-help.

The government has now asked for more submissions over the next six months on issues it sought views on 2 1/2 years ago. The prospects are that welfare reform will eventually have lost a good five years.

In the meantime, roll on Peter Costello.

December 9, 2002Business, terror and a police state
Capital moves
Business people who shared Caltex’s white-hot anger over Australian Competition and Consumer Commission raids on its premises earlier this year have reason to pause and consider much scarier intrusions on their lives hanging in the balance in the Senate this week.In the post-September 11 world, the Howard government has introduced a legislative agenda that profoundly affects Australian civil liberties.If you’re not directly involved in terrorism you might not have taken too much notice of these changes and how they affect the community.Equally, the fear of terrorism may have blunted a philosophical objection to government intervention per se that might otherwise make us object to what has been done.But these changes profoundly affect Australians, and particularly have big implications for the business community, which may find itself dragged unwittingly into investigations and shocked at the lack of legal rights it faces in those circumstances.

The major elements of these legislative changes have been: the Security Legislation Amendment (Terrorism) Bill which has been passed by Parliament with substantial amendments; and the ASIO Legislation Amendment (Terrorism) Bill 2002 due to be debated in the Senate this week.

George Williams is hardly a rampant hysteric in the legal world. He is the Anthony Mason professor and director of the Gilbert & Tobin Centre of Public Law at the University of NSW Faculty of Law.

Here is what Williams said about the ASIO bill in a recent article in The Alternative Law Journal:

“The ASIO Bill is rotten at its core. It would confer unprecedented new powers upon ASIO that could be used against the Australian people by an unscrupulous government.

“It is unfortunate that it has come to this, but the ASIO Bill would establish part of the apparatus of a police state. It is a law that would not be out of place in former dictatorships such as General Pinochet’s Chile.

“The powers to be given to ASIO may not be used against the Australian people today, or even over the next decade, but we cannot guess at the wisdom and motives of a government or of ASIO in 10, 20 or even 50 years time.”

What prompts such language?

The ASIO bill would give Australia’s domestic security organisation the right to detain people without charges being laid, or even the possibility that they might be laid. People could be held without access to legal advice and without the normal rights to silence and to avoid self-incrimination.

For business, that means, for example, if you run a hotel or a car hire business, or worked in a bank, in a travel agency or computer consultancy, you might find yourself hauled in for questioning under warrant, not because you are a terrorist, or knowingly know a terrorist, but because someone who ASIO thinks is a terrorist has been conducting business with you.

At first run past, this might sound a bit far-fetched.

Why wouldn’t ASIO, or the police, just ask you to voluntarily provide information? Well, they might, but the whole premise of the bill is that keeping you incommunicado could offer the advantage that you could not even inadvertently disclose a covert investigation, once it had been established that you had nothing to do with any planned terrorist act.

The act would give ASIO the power to hold you initially for 48 hours when the Crimes Act allows you to be held for only four and for ASIO to be given the capacity to keep going back to extend the time of detention.

It might not be only you that was held. It might be members of your family, including children as young as 14.

You could be subject to a strip search and threatened with jail for up to five years if you refused to answer any questions.

There is no penalty in the bill for ASIO officers who subject detainees to cruel, inhuman or degrading punishment.

Two different parliamentary committees have looked at the bill and have been deeply disturbed by it on bipartisan grounds.

The joint committee on ASIO, ASIS and DSD found it would “undermine key legal rights and erode the civil liberties that make Australia a leading democracy”.

The government made some concessions to this committee’s findings, such as putting a seven-day cap on total detention (very reassuring), but refused to alter the underlying detention power.

A Senate committee last week made another call for dramatic changes to the bill, and the major recommendations came unanimously from all parties.

Despite this, the Attorney-General, Daryl Williams, has indicated the government will not back down.

While we are often told how the world has changed, it is doubtful that most Australians’ sense of faith that governments uphold rather than abuse the law has changed, as far as civil rights are concerned at least.

But the ASIO Bill does give rise to consideration of how dramatically our sense of liberty could be affected in the long term by the changes being currently contemplated.

As Professor Williams says, the bill “will bring about a permanent change to law enforcement in Australia, and will entrench the notion that the detention of people who may have useful information is an appropriate tool for the gathering of information about criminal activity.

“The dangers of such a development in any law and order debate are obvious.”

December 6, 2002Crean blasted as Lawrence quits
Simon Crean’s position has been badly shaken by scathing criticism of Labor’s “incredibly conservative and timid” leadership by frontbencher Carmen Lawrence as she resigned yesterday in protest over refugee policy.The departure of Dr Lawrence from the front bench crystallises the despair felt by Labor’s rank and file about policy directions.Mr Crean has only just managed to curtail speculation about a leadership challenge, despite there being no conspicuous contender for his job. And he and the party continue to languish in the polls.Dr Lawrence said she felt compelled to resign from shadow cabinet because she could not accept the party’s policy on asylum seekers endorsed yesterday by the party’s federal caucus.But she said her disillusionment went much further. She singled out a lack of clarity on Iraq, Labor’s shifting position on the private health insurance rebate and funding for wealthy schools.

Mr Crean said he was disappointed but added that Dr Lawrence had no choice since she could not accept the decision of shadow cabinet.

She received public support from a range of mainly left-faction MPs and senators.

Dr Lawrence, who was the opposition’s spokeswoman on indigenous affairs, the arts and the status of women, insisted her criticisms were not aimed directly at Mr Crean but at the party leadership more broadly, saying she “didn’t find my own views and
values reflected in those of shadow cabinet”.

She said that she had found on her return to the shadow cabinet last year that it had “become incredibly conservative, timid even, and I hoped that would change after the election”.

However, she damned Mr Crean with faint praise, saying it was rare to find people with characteristics that were compelling, and the rest of the time there was a need to settle for “next best”.

Mr Crean “doesn’t stand head and shoulders above the crowd, but neither does John Howard”, she said, though she said Mr Crean was a “good man” who would probably lead Labor to the next election.

The opposition leader was surrounded by too many cautious shadow cabinet strategists and “too many people who’ve come up from the school of forelock tugging”, she said.

Labor needed to bring people with it on the asylum-seeker issue and not treat Australians “as if they are terminally bigoted”.

Dr Lawrence said she was going to the backbench where she would work to get a “change of direction” in the party and to “take back the heart and soul of the Labor Party from people who wake up each morning and just wanted to better manage the day than the previous one”.

Her resignation came after a caucus meeting at which opponents of Labor’s new policy had moved a series of amendments aimed at changing key aspects of the policy.

These included an attempt to reverse the excision of Christmas Island from the migration zone and moving to a single processing regime for all of Australia, as well as the abolition of temporary protection visas.

All the proposed amendments were voted down in the caucus, mostly on the voices, with only the Christmas Island amendment going to a show of hands.

While Dr Lawrence had widely signalled in recent days that she could not stay on the front bench if the policy was accepted, her fate was sealed when she broke cabinet solidarity and spoke against the policy in the caucus room then abstained from the vote.

However, Mr Crean said he had not required Dr Lawrence to stand down as a result “because she didn’t oppose the decision”.

He had earlier told reporters that it was acceptable for frontbenchers particularly those in the outer ministry, such as employment services spokesman Anthony Albanese, who are opposed to the policy to argue for change in party forums such as the national conference.

Cabinet solidarity applied to cabinet shadow ministers’ comments in caucus.

Dr Lawrence, and others, have indicated they will try to have the policy overturned at next year’s national conference.

However, with conference assumed to ultimately fall in behind the parliamentary leadership, Dr Lawrence’s continuing role in the Labor Party is under question.

She indicated yesterday that she could not stand as a Labor Party candidate at the next election if the policy was not changed.

Mr Crean rejected criticisms of the policy process on asylum seekers by Dr Lawrence, who claimed opponents of the policy only got to see it at the earliest on Sunday night, leaving little time to move against it in shadow cabinet.

After saying she had objected to Labor’s position on the Tampa issue last year, she admitted that she had “avoided the truth” on the issue at the last election, only indicating her objections if directly asked by constituents.

Among the messages of support yesterday was one from Stephen Smith, one of her staunchest friends and allies through her political woes.

November 29, 2002City dwellers drought resistant
Canberra observed,
Laura Tingle. Tony Walker returns next week.
Average weekly earnings in Australia are $850 a week gross. A married couple on the dole each get $338.10 per fortnight.Alan Jones moved to radio station 2GB last year in a deal reportedly worth $40million.Yesterday, an agitated Jones, who appears to have become displeased with the Prime Minister recently, accused John Howard of being out of touch with how hard people were doing it in the bush.Referring to exceptional circumstances payments for farmers during the drought, Jones said: “They get $600 a fortnight which wouldn’t even pay the petrol bill, and you couldn’t live on 600 bucks a fortnight.”Well, Alan, the figures suggest lots of Australians who aren’t in the bush employed and unemployed do just that, drought or no drought.

But this was not going to put off Jones, even when the Prime Minister, quite reasonably, pointed out that, on top of exceptional circumstances payments, farmers “also get business assistance, which is a subsidy on their interest rates”.

Jones: “PM, $600 a fortnight?”

Prime Minister: “Yes, Alan. I understand that, but you must also understand that if somebody loses their job, that is the basic assistance they receive also. I mean, it’s not as if we’re discriminating against farmers …”

Jones: “If someone loses their job, [they don’t] have to pay to cart water or feed stock or pay school fees or pay off debt.”

And so it went on. A unique view of the particularity of the Australian rural sector’s woes which, hopefully, says more about Jones’s disconnection with the way most Australians live than it does about how sorry the bush might be feeling for itself at the moment.

The great irony of Jones’s crusade for farmers is that, these days, he is not heard outside the Sydney metropolitan area. The bush doesn’t get to hear its greatest champion. The city gets it in bucketfuls.

The Prime Minister, perhaps the government’s most assiduous and sensitive media monitor, seems compelled to at least acknowledge the bush rantings, if not always satisfy them.

The connection between the city and the bush in Australia remains one of the great mysteries of Australian politics.

Skipping past the usual cliches, it’s not entirely clear how much urban Australia really connects or is concerned with the bush at all.

Nothing drove home the disconnection between the twomore than this week’s mid-year review of the budget.

This review like many other things in politics has become as staged a political event as any.

The forecasts might be academically interesting. But the purpose of the review is about expectations: expectations of the government’s own backbench for the budget ahead; expectations in the electorate about the economy; expectations in the electorate about how the government might travel politically.

Subtlety wasn’t a key theme this year. There was John Howard, out in the bush with media, helping a stuck sheep out of a boggy mud hole.

In Canberra, Peter Costello and Nick Minchin were telling us how the drought was going to slice almost one percentage point off GDP.

Subtle, really.

But the more interesting story on the day was how the non-farm economy, known in tabloid parlance as Mr and Mrs Stringbag, would remain sublimely untouched by the drought, as would the budget surplus.

The mid-year review shows the Australian economy and therefore everybody in it as living in two different countries.

Apart from the odd dust storm, city dwellers, according to the forecasts, will continue to live in the strange cocoon of the past 12 months, obsessed only about their house, rising property prices and television programs about property greed, unworried by world recession, a slowing economy, a slowdown in jobs creation, or higher interest rates.

The only concerns will be about venturing out into the wider world: whether it is safe to go to Bali; safe to get involved in a war with Iraq; or whether we are safe from the world bringing its problems here.

At a time of international uncertainty, the non-farm economy will be providing a reassuring base of security for the majority of Australian voters.

But that is not to say the benign short-term outlook does not bring its own political problems to bear on the government.

The first of these problems is just what the expectations are of city and country people (other than Alan Jones) of what the government should “do” about the drought.

At the level of base politics, this sways a small number of voters in a crucial range of rural seats.

(Completely unconnected to this, of course, is the observation that it’s hard not to be struck by how dominant agricultural issues have been in Cabinet’s domestic deliberations in recent months.)
The second political problem is what a prolonging of our urban boom means for the political cycle.

The political and economic unknowns crystallised by the release of the forecasts are the timing of a global rebound and the breaking of the drought.

But given how little contamination there has apparently been from the farm sector of the economy to the non-farm economy from the drought, it begs the question: how much of a lift would urban Australia get from the drought breaking anyway?

And if the drought doesn’t count, and Treasury devotes three pages to the downside risks to its “central case” forecast for the international economy, and one paragraph to the upside risks, what will be driving the non-farm sector to continued prosperity in the second half of the electoral cycle?

Treasury observes: “Unlike 1997-98 when the United States was growing strongly, or 2001 when domestic activity was supported by a pick-up in housing activity and strong consumption, the Australian economy would find it difficult to maintain momentum
in the face of any further significant global deterioration.”

The economic focus over the next few months will be on the next budget, how it is financed, and the pressures that may flow from defence demands.

The political focus will continue to be on terrorism, with the odd starving sheep thrown in to remind us of what’s happening out there in the bush.

But inside the Australian bubble, the “feel-good” factor associated with rising housing prices and job security will only start to be put to the test late in 2003 and 2004. Just in time for the political competition to be getting serious, and for those contemplating being prime minister at the next election to contemplate the downsides of politics.

November 27, 2002Low share price sinks Telstra sale: PM
Laura Tingle and Nicole Lindsay
Prime Minister John Howard confirmed yesterday that the sale of the Federal Government’s remaining share of Telstra had been put on hold because the market price was too low.Mr Howard’s comments, ahead of today’s release of the mid-year economic forecasts, put the full privatisation on the political backburner, contributing to a further slide in the company’s share price.Telstra shares fell to $4.38 their lowest level since December 1997 in another blow to the small shareholders who bought into the second round of privatisation at $7.40.The Australian Financial Review reported on November 13 that the sale of the remaining 50.1 per cent holding was likely to be delayed indefinitely after the government had conceded that the group’s low price would stop the sell-off even if it won Senate approval.But yesterday’s remarks were the first public confirmation that the recent share-price slide and a downturn in the global telecommunications market meant the sale was not viable for the foreseeable future.

The sale remains priced into the federal Budget at $5.40 a share.

Today’s mid-year review may revise the price in line with market reality, or retain that figure but defer the effect on Budget forecasts.

Despite Mr Howard’s confirmation, Telstra chief executive Ziggy Switkowski said the full privatisation of Telstra was the best option for the company.

And he argued that the telecommunications industry would have reasonable growth in the near term as compelling new broadband products and services hit the market.

Campaigning in the Victorian election, Mr Howard stated publicly the three factors holding up the sale of Telstra which he had previously outlined to the Coalition party room and which had been confirmed by Treasurer Peter Costello but indicated the company’s low share price was the chief problem.

“Firstly, we have got to be satisfied that conditions in the bush are up to scratch,” Mr Howard said. “We’ve started to have a look at the Estens report [on rural services] and when we’ve finished that, we’ll indicate where it’s going.

“Secondly, we have got to get parliamentary authority.

“And thirdly, we’ve got to sell it at a price that maximises the return to the taxpayer.

“I mean I wouldn’t sell it right at the moment even if I had parliamentary authority because the share price is too low.

“It’s not in the interests of all of you you’re all taxpayers, I assume you’re all taxpayers and it wouldn’t be in your interests if I did that.

“There’s three things.

“But in the end, once you get conditions up to scratch in the bush, in the end and it may take a while depending on the share price and so forth in the end, it is absurd for a company like that to remain half pregnant, half owned by the company, half owned by the public. It hobbles it.”

However, while the sale may be formally delayed from 2003 to 2004, the confirmation of its delay means the sale is essentially delayed indefinitely.

This is because the government has been most determined that a Telstra sell-off would not occur in an election year as 2004 would be.

Speaking at the Veritas telecommunications leaders lecture series, Dr Switkowski said it was not for him to advocate full privatisation, but he said the government had established three clear criteria in order for T3 to proceed. Issues to be resolved by the government included Telstra’s service in the bush, the Senate’s vote and the timing “given the relatively depressed share prices that characterised the industry and Telstra”.

Analysts, however, said Telstra’s share price slide was due to other factors apart from T3.

One analyst said the stock price was being driven down by recent moves from broking houses, including JB Were and Salomon Smith Barney, to downgrade earnings earlier this month.

Another analyst said concerns over the renegotiating of Reach’s debt might also be sending Telstra’s share lower. “Reach’s renegotiations with debt holders may force Telstra to kick in more equity and that would increase Telstra’s 50 per cent ownership and see another $3 billion-plus worth of debt placed on their balance sheet.”

Fund managers also questioned the effect uncertainty over T3 was having on the stock price. One fund manager said that while in the short term a delay of full privatisation might remove some overhang, in the long term it would raise the company’s cost of capital.

“This just highlights the government’s influence over the fortunes of Telstra,” he said.

On the future, Dr Switkowski said the wireless area would be a catalyst for growth. There were now 13 million mobile handsets in Australia, which represented more than 65 per cent per capita penetration.

He said he was sure that in the years ahead the penetration rate would grow to more than 100 per cent as the number of wireless devices bought by consumers increased.

November 25, 2002Sugar plan warnings ignored
Laura Tingle and Jason Koutsoukis
Federal Cabinet ignored advice that its $150million sugar-industry bailout would not help growers or lead to industry restructuring and could blow a hole in the Budget.The advice about the problems in the proposed package, which was considered by Cabinet in September, came from across the bureaucracy, including Treasury and the departments of Finance, Industry, and Agriculture, Fisheries and Forestry, according to leaked Cabinet documents.The revelation will not help the government win legislative support for a $20million-a-year levy, due to come into force on January 1, that is supposed to fund much of the package.Labor has signalled its opposition to the levy and the Australian Democrats have expressed their concerns.The Department of Finance told Cabinet that “timing differences between commencement of a levy revenue stream and the expenses associated with the proposed package will almost certainly result in an impact on the Budget in at least the 2002-03 year”.

Even the agriculture department recognised problems with the levy, saying it was “likely to be more complex than for the dairy or Ansett levies” and that “underlying a neutral underlying cash balance may pose difficulties”.

Labor last week revealed the Industry Department had also registered its “strong opposition” to a tax on sugar to pay for the bailout of canegrowers. The department told Cabinet the tax would hurt food processors and set “an undesirable precedent”.

Evidence to estimates hearings last week was that the $20 million-a-year levy could cost $150,000 a year to collect. It is being introduced to fund a package to give canegrowers income support, replanting loans, regional restructuring assistance and cash payments of $45,000 to leave the industry.

The Treasury told Cabinet ministers it was concerned the sugar package had “the potential to repeat the unsuccessful sugar industry assistance package” of 2000.

“Under this model, no real reform is likely to occur for at least a year, which may lead to another year of income support,” it said.

“At the same time, upfront income support may act as a disincentive to pursue reform.”

Treasury argued that sugar industry funding, including any income support, should be directly linked to reform outcomes and that firmer commitments from the industry were now needed upfront.

The package was eventually signed off, with reforms and restructuring still to be negotiated and without such direct links being made between income support and outcomes.

The Department of Finance also expressed its “reservations about the ability of the proposed package to bring about substantial reform in a cost-effective fashion”.

The 2000 sugar package had not achieved its objectives, the department wrote, and “if a more effective package than that currently on offer is not devised, then the current proposals run the risk of having similar limited impact for a relatively high cost and leaving the government in two to three years’ time with similar problems to those currently faced”.

Finance told Cabinet it considered substantial structural change in the industry would be achieved only “through the exit of a significant number of existing producers”.

It said a 3 per cent exit rate was “unlikely to have any significant impact”, and the minimum threshold was likely to be “at least 10 per cent over four years and maybe significantly higher”.

Agriculture Department officials told Senate estimates hearings last week the department had “no predetermined figure in mind” for how many growers could not be sustained by the industry.

But it said the $30 million of the package put aside to fund the exit of sugar growers was based on a projection that up to 10 per cent of growers could leave the industry.

This was despite the fact Agriculture advised Cabinet in September that estimates of grower exit numbers were “arbitrary” and noted that “a payment of $45,000 may not be sufficient to induce all appropriate growers to exit”.

The department appeared to have changed its mind by last week, however, when officials told a Labor senator, Kerry O’Brien, in estimates hearings the $45,000 was “a reasonable sum” which “is likely to be a reasonable incentive for those people seriously considering leaving the industry”.

Finance also questioned the funding being set aside for regional assistance initiatives, which according to evidence given in estimates hearings is likely to be $60 million.

The package includes $10 million to run an “industry guidance group” and a “regional guidance group”.


November 22, 2002Howard’s clarion calls and weasel words
Canberra observed, Laura Tingle
Over the past month Australians have seen John Howard display his best political and leadership attributes. The opinion polls attest that the voters certainly like what they see.Yesterday, only hours after giving his most substantive speech in months outlining both his defence and domestic policy agendas, we saw him at his political worst.Howard’s weakest claim to leadership has always been his preparedness to engage in weasel words appealing to the worst in the community: whether in the immigration row of the late 1980s; in his refusal to condemn Pauline Hanson in the mid-1990s; or in his dallying yesterday over comments by NSW Upper House MP Fred Nile.Nile sparked a huge row in the state Parliament on Wednesday when he asked whether “as part of our new Australian security precautions, [the government will] consider a prohibition on the wearing of the chador in public places, especially railway stations, city streets and shopping centres etcetera”?Nile’s argument was that traditional Islamic female dress “conceals a person’s identity and even whether they are male or female, which is a perfect disguise for terrorists as it conceals both weapons and explosives”.

It was low-level stuff which was generally treated dismissively by other political figures asked about it.

But it seems the Prime Minister just can’t help himself, despite his warnings over the past month that people should not take out their anger over the bombings in Bali on Australia’s Muslims.

Howard told John Laws he could understand Nile’s concerns: “I mean, I like Fred and I don’t always agree with him, but you know, Fred speaks for views of a lot of people.

“On the other hand I feel it’s very important at the moment that Islamic people don’t feel they’re being singled out. I feel for them.”

Howard went on to talk about “the general rule of this country” being “that there is sometimes a public interest overriding any religious practice” though he insisted he had not made any judgement about Nile’s proposal.

Along with debate about whether the government did the right thing this week in issuing a general security alert, it was a portent of how the politics of terrorism and defence are likely to get much messier from here on.

The bombings in Bali had several effects on the political debate here.

One of them was to change the nature of the discussion about an Australian involvement in any campaign against Iraq.

Both sides of politics have suffered heavy weather over Iraq.

Before Bali, Howard was forced to put considerable legwork into moving Australia away from its early gung-ho position of support for the United States.

Pre- and post-Bali, Labor, or more particularly, Simon Crean, has had trouble trying to articulate its position on Iraq. Labor’s aim has been to place itself relatively fairly close to the government on a matter that may require “national unity” but still have a separate, definable position. To this end it has insisted that any action in Iraq must be sanctioned through the United Nations, and, more recently, explicitly ruled out support for unilateral action by the US.

Weapons inspectors are now in Baghdad, but George Bush is already ramping up the spectre of unilateral action. This has put the pressure squarely back on Howard, who has refused to rule out backing a US-led unilateral action against Iraq.

Beyond the strategic issues involved here, there is the simple politics of how such issues play in the electorate.

The managing director of ANOP Research Services, Rod Cameron a former ALP pollster says that, despite Bali, the underlying views inthe suburbs on Iraq have not changed much in recent months.

“That is, that Howard made a great mistake in going in too close to the United States and being too gung-ho on a war with Iraq.

“The view is we did make ourselves a bigger target than was necessary. There remains a great reluctance to get involved in Iraq with or without UN backing.

“Howard has clearly tried to blur Iraq and the war on terror and the attacks in Bali, but it hasn’t ultimately worked and I don’t think Labor should be cowed from questioning the Iraq strategy.”

Opposition foreign affairs spokesman Kevin Rudd tried yesterday to separate the Iraq and terrorism issues by challenging the PM to show the links between the two. They should remain separate issues. One is about dealing with state-sponsored weapons of mass destruction; the other about dealing with highly organised but ultimately stateless groups of terrorists.

The extent to which Howard was hoping to further that “blurring” by his speech to the Committee for Economic Development of Australia in Sydney on Wednesday night in which he announced the return of SAS troops from Afghanistan is unclear.

His speech does not actually make the link between the SAS soldiers returning, growing threats of terrorism at home or possible engagement in Iraq.

Indeed, the most significant observation he makes about the strategic environment is that, in regard to national security, “not since the early 1960s have we faced a more complex and uncertain region”.

The only clear link between the troops coming home and a commitment to Iraq is his observation that, in contingency discussions with the US, “it has been made clear that any Australian contribution in a new theatre such as Iraq would need to be within our resources and not detract from immediate defence and national security needs”.

“As a broad indicator, it has been noted that our contribution to operations in and around Afghanistan has met that basic test.”

Of course, all this gets blurred in the summarised telling, which is why the politics of so many real threats to Australia now whether local terrorism, a highly unstable region, or global power plays pose so many political hazards and require crystal clear leadership.

Thank heavens, then, for Justice Minister Chris Ellison and his advice about what to do if you think someone following you in a shopping centre is carrying something suspicious.

“Well,” he told the ABC’s AM program, “you can always make inquiries and say, `excuse me, are you doing something untoward there?”‘.

The country is indeed in safe hands.

November 15, 2002Howard’s Telstra call still rings hollow
Canberra observed
Laura Tingle. Tony Walker will return on November 29.
John Howard marked the anniversary of his third election victory earlier this week with a significant shift in political strategy.His first year of this term has been dominated by events overseas the aftermath of September 11, the war in Afghanistan, threatened war in Iraq and the Bali bombings.There has been precious little of local politics and much less pressure for the government to appear to have an “agenda” or a “plan” than might otherwise be the case.But hanging over Canberra like an irritatingly persistent ringing phone that nobody in the office will answer has been Telstra and all the political baggage it carries.That issue has been transformed this week, and with it, a sense of a shift in political focus at the top levels of the government, one that has implications for election and leadership succession strategies.

All year there has been a relentless campaign by the government to make the sale of the remaining taxpayer shareholding in Telstra (known as T3) seem inevitable.

There were key breakthroughs. For example, in appearing to get the National Party on board for a sale.

There was the announcement of the Estens inquiry into regional services, and with it, the suggestion that this would finally clear the way for the Senate to approve the sale.

There was even some brief sign of hope that the Senate might roll over once the Democrats spontaneously combusted.

A late burst of imaginative brilliance was the push to link Telstra’s sale and its proceeds with a solution to drought-stricken Australia’s water problems.

All this made for a tediously regular series of small developments that were inevitably reported in the media to the point where most people were sick of hearing about the fate of the telco.

Democrats leader Andrew Bartlett rather caught the mood when he remarked this week that he wished Howard would just “shut up” about Telstra.

Despite being conducted with all the subtlety of a George Bush speech, the campaign to bring about voter surrender to the inevitable hasn’t worked.

Senior Nationals concede that there is little possibility of “selling” the sale of Telstra in the bush, a message also delivered with considerable force by House of Representatives and Senate independents.

The Senate has read the signs and closed ranks against the sale even before the Estens report was released. And the report itself hasn’t really helped. While it did its best to commend the advances in regional telecommunications, it made clear there was still a fair bit to do, and a fair bit more money to be spent.

All these factors helped focus the collective minds of the most senior figures in the government.

Signs that something was happening emerged in the apparently conflicting signals from Treasurer Peter Costello and Finance Minister Nick Minchin in Brisbane last week about whether any Telstra sale proceeds should be spent on retiring debt or fixing the nation’s water problems.

It became clear from the attempts to clean up the apparent confusion that the Cabinet’s attention was being drawn not just to the capital lump sum that would be generated by the sale, but by the cash flow implications of lost Telstra dividends against reduced interest costs on public debt.

Cabinet has been briefed on the share price and more importantly on the fact it is not going anywhere for the moment.

It crystallised the message that, at prevailing prices, the sale would not only be economically unjustifiable, but that the change in net annual cash flow would not be sufficient to make any significant promises about transforming Australia.

After Monday’s meeting of Federal Cabinet, Howard and Costello went to get the message out on Monday and Tuesday, detailing a new “three point” checklist for any sale: satisfactory service levels in the bush; Senate authority for the sale; and acceptable price.

The underlying message: the push for an immediate confrontation with the Senate on Telstra was put on hold. A sale essentially postponed indefinitely.

This has wider ramifications than what happens to Telstra itself.

No matter what the Coalition’s transcendent state in the polls, or Labor’s dire woes, would suggest, the government is badly in need of a raison d’e{aci}tre for the rest of this term, a leadership transition and an agenda for a (usually politically difficult) fourth term.

A Telstra sale at the right price still offers the tantalising prospect of generating a regular cash flow to fund “transforming” projects, as well as funding the claim that it was the Howard-Costello team that wiped out the federal public debt.

The daily nitty-gritty of the Telstra issue will continue. National Party leader John Anderson, for a start, will be pushing to ensure the “future-proofing” of Telstra service levels in the bush, regardless of whether it is sold.

With Telstra off the agenda for the moment, there may be more focus on what else the government is actually doing. (Remember the work and family initiative? You’d be forgiven for thinking the government has).

In the meantime, the government can proceed to pick other fights with the Senate, whether over budget measures like changes to the pharmaceutical benefits scheme or the unfair dismissal laws.

Somewhere along the way it is likely to get a double dissolution trigger to tuck up its sleeve.

On Monday night, Howard downplayed the prospect of a double dissolution election because “whenever you talk double dissolution people think of an election sort of being held 18 months or two years after the previous one”.

True. But that doesn’t rule out a late double dissolution poll, such as Bob Hawke held in 1987.

Such an option in, say mid-2004, would leave time for a Costello prime ministership to settle in, clear up the leftover agenda of the Howard years and allow time for a Telstra share price recovery for the sale to once again become a vehicle for a new
policy agenda.

November 8, 2002Crean spaced out on Planet Labor
Canberra observed, Laura Tingle
The ranks of the despondent within the Australian Labor Party these days could do well to go down to the video shop this weekend and rent Apollo 13.The movie, which starred Tom Hanks, was a gripping account of the Apollo 13 mission to the moon in April 1970. It was a mission that seemed to give superstition some respectability when almost everything that could go wrong on the ill-numbered Apollo flight did go wrong explosions on board, lack of oxygen, structural damage.Of course, the real event, for those who recall it, was even more gripping as a stricken spaceship spent six days continuously orbiting the moon in order to develop enough momentum to get home.In the film version of the story, one of the “loneliest” moments for the three astronauts comes when they travel around the dark side of the moon, losing contact for a few minutes with everybody on earth, including the extraordinary team of engineers and technicians who were trying to keep them alive.Simon Crean must feel a particular empathy for the astronauts now, having just begun his own visit to the dark side.

With the calling of the Victorian election, the Opposition Leader enters a domestically generated political void from which he is unlikely to emerge until after the NSW election in March.

Two of the state Labor machines best placed to help Crean’s struggling political fortunes are completely distracted by their own campaigns.

The voters will have more politics than they want thrust down their throats without wondering what Federal Labor is up to.

Brutally, neither state machine needs Crean’s presence to boost their chances, not the sympathetic Victorian machine from which the Opposition Leader hails, nor the hostile NSW branch.

Victoria’s lack of reliance isn’t a reflection on Crean, though the Coalition loves to portray it as such.

It’s more a poor sign of how little the state government has to offer voters the personality of Steve Bracks and how they have to keep the focus on him.

But that will be of little comfort.

If the wave of patriotism and xenophobia sweeping Australia continues to carry the Prime Minister John Howard as it carried the Republicans in this week’s US mid-term elections, a watching world will not be all that interested in whether Crean and his battered ship re-emerge from the darkness or have instead spun off into space.

The announcement of the Victorian election puts into stark relief the problems that both federal parties face in the states.

The crucial role of the NSW and Victorian Labor machines in providing the strategists for the Hayden/Hawke Labor revival in the early 1980s has been well digested over the years.

Figures like Graham Richardson, then the NSW state secretary, and Bob Hogg, the then Victorian state secretary, led a phalanx of people whom resurgent state organisations were able and willing to contribute to the federal cause.

Peter Barron, Neville Wran’s press secretary for many years, became a key Hawke strategist.

The difference now is the capability and willingness of the state machines to contribute to the federal cause.

David Britton, now a consultant but a long-term member of Bob Carr’s team, has been moved into Crean’s office after the Cunningham by-election debacle to try to concentrate minds, but the word is he’s staying only until Christmas.

Beyond him, the changing nature of state politics doesn’t provide rich pickings.

In 1982, the Wran government had been comfortably installed since 1976 and had become the model for the Labor revival.

John Cain had only just won office and Brian Burke in Western Australia would win only weeks before Federal Labor came to power in 1983.

The power drought had been sufficient to keep every eye in the Labor Party focused on the federal prize.

Now it’s different.

All the state Labor governments are older. The grip of the NSW and Victorian governments on power is very tenuous.

The nature of state politics with its now regular capacity to throw up startled, unlikely independents as winners leaves the sense of entrenched incumbency under permanent threat.

Recent Labor wins whether Jim Bacon in Tasmania, John Stanhope in the ACT, Clare Martin in the Northern Territory have been driven by a strong personal vote for likeable leaders.

They haven’t been driven by any bold political visions, policies or strategies.

All this suggests that when Crean does emerge from his trip around the moon early next year, it’s not clear how many engineers and technicians back at Mission Control he will have to rely on.

To win office, Crean will not only have to start personally registering with voters, but rebuild the shameful Labor primary vote, particularly in NSW and Queensland.

That will require more concentration from both state machines on federal politics than has been the case for some years.

Crean’s federal troops at least are trying to settle down behind him even the ones who seem to have developed surgically attached cameras trained on their profile-building campaigns.

There is an uncomfortable pause now while everyone hunkers down to see whether Crean finds some way to make himself register with voters or, more brutally, if someone else can build the profile to be a viable contender.

The trouble for Crean is that once the NSW election is out of the way, the focus will be on the leadership transition in the Coalition.

Some Coalition MPs point to the way Winston Churchill made way for Anthony Eden in 1955 announcing his plan to go four months before he actually left office as a pointer to the way Howard may handle his own transition from the centre of power.

This could mean an even greater Howard love-in with the electorate through the early months of 2003.

The comfort Labor’s true believers can draw from the Apollo 13 story in the meantime is that, despite all the perils, everyone got home safely.

November 4, 2002Push to block rivals’ access under pay-TV plan
The Howard Government is clearing the way for Foxtel to be able to block other broadcasters from accessing its pay-TV network in return for a $600 million conversion of its network to digital.But it is a race against time as the Australian Competition and Consumer Commission is close to ruling on whether it will allow the Foxtel-Optus alliance to go ahead.There is increasing speculation that Foxtel and the ACCC will not be able to agree on undertakings about the competitive environment in pay-TV if the deal is allowed to proceed.The government has quietly included reforms in the Telecommunications Competition Bill that would help Foxtel. The legislation was designed to increase the competitiveness of another near-monopoly market telecommunications.Passage of the legislation which would make the sale of the next tranche of Telstra easier is crucial to the pay-TV alliance between Foxtel and Optus as Foxtel’s undertakings are conditional on the bill being passed.

Foxtel wants changes to the Trade Practices Act so it will be immune from standard regulation under the act as an incentive to digitise its network, thus allowing the $1.3billion content-sharing dealwith Optus to proceed.

The government’s move to ease the way for Foxtel to limit competition initially on its pay-TV network makes no direct reference to the implications for Foxtel or its alliance with Optus.

But it would deliver the amended legislation sought by Foxtel in undertakings it has proposed to the ACCC on the Optus deal.

In August last year, Communications Minister Richard Alston suggested the government would consider laws to protect the Foxtel network by giving it an “access holiday” in return for its three shareholders Telstra, Rupert Murdoch’s News Ltd and Kerry Packer’s Publishing and Broadcasting agreeing to upgrade it to digital technology.

But after an angry reaction to Senator Alston’s suggestion, particularly from the Seven Network, the minister’s office suggested the access holiday was but one option under consideration.

The issue then re-emerged in the proposed undertakings made to the Australian Competition and Consumer Commission by Foxtel as it sought approval for a merger with Optus.

These proposals say that Foxtel undertakes to digitise its network, on the condition that new legislation is introduced that would allow it to argue for an exemption of the network from access rules under the Trade Practices Act meaning, in effect, it would not have to negotiate with other broadcasters on access to the network.

The issue of the link between the Foxtel-Optus deal which is still being considered by the ACCC and the proposed Telecommunications Competition Bill emerged only in the past two weeks after a submission to a Senate inquiry into the bill by the Seven Network and under intense questioning of witnesses by Labor senator Kate Lundy.

The bill was introduced into Parliament last month without the usual exposure draft or consultations with industry.

Apart from the competition questions posed by the legislation, the role of the bill in the Foxtel-Optus negotiations has led to considerable disquiet among senators and the industry.

Senator Lundy asked departmental officers appearing before the committee last Friday: “Can you give an example or scenario where an agreement has been struck involving the ACCC, or anyone else for that matter, that effectively pre-empts or is conditional upon legislation passing this Parliament?
“Who do these people think they are, trying to predetermine outcomes of this Parliament by virtue of an agreement to suit their commercial interests?”

The Department of Communications, Information Technology and the Arts argued to the committee that the provisions of the bill had not been designed purely with the Foxtel-Optus undertakings in mind.

Instead, they were a response to a Productivity Commission report that found there was a flaw in current trade practices legislation in that it did not allow for ex ante undertakings to be made in relation to services that had not yet been “declared” under the act (that is, services where the provider is declared to be subject to ACCC regulation and compelled to negotiate on access).

Digital pay-TV is not a declared service.

Departmental officers argue the proposed amendments to the Trade Practices Act are designed to give a telecommunications service provider regulatory certainty before making investment decisions so-called safe-harbour provisions.

Since this safe-harbour provision was eagerly sought by all the players in the telecommunications industry, it will be difficult for the Senate to deny its passage.

Under the legislation, decisions on ex ante undertakings would still be subject to a decision by the ACCC following a public inquiry.

But the Seven Network has argued that allowing the entire digital pay-television industry to start off subject to an exemption from the Trade Practices Act is hardly good policy.

Senator Lundy disputed the department’s representation of the relationship between the Foxtel undertakings and the bill, saying the Foxtel undertakings were saying “not only will we require this ability to seek an exemption but the exemption must be
of this nature for the deal to stick”.

Senator Lundy said this was not only pre-empting the legislation, but also placing “conditions around whatever subsequent exemption the ACCC may or may not approve”.

November 4, 2002Telstra poser for the Senate
Capital moves,
Laura Tingle
The Senate faces a tough legislative test in coming weeks over Richard Alston’s telecommunications competition bill, which carries sink-or-swim implications for the Telstra sale and the Foxtel-Optus deal.The bill, originally heralded as the vehicle to make Telstra more accountable and transparent before it is sold, is scheduled to be debated in the House of Representatives when Parliament sits next week.This timetable means Labor has less than a week to determine its position on the legislation, even though much of its thinking on the bill will rely on the thinking of a Senate committee that has been looking at it, and which is due to report back to
the upper house on November 14.The time pressure on Labor is symptomatic of the complex politics surrounding this bill.Most people around Parliament House who are familiar with the legislation whether politicians or lobbyists concede the competition regime the bill would enshrine is a definite improvement on the current telecommunications world.But that’s about all it is. Does it improve competition? Marginally.

Will it increase infrastructure investment certainty? Yes, but at the cost of allowing through essentially outrageous competition breaks for Foxtel and its investors Telstra and News Ltd.

Will it stop Telstra “gaming” the regulatory regime? Probably not.

The problem for the Opposition and the minor parties in the Senate is whether those marginal improvements are worth supporting, compared with opening up the can of worms involved in trying to amend what is by definition exceptionally complex competition legislation.

Equally, does anyone want to look like they are protesting about legislation that everyone agrees does marginally improve the current regime?

It’s tricky stuff, particularly when everyone knows that, if the legislation is passed, the government will ramp up its competitive benefits well beyond what they are and cite Senate endorsement in support of the Telstra sale.

This brings us back to the bill’s implications for the Foxtel-Optus deal.

One of the apparent benefits of the bill was that it would help create investment certainty for telcos by allowing them to agree on a framework with the Australian Competition and Consumer Commission on services not yet subject to regulation that is, services that have not yet been declared.

It was really only when the Seven Network started to focus on the bill that the ramifications of the legislation for Foxtel started to emerge.

Foxtel, of course, has made its proposed undertakings to the ACCC contingent on such legislation being passed.

It’s just that no-one realised this bill would be the vehicle for that happening. With the timetable for a final decision by the ACCC now closing in, the Parliament is more than aware it is engaged in a difficult chicken-and-egg dance with the competition regulator.

If the Foxtel undertakings don’t change under negotiation, the ACCC can’t really accept those undertakings without knowing the conditional legislation has been passed.

Similarly Parliament knows that if it doesn’t pass the legislation, it can get the blame for blowing a deal that even the ACCC might have finally signed off on.

Foxtel, however, should not be the driving force behind the Senate’s consideration of this bill. It should be the telecommunications issues that dominate.

And there are problems.

To minimise the chance of spooking the market before Telstra is sold, the bill contains virtually no detail of the much-heralded accounting separation regime for Telstra’s wholesale and retail services.

These instead will be included in a “ministerial directive” issued later with departmental officials telling the Senate committee this is necessary because of the complexities involved.

But it also means the Senate and Telstra’s competitors have to take the bill in good faith.

This is hard when there are other issues that raise questions about it.

These include the fact that the accounting separation transparency constraints placed on Telstra under the legislation essentially apply only to its traditional copper-line network.

They will not apply to mobiles, ISDN and ASDL, or for that matter to pay-TV.

The scope, therefore, to examine how Telstra might “bundle” such services to the detriment of its competitors is significant.

The competition bill along with the Estens report which goes to the government on Friday is a key piece of the armoury in the government’s fight to get the Senate to agree to the further sale of Telstra.

It needs to be in place so that everyone will know what the competitive environment will be for Telstra before any attempt is made to sell off the remaining taxpayer interest in the telco.

October 28, 2002Lees remains key to full sale of Telstra
Capital moves
Laura Tingle
The Howard Government has taken heart from the renewed advocacy by independent senator Meg Lees of using Telstra sale proceeds to fix the Murray-Darling basin’s problems.With government hopes now fading that the Democrats’ implosion of a couple of months ago would make for a more amenable Senate on issues such as Telstra and cross-media laws, the government is looking for any signs that it might be able to trade with
Lees if not in the current term of government, then in the next one.And Lees’ appearance as one of the contributors to Liberal Party MP Christopher Pyne’s magazine on the contentious issue of Australia’s future handling of water, particularly in the Murray-Darling basin, is one such sign.In the magazine, released yesterday, Pyne notes that the newly independent Lees “is a crucial vote in the Senate” and that she contends in the article “that the full sale of Telstra is likely to occur in this or the next term of Parliament, and the proceeds of sale should be diverted to repairing the Murray-Darling basin”.Well, she does say that. But she also canvasses a range of other options for funding the repair of the Murray-Darling, from an environment levy to directing Telstra’s current income stream to environment programs.No-one can rule Lees out of the Telstra Senate equation and she is clearly making sure she is right at the centre of it.

But at the end of the day, she has also made clear on many occasions that she is highly unlikely to vote for the sale of Telstra during the present parliamentary term.

At a lunch for institutions hosted by Deutsche Bank last Tuesday, for example, Senator Lees said that while the government’s proposed changes to the cross-media and foreign ownership restrictions were unlikely to pass the Senate in their present form, they would eventually be passed following incremental changes.

(Her own concerns with the cross-media bill remain diversity in editorial content, increased Australian and local content and more funding for the ABC.)

But she also reportedly said she expected the media rule changes were more likely to receive Senate support than proposals to sell the Federal Government’s remaining 50.1per cent shareholding in Telstra.

Water and Telstra now seem inextricably linked in the debate within the government.

The emergence of Telstra in the Farmhand project and the whacky suggestions about turning all the rivers around has only heightened this perception.

But on slightly more sensible levels, the water debate is likely to make some considerable progress in the next month, just as Telstra will after the Estens report is handed down on November 8.

The Prime Minister has convened a meeting for early November of scientists to consider a range of drought-related projects that would be funded and conducted under the National Salinity Action Plan.

Most conspicuous among these is a pilot on the Murrumbidgee River of Richard Pratt’s proposal to cover irrigation channels.

Later in the month, the Council of Australian Governments meeting with the states and territories is due to consider the heated issue of water property rights.

But there are plenty of other people sticking their oar in to the debate.

Both the Senate and the House of Representatives are now examining the water issue, although from somewhat opposite ends of the debate.

The House has had an inquiry under way for some months investigating some very Dorothy-Dix style issues about how the Federal Government can spend money on the problem.

In terms that could only be written by the National Party, parts of its reference is to examine “Commonwealth policies and programs, in rural and regional Australia, that could underpin stability of storage and supply of water for domestic consumption and other purposes”.

Meanwhile, the Senate is looking at how the rural sector uses water.

Given figures that show the water use of some major capita cities has actually declined in the past 10 years while irrigators have ramped up their use by more than 65per cent, it should provide some interesting perspectives.

This is particularly true since the deputy chair of the committee is Liberal senator Bill Heffernan, who seems to delight in being a thorn in the side of the Nationals, and in particular Agriculture Minister Warren Truss.

Heffernan, by coincidence, is another of the eclectic contributors to Christopher Pyne’s magazine, Options.

For his part, Pyne has been a noisy advocate of the idea that the Commonwealth should seek constitutional powers over the Murray-Darling management through a High Court case, given the incapacity of Queensland, NSW and Victoria to properly manage such a crucial resources to their collective benefit.

This is probably the only option that can be dismissed as unlikely to get anywhere in the short term.

But, with Telstra in play, almost anything in the area of water use and management seems possible.

October 22, 2002Crean shapes up for NSW faction fight
Laura Tingle and Annabel Hepworth with Sam Strutt
Federal Opposition Leader Simon Crean is heading for a confrontation with the ALP’s NSW party machine over branch stacking as a state union official called yesterday for a leadership spill following the Cunningham by-election loss.Despite pressure from within the parliamentary party, Mr Crean stopped short of seeking federal intervention in NSW to ensure the factional warfare and branch-stacking problems that were central to the defeat were addressed.This is despite the NSW branch secretary, Eric Roozendaal, characterising the Cunningham result as an issue for the federal parliamentary party, and NSW Right union official Craig Thomson calling for a spill of the federal leadership.In comments aimed at NSW, Mr Crean said the party had to “move to the position in which the rank-and-file have their say in future preselections”.”More importantly we’ve got to cut out the branch stacking and those are the rules I’ve pushed through,” he said.

There is intense anger in the parliamentary leadership about the Cunningham result and the role of former MP Stephen Martin and the NSW party hierarchy.

Mr Crean acknowledged yesterday he had been “too soft” on Mr Martin when he indicated he wanted to leave Parliament.

Mr Martin cited family problems for his departure.

Mr Crean is being pressured from within the parliamentary party to take on the NSW right.

There is also pressure to get NSW Premier Bob Carr to insist the machine do something about the Illawarra region, with the weekend results pointing to the loss of three state seats at the state election in a few months time.

Mr Crean told the Caucus just last week that a good outcome of the special rules conference was that rules were now in place to allow the national executive to clean up areas like Wollongong.

But most of the new rules measures will not come into play until at least next year, meaning that if Mr Crean wants to show he is addressing the problems in the Illawarra more urgently he will have to act through existing national executive means, or
through public confrontation with the right.

Mr Thomson, the national secretary of the Health Services Union, said a spill of all leadership positions was “the only way for the party to move forward with confidence and to stop an outbreak of infighting that could further derail the party”.

“There are many people within the party, such as Stephen Smith, Mark Latham, Lindsay Tanner and Stephen Conroy, who could capably fill leadership positions,” he said.

“If Mr Crean and Jenny Macklin stand again and are not opposed, the party can unite behind them and move forward.

“But if others in the party are prepared to lead it at this time of crisis, now is the time to come forward.”

Mr Roozendaal said yesterday that Cunningham “was clearly a federal by-election and I think that there’s some strong messages there for the federal parliamentary Labor Party”.

“Certainly we need to tidy up some local party issues in that federal seat and I think that’s about all we can take out of it,” he said, when asked about comments from NSW Opposition Leader John Brogden that the result should sound alarm bells to the NSW branch ahead of next March’s state election.

He said there were unique issues in the campaign, including the media coverage given to minor parties.

Mr Crean said Labor had to recover momentum on internal reforms lost as a result of Cunningham and to move on to policy issues.

“Clearly, what we have to do is to differentiate and project policies to the electorate that they relate to and have clear differentiation between ourselves and the Government,” he said.

Queensland Premier Peter Beattie said the result showed the party machine had ignored the wishes of the Cunningham electorate and taken its constituents for granted.

“Too often party machines take the community for granted and I believe that may have been the case here,” Mr Beattie said.

However, he said he would not be critical of Mr Crean’s leadership.

“I think it’s too early for any criticism of Simon’s leadership and Simon has my full support,” he said. “I have sympathy for him. I actually have a lot of faith in Simon and I think that Simon will come good in the public perception.”

There was also internal debate in the Australian Democrats yesterday about their decision to run a candidate in Cunningham, after the poll showed the party attracting just 2.2 per cent of the primary vote.

Democrats senator John Cherry said the result was an embarrassment and the decision by the party’s national executive to run had been taken against the views of the local branch and without consultation with the parliamentary party.



October 22, 2002By-election blinkers and crystallised doubt
Simon Crean has no excuses for Labor’s disastrous showing in the by-election in the federal seat of Cunningham. But now he needs to tackle the NSW party machine head on, writes political correspondent Laura Tingle.Surveying the wreckage after Saturday’s Cunningham by-election, a senior Labor MP lamented it all could have been avoided if the NSW machine had cleared the way for the Left to control the state seat of Wollongong.He was probably right, in the world of realpolitik. A little power-sharing by the NSW Right in exchange for accepting its candidate in Cunningham could have kept the Left in harness.But to outsiders, and particularly after a by-election in which the ALP lost the seat for the first time in 53 years, the comment suggests many in the Australian Labor Party still don’t get why voters turned against it so viciously on Saturday.Simon Crean gets it. The Opposition Leader took the loss square on the chin on Sunday. There were no excuses. The result was about democracy grinding to a halt within Labor’s branches in the Illawarra. Crean accepted he had to share some of the responsibility.

This is more than can be said for the NSW machine, which was washing its hands of the entire affair yesterday.

In its dreams.

The days when Crean and now NSW Premier Bob Carr can tolerate the dysfunctional nature of the party in the Illawarra are over.

The loss in Cunningham was disastrous for Crean, and not because there is an alternative leadership candidate in the wings (even if there are those who consider Kim Beazley a viable alternative). Not even because of policy. The result was not about policy, making spurious any suggestion that the Greens’ win means Labor has to push to the left.

It is disastrous because it has crystallised considerable doubt that Crean can lead his party to victory at a federal election. Those doubts are held both in the electorate, as shown by the opinion polls, and within the federal parliamentary party.

It’s not that Crean hasn’t been trying to move in the right direction on party reform. He rightly got kudos when he announced his push for doing something Beazley never had the spine to do as Opposition Leader and stand up to the factions by seeking structural reform.

But the results flowing out of this month’s special rules conference seemed so anaemic. Direct election of members to the national conference seemed to be the one thing that everybody agreed should not happen.

The voters of Cunningham certainly didn’t seem to believe things had changed.

Crean now attracts much of the opprobrium of that failure to convince the Labor heartland the party was listening to it. His main culpability lies in trusting Stephen Martin’s explanation for why he had to give up the seat and leave politics personal family reasons. Just as John Howard copped a caning for his failure to stop John Moore leaving Parliament and causing the Ryan by-election, Crean should have stopped Martin going.

Crean’s alarm bells should also have rang when the state branch dumped plans to hold a rank and file preselection in Cunningham and instead impose a candidate chosen by head office.

Of course, head office did that because Sharon Bird would never have won a rank and file ballot. Bird is a faction-hopper who jumped to the Right after four unsuccessful preselection races in the Left, and she did not even live in Cunningham.

As one party source says, Cunningham, despite the Right faction’s stacks, has always been a seat inherently displaying various shades of red. There are the older industrial workers, the university intelligentsia, and increasingly in recent years the affluent greenies on the northern escarpment who put a big premium on green issues.

Part of Crean’s problem is that he is ultimately a consensus politician, not a head-kicker. Publicly challenging the NSW machine does not seem to come naturally to him.

That may have to change. If he wishes to “break through” like Gough Whitlam did in the 1960s, it seems he will have to do something that profoundly breaks the mould and the perceptions of him.

That means a showdown with the NSW organisation.

And it means learning a lesson from the defeat of Bird, who did not ring true to the electorate.

Somebody on the other side of politics who has a vested interest but nonetheless makes a salient point says: “At least Hawke and Keating stood for something. Where are the policies? Where is the cut-through now?

“Simon neither stands for anything, nor is he like Kim reassuring, a jolly good bloke. He is the complete identikit Labor family clone.”

Cunningham was a great win for the Greens, but it was all about Labor.

After a year of hard work, Crean has to go back to the drawing board.

October 18, 2002PM joins mourners in Bali vigil
Laura Tingle and Tim Dodd, JAKARTA
Australians were yesterday told to avoid Indonesia and exercise caution in five other countries as the Bali massacre and concerns about the assessment of terrorism threats began to affect the nation’s activities in the region.The warnings were issued as Prime Minister John Howard flew to Bali amid growing anger over the slow progress in identifying and preserving the dead.Speaking at a memorial service for victims last night, he said: “As we grapple inadequately and in despair to try and comprehend what has happened, let us gather ourselves together, let us wrap our arms not only around our fellow Australians but our arms around the people of Indonesia.”Mr Howard said the “wanton, cruel and barbaric” attack had shocked the nation, and vowed to do “everything in our power to bring to justice those who were responsible”.Opposition Leader Simon Crean and Deputy Prime Minister John Anderson accompanied Mr Howard on the hastily arranged visit to comfort relatives and inspect the bomb site.

Earlier, Foreign Minister Alexander Downer cited “disturbing new information of generic threats to Australians and Australian interests in Indonesia” when announcing the travel warning.

“We now recommend that all Australians in Indonesia who are concerned about their security should consider departure,” he said a day after establishing a joint terrorism task force with the Indonesian Government.

Officials yesterday warned the attack may have claimed the lives of 119 Australians. In addition to the 30 Australians reported dead, officials hold “very serious concerns” for another 89 missing.

This points to an estimated toll of 214 from all countries.

The relatives received more bad news yesterday when a Department of Foreign Affairs and Trade spokeswoman said the families had not fully understood the processes needed to identify the victims.

And an Australian Federal Police spokesman said it could take months to identify all the bodies according to proper international procedures. But after suffering a tragic mix-up over the identification of his missing wife, former rugby league test player Craig Salvatori said: “We’re really much happier now. The Federal Police have come in and taken all the DNA. They’ve got dental records. It’s starting to happen.”

More AFP investigators arrived in Bali to bolster the forensic inquiry and Australia’s ambassador in Jakarta, Ric Smith, was placed in charge of the relief effort, as conflicting reports circulated about the hunt for the bombers.

Foreign diplomats welcomed Indonesia’s move to put senior police general Made Mangku Pastika in charge of the joint investigation of the Bali bombing.

The ethnic Balinese officer has won praise for his policing of the troubled Papua province and particularly the management of the investigation into last year’s murder of a senior Papuan independence leader.

Mr Howard was expected to meet Indonesia’s senior security minister, Susilo Bambang Yudhoyono, to discuss the terrorist hunt last night, and is expected to meet the People’s Consultative Assembly chairman Amien Rais today in Bali.

Last night President Megawati Soekarnoputri won parliamentary approval for an emergency terrorism decree which will allow detention for one year and provide for the death penalty. It is due to be issued today.

In an earlier development, Mr Susilo said Abu Bakar Bashir, the leader of the militant Muslim group Jemaah Islamiyah, which is suspected in the attack, could face legal action, despite his claim this week that the group does not exist in Indonesia.

The Muslim cleric warned in a newspaper interview that if authorities moved to arrest him, Indonesians would take to the streets and threaten “the integrity and stability” of the government.

Police said investigations were focusing on eight suspects, and Mr Susilo claimed foreign terrorists could have carried out the bombing.

The Jakarta Post quoted intelligence sources as saying that the bombing had been organised by a group of foreigners led by a Yemeni and a Malaysian who had constructed the explosive in the central Java city of Semarang.

Despite police claims of progress, Indonesia has already begun to feel the economic consequences of the bombing. A meeting of its donor countries has been postponed and shipping company insurers have moved to place the country on a war-risk list.

While Mr Crean joined Mr Howard in a display of bipartisanship on the visit to Bali, in Canberra the Opposition started questioning the government’s management of intelligence information, and the government pressured the Opposition over new counter-terrorism laws.

The international repatriation company, Kenyon International, contracted by the government to return the bodies of Australian victims, arrived in Bali yesterday as the government won support from some mortuary experts for its cautious approach to identification.

And while the new travel warning revived concerns about Australia’s past treatment of terrorist threats, Defence Minister Robert Hill said the Inspector General of Intelligence, Bill Blick, would have a wide-ranging brief in investigating the performance of the nation’s spy agencies following the Bali bombings.

He said Mr Blick’s inquiry would be open-ended without the constraint of terms of reference.

As Mr Howard flew to Bali, Acting Prime Minister Peter Costello told Parliament the government was considering a lasting memorial where Australians could pay their respects to the victims of the bombings.

Before leaving, Mr Howard called for the nation to halt for a minute’s silence at midday on Sunday as part of a national day of mourning.

October 17, 2002Spy review after US terror warning
Laura Tingle and Tim Dodd JAKARTA
Prime Minister John Howard has ordered a review of Australia’s intelligence assessments of terrorism after conceding that the Federal Government received a US warning of a potential threat in Bali.The move yesterday overshadowed the government’s efforts to speed up the investigation of the Bali massacre through an agreement with the Indonesian Government to jointly manage an intelligence and terrorism task force.Emerging doubts over the performance of the intelligence agencies came amid developments in the investigation, including the reported arrest of two Indonesian suspects last night.Meanwhile, Mr Howard dashed hopes for a swift repatriation of remains as the death toll stood at 181, including 30 Australians, and hospitals around the country confronted the task of treating the injured.He said the rapidly decaying bodies could not be returned until Indonesia had completed the time-consuming international procedures for identification despite calls from families and doctors for the removal of all bodies to Australia.

Mr Howard’s admissions over the possible threats came as more information emerged of increasingly high-level US concerns about terrorism in Indonesia.

The New York Times reported that a day before the Bali bombing, the US had given Indonesia a deadline of October 24 for taking action against terrorism.

But the US Government cautioned last night that the report that it delivered an ultimatum to Indonesia, threatening to declare the country to be harbouring terrorists, was “imprecise”.

In a potentially embarrassing development for the government, Mr Howard told Federal Parliament: “Given the magnitude of what has occurred, I will ask the Inspector-General of Intelligence and Security to assess all of the relevant intelligence material and report to me on his findings.”

Mr Howard emphasised that the only reference to Bali in the intelligence records was a reference to a possible threat against American tourists.

“This intelligence was assessed by agencies and the view formed by them that no alteration in the threat assessment level, then at a high applying to Indonesia, was warranted,” Mr Howard said.

The intelligence questions emerged as the government moved to improve co-operation with Indonesia over the investigation and a crackdown on terrorism, despite more mixed signs from the Indonesian Government over how it will handle the challenge.

Foreign Minister Alexander Downer welcomed Indonesian acceptance of a joint investigation, and Defence Minister Robert Hill indicated that Australia was open to restoring defence training relations with the Indonesian army’s controversial Special Forces.

“There’s no doubt this incident has been a great shock to the Indonesians,” Mr Downer said after meeting Indonesian officials.

But Indonesia’s senior security minister, Susilo Bambang Yudhoyono, emerged from the meeting to declare that the radical Islamic group Jemaah Islamiyah which the Australian Government wants placed on the United Nations terrorist register did not even exist in Indonesia.

He said the group’s leader, Abu Bakar Bashir, could not be arrested until proof of his involvement in the bombing was established.

In another development that also questions Indonesia’s commitment to the fight against terrorism, Mr Susilo revealed a high-level split in Indonesia’s cabinet when he refused to endorse this week’s statement by the Defence Minister, Matori Abdul Djalal, that Al Qaeda existed in Indonesia. Until then, no Indonesian official had publicly acknowledged this.

As the government tried to push forward with the investigation, which now includes more than 40 Australian police and intelligence agency investigators in Bali, Attorney-General Daryl Williams announced a $2 million reward for assistance in the investigation.

The US offered a reward of $US25 million for the capture of Osama bin Laden and Al Qaeda’s top lieutenants after the terrorist attacks on September 11, 2001.

Nobody has claimed responsibility for the Bali attack, but unconfirmed reports emerged yesterday that suggest that some progress is being made.

The Financial Times reported that an Al Qaeda detainee had claimed a Saudi Arabian businessman had financed the purchase of the explosives from Indonesian army members.

The Washington Post reported that a former Indonesian air force officer had admitted being involved in the attack, but an Indonesian police spokesman said there had been no confessions.

An Indonesian newspaper reported that eight men had been seen leaving the bomb site after parking a vehicle, and police appeared to confirm that this report had come from the investigation team.

In other developments Asia-Pacific leaders are set to tackle the threat of terrorism across the region, at their annual meeting in Mexico next week.

Department of Foreign Affairs and Trade officials said the threat of terrorism in the region was likely to dominate the Asia-Pacific Economic Co-operation leaders’ meeting.

They said a joint US-Australia initiative dealing with the security of trade across the region would be at the centre of discussions.

October 15, 2002Bali toll rises as PM vows security boost
Laura Tingle and staff reporters
The full horror of the Bali nightclub bombing hit home yesterday as more than 60 injured victims were evacuated to Darwin and relatives embarked on a desperate search for the 220 Australians still listed as missing.Prime Minister John Howard announced a review of Australia’s domestic security and sent Foreign Minister Alexander Downer and Justice Minister Chris Ellison to Indonesia to encourage its security authorities to fully investigate the attack.Mr Howard declared a national day of mourning next Sunday as he told federal Parliament: “No cause however explained, however advocated, however twisted, however spun, can possibly justify the indiscriminate, unprovoked slaughter of innocent people.”Indonesian Defence Minister Matori Abdul Djalil last night blamed Al Qaeda and its allies for the attack.Officials put the death toll at 183 as criticism emerged over the failure of Indonesian and Australian officials to more adequately deal with the remains of the victims lying in makeshift refrigeration facilities in the Bali heat.

Up to 100 injured people were expected to reach Royal Darwin Hospital overnight after at least five RAAF evacuation flights.

About 40 people were due to be transferred to southern cities last night to relieve the Darwin emergency facilities.

Two badly injured evacuees from Bali died yesterday, bringing the official Australian death toll to 14.

But reports from relatives and sports clubs frantically searching for missing people suggested that the Australian death toll could be significantly higher.

Perth footballer Laurie Kerr said on arrival in Darwin that he still hoped seven missing members of his Kingsley Senior Football Club would be found. “I’m hoping and praying for the best,” he told AAP.

But the president of the NSW Forbes Rugby Club, Alex McKinnon, said of his missing team members: “We have to face the facts now .. I think we are looking at three deaths. We are getting to the miracle stage now. That’s what it is coming to if these blokes turn up well.”

Hundreds of tourists fled the island on special flights yesterday and there were emotional scenes at airports as they were greeted by relieved relatives.

Relatives and friends arriving in Bali to search for the missing were confronted by stomach-churning scenes of carnage at the bomb site, unidentified corpses packed in ice at Denpasar’s Sanglah hospital and overworked Indonesian medical facilities.

Investigators spent the day combing the charred wreckage, while locals and tourists laid wreaths along the once-bustling nightclub strip.

The Indonesian Government came under growing pressure from other countries and internal critics to step up its action against radical Muslim groups that have been responsible for growing political violence over the past year.

While Indonesian police said they had names of people linked to the bombing, bickering emerged among some political figures over responsibility for the blast.

And as the country’s currency and stockmarket fell sharply, a key radical Islamic leader, Abu Bakar Bashir, blamed the US for the blast.

Foreign Minister Alexander Downer stepped up pressure on Indonesia, saying it must now respond effectively to terrorism as well as investigate the bombings and prosecute those responsible.

“The important thing is that there is not only a rapid and effective investigation but that those responsible for this dreadful crime be brought to justice,” he said.

Australian Federal Police and Australian Security Intelligence Organisation officers are already in Bali, and they will by joined by AFP Commissioner Mick Keelty and ASIO Director-General Dennis Richardson today in a strong signal by the Federal Government that it wants Indonesia to take urgent and serious measures against terrorism.

The government rejected charges that Australians were not adequately warned about potential security threats in Bali before Saturday’s attack. Mr Downer said he was satisfied there was an appropriate warning in a travel advice issued on September 20, which noted periodic bomb explosions in Jakarta but said tourist services were “operating normally” in Bali.

“We had no advanced warning of this particular incident or else we would have moved heaven and earth to stop people going to Bali at all,” he said.

While the disaster prompted a bipartisan motion in Federal Parliament condemning the attacks, Opposition Leader Simon Crean immediately signalled that while Labor would be happy to review the laws, it was unlikely to support any of the measures already proposed by the government in the name of anti-terrorism but opposed by Labor as impinging too heavily on civil liberties.

US President George Bush and British Prime Minister Tony Blair telephoned Mr Howard to offer their condolences and assistance.

Mr Bush said later: “The world must confront this global menace of terrorism. We must together challenge and defeat the idea that the wanton killing of innocents advances any cause or supports any aspirations. And we must call this despicable act by its rightful name: murder.”
Mr Howard urged Indonesia to allow Australia and other nations to become involved in the hunt for the terrorists responsible for the bombing.

More chilling accounts of the victims emerged through the day with friends telling how five members of Sydney’s Coogee Wombats rugby league team died in the blast at the Sari and Paddy’s nightclubs in Kuta.

Brett Patterson, from Sydney, spent yesterday searching hospitals for missing friends and said the scenes inside the morgue were “horrific”.

“There’s just bodies … and torsos and limbs,” he said.

In Denpasar, Bali’s main city, the airport was crowded with stunned, mostly young travellers cutting short their holidays, desperate to return home.

Crowds camped out near a McDonald’s restaurant, using their mobile phones to try to secure airline seats. Many had spent the night on the beach, too terrified after the blasts to go near built-up areas.

Meanwhile, hundreds of Australians returning from Bali could find their travel insurance no longer covers events caused by terrorism. The Insurance Disaster Response Organisation warned people would be unable to claim for medical costs or aborted trips.

October 15, 2002Howard vows: we will not retreat
Australia’s response, BALI MASSACRE
Laura Tingle
Australia will review its counter-terrorism laws and has dispatched two Cabinet ministers and its most senior security officials to Indonesia to push authorities to properly investigate the Bali bombings.The measures were announced in Federal Parliament yesterday by Prime Minister John Howard after the national security committee of Federal Cabinet considered a response to the bombings which, as of late yesterday had left 14 Australians confirmed dead, 113 injured and 220 unaccounted for. Mr Howard warned the public to expect more Australian fatalities.Following a briefing from defence and intelligence officials, Cabinet also agreed yesterday to review whether Australia’s counter-terrorism capacities needed to be further beefed up from their post-September 11 levels.Mr Howard told Parliament it was important for Australians to disabuse themselves “for all time” of the idea that attacks like that in Bali could not happen on the Australian mainland.However, Defence Minister Robert Hill told the Senate the counter-terrorism alert for Australia remained at the same risk level as that set after September 11 last year.

“The threat to Australian interests in Indonesia remains unchanged and high and [the assessment of] other regional threats … remain unchanged,” Senator Hill said.

The PM told Parliament terrorism was “dispensed in an indiscriminate, evil, hateful fashion and those who imagine that it is dispensed according to a hierarchy of disdain do not understand history and are deluding themselves”.

The bombing only reinforced Australia’s commitment to the war against terrorism. “Retreat will not purchase for the retreaters immunity against the attacks of the terrorists,” he said.

Mr Howard told MPs the word terrorism was “too antiseptic an expression” to describe what happened in Kuta. “What happened was barbaric, brutal mass murder without justification,” he said.

The disaster prompted a bipartisan motion condemning the attacks in Federal Parliament yesterday.

But Opposition Leader Simon Crean signalled that, while Labor would be happy to review domestic anti-terrorism laws, it was unlikely to back measures already proposed but opposed by Labor as impingeing too heavily on civil liberties.

Legislation giving the Australian Security and Intelligence Organisation powers to detain individuals for 48 hours without charge is still before the Senate. Labor has signalled it would not support these aspects of the bill.

The Opposition has already forced substantial amendments to other anti-terrorism laws, removing measures to proscribe organisations.

Australian Federal Police and ASIO officers are now in Bali. Foreign Affairs Minister Alexander Downer and Justice Minister Chris Ellison were on their way last night with AFP Commissioner Mick Keelty and ASIO director general Dennis Richardson.

After visiting the wounded, the four would fly to Jakarta, Mr Howard said, to ensure co-operation between Australia and Indonesia in pursuit of the killers was maximised.

“Their mission will be to emphasise, by their presence and by what they convey on behalf of the Australian Government, the willingness of Australia to offer all available resources to assist the Indonesian authorities in tracking down those responsible,” he said.

Earlier, Mr Downer had raised concerns about the Indonesian investigation and the failure of authorities to secure the site.

He complained the site “was secured and then not secured, then secured and not secured. I’m told by the police that has been a problem”.

He pressed the Indonesians to lift their game in dealing with the terrorism threat in the region.

A number of countries had offered assistance, he said, but “in the end, this incident took place in Indonesia and the important thing is that there is not only a rapid and effective investigation, but that those responsible for this dreadful crime be brought to justice”.

He conceded Indonesia had a “mixed record” in dealing with terrorism but said “this incident has shocked the Indonesian Government and opinion makers in Indonesia”.

“I think there were mixed views in Indonesia, dependent on who you spoke to, about the dangers of terrorism and I think this has eliminated any debate about the dangers,” Mr Downer said.

But he found himself on the defensive about the adequacy of warnings issued about the risks of travelling in Indonesia. Mr Howard and Mr Downer said there was no information to suggest the attack was primarily aimed at Australians, but it could not be ruled out.

The PM said he would take up Mr Crean’s suggestion that this Sunday be deemed a national day of mourning.

Mr Crean told Parliament: “This was a calculated, brutal act against innocent Australians as well as innocent residents of Indonesia and on citizens from around the world.”

He said Australia should call a regional anti-terrorism summit at head of government level involving Indonesia, Malaysia, Thailand, the Philippines and Singapore.

Mr Howard told Parliament that he had received calls yesterday expressing concern from US President George Bush, British Prime Minister Tony Blair, and New Zealand Prime Minister Helen Clark. A message of condolence had also been received from the Queen.


* The PM told sombre MPs the attack was `barbaric, brutal mass murder’.

* Senior politicians and security officials are in Jakarta to bolster local resolve for the investigation.

* The PM has taken up Labor’s idea that Sunday be a day of mourning.

October 1, 2002Times changing for Minchin
Capital moves
Laura Tingle
On the other side of the world, but in front of a room full of journalists a couple of weeks ago, Peter Costello soliloquised about the perils of being Treasurer.Asked what he had talked about with his British counterpart, Gordon Brown, and the frustrations both may feel as leadership aspirants, Costello observed:”Finance ministers” [that is, chancellors and treasurers] “always reflect on the difficulties of their jobs, and the biggest gripe that they have is that when they’re in a Cabinet there are generally 16 or 17 people who want to spend money and one
that wants to save it and this is an occupational hazard of finance ministers which we all have in common and share around the world.”It seemed a lighthearted way of not answering a leadership question.But some of Costello’s colleagues, if they had seen the remark, might not have taken it that way. Particularly the man who does hold the title of Finance Minister in Australia, Nick Minchin.There are indeed 17 ministers in the Howard Cabinet. Most of them run spending portfolios. Prime Minister John Howard, in his late empire fairy godmother stage, can’t really be relied on for fiscal restraint these days.

But Costello’s failure to acknowledge any role for Minchin in spending restraint is telling.

When John Fahey held the finance portfolio and Costello talked about the expenditure review process, it would be hard to find a time when Costello did not give him equal credit for the job at hand.

Minchin’s role in the government is, without doubt, going through a change, which says much about restlessness in the government at present, and which is one of the most interesting to contemplate with leadership transition on the cards.

The South Australian is one of the last of the cabal that surrounded Howard in the early days: Grahame Morris, Andrew Robb, Lynton Crosby, Barbara Williams , Michael L’Estrange, Nicole Feely and Anthony Benscherare all gone.

It is easy to make the case that Minchin, once the political fixer for the Prime Minister, has lost his internal sway on political strategy as he has been consumed by two difficult policy portfolios: first industry, now finance.

Equally that, with a Costello ascendancy, his glory days are numbered.

Certainly, Minchin’s political role is less apparent these days.

His opponents argue that he has suffered setbacks: for example failing to convince his Coalition colleagues to back his candidate for the Senate presidency, Alan Ferguson; and, failing in a bid to establish a “national Right” network within the Coalition after being snubbed by Liberals in Costello’s home state of Victoria.

Outsiders have also noted a change. Minchin, for example, fell off The Australian Financial Review’s “power list” this year after ranking fifth on the covertly powerful list in 2001 and 10th in 2000.

But it is also true that Minchin continues to hold enough influence to score the Finance portfolio after last year’s election, despite snubbing Howard’s offer of the Health job, and with the support of the Treasurer.

Minchin no longer controls the numbers on the-war torn Liberal Party state executive in South Australia.

He also suffered the indignity of being gagged by the Prime Minister a few months ago on his advocacy of a Liberal-National Party merger.

But the case can equally be made that Howard has cut Minchin considerable, and necessary, slack to establish himself as a conservative voice in the government, whoever leads it in the future.

Minchin has, to the irritation of some in the party, been ranging way outside his portfolio into public debates of late, notably paid maternity leave and the embryonic stem-cell debate.

More recently, the South Australian has been more visible on issues within his portfolio, including a speech in Sydney last week reasserting the benefits of privatisation.

He also put more meat on the case for why Telstra should be put in private hands than we have heard for some time.

Continuing government ownership, he argued, meant: restrictions on Telstra’s capital- raising capacity (something, as an aside, which didn’t seem to bother Cabinet about Qantas); a conflict of interest for the dovernment both as national regulator of
the industry and half-owner of the biggest business in the industry; and denying the “tantalising prospect” of a debt-free government.

For good measure he put a well-placed boot to some of the increasingly ludicrous suggestions being put forward for Telstra proceeds, including “drought-proofing Australia, as if such a thing was actually possible”.

Minchin will be a key player in the next few months as the government ramps up the Telstra debate to fever pitch.

How he plays both the politics and finance minister’s role in that debate will be keenly watched.

A year after taking the job, it is fair to say he remains a minister yet to prove his mettle in finance.

But as a political strategist, and a parliamentarian, he should not be underestimated.

His advocacy of the Wik legislation during Senate debate on the bill remains one of the outstanding parliamentary performances of the Howard Government, and similar advocacy could prove crucial on the debate over Telstra.

As for his political future, one government pragmatist observes that there is a danger that expectations about turnover in the government upon a leadership change may already be running ahead of itself.

Such speculation “assumes continuing government”, this source says.

“An imperative of that assumption is having good political operators and in that respect you should not discount Nick’s other life skills.”

October 9, 2002Telstra backs rural services fund
Laura Tingle, Political correspondent
Telstra has called on the Federal Government to set up a special-purpose fund to ensure quality service for rural Australia.It argues that its obligations to shareholders means it will not be able to meet community expectations about future standards in the bush.In its submission to the Estens inquiry into regional telecommunications, released yesterday, Telstra said government, not the telco or its competitors, should be responsible for ensuring adequate rural service standards in the future.It did not say what the cost of that “future proofing” might be, and this figure will ultimately be determined by the service standards likely to be set out in the Estens report.However, the National Party, in its submission, suggested such a fund could cost $300million a year.

Telstra’s submission indicates that the fund should come from the proceeds of any further sale of the company.

The Howard government is pushing ahead with its plan to sell Telstra, but needs to win full backing from the National Party as well as support in the Senate.

The telco played down the shortcomings in rural phone-service standards highlighted by hundreds of submissions to the inquiry by businesses and individuals.

It argues that an exceptionally dense legislative and regulatory regime governing telecommunications means that the question of who owns Telstra is not crucial to service delivery in the future, but that this is, and will be, determined by the legislative regime.

But it argues against using an upgrading of the legislated universal service obligation, or USO, to achieve a guaranteed level of service in the bush in the future.

Minimising potential changes to the USO and maximising the obligations of the government to fund future proofing from Telstra sale proceeds would maximise Telstra’s commercial flexibility as a privatised entity.

However, in a separate submission also released yesterday, the National Farmers Federation argues that, to ensure future service standards are met, the government should pursue both future proofing funding and higher customer service obligations for carriers.

The release of the submission comes as Labor steps up the political heat on the further sale of Telstra, with Opposition Leader Simon Crean due to launch a petition against the sale in the NSW town of Bourke today.

He will also outline the case for why Telstra should stay in public hands.

The Australian Financial Review reported last month that the government was likely to seek Senate approval for a new funding package to address any Telstra shortcomings found by the Estens inquiry, at the same time as it seeks approval for the sale of the company, in a bid to get the sale through the upper house before Christmas.

Telstra says in its Estens submission that “as a technical matter, Telstra is generally able to deliver whatever service is required in whatever area”.

“However, the delivery of such services comes at a cost that consumers may not always be willing to pay …

“At the same time, Telstra, like any other competitor in the market, is under a legal obligation to its shareholders to act in the best interests of the company, including earning an adequate return on capital.

“A problem arises because there is, in some circumstances, a gap between recovering the costs of efficiently supplied services and the willingness of customers to meet those costs.

“Unless this gap is bridged, there is a risk that certain customers would, if market forces were left to their own devices, fail to receive service, even though it would be desirable for them to do so from the standpoint of Australian society as a whole.”

Telstra argues against using USOs as a mechanism for maintaining service standards, saying that that approach is “best suited to a single supplier arrangement”.

It says that “falls in technology costs … and the rapid expansion in market size means that multiple suppliers can increasingly achieve minimum-scale economies and successfully enter the market”.

“This is true even in regional parts of Australia”, it says.

“In summary, a world in which the main services were essentially uniform and best supplied under a monopoly scenario has given way to a far more varied marketplace.”

It says current USO arrangements should be maintained for what it calls POTS (plain old telephony services), but future proofing of the delivery of new and emerging telecommunications services to regional communities “would be better facilitated by a different framework than the current USO approach”.

Clearly signalling Telstra thinks a pool of funds should be set aside from its further privatisation, the telco argues that the funding should be “certain, sustainable and explicit”; “not subjected to year-on-year budget pressures”; “certain in terms of the amount of funding that will be available”; and “explicit in terms of the amounts allocated”.

It argues that the government should pursue a system of allocating future proofing services via “negative tendering” in which suppliers bid to provide services at the lowest subsidy cost to taxpayers.

The Opposition’s communications spokesman, Lindsay Tanner, said yesterday that Telstra’s submission stood “in stark contrast to the bulk of public submissions to the inquiry”.

“Telstra claims that people living in regional, rural and remote areas currently enjoy telephone connection and maintenance standards that are high and steadily rising,” Mr Tanner noted.

“The Estens inquiry has been inundated with submissions from people living in regional Australia complaining about poor Telstra services.

“These submissions have been a public-relations disaster for the government and Telstra.”

October 7, 2002Ethical problem turns political
Capital moves
Laura Tingle
The stem cell debate is about to move from being the emotional subject of a conscience vote to the centre of Senate realpolitik, with important ramifications for John Howard and Australia’s scientific and business communities.Over the past month, a Senate committee has been examining the Research on Human Embryos Bill at the centre of the embryonic stem cell debate.The committee’s public hearings have barely been reported except for the appearance of the figure who has become the be{aci}te noire of those who oppose the legislation, Monash University’s Alan Trounson.This is a shame because the tactics employed by some senators who oppose the bill, abusing and traducing witnesses, abusing committee process, and misrepresenting the information they have been given, has been a sight to behold.It’s also a shame because, despite their methods, the committee has dug into some legitimate issues about exactly what the bill allows in contrast to what the general public think it is about and left a lot of questions still to be answered, not about the bill, but about the way the scientific community operates, and how government scrutinises the funding it gives to that community.

More importantly, perhaps, the political ramifications of this bill, and the significant figures in the Senate who oppose it, also have been largely overlooked.

To recap what has happened:

In late August, the House of Representatives agreed to split a bill seeking to ban human cloning and establish a national framework for research on human embryos including embryonic stem cells.

The House then immediately passed the first section of the now split bill outlawing human cloning but delayed debate on embryos until the September sitting.

Agreeing to the split, Howard warned the bill’s opponents not to seek to use the change to water down the legislation.

He argued it could not be amended for it reflected a decision of the Council of Australian Governments (COAG).

For the proposed national framework to work, the states must pass mirror laws to cover areas over which the Commonwealth has no powers notably over individual prosecutions. His warning already has gone unheeded.

Opponents have mounted a pitched battle ever since to amend the bill, and certainly destroy the reputations of its keenest advocates, notably Trounson, aware that most counts have the bill comfortably passed in the Upper House.

The direction of questioning during hours of Senate hearings leaves the clear impression the committee whether it splits or not will recommend a raft of amendments.

Take one simple point. Contrary perhaps to general perceptions, the bill does not just allow research into embryonic stem cells with all their touted potential for treating degenerative disease.

It covers a range of other research. IVF clinics are worried on the one hand that it might inhibit work they are already doing to improve IVF success rates while, on the other hand, the bill appears to allow the use of embryos and embryonic stem cell lines in toxicological and pharmaceutical testing. This has led to suggestions that the underlying motivation for the bill includes using human embryos to test face creams.

This points to one of the major criticisms of the legislation by its opponents: that it is all about commercialisation and the interests of greedy scientists and multinational drug companies.

Whether or not you are offended by the idea of researchers making money from their intellectual property, this criticism poses big dangers both for this bill and for the research community more generally.

The bill has focused attention on the small community involved in the biotechnology field and its inter-relationships.

National Party Senate Leader Ron Boswell has been homing in on Trounson’s commercial interests and those of his associates.

He has queried the involvement of the commercial brains of the Monash Centre, Dianna De Vore in a company called NMT Innovation Pty Ltd where a fellow director, Peter Johnson, is head of the independent panel which decided earlier this year to give more than $45million to the biotechnology centre of excellence based at Monash University, and to be headed by Trounson.

He was equally underwhelmed to find that the bureaucrats responsible for the funding, Biotechnology Australia, did not know that one of the commercial partners in the centre, ES Cell International, was majority foreign owned.

Officers told the Senate committee that when they had inquired about the shareholdings, the company had told themit was confidentialinformation.

The irony is the legislation imposes much more accountability and scrutiny on the scientific community than is generally the case.

But some opponents argue it is simply impossible to find the personnel to man the proposed oversight committee with both the knowledge and disinterest to guarantee proper scrutiny.

They are tough questions.

But just as tough is the equation building in the Senate.

What does the Prime Minister do about a bill that he says can’t be amended?

What does he do about the bill to appease Brian Harradine who will be so crucial in legislative decisions in the next year?

When Harradine held the Senate power balance in 1997, his decision to pass on a letter of concern about the appointment to the head of the National Health and Medical Research Council of Professor John Funder was enough to prompt Cabinet to overturn a decision to appoint him.

Can the Prime Minister afford to have the stem cell bill sitting around indefinitely?
Stay tuned for some fascinating politics.

October 4, 2002Brereton row kneecaps Crean reform
Laura Tingle, Political correspondent
Labor leader Simon Crean’s bid for party reform was a shambles last night as a bitter power play in NSW threatened to engulf the party and embroil it in court action.NSW party elder and federal MP Laurie Brereton is believed to have obtained an injunction in the Supreme Court late yesterday stopping the NSW branch from counting votes in the preselection race for the state seat held by his sister Deirdre Grusovin.Meanwhile, Mr Crean appears to have suffered a defeat on another front, with a compromise being reached yesterday that will allow some discussion of Labor’s policy on refugee detention at the party’s weekend conference.The court action expected to be conveyed to the ALP national executive at a meeting last night was Mr Brereton’s latest tactic in his battle with his own NSW Right faction. It controls the state branch and has moved to replace Ms Grusovin in the seat of Heffron with a younger candidate, Kristina Kenneally.There were some concerns in the Brereton camp that an appeal to the national executive on Ms Grusovin’s behalf due to be heard at last night’s meeting would fall victim to cross trading between Labor’s factions on the broader issue of union representation at the party’s national conference, a key issue up for discussion at this weekend’s special rules conference.

The NSW Right has bitterly opposed attempts by Mr Crean to reduce the voting power of unions within the ALP from 60 per cent of national conference to 50 per cent.

A number of party sources said factional dealing over a model for election to national conference aimed at boosting rank-and-file involvement in the party and over the contentious 60/40 rule had been subsumed by the fight over the preselection for Ms Grusovin’s seat of Heffron.

The Heffron brawl is doubly damaging for Mr Crean.

On the one hand, it represents a fight between his opponents in the NSW Right and his personal representative in the NSW party machine, Mr Brereton.

On the other, one of the key aims of the party reform push has been to clean up the preselection and appeals mechanisms in the party to reassure rank-and-file members that the party is run on democratic lines, and also avoid internal disputes moving into the public arena of the court system.

The Heffron dispute has arisen because the NSW branch moved to have what is known as an N40 ballot for Ms Grusovin’s seat a move which allows head office to determine the candidate rather than rank-and-file members.

The move to allow debate on the refugee policy is a setback for Mr Crean because earlier this week he said he would be moving to veto any debate on the party’s refugee policy.

However, while lingering tensions over possible Labor support for a war against Iraq do not seem likely to rate a mention at this weekend’s conference, it is expected the NSW Left will back a push by the NSW Right to move a resolution spelling out how an internal debate on the refugee issue will be progressed.

The resolution is expected to be moved by NSW Labor Council head John Robertson and seconded by the Left’s Doug Cameron.

The resolution will spell out how an internal debate on the policy issue will be managed, in the lead-up to a foreshadowed vote at the full national conference due to be held in June next year, or in a postal vote.

The one person predicting a win for Mr Crean yesterday was the Prime Minister, John Howard.

“Let me predict, let me boldly predict without any fear of contradiction, he’s going to have a win at the weekend,” he said.

“He’s going to walk out and say, `I won, they succumbed, I persuaded them, I brought about this enormous reform which has destroyed for all time the influence of the unions in the Australian Labor Party’.”

But Mr Howard argued it would not “make any real difference of any kind because in the end what really matters is the policies that you produced, and while ever the Labor Party continues to produce policies which are directed by the union movement it will be seen by the Australian community as a union-dominated party”.

In other developments yesterday, Sam Strutt reports from Brisbane that Queensland Premier Peter Beattie clashed with sections of his state party by refusing to support moves to debate the ALP’s policy on asylum seekers at the conference.

Key members of the Queensland Labor Party, the party’s pro-refugee lobby and the NSW Labor Council have all called for the special debate.

However, Mr Beattie said it should not be on the agenda.

“I understand they have genuinely held views about asylum seekers,” he said.

“But this is a rules conference. It is not a policy conference, and therefore an appropriate time to debate that is a policy conference.”

September 25, 2002Telstra gets a split decision
Laura Tingle
Telstra has won important concessions from the Federal Government on telecommunications competition, with Communications Minister Richard Alston yesterday announcing a watered down proposal for scrutiny of the carrier’s price regime for its competitors.The government is still hoping the overall competition regime it announced yesterday will persuade the Senate that the playing field has been tipped sufficiently in favour of Telstra’s competitors to allow the further sale of the company to proceed. Legislation to enact the new regime passed the Coalition party room yesterday and will be introduced into Federal Parliament tomorrow.Telstra last night played down the importance of the accounting separation issue, but warned of risks that the proposed ACCC disputes process in the legislation would be tipped too far in favour of its competitors.When the package was originally foreshadowed in April, Telstra’s market capitalisation slumped more than $1.6 billion in a day over concerns about the company’s competitive position.Accounting separation of Telstra’s internal divisions is supposed to expose any cross-subsidising of its retail business and any anti-competitive pricing in its wholesale business.

But the final proposal is much more restrained, particularly because of the proposed role of the minister in determining what the carrier must report.

The new regime will “enable” the Communications Minister to “issue a direction requiring the ACCC to prepare or publish reports using its existing broad record-keeping rule powers”, according to Senator Alston.

The proposal would allow an accounting separation framework without the complexity of specifying detailed regulatory accounting rules through black-letter law, he said.

But Opposition communications spokesman Lindsay Tanner argued last night that the announcement “makes it clear that the minister, not the ACCC, will decide what information Telstra is required to provide to the ACCC”. “Telstra has nobbled the minister, and ensured the ACCC is kept at bay,” he said.

The legislation announced yesterday contains measures aimed at short-circuiting disputes processes in the telecommunications competition regime. They are aimed at creating greater regulatory certainty for investors, including upfront rulings on access price regimes on future investments, similar to draft rulings from the Tax Office.

In a win for Telstra’s competitors, the giant telco would lose the right of appeal to ACCC arbitrations a vehicle claimed to be used in the past to lengthen disputes with competitors to a point that made them economically unviable to continue.

But Telstra would benefit from a system requiring the ACCC to issue advisory notices on proposed competition notice actions, allowing the carrier to address and negotiate on problems before a notice carrying a flagfall $10 million fine was issued.

A spokesman for Telstra’s regulatory division, Tony Warren, said last night: “The government might be disappointed if it expects industry-wide undertakings to take the place of bilateral arbitrations.

“That’s because the government has left a loophole by failing to ensure the ACCC considers undertakings ahead of arbitrations.”

Dr Warren said this meant “our competitors are likely to manufacture disputes for the ACCC knowing that it has a history of setting below-cost prices”.

Telstra’s competitors are waiting to see the detail of the legislation on Thursday before commenting publicly in detail, but some said yesterday the proposals fell a long way short of providing true transparency of Telstra’s internal price mechanisms.

Senator Alston was planning late last night to introduce amendments to the government’s cross-media legislation designed to deal with concerns raised by a Senate committee.

The amendments would allow cross-ownership in only two out of the three main branches of the media in rural areas. They would also require media operators to disclose their ownership structure in news items dealing with related companies.


September 23, 2002Charity faces not-so-tender test
Capital moves
Laura Tingle
The charitable sector’s multibillion-dollar plunge into the government services delivery business faces a major test this week when it loses business worth hundreds of millions of dollars.That test comes at a time of growing disillusionment in the sector about the much-touted social compact of Prime Minister John Howard which promised a new relationship between business, government and the welfare sector, and about the progress of welfare reform.The driving force behind that compact has been the Job Network.In 1999, four of Australia’s largest charities won work worth about $700 million in the last Job Network tender.This has been a key to the transformation of the charitable sector into big business enterprises under the Howard Government.

To put the value of that funding into context, the charities’ job contracts are worth almost a third of the total donations from business and individuals of about $2 billion a year.

Contracts for the Government’s $1 billion-a-year Job Network business expire next June.

This week, existing contractors will receive letters formally known as invitations to treat telling them whether they will be part of the group whose contracts will be rolled over automatically into the new Job Network contract period from 2003 to 2006.

The sting is that only 60 per cent of those contractors will get the offer.

The remaining 40 per cent will have to go through the torrid process of tendering anew for their businesses against any newcomers who want to enter the field.

The widespread expectation is that the charitable sector which won the lion’s share of the lucrative intensive assistance business in the last contract round will lose the right to roll over about 50 per cent of its existing businesses.

That represents big bikkies to some of Australia’s largest charities.

For example, four of those charities the Salvation Army, the Catholic Church’s Centacare, Mission Australia and Wesley Uniting Employment were expected to have earned about $700 million from the second Job Network contract which is now in its final
year of operation.

Mission Australia became the second-largest player in the employment agency market as a result of the last tender, in which it won contracts worth $241.6 million.

But Mission Australia chief executive officer, Patrick McClure who also authored the government’s report on welfare reform freely admits that his organisation expects to be offered a rollover on only about 50 per cent of its business this week.

This will leave his organisation having to bid to get the other half back, an uncertainty any business could do without.

He has a clear view on why this will happen.

The charitable sector is represented heavily in regional, rural and remote Australia, McClure says, while the for-profit job network agencies concentrate on the more lucrative, and high turnover, city employment markets.

The offer to roll over Job Network contracts will be made only to the top-performing 60 per cent of agencies.

Rankings flow from a “star ratings” system which many believe has overly favoured the city-based agencies and has not made enough allowance for the difficulties of finding jobs for the long-term unemployed in regional markets.

While the government has tried to address these concerns with amendments to the ratings system, McClure is now pushing for some further rethink of the way the Job Network is funded, to provide a better provision for the particular problems of remote communities.

But his concerns also come at a time when there are new forces at work in the employment agency market.

A Job Network provider which found itself in considerable controversy last year, Leonie Green and Associates, was quietly sold this year to a US-based for-profit service company, Maximus Inc, for $20million.

This has raised the spectre of other new players aggressively coming into the market, but players who, according to McClure, have no incentive or requirement to service the harder markets currently tackled by the charitable sector.

What is happening to the big charities at the moment has some ironies, of course.

While they were the winners from the last Job Network tender, it was at the price of many smaller community-based job groups.

Now there will be a further transformation in the network.

But the time of the almost cosy relationship between the government and the charitable sector has now passed.

McClure and Mission Australia will be releasing a “report card” on the government’s progress on welfare reform in the next couple of weeks.

With progress on welfare reform largely stalled and adrift, it is not likely to be a comprehensive endorsement of the Coalition’s record to date.

September 16, 2002Costello starts his run
Laura Tingle, Political correspondent
Peter Costello is moving to establish his own policy platform within the Howard Government, taking more critical positions on policy as the prime ministership looms closer.The Treasurer is one of Australia’s most cautious politicians.And the transformation from loyal deputy, who has let his Prime Minister take the running on virtually all the major issues, to a more active policy stance is equally cautious.But Costello’s changing role is evident amid signs of both drift and rift within the Cabinet in an ageing government which abandoned its ideological zealotry in the race to get re-elected last year and has not yet found a solid framework, other than political pragmatism, for its new term.Federal Cabinet’s deliberations on policy issues in recent months from broadcasting to agriculture, industry policy and defence procurement reveal a return to more traditional struggles.

On the one hand, there are the political fix-its pursued by the Prime Minister, John Howard. On the other, a growing chorus of Cabinet ministers, led by Costello, is trying to hold, or create, some sort of policy line.

“It reminds me of the Fraser government,” one senior bureaucrat said. An economic analyst said: “They’ve entered their late empire phase.”

Another bureaucrat said: “Howard is essentially engaging in pot-holing addressing issues in particular industries as they arise with no long-term perspective but in a way designed to minimise the risks of a declining economy.”

At the same time, Costello has been taking more public pot-shots at his colleagues and the policy status quo.

Much to his chagrin, however, his most conspicuous critique last month was overshadowed by other news.

At last month’s Financial Review leadership lunch, he laid the foundations for a very different social and economic compact to that which prevails, and one that he said was “not just for this electoral cycle”.

Underlying Costello’s case last month were arguments for higher migration, no government support to encourage a higher fertility rate, more workers staying in the workforce after age 55, and that inefficient companies and industries be allowed to fail.

Contrast any of these with the policy directions of the government at present, such as the cosy “stay at home and have more babies” political messages or the fact that, whether it is sugar, insurance industries or airlines, the Howard Government seems incapable of countenancing any sort of failure without government intervention.

The speech was perhaps the most thoughtful Costello has made as Treasurer and the political lobs were soundly based in an economic framework focused on maximising Australia’s productivity and output in the next 40 years.

But he was also prepared to take a swipe at some colleagues, noting that while the intergenerational report “has kicked off a great deal of interest in fertility rates, with maternity leave, divorce rates, abortion law changes, tax incentives to opt
out of no-fault divorce all being raised, I would like to focus the debate on something that might actually have an achievable and practical effect.”

His alternative was “greater workforce participation by Australians in the 55 to 65-year-old age bracket”.

Equally, higher productivity should not just occur within existing companies, but also as a result of “the movement of resources away from less productive and profitable firms to more productive and profitable firms”.

That is, allowing companies, and for that matter industries, to fail.

All this points to Costello’s developing his own (still conservative) economic policy base, even as he conducts jaunts into outback Queensland designed to broaden his image.

Back in Canberra, and in federal Cabinet, Costello and his department have been leading quite often surprisingly widespread resistance to a series of policy initiatives.

It is noteworthy that the Treasurer was not present for last Tuesday’s decision to give a subsidy to domestic ethanol producers for which you can read Dick Honan’s Manildra Group, which controls about 90 per cent of production.

Lobbyists claim Treasury had refused to sign off on a submission on the issue prepared by Howard’s department.

As a mark of the change in the government, and in Costello’s role, consider the following issues:

In 1997, the government proceeded with a proposal by the Finance Department to outsource all information technology despite being warned by 22 departments and agencies that it was a bad idea.

In 2002, there have been big tussles over the sugar industry, ethanol, and digital TV, to name just a few.

None has gone through unchallenged. Some remain unresolved. There are other issues, too, where Costello is standing up to be counted.

Defence Minister Robert Hill has put his name to a contentious proposal that Australia will be better served in future by a naval shipbuilding monopoly.

In a classic bit of Defence manoeuvring, his department is arguing that, under the scheme, warships should be replaced every 18 to 20 years to keep the monopoly industry in work.

It is an extraordinary bit of hokum and is already facing fierce resistance from Costello and his department and that of Finance Minister Nick Minchin.

In what has been an exceptionally autocratic government, Howard still rules the roost.

He brings to Cabinet’s deliberations an unmatched political savvy.

But the policy tune is changing.

September 2, 2002Telstra a pawn in trade talk with US
Capital moves
Laura Tingle
Controls designed to keep Telstra majority-owned by Australians, as well as other foreign ownership restrictions, would be tabled during talks about a free-trade agreement with the US, Trade Minister Mark Vaile said yesterday.But Vaile downplayed a suggestion that such controls would have to be surrendered to advance the FTA cause, saying the US would want free access to invest in companies “just as we would expect the Americans to significantly open up access for our agricultural products going into the United States”.There had been little discussion about foreign ownership controls in Australia in talks so far with the US administration, he told the Ten Network.Labor communications spokesman Lindsay Tanner said yesterday that the Government was “clearly planning to use foreign ownership of Telstra as a negotiating tool with the United States”.Vaile’s comments and yesterday’s statement from Telstra chief Ziggy Switkowski that “irrational regulatory intervention” posed the biggest risk to Telstra are the latest bullets in the continuing public relations war about the telco’s future.

In the past six months the Howard Government has managed one of the great feats of recent political “spin” by channelling the political debate about Telstra into when, rather than if, it will be sold and the problems of service in the bush.

But as the thoughts of Senate crossbenchers turn to Telstra, that’s about to change. Telstra’s grip on the telecommunications market and service levels to all Australians, not just those in the bush, are going to be under a lot more scrutiny.

And yet the Government has been flat-footed at best about heading off this inevitable interest.

It moved earlier this year to address concerns about Telstra’s market power by foreshadowing a range of regulatory changes, including accounting separation of its retail and wholesale networks.

But, perhaps scared of spooking a share price that is already unattractive, it has still not produced any details of its plans four months later.

It is stuck between the growing need to appease senatorial concerns about both regulatory controls and competitive pressures on a privatised Telstra, and feeding an insatiable appetite for good Telstra news from the sharemarket and the media.

Indicators of where the debate goes next come from Labor, independent MPs and the Senate crossbenchers themselves.

Labor is still opposed to selling off any more of Telstra.

But Tanner has changed tack in recent months to focus on the telecommunications regulatory regime and the prospect that, by the time of the next federal election campaign, Telstra will not be fully sold off but will instead be in minority government ownership.

This change of position is aimed at trying to claw back some relevance for the party in the Telstra debate.

His advocacy of what is known as structural separation splitting the two arms of Telstra’s operations into separate companies is politically potent simply because it brings home the message that there are other models of industry structure out there.

The fact that the Government is embracing accounting separation gives Tanner’s push some legitimacy.

Tanner also points out that even if Telstra’s full sale does pass the Senate, there is virtually no chance that the telco can be completely sold off before the next federal election.

That means voters, and senators, are left contemplating life with a minority-owned telecommunications carrier that does not even have the competitive safeguards and infrastructure investment requirements which the government now imposes erratically.

Tanner has a simple mantra on Telstra: “Just like the banks.”

In constituencies such as those of Bob Katter, Peter Andren and Tony Windsor independent MPs who announced their own inquiry in Telstra service levels there is no more powerful message.

In outlining their concerns last week, they also brought home that the Telstra debate will be about a lot more than mobile phone coverage in remote locations.

It will be about the fact that it is not just Telstra that faces a big credibility problem on its service levels but the capacity of regulatory and legislative measures to push the company around.

Why should anyone take comfort from a universal service obligation written into legislation to control a privately owned company, the three say, when there is one there already that doesn’t deliver on a majority publicly owned company?

The only upgrades to services that have happened, Windsor says, have flown from the political imperative to shut the bush up to assist the further sale.

The Government’s other problem is in convincing the Senate crossbenchers of why the rest of Telstra has to be sold at all.

It’s too easy to see the Senate debate being reduced to a question of pork-barrelling from sale proceeds while those involved still aren’t sure why apart from releasing some government funds it has to be sold.

“There is an assumption out there that there is something wrong with Telstra,” Windsor observed last week.

The pressure on the Senate crossbenchers Shayne Murphy, Brian Harradine, Len Harris, Meg Lees, the Greens and the Democrats (in whatever morph they hold) will obviously be intense.

And the lobbying from the Government is a long way from even starting.

It has a lot of ground to cover if it is to be persuasive with its view that not only service levels but regulatory regimes are up to scratch.

August 29, 2002Hollow ring to Telstra’s $3.7bn profit
Jane Boyle and Laura Tingle
Intense competition has cut Telstra’s annual profit to $3.66billion, with political opponents seizing on staff cuts and a slump in capital spending in the disappointing result to bolster their case against the full sale of the telco giant.Three independent federal MPs yesterday announced their own inquiry into Telstra’s regional operations, claiming that 80 per cent of the 250,000 rural voters in their electorates were opposed to full privatisation.The independents Peter Andren, Bob Katter and Tony Windsor said they would gather information about appalling service levels in the bush and the impact a further sell-off would have on regional economies.This comes as the Federal Government has begun its second inquiry into rural services in the hope it will pave the way for an attempt at full privatisation through the Senate.The Opposition reiterated its concern about Telstra’s future ownership. Labor communications spokesman Lindsay Tanner said consumers should be alarmed at the continuing substantial decline in Telstra’s staffing levels and capital expenditure two factors critical to the delivery of decent service standards.

“These results show that Telstra has cut investment in its network by $600million, it has cut over 4,000 staff,” he said.

“And, of course, over the past 12 months Telstra’s prices have been going up in mobile phones, text messaging, home-line rentals, the internet on virtually all of the things they provide.”
In response, the Deputy Prime Minister, John Anderson, said the focus on Telstra’s ownership was shortsighted, when service levels were the real issue.

He said the greatest disparity of phone services between the bush and metropolitan areas had been when Labor was in government, before Telstra’s privatisation.

“When a government has a commitment to rural and regional Australia, and the willpower to put in place an effective universal service obligation and a customer service guarantee, and to pursue it and make it work, you’ll get the services you need,”
he said.

Telstra’s result was within market expectations. However the shares slid 3.2 per cent to $4.80, well below the $7.40 that investors paid in T2 two years ago.

The company tried to win some investor support by scrapping executive options, in line with similar moves by Qantas, WMC and the Commonwealth Bank after criticism about corporate governance following several major collapses.

Chief executive Ziggy Switkowski defended the result, saying it was creditable and pleasing.

“We have done what we said we would do… keep growth in costs below revenue growth,” he said.

Underlying growth in earnings before interest and tax of 5 per cent to $6.65 billion before once-off factors was underpinned by a 2 per cent reduction in operating expenses after the company cut its headcount by 4,000.

Underlying sales growth of 1.7 per cent to $18.77 billion was supported by double-digit growth in mobile services, “rebalancing” of basic access pricing under the price cap regime and demand for new data services.

This helped offset a 1 per cent slide in data and internet services and declines in traditional fixed line calls.

The company continued to lose market share against intense competition.

“The market as a whole, I think, has grown about 4 per cent. We’ve grown 1.7 per cent. I would say that we’ve probably lost one or two share points, blended across the portfolio,” Dr Switkowski said.

Despite a strong fourth quarter, which enabled Telstra Mobiles to achieve its target of double-digit growth, Dr Switkowski said it was too early to call an industry upturn.

“We are still anticipating quarterly fluctuations. The collective view is that this industry is still going through a very slow growth phase. A flattish outlook is probably the most qualified comment I could make.”

Despite institutional pressure for an increased or special dividend, the board maintained a steady final dividend of 11¢, bringing the full-year payout to 22¢ compared with 19¢ the prior year.

“Some people were expecting a special dividend. Clearly they were disappointed,” Perpetual fund manager John Sevior said. “It was a pretty average result.”

Telstra chairman Bob Mansfield said: “As we looked at where we’re at and where we’re going, we’re delighted with the status we attained after a tough year in the industry, and yet as we look forward, we also see a situation where there may be opportunities that are emerging.”
Fund managers and analysts believe the company is keeping its powder dry for a potential share buyback in conjunction with T3, or possible acquisitions in Asia.

However, Mr Mansfield said Telstra was not about to embark on an “acquisition binge”.

“It just means that in the environment we’d rather take a cautious approach with regards to balance sheet and management of the company and with $13 billion of debt I can assure you it’s not all that hard a question.”

Dr Switkowski added: “Notwithstanding the downturn in the market and the reduction in asset values [in Asia], it’s still not easy to match availability of assets to our criteria.”

Telstra management is about to embark on a one-month roadshow of foreign and domestic institutional investors, which fund managers view as the start of a campaign to market T3.

However, Dr Switkowski and Mr Mansfield would not be drawn into the debate over T3 yesterday. “The board and management fully support the full privatisation of the company and look forward to being able to operate on equal footing with other companies in the global market,” Mr Mansfield said.

“We expect the Parliament to vigorously debate the ownership of Telstra, but our attention is entirely upon managing our operations as well as we can.”

August 26, 2002Ethanol as biofuel: a sticky question
Capital moves
Laura Tingle
Federal Cabinet is set for an intense debate today on plans to force oil companies to blend the biofuel, ethanol, into petrol sold at the pump as part of a response to the problems of the ailing sugar industry.Lobbying on the proposal accelerated last week as industry groups became aware that the Government was bringing forward discussion of the issue as part of its sugar industry restructuring plan.But the addition of ethanol to petrol and particularly its addition as a means of sugar industry support raises complex policy problems and the push is facing fierce resistance from economic ministers, led by Treasurer Peter Costello, and the bureaucracy.National Party Cabinet Ministers John Anderson, Mark Vaile and Warren Truss hope to win the support of the Prime Minister against the economic ministers.A senior Government source said last night that while a $100 million sugar industry restructuring and assistance package was likely to be resolved by Cabinet, the ethanol issue would take more time.

“The purpose of the Cabinet is to firm up the sugar package as part of a restructuring of the industry,” he said.

Ethanol is a byproduct of crops, including sugar and wheat, and when it burns it releases oxygen rather than carbon monoxide, which is better for greenhouse gas levels.

But oil companies argue that motorists would face a $150 million lift in their fuel bills once the 2 per cent level was reached because the petrol/ethanol blend has less energy content than petrol alone.

The Australian Financial Review reported last week that Environment Australia has been asked to provide advice to the Department of Prime Minister and Cabinet on the option of mandating the inclusion of ethanol in petrol. The plan would be to require an ethanol content of about 0.25 per cent initially, increasing to 2 per cent over time.

A 2 per cent target for biofuel use by 2010 has been set down by the Government and would represent 360 million litres of ethanol.

John Howard is understood to be interested in ethanol’s potential role in the restructuring of the sugar industry.

Truss, the Agriculture Minister, is understood to have been asked at last Monday’s Federal Cabinet meeting to prepare a range of options for consideration today.

At issue is not just the question of whether there should be a mandated requirement for ethanol in petrol.

There are broader questions flowing from any move to expand ethanol use such as its current exemption from excise.

The ethanol sceptics within Cabinet and the bureaucracy, led by Costello, are understood to be making three broad points:

* If it were really commercial the industry would stand on its own two feet. (It currently enjoys an exemption from excise and a capital subsidy for new or expanded domestic production infrastructure of 16¢ a litre of biofuel until total domestic production capacity reaches 350 million litres or by the end of 2006-07.)

* Ethanol is no magic bullet for the sugar industry. Even if ethanol use were mandated, it would not provide an immediate cure for the sugar industry’s woes.

* The Government is certainly not going to mandate its use so that people use a fuel which has no excise in place of a fuel which has a 38 per cent excise rate.

[Even supporters of the nascent ethanol industry acknowledge that greater ethanol use could cost about $700 million a year in excise if ethanol was eventually allowed to rise to 10 per cent of a fuel blend.]

There are also concerns about the impact mandating ethanol use might have on resource distortion.

While producing ethanol as a byproduct of sugar can be argued to be greenhouse-friendly, there would be concerns about creating a situation where sugar was being produced purely for ethanol.

Brazil produces much cheaper ethanol than Australia is capable of and it would not be clear why oil companies, if the addition of ethanol were mandated, would not simply import the ethanol required.

Advocates of other biofuels, particularly biodiesel produced from canola, argue that the focus on ethanol flowing from the lobbying on sugar is distorting the broader debate about what biofuel strategy Australia should be adopting in the longer term.

Canola-based fuel appears to be generally accepted as a better and more efficient fuel source than ethanol.

There seems to be a clear hesitation within Cabinet about the idea of forcing oil companies to blend certain levels of ethanol into the oil.

As a result there have been suggestions the Government might seek a voluntary agreement from the industry for the blend.

But oil industry sources say there would be problems with such a solution.

They say that their legal experts have said such a voluntary agreement could have trade practices ramifications.

August 19, 2002Ethanol fuels bitter-sweet debate
Capital moves
Laura Tingle
When John Howard was confronted by a horde of angry sugar farmers in Cairns last week (well, about 20), they represented an industry in trouble and one of the more fierce policy debates going on in Canberra.What the sugar farmers want immediately is money for restructuring.But one of the hottest issues attached to Cabinet dealings with the sugar industry’s demands and votes in a swathe of north Queensland seats is ethanol.Ethanol, on the face of it, would appear to be an answer to a politician’s prayers: a relatively green fuel source used out of the by-products of crops like sugar and wheat which not only can help cut greenhouse gas emissions but also solve some of the problems of a sugar industry that is being squeezed by ugly world markets and is badly in need of a restructure.But the debate between the pro- and anti-ethanol lobbies is particularly heated.

On one side is the National Party, and its MPs like De-Anne Kelly, along with the influential head of the Manildra Group, Dick Honan.

Manildra and Manildra Flour Mills have been generous donors to the Coalition, contributing, for example, just over $90,000 to the coffers between October 2000 and May last year.

On the other side are the oil companies, some of the big sugar millers and the author of the Government’s (unfairly ignored) Fuel Taxation Inquiry report, David Trebeck, of the ACIL consultancy.

Proponents of ethanol would like to see the fuel source added to petrol, a move which they say would help cut greenhouse gas emissions.

Those against it argue there are questions over ethanol’s stability as an additive, the fumes it produces, and most importantly its cost in foregone tax revenue.

The pointy (money) end of the debate which will come into focus in coming weeks as Federal Cabinet works out exactly what to do about the sugar industry is whether the oil companies should be forced by legislation to add ethanol to their petrol, and what the taxation treatment of ethanol should be relative to other fuels.

A comprehensive approach to the ethanol issue will not be far behind, with Cabinet due to consider a preliminary report on market barriers to the fuel which is due to be completed by the end of October.

At present, ethanol is exempt from excise. There is also a capital subsidy for new or expanded domestic production infrastructure of 16¢ a litre of bio-fuel until total domestic production capacity reaches 350 million litres, or by the end of 2006-07.

(This is to back a Coalition election commitment to such levels of bio-fuel production by 2010).

In submissions to the Trebeck inquiry, for example, Manildra argued that “fuel taxation exemption from bio-fuels represents the difference between failure and growth” of the industry.

But it may be that the ground is shifting a little on both sides and some middle ground will be reached in coming weeks.

Clearly, within the senior ranks of the Government, the ethanol issue is seen as part of the broader issue of what to do about the sugar industry which is that it is time for the industry to be forced to restructure, as the dairy industry was a couple of years ago.

As one source said: “Whatever you do, you don’t help an industry by letting a mum and dad operation on 40 acres that is barely economic at the best of times continue on the basis of artificial support.”
And the ethanol lobby has not won any support yet for a mandated requirement for ethanol to be added to petrol.

“Advocacy for just forcing all the oil companies to buy a product isn’t getting an enthusiastic reception around the place,” this source says.

But that is not to say some other solution can’t be found.

Within the more pragmatic reaches of the ethanol support camp, it is clearly understood that winning support for the fuel just won’t happen while it maintains its excise exemption.

They concede the current annual cost to revenue if 10 per cent ethanol was mandated would be almost $700 million.

So while many argue that the exemption is essential to the development of the industry, the cluey parts of the lobby are arguing that they could live with full excise if for no other reason than to shake off a tag as a “boutique” green energy source.

While the Government formally awaits its market barriers study, De-Anne Kelly, who chairs the Coalition’s sugar taskforce, is running her own race, producing a briefing paper on new technology in the United States and the benefits ethanol can provide.

She is arguing for full-rate fuel excise to be applied to ethanol, with a green rebate paid to domestic distillers “who would retain part for research and development and pass on the balance in lower prices to the blender”.

(Labor too, is pushing the ethanol barrel).

The arguments Kelly is putting to her colleagues are heavily based on experience in Minnesota where ethanol policies, she claims, have helped the US reduce carbon dioxide emissions by 3.6 million tonnes the equivalent of half a million cars off the road and boosted the state economy by $US400 million ($733 million) a year.

She has powerful figures to be refuted by opponents and the debate has a long way to go, but watch this one for it has all the makings of a major political bunfight.

August 17, 2002Economic rationalist or economic nationalist?
Paul Keating was a Labor Treasurer who opened up the Australian economy to world markets. By contrast, Peter Costello, a Liberal Treasurer, is making a habit of trying to shut the door again.In the mid 1980s, the economic consultancy Syntec used to publish a graph which encapsulated the besieged national psyche – and politics – of the time. It tracked the standing of the government in the opinion polls against the value of the dollar.At that time, the two lines shadowed each other in a disconcertingly clingy fashion.For three or four years after the Australian dollar was floated, politicians trod carefully on any issue that might spark the wrath of the markets and a deterioration in the currency. Sixteen years on, and how things have changed.There was barely a ripple this week when Federal Cabinet rejected Qantas’s bid to have its foreign ownership ceilings removed, even though there was little explanation other than that ministers didn’t agree with Qantas’s arguments.

It was the final confirmation of how politics and the market have changed in the post-float era. And it’s not just the political party in office that has changed.

The Hawke Government was the first to have to negotiate its way through the world of a floating exchange rate, and this was on top of the searing experience of a capital flight ahead of its March 1983 election, which led to a devaluation of the currency.

So the starting point was political suspicion of a labour government in the markets, and no experience of how the mechanics of politics would work when there was suddenly the opportunity for an instantaneous market tick or cross on any decision.

Of course, when the dollar floated, the expectation in Australia on that first morning was that it would float up.

It took a couple of years for the markets and the economists to restructure their thinking around the fact that the only direction for the currency seemed to be down.

The media, too, had a new way of judging politics, and a new national “road accident” to cover every day. Suddenly every Australian was aware of foreign debt and the current account deficit, and there was a certain cold wind blowing around their nether regions in the form of international opinion pricing down the currency.

Within three years of the float, voters were looking to the currency as a measure of our greater national value, and of the performance of the government. The age of economic rationalism was upon us.

The moment in time when all these new fears – and their impact on politics – were crystallised was at Labor’s 1986 national conference. The conference was held against the background of a one-day slump in the dollar from US63¢ to US57¢, amid fears about the size of the deficit in the looming Budget and in the wake of a decision by then Treasurer Paul Keating earlier in the month to remove interest withholding tax exemptions.

To restore confidence, the Government felt compelled to relax foreign investment rules particularly for property – and to reverse the withholding tax decision. In the “greed is good” 1980s, when the business fashion was for corporate raiders and asset stripping, everybody seemed to be raiding Australia’s asset jar, including its national icons.

The first waves of xenophobia emerged in 1988 as Japanese investors were spotted buying up Gold Coast real estate.

But at that time the political, and for that matter economic, reaction was tough: as debtors to the world, we were not in a position to pick and choose how we balanced the current account deficit, or who bought our assets.

A devastating recession and the eventual recognition that you can’t run macro-economic policy – particularly monetary policy – off the current account deficit started to change the politics of the currency and foreign debt.

The election in 1996 of a conservative government which spent its first year slashing the Budget and selling off anything in sight kept the markets well and truly quiet.

But the funny thing is, the $A during most of the period of the Howard Government’s tenure has traded at levels lower than those in 1986, which were seen as the nadir of the Hawke Government’s nightmare.

Voters had become used to a low dollar and were more accepting of both its costs and benefits. The markets had also lost their grip on politicians.

Nothing made this clearer than last year’s Woodside decision when, despite immense pressure, Treasurer Peter Costello rejected Shell’s bid to buy more of Woodside Petroleum as against the “national interest”. The commentators still huffed and puffed, and predicted the end for the $A and the Woodside share price.

But nothing happened. The dollar wasn’t great, but hey, it hadn’t been for a while. Woodside’s share price actually recovered – and, of course, last week the North-West Shelf partners won a $25 billion LNG contract with China.

Having taken the dangerous decision last year, there has been no looking back.

Economic nationalism has been here before – in the form of Hansonism – but mainstream politicians have sensed that they can now get away with it, too.

August 16, 2002PM accelerates Telstra sale plan
Laura Tingle, Political Correspondent
The Howard Government will clear the way today for a rapid sale of the remainder of Telstra Corporation when it announces another inquiry into telecommunications service levels in the bush.Communications Minister Richard Alston is expected to announce the composition and terms of reference of the second committee of inquiry into Telstra’s bush performance in Brisbane early this morning.Speaking yesterday in Fiji, Prime Minister John Howard confirmed the imminent announcement of the arrangements for the second review.The Treasurer, Peter Costello, also stepped up the push for a sell-off, which could deliver the Government about $35billion.He said telephone services in rural and regional Australia would not have improved if the Government had failed to privatise Telstra.

Sources told The Australian Financial Review that the Government would set down a tight timetable for the review, allowing a sell-off to get under way as early as next year.

However, once the inquiry has reported, the Government will still have to negotiate a path through the Senate for the further sale of Telstra.

In addition to the $200million flowing from the original Besley inquiry, the price of support for the sale of the first tranche of the telco was the $1billion Natural Heritage Trust.

Government ministers have been arguing for some weeks that there is already considerable evidence that the carrier’s service levels have improved substantially, clearing the way for a rapid inquiry. But Besley Mark II, as the long-anticipated inquiry has been dubbed, will not be chaired by former Commonwealth Bank chairman Tim Besley.

Mr Besley chaired the first Telecommunications Service Inquiry, which led to a range of telecommunications spending initiatives worth $200million to appease bush dissatisfaction.

Instead, a cotton grower from Deputy Prime Minister John Anderson’s NSW electorate, Dick Estens, has been tipped for the job of chairing the inquiry.

Mr Estens is the chairman of the Gwydir Valley Cotton Growers Association.

However, his main presence on the national stage to date has been as a board member of Reconciliation Australia.

He has been acclaimed as a driving force behind an Aboriginal employment strategy in the previously strife-torn town of Moree in northern NSW. It provided hundreds of Aborigines with casual and permanent work in the local cotton industry.

He is expected to be joined by at least one member of the original Besley inquiry team, Tasmanian cheese maker Jane Bennett.

It is understood Mr Besley will not be available to take part in the inquiry because of his commitments over the next few months, including extended periods overseas.

National Party deputy leader Mark Vaile acknowledged yesterday there was anecdotal evidence, at least in remote areas, that services had improved.

“We’re starting to see reports that in remote parts of Australia services have significantly improved and may well have passed the level and standard of services in rural areas that are a bit closer in, because those remote areas are being serviced
by satellite technology and they have moved ahead of the game,” hesaid.

But on the sensitive question of maintaining and upgrading future levels of regional services, the Treasurer, Peter Costello, yesterday appeared to pour cold water on the National Party’s proposals for a commission to police the standards of service.
Instead, he insisted these could be protected through universal service obligations and other obligations written into Telstra legislation.

“I think the important thing is to put in place mechanisms, especially through universal service obligations, which will ensure that as new technologies become available, that they are rolled out,” he said in Morven, Queensland, yesterday.

Mr Costello said the Senate needed to be aware of the improvements to telecommunications in the bush.

“All I would say to the Senate is, the Government has put in place, as a result of Telstra 1 and Telstra 2, services which would not have been done otherwise and it has improved services which arestill being rolled out in rural and regional areas,”
he said.

However, the chief executive of Optus, Mr Chris Anderson, said yesterday that his company had been frustrated by “past government policies that have limited the potential for competition in the bush”.

“To compound matters in our view what money has gone to regional infrastructure has ended up with Telstra,” he said.

“That’s because there has been no recognition of the need to promote new technologies, new solutions, and new players.

“To make matters worse, new entrants have to subsidise Telstra’s activities in the bush through the Universal Service Obligation contribution,” Mr Anderson said.

In its efforts to secure approval from the National Party, and bush electorates, for selling off more of Telstra, the Government has, in recent months, announced measures worth more than $70 million to improve service levels.

Mr Costello said yesterday that Telstra had won a $20.4 million government contract to upgrade spot mobile phone coverage on 34regional highways.

August 12, 2002ALP’s grist to the industry policy mill
Capital moves
Laura Tingle
The Labor Party has floated radical changes to research and development funding in the business community, as it seeks a more aggressive policy to develop the manufacturing sector.Among the changes proposed are a possible shift to more centralised, public sector-based support for business research and development, and a return to a system of business “guns for hire” to help teach businesses on-site about some of the skills they need to expand.While recent headlines about Labor and consultation have focused on the party’s internal relationships, parliamentarians have been doing the slog around the country trying to develop and promote with various constituencies possible new policy directions for the next election.One of the people doing that is senator George Campbell, given the nod by Simon Crean to take a special interest in manufacturing, reflecting his long and sometimes controversial relationship with the sector as head of the metal-workers union.Campbell has circulated a discussion paper on the sector, and policies to support it, to industry groups.

The paper is framed both by clear references to past industry policies with which Campbell was associated in the 1980s, and by the constraints of trying not to tread on too many portfolio toes: Campbell is not a full frontbencher, so is dabbling in areas of other people’s portfolios.

For all this, the paper, like some of Mark Latham’s ideas, provides some interesting grist for the policy mill at a time when industry policy isn’t just out of fashion, it is almost extinct.

It is also heavily influenced by visits to Campbell’s homeland Ireland and policy developments there.

But Campbell’s thoughts are also developing as he travels the country as part of a Senate committee examining the state of small business and is shocked by the poor skills base that has emerged.

The central point of Campbell’s paper is to emphasise the significance of manufacturing in broader research and development. He cites OECD research which argues manufacturing has contributed more than 50 per cent of total private R&D investment in the past decade.

By comparison, he says, Australia is well below the OECD average in manufacturing growth, and specialises in low to low-to-medium technology manufacturing.

He proposes both changes to R&D incentives and export incentives to try to address these problems, as well as the usual wish list of increased venture capital investment in manufacturing and the development of technology clusters between academe and business.

There is a strong flavour of the Australia Reconstructed agenda which emerged from the trade union movement in the mid-1980s and with which Campbell was associated in the entire document. There are other familiar tunes for those who remember industry policy of this period.

There is a call for sectoral policies, the formation of a national development authority, an office or ministry of manufacturing and a tripartite manufacturing council.

Such ideas were treated with scorn in the new embrace of economic rationalism of the 1980s but helped play an important transitional role in changing business thinking about its approach to international markets.

Campbell’s experience in the small business inquiry gives reason to think some of that support and education is still needed.

On R&D, Campbell says there are strong reservations in industry about the current system of tax breaks and grants.

He says rather than simply providing a tax incentive for the dollar value of research undertaken, one of several options being considered as an addition to the existing system “is a focus on incentives for strengthening the capability of firms to undertake R&D”.

Campbell says the Government should consider funding up front R&D infrastructure and obtaining key researchers.

This might sound a bit like what the CSIRO does. But Campbell says the point he is trying to address is the loss of basic research infrastructure from industry after R&D incentives were cut back in the early years of the Coalition Government when research laboratories at some of our biggest companies were closed.

He believes there is a case for dedicated research facilities for the manufacturing sector that are established and staffed from government resources to take work on commission from business as needed.

How that might work in practice, whether it be via increased funds to the CSIRO, university or technical learning facilities, Campbell doesn’t say.

Campbell’s other interesting idea is a return to a form of what used to be known as the National Industry Extension Service a joint state-federal initiative.

He describes such a scheme as being like an “export manager for hire” program to assist small to medium enterprises develop their export market development capability.

The NIES scheme, in its time, imported business people with the appropriate experience into firms to help them get export ready, building their networks or business plans, or to learn something as basic as getting a grip on their cash flows.

August 9, 2002Crean faces moment of truth on reform
Tony Walker and Laura Tingle with Mark Davis and Mark Skulley
A century of Labor history will be on Simon Crean’s mind when the party considers reform plans at a crucial meeting today, write Tony Walker and Laura Tingle.When Opposition Leader Simon Crean arrives at the ALP’s Centenary House in Canberra this morning for a long-anticipated national executive dealing with party reform, history will be weighing heavily. Crean would not be in any doubt that the gathering of 25 men and women, plus former prime minister Bob Hawke and former NSW premier Neville Wran architects of a controversial reform plan is one of the more significant since his party was formed under a gum tree in 1891 at Barcaldine in western Queensland.Nor would he be under any illusion about the importance for his own prime-ministerial ambitions.”Reform or death politically” may not be far from his thoughts.If Crean’s sense of history is acute, he might reflect on the fact that it was an event of some moment in his party’s history that took place in 1963 at the Kingston Hotel just a kilometre of so from Centenary House about which the phrase “36 faceless men” was coined.

This described a special 36-member federal conference called to discuss the establishment of a US base at North-West cape, and from which the leader and deputy leader of the parliamentary party were excluded. Hence the “faceless men” jibe employed mercilessly by Robert Menzies.

One of Crean’s predecessors, Gough Whitlam, was deputy leader at the time and it was Whitlam who, in 1966, while still deputy, described the national executive as the “12 witless men” after rows over all manner of issues, including state aid.

Nearly half a century later, Crean, unlike his predecessors, will not be obliged to stay outside while the witless men (there were no women at the executive or conference in those days) deliberated. He even has a vote.

But what is interesting about the past and present is how issues then and now divide the parliamentary and organisational wings. Indeed, what is striking about the mood within Labor on the eve of the release of the Hawke-Wran review is the extent of the rift between elected representatives and powerful unions, particularly within the NSW Right, about the reform push.

MPs with one or two exceptions, and in the face of intense pressure from factional and union backers in some cases remain publicly committed to Crean’s reform push.

The frontal attack on Crean from within the Right prompted his colleagues to come out in support this week, notably shadow treasurer Bob McMullan (a former national secretary of the party) and Stephen Smith (a former WA state secretary), as well as the NSW Right’s parliamentary convenor, Laurie Brereton, who told The Australian Financial Review on Monday:

“It’s high time the industrial Right got behind Simon Crean and his party modernisation agenda. Simon deserves the movement’s help, not its hindrance.”

His public remarks provoked some unappreciative commentary in a later phone hook-up of the national Right (though comments by the head of the shoppies union, Joe de Bruyn, against changes to the 60/40 rule in the same article seemed to go unnoticed.)

“We are talking about people with a very poor attitude,” one MP said of his erstwhile factional colleagues within the industrial Right.

“This is a hangover from a few poisonous characters who’ve created a general sickness in some elements of the industrial Right.”

A particular cause of resentment has been the attempt by NSW to use the front of the Hawke/Wran review to get a change in preselection processes in the state that would give unions more control over preselections the antithesis of what Crean’s reforms are trying to achieve.

“They’ve done this a few times,” one source says. “They’re too gutless to try to push it through in the proper forum on the floor of the NSW state conference because they know it would not just alienate the Left, but much of their own faction.”

Another source agrees: “This is what they wouldn’t move at the state conference but now want Simon Crean to do for them.”

“The NSW parliamentary Right is full square behind Crean,” one MP says, but then acknowledges that full square doesn’t include the senator Steve Hutchins and an MP, Leo McLeay, who have become isolated from the other 14 NSW Right parliamentarians.

Another MP says that despite the hard-knocks school of Labor, he has been shocked at the way things have gone in the public debate so far. “I didn’t expect a reflection of so much self-centredness.

“Simon will be a victim of that self-centredness unless that’s changed. And unless that’s changed, we are pretty much stuffed.”

The MP under the most pressure at the moment is probably Stephen Conroy, Crean’s finance spokesman, a member of the national executive and a power in the Victorian Right.

This week he told The Financial Review he was supporting Simon Crean, he was reported in another paper as having endorsed a national Right revolt on the 60/40 rule, and certainly faces an uncomfortable time given the intransigence of his close ally, de Bruyn, on the issue.

But in the union movement itself, which on the surface stands to lose power from Crean’s proposals, opinions are divided.

Broadly the left-wing unions, while not happy with the way the debate has focused so strongly on 60-40, are willing to accept reduced influence as long as it is part of a larger reform package that gives “ordinary” ALP members more say.

By contrast, Right unions, particularly in their NSW stronghold, are largely opposed to the reduction in union representation.

The public rationale for their opposition is that the ALP is the political wing of the union movement and there is no case for reducing union representation, particularly given the hundreds of thousands of dollars unions contribute each year to the ALP.

But the NSW Right is also concerned that other elements of the ALP reform package including increasing the size of national conference will work in the Left’s favour by allowing national Left unions to send their own delegates to national conference. It has been attempting to use the 60-40 issue as a bargaining chip to secure concessions from Crean in other areas of the package such as giving the Right-dominated NSW ALP head office a greater say in preselecting Labor’s candidates for Parliament.

Further complicating the equation for Crean is the fact that the industrial Left and Right are themselves both internally divided.

So while most Left unions are willing to accept 50-50, some big Left unions, including the Communications Electrical and Plumbing Union, are implacably opposed to changing the 60-40 rule.

And some of Crean’s most important union supporters on the issue come from the Victorian Right.

They include National Union of Workers national secretary Greg Sword and Australian Workers Union national secretary Bill Shorten.

Greg Sword, who is also the ALP’s national president, says: “The most important things for the party to achieve from this review are outcomes which give ordinary members of the party greater say in policy making, and greater opportunity to participate in activities of the party beyond the branch level.”

“We would test all of the recommendations against those objectives. The 60-40 issue is not the pivot around which the whole relationship between the union movement and the Labor Party revolves.

“If all that was happening was a reduction in union representation from 60 to 50 per cent, I don’t think the NUW would be supportive. But if there is a raft of changes aimed at making the party more democratic then the NUW would be likely to support the union movement putting 10 per cent back to the branch membership.”

A long-time stalwart of the Labor Party’s Victorian Socialist Left faction, Graham Bird of the meat workers union, says that since he first joined the ALP the role of the ordinary rank and file members has been eclipsed by the power of the factional chieftains.

“Clearly people in the union movement have a view that the trade union movement formed the party so it should continue to have majority ownership,” Bird says.

“But our view has been that there are progressive sections of the community who aren’t in trade unions. There are people outside [unions] who are genuine members of the ALP and they are entitled to equal representation.

“When I joined the party as an ordinary member I felt I had more of a say. These days you can can’t even get a branch resolution acknowledged when you send it off to head office.”

These complaints would be comfort to Crean, since they are the very points he has been seeking to make in sometimes bruising encounters with the ALP’s factional bosses.


ALP National Executive on ditching the 60:40 rule on union representation at state conferences.

(Positions may shift before a ‘rules change’ conference meets on October 5-6)



·Simon Crean: Vic, Leader of the Opposition

·Greg Sword (national president): Vic, national secretary of National Union of Workers

·Stephen Conroy: Vic, senator
·Marsha Thomson: Vic, state MP


·Jenny Macklin: Vic, Deputy Leader of Opposition

·Jan Burnswoods: NSW, state MP

·Mark Butler: SA, state secretary of the Liquor, Hospitality and Miscellaneous Workers’ Union

·George Campbell: NSW, senator

·Kim Carr: Vic, senator

·Helen Creed: WA, Liquor, Hospitality and Miscellaneous Workers’ Union

·John Faulkner: NSW, senator

·Gavin Jennings: Vic, state MP

·Duncan Kerr: Tas, federal MP

·Jacklyn Trad: QLD, former adviser to QLD Education minister, now working for NSW government

·Peter Cook: WA, senator



·Steve Hutchins (Vice President): NSW, senator (former Transport Workers’ Union official)

·Mark Bishop: WA, senator
·Joseph de Bruyn: Vic, national secretary of the Shop Distributive and Allied Employees Association

·John Della Bosca: NSW, state MP
·John Hogg: QLD, senator
·Ursula Stephens: NSW, senator

·Trish White: SA, state MP



·Lyn Breuer: SA, state MP

·Bill Ludwig: QLD, state secretary of Australian Workers’ Union

·Catryna Bilyk: Tas, vice president ACTU


John Faulkner

Greg Sword

Kim Carr

Jenny Macklin


John Della Bosca

Steve Hutchins


Bill Ludwig

Lyn Breuer


August 5, 2002US shake-up pressures corporates
Fiona Buffini and Laura Tingle
Major Australian companies and their auditors face pressure to embrace new US laws on corporate governance and accounting oversight, despite claims by the Federal Government that Australia is ahead of the US on regulation.Australian companies listed on US stock exchanges already comply with US laws. But there are significant and growing differences between Australian requirements and those in the world’s largest capital market.”If there is an Australian company which is an SEC registrant, we will be subject to those rules even though the audit opinion is signed in Australia,” Ernst & Young chairman Brian Long said.The Bush Administration accepted last week sweeping reforms proposed by the US Congress after the recent stockmarket slump.But parliamentary secretary to the Treasurer Ian Campbell insisted Australia was not being left behind.

“I don’t think there’s any risk of Australia being seen to be falling behind,” he said.

“What we are trying to ensure is that we remain ahead of the game and in many respects the United States are picking up many of the ideas that have been part of the Australian regime for some time now, such as continuous disclosure.”

The Government’s latest Commercial Law Economic Reform Program (CLERP 9) proposals, due out this month, are likely to opt for a self-regulatory compliance model rather than the US big-stick approach, leaving a significant regulatory gap.

While Australia has been more advanced in some areas of corporate governance compared with other countries, the prescriptions being applied in some foreign jurisdictions may leave Australia open to charges that it is falling behind.

But Mr Campbell told the IFSA conference in Brisbane last week that best-practice corporate-governance principals should be a dynamic. “They are the last thing you want to put into a piece of law,” he said.

Last week the Australian Stock Exchange announced it was forming a council to develop best-practice corporate-governance standards after earlier resisting pressure from Australian Securities and Investments Commission chairman David Knott to do so.

While faster financial disclosure was one change picked up in the new US rules signed by Mr Bush last Wednesday, the creation of independent oversight of the accounting profession is in line with recent moves by the UK and Europe and leaves Australia
out of step.

In other key differences, the US will prohibit auditors from offering nine types of consulting services to audit clients, require rotation of audit partners after five years, mandate independent audit committees, prohibit executives selling stock during blackout periods and create laws to ensure the independence of equity analysts at investment banks.

All these changes give legislative backing to, and in some cases are tougher than, Australian requirements now contained only in best-practice guidelines or professional codes of conduct.

Australian companies that raise debt or equity in the US, such as Telstra, News Corporation and NAB, register with the SEC.

Ian Ramsay, professor of corporate law and regulation at Melbourne University, said there were now “some really big differences in content and approach” between the two countries. “However, because the US has done it doesn’t mean we must follow through,” he said.

“We do need to carefully consider them knowing that they will have an impact for a growing number of our companies anyway.”

Still, Professor Ramsay said Australia was behind other countries that had public oversight rather than self-regulation of accountants.

“For our most prominent, influential companies, you most employ an independent auditor; Parliament decrees it,” he said. “With that public mandate comes a public obligation for some degree of public oversight.”

In a report to the Government last October, Professor Ramsay recommended an oversight board with members independent of the accounting profession to monitor audit firms.

While the Ramsay report will be considered as part of the next corporate law reform process, change in law is not expected until next year, and the US oversight board is tougher than the one proposed by Ramsay.

The major accounting firms said they did not oppose independent oversight of the profession in principle.

“I frankly wouldn’t be surprised to see some kind of oversight and I don’t necessarily think it would be a bad thing,” Mr Long said.

“Is it necessary? We already have comprehensive oversight of independence and objectivity, which admittedly is self-administered, but we would be happy to have that subject to independent oversight because we are confident we would measure up.”

Deloitte’s partner for professional standards, Nick Hullah, said: “We don’t have independent oversight of the profession in Australia … We certainly accept it is essential from a public perception point of view for there to be an oversight board.”

However, the audit chief of PricewaterhouseCoopers, Rob Ward, said the Australian system of oversight was generally successful.

“We don’t need a knee-jerk reaction,” he said. “If the US doesn’t think their oversight has been successful, that’s a matter for the US.”

“It’s become a political matter in the US as much as a matter of commercial and ethics. The risk is short-term over-reaction that doesn’t result in a good long-term result.”

The accounting profession strongly rejects US-style codification of independence rules, now in a professional ethics code that allows discretion for case-by-case judgements, saying “black letter” regulation will not help.

“The US is going to a rules-based system, which has been some of the cause of issues they’ve been facing. Too heavy-handed a touch in terms of rules does not in fact correct poor behaviour,” Mr Ward said.

The major firms oppose a proposal by Professor Ramsay to make independence a statutory requirement, which would give ASIC a role in enforcing independence rules.

Deloitte’s Mr Hullah said: “The correct thing is to have an ethical framework. Putting it in the law doesn’t help.”

Mr Long said some internal audit engagements, one service banned for audit clients in the US, did not impair independence.

“It has to be assessed case by case,” he said. “By introducing a one-size-fits-all law that says you can never, ever use the auditor, you are destroying value for shareholders and introducing costs much higher than the benefits.”

John Hall, president of the Australian Institute of Company Directors, also opposes US-style restrictions on non-audit services. “With only four major firms, there’s a scarcity of skilled advisers and ruling out your auditors diminishes supply significantly,” he said.

“Overall, many of the things incorporated in the US legislation are already best practice here, like the requirement for corporate boards to have a majority of independent non-executive directors.”

But he acknowledged the NYSE test for independence was tougher than best practice here. “Best practice is to disclose other relationships and allow the shareholders to determine if that person is a fit director rather than mandate it,” he said.

Under NYSE proposals, foreign companies listed on the exchange must disclose if their directors meet the higher US standard for independence.

But Mr Hall said making company accountants more responsible was something that could be looked at here: “The CFO should be the first person to know if a company is in financial trouble.”

In an interview with the AFR, Senator Campbell defended the Australian Stock Exchange against ASIC on the issue of whether the ASX should be the regulator of company disclosure.

“The joint parliamentary committee looked into it, I think, as recently as a few months ago and said there’s a potential conflict but it’s not affecting the ASX’s role, or its legal obligation to run a transparent marketplace,” he said.

“The big incentive for the ASX to run a high-quality market is that, if they don’t, not only do perceptions of the market run by the Australian Stock Exchange go down, but the value of the ASX goes down.”

Regardless of what the Federal Government eventually does, Australian companies are moving ahead of regulators, keeping a close eye on accounting practices and their relationship with external auditors.

“We are seeing situations where major companies have said to their auditors you cannot perform these services for us any more,” said Deloitte’s Mr Hullah.

“There are a number of circumstance where companies have asked us to tender for work previously done by their auditors. And we believe that will increase.”

PwC’s Mr Ward said: “Clients are thinking of governance now. It’s the No1 priority for directors and boards. As an auditor, it’s actually a very good thing as everyone now understands how important our work is; audit is now seen as very valuable.”

E&Y’s Mr Long said one thing lost in the recent focus on corporate governance was that auditors and boards were constantly working on improvements. “Not a year goes by where each company I’m involved in doesn’t sit back and think about how we can be more effective,” he said. “Post-Enron brings it into sharp focus and companies are stepping up audit independence process and looking at accounting practices.”


Wall Street’s new benchmarks: how Australia measures up
* Accounting oversight

US: Five-member oversight board independent of accounting profession and overseen by the SEC will set auditing, quality control and independence standards.

Australia: Accountants mostly self-regulated. Independence rules and auditing standards are set and enforced by the profession and do not have force of law.

* Audit firm review

US: Oversight board to inspect audit firms with 100 or more public company clients every year, smaller firms every three years.

Australia: Peer review of audit firms is conducted in private by accounting professional bodies.

* Auditor discipline

US: Oversight board to investigate and discipline auditors, maximum fines of $US15 million for firms.

Australia: ASIC registers auditors, part-time ASIC board investigates breaches by individuals. It cancels registrations but cannot fine audit firms.

* Legal restrictions on non-audit services

US: Prohibits auditors from offering nine services to listed clients, other services must be pre-approved by audit committees unless less than 5 per cent of total fees.

Australia: Less restrictive principle-based independencerules are set and enforced by the accounting profession and do limit some services. Audit committees best practice but not mandatory.

* Executives to vouch

US: CEOs and chief financial officers to certify financial reports to SEC with penalties of $US5 million or 20-year jail term for false statements or failing to certify.

Australia: Directors sign off not CFOs. No criminal penalties for failing to vouch for accounts.

* Auditor rotation

US: Rotation of lead audit partners after five years.

Australia: Professional ethics rules require partner rotation after seven years.

* Clawback of executive profits

US: CEOs and CFOs who make large profits or bonuses while management is misleading the public about the company forfeit the payments.

Australia: No clawback of executive profits or bonuses.

* New criminal penalties

US: 25-year jail sentences for securities fraud,twenty years for mail fraud, 20-years for obstruction of justice involving shredding documents.

Australia: False accounting carries maximum two-year jail term, five years for serious breaches of directors’ duties.

* Inside trades

US: Must be reported within two days, executives prohibited from selling company stock during blackout periods.

Australia: Five days under ASX listing rules. Blackout periods best practice for some companies but not law.

* Director independence

US: NYSE-listed companies to have a majority of independent directors.

Australia: Best practice but lesser standard of independence and not legally backed.

* Broker independence

US: The SEC or stock exchange to set rules on conflicts of interest when analysts recommend stocks in research reports.

Australia: No legal provisions. Securities Institute has recently developed a voluntary code of conduct.

* Revolving door

US: Audit firms may not audit public companies whose senior executives have worked for the audit firm during the preceding year.

Australia: No legal restriction, professional ethics rules require two-year cooling off period.

* Corporate code of ethics

US: SEC to issue a rule requiring a code of ethics for senior financial officers.

Australia: No requirement.

* Restitution fund for investors

US: Civil penalties from SEC enforcement actions to be diverted to accounts that benefit investors victimised by securities fraud.

Australia: ASIC fines go into general government revenue.

August 5, 2002Meat in Packer’s sandwich
Capital moves,
Laura Tingle
When Kerry Packer’s Consolidated Meat Group announced it was closing its Rockhampton abattoir last week, more than 700 people lost their jobs and the company walked away with a gift from taxpayers worth at least $20 million.But the announcement also spelt a particularly bitter end to an exercise in government intervention in the meat processing industry that has left the Howard Government in the middle of a political debacle of its own making in the bush.All for the perceived purpose of protecting the interests of Australia’s richest man.The gift from taxpayers for CMG was the 40,000-odd tonnes of US beef quota the company had been allocated, despite the fact that its Rockhampton abattoir, Lakes Creek which will now shut next month has already been closed for most of this year.[It did not reopen after the traditional Christmas/New Year break, and reopened with a halved workforce and an increasingly bitter industrial relations environment only in May. It therefore had little chance of ever filling the quota it had been given.]

The fact that the plant will now be closed “permanently”, while the quota becomes a valuable paper asset in a new CMG joint venture with another company in the meat industry, Teys Bros, has only intensified the ill winds blowing for Agriculture Minister Warren Truss and the Government in the sector.

Truss is in the gun over his attempts to find a mechanism for giving some US quota to hard-pressed abattoirs in danger of closing because of a collapse in the Japanese beef market.

The shrinking of the Japanese market prompted many meat processors around the country to turn their attention to the US market.

CMG was one of the eight companies with a historical focus on the US beef industry that had been given most of the increasingly valuable quota.

Truss announced a new quota regime earlier this year that shaved quota from most of these companies and created a “hardship” provision of 30,000 tonnes of quota to be spread among abattoirs facing difficulties in other markets.

But the system made no-one happy. The Senate subsequently got involved and a government-dominated committee handed down a damning report on the system implemented by Truss. There have been subsequent amendments to the scheme.

Now it faces a challenge in the Federal Court from a group of 10 abattoir operators, led by Waltell Pty Ltd and T & R Pastoral, which do not usually focus on the US market.

Much of the hostility about the Truss plan was based on the view that the way the scheme had been structured appeared to favour CMG.

This is because Truss chose to base the allocation of quotas on the 2001 quota year rather than, say, an average of the past three years.

The 2001 base is seen in the industry as the “Packer clause”, which maximised the quota potential for CMG from a peak export year and supported its industrial relations stance.

Opposition Primary Industries spokesman Kerry O’Brien observed in the Senate: “[CMG] is the biggest winner because late last year it decided the price of cattle was too high and that it was better to lock its workers out and not process meat.”

O’Brien pointed out that as at June CMG had processed 3,000 tonnes of meat compared with 49,000 tonnes last year.

“It will come into the market with well over 30,000 tonnes available to it under the minister’s scheme,” he said.

With news of the closure of CMG’s Rockhampton abattoir, feelings in the industry are now white hot since all the grief about the original structure of the scheme now seems to have led to nothing more than a taxpayer-funded paper asset to be traded as
part of CMG’s restructuring.

What’s more, under the present structure of the quota arrangements, CMG is expected to receive the same level of quota in the coming year, despite having announced the closure of its abattoir.

All this creates an ugly backdrop to further negotiations with the industry about the beef quota.

A tribunal established by Truss will soon rule on how the so-called “hardship” tonnage for the new quota year, which begins around October, should be allocated.

It then has to work out what system for allocating quota should be used in the longer term.

Truss’s department is apparently pushing for a quota auction and there appears to be an unseemly race on to get these matters resolved before the Senate Rural Affairs Committee, chaired by Bill Heffernan, reconvenes later this month to stick its oar into an already complex issue.

Lost in all the politics, though, is any clear strategic policy on where Australia’s marketing should be directed and how the quota allocations it does have can be used to support those broader efforts.

July 29, 2002PM’s housing finance shake-up
Laura Tingle, Political Correspondent
The Howard Government is considering a profound shift in housing policy that could see about $1billion a year channelled from construction to new forms of income support and housing finance.The change under consideration as the Government renegotiates the Commonwealth-state housing agreement would have deep implications for the building industry and financial markets.It signals that the issue of affordable housing is likely to feature prominently in the political debate over the next three years.Labor frontbencher Mark Latham is also aggressively pursuing new financing options to make housing more affordable for low-income earners.The Department of Family and Community Services has convened a meeting today of an expert panel, including industry representatives, to examine options for changes to housing support.

It appears the discussions, which have involved, among others, the Prime Minister’s office, point to the Government abandoning the construction of public housing in exchange for housing and income-support measures such as rental and ownership assistance as part of its broader welfare reform.

A crucial part of this change would involve trying to bring private-sector finance into the publicly assisted housing system a feat that to date has largely eluded governments.

The movement on the housing issue from the Government comes after the release of competing academic papers on the subject that propose various models for getting private money into the housing sector.

The most recent of these has come from the Liberal Party’s own Menzies Research Centre.

The Menzies paper, by New York University professor of economics Andrew Caplin and Australian economist Christopher Joye, canvasses an arrangement in which a passive institutional partner would bear part of the costs of owner-occupied housing in exchange for part of the sale proceeds.

“We propose the development of a liquid secondary market in real estate equity,” their paper says.

“Housing would be financed with both a mortgage and an institutional investor who provides equity capital for the dwelling in exchange for a fraction of the ultimate sale price, with no other monetary payments made between the partners.”

The paper’s proposition has a faint echo of another, more comprehensive paper prepared by the Affordable Housing National Research Consortium. The consortium a powerful coalition of industry, trade union and community organisations was established in April 2000 to try to find ways to improve housing affordability for low-income households.

It has put forward three options that target the supply side of the housing market and emphasise “a wholesale financing solution designed to close the `investment gap’ in low-cost housing”.

The three options it puts forward are: a direct government subsidy for private (debt) investment in affordable housing; the establishment of a stock-exchange listed company as a vehicle for private-sector investment in affordable housing; and a return to a form of prescribed assets ratio for designated financial institutions, “notably superannuation funds”, which would be required to hold assets reflecting ownership of rental dwellings managed by state housing authorities or communit
y bodies.

The consortium chairman, economist Kim Hawtrey, has welcomed the Menzies Centre’s work, acknowledging that both groups have recognised the same problems in the market-place.

But he believes the Menzies proposal could run into problems, producing some standardised equity interest in housing that was readily tradeable as the basis for a liquid market.

By comparison, the consortium proposals would, he believes, create an asset class with much better defined risk and return characteristics.

Both groups’ papers come as the surge in house prices around the country has made the issue of housing affordability politically red hot.

Labor’s Mark Latham has embraced much of the consortium’s work in his outings on urban renewal and housing, arguing for private-sector involvement in both renewal of the public housing stock and addressing affordability issues. In a speech earlier this year, Latham argued urban renewal “should be a leading objective of the Commonwealth State Housing Agreement” and particularly argued that the need for urban renewal in Sydney’s west was “an opportunity for federal/state private housing partnerships”.

On affordability, he argues that governments have dealt with housing affordability concerns in the past through demand-side policies such as rent assistance.

“These strategies need to be complemented by supply-side policies that ease the pressure on the rental market,” he said.

“Increased home ownership has a crucial role to play in this process.”

Latham has flagged a range of “innovative home ownership models” including shared equity schemes, co-operative housing, matched savings accounts and nest-egg accounts and is likely to outline more details of these within the next month.

The race, therefore, appears to be on to address a big political problem for both sides of politics, let alone the housing poor.

Financial institutions would do well to watch how the race develops.

July 27, 2002Power in the balance . . .
Laura Tingle
The future of the Australian Democrats, and that of the Federal Senate, are now in play following Friday’s resignation from the party of former Democrat leader Meg Lees. It’s very good news for the Government and increases its chance of getting controversial laws through the Senate.The gleam in the eye of the Prime Minister was unmistakable this week as he contemplated the implications of the imploding Australian Democrats. On the face of it, the political bounty for him appears almost endless.Suddenly the sale of Telstra looked likely and other impasse policies like industrial relations and changes to the cross-media laws beckoned fewer Democrats and serious political divisions on the Senate cross benches would give John Howard more negotiating room in this powerful and frustrating parliamentary chamber.And there, on the horizon, lay the glittering potential of a stronger Government grip on the Senate itself, with the annihilation of the Democrats as a force.This alluring prospect is not completely theoretical, for it is hard to see how the Democrats can survive the events of this week as a political force in the longer term. It is tempting to speculate that Howard is flirting with the option of holding a double dissolution election that would seek to exploit the current warfare and wipe out the Democrats for good. Such a political triumph would go some way towards achieving that elusive political goal, control of the Senate. But last weekend’s Tasmanian election saw the decimation of the Liberal Party and the rise of the Greens in that state. The risk of a double dissolution would be that, in trying to kill off one political enemy, the Coalition would make room for even less amenable political powers on the cross benches.

So the Prime Minister may well have to be satisfied with the political carnage so far. And it’s not inconsiderable. Friday’s resignation by former Democrat leader Meg Lees has thrown the Senate numbers, which the Government has never controlled, just a little bit more towards the centre. And that can only help the Government.

How did it get to this? To understand what led to the damaging disarray in the party that has managed to squander its powerful Senate position requires examination of the roots of this internal dispute.

Lees and those who back her regard the Democrats as a balance-of-power party whose role in the Senate is to review legislation, improve it, but not always block it.

In the opposing camp is Parliamentary leader Natasha Stott Despoja and her rather excitable Queensland colleague Andrew Bartlett, who have pitched the Democrats towards the left, but more importantly into a more “oppositionist” role.

It was Lees’ preparedness in 1998 to negotiate on the GST, rather than block it, which deepened this rift and ultimately led to her demise as leader.

The most explicit manifestation of the Stott Despoja Democrats has been the “pledge” all Democrat senators and Democrat Senate candidates signed before the last election. This pledge covered, among other things, no increase in the GST, no tax cuts for high-income earners, no undermining of the award system or Industrial Relations Commission powers, and no further privatisation of Telstra or Australia Post.

The pledge turns on its head an important Democrat tradition embodied in the party’s constitution, and indeed it was responsible for the original conception of the party: that individual senators should vote as they see fit on any particular law.

It is this fundamental disagreement which, combined with an increasingly bolshie grassroots membership, has turned Lees and her supporter Andrew Murray away from the party not philosophical differences on issues like Telstra.

With Murray expected to follow Lees and leave the party, the result is that the Democrats’ numbers are reduced from eight to six in the 76-seat Senate. This means the combined Democrat-Labor vote of just 34 would be four short of being able to block any Government legislation outright.

The six Democrats would be outnumbered on the cross bench by five independents (including Brian Harradine, One Nation’s Len Harris and former Labor senator Shayne Murphy) and two Greens. The Government needs only four extra votes to get any measures passed, including Telstra.

There has been a growing assumption that the independents will ultimately support the sale, though Harradine has said his support would be “a tall order” and Harris said on Friday that he remained opposed.

Murphy is also unconvinced but has left open the prospect of negotiation.

That puts the prospect of two extra votes in context.

Would Murray and Lees allow a further sale?

Lees’ recent comments show her concern that, with National Party resistance on Telstra subsiding, the Democrats’ continued opposition would leave them out of any trade-offs that could be made in return for the Telstra sale.

On Friday she made clear the issue was not about a sell-off, but about how the money was spent.

The best guide to where the two senators might go in any negotiations might be what they said during the 1998 debate about the second tranche of Telstra T2.

The Democrats were arguing from a position where the Government clearly had the numbers to get its legislation passed.

That didn’t stop both lodging their strong philosophical objections to privatisation, or to what they believed was a sale process that had seen taxpayers billions of dollars worse off.

Meanwhile, the spectre of declining influence hangs over the party. Half its senators (Lees, Cherry, Ridgeway and Greig) are up for election at the next federal poll. Assuming they get wiped out, that would leave a Democrat rump of its more excitable, and leftish, senators: Stott Despoja, Bartlett and Lyn Allison, along with Murray presumably sitting as an independent.|

July 26, 2002Senate at stake in Democrats’ threat to walk
Tony Walker and Laura Tingle
Australian Democrat senators Meg Lees and Andrew Murray warned yesterday they were considering leaving their party after its disciplinary body decided to press ahead with action against Senator Lees.The move by the senior Democrat senators could significantly change the balance of power in the Senate, giving the Coalition more hope of securing parliamentary approval to sell the rest of Telstra and for its industrial relations legislation.The disciplinary action against Senator Lees by the party’s national compliance committee underlies much of the recent rift between Democrat senators.As the two senators were yesterday leaving open the option of quitting the party, there were signs the war was degenerating into a legal battle after Senator Lees’ solicitor challenged an NCC decision on Wednesday night to proceed with action against
her.Senator Murray, a close ally of Senator Lees, conceded yesterday he would decide whether to leave the party in coming days.Asked about resigning and about a petition reportedly circulating within the Democrats calling for expulsion of the two senators, he said:
“I’m going to consider the events of the last few days, then take a view on it. But what some hothead somewhere does with a petition or [what] somebody does within the party, there are a lot of tensions and a fair bit of excitement going on at present. I think it’s better to be cool about these things.”

After hearing from the Seven Network of Senator Murray’s comments, Senator Lees also indicated she would consider her options, including resignation, after talking with family and colleagues.

The moves came after the NCC rebuffed attempts to stop it investigating complaints against Senator Lees.

This was despite party national president Liz Oss-Emer, parliamentary leader Natasha Stott Despoja and deputy leader Aden Ridgeway having all called for the investigation to be dropped.

Late yesterday, solicitor Matthew Mitchell, acting for Senator Lees and for her electorate secretary, Peter Davies, wrote to the NCC secretary, saying: “It will not be possible for any hearing of the matters in dispute between the parties to proceed
until my clients are informed of precisely what it is that they have done which has breached the Constitution or the Regulations of the party”.

The NCC is believed to have sent Senator Lees and Mr Davies only copies of a letter subsequently leaked to website crikey.com.au from Senator Lees to the party’s national executive in which she criticised the current leader, Senator Stott Despoja.

The NCC will meet again on August 10.

The letter complains that Mr Mitchell has received “no reply to my detailed request that consideration be given to immediately withdrawing the charges against my clients for the sake of unity within the party”, suggesting yesterday’s letter from the committee did not inform him of its decision on Wednesday night to proceed with its investigation.

Mr Mitchell also notes the party has “failed to respond to any request for particulars of the allegations against my clients”.

Mr Davies told The Australian Financial Review yesterday that the two had “responded in this way out of sheer frustration”.

“We have been forced into doing this due to a lack of evidence [to respond to],” he said.

July 15, 2002Committee system treated with disdain
Capital moves, Laura Tingle
Business and other lobby groups collectively spend millions of dollars each year preparing often exhaustive, and certainly exhausting, submissions for parliamentary committees.So, they have a considerable interest in the integrity of the committee process.Parliamentary committees are one of the few places left where some bipartisanship sometimes still prevails; where a group of politicians will sit around in a spirit of relative harmony and try to examine a contentious issue faced by the community.This scenario might not gel with the impression created by the most famous committee the public sees in action: the estimates committee.But, on the other hand, estimates committees are now one of the few places where the Parliament can actually demand, and receive, information from executive government.

There are other Senate committees though some joint committees of both the Senate and the House of Representatives, and also a variety of House committees.

This last group is in some ways the least powerful vehicle for scrutiny of executive government because the numbers in the House mean all the committees are dominated by the Executive.

More than other committees, the work of House committees can be determined by references from government ministers.

In the last Parliament, there were rumblings about the extent to which a ministry was “knocking off”, or failing to allow, committees to conduct inquiries they thought relevant.

But in the past few months, we seem to have reached a new low in the way the Executive treats the Parliament via its committees.

Three different inquiries have been announced in recent weeks that have raised eyebrows among Parliament watchers and the hackles of the Labor Party.

The reason is that all three inquiries appear to be blatant exercises in establishing platforms for beating up state Labor governments, and particularly the Carr Government in NSW.

On June 20, for example, Tony Abbott asked the House Standing Committee on Employment and Workplace Relations to “inquire into and report on matters … relevant and incidental to Australian workers’ compensation schemes”, but only “in respect of” fraudulent claims and “factors that lead to different safety records and claims profiles from industry to industry”.

Perhaps more outrageously, in May the Justice Minister, Chris Ellison, asked the Legal and Constitutional Affairs Committee to “inquire into the extent and impact and fear of crime within the Australian community”.

Now, law, order and crime are one of those defining issues that separate state election politics from federal election politics. Community crime is not conspicuously a concern of the Commonwealth.

The original terms of reference from Ellison did not even make any reference to a Commonwealth interest in the issue.

That has been changed the terms of reference now talk of “effective measures for the Commonwealth in countering and preventing crime” but only after a heated committee meeting.

Labor committee member and former justice minister Duncan Kerr was so outraged by the turn of events that he led a walk-out of Labor members of the committee, with some rather choice words for committee chair Bronwyn Bishop.

Finally, the House economics committee has been asked to take on an exceptionally loaded brief from Regional Services Minister Wilson Tuckey about cost-shifting by state governments onto local governments.

While Labor bitching about a bit of politicking would hardly be unexpected, it is relatively unusual on at least two of these committees the economics and legal affairs committees.

After all, it was the legal and constitutional committee that handed down the well-regarded but contentious report on stem cell research.

As one long-serving committee observed: “Despite the committee obviously being polarised six-four on a very emotional issue, we managed to work co-operatively together and in a bipartisan way [on stem cells].”

Economics Committee deputy chair Anna Burke observed on Friday: “Of all the issues our committee could be looking at at the moment public indemnity, the role of the Australian Prudential Regulation Authority and HIH instead we are being given these terms of reference [on local government].”

The current trend is “just tragic”, she says, pitting executive government against the Parliament.

And it is not just the new terms of reference that are disheartening but the failure of the Executive to take note of the committees’ advice.

For example, she says, the economics committee spent a lot of time working co-operatively during the last Parliament to produce a report on rural banking which the Government has all but ignored.

“Guess what?” she says. “Now, the Senate is doing an inquiry.”

The issue that government backbenchers as well as businesses that might otherwise contribute to such inquiries in future have to consider is whether such blatant abuses of the committee process are robbing them all of a say in public policy.

July 10, 2002Democrats’ hard line on Telstra frays
Laura Tingle, Political Correspondent
More signs of a possible change in the Democrats’ position on Telstra emerged yesterday, with the party’s deputy leader confirming the need to debate the carrier’s possible sale.Clearly buoyed by the disunity in the Democrats, Prime Minister John Howard told reporters in Rome that the sale of the Government’s 50.1 per cent of Telstra was moving closer because regional phone services were improving.National Party leader John Anderson acknowledged softening resistance in the party to a further sale.Speaking of the Democrats’ brawling over comments made by former leader Meg Lees on Telstra, and the resulting party disciplinary action against her, Aden Ridgeway said there were not only party issues but issues of policy to be resolved.”At the moment, we seem to be focusing in on looking at individual differences between two personalities rather than recognising that there is a need to debate issues, particularly in terms of Telstra and the possible sale in the future,” he said.

“We haven’t done that. We’ve taken a very closed-door approach to not even entertaining the possibility, and any statements outside that are seen as being in contravention of existing party policy”.

His comments on ABC Radio appeared to defy the assertions of his leader, Natasha Stott Despoja, that the sale of Telstra was not open for debate, and fuelled expectations that the Democrats may eventually split, or modify their position on Telstra.

Senator Lees and Senator Ridgeway have spoken out amid increasing signs that the Government may push ahead with the sale, as National Party objections subside, and with the support of at least two members of the cross benches.

There are clear concerns that with Newspoll this week showing support for the Democrats slumping to just 3 per cent in the past couple of weeks, the debate about how the proceeds of the Telstra sale are spent will pass the party by.

Senator Lees said on Monday that while she had never voted against party policy, “we have to acknowledge the way the numbers are building up … that there are other people out there now saying we think it is time to sell because we could use this money for the environment”.

The Queensland Democrats senator John Cherry said yesterday he would stick to the pledge signed at the last election that he would not support the further sale of Telstra.

While acknowledging the need for a debate on Telstra, Senator Ridgeway did criticise Senator Lees for reopening the Telstra debate yesterday, saying it represented “poor political judgement at the very least”, and that it had been “a foolish thing
to say”. But he later observed to AAP: “I think any party that decides to lay their policies in concrete would have to be fools.”

Senator Stott Despoja blamed the Lees dispute for the decline in the party’s support. “I think today’s polls tell us something that the electorate and I already know and that is that disunity is death and I think some of my colleagues will be very concerned about that,” she told ABC Radio.

July 8, 2002Heffernan returns from the wilderness
Capital moves
Laura Tingle
It seems somehow appropriate that the job of dealing with a huge political stink from a multi-million dollar pile of carcasses should go to someone who, until recent weeks, was regarded as a political carcass himself.Bill Heffernan, the John Howard confidant whose political career seemed over after he made false allegations against High Court Judge Michael Kirby in March, is being rehabilitated.He has been given the job of sorting out the political mess involving just who gets access to Australia’s $2 billion slice of the US beef quota.Normally you’d think this would be a job for Agriculture Minister Warren Truss and the National Party.But as this issue has snowballed out of control for the Coalition, it has been effectively handed to Heffernan, who was dropped in as chair of the government-controlled Senate Rural and Regional Affairs Committee last month.

Last week, Heffernan wrote to Truss wanting to know on behalf of the committee, of course how a committee-brokered deal last month to split the precious quota between traditional exporters to the US and regional abattoirs suffering a downturn in their traditional Japanese market, was apparently being undermined.

It was a bit politer than that. But the Heffernan committee’s plan, announced late last month, to reallocate 30,000 tonnes of the beef quota, valued at about $24 million, from eight large meat processors to hard-hit regional abattoirs has run into some practical difficulties.

These are that the 30,000 tonnes was supposed to apply from July 15, but it transpires that meat already on the way to the US is chewing up quota, effectively backdating the scheme to May 15, and reducing the available relief quota to an estimated 23,000 tonnes.

The committee sought the minister’s “urgent advice” on the matter though it had not heard from him by late Friday.

The players in this particular skirmish are not lightly ignored. Two of the biggest processors, sore at having some of their quota given away, are Australian Meat Holdings (46 per cent-owned by the massive US meat packer ConAgra and 54 per cent-owned by a group of US investors led by management buyout company Hicks, Muse, Tate & Furst and Booth Creek Management Corp) and Kerry Packer’s Consolidated Meat Group.

Normally, despite the best will in the world on Truss’s part, there would be little that could be done about the erosion of the 30,000 tonnes quota by the beef already on its way to the US.

Heffernan, however, is a pragmatist and a fixer, and is not known for being easily thwarted.

As a result, there were signs last week that he was pushing an intriguing solution to the problem.

Armed with the fact that one of the big exporters now being squeezed AMH is in fact wholly owned by American interests, there are now moves to push the Bush Administration to raid its own contingency quota to help alleviate Australia’s increasing political problem with the issue.

The argument: one of its own companies would be a beneficiary of some assistance being provided.

Apart from the red-hot political incentive of dealing with a ropeable and desperate beef sector, the Government also needs a quick fix to this problem because of the threat that a disgruntled exporter could still take it to the Federal Court to have the regulated quota system thrown out.

The result would be open slather as producers raced for market, and an even greater slump in prices.

And whatever short-term deal Heffernan achieves, it will only keep things under control until the end of the year when a new quota year begins and the Government and the Senate have to find a system for the future.

But if Heffernan manages to pull off a settlement that would go some way to appeasing both the big American exporters and the regional abattoirs, it would also put his career back on a more solid footing.

In the meantime, his role on the Senate committee should be watched with interest.

Apart from the rural and regional brief, his committee oversees transport matters.

The sort of contentious issues it has been looking at include an inquiry into the administration of the Civil Aviation Safety Authority and the role of Australia’s search and rescue agency in the bungled hunt for a fishing boat that disappeared off the northern Tasmanian coast with the loss of three lives.

It is a powerful platform and one which, somewhat the wiser, Heffernan is likely to use to pursue his regional interests.

July 5, 2002Evans: I lied about affair with Kernot
Laura Tingle and Tony Walker with Bill Pheasant
Former foreign minister Gareth Evans last night admitted lying to Federal Parliament about an affair with former Democrats leader Cheryl Kernot and expressed regret for the hurt it had caused his family.In a short statement, Mr Evans said it was to “protect my marriage that I said what I did in Parliament” and that he would make no further comment.The Opposition Leader, Simon Crean, later welcomed the statement by his former Labor colleague, saying the matter was now closed.Labor Party figures said last night they hoped the issue would subside and further fallout would be contained.But some party members said they felt that Mr Crean had gone further than was necessary in earlier demanding a full explanation from the pair when the affair was first reported on Wednesday.

“I welcome Gareth’s statement. As far as I am concerned the matter is now closed,” Mr Crean said in a statement through his press secretary from London.

In his statement, Mr Evans said enough damage had been done and that “there were lives to try and rebuild”.

His comments came at the end of a day of robust debate about whether Mr Evans and Ms Kernot had any responsibility to explain their personal lives, in the light of revelations on the Nine Network that Mr Evans had misled Parliament over the affair in

Most in the Labor Party expressed deep concern that private affairs had been dragged into the national spotlight, and that Mr Evans might have misled Parliament about his relationship with Ms Kernot.

The Prime Minister, John Howard, flatly refused to discuss the issue, saying he had “no comment to make on it of any description”.

Last night, in a further development, the Nine Network’s Laurie Oakes revealed that he had an email from Ms Kernot to Mr Evans in which the former Democrats leader said she had counselled him not to lie to Parliament about their affair.

According to Mr Oakes, the email was sent in June 2000 and said: “As you well recall, I counselled you against that lie. I said for someone who had been attorney-general and had constructed a public persona out of not lying, it was the wrong thing to do.”

Key figures involved in organising Ms Kernot’s defection from the Democrats in 1997, John Faulkner and former ALP national secretary Gary Gray, would not comment on the affair.

Former opposition leader Kim Beazley is out of the country and was not contactable.

The Democrats leader, Natasha Stott Despoja, said it was none of her business, and none of the media’s business.

Opposition frontbencher Lindsay Tanner said: “Both parties are no longer members of Parliament and the issues are of historical significance only.

“It is about time that the media started dealing with serious issues and stopped treating federal politics as if it were world championship wrestling and Days of our Lives.”

“The Australian people want their representatives to focus on solving problems, not conducting inquiries into whether former MPs have misled Parliament”.

The Opposition spokeswoman on the status of women, Carmen Lawrence, said: “This is not something the public is entitled to have an interest in.”

On the question of Ms Kernot’s “omission” of reference to the alleged affair, Dr Lawrence said “she believes she explained her reasons for making the move [from the Democrats].

“The media frenzy is disproportionate.

“The issue plays to the salacious interest in people’s private lives and its treatment in this case is, in my view, totally unworthy of political journalists.

Some of the staunchest support for Ms Kernot came from her former colleagues in the Democrats.

“I think it’s unbelievably offensive to suggest that her major motivating factor was something to do with an alleged relationship she may or may not have been having,” a senator, Andrew Bartlett, told the Nine Network.

But while Labor figures were split about whether or not the public was entitled to know more, the former Victorian Premier and prominent Labor figure Joan Kirner told Melbourne radio 3AW she “did know in the last 12 months or so” about the relationship. She also said she had warned Ms Kernot about the risks of opening her life up to public scrutiny if she published a book.

The Victorian Premier, Steve Bracks, refused to comment on the controversy, but his predecessor, Jeff Kennett, observed: “There is no doubt that Australia is still motivated terribly much by personality and the things that cause the chatter.

“If you could have as much discussion about the importance of research that we are getting at the moment into the supposed relationship between Cheryl Kernot and Biggles, this country would be so much better off.

“But we don’t. One of the great joys about being out of politics is that it reinforces just how important the big picture is, and how we waste so much time on the little.”


“I deeply regret all the hurt that my actions have caused, above all to my own family. It was precisely to try to avoid that, and protect my marriage, that I said what I did in Parliament. No larger public interest was involved.”

Gareth Evans

“The major concern here is that we are discriminating against a woman politician … we’re dredging up something that we wouldn’t be dredging up if it was a male politician in the same position.”

Women’s Electoral Lobby national chair Sandy Killick

“It’s none of my business and it’s none of yours.”

Democrats leader Natasha Stott Despoja

“It is about time that the media started dealing with serious issues and stopped treating federal politics as if it were world championship wrestling and Days of our Lives.”

Labor frontbencher Lindsay Tanner

“To suggest somehow that this is a primary reason why she left the Democrats and went to Labor, I think is extraordinarily offensive and again I’m just flabbergasted”

Democrats Senator Andrew Bartlett

“I wrestled with this and worried about it and I’m still worried about it obviously.”

Nine Network reporter Laurie Oakes

July 1, 2002Two years on, Costello claims GST success
Laura Tingle, Political correspondent
The Treasurer, Peter Costello, has warned there is no room for new directions in tax reform until reforms of the complex international tax and superannuation agendas are bedded down.But he has not ruled out pushing for more change in income tax rates and the thresholds at which they cut in.Speaking on the eve of the second anniversary of the new tax system, Mr Costello lauded the smooth transition to the radically different regime and the economic performance that has accompanied it.He dismissed criticisms that, two years on, some industries were still waiting for GST rulings from the Australian Taxation Office and that transition costs for business had been much higher than forecast.The Taxation Commissioner, Michael Carmody, backed Mr Costello’s comments yesterday, saying there had been a great effort by everyone in the business community to get the new tax system up and running.

“Business has done a hell of a good job,” he said.

Mr Costello emphasised that he would still like to see lower tax rates and had already pushed once for a higher threshold of $75,000 for the current personal income rate of 47¢ but had been defeated by the Senate.

However, in an interview with The Australian Financial Review, he said: “Our focus at the moment, and what we are working on at the moment, is international tax and superannuation, and before we decide to embark on anything else we will try to bring
these to successful conclusions.”

Mr Costello is still expecting Treasury to deliver its discussion paper on international tax within the next couple of months with a view to moving ahead on reforms by the end of the year.

Asked what advice he was receiving from Treasury and the Australian Taxation Office about whether the $3.6 billion forecast dividend from greater compliance flowing from the new tax system as a whole was likely to be met, he said: “I think it has. We built in a dividend from compliance into revenue numbers and all the indications are that we’ve met [it].

“When the tax argument was going on, I think there were wild allegations being made each way. One was that it would throw the economy into reverse, collections would collapse. The other was we’d have a huge revenue windfall of dimensions unseen before.

“I think the truth was in between in that we picked up a bit more. I think we picked up about $3.6billion over three years.

“What they’re telling me is, that looks about right and the thing that actually amazed me in relation to GST collections was that in the first year they came in nearly bang as we forecast them.”

Mr Costello played down criticisms of the transition costs and problems with getting rulings associated with the new tax system.

“Look … there will be rulings on tax until the end of time,” he said.

“The Tax Office is giving rulings today on income tax. You know when income tax came in? 1936 … People will always seek rulings. This will occur until the end of time. I’m not aware of an area in the substantive economy which is being hampered by a lack of rulings [on GST] at the moment.

“It might be for new products or new industries or new transactions, but in the overwhelming proportion of the Australian economy, I think we’ve bedded this down.

“You know where I get more complaints about rulings? I get more complaints about rulings, frankly, in the income tax area, from business … how tax [is] going to apply to [an] infrastructure program …

“I get much more complaint in that area, an area that was unchanged by tax reform on July 1 [2000].”
He said he had seen a study by the University of NSW showing costs at twice those forecast, “but didn’t find it at all convincing”.

“You know what’s the truth here? The truth is we swapped to a new tax system two years ago. Our economy is growing at 4 per cent, our inflation rate is at 2 per cent. We’ve survived the US recession, and corporate profitability is as high as it’s been.

“I think the conclusion is that the transition is probably better than anyone expected.

“… In fact, name for me one of the allegations our political opponents made and they’ve made thousands of them that actually came about. It was going to lead to recession. It was going to lead to inflation surge. It was going to lead to a wages and prices spiral. It was going to lead to mass unemployment.

“The evidence two years on is that we’ve moved through the transitional phase. Our economy is as strong as it’s ever been. By international standards, the transition was as good as anybody’s and the proof is now in the pudding. Who is now calling for a repeal of any of our measures? Incidentally, not even the Labor Party.”

July 1, 2002Cash flood puts island at risk
Laura Tingle
Deep divisions have opened up in Christmas Island’s tiny community. Laura Tingle reports.When the Federal Government announced with much gusto last June a $100million commitment to an Australian spaceport on Christmas Island, it would have been laughable to think the flood of development it would unleash on the tiny island might become an exercise in double jeopardy for the local economy.Since then, the island’s role in the asylum seekers crisis has seen the flood of government money due to pour into its infrastructure in the next 12 to 18 months swell to almost $300million making it one of the Government’s most significant capital commitments.Yet the lavishing of such massive amounts of money on a population of about 1,500 has instead caused deep divisions in the community and poses a threat to the one viable long-term industry on the island: phosphate mining.In its unseemly rush to build a permanent detention centre, infrastructure for a spaceport, new roads, a new port and a vastly expanded airport runway, the Government has also broken almost every rule in the book, ignoring all the red tape, that would apply to any private-sector business seeking to undertake such huge projects.

All of this might not matter if there were more certainty about the long-term use of any of the projects involved.

Just consider this. The detention centre is supposed to eventually house 1,200 detained asylum seekers, yet the Government is claiming its deterrence policies are so successful that illegal boat arrivals have slowed to a trickle.

Former bathroom tiler David Kwon has to date confounded industry sceptics by the progress he has made in seeing his Asia Pacific Space Centre (APSC) move ahead.

Yet it remains the case that the space-launch industry, by all accounts, is massively oversupplied and, in every other case, hugely subsidised by governments supporting well-established aerospace industries. Also, the APSC’s contracts with Russian suppliers are for largely untested rocket launchers.

Both projects are being supported by a rush of infrastructure building financed by taxpayers under time pressure from both the APSC which says its unidentified major client wants to be able to launch a rocket in early 2004 and the looming asylum seeker “season” at the end of the year.

The only problem is that the two projects and an extension to the island’s airstrip, which will give it the capacity to take Boeing 747-400s and the giant Russian Antonov 124-100 freighter aircraft (to bring in the aeronautical equipment and satellites), will deprive the island’s main industry, and its main employer, Christmas Island Phosphates, of 90 per cent of its potential mining area.

The company is fuming.

Its representatives gave an ear-bashing to the Parliamentary Standing Committee on Public Works when it visited the island to examine the airport extension two weeks ago.

“I point out that the Commonwealth seems happy to seek all sorts of exemptions for itself in terms of the slope of the airport, the run-off grades at the end, air-safety factors and fuel factors,” CIP’s Michael Huston told the committee.

“… Every safety limit is going to be exceeded by virtue of exemptions having been granted, mostly by CASA [the Civil Aviation Safety Authority].”

And this is just for perhaps the least contentious project the airport which also has no fire-fighting facilities, meaning that many airlines refuse to land there, and none has yet been proposed despite the greatly expanded, and more dangerous, role the airport will play in the future.

Already, the Government has waived its own environmental guidelines to build the new detention centre though insisting it will meet the highest environmental standards, of course despite the fact that the centre is surrounded by national park and colonies of at least two endangered bird species.

(By comparison, the spaceport developers had to meet 65 different specific environmental safeguards for the site).

In March, the Government announced that not even the Parliament could scrutinise the bulk of the proposed capital spending claiming an extremely rare exemption from the Public Works Committee’s scrutiny for all but the airport work on the grounds that construction was being fast-tracked to ensure completion before the next wet season.

Legislation requires all work worth more than $6million to be examined by the committee.

No wonder CIP is seriously underwhelmed at being left to plead that at least the Government should try to stagger the developments to give the company access to some of its resources before the new projects are further developed.

“… the Commonwealth is always in a mad rush to do things because there is no overall land strategy for the island,” Huston told the committee.

“The national park was implemented poorly in the first place and scientific consideration was not given to the boundaries,” he says.

“Instead of using your own land, you come and take our land. There is not proper consultation about it. And you propose that that is a way to deal with the major existing enterprise on the island which, even with the APSC, will continue to be the major economic contributor on the island to the island.”

Of course, you can almost predict the solution to this dilemma now being considered by our can-do Government, can’t you?

Yes, that’s right. It’s about time to redraw the boundaries of the national park to appease the phosphate miners.

If only the private sector could have it so easy.

June 24, 2002Defence’s $10bn pragmatic deal
Laura Tingle, Political correspondent
It’s been a while since anyone accused the Federal Government of being too ideologically zealous about the way it runs the country.For business, the extent to which the mighty principles of private sector efficiency and best practice have fallen by the electorally pragmatic wayside will be well demonstrated when the winner of the biggest contract let by the Government since it came to office is announced in August.The Defence Integrated Distribution System (DIDS) contract has been sitting around in the logistics sector’s in-tray since 1999.The spoils look magnificent: a contract worth over $1 billion a year for 10 years to take over one of the biggest logistics businesses in the country, essentially becoming quartermaster for the Australian Defence Force.While staying clear of war zones, it would mean taking over a supply and distribution operation involving about 16 warehouses and distribution centres, 26 sites, 228 buildings, maintenance sites and 1,400 staff.

Whoever wins the prize will have worked harder than they probably ever expected (or wanted) to get it.

The history of the tender provides an interesting lesson in the business experience of the Howard Government since its near-death experience early in 2001.

When DIDS was originally put out to tender in November 1999, the expectation was that the outsourcing would produce savings of about 30 per cent on costs that is, about $300 million a year.

To put that in perspective, that’s slightly more than the Government hoped to save from its changes to the Pharmaceutical Benefits Scheme co-payment which were rejected by the Senate last week.

Six groups put in tenders for the massive contract in March 2000. They were: ADI Ltd and Linfox Transport Pty Ltd; TenixToll Defence Logistics; Transfield Pty Ltd and TNT Australia Pty Ltd; BAE Systems, Honeywell and Caterpillar Logistic Services; Mayne Nickless Ltd and Serco Australia Pty Ltd; and a Defence in-house bid.

The bids then sat around for (a completely disgraceful) 15 months without being addressed by Federal Cabinet, even though a Defence evaluation of the tender was complete and a recommendation had been made to the Government.

What happened in the meantime, of course, was all about politics.

The Defence network is built on a system distributed in all sorts of strange nooks and crannies around the country, which only cynics would say were a reflection of accumulated pork-barrelling over the years.

About the time the Government was feeling the heat from petrol and a housing-industry slump, it also started to feel the heat from backbenchers lobbying hard about the potential loss of jobs and facilities in their electorates across the country as a
result of the DIDS outsourcing.

The result was that on July 9 last year, the former defence minister, Peter Reith, announced the dumping of the first tender round and the start of a new one.

Bidders from the first round would be asked to resubmit bids based on requirements that they maintain jobs in a number of Defence sites in sensitive marginal electorates.

Officially, this was because the original request for tender did not provide “sufficient opportunity to allow tenderers to offer innovative solutions in accordance with commercial best practice, nor did it sufficiently recognise the importance of maintaining jobs in regional and rural Australia”.

To ease the pain of all the hard work down the drain, the Government offered the six bidders up to $1 million per consortium for “costs associated with the second tender”.

Labor has two obvious political interests in the tender process, one involving the ubiquitous Mr Reith, the other the more grassroots issue of jobs.

Labor’s defence spokesman, Chris Evans, was chasing both in the Senate last week. The first issue involved the $1million offered to Reith’s current employer, the second what happens to the 1,400 distribution-system jobs.

On jobs, Labor points out that, as a result of the tender redesign, 355 of the 1,400 jobs are to be protected, and that these jobs just happen to be in Coalition-held seats.

There are no protections for jobs in Western Australia, the Northern Territory, South Australia or Tasmania.

The broader point though, is that in the original tender, Defence specified that 11 sites had to be “mandated” that is, maintained.

The new tender reduced the mandate requirement to just one site: Moorebank in Sydney.

Increasing the flexibility of tenderers to close sites around the country was the trade-off offered for making them maintain sites that Defence clearly knows it could otherwise rationalise out in RARA (rural and regional Australia) land.

You didn’t have to talk to the people trying to put bids together earlier this year, who are still trying to deliver savings while maintaining inefficient structures, to realise how ludicrous this exercise has become.

The irony is that, in the twitchy post-September 11 world, the rumour is Defence is pushing for the in-house bid to succeed on security grounds.

June 20, 2002Howard sets election trap for Senate
Laura Tingle and Aaron Patrick
The Federal Government yesterday moved to create a trigger for a double-dissolution election as the Cabinet last night appeared to resolve the long-running internal conflict over the International Criminal Court.In bringing forward new legislation to extend the border exclusion zone and setting the scene for an election, the Government aims to increase pressure on the ALP over border protection an issue over which Labor lacks community support.This coincides with a worsening stalemate in the Senate over a refusal by the Opposition parties to pass some of the Government’s budgetary measures.Agreement in a special Cabinet meeting last night to ratify the ICC follows a bruising two-week battle within the Liberal and National parties.A senior Cabinet minister told The Australian Financial Review that last night’s discussion had been “good-spirited”, but government sources warned that the “process was not over because we’ve still got to deal with the party room”.

The border protection legislation, which could give the Government the option of an early election by next year, came after the Upper House rejected the Government’s regulations excluding about 3,000 islands from the migration zone.

The almost-certain Senate rejection of the new legislation, to be introduced into Federal Parliament today, would allow the Government to portray Labor as soft on unauthorised arrivals.

The development comes just 24 hours after the Treasurer, Peter Costello, left open the possibility of making the Senate’s rejection of proposed increases in the pharmaceutical benefits scheme co-payments a trigger for dissolving both Houses of Parliament.

Debate on the PBS measure, which was announced in the Budget, began in the Senate yesterday but had not finished when the chamber rose last night.

The Cabinet talks on the ICC lasted about an hour and are said to have focused partly on ways in which opponents of ratification in the Coalition could be persuaded that there were sufficient safeguards for Australian sovereignty.

The Prime Minister, John Howard, had undertaken to report to the joint party room next week following discussions with the Cabinet and the outer ministry.

The migration zone bill would entrench in legislation the Government’s plan to deny access to Australian courts to asylum seekers landing on a sweep of islands in the Northern Territory, Western Australia and Queensland.

The bill is expected to pass through the House of Representatives early next week and be sent to the Senate, where it faces defeat.

“We intend to give the Opposition an opportunity to make it clear that they are sabotaging the border protection measures,” Immigration Minister Philip Ruddock told Parliament.

Opposition parties were dismissive of double-dissolution threats yesterday. Opposition Leader Simon Crean said: “If the Treasurer thinks the solution is a double dissolution, bring it on, make my day.”

Australian Greens senator Bob Brown said the Government’s decision to legislate to excise the islands from the migration zone was “purely political and, like the regulations, it will fail in the Senate”.

“It looks like a double-dissolution trigger to give Mr Howard second spot on the Liberals’ hierarchy of election-winning prime ministers and to keep Mr Costello at bay,” he said.

“Labor should hold its nerve. This is poor policy, in response to a legendary boat sailing somewhere north of Java, based on poor information. This is wedge politics at its most base.”

Opposition parties were joined by Tasmanian Independent senator Shayne Murphy in voting against the regulations, while Queensland One Nation senator Len Harris sided with the Government.

The migration-zone changes, which have been voided as of midnight on Tuesday, were introduced after the Government received reports that a boat of asylum seekers was heading through Indonesia waters for the South Pacific, possibly New Zealand.

Mr Ruddock told ABC radio yesterday that the boat “could be hitting the Torres Strait tonight” and that the publicity surrounding Labor’s rejection of the regulations would encourage the people smugglers.

Labor Senate Leader John Faulkner said his party supported strong border protection but shrinking borders was not strengthening border control.

“If excision is the Government’s only solution to the problem of border protection, what are they going to next try?” he said.

June 18, 2002Senate’s $1.4bn threat to Budget
Laura Tingle, Political correspondent
The Federal Government has been forced to delay plans to push through its controversial changes to disability pensions after the opposition parties in the Senate yesterday confirmed they would reject the changes.The Minister for Community Services, Amanda Vanstone, said last night the changes would be deferred while the Government attempted to negotiate a compromise.Earlier yesterday, the Government was facing a $1.4 billion hole in its Budget, with Labor and the Democrats confirming they would reject its major cost-saving measures to disability pensions and subsidised medicine when they were introduced to the Senate, due to begin today.Despite recent signals that it would soften its changes to the disability support pension worth $336 million over four years the Government was set to start Senate debate without offering a compromise to the other parties.Both the Democrats and Labor said they would vote down the proposal immediately during the second reading debate and ruled out negotiating changes by sending the legislation to a Senate committee.

Both parties said the measure which would force welfare recipients off the DSP unless they could prove they could not work at least 15 hours a week simply did not deserve support because of the Government’s failure to consult community groups about
the changes.

More expensive changes to the Pharmaceutical Benefits Scheme – worth more than $1 billion over four years – are due to be debated in the Senate tomorrow and face even less chance of success.

The Government is under pressure to win senate passage because this is the last fortnight of scheduled parliamentary sittings before the measures are due to be introduced in August.

However, the blocking of both moves would cut about $300 million from this year’s Budget bottom line, and have more profound effects over the four years of the forward estimate period.

The Budget had forecast an underlying cash surplus this year of $2.1 billion.

Proposed changes to the Government’s superannuation tax surcharge are also likely to be challenged in the Senate in the next two days.

The Government greeted the confirmation that the Democrats and Labor would block the PBS changes defiantly, with the Health Minister, Kay Patterson, saying it would be “irresponsible for the Federal Government to sit back and not tackle the unsustainable growth in the Pharmaceutical Benefits Scheme”.

The changes were aimed at increasing patient co-payments for prescriptions from August 1 to $4.60 per script for concessional payments and $28.60 per script for general patients.

Reports from Washington during the Prime Minister’s visit last week had suggested Mr Howard was prepared to enter negotiations with the Democrats on his return.

But with Mr Howard back in Canberra yesterday, there was no word from the Government to the Democrats leader, Natasha Stott-Despoja. She reaffirmed her opposition to the Government’s proposals and outlined alternative Budget savings in a letter to the Treasurer, Peter Costello.

Senator Stott Despoja is proposing alternatives that include changes to the private health insurance rebate (which the Democrats say could reap savings of between $440 million and $1.1 billion); introducing the taxation of trusts as companies ($450 million); stemming tax avoidance from employee share schemes ($600 million); ending rorting of mutuality provisions ($200 million); and capping government advertising ($100 million).

The letter followed a Democrats party-room meeting yesterday that reaffirmed opposition to the proposed increase in the co-payment for the PBS, and to cuts to the disability support pension.

“The Senate is to vote on the disability support pension measures [today] and the PBS [tomorrow], yet we have not heard a convincing argument from the Government as to why we should support these moves,” Senator Stott Despoja said in a statement. “If the Prime Minister wishes to put his case, he has left his running very late.

“There are plenty of funding options for this Budget, but we will not support measures that hit the poor, sick and elderly.”

The Government, however, claimed that, contrary to Senator Stott Despoja’s assertions, the Family and Community Services Minister, Senator Vanstone, had been meeting Democrats health spokeswoman Lyn Allison at the same time to outline the Government’s proposed changes to its measures.

But a spokeswoman for Senator Stott Despoja insisted the party leader was the only one with the authority to negotiate any changes and insisted that the Government had still not produced any changes that addressed the party’s central concerns.

Earlier in the day, Mr Howard had signalled that the Government was “looking at some options” on the disability pension options flagged by Senator Vanstone the day after the Budget and said he would be “quite happy to talk to the Democrats about

“I mean they often say no at the beginning and then it, you know, blends away into an intelligent compromise and I hope that proves to be the case,” he told ABC radio.

Sydney Morning Herald

April 27, 2002

Seeing is believing

Australian TV policy has mainly been about making rich media moguls richer. But at last, Laura Tingle writes, the viewer might get a look in.FEDERAL cabinet is once again about to do battle on media policy and this time it could turn out that consumers rather than Australia’s powerful media interests will be the winners. At issue is a humiliating backflip by the Government on digital television and the prospect of new television licences, a terrifying thought for the present free-to-air TV networks.More by accident than design, consumers stand to gain cheaper access to digital television and potentially access to more content on existing free-to-air television.As the Herald has reported this week, the Communications Minister, Senator Richard Alston, has taken a submission to federal cabinet to replace its 1998 high definition digital television (HDTV) strategy with one that gives consumers access to multiple stations from the existing networks.

The 1998 approach intended to protect the then-new pay TV industry involved handing over control of a huge slab of digital spectrum (a highly valuable public asset) to the existing television networks. (That is like the government having handed over all the new FM radio licences to the existing AM stations when FM radio came in.)

The handover of digital spectrum was fiercely resisted at the time by the Prime Minister’s own department, as well as Treasury and the Department of Finance. The Department of Prime Minister and Cabinet (PM and C) told cabinet then: “While there are costs involved in converting to digital transmission and of simulcasting both analog and digital services for a limited time, PM and C does not consider that
they justify the free gift of an increasingly valuable public asset.

“The proposed approach would also restrict the consumer benefits available from a wider range and flexibility of services and could have significant budgetary implications through forgone revenue from the sale of spectrum.”

Needless to say, the department didn’t win that argument, the networks did. Consumers lost out, too. Trying to fix the ensuing mess might now offer some benefits to consumers, though just what remains unclear.

This is because sport the major force behind consumer take-up of both pay and digital TV would effectively be excluded from the deal.

But one benefit would be very clear. Under the 1998 HDTV model, we would all have been forced to pay for new equipment to watch the magic box (current cost about $12,000) when Australia switched completely from analog to digital television. Under the multiple-channel model being proposed, consumers could access the channels on offer for the cost of a set top box about $700 to $900, according to the latest issue of Choice magazine.

The question, of course, is whether those channels would be on offer.

The Nine and Ten networks think free-to-air multichannelling is a very bad idea, arguing it splits the market they can offer advertisers. The dark implication, of course, is that they won’t actually operate any multichannels even if they are given them.

That is until the first one breaks ranks. And that’s likely to be the Seven Network which is more interested in a subscription, or pay, digital multichannel but would probably take what it could get. There would also be the prospect of extra ABC and SBS channels if they were funded adequately of regional and foreign news or education and history.

While the vested interests in television don’t like multichannelling, what worries them even more is the now-documented division within the Cabinet about an extra television licence.

This issue had been put on the backburner with the decision to place a moratorium on new licences until the end of 2006, supposedly to compensate the existing networks for the cost of investment in digital technology.

There was, however, the prospect of new licences being granted for datacasting (more limited television services).

The datacasting option flopped last year as it became clear to those hoping to use it as a backdoor into a fuller television licence such as the Fairfax organisation, which publishes the Herald that the conditions on the licences did not make them

Alston’s submission argues the Government needs to reconsider whether current legislation allowing the Australian Broadcasting Authority to issue new television licences from 2007 “is appropriate” and calls for a review of the free-to-air sector before January 1, 2005.

His submission appears to discount even further the possibility of extra licences possibly as a sop to the big networks unhappy about multichannelling.

But Alston once again faces resistance. Prime Minister and Cabinet, Treasury and Finance and Administration are arguing the Government should bring forward a review of what happens to all broadcasting after the moratorium expires in 2007.

PM and C says that review should be “well before” the January 2005 date proposed by Senator Alston.

Nobody will be more interested in who wins this argument than News Ltd, which was the big loser from the 1998 decisions and is the best placed of the television wannabes to come into the field and be a dangerous competitor, given its ownership of a huge bank of material through its overseas film and televisions interests.

Taxpayers, though, will also have a big interest.

Having now abandoned the datacasting option, the economic departments like PM and C, and Treasury will be more than aware that there is now spectrum available for a new, digital television licence, which could be offered to the market at a substantial price.

With a looming black hole emerging in the Budget in the next couple of years, the prospect of selling a new television station licence offers a big dollar solution to the Government as well as a way of appeasing Rupert Murdoch.

April 15, 2002Bang goes the feelgood factor
The economy may be going “gangbusters” but voters will soon be feeling the heat from higher rates and probably a tough Budget.February 2001 was an interesting time in Australian politics and for the Australian economy.Liberal Party president Shane Stone was penning a now infamous memo to the Prime Minister, handed over on February 19, which warned that voters saw the Howard Government as “too tricky”, “mean”, “dysfunctional”, “out of touch” and “hurting its own”.Economically, February 2001 saw the Reserve Bank cut rates by 0.5 percentage points as the impact of the post-GST housing slump became clear; the biggest monthly fall in full-time jobs for nine years and sagging business confidence.

The Government was yet to cut fuel excise, double the First Home Owner Grant or discover that the economy had actually shrunk in the December quarter sparking fears of a recession as it would one month later, but let’s just say that things were not
going all that well.

What is the relevance of the events of February 2001 today?

Only churlish media bias could lead you to point out that the same Stone, who was describing his own party as “mean” and “out of touch” just 14 months ago, was on Friday night lambasting commentator Hugh Mackay (among others) for saying on February 24 last year (note the date) that the Government “now looks like losers” and that “there was a deepening sense of mistrust” of the Prime Minister.

That aside, Stone’s February 2001 comments captured better than any mere biased media hack the extent of voters’ summer of discontent 14 months ago that was, significantly, based on the same factors abroad right now. As the Prime Minister said last week, the economy is going “gangbusters”, and shows every sign of continuing to do so at a macroeconomic level.

But not all the news is good.

Those who must chart the Government’s political fortunes are keenly aware that, at the level of the average voter, the pain threshold is about to sharply rise.

Already, voters are experiencing the pain of higher petrol prices which became the lightning rod for political discontent at the time Stone was writing his memo last year.

In the next of couple of months, they’ll also be feeling the heat from higher interest rates and a likely tough Budget, which will hit hip-pocket prices like pharmaceuticals.

The markets debate whether interest rates will rise 0.25 percentage points or 0.5 points, and will it be next month or the one after.

But Reserve Bank governor Ian Macfarlane observed earlier this month that the shift in Australian household debt levels during the 1990s from well below world average to average means “you will get a bigger impact for a given change of interest rates than you did in the past”.

That is, people are going to hurt more when rates move. This is particularly the case when there are a lot of new property investors out there, drawn in by the First Home Owner Grant, and now facing rising vacancy rates.

This brings us to perhaps the greatest risk to voter contentment.

No-one would underestimate the “feelgood” factor that flows from the sort of surge in property prices we have seen around the country in the past 12 months, particularly in Sydney.

As Access Economics argued in its business outlook last week, real house prices ought to be falling, not rising by double digits as they did last year.

“When mortgage rates do turn up, it is hard to see how this won’t all end in tears,” Access observed.

And it won’t just be tears for a few overgeared property investors.

Housing finance figures on Friday also seemed to confirm that the long-awaited housing construction boom is now fading, and fading at a rate which seems to have alarmed the industry.

The same figures clearly showed the withdrawal of first home buyers from the market with their share falling from around 25 per cent to 20 per cent essentially for the first time since the First Home Owners Grant was introduced.

In other words, the dreadful day the Government avoided last year by extending the grant is nigh.

The double political bunger of property owners and the housing industry feeling distinctly uncomfortable will not make for an attractive political environment.

We’re not talking cataclysm here, but a couple of distinct reasons why the feelgood factor should be dissipating pretty fast in coming months.

Such a backdrop will also put pressure back on the Government’s economic credentials just as two of its most robust claims, a respectable Budget bottom line, and an improvement in Australia’s current account deficit are being squeezed.

Peter Costello and John Howard are more than aware of this.

The most interesting political economy story coming up is just how they will prepare voters, and Stone, for the news.

April 8, 2002Testing Canberra’s 2020 vision
Next month’s Federal Budget is the first which must project how its decisions will affect future generations.The May 14 Federal Budget may provide a unique new twist on that hoary old chestnut of “beer, cigs up”. The new twist could be “beer, cigs up … in 2020”.For this year’s Budget is to contain the first report on the inter-generational equity of budget measures.It is not yet known just how detailed will be this report required as part of what is laughingly still referred to these days as the Charter of Budget Honesty.

But Treasury is known to be working on producing the first version of what will become a regular feature of the Budget in future years.

And one can fantasise about how a truly independent inter-generational equity report might mark some of the past decisions this Government has taken.

The idea of an inter-generational equity report first floated in the National Commission of Audit’s report in 1996 is a good one:

Government must outline whether any particular policy initiative will involve costs to current or future generations of taxpayers.

With an aging population, this is going to be an increasingly touchy issue.

At the broadest level, inter-generational equity hits all the safe political buttons that Howard’s Coalition hit in 1996, such as the inequity of future generations being burdened with the debt bill arising from big budget deficits in the present.

But start narrowing the focus down a little and it immediately becomes politically hairy.

Consider the issues of infrastructure and asset sales as a starting point: how would any government assess the (negative) affect on future generations of the continuous rundown in economic infrastructure we have witnessed over the last 20 years as belt-tightening governments have declined to spend much on capital works?

A classic case in point would be the essentially policy-free zone that is the nation’s nursing home bed stock.

It was the same National Commission of Audit, you might remember, which triggered the initial explosive debate in 1996 about getting people to pay accommodation bonds to get into nursing homes.

The rationale behind the policy was completely sound: the deteriorating state of the nursing home bed stock was such that it needed a massive capital injection and users of those beds should pay part of that bill.

Needless to say, though, the politics stank: forcing little old ladies in frail condition to sell their homes often in a hurry to pay for a bed to die in.

Since that policy proposal, having been taken up by the new government then dropped, there has been a profound silence about what to do about a situation which, if anything, has only become worse in the intervening six years.

This illustrates why, if the report on inter-generational equity does not suffer the same sort of bastardisation that the Coalition has applied to the rest of its Charter of Budget Honesty, there should be a lot of grist to the policy mill flowing from it this year and for years to come.

Welfare and services issues are obvious sensitive ones but how would such a report deal with issues such as the equity of asset sales?

The argument has always been that using funds from asset sales to reduce debt was a measure that was equitable to future generations.

But that didn’t take into account the rather dunderheaded, ideologically blinkered approach the Government has pursued with many of its asset sales.

For example, what are the inter-generational equity implications of selling the Department of Foreign Affairs and Trade building to the private sector which has already upped the rent when the purpose-built building is likely to be occupied by the
department well beyond our lifetimes?

Surprisingly enough, some early work on inter-generational equity, by University of NSW academic John Ablett, showed a fairly benign picture of what we were leaving our children.

That work was based on a snapshot of things in 1990-91 hardly a rosy year for the economy or the budget.

His subsequent work, which expanded the analysis, however, was not so rosy: pointing to a “strongly negative” outcome for future generations if current consumption levels continued.

In making both sets of findings, Ablett pointed to the great difficulties in trying to make an accurate judgment of these equity issues.

Given that, it would be interesting to know how much the net position is assessed to have changed from that set out by Ablett after six years of Coalition Government.

Without a doubt, the Coalition has cut budget deficits and paid back debt.

But it has also spent itself stupid in more recent times and engaged in a lot of policy that doesn’t make much fiscal sense even to current taxpayers.

The one thing we can be certain of is the taxpayers of the future don’t even get to see the particular exercises in political expediency which they will be paying for in years to come.

April 4, 2002Giving to charity
With 40,000 Australian charities now enjoying tax-exempt status, Laura Tingle reports on the backlash from private-sector companies being hurt by new and unfair competition.IMAGINE the uproar if one of Australia’s major industries received $10 billion or so of taxpayer assistance each year and never had to account for a cent of it. The free-market lobby would be outraged, the welfare sector would be up in arms, the political opposition would be wanting a Senate inquiry, at least, and the government of the day would be talking about the need for reform.Yet that is what happens in Australia today and few people even blink, let alone call for change. Australia’s charitable, or “not for profit”, sector is bigger in monetary and employment terms than the Australian agricultural sector. A requirement that charities receive a new formal exemption from income tax when the new tax system was begun in 2000 revealed just how big a monster the charitable sector has become.There are 40,202 entities registered as tax-exempt charities and about 800 cultural bodies receive donations. There are the big hospitals and welfare agencies run by churches and humane groups, not to mention the RSPCA.

But even considering all the bodies that do anything vaguely altruistic from saying Mass to running multi-million-dollar hospitals, food and employment agency businesses, sporting and social clubs, to small religious sects and special purpose charities it is difficult to contemplate the range of organisations that is encompassed by the enormous number of entities registered as tax-exempt. And that is where the nub of the problem starts.

Nobody is saying that most charities don’t do a fine job. Few would begrudge them access to some form of government assistance in carrying out such noble work.

But for the billions of dollars that taxpayers pour into these various organisations there is little accountability of where the money goes. There is not even a list available of who has won the exemption.

Charities don’t even have to file income tax returns though they must have an Australian Business Number and the Tax Commissioner can demand that they open their books to him for inspection on demand. Yet many of those organisations get downright grumpy if asked to open their books the churches being notable examples.

Accountability and transparency in how such a large chunk of the taxpayer dollar is spent has become an even more pressing issue since the Howard Government dramatically changed the whole modus operandi of the really big charities by making them government service providers in areas like the Job Network, and signing contracts with them worth even more billions of dollars.

This is particularly true when this policy has expanded the number of industries now facing competition on a very uneven playing field from the charitable sector. The Seventh Day Adventist Church’s huge Sanitarium food business has always been the most conspicuous example of this.

But an ever-widening range of businesses are now finding themselves competing against groups with tax-exempt status, particularly in agriculture (see accompanying story).

Last year’s review of the legal definitions of charities established at the insistence of the Australian Democrats during the heated debate about whether charities should have to pay GST put the cost of tax breaks for charities on donations and FBT alone at close to $1 billion a year.

This doesn’t cover the income tax exemption they all get which, since the sector is now worth around $25 billion a year, represents foregone tax for which there is no official public estimate of about $9 billion a year.

The two issues which exercise those who want a change are the equity of the sector’s business operations getting tax breaks not just the charitable institutions and, again, the lack of accountability for charitable groups.

The charities definitions inquiry effectively flick-passed this issue last year, arguing that it was one for tax policy and outside its terms of reference.

It did however point to an earlier Productivity Commission report in 1995 which was dismissive of the competitive advantages attached to charities’ tax-exempt status.

Critics say the commission’s logic was just too purely theoretical in its presumptions of market behaviour and, to be correct, relied too heavily on the presumption that charities would plough all the profits and proceeds of their business operations back into their charitable causes.

The commission’s argument, in layman’s terms, could be put this way: there is little difference between giving a group of businesses tax-exempt status and simply allowing a business to receive a 100 per cent tax deduction from its subsidiary businesses.

Others disagree, saying group structures simply do not give the public acceptable levels of accountability on whether funds earned in business operations are being put to charitable use or not.

For example, Access Economics’ Geoff Carmody says: “In the interests of budget honesty and transparency, taxpayers are entitled to know who is entitled to tax concessions under both Commonwealth and state legislation.

“They are also entitled to be assured that all profits from related businesses which receive such concessions are fully allocated to the underlying charitable and religious activities rather than being ploughed back into business expansion.”

The issue is not contentious in just Australia. New Zealand, Canada and Britain have all been struggling with the issue of trying to better define and contain just what is charitable work. Britain, Canada and the United States now all largely require the separation of business operations.

But Australia and New Zealand appear to be unique in the latitude they have given the sector to date.

Australian Democrats Senator John Cherry agrees that one way of making charities at least more transparent would be to remove the tax exemption from the business operations.

That is, turn the argument on its head and say, “You can achieve the same result simply by getting a tax exemption on income tax paid to your charitable head office”.

Needless to say, the political interest in taking such a radical approach to such a powerful lobby is not high on the agenda of either major political party. Indeed, it took some weeks for the Herald to even get answers to questions on the issue from the office of the Revenue Minister, Senator Helen Coonan.

But Cherry believes there is nonetheless pressure to change at the administrative level. He points to the Tax Office submission to the definitions inquiry: “It is our view that the current system of tax concessions provides an unnecessary layer of administrative cost and complexity, and lacks transparency. We would accordingly favour a single targeted, transparent and accountable program of direct outlays.”

That is, get rid of the tax concessions altogether and pay an equivalent in direct grants to charities.

The prospect of this happening in the short term remains something for the dreams of the Tax Commissioner, Michael Carmody, (or nightmares, given the ATO’s gloomy description of the headaches caused by the multiplicity of exemptions and activities that currently occurs in the charitable sector).

But some progress could be possible.

The definitions inquiry recommended the establishment of an independent administrative body a charities commission to administer the charities definition, with its rulings being binding on the ATO.

This in turn reflected strong views put to the inquiry by the ATO which since June 2000 has suddenly found itself official gatekeeper for charities that another body should have this job.

For a start, it would avoid the current potential conflict of interest of the ATO deciding cases when its primary role is to defend the revenue.

Cherry says there also appears to be ” fairly strong support from the states for reform, with a strong degree of self-interest, to maximise concessions for state-run hospitals, schools and other bodies”.

The major parties at the federal level seem less enthusiastic. A spokeswoman for Coonan said the competitive neutrality issue “isn’t on our agenda at this stage”.

“The focus is on delivering on election commitments.”

The Government is also “still considering its response” to the charities definitions report, and no time frame has been set for it.

Labor’s Treasury spokesman, Bob McMullan, says “ideas like a central commission are going a bit far”.

“You don’t want governments licensing people to undertake charitable acts,” he said, though it had clearly not occurred to him that that was what the Tax Office was already doing.

The real pressure may come from the growing number of businesses crying foul on taxpayer-funded competition.

Not for Profit Inc

$25 billion industry Australia’s charitable, or “not for profit”, sector is worth about $25 billion a year. That makes it bigger than the agricultural sector.

2.3 million volunteers work in this sector. It employs more people than the communications industry and the cafes, restaurant and accommodation industries combined.

More than 40,000 entities were registered as tax-exempt charities as of June last year.

$9 billion forgone tax. There is no official estimate but charity costs the Australian Tax Office plenty. Based on the $25billion size of the sector, tax-free donations, income tax exemptions, FBT exemptions and payroll tax exemptions add up to forgone tax of about $9billion a year.

March 9, 2002Nice numbers, pity about their legs
The Government may delight in the nation’s economic fortune, but politicians know the good times are all too fleeting, writes Laura Tingle.THERE are not many moments in political life when politicians get to bask in unsullied good news. Peter Costello must have pondered this week how fleeting these moments were when he saw the December-quarter national accounts figures.Twelve years ago, give or take a fortnight, a famed predecessor had described the December quarter national accounts for 1989 as a “beautiful set of numbers” even though what they showed was the economy contracting.Twelve months ago to the day, Costello had been trying to explain why we shouldn’t all be worried about the fact the December quarter national accounts for 2000 had shown the economy contracting.

Yet here he was, on March 7, 2002, revelling briefly in an almost perfect economic boom: this lot of figures had shown the Australian economy not only outperforming the world but performing in a way that showed Australians having a really good time, and feeling pretty good about themselves and life. No hint of an economic performance that was good for you, rather than felt good. True political nirvana.

According to the statistician, we had all hit the shops for some new clothes and drunk a bit more than usual, encouraged by the sense of economic wellbeing flowing from the knowledge that the value of our houses had gone up by between 15 and 20 per cent during the previous year.

While events overseas might not have been making Australians comfortable and relaxed, a sense of financial security certainly lulled the senses as voters went to the polls last November.

The tragedy of such moments for politicians is that statistics inevitably involve a look in the rear view mirror.

It’s not that the economy has gone to hell in the past three months. It’s just that even good news like this week’s national accounts release only seems to prompt speculation about where it will all go bad.

Witness the interest rate speculation provoked by Thursday’s numbers: such a strong economy, surely, would force the Reserve Bank to raise interest rates in a couple of months?

Well, possibly, but the figures themselves suggested inflationary pressures easing.

It is hard to remember, in fact, a more benign economic outlook.

The December quarter figures suggest an economy in which the housing boom of 2001 which saved us from world recession was starting to obediently unwind rather than move into overheating mode. More recent figures have confirmed that and seemed to suggest it is occurring at an orderly pace.

That should take some of the heat out of the consumer boom as well, both as people finish their big “new house spend-ups” on durables, and as the edge hopefully comes off property prices.

For John Howard and Peter Costello, this should be good news.

For, as those with a bit of memory might recall, it was a similar housing price boom that helped bring Paul Keating unstuck in the late 1980s.

Circumstances in any political/economic cycle are always different and nobody is suggesting interest rates are going to 17 per cent again.

But the crucial economic input to the Government’s political fortunes in 2002 is how and why that feelgood factor comes to an end.

It could be interest rates going up; it could be the high property vacancy rates starting to hit people overgeared in the market, possibly encouraged in by access to the first home owners’ scheme; it could be a consumer stall as the reality of increasing household debts hits home.

There are more obvious economic challenges to political heaven ahead.

The most conspicuous is unemployment. Despite the relatively good times of the past year, unemployment rose and has since stayed stubbornly hugging 7 per cent.

Peter Costello acknowledged this week that this was a problem arguing weakly that employment was a “lagging indicator” but more honestly that an apparently great productivity performance by the Australian economy had been at the cost of jobs, and
hours worked.

“I think coming through those difficult quarters in late 2000 when business was probably wary of putting on extra staff, they decided to cut costs, they took a lot of the growth and the profit in terms of productivity,” he said on Thursday.

That uncertainty-driven dampener on the labour market might diminish this year, but will be up against some negative disruption in the labour market as the building boom creaks back to a mere hum.

The building slump of late 2000 showed how the building sector could be responsible for generating thousands of job losses in very quick time.

While the fall-off this time shouldn’t be so sharp, it will be hard for Costello not to have the 2000 experience at the back of his mind.

The Treasurer needs to have business investment come good across the spectrum and not just in a few big projects and the world economy come gently back to life to ensure Australians still feel good about themselves and the Government next December quarter.

And as he starts his Budget preparations, he will still need every ounce of growth he can find to finance some very empty coffers and some very expensive election commitments.


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