|October 18, 2001
Budget still in the black, but $1 billion goes missing
|The election war chest available for tax and spending promises has been halved to $7 billion and this year’s Budget surplus reduced to just $500 million, the mid-year review of the Budget revealed yesterday.The dramatically smaller surplus a $1.5 billion figure was predicted in the May Budget could actually be a deficit. The Government has relied on an unprecedented turnaround in the Budget’s “rainy day” fund the so-called contingency reserve to keep it in the black.Surging inflation and extra spending on the Tax Office, boat people, employee entitlements and royal commissions into the HIH collapse and the building industry were cited as reasons for the surplus being slashed.
But the Treasurer, Peter Costello, was adamant that the commitment of Australian troops yesterday to the anti-terrorism campaign would not cause further stress on the Budget bottom line, nor provoke the introduction of a war tax.
“We won’t need a tax,” he said.
He also repeated the assurances of the Prime Minister, John Howard, that a re-elected Coalition would keep the Budget in the black: “We are giving a guarantee that we will keep the Budget in surplus.”
He argued the $500million injection to this year’s defence budget would fund the military operations announced yesterday, but refused to spell out how the Government would fund any extended war against terrorism.
Labor has already made spending commitments worth more than $1billion though only $56.25million is promised for the present financial year.
The Opposition said it had made its spending plans on the assumption that the Budget position would have been weakened by the Government’s $20 billion spending spree this year and would not have to adjust its plans before releasing the rollback proposals within the next couple of days.
The Prime Minister, John Howard, acknowledged the new Budget outlook would limit the options for campaign tax and spending handouts.
“There is not a lot of room for tax cuts this year or next year. There is not a lot of room for additional spending either,”he said.
The figures from the mid-year review reveal that the “fiscal” balance measures of the Budget have now gone into deficit by $3.1billion and $1.3billion next year.
The “underlying cash balance” surplus figure of $500 million has also been called into question because the revised figures show a $1.6billion turnaround in the contingency reserve, which is now recording a deficit of $702 million compared with a positive figure of $919million in the May Budget.
This has the effect of increasing the bottom-line surplus figure by $702 million. Analysts believe this suggests the Budget may already be in deficit.
The total of the surpluses to 2004-5 gives an indication of what funds are technically available to to fund election promises without going into deficit. That figure is down from $14.1 billion to $7.2 billion.
The shadow treasurer, Simon Crean, said the mid-year review had confirmed the damage the GST had done to inflation.
|September 29, 2001
The buck’s tops here
|Australia is in an almost embarrassing position. It is cocooned from the worst the world’s economy can throw at it, writes Laura Tingle.What’s happening to the world economy?The US has been teetering on the brink of recession for months and the Federal Reserve has been furiously cutting interest rates to stave it off. In the June quarter, the US economy had stalled but not contracted growing by 0.2 per cent on an annual basis. But the September 11 terrorist attacks mean most economists now fear the slump in consumer confidence and the disruption to travel and normal business make a deeper recession inevitable.
The problem for the world economy is that everywhere else has slowed down, too. Europe has stalled, Japan is in recession, and Singapore is on the slippery slope.
With no major economy perhaps with the exception of China acting as a starter motor for the rest of the world, it’s going to be hard to get going again.
Is Australia destined to go into recession too?
We could be one exception to the rule and, like it or not, and by accident, this is partially due to the GST.
The surge in building and consumer purchases before July 1, 2000, and the economy’s subsequent slump, put Australia out of sync with the rest of the world.
We’ve had our slowdown and are now recovering, largely buoyed by the Howard Government’s stimulants like the expanded First Home Owner Grant.
Whatever happens globally, economists believe the number of orders for building will keep the economy afloat until the middle of next year when, hopefully, the world economy will be past the worst. If it’s not, we will be in some serious schtuck.
Meanwhile, Australia will have suffered a loss of some growth it might otherwise have achieved, but it will not go into recession. Westpac is forecasting growth of about 3.3 per cent in 2001-02, compared with growth of 1.8 per cent last financial year.
But Westpac’s forecast has been revised down from an even faster 4.3 per cent.
There will be casualties, though, because the engine of growth in the economy is changing from exports to domestic activity such as housing construction.
But doesn’t globalisation mean Australia must inevitably follow the US economy?
There are several reasons Australia’s economy is in a stronger structural position than the US, according to forecaster Phil Ruthven of IBISWorld.
Unlike the US, we didn’t have a dot com bubble worth 30 or 40 per cent of the stockmarket (it was more like 3 per cent at its peak). We have one of the best growth rates in the OECD, plus a low dollar, a balance of trade surplus and strong housing construction. And so far, Australian consumers remain more confident than their American counterparts.
How will a world slowdown flow into the Australian economy?
A slowdown will primarily make itself felt through lower demand so lower prices for our exports. Opinions are mixed about how fast that will happen.
Chris Richardson, of Access Economics, argues that because most mining exporters hedge their earnings in the foreign exchange markets, their current prices, in Australia dollar terms, will be locked in for some time.
The market for the volume of agricultural exports varies less with economic turns. Not so with manufacturing, which is of concern to Westpac’s general manager of economics, Bill Evans.
Another risk is if business confidence, still not the best after last year’s downturn, is translated into a cut in business investment. (Investment is forecast to grow by 5 per cent this year after standing still last year.)
Why have so many companies gone to the wall this year?
Most analysts point to the obvious bad management. But Richardson adds this: Ansett, HIH, Harris Scarfe and One.Tel all were discounters.
Why is retailing in trouble?
Coles Myer’s business is split roughly half-and-half between supermarket (food) and durables sales (clothes, electricals, etc). Woolworths, with about 90 per cent of sales in food and groceries, is doing wonderfully.
Richardson says sales of durables reached an all-time high just before the GST, and the subsequent retreat has “hit a lot of retailers from Country Road and David Jones to Harvey Norman”. They should start to lift under the influence of low interest rates and a return to jobs growth.
But will consumers remain confident after recent events?
Ruthven and Evans both point out that consumer confidence before September 11 was way above that of the US. On an index measure, Australia’s confidence is rated at 109, compared with less than 90 in the US.
“As long as it remains above 80 there won’t be a recession,” Ruthven says, “and it won’t be anywhere near that [when the next Westpac Melbourne Institute Survey of Consumer Sentiment is published] in October”.
What parts of the Australian economy will suffer with the world downturn and the Ansett collapse?
Industries associated with tourism have been hard hit, with the worldwide airline crisis on top of the Ansett collapse. Forward bookings of tourism companies have sagged 20 per cent since mid-September, which could mean lost revenue of $4 billion and cost up to 70,000 jobs.
But analysts argue that even here the story is mixed. Remote areas that rely on air transport like Far North Queensland, Tasmania and the Top End are vulnerable. As the gateway to Australia, Sydney will suffer, but areas accessible by car should not be as badly hit and, if the effect of the 1989 pilots’ strike is a guide, may boom. That’s the theory.
But according to Ian Kean, head of Tourism Tropical North Queensland, Cairns isn’t doing too badly. His preoccupation is restoring air links with southern Australia, and he thinks things won’t be too bad. “This isn’t the pilots’ dispute. It isn’t doom and gloom. We have got 55-60 per cent loads in hotels. There are people in the streets.”
But what’s the long-term prognosis for Australia?
Communications, financial and business services (accountants, lawyers, information technology groups, consultants and the like) are now the largest industries in Australia, though they don’t dominate as agriculture and manufacturing did in the past. Instead they each represent about 10 per cent of a diverse economy.
Richardson believes that, with or without global recession, some parts of this sector may have had their day in the sun with the waves of global mergers and acquisitions, privatisations and corporations past their peaks, and the mobile phone market close to saturation.
Ruthven argues the push for big companies feeling compelled to be multinational has also passed.
Events of recent weeks must only encourage people to head home.
|September 29, 2001
The gathering storm
|Deborah Cameron and Laura Tingle|
|People are worried. Suddenly the world seems a far more dangerous place, a global recession looks inevitable, and at home the company collapses and job losses just keep coming. But, write Deborah Cameron and Laura Tingle, Australia is well placed to weather the storm.THE view from Cairns and the one in Canberra were always very different. Cyclonic in one place, sober in the other. But if Ian Kean, a tropical tourism promoter, could meet the Federal Treasurer this weekend and thrash out where the Australian economy is really going, we’d all be a lot less confused.For neither Kean nor Costello seems to have read the scripts that automatically go with their roles. Kean on the phone from Cairns where the double whammy of the US terrorist attacks and the Ansett collapse should have hit his market is saying that things aren’t that bad and are looking more positive all the time.
While in Canberra for the past fortnight, Costello has said with each new day that things are even worse than the day before.
No wonder the rest of us are uncertain, even alarmed. The collision of events terrorism, the precipitate collapse of Ansett, economic pessimism, a refugee tide and the sense of foreboding about war has upset everyone.
Yet, if the economic pundits are to be believed, the indicators for Australia’s immediate future are strong enough to give us a sense of confidence.
The former prime minister Bob Hawke, however, has taken soundings from the people who have approached him to talk about their sadness and apprehension. “Without painting doomsday scenarios there is a fairly common ground now that there is a possibility of even further devastation which could be inflicted upon other countries,” Hawke says. “I think there is a more sombre mood. Some people have said to me how they had been worried about such little things before and that the enormity of what has happened has put it into perspective.”
The Rev Bill Crews, of the Uniting Church, says that the catastrophe has caused some of the deepest soul-searching among people that he has yet seen. “It was a bullseye on the towers and a bullseye on the psyche,” Crews says.
Put together it has amounted to an episode that has “undermined our sense of security”.
“Fragile is the word,” he says. “I’ve been really surprised about the number of people who’ve come to talk about their anxieties and their fears for the future. I’d say the mood is sombre and serious.”
As decorators in city department stores set about putting up the first false holly and hollow baubles of the Christmas season, it has felt like a week where the world has been strangely out of kilter. On the escalators and in the aisles, shoppers look blank about it.
At a meeting to prepare for the New Year’s Eve fireworks that have come to be such an emblem of Sydney’s style of celebrating, pyrotechnicians wondered whether they should abandon plans to shoot explosives off the tops of eight of the city’s tallest
Among university students who will graduate in a few weeks, there is also no cause for optimism. As Professor Gary Bouma of Monash University sees it, his students are graduating “into this new world where the mood is quite different”. Bouma, a social scientist, says: “The situation is very sobering for everyone. People who have been through wars know that they are no damn fun and people who haven’t are not eager about it.”
Aside from war fears, the storm clouds have also gathered directly over the future careers of his university students. The business degree that they needed to get into the system, secure a well-paid job and join the managers is now not what it was. It is not a guarantee.
The destruction of the World Trade Centre hit at the very contentedness that is the promise of wealth. “The World Trade Centre was about as safe as you could get,” Bouma says. “In those buildings you had safe jobs, with a big pay-off, and you were part of that growing sector of the economy that was supposed to take us well into the century. The imagery of those buildings going down was very much related to the layers of hopes, expectations and understandings that have been dashed.”
The director of the National Centre for Australian Studies, Professor Peter Spearritt, has a sense that Australians are feeling embattled. More broadly, Spearritt thinks that it has made some people stop to take stock. Should their priority be for a peaceable and simpler family-centred life or to stay hellbent on making a fortune? Have the dying phone calls of love from those crashing planes rung a louder bell?
“This has come at a time when the US and Australia have become equally materialistic societies,” he says. “Where the people who command the most respect, apart from sporting heroes, are the people who earn the most money. I certainly think it makes people question some of those sorts of values.”
Spearritt says that the collapse of Ansett has had a much more dramatic effect on people’s perceptions of the Australian economy than has HIH, the insurer that went into provisional liquidation in March and has since collapsed owing billions. Unlike Ansett, HIH did not have a public face.
Spearritt thinks that what has happened at Ansett has rattled everybody, not least because it has touched people in the middle classes who normally feel complacent and safe. Everyone has been made to feel equally vulnerable.
“What is intriguing about Ansett is that they had workers at almost every point of the Australian pay spectrum from cleaning staff through to pilots and that’s a pretty phenomenal salary range,” Spearritt says.
Almost every trade and industry was represented at Ansett, from people pushing mops and buckets for $20,000 a year to jumbo jet captains on $200,000 or more. The width of that band, and the fact that it was a company that had truly become a household name, made the impact tangible and uncomfortably close.
Combined with almost daily announcements from other companies about lay-offs, cutbacks, profit downgrades, stockmarket nerves, the daily punishment of the dollar on international currency markets and the natural tension of an election campaign, it is
He has had very big congregations in the past three weeks but also a large number of worried homeless people at his soup kitchen, saying that they want to talk to someone because they are feeling sad. Such widespread anxiety is, in Crews’s experience, unusual and a sure sign of its depth.
He is also curious about the way that people have bottled it up speaking privately to him but not telling friends or the even wider audience during an opportunity he gives at his church services.
“I’ve encouraged them to talk about it publicly but they don’t want to. I think it is because it is so serious,” he says.
“People were already beginning to think about communities and how all of that had vanished.
“I think these things were being thought of anyway so the World Trade Centre attack couldn’t have come at a more precise moment.”
|September 10, 2001
Bidding for Mascot’s future
|The winning bid for Sydney Airport could determine the eventual resolution of the airport’s political gridlock.When bids close next Monday for what could well be the Howard Government’s last privatisation Sydney Airport there will be an abnormally large number of issues that any competent government would have to consider in making its decision.Whether John Howard’s Cabinet gives them much consideration is another issue, of course: the sale timetable (which gives the Government just two weeks to consider the bids and demands full cash payment by early November) leads your average cynic to think this crowd’s interest in the sale is somewhat one dimensional.
This is only reinforced by suggestions that “minimising political risk” is actually one of the specifications set down for bidders.
But there are signs there may still be some interesting political dilemmas for Cabinet emerging from the bidding process.
The most significant of these are strong suggestions emerging that at least one of the bidders may base the economics of its proposed business plan on what is actually a two-airport model: arguing for the relatively rapid development of Badgery’s Creek.
Now, technically speaking, Badgery’s Creek remains on the distant drawing boards of both sides of politics.
Having won office in 1996 promising to alleviate Sydney’s noise problems by building the airport, John Howard won a few seats in the proposed airport district and rapidly changed his mind about it.
By last year his Government was doing its best impression of shelving the airport for the foreseeable future, declaring it was not necessary when you could instead have a (completely fatuous) alternative plan of continuing to use Sydney Airport with Bankstown (surrounded by Labor seats) as an “overflow” airport.
This plan only works if you get rid of all the little planes at Kingsford Smith (KSA), which is what the Government is now moving to do under the guise of “protecting” the access of regional airlines (those that still exist, that is) to KSA by introducing a regime where only larger planes can land there (which many regional airlines don’t fly).
Howard’s transport minister, John Anderson, declared Badgery’s Creek would not need to be considered again until 2005.
Further, the original suggestion that anyone who bought KSA would have to commit to also build Badgery’s Creek has been watered down to no more than a “first right of refusal” by the successful bidder to build the airport.
Labor has said it was committed to building the second airport but remains suitably vague about the timetable for that: given its spread of seats means it is stuck uncomfortably between inner city seats whose voters want to get rid of some noise and
But if the talk is right and the three bidding groups are taking different approaches to their assessments of Sydney’s future airport needs, Federal Cabinet’s decision could become an uncomfortable one so close to the Federal election campaign.
While affected voters are unlikely to ever know the full details of the bids or, for that matter, any of them, given this Government’s contempt for transparency the fact that different assessments are being made about what those needs are and how to service them will help focus the public’s mind on just what decision is being made on its behalf.
And it’s not just the issue of Badgery’s Creek.
All the bidders acknowledge they are having to consider lengthening and widening the three existing runways at KSA if for no other reason than the necessity to provide for the huge new double decker planes ordered by a number of airlines flying into
These decisions alone will have implications for those affected by KSA flightpaths since there are question marks over whether it would be physically possible to expand the east-west runway sufficiently to carry such planes, reinforcing the more economical use of Sydney’s airport configuration of using the parallel north-south runways.
For an asset about to be privatised, KSA has an extraordinary number of issues affecting its future cost of use still up in the air.
For example, the Government would have you believe as Financial Services Minister Joe Hockey suggested a few weeks ago (shame on you Joe) that the limitations on the airport were all legislatively protected.
Yes, the cap of 80 movements an hours is legislated, as is the curfew. But the so-called Long Term Operating Plan, which aims to distribute noise around the airport and which also has airspace implications for any viable expansion of Bankstown Airport is not. It is a matter for ministerial discretion.
The so-called “master plan” for the airport is to be drawn up by the new owners for ministerial approval next year.
By then, of course, the alternatives will be consigned to history and the proposal all too easy to rubber stamp on the grounds of the need for commercial viability.
The new 900-pound gorilla in the Sydney Airport equation will have well and truly arrived.
|August 25, 2001
$20 billion nice guy
|Behind John Fahey’s `outstanding bloke’ image lies a saga of poor management and hasty sell-offs by the finance minister, reports Laura Tingle.
AT THE May press conference called to announce he would be leaving politics, John Fahey was asked what he recalled as the highlights of his career. He cited “that moment of euphoria when we won the Olympic Games”, the reform of the legal profession in NSW and the reforms he introduced to the State’s industrial relations system.
He had thought about the lows (“most of them are unprintable” but singled out his “regret” that in 1993 the premiers and then prime minister had been unable to resolve Mabo.
The press conference transcript then reads:
Question: “You didn’t say anything about your current portfolio …”
Answer: “Oh look, well, why would I talk about privatisation (laughter)?
“Look, I am delighted to have been part of a team that has exercised enormous discipline and in turning the books around … I’ve had some adrenalin flows and some 42 or 43 asset sales.
” … I suppose there’s few people that have done more privatisations if any, in the world than I have done.
” I still believe that that’s right for good reasons when you put the sort of right formula in place and away you go, and I have Sydney Airport still ahead of me. It’s not over yet.”
There, in a nutshell, is the John Fahey dilemma.
Not even he, unless pressed, really seems too enamoured of what he has been doing for the past five years.
Fahey ventured this week that his May list may have reflected the fact that many of his achievements were gained when he was leading a State government, rather than simply as a member of a team the role he has taken during the past five years in Canberra.
When pressed about his achievements as finance minister he says he is “delighted and proud to be part of a fiscally responsible government”, cites expenditure cuts which have allowed the doubling of medical research spending and his introduction of
“It was a tough time but I think we have managed to deliver in a way which hasn’t been seen for a long time,” he said on Thursday.
A lot of people might agree with this last sentiment but for different reasons.
Fahey and his portfolio have been at the centre of the deliberate cultural pillage the Howard Government has inflicted on Australia’s public sector for the past five years.
His brief apart from paring back spending has been to transform the public sector back to some pre-Whitlamite, if not pre-World War II, model of small government.
Even those who would endorse such a trend would have to conclude on the evidence that the finance portfolio has best illustrated the worst of the Coalition’s rule of the past five years: administration has not been this Government’s strong point.
Peter Costello told a “friends of John Fahey” dinner last week in Sydney:
“In my view, he became Australia’s best-ever finance minister. An outstanding minister and an outstanding bloke”.
Fahey’s fortunes in Canberra have been favoured by the fact that he is a “great bloke”. Yet just what evidence Costello chose to assess him as Australia’s greatest-ever finance minister is harder to track down.
In the past year, the criticisms of the way Fahey and his Department of Finance and Administration (DOFA) have run the portfolio have been consistent and persistent most notably from the Auditor-General.
It has taken a string of damning audit reports to turn the spotlight on Fahey and for this both the media and the Opposition are culpable. Finance has never been a “sexy” portfolio. The stories in it are complex and unfriendly to television.
But in Fahey’s case, the lack of scrutiny has been all the greater both because of the “outstanding bloke” factor and because the Opposition made a series of pragmatic decisions that issues like outsourcing were too complicated to run in Question Time the major fodder for television’s political coverage.
With scrutiny, what has repeatedly emerged is a bloody-minded ideology behind policies, incompetence in implementation and a breathtaking dismissiveness from Fahey and the department when confronted with these criticisms.
There have been big costs, too. Taxpayers have conservatively lost at least $20 billion in assets sold at undervalued prices, in lousy foreign exchange management, or funds ripped out of government services on the promise of illusory savings from handing over services to the private sector.
The cost is also in the fact that we no longer own many of the buildings the Government occupies, or the computer systems on which it runs and will pay dearly for both in the future and that the institutional memory of the Public Service on policy has been largely lost as numbers have been cut and those not prepared to bend to an increasingly political agenda have left in disgust.
And despite his departure from the portfolio at the election and his battle with cancer at least one of his biggest decisions is still to come: the sale of Sydney Airport.
Fahey’s record is not a pretty one. He has presided over the sale of about $48 billion in assets like Telstra, and a total sell-off of assets including things like buildings of about $60 billion.
The biggest sales like Telstra have been dogged with controversy over their pricing and the extravagant fees paid to advisers.
The first Telstra float, for example, sold off a chunk of the telecommunications giant at prices which its listing on the stock exchange proved within minutes had undervalued it by at least $3 billion, and by as much as $16 billion, based on its market valuation a year later.
Then there have been the management debacles.
Take foreign exchange management.
Fahey’s department is responsible for establishing the financial guidelines upon which most of the bureaucracy is supposed to operate.
The Auditor-General found widespread disregard of risk management principles in foreign exchange management within the bureaucracy, including the Department of Finance itself. The losses just for the four departments audited last year were $3 billion.
Similarly, the audit office found the selection process for government consultants who received $375 million in fees last year failed to comply with DOFA guidelines.
Then there was Employment National, the government-owned job agency which went from being the dominant force in the Job Network to a bit player as a result of a botched tender.
Finance’s role in this was supposedly to protect the taxpayers’ shareholding. Instead, Employment National’s $72 million profit in 1998-99 was turned into a $92 million loss in 1999-2000 after big asset write-downs on office leases and equipment.
There is the Commonwealth car debacle. The 16,000 vehicle fleet was privatised in 1997 and there has been a dispute ever since with Macquarie Bank over $40 million.
All these pale into insignificance with the $5 billion information technology outsourcing adventure which was supposed to yield savings of $1 billion taken out of departmental budgets in advance but which the Auditor-General said last year had produced identifiable savings of only $70 million.
When the Government finally responded to the public outcry and sent the managing director of the Australian Stock Exchange, Richard Humphry, in to investigate, Fahey released the damning results of his report at 6.10pm on a Friday in early January not, one presumes, because he wanted people to take a lot of notice of it.
(Fahey and his department have also flatly refused to release information on the outsourcing contracts to the Parliament).
On all these issues, Fahey has tended to dispute the auditor’s methodology or findings.
The man who would pick up his portfolio if Labor wins the next election, Lindsay Tanner, says: “Look, one or two auditors-general report and you could say there is a debate about methodology. There will always be a debate dealing with arcane accounting standards but what we have got here is a pattern and you have to conclude he’s done a very ordinary job which has been a consistent combination of incompetence and ideological arrogance.”
The most recent controversies have been about the sale of government office buildings, and the management of MPs’ perks.
Suffice to say on the sale of office blocks, the Audit Office makes a compelling case that DOFA sold buildings on the basis of a flawed financial model that in turn was designed to justify a general instruction to sell everything and that the result is that buildings have been sold cheap, and taxpayers will pay more in rent than they would have in ownership costs.
Fahey has been in furious debate with the Auditor-General, Pat Barrett (a former finance official), over this particular report suggesting he has overstepped the mark by criticising government policy, not just its implementation.
Fahey and the Government seem a little oblivious to the fact that the auditor-general is a servant of the Parliament, not the executive.
Fahey has also been hotly disputing the technical aspects of the Audit Office report on property sales, and insisting that the sales program was successful since it raised $131 million more than its target.
But it is not necessary to go into the accounting details of the report to be disturbed by it.
DOFA told the Audit Office in April “that its role was to implement a property divestment program endorsed by ministers” and that it “was not charged with the role of protecting the overall interest of the Commonwealth”.
And in doing so, the department probably delivered the most damning indictment on itself and the Howard Government.
Just imagine that approach being taken in the days of the Khemlani affair.
Similarly, the Audit Office noted in its report on MPs’ perks that Finance had told it that neither its own officials nor MPs were subject to a requirement governing all other spending of taxpayers’ money that spending on politicians must be an efficient and effective use of public funds.
David Cox is now a Labor backbencher but was the chief of staff to the most notable finance minister of the previous Labor years, Peter Walsh.
His economics are as dry as the outback, and his obsession with administrative details with one infamous lapse legendary. He says: “The finance minister’s job is to make sure whatever policies the government pursues, there is proper consideration of the long-term financial implications.
“That means containing expenditure. It also requires ensuring adherence to proper accounting standards and financial controls.
“Fahey, encouraged by his department, wanted to contract out government operations and sell assets to reduce debt, apparently with the objective of permanently reducing the size and the role of government.
“Unfortunately in their haste to achieve that objective, they have behaved like a bunch of financial cowboys doing bad deals and making up the accounting standards afterwards to justify them.”
It is said to be the only issue in Fahey’s portfolio that he kept tabs on during his recent illness.
There is also reason to believe he thought it should be sold last year, before the Prime Minister became captivated by the idea of a new airport at Kurnell.
The biggest single infrastructure sell-off to date will help shape the final judgment on his ministerial reputation.
That judgment may take some time to emerge.
Asked earlier this year if the sale of a public asset like the airport should be more transparent, John Fahey said: “There will be every transparency and the transparency will be at the appropriate time.”
Yet it is symptomatic that the sell-off has been done in haste, in considerable secrecy and with little scrutiny.
The only thing that is transparent at the moment is that the sale is being conducted to maximise the price, but at a cost which spells maximum noise for people under the flight path.
|July 23, 2001
Passing the ministerial buck
|Disputes involving taxpayer-owned and -funded organisations highlight a lack of political accountability.Most Australians labour under the illusion or disillusion that politicians come to Canberra to represent their interests and pursue their grievances.What they often only realise with a rude shock usually when they are in trouble is that our structures of government have evolved in recent years in ways that make it impossible for even the most diligent MP to look after the interests of either individual constituents, or often, taxpayers generally.
The corporatisation and outsourcing of government services, particularly in the past 10 years, has put large sections of what was once bureaucracy beyond the control or accountability of almost anybody.
A few examples come to mind, none so much as the debacle which saw the Government’s own employment agency, Employment National, lose most of its business in the Job Network in 1999.
Without once again debating the merits of the outcome, the evidence provided to Senate committees about who knew or didn’t know what about Employment National’s plans for the tender, and who could or couldn’t tell anybody that a major stuff-up was in the wind was not reassuring.
Then there is the case of Haskins Contractors Pty Ltd, a Canberra-based building firm which was forced into administration last week after a dispute over the reconstruction of the car park at Sydney Airport’s International Terminal ahead of the Olympics. The costs to Haskins of its $12.3 million contract with Sydney Airport Corporation Ltd (SACL) blew out to $24.4 million.
The company claims the corporation produced a new plan within days of the original contract for $12million being signed, and that the sequence of work was changed, involving considerably more work than originally contemplated.
It will also allege that the new plan had actually been dated before the contract was signed, but that it had not been revealed to Haskins.
The matter is now in court, and the details of the dispute are complex.
SACL disputes the claims.
But the point here is how the construction group was unable to find any assistance from political quarters for its battle just to get a taxpayer-owned and -funded organisation to discuss or negotiate over the dispute.
The firm, and its chairman, Mr John Haskins, appealed at various times in recent months to the Prime Minister, Mr Howard, the Minister for Transport, Mr Anderson, the Minister for Finance, Mr Fahey, and the Minister for Small Business, Mr Macfarlane,
Anybody who has ever written to a minister knows it is not unusual to get the runaround in these circumstances, but this particular case highlights an absurdity of accountability that now exists in Australia’s public sector.
Most of the Federal Government’s corporatised entities now have two “shareholder” ministers representing the Government’s and taxpayers’ interests.
The two ministers are almost always the portfolio minister and the Minister for Finance.
The Department of Finance is also responsible for monitoring the companies as far as the Commonwealth’s interest as a shareholder is concerned.
That is, it’s interested in costs and profits and dividends but not necessarily the policy objectives of the corporations.
But what capacity is there for the political process which is supposed to represent our interests to actually influence what these corporations do?
Mr Fahey has told Haskins that while he is “the responsible shareholder minister, it would be inappropriate for me to intervene in operational matters, including resolving payments to contractors”.
Now opaque political interference is obviously not something to be genuinely encouraged, and one of the aims of corporatisation was to ensure that, by putting public utilities on a commercial footing, some transparency would be brought to bear on their actions.
But it seems almost the reverse is happening: the corporations cannot be quizzed by the politicians, and the politicians can flick pass all responsibility in a way which makes the idea of ministerial accountability a joke.
It is often not clear whether corporations can even be given transparent instructions to review, or report, on particular issues, even to their shareholders.
Shareholders of publicly listed companies would not tolerate such a situation, nor we should we.
Despite unleashing a wave of new dilemmas about the relationships between the public and private sectors by privatisation, corporatisation and outsourcing, the Howard Government does not seem particularly interested in cleaning up any of this mess.
Labor, in its public service policy, has promised a review of Commonwealth administration if it wins office, though it is yet to spell out what it would do about the accountability of corporatised bodies.
The sick joke for Haskins, meanwhile, is that the Coalition is busily preparing SACL to be sold off with as much unseemly haste as possible.
If the matter ever gets to court, the fight may well be with a phantom organisation.
|July 16, 2001
The GST didn’t do it – debt did
|High household borrowings could explain some of the problems that have been blamed on tax reform.By now we all “know” how the GST wrecked the economy last year, don’t we?It certainly wreaked havoc through the building sector and, as a result, brought the measured output of the economy perilously close to recession.
But there were some other interesting things happening in the economy last year which may have less “transitional” than the GST.
And these relate to consumption, consumer confidence and household debt; whether there has been a profound change in the economy in the last decade; and, in turn, changes in the way economic policy affects the economy.
The 25 per cent slump in the housing industry in 2000-01 tended to overshadow somewhat the slump in the growth rate of household consumption.
From a healthy rate of 4.5 per cent in 1999-2000, growth in household consumption fell to 2.75 per cent last year (compared to a forecast 3.75 per cent) and is forecast to recover only to 3 per cent this year.
The interesting bit of this is that growth in household consumption actually started to fall before the GST hit on July 1, and kept falling through most of the second half of 2000.
BT’s chief economist, Chris Caton, observes that the September and December quarters of last year represented the lowest six months for growth in household consumption in almost five years despite big tax cuts.
It is hard to believe the GST would be single-handedly responsible for this.
Which brings us to interest rates and household debt.
Critics of the Reserve Bank have argued that the Bank has been a little too enthusiastic in blaming the GST for the economic slump last year, and not prepared to concede that the last two rate rises in May and August were two too many.
But the two interest rate rises last year that were closest together on April 5 and May 3 combined to lift rates by 0.5 of a percentage point in less than a month.
A look at the Westpac-Melbourne Institute Consumer Confidence index suggests it was around this time that the confidence rot set in.
We’ll leave it to others to argue about the impact of these rate rises on small business already nervous about the GST.
The point of this column is simply to observe how sensitive households may have become to changes in interest rates.
Given our increased debt levels in the last decade, this hardly seems surprising.
Opposition Treasury spokesman Simon Crean issued a press release two weeks ago that had a political point to make about the greater financial burden households were under with record debt levels and the GST adding to their burdens.
But the release contained an interesting analysis on household debt by Crean’s economic adviser, Pradeep Philip.
Philip got some unpublished data from the Bureau of Statistics which separated out unincorporated enterprises from national accounts data to give some “clean” figures on household debt.
As a result, Labor’s argument is that households are paying almost $100 more every month in interest payments on their mortgage, personal loan and credit card debts.
The rise in household debt over the past 10 years has been well documented as falling interest rates and increased competition have encouraged more Australians to gear up across the board.
But the figures are still exciting. Credit card debt has risen 165 per cent since 1996, for example. The household debt servicing ratio has jumped 15.5 per cent and interest payable per household per month has risen 38 per cent.
Household debt now exceeds household income.
Treasury has regularly acknowledged the sky-rocketing household debt levels but argued that these debt levels do no more than bring Australia into line with other developed countries. But that doesn’t mean such a profound change won’t have a profound affect on Australians’ response to changes in interest rates.
In a seminal paper in 1997, the Reserve Bank’s Glenn Stevens had some observations to make about how low inflation had helped open up home ownership to many more people and added to household debt levels.
But he mused about whether people understood the changing experience of their debt burdens in a low inflation environment.
When inflation was high, the upfront costs of a mortgage could be tough, he argued, but subsided as inflation reduced the apparent cost and lifted wages and asset prices.
Stevens wondered out loud about whether “people have fully understood that [in a low inflation environment] the likely path of the repayment burden is a rather flat one, not the rapidly declining one which was associated with high inflation.”
The answer to that question is still not clear. Last year’s consumers may have something to tell us. But we may also have to wait until after a Government-policy induced housing boom subsides to find out.
|April 30, 2001
Pile up the cash and burn it
|The Government’s approach to GST fallout has locked the country into flawed and expensive policies.There was a particular irony in Labor’s attack on Peter Costello last week for failing to explain his decision to knock back Shell’s $10 billion bid for Woodside.Labor’s argument was that Costello hadn’t explained how he had reached his policy decision.
From the perspective of a jaded press gallery ear sick to death of banal explanations of badly designed policies from the Howard Government, Costello’s candour on the Woodside bid had been particularly refreshing.
The Treasurer put forward a cogent argument about a difficult decision and, refreshingly, made it clear the decision was his own. No hiding behind Cabinet solidarity or bureaucratic advice this time.
Unfortunately, things were back to normal 24 hours later when he was asked about one of the more specious bits of policy this Government has burdened the Australian taxpayer with in recent years.
This is the fuel sales grants scheme.
You might not be familiar with it, but it’s one of many where it could be regarded as more efficient to pile up a billion dollars in cash and light a match.
The scheme was the $500 million bribe to the bush which promised to ensure that “petrol prices need not rise” under the GST.
It pays a subsidy of one or two cents a litre to fuel retailers and distributors to deliver the promise.
But as the chief executive of the Australian Competition and Consumer Commission, Mr Brian Cassidy, told a parliamentary committee in March: “We have a concern that in some cases the oil companies may have adjusted their price to the retailer so that, in a sense, the fuel sales grant, rather than effectively being passed on to the consumer, has ended up in the hands of the oil companies”.
The really good bit of this scheme is that its cost had almost doubled within six months of its July 1 introduction.
The $110 million cost estimated for 2000-01 had blown out by $90 million by the time of the mid-year review last November.
What does that mean? It means the cost of this scheme will be about $1 billion over the next four years presuming it has not blown out further.
Why did it blow out so much?
Sounds like really well thought out policy doesn’t it?
You’d think even a desperate government might consider amending it as the Budget approaches, if only to save themselves (us) a few bucks.
And was this the case, the Treasurer was asked last Tuesday?
“I don’t concede for a moment there’s a lack of success [in the policy]”, Mr Costello replied.
“The fact of the matter is that the Government is now spending up to a billion dollars to equalise the price of petrol between remote areas and the cities.
“If you were not to spend that, the differential would widen.
“It was never said that this scheme would remove the differential what was said was that putting in place this scheme would ensure that the tax changes didn’t widen it, and it has.”
So we have a scheme that doesn’t remove the differential between city and country prices, that the Government can’t prove is stopping prices in the bush rising, and that the ACCC can’t be sure isn’t just going straight to the oil companies.
But it is, apparently, a successful policy.
Perhaps this stands in contrast to the first home owners’ scheme.
This is the scheme which was delivering $7,000 to each new home buyer as a way of ensuring the housing industry didn’t go into a huge decline as a result of the GST and to ameliorate the cost impact of the GST on newly built homes.
The only problem is some dolt decided to fashion the policy in such a way as to make it available to people buying established homes.
Without going into the economic niceties, this meant any sensible person would buy an established home not immediately affected by the GST and get a free good from the Government.
And of course, that’s exactly what they all did, leading to the Government having to take a desperate step recently and double the grant for people buying new homes.
This would all be fairly academic if it wasn’t for the fact this scheme is destined to cost us $800 million a year in perpetuity .
That’s right. It is funded as if to go on forever, and written into the intergovernmental agreement on tax changes to make sure the States have to keep funding it from GST revenue.
Thanks John Howard. Thanks Peter Costello. You’ve given us policy which doesn’t do what it is supposed to and will be very hard to get rid of in the foreseeable future. Just stop trying to defend it.
Laura Tingle is The Herald’s political correspondent.
|April 24, 2001
Upsetting business …in the best interests of Australia’s shareholders
|With no evidence that the merger was good for the nation, Peter Costello made the right decision.It is not often that a Liberal Treasurer would provoke such powerful conservative interests as Peter Costello did yesterday.But that’s what he did sticking it right to the global financial markets, the Melbourne business establishment, and a powerful multinational company to boot.
Saying no to Shell, the argument went, would make people wary about putting their money in Australia.
Shell put some specific arguments as well: it commissioned, for example, a study that said its merger with Woodside wasn’t bad for Australia.
But it never really mastered an argument about why it was good for Australia.
Anything more than a cursory examination of the deal says Costello’s decision is the right one.
As a company director, his responsibility would be to maximise the value of his company’s assets in the longer term, not to keep up the share price in the short term.
He says Australia’s national interest lies in maximising the long-term opportunities of its biggest energy project the $14 billion North-West Shelf – at the possible cost of the dollar in the short to medium term.
That means not handing over crucial decisions about how that project is developed and marketed to a multinational company with a range of competing interests in the region.
That he has upset such powerful interests is a point which should be weighed carefully by those seeing the Woodside decision as no more than a panicky appeal to a reform-weary electorate.
The Woodside saga has been portrayed as a test of commitment to globalisation by the Howard Government.
Woodside Energy manages the the Shelf’s liquefied natural gas project on behalf of itself, BHP and foreign interests Shell, Chevron, Mitsubishi/Mitsui and BP.
What Shell wanted to do was gain a controlling interest in Woodside. Its argument was that this would stop silly competition between the two in the Asian gas market, allowing it to better allocate resources against “other” competitors.
Shell Australia’s chairman, Raoul Restucci, told journalists in February: “All our proposal does is essentially maximise the opportunity to exploit those reserves efficiently and competitively in what is essentially a fierce, highly competitive market.
“There’s been a lot of challenges [suggesting] we would secure this position to shut down development in favour of other opportunities in the region …
“Our proposal is of the order of $10 billion in terms of merger with Woodside and it just doesn’t make any commercial sense that we would try and shut down those operations in favour of other opportunities. ”
The counter-argument was that at any time in the future, Shell could find that its interests lay in developing, or marketing, any of its other massive LNG interests in the region, particularly as it is spending $10 billion developing reserves on Sakhalin Island, north of Japan.
Liberal backbencher Senator Alan Eggleston told Parliament in February: “Were Shell to take over Woodside in developing its global LNG business, they would need to decide whether to promote the North-West Shelf over its other Asia-Pacific projects in Oman, Malaysia, Brunei and Russia to access what I have already said is the very limited market for gas in this region.”
Costello says he was keen to find a way to approve the Shell merger, that a decision to allow it would have been easier than the one he has taken.
“I did not find this a `love-game’, to use a tennis analogy,” he said yesterday.
“I thought this was poised evenly at deuce.”
The Treasurer had to insist that the FIRB give him a recommendation by the Easter weekend to work on, even though it had already become clear to him that a suitable arrangement couldn’t be found.
Even then the decision of the four-member FIRB was split at least three ways against the deal, against the deal with strict conditions, against the deal with not such strict conditions.
Perhaps it should have been obvious that appropriate marketing arrangements couldn’t be found for a proposal which was ultimately designed to deliver control of these very things to Shell.
This was particularly true when the structure of the Shelf partnership meant that even those commitments Shell did give to address the Government’s concerns could not be guaranteed before the bid was approved.
Costello said yesterday: “In that circumstance, with the opportunity to make an enduring decision, notwithstanding changes in corporate strategies, directors responsibilities to their shareholders, and the consent of all of the other parties involved, I took the view that it was not in the national interest to give approval for this bid to go ahead.”
Costello has been burnt before on commitments to the national interest and local companies.
One that sticks in his mind was the commitment given by the global financial group AXA that National Mutual if it was allowed to take it over would become the vehicle for its Asian expansion plans. National Mutual has since disappeared from the corporate world.
There was always something ironic in the argument that failing to approve a deal which would make one of Australia’s biggest resource companies a branch office of the multinational Shell, would in turn Australia into a branch-office economy.
The truth is, the dollar has been falling since 1983. Foreign equity investment has been falling since 1998.
This decision, like any rational investment decision by overseas investors, should be seen for what it is and not as a catalyst for something much larger.
|April 23, 2001
Keep it simple: ditch the GST
|Laura Tingle. Laura Tingle is the Herald’s political correspondent.|
|We need a proper debate on taxation and switching to a retail tax should be considered a real option.Do you remember the 1997 debate about what sort of indirect tax the Howard Government should pursue after the Prime Minister’s Saul-like conversion to tax reform?Probably not, because there wasn’t one.
When John Howard dogged by Jeff Kennett, the Melbourne business establishment and perceptions of mid-term doldrums announced the Government was setting off on its excellent tax adventure, it committed itself to a GST straight off.
In fact, when the Prime Minister made the political decision to embrace tax reform in mid 1997, the Government had not even done any policy work on what it wanted to achieve.
His then chief economic adviser, Arthur Sinodinos, went off to Melbourne to consult his former colleague, Anna Cronin, then working for Jeff Kennett, about how to proceed.
For all those in business now tearing their hair out over the compliance costs of the GST, 1997’s unseemly rush has proved most unfortunate.
But what may prove to be equally unfortunate is that perceived business resistance to any more tax changes appears to have ruled out the chance of any belated debate about which system might be most efficient.
When Simon Crean addressed the National Small Business Summit late last month, his most emphatic message was one of no change on tax.
“Labor knows that the first priority for small business is certainty and stability,” he purred.
“The last thing you want is another round of tax turmoil … Labor won’t be pulling you through the wringer again with another round of tax turmoil.
“The cost of more massive change to the tax system, so soon after the turmoil and chaos we have just been through, would be too great.”
Labor’s position might be politically understandable, as is business resistance to further change.
But the party’s alternative is hardly better: its roll-back policy on the GST is vague and vulnerable.
It’s a shame it doesn’t stick with some of its own history and boldly promise to roll back the GST all the way to being a retail tax.
And Simon Crean of all people should be aware of that history and its current implications.
When Paul Keating was pushing tax reform in 1985, his White Paper outlined at some length the relative merits of two indirect tax options: a value-added tax and a broad-based consumption tax. In today’s parlance, you could call them a GST and a retail tax (a tax paid only at the retail level and not imposed at each stage of the production chain as the GST is).
The White Paper concluded that a “[retail tax] has significant administrative and compliance advantages relative to a [GST] for both taxpayers and tax collectors and should be capable of performing satisfactorily in combating tax avoidance and evasion”.
Keating took up the cause of the retail tax with a passion and, of course, was famously undone.
But he was not undone over the retail tax per se. Business resistance was to other elements of what was known as option C capital gains tax and fringe benefits tax were the prime problems.
The ACTU led then by Crean and Bill Kelty were worried about the regressive nature of a consumption tax but ultimately said they could possibly sell the tax with exemptions for food and incentives for housing.
Move on 16 years and we have a GST with exemptions for food, and a tax package which includes a badly designed incentive for housing.
We also have, thanks to Keating, the tax reforms business fought so hard against which have without doubt increased the equity of the tax system.
And thanks to John Howard we now have a business sector version of the Australia Card in the form of the ABN system which has given the tax office a once-in-a-lifetime insight into business transactions and the black economy.
It’s not clear why the Labor Party couldn’t sell a roll-back to a retail tax. It could argue that from a certain date all the unwilling tax collectors who aren’t retailers would lose their collection duties.
Retailers wouldn’t be better off, of course, but it is hard to imagine they would be worse off.
And by most authoritative accounts, Australia would have a better indirect tax system.
For example, which Treasurer was it who, in reporting to Parliament on his Government’s review of indirect tax options, said:
“A multi-stage VAT was rejected fairly quickly because it would have imposed an enormous paperwork burden on both taxpayers and collecting authorities.
“A retail turnover tax had some strong arguments in its favour, particularly its lack of bias on expenditure patterns and its ability to generate substantial revenue from low rates of tax”.
That was John Howard in March 1981.