Best of times are the worst for some,

by Stephen Lunn, The Australian December 24, 2010

In a piece on poverty, Steven Lunn quotes Dennis Glover, a Labor speechwriter and fellow at Per Capita, who says "Labor, in the public's mind at least, has lost the political high ground on this key social issue to the Greens and should be recasting itself in a bid to grab it back.

"Labor was founded to tackle poverty," Glover says. "But you have to remember that, 100 years ago, people, even with jobs, could spend their lives hungry, cold and with no education.

"That level of entrenched poverty is no longer with us. The grandparents of working people today wouldn't believe the lives of working-class people now. Their living standards have gone up more in the last few decades than in the last five centuries.

"This is an inescapable fact for people on the left of politics and only by accepting it can we do what we should be doing and zero in on those really in poverty: those who finished school early, the sick, the alcohol and drug-dependent, the homeless.

"People often think this is a marginal question for Labor but I think it's central. Much of the public now look to the Greens for this stuff, but it's where Labor can push into. Generally people want to help those worse off and it's a real political opportunity to impress Labor's base."

To read the whole article link here.

"Distributed Gas: One third cheaper, two thirds cleaner and ready now"

Tom Foster and David Hetherington from the progressive think tank Per Capita examine the role of energy market design in Australia’s transition to a low-carbon economy. Link here to the study.

The research suggests enormous market design opportunity for Australia to reduce its total greenhouse gas emissions by 10% (~54 million tons of CO2-e) through distributed gas-fired power using private investment and existing off-the-shelf technology. Adopting distributed gas for new generation will significantly slow the growth in electricity prices, since distributed gas is almost a third cheaper than new coal-fired power.

The energy markets are distorted in favour of large-scale black and brown coal generators with hidden subsidies valued at over $5 billion annually, and incentives inhibiting new localised connections to the grid.

Per Capita Executive Director and report co-author David Hetherington says, “The Australian energy sector has a set of legacy distortions which artificially tilt the market in favour of coal-fired power. Intelligent market design removes these distortions, allowing us to slow the growth in electricity prices and rapidly cut our CO2 emissions.”

The key findings of the study are:
• Australian coal-fired power stations receive hidden subsidies of $5.3b p.a. with fuel and water purchased below market value.
• Once the impact of tri-generation is included, the cost for distributed gas-fired power falls to 6.6 cents per kWh, down from 9.8 cents per kWh fully costed including a carbon price of $20 per ton. This compares to 10.7 cents for black and brown coal, and 11.5 cents for large-scale combined-cycle gas turbine.
• Australia would reduce its greenhouse gas emissions by 10% if half the coal-fired power in the National Electricity Market were substituted with distributed gas-fired tri-generation. This would involve 8,050 new 1.5MW units and would cost approximately $14.1 billion, which could be paid for through private investment

The recommendations are:
• Level the ‘playing field’: Introduce a national carbon price covering the entire electricity sector, and price fuel and water inputs to coal-fired power stations at true market value.
• Offer incentives to distributed network service providers (transmission and distribution companies) for rapid connections to the grid and cap the percentage of connection applications the distributed network service providers are entitled to refuse.
• Roll out a national gross feed-in tariff scheme which does not discriminate between fuel sources or generation technologies.
• Install distributed gas-fired power generation in the 19,000 new social housing units currently under construction by the Federal Government.
• Establish a public/private energy aggregation company to pool savings from energy efficiency measures.
• Roll out smart meters on a national basis building on the Victorian model, and Introduce seasonal and time-of-day pricing variation.

Small gas engines cut costs of power

Sid Maher in the Australian announces Per Capita energy report with "Small gas engines cut costs of power". http://bit.ly/gZfZ4V

iView replay

Watch David Hetherington appearance on ABC24 The Drum (iView) http://bit.ly/ibABd0 (until 12/24/10)

David Hetherington to appear on ABC24 The Drum 13/12/10

Watch David Hetherington, executive director of progressive think-tank Per Capita, appear on The Drum today at 6pm on ABC24.

A public role for intellectuals

'Academic talent seldom plays a role in Australian politics or business, but that could change' by Lindsay Tanner in today's Australian #auspol http://bit.ly/gO7KuC

Per Capita on Radio National's Life Matters - December 7

Per Capita's David Hetherington will be on with Richard Aedy, Life Matters, ABC Radio National, Tuesday 7 December at 9am. Tune in.

Don't step back or to the Right.

Dennis Glover notes in todays Australian: PROPOSALS for ALP reform have mistaken past agendas for tomorrow's solutions. http://bit.ly/h20cun

Concerns about distributed gas generation

by David Hetherington

Two curious articles raising concerns about distributed gas generation by Drew Warne-Smith in the Australian over the last couple of days.  One queries the capacity of the gas network to supply fuel for tri-generation  and the other suggests health risks as a result of nitrous oxide emissions.
 
Both articles set up straw men.  Of course, it will require more gas to be transported into CBD areas as fuel, but this is hardly rocket science.  The Netherlands get 30% of their total electricity production from distributed gas and manage to supply far more people at a higher density than we’ll have to here in Australia. And the distribution economics seem to stack up there.
 
The nitrous oxide (NOx) story is even more of a beat-up when put in the context of vehicle emissions.  Let’s say there are 2 million cars in Sydney (and probably more).  Each consumes 1kW per day so we’re talking 2,000 mW of energy generation, with gasoline producing far more NOx and particulates than distributed gas.  And that’s before you start including trucks.
 
The observation in the first article by Matthew Wright of Beyond Zero Emissions that the costs of gas is uncertain is something of a non-sequiter.  Show me a fuel source whose costs are certain.  Surely that’s not a reason to avoid a proven technology which can demonstrably reduce CO2 emissions tomorrow?

'All That's Left: What Labor Should Stand For' receives strong launch press

Michelle Grattan writes in The Age "FEDERAL cabinet minister Greg Combet has warned Labor not to subordinate good policy to focus group research and declared Labor must rebuild its reputation as ''the party of progress''. ...He said focus groups and polling had a role to play, noting they were crucial to the success of the union campaign against WorkChoices, which he spearheaded before the 2007 election.
''However, they cannot have primacy - they simply inform strategy and how to promote policies and win support for them. They cannot compel the party to abandon its values,'' he said, launching All That's Left: What Labor Should Stand For, by Nick Dyrenfurth and Tim Soutphommasane." To read the full article, link here.

GREG Combet has declared Labor failed to articulate its values and what differentiates the party and must "rebuild its standing", Partricia Karvelas writes in The Australian. Launching All That's Left, edited by Tim Soutphommasane and Nick Dyrenfurth, the left-wing minister conceded yesterday that the dumping of the Carbon Pollution Reduction Scheme badly damaged Labor's left-wing vote at the August 21 election." For the full article link here.

All that’s Left: What Labor Should Stand For to be launched by the Hon Greg Combet

On Tuesday 2 November, All that’s Left: What Labor Should Stand For edited by Nick Dyrenfurth and Tim Soutphommasane, Senior Project Leader, Per Capita will be launched by the Hon Greg Combet, Minister for Climate Change.  

The edition has chapter contributions by Tim on social justice, by David Hetherington on progressive economics and by Dr Dennis Glover, Per Capita Research Fellow, on the potential for a Red-Green Coalition.  It has recently been positively reviewed in the Sydney Morning Herald, and will be shortly reviewed in the Australian.

For details click here. 

David Hetherington to appear on Radio National, Tuesday 2/11/10 9am

David Hetherington will be a guest on Richard Aedy, Life Matters, ABC National Radio, on Tuesday 2 November at 9am. 

David will be discussing the implications of an emerging gulf between the buoyant Australian economy and the sluggish economies of our major peers, as well as the Joe Hockey proposals on banking reform.

Economic credibility key to social democratic success

THE gap between policy intention and execution is usually far wider than anticipated.

IT'S in the nature of politics to generate friends and enemies by drawing borders and declaring hostilities.

Of all the many criss-crossed trench lines traversing our contemporary political battlescape, none is more enduring or more deeply dug than the one than defines Right and Left according to calculations of the size and ambition of government. For many commentators the global financial crisis proves the point.

Now, on the face of it you might think that the percentage of gross domestic product allocated to public as opposed to private expenditure might give only a limited perspective on the general health, happiness and wellbeing of citizens.

After all, many conservative governments spend more and save less well than their social-democratic rivals, if only because their favoured constituencies are sometimes more expensive to woo.


read the whole article in Today's Australian.

Edited extract from All That's Left: What Labor Should Stand For, edited by Nick Dyrenfurth and Tim Soutphommasane (New South Books, $29.95).

Unsung servants of Labor ideals

THE party's advisers bear little resemblance to the cynical pragmatists of popular myth.

In today's Australian, Dennis Glover writes "AS the ALP begins its official investigation into the causes of its recent near catastrophe, one group inevitably will be singled out for blame: political advisers. This is unjust, it is wrong and it's time someone said so. So I'm going to do something rare: write in defence of the political adviser." 

To read the interesting argument, link here.

Excessive market power in banking

Excellent ABC Radio interview this morning on excessive market power in banking with Josh Fear of the Australia Institute. Josh makes a number of strong points about the power of the Big 4 banks to generate ‘super-normal’ profits. Specifically, they use movements in their cost of funding as an excuse to lift interest rates and fees when RBA analysis confirms that since the GFC increased funding costs have lagged interest rate rises.

A particular suggestion Josh mentioned was previously raised by Per Capita in our Memo to the Prime Minister – the use of existing government infrastructure to provide low-cost savings and transaction accounts.  In today’s Fairfax papers, Elizabeth Knight, Katharine Murphy and Eric Johnston canvass a related idea of some merit, that Australia Post network could offer banking services, as the postal service does in New Zealand.

One point on which I’d disagree with Josh is his description of the current state of banking as a failure of market competition.  I’d argue the opposite – that we need greater competition in banking to provide the public with more choice and ease of switching between banking providers.

WA ‘opt-out’ organ donation scheme

Interesting to see today that the WA government has commissioned a proposal for an ‘opt out’ organ donation scheme, with a view to legislating such a scheme into law.  This is exactly the kind of behavioural choice policy that governments should be pursuing.  These policies recognize that people are not perfectly rational actors, that behaviour is predictably irrational and structures choices in a way that delivers outcomes without coercion.

Through its ‘Politics and the Brain‘ series, Per Capita has been exploring behavioural choice policy and has specifically highlighted potential for opt out organ donation, noting that countries with opt-out schemes have registered donor rates above 90%, while peer countries with opt-in schemes have donor rates below 10%.

Of course, the WA government could always go one step further and adopt the Israeli proposal that registered donors have priority access to organs over non-donors should they require one.

Left and right cross-dress to impress

By David Hetherington 

Political cross-dressing is something of a fashion of late. At the last election, Tony Abbott proposed the mother of all parental leave schemes - hardly a small government, free-market initiative. The Rudd/Gillard government has advanced an internet filter scheme to protect us from all that smut on the web - hardly the stuff of free-living, free-loving lefties. In Britain the conservative David Cameron talks of a Big Society, and seeks to distance himself from the choice and competition mantra of Tony Blair's New Labour.

What is going on? Well, the right is now wrestling with the same existential questions that have gripped the left in times past. It is travelling the same voyage of self-discovery recently trodden by its philosophical opponents. But is the right actually now where we've said the left has been for 30 years? Or, in shorthand form, has "right" become the new "left"?

To answer this, we need to recognise that both belief systems have experienced profound intellectual failures.

In the 1970s the limitations of the welfare state championed by the left became painfully clear as growth contracted and social unrest bit throughout the developed world. In 2008 the right had its own collision with reality when our 25-year experiment with ''let her rip'' free-market capitalism ended in the biggest market failure the world has ever seen.

Both movements were badly bruised by their brush with mortality. The reason the right appears to be soul-searching now is that its failure is so fresh. For an extended period, the Reagan-Thatcher approach seemed to deliver on its promise of low-inflation, stable growth, making the crash that much more stark.

A second reason why the right might seem like the new left is that the boundaries between the two have become blurred, as each side has cloaked itself in positions associated with the other, like some sort of retro fashion movement.

The interesting question is why has this happened. One reason is that the traditional support bases of left and right have splintered as class structures have broken down. Where tradies were once of the left, they now vote conservative - they're Howard's battlers. Where inner-city professionals were once reliably Liberal voters, they now vote Labor and, increasingly, Green.

Not only have the old support bases broken down, but the old debates have broken down, and the protagonists are struggling to define the contours of future debates. For decades, the intellectual battleground consisted of a set of well-worn contests. Market versus state. Bosses versus workers. Economy versus environment. These debates sustained the ideological warriors of left and right. But they have now been transcended, not because one side won or lost, but because economic and social change has made them redundant. The market and the state work best in tandem. Millions of workers are now their own bosses. Environmental adjustment provides economic opportunity.

What we need instead is to debate the real challenges facing the country. How to manage the dividends of our mining boom. How to transition to a low-carbon economy. How to improve our education system so that it delivers the skills, capabilities and resilience that will allow Australians to prosper in a dynamic, open society. These are the future battlegrounds of left and right.

So this borrowing of ideas, this cross-dressing we have seen from left and right, is really the product of three things. One, intellectual failures on each side, which have provoked great uncertainty among their adherents. Two, a fracturing of electoral support, which has led political leaders to chase new constituencies by borrowing ideas from the other side. And three, economic and social change that has left old debates redundant and forced the contestants to search for new points of difference. These are the reasons why the right might seem like the new left.

But the right is not the new left. Here's why. The right believes and will always believe in the primacy of the individual - this is its defining idea. Individual freedom, in particular, is the cornerstone on which most right-wing arguments are built: small government, free markets, Hayek's magic catallaxy. Add to this a deep distrust of the collective - as Margaret Thatcher famously said, there is no such thing as society.

Conversely, social justice, and the power of society to deliver it, is the defining idea of the left. The left believes that society is more powerful than the sum of its individual parts, that we create better lives by working together on common challenges and common endeavours.

The challenge for political parties is to integrate these defining beliefs into new policies tailored to a post-GFC world. For the progressive side of politics, this throws up the familiar old refrain of reconciling economic growth with social justice. But if the refrain is familiar, the answers must be different. They must go beyond the Third Way - the left's uncomfortable embrace of free markets and individual responsibility in welfare and justice.

Critically, the left must retain faith in the power of the state to advance fairness. The Henry Review contains many valuable proposals, but above all the government must heed its core proposition that progressive tax and transfers are the primary mechanism for fair income distribution. Equally, the state must be willing to recognise those instances where public provision is superior to private, as in the case of wholesale broadband. In these areas, the Third Way failed to deliver.

A new synthesis for the left would be built around ideas such as market design, human capital investment, behavioural choice policies and social innovation. Market design pre-empts market failures and prices social costs and benefits. Human capital investment lifts educational outcomes, stimulating growth and building individual resilience and life opportunities.

Behavioural choice policies, such as opt-out default super accounts and gambling self-exclusions, improve social outcomes without state coercion. And social innovation harnesses the power of community partnerships to develop local solutions to local problems.

These ideas will define the contours of the policy debate. Their embrace by the Gillard government would demonstrate that, for all the cross-dressing, right is not the new left.

This story was found in The Age, SMH, Brisbane Times and WA Today. Link here: http://bit.ly/bJpyTg. It is an excerpt of David Hetherington's speech at the 2010 Festival of Dangerous Ideas at the Sydney Opera House.

United front: the war against welfare excess

Tim Dusevic references Per Capita in his article in today's Australian. http://bit.ly/djsPqw

The Festival of Dangerous Ideas

Per Capita's David Hetherington will speak at the Festival of Dangerous Ideas in Sydney at the Opera House on 2/10/10. Check it out at http://bit.ly/cmYgdi

Low-fee savings accounts essential to combat excessive banking fees

Progressive think-tank Per Capita has called on Julia Gillard to make low-cost no-frills savings and transactions accounts available through the Reserve Bank.

In a letter to the Prime Minister, Per Capita urges the Government to reduce the high fee burden placed on many Australians by their financial institution.

Per Capita executive director David Hetherington says “In the same way that a low cost default superannuation account would raise the average retirement savings of Australians by around $40,000, a low-cost savings account could further increase valuable savings, instead of passing hard earned dollars to already very profitable banking institutions.”

Australia still has some way to go when compared to the UK and US, where most consumers would not expect to pay for account keeping,

The low-cost no-frills account proposal is part of a series of market design recommendations put to the Prime Minister to strengthen Australia and its future.

To read the whole letter to the PM, click here.

Dear PM: risks are worth it in reform

by David Hetherington and Tim Soutphommasane
Appeared in The Australian September 18, 2010

HAVING secured government, Julia Gillard faces her greatest challenge yet. The task of holding together a minority government is enormous. The risk that this parliament will fail to produce a reforming government is real.

Although survival will be a preoccupation, the Gillard government cannot ignore the long-term policy challenges facing the country.

There are three in particular: addressing our long-term economic vulnerabilities; delivering a coherent population and infrastructure policy; and fixing our broken climate change debate. In each lies opportunity.

This is the real test for this government: Can it marry policy reform with political survival?
The economy: Australia's strong economic performance masks serious vulnerabilities. Our consumption is underpinned by sustained house price rises. Yet house prices are out of alignment with historical price-to-rent ratios. The Economist's fair value housing index rates Australian property as the most overvalued of any of the 20 markets it tracks, with a 60 per cent overvaluation. Any correction will be traumatic.

This is compounded by our low levels of household saving. Australia's household savings rate has dropped markedly in the past 30 years. This leaves households without any buffer to deal with another global slowdown, which remains a possibility.

A global double-dip recession would constrain Australia's access to foreign capital, restrict business investment, drive up interest rates and increase loan defaults.

We're also highly exposed to the volatile nature of the global commodities cycle. If China's demand for resources, in particular, flags, our national income would contract markedly.
Even if the resources boom runs its natural course, we will face enormous restructuring challenges when it eventually ends. The key lies in restarting Australia's productivity growth, which has lagged over the past decade.

Population and infrastructure: An explicit national population strategy is needed to provide greater clarity. Any strategy must take into account the imperatives of economic prosperity, demographic balance, environmental sustainability, urban and regional development, social cohesion and quality of life.

A long-term strategy should be guided by one of three population trajectories: high growth (to 40 million-plus by 2050), moderate growth (30-40 million) and reduced growth (20-30 million).
Short of accepting a lower standard of living or achieving a viable economic model of prosperity without growth, moderate population growth seems appropriate.

Indeed, the structural characteristics of Australian demography and economic development suggest increasing demand for labour in the future. Today there are five people of working age for every person aged 65 and over, but by 2050 the number is projected to decline to 2.7.

It isn't realistic to expect an increased population can be accommodated without placing extra demands on social and physical infrastructure. But much of the ongoing debate has assumed population growth and quality of life are incompatible.

This ignores the fact a higher urban density can have benefits, especially in the context of an ageing population: it can enhance economic dynamism by reducing the costs of production and consumption; it can enrich cultural vibrancy by facilitating an easier spread of ideas; and it can promote more efficient public transport networks in cities.

Climate change: Human-caused climate change is real and the necessary responses are well understood: a price on carbon, a shift to renewable energy sources, and more efficiency in energy use.
But definitive reform remains elusive. Public consensus on the necessity of climate change action has broken down. Rebuilding the consensus requires public recognition of the costs of carbon emissions mitigation.

Mitigation of climate change would cost Australia $12 billion to $13bn a year at the outset, falling to between $1bn and $2bn a year until mid-century. However, any costs of mitigation are much lower than the costs of business as usual. The Garnaut report to the Rudd government in 2008 found unmitigated climate change would cause domestic real wages to be 12 per cent lower by the end of the century than they would otherwise have been.

It is clear that relying on the moral urgency of climate change mitigation is not enough. Progress on climate change policy demands positive, practical argument about the benefits of reform.
Policy responses: The response to these challenges should be multifaceted; the solutions can't be found in templates. Among other things, two dimensions of public policy warrant special attention: market design and nation building.

Market design is the progressive response to the role of state in the modern economy. The government's design task is to set the rules of the market interaction to prevent market failures.

Sometimes this will involve introducing market mechanisms in areas of public provision: water, electricity, health and education. On other occasions, it will require the redress of failures in existing private markets: greenhouse emissions in energy, information overload in financial services, undersupply in housing, market power in telecoms.

Design reforms have already been embraced, ranging from reforms in our telecommunications market and water buybacks in the Murray-Darling to income-contingent loans for vocational training and inter- governmental financial arrangements.

But new design opportunities exist. In health, increased co-payments in line with income would allow for self-insurance of health expenses. In the same way they now manage personal pension funds, individuals could build and manage insurance accounts dedicated to health coverage.

In education, the removal of barriers of entry to the teaching profession -- namely, entry by capable, experienced tertiary-educated professionals wishing to change careers -- is to be welcomed. In addition, merit pay for teachers would help retain high-quality teachers within the profession. The best approach would be to trial a pilot scheme in a small number of public schools in which teachers receive bonus pay for delivering improvements in gains in students' test scores from one year to the next.

In energy, an emissions trading scheme remains the most important market design reform available; short of that, a carbon tax is a second-best option.

Additionally, market design can encourage the spread of distributed power generation in government-owned facilities and other medium-sized buildings such as apartments, hospitals and universities. This requires comprehensive feed-in tariffs and streamlined access to the grid.

The natural fuel for this distributed generation is gas: it is abundant, already networked and far less carbon- intensive than our existing coal-fired electricity.

In taxation, a mineral resources rent tax remains critical because it allows us to quarantine the windfall from our natural resources for investment in national infrastructure. The specific form of the investment vehicle might be a conventional sovereign wealth fund. Alternatively, the proceeds from the tax might be paid into individual superannuation accounts.

Under this arrangement, the tax could fund infrastructure investment in the medium term and provide a long- term buffer against the costs of supporting the ageing population.

In financial services, Jeremy Cooper's review of superannuation for the government has made a sensible proposal for low-cost default accounts for all workers. This measure would raise average retirement savings by about $40,000. There is no reason why the Reserve Bank could not offer low-cost savings accounts on a similar basis.

The task of reform can also be understood as one of nation building. At the outset, a clarification is in order. As it has been invoked over the past three years, nation building has served as a shorthand for indiscriminate government spending.

Properly understood, however, nation building refers to strategic state action to reshape institutions in the economy, society and culture. It can involve both soft and hard elements: the soft referring to the cultural cultivation of citizenship and community; the hard to the physical building of economic and social infrastructure.

On population, a nation-building approach would restore much needed balance to our debate, which has focused almost exclusively on our cities, for instance on population density and urban congestion. But regional development is also important, as the rural independents have highlighted. It would be an error to ignore the prospect of directing population movements and growth into regional centres. There are good reasons to consider centres such as Coffs Harbour and Cairns as sites of planned population growth, not least the effect on national housing supply.

It is also important that climate change action is understood as an opportunity for structural economic reform and for building long-term economic prosperity.

Many presume that making the transformation to a low-carbon economy will incur an unjustifiably large cost: lower economic growth, loss of employment, reduced living standards. Yet there is an advantage in acting sooner rather than later.

Early action delivers first-mover advantage and reduces the risk of economic exclusion in carbon-intensive industries when the transition to a lower carbon economy eventually takes place.
In the spirit of the Prices and Incomes Accord struck during the 1980s, which underpinned the Hawke- Keating structural economic reforms, a new coalition is required today to deliver the support of key interest groups for a universal carbon price. Brokered by government, this coalition would bring together leaders from the business, union and community sectors including, critically, mining and agricultural interests.

Such a coalition could provide the necessary institutional backing as well as the grassroots campaigning capacity required to cement public support. It would negotiate adjustment funds payable to displaced workers, affected companies and low-income households.

The long term: The reforms of the 80s and 90s have worked their way through our economy and our society. We have enjoyed their benefits, but the improvement in the standard of living they enabled has faded from memory. This has been replaced by a dangerous complacency, a belief that the task of economic reform is over.

Few governments have delivered on a comprehensive agenda in a single term. It would be naive to expect a minority government would have an easy task. But if this government is able to kickstart productivity, boost infrastructure investment and put a price on carbon, Gillard will have earned her place in the pantheon of reforming prime ministers.

David Hetherington is executive director and Tim Soutphommasane is senior project leader at Per Capita, a progressive think tank. This is an edited extract from their Memo to the Prime Minister, published recently. For the full letter, link here.

Independents asked to base their decision on arbitrary metric of the day

A curious feature of our current democratic gridlock is the repeated assertion that the three Independents are obliged to base their decision on some arbitrary metric of the day. Inevitably this metric supports the desired outcome of its proponent.

You’d expect this from the party leaders, who’ve variously embraced the greatest number of seats, of primary votes and of two-party preferred votes as the binding factor, depending on whether it suits their position. Frustratingly for both leaders, these metrics have fluctuated constantly, making them near useless for political point-scoring.

More amusing have been the rationales offered by conservative commentators to explain why the Independents ‘must’ support the Coalition. In today’s Australian, Kenneth Wiltshire argues the trio should back Tony Abbott based on their consciences, the national interest and the wishes of their constituents. On Saturday, Christopher Pearson claimed historians will judge the Independents to have failed Australia if they don’t support the Coalition. In the SMH, Paul Sheehan has twice claimed in recent weeks (here and here ) that the Coalition’s superior vote in the Independents’ own electorates means they cannot support Labor: “These men have been given no mandate whatsoever to form a government with the party their electorates so comprehensively dismissed.”

Fluff, every word. The Independents were elected to use their judgment on the floor of the House, including over whom to support in matters of confidence and supply. They have complete freedom in these judgments and, barring illegal behaviour, are answerable only to their constituents at the next poll. Their constituents elected them because they trusted that judgment. If these electorates had wanted a Coalition government so badly, they would have voted for the Coalition candidates. They didn’t.

In the interest of balance, I’ve tried unsuccessfully to find progressive commentators claiming that the Independents are obliged to back Julia Gillard. Conservatives would argue this is because any such claim is hollow. They’re right – in both directions.

Politicians confound classical theory that competition leads to greater choice

by Ross Gittins - Sydney Morning Herald, 30/08/10

SIMPLE economic theory tells us competition leads to increased choice. But as the election campaign showed, competition between the two major parties seems to be reducing the choice we're offered.

Click here to read the article - http://bit.ly/a4PorD

Independents may hold key to policy reform

by David Hetherington. Appeared in The Australian 30 August 2010. Link: http://bit.ly/bLFzug

FOR five long weeks, it seemed the big loser of the election campaign was policy reform.

Neither side took a convincing policy agenda to the electorate, instead choosing to play to the findings of their focus group research.

Paradoxically, the election result means policy reform may now be the big winner: the independents have stated clearly that, alongside parliamentary reform, policy delivery will be the price of their support.

The paradox has two parts. First, why were the two main parties unwilling to take big ideas to the electorate?

Apologists will point to the national broadband network on the Labor side and Tony Abbott's paid parental leave scheme, but neither of these was part of a comprehensive reform package.

The former was the lone untarnished survivor of the stimulus program, while the latter was Abbott's attempt to woo the female vote and shed ideological baggage.

The truth is that this campaign lacked policy substance. Progressive voices called for commitments on a carbon price and integrated tax reform including a mining tax. Conservatives hoped for detailed proposals on smaller government and industrial relations reform. The sad fact is we got none of these proposals and no ensuing debate on their merits.

Given the result, there will be deserved criticism of the Labor machine, but the Coalition is equally culpable. Its four-line slogan was a study in negativity.

The main parties deliberately shied away from positive ideas because they believe elections are won by mirroring the views of swinging voters in marginal seats with catchy slogans about boats and waste.

They all know boat arrivals are a non-issue in policy terms, but they think voters will reward them for listening.

This belief is mistaken. Rebecca Huntley of Ipsos Mackay explained on Four Corners last week how political parties miss the key message from focus groups. The message Huntley hears consistently is: "This is what we think, but what do we know? We're not running the country. We're not experts. We're not seeing all the information. We want people to convince us otherwise."

What exacerbates this problem for the main parties is that voters now see through the spin. Even positive announcements are treated with disdain. Liberal candidate John Alexander claims Labor's re-announcement of the Epping-Parramatta rail link is one of the reasons for his win in the Sydney seat of Bennelong. This cynicism also helps explain the rise of the Greens.

They have positioned themselves as the party that refuses to betray core convictions for political expediency and voters have believed them.

 

Imagine, for example, that any of the party leaders had chosen to rise above the false link between migration and infrastructure bottlenecks. Infrastructure is poor due to chronic underinvestment and an inability to access our superannuation pool creatively to fund it.

Migration remains critical to our future economic success and parts of regional Australia are crying out for population inflows.

Policy leadership involves explaining the trade-offs between the long-term benefits and short-term costs, yet the political orthodoxy says voters can't grasp complexity of this kind. So instead of defending migration and tackling infrastructure, the party leaders are content to blame the one on the other.

Here we reach the second part of our paradox. The one group that has been crying out for policy delivery has been the independents, whose need to serve their constituents is not hampered by the constraints of party messaging.

The independents rightly observe that in the fight for swinging voters in marginal seats, their constituents are taken for granted. The two main parties don't bother to compete against incumbents whose two-party preferred votes are all above 60 per cent. The weakness of the Nationals within the Coalition means they cannot convincingly promise rural and regional policy.

So the independents represent voters who feel ignored and will reward local outcomes. They are not policy mugs, either.

Tony Windsor introduced the first substantial climate change bill into the last parliament. Rob Oakeshott has highlighted the importance of broadband and the need to act on the Henry and Garnaut reviews. Bob Katter has advanced well-developed proposals for a clean energy corridor in northern Australia.

Armed with these policy agendas, it's just possible the independents can provide Julia Gillard or Abbott with the freedom to move in areas off-limits to the party machines. We could end up with a real population debate, covering the needs of the economy, the balance between the cities and the regions, the delivery of infrastructure and the carrying capacity of our environment.

If such debates can happen, this year's election might yet deliver substantial policy reform.

Slogans no substitute for policy

Small Business and Competition Policy minister Craig Emerson points to 'market design' noting: "As the Prime Minister explained in a campaign National Press Club address, in our mixed economy, where private health and education services co-exist and interact, market design work will increase the incentives for productivity gains."  http://bit.ly/d7vxms

The true believers must now rally to save Labor's languishing soul.

Tim Soutphommasane writes in the Australian today "THREE years ago, the election of a Labor government raised progressive hopes of a reforming golden age. They have been disappointed." Read the full article.

Blame New South Wales

By Tony Kitchener

We all agree the faceless men of NSW are to blame. Lets forget the faceless men, lets just blame NSW.

Why do we let them dominate our party? Our country? It seems to me the main problem is that we are stuck on this democracy shtick.

Australia has 150 federal seats.

48 yes .....fully 1/3 are in NSW. More astonishingly Sydney and its surroundings have 34. Nearly 1/4.

Or looked at another way, Sydney itself has as many seats as WA, SA, Tas and the Territories combined. So if we stick to some form of democracy then Sydney is always going to dominate.

So why are NSW pollies so carnal, base and corrupt? Not just Labor, Think of Askin, Alan Jones, The Golden Tonsil, Mac Bank and so on...

If we accept literature and music are cultural barometers then we must agree political practice has some substantial cultural component as well. What if NSW political practice, of any party, is just a representation of the Sydney cultural zeitgeist?

What if you can only get better political practice by first reforming a culture that had rum as its first currency? That today believes a huge boat, a face job, and a harbour view are the sine non qua of achievement?

If this thesis is right, and reforming Sydney culture is the only way to reform NSW Labor, it is a century long project. Consequently, in the meantime, simply by the iron law of numbers, Sydney will continue to dominate the Labor party.

Perhaps one solution is to let all NSW delegates get 1/2 a vote.

In many US corporations (like News Corp) there are 2 or more classes of voting rights......Rupert controls News Corp with only 29% of the shares........If it good enough for ol' Rupe.

If you cant bear the thought of different voting classes, you have maybe two alternatives, firstly, put up with it and stop whingeing... Or finally Qld (30) and Victoria (37) have to vote as state blocks and put the suppression of Sydney above factional concerns...

Divisions of the Australian House of Representatives

Australian electoral boundaries map:

Australia: Labor's wasted opportunities

The election result says little about the right's negative campaign and volumes about the Labor party's recent self-destruction, argues Tim Soutphommasane in the Guardian.http://bit.ly/b1oiRF

Tim Soutphommasane appears on ABC24's THE DRUM

If you missed Tim Soutphommasane on Monday on THE DRUM on ABC24, you can see what he said about Mark Latham and more, by clicking here: http://bit.ly/ci5qv6

Clean Coal, Not.

By Tony Kitchener

Last week President Obama’s Interagency Task Force on carbon capture and storage, co-chaired by the US Environmental Protection Agency and the Department of Energy, delivered a series of recommendations to the President on overcoming barriers to the widespread, cost-effective deployment of carbon capture and storage within 10 years.

The report concludes that while carbon capture and storage can play an important role in the reduction of domestic greenhouse gas emissions reductions, thereby preserving the option of using coal and other abundant fossil energy resources, it faces a key barrier in the lack of a price on carbon.

What is cheering in the report is that utterly huge amounts of CO2 can be sequestered. The report concludes in the US that there is no big cost, or danger, or difficulty, in sequestering all the CO2 they produce for centuries. The problem is the technical challenge of capturing it from the smokestacks of the power stations.

More confronting still, is how high are the task force's estimated costs for the ’capture’ in carbon capture and storage. See the graph from the task force below.

Whilst all the numbers are $US they will be comparable or even conservative for Australia where brown coal produced CO2 is even harder to capture.

They estimate the cost of plain vanilla black coal electricity with no capture is around $27/MW hr (2.7c/kw hr). This is roughly in line with Australian experience.

To retrofit an exiting power station to capture 90% of the CO2 costs a staggering extra $89/MW hr (8.9 cents / kw hr). This means the CO2 tax would have to be in the order of $103 / ton to make it viable for the power station owners to invest in carbon capture and storage equipment.

The great white hope of the coal industry (and Victoria's HRC for clean brown coal) is the Integrated Gasification Combined Cycle IGCC. But this costs like sin and although the extra cost to capture the CO2 emissions is lowest ($60/ton), the base plant is the most expensive, and so makes the most pricey power ($150/MW hr). A good news, bad news, story if there ever was one.

As we all know there isn't going to be any substantial carbon tax any time soon in OZ or most probably the US. And it will be a long long time till it gets to $60 / ton let alone $100 / ton.

Consequently we are left with 2 possibilities. One, the government will subsidise the cost of CO2 emissions so owners will install carbon capture and storage or secondly, do nothing.

As the US emissions of CO2 from power generation are around 2.5 billion tons per year an enabling subsidy of $100/ ton would cost $250 billion/year. No need to be too accurate here in the calculations as this is not anything a broke US can afford.

Going Nuclear (Remote or Local)
What is amazing about these carbon capture and storage figures is it appears that the costs are such, if they don't improve, then large-scale solar thermal plants (concentrated solar thermal) will be viable before carbon capture and storage becomes economic. Concentrated solar thermal promoters are claiming they can make power for 7-10 cents / kw hr. On this basis it is cheaper to build a new concentrated solar thermal plant than retrofit an existing power station with carbon capture and storage.

As has been observed by better minds than mine, solar energy comes from a very big nuclear reactor in space called… the sun.

If you are prepared to tolerate a nuclear reactor closer than the sun (the French don't seem to mind, and the Chinese are building 22 to be running by the end of this year and have 132 planned) the costs are extraordinarily lower than carbon capture and storage.

The Chinese are claiming they can build new reactors for around $1300 to $1500/ kw. When you think about it for 5 minutes it is not so surprising. Reactors in the west have cost $3000 to $5000 / kw. As with other products, Chinese nuclear reactors are very likely to be a third of the western price. Why wouldn't Chinese reactors be cheaper, just like Chinese refrigerators?

Most of the cost of nuclear power is capital. The fuel is cheap. If you can build nuclear reactors for $1500 / kw in 3 or 4 years, the power costs around $22 to $25/MW hr (2.2 to 2.5c/kw hr). Yes, that is not a typo. Nuclear power in China costs less than plain vanilla coal plants in the US and OZ, and it do not have coal’s huge CO2 emissions.

The simple fact is near zero carbon Chinese nuclear electricity will be much cheaper than US power, even without carbon capture and storage. With the costs of carbon capture and storage, the comparisons become ludicrous. This will further cement China's comparative advantage over the US (and OZ).

Which leads me to one last question.

If you were Chinese why would you be buying US treasury bonds (that yield only 3.5% and are subject to massive currency risk) when you could invest in your own domestic nuclear power plants that will produce zero carbon electricity for 40 years whilst giving a much better return?

HOCKEY BORROWS THINK TANK TAX POLICY

by David Hetherington

Progressive think tank Per Capita is gratified to see that Joe Hockey, the Shadow Treasurer, has incorporated one of its policy recommendations as a major feature of Coalition tax policy, announced today.

As part of its Tax Survey published in January 2010, Per Capita recommended that the Australian Taxation Office provide taxpayers with a breakdown of the use of their personal tax income by policy area.

The Per Capita Survey Report found that:

“…People have a poor understanding of the balance between personal and company tax, and of the relative expenditures allocated to various policy areas…. This lack of awareness suggests a need for better provision of information about the tax system.  Given that the ATO has an individual relationship with each taxpayer and a complete picture of both their individual tax position and the nation’s tax system as a whole, it might provide taxpayers with customized information such as:

• Position on the national income distribution
• Average total tax rate compared with national average
• A breakdown of national spending by individual policy area
• An estimated breakdown of the use of personal tax contributions by individual policy area.”

Mr Hockey today announced that a Coalition government would issue every taxpayer a receipt detailing where their taxes have been spent according to particular policy portfolios. The Coalition has released the following graphic to illustrate its plan:


While Per Capita welcomes the appropriation of its policy recommendation by the Coalition, it also draws Mr Hockey’s attention to the other key findings of the Survey. These include: 

• Australians want a more progressive tax system
• Australians want governments to spend more on public services, especially health
• Australians support the use of a deficit during an economic downturn
• Australians would prefer to see their tax system simplified
• There is considerable lack of awareness about patterns of taxation and expenditure
• A public dissonance for increased spending but lower taxes still exists

“The Coalition has repudiated the use of debt to fund a deficit and has called for a flatter tax system with reduced public spending. This ignores an important groundswell of opinion amongst the Australian public. Despite this, Per Capita welcomes Mr Hockey’s announcement and will happily acknowledge the debt,” said Per Capita’s Executive Director, David Hetherington. 

“Per Capita calls on Mr Hockey to ensure that Coalition policy is one that is in touch with Australians’ aspirations for a simpler, smarter and more progressive tax system.”


The full survey report can be downloaded by clicking here.

The truth about the mining Super Profits tax

By David Hetherington

Great piece by John Garnaut in yesterday's Fairfax papers which sheds an interesting light on the recent mining tax debate.  Garnaut explores the mining boom from the perspective of Chinese mini-miners – one-man bands who collect and sell iron ore by hand, and can make a living once the price hits $120/ton.

As Garnaut points out, the economics of their business make an interesting contrast with Australian suppliers.  Two arguments from the RSPT debate resonate.

The first concerns ‘super profits’, those profits above a reasonable rate of return on capital which justify a resource tax.  As we know, the Government’s original plan was to levy the tax on profits above the long-term government bond rate, a ludicrously low level of profitability.  The revised MRRT will kick in at a more reasonable level of the bond rate plus 7%.  What’s interesting about Garnuat’s piece is that it shows that, at the current price of $160/t, Rio Tinto is making profits on its iron ore of 433%!  Admittedly, this is based on cash costs so a capital charge should be added, but it leaves no doubt that super profits are alive and well.

The second argument debunked by Garnaut is the notion that miners would be forced to move offshore if the Australian government introduced a resource tax.  Yet Garnaut shows that Chinese domestic suppliers are actually the swing suppliers in Chinese iron ore, while Australia sits right at the bottom of the cost curve.  No reasonable level of resource tax is going to shift that pecking order, so there’s no question that the miners will turn their back on Australia.

This is just as true for coking and thermal coal as it is for iron ore.  The big open cut mines in the Bowen Basin are the cheapest in the world, and no sensible resource tax will change that.  It’s their golden goose as well as ours, and there was no way they were walking away from it.