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.