Australians put an extra $121 billion into their superannuation pots last year.

That’s a very healthy rise of 17.9 per cent.

The Statistician is now reporting that the total amount Australians have invested in superannuation is a staggering $802.4 billion.

Australia’s superannuation funds, in turn, are now major property owners. Their assets include golf courses, city buildings and fabulous tourist resorts.

Some of their assets, though, are starting to attract attention, for the wrong reasons.

The fund managers for one of the really big funds, Comsuper, were forced to confess, effectively, that they may well have more than $1 billion tied up in hedge funds.

And hedge funds are looking much less healthy now than they were a year or so back, when those investments were made.

This was reported – exclusively – in Private Briefing.

We can expect not only Federal public servants, but the nation’s serving soldiers, sailors and Air Force personnel to start asking some very tough questions, when the newspapers, television stations and radio finally catch up with that story.

If they ever do.

The main fund manager’s defence, at the Senate committee, which extracted the confession, was interesting.

It was, basically, that all fund managers had been doing the same thing.

With amounts liike $802.4 billion at stake, fund managers everywhere can expect some very sharp questions from their members, if things don’t improve rapidly, for the hedge funds.

At present, though, the immediate prospects for hedge funds don’t look  good.

It had to happen. And it came when Kevin Rudd’s Labor government was little more than 80 days old.

That’s when the government made its first big mistakes. And one of Kev’s old mates, from Goss government days, Professor Glyn Davis, can be blamed for both of them.

Indeed, Mr Rudd, himself, has already come close to doing just that.

With substantially less than 20-20 foresight, Mr Rudd appointed just one woman, Cate Blanchette, to the steering committee for the 20-20 ideas Summit, that he will hold on April 19 and 20.

The absent minded Professor Davis, who will chair that committee, played a big part in that.

He is the chief organiser of the conference.

But what was he thinking?

And, what’s probably more important, what had Kevin Rudd’s staff been thinking, when they let him make that announcement?

Politically, there were two huge flaws in it.

One woman, on a committee of 11? That’s hardly fair representation.

Especially as that committee is to choose the team of 1,000 of Australia’s brightest and best, who will actually attend the Summit, on April 19 and 20, to give the government the benefit of their, presumably bright, ideas.

There’s a big problem with those dates, too.

It’s a fair bet that any fair pick of 1,000 of Australia’s brightest and best would include more than a few Jews.

They have had to get smart, to survive all the pogroms that history has thrown at members of their race.

Yet April 19 is an important day, on the Australian Jewish calender. It is the feast of the Passover, which celebrates the liberation of Jews from slavery, in ancient Egypt.

Yet nobody in Kev’s office thought of that, when the date for the Great Ideas’ Summit was set.

It’s a terrible pun. But we can’t resist the temptation. The Jews were passed over on the feast of the Passover.

They have been quite forgiving. One Jewish spokesman simply said his community was simply waiting to see what alternative arrangements would be made, to accommodate them.

Australian women, though, were not prepared to remain silent.

If you have ever wanted to see Talahassee,  it’s time to start packing.

The $A is rising so strongly against the greenback now that it hit 94.3 US cents this morning.

So your trip should be cheap.

Indeed, with the Reserve Bank itching to raise Australia’s interest rates again next Tuesday talk of parity between the two currencies is not all that far fetched.

Especially if HBOS Australia economist Alan Langford is right. He is not predicting a 0.5 percentage point rise in rates next Tuesday. But he is warning that something “more aggressive” than the usual 0.25 percentage point rise “cannot be ruled out.”

Oil prices again hit a new record of $US102 a barrel overnight. While the strong $A is giving Australian motorists some protection from fuel price hikes, that is sure to worry the Reserve Bank board.

The Reserve Bank once regarded oil prices as just one more “volatile” item, like fruit prices, which could safely be ignored when setting rates. And, even now,  the prospect of severe snow storms in the North Eastern States of the US is, undoubtedly, pushing up oil prices.

Higher fuel prices, though, do seem to have found a permanent place now, in the world’s financial landscape.

Reserve Bank records show that we last saw parity between the $A and the $US in June 1982.

Twenty years later, in June 1982, the $A was worth just 50US cents.

Peter Costello, who was then Treasurer, made the best of it by calling the $A “super-competitive.”

The then weak $A did, undoubtedly, boost Australia’s exports at that time.

But, for most Australians, it meant holidays at home.

Australia’s interest rates are already some 5 per cent above those now available in  the United States.

And the US Fed chief, Ben Bernanke, is again talking of cutting US rates, even though America, too, is already facing new challenges from rising inflation.

That has implications for Australia.

One is that hot money might, once again, flood into this country.

Especially as major commodity prices, like those of iron ore and coal are already at record levels.

A flood of hot money, attracted by Australia’s high interest rates,  would only add to this country’s already high inflationary pressures.

But don’t tell the Reserve Bank board. It has enough to worry about already.

The mining boom is bringing billions of dollars to Australia.

But it is also adding to the inflationary pressures that are giving the nation big headaches.

Figures just released by the Australian Bureau of Statistics tell the story.

They also show why those inflationary pressures are not likely to ease any time soon.

The bureau reported, for example, that Australia’s miners currently expect to spend 12.6 per cent more, on new capital in 2008-09, than they did last financial year.

With underlying inflation now running about 3 per cent, that would represent a real increase of almost 10 per cent in their new capital spending.

And miners are the last of the really big spenders, when it comes to capital equipment.

But the boom, with all its demands, arrived suddenly.

So suddenly, in fact, that their fifth estimate of likely spending this financial year was a massive 23 per cent higher than that of the comparable estimate, the previous year.

Estimate 5, for this financial year, is that the miners, alone, will spend no less than $29.6 billion, over the year to June 2008.
With commodity prices now at record highs, the fact is that they can’t afford hold back on new capital projects.

But thissudden rush does have its consequences for tother Australians.
One is that interest rates will probably rise again, next week, as the Reserve Bank tries to curb both demand and inflation.

For some families, that will mean bigger home loan repayments and less to spend on food.

That’s tough. But that’s what mining booms are like.

They have  been a big part of  Australia’s history.

During  the  gold rush days, for example, even common tools, like picks, became too expensive for Australia’s farmers.

That’s because the miners were willing to pay anything for them.

World oil prices surged overnight, adding fuel to Australia’s inflationary pressures.

Crude oil futures rose by more than $1 , setting a new record price of $101.15 a barrel.

Local factors contributed heavily.

These included forecasts of heavy snow in America’s north-east and the weakness of the $US.

The $A, though, rose overnight, partly on expectations of further interest rate rises, to trade close to 93US cents.

That will help, a bit.

As we know, Reserve Bank and Treasury economists like to exclude so-called volatile items, like petrol prices, when they calculate what they call the nation’s underlying inflation rate.

And it is the Singapore price of crude oil, not the US price, which directly affects petrol prices in Australia.

However, oil is a global commodity. What happens, pricewise, in one market spreads, very quickly, to others.

And economists find it more difficult to exclude items, like oil prices, from their calculations, when price rises become persistent.

There are now signs that this is happening.

New records, for oil prices, have now been set on two consecutive weeks.

Last week’s record, now surpassed, was $US100.85 a barrel.

The Treasurer, Wayne Swan, admitted last night that underlying inflation in Australia has been “on the march” since the start of 2006.

He noted, too, that the Reserve bank has forecast that Australia’s inflation will remain above 3 per cent – the top of its target range – for the next two years.

Just about the last thing Australia needs now, is yet another surge in world oil prices.

The big question, of course, is will it add to pressure for another rise in local interest rates.

The answer, sadly, is yes.

The Federal Treasurer, Wayne Swan, says the government’s tax cuts are part of its plan to encourage people to take bigger roles in the nation’s workforce.

Mr Swan has said that before.

But he made the point strongly, once again, last night while addressing the Business Council of Australia in Melbourne.

Business leaders have been complaining that they are finding it hard to get the workers they need, to fill critical jobs in their operations.

“There has been much comment on our tax plan,” Mr Swan said.

“I understand that.

“But what this commentary often misses is the debate we have championed for many years now to re-inject participation incentives into the tax system.”

Those words would have been music to the assembled business leaders’ ears.

They, too, have been arguing for years that there is little incentive for them, in Australia’s ramshackle tax system.

However, it was not the big end of town, primarily, that Mr Swan was talking about.

Only last week, the Statistician confirmed that Australia has a big pool of “underemployed” workers.

That is people who want to work longer, each week.

Mr Swan is convinced that an unsympathetic tax system is one of the reasons they are not participating fully in Australia’s work force.

He argues that educational barriers are playing their part, as well.

Mr Swan told his business audience that was why the Labor government is making education its top priority.

None of this will stop either the Treasury or the Reserve Bank worrying about the government’s plan to offer $31 billion worth of staged tax cuts, while inflationary pressures are as high as they are now.

But Mr Swan is adamant. Tax reform is necessary. But it is still only part of what is needed.

“Putting incentive in the personal tax system is part of the equation,” he says.

The Australian Tax Office has a well-earned reputation for toughness.

But is it biased, towards producing extra revenue, when it issues private binding rulings?  That is, does it indulge in a little gouging, when it is asked for such rulings.
There is a perception, at the big end of town, that it is.

Australia’s big companies are the main users of these rulings.

And many are unhappy with the rulings they receive.

They suspect that the Tax Office sometimes seeks more than its fair share.

However the Inspector General of Taxation, David Vos, has scotched that one.

He has examined the matter and says that he found no evidence of “undue bias.”

But Mr Vos said the ATO could do more to prevent such beliefs spreading.

He says there has not been enough transparency in these matters in the past.

Mr Vos admits that the Tax Office has tried to overcome this problem.

“However strong perceptions of undue revenue bias remain,” the Inspector General said.

But the Tax Office genuinely strives to interpret the law to support the ‘policy intent,’” he added.

Some might conclude that this is just another case of the big bureaucrats sticking together.

But that would be unkind.

The Tax Office has said that it agrees with most of Mr Vos’s report.

It has promised that it will try to do better by:-

• increasing transparency
• clarifying its protocols and
• further reducing delays.

US traders shrugged off predictions of recession overnight, Australian time, to stage a strong rally.

The Dow Jones industrial index rose 189.2 points, to close at 12,570.22.

That happened after a new report showed home sales in the US stronger than the market had expected.

Traders were also encouraged by the news that the ratings agency Standard and Poors had confirmed its Triple-A rating for MBIA inc. and the Ambac Financial Group.

This eased earlier fears about the future of troubled bond insurers.

MBIA shares rose by more than 16 per cent on the news, while Ambac shares jumped by more than 10 per cent.

European share markets also gained ground overnight, as financial stocks generally rose.

Asian markets also recorded strong results.

However analysts warned that the volatility seen in recent weeks is likely to continue for some time yet.

They said that the forces, which set off that unrest, are still strong.

The mineral boom is alive and well in Western Australia.

But the impact of rising interest rates is being felt in the West, just as it is in other parts of the nation.

As always, small business has been among the first to be affected.

The Sensis Business Index for February shows the results.

It reveals that small business owners in the Western State have generally experienced “weaker conditions” over the past three months.

Small business profits, in that time, were well below those seen in the same period 12 months earlier.

The report’s author, Christena Singh, said small business owners had been caught between deteriorating sales and strong inflationary pressures.

Sales growth in the State was still above the national average.

But it was also slower than it has been at any time since August 2006.

Ms Singh said small business confidence in the State had fallen by 18 points over the past year.

However she said small business owners seemed to be taking all this in their stride.

“It appears to be just a bump in the road, in what have been – by any measure – extremely strong business conditions,” Ms Singh said.

Australians can expect a horror budget in May.

That’s because the new Rudd Labor government has a doubly difficult task before it.

It must reduce the high inflationary pressures, which now threaten the economy.

And it has to make room for the staged tax cuts that it promised before the election last November.

The first instalment of those tax cuts, which will ultimately cost $31 billion, is due to be paid from July 1, this year.

The government will probably get a little help from the present downturn in the US economy.

That should help reduce those inflationary pressures, by slowing the Australian economy, too.

The interest rate rises, that the Reserve Bank has already announced, and those it is likely to announce, in the months ahead, are starting to bite, too.

The government will also get some extra tax, from Australia’s iron ore and coal companies, which have just extracted big price rises from their customers.

The trouble with all this, though, is that the timing is far from predictable.

It is all too possible that those nasty inflationary pressures will cause real damage, that will be hard to reverse, before the economy slows.

So the government’s spending cuts will be deep. Especially as Mr Rudd is ruling out slashing middle class welfare. He has declared, for example, that the private health fund rebate will not be touched.

The government says there are two reasons why the tax cuts should be paid, as promised. Firstly, they will offset the pain working families are now experiencing, as a result of those rate rises.  And secondly,  they will counter inflation by encouraging people to re-enter the workforce.  But these are just pretexts.

What the government is actually concerned about here is its own survival. It knows that the public would never forgive it, if it didn’t keep its promise to cut taxes. The results of Paul Keating’s politically disastrous attempt to defer part of his “L.A.W. law” tax cuts, by paying the second tranche into superannuation accounts, is still well remembered in Canberra.

Besides, the government is also facing the grim prospect of increased spending in particular areas, such as hospitals.

There is room, of course, for savings, in this area, too. Building good hospitals is generally cheaper, in the long run, than building bad ones, that don’t work, as the Iemma government has done, in Bathurst.

In the end, though, those tax cuts will have to be paid for somehow.

And even the people in Canberra, who reliably vote Labor in Federal elections, will suffer.

Urgent roadworks, in the National capital, are being deferred, as part of the Federal government’s economy campaign. And, as a result, the bush capital will soon start to see some real traffic jams.

Don’t laugh. You will be next. No matter where you live in Australia.

You may have to wait for the budget, itself, in May, to find out how you will be hit. But don’t think you will escape the Treasurer’s axe. You won’t.

More than half a million Australians would like to work longer each week.

The Statistician reported today that the nation has 571,900 part time workers who would “prefer more hours.”

That’s a significant figure, for a country battling high inflationary pressures.

Especially as those pressures could be expected to ease, if more of those workers were able to get the extra work that they want.

We mustn’t be simplistic about this. There are, after all, many good reasons why these people are not putting in those extra hours.

These include child minding responsibilities, inadequate training and language difficulties.

Australia will always need more skilled migrants, to fill gaps in the nation’s workforce.

But that does not mean that it can afford to overlook people like the underemployed, either.

Training a semi-skilled person, to do a skilled job, is a win-win situation for everyone.

The person involved gets a better job. The boss gets a better employee. The nation gets more tax, from that person’s higher income.

What all this does mean, though, is that breaking down the present barriers to better to things like better training can be a great investment, for everyone.

As Ross Garnaut’s report last week shows, even the economists are now convinced that we must act quickly to avoid environmental disaster.

But what does that mean? What must we do?

The first step, as always, is to equip ourselves with the knowledge we will need, to meet this challenge.

So a paper the Australian Bureau of Statistics is planning to release tomorrow should be particularly interesting.

We all know that the world can’t continue to rely on dirty, coal fired power stations for ever. Yet coal exports are one of Australia’s biggest exports.

And coal still provides most of Australia’s electricity.

But what are the alternatives?

That, hopefully, is what the Statistician will address tomorrow, in a very timely paper the bureau is planning to release then.

It’s a new publication.

The research paper will be called “Developing an Alternative View of Electricity and Gas Supply Activity in Australia.”

In less urgent times, it probably wouldn’t get much attention.

But, with environmental disaster looming, it should be a big mover.

You will be able to get your copy, free, by going to www.abs.gov.au after 11.30 am tomorrow (Tuesday). The catalogue number you will need is 4647.0.55.001

The final full stop, which would otherwise have been at the end of the last sentence, has been deliberately omitted, to avoid confusion.

Australians need to plan for early retirement.

Why? Because the workforce is not as reliable as it once was.

And the old target of retiring at 65 is now a shibboleth.

Indeed, the Australian Bureau of Statistics reported today that almost one Australian in four, between the ages of 55 and 59 has already retired.

That’s 23 per cent, for those who insist on precise figures.

A mere 6 per cen t retired in their mid to late 40s.

That, too, is something of a change.

Back in the early 50s, thousands of Australian farmers were retiring before their 45th birthdays, because they had made so much money that they no longer had any financial need to work.

No wonder older people still remember those long gone days as Australia’s golden years.

They were, indeed, just that, at least for some.

The bureau also reports that 75 per cent of Australians who have already celebrated their 65th birthdays have already retired.

That number rises to 95 per cent, for those aged 70 or more.

Liike to know more?

Go to www.abs.gov.au and follow the prompts.

The five year drought, that Australia has just suffered, has given everyone a clear idea of the damage that global warming can do.

Cattle numbers are down. The national sheep flock is just a remnant of what it once was. And farmers have seen their once bountiful wheat fields dusty, dry and barren.

All of this makes a new report, by economist Ross Garnaut, very timely.

Essentially, he is urging the government to take a leading role in combating climate change, saying Australia might well become the most damaged country in the Western world, if it does’nt.

And, after such a severe drought, even city people know very well just what is at stake.

Professor Garnaut says Australia needs to go beyond its present aim of a 60 per cent cut in greenhouse gas emissions by 2050.

He is advocating a 90 per cent cut.

At this stage, the new Rudd Labor government is not entirely convinced.

But Professor Garnaut’s report is compelling.

So, too, is Australia’s bitter experience with the drought.

The drought has devastated Australia’s once great rural industries.

The nation was once said to ride on the sheep’s back.

These days, the mines, alone underpin Australia’s prosperity.

The losses Australia has suffered, in its agricultural sector, have been huge.

These are the kind of costs Australian governments, both Federal and State, will have to balance in future against the undoubtedly substantial costs of making the adjustments necessary, to cut our greenhouse gas emissions even more sharply.
And there were some re-assuring words, from a totally unexpected source, on that subject this morning.

That is, from Professor Garnaut, himself.

He said those costs would be “reasonable.”

Oh, come on Ross. You are an economist. You are supposed to be miserable

You can make it nastier than that, can’t you?

Tougher times, like those we are facing now, do one thing well.

That is exposing mistakes made in the better times.

Possible mismatches, for example, between investments and investment objectives.

That issue arose starkly, before a Senate committee hearing in Canberra this week.

An investment manager was asked to explain why his fund had lent perhaps $1 billion or more worth of blue chip stocks to hedge funds.

The unfortunate man, Peter Carrigy-Ryan probably may well have been reminded of a tough headline, from last Saturday’s Australian newspaper, as he faced his inquisitors.

That headline – Traders plunder super – ran with a story sharply questioning the placement of blue chip stocks, purchased with superannuation funds – with hedge operations, whose possible shortcomings have been thrown into sharp relief. That, of course, has been a direct result of current volatility in world financial markets.

A Tasmanian Liberal Senator, John Watson, who is an acknowledged expert on superannuation, led the questioning.

Senator Watson said he accepted that the placement had been made for “commercial gain.”

That is, of course, what fund managers, like Mr Carrigy-Ryan, a senior executing of the Australian Reward Investment Alliance, are paid to do.

That, rather obscure, government agency, invests the money that Australia’s Federal public servants and military personnel put into their superannuation funds. It has some 325,00 members.

And fund managers, like Mr Carrigy-Ryan, could – quite properly – be condemned for not investing, when the right opportunities arose.

There would be opportunity costs for fund members, if they held back like that.

But a basic question remains.

Is it right to lend long term assets, like superannuation money,to aggressive operations, like hedge funds, that exist only to make big, short term profits? Especially when those funds operate with high degrees of risk, at times.

Mr Carrigy-Ryan resorted, at one point, to the “everyone does it” defence.

“I think you would find that most custodians in the Australian market would lend scrip for a whole range of reasons, and those reasons could include…”

Clearly not satisfied, with the drift of this reply, Senator Watson cut in with another tough question.

“Including short selling?” he asked.

“They could include that,” Mr Carrigy-Ryan replied.

“They could include a settlement delay, for whatever reason that happens in the market.

“There could be a whole range of reasons.”

Mr Carrigy-Ryan, who was clearly not comfortable, offered to get more details for Senator Watson.

But Superannuation Minister, Nick Sherry, who represented the government at the hearing, said it might not be possible to disclose them, because they could involve commercial confidence.

Senator Watson said he would, grudgingly accept that, if he had to, to get the figure, but he let everyone know that he was not happy about that.

“I would like to be sure that I am going to get a figure,” he said.

“It has been hidden under a masquerade of in confidence,” he growled.

Senator Watson is still waiting for his detailed figure.

But his criticism of the secrecy, in which this investment has been made, goes right to the heart of the matter.

If fund members had known that such investments were being made, and told of the reasons for them, they might have accepted the practice, as part of a normal commercial operation.

But sudden exposure, of what can be seen as secret practices, indulged in by people suffering from a masters of the universe syndrome, might well prove to be a different matter, altogether.  Fund members might get very angry, indeed.