The Federal government’s push to keep interest rates low has received an unexpected boost.

That happened when the ANZ bank’s Chief Executive, Mike Smith, suggested that the Reserve Bank might have moved too early recently, when it raised Australia’s interest rates by 25 basis points.

The Reserve Bank has the power to raise or lower interest rates.

And its board will meet again, on Melbourne Cup Day next Tuesday, to review its present settings.

The Treasurer, Wayne Swan, put the government’s wishes beyond doubt on Wednesday, when he declared that Australia’s inflation is still “moderating.”

Mr Swan based his assertion on the Statistician’s published finding that the nation’s annual inflation rate has dropped from 1.5 to 1.3 per cent.

However, the bureau also reported on Wednesday that Australia’s prices rose by a higher than expected 1 per cent, over the past three months.

This can be seen as a sign that inflation is accelerating.

The Reserve Bank aims to keep inflation in a 2-3 per cent range, over the course of a business cycle.

It manipulates interest rates, to achieve that.

However, it targets what it calls “underlying inflation,”  not the ”headline” figures seen in the Statistician’s Consumer Price Index bulletins.

Mr Swan  noted, too, though that Australia’s underlying inflation rate has also eased, from 3.9 to 3.5 per cent.

The ANZ bank chief said he would have preferred the Reserve Bank to wait until after Christmas before it started raising interest rates.

“I feel that we should really be worrying that the flywheel of the economy has got its own momentum and is moving the right way before we start worrying about inflation,” Mr Smith said.

However, many economists believe that the Reserve Bank will raise interest rates, either by another 25 – or perhaps 50 -basis points, anyway, next Tuesday.

The government, though, clearly wants rates to be kept on hold.

And Mr Smith’s remarks add weight to its views.

The ANZ chief also noted, for example, that the government’s stimulus measures are being slowly withdrawn, as interest rates appear to be rising.

“We have to remember that the stimulus packages are also gradually easing off…” Mr Smith said.

However the Reserve Bank’s Governor, Glenn Stevens, has signalled that his bank might well be in an aggressive mood.

He has said that  it cannot afford to be “timid” about raising rates.

Mr Smith, of course,  will have an interest in the Reserve Bank’s decision, next week.

The ANZ, along with its bigger competitor, the National Australia Ban, has already declared profit cuts this week, that flow from bad debts.

And – presumably – bad debts could keep rising, if interest rates were raised  too steeply, before the Australian economy fully recovers.

The Federal Treasurer, Wayne Swan, insists that Australia’s inflation is still “moderating.”

That statement is important.  The next rise in interest rates might well be delayed, if the Reserve Bank agrees.

The Treasurer made his declaration  several times yesterday, after the Statistician reported  an unusually sharp rise  – of 1 per cent -  in the  nation’s headline inflation rate during the September quarter.

He told Federal parliament that the quarterly rise had been largely driven by “some unusually large increases” in prices charged by State utilities.

Mr Swan said those rises had produced almost half of the quarterly rise.

However the Treasurer  said he was “not blaming the States.”

The Consumer Price Index figures, that the Statistician released yesterday, will be watched closely, because the Reserve Bank will take them into account, when it reviews Australia’s interest rates next month.

The bureau reported that the nation’s “headline” rate of inflation fell from 1.5 per cent in the 12 months to the end of June, to just 1.3 per cent, in the year to the end of September.

However it is not the so-called headline rate of inflation that the Reserve Bank board studies, when it reviews rates. It looks, instead, at another figure called the underlying rate of  inflation.

The distinction is important, in the rate fixing system.

The bank aims to keep Australia’s inflation in a 2-3 per cent range, over the course of the business cycle.

So – at 1.3 per cent – the headline rate of  inflation is now well below the bank’s target rate.

But – at 3.5 per cent – the underlying rate of inflation is above it.

However, Mr Swan told reporters that even Australia’s underlying inflation rate  had “eased,”  on the latest figures, from its previous level of 3.9 per cent.

The bank could still raise Australia’s interest rates, for the second time in the current cycle, when its board meets on Melbourne Cup day, next month.

The bank’s Governor, Glenn Stevens, has made no secret of the fact that he is  particularly worried about the risk of another bout of house price inflation.

That threat arises, largely, from the fact that Australia’s population growth exceeds the present pace of home construction.

A survey, that the Housing Industry Association published earlier this week, also showed that land prices, in major Australian cities, are already rising strongly.

The Bureau’s figures already show that housing prices rose 5.5 per cent over the past year.

But transportation costs fell 5.1 per cent in that time as a result of both lower fuel prices and the stronger $A.

Lower interest rates contributed to a 7.2 per cent fall in the cost of finance and insurance services.

But education costs rose by 5.6 per cent over the year.

One of the nation’s  most celebrated economists is predicting that Australians will soon have to tighten their belts.

“There are hard times ahead,” Professor Ross Garnaut warns bluntly, in his new book, The Great Crash of 2008.

“Sustainable full employment will require reduction of average incomes and living standards…”

By how much?

“…to levels below those to which Australians became accustomed before the crash,” Garnaut replies.

And he says we simply aren’t ready for what is coming.

“The Australian Government, community and business leadership has barely begun to contemplate the adjustment that is required,” he says.

“There is a danger that the lack of awareness of the hard realities will lead to poor management of the difficult days of economic policy,” Professor Garnaut warns.

He expects all this to occur, in the global shakeout that will follow the global economic crisis.

Talk about economics being “the dismal science.”

We shouldn’t despair, though.  After all, it was a prominent American economist who said that economic forecasting had been invented only “to make Astrology look good.

Australia will – finally – get uniform national consumer credit protection laws from July 1 next year.

This follows passage of the necessary legislation through the Senate last night

“These reforms have been a long time coming,” Minister for Financial Services, Chris Bowen said.

Mr Bowen said the  reforms would see the creation of a single, standard, set of national laws for the regulation of consumer credit.

“The new laws will also see for the first time consumer protections and regulation put in place for margin loans, as well as the national regulation of trustees and debentures,” Mr Bowen said. 

“They will help provide greater certainty to the credit sector while strengthening the range of protections that are in place for vulnerable consumers.

“These important reforms were only possible because they are part of the Rudd Government’s and the Council of Australian Government’s (COAG) drive to a National Seamless Economy,”   Mr Bowen said.

He said the  fallout from recent economic and financial market chaos had made the need for such legislation clearer than ever.

Mr Bowen said the new laws  would provide  a system that would allow  both consumers and credit providers to look to  the one, national set of rules.

” The delivery of these reforms is part of Phase One of the historic agreement made by the COAG in October 2008 for the Commonwealth to assume responsibility for consumer credit regulation,” Mr Bowen said.

There is  more information at www.treasury.gov.au/consumercredit.

With Australia’s present inflation rate still below the Reserve Bank’s target range, it might seem strange that the authorities are even thinking of raising the nation’s interest rates.

Yet that is exactly what is happening.  The recent increase of 25 basis points in the bank’s target rate won’t be the last.

Tomorrow’s planned release of  the September quarter inflation figures will be a key factor in what will happen to the interest rates you are expected to pay.

The Reserve Bank wants to keep inflation within a 2-3 per cent range, over the course of a business cycle.

Australia’s current inflation rate, on the Statistician’s June Quarter Consumer Price Index is just 1.5 per cent.

However that is just what economists call the nation’s “headline rate” of inflation.

The Reserve Bank looks at what it calls “the underlying rate” of inflation, when it reviews its target interest rate.

It says that is already above its present target range.

The bank’s board will next meet early next month, to review rates.

There is some good news, though.

The inflation, reflected in tomorrow’s Consumer Price Index figures, is likely to be moderate.

Especially as the Australian dollar has been steadily gathering strength, particularly against the $US, over recent weeks.

That tends to make petrol – and other items Australia imports from overseas – at least a little cheaper.

That, in turn, will restrain inflation, without aggressive action from the Reserve Bank.

However, there are other, less favourable influences, too.

Australia’s population, for example, has been growing strongly.

That has outpaced the nation’s rate of home construction.

These factors make another burst of home price inflation a real risk.

That worries the Reserve Bank.

Text books, especially those in economics, are not supposed to read like Dan Brown thrillers.

They certainly didn’t, anyway, in your correspondent’s student days.

But Ross Garnaut’s new book, The Great Crash of 2008, breaks that rule.

The most chilling thing, though, about the tale it tells is that, unlike Dan Brown’s work, it’ story is all true.

And, unlike other text books, in the arcane subject of economics, it is all quite accessible to the ordinary reader.

(Although Professor Garnaut could well have had a small glossary of essential acronyms, like CDO -collateralised debt obligations-somewhere in the book).

He does, though, mostly keep these mysterious letters close to his, quite clear, explanation of their meaning, in his text.

We all know, by now, that Australia’s banks largely escaped the grim fates that excessive greed brought to their US cousins.

But why?

Professor Garnaut’s explanation offers little comfort.

He says they were just four years behind their American counterparts, in the development of the greed fuelled shadow banking instruments, like CDO’s, that brought the American banking system to grief.

In the best traditions of terrifying narratives through the ages, Ross Garnaut tells a strong moral tale, in his new book.

This is a story that can highly recommended to all Australians who want to keep their personal finances in order.

West Australians, in particular, should read it.  Their newspaper, the dear old West Australian, for which your correspondent wrote, for many years, is already enthusiastically reporting the new boom, before the old crisis has passed.

Reality checks, though, are necessary everywhere in times like these.

And Ross Garnaut is offering some excellent ones, right now.

His book was published by Melbourne University Press.  It is selling for $24.99.

The global financial crisis isn’t over yet, but early lessons are starting to emerge.

And the Prime Minister, Kevin Rudd, had a few to offer, when he launched Ross Garnaut’s book, the Great Crash of 2008.

Notably, Rudd said the crisis has shown that Ronald Reagan was wrong, when he famously declared that “government is the problem.”

The Prime Minister recalled that the economist, John Maynard Keynes, had concluded, after the Great Depression of the 1930s, that market economies cannot function without governments playing “a balancing role.”

That is, they had to step in when the private sector is “in retreat.”

Keynsian economics fell out of fashion, in the 1960s and 1970s – and direct government intervention in economies became harder to justify.

In some circles, for example, governments were regarded merely as “the lesser of two evils.”

Rudd argued, though, that the flaws in that argument were exposed, when Lehman Brothers went broke, late last year, setting off a huge crash on world stock markets.

He noted that the latest crash had, in fact, been bigger than the one that set off the Great Depression.

Twice as big, in fact.

The great crash, of those times, saw world stock markets plunge by 20 per cent.

This time, share prices fell 40 per cent.

The Prime Minister’s speech is worth reading, in its entirety.  It’s on the web at www.pm.gov.au.

Ross Garnaut, though, harbors some reservations about the Rudd government’s response to the crisis.

He is, frankly, worried by the level of structural debt, that is being built up – and believes that could put a brake on Australia’s recovery.

Do you sweat a lot while gambling?

If so, that might be a sign that you are a problem gambler.

It is one of the “visible indicators” of problem gambling, listed in a new report that the Productivity Commission has just published.

Others include weeping, after losing a lot of money and shaking while you are gambling.

The report  says Australia’s problem gamblers lose almost $5 billion a year on poker machines alone.

It estimates, though, that Australians are now losing more than $18 billion a year, through gambling.

That’s almost as much as the $20 million we spend each year on clothes and shoes

The Commission also estimates that Australian lose $12 billion  a year on the “pokies” alone.

It says Australia has 125,000  problem gamblers.

The Commission recommends restricting bets on poker machines to $1 a time and moving automatic tellers  away from the “pokies.”

At present, people playing the pokies can lose up to $1,200 an hour.

The Commission says losses should be automatically capped at $120 an hour.

Predictably, perhaps, the Commission lists Australians living in the Northern Territory as the nation’s biggest gamblers.

The average loss, for adult Territorians who gamble, is more than $3,500 a year.

Tasmanian gamblers, though, are Australia’s most careful. They lose just $940 a year.

Under Australia’s hideously complicated tax system, the nation’s small business operators can easily find themselves required to submit up to six tax returns each year.

Many must fill in four quarterly Business Activity statements each year, plus their own annual personal tax return – and one for their companies as well.

Even people who use  ordinary pay as you go tax returns, once a year, now commonly employ a tax professional, to fill it out for them.

Indeed, the Federal  Treasurer, Wayne Swan, has been forced to admit that Australians make more use of tax professionals, than any other people, anywhere else in the world.

And the services of tax professionals aren’t cheap.

One very small, one-man business, that we know of, has been paying its accountants $2,500 a year, for the privilege of having its annual tax return filled out, in an acceptable way.

Nobody meant Australia’s tax system to get as badly out of shape as it has.

But like Topsy, it just growed.

Indeed, as Mr Swan also confessed yesterday, the system hasn’t been given a decent haircut, in at least 50 years.

But, to mix the metaphors,  a root and branch review is under way, right now.

That is being conducted by the head of the Federal Treasury, Ken Henry.

Mr Swan told Parliament that he would not speculate on what the Henry Review might recommend.

It has until the end of this year, to make its report.

But he did say what the government wants.

Mr Swan said the government wants to make the system simpler and fairer.

“And, of course, to make the system more competitive.”

“Individual Australians don’t just see a tax system.

“What they see is a jungle.

“It is a fact that a very large proportion of Australians have to use a tax professional to prepare their tax returns.

“The highest number in the world are used here.”

“That’s why we do need to simplify the system,” Mr Swan said.

The Reserve Bank is now – clearly – in a new rate raising cycle.

And the Federal government is trimming its stimulus spending.

The Treasurer, Wayne Swan, says that passed its peak in June.

He insists also that the two arms of policy – interest rates and spending – are now working together.

“Last week we received further encouraging news that business and consumer confidence remain strong,” Mr Swan told parliament.

He did so after the Opposition, once again,urged him to slash government spending.

The Opposition Leader, Malcolm Turnbull, reminded Mr Swan that the Reserve Bank Governor, Glenn Stevens, had warned that maintaining the previous expansionary settings of monetary policy would be “possibly imprudent” now that signs of economic recovery are emerging.

Mr Swan said Mr Turnbull was ” verballing” the Reserve Bank, in making that comment.

He said the Opposition “could not stand the fact” that the government’s stimulus measures had been “successful.”

Members of the public, watching this exchange in Parliament, or listening to it at home, might well have been tempted to  suspect both sides of indulging in political bluster.

The present situation, though, has its risks.

The global economic crisis, for example, could still produce nasty surprises.

And getting adjustments to both monetary and fiscal policy right is always difficult. Doubly so, when both are up in the air, in uncertain times.

The government has resorted to Keynsian policies, which sanction heavy government spending, even though that approach has been distinctly out of style, for decades.

The world must never forget, though, how the Great Depression of the 1930s ended.

That was with a giant make-work scheme, now known most commonly as World War II.

The policies of John Maynard Keynes might have prevented that, if they had been applied widely enough, and in time.

The Reserve Bank says it might have been “imprudent” to leave Australia’s interest rates on hold, earlier this month.

It made this observation, while explaining, in minutes released today, why it had increased its marker interest rate by 25 basis points then.

The bank’s assessment of Australia’s prospects, in the wake of the global economic crisis, was quite upbeat.

Indeed, it said the nation’s economic growth rate might be “close to trend” in 2010, if there are no further setbacks.

That leaves the prospect of further rate rises wide open.

And bank economists are already predicting that there could be a second rate rise as early as next month.

The Reserve Bank noted that while Australia’s headline inflation rate is still below its 2-3 per cent annual target rate, underlying inflation – which excludes seasonal and other short term factors – is still above it.

That, too, hardens the possibility of further rate rises in the near future.

“Overall (board) members concluded that while downside risks to the economy could not be ruled out, tyhey had diminished significantly over recent months,” the minutes said

Stopping the Federal government’s stimulus measures now would have “a dramatic effect” on the Australian economy,  the Treasurer, Wayne Swan, warned yesterday.

Mr Swan said, though, that the government’s stimulus spending would be gradually withdrawn, as the Australian economy recovers.

He said that in fact, the stimulus measures had been specifically designed to do that.

However, Mr Swan told Parliament yesterday that simply stopping all stimulus measures immediately would “pull the rug from under the recovery.”

Another Minister, Anthony Albanese, said infrastructure spending on rail, road and port projects is providing jobs now and meeting “the needs of tomorrow.”

Both were defending the government’s stimulus packages against attacks by the opposition, which is arguing that the government’s stimulus spending  is piling up unmanageable levels of debt.

Mr Swan has said previously that the government’s stimulus spending has already passed its peak.

Spending in the third – and probably final – stage of the government’s stimulus measures is now concentrated heavily in the area of infrastructure projects.

The Deputy Prime Minister, Julia Gillard, said it must be remembered that more than 150,000 full time jobs have been lost in Australia over the past year.

And the number of young people, taken on as apprentices, had dropped by 20 per cent in that time.

Mr Swan said the government’s approach had been endorsed by the Reserve Bank governor, Glenn Stevens, and many leading economists, including those in Access Economics. However one economist, Professor Ross Garnaut, has warned that Australians be paying off stimulus debts, for many years.

The Prime Minister, Kevin Rudd,told parliament that the Australian economy had faced ” one of the most difficult challenges “of our lifetime” over the past year, as a result of the global economic crisis.

And he warned:”We still have great challenges ahead.”

Federal parliament resumes today with a huge issue, that will affect your finances, before it.

That’s right. Climate change.

The critical vote, though, will not be taken in the House of Representatives, which comes back today, but in the Senate, which resumes a week later.

The government, of course, doesn’t have the numbers in this upper house, to ensure safe passage of   the legislation, which would set up its planned carbon pollution reduction scheme.

At present, the nation depends, very heavily, on its coal exports.

And Australian coal is a major contributor to global carbon pollution, when it is burnt in Chinese power stations and steel mills.

You may think that this doesn’t concern you, directly.  But it does.  If the Federal government lost the revenue it raises, from that industry, it would have to look elsewhere, to replace it.

You would not be overlooked, in that hunt.

The government is planning a carbon pollution reduction scheme, based largely on carbon trading permits.

These will, certainly, affect the coal industry.

That has led some conservative politicians to argue that its bill should simply be rejected.

But there are dangers that way, too.

There is no better illustration of  that than this year’s bankruptcy of General Motors, a company that was once among the most powerful corporations in the world.

It went broke, essentially, because it kept producing big, gas guzzling cars, when Americans wanted smaller, more fuel efficient vehicles.

The coal industry isn’t going to disappear overnight.

But it, will, eventually,  go the way of the steam locomotive, as the world becomes much more serious about combating climate change.

The scientific evidence, already in, will make this essential.

But there are several things we should remember.

The change won’t happen overnight.  So there will be time to adjust.

It will be important, though, not to panic.

That will mean resisting the fear mongering now being spread by people who should know better.

One senior Conservative politician, who wisely chose to remain nameless was warning, at the weekend, for example, that carbon trading would cause Australia’s beef and sheep meat industries to collapse, overnight.

That, of course, is nonsense.  It should be seen as such.

This kind of talk is, essentially, based on what economists call “static analysis.”

It is all about “what is” now, not what will be.

The Prime Minister, Kevin Rudd, has been right about one thing, at least.

The  jobs, in future, will be in new industries, not in those we have today.

Australia can’t allow itself  to be trapped in coming decades, relying too heavily on commodities, like coal, which have only, a limited and restricted future.

Car registration bills may soon be a thing of the past.

Stamp duty, on property transfers, is also in the sights of the Henry Committee, which has been reviewing Australia’s tax system.

The Treasury  Secretary, Ken Henry, who chairs that committee, told a business audience in Sydney that even the State governments, which collect these taxes, admit that they are not efficient.

They can be inequitable, too.

Mr Henry said:”…the burden of these taxes actually falls quite heavily on people who are more disenfranchised.”

He admitted, too, that the Federal government might be forced to delay some much needed tax reforms, as it will need extra revenue to offset the stimulatory measures it was forced to apply, after the global economic crisis.

He admitted that while replying to questions, after his speech.

“Some of those tax reform options that might otherwise have been delivered quite quickly perhaps will not be capable of being delivered for quite some time so that’s one very real way in which the global financial crisis and its aftermath has impacted on the Review Board’s thinking,” he said.

“As far as the basic architecture of our tax reform exercise is concerned, and of the recommendations that we will make, there has not been a large impact.”

The committee is due to give its final report to the government in December.

However, Mr Henry said the government might delay public release of the report.

The Reserve Bank Governor Glenn Stevens says the bank must not be “too timid” about raising interest rates, when that is necessary.

Mr Stevens made that unusually blunt observation, while addressing an academic breakfast in Perth today.

He said the bank had been prepared to cut rates very rapidly, after the collapse of Lehman Brothers late last year.

He said that if the bank was prepared to do that “but then (was) too timid to lessen that stimulus in a timely way when the threat passed, we would have a bias in our monetary framework.”

“Experience here and elsewhere counsels against that approach.”

But Mr Stevens added a caution.

“None of this is to say that the economy is, at the moment, too strong.

“It isn’t.

“The point is that the very low policy settings  were designed for a weaker economy than we are facing.

“Plainly, the downside risks to which the board was responding earlier have not materialised.”

Despite these cautious remarks, Mr Stevens’ speech will certainly increase speculation of another interest rate rise, probably of 25 basis points, when the bank’s board meets on the first Tuesday of next month.