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Wednesday 13th February 2008 - 7:08 pm
Comments Off on Take care:Government tells Reserve Bank

Take care:Government tells Reserve Bank

by Alan Thornhill

The government is making no secret of its wish to stop the Reserve Bank raising interest rates again.

The Housing Minister, Tanya Plibersek, is the latest minister to urge caution.

In a statement today, Ms Plibersek warned that housing affordability hit an all time low in December.

She based her statement on calculations made by the Housing Industry Association.

Ms Plibersek said that 11 years ago, when the Keating government lost office, the average home in Australia cost four times the average wage.

By last year, though, that had risen to seven times average income.

Renting provided no escape, either.

Ms Plibersek said average rents for three bedroom homes had risen by 82 per cent over the past decade.

“Rental vacancies have halved since 2004,” Ms Plibersek added.

Predictably, she also laid the blame for these developments at the door of the defeated Prime Minister, John Howard.

“Despite these persistent trends, the Howard government ignored the warning signs and was asleep at the wheel on housing policy,” Ms Plibersek said.

More interesting, though, was the none too hidden message that Ms Plibersek was sending to the Reserve Bank, which sets Australia’s interest rates.

That’s a job that the RBA takes seriously. And, only yesterday, it warned that further rises in interest rates are likely, to curb inflation.

The government has not been pleased by that message. Kevin Rudd, Wayne Swan and now Tanya Plibersek have all warned that working families in Australia are hurt, when home loan interest rates rise.

Ms Plibersek said Labor had a four point plan, to tackle problems caused by sharply rising house price rises. She said that included home saver accounts, a housing affordability fund, a national rent affordability scheme and a better approach to the release of Commonwealth land.

But these things take time. Meanwhile, the government is urging the Reserve Bank to practice restraint.

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Tuesday 12th February 2008 - 7:53 am
Comments Off on Mitsubishi:the hard realities

Mitsubishi:the hard realities

by Alan Thornhill

Mitsubishi’s withdrawal from manufacturing operations in Australia was sad, but inevitable.

And it might not be the last car maker to go.

With just 21 million people, Australia’s domestic market is just too small to support so many auto manufacturers.

Before Mitsubishi closed, there were four.

Even three, though, may well be too many.

Holden saw the way out of this dilemma by exporting. It did that by playing to its strengths.

Its big cars did well in the Middle East, because Australians know, better than most, that air conditioners must be powerful, in hot countries.

That proved a small, but decisive advantage, in sales to Arab countries. That is, in one of the very few places in the world, where petrol is still cheap.

Ford tried the same trick, exporting LPG vehicles to Hong Kong, to be used there as taxis.

But its luck wasn’t as good as the General’s.

Mitsubishi tried too. A few Magnas turned up in the United States, with different badges.

But that wasn’t a great success, either.

Mitsubishi has done the right thing and repaid a $35 million loan the South Australian government gave it, to help develop its ill-fated 380 model.

As one analyst noted, the 380 wasn’t a bad car. It was just the wrong car.

A big car, launched at a time of soaring petrol prices, when buyers are looking for small cars.

A newspaper correspondent who said that Mitsubishi Motors Australia failed because it made “rubbish cars” was quite wrong.

In it’s time, each of the new Magnas – and the 380 – lifted the standards of car making in Australia.

But Australians, accustomed to “meat pies and Holden cars” proved to be reluctant customers for Mitsubishi.

And – as the old song reminds us – the fundamental things apply, as time goes by.

Australia’s car industry has traditionally been heavily dependent on high levels of protection.

It has also been a victim of the old perception that Australia needed a substantial manufacturing industry, to provide jobs for its workforce.

Yet, right now, the country is suffering from labour shortages, so severe, that they are driving inflation to unacceptable levels. And that doubtful achievement has been chalked up, broadly, without much heavy industry.
Maybe. Just maybe, the economists were right, after all. They have been saying, all along, that people – and nations – do best , when they develop their natural advantages.

Could a mining boom, lasting more than 10 years, suggest that they were right.?

Tuesday 12th February 2008 - 6:45 am
Comments Off on Federal spending:expect savage cuts

Federal spending:expect savage cuts

by Alan Thornhill

Expect to see savage cuts in Federal spending.

They will appear in the May budget, if not before.

This is hardly ideal economic management. But the Rudd government has little choice.

Having offered voters $31 billion worth of staged tax cuts, while inflationary pressures were high, there is now no alternative.

The Reserve bank spelt out yesterday the grim situation Australia faces on inflation. It warned that the situation is now so bad that a string of fresh interest rates is likely.

This warning puts the newly elected Rudd government is a diabolical situation, politically. Memories of high inflation and high interest rates, under Labor governments, are still fresh.

So, too, are memories of Paul Keating’s famous L-A-W tax cuts, of 1993. He paid a heavy price, politically, for his courageous decision to defer the second tranche of those cuts, by diverting them into superannuation.

Courageous, that is, on Sir Humphrey Appleby’s definition. Sir Humphrey, as older readers will recall, defines a courageous decision as one that will cost you the next election.

As Mr Rudd reminded senior bureaucrats in Canberra, just a few days ago, he had a long career in the bureaucracy, himself. He knows his way around the corridors of power.

So we can also assume that he meant exactly what he said, when a reporter asked him yesterday for his response to the Reserve Bank’s warning.

“We know the dimensions of the challenges we face in the years ahead,” he replied.

“That is why together with Wayne Swan, myself and Lindsay Tanner, we’ve been hard at work on this.”

Note those words. And remember this. Lindsay Tanner is the axe man

“So there is very little I don’t know about all that,” Mr Rudd said then.

Mr Rudd knows, very well, that voters still associate Labor governments with high inflation and high interest rates.

And he does not want to be a one term Prime Minister.

Politics, like business, moves in cycles.

Spending cuts are always painful. There will be loud protests.

But the Rudd government is still in its early days. It can rely on short memories, so long as the pain doesn’t last too long.

And, this time, Kevin Rudd has just one choice. Hobson’s.

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Alan Thornhill

Alan Thornhill is a parliamentary press gallery journalist.
Private Briefing is updated daily with Australian personal finance news, analysis, and commentary.

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