Why Rudd is in Japan

Kevin Rudd wants to strengthen Australia’s security co-operation with Japan.

He is also shelving Australia’s planned international legal challenge to Japanese whaling, while he seeks a diplomatic solution to Australia’s long standing differences with its biggest customer, over that issue.

Rudd made both announcements yesterday, in a television interview he gave, just before he left Australia, for his first visit to Japan, as Prime Minister.

He shrugged off the Liberal party’s criticism that he should have visited Japan, before he went to China.

“I’ve been to Japan quite a number of times before in various capacities,” Rudd said, when that criticism was put to him.

He said Australia’s relationship with Japan is “in first-class working order.”"

“Japan is a relationship which Australia has which is based on strategic security and an economic partnership and based on enduring friendship, ” Rudd added.

He gave little detail, though, of his plan to strengthen Australia’s security ties with Japan.

“… I’ve got to say, with Japan the key challenge is making sure that we take this existing strategic security and economic partnership to the next stage, ” Rudd said.

“I’ll be talking with Prime Minister Fukuda about how we increase our security cooperation…,” he added.

He also signalled a less confrontationist approach to the issue of Japan’s whaling in southern oceans.

“We’ll seek to resolve that diplomatically and let’s see how the diplomacy runs,” Rudd said.

“But this is a disagreement among friends,” he added.

“…but I would draw everyone’s attention to the fact that our position on the question of protection of whales hasn’t changed one bit,” Rudd said.

He said, though, that diplomatic initiatives would take precedence over Australia’s planned legal challenge to Japanese whaling, for the time being.

“Well, the key thing is diplomacy first,” Rudd said.

“Let’s see how we go.”

Other action could be taken later, if necessary.

“There are several opportunities for that to be advanced, including through the upcoming meeting of the International Whaling Commission,” Rudd said.

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Trade gap falls as Australia’s exports rise

Australia’s trade deficit in April was just $957 million – the lowest since February last year.

That’s important in a country whose current account to output ratio is already well above the 6 per cent level, at which interest rate rises were once virtually automatic.

Especially as the nation chalked up monthly current account deficits above the $3 billion mark, earlier this year.

But the new, lower figure, must be kept in perspective. As the Trade MInister, Simon Crean points out, April was also the 73rd consecutive month in which Australia’s trade figures stayed in the red.
The Australian Bureau of Statistics reported that Australia’s exports rose by 6 per cent on seasonally adjusted figures in April, while imports fell by 2 per per cent.

As usual, though, it’s the detail that counts most.

At first sight, the fall of 10 per cent in imports of capital goods in April looks bad.

Australia needs much more machinery to clear the troublesome bottlenecks, in its industry, that are adding, heavily, to the serious inflationary pressures the nation now faces.

But special factors, like a fall in aircraft imports, had a big impact on Australia’s capital import figures for April.

The Prime Minister, Kevin Rudd, would have been delighted, though, to see imports of consumption goods fall 6 per cent in the month.

Big spending shippers, too, have been adding to his inflation headaches.

April’s rise, in export returns, would also have delighted the Federal government.

Exports of meat, coal and manufactured goods all rose strongly during the month.

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Further rate rises possible

The Reserve Bank’s long string of rate rises may not have ended yet.

The bank’s governor, Glenn Stevens, admitted yesterday that the economy seems to have slowed, as a result of previous rate rises.

And that – largely – is why the bank’s board has kept rates on hold, at 7.25 per cent.

But Stevens added a warning.

“The rise in Australia’s terms of trade, that is currently occurring, will work in the opposite direction,” he said.

“It will add substantially to national income and ability to spend, even with the slowing in global growth to the below trend pace that the bank is assuming.”

The latest  balance of payments figures, which the Bureau of Statistics released yesterday, showed that  Australia’s terms of trade rose by 1.1 per cent, in the March quarter.

That’s quite a big improvement.

Especially as these figures do not include any of the recently settled contract prices for iron ore and coal.

Those rises started to apply in April.

High demand from China and India, in particular, had already driven coal and iron ore prices to a level that one well-placed analyst has called “elevated.”

So the big rises, coming on top of that, might well leave Australia awash with money.

And that, in turn, could drive inflation even higher.

Mr Stevens is signalling, unmistakably, that the Reserve Bank will act, if that happens.

The Prime Minister, Kevin Rudd, welcomed the bank’s decision yesterday to keep interest rates on hold.

He has no guarantee, though, that the restraint the bank showed yesterday will continue.

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Reserve keeps rates on hold – but adds a warning

The Reserve Bank has kept Australia’s official interest rates on  hold.

The bank’s Governor, Glenn Stevens, said after a board meeting today that previous rate rises had produced a “substantial tightening in financial conditions since the middle of last year.”

“The evidence is that this is helping to produce a moderation in demand,” Stevens added.

But he added a warning.

“The rise in Australia’s terms of trade that is currently occurring will work in the opposite direction.

“It will add substantially to national income and ability to spend, wven with the slowing in global growth to below trend pace that the bank is assuming.”

Stevens said this has left “considerable uncertainty” about prospects for demand and inflation in Australia.

“In the short term inflation is expected to relatively high,” he said.

“But it should decline over time, providing demand evolves as expected,” he added.

“Should demand not slow as expected, or should expectations of high ongoing inflation begin to affect wage and price setting, that outlook would need to be reviewed,” Stevens added.
more at www.rba.gov.au

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Why fuel taxes won’t fall

The Federal government is not likely to cut the GST it charges on petrol prices, any time soon.

Yes, a senior minister, Jenny Macklin, did say in a television interview yesterday, that this is “one of the issues the government would look at,” in its review of Australia’s tax system.

And yes, technically, the GST, in this case, is a tax on a tax.

That, of course, is something that shouldn’t happen.

In principle, taxes on taxes are a bad thing.

But many economists have been telling us that taxes on fuel are necessary. And some even say they should be even higher than they are, already.

That’s the kind of people economists are.

But it is the politicians, not the economists, who will make the decisions, this time.

And politicians have a chequered history, when it comes to petrol taxes.

Even the great economic reformer, Paul Keating. He warned, famously, several years ago, that the Liberals were planning to turn every service station in Australia into “a branch of the Tax Office.”

Oddly, perhaps, Keating did not remove those taxes, when he came to power.

The present excise on unleaded petrol in Australia is 38.1 cents a litre.

And as the budget papers point out:”It has been at that level since the indexation of petrol excise rates to the Consumer Price Index ceased in March 2001.”
The Federal Treasury also takes pleasure in reminding us, in its budget papers, that among OECD countries, only the United States has lower petrol taxes than Australia.

Don’t forget, either, that the Prime Minister, Kevin Rudd signalled, very clearly, at the weekend, that there won’t be any quick fixes, from the inquiry into Australia’s taxation system, that he has asked the Treasury Secretary, Ken Henry, to conduct.

Rudd said he had asked Mr Henry to report on “how we confront the long term, interrelated challenges of our tax, welfare and retirement income systems, which will include a review of aged pensions, due in February 2009.”

Mr Henry is no slouch, at this kind of work. But even he won’t be producing quick results, with an assignment like that.

But  petrol taxes do hit motorists’ pockets and purses very hard.

Shell estimates, for example, that taxes and duties account for 30-35 per cent of the price people pay, at the nation’s petrol pumps.

With city motorists now paying about $1.60 a litre, for petrol, that means a government grab of between 48 and 56 cents, for every litre of petrol you put into your car.

No wonder people hate economists.

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Seize environmental opportunities: Rudd tells business

The Prime Minister Kevin Rudd is challenging Australian business people to seize the opportunities now opening up in environmental protection.

But he warned a business forum in Canberra last night that the situation is urgent.

“The age of cheap oil and gas is over,” Rudd said.

“And energy security is now recognised as a key factor in geopolitics and a major driver of long term national security strategies.”

Rudd reminded his audience, too, that there had already been food riots in many parts of the world, including Bangladesh, Haiti, Indonesia and several African nations.

And he said all of this had occurred with a recorded temperature rise of just 0.6 degrees.

Rudd said that while the government is working hard to address these challenges, business leadership is still critical to the success of its environmental policies.

“Governments must create the right frameworks and incentives,” he said.

“But business leadership is needed in adopting energy efficient measures, mobilising capital, creating new markets, developing new technologies, driving innovation, deepening our skills base and developing partnerships across the whole community,” he declared.

“Government, the business community, scientific experts and community organisations must work together, if we are to tackle the challenges of climate change and seize the long term opportunities opening up for Australia, in low carbon energy technologies and environmental services,” he said.

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Country people”left out” Truss

The National Party leader, Warren Truss, says country people have taken a “$1 billion hit” in Labor’s first budget.

He said Labor had stripped more than that amount in just three key areas, regional development, communications and agriculture.

Truss said that the Rudd government had saved $436 million by abolishing the Regional Partnerships and Growing Regions programs.

But it had put back just $176 million into regional development.

And existing agricultural development programs, worth $334 million, had been replaced with measures worth just $220 million.

And nearly all of those related to climate change.

Truss also said Labor had scrapped the Opel contract, which would have provided fast broadband to all Australians.

That program had been worth $959 million.

Labor, now, was merely promising to extend the previous government’s Broadband Guarantee, at a cost of $271 million.

Road and rail funding, in rural Australia, had also been slashed.

He said Labor’s first budget had demolished much of the good work Coalition governments had done for country people, over the past 12 years.

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