Reform drought assistance:Productivity Commission

The drought assistance programs that the Federal government provides for  Australian farmers should be redirected, according to the Productivity Commission.

In a report just released, the commission suggests that the government should introduce risk management procedures instead.

“In an assessment of existing drought programs, the Commission found that, when measured against policy objectives relating to self-reliance, preparedness and climate change management, the programs have many shortcomings,” the report said.

In particular, the Commission said the current exceptional circumstances declaration process is “inequitable and divisive.”

It said, too, that  interest subsidies and payments for the transport of fodder and livestock are “ineffective” and can “perversely encourage poor farm practices.”

The commission said also that farm families, trapped in hardship, could miss out on relief if their farms were outside drought declared areas.

Commissioner Mike Wood said that while drought is not new to dry land farming, current conditions are similar to those encountered both at the time of Federation and in the 1940s.

“Yet despite the severity of the conditions, most farmers have been self reliant and have not received drought assistance,” Commissioner Wood said.

He proposed that all farm families facing hardship, not just those in drought declared areas, should have access to temporary income support, through a scheme designed specifically for farm conditions.

Farmers who wanted to leave the land should be eligible for retraining, the Commission said.

The report is available at http://www.pc.gov.au/

Migration:Why it should not be cut

On the best estimates, it takes each new migrant some 20 years to repay the “work debt” that he incurs on arrival.

New migrants need homes.

They need transport.

They also usually need need new clothes – and many other things, besides.

And as all economists know, meeting these needs creates work.

New migrants might, indeed,  “take jobs” when they arrive.

But, on balance, they make a lot more.

Predictably, though, with Australia’s unemployment likely to head to 6 per cent next year, calls for cuts in the Federal government’s migration targets are gathering strength.

There may be some reason for that, if only to reduce social tensions.

On economic grounds, though, these arguments, now being advanced by the Federal opposition, as well as the unions, simply don’t hold water.

The opposition’s immigration spokeswoman, Dr Sharman Stone, is urging the Federal government to cut its planned 2008-09 migrant intake, from 190,300, to the 2005-06 level of 142,930.

But the Immigration Minister, Chris Evans, is reluctant.

He is arguing that new migrants are bringing special skills to Australia, that will allow this country to expand its exports.

Mr Evans said the government would base any decision it makes on this matter on the mid year economic forecasts, which are due out next month.

Phillips curve “flattening:” Should we worry?

Economists do live in their own little world.

But an occasional glimpse into it can be rewarding.

So, even if you don’t know the difference between a Phillips Curve and a Laffer curve, you might find a moment or two spent reading some recent Reserve Bank research, to be well spent.

There is a link to it, on the front page of the Reserve Bank’s website, at rba.gov.au.

We must admit that its title is not immediately inviting.

“Understanding the flattening Phillips Curve” is, perhaps, a little short of grabby.

But it deals with some issues that will have a direct impact, one way or another, on your future.

First things first, though.

The Phillips curve tracks the relationship between the rate of inflation and unemployment .

The trouble, according to Reserve Bank Economists Kenn Kuttner and Tim Robinson, is that “in recent years, inflation appears to have become less responsible to fluctuation in output and unemployment.

“That is, the Phillips curve has become flatter.”

This matters, because it affects the calculations the Reserve Bank makes, when reviewing interest rates.

The paper goes well beyond Economics I. Its calculations and reasoning are, at times, quite dense.

But there are glimpses of reality in it too, which are worth a little thought and reflection.

One is that the rise of China, as an industrial power, has fundamentally changed the way prices are set, in the wider world.

“In recent years, the greater role of China in the world economy has undoubtedly held down the price of imported manufactured goods,” the two economists say.

And they say this “may have encouraged domestic firms to be more productive.”

What do we take from that?

Perhaps that interest rate hikes might not be quite as necessary, in future, as they have been thought to be in the past.

Australia:a land of operators

Napoleon once called England a land of shopkeepers.

If the little Corsican was about today, he might well be calling Australia a land of business operators.

Figures released by the Australian Bureau of Statistics today suggest that more than one Australian adult in seven is running a business.

That includes farmers.

The bureau now counts farmers as business people.

It hasn’t always done so in the past.

But the bureau has now recognised, perhaps belatedly, that a high degree of business skill is needed to run a farm, successfully.

In a study just released, the bureau says there are now 1.9 million people in Australia, who own their own businesses.

Those most likely to be doing so are men, aged between 25 and 64.

They make up 68 per cent of Australia’s business owners.

And, typically, Australia’s small business operators work full time in their businesses.

They expect to keep doing so, too.

A remarkably high 96 per cent told the bureau that they expect to be still in their businesses in a year’s time.

The bureau said just over half – 54 per cent – have dependents and 55 per cent employ staff.

Luxury car tax revived

The Rudd government will get its luxury car tax,  after all.

Or most of it, at least.

The government had expected the tax to yield $555 million.

But it was voted down in the Senate, with Family First Senator Steve Fielding and Independent Nick Xenophon joining Coalition Senators, to oppose it.

The Coalition Senators had argued – fiercely – that the tax would hit farmers and tourist operators unfairly.

And that argument was criitical, to the way the two swing Senators voted.

As often happens in politics, this  was largely a false argument.

That’s because only top of the range four wheel drive vehicles and mini-buses would have attracted the tax.

Roughly four, out every five of these vehicles sold, would have been priced below the  luxury tax threshold.

The government complained loudly and often that the recalcitrant senators were blowing a big hole in its planned $22 billion budget surplus.

Kevin  Rudd, and other Labor luminaries, said that surplus was an essential buffer, to protect the nation, in very difficult economic times.

Apparently, the government was serious about preserving the surplus, as far as it could.

So it has been haggling with Senator Fielding.

The result?

Farmers and tourist operators will be able to claim deductions, of up to $3,000, once they have purchased their vehicles.

Senator Fielding said this concession will cost the government about $40 million, over four years.

Australian farmers worry about climate change

Australia’s farmers are firmly convinced that climate change is already under way.

And they are taking it personally.
These developments shows up, very clearly, in their responses to a survey conducted by the Australian Bureau of Statistics.

The survey showed that  almost two thirds of the nation’s farmers believe that climate change has already directly affected their properties.

And almost half of these farmers have already changed their management practices as a result.

“The most commonly reported perceived change in climate …was a change in rainfall patterns,” the bureau said.

Over 90 per cent said the rainfall patterns on their properties had changed.

Almost 75 per cent reported more “extreme weather events.”

And almost half reported “warmer temperatures.”

One of the very few farmers in Australia’s national parliament, Bill Heffernan, is also a firm believer in climate change.

Senator Heffernan, a New South Wales Liberal, warned parliament earlier this month that prospective climate change patterns will favour Australia’s North, at the expense of settled areas in the continent’s south.

But parliament still has its climate change sceptics.

One National Party MP declared last month that the world might be facing global cooling, not global warming

Reserve Bank board facing fine balances

All eyes this week will be on tomorrow’s meeting of the Reserve Bank board.

Most economists believe a rate cut is unlikely even though retail sales fell very sharply in June and the housing industry is clearly in retreat.

At 4.5 per cent, Australia’s inflation rate is still well above the Reserve Bank’s target of 2-3 per cent inflation over the course of a business cycle.

But another rate rise is also virtually off the table.

The Reserve Bank Governor, Glenn Stevens, has said that he accepts that the Australian economy is slowing.

So much so, in fact, that the Prime Minister, Keven Rudd, had to talk down rumours of a recession, late on Friday.

Rudd also urged Australia’s banks not to raise rates again, above levels indicated by the Reserve Bank’s overnight cash rate.

The Reserve Bank is still worried, though, about the risk of high returns from commodity exports, driving up Australia’s inflation later this year, as that money starts washing through the national economy .

The commodity price index, which the Reserve Bank has just released, confirms that fear.

It shows iron ore and coking coal prices, in particular, spiking sharply over the past year.

Figures to be released this week will throw at least some extra light on the state of the Australian economy.

House price indexes, for Australia’s eight capital cities, are to be released today.

They are expected to reflect some easing, as high interest rates have put buying a home beyond the reach of thousands of Australian families.

Housing finance figures, due out Wednesday, will probably reflect further falls in the number of new loans being issued.

But most attention will be on the July unemployment figures, which will be released on Thursday.

The Australian job market has been tight and that is not likely to change.

But the figures will be examined closely for any sign of weakening in Australia’s job market.

The $7 billion a year we will miss

The failure of the latest round of world trade talks will cost Australia about $7 billion a year.

High hopes had been held for these extremely difficult talks, almost up to the last minute.

But they collapsed on a disagreement between the United States and a group of developing countries, led by China and India.

The Australian Chamber of Commerce and Industry is making no secret of its dissapointment.

“A bold and comprehensive outcome from the Doha round could potentially have been worth another $7 billion a year to the Australian economy,” the chamber said.

It said there would also have been similar benefits for many other countries.

Thousands would have been lifted  out of poverty.

“Given the current global economic climate, it is disappointing that a small minority of the 153 WTO member countries have failed to demonstrate the leadership required to make the hard decsions necessary to benefit the gobal economy, it said.

Economists have estimated that the previous round of world trade talks, the Uruguay round, has already boosted Australia’s economic output by about $4.4 billion a year.

The chamber said Australia’s trade minister, Simon Crean, had worked tirelessly for a better outcome.
Mr Crean, too, was frank about his disappointment.

“We were poised to get significant improved access into the European market, into the US market – particularly in agriculture, but also in industrial products,” he said in a radio interview.
“…we would have seen the end to export subsidies out of this round

” we would have seen the end to the special safeguards mechanism that existed for developed countries.,

” We would have seen big cuts to tariffs.

“And the other big gain that came was the signalling conference on services;

“It’s such a frustrating circumstance.

“You know you’re that close, but, close enough is not good enough,” Crean said.