Wednesday 13th February 2008 - 6:13 am

Political correctness:don’t be too cynical

by Alan Thornhill

Don’t be too cynical about so called political correctness. That is, often, just a perjorative phrase for decency.

And ignoring it can be expensive.

The latest report of the Human Rights and Equal Opportunity Commission explains why.

A woman of Lebanese origin, for example, resigned from her job with a management services company in Sydney, after suffering harrassment.

She alleged that the director of the company sexually harrassed her, touching her inappropriately, and propositioning her at work.

The woman said she also encountered racial abuse. The same man had said to her:”If it was up to me, I wouldn’t have hired you.

“I hate Arabs.

“I always have.”

This man also made disparaging comments about the Lebanese food that the woman had brought to work, for her lunch.

The woman said she had complained about these events. But the response had been weak.

So she took her complaint to the commission, which supported her.

The outcome?

Statutory conciliation. That eventually included a $21,000 payment to the woman, as compensation.

That was, admittedly, on the high side of the results of such cases. But HREOC’s report is littered with them.

All reflect badly on management. Your company can – and should – do better than that.

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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.

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 - 7:16 am
Comments Off on Sorry:is still the hardest word to say

Sorry:is still the hardest word to say

by Alan Thornhill

Kevin Rudd wants to say “sorry” to Aborigines who were taken from their families, through what has now become known as the stolen generations.

But he isn’t finding that easy.

The Prime Minister hasn’t been able, so far, to respond to opposition demands that coalition members should see the wording of his apology, before they commit themselves to it.

Mr Rudd has asked Brendan Nelson to be patient. He has said the wording of the apology he is planning will be published today, on the notice paper for tomorrow’s sitting of parliament.

He says, too, that the precise words of the apology will be very important. Mr Rudd admits that, if he gets that wrong, a historic opportunity will be wasted.

Aborigines, mostly, have welcomed the fact that the government is planning an apology.

But their expectations are high. And any disappointment will be taken hard.

Isabel Coe, a veteran protestor, at the Aboriginal tent embassy on the lawns in front of the old parliament house in Canberra, for example, spelt it al out for Private Briefing yesterday.

“We still have sovreignty,” she said.

Kevin Rudd is adamant that his apology won’t open the door to compensation claims.

Equally, though, he is warning white Australians that improving the lot of their Aboriginal country-men will be expensive.

But he is determined to make a difference.

Rudd insists, though, that there will be a new dimension, in Labor’s approach to this issue.

He says he will be expecting “reciprocity” from Aboriginal people.

“From one end of this country to the other.

“We have never signed a piece of paper.”

The tent embassy, now in its 36th year, has expanded, hugely, over recent days.

It now looks like a beachside camping site, with brightly coloured tents, scattered across its lawns.

When Private Briefing visited the site yesterday, young aborigines, in one of the bigger tents, were attending a seminar on the meaning of the United Nations declaration on the rights of Aboriginal People. Their tutor had attended the UN session, at which that declaration was made, in September last year.

Aboriginal people, on the site, are planning a protest this evening, against the Howard government’s heavy handed “intervention” in the Northern Territory. That action was designed to protect children, living in settlements, against sexual predators, in their own communities.

That protest will be staged this evening outside the new parliament house, on the eve of the government’s Sorry Day, tomorrow.

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.

Thursday 7th February 2008 - 7:41 am
Comments Off on Recognise recession risk:Datamonitor

Recognise recession risk:Datamonitor

by Alan Thornhill

A leading international forecaster, Datamonitor, is warning that many finance professionals are putting their businesses at risk by not recognising the spectre of recession.

It might well have included Australia’s Reserve Bank, in that criticism, as the bank is still raising rates. But it didn’t.

Datamonitor had its eyes firmly on money and investment markets, instead.

The forecaster warned, bluntly, that it expects a “sustained economic downturn” in 2008-09.

It says that grim prospect emerges from no less than three studies it has conducted.

Yet, the London based analyst said most money managers still do not believe that there will be a downturn.

It said this attitude put them at risk of losing both their clients and their investment returns.

“Only five of the 65 wealth managers that Datamonitor surveyed across the globe (last September) say that a potential recession worries them,” the forecaster said.

“This will be to their detriment,” Michelle Gorman, author of one of the three reports warned.

But Ms Gorman said those who act now can still benefit.

The forecaster said rising interest rates, excessive borrowing and negative savings rates had combined to produce a “perfect storm” in most of the world’s economies.

Does that sound familiar, somehow?

So far, Australian analysts have generally been more cautious.

Reserve Bank economists, for example, are still focusing very closely on inflationary pressures.

And Access Economics is confident that strong demand from China will protect Australia, at least temporarily, from any collateral damage flowing from a US downturn.

But is all that just too comfy?

Datamonitor certainly thinks so.

But it sees opportunities, too.

“The volatility in equity markets will certainly propel more consumers to seek the security and predictability of fixed income investments,” it says.

Wednesday 6th February 2008 - 7:57 am
Comments Off on RBA:back to the 1980s?

RBA:back to the 1980s?

by Alan Thornhill

The Reserve Bank now freely admits that Australia’s economic growth was, too often, stifled, in the now the infamous stop-go days of the 1980s.

And it readily accepts its share of the blame.

But that’s ancient history. Isn’t it?

That question is worth asking, in view of Governor Glenn Stevens explanation of yesterday’s interest rate rise, of 0.25 percentage points. Especially if we look at his closing promise.

That was:-

“..the board will continue to evaluate whether the stance of policy will be sufficiently restrictive to return inflation to the 2-3 per cent target.”

In other words, we will keep raising interest rates until you stop spending. And if you’re children starve, that’s tough.

Interest rate rises, like adjustments to tax policy, are a very blunt weapon, in the fight against inflation. Especially when Mr Stevens, himself, identifies “high capacity use” and “labour shortages” as key causes of Australia’s presently high inflationary pressures.

High demand for Australia’s resources from China, Japan and India, in particular, are driving that “high capacity use.”

The skilled labour shortages, that Australia is suffering, flow from two sources. An inadequate immigration intake. And long term neglect of technical training, in particular.

What a string of interest rate rises will do, to tackle either of those underlying problems, is far from clear.

So what is needed? Nothing less than far reaching economic reforms, of the kind Australia’s last saw in the 1990s. These are now urgent.

Patch up policies, like baby bonuses and consumer taxes, won’t cut it any longer. Indeed, they never did.
Nor will arming Australia’s monetary authorities, with now outdated weapons, such as interest rate powers, alone.

The old methods can reliably promise us more pain. But the gains we should expect, from them are scarce.

There is also a whiff of the something gloriously isolationist about the Reserve Bank’s latest decision.

Mr Stevens admits that the world economy is “slowing” and that world financial markets are “fragile.”

But he gives those, very real, developments little or no weight, in the bank’s decision. The US Federal Reserve might be cutting America’s interest rates, enthusiastically. But Australia’s will go up, anyway. Well, well…
That seems very odd. Australia is, after all, one of the world’s great trading nations. It will, certainly, be affected by developments overseas. And it cannot escape the impact of the now apparently imminent US recession.

So is the Reserve Bank, somehow, slipping back into its old, bad, habits of the 1980s?

It is, certainly, becoming harder as time passes, to avoid that question.

Especially after 11 straight rate rises, with the grim prospect of more to come. And those nasty “inflationary pressures” still as persistent as ever.

Wednesday 6th February 2008 - 6:51 am
Comments Off on Economic reform:the new climb

Economic reform:the new climb

by Alan Thornhill

The Treasury chief, Ken Henry, is urging another bout of 1990s style reform of the Australian economy.

And the Prime Minister Kevin Rudd is listening. He is even thinking seriously of making Mr Henry his own right hand man. That is, appointing him head of the Department of Prime Minister and Cabinet.

The economic reforms which hit Australia in the 1990s were, without doubt, the most difficult – and the most rewarding – that the nation ever seen. The $A was floated, tariffs were cut and the old arbitration system was put out of its misery. We can smile, now, at all that. Even laugh, when we recall that a visiting British journalist once described old arbitration as a device that was as certain to produce inflation as a bicycle pump. But those reforms, back in the 1990s, did produce much pain and severe imbalances, for a while. Inflation escaped. Home loan interest rates hit 17 per cent. And voters became very annoyed, indeed.

But those reforms did lay the foundations of Australia’s modern, vibrant economy.

So what happens, now? What does this potentially troublesome treasury chief have in mind this time, for Australia’s long suffering public?

Ken Henry is not saying. And there have been no leaks yet. At least not in any great detail. This is worrying. Especially as the times don’t appear right for reform. Not large scale reforms, anyway.

Inflation could escape, again. The US could well be on the edge of a recession.
And the new Rudd government has promised $31 billion worth of staged tax cuts.

Its razor gang, headed by Finance Minister Lindsay Tanner, is now searching for matching cuts, in government spending, to offset that risky burst of potentially reckless fiscal generosity.

Scrapping the promised tax cuts, though,  is not  feasible. Memories of what happened to the Keating government, after it deferred the second tranche of the now famous L.A.W. tax cuts, are still too fresh. Mr Keating’s wonderful idea of putting that money into voters’ superannuation funds, instead of paying it out in cash, just didn’t work. Ir was such a good idea, at the time, that a leading union official is suggesting that it be resurrected now.  He is recommending that part of the promised $31 billion in tax cuts, should be paid into superannuation funds, rather than in cash.  That, too, is an excellent idea. But it won’t wash with the government’s hard heads.
Running a disciplined government, in all these circumstances, will be very difficult, without the extra worries, that inevitably go with large scale economic reform. Especially as Mr Rudd, already, has his own, very full agenda. That is the one that he put to the Australian people, before the last election.

But the small signals, now emerging in Canberra,suggest that he won’t be stopping there.

So the 20-20 summit, that is to be held in the national capital in April, might well prove to be as critical, to the future of the Australian economy, as Bob Hawke’s 1983 summit.

Mr Rudd is letting it be known that he is looking for “dozens” of new ideas, from the 1,000 or so of Australia’s “best and brightest” who will be consulted, over that weekend.
“We are just at the Everest base camp,” Rudd is saying.

Expect a long, painful climb ahead, with uncertain results.

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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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