Privacy pose shows the minister is off his Facebook

It must have felt nice for Communications Minister Stephen Conroy not to be the bad guy.  Just for a little while.  At a Senate estimates hearing last week, being peppered by questions finding even more flaws in his internet filter plan, Conroy seized an opportunity to direct a bit of fury Google's way.  And at Facebook, too -- the minister was on a roll.

Conroy accused Google of the "largest privacy breach in history across Western democracies" for its apparently accidental sampling of publicly accessible data from home wireless internet networks.  Then he claimed Facebook had "gone rogue" because the social network's privacy policy was getting increasingly complex and confused.

"What would you prefer?" asked Conroy.  "A corporate giant who is answerable to no one and motivated solely by profit making the rules ... or a democratically elected government with all the checks and balances in place?"

Sure, Conroy's sudden, passionate defence of the privacy of Australian Facebook profiles could be totally sincere.  But recall this:  he is a member of a government that is about to install body scanners in airports.  Body scanners aren't "mistakes", as Google described its inadvertent over-collection of data.

They're designed to peek under clothes and investigate the nude contours of travellers.  Some are able to capture and store images.  Now that's a privacy problem to be worried about.

At least when a corporation breaches privacy, it's relatively easy to deal with.

If you don't like Facebook's privacy settings, you can, you know, quit Facebook.  It's not hard:  it's in the "Account Settings" tab on the top right corner of the site.  If enough people do, Facebook will have to reform its ways, or go out of business.

And if you don't like that your wireless network is unsecured for Google or your neighbours to look at, secure it.

Most Australians now run high-powered wireless networks in their house and use them for online banking.  Perhaps a few minutes thinking about network security wouldn't go astray.

Certainly, Google should be chastened by its blunder.  If they have broken any Australian laws, then they should be punished.

But when the government runs roughshod over our privacy, that's much more serious.

As Conroy was launching into Facebook, a genuine threat to privacy was winding its way through Parliament -- healthcare identifiers, which form part of the government's electronic health records plan.  If it passes, every Australian will be allocated a unique number, and encouraged to store their health records in a government database.  No information is as sensitive as health records.  And these records will be accessible to half a million healthcare workers around the country.  Indeed, that's the point.

Ensuring information security in high-stress environments (like emergency rooms) or in busy retail environments (like a Medicare outlet) is no small task.  It's easy for computers to remain unlocked, or logged-in, even if just for a short time.  So it won't take very long for a serious compromise of security to occur.

In general, eHealth is a good idea.  But what the government proposes is a universal, compulsory, centrally managed and bureaucratically controlled record system.  Individuals will have no direct control over their own records.  (Unlike, for instance, the private online health record systems available from Microsoft and Google.)

The eHealth scheme is an Australia Card for your embarrassing bowel problem.

Privacy problems are endemic to centralised government systems:  1000 Medicare employees have been investigated for spying on personal information in the past three years alone.  That's one in six Medicare employees.

There are problems in Centrelink too.  In 2006, after a two-year study, investigators uncovered 800 cases of illegal snooping by 100 staff.

Now CrimTrac, the federal agency in charge of criminal databases (fingerprints, DNA, and criminal records) wants to control data from law-abiding citizens too (drivers' licences, birth registries and passport photos), all matched up to the electoral roll and collected on a nationally accessible police database.

The CrimTrac head, Ben McDevitt, claimed police "need to have access to the sort of data that is held by various governments in order to establish an individual's identity".  He said some privacy may have to be sacrificed for better law enforcement:  "I don't find that at all threatening or big brotherish." How reassuring.

Facebook has been deeply stupid -- abusing the trust of users, continuously changing their privacy settings, and playing fast and loose with personal information.  The company has long seemed dismissive of many privacy concerns and it deserves to be harangued by the press and punished by the marketplace.

But at least you can quit Facebook if you're unhappy.  If a government department abuses your trust or compromises your privacy, you can't do anything.

Ruddism doesn't add up

MALCOLM Fraser, now the darling of the left, has declared the Rudd Government to be worse than the 1972-75 Whitlam Government.

Previously, even many within Labor's elite saw Whitlam as unsurpassed in incompetence because of his business policy approach.

How could Mr Rudd, whose wife is a self-made multi-millionaire businesswoman, have invited such condemnation?

Partly it is due to his government's surging spending, ineptly administered.  Partly it is due to increased regulatory intrusion.

Although Mr Rudd promised to repeal a regulation for every new one introduced, the 10,000 new or amended regulations have been balanced by the repealing of only 52.

But the big difference between this Federal Government and all previous ones is Mr Rudd's total misunderstanding of how a modern economy works.

Mr Rudd sees profits and earnings as funds that can be tapped without this adversely affecting corporate and personal motivation.

This leaves him willing to grab business profits to finance a radical reorganisation of the economy.

The Federal Government has taken aggressive steps to seize company assets in three major areas.  These include the $42 billion telecommunications fibre to the home plan involving seizing Telstra's network assets;  the $18 billion-a-year emission trading system tax;  and the $9 billion-plus annual resource rent tax on mining.

With telecommunications, the federal plan would resurrect the monopoly state-owned network and protect it from competition by forcing Telstra to fold its copper wire into that network.

Telstra criticism of this has been restrained, because it hopes to cut a deal and is aware attacking the Government would bring an even greater savaging of its share price than is already evident.

With the ETS tax, the response from business was mixed.  Support came from firms receiving free carbon credits, and from those looking to profit from trading carbon credits, building wind farms and other high-cost renewable facilities.

The major losers -- households and small businesses -- are too dispersed and ill-informed to offer robust criticism.

With the resources tax, all mineral businesses are losers.

The Government's line that miners would be better off paying a $9 billion tax impost fooled nobody.

If the resources tax was levied only on new investments, this would invite little opposition.  Miners would quietly move their exploration activity offshore.  The loss would be to future living standards.

This occurred in Argentina a century ago after it adopted business-unfriendly policies that transformed it from among the world's richest countries to among the poorest.

But as the resources tax is also to be levied on existing developments, it means diverting $9 billion a year of income to government coffers from mining companies' shareholders, including superannuation funds.

Mineral executives, whose basic task is to protect shareholders' wealth, had no alternative but to campaign against this.  Mr Rudd will now counter this and use taxpayers' money to promote his agenda.

Mr Rudd's ideology was foreshadowed in his maiden speech in Parliament 12 years ago, when he expressed contempt for governments that retreated from regulation, ownership and service delivery.

Unfortunately, this indicates a rusted-on anti-business philosophy and his policy mistakes as Prime Minister have taught him nothing.

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Rudd loses grip on reality

Kevin Rudd's reliance on economic modelling to justify his resource super profits tax (RSPT) is ironic.  Only a year ago he was blaming economic modelling for causing the global financial crisis.  The prime minister complained about "neo-liberals" and their belief in the "efficient-market hypothesis".

Here's what he said:  "... neo-liberals were so convinced of the ideological righteousness of their cause ... they refused even to recognise the severity of the problems that emerged".  And, for good measure, "the problems did not fit the model, so the evidence was simply discarded".

Well.  The ideological righteousness with which the PM is pursuing his RSPT easily matches the zeal of any neo-liberal And when miners and investors raise problems with the modelling upon which the RSPT is based, their evidence is ignored.

It seems Rudd has no qualms about theoretical models when it's social democrats instead of neo-liberals doing the modelling.  The alleged benefits of the RSPT are benefits that are entirely the product of the assumptions that Treasury has used to construct the tax.  That's because the RSPT is the first tax of its kind in the world.

The post-budget speech that Treasury secretary Ken Henry delivered last week is revealing.  For 15 minutes he passionately defended the RSPT -- but not once did he refer to any actual examples or practical experience.  Henry's defence of the RSPT was entirely theoretical.  The evidence he relied on was a set of invented case studies.  The closest real-world parallel to the RSPT is Australia's petroleum resource rent tax -- but the secretary went out of his way to say that the two tax regimes were '"very different".  (Which means, incidentally, the PM is wrong when he says the Northwest Shelf which came into being under a petroleum resource rent tax is proof that resource companies can accommodate the RSPT.)

The RSPT might be nice and tidy in a theoretical sense or, as Ross Garnaut put it, it's "elegant", but it is completely unproven.  Maybe there's a reason the RSPT hasn't been tried anywhere else:  maybe it's because the RSPT doesn't work.

Rudd is doing what he accused neoliberals of doing.  Evidence that doesn't fit the Treasury model is discarded.  Critics of the tax are accused of scaremongering.  The consultation process over the tax is a sham because negotiation about the essential features of the tax has been ruled out.

The government will brook no opposition to the RSPT.  And nor, it seems, will Henry.  The Treasury secretary referred to complaints such as that the RSPT didn't take account of the rate of return required for risky resource investments.

In response, Henry simply said:  "All of these statements are incorrect".  But how would he know?  The tax hasn't been implemented yet.  The only thing the Treasury secretary can rely on is his theory.  And a theory is only as good as its assumptions.  Unfortunately for Rudd and his treasurer many of the assumptions behind the RSPT are completely unrealistic, and in some cases absolutely naive.

An alleged benefit of the RSPT is that investors will gain what is in effect a risk-free asset in the form of a tax credit guaranteed by the government to have a present value of 40 per cent of their initial investment.  But for this credit to have any economic value, investors and those who lend to investors have to believe that the government will at some future date honour the credit.

Of course there's always a risk that legal and tax regimes change over the life of a project -- it's called sovereign risk.  But the difference under the RSPT compared with existing schemes is that the potential for government decisions to affect the viability of the project is much greater because the government is underwriting 40 per cent of the project.

The time line for resource projects is in the decades.  Most governments can't keep their hands off the tax laws for more than a few months.  The Rudd government didn't even wait until its second term to grab what it thought was its fair share of resource company profits.  Anyone who believes that Australian governments understand that long-term investments require long-term certainty should look at the way superannuation has been regulated.

The RSPT might be satisfying as an academic econometric exercise but, as Kevin Rudd and Wayne Swan are discovering, the spreadsheet calculations of Treasury boffins don't reflect what happens in the real world.

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A lesson in how not to cook up a birthday cake

John Hewson's GST-on-a-birthday-cake moment is now folklore on how not to sell a new tax.  That lesson is something the Rudd government is now learning; it has experienced many birthday-cake moments explaining its resource rent tax.

It isn't clear what preparation the Rudd government undertook before announcing the tax.  Probably very little.  While the resource tax has been damned by faint praise -- apparently it's "elegant" -- few economists have come out in support of the actual tax.  It is one thing to say that so-called resource rents should be taxed, but quite another to support the actual tax being proposed.

At his public lecture, Professor Ross Garnaut, who literally wrote the book on the taxation of mineral rents (with Anthony Clunies Ross in 1983) said that he had not been consulted before the tax went public.

It is astonishing that such a broad-ranging reform could simply be cooked up in Treasury and unleashed on an unsuspecting public.

The Rudd government has announced a consultation process, yet the contentious aspects of the tax, namely the rate at 40 per cent and the threshold at 6 per cent, are non-negotiable.  This is an arrogant and lazy approach to tax reform.

The arguments made in support of the tax are simply risible.  We have heard all sorts of nonsense about resources belonging to all Australians and the need for compensation when in fact the resources belong to the state Crowns and mining companies already pay royalties for those mining rights.

Then there was the argument that mining companies are really foreigners and the profits move offshore.  Even if that argument were true -- it isn't -- a country as heavily reliant on foreign capital as Australia can't afford the luxury of capital xenophobia.

Last Sunday Treasurer Wayne Swan put out an Economic Note making the argument "that mining companies in Australia get a big discount on the company tax they pay because of very generous tax concessions they get at the expense of Australian taxpayers".

As evidence, Swan quotes an academic working paper published last year by the US think tank, the National Bureau of Economic Research.  The Henry review also quoted that paper.

This argument shows a fundamental lack of judgment on Swan's part and raises the question as to what exactly the public got for the $10 million the Henry review cost to produce.  The paper, written by PhD student Kevin Markle and his professor Douglas Shackelford, is an econometric examination of the relative tax burdens of domestic and multinational corporations.

They calculate effective tax rates and then strip out size and country and industry effects (and time effects) to examine whether different types of companies face different effective tax rates.

While it is a very good paper, Markle and Shackelford never intended to support the argument that the Henry review or Swan is attempting.  This paper has been quoted inappropriately and out of context.  What is extremely concerning is that Treasury and Swan's advisers don't know that context, or don't care about the context.  Either way, through ignorance or indifference, the Rudd government is attempting to introduce a tax based on an argument that is demonstrably wrong.

If anyone wants to calculate the effective tax rates of Australian companies they need look no further than the Australian Tax Office.

According to the latest ATO statistics, for the 2007-08 financial year, Australian mining companies paid tax at a rate of 27.81 per cent, far above the overall average of 24.56 per cent.

These numbers from the Tax Office are very different from the popular perception that Australian companies pay very low rates of tax -- especially compared with the statutory rate of 30 per cent.  This is due to differences between tax accounting and financial accounting.  For tax accounting purposes, the ATO is more prescriptive in how revenues and costs are accounted for, whereas generally accepted accounting principles allow more leeway.

The difference between the statutory rates and the effective rates can be explained by these accounting differences, and also by features of the tax system such as rebates, foreign tax credits and so on.  Ken Henry and Wayne Swan should know that.

Ross Garnaut made the point that the resource rent tax needs to be debated on its own merits.  He suggested it was the miners who were being somewhat shrill.  To be blunt, the federal government is no better.  In fact by continually making the kind of false claim like that we saw at the weekend one is invited to wonder whether the tax does have any merit, or if the government is simply desperate for cash.

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Defence's spending debacle

If you still have faith in the natural efficiency of government, there's a quick way to eliminate that.

Read the first dozen pages of the Australian National Auditor Office's report into the Defence Department's Lightweight Torpedo Replacement Project, which was released last week.

In the mid-1990s, Defence decided it wanted a new anti-submarine torpedo that could be deployed on frigates, helicopters, and patrol aircraft.  Phase 1 of this acquisition started in March 1998.

Twelve years and two months later, $391 million has been spent and there's still no torpedo.  The whole thing would be substantially over budget if they hadn't eliminated three of the five platforms the torpedo was originally supposed to be deployed on.

In fact, the auditor general has now pointed out the torpedo will never do what the Defence Department wanted it to do.

The audit catalogues the project's decade long history of poor planning, mismanagement, buck-passing, and careless decision-making.  The Defence Department thought they were buying an off-the-shelf piece of equipment, already being used by other countries, but it took them "several years" to realise that was "not the case."

Not a resounding success, then.

Certainly, some big government projects don't function as advertised.  The Rudd government has worked hard to remind us of that truism.

But the list of Defence projects that are over-budget and mishandled is pretty impressive.

The $16 billion F-35 Joint Strike Fighter is well on its way to becoming as iconic a debacle as the Collins class submarine.  The Seasprite helicopter was cancelled in 2008, because it was already running seven years late, and we'd already spent $1 billion on it.

The Wedgetail airborne early warning program is four years overdue.  The Tiger Armed Reconnaissance Helicopter:  also four years overdue, and mired in contractual disputes.

The upgrade of the M113 armoured personnel carriers are three years overdue.  The Auditor General found the M113 upgrade had been characterised by "poor project management practices;  ineffective project planning;  inadequately defined project objectives;  and technical problems".

Indeed, "poor" is a word commonly encountered in Defence audit reports.  A report published in March covering explosives procurement documented poor budgeting practices, poor lines of responsibility, poor contract management, and poor project administration.

Even a new program designed to cut down on waste -- a logistics information system to track Defence assets -- has blown its budget by 20 per cent and delayed three years.

It's almost as if Defence is constitutionally incapable of buying new stuff without being overcharged.

A McKinsey report earlier this year found Australia's military spending was among the least efficient in the world.  The consultancy compared the amount of money we spend with the amount of equipment we procure.  In a list of 33 major countries, we tied with the United States for worst at getting value for our Defence dollar.

Part of the problem is politics drives procurement.  Politicians want to buy Australian-made.

The McKinsey report noted those countries which tried to procure their equipment domestically tended to get worse value for money.  That's obvious here:  the Auditor General found a desire to support local industry meant the torpedo program was pushed ahead despite critical difficulties with the project.

You'd have thought the government would have learnt from the Collins class submarine fiasco, which was built in Australia to everyone's great regret.  But the government intends to build the next generation of submarines in Adelaide too.  In fact, two-thirds of the $100 billion expected to be spent on defence acquisitions over the next decade will be spent in Australia.

That's because politicians don't like to miss any opportunity to claim they're "creating jobs".

The bigger the problem is the easier it is to spend other people's money irresponsibly.  Reckless spending is common across all areas of government.  But it's especially common in Defence, where decisions about what to buy are based on guesstimates of the strategic environment 10 or 20 years down the track.

Yet once procurement programs are started, they're hard to stop.  One military insider told The Australian earlier this year, "to question the F-35 inside the Defence Department is a dangerous career move".

The Rudd government intends to clean up military procurement.

But don't hold your breath.  Ever since the Turana project -- a pilotless target aircraft for the Navy -- was embarrassingly cancelled in 1979 there have been frequent reviews into reforming Defence procurement processes.  They all find endemic mismanagement, and they all recommend greater accountability.

Defence procurements are highly technical, often secretive, and far removed from the eye of the taxpayer.  But the torpedo program makes the home insulation scheme look like the ideal model of policy development.

It would be delusionally optimistic to believe this is the last indictment of a Defence program we'll see.

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Rocks in their heads: ministers' miscalculation over resources tax leaves Labour in a hard place

According to the Metals Economics Group, global spending on exploration in 2009 totalled $US8.4 billion.  Australia enjoyed 13 per cent of this spending, just below Canada (16 per cent).  Peru, the US, Russia, Mexico, Chile.  China, Brazil and South Africa filled outthe top 10.

Australian mineral production comprises some 8 per cent of GDP and over half of our exports.  But, as evidenced by the proposed resources super profits tax (RSPT), success can invite the greed of governments.  According to the government, a 40 per cent RSPT would pick up $9 billion more a year from miners and motivate them to produce more.But Canadian Finance Minister Jim Flaherty quickly recognised the new policy as offering "another competitive advantage for Canada".

Among countries with major prospective mineral developments, only Australia is contempla ting a resource rent tax outside the oil and gas sectors.  Nevada and some Canadian provinces have profits based royalties, but their rates are 2 to 10 per cent depending on the mineral being mined -- a fraction of those proposed for Australia.

A profits-based approach can have advantages in certain circumstances, when a mine is nearing exhaustion or was marginal in the first place.  But the RSPT is really about collecting more money from existing mines.  Increasing ta xes after investments have been locked in is really expro priation of corporate income.

Australia's proposed taxation arrangements confuse super profits with high profits based on normal business activities.  Some mining businesses do earn high profits as a result of two factors.

The first is termed quasi-rents.  These differ from economic rent in that the high profits for successful firms are matched by losses for the un successful.  Exploration activity is the start point for a successful mine and few searches -- at best one in 10 -- lead to a successful find.  Moreover, each search is undertaken only after expensive research has been conducted in identifying the most prospective areas.

If there were general economic rents being earned in mining we would see, contrary to the evidence, that mining profits are on average greater than those of other industries.  Such systematically earned high profits are due to resource scarcity driving up prices are not happening.

Raw material prices fluctuate but, over the long term, they are falling relative to other goods and services because although the most accessible resources may have been previously mined, technology advances are more than compensating for this.

The second factor responsible for higb profits being earned by many Australian mining companies is much enhanced efficiency.  Australian mining firms have implemented labour reforms, built dedicated transport infrastructure and invested in mine-site equipment and in ensuring product quality and grades meet customers' needs.  Such business improvements do not warrant a special tax rate.

Though economic rents do not generally exist for most minerals, this is not the case with oil and gas, where higher prices are evidence of resource scarcity.  Separate (profit based) taxation regimes are in place already in Australia to reflect this.

Similarly, special regimes are necessary in areas where existing exploration bas revealed highly prospective possibilities nearby.  As part of the exploration bargain, firms spend money to seek out value, and they must surrender areas of the exploration lease at known time intervals and report the results of their activities.  So if a major resource is discovered, rights to nearby areas should be allocated through some auctioning system or by subjecting them to a higher tax rate.

The government miscalculated the level of opposition from miners who cannot recoup this tax grab by passing the costs on.  Ministers had anticipated a lengthy dialogue with business to gauge the strength of the opposition and, perhaps, a watering down of the proposals.  Meanwhile, it would have a fiscal trophy worth $9 billion a year to demonstrate its credentials for economic conservativism.  But business leaders say they cannot risk tbe RSPT and are gearing up to oppose it.  The prospect of the tax knocked $15 billion off mining shares.  No CEO can acquiesce in such destruction of shareholder wealth.

If the government backs down, as it has on carbon trading and other policies, it will be ridiculed.  If it maintains the RSPT, it may go to the election confronting $1 billion worth of hostile advertising.

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Budget papers fudged to boost Rudd's stimulus effect

"It will always be difficult," said Ken Henry in February 2009, after he was asked whether the government would ever be able to judge the success of its stimulus package.

Just over one year later, that caution has completely disappeared.

About a minute into Wayne Swan's budget speech last week the Treasurer said he was "proud to announce this strategy is working, ensuring our economy has far outperformed the rest of the developed world;  Without stimulus, we would have gone backwards".

And the Government's budget papers soberly concur:  "It appears that the impact on economic growth of the fiscal stimulus that countries, such as Australia, put in place has exceeded expectations."

So:  verdict's in?  Not quite.

Certainly, Australia's economic performance has been comforting.  Our unemployment rate is around 5.4 per cent.  Compared to the United Kingdom, which has an unemployment rate of 7.8 per cent, or the United States, which has an unemployment rate of 9.9 per cent, we're doing pretty damn well.

But the question isn't whether we have done well.  It's whether we have done well compared to how we would have done if we hadn't had a stimulus, or if it that stimulus had been smaller.

And here the Government has scored an extraordinary own goal.

Slotted within Budget Paper Number One, Statement Two, Box Four is a graph which purports to be the final word on stimulus packages.  The graph measures the size of the stimulus packages of 11 countries.  It then calculates how their economies have performed, compared to how the International Monetary Fund one year ago predicted their economies would perform.  Using this technique, the graph shows a big stimulus package is closely correlated with good economic performance.

Putting aside whether the causation flows the other way (could dire economic forecasts from the IMF have scared countries into implementing bigger packages?) it's an elegant way of showing stimulus works.

Well, it would be -- if the Treasury hadn't cherry-picked the data.

In fact, there's a pretty strong case the Government is being deliberately misleading.

That's because the IMF data on which the Treasury graph is built doesn't list just 11 countries.  It's actually a list of the G20 countries -- 19 states plus the European Union.

RMIT Professor Sinclair Davidson ran the calculation again, this time with all 19 countries included.  And -- surprise! -- the correlation disappears.  There is no statistically significant relationship between stimulus package size and economic performance.

So why did Treasury pick those 11 countries?  They're not OECD countries -- there are 31 members of the OECD.  And they're not the world's "advanced economies", although Wayne Swan keeps using that phrase.  Thirty-four countries make up the IMF's official advanced economies list.

Damningly, the Treasury seems to have deliberately ignored those G20 countries (like Russia and South Africa) which implemented massive stimulus packages but have subsequently had terrible economic performance, and those countries (like India, Argentina, and Indonesia) which had small packages, but have still done well.

It's like ignoring patients that died after they took an experimental medicine, or got better without taking it -- but applying to be listed on the PBS anyway.

This is not an academic problem.

Whether the stimulus package worked is at the absolute heart of the Rudd Government's re-election strategy.  If the Government can't take credit for Australia's economic performance, it loses its only real policy success.

Governments aren't all-knowing and all-seeing.  The stimulus package was a crap-shoot as much as anything else;  a massive amount of money dumped as quickly as possible into an essentially random smattering of industries, with the hope the Government could lift the economy by brute force alone.

After all, does anybody believe that home insulation is the pivot on which our economy turns?

Few Governments have had so many chips fall in their favour.  The economy is performing well, and, at least until late last year, an overwhelming majority of Australians supported the Government's proposed action on climate change.  Yet, even with all this, Kevin Rudd has seen a precipitous fall in his popularity.  No surprise Rudd and Swan are falling back on a story about performance during the economic crisis.

Rudd is being forced to run on his economic record, and Treasury's argument that countries which pushed through a big stimulus had a big recovery.

So the fact that Treasury had to cherry-pick data to prove the stimulus worked is not a good look.

It makes you nostalgic for the old Ken Henry, who back in February 2009, said "there are sufficient differences among economies that that sort of analysis … would not be particularly useful".

Shame this modesty couldn't last an election cycle.

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Food labelling law and policy review

Submission to the Council of Australian Governments

1.0 INTRODUCTION

The Council of Australian Governments has commissioned a review into Australia's food labelling policy and laws chaired by Dr Neal Blewett AC.

In its issues consultation paper, the committee raised a series of questions addressing possible justifications and proposals for reform of Australia's food labelling regulations.

We are committed to smaller government and are keen to ensure that Australia's food labelling regulations are well designed and do not place unnecessary burdens on enterprise, encourage consumers to obfuscate responsibility for their own behaviour and unnecessarily empower government to make decisions on behalf of individuals.  This submission will address some of the issues arising from the thirty-nine questions asked in the issues consultation paper.

2.0 FALSE OR MISLEADING CONDUCT

It is clear from the issues consultation paper that there are concerns in the community that current food labelling regulations are providing opportunities for producers to engage in false or misleading conduct.

As the issues consultation paper points out, the Trade Practices Act already provides avenues to investigate and prosecute those engaged in commerce who are also engaged in false or misleading conduct.  It is therefore odd that false or misleading conduct, and opportunities for recourse against it, is given significant attention by the review.

There will always be interpretative issues in food labelling between consumers and producers.  For example the introduction of 'traffic light' labelling could easily appear deceptive to a consumer.  For example, a product labelled 'green' may suggest to a consumer that the product is good for you deceiving the consumer into thinking that they don't need to consider its consumption as part of a healthy, balanced diet.

The interpretative issues surrounding government regulated labelling are likely to be worse than those created by industry because some consumers may interpret government regulations as more independent than the claims made by industry who have a vested interest in having an appealing branding.

In this situation it is actually more desirable to place the burden of honesty on businesses that can, at least, be held to account for their behaviour through litigation.  By comparison the consequences of government labelling are far less likely to provide consumers with an avenue for recourse.

Considering the absence of evidence that there are currently serious problems with false or misleading conduct on the part of food manufacturers, and that there are serious consequences of introducing more rigid regulations, there appears to be no justification to introduce more burdensome regulation.

3.0 INFORMATION ASYMMETRY AND
ALTERNATIVE POLICY OBJECTIVES

A well functioning marketplace requires a limited role for government and that may include disclosure in food labelling that assists in balancing out the asymmetry of information between consumers and producers.

A clear example is the listing of ingredients on food products to ensure that consumers can make reasonably informed decisions of what is included in the food product that may not be observable to the naked eye, or because it is concealed as a result of packaging.

The consequences of not doing so are very clear because of the health risks immediately associated with allergies or certain intolerances such as gluten or lactose intolerance.

3.1 INDIRECT POLICY OBJECTIVES

However, many advocates for further labelling appear to be arguing for more extensive labelling to address indirect consequences of food consumption, such as the impact particular foods may have to poor diets that may result in obesity.

Food labelling should not be used as a backdoor form of policy regulation to achieve an alternative public policy objective that has multiple causes.  In the case of obesity, food consumption is part of a broader mix of factors including lifestyle choices, the environment and their level of physical activity, as well as their diet.

3.2 INDIRECT POLITICAL OBJECTIVES

Similarly, food labelling should not be used as a mechanism for addressing socio-political or environmental concerns.  Included in the issues consultation paper was a question related to the specific labelling of palm oil.

As outlined in Section 4.0 food labelling regulations is not the best mechanism to address socio-political or environmental concerns in labelling.  And as outlined in our recent submission ⁽¹⁾ to the Senate Community Affairs Committee's Inquiry into the Food Standards Amendment (Truth in Labelling -- Palm Oil) Bill 2009, and repeated below, the foundations for the campaigns against palm oil are entirely contestable.  It would be an extremely dangerous precedent to regulate in favour of a political campaign through food labelling.

3.3 ANTI-PALM OIL CAMPAIGNS

Recent political campaigns against palm oil have been driven by Australia's publicly funded zoos in conjunction with international environmental activist organisations, who claim that wildlife and orang-utans are dying as a consequence of the Indonesian and Malaysian palm oil industries.  The claim is that forest used as a home by wildlife and orang-utans is being cleared for the production of palm oil.

But palm oil is not responsible for deforestation.  Poverty is.

Deforestation occurs around the world as poor farmers seek to lift themselves out of poverty through the production of commodities that are in demand in domestic and international markets.

As the world's largest traded oil, palm oil is in heavy demand throughout the developing and developed world because it is a high-yield, trans-fat free, Vitamin A-rich, low-cost oil. ⁽²⁾

Without palm oil, deforestation would still occur in the developing world.  But instead of palm oil, growers would simply produce different crops, such as replacement oil seeds.  Such a scenario would lead to expanded environmental degradation and deforestation because of the relatively low-yield of alternatives.

Based on data from Oil World ⁽³⁾ palm oil remains the most efficient oil seed.  Even one of palm oil's critics and sponsors of the Bill, Senator Bob Brown, acknowledges that "oil palm is the most productive oil seed". ⁽⁴⁾

Table 1 | Comparison of oil yield (tonne / hectare)

Oil	Tonnage per hectare
Soybean oil	0.37
Sunflower oil	0.5
Rapeseed oil	0.75
Oil palm	4.09

Source:  Oil World, 2010, "Oil World Annual 2020", Hamburg, Germany

Table 1 outlines the yield potential of four major competing oils and clearly identifies the high-yield potential of palm oil.  Should alternative oils be grown, more land would be needed to produce an equivalent volume of oil to replace palm oil, likely resulting in further deforestation.

Unfortunately food manufacturers and celebrities are not heeding this message.  In a recent episode of Channel 10's popular program, The 7pm Project, a panellist stated "I get worried when I hear somebody say ... there's no viable alternative (to palm oil)." ⁽⁵⁾

But French retailer, Groupe Casino, has found an alternative and has announced that it will be replacing palm oil for rapeseed and sunflower oils in more than 200 different food products. ⁽⁶⁾  But as a result of Groupe Casino's decision up to nine times more land will be needed to produce the same oil quantity to replace palm oil as an ingredient in food products.  The consequence is that to achieve the perceived benefits of not using palm oil, Groupe Casino is likely to use more of the world's scarce resources to produce the same (or smaller) quantities of products.  It is hardly a win for the environment.

No doubt many environmental groups with disagree with these arguments.

And it is precisely because of the contestable arguments surrounding socio-political and environmental campaigns, that food labelling regulations should not be used to achieve these objectives.

4.0 MARKET-BASED FOOD LABELLING WORKS

Many of the concerns raised by advocates for more extensive food labelling regulation relate to concerns about false or misleading conduct, or a lack of information provided to consumers to make informed decisions.  But there are viable, responsive market-based alternatives that address their concerns that don't warrant further regulation.

Certification marks that have consumer awareness, understanding and trust are a much stronger alternative to extensive government regulation that seeks to impose a one-size fits-all-model on food production.

Private certification marks already exist to assist consumers in making informed decisions.  And they are regularly innovated much earlier than government regulations because the marketplace is more responsive to consumer concerns.  For example:

• The Heart Foundation's red tick of approval certification mark to assist consumers in identifying products that posed a lower risk in promoting cardiovascular disease, was created in 1989.
• The contemporary Fair Trade certification mark to assist consumers in identifying perceived 'ethical' consumption based on environmental and social objectives in the developing world was created in 2002, following the development of earlier forms of the mark.
• Roundtable for Sustainable Palm Oil certification to assist consumers in ensuring palm oil ingredients are sourced from sustainable plantations, was founded around 2004.

Private certification marks are radically different from labelling requirements because they involve a form of certification, at production and through the supply chain to the consumer.  These certification marks secure credibility by providing an overall concept of value to consumers that they understand, generally to achieve political objectives.

The value held in these certification marks is also a result of the significant resources dedicated to their promotion and the voluntarily nature into which they are entered. ⁽⁷⁾

By comparison, government-mandated labelling requirements remove the capacity for the market to address these problems, and they introduce a coercive labelling regime.

5.0 CONCLUSIONS

There has been increasing pressure on governments to reform food labelling regulations because of concerns that they do not properly assist consumers in making informed decisions.

False and misleading conduct by those who mislabel products can already be addressed under the Trade Practices Act.  And should government seek to regulate further and introduce new, proposed forms of labelling, consumers could be worse off because of a lack of recourse of misleading labelling regulated by government.

Food labelling should not be used as a backdoor mechanism to achieve alternative public policy challenges or to support socio-political or environmental campaigns.

Food labelling should ensure consumers are able to make informed decisions based on identification of labelling that they trust.

The best way to ensure consumers can discern between products based on diverse concepts of value is through private certification and the representation of certification marks that consumers understand and identify with, not additional mandated labelling.

Private certification marks achieve the same level, if not more, awareness with consumers and ensure that consumers continue to have choice about whether they want environmental concerns included as part in their concept of value.

Doing so also provides a level of choice for producers based on where they wish to position their product in the marketplace.

6.0 REFERENCE LIST

Brown, B., 2009, "Second reading speech:  Food Standards Amendment (Truth in labelling -- Palm oil) Bill 2009", Australian Senate, Commonwealth of Australia, Canberra, Australia

Groupe Casino, 2010, "Groupe Casino undertakes to discontinue the use of palm oil in its own brand products, 200 palm oil-free products by 2010 and all products in the long term", Paris, France

Oil World, 2010, "Oil World Annual 2020", Hamburg, Germany

The 7pm Project, Channel 10, 5th April 2010

UNICEF, 2004, "Vitamin and mineral deficiency:  A global damage assessment report", United Nations, New York

Wilson, T., 2010, "Fair trade and voluntarism", in Macdonald, K. & Marshall, S. (Eds), "Fair trade, corporate accountability and beyond:  Experiments in global justice", Ashgate Publishing, Surrey, United Kingdom

Wood, R.J., 2010, "Submission to the Senate Community Affairs Committee Inquiry into the Food Standards Amendment (Truth in Labelling -- Palm Oil) Bill 2009"

---

ENDNOTES

1.  Wood, R.J., 2010, "Submission to the Senate Community Affairs Committee Inquiry into the Food Standards Amendment (Truth in Labelling -- Palm Oil) Bill 2009"

2.  UNICEF, 2004, "Vitamin and mineral deficiency:  A global damage assessment report", United Nations, New York

3.  Oil World, 2010, "Oil World Annual 2020", Hamburg, Germany

4.  Brown, B., 2009, "Second reading speech:  Food Standards Amendment (Truth in labelling -- Palm oil) Bill 2009", Australian Senate, Commonwealth of Australia, Canberra, Australia

5.  The 7pm Project, Channel 10, 5th April 2010

6.  Groupe Casino, 2010, "Groupe Casino undertakes to discontinue the use of palm oil in its own brand products, 200 palm oil-free products by 2010 and all products in the long term", Paris, France

7.  Wilson, T., "Fair trade and voluntarism", in Macdonald, K. & Marshall, S. (Eds), 2010, "Fair trade, corporate accountability and beyond:  Experiments in global justice", Ashgate Publishing, Surrey, United Kingdom

Why trimming the waste line is harder than it looks

It must be election time:  fiscal conservatism is fashionable again.  Tony Abbott and Joe Hockey go into this election with a battle cry about the Rudd government's budget deficits and ballooning national debt.  Kevin Rudd claims the budget is heading unstoppably back to sweetness and surpluses, but the opposition still has a case -- by 2011, the government will owe $90 billion, 6 per cent of our GDP.

Hey, fiscal conservatism worked for Kevin07.  It might work for TonyTwentyTen.  But fiscal conservatism is easy when budgets are riding high and government debt is negligible.  If the budget isn't balanced, and debt needs to be reduced, then you'll want to identify government programs to cut.

In his budget reply on Thursday, Abbott identified a couple of cuts -- abandoning the national broadband network, fiddling with the building education revolution, and a freeze on hiring new public servants for a while.  And reducing government advertising.  Every opposition wants to reduce government advertising.

It's a pretty tepid start, but it's a start;  Joe Hockey will apparently propose more cuts this week.

He'll need to.  If the Liberals want to walk the "high road of expenditure restraint" and clear the national debt as soon as possible, they have to cut a lot more spending.  Luckily, nobody has to look far to find things to cut.

The government is giving a not-for-profit $120,000 so they can host an interstate rickshaw ride to raise awareness of poverty.  We're giving a wallpaper company in New South Wales $36,000 to update its website, and $70,400 to another company so it can develop a "social game platform".

As well, $15,000 went to a team of glass percussion artists, $100,000 has gone to a Hervey Bay company to build two new cabins in their caravan park, and $8000 of federal money paid for an electric scooter-charging station in Victoria Park, Western Australia.

These are all part of multimillion-dollar programs that could be eliminated instantly.

Then there's the $13 million we give to the Australian Wine and Brandy Corporation, and the Grape and Wine Research and Development Corporation's $27 million.  (They're different, apparently.)

And the $150 million the government plans to spend on that idiotic "Nothing Like Australia" tourism campaign.  And the $254 million for elite sport programs.

That should be the test.  You're not serious about reducing government spending if you're unwilling to upset the men's Olympic volleyball team.

With so many so obviously absurd programs, you'd think eliminating waste would be easy.  But every program, no matter how silly or unnecessary, has passionate supporters.

When the government spends, it makes some individuals and industries reliant on that spending.  And public servants whose careers depend on that spending's future.  No matter what, someone, somewhere, gets upset when you cut a government program.

So governments are usually reluctant to get rid of anything.

Take the Department of Climate Change.  Its 640 hand-picked bureaucrats were charged with implementing the government's emissions trading scheme.

So you would have thought once the government abandoned the scheme, those bureaucrats might no longer be needed.  More fool you.  They're still there:  patiently waiting for their real jobs to start, filling in the long hours of the day tinkering with renewable energy regulations and trying to fix the insulation program.

On the Labor side, politicians with ties to public service unions hate the prospect of eliminating the jobs of their supporters.

And when Joe Hockey flagged the possible public service reductions earlier this year, his Liberal parliamentary colleague Gary Humphries said Hockey would have him "to reckon with".  Humphries is the Senator for the ACT, and Canberra is a government town.

Right now, no one is more aware of how hard cutting the size of government can be than the new British Prime Minister, David Cameron.  He enters No. 10 with the country labouring under more than $A1.3 trillion of national debt.  If the United Kingdom doesn't want to become the Greece of the north, Cameron will have to do something drastic.

Certainly, both Gordon Brown and Cameron went into the general election saying how much they wanted to tackle this debt.  Brown proposed reducing government expenditure by 10 per cent, cunningly campaigning on an "I broke it, I'll fix it" platform.

But neither candidate was eager to go into too much detail about just what spending they planned to cut.  Because many of those cuts will have to be public service retrenchments.

No matter how much the British people say they want the UK's budget back in the black, it will take a lot of political courage for Cameron to get it there.

In Australia, that's a big problem too.  There's much government waste to cut.  But waste has friends and cutting waste makes enemies.  Nobody wants to make enemies in an election year.

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Resource tax digging a hole for rich and poor

Terry McCrann named Labor's proposed Resource Super Profits Tax (RSPT) the Really Stupid Politicians Tax.

RSPT also has a similar ring to British political party Respect, an amalgam of groups including the Revolutionary Communist Party and Socialist Resistance.

The Respect Party's platform calls for higher taxes on the rich, nationalisation and "a socially just and ecologically sustainable society".

The RSPT, like the policies of the political party whose name it resembles, would undermine living standards under the guise of "fairness".

The tax involves expropriating $9 billion a year from successful mining businesses like BHP, Rio and Fortescue Metals, which the Government stigmatises as "foreign owned".  Prime Minister Kevin Rudd says he will give two thirds of the tax grab to superannuants, small business and infrastructure.

The rest will be used for more conventional vote-buying.

This is killing the geese that have laid Australia's golden eggs.

It is banana republic politics at its worst, concocted by people who don't know or don't care about the effects of government-created business risk.

If Canberra confined its new tax to new developments little would be raised, as the tax would choke off many new prospects.  Recognising this, Canberra intends RSPT to apply retrospectively to the profits of successful mining investments made under the existing tax framework.

Mining depends crucially on discovering hidden mineral value.  And for every attempt to do so there are 10 failures.  Once the costs of the failures are factored in there is no super profit, just some companies which thrived while others bombed.

Mining is similar to other research-based industries -- the information technology (IT) industry has its Apples and Microsofts but also hosts of failures.

A super profits tax on successful IT firms, as with mining, would severely reduce innovatory activity.

Astoundingly, the Government argues its new tax grab will provide companies with increased assurances that the future taxation regime will be more stable.

By torturing economic data, Treasury even claims its modelling shows the new impost will lead to an incredible 5.5 per cent increase in the resources sector's output.

Only politicians or public servants far removed from commercial realities could accept such notions.

BHP estimates the RSPT would increase its 43 per cent tax rate to 57 per cent.

Like any other company, it is not sufficiently gullible to believe that a 40 per cent super profits tax on top of its existing taxes will leave it better off!

Labor's $9 billion-a-year RSPT grab on the resources industry follows a familiar pattern.

We already have the tobacco tax, which nobody dares to oppose for fear of being painted as supporting the political elite's ultimate villains, tobacco companies and smokers.

The Government still intends to introduce the $18 billion-a-year greenhouse gas tax, and its telecommunications policy is designed to force Telstra to give away its network.

Only unscrupulous governments introduce new impositions on businesses after they have locked in key decisions.  Such measures are not really taxation but are better described as institutionalised robbery of shareholders, including superannuation fund contributors.

And the adverse effects on wealth creation penalise everyone's future affluence.

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No self-control in budget

Kevin Rudd has come full circle.  Before the 2007 federal election, he was a fiscal conservative.  During the global financial crisis, he was a social democrat.  Since budget night on Tuesday, he's a fiscal conservative again.  (Not to forget once upon a time, the Prime Minister owned up to being a "Christian socialist").

Doing the rounds of post-budget interviews on Wednesday, the PM stressed the economically conservative credentials of the budget.  The lines from Treasurer Wayne Swan about this being a "no-frills" budget that had nothing to do with politics reinforced that theme.

Much of the media have uncritically accepted Rudd's and Swan's rhetoric.  Measured, prudent, and responsible have been descriptions of the budget.

There's a sense from some commentators that even though the PM might have been joking about being a fiscal conservative in 2007, three years on he might now be serious.

This sort of sentiment is a product of journalists' wishful thinking, rather than a hard-headed assessment of the government's track record.

Commentators are yearning for a return to the days of Keating and Costello as treasurers.  When Keating and Costello talked about reform, you could at least be reasonably sure they believed in what they were saying, even if they didn't always deliver it in the form they promised.  The significance of the press gallery welcoming Rudd's supposed new fiscal conservatism is the gallery's hope that this is a precursor to the government developing, and then sticking to, some sort of reform agenda.

Journalists are tired of making excuses for a leader and his cabinet that twists, turns, and backflips according to what the latest opinion polling says.

(The charmed treatment Julia Gillard receives from the press is partly explained by the media's frustration with her colleagues.  Gillard is one of the few ministers who appears to have thought about a plan for what she wants to achieve in her portfolio, and who has then bothered to explain it, and who has remained committed to it for more than five minutes.  That strategy has got the indulgence of an admiring press gallery, which is how she's been able to survive the scandal of her school construction program.

Anyone else administering a $16 billion program the way she has would have been sacked.  But when you're the Deputy Prime Minister, who has confronted and defeated teacher unions over literacy testing, you're judged to a different standard).

There's not too much that's fiscally conservative about this budget.  An economically prudent government would not be pinning its hopes on escaping a budget deficit via a new resources tax.

Especially if it is a tax that defines a "super profit" as anything earned over the long-term bond rate.  And especially if is a tax the likes of which has not been implemented anywhere else in the world.

Bizarre is the only description that can be given to the comments of the deputy governor of the Reserve Bank who was reported as saying the super profits tax might be a good thing because it could cause some resource projects to collapse and therefore reduce inflationary pressures on the economy.

Presumably the deputy governor would welcome a recession because that would also reduce inflation.  (Thankfully, Swan had the decency to say he disagreed with the deputy governor).

There are two sides to fiscal conservatism -- the taxing and the spending.  And it's difficult to see how an administration that plans to spend $43 billion on a broadband network without having done a cost/benefit analysis can claim with a straight face to be fiscally conservative.

The government is nothing if not creative in the way it justifies the tag of fiscal conservatism for this budget.

The claim boils down to the fact that the government hopes its higher taxes on resource companies will help deliver a budget surplus of $1 billion in three years' time.

Based on this reasoning, it doesn't matter how much spending and taxes increase -- if there's a budget surplus, no matter how tiny, and no matter how far into the future, the government will qualify as "fiscally conservative".

Rudd and Swan think they deserve plaudits for planning to spend only 99.99 per cent of the massive rise in revenues anticipated from the resources boom.  That sort of thinking is like that from a seven-year-old caught with his hands in a packet of chocolate biscuits who says to his mother he should be praised for his self-control because he only ate most of the biscuits, not all of them.

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7.30 meltdown shows PM is hot under the collar

Kevin Rudd's "passionate" outburst on climate change during an interview with the 7.30 Report's Kerry O'Brien on Wednesday night shows he's out of touch with voters as much as his temper.

In response to criticism that he lacks the political kahunas to go to a double-dissolution on climate change Rudd said professed "Penny Wong and I sat up for three days and three nights (at Copenhagen) with 20 leaders from around the world to try and frame a global agreement.  Now it might be easy for you to sit in 7.30 Report land and say that was easy to do.  Let me tell you mate, it wasn't".

And the tone of Rudd's voice suggests it wasn't just in Copenhagen that he was getting sleepless nights and by the emphasis he put on the word "mate" it was probably code for something else.

But the problem for Rudd is that voters clearly don't share his feigned outrage.

Results from a Galaxy poll we recently commissioned showed that 65 per cent of Australians now believe that climate change is entirely natural or the science is contestable.

Australian poll figures on this subject are not unique.  A February Ipsos Mori poll from the United Kingdom saw a drop of public support for the number of people who believe climate change is "definitely" happening dropping from 44 per cent to a mere 31 per cent.  And the number of people who thought concerns about climate change are exaggerated doubled from the previous year.  It's probably why climate change barely factored in the UK election.

Similarly a March poll from the US found that just under half of all Americans think that the seriousness of climate change is exaggerated.  And this result wasn't a one-off with the number doubting the seriousness increasing four years in a row.

But despite the current dip in support for the science of climate change, no one should doubt that the issue is going away.

Next week the conference equivalent of Mecca for climate change sceptics is being held in Chicago to address the future of climate change science and economics.

The Heartland Institute's 4th International Conference on Climate Change themed on reconsidering the economics and climate change is likely to be a balance of serious policy discussion and triumphalism from opponents of the US' cap-and-trade scheme and Australia's ETS scheme.

But sceptics shouldn't think they've slayed the climate beast for good.

In this week's budget the government included a $30 million propaganda campaign to run print, radio, television and web-based campaigns to give confidence to voters that the dodgy science in the Intergovernmental Panel on Climate Change's fourth assessment report was just an accident.

The problem for Rudd is clearly that most voters clearly don't share his view or his passion on climate change anymore.  And instead voters are reading the science of climate change with the same cynicism that they're taking to Rudd's outbursts.

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The Santa Claus effect

The budgetary crisis afflicting many Western economies is in part a consequence of the democratic political process at work.

According to economist James Buchanan, politicians prefer spending to taxing.

This is because governments like to be popular by providing public services and welfare, rather than unpopular by levying taxes, fees and charges.

Throw in exotic theoretical rationales for spending, such as the Keynesian idea government spending should compensate for subdued market activity, and the incentive for governments to play the role of a perpetual Santa Claus becomes magnified.

To ensure voters receive the benefits of all this spending, governments need to hire public servants who manage and deliver public sector programs.

It is estimated 80 million people across developed countries directly worked for the government in this capacity during 2006.  In Australia, almost 1.7 million people worked for federal, state and local administrations.

This cohort of government workers represents an influential voting constituency dedicated to the growth of their employers, the central and subnational public sectors.

If the political dynamic of excessive spending is left unchecked the result is entrenched fiscal deficits and spiralling public sector debt.  These outcomes threaten to crowd out more efficient private sector activities and dampen future economic growth prospects.

According to the International Monetary Fund, advanced Group of 20 economies are expecting to face budget deficits averaging close to 5 per cent of gross domestic product in the next few years.  This compares with an average pre-financial crisis deficit of 1.2 per cent in 2007.

Despite the clear economic imperative to restore the health of their public finances, countries are becoming stuck in a quagmire of reform inertia as vested interests with voting rights actively resist the loss of entitlements and conditions associated with big-spending government.

Public sector unions, representing a significant proportion of government employees, have used two strategies to resist fiscal adjustments.

By disrupting the provision of essential public services, striking public sector employees seek to bring the community onside in putting pressure on governments to halt proposed spending cutbacks and thereby resume services.

For public servants, the potential pay-off from such a strategy is the retention of their taxpayer-funded salaries, pensions and other benefits.

Recently tens of thousands of Greek public servants took to the streets opposing fiscal austerity measures, brandishing various threatening slogans such as "No more illusions, war against the rich".

This was despite Greece's budget deficit hovering about 14 per cent of GDP and the recent downgrading of government bonds to junk status.

Similar scenes have been witnessed in Germany, Portugal, Romania, Britain and France, where public sector union strike action has long been elevated into an art form.

In Australia, public sector unions have succeeded during the past few years in seeking inflationary wage increases, placing pressure on state government budget bottom lines.

Victoria's teacher unions engaged in a 14-month campaign of pickets and stop-work periods to finally secure a new pay deal from the state government in 2008.

The success of Victorian teacher unions in attaining record wage increases at public expense sparked an interstate pay bidding war by teacher unions in other jurisdictions.

These actions, and successful strike actions enacted by nurses, police and other state government workers, contributed to the growth of public sector wage expenses averaging 9 per cent a year since about the peak of the previous economic cycle in 2005-06.

The second strategy employed by public sector workers and unions is to use their voice swaying public opinion against the need for fiscal consolidation.

In the US, public sector unions routinely use the airwaves and television screens to argue the case for more government spending and to oppose reforms such as tax and expenditure limitations to cap budgetary growth.

For example, unions were instrumental in the recent defeat of initiatives in the state of Maine to introduce a comprehensive fiscal cap similar to Colorado's taxpayer bill of rights.  Maine's TABOR model would have capped revenue growth to inflation and population growth, and ensured that most of the excess revenue collections would be directly rebated to taxpayers.

Unions representing teachers and municipal workers spent close to $US1 million ($1.1m) on TV advertisements alone opposing the measure to ensure that growth in that state's budget would be held in check.

Public sector unions in California have long flexed their muscles with significant implications for fiscal sustainability and the provision of efficient government services.

For example, the Service Employees International Union expended $US20m to help defeat initiatives to limit the growth of the state government and to limit union power in the education system.

In 2003 the same union pressured the board of California's public sector pension fund to stop investing in companies that participated in outsourcing government jobs.

The result of these and similar activities is a state with a $US20 billion fiscal gap, yet with continuing pension provisions allowing various public sector workers to retire at 50 with a pension equivalent to 90 per cent of their highest pay level.

In Queensland, public sector unions have been caught in a parallel universe of supporting Premier Anna Bligh's campaign to protect public sector jobs against an efficiency dividend proposed by the opposition during last year's election campaign, only to expend hundreds of thousands of dollars later protesting against planned sales of government assets.

Breaking the connection between the demands of those with a vested interest in a growing government, and changes in the scale of government itself, is an ongoing challenge in modern democracies.

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Spurious notions of ''national character'' aren't helping

Are Australians racists?  Well, yes.  And no.  Some are, some aren't.  It's a mind numbingly circular question, but just the sort of mind numbingly circular question that those in the social commentary business love.  (Six idiots dress up in blackface on Hey Hey it's Saturday, and that's the first half of Q&A over with, two weeks' worth of columns in quality broadsheets, and a comfortably full switchboard on ABC radio talkback.)

Let's try to wrap up this question now.  It would be fair to assume that somewhere between one and 22 million people within Australia's territorial borders are racist.  It's faintly ludicrous to attribute any sort of character to a collective group of people.  Either the characterisations end up as utterly banal -- Australians like barbecues! -- or completely nonsensical.

A columnist trying to get to the bottom of the recent spate of attacks on Indian students in Melbourne writes that Australia "has a cultural tradition that in large part is underpinned by aggressive opportunism".  Michael Leunig reckons:  "Our culture has thrived on the stabbing impulse".  But on the other hand John Brumby has argued that "Victorians are committed to tolerance" in an article condemning racially motivated attacks by some of those apparently tolerance committed Victorians.

Maybe "we" are racists, but "we" also must be pretty cluey.  A recent article discussing the Howard government's environmental policies says that "the Coalition's newfound eco-friendly initiatives were deemed greenwash by the electorate".  Very perceptive.  Makes you wonder why a full 22 per cent of the electorate believe in witches, at least according to a Nielsen poll late last year.  Headlines in the National Times declare that "we will forget Haiti", that "we give our kids names fit for puppies" and that "we love to click on" Naomi Robson.  I don't plan on doing any of those things.

The idea that Australia has any sort of national character obscures our understanding much more than it facilitates it.  Individuals, actions, and laws can be objectively racist.  Nationalities cannot.  After all, even the dearest example of racism in this nation's history, the White Australia Policy, had its opponents, particularly among the free trade movement.

Of course, national circumstances -- politics, history, geography, religious belief, sheer bloody luck -- can influence the cultural attitudes of individuals within that nation.  But you only have to watch our Prime Minister's awkward attempts at Australianisms to see how artificial these national tropes can be.

Personalities do not change at national borders.  How many times have you been told by recently returned overseas holidaymakers that "the people were just so friendly"?  There are more than 3,000 hits for "the people are friendly" on the Lonely Planet website.  There is just one for "the people are unfriendly" -- you won't want to go on holiday to Rome.

A 2005 study in Science sought to test views about national character against personality traits of individuals within that nation.  The study found that "Perceptions of national character are not generalisations about personality traits based on accumulated observations of the people with whom one lives";  in other words, there was no correlation between a belief that Australians are extroverts, and the number of Australians you've met who are actually extroverts.  And the study found that people vastly exaggerate what little differences do exist between countries.  There is much greater variety of character within a nation than between nations.  If you don't believe that, compare Mark Latham with Kevin Rudd.  Hard to believe they're from the same party, let alone the same country.

It would be nice to believe all Australians recognise that democracy should be tempered by the common law, political power and judicial power should be in constant opposition, and human rights need constant and aggressive defence.  But once again:  22 per cent of Australians believe in witches.  This isn't just a complaint about vapid rhetoric.  When faced with reports of attacks on Indian students, it would probably be better to avoid all this empty navel-gazing about the possibility that racism is inherent in our national character, and focus on what concrete political failures may have tolerated those attacks.

Victoria has the lowest number of police per capita in any Australian state.  That is surely more a factor in the state's urban violence problem than any "cultural tradition [of] aggressive opportunism".  A psychological profile of Australia's national character -- if it's even possible -- is of absolutely no use when we can't get basic policing right.

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A strange way to promote grocery competition

Chief Minister Jon Stanhope's new supermarkets policy won't cut Australian Capital Territory grocery prices and isn't supported by the Government's own data or how Canberrans vote with their wallets.

Last week, Stanhope announced that to promote competition in ACT supermarkets that at four separate developments the Government would dictate which supermarket chains are allowed to build new stores at the different locations.  And which are not.

At some sites, the two majors Coles and Woolworths are being locked out in favour of minor players including Supabarn, IGA and Aldi.

And in attempting to foster downward pressure on prices the Government has mis-diagnosed the problem resulting in the wrong solution.

According to Stanhope's press release the objective is to offer more choices and "potentially cheaper prices".

Considering the ACT has some of the highest grocery prices in the nation it's unsurprising that the Government wants to cut the cost of living.  However, there's a big difference between seeking "potentially cheaper prices" and actually delivering them.

According to the ACT Treasury's 2009 survey valuing a shopping basket of 29 consistent items at 30 different supermarkets the 20 cheapest baskets were all found at Coles and Woolworths.

By comparison the 10 most expensive were all at the Supabarns and IGAs that the Government's policy is now trying to push into the market.

The difference between stores is staggering.  The cheapest basket at Gungahlin Coles was $30 cheaper than the most expensive at Lyneham IGA, amounting to an average saving of a dollar per item.

And Supabarn's cheapest store was only 8c less than the average price of the basket for all stores.

Stanhope's decision to introduce this new policy follows the Review of ACT Supermarket Competition policy by John Martin that was released in September last year.

The review concluded that "the two major chains are 50 to 10 per cent cheaper than the larger independents in the ACT", except for "Aldi ... [which is] almost 25 per cent less" than Coles and Woolworths.

But despite this conclusion the review's terms of reference didn't seek policy recommendations to make groceries cheaper.

Instead the Martin review was encouraged to investigate how the Territory government could introduce policy measures to increase the number of players in the ACT market.

In an opinion article published in The Canberra Times last Friday supporting his new policy announcement, Stanhope correctly identifies that "real competition is the life-blood of cheaper groceries for families".

But real competition to deliver cheaper prices isn't achieved by the Government seeking to rig the market in favour of an individual goods or services provider, especially when the Government is seeking to increase the supply of more expensive operators.

It's absurd to think that regulating in favour of a few extra non-major supermarkets will dramatically increase their efficiency to compete against the efficiency generated by major supermarket chains that operate across the entire nation.

Coles and Woolworths are able to share the costs of a smaller ratio of administration costs to the volume of groceries sold across the nation.

Similarly they are in a better negotiating position for bulk purchasing from suppliers.

In some cases their negotiating position is so strong that suppliers, like farmers, complain about the prices they are able to reduce food prices to.

And the logistics costs of national supermarket chains are also cheaper.

It's part of the reason that the IGA was formed to achieve higher purchasing power and lower logistics costs for small independent grocers.

Of course some consumer's concept of value goes beyond price.

As the Martin Review found, out of 40 indicators used in a survey to assess ACT consumers attitudes to different supermarkets included in the Martin review, IGA stores drew level pegging with the majors on only one category their proximity to people's homes.

In just about every other category from brands, to food quality to store cleanliness it was clear consumers preferred one of the majors.

Similarly, the 2008 ACCC inquiry into grocery prices found there was a lack of competitive pressure on the majors because the non-majors focused on "convenience and service", that has to be factored into price.

Instead of delivering cheaper prices, Stanhope's announcement increasingly appears designed to provide industry protection through planning regulations for the benefit of the group he likes to call the "locally-grown" Supabarn who have been granted access to half of the new developments.

But like all forms of protectionism it comes with a cost.

And in this case the pinch will be felt by less access for Canberra's families to cheaper groceries.

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Should terror suspects be protected by politics?

In Dr Strangelove, the crazed General Jack D Ripper claims "war is too important to be left to the politicians".  So, it seems, is terrorism.

It's been just over one week since a Nissan Pathfinder caught fire in Times Square.  The press has focused on the modest drama of stopping the departing Emirates flight carrying the alleged terrorist Faisal Shahzad, as he tried to leave the country.

But still, it seems he was pretty easy to catch.

The Pathfinder was taken to a forensic lab where investigators quickly traced its provenance -- it had been sold on Craigslist, two weeks before the incident.  The sale was made in $100 bills in a supermarket car park.

But the seller had the buyer's mobile number.  And, with a sketch artist, was able to draw a picture of buyer's face.  Better:  the buyer had driven himself to pick up the Nissan, and left his black Isuzu Rodeo in the car park.

With the registration of the Isuzu, investigators now had Faisal Shahzad's home address.  They didn't even have to break in.  The key to his apartment was in the Nissan's ignition.

Shahzad was in custody 53 hours after the bomb was left in Times Square.

The tale of Shahzad's speedy arrest makes him look less like a formidable jihadist with Pakistani terror camp training, and more like an incompetent, failed criminal.

But it's worth dwelling on the particulars of how Shahzad was identified and arrested because the legal system largely worked.

What little effort Shahzad made to cover his tracks was easily side-stepped.  He took two days to try to leave the US.  The US government says Shahzad claims to have learnt bomb-making from the best, but his bomb didn't work.

And the legal case against Shahzad seems to have been made even easier because he started chatting to the FBI, apparently giving them "valuable intelligence and evidence".

Seems too simple, doesn't it?  That's because the politicians haven't become involved yet.

Take the question of whether Shahzad should have been informed of his legal rights at his arrest.  After investigators confirmed there were no other attacks imminent, he was.  John McCain claimed doing so was a mistake.  And the ranking Republican on the Homeland Security Committee, Peter King, strongly agreed, adding:  "I know he's an American citizen but still ...".

Joe Lieberman upped the ante by proposing to give the government power to remove anybody's American citizenship if they are merely suspected of being a terrorist.  In their view, the rights we afford criminals are getting in the way of winning the war on terror.  But the sorts of legal changes they recommend could very well lose it.

Terrorism is against the law.  It's against a lot of laws.  And even in a post-Guantanamo world, terrorism trials are conducted in the shadow of centuries of legal precedent, an adversarial court system, and extensive avenues of defence and appeal.

Those bombastic tough-on-terror politicians -- if they got their way -- could easily undermine terror prosecutions.  Because it's not a question of whether terrorists deserve legal rights.  It's that ignoring those rights allows terrorists to avoid justice.

As David Frum has pointed out, if Lieberman's proposed citizenship laws were in effect, the US would be on its way "to court right now to litigate the issue whether the Times Square bomber's bombing plot indicated an intent to relinquish his nationality.  Only after taking that issue through trial and appeal (maybe multiple appeals) could we get to work questioning and punishing him".

It's happened before.

Ali Saleh Mohamed Kahlah al-Marri was arrested shortly after the September 11 terrorist attacks, accused by the government of being an al-Qaeda sleeper agent, and taking orders directly from Osama bin Laden.

With all the charges against him, al-Marri potentially faced 143 years in prison if convicted in a civilian court, according to the Cato Institute's David Rittgers.  But the Bush administration was eager to show that American counter-terrorist efforts were a "war" in America as much as Afghanistan.  It moved him out of the civilian court system and into military custody.

As a result, after years of legal wrangling and a Supreme Court case, he was convicted in October 2009 on just one count of material support for terrorism.  He got eight years.

If you want to punish terrorists to the fullest extent of the law possible, that's an awful outcome.

Like Australia, the United States has a civilian legal system which has evolved from centuries of English legal precedent.  It's handled mass murderers and politically-motivated misdeeds for hundreds of years.

Terrorists believe they are freedom fighters;  captured terrorists believe they are political prisoners.  Let's give them the disrespect they deserve and treat them like common criminals.

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Who is Kevin Rudd? No one really knows

At the height of the 1956 US presidential election, Adlai Stevenson said of Richard Nixon:  "This is a man of many masks.  Who can say they have seen his real face?"  Could the same thing be said about Kevin Rudd?

In recent weeks, the Prime Minister has been taking a steady pounding on the charge that he's a flip-flopper:  on home insulation, childcare centres, and most notably, emissions trading.  All true.

Then again, any sensible politician accepts the need to change positions depending on what the circumstances permit and the priorities of the day demand.  Even conviction politicians swap positions on sensitive political issues:  think John Howard's volte face on the Snowy Mountains hydro in 2006;  or Paul Keating's U-turn on the GST.

What makes Rudd so Nixonian, however, is that his flip-flops breed more doubt in people who already wonder where he's coming from.

Whereas you always knew where Howard and Keating stood and what they were about, notwithstanding the odd policy U-turn, it is difficult to identify anything their successor seems genuinely to believe other than his own political success.  He has no sense of philosophical identity, conviction and inner core.

Now, lest I'm dismissed as merely a Liberal partisan, let me say that I think the Prime Minister has done some worthwhile things in office.  His first budget stimulus in October 2008 was a decisive response to the Anglo-American financial crisis and played a role in insulating Australia from a gathering storm.  His apology to indigenous Australians early in his term, something admittedly many conservatives had opposed, was as heartfelt as it was historic.  His religious convictions, too, are genuine.

Nevertheless, it is difficult to avoid the conclusion that Rudd is an opportunist of such proportions that the only thing that exceeds his reach is his grasp.  There is always an air of detached calculation about his performances, a sense that in different circumstances he could just as happily be arguing the opposing case.

This is a man who defined himself during the 2007 election campaign as an "economic conservative", committed to low public debt, fiscal rectitude and free-market reform, but who now represents the reincarnation of Whitlamism and a big-spending, big-government, debt-ridden agenda that caused so much economic angst in the 1970s.

A man who appealed to the metropolitan sophisticates by weakening Howard's border protection policy, but who now panders to Howard's battlers by preaching a "hardline" policy against "evil" and "vile" people-smugglers.  A man whose governing creed represents symbols, not action;  phoney gestures rather than difficult decisions.

A man who claimed climate change was "the great moral challenge of our time" and linked climate "deniers" with "conspiracy theories" and "vested interests", but who drops the evangelical language along with the ETS as soon as the political climate changes.

Until recently, Rudd had ruthlessly used the issue of man-made global warming to attack his conservative opponents, culminating in the destruction of two Liberal leaders.  But although the tactic lacked credibility after the collapse of the Copenhagen summit, he could have still been prepared to sell his case for decisive action on the hustings.  But he was intimidated by Tony Abbott, scared of a political fight and went to water.

Yet this is the kind of issue a normal prime minister would want to fight, maybe even spending political capital to do it.

Howard and Keating were never afraid to challenge popular opinion and provoke people into thinking and then arguing about the causes they sincerely believed were in the nation's interest.  Rudd always takes the path of least resistance.

And so the question persists:  Does Rudd believe in anything in the policy debates, or is he a creature of Sussex Street graphics, sliding into the minds of whichever crowd he's talking to?

Which bring us back to Nixon.  The consensus among American liberals, led by the aforementioned Democrat Stevenson in 1956, was that "Tricky Dick" had espoused so many different positions, often repeatedly and stridently, that he left virtually everyone with the impression that his arguments were always suspect.

During his presidency more than a decade later, Nixon confirmed his opponents' suspicions as well as his conservative base's worst fears.  One moment, he was a staunch anti-communist and red baiter;  the next, he was doing detente with the Soviets and supping with Mao Zedong.  One moment, he was fiscal conservative and supporter of states' rights;  the next, he was an unashamed Keynesian and centralist.

The friction of playing the role of conviction warrior while being in reality a malleable politician was one of many reasons for Nixon's downfall.

Will this also destroy Kevin Rudd?

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Mining tax risks spooking investors

Minerals in the ground are not actually worth very much until somebody comes along, digs them up, cleans them up, and sells them on the market.

It turns out that the real value-add is in the digging up and cleaning up part of the process.  The people who do that bit tend to get most of the value of the final product.  That's the mining corporations.

In Australia the Crown owns the minerals in the ground and gets royalty payments.  Nobody is suggesting that miners don't pay royalties.

There are a number of furphies associated with the Rudd government's Resource Super Profit Tax.

The first furphy being that miners don't pay their fair share for the minerals.  Actually the miners pay exactly what the Crown demands.  The state governments' charge as much as they think they can get away with.  It turns out that mineral wealth is not as rare as our federal politicians would like to think.  Even worse, for most commodities, the supply is very elastic.

Consider gold;  all the gold that has ever been mined is still in existence.  If the price of gold was suddenly to sky-rocket people would sell their jewellery.  Sure coal is burned as it is used, but most commodities are long-lived once they have been dug up.

An extremely dangerous furphy is being pedalled by Kevin Rudd.  The miners are foreigners and the money goes offshore, so Australia is just getting its share of the money.  Xenophobia has a long and disreputable history in Australia.  The mining industry is an important component of the Australian economy and is fully integrated into the economy.

The mining industry doesn't just provide jobs in rural and regional areas;  it provides investment opportunities for superannuation funds.  Even more important;  Australia has a capital account surplus.  That means we are reliant on foreign investment and foreign savings to maintain and sustain our way of life.  Scaring off foreign capital will be a very expensive exercise that will quickly flow through the entire economy.

The Rudd government is starting to tarnish our reputation as a safe haven for capital and investment.  Last week the government threatened to expropriate the intellectual property of tobacco companies.  They are an easy target with few friends.

This week, however, the Rudd government moved into serious sovereign risk territory.  The Henry Report defines sovereign risk as the risk that future government policy will reduce the value of investments.  People are going to start noticing that property rights are under attack.

One of the more bemusing aspects of the Henry Review occurred when it acknowledged that changes in government policy create perceptions of sovereign risk but then claimed that the mining tax would lower that risk.  That's not what market participants seemed to think.  It isn't really appropriate that some Canberra bureaucrat lecture investors on the incidence of sovereign risk.

Desperate cash-strapped governments with dodgy taxes are hardly new in human history.

A third furphy is that the mining super tax will lower the cost of capital for other industries in the economy.  Some have even argued it would lower the cost of capital for miners!  That latter argument is simply false.

The initial market reaction was to wipe billions of dollars off the value of Australian mining stocks.  That means the cost of equity capital has increased for Australian mining.  For everyone else the argument seems to be that by sabotaging mining we can avoid Dutch disease (the economic problems associated with a strong dollar).

But the solution to Dutch disease isn't to treat the symptoms.  Many Australian industries struggle to perform on the international stage because their cost structures are too high.  Government contributes to those costs through excessive bureaucracy and red-tape.

Ongoing and aggressive economic reform will do more to alleviate any Dutch disease problems than would any other government policy.  Reducing the tax burden and cutting government spending would help too.

Then there are problems in the tax design itself.  At present the government proposes to levy the super profit tax in addition to the normal corporate tax.  But we know that mining is subject to booms and busts, why add that volatility to government finance?

The Henry Review concedes that revenue from this tax would be more volatile than the current state-based Royalty system.  This increases the probability of budget deficits over the business cycle.  When this type of tax was first proposed in the 1970s the idea was that miners would either pay the super profit tax or the corporate tax but not both.

A final furphy is that we shouldn't really worry about the super profit tax right now.  Common sense will prevail and the proposal will be watered down.

That may well be true, but in the meantime the Rudd government with its desperate dash for cash and populist demagoguery may well spook foreign investors and undermine our ability to attract international finance.

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