Qantas posts record loss: where did it go so wrong?

The release yesterday of Qantas' yearly results gave another clear indication that the outdated legislation that continues to hamper its ability to successfully compete, and which threatens the very long term viability of the company, must be completely removed.

Although the statutory loss of $2.8bn will claim most headlines, it is the $646m underlying loss that is a more damning representation of the difficulties the company faces.  Most of the statutory figure represents write downs of soon to be retired aircraft and costs associated with the staff cuts announced earlier this year.  While less dramatic, the underlying losses represent the company's ongoing difficulties to remain competitive both in its domestic and international operations.

The finger pointing that these types of results inevitably precipitate has begun in earnest.  Many will be reaching for their pitchforks with Alan Joyce in mind.  Of course, they will rightfully point to some less than impressive moves to internationalise Jetstar and the ill-advised domestic capacity war with Virgin.  However, allocating blame for such results remains difficult when Qantas continues to operate under restrictions that do not apply to its competitors.

Late last month, the Abbott government succeeded in passing a Qantas Sales Amendment Bill through the senate after lengthy negotiations with Labor.  As a result restrictions on a foreign investor owning more than 25% of Qantas or a foreign airline owning more than 35% of Qantas have been lifted.  These changes are a positive step.  They will, to some extent, remove the difficulties Qantas faces in its attempts to raise capital.

But by maintaining the act in any form government continues to hamstring Qantas' efforts to remain competitive.  Among other things the act continues to restrict foreign ownership of Qantas to 49% and ensures the vast majority of its service personal remains in Australia.

Maintaining 51% local ownership is necessary for the international arm of Qantas for the purposes of air traffic agreements.  This enables them to meet the flag test recognised by most countries as defining national ownership and control.  However, it seems completely bizarre that this needs to be enforced by government regulations.

By comparison, Virgin Australia is split into domestic and international entities with separate ownership structures and directors.  While the publicly listed company is nearly 80% foreign owned, the unlisted international division's local ownership is frozen at above the 51% required.  Without this flexibility, the $350m capital injection Virgin raised from foreign investors last year would have been impossible.

As it stands, Qantas will find it hard to attract a large investor because around 40% of the company is already foreign owned.  This means that a major investment of over 10% would require shares to be bought from existing foreign holders.

Unlike its competitor airlines, which are able to service their aircraft in many international locations depending on costs and needs, Qantas also remains obligated to maintain the vast majority of its operational facilities for international services in Australia.

Ultimately this means that Qantas is forced to pay higher wages, but it also means that it loses the flexibility that others enjoy.  Although regrettable, allowing Qantas to off shore some aspects of the business may ensure that the majority of jobs Qantas provides in Australia remain viable in the long term.

Indeed, other than a sentimental attachment to the idea of a national carrier, there are few logical reasons to continue to maintain the legislative restrictions that are thwarting Qantas' capacity to compete.

By removing the Qantas act in its entirety, the airline will finally be allowed to succeed or fail on its own merits.

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Innocence has been lost

The federal Opposition Leader was asked in a press conference this week whether he supports proposed laws that could send journalists to prison for publishing information about intelligence operations.

Bill Shorten's response was intriguing:  "We fundamentally believe in the liberty of the press and the freedom of the press.  Labor's very mindful of making sure we maintain the freedom of the press."

Stirring stuff.  But where was this commitment to liberty when the Gillard government proposed its massive media regulation regime in March 2013?

Shadow attorney-general Mark Dreyfus also raised concerns this week that the Abbott government may require Australians returning from Iraq and Syria to prove they are not involved in terrorism.  Dreyfus said the opposition was "not going to give a blank cheque [to the government], in particular to something which has been suggested to be a reverse onus of proof."

Again, this is commendable.  But this sentiment was nowhere to be found when the previous Labor government legislated to force timber importers to have knowledge of foreign laws and to prove legality of materials manufactured by third parties under the Illegal Logging Prohibition Act 2012.  Or when it tried to pass laws that would have made employers in discrimination cases guilty until they could prove their own innocence.

PLAYING FAIR WITH BUSINESS

If only Labor were as committed to the presumption of innocence for business owners as it is for those accused of committing acts of terror.

There are more than 40 Commonwealth provisions that reverse the onus of proof.  Governments of every political stripe are guilty of abandoning the presumption of innocence for political expediency.  The Rudd-Gillard governments were no different in this regard.  For instance, they included provisions which reversed the onus of proof in the Fair Work Act 2009, the Tobacco Plain Packaging Act 2011, the Work Health and Safety Act 2011, the Clean Energy Act 2012, and the Illegal Logging Prohibition Act 2012.

Labor's apparent change of heart on fundamental legal principles is welcome.  So, too, fresh commitment to a free media.

But just over twelve months ago, the then-Gillard government launched an unprecedented attack on the media.  The proposed introduction of a de facto press licensing regime would have handed a government-appointed bureaucrat massive censorship powers, and stifled press freedom in Australia.  The Orwellian title given to the media regulator was the "Public Interest Media Advocate" (PIMA).

This individual would have been tasked with deciding whether news media outlets were being fair or accurate, or whether coverage was in line with community standards.  And it would have been up to the PIMA to decide what those vague terms were to mean.

The package of bills put up by the government was a brazen attempt to control the media, particularly news outlets hostile to the government's policy agenda.  It was eventually abandoned — not because it acknowledged the essential role of the free press but because it didn't have the numbers to pass the bills.

Labor also looks to be having a crisis of conscience over the controversial mandatory data retention policy.

Nicola Roxon championed the idea as Labor's attorney-general in 2012 but now the opposition seems lukewarm on the idea.  Dreyfus has expressed concerns about the regime.

It's good to see Labor's conversion on matters of principle in opposition.

If only they were as committed to these ideas while in government.  Australia inherited the British common law tradition.  It is a legal system characterised by the rule of law and a number of fundamental legal rights.  The presumption of innocence is arguably most important.

The idea is simple — an individual is innocent until the person accusing them of wrongdoing has made out their case in court.  The presumption of innocence and the onus of proof resting with the party bringing a claim to the court are two sides of the same coin.  If the onus of proof is reversed, the defendant is effectively deemed guilty until he can prove his own innocence.  Some of the most important civil liberties and fundamental legal rights are finally getting the respect they deserve from a party that ignored them during six years in government.  What a difference opposition makes.

The cold calculations of the GFC stimulus

Wayne Swan's memoirs of his time as treasurer, The Good Fight, spend a great deal of time on the global financial crisis.

As Swan presents it, the case for massive fiscal stimulus was a slam dunk.  Only fools and knaves would disagree.

There's no sense in his memoirs that fiscal stimulus was a policy experiment under conditions of enormous uncertainty.  The stimulus is just used as evidence that Swan isn't afraid to make the big calls, isn't afraid to back himself etc., etc., etc.

So more interesting than anything in the book is a memo, two short pages, prepared for an August 2008 meeting in the Lodge between Swan, Kevin Rudd, treasury secretary Ken Henry, and their staff.  Swan released it as part of the pre-publicity for his memoirs.  It's available here.

The memo underlines the policy trade-offs behind the stimulus decision, how political considerations swamped economic ones, and brings back into the picture an apparently forgotten pillar of Australian economic management:  the poor old Reserve Bank.

In other words, this two-page memo is a better policy history of the GFC in Australia than anything yet published.

The memo was prepared just before the September collapse of Lehman Brothers turned an American housing crisis into a global financial one.

(For context, the first Australian stimulus package, $10.4 billion, was announced in October 2008.  The big one came in February 2009.  It was $42 billion.)

Economies with central banks have two policy options on the table when there's an economic downturn — monetary policy and fiscal policy.

The monetary response comes from the Reserve Bank as it adjusts the cash rate to balance inflation and growth.  This happens once a month, in good times and bad, no matter what the elected government does.

The fiscal response has two parts.  First are the "automatic stabilisers":  economic downturns lead to increased government welfare spending.  Second are discretionary stimulus packages, determined by political considerations and the sluggishness of policy implementation.

Why is fiscal policy needed?  Well, monetary policy, it is widely believed, has a limit.  When the cash rate is at or near zero (the "zero-bound") it can't go lower.

For economists like Paul Krugman, Brad DeLong and Larry Summers in the United States, the fact that interest rates are at the zero-bound means monetary policy has been neutered and fiscal policy has to take over.  (For that argument, see this 2012 paper by DeLong and Summers.)

An alternative view is provided by Scott Sumner, who argues that the zero-bound doesn't mean monetary policy is ineffective — central banks have more tools than just the cash rate.  (You can read Sumner's argument here.)

It's an interesting debate.  But from an Australian perspective it's beside the point.  We never got to the zero-bound.  We never met the initial condition for discretionary fiscal stimulus.  In Australia, monetary policy still had a lot of room to move.

The August 2008 memo opens with the observation that the RBA was deliberately trying to slow the economy down in the first half of that year.  But the RBA had overshot.  The slowdown was "occurring more sharply than initially anticipated".  This was the context for the early stimulus planning — a bad RBA error.

In October 2008 the RBA changed course and cut the cash rate by a full percentage point.  In his book, Swan writes how the rate cut news came during a cabinet committee meeting into stimulus planning.  The committee was stunned into silence.

"Without doubt this changed the entire dynamics of events over the next 18 months."

What extraordinary timing.  But should the October rate cut really have been such a cause for panic?  Only insofar as it demonstrated how badly the central bank had misread the economic climate.  Over the course of the next six months the RBA completely reversed its earlier policy, plunging the cash rate from 7.25 in August 2008 to 3 per cent in April 2009.

Tony Makin pointed out a few years ago that, from the perspective of individual consumers, this interest rate fall made the $900 cheques look like chicken feed.

But there it stopped.  The cash rate never approached zero.  It never got close.  Even as the stimulus package was being rolled out the RBA began to lift rates.  First in October 2009.  Then in November.  Then in December.  Then in March, April, and May 2010.

Those increases were predictable.  It's what the memo said might happen:  "The Reserve Bank through its control over interest rates, determines the overall level of aggregate demand in the economy, and the Bank would likely take account of any fiscal stimulus in its monetary decisions — that is, more spending would keep interest rates higher than otherwise."

As Stephen Kirchner writes, that's a pretty good description of the "monetary offset".  When a country has a central bank targeting inflation and growth, fiscal stimulus is redundant.  It's both costly and unnecessary.

So why did the Rudd government push so hard for stimulus?  Once again, it's right there in the document:  because of "the potential political costs of being seen to do nothing in the face of slower growth and rising unemployment".

Monetary policy is hardly nothing.  But the government couldn't take credit for it.

The decision to deploy massive fiscal stimulus set in train all the events and personality clashes that defined Labor's term in government.

The debt racked up in those few months crippled Kevin Rudd's policy agenda, undermined every one of its future budgets, and, by liquidating the surplus in an instant, damaged its economic management credentials.

And for what?  To avoid "the potential political costs of being seen to do nothing".

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The problem with green corporate welfare

Efforts by opponents of the first Abbott budget to protect green corporate welfare measures undercuts their portrayal of government policies as inherently unfair.

Over months critics of the Abbott government have waged a highly charged publicity campaign opposing moves to consolidate a federal budget in structural deficit, and to deregulate an economy whose potential is constricted by red tape.

The Labor opposition and the Greens have already sided to oppose several expenditure reduction measures announced in the May budget, while the crossbench Palmer United Party has obstructed the passage of the budget through the Senate.

Reflecting a sense of community animosity against proposed spending cuts, and as a strategy to foment continuing animosity, activist groups organised by trade unions have rallied under the "Bust the Budget" banner throughout our major cities.  It now seems increasingly likely that these political agitations will finally bear fruit, no doubt bitter from the Abbott government's perspective, as senior government personnel look to negotiate concessions with crossbenchers to ensure its fiscal plan passes the upper house.

The government's detractors appear to have reasonable claims that some of their announced measures, such as more stringent job-seeking activity tests for Newstart recipients amid a more tightly regulated labour market and persistently slow economic growth, may need amending.  But when invoking the argument that government policy measures will hurt low-income earners, these groups rely upon a highly selective citation of those policy issues exerting the claimed effects.

Strangely silent are the opposition, the Greens, most Senate crossbenchers, and the Bust the Budget crowd about how some long-standing government policies effectively serve to line the pockets of renewable energy suppliers and other crony eco-businesses, more often than not at the expense of poorer members of our community.

Even worse, the influential Greens have long supported economically wasteful and morally dubious green corporate welfare (as reflected in spending measures, tax concessions and regulatory mandates) as a political imperative, and have won undertakings from successive governments to implement these perverse exercises in redistribution.

Moves by the Abbott government to abolish the Clean Energy Finance Corporation, backed by a $10 billion fund from taxpayers to bankroll renewable energies, low-emissions technology and energy efficiency ventures, has already been frustrated by opposition in the Senate.

The very mission of the CEFC is confused by statements, on the one hand that it aims to assist those projects that cannot attain finances through conventional financial channels, but on the other claiming to only finance projects that can repay investible funds and also achieve a positive rate of return.

It is reasonable to presume that clean energy projects expected to repay borrowings and achieve a good return will be funded by banks and other financial institutions as a matter of course, thus the CEFC threatens to crowd out private financing in its quest to pick politically attractive, yet economically dubious, winners.

There is also active political resistance against the proposed abolition of the Australian Renewable Energy Agency, bankrolled by taxpayers, to the tune of $2.5 billion, in order to redistribute funds towards renewable energy project proponents and other speculative green high-rollers.

And this is not to mention all the other expenditures littered across other federal government portfolios, unrelated to environment or industry functions, and state government green programs including solar feed-in tariffs adding about 3 per cent to the average household electricity bill.  Thankfully the carbon tax is now an unwanted relic of the past, its abolition in itself the subject of drawn-out political intrigues in the Senate.  But it would be a mistake to conceive of green corporate welfare as being limited to the fiscal aspects of governmental activity.

The former Howard government introduced renewable energy requirements for electricity supply in 2001, with the goal of sourcing 20 per cent of Australia's energy from renewables by 2020, including 41,000 gigawatt-hours of electricity for larger wind and solar farms and 4000 gigawatt-hours for rooftop solar installations.

Since unconventional renewable energy technologies generate electricity at costs well in excess of conventional, coal-fired generation, regulatory targets mandating that renewable energies make a greater contribution to the supply mix leads to, other things being equal, upwards pressure on electricity prices passed through to the consumer.

It is estimated that the renewable energy target, currently subject to a government review, and even speculated as a candidate for abolition, adds another 3 per cent to the average electricity bill paid by householders.

Therefore, such green policies effectively transfer wealth from households and other consumers, including through higher electricity prices, to the big renewable industry players, all in the name of addressing climate change trends that Australian taxpayers alone cannot hope to resolve, even if they yearn to do so.

As University of Sydney academic Lynne Chester noted in a 2013 study, rising energy costs have led to low-income families forgoing basic material comforts, such as heating, and confronting other pressing hardships, a true indictment of the impact of green corporate welfare policy if there ever was one.

Randall Holcombe and Andrea Castillo, in their book Liberalism and Cronyism, explain that green-friendly policies typically serve as nothing more than old-fashioned crony capitalism dressed in the new garb of environmentalism, essentially as an appeal to current political fashion.

Environmental policies, in their words, "all share the common characteristic of putting government representatives in a position to choose the economic winners and losers.  Modern environmental policy therefore resembles industrial policy in the sense that the government selects which firms should be favoured under the law."

Prime Minister Tony Abbott has asked Senate crossbenchers, and presumably other parties, to identify alternative savings as part of a fresh round of budget negotiations to secure some political order to fiscal proceedings.

If the opponents of the first Abbott budget genuinely wish to see an end to political privilege, and truly care about the interests of the poor, they should offer green corporate welfare, together with all other forms of fiscal and regulatory favouritism for traditional industries, as the first item for the chopping block.

Speak well of the bourgeois, and prosper

Do the words we use to speak of economic matters, matter?  I believe they do, but not by the propagation of textbookish jargon.  Rather, the main way they matter is in shaping public ethics.

Economics has been a technical field of studies for a few centuries now and is replete with textbooks full of ideas expressed in precise and often mathematical language, passed down through a priestly class of scholars.

These ideas and the words that carry them — words such as efficient markets, consumer surplus, opportunity cost, productivity, rent seeking, for instance — seep through to an intellectual class of, among others, journalists, managers and public servants.

Some words improve the public discussion of economic policy because they carry important economic ideas — gains from trade, tax incidence, public good, for example.  Economists are broadly united in seeing value in the wide adoption and use of these utility words.  They actively monitor and police their use and abuse.

But against this are hygiene concerns:  this happens when economics words go places they are unwelcome — talk of efficient allocation of resources in the domain of public funding of the arts, for instance;  or speaking of the costs and benefits of free trade, or certain types of medical interventions, or markets that are considered repugnant.

Some words — such as "rational choice" — carry to other scholarly domains, such as political science and sociology, that in turn have invented prophylactic incantations, such as "neoliberalism", to limit such contamination.

Economics words go a lot of places uninvited, and are not always well treated when they get there.  At least that's the story for professional words.

Explaining our riches

But there is another story about economic words that is told by Deirdre McCloskey — a Professor of Economics and of English literature — in the course of two volumes (of a planned four-volume set) on what she calls the Bourgeois Era — The Bourgeois Virtues (2006) and Bourgeois Dignity (2010).

McCloskey seeks to explain the great puzzle of economics — why were we all so poor for millennia upon millennia, then suddenly, starting in the 18th century in the northwest-corner of Europe — whoosh!  Now a few centuries later we're 20 times richer.  In the standard story of this "industrial revolution" it was technology — steam engines, power looms, and science — that did it.  That story is compelling, up to the point where you realise that lots of other places had technology too, and sooner, for example 13th century China.

Another group of economists claimed it was institutions that did it — property rights, rule of law, that sort of thing.  This story also mostly works for timing and place, and makes a compelling political economy narrative.  Like the technology story, the institutions story explains how a process, once started, then continues.  But it doesn't actually explain how the process got started.

McCloskey argues that what started to change in the 17th century was not technological or institutional, but change in the ideas about the dignity of commercial pursuits — a change in rhetoric, or words about economic activities.  In the ancien regime honourable sources of wealth were associated with landholdings, titles, with earthly and spiritual power.  Those with incomes that derived from trade and commerce were dishonourable, a staple of most religions.

But this dishonour is like a tax, and as with any tax its incidence reduces supply.  The 17th century repeal of that "dishonour tax", by increasingly speaking well of the bourgeois, first in Holland, then in England, as a shift in the ethical understanding and rhetoric associated with market-based economic activity was the fundamental change that launched modern prosperity.

I'm rich, don't judge me

McCloskey's point is that the words we use about economic activities matter because they carry ethical valuations.  Her point is that a shift in these ethical valuations, in the rhetoric, was the cause of the rise of modern prosperity — of the modern world no less — but that this can also reverse, by the same process, by a re-imposition of the dishonour tax associated with tolerance of commercial activity, or a sense of its dignity.

We can run this argument the other way too.  In the early 1970s or so, a bunch of economists started talking in a new way about the economics of politics — eventually crystallising in the idea of rent seeking.  A broader public understanding of rent seeking is a way of applying a dishonour tax to political ways of earning income — which are ways that impoverish us all (although enrich insiders or cronies).

This is why the words of economics matter — not only as a method of explaining models and theories to new generations of students, but far more importantly as a way to explain the origin and continuity of modern prosperity, and its vulnerability to rhetorical assault.

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Mandatory sentencing: a king hit for courts

You can smell the air of an election in Victoria.  On Sunday the Napthine Government announced it wants 10-year mandatory minimum sentences for "one-punch" killers.

The Labor Opposition retorted that it would prefer a new offense of death by assault that would offer up to 20 years in prison.

Obviously the November election is going to be a standard law-and-order auction.

At least when New South Wales introduced its mandatory minimum sentences for one-punch laws in January it did so in response to a massive media-driven moral panic about alcohol-fuelled violence.

Let's be clear.  One-punch killers deserve the maximum possible penalty that is proportionate to the crime that has been committed.

But mandatory minimum sentences have a special place in the tough-on-crime pantheon — there is almost uniform intellectual agreement that they are a bad idea.

The title of one 2009 survey on the evidence about mandatory minimums led with its conclusions:  The Mostly Unintended Effects of Mandatory Penalties:  Two Centuries of Consistent Findings.  It argued "the decent thing to do would be to repeal all existing mandatory penalties and to enact no new ones."

Opposition to mandatory minimum sentences isn't a left-right thing.  In 2000 the conservative Samuel Griffiths Society published a paper describing mandatory sentences as a "tragedy", "unjust", and violating the "fundamental principle of law that a sentencing court should not impose a punishment which does not fit the crime."

So why?  The purpose of mandatory minimums is to reduce the discretion judges have in determining sentences, replacing that discretion with a bright-line rule determined by the legislature.

The idea is that judges tend to be soft on criminals, apparently giving lower sentences than the public would like.  So the legislature has to step in.  Furthermore, imposing a mandatory minimum sends a message:  this is an especially serious crime.

But removing judicial discretion in the sentencing process can lead to serious miscarriages of justice — forcing judges to give disproportionately tough sentences when the circumstances may demand more leniency.

Nor, as the 2009 survey cited above makes clear, is there any consensus that mandatory minimums have particularly powerful deterrence effects — at least no more so than discretionary sentencing.

And rather than imposing parliamentary control over sentencing decisions, mandatory minimums shift discretion from judges to prosecutors.

This latter point is the most important.  Mandatory sentences aren't mandatory, in any real way.  Every criminal system, by its nature, has to involve a great deal of discretion.

Under a system with mandatory minimums, the key issue becomes what the prosecutor intends to charge — the charge with the mandatory sentence, or some other collection of charges?  That decision encourages prosecutors and accused criminals to bargain about what charges will be bought and what facts will be admitted before any trial takes place.  This is particularly prominent in the United States where mandatory minimums are extremely common.  Suspects and prosecutors engage in a game of arbitrage, negotiating around the suite of potential charges.

As one Australian paper argued, mandatory sentences "make pre-trial decisions the key to the outcome of a case".  They don't eliminate discretion.  They just shift it to prosecutors.  Hardly any more democratic, but much more opaque.

Of course, most voters would prefer harsher penalties for crime, particularly thuggish crimes like king hits.  If they didn't, then tough-on-crime policies wouldn't be politically effective.  One global study concluded that mandatory minimum sentences are popular ... as long as they are discussed in general terms.  But when presented with specific cases that popularity ebbed away.

That finding accords with a more general observation that different expectations about sentencing between courts and community disappear when specifics are examined.  (See this Tasmanian study, for instance, or this Victorian one.  The NSW parliament has a recent overview of research here.)  The reason is simple, if a bit uncomfortable:  courts follow public opinion more than they care to admit.

The original mandatory sentence was the death penalty.  Capital punishment is as final a punishment as you can get.  It was loved by the tough-on-crime politicians of the 17th and 18th century, when long-term incarceration was too expensive to be an option.

It is said that Edmund Burke once commented he could "obtain the consent of the House of Commons to any Bill imposing the punishment of death."

But even in that era the judiciary tried to vary the punishment to fit the circumstances of the crime.

Stuart Banner points out in his 2002 book the Death Penalty:  an American History there were a surprising number of ways executions could be varied to make them more lenient or more punitive.  Sometimes a hanging was staged up to the very last moment, when the condemned was released to their surprise.  Sometimes the execution was merely theatrical.  For the worst crimes, hanging was combining with, for instance, dismemberment.

In other words, even in a world with just one possible punishment in theory — execution — the judiciary and executive government saw the need for substantial variation in sentencing.

Legislation is a blunt instrument.  To impose a general rule on human society it is necessary to abstract away from specifics;  to slide over details and particulars in order to come to a broader principle that can be applied to an unpredictable and diverse mixture of conduct in the future.

Discretionary sentencing is a fail-safe mechanism to prevent laws conceived in the abstract from becoming absurdities in practice.

It is one of the foundations of our common law system.  Judges must have the flexibility to impose sentencing in proportion to the crime, taking into account all the circumstances and specifics and the necessity to punish those who have done wrong.

This principle is too important to abandon just because an election is coming up.

When free speech went cheaply

There are many reasons why so many Australians are sad, angry, disappointed and worried because Prime Minister Tony Abbott announced he would break his election promise to repeal section 18C of the Racial Discrimination Act.

Among other things, the legislation makes it unlawful to offend or insult a person on the basis of their "race, colour, or national, or ethnic origin."

Abbott made his promise to repeal section 18C in a speech in August 2012.  He said that removing the section would restore freedom of speech in Australia.

He said:  "Freedom of speech is an essential foundation of democracy".  The PM has restated his promise to repeal section 18C on a number of occasions.

But last week during a press conference announcing new counter-terrorism laws, Abbott said his promise to restore freedom of speech in Australia was now a "complication" in his efforts to have ethnic communities co-operate with the government to help fight terrorism, and his promise was "off the table".

To say that many people, not the least some of Abbott's strongest supporters, were astounded by these comments is an understatement.  Deep shock is a better description of how many people felt.

Three key conclusions can be drawn from what the Prime Minister said.

The first is that freedom of speech was something he was willing to sacrifice so ethnic community groups would support the government's counter-terrorism laws.  (Within hours this negotiating strategy was proved to be flawed as ethnic community leaders came out and rejected the government's proposals.)

The second conclusion was that not only was the Prime Minister willing to negotiate on freedom of speech;  he felt he had to seek the permission of ethnic community groups for his counter-terrorism legislation.

The third conclusion is perhaps the most significant.  The Prime Minister said he believed repealing section 18C was a threat to "preserving national unity on the essentials".

"NATIONAL UNITY" AT ISSUE

In essence, what he admitted was his belief that "national unity" in Australia in 2014 is no longer the product of common and shared values across the community — instead "national unity" can now only be enforced by the government and its laws.

In this context, it's of almost secondary concern that when the repeal of section 18C was discussed at cabinet not a single minister spoke in favour of the government keeping its election promise.

The repeal of section 18C of the Racial Discrimination Act has been presented by many in the media and by quite a few Coalition MPs themselves as a "niche" issue only of concern to the conservative "base" of the Liberal Party, and to Andrew Bolt, who was taken to court under the legislation.

That analysis is fundamentally wrong.

FREE SPEECH MORE IMPORTANT:  POLL

A poll commissioned in 2011 showed that 82 per cent of Australians believe the right to free speech is more important than legal protection against being offended.

It's one thing for the Canberra press gallery to dismiss freedom of speech as a niche issue, but few would ever have expected the Coalition cabinet to do the same thing.

If the Coalition can sacrifice freedom of speech so easily, there's nothing to stop, say, freedom of religion or the principle of equal education for girls and boys one day being treated in exactly the same way — as merely "niche" issues for the "base".

Media commentators welcomed the Prime Minister's abandonment of his promise to repeal section 18C as evidence he would be less "ideological" and would govern from the "centre" of Australian politics.

Abbott's decision last week reveals just how much the ideology of the Liberal Party has changed and just how far the "centre" of Australian politics has shifted.

In 1995, under John Howard, the Coalition opposed the introduction of section 18C into the Racial Discrimination Act.

Liberal senator Nick Minchin said in Parliament at the time, "Freedom of speech is a fundamental tenet of the philosophy of my party;  that is liberalism."

Today, in 2014 under Tony Abbott, the Coalition believes freedom of speech is a threat to national unity.

Going against the grain on data retention

George Brandis claimed last month that data retention was "the way Western nations are going", but the opposite is true.  Australia would be going against the grain.

It would have been good if, at their press conference last Friday, the Australian Security Intelligence Organisation and the Australian Federal Police had been joined by all the other government bureaucracies that passionately support mandatory internet data retention.

Because data retention is not about national security.  It's about collecting data on every Australian for every law enforcement and regulatory compliance agency to use.  And for everything from serious crimes to trivial infractions.

So David Irvine of ASIO and Andrew Colvin of the AFP could have been joined by Chris Jordan of the Australian Taxation Office, Rod Sims of the Australian Competition and Consumer Commission, and Greg Medcraft of the Australian Securities and Investment Commission.  All have been pushing for data retention in committee hearings and inquiries.

And then, for completeness, we could have had a few of the dozens of state and federal agencies who currently enjoy authorised access to private communications data under the existing Telecommunications (Interception and Access) Act.

Squeeze on stage the Western Australian Department of Fisheries, Racing Queensland, New South Wales Health Care Complaints Commission, RSPCA South Australia, and Wyndham City Council.  They would all be beneficiaries of mandatory data retention.

In other words, data retention is hardly a targeted anti-terrorism measure.

There were, in fact, two separate data retention proposals last week.

The first was announced by Tony Abbott and George Brandis on Tuesday.  We've all seen the muddled interviews but the broad strokes of the policy itself were relatively clear.  The Government was planning to force internet service providers to record both the internet protocol (IP) addresses of their customers and the IP addresses of the websites that those consumers visited.

This is sometimes known as "session logging", or more popularly as "browsing history".

Abbott and Brandis clearly left the National Security Committee last Monday night, and Cabinet on Tuesday, thinking session logging was what had been agreed to — it was the "in-principle decision".

Then something changed.  A second proposal was announced by Malcolm Turnbull, and confirmed at the ASIO and AFP conference on Friday.  In this, the only data that is to be kept is IP addresses matched to customer details.  Not a record of all the sites the customers visit.

With the data provided by the Abbott-Brandis session logging policy, it would be possible to map out a person's entire world.  No ISP keeps such a record of its customers' online lives.  Why would it?  Anyway, doing so would be in breach of Australian Privacy Principles, which state that no more information ought to be kept than is necessary for business purposes.

The Turnbull policy is still useful for law enforcement, but much, much narrower.  It's only a small step away from billing information.  And a few ISPs do keep this data.  Storing it consistently might be expensive — very expensive for some ISPs — but it's hardly the giant threat to privacy and liberty that the Abbott and Brandis policy constitutes.

Most importantly, it is not the mandatory data retention policy proposal that has been on the table for years — large-scale session logging — the policy that Malcolm Turnbull described in 2012 as "the latest effort by the Gillard government to restrain freedom of speech".

Thank goodness.

As Bernard Keane has found, the Attorney-General's Department has been pushing for the full version of data retention since at least 2008.

The intellectual genesis of this policy goes back 2006, when the European Union passed the Data Retention Directive.  (Australians rarely come up with these ideas themselves.)

The directive instructed all EU member states to retain large quantities of communications data — both source and destination — for the investigation of "serious crime".  You can read it here.  Article 5 outlines how just how large those quantities were to be.

European countries did as they were told.

Their experience shows that Tony Abbott was spot on when he said on Wednesday that data retention was designed to fight "general crime", not just terrorism.

In a sample 12-month period, an Austrian review found that the most common law enforcement use of retained data was for cases of theft, followed by drugs, followed by stalking.  Terrorism didn't rate.

Internet traffic data retained by Poland's scheme is being used "more and more" for civil disputes — even divorce cases.

The Danish Justice Ministry found only two cases where session logging has been useful in half a decade.  Neither concerned terrorism.  Denmark gave up data retention in June this year.

Germany's Federal Crime Agency concluded that data retention had no statistically relevant effect on crime or crime clearance.  Crime continued its long-term decline even after data retention was abandoned in Germany in 2010.

We could go on.  Brandis claimed last month that data retention was "the way Western nations are going" but the opposite is true.  Data retention is being wound back, repealed, and abandoned.  In April this year the European Court of Justice found that the EU directive was unconstitutional.

Australia already has a powerful, robust mechanism to monitor suspects online:  targeted data preservation notices on the telecommunications of suspects.  This regime was updated just two years ago.

But that, perhaps, is beside the point.  The last week has demonstrated that the debate over telecommunications surveillance is held in widespread ignorance — ignorance about our existing capabilities, the constantly evolving legal framework, and the architecture of the internet.

Not surprising, of course.  This stuff is complicated.  Technology policy is hard enough.  Add onto that our labyrinth telecommunications intercept laws.

But politicians ought to try to understand the laws their departments insist they introduce.

Abbott and Brandis seem to have thought that merely mentioning the word "terrorism" would be enough to ensure their policy an easy run.

Yet no matter how real the terrorist threat, the pre-emptive surveillance of every single Australian would be an extraordinary policy in every sense of the word — way outside the bounds of proportionality, and way outside the boundaries of legitimate government action in a free country.

Environment of fear as ABC fails bias test

The ABC is not like any other broadcaster.  With more than $1 billion in public funding, we rightly demand the ABC be rigorously fair, balanced and impartial.

On energy policy, we now know the ABC fails that test.  As reported in The Australian yesterday, research was released that conclusively demonstrates the ABC's bias against fossil fuels and in favour of renewable energy.

Energy policy is vital to our prosperity.  Despite an abundance of natural resources, Australians pay among the highest electricity prices in the world, as a direct result of policy choices that have unquestionably been influenced by media coverage.  However, this analysis could easily be replicated with the same results in other areas of ABC coverage.

In March, the independent media monitoring agency iSentia was commissioned to analyse the ABC's coverage of energy policy issues in relation to the coalmining industry, the coal-seam gas industry and the renewable energy industry.  In the largest study of its kind, iSentia analysed 2359 separate ABC reports over a six-month period on these industries across national, metropolitan and regional radio and television.

The results were striking.  iSentia found an astonishing 52 per cent of all ABC reports on renewable energy were favourable.  Just 10.8 per cent were unfavourable.

Yet only 15.9 per cent of coalmining stories were favourable, while 31.6 per cent were unfavourable.  And just 12.1 per cent of coal-seam gas stories were favourable and 43.6 per cent unfavourable.  The renewable energy industry is heavily reliant on subsidies and regulatory favours via the mandatory renewable energy target.  Indeed, independent modelling conducted by Deloitte Access Economics for the Australian Chamber of Commerce and Industry has found the RET alone will cost the Australian economy $29 billion by 2020, push up power prices for households and businesses and kill 5000 jobs.

Yet iSentia found only 14 ­stories that cast the economic impact of the renewable energy industry in an unfavourable light.  An incredible 117 stories suggested that renewable energy had a positive economic impact.

CSG and coalmining generate thousands of jobs and billions of dollars of exports, without government subsidies or regulatory favours, but the ABC was obsessed with the potential environmental impacts of the fossil fuels.

During the sample period, only 37 stories were broadcast that depicted the economic impact of the coal industry in a positive light, against 115 that suggested the industry would have a negative environmental impact.  The benefits brought by CSG to the Australian economy merited the ABC's attention only 52 times, but the assertion the industry would have a negative ­environmental impact was delivered in 259 stories.

iSentia found — surprise, surprise — that hopeful language featured in 93 stories on renewable energy, compared with 21 stories on CSG.  The language of fear was used in 306 stories on CSG compared with 51 stories on renewable energy.

That's hardly surprising given the interviewees.  On coal-seam gas, the ABC's go-to man is NSW Greens MP Jeremy Buckingham, quoted in 92 stories — more than double the next most prominent guest.  While federal Environment Minister Greg Hunt was the most quoted in stories about coalmining, a close second was Queensland Greens senator Larissa Waters.

On both radio and television, and across regional, metropolitan and national programs, the ABC consistently and overwhelmingly favoured renewable energy and treated the coalmining and coal-seam gas industries with extreme disfavour.  This suggests the problem of bias at the ABC is endemic across the organisation.

If, as David Marr said, you have to be a leftie to be a journalist, then those who choose to work at a public broadcaster instead of a commercial outlet are even more likely to be left-wing.  Once surrounded by others of a similar world view, and insulated from their audiences by the absence of a commercial imperative to seek advertising, it's predictable that the personal preferences of journalists dominate coverage.

If bias at the ABC is systemic, only structural reform will solve it.  A new board or management won't change the culture.  Privatising the ABC is the only way to ensure taxpayers' money is not used to fund biased coverage.

Blowing Smoke on Plain Packaging

Of the three major Gillard government initiatives — carbon tax, mining tax, and plain packaging — only the plain packaging policy is not slated for repeal.  It should be.  It isn't — yet supporters have been waging an impressive campaign to maintain the policy.

Since December, 2012, all cigarettes in Australia have been required to be sold in standardised packages with large health warnings.  The express objective of the policy is to reduce the attractiveness of smoking, particularly for younger individuals.

This policy is the latest in a long line of initiatives designed to reduce smoking.  Since the 1990s we've seen bans on tobacco advertising, bans on point-of-sale advertising and then bans on point-of-sale displays, bans on smoking in public places, graphic health warnings, and so on.  The ever-increasingly illiberal restrictions on smoking might lead us to imagine that the "war on tobacco" is being lost.

Yet, to the contrary, tobacco consumption has been in long-term decline for over fifty years.  The Tobacco in Australia report shows that per capita tobacco consumption has been falling since the early 1960s and speculates that this might be due to UK and US government reports outlining the adverse health effects of tobacco consumption.

It is this downward long-term trend that confounds much of the analysis that purports to investigate the efficacy of specific policies to reduce tobacco consumption.  In an econometric analysis of per capita tobacco consumption, Treasury find a highly statistically significant time trend in the data, but report that regulation is not a statistically significant indicator.

In other words, Treasury found no evidence that ever-increasing regulation plays any role in reducing tobacco consumption.

Unsurprisingly, however, it concluded that price does play a role:  increases in excise are likely to reduce smoking rates.  Since 2010 we have seen massive increases in tobacco excise over and above the regularly scheduled increases, and a change in the base of indexation.  From this year onwards, tobacco excise will be linked to average weekly earnings, not CPI.

It is clear that the health lobby believe the optimal rate of tobacco consumption is zero and is happy to achieve that outcome at any cost.  Nowhere else in public policy do we pursue such single-minded policy goals.  We might like to live in a world where there is no crime — but everyone understands the costs of achieving such an outcome far outweigh the benefits.

In short, the health lobby faces very little public scrutiny in its claims.  Recently, for example, The Australian published claims that the plain-packaging policy had failed to reach its stated policy aims.  The response from the health lobby was immediate and savage.  At the same time, any scrap of evidence that could possible justify the plain-packaging policy is seized upon and broadly disseminated.

Last month the 2013 National Drug Strategy Household Survey results were released and showed the continued downward long-term trend in tobacco consumption.  Yet this was interpreted as supporting the plain-packaging policy — as if the entire decrease in tobacco consumption occurred after December, 2012, and the 25% increase in excise witnessed in 2010 had never happened.

Then there is the misinformation:  Sydney University research fellow and lecturer Becky Freeman wrote, "The number of 12- to 17-year-olds who have never smoked held steady at a near universal 95%."  That figure, 94.7%, was identical to the 2010 figure, but very slightly down on 2007's 95%.  The big picture is this:  basically 5% of individuals aged 12-17 experiment with tobacco.  Notwithstanding anything the health lobby has done since 2007 that figure remains unchanged.

Then there is Simon Chapman telling us that the data relating to 12- to 17-year-olds simply wasn't statistically significant.  But that interpretation wasn't entirely correct — as UK blogger "Dick Puddlecote" explained.  In 2010, 2.5% of 12-17 year olds were categorised as being daily smokers, in 2013 that number had increased to 3.7%.  With population growth factored in, that is an additional 150,000 teenage smokers under the age of 18.  As Puddlecote says, "In reality, this is the only statistic which is relevant in the plain-packs debate when it comes to prevalence.  Has plain packaging been successful in stopping kids from smoking, or not?  It's that simple."

But it gets worse — the proportion of ex-smokers in the 12-17 age group has collapsed since 2010.  In that year the proportion of ex-smokers aged 12-17 was 1.6%.  In 2013 it had fallen to 0.3%.  Young individuals who took up smoking had not given up.  We're told that the decline from 1.6% to 0.3% is statistically significant, but that the 0.3% is not statistically significantly different from zero.  So, statistically speaking, nobody who started smoking in that age group has given up.

In 2013 the proportion of occasional smokers aged 12-17 is also not statistically significantly different from zero.  The picture that emerges is that the 5% of young smokers in that age group who took up the habit over the 2010-2013 period are still smoking.

That's not the impression that the health lobby has been at pains to convey.

Apart from the dearth of evidence that the plain-packaging policy is actually working, the major problem is that this approach to public health undermines intellectual property rights.

The government has argued that it hasn't actually expropriated trademarks and intellectual property, just that it prevents that property from being used.  That is a very fine distinction — but it does introduce sovereign risk into the Australian public arena.  Investors cannot be sure that the Australian government won't deny them the use of their intellectual property at some stage in the future.  To the extent that intellectual property is an important driver of innovation and productivity the plain-packaging policy sends the message that Australia is not quite open for business, despite what Tony Abbott claims.

Given the long-term decline in tobacco consumption, and the absence of clear and unambiguous evidence that ever-more draconian regulation further reduces tobacco consumption, the government should repeal the plain-packaging legislation as imposing unacceptably high and unnecessary costs on the Australian economy — just as it has the carbon tax and hopefully the mining tax too.

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Heavy-handed welfare state attacks the most vulnerable

The major risk of a growing welfare state is the threat of overzealous paternalism applied to welfare recipients.

Curiously, a key Abbott government response to the budget emergency has been not to cut middle class welfare or to pare back the unsustainable age pension scheme, but to advocate a set of quick fixes to discourage the take up of the Newstart unemployment allowance.

This explains the apparent zeal with which the government has embraced several ideas serving to impose additional conditions upon Newstart recipients.

Most job seekers will be required to search for up to 40 jobs a month, while those job seekers under 50 will be obliged to work for the dole, for either 15 or 25 hours a week, for six months each year.  This does not include changes aimed at greater economic participation by recipients of other government welfare programs, such as assessing the capacity for younger recipients of the disability support pension to engage in labour market activity.

In addition, there have been suggestions, most notably presented by mining entrepreneur Andrew "Twiggy" Forrest, to extend the "income management" regime, presently restricting the consumption spending of certain welfare recipients, in high-unemployment areas and largely indigenous communities, to all welfare payment recipients across Australia.

The imposition of welfare payment conditions, on top of basic eligibility criteria, is predicated on the notion that taxpayers, who are being forcibly compelled to finance government income transfers, would ordinarily expect transfers to be directed to those in genuine need, and that the needy make financial calls upon taxpayers only for a short period of time.

After all, the fiscal costs of supporting the unemployed are already hefty, estimated to be at least in the order of $10 billion a year.

However, the evidence suggests there are not only substantial numbers of Newstart Allowance recipients at present, but that many tend to remain on the payment for a lengthy period, compounding the risk of long-term dependency on welfare and their being paternalised by government.

It is estimated that, of the total of 549,773 people receiving Newstart in 2012, about 62 per cent received the allowance for 12 months or more, with about 21 per cent of the total (or 113,417 people) receiving it for more than five years.

These worrying statistics possibly understate the true extent of unemployment within Australia's welfare rolls, since a considerable number of working-age people have been shifted on to the disability support pension, with its higher payment rates and almost negligent work activity testing regime.

It is the derogatory stereotypes that many Newstart Allowance recipients, in particular, are "dole bludgers" enjoying endless sleep-ins and trashy daytime television, at the expense of hard-working Australians, which fuels broad electoral endorsement for the government's creeping welfare state paternalism.

And, to be clear, federal governments have long pandered to this "downwards envy" impulse within the Australian body politic, stretching as far back as the "susso" sustenance payments, or food vouchers, doled out to the unemployed working on public projects during the Great Depression, if not earlier.

But, as in just about every other aspect of governmental activity today, there is the risk that politicians and the bureaucratic class will indulge in paternalistic heavy-handedness upon some of the most economically and socially vulnerable members of our community, in this case the unemployed.

The income management scheme is perhaps the most conspicuous example of overkill, implicitly rationalised on the ludicrous grounds that the unemployed are, somehow, less financially literate than everyone else, but, at the same time, Centrelink bureaucrats are better placed to decide a jobseeker's consumption needs and desires.

While the presentation of some evidence by Newstart recipients that they are, indeed, searching for work is not unreasonable, one needs to be mindful that the increasingly sclerotic performance of the Australian labour market prevents at least some from finding work easily.

The cruel, but very real, numerical fact is that all the Newstart Allowance recipients simply cannot fit into the much more limited numbers of total job vacancies, which are currently running at about 146,000 vacancies but which, by the same token, have been falling since mid-2012.

These basic statistics mask the fact that the vacancies waiting to be filled have job-specific skills or working requirements, and are often more likely to be filled by those presently in employment switching between jobs, or not long out of work, while those languishing long term in dole queues tend to have their hiring chances cruelled.

Proponents of work for the dole, for example, argue that the initiative is designed to assist the unemployed tackle job-specific skills decay and a lack of work readiness, in ways that education and training courses cannot do, but evidence that such initiatives actually help substantive numbers of people secure jobs is disputed.

And if the proposal that jobseekers must tender 40 job applications a month goes ahead, one could expect little more than an avalanche of emails and paperwork heaped upon employers having to sift through frivolous job applications by Newstart recipients.

It would seem many of the activity-related conditions for unemployment payments are maintained, and extended, to appeal to voter prejudices, yet policy alternatives which could actually help the unemployed much more effectively are also opposed, with great hostility no less, by largely the same voters.

There is seemingly strong sentiment for maintaining the minimum wage, one of the highest in the developed world, even though it effectively prohibits the creation and maintenance of lower paying, entry-level jobs for those seeking work.

In equal measure it would seem the byzantine system of occupational licensing regulations also wins broad electoral support, although it costs everyone in terms of higher prices, and shuts out new labour entry from sheltered occupations, including manual labouring and personal services roles.

Governments, with the tacit approval of the voting public in recent years, have also implemented more restrictive regulations raising the cost of child care and reducing access for those aspiring to work.

Meanwhile, severe housing supply restrictions and housing taxes, which current homeowners would probably support with great fervour, impedes labour mobility to where jobs exist.

It is the profound anti-deregulation sentiment, juxtaposed with otherwise reasonable expectations that jobseekers look for employment, which allows governments to impose paternalistic policy experiments, of ever-increasing intensity yet questionable effectiveness, upon the unemployed.

Receiving unemployment benefits is not a birth right, but it is not unreasonable to contend, either, that we might all just be better off if deregulation proceeds, allowing the all-round prospects of job creation to be turbo-charged.

Abbott needs to hit the reset button

The Abbott Government is about to learn that the hardest political manoeuvre is changing direction.

In their times, Kevin Rudd, John Howard and John Hewson tried this tricky exercise.  Each fumbled.

Rudd shelved the emissions trading scheme in April 2010.  This did nothing to restore his prestige.  Rudd was shelved by his colleagues two months later.

Howard tried to adjust WorkChoices when it was clear that the policy lacked popular support.  The new fairness test, introduced in May 2007, did not placate WorkChoices' critics.  Howard lost government and his seat.

Hewson released Fightback! in November 1991.  Over the next year the Coalition bled support.  Hewson tried to relaunch a softer version of the package in December 1992.  It didn't help.

But those leaders had it easy.  The Abbott Government is likely going to have to pull this manoeuvre quite a number of times over the next few months.

The Medicare co-payment is going to have to be restructured and revised if it is going to pass the Senate.  (Even that may not be enough.  Clive Palmer yesterday announced he would vote against any co-payment, no matter how small.)

The mining tax will have to be decoupled from the measures it was supposed to fund — the schoolkids bonus, for instance.

The changes to welfare are unlikely to pass in their current form, so it'll be back to the drawing board with those as well.

The Government hasn't even begun the university fee deregulation debate, but when it starts it will be bruising.

And then there's the paid parental leave scheme — not formally part of the 2014 budget but its generosity casts a shadow over every austerity measure.  PPL is meant to be up and running next year.

What makes the Government's problem even worse is that it's trapped by both legislative forces and public opinion.  Tony Abbott's prime ministerial predecessors have only had to deal with one, rather than both.

Take Rudd's emission's trading scheme.  The scheme wasn't overwhelmingly popular, sure.  But, in mid-2010, it was hardly a government-killer.  Rudd's real problem was legislative gridlock.  His error wasn't delaying the scheme — the parliament had already done the delaying for him — but taking responsibility for that delay.

Howard didn't have an obstructive senate.  In fact, he had the opposite problem — a compliant upper house that offered no check on his government's longstanding urge to centralise labour market regulation.

And of course the unpopularity of Fightback! was fatally manifest long before Hewson had a chance to test it in parliament.

The bottom line for Abbott is this, and it's dire:  the Government is unable to legislate policies that voters don't want anyway.

So it's hard to see any alternative.  The Government has to effect a policy reset — a mini budget.  The budget needs to be redone and relaunched.  Contentious policies have to be revised, and, critically, argued for on their own terms.  If the Government wants to reform Medicare, then great:  let's hear the case for reform.  We haven't yet.

The longer the Government delays that reset, the more trouble the festering budget is likely to cause.

The protracted Senate negotiations are starting to manifest in discipline problems within the Coalition itself.

The canary in the coal mine here is the paid parental leave scheme.

Abbott's Liberals were never strong supporters of PPL.  The Nationals always hated it.  But the longer the PPL scheme remains unlegislated, the more internal dissent is revealed.

There has been an uptick in anti-PPL sentiment over the last few weeks.  Madonna King's Joe Hockey biography — which revealed that Rupert Murdoch knew more details of the scheme than Abbott's treasurer before it was launched — didn't help.

Fairfax papers reported on the weekend that the only supporter of the scheme in cabinet is the Prime Minister himself.

Paid parental leave has, perhaps, been an exception for which disloyalty is excused.  It was the subject of internal grumblings from the moment it was announced by Abbott.

Yet we discovered yesterday that the culture of dissent around PPL is spreading to other issues.  Coalition backbenchers are now freely floating ideas about how to adjust the co-payment to make it more equitable and popular.

And more concerning still is the infighting revealed in this piece by Peter Hartcher — backbenchers and ministers lining up to apportion blame for the budget's unpopularity.  It is apparently easy to find Government members willing to anonymously rag on their colleagues.

Something needs to change.  Some commentators have called for a reshuffle.  There are, after all, a large number of young and talented politicians in the outer ministry and backbench, and a few too many Howard-era holdouts in the cabinet.

A reshuffle is a drastic thing, especially so early in a first term of government.  Yet it wouldn't fix the budget gridlock, or make the individual items in the budget more popular.

The problem, in the end, is that budget.  And the only way to resolve it is to reset it.

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Security bill widens government surveillance powers

The National Security Amendment Bill (No.1) 2014, introduced into federal Parliament last month, is 128 pages long.  The bill's explanatory memorandum is larger again — 167 pages.

It's an absolute behemoth — complex, labyrinth, and, to outsiders, entirely opaque.  In that sense, the bill is a great metaphor for the massive national security apparatus that has developed since the September 11, 2001 terror attacks.

It's also the first major piece of Australian national security law reform since Edward Snowden a year ago revealed America's program of global and indiscriminate mass surveillance.

Timing matters.  The Snowden revelations demonstrated that not everything done in our name is done in our interest — and too often it is done without any democratic scrutiny, let alone the approval of voters.

So what should voters make of the Abbott government's new national security bill?

It seems the three most significant elements are a new power to allow spies to plant software on targeted computers, new penalties for intelligence whistleblowing, and a prohibition on anybody releasing any information about "special intelligence operations".

But it isn't clear what the practical implications of these powers are.  Are there any boundaries on what constitutes a special intelligence operation?  Could journalists be prosecuted for reporting on national security leaks?  Getting details out of the government is like pulling fingernails.

National security is a unique area of public policy.  It's one of the most important functions of government.  Yet citizens have very little idea of what the government does under the guise of protecting them.

So the debate over national security powers is always held under a veil of ignorance.  Usually serious public policy discussion requires evidence.  But when we're talking about security those evidentiary standards go out the window.  The best we get is hand-waving about terrorism and, now, Australian residents fighting in Syria.  We're told to take the government on trust.

Given that a basic principle of democracy is that governments must justify themselves to the citizenry, this is a problem.  Terrorism is a real threat.  But it is not a blank cheque for legislative change.

The democratic accountability problem is enhanced even further by the fact that — as the Edward Snowden leaks have demonstrated — Western governments have repeatedly lied about their national security actions and have kept hidden evidence of their own wrongdoing.

In his recent book, Secrets and Leaks:  the Dilemma of State Secrecy, Princeton academic Rahul Sagar argues there are no easy ways to impose democratic accountability on the national security state.

Blind trust isn't an option.  Democracies cannot rely on blind trust.  Unfortunately radical openness isn't an option either.  We don't want the bad guys to know everything about ongoing enforcement operations.

Institutional accountability mechanisms — like parliamentary committees and independent watchdogs — are good, but they tend to be captured by the agencies they are overseeing.

Sagars conclusion is that the best we can hope is that whistleblowers expose wrongdoings.

When America's mass surveillance program was first revealed by Snowden last year, the Obama administration instinctively responded the program was necessary to prevent terrorism.

Yet in December, 2013 the administration's own advisory panel concluded that bulk mass surveillance "was not essential to preventing attacks" and traditional, targeted surveillance methods was sufficient.  This panel was no naive civil libertarian whitewash.  One member was even a former CIA deputy director.

A study by the New America Foundation — a bipartisan thinktank partly funded by the US government — concluded mass surveillance "has had no discernible impact on preventing acts of terrorism".

Australia is one of the members of America's Five Eyes surveillance coalition, alongside Canada, the United Kingdom and New Zealand.  Unfortunately our governments have been no more honest than American administrations about the need for new security powers.

For instance, the government claims its national security bill is mostly just a long-overdue update of 1970s-era telecommunications interception law.  But this argument would be more plausible if the Telecommunications (Interception and Access) Act 1979 had not been updated more than 50 separate times in the past two decades.

The bill is apparently the first of a series.  Attorney-General George Brandis said last week a second tranche of reform will make it easier to prosecute Australians fighting overseas, and make it illegal to "promote" terrorism.  OK.  But it's already illegal to "incite" terrorism.  Is that not enough?  Will the government explain, specifically, why changes are needed?  Don't hold your breath.

A third tranche is likely to introduce mandatory data retention.  That policy would require internet service providers to record almost everything every Australian does on the internet, just in case law enforcement agencies — from anti-terror spies to competition regulators — decide, in the future, to have a look.  Mandatory data retention is both expensive and repressive.

There will probably be a fourth tranche.  Tony Abbott wants to be a tough-on-terror prime minister.

The Snowden revelations should teach us one thing.  Now, more than ever, the burden of proof rests on those who say we must trade off our liberty and privacy for security.  That burden has not been met.

The budget falls on stony ground

Joe Hockey's first budget is a bit like John Howard's Work Choices:  it's a solution to a problem the public doesn't think exists.

There's a view that Hockey should have had a mini-budget within weeks of the federal election in September last year.  The argument is that leaving the budget until May sent the message that the government's financial situation is neither serious nor urgent — that there's no budget "emergency".

In fact, one of the reasons the budget is in trouble is not that it was delivered too late, but rather that it was delivered too soon.

The Australian public have had two decades of an economic boom, six years of a profligate Labor government, and a year of being told by the Coalition when it was in opposition that the country could afford Labor's promises of huge increases in spending on education, health, and disability services.  After years of being told they can have all this — and more, voters were then told by Hockey on budget night on May 13 that they can't.

It's no surprise the budget has hit a brick wall in Parliament and with voters.  Not even Paul Keating and Peter Costello appearing on stage together at RSL Clubs around the country could sell this budget.

One of two conditions are required if the public is to accept the sort of budget Hockey delivered.  Neither of them exists at the moment.  The first is a clear and obvious crisis, say a recession;  the second is a process of communication over the long term.  With a bit of luck the country won't have a recession, so what's left for the government is communication.

To say the communication about the budget has been a mess is now a truism of Australian politics.

It's not enough for Hockey to go to London and give one excellent speech about the end of the age of entitlement.  He's got to give that same speech every day in Australia.

TIMEWASTING AT B20 AND G20

In the current political environment Tony Abbott and Hockey are wasting their time at cocktail parties for the G20, the B20, and the collection of acronyms that are the international government/finance circus.

The Coalition inherited the G20 meeting and it has to go ahead, but the difference that anything talked about at the G20 will make to the average voter is zero.

The government also has to realise that it's not going to get too much help from anyone else in selling its message.  Most economists in business, academia and the public service like higher government spending and think Australians are not taxed enough.  Many of those same economists thought the carbon tax and the mining tax were good ideas.  Those economists are only too willing to point out that for every argument the government makes there's a counter-argument.

For example the public are told (correctly) that Australia has nearly the fastest growing government debt in the developed world.  But they're also told (correctly) that the country's debt is not as bad as the rest of the world.  (Apparently Australians find being it comforting to be told we're not as bad as Europe or America.)

The Coalition misunderstood the public.  The Coalition believed that given the failings of the Rudd/Gillard/Rudd administrations the public would be more accommodating of the Coalition than it's been willing to be.  Saying "We're not Labor" and "We'll fix it" is not enough to get the public on side.  Rudd and Gillard have salted the earth for a generation.  The public are now distrustful and wary of all governments of all persuasions.  Of itself this is no bad thing.  The public should trust government less, not more.  But it does mean the task of the government getting the public to support its policies is made more difficult.

The question is where the government goes from here.  The answer is obvious, but doing it is hard.  The government and its ministers and its backbenchers have to knuckle down and do the hard slog of every day between now and the next federal election explaining why, if we are to maintain our standard of living, let alone improve it, things in Australia must change.

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