The Pulse

The Industrial Relations Straightjacket

Wednesday, 06 April 2011 11:57 John McDonnell

The Industrial Relations Straightjacket

Paul Kelly had a very good article in last Saturday's Australian that pointed out that Julia Gillard's industrial relations policy was likely to put the brakes on economic growth and to slow productivity. The same point has been made by people ranging from Judy Sloan to Gary Banks. However as the Russians often say "the problem is likely to be worse than we could have possibly expected".

The imposition of the Carbon Tax together with the higher Australian dollar is likely to force radical structural adjustment on manufacturing industry in particular. If manufacturing cannot adjust quickly then it will be wiped out. It will not be just small companies but organisations like Bluescope Steel, Holden and Ford and Toyota. In order for adjustment to occur there has to be a flexible economy. However the new industrial regime has introduced a degree of inflexibility that has not been seen for more then twenty years. A rigid national wage structure that is pressing for wage increases across the board will make it impossible for manufacturers to restructure in ways that will meet a change in their cost structure. The likelihood is that they will simply adjust their supply chains away from Australia.

It is interesting that Ross Garnaut chose not to comment on the adjustment process that would be required to meet a sensible price for Carbon. In other contexts he has been strident in his call for greater flexibility in the economy to drive productivity increases. His failure to do so in the Climate Change context represents a bit of a blind spot.

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The Carbon Tax Won't Work

Wednesday, 06 April 2011 11:13 John McDonnell

THE CARBON TAX WON'T WORK

The truth is that there is no policy difference between the Government and the Opposition on Carbon Tax. They are both going to reduce emissions by 5 percent and they are both going to put a price on Carbon. In the end neither scheme will have much impact on emissions. In other words they are both examples of gesture politics; the advantage of the Opposition scheme is that it will do less damage to the economy.

The Opposition scheme has two major mechanism for reducing carbon; the first is through soil improvement and reforestation. The problem with this is that it costs money and there may not be enough of that in the budget to make any significant impact. The second mechanism is by offering money on a tender basis for projects that reduce Carbon. This can be done either by specifying the amount of Carbon to be lost and seeing who can do it cheapest or alternatively seeing who can reduce the most Carbon for a fixed amount of money. Either way the result is a price for Carbon is established by the process. It is probable that the tender process will be more expensive than simply buying Carbon permits on the international market, which at the present time is the cheapest way to reduce emissions.

The problem with the Government's approach is that it is the equivalent of a punt on dog three in race four at the dishlickers. If the rest of the world (the US and China) adopts an international price on Carbon, Australia will be ahead of the curve on structural adjustment and will be able to reap the advantages of being an efficient low emissions economy. On the other hand if the rest of the world decides that there is unlikely to be an agreement on a Carbon price between the US and China anytime soon, then Australia will have undergone a painful adjustment for no reason at all. That is assuming that the Carbon Tax is really intended to cut emissions by 5 percent by 2020. In this case we will probably have the highest Carbon price in the world by a long way. On the other hand, the Government may just be indulging in a sophisticated form of spin; introducing a mechanism that has no impact on the economy and no impact on emissions.

If this is their game plan, they are going to have to hope that the Greens are prepared to play the Hoodwink game with them. If Bob Brown went along with the gesture approach then it would give the scheme credibility in the short term and destroy him in the long term. It would probably be enough to get the Government a shot at re-election and that is probably its main motivation. In the meantime the environmental damage would continue unabated.

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Gillard’s Mickey Mouse Government

Thursday, 30 September 2010 13:16 John McDonnell

Julia Gillard is looking more and more like a rabbit trapped in the headlights. She is totally confounded by the need to keep sweet with the independents and the greens, so much so that they have become the focus of her policy attention. As a consequence she is implementing more and more distorting policies, in a situation where the economic agenda militates that she should be removing distortions from the economy. She is also alienating State Governments who she needs in order to implement her major reform packages.

The first of her major new policies was announced today in conjunction with Nicola Roxon and Simon Crean. It was the first round of additional funding for hospitals, which has prioritised the regional hospitals over the city hospitals. This is a sop to the Independents, which seems to have been announced without reference to the States and yet hospital funding was meant to have been a cooperative process involving the State Governments. Moreover there has been no attempt on the part of the Government to determine that the regional hospitals deserve priority over urban hospitals.

At the same time both the Treasury and the IMF have emphasised the need for structural reform to the economy. Gillard seems to be ignoring these requirements in favour of managing the demands of the Independents. Mind you the IMF and the Treasury have different appraisals of the risks to the economy. The Treasury seems to be concerned with the looming capacity constraints brought on by the commodities boom ( a view it shares with the Reserve Bank, which is worried about the possibility of inflationary pressures growing). On the other hand the IMF is concerned about the structural weakness that is implied by a reliance on commodity prices staying high. It is pushing for more fiscal consolidation.

More fiscal consolidation will inevitably mean cutting back on health and education expenditure or cutting middle class welfare. Neither the Government nor the Opposition seems to have much appetite for this, but sooner or later the nettle will have to be grasped.

Barnaby Joyce gave an interesting speech yesterday in which he said that some of the revenue projections for the Budget over the next three years were decidedly ropey. His conclusion was that the Government needed the Carbon Tax to cover the black hole. As it seems the Mining Tax may not yield the amounts forecast, and projections of yields from such things as HECs repayments are overly optimistic, Barnaby could well be right.

However the experts advising the Climate Committee are likely to agree that Carbon Tax revenues should not be appropriated for consolidated revenue but should be hypothecated to meet the requirements for movement to a low carbon economy (as advocated by Marius Kloppers), so simply using this money to prop up the Budget may be difficult. It all augers for a minimalist three years of Government, albeit in a near hysterical political environment.

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DEBAUCHING THE PUBLIC SERVICE

Tuesday, 14 September 2010 15:37 administrator

The Government and the Independents have combined to completely debauch the Public Service. The Westminster Tradition is that the Public Service advises the Minister of the day who is accountable to Parliament. It is not available to advise anyone else.

So what is this nonsense about it advising the Independents before a Government has even been formed. Worse still, why is the Treasury being asked to adjudicate on who has the better costing of its policy proposals, Labor or the Coalition?. It looks very much as if under the terms defined by the Independents that the Public Service is being asked to adjudicate on who is better placed to form Government.

This not something that the Public Service should be involved in for the following reasons:

1. It automatically politicises the public service. If it chooses one side it loses the trust of the other.
2. An individual Department may suborn the interests of a competitor Department.
3. The Public Service is accountable to Ministers not individual members. If there is no Government then it should not be providing information to any member

Procedurally if the independents had wanted information from the Public Service they should have approached the Secretary of the Department of Prime Minister and Cabinet and requested it. The Sec PM&C should have sought information from the Treasury and then supplied it to the Independents without contact with officials from the Treasury.

As it is the “New Paradigm” seems to mean that any member that wants it will have access to the Public Service for the purpose of discussing policy proposals. This will result in a chaotic policy free for all.

Let’s hope reason prevails and some sensible conventions are adhered to.

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The Election is a Temporary Respite

Monday, 23 August 2010 16:38 John McDonnell

Having tipped a hung Parliament in my broadcast on Friday, I am prepared to chance my arm again and say that Julia Gillard will continue as Prime Minister. However there is a caveat; it wont be for more than a year.

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