Where immigrants are not only accepted but sought after!

Hey, Poms, fancy living in Adelaide? Australia tries to lure talented Brits



Adelaide has launched a raid on British talent with a campaign luring families to its Mediterranean climate and 'recession-free' economy. As well as a host of job opportunities, the city is offering 300 days of sunshine a year, affordable house prices, and a 'better quality of life'. The offer is all the more attractive as South Australia is on the brink of becoming the world's 'next boom state', according to a report.

The hand of welcome was extended yesterday by the Government of South Australia, which said the opportunities for those wishing to work or invest in Adelaide were 'second to none'.

However, the climate and attractions of the coastal city are bound to be an equal draw. As well as long beachfronts, it boasts average summer temperatures of 28c (82f), world-renowned wine and highly-rated schools. While its climate does mean it is prone to light rainfalls, they are not on the same scale as the depressing downpours suffered by Britain.

The report was commissioned by the South Australian Government to sum up the attractions of Adelaide in order to encourage businesses to invest in a growing economy 'rather than a declining one'. It follows data from the Australian Bureau of Statistics, which claims not only that Australia has avoided the recession, but that Adelaide is Australia's best-performing city.

British trend analyst Ray Hammond, who was commissioned to compile the report, said he believed the city would boom economically over the next decade. 'If I could, I would buy shares in Adelaide tomorrow,' he said.

Bill Muirhead, South Australia's London-based Agent-General, said: 'This is not just another cynical assault on the Britain that continues to lose business investment to this healthy and growing state economy. 'South Australia's economy outgrew Australia's, and Adelaide was the only state recording growth in the March quarter. 'It is also the nation's food and wine capital - we produce half of Australia's wine and are home to brands such as Penfolds, Wolf Blass and Jacob's Creek.'

According to the report, Adelaide's success is based on world-class education, affordable housing, rich natural commodities and a consistent ranking as one of the best cities in the world for business. The city, which is 450 miles north-west of Melbourne, came in the top ten of The Economist's World's Most Livable Cities index last year.

Australia already attracts many Britons, with 23,236 moving there in 2007-08, including 2,451 who went to Adelaide. Total migration from Britain in the 12 months to June this year was a record 406,000. A survey found that four in ten cited the high cost of living in the UK as the main reason for leaving.

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States claim they will lose from Warmist scheme

STATE governments have released modelling showing they will be $2.2 billion a year worse off by 2012 under the federal Government's emissions trading scheme, with NSW and Queensland's coffers to be hardest hit. The modelling, by Access Economics, was delivered to last week's meeting of state leaders in Brisbane and publicly released yesterday as the House of Representatives passed legislation setting up the new emissions trading scheme.

Climate Change Minister Penny Wong said it would be a "matter for the states" if they wanted to pursue extra financial compensation from the commonwealth to make up for the impact of the scheme. She cited former prime minister Paul Keating's quote that it was unwise to come between a state premier and a bucket of money.

According to the modelling, which did not take into account the changes to the scheme announced by the Rudd Government early last month, higher costs and lower mining royalties will mean NSW loses 0.18 per cent of the gross state product it could otherwise anticipate, or $861 million a year, by 2013-14. Queensland would be $457million a year worse off, or 0.15 per cent of GSP. It shows that, proportionately, the Northern Territory will be the worst affected, losing 0.37 per cent of projected GSP, or $82million.

The release of the modelling came as uncertainty continued over whether failure by the Senate to pass the legislation before the lengthy winter break would constitute the first of two "rejections" necessary for it to become the trigger for a double-dissolution election. The Government insists the legislation has been exhaustively debated and scrutinised by Senate committees and two weeks should be ample time for Senate consideration.

"We have said for a number of months we want this legislation debated and voted on in June," Senator Wong said. "We think there has been plenty of debate, plenty of discussion. "The only calls for delay in this parliament are from (Opposition Leader) Mr (Malcolm) Turnbull, who wants to delay because he is unable to stand up to the sceptics in his own partyroom and to have a position on this legislation that is constructive."

But the clerk of the Senate, Harry Evans, said constitutional uncertainty would result if the Government tried to insist that a "failure to pass" the laws in the next two weeks of sittings constituted a rejection. "I don't think that would be reasonable but in the end it would come down to whether the Government could persuade the Governor-General it was reasonable," he said.

The issue is important because if the first vote on the bill is not taken until the Senate resumes in August, the second and final vote could be delayed until after the UN climate change meeting in Copenhagen in December, as the Opposition has demanded.

Meanwhile, the Parliamentary Secretary for Climate Change, Greg Combet, had a third meeting with the coal industry yesterday without making any significant progress in resolving a dispute about compensation offered under the scheme.

Senator Wong is holding talks with the Greens to see whether she can secure passage of the scheme without the Senate support of the Opposition.

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Rudd thinks his policies saved Australia -- which will give dangerous encouragement to his wasteful ways

THIS week's good news is that the economy is not technically in recession. The bad news, which is far more serious, is the lasting harm the good news could cause. Central to that harm are the lessons being drawn from the gross domestic product numbers. As the Government grasps paternity of the unexpected outcome, strong claims are being made about the efficacy of the present economic policy, with little or no basis in supporting evidence. And in the euphoria of the moment, the mounting problems associated with that policy are being ignored.

All of this feeds an atmosphere in which caution is thrown to the wind, as the notion that governments should "err on the side of doing too much rather than doing too little" becomes a core tenet in the state religion.

The open letter 21 highly respected Australian economists published earlier this week in The Australian Financial Review strikingly illustrates the trend. Endorsing the "too much rather than too little" approach, that letter claims "there is no more effective way to stimulate the economy" than cash handouts.

In reality, the efficacy of that spending is far from established. Rather, much as economic theory would predict, the striking fact is just how smooth the path of consumption has been, despite a substantial spike in income associated with the Government's cash splash. This can be seen from the accompanying graphs, which show that the relationship between income and consumption for Australia is broadly similar to that John Taylor has found for the US (although the decline in consumption that occurred in the US has not occurred here, possibly reflecting the far steeper fall in US housing prices). Of course, there is a debate to be had about what would have happened in the absence of the handouts. But rather than being based on bare assertions, that debate needs to rest on evidence interpreted in the light of sound economic theory.

Moreover, and even more important, effective does not mean efficient. And it is here that the greatest worries must lie, for what we have witnessed in the past 12 months is the greatest deterioration in the quality of public expenditure since the Whitlam government. Thus, in its previous budget the Government committed itself to infrastructure decision-making "based on rigorous cost-benefit analysis" and respecting "a commitment to transparency at all stages of the decision-making process". Now, dizzy with success, it vaunts its decision not to undertake any cost-benefit analysis at all of big infrastructure programs, notably the national broadband network, and refuses to disclose the results, much less the details, of those analyses that have been carried out.

All this, we are told, is needed to save jobs and boost the economy's productive potential. But neither of these claims withstands scrutiny.

According to the 21 economists, Treasury estimates show that the spending will "keep up to 210,000 Australians in work who would otherwise be out of jobs". But this estimate appears to be based on nothing more than a crude rule of thumb that the Government has mechanistically applied to all forms of government spending, irrespective of whether that spending creates net benefits. It ignores the very real possibility that many of the jobs supposedly saved by government spending simply draw workers out of more productive activities, thereby reducing overall living standards.

As for boosting the economy's productive potential, there is no surer way to make an economy poorer than to invest in programs whose costs exceed their benefits. Yet Australians can well fear that such investments are now being locked in, and on a vast scale. As the bills come due, they will have to be paid; and the costs could be very high indeed.

None of this is to demonise budget deficits. But today's budget deficits and public debt are tomorrow's tax liabilities. Incurring debt to fund genuinely productive investment is one thing; a strategy of deliberately borrowing "too much rather than too little" in order to spend "too much rather than too little" is another. As surely as night follows day, such a strategy will result in future taxes being higher than they need to be, aggravating the distortions associated with taxation. As a result, the economy loses twice: first from the waste of resources in poorly judged spending programs, and then from the distortions induced by the taxes needed to fund them.

It may be that, faced with the Depression of the 1930s, governments did too little, too late. No less grave, however, was the fact that when they did act, their actions were often poorly thought through and merely made the problems worse. By the '70s, when the successive oil shocks hit, the reticence to intervene that pre-war governments had shown had long disappeared. As the economic situation deteriorated, governments therefore erred, exactly as the 21 economists recommend, on the side of doing too much rather than too little. Fifteen years of hardship, far-reaching loss of output and the misery of prolonged unemployment were the consequence. These are lessons that are painfully learned but readily forgotten.

Of course, every recession, like every episode of economic growth, differs from those that preceded it and from its successors. In that sense it is true that the present situation is unprecedented. However, those differences do not mean that anything goes. Rather, they make it all the more important to be careful and realistic in the recommendations one makes.

These circumstances also make it crucial for economists to speak truth to power. As the eminent Australian economist J.B. Brigden, writing in exceptionally difficult times, put it, "As an economist, it is my duty to talk about costs": for although the gains from government spending are often obvious, especially to the recipients, its costs are readily ignored, and shifted from the favoured constituencies of the present to the income earners and taxpayers of the future.

Australia's long-term prosperity is best served by restraint and efficiency in government spending, and by advancing reforms that limit and reduce the extent and burden of taxation. The previous government should have done more in this regard. However, this Government has made these objectives even more difficult to achieve, not least through a proliferation of wasteful spending programs in the present and the commitment of very large, but not properly disclosed, outlays to the future. Going further in this direction may well be politically popular. But it would be bad economics, and would serve neither the country nor the Government well.

Ultimately, policy is shaped neither by facts nor by ideas, but by ideas about facts. It is this that makes the claims being drawn from this week's GDP numbers so very dangerous. Of course, the Government will want to bask in the glory of the moment; but what it must understand is this: that once unrealistic expectations about what government can achieve have set in, it is only needless pain and disappointment that can follow.

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How Australia avoided the meltdown

Mainly because of conservative banking practices

It's a bit daring, putting this question when we are barely halfway through the show — and at any moment the next twist could pitch us out of our seats. But after this week's unexpectedly good gross domestic product (GDP) figures, after the banks' strong profit reports, we could fairly ask: why hasn't the global financial crisis hit us like it hit the rest of the Western world?

Perhaps there are two issues. One is the economic story, and we have know a bit about that. Stunningly high coal and iron ore prices, a decent wheat harvest and the Federal Government's rapid-fire stimulus have all done their bit to shield Australia from the worst of the crisis. Yet only partially: output per head, the economy's real bottom line, fell 1.6 per cent in the year to March. Unemployment has already surged by 175,000. We are part of the global recession.

But in one important way, we are not part of the global financial crisis. Our financial system has not collapsed. The Government has had to offer guarantees for bank debt — prompted, among other things, by fears for Suncorp Metway — but unlike other governments, it has not had to provide capital to prop up the banks. The smaller banks are experiencing turbulence, some of it heavy. But the Big Four remain AA rated and highly profitable — a reminder to banks in other Western countries of how good life used to be.

Through the crisis, Australia has maintained a kind of normality. When the storm came, our house was found to be built on rock, not sand. It is not the same financial system we had before, and it is even more concentrated in the grip of a small quasi-cartel. But in March alone, the banks wrote $15.7 billion of housing loans, $5.3 billion of personal loans, $26 billion of commercial and lease finance, and lent roughly $7 billion to governments.

In other countries, the global financial crisis left the financial system broken: not here. Why not? There is a broad consensus on what went right. Insiders and onlookers agree that a range of factors lay behind this success story. Some of it was luck. Some of it was good management. Some of it was good regulation. And some was due to all of these interacting in an environment that sustained traditional banking and made it profitable.

Where does the story start? Perhaps the best place is in the 1980s, when banks were deregulated, given the keys to the car, revved it up to an exhilarating pace — and ran off the road. Westpac hit a tree, and almost died. The state banks of Victoria and South Australia went over the cliff, and that was the end of them. All the surviving cars were badly damaged, and needed years of repairs. But the long-term impact was to change the banking culture.

Australia's banks in the '90s and '00s were conservative lenders. They were wary of risky products, and stuck to traditional rules rather than following the fashions. Ian Harper, the former Melbourne University economist who sat on the Wallis review of the financial system, says the 1990 crash was a blessing in disguise. In the '80s, he says, Australia's newly liberated banks sacked old-style conservative bankers and let their "cowboys" rule the roost. In the '90s and '00s, power shifted back to the traditionalists, who had witnessed the mistakes of the 1980s, and did not forget them.

"Inside the banks there was a titanic struggle between the investment bankers and the credit risk managers," Harper says. "It was a culture war, but throughout the period, the chief executives were old-style bankers. The tyre-kicking, cautious bankers in the end swept aside those who were hungry for yield."

Westpac under former CEO David Morgan made a deliberate decision to steer clear of the risky products hawked by its US counterparts. At National Australia Bank, Don Argus took a similar position. And while NAB and ANZ bank did end up with some nasty losses, their exposures were small compared to those of European and US banks. As an insider puts it: "They have a pretty good corporate memory of what it's like to look into the abyss."

They were equally cautious in lending. In Australia, the risks were taken by unregulated new lenders, who offered buyers seen as poor credit risks the "non-conforming loans" that were our counterpart to the US subprime loans. The banks' riskiest products were low-doc loans to borrowers with fluctuating incomes. But in March the Reserve Bank reported that 10 per cent of non-conforming loans were in arrears, compared with 2 per cent of low-doc loans — and just 0.4 per cent of traditional full-doc loans. We have a long way to go yet, but compared with past recessions, and compared with other Western countries, that is an amazingly low default rate.

"The quality of lending here was much higher," says Ric Simes, director of Access Economics and former adviser to prime minister Paul Keating. "Australia was not at the cutting edge of product development, and that was fortunate for us."

But it was not just good management that was responsible for our banks survival when others failed. They were lucky. The Australian market gave them so many opportunities to make good money that they had no need to take risks chasing high yields overseas. Between the 1990-91 recession and this one, Australia's economy almost doubled. While business in the '90s was wary of taking on debt, home buyers were not. Inflation stayed low, so interest rates stayed low, so people could afford to borrow more. That borrowing drove up house prices, so people had to borrow still more, and so on.

"Before 1991, 35 to 40 per cent of their lending was for housing", says an insider. "After 1991, more than half of it was for housing, which is less risky than lending to corporates. While their margins came under pressure from the new lenders, they were able to compensate by growing their business." Another says: "The banks are making a 20 per cent return on earnings right here. There's just no reason for them to go anywhere else. I think that has a lot to do with it."

By contrast, says Harper, in Europe's slow-growing economies, the banks had plenty of money but not enough investment opportunities that promised a good return. "The European banks were desperate for yield because they had a glut of savings," he says. That search for yield led them to the US and securitised subprime mortgages — and risks that they badly underestimated.

The environment in which the Big Four operate does not encourage taking risks. They depend on overseas investors for funds, while the four pillars policy makes them safe against takeover. When the tax system encouraged savings to migrate from bank deposits into superannuation, the banks gradually came to rely on overseas borrowing to provide most of their funds. And while that carried risks, says an observer, it also made banks more careful about how they used the money. "The market put a discipline on them that was not operating on the German banks sitting on a big pile of household savings," he says.

Former Reserve Bank governor Ian Macfarlane agrees. "I have no doubt that if Australian banks had a surplus of domestic funds, they also would have acquired a lot of dubious assets, just as many of our counterparts did," he told the ASIC Summer School in March.

Provocatively, Macfarlane, who sits on the ANZ board, also suggested that the four pillars policy has worked to encourage sound lending. Because the policy insulated the banks from takeovers, they were under no pressure to maximise short-term earnings, but acted in their long-term interests. "It's hard to avoid the conclusion that the difference was (that) there was no competition for corporate control in Australia, which saved us from the worst excesses that characterised banking systems overseas," he said.

The legal, political and cultural environment in Australia is also more supportive of banks than in the US. There are no non-recourse loans here; if you default, owing the bank more than your property is worth, they can come after you for the balance. Culturally, too, Australians tend not to do a midnight flit. Rather, our tradition is that when things get bad, we sacrifice all else to try to keep the home.

And politically, the events of the last year have shown graphically that the banks have clout. The Government's guarantee scheme was tailored to suit the Big Four, regardless of the problems it created for other areas of the finance sector. The Government has stood by as the banks have increased margins, despite angry voters calling on it to intervene. Partly because Labor feels vulnerable on economic issues, it clearly wants a cosy relationship with the big banks.

But another part of government has been careful not to get too cosy with the banks. And that is the other key reason why the banks have come through the boom and bust in such good shape. The Australian Prudential Regulation Authority (APRA) has been an effective regulator, constantly probing and nipping at the banks' heels to keep them from getting into dangerous territory.

APRA was created from the Wallis inquiry in 1998 as the single prudential regulator for the financial system. In its early years it was undermanned, constantly running behind the play, and reluctant to intervene. Then came the HIH collapse, with more than $5 billion of investors' losses, and APRA changed. Senior Reserve Bank official John Laker was brought in to take charge, and the hands-off policy changed to hands-on. Harper says the HIH nightmare changed APRA in the same way as the 1990 crash changed the banks.

Insiders agree that APRA is "no soft touch regulator". It sees its role as to be assertive in asking questions, and demanding answers, and to take a conservative approach. For example, it does not allow the US practice of banks using cheap "drive-by" valuations, but insists that valuers carry out full inspections. It cannot stop banks issuing risky products, but if they do, it requires them to raise more capital. When a bank issues low-doc loans, for example, APRA makes them put in more capital to protect against the increased risk of default. It listens to the banks, it debates with them, but if it is not convinced, it acts. And it has won the banks' grudging respect. "People here are scared of APRA," I was told at one institution. "You don't want to have them looking over your shoulder."

It was the lack of such hands-on, interventionist regulation that allowed the US subprime crisis to develop, and institutions to become so highly geared.

A crucial difference between Australia and the US is that, as Harper puts it: "In this country, we are allowed to get on with regulation. We can distinguish between the role of the executive government and the public service. Regulators are allowed to get on with the job." [i.e. less political meddling with banking practices under a conservative government]

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