The "lucky country" still

The late Donald Horne wrote a miserable carping book about Australia under the title "The lucky country". Donald intended his title to convey that the happy state of life in Australia was all just luck, not due to hard work and good judgment.

Australians generally however took the title to their hearts as a good summary of how well off Australia is compared to most other places. So Donald became famous for saying something that was in fact the opposite of what he intended -- perverse fame indeed.

And the "luck" held throughout the recent global financial crisis. Australia's banks continued to prosper while much more famous banks elsewhere failed completely.

But it wasn't "luck" then any more than it ever was. It was good judgment. Australian banks were extensively DEREGULATED in the 1980s so had acquired very realistic lending policies by the time the GFC struck. So their bad debts were minimal. Banks in the USA, by contrast, had GOVERNMENT IMPOSED bad lending policies so the resulting explosion was inevitable.

The report below is a small survey of the happy state of the Australian economy to date. The RBA is Australia's central bank. The mention below of a "Super Aussie" refers to the Australian dollar and the fact that it is highly esteemed among international money managers -- and has hence risen in value against most other currencies

While most of the developed world spasms with the pain of stubbornly high unemployment, our biggest worry is that the strong full-time jobs growth we saw from the ABS yesterday will continue, eventually building into some inflationary pressures next year that will require the RBA to tap the interest rate brakes a little.

Those rates, mind you, are only average for our economy now, so it's hardly an earth-shattering prospect. The RBA wants to sustain growth, not stop it – the pain is meant to occur at the margin.

Yes, our housing is expensive, especially our most desirable inner-city housing that seems to concern so many of those who comment about this column. We should indeed be doing whatever we can to increase supply, but contrary to the hopes of the doom'n'gloomers, or those who don't own and carry an ideological hatred of the landlord class, there is no spectacular price collapse in the offing.

“Mildly overvalued,” as the IMF described Australia's house prices, is a long way from the bubbles that have exploded catastrophically in the US, Spain, Ireland et al. With so very many different factors at work, everything from our tax and mortgage systems to our culture, when parts of our market do run away with themselves and correct, it is an unhappy grind rather than a screaming plunge.

It would be nice if prices stayed flattish for a while and the RBA would like investors to collectively be smarter - and I would like to win the lottery.

It's arguable that there is a shortage of housing and the industry that builds houses would be happy to build more houses – no surprise in that – but the history of our housing market is that it eventually sorts itself out, albeit in fits and starts. Wiser federal, state and local government policies would help – but I revert to my wish to win the lottery.

Super Aussie

The rise and rise of the Aussie dollar creates problems too, although as headline writers we tend to be torn between the good and bad aspects. There's a degree of somewhat nationalistic pride as the Super Aussie struts the world stage, kicking sand in the face of grovelling greenbacks, simpering sterling and edgy euros. There's also the positive feedback for keeping our inflation rate subdued and the self-interest of many in the chattering class at the prospect of cheaper international holidays and the greater job of online shopping.

But of course Super Aussie also creates problems for some industries – the most obvious being domestic tourism and education, but also every company with foreign income that isn't being boosted by higher resources prices. The CSL annual meeting next week will no doubt have a tale to tell about that.

And local manufacturers competing with imports do it tougher, forcing them to be yet smarter and add more value. Does a strong Aussie mean the end of manufacturing? Well, a high cost base hasn't done German manufacturing much harm.

While the usual overshooting as speculators pile aboard for a while and with the caveat that no-one has a track record of accurately forecasting our currency, it's also worth remembering that it's not all about us - the much bigger problem is the weakness of the US dollar.

(As an aside, it is bemusing to watch the Americans accuse China of currency manipulation when the out-of-control American debt and the Fed's threat of printing more money is taking the greenback down and undermining confidence in the world's reserve currency.)

The nation's economy is a mightily complex beast that doesn't lend itself to simplistic analysis in half a dozen paragraphs, but that's what it's subjected to every day. The long story is a lot better than the short headline, the silver cloud right now vastly bigger than the dark lining.

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That fabled ‘Big Australia’

By Oliver Marc Hartwich and Jessica Brown

(Dr Hartwich is a German economist with a sense of humour. What next? A German philosopher with a sense of humour? Maybe not. But since Dr Hartwich now lives in Australia, maybe I should refer to him as "Ollie")

Your Most Gracious Majesty,

It is our duty to inform You that the prospects for population growth in Australia are not good. The Royal Commission tasked with planning Australia’s demographic and economic future hath come to the unfortunate conclusion that the obstacles are simply too great. The optimistic vision of a ‘Big Australia’ will never come true.

The noble commissioners have consulted widely and extensively. But, for growth proponents, our conclusion maketh uncomfortable reading.

The challenges are so numerous that it is hard to know where to start. Housing is undeniably a most serious concern. The lack of capacity in the building industry is quite obvious.

The planning profession doth not have the necessary skills and personnel to cope with rapid growth. Uncertain planning guidelines and objectives further complicate the task. It will take years to design and implement a planning system that can deal with the expected population increases.

The acute housing shortage is not the only difficulty. There are severe infrastructure bottlenecks. Port facilities are already overstretched. Developing appropriate mass transport for goods and people will also require minor engineering miracles, given the country’s challenging geography. Just think of Sydney harbour!

Worst of all, the water supply is under threat. It hath become clear that Australia’s climate is unsuited to hosting a larger population. The limits to population growth are well within sight.

The resident population hath been able to cope with these environmental challenges by employing a number of sophisticated water-saving solutions. But simply adding more people to the equation will just not work. If population growth goes on in the fashion that the crazy ‘Big Australia’ advocates suggest, there will simply not be enough food.

The problems of housing, water and transport should be impetus enough to stop the ambitious plans for decades of strong population growth. It is most unfortunate they are only the beginning.

The deeper we dig into the population puzzle, the more daunting the problems we encounter. Schools and universities, hospitals and doctors, sewerage systems and rubbish collection: each poseth an enormous policy challenge, and each requireth gigantic amounts from HM Treasury.

Unfortunately, the commission’s ‘Big Australia’ report alloweth only one conclusion. It is with deepest regret that we commend to order Captain Arthur Phillip to turn back his fleet and set sail for England, our green and pleasant land.

If you don’t like taking policy advice from fables, read our latest report instead: ‘Populate and Perish? Modelling Australia’s Demographic Future’ by Jessica Brown and Oliver Marc Hartwich. You can also watch the authors discuss their research on YouTube.

For non-Australian readers: Captain Arthur Phillip was the commander of the first fleet of English people to arrive in Australia -- in 1788. The above is a press release from the Centre for Independent Studies, dated 8 October. Enquiries to cis@cis.org.au. Snail mail: PO Box 92, St Leonards, NSW, Australia 1590. Below is the executive summary of the report referred to

Executive Summary

Although population growth has been one of the most hotly debated topics in recent months, public discussions have been driven by populism, not by evidence-based analysis. In the recent federal election, both Labor and the Coalition seemed to suggest that they could—and would—limit population growth, particularly by restricting migration. The Greens went a step further by endorsing a population cap.

But these platitudes overlook a fundamental fact. Under every realistic scenario, Australia’s population is going to keep growing. Australians will also keep getting older—a fact often neglected in the current debate—which will have huge implications for our future policy environment.

Under all but one of the 36 scenarios modelled in this report, Australia’s population will grow. Only with zero net migration and falling fertility—which is practically unachievable and widely regarded as undesirable—would Australia’s population shrink or stabilise. Some degree of population growth is an inevitable reality.

By focussing on cutting migration as a way to limiting population growth, the current public debate has also ignored the role of fertility—which matters as much if not more—in determining population size and age distribution. Anti-growth campaigners suggest that if migration were reduced, we could somehow stabilise population growth. But this is not true. Even if migration were more than halved to 70,000 a year (which we do not advocate), we would still have a population of more than 29 million by 2050 if fertility remained constant.

It is extremely difficult to predict the future of Australian demographics. Changes in the birth rate are hard to predict and even harder to control, yet they will potentially have a bigger impact on population size than migration. Under every scenario, Australia’s population will get older.

However, it is fertility—not migration—that has the biggest impact on population ageing. Increased migration is not the solution to population ageing. If fertility rate drops from its current level of 1.97 to 1.5, the current European Union average, median age will rise from 37 today to nearly 46 in 2050—higher if migration levels are cut.

Under all the most realistic scenarios, more than 20% of Australians will be over 65 by 2050. And regardless of changes in migration and fertility, the number of Australians aged 80 or over will more than double to about 2 million by 2050.

There will be far fewer taxpayers under every scenario. We need to plan for population ageing. There is a trade-off. A faster growing population will require investment in housing and infrastructure; it will also be younger and better able to meet these costs. A more slowly growing population will require fewer investments in housing, roads and schools but will be significantly older, which means the cost of health care and pensions will rise while the tax base falls.

Both population growth and population ageing will happen no matter what, but the degree to which we have to deal with the challenges will depend on the policy choices we make now about migration as well as future changes in the birth rate and life expectancy. No one can know exactly how these variables will change in the future, which means no government can accurately predict what Australia’s population will look like.

Population targets are unrealistic. We cannot plan our demographic future. However, we can be fairly confident in predicting that Australia’s population will both grow and get older—we just don’t know by how much. The best that policymakers can do is make existing institutions more flexible so they can better cope with whichever population scenario emerges.

Politicians should stop pretending that they can control what Australia’s future population will look like. Instead, they should turn their attention to the real policy issues that will be affected by population growth and ageing: housing, roads, pensions and our natural environment.

The debate should not be about whether we will have a ‘big Australia’ or a ‘small Australia’ but about how we can make a growing Australia work and how we can make it a prosperous and liveable place for us all.




"Green" policies hitting people hard in the pocket

THE triple whammy of soaring electricity, gas and water costs follows years of financial pain already biting into budgets across Victoria. A Herald Sun investigation has found typical households are paying a staggering $900 more for the essentials compared with 2005. The blowout is forcing some to cut back on fresh food and skip doctor visits when they are sick. Electricity and water bills are up an average 45 to 60 per cent. Gas is 20 per cent higher.

Thousands of struggling customers are seeking payment extensions to cope with the crippling costs. And industry experts warn it will only get worse.

Ben Freund, of price comparison service GoSwitch, said that electricity costs were set to explode over the next five years as governments forced companies to commit to more expensive forms of green energy such as solar and wind power, and homes overflowed with power-hungry appliances.

"The increase in the price of electricity will not just affect power bills but the entire cost of living," he said. "It will impact the price of groceries from the supermarket and the price of a takeaway coffee. "The causes are necessary and expensive upgrades to the network as well as environmental programs and mandatory renewable energy targets imposed by state and federal governments."

Analysts are tipping power bills to rise at least 10 per cent next year. That's $120-$170 extra for an average household. The hip-pocket hit will be less severe for those on market contracts or who shop around for the best deals.

Conservative estimates put the rise for gas at 5 per cent, or $50 more for a standard home on a basic tariff.

The Herald Sun review found annual utility bills have jumped up to six times faster than inflation in some parts of Victoria. Water bills have ballooned because of the drought and major project costs including the Wonthaggi desalination plant.

Exclusive modelling by Victoria's utilities watchdog, the Essential Services Commission, predicts annual water bills in Melbourne will surge by at least $70 after the next approved price rise flows through from July 1 next year. Increases of up to 10 per cent are locked in for next financial year to fund the State Government's water infrastructure, designed to secure future supplies.

Bill rises in country Victoria will range from at least $8 in the Lower Murray region to $88 in Wannon Water's area.

Victorian Council of Social Service chief Cath Smith said surging utility bills were being deeply felt across the community. "It's noticeable by all - even those who are better off - because the prices of other luxuries or items such as fridges, cars, airline tickets and flatscreen TVs have gone down," Ms Smith said. "Suddenly, instead, everyone is having to devote more of their income to the basic essentials."

Ms Smith said skyrocketing bills, especially for electricity, were hitting low-income households hard, along with pensioners and the jobless. "We know some people are sacrificing on fresh food and health because of utility and rent rises," she said. "They won't go to a doctor because of gap fees, or will share prescriptions among family members."

People desperately needed a boost to pensions and concession payments to deal with the cost crisis, she said.

Energy Retailers Association of Australia executive director Cameron O'Reilly said families that failed to curb energy consumption faced a rude shock. "The increased cost of generating power is going in one direction only, and that's up," Mr O'Reilly said.

"Costs of transporting electricity are also massively driven due to larger houses, population growth, big-screen TVs and the number one baddie of them all - air-conditioners."

St Vincent de Paul Society state president Tony Tome said even customers who weren't using any more power were being harshly stung. "More and more people are presenting, needing help with utilities accounts - whether that be extra time to pay, emergency relief, or food vouchers so that they can cover their bills," Mr Tome said.

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Nasty NSW cop



This would not stand up in court -- under the "triviality" defence

If you think being fined for a friendly toot on your car horn is bizarrely zealous policing, it's nothing compared with what one young Sydneysider copped. And if it had happened 24 hours later - when double demerit points applied - it would have cost the 23-year-old P-plater her licence.

So what was her heinous driving crime? Taking her seat belt off for a few seconds because she couldn't reach the car park ticket machine through the car window. With an officer in a police patrol car watching, what was going to be a free park cost her a whopping $300 and three demerit points.

NSW Police have yet to comment on their application of the law in this case, but the young woman's mother, from Lilyfield, is not impressed. Lyndal Gabriel said her daughter had just completed a mail run for her employer last Thursday and was about to leave the car park.

But what happened next left her in tears after she leaned through her car window to press the button for a ticket to raise the boom gate. "She put the ticket in and proceeded and then there was a marked police car behind her which pulled her over," Mrs Gabriel said. "They fined her $300 and 3 points, they kept her for about 30 minutes on site and she does have a clean record."

The "stern" officer, who was "a bit grumpy" told her daughter she should have turned off the ignition before getting out of her car. "They said she broke the law because she should have turned the car off, taken the keys out of the ignition, got out of the car, put the ticket into the machine, then buckled up and started the car and then proceeded," she said. "I guess we will have to cop it but I think it has all just gone mad, really."

Mrs Gabriel said her daughter was genuinely unaware she had broken the law. But then again, as Mrs Gabriel points out, so are most drivers. "To me the fine and points don't match the infringement," she said. "It just needs to be out there that this is the law and that this is happening."

Mrs Gabriel said her daughter had a clean driving history and that her car, a 10-year-old Nissan Pulsar, would not immediately attract the attention of police.

She said her daughter was neither rude nor argumentative to the officer who issued the fine. "My daughter just said he might have been having a bad day. Who knows, but in all honesty she is a bit embarrassed about it all," she said.

At least there's a little good news for the unlucky P-plater. Mrs Gabriel hinted "mum and dad might have to help out" when it comes to paying the fine.

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