Friday, September 16, 2011

Labor plants poison pills in carbon tax legislation

Henry Ergas

IT was Mark Dreyfus QC, Parliamentary Secretary for Climate Change, who let the cat out of the bag.

Once the carbon change legislation is in place, he said, repeal would amount to an acquisition of property by the commonwealth, as holders of emissions permits would be deprived of a valuable asset. As a result, the commonwealth would be liable, under s.51(xxxi) of the Australian Constitution, to pay compensation, potentially in the billions of dollars. A future government would therefore find repeal prohibitively costly.

That consequence is anything but unintended. The clean energy legislation, released this week, specifically provides that "a carbon unit (its generic term for a right to emit) is personal property".

This, the government says, is needed to give certainty to long-term trades. But that claim makes little sense, for even without such protections there are flourishing markets for fishing quotas and other tradeable entitlements.

And internationally, governments have generally ensured pollution permits are not treated as conventional property rights, precisely so as to be able to revise environmental controls as circumstances change. Rather, this provision serves one purpose only: to guarantee any attempt at repeal triggers constitutional requirements to pay compensation, shackling future governments.

Nor is it the only poison pill built into the legislation. Also crucial is what happens if a new government rejects the emissions reductions recommendations made by the carbon regulator, the Climate Change Authority.

In that event, unless the government can secure a majority for an alternative target, permitted emissions are automatically cut by up to 10 per cent in a single year, crippling economic activity.

A Coalition government, or even a Labor government less wedded to the Greens, would therefore find itself trapped.

To describe such poison pills as unusual would be an understatement. Provisions that merely hinder future parliaments have long been viewed as abhorrent, as they undermine the democratic process. But they are especially harmful where uncertainties abound, as is surely the case for climate change. With the Kyoto protocol dead, and complete uncertainty as to any successor, a government focused on the public interest would seek flexibility, not a straitjacket.

That is all the more so as the costs of that straitjacket could be so great. Global warming is a global problem. Unless major emitters engage comprehensive abatement efforts, action by Australia would not only be futile but also extraordinarily expensive.

After all, unless it lowers the risk of global warming, the only benefit of a carbon tax is that it raises government revenues. But like all taxes, it distorts economic behaviour, reducing national income. Its economic cost can therefore be measured by how much income loss it causes per dollar of revenue raised. Going by Treasury's modelling, that ratio is 2: for each $1 of government revenue the carbon tax secures, incomes decline by about $2. By comparison, the Henry review estimated that for each dollar of revenue raised, mining royalties cause an income loss of about 50c.

A unilateral carbon tax is therefore four times more inefficient than the royalties the Henry review excoriated as the most distorting tax on our books.

And it may be even worse than that. Treasury's estimates assume international agreement on emissions reduction is reached relatively soon. Were agreement not reached, the cost could be two to three times greater.

That is because unilateral action would undermine our international competitiveness. But it is also because Treasury expects massive purchases of abatement from overseas. By 2018, it says, those purchases will account for 60 per cent of Australia's total abatement, and they remain above 50 per cent right through to 2045.

So if we are creating a "clean, green future", as the Prime Minister asserts, it is not in Australia. Where then do all those low-cost emissions reductions come from? According to Treasury, well over half will come from the former Soviet Union and from "Other Asia". But many of these countries lack any ability to monitor carbon abatement, with corruption so pervasive they are at the top of Transparency International's list of offenders. To assume they will provide a credible source of abatement is wildly optimistic; to think they will do so absent a comprehensive international framework is fanciful.

Abatement costs could therefore prove far higher than Treasury's numbers suggest. But a precise estimate would require access to Treasury's models. And here Treasury's performance has been disappointing. Appearing before the Senate Select Committee on Scrutiny of New Taxes, Treasury said its models were "publicly available" and that anyone willing to pay for those models could obtain them.

That evidence was misleading. For Treasury relied on a model developed by the Australian Bureau of Agricultural and Resource Economics. And ABARE has now confirmed it will not make available the model Treasury used.

Moreover, Treasury blended the ABARE model with other models and data sets. Given that, only Treasury can provide users with the capacity to test its modelling: and the government clearly does not intend it to do so.

The Regulation Impact Statement released with the draft legislation does nothing to fill the gap that leaves. Indeed, it does not even meet the government's own guidelines for such RISs: it is strikingly superficial, given what is at stake; it is vague and qualitative; and it completely ignores the risks created by locking in future governments. That it was approved by the Department of Finance merely highlights how flawed the RIS process now is. Decisions about this legislation will therefore be based on assertions, not evidence tested in the light of day. And that is a disgrace. Not only because it makes a mockery of the government's claims about transparency. But also because the consequences of those decisions could be so great. And the poison pills built into the legislation would ensure those consequences were felt for decades to come.

Dreyfus is to be commended for stating that frankly. But whatever one may think of the carbon tax, those poison pills are public policy at its worst. If parliament had any decency, it would throw them out. That it won't says it all.


Queensland Corrective Services figures show almost two-thirds of males and half of female prisoners are repeat offenders

So keeping them in custody much longer would greatly reduce crime

ALMOST two-thirds of male prisoners and half of female prisoners are repeat offenders, prompting concerns of inadequate rehabilitation programs.

Australian Council for Civil Liberties president Terry O'Gorman said Queensland Corrective Services figures showed that as of June 30, 2009, 61 per cent of males in prison and 48 per cent of females in prison had previously served a jail term, and the cost per prisoner per year was akin to someone living 12 months in the Hilton Hotel.

"If any other government department had such an appalling record in doing the job, they'd be shut down," Mr O'Gorman told The Courier-Mail's Let the Sun Shine In forum.

"Prison is a total failure ... for those of you who say talking about rehabilitation is a limp-wristed, bleeding heart liberal response, let me make this economic argument - how much money are we spending on the 61 per cent of people coming in and out of prison when it costs $70,000 to $80,000 to keep them in prison?

"The Attorney-General Paul Lucas said the Queensland prisons were already filled to record levels despite steadily decreasing crime rates."

Mr O'Gorman said the money would be better spent on rehabilitation.

Police and Corrective Services Minister Neil Roberts said in the past year the average cost to keep a prisoner was $66,000.

"This cost pays for staff, security infrastructure, rehabilitation and training, offender expenses such as food and clothing, utilities and maintenance," he said in a statement.

"Queensland Corrective Services regularly reviews its programs to ensure they are effective. If enhancements are identified, they will be considered."

ACT for Kids research and education executive director Dr Katrina Lines said that more early intervention programs for abused and neglected children were needed.

"We see a direct link in our work with kids who suffer abuse and neglect," she said.

"The goal is to keep them out of detention and out of the criminal courts and help them."

Dr Lines said a test intervention program undertaken in Cairns found that most participants did not reoffend and if they did, the offence was less serious.

Sisters Inside director Debbie Kilroy said 80 per cent of prisoners had mental health issues and many women were released from prison with just a garbage bag with nowhere to go.


This is a joke: An ex-cop who has shown no respect for the law wants her job back

A POLICE officer who allegedly smuggled in 20 cartons of grog into a dry zone is fighting to keep her job.

Sergeant Nicole Robyn Gee was sacked from the Queensland Police Service after nine charges of misconduct were substantiated by Queensland Police Service including one where she allegedly "transported 20 cartons of alcohol into a community subject to an Alcohol Management Plan in a manner specifically designed to circumvent alcohol restrictions", according to Queensland Civil and Administrative Tribunal documents.

Other allegations include the sexual harassment of a subordinate, the misappropriation of almost $2000 and a 'Trailblaza' portable camping fridge from the Mt Isa Police Citizens Youth Club, and several counts of dishonesty. The charges span 2007-09.

However, Sgt Gee said many of the documents relating to allegations made against her were not given to her and she was never told of details relating to the sexual harassment complaint, which was filed several years later.

"She thereupon wrote to the Tribunal complaining of the difficulty in preparing her written submissions unless and until she obtains the information required concerning the eight issues," QCAT documents state.

QCAT dismissed Sgt Gee's application for more documentation and ruled that she make written submissions on the matter by September 16, with QPS to reply to these by October 7. A hearing will be held at QCAT on November 30.


Leftist guru slams fibre network monopoly as deal 'will harm consumers'

KEY planks of the National Broadband Network business case are anti-competitive and will send Australia backwards, one of Kevin Rudd's "best and brightest" economic brains has warned.

In a blistering critique, economist Joshua Gans, who in 2008 was hand-picked to attend the then prime minister's 2020 summit to discuss productivity, has criticised plans to subsidise the rural NBN rollout through the prices that urban consumers pay.

The promise to put a cross-subsidy in place so that regional areas pay the same access prices for the NBN as people in the city was a key promise to the regional independents Tony Windsor and Rob Oakeshott that helped Labor form a second-term government.

This promise of uniform national wholesale pricing for the NBN is also one of the reasons for the proposed $11 billion deal between Telstra, the NBN Co and Labor, which Professor Gans warns might suit the needs of the government and Telstra, but "will lead to significant consumer harm lasting for 20 years or more".

"No one at the bargaining table appears to have represented consumer interests," he says, warning of a "return to monopoly network provision in telecommunications in Australia". Before deregulation in the 1990s, Australia had a public monopoly known as Telecom.

The comments are contained in a scathing submission that Professor Gans, a former University of Melbourne professor who is now at the University of Toronto, has co-written with US-based economist Jerry Hausman and sent to Australia's competition watchdog this week. Professor Hausman has been a director of the Massachusetts Institute of Technology's Telecommunications Economics Research program since 1988.

The pair's paper warns that the key agreements between Telstra, the government and the NBN "are likely to be massively anti-competitive". And it says policy goals, such as the provision of broadband services in the bush, should be financed in "another and more transparent manner".

"Microeconomic reform has moved us away from this type of inefficient financing of government objectives," it states. "This proposal would move Australia back."

Last night, the NBN Co said the cross-subsidies were part of an explicit government policy designed to give all Australians "fair and equitable" access to broadband.

Communications Minister Stephen Conroy said it would be "inappropriate for the government to comment" and he encouraged people to put their views to the competition regulator. The Australian Competition & Consumer Commission is examining key planks of the deal between NBN Co, the government and Telstra, which is designed to boost the business case for the nation's biggest infrastructure project.

Under the deal, Telstra will shift its customers to the NBN, gradually shut down its copper and hybrid fibre coaxial networks and give the NBN Co access to its infrastructure.

While the ACCC has already sounded an alarm over Telstra's agreement as part of the deal that it would not promote its wireless internet services as a substitute for fibre for the next 20 years, the submission by Professor Gans and Professor Hausman goes much further.

"We can conceive of no greater anti-competitive action than the largest mobile service provider agreeing not to compete against the monopoly fixed line provider," they write. "The results will be less innovation, higher prices, and less choice for Australian consumers."

Instead of future-proofing Australia, the restrictions would just "future-proof NBN Co against competition".

Last night, NBN Co spokeswoman Rhonda Griffin insisted that Telstra and NBN Co had not agreed "to not compete". "To the contrary, Telstra has simply agreed not to market its wireless services as a direct substitute for fixed services."

She said the "complementary nature" of fixed and wireless services meant the NBN would drive innovation and lower costs in the wireless market. For example, homes and offices could use so-called femtocell technology, which acts as a small base station that piggybacks on a user's internet link to improve their mobile coverage.

But the economists' paper singles out the NBN Co's repeated claim that wireless is a "complementary" technology to the NBN, saying there is "no evidence for that".

Instead, as 4G mobile technology improves, consumers will prefer to watch broadband content on devices that allow them to move around.

Research for the British telecommunications regulator concluded that 4G could reach peak speeds of 2940 megabits a second by 2020. This compares to the 100mbps - and potentially up to 1000mbps - promised from the NBN.

Ms Griffin acknowledged that the so-called Long-Term Evolution standard for 4G - the successor to 3G mobile systems - could offer higher speeds in the future, but insisted "the inherent limitations of wireless don't change".

"The speeds experienced by the user will decrease the more users in a cell and the further they are from the centre of the cell," she said.

If the ACCC were to reject the deal with Telstra, the business case for the NBN would be badly compromised. The 9 1/2-year schedule for rolling out fibre to 93 per cent of Australian premises would have to be delayed and the costs of the project would blow out.

The NBN Co has told the ACCC it does not believe the wireless marketing clause will have an adverse effect on competition for wireless broadband services because Telstra is not blocked from competing with the NBN or marketing its wireless services "on the basis of their inherent features and value proposition".

The government-owned monopoly has told the ACCC there will not be less innovation because Telstra can still invest in improved wireless technologies if it wants, and other wireless service providers are free to market wireless services

Telstra's main rival Optus, however, has agreed to restrictions that stop it from being "expressly critical of" or making "any express adverse statement" about the performance of the NBN in the areas where it has agreed to shut down its cable network.

The economists stress in their paper that they are not opposed to the principle of restructuring Telstra. But they believe two parts of the deal - for Telstra to withdraw broadband capacity from its cable network and not promote wireless as a substitute for fibre - are "wholly anti-competitive". If accepted by the ACCC they would "set an extraordinarily poor precedent".


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