Friday, October 04, 2013

Labor must suck it up and relent on carbon pricing

By Tim Dunlop, a moderate Leftist, who realizes that if Abbott does not have a mandate, no-one does.  So by blocking Abbott, the ALP could kill off all future claims of a mandate for themselves.  Leftists are not good at thinking ahead, however, so Abbott quite likely will have to go to a double dissolution -- JR

Most talk of a "mandate" in Australian politics is pure nonsense. It is a rhetorical move deployed by parties to justify the concentration of power in their own hands. A party that claims "we won the election therefore we get to do whatever we want" is not citing any sort of constitutional truism: it is strategically deploying a rhetorical trope in order to get its own way.

The concept of a mandate is doubly difficult when the newly elected government has been vague about what exactly they are planning to do on any number of issues. You cannot claim consent - let alone a mandate - for an agenda that you did not make explicit.

Having said that, there is also no doubt that an election victory does give to the winning party or parties the right to govern. As imperfect as the whole system is, a democracy works on the assumption that the winning party has the support of a majority of the population.

But there are complicating factors, and it is worth reminding ourselves of them.

A government must rule for the entire nation. In other words, they must rule for those who didn't vote for them as well as those who did. Yes, democracy is based on the idea of majority rule, but only on the understanding that the interests of the minority are not trampled in the process.

In other words, the system asks that both winners and losers of the democratic competition accept some level of humility. Compromise is built into the fabric of democratic governance and no-one gets all of what they want.

Given this, Labor has to think very seriously about opposing the new government's legislation to repeal a price on carbon (the so-called carbon tax). No matter how short sighted it is to remove this mechanism for controlling our carbon output, no matter how much it hurts to reward the dishonesty of the campaign run by Mr Abbott and sections of the media and the business community in discrediting it and misrepresenting it, there is no doubt that the new PM went to the election promising to repeal it and in winning the election he has the right, in this matter at least, to govern as he sees fit.

Democratic governance is tough, not because it constantly asks us to choose between good and bad options, but because it asks us to choose between competing good options.

In this case, the good options Labor are being asked to choose between are, on the one hand, foiling Mr Abbott's desire to repeal the price on carbon, and on the other, the principle that says the winning party ought to be able to govern as it said it would.

Given this choice, I'm inclined to say that protecting the norms of democratic governance is ultimately more important than taking some sort of symbolic stand against repeal.

I'm sure some will disagree and say that the environment trumps everything, that addressing climate change is the most compelling issue we face, and that you can't practice politics on a dead planet. Fair enough.

But I would say in response that politics is the only way we have of implementing planet-saving policies in the first-place. Every move we make that undermines the legitimacy of the process itself damages the main tool we have to bring about the change we want.

This is a hard and bitter paradox, but it is one I think Labor needs to get its heads around.

Arguing, as Bill Shorten did on Q&A on Monday night, that Labor can oppose repealing the legislation because they have, by virtue of the votes they received, a mandate to do so, is nonsense. Losing an election doesn't give you a "mandate" for anything.

For three long years, Tony Abbott, the power bases in our society that support him, and significant sections of the media sought to delegitimise the Labor government, and in the process they did great damage to our democracy. You only have to look at the poor turnout for the election and the general level of contempt directed at our governing institutions to know this is true.

Once regular democratic governance is discredited like this, it gives legitimacy to those who seek to influence governments outside of our shared institutions, and that is almost invariably a free kick to those already steeped in power and influence.

So this process of denigration is not something Labor should be party to: when conservatives are trashing our democratic institutions, the genuinely progressive position is to advance the conservative case for the preservation and integrity of those institutions.

I realise that this argument will be dismissed as naive by some, as one that amounts to bringing a cucumber to a knife fight, that it simply rewards bad behaviour, and I am sympathetic to those concerns.

But if you want to see what happens to a nation when a beaten minority refuses to bend in the face of all the norms of democratic governance, look no further than the United States. There, a rump of the Republican Party, in the form of its so-called Tea Party members, is currently destroying not just Congress itself but the nation's faith in its ability to effectively govern itself.

The ramifications of that are huge, and we shouldn't let it happen here.

Notice I am not saying Labor should abandon climate mitigation policies - far from it. I am just saying that they have to start from scratch and rebuild support for their plans in the community. That's tough to do, but that's what happens when you waste your time in power fighting stupid leadership battles and lose elections because of it. You have to start again.

Trying to block Mr Abbott's attempt to repeal the carbon price is simply not justified, and Labor should suck it up and let him have his victory.


Credit controls won’t fix housing

And recent price rises are just catch-up anyway

News that capital city dwelling prices rose to new record highs in September has been accompanied by the usual hand-wringing and warnings of a housing “bubble”.

In fact, recent price increases are far from exceptional from a long-run perspective. The bigger danger is not a house price “bubble”, but that policy makers resort to crude attempts at suppressing demand rather than stimulating housing supply.

Capital city dwelling prices rose 5.5 per cent in the year to September or about 3 per cent in real terms, RP Data-Rismark says. The strongest gains were seen in Sydney, where dwelling prices rose 8 per cent over the same period or about 5.6 per cent in real terms.

While these gains may sound impressive, it is important to put them in longer-run context. Over the past decade, Sydney house prices have risen only 2.5 per cent a year, slightly less than the average rate of inflation.

The decade average conceals considerable shorter-term cyclical variation, but it highlights the fact that we should not read too much into short-term price movements. Annualising monthly or quarterly rates of dwelling price inflation makes for good headlines, but may be misleading about longer-run trends.

Dwelling prices have benefited from recent reductions in official interest rates by the Reserve Bank. Asset prices, including house prices, are one of the key mechanisms through which changes in monetary policy are transmitted to the rest of the economy. Far from being a problem, the responsiveness of dwelling prices to changes in official interest rates provides the central bank with useful leverage over the economy.

US Federal Reserve chairman Ben Bernanke would give his right arm for a housing market as responsive to monetary policy as Australia’s. It is ironic that gains in house prices are seen by many commentators as a constraint on RBA policy rather than evidence that monetary policy is actually working.

The RBA should not conduct monetary policy on the basis of house prices any more than share prices. The historical record of central banks taking an activist approach to asset price cycles is nothing short of disastrous.

It has been suggested that Australia might borrow from the Reserve Bank of New Zealand and resort to macro-prudential regulation to curb highly leveraged lending for housing. This would be a return to the bad old days of quantitative controls on lending that resulted in non-price credit rationing and was particularly harmful to low-income borrowers looking to enter the housing market for the first time.

Housing credit growth in Australia has been on a moderating trend over the past decade and the household debt has stabilised relative to disposable income since the global financial crisis.

Many commentators have singled out the role of investors as a factor driving house prices, including those who may be negatively gearing, foreign investors and, more recently, self-managed super funds.

Investors play a particularly important role in supplying the rental market. The dwelling stock, including rental housing, must ultimately be owned by someone. Reducing incentives for investment in housing will do more to harm housing supply than limit demand. While saving via owner-occupied housing is tax free, this does not mean that housing as such is untaxed. The Centre for International Economics has estimated that 44 per cent of the price of a new home in Sydney reflects the combined effects of explicit and implicit taxes.

The Henry review made clear that reducing incentives for investment in rental housing would lead to severe dislocations.

The National Housing Supply Council said Australia had a national shortage of 228,000 dwellings in 2011 and the demand-supply gap is expected to widen to 663,000 dwellings by 2031. Increases in house prices are being driven by long-run fundamentals, not excessive leverage or “speculation”.

Rather than adopting crude macro-prudential controls, the focus of public policy should be on reducing the tax burden on new housing and freeing up the supply side of the housing market so it can accommodate rising demand without putting upward pressure on prices.


$400 a year: NSW households set to save on electricity

All remaining controls over electricity and gas prices in NSW should be removed, the state government has been told.

This is because households could be as much as $400 better off a year if they turn to market-based contracts, the Australian Energy Markets Commission said in a report released Thursday.

Like the banking and telecom markets, a handful of players dominate the market. In electricity in NSW, it is just three.

Origin Energy has a dominant 42 per cent, EnergyAustralia 34 per cent and AGL 19 per cent. This leaves independents with just 5 per cent, unlike Victoria where independents now have a 30 per cent share, after it removed all price controls several years ago.

"Around 60 per cent of small NSW electricity consumers and 70 per cent of small natural gas consumers have chosen a competitive offer, and 21 per cent of electricity consumers and 14 per cent of natural gas consumers switched their retailer in 2012 in pursuit of a better deal," the Commission's chairman, Mr John Pierce said.

"In these competitive retail markets, the regulated price is not the best price."

Over the past few years, electricity prices in particular have risen sharply in NSW, largely to fund network upgrades, with the pace of rises expected to slow over the next few years. Victoria removed all price controls some years ago, with South Australia following suit earlier this year after reaching agreement with its main electricity supplier to cut prices by 9 per cent until the end of 2014.

All states have committed to removing all price controls, which leave gas and electricity prices paid by small households beholden to the volatility of energy markets. Despite saying that all price controls could be removed in NSW, the Commission called for ongoing "market monitoring" coupled with the state government retaining the powers to reintroduce price controls if future conditions warrant it.

Like in the banking and telecom sectors, a handful of companies dominate the market, putting them in a position to control the market. In electricity and gas, the three dominant companies are Origin Energy, AGL and EnergyAustralia.

The call to open up the energy market in NSW comes in the wake of aggressive competition between the three majors which has driven down prices in NSW for the time being, amid caution that prices will rise steadily over the next few years as the major's seek to recover margins.

In recent reports, both Origin and AGL complained the level of discounting in the market is not sustainable as they look to raise prices as competitive pressures ease.

Despite claims Victoria is one of the most competitive energy markets globally, earlier this year, its Essential Services Commission warned over the lack of competition in that market.

"Either competition is not effective or retailers are extracting economic rent," the Commissioner, Mr Ron Ben-David said in a little noticed speech, referring to the possibility the retailers are using their market position to distort prices.

"Victoria may have the most competitive market ... but is it efficient?"

Recently, the Queensland government committed to removing electricity price regulation in south-east Queensland by July, 2015 along with the introduction of price monitoring.

“The current role of the Queensland Competition Authority in setting prices will be retained for the Ergon area (of the state’s south-east) while the Government finalises a strategy for introducing competition into regional Queensland,” Queensland Energy Minister Mark McArdle said recently.


Paid like surgeons: 240k a year Rio Tinto train drivers to be replaced by robots

Train drivers employed by Rio Tinto to haul iron ore across Australia's outback make about the same money as surgeons in the US. It's little wonder the mining company will replace them with robot locomotives.

The 400-plus workers in the remote Pilbara region who earn about $240,000 a year probably are the highest-paid train drivers in the world, according to UK-based transport historian Christian Wolmar. Australia's decade-long mining boom has sucked up skilled workers, raising wages for engineers to drivers at Rio, the second-largest exporter of the mineral, and its closest competitors, Vale and BHP Billiton.

The three companies that control about 59 per cent of the $145 billion-a-year ($155 billion) global iron ore trade are automating to bolster margins and squeeze out extra capacity as they boost supply to a record to feed steel mills in China, the biggest buyer. The push by Rio, which aims to move about 290 million metric tonnes on its rail network by next year, is expected to be the biggest driver for cost cuts in its iron ore unit after currency swings, according to Deutsche Bank AG.

Advanced technology:Rio is aiming to have the first fully-automated long-distance railway in place by 2015.
Rio is aiming to have the first fully-automated long-distance railway in place by 2015. Photo: Erin Jonasson
"All producers are chasing better margins and stronger returns," said Chris Drew, an analyst in Sydney with Royal Bank of Canada. "Rio is ahead of the competition in terms of automation of trucks and trains," Drew said in an interview after touring its ore operations in the mostly arid Pilbara, home to Western Australia's biggest deposits for export.


The pace of automation is picking up as the seaborne market is poised for at least four years of gluts. The price of ore, which rose as much as eightfold in the past decade as China added $6.8 trillion to its gross domestic product, will drop to $US80 a tonne in 2015 from about $US130 this week, according to a Goldman Sachs Group Inc. forecast.

Rio, which last year approved spending of $US7.2 billion to expand the iron ore operations, is aiming to have the world's first, fully automated, long-distance and heavy-haul rail system operating in 2015. Its automated rail will have 1,500 kilometres (930 miles) of track, 10,000 wagons and individual train sets 2.3 kilometres long, according to Credit Suisse Group AG. The company is spending $US518 million on the program that was announced last year.

"You need to have quite a significant amount of scale" in fleet and volumes to benefit from automation technology, said Evy Hambro, manager of BlackRock Inc.'s $US7.7 billion World Mining Fund.

Regulators in Canada and the US are reviewing rules for transporting hazardous materials after a runaway train carrying crude oil derailed and exploded on July 6 in Lac-M├ęgantic, killing 47 people and incinerating 30 buildings. The train was operated by a single engineer, who parked the train for the night and left it unattended.


Rio's rail, port and truck movements are all watched over from a control center in Perth, that has about 250 controllers working three shifts a day. The rail automation is part of the company's push to use technology to improve productivity and safety and wring out extra capacity from existing assets, Simon Prebble, general manager for Rio's automated trains project, said in an interview yesterday.

The trains have on-board systems that check speed, signals and operate the brake, Prebble said. Rio has installed a new radio-based network to communicate with the trains as well as close-circuit television at every public level crossing, he said. "We also have an obstruction detection system which uses laser scanners to continually look for any obstructions."


The competitiveness of some iron ore mines in the Pilbara as well as some future projects is set to improve with the adoption of the new technologies on trucks and trains, Australia's Bureau of Resources and Energy Economics said yesterday in a report.

Iron ore will remain the dominant earnings driver for BHP and Rio as rising production offsets falling prices, Citigroup said in a September 13 report. The mineral accounted for 78 per cent of Rio's earnings before interest, depreciation and amortisation last year, and 92 per cent for Vale, according to data compiled by Bloomberg. BHP had 43 per cent Ebitda from iron ore in fiscal 2013, the data show.

"It's going to provide a healthy return on investment for Rio," Adrian Wood, a Sydney-based analyst with Macquarie Group said by phone. "They're trying to squeeze out those extra few tonnes a year by automating it."

Rio's Ebitda margin per ton of ore is forecast to drop 43 per cent to $US43.99 in 2015 from $US70.01 in 2013, with BHP's set to fall 42 per cent to $US40.68 and Vale by 61 per cent to $US23.11, according to Goldman.


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