Abbott's company tax cut is disingenous

First, let me make this clear, I am in favour of the lowest appropriate taxes for individuals and businesses. BUT, Tony Abbott's decision to cut company taxes in Australia by 1.5% is simply bad policy and worse, it wrongly appropriates the Henry Tax Review to justify it.

Why Abbott's use of the Henry Tax Review is wrong

The first of the key directions read:

Maintain the company income tax rate towards the lower end of the small to medium OECD economy average, with a reduction to 25 per cent over the medium term. This aims particularly to increase the level of business investment in Australia across all sectors, including foreign direct investment; promote more entrepreneurial activity; and reduce incentives for profit-shifting offshore.


So this would seem to support Tony Abbott...but wait, there's more.

Ken Henry also recommends sweeping changes to the tax system, including a land tax (and resources tax) and many other sweeping changes. So, Abbott's plan is to remove the resources tax, not add a land tax and cut the company tax rate.  That just doesn't stack up.

Abbott-nomics, Reaganomics and the Laffer curve

While he explicitly named the Henry review to support this cut, I'm more concerned about the implied throwback to the 1980s and Ronald Reagan's economic policies described by the great catchphrase "a rising tide lifts all boats". It didn't.

One of the big theories that Reagan used to support his policy was the Laffer curve.  This theory suggested that in some circumstances that a cut in tax rates would result in increased government revenues. Legend has it that one of his economics advisors, Arthur Laffer sketched this curve on a restaurant napkin.

Laffer Curve: suggests that revenue increases if high tax rates are cut

However, Laffer also pointed out that spending discipline is required in the short term, to increase government tax revenue in the long term.
The Laffer curve has been discredited for a long time. There are many papers that have been written to debunk the Reagan and Bush supply-side policies...yet Abbott thinks he can roll out the same discredited theories.

Spending cuts will be required

So, even if we put aside all of our misgivings about the Laffer curve, supply-side economics and Abbott's plan, there is one thing that can't be denied.

Spending cuts will be required. Even Arthur Laffer said so.

Tony Abbott. Be accurate. Treat us like adults. If you are going to cut revenue through company tax cuts, tell us what other revenue you will raise, or what spending you will cut. Reagan or Bush would.

Let me know what you think.

Mark S

The end of get-rich-quick schemes (for now)

The last 20 years has been pretty unusual.  There has been a lot of opportunities to get rich quick (or get poor if you messed up). There was the Internet boom and bust, a few stock market booms, rising house prices, rising commodities prices, low unemployment, a housing boom and huge wages for mining workers.

Source: Reserve Bank of Australia

So, whether you were white collar or blue collar, there have been plenty of ways to get rich if you took a few risks.

It's over!

Back to the old days - do things that people want

What is going to happen now is simple. If you offer products or services that people want, they will be bought, at a fair price. If you are a healthcare worker, there is a lot of demand for your services - you will be able to get work and charge a fair price for it. If you are a manufacturing worker in Australia, there is less demand for your services.  You will need to be one of the best manufacturing workers, or reskill, or do something different.

More importantly, as a society, we need to think about what people want, and create those products and services.  Before mobile phones, few people thought that having a mobile phone would be a necessity. They were a luxury item.  In hindsight, we can see how useful they are, and mobile phone companies have done very well.

Before the washing machine, the idea of having a mechanical way to do laundry wasn't obvious. But once the washing machine was invented, every washing person (mainly, women) wanted one. (Watch Hans Rosling's great talk for more on this). And increasingly, we are happy to pay for the services of others to do other cleaning for us.

What happens next?

Now, it is up to us, to identify what the next washing machine is.

Ask yourself, what do I want? What does my neighbour want?

Ask yourself, how can I do what I already do better, faster, more effectively?

Ask yourself, how can I "sell" my great services better.  I know that what I offer to my firm, or my customers is valuable.  I need to communicate that value better.

Every transaction has to offer value to both sides.

Ask yourself, am I doing something that nobody wants or needs any more? If you are handwashing clothes, while everyone else is using a washing machine, sooner or later, your customers will politely stop paying for your services.  Make sure that you keep up with the times.

We will get wealthier as we continue to be more productive

By doing all of these "normal" things, we will get a little more effective every day.  Our incomes will grow a little every day, and our standard of living will grow a little every day.  It won't be a get-rich-quick scheme.  The improvements will often be so small that you won't notice it - much like healthy eating - one day you look back and realise that you have taken off weight.

So, in 2013, let's all get rich moderately quickly.  Let's all try to do just a little bit better in what we do, or change what we do and choose something different. When we all do that, we all benefit.

In 2013, let's be innovative, productive, and creative.  By the end of the year, you will notice the difference.

Let me know what you think

Mark S

Loving in Japan

Greetings from Tokyo. 

One of the interesting things about being in a different place is that different social norms and customs generate a commercial requirement for different types of services. 

Many single people in Tokyo live in small studio apartments, not much bigger than a student dorm room. They choose to do this to have personal privacy rather than to live in shared accommodation like many inner city dwellers in Australian cities. 

You can hear your neighbors! You need a love hotel. 

So you are single in your 20s. You pick up at a bar. You live in a dog box with clothes hanging from the ceiling and not enough room to swing a cat. 

You aren't going to impress your new friend at home, and with some enthusiastic intimacy, you will break a whole bunch of rules with your neighbors. 

What do you do? Go get a room. And thankfully, a whole industry called love hotels will rent you a really nice room for a perfectly decent price for either 3 hours ($40-50) or overnight.

Where are these love hotels? Right around the corner from the nightlife districts. It's a great example of the market delivering supply to satisfy a need. 

Let the market do its job - there is so much we can learn from other countries

A solution to the foreign sale of Australian farms

The emotional and political debate about the sale of Australian agricultural assets, particularly to Chinese interests,   needs a more objective perspective. 

Two types of assets

Cubbie Station - a political football

What is an asset like Cubbie Station?  It's actually two assets. One is the land and resources under the land. The second is the right to produce food or crops from farming. 

This isn't just a technical point, it's critical to the security of Australia and to the debate. 

Separate the assets

A lot of the debate quite rightly surrounds the ownership of large tracts of Australia by foreign owners, especially foreign governments.

There is also acknowledgment that Australia lacks the capital and commitment to farm our arable resources to their full capacity. So, we need to work with foreigners to make productive use of the land.

So, we can lease the asset, rather than sell it. 

The UK model

For centuries, the UK property model has sold long term leaseholds over residential property.  If you "buy" a flat you are most likely buying a 90 year lease, not the freehold. 

We should adopt this model for significant Australian agricultural landholdings. Sell a 100 year lease. It provides food security for the Chinese buyer, but does not relinquish the ultimate ownership of the Australian land. 

Selling long term leases of Australian agricultural properties is a win-win for all. 

Let me know what you think. 

Mark S 

Happy Carbon Tax Day

So, today was the first day of the Clean Energy plan, highlighted by the introduction of the carbon price on major emitters.

There are 294 companies to pay the tax

So, let's set a couple of things straight.  There are 294 liable entities for the 2012/13 who have to pay the carbon tax.  No, it isn't 500 companies as been widely reported.  It's just 294.

Most of them are involved in energy or mining, plus a number of councils who operate landfills.

Hardly any impact on the average person

How is this going to affect the regular person? Well, some prices will go up, but the average person will be compensated, so there will be very little impact.  In fact, many people will finish off better off.

Given that prices go up and down for various reasons, it will be very surprising if the carbon tax impacts are as noticeable as the GST.  It isn't as if prices will suddenly go up by 2% this week.  Instead, companies that have to pay the carbon tax will carefully consider their pricing, and will make decisions as to whether they will pass the price on.

Companies that increase their prices will risk losing customers, so that is quite a disincentive. And given the level of industry support, there is a good chance that many won't shift their prices, at least not straight away.

So if people won't lose and companies won't put prices up, how does this work?

Just to clarify, there will be some price rises.  But, the real way that the carbon tax will work is to penalise companies that pollute and advantage those that are clean.

Very quickly, capital will move towards the green companies (we are already seeing that happen). And the big energy companies are accelerating their green programs.

Dirty coal plants like those in the Latrobe Valley will be phased out, and workers in those plants will transition to other jobs.  Some will stay in the energy industry and others will do something different altogether.

Economists call this the productive use of resources. I call it helping to get workers out of dead-end industries.  There are hardly any blacksmiths any more, and that's because there are a lot less horses being shod.  In a few years time, there will be a lot less brown coal workers, and that will be because we will have weaned ourselves off brown coal.

Any change is contentious and emotional.  The carbon tax is a good change.  Time will show this to be true.

Let me know what you think

Mark S

P.S. Check out the http://www.cleanenergyfuture.gov.au/ website for more information

Why can't we see that life is still very good?

We don't know how good we have it.

We Australians have a very good life.

The fundamentals of the Australian economy are very good.  Most people have a job.  Businesses are still profitable. Health care is the best it has ever been.  The quality of our food is high.  So why is there a pall of gloom hanging over us?

We compare ourselves to what we had 

Rightly or wrongly, humans evaluate our state in terms of gains and losses. Rather than looking at how wealthy we are or how much food we have, we instinctively assess whether we have gained or lost.  During the mid 2000s boom, most people had more money (even if a lot was on credit), jobs were very easy to get, asset prices were booming and confidence was high. 

Now, everyone feels like they have lost (unless you are one of the small number who work in mining).  We are all a little behind what we were at the peak.  Oddly, although our logical brain knows that Australia is in a strong position, and much better than the rest of the world, our emotions win the day. We feel the losses. It is those feelings that dominate. 

Unfortunately, our emotions then have a big say in our decisions. Our logical brain says "everything is fine - we have plenty of money, just not as much as 2008".  Our emotions say "look at how much money we have LOST. Let's batten down the hatches."

Sentiment then feeds off itself 

Once the emotions win the battle, the negative feedback turns into reality. People stop spending. Businesses start failing. People lose jobs.

Job hunters queuing for 50 jobs at London Zoo

We can override these emotions. We need a different frame of reference. Rather than comparing to the past, we can compare to other benchmarks. We can compare ourselves to the British or the Americans. These are western nations that we can relate to. 

We need stories comparing the average Briton, or American to the average Australian. We need to see our current state as a WIN not as a LOSS. 

If we don't do something quickly to defeat our emotions, they will make our very fears a reality. 

Let me know what you think

Mark S

Government report on micro-betting misses the mark again

Today the Federal Government's draft review of the 2001 Interactive Gambling Act was published.  I have a particular interest in this legislation as I used to be in the online gambling industry.  Now I am just an interested observer, and I'm still surprised at the misunderstandings that exist, like this big one...

Recommendation 25: Because of the greater harm associated with ‘micro-betting’ from a problem gambling perspective, ‘micro-betting’ should be prohibited irrespective of the electronic medium (that is, telephone, internet, etc.) by which the bets are placed.

You'd think this would be based on some research, or merit, wouldn't you?

Fear trumps evidence, again

In the same section of the report,

• Racing and Wagering Western Australia noted that: ‘in-the-run micro-betting’ ... would be akin to games of chance for the majority of the target audience and expose greater risks of problem gambling ...

AND

• Betfair noted: According to a report conducted by the UK Gambling Commission in 2009, there is no evidence that online in-play betting (including ‘micro-betting’ after an event has commenced) poses a “specific, identifiable risk to problem gambling as opposed to other forms of betting or online gambling.

So, a government department makes a scary claim, and a private organisation quotes a reputable study, but the report chooses to go with the scary claim with no evidence.

It's no wonder I got frustrated when I was in this industry.

The scary claim is wrong.  Plain wrong.

After the release of the report, various people have come out to have their say, including "independent gambling researcher, Sally Gainsbury" on the ABC.  She said:
"If you are looking at something that's like ball-by-ball betting on outcomes that are popping up within a game, this is a form of gambling where gamblers could chase their losses, could spend more than they intended, and it really could be an excessive form of gambling,"

Sorry Sally, but you are just guessing.

A screen shot of our micro-betting - live, real, online

Why do I know? Because I am the only person in Australia who has actually operated micro-betting, legally on the Internet.

Our company provided microbetting services to Ladbrokes, the UK's largest betting company.  And the results were clear.  These microbets were just novelty bets.  The punters placed small wagers.  They didn't increase their bets, and everyone just treated it as a bit of fun.

Our business made a very small profit - much less than we had expected - because the bets were small, and the punters' losses were very controlled.

Eventually, Ladbrokes replaced our service with an in-house product, and because we couldn't offer our service to an Australian operator, we went out of business.

You can lose more, faster, with the TAB!


What really makes me shake my head about all of this is that the betting we were offering is no faster than what is available right now with the TAB in any of the States.  Any day, you can place a bet every couple of minutes on a race.  On a Saturday, that would be at least every minute.

The microbet that we were offering is only available every 4 minutes or so - the average time it takes to play a game of tennis.  So, it's actually less likely to be a form of betting where punters will chase their losses than our beloved horse racing.

I have no qualms about being out of this business, but I do have concerns that wild claims will be believed over solid evidence.

We should be able to rely on our public servants to make considered decisions based on fact and not fear-mongering.



Let me know what you think


Mark S

Studying Apple is useless for business

Apple's share price has increased from $3 in the '80s to nearly $600

AAPL:Apple is one of the most valuable companies in the world.  It is now valued at $528 billion. Its products are loved by millions. Steve Jobs is revered as one of the great visionaries of our time,  So why is Apple irrelevant for business study?

Precisely because it has been so successful.

Apple is a fluke

When I wrote The Complete Guide to Australian Gambling in 1991 I told a story of how if Moses and Jesus had both been playing Lotto since they were born that by now Moses would have been likely to have won Division 1, but Jesus would not (he is younger!).  Winning the major prize in Lotto is a fluke.

What's that got to do with Apple? Let's consider how many InfoTech start ups there have been in the USA since 1970.  According to the US statistics bureau, there have been a bit over 500,000.

Now consider how many spectacularly successful InfoTech companies there have been since that time.  Microsoft, Apple, Google, Cisco, Intel, Oracle.  So, that's SIX.  We can argue the toss over a few others that have stood the test of time, but in terms of massively successful InfoTech enterprises that have launched since around 1970 in the US, there are about SIX.

So, ladies and gentlemen, there are your odds of being an Apple - 6 out of 500,000!

So why not shoot for the stars?

I hear you.  OK, even if you have only got a 1 in 80,000 or so chance you still want to try.  Fine.

I think there is a better way than trying to be an Apple.

Let's go back to the US census bureau data,  The most recent data shows that there were 34,543 Information companies that have survived since 1993 or earlier.  And there are only 117,000 in total (so about 400,000 of our start ups have closed down).

Take a look at the 34,543 success stories.  Now you have about a 1 in 15 chance of being one of those.  The odds still aren't great, but they are realistic.  Study these companies.  Rather than hitting it big with iTunes, these companies have developed and maintained solid businesses through the ups and downs of business cycles.  Some are quite large, and others are mom and pop operations, but they have all stood the test of time.

Smaller, resilient businesses didn't have the incredible luck of Gates, Jobs and Co. to be born at the right time and fall over the next big thing.  That's why their lessons are meaningful to you.

Why Gen Y are holding us back

I don't really want to believe this, but the evidence is building.  Gen Ys might be responsible for the economic slowdown in Australia's non-mining States.  Let me explain.

Mortgage rates are low but mortgagees are worried

Over the last month some interesting data was released.  First, the Westpac/Melbourne Institute consumer confidence figures showed that mortgage holders are much less confident than they were. At the same time, the ANZ published some stats showing that housing affordability was its best for a few years.

This doesn't make much sense really.  Interest rates are low by long term standards.  Even though the banks put their rates up last year, and ANZ put theirs up a smidgem recently, the Reserve Bank cuts mean that home loan rates are lower now than they've been for a long while.  This isn't the sort of situation that should make home owners less confident.

House prices are down - maybe that's it

The best reason I can find for this loss of confidence is that house prices are down.  Hmm, that would make sense if they fell in 2012, but they didn't. House prices fell last year, and confidence is down this year.

I can't believe that everyone was blind to the falls in prices in 2011.  Every newspaper was talking about it - we all knew our house prices were sliding.

So what have Gen Ys got to do with falling confidence then?

My daughters are Gen Y, so like any parent I don't want to believe anything bad about these perfect angels, but then again, they've had it rather good!  Seeing the world from their point of view, over the last decade, they've had jobs, had a place to sleep, someone to bail them out and a booming economy.  Of course, they haven't always used those parental safety valves - but they've appreciated them being there.

Now, rather than the economy being a 10 out of 10, it's only an 8 out of 10.  For those of us old enough to remember 4 out of 10 economies, 2012 is pretty good.  yes, unemployment is pushing into the high 5s, but most people still have jobs, and even with issues in Europe, the world isn't falling apart.

For Gen Ys though, any whiff of a problem is scary.  Euro debt problems - aargh! China is slowing - Nooo! Tony Abbott says prices will go up because of the carbon tax - Yikes! If there is one thing that Gen Ys want it is certainty, and even though the fundamentals in Australia are strong, these are uncertain times.

You have shown a link to mortgagees

Gosh, you are right.  So let's get to that.  First of all, a lot of these Gen Ys are the ones who have bought the new houses in the 'burbs over the last few years.  They are loved up, and taken out their first mortgage, and suddenly have responsibilities.  You mean the bank wants me to pay this money EVERY MONTH?? So, it's perfectly understandable if the little dears are a bit worried about everything.

No wonder Gen Y parents look worried!

What about all those young renters, they aren't mortgagees? Well, no, but their parents are, and that's where the parental safety net kicks in.  The kids are getting worried, and what do you think they are going to do - that's right - put their hands out for free rent.  Not my kids of course, it's your kids. And that must make you worried, surely.

There we have it, because the world isn't perfect anymore and Gen Ys have to stand on their own two feet, its their parents who cop it.  Thanks kids!

Let me know what you think

Mark S

Paul Howes - somebody IS benefiting from the higher dollar

Today Paul Howes has come out criticising the Reserve Bank's charter, and claiming that "One of the real issues that our country has to come to terms with is that a high Australian dollar is good for nobody."

Sorry, but that's just plain wrong.  Here is some proof that the Australian dollar is good for somebody.

Overseas travellers have benefited

Since the appreciation of the Australian dollar, overseas travel has boomed.  There are nearly an extra 200,000 people a month travelling overseas now compared to 2008.

ABS: Short term resident departures

People buying televisions and computers have benefited

According to the latest ABS data, Audio, visual and computing equipment is down 18.8% in the last year (to Dec 2011).  That means major savings for anyone who wants to purchase these products.  It means that equipment that may have been too expensive for some people, has fallen into an affordable range.  It means that the rise in the Australian dollar has been good for somebody.

Australians buying property overseas

With the higher Australian dollar, that means that Australians can buy property overseas at a much lower price than previously.  It is now in the realm of the middle class income earner, with properties in Europe now attainable for $100,000. Property buyers lured to foreign affairs

Whether it is a lifestyle choice, or an investment, this means that Australians are owning real assets in other countries.  This means that the higher dollar is benefiting those buyers.  Those people are somebody.

Paul Howes - are the Unions as economically inept as Katter

The calls from Paul Howes to review the charter of the Reserve Bank are echoes of Bob Katter's crazy claims to sack the RBA board.  The well managed Australian economy through the Hawke/Keating, Howard/Costello and Rudd/Gillard/Swan years has been nothing short of stellar.  And the independence of the Reserve Bank with its charter and formal agreement with the Treasurer to maintain underlying inflation in a target range of 2-3% PLUS achieve full employment has been a critically stable influence throughout.

Whenever radical statements are made by any side of politics, people listen and get confused between the nonsense and the sensible.  We must remain economically rational.

Let me know what you think

Mark S

Who will support Julian Assange for the Senate?

Last week, Julian Assange announced that he plans to run for the Senate next year. He has a high profile but who will support him.

The major parties won't

Obviously the major parties have their own agenda. There isn't much chance of either of them supporting a firecracker like Assange unless there are preference deals involved.

Assange has attacked Labor and Liberal with roughly equal venom. Neither would be included to help out now.

Socialist Greens v libertarian Assange

The Greens have certainly stood up for Assange. So on one level, he might have an ally there.

But economically, they are poles apart. Assange is a market libertarian. The Greens are economic socialists and protectionists.

All they really agree on is that the major parties are unaccountable. It's not really enough for a close political relationship.

GetUp! Occupy and the Socialists in the malls

Assange's most strident supporters have been the youth based activist groups such as GetUp! along with the various socialist groups who pop up at every rally.

These supporters who have set up the Occupy sites around the  country are even further economically left wing than the Greens.

Sure, they are strident supporters of Assange's open governance agenda but they would shudder if they heard his position in support of market economics.

Would some of them defect to the Assange camp? Maybe, particularly as they are starting to age from being Uni students to wage earners. Like many people moving through that phase, lower taxes are appealing when you are trying to climb the economic ladder.  Some may get behind him.

Independent or new party?

So, if alliances are unlikely, that leaves Julian with the decision of being an independent or starting a new party.  Independents have a tough time of it, so his best chance of success would be to start a new party.  He certainly sits in a space that isn't filled at the moment.  Pro-freedoms, market libertarian, but as he has mentioned in his interview today, he is still in favour of some protections for small business, which fits with his previous statements that you need to force markets to be free.

I welcome Julian Assange to the Australia political stage.  I hope he starts a new party.  I could see myself supporting him.

Let me know what you think

Mark S

A new era in politics after Queensland

The greatest landslide in Australian political history.  The election of 2012 will go down in the annals, and will be debated for decades to come.  I believe it is a watershed.

Time for a new party

Two weeks ago on Q and A, this question was asked by audience member Ralph Panebianco to Malcolm Turnbull:

"Malcolm, I think there should be a new political party in Australia. It should be socially progressive and economically rational... will you create it for us?"

Mr  Panebianco is right.  The Roy Morgan State of the Nation for 2012 reported that: As a nation, Australians are increasingly open-minded and ‘liberal’ and 'Australians are becoming more progressive'.

It also reported that after economic issues, the most important issues facing Australia are government, political and human rights.

So, we need a party that considers BOTH the economy and Australia's liberal and progressive social attitudes.  That sort of a party would represent most of us.  And it just doesn't exist.

Labor represents a dying breed

There are some very good people within the Labor Party (as there are also within the Liberal party and the Greens), but the Labor movement itself is far less relevant any more.  It was born from an era when manufacturing was the largest employing sector.  It isn't any more, and it is shrinking all the time.

It was also born in an era when workers viewed the bosses as the enemy, and power was heavily biased in favour of the employer.  Labour unions were needed. In the late 19th century and much of the 20th century, the power struggle between workers and bosses continued.  This was a hallmark of the Industrial age. Labour parties fought for and achieved much needed rights for workers. Indeed, because of the changes the ALP has achieved in IR laws in Australia, the balance of power is more equal.  The ideals of the labour movement are still relevant, but the movement itself has achieved most of its goals.

Now, the Industrial Age is over in advanced economies like Australia.  We are now in the Information Age, and the power relationships between workers and bosses are thoroughly different.

Queensland could never have voted this way if Labor was as relevant as it was 

Yes, there were very specific Queensland issues that influenced the rout yesterday.  Yes, Anna Bligh's government was punished for a raft of actions that were condemned by Queenslanders. But even some of the safest Labor seats fell.  This is virtually unthinkable.  The numbers don't lie - only the staunchest of Labor supporters stuck by the ALP.  And there are far fewer staunch supporters of the ALP, because the labor movement isn't relevant to them any more.

We need a new political movement.  We need a party that represents what Australians actually want - rational economics and a progressive society.

Let me know what you think

Mark S

Genetically modified. Innovative. Productive.

With the focus on Australian productivity, and the decline in manufacturing, we will soon be seeing stories about the innovation of Australian industry.  Today's announcement by the Queensland University of Technology developing genetically modified, iron-rich bananas for the Indian market is a great example.

We should praise scientific innovation - including GM

There has been a lot of criticism of GM food over recent years, but little focus on the benefits.  One of the world's great problems is food security.  As the world's population grows, we need to find methods to increase the amount of nutritious food grown on our limited amount of arable land.

GM is a fantastic example of scientific innovation.  If GM can add iron to bananas, that's something for Australians to be proud of.  Sure, there are many criticisms of GM - some valid, some less so - but the road from innovation to success is never a straight one.

Manufacturing productivity not old style factories

As Australia rapidly moves away from old manufacturing to new, value-added manufacturing, we should encourage scientific advances in agriculture.  The more that we shine a positive light on high-tech research and development efforts leading to high-tech manufacturing, the less we will be concerned about the loss of old-style factory jobs.

Libertarians support the free market

Philosophically, I'm also in support of less controls rather than more over new innovation.  If we want to be productive, and creative, we should release the chains on new ideas.  Whether it is the production of GM crops, or the creation of edgy art and movies, let's embrace new ideas - even if they subsequently fail.

It's good to see positive stories about Australian science and innovation.  Let's keep focusing on the good, not the bad.

Let me know what you think

Mark S

A little economic pain now is the perfect medicine

Deputy Reserve Bank Governor Philip Lowe gave a valuable speech to the Australian Industry Group yesterday.  You can read the detail at the RBA site here.

The implication of the speech is that the structural changes to the Australia economy are necessary, and will benefit us in the long run. Of course, he is absolutely right.

The recession ... I mean ... structural change we had to have

Just as Paul Keating honestly told us in 1990 that we were in the "recession we had to have", Philip Lowe is making it clear that the RBA sees this as the structural change we have to have.

Despite many comments by the Reserve Bank, and others, Australia's productivity is getting worse not better.

And what isn't so apparent to non economists is that the only way for Australia to sustain our improvements in our standard of living is to improve our productivity.

Productivity won't improve without significant change

At a business conference I was on some years ago, we were placed in groups on an oval, around a roped area with numbered squares scattered inside of it.  We had to find the fastest way to touch every square in order with each person only touching one square each time they entered the roped area.  We started by running into the area, touching a square and running out as quickly as we could.  This was pretty slow.  There had to be another way.  We had to be more productive.

Eventually, by looking at the other teams, we all figured it out - "straight line running".  Each person could run straight through the roped off area and touch their foot on one square.  This was much faster, and much more productive.  It was a very different approach.  It took significant change, and fast runners.  Yet, people who were agile but slow runners became less productive than they were when we all ran in and turned quickly to get out of the area. 

There were winners and losers, and everyone adapted as best we could to achieve a much better result.

Australia is going to have winners and losers too

Today, the most recent labour force data showed a small increase in unemployment.  This brought about a howl of concern from Joe Hockey and calls for lower interest rates from Bill Evans to stimulate the economy.  I had to shake my head.

Phillip Lowe explained that there would be winners and losers during this period of structural change.  To lower interest rates now would be to encourage people to keep running into the area and turning around inefficiently, rather than figuring out the equivalent of "straight line running". 

There actually has to be some pain, so change will happen.  There actually have to be some losers, so that they (and we) can all become winners.

Politically, it's a tough time to hold your ground

It's one thing for Phil Lowe to deliver the somewhat bitter pill to the country, and another for Wayne Swan is holding his ground on needing to deliver a surplus, or for Julia Gillard to resist the temptation to provide subsidies to those parts of the economy that are struggling through these changes. 

It's especially hard when the loss of 7 jobs, yes - 7, at Westpac's collection centre makes headline news (ok, so it was combined with 119 IT jobs going offshore, but the 7 jobs still made it into the headlines). The human story of even 1 person losing their job is so much easier and immediate for the average person to grasp that the much more important story that we will benefit from the structural change.

If you are reading this, or read Phil Lowe's speech, please evangelise.  More people need to understand that just a little medicine now will make us very strong in the future.

Let me know what you think

Mark S

Terry McCrann - retail is changing, it's not dying

Dear Terry

I've read your article "Bleakest of views from the shopfronts" in the Sunday Herald Sun, and you make some valid points.  I also understand how your readers like you to sensationalize economic stories for a bit of cheap titillation, but they also expect you to get your facts right.

Retail is not the largest employer

First off, let's set the record straight.  You said that "Shops are also the biggest employers". Well, that was right until two years ago before health care passed retail as the biggest employer in the country and it has continued to grow.

So, sure, retail is a large employer - but it is in fact the second largest employer, not the biggest. And in the most recently reported quarter, the number of retail jobs didn't even fall, so when you state that "jobs are being slashed" I doth think you protest too much.

Retail is changing, not dying

Next, let's look at your implication that retail is dying in Australia - "in trouble like it's never been before". That's simply mischievous.

Australian retail is changing for sure, but it is still strong. The best retailers are innovating and tired retailers are struggling or fading away.

For the customers of a store like Fletcher Jones, or Angus & Robertson, it's a shame when the chain folds, but it's not the first or last retailer to close up.  And as you point out yourself, Woolworths weaker results were still underpinned by increased sales in groceries and liquor, so it's not all doom and gloom - they are just admitting Dick Smith has underperformed.

So rather than focus on the challenges of Woolworths, and to claim that "this story is repeated ...across all retail" why not look at a success story like Super Retail Group, who are growing sales in existing stores and opening new ones as a result. Their like for like sales were up between 3.5% to 9.9% across their three divisions, and earnings per share were up 20%.  That doesn't sound like "sales are struggling, profits are plunging" now, does it?

Terry, let's make a deal

OK, I don't want to criticize without being constructive, so how about this. If you point out a weakness in our economy, balance it up with the positive.

Point out the benefits to our productivity as a result of this retail shake up, or give credit to our big shopping centres for continuing to improve what they offer to the community.  Remind everyone of the great food and beverage precinct at Westfield Sydney, the continuous upgrades that keep shoppers flocking to Chadstone, or the recently reported like-for-like increase in retail profits from shopping centre owner, GPT.

We should applaud the changes in retail. We are moving forward towards the 22nd century, not backwards to the 20th

Let me know what you think

Mark S

It affects me - that's why I must support the private health insurance means test

I want Australia to be more productive, more creative, more fair and economically successful.  Some of these goals require change - change that impacts on real people.

So, when the Gillard government proposed the private health insurance means test, I had to ask myself, does this fit the criteria? Will it make us more productive, or economically successful.  The answer is probably yes.  We need to afford a health system, we need a public dental care system, and for individuals earning over $83,000 or families over $166,000 it seems fair to reduce the rebate they are receiving for purchasing health insurance in return for a $2.4 billion saving over just 3 years.

And it affects me - so I can't very well argue for some changes that don't impact me directly if I won't support changes that do affect me.

Productivity changes affect real people - that's why we need them

If productivity changes didn't impact on anyone, then they are probably not doing anything.  At the moment, Australia is in a once in a century mining boom.  Yes, it's impacting on many industries.  Yes, a lot of people can't see that this is doing them any good.  But, the impacts are real, and they have the potential to transform Australia for the better.

If we want to preserve old manufacturing industries, who is going to pay for it? All of us.

If we want to protect old fashioned retailers, who is going to be affected? All of us.

If we want to continue to drive our economy with polluting, carbon-intensive fuels, who is going to be affected? All of us.

So, we need to embrace the changes that are needed and take advantage of the one in a century opportunity that we are being handed.

I might have to pay and we all might have to change

At the moment, my job isn't impacted by the changes to the economy.  It wasn't always that way - I've been made redundant when the Marketing industry went through change.  So, if you are a manufacturing worker at the Toyota plant, or a retail worker whose shifts are being cut, it would be natural to be concerned. 

For most workers, there are other opportunities.  95% of people who want a job currently are employed.  For the retail worker, you have sales skills - there are currently over 2,000 sales jobs being offered in Melbourne alone.  For the manufacturing worker, there are over 1,500 jobs in Manufacturing, Transport & Logistics in Melbourne.  Change can seem scary, but it's what we have to do as society changes.

For me, I have to pay more for my private health insurance.  I can't ask you to adapt if I won't.  We all have to share the journey.

Tony Abbott's position makes no sense

Given that I will have to pay more for my private health cover, I don't understand why Tony Abbott wants to give me a hand out. Here is his statement on radio...

"Private health insurance is in our DNA. It is our raison d'etre, that is why we exist as a political movement, to give more support and encourage for people who want to get ahead. So, look, private health insurance is an article of faith for us. We will restore the rebate in government as soon as we can.''

So, is he saying that if you are wealthy, we will give you more money to make you more wealthy? Huh?? Honestly, that makes no sense.

Or is he saying he wants to do away with Medicare, and just have private health insurance? That would make even less sense, and be even less equitable.

I'm really trying to understand his perspective, but frankly, I can't see it at all.  Then again, I can't see why Prime Minister Gillard insists on bailing out foreign car companies either ... but that's a discussion for another day.

Times are changing, and we all have to step up to the plate.

Let me know what you think

Mark S

Age discrimination must stop

It's illegal and it's stupid.  Experienced, talented people aged over 50 are being discriminated against in the workforce. This week, the Financial Services Council released a report showing that more than a quarter of workers aged over 50 experienced direct discrimination.  This follows on from a report in 2010 from the Australian Human Rights Commission saying the same thing.

Before I go on, I have no preference for older workers over younger ones.  I have worked with (and continue to work with) fantastic people in their teens, 20s, 30s, 40s, 50s and 60s.  I've also worked with incompetent people at every age bracket as well.

Yet, older workers are worthy of particular comment.

There are lots of over 50 workers, and will be lots more

Our society is ageing, and over the next 10 years, this will become more and more apparent as the baby boomers move through their 50s, 60s and 70s.  There are a lot of these people.  So why on earth would an employer decide to reject a huge cohort of workers? Surely that's just reducing your choice when there are so many people in that bracket

Older workers have experience

It doesn't matter how you cut it, if you are older, you've had more years to learn.  Not everyone who is older is wise (there are plenty of grumpy old men and women who haven't seemed to have learnt anything), but, by definition, it is almost impossible to have experience if you are young.

Older people want to work

Research has found that older men in particular place a high value on their work as a key part of their identity.  They don't want to give up working.  They have often had children, who have left home, and their work is one of the most important ways that they can feel that they are still valuable to society.

(On the flipside, the Financial Services Council report identified that older workers might need to compromise on their salary and title expectations.)

So many older workers are very effective

The Catholic Church forced Father Bob
Maguire to retire at 78.

Here are some older workers you might know.  Warren Buffet, Ban Ki Moon, Aung San Suu Kyi, Matt Groening, Clint Eastwood, David Stratton, Father Bob Maguire ...

In fact, the list could go on for hundreds of pages, because there are so many effective people who are aged in their 50s, 60s, 70s...

These people are dedicated, they value their work, they want to do a good job.  As an employer, I want to choose the best person for the job.  These people are the best at their job.  And because they care about what they do, they are most likely to be stable.  A 55 year old might give you 10 years of solid service.  What's the likelihood of a 22 year old giving you that long? If they are the right person for the job, then hire them, and let them work as long as they want.

No discrimination. None.

We have spent the entire 20th century breaking down barriers for women in the workforce, and despite making huge improvements, we are still not there.  We cannot afford to have any discrimination against older workers, as we have had against women (and many other groups) for so long.

It is time to value people for what they can contribute, and genuinely not discriminate, particularly on the basis of age.

Let me know what you think

Mark S

Australian success will come from tall poppies

Source: abraham-maslow.com

Back in 1943, Abraham Maslow developed the theory we know as "Maslow's hierarchy of needs".  Simply, humans will ensure that they satisfy more basic needs first, before they satisfy more advanced needs that are higher up the hierarchy.

First we need food, water, shelter and sex.  Next we need to be physically and emotionally safe. Then we need love and belonging, relationships followed by self-esteem.  Finally, we want to be the best we can be, to self actualise.

Don't chop down the tall poppies

Australians have a habit of being critical of people who strive to achieve, unless it is in sport.  So, let's think about what this means we are doing.  Once an individual has achieved their more basic needs, they will naturally strive to achieve greater self esteem.  Among young children, we advocate this very strongly - they must feel good about themselves.

Yet, among adults, when they strive and succeed, we feel entitled to criticise. We are saying to them - you are higher up the ladder than I am, so I'm feeling uncomfortable about that.  Comparatively, that's hurting my self esteem.  So, I'm going to chop you down.

We don't do it to our sportspeople, because we are all on the same team.  When Cadel Evans won the Tour de France, we all won. Our self esteem rose together.

By denying others the basic human motivation to achieve more self esteem, we are denying it to ourselves.  We must stop chopping down tall poppies.

It's about being better in everything we do

Should I only strive for a mediocre meal?

When we deny others the right to succeed and better themselves, we are denying that to ourselves as well.  Tonight, I cooked salmon, mushrooms and asparagus for dinner.  If I cook a good meal, I'll likely get thanked (as I did). My self esteem gets an uptick.

Is that enough? Well no.  If I don't seek to do better, and exceed those standards, soon I won't be getting thanks, I won't be satisfied with my own performance and I won't be happy with myself.  If I do better, the salmon will be perfect every time.  The presentation will improve more and more, the asparagus tender and not woody, and so forth. 

If I did really, really well, who knows - I could finish up on Masterchef! Is that the moment when Australia would start to chop me down, just as I am reaching the very limit of my potential?

To improve productivity we must champion our successful citizens

The same applies in all walks of life.  The more successful that individuals are, the more of their potential that they are achieving, the more visible success (often money) that they gain.  It is these people who are successful (and generally wealthy) who are improving our productivity.  It is these people, who are improving our productivity, who are improving the quality of life for all Australians.

No, it's not the same as Ronald Reagan's rhetoric that a "rising tide lifts all ships".  That was just an excuse not to ask wealthy citizens to pay their fair share of taxes.  It's about creating a culture of success, just like Cadel Evans' team does with him.

When we notice an individual achieving more, we must applaud it - regardless of what field of endeavour it is in.  Let's all promote each other's self esteem and increase our productivity and success.

Let me know what you think

Mark S

Why does Bill Evans want Australia to have a recession?

Bill Evans, Westpac

Glenn Stevens, RBA

Back in July, Westpac's chief economist Bill Evans forecast the European economic problems would slow growth and result in a decrease in official interest rates by 100 basis points.  Nobody else was predicting that, and yes, he got it right when the Reserve Bank dropped rates by 25 basis points in November. But why does he insist on interpreting every statistic through the lens of their own prediction?

By sticking to the prediction that rates will decrease by a further 75bps, Bill Evans is forecasting the cash rate to fall to 3.75%.  That is well below a neutral level, so the only reason we will get a rate that low is if Australia falls into recession. The Reserve Bank is forecasting Australia's growth to continue at trend rate of 3-3.5%, so why does Westpac continue to talk up their prediction and talk down the economy?

Stick to your guns, but be fair

I respect Bill Evans for having a view, but recent economic data is indicating that the Australian economy is turning upwards.  As new data has arrived, it seems that Westpac are only looking for evidence to support their "rates down by 75bps" view, rather than taking an objective look at the figures.

Sure, if they believe that Europe is going to hell in a handbasket, then there is a case that Australia will fall into recession.  But you can't just dismiss positive data because it doesn't fit your theory.

My call is for stable rates

For what it's worth, I think rates will stay where they are now for some time. I don't see any change in December, and the green shoots of growth give me cause to think that by February our consumer economy will be looking OK.  Combined with the very strong mining sector, and my thought that the next inflation numbers won't be quite as low as the October figures, I'm tipping no change in February as well.

Of course, if Europe really does disintegrate, then that's a different story, but unlike Bill Evans, I'd be prepared to change my view if the data do change. (Oh, and I am putting my money where my mouth is!)

Whatever your view might be, you still have a responsibility to interpret new data objectively.  I don't believe that Westpac are doing that at the moment 

Let me know what you think

Mark S

Greece and Italy set to gain proper governments from the wreckage

No more bunga bunga capitalists. No more crazy socialists.

While Greece and Italy have been forced into dramatic political change, for the first time in many years, they are set to be led by men who will govern the country with less interest into popularity.  Lucas Papademos in Greece and Italy's most likely PM Mario Monti are "technocrats".  That's political speech for "they'll get on with managing the economy".

It takes a crisis to find a leader


Not every crisis produces leaders of quality.  But serious crises do create an urgent need for change, even more urgent than an election.  The paradigm changes.

The paradigms in Greece and Italy (and a number of other European countries) has been to continue to do the  same that's always been done, just because it's always been the way.  There's even been acknowledgment that things could be better, but there's been no political will to change.

Finally, like a company in crisis who calls in the administrators, the new managers will be expected to fix the mess.  They won't expected to be popular, they won't even be expected to consult widely.  They will be expected to get the job done.

Frankly, we need more focus from our world leaders on getting the job done, and less focus on 10 second voice grabs.

Lucas and Mario - please stick to your guns and fix the mess.  The people will respect you for it.

Let me know what you think

Mark S