Crocodile tears

Will there be any tears shed at the enforced separation of Telstra?

Classical economic theory argues that a monopoly will deliver poorer service at a higher price than a company facing true competition, and guess what: in most peoples' eyes, this is exactly what the Howard Government delivered in the privatised monopoly telecommunications monster that is Telstra. Poor product offerings at uncompetitive prices, unimaginable arrogance and appalling service, only exacerbated because Telstra was in the unique position of monopoly supplier and dominant retail competitor.

And now that the Labor Government is finally paying Telstra back - for its years of appallingly poor corporate behaviour - I cannot imagine there are too many Australian's [apart from a bleating Opposition] who will shed any tears at all.

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A "Peoples' Bank" - why not?

In last week's Australian Financial Review, there was an article where the creation of a state-funded bank, or a "peoples' bank" was proposed, to help counter-act the anti-competitive [semi-cartel] framework of the current big-four banks in Australia.

This idea was floated by a group of economists who argued that 'the global financial crisis has exposed flaws in the financial regualtory infrastructure and in the competitiveness of the financial system here'. Well 'hear, hear' I say, as this is a concept, similar to NZ's Kiwi Bank, is a concept I have floated for a number of months.

Treasurer Wayne Swan has apparently ruled it out, without any clear reason, other than to state that ' the financial system has performed very well during the gloabal financial crisis compart to all other comparable economies'... Perhaps, but at what cost?

Basically the 'big four' banks in Australia have a cosy cartel, with very limited competitive pressure imposed on them. When the Reserve Bank lowered interest rates a couple of months ago, they didn't feel compelled to pass on those cuts to their home-loan customers, and one bank even increased their mortgage rates slightly!

I cannot see any compelling reason why you would not seriously look at establishing a state-owned and state run bank in Australia. This does not stem from any 'socialist' principles, but rather because it seems that the Reserve Bank [& therefore the Government] has very little leverage over the Big four's cosy cartel - what better way to force them to keep rates low than a competitor who will offer mortgages at fair value, and pass any cuts in funding costs, directly on to their customers!

As an ancilliary benefit, it might help with the unemployment figures. Wayne, you need to lift your game a little here!

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Following on from my earlier post [see post 26th May], what should the Labour Govt do?

They are correct to target middle-class welfare, but they haven’t been prepared to ‘bite-the-bullet’ as they should have. They had a mandate from a populace who recognised that the recession was not of their making, and therefore the perfect opportunity to impose tougher conditions on various sectors of the economy.

For one thing, they would have elicited understanding from most people if they had rescinded their promised middle-class and especially upper income, tax cuts. These tax cuts were originally only proposed because they had to try and keep pace with a hugely spending Howard government, desperate to spend themselves back into peoples’ favour [thence into power for a fourth term]. Surely, with the new economic environment, people would understand if they were rescinded?

The other is a simple one, but one that is only for a courageous government: raise petrol taxes! It is an option that would not only raise revenues but would encourage conservation, in one fell swoop. However, unfortunately I don't think the Rudd Government would have the courage for this one, just as the Howard Govt didn't.

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The profligate Liberal Government

Haven't had time to put this up in a timely fashion [ie as the events surrounding the Labor Govt budget were unfolding in the past week] but have to say, the carping and complaining by the Liberals about the extent of the debt that is envisaged in this budget is almost sickening.

Yes, of course we'd prefer not to be in debt, or at least not to the extent that we will be. However, there are two factors that need to be taken into account: firstly, that as is economic orthodoxy, in a recession, it is the obligation of the government of the day to raise demand by increasing spending, to try and keep the economy from falling too far.

The second, and most telling point for the Liberal argument however, is that when in power they squandered the opportunity to build up a huge surplus, courtesy of unprecendented revenues, which they paid out in pork [instead of using it wisely] to try and buy their way into power for a fifth term. As George Megalogenis writes in the Australian [May 16th] the last Liberal budget [before the election] was 'shot at the time of the election, because too much of the revenue windfall from the resources boom had been handed back as tax cuts and increased spending'.

According to Megalogenis, the Coalition had already built in structural deficits, in the face of pretty much the greatest boom the Australian economy had ever known. Nor, for that matter, did they spend their huge surpluses on developing infrastructure.

That is, the Liberals enjoyed unprecedented tax revenues brought about by the mining boom, but instead of wisely spending it on developing Australia's productive capacity or even 'saving for a rainy day' they blew most of it in middle-class welfare and pork-belly projects to their favoured constituencies. And finally, before the election, they tried to bribe the electorate by offering some further $30bn or so in tax cuts, which the Labour opposition was pretty much forced to match.

So for Malcolm Turnbull [or any Liberal politician] to decry the current amount of debt that the current government has been forced to budget for, is not only cynical in the extreme, but patently dishonest.

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