News That's Fit To Punt - 13/Mar/2017

Mining Bust Out West

Jeez, that election in Western Australia looked like a real rout. It's funny how the state votes in the conservatives during the years of the boom and somehow trusts them to do the right thing with it, and then when the boom turns into a bust they discover the conservatives have squandered it. It seems to be like a collective insanity that takes hold of the state. During the mining boom years, the rest of Australia had to listen to utter idiocy coming out of the WA Government thanks to the fact the recent mining boom turned  WA into a net contributor to the GST regime rather than a net recipient. Then they cried poor about it , and got very little sympathy - as they should - and now that the state finances are in ruin, the people finally vote in the ALP. When you consider that at one point the WA LNP were mouthing off about seceding from the rest of Australia, it's certainly laughable that they will be a net recipient to the GST regime once more.

I guess one shouldn't laugh at the misfortune of others, but this one was pretty predictable.

Mining booms often turn to busts. Most Australians know this, except it seems, the outgoing administration of the nation's resource-rich west. 

Western Australia's now former premier Colin Barnett bungled the bonanza, splurging windfall cash during the good times only to find the cupboard bare in the bad ones. The upshot is the state's budget deficit and debt have spiralled, the AAA rating is gone and people are fleeing, the latter at least has the advantage of containing an unemployment rate that's already the nation's highest. 

"There's an element of Dutch disease there, and the government certainly mismanaged the boom, but it also reflects the sheer size of the mining sector in WA so when it collapses it drags everything down," said Shane Oliver, head of investment strategy at AMP Capital Investors in Sydney. 

"WA didn't seem to learn any of the lessons from Australia's past mistakes during commodity cycles and now the state is effectively in recession." 

(edit)
Western Australia's Treasury was projecting the revenue windfall from mining would still be continuing in 2018-19, despite commodity prices peaking in the third quarter of 2011 and mining investment not too long after. 

As a result, the government has been trying to cut outlays in a weakening economy and there's even been talk of tax increases as gross debt is on course to surpass 20 per cent of gross state product in coming years.

It's pretty laughable when you have a long memory. So much for the notion that WA somehow had organised things differently to all the other mining boom and bust cycles in the past. Tire's a lesson in there for the fossil fuels industries too.
There's a lot more to be said bout all this, so I'll come back to this below.

100 Days Of Tesla

We live in times such that a tech billionaire tweets something and it turns into a head-to-head discussion with the Premier of SA and PM of Australia. It's weird but all of a sudden people want this project to happen - which would be nice of South Australia but also, - which would be the proper part of the renewables tech business getting a crack at the Australian electrical grid.

Tesla's Elon Musk may have put large scale battery storage on the national agenda with his offer last week to solve South Australia's power crisis for free if he did not deliver a large system with 100 days of signing a contract, but both the Prime Minister and South Australia's Premier are looking for more detail before taking him up on the offer. 

Mr Turnbull and Mr Musk spoke for an hour early Sunday afternoon, with the Prime Minister yet to form a view on the merits of power storage systems in solving South Australia's power supply woes. 

"They had an in-depth discussion on the value of storage and the future of the electricity system," a spokesman for the Prime Minister's Office said. 

Their discussion was not political in tone, but rather a discussion between two people "picking each other's brains" over the options for energy storage in Australia, one source familiar with the discussion said.

Elon Musk for his part has resumed campaigning for a shot on Twitter. You'd look an idiot if you turned him down now, wouldn't you? Of course these are people in government in Australia are people who don't mind looking like an idiot, so you have to subtract your optimism. Or is that curb your enthusiasm. In any case, the offer is there. Now begins the process of looking the gift horse in the mouth.

Time To Start Collecting Canned Food?

This link is from Pleiades.

While economists love trade, it has extremely political ramifications. And it is politics that in Every’s view is driving the world back to a 19th century style trade world. A world where after a period of free trade, high tariffs were set up and where trade became a conflict involving domination of one country over another.

And the problem is that economic conflict can quickly become real conflict.

It was a scary prospect – not only would raising trade barriers reduce our standard of living – but if the path of the next 10 years follows the path of the late 1800s and early 1900s then the world gets very dangerous very quickly.

The biggest difficulty for those selling the idea of free trade is that a soon as you start talking about things such as “comparative advantage” people quickly switch off. It’s much easier to understand trade in what is known as a mercantilist sense – the “domination” point of view, where the aim is to export more than you import.

That is certainly the view of Donald Trump and his trade advisor, Peter Navarro, who has recently argued that because GDP is made up of consumption, government spending, investment and net exports (exports minus imports) reducing the US trade deficit is a good way to grow the US economy.

The problem with that view is that in the US – as in Australia – the size of net exports pales in comparison to consumption, investment and government spending.

Clearly, if the benefits of trade are not doled out to the public but instead, accrues to a small percentage, as has happened in the last 30years, the public becomes less enamoured of free trade; and so we must wonder if we've hit that point where the public has decided it won't back free trade any more. It would explain the shift toward  parochial kind of anti-tradepolitics as seen in the Brexit debate/debacle as well as the rise of Trump-ism (devoid of any coherent ideological framework, it does seem to to be a cry against free trade).

A Scary Passage From Crikey

Also from Pleiades was Crikey's entry about the WA election, which I think deserves a long quote.

They have to do something. They should have done something before. When the red dust settles and the tallying’s done, the verdict on the mining boom in WA will be a harsh one. No Norwegian-style social fund was established — Norway now has a trillion dollars under management from North Sea oil and gas, and the whole country could retire — and much of the money that did come in served principally to inflate prices to, well, Norwegian levels. FIFO was imposed on people who wanted settled jobs, and no government stepped in to oblige the companies to give their workers more options. Men and women of modest skills and earning capacities were suddenly pulling in huge wages, with little advice as to how to invest it. Many bought houses in regional FIFO towns at prices approaching capital city levels — and then saw them halve in value as the boom died away. Meanwhile, the towns that became FIFO bases — from Singleton in NSW’s Hunter Valley to Kalgoorlie to Bunbury — were drained of the communal stability that makes life possible. “How can you organise a footy team? How can you even get a picnic going,” a woman had said to me in Singleton, two years ago, “when you never know who’s going to be here? The shops are empty, the town’s bled dry.” Two days ago, someone said the same thing, near word for word, in Kalgoorlie. In both towns, and many others, the miner’s mansions have “for sale” signs in front of them, directed at a market that isn’t there. 

Some didn’t even make it to the bad-investment stage. A lot of people were drawn to FIFO by the idea that it would allow them to make big bank, on the simple principle that once you’re in camp, there’s nothing to spend your money on. But that scheme misses the effect of 14-day, 21-day, 28-day stints of 12-hour shifts on the human psyche. Beyond a certain point of such punishing, inhuman labour, it is all but impossible for most people not to blow their money in the first days off, especially if they’re young. Everyone who’s done night shifts, continuous shifts, back-to-backs knows this. The money spends itself, burns its way out of your pocket. Potlatch, the old tribal custom of wanton destruction, takes over. You stride into a bar and fuck it, you’re not going to drink beer, or Red Label, you’re going to drink Chivas! A double! Chivas for everyone! For some people who just came to do a couple of years in the mines and party up, that’s probably no great tragedy. Others have worked years at grinding, dirty, dangerous work and have nothing to show, a fact that must be part-cause of the suicides, depression, domestic violence and addiction that has broken through FIFO communities like a long wave. 

Given a free kick by 4 billion years of geology, and a chance to reinvest, Western Australia appears to have created a situation in which Wake in Fright and The Unknown Industrial Prisoner serve not as dystopian warnings, but as HR manuals. Now a state that has spent a decade chipping bits of itself off and floating it northward for silly-money prices cannot pay for its most basic services, pay down its debt, and is proposing taxes that should have been being levied since the 1990s and scrambling to fill the gap with infrastructure projects it can’t afford to start. Services cut include those to Aboriginal people, which in turn has produced unwilling population movements, pressure on centralised and reduced services, and a resultant and distinct fraying of white-black community relations in a range of towns, a fall away from such detente and mutual understanding as has been achieved in recent years. What looks like a racial political issue, is, in reality, a product of the state’s fiscal crisis, and its panicked efforts to plug the gap.

That's pretty bleak reading. It turned out they needed a mining tax but realised it after they campaigned hard to get rid of it. Oops. What do you do with this kind of collective hubris and stupidity? It doesn't end well:

The gap has been plugged, instead, with meth, a drug that has boomed out of control in WA, simply because it has become so cheap, easily made from base chemicals, in suburban labs springing up in every city and town. Those looking to explain its reach in WA by its occult power to turn people into speedfreak zombies are ironbarking up the wrong tree — meth hit the big time when it became cheaper than dope. Its popularity is a product not of addled obliviousness, but of the judicious application of rational choice theory by substance abusers, looking to maximise their investment. It’d make the Institute of Public Affairs proud.

All that, in overlapping bits and pieces is the conversations you get into across the state — with everyone. Miners, ex-miners, civic boosters, NGO officers, emergency services, journos, snappers. In WA, everyone’s become an amateur political sociologist, hot on the trail of where it all went wrong, and what the solution might be.
Whatever happens on Saturday, the state’s dilemma concentrates the mind wonderfully. Kalgoorlie stands as a metonym for Western Australia; Western Australia for Australia itself. We are all aware that we have not stored away for the lean years, and the fat years come to an end. The prospect, delicious for pundits, less for the public, is that either major party will fall short of a majority, and have to cobble together government in both houses of Parliament. Looked at clear-eyed, this often delivers good government, but the public rarely thinks so, and the golden west exemplifies the decay of political legitimacy and effectiveness in Australia, and if that occurs here, it may not be too long before the state is back at the polls once more. 

What WA needs is the Unflux, the many nations in one — a party with a realistic and integrated program to deal with the reality of resources-led states, not the fantasies they offer. As goes the state, so goes the nation.

Everybody's got 20-20 hindsight it appears. Right now, it's hard not to think of all those mortgages underwater in Western Australia and what that's doing to the banks' bottom line.  It all went crazy out there with the low interest rates and the seemingly low inflation as 'measured'y the RBA. If the reality was in fact significant inflation, then clearly Western Australia was not served well at all by the RBA's policies in the last decade. You can start to see the whole thing start to unravel. You have to wonder just how long will it be before it hits the East Coast?

News That's Fit To Punt - 16/Apr/2016

When Governments Suck This Hard

Several people sent me this link yesterday. It obviously hit its mark because lots more were posting it upon Facebook. It's a veritable talking point sort of article, obviously because it sums up what most people have thought and continue to think of this sorry government.

How to explain the trainwreck that is the last three years of the federal government? The debacle poses a challenge that will dog journalists, policy wonks and historians for decades to come. The explanations for its dysfunction and sustained under-achievement are complex, but there are at least two distinct theories worth considering.

In Malcolm Turnbull’s second ministerial reshuffle in February, Alex Hawke was promoted to the office of assistant minister to the treasurer. In 2005, the then young Liberal office holder prophesied that conservative politics in Australia would move increasingly towards an American model. Hawke explained that: “The two greatest forces for good in human history are capitalism and Christianity, and when they’re blended it’s a very powerful duo.” 

Can the relentless incoherence and incompetence of the current government be attributed to a particular blend of capitalism and religion that has found favour in the US? Perhaps. British author Will Hutton argues that a malaise has swept the political right throughout the west and that it has given up on the Enlightenment and in doing so has rejected “tolerance, reason, democratic argument, progress and the drive for social betterment as cornerstones of society.”

If there is a serious contest about capitalism being waged in Australian politics, it is invisible to most of us. To the extent that there is a debate, it focuses on neoliberal capitalism. Perhaps Hawke’s invocation of capitalism is another way of expressing an opposition deep within the modern Australian conservative; an opposition to taxes and to government itself. Despite the rhetoric, the recent experience of conservative governments including the current government is that they levy more tax than their Labor counterparts.

And so on it follows. Anybody with a modicum of education and a sense of fairness would find this unsurprising. Yes our government is unrelentingly crass and incoherent, and it's totally impossible to work out what exactly they came to power to do given their contradictory (mostly self-contradictory) positions on things.

China Boom Is Over,  She Says (She's Probably Right)

Here's even more confirmation Australia is headed for economic turbulence. 

The slowdown in China's rapid economic expansion and "rebalancing" away from resource-intensive construction activity towards domestic consumption has dramatic ramifications for Australia's quarter century of uninterrupted economic growth.
In the official lingo, Australia is being forced to "transition" away from the mining boom. But to what? 

Julia Gillard began grappling with the "challenges and opportunities" presented by China's maturing economic development in 2012 when she released Treasury's 'Australia in the Asian Century' white paper. 

It too extolled the opportunities that would flow for Australia to replace record iron ore exports with shipments of health and financial services, meat, wine and dairy.
Add to this list cherries from Tasmania and crayfish from Geraldton, Mr Turnbull this week told a "gala lunch", while extolling the virtues of the recently signed China Australia free trade agreement. "The early export gains have been extraordinary," he claimed. 

Of course Ms. Irvine goes on to argue that services exports from Australia are nowhere near lucrative or competitive as to what our mining exports were able to do during the Mining Boom.

It's a special kind of mess when a Liberal Government can't point at its own record to make the point that the people are better under their economic care. It's also sad that short of thinning exports, was we have to offer Chinaware primary produce - things that are well and truly the part of the commodity trade and where prices are always in deflation.

This probably doesn't need a refresher but the problem with the Gillard Government was that without a solution it opted to double down on the Property Bubble; which, if you think about is no solution at all because it pays no attention to the economy on the other side when ultimately property prices recede back to historic norms, and there's still no industry to replace the mining boom.

The clear and obvious idea lay in the value-add that Australia could provide, so science and technology would be your front line areas to secure an industrial future for Australia beyond the Mining Boom. But of course there aren't any typical union jobs in the ranks of science and technology so the ALP in its worst moments of self-interest would not pursue such a path (And frankly I can't think of any other motive).

The subsequent Coalition Government has been worse in that it helped shut down car manufacturing Australia (because those jobs are unionised) and managed to gut a good portion of the secondary industry while wielding a budgetary axe to science and technology as well as compromising the NBN. So just in case you're wondering, Malcolm Turnbull hasn't been a panacea for the extreme Stupid which befell the Coalition Government under Tony Abbott, any more than an ALP victory might be of any help if they should squeeze past this terrible government at the next election.

Why Pay Tax When You Can Do This?

Glory be. How in God's Green Earth do these big companies get away with not paying tax?
In case you've wondered ho, here is the explanation:

Once upon a time, multinationals had proper 'bodies corporate'. Typically, they had six or eight directors who made decisions in the interest of their Australian entities, a director's duty. 

Shell Australia for instance used to be called Shell Australia. It had a full board, board meetings were generally attended. After every year end, the company would produce a glossy annual report, its financials there for all to see. A press conference, though meagrely attended, would be held. 

Now the Anglo-Dutch giant refers to itself as "Shell in Australia". Its statutory financial statements are nowhere to be seen. If you fork out $38 a pop to the Australian Securities & Investments Commission (ASIC) you can find them. Net, they have paid no corporate income tax on $60 billion in revenue in three years. 

Shell is a big one but the pattern is clear. Thanks to tricky financial structuring, multinationals regard paying income tax as optional. "Leakage" they call it in the land of tax lawyers. 

ASX companies, such as Woodside, Shell's peer on the North West Shelf, are bound to file their accounts publicly, and free of charge. They are visible, and they are filed – unlike Clive Palmer's accounts of yore – on time each year. 

Compliance, generally, has been in freefall over the past decade. Even the Business Council of Australia, which pontificates to government on good business practise, has only managed to get its accounts in on time in eight of the past 16 years. 

The question needs to be asked of multinationals: what is the economic reality?
Is Shell a little piece of London, and Chevron a little piece of America, which has been given carte blanche to plunder Australia's resources, pay little (in royalties in the case of Chevron) for them and bank all the proceeds of their sale in foreign head office bank accounts? 

Once Chevron has paid the money it pays to real Australians (during construction Gorgon & Wheatstone), there is not much in the way of ongoing economic benefits for Australians. 

Are these really Australian exporters? Multinationals used to run subsidiary companies and the money earned by those companies was banked in Australia and circulated in the Australian economy while the parent waited patiently for a dividend.

What a joke. The kind of money being discussed seems to be the kind of money needed to properly fund the NDIS and the Gonski Reforms and a whole lot more. It's not that these things are unaffordable, it's that our government both ALP and LNP has let their corporate donors run roughshod over the tax office. What we want is for the ATO to start going after these multinationals. That should be the platform parties run on if they want us to take them seriously about things like the budget deficit. 

Quick Shots - 20/Jan/2016

The Mining Boom's Well Over...

I've been a bit out of things this week so I haven't exactly followed the news or markets. I do want to point out that it's been 11 losing days out of 12 trading days this year so far, so everybody is getting their arses handed to them as Brent Crude hits US$28. Really, unthinkable sort of pricing.

Nobody with any familiarity with China believes in the GDP growth figures that come out of Beijing. There's going to be a big problem if we're counting on 7% or so GDP growth when in fact the likely number is mines 1%.

Pleiades sent in a Crikey article which is behind a paywall, but the gist of it is that our political class and bureaucrats missed the cue, and completely bungled the landing from the mining investment boom that overtook the entire Australian economy for a decade and a bit there. Among the things they failed to anticipate was how hard other nations would head towards renewable energy, even if our government under the Coalition sat in denial about climate change and resisted doing anything for as long as it could. Right now, the share markets are showing how and why we're going over the cliff.

Our Honey Is Poisonous

This is depressing.

Australian honeys are the most contaminated in the world with natural poisons linked to chronic disease including cancer, according to international researchers. 

Pregnant and breastfeeding women in particular should be wary, experts say, with unborn and breastfed infants at higher risk of organ damage from such toxins. 

The news affects varieties of honey sold by many leading brands and widely available on supermarket shelves. While the products do meet more relaxed Australian food safety standards, all but five Australian honeys tested had more contaminants than the European Food Safety Authority would consider safe or tolerable, the research published in the Food Additives and Contaminantsscientific journal shows. 

The Australian Food Code bans the use of poisonous weeds such as Paterson's curse (also known as Salvation Jane) and Fireweed in human food. Their flowers are laced with chemicals called pyrrolizidine alkaloids that are considered the most common cause of poisoning in humans and livestock worldwide. 

But Food Standards Australia and New Zealand (FSANZ) permits honey to be sourced from restricted plants, as long as it is blended with other honey to dilute it.

That's a worry. Of course, the article finishes with a line from the honey industry body about Australian consumers having nothing to fear. It's strangely reminiscent of what tobacco growers used to say about cigarettes. It's a bit of a giveaway that we ought to get very paranoid in a hurry.  

The Impossibility Of Sensible Conversation

It's always surprising just how lunar-crazy the right are in this country. I guess the lunar left are also crazy but they've not been anywhere near the controls, or making policies for this country in a long time. The infighting breaking out in the Liberal ranks about the next Federal election.

Just look at the craziness here:

"Our sovereignty has been signed away at the United Nations by Malcolm Turnbull, [Foreign Affairs Minister] Julie Bishop and [Defence Minister] Senator Marise Payne," he writes. 

"Now UN laws override Australian laws thus dictating what countries our refugee and immigration intake come from." 

"Former prime minister Tony Abbott agreed to take in 12,000 persecuted minority refugees, mostly being Christian. Malcolm Turnbull has already changed that to being 12,000 mostly Muslims, who clearly do not assimilate to the Australian way of life and our laws," he says.

(Mr Abbott denied Christians would be given preferential treatment, saying: "It's those who can never go back that we're focused on.") 

Cr Cornish goes on to "strongly question the Liberal Party's direction in regard to conservative values". 

"It currently shows little difference with the aims and objectives of the Labor Party, that being the removal of religion and replacing it with government founded [sic] tolerance of everything, climate control, over control of our everyday life and the erasing of our heritage and way of life through wanting to change our flag and changing our head of state to a corruptible president," he says. 

Cr Cornish also attacks Lindsay MP Fiona Scott over last year's leadership change that saw Mr Turnbull become Prime Minister. 

"Fiona Scott was only elected due to the hard work and support of Tony Abbott," he writes. 

"His many campaign visits to Lindsay along with his 'sex appeal comment' got Fiona just over the line, only to have her stab him in the back for his hard work and party loyalty."

So one part of the Liberal Party strongly believes in this kind of divisive politics. They pine for the days of Tony Abbott as PM (even though it was clear Tony Abbott had been an utter failure), and they play this line of absolute fear for international commitments that this country has made.  It's the same bunch of people who think nothing of locking up kids in detention centres or ignoring climate science, or complaining about political correctness. Basically, Malcolm Turnbull's job is to corral these crazies under the same party and somehow get to the election and win it. Even if he wins it, he's going to have to cajole these crazies to do what is required because these crazies are ideologically against it, and think there's some kind of principle at stake in their wrongness. 

Whatever it is disaffected ALP voters thought Malcolm Turnbull might do that was so much better than Tony Abbott, you have to say the the likelihood of that happening is quite minimal.

GST Problem? We Don't Think So

Colin Barnett Should STFU

Pleiades set me a heads up about something in the AFR about Colin Barnett and theLNPmanagement of Western Australia. but before i get to that I need to set the stage a little.

At the recent COAG meeting, the premiers of states not called 'Western' were hostile to Colin Barnett's suggestion the GST distribution rules should be rewritten. It turns out the abrupt end to the mining boom has put a huge dent in the WA government's revenues. Worse still, the GST take for WA is going towrope from 38cents for every GST dollar collected, to less than 30cents. Which sounds rough, but here's the thing - WA was the chief beneficiary of an once-in-a-century commodity boom as it sat on top of one the great mining booms. And the other premiers lined up to let him know whether thought:

Premiers arriving in Canberra on Friday morning called for WA to accept the decision of the Commonwealth Grants Commission, which allocates GST revenue. 

"The Grants Commission made their ruling, not everybody's happy with that, but the notion that you would change the rules, that you'd get rid of of the umpire because you didn't like the decision and politicians are going to sit around a table and carve up the GST state by state, territory by territory, that's not going to happen," Mr Andrews said. 

NSW Premier Mike Baird said there should not be any "knee jerk" changes to the GST and said the most pressing issue was future health and education funding shortfalls.

"You shouldn't change the whole system for those single issues and certainly they have got the capacity to deal with it," Mr Baird said. 

"The biggest issue here is the health funding, the health and education funding. That quite frankly makes the GST debate that we are talking about right now look like a pimple to the size of a pumpkin." 

Queensland Premier Annastacia Palaszczuk said Mr Barnett's Black Saturday comments were "offensive" and that he should move on. 

"I just say to Colin Barnett, accept the independent umpire," she said.
"This is what the decision has been, no-one has gone against it for 30 years and there is absolutely no reason whatsoever to go against it. There's no way I'm going to cop Queensland losing $556 million."

That's pretty black and white. But here's the bit Pleiades sent from the AFR that's pretty damning:

So, how could WA manage to make it through a once in a century commodity price spike and still not manage to deliver a surplus? Easy. They spent a fortune subsidising the mining industry. 

Just last year the WA Treasury wrote to the commonwealth to explain how expensive it was to host the mining industry. Among other gems they wrote that "the cost of Western Australia's assistance to the North West Shelf project – e.g. payment of subsidies to the state's power utility to help cover the losses it initially incurred under crucial 'take or pay' gas contracts – is estimated to be around $8 billion." 

The WA Treasury goes on to criticise the Commonwealth Grants Commission for dividing up the GST revenues between states on the basis that "it fails to equalise many state expenditures that support resource development, particularly provision of infrastructure". They openly describe government decisions to pay for much of the mining industry's infrastructure as "a significant subsidy cost". 

The WA government has spent a fortune subsidising some of the world's biggest companies in the middle of a mining boom. Their own state budget papers show the cost to be around $6.2 billion over the past six years and their own Treasury calls such payments a subsidy. 

WA's tantrum at COAG, combined with Tony Abbott's tenuous grip on power, has reportedly delivered a $600 million windfall to Western Australia. Just imagine if Jay Wetherill or Daniel Andrews spent a few billion dollars subsidising the car industry. Would their industry policy decisions be cross-subsidised by the other states, or by the Commonwealth?

Ouch. Kind of shows how badly 'managed' (and I use the term very loosely) the whole mining boom was in WA. Basically, Colin Barnett took the mining revenues and gave it right back to the mining industry even though there was no reason to subsidise a booming industry. Instead of subsidising something that needed support during a time of a high dollar an over-dominant mining industry, Colin Barnett and his WA government went and doubled-down on the mining industry and effectively doubled-down on the Dutch Disease. Now that the moment has arrived, he's complaining his state has no income stream other than mining. You sort of wonder how he lives with himself.

The other state premiers are no saints either - they're simply talking along their lines of interests as is their prerogative; which is also true of Colin Barnett. But if you're an outsider of the process looking in, it's pretty obvious that Colin Barnett contributed greatly to his own states' predicament.