Last week I was ready to write off ABC Melbourne interviewer Jon Faine for ill-judged rudeness and inadequate research. Now he’s gone and redeemed himself with a Tony Abbott interview.
Faine at his best is smartly, aggressively prosecutorial without actually being rude. Abbott at his best takes questions seriously and tell people what he thinks. They were both (mostly) at their best here, and the result was an interview that reminded me of many of Abbott’s good points even while reinforcing my view that he doesn’t present convincing responses about the economy.
The interview’s single best point is that Faine challenges Abbott about quantities. Asked about a string of high-profile job losses, Abbott starts to explain the claimed impact of the carbon tax. Faine pulls him up, noting that the high value of the Australian dollar is more important to firms like Qantas. Abbott responds coolly that while he accepts the carbon tax is not the only factor in these companies’ problems, it is a big problem. Faine asks him to address issues other than the carbon tax, and Abbott’s response is to start talking about cutting government waste. “If you succeeded in abolishing every single instance of waste in the federal government,” asks Faine, “what effect do you think that would actually have on the Australian dollar and interest rates?” Abbott says he’ll leave the modelling to the experts. Faine argues that most economists think it would make a minimal difference, and that the real issue is the mining industry’s effects on other sectors.
Note to journalists: keep asking not just what good a policy would do, but how much good it would do.
Abbott sounds tired (listen to him saying “good morning” at the start of the interview) and yet very much on his mettle here. The reason he does not come off better is that the weight of evidence suggests Faine is right: the commodity-bound $A and other outside influences are driving most of the job losses; removing the carbon tax and the mining tax and hoeing into “government waste” will, even on the best interpretation, make little improvement to national outcomes. I suspect Abbott knows this, too.
There’s a quality to this interview that is a credit to our democracy. It’s getting to the heart of important political claims and economic arguments. It’s intellectually confrontational discussion between two smart people who don’t very much like each other, all the better because both participants are working to keep a lid on their natural aggression.
Last week I said Faine was turning into a left-wing shock-jock. That was unfair. Sorry, Jon.
I suspect Faine is too busy nurturing his one true hatred, that of Breakfast presenter Red Symons.
When they appear on air together, Faine sometimes seems to speak through clenched teeth…
I find few interviewers who irritate me more. I also think Faine is extremely good a lot of the time.
I loved his interview of John Howard over kids overboard. “Prime Minister you must be very angry that you were misled by your advisers in that way?”
You reckon adding additional marginal costs onto marginal producers is the right strategy at the moment then or should it be the reverse, especially in a high dollar environment?
And if didn’t matter then why the compensation and support?
Agree with you David, it was a civilised chat between Abbott and Faine. Abbott is a smart man but he is so delusional about the carbon tax that he robs himself of credibility. We also need to remind ourselves that cranial intelligence does not always equate to political intelligence. This applies to Abbott. He also comes across as a negative person as opposed to Turnbull. The latter is utterly believable, smart, with business credentials and is seen as a moderate. His traits and skills are appealing to the educated professional class of the Australian society. There are vast numbers of disillusioned Labor and Green supporters ever willing to throw their support behind Turnbull, but will hardly support Abbott.
As for most of our local journalists, including TV morning show hosts, they display shallow, uncritical views. Critical thinking and thinking outside the square are sadly absent in most media (print & visual) journos, with some exceptions.
Well since Australian tax is the only intrinsic thing that you can spend Australian dollars on, if tax goes down then in principle the value of the Australian dollar should also go down. In addition, since the Feds have been borrowing (mostly from offshore) to the tune of $50 billion each year, those foreigners must first buy Aus $ in order to lend Aus $ to the govt. Thus, this offshore borrowing is yet another factor pushing up the Australian dollar.
If Abbott & Hockey are able to cut the borrowing then this will help devalue the Australian dollar.
Now as for Australian producers, the high dollar only hurts them if Australian consumers were humming and haring about whether to buy from overseas, or whether to buy locally. Thing is, that’s not what Australian consumers are doing… check out the retail slump, Australian consumers are trying to buy as little as possible (from anywhere). Partly due to lack of confidence (pay back debt now, because you might lose your job tomorrow) and partly because the price of electricity is up significantly higher than official inflation, and the price of petrol and gas are up significantly higher than official inflation, same for bus tickets, train tickets, most utilities and council rates, rents, shoes, and so it goes. Since most people have no choice but to pay for these, they cut back on discretionary spending.
Lowering tax will also give people more options to buy discretionary items, although very likely the effect will be subdued by lack of confidence (they expect the tax to arbitrarily go up and down and don’t actually believe they are getting anything until it stays down for some time).
I think removing the carbon tax would do quite a bit. We’re pushing shit uphill wanting to have our cake (heavy manufacturing) and eat it too (high working conditions) as it is. Most of this is really beyond government control. But introducing additional costs (carbon + workplace costs over and above average hourly wage) is very quickly into straw on the camel’s back land.
It might be best put: without a carbon tax we may or may not still have a refinery or smelter in 15-20 years (they could, for example, be further automated), with one it is less likely again.
The real crime is that of omission: a labor government, of all governments, should recognise that a substantial chunk of our bluecollar workforce is being made redundant and that we would be well-advised to spend a substantial chunk of money (maybe start with the chunk of money we currently spend on US car executives’ bonuses) helping these people find new ways to provide for their families. Instead all they are doing is accelerating the redundancy process by imposing additional marginal costs and encouraging the unions to negotiate the workers into oblivion (what’s better: a gradual reduction of 10% a year for six years or no reduction for three years and a full closure after that?).
Patrick and Tel, you are doing exactly what Abbott did during the interview: making claims without quantities.
Tel, cutting the government debt will devalue the Australian dollar by how much?
Patrick, removing the carbon tax would make it how much more likely we retain a smelter?
Gee
A CEO puts out a statement that the ETS was not part of the problems it was encountering at present but the level of the $A was but still people go for the fiction.
Remarkable
Government debt in Australia is insignificant, both nominally and proportionately. Cutting it further in some frenzied ideological crusade would drive the $A up, not down, through the increased scarcity value of CGS. The RBA said recently that demand by sovereign asset managers for CGS has been so strong in recent months it has entirely funded the c/a deficit on its own. And the c/a deficit currently is only around 2.3% of GDP.
Huh? Run that past me again Denmore, using flows. If you borrow foreign currency, or a foreigner buys Australian assets, they sell foreign currency and buy the aussie dollar. Buying aussie has an upward impact on the exchange rate. It’s the exact opposite of what you’re claiming, Mr Denmore.
And scarcity would be discounted down to equilibrium.
Hi JC,
I was at the breakfast address by RBA assistant governor Guy De Belle last week. He said and I quote:
“Sizeable flows into Australian government debt has been evident for quite a few quarters now in the balance of payments statistics. Over the first three quarters of 2011, the net purchases of government securities by foreigners amounted to over 3 per cent of GDP, markedly larger than the current account deficit. This pattern of capital flows likely continued in the December quarter.
“As a result of these purchases, based on the ABS financial accounts data, our estimate is that around 75 per cent of the stock of Commonwealth Government securities (CGS) is held offshore, as at end September.
“This portfolio shift by foreign asset managers appears to be having an effect on the currency. The Australian dollar is close to its recent highs despite the terms of trade declining from their peak in the September quarter.”
Does that help?
I don’t think Abbott is delusional. I’m with David on this one – I think he’s knows the argument is essentially bunk but he’s sticking with it because it works politically. I think he also knows, based on experience, that it’s relatively easy for a new government to dump an election promise to cut taxes – all it has to do is point to the horrendous state of public finance (real or fictional) left by the previous government. Yes, that damages its credibility a little bit, but much less so than having to cut government services or increase public borrowing. Finally, he’s calculated that the general public perception that Liberal governments are better economic managers will survive the current divergence between his policy views and those of most economists.
You’re probably right that he’s robbing himself of some credibility with the economic intelligensia, but his message is aimed at swinging voters.
Hi Denmore
I don’t understand how the RBA dude’s spiel helps your argument. He’s describing flows through the capital account in terms of both size and impact. Okay, well and good.
Getting back to what you said:
If you reduce supply (of bonds) why would you assume that the price/yield wouldn’t be impacted and there wouldn’t be a demand shift?
Furthermore how would a reduction in the supply of paper (bonds) cause the exchange rate to appreciate, which is the very argument you made. Normally, all things being equal, a drop in the supply of paper has a downwards bias on the exchange rate.
JC,
I suspect because global asset managers with a mandate to invest in only ‘AAA’ tier sovereign paper would not be overly sensitive to the price/yield shift because their choices are extremely constrained at the moment. So you could see a reduction in supply and consequent increase in price (fall in yield) not being accompanied by a demand shift.
err you tow obviously haven’t heard of Basel 111.
CGS will proportionally with the economy.
Gross debt will rise accordingly
Mr Denmore:
Go through your assertion;
There’s x amount of paper being demanded by offshore investors at the current yield/price.
Supply of paper drops.
Your argument suggests that demand would increase from the present level (x) and cause the currency to rise. That’s simply not going to happen all things equal. In fact, as I said before, the opposite is likely to occur.
Yeah, if the going is steep, don’t make it steeper.
Homer, back to your lying ways I see. The CEO said the CO2 tax would make life harder for them. Exactly consistent with what JC said.
The claim about needing quantities is crap, the policy clearly increases marginal costs and so will have an effect. Treasury has already reported that the CO2 tax will cost jobs and future income.
Homer:
Could you please run that through Google translate and post the comment again.
Pedro,
He said in a statement it had nothing to do with the ETS.
It would in the future when the ETS came into existence.
This is how the private secotr works.
life harder for them means in the future Pedro.
please come by again when you have trouble with English.
you can read it here.
pedro,
you can apologise
JC #10, #13, #16 — agreed!
Bill Posters #7 — looks like Mr Denmore has provided some quantification, but I checked gross Australian exports which are around $25 billion per month, so the government selling of bonds is equivalent to about 2 months worth of our total exports (not counting the 75% estimate that the RBA thinks is held offshore, so probably I’m overestimating a little bit, but we don’t know exactly when those were purchased).
Obviously no one can accurately predict that, it’s relative to other countries after all, and linked all through the economy. All I can say is that the effect is significant… roughly the same size as our entire international tourism industry for example.
Homer, rather than apologise, I will point out the evidence that you have been deliberating misleading.
“While the future price on carbon would be an additional cost for Alcoa, the smelter was already losing money because of low metal prices, a high Australian dollar and input costs, he said”
http://news.theage.com.au/breaking-news-national/talks-held-to-save-alcoas-geelong-smelter-20120210-1sb48.html
And here’s another slice of humble pie you can choke down:
“When asked who was right, Mr Cransberg said: ”We’re losing money now and there isn’t a carbon tax in place. But obviously, as we look at the future of the plant and creating a sustainable future, carbon will be an additional cost burden that we will have to overcome, so they’re both right if you like.
”The review is not because of the carbon tax, but in the future we’re going to have to consider a carbon tax because we’re doing business in Australia.”
http://m.smh.com.au/opinion/political-news/600-jobs-at-risk-as-alcoa-battles-soaring-dollar-20120208-1rf0z.html
Pedro,
you have no shame.
The announcement in black and white said it had nothing to do with the ETS.
I said
“Gee
A CEO puts out a statement that the ETS was not part of the problems it was encountering at present but the level of the $A was but still people go for the fiction.
Remarkable”
you obviously do not understand what a company does now or is doing now and what it might do in the future.
go to an ESL class and then come back and apologise.