Centre for Policy Development's Blog, page 117

Ben Eltham | The Myth Of The Wage Breakout

Business lobbies love to warn about the threat of wage rises to the Australian economy, writes Ben Eltham. In fact, modest rises for ordinary Australians are good for the state of our books

First published in New Matilda here

All of a sudden, industrial relations is back in the news.

For three years after the global financial crisis began, tough economic conditions held wages down and kept most unions and workers concerned about keeping their jobs, not negotiating a wage rise.

Now that the economy is well into the next boom (this week's negative GDP figures notwithstanding), industrial disputes are again starting to re-appear.

So far, the industrial unrest has been confined to the historically dispute-prone industries of airlines and the waterfront, with aircraft engineers and waterfront workers both signalling their intent to take "protected" strike action against Qantas and Patricks. The NSW Government has also picked a fight with public sector unions there over its plan to limit wage growth for NSW public servants to 2.5 per cent annually (in other words, below inflation).

Both the Patricks and Qantas actions will be tests of the Gillard Government's new industrial relations law, the Fair Work Act, and its new bureaucracy, Fair Work Australia.

One of the key things that Fair Work Australia does is make decisions on the minimum wage rate, and this morning it handed down a new ruling giving Australia's low paid workers (they are not technically the lowest paid — apprentices and many sub-contractors do worse) a modest wage rise of $19.40 a week.

This takes the minimum wage in this country to $15.51 an hour, or $589.30 a week, scarcely a princely sum in an era of high rents and rising utility bills.

But it may be that a different decision handed down this week by Fair Work Australia has more impact. This was the decision in JJ Richards & Sons Pty Ltd v Transport Workers' Union of Australia, made on Wednesday, about the seemingly insignificant issue of whether a handful of employees represented by the Transport Workers Union were allowed to take strike action after their employer, JJ Richards, refused to enter negotiations.

Fair Work Australia decided that they could take a ballot for a strike, despite the fact that bargaining had not formally begun (JJ Richards refused to bargain). The decision effectively sets out the conditions under which unions are allowed to take legally protected strike action. According to law firm Freehills, "this decision means that where an employer refuses to bargain unions can effectively bypass specific mechanisms established by the Act and resort to the more blunt form of leverage — the taking of industrial action."

But judging by the reaction from employer groups, the sky has fallen in.

"This opens the door on a return to industrial chaos in the workplace," Australian Chamber of Commerce and Industry boss Peter Anderson claimed on Wednesday.

The Australian Mines and Metals Association's Steve Knott argued that "the Full Bench decision exposes employers to costly and protracted industrial action at the drop of a hat and at the whim of the minority for refusing to bargain."

Coalition MP Jamie Briggs went further, calling the law "a cancer within the economy".

"Ultimately this stuff is the beginning of the wage breakout," he told the media.

Chaos in the workplace? Cancer in the economy? Wage breakout?

It must be hard representing business interests in Australia in 2011. Every week brings a new threat of the end of the world as we know it, from mining royalties to carbon taxes to a rise in the minimum wage.

Despite the rhetoric, however, wages are not rising very rapidly, and the outlook for the economy remains strong. In the Reserve Bank's May statement on monetary policy, Glenn Stevens and his economists saw little in the way of wage pressures, pointing out that "most firms are not reporting significant difficulties finding suitable labour, with the exception of a few skilled professions and occupations, typically linked to the mining sector" and that there were large variations in the wage data, "with quite large increases in specialised occupations in some industries and reasonably subdued growth for lower-skilled employees in other industries".

In fact, the macro-economic picture tells us that Australian workers are arguably receiving less than their fair share of the nation's economic wealth. Wages are falling as a share of national income, while , a long-running trend that has only accelerated during times of record resource profits.

Nor can it be argued that Australian wages are generally high. Certainly in some professions, such as merchant banking or company directors, and for some individuals, such as the lucky few with personal ownership of large resources companies, there is a case to make that wages are too high.

But, funnily enough, you won't hear many complaints from the Australian Chamber of Commerce and Industry about excessive levels of executive pay. No, business lobby groups seem to be more worried about pay for ordinary workers, who by any measure have been remarkably restrained in their efforts to secure raises over the last decade of economic growth.

In fact, it's hard to take anything said by Australia's business lobby groups too seriously just at the moment. These groups have consistently argued economically untenable positions in regards to carbon regulation — for instance the Business Council of Australia's spurious arguments about carbon leakage. (Ross Garnaut has been withering this week in his criticism of the "pissant" nature of much of this doom-saying.) Last year, these same lobbyists also argued that the mere threat of the Resource Super Profits Tax would destroy the Australian minerals and resource sector, at the very time the industry was busy announcing hundreds of billions of dollars in new investment.

Why are businesses worried about rising wages? The simple answer is "profits". Paying workers more means paying owners less, and few investors or board members want to make less profit.

The slightly more sophisticated version of this argument is that wage rises lead to inflation — the dreaded "wage breakout" of economics lore.

There's no doubt that rapid wage increases can lead to inflation, and that too much inflation is a bad thing — especially for our society's poorest, who can find the price of essential goods and services rapidly escaping their reach.

But, as the Reserve Bank and any other credible analysis confirms, we are not in any danger of a wage breakout, except in a few narrow sectors of the economy such as mining and construction. Indeed, for those workers unlucky enough to be employed by trade-exposed export businesses struggling with the high Aussie dollar, the issue is not whether they will get a raise, but the survival of their jobs.

Further, given the determination of policy makers like the Reserve Bank and Treasury to keep inflation in check, the risk of rising wages seems overstated. The federal government is right now in the process of one of the fastest draw-downs in federal spending in history, and the Australian economy actually contracted in the March quarter.

If anything, modest across-the-board wage rises would be a good thing for Australia's economy. We need only to look at the United States, where rampant inequality has resulted in falling real wages for the middle and lower tiers of the workforce there, to see what economic ruin can be wreaked when impoverished consumers run out of leverage.

In other words, don't listen to anyone warning of a wage breakout. The only thing breaking out is the paranoia of corporate interests.

Ben Eltham | Gillard Celebrates The Mining Boom

Julia Gillard couldn't have put on a friendlier show for the Minerals Council Of Australia at their annual dinner last night. Will the detente last long enough to see through new mining and carbon taxes?

First published in New Matilda here

With hindsight, Kevin Rudd could be forgiven for having turned down a few dinner invitations this time last year. The mining industry was up in arms about the prospect of a great big new tax on the sector and knives were being sharpened closer to home. Rudd didn't attend the annual Minerals Council of Australia (MCA) dinner in 2010.

This year, Gillard addressed the MCA at Parliament House and the rift seemed to have been healed. She brought with her the top parliamentary brass including Wayne Swan, Martin Ferguson, Greg Combet, Gary Gray, Brendan O'Connor, Warren Snowdon, Nick Sherry and Mark Arbib as well as a cohort of parliamentary secretaries.

She said, "What I really want you to take away tonight is an understanding of just how central your industry is to the Government's economic agenda."

Gillard might want Big Mining to pay more tax — and Big Mining, represented ably by the MCA and hundreds of their guests, might want to slow down a new resources tax and a carbon tax — but the two sides were playing nice last night.

"The truth is I spend much of my time as Prime Minister explaining to people who aren't here tonight just why the boom is a good thing for all Australians, and why nurturing the boom is central to the Government's economic strategy."

As Gillard emphasised in her speech, this economic strategy involves "profit-based taxation" rather than royalties. And that's a position that doesn't thrill the mining industry.

Gillard's speech came at the end of a big day for the delegates to Mining Week, which was organised by the MCA. Tony Abbott filled the lunchtime speaking slot and did everything he could to cast the Government as bitter opponents of the mining industry's agenda:

"They are threatening this sector with the mining tax but they are also threatening this sector with the carbon tax. The carbon tax, let us repeat over and over again, is designed over time to phase out the use of coal, gas and oil."

And repeat it he did, over and over and over again. The PM might have sounded like she was sucking up to an industry that isn't afraid to lobby hard to get what it wants. By comparison with Abbott, however, she sounded altogether reticent.

"Can I say that as I look out at the people in this room I do not see big polluters, I do not see big polluters. I see big employers, I see big exporters and I see people who contribute big time to the prosperity that every single Australian wants and mostly enjoys."

It was stirring stuff. Promising to oppose the mining tax in opposition and rescind it in government, Abbott exhorted the miners to think of the support they would receive from their "brothers and sisters" in the steel industry, the aluminium industry, the plastics industry, the glass industry and the cement industry. Indeed, he called on the miners to become "political activists" and oppose the tax. Why? "To continue to be the miners that you want to be and that Australia needs."

Although his calls for miners to become activists got panned afterwards, Abbott wasn't alone in putting the boot into the carbon tax. MCA chair and CEO of Minara Resources, Peter Johnston, had some stinging words to say on the matter in his welcome address to his colleagues.

He got started by framing the situation like this: "Stable and globally competitive taxation and climate policy settings are of paramount importance if we are to take maximum advantage of this period of strong commodity demand." Read between those lines if you will.

Johnston, like Abbott, doesn't approve of the term "big polluter". "It's quite clear, the term big polluter has been designed for one simple purpose — to demonise the companies and organisations that produce emissions or use so much electricity that they incur a carbon liability."

"It is unfortunate that the debate over a key economic-reform like carbon pricing has boiled down to pejorative put-downs and slogans."

Would Gillard's "let's be friends" speech have given Johnston hope that the two fronts could move beyond name calling?

MCA chief executive Mitch Hooke had these words for Gillard:

"And it gives us great heart, great heart, to hear that our Prime Minister — we think we're pretty special but it gives us, it really does a lot for our spirits to know that we figure so much in your day and so much in the Government's economic policy thinking.

"You can be assured ma'am that the respect is reciprocated."

Even so, it's a tough sell. The revised MRRT and the carbon tax are due to launch on the same day — at the beginning of the 2012 financial year. That's just over a year away. And as Gillard, who's looking to the anniversary of her first year as PM, well knows, a year in politics is a mighty long time.

Seeking new interns to make Public Service ideas matter

We're now recruiting interns to work on the Public Service Research Program.

If you think you have something to contribute to helping with our research – whether it be crunching the numbers, finding the data, communicating the ideas – we want to hear from you about what you have to offer and how we can also help you.

Don't just take it from us, here's what our current interns say about volunteer research work with CPD:

I have really enjoyed being an intern at CPD. I was interested in getting experience in the policy research world and that is exactly what this has offered me. I guess I was particularly fortunate to be put on the Public Service program because it is in line with my interests and academic studies – I hadn't expected that it would be such a valuable experience. Seeking an internship somewhere is always a bit of an unknown and so far it has been much more rewarding than others I have done. It has been great to be given such discreet projects/tasks to work on and be trusted to just do the research. I appreciate this independence and trust a lot. James has been good at directing the focus but equally it has been great to be asked to provide input on a range of issues and to be able to engage in the wider project. I think the group pow wows are particularly beneficial.

I have loved being an intern! I have learnt so much – particularly just from being around the brains trust of the office. What I have really enjoyed is being on a particular project – being assigned the research tasks has let me work in my own time but still integrate with others. I have loved be able to learn, while still contributing to CPD. Working with James on the public service has been fascinating – I loved doing my research knowing it was for a 'big' project. I've always felt included and everyone is extremely approachable.

I could not have imagined a better internship. Do it. Consider what stage of a project/ what tasks/ as well as the program area you are interested in contributing to, based on reading CPD papers, before approaching CPD.

Read about the Public Service Program here. If you're interested in applying as a program intern, email james.whelan(at)cpd.org.au or call 02 9043 6815.

Our Sustainable Economy Research Director, Laura Eadie and our Communications Director, Antoinette Abboud are also looking for interns to help out. See here for more and email admin(at)cpd.org.au with your ideas on how you can help make good ideas matter.

 

Seeking new interns to make Public Service ideas matter

We're now recruiting interns to work on the Public Service Research Program.

What our current interns say about volunteer research work with CPD:

I have really enjoyed being an intern at CPD. I was interested in getting experience in the policy research world and that is exactly what this has offered me. I guess I was particularly fortunate to be put on the Public Service program because it is in line with my interests and academic studies – I hadn't expected that it would be such a valuable experience. Seeking an internship somewhere is always a bit of an unknown and so far it has been much more rewarding than others I have done. It has been great to be given such discreet projects/tasks to work on and be trusted to just do the research. I appreciate this independence and trust a lot. James has been good at directing the focus but equally it has been great to be asked to provide input on a range of issues and to be able to engage in the wider project. I think the group pow wows are particularly beneficial.

I have loved being an intern! I have learnt so much – particularly just from being around the brains trust of the office. What I have really enjoyed is being on a particular project – being assigned the research tasks has let me work in my own time but still integrate with others. I have loved be able to learn, while still contributing to CPD. Working with James on the public service has been fascinating – I loved doing my research knowing it was for a 'big' project. I've always felt included and everyone is extremely approachable.

I could not have imagined a better internship. Do it. Consider what stage of a project/ what tasks/ as well as the program area you are interested in contributing to, based on reading CPD papers, before approaching CPD.

Read about the Public Service Program here. If you're interested in applying as a program intern, email james.whelan(at)cpd.org.au or call 02 9043 6815.

Public Service in the news: 'Bean counting and budgets'

A snapshot of how and where public services are making the news. Who's saying what? Good and bad news, refreshed weekly.

Budget breakdown: bean counting compromises public service > James Whelan and Jennifer Doggett argue that the increase in the Efficiency Dividend announced in the budget will place further pressure on the public sector and result in more agencies reducing their services to the general public…

$1bn budget boost for public sector projects > The federal budget was a boon for the technology sector, with more than $1 billion allocated to public-sector projects that will underpin reforms in service delivery…

News not good as ABC faces budget crisis > The ABC's news division is facing a budget crisis after a plan to cut international reporting costs failed and a string of international disasters led to a blowout in costs…

Public sector should innovate instead of outsourcing > Putting public services out to tender 'avoids the issue' of how to increase productivity, a Work Foundation report published today warns…

Suggested links are very welcome > email James.Whelan(at)cpd.org.au

Ian McAuley | A Carbon Tax Won't Blow Household Budgets

There's no inflation problem and if there was, a carbon tax wouldn't make it worse. Such talk is distracting from real questions about how to manage rising household energy bills, writes Ian McAuley.

First published in New Matilda here.

Listening to radio shock jocks and Opposition politicians, one may believe that Australians, already suffering runaway inflation, will be crippled by the additional price impact of a carbon tax.

The reality is that for the last 20 years, annual inflation (measured by changes in consumer prices), has been below 5 per cent, and is currently running at about 3 per cent. At the same time incomes have been rising annually at about 1.2 per cent ahead of inflation. Australians should have little difficulty in managing any small increase in prices resulting from a carbon tax.

Perhaps we like to whinge. As The Economist points out this week in its special feature on Australia, "Many Australians do not seem to appreciate that they live in an unusually successful country".

Or perhaps this campaign on the cost of living is simply a way to get at government. Media attention is on those prices where some — often tenuous — link can be made to government policy while other cost of living pressures are ignored.

As a case in point, the Australia Institute has recently researched retail markups and has found extraordinary figures — 142 per cent on clothes, 85 per cent on electrical goods for example. Even after considering different taxes, Australians are paying far more — often twice as much — than Americans and Europeans for everything from baked beans through to cars. The media has given this research little attention; is it possibly because a large component of retailers' markups is their expenditure on advertising in commercial media?

And there is little, if any, attention to those areas where prices are falling, such as communications.

By contrast there is a great deal of attention on household energy prices, and, as recent national and state election campaigns demonstrate, governments are somehow blamed when we get a nasty shock in our power bills.

Some of that attention is understandable, because for the 20 years up to 2007, electricity prices moved in line with prices generally, but in the last four years they have risen by about 45 per cent in real (inflation-adjusted) terms. There is no respite; this winter will see further rises, and Resources Minister Martin Ferguson has foreshadowed price rises of 30 per cent over the coming three years, regardless of any carbon price effect. Gas, which provides the 30 per cent of household energy not provided by electricity, is showing similar price rises.

Yet, even these price rises do not necessarily indicate hardship. Before these rises, domestic fuels were taking, on average, only 2.0 per cent of household income. That means the recent price rises equate to about 0.9 per cent of income. Hardly what one may call "hardship".

Our awareness of these price rises, perhaps, has to do with the way we pay for electricity and gas, for those bills come in big lumps, generally quarterly. For most items price rises (and falls) pass largely unnoticed as small changes in our everyday purchases: the "boiling frog" syndrome is at work.

There are people, however, in low-income households, who do have difficulty with energy price rises. Before the recent rises, households in the lowest 20 per cent of incomes were paying 6.2 per cent of their income on domestic fuels; those recent rises will now be taking up an extra 3.0 per cent, assuming there's no change in consumption. Many are aged pensioner households, occupied throughout the day. Others with high consumption relative to income include those living in rural regions, where electricity prices are high and where there are summer and winter extreme temperatures.

At first sight, that would seem to leave the Federal Government with a huge equity problem in relation to its plans to price carbon.

A crude solution would be simply to compensate low-income households with some of the proceeds of a carbon tax. Depending on how it would be perceived, that may or may not solve the equity problem — but in itself it may not reduce consumption. In fact, if paid as rebates on utility bills, as some have suggested, it would do nothing to reduce consumption.

In economic theory, we react to rising prices by adjusting our behaviour. In the case of domestic fuels, that may mean investing in insulation, solar water heating, photovoltaic panels, house modifications such as double glazing, and replacing old appliances with more efficient ones.

But it is heroic to expect such a response if we rely on prices alone, because there are five impediments to a rational market adjustment.

First, most such investments, even though they provide good returns, require cash up front, and most low-income households are also low-wealth households. "Compensation" in the form of a higher regular income would not see people accumulating the cash for big investments.

Second, there is little consciousness of electricity and gas prices. Most people know the price of a litre of gasoline, and they know their car's fuel consumption: people know that 12 litres to the hundred kilometers is "high", while six litres is "low". Few have such a feeling for domestic electricity prices — in large part because most utilities have stubbornly refused to modernise their metering technology.

Third, we seldom make rational decisions about minor investments. When compact fluorescent lights came on to the market, for example, the financial case for replacing incandescent bulbs was overwhelming. The investment in a replacement bulb is paid off in a few months; even those who were very hard up for cash would have done well to have borrowed from a payday lender to finance replacement bulbs. Yet, it took a government ban on incandescent bulbs to achieve the change.

Fourth, many people with low incomes live in rented housing, and have no control over matters such as insulation. Landlords have no incentive to invest in energy efficiency, because they are unlikely to recover such outlays in increased rents.

Fifth, such changes are seen as "alternative" or "green", rather than as sensible investments. They belong to Balmain and North Adelaide, not to Campbelltown and Elizabeth. They are not yet part of mainstream thinking. To effect behavioural change, and to fend off criticism that a carbon tax with compensation is simply churning money through a "big new tax", governments must be cleverer than simply paying out "compensation". Whatever is done has to be effective in modifying behaviour, without being heavy-handed.

Some suggestions which warrant exploration are:

• to make payments as lump sums, possibly as low or zero-interest loans for specific purposes. (For example, loans to pensioners for house modifications could be held over until their house is eventually passed to their beneficiaries.) The Government may feel reluctant to become so closely involved after its difficulties with the insulation scheme, but that scheme was necessarily rushed (it was a stimulus measure), was poorly administered, and the Government was pathetic in its failure to respond to hysterical and misleading media beat ups about its problems. With time, the Commonwealth could do far better, particularly if it beings the states on side to administer such measures;

• to require utilities to install user-friendly meters for gas, electricity (and water while they are at it), showing consumption and prices on indoor displays. After all, knowledge of prices and consumption are basic requirements of efficient markets. Such metering is also a precursor to "smart" appliances, which can manage their own energy use;

• to require utilities to re-shape their tariffs, so that the first few kilowatt hours of electricity or the first few megajoules of gas are cheap, with steeply rising prices for subsequent, discretionary units of consumption. Most utilities at present have stepped tariffs, but the steps are very gentle;

• a minimum to require landlords to provide prospective tenants with realistic estimates of utility charges (e.g. disclosure of what previous tenants have used), and in time to require landlords to upgrade their properties;

• to engage in consumer education, with a particular aim to "normalise" the adoption of domestic energy-saving technologies.

In any event, it is not certain that a carbon price will have a high impact on energy bills. Its effect will be at the wholesale energy supply end, but the wholesale price — the price at the power station or gas plant — is only about 40 per cent of the final consumer price. And, if certainty over carbon policy allows stalled investments to proceed, there should be no more rapid price rises of the kind we have recently experienced.

 

 

Ben Eltham | Real Lives, Real Votes – But Not Real Science

It's a public policy debate long on emotive politics and short on cold, hard science. Climate change? No: water. Ben Eltham on the fight over irrigation entitlements in the Murray-Darling Basin.

First published in New Matilda here.

As public protests went, it was small but telegenic.

Angered by cuts to irrigation entitlements proposed by a draft plan for the Murray-Darling Basin, a dozen or so farmers in Griffith gathered in October last year outside a consultation meeting and set fire to the draft report.

The images of the protest reverberated around inland Australia, reflecting an all too real conflagration in regional public opinion.

As townsfolk along the Murray-Darling gathered to hear the Murray-Darling Basin Authority's Chairman, Mike Taylor, explain the proposed cuts at a series of fiery meetings, irrigators and farmers' representatives predicted civil unrest and even riots if the plan went ahead.

The Gillard Government was taken completely by surprise. Water Minister Tony Burke had only just been sworn in with his new portfolio in Gillard's cabinet, and spent the following weeks relentlessly trying to untangle the imbroglio. An outbreak of regional unrest over the Murray-Darling was the last thing Julia Gillard's shaky government — dependent on the voters of two regional independents for its very survival — could countenance. Burke announced a parliamentary inquiry into the plan, chaired by independent MP Tony Windsor.

Soon afterwards, Taylor resigned. In a parting shot, he argued that in designing the cuts the Authority had acted in accordance with the letter of the Water Act. "The authority has sought, and obtained, further confirmation that it cannot compromise the minimum level of water required to restore the system's environment on social or economic grounds," he said in December.

It is often stated that Howard government's Water Act 2007 forces the Authority to consider environmental outcomes ahead of social and economic ones — but in fact the Water Act has always provided for a balance of "economic, social and environmental outcomes". Where the act does leave little room for the Murray-Darling Basin Authority to wriggle is in its explicitly defined object of "the return to environmentally sustainable levels of extraction for water resources that are over-allocated or overused".

In January, Burke decided to apply an old-fashioned political fix. He brought in an old NSW Labor headkicker, Craig Knowles, as the new Chair of the Authority. Knowles wasted little time in establishing the new political reality under which the Authority would operate. He pointedly let it be known to the ABC's Marian Wilkinson, investigating the issue for Four Corners, that the Authority's key management and other Board members did not enjoy his confidence. This is what he told Wilkinson:

"I want to be very accurate, and the board members listening know what I'm saying, I asked them bluntly to consider whether their alignment and association with the history of this exercise, this enterprise to date, was such that they were so tangled in it, so much perceived as being part of the problem, that they couldn't be part of the success for the future."

 

In Wilkinson's Four Corners episode, the Authority's Chief Executive Rob Freeman insisted he was not being pressured to resign. Other board members certainly were. Board member Diana Day had already left, while Barry Hall told Wilkinson, "Yeah there's pressure. Look, it's extreme."

By May this year, Freeman too was gone and the Authority was suddenly telling parliamentarians that restoring 2800 gigalitres to the system might be enough, rather than the nearly 4000 litres previously recommended as a lower limit.

It is this new figure of 2800 gigalitres, obviously cooked up under orders from Burke and Knowles, that has sparked the Wentworth Group's walk-out. The Wentworth Group of scientists were advising the Authority on how much water needed to be taken from irrigators' entitlements and returned to the river.

The reasons are simple enough. 2800 gigalitres is not enough to save the Murray-Darling, especially in the context of a continent rapidly drying under the influence of global warming. Prominent Wentworth Group scientist Peter Cosier has stated bluntly that "there's no point in us being part of a process if the process is fundamentally flawed, and unless there is an independent review of the science then we believe it is a fundamentally flawed process".

According to Tim Stubbs, another Wentworth Group scientist, an environmental allocation of 4000 gigalitres "is the minimum that's in everyone's best interests. If we go below that, there's not much use in doing this reform really".

The reaction of farm lobbyists and irrigators' groups was telling.

National Irrigators Council chief executive Danny O'Brien told Stock and Land's Alan Dick that science "should not and could not" be the sole arbiter of a decision on the Murray-Darling Basin plan.

"We're not sure what it is that the Wentworth Group of scientists is upset about," O'Brien continued, "but throwing a tantrum and walking away from a process before it's even concluded only reflects poorly on them."

"Frankly we don't think anyone will miss them."

New Chair Craig Knowles doesn't seem that worried. He told the ABC's Paul Lockyer that "science is important, but so are other things. This is not just about a science exercise for a whole lot of academics and scientists. It's actually about real lives, real people, real economies." But not, apparently, real science.

To understand the magnitude of the water allocation cuts, some context is needed — context that's been sorely lacking in this highly emotive debate. As the Wentworth Group's research makes plain, "before the development of industries which extracted water, the long-term average end-of-system flow of the Murray-Darling Basin was approximately 12,233 gigalitres. With the current levels of development, this has been reduced to around 4733 gigalitres … This is less than 40 per cent of the flow before development."

This is why the draft plan suggested cuts in the 4000 gigalitres range: because this is the amount of water that will need to be returned if the Murray-Darling is to have a long-term future as an agricultural food-bowl. The real figure may even be above that — something close to 4400 gigalitres, as this Wentworth Group paper (pdf) suggests.

But "the best available science" was never going to be a winning argument in a debate as emotive as this. If ever there was a demonstration of the ability of politics to trump the scientific reality of what needs to be done in the national interest, it is the Murray-Darling Basin.

We're often told that the political problem with global warming is that its gradual and invisible nature means ordinary voters can't grasp it.

The Murray-Darling saga shows otherwise. Despite recent floods, the evidence of the dying Murray could not be starker: the Murray mouth has closed up several times in recent memory.

Nor is the scientific issue at stake here difficult to grasp. The Murray-Darling Basin is dying because Australian governments, farmers and irrigators are taking too much water out. Returning more water to the environment by buying up water allocations is not just scientifically credible: it's common sense.

But common sense matters little when money and jobs and the livelihood of regional towns are at stake.

And therein lies the issue. Because while everyone can agree that water rights are over-allocated, when push comes to shove, few want to give up their livelihood for the sake of the broader river system — not irrigators, nor the rural towns they support, nor even the governments of the states that the Murray-Darling system flows through.

This is why the Gillard Government is so determined to ram a scientifically unacceptable figure for water buy-backs through a now-compliant Authority. It's also why the science will be ignored. It's not a failure of political will. It's a triumph of sectional interest.

 

UPDATE on our Sustainable Economy Program | Meet Research Director, Laura Eadie

Policy solutions, not political games… It's got to be sustainable.

Introducing CPD's NEW Sustainable Economy Research Director

Australia has tremendous opportunity to leverage its abundant natural resources and skills in innovation to build a fair, sustainable and prosperous future economy. Yet first we need to get the policy settings right and move beyond the short term political scoring and threats from vested interests that pressure governments to sell off our common wealth at bargain basement prices.

Our Sustainable Economy Program is underpinned by an understanding of the problems caused by systemic short-termism in both the public and private sectors and by the failure to value public goods which are hard to measure or monetise. Our Program addresses these problems by demonstrating the value of Australia's natural wealth, and developing a positive, evidence-backed agenda for greening our economy. Read more here.

Leading our efforts to do this is Laura Eadie, our new Sustainable Economy Research Director. Here's what Laura has to say about her ambitions over the next two years for an exciting and much needed program.

"As the debates about mining taxes, rebuilding Queensland and carbon pricing show, there is a big gap between the media spin that currently passes for politics and the real-world issues Australia is facing. Pricing carbon is an essential step, but how will we deal with other environmental and economic pressures like rising food prices, water shortages and peak oil?

Given the increasing pressures for transformational change Australia faces in the 21st Century, we  cannot continue to have policies dictated by vested interests with loud voices and large wallets. Turning political debates upside down may seem like an impossible aim, but we'll focus on specific areas where we can demonstrate the significant social and economic benefits of managing environmental issues well, and the unsustainable cost of business-as-usual.

With so much noise confusing the real issues, our program will be uncompromising about scientific and physical realities and practical about what it would take for Australia's economy to thrive over the long term. We'll directly challenge the fuzzy economic thinking that dominates the environmental debate in Australia.

For example, Sophie Mirabella recently claimed the Climate Change Committee's report "will shut down Australia as a modern, industrialised economy". Really? Australia is far from being a modern industrialised country. Our exports from high tech industries are only a quarter of our imports – similar to Greece and Turkey. Given the rapid pace of clean-technology development in Europe and Asia and the pressure of the high dollar on manufacturers, a coherent set of policies to develop a resource- and carbon-efficient economy is an essential risk management tool, and a potential source of competitive advantage.

Similar confusion muddies debates about managing our natural capital, with short-term profits often prioritised at the expense of long-term value. Our first two reports will make the economic value of healthy oceans and forests visible, in order to promote better decision making about managing our natural capital.

If this sounds ambitious, we are not planning to do this alone. If you want to help, we're looking for experienced professionals and interns who are interested in contributing to our work. If you have expertise or a strong interest in environmental economics, policy or law let me know!"

You'll find a preview of our upcoming research here and here. Read Laura's full bio here. You can contact Laura on laura.eadie@cpd.org.au or by calling 02 9043 6815.

MORE SUSTAINABLE ECONOMY IDEAS FROM CPD 

Ian McAuley writes about the need to reshape our economy to rely on human capital and entrepreneurship in his chapter ' Living Off Our Resources ' in More Than Luck: Ideas Australia needs now.
Laura Eadie wades through the misinformation and ideological arguments against protection of marine areas to get to the evidence. Read her article on ABC Environment Online.
CPD Fellow, Fiona Armstrong and Laura Eadie look at opportunities for Australia to build competitive advantage in renewable energy technology here in our  InSight Budget 2011 edition.
EVENT: The Blue Economy: 10 years, 100 innovations, 100 million jobs . Thursday June 9, 6pm at Sydney University. CPD and Sydney Ideas co-present Dr Gunter Pauli, an inspiring entrepreneur explaining his mission to invest in 100 sustainable businesses.



SHARE THE GOOD IDEAS

Want to see what we're reading now, or share your top web links with us? Take a look at our delicious account.

With so many good ideas on a greener horizon, be sure to forward this email to your friends so they can sign up too! You can also like us on Facebook, and follow us on Twitter.

AND if you want to get more involved in our projects, we're always keen to hear from experienced professionals or interns with skills in environmental economics, policy or law. Find out more here.

The Sustainable Economy Program has been funded by your donations. CPD would particularly like to thank Graeme Wood, Mullem Trust & Grant Matthews for their important contributions to to our research on a new economic agenda in Australia.

 

Valuing What Matters

For too long, decisions on how Australia manages its natural capital have been skewed toward generating short-term profits, often at the expense of our natural wealth. The lack of reliable information on the true cost of resource depletion and environmental pollution often leads to decisions which ignore the value of services provided by nature.

By making the economic value of services provided by our forests, oceans and fresh water visible, our work will promote better management of Australia's natural capital. Results of the work will be released in stages, focusing first on those economic sectors with the most potential for policies to be reshaped to support sustainable economic development.

Upcoming research projects:

Healthy Oceans

Worldwide fisheries are under pressure from over-exploitation, pollution and rising temperatures. Australia has both a moral responsibility and a potential competitive advantage to gain from managing our ocean resources sustainably.

What is the real, long-term value of Australia's marine resources? How can we manage them to protect our unique marine life for future generations, produce healthy seafood and provide long-term livelihoods for communities?

Farming Forests

Australia has many opportunities in regional areas to invest in forests to provide clean air and water, capture carbon and slow the loss of biodiversity. To manage forests as a key part of Australia's ecological infrastructure we need sound policy frameworks informed by an understanding of both their public and private value.

What is the value of investing in forests for carbon farming and other ecosystem benefits? What mix of policies is needed to stimulate stable, long-term investment? How should carbon farming interact with Australia's broader carbon policies?

Greening Our Economy

The Australian economy has enormous potential for sustainable development. It is currently being stifled by policies that reward vested interests and assume business-as-usual approaches can continue indefinitely. We need a coherent, long-term set of policies for building a diverse economy that can thrive in a resource- and carbon-constrained world.

'Greening Our Economy' will identify how we can create the policies and conditions for Australia to build a sustainable competitive advantage. Results of the work will be released in stages, focusing first on those economic sectors with the most potential for policies to be reshaped to support sustainable economic development.

Upcoming research project:

Taxing for Patient Capital

Our current tax system sends perverse signals that encourage short-term, speculative investment in industries as diverse as housing and wine, as well as the broader stock market. This distorts industry structures and leaves many small investors and retirees exposed to the risk of capital losses.

Can tax reforms encourage more patient capital investment? Can we align tax incentives more closely with Australia's long-term needs, such as fixing the infrastructure deficit or greening our economy? What other institutional arrangements are needed to encourage investors to think and act long-term?