Colless on the Governor-General

Malcolm Colless wrote an article on Australia's recently appointed Governor-General and her current controversial role promoting Australia's foreign policy agenda in Africa.  Unfortunately, his article contained an historical inaccuracy.  I corrected this and provided my own brief opinion on the issue on the article's online comments page.  

Populism lurks in the wings waiting to take centre stage as a villainous protagonist

It is likely that 2009 will be dominated by the global economic crisis. In the absence of some even greater disaster befalling the world, the most pressing item on the agenda of most national governments will be to soften the impacts of the crisis on their respective economies.

To this end, many governments are implementing fiscal stimulus packages. These packages usually include a tax cut/cash handout coupled with public investment in infrastructure. Such packages are aimed at immediately boosting demand and employment while improving the productivity of an economy.

Most countries have also responded to the crisis with deep cuts in interest rates, which are intended to stimulate demand and the supply of credit.

The contents of fiscal stimulus policies are contestable. The balance between cash and investment is hotly debated. As a general rule, parties on the right have generally favoured tax cuts while parties from the left lean towards infrastructure investment.

Despite frequent political disagreements on the composition of stimulus packages, there is an increasing consensus that such government expenditure is an appropriate response to the crisis.

Unfortunately, government and political responses to the financial crisis have not been limited to crafting prudent stimulus packages. If they had, we would have less to worry about. We could have braced ourselves for the rough economic ride in the hope that some relatively sensible responses to the crisis would help minimise the impacts of the bumps along the way.

Governments and political parties the world over are pursuing agendas other than simple fiscal stimulus in light of the crisis. It is these agendas that are great cause for concern because of their potentially disastrous long-term consequences.

In particular, it has recently become fashionable to push an anti-market populist agenda. There is an increasing propensity of mainstream politicians of a particular ideological inclination to use the financial crisis as an opportunity to push long their long held anti-market views.

Criticism of the market was an inevitable by-product of the financial and economic crisis.  There are many that blame the market system for wiping out trillions of dollars in wealth, ruining livelihoods and destroying hope for any economic growth in the coming year. A number of world leaders, from Russia to Venezuela, have been gloating over the apparent failure of the capitalist system.

Some of this sentiment has been infecting more mainstream political leaders as well. Kevin Rudd, the Australian Prime Minister, in an attempt to position himself as a global opinion leader, suggested that Hayekian policies and neo-liberalism had failed. He argued that the financial crisis was an epoch changing event that marked the end of “the great neo-liberal experiment”.

Mr Rudd’s position is flawed because there has in fact been no “great neo-liberal experiment”. Certainly, Reagan and Thatcher were zealous in their application of free market ideas but their worst excesses were tempered when they were replaced in government. The reality is that market fundamentalist policies have been softened by the strength  of social democratic parties, social realities and democratic political systems.  On the whole this has improved government policy.  

Admittedly, Mr Rudd does acknowledge the importance of markets and market principles. However, by painting a picture of vanquished Hayekians and the end of neo-liberalism, Rudd polarises debate when consensus should be sought. This serves to add fuel to the fire of anti-market sentiment when it is least required. Many of the more extreme European social democrats, who have long been wedded to regulations that stifle economic growth and social innovation, will no doubt be pleased by Mr Rudd’s intervention.

The trouble is that there are insufficient voices talking up the benefits of markets and market mechanisms as an approach to achieving beneficial policy outcomes. Even the leadership of economically liberal political parties are becoming reticent about vigorously advocating pro-market agendas even if they make sound policy sense.

Let us not forget the importance of market-orientated ideas in the regulation of greenhouse gas emissions and other negative externalities. The great efficiency gains that are a result of introducing market principles into standard government practice should not be overlooked. Let us also not forget the great benefits to consumers and overall wealth that have resulted from opening economies to global competition.

The potential consequence of the anti-market ideas that are currently getting easy traction is a return to inefficient and unnecessary command and control style government policies. These often serve to limit individual choice, reduce competition, increase costs/prices, disadvantage consumers and, ultimately, slow the rate of economic growth. Simply put, the drive to regulation that is now in vogue raises the spectre of suffocating over-regulation.

Without a pro-market consensus voice talking up the benefits of effective markets and the use of market tools/principles to achieve policy outcomes, some of the market orientated policy innovations of the last twenty five years may be lost in a wave of anti-market sentiment. I, for one, have been happy with 25 years of economic policy innovation in Australia and have not seen this time as a great neo-liberal experiment despite transgressions by the Howard government (most notably in labour market policy).  

The problem is that anti-market positions can be popular. It is dependent on our political leaders to avoid scoring political points in a time of crisis. They should be working to find economically sound policies to soften the crisis and shield the people from its worst effects without resorting to cheap anti-market populism. The view should be towards long-term sustainability rather than the ballot box.

Policy and regulatory responses to the crisis should pass the good policy test. New policies should be well targeted, evidence based, well designed, the least cost option and with expected benefits outweighing expected costs. In most cases populist and anti-market policies fail this test resoundingly.

Review: Roy Ayers

Java Jazz 2009, Jakarta Convention Centre, Cendrawasih Room, Saturday 7 March 2008, 23:30

Roy Ayers was the last performer of the night. Eight hours of jazz had preceded him on ten different stages. You would think that the audience may have been “jazzed out”. They were not. A slow hand clap preceded his slightly delayed appearance. When Ayers' irrepressibly smiling face appeared, the crowd cheered in approval.

The festival’s earlier performances suggested that Indonesian jazz fans were appreciative but not vocal. Polite clapping, as opposed to cheering, had greeted well-executed solos and performances. Roy Ayers, however, brought out the more base instincts from the well-heeled Jakarta crowd.

The reasons for this were clear. The jazz was hot and the show was great. The audience was engaged right from the start as the bass played the opening groove for an extremely fast paced and chaotic take on Dizzy Gillespie’s classic A night in Tunisia. Ayers’ version featured a screaming saxophone solo that at one point featured two saxophones from the one player. It concluded with a bass solo of such intensity that all the other band members were required to theatrically towel off the soloist as he completed his moment in the spotlight.

Ayers’ and his friends were excellent showmen. The towelling of the bassist set the tempo for the theatrical side of the show that featured many other crowd pleasers such as summarily choreographed dances by Ayers’ along with his back up vocalist. The awe-inspiring drum solo somewhere near the middle of the show combined musical prowess with the theatrical. At one point, the drummer’s hands energetically flailed his drums while his sticks remained perfectly balanced on his head. The crowd cheered.

Ayers' six piece ensemble, supplemented by two guests, was tight. Transitions between the inevitably frenzied solos back to the groove were smoothly executed and pleased the crowd, whose heads bobbed in time with the funk fuelled rhythms. The lack of a sufficiently large horn section was addressed with the judicious use of a synth horns to fill the gaps. Ayers’ was generous with his guests, a trumpeter and percussionist, giving them plenty of stage time to dazzle the crowd with their brilliance.

Ayers’ right hand man, who interchanged between a Rhodes piano and saxophones, was a star. His seamless shifts between rhythmic contributions on the keys to dynamic saxophone solos served provided excitement to each number.

Ayers’ own contributions on the vibes were not as frequent as one would have liked or expected. However, when they came they were smooth. His electrified vibes would sometimes produce strangely altered sounds that caused watchers to momentarily question the source (vibes or synth?) of the melody until they noticed his furious mallet work. The relative scarcity of Ayers’s soloing can be attributed to his role as the unquestioned band leader who was active in controlling the direction of each number. It was in this role that he directed such hits as Everybody loves the sunshine, Love will bring us back together, We live in Brooklyn baby and Hey uh, what you say come on over the course of the evening.

The clearest thing to be taken from the night was Ayers’ infectious love of performance. Smiles, laughs, jokes, dancing and crowd involvement were the order of the evening. More than anything else, it was this that transformed the usually placid Jakarta crowd into a more vocal animal.

Ayers’s thanked the crowd, they cried for more and the lights came up far too quickly. This was the biggest disappointment of the night.

Greg Sheridan article

Greg Sheridan wrote an opinion article on the Victorian bush fires in The Australian. I agreed with most of what he said. The majority of his views on the issue were well reasoned and appropriate. The fact that Greg Sheridan wrote an article that contains quality opinion that I largely agreed with is remarkable. Such an occurence is so rare that this alone was almost worthy of note on these pages. However, returning to his usual form, he ruined his article with divisive concluding remarks that linked the response to the bush fires with Israeli responses to terrorism. I criticised this on the article's online comments page.

Victoria burning

I am deeply saddened by the consequences of the fires that have burnt out of control in Victoria for the last few days. I have spent good times and have great affection for a number of towns/hamlets that have been severely damaged by the fires. Marysville, Narbethong, Buxton, Taggerty and the beautiful strip of country at the foot of the Cathedral Range that I love so much will be reconstructing and recovering for many years hence. I feel for the large number of other Victorian communities that are similarly affected. It will take years, if not a lifetime, to relieve the pain associated with the loss of close family and community members. My thoughts are with all Victorians who have lost friends, family, property and treasured environments as a result of this disaster.

Soccer match

I am introducing an editorial policy of including all of my media appearances, where possible, on this blog. Therefore, I furnish you with the following link from ABC radio's AM programme: Socceroos held to a draw in Jakarta.

The same story was also broadcast on Radio Australia's Asia Connect programme and is available here.

The video linked to this ABC Online article also includes a brief appearance by me.

Oil price decline: A lost chance to get rid of a bad policy

The following article was published in The Jakarta Post on 2 January 2009. It was syndicated in The Brunei Times on 3 January 2009. I have reproduced it for your reading pleasure.

The Indonesian government has once again lowered the subsidised price of petrol. Since last week, the price of premium petrol sold at Pertamina has been set at 5,000 rupiah per litre. The falling international price of oil has allowed the government to take this step without seriously jeopardising the budget bottom line. President Yudhoyono must feel great relief that he has been able to reverse the most unpopular decision of 2008 before he faces re-election in 2009.

Unfortunately, the government did not make the decision that was needed. In saying this, I am not suggesting that the petrol prices should have remained constant. On the contrary, the current circumstances would seem to warrant a reduced price of petrol. However, this price reduction should have taken place outside the constraints of retail price subsidies. The government should have seized the opportunity to allow retail petrol prices to float in line with market prices. In all likelihood, the price of petrol would have fallen from the previous high of 6,000 rupiah a litre. By following this course, the government would have been in a stronger position support the economy and the people of Indonesia in a time of increasing international economic uncertainty.

Subsidising the retail price of petrol is poor public policy. It is of far greater benefit to the rich and middle classes than it is to the poor. The subsidy represents a government welfare payment to middle class people in place of development and welfare projects that benefit Indonesia’s most disadvantaged. To highlight why this is the case allow me to provide you with two hypothetical examples.

The first example is that of Suparman. Suparman lives in Bogor. He works in central Jakarta in a bank. His monthly salary is 13 million rupiah per month. He has recently received a pay rise and has saved enough to purchase a house and a brand new Toyota Kijang Innova. Each day he drives to work along the toll road that links Bogor to Jakarta. On his salary, Suparman does not struggle to pay for food, healthcare, education and other essential goods/services for him and his family. Each month, he spends around 1,500,000 on subsidised premium petrol. Assuming a petrol price of 5,000 rupiah per litre and a government subsidy of 300 rupiah per litre, the government subsidy is worth 90,000 rupiah each month to Suparman.

The second example is that of Suprapto. Suprapto is a farmer just outside Wonosobo, Central Java. He grows chillis. His small landholding provides an income of 700,000 rupiah a month. He lives in a small wooden house on his land. He is the proud owner of a 1976 Vespa that his father gave him as a younger man. Suprapto uses his old Vespa to get around the village, to take his products to the market and to purchase supplies for his farm as he needs them. Although Suprapto can afford to buy food for his family each month, he struggles to cover the costs of educating his children. He is afraid that if he or his family were to get sick they would not be able to afford the high cost of healthcare. Each month Suprapto spends 80,000 rupiah on petrol. Assuming a petrol price of 5,000 rupiah per litre and a government subsidy of 300 rupiah per litre, the government subsidy is worth 4,800 rupiah each month to Suprapto.

How can the government justify a policy that can result in a relatively well off person like Suparman receiving 90,000 rupiah a month from the government while a poorer person like Suprapto receives only 4,800 rupiah a month? Can parties like the PDI-P, which protested against the reduction of the petrol subsidy earlier in the year, honestly claim to represent the wong cilik if they support the perpetuation of such inequitable policies?

Continuing to subsidise the retail price of petrol is a misuse of public money. Investment in infrastructure, schools, hospitals, public transport and programmes that provide a social safety net to Indonesia’s poor are all better options that will provide returns long into the future. Furthermore, it is investments such as these, particularly in infrastructure, that will have a stimulatory economic impact to support Indonesia’s economy in the global downturn.

Policies that involve subsidies on the retail prices of goods are devilishly hard to reverse. If a government artificially insulates consumers from price rises, the consumers become dependent on the low price of the good. As prices rise, pressure is placed on the government’s budget as it maintains the price. Any attempt to remove the subsidy is greeted with anger by the consumers that have built artificially low prices into their expectations.

Significantly lower oil prices were a gift for the government. They presented the opportunity to remove a damaging policy and not have their budget held hostage to a fluctuating international price for oil. They should have seized this opportunity. It was perhaps one of the only times that they could have taken this welcome step without unduly affecting the nation’s consumers. Unfortunately, however, Indonesia is entering an election year. Undoubtedly, this fact guided the government’s hand as it took the politically easy road.

The writer is an advocacy consultant to the Indonesian Consumers’ Organisation (YLKI)

Rudd handout revisited

Pursuant to the last post and the preceding four, I would like to draw attention to the increasing number of commentators agreeing with my position on the Rudd handout package in the cold grey light of dawn.  Shaun Carney wrote in The Age on 22 October 2008 that "the first home owner's grant is a poor piece of policy. It was awful when the Howard government introduced it and it's just as bad now. It distorts prices and quickly benefits vendors and builders ahead of purchasers. And it has little to do with making home buying more equitable. The millionaire's son gets it just as easily as the son of the contract cleaner from St Albans., The problem with these sorts of payments — and the grant is now $21, 000 — is that the longer they remain on the books, the harder its gets for any government to ditch them."

Please follow the following link if you wish to read more: 'Handouts are no substitute for innovation to generate wealth'.

A link

I would like to direct readers to the following article from the The Australian's economics editor on Rudd's economic stimulus package:

'Pushing bad politics over good economics'.

Comment on the letter once more

The Australian's online comments editor eventually published the clarification of my letter. I reproduce it in full below. It is similar in substance to the previous post.

I should clarify my position for the benefit of my critics. My biggest criticism of the Rudd plan is the First Home Owners Grant (FHOG). It is a flawed policy that does not increase the accessibility of housing and largely goes to the middle class. My other issue with the FHOG, as with other cash handouts, is that once they are in place it is very difficult to take them away.

As to the cash handouts for pensioners and carers, I have no problem with these groups being given additional assistance. However, I am deeply uncomfortable with that being in the form of cash. Why not increase their fortnightly allowances significantly over the next year? This increase will quickly flow into the economy as they begin to spend on the basis of their anticipated income. However, I do concede that cash to pensioners and carers is a relatively effective way to provide a big boost to consumption in the lead up to Christmas/New Year which will boost consumer confidence.

Also, I would note that the largest investment component of the package was the $157 million for skills development. In the context of a $10 billion package, surely a larger component could have been directed towards such strategic investments?

As I say, my letter was largely targeted at the increased FHOG. I would also stress that I am uncomfortable about Australians paying tax that is then given out as cash lump sums to other Australians rather than being delivered through ongoing Government transfer payments and investments in hard and soft infrastructure.

Response to previous post on Rudd's handout plan

I received a number of negative comments on The Australian's online 'Letters Blog' in regards to the letter that constituted the previous blog post. Some of these were particularly unpleasant. It was even suggested that I should not bother coming home to Australia if I held such views. Such opinion, I thought, was a trifle extreme. However, in an effort to clarify my views on the Rudd plan and perhaps to placate the angry commentators I wrote a few paragraphs in response to my detractors and tried to have them published on the 'Letters Blog'. Unfortunately, these were not published. I have attempted to reproduce them here from memory. Although my detractors will never read them, not knowing address of this blog, I feel better that my ideas are fully explained.

My criticism of middle class welfare in the previous post/letter was primarily targeted at Rudd's increase of the First Home Owners Grant (FHOG). There is virtually no doubt that the FHOG increases the price of housing and the demand for credit. A large proportion of the taxes that fund the FHOG go directly into the pockets of property owners with little evidence that housing accessibility/affordability is improved. The increase in the FHOG will serve to maintain/increase house prices. It is not the government's role to artificially prop up prices with tax dollars in a manner that only benefits property owners. Moreover, having increased the level of the FHOG, it is much harder to reduce it to its former level or remove it completely. Cash handouts breed a culture of expectation of government assistance where no such expectation should exist.

I agree that pensioners and carers in Australia get a raw deal. I would find it nigh on impossible to live of the Australian pension at its current level. My criticism of the Rudd policy is that pension/carer's allowance reform was needed rather than a cash handout. Why not increase the fortnightly pension/carer's payments permanently rather than giving a cash handout with no guarantee that the actual level of the pension/carer's payment will increase in the future? Providing a permanent boost to the level of these welfare payments would boost consumption from these groups as a result of their anticipated higher incomes in the future. Such an increase in these payments should have occurred at the time of the last budget.

However, I concede that if you want to give provide a big kick to pre-Christmas consumption in an economic downturn, five billion dollars to carers and pensioners will be highly effective. This is because these groups already spend a high proportion of their income on consumer products and, in all likelihood, the cash that they receive will be used directly for consumption rather than being put to other uses or savings. This should provide an important boost to consumer confidence. I am more comfortable with this part of the Rudd package than the FHOG increase. Having said this, I remain deeply uncomfortable about taxes being collected only to be given away in cash rather than being spent on infrastructure, government services or ongoing welfare payments.

Finally, I was disappointed by by the fact that, in the context of a $10 billion package, the largest component not being disbursed in cash was $157 million for skills development. Surely, in a package as large as this, the Government could have done a little better on human capital and infrastructure development. Some large and much needed infrastructure projects coupled with spending on education and skills in the billions would have been good additions to the overall package.

I hope this explains my views more clearly. I should also note that economic policy at a time of economic downturn is a highly contestable area. I understand and welcome differences of opinion on the subject.

Cash handouts are rarely the best way to boost GDP

The following letter was published in The Australian on 15 October 2008. I reproduce it here for your enjoyment.

I find it troubling that successive Australian governments are happy to squander budget surpluses on middle-class welfare. In the midst of the global financial crisis, the Rudd Government is extremely fortunate to have a forecast $21 billion surplus that can be used, if it is needed, to mitigate the impact of the downturn. Rather than using this money for strategic, well-targeted pump-priming investments, the Government has decided the best policy is to maintain the previous government’s flawed approach of providing cash handouts to particular sections of the community.

Take Rudd’s decision to triple the First Home Owner’s Grant from $7000 to $21,000 for newly constructed homes and to double it to $14,000 for all other properties. There is widespread agreement among the economically literate that the First Home Owner’s Grant merely serves to increase the price of property rather than make property ownership more accessible. If a large proportion of property purchasers are all given a sum of money by the government, it follows that demand/prices will increase. Not only does it increase prices, but it stimulates demand for credit in a global credit market that is already constrained. Is this well targeted policy in the midst of the crisis?

Although injecting any money into an economy will boost GDP, it’s better to inject money in such a way that boosts GDP by the maximum amount possible. Cash handouts are rarely the best way to achieve this. I had hoped that the financial crisis would spur Kevin Rudd to accelerate the economic reform agenda and make necessary investments in Australia’s overstretched infrastructure. I have been disappointed by our Prime Minister once more.

Sarah Palin continued

To provide some vindication for my previous position on the appropriateness of the choice of Sarah Palin, I would like to highlight the results of the latest New York Times/CBS News Poll. According to a report in the Melbourne Age ('Palin effect losing its momentum', 19/09/08), "the poll suggested that Mrs Palin's selection has, to date, helped Senator McCain only among Republican base voters; there was no evidence of significantly increased support for him among female voters in general. Before the conventions, Senator McCain led Senator Obama among white women, 44% to 37%. White women are now evenly divided between senators McCain and Obama."

These figures would suggest that my previous predictions on Palin being unable to mobilise the centre are being realised.

Moving forward

Following the election of an avowed republican (Malcolm Turnbull) to the leadership of the Liberal Party of Australia, it is hoped that Australia can move quickly to cut her remaining ties with the British crown.

It is an anachronism that a modern prosperous nation in the Asia-Pacific region has a British head of state who has the power to act against the Australian "national interest". I would highlight frequent statements by the heir to the Australian/British crown in support of the European Common Agricultural Policy as direct evidence of Australia's/Britain's royal family acting against Australian interests. It is time for this to end.

As the leaders of Australia's largest political parties are both republicans, Australia should now move expeditiously through the necessary series of consultations, plebiscites and referendums that will be required to finally establish Australia's complete independence.

Brendan Nelson

An edited version of this letter appeared in The Australian on 17 September 2008. I reproduce the full version here for your reading pleasure.

I am not in the habit of praising members of the Liberal Party of Australia. However, I shall make an exception today: I would like to express admiration for the way that Brendan Nelson managed the leadership of the Liberal Party for the short time that he held the position.

Dr Nelson was handed the poisoned chalice of the leadership of a defeated and demoralised party that was suffering a hangover from the malign influence of John Howard. His political opponent was enjoying an opulent electoral honeymoon. Nelson was elected to the leadership as an interim option who would be disposed of by his own party at some point in the near future. Right from the very start, challengers to his position were licking their lips hungrily as they waited impatiently to pick at his political carcass and claim the dubious spoils of Liberal leadership.

In this challenging environment, Nelson managed to forge a small degree of party unity and was able to score a few relatively effective political points on some of the government's sillier schemes, such as Fuel Watch. Most importantly, however, Nelson seemed to maintain his good humour and civility throughout his tenure.

At the end of the day Nelson failed to damage the credibility of the government in the eyes of a star struck electorate. However, I ask myself, "Would anyone else have done better given the circumstances?" I conclude that the answer to this question is "no" and it would have been highly unlikely that any other leader would have maintained such decorum as Dr Nelson in the process. It is for these reasons that I give polite applause to Dr Nelson as his term as Liberal leader comes to an end.

Sarah Palin

Much has been made of the perception among Republicans that Sarah Palin, the prospective Vice President, is being targeted by the liberal left media because she is a woman. I would argue, to the contrary, that Sarah Palin is targeted by the liberal left media because she is a retrogressive conservative who thinks the role of the state should extend to the bedroom. I think that the vituperation from the liberal left would have been equally intense had McCain chosen a similarly retrogressive man.

It is a great shame that John McCain was talked out of selecting a more moderate candidate such as Joe Lieberman. From a strategic stand point, such a choice would seem to be more appropriate given Lieberman's ability to attract disillusioned Hillary Clinton voters. It should be remembered that the Republican party, in the immediate post-Bush era, will have more of a problem mobilising the centre rather than the right. As it is, I am sure that the Hillary supporters who may have considered voting for McCain are now quickly bracing themselves to support Barack Obama.

As a soft supporter of an Obama presidency, I am comfortable with the choice of Palin for the ticket. Although I would like to have been able to say that there were four quality candidates on the combined Democratic Republican tickets, I can now only say that there are three. I am hopeful that this small disappointment will only enhance the chances for Obama's success come November.

Israel's Gaza incursion won't save its soldier

The following letter appeared in The Age on 30 June 2006. Again, this follows the new commitment to reproducing previously published works.

Israel's military incursion into Gaza in response to the kidnapping of Corporal Gilad Shalit is an ill judged action without hope of achieving its objectives. Israeli military sources claim the sole objective of the mission is the safe return of the captured soldier. To achieve this they have deployed significant armoured units in Gaza and conducted air strikes on Palestinian infrastructure. While such tactics indicate the strength of Israeli resolve, it is highly unlikely that they will achieve their objective. In the event that they discover the location of the missing man, he will almost certainly die alongside his Palestinian captors. A diplomatic approach with international involvement would be a preferable alternative to the current military action, with far greater prospects for success. Moreover, such an approach would avoid the terror and hardship that is a product of Israeli incursions into the occupied territories.

Rudd backs flawed policy with repudiation of McClelland

I have decided to publish some of my writings that have previously been published in other media. The following letter appeared in The Australian on 10 October 2007.

I find it deeply distressing that Kevin Rudd so quickly criticised the comments of his foreign affairs spokesman on the issue of capital punishment.

Robert McClelland was right to stress the importance of Australian opposition to capital punishment in all instances, including when it is applied to terrorists ("Save Bali bombers: Labor", 9/10). The death penalty is a barbarous act that cannot be condoned by a civilised society in the 21st century.

It’s hypocritical to actively seek clemency for all Australians facing capital punishment while supporting the death penalty for certain foreigners. The Howard Government has adopted this approach and it has hindered efforts to save the lives of Australians facing the death penalty overseas. Foreign governments correctly highlight the inconsistency in our position. Rudd’s repudiation of McClelland’s comments represents bipartisan support for this flawed policy.

A bipartisan retreat from the previously held policy of unequivocally opposing the death penalty is damaging to Australia’s image as a protector of human rights in the international arena. I’m sure that Dietrich Bonhoeffer, one of Rudd’s personal heroes, would share this view if he were alive today.

Lack of awareness is guiding policy

The following article was published in The Jakarta Post on 28 August 2008. Unfortunately, in their wisdom, the editorial staff changed my original headline to one that was grammatically incorrect. I have reproduced the original article for your reading pleasure.

Last week, a senior official in the Ministry of Finance made comments to the media on the government’s tobacco excise policy (The Jakarta Post, 20 August 2008). His comments highlighted the lack of awareness that persists in Indonesia regarding tobacco, even among the educated elite.

The official explained that the government might refrain from increasing tobacco excise in the next year. He was concerned that an increase in cigarette excise “would hurt the cigarette industry and risk the jobs of its millions of workers.”

The official also said that “cigarettes which are harmful to human health are perhaps those that are illegal or those that have high levels of nicotine. Branded cigarettes have less nicotine.” The implication of this statement is that cigarettes with low levels of nicotine or those that are legally purchased are not harmful to human health.

Within two days of these comments being made, the Demography Institute at the University of Indonesia released a report entitled Tobacco Economics in Indonesia. This report comprehensively rebutted the government’s stance on tobacco excise policy.

Contrary to the Ministry of Finance’s assertion, there are not millions of Indonesians at risk of losing their jobs if tobacco excise was increased. The report found that tobacco manufacturing ranks number 48 out of 66 sectors in terms of its contribution to total employment in Indonesia. Less than 1 per cent of the labour force is employed in tobacco manufacturing.

Modelling undertaken as part of the report suggested that an increase in tobacco excise would negatively impact on employment in this relatively minor sector. However, this impact would not be such that millions of jobs are jeopardised. In fact, as consumption expenditure is diverted from tobacco as a result of the excise increase, other economic sectors are stimulated. The report concluded that a doubling of tobacco excise would likely increase overall employment in Indonesia by 281,035 jobs as a result of growth in industry sectors other than tobacco.

In addition to this, the report found that less than two percent of Indonesian farmers are engaged in tobacco cultivation. Of these farmers, the majority have diversified holdings and cultivate crops in addition to tobacco. This provides them with the requisite equipment and expertise to substitute their tobacco crops with other produce. With rapidly rising global prices for agricultural commodities, the burden of such substitution for an individual farmer is considerably reduced. The overall burden of a tobacco excise increase on the agricultural sector is, therefore, small.

It needs to be remembered, of course, that an increase in tobacco excise will not wipe out a whole industry. The higher price will lower consumption of tobacco. This will have impacts on the tobacco manufacturing and cultivation sector but will not destroy them or lead to widespread unemployment. Cigarettes will still be produced and consumed in Indonesia regardless of the excise policy.

The report found that the overall economic benefits of a tobacco excise increase, when all factors were considered, were positive. Moreover, the report concluded that an increase in excise would increase government revenue and decrease tobacco consumption. From the perspective of the Ministry of Finance, this would seem to be ideal. A judicious increase in tobacco excise to control consumption in the near future would be an excellent policy reform.

Aside from the economics, the official’s comment on the impacts of branded cigarettes on human health is perhaps a greater cause for concern. It indicated that, even within the higher echelons of Indonesian government, there are still many people who are unaware of the realities of tobacco consumption. Despite a growing global awareness of the dangers of smoking, many Indonesians remain ignorant of the fact that smoking has huge negative health consequences.

All forms of smoking tobacco negatively impact on physical fitness and increase vulnerability to an array of health risks. The evidence suggests that the health impacts of smoking low nicotine (the so-called “mild”) cigarettes, high nicotine cigarettes, branded cigarettes, illegal cigarettes or of smoking tobacco in other ways are the same. Any of these methods of consuming tobacco greatly increase the incidence of cancer, heart disease, impotence, and health problems with unborn children. Given the very high number of smokers in Indonesia, these health problems are imposing significant costs on the government, economy and society as a whole.

Widespread ignorance of the dangers of tobacco is a key hindrance to meaningful policy reform. If senior policy makers are unaware or apathetic to the risks of tobacco, it would seem likely that policy related to smoking is being formulated in the absence of full information. Moreover, there will be limited impetus to increase awareness of these risks among ordinary Indonesians.

This leads to an intolerable situation in which saturation advertising of tobacco products, nicotine addiction and social pressure are often the only factors guiding tobacco consumption choices. Full information on the risks does not feature in the individual’s consumption equation. This is one hurdle, among many others, that will have to be overcome if Indonesia is to curb its addiction to tobacco.

The writer is an advocacy consultant to the Indonesian Consumers’ Organisation (YLKI).

The Government should increase the tax on tobacco

The following article appeared on the opinion pages of The Jakarta Post on 02 July 2008. I reproduce the original for your reading pleasure.

Indonesia is addicted to smoking. Cigarette advertisements dot the skyline and clog the airwaves. If you go to a concert or a sporting event, it is likely that the cost of your ticket will be subsidised by a tobacco company. Over 63 per cent of Indonesian men over the age of 15 are smokers. Almost 5 per cent of the world’s smokers come from Indonesia even though Indonesia’s population makes up only 3.5 per cent of the global total. In 2005, it was estimated that Indonesians consumed nearly 200 billion cigarettes. In short, the tobacco industry is pervasive and tobacco consumption has reached epidemic proportions.

Despite clear evidence that high levels of smoking are a burden on a society’s health and well being, the Indonesian Government has failed to take any meaningful action to address the smoking epidemic and its associated problems. Indonesia is the only country in East Asia not to have ratified the World Health Organisation’s Framework Convention on Tobacco Control. Tobacco taxes in Indonesia are the lowest in South East Asia while there are few limits on the sale, consumption or advertising of tobacco products. Other countries in the region, having realised the malign influence of tobacco, are actively discouraging its consumption. Indonesia, the tobacco control “rogue state”, is being left behind.

The key reason for Indonesian government non-interventionism is because policy thinking in this country is captive to the idea that the tobacco industry is of greater benefit to the economy than tobacco control measures. The Government, it seems, is of the view that the increasing restrictions on the tobacco industry would harm the economy by reducing the valuable flow of taxation revenue from tobacco consumption.

The Government’s position is in stark contrast to mainstream and credible economic opinion on the issue of tobacco control. Most serious economic analyses of tobacco conclude that well targeted tobacco control measures are, in fact, good for an economy and government revenue.

A good way to look at the issue of smoking in an economic manner is to consider whether all of the costs of tobacco consumption are incorporated in the price paid by the smoker for tobacco related products.

When a smoker consumes a packet of cigarettes, for example, he damages the health of the people around him as they inhale his second hand smoke. The same smoker also increases the chance of damaging his own health and suffering an untimely death. Consequently, his contribution to society and the economy is reduced. When a poor smoker spends a disproportionate amount of his income on cigarettes he reduces his family’s ability to pay for education and food. Who bears the burden of all these additional costs? Although the smoker bears some of them as a result of his decision to smoke, these examples highlight the fact that there are significant costs imposed on others without their consent as a result of his decision.

Estimates from the World Health Organisation and others suggest that these negative impacts of tobacco consumption far outweigh the positive benefits of the tobacco industry. There is a significant cost to society resulting from increased healthcare and economic costs resulting from morbidity and mortality as well as the forgone opportunities resulting from consumption expenditure on tobacco.

The low price that Indonesians currently pay for cigarettes fails to capture the cost of all of these negative social impacts that are caused by the consumption of tobacco even with 22 per cent of the price flowing to government coffers. In economic terms, such a situation is called a “negative externality”: the “external” or social costs of consumption are not accounted for in the price of a good.

If there are negative externalities resulting from consumption or production of a good, it is now widely accepted that government intervention in the market may be an appropriate response. Happily, in the case of tobacco, there is an extremely powerful public policy intervention avalaible that makes economic sense, should be effective at reducing consumption and can be used to offset the social costs of that consumption. The intervention is simply to raise tobacco taxes.

Estimates, again from the World Health Organisation and others, suggest that if tobacco taxes are raised by ten per cent then consumption of tobacco falls by around eight per cent. This means that revenue from tobacco taxation is actually increased even though consumption falls. The ill effects from smoking are reduced from this reduction in consumption and the government has additional money in the bank to combat the negative social impacts resulting from the activities of the remaining smokers.

To evaluate whether tax increase is an appropriate policy two further issues should be considered. The first of these is whether the tax increase is “regressive” or, in other words, has a greater impact on the poor than on the rest of society. There is no doubt that the poor are less able to absorb the costs of tobacco tax increases. However, because of this, it is the poor that are estimated to reduce their consumption more than the middle class in response to a tax increase. In fact, many estimates suggest that the poor, unlike the middle class, will reduce their consumption by a larger factor than the tax increase. If this is the case, a lower proportion of their income is spent on tobacco than before the tax was imposed. Therefore, the effect of the tax increase is likely to be “progressive”. The wealthier strata of society will bear a greater burden of the tax increase.

The tax increase could, therefore, offset some of the social impacts of tobacco used in poor communities and frees consumption expenditure in those communities for more positive purposes. Meanwhile, the government is collecting additional revenue that can be used to deliver social welfare programmes to these same communities.

The government may be concerned about the negative economic consequences of a contracting tobacco industry. Again, economic analysis suggests that the overall impact of a tax increase on industry would be far outweighed by the benefits of reduced consumption. Studies suggest that, although some tobacco farmers would be effected by increased taxes, it would be no more pronounced than if a price/demand fluctuation occurred for any other agricultural commodity. Moreover, with rising food prices, other agricultural products become more attractive alternative crops for farmers currently farming tobacco.

On the manufacturing side, although taxes would likely see a fall in cigarette production, this is unlikely to lead to significant job losses. Meanwhile, the long term economic benfits of more productive healthy workers would likely increase opportunities, investment and growth. This would help offset the costs of any tobacco manufacturing downturn.

The message is simple. Increasing tobacco taxes should increase revenue, reduce tobacco consumption, diminish negative social impacts of tobacco consumption and improve overall economic outcomes. It would also go some way to reducing Indonesia’s status as the international pariah on tobacco control with some of the lowest tobacco taxes in the world. It would be an even more effective policy approach if it were implemented alongside other anti-smoking policies such as advertising restrictions, smoke free areas and education campaigns.

The writer is an advocacy consultant to the Indonesian Consumers’ Organisation (YLKI).