THE DISTILLERY: RBA stay

The Reserve Bank of Australia is broadly expected to keep interest rates where they are today as the sluggish domestic economy is balanced against a buoyant sharemarket and strengthening international conditions, including in China and the US.

The Australian's Henry Thornton (pen name of an "eminent economist”) expects more cuts to be debated at today's meeting of the Reserve Bank, but argues it would be far more prudent for them to hold fire for the moment.

"Instead the bank should use its influence to get general economic policies changed. The immediate need is a tax on capital inflow, as the high exchange rate is throttling much of our domestic business.”

‘Thornton' then lays out a six-point plan that includes rigorous spending evaluation and cuts, a review of the "bloated" income tax act, if spending cuts can be bedded down then the GST could be widened and lifted, the appointment of a cabinet committee on business regulation, defence spending increases but only when there's room and finally, careful thought on innovation.

"The reforms outlined above will increase productivity, which everyone agrees is vital. Removing red tape and green tape will also help, but Australia needs to foster a more innovative culture, which may involve specific tax reform and targeted spending in areas of existing R&D strength. Like reforming defence spending, this matter cannot be rushed, but high-quality thinking is needed… The Reserve Bank should leave interest rates on hold today. But it should instead bravely endorse a program of general economic reform and take that to the government.”

Fairfax's Glenda Kwek lays out some of the dour economic statistics that the Reserve Bank will have to look beyond to keep interest rates on hold.

"Building approvals for December were weaker than forecast, the ANZ job advertisements survey fell for the 11th straight month in January and inflation remain subdued, a series of economic indicators released on Monday showed. At the same time, businesses were lowering their profit expectations for the June 2013 quarter, as reflected in a sharp fall in the Dun & Bradstreet Profit Expectations Index. Meanwhile, National Australia Bank's online retail sales index slipped in December, an expected seasonal move that reflected earlier internet shopping during the Christmas season, NAB said.”

Ultimately, Kwek says it's expected that the Reserve Bank will point to China as a source of hope for the Australian economy, high dollar or not.

Business Spectator's editor-in-chief Alan Kohler wrote yesterday that the switch from defensive to growth mindsets in the last few months means the bank simply has to keep rates on hold. People are buying shares again.

"Local brokers are reporting that there were near panic buying conditions during January, with the market index rising nearly 10 per cent since the last interest rate cut on December 5, including a remarkable 10-day rising streak. What's more house prices are on the rise again as well, with RP Data and Rismark reporting on Friday that the national median rose 1.2 per cent in January. And why not? Investment property has produced a total return of up to 7 per cent over the past 12 months. In the circumstances it would seem almost irresponsible of the Reserve Bank to cut rates again tomorrow, even though economically things are much the same as they were in December.”

We simply had to include Fairfax's Adele Ferguson in this morning's edition of The Distillery because the opening is so damn good.

"It is not often that a shareholder or group of shareholders calls an extraordinary general meeting to topple a board, take operational control and neuter a major shareholder citing allegations of ‘serious conflicts of interest', ‘misrepresentation and obfuscation', financial irregularities and misappropriation of $1 billion of corporate funds. But in London, former Leighton boss Wal King has put his imprimatur to a 28-page letter released to shareholders of London-listed coalminer Bumi plc that says just that.”

For copyright reasons we can't quote any more from the Fairfax piece, but click on the provided link to discover how Ferguson manages to weave a Henry VII and decapitation reference into the article. That's some mighty fine business writing right there.

Meanwhile, in other company news The Australian Financial Review's Andrew Cleary says the plan by British Airways to dump the Qantas code-sharing agreement will mean that Australian travellers hoping to stopover in Hong Kong or Singapore on their way to London will have to make an extra effort to do so with our national carrier.

Fairfax's Elizabeth Knight writes that Qantas could be facing a salary increase of $45 million this financial year due to the agreement shaping between the carrier and its international pilots via Fair Work Australia.

Business Spectator's Stephen Bartholomeusz explains how Qantas' reorientation of its international network from Europe to Asia, thanks in no small part from the Emirates alliance, will give its international business a sporting chance at a profitable future.

Might such a pay agreement with the pilots have been possible before the Emirates deal?

Elsewhere, The Australian's John Durie says the Australian Competition and Consumer Commission's case against global payment provider Visa will be difficult to pursue because it rests on the "notoriously difficult section 46 of the Competition and Consumer Act”.

The Australian Financial Review's Matthew Stevens says we're likely to see gridlock across the Hunter Valley and Illawarra logistics chains if the Australian Rail, Tram and Bus Union proceed with a stopwork notification lodged on Friday with rail operator Asciano.

Stevens is the only voice in Australian business media that's really been watching this unfold. If you want to know what's happening in this yarn, read his stuff.

And The Australian's wealth editor Andrew Main described the one-two punch for Australian superannuation of the Macquarie Private Wealth compliance story and Bill Shorten's experimentation with returning taxes on higher valued accounts last week as "unprecedented”.

Given that Shorten was only "kite flying” the idea, does that really constitute a punch landed? Judges…

Meanwhile in the market, The Australian's Barry Fitzgerald looks at a few coking coal plays as the market continues to lend support to the iron ore price without bringing along the other steelmaking ingredient for the ride.

The Australian Financial Review's Chanticleer columnist Tony Boyd suggests that Australia's telecommunication stocks are "starting to show signs of a bubble,” although he doesn't believe they can come crashing down while the defensive mindset prevails.

And finally, The Herald Sun's Terry McCrann drags out that old line that Prime Minister Julia Gillard is the worst leader of the nation we've ever had, including when Gough Whitlam was in office.

A few business commentators have used this line over the last few years and The Distillery can't quite figure out why. We still have one of the best growth rates in the developed world, one of the best unemployment rates in the developed world and one of the best-run regulatory systems (despite their protests) in the world.

These are perhaps the three main measures that business commentators should measure our government. Labor's engagement with business has been appalling, granted.

But the previous Howard government was recently described by the International Monetary Fund as one of the most wasteful spenders in our history to almost no acknowledgement from these consistently one-dimensional Gillard government bashers.

Bash the Gillard government all you want. But calling them the worst in our history, without providing any real context, is self-discrediting.

PS – Okay, full disclosure. The Distillery is also a little cranky because today is a Reserve Bank decision day and McCrann is usually excellent on this topic. Instead, the highly respected News Limited veteran chose to file two stories on other topics. How dare he!