THE DISTILLERY: The darkest hour

Some days, reading Australian business commentary at 4am brings with it a double whammy, with lack of sleep being compounded by the soporific effect of the writing.

To avoid any nasty collapse onto the computer, let's get Woolies out of the way first. Elizabeth Knight of The Sydney Morning Herald reckons the purchase of Danks is doomed because the ACCC "has a long-standing, well-documented and intense issue with vertical mergers”. Her prime example: Telstra. John Durie of The Australian adds that further negative pressure will come from "the similarity between the ACCC's action and last year's New Zealand Commerce Commission's rejection of Woolies' plans to take over potential rival Warehouse Group.” He also outlines Woolies' strategy to use home brands against competitor Aldi's planned increase to 409 stores. Bizarrely, Durie has a far more interesting short-hand comment on why the two-strike remuneration proposal should be dropped. It would have made a splendid column but isn't worked through. Matthew Stevens of The Australian and Robert Guy of The Australian Financial Review's Chanticleer focus on the food deflation behind Woolies' disappointing sales growth, a topic covered ad nauseum by everyone.

Two other comments must also get a quick mention to prevent this columnist's collapse. Bryan Frith fails to inspire today, revisiting the Multiplex Prime Property Fund, and Michael Stutchbury continues his Rain Man chant to 'cut the stimulus'. Today's target is Treasury. With the entire universe of economics up for grabs just now there must be something else worth writing about.

Ross Gittins of The Sydney Morning Herald shows him the way with an article explaining how economics is stuck in a nineteenth-century paradigm of acting against scarcity when our world is now trapped in abundance. According to Gittins, the consequence of course is environmental degradation, as we harvest more than we need. This column could take exception to Gittins' contention that we are hard-wired to consume, rather than engineered that way by our society but why begrudge a rare effort to expand the debate. For those interested in more on this subject, try the documentary Century of the Self.

More pepping fare is also available today from Tim Colebatch of The Age. In the first of two pieces he mounts an argument in agreement with this column that concern about house prices within the RBA is the primary driver of rate-rises: "Minutes of the Reserve board's most recent meeting, released yesterday, show board members were concerned about the risk of excessive inflation and imbalances in the economy if rates had been held at record lows...The minutes did not specify which imbalances the board was concerned about, but house prices are now at record levels, whereas the stock market is still almost 30 per cent below its peak.” The AFR's Robert Guy rather sees rate rises as a response to inflation arising from capacity utilisation pressures. David Uren of The Australian sees both forces at work in the RBA's reasoning.

Colebatch's piece is strengthened by a stinging op-ed in The Age by Michael Perusc, chief executive of Sacred Heart Mission, on the need for investment in public housing. The political decision to stop building public housing in 1996 has been insufficiently debated in the context of the ongoing great Australian housing bubble.

And while we're on the subject, the man behind the decline of public housing construction, Peter Costello, also chimes in at The Age with an op-ed slamming notions of a housing tax: "Do not be tricked by the promise to tax the home in return for making mortgages tax deductible.” This will only result in "amplifying the housing cycle.” To describe this as shameless debases the word. Costello also halved the capital gains tax on investment housing in 1999. Over the next nine years, investment loans grew 378 per cent from $82 billion to $310 billion.

This column's last word on housing bubbles today is to wonder at renewed calls for the removal of the wholesale debt guarantee covering the banks' offshore borrowings, most pointedly explored by Stephen Bartholomeusz in Business Spectator yesterday. While technical analysis of whether or not the banks are ready for the removal of the guarantee are fair enough, there has been zero public discussion about the larger frame. Is the guarantee a one-off? Will it return if conditions deteriorate again? According to Paul Krugman and influential US blog Naked Capitalism, efforts to rein in Wall St risk-taking have completely failed. What will the Australian government do if credit markets seize up again?

Colebatch's second piece is a barn-storming attack on both federal parties for their carbon-abatement failure. According to Colebatch, "Nothing in these proposals would drive Australia to reduce emissions. Our population is growing by more than 2 per cent a year, our output grows on average by 3 or 4 per cent. Under these rules, our emissions wouldn't fall. They would keep rising, and Australia would meet its target by buying cheap permits from developing countries.” Today's must read.

Two AFR op-eds are also of interest. An innovative suggestion is made by John Head, professor of taxation at Monash University, that to increase saving Australia should cut taxes on families with a second income earner. The piece is wonkish but worthwhile for those interested in tax-reform.

In the second article, John Colvin of the Australian Institute of Company Directors (AICD) calls for reform to the mash-up of state laws that imposes personal liability on company directors. While it would be easy to be cynical about this in a post-GFC world, Colvin cites some impressive statistics including those from a survey of 600 ASX 200 directors, suggesting 71 per cent have rejected board placements owing to personal liability concerns. Nonetheless, the argument will win few friends with statements like "By ... focusing directors' minds excessively on risk avoidance rather than adding value and wealth creation, these laws stifle business.”