Mungo MacCallum- Political Corrections

The price of freedom

The real cost of our beloved Prime Ministers obsessions is often hard to quantify.

His enthusiasm for his love-father George W Bushs excellent adventure in Iraq, for example, has clearly led to greater terrorist recruitment, increased risk of attack, greater racial and religious tension and a disproportionate loss of civil rights and liberties.

But ironically, in sheer money terms the whole thing has been done on the cheap: a token military commitment with much of the necessary infrastructure generously subsidised by Washington as it bloody well ought to be, cynics will add.

The home-grown changes to the tax system, however, led by Howards own GST, have cost an arm and a leg, for no apparent purpose. Since the introduction of the GST the present government has become, by any measure, by far the highest taxing government in Australian history, and yet most taxpayers would argue that they are getting less bang for their tax buck than they did in the old days.

The reason for this is that the Commonwealth, which collects the GST, hands it over to the states, which use it to fund (inadequately) their traditional responsibilities of health, education, transport, law and order and all the rest. This apparent generosity on Canberras part allows Peter Costello to keep all the tax revenue raised from other sources, a large chunk of which was formerly distributed to the states.

As a result he can boast of huge budget surpluses; but rather than use them for the benefit of the public at large he simply hands them back as tax cuts, usually directed as electoral bribes where they will do the government most good. What this means in crude terms is that billions are taken annually from tax payers across the country simply so Howard and Costello can distribute the loot to their own supporters. The economic and social cost is obviously immense, but no-one has been game to put a figure on it.

It is thus refreshing to find a Howard compulsion that can be costed with some accuracy. At the end of its first year of operation, it can be stated with confidence that Australias participation in the so-called Free Trade Agreement with the United States has cost us around one billion dollars with, of course, the meter still running.

It will be recalled that the FTA became one of the hot spots of the 2004 election campaign, with Howard and his hitmen portraying anyone (and especially Mark Latham) who expressed doubts about its perfection as a treacherous anti-American. The doubters included many highly respected economists who pointed out that not only was the whole thing a misnomer (it wasnt about free trade but limited preferential deals, and there was a distinct lack of agreement about how far these should go) but its economic advantage to Australia was highly dubious.

While the flag wavers on the government side were crowing about little old Oz gaining access to the richest market in the world, the realists noted that the other side of the coin was that the richest market in the world could now surge unimpeded into little old Oz. True, David did once beat Goliath, but you wouldnt want to put money on it happening on a regular basis.

And it hasnt. At the end of year one, Australias exports to the US have fallen by five per cent while our imports from the US have risen by the same amount a turnaround of ten per cent at a cost, as mentioned, of a neat one billion. If you think it could be worse, well it is: over the same period the Australian dollar fell by about six per cent against the greenback, which should have given Australian exporters a proportional advantage. So in real terms the FTA seems to have cost us about 16 per cent of our trade balance with the US, or almost one sixth.

A clear win for Washington, but it doesnt end there. The hard men on the US negotiating team now want to scrap the amendment Latham insisted on to prevent the big American drug companies from artificially extending their patents and delaying the introduction of cheaper generic medicines. The government, it will be recalled, said at the time that the amendment was unnecessary because common law already prevented the practice; but if this is so, why are the drug barons so upset about it? Trade Minister Mark Vaile doesnt really know, but he seems inclined to give them their way, if only to expunge the Latham influence.

In the spirit of give and take he suggests hesitantly that the Americans might like to revisit the exemption of sugar from the agreement, an exemption that the government once declared was UnAustralian but which was grovellingly accepted for the sake of getting the FTA up in an election year. 2006, of course, is also an election year a congressional election year in the United States, where the sugar farmers are a far more effective lobby group than they are in Australia. Free trade in sugar? Youve got to be joking.

It is time for Vaile and his ministerial colleagues to get real and look at the scoreboard. Yet again, the Americans have taken us to the cleaners. And yet again, John Howard sees no need to apologise: as our Dear Leader, he can, by definition, do no wrong. After all, if he did, we wouldnt keep re-electing him, would we?

Pity about the billion, but never mind. We can always pick it up in tax.

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