Four years ago I puzzled in a Catallaxy post as to why airlines had started imposing fuel surcharges. Why didn’t they just add it to the fare? That mystery has now been cleared up. They add the surcharge to flights redeemed on frequent flyer points and only pay travel agents commissions on the base fare. Particular characteristics of the airline industry make surcharges more lucrative for airlines than fare increases of an equivalent amount.

But now The Age reports that the practice is spreading to other industries:

From construction material suppliers and trucking companies to florists, businesses are considering imposing a special levy to offset fuel prices.

There are less aribtrary ways of imposing surcharges than the way airlines do it. FedEx, for example, has a scheme based on monthly movements in actual fuel prices, rather than the flat dollar amounts imposed by airlines without any direct link to fuel costs. With the FedEx scheme, falls in fuel costs are passed back to customers.

But overall I think this is a bad practice. The claim by Shane Oliver in The Age that businesses were ‘adopting fuel levies because they offered greater price transparency’ seems doubful to me. The only transparency I am interested in is how much, in total, I have to pay - I don’t want to have to think about industry cost structures when deciding whether or not I can afford to make a purchase. One of the annoying things about daily life in North America is that you have to do extra mental arithmetic in adding taxes and tips before making purchase decisions.

I doubt surcharges are really good for business either. When booking airline tickets I always getting the feeling I am being conned with the surcharge, despite not feeling the same way about the wide price differences between the same seats on the same flight, but with slightly different terms and conditions.

On the Sunday programme yesterday (about 6 minutes in), Laurie Oakes asked Ross Garnaut whether it was politically possible to implement the radical reforms needed to reduce carbon emissions.

In his reply Garnaut drew an analogy with trade liberalisation - a reform in which he played a distinguished part during the Hawke government. Public opinion has been consistently protectionist, Garnaut noted, yet politicians successfully implemented Australia’s transition from a highly protected to a largely open economy. They did so without major electoral consequences.

Garnaut argues that, politically speaking, we are starting well ahead of where we were with trade reform, since large majorities accept the need for change. Garnaut acknowledges the difficulties in moving from this generalised support for action to specific measures, but thinks it can be done.

The two issue starting points are, contrary to what Garnaut suggests, quite similar. The basic goal of the economic reform process - essentially to restore Australia’s economic prosperity - was a point of near-consensus, just as the need to do something about climate change is now. It was the means of getting there that generated controversy. Protection was a means, not an end, and we should not compare opinion on that with views on the goal of slowing or stopping climate change. In each reform case, we have a popular aim, but no easy way of getting there.
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As various opinion pieces have pointed out this week, the Liberals are playing high-stakes politics with their budget strategy.

They are going against the conventional wisdom that spending cuts are necessary to avoid future interest rate increases, and instead saying that there is a danger the economy could slow too much. Intellectually, I think this is a defensible position. The budget is a very clunky mechanism for macroeconomic fine-tuning, with its measures unlikely to have any significant effects for months and hard to change if they prove to be misjudgments.

Politically, however, the argument is too complex and risks further undermining the historic issue strengths of the Liberals.

The recently released results from the 2007 Australian Election Survey (a mail-out survey, which closed in March 2008) shows that while more respondents prefer the Liberals than Labor on interest rates, the margin has narrowed significantly since 2004. The 29 percentage point lead the Liberals had after the 2004 election had shrunk to 6 percentage points after the 2007 election. By not being seen to be strong on the interest rate question this is put further at risk.
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I don’t often agree with The Age’s campaigning journalism, but I thought they picked the right cause - if not quite the right argument - in their advocacy this morning on behalf of taxi drivers. The paper led this morning with the heading:

Assault
Abuse
Fair evasion
12 hour shifts
Poor security
All this for $8 an hour

For the benefit of interstate readers, on Tuesday night a taxi driver, like many of them an Indian student, was stabbed by a passenger (who thanks to the cameras installed in cabs was arrested by police within 24 hours). At last report, the driver was still in a serious condition in hospital.

Drivers responded by blocking a major city intersection, eventually forcing the state government to agree to security screens and pre-paid fares late at night.

Though an analysis piece and an editorial did refer to the licence system in the industry, they did not draw the obvious conclusion that it is to blame for the miserable earnings of taxi drivers, despite the seemingly high fares paid by passengers.

The CIS has a long history - though one unfortunately without policy success - of criticising taxi regulation. One of its earliest publications, by Peter Swan in 1979, was a critique of regulation of the Canberra taxi industry. This was followed by articles by commenters on this blog, Jason Soon in 1999, and Christian Seibert in 2006.
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The Australian Workers’ Union commissioned Roy Morgan Research to conduct a poll on the idea that half Labor’s promised tax cuts should be diverted to superannuation.

As in the Galaxy poll of Queenslanders a couple of weeks earlier, a bit over a third of voters wanted the tax cuts in full. In the Galaxy poll, 55% wanted all the tax cuts to be put into superannuation. In the Morgan Poll, 50% wanted the money to be split half each between tax cuts and superannuation.

According to AWU National Secretary Paul Howes:

The poll shows voters are economically literate, and politically sophisticated enough to understand that in the fight against inflation and rising interest rates the option of increased superannuation rather than tax dollars in the pocket is smart stuff.

But should workers really be so keen on establishing the idea that budgetary policy should be used to combat inflation? As RBA Governor Glenn Stevens pointed out in a recent speech:
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According to reports in this morning’s papers, drawing on Monday’s ABS international trade figures, education is now Australia’s biggest services export, overtaking tourism by nearly $1 billion for 2007 ($12.5 billion vs $11.5 billion).

But as the ABS doesn’t follow tourists or students around counting how much they spend, both these figures are estimates of their expenditure while in Australia. The tourism figures are based on the International Visitor Survey, which asks departing international travellers various questions, including about their spending. It is an on-going survey.

The student data, by contrast, is updated much less regularly. It is based on the Survey of International Students Spending (pdf), last conducted in 2004-5, and updated according to the CPI.
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Wayne Swan has been working hard over the last few days to blame inflation on the previous government. But will the public believe him?

In the Newspoll series of questions on which party is better to handle various issues, inflation has been one of the Coalition’s strengths. Of the 43 times Newspoll has asked about inflation since 1990, the Coalition has been rated as better 41 times, with an average lead of a huge 17.7%. One of the exceptions was the Downer leadership meltdown in late 1994 which affected all Liberal issue ratings, the other was a smaller wide dip in July 1992 (can anyone remember what was happening that month?).

If both Labor victories in Newspoll were because of self-inflicted Coalition political wounds, it means that Labor could not win the inflation issue on its merits despite having inflation below 2% for a couple of years in the early 1990s.

Though the Liberal winning margin seems sensitive to inflation performance - for example, it dipped when inflation spiked after the GST was introduced - this seems to be an issue that the Liberals ‘own’. They still had a big lead despite the GST effect.
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Providing me with my second page one dial-a-quote this week, the SMH this morning leads with a story titled ‘Student debts out of control’. Drawing on an article by Bruce Chapman in this week’s Campus Review, it says:

GRADUATES from private colleges and universities are costing taxpayers more than those from public universities, and new ministers of religion present one of the greatest burdens.

Though for reasons I will explain this is not correct, Chapman’s original article does make a valid point. This is that under the FEE-HELP loan scheme for full-fee students there are implicit subsidies because student debt is only indexed to inflation, meaning that the taxpayer bears most of the real cost of lending students money to pay their tuition fees. (Aspects of this issue were discussed on this blog last October.)

Undergraduate FEE-HELP students do pay some real rate of interest, because they have to pay a 20% surcharge on any amount they borrow (eg, if they borrow a tuition fee of $10,000, they will owe the government $12,000). If these students repay quickly, that could work out at quite a high real rate of interest. But if they borrow a large sum that takes many years to pay back then their real rate of interest will be low, and they will effectively receive a subsidy from taxpayers.
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Kevin Rudd may be reluctant to call Labor left-wing, but he’s happy to cloak himself in conservatism. It started last year when he invoked - albeit inaccurately - British conservative philosopher Michael Oakeshott in his criticism of market forces. After becoming leader, he endorsed - albeit inaccurately again - Australia’s most successful conservative leader, Robert Menzies, as preferable to Howard.

And more recently Rudd has been calling himself an ‘economic conservative’, which Josh Gordon wrote about in The Age on Saturday. As Gordon says, not so long ago this would have been a negative term, but such is the general agreement that has built up around the main component parts of ‘economic conservatism’ - Reserve Bank independence and a balanced if not surplus Budget - that ‘conservatism’ on these matters is uncontroversial.

Even Labor’ s once-true believers are getting in on the consensus. If Howard being cheered by CFMEU members was the most bizarre aspect of the 2004 campaign, for me the most bizarre aspect of the 2007 campaign was the enthusiastic applause from the party faithful at Labor’s launch when Rudd said:
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Those commenters stressing that interest rates could be a signifcant factor in the election, even if most people don’t think the government is to blame for them, get a boost from polling reported in this morning’s Sunday Age.

In a Taverner Poll of Victoria and NSW, 21% of those polled blamed the government for the increases in interest rates. That’s a lot more than the 12% blaming John Howard in a Galaxy Poll earlier this month. Is that because there has been an increase since, opinion is different in NSW and Victoria, or the question wording affected the result? Unfortunately, The Sunday Age has kept up with its very poor opinion poll practices, and published nothing about question wording or sample size.

But some evidence for the vote-changing case:

The latest Sunday Age/Taverner Research poll shows that 57% of the key mortgage-holder demographic will be voting for Labor, compared with only 43% for the Coalition.

This is a complete reversal of the 2004 campaign, when a Taverner poll conducted then showed the Coalition enjoying an 8-point margin over Labor among mortgage holders.

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