EDITORIAL : THE AUSTRALIAN, AUSTRALIA

Saluting a top soldier

DEFENCE Force chief Allan Grant (Angus) Houston's contribution to Australia and its security has been immense in the decades since he joined the RAAF as a cadet pilot in 1970.

His retirement on July 4 will mark the end of six intense years during which he has overseen Australian deployments in Afghanistan, East Timor, Iraq and the Solomons. As a pilot, Air Chief Marshal Houston flew Iroquois helicopters in Australia, Papua New Guinea and Indonesia, and in 1980 was awarded the Defence Force Cross for a daring rescue during a gale off the NSW coast in which he saved three lives. As leader of the forces, he has served under five defence ministers from both sides of politics - Robert Hill, Brendan Nelson, Joel Fitzgibbon, John Faulkner and Stephen Smith. Within the ranks, his competence and concern for the good of the services and its personnel have earned him widespread respect. While committed to victory in battle, he built a reputation for compassion and intelligence.

Air Chief Marshal Houston's watch will be remembered for the Gillard government's historic decision to open all frontline ranks in the services to women with the fighting skills and strength to fill them. The reputation of the services, unfortunately, has been badly tarnished in recent years by a series of sexual harassment scandals. But in six years Air Chief Marshal Houston made headway in reforms to limit bullying and bastardisation.

Quietly spoken, Air Chief Marshal Houston has been a strong, resolute leader with a reputation for working 100-hour weeks. He did not shy away from stoushes with ministers on both sides of politics. And he showed a commendable willingness to assert the independence of the ADF when, as Air Force chief, he told the Howard government there was no evidence that children had been thrown overboard from an asylum-seeker boat days before the 2001 election, advice he reiterated to a Senate inquiry in 2002.

The appointment of Air Chief Marshal Houston's deputy, Lieutenant General David Hurley, as his successor is ideal. General Hurley, who was awarded the DSO for his work commanding the 1st Battalion of the Royal Australian Regiment during the peacekeeping operation in Somalia in 1993, takes the helm at a difficult time. Two Diggers were killed in Afghanistan this week, bringing Australia's casualty toll to 26 dead and 176 injured in the nation's longest running war.

GDP figures show we need ongoing economic reform

THIS time the problem was all ours, but what if China slows?

While the prevailing economic message is that we shouldn't panic, the contraction in Australia's GDP during the March quarter does highlight our susceptibility to the vagaries of the mining boom. This time, the problem was all on the supply side, with the Queensland floods closing mines and cutting off supply routes to ports. We can remain calm because we know the mines are reopening, the rail lines are being repaired and the seemingly insatiable Chinese demand for our coal and iron ore should ensure economic growth returns this quarter.

But we should view this experience as a salient warning of the medium-term risks. If the world economy slows or China loses control of inflation and then is forced to overcorrect, we could face a contraction on the demand side. This is the possibility Wayne Swan must focus on. The Treasurer needs to ensure the Australian economy is sufficiently dynamic and productive enough to sustain the nation outside of our current record mining boom conditions. The immensely favourable terms of trade cannot last forever, of that we can be sure, but Mr Swan's budget last month is predicated on those terms and the demand continuing unabated for close to a decade. We hope he is right, but he has been wrong before.

In the lead-up to the global financial crisis, Mr Swan was chasing his tail, worrying about inflation at a time when we should have been focused on maximising growth. The Australian pointed this out at the time, just as we warned about some aspects of the 2009 stimulus package. It is clear now that the opposition leader during that period, Malcom Turnbull, was correct. He supported the initial pension-based "cash splash" but argued that the main $42 billion stimulus should have been reduced by half and targeted more prudently. So while Australia dodged recession because of the strength of our financial system, the rapid rebound in Chinese demand for our mineral resources and, perhaps in part, because of the domestic monetary and fiscal stimulus, Mr Swan's judgment has been far from perfect. We would be better placed now if he had not overreacted to inflation fears in 2008 or over-egged the stimulus. Now we worry that he is being complacent.

There can be no time to waste reining in government spending and forging a reform agenda but the budget dodged these issues by delivering only $2.7 billion in net savings over four years. With the high dollar making our exports more expensive, we need to reduce costs at home, primarily by seeking to improve productivity. As industrial editor Ewin Hannan reported yesterday, industry and employer groups are urging reforms aimed at increasing labour flexibility. Rather than resort to the predictable mantra about the re-emergence of Work Choices, Mr Swan should take up the challenge as one important step towards insuring the nation against the inevitable mining downturn. And from opposition, Tony Abbott should pursue the same agenda.
Former prime minister John Howard used to allude to a race where the finish line kept getting further away, and his predecessor, Paul Keating, talked of burning the road behind you like the Road Runner. Both were absolutely right -- if you are not reforming, you are going backwards.

Global action is key on carbon

GARNAUT report seems to overstate international efforts.

Annual carbon emissions from China, currently about 8.5 billion tonnes or 15 times greater than Australia's, are set to double over the next decade or so while we reduce ours. If all goes to plan, in about 10 years China's emissions will be more than 30 times greater than ours. This information is not an argument for inaction but it does help keep our national carbon emission reduction debate in perspective, and highlight the primacy of international action.

In his final report, the Gillard government's climate change adviser, Ross Garnaut, has made some rather heroic claims about the extent of global action. "The diplomatic fiasco of the Copenhagen conference disguised a breakthrough new agreement that addressed the great failing of the Kyoto Protocol," he claimed. "It incorporated mitigation targets for the US and the large developing economies, notably China." This is gilding the lily. The reason Copenhagen was viewed as a failure was because the participants did not sign up to binding targets. And China's non-binding targets relate not to emissions but to carbon intensity. The Asian giant will work to generate cleaner and more efficient energy, but most of its power growth will still come from coal and its emissions will grow as its economic modernisation continues. Likewise for India. The lesson for Australia is that we need to be cautious and proportionate in our response.

Professor Garnaut has likened the carbon tax to the tariff reforms he championed in the 1980s. But the tariff reductions lowered costs for consumers and created incentives for companies to improve productivity, modernising our economy. The carbon tax is designed to produce an environmental benefit. It does this by imposing a cost and providing a disincentive to emit carbon. The so-called first mover advantage is that we allow our economy to adapt gradually to a low-carbon global world, minimising future shocks and opening us up to some early opportunities. The government needs to be wary of overstating these advantages because they will quickly disappear if the rest of the world stalls. A realistic assessment of global action to reduce carbon emissions remains the crucial missing link in the government's carbon tax justification. The Productivity Commission's report on this issue is with the government -- we await its release with great interest.