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Inside Business -

View in ParlView

(generated from captions) wasn't a wise thing to say.

Have that observation on the

record. Misha? After Joe Hockey

appearance on television

tonight in a hot pink tutu and

wand talking about your

generation he will begin the

first aid repair kit on the

coalition's economic

credentials. Kevin Rudd hasn't

appeared on Australia's biggest

and best political chat show

more than once in two years. He

refused to come on again.

What's his problem? Are you

asking too many pointed

questions? We're in

negotiations. Is he a cow

card? He is on Q & A on Monday

night, now in a new timeslot.

I had initially disregarded the

negotiation that's going on

between the government and the

Greens on the Greens'

alternative Plan B on climate

change. Having looked at it in

some more detail, and looked at xktdly what the Greens are proposing I don't think we

should completely write it off.

It's a long shot. But I think

it's possible. Don't forget to

protest about being in the far

right change. This is a

disgrace. I'm comfortable! That's the program

for the week. Offsiders resumes

for 2010 at 10.30. In the

meantime here's Alan Kohler and

Inside Business. Thanks,

Barrie. G'day there. Welcome

back to the program for another

year. I hope you're well rested

ready for what could be an

interesting year in the Chinese

curse sense of the phrase of

course. Now to start the year

we'll focus on three of the big

issues on your plate right now,

climate change, tax and the

banking industry after the

deluge. I asked Rob Johansen a

leading investment bank and

help us understand where chairman of Bendigo Bank to

Australian banking now stands and what the effect of the

sovereign debt crisis in Europe

might be. Richard McIndoe the

chief of one of the big La

Trobe Valley brown coal generators TRUenergy talks

about climate change and the

future of electricity prices

after the fail lure the of the

Copenhagen meeting in December

of the coalition's policy. And and the announcement this week

now that the Henry Review into

taxation has been handed to t

Treasurer, Wayne Swan, it's

leaking like my roof. We've

been talking to business people

about this, and they're not amused. Live. This Program is Captioned

And in First Person one year

on, rebuilding a business after

the devastation of Black Saturday.

We were now responsible for a

good number of employees both

in the brewing side of the

business and in the restaurant

and we just simply couldn't see

that whole operation

failing. Well after years of

apparently inexorable progress

towards an emissions trading

about climate change is scheme suddenly the debate

shifting. The failure of the

Copenhagen talks means

international emissions trading

looks impossible for years to

come. The Government's CPRS has come. The Government's CPRS

stalled in the Senate and now

the Coalition has launched its

own non-emissions trading

policy including a $2.5 billion

fund to encourage businesses to

invest in low emission

technology. Now at the sharp technology. Now at the

end of this debate is Richard

McIndoe managing director of

troou troou Energy. Last year

he complained bitterly about

the CPRS so I thought it might

a good idea to get him back to

see if his views have changed.

When the Coalition announced

this new policy this week the

shadow minister Greg Hunt said

he hoped it could lead to the

conversion of La Trobe Valley

power industry from brown coal

to gas. The first question is

are you up for that? Is that something you're prepared to do

to convert to gas? Well for

some time now in discussion s

with both the Government and

the Opposition we've talked

about a program of converting

from the high emitting current

generation of La Trobe Valley

that's based on brown coal to a

cleaner form of generation cleaner form of generation and

that form of generation is

gas-fire generation. It's

clean, reliable, it's proven

technology. So we see a move

from the current from the current combustion

techniques in La Trobe Valley

towards new clean gas fired

generation happening over the

next 10 to 20 years. Now the next 10 to 20 years. Now

pace at which we make that

movement entirely depends on

the form of the policy that the

Government comes out with with

regard to climate change. So

can we look at some of the

specifics. I mean your Yallourn

power station pro what would it

cost to build gas-fired

generation of that amount. We

last year completed

construction of a 450 megawatt

gas fire station in NSW and

that cost us around $700 m,

$750 mm to build that. That's a

25, 30 year asset and the

emissions intensity of that

gas-fire power station is a quarter of the emissions

intensity of an equivalent

brown coal fired power

station. That's about $2.5

billion to replace Yallourn? We'd probably be

looking at a total construction

cost for three of those power

stations of around $2.5 billion, that's correct, but

you wouldn't replace it in one

go. You'd replace it over time and phase out the and phase out the existing

units that are at Yallourn. And

you wan to do or do you think

you have to do that? We think

that's one of the most

effective ways of abating,

reducing CO2 emissions out of

the electricity generation

sector. So what do you need to

make it work? There's two

things really. First of all the

life of the existing power life of the existing

station is around 25 years

further to go. So if we're

going to shut that early

there's an economic impact on

our balance sheet of doing

that. We're expecting another

25 years of power production

out of it so if we shut it

within 10 years that's going to

have an economic effect on us.

So in order to keep our balance

sheet in tact we'd look to have

a level of compensatory payment

for that early closure. But the

second point is if you're going

to substitute existing cheap

brown coal with more expensive

gar-fired generation, there's a

price difference between those

two fuels. So in order to make

that gas-fired generation

competitive with coal-fire

generation elsewhere in the

system, the Government needs to

look at how to encourage

gas-fire generation to be built

and that can be done by two

Ways. You can either impose a

big carbon price on exist ing

generation elings wrr or you

can subsidise the cost of

gas-fire generation to make it

competitive. Why should you get

compensated for closing

Yallourn early? Capitalism

involves risk, it turned out to

be a bad risk? We bought the

power station under a set of

policies an regulations when the Victorian Government sold

and privatised those power

stations and up until 2 years

ago we were very clear as well.

First of all the massive change

in the regulation under which

we operate is a serious concern

to an international investor

such as ourselves. Secondly, to

preserve our balance sheet it's

very important if we're going

to be investing in new generation. What sort of

difference in s is there in

price when it comes down to the

electricity price if gas is the

fuel rather than brown coal? You're looking at around

a 20% increase. Either a 20% increase. Either power

prices have to go up by 20% or

the money has to come out of

the Government's budget? That's

correct. In order to make it a

viable commercial investment

power prices would have to come

up around 20% to justify

wholesale roll out of gas-fired

generation to replace that

coal-fired generation. Do you

think we'll have an emissions

trading scheme? I think that

the events in Copenhagen have

certainly been a set bamback certainly been a set bamback in

terms of structuring of

emissions trading scheme emissions trading scheme but

that said the CPRS in the form

that it was presented to

Parliament at the end of last

year was really wholly

unacceptable to the electricity generation sector. It would

have resulted in widespread

impairment in the assets and a

huge financial loss to the

balance sheet and really

effectively leaving those companies unable to invest in

new generation. That's not a

bad thing that we've paused,

taken a look at this and taken a look at this and we've

started to think what's the

most cost effective way

forward. The CPRS was a very

large scheme, fraught with

inefficiencies, there was

around $120 billion swilling around in that scheme over a

10-year period. But now people

are starting to think about

more direct action that more direct action that is

going to cost 22, 3, 4, $5

billion. It's an order billion. It's an order of

magnitude less than the cost of

that CPRS. I think globally

people are talk taking a pause

and I think Copenhagen and that

method of debate amongst 170,

180 odd nations that's not

going to work going forward.

Globally it depends on what

China and the US will do. I

think China and the US will

come to an agreement about a

well structured emissions

trading scheme ultimately and I

think Australia needs to be

part of a well structured international trading scheme.

But just because that emissions

trading scheme isn't there now

doesn't mean we can just stop

and do nothing. There's plenty

we can do. There's the solar,

there's the renewables through

wind, there's soil carbon,

there's energy efficiency and

as we talked about there's

replacing those higher emitting

coal generators with gas-fired

generation. I'd encourage the

Government to look at that

direction action now and see

whether they can get some

early, good big winds in terms

of CO2 reduction and prepare

Australia for what is

inevitably going to be a global emissions trading scheme at

some point in the

future. Thanks for joining

us. Thank you very much. While business is still grappling

with the uncertainty tossed up

by the carbon debate it's now

being unnerved bri a torrent of

leaks by major reshaping of the

tack system. The steady stream

of unsourced and unconfirmed

media reports purporting to

tell us what's in the still

unreleased Henry report is

causing uncertainty and anger

from the nation's biggest corporations down to some of

its lowest paid workers.

As politic Cam - political

leaks go the Henry review has

turned into something akin of a

Chinese water torture. A slow

drip of information. Lately drip of information. Lately the drips have been more drips have been more deeply

penetrating the psyche of

business and investors building

up stress and eroding

confidence. We need stability

if we're to make these massive

decisions. We need to have the confidence, the fiscal

environment is going to remain

stable and I can certainly tell

you our partner Petronas will

be watch ing this hard. A loot of companies trying to make

plans for the next 5, 10 years

and then not know wrg the

and then not know wrg the tax

laws are going to be. At a

planning level for our

businesses, we're looking at

how we might fund $200 million

across our organisation just to

keep services operating as they

are today. This very important

discussion paper, Australia's

future tax system . The review

into Australia's tax system was

announced back in May 2008 and basically everything barring

changes to the GST and exit

taxes on super was on the

agenda. It's become a little

bit of a sort of, to use the

word, a dumping ground for word, a dumping ground for some

of the other measures that are

just a little bit sort of a bit difficult for the Government or

a bit micro and so it is really

an odd fit in what's actually

been referred to the committee

overall. The review is still

not a public document despite

being handed to the Government

by its chairman and Treasury

secretary Ken Henry just before

Christmas. And no specific time Christmas. And no specific

has been set for its release.

Yet the broad consensus in the

media at least is that the

recommendations include a tax

on road congestion, a national

payroll tax, and a tougher

capital gains tax regime. The

breadth of the anxieties can be

seen from reaction at opposite

ends of the Australian economy.

For the bustling resources

sector it's the fear of a

massive expansion of the

resource rent tax while in the not for profit world of

hospitals and aged care, it's

the loss of tax concessions for

employees. We'd all go to jail,

yeah. I mean if I spread this

sort of rumour and speculation

about a ed public company I'd

certainly be investigated by

assic and find myself in the clink somewhere. Research

director at brokers EL and C

Baillieu Ivor Ries understands

well the motive s behind the leak. They want to get all leak. They want to get all the

bad stuff out in the open early

and defuse its impact when the

report comes out. I understand

that. It's just natural

political behaviour. But I

think they are ignoring the

damage it's doing to the real

economy. The resource rent tax

currently is applied only to

offshore oil and gas projects

and kicks in once investment and kicks in once

costs have been recouped. The

speculation is that it will be

extended to all resource

projects. It's a super wealth

tax. The Government's already

getting 30% profits tax and the getting 30% profits tax and

State Governments are already

taking a 10% royalty on the

overall production so most

miners are paying somewhere

between 40% and 50% income tax

effectively at the moment. So

if you put on another 40% on

that, you know, it doesn't take

a lot of imagination to work

out the effective tax rate

under this scheme on some

projects could be as high as

60%, 65%. The worry is great

nest the small to nest the small to midsized miners still struggling to

raise capital in the tight debt

and equity markets of the post

GFC world. Simon Bennison from the Association of Mining and

Exploration Companies is just

one of many industry one of many industry leaders

stalking the corridors of

Parliament pleading for clarity. Those potential investor, particularly those

offshore, look at the whole

political as well as economic

environment and they'll make

their decisions based on

certainty as well as

uncertainty. Large cap player

like David Knox from Santos are

no happy year. With his onshore

and oil gas assets including $7

billion joint gas venture with

Petronas are now facing the Petronas are now facing

prospect of a new tax to factor

into its calculations. You're

not investing in a country like

Australia for 35 years, these

are 30-year investments. Uhave

to be confident the goalposts

are not going to move in that

time. While not for profit

groups such as church-based

hospital and community age care

may not be dealing with

investment decisions counted in

billions an certainly generated

by the Henry review is causing

big problems in basic business

planning. Across all our

Catholic hospitals we... Martin

Laverty argues the sector's

ability to emply its more than

1 million workers is trading

off salaries with payroll and fringe benefit tax concessions. Those concessions are now under

threat. We don't want to see

our employees have to face a

$2,000 pay cut or alternatively

us as the employer have to fund

that $2,000 pay cut across our

30,000 employees. For us it would simply mean business

unvieblted. For Catholic health

alone which provides 10% of the

nation's hospital beds the

direct cost to its bottom line direct cost to its

would be about $200 million a

year. It would mean one of two

thing. We'd either have to see

service cuts or we'd have to go

to those who fund our services,

government or private health

insurance, and say we've got to

find a new source of revenue

just to keep our services

operating. I think what

underlies this review is that

it doesn't seek to recognise

that. It's talking about

setting up the system for the

21st century. University of

Sydney's Professor of taxation

Michael Dirkis says while the

leaks are unfortunate, patience

is required for views with

scope and ambition of the

current model. History tells us

where they tend to be sort of

much larger, more visionary

like the Asprey review in the

1970s, it took a good almost 20

years for most of Asprey to be

implemented. And while the

review may well end up

delivering efficiency and

equity, living under a drip-fed

tax system for two decades

would test anyone's sanity. Now

with the latest business and

market news here's Kate

Tozer. Thanks, Alan. The US Tozer. Thanks, Alan. The

share market landed softly on

Friday after a 3-day descent

had the market headed for a

collision. The Dow Jones traded

below 10,000 points for most of

the day but managed a 10-point

rise while strong gains from

Intel and Cisco Systems pushed

the NASDAQ almost 1% higher. A

mixed report on America's

labour market showed the

unemployment rate dropped to a

5-month low in January. But

employers unexpectedly cut

20,000 jobs in the same month

bringing the total number of

jobs lost in the recession to

more than 8 million. Global

equity markets have been shaken

by concerns that widening

budget deficits among the

weaker euro zone countries will

hurt economic growth. Locally

Australian shares hit a 3-month

low as Marcus Padley

explains. Well the market's

been doing fabulously whilst

we've been away up until

January 11 that is when it hit

its new high up 58.8% from

March lows last year but since then of course everything's

gone oblong. We've been down

over 9% in 20 day, driven it

seems by Chinese policy

tightening, concerns in Europe

that Spain and Portugal will

have their own Greek tragedy

and concerns in the US that the

jobs picture will upset the US

economic recovery. On top of

that of course Obama's been

doing a bit of bank bashing

which hasn't help and we've

also seen this week the RBA

leave interest rates on hold

which has left some people

wondering whether the RBA

aslittle built on Australian aren't also hedging their bet

from that we're into economic recovery. But apart

from that we're into the

results this season this week

and the start has been really

very good. We've seen results

from News Corp, Tabcorp, hils

stris, ResMed, Navitas all of

which saw price rises in the

week. We've seen profs upgrades

from Aristocrat Leisure,

Panoramic resources. We saw a

bit of a profits downgrade from

AJ Lucas. We also saw sales AJ Lucas. We also saw

numbers from Harvey Norman and

Myer which, like the numbers last week, were Myer which, like the Woolworths

numbers last week, were a

little bit disappointing

although Myer did upgrade their

earnings guidance to above pros

peckt yus broadcasts. We saw

CSR down. We also saw Amcor get a good write up after a good write up after they

completed the acquisition of

the Alcan packaging business of

Rio. But the disaster this week

has been in the energy sector.

We've seen Roc Oil collapse after downgrading after downgrading reserves.

Karoon Gas down on

disappointing production

testing and we've also seen Arrow Energy down after it

became clear that it's going to

cost them a lot more money than

the market expected to develop

their projects and the fear is

they will come to the market

for cash. Winner of the week

this week has been Hills

Industries up 17% after good

industry results an upped

earnings guidance followed by a

lot of broker upgrades. And

loser of week this week has

been the investment banker at

Macquarie who has had 1 million

hit on his YouTube indiscretion. The big fat Greek

debt spooked this markets this

week and sovereign debt is on

everyone's lips so. Is the

global financial system out of

the woods or not and what about the woods or not and what

the Australian banking

industry. Its strength industry. Its strength helped

us to avoid a recession but

funding guarantees it would don't forget without government

have been a very different

story. I asked the chairman of

Bendigo Bank Rob Johanne Sen

Bendigo Bank Rob Johanne Sen to fill us in on how the financial

system is now travelling. Do

you think the world's out of

the woods yet? No. I think

where things are calmer, we can

now start making some decisions

and thinking about implications

for the next couple of years

but there's still a lot of nervousness in various parts of

the banking industry. And

there's a lot of sovereign debt

concerns going on at the

moment, what sort of impact on

Australia do you think they

will have and in particular on

Australian banking? The bank

funding that's been done with

the Australian the Australian Government

guarantee is of course a kind

of sovereign debt. I think

about $140 billion has been

issued in 15 months, since the

guarantee system was put in

place. So at some point the

worlds of banking debt and

sovereign debt cross. Do you

think it means that in fact

when Australia, we quote

Australia's sovereign debt

we're actually understate ing

it therefore? If we're only

counting the liabilities that

actually are borrowings by

governments we are because

there's all these other liabilities that are

effectively being assumed by,

in the end, the taxpayer. Do

you think the guarantee's still

needed? It's been withdrawn, I

think, in some other countries

and at the moment it's not

being used by the major banks.

They seem to be able to fund their requirements without guarantees. But do you guarantees. But do you think

there's still pressure on the

Australian banks? There are

funding pressures. Look at

funding pressures. Look at the rates that are being charged

for retail deposits at the

moment. Competition for retail

deposits is furious. In fact

wasn't there an occasion

wasn't there an occasion where

one of the banks was paying

more for their retail deposits than they were getting for

their loans? Think that

momentary thing was a

momentary thing was a symptom

of the sorts of pressure of the sorts of pressure we've

seen and of course that's

simply an unsustainable product

mix. But sit a symptom of the pressure. And the other problem

we have, I suppose, which is

reflected on banking in

Australia is we have a

structural savings deficit. We

simply don't have enough

savings in Australia to fund

credit. Now do you think that's

going to mean that going to mean that interest

rates will have to go up or

that there will be a restraint

on credit going forward which

will hold back the economy? The

economic boom that we enjoyed

for 10 years was in part at

least driven by credit growth

that happened at 10 and 15% per

annum. We are not seeing that

at the moment. In fact we've

seen a contraction of credit.

So and yet some credit is

necessary oil to the process of

the economy. So we're not going

to see credit being able to

grow in the way it was which

will have its impact back on

the economy. Do you think the

dominance of the big banks

makes the Australian banking

system more or less vulnerable? It makes it less,

as I said earlier, less flexible, institutionally more

rigid and so less able, I

think, to cope with the change

and pressures. It's more the

banks like Bendigo are more in

general going to go broke, are

they? It used to be thought the

bigger you were and the more

diverse you were meant that the

less risk y you were. I think

we now unsz in fact the

capacity of the system to deal

with issues of smaller

institutions is also a part of

the issue. Bendigo is far - got

far more capital on a raw

basis, that is without doing

the risk adjustment

calculations, than the larger

banks in Australia. Our product

offering is far more restricted

where we only act within

Australia. So in some ways our

limitations on activity, I

think, mean we're a more - a

that Commonwealth and safer investment. Do you think

that Commonwealth and Westpac

should have been allowed to buy

BankWest and St George? Well at

the time there were some -

there were of course solvency

issues about at least BankWest

and so the - It had to be taken

over? The health of the system

may well have required may well have required that

sort of thing to take sort of thing to take place.

But as I say, the consequence

is that we've ended up with

this narrower focus, more

rigid, if you like, banking

system. Do you think in the

context of that NAB should context of that NAB should be

allowed to take over allowed to take over AXA? One

of the issues of the savings

dilemma we have is that the savings aren't occurring in

bank accounts, they're

occurring in wealth management

and so to the extent to which

savings then via wealth are

being locked up by banking

institutions, again that's not

helping my argument that we

need more and more flexible

sorts of institutions. So

that's a no? I think that there

are issues that in - that go

beyond just the issues of

competition in relation to

wealth that need to be thought

of. It used to be we had a six

pillars policy. Two of the

pillars were of course AMP and

National Mutual. So when the

pillars policy, if you like,

was set up, it was acknowledged

that savings via wealth

management was an integral part

of this system that needed to

be kept open and

be kept open and diverse. Perhaps people will remember

that. Thanks for joining us. Thank you.

We first visited the

Victorian boutique brewery

Hargreaves Hill 3 years ago

when the business was still

growing and struggling to meet

demand. But a year ago today

the brewery was destroyed in

the devastating Black Saturday bushfires.

It looked like an absolute

war zone, there was nothing

left at all and there were

burnt out cars on the road,

most houses were simply no

longer there. We experienced a

total loss in the brewery.

There was nothing left of the

equipment that was salvageable,

no stock was left and all the

buildings were gone. Simon

Walkenhorst was delivering beer

when the fire storm hit the

Hargreaves Hill brew o on the

property of his parents-in

law. Ed and Amanda survived by huddling beside the swimming

pool dousing themselves in wet

blankets as the fire front

passed. It was about 11 o'clock

at night before we had heard

from them that they had

survived. I suppose it was

survived. I suppose it was a

very emotional time. We were

wandering around for many weeks

wondering what on earth to do

with the whole situation. With

a young family and staff

relying on income from the

business, Simon Walkenhorst

welcomed immediate offers welcomed immediate offers from

competitors to brew the

Hargreaves Hill label. It kept

a little bit of cash flow, it

kept a little bit of money

coming in the door which meant

that we could keep our

employees together. The

business made a successful

expanse into the Yarra Glen

Hargreaves Hill brewing company township late in 2007 with the

restaurant. The fire's

destructive power had a lingering, less publicised

effect wiping out the tourism

and dining trade which created

a new financial strain. Within

weeks though there was a change

in fortune due to another

brewery's mis fortune and the

quick sale of equipment. It was

a larger operation. The brew

length of the new brewery was

three times larger than the old

one. We really just started

working as hard as we could to

get something up and running as

quickly as we could. We knew

that as a family this was our

total income and we needed to

reinstate that as quickly as

possible plus we were now

responsible for a good number

of employees both in the

brewing side of the business

and in the restaurant and we

just simply couldn't see that

whole operation failing. The

business was well insured and

payouts have totalled about

$200,000. But the cost of

reestablishing the brewery and

suburban Lilydale has been

double that amount so this time

around the financial risk is

even greater. It's meant pretty

well an overnight capital

raising, it meant just trying

to make sure that whatever we

set up would be - we could

salvage something if it didn't

go so well. They need to get

there today before so you can

get them for weekend, is that

right? I suppose the red tape

and the bureaucracy and the

paperwork involved with the new

brewery was something that was

probably one of the hardest,

most time consuming and fraught

things that we had to face

throughout the entire process

getting back on our feet. On

the Steel's Creek property the

house ruins remain a sombre

reminder of what was lost.

Although reconstruction is a

much needed distraction. In a

lot of ways it was totally

gutting, in other ways in Yarra

Valley we were surrounded by

the best of humanity as well.

We're looking forward We're looking forward this

year to moving on from last

year. We're looking to grow the

company, we're looking to grow

the brand and hopefully send

our beer a little bit further

through sort of a broader,

wider distribution channel and

see what comes of that.

Kate Tozer reporting and

that's it for the program.

Transcripts of all today's

stories and interviews will be

available on our website.

Thanks for your company, I'll

see you next week. And now it's

back to Barrie and the

'Offsiders' team. Thank Thank

you, Alan. Scandals involving you, Alan. Scandals

drugs in sport are nothing new,

performance enhancing,

possession that sort of thing.

But something new this year But something new this year -

allegations of players

trafficking in drug. Danny

Wicks from the Newcastle

Knights was charged for

trafficking drugs an he was

stood down immediately. Now in

the AFL smed Matthew Stokes has

been charged with trafficking

cocaine. Once again that huge

vacuum that exists before every season gets under way has been filled with all the wrong

headlines but nevertheless

there were some memorable

sporting moment over the summer

break and this morning we'll

recall the best of them.