PC calls for partial inclusion of family home in pension means test

Last week, Treasurer Scott Morrison warned young Australians not to expect they can rely on the age pension in the future. This was good advice, because the budgetary pressures facing the Commonwealth Government, emphasised again this week in grim forecasts of permanent deficits from Deloitte Access Economics, mean that the sustainability of current policy settings for the age pension is in doubt. Of course, one way the Commonwealth could improve the sustainability of the age pension is by limiting eligibility through including the family home in the means test. This would discourage retirees from tying up so much of their capital in housing, and would encourage them to draw down this capital to support their retirement.

There is partial support for this proposition from the Productivity Commission, which has today released an interesting research paper entitled Housing decisions of older Australians, in which it notes (p. 117):

In principle, including the full value of the principal residence in the Age Pension assets test would improve efficiency and equity.

However…removing the exemption entirely in the immediate future is intractable.

At a minimum, there is a strong case on equity grounds for setting limits on the value of the principal residence that is exempt from the Age Pension means test.

The thresholds beyond which the family home would be included in the means test could be $750,000 for couples and $500,000 for singles, as recommended by the National Commission of Audit, for example.

Also, in the interests of economic efficiency through encouraging labour mobility, the Productivity Commission recommended removing State Government stamp duty on housing transactions. This is another excellent policy recommendation. I hope this latest report from the Commission is widely read by policy advisers and their political masters.

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Governments find a gentle nudge can get results

Australians should be prepared for more nudges from government agencies encouraging us to do the right thing, similar to recent examples such as letters from the ATO urging us to pay our taxes to support our way of life, and their friendly SMS reminders to lodge our tax returns on time. For the Australian Government has established its very own behavioural economics unit, otherwise known as a nudge unit, to figure out how it can shake us citizens out of our typical inertia and do the right thing, whether that be paying our taxes on time, eating the right food or not drinking or gambling too much (see Peter Martin’s excellent recent article Just a nudge). The new nudge unit was launched by US behavioural economics expert, Harvard Professor and White House adviser Cass Sunstein, who was in Australia last week, and indeed made his way to Brisbane to deliver a presentation at QUT. Alas, I was unable to attend his presentation but I did get a copy of the slides which you can download at the link below.

Sunstein presentation on Nudging Citizens

Posted in Social policy, Tax, Uncategorized | Tagged , , , , , | 2 Comments

Building construction rebounded in September quarter, but still below previous highs

All the cranes on the Brisbane skyline, from the Valley and Newstead, to West End, Milton and Toowong, might suggest there is a building boom underway. Certainly activity is increasing in the building industry. Building construction work done in Queensland rebounded 4.0 per cent in the September quarter, after a 6.8 per cent fall in June quarter, and is now 2.7 per cent up through the year (see chart below based on ABS estimates released yesterday). This is not an extraordinary growth rate, however, and so we cannot say the sector is booming just yet. Furthermore, building construction activity is still below levels seen prior to the 2008 financial crisis and (temporarily) during 2010 when the sector was building a lot of new school halls funded by Rudd-Gillard’s Building the Education Revolution.


Additional perspective is provided by comparing building construction activity with engineering construction activity, which continues to fall from the extraordinary highs it experienced during the mining boom.

Regarding recent economic trends, there is an excellent new post from Pete Faulkner comparing ABS and Queensland Treasury economic growth estimates for Queensland:

Queensland growth confusions…an attempt to explain

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Courier-Mail’s Paul Syvret on my “coldly commercial prism”

Thanks to the Courier-Mail’s Paul Syvret for quoting my last post in his Saturday opinion piece on the proposed new 1,500 seat theatre for Brisbane (see Opinion: New inner-city theatre would be a boost for Brisbane, which may be behind the paywall):

Already the move has attracted some criticism. Economist Gene Tunny, for example, describes the project as “a complete waste of taxpayers’ money” and questions whether such a facility is needed in the first place, and if so, then surely there is a business case for the private sector to develop it, not the taxpayer.

Viewing such a project through a coldly commercial prism, Tunny is right, in that in a very narrow sense it is in effect a government subsidy of the arts sector.

This ignores however both the capacity constraints of our existing facilities, and the multiplier effects of investing in such infrastructure.

Responding to Paul’s piece, first, I do not think I have ignored the capacity constraints. I just cannot see any justification here for the Government increasing capacity, rather than the private sector doing it when there is sufficient demand to justify it.

Second, I would not deny the existence of multiplier effects. However, multiplier effects, which may be estimated using input-output or computable general equilibrium models, are typically irrelevant to the cost-benefit analysis of public projects. And it is the cost-benefit analysis that determines whether the project delivers net benefits to the community (i.e. whether it stacks up), and which should be the focus of any business case.

The Queensland Government’s Project Assessment Framework supplementary guidance material on cost-benefit analysis from July 2015 is instructive (p. 16):

Benefits identified in economic impact analysis using an input-output approach should not be included in cost-benefit analysis for several reasons including:

  • although any project will generate economic activity, directly and indirectly, these effects could also be generated by an alternative use of the resources…

I trust the $1.3 million business case that is being prepared for the new theatre will contain the correct treatment of any multiplier impacts.

Posted in Arts, Uncategorized | Tagged , , , , , , , , , , , , , , | 6 Comments

New 1,500 seat theatre would likely be a waste of taxpayers’ money

The Queensland Government is commissioning a relatively large business case, at a cost of $1.3 million, for a new 1,500 seat theatre for Brisbane, but it is likely there can be no plausible business case, because the theatre would be a complete waste of taxpayers’ money. It appears the construction of a new theatre would be funded from the Government’s proceeds from the Queen’s Wharf development (see this media statement from Monday). There would certainly be better public uses, such as in health and education, for any government funding for a new theatre, which would cost many tens of millions of dollars.

Queensland already has a large theatre. The Lyric Theatre at QPAC has 2,000 seats. Presumably there is a push for a new 1,500 seat theatre because the Lyric Theatre is relatively well utilised by touring musicals. Any business case would need to clearly set out why exactly a new theatre is needed and why it deserves government funding. It would need to establish why, if there is sufficient demand for a new theatre, the private sector will not build it. And why should government funding be provided?

The Queensland Government already owns a venue, QPAC, which appears more than sufficient to host a large number of edifying cultural productions from our theatre, ballet and opera companies. Is the problem that touring musicals and cultural productions are competing for slots at the Lyric Theatre? If so, then let us wait until the unmet demand from touring musicals is sufficient to make the construction of a new theatre by the private sector commercially viable. I cannot see the need for the Government investing in a new theatre.

I would note the Government already spends significant money on the arts in Queensland ($9.3M for the Queensland Performing Arts Trust and $2.6M for the Queensland Theatre Company in 2015-16). This involves a government subsidy to the mostly well off people who attend the ballet, symphony, theatre and opera. There is not a compelling case for greater public support for the arts.

The Queensland arts community itself does not appear totally convinced there is a need for a new 1,500 seat theatre, as some in the community are arguing what we really need is a 500 seat theatre with better facilities than the Powerhouse Theatre which is around this size (see this Brisbane Times article). This makes me even more sceptical of the need for a new 1,500 seat theatre.

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QIRC hearing important case on retail trading hours

The Queensland Industrial Relations Commission is currently considering an application from the National Retail Association, which represents big retailers such as Coles and Woolworths, for standardised trading hours across South East Queensland, which would extend opening hours, e.g. up to 9pm on Saturdays, in many locations (see this ABC news report). The first day of the hearing considered a report into the economic benefits of retail trading hours deregulation. The report was prepared in early 2014 by Professor Henry Ergas, Dr Alex Robson (now PM Turnbull’s senior economic adviser) and Joe Branigan, a former Treasury colleague and old friend of mine, who had to appear before the QIRC and defend the report yesterday. The report includes an estimate that up to 2,000 extra jobs could be created if there were full deregulation of retail trading hours across the State.

The methodology and data sources supporting the economic report were subject to an intense line of questioning from the counsel representing the independent grocers (e.g. IGAs) who are opposing the NRA’s applications. Despite the intense pressure, Joe was able to offer some moments of brilliance, such as when he referred to former Treasury Secretary Ted Evans’s observation that “in one sense, we can choose the level of unemployment which we are willing to bear” (see my 2014 post Unemployment rate is partly a policy choice). That is, the choices we make regarding economic and social regulations, such as on retail trading hours, can affect the level of unemployment. I have previously argued that removing restrictive regulations such as those on retail trading hours would boost employment, particularly among young people.

It would be good for the Queensland economy if the NRA case were successful. Unfortunately, in the hour-and-a-half I attended the hearing yesterday, I received the impression that the NRA team was a little under-prepared for the case. It became apparent that the NRA had not fully briefed Joe on the exact nature of its application, and this meant Joe had to concede to the counsel for independent grocers that he was unaware the definition of SEQ relevant to retail trading hours is significantly different from the definition of SEQ used by the Queensland Government and the ABS for economic statistics. This seems like a pretty important fact that the NRA should have picked up and briefed Joe on, given the NRA is relying on Joe to provide credible expert evidence to advance its case. Let us hope the NRA improves its game over the remaining days of the hearing.

Posted in Uncategorized, Retail trade | Tagged , , , , , , , , , , , , | 8 Comments

Qld employment growth is great news, but it is still not strong from historical perspective


Wisely, Queensland Treasurer Curtis Pitt did not get too excited over yesterday’s employment numbers, which were surprisingly strong at a national level, with the Treasurer noting, regarding the State unemployment rate, “While it’s welcome news that the seasonally adjusted unemployment rate fell 0.1 per cent to 6.2 per cent in October the ABS’s recent caution about the volatility of seasonally adjusted figures should be noted.”

The Treasurer was right to point out the good news of very respectable employment growth in Queensland in recent months (see chart above). Many of the new jobs were likely in the building industry and hospitality, particularly as the lower dollar boosts tourism and as households are starting to shake off the frugality induced by the financial crisis.

The jobs growth we are seeing is welcome, but could be much higher. As Pete Faulkner has noted in an excellent dissection of yesterday’s ABS labour force data (see Strong jobs growth sees unemployment rate in surprise drop):

Trend jobs growth in QLD has been running at a pace greater than the expansion of the working population. The labour market has seen some credible improvements in recent months and a continuation at this pace should see the unemployment rate steadily drifting lower.

In other words, jobs growth is good, but not great, particularly from a historical perspective. The unemployment rate will only steadily drift lower, rather than experiencing large rapid falls. And there is, of course, the possibility that recent gains could be reversed, if some of the risks to the economy that have been highlighted in recent months (e.g. declining business investment and a China crash) are realised. So, it is not yet time to get excited about the economy.

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