Rising workforce participation reflects improved jobs market in Qld

I have been commenting on Queensland’s improving labour market for several months now, and the July labour force data released by the ABS yesterday have confirmed that trend is continuing. The State’s unemployment rate remained stable at 6.3 percent in trend terms, significantly higher than the national average of 5.6 percent, but employment has grown at a faster rate than the national average, at 2.7 percent through-the-year to July in Queensland compared with 2.2 percent nationwide (See Qld Treasury’s brief and Pete Faulkner’s post Qld notches up another positive jobs report).

Queensland’s unemployment rate would be closer to the national average if it were not for the strong recovery in the workforce participation rate over the last year (see figure below). This is actually a good sign of the underlying strength of the labour market, but it means that people previously not looking for work have entered or re-entered the labour market and are competing for jobs with the unemployed. So many new jobs will go to new entrants or re-entrants, instead of to the existing unemployed.

LF_July17_Chart1

The Queensland Government was quick to note that the July labour force data show “94,500 net new jobs created under Labor’s economic plan”. The extent to which the Government can take credit for this jobs growth is debatable, but it is certainly correct about the increase in employment in Queensland since the last election (see chart below).

LF_July17_Chart2

That said, as I have noted on this blog before, the bulk of this jobs growth is part-time, with a much smaller increase in full-time positions since the last election (see chart below).

LF_July17_Chart3

Nick Behrens yesterday commented on the strong growth in part-time jobs and the related problem of under-employment:

The surge of Qld part-time employment continues-July 2017

I expect reasonable employment growth (much of it part-time, though) to continue over the remainder of 2017, due to favourable trends in the tourism, education (particularly international education) and the health, disability and aged cared sectors. Some offsetting loss of jobs will be associated with contracting residential construction activity, now that apartment construction is declining.

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Improved economic conditions may give Qld Gov’t confidence to call early election

Queensland political observers were stunned today when State Government Ministers started giving what appeared to be end-of-term wrap up speeches in Parliament, raising the possibility of an early election in September or October. With some of the Government’s recent announcements, and the heavy campaigning by both sides on social media, it certainly feels like an election will be called soon.

The Government may be motivated to call an early election because, as I have noted previously (see this post from July), economic conditions have been improving, and will allow the Government to contrast its performance with that of its predecessor (see chart below based on Queensland Treasury’s latest State Accounts data released earlier this week). The Newman Government had the misfortune of governing during the end of the mining investment boom, when large falls in investment spending detracted substantially from economic growth. The Newman Government’s public service cuts and budget restraint also detracted from growth, although such restraint was arguably necessary to slow down the accumulation of State debt.

Growth_rate_comparison_Mar17

The higher average economic growth rate under the current government—an annual average growth rate of around 3.0% compared with 2.2% under the previous government—may be due as much to good luck as to good management, but the economic growth data will nonetheless serve as ammunition in the Government’s upcoming election battle with the Opposition.

On the latest Queensland State Accounts, also see Pete Faulkner’s post:

Exports lead as QLD economy grows 3.9% y/y, 2.5% ann

Finally, I should note that Queensland citizen journalist David Marler has previously given good reasons why an early election may not be optimal for the Government (see his post At her discretion). The Government could just be playing mind games with the Opposition. But my feeling is that the Government is sensing it should call the election soon, while the economy is performing reasonably well and before a political crisis, such as another “rail fail”, eventuates.

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Protectionist Buy Queensland policy unlikely to survive in current form

Queensland’s new protectionist procurement policy, Buy Queensland, was the subject of discussions today between Australia’s and New Zealand’s Trade Ministers, Steve Ciobo and Todd McClay (see this AAP report). You may recall that late last month the Queensland Government announced the new Buy Queensland policy, whereby it will unashamedly favour local businesses in procurement, giving an excessive weighting (up to 30%) to the criterion of whether a supplier is Queensland based. The policy means that an interstate or foreign supplier could deliver a far superior bid on all the other criteria (e.g. proposed technique, value for money) but still lose the tender.

Superficially, Buy Queensland looks like it is doing Queenslanders a huge favour, but it isn’t. First, it is shielding Queensland businesses from the invigorating effects of competition which ultimately reduces prices for consumers and makes our economy more productive. Second, it risks retaliation from trading partners, including our trans-Tasman cousins in New Zealand, who buy around $1 billion of Queensland’s merchandise exports each year (see chart below). Regrettably, Buy Queensland violates economic and trade agreements Australia has had with New Zealand for at least two decades (see this Sky News report).

Sure, there may be examples of poor procurement decisions where an overseas supplier was chosen largely on the basis of price—reference has been made to the New Generation Rolling stock constructed in India—but price alone should never have been the sole criterion. The problem in such cases was a poor procurement process, not a lack of discrimination in favour of Queensland firms. The Buy Queensland policy means we could end up with perverse outcomes, where some local suppliers that are lower quality and more expensive than interstate or international suppliers are chosen due to the heavy weight given to being a local supplier.

The Buy Queensland policy will make Queensland taxpayers worse off, through higher prices for goods and services purchased by the government, and it risks turning Queensland into a national laughingstock. Under our federal system of government, and under our Constitution, the Commonwealth has the right to make trade agreements with our countries. State Governments cannot unilaterally decide to ignore those agreements.

The State Government will no doubt come under heavy pressure from the Commonwealth Government, which is currently being lobbied by the NZ Government, to amend the policy. Last Friday morning, there was an extraordinary interview on Steve Austin’s 612 ABC Brisbane program in which NZ Trade Minister McClay referred to the Queensland Government’s new policy as “crazy” (see this ABC News report). As an economist and a strong believer in free trade, it is hard to disagree with his assessment.

In 2015, the Queensland Competition Authority devoted a weighty chapter of its Industry Assistance Review Final Report to State Government procurement policy. Unfortunately, the QCA’s strong advice against preferential procurement policies such as Buy Queensland has been ignored by the Government. The QCA observed (on p. 309):

Preferential procurement policies can protect local businesses from international competition, increase procurement costs leading to higher taxation, and disadvantage businesses with higher productivity…

… Public sector procurement decisions should be guided by a single objective — achieving value for money in procurement. Broader economic, social and environmental objectives are best addressed through other policy instruments.

Nick Behrens of Queensland Economic Advocacy Solutions has pointed out substantial flaws with the Buy Queensland policy, and has offered some excellent suggestions regarding how it can be improved:

Queensland Procurement Strategy needs work

There are much better options than giving such a high weighting to being a local supplier. These include greater efforts to train small businesses in preparing tenders for government work, which a lot of small businesses find daunting. In its Industry Assistance Review Final Report, the QCA noted (on p. 309):

…where procurement policies focus on providing information and improving participation in public procurement it may heighten the competitiveness of tender processes and result in improved value for money for taxpayers.

Also, the Government could encourage it agencies to break up government projects being contracted out as much as feasible, so that Queensland small and medium-sized businesses have a greater chance of picking up at least some of the work. A good example of this approach is provided by the Townsville City Council’s new Haughton pipeline duplication project (see this Townsville Bulletin report).

The Government should revise its procurement policy along these lines. Alas, the current Buy Queensland policy is indefensible, and it needs to be reviewed and revised urgently. The Government should cooperate with the inevitable, because the policy cannot and ultimately will not survive in its current form.

Trade_with_NZ

Posted in Queensland Government, Uncategorized | Tagged , , , , , | 1 Comment

My thoughts on Deloitte’s Confidently Queensland Report

Deloitte, one of the big four professional services firms, has recently released a very interesting and informative report titled Confidently Queensland, which presents Deloitte’s goals for Queensland in 2027: liveable communities, a diversified economy, and inclusive growth. The report was co-authored by Deloitte Partner Dr Pradeep Philip, who has recently returned to Queensland. Pradeep’s career so far has included time as a departmental secretary in the Victorian public service and as an economic adviser to Prime Minister Kevin Rudd. Confidently Queensland was guided by a steering committee of Queensland business, public service and NGO luminaries, including John Wagner, Raynuha Sinnathamby and Michael Roche among others. Given these facts, it is certainly a report worthy of serious consideration.

Deloitte sees Queensland’s economy and society being transformed by five mega trends—emerging markets, digital disruption, increased urbanisation, environmental challenges and demographic change—and it sees four industries as supplementing the resources sector and being critical to our State’s economic prospects:

A diversified economy would mean that over the decade to 2027, industry growth in Queensland would not only be recorded in energy and natural resources, but also in tourism, international education, agribusiness and aged care. (from p. 46)

Deloitte has an aspiration for a bigger Queensland, stating an aspiration of boosting Queensland’s annual population growth by 30,000 people per annum and Queensland’s annual GSP by around $50 billion by 2027. It considers that this will require a broad range of policy measures, including investments in Queensland’s education system, improving the health system with a greater focus on prevention, and making Queensland communities more liveable, particularly in the regions, and facilitating the development of a more diverse economy. Deloitte appears to be suggesting that, during the mining investment boom, our State Government was too focused on that sector to the detriment of others.

One of the reports clearest and most concerning messages is that Queensland receives particularly low marks in terms of educational attainment (see chart below). Deloitte notes (on p. 23):

…education has not been a strong point for Queensland in recent years. In fact, Tasmania is the only State with a lower proportion of the population attaining higher education qualifications than Queensland. In a knowledge economy, this just won’t cut it. There is much more work to be done here…

I completely agree. The report later contains some high-level policy prescriptions for improving education in Queensland, through improving funding certainty for State and Territory governments (but that is largely dependent on the federal government), encouraging value for money in delivery, improving workforce capabilities, and creating an integrated higher education system where VET is not seen as the inferior option to university, and one with more “short-cycle” qualifications. No doubt many readers will have heard these prescriptions before.

Deloitte_education_chart

Regarding liveability, Deloitte are correct to identify this as important for our own well being and for attracting people to Queensland, but I think Deloitte might be too focused on the regions and neglectful of SEQ (see p. 86). As I have commented before, State Government capital works spending appears skewed towards the regions already (see my post from last month and the Tropic Now report Economist says TNQ gets more state funding than South-East corner). There are some very substantial State Government investments planned for regional Queensland, including the Townsville Super Stadium and Cairns Convention Centre upgrade, for example.

One of the things I really like about Confidently Queensland is its analysis of Queensland’s economic challenges. For example, the report discusses how our rising energy costs are adversely affecting many industries, and are particularly bad for our minerals processing industry. The report notes (on p. 51):

Queensland’s competitive advantage in energy will never be like it was 30 years ago when governments specifically attracted resource processing to the State. Questions remain over the economic sustainability of minerals processing once legacy contracts cease in coming years.

The report is not specific about what minerals processing plants it has in mind, but I suspect they have in mind the Boyne aluminium smelter at Gladstone, which has recently trimmed its workforce (see this ABC News report), and the Mt Isa Mines Copper Smelter and Townsville Copper Refinery, which are at risk of shutting down (see this Townsville Bulletin report). The closure of these plants would be heavy blows to the Mt Isa and Townsville economies, bringing about the loss of many hundreds of jobs. Deloitte appears to be suggesting that the Queensland Government should plan ahead for these closures, which would involve investigating future training and worker relocation measures.

Deloitte’s three goals—liveable communities, a diversified economy, and inclusive growth—are all worthy goals, but achieving these goals is a great challenge. In this regard, I would have liked more from the report. The report was written at a very high-level and lacked the detail I would have liked to have seen in its policy recommendations. For example, Deloitte could have been harder hitting on retail trading hours’ restrictions, which are still excessive despite recent changes. It mentions the benefits that “expanded hours” could bring (on p. 64), but it does not directly criticise current restrictions. Also, Deloitte could have commented on whether payroll tax should be cut. At least it did recommend reducing stamp duty, which all economists know is a terrible way to raise revenue and should be abolished.

That said, I accept it is the nature of such a broad-ranging report as Confidently Queensland that issues often cannot be dealt with in the depth they deserve. Perhaps Deloitte could release a sequel to Confidently Queensland and have a closer look at those policy settings that are preventing our economy from reaching its full potential, providing more specific policy recommendations.

All things considered, Confidently Queensland is an excellent report and well worth reading. The reader is regularly rewarded with a variety of incredibly interesting facts, including that of the international travel habits of Chinese millennials (see p. 61).  And for those needing to get up to speed with current economic policy issues in Queensland, it is an excellent introduction.

Posted in Mining, queensland, Queensland Government, Uncategorized | Tagged , , , , , , , | 2 Comments

Quiggin calls for economically sensible road charges in outstanding Colin Clark Lecture

UQ’s Professor John Quiggin was only called upon Wednesday to fill in for an ill Richard Holden at the annual Colin Clark Lecture at Brisbane’s old Customs House yesterday morning, but nonetheless he managed to deliver an outstanding presentation titled:

Unscrambling the Toll Road Egg

Quiggin gave a very lucid explanation of what economics tells us about optimal road pricing. Unfortunately, what ends up happening in practice is completely at odds with sensible economics. Our current system of charging for roads is haphazard and not economically sensible. In Quiggin’s view, we could improve community welfare by applying a system of well-designed road charges based on the traffic congestion that motorists contribute to, and by cutting poorly-designed charges, such as motor vehicle registration, in a revenue-neutral fashion. Motor vehicle registration is particularly bad because it is unrelated to the extent of road usage.

Also subject to Quiggin’s disdain is the current unscientific way we toll roads. We have tolled some new roads and tunnels either because our politicians think tolls are necessary to pay for them, or because we have granted a private operator the right to toll them, through public-private partnership (PPP) arrangements. But if a new road delivers net benefits to the community, it can make sense to incur “good debt” to pay for it. Further, it may not have been necessary to have entered a PPP at all, and governments have often entered into PPPs for the wrong reason: to avoid debt showing up on the government’s balance sheet.

We know that charges on toll roads are unlikely to be set at the right level. A rational system of road charges would vary road charges according to the level of congestion on the road, which will vary according to the time of day. But this typically does not occur on toll roads. Toll roads are often severely under-utilised, suggesting the price of using toll roads (relative to the price of using free roads, which are competitors) is too high, and this is inefficient from the community’s point of view. The marginal cost of having another car travel on an under-utilised toll road can be very low, and much less than the cost of the toll. In contrast, on a busy non-tolled road, say Coronation Drive, the marginal cost of having another car on the road, creating congestion and slowing down other roads users, can be much higher. Ideally, motorists would take that marginal cost into account when making the choice of whether and what time to drive. But of course they do not, so there is socially inefficient congestion on our free roads.

To improve the efficiency of our road network, we need to adopt a system of road charges based on congestion, applying to the whole road network, and moving away from the current situation of highly-congested free roads  and under-utilised toll roads. Practically, we could follow the lead of London and Singapore, and start off by introducing a charge to enter the CBD, possibly limited to during the daytime. But eventually charges could be based on the usage of arterial road in peak periods.

Quiggin noted that he thinks the reason politicians oppose a CBD congestion charge is because all the decision makers work in the CBD and hence would be adversely affected, as would most of the people they work and socialise with. But he thinks it would be good policy and may be politically feasible. Quiggin argued that any revenue raised by congestion charges could be used to pay for a reduction in motor vehicle registration, which no doubt would be politically popular. He would also have the government buy privately-owned toll roads, with “good debt” if necessary, so they can be incorporated into a rational system of road pricing.

Road pricing was a fine topic for a Colin Clark Lecture, as Colin Clark himself had written on the topic and would have been in strong agreement with much of Quiggin’s lecture. In his 1982 book Regional and Urban Location, published by UQ Press, Clark observed (on p. 231):

The proposal to tax congestion as an adverse economic externality is not new—it was proposed by Pigou as long ago as 1920, when road congestion was a rarity.

So the concept of a traffic congestion charge is nearly one hundred years old. It is about time we apply the concept in Australia and move toward a more rational system of road pricing, using the money raised to fund a cut in highly-regressive motor vehicle registration charges.

My previous posts on road pricing include:

RACQ should push for demand management options such as congestion pricing

Govt should explore transport demand management options before committing to costly infrastructure

Old_Customs_House,_Brisbane

Brisbane’s old Customs House was the scene of the 2017 Colin Clark Lecture, hosted by the UQ School of Economics

Posted in Transport, Uncategorized | Tagged , , , , , , , , , | 2 Comments

Spit casino cancellation highlights dysfunctional system constraining development

The Queensland Government’s politically expedient decision to cancel Chinese company ASF’s proposed casino-resort on the Spit at Southport completely stunned me yesterday. In its media release, the Government offered no good reason for why it was cancelling the project. If it had a new environmental impact study that showed the casino-resort would adversely affect some endangered fauna or flora in the region, perhaps I could understand the decision. But the media release offers no such convincing explanation.

The Government is now initiating a community-led master plan, which appears to necessarily include a huge public park, which will become the Gold Coast’s “Central Park”. This would no doubt be beneficial to locals, but has the Government produced a cost-benefit analysis showing that would be a better use of the area than an alternative development? Not that I can tell.

This is a highly political decision, which, as others have noted, sends a very bad signal to investors, domestic and foreign. You might be willing to spend billions of dollars, create thousands of jobs, and be willing to endure what is already a multi-year development approval process, but, in the end, our government can just say “whatever, we’ve changed our mind” and it’s game over. (And good luck getting compensation, because the government lawyers had included a clause saying the government reserves its right not to proceed.)

The Gold Coast Bulletin has prepared an excellent timeline of the sorry saga of planned developments on the Spit, starting in 2001 when the Southport Chamber of Commerce first proposed a cruise ship terminal in the Broadwater, a proposal which was accepted by the Beattie Government in 2004, but then rejected in 2006 prior to the election. Which is similar to what has happened to the current casino-resort proposal, which for the last two years appears to have had the support of the State Government. But no longer; there is an election looming.

Tourism has been one of the real bright spots for the Queensland economy, and it is very disappointing the State Government is no longer supportive of a major development in this vitally important sector for our State.

The_Spit

The Spit, Gold Coast, Queensland

Posted in Gold Coast, Tourism, Uncategorized | Tagged , , , , , , | 2 Comments

PC scathing of Qld sugar industry’s “dependency psyche” & “back to the future” re-regulation

One of the low points for the current Queensland Government occurred in late 2015, when it failed to stop the Real Choice in Marketing legislation advanced by Katter’s Australian Party with support from the Opposition and Billy Gordon. This provided cane growers the extraordinary power to force foreign owned milling company Wilmar and other millers to market their sugar through Queensland Sugar Ltd. Prior to this legislation, Wilmar and several other millers had indicated they wished to seek alternative marketing arrangements to QSL (see the QSL website for background).

The Productivity Commission has just published a scathing assessment of the “back to the future” re-regulation of the Queensland sugar industry in its latest Trade and Assistance Review (see section 3.4 from p. 60). The PC considers that “large parts” of the Queensland sugar industry have a “dependency psyche”, a legacy of historic regulation they have a yearning to bring back.

As the PC identifies, the Real Choice in Marketing legislation raises the issue of sovereign risk and may deter future foreign investment in Australian agriculture. So it is fortunate that, following an agreement between Wilmar and QSL in May, there is now an industry consensus supporting a repeal of the controversial legislation. The PC observes that (p. 61):

Reregulation of Queensland sugar was a backward step and the Queensland government should ensure that they do, as indicated in their media release announcing the settlement of the dispute with Wilmar (Byrne 2017), repeal the Real Choice Act.

It certainly was a backward step, and one that raised the prospect of a revival of agrarian socialism. Thankfully that threat now appears to have receded.

But as the PC notes, there remains a deeper problem, and one which is largely a Commonwealth rather than a Queensland Government responsibility, the granting of charity status to QSL in 2015. This charity status means that it would be difficult for a private sector operator to compete with QSL, entrenching QSL’s position in the market. The PC rightly observes:

Notionally, QSL’s not-for-profit status means that it will offer services at a lower cost to users, but in general not-for-profit status simply allows an organisation to be less efficient than its for-profit competitors.

As a charity, QSL is eligible for a payroll tax exemption from the Queensland Treasury, estimated to be worth around $1 million per annum. This is regrettable, given the PC analysis suggests there is no legitimate case for QSL being a charity, and its charity status confers it an unfair competitive advantage. Clearly, the Australian Government should undertake a review of QSL’s status as a charity.

TAR_2016_17

Another outstanding Trade & Assistance Review from the Productivity Commission

Posted in Agriculture, Uncategorized | Tagged , , , , , , , | 1 Comment