My comments in Saturday’s Courier-Mail on payroll tax concessions—e.g. for BrewDog & Disney

With the possible exception of President Trump, the most interesting American politician at the moment is the millennial, freshman member of the House from New York, Alexandria Ocasio-Cortez (AOC). She is one of the main players is what The Economist earlier this year described as “The rise of millennial socialism”. AOC has been criticised heavily by conservatives for her proposed Green New Deal and her apparent belief in so-called Modern Monetary Theory. But at least one of her policy positions has been sensible from an economic perspective: her rejection of tax breaks and other financial incentives to lure big companies to invest in particular regions.

Rightly, AOC opposed NYC and NY State offering Amazon $3 billion in financial incentives to build its second headquarters in Queens. Now that HQ is going to be built in Arlington, Va., but AOC was right to oppose the deal. Regional governments around the world need to stand up to the game-playing corporations who are trying to play different governments off against each other to secure the best financial incentives they can.

Unfortunately, the Queensland government has, from time-to-time, given in to the demands of companies for financial sweeteners to induce them to invest here. As I recently mentioned to Steven Wardill from the Courier-Mail, who quoted me in his article Manufacturing sector sheds 18,000 jobs under Palaszczuk Government (also see figure below), it has been a failed strategy:

Mr Tunny said the Palaszczuk Government was going the wrong way about creating the private sector jobs needed to pay for an ageing population.

“They are doing things through payroll [tax] like discounts for movie studios and breweries,” he said.

“Yet the way to do it is through the education system.

“We need to encourage young people to be innovative because they are the ones that are going to create the new industries.”

For a good example of the failure of industry attraction efforts, consider that, in 2001, the Beattie government provided financial incentives to lure Berri Fruit Juice to move some of its manufacturing operations to the state, but 12 years later Berri shut down its juice manufacturing operation in Queensland (see p.28 of the QCA’s excellent 2015 Industry Assistance Review Final Report). Instead of wasting time and money chasing footloose businesses, we should instead focus on getting the basic policy settings right, particularly in taxation and in the education system.

One prominent recent example of a dubious Queensland government financial incentive to business was the one provided to BrewDog, the Scottish craft brewer, which Nick Behrens and I were critical of early last year:

Comments on BrewDog being lured to Brisbane in the Broadsheet

As Nick pointed out in his QEAS blog post, the state government was effectively subsidising a foreign-owned brewer to set up and compete with 20+ local brewers. To minimise the political damage, the state government had to scramble to develop a craft brewing strategy for the whole industry. Now it turns out BrewDog’s level of investment in the state is being scaled back, raising a big question about the bang-for-buck of whatever exact incentives were provided by the state government:

BrewDog scales backs Brisbane plans

Regular readers will know I’ve also been critical of film industry assistance provided by both the state and federal governments:

Fact check on PM’s comparison of GC film industry to tourism in economic contribution terms

manuf

Advertisements
Posted in Industry policy, Uncategorized | Tagged , , , , , , , , , , | 4 Comments

Let’s keep the “Renewable energy jobs surge” in perspective

Yesterday the ABS released its latest renewable energy jobs estimates and its media release reported a Renewable energy jobs surge on the back of solar. My colleague Nick Behrens from QEAS tweeted about the new data and produced the chart below which I’ve borrowed for this post. Now I can understand the ABS’s need to write punchy headlines that capture the attention of journalists and pundits, but I’m concerned the ABS is not applying its usual level of rigour in defining jobs associated with particular sectors. The ABS is including in its broad definition of renewable jobs those jobs associated with the construction of renewable projects such as solar farms:

In this publication renewable energy employment is defined as employment in activities principally motivated by the production of renewable energy, and/or by the design, construction and/or operation and maintenance of renewable energy infrastructure.

This is an odd definition and one which, incorrectly in my view, conflates jobs in the construction and operational phases of renewable projects. It gives a potentially misleading impression of the relative ongoing contribution to employment of the renewable energy sector. Undoubtedly there is currently a large amount of construction of renewable energy projects and that will no doubt continue in the foreseeable future, but once these projects are up and running, their contribution to employment will be much, much lower.

For example, earlier this year Townsville City Councillor Margie Ryder made the following observations in a Townsville City Council post regarding a recently approved solar farm at Bluewater:

This development is expected to create 200 jobs during the construction stage and support 3 ongoing jobs when it is operational.

That is, the level of employment in the operational phase is 1.5% of the level in the construction phase for that particular solar farm.

Even if you include construction jobs, the aggregate level of renewable energy employment (around 5,000 full-time equivalent employees in Queensland) isn’t that large relative to other sectors. For example, Reuben Lawrence’s Economic Contribution report for the Queensland Resources Council notes there are over 35,000 FTEs directly associated with the resources sector.

In summary, I suspect renewable energy, despite whatever other merits it has, will not be a major employer of Queenslanders beyond the construction phases of renewables projects.

Renewables_chart

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

Digital Minimalism calls for cost-benefit analysis of social media apps & digital tools

On the 612 ABC Brisbane Drive program yesterday afternoon, host Steve Austin suggested to Education Minister Grace Grace that increasing use of laptops, tablets, and smartphones could be behind declining NAPLAN scores for writing over the last decade.  Steve noted correlation doesn’t imply causation, but his proposition struck me as credible. Certainly many of us now have the feeling that all the new digital tools which are facilitating constant connectivity and often shallow forms of communication via Facebook and Snapchat are having adverse consequences. We are less focused, less productive, and more anxious, as we are constantly bombarded with new requests or reminded about previous commitments.

Since the publication of his 2016 book Deep Work, Georgetown Computer Science Professor Cal Newport has led the resistance against the onslaught of social media and constant connectivity that is distracting us from the focused deep work we ideally should be doing. His latest book Digital Minimalism: On Living Better with Less Technology, published in February by Penguin, may well be the most important business book of the year.

As an economist who frequently calls for greater use of cost-benefit analysis in decision making, I was very glad to see Newport’s definition of digital minimalism. Rephrasing it in economic terms, the philosophy is only to use digital tools which deliver net benefits, taking into account the full opportunity cost of your time and attention. Newport notes (on p. 29):

The so-called digital minimalists who follow this philosophy constantly perform implicit cost-benefit analyses. If a new technology offers little more than a minor diversion or trivial convenience, the minimalist will ignore it.

For many of us, it may well be optimal to abandon Facebook or Twitter, or at least to adopt strict standard operating procedures for social media use—e.g. I will only check Facebook for half an hour on a Saturday afternoon and then I will intentionally only check what family and close friends are up to. Newport argues you’re best off deleting social media apps from your phone, and he notes not even Steve Jobs realised how distracted we would become by our smart phones when he launched the iPhone in 2007. The value proposition Jobs emphasised was that the iPhone is an iPod that doubles as a phone, so you don’t have to carry two devices. But Facebook, Twitter, Snapchat, et cetera have changed everything, and now the few of us who are (largely) immune need to constantly watch out for all the “smombies”, the smart phone zombies, who are a danger to themselves and others on our city streets.

We can’t return to the pre-iPhone world, nor would it necessarily be desirable to do so, but we can certainly become smarter in how we use all the new technology. Cal Newport may have just solved this problem for us in Digital Minimalism. If widely adopted, I expect his advice would lead to significant improvements in productivity and well being.

Digital_minimalism

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

Cash is king – Seth Godin’s latest podcast episode “Money flows”

Seth Godin’s latest Akimbo podcast episode Money flows is a lucid introduction to the importance of cash flow for business health. Even businesses that appear to be thriving can get into trouble due to the gap between the commencement of projects and final payment, which can often be several months. Seth gives lots of excellent practical advice on how to avoid cash flow problems, and is an advocate of bootstrapping, whereby you develop a business model that enables you to receive a large share of payments up front from customers, to help you do the work and deliver.

I well understand the importance of cash flow, as a small business person, and also through my consulting and work experience. Last year, I worked with Craig Lawrence of Lytton Advisory on a project for the Resource Industry Network on the impact of extended payment terms (e.g. 60 days rather than 30 days after an invoice is approved for payment) on businesses in the supply chains of mining companies in Queensland. You can read about the implications of extended payment terms for business cash flow and sustainability in our report, which is available via a link in this RIN news article reporting that, pleasingly, BHP has announced a restoration of 30 day payment terms:

Resource Industry Network Welcomes BHP Announcement To Implement 30-Day Payment Terms For Its Supply Chain

Cash flow is also important to governments, a lesson that was drilled into me during those crazy months in late 2008 and early 2009, when policy makers around the world were dealing with the financial crisis. While the time itself was incredibly stressful, I later had an enjoyable conversation with 612 ABC Brisbane’s Steve Austin about some of my experiences during that time in 2017:

Interview with ABC Radio’s Steve Austin on “The time Australia’s Treasury almost ran out of money”

It was during those crazy months when I first learned about Queensland’s own fiscal crisis, from visiting Queensland Treasury officials who were pleading with the Commonwealth for assistance, as I discuss in my book Beautiful One Day, Broke the Next, which the State Library of Queensland will have available for sale prior to the upcoming Grattan Institute budget event I’m speaking at next Tuesday:

2019 Federal Budget: unpacking the economics and politics for Queensland and Australia

Cash

Posted in Budget, Mining, Uncategorized | Tagged , , , , , , , , | 4 Comments

ABC radio interview on 2019 Budget – why Laurie Oakes is to blame for tight security

I had an enjoyable chat with Craig Zonca and Loretta Ryan on 612 ABC Brisbane this morning regarding the upcoming federal budget, particularly regarding security around the budget. You can hear me from around 48 minutes, 28 seconds into the recording:

Breakfast, Tuesday 2 April 2019

Note this link will self-destruct after around one week.

The interview was prompted by a quirky Fairfax story from yesterday, a story which doesn’t appear to have been an April Fool’s day joke:

Budget paper one night stand ends for Treasury officials

I noted the intense security around the budget is partly a result of journalist Laurie Oakes having got his hands on the 1980 budget papers, days before the budget was to be brought down by then-Treasurer John Howard.

As a matter of clarification regarding my response to the final question in the interview, the federal government has already funded a feasibility study for high-speed rail. The expected rail announcement in the 2019 Budget relates to $700 million for the South Geelong to Waurn Ponds rail upgrade (see this ABC News report).

Finally, I am a panelist at a Grattan Institute event in Brisbane Tuesday night (9 April) next week at the State Library:

2019 Federal Budget: unpacking the economics and politics for Queensland and Australia

perspectives-treasury-building-post-486x324

 

Posted in Budget, Uncategorized | Tagged , , , , | Leave a comment

Qld’s 2nd Health Crisis in 15 years – read about the 1st in my book Beautiful One Day, Broke the Next

The more things change, the more they stay the same. Queensland’s health system is again in crisis, with Queenslanders told by our ministers only to use the public hospital system in an emergency. And, predictably, the Premier is blaming the federal government. As the Courier-Mail reports this morning:

THE Premier has again attempted to deflect blame to the Federal Government over Queensland’s health woes.

Annastacia Palaszczuk claims the Federal Government owes her government $300 million in health funding.

The involvement of both federal and state governments in the health system is one of the underlying causes of the current crisis, of course. The other underlying cause is that, as Queensland Health’s website notes:

If you are eligible for Medicare you can access: public hospital and community-based services for low or no cost…

We have made a value judgment as a society that public health is important and should be heavily subsidised. That is fine, but we need to understand the economic consequences of that choice. We are setting aside the price mechanism which we rely on in so many markets to balance supply and demand. In other markets we ration by price, but in health we need to ration by quantity, meaning that, in Queensland, we now have to tell people to stay away from public hospitals unless it’s a life-or-death emergency.

Sure, we have had population growth and a spike in summer flu cases, but if we have a purely demand-driven system we are always at risk of having insufficient capacity. As a caller asked Steve Austin on his 612 ABC Brisbane Drive show yesterday afternoon, how would our hospitals cope if there were a major incident (e.g. plane or bus crash, natural disaster, etc)?

I should say the Premier is partly right to blame the federal government, as both state and federal governments are responsible for the health system, but she needs to recognise her government’s own role in the mess. State and federal governments both need to work together to find a solution and, ideally, one level of government would eventually leave health solely to the other level of government, so there is clear accountability.

You can read about Queensland’s first health crisis, which began with the revelations about “Dr Death” at Bundaberg Hospital in 2005, and resulted in a panicked, costly response from the Beattie government, in my 2018 book Beautiful One Day, Broke the Next.

cover

Posted in Health, Uncategorized | Tagged , , , | 4 Comments

Bad economic news keeps coming – declining job vacancies & inverted US yield curve

The federal Department of Jobs and Small Business published its February 2019 internet job vacancies data last week, and it revealed a continuation of the downward trend in job vacancies, which were 5.5% lower in Queensland and 4.0% lower nationally than the year before (see the chart below). This appears consistent with the downswing in the economy I suspect is now occurring.

vacancies_feb19

The fall in vacancies was experienced across most occupational groups, with the exception of professionals, largely in health and education, and community and personal service workers (e.g. carers and aides), most likely due to the NDIS.

ttygrowth_occ

Also, consistent with the story of an economic downswing, nationally and potentially internationally, too, are the reports that Hundreds of Queensland retailers are at risk of collapse and that the yield curve for US Treasury bills and bonds has inverted for the first time since 2007, which was the year of the sub-prime crisis and the start of the panic which culminated in the global financial crisis in late 2008. As the Financial Times reported last Friday:

…the difference between two- and 10-year yields dipped below 10 basis points for the first time this year. This is the primary indicator that investors watch because it has inverted — where short-dated yield rise above longer-dated yields — before every recession since the second world war.

As noted in the Financial Times article, an inverted yield curve is not a perfect predictor of a coming recession, but it certainly did spook financial markets when it occurred.

I should note Queensland did have a surprisingly good result in the ABS labour force figures for February, which were published last Thursday, with the seasonally adjusted rate falling to 5.4% and the trend rate to 5.7% (see the Qld Treasury briefing). This was due largely to a fall in labour force participation, however, so I’m not getting too excited about it. Given our relatively younger population, it seems very odd that Queensland’s participation rate is now at 65% compared with the national average of 65.6%. The peculiar data may be related to a change in the composition of the ABS’s sample of Queensland households. Indeed, we know the ABS had difficulty getting data from its Townsville households due to the floods, as noted on the ABS website and in Pete Faulkner’s post, raising questions about the reliability of the data. So we need to wait and see whether the Queensland unemployment rate stays at this lower level. As always, we need to be cautious in interpreting month-to-month changes in the labour force data.

Finally, as I’ve noted before, I undertake my data analysis and charting using R, the data science programming language, which I can’t recommend highly enough. I’m trying to convert others to using R and am running an upcoming course which I discuss in this new video:

Here is the link to the Eventbrite page for the course:

Data science with R: Introduction with a focus on ABS economic data

Posted in Labour market, Macroeconomy, Uncategorized | Tagged , , , , , , , , , , , , | 2 Comments