How high agreeableness meant Aussies tolerated COVID restrictions – latest podcast episode with QUT’s Dr Stephen Whyte

It’s been remarkable how tolerant Australians have been of all the COVID-related restrictions, some of which, to me, appeared excessive and unjustifiable, such as some of the interstate border restrictions and the snap three-day Brisbane lockdown earlier this year. QUT’s Dr Stephen Whyte undertook some fascinating research last year in which he and his co-authors explored the relationship between personality traits and compliance with COVID guidelines and restrictions (Can Psychological Traits Explain Mobility Behavior During the COVID-19 Pandemic?).* Rather than Australia being full of larrikins who wouldn’t abide by guidelines or restrictions, Australians are, on average, highly agreeable and this meant high levels of compliance, as Stephen told the ABC’s Kat Davidson earlier this month (COVID lockdowns prove Aussies aren’t larrikins after all). I interviewed Stephen on his research earlier this week and I’ve now published our conversation as my latest podcast episode. I hope you enjoy it.

*The big five personality traits are extraversion, agreeableness, openness, conscientiousness, and emotional stability (or its obverse, neuroticism).

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Most host cities lose money on the Olympics – SEQ Olympics needs to be delivered cost-effectively

While it’s exciting news that SEQ is the lead candidate for the 2032 Olympics (check out the Brisbane Times report), the reality is that the Olympics probably won’t be an economic boon and it will end up costing Queensland taxpayers and SEQ ratepayers. You can argue it’s a good thing to host the Olympics, for community spirit and to encourage participation in sport, but it’s hard to make an economic argument for it, given most host cities lose a lot of money – Montreal in 1976 being the classic example – unless the host city re-uses a lot of old facilities (e.g. LA in 1984) or it really does signal a re-opening of the city to the world and stimulates a tourism boom (e.g. Barcelona in 1992).

We need to deliver an SEQ Olympics cost-effectively, which is why it is concerning the Brisbane Lord Mayor sees this as an opportunity to spend big on infrastructure (see Brisbane lord mayor calls for decade-long Olympics boom). Sure, some infrastructure spending may be needed, but let’s make sure the cost-benefit analysis studies are done and the projects stack up over the long-term.

I made some comments to CPA Australia’s In the Black magazine about the Olympics bid earlier this month and hopefully the magazine will be available soon. Previously I commented on the SEQ Olympics bid on QEW in 2016 when it was first announced:

SEQ should note growing realisation the Olympics is a waste of money

Brisbane City Coat of Arms, corner of Wickham Terrace and Albert St, Spring Hill, Brisbane. Photo by Jennifer Tunny.
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Interest rates and inflation with Michael Knox, Chief Economist of Morgans

Jonathan Shapiro has an interesting article in the Financial Review, Why the market has suddenly woken up to inflation, in which he writes:

…the lower-for-longer [interest rates] doubters are re-emerging. They believe deliberately slow-to-act central banks in the US and in Australia, stimulus cheques and pent-up spending will turbo-charge economic activity and unleash the inflationary forces many thought were gone for good.

Shapiro notes the bond market is starting to expect higher future inflation, with longer-term bond yields rising (e.g. check out the chart below). Higher bond yields, which mean higher borrowing costs for governments, will impact future government budgets and may force governments to make difficult decisions in a few years time as they face rising interest bills. However, central banks are keeping shorter-term yields (and, for now, home loan rates) suppressed through their traditional open market operations in the overnight cash markets and by Quantitative Easing – e.g. RBA purchases of three-year Treasury bonds in Australia (to target a 0.1% yield) and the RBA’s Term Funding Facility providing additional cheap finance to banks for business lending.

Given the states of economies worldwide, there is a lot of scepticism about current expectations of inflation, with CNBC reporting ‘This is not inflation’: Economist says expectations are unanchored from reality. That said, there’s little doubt we’ll see much higher inflation and interest rates eventually (especially given the trends examined in The Great Demographic Reversal). The big question is when.

Earlier this week, I spoke with Michael Knox, Chief Economist of Morgans, about his views on inflation and interest rates in his latest note The Fed – Allowing the economy to run hot. In his note, Michael observes:

The Fed has changed its inflation targeting policy to a longer run average inflation rate. The US likely gets back to full employment by 2023. After that, higher inflation may start a bond market bear market which will be hard to hold.

A bear market in bonds would mean a crash in bond prices and a surge in yields/interest rates, as the price and yield of a bond are inversely related. Michael Knox sees that happening after 2023 in the US and I expect we could see that repeated in Australia. To listen to Michael’s thoughts and his insightful and entertaining commentary on interest rates and inflation, check out our conversation which I’ve published as the latest episode of my Economics Explored podcast The Fed and Inflation Targeting.

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ABC radio story on Hollywood blockbusters crowding out local productions featuring David Williamson and me

When an ABC journalist contacted me a couple of weeks ago about excessive federal and state government subsidies to international film productions such as Thor: Love and Thunder, I mentioned it wasn’t just hard-headed economists like me complaining. Cultural luminaries, such as legendary Australian playwright David Williamson, are also concerned about all the assistance going to international productions – e.g. at least $24 million to the new Thor movie, according to Create NSW. Unfortunately, I missed the resulting story from my conversation with the ABC journalist when it was aired last Thursday, but it’s available via the ABC website, and it includes commentary from both David Williamson and me (from 2:25):

Concerns Hollywood blockbusters crowding out local productions

Williamson would rather see that any assistance largely goes to domestic productions which tell genuinely Australian stories. That’s a good call.* Some of my favourite films are those classic SA Film Corporation films from the seventies, such as Sunday Too Far Away and Picnic at Hanging Rock. Let’s support productions that tell Australian stories, rather than fantasy stories from mega-profitable multinationals like Disney.

Legendary Australian playwright David Williamson is also sceptical about current government subsidies to international film productions.
Attribution: Snapandrattle33, CC BY-SA 4.0 https://creativecommons.org/licenses/by-sa/4.0, via Wikimedia Commons

*I’d go further, however, and wouldn’t give international productions any special treatment.

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‘Hollywood Australia’ supported by generous tax credits and other government subsidies

The Australian is reporting ‘Hollywood Australia’ a $1.5bn movie blockbuster extravaganza, covering the surge in international film productions such as Thor: Love and Thunder filming in Australia. This is partly related to Australia’s success in managing COVID and also to super-charged tax incentives and other government subsides offered by the federal and state governments. For example, check out the PM’s July 2020 announcement New $400 million incentive to boost jobs for screen industry.

I’ve long been sceptical about the special industry assistance provided to the film industry. In my view, this assistance mostly benefits multinationals such as Disney rather than Australian taxpayers, who may end up being worse off (e.g. check out my 2017 Centre for Independent Studies Policy paper: The case against film industry subsidies).

In my latest Economics Explored episode, EP74 Industry Assistance and Crony Capitalism, I catch up with my good friend Darren Brady Nelson, Chief Economist at LibertyWorks and a policy advisor at the Heartland Institute, to chat about the economics and political economy of industry assistance. We also touch on the concept of Crony Capitalism. Like me, Darren has long been a critic of industry assistance, aka corporate welfare, and in the episode he tells me about his time in NSW Treasury advising against state government financial assistance for Fox Studios in Sydney.

Hollywood sign, LA, California, USA

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Post-JobKeeper viability a concern of many Qld businesses

The Chamber of Commerce and Industry Queensland (CCIQ) has released its CCIQ Pulse Survey of Business Conditions for December quarter 2020, and it shows a continuation of the recovery in the second half of 2020 in business conditions and confidence (see chart below). That’s consistent with what we know from ABS data and other surveys. The 12-month outlook for Queensland businesses is actually higher than it was at the end of 2019, although the high degree of sampling error in the survey should be acknowledged, as should the outlook measure still being below the neutral level of 50.

Importantly, the report (on p. 13) also shows that a minority, but apparently a sizable minority, of Queensland businesses remain concerned about the future, and I suspect many businesses are very concerned about what happens when JobKeeper ends in late March:

At the close of 2020, businesses are mostly optimistic for their ongoing sustainability when stimulus support ends. Following a mostly positive December quarter, the proportion of optimistic respondents grew to over two thirds (67%). This finding does not suggest that challenges aren’t still present. There remains 32 per cent of businesses that believe their operation may cease in 2021 due to persisting challenges stemming from the COVID-19 crisis. [emphasis added]

That’s very concerning. While it’s expected the economic recovery will continue in 2021, there is no doubt that there is a lot of uncertainty regarding what happens when JobKeeper ends, particularly whether consumers and businesses will spend a good fraction of the $200 billion of savings accumulated during the pandemic.

Over the next few months, the insolvency statistics will reveal just how much financial damage has been done to businesses across Australia. I’m particularly concerned about those in Queensland’s regions most dependent on international tourism, such as Cairns and the Whitsundays. In a recent LinkedIn post, former CCIQ Chief Economist Dr Marcus Smith observed:

The number of business insolvencies fell dramatically over the period of the Federal Government’s moratorium to December, but is the honeymoon over?

Insolvencies started to tick up at the end of 2020, as Marcus showed in charts of ASIC data he posted earlier today (see chart below). We expect to see many more over the coming months.

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Qld frontline police per capita down nearly 4% since 2013-14, PC ROGS report reveals

The number of Police Service operational staff per capita has fallen nearly 4% since 2013-14, from 296 per 100,000 people in 2013-14 to 285 per 100,000 people in 2019-20 (see chart below). That’s according to the very useful and somewhat underappreciated resource for policy analysis which is the Productivity Commission’s Report on Government Services, the 2021 edition of which was released progressively over late January and early February. You can find the data I’m quoting in the data tables (specifically Table 6.A2) for Part C Justice, Section 6 Police Services.

I’m not a criminologist and, hence, won’t speculate on whether the decline in police per capita has contributed to Queensland’s increase in youth crime and its tragic consequences, but these are obviously important data points which should figure in the public discussion on crime and the justice system in Queensland.

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Pick up in net internal migration to regional Qld

Yesterday’s post covered the surge in net interstate migration to Queensland during the pandemic. The surge reflects:

a) departures from Queensland to other states falling a lot (by 16% in September quarter 2020 compared with September quarter 2019), which could be due to both a decline in job opportunities down south and Queenslanders believing it’s better to live in (practically) COVID-free Queensland during the pandemic, and

b) the number of people moving to Queensland (i.e. arrivals from interstate) only dropping 5% through-the-year to 30 September 2020 – i.e. while Queensland hasn’t seen a spike in arrivals from other states, interstate arrivals haven’t collapsed as much as they have in other states (i.e. -11% in NSW and -30% in Victoria).*

Combined, the changes in arrivals and departures meant net interstate migration to Queensland jumped over 30% in September quarter 2020 (relative to September quarter 2019) according to the latest ABS estimates.

Pete Faulkner from Conus Consulting made a great observation regarding the interstate migration data in a comment on my post on LinkedIn:

Big moves indeed, and it’s regional QLD that’s seeing the most significant change. Consider that over the course of the first three quarters of 2020 regional Queensland added 12,000 new residents. Compare that to an average for the same period from 2015 to 2019 of just 3,700.

Pete’s right about that. Check out how net internal migration (from across Australia) to regional Queensland (i.e. non-Greater Brisbane**) has jumped up to a level of around 4,000 people per quarter in 2020 compared with an average of 1,500 per quarter in 2019 and 2,600 in 2018 (see chart below). Over the first three quarters of 2020, net internal migration to regional Queensland, at an average of 4,000 per quarter, exceeded average net internal migration to Greater Brisbane of 2,800 per quarter.

As the chart makes clear, the increase in net internal migration to regional Queensland was due to pick ups in net internal migration from both Greater Brisbane (i.e. intrastate) and from outside Queensland (i.e. interstate), to roughly equal extents. In September quarter 2020, net intrastate migration to regional Queensland increased by 1,088 people from the level in September quarter 2019. Instead of losing over 1,300 people to Greater Brisbane as it did in September quarter 2019, regional Queensland only lost around 200 people in September quarter 2020. Net interstate migration to regional Queensland has usually been positive and increased by 1,151 people, from 3,098 people in September quarter 2019 to 4,249 people in September quarter 2020.

*In a comment on yesterday’s post, regular reader Glen noted that interstate arrivals to Queensland would have included many people who were previously FIFO’ing to Queensland (e.g. to work in mines) and who have been forced to relocate (i.e. to avoid regularly having to go into quarantine).

**Greater Brisbane includes the metropolitan area but does not include the Gold Coast or Sunshine Coast, which are hence part of regional Queensland or rest of Queensland as it’s labelled in the ABS data set.

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A closer look at the surge in net interstate migration to Qld in September quarter 2020

Earlier this week, Queensland Deputy Premier Steven Miles was excited by the latest interstate migration data from the ABS, as reported by the Brisbane Times:

Queensland’s acting Premier has pointed to migration data showing a surge in new residents as an endorsement of the state’s pandemic response…

Interstate migration data, released by the Australian Bureau of Statistics this week, revealed Queensland gained the most new residents during the September quarter while NSW and Victoria went backwards.

I have previously speculated that the pandemic would prompt many people in southern states to contemplate a change of lifestyle and a move to Queensland. And there have been plenty of anecdotes from real estate agents about prospective buyers from southern states inquiring about Queensland properties, particularly on the Sunshine and Gold Coasts. Are we already seeing a pick up in interstate migration to Queensland in the data up to the end of September 2020? Let’s have a closer look at the data published by the ABS earlier this week (chart below).*

Net interstate migration to Queensland was over 7,200 people in September quarter 2020 compared with around 5,500 people in September quarter 2019, a 32% increase through-the-year, so the Deputy Premier is on solid ground referring to a surge. Notice how net interstate migration has been on an upward trend since 2015, but still has not reached the levels of the early 2000s, or the late eighties or early nineties.

Net interstate migration to a state is equal to interstate arrivals to the state less interstate departures from the state. It can be positive, if arrivals exceed departures, or negative if the opposite occurs. Let’s break down the net interstate migration figures into arrivals and departures to have a closer look at what’s going on in the recent data (see chart below).

In September quarter 2020, interstate arrivals to Queensland were around 22,300 and were lower than arrivals in September quarter 2019 of around 23,500 people. That’s to be expected given the suppressed level of economic activity and hiring during the pandemic and due to the difficulties in travelling during this time. Even though arrivals from interstate were lower, net interstate migration to Queensland was much higher in September quarter 2020 than in September 2019 because there was a big drop in people departing to other states from Queensland. Around 15,100 people moved from Queensland to other states and territories in September quarter 2020, down around 2,900 people from the September quarter 2019 level of around 18,000 people. So nearly 3,000 Queenslanders who may otherwise have moved to other states in September quarter, stayed in Queensland instead.

Notice how arrivals to Victoria have dropped substantially through-the-year (13,400 in September quarter 2020 vs 19,200 in September quarter 2019), but departures from the state have stayed similar to the level in September 2019, at around 17,100 people. So net interstate migration to Victoria turned around from a positive figure of 2,030 people in September quarter 2019 to a negative figure of -3,749 in September quarter 2020. In NSW, interstate departures declined more than interstate arrivals, so net interstate migration was around -4,100 in September quarter 2020 compared with around -4,600 in September quarter 2019, meaning NSW actually lost fewer people in the September quarter in 2020 than in 2019.

If we look at the ABS’s estimates of net interstate migration flows between specific states, we see that the major contributor to the surge in net interstate migration to Queensland in September quarter 2020 was the big increase in the loss of people from Victoria to Queensland (see chart below). In September quarter 2019, Queensland gained 772 people from Victoria, but in September quarter 2020 we gained 2,362 people from Victoria. The net gain from NSW increased, too, but not by as much as it did for Victoria. In September quarter 2019, Queensland gained 3,714 people from NSW, and in September quarter 2020 we gained 4,027 people from NSW.

*Note there is a seasonal pattern in the data, which have not been seasonally adjusted by the ABS, and hence September quarter 2020 data will be compared with data for September quarter 2019.

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My takeaways from QAO Energy Report: Qld Gov’t should have offloaded energy assets years ago and NEM is dysfunctional

The Queensland Audit Office’s Energy 2020 Financial Report has been making news (e.g. in the Brisbane Times), although not for the same reasons I think it’s important. It demonstrates, to me at least, that Queenslanders are worse off because the current Queensland Government rejected the previous government’s plan to offload the state’s energy assets as part of its Strong Choices program.

Let’s start with one of the facts reported by the QAO, that the state government’s renewable energy business CleanCo has written down the value of the relatively high cost Swanbank E gas power station to zero. Swanbank E is expected to lose money each year until it’s shutdown in 2036. This is because wholesale electricity prices have fallen with the growth of renewable energy sources, growth which has partly been driven by government subsidies.

We’ve known for some time that our National Electricity Market (NEM) isn’t sufficiently rewarding generators for maintaining reliable generation capacity, and we need to find a solution fast, or our rapidly expanding renewable energy generation capacity will render more fossil fuel-powered generators uneconomic too soon and threaten the reliability of our electricity supply. For more on the big challenge posed by renewables for Australia’s NEM, and possible solutions, check out the excellent webinar held by the Economic Society of Australia (QLD) last November:

The Impact of Renewables on the National Electricity Market (NEM)

Clearly, the rapid expansion of renewable energy is leading to some peculiar outcomes, as highlighted by the QAO in its report on p. 9:

Increased solar generation during the middle of the day has meant that, on occasion, supply for electricity is so much greater than demand that power generators have had to pay the market to take the electricity they generate. This is referred to as a ‘negative price event’.

With ever-growing renewable electricity supply and a reduction in electricity demand during the pandemic, there were several hundred negative price events in 2019-20 according to the QAO’s figure on p. 9.

Lower electricity prices, partly due to the growing presence of renewables, have reduced the profitability of state-owned generators and prompted asset write downs. The QAO report highlights the value of the Queensland Government’s energy assets is falling. I should note this is not a new revelation, but was revealed in annual reports last year (e.g. see Robert MacDonald’s excellent write up at InQueensland State’s power companies at a loss due to COVID and switch to renewables). CS Energy and Stanwell wrote down the value of their assets by 15-20% or over $1 billion in 2019-20 (see p. 8 of the QAO report). This was not solely due to COVID, as the QAO report makes clear, identifying “increased generation from renewable sources” as another contributing factor to the lower electricity prices which have reduced generator profitability. On its one page summary of the report, the QAO notes (on p. 1):

While the energy sector is still financially viable, its profits have declined significantly.

It’s a shame privatisation was an election issue in 2015 and the then Opposition led by now Premier Palaszczuk committed so strongly to public ownership of existing state assets, because it would have been good for Queensland taxpayers for the Government to have offloaded the energy assets back then. The Queensland Treasury was strongly convinced they weren’t worth holding on to, as I discussed in my 2018 book Beautiful One Day, Broke the Next and in this 2018 QEW post:

Coal, climate change, solar & batteries – why Qld Treasury wanted to offload the state’s energy assets

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Posted in Energy, Queensland Government, Uncategorized | Tagged , , , , , , , , , , , | 2 Comments