Qld Government wants electricity GOC dividends to do double duty

Yesterday’s media release from the Queensland Premier and Energy Minister on the $2 billion Affordable Energy Plan appears to have been prepared without Queensland Treasury input, as it is very loose in its discussion of the budget impact. The media release notes:

The Palaszczuk Government will ensure Queenslanders’ power bills are pegged to average inflation over the next two years and cut $50 a year from bills as part of a $2 billion Affordable Energy Plan to provide cost of living relief.

The move will see all the dividends from Queensland’s publicly-owned electricity assets reinvested in an all-out attack on affordability, while Queenslanders wait for the Prime Minister’s proposed National Energy Guarantee.

But the dividends from electricity sector government-owned corporations (GOCs) should already be included in the budget forward estimates so, everything else being equal, the new elements of the Affordable Energy Plan will increase the State Government’s projected fiscal deficits and hence increase debt (see the fiscal deficits Treasury projected in the State Budget released in June in the figure below). The dividends can’t do double duty. They already go into consolidated revenue to help pay for all the government’s bills, and they aren’t explicitly earmarked for subsidising electricity prices.

Unless GOC dividends or other revenues such as coal royalties are higher than previously expected, the Government does not have any new money to spend. The Government needs to explain exactly where the additional money for its new subsidies is coming from. An early mid-year Budget update would be useful in this regard.

I suspect the State Government does have some additional money from resource royalty revenue to play with. If it does, it should be transparent about this, rather than pretending it is funding its new energy affordability measures through GOC dividends already factored into its budget.

Finally, it is sloppy to talk about the dividends being “reinvested” in this package. The bulk of the Affordable Energy Plan is a subsidy to power bills which I expect will be treated as a recurrent operating expense in the budget, not as a capital investment.

On these issues, also see:

Graham Young’s post Retailers not the problem Premier—you are

Nick Behrens’ post from July Is Qld Government dividend policy forcing up electricity prices and taxation by stealth?

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Qld Budget data visualisation from Truii

Brisbane-based data visualisation company Truii has produced an impressive data visualisation of the 2015-16 Queensland Budget:

Queensland Government finance data 2015-16

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The data visualisation uses open data from the Queensland Government, including a comprehensive data set on contracts and grants. By linking to open data, the Truii site allows analysts to uncover an even greater range of insights than are available from Truii’s data visualisations alone. To illustrate, one can compare the performances of the big four professional services firms in winning Queensland Government work (see my chart below). It appears 2015-16 was a very good year for KPMG!

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Truii’s data visualisation site was commissioned by the Department of Science, Information Technology and Innovation as part of its Testing Within Government program. Many thanks to Maree Adshead, CEO of Open Data Institute Australian Network, for alerting me to this excellent data visualisation.

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Nostalgia for the car industry won’t bring it back: domestic market too small, labour costs too high

It is the last day of car manufacturing in Australia today, with the final Holden cars to be manufactured at the soon to be shut Elizabeth plant in SA, as reported in the Courier-Mail. It is awful that thousands of people have lost their jobs, but the industry was never viable without the very high tariffs we once had (see chart below), which cost Australian consumers thousands of dollars on every car imported. High tariffs had been replaced by direct industry assistance from taxpayers but, even though it had amounted to in the order of $10,000 per annum per job protected, it was insufficient to save the industry. PMVtariff

There was no legitimate economic case for protecting the car industry, and national defence arguments were spurious. Could we seriously expect a plant once producing Commodores to be rapidly converted to one producing modern fighter jets such as the Joint Strike Fighter? Alas, over the years automotive workers have been given false hope by government policies that had promised to transform and reinvigorate the car industry. Given the small scale of Australia’s domestic car market, which was too small to provide a base level of demand to domestic manufacturers that could support the large capital investments they needed to make, as well as our relatively high labour costs, the shut down of the Australian car industry was always inevitable.

Queenslanders are almost unambiguously better off from the reductions in car industry protection over the last few decades, given most of us benefit from cheaper cars and very few of us would be adversely affected by the plant closures down south.

My previous comments on the car industry include:

CIS Policy article on Carr’s car cash

Minimal threat to Qld economy from car industry shutdown

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Qld unemployment rate falls below 6% to 5.9% (in trend terms)

This is just a quick post to update you on the September labour force estimates released by the ABS today: the Queensland unemployment rate has fallen to below 6% in trend terms and is now at 5.9% (see chart below). This is the lowest rate in almost four years (since November 2013) and hopefully we’ll see further falls and convergence to the national unemployment rate, now at 5.5% (both trend and seasonally adjusted).

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Over the last year or so, Queensland has seen a strong recovery in the jobs market, with employment growing at 4.1% through-the-year (see chart below). I should note that this was largely due to an increase in part-time employed persons (+64,700) rather than full-time employed persons (+31,100). And the public service has made a disproportionate contribution to employment growth, as discussed in previous posts.

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Despite these qualifications, the jobs data are very positive for the Palaszczuk Government (see chart below), which will soon be fighting for its political life, as the rise of One Nation threatens its chances of forming government after the next election, widely expected to be held by the end of this year.

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Technological disruption & NQ business – JCU Townsville event on Thursday 26 October

On Thursday next week, I will travel up to Townsville to speak at a Business Professionals Networking Event at James Cook University, along with other professional association representatives, on the topic:

The impact of technological disruption and how it will change the future game plan for business in the North Queensland region

Technological disruption can be a blessing and a curse for regional economies. On the one hand, it can reduce the tyranny of distance and allow regional businesses to participate in a much larger market. But, on the other hand, it can reinforce the existing advantages of cities, which contain greater concentrations of technologically savvy and creative professionals who can take advantage of new technologies. One set of forces lead us to believe “the world is flat”, as Thomas Friedman suggests, while another set of forces lead us to believe “the world is spiky”, as Richard Florida argued in his 2008 book Who’s Your City.

Whether a region thrives in a world of technological disruption will depend a lot on its openness to the rest of the world and to new technologies, and on the skills and capabilities of its population. In this regard, I am very interested in seeing how Uber is operating in Townsville, as it only started in the city in March, and initial reports were that it was not making much of an impact on the local taxi industry.

If you live in the Townsville region, please consider attending the event. You can register at this link.

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Gutsy submission from Joe Branigan to regional decentralisation inquiry questioning inquiry’s rationale

The Australian Parliament is currently undertaking an inquiry into regional development and decentralisation, but the inquiry’s rationale has been brought into question by a brilliant submission from SMART Infrastructure Facility Senior Research Fellow (and occasional QEW contributor) Joe Branigan titled:

The Contribution of Australian Cities to Our Enduring Prosperity

Joe argues that, instead of actively encouraging regional decentralisation, we should focus on making our major cities work better, by reducing traffic congestion and improving connections between our capitals and satellite cities (e.g. between Brisbane and the Gold Coast or Sydney and Wollongong). Typically, cities have higher levels of productivity than regional communities and also lower unemployment rates due to thicker labour markets (see chart below based on Joe’s calculations presented in his submission). Joe argues:

…regionalisation and decentralisation policies could lead to higher overall unemployment in Australia because regional areas do not work as efficiently in matching workers to jobs as do our large cities…

…a superior public policy approach to pursuing regionalisation and decentralisation would be to: (i) focus on addressing the major problems in our cities such as traffic congestion, housing costs and energy costs that negatively impact on productivity and liveability; and (ii) better connect the adjacent satellite cities and towns to our largest cities, such as the Sunshine Coast to Brisbane and Wollongong to Sydney via better road and rail connectivity. The integration of the Gold Coast and Ipswich into the Greater Brisbane region over the past two decades is worth studying.

Joe makes some excellent points here, and the integration of Ipswich and the Gold Coast into the Greater Brisbane region is definitely worth studying, although current levels of traffic congestion on the M1 are raising doubts about how successfully we have integrated the Gold Coast. With the Queensland Opposition currently pushing for an alternative route to the Gold Coast (although not yet committing funding to it, I should note) this will no doubt be an important issue in the upcoming State election campaign.

For anyone interested in regional economic development, I highly recommend you read Joe’s submission.

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Review of South Brisbane candidate Cameron Murray’s Game of Mates in CIS Policy magazine

Well known UQ economist Cameron Murray yesterday announced his candidacy for the Queensland State seat of South Brisbane, currently held by our formidable Deputy Premier Jackie Trad, who was already under threat from a strong challenge by the Greens’ Amy McMahon (see this Courier-Mail report). Cameron will be campaigning on the issue of corruption. As I have noted in a previous post, Clear evidence re-zoning decisions favour the politically connected, Cameron has undertaken some very interesting research on the topic. This research led him to being an expert witness at the recent CCC inquiry into local government corruption. In his view, the Government’s proposed ban on donations from developers to political candidates does not go far enough.

Earlier this year, Cameron and co-author Paul Frijters published a book, Game of Mates, expanding their work on alleged local government corruption to make the case that the whole Australian economy is a rigged game of mates. As I argue in a review of the book in the latest issue of the Centre for Independent Studies’ Policy magazine, Game of Mates makes some extraordinary claims that cannot be supported by the evidence, such as this one:

It is the story of how groups of ‘Mates’ have come to dominate our corporate and political sectors, and managed to rob us, the Australian majority, of over half our wealth.

As I argue in the review, this assertion is over the top and cannot be reconciled with Australia’s very high GDP per capita, moderate degree of inequality, and low level of perceived corruption. So I largely reject the book’s thesis, although I acknowledge the authors make many good points. There are obviously many real cases of corruption, rent seeking and abuse of market power out there. But the authors go much too far in arguing the whole economy is a game of mates and that this robs the average Australian of half of his or her wealth.

You can pick up a copy of the latest issue of Policy at many newsagents. Cameron’s book is available at good bookstores such as Folio Books on Mary St, Brisbane and Avid Reader on Boundary St, West End. Despite my comments above, Game of Mates is worth reading, as it does contain a lot of interesting conjectures and facts, particularly regarding the so-called revolving door between government agencies and resources companies that has existed in Queensland. Many prominent people are named, and there is a good chance that if you are a regular reader you will know some of them.

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