Business counts data show rise of Uber and start ups

Yesterday afternoon, on his 612 ABC Brisbane drive time show (from 1:42:50), Steve Austin interviewed my colleague QEAS Director Nick Behrens on the still relatively weak wages growth figures released yesterday. Nick also covered more positive news regarding the state government’s coal royalty revenue windfall and robust growth in business numbers. Nick was referring to business count data based on ABN registrations released by the ABS earlier this week. Business numbers were up 2.8% in 2016-17 in Queensland (and up 3.1% nationally). There was inconsistent growth in business numbers across local government areas, however, and while Gold Coast and Ipswich experienced strong growth, Mount Isa, Mackay and Rockhampton experienced falls, for example (see figure below).

Selected

A significant contributor to recent business growth has been Uber, which has resulted in strong growth in businesses whose main activity is transport, as seen in the visualisation of industry growth rates for South East Queensland LGAs below. Other stand out sectors were Information Media and Telecommunications in Ipswich, which has grown off a low base and may have been associated with the establishment of Fire Station 101, the Ipswich Innovation Hub. I suspect the large declines in mining businesses recorded in some LGAs are due to people who previously contracted to the mining sector during the boom years and have since cancelled or let their business registrations lapse, or have moved out of the LGAs.

SEQ

What has happened in other cities and towns in Queensland? Here we see less of a positive impact of Uber, but substantial growth of the Information Media and Telecommunications sector in some regional centres, including Townsville, Rockhampton and Mackay (off low bases of typically only dozens of businesses in each LGA, though). Despite the small numbers of businesses, this would nonetheless be great news for those Council economic development officers keen to promote economic diversification and entrepreneurship in their regions.

Other

Incidentally, my feeling is that interest in entrepreneurship in Australia is now the greatest it’s been since the 1980s. Luckily, this time around, we appear to have fewer of the bold riders, the Bonds, Connells and Skases, and entrepreneurship is being directed at more innovative and socially beneficial pursuits.

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Comments on BrewDog being lured to Brisbane in the Broadsheet

I was interviewed by Matt Kirkegaard, beer educator and commentator, for his latest article in the Broadsheet:

Is Scottish Superstar BrewDog’s Arrival Good for Brisbane’s Brewing Scene?

The debate over whether the Queensland Government should have offered financial incentives to lure the Scottish craft beer company to Brisbane was started by my colleague Nick Behrens, Director of QEAS:

Why the State Government is ‘NUTS’ to offer Scottish beer giant BrewDog industry assistance

Both Nick and Matt were interviewed by 612 ABC Brisbane’s drive time presenter Steve Austin on the issue last week:

The Beer Economy: Is BrewDog a good investment for Queensland?

Finally, if you’re interested in beer, check out Matt’s website:

https://www.brewsnews.com.au/

Newstead Brewery

I was lucky enough to go on a tour of the Newstead Brewing Co. at Milton last year

Posted in Industry policy, Uncategorized | Tagged , , , , | 2 Comments

Disproportionate numbers of Newstart/Youth Allowance recipients in Far North Qld, Wide Bay-Burnett & Logan

Pete Faulkner’s post Job Seeker data shows little change for Cairns alerted me to the latest data on recipients of Newstart and Youth Allowance (for young job seekers) from the Commonwealth Department of Social Services. These data highlight the ongoing lack of economic opportunity in Far North Queensland (outside of Cairns and surrounding regions) and North West Queensland, which are home to many remote Indigenous communities (see map below). In the Far North ABS SA3 region, job seekers receiving Newstart or Youth Allowance account for over 12% of the working age population. The Wide Bay-Burnett region also has a relatively high incidence of Newstart and Youth Allowance recipients (at 6-7% of the working age population).

Newstart_Qld

Stark differences in the numbers of Newstart and Youth Allowance recipients exist across Brisbane metro regions. The leafy western suburbs have a very low incidence (at 1-1.5% of the working age population) while the Springwood-Kingston area has around four times the incidence of Newstart and Youth Allowance recipients (over 6%).

Newstart_Brisbane

The high concentration of disadvantage in particular regions and suburbs should be of serious concern to policy makers. It should prompt them to encourage job creation through lower taxes, better regulation, and a more supportive attitude to economic development. Policy makers also need to ensure Australia does not have a tax-welfare system that discourages employment via high effective marginal tax rates for welfare recipients.

Posted in Labour market, Uncategorized | Tagged , , , , , , , , , , | 5 Comments

Value Capture: Making Sense of Policy Options – guest post by Brad Rogers

value_capture_conference

I am delighted to publish this guest post from Brad Rogers, Director of DeltaPearl Partners, on value capture, the topic of a conference his firm will run in Canberra in July. Views expressed are Brad’s and should not necessarily be attributed to me. GT

Value Capture: Making Sense of Policy Options

by Brad Rogers

Many state governments in Australia are turning to ‘innovative’ ways to fund new city infrastructure to meet rising demand. Value capture is being widely but loosely discussed in relation to government funding solutions.

Different variations of value capture methodologies have been used by various governments and organisations over time. However, more recently in Australia, governments are seeking new ways which are politically tenable and economically feasible to use value capture mechanisms to fund new large infrastructure projects.

Value capture

The basic value capture approach being considered in Australia is that a government builds an infrastructure item, typically public transport, and then seeks to recover some or all of the capital and running cost of the infrastructure via a charge to those assessed as being beneficiaries of the new infrastructure. The charge is assumed to capture only part of the total benefit accruing to each beneficiary, thus leaving those people with a net benefit from the investment.

However, as with most things in economics and policy, the story is not that simple. Necessarily, economists and policy makers make large simplifying assumptions about many things in their assessment of the benefits, including the size of an individual benefit, responsiveness of demand to price changes, and the attribution of cause and effect.

Other funding methods

Economic efficiency arguments suggest that user pays systems are the most efficient in targeting the value capture of benefits; that is, the users who value the benefits the highest would be willing to pay for the use of the new infrastructure. However, the user pays system (compared with funding by general taxation) can be politically difficult because it can be described by opponents as a tax.

On the other hand, general tax revenue constraints could force state governments to implement value capture mechanisms. The current system of taxation has constrained the ability of state governments to implement taxes and depends heavily on the GST distribution system from the Federal Government. Could amendments to the current general tax system, including the GST distribution, provide state governments with the funding required to underpin good infrastructure and remove the need for value capture taxes by the state? Would these broad-based taxes be a more efficient and effective way of taxing the population for the infrastructure required?

Tax makes up approximately 36 per cent to 44 per cent of the cost of housing in Australia. On top of this, people living in these houses are likely to also be paying income tax (including capital gains tax), GST, company taxes (directly or indirectly in shares), Medicare levy, and any number of other taxes. Thus, the question remains whether adding a value capture charge is only going to add to this burden, and how the cost of value capture options might drive net economic benefits

Funding and finance

There are many questions still remaining about the actual cost to the economy of the value capture funding method as opposed to the traditional government borrowing to fund projects. In the traditional model of infrastructure funding in Australia, the government will borrow at the low government bond rate to build infrastructure. The theory goes that this increases economic activity, which then results in greater tax receipts which it can then use to pay back the borrowed funds over long periods of time.

Depending on how you want to break it down, there are approximately eight stages to developing a government infrastructure project, including strategic plan, project selection, contract development, borrow money, design, build, own, operate, and capture value. Each stage of this project development process could be completed by the government or by private contractors.

Value capture mechanisms are being tied to Public Private Partnerships (PPPs) and other related project financing arrangements – for example, the Hong Kong Mass Transit Railway (MTR)[1]. The MTR value capture example is often used as the model for Australian governments, where the Hong Kong Government decided on the strategic plan and project selection; then Hong Kong’s Mass Transit Railway Corporation’s (MTRC) purchased the right for a period of 50 years to develop property above railway stations and depots, as well as on land adjacent to the railway. The “land premium” paid to the government did not consider the value creation from the transport project (the ‘before rail’ land premium). The MTRC sold the development rights to private developers with profit share arrangements for the life of the contract; therefore, capturing the post-development value created.

Another option for value capture funding includes user pays, which has the benefit of providing a feedback between demand and price. That is, if you take a train or bus you get the benefit and therefore you should pay the full cost recovery fare; rather than the current heavily subsidised fare.

Road costs could be recovered via a road toll. Congestion charging, and road tolls, in place of simple car registration costs are one of the biggest policy ideas that governments face. The cost of congestion on the economy is getting larger by the day and the cost to build our way out of the problem would be far too expensive due to the inevitable induced demand. When a road becomes congested on a regular basis the cost to the individual for using the road is mostly the time spent waiting in traffic, as there is no toll to pay for each use.

If a government spends money to widen the road to allow more traffic to flow it will lower the cost to individuals due to reduced time lost, therefore, more people will use that road. That is, the government supplying more road space encourages or induces more people to drive on that road (demand) until it is again congested. This cycle continues until there is no room to expand and a more expensive option is required like a tunnel. However, if people face the cost of decisions they make it would encourage the community to make better decisions that would lead to a more efficient and productive economy.

Of course, politically a toll on roads would be very difficult to implement as people can see the cost of a toll as they pay it, but the large tax increases are hidden, distant, and assumed to be paid by someone else. However, a user pays system that includes road tolls would put pressure on the entire community to make better decisions about the locations of businesses and housing. Over the long-run the community would restructure itself to a more efficient town planning and transport system.

Attribution of Benefits

Economists have developed some level of measurement to attribute value creation to particular actions of government at a broad community wide level of detail; for example, increase in consumer surplus (through travel time savings), productivity gains, agglomeration benefits, reduced congestion and lower greenhouse gas emissions. However, as with many things, it works from the helicopter view but may not actually play out on the ground.

A key method of estimating the value created is by measuring the value uplift of property in the geographic area in question using hedonic pricing studies; that is, how much did the property values increase around the new infrastructure when it was built[2]. However, we are not able to separate all the thousands of things that happen in a community that affect property prices in a way to be able to attribute a specified value to one action for the hundreds of households.

There is some leading thought leadership taking place.  My recent work with Arcadis, the world’s largest engineering consulting firm, has introduced me to their proprietary MODex3 model. Arcadis has experience from around the world in the development of transport hubs and its methodology for maximising value creation, and it has used this experience to develop MODex3 to estimate the value of transport hubs and to assist in value capture modelling. The model depends on a data base of information collected from projects around the world. The data was calibrated to be able to compare projects. The output of the model is 10 indicators that are derived from 70 variables.

In reality, when the government comes calling on your home to ask you to pay a value capture tax their understanding of your individual willingness and capacity to pay is very limited. However, every household will have a different perception of value, capacity, and willingness to pay. Governments making a sweeping assumption about an entire community are going to make errors that impact on some sections of the community much more than others.

Conference

DeltaPearl Partners’ conference Value Capture: Making Sense of Policy Options 9 July 2018 in Canberra will seek to explore these and other related issues with the support of government, institutional, industry and academic speakers from around the world. Please see more information about the conference at this website:

The Value Capture conference is aimed at exploring the key issues related to value capture in Australia by hearing from experts from Australia and around the world who have experience in the application of value capture and academics with current analysis of the issues. Also, note all Economic Society of Australia members are eligible for a 10 percent discount to attend the value capture conference. For registration to the Value Capture conference please follow this link: https://consec.eventsair.com/value-capture-conference/delegate-registration/Site/Register

End notes

[1] Mathieu Verougstraete and Han Zeng, July 2014, United Nations Economic and Social Commission for Asia and the Pacific, Land Value Capture Mechanism: The Case of the Hong Kong Mass Transit Railway, Viewed 29 January 2018, http://www.unescap.org/sites/default/files/Case%204-%20Land%20Value%20-%20Hong-Kong%20MTR.pdf

[2] Jonathon Clark-Jones, Nicholas Harvey, Filip Milosavljevic & Preeti Singh, Under Guidance of Flavio Menezes, November 2016, Implementing Value Capture for Transport Infrastructure Applicability for South-East Queensland, Viewed 5 February 2018, http://uq.edu.au/economics/documents/Implementing%20Value%20Capture%20for%20Transport%20Infrastructure.pdf

Brad Rogers is Director of DeltaPearl Partners and President of the ACT Branch of the Economic Society of Australia.

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Grant Thornton argues Qld’s gold royalty rate is uncompetitive

Yesterday, at the Resources Discussion Lunch held at the Catchment Brewing Co., West End, attendees reflected on the large financial markets correction that had just occurred, but remained optimistic about the global economy. Resources sector veteran Rob Murdoch was an excellent MC who facilitated a highly enlightening and entertaining discussion of critical trends and issues affecting the sector. As you would expect at such a gathering, the issue of royalty rates was raised, and AMEC CEO Warren Pearce presented on a new Queensland Gold Royalty Rates Discussion Paper from Grant Thornton which argues:

…the current royalty rates payable by gold producers in Queensland are harming the competitiveness and future growth prospects of the local gold sector.

The report compares Queensland’s gold royalty rate, at current gold prices, of 5% with rates in NSW, SA and WA in the 2-3.5% range, and argues Queensland’s higher rate makes it less likely Queensland would see exploration for gold than other states.

The discussion paper is very interesting and should encourage further investigation, particularly by the Queensland Treasury. Alas, the discussion paper does not present any economic modelling of the impacts of changes in the gold royalty rate on Queensland Government revenue (possibly an impact of up to $20 million p.a.) or on resources sector investment and jobs. While it’s very unlikely we’d see a gold mining boom similar to the 19th century boom again in Queensland, a more competitive royalty regime may encourage some additional economic activity and jobs that would be welcome in regional Queensland.

gold

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ABC radio interview on PC inquiry into GST revenue redistribution

I had an enjoyable chat with Steve Austin on his ABC Brisbane radio Drive program this afternoon regarding the Productivity Commission’s Brisbane hearing for its inquiry into Horizontal Fiscal Equalisation (HFE), the methodology which is used to distribute the GST revenue pool across states and territories. You can hear my reflections on today’s hearing from around 1:42:40:

Steve Austin’s 612 ABC Brisbane Drive program, 5 February 2017

You may recall from Nick Behrens’ previous PC inquiry post that the two main options for HFE reform proposed by the Commission would imply a reduction of revenue for Queensland of at least $700 million and up to $1.6 billion p.a. based on current economic parameters (see chart below which I’ve reproduced from the post), so it is an important and topical issue.

I attended the inquiry earlier in the day, and heard presentations from Griffith University, CCIQ, QCU, QTU, QCOSS, Townsville City Council, LGAQ, and finally from the Queensland Government, which was ably represented by our Deputy Premier-Treasurer Jackie Trad and my old Commonwealth Treasury colleague Jim Murphy, now Queensland Under Treasurer. The Under Treasurer made a strong case for why the HFE system has mostly worked well, and argued the system shouldn’t be changed radically just because WA is now complaining. Indeed, as Mr Murphy seemed to be hinting, WA’s current fiscal mess is partly of its own making. As I discussed with Steve, WA spent too much of the surge in revenue it received during the mining boom, while it should have been saving for a rainy day. I should note Deputy Premier Trad had previously made one of the points which Mr Murphy expanded on in his remarks, when, as reported by the Brisbane Times, she noted:

While we believe the current system can be improved, we believe introducing a fundamental change to combat a potentially temporary situation faced by one state is not prudent.

Overall Trad and Murphy made a very effective team in arguing for the state’s interests, and I regret I didn’t give Trad more credit in my interview with Steve. However, the Queensland Government does deserve one black mark against it, for an hysterical media release earlier today which, among other egregious claims, stated the Productivity Commission “doesn’t understand Queensland.” This must have come as a surprise to Productivity Commission Deputy Chair Karen Chester, who attended today’s hearing. The Deputy Chair is a former Queenslander and was a UQ economics first class honours graduate in the mid-1980s, before going on to become one of the youngest ever Commonwealth Treasury SES officers. Let’s hope the government’s media releases improve markedly, because today’s effort was lamentable.

hfe_chart

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

Bold BDO’s vision: half of mining jobs automated by 2020

BDO has published an extraordinary report presenting its vision of a massive uptake of robotics in the mining sector in the next few years. In its Near Future of Mining Report BDO speculates:

By 2020, robots will replace more than 50 percent of miners, and mining accidents will be cut by 75 percent. Half of the miners will themselves be retrained to run the technology controlling the robots.

This seems too soon, just two years away, for such an extraordinary transformation of the sector, but, as BDO explains, it is simply a continuation of the existing trend toward automation that has already seen the adoption of driver less trucks and drones (e.g. see How drones are changing mining).

The increasing automation of the sector means we may not see a strong pick up in employment in the sector as the sector’s resurgence continues, although clearly there will be local jobs programming and maintaining robots, driver less vehicles and drones. It also means indirect economic impacts (i.e. multiplier or flow-on impacts) in the Queensland economy would likely be lower in the future, particularly given much of the robotics to be used in mining applications would be imported. Nonetheless, the resources sector will continue to be important to the Queensland economy, and to the Queensland Treasury through the $3-4 billion in royalty revenue each year, but we may not see it employ as many people as it did at the peak of the last boom again (see chart below).

mining_Nov17

On balance, the boost in productivity through robotics would be a positive development, and it would mean that freed up labour can be used elsewhere in the economy (so long as we have a flexible economy without excessive labour and product market regulations and we have an efficient and effective education and training system). Our current policy settings will be subject to a huge test over the next few decades as robotics and artificial intelligence continue to transform our economy.

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