Valuing the Australian Census – cross-posted at Club Troppo

One of the exciting projects I’m working on is a valuation of the Australian Census for the ABS with my Lateral Economics’ colleagues Nicholas Gruen and Matt Balmford. Our first project-related post is below. Here’s an introductory message from Nicholas:

Lateral Economics has been commissioned by the Australian Bureau of Statistics (ABS) to estimate the value of the Australian Census to the Australian community. As part of that exercise we’ve got the go-ahead from ABS to do something that, it seems to me, all public inquiries, and most independent public agencies, should do as a matter of course. Run a blog a little like the blog we ran when I chaired the Government 2.0 Taskforce.

Ten years on from the Taskforce, it’s amazing how slow the practice has been to catch on. It seems to me the kind of thing that the Productivity Commission should do, and the Reserve Bank. Anyway, as far as I know, there’s no such blog on offer there or anywhere else much. One exception is the Bank of England which runs a lively blog in which staff explore all manner of questions relating to their research. It greatly enhances both its work and their staff’s morale and willingness for some of the best to stay at the Bank rather than moving off into academia or consultant land.

Anyway, this exercise gives us an opportunity to trial it again. Accordingly we will post from time to time outlining the progress of our investigations, particularly highlighting issues we are trying to understand to improve the quality of our review.

Comment will be post-moderated with a back-up plan to provide pre-moderation in the unlikely event of commentary which is judged to lack bona fides in a disruptive way. We’ll be consulting ABS with draft blog posts before posting them to give the ABS an opportunity to provide input. We nevertheless remain responsible for the exercise, and for the content of each post, not the ABS.

Finally, if you do have anything to offer, please do so to show how productive this kind of exercise can be. I know myself how productive it is from my own experiences blogging myself not least as part of the Government 2.0 Taskforce, but as I’ve grown older it’s struck me how much adoption relies on, well, adoption. If no-one’s doing it, no one does it. Then a few people do it and the obviousness of doing it seems to become accessible to others, even as they keep their in-tray reasonably cleared.

Valuing the Australian Census

Gene Tunny, Nicholas Gruen, and Matt Balmford, Lateral Economics

The five-yearly Australian Census provides a wealth of data on Australian households. Those data are used extensively by all levels of governments, industry, and non-profits in decision making and planning. The Census provides important information on household composition, journey-to-work flows, Indigenous status, and languages spoken at home, among other data. It is also used extensively to ‘ground-truth’ and so assess and improve the representativeness of a wide variety of data sets. The ABS understands that all this information is of substantial value, but no careful estimate of its total value has yet been made. The ABS has engaged Lateral Economics to provide such an estimate.

In recent years, a combination of factors has led to renewed scrutiny of the value of the census, including burgeoning administrative data which could be tapped by national statistical agencies, as well as advances in computing power and data science. Statistical agencies worldwide have come under pressure from ministers to provide greater justification for the hundreds of millions of dollars of costs of a national census. For instance, in 2001, the UK House of Commons Treasury Select Committee called for the national census to be justified in cost-benefit terms. Since then, the UK Office of National Statistics (ONS) has produced a Census Benefits Evaluation Report for the 2011 Census. It was reported that the UK census yields annual benefits in the order of £500 million.

In 2013, Statistics New Zealand followed the example of the ONS and commissioned a valuation of the NZ census, which reported a return on investment (ROI) of around $5 of net benefits for every $1 of expenditure on the census.

In Australia, too, the issue of the cost of the census has come under scrutiny. For example, in 1993, a Federal government interdepartmental committee investigated cost reduction opportunities for the census. However, it recommended maintaining the current census format. Indeed, comprehensive five-yearly censuses are seen as necessary to ensure fair electoral representation given substantial population growth in newly-developed areas, such as Springfield and Yarrabilba in South East Queensland. The requirement for a five-yearly Census was inserted into the Census and Statistics Act 1905 in 1977 (section 8(1)), following a 1976 High Court decision suggesting the need for more a more frequent Census to ensure fair electoral representation.

A critical question for Lateral Economics’ research project is the extent to which the Census is essential for developing high quality estimates of populations at various levels, national, state, regional and for small areas, and for various groups in the population, including Indigenous and culturally and linguistically diverse people. Such estimates are important for electoral representation, but they are also important for the allocation of:

  • GST revenues across state and territories;
  • resources in health, education, and other social services; and
  • capital expenditures, both for social infrastructure and transport infrastructure, and in the private sector, too (e.g. shopping centres, retirement villages, etc.).

Such decisions may depend critically on information such as accurate estimates of Indigenous people in a region, or journey-to-work flows between regions, and the Census is a critical source of information to such estimates and for which there are not obvious substitutes.

Lateral Economics will attempt to quantify the benefits to the Australian community of more accurate decision making regarding the allocation of funds across regions for different purposes. We will be guided, but not limited, by the methodologies employed in previous studies. These methodologies rely largely on estimates of the inaccuracies of resource allocation and capital investment that would be occur in the absence of Census data. We will also draw on methodologies developed in these studies for estimating the dollar benefits of, among other things:

  • improved public policy development in social policy areas where Census data are important, such as in policies for disadvantaged groups[1]; and
  • higher-quality academic and market research.

Even after the most stringent of efforts, considerable uncertainties will remain in parameterising these questions. However this underlines the importance of consulting as widely as possible – with the Australian Electoral Commission, Commonwealth Grants Commission, other federal and state agencies, local governments, and the private sector and NGOs – to develop defensible assumptions to underpin our estimates (guesstimates?). It is likely we will provide reasonable lower and upper-bound estimates of this ROI.

In undertaking this project, Lateral Economics is not necessarily presuming that there will net benefits to the community from running the Australian Census in its current format and frequency. We are doing our best to follow the evidence – something that the ABS has stressed its support for. We note that, based on a cost-benefit analysis, South Africa decided not to run a census in 2016, so the question of whether a national census is valuable is an open one.  But wherever the evidence takes us, it’s critical we get the best evidence we can regarding users’ specific uses of Census data, the benefits they derive from that use, and any reflections they have on what the next best source of data would be in the absence of the Census, and the potential costs of any reduction in data quality.

In future articles, Lateral Economics will discuss our progress and seek feedback on our thinking and analysis to date regarding the different Census benefit values we will be estimating. In the meantime, if you have any ideas or information that you think would help us, please get in touch via mail@lateraleconomics.com.au.

[1] This could be estimated by assuming a percentage improvement in the quality of related government services and applying that to total spending on those services. The assumption would be informed by consultations with stakeholders.

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Qld Budget interviews with ABC’s Steve Austin & 4BC’s Ross Greenwood

While chatting with 612 ABC Brisbane’s Steve Austin and fellow interviewee Nick Behrens this afternoon, I almost chuckled when Steve asked me whether this Queensland state budget, in which total debt is projected to head toward $90 billion by 2022-23, meant the state government had abandoned the task of fixing up the budget and paying down the debt, or words to that effect.* As I argued in my book Beautiful One Day, Broke the Next, the state government did that several budgets ago, arguably in former Treasurer Curtis Pitt’s first budget with the notorious debt shuffle. This budget simply continues in the tradition of highly political budgets aimed at improving the government’s political prospects.

After federal Labor’s disastrous performance in regional Queensland, partly due to the state government’s alleged “go slow” on the Adani mega mine, this state budget had to be aimed at regional Queensland and as we’ve seen with various announcements regarding the new Gatton prison, AC in schools in hot regions, and the latest regional pork barreling fund, the government has tried to improve its prospects in the regions, as I discussed with Steve and Nick. You can hear the discussion, which I enjoyed immensely, from 1:03:17 at this link (which will self-destruct after about one week so the ABC can save its server storage space):

https://www.abc.net.au/radio/brisbane/programs/drive/drive/11179680

I was also interviewed by Ross Greenwood on 4BC and among other things we discussed the Adani mega mine:

https://omny.fm/shows/money-news-with-ross-greenwood/gene-tunny-on-rising-debt-in-qld?in_playlist=money-news-with-ross-greenwood!podcast

*In the ABC radio interview I noted the new accounting treatment of leases makes comparisons with previous debt estimates a little tricky.

cover

My book on how Queensland ended up with so much debt, available from the link above and at Folio bookstore on Edward St, Brisbane CBD.

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Qld’s exports to China doubled in less than 2½ years

There was some excellent commentary on the US’s and Australia’s relationships with China on ABC Radio National over the weekend which I can highly recommend:

FT’s Martin Wolf interview: Is the US wrong on the trade war? on Saturday Extra with Geraldine Doouge, and

30 years after the Tiananmen Square massacre, how strong is Australia’s relationship with China? on Between the Lines with Tom Switzer.

Some remarks from Tom Switzer in particular made me think about the risks of future economic or political crises in China, and what they might mean for the Australian and Queensland economies. Obviously, we are particularly vulnerable. China is our largest trading partner. Consider that, as shown in the chart below, Queensland’s exports to China have doubled over the 28 months to April 2019.

exports_destination_12m

Much of that surge was due to a strong recovery in coal prices over the last few years, although they now appeared to have peaked. As the CCIQ noted in its media release accompanying the new exports data from the ABS last week, there has been “some moderation in coal prices”. CCIQ Head of Media and Industry Dan Petrie observed:

The April data shows a softening in coal and natural gas exports…

As the Queensland Treasury briefing on exports demonstrates, Queensland’s major export is coal, with an export value of $36.5 billion in the twelve months to the end of April 2019. Coal accounts for around 43% of Queensland’s total goods exports of $85.2 billion over the same period.

You can see how Queensland’ monthly merchandise exports are down from their most recent peak at the end of 2018 in the chart below.

exports_monthly

Here’s a plot of monthly exports to Queensland’s major trading partners showing how the value of exports to China has fallen from the late 2018 peak, although they are still double what they were a few years ago. Also note these data are not seasonally adjusted, and it is possible there is some seasonal variation.

exports_destination

In summary, Queensland’s export performance over the last few years has been extraordinary, although we are now much more dependent on China than we ever were in the past, with all the associated risks that involves.

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International education boom – new ABS estimates

My office is in the Johnson Hotel, in the middle of the international education precinct around Boundary St, Spring Hill, so I’m very conscious of the international education boom we are experiencing. Even so, I was stunned by newly released ABS estimates of international education export earnings, comprising what international students spend on fees and on goods and services while in Australia. Education-related travel spending in Queensland amounted to $5 billion in 2018 (see chart below). In real terms, it has grown at an average annual rate of 10.9% since 2013. It has grown at even faster rates in southern states, at 13.6% p.a. in NSW and at 15.1% p.a. in Victoria.

ed_exports

Notice how education-related travel has really been the outstanding performer among the different international travel categories in Queensland. Otherwise, it appears international tourism has been flat for the last few years after its rebound in 2014 and 2015. Tourism and Events Queensland should be asking what is going wrong with its marketing, given it really can’t take credit for the growth of international education.

A strong critic of Queensland’s failure to reach its tourism potential is Simon Pressley of Propertyology, a real estate investment adviser. Last month, in his post Queensland has double-digit growth potential, but what’s missing?, Simon wrote:

The Sunshine State scores an ‘epic fail’ for not capitalising on enormous economic opportunities from a worldwide tourism boom which commenced way back in 2012.

Finally, regarding the Spring Hill international education precinct, a fascinating mural has been painted recently on the triangle building on Boundary St which is part of the International Education Services empire (see image below). The young Asian person painted in the mural represents all the international students passing through IES, while the image of the young Indigenous persons acknowledges Boundary St’s history, as an actual boundary in the early days of British settlement of Brisbane, when Indigenous people had to remain outside the boundary after curfew.

IES

The International Education Services building on Boundary St, Spring Hill, Brisbane

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Good & bad news on Qld economy – avoids worst effects of property bust, but remains reliant on gov’t spending

Queensland state and local general government capital expenditures increased 13% in March quarter, rising to $2.79 billion, helping Queensland to record 0.5% growth in State Final Demand, the second highest growth rate in Australia (second to Tasmania with 0.7%). Part of the increase in state and local capital expenditure was probably related to recovery from the floods in North Queensland earlier this year. Queensland’s State Final Demand increase of 0.5% was higher than increases of 0.4% in NSW and 0.2% in Victoria, according to the latest ABS National Accounts estimates, which have been widely reported as showing a sluggish Australian economy. My former Treasury colleague John Kehoe, now a Senior Writer at the AFR, sums it up nicely in his article Soft GDP needs consumer pick up:

Government spending and resources exports are keeping Australia afloat, but domestically the rest of the economy is pretty soft.

One of the problems the Australian economy is facing is the property market bust. We have seen falls in dwelling investment, and also in commissions for real estate agents and stamp duty, which are picked up in “Ownership transfer costs”. Queensland, luckily, never experienced the huge property boom that occurred in southern states, so we have managed to avoid much of the pain from the bust. While there was over-investment in inner city apartments, the state’s population growth has helped absorb any excess supply, and dwelling investment now appears to be picking itself up and is contributing to economic growth once more (see chart below). Both investments in new dwellings and in alterations and additions to existing dwellings increased in March quarter. Partly, increases in dwelling investment could be related to recovery from the floods, but I suspect that would only be a small part of the story.

contr_Mar19

While the dwelling investment story is an encouraging one for Queensland, we aren’t seeing any growth in capital spending by businesses (see the chart below), and indeed business investment fell 0.6% in the March quarter. Once again, the Queensland economy is demonstrating it is too reliant on government spending and population-growth-induced housing construction. The state government should review the full suite of its policy and regulatory settings that could be inhibiting business investment. I feel the issue is a broader one than simply the alleged opposition of some members of Cabinet and the bureaucracy to the Adani Carmichael mine.

cap_Mar19

For other commentary on the ABS National Accounts figures from Queensland econ-bloggers, see:

Pete Faulkner’s post GDP slows again in Q1-Qld relying on the public sector

Nick Behrens’s post Qld’s domestic economic activity-March quarter 2019

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

Pro Bono Econos UQ reading list

Last Friday, I was a panelist at a Pro Bono Econos UQ event on consulting. In my remarks, I mentioned a bunch of resources I thought would be helpful for students, and subsequently several of the students who attended have asked for a list, and hence I’ve prepared this post.

pbeconuq

In my remarks, I emphasised to the students that consulting is simply one means of making a living as a professional, and their focus should be on getting really good at their chosen profession, whether that be economics, accounting, finance, or whatever. In this regard, I mentioned my two favourite books on reaching higher levels of performance:

So Good They Can’t Ignore You by Cal Newport

Tools of Titans by Tim Ferriss

Then I observed that, no matter how good you get, problems will inevitably arise from time-to-time, and one great challenge you may face is coping with stress. So I recommended students consult what I think is the most practical guide to coping with stress I’ve found:

How to Stop Worrying and Start Living by Dale Carnegie

This book emphasises the importance of ‘living in day-tight compartments’. Carnegie opens the book with a story about how a future Oxford medical professor’s life was changed for the better as a young man in 1871 when he read and understood these words from Thomas Carlyle:

Our main business is not to see what lies dimly at a distance, but to do what lies clearly at hand.

As Carnegie notes, many centuries earlier, Jesus had expressed the same wisdom in the Sermon on the Mount:

Take therefore no thought for the morrow: for the morrow shall take thought for the things of itself. Sufficient unto the day is the evil thereof.

I told the students that careers can survive even huge mistakes, as the great man of the twentieth century Winston Churchill proved, so you need to keep things in perspective. For an analysis of Churchill’s many failures, including Gallipoli in 1915 and the restoration of the Gold Standard in 1925 among others, I recommend Boris Johnson’s excellent book:

The Churchill Factor

In the Q&A session at the event, one student asked me if I thought economists were still influential in this current age of populism. I began my response by noting that economists are critical in the modern mixed economy, and I said that has been the case since the Great Depression in the 1930s, and I recommended they watch John Kenneth Galbraith’s excellent TV series from the late-seventies, particularly the episode on John Maynard Keynes:

The Age of Uncertainty, episode 7: The Mandarin Revolution

Then I went on to say that the current US-China trade war provides a major opportunity for economists to be influential, as the trade war is contrary to basic economic principles. In my view, economists can be influential despite populism, but they need to sharpen their communication and presentation skills. Milton Friedman was probably the most articulate and persuasive advocate for free trade in living memory, and I recommended this episode of Friedman’s early 1980s TV series Free to Choose, an episode which featured Donald Rumsfeld, Jagdish Bhagwati, and Helen Hughes as discussants in the episode’s second half:

Free to Choose, part 2: The Tyranny of Control

Finally, I noted widespread concerns over the very narrow, highly theoretical training of modern US economists and why it’s important to remain practical. During the financial crisis, only a few US economists, such as Paul Krugman, Larry Summers, and Brad Delong, were able to speak intelligibly about the crisis, as the models many other US economists were working with were deficient. A few years ago, Paul Romer wrote an excellent paper on the The Trouble with Macroeconomics which is well worth reading.

I would also refer students to my posts:

The 7 habits of highly effective economists (1-3)

The 7 habits of highly effective economists (4-7)

Recommended reading: This is Marketing by Seth Godin

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City of Brisbane Investment Corporation should be shut down

In a victory for transparency, Brisbane ABC reporter Tim Swanston has finally got hold of PwC’s scathing review of Brisbane City Council’s City of Brisbane Investment Corporation, its so-called future fund. I recall discussing the rumoured existence of a damning review of the CBIC with Tim when he covered my views on CBIC in March last year (see this ABC News report). Fourteen months later and BCC has finally had to hand the PwC review over to the ABC.

In his just published article Brisbane City Council investment arm a ‘substantial risk’ to ratepayer money, report says, Tim reports:

The Brisbane City Council’s investment arm is facing calls to be shut down, with Right to Information documents revealing “fundamental and systemic issues” with the fund and a “substantial risk” to ratepayer money…

…The document, by financial services firm PwC, warns the fund’s board has limited property expertise and there is a risk ratepayer money might be lost.

Great work getting hold of that report, Tim. It’s time for BCC to shutdown CBIC. For more of my views on the CBIC, see my post from last year:

CBIC’s peculiar investment philosophy

In that post, I noted that a comparison of CBIC to the Australian Government Future Fund is inaccurate, as the CBIC is heavily invested in property and nowhere near as diversified as the Future Fund (see charts below, which I need to update with the latest data, although the story won’t have changed).

Chart1_CBIC

Chart2_FutureFund

 

 

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