UQ’s brilliant Critical Thinking Project explored in my latest podcast episode

In my latest podcast conversation with Philosophy Professor Deb Brown, I learned about the Critical Thinking Project run out of the University of Queensland. This is much needed in these confusing times, in which no one trusts politicians or traditional media sources, and there is intense polarisation and debate over even basic facts, augmented by social media filter bubbles. 

The Critical Thinking Project, led by Deb, has been working with state and private schools and organisations such as Brisbane City Council and the Australian Defence Force, to improve critical thinking skills. It all begins with actually thinking about how we think, how we know what we know, something referred to as metacognition. It’s a technique we’ve known about for centuries, indeed at least since Descartes developed his Method of Doubt in the first half of the 1600s, as Deb explains to me and my occasional co-host Tim Hughes in episode 123 of Economics Explored.  

We started our conversation with Deb by asking her about her comments in a December ABC News article Is telling the truth too much to ask of our politicians?:

…when public officials lie, that’s really high-stakes lying. because that undermines the fundamental relationship of authority between people and their elected officials, which is at the heart of the legitimacy of the state.

Very true. Unfortunately we live in an age of interminable BS. So it’s incredibly important to develop critical thinking skills so we can all cut through it. So I can highly recommend my latest podcast episode with Professor Deb Brown. If you listen to it, please let me know what you think. 

Looking through the cloister to the Great Court and the Forgan Smith building of the University of Queensland, St Lucia, Brisbane, Australia.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Shadow lockdown and supply-chain crisis – 9.30am Qld time livestream

I’m going live at 9.30am Queensland time this morning (Friday 21/1/22) to discuss the big economic issues of the week, particularly:

  • Australia’s strong pre-omicron labour force figures from the ABS for December, although they weren’t much comfort given the current “shadow lockdown” and supply-chain crisis, driven by a combination of fear and government regulations regarding isolation requirements for close contacts (a problem augmented by a lack of Rapid Antigen Tests, arguably reflective of poor planning by our governments)*;
  • UK CPI inflation at its highest rate since 1992; and
  • the German 10 year bond yield turning positive (at least for one day) for the first time since mid-2019 in expectation of higher inflation and interest rates.

Other news I should mention is that it looks increasingly likely Russia will invade the Ukraine with expectations this will send oil and gas prices even higher.

So please consider tuning in at 9.30am Queensland time for my latest thoughts on the economic outlook. You can watch via the YouTube player below.

As a reminder of happier pre-omicron days, here’s a chart of the unemployment rates for the major states estimated by the ABS for December and published yesterday. Queensland’s unemployment rate of 4.7% is higher than the national average of 4.2% but it’s still a good result in terms of the historical data in recent decades, being the state’s lowest unemployment rate since early 2009. (We also need to recognise sampling error is a bigger deal at the state level, too.) The big question now, of course, is how long the omicron wave lasts and how much economic damage it does, as I’ll discuss in my livestream. The expectation or rather hope is that this wave is over in a few weeks and the economy bounces back strongly.

Regarding the shadow lockdown, that appears to be worse in southern states than in Queensland (see chart below including data up to Monday 17/1), based on Google Mobility data, although Brisbane City is certainly suffering worse than the state-wide data would suggest, as is clear from Google’s regional breakdown which I’ll discuss in the livestream.

*I should note there has been some relaxation of requirements for “critically essential workers” (see the Qld Health advice) in the last week and a bit.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Fake privatisation of Titles Registry helping Qld Gov’t pretend it has debt management plan

This post is an early draft of an article I’m preparing for a public finance or public policy journal about the Queensland Government’s accounting trickery regarding the Titles Registry last year. The state government has violated some well-established principles for government financial reporting and risks being called out by the ABS when it publishes its annual Government Finances Statistics report in April. The state government is defying logic by pretending the Titles Registry has a market value of nearly $8 billion, even though a large part of that value relates to a general government taxation power the government couldn’t possibly transfer, as comments at Estimates from Treasurer Cameron Dick confirmed. The state government has effectively capitalised the value of a general government taxation power as a financial asset on its balance sheet, something which it is not allowed to do, given that the offsetting liability to pay for future government services is not recognised on the balance sheet. 

Introduction

In a remarkable feat of creative accounting, the government of the Australian state of Queensland has recorded a financial benefit from privatising its land titles registry, without actually privatising it. It is using a dubious and logically-flawed valuation of the registry of $8 billion, compared with sale prices in the order of $3 billion achieved in NSW and Victoria, to claim billions of dollars of additional financial assets which reduce Queensland’s net debt. But the economic substance of the Titles Registry has remained the same, and the state government cannot legitimately count those additional assets. Indeed, the Queensland Government is in breach of the spirit and, in my view, the letter of well-established international principles for government financial accounting codified by the IMF and adopted by the Australian Bureau of Statistics (ABS).   

How was this valuation reached?

The Queensland Treasurer Cameron Dick explained the Titles Registry valuation to the Budget Estimates committee on 16 July 2021 like this:

To give some context as to why our Titles Registry is so valuable, it is important to note that our registry turns over approximately $350 million per year. This is higher than the revenue streams estimated by other jurisdictions which have privatised their registries. Because Queensland has retained the asset in public hands, we have included ad valorem fees in its valuation, which other states have not. Informed by several independent valuations and independent commercial advice, QIC has valued the registry on a multiple of 23 times earnings before interest, tax, depreciation and amortisation. That is quite a conservative multiple. Of the four titles registries that have traded in the last few years, only one traded at a lower earnings multiple, and that was the first one to be sold, when it was a novel asset in Australia. A concession period of 50 years was adopted, reflecting discussions with the Queensland Audit Office and agreed by the QIC steering committee. Having used a conservative earnings multiple and a 50-year horizon, QIC has arrived at the valuation of almost $8 billion. (from p. 51 of the Hansard, emphasis added)

The huge logical flaws in the Queensland Government’s accounting

Regardless of whether the 23x multiple is appropriate based on the discount rate and other assumptions, there is a huge logical flaw in the Titles Registry valuation which is clear from a close reading of what the Treasurer told Estimates. The Treasurer has basically admitted that, if the Titles Registry were privatised, the privatised entity could not charge ad valorem (i.e. according to value) fees (i.e. $37 for each $10,000 or part of $10,000 over $180,000 of consideration). This is because the ad valorem fees in question are characteristic of a general government taxation power, and the government would not allow a private monopoly to have this power. Ultimately, it means the Titles Registry could not be sold for nearly $8 billion. So how does the Queensland Government now have a financial asset worth $8 billion, which it is using to reduce its net debt, if it couldn’t sell the Titles Registry for $8 billion? It is a complete sham. 

The large value of the Titles Office is essentially related to its ability to levy what is effectively a tax rather than a fee-for-service. The ability to generate future taxation revenues is treated as an asset on the government balance sheet. If governments were allowed to do this, then the future liabilities to deliver government services would have to be, too. 

The Government has legally separated the Titles Registry, which records land transactions, from the general government Department of Resources, and made it a Pty Ltd company (i.e. to pretend it’s a private entity outside of the general government or public non-financial corporations sectors), owned by various state government investment funds. The tricky financial engineering is well documented in the Queensland Audit Office’s Establishing the Queensland Future Fund report published in early December 2021. In a telling passage of the report, on p. 7, the Queensland Audit Office observed:

While the indirect owners of the Queensland Titles Registry were all government entities as at 30 June 2021, there is no legislative protection under the Queensland Future Fund Act 2020 or the Queensland Future Fund (Titles Registry) Act 2021 to prevent some or all of the holdings in the Queensland Titles Registry from being sold to private entities.

I’m guessing the Government probably can’t provide that legislative protection because then it would be an open-and-shut case on the nature of the Titles Registry: that it remains a general government entity, subject to government direction and with employees effectively remaining public servants, regardless of whatever legal status the Government attempts to give it. Indeed, the Titles Registry appears to be operating out of the same offices as it previously did, including offices where it’s co-located with Resources department officers in the regions. 

Violation of well-established principles for government financial reporting

The ABS made it clear in a note on ABS public sector unit classification decisions in early July, a few weeks after the Queensland Government released its 2021-22 Budget including the Title Registry change, that:

When classifying a unit for official statistics, the ABS looks beyond legal status and focuses on the economic substance behind the nature of an entity.

I have no idea whether the ABS was sending a message to the Queensland Government (and to other governments watching the Queensland Government’s tricky play), but I hope the state government noticed it. It’s possible the ABS could refuse to recognise the state government’s hypothetical privatisation of the Titles Registry and, hence, won’t recognise the billions of dollars of additional financial assets. We’ll learn its decision next April when it publishes its annual Government Finance Statistics for the 2020-21 financial year. In my view, the ABS should recognise the Queensland Titles Registry is exercising a general government taxation power and hence it should remain as part of the general government sector.

The ABS is responsible for reporting Australia’s government finance statistics on a basis which is compatible with the IMF Government Finance Statistics (GFS) standards. This is to ensure statistics are as accurate and reliable as possible. My feeling is that the Queensland Government’s Titles Registry manoeuvre is contrary to the spirit, and probably the letter, of IMF rules. The Queensland Government is at risk of violating well-established IMF GFS rules, by not properly accounting for the scope of government activities, by pretending it has privatised an activity that it has not. After all, this is a government which opposes asset sales. 

While I’ve been critical of some previous Queensland Government budgetary manoeuvres, such as the 2015-16 debt switch, at least they were accounted for correctly. We know something fishy is going on here, because the state government won’t release full financial statements for the various funds which part own the Titles Registry (see InQld’s report Show me the money: Auditor-General demands answers on future fund fate). This is disgraceful in its lack of transparency. 

Conclusion

The fake privatisation of the Queensland Titles Registry is the most deceptive fiscal play I’ve seen from any government in Australia in recent decades, and we need to call it out so state governments don’t think they can get away with worse.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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US libertarian public finance expert Dan Mitchell slams the “global tax cartel” Australia has joined

Last year, Australia signed up to the OECD-led push for a global minimum corporate tax rate of 15%, a measure designed to reduce the profit-shifting to low-tax countries which occurs and disadvantages higher corporate tax rate countries such as Australia, which has a 30% rate (see Josh Frydenberg’s media release G20 endorses global minimum tax rate for details). As a former Treasury man, conscious that we need to pay for an ever-expanding welfare state, my initial impression was the agreement is in Australia’s national interest. As always, I strive to be radically open minded, so I invited arguably the world’s leading opponent of the global minimum tax agreement, renowned US libertarian economist and public finance expert Dr Dan Mitchell, onto my Economics Explored podcast to discuss the deal. Dan calls it a “global tax cartel” which will result in greater tax burdens and less efficient and productive economies in all countries, including Australia, because it reduces the global tax competition that can put downward pressure on tax rates.

Here’s a clip from the video recording of my conversation with Dan in which he explains the “Starve the Beast” strategy associated with US fiscal conservatives since the Reagan administration. Also check out his blog post Yes, Starve the Beast, featuring the clip.

Check out the full conversation by listening via the audio player or the Listen on Google Podcasts badge below. In additional to criticising what he calls the “global tax cartel”, Dan also talks about California’s “economic suicide” which has led to many entrepreneurs and creatives leaving California for lower-tax states such as Texas and Florida. Show notes for the episode can be found in your podcasting app and at the Economics Explored website. It was a great conversation and Dan was in fine form, being on a high after his beloved Georgia Bulldogs triumphed over the Alabama Crimson Tide in the US college football championship game earlier in the week.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Let’s hope omicron is just a short, sharp shock

Things have worsened quickly with Queensland’s omicron outbreak, and we really hope it is just a “short, sharp” outbreak as many health experts are predicting. The Brisbane Times has reported “University of Sydney infectious diseases expert Robert Booy also forecast the Omicron wave would soar and fall at breakneck speed.” Regarding its economic impact, I expect or rather hope its adverse effect, from suppressed activity in hospitality mainly, is confined to January and early February and it doesn’t detract from the overall economic outlook for 2022, which was reasonably good pre-omicron, as I noted in my post last Thursday, published a couple of hours before I learned Queensland had 10k daily COVID cases. Now the state government is telling people to work from home and to keep school children at home for the first two weeks of school.

So far, Queenslanders haven’t been limiting our movements, and likely our spending, as much as people in southern states according to Google Mobility data (see chart below which includes data up to Thursday 6 January), but let’s see what happens in coming weeks. No doubt the high COVID case numbers will worry many people and suppress activity, particularly in hospitality, further.  

There is a risk Queensland will see the substantial adverse economic impacts of what is being called a pseudo or virtual lockdown, something which has sharply reduced spending in NSW and Victoria, and, so far, to a lesser extent in Queensland, according to an ANZ Research analysis, which was reported in various places including at news.com.au. I saw somewhere Deloitte Access Economics’ Chris Richardson made a comment along the lines of how we shouldn’t over-interpret one week’s data from an unusual period and I fully concur with that. It may be too soon to tell what’s going on exactly.  

Finally, while nothing is certain and Treasurer Josh Frydenberg has warned the economic recovery is not yet locked in, I’d say it’s reasonably likely the economy will recover quickly from whatever temporary weakness is brought about in the near-term from the pseudo-lockdown, which hopefully will end by early February. After all, pre-omicron leading indicators looked good. Furthermore, the monetary expansion (e.g. a 22% growth in the M3 money supply measure since the end of 2019) associated with the pandemic response means that households and businesses have a substantially higher stock of real money balances and purchasing power, given that inflation has remained relatively low (for now at least).

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Economists needed to design virtual economy for Splash, metaverse entertainment start-up in Brisbane

Splash, a Fortitude-Valley-headquartered start-up, is looking for two economists to design a virtual economy for its online game in which players create music and perform in virtual venues. Splash’s head of People and Culture reached out to me today to check if I knew anyone who may be interested. Here’s what she wrote about probably the coolest jobs for economists I’ve heard about recently:

…we are hiring two Economists to design and expand our growing virtual economy within Splash across our two games and online virtual marketplace. The positions will focus on user behaviour and satisfaction, pricing strategy and identifying revenue drivers as well as pacing and level up strategy of complex multi-player games. I’ve provided more context about our company below and a link to the job description here.

Our company Splash is building a new creator economy in the Metaverse with our AI-powered music tools and video games. Anyone can perform amazing music to live virtual audiences, build a fan base and earn from their talent. Over 8m players have performed in Splash and we are backed by world leading investors including Amazon’s Alexa Fund. 

We feel someone with a passion for gaming would really thrive in this role and it would be a great opportunity to step into the rapidly growing games industry. We would be open to range of experience including economists that bring a strong amount of commercial experience as well as honours/masters students.

Please pass this onto anyone who may be interested, or, if you’re interested yourself, I’d encourage you to apply via the LinkedIn page for the job linked to above. 

Brisbane’s Fortitude Valley is becoming a hub for startups. 

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Qld Economic Outlook for 2022

Prior to the omicron outbreak, I was very confident about the Queensland economic outlook for 2022. I’m still reasonably confident that the state economy will perform well over 2022, but nothing is certain of course. There’s been a bit of worrying news in recent days about hospitality venue closures and shortages of products in supermarkets. Hopefully, those issues are resolved and are only temporary. So much depends on the COVID response, and so far this year the Queensland Government has botched it, alas, with a lack of COVID testing capacity. But let’s assume we get through this COVID wave without a catastrophe that sees people retreat back to their homes and businesses shut down for an extended period. 

For my first post of 2022, I’ll run through the state of play for the Queensland economy and what some of the important leading indicators are saying.  

State of play

The most recent ABS National Accounts data were for the September quarter, in which Queensland obviously performed very well compared with the other major states, NSW and Victoria, which were locked down for extended periods that quarter. As the Queensland Mid Year Fiscal and Economic Review proclaimed, state final demand in Queensland was 6.4% up on its pre-COVID level, compared with only a 1% improvement for Australia as a whole, which was dragged down by negative results in NSW and Victoria (see chart below). 

So Queensland has recovered very nicely from the initial COVID downturn in the first half of 2020. I should note disproportionate contributions to that recovery have been made by government spending and capital investment in renewable energy, as I pointed out in a post last month (Gov’t and renewables making disproportionate contributions to demand growth in Qld). 

Continue reading
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Poorly thought out regulations for Qld reopening

With its poorly thought out regulations surrounding Queensland’s reopening, the state government is providing lots of instructive examples of adverse unintended consequences of regulations. Among other problems, we have had:

  • overstretched COVID testing centres, here and in other states, although thankfully the Government has now scrapped the fifth day PCR test requirement for visitors here, which should reduce the load in Queensland at least*; and
  • several hospitality businesses having to close during this usually busy time for them due to staff members going into isolation after being identified as contacts of COVID cases, a problem which is expected to worsen as COVID numbers increase (e.g. see today’s Courier-Mail report ‘Be more sensible’: Hospitality industry just ‘days away’ from crippling staff shortages). 

As usual, the Queensland Government has been defensive, with the Premier saying the other day no one could have expected 400,000 people would have wanted to come into Queensland after the borders reopened. This makes me wonder just how many people the Government did expect? Did it get any advice on this from its Treasury or tourism department? The state government would have dozens, if not hundreds of public servants, who could have had a decent go at providing such advice.

The Government obviously hasn’t been doing the back office work in planning for the reopening that it should have been doing. In my view, the underlying problem is that we’ve seen policy on the run, the Government making it up as it goes along, and an abandonment of traditional policy process which, while not always delivering great results, did at least largely prevent governments from doing stupid things. 

Alas, the state government has not been listening to public policy experts who’ve been calling for a restoration of sound policy processes since the middle of last year. In their July 2020 Menzies Research Centre paper Getting Australia Safely Back to Work, Henry Ergas and Joe Branigan wrote:

The worst having been avoided, normal policy evaluation rules should apply…

…Given the significantly reduced health risk from COVID-19, the use of ‘Ministerial Direction’ should cease immediately.

Previous orders should be re-assessed and revoked within a specified timeframe. At the same time, any restrictions that remain in place should be fully subject to the regulation review process, including, where appropriate, through Post-Implementation Reviews.

In September, the state government extended the CHO’s emergency powers to cover the first three months of 2022. Policy is still being made without proper consideration by the broader public service, Cabinet, and the Parliament. One result of this is that we are seeing such poorly thought out regulations which end up having adverse unintended consequences.

The sharp and often unexpected changes we’ve experienced in COVID regulations in Queensland have reminded me of the Green Lantern coaster at Movie World on the Gold Coast. But at least the Green Lantern ride was over in a bit over a minute. Unfortunately, we have at least a few more months left of Queensland’s current COVID emergency policy regime, a regime which is producing some poorly thought out regulations.

1 William St, the Queensland Government “Tower of Power”.

*While I was drafting this post, the Premier announced the COVID testing requirement will be scrapped for interstate visitors from hotspots from 1 January. So good news there, but why did we have such an unworkable rule in the first place?

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Remembering Tony Makin with ex-Ambassador to OECD Alex Robson

Late last month we lost a great Australian economist, Professor Tony Makin of Griffith University. Episode 119 of my podcast explores Tony’s contributions to the Australian macroeconomic policy debate, particularly his studies and opinion pieces on fiscal stimulus and before that the current account, once the subject of great concern among policy makers in Australia. I spoke about Tony with one of his co-authors and former students, Dr Alex Robson, an Associate Partner at EY, and a former Australian Ambassador to the OECD and former chief economic adviser to the Prime Minister.

Check out the show notes via the link above to find links to the articles Alex and I discuss in the episode.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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Sunny Coast booming | Qld must remain open for business petition

Relative to pre-COVID levels, while all Queensland regions have much higher job vacancies, it is the Sunshine Coast that is well in the lead, according to the National Skills Commission’s internet vacancies data for November 2021, published yesterday (see chart below).* The region is experiencing 2.5-3.5k vacancies at any one time compared with 1-2k vacancies pre-pandemic. The Sunshine Coast has no doubt been benefiting from both interstate and intrastate migration as people opt for a Sea Change. Also I should note there is a major project underway to redevelop the Maroochydore CBD (see Development continues apace at Maroochydore’s new city centre). I’ll aim to explore the drivers of the Sunshine Coast’s strong labour market in a future post very soon.     

By the way, the Sunshine Coast’s job vacancies aren’t all in hospitality (which falls in the Technicians & Trade Workers category for some reason), but, as in many other regions, the category with the largest number of vacancies is Professionals (see chart below). 

Finally, if you haven’t done so yet, please consider signing the Queensland MUST remain open for Business petition. Here’s an excerpt from the blurb for information and for the record:

The introduction of draconian rules now restricting all Queenslanders once again are impacting us more greatly than ever before, with businesses being forced to close when classed ‘close contact’. Matt Sinclair of Sum Yung Guys fame has been forced to close his restaurant and send his fully vaccinated team home without work at Christmas, all for what? Delaying the inevitable?! COVID is coming to Queensland, no doubt. This is why we are vaccinated, now lets move on with business as usual. No more contact tracing. No more restrictions, I demand Sum Yung Guys and all businesses affected now be reopened immediately. Please sign and share asap thank you, I will be forwarding to all members of Qld Government and representing industry bodies as soon as I have significant support via this petition.

This is a very worthwhile petition in my view, and I was happy to sign it.

Mooloolaba, Sunshine Coast, Queensland, Australia.

*For clarity, I’m talking about how regions are performing relative to their pre-pandemic levels. In absolute terms there are many more job vacancies in Brisbane (29k) and some other regions than on the Sunshine Coast.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week.

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