LNP costings interview with Scott Emerson on 4BC

The Queensland LNP Opposition released its election costings yesterday, and I spoke with Scott Emerson on his 4BC Drive program about them later that day. You can listen to our conversation from around 54:00 via:

The Scott Emerson Drive Show, 29 October

The LNP costings, which you can download below, are well presented with handy summaries of the proposed measures, and they get a tick of approval for citing the report Joe Branigan and I wrote for the Australian Institute for Progress on the Queensland budget outlook (see p. 4 of the costings).

The LNP commitments feature a heavy emphasis on cracking down on crime, including one of my favourite measures, $1.75 million for the LNP’s plan to crack down on hooning:

The LNP will put the brakes on Queensland’s hooning problem with new cameras, new laws and new technology which will literally shred the tyres of dangerous drivers.

Let’s hope they have a reasonable and fair way of identifying dangerous drivers if they win government!

Finally, I should note, as I told Scott Emerson yesterday, like Labor’s election costings, the LNP costings appear to make a few bold assumptions, particularly around being able to fund a range of measures through finding savings in the public service and in government-owned corporations such as SunWater. If the LNP has committed to these savings on top of the savings program the current Queensland Government committed to in July, then they have set themselves a challenging task should they win government on Saturday.

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Amusing costings of Qld election commitments – $4bn of Gov’t election commitments reported to have zero “Net Impact”

Extract from Queensland Labor, 2020, Working Together for Queensland, 2020 Election Financial Statement

I laughed out loud when I opened up a copy of the costings of the current Queensland Government’s election commitments and it reported that its $4 billion plus of commitments have practically zero “Net Impact” because it will be borrowing an additional $4 billion of money to pay for them, as well as tapping into unallocated funding it hasn’t used yet (see snapshot above). Here’s what my good friend and former Australian Treasury colleague Joe Branigan has to say about the costings:

Labor’s costings document doesn’t meet basic standards of public financial management. It simply says that ‘we borrowed X, and spent X’. But the point of publishing your costings is to show the impact on those important public finance metrics – the net operating balance and the fiscal balance, and net debt and gross debt, in the general government sector and non-financial public sector. Those eight very critical indicators tell us whether the public finances are being managed well (i.e. soberly, efficiently and transparently) and in the best interests of Queenslanders. What Labor has produced is almost meaningless, especially the headline figures that mix up recurrent expenditure and capital investment.

The other thing the so-called policy costings has missed in terms of their impact on the headline budget indicators is accounting for foreseeable parameter changes over the next four years. This is the fundamental problem with Labor not releasing a budget – we simply don’t know the expected increase in public service employees, the wage bill, capital spending etc. But we can be sure that those numbers will increase over time in nominal terms. That’s why an accurate accounting would identify both the policy changes and parameter changes over the budget period. In other words, you would be able to add your policy costings to your existing budget to see the bottom-line impact. Without a budget, these costings are essentially meaningless.

The best case the Government can make for its absurd near-zero “Net Impact” is that the $4 billion of additional borrowing for election commitments was announced in the COVID-19 Fiscal and Economic Review it released in early September and the spending was accounted for in the Government’s full budget forward estimates which the Treasury would have prepared, but which were not published in the update. Recall the Government only published a forward estimate for 2020-21 and not for the financial years out to 2023-24 which the costings go out to. Perhaps that is how the Government would justify its near-zero net impact measure, but on its face it looks absurd. Yes, budget deficits and additional borrowings are defensible given the COVID-crisis, but the Government can’t pretend borrowing an additional $4 billion to fund its election commitments has practically zero “Net Impact”. Perhaps I’m being pedantic, but the line item should at least read “Difference” (i.e. between additional spending and funding/borrowing) rather than “Net Impact”.

Finally, as has been widely reported, the election costings also incorporate some wishful thinking about $1 billion plus of efficiency/productivity gains in Queensland Health. I told Bill McDonald on 4BC earlier today that it’s a bit unclear how these productivity gains will be achieved. Based on the Treasurer’s interview on Bec Levington’s ABC Mornings show this morning, the Treasurer appears to want our hospitals to work its existing resources harder so it can get more procedures done and get more activity-based funding from the Commonwealth. I told Bill he should speak with the heads of the Health and Hospital Services and doctors and nurses to get their thoughts regarding how much capacity they have to work harder. Let’s hope we get some further information from the Government regarding how the efficiency dividend to be applied to Queensland Health will be achieved.

Update: you can now download a full copy of the costings:

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NQ State feasibility should be explored in lead up to Katter-proposed referendum

I’m pleased that Katter’s Australian Party (KAP) leader Robbie Katter will push for a referendum on North Queensland statehood in the first half of 2021, as reported on news.com.au. It appears there is widespread disappointment in the North with the Queensland Government over alleged, persistent under-funding of the North, even though that is open to debate (e.g. see my post Is NQ under-funded by the State Government relative to the South East?). That said, the $5 billion plus Cross River Rail project in inner city Brisbane annoys many people in the North, who can see more pressing needs for infrastructure funding in their own region. Incidentally, I still need to update that earlier analysis of mine on per capita funding by region to reflect Cross River Rail, which I’ll do as soon as I can.

As I’ve commented previously, creating a new state of North Queensland would be a major endeavour and it should not be rushed into. It deserves a proper investigation, possibly via a commission of eminent Queenslanders supported by the state Treasury to assess the financial viability of a new state and whether North Queenslanders would be better off. Possibly they would be, in the long-run, if they can include all the Bowen Basin coal mines in their state (through pushing the borderline as far south as they can) and if they are compensated for their remoteness and disadvantages by GST redistribution, but in the short-run they will face large transition costs and challenges in setting up a new state administration.

The most challenging issues for developing a workable NQ state include:

  • whether the capital is located in Townsville or Cairns;
  • the borderline – the fact that more recent proposals have the borderline south of Rockhampton and possibly south of Bundaberg has raised many eyebrows, given that traditionally North Queensland begins at Mackay, while Rockhampton is better thought of as being in Central Queensland; and
  • how the state’s assets and liabilities/debt are divided up between SEQ and NQ.

These are not easy questions to answer, and they require a full analysis before committing to an NQ state.

Robbie Katter thinks that only North Queenslanders should vote in a referendum on whether to create a new state, but that presupposes it’s clear who exactly is a North Queenslander, and I’m unsure that issue has been resolved. Given the Queensland Parliament has to vote on the creation of an NQ state, and that the development of NQ has been partly funded over the decades by taxpayers in SEQ, I think all Queenslanders should vote in a referendum on an NQ state.

Previous posts of mine on the idea of an NQ state include:

My comments on NQ exit in ABC online story

Townsville Bulletin report on funding feud: Brisbane economist “under fire”

Senator Canavan’s ambitious plan for a State of North Queensland

Yes to a North Qld State podcast

Townsville CBD from Castle Hill.
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Upcoming QPC Productivity Reform livestream on 24 November

The Queensland Productivity Commission (QPC) has arranged an upcoming livestream on Productivity Reform in Australia and NZ, scheduled for 24 November, with some well known Australian and NZ economists, econo-crats, and pundits. According to the program we’ll hear from, among others, Gary Banks on “Not wasting a crisis” and from Bob Gregory on “Key policy adjustments in a post COVID-19 world”. I’ve already registered and am looking forward to the discussion. It will be tough for the QPC to keep people engaged for a seven hour livestream, but it looks like they have some great presenters and it’s an important topic.

Many economists have seen the desirability of policy changes to improve productivity for some time. Recall that productivity is one of the three Ps, along with workforce participation and population, that determine GDP. Australia had a burst of productivity in the 1990s – due to widespread ICT adoption and to National Competition Policy measures and corporatisation or privatisation of public enterprises – but since then Australia’s productivity performance has been generally considered as disappointing (see chart below).

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Tech Giants vs legacy media and governments – latest podcast episode

One of the biggest pieces of international news this week was the announcement that the US Department of Justice is suing Google over its alleged monopoly in search (see US justice department sues Google over accusation of illegal monopoly). The market power of the tech giants has been questioned for some time now, and you may recall the Australian Government has proposed a regulation which would give traditional media companies like News Corp and Nine-Fairfax greater bargaining power relative to tech giants such as Google and Facebook.

Earlier this week, I spoke with my Adept Economics colleagues Taylor-Rose Hull and Ben Scott about recent developments in the battle between the tech giants, on the one side, and governments and traditional media, on the other side. Our conversation has been published as my latest Economics Explored podcast episode. Among other things, we discuss whether it would be better to allow Schumpeterian creative destruction to occur rather than regulating in favour of legacy media.

The discussion is based on the following article published on the Adept Economics website:

Australian Government takes on digital giants Google and Facebook

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Chat with 4BC’s Neil Breen on Qld Economic Recovery Plan, travel restrictions, deficits, and debt

Yesterday morning, I spoke with 4BC Breakfast presenter Neil Breen about the Queensland Government’s Economic Recovery Plan, travel restrictions, deficits, and debt. The recording has been published on the 4BC website:

What’s in the book?

Neil began by asking me what is the Economic Recovery Plan document the Premier and Treasurer are always clutching during their press conferences? The 4BC website summarises my response as:

Former Treasury Official Gene Tunny says it’s just a prop and he’d rather see a full budget book.

The glossy does summarise a range of government initiatives designed to stimulate the economy, but I’d rather the Government have produced a full budget, or the Treasury to have released a Pre-Election Fiscal Outlook, a PEFO, as is standard practise at the federal level.

Voting is already underway to determine who rules Qld Parliament House (George St, Brisbane) for the next four years.
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Chat with Joe Branigan on LNP’s New Bradfield Scheme and 5% jobless target and Labor’s $600M Council cash splash

Yesterday afternoon I caught up with my good friend and former Treasury colleague Joe Branigan to chat about the upcoming Queensland election, and you can listen to our wide-ranging conversation via the player/link below.

Among other issues, we chatted about the Opposition’s proposed New Bradfield Scheme, it’s 5% jobless target, and the additional $600 million announced by the Premier for local governments if she wins re-election, a funding boost she announced at the LGAQ conference on the Gold Coast yesterday.

On the Opposition’s 5% unemployment rate target, in addition to his comments in our discussion yesterday, Joe provided me the following summary of his thoughts and the chart below.

Historically, Queensland has had a higher rate of unemployment than other states because of: (i) a combination of regionally based (disaggregated) labour markets and a relatively more pronounced boom/bust economic cycle (ie. resources and to a lesser extent tourism), and (ii) generally, Queensland has a higher participation rate than other states because of the net interstate migration effect. That is, people moving to Queensland are more likely to be of working age looking for work.

As a result, regional Queensland has a higher rate of frictional unemployment and structural unemployment compared to the big deep labour markets of Brisbane, Sydney and Melbourne. Since 2000, the average unemployment rate in Greater Brisbane has been 5.6% compared to 6.7% in the Rest of Queensland. That’s a difference of 1.1 percentage points. The overall average unemployment rate for Queensland since 2000 has been 6.2%.

Of course, in the middle of the once-in-a-century mining boom, the unemployment rate in regional Queensland reached a low of 3.2% by the end of phase 1 of the boom in late 2007. This was also during the Work Choices period of maximum labour market flexibility. However, regional unemployment rose sharply in 2008-09 and again after the end of the mining boom from 2012.

In terms of the LNP’s 5% unemployment rate target, there’s a big difference between a 5.9% unemployment rate, which I think is achievable by 2024, and a 5.0% unemployment rate, which in my view would be difficult to achieve for the reasons explained above outside of a booming economy (where it’s clearly possible to achieve a rate in the low 3’s). I suspect that, when the economy eventually returns to full capacity and is in equilibrium, the natural (or minimum) rate of unemployment possible in regional Queensland (under the current Fair Work Act legislation) is 6% to 6.5% and in Brisbane about 5%, with the combined rate for the whole of Queensland around 5.5% to 6%.

That said, policies that help to connect regional labour markets, especially regions immediately adjacent to SEQ, and policies that, in effect, lower the minimum wage hurdle that must be paid by employers (eg. by providing wage subsidies or subsidised training to low skilled workers) will help to drive down the natural rate of unemployment. These policies of course must be funded by the Queensland taxpayer. At the end of the day, despite all policy efforts, in my view Queensland’s overall natural rate of unemployment rate will continue to be a little higher than the more densely populated southern states.

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Qld’s surging public service – clarification of Australian article comments

I’m quoted in today’s Australian article Polls back Labor’s jobs push, and I need to clarify this reported comment:

Economist Gene Tunny said that Queensland’s public sector had been stable through the pandemic and that had steadied the state’s job market, but he expected future employment growth to come from tourism as travel restrictions were lifted.

It’s not a direct quote and I can’t remember exactly what I told the Australian journalist when we spoke last Thursday – possibly I said the public sector has been a stabilising influence on the economy – but I doubt I would have said the public sector itself has been stable, when it’s actually been surging. The Public administration and safety industry division, which includes many state public servants, is one of the few industries to have grown since March (see chart below based on the ABS estimates of payroll jobs from Single Touch Payroll data from the ATO, and note these data aren’t seasonally adjusted).

According to the state government’s COVID-19 Fiscal and Economic Review, Queensland general government employee expenses grew 6.8% in 2019-20 compared with population growth of 1.5%. There was obviously a big surge in public sector employment in the June quarter (April to June), but we don’t know the number of extra public servants yet as the Government’s latest public service snapshot was taken in March. We don’t have the June quarter estimates yet. Again, the lack of transparency from the state government going into this election campaign is very concerning and disappointing.

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My Courier-Mail comments on Qld Economic Recovery Plan and lack of Budget transparency

Yesterday afternoon I spoke with Courier-Mail journalist Michael Wray about the depressing nature of the state election campaign, which is being held without a full set of budget forward estimates having been published by the Queensland Government. I’m grateful to Michael for quoting me at length in his article in today’s paper: Palaszczuk Government’s economic recovery plan ‘just a glossy document’. Here’s an excerpt, but please buy the paper or read it as a subscriber online to support local journalism:

It’s been used repeatedly [by] Annastacia Palaszczuk and her senior ministers throughout the campaign, but Labor’s hyped economic recovery plan has been slammed as a “glossy document” lacking details by a former Treasury official…

Adept Economics director and former Treasury official Gene Tunny said the economic recovery plan was “just a glossy document with lots of nice icons and descriptions of what (the Government is) doing but it’s not strong analysis of what’s happening in the economy”.

And he rejected the Government’s argument that the COVID-19 Fiscal and Economic Review released in September provided enough detail for voters to make informed choices about spending promises.

As I’ve written previously, the Queensland Treasury should release its forward estimates of the state budget out to 2023-24, or best case and worst case estimates given all the uncertainty, so we can have a well-informed debate on important economic and fiscal issues in the lead up to the state election.

1 William St, the Tower of Power, home to Cabinet Ministers and various departments, including Queensland Treasury, which should release its budget forward estimates in the interests of an informed election debate.

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Qld has highest unemployment rate, but we’ve actually coped with COVID-shock better than most states

Queensland once again has the highest unemployment rate in Australia (7.7% compared with a national average of 6.9%), as revealed by the September Labour Force Survey data released by the ABS yesterday, but we need to be careful in jumping to conclusions regarding what that means. It’s a combination of a) previous under-performance, which meant we had a higher unemployment rate than the national average pre-COVID (around half a percentage point) and b) now having a higher participation rate in Queensland, at 65.5%, than the national average, which is 64.8%. In September, Queensland’s participation rate surged by 1 percentage point, meaning the reported 1.3% growth in employment wasn’t able to lower the unemployment rate.

Also, we should keep in mind the unemployment rate doesn’t tell the full story and we should consider the underemployment rate (i.e. those employed but working fewer than their desired hours). Queensland’s underemployment rate is below the national average which is being kept much higher than otherwise by Victoria’s disastrous performance (see chart below).

Hence, Queensland’s total labour underutilisation rate, the sum of the unemployment and underemployment rates, is similar to the national average (see chart below).

Queensland has lost fewer jobs (proportionally) following the COVID-shock than the rest of Australia (e.g. see the chart below based on the payroll data published last week), and I’ve previously attributed that to the importance of mining and agriculture which have proven resilient, and it’s also no doubt due to COVID being less of a problem here than in some other states (which is a point Pete Faulkner makes in Pretty good jobs numbers for QLD; despite the headline unemployment rate moving higher again). As Queensland Treasury’s labour force briefing reports, according to the September Labour Force Survey data, employment in Queensland is down 1.8% since March, compared with a 3.3% decline nationwide, a 2.3% decline in NSW, and a 6.4% decline in Victoria. So, although we have the highest unemployment rate in Australia, Queensland has actually coped with the COVID-shock better than the larger states (and Tasmania), although not as well as Western Australia or South Australia it appears.

On Queensland’s economic under-performance pre-COVID, check out the new hard-hitting article from former CCIQ Chief Economist Marcus Smith and former media man Dan Petrie which they prepared for the Institute of Public Affairs:

Still the Sunshine State?

The Queensland Productivity Commission also highlighted Queensland’s pre-COVID economic under-performance in its economic resilience report published earlier this year. The QPC has been rewarded for its independence of thought and expression by being absorbed into Queensland Treasury, which is a real shame.

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