My comments on NQ exit in ABC online story

Thanks to ABC state political reporter Josh Bavas for asking my opinion on the new state of North Queensland that has been proposed from time-to-time, most recently by Katter’s Australian Party and Queensland Senator Matt Canavan, Minister for Resources and Northern Australia. You can read my comments in Josh’s story:

Queensland border debate: Could a ‘Nexit’ be on the cards?

As a North Queenslander by birth, I’m naturally favourably disposed toward the idea of a state of North Queensland, but I’ve always been skeptical regarding whether it would actually be as beneficial to people in the north as they believe. Successive state governments have been relatively generous to North Queensland, including through large expenditures on the road network and partly funding a new $250 million super stadium in Townsville. Of course, a high value could be placed on political autonomy and the ability to determine your own destiny.

My view is that proponents of a new NQ state need to crunch the numbers and produce a cost-benefit analysis showing the costs and benefits to both North Queenslanders and residents of the rest of Queensland and Australia. Among other things, we need to understand whether and to what extent a new NQ state would be dependent in the long-term on a favourable redistribution of GST revenue, and to what extent royalty revenue currently earned by the Queensland government would instead go to a new NQ government.

Also, it would be good to see some analysis of the set up costs of a new state, where the state should be divided, and how existing state government assets in NQ should be transferred. If a new NQ state capital were set up in my hometown of Townsville, or less likely in Cairns, the new administration would no doubt need to rapidly recruit public servants, many of which would need to come from outside of NQ, given the relatively small professional workforce currently there.

In Josh’s story, I was very pleased to see a photo of “bustling Flinders Street in Townsville 1888.” The photo is quite possibly of a procession to celebrate the 100th anniversary of the arrival of the First Fleet. While Flinders Street today is no longer as bustling as it has been in the past, we are reminded of the city’s previous boom times by several of the buildings lining Flinders Street, particularly its east end. The magnificent Burns Philp building, with its striking pavilion up top, is one such reminder. This was once the local office of the then powerful and prosperous trading company Burns Philp, which it must be acknowledged was shamefully involved in the trade of “blackbirding”.

BurnsPhilpTownsville

The Burns Philp Building on Flinders St East, Townsville,
photographed recently by Jennifer Tunny.

A new state of NQ would be a boon to the Townsville economy if the new administration were based there. Of course, the location of any capital would be vigorously debate, and Cairns’s civic leaders would no doubt make a strong case for their city. I don’t expect to see a new NQ state anytime soon, but, given the desire for political autonomy for distinct regions is growing worldwide, we may well see a new NQ state sometime this century.

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Posted in Cairns, North Queensland, Townsville, Uncategorized | Tagged , , , , , , | Leave a comment

Qld regional unemployment rates facet wrap via R

Queensland is such a large and diverse state, with regional economies having vastly different drivers of growth (e.g. tourism in Cairns, mining in Mackay), that it’s often hard to get a sense of how different parts of the state are performing. Following Thursday’s data dump from the ABS, which among other things showed a strong pick up in interstate migration (see Qld the most popular state for interstate movers), I thought a visualisation of regional unemployment rates faceted by region might be revealing (Figure 1).

Figure 1. Queensland regional unemployment rates, Sep-99 to Aug-18,
12-month moving averages of ABS monthly estimates

Reg_urates_Aug18

Unemployment remains very high in the usual places: the outback which has been suffering from the drought, my home town of Townsville which has shed a lot of manufacturing and heavy industry jobs in recent years (e.g. at Queensland Nickel), and Wide Bay, which has typically been short of economic opportunities and also seems to attract unemployed people due to its low cost of housing. The state’s lowest unemployment rate is in the Mackay region, which has been doing very nicely out of the recovery in coal prices and production that began in late 2016.

For additional information, see the Queensland Government Statistician’s Office’s regional labour force brief for August 2018.

For those interested, I produced Figure 1 using the ggplot2 package in R.

Posted in Cairns, Labour market, Mackay, Migration, Mining, Townsville, Uncategorized | Tagged , , , , , , | Leave a comment

Blunt message to states from Canberra on recreational cannabis – guest post from Stephen Thornton

I am delighted to publish this guest post from my good friend and colleague Dr Stephen Thornton. Views expressed in this guest post are Stephen’s, and should not necessarily be attributed to me as well. GT

Blunt message to states from Canberra on recreational cannabis

Last week an Australian Senate committee released its report on Senator David Leyonhjelm’s private members bill to allow any State or Territory Government to legalise and regulate cannabis. The committee, chaired by Queensland LNP Senator Ian Macdonald and including Queensland Labor Senator Murray Watt, was told that cannabis use is less harmful than alcohol use and tobacco use, and that otherwise law-abiding recreational cannabis users were cast as criminals, which increases pressure on the criminal justice system and supports organised and violent crime.

Although I did not make a submission to the inquiry, in 2016 I undertook a preliminary examination of the likely economic and social benefits of legalising recreational cannabis use in Queensland [see here], prompted by its legalisation in a number of US states, which as of January this year includes California, one of the world’s biggest economies. My report found similar benefits to that identified by Senator Leyonhjelm in terms of economic and social benefits to government and consumers, specifically:

  • The Queensland government could collect around $90 million/year in tax and fee revenue in the medium term with new jobs created and would realise significant savings in the budget in regard to decreased police, court and prison costs.
  • Consumers, once purchasing cannabis on the black market and at risk of being fined and imprisoned with the associated police record and social stigma limiting their future job prospects, would realise significant benefits by purchasing from licenced premises and also in terms of product safety. Importantly, they would also financially benefit from lower transaction costs and via a consumer surplus as the scheme matured and the price of cannabis decreased in a competitive environment.

Costly cannabis arrests in Queensland (offset to some extent by fines) are the highest in Australia and have been since 2001-02. Queensland police in 2015-16 arrested 25,307 persons of the nearly 80,000 arrests in Australia and nearly as many as NSW and Victoria in total despite having around one-third of their combined population.

Number of cannabis arrests 1997-98 to 2015-16 (NSW, Vic, Qld & national total)

cannabis_arrests

One aspect I didn’t cover off on in my report was the economic relationship between the now legalised medicinal cannabis market and a future recreational use market. This year, a medicinal cannabis farm was approved by Brisbane City Council (see article here) while Australia’s first licenced medicinal cannabis producer Medifarm with its grow facility located on the Sunshine Coast recently asked the Palaszczuk Government for funding to build a Centre of Excellence at the University of the Sunshine Coast, which reportedly could create 500 jobs, attract $500 million in capital investment over 15 years and generate $1 billion in exports over five years.

The Senate report, which recommends that the bill not be passed, picks up on this point. It notes that it would drastically alter the Commonwealth’s oversight of medicinal cannabis production, manufacture and distribution which may lead states and territories to consider separate moves in regard to authorising cannabis and cannabis-derived products for medical and scientific use. In other words, the feds would lose control of their newly minted medicinal cannabis scheme.

Interestingly, but quite coincidentally, a Forbes article was also published last week which briefly explores how the two cannabis markets are not necessarily mutually exclusive given that people may purchase cannabis products in the recreational market for medicinal purposes, especially when the price of medicinal cannabis is significantly higher and when access to the drug is limited to certain medical conditions only, as is currently the case in Queensland.

The latest revenue projections for the US cannabis industry quoted in the Forbes article (in $US) shows a revenue decrease for medicinal cannabis from $5.9 billion in 2017 to $4.3 billion in 2018 and an increase in recreational cannabis revenue from $2.6 billion to $6.7 billion. However, the estimate for 2022 for the medicinal cannabis market is $7.7 billion which indicates the trend will not necessarily be downward, while the recreational market is expected to continue to expand to be worth $15.7 billion.

This is especially interesting as in the US recreational cannabis use at the federal level is still not legal, which has now created an environment of uncertainty with the change of President and the negative views towards cannabis of Attorney-General Jeff Sessions who has reversed the previous Obama administration’s ‘go easy’ on states which had legalised it.

Further north though, and after much planning and consultation, Prime Minister Justin Trudeau from 17 October will have implemented Canada’s national regulated recreational cannabis scheme which was a key plank of his policy platform for election in 2015 which takes a more health-focused and less commercial approach than many US states on things like plain packaging and advertising.

Although I was quite bullish when quoted in the Courier Mail saying that at least one of our governments by 2020 will be seriously exploring the benefits of legalising recreational cannabis on the back of what is learnt in North America, I still maintain that the push in Australia will likely come from one of our state governments rather than at the federal level, especially given the policy paralysis on other contentious issues like climate change. Canada will be the country to watch both in terms of economic and social outcomes, as I expect any scheme introduced here to take a similar health-focused approach.

Dr. Stephen Thornton is a social economist and principal of BG Economics.

Posted in Social policy, Tax, Uncategorized | Tagged , , , , | 5 Comments

Low wages growth & the drop in household saving – 612 ABC Brisbane panel discussion

Low wages growth and the drop in household saving recorded in the June quarter National Accounts were considered in a panel discussion I participated in on Emma Griffiths’s 612 ABC Brisbane Focus program yesterday morning, which you can listen to here:

Focus: Are you spending your savings to fund your life?

Other panel members included Griffith University academic Di Johnson, Queensland Council of Unions General Secretary Ros McLennan, CCIQ spokesperson Dan Petrie, and former trade minister Craig Emerson, who joined us by phone. Many thanks to host Emma Griffiths and her producers Ria and Josh for having me on the show yesterday.

low_wages_panel_ABC.png

Left to right: Emma Griffiths (ABC), Dan Petrie (CCIQ), Ros McLennan (QCU), me, Di Johnson (Griffith).

Posted in IR, Labour market, Macroeconomy, Uncategorized | Tagged , , , , , , , , , , | Leave a comment

Has there been a “huge slump” in the Qld economy?

The Courier-Mail today is reporting a “huge slump” in the Queensland economy after yesterday’s ABS National Accounts figures revealed state final demand grew only 0.1 percent in the June quarter, the second lowest rate among states and territories. The paper notes:

“The slump in the data, which does not include the state’s booming export sector, was blamed on a virtual shutdown of government spending on infrastructure while the private sector has started to open its wallet.”

I’ve been concerned about Queensland’s economic performance for a long while now, but I think the commentary I’ve seen in response to the latest data is misguided and somewhat hysterical, especially since the national economy is performing reasonably well.

The disappointing state result is largely a reflection of the lumpy nature of capital investment spending, which means spending can vary substantially from quarter-to-quarter depending on whether major projects are commencing, ramping up, or finishing. As shown in the chart below, the “huge slump” is due largely to lower capital spending in June quarter than March quarter by public corporations (e.g. Energy Queensland, QR, the state-owned ports, Urban Utilities). There appears to have been a big rush of public corporations capital spending in March quarter, pumping up that quarter’s figure to $1.31 billion in total, which fell to $1.17 billion in June quarter. This was, nonetheless, slightly higher than the figure of $1.16 billion in December quarter last year.

sfd_Jun18

The Courier-Mail was right to point out that “the private sector has started to open its wallet” and it is encouraging that machinery and equipment investment is starting to pick up (chart below). That said, we’re still well below the total private capital investment levels we saw earlier this decade when the massive $70 billion Gladstone LNG terminals construction project was underway. That’s the huge bulge you can see in non-dwelling construction in the chart below.

private_capex_Jun18

Overall, the Queensland economy remains lukewarm, but it is hysterical to say it’s had a “huge slump.”

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Economists and the media

This Thursday lunchtime, I’ll be chairing an ESA (Qld) seminar on economists and the media, featuring former ABC finance reporter Rebecca Archer, Director of Connect Media Training, and Griffith Economics Professor Fabrizio Carmignani, a frequent media commentator and contributor to The Conversation.* The media provides economists with opportunities to express their views and to be influential in the public debate, but it can also be daunting to many. I know many colleagues have been concerned their comments would be taken out of context by journalists seeking headlines. So I believe this seminar will be of value to many economists and finance professionals, as it is designed to answer the major questions economists have in dealing with the media.

Bec

Rebecca Archer, Director of Connect Media Training

Drawing on her extensive experience at the ABC and BBC, Rebecca will respond to the following questions, among others from myself and the audience:

1) Why does economics matter to journalists?

2) What can the finance industry and economists offer in terms of stories?

3) What’s in it for you to speak to a journalist?

Fabrizio will provide a different perspective, that of an economist who has been successful in engaging in the economic policy debate, particularly on state and federal budget policy issues. I have asked Fabrizio to comment on how economists can successfully engage with the media, particularly the importance of actually having something worthwhile to say, which can only come from doing the hard work and understanding an issue in depth.

This seminar should be of interest to a wide range of economics and finance professionals who are (or one day will be) either called on to speak to the media themselves or need to understand how the media works, so they can better forecast the public reception of policy initiatives or company reporting, for example. What is it exactly that gives an issue what journalists call news value?

So, if you’re in Brisbane this Thursday 6 September, please consider attending this seminar from 12.15pm at Morgans Financial Ltd, Level 29, Riverside Centre on Eagle St in Brisbane CBD:

Economists and the media

*I am a current Vice President of the Economic Society of Australia (Qld).

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RBA Deputy Governor Guy Debelle’s Low Inflation address to ESA Qld at the Brisbane Hilton

Last Wednesday, RBA Deputy Governor Guy Debelle addressed the ESA (Qld) business lunch at the Brisbane Hilton on the topic of low inflation.* The Deputy Governor took the audience through the different components of the consumer price index (CPI) and showed the large contributions that increases in cigarette and energy prices have made to inflation in recent years, and also that these increases have been offset by declines in many retail prices due to greater competition and technological improvements, keeping inflation low overall.

While Debelle’s speech was highly informative, it was something he only briefly mentioned, and which was not actually in his official speech, that interested me the most: the debate about whether house prices should be included in the CPI. Debelle noted that housing costs are reflected in the CPI in two ways: new dwelling construction costs and rents. He said that house prices themselves are not included, but why that is so could form the topic of another speech. For economists already familiar with the CPI data, that may well have been a more interesting speech, as it would have prompted a discussion of the appropriateness of the RBA’s current methodology for setting monetary policy.

Recall that the RBA sets the overnight cash rate, which influences longer-term interest rates, with a view to targeting 2-3% CPI inflation over the business cycle. It is important, therefore, that measured CPI inflation provides as accurate a gauge of underlying inflation as possible, otherwise monetary policy could be too loose or too tight, destabilising the economy.

As house prices are not included in the CPI, the RBA may not adequately consider them in its formulation of monetary policy. The RBA could set monetary policy too loose, with a low cash rate, encouraging a housing boom with high house price inflation, even though rents may be increasing at a much lower rate. But, as it is rents that are included in the CPI not house prices, the RBA may miss the signal that its monetary policy is too loose. This is arguably what has happened in Australia since 2012-13 (see chart 1). In his latest column in the AFR Weekend, leading financial economist and investor Christopher Joye made the excellent observation:

…the RBA had recklessly underestimated the impact of its 2012 and 2013 rate cuts on house price growth and credit creation, which would precipitate a bubble and the need for unprecedented regulatory constraints on lending…

Those regulatory constraints by APRA have worked, and Sydney and Melbourne house prices are now falling, after having reached absurd levels. Hopefully the adjustment will be relatively smooth without an adverse impact on the broader economy. Of course, that is not guaranteed. Consider the related risk to the economy from the reset of a large number of interest-only loans for investment properties to traditional principal-and-interest loans over the coming years. This reset could lead to cash flow problems for many investors and forced sales of properties, putting further downward pressure on prices and possibly curtailing household consumption expenditure, with macroeconomic consequences (e.g. see this AFR article from April).

In my view, the RBA has patted itself on the back too much regarding the success of its inflation targeting regime, and it should consider alternative approaches, such as nominal GDP targeting or an approach which augments inflation targeting with a mandate to promote financial stability, as discussed by Warwick McKibbin and Augustus Panton in an RBA conference paper from April:

25 years of inflation targeting in Australia: Are there better alternatives for the next 25 years?

Finally, I should note it’s probably unnecessary to include house prices in the CPI, although the RBA should pay greater attention to house prices than it has historically. Statistical agencies such as the ABS arguably have valid grounds for excluding house prices from the CPI. For instance, houses are an investment, rather than a typical consumption good, and the CPI is intended to measure consumer prices. The larger issue is the appropriate monetary policy framework, particularly the extent to which central banks take into account credit conditions and asset prices in their monetary policy decisions. By focusing excessively on CPI inflation, which the CPI inflation target of 2-3% prompts the RBA to do, the RBA arguably failed to restrain the excessive growth in house prices we saw in recent years. Over the next few years, we will see whether that misjudgment will have adverse macroeconomic consequences.

propertyprices&rents

* I am a Vice President of ESA (Qld), but this post contains my personal views, which should not necessarily be attributed to the society.

Posted in Housing, Macroeconomy, Uncategorized | Tagged , , , , , , , , , | 5 Comments