RBA embraces depression economics

Posted on October 2, 2012 by Gene Tunny

The best guide to the current economic turmoil in Western economies is Paul Krugman’s brilliant little book The Return of Depression Economics, and after today’s interest rate cut I’ve no doubt that it’s popular among the officials of the RBA. Based on domestic economic indicators there seems to be little reason to cut interest rates, as pointed out by Pete Faulkner (RBA opts for a cut) and market commentator Adam Carr, who has observed that the RBA is almost back at the monetary policy stance it had during the financial crisis (see this Australian report).

In my view, the RBA’s decision only really makes sense if it has embraced depression economics, and accepts that fear is driving up demand for cash and safe assets, such as bonds, and interest rates across the western economies will be low for a long time. Hence it doesn’t make sense to keep our interest rates much higher than in other countries and drive up our exchange rate to the detriment of our exporting sectors. Today’s decision by the RBA wouldn’t normally make sense, but it appears the RBA has accepted these are not normal times.

Posted in Macroeconomy | 2 Comments

Setback for Qld consumers as extended Saturday trading hours bid is dropped

Posted on September 30, 2012 by Gene Tunny

The IGA at Baroona Road, Milton is always packed full of people from 5-6pm on Saturdays because Queensland’s archaic retail trading hours regulations mean supermarkets have to close at 5pm. As the number of shoppers and frequent traffic jams in the car park of the Baroona Road shops suggest, there is a huge demand for supermarkets to open later than 5pm on Saturday. Consumers are worse off by having to go to the IGA rather than a bigger supermarket. Although the Milton IGA is renowned for its range of gluten-free products, it generally has less variety and is more expensive than Coles or Woolworths.

Hence I was disappointed to read in yesterday’s Courier-Mail (p. 29) that the recent bid by the National Retail Association (NRA) to extend Saturday trading hours to 7pm has been withdrawn for the time being, due to a procedural stuff up on its part. Unfortunately, the NRA failed to place notices in some regional newspapers as directed by the Industrial Relations Commission. I have no idea when the NRA will be able to apply for extended trading hours again, but I doubt we will get extended Saturday trading hours for another 1-2 years at least.

My old friend and former Treasury colleague Joe Owen wrote this passionate piece about Queensland’s backward retail trading hours regulations last year:

Shutting up shop is harming our economy

My previous posts on retail trading hours include:

Easy way to make Brisbane more liveable

Retail trading hours restrictions holding back retailers

Posted in Retail trade | 7 Comments

Great new ANZSOG paper recommends two tiers of Government

Posted on September 28, 2012 by Gene Tunny

Former Treasury Deputy Secretary Richard Murray has written an excellent paper published by ANZSOG recommending Australia adopt a two tiered system of Government comprising the Commonwealth and 24 city/regional Governments. The Courier-Mail has interpreted this as abolishing State Governments, but it’s really about abolishing the hundreds of local governments across Australia and increasing the number of States (which is allowed under the Constitution) and having them take on local government responsibilities. In a previous post I indicated my support to such a proposal:

Not another referendum on local government

Posted in Uncategorized | Leave a comment

Northern economic cooperation appears sensible, but may not last

Posted on September 26, 2012 by Gene Tunny

It’s always been unclear to me whether North Queensland is unfairly treated by State and Federal Governments, given the large public investments that have occurred over the years, e.g. the Burdekin Dam, and the ongoing expansion of Lavarack Barracks in Townsville. While the North certainly generates a large amount of mineral exports, this has largely been made possible by the investment dollars of people from all over Australia and from other countries. Hence I don’t think there’s a clear case the North is being treated unfairly.

Nonetheless there is some merit in the Queensland regions north of the Tropic of Capricorn developing an economic cooperation plan, as reported by the Courier-Mail this morning, as it would encourage a better understanding of regional issues and infrastructure needs. I have doubts about how long the economic cooperation will last, however, because the individual regions such as Townsville and Cairns will inevitably compete among themselves to attract investment.

Even though the Courier-Mail loosely refers to the concept of an economic zone, which suggests a low tax, low regulation area, it’s clear from the article this is not what is exactly being proposed, nor would it be desirable, as I discussed in a post last year:

Government right in rejecting Northern Economic Zone

Posted in North Queensland | Leave a comment

Asian growth boosts our agricultural sector

Posted on September 25, 2012 by Gene Tunny

Given agriculture is one of the so-called “four pillars” of the Queensland economy, the Government will be pleased with rosy forecasts for the sector such as this one from NAB agribusiness head Khan Horne, reported in Queensland Country Life today (Agribusiness ‘about to boom’):

THE talk may be of the end of the mining boom, but Khan Horne is confident another commodities cycle is only getting started.

The head of National Australia Bank’s agribusiness division says demand for farm commodities could underpin the economy for years to come.

“Generally speaking, it is a sector with good long-term opportunities and I would actually call it a boom,” he said…

…Like the mining industry, Asia is seen as a key growth market for the agricultural sector, though traditional destinations such as US should not be forgotten, he said.

“As GDP expands throughout Asia, they demand more protein. Australia is so well placed to supply it,” Mr Horne said.

Asia is also a major market for our cotton, for which we have a reputation as a high-quality producer. I remember the CEO of major Chinese clothing manufacturer Esquel telling the Australian Cotton Conference in 2010 that if Australian growers could produce more high quality Pima cotton he would buy it.

Finally, I recall KS at Loose Change observed earlier this year there are differing views on just how many pillars an economy has:

How many pillars should an economy have?

Posted in Agriculture | 2 Comments

Does the BCA seriously want to bring back the Sir Humphreys?

Posted on September 21, 2012 by Gene Tunny

There is a lot that is good in the Business Council of Australia (BCA) CEO’s latest speech (Restoring a High-Performing Public Service), particularly the endorsement of principles for effective regulation that have been previously set out by the Productivity Commission, Treasury and Finance Department. But the recommended reforms to the public service (cutting ministerial staff numbers and bringing back permanent heads of Departments) should be rejected, and would probably be contrary to the interests of BCA members.

From my experience, ministerial staffers are in better contact with industry and more responsive to the views of industry than public servants. There certainly needs to be better administration of the public service from Ministers, who need to guide the longer-term strategies and work programs of Departments, but this is a separate issue from the number of ministerial staffers, which I think is a minor issue.

Finally, the recommendation to re-instate the tenure of departmental secretaries would bring back the Sir Humphrey culture of public service mandarins who are unaccountable to the voting public and can frustrate the plans of the Government. Sir Frederick Wheeler’s Treasury in the 1970s is a good example of this. With democratically elected Governments, we need public servants who are willing to implement the commitments made by Governments and who Governments can trust. Clearly the quality of public service heads hasn’t declined since tenure was abolished, and the last three Treasury Secretaries (Parkinson, Henry and Evans) will rank highly in future lists of all-time top Treasury Secretaries. Hence I can’t see any merit in the BCA’s proposal.

Posted in IR | Leave a comment

Commitment to open information commendable

Posted on September 20, 2012 by Gene Tunny

I’m pleased to read the Premier has committed to open information with a view to encouraging the public to provide solutions to problems, as reported in the Courier-Mail this morning:

CAMPBELL Newman has promised a New York-style era of open information to encourage private sector solutions to Queenslanders’ problems…

…After unveiling the plan at a Brisbane business lunch, Mr Newman told The Courier-Mail it would improve the Government’s transparency and accessibility.

“It will solve problems we didn’t know even existed,” he said. “And it will give us solutions that were staring us in the face, but we never saw were there.

“If we can open up this information, instead of people finding it frustrating to deal with the Government, they are actually involved in finding solutions to all sorts of things.”

Mr Newman said the release of information in New York even prompted the development of a broken parking meter app.

The Government could begin by providing researchers and analysts with access to the unit record data (without the names of individuals, of course) for two of the most useful data sets the Queensland Government has access to:

  • the Minimum Obligatory Human Resource Information (MOHRI) database, which includes employment details on all Queensland public servants and could be used by analysts to monitor trends in front-line service versus bureaucratic fat cat numbers; and
  • the Queensland Employee Injuries Database (QEIDB), which includes data on workers’ compensation claims across Queensland and could be used by analysts to monitor trends in such things as public service stress claims, which have always been unusually high – even in non-front-line jobs – compared with private sector stress claims.

While the Government currently makes some data available from these databases, it is typically not in the form that allows the identification of trends over time or for analysts to home in on specific Departments or industry sectors. Hence I see a need for much greater access by the public.

Also, the Government may wish to consider offering prizes to data analysts who identify useful patterns (leading to solutions to problems) in the data sets the Government makes available. I’m sure my old Treasury colleague Anthony Goldbloom’s company Kaggle would be able to assist here.

Posted in Queensland Government | 1 Comment

Big call from ANZ strategist – $A to hit $US1.07 in longer run

Posted on September 18, 2012 by Gene Tunny

AFR Marketwrap (pay-walled) reports on a big call from an ANZ currency strategist on the Aussie dollar:

The Australian dollar will continue to appreciate and could top $US1.07 in the longer run as major economies continue to loosen monetary policy and suffer under debt problems.

That is the view of ANZ Banking Group currency strategist Andrew Salter.

“The deleveraging process is going to keep major central banks loosening monetary policy and capital flowing towards Australia because of the high nominal yield that we offer,” he said.

If the ANZ strategist is right, regions dependent on international tourism such as Cairns will continue to struggle. Also, Australian manufacturing would continue to decline, and we’d expect Ford to cease production in Australia.

While the ANZ strategist’s logic is sensible, given concerns around commodity prices and the historical value of our dollar, it’s a brave call. When the US economy fully recovers I expect the Aussie dollar will gradually fall back to the $US0.80-0.90 range.

Posted in Macroeconomy, Tourism | Leave a comment

Qld loses 20,000 sales jobs over last 12 months

Posted on September 15, 2012 by Gene Tunny

OESR’s recent Employment by Occupation brief on Thursday’s new detailed ABS labour force data reports that employment of sales workers in Queensland fell 8.5% in Queensland and 3.3% nationally over the last 12 months. That’s around 20,000 fewer sales workers in Queensland than one year ago:

This is a very significant change in our labour market and has implications for the availability of part-time jobs for teenagers. Obviously, the trend toward online shopping and our high (relative to recent history) saving rate are contributing factors.

My previous posts on retail trade include:

Retail trade restrained by stubbornly high saving rate

Australia Institute on the future of retail – no more 142% mark ups

Posted in Labour market, Retail trade | 1 Comment

Fitch downgrade of Qld credit rating is unwarranted

Posted on September 13, 2012 by Gene Tunny

Treasury officials generally put on a good morning or afternoon tea when staff from rating agencies such as Fitch, Moody’s and Standard and Poor’s come for their regular consultations on fiscal policy. If I were a Queensland Treasury official, I’d save the good cream biscuits and put out some milk arrowroots next time Fitch comes calling. There is absolutely no justification for the latest rating downgrade reported this evening (Queensland credit rating downgraded). Fitch appears oblivious to a number of obvious facts:

  • there is practically zero chance of the Queensland Government defaulting on its debts;
  • the Government is set to earn billions of dollars in LNG royalties when exports begin in a couple of years; and
  • the economy is in reasonably good shape, although there are patches of weakness in housing construction and the Gold Coast and Far North are taking a while to recover.

Sure, there are risks to Queensland’s economic outlook from the slowdown in China and the Euro-zone, but Fitch should wait for those risks to materialise, rather than looking into its crystal ball and downgrading our credit rating. This is a really daft call by Fitch. Hopefully the bond market agrees and doesn’t raise our borrowing costs.

My previous posts on Fitch and other rating agencies include:

Qld credit rating downgrade by Fitch would be unjustifiable

Krugman slams S&P over US downgrade

Fitch’s negative outlook for Qld is bizarre

Posted in Budget, Macroeconomy | Leave a comment