Pascoe spot on – we don’t yet fully comprehend the extent of the resources boom

Posted on March 26, 2012 by Gene Tunny

Michael Pascoe had a great article published today (What Campbell can’t do) that begins with a fascinating story and contains an observation about the resources boom that I fully agree with:

In suburban Brisbane last week the world’s largest industrial auctioneer conducted its biggest ever single-day auction of heavy equipment.

More than $52 million was paid for more than a 1,000 items ranging from used forklifts to a brand new Caterpillar D9T bulldozer, a snip at $1.02 million.

The auction by Canadian-owned Ritchie Bros Auctioneers was on behalf of more than 140 sellers with the equipment sourced locally and from overseas. Much of it had been imported by traders from Europe – there’s plenty of excess capital equipment there at present and a shortage here, as demonstrated by auction prices beating Ritchie’s expectations…

…The auction was a small indication of the extent of a resources and capital investment boom that most Australians still don’t quite comprehend – a boom that is still building and is yet to fully filter through to other parts of the economy.

Posted in Macroeconomy, Mining | 2 Comments

Domestic electricity price freeze will mean higher costs for businesses

Posted on March 25, 2012 by Gene Tunny

The Newman Government has a clear mandate to implement its policies, but it will find implementation very difficult in a number of cases. The most obvious case is the promise that within its first 30 days the Government will:

Freeze or lower the standard domestic electricity tariff (Tariff 11) to address soaring power bills as part of cost of living relief (to take effect from 1 July 2012).

Electricity tariffs/prices are regulated by the Queensland Competition Authority (QCA) which allows prices to be set to recover costs and to provide a normal return on investment. If the Government implements this policy, electricity prices on non-domestic users (i.e. businesses) will need to rise even more than currently expected over the next few years, to make up the shortfall in revenue caused by the freeze on domestic prices. (Note that electricity prices will need to rise over the next few years to pay for network upgrades and the carbon tax.) Hence I expect peak business groups such as the CCIQ will strongly lobby the new Government to reconsider its promise to freeze domestic electricity prices.

For more of my views on the new Government’s commitments for its first 100 days see:

Training reform package is a winner

Posted in Energy | Leave a comment

If Holden is so good for the economy, why does it need $275M more from taxpayers?

Posted on March 22, 2012 by Gene Tunny

I’m disappointed but not surprised by today’s announcement that the Commonwealth, Victorian and SA Governments will dole out an additional $275 million to Holden. It continues our ridiculous effort to buy ourselves a car industry – at a cost of many billions of dollars – even though our domestic market is too small to support the scale of operations that is necessary to produce cars that are internationally competitive.

According to the Australian (Holden wins taxpayer funded aid deal) GM would have pulled out of Australia by 2016 without the assistance. Well we should let them and cut our losses. Instead, our Governments are like a pathetic lover trying to keep hold of a now uninterested partner by showering them with gifts.

Previous posts of mine on car industry assistance include:

Recommended reading on the car industry

Time to cut our losses on industry assistance

Posted in Uncategorized | 1 Comment

Australia Institute’s mining boom analysis ignores benefits to consumers

Posted on March 20, 2012 by Gene Tunny

Canberra-based think tank the Australia Institute has an interesting (though tendentious) paper out today:

Job creator or job destroyer? An analysis of the mining boom in Queensland

The paper notes:

The mining boom is causing large structural changes to both the Queensland and Australian economies. These changes will inevitably create winners and losses…

…It is possible that with a tight labour market and upward pressure on exchange rates, the proposed mining projects in Queensland could lead to a net loss of jobs, that is, rather than being job creators the mines could be job destroyers. New jobs are likely to be mainly short- term construction jobs, replacing longer term jobs in manufacturing, tourism and agriculture.

The paper does a good job of explaining the adverse consequences of the mining boom through its impact on the exchange rate, but it is a very unbalanced piece as it ignores the massive benefits to consumers who can buy goods from overseas more cheaply due to the higher exchange rate. Also, there are obviously big welfare gains to those Australians travelling overseas. I’ve noticed the high Australian dollar is funding a lot of extended holidays by baby boomers in the French countryside, in particular.

With the exception of unlucky job losers in manufacturing and tourism, we’re all wealthier due to the mining boom. The winners from the mining boom include millions of Australians, not just those much maligned mining billionaires.

Posted in Macroeconomy, Mining, Tourism | 2 Comments

Cutting debt the big challenge for the incoming Government

Posted on March 20, 2012 by Gene Tunny

QUT’s Mark McGovern had a great article published at the Conversation yesterday titled Standing in the shadow of debt in the Sunshine State, in which he argues the challenge of cutting Queensland Government debt has been ignored by both sides in the election campaign:

The mortgage on the state is set to increase, with all parties promising more major infrastructure projects. The South East Queensland Councils advertise Labor, LNP and Greens as ticking off a continuance of $6 billion annually in infrastructure spending in their region alone. Some royalties are to be diverted to mining regions to address their acute problems. Mackay, for example, “needs” a $240-million ring road, but this seems well down the list.

The Commission of Audit that Campbell Newman has announced he will establish in the first 100 days will have a tough job to do, and I expect it will recommend a number of election promises are unviable after it receives the latest budget forecasts from the Treasury.

Posted in Budget | Leave a comment

Training reform package is a winner

Posted on March 19, 2012 by Gene Tunny

The Gillard Government deserves credit for its new training reform package, Skills for All Australians, released today. If adopted by the States it will made vocational education and training (VET) a demand-driven system and extend HECS-HELP loans to all VET qualifications. The move has been welcomed by the Business Council of Australia:

VET Plan Addresses Quality, Choice and Responsiveness

Queensland is already at the forefront of VET reform with Skills Queensland vigorously pushing for a demand-driven system (see its Skills and Workforce Development Plan) and the Government having cleared a merger of the Central Queensland University and TAFE – a merger that would go more smoothly if the Gillard Government’s reforms are adopted.

Given Queensland’s already strong commitment to training reform, I’m a little puzzled by the following promise in the Opposition’s First 100 Days manifesto released today:

establish a Skills and Training Taskforce to reform and revamp skills and training and ensure accountability, value for money, and increased completion rates.

I expect an incoming Newman Government would play the COAG game and reach an agreement with the Gillard Government and other States over the proposed training reforms. I doubt it will implement more radical policies and hence I don’t see the need for a specially commissioned Skills and Training Taskforce to reform and revamp VET. While the Opposition has an additional proposal to improve TAFE governance (Overhaul needed for lagging TAFE training) I’m unclear why this job can’t be given to the Department of Education and Training or Skills Queensland.

Of course, the most likely way an incoming Newman Government will create the Skills and Training Taskforce is simply to re-badge Skills Queensland. My old friends over there may enjoy a change of name. As I remember a colleague of mine back in the Beattie Government’s Employment Taskforce saying, “Taskforce sounds tough!”

Posted in Education | 1 Comment

Treasury needs to read Govt minimum wage submissions more closely

Posted on March 18, 2012 by Gene Tunny

If I remember correctly Australian Government submissions to the national minimum wage review are drafted by the Department of Employment, etc but get cleared by central agencies, including the Treasury, so there is no excuse for an economically illiterate statement like this one getting through in the latest submission made on Friday (p. 32):

Although there is extensive literature on the impact of increases in minimum wages on employment, there is no consensus either on the magnitude or the direction of the impact.

While it’s difficult to identity large impacts on employment from minimum wages, so I agree there is no consensus on the magnitude of the impact, very few economists would doubt the direction of the impact is negative, as it’s a pretty straightforward prediction of the supply and demand model taught in economics 101.

Sure there is the famous Card and Krueger study from the 1990s that cast doubt on the impact of minimum wages on employment, but that study is highly controversial and its results are probably specific to the low-income New Jersey community on which the study was based. For a review of recent evidence on the minimum wage, see the paper by Neumark and Wascher, who in my view correctly summarise the prevailing view of the economics profession on the minimum wage:

Our review indicates that there is a wide range of existing estimates and, accordingly, a lack of consensus about the overall effects on low-wage employment of an increase in the minimum wage. However, the oft-stated assertion that recent research fails to support the traditional view that the minimum wage reduces the employment of low-wage workers is clearly incorrect.

So the Government is correct there is no consensus about the magnitude of the impact of the minimum wage on employment, but it is misleading to state there is no consensus on the direction of the impact.

I expect the issue of minimum wages will become very topical over the next year as retailers struggle to maintain profitability:

Myer calls for changes to penalty rates

Posted in Labour market, Macroeconomy | Leave a comment

Far North unemployment spike may just be sampling error

Posted on March 15, 2012 by Gene Tunny

Today’s ABS regional unemployment data contain bad news for the sluggish Far North economy. Loose Change observes (Ugly unemployment):

The unemployment rate in the Far North for February is back above 10% with the latest ABS regional numbers released today. The disappointing number and recent trend is likely to focus attention on the regional economy ahead of the upcoming elections.

I agree with this observation, but I think it’s worth waiting a few more months before concluding there is an adverse trend in the Far North labour market. First, in February 2011 the Far North unemployment rate was also in double digits at 13%, so I wonder if there are seasonal factors (e.g. school leavers) at play. Second, there is a large degree of sampling error at the regional level for the ABS labour force data. Over the last twelve months, the Far North unemployment rate has ranged from 6.4% to 10.8%, which suggests to me the data are very noisy. Consider the size of the labour force survey. The ABS notes:

The Labour Force Survey is based on a multi-stage area sample of private dwellings (currently approximately 29,000 houses, flats, etc.) and a list sample of non-private dwellings (hotels, motels, etc.), and covers approximately 0.33% of the civilian population of Australia aged 15 years and over.

That’s 29,000 households across Australia. If the Far North is home to around 1.25% of the Australian population, we’d expect the ABS surveys around 360 households in the Far North. This sample size is insufficient to generate robust sample statistics.

My estimate of the sampling error (standard error), using a simple formula (see margin of error Wikipedia entry), for the Far North unemployment rate (assuming it’s currently around 8%) is 1.4 percentage points. But, adopting the 95% confidence interval that statisticians generally require, this means the margin for error around the Far North unemployment rate is around +/- 3 percentage points. I’m now wondering if the ABS should bother reporting the regional labour force data.

Posted in Cairns, Labour market | Leave a comment

Citytrain reliability should be an election issue

Posted on March 14, 2012 by Gene Tunny

This may be a case of kicking a dead dog, but the Queensland Government needs to explain why Citytrain has become so unreliable, as evidenced by this statement on the Translink website this morning:

Train services have resumed after a recent signalling fault.

Up to 30 minute delays across the network for some customers travelling into the City are expected.

For the second time in two months I’ve been turned away from Toowong Station and forced on to the CityCat or bus. Has QR had insufficient resources to invest in regular maintenance? Or is the Government just extremely unlucky there have been two major reliability issues within months of the election?

Posted in Queensland Rail, Transport | 1 Comment

Development review panel would be a platform for NIMBYism

Posted on March 12, 2012 by Gene Tunny

If the Bligh Government is re-elected, I hope it reassesses its commitment to an independent panel to review major development applications in Brisbane and the Gold Coast, as reported in the Gold Coast Bulletin today:

AN INDEPENDENT panel will advise the Gold Coast City Council on major developments if Labor is re-elected in Queensland.

Premier Anna Bligh said the two-year “power to the people” planning trial for the Gold Coast and Brisbane councils would improve accountability, but she has not consulted councils about the policy.

She said 43 per cent of all Queensland development applications went through the Brisbane and Gold Coast councils.

The panel would assess major developments and publish their recommendations one week before the application is voted on by council.

If councillors vote against the panel’s advice, the councils will have to explain their decision, Ms Bligh said.

There seems to be little point to this. At best it would be completely ineffective, with Council simply having to produce a statement proclaiming the development’s economic and employment benefits, which for major developments is usually pretty easy. At worst it could give a platform for conservative residents whose NIMBYism may influence councillors to the detriment of the local construction sector (which is still pretty weak on the Gold Coast) and the broader economy.

Posted in Brisbane, Gold Coast | Leave a comment