Government can’t sell Medibank Private because it may not actually own it

Posted on March 4, 2011 by Gene Tunny

Independent MP Rob Oakeshott has called for the Commonwealth Government to sell Medibank Private, which was last proposed by the Howard Government in 2006, and which could raise around $4 billion:

Oakeshott calls for Medibank Private sale

Unfortunately it isn’t clear who exactly owns Medibank Private. If it managed to arrange the sale, it appears the Government wouldn’t be entitled to the full sale proceeds and would have to share them with Medibank Private members. In a note regarding the Howard Government’s proposed sale of Medibank Private in 2006, the Parliamentary Library (The proposed sale of Medibank Private: historical, legal and policy perspectives) noted:

while the government clearly ‘owns’ Medibank Private Limited (the managing organisation of the Medibank Private fund) the fund itself is best characterised as a government controlled not-for-profit entity (not strictly owned by either the Commonwealth or the fund members)…

…members of the fund nevertheless have certain rights to the benefit of the fund and associated assets and these rights need to be considered in any scheme for the sale of Medibank Private

The Fraser Government was obviously very poorly advised when it set up Medibank Private in 1976. I expect Oakeshott’s proposed Medibank Private sale will be put in the too hard basket.

Posted in Budget, Health | Leave a comment

Despite growth numbers, we should be positive about economy

Posted on March 3, 2011 by Gene Tunny

Yesterday’s National Accounts data confirmed Queensland’s economy was sluggish in 2010, as reported in this morning’s Courier-Mail (Queensland’s slowing economy further affected by Summer disasters):

QUEENSLAND was the nation’s slowest growing state last year, even before the worst of the summer disasters hit.

While the state was starting to turn the corner in the last three months of 2010, economists now warn there is much worse to come.

Treasurer Wayne Swan warned Queenslanders to brace for a major economic blow.

The summer of wild weather could drag the country backwards in the March quarter, he said. But economists are predicting a swift recovery later this year in a move that raises fears interest rates will rise.

Despite the impact of the floods and Cyclone Yasi, economists are, rightly in my view, forecasting a recovery later in the year. They have good reasons to do so, particularly given the big pipeline of mining investment, as noted in this previous post:

Post flood Brisbane economy sluggish, but should pick up soon

Another reason for us not to worry about the National Accounts is that the big increases in commodity prices Australia has benefitted from recently mean we can earn higher incomes even if production (which GDP is measuring) is lacklustre. Queensland Country Life (Commodity exports to soar) explains:

For farm products, the value of exports is forecast to rise by 4.4 per cent to $32.5 billion in 2011-12, following an expected increase of around 9 per cent to $31.2 billion in 2010-11.

Despite the adverse impact of recent excessive rainfall and floods, the forecast value of farm exports in 2010-11 represents an upward revision of around $1 billion from the forecast released by ABARES in December, mainly reflecting the effect of recent significant increases in agricultural prices on world markets.

Given the abundant reasons to be positive, it is disappointing the Courier-Mail chose to focus on the negative in yesterday’s National Accounts.

Posted in Agriculture, Macroeconomy, Mining | Leave a comment

Business Council supports a moderately big Australia

Posted on March 1, 2011 by Gene Tunny

The Business Council of Australia has made a useful contribution to the national population debate through supporting the Treasury-projected population of 36 million in 2050 as “a moderate and sensible guide to what is likely to be needed to meet Australia’s long-term goals.” See the Business Council’s submission to the Commonwealth Government:

Moderate Population Growth the Best Path to Prosperity

The President of the Business Council Graham Bradley noted:

“With an ageing and shrinking workforce, low population growth will render us a branch office economy of the region with limited ability to support health, education, aged care and welfare services, or to pay for the infrastructure we need.

The submission highlights that without moderate population growth the ageing of the workforce will see the number of people of working age to each Australian aged 65 or over slump from 5 to 2.7 by 2050.

“The Australian workforce needs more people, not less, at a time when large numbers of Australians are reaching retirement age.”

A larger domestic market would compensate somewhat for the disadvantages our local businesses suffer because they are more remote from world markets than businesses in other countries. With a larger domestic market, Australian businesses would achieve greater economies of scale and improve their productivity levels. The adverse economic implications of Australia’s remoteness and population size have been reasonably well explored by the Australian Treasury and Productivity Commission. See for example:

Can Australia match US productivity performance?

Posted in Migration, Population | Leave a comment

Traffic congestion is deadly

Posted on February 28, 2011 by Gene Tunny

Here’s some bad news for Brisbane commuters who endure the slow crawl along Coronation Drive and our other major roads in peak hour – traffic congestion can cause heart attacks, according to a new study published in the pre-eminent medical journal The Lancet. As reported in Time Magazine (Major Triggers of Heart Attack: Alcohol, Coffee — and Sitting in Traffic):

Exposure to traffic, which can increase blood pressure as well as absorption of heart-harming exhaust, seemed to pose the greatest relative risk to the heart, accounting in the researchers’ model for 7.4% of attacks. This was followed by physical exertion, responsible for about 6% of heart attacks, and then by alcohol, coffee and air pollution, each of which contributed to about 5% of events. (Other smaller risks included anger, sex and smoking marijuana.)

To the extent that heart attacks are associated with the stress of traffic congestion itself (rather than air pollution) we would need to revise upward the estimated $13.5 billion cost of traffic congestion across Australia’s capital cities ($1.8 billion in Brisbane). These estimates are from the Commonwealth Bureau of Transport and Regional Economics (see tables on pages 129-130):

Estimating urban traffic and congestion cost trends for Australian cities

The congestion costs estimated by the Bureau include the value of time lost due to congestion, increased vehicle operating costs, and the health costs of air pollution, but not health costs associated with the stress of congestion.

The Lancet study is another good reason for our governments and local councils to promote public transport, cycling and walking. And, as identified in the Henry Tax Review (see pages 53-54 of the Overview), it may be time to consider congestion charges for vehicles travelling through our central business districts in peak hours.

Posted in Health, Transport | Leave a comment

Should Australian taxpayers subsidise Baz Luhrmann’s Gatsby movie?

Posted on February 26, 2011 by Gene Tunny

The Great Gatsby is among two novels with a legitimate claim to being called the Great American Novel – the other being the Adventures of Huckleberry Finn – so it’s surprising Baz Luhrmann is making his $120 million Gatsby adaptation in Sydney. Unfortunately, Australian taxpayers are subsidising this bizarre production, through both a tax offset:

Gatsby gets caught in row on film funding

and through a NSW Government film investment fund:

NSW incentives to attract Luhrmann’s Gatsby to remain confidential

It’s possible the tax offset is worth up to $40 million, and I’m guessing the NSW Government would have provided a couple of million dollars at least.

There may be a case for investing taxpayer dollars in movies that tell genuinely Australian stories (e.g. Picnic at Hanging Rock, Sunday Too Far Away), but using taxpayer dollars to subsidise a big budget production of a quintessentially American story is a complete waste of money.

Posted in Industry policy | Leave a comment

Post flood Brisbane economy sluggish, but should pick up soon

Posted on February 24, 2011 by Gene Tunny

The spirits of Brisbane western suburbs residents and office workers were no doubt lifted when they first saw the sign announcing that the McDonalds on Milton Rd, next to the still closed BP and Officeworks, is reopening on 28 February. With a number of prominent businesses still closed due to the flood, it’s probably not surprising that there is a perception among people, both inside and outside the Brisbane metro area, that the city has not yet recovered.

With people unsure about whether their favourite businesses have reopened, they decide to put off a visit until another time. Some business owners believe that this perception, in part, is responsible for recent sluggishness in Brisbane’s economy, particularly in the hospitality sector, as reported in the Brisbane Times:

Brisbane businesses struggle after floods frighten consumers

This sluggishness will only be temporary. For all but the most seriously affected, our vivid memories of the flood will fade, and we will get out and about again, and, in particular, back to our old favourite riverside restaurants and cafes. Furthermore, with a number of head offices of up-and-coming resource companies (e.g. Aston Resources and Macarthur Coal), Brisbane will no doubt share in the new riches from the resources boom.

New ABS data released today confirm the large pipeline of business capital investment ($135bn in the next financial year) that is expected in Australia, much of it in Queensland resource projects:

Business investment plans suggest strong growth ahead

This followed news that the Commonwealth Environment Minister Tony Burke had cleared the $35bn Australia Pacific LNG project:

Burke approves $35bn LNG project

While the sluggishness in Brisbane’s economy may remain for another few months or so, the news coming out of the resources sector is so good that we can expect Brisbane to be booming again by this time next year, if not earlier.

Posted in Brisbane, Mining | 1 Comment

Reforming apprenticeships

Posted on February 23, 2011 by Gene Tunny

Around 50% of apprenticeships in Queensland are cancelled before they are completed, raising a question about whether apprentice wages are too low relative to welfare payments. Of course, if apprentice wages were higher, employers might not take them on. Today’s mX newspaper reports (p. 2):

Apprentice and trainee employer WPC Group chief executive officer Nicholas Wyman said most first or second-year apprentices were living on or below the poverty line.

An average first-year apprentice automotive mechanic earns an average of just $270 a week, compared to welfare payments that could be more than $290 a week, Wyman said.

But Wyman said increasing wages could deter employers from hiring apprentices.

Instead, he called for Australia to follow the German system in which employers were accredited and four out of five apprentices completed training.

Accrediting employers – which I take to mean accrediting them to deliver all the training necessary for the apprenticeship so apprentices don’t have to go to TAFE or a private training institute as well – is an idea worth exploring. Of course, we’d need to consider whether the costs of accreditation and the ongoing burden it places on employers aren’t too great.

Some other ideas for reform of apprenticeships are contained in an independent report commissioned by the Australian Government which was released this week:

Expert Panel Final Report

This report includes some useful recommendations, especially around improving recognition of prior learning and current competencies, and targeting government funding to support training in professions where there is a genuine national interest, say due to skill shortages – e.g. training for plumbers rather than for McDonalds staff (see Brawl over McJobs scheme).

The Expert Panel also recommends that apprentice wages be reviewed, but I don’t think this is necessary, given that any wage increases for apprentices would reduce their employability. In any case, the wage level only has a small impact on the decision of apprentices to quit midway, as found in this study by the Queensland Department of Education and Training’s econometrics guru Bernard Trendle (see p. 13):

The labour market and apprenticeship retention in Queensland’s traditional trades

So apprenticeships may need reform, but apprentice wages aren’t the major issue to focus reform efforts on. Ultimately, the low completion rates of apprenticeships may be due to the market simply not valuing formal qualifications as much as industry experience.

Posted in VET | Leave a comment

Is it sensible for governments to take out disaster insurance?

Posted on February 21, 2011 by Gene Tunny

SA Senator Nick Xenophon is pushing the Commonwealth Government to force state governments to take out disaster insurance, in return for his support of the flood levy:

States may be forced to take out disaster insurance

This may not be sensible. Governments typically find it cheaper to self-insure against risks. Given their taxing powers and financial resources, they can effectively act as their own insurance company, in which case they don’t have to contribute to the profits of private insurers.

Instead of paying a premium to a private insurer each year, governments could set aside a similar amount of money each year to provide for natural disaster recovery when required. Assuming private insurers are estimating their potential liabilities for damages properly, and demanding a profit on their insurance activities, the amount of money private insurers would demand from governments over the years is expected to be greater than the total value of expected damage from disasters.

It makes sense for individuals and households to take out insurance for life’s risks, because a fire or life threatening illness could otherwise wreck their finances and lifestyles. But Australian governments wouldn’t get financially wiped out by natural disasters, and it’s more cost-effective for them to self-insure.

Forcing state governments to take out disaster insurance would represent cost-shifting by the Commonwealth on to the states in contravention of the established arrangements for sharing the costs of recovery.

The only defensible case for shifting costs on to Queenslanders is that, if Queensland is more prone to natural disasters, we should pay more because we willingly assume this risk. Rather than forcing Queensland to take out disaster insurance, a more cost-effective solution would be for the Commonwealth Government to require states that are more prone to natural disasters to meet a higher proportion of the recovery costs. This however would most likely be politically unacceptable, so we may end up with Senator Xenophon’s disaster insurance requirement as the path of least political resistance.

Posted in Cyclones, Floods | Leave a comment

Queensland’s fiscal performance has slumped, but we’re still doing fine

Posted on February 19, 2011 by Gene Tunny

As was made clear when the Queensland Government lost its AAA credit rating in early 2009, our Government’s financial circumstances have deteriorated somewhat in recent years. A new report from the Centre for Independent Studies (CIS), a conservative though non-partisan think tank, has identified Queensland as the Australian state with the biggest decline in fiscal performance over the last three years:

Tax, Borrow, Spend: How the States Compare

The Courier-Mail’s coverage, including Treasurer Andrew Fraser’s criticisms of the report’s methodology, is here:

Queensland ‘worst economic performer’ of states – study

While the Treasurer makes some good points, the CIS report is broadly correct. Queensland did after all lose its AAA credit rating, and we joined Tasmania in the league of States with only AA+ credit ratings. That said, we are still in a very good position compared with governments across the world – e.g. Ireland and other EU nations that have received bailouts, and several cash-strapped US states (e.g. Indiana and Michigan), which would likely declare bankruptcy were they private sector businesses.

As the CIS report notes:

Broadly speaking, none of the Australian states is in poor financial condition. They all have the prized triple-A credit rating except Queensland and Tasmania, and even their rating of AA+ would be the envy of many comparable sub-national governments in other countries such as the United States.

Also, when reading the CIS report, it’s worth keeping in mind that our stellar fiscal performance from the 1990s to mid 2000s was partly due to us under-spending on infrastructure, which made it difficult for us to cope with our large and sustained population growth. Over the last few years, we have had to undertake a large amount of catch up investment on roads, tunnels, pipelines and other pieces of infrastructure that are essential for Queensland’s burgeoning population.

On the dire fiscal circumstances of US states, see the Economist article:

State budgets: On their own

Posted in Budget, Infrastructure, Population | Leave a comment

Gladstone’s tight rental market

Posted on February 17, 2011 by Gene Tunny

The LNG-led boom in Gladstone is raising local concerns about a housing/rental crisis, as reported in yesterday’s Gladstone Observer:

Housing/rental crisis not unique

The tight rental market has prompted the usual criticisms of real estate agents and landlords:

Gladstone Mayor Gail Sellers said last week that it is a very tough rental market at the moment in Gladstone with rental prices being driven up and it is unfortunate that some real estate agents and landlords are taking advantage of the situation by dramatically increasing rental prices.

Those higher rents, however, will solve the shortage of housing over the medium to long-term, by attracting investment in new housing. Judging by the full-page ads identifying Gladstone as a property hotspot in Australia’s property investment mags, property investors across Australia are already looking at investment opportunities, including new housing developments, in Gladstone. For example, see pages 67, 70 and 71 of the February issue of Australian Property Investor.

Given the exuberance that tends to accompany mining booms, it would not be surprising if the supply of housing in Gladstone ends up overshooting what is necessary to match demand, and the town ends up with a significant over-supply in five-to-ten years’ time.

Posted in Gladstone, Housing, Mining | Leave a comment