BCC residential parking permit zone in West End & Highgate Hill is bad policy

I have previously posted on the high cost of free parking, the problem identified by UCLA economics professor Donald Shoup that arises when councils do not properly price access to on-street parking (see Another example of the high cost of free parking in Toowong). Now the Brisbane City Council (BCC) is proposing to cover the parts of West End and Highgate Hill in the vicinity of the City Cat ferry terminal with a residential parking permit zone, which will allow local residents to park on local streets almost for free and restrict the parking options of non-local residents, as reported by the Brisbane Times yesterday:

Inner city commuter parking is about to get a lot harder

This is really bad policy. The most efficient (and arguably equitable) solution is for the car parks to be allocated to those people with the highest willingness to pay, which will include many commuters catching the City Cat. This also means the council can raise more revenue, if it properly meters on-street parking in the area. If it finds that, at the metered charge it sets, demand is high relative to the supply of car parks, it should raise the charge. In this way, the community will get a good idea of the true willingness to pay for car parking in the area, and BCC or private investors might well realise it would be optimal to build a multi-storey car park for the City Cat terminal, for example. I should add that having commuters drive to West End to catch the City Cat is preferable to those same commuters instead driving to the CBD or University of Queensland, both big attractors of traffic and major locations of congestion.

Local residents should not be exempt from on-street parking charges, as they typically are under residential parking permit schemes. Contrary to what appears to be popular belief, property boundaries don’t extend on to local streets. But, by granting a residential parking permit at a very low annual fee of $10 per vehicle (see the BCC website), BCC confers a valuable additional property right to local property owners. Given the inner city precincts that residential parking permit schemes cover, local residents are typically reasonably well off and don’t need an extra benefit handed to them by the council. (Incidentally, this is why I don’t think residential parking permit schemes are equitable.) If local residents are conferred such a valuable benefit by council, they should pay for it, through a much higher residential parking permit fee, in the order of at least $1,000 I would suggest and possibly much more.

WEHH_permit_zone

New residential parking permit area in West End & Highgate Hill, Brisbane. The square jutting out into the river is the City Cat terminal. 

N.B. I have amended this post slightly since first posting it.

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Economics of online dating: upcoming WEN/ESA event at Alliance Hotel, 16 May

The news that Facebook is expanding into online dating reminded me of an upcoming event on the Economics of Online Dating at the Alliance Hotel, Spring Hill on Wednesday 16 May featuring QUT economist Stephen Whyte, and hosted by the Women in Economics Network (WEN) and ESA Queensland, of which I am a vice-president. Here’s the blurb:

Women, Men, and the Economics of Online Dating

Presentation by Behavioural Economist Stephen Whyte, QUT

Choosing a mate is arguably the largest decision a human can make. This presentation will be about mating and what can be learned from new data sources such as online dating platforms. It will provide insights into economic choices related to couple and family formation in the presence of new matching technologies and will illustrate how men and women differ in their strategies to look for a partner. These findings are important to inform policies related to psychological healthcare and economic support services, as well as legislative frameworks that seek to combat sex, gender and sexuality based discrimination and inequity.

Stephen’s research has covered the issue of assortative mating, the fact we tend to partner with people similar to ourselves. The proverb that opposites attract is not well supported by the data. For example, people typically partner with people with the same level of education. This has meant, for example, that it has become harder for less educated men to find partners as women have surpassed them in educational attainment.

Not everyone is so picky, however, as Stephen has discovered in his analysis of online dating data. Bernard Salt would say it’s a numbers game. When the pool of potential partners is relatively smaller, standards will fall. In one of his recent studies using online dating data, Things change with age: Educational assortment in online dating, Stephen found:

Younger males and older females are more likely to contact those with less education.

Younger males face the problem of intense competition with each other for partners and also the fact some young women will partner with older men. And older females find that many older men, vainly attempting to recapture their lost youth, chase after younger women.

I encourage you to attend Stephen’s presentation on the evening of Wednesday 16 May for a range of fascinating insights into human behaviour gleaned from online dating data.

stephenwhyte

Stephen Whyte, QUT behavioural economist who has extensively studied the economics of online dating

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Are public servants overpaid on average?

In my previous post I commented on the excessive growth of senior Queensland public service positions over the last few years. Let us consider the hypothesis that this growth was related to public servants having significant influence over their own employment conditions, and being insulated from the market forces that keep private sector earnings broadly related to productivity. As the Newman government discovered at the 2015 election, public servants are a major voting bloc and have considerable political power. Hence, public servants could end up being overpaid relative to their private sector peers. Certainly, average earnings are higher in the public sector than in the private sector (chart below).

awe_chart

Of course, we need to compare like with like, and take account of the differing nature of jobs and worker characteristics between the sectors. The public service workforce contains a higher proportion of professionals, so you would expect higher average earnings in the public sector than in the private sector. Nonetheless, rigorous empirical studies, which adjust for differences in job and employee characteristics, show there still exists a public sector wage premium, by which public servants earn significantly more than comparable private sector workers. This phenomenon has been observed in many empirical studies across the world.

In a 2017 study Public-private sector wage differentials in Australia, published in Australia’s leading economics journal the Economic Record, eminent labour economist Sue Richardson and colleagues from Flinders University reported:

After controlling for observed characteristics and individual fixed effects, we show that on average workers in the public sector earn about 5.1 per cent more in hourly wages than those in the private sector. The wage premium is slightly higher for females than males. Using a panel data quantile regression model with fixed effects, we show that the positive wage effects of public sector employment are heterogeneous, with comparatively larger impact at the lower end of the wage distribution than at other parts.

That is, the study finds it is ordinary public servants who benefit most from the public sector wage premium. Senior public servants are more likely to be paid similar to what they would earn in the private sector, although there is still a small wage premium (2.4%) on average. The study also finds that, among senior public servants, women are the main beneficiaries of the wage premium, while among ordinary public servants it is men who are the main beneficiaries (p. 114):

…low-paid public sector jobs appear to be favouring post-school educated men and high-paid public sector jobs appear to be favouring women in general.

The findings by Sue Richardson and her colleagues suggest there could be some positive discrimination in favour of women in the hiring process for the senior public service. This would be controversial if true. Further research on this issue would be highly desirable.

In summary, the best Australian evidence, which is consistent with the international evidence, supports the hypothesis of a public service wage premium. We should ask what is responsible for this premium? Is it the political power of public servants, one aspect of which is the existence of strong public sector unions?

The US public choice school that came to prominence in the 1970s provocatively analysed bureaucracy as if public servants are self-interested empire builders, rather than dedicated servants of the public good. In the famous 1977 article The expanding public sector: Wagner squared, Nobel laureate James M. Buchanan and fellow public choice economist Gordon Tullock argued government tends to grow ever larger, and public servants more powerful and better compensated, because public servants vote. Bigger government is in the interests of public servants, so they vote for candidates who support it. This leads to bigger government and more public servants, who also vote for candidates who support bigger government. This is the Wagner squared hypothesis. (Adolph Wagner was the nineteenth century German economist who proposed a law of expanding state activity.)

In my view, the Wagner squared hypothesis is too pessimistic—it came before the Thatcher and Reagan revolutions, and Australia’s own micro-economic reforms which all suggested the situation is not completely hopeless. But it reminds us that there are significant non-market factors that influence public service salaries. When negotiating future enterprise bargaining agreements, governments should keep in mind that, on average, their public servants are overpaid relative to their private sector peers.

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My comments on excessive growth in senior public service jobs in today’s Courier-Mail

Steven Scott from the Courier-Mail has done a terrific job of revealing the huge growth in the senior echelons of the Queensland public service since the change of state government in early 2015 (see Palaszczuk Government’s massive senior public servant hiring binge). Over the last three years, the number of senior public servants, at senior officer and senior executive service levels, has increased by around 30% (see my charts below which split out SO and SES levels).

PSchart2

Steven quoted me on the excessive growth in senior public service positions (on p. 7 of the Courier-Mail):

Former federal treasury official Gene Tunny said the rate of increase at the most senior levels of the public service appeared “excessive”, even when taking account of the extra senior managers needed to oversee frontline staff.

Mr Tunny, who runs Adept Economics, said the Government needed to look at ways to boost efficiency and should show how the extra numbers of staff were justified.

The state government claims that three-quarters of the additional senior positions comprise “doctors, nurses, health practitioners and other positions” in Queensland Health, but AMA President Michael Gannon, who is also quoted in the Courier-Mail article, suspects the additional senior Queensland Health positions are mostly in managerial rather than front-line roles.

One way to check whether it’s largely extra doctors and nurses or bureaucrats would be for the government to provide a breakdown of all the new Queensland Health SES and Senior Officer positions by specific occupation, and not just for a broad group such as professionals. Such disclosure does not have to identify individuals and raises no real privacy issues. (Even publication of the data at the ANZSCO Unit Group or Minor Group level would be revealing.) I know these data exist, because I extensively interrogated the public service database while working for the Beattie government’s Employment Taskforce in the early 2000s (see the public service database file specifications).

The government could provide much richer data on the public service than the limited cross-tabulations it currently provides. Also, the government should release a KPMG report it commissioned into recent public service growth. Much greater transparency on the Queensland public service is urgently needed.

PSchart1

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Titans threat to abandon Cbus confirms governments have wasted money on super stadiums

Based on the Courier-Mail report of a threat from the Gold Coast Titans to abandon the Cbus Super Stadium, over allegedly high charges imposed by Stadiums Queensland, the huge investments successive state governments have made in super stadiums (e.g. Suncorp, Cbus and now Townsville) may have been unnecessary. Hundreds of millions of dollars that would have been better spent on health or education priorities have been misdirected. The clubs can actually make do with smaller venues. The Courier-Mail reports:

The Courier-Mail has learnt that in a tense round of high-level negotiations, the Titans issued the explosive threat to sell home games to other venues both within Queensland and interstate, leaving Cbus Super Stadium as a $160 million white elephant…Titans officials got a taste of life away from the yoke of Stadiums Queensland when they went on the road to Toowoomba and Gladstone recently and were thrilled with the operational ease and commercial success of hosting those matches.

So the clubs don’t need the super stadiums after all! That would save the state government over $50 million in grants each year (see my Stadiums Qld post from yesterday). However, I expect the Queensland Government will find a more footy-friendly Stadiums Queensland board and it will reach a new deal with footy clubs so the government doesn’t suffer the political embarrassment of a $160 million white elephant. That, of course, would be a demonstration of the sunk cost fallacy. The government is losing money via Stadiums Queensland every year and it would be doing taxpayers a favour if it closed down the most uneconomic of its stadiums and sold them to the private sector to redevelop.

Incidentally, I had several excellent comments on my Stadiums Queensland post yesterday. Regular reader Brad suggests the governing bodies (e.g. NRL, AFL) could make a greater contribution:

One area of concern here is that the stadiums should be charging the national leagues much more money to recover costs. Each of the different leagues typically collect approximately 80% of their revenue from TV rights but those funds are not distributed to the clubs. Therefore, the leagues are getting rich while the government pays for the stadiums as the clubs have no money. The state government funding of stadiums enables the leagues to keep their money rather than them paying full cost recovery for the use of the stadiums.

Regular reader Jim noted it was a timely post:

…given the additions to the stocks of loss-making sporting assets on the back of the Commonwealth Games.

And Lateral Economics CEO Nicholas Gruen asked:

What is it with stadiums? All down the Eastern seaboard governments of both political persuasions seem to have lost their mind.

Finally, on the poor economics of the Townsville Super Stadium, see this excellent post from my old friend and former Treasury colleague Joe Branigan:

Townsville Super Stadium guest post by Joe Branigan

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Stadiums Qld is a financial drain

The Sunday Mail yesterday hinted the Queensland government may replace the current board of Stadiums Queensland, given that the allegedly high charges for the use of its stadiums, such as Suncorp, are causing financial issues for football clubs. I must say I have some sympathy for the current Stadiums Queensland board, which appears to be making the best of a bad situation. They have been put in charge of a loss making government-owned business with no prospect of ever making a genuine profit. The Sunday Mail reported yesterday that:

Stadiums Queensland says taxpayers should not foot the bill for costs associated with hosting sporting events when the Government had made considerable investment in construction of the facilities. Levy prices were fixed by TransLink and Queensland Police.

“Under this model, the hirer receives the majority of game-day revenue such as ticketing, signage, sponsorship and this means in Queensland, unlike many other states, our clubs have a greater potential to derive revenue from their events,’’ a spokesman said.

Stadiums Queensland made some excellent points there. Consider the massive capital costs of its operations. Its financial accounts from its Annual-Report 2016-17 reveal depreciation and amortisation account for 49% of its expenses from current operations, $59.3 million out of total expenses of $121.5 million (see figure below).

Stadiums2

Sporting clubs and event promoters which use the stadiums do not even account for half of Stadiums Queensland’s revenue. The state government provided Stadiums Queensland with $51 million in grants in 2016-17 or 56% of its revenue (see figure below).

Stadiums1

The financial statements for Stadiums Queensland reveal a 2016-17 operating loss on continuing operations of $28.7 million, but, thanks to some clever accounting, it reported net comprehensive income of $44.5 million. That clever accounting involved an increase in the asset revaluation surplus of $73 million, i.e. it was due to unrealised capital gains. The bulk of these capital gains were not on the underlying land on which the stadiums are sitting. In 2016-17, that land only appreciated by $3 million (see p. 50 of the annual report). The bulk of it was a $70 million revaluation of “improvements”, i.e. a revaluation of the stadium assets themselves, using a replacement cost methodology. The financial statements note (on p. 47):

The valuations have been determined using a cost approach (i.e. a modern/current replacement cost) due to there being no active market for such specialised facilities.

The reason there is no active market is because the stadiums are loss-making propositions. No one would buy them unless they could redevelop the land they are sitting on. Hence, although it complies with accounting standards, from an economic perspective it is misleading for Stadiums Queensland to include the revaluation of the physical assets in its comprehensive income statement. There is no way Stadiums Queensland could ever realise the capital gains it is relying on to pretend it is profitable.

The Sunday Mail claims it has evidence that Stadiums Queensland actually makes money for the state government:

Confidential financial records obtained by The Sunday Mail reveal millions of sporting dollars are pouring into Government coffers through the Stadium Queensland deals.

I’d like to see those documents, and unless they are made public there is no way of verifying whether the estimates are reasonable. The actual published financial accounts show Stadiums Queensland is a substantial cash drain on the state government. While the cash flow statement on p. 34 reveals a net increase in cash (and cash equivalents) of $25.1 million in 2016-17, it needs to be kept in mind the state government provided operating grants of $22.2 million and capital grants of $29.0 million that financial year.* So the net cash loss on Stadiums Queensland from the state government’s perspective was around $26 million. It goes without saying there is a high opportunity cost to subsidising Stadiums Queensland. Arguably, the money could be better spent on health or education priorities, for example.

*Technical note: the key to understanding how Stadiums Queensland can actually increase its cash at bank is to recognise that depreciation is a non-cash expense.

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South Brisbane & South Townsville top Qld in building approvals so far in 2017-18

In my last post, I considered the Queensland construction industry outlook. In today’s post, I take advantage of new data on building approvals at the small area level (ABS SA2 regions) for 2017-18 so far released by the ABS yesterday. The chart below of the top 20 Queensland small areas by the value of building approvals shows South Brisbane and South Townsville leading the state. Residential approvals dominate in South Brisbane, while non-residential approvals, no doubt mainly related to the $250 million North Queensland Stadium development, dominate in South Townsville.

Approvals_top20_FYTD_Feb18

Within the Brisbane metro region (see map below), we again see the familiar pattern of development being concentrated in the inner city and outer-lying areas, partly due to constraints on development such as heritage protection in many Brisbane suburbs, as discussed in Bradley Rogers’s 2013 QEW guest post Old Queenslanders in a new city.

Brisbane_map_approvals_Feb18

In a recently published research paper Housing in Queensland, Queensland Productivity Commission (QPC) economists Matt Geck and Sean Mackay have noted that such regulations contribute to supply constraints on housing. They allude to the economic idiocy of such regulations when they note (on p. 33):

In large areas of Brisbane’s inner and middle suburbs, for example, character zoning is used to preserve the aesthetics of areas with clusters of well-located low-density housing built in 1946 or before. These clusters often surround some of Queensland’s highest-capacity public transport infrastructure, such as Park Road, Buranda, Dutton Park, Newmarket and Eagle Junction train stations.

That is, Brisbane City Council is restricting development in many of the suburbs best suited for population growth!

Incidentally, the QPC has an impressive capability to undertake economic research and it could be better utilised by the state government. It could, for example, analyse a potential switch from stamp duty to land tax, phased in over a 10-20 year period, as the ACT is doing and as QPC economists Geck and Mackay suggest may be desirable in Queensland (pp. 41-42 of their report).

I recall that, at the Australian Productivity Commission’s horizontal fiscal equalisation hearing in Brisbane in February, Under Treasurer Jim Murphy said Queensland Treasury had crunched the numbers on replacing stamp duty with land tax, but it couldn’t come up with a feasible model. According to the transcript on p. 596, Mr Murphy noted:

We’ve looked very hard at replacing all stamp duty with land tax, but it’s like other states, we’ve found it an incredibly difficult task to do that, especially as the impact on the state in the short-term.

Unfortunately, what happens in Treasury mostly stays in Treasury, so it’s hard for outsiders to judge whether Treasury’s analysis was adequate. Why not have the QPC investigate the issue and produce a public report for community debate?

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