Fantastic December quarter result for Qld economy

The December quarter National Accounts showed a strong rebound for the Australian economy, with economic growth at 1.1 percent for the quarter, while State Final Demand for Queensland grew at 0.9 percent over the quarter according to the ABS. (Note the GSP result for December quarter should be even better as it will include net exports which are not included in the State Final Demand estimates published today.) As the decomposition in the chart below shows, this was driven by growth in household consumption spending and general government investment spending (e.g. the State Government’s regional capital works programs, which appear to be having a strong economic impact, although the jobs impact is likely less than the Government is currently claiming, as I discussed in my previous post).



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Qld Government & Treasury disagree over jobs created by capital works projects – Treasury right, of course

A recent media release from the Deputy Premier Jackie Trad (Jobs bonanza for regional Queensland) appears to have contained a huge typo. The media release from Tuesday last week states:

“$200 million will kick off 723 projects and support almost 6,000 jobs across regional Queensland on economy-boosting infrastructure projects as part of the Palaszczuk Government’s Works for Queensland program.”

Somehow an extra zero was added on to the correct estimate of 600 jobs, so the media release incorrectly states that 6,000 jobs would be supported by the new $200 million program, which is absurd.

As the Shadow Treasurer Scott Emerson pointed out in Parliament this morning (see p. 269 of the Hansard proof), there is a rule of thumb in Queensland that every $1 million of capital expenditure supports around three jobs. For example, the Queensland Government has previously noted, in a media release last November, that the Townsville Super Stadium (a $250 million project) will support 750 jobs in the construction phase, and the $450 million Logan Motorway Enhancement Program will support “more than 1,300 construction jobs”. Incidentally, both these projects involve higher levels of capital works than the latest $200 million program, but would deliver far fewer than the 6,000 jobs claimed for the new program. It is obvious the 6,000 jobs estimate is absurd.

Based on the three jobs per $1 million of capital works rule of thumb, you would estimate that the $200 million of capital expenditure in the Government’s latest program would support 600 jobs, not 6,000. The rule of thumb, though imperfect, at least provides a ballpark estimate of employment impacts. 600 jobs is in the ballpark. 6,000 jobs isn’t even in the surrounding car park; it’s over the other side of town.

The Government might possibly argue that the 6,000 figure includes jobs indirectly supported via the supply-chain and not just those directly employed on the projects. But that would imply a ridiculously high employment multiplier of 10: 6,000 total jobs (direct plus indirect) divided by 600 direct jobs. Multipliers of over 2 are usually suspicious; a multiplier of 10 is absurd. There is no defensible economic model that would estimate 6,000 jobs flowing from $200 million of capital works.

My guess is that whoever wrote the Deputy Premier’s media release, or the original briefing on which it was based, saw the 600 jobs figure in another document and misread it or mis-typed it as 6,000. They possibly saw the 600 figure in this earlier media release from January, a media release which appears to rely upon the rule of thumb mentioned above:

“Regional Queensland councils are being urged to submit their job-creating projects after being allocated a share of the new $200 million Works for Queensland program…

…“The Palaszczuk Government is absolutely committed to creating jobs for Queenslanders and this innovative program will deliver on this commitment,” Ms Trad said.

“It will serve a double duty – supporting more than 600 jobs and upgrading important regional infrastructure across the state.”

So the Government was originally using the right estimate of 600 jobs, but has subsequently incorrectly referred to 6,000 jobs, and, instead of correcting its mistake and moving on, it has unwisely stuck with the incorrect figure.

On ABC News Tuesday night last week, a Government spokeswoman was quoted as saying that the original 600 jobs estimate came from Treasury, and that Treasury was wrong. But it was the Government spokeswoman who was wrong. The Treasury’s estimate was sound, and the Government ought to find a face-saving way out of this regrettable situation, perhaps by claiming there was a miscommunication between ministerial staffers and officials.

The Treasury is too important an institution to have its reputation called in to question by a nameless Government spokesperson, who was obviously trying to manage what they viewed as a purely political issue, without understanding the full implications of their criticism of Treasury.

Posted in Infrastructure, Uncategorized | Tagged , , , , , , | 2 Comments

Zombie electricity utilities – upcoming presentation by Professor Manuel Pinho to ESA Qld

The latest issue of The Economist features an excellent article (Wind and solar power are disrupting electricity systems) describing the challenges of integrating renewable energy into electricity systems. It is a timely article, given there is an extensive debate in Australia at the moment regarding the impact of renewable energy sources on the reliability of electricity supply and its cost.

One of the world’s leading experts on the economics of renewable energy is Professor Manuel Pinho of Columbia University, a former Economy and Innovation Minister of Portugal. The Economic Society of Australia (Qld), of which I am the Secretary, is fortunate to be hosting a lunchtime seminar by Professor Pinho on renewable energy issues on Monday 13 March in Brisbane at Morgans, Riverside Centre.

As Portugal’s Minister for Economy and Innovation, Professor Pinho was instrumental in Portugal becoming an economy with a major reliance on renewable energy. The Guardian observed that one of the 12 key science moments of 2016 was Portugal being entirely powered by renewable energy for four days last May.

At the seminar on Monday 13 March, Professor Pinho will speak on the topic of:

Zombie Electricity Utilities: A world with falling demand for on-grid electricity consumption.

This is a very important topic, because as more people install solar PV cells and batteries, such as the Tesla Powerwall, the demand for electricity from the grid will fall. This could have major implications for the State Government Budget in the future, as dividends fall or subsidies need to be paid to ensure the ongoing viability of the State’s electricity distributor (i.e. Energy Queensland) and power generators (i.e. CS Energy and Stanwell).

If you are interested in attending this seminar, priced at $20 for members and $40 for non-members, please register soon (at the link above), as I expect this will be a very popular seminar.


Professor Manuel Pinho

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Strong growth in plant & equipment capex is good news for Qld economy

Last Friday, in his opening statement to the House of Representatives Standing Committee on Economics, RBA Governor Phil Lowe observed:

“Nationally, measures of business conditions have picked up noticeably recently. For some time we have been waiting for a lift in non-mining business investment. It has been a long time coming. Encouragingly, in New South Wales and Victoria we have now seen a reasonable pick-up in investment. However, we are yet to see this in most other states, where the unwinding of the mining investment boom continues to affect the overall business climate. With the decline in mining investment coming to an end, we hope to see a broader pick-up over time.”

It is unfortunate the Governor did not refer to Queensland. Even though the unwinding of the mining investment boom continues to adversely impact on total real business investment (i.e. capital expenditure), as investment in buildings and structures continues to fall, capital expenditure by businesses in new equipment, plant and machinery is growing strongly (at 7.9% in December quarter and 12% over 2016). Indeed, recent data appear more encouraging in Queensland than in NSW, where a surge earlier in 2016 was partially unwound in the last quarter, and in Victoria, where business investment in equipment, plant and machinery has plateaued (see chart below).


Queensland’s recent recovery in capital expenditure in equipment, plant and machinery would be related to improving business confidence over the second half of 2016, and supports the view that the economic outlook for Queensland is superior to other States in 2017. Certainly, Queensland is currently benefiting from a surge in tourism, new LNG exports, and a recovery in coal prices in the second half of 2016, among other positive factors. The Queensland Treasury must be feeling reasonably confident about its forecast in the 2016-17 Mid Year Fiscal and Economic Review that:

“Queensland’s economic growth is expected to be the strongest of all states in 2016-17 and 2017-18.”

The latest capital expenditure data from the ABS also remind us about the huge shock the Queensland economy experienced from the construction of the LNG processing plants at Curtis Island off Gladstone, as well as other resources sector construction projects. Capital expenditure on buildings and structures in Queensland is still declining from the massively elevated levels of a few years ago (chart below).


As I have noted in many previous posts, the end of the mining construction boom has been painful in parts of Central and Northern Queensland. Incidentally, I was briefly mentioned in today’s Courier-Mail regarding the paper’s #GoQld Action Plan to revive regional Queensland:

“Chamber of Commerce and Industry Queensland senior policy adviser Catherine Pham said lifting the payroll tax exemption threshold for businesses from the current $1.1 million was crucial. “The business community has consistently viewed payroll tax as a tax on employment and a penalty on giving someone a job,’’ she said.

Economist Gene Tunny agreed such a move would boost jobs. He also supported a push for relocating some public servants to regional cities.”

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Health care business numbers up 17%, while retail, mining & farm business counts fall 8-9% over 2012 to 2016

The structural change the Australian economy has experienced in recent years, including the decline in manufacturing and the decline of small retailers, at the same time as health care and other service sectors are booming, reveals itself in the latest business counts data based on ABNs released by the ABS today (see figure below). Between June 2012 and June 2016, across Australia, the number of health care and social assistance businesses increased from around 105,700 to 123,400, while, in contrast, the number of retail businesses fell from 142,900 to 131,200. The data also confirm Queensland’s relatively lacklustre economic performance over 2015-16, with business counts increasing 1.9% in Queensland compared with 3% in NSW and 2.8% in Victoria.


Recent comments of mine on these trends can be found in the following posts:

Comments in Courier-Mail on Qld regional economies and structural change

Valley the victim of retail trends

Posted in Agriculture, Health, Mining, Retail trade, Uncategorized | Tagged , , , , , , , | 3 Comments

Qld sugar dispute highlights constraints on minority government

The current commercial dispute between Wilmar and Queensland Sugar Limited has highlighted the constraints on the Queensland Government’s ability to prosecute sound economic policy from its position as a minority government. Wilmar is the Singaporean-based company that bought CSR Sugar in 2010, mills 60 percent of Australia’s exported sugar, and now intends to market sugar as well. This has brought it into conflict with Queensland Sugar Limited, which has traditionally been the “single desk” marketer of sugar. Wilmar and QSL cannot agree on revenue-sharing arrangements between the miller and cane growers. An agreement is needed because cane growers, whose cane is milled by Wilmar, are expected to opt for QSL to market their sugar rather than Wilmar, a choice which is guaranteed by Queensland’s “Real Choice in Marketing” law.

The “Real Choice in Marketing” law was passed by the Queensland Parliament, but opposed by the Government, in late 2015. The Government lacked the numbers to defeat the Katter’s Australian Party bill which was supported by the LNP and Billy Gordon. The Government does not have the numbers in the Parliament to overturn the law, and instead the policy agenda is being set by the Opposition, which has announced it may legislate to intervene in the dispute and force arbitration:

Qld LNP calls for end to sugar dispute

Being part owners of QSL, cane growers will receive much higher revenue if QSL is the marketer of the sugar produced from their cane rather than Wilmar (see this ABC News report). The Opposition is getting the politics of the dispute right, as it is backing local cane growers against the foreign-owned Wilmar. However, its policy position is dubious from an economic perspective. While the sugar mills effectively have local monopsony power, the right way to deal with that is not to re-regulate the sugar industry, but to rely upon existing laws against the abuse of market power.

The “Real Choice in Marketing” law has been denounced as anti-competitive and as a deterrent to foreign investment and structural adjustment by both the Queensland Productivity Commission in a Regulatory Impact Assessment and the Australian Productivity Commission in a draft report on agricultural industry regulation. The Australian PC rejected the “Real Choice in Marketing Law” noting (on p. 420):

“The Commission agrees that reregulation of the sugar industry is an inappropriate means of achieving the underlying policy goal of ensuring an equitable allocation of risk and return between growers and millers. Australia has comprehensive laws governing the misuse of market power…and the concentrated nature of the industry provides sugarcane growers with an opportunity to take advantage of the collective bargaining provisions in the Competition and Consumer Act 2010 (Cwlth).”

The Queensland Government has the right policy position, but it lacks the power to enforce it. It can only resort to weak measures such as making Freedom Of Information requests for the Australian PC’s final report on agricultural industry regulations:

Palaszczuk Government to use FOI in bid to save Qld’s sugar industry

If the Government wants to re-establish its authority over economic policy, it really ought to call an early election.

For background on the sugar marketing dispute, see Anne Hyland’s AFR article from November last year.

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Comments in Courier-Mail on Qld regional economies and structural change

Today, the Courier-Mail is re-launching its GoQld campaign, this time with a focus on regional economies. It has rightly identified the large divergence in employment growth between SEQ and the rest of Queensland, and it is reporting a loss of 43,000 full-time employed persons in regional Queensland in the last twelve months, based on Pete Faulkner’s trend estimates (see Queensland in shock as 43,000 jobs vanish).

Given the large sampling error in the ABS Labour Force Survey at the regional level, it is hard to be precise about regional employment estimates, but it is very likely the regions have lost jobs in net terms, particularly in the Townsville and Queensland outback regions. That said, there is a large variation in economic performance across regions, with the Gold Coast and Toowoomba regions performing strongly. Also, Central and Northern Queensland regions dependent on mining are now starting to feel the benefits of the recovery in coal prices in the second half of last year, as mines are increasing production and taking on new workers.

Partly, the divergence in employment outcomes between the regions is a result of long-term structural factors (e.g. automation, technological change, and rising labour costs making Australian manufacturers less competitive). Hence, we may not see a strong recovery in some regions, and government policy measures to revive these economies may prove ineffective. As I have noted before, I am concerned particularly about the Townsville economy, and I am also worried about the economic viability of many towns in western Queensland. I emphasised the importance of structural change in comments reported by Paul Syvret in today’s Courier-Mail (Voter sentiment reflects economic divide making change key to a bright future):

Economist Gene Tunny attributes the downturn in many regions to lower commodity prices (which he notes are recovering) and the end of the mining investment, but stresses longer term structural change is the most important factor.

“Quite simply, we don’t need as many people in mining, manufacturing and agriculture as we used to,” he said.

He stresses that as economies evolve over time, it is inevitable that there will be winners and losers.

Mr Tunny stresses that even though many in the regions think that “if we get more money for dams, roads, power stations and so on everything will be fine … there is no magic bullet”.

Ultimately, Mr Tunny says: “There may even be a case for regional government and re-examining state boundaries that reflect a very different era.”

Posted in Labour market, Macroeconomy, Mining, North Queensland, Townsville, Uncategorized | Tagged , , , , , , , , , , , | 3 Comments