Andrew Leigh’s Choosing Openness – highly recommended reading

Choosing_Openness

On Wednesday evening, at the Queensland College of Art at South Brisbane, I attended the Brisbane launch of Australian Shadow Assistant Treasurer Andrew Leigh’s new book Choosing Openness: Why global engagement is best for Australia. It is a Lowy Institute Paper published by Penguin, and branded as one of its Penguin Specials, which are meant to be “concise, original and affordable.” At $9.99 Choosing Openness certainly is affordable (as well as being concise, at 143 pages, and original), and represents excellent value for money, being packed with interesting facts, data and arguments in favour of free trade and a liberal foreign investment policy.

One thing I really like about the book is that Andrew has gone back to old newspapers to find actual product prices from 1987 which illustrate just how much better off we are in real terms after bringing down the tariff wall, with much cheaper cars, clothes and shoes than thirty years ago. He is a strong believer in the benefits of unilateral trade liberalisation. That is, tariff cuts are in your own interest even if other countries do not cut their own tariffs. Andrew notes in his book:

As economist Joan Robinson once put it, even if your trading partner dumps rocks in their harbour, you do not become better off by dumping rocks in your own harbour.

At the book launch, I asked Andrew about his views on whether labour market reform was the great unfinished business of economic reform in Australia. Of course, as a member of the federal Opposition, which is advocating a reversal of sensible and modest reductions to penalty rates, Andrew was not supportive of labour market reform. He instead floated the idea that what we might actually need is more labour market regulation, particularly in the sharing economy, to deal with the concern that many Uber drivers are effectively earning below minimum wages. Andrew does not extend the same logic he applies to the analysis of international trade and investment to the labour market and sharing economy, but that is to be expected given his current political role. Should Labor win office at the next election, I expect Andrew will be a strong voice for sensible economic policy within the government.

Overall, Choosing Openness is an excellent book and I highly recommend it to all my readers (particularly to those who may have an influence on Queensland Government procurement policy, which regrettably has become protectionist). If you would like to read Choosing Openness this weekend, you could download the e-book for $6.99 from Booktopia among other sites. What a bargain!

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A nice note from Dr Andrew Leigh MP, who I first met in Treasury in 2008, when we were both working in the Fiscal Group.

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The Sydney property boom and interstate migration to Qld

Regular QEW blog reader and occasional contributor Mike Willis asked some good questions in response to my post yesterday on Five million Queenslanders by EOFY 2017-18, which noted interstate migration to Queensland is trending up.

“Gene, this data is reflected in other anecdotal trends of demand in SE Qld. It looks like the post-GFC and post-mining boom hangovers may be over? Or is this just the traditional ripple effect in SE Qld from the Sydney property boom?”

The answer to the first question is yes, as the Queensland economy has been recovering nicely over the last year or so. The answer to the second question is very likely yes as well, and the pick up in interstate migration is a result of both factors. Mike had actually predicted the “ripple effect” from the Sydney property boom and had forecast a pick up in interstate migration to Queensland in a QEW post back in June 2015. Certainly a pick up in interstate migration from NSW has been responsible for much of the recovery in interstate migration to Queensland in recent years (see chart below).

NIM_by_States

And the increase in net interstate migration from NSW has been due to an increase in arrivals to Queensland from NSW rather than a fall in departures to NSW from Queensland (chart below).

Arrivals and departures

No doubt some Sydneysiders have decided to take advantage of the large house price differential between Sydney and Brisbane (or the GC or elsewhere), selling their houses in Sydney and moving up here to buy a comparable or superior property, and still having money left over (see chart below).

median house prices

REIQ Chairman Rob Honeycombe and Propertyology’s Simon Pressley have also made some interesting observations on this issue. See this Domain report from earlier this year:

House price disparity between Sydney and Brisbane set to spur northern migration

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Five million Queenslanders by EOFY 2017-18

Sometime around the middle of June next year, Queensland is expected to have 5 million residents (see chart below). This is based on an extrapolation of the Queensland Government Statistician’s Office’s population counter estimate, currently at around 4.95 million, which itself is extrapolated from ABS population estimates, the latest of which were released last week. When it is achieved, the milestone of 5 million Queenslanders will prompt us to reflect on how we have gone at managing our population growth, particularly in SEQ. A frequent example of the challenge of managing our ever increasing population is the heavy congestion on the M1 motorway between Brisbane and the Gold Coast. This will no doubt be a major issue at the upcoming State election, especially in marginal GC seats, as the Opposition has proposed a “second M1” (see this news.com.au report), although it has not actually committed to building it if it wins the next election, which is a very likely prospect according to today’s Sunday Mail.

Pop_post_Mar17_Chart1

The March quarter demographic data revealed Queensland’s population growth rate is continuing to move back towards the growth rate of the rest of Australia (see chart below).

Pop_post_Mar17_Chart2

This recovery in Queensland’s population growth rate has been driven by an increase in net interstate and net overseas migration (see chart below). A pick up in population growth is likely associated with improving labour market conditions in Queensland over the last year or so. However, as Nick Behrens noted at his QEAS blog:

“Population flows towards employment opportunity but it will take more full-time jobs to really ramp up interstate migration.”

Pop_post_Mar17_Chart2b

March quarter saw a sharp increase in the quarterly change in population (see chart below), suggesting the through-the-year population growth rate is on an upward trend. So we may see a sustained recovery in the population growth rate to around 1.75%, meaning Queensland Treasury’s forecasts and projections in the Budget of 1.5% p.a. population growth for the next few years may turn out to be a bit conservative.

Pop_post_Mar17_Chart3

Finally, even though net interstate migration to Queensland appears to be on an increasing trend, Victoria is still beating us in the interstate migration stakes (see chart below).

Pop_post_Mar17_Chart4

And there is still a very small leakage of people (in net terms) to Victoria (see chart below). That is, the number of Queenslanders departing to Victoria to live still slightly exceeds the number of Victorians arriving in Queensland to live.

Pop_post_Mar17_Chart4b

Finally, regarding Queensland’s improving labour market, note that job vacancies continue to grow strongly according to the latest ABS estimates released last Thursday (see chart below), suggesting employment will continue to grow strongly over the remainder of 2017.

Pop_post_Mar17_Chart5

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UQ student’s Treasury prize winning essay highlights benefits of competition & free trade

The Australian Treasury yesterday announced the winner of its inaugural essay competition, and the award went to University of Queensland Economics student Elizabeth Baldwin, who incidentally also won the RBA/Economic Society of Australia essay prize last year. The essay question was:

What do you believe will be most important for ensuring Australia’s future economic prosperity, and why?

As is now well known, productivity growth is the most important contributor to long-run improvements in living standards. So Ms Baldwin focused on factors influencing the productivity of firms in the economy, particularly how readily they adopt new technology and knowledge. Ms Baldwin’s well-researched essay stressed the importance of competitive markets and free trade in promoting the diffusion and adoption of new technology, which is critical to productivity growth. She also noted competition is important in eliminating what is called X-inefficiency, where firms shielded from competition get complacent and have a high degree of slack in their operations.  Incidentally, I would note this is why protectionist measures such as Buy Queensland are such poor policy.

Well done to Ms Baldwin for winning two prestigious national essay competitions (you can find her RBA prize winning essay at the RBA website). And well done to UQ Economics for continuing to encourage excellence in economic analysis and research.

Treasury

The extraordinary Norma Redpath fountain in the forecourt of the Treasury Building, King Edward Terrace, Canberra

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My comments on possible NRL Grand Final at Suncorp in today’s Courier-Mail

I am quoted in today’s Courier-Mail story Queensland in talks to host NRL Grand Final at Suncorp in $10 million boost to the economy:

MORE than $10 million could be injected into the Queensland economy if the state hosted an NRL grand final, according to economists.

Sports Minister Mick de Brenni said the State Government was in talks with the NRL to bring a grand final to Suncorp Stadium as early as next year…

Economist Gene Tunny said a grand final game in Brisbane would pour millions of dollars into the economy.

“You’re looking at over a $10 million impact, so it would be significant and it’d definitely help the hospitality and accommodation industry,” Mr Tunny said.

“It would definitely be a boon to the economy but we just need to be judicious about any financial support from the Government.

“It would be terrific.”

CCIQ economist Steven Gosarevski was also interviewed for the story and provided a similar estimate of the likely economic impact.

As I noted to the Courier-Mail, I would not approve of the State Government providing financial support to the NRL for a Brisbane Grand Final. There are better things to spend taxpayers’ dollars on. My previous comments on industry assistance include an August 2015 ABC News interview on industry assistance.

Suncorp-Stadium-Milton-Queensland

Suncorp Stadium, a.k.a. Lang Park and the Cauldron

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Courier-Mail & 612 ABC Brisbane media this week regarding jobs growth & small business

Today’s Courier-Mail features a short piece (on p. 29) “Employment growth best since the GFC” from Daryl Passmore quoting FNQ-based economist Pete Faulkner and me on Queensland’s recent strong employment growth. The Queensland economy has been recovering strongly over the last year or so, after it experienced some sluggishness at the end of the mining investment boom. I also chatted with Trevor Jackson from 612 ABC Brisbane about employment and economic growth in Queensland last Tuesday evening. The interview starts at 8’46”:

612 ABC Brisbane Evenings with Trevor Jackson, Tuesday 19 September 2017

I made the point to Trevor that, while the aggregate data are very good, we need to keep in mind that part-time positions appear to be growing much more strongly than full-time positions, and also that the State public service has made a disproportionate contribution to jobs growth.

My other media mention this week followed on from my small business employment trends post, published on Wednesday. The Courier-Mail ran an article yesterday including a quote from me. CCIQ’s GM of Advocacy Kate Whittle has included a snapshot of the article on her twitter feed (see below).

Incidentally, CCIQ is generally doing a great job informing and participating in the public policy debate. I can highly recommend the twitter feed of CCIQ’s economist Steven Gosarevski. Follow him @sgosarevski for very timely updates on the latest economic data relevant to Queensland. I have especially enjoyed his most excellent charts. Keep up the good work!

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Bigger is better – small businesses once employed over half of private sector workers but no longer

Ten years ago, small businesses, those with fewer than 20 employees, employed over half of private sector workers in Queensland, but that is no longer the case. This was revealed in an excellent note, Small Business in Queensland, published yesterday by the Queensland Government Statistician’s Office, part of the Queensland Treasury:

“While small business makes a significant contribution to total employment in Queensland, its share has fallen from 55.9% in June 2007 to 44.2% in 2016.”

The trend decline occurred across Australia, although the fall was greater in Queensland than the rest of Australia, on average.

While small business employment declined, employment in medium-sized businesses (20-199 employees) increased. The Government Statistician’s Office reports:

“Between June 2007 and June 2016, the number of persons employed in a small business in Queensland decreased by 166,000 (down 15.4%)…Conversely, the number of persons employed in a medium or large business increased by 128,000 (38.0%) and 172,000 (33.5%) respectively.”

Incidentally, medium-sized businesses and large businesses (200+ employees) make up only 2.6 percent of total businesses, but account for 56% of employees (see chart below).

Why have small businesses declined in relative importance? Many factors have probably contributed to the downward trend, including, among others:

  • Consumer preferences, with consumers preferring to shop at bigger stores with more variety and lower prices (as the bigger stores benefit from economies of scale);
  • Information and communications technology improvements which have made it easier for successful businesses to extend their business models into new regions;
  • Government regulations, particularly in workplace relations, which impose costs that massively eat into the margins of small businesses and can more readily be absorbed by larger businesses; and
  • Deregulation (e.g. of retail trading hours), which has gradually been eliminating many of the small corner stores that were once prevalent in Australia.

Of course, technology is now allowing many people to set up micro-businesses, such as consultancies or Uber driving businesses, so there may be a reversal in the longer-term trend to some extent. But the longer-term trend away from traditional small businesses, such as a corner store or newsagent employing half a dozen people, appears unstoppable.

Qld_businesses_2016

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