Qld’s economy definitely fared better than Victoria’s which suffered badly from Stage 4 restrictions

Posted on January 31, 2021 by Gene Tunny

Weirdly, CommSec’s latest State of the States report ranked Victoria in 3rd place and Queensland in 5th place, even though Queensland’s economy has definitely fared much better during the pandemic than Victoria’s. In my Thursday post I discussed how silly CommSec’s ranking methodology is and how it confuses the public debate, with one 612 ABC Brisbane guest inferring from CommSec’s report that Victoria’s harsh lockdown didn’t cost it in terms of economic growth. But of course the lockdown substantially reduced economic activity while it was in place and the Victorian economy still has not fully recovered from it. For another perspective on how badly Victoria’s economy was affected by the stage 4 restrictions resulting from the hotel quarantine fiasco, consider the ABS estimates of total hours worked per month for the major states and nationally. In December, total seasonally adjusted hours worked in Victoria were 4.5% below where they were in March, whereas they were nearly 1% higher in Queensland. And notice how hours worked in September in Victoria were 14% lower than in March.

I should note that conditions definitely aren’t back to normal yet in Queensland, of course, as the population has grown since March and jobs and hours worked need to be generated for new labour market entrants. So check out the chart below of hours worked per capita, a metric Pete Faulkner has noted has been essential in understanding the COVID recession (see Pete’s post on the day the December ABS Labour Force data were released earlier this month).

Even though per capita hours are marginally higher than they were in March, they had started falling earlier in 2020, largely due to the slowdown that was occurring irrespective of COVID, so a comparison with the March value may give us an overly optimistic impression. In his post, Pete Faulkner notes hours worked per capita in Queensland in December 2020 were 3.2% below what they were one year earlier. If we compare the December figure with the 2019 average, we see the December figure was 2.4% lower.

Queensland’s economy has coped with the COVID shock better than the rest of Australia’s, but we’re still below where we should be, and we know that the ending of JobKeeper at the end of March could have highly adverse impacts on regional economies such as Cairns. On this, check out my Saturday post and also Pete Faulkner’s latest post Regional QLD continues to lead the recovery in Domestic Tourism.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

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Qld Premier deserves some criticism, but she’s right to highlight needs of struggling tourism-dependent businesses

Posted on January 30, 2021 by Gene Tunny

The NSW Premier, Sky Australia hosts, and other commentators have been quick to criticise Queensland Premier Palaszczuk over her call for the federal government to extend JobKeeper beyond the end of March for struggling tourism-dependent businesses, particularly those in Cairns and the Whitsundays. Given she backed some questionable decisions by Chief Health Officer Jeannette Young regarding interstate borders, the Premier certainly deserves some criticism, but we need to recognise two things:

  • the continuing hardship faced by many tourism-dependent businesses is also related to the international border closure, and
  • the Premier is correct to highlight the financial stresses that tourism-dependent businesses still face and the desirability of extending assistance in some form.

On the first point, consider Cairns’s large dependence on international tourism (accounting for nearly half of visitor nights in a typical year) in the chart below.

On the second point, consider the data reported in the Brisbane Times on Thursday:

Treasury data showed Cairns was most at risk of business collapse if JobKeeper payments were axed in March.

More than 3660 Cairns business were signed up to the scheme, 400 more than in Brisbane’s CBD and almost 600 more than Surfers Paradise on the Gold Coast.

The JobKeeper by postcode data, which the Treasury really needs to update so they’re more recent, are presented in the chart below for the top 20 postcodes in Australia. The postcode 4870 covers Cairns.

The federal government is right to be concerned about the ongoing cost of JobKeeper and the fast-growing national debt, but I suspect it will have no choice but to provide some limited extension to JobKeeper for struggling tourism-dependent businesses, possibly in the form of a HECS-type income-contingent loan. On this, see my post from last Saturday:

JobKeeper has been stimulating in multiple ways – evidence from Lush Marcoola

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Foreign investment and productivity – my latest Economics Explored podcast episode

Posted on January 29, 2021 by Gene Tunny

The latest episode of my Economics Explored podcast is on Foreign Direct Investment (FDI) and Productivity. In the episode, I speak with the authors of a recent study published in the Journal of International Business Studies: Foreign Influence, control, and indirect ownership: Implications for productivity spillovers. The authors of the study are Sara McGaughey, soon to take up a position as Professor at Copenhagen Business School, and Professor Pascalis Raimondos, Head of the School of Economics and Finance at QUT Business School.

Sara and Pascalis have taken advantage of the huge Orbis business database which has allowed them to construct a longitudinal/panel dataset of nearly 576,000 manufacturing firms across 20 European countries. They find evidence that controlled foreign firms can boost the productivity of other firms in the same industry (horizontal spillovers), while previous studies had only convincingly found evidence of vertical spillovers, between foreign affiliates and their domestic suppliers.

Hence, we can be even more confident that countries such as Australia which are broadly open to FDI by multinationals can benefit from ‘spillover’ effects that boost the productivity of domestic firms. For instance, domestic suppliers to multinational subsidiaries can benefit from having to meet higher standards, and locals who work in such subsidiaries can later take the skills and knowledge they gain to other businesses in the economy.

All that said, we do need to scrutinise proposals for foreign investment from foreign state-owned or state-influenced companies, and it is legitimate that our Foreign Investment Review Board (FIRB) considers any national security implications, as it has increasingly been doing regarding investments from Chinese state-owned or state-influenced companies.

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CommSec’s weird assessment of Victoria’s economic growth as leading the nation in State of the States

Posted on January 28, 2021 by Gene Tunny

This afternoon, Australian Institute for Progress Executive Director Graham Young alerted me to his conversation with 612 ABC Brisbane host Steve Austin and McKell Institute Executive Chair Rachel Nolan yesterday on Steve’s Drive program (from around 2:26:30) regarding the CommSec State of the States report, which continues to present weird results based on an odd methodology that I first questioned in a July 2010 post. Chatting with Steve and Graham, Rachel accurately quoted the CommSec report (on p. 3) as ranking Victoria at the top in terms of economic growth – yes, that’s silly, as I’ll go over in a moment. There is no way Victoria should be ranked as number one on economic growth given its Stage Four restrictions meant that it suffered the largest job losses in Australia (check out the Qld Treasury Labour Force briefing and the chart below) and it has had the most businesses on JobKeeper.

Furthermore, the ABS reported that State Final Demand fell 1.0% in Victoria in September quarter while it recovered by 6.8% in both Queensland and NSW in that quarter, the latest for which National Accounts data are available.

The latest CommSec State of the States report reaches its odd conclusion that “Victoria still leads on relative economic growth” (p. 3) by comparing the states’ levels of economic activity in the twelve months to 30 September 2020 with their average levels of yearly economic activity over the previous decade. Victoria is heavily advantaged in this calculation because of its relatively strong performance in the years leading up to the COVID recession. The calculation tells us nothing about Victoria’s economic performance during the pandemic.

I’ll post some more charts and analysis on this when I get the time, but it’s very clear CommSec needs to change the methodology of its State of the States report because it is leading to extremely odd conclusions.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

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Qld takeover of Norfolk Island an intriguing prospect

Posted on January 27, 2021 by Gene Tunny

The Courier-Mail has reported the Queensland Government could take responsibility for service delivery on Norfolk Island after NSW has declined to continue doing so, and the state government is currently discussing a potential deal with the Commonwealth. This is an intriguing prospect, and one that would be worth considering, so long as Queensland taxpayers are sufficiently compensated for the risks associated with service delivery in such a remote location. The Courier-Mail reports “It is unlikely Queensland would receive an economic return from its investment”, which is probably true, and suggests to me that the state government should push the Commonwealth to pay it a premium for providing health and education services to Norfolk to compensate for the risks involved. If NSW has pulled out, the Queensland Government probably has a lot of leverage in the negotiation with the Commonwealth and can demand much more than the $192 million (over six years) NSW was getting.

Possibly I’m more open to a Norfolk Island takeover by Queensland than a hard-headed economist should be, owing to an historical family connection with Norfolk. There was a Sergeant Dennis Tunny who was involved in a notorious incident on Norfolk in 1827, an incident which involved the killing of a mutinous convict, Patrick Clynch, who had attempted to kill Commandant Captain Thomas Wright. Here’s a description of the incident in Robert Macklin’s 2013 book Dark Paradise: Norfolk Island – Isolation, Savagery, Mystery and Murder (from p. 131):

Wright sent Sergeant Dennis Tunny and two privates after him [Clynch] with instructions, ‘You know your duty, so do it!’ Amid a wild hullabaloo from the prisoners, the soldiers intercepted Clynch and brought him to earth. Then, according to the convicts, they not only shot him dead but dragged his body to the gaol, placed it on the scourger’s stage and forced the prisoners to file past as a warning.

For more tales from Norfolk’s dark history, I can highly recommend Dark Paradise.

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Why Greg Chappell came to Qld in 1973

Posted on January 26, 2021 by Gene Tunny

It was about time that cricketing legend Greg Chappell, arguably Australia’s most elegant batsman after Bradman, received an Australia Day Award. Chappell’s 2011 autobiography, Fierce Focus, is well worth reading, and Queensland readers would be particularly interested in chapter 14, “A more solid state”, which covers his switch to the Queensland cricket team and his move to Brisbane, from Adelaide, in 1973. It reminds us of just how much professional sport and, more broadly, our economy and society have changed since then.

Chappell wasn’t lured to Queensland by a lucrative contract as, before Kerry Packer shook up the game, contracts weren’t that lucrative. Rather, he came because the Queensland Cricket Association (QCA) could get him a job with an insurance company. Before the economic value of elite sport through television advertising and sponsorship was realised and tapped into, elite sportsmen generally couldn’t make a living playing sport. Here’s a snippet of what Greg Chappell wrote in Fierce Focus chapter 14:

The QCA had provided an apartment in Rosalie, an inner Brisbane suburb, but the main thing was a job. In Adelaide I’d been working with Coca-Cola Bottlers as a trainee manager. It was a franchise business and one of the most successful…

…In Queensland, however, Coca-Cola was a completely different business, run on a different footing, and there was no opportunity for me. Instead I went back into insurance with Friends Provident, an English company. They paid a guaranteed retainer plus commission, considerably more money than I’d earnt at Coca-Cola.

It’s funny to think there was a time when you could be an internationally renowned sportsman and still need to hold down a day job. Where were the juicy contracts, lucrative product endorsements, or Bollywood film opportunities back then? Of course, things changed a lot for cricketers when Kerry Packer saw the potential to cash in on the huge popularity of cricket a few years later, a tale Chappell tells later on in Fierce Focus. If you haven’t read Chappell’s autobiography yet, and you have any interest in cricket, or even in Australian history, I can highly recommend it.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

Greg Chappell’s revealing 2011 autobiography Fierce Focus
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Qld exports were $21bn lower in 2020 due largely to lower coal and LNG prices

Posted on January 25, 2021 by Gene Tunny

At the launch of the Queensland Premier’s Export Awards in May 2019 at the Tower of Power, 1 William St, I spoke about how Queensland’s exports had soared to record levels over the previous few years, largely as a result of higher coal prices and new LNG exports (check out my QEW post on the launch). But coal prices have fallen since then, and plunged last year as the pandemic reduced demand (see chart below, noting the red line is the coking coal futures price for contracts settling in the next month and the blue line is the same type of futures price for thermal coal).

Lower average coal prices (and also LNG prices) over 2020 had a big impact on the dollar value of Queensland’s merchandise exports over the year. ABS preliminary data released today showed a $21 billion fall from $84 billion in 2019 to $63 billion in 2020. Below is a handy chart that Dr Marcus Smith included in his LinkedIn post earlier today.

Lower coal prices have meant billions of dollars less in royalties for the state Treasury and have led to questions about the viability of several mines. For instance, regarding the Adani Carmichael mine, Reuters reported last October that “Analysts have questioned the mine’s viability, given a steep fall in coal prices in the past two years, and increasing pressure on banks and insurers not to lend to thermal coal companies because of climate change.” Miners and the state government will be pleased that coal prices appear to be on the way back up in 2021.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

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Unpacking the increase in the unemployment rate since March 2020

Posted on January 24, 2021 by Gene Tunny

In my post last Thursday, I discussed Why Qld’s unemployment rate is highest in nation despite better jobs recovery during pandemic than rest of Australia. I noted a large part of the story was “Queensland’s strong recovery (and over-shooting) in the workforce participation rate, which is now 1.2 percentage points higher than it was in March, compared with a 0.3 percentage point increase nationwide”. At the moment, Queenslanders appear to feel more confident about looking for work than people in the rest of Australia. To understand better the relative importance of the change in the participation rate, I thought it might be useful to decompose the change in the unemployment rate since March into the contributions from changes in a) employment, b) the labour force participation rate, and c) civilian population aged 15 and over. This can be done by applying some basic calculus to the formula for the unemployment rate.* I’ve done this for Queensland, NSW, Victoria, and Australia and the results are presented in Table 1 below.

MetricsQldNSWVic.Aus.
Unemployment rate in Dec-20)7.5%6.4%6.5%6.6%
Change since Mar-20 (% points)1.9%1.5%1.4%1.4%
Decomposition of change:
Participation rate1.71%0.33%-0.55%0.40%
Employment-0.62%1.09%1.58%0.64%
Population0.79%0.09%0.35%0.35%
Table 1. Decomposition of changes in ABS estimates of unemployment rates since March 2020 into contributions from changes in participation rates, employment levels, and population levels.

The table shows how the percentage point change in the unemployment rate (e.g. 1.9% for Qld) since March can be broken down into the contributions from a higher participation rate (1.7%), higher employment (-0.6%), and higher population (0.8%). Because total employment (full-time + part-time) in the ABS Labour Force data for Queensland is now higher than it was in March, unlike in Australia as a whole, the change in employment subtracts from Queensland’s unemployment rate while it adds to it nationwide. The increase in the participation rate substantially increases Queensland’s unemployment rate by 1.7 percentage points, while the fall in Victoria’s participation rate supresses Victoria’s unemployment rate by over half a percentage point. You can also see that Queensland’s faster growing population, which requires our state economy to generate proportionately more jobs to keep up, is another factor that has added to the gap between our unemployment rate and those of other states.

Nationally, the largest contribution to the rise in the unemployment rate since March is the reduction in employment since March (0.6%), followed by the increase in the participation rate (0.4%), and population growth (0.3-0.4%).

Finally, I should note that the participation rate may be higher now than in March due partly to an Added Worker effect, as pointed out by a perceptive reader in a comment on my post last Thursday. That is, part of the increase may be due to household members not previously participating in the workforce (e.g. stay-at-home mums) entering the workforce because another household member lost a job, had their hours reduced, or had a reduction in their business earnings. Suggestive of a possible Added Worker effect is the large increase in female workforce participation in Queensland in recent months (chart below). That said, I have no reason to suspect that the need for Added Workers in households is much greater in Queensland than in the rest of Australia at the moment, so my sense is that the stronger recovery in Queensland’s participation rate (relative to other states) signifies relatively higher confidence in the availability of jobs among Queensland women than among women in other states. This could partly be related to our ever-expanding state government workforce, which is predominantly female (69%), as former CCIQ Chief Economist Dr Marcus Smith pointed out in a LinkedIn post recently.

*Technical note: The unemployment rate (u) is the number of unemployed people (U) divided by the Labour Force (LF), which is the sum of U and total employed people (E) – i.e. LF = E + U. LF can also be calculated as the participation rate (pr) multiplied by the civilian population (P). It can hence also be expressed as u = (LF – E) / LF or
(pr . P – E) / (pr . P) which simplifies to u = 1 – (E / (pr. P)). Once u is expressed in this form, it’s straightforward to calculate the total differential of u with respect to the variables E, pr, and P. The calculus used is well-explained in Alpha Chiang’s classic text Fundamental Methods of Mathematical Economics, chapter 8.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

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JobKeeper has been stimulating in multiple ways – evidence from Lush Marcoola

Posted on January 23, 2021 by Gene Tunny

Well done to Matty Holdsworth from the Sunshine Coast Daily for some excellent reporting on the Lush Marcoola brothel which was re-printed in today’s print edition of the Courier-Mail on p. 47:

YOUNG men cashed up on JobKeeper payments kept business flowing at a Sunshine Coast brothel that suffered through the peak of the pandemic, its owner says.

From an economic stimulus perspective, this is good news, as spending on an activity with a relatively high labour input will deliver more bang-for-buck to the local economy than spending on imported products such as Smart TVs.

It’s apparent now that JobKeeper was probably too generous and too easy to obtain. One illustration of that was the surge in Gross Mixed Income in the June and September quarter National Accounts (see chart below). Gross Mixed Income includes the income of self-employed people (e.g. tradies, consultants) and unincorporated small-business owners and has been substantially boosted by JobKeeper.

I should note JobKeeper ends at the end of March, and there’s a lot of concern about what happens to many businesses and their workers once it’s ended. There are calls for JobKeeper to be extended for specific sectors such as aviation and tourism or hospitality more broadly – i.e. a “Hospo-Keeper” program. If it’s true that international travel really won’t resume until 2022, and various interstate travel restrictions are imposed until a large proportion of the population is vaccinated against COVID, then the federal government may have no choice but to extend JobKeeper on a limited basis. While federal Treasurer Josh Frydenberg has written “we are not contemplating a ‘Hospo-Keeper’ package at this time” (as reported by InDaily), in the coming months, he could always argue things have turned out worse than expected and such assistance is now deemed necessary. Of course, the Treasurer is concerned about the impacts on deficits and debt, and he probably now regrets making JobKeeper so generous and easy to access in the first place.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

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Industry wants changes to Qld CHO emergency powers extension bill

Posted on January 22, 2021 by Gene Tunny

This afternoon, in a hearing of the Queensland Parliament’s Health and Environment Committee, Queensland Tourism Industry Council (QTIC) head Daniel Gschwind and CCIQ Policy and Advocacy GM Amanda Rohan both expressed major concerns about the Queensland Government’s bill to extend our Chief Health Officer’s emergency powers until the end of September.

QTIC’s Daniel Gschwind made the important point that it is the role of elected governments – i.e. implicitly, it is not the role of an unelected CHO – to weigh public health, civil liberties, and economic considerations in decision making. This is a similar point to one I made in my submission and my remarks to the Committee this afternoon, just before it knocked off at 4.30pm.

CCIQ wants changes to the bill in the interests of improving accountability, consultation, and transparency. CCIQ is concerned that it’s too difficult for businesses to predict when the CHO might impose a lockdown, and Amanda spoke about the disruptive effects on local businesses of the unexpected three-day Brisbane lockdown two weekends ago. CCIQ wants greater consideration to be given to the disruptive impacts that COVID control measures can have on industry, and it would like to be consulted on any future emergency measures, even if just via a phone call, which seems fair enough to me.

In my session, the Deputy Chair Rob Molhoek MP from the Opposition pointed out that NSW CHO Dr Kerry Chant doesn’t have the extraordinary powers our CHO has, and important decisions are made by the Health Minister, which in my view is entirely appropriate in our system of representative government and parliamentary democracy. Given Queensland’s CHO appears too quick and too willing to impose restrictions on the freedom of movement of millions of people, we may have avoided some bad decisions such as the Greater Brisbane lockdown, if our elected representatives took responsibility for these decisions. They may have had second thoughts on some of the measures and would ideally have sought out a wide range of views (e.g. from Greater Brisbane lockdown critic Professor Peter Collignon) before making such consequential decisions.

I hope the media picks up on Daniel’s and Amanda’s comments, because the bill before the Queensland Parliament desperately needs to be changed in the interests of good governance and civil liberties in Queensland.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com

Queensland Parliament House, George St, Brisbane, with 1 William St, the Tower of Power, where the COVID media conferences are often broadcast from, in the background.

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