Queensland Economy Watch

The Fairfax papers are reporting that Green groups rubbish recycling delay:

Waste crusader Ian Kiernan is angered that commonwealth and state leaders keep dithering on a national “cash for cans” style recycling scheme.

The Clean Up Australia Day founder is astonished at the reluctance to broaden a scheme that sees 88 per cent of cans and bottles recycled in South Australia, compared to 35 per cent in the rest of the country.

If recycling makes economic sense, the private sector will do it anyway.  As we run out of aluminium and other resources, the prices of these resources will rise, encouraging private conservation efforts.  At the moment, it’s cheaper to produce new aluminium than it is to collect and recycle existing aluminium in cans.  But, if there ever is an acute shortage of aluminium in the world, no doubt we’ll see people digging into rubbish bins and landfill dumps to find old cans to recycle.

Countless articles and blog entries have debated whether measures such as the National Broadband Network or Work Choices would boost the productivity of the Australian economy, which runs at around 85-90% of the US productivity level.  Despite all the analysis and debate, it’s possible we have overlooked a major potential productivity gain that could come through teaching people how to manage their email better.

A new study by IBM has found that email is a major source of workplace stress:

Office email storms create workplace stress – study

Getting on top of email is possible, though, no matter how high-profile or demanding your job.  The basic principles are:

1. check email only once every 2-3 hours (if something is truly urgent the desperate person will pick up the phone or drop by)

2. process all your emails at once (e.g. action if a quick simple reply is all that is needed, delete, archive, or file away for action or review at a later time – i.e. don’t let a new email alter your priorities for the day unless something truly is on fire).  Aim for zero messages in your inbox.

A Government media campaign to promote better email management might be a cheap, cost-effective way to get some easy gains in workplace productivity.

Recommended reading:

Cure your e-mail addiction

Former Treasurer Peter Costello raised a few eyebrows when he urged Australians to have “one for mum, one for dad and one for the country”, but his call to procreate and the Government’s baby bonus no doubt played an important role in lifting Australia’s fertility rate.  Today the ABS reported that the Costello-inspired increase in Australia’s fertility rate has come to a halt:

In 2009, Australia’s TFR [total fertility rate] was 1.90 babies per woman, down slightly from the 2008 TFR of 1.96 babies per woman which was the highest recorded since 1977.

Source: ABS Births, Australia, 2009

It’s too early to call whether the fertility rate will decline further from its recent highs. It’s possible that Australian women (and their partners) felt more comfortable having babies with Peter Costello in charge of the public purse, especially given his enthusiasm in promoting procreation.  Perhaps a more likely explanation, however, is that many Australian couples have delayed having children due to the economic turbulence and uncertainty we have experienced since the financial crisis of 2008.

The Reserve Bank of Australia (RBA) raised the overnight cash rate 0.25% (25 basis points) today, but the Commonwealth Bank announced it would raise its mortgage rate by 0.45% (45 basis points).  This prompted a going-through-the-motions attack on the Commonwealth Bank from the Treasurer:

Wayne Swan blasts CBA ‘cash grab’

The Treasurer needs to reflect the public’s anger at the Commonwealth Bank, but won’t do anything substantive about it, because the Bank is too important to the stability of the Australian economy.

Full credit to the Treasurer so far, though, in resisting calls for the Government to re-regulate interest rates.  That would be a backward step, as it would likely result in high inflation as politicians keep interest rates artificially low for political reasons.

The Treasurer has been put in a difficult position by the declining power of the RBA to influence mortgage rates in a world where banks are sourcing so much of their funding from overseas rather than domestically.  The funding costs of our banks have been driven up by the tightening of credit in global markets which began with the US sub-prime mortgage crisis in 2007.

You can see the heavy reliance of our banks on overseas borrowing in one of the ABS’s lesser known but extremely useful publications, the Financial (a.k.a flow of funds) Accounts, which reports that in 2009-10:

Significant flows during the year ended June 2010 were the net $39.8b and net $39.0b general government borrowed from financial corporations and rest of world respectively and the net $34.4b households deposited with financial corporations. Financial corporations borrowed $48.0b from rest of world and also lent $2.9b to non–financial corporations. Non–financial corporations repaid $11.2b to rest of world.

The $48 billion that financial corporations (mainly banks) borrowed from the rest of the world significantly exceeded the $34.4 billion that households deposited with them (in net terms).

So the banks are right to argue their funding costs are driven by overseas factors and the RBA cash rate isn’t as important as it once was.  Clearly the RBA is losing its monetary mojo.

The British Gas Curtis Island LNG project announced yesterday by Treasurer Wayne Swan (Swan endorses British Gas project) is a big deal for Queensland, and the projected impacts are stunning (though plausible).

The British Gas project is projected to generate $2.6 billion in additional economic activity per annum – i.e. boosting Queensland’s Gross State Product (GSP) by around 1%. This is a big deal, particularly given Queensland’s recent lacklustre performance on economic growth.

Of course, a large part of the income generated will be repatriated overseas but, regardless, the project will create 1,000 ongoing jobs and contribute $1.3 billion in taxation and royalty revenue each year.

The project involves $15 billion of capital expenditure over four years, or just under
$4 billion per annum, meaning it will boost private investment spending in Queensland by 5-6% over the next four years.

For a useful summary of the project, see this fact sheet.

The Cairns business community is looking for a boost from $3 billion in infrastructure investment that is scheduled for Cairns and the surrounding region.  The Queensland Government-compiled list of infrastructure projects is dominated by Queensland and Commonwealth Government projects:

Cairns and surrounding region: Infrastructure projects as at 2010-11

While the lacklustre Cairns regional economy appears to be on Government life support, there is at least one exciting private sector development, a $550 million wind farm.

The Cairns Post reports:

The list is topped by the $550 million Mt Emerald wind farm near Mareeba, as well as the ongoing $455 million Cairns Base Hospital redevelopment and the $443 million Lotus Glen Correctional Centre extension.

It consists of $1.7 billion in State Government works, including schools, roads, health, housing, corrective services, police and emergency services.

More than $61.2 million in local government works include the Sugarworld redevelopment, the Innisfail sewerage treatment plant and Innisfail’s new Jubilee Bridge.

Federal Government body Skills Australia has released a discussion paper on vocational education and training (VET) which asks the questions that need answering if we are to get a VET system that avoids wacky results like this one (p. 42 of the discussion paper):

There also is considerable variety in the way apprenticeships and traineeships are offered and provided, and in their nominal durations, between different jurisdictions. This may be due to state and territory training authorities responding to the needs of local industry.

For example, a Certificate IV in Electrical – Air-conditioning Split Systems – UEE40507 can be taken as an apprenticeship in Victoria, South Australia, Tasmania and the Northern Territory, but not in New South Wales, Queensland, Western Australia or the ACT. Furthermore, nominal durations vary significantly (from 12 months to 48 months) between the states and territory that do offer it as an apprenticeship.

This inconsistency provides difficulties in movement between jurisdictions for individuals, as well as complexities for national employers wishing to put apprentices through the same program in different jurisdictions.

It’s 2010, nearly 11 decades since federation, and we still have inconsistent VET systems across States (not to mention inconsistent schooling, OH&S and workers’ compensation systems).  The time for reform is now, and the public can help encourage it through a strong response to the Skills Australia discussion paper (submissions due to Skills Australia by 26 November).  Let’s hope the pace of reform picks up from glacial.

The transcript of last Thursday’s Senate Estimates hearing in Canberra reveals SA Senator Nick Xenophon has accused Coles of predatory pricing against SA-owned Drake Supermarkets, which has recently opened a store in Caboolture (see page E8 of the transcript). Questioning the Australian Competition and Consumer Commission (ACCC), Mr Xenophon noted:

In May 2010 Drake Supermarkets, which is a South Australian based company, opened a new store in Caboolture in Queensland. Within a week of opening Coles placed 10 per cent discount vouchers on the windscreens of the cars parked in the Drake supermarket car park. The offer was valid for three weeks, but only for the three Coles supermarkets in the immediate vicinity, as I understand it. We have corresponded with the ACCC and the ACCC’s view was that there was not enough evidence to prove that this was an act of predatory pricing.

Given that the voucher was only promoting discounts at stores in the immediate vicinity, it was not a state-wide discount, does the ACCC consider that that offer was done with the intent of taking away business from Drake, and in a sense to harm it because an across the board 10 per cent discount was not something that presumably would be sustainable across the whole state?

The ACCC officer was not well briefed, as he wasn’t across the particular case that Mr Xenophon has taken up.  Still the ACCC officer noted correctly that the low prices would have to persist for a reasonable period of time (at least more than a month) for them to be considering predatory.

Economists have long considered that predatory pricing is unsustainable as a business strategy, because the new entrant (here Drake Supermarkets) would realise that the business cutting its prices couldn’t afford to do so indefinitely, so the new entrant just has to hold its nerve and wait for its rival to put its prices back up.