Queensland Economy Watch

According to our Lord Mayor Campbell Newman, the Go Between Bridge promises to shave 7-10 minutes off a peak-hour trip between Brisbane’s sporting centre of Milton and its cultural centre in South Brisbane & West End.  In December last year, Mr Newman highlighted (Courier-Mail, 3 December 2009):

The convenience of coming across the bridge, straight off Hale Street, into South Brisbane, saving 7-10 minutes on journeys in peak hour – those are the projections.

Whether you’re willing to pay the toll of $2.70 depends on what those 7-10 minutes are worth to you.

We can get a rough idea of what 7-10 minutes are worth to the average Queenslander by looking at how much the average Queenslander trades his or her time for each working day.  Average annual full-time earnings in Queensland are around $64,000 (based on ABS Average Weekly Earnings data).  Assuming our average Queenslander works an average of 40 hours per week for 48 weeks of the year (a total of 1,920 hours per year),  this means they are trading each hour they work for around $33 (i.e., $64,000/1,920).

So one minute of our average Queenslander’s time is worth around 55 cents to them.  Our average Queenslander would thus pay $3.85 to save 7 minutes and $5.50 to save 10 minutes.  This means the $2.70 toll doesn’t appear prohibitive after all, at least in peak hour.

Let’s apply what economists call break-even analysis, and ask what is the minimum amount of time our average Queenslander would need to save (the break-even time saving) to be willing to pay the $2.70 toll?  That would be the value of the toll ($2.70) divided by the value of time to our average Queenslander ($0.55/minute).  That is, the break-even time saving is around 5 minutes.

So whether our average Queenslander will use the Bridge will depend on whether the Bridge saves him or her at least 5 minutes of travel time.  Given the William Jolly Bridge is only a short distance along from the Go Between Bridge, some people may question this possibility, particularly in non-peak periods.

Based on this quick-and-dirty analysis for a hypothetical average Queenslander, my best guess is that the Bridge will be reasonably well used during peak hours and avoided during non-peak hours.  I’m hoping the Council has tested this scenario, and the financials still stack up.  We will know soon enough.

The big news story in Brisbane today is that Rivercity Motorway is dropping the Clem7 toll from the already discounted price of $2.95 to $2:

Toll for Clem7 tunnel to drop to $2

Rivercity Motorway was hoping to charge $4.28 per car, and expecting 60,000 cars to use the tunnel daily.  Instead, only 22,500 cars a day use it, paying $2.95 per trip.  Clearly demand hasn’t been as great as expected, possibly because people are willing to endure a few extra minutes of inconvenience rather than pay $2.95 per trip (or around $30 per week if you travel through it twice each working day).

It’s possible that cutting the toll could lead to a significant increase in traffic numbers, but the increase would have to be very large to improve the long-term outlook for Rivercity Motorway.

To earn at least the current daily revenue (i.e., $66,375 = 22,500*2.95), the price drop would have to increase daily tunnel usage to around 33,200 cars or by 48%.  But, to earn what Rivercity Motorway expected the tunnel to earn each day (i.e., $256,800 = 60,000*4.28), usage would have to increase nearly 500% to 128,400 cars per day from the current 22,500.  Even for the tunnel to earn the revenue it would for 60,000 cars daily at the $2.95 toll (i.e., $177,000 = 60,000*2.95), usage would have to increase almost 300% to 88,500 cars per day.

The challenge of increasing tunnel usage by these large amounts clearly raises questions about the long-term viability of Rivercity Motorway, so it is no surprise its shares are trading at around 2 cents per share compared with around 30 cents earlier in the year.

Last month, Wilson HTM Analyst Nathan Lead (quoted in the Courier-Mail of 4 May) observed that, if traffic numbers don’t increase to around 75,000 to 85,000 cars daily, Rivercity Motorway is at risk of defaulting on its debts in the next two years.  So it could end up being placed in receivership, just as happened to the operator of the Lane Cove Tunnel in Sydney.  Let’s hope it doesn’t come to that, as we need viable public-private partnerships to help build the infrastructure needed to keep Brisbane and Queensland growing.

Queensland’s population increased by around 107,000 people in 2009, according to new ABS population data released last Thursday (this Queensland Treasury briefing note contains the relevant figures).  At the end of 2009, our population  stood at just over 4.47 million, or around 20% of Australia’s total population of 22.16 million.

In 2009, among the states and territories, Queensland’s population grew at the second fastest clip (2.4%), trailing only WA (2.7%).  Unlike in the 1990s, when Queensland’s population surged due to interstate migration from the “rust belt states” of NSW and Victoria, this time Queensland’s population growth is driven largely by immigration from overseas (technically, net overseas migration: i.e., people coming to Australia less people leaving).  Of Queensland’s total 2009 population growth of 107,000, net overseas migration was 53,000 (50%), natural increase (births minus deaths) was 40,000 (37%), and interstate migration was 14,000 (13%).

Overall, in 2009, Australia’s population grew at 2.0%, with Victoria growing at 2.1% and NSW at 1.6%.  NSW’s performance wasn’t helped by it losing nearly 14,000 people through interstate migration in 2009.  Victoria, by contrast, gained around 1,800 people from interstate migration, reversing the long-standing trend of it losing people to other states.

To keep things in perspective, the population growth rate is expected to decline over the next few decades. The Commonwealth Treasury and the Queensland Treasury project the annual population growth for both Australia and Queensland will decline to under 1% per annum by 2050. By then, Australia’s population will be around 36 million and Queensland’s population will be around 7.5 million.  These numbers themselves pose large challenges for infrastructure provision and environmental sustainability, so perhaps it is for the best that population growth will start to slow in coming years.

There is an interesting letter from John Penhallurick in the June 19 Economist arguing the Resource Super Profits Tax (RSPT) is unconstitutional:

Constitutional powers over minerals and mining lie with the states, which have levied royalties on mining companies for many years. Some argue that the federal government’s power over corporations gives it the power to levy such a tax, but if the matter comes to the High Court it will almost certainly be ruled unconstitutional. The issue is the conflict between a broad commonwealth power and a narrowly defined state power, and a federal government trying to levy a tax on an industry that falls under the states’ purview.

It’s certainly possible that the RSPT is unconstitutional.  However, since the early 1980s the High Court has taken a generous, expansive view of the powers of the Commonwealth (e.g., in the Tasmanian Dams case and the more recent Labor States’ challenge to WorkChoices).  I’m guessing, too, that the Treasury would have obtained legal advice regarding the RSPT’s legality from the Australian Government Solicitor.  Hence, my feeling is that the High Court would decide, in favour of the Commonwealth, that the RSPT is constitutional.

Of course, I’m not a lawyer, so I’m unqualified to offer this as a professional opinion.  A number of constitutional law experts, however, have no doubt about its legality:

RSPT court challenge likely to fail: analysts

Of course, with the new PM calling a temporary cease-fire with the mining industry, we may have to wait some time for the constitutional issues to be resolved.

There was some reasonably good news in today’s interstate trade figures for Queensland released by the ABS.  Through the year to March 2010, there was a 17% increase in Queensland’s exports to other States, while imports remained roughly constant.  (Note I had to look back to the ABS’s March 2009 release to get the exact figures to work this out.)

The ABS summary of the data (at the link above) is pretty confusing.  The ABS reports that exports fell over 20% from December quarter 2009 to March quarter 2010, but the data don’t appear to be seasonally adjusted, rendering the quarterly change meaningless. This is because we’d expect interstate trade to have jumped up in December, due to the Christmas period.  It’s great to have the numbers, but if anyone from the ABS is reading this, could you please improve their presentation to avoid misinterpretation.

There is a useful volume on SEQ planning issues out at the moment, A Climate for Growth, edited by Brendan Gleeson and Wendy Steele of Griffith University, and published by University of Queensland (UQ) Press.

The volume includes two standout essays (although this isn’t any endorsement of their conclusions).  In his essay, UQ Prof. Peter Spearritt identifies the SEQ metropolis from Noosa to the Tweed as the “200-kilometre city”.  And he is able to pinpoint the date of its emergence:

Practical recognition of the 200-kilometre city came persuasively in 2005 when the Melbourne street directory firm Melway produced Brisway.  In direct competition with the UBD street directory, it had one street index for all the streets from Noosa to the Tweed River, while the UBD persists in three separate indices.

In the volume’s other standout essay, Prof. Tony Hall from Griffith’s Urban Research Program argues strongly for designing our buildings and urban landscape for our sub-tropical climate, incorporating natural ventilation and plenty of trees to provide shade, rather than building more concrete boxes we can only cool with air-conditioners.

Prof. Hall points to promising new designs that combine high-density housing designs from the UK with the best attributes of Queenslanders, which, although well-adapted to Brisbane’s sub-tropical climate, were built in low-density suburbs and weren’t particularly fire resistant.  These new housing designs, combining the best of the UK and Queensland, would result in an urban density of 34 dwellings per hectare, more than double the SEQ Regional Plan target of at least 15 dwellings per hectare.

From the diagram in the book it appears Prof. Hall has in mind large Queenslander-type buildings divided into a number of units, with surrounding green space.  While further information on this new design is needed, and hopefully forthcoming in future work from Prof. Hall and others, it is certainly worth considering in debates on urban design and planning in SEQ.

With around 350 other cities across the world, Brisbane is today holding the Fête de la Musique, which brings music to multiple locations on the city streets.  City workers walking through Eagle Lane (linking Eagle and Queen Streets) were pleasantly surprised to encounter the Rasta DJs:

This is a great initiative by the City Council (in conjunction with Alliance Francais).  I’m unsure of the cost of it all, though the temporary green space in Eagle Lane looks pretty cheap!  And it’s probably justifiable when you think about the potential benefits – in terms of providing new and interesting music to the public, and perhaps even from encouraging creativity and the arts.  In this regard, there’s an interesting strand of economic research started by Richard Florida, extolling the benefits of creativity and, indeed, Bohemianism:

Bohemia and economic geography

Every Sunday morning, when I jog past Suncorp Stadium in Brisbane, I notice a sign proclaiming that scalping (or on-selling) of tickets is prohibited.  In the future, there may be changes to laws around scalping across Australia, in response to an issues paper from the Commonwealth Consumer Affairs Advisory Council, which is currently out for comment (by 23 July):

Ticket scalping: Ticket on-selling and consumers

Most economists agree that ticket scalping is only profitable because event organisers aren’t charging high enough prices.  Because the price is too low, people demand many more tickets than there are actual tickets supplied.

So people compete with each other for tickets through lining up or waiting to snap up tickets as soon as they are available online.  The lucky ones who snap up the tickets end up paying an extra cost for the tickets (in terms of lost time), reducing the benefits they get from the under-priced tickets.  Many of these people may have been willing to pay a bit more to secure a ticket without having to line up.  Therefore it’s unclear that rules against on-selling make these people better off.

The unlucky ones, who aren’t so quick to snap up a ticket, will have to buy a ticket from scalpers, if they really want to go to the game or concert.  If a person buys a ticket off a scalper, then given it is a voluntary transaction, you have to assume that both the scalper and the purchaser are better off (otherwise they wouldn’t have transacted).  So we can’t say a ban on scalping makes sense from an economic point of view.

Regulation of scalping may be equitable, however.  It could allow a low-income family of diehard Broncos fans to attend a game every now and then, for example.  Achieving equitable outcomes can certainly be a legitimate objective of government policy, and, hence, regulation or prohibition of scalping may be justified on equity grounds.

The economics of ticket scalping are clear, however: scalping satisfies market demand and, hence, it is an efficient market outcome and should be allowed.  In regulating scalping, governments face the frequently seen tradeoff between economic efficiency and social equity.

Following the news that Premier Bligh has appointed the Australian Industry Group’s Chris Rodwell as the new Trade Commissioner to the Americas (Peter Beattie’s previous LA-based gig), today’s Courier-Mail ran a thought-provoking editorial, “State must come first in envoy posts”.  Without in any way questioning Mr Rodwell’s fitness for the job, as he’s clearly a first class choice, the editorial asks the sensible question:

Do we actually need a trade commissioner for the Americas, or anywhere else for that matter, particularly given that the Federal Government has its own large, global network of trade facilitators in the form of Austrade?

This is a good question, given that Queensland’s dozen or so trade commissioners across the world cost a reported $30 million per year.

Austrade must certainly be doing a lot of work to promote Australian exports, and hopefully Queensland is getting its fair share of the promotional effort.  According to the Productivity Commission’s Trade and Assistance Review, at 30 June 2008, Austrade’s overseas network comprised 117 offices in 63 countries.  As the Courier-Mail editorial suggests, instead of funding our own trade commissioners, Queensland’s money might be better spent keeping Austrade in the loop on the latest Queensland products and making sure they have up-to-date promotional materials on our wares.

By the way, the Productivity Commission’s Trade and Assistance Review (at the link above) contains some pointed messages regarding Austrade’s effectiveness (on p. 28).  It’s in classic bureaucratic speak, but if you can read between the lines, it’s devastating.  We may need to think about whether governments have any role in promoting exports at all.

On Wednesday 7 July, the University of Queensland (UQ) Economics School is hosting a panel discussion on the Queensland Rail (QR) sale, featuring heavy hitters Doug McTaggart and John Quiggin.  The brochure / registration form is here:

Panel discussion registration form

This should be a great debate, with strong arguments from both sides.  Though I’m pro-sale, I have some sympathy for Quiggin’s argument that asset sales simply involve a trade of assets between the public and private sectors, so the government isn’t any better off.  It simply replaces one asset on its balance sheet (the utility) with another (cash).  And, if the sale price is too low, the government (and taxpayers) can be worse off.

However, this ignores the reality that the global financial crisis raised doubts about the appetite of global financial markets for the bonds of State and Territory Governments.  With all the US Government Treasury bonds (and those of other countries) being issued, there’s a lot of paper out there that our bonds are competing with, meaning we run the risk of facing some steep borrowing costs.  Selling State assets like QR at least allows the Treasury to get some much-needed cash in the door.  And by limiting the accumulation of Government debt, it should help us get our AAA credit rating back in a few years’ time.