Thursday, November 23, 2017

Fake economics: how to make bad transport projects look good

Victoria is spending $5.5 billion building the West Gate Tunnel, another $1 billion widening CityLink, probably $10 billion on the North East Link, $11 billion on Melbourne Metro, $8 billion removing level crossings, and, if the Coalition returns, more than $3 billion on the East West Link.

NSW is spending $16 billion on WestConnex, $14 billion on Western Harbour Tunnel Beaches Link, $9 billion on the F6 Extension, $3 billion on NorthConnex, $11 billion on Sydney Metro South West, $8 billion on Sydney Metro NorthWest, $3 billion on Parramatta Light Rail, $2 billion on Sydney Light Rail, and billions more on Sydney Metro West.

It would be nice to know it was money well spent.

There's a fiction that a benefit-cost ratio above "1" means things are OK.

Here's how it works. A consultant adds up all the costs over a period of 30 or 40 years and all the benefits. If the benefits are greater than the costs, giving a ratio of, say, 1.5, it is said to be worth doing. But if they are less, say, 0.45 (which was the ratio in the first study of in the East West Link), it is said to be a waste of money.

Often the studies are never made public, sometimes they are never conducted (as was the case with the national broadband network) and very often they are conducted as an "add-on"; financial bling to be sprinkled over the project after it has been approved and announced.

Melbourne's $5.5 billion West Gate Tunnel is a case in point. Sydney's $14 billion Western Harbour Tunnel and Beaches Link is another. Internal NSW Transport emails released to me under freedom of information show an analyst complaining that his superiors had as good as completed the business case without access to the numbers.

"How something with no, repeat, no, benefit-cost analysis or traffic numbers can be construed as 80 to 90 per cent complete is beyond me," the exasperated official wrote. "The numbers tell us if the thing makes sense."

And the numbers are sometimes rigged.

A seminar in Melbourne last month on the use and abuse of cost-benefit analysis explored the ways.

One of the easiest is to hike the traffic forecasts. On some toll roads, the number of cars predicted to use them was greater than the capacity of the roads. Out of court settlements were reached between the modellers and investors in Sydney's Lane Cove Tunnel and Brisbane's M7 Clem Jones Tunnel.

Professor Jago Dodson of the RMIT Centre for Urban Research revealed that in the queue at a conference he had met one of Australia's senior transport modellers who had worked on at least one of those tunnels.

"Myself and another colleague were joking. 'You guys all inflate your traffic figures to satisfy your clients, don't you?', we said. He replied: 'Oh no, no, no, we are professionals, we have to sleep at night.'

"Then he sort of slyly looked at us and added, 'But it's amazing how little sleep you can get away with'."

You needn't stop at bulking up travel time saved. Also useful for bulking up benefits is "travel time reliability". It's a concept that makes sense for some types of public transport. You want trains and buses to leave and arrive on time. But it makes next to no sense to count it as a benefit for commuters in cars, who can usually leave and arrive whenever they want. Suspiciously, it forms an important part of the claimed benefits for Sydney's Western Harbour Tunnel and Beaches Link.

And you can get more creative. You can add in the benefits of other projects tens of kilometres away as was done for the West Gate Tunnel. You can add "wider economic benefits" to fill the gap that remains.

The original study of Melbourne's East West Link came up with a benefit cost ratio of 0.45. Then "wider economic benefits" were added to take it to 0.85, then the benefits of other "complementary projects" were added to force it above 1. The wider benefits included the "impact of transport on increasing competition", "competition related user benefits", and the biggest: "agglomeration benefits".

Agglomeration helps productivity because it packs more workers in the one location (although the cost of the accompanying deagglomeration – depopulating smaller locations – is rarely counted). But it made no sense to count them as a benefit of the East West Link. Its whole point was to bypass the city. It makes little sense to count them as a benefit of the Sydney Northern Beaches Link. Most of its users would have gone into town anyway.

But the biggest fudge is the simplest. It's what you choose to compare. By not comparing the costs and benefits of the (much) cheaper rail alternatives to those of WestConnex or the Sydney F6 Extension, the government made their figures look good – but good compared to what? Economics is about choices. Studies that don't examine choices are neither economic nor meaningful.

Each of Australia's two biggest states is engaging in an unprecedented transport spending spree, often with the help of willing partners in the finance industry hungry for access to tolls. Neither can demonstrate convincingly that it is getting value for money.

In The Age and Sydney Morning Herald

Saturday, November 18, 2017

Gross State Product. Victoria top, but NSW the real winner

Victoria has Australia's top-performing state economy, but the real prizes have gone to NSW and South Australia.

The annual Bureau of Statistics measure of state domestic product puts Victoria's economic growth at 3.3 per cent throughout 2016-17. NSW recorded weaker growth of 2.9 per cent, South Australia 2.2 per cent, Queensland 1.8 per cent and Tasmania 1.1 per cent. Western Australia's economy shrank 2.7 per cent.

But the league table takes no account of population growth.

Victoria had by far the strongest population growth during 2016-17. NSW and Queensland were well behind, and the other states even further behind. When adjusted for population, gross state product per resident grew fastest in South Australia (1.6 per cent) and NSW (1.3 per cent). Victoria's gross state product per resident grew just 0.9 per cent.


The Australian Capital Territory and the Northern Territory did better than the states on all measures. The ACT recorded economic growth of 4.6 per cent and growth per resident of 2.9 per cent and the Northern Territory recording growth of 4 per cent and 3.7 per cent.

Victorian Treasurer Tim Pallas brushed aside the per capita measure to declare that the overall 3.3 per cent result was higher than at any point during the previous term of the Liberal National Party government.

"This data once again shows the strength of Victoria's economy, and reinforces the direction we've steered our economy across three successive budgets – with a focus on the infrastructure and services Victorians need," he said.

In both big states the growth was broadly based with the production of "professional, scientific and technical services" the biggest contributor.

"For the past five years professional, scientific and technical services have been a bit sick, because the end of the mining construction boom took away the jobs of engineers and geophysicists and architects," said Terry Rawnsley of SGS Economics and Planning. "Now it looks as if the infrastructure and construction booms in Sydney and Melbourne have taken up the slack."

NSW accounts for 33 per cent of Australia's economy, Victoria 24 per cent, Queensland 18 per cent, Western Australia 13 per cent and South Australia 6 per cent.

Production per resident is highest in the mining-dominated Northern Territory ($103,763), the low-population ACT ($92,436), mining-dominated Western Australia ($90,799), NSW ($71,541), Victoria ($63,900) and Queensland ($63,212).


Because much of the income from that production goes to corporations or overseas, a better measure of living standards is gross disposable household income per capita. It is $91,627 in the ACT, $62,893 in the Northern Territory, $51,412 in Western Australia, $50,814 in NSW and $43,516 in Queensland.

In The Age and Sydney Morning Herald

Thursday, November 16, 2017

Maybe we no longer want long lives

So you'd like to live forever.

I'm going to deliver some bad news, straight from this week's conference on the future of Australian lifespans: you probably won't even make 100.

Worse still, your children probably won't make 100, and maybe not even their children.

The massive and unprecedented progress we've made since our first estimates were published in 1867 has blinded us to the fact that – just like regularly squeezing more speed out of computer chips is becoming harder – it's becoming harder to squeeze more years out of life.

No one is yet signing off on an upper limit. Some people are talking about 125 years; others 600 years, which is the age by which, even if we could medically live forever, we would be as good as certain to have a life-ending accident.

Getting even a handful of those extra years would require herculean efforts of the kinds at which we once excelled but now find daunting.

Australia's first life table, published in The Sydney Morning Herald a century and a half ago, gave a newborn colonist just 45.6 years. One published today would give that newborn boy 80.4 years and a newborn girl 84.6.

The figures are midpoints, derived from adding up the death rates at each year of life. Some newborns will live longer. In Melbourne's inner east and Sydney's north shore the typical newborn girl can expect 87 years. Indigenous Australians can expect much less, about 70 for a boy and 75 for a girl.

Higher education is associated with an extra four years, according to Melbourne University's Philip Clarke, although it may not be education itself that buys the years, but something that goes with it. Higher income buys an extra five to six years. Perhaps because of that it matters which electorate you are in. People in Labor and National Party electorates get fewer years than those in Liberal electorates.

The early gains were relatively easy. In the 1860s an extraordinary 20 per cent of boys didn't make it to the age of five. Twenty per cent of girls didn't make it to 10. By ensuring that children survived the first few years, we boosted expected lifespans to 67 for boys and 72 for girls.

Then came the cancer years. For two decades from the 1950s right through to the early '70s, life expectancies scarcely grew. Demographer Peter McDonald told the conference that Bureau of Statistics projections at the time factored in no further growth. Sixty-seven for men and 72 for women was as good as it was going to get.

During this time, tobacco accounted for an astonishing one in every three deaths of men aged 35 to 69. Motor vehicle deaths were appalling, too. By 1972 one in every 20 male deaths involved a car.

Then, from the early 1970s, we got serious. Victoria led the nation in anti-smoking campaigns and in drink-driving and seatbelt laws. Deaths from smoking-related diseases plummeted, along with alcohol-related road deaths. Today transport accidents account for just 1.5 per cent of all deaths for men and fewer for women.

A decade later we did it with AIDS. Remember the Grim Reaper campaigns and appeals to everyone at risk to get tested? Our rate got nowhere near as high as those in other countries, then slid towards zero.

Here's our problem: most of the gains against young and middle-aged deaths have been taken.

McDonald says even if we made cars even safer and medicines even better and eliminated all deaths below the age of 75, we would only add 3.6 years to the expected lifespan of a man and 2.2 years to the expected lifespan of a woman. We couldn't promise 90 years, let alone 100.

To get there we are going to have to cut deaths beyond 75.

Fortunately, we know what to do. Statins are enormously effective. One pill containing statins, low-dose aspirin and blood pressure drugs has been found to cut the risk of heart attacks and strokes by 65 per cent.

Sugar has led to an explosion in obesity. One-third of Australians are clinically obese, another third are overweight. A public campaign against sugar of the kind we had against tobacco would lengthen lives.

But many Australians don't take the pills they are prescribed. Many more don't go to the doctor. Many, many more continue to over-consume sugar.

At the conference half-serious suggestions included adding statins to the water supply in the same way as we add fluoride and withholding pensions from older Australians who don't fill prescriptions in the same way as we withhold family benefits from the parents of children who aren't immunised.

If we really wanted to extend lives we would tax sugar and campaign against it like we did with tobacco. We would ban it in certain products and target its eventual elimination. And we would properly tax alcohol and ban its advertising.

But we are not like we were in the 1970s. We've become less accepting of the nanny state, happier with the years we've got. Some of us still smoke. We've become happy not to live too far beyond 90.

In The Age and Sydney Morning Herald

Monday, November 13, 2017

It's the Trans-Pacific Partnership, with fewer bad bits

The Trans-Pacific Partnership is dead. In its place, maybe, we'll have something lesser, with a longer title: the Progressive Comprehensive Trans-Pacific Partnership, or PCTPP.

The name change is apparently a sop to the Canadians, who like things progressive. They are the only nation, ever in the history of the world, to have named one of their political parties the Progressive Conservatives.

To get it past the Canadians, and a number of other nations that aren't too happy about what was agreed to in the original Trans-Pacific Partnership at the behest of the Americans, much of it will be "suspended".

Gone for the moment will be most of the rules governing copyright, patents and pharmaceuticals designed to support US lobbyists.

Unwilling countries such as Canada and New Zealand won't have to extend their copyright terms from 50 years after the death of an author to 70 years. (Australia has already done it, in order to get the US-Australia Free Trade Agreement over the line).

Gone, too, will be the onerous provision that each country provide the equivalent of eight years' protection to the makers of highly expensive so-called biologic drugs, lengthening the time before many can use cheaper alternatives.

Also gone will be the requirement that member countries make it illegal to hack devices such as DVD players to get around region coding and other technological copyright protection measures. And the requirement that member countries allow copyright owners to sue internet service providers for allowing their customers to illegally download copyrighted material.

Also narrowed, a tiny bit, are provisions that will allow foreign corporations to sue sovereign governments, provisions John Howard refused to accept when he negotiated the US-Australia Free Trade Agreement.

Other suspended provisions are those protecting labour rights and the environment imposed on reluctant, less-developed countries at the behest of former US president Barack Obama.

They are suspended, not entirely removed. The TPP 11, as it is informally known because it includes each of the original 12 signatories apart from the US, will leave those provisions dormant, ready for reinclusion when a new post-Trump administration decides to join.

But it doesn't mean they will be reincluded. For that to happen, each of the 11 members would have to agree, and most likely get legislation through their parliaments.

There's much still to be sorted out. Trade Minister Steven Ciobo said on Sunday the agreement was 90 per cent complete, meaning the hardest 10 per cent is to come. He had wanted it sewn up by the end of the year. Now he won't give a timetable.

If it happens, its provisions will be less contentious than they would have been. The Productivity Commission has spelt out its concerns in detail. It even may get to run the cost-benefit analysis the government has blocked. Labor may be in office by then and has promised it will happen.

In The Age and Sydney Morning Herald

Expect tax cuts, soon, says Access Economics

The federal budget is built on the back of impossibly large tax increases that won't survive the coming election, a new report has warned.

The Deloitte Access budget monitor, released four weeks ahead of the official budget update, finds that on the government's own forecasts by 2021 the typical Australian income will have climbed $6100, but the typical tax take will have climbed $2500.

The tax take of 41 per cent of each extra dollar is way in excess of the typical average rate of 14.9 per cent and the typical marginal rate of 32.5 per cent.

It would push up the average rate from 14.9 to 18.2 per cent.

"I don't think the average Australian - or the average Australian business - has yet realised that the return to surplus is built on the assumption that 2 out of every 5 dollars of extra income will line the government's pockets," said Deloitte Access director Chris Richardson.

"Politically, in the context of elections and byelections, it isn't tenable, which means the forecasted return to surplus isn't tenable."

Known as the 'treasury in exile' Deloitte Access is run by former Treasury forecasters who are able to say what the Treasury cannot. It's findings echo those of the Parliamentary Budget Office, released last month.

"As it happens, we don't think the increase in incomes will be as strong at the Treasury projects, and we don't think the economy will as efficient at turning it into revenue, but that just makes the deficit problem worse."

Deloitte Access is forecasting a wafer-thin surplus of just $2.3 billion in 2020-21 rather than the $7.4 billion projected in the budget. But that forecast allows for no further tax cuts for four years, a scenario Mr Richardson regards as implausible.

A ready reckoner created by Mr Richardson finds it would cost $6.5 billion per year to cut each tax rate by one percentage point, a cost that would climb to $7.3 billion per year by 2020-21. The cost of returning all bracket creep would amount to $12.2 billion per year by 2020-21.

"The official view is one in which the economy does fine and the tax system does superbly," Mr Richardson said.

"The problems are that we think the economy and wages and profits will underperform, although they are doing alright at the moment, and we think the tax system will underperform at turning that extra income into tax.

"Add to that the awful politics of a rising tax take, and we think the government will decide to cut taxes, using what is most likely a temporary over-performance in revenue as cover."

Mr Richardson said he expected the tax cuts to be promised in the lead-up to next year's election, or possibly when the mid-year budget update is released in December.

In The Age and Sydney Morning Herald

Saturday, November 11, 2017

Financially stressed? Please don't blame high prices

When Tony Abbott first stood for prime minister, he complained about the price of bread.

He told the leaders debate it had shot up 12 per cent. It hadn't. The Bureau of Statistics found it hadn't increased at all – it had been stuck for a year at $3.88.

Head to Woolworths online today and you'll see a variety of prices, for different kinds of loaves. I've averaged them. Today's price is $3.55.

We never seem to notice the prices that are going down, or at least we pay far less attention to them than the prices that are going up (or that we imagine are going up).

The inflation rate is 1.8 per cent. But when asked by the Melbourne Institute what we think it is, we typically say 5 to 6 per cent.

The Bureau of Statistics calculates the rate by going into shops and entering into scanners the prices of around 1000 items. It does it over and over again, all over each of Australia's eight capital cities. These days it augments those readings with scanner data from supermarkets and the prices advertised on websites.

But it gets it wrong. And not in the direction you would expect.

It systematically overestimates the inflation rate because it systematically underestimates our canniness.

Here's how it would work with two brands of baked beans. To start with they might each sell for the same price, and we might buy the same amount of each. Five years later the price of one brand might be 20 per cent higher and the other 5 per cent higher. The Bureau will record an average price increase of around 10 per cent. But the cost to us won't have increased that much. Over time, we will have shifted our purchases to the brand which has increased more slowly, by 5 per cent.

We do it with everything, switching between brands and between products in order to save money. It's how we shop.

It is why every few years the consumer price index gets seriously out of whack and needs to be recalibrated. The Bureau has just done it, re-surveying how we spend our money and readjusting the index to reflect updated spending patterns. It used to do it every five or so years. From now on it'll do it annually.

The Reserve Bank believes that by not taking full account of our canniness, the Bureau has overcounted inflation by 0.4 percentage points. In other words, it thinks our cost of living has climbed by 1.4 per cent rather than 1.8.

And it has a provided a guide to the ways in which we have changed our behaviour.

The price of tobacco almost doubled between 2011 and 2017. As a result, we cut back on smoking. The Bureau's inflation figures took account of the first but not the second. They had us spending 4 per cent of our budgets on cigarettes when we had actually been spending 2.5 per cent.

The price of electricity climbed 40 per cent. The Bureau took account of that, but did not take account of the ways we cut back on our use of electricity, making the increase matter less.

The price of audiovisual and computing equipment almost halved when adjusted for things such as speed and memory. As a result we bought more of it. The Bureau's figures didn't take account of that, meaning they've underweighted the impact of those lower prices on our budgets.

Other things changed because we changed. Rent become more important to us because more of us rented. And rents are barely moving. International travel become more important to us because we have become richer. And while its prices have been bouncing around, they've changed little for the last four years.

You probably still think you are badly off. You probably are, because your income is barely climbing. But as best as they can be measured, your expenses are under control.

In The Age and Sydney Morning Herald

Thursday, November 09, 2017

Better economic days ahead? Sorry, not yet

Why do people feel so rotten?

It's because they don't believe the federal Treasurer when he says there are "better days ahead".

He's said it 25 times, roughly once a week since April.

If things were really looking up, retailers wouldn't need to cut prices to maintain sales. During the June and September quarters, retail prices fell 0.2 and 0.4 per cent. Fell. It's rare for prices to fall across the entire retail sector for an entire quarter. It's even rarer for them to fall for two consecutive quarters, and rarer still for them to fall that much. It's the biggest wave of discounting this century.

What did the price dive deliver? An increase in spending of 1 per cent. In department stores, where prices slipped 0.3 per cent, spending slid 2.2 per cent.

ShopperTrak monitors retail traffic in real time. Store owners and shopping centre managers feed it video, Wi-Fi and the output of heat sensors to enable it to work out how many people are in participating stores at any given time and how long they stay. In September, foot traffic was down 6 per cent on the same period the previous year. In the first three weeks of October, it was down 7.5 per cent.

It's partly because we're switching to shopping online, where, for big items, we can get lower prices, often from overseas. But it's also because, even with low and sliding prices, we are less keen to shop.

Ask us whether we expect better or worse conditions in the year ahead, as the Melbourne Institute does every month, and only 21 per cent say "better". That's the average for the past 12 months. Back in the final year of the Gillard government and the last months of the mining boom, 30 per cent said better. Back further in the last year of the Howard government, 33 per cent picked better.

It's the same when you ask about the next five years: only 21 per cent of us expect better times; 26 per cent expect worse. Back in the final year of the Howard government 44 per cent of us expected better times, and only 22 per cent expected worse.

Like businesses reluctant to invest whatever the interest rate, households that are wary will be reluctant to spend whatever the price. Officially, inflation is just 1.8 per cent, keeping pace with record low private sector wage growth of 1.8 per cent. But 1.8 per cent is an overestimate.

The Bureau of Statistics conceded as much on Monday when it revamped the consumer price index to take into account changed buying patterns. The index measures the price of the basket of goods that is said to represent the purchases of a typical consumer. But what's typical changes over time.

In the seven years since the index was last revamped, we've switched to a basket of goods whose prices are growing more slowly, making the true inflation rate probably 1.5 per cent (the bureau hasn't said; private economists have had to do their own calculations based on the make-up of the new basket). It means inflation is probably well below the Reserve Bank's target band of 2 to 3 per cent rather than just a bit below it.

And it could be lower still. Macquarie Group economist Justin Fabo believes the bureau isn't fully measuring the full effect of loyalty discounts at supermarkets. Its price measures are at odds with those of Coles and Woolworths. And it calculates changes in price of online items by "scraping" websites, taking insufficient account of the practice of shopping around and buying from the cheapest offering at the time. Macquarie reckons Australia's actual inflation rate could be just 1.3 per cent, close to an all-time low.

And what inflation there is isn't the result of us bidding up prices because we are desperate to spend, the so-called "demand" inflation that would result from a belief there were better days ahead. The prices susceptible to demand inflation are the ones that are falling or barely climbing. The prices that are climbing, strongly, are those beyond our control, pushed up by the government or international events: alcohol, tobacco, petrol, gas, electricity and public transport – none of them climbing because of pent-up demand.

But better times will come, because there are more of us in jobs, right? Employers will bid up wages and we'll bid up prices.

An extra 371,500 of us have found jobs in the past 12 months, predominantly in "healthcare and social assistance". In the past year that one sector accounted for 130,600 of the new jobs. The economics team at JP Morgan reckons this is in large measure due to the National Disability Insurance Scheme. The new workers are mostly women and mostly on government-controlled contracts that give them little bargaining power. Jobs growth in manufacturing, retail and construction – the sectors whose jobs are normally associated with better times –is much, much weaker.

There may well be better days ahead, one day. There are few signs of them right now.


Tuesday, November 07, 2017

Life expectancy. From 45 to 82 years, we've come a long way

One hundred and fifty years ago on Tuesday The Sydney Morning Herald broke news that these days would be considered shocking.

The first 'life table' prepared for the British colony put the expected lifespan of a newborn non-Aboriginal Australian at just 45.6 years.

The Bureau of Statistics now gives newborns a lifespan of 82.5 years; 80.4 for boys, and 84.6 for girls.

And that's almost certain to be an underestimate. Improvements in medical technologies throughout 80 years of life are likely to add an extra four years to those totals.

On November 7, 1867, the life table was good news. We were better off than England where newborns got only 40.9 years, and better off than Belgium where they got 32.2.

And things were even better than the raw figure of 45.6 years suggested. An extraordinary 10.6 per cent of newborns (10.6 per cent of boys, 9.8 per cent of girls) died before they reached the age of one. If you survived to the age of one, you were likely to make it to 51.

From today's vantage point it looks as if life expectancy has always increased, but it hasn't, for decades at a time. The 1960s were what Melbourne University demographer Alan Lopez refers to as the "tobacco years". Life expectancy increased not at all.

For older Australians life expectancy scarcely increased for 50 years, between 1920 and 1970. It was only after 1972 when the tobacco use was brought under control (it didn't finally peak until 1978 - 1980) and progress was made against heart attacks that it began to grow again.

In recent years, newborns have been gaining an extra year of life every two and a half years. Australian National University demographer Liz Allen can't see an upper limit, although she concedes it will be more difficult. Controlling tobacco, preventing heart disease and making driving safer were easier to do than it would be to extend the lifespan of the parts of our bodies with built in obsolescence. Our bodies weren't designed to last too many years beyond childbirth, she says.

Alan Lopez says we've already harvested most of the low-hanging fruit. "The gains in lung cancer, chronic heart disease and the tobacco causes will continue, but at a much slower rate," he says. The gains from road accidents will depend on whether we adopt strict road rules of the kind Sweden has where there is a zero tolerance for alcohol.

At a public lecture to be presented at Melbourne University next week, he will suggest that life expectancy will continue to climb for the next 25 years, but at half the rate of the previous 25 years.

The biggest obstacle will be obesity, which has helped turn back the life expectancy of white men in the United States.

"Roughly one-third of Australians are obese, another third are overweight," he says. "Thirty or so years ago it might have been only 10 per cent. We don't yet know what the full effects of that will be, we do know that we are not having success in bringing it down."

Liz Allen says it's important to distinguish between the maximum possible lifespan (which at the moment is 122 years) and life expectancy. Life expectancy depends on conditions; on things such as sanitation, education and income. That's why it's nine to 11 years worse for Indigenous Australians. Who gets the extra years will be up to us.

By numbers:

Life expectancy at birth

1867: 45.6 years

Today: 82.5 years

Extra years expected at age 65

1867: 9

Today: 20

In The Age and Sydney Morning Herald

Thursday, November 02, 2017

It's time (to take Labor seriously)

The shape of the next Labor government is becoming clearer.

This week we learnt that it will end the practice of signing Australia up to trade agreements that haven't survived a benefit-cost analysis.

Seriously. Korea, Japan, China. None of the three big agreements boasted about by Tony Abbott and Malcolm Turnbull has been subjected to an independent assessment of its benefits and costs. And nor has the far bigger, 5600-page, Trans-Pacific Partnership agreement signed by trade minister Andrew Robb shortly before he resigned and took up a position with the Chinese investor that runs the Port of Darwin.

Nor have any of Australia's agreements ever had to face official scrutiny after the event. "Not that I am aware of," were the words used by a foreign affairs official at a parliamentary hearing.

The US-Australia free trade agreement at least faced an unofficial analysis about the time of its 10th birthday in 2015. An economic modeller from the Australian National University applied the framework developed by the Productivity Commission and found it had cut rather than boosted trade between Australia and the US and the rest of world. Trade between Australia and the US also slid, but for other reasons.

It's easy to see why it cut trade with the rest of the world. Like most exclusive agreements it gave special access to exports from its members. Here's how it would have worked with the 12-nation Trans-Pacific Partnership (had Donald Trump not pulled the pin): Vietnam would have been a member but Thailand would not have been. The US-based Peterson Institute for International Economics has found that Vietnam would have exported more to Australia (which would have boosted its economy) in place of Thailand, which would have exported less (which would have harmed its economy).

And Australia would have had to change the way it made things, cutting inputs from countries such as Thailand and Indonesia under complex "rules of origin" if it wanted special access to the US, even where that meant much higher costs. The Korea-Australia agreement included 5200 rules of origin.

It's little wonder that the business organisation closest to the action, the Australian Chamber of Commerce and Industry, finds its members less than keen to use the agreements trumpeted by the Coalition. Only 15 per cent use and understand the Australia-US Free Trade Agreement, 5 per cent use it without understanding it, 17 per cent understand but don't use it, and 22 per cent neither understand nor use it. Another 41 per cent say it's not relevant to them.

The chamber hosted Labor's policy launch on Monday because it has long argued that a body such as the Productivity Commission should run the ruler over future agreements and should review existing ones every 10 years, both of which Labor would do.

Labor would also tear up what has come to be seen as a cosy relationship between the government and Treasury forecasters, handing responsibility for official forecasts to the independent Parliamentary Budget Office. It would make "convenient" forecasts such as the pick-up in wage growth in this year's budget less suspicious. The Treasury would also lose responsibility for preparing the five-yearly Intergenerational Report, a document so debased by politics in its latest iteration that Treasury staff distance themselves from it when giving public presentations.

And it would make explicit the trade-off between cutting personal income tax and cutting company tax, in part by publishing 10-yearly projections for the cost of budget measures and in part by not proceeding with the unlegislated part of the company tax cut in order to deliver relief to ordinary taxpayers first.

It has consulted widely about its plans, receiving detailed input from 20 economists.

Negative gearing would be limited to new homes, and the capital gains tax discount that makes it attractive would be halved. Payouts from discretionary trusts would be taxed at the company tax rate. Deductions for the "cost of managing tax affairs" would be limited to $3000. "Junk" health insurance policies would no longer be eligible for the rebate, and the rebate along with the Medicare levy surcharge would be frozen for five years.

Labor is inclined to accept the Coalition's proposed national energy guarantee, ending the climate policy wars by keeping the framework (subject to seeing it) and adjusting the emissions target as needed.

Although critical of the Turnbull government's cut-price national broadband network, Labor won't fully return to its original very expensive plan to deliver fibre to 93 per cent of households and businesses. It would aim for a touch under 40 per cent, a step up from the Coalition's 20 per cent but nowhere near as expensive as would be rewiring most urban addresses in the nation.

It would keep offshore asylum seeker processing, but it would aim to process claims within 90 days instead of indefinitely and would set up an independent body to oversee Australian-funded detention centres.

The policies are not all to everyone's liking, but at least they are set down on paper. Unless things change, this time next year we will be faced with a choice between a government that makes things up as it goes along and a government in waiting that knows what it wants to do.

In The Age and Sydney Morning Herald

Friday, March 24, 2017

Victoria fills up as the rest of the nation moves in

In the past 12 months, 82,800 Australians have moved to Victoria from interstate, around 500 carloads a week.
At the same time, 65,600 Victorians have left.
The gap - a net influx of 17,200 - is an all-time record. Victoria's population is being swelled by more migrants from interstate than ever before, and by far more than any other state, even Queensland, which used to be the go-to state for the rest of nation.
Perhaps as a result, or perhaps as a driver, employment in Victoria has surged by 97,300 in the past year, accounting for almost all of the nationwide employment growth of 104,600.
In contrast, the once-booming jobs market in NSW produced only 2000 extra workers.
New population figures show that a jump in interstate migration, in overseas migration and in births lifted Victoria's population by 157,500 to 6.1 million in the year to September - an increase of 2.1 per cent, compared to 1.2 per cent in the rest of the nation.
Victoria now accounts for 25.2 per cent of Australia's population, the most since the share slid during the early 1990s recession.
Net foreign migration to Victoria reached a record 68,600 in the year to September. The natural increase (births minus deaths) reached 41,700, also a record high.
Domestic migrants to Victoria came predominantly from NSW (29,500), Queensland (15,200) Western Australia (11,500) and South Australia (9700).
The main destinations for Victorians moving interstate were NSW (22,900), Queensland (20,800) and Western Australia (7100).

Bureau of Statistics projections released with the population figures show Melbourne overtaking Sydney as Australia's biggest city in 2056.
The central projection puts Melbourne's population at 8.2 million, almost double the present 4.6 million, and Sydney's at 8.1 million, up from 5 million.
The slower growth in Sydney reflects congestion and geographical constraints of the sea and a mountain range.
By 2056, Victoria is projected to have a total population of 9.9 million and NSW 11.1 million.
A faster growth scenario has Melbourne well above Sydney at 9.2 million to 8.4 million, and a slower growth scenario has Sydney slightly ahead of Melbourne at 7.7 million to 7.4 million.
Australia's population is projected to be somewhere between 35 million and 45 million. The central projection is 39.7 million, up from the present 24.3 million.
In The Age and Sydney Morning Herald

Thursday, March 23, 2017

How to kill stamp duty and produce a budget to remember

The myth about budgets is that they can achieve much at all.

In decades to come few will be remembered for anything other than the introduction of Medicare, the national disability insurance scheme and the goods and services tax.

But in six weeks' time the government will have an opportunity to actually do something that will last; something far more important, and more transformative, than the apparently doomed plan to cut the rate of company tax.

It's an idea from the Greens, but that's a plus. It gives it a good chance of getting through the Senate.

There's no doubt about what's the worst tax in Australia, and no doubt about the best bang-for-your-buck tax swap.

The treasury set out the numbers in a discussion paper prepared for the tax review Malcolm Turnbull ditched. The worst of the taxes it examined was stamp duty. On the treasury's estimate real estate stamp duty shrinks the economy by an astounding 72¢ for each dollar it collects.

None of the other taxes it examined come close. The economic cost of company tax is around 50¢ for each dollar collected, the cost of income tax somewhere between 20¢ and 30¢, and the cost of the GST between 17¢ and 20¢.

It can be seen straight away that cutting income tax in order to push up the GST won't do much, which is why Turnbull junked the idea. A slow cut in company tax paid for by a slow increase in income tax facilitated by bracket creep (which is essentially what the government is proposing) won't achieve that much either, despite the rhetoric about jobs and growth.

But a move out of stamp duty into a tax with a really low economic cost ... that would give you about the best benefit a tax switch could buy.

One tax, and only one, has an extraordinarily low economic cost. It's land tax, sometimes levied as council rates. Its economic cost is so low it's negative. The treasury's calculations suggest every extra dollar it raises actually boosts the economy by 10¢ for each dollar swapped. There's no bigger benefit imaginable from rejigging tax.



But the discussion paper concludes wistfully that stamp duties and land taxes are state matters, and says the idea should be looked at as part of the separate federation white paper that Turnbull also junked.

The 2009 Henry Tax Review has chapter and verse on why the benefits would be so big.

People who move house frequently are whacked with much more stamp duty than people who tend to stay put. So they experiment with staying put, driving longer distances clogging up roads. They renovate rather than move, or buy bigger houses than they need in case they run out of room. Older Australians put off downsizing in order to put off stamp duty.

"Ideally, there is no place for stamp duty in a modern Australian tax system," it concludes.

In contrast, land tax doesn't discourage anyone from doing anything, except from wasting land. It makes unoccupied properties and holiday homes more costly. It prods people into using land well, and into downsizing if it makes sense.

So far only the Australian Capital Territory has taken the plunge and begun swapping stamp duty for land tax. It's doing so slowly over 20 years so that people who have just bought properties aren't hit by full stamp duty followed by full land tax.

But there's a quicker way to get the benefits; an ingenious solution cooked up in the office of Greens leader Richard Di Natale and costed by the Parliamentary Budget Office.

It would happen instantly, on July 1. From that date all transactions would be free of stamp duty and would in return face land tax. Properties that hadn't changed hands wouldn't face land tax, until they did swap owners. It would cost the states a lot up front in return for a regular stream that wouldn't make up the difference for a decade.

Which is where Turnbull, Scott Morrison and the budget come in. They would borrow to lend the states enough to make up the difference until 2030. The magic of accounting means it would have a zero effect on the underlying cash deficit. It'd be off the books. Nor would it push up net government debt, because net debt is gross debt net of money that the Commonwealth is owed, and the Commonwealth would be owed that money by the states. After June 30, 2030, the changeover would be complete and the Commonwealth budget no worse off (or probably better off, because of the resulting economic boost).

The Commonwealth would have bought the best economic boost a tax-switch can buy for a song.

It wouldn't solve the housing crisis. Axing stamp duty would make houses more affordable, which would allow buyers to bid up prices. At the same time the land tax would weigh down on prices, making the ultimate outcome "uncertain", in view of the Henry Review.

But if they're serious about tax, they'll do it. There's still time.

In The Age and Sydney Morning Herald

Sunday, March 19, 2017

If your wallet is empty, you're part of the new majority

Open your purse or wallet. If it's empty, apart from cards, you're part of something big.

For the first time, cards account for more of our purchases than cash. Whether its payWave or myki or Opal or MyWay for the small things, or Visa, MasterCard and debit cards for the big ones, we are using cards more often than ever before and taking less cash out of ATMs than at any time in the past 15 years.

Often I have not a single piece of cash on me (much to my children's annoyance).

A new Reserve Bank report released on Thursday finds that an astonishing one-fifth of Australians carried no cash whatsoever on the day they were surveyed, up from 8 per cent three years before.

The typical amount carried fell from $55 to $40.

The typical amount secreted away around the home (such as in bedrooms and under fruit bowls) is $100.

An astounding 30 per cent of us keep no cash whatsoever in the house, up from 25 per cent three years ago.

If nothing else, it suggests incredible faith in banks.

The Reserve Bank carries out the survey every three years. In November it gave 1500 people diaries and asked them to record every transaction for a week, more than 17000 transactions in total. In a telling irony it rewarded them with gift cards rather than cash.

Only one-third of the transactions were in cash, down from two-thirds in 2007. The use of cards jumped from one-quarter to 52 per cent, supercharged by a surge in the use of contactless payments for amounts under $20.

Only for payments of less than $10 did cash still hold its own, and predominantly among older and poorer Australians.

The said they used it because it was cheaper (no surcharges) and easier to budget with because it could be seen. Some said they were concerned about privacy and fraud, but not many.

Soon many of them will be abandoning cash. Smartphone payments (made by waving phones instead of cards) accounted for only 1 per cent of transactions in November, but they are about to get big.

For people like us. Different Reserve Bank statistics suggest there's another (smaller) class of people for whom cash is almost everything and becoming even more. The use of $100 notes jumped 9 per cent in the past year, well above the long-term growth rate of 7 per cent.

There are now an extraordinary 12 $100 notes per person in circulation, twice as many as the more widely-seen $20 notes. The Bank knows this because it pumps them out. In an attempted explanation, its annual report limply says they are "used as a store of wealth".

But not by people like you or me.

A raid on the home of the now-jailed NSW Labor powerbroker Eddie Obeid found $30,000 in cash. There are more Obeids around, and their wallets are anything but empty.

In The Age and Sydney Morning Herald

Thursday, March 16, 2017

That sucking sound is us being robbed of our gas

In Melbourne, gas cooktops are only the start.

Melburnians use gas for stoves, hot water, central heating and room heating. Ninety per cent of Melbourne homes have gas, compared to only 50 per cent in Sydney. Victoria accounts for two-thirds of all the household gas used in Australia. And Victorian industry uses little else.

Because it's been astoundingly cheap.

Esso and BHP discovered it by accident, as a byproduct of searching for oil in Bass Strait in the 1960s. Rather than burn it at sea (as they might have been inclined to do) they were prevailed upon to pipe it to the mainland where they as good as gave it away. A feud between NSW and Victoria at the time meant that it wasn't piped north of Wodonga.

Sydney got its gas from the more expensive Moomba field near the Queensland-South Australian border at the end of a 2000-kilometre pipeline.

Until the mid-1990s, when, for ABC television, I stood in front of the stump at the end of the Victorian pipeline in Wodonga and the stump at the NSW end in Wagga Wagga and explained that they were going to be joined. The gas could flow in either direction, although because Victoria's reserves were running low and Moomba's weren't, Victoria stood to benefit the most.

Which is how it was until just a handful of years ago.

At the height of the minerals boom and the height of oil prices (which drive international gas prices) three of Australia's big gas producers each decided to build two giant freezing plants at Gladstone in central Queensland. The six "trains", each with a capacity to freeze and export half as much gas as eastern Australia used per year, would be connected to the network of pipes that extended all the way to Adelaide and Melbourne.

They signed cast-iron contracts to sell the gas to Japan, which was hungry for energy in the wake of the Fukushima nuclear disaster; contracts they needed in order to justify the enormous expense.

Finding gas may have been a lower priority.

The Gillard government was relaxed, boastful even. It ruled out introducing a gas reservation policy along the lines of the one in Western Australia that stipulates that a certain percentage of local gas has to be retained for local consumption.

Without quite realising, it approved the creation of what an AGL executive later described as a "giant vacuum cleaner for the east coast gas market, hoovering up all the gas it can get its hands on".

Two months ago something extraordinary happened. The Moomba to Sydney pipeline, which for its entire 40-year life had only run in one direction (hence its name) reversed course. Gas was sent from Sydney to Moomba and then north to Gladstone to feed the LNG export trains. Sydney got the gas from Melbourne and, ultimately, Bass Strait. The sucking sound was gas that would have once cheaply warmed Australians being sent an extraordinary 4300 kilometres north across three state borders to be frozen and shipped to Japan.

KAGOME Australia is our largest tomato processor. Based at Echuca on the River Murray it exports in competition with Californian processors and is powerless to increase its prices. Gas accounts for 5 per cent of its costs. It has just been told the price will double. Worse still, it and other business are being offered only short-term contracts at "take it or leave it" prices for gas they fear isn't there.

Retooling to use another fuel is prohibitively expensive. They installed gas because of an implicit promise that it would always be there. Rod Sims, an energy expert who heads the Australian Competition and Consumer Commission, said this week that manufacturers hit by the sudden shortage and price hikes were more likely to close than re-equip. The owner of South Australia's emergency gas "peaking" power plant closed half of it some years back because it couldn't afford the gas.

An (incorrect) way to describe what's happened is to say Australians are at last paying the international price for gas after being shielded from it for so long. But the international price is low. There's a glut. Australians are paying far more than the international price (more than Japan is paying for Australian gas) in order to allow the big three at Gladstone to fulfil watertight contracts.

So wide is the price gap and so short are we of our own gas that there's serious talk of setting up a floating terminal and importing it back (perhaps even from Japan) at what for users would be a cheaper price.

Making more of the stuff here wouldn't much help. It'd be sucked up to Gladstone.

The easiest way out would be for the Gladstone three to voluntarily give up some of what they have bought, and the Prime Minister is pressing them to do that. The other, essential, solution is to ensure that any future gas finds have a portion of what's extracted set aside for us, something I reckon ought to have happened all along.

In The Age and Sydney Morning Herald

Thursday, March 09, 2017

Shared equity: The 'socialist' fix for housing

Anyone would think Victoria had single-handedly reignited the housing crisis.

The critics leapt on the weekend announcement of a (small) pilot program in which the government would take an equity share in private homes, saying it would "drive up prices" and force homeowners to borrow from both a bank and the government.

Yet if it's such a bad idea (socialist, even) why was it first proposed by the Liberal Party-aligned Menzies Research Centre, why did Prime Minister John Howard commend it to his home ownership task force, why have both Malcolm Turnbull and Scott Morrison championed it, and why was Tony Abbott an early adopter?

It helps to get some history, from the Menzies Research Centre's 2003 report to Howard.

Private home ownership is relatively new. Up until the late 19th century most families rented from wealthy landlords. They had no hope of buying in their own right and there was no mortgage finance for people like them. Complaints got them evicted. In the United Kingdom, and Australia, it was fertile ground for the Communist movement.

Some countries, such as Sweden, responded by expanding public housing. Australia (and the UK) went in a different direction. They directed their state banks to offer affordable mortgages to ordinary workers. The federal government chipped in with grants to help cover deposits and also instructed the Commonwealth Bank (then part of the Reserve Bank) to lend to homebuyers itself and make sure the private banks did. By the time Robert Menzies stepped down as prime minister in 1966 Australia was said to be the biggest home-owning nation in the world.

Critics at the time might have said that empowering ordinary workers to buy houses pushed up prices, and it probably did.

It's the same with the next revolution, from the mid-1990s. Securitisation allowed non-bank lenders to offer much cheaper loans using funds predominantly sourced from overseas. It made home-owning easier once again, and probably also helped push up prices.

After each revolution we've come to think of where we have landed as normal, but, from a financial perspective, there's nothing normal about the way we fund houses.

"Imagine you are a young doctor who flies frequently," the report to Howard asked. "You wish to do two seemingly straightforward things: first, consume standard flight services; and second, allocate some fraction of your wealth to a collection of related companies. You also consider yourself to be a fairly canny customer, and prefer not to put all your eggs in one basket."

If you had to make the same choice we have to make for housing, you would have to either put most of your wealth into an airline (actually, into one particular plane) or none at all. And you'd have to borrow to do it.

Like the frequent flyer, would-be homeowners face an unusual all-or-nothing constraint. The sensible advice is to spread their investments over a range of assets. Instead they're forced to put more than everything they own into one particular house in one particular location, or nothing at all.

We allow them to insure against their house burning down, but we don't allow them to use diversification to insure against what happens to its price.

Meanwhile super funds can't get access to a class of assets worth three trillion dollars. It's impractical for them to buy a portion of a range of houses in a range of suburbs. Yet at times houses perform better than the assets in which they can invest, and more importantly, they perform differently. In the language of the professionals, their price is "uncorrelated" with other prices, which makes them valuable.

The report to Howard, endorsed by Turnbull as the chairman of the Menzies Research Centre, recommended that institutions be encouraged to enter into silent partnerships with homebuyers where they would own, say, 20 per cent of a property and allow the homebuyer to live in it rent-free in return for, say, 40 per cent of any increase in price when it was eventually sold. They could bundle the contracts and sell them to super funds.

"Homeowners will benefit from a lower cost of home ownership, and institutions will be able to access an enormous, and uncorrelated, asset class," Turnbull wrote.

The then-treasurer Peter Costello couldn't see the point, so the author of the report, Christopher Joye, went out on his own in partnership with the Adelaide Bank and started offering what they called equity finance mortgages. Tony Abbott was one of their early customers. In opposition Scott Morrison championed the idea as shadow minister for housing.

Now Morrison and Turnbull are drawing up a budget with access to housing as its centrepiece. If they make it a Commonwealth scheme, the Commonwealth could hang on to the equity in each house for only a short time before on-selling it. It would signal that the scheme's legit.

Like each of the revolutions before it, it runs the risk of pushing up prices, although only to the extent that it makes housing more attainable. But it would get people into housing and break the historically unusual and unhealthy nexus between investment and roofs over our heads.

In The Age and Sydney Morning Herald

Tuesday, March 07, 2017

Melbourne booms while the rest wilts, and it'll get worse

Melbourne has become so important it now accounts for all of Victoria's economic growth, with the rest of the state contributing nothing in net terms.

New regional figures compiled by SGS Economics and Planning show inner Melbourne's economy grew by a blistering 3.9 per cent in 2015-16, the city's north-east grew by 4.1 per cent, its north-west by 4.7 per cent, its south-east by 3.9 per cent, and its west by 3.9 per cent.

In contrast the Ballarat statistical area grew 0.1 per cent, Bendigo 0.4 per cent, Geelong 0.6 per cent and the LaTrobe Valley 0.5 per cent, offset by shrinkage of 2.8 per cent in the north-west, 1.4 in Shepparton and 1.2 per cent in Warrnambool and the south-west.

"Victoria's most important economic asset is what happens within 10 kilometres of the GPO," said SGS economist Terry Rawnsley, who produced Australia-wide and statewide national accounts while he worked at the Australian Bureau of Statistics.

"Our state is increasingly monocentric, as is Melbourne itself, with 40 per cent of its growth generated in the inner suburbs."


"Our graphs show no employment growth in the centre of Melbourne for 30 or 40 years until the early 1990s. In the two decades since, employment in the city has skyrocketed, doubling from around 250,000 to close to 500,000.

"The markers were the development of Southbank and the Docklands and the global financial crisis, which knocked the stuffing out of regional employment, especially in manufacturing, as jobs came to be concentrated in the centre."


Mr Rawnsley said Victoria had become so centralised it was too late to envisage attempts at decentralisation working, as the high-value jobs near the centre had become dependent on other high-value jobs nearby.

"There's no way the Latrobe Valley or Geelong could seriously take those jobs," he said. "Employers of accountants and lawyers and the head offices of firms will kick and scream before they leave they CBD. Those jobs, if they are going to move anywhere, would be more likely to move to central Sydney or central Auckland or central Brisbane than to the Latrobe Valley."

While some agencies such as the National Disability Insurance Scheme, WorkSafe and TAC have already moved to Geelong, Mr Rawnsley said that the really high-end jobs had to be near other high-end jobs in the city.

"You could imagine back office call centre jobs being moved, but high-end jobs need to be clustered. Maybe you could draw the workers away, but the jobs themselves depend on there being other workers in related jobs nearby. The bulk of them are going to be wedged in the city creating income and creating congestion."

Getting into the centre of Melbourne was the biggest constraint on the city's, and Victoria's, growth. There was little more that could be done to "sweat" transport assets by making trains longer or more frequent. Attempts to get people to change the times at which they commuted has already failed.

The Melbourne Metro project, when completed, will help by opening up development in North Melbourne and Richmond and taking pressure off the city loop.

But until then it would be hard to bring as many high-value workers into the centre of Melbourne as will be needed. Commuters begin to turn down jobs when it takes more than half an hour to reach the office by public transport.

Ideally, the state government would immediately begin planning the next generation of Metro projects so construction could commence as soon as the Metro is complete in seven to nine years. One such project could run from the CBD to Fishermans Bend, another from the CBD to the airport.

In The Age and Sydney Morning Herald

Sunday, March 05, 2017

Hidden figures. Women manage money better

My mother was a "computer", back in the days when the term applied to people. Plucked from high school because of her prowess at maths, she was put to work at the Weapons Research Establishment at Salisbury in South Australia, performing the calculations that enabled the rockets fired from Woomera to go where they should.

She had dozens of colleagues, all of them women: rows and rows of women, doing calculations for men before the invention of calculators.

Now immortalised in the movie Hidden Figures, their existence ought to kill forever the idea that women can't do maths.

Yet it persists. The Commonwealth Treasury used to be an overwhelmingly male institution until the start of this decade when a new boss began to drag up the proportion towards its present 53 per cent, along with 37 per cent of executives.

But dealing rooms remain disconcertingly male, full of white shirts dripping with sweat, coats on hangers and an atmosphere heavy with testosterone.

Why is it that we let women do our calculations, we let women care for us as doctors and nurses, but rarely let them manage our money?

It could be because of a (correct) belief that women are less likely to take risks. The National Australia Bank reports that its female clients are more likely choose "safe" investment strategies, and as a result miss out on long-term gains.

But the conclusion depends on the time period chosen.

If it's a period when the market is climbing, risks will pay off and avoiding them will look pretty silly, but if it includes a complete sweep from boom to bust, the safe strategies will look more clever.

The problem is there's little long-term data on the performance of share traders by sex. Except in Finland, where investors are required to report their gender whenever they buy and sell local stocks.

Professors Peter Swan from the University of NSW and Joakim Westerholm from Sydney University along with PhD student Wei Lu have obtained 17 years worth of Finnish data covering two complete cycles including the 2000 "tech wreck" and the 2008-09 financial crisis.

Examining only trades in the 28 biggest Finnish stocks, they find that on those occasions where women traded with men, women improved their position by a staggering 21 per cent per annum. Men were made worse off  by 21 per cent per annum.

When the examination was limited to the only really big stock in Finland, Nokia, women improved their position by an astounding 43 per cent per annum.

They sold to men when the price was rising, and bought from them when it was falling, but not in a mechanical way. Swan says they seemed to be better at reading what was happening; less gullible, more intuitive.

They're qualities we could use. On March 20 the Reserve Bank's Dr Luci Ellis will launch Australia's first Women in Economics Network. It'll maintain a list of members happy to speak out in public; a list of people worth paying attention to.

In The Age and Sydney Morning Herald

Cheap stamp duty: Victoria's package looks good

Stamp duty is the worst tax in Australia, so bad that according to calculations by the federal Treasury for the aborted tax white paper, it destroys 70¢ of economic value for each dollar collected. Yet more than most governments, Victoria is addicted to it.

So the state has done the next best thing to axing it. It's cut it where it will most help people get into the housing market, and reimposed it where it's lack has been most hurting them.

Until now there's been a stamp duty exemption for off-the-plan buyers of apartments. From July this will be axed for investors, and available only to buyers who intend to live in the property or are eligible for the first home buyer stamp duty concession.

Cleverly, reimposing stamp duty for off-the-plan investors will raise almost as much as axing stamp duty for low-price first home buyers will cost, leaving the budget little changed.

First home buyers shelling out up to $750,000 will be better able to outbid investors and existing home owners, and investors in off-the-plan units will be less able to outbid them.

Will that extra buying power push up prices? Possibly, but only to the extent that it actually helps first home buyers.

And if it's not enough, the government is also offering HomesVic, a pilot program in which 400 people will get a chance to co-purchase a home with the government, which will take an equity share of up to 25 per cent and get its money back (plus price growth) when the property is eventually sold.

This is modelled on a scheme recommended to prime minister John Howard in 2003 but never adopted.

The 1 per cent tax on vacant properties won't hurt either. It will encourage owners to either sell them or fill them by renting them out.

Premier Daniel Andrews and Treasurer Tim Pallas have paid attention to the needs of renters too, recognising that people who can't buy their own houses need the same sort of security of tenure as those who can.

It's a sign of just how well thought out the Victorian package is that north of the border, NSW Premier Gladys Berejiklian is talking about making parts of it her own.

In The Age and Sydney Morning Herald

Wednesday, November 09, 2016

Donald Trump could be disastrous for the Australian economy

President Donald Trump will declare economic war on our biggest customer, wipe unprecedented amounts off global stock markets, usher in extraordinary financial instability, and risk turning the world's biggest economy into a basket case by pushing its national debt past 100 per cent of GDP.

And that's just what's known about his economic program. The Economist observed in the leadup to the election that while his policies were unusually short on detail, their direction "could not be clearer".

China takes 1 in every 3 shiploads of Australian exports, more than any nation has since Britain in the 1950s according to consultant Saul Eslake. Even small variations in what it wants sends our budget into conniptions.

Trump has promised from "day one" to designate China a "currency manipulator". That would allow him to whack a giant 45 per cent tariff on everything it tries to sell to the US, a prospect he has mentioned with relish. The US is China's biggest market, taking 18 per cent of everything it sells. China would have to retaliate (somehow), raising the prospect of a trade war that would damage both China and the US. War gaming by the respected Peterson Institute says it could push the US into recession by 2019. The last time that happened, during the global financial crisis, Australia avoided recession with help from China. We mightn't get it a second time.

In answer to questions after his first speech as Reserve Bank governor last month, Philip Lowe described the prospect of a Trump presidency as less than benign.

"We don't have a Trump plan," he added. "What we do is have a generic response plan to a whole range of shocks."

Financial markets lost $US2.5 trillion on Wednesday as it became apparent Trump was likely to win, just as they slid on each of his successes and surged on each of his setbacks throughout the campaign. US-Australian economist Justin Wolfers and his colleague Eric Zitzewitz have used those gyrations to put numbers to the Trump effect. They say a Trump win will knock 15 to 30 per cent off the value of the US stock market (during the global financial crisis it lost 50 per cent) and do much the same to other markets. US interest rates will climb 0.25 points.

It wasn't all bad for Australia on Wednesday. Shares in the gold miner Newcrest shot up 9.8 per cent.

Importantly Wolfers and  Zitzewitz say markets will become far more volatile, making it harder to plan, in what appears to be a first for a Republican win. They've analysed the market reaction to every presidential election going back to 1880 and found either a Republican "premium" or a "discount" whenever there was a significant move.

This is the first Republican discount, or as they call it, "Trump discount", a result all the more remarkable because Trump's policies are explicitly pro-business. Trump has promised to cut the US company tax rate from 35 per cent (a good deal higher than Australia's 30 per cent) to just 15 per cent.

But he'll spend big. The National Australia Bank and the US Tax Policy Centre say his promises will add $US7 trillion to US government debt over the first decade. His expansion of the military alone will add $US450 billion. Clinton's would have added just $US200 billion. The Economist describes her budget plans as "fiddly". It describes his as "absurd". The Committee for a Responsible Federal Budget says after 10 years US national debt will hit 105 per cent of GDP under Trump. Under Clinton, it would hit 86 per cent.

In an open letter, 77 US Nobel Prize winners have condemned Trump's platform, 20 of them winners of the Nobel for Economics. They are concerned about more than trade and more than recession. Trump says he will walk away from the hard-won consensus on the need to tackle climate change, describing global warming as a hoax "created by and for the Chinese". Australia's commitment to adjust its emission targets in line with those of its trading partners is about to become less onerous.

And he intends to build a wall along the Mexican border at a cost of $US5 to $US10 billion (funded by Mexico) in order to keep out illegal immigrants. Those already in the US would be deported (as happens here) rather than periodically made legal (as has happened in the US up until now).

On election eve the Economics Society and the Monash Business School polled 36 leading economists on whose presidency would be best for Australia. Thirty said Clinton, none said Trump.

One of the most stridently anti-Trump was 89-year old Max Corden, the doyen of Australian economists who is still working at Melbourne University. He said Trump would be a disaster for the world, "like another Hitler or Mussolini".

Unlike many who evoke Hitler, Corden has experience of him. He remembers the excitement when as a tiny boy in Germany he snuck out of his home to wave at Hitler's motorcade. He remembers his dad being interned in a concentration camp, and he remembers the incredible good fortune that allowed him to escape to Australia.

In The Age and Sydney Morning Herald

Sunday, November 06, 2016

And you thought the TPP was secret. The RCEP is even worse

There's another massive deal you've never heard of. The Trans-Pacific Partnership – negotiated in secret between Australia and 11 other nations over 10 years – appears to be dead.

It would have allowed US corporations to sue Australian governments in offshore tribunals, as they have long wanted to do, effectively trumping our own High Court. Donald Trump himself opposes it (bless him) as does Hillary Clinton, although she once helped to draw it up.

Whoever is elected president on Wednesday has pledged to abandon it.

So you would think we would be safe. Except that, in what The Wall Street Journal calls a long-shot, Barack Obama is going to attempt to push it through in the so-called lame duck weeks between Wednesday and the inauguration of his successor in January. Hundreds of economists and law professors have urged him not to, saying the provisions of the TPP would allow foreign investors – and foreign investors alone – to bypass "the basic procedures of the US justice system".

US corporations can't do it to us at the moment because the Howard government refused to include those provisions in the Australia-US Free Trade Agreement.

Right now, if US corporations want to sue us and don't find our court system to their liking, they have to pretend to be headquartered somewhere else, as the Philip Morris tobacco company did when it purported to move ownership of its Australian operations to Hong Kong in order to take advantage of the provisions of an obscure Australia-Hong Kong treaty after losing its case against our plain packaging laws in the High Court.

So far that case cost us more than $50 million to defend, and although we successfully fended off Philip Morris, we are yet to be awarded costs. It's a prospect that would terrify a smaller country.

Now there's a fresh move to have us face it time and time again, even if Obama fails to revive the Trans-Pacific Partnership. The TPP would have had 12 members. The lesser known RCEP – the Regional Comprehensive Economic Partnership – would have 16 members including China, accounting for one half of the world's population.

Leaked chapters of the draft agreement contain the same sort of investor-state dispute settlement procedures as the TPP. Although the Foreign Affairs website doesn't say so, our assistant trade minister Keith Pitt slipped into the Philippines on Friday to advance the negotiations.

Whereas in the TPP, Australia's delegations took community as well as business groups into its confidence, so far with the RCEP it's only been business groups. Patricia Ranald of the Fair Trade and Investment Network says that might be because, at least to start with, the US is excluded. It's a relatively open democracy. China, Indonesia, Malaysia and other RCEP members are not.

Just as with the TPP, our negotiators are releasing no texts and submitting none of what's proposed to cost-benefit analysis. There's every chance it will cut across rather than intermesh with the TPP and our other trade agreements. There's every chance we won't be told until it's too late.

In The Age and Sydney Morning Herald

Thursday, November 03, 2016

Productivity Commission: how big data could work for us

What if we were on the cusp of one of the biggest ever advances in productivity and we didn't recognise it?

That's how it must have been for Alexander Fleming with the discovery of penicillin, for university technicians with the development of the internet, and for Bill Clinton, who with the stroke of a pen in the year 2000, made highly accurate military global positioning satellites available for everyone to use for free.

Peter Harris believes we are on the cusp of another transformation about as big – one only made possible by the development of the internet and all the things that surround it.

It's the exploitation of data. On one estimate we are now generating as much digital data every two days (five exabytes) as we generated in an entire year at the start of the 2000s.

Some of it is cat videos. Much of it mundane. But an awful lot is useful, and his best guess is that only 5 per cent of the useful stuff is being used, a figure that puts us way behind the countries we usually like to compare ourselves to, especially Britain and New Zealand.

We are behind partly for privacy reasons, partly because potential users don't know what data government agencies hold, and partly because the machines that hold it often can't talk to each other, even within the same hospitals.

It is an outrage that sick patients still have to act as information conduits between healthcare providers (10 to 25 per cent of the medical tests ordered are thought to be duplicates) and a disgrace that 60 years after the Thalidomide tragedy we still don't link prescription data to hospitalisation records to get insights into the side effects of drugs.

Research that could have saved the lives of Indigenous women was delayed five years while the researchers waited for ethics approval to see cervical cancer screening data; researchers wanting to study the link between vaccination and admission to hospital have had to wait eight years and counting.

Harris runs the Productivity Commission. It is a measure of his belief in the importance of the data inquiry commissioned by the Turnbull government that he decided to chair it himself and personally briefed journalists on the contents of his draft report on Wednesday.

His first recommendation is that all government-funded entities create easy-to-access registers of everything they've got. He wants them published by October 2017. If anyone wants a machine-readable copy of something on a register, they should be able to get it for free or for marginal cost, unless there are powerful reasons for holding it back.

Given how much personal data so many of us willingly or carelessly give away every day, he isn't particularly concerned about the privacy risks of releasing de-identified personal data (and allowing it to be linked to other data, as the Bureau of Statistics wants to do with the census), saying the risks are "likely very small". Where there's a clear public interest, he wants researchers to be given access to private information in secure rooms.

Right now they are often required to destroy datasets they create in medical and other research, a practice he says is akin to "book burning". He would require them to keep it.

Really important information would be curated in "national interest datasets", overseen by a national data custodian who would report to the parliament.

But that's just half of it. Right now, in spite of a widespread belief to the contrary, you and I don't have access to our own data.

If I ask my music streaming service for details of my listening habits, or my search engine for details of my search history, or my insurer for details of my claiming history, or my supermarket for details of my shopping history, or my electricity supplier for details of my usage history, they are perfectly entitled to refuse to hand them over. I might want to take them to a competitor.

Harris wants to enshrine in law my right to take them to a competitor. Even better, he wants my providers to hand them to the competitors or brokers I select at my direction. I probably wouldn't be able to make much sense of a machine-readable account of my electricity use, but a competitor would.

Suddenly, competition could really work. And it would cost almost nothing. There would be no privacy concerns because it could be released only at my direction. Harris would also give me the right to request edits or corrections to the data firms have on me, to be informed about their intentions to sell or pass it on, to be able to order them to stop collecting it (at the risk of losing the service) and to appeal automated decisions that deny me services or charge me more on the basis of it.

He is talking about a revolution. It's a revolution we ought to embrace and direct, rather than sit back and watch.

In The Age and Sydney Morning Herald