Wednesday, March 17, 2021

Electricity is a jigsaw. Coal can't provide the missing pieces

There’s something the energy minister said when they announced the early closure of Victoria’s second-biggest coal-fired power station last week that was less than complete.

Yallourn, in the Latrobe Valley, provides up to 20% of Victoria’s power. It has been operating for 47 years. Since late 2017 at least one of its four units has broken down 50 times. Its workforce doubles for three to four months most years to deal with the breakdowns. It pumps out 3% of Australia’s carbon emissions.

On Wednesday Energy Australia gave seven years notice of its intention to close it in mid-2028, four years earlier than previously announced, a possibility for which regulators had been preparing.

In what might have been a rhetorical flourish, Energy Minister Angus Taylor warned of “price spikes every night when the sun goes down”.

Then he drew attention to what had happened when two other coal-fired power stations closed down — Victoria’s Hazelwood and South Australia’s Northern (South Australia’s last-remaining coal-fired generator).

He said “wholesale prices skyrocketed by 85%”.

And there he finished, without going on to detail what really mattered. South Australia and Victoria now have the lowest wholesale power prices in the National Electricity Market — that’s right, the lowest.

Coal-fired plants close, then prices fall

Before Northern closed, South Australia had Australia’s highest price.

Five years after the closure of Northern in 2016, and four years after the closure of Hazelwood in 2017, South Australia and Victorian have wholesale prices one-third lower than those in NSW and two-fifths lower than those in Queensland.

Something happened after the closure (largely as a result of the closure) that forced prices down.

South Australia became a renewables powerhouse.

The Australian National University’s

Hugh Saddler points out that renewable-sourced power — wind and grid solar — now accounts for 62% of power supplied to the South Australian grid, and at times for all of it.

Much of it is produced near Port Augusta, where the Northern and Playford coal-fired power stations used to be, because that’s where the transmission lines begin.

Being even cheaper than the power produced by the old brown-coal-fired power stations, there is at times so much it that it sends prices negative, meaning generators get paid to turn off in order to avoid putting more power into the system than users can take out.

It’s one of the reasons coal-fired plants are closing: they are hard to turn off. They are just as hard to turn on, and pretty hard to turn up.

Coal can’t respond quickly

There are times (when the wind doesn’t blow and there’s not much sun, such as last Friday in South Australia) when prices can get extraordinarily high.

But coal-fired plants, especially brown-coal-fired plants such as Victoria’s Hazelwood and Yallourn and Victoria’s two remaining big plants, Loy Yang A and B, are unable to quickly ramp up to take advantage of them.

Although “dispatchable” in the technical meaning of the term used by the minister, coal-fired stations can’t fill gaps quickly.

Read more: The death of coal-fired power is inevitable — yet the government still has no plan to help its workforce

Batteries can respond instantly to a loss of power from other sources (although not for very long), hydro can respond in 30 to 70 seconds, gas peaking plants can respond within minutes.

But coal can barely move. As with nuclear power, coal-fired power needs to be either on (in which case it can only slowly ramp up) or off, in which case turning it on from a standing start would be way too slow.

What was a feature is now a bug

That’s why coal-fired generators operate 24-7, to provide so-called base-load, because they can’t really do anything else.

Brown coal generators are the least dispatchable. Brown coal is about 60% water. To make it ignite and keep boiling off the water takes sustained ultra-high temperatures. Units at Yallourn have to keep burning coal at high output (however low or negative the prices) or turn off.

In the days when the other sources of power could be turned on and off at will, this wasn’t so much of a problem.

Hydro or gas could be turned on in the morning when we turned on our lights and heaters and factories got down to business, and coal-fired power could be slowly ramped up.

At night, when there was less demand for coal-fired power, some could be created by offering cheap off-peak water heating.

But those days are gone. Nationwide, wind and solar including rooftop solar supplies 20% of our needs. It turns on and off at will.

Wind often blows strongly at night. What was a feature of coal — its ability to provide steady power rather than fill gaps - has become a bug.

Gas and batteries can fill gaps coal can’t

It’s as if our power system has become a jigsaw with the immovable pieces provided by the wind and the sun. It’s our job to fill in the gaps.

To some extent, as the prime minister says, gas will be a transition fuel, able to fill gaps in a way that coal cannot. But gas has become expensive, and batteries are being installed everywhere.

Energy Australia plans to replace its Yallourn power station with Australia’s first four-hour utility-scale battery with a capacity of 350 megawatts, more than any battery operating in the world today. South Australia is planning an even bigger one, up to 900 megawatts.

Read more: Huge 'battery warehouses' could be the energy stores of the future

Australia’s Future Fund and AGL Energy are investing $2.7 billion in wind farms in NSW and Queensland which will fill gaps in a different way — their output peaks at different times to wind farms in South Australia and Victoria.

Filling the gaps won’t be easy, and had we not gone down this road there might still have been a role for coal, but the further we go down it the less coal can help.

As cheap as coal-fired power is, it is being forced out of the system by sources of power that are cheaper and more dispatchable. We can’t turn back.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, March 10, 2021

How the ABS became our secret weapon

If we survive this economic crisis (and it is looking increasingly like we will, although the end of JobKeeper at the end of the month will be a setback) it will in large measure be because this time we’ve had a real-time picture on what’s been going on.

Last time, we were flying blind.

In what must have been one of the worst-timed decisions of an incoming government ever, in 2008 the newly-installed Rudd government slashed the budget of the Australian Bureau of Statistics ahead of the global financial crisis.

In its first budget it hacked A$28 million off ABS budget, and told it to work out what to cut.

The ABS lopped off its job vacancies survey, closing it down in May, just months before the collapse of Lehman Brothers in September.

Then in July it cut the size of its employment survey from 54,400 people to 41,100, making the results less accurate just as accuracy began to really matter.

Rudd and his staff had to navigate partially blindfolded.

It was, as the then head of the treasury’s macroeconomic group David Gruen said at the time, as if the Titanic was sailing into iceberg-infested waters while those with the requisite skills were hard at work “in a windowless cabin”.

Twelve years on — astoundingly — David Gruen has found himself on the other side of the cabin wall as head of the ABS.

He took up the job on December 11, 2019, just days after the first Wuhan resident fell sick with what turned out to be coronavirus.

By the end of February he had “this feeling I last had in the middle of 2008”.

Not much coronavirus had spread to Australia by that point, but as Gruen recounted to the Canberra branch of the Economic Society, it felt like “something big was coming”.

Something big was coming

Gruen called a brainstorming session and asked senior staff what data they could produce quickly — far more quickly than usual — that would tell people what was happening in near real-time.

The business conditions unit said it could run a survey of 1,200 businesses, but that it would cost money — $20,000. Gruen told them to spend it. The survey began on March 16, ran for three days and was published on March 26, a record-quick ten days after the first questions were asked.

That initial survey asked how COVID was hurting each business, what it expected. Then requests started coming in for further questions about cash on hand, revenue and employees. Month by month the survey evolved as the crisis evolved.

Read more: Australia's first service-sector recession unlike those that went before it

Then the household survey unit realised it could do one. It repurposed a panel it had assembled for a different survey and went back to the same households month after month for real-time insights into things such as the changing precautions they were taking, their changing comfort with social gatherings, their use of stimulus payments and the state of their finances.

Spending in shops was convulsing, literally down 17.7% one month (on lockdowns), then up 17% the next (on panic buying).

Delays unacceptable

Yet the retail figures had always been presented with a delay — four to five weeks after the month to which they referred — while the bureau waited for all of the retailers it was surveying to report, making the insights anything but current.

Gruen got the bureau to release “preliminary” numbers two or three weeks earlier than usual, as soon as 80% of the businesses surveyed had responded.

Information about deaths (rather useful in a health crisis) was even worse.

Not information about COVID deaths, which heath authorities were totting up daily, but deaths from all causes, which the bureau traditionally released once a year once all the reports from coroners had come in, every September, almost an entire year after the year in which the deaths took place. Some of the deaths were the best part of two years old.

Provisional now, final later

Gruen suggested that rather than wait until every coroner’s report was finalised, the bureau release “provisional mortality statistics” based on only doctor-certified deaths (80-85% of all deaths) monthly.

What it showed was startling. Rather than having more deaths than normal from non-COVID causes, as had much of the world, Australia had fewer.

Read more: Up to 204,691 extra deaths in the US so far in this pandemic year

The excess deaths in other countries might have been either COVID deaths not classified as COVID deaths, or deaths inadvertently caused by measures designed to fight COVID.

In net terms Australia has had neither. The bureau’s figures show we’ve been less likely than normal to die of heart disease and strokes, and far less likely to die from flu, probably because social distancing has made it harder to catch.

ABS Provisional Mortality Statistics

As incredibly useful as these innovations have been, none has been as valuable as the bureau’s inspired decision to obtain and publish near real-time payroll data.

What took months is now near-instant

The Tax Office is phasing in a requirement for businesses to report where they send their payroll instantly using a system it calls single-touch payroll. 99% of big and medium firms (20 or more employees) are doing it, and 75% of small firms.

It is data on 10 million jobs updated weekly, broken down by gender, age, industry and location — near-instant data of the kind Australia has never seen.

The treasury has been able to use it to fine tune (and change) its programs as the crisis was unfolding.

Detail like never before

And there’s more. The bureau is going to use single-touch payroll to come up with a near-instant monthly measure of earnings. It is going to use business activity statements provide an near-instant measure of business turnover.

And it has got the big four banks to hand over aggregated consumer spending data far more comprehensive than the subset that finds its way into the retail trade survey.

It is also experimenting with using anonymised electricity smart meter data to work out the extent to which people are staying at home, and using deidentified data from mobile devices to work out the extent to which we are moving about.

Read more: GDP is V-shaped, but not yet good. These three graphs tell the story

If the government has got most things right in the economic management of the crisis, it is largely because it has known more about the granular detail of what’s been happening than any government before it.

With one forecast suggesting hundred of thousands of Australians could lose their jobs when JobKeeper ends on March 28, and the impact of the extra measures the government will unveil this week uncertain, it’ll keep needing to know.

Australian Statistician David Gruen at Economic Society of Australia annual dinner Canberra Octoer 28 2020

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, March 03, 2021

GDP is V-shaped, but not yet good. These three graphs tell the story

There’s one graph that sums up both the good and not-yet-as-good detailed by Treasurer Josh Frydenberg at Wednesday’s national accounts press conference.

It’s a graph of the level of Australia’s gross domestic product – how much is produced and earned each three months in Australia – adjusted for inflation.

Australian quarterly gross domestic product

Chain volume measures, seasonally adjusted. ABS

It shows Australia’s economy getting bigger and bigger over almost all the past 80 years with only two readily-apparent slowdowns; one in the early 1980s recession, and one in the early 1990s recession.

Until COVID. Last year’s recession wasn’t a slowdown like the other two – it was a collapse, so big you could see it on any scale, even one that went back to when modern records began.

And it was V-shaped.

As soon as the economy collapsed – by 7% in the three months to June, the most since the Great Depression - it bounced back 3.4% in the three months that followed and (we now know) a further 3.1% in the three months that followed that.

It’s actually more like the beginning of a V

But, as I suggested last time (and as the graph shows) the gain of 3.1% and the gain of 3.4% don’t anything like offset the dive of 7% because a percentage increase in a small number does less than a percentage dive in a bigger number.

It’s reasonable to think that population-fuelled GDP is irrelevant to our lives, that what matters is GDP per head - the amount earned per person.

It shows much the same pattern: a V so clear you can see it on the widest possible scale, which is the one I have presented:

Per capita quarterly GDP

Chain volume measures, seasonally adjusted. ABS

The economy is 1.1% smaller than it was at the start of last year and 3.3% smaller than it would have been had economic growth continued, an extraordinarily good outcome given what Frydenberg described as the “economic abyss” forecast just five months ago in the October 2020 budget.

Government support has turned into private spending

Driving the recovery has been a continuing rebound in consumer spending. It dived 12.3% in the June quarter, climbed 7.9% in the September quarter and in the three months to December when Victorians became freer to spend, a further 4.3%.

We’ve funded it in part by cutting what had been an extraordinarily high household saving ratio.

Household saving has slid from a record high 20% of net-of-tax income in the June quarter to a more welcome 12% in the December quarter.

Household saving ratio

Ratio of saving to net-of-tax income, seasonally adjusted. ABS

Unable to spend much on travel, we are spending on the things we can. In the three months to December our spending on motor vehicles jumped a dizzying 31.8%, putting it up 22.2% over the year.

Our spending in hotels, cafes and restaurants rebounded 17.5% in the months to December, although with overseas and much interstate travel restricted, it was still down 29.8% over the year.

With the help of low interest rates and incentives, housing investment climbed 4.1% in the quarter (Homebuilder) and business investment in plant and equipment climbed 8.9% (instant asset write-off).

There are no guarantees

Farm production soared an astounding 26.8% in the quarter – the biggest jump since 2008 – on the back of the second-best winter crop on record.

If the economy continues to recover at this pace and the “V” turns into an upward tick we will make big inroads into unemployment and the coronavirus recession will look like a blip, an aberration.

But there are no guarantees. The JobKeeper employment subsidy ends on March 28 and the sharp upticks in business investment and farm production are unlikely to continue.

Read more: Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment

Much will depend on the May budget, which comes out before the next update.

Among the budget decisions that will matter are how it will deal with the funding requirements of the aged care royal commission, whether and how it proceeds with the legislated increases in compulsory superannuation, and how quickly and to what extent it withdraws support from the economy.

There’s a case for keeping support high in order to extend the rebound in GDP and make big inroads into unemployment right up until the point we return to meaningful inflation. There’s a case for going for growth.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Josh Frydenberg has the opportunity to transform Australia, permanently lowering unemployment

Josh Frydenberg has the opportunity to become a transformational Australian treasurer. He has been bequeathed a set of circumstances that comes along rarely.

He has already shown himself able to shift the debate on important topics in order to achieve the previously unthinkable.

Most recently he did it with Google and Facebook, getting them to pay news providers for content using legislation that led the world in its breadth and force.

It’s actually the second time Frydenberg has taken on big tech. As assistant treasurer in 2015 he championed a “Netflix tax” on overseas-based suppliers of online services. They would be required to collect and pass on goods and services tax, just like Australian retailers.

It was a tax experts told him big tech might never pay.

Frydenberg has shown boldness before

Opportunities like the much bigger one in front of him now don’t come along often because Australia isn’t in recession often. Three decades ago in the early 1990s Australia’s then Reserve Bank governor Bernie Fraser seized its mirror side.

In the wake of an appalling recession that had destroyed both jobs and inflation, Fraser opted to finish the job and drive a stake through the heart of inflation.

A biography of then treasurer Paul Keating quotes Fraser as saying “we’ve got the inflation rate down and we are damn-well going to keep it down”.

At the first hint of a resurgence in inflation as the economy got back on its feet Fraser rammed up interest rates an extraordinary 0.75 percentage points in August 1994, then another 1.00 percentage points in October, and a further dizzying 1.00 percentage points in December.

Job finished, inflation has remained tamed ever since, never again returning to the 8% and 10% common in the 1980s.

Recessions create opportunities

Frydenberg’s opportunity is to drive a stake through the heart of unemployment.

From the end of the second world war right through to the mid 1970s Australia’s unemployment rate averaged just 2%. From then onwards until today it has averaged 6.8%, an embarrassment in a country capable of much, much better.

How much better?

The Reserve Bank’s pre-COVID estimate of Australia’s so-called non-accelerating inflation rate of unemployment (NAIRU) was 4.5%. NAIRU is the rate below which it is thought inflation and wage growth might start to climb.

Read more: Why the unemployment rate will never get to zero percent – but it could still go a lot lower

If correct, the estimate means there is no danger whatsoever in pushing Australia’s unemployment rate down from its present 6.4% to 4.5%, or lower. We won’t know how much lower until we try. Pre-COVID, US unemployment got to 3.5%.

Far from danger, there would be a huge payoff in permanently lowering the rate of unemployment Australia regarded as acceptable.

At an unemployment rate of 4.5%, an extra 255,800 Australians would be in work and earning money, providing services and paying tax. The government could save $4 billion per year in JobSeeker payments.

We could go for broke

Frydenberg should actually aim for a much-lower unemployment rate than 4.5%.

Reserve Bank Governor Philip Lowe does not say 4.5% would accelerate inflation, he says he doubts whether anything above 4.5% would accelerate inflation.

And Lowe says this notwithstanding the view of the secretary to the treasury that the recession has pushed up NAIRU to around 4.75% to 5% as people who have lost their jobs have become less employable.

But here’s the thing. NAIRU is the non-accelerating inflation rate of unemployment — the rate that keeps inflation and wage growth constant.

Wage growth, at 1.4% and inflation, at 0.9% are too low. We need them to accelerate. Frydenberg and the Reserve Bank have agreed to target inflation of 2-3%. It’s a target that would normally mean wage growth of 3-4%, where wage growth hasn’t been for the best part of a decade.

Wage growth below par for years

Wage price index, total hourly rates of pay excluding bonuses, private and public, annual. ABS

To get inflation and wage growth back up to where we want them we are going to need an unemployment rate well below the oddly-named NAIRU — well below 4.5% — for quite some time.

In his new book Reset, economist Ross Garnaut says we should be aiming for an unemployment rate of 3.5%.

He says on the way down there would be time to adjust the target “up when high and accelerating inflation becomes a matter of concern, or down (further) if we approach 3.5% without inflation accelerating dangerously”.

As in the US, we don’t yet know how low we can safely push unemployment, but it might turn out to be very low indeed.

Read more: The reset to lift us out of the COVID recession has to be bold: returning to where we were is nowhere near good enough

To get there Australia’s government will have to keep spending, and learn to live with big budget deficits and big debt.

Garnaut says to not do so would be a false economy, condemning us to “endless increases in our public debt-to-GDP ratio because we wouldn’t be producing the GDP we were capable of”.

The government would fund the crushing of unemployment by selling bonds to the Reserve Bank directly, bypassing financial markets in order to avoid putting further upward pressure on the dollar.

Low risk, long payoff

To the extent that the continuing flood of bonds further eased mortgage interest rates (which it mightn’t much, because the bonds would be long-term) the Prudential Regulation Authority would have to crack down on investor and interest-only loans as it did successfully before the COVID crisis in order to restrain house prices.

Garnaut believes there will also be a need for less-pleasant reforms to restore the prosperity Australia is capable of, but he says they will only gain widespread acceptance if it is known that anyone who wants a job can get a job — whether that’s at an unemployment rate of 3.5%, the 2% Australia once had or the 1% New Zealand had.

The COVID recession and rapid recovery from it have handed Frydenberg an opportunity to relentlessly drive down and crush unemployment — to finish the job.

If he grabs it he will be remembered as the treasurer who changed Australia, perhaps forever.

Reducing unemployment for good with Peter Martin. Democracy Sausage with Mark Kenny, March 4, 2021 107 MB (download)

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, February 24, 2021

One of these things is not like the others: why Facebook is beyond our control

What’s the difference between Google and Facebook?

One difference is that last week Google agreed to pay Australian news outlets for their content in the face of a threat of government action to force it to.

Facebook did not, temporarily removing Australian news sources from its feeds, a decision it only reversed after winning a range of concessions.

Another is the reason why.

It’s that Google faces competition, whereas Facebook really doesn’t.

In economists’ language, that’s because Facebook enjoys a rare “network effect”, Google scarcely at all.

If I want to switch from Google to another search engine (something I’ve done) it costs me next to nothing. I might find it hard to move my search history over (although there’s probably an app for that) but otherwise the new search engine will either be better, worse or about the same as the one I left. I’m free to find out.

Google faces competition

It means that Google is forced to defend itself from competition (or the threat of competition) by providing an extraordinarily good service.

Not so Facebook. Although a relatively new concept in economics, the idea of a network effect dates back to at least 1908 when the president of the American Telephone and Telegraph Company, Theodore Vail, spelled it out in a letter to stockholders.

“A telephone, without a connection at the other end of the line, is not even a toy or a scientific instrument,” he wrote. “It is one of the most useless things in the world. Its value depends on the connection with the other telephone — and increases with the number of connections.”

Facebook faces hardly any

The idea has since been expressed in a mathematical formula, but there’s no need to get into details. The world’s first telephone was indeed useless, the second allowed one household to reach only one other. But by the time there were millions, and almost every household had one, each telephone became incredibly valuable, allowing that household to reach almost every other household.

A startup that tried to compete with the phone system would be offering a very unappealing product. It wouldn’t be able to offer anything like the connections of the existing system until a huge proportion of the population signed up, meaning people would be reluctant to sign up, meaning it would stay unappealing.

Read more: We allowed Facebook to grow big by worrying about the wrong thing

Which is the point Vail was making. When it gets big enough, the telephone service is something close to a natural monopoly. There’s no point in anyone setting up a competing one (and in Australia we haven’t — the competing companies, Telstra, Optus and so on, share the one network).

The ASX stock exchange is another example, as is eBay. You could try to sell something on a different platform, but you wouldn’t reach nearly as many potential customers, so you mightn’t get as good a price.

The Australian Competition and Consumer Commission puts it this way in its report on Facebook: even if the government made it easier for a user to switch to another network, perhaps by mandating the transfer of data,

if none of the user’s friends or family are moving away from Facebook, that user would be unlikely to switch platforms

The “lock in” that happens when a network gets so big people feel they have to use it means it doesn’t have to treat them particularly well to get them to stay.

Seventeen million Australians use Facebook every four weeks — a huge proportion of the population, and an even bigger proportion of the population aged over 14 (80%).

Without Facebook, it would be hard to know what family and friends and long-lost classmates are up to — whether or not Facebook offers news. It doesn’t need to treat its users particularly well to get them to stay.

Facebook isn’t quite like the phone system. Young people find the fact that so many old people can use it to check up on them a turn-off and go elsewhere. But for the Australians already on it (that’s most Australians) it’s worth staying.

And there’s room for smaller specialised networks.

Linkedin has its own network for people concerned about the jobs market. If that’s the world you’re in, it’s wise to be on it because of the huge number of other such people who are on it. There’s not much point leaving it for something else.

Winner take all

It wasn’t always that way for Facebook. Fifteen years ago MySpace was how people connected, but not that many of them — it hadn’t grown to the point where network effects took over. When they did, there could be only one clear winner, and it happened to be Facebook.

Now not even its bad behaviour (Roy Morgan finds it is Australia’s least-trusted brand) can stop most people using it.

In the same way as people who want the lights on generally have to use the electricity company, people who want to catch trains generally have to use the railway and people who want to drive cars generally have to buy petrol, people who want to stay in touch generally have to use Facebook.

Which makes the government’s decision to remove its vaccination advertising campaign from Facebook silly. Facebook reaches 80% of its target audience.

Facebook has become a (trans-national) utility, unconcerned about its image. Attempts by one government, or even a coalition of governments, to force it to do anything are pretty much a lost cause.

No-one wanted it to be like this, and it’s not like this for Google. Facebook has moved beyond our control.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, February 17, 2021

The TV networks holding back Australia's future

If I offered you money for something, an offer you didn’t have to accept, would you call it a grab?

What if I actually owned the thing I offered you money for, and the offer was more of a gentle inquiry?

Welcome to the world of television, where the government (which actually owns the broadcast spectrum) can offer networks the opportunity to hand back a part of it, in return for generous compensation, and get accused of a “spectrum grab”.

If the minister, Paul Fletcher, hadn’t previously worked in the industry (he was a director at Optus) he wouldn’t have believed it.

Here’s what happened. The networks have been sitting on more broadcast spectrum (radio frequencies) than they need since 2001.

That’s when TV went digital in order to free up space for emerging uses such as mobile phones.

Pre-digital, each station needed a lot of spectrum — seven megahertz, plus another seven (and at times another seven) for fill-in transmitters in nearby areas.

It meant that in major cities it took far more spectrum to deliver the five TV channels than Telstra plans to use for its entire 5G phone and internet work.

Digital meant each channel would only need two megahertz to do what it did before, a huge saving Prime Minister John Howard was reluctant to pick up.

His own department told him there were

better ways of introducing digital television than by granting seven megahertz of spectrum to each of the five free-to-air broadcasters at no cost when a standard definition service of a higher quality than the current service could be provided with around two megahertz

His Office of Asset Sales labelled the idea of giving them the full seven a

de facto further grant of a valuable public asset to existing commercial interests

Seven, Nine and Ten got the de facto grant, and after an uninspiring half decade of using it to broadcast little-watched high definition versions of their main channels, used it instead to broadcast little-watched extra channels with names like 10 Shake, 9Rush and 7TWO.

Micro-channels are better delivered by the internet

TV broadcasts are actually a good use of spectrum where masses of people need to watch the same thing at once. They use less of broadcast bandwidth than would the same number of streams delivered through the air by services such as Netflix.

But when they are little-watched (10 Shake got 0.4% of the viewing audience in prime time last week, an average of about 10,000 people Australia-wide) the bandwidth is much better used allowing people to watch what they want.

Read more: Broad reform of FTA television is needed to save the ABC

It’s why the government is kicking community television off the air. Like 10 Shake, its viewers can be counted in thousands and easily serviced by the net.

The government’s last big auction of freed-up television spectrum in 2013 raised A$1.9 billion, and that was for leases, that expire in 2029.

Among the buyers were Telstra, Optus and TPG.

The successful bidders for leases on vacated television spectrum in 2013. Australian Communications and Media Authority

The money now on offer, and the exploding need for spectrum, is why last November Fletcher decided to have another go.

Rather than kick the networks off what they’ve been hogging (as he is doing with community TV) he offered them what on the face of it is an astoundingly generous deal.

Any networks that want to can agree to combine their allocations, using new compression technology to broadcast about as many channels as before from a shared facility, freeing up what might be a total of 84 megahertz for high-value communications. Any that don’t, don’t need to.

All the networks need to do is share

The deal would only go ahead if at least two commercial licence holders in each licence area signed up. At that point the ABC and SBS would combine their allocations and the commercial networks would be freed of the $41 million they currently pay in annual licence fees, forever.

That’s right. From then on, they would be guaranteed enough spectrum to do about what they did before, except for free, plus a range of other benefits

The near-instant reaction, in a letter signed by the heads of each of the regional networks, was to say no, they didn’t want to share. The plan was “simply a grab for spectrum to bolster the federal government’s coffers”.

And sharing’s not that hard

It’s not as if the networks own the spectrum (they don’t) and it’s not as if they are normally reluctant to share — they share just about everything.

For two decades they’ve shared their transmission towers, and for 18 months Nine and Seven have been playing out their programs from the same centre.

That’s right. Nine and Seven use the same computers, same operators, same desks, to play programs.

One day it is entirely possible that a Seven promo or ad will accidentally go to air on Nine, just as a few years back some pages from the Sydney Morning Herald were accidentally printed in the Daily Telegraph, whose printing plants it makes use of.

All the minister is asking is for them to share something else, what Australia’s treasury describes as a “scarce resource of high value to Australian society”.

There’s a good case for going further, taking almost all broadcasting off the air and putting it online, or sending it out by direct-to-home satellite, removing the need for bandwidth-hogging fill-in transmitters.

Seven, Nine and Ten have yet to respond. Indications are they’re not much more positive than their regional cousins, although more polite. They’re standing in the way of progress.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, February 10, 2021

That extra you're about to get in super, most of it will come from you, but don't expect the ads to tell you that

There’s something odd about those television and internet advertisements telling us we are getting more super.

The money seems to come from nowhere.

“Pretty soon,” explains the woman getting onto an escalator, “the amount of super paid on top of our wages will go up”.

Fair enough, but the increases in compulsory super contributions will come out of the same bucket as wages – so-called on-costs which employers use to pay wage cheques, workers compensation, payroll tax, employees pay-as-you-go tax, and employees super contributions, which is also known as the “super guarantee”.

Read more: Retirement incomes review finds problems more super won't solve

The ad is a bit like those promising buyers of mobile phones the “free gift” of an accessory. It has to be paid for somehow, and it’s usually out of the purchase price.

Paul Keating, prime minister when compulsory super was introduced in 1992, put it this way in a reflection on the history of modern superannuation in 2007

the cost of superannuation was never borne by employers. It was absorbed into the overall wage cost

Last year’s retirement income review examined every study that had ever been conducted on the topic and concluded that the “weight of evidence suggests the majority of increases in the super guarantee come at the expense of growth in wages”.

A more informative advertisement would have referred to super “paid on top of our wages, at the expense of our wages”.

The ads are funded by Industry Super, which represents the big funds that want to manage the extra super. There’s no reason for them to tell the whole story.

They’re the start of a campaign to get the government to actually deliver the five legislated increases of 0.5% of salary starting in July that are scheduled to take compulsory super from 9.5% of salary to 12% over five years, and they are about to get more aggressive.

An extra half a percent of salary into super each year for five years culminating in an extra 2.5% would be a big ask at any time, but in the present circumstances it is worth considering how a COVID-affected employer might respond.

That employer has choices. It could shave each of the next five annual wage increases so that it won’t end up paying out more than it would have.

Or it could eat into profits (which is difficult if it is barely surviving), or attempt to put up prices (which is also difficult at the moment) or it could shave its wage bill by letting go of staff.

Read more: Australia's top economists oppose the next increases in compulsory super: new poll

In normal circumstances the first is the most likely, although in the circumstances we are in, and given the scale of the increases proposed, economists don’t rule out some of the last - letting go of staff.

The less employers expand employment or the less they increase wages, the less will be spent on their products, giving them even less money for wages. Household saving is already at unprecedented highs.

Most of us save enough, some too much

These downsides might be worth putting up with if we needed the extra super, but the November retirement income review found that – to the surprise of some – we don’t.

High earners have always saved enough for retirement, originally outside of super and now inside of it, making very large extra contributions on top of what’s compulsory in order to take advantage of the tax benefits.

Low earners earn so little while working that the cocktail of super, the pension and private savings gives them about as much or more per year in retirement as they got while working, albeit partly funded at the expense of wages while they are working.

Read more: Home ownership and super are far more entwined than you might think

The review found that if the increases in compulsory super proceed as planned, the bottom one third of retirees will get more than they got while working.

International benchmarks suggest most non-renters need only 65-75% of what they got while working, because they face far fewer of the costs they faced in their working lives including paying off a home, saving for retirement, raising and educating children, and commuting.

If the legislated increases in compulsory super go ahead, an astounding two-thirds of Australian retirees will get more than that benchmark. They will have been enriched in retirement at the expense of their living standard while working.

Retirement Income Review

So where does the target of 12% salary locked away in super come from? You might be forgiven for thinking it was adopted after an independent review, and you’d be partly right.

The 2009 retirement income system review conducted as part of the Henry Tax Review examined the right amount of super and concluded that “the superannuation guarantee rate should remain at 9 per cent”.

Yet as the review’s final report endorsing that conclusion was being released on May 2, 2010 Prime Minister Kevin Rudd and Treasurer Wayne Swan announced that “the superannuation guarantee will be gradually increased to 12 per cent, implying that decision derived from the review.

12% is not what was recommended

It didn’t derive from the review, but the hubbub over the mining tax announced at the same time meant that few people noticed.

The best thing to do would be to abandon the 12% target. It’s neither something we need nor something that would help us at the moment.

But if the super lobby makes that hard, I’ve another idea. It’s to allow the increase to proceed - an extra 0.5% of salary from each employer per year, amounting to 2.5% of salary after five years - but to give workers the option of having it directed instead to their wage account. For an employer, it’ll make no difference which account it goes to.

For Australians short of income at the time they need it, and an economy needing wages and spending, it might make a difference.

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Wednesday, February 03, 2021

Governor not for turning. No rate hike until unemployment near 4.5%

Reserve Bank governor Philip Lowe’s message to the nation today through the National Press Club is that he means it.

He isn’t intending to push up interest rates – he most probably isn’t intending to even think about pushing up interest rates – until 2024, at the earliest.

That’s a full three years from now, at a time when, maybe, inflation will be strong enough to be “sustainably within” the Reserve Bank’s target band.

That’s the new benchmark, adopted by the bank in November.

It replaced an earlier loophole-ridden benchmark of “progress towards” an inflation rate of 2% to 3%, something that could have meant almost anything.

The bank will now need to see actual, sustainable, inflation of 2% to 3%, something those of us wanting some inflation haven’t seen for a decade.

Ultra-low rates til unemployment hits 4.5%

After the press club event I asked him what sort of unemployment rate we would need to see for that to happen. Was it still the 4.5% the bank has nominated in the past, or had COVID pushed it up?

Might less ambitious progress on unemployment do the trick?

He told he thought not. While it is impossible to be sure, something seemed to have changed around the world over the past ten years meaning it has become much harder to create inflation. He doubted whether an unemployment rate above 4.5% could do the trick.

Read more: The Reserve Bank might yet go negative

Lowe told the press club that while unemployment had come down far more quickly than the bank expected when it produced its previous set of forecasts in November, its new forecasts had unemployment slipping only from 6.6% to 6% over the course of this year, and then taking another 18 months to reach 5.25%

An unemployment rate below 5% is beyond the bank’s forecasting horizon.

That’s why it has undertaken to buy as many government bonds as are needed to keep the three-year bond rate at the bank’s current cash rate target of 0.10%, to make it clear that the cash rate will “be where it is for the next three years”.

‘Creating money electronically’

And there’s another reason for buying government bonds – to restrain the Australian dollar. On Tuesday Lowe announced plans to use a separate program to buy an additional A$100 billion of bonds between April and September.

Combined, the two bond-buying programs will depress Australian long-term interest rates and make foreigners less likely to buy Australian dollars to take advantage of higher rates here than overseas.

Asked directly whether the bank was printing money in order to buy government bonds, Lowe said it was, with the caveat that the modern way of doing things means the bank “creates the money electronically”.

Read more: A little ray of sunshine as 2021 economic survey points to brighter times ahead

While Lowe accepts that the JobKeeper wage subsidy will end at the end of March (“the government made it clear this was a temporary program”) he is extremely keen for governments at all levels to keep spending on infrastructure, saying if weren’t for public projects, non-mining investment would be bad indeed.

While the economy is recovering, and the bank is forecasting slightly stronger economic growth than The Conversation forecasting panel of 3.5% this year and the next, the economy is unlikely to return to the trajectory it was on before the crisis, perhaps ever.

Reserve Bank GDP forecasts, February 2021 and February 2020

Index numbers, December 2019 = 100. RBA, ABS

The bank is envisaging an economy 4% smaller than it would have been. As Lowe put it: “it’s a big number, there’s a big gap there”.

The governor isn’t worried by a likely “blip” in unemployment when JobKeeper comes off in March, but he is worried about what will happen to employment beyond that. The unemployment rate is “higher today than it has been for almost two decades and many people can’t get the hours of work they want”.

Even when the unemployment rate was low (in NSW it got “as it was in 1973” before the crisis) wage growth was weak.

JobSeeker a"fairness issue"

It would help to permanently lift the rate of the JobSeeker unemployment benefit on which a million Australians rely and which is due to return to the poverty-line level of $40 per day in April, although Lowe sees that not so much as an economic question but as a “fairness issue”.

“Different people legitimately have different views on the level of support stopping - my own view is that some increase is justifiable,” he told the press.

Read more: Vital Signs: Any talk about raising interest rates is a huge mistake

The levers he can control, interest rates, will say low for as long as is necessary.

He isn’t “guaranteeing” to keep them low until 2024 or beyond, but he is guaranteeing to keep them low until inflation is sustainably near 3%, something he doesn’t think will happen until unemployment touches 4.5%, something he thinks is most unlikely to happen before 2024.

“I’m not pledging”, he told the national press, “but I am giving you my best guess”.The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.


Monday, February 01, 2021

A ray of sunshine as 2021 economic survey points to brighter times

Suddenly, economic forecasters are optimistic.

Six months ago the forecasting team assembled by The Conversation was expecting Australia’s recession to continue into 2021, sending the economy backwards a further 4.6% throughout the year.

This morning, in the survey prepared ahead of the Reserve Bank board’s first meeting for the year and an address by the Reserve Bank governor to the National Press Club on Wednesday, the same forecasting team is upbeat.

It expects the recovery that began in the September quarter of last year to continue, propelling the economy forward by a larger than normal 3.2% throughout 2021, with growth slowing to more sedate 2.1% per year by the middle of the decade, still well above than dismal 1.7% per year expected six months ago.

Read more: So far so good: MYEFO budget update shows recovery gathering pace

The unemployment rate is now expected to remain near its present 6.6% throughout 2021, instead of soaring to almost 10% as expected six months ago.

But improvement in the unemployment rate is expected to be slow, and as house prices and share market prices climb, most of the panel expect the Reserve Bank to lose its patience and begin to lift interest rates from their emergency lows before the end of next year, ahead of its published schedule.

The 21-person forecasting panel includes university-based macroeconomists, economic modellers, former Treasury, IMF, OECD, Reserve Bank and financial market economists, and a former member of the Reserve Bank board.

Economic growth

Only two of the panel expect the economy to shrink further in 2021.

The rest expect the economy to grow, two of the panel by at least 5%, something that isn’t out of the question given that the economy shrank by 7% during the worst three months of the 2020 coronavirus restrictions and clawed back only 3.3% in the three months that followed.

Panellist Saul Eslake who forecast growth of 3.5% in 2021 six months ago is now forecasting growth of 5.25%, saying the transition away from JobKeeper and other supports has been going more smoothly and the property market and residential building market have holding up much better than he had expected.

Growth will be constrained by unusually slow population growth, a gradual tightening of government purse strings and anticipation of higher interest rates.

China’s 2021 growth, expected to be 4% six months ago, is now expected to be 6.3% as it reaps the fruits of having recovered early from its coronavirus crisis with its production systems intact. Panellist Warren Hogan cautions that longer term China is likely to place less importance on economic growth and more on military adventurism.

The continuing COVID crisis in the United States is expected to push its recovery out into the second half of the year as vaccination programs and President Biden’s stimulus measures take hold.


Although few on the panel expect unemployment to get much worse, most believe it will be many years before the unemployment rate shrinks to the 4.5% to 5% the Reserve Bank has adopted as a target.

Panellist Julie Toth says the end of JobKeeper in March will reduce the ability of struggling businesses to keep their employees. Closed boarders mean skill mismatches and shortages will grow alongside persistent unemployment and underemployment.

Other panellists warn of a “jobless recovery” as large organisations that held onto labour during the crisis start to shed staff as part of digitisation programs.

Living standards

Annual wage growth, at present a minuscule 1.4% – the lowest in the 23 year history of the index – is not expected to improve at all in the year ahead, ending 2021 at 1.4%.

At the same time annual inflation is expected to climb from last year’s unusually low 0.9% to 1.6%, putting it above wage growth for the first calendar year on record, sending the buying power of wages backwards.

A broader measure of living standards, real net national disposable income per capita, which takes account of the hours worked in each job and other sources of income, is expected to continue to climb in 2021, continuing the recovery begun in last year’s September quarter after the precipitous slide of 8% during the first half of last year.

Household spending is expected to climb a further 3.4% in real terms, continuing the recovery begun in the September quarter after a slide of 13.8% in the first half of last year.

Interest rates

The panel expects the Reserve Bank to lift its cash rate from the present all-time low of 0.10% well ahead of the “at least three years” timeframe set out by the bank.

The bank had promised not increase the cash rate until actual inflation was “sustainably within” its 2% to 3% target range.

And it had moved the three-year bond rate to 0.10% as a sign that it expected the cash rate to stay at 0.10% for at least three years.

Although few on the panel expect inflation to climb back to the Reserve Bank’s target range by the end of next year, most expect the bank to begin to lift its cash rate by then.

The Conversation, CC BY-ND

Panellist Mark Crosby says rising home and other asset prices will put the bank under pressure to backtrack on its commitment in the knowledge that the economy is in a position to withstand more normal rates.

Long-term interest rates are already higher than they were at the start of this year.

The panel expects the ten-year benchmark used to set the rates at which the government can borrow to gradually climb from last year’s all-time lows.

Asset prices

Sydney home prices are expected to climb 4.9% after climbing 2.7% in COVID-hit 2020. Melbourne prices are expected to climb a lesser 4.4% after slipping 1.3%.

Saul Eslake says Melbourne’s economy has been far more reliant on interstate and international migration than any other part of Australia and has damaged its image as a desirable destination by its handling of the pandemic.

Other panellists draw a distinction between apartment price growth, which should be weak because of lower demand for international student rentals, and freestanding home prices which should be supported by an implicit Reserve Bank guarantee of three years of ultra-low interest rates.

The panel expects housing investment to climb 3.8% after falling 5% during the first nine months of 2020.

The Australian share market collapsed 37% in just over a month in the early weeks of the coronavirus crisis and spent the rest of 2020 recovering.

Although opinion is split about 2021, the panel’s average forecast is for growth of 3.5%

Panellist Mala Raghavan says low interest rates are forcing long term investors to take positions in companies with strong fundamentals. Craig Emerson says he expects the equities bubble to burst at some point, but probably not while low interest rates continue.

At US$160 a tonne, the iron ore price has almost doubled since the start of 2020.

On balance the panel expects it to ease to US$133 throughout 2O21, noting that at some point Brazil is going to return to full production after a series of dam collapses and pandemic-related problems. China is thought to prefer to buy from Brazil.


The panel expects Australian businesses to find any lift in the share market and consumer spending uninspiring.

After collapsing 24% in the first nine months of 2020 the panel expects non-mining business investment to climb by only 2% in 2021 and 3.1% in 2022.

It cites low immigration and uncertainty over COVID and the shape of new business practices as more important in determining investment decisions than the government’s generous tax incentives.


The panel’s central budget deficit forecasts are not too far from the latest government forecasts released in December at A$192 billion in 2020-21 and $114 billion in 2021-22.

Panellists note that the government will have little opportunity to restrain spending in the lead up to the election and will be under pressure to boost the JobSeeker unemployment benefit which is due to sink back to its pre-COVID level on April 1.

The Conversation

Peter Martin, Visiting Fellow, Crawford School of Public Policy, Australian National University

This article is republished from The Conversation under a Creative Commons license. Read the original article.