Strong Choices poorly received by public – Treasury needs to do a lot more work

The Queensland Government needs some new advisers who can prepare logical, coherent arguments as to why particular assets such as ports and electricity businesses should be privatised, because the current Strong Choices campaign has flopped (see the Brisbane Times article Strong choices on budget spark debate). The campaign appears to have been developed by PR consultants, but it doesn’t present any facts or logic that would convince the public on the need to sell assets. It doesn’t address the primary concern people have over asset sales – that the community will get ripped off and private operators will make monopoly profits. The Government needs to explain how the proposed sale process and post-sale regulation will protect the public from getting ripped off. Given I support the Government’s position on asset sales, I’m disappointed that it is being let down by poor PR advice.

Steve Austin and I had a good chat about the problems with the Strong Choices campaign and the People’s Budget website application on 612 ABC Brisbane radio yesterday morning:

Economist labels “Strong Choices” a joke

Steve got in touch with me early yesterday morning after he read my Monday night post:

Qld Treasury needs to explain logic of asset sales much more clearly

Also, I’d recommend Mark Beath’s post from yesterday:

Clean for Gene: Strong Choices or Weak Leadership?

Mark makes a great point about the failure of the website application to offer genuine choices around changing the tax mix:

Sadly, there was no interactive option which allowed me to play with abolishing stamp duties on insurance and property transactions in return for a broad based land tax. More sadly the responses they are likely to receive on the info provided could well lock out any such reform. The explanatory information provided on land taxes will inevitably skew a more negative response.

The Queensland Treasury needs to pay less attention to its PR consultants and instead focus on producing solid economic analysis of the pros and cons of asset sales, which can then inform a serious public debate.

Posted in Budget, Queensland Government | Tagged , , , , | 5 Comments

Qld Treasury needs to explain logic of asset sales much more clearly

In her terrific book On Speaking Well, former Presidential Speech Writer Peggy Noonan argues convincingly that people ultimately are moved by logic, and you shouldn’t underestimate the intelligence of your audience. She writes:

A good case well argued and well said is inherently moving. It shows respect for the brains of the listeners. There is an implicit compliment in it. It shows that you’re a serious person and understand that you are talking to other serious persons.

Peggy Noonan’s words came to mind when I learned about the Queensland Government’s Strong Choices campaign, which unfortunately doesn’t present the strongest case it could for privatisation. The campaign seems vulnerable to the standard attack that privatisation doesn’t really improve the budget balance because of the forgone earnings (e.g. see John Quiggin’s post The “People’s Budget” that doesn’t add up), and, alas, it seems a bit of a gimmick.

A problem with the campaign is that it appears to assume it is absolutely necessary to cut the State debt by $25-30 billion. Well, in my view, it’s highly desirable to do so, but it isn’t absolutely necessary. The Government faces higher borrowing costs because of its large debt, but the Government is not at risk of defaulting on its debt. The Queensland Government can borrow at a rate of 4.44% p.a. for a ten-year term, which doesn’t suggest the bond market is too panicked about our capacity to repay. (We are, of course, penalised by the bond market for our level of debt and lack of a AAA rating though. Compare Queensland’s borrowing rate of 4.44% p.a. with the Commonwealth’s borrowing rate of 4.02% p.a. for a ten-year term).

The Government needs to explain more clearly why it needs to sell assets. In my view, the two strongest arguments are:

  • the assets will be better managed by the private sector, boosting efficiency and productivity across the economy and improving the State Budget (see Brad Rogers’s great post Queensland ports for sale), and
  • the Government will save hundreds of millions in borrowing costs every year (through a lower interest rate) if we can regain our AAA credit rating by using the proceeds of asset sales to pay down debt.

I’ve made these points in several posts, including:

Govt should embrace Costello Commission of Audit privatisation recommendations

Qld budget surplus delay not a big deal, but reinforces need to consider Energex & Ergon sell off

It’s not too late for the Government to win the debate on asset sales, but it needs to present more compelling logic. The Government’s current arguments for asset sales are too simplistic and probably won’t persuade the public. The Government should ask the Treasury to produce a solid report presenting the pros and cons of privatisation – analysing in detail the merits of selling particular assets such as energy businesses and ports, directly addressing the question of whether they would be better run by the private sector. The Government should then present this analysis to the public in speeches and informative publications and websites.

Posted in Infrastructure, Macroeconomy, Queensland Government, Transport | Tagged , , , , , | 4 Comments

Economic impact of natural disasters

Having grown up in Townsville, I know very well that North Queenslanders are a resilient bunch and will recover quickly from the impacts of Cyclone Ita, although, as we’ve seen, the immediate impacts on some families and communities have been severe (see Ita’s clean up to be lengthy and costly and Cyclone Ita smashes Ingham’s four-million-tonne sugar cane crop). I’ve posted before on how communities and economies bounce back quickly from natural disasters and how the macroeconomic impacts of disasters tend to be small:

Recovery from natural disasters

Northern and Far North Queensland account for around 9% of the Queensland economy (see Queensland Treasury’s Experimental Estimates of Gross Regional Product). Even if the cyclone affected regional gross regional product (GRP) by 1% over the year, the impact on gross state product (GSP) would be less than 0.1%.

Posted in Cyclones, North Queensland | Tagged , , , , , , | 2 Comments

QCA issues paper shows large potential savings in industry assistance

The Queensland Competition Authority yesterday released its issues paper for its inquiry into Queensland Government industry assistance. The paper provides an excellent framework for evaluating industry assistance measures. It also highlights a number of costly assistance measures provided by Queensland Government, including:

  • $13 million p.a. for Screen Queensland,
  • $46 million p.a. for the First Start Loan Program (concessional loans to new farmers),
  •  $75 million p.a. for Tourism and Events Queensland,
  • $120 million p.a. in tax concessions for owners of gaming machines and casinos (which seems very peculiar), and, among many more,
  • $110 million p.a. in subsidised electricity prices to regional businesses, mainly farmers and irrigators.

This is a great start for the QCA. What I’d really like to see in the final report is a hit list of programs with strong logical arguments for why they should be cut. I look forward to the interim report at the end of August.

I’ve previously posted on the industry assistance review:

QCA review of Qld Govt industry assistance is great news

Posted in Industry policy | Tagged , , , , , | Leave a comment

Qld unemployment rate falls slightly to 6.1% – rising participation a good sign

The March labour force data released today by the ABS, showing the unemployment rate falling to 5.8% from 6.1% in February, were good news for the Australian economy, as reflected in the dollar surging and one prominent commentator forecasting an increase in interest rates later this year (see MacroBusiness’s post Bloxo: Rate hikes this year!). While falling slightly (by 0.1 percentage points) in March, the Queensland unemployment rate stills remains above 6% at 6.1% in seasonally adjusted terms (see chart below).

urate

I agree with Pete Faulkner’s assessment that Queensland’s rising participation rate is a good sign of a recovering labour market (see Strong jobs sees UR fall; QLD also looks better and the chart below). The participation rate is the fraction of the civilian population aged 15 or over that is in the labour force – i.e. either already in work or actively looking for work and hence counted as unemployed. It typically rises when an economy is recovering because a number of people – particularly the so-called marginally attached to the labour force – decide it might be time to begin actively looking for work now that conditions are better (see my post People marginally attached to the labour force behind participation rate movements).

prate

Posted in Labour market | Tagged , , , , , , , , , , , | 3 Comments

New Treasury modelling supports change in tax mix towards GST

In the latest Commonwealth Treasury Economic Roundup, there is an excellent paper on the economic impacts of company tax. The paper could be viewed as supporting a cut in company tax and replacing the lost revenue with greater GST revenue, either from broadening the base or increasing the rate of the GST (The incidence of company tax in Australia). As the paper shows, company tax is an inefficient tax because it reduces the level of investment in the economy, and this cost is borne by both shareholders and workers. The authors of the Treasury paper note (p. 43):

The welfare effects of a 1 percentage point cut in the company tax rate are shared between company owners and workers. Estimates from the main scenario, which includes economic rents, suggest that in the long run only around one-third of these benefits accrue to the owners of capital, with the remaining two-thirds flowing to households primarily through higher wages.

I’ve previously posted on taxation issues and I’ve noted that it would be desirable to cut a range of inefficient taxes, particularly stamp duty, and to replace forgone revenue with a broader-based GST. Relevant posts include:

Dr Parkinson right that the GST should be broadened

GST changes should be considered as part of wide-ranging tax and expenditure review

 Inefficient State taxes

Posted in Tax, Uncategorized | Tagged , , , , , , | 2 Comments

Top ten contractors supplying to Qld Government

Business people and professionals across Queensland will be interested in data recently uploaded to the Queensland Government’s www.data.qld.gov.au website, particularly because it will allow them to check how much Government work their competitors have obtained (Queensland contract disclosure—$10,000 and above). For example, the data set reveals around $6 million worth of Government contracts were awarded to Deloitte in 2013. Based on this data, I’ve prepared the chart below showing the top ten contractors to the Queensland Government. Although the description of the data on the website notes the data are for contracts awarded by the Queensland Government over the last six months, the data appear to relate to the whole of 2013 from an examination of the data set.

Suppliers

Posted in Budget, Queensland Government | Tagged , , , , , , | 2 Comments