Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).
100 years ago today, Australian and New Zealand forces landed at what is now Anzac Cove in the Gallipoli Peninsula, suffering heavy losses as they attempted to storm entrenched Turkish positions. Eight months later, having failed to dislodge the Turks, despite the loss of more than 10 000 killed and 20 000 wounded the Anzacs withdrew, managing to conceal the retreat and evacuate their positions with minimal casualties. This much, along with individual stories of heroism and suffering, is known to just about every Australian.
But there are many important facts that are less well known, and many questions that are rarely asked
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The title of this post is taken from that of the recent Treasury Discussions Paper on Tax, entitled Re:Think. Sadly, as I point out in this Guardian piece, there’s very little evidence of rethinking from Treasury. Most of the paper could have been lifted straight from the Asprey Review of 1975, and the sensitivities of the current government have ensured a step backwards from the Henry Review, with carbon taxes and resource rent taxes now off limits.
Undeterred, I’m going to start on my own review. I’m going to try something a little different in blog terms. This post will be updated whenever I get a chance, both with new material and in terms of publication date so that each new version will appear at the top of the homepage, hopefully with the comments being carried with it. I’m putting in some headings, and starting off with an idea I mentioned recently, that of a tax on bank profits
Aggregates: Revenue, expenditure, budget balance, debt and net worth
Revenue options
* A tax on the super-profits of banks, reflecting their privileged position. Tax base $29 billion. Possible revenue $5-10 billion, or 0.3-0.6 per cent of national income/GDP.
* Reforming the treatment of negative gearing “Quarantine” business losses for individuals, at least with respect to housing investments, and allow them only to be used as an offset against capital gains. Revenue estimate: rising over time to $5 billion a year, or 0.3 per cent of national income/GDP.
Expenditure requirements
As I mentioned a while back, I’m planning a series of posts on tax policy. Since debate about “negative gearing” has been spurred by the suggestion that Labor might restrict it, this seems like a good time to cover the topic.
I’ll give my summary upfront, then go on. The problem is not negative gearing in itself but its interaction with the concessional treatment of capital gains. There are a variety of solutions, but the best is probably to “quarantine” business losses for individuals, at least with respect to housing investments, and allow them only to be used as an offset against capital gains.
I don’t usually respond to posts on Catallaxy, but I will try on this occasion to fix up what I hope is simply a misinterpretation. Responding to the recent proposal by the Climate Change Authority (of which I am a member) for an emissions reduction target of 30 per cent, relative to 2000 levels, to be achieved by 2025, Sinclair Davidson picks out the following sentence
As noted earlier, the Authority is not in a position to prepare meaningful estimates of the costs of meeting its recommended target, primarily because many of these costs will depend on the policies adopted.
and responds
Wow. Really wow. Let’s adopt a policy even though we have absolutely no idea how much it will cost.
This is a serious misreading. As the report says, there a variety of ways in which this target might be reached. There are the methods favored by economists, involving a major role for carbon prices. Costs of achieving emissions reductions using these methods have been estimated on many occasions. The invariable finding is that carbon prices can achieve large-scale reduction si emissions very cheaply.- typical estimates are for a reduction in the rate of economic growth of around 0.1 percentage points. Or, there are much more expensive methods, such as a massive expansion of the current government’s Emissions Reduction Fund (on which more later, I hope).
Since we don’t know what policy this, or a future government, might adopt, we can’t estimate the cost. So, to rephrase Davidson “Let’s propose a target even though we don’t know how the government, should they adopt it, will choose to achieve it”. That is, of course, exactly what the government asked the CCA to do in this report.
The announcement that the Federal government will be (they say, only partly, but UWA appears to have a different view) funding a move of Bjorn Lomborg’s Copenhagen Consensus Center to the University of WA has attracted plenty of comment.
Rather than pile on, I thought I would repost my, decidedly mixed, review of Lomborg’s first CCC effort in 2005.
Readers who attended Sunday School will remember the story of miracle of the loaves and fishes, performed by Jesus on the Sea of Galilee. A couple of fish and a few loaves of bread proved sufficient to feed a multitude.
Something similar appears to be happening in the Galilee Basin, where large, but economically marginal, coal mines are supposed to produce massive wealth for everyone. The Courier-Mail has a report of a court case in which the Alpha mine, owned by GVK Hancock, is claimed to be capable of generating $44 billion in royalties. The royalty rate in Queensland is 10 per cent for coal prices below $100/tonne (prices above that level will almost certainly never be seen again). At the current price of around $65/tonne, that’s $6.50/tonne. Alpha claims to be able to produce 32 million tonnes a year. If realised, that would make a little over $200 million a year. That is, to realise the amount claimed, the mine would have to produce at its maximum capacity for over 200 years.
But that’s the least of the problems. GVK Hancock’s own estimate of the cash costs of extracting coal is $55/tonne and others are as high as $70/tonne (I don’t know if this includes royalties. So, even at the most optimistic estimates of cost and extraction rates we are looking at a margin of $10/tonne for 32 million tonnes or $320 million a year, out of which a variety of corporate overheads will have to be paid. The capital cost of the project will be at least $10 billion. So, at current prices, the gross return on capital before interest, depreciation and amortisation (and tax, if any is paid) is at most 3.2 per cent, barely equal to the rate of interest on Australian government bonds. Obviously, no sensible lender or equity investor would look at this project.
A similar analysis can be performed for Adani’s Carmichael mine, which has apparently lost the $1 billion in funding proposed to come from the State Bank of India, as well as $300 million in equity promised by the Newman LNP government.
Adani claims cash costs of less than $50/tonne, but this seems very optimistic, being dependent on the assumption that other coal projects will fall over, reducing wages and other input costs. But it has a much higher projected output, around 50-60 million tonnes by 2022. So, it could be generating $900 million a year in EBITDA. But it’s hard to see that covering depreciation and interest on a $10 billion project. And of course, another $10-$20 off the coal price would kill the project completely, taking the lenders’ money with it.
In essence, these projects are being kept on life support in the hope of a recovery in coal prices to levels near those that were prevailing when the projects began. That really would be a miracle
My review of reviews of Piketty, over the fold
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A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).
Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
For quite a few years now, I’ve been working on a response to Henry Hazlitt’s Economics in One Lesson, a defence of free-market economics first published in 1946, but still in print and popular among libertarians. Hazlitt, as he says, is essentially just reworking Bastiat’s analysis of opportunity cost, represented by the broken window parable. What I’m trying to do is take the idea of opportunity cost seriously, and apply it across the board, including to issues of income distribution and property rights. It’s obvious (to me, at any rate) that any allocation of property rights to one or more people has an opportunity cost, namely the benefits that could be realised if the property rights were allocated to someone else. This is a live issue when property rights are being created explicitly right now, as they are with various kinds of intellectual property. But it is just as relevant when we come to consider the historical origins of property. I’ve spent a fair bit of time debating the question of whether property rights have a basis (say, in natural law) for existence independent of the states or governments that typically define and enforce them. I don’t want to talk about that issue right now, but it explains why I’m taking an interest in (I think) the most prominent proponent of natural law in relation to property, John Locke.
It’s a long time since I read Locke and, at the time, I was mostly concerned with Hume’s objection that
there is no property in durable objects, such as lands or houses, when carefully examined in passing from hand to hand, but must, in some period, have been founded on fraud and injustice.
That’s true of course. But rereading Locke[^1] I now conclude that he is not offering a theory of original acquisition, but rather one of expropriation, designed specifically to justify the “fraud and injustice” to which Hume refers.
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Like Mark Bahnisch, Eva Cox and a number of others, I’ve resigned as a Fellow of the Centre for Policy Development. It’s a sad day, since CPD has done a lot of great work, and I’ve enjoyed being involved in it. But the leadership of the Centre has taken a decision to move to the right in the hope of being more relevant to the policy process. The most recent outcome has been a paper on tax policy that broadly accepts the Treasury view of the issue, and pushes for a broadening of the GST base, which means taxation of fresh food. This isn’t a new or innovative idea. Rather, it has been part of rightwing orthodoxy for decades. CPDs endorsement allows its advocates to claim some “left” support. That claim obviously gained credibility from having Fellows like Mark, Eva and me. So, we had no alternative but to resign.
I should clarify that, apart from a nice title and a publishing outlet, I wasn’t getting any direct benefit from being part of CPD. So, I’m making a statement rather than a sacrifice.
Among the many failures in the education ‘reform’ movement, the attempt to promote for-profit education has been the most complete. The Swedish experiment, for quite a few years seen as the exemplar of success, has turned out very badly.
In the US, the for-profit schools company Edison failed completely. Far worse for-profit universities like Phoenix, which have prospered by recruiting poor students, eligible for Federal Pell Grants, and enrolling them in degree programs they never finish. Phoenix collects the US government cash, while the students are lumbered with debts they can never repay and can’t even discharge in bankruptcy.
Several years ago, there was a major scandal in Victoria (which led the way in privatising vocational education) about similar practices.
This did not, of course, lead to any change for the better. Instead, governments across Australia followed the Victorian model. For-profit providers responded by emulating the University of Phoenix, with recruiters offering free laptops to anyone will to sign up for a course and the associated debts: the targeted groups were low-income earners who would not have to repay the income contingent loan except in the unlikely event that the course propelled them into the middle class.
This isn’t just a matter of fringe players: a report on A Current Affair[1] identified some of the biggest for-profit firms, such as Evocca, Careers Australia and Aspire. The Australian Skills Quality Authority is supposedly investigating. However, as with the authorities that are supposed to regulate greyhound racing, the obvious question is why, when these rorts have been common knowledge for years, a current affairs show can find the evidence ASQA has apparently missed.
It’s clear enough that privatisating VET-TAFE has been a failure, as would be expected based on international experience. But the answer isn’t to go back to the past. Rather, we need a national framework for post-school education, with funding both for TAFE and universities on an integrated basis.
There’s still the problem of how to wind down the for-profit system. I’d suggest that we could start by converting the better ones into contract providers of TAFE courses, and then gradually absorbing them into a unified system.
Those who don’t like that deal could compete like good capitalists in the open market, charging upfront fees and serving whatever market they could find, subject to ordinary consumer protection laws.
fn1. Presumably reflecting a change in the audience, A Current Affair has started targeting large-scale corporate wrongdoing rather than going solely after the easy target of dodgy tradespeople and low-grade con artists. Unfortunately, the story was spoiled by an apparently irrelevant attempt to drag in the Mormon affiliations of some of those involved in the basis, but you can’t have everything.
That’s the title of a piece I had in the Chronicle of Higher Education in February. CHE is paywalled, but they kindly agree to let me republish here, after a suitable interval. The article (or at least a near final version) is over the fold.
Preliminary estimates from the International Energy Agency, released in March, suggest that energy-related emissions of CO2[1] were unchanged in 2014 compared to 2013. Countries experiencing notable drops in emissions included China, Britain, Germany and the EU as a whole, but not, of course, Australia[2]
This has happened before, but only in years of global recession, whereas the global growth rate in 2014 was around 3 per cent. Of course, there are plenty of special factors such as a good year for hydro in China. Still, after looking carefully at the numbers, I’ve come to the conclusion that this really does represent, if not the long-sought peak in emissions, at least the end of the link between rising living standards and CO2 emissions.
The most striking feature of 2014 in this context was the behavior of fossil fuel prices. Coal prices had already fallen a long way from their peak levels in the years around the GFC, and they kept on falling through the year, even as coal mines began to close and lots of projects were abandoned. Oil prices remained at historically high levels until the middle of the year but then joined the downward trend, which has continued into 2015. Natural gas is a more complex story, since there isn’t a global market, and I haven’t figured it out yet.
Still, it seems to me that the 2014 outcome is a consistent with a story in which most growth in demand for energy services will be met by a combination of renewables and energy efficiency, and in which coal continues to lose ground to gas. The lack of demand implies that fossil fuel prices are likely to stay permanently below the levels anticipated when most recent projects were initiated.
Behind all this, it seems as if the various piecemeal measures introduced with the aim of switching away from fossil fuels are working better than almost anyone expected, and with minimal economic cost. Hopefully, this will encourage world leaders to set more ambitious targets, consistent with stabilising the global climate at temperatures 2 degrees or less above pre-industrial levels.
A new sandpit for long side discussions, idees fixes and so on. Unless directly responding to the OP, all discussions of nuclear power, MMT and conspiracy theories should be directed to sandpits (or, if none is open, message boards).
Another Monday Message Board. Post comments on any topic. Civil discussion and no coarse language please. Side discussions and idees fixes to the sandpits, please.
There were a bunch of demonstrations and counter-demonstrations at the weekend, sparked by supposed concerns about the possibility of Islamic sharia law being imposed in Australia. While the anti-sharia demonstrators were clearly drawn from the extremist fringe, there has been plenty of commentary on this subject from commentators generally regarded as mainstream, and from elected politicians such as Cory Bernardi and Jacquie Lambie.
The prospect of any significant legislation being based on Islamic sharia law seems pretty remote. On the other hand, those who claim to be concerned about sharia law (the Arabic term simply means ‘religious law) might want to consider the much more relevant issue of ‘shar??at al-Mas??’ (the Arabic term for ‘religious law of Christianity’).
Despite the Australian Constitutional prohibition on establishing any religion, lots of Australian laws are derived from Christian taboos, and many more have been in the past. Equally importantly, there is a group called the Australian Christian Lobby which, as the name implies, lobbies for the imposition of shar?at al-Mas??. Its activities are reported as if it is a legitimate political grouping, and not, as concerns about sharia law would suggest, a theocratic danger to our personal freedom.
When you look at the kind of issues being pushed by the Australian Christian Lobby, notably on their signature issue of opposition to gay rights, there’s not much difference from what you might expect from proponents of sharia law.
As I’ve said before, it seems highly likely that Christians will soon be in the minority in Australia. So, my unsolicited advice to the ACL is that they should support tolerance and civil liberties for all, rather than attempting to use the temporary majority status of Christianity to impose their version of sharia law. There’s nothing wrong with political activity being motivated by general religious values, but a lot wrong with attempts to impose your own religious taboos on others.
Ross Gittins cites some interesting questions used by some of my QUT colleagues to assess cognitive biases before undertaking a study of investment behavior. Here you go: Try to answer before reading on or checking comments:
Give me high and low estimates for the average weight of an adult male sperm whale (the largest of the toothed whales) in tonnes. Choose numbers far enough apart to be 90 per cent certain that the true answer lies somewhere between.
Don’t like that one? Try this: give me high and low estimates of the distance to the moon in kilometres. Choose numbers far enough apart to be certain that the true answer lies somewhere between.
Now something more personal. When you buy a Lotto ticket do you feel more encouraged regarding your chances if you choose the number yourself rather than using a computer-generated number?
There has been even more media excitement about the fact that New Zealand is currently experiencing more rapid economic growth than Australia. This is largely due to the fact that the two economies are in different phases of the medium term macroeconomic cycle.
However, there is another important factor that needs to be taken into account in making comparisons of this kind. Given access to the same technology, and with similar levels of education, poor countries will grow faster than rich ones, and will eventually converge to similar level of income. There’s a huge literature on this, to which I contributed a little bit back in the 1990s. The key finding is that, on average and under the conditions just stated, we should expect to see a poorer country make up around 2 per cent of the income gap with a richer country each year. That is, convergence will typically take around 50 years (there’s some tricky Zeno-style paradoxes here, which I don’t have room to discuss)
How does this affect comparisons between Australia and New Zealand. The IMF estimates here give income per person of 45138 for Australian and 33626 for New Zealand. So Australia’s income is about 35 per cent above the New Zealand level. The two countries were roughly on a par until the 1970s.
The standard convergence estimate is that NZ should make up about 2 per cent of that gap (or 0.7 per cent of GDP) each year. If the gap is larger, NZ could reasonably be said to be outperforming Australia for the year in question, relative to the standard 50 year timeframe for convergence. If the gap is smaller, NZ is doing worse than par.
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