Saturday, September 30, 2017

Mounting housing stress underscores need for expert council to guide wayward policy making

Stronger, better-founded evidence about the nature and extent of the affordable housing problem may help build consensus about how to tackle it effectively. But the Abbott Government disbanded the National Housing Supply Council. Now the Opposition is talking about reinstating it. Hal Pawson (UNSW) and Oliver Frankel (UTS) why this may help.

Wednesday, August 16, 2017

Is coal still cheaper than renewables as an energy source?

Coal-fired power is only cheaper than renewable energy where the capital cost of the plant is sunk. For new power facilities, renewables is already cheaper. A factcheck by Ken Baldwin (ANU) Dylan McConnell (Uni Melbelbourne) and Tony Wood (Grattan Institute)in The Conversation runs through the numbers.

Monday, June 12, 2017

Is Australia's economy really a world-beater?

The claim that Australia has  gone twenty-six years without a recession is true, but only if you accept three assumptions. Unfortunately, none of them has any official or intellectual basis. Tim Colebatch explains in Inside Story that that economics has no accepted definition of a recession. In public debate, the gap has been filled by the silly measure journalists love to use: a recession occurs when seasonally adjusted GDP goes backwards for two quarters.

Fancy government financing could still cost the taxpayer

Project financing should minimise the level of public subsidy needed to deliver the project; and where risk is borne by the private sector, it should be transparently priced and deliver clear value for money for the taxpayer. Marion Terrill (Grattan Institute) explains.

Friday, May 19, 2017

Do Australian banks have double the return on equity of banks in other developed economies?

Jim Minifie (Grattan Institute) checks, and Rodney Maddock (Monash University) reviews the Treasurer's claims that Australian banks have a return on equity about twice that of overseas banks. While they find that claim is true, its not because Australian banks are earning super profits - it's because the banks of the US and Europe were affected badly by the Global Financial Crisis and are still under-performing.

Tuesday, May 9, 2017

Tax on ‘unearned gains’ is the missing piece of the affordable housing puzzle

Extending capital gains taxation to cover annual improvements in land value would improve discourage housing speculation and improve housing affordability. Brian Feeney (University of Queensland) explains.

Government spending from Howard to Turnbull

Alan Duncan and Rebecca Cassells (Curtin University) explain Commonwealth expenditure patterns since 1998. 

Thursday, May 4, 2017

The government is swimming against the tide on Westpac’s Adani decision

No one is going to make even short-term profits out of the Adani coal mine, with its huge upfront capital investment, unless they get a substantial subsidy from the taxpayer. And the long-term prospects look grim. David Peetz and Georgina Murray (Griffith University) explain that those who argue that Westpac’s decision was “illogical” are swimming against both the financial and technological tides.

Why biased budget forecasts make poor politics

Budget outcomes have continued to surprise because of systematic revenue forecast errors by Treasury, which dwarf actual policy changes in explaining changes to the budget bottom line. These are compounded by the wilful blindness of politicians, happy to use these forecasts to justify avoiding difficult decisions. John Daley and Danielle Wood (Grattan Institute) explain.

Wednesday, May 3, 2017

WA’s economic mismanagement is not a reason to review how the GST is carved up

The questions in the terms of reference, that the Treasurer has given to the Productivity Commission, were answered almost five years ago by a similar inquiry, which found many of the concerns about the current system were overstated. And, contrary to the Treasurer’s insinuation that “the current approach of horizontal fiscal equalisation creates disincentives for reform”, the previous inquiry concluded there was not enough evidence of efficiency losses in the economy. Saul Easlake (University of Tasmania) explains.

Tuesday, April 18, 2017

Budget explainer: has there been a blowout in social security and welfare spending?

It is difficult to reach the conclusion that the share of the population receiving social security payments has been increasing significantly, or that spending has been growing at an unsustainable rate relative to the size of the economy. Peter Whiteford (Australian National University) explains.

Monday, April 10, 2017

The need for new housing solutions for low-income groups is clearly a pressing requirement

Growth in the national housing stock has kept pace with population growth for almost a decade. However, the picture differs across state and territory capitals. Official figures (June 2015) reveal there were 154,000 households on state housing authority waiting lists for public housing, but it is likely that the length of these waiting lists underestimates the need for public housing. The need for new housing solutions for low-income groups is clearly a pressing requirement. Gavin Wood (RMIT University) and Rachel Ong (Curtin University) explain.

Mortgage stress isn’t as bad as we are told

The debate about housing affordability has recently drifted into the issue of systemic financial system risk. However, the risk of people not being able to repay their home loans appears small and 
there is no clear case that the household sector has borrowed excessively. 
A lot of the confusion about housing arises because people make inappropriate comparisons. One common mistake is to compare the amount of housing debt with national income - this is highly misleading. Rodney Maddock (
Monash University) explains
.

Friday, April 7, 2017

Australian politics explainer: the writing of our Constitution

Ryan Goss (Australian National University) explains the development of Australia's Constitution, its impact at the time, and its relevance to politics today.

Friday, March 31, 2017

Tuesday, March 28, 2017

Houses aren’t more unaffordable for first home buyers, but they are riskier

Comparisons of housing affordability typically compare the ratio of house prices to incomes - ignoring interest rates, which have a greater impact on changes in affordability. Jamie Alcock (University of Sydney) explains.

Monday, February 27, 2017

Business investment is weak, but an unfunded company tax cut won’t fix it

The overwhelming reason why companies undertake investment is to exploit market opportunities for the goods and services that the investment supports. Cutting the rate of company tax can lead to a marginal increase in the after-tax rate of return of an investment - but only if the project is profitable in the first place, and that depends on demand and broader economic growth. 

Because of dividend imputation in Australia, the role of company tax in influencing investment decision is even more marginal than in other countries - it is mostly only foreign shareholders that would benefit from a cut in Australia's company tax rate.

Jim Minifie (Grattan Institute) explains the importance of economic growth for investment decisions.

Sunday, February 26, 2017

Latest Murray-Darling squabble sheds light on the plan’s flaws

Lin Crase (University of South Australia) explains that federal governments using the plan have found shifting water away from irrigation at least as difficult and costly as it is for the states.

Friday, February 24, 2017

Thursday, February 2, 2017

What economists and tax experts think of the company tax cut

In a perfectly stylised model of the economy, a company tax rate reduction to 25% could be expected to deliver modest economic gains. But the evidence overwhelmingly rejects such a notion. Jenni Henderson (The Conversation) explains why Australia's leading economists disagree with the Government's economic justifications for a company tax rate cut.

Tuesday, January 31, 2017

What are the facts on Australia’s foreign aid spending?

A news report highlighting the fall in Australia’s foreign aid spending quoted World Vision Australia Chief Advocate Tim Costello as saying aid was at its highest under Prime Minister Robert Menzies, at 0.5% of gross national income – at a time when per capita income was much lower.

Aid was at its highest under Menzies, at 0.5% … when per capita income was much lower. World Vision Australia chief advocate Tim Costello, quoted in The Sydney Morning Herald, December 28, 2016.

Robin Davies (ANU) reviews whether that is right in The Conversation.

Checking the source

When asked for sources to support his statement, Reverend Tim Costello referred The Conversation to Organisation for Economic Co-operation and Development (OECD) data published here. He added:
If anything, I perhaps understated the case because aid was actually a bit higher than 0.5% in the 1960s.
Aid first went over 0.5% in 1963, dipped slightly in 1964, then went over 0.5% again from 1965 and every subsequent year into the 1970s. In 1967 and again in 1970 it hit 0.62%.
The highest single year was 1975 at 0.65% but the highest decade taken as an average was the 1960s under Menzies.
You can read Costello’s full response here.

Is it true Australia’s foreign aid spending was at its highest under Menzies?

In making his statement about foreign aid spending, Costello relied on data published by the OECD that go back as far as 1960.

Given the difficulty of obtaining data from Australian government sources on aid spending during the Menzies era (meaning 1949-66 for present purposes, though Menzies also served as Prime Minister from 1939-1941), this is understandable. However, it’s not safe to depend upon OECD aid statistics in this instance.

Based on the most up to date Australian government data, the highest aid to gross national income ratio under any Australian government since annual reporting began was 0.48%. That was in the financial year 1967-68 under three Prime Ministers in quick succession: Harold Holt, John McEwen and John Gorton.

Costello’s broader point is correct. Australian aid generosity is a fraction of what it once was. Australia’s share of aid to gross national income is projected to decline to its lowest level ever in 2016-17, 0.22%. Generosity under Menzies was twice as high as it is now, even though gross national income per capita was less than half of its present level in real terms.

What’s the problem with using OECD data on aid spending?

A careful review of the statistics published by relevant Australian government agencies, including some that are tricky to find, indicates that the OECD’s aid to gross national income ratios for Australia are quite inflated for the three decades or so from the early 1960s to the mid-1990s.
This inflation is mainly down to differences between the OECD’s estimates of Australia’s gross national income and Australia’s own estimates.

While OECD data on Australia’s gross national income over time are based on the Australian government’s reporting to the OECD, the Australian government periodically revises its estimates of past gross national income. Such revisions appear not to have been reflected uniformly in OECD data.

On average, the aid to gross national income ratios for Australia published by the OECD up to 1995 are inflated by about 20%. For some individual years, including 1975, the ratios are inflated by more than 40%.

How else can we track Australia’s aid spending?

The Development Policy Centre’s Aid Tracker uses the most readily available Australian government statistics to show Australian aid flows since the financial year 1971-72. The highest aid to gross national income ratio between then and now was 0.47%, in 1974-75.

But what about the Menzies era?

It’s no straightforward matter to obtain statistics from Australian government sources on annual aid flows under Menzies, or any other prime minister before Whitlam. But they can be found with a little detective work. Data on annual aid spending as far back as 1961-62 are buried in old Australian Bureau of Statistics Year Books.

Australian government data, including the old Australian Bureau of Statistics data just mentioned, show that the highest aid to gross national income ratio under any Australian government was 0.48%. That ratio was seen under Prime Ministers Holt, McEwen and Gorton in 1967-68.

The chart below compares Australia’s actual aid to gross national income ratios (blue line) with those asserted in OECD statistics (orange line). The red line represents the 0.5% aid spending target that both major political parties had, for a time, pledged to meet by 2015. The purple line represents the 0.7% United Nations target for foreign aid spending.


The Conversation/Data from: ABS Annual Year Books, 1970-72; AusAID Blue Book 2012-13; DFAT Green Book 2013-14; Federal Government Budget Papers 2014-15 to 2016-17; OECD Development Assistance Committee Official Development Assistance database.

See this spreadsheet for a collation of the data on which the above chart is based. You can read more about my methodology, including how the chart was constructed, here.

How has Australia’s foreign aid spend changed over time?

There have been unprecedented reductions in Australia’s overseas aid spending since the Coalition came to office in 2013.

Australia’s aid budget for 2016-17, at $3.8 billion, is around one-third less in real terms than the $5.1 billion spent in 2012-13.

The $5.1 billion spent in 2012-13 represented the peak of Australia’s aid effort in dollar terms. But in terms of the ratio of aid to gross national income, it was well below the levels of the 1960s and 1970s.

Based on the economic growth forecast contained in the government’s December 2016 Mid-Year Economic and Fiscal Outlook, Australia’s 2016-17 aid budget is estimated to amount to 0.22% of Australia’s gross national income.

In dollar terms, that’s 22 cents in every $100, compared with 34 cents in every $100 in 2012-13 and 48 cents in every $100 in the late 1960s.

In recent years both major Australian political parties have made and subsequently abandoned time-bound commitments to meet an aid to gross national income ratio of 0.5%.

A ratio of 0.5% would be well below the United Nations target of 0.7%, which was met or exceeded by six OECD donor countries in 2015 (the United Kingdom, Netherlands, Denmark, Luxembourg, Norway and Sweden).

Given that estimates of gross national income have been revised over time, it’s important also to consider policy intentions. Australian Bureau of Statistics Year Books from the early 1970s show that Australian governments believed, in the late 1960s and early 1970s, that they were allocating more than 0.5% of Australia’s national income to aid.

Australians are much wealthier than they were 50 years ago

Costello is certainly right to say per capita income (gross national income divided by the number of Australians) was much lower in the Menzies era than it is now.

Growth in per capita income has slowed lately, and household disposable income has fallen over the last several years. But Australia’s per capita income remains well above the average of OECD member countries, and of all high-income countries.


The Conversation/Data from World Bank - World Development Indicators


So while Australians have grown richer, our aid generosity has declined.

Verdict

Tim Costello’s underlying point is correct, even if his specifics were a bit out.

The highest aid to gross national income ratio under any Australian government was in fact 0.48% under Holt, McEwen and Gorton in 1967-68.

Costello relied on OECD statistics that are unreliable for the period in question. Even so, he was only out by a year and a fraction of a percentage point. Moreover, governments at the time did believe they were spending more than 0.5% of Australia’s national income on aid.

Costello’s broader message – that Australia’s foreign aid generosity has diminished while Australians have become wealthier – is correct.

Aid generosity under Menzies was twice as high as it is now, even though per capita income was less than half of its present level. – Robin Davies


Review

This is a sound FactCheck. The author has provided a careful, sophisticated and impartial analysis of Australia’s foreign aid spending from the 1960s to the present day. We know little about how Australian aid spending levels prior to 1971 compare to today’s and it is terrific that the author has delved into this area despite the data-related and methodological challenges.

I would add that it is worth considering how the Australian government has measured foreign aid spending, whether this has changed between the early 1960s and the present, and — if there have been changes — whether they affect our ability to compare aid to gross national income ratios across this time period. I expect that doing so will not materially affect the analysis but it would be useful to know. – Andrew Rosser (University of Adelaide)

This article was originally published in The Conversation and is republished under creative commons licence.

Thursday, January 19, 2017

Difficult task ahead for reforming health

Sussan Ley launched a series of major reviews of health spending programs. The proposals from these reviews are now on the table, and Jim Gillespie (University of Sydney) argues that Greg Hunt will have a series of difficult tasks in implementation.