Wednesday, 31 May 2017

State Budget: Back to the barn


Put away the Prozac. There are now surpluses as far as the eye can see.

That is the message from this year’s State budget.

Friday, 26 May 2017

Budget pork


If it sounds too good to be true it probably is.

When a government announces in a Budget that it will spend extra on health next year, is that compared to

1.   what has been spent in the current year?; or

2.   what it intended to spend a year ago?

In the case of health the answer is 2.

In last year’s budget the Tasmanian Health Service THS spending was intended to be $1,368 million in 2016/17 and $1,362 million in 2017/18.

If one looks at the Policy and Parameter Statement in this year’s budget papers (Budget Paper 1 page 67) THS’s estimated outcome for 2016/17 shows an extra $106.7 million being spent (or estimated to be spent) for 2016/17. This suggests THS spending of $1,475 million for 2016/17.

Now looking at this year’s budget papers, intended spending by THS (Budget Paper 2 vol 2 page 109) for 2017/18 is $1,460 million.  That may be $98 million more than what was intended a year ago but it is less than what was actually spent in the current year 2016/17.

If the system is in crisis spending less is unlikely to fix the problem.

That’s what Building Tasmania’s Future means. The Mercury was quite correct in depicting the Treasurer in this morning’s edition as a snake oil salesman with a warning that the tonic being marketed may contain pork.

There’s an unreality about the budget. Let’s have a look at the overall Income Statement (Budget Paper 1 page 47), in particular the figures for employee expenses. To make it easy part of the relevant table is pasted below.




I’ve added the estimated outcome figures from page 191. It easy to see the increases in employee expenses are $29 million in 2017/18 then $30 million and $31 million in the next two years.

In % terms that’s a 1% increase in each of the next 3 years. Scarcely believable when the estimated outcome for the current year 2016/17 was $60 million above budget and the Treasurer had the place ticking over like a well oiled machine. Even less credible given wage increase are tracking at a rate higher than 1%, and employment in the health area is supposed to rise.

The coming election is sure to be a pork fest.

Wednesday, 17 May 2017

The bank competition myth


“Australian banks are upset. Their $30 billion per year gravy train of profits from the Australian people is finally being slowed down.

A levy on bank liabilities of 0.06% annually was announced as part of the 2017 Federal government budget, and is expected to raise about $1.5 billion per year, or 5% of bank profits.


To be clear, the banking system is a regulated cartel. Its primary function is to provide a public good in the form of the money supply of the country. As such, we would expect it to be uncompetitive, and use tight regulatory controls to ensure that the privileged position of private banks is not being abused.

In my book, Game of Mates, I explain that the result of this uncompetitiveness and lack of adequate regulation in Australia is that over half of the banks' profits can be considered economic rents, which could be taken back with better regulation and shared with the public at large.”


Read the full article on Cameron Murray’s blog.

Game of Mates


“This is the story of how Australia became one of the most unequal societies in the Western world while merely a generation ago it was one of the most equal. It is the story of how groups of ‘Mates’ have come to dominate our corporate and political sectors, and managed to rob us, the Australian majority, of over half our wealth.”

So begins a just released book by one of my favourite economists Cameron Murray, written with another Queenslander Paul Frijters.


Tuesday, 2 May 2017

A note on GST relativities


If you want to understand more about how the GST pool is split between States have a look at the following table.




Monday, 1 May 2017

Good vs bad budget nonsense


It’s good that the Federal Treasurer has raised the possibility of legitimising more government debt. 

The Federal government budget papers are to be revamped, we are told, to more realistically reflect good and bad debt.

What does all this mean?


Sunday, 30 April 2017

Hydro vs Basslink episode 23


Little is publicly disclosed about the latest dispute between Hydro Tasmania (HT) and Basslink Pty Ltd (BL) following the six month cable outage from December 2015 to June 2016. BL has just revealed a little more with the lodgement of its 2016 Financial Statements and Report with Australian Securities and Investment Commission (ASIC).

We knew HT has not been paying the monthly facility fee to BL  since September 2016 but that it has been making good faith payments. However these are considerably less than the facility fees otherwise payable. The amount in dispute between the parties could get out of hand?

Saturday, 15 April 2017

Reforming banking


Economist Nicholas Gruen has posted a couple of interesting articles recently about reforming banking. Our central bank, the Reserve Bank RBA, lies at the heart of the banking system. Rethinking and adapting its role more in line with the internet age could easily put thousands of dollars into the pockets of Australian households and billions into government coffers he argues.

Wednesday, 12 April 2017

Budget challenges: Money debt & other myths


This is an address to a breakfast meeting of the Burnie Chamber of Commerce & Industry on 12th April 2017.

I’d like to advance the proposition that most of what is commonly believed about money, government spending and debt is wrong. Seriously wrong....and it’s stopping us from sensibly moving forward.

You may remember the Queen in 2008 going to the London School of Economics to open a building as I recall. Referring to the GFC (global financial crisis).... Lehman Bros had just collapsed....she was famously captured on camera saying "Why did nobody notice it?" Their models were wrong that’s why. Money wasn’t in the models. Banks were assumed to be passive intermediaries lending funds from patient savers to willing borrowers. That may have been the situation pre 1971 before President Nixon abandoned the 1944 Bretton Woods agreement which incorporated the gold standard and underpinned bank lending practices. The world changed after that .....and economics didn’t keep up.

Put simply...a lot of economists don’t understand accounting.

Tuesday, 11 April 2017

Housing bubble now official




Great post by Matt Ellis , the Rational Radical.

“Our three economic regulators have finally revealed themselves as the three witches busy tending their poisonous brew while chanting “Bubble, bubble, toil and trouble!” to a nation of tone-deaf property speculators and commentators-come-experts. The architects of our dreaded housing and economic Frankenstein are among the last to formally recognise the monster of their own creation for what it is – a hideous creature that defies all reason, logic, decency, ethics and ultimately, any ability to survive.

Such is the well documented exceptionalism and wilful blindness of the collective Australian bubble psychology, that bubble believers and sceptics alike have come to the physics defying conclusion that Australia has invented an actual perpetual motion machine. The problem with perpetual motion machines? They don’t exist. Can’t you just feel the growing friction rubbing up against the bloated sack of housing hot air? I am amazed at how tenacious the belief is that exponentially growing imbalances can go on forever, when every fibre of the economy must be sacrificed at the altar of housing speculation in ever more dramatic interventions just to keep the damned thing afloat for another few months or years. For just one more election cycle.”

Read the full blog at HERE

Friday, 7 April 2017

Cable car hype


Just a little more info that was omitted from the previous blog to satisfy the space constraints of a tabloid blog.  

Mount Wellington Cableway Company Pty Limited (MWCC) draws attention to itself by its use of hyperbole and alternative facts. And that what gives the show a Mickey Mouse flavour.

Thursday, 6 April 2017

Cable car conflicts


Premier Hodgman was dismissive of concerns about State Growth Minister Groom’s close relationship with Adrian Bold, proponent of the Mount Wellington cable car project, as revealed on social media.

“There are a lot of things that require my attention ---- Matt Groom’s Facebook page isn’t one of those”, he said.

What if the chair of Tourism Tasmania was a 50 per cent owner of a company which is the largest shareholder, apart from Mr Bold, in the cable car venture? Would that appear on the Premier’s radar? After all he is Minister for Tourism as well.


Monday, 27 March 2017

Hydro Tasmania's Basslink stoush


If force majeure is the reason for the Basslink outage then maybe Hydro Tasmania owes Basslink for the six months when the interconnector was being repaired?


Sunday, 26 March 2017

Tas Water & Councils: The broader picture


The previous blog had a closer look at Tas Water’s cash flow statements to show how Tas Water is managing to fund its capital programs with a mixture of operating cash and borrowings and how the distributions to owner councils each year require even more borrowings.

So what is the situation with councils?


Monday, 20 March 2017

Tas Water's cash flows in detail


This is the third in a series of blogs on Tas Water.

The Tas Water saga is yet another example of our inability to solve simple problems. It has quickly degenerated into a political imbroglio where the issues that lay at the heart of the problem are quickly forgotten. This blog will attempt to redress the imbalance.

Friday, 17 March 2017

Tas Water: Where's the money coming from?


Where’s the money coming from?

That’s the problem facing Tas Water irrespective of who might be running it.

For starters there’s $2.5 billion of surplus cash sitting on Tascorp’s balance sheet earning 2.6%.

Tas Water's problems


One doesn’t need Nostradamus’ foresight to realise that borrowing to pay dividends is unsustainable. Especially if the business urgently needs to spend more on capital upgrades.

Tas Water’s 2016 financial statements are an eye opener. An extra $65 million was borrowed during the year, $20 million of which went to councils as dividends in addition to other distributions of $10 million. The rest was needed to fund extra capital spending which coincided with a fall in net operating cash. Another year or two like that and the undertakers would be placed on standby. Treasurer Gutwein’s concerns about Tas Water aren’t without foundation.

Gaming inquiry update


The parliamentary committee investigating Future Gaming Markets has received written submissions and has held five days of hearings.  Only a few witnesses ventured into accounting and economic aspects of gaming and this happened on the 7th and 8th February. The questioning by the Committee was pretty low key. It seemed they were struggling with the issues, not surprising given the enormity of the task in an area unfamiliar to all of them. This note was written in response to the Committee’s offer to accept comments from me that may assist in their deliberations following my brief appearance on the 8th February.

The submissions and appearances of interest  (submissions and transcripts can can be found here ) were from:

·       Australian Leisure and Hospitality Group, the largest pokie operator in Australia associated with Woolworths

·       Dixon Hotel Group, a local group with 35 hotels (not all pokie pubs)

·       Tasmanian Hospitality Association

·       Tourism Industry Council Tasmania

·       Federal Hotels

One  area where no progress was made was trying to understand the costs associated with pokies at the venue level and at the network level. Each face different costs some fixed and some variable. It is crucial to understand the differences if pokies are allowed to survive outside casinos,and a more equitable split is to be recommended between the network operator, the venue, players and government. The note concludes with an Econ 101 presentation setting out costs and revenue for network and venue operator(s) before and after possible changes.

Wednesday, 4 January 2017

Gaming inquiry submissions

 
Federal Hotels has presented its vision of gaming in Tasmania after 2023. Lower taxes for table and EGMs in casinos and higher EGM taxes for pubs and clubs. Despite the absence of a link between tourism and gaming Federal Hotels suggested a low tax model which covers the casinos in Townsville Cairns and Darwin is the way forward for Tasmania. 

Federal Hotels’ views are contained in one of the 147 submissions to the parliamentary inquiry into post 2023 gaming arrangements in Tasmania. Over one hundred of these only comprised a few sentences, of varying levels of disgust/displeasure at EGMs in the community. Another twenty five were contributions from church groups and NGO’s who have seen the effects of social damage from EGMs.