An MYEFO mystery: what’s with the resource tax?

It’s the time of the mid-year Economic Fiscal Outlook (MYEFO) and we’re told that we’re about 11 billion deeper in the red this financial year than we thought, with the treasurer blaming the dropping iron price and the reduced wage growth. I have gone over the MYEFO documents (which are an exercise in obfuscation if ever I saw one), found that wage growth and the dropped iron ore price would ‘only’ cost us 2.3 billion each in this financial year (2014-2015), noted that this was far short of the 11 billion headline, and thus went looking for the ‘real story’.

This threw up the mystery of the resource tax. Here is what it says on table 3.2:

Table 3.2: Impact of Senate on the Budget (underlying cash balance)
Estimates Projections
2014‑15 2015‑16 2016‑17 2017‑18 Total
$m $m $m $m $m
Impact of decision taken as part of Senate negotiations(a)
Repeal of the Minerals Resource Rent Tax and related measures -1,684 -2,334 -1,670 -947 -6,634

which seems to means that the repeal of the minerals resource rent tax (and related measures) is costing us around 2 billion per year. Yet, in the ‘Overview Part’, the MYEFO says “The repeal of the Minerals Resource Rent Tax and other related measures will save the budget over $10 billion over the forward estimates and around $50 billion over the next decade.”.

What is going on?

Update (thanks Chris Lloyd): it seems to be a language issue. Part of the story seems to be that the MYEFO is counting the repeal of the mining tax, which was an election promise, as something the Senate inflicted on the budget, so the 2 billion a year is ‘revenue foregone’. So the MYEFO is blaming the Senate for the outcome of an election promise, using an odd formulation to say that the repeal will save us 50 billion when it seems to imply it would cost us 50 billion. Weird.

What was unexpected about Syria and Egypt?

Middle-East watchers have been surprised by the events in Syria and Egypt the last 2 years. The betting markets in 2011 and 2012 expected the collapse of the Syrian regime, but it didn’t happen. The West and most Al-Jazeera commentators thought the coup that deposed the Morsi-government was unsustainable and that some accommodation with the Brotherhood would have to be found. Even Israeli analysts, who by and large were against the Morsi-government, predicted that the new military regime could not survive. Both judgements seem incorrect so far: the Syrian regime looks safe and the Egyptian military junta is now as firmly in charge as ever. What did the watchers miss, ie what should we pay more attention to in the future that we didn’t see before?

And let me honest and say that I too was wrong on both counts: I have been making a point of giving predictions on many aspects of European and Middle Eastern politics for about 4 years now. I called lots of things right, from the chaos in Lybia, to the continued Greek bailouts in the EU, to the rise of the Egyptian brotherhood. Nearly everything, except for the developments in Syria and Egypt. As I said in December 2013, I thought in 2012 that the Americans would arm some part of the Syrian opposition and thus bring down the Assad regime. The betting markets scored it around 85% likely that Assad would be gone by the end of 2013. Similarly, in August of 2013 I thought there was no way the Egyptian army could so clearly assume total economic and political control (I thought this alongside 15 Al-Jazeera commentators at the time and, apparently, the Israeli intelligence community thought the military junta very fragile too). What did I/we fail to see?

In the case of Syria, it now appears that the missing ingredient was the psychology of the US president. As expected, the US state department did indeed want to pick a winner in the Syrian civil war. At least, Hillary Clinton claims to have argued for it strongly. But Obama vetoed it according to her, apparently not able to see the tremendous disruption that would ensue in the whole region of a failure to interfere. Obama might have been following his father’s belief that to interfere was neo-colonial and would only lead to more future trouble. Obama might have thought that others in the region, such as the Turks, would not tolerate any mayor disruption and take control. Obama might have simply miscalculated the brutality that the Syrian regime was willing to inflict on its own population, or the brutality of the many groups who were being sponsored by other countries. Whatever the reason, it seems Obama won the internal fight and kept the US out of it.

The muddled strategy of the US was pretty hard to foresee in 2011/2012 and it seems to have involved the particular psychology of the president, so on that one the main lesson is that some presidents mean what they say and can deliver when they say they don’t want to involve the US in foreign adventures. To see that coming would require an intimate level of knowledge of the actual psychology of lots of world-leaders, something that is not reasonable to expect from any individual observer because politicians and their entourage make a point of creating an appealing image of themselves which makes it nigh impossible to know what they are really like, so as a mis-predictions go there is little structural to be learned there: a particularly unusual draw of the statistical error term!

In the case of Egypt, what was missed seems more fundamental: no ‘random error’ in sight to explain what has happened. No single individual has behaved unusually, rather the Egyptian population has reacted differently from expected. At least, no one I have read called all the developments before they happened. Continue reading

Does increasing the legal age for buying alcohol reduce traffic accidents?

Does increasing the legal drinking age reduce traffic accidents caused by young drivers? The idea is that if you increase the legal age at which people can drink, young people are going to quietly abide by the law, not do anything stupid, read the bible, contemplate their sinful natures, and stay out of trouble.

Hang on though, one thinks: drink-driving is already illegal at any age, so what exactly does one expect to change when one restricts the sale of alcohol to 21 years and over, instead of having the current age limit of 18? If you were worried about them breaking the law before, why would you think changing the drinking laws would help? Breaking 2 laws is harder than 1?

In a recent letter to the Medical Journal of Australia, Jason Lindo and Peter Siminski, two economists from Texas and Wollongong respectively, point out that the more recent and more authoritative economics studies find that raising the age limit on buying alcohol does not help reduce serious traffic accidents at all. They do this in reaction to a completely one-sided account by medics who call for the drinking age increase, citing mainly cross-sectional studies (find attached the letter by the two economists and the reply of the authors of the offending article, which basically admits the cherry-picking that they originally engaged in:Lindo and Siminski 2014 with Toumbourou et al reply).

Lindo and Siminski point out that in New South Wales, changes to drinking laws did not change the accident rate of young people. Neither did a recent reduction in the drinking age in New Zealand, where the drinking age reduced from 20 to 18, increase accident rates amongst the 18-19 year olds (their behaviour was changing already, but not after the law change). Moreover, they point to studies that show that people indeed do substitute alcohol for other drugs that also affect their driving, which helps explain why there is on balance neither a positive nor a negative effect on traffic accidents from changing the age drinking laws. The studies they quote, which include the only studies on Australia on this topic, used the latest techniques based on analysing changes in behaviour of young people just before and after the introduction of the laws, which is what one wants to do. Prior studies are less convincing because they compare behaviour between regions within a country or over long time periods, which comes with the problem that regions and periods differ for many other reasons than merely the drinking age.

More generally, one can doubt the wisdom of a puritanical attitude to alcohol simply by looking at differences across countries. Central Europe, and in particular France, Italy, Spain, and the other Southern European countries, have much more relaxed attitudes to alcohol, with kids learning much younger to be responsible with alcohol. The more repressive attitude in the UK and here in Australia, on the other hand, is associated with binge drinking, very high rates of teenage pregnancies, and extreme risk behaviour. Once the kids do get access to alcohol, often by illicit means as the forbidden fruit is made so enticing, they dont hold back, which should make one wonder about the wisdom of declaring the fruit so forbidden.

Lando and Siminski thus try to inject a bit of common sense and self-reflection into our debates on alcohol laws, apparently having to fight a rather puritanical bunch of medics that insists we cannot trust young people and should ban them from buying alcohol till they are 21. Yet, we allow those between 18 and 21 to drive, to vote, and to die for us as soldiers in foreign battles, but we are supposed to declare them incompetent when it comes to drinking?

Lando and Siminski are hence right, both on the latest science that says there is no real relation between the drinking age and traffic accidents, and on the larger issue of consumer choice: if we abandon the idea that all voters are equal and that we should proscribe the behaviour of some of them, where do we stop? Should we lock up all young people from the age of 15 to 25 to prevent them from doing anything we did ourselves but do not want them to do? I have heard medics argue this at conferences….

So it is a very paternalistic and holier-than-though brigade that wishes to control the lives of others, without any regard to the joy they are destroying, using selective studies to argue their case. Why did the MJA publish the original one-sided piece by medics, one wonders? Economists are right to resist such reckless and blinkered destruction of consumer surplus.

PhD Scholarships on “The Behavioural Economics of Undesirable Cooperation”

Some people engage in socially disruptive behaviour on their own, such as when they free-ride on paying taxes. Others cooperate with others though when they are socially disruptive: cronyism, corruption, nepotism, gangsterism, and favouritism are all examples of cooperative behaviour that benefits a clique but comes at the expense of larger organisations and societies. How does such socially detrimental cooperation arise and is it done by the same people who would be disruptive on their own? What adverse consequences does it have for other members of society? What can be done to counter such behaviour?

An international team of top scholars at the University of New South Wales, the University of Queensland, and Duke University has obtained an Australian Research Council Discovery grant to find out. Fully funded PhD scholarships are available for students interested in these questions.

Students would be involved in devising and running laboratory experiments, as well as possibly running field experiments in developing countries. There will also be opportunities to help construct theoretical models of clique formation in diverse contexts, and to conduct micro-econometric modelling of the incidence and consequences of undesirable cooperation.  Outcomes of interest might include output, income, mental health, happiness, social cohesion, job mobility, and entrepreneurship.

Successful applicants will need to have at a minimum an undergraduate degree with Honours in economics, good written English, and excellent analytical skills. Proven interests in experiments, panel data econometrics, micro-models, and/or behavioural economics are desirable. Willingness to travel internationally and conduct research in developing countries would also be beneficial.

Students would be based in Sydney, though supervision would be shared with the University of Queensland. PhD scholarships of up to AUD$30,000 per year for 3 years are available.

Applications should be sent to Dr. Gigi Foster at [email protected].   Want more information?  Contact Ben Greiner ([email protected]) or Paul Frijters ([email protected]).

Where are we with Geo-Engineering in 2014?

Geo-engineering is increasingly looking like the only politically viable way of averting temperature rises above 2 degrees in the coming century. This is for three interlocking reasons: i) Any mayor country can try geo-engineering on its own without permission from anyone else, meaning one does not need a world coalition sustained for centuries to have an effect; ii) It holds the promise of immediate relief because ‘natural Solar Radiation Management’, ie volcanic eruptions that add lots of light-reflecting particles into the atmosphere, were found to cause immediate worldwide temperature drops, which compares favourably with the lags of decades and centuries that hold for CO2 emission reduction plans; and iii) It might be exceedingly cheap compared to any policy involving emission markets. For instance, according to a 2012 piece by McClellan and co-authors, we could keep the planet at current temperature levels at a cost of merely 10 billion dollars a year by having a fleet of planes deliver reflective particles high in the earth’s atmosphere.[1]

Given that continued global warming is predicted to happen in the next century no matter what emission policies are adopted, geo-engineering by some impatient large country is starting to look nigh inevitable. I reported in 2012 on the research efforts funded by the Royal Society, the Gates Foundation, and others. You now have dedicated institutes on this issue (eg. http://iagp.ac.uk ), and lots of new proposed experiments. With a large glut of published studies in recent years, it is time for an update: how far are we now in the world of geo-engineering?

The honest answer is that the scientific community is pussyfooting around when it comes to geo-engineering. Field experiments are largely stalled as scientists are awaiting regulatory frameworks that will protect them from criticisms of other scientists and environmental groups. Proposed regulatory frameworks designed to deliver this, such as by Nordhaus and colleagues, find it hard to get much political traction because politicians seen to support regulatory frameworks themselves become targets for criticism, both by those who pretend there is no climate change and by those who insist there is climate change but who also insist on emission reductions as the only way to return to our current climate some 300 years from now. Voters who agree the world is getting too hot and who would like it cooled down in their own lifetime rather than that of their great-great-great-great-grandchildren are still too rare to bother with for politicians.

This does not mean there is a lack of bright ideas. The engineers looking into this really are a very creative bunch, talking about whitening clouds, aerosol sprays, reflective shields, and artificial trees. One new idea that I hadn’t heard before is to genetically alter our crops so that they reflect sunlight better than the current crops. I don’t know whether this has any chance of getting serious traction, but one has to admire the ingenuity of the idea. Still, ominously, almost no field tests or large scale long-term testing is underway as scientists are waiting for societal approval to go ahead. Continue reading

Bankers reject Forrest’s cashless welfare proposal

Forrest Review

In a submission to the Forrest Review of Indigenous jobs and training, the Australian Bankers’ Association (ABA) rejects Andrew Forrest’s Healthy Welfare Card proposal.

The card was one of the review’s key recommendations and is meant to be cheaper and easier to administer than the government’s existing income management system. But according to the ABA, the proposal would require significant changes to current technology and cost time, money and resources.

Forrest’s idea is to provide welfare recipients with a card that doesn’t allow cash withdrawals and blocks access to alcohol, gambling and illicit services. The review argues that the new system would be cheaper and easier to administer than the government’s current income management arrangements because it would rely on the mainstream banking system and existing payments technology. However in a submission to the review, the ABA stated:

The ABA does not support using the banking and payment system for the implementation of the Healthy Welfare Card or an extension of the income management policy as a mandatory approach for all recipients of social security payments and assistance. There are a number of technological and practical considerations associated with the Healthy Welfare Card, which undermines the implementation of a workable, efficient and effective scheme.

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The root of all evil? – ABBA’s Björn Ulvaeus argues that getting rid of cash will reduce crime

It may be devoted to 70′s nostalgia, but Björn Ulvaeus sees Stockholm’s ABBA The Museum as a harbinger of the future. The museum doesn’t accept cash. Since his son’s home was burgled a while ago, the former ABBA member has been campaigning for a cash-free future arguing that cash enables crime:

We can be reasonably sure that the thieves went straight to their local peddler. We can be absolutely sure that the ensuing exchange of goods never would have taken place in a cashless society. In the long run it would be extremely impractical for the peddler to trade stolen goods for milk and bread for his children. The drug pusher would be equally uninterested in TV sets and computers. In a cashless society he wouldn’t be in his business at all. His business wouldn’t exist, full stop.

All activity in the black economy requires cash. Peddlers and pushers can’t make a living out of barter. It is highly improbable that a coca farmer has use for my son’s jeans. He wants cash. Imagine if there wasn’t any. From farmer to addict a drug changes hands many times and every time cash is a must. Imagine if there wasn’t any.

According to recent media reports, Sweden is already well on the way to becoming a cashless society. Four out of five purchases are made electronically or by debit card.

Continue reading

Embracing a mature tax debate?

abbott hockeyTony Abbott might well be the last bloke on earth who could plausibly demand a “mature debate” on tax reform. But that doesn’t deny the crying need for such a debate in Australia.

Nor does the fact that it’s the antithesis of what Abbott did in Opposition mean that Bill Shorten should necessarily emulate Tony’s tactics himself.  What won the last war won’t necessarily win this one.  Abbott didn’t win the 2013 election only because he relentlessly opposed everything Labor tried to do. That tactic worked because Julia Gillard had mortally wounded herself by the manner in which she seized the prime ministership, because that inevitably resulted in ongoing destructive disunity orchestrated by an embittered Kevin Rudd, and because her government consistently exhibited appalling administrative and policy implementation skills despite some excellent policy ideas. Without those self-inflicted wounds, Abbott’s “one trick pony” knee-jerk obstructionism might have failed.

Despite the fact that opinion polls have looked quite respectable for Shorten for some time, Abbott in government isn’t burdened by any of the handicaps that ensured Gillard/Rudd’s doom. Moreover, he now has the additional benefit of wrapping himself in khaki, which John Howard exploited with such great success in 2001 and 2004.

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Upcoming event- The 2014 Francis Gurry lecture: “IP in Transition: desperately seeking the Big Picture”

 

tweetcat2

IPKats love a tweet

The lecture will be delivered (in Melbourne Sydney and Brisbane) by Jeremy Phillips. Jeremy (or more exactly a fictional andnotoriouscat: the IPKat) has three times, been named as one of IP’s  “Fifty Most Influential People “. The IPKat is widely read, wide ranging and fun.

The lectures Big Picture theme could be of interest to many:

In the face of accelerating changes in the make-up of the world’s economic, cultural and political structure, IP rights face a stress-test. Pulled back into the past by legislative intent and judicial precedent, they are propelled forwards by new technologies, increasingly specialised laws and creative business structures. And they are subject to the constants of the need for justice, the requirement of legal predictability and the demand of due process.  Is there a Big Picture: a vision that can be shared by legislators, IP owners and their lawyers and attorneys?  If so, what does it look like?

 

The lecture will  be streamed  , Mon 17/11/2014  at 6:15 PM – 7:45 PM.  Attendance  is free, but booking is required : Melbourne (12 November), Sydney (17 November) and Brisbane (18 November)