Wednesday, September 26, 2012

Drum Piece: The GST, equity, efficiency et al

My Drum piece today is on the GST and on tax in general. The headline given is “why the GST may not be good for us”, which I don’t quite agree with us. I am actually in favour of the GST and have been since 1992 when I wrote a 3rd year Politics Essay on “Does Australia Need a New Broad-Based Consumption Tax as Advocated by the Liberal Party in its Fightback! Program?” (true story – I didn’t get a great mark – and upon re-reading it I’m surprised I passed at all given how badly it is written)

The question is if we do broaden the tax – which again I think has many good points to it, we can’t ignore the regressive nature of the tax. The problem is we currently have the best redistributive tax and transfer system in the world in terms of spending on welfare leading to improvements in equality. Broadening the GST might be great for efficient revenue gathering, but it won;t be great for efficiently redistributing welfare.

Anyhoo. Here are the graphs:

Our GST is pretty low by OECD standards (the USA of course doesn’t have one because its sales taxes are mostly State based)


Matt Cowgill, ACTU policy wonk and part-time blogger had posted some graphs on Twitter a while back that I recalled when I was writing my piece. He kindly sent me his spread sheets for me to play around with. I highly recommend you read his blog, and you should all go to his blog and leave comments – something like “Wow it’s been ages since you last wrote a post” and “I thought you said you were going to post every week this year?”

Here’s his scatter graph showing the level of welfare expenditure and reductions in inequality:


A good way to look at the graph is to view those above the trend line as getting above average redistributive returns for their welfare bucks. You can also see for example that France and Australia reduce their inequality by about the same amount as Australia does but they spend around 18% of their GDP to do so – we spend less than 8%. The reality is that while introducing a GST might lead to more welfare being spent it is unlikely to lead to significant improvements in our equality – and certainly not in a marginal sense – ie in a improvement in equality per extra dollar spent in welfare.

As you can see below, we do it better than any other nation except Ireland (and by the way anyone who has theories as to why Ireland is so much better than others, let me know. I have no idea)


The reason this is an issue is the tax base is shrinking. As you can see from the next graph, post GST the share of tax revenue from income tax shrunk:


Personal income tax revenue has also shrunk in real terms – and reach a nadir in the GFC – a mere 9.3% of GDP in 2009-10. By contrast in the year before the GST came in, it was worth 12.6% of GDP.


Company Tax was slaughtered during the GFC:


Perhaps Peter Costello might have found a way to get to a surplus if his company tax revenue was 1% of GDP lower than it was during the boom, but I doubt it. Also note the projections for post 2012-13 still don’t get up to the mining-boom revenue levels and they include the new MRRT.

And sales tax? Same story:


It boomed during the early 2000s but since 2004-05 has declined as consumption has moved towards GST-exempt items.

So clearly the tax take needs examining. But when we leap into the GST bucket, we need to realise this:


Sure those private school fees mean the wealthier pay more than the poor, but look at food. My calculations are that the current GST-exempt food accounts for around 11% of total expenditure of those in the lowest income percentile. And bear in mind that 11% is pretty much unable to change – it’s a necessary expense.

So let’s increase the GST, but then do we want to be like France which has a consumption tax of 19.6%, and yet is having to spend 18% of its GDP to get the same equality outcomes that we do currently for 7.4% of GDP?

Tax policy ain’t easy. And it’s perhaps just one more reason why the GST should have been allowed to be considered in the Henry Tax Revue.


I have realised I haven’t posted many of my recent graphs from my Drum pieces. So here’s a quick graph dump from last week’s piece on QE3 and nominal GDP growth:


It’s quite striking just how rare a thing it is for annual nominal GDP to decline.

It happened here in the GFC as well, and after a nice jump is again on the decline, even as “real GDP” increases growth. 


My piece from Two weeks ago was on the Aussie dollar and Mining and had a few graphs as well (I know, the shock). I won’t post them all but the ones I liked looked at the divergence of our currency with our terms of trade:


Going back even further we see this:


So yep, I think either the dollar needs to come down or prices need to go back up, otherwise we’re in for some hard times.

Again just looking at base metal prices we see the dollar is massively over valued:


ANd my favourite graph of that post was showing the Index of Base metal price in $US and $AUS terms:


That gap is unprecedented.

And lowering interest rates may not help:


Thursday, September 6, 2012

Industrial Disputes–Health and Education Sectors fuel jump in hours lost

Ending the run of economic data this week is the release by the ABS of the Industrial Disputes.

This is always a favourite among some sections of the media who hate unions and who instinctively believe a “flexible IR policy” will lead to increase productivity.

Today’s release saw in increase in the number of days lost (the usual measure used to determine how things are going)

A look at the past 27 years shows where we’re at:


But, OK, let’s (to show we’re being fair), get rid of the ‘horror’ of the 1980s and 1990s and just look at the past 10 years:


So definitely a spike. A spike that is also shown if your look at the annual figure:


We’re back to 2005 levels. I guess the only explanation is there was some incompetent government running the joint back then…

OK. Enough smarminess. There’s been an increase. Clearly the Fair Work Act is a shambles? Who are all these people striking?

The ABS notes:

The combined Education and training and Health care and social assistance industries accounted for 67,800 (67%) of the total number of working days lost in the June quarter 2012.

How does that look on a graph?


And given with health and education we’re talking state government employees it is probably right to ask what the hell are those state governments doing? The answer could range from “screwing over teachers and nurses” to “trying to run a fiscally responsible budget”. Either way the disputes aren’t occurring due to the Fair Work Act tipping the balance towards the unions.

Most likely the figure that will get touted a lot is that “The Coal mining industry had the highest number of working days lost per thousand employees (152.7) for the quarter.” And that’s true as far as it goes. But given the standard measure of industrial disputes is total days lost (the numbers showing days lost per 1000 employees only goes back to 2008) the chart above pretty clearly shows that coal mining disputes have not been the cause of the big spike.

If we look at total number of disputes over the past 10 years we see less of any sign of industrial disputes run riot.


An interesting one is to look at a comparison between the total number of employees involved in industrial action with the total number of disputes:


Again we see the number of employees involved is back to 2008 levels, and clearly we wouldn’t want it to go higher, but as you need to, when you look at this quarters figures, you need to ask why the figure is where it is, not just blame IR legislation because that fits your narrative.

Anyway. As usual most will read into these figures what they want to see. For mine, I think if you want to attack any government, you have to start with the state governments of QLD, Victoria and NSW.

But beyond that, if you’re going to get all in a tizz about days lost, it might be worth remembering that yesterday’s national accounts showed productivity grew at 3.4% over the past 12 months – almost double the 10 years average of 1.8% from 1997-2007 –  and an increase on the year on year growth in the March quarter of 2.9% and from the December 2011 quarter of 2.2%. So if you think IR policy is the key to increasing productivity, and the Fair Work Act is failing, address those figures first….

Australia’s Unemployment Rate falls to 5.1%

The economic cavalcade of data continued today with the release of the Labour Force figures from the ABS

The headline figure saw a drop in the unemployment rate in seasonally adjusted terms from 5.2% to 5.1%. The trend rate stayed steady at 5.2%


So it’s all pretty flat – but the unemployment rate fall is good, right? Well… hmmm let’s have a look at actual employment growth:


Last month saw a fall in the number of employed of 8,800 jobs. Nine of the past 18 months have seen declines in the number of jobs (though in that period 50 thousand jobs have been added all up).

The full-time employment growth has also been flat of late – in fact there’s been a decline in the past 18 months.


So why did the unemployment rate go down? Because the participation rate fell:


Again the growth in hours worked shows how weak is the labour market:


My favourite metric, the Employment to Population Ratio tells much the same story:


The employment to participation ratio I think reached its peak back in early 2008. I can’t actually see it getting back to that level – purely because the aging population will mean less of the population are at the working age.

The long-term view show where we’re at:


Now to the states. The seasonally adjusted rates really jump around a lot with the states, so I actually like the trend figures here:


No joy in SA or Victoria, but very flat trend wise over the entire country. 

Now I agree with Christopher Joye that there are a hell of a lot of doomsayers out there. And the constant stream of negativity is not good for our economy. It is good that the unemployment rate has fallen to 5.1%. There is a lot wrong with only looking at the unemployment rate, but it is a long held measure that is good to focus on. But I don’t think you can say the labour market is growing above trend. I think it is pretty flat, and that the GDP growth has mostly been a jobless growth.

This may change in the short term, but for now there is a disconnect.

Wednesday, September 5, 2012

Australia’s June Quarter GDP growth is 0.6%

Today the ABS released the quarterly national accounts.

The headline figure is GDP growth marginally below expectations of 0.6% in seasonally adjusted terms.

In trend terms it came in at 0.8%


The biggish news is that the March GDP growth figure of 1.3% which many assumed was wrong and would be revised down, was wrong. It was revised, but revised up to 1.4%.

This is why although the quarterly GDP growth was slightly below expectation the annual growth was pretty much on the mark at 3.7%.

Below we have the annual growth, and just to give you some perspective, let’s go back to 1990 just to show how long Australia has gone without negative annual growth.


We live in unusual times.

And I know GDP does not mean everything, but go over to the UK or USA and ask if negative annual growth is noticed. A growing economy can hide many problems but a shrinking one sure as heck brings them to the surface, and it ain’t fun.

But while that nice annual growth figure of 3.7% suggests life is good, as Stephen Koukoulas notes, for the September figures in 3 months time to show annual growth of above 3.0%, the September quarter will need to grow by around 0.5%, which is probably a borderline call at the moment.

Ok, to the states.

Big shock, WA and QLD are doing well.  Victoria and SA fell below the 2% mark, but NSW had a nice 1.5% growth in the past quarter to lead to a 3.4% annual growth.


The National Accounts also show how the terms of trade are going – and we see that the prices we’re getting for our exports are going down at a fair rate of knots:


The prices have collapsed somewhat, but they are still above pre-GFC levels, and anyone who was investing thinking that the boom in prices after September 2009 were going to continue that way are a tad foolish.

Time for some good news: Productivity.

The year on year annual growth in GDP per Hour worked came in at 2.9% seasonally adjusted and 3.4% in trend terms. To give some context, the average growth rate  between December 1997 and December 2007 was 1.8%


And when you factor in that the huge decline in 2010 occurred due to the massive floods and cyclones in QLD – in which GDP fell but hours worked didn’t because mining companies etc didn’t lay off staff because they knew the floods were only temporary – you have to say that things aren’t doing too bad. As Matt Cowgill noted however, that won’t stop the “narrative” such as was reported in The Australian today 2 hours after these figures were released where Dick Warburton said:

"We need right away to look at these productivity measures," Mr Warburton said.

"In the 1980s and 1990s we had productivity of 4 per cent now that is down to 1.1 to 1.2 per cent... That is a big decline.

"We need to look at what we can do to bring it back to those levels that make businesses profitable.

The other narrative is the rampant labour costs and wages breakout. On this at least the National Accounts show there has been a rise in Labour Costs. The costs are now back to where they were prior to the GFC.


The annual increase includes the big jump of 1.2% in the March quarter. The June quarter was a much more normal 0.2%.


Not coincidentally the share of Total Factor Income going to employees is back to pre GFC levels:


And of course this mean share of profits has gone down to pre-GFC levels (you can see the GFC pretty much meant companies just took a greater share of income)


And while the was a 0.6% increase in household consumption, there was also a small increase in the household savings ratio from 8.9% to 9.2%:


Tomorrow we get the Labour Force figures, so the joy of economics data never ends.

Saturday, September 1, 2012

Andy Roddick announces his Retirement

Yesterday in New York, former world number 1 Andy Roddick announced he would retire from the game following the end of the US Open.  Roddick, 30, announced his decision prior to playing his 2nd round match against 19 year old Australian Bernard Tomic.

And so how do we look back on Roddick’s career?

He is one of only 25 men to have held the Number 1 spot since the ATP ranking began in 1973. He only held it for 13 weeks, which sounds like very little, but when you consider Boris Becker held it only for 12 weeks, it doesn’t seem do bad. However Becker of course won 6 Grand Slam titles – 3 at Wimbledon, 2 Australian Opens and 1 US Open. Roddick has only one Grand Slam title to his name – the 2003 US Open.

When you look at Roddick you see a career that was destroyed by the Federer Express more than any other. His lone Grand Slam title came in between Federer winning the 2003 Wimbledon and the 2004 Australian Open. After winning that 2004 title, Federer took over the number one spot and held it for the next 237 weeks. In the mean time Roddick found himself hitting a wall every time he played Federer.

Just before the 2003 US Open Roddick beat Federer in the semi finals of the Cincinnati Masters (Roddick would win the title). Federer then beat Roddick the next 11 times they played each other. Six of those times were finals, 3 of which were Grand Slam finals, 2 of which were Wimbledon Finals. After finally beating Federer in Miami in 2008, Federer then beat him the next six times – one of which was the 2009 Wimbledon final.

But one thing you can say about Roddick is that he lasted for a long time.

When Roddick took over the Number 1 spot from Juan Carlos Ferrero on 3rd November 2003, here were the top 50 men:

Rank, Name & Nationality
1 Roddick, Andy (USA) 22
2 Ferrero, Juan Carlos (ESP) 66
3 Federer, Roger (SUI) 1
4 Coria, Guillermo (ARG) Retired
5 Agassi, Andre (USA) Retired
6 Schuettler, Rainer (GER) Retired
7 Moya, Carlos (ESP) Retired
8 Nalbandian, David (ARG) 45
9 Philippoussis, Mark (AUS) Retired
10 Grosjean, Sebastien (FRA) Retired
11 Srichaphan, Paradorn (THA) Retired
12 Massu, Nicolas (CHI) 683
13 Novak, Jiri (CZE) Retired
14 El Aynaoui, Younes (MAR) Retired
15 Henman, Tim (GBR) Retired
16 Kuerten, Gustavo (BRA) Retired
17 Verkerk, Martin (NED) Retired
18 Hewitt, Lleyton (AUS) 125
19 Schalken, Sjeng (NED) Retired
20 Fish, Mardy (USA) 25
21 Robredo, Tommy (ESP) 178
22 Mantilla, Felix (ESP) Retired
23 Mirnyi, Max (BLR) (No Singles, #1 in Doubles)
24 Calleri, Agustin (ARG) Retired
25 Costa, Albert (ESP) Retired
26 Ferreira, Wayne (RSA) Retired
27 Zabaleta, Mariano (ARG) Retired
28 Lopez, Feliciano (ESP) 31
29 Spadea, Vincent (USA) Retired
30 Ginepri, Robby (USA) 234
31 Bjorkman, Jonas (SWE) Retired
32 Clement, Arnaud (FRA) 164
33 Dent, Taylor (USA) Retired
34 Gaudio, Gaston (ARG) Retired
35 Gonzalez, Fernando (CHI) 459
36 Nieminen, Jarkko (FIN) 42
37 Blake, James (USA) 114
38 Chela, Juan Ignacio (ARG) 117
39 Sargsian, Sargis (ARM) Retired
40 Kucera, Karol (SVK) Retired
41 Kafelnikov, Yevgeny (RUS) Retired
42 Ljubicic, Ivan (CRO) Retired
43 Youzhny, Mikhail (RUS) 29
44 Davydenko, Nikolay (RUS) 47
45 Saretta, Flavio (BRA) Retired
46 Stepanek, Radek (CZE) 38
47 Nadal, Rafael (ESP) 3
48 Volandri, Filippo (ITA) 72
49 Rochus, Olivier (BEL) 105
50 Sanchez, David (ESP) Retired

Twenty nine of them no longer play, 8 are no longer in the top 100. At that time a young Andy Murray and Novak Djokovic had been on the tour for 15 and 17 weeks respectively. Murray was the number 544 in the world, and Djokovic was ranked 680.

It is almost a different era. Except of course it was about to be the start of the Federer era – and era which in some respects is still ongoing. Federer today said of Roddick:

We've seen so many different champions go out in different ways and I am so happy for him (Roddick). Some expected better (from his career), some expected worse, but I am sure he's happy with what he achieved because he almost achieved everything he ever wanted. Maybe the Wimbledon title potentially, but let's forget about that. 

He was in those Wimbledon finals, he could have got those titles and that's what I said when I beat him in '09 - he deserves this title as well.

In my mind he is a Wimbledon champ as well and a wonderful ambassador of the game. And I am thankful for everything he's done for the game and especially here for tennis in America.'

That is kind, and truly the 2009 Wimbledon Final that Federer won 16-14 is a contender for the greatest match of all-time, but everyone knows they only give the title to the bloke who wins the final match and Roddick never did that at Wimbledon.

To compare him to Federer is perhaps unfair. It’s a bit like saying of a playwright who has won a Pulitzer Prize, “Look you write well, but when I compare you to Shakespeare…”. But then that is the nature of sport – especially tennis which is mano-a-mano.

Roddick was a player who came up at the time when the big serve was still the big weapon. His was huge and had he been born 5 years earlier it might have brought him 4 or 5 more Grand Slam titles. But as Jim Courier (I think) said of him, when playing Federer, once the rally went more than 5 shots, Roddick might as well hit the ball in to the stands.

And it’s not like Roddick didn’t see it coming. In the third time they ever met in Basel in 2002, Federer beat Roddick 7-6, 6-1 and reeled off one of the more amazing selection of winners to break Roddick for the 2nd time in the second set. You don’t need to speak the language of the commentators to understand what they’re saying:

Perhaps though the bigger shame is that Roddick outside of Wimbledon only made it to 2 Grand Slam finals. He never made it past the 4th round of the French Open, and he made it to the semi-finals of the Australian Open 4 times – losing to  Raineer Schuttler in 2003, Leyton Hewitt in 2005 and Federer in 2007 and 2009. Oddly he made it to the US Open final twice (winning once) but never made it to the semi final in any of the other 10 times he played it.

For me however the match I most recall of Roddick’s is the quarter finals of the 2003 Australian Open that he played against Younes El Aynaoui which he won 21-19 in the 5th set. It was one of those long night matches that seems to always happen at the Aus Open and it ended well into the morning. The fifth set went for 2 hours 23 minutes, and was then the longest fifth set in the open era.

At the time I thought Roddick a brash American and wasn’t really sold on him. But his play and demeanour after the victory won me over and his regular banter each year with Jim Courier at the Australian Open and his prickliness but also honesty with journalists at post match press conferences I found refreshing. He truly played with his heart on his sleeve and that sleeve was usually wet with sweat.

It is easy to suggest Roddick should have achieved more, but given the incredible era in which he played – in which two of the very greatest of all time in Nadal and Federer dominated, it is hard to think he underachieved. Since the 6th August 2001 the highest he has been ranked in the world is 34th – which was for a week in March this year. He is no journeyman, he was in the top 10 give or take the odd week or 3 he fell to number 11 or 12 from August 2002 to August 2011. He reached the top 10 a couple weeks prior to his 20th birthday.

That’s a career to die for. (And by comparison, Tomic is also a few weeks short of his 20th birthday is ranked 43 in the world)

He carried the men’s game in America for all of that time. Since the 2001 French Open he has only missed 2 Grand Slam tournaments.


(8 is a win, 7, Finalist; 6, Semi; 5, Quarter Finalist)

It is good for him to go now – when he is still a threat to get to the final 8 if not the final.

And if he goes out now, he’ll always be able to look back to the last time he played Federer. It was in Miami this year. Roddick had played well to take the first set in a tie breaker. In the second Federer took over and won 6-1. In the third Roddick was down break points early in the set and the standard operating procedure looked about to take place. But Roddick held by playing some outrageous forehands. He then broke Federer in the next game by absolutely creaming 4 shots in a row. Federer was completely stunned and the match was gone as Roddick continued to hit winner after winner.

He won the set 6-4 and took their head to head record to 3-21.

Roddick might occasionally wish he had been born in another time, but he was a big part of this era, even while his game seemed to belong more to the 1990s.

As much as anything if Roddick was playing you’d stop to watch it, because you knew you’d see an honest match from a guy who left it all on the court. The sweat would pour off his body – literally dripping onto the court. Every match was a battle to the death – an attribute he shares with Leyton Hewitt (and to be honest all other great players). For that reason alone it’s hard to think he underachieved. And given the way he took apart Tomic today 6-3, 6-4, 6-0, it is the attribute of Roddick’s of which his younger opponent perhaps should most seek to emulate.