Comments on Alan Kohler "The NBN board has run away. Why?", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/information-technology/nbn-board-has-run-away-why
Alan, while your analysis has obvious merits, there are ways both to allow competition and to make the NBN profitable you have not considered.
Competition is to create a level playing field for all participants and not to create entry barriers. As long as NBN is not allowed to be a monopoly and treat it and other competitors equally, competition can be achieved.
While NBN profitability is dependent on the level of cross subsidies from urban to rural areas, this could arguably be achieved through, say, a national charge to all suppliers to urban areas including both the NBN and non-NBN ones. The income from this can be used to subsidise rural users or suppliers to rural areas.
The upshot that is most important is to allow competition for innovation and efficiency. Other policy objectives can be achieved through other means.
Under this framework the Coalition's NBN policy may not necessarily create a board problem for any NBN Co. Further, the Coalition government is unlikely to ask any board to do the impossible.
2013-09-23
There are two dimesions in fiscal policy
Comments on Stephen Koukoulas "Sense should squib a surplus promise", 23/09/2013, http://www.businessspectator.com.au/article/2013/9/23/economy/sense-should-squib-surplus-promise
The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.
A good economist pays attention to both dimensions when considering fiscal policy.
The talks of whether the budget is in crisis or not come down to different perspectives and what you compare with. If one compares ours with those in deeper trouble as Stephen did, ours is in a much better shape and not in crisis. On the other hand, if one compares with prudent practices as the Coalition implies, ours was not good and the speed of the debt growth may be described as crisis.
Both have a point of their own logic and reasoning.
However, the right thing to do is to choose the better elements of each side and do a better job in both managing the budget (better than in the past years to avoid wastes and reduce unnecessary spendings and achieving surplus as early as possible) and keeps the economy growing (the traditional fiscal policy management for the economy).
To achieve that, the government needs structural reforms to government expenditures to achieve the same outcomes with less spending or achieve better outcomes with the same spending.
So, it is important to bear in mind that fiscal policy has two dimensions of both a aggregate size and its structural content and work on both aspects to achieve the most optimal outcomes.
A good economist pays attention to both dimensions when considering fiscal policy.
2013-09-20
Change the GST or not?
Comments on LAUREN WILSON "Tony Abbott dismisses fresh push to re-examine the GST", 20/09/2013, http://www.theaustralian.com.au/national-affairs/tony-abbott-dismisses-fresh-push-to-re-examine-the-gst/story-fn59niix-1226723309057
The current government prior to the federal election said GST will be included in its planned tax review and also said earlier GST won't change in this term of government and any change will need to get a mandate from the next election, although latter on it was changed to GST will not change.
My reading of the government's approach is that it will continue to say GST won't change until the review report is publically available with recommendations that the GST should be changed. There appears a case that the GST should be changed to either replace some of the inefficient state taxes, such as stamp duty on conveyances, or to reduce personal income taxes.
Any changes to the GST whether it is to broaden the base, or to increase the rate should be traded with a reduction in some taxes so to keep the level of overall taxation roughly unchanged. The aim is to increase the efficiency of taxation rather than to increase the level of taxation.
There are two other important issues related to potential changes in the GST. One is there should be a compensation to low income earners through tax reduction to minimise its impact on them and at the same time to increase the incentives to work.
Another is that if the GST is to be changed, it would present an opportunity to change the GST distribution system. Fundamentally, the federal government should consider to distribute the GST on population shares and should move the fiscal equlisation role through another general grants in a trade off with the states to support GST changes.
Since the introduction of the GST, fiscal equalisation is done through GST distribution. Given that GST is fully provided to the states and the federal government does not have any direct benefit from GST one way or another, it lacks interest in how it is distributed.
By moving fiscal equalisation into using another general grants from the federal general revenue pool, it would have an interest in the size of the redistribution, and hence how it is done. More importantly, it would provide a circuit breaker for the disagreement between the states on how GST should be distributed.
I see this as a practical way to move forward on the GST issue. And it is likely that a change to the GST will on the card in the next election.
PC inquiry on Australia's car industry
Comments on Sid Maher and John Ferguson "Coalition calls for 'urgent' report on car industry", 20/09/2013, http://www.theaustralian.com.au/national-affairs/coalition-calls-for-urgent-report-on-car-industry/story-fn59niix-1226723160050
The new government should let the PC conduct its inquiry into the car industry without any preconditions and should not preempty the PC inquiry and report on the future of the car industry in Australia, although politically it may continue the line that its supports the car industry until the report comes out.
More importantly, the government should fully respect the verdict from the independent economic body and accept rational and economically sensible recommendations on the future of the car industry without yielding to special interest groups.
It is too important for all Australians to be emotional rather than rationally making difficult choice between the car industry and possibly better national wealth and welfare, particularly when the output of Australia's car industry has been declining and will decline more when Ford closes its production here. As a result, the costs of continuing government subsidies are likely to increase as car production falls.
My instinct feel is that it is very difficult for car manufacturing to survive in Australia for long. However, we should wait for the PC to report on this.
RBA, monetary policy and $A
Comments on Stephen Koukoulas "The sum of all our dollar fears...", 20/09/2013, http://www.businessspectator.com.au/article/2013/9/20/currency/sum-all-our-dollar-fears
The RBA and many economists and commentators have really adopted a very funny approach, namely when the dollar was really very high at about 1.05 they argued that the RBA is powerless in influencing the currency while now when the dollar is at 0.95 or even lower, they are saying the RBA could do something to make it lower.
Of course, the RBA now has probably understood it can play a role of influencing expectations, although the fall of the dollar in the past had little to do with the RBA policy on interest rates. Rather, it was because the global factor of the Fed on future QEs. But that has not limited the RBA from joining the force in making the noise that it thinks the dollar should be lower even when it was at 0.90 or lower.
The RBA should have known that it might have an influence on expectations when the dollar was really high and should have done better to play that role at those times!
Having argued that I fully understand that the RBA has its difficulties in targeting multi goals with only one policy tool that is interest rate.
The RBA and many economists and commentators have really adopted a very funny approach, namely when the dollar was really very high at about 1.05 they argued that the RBA is powerless in influencing the currency while now when the dollar is at 0.95 or even lower, they are saying the RBA could do something to make it lower.
Of course, the RBA now has probably understood it can play a role of influencing expectations, although the fall of the dollar in the past had little to do with the RBA policy on interest rates. Rather, it was because the global factor of the Fed on future QEs. But that has not limited the RBA from joining the force in making the noise that it thinks the dollar should be lower even when it was at 0.90 or lower.
The RBA should have known that it might have an influence on expectations when the dollar was really high and should have done better to play that role at those times!
Having argued that I fully understand that the RBA has its difficulties in targeting multi goals with only one policy tool that is interest rate.
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