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Monday Message Board

May 26th, 2008

It’s time once again for the Monday Message Board. Please post your thoughts on any topic. Civilised discussion and no coarse language, please.

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  1. James Haughton
    May 26th, 2008 at 09:46 | #1

    Is there any substantive difference between cutting the fuel excise and removing the GST on the excise? Is one easier to administer than the other? How much does a reduction in the price of petrol translate into increased car usage and greenhouse gas?

  2. Donald Oats
    May 26th, 2008 at 10:11 | #2

    Read Realclimate last night where they have a potshot at Freeman Dyson’s review of two books in the NYT. One, by Nordhaus, concentrates on the economics of dealing with global warming by several approaches, including doing nothing.

    A few minutes ago the Phoenix spacecraft landed on Mars, apparently at a cost of around $400m USD for the project. How would an economist such as Nordhaus go about deciding whether such a project should be done fast, slow, even slower to benefit from new technology not even in existence yet, or to follow business as usual and do nothing?

    Mode: sarcasm off

  3. El Mono
    May 26th, 2008 at 11:44 | #3

    So Campbell Newan wants to increase height restricitons in the inner city suburbs to above 30 stories with plans allready in the works for along the river front in South Brisbane. Now whie the cynic in me suggests that Campbell Newman does not care about the environment i am happy to see higher density housing and more devlopments near where the majrity work and there is already better quality pblic transport then the huge estates 45 minutes out. Rising petrol prices may mean inentives of developers and enironmenatlists may become more aligned. Though personally I would prefer developments to be away from the river.

  4. Hal9000
    May 26th, 2008 at 11:47 | #4

    How about those Lions, eh? A favourable second-half draw suggests we may even make the top 4… and Simon Black must be firming as a Brownlow favourite.

  5. O6
    May 26th, 2008 at 12:40 | #5

    On 1. above, isn’t the point that the Comm. Gov’t just wants to find a way to lower petrol prices that doesn’t depend on matching Dr 9%’s 5 cents reduction? Fiddling round with GST as against excise is only meaningful otherwise as to who gets the revenue (GST States, excise Comm.). Increasing the excise would be better, given the political impossibility of carbon-taxing petrol, but we won’t see that from Mr 70%.

  6. Ian Gould
    May 26th, 2008 at 13:10 | #6

    The fuel excise is a fixed amount which is constant across the country.

    The GST is based on the bowser price, which includes transport costs and the like, meaning people in rural and regional Australia are paying more.

    I can, sort of, see there might be an equity argument for dropping the GST and increasing the excise rate but I doubt that that’s what the pollies are considering.

  7. Socrates
    May 26th, 2008 at 13:23 | #7

    I had a question which I wondered if some here might know the answer. I was thinking about the inflation/full capacity dilema we now find ourselves in and the house price boom we saw earlier this decade. Reported inflation remained low, I presume because of past changes in the CPI measure to exclude mortgage costs and rentals (?). Assuming that was the case, and that CPI measures back in the 70s did include housing costs, I was wondering if anyoen could tell me how much difference it would have made to inflation figures since 2000 if housing costs were included?

  8. Smiley
    May 26th, 2008 at 13:48 | #8

    the CPI measure to exclude mortgage costs and rentals

    I thought that CPI still included a component that measured rent. But I may be wrong.
    I think that your point is valid though. It seems strange to me that we can have a boom and it doesn’t show up in inflation.

  9. Socrates
    May 26th, 2008 at 14:19 | #9

    Yes that was exactly the point – I was wondering how this inflation could “sneak up on us” but in reality it has been going on in housing costs for a while, hence my confusion. Apology of the CPI figure does include rentals but not mortgage payments. However, that is what I would then love to know – how much difference would it make to teh figures if mortgage payments were included. I imagine it would be a lot, even if only 1/3 of households are paying mortgages.

  10. Lord Sir Alexander “Dolly” Downer
    May 26th, 2008 at 15:12 | #10

    Is anyone able to point to the “basket of goods” used for the CPI? It does not seem possible to get hold of, eg from the ABS site. It must exist in some written form.

  11. Ian Gould
    May 26th, 2008 at 15:34 | #11

    Inflation is one of the issues which economics struggles to give a convincing account of.

    Inflation targeting was supposed to keep inflation under control by moderating consumer demand.

    That approach seemed to work through most of the 1990′s up until a couple of years ago.

    In retrospect its tempting to wonder if low inflation in the 90′s was mostly attributable to low oil prices after the gulf war and the emergence of China as a low-cost manufacturing centre.

    But leaving that issue aside, it seems to me (and this is pure speculation) that inflation targeting via interest rates didn’t reduce price pressure – it simply displaced them from consumption goods into capital goods, particularly housing and shares.

  12. Joseph Clark
    May 26th, 2008 at 16:34 | #12

    Good background note for CPI construction is cat 6461.0 on the ABS website.

  13. Joseph Clark
    May 26th, 2008 at 16:39 | #13

    (Appendix 1 gives the weights)

  14. Smiley
    May 26th, 2008 at 17:01 | #14

    Socrates,

    I do not have any figures and I doubt that anyone within the bureaucracy would have kept figures… the reason being that such figures would surely have undermined the RBA policy (of not measuring interest payments in the CPI) by giving us an accurate comparison with inflation from the boom in the late 80’s and early 90’s… there goes Howard’s claim that inflation would always be lower under a conservative government.

    Another problem with keeping these figures is the “feedback� effect that this policy was meant to remove. You would have to factor the feedback into your model to get an accurate comparison.

    While I suspect that the failure to measure inflation accurately over the last decade may be a cause of the inflation problem at the moment, I believe that other factors (including the price of petrol and food) are also having a major effect.

    PS: others have noted the effect of this policy:
    http://www.bobbrown.org.au/files/speeches/Let%20them%20eat%20cakeII.pdf

  15. Socrates
    May 26th, 2008 at 17:34 | #15

    Ian

    I don’t know what the answer is on overall inflation, but in my industry (transport infrastructure) there was genuinely less inflation in both input costs and outputs through most of the 1990s. But starting around 2002 inflation of both inputs (wages) and building costs started and has become significant – maybe 7 to 8% nominal for 5% pa real. The BTRE in Canberra kept a Road Input Cost Index (RICI) which showed this quite clearly. I don’t know movements in the index sice 2004 but anecdotally costs in the industry have risen substantially in the past five years (increased workload plus supply constraints).

  16. Lord Sir Alexander “Dolly” Downer
    May 26th, 2008 at 17:48 | #16

    Thanks JC, I will check it out.

  17. SJ
    May 26th, 2008 at 18:57 | #17

    Here’s a link to ABS 6440.0, which has the basket. Note that it includes both rentals and house purchase costs.

  18. Lord Sir Alexander “Dolly” Downer
    May 26th, 2008 at 19:25 | #18

    Thank you too SJ.

  19. Smiley
    May 26th, 2008 at 20:16 | #19

    Note that it includes both rentals and house purchase costs

    The exact phrasing used in ABS document is: “New homes (excluding land) and major improvements to existing homes”. The Bob Brown speech that I linked also makes reference to this.

  20. graham w
    May 26th, 2008 at 20:24 | #20

    I am looking for information and discussion about a tax system and the pros and cons of such a system with regard to the monetary and social impacts,including effects on inflation,of such a system.
    The system would be,broadly,a single tax on gross income and capital sales of all individuals,partnerships and companies to replace all existingtax regimes of federal,state and local govts.
    Tax may be collected electronically from bank accounts.Tax to be levied at a rate that raises equivalent amount of tax presently collected.
    There are millions of pros and cons that I can think of;can any one add how it would affect them personally and then on a whole of society basis.I would like feedback so to take it forward for more detailed investigation.

  21. Charlie Bell
    May 26th, 2008 at 20:38 | #21

    An article in the Canberra Times by Dr Jenny Stewart, associate professor of public policy at the University of Canberra, http://canberra.yourguide.com.au/news/opinion/editorial/general/the-politics-of-population/776529.aspx mentions the effects of economics in climate change remediation.

    Part of the discussion is the balance between constraining resource use by population control versus constraining resource use by decreasing standards of living. Presumably some middle ground compromise will be the eventual outcome.

    As this is an economics blog, how about a few comments on where abouts in this solution continuum a free-market process is likely to end? Then, who finds that an acceptable outcome, and who thinks that we can to do better and how?

  22. observa
    May 26th, 2008 at 23:00 | #22

    “There are millions of pros and cons that I can think of;can any one add how it would affect them personally and then on a whole of society basis.I would like feedback so to take it forward for more detailed investigation.”
    Well graham, if I were an average wage and salary earner I’d want my boss to return to paying me cash in a weekly envelope from the till and I’m sure he’d be only too willing to oblige. Then I’d want the Govt to get off its butt and print $100, $500 and $1000 denomination bills for all our needs. Then I’d buy shares in Armaguard, Chubb Security and the like with them.

  23. Socrates
    May 27th, 2008 at 09:21 | #23

    Ian Gould and Smiley

    Thanks for the comments. Regarding the feedback issue, I can see why that is a good reason to report core or underlying inflation as the RBA targets. But the more I consider this issue, I can’t see why we would exclude mortgage costs from the “headline’ figure, which is reported separately. After all, when you look at the US economy right now, mortgage costs might be one of the issues that has driven their economy into recession, and could damage ours to a lesser extent. So philosophically, if we are going to understand this problem, we should measure its extent correctly.

  24. Peter
    May 28th, 2008 at 15:02 | #24

    Nepal is set to become a republic. When will Australia become republic ? Do we have to wait for another century!

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