Victorian Opposition leader Robert Doyle has been forced to abandon his promise to make the Scoresby freeway toll-free. What’s really interesting about the Age report on the subject is that it starts by referring to a “$2 billion” project, but ends by referring to an Econtech report saying it would cost $4.3 billion to buy out the private contractor. Roughly speaking the first figure is the actual construction cost and the second is the present value of the amount the public will have to pay (the Bracks government estimated the latter figure at $7 billlion). This is a fine example of the excess cost associated with PPPs and private tollways.

In any case, a toll on a road of this kind makes no economic sense. What is needed is congestion pricing, as in London. Having announced an inquiry into ‘radical’ methods of addressing congestion, the Bracks government has ruled out the only workable solution in advance

In a post on education at CT, Chris

floats a hypothesis for commenters to shoot down if they want to.

However, since most of the commenters agree with Chris, it looks like I’ll have to provide the other side of the debate. I’m also not linking to any evidence, though I discussed a fair bit of it here

I’m going to argue, contrary to Chris and most of the commenters on his post that there’s no reason to suppose that, in aggregate, the proportion of the population undertaking post-secondary education is too high, and every reason to continue trying to remove obstacles to participation in education for students from poor and working class backgrounds. Further, I don’t think credentialism is an important factor in explaining observed changes in participation in education or the labour market.
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John Howard’s blistering attack on Telstra management is an example of why I’ve always regarded partial privatisation as the worst of both worlds. Although I’m unimpressed by Trujillo’s performance so far, I have some sympathy with his position as CEO of a company 51 per cent owned by the Australian government. To whom is he supposed to be responsible? The private minority shareholders? The Australian public as majority shareholders? The government? The shareholding ministers? The Liberal Party?
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In addition to spurious claims about the burden of the top marginal tax rate, one of the standard complaints about taxation in Australia concerns the excessive length of the tax code. There’s a fairly typical example in this SMH piece (sent to me by Jack Strocchi). Let’s start with Phil Ruthven, who says that all federal taxes could be replaced with a simple 10 per cent tax on all revenues (I assume this refers to gross turnover of businesses). He might be right, but such a tax would be economically disastrous. It’s sometimes referred to as a cascade tax, since it applies to the same item each time it moves down the processing chain, creating massive distortions. It is in fact, the same as the Easytax, proposed by Pauline Hanson a few years back, though she proposed only a 2 per cent rate. I analysed it in this post a while back.

A more defensible, but still incorrect claim is that the complexity of the tax code is generated primarily by concessions. I’ll respond to this in a later post.

The Australian’s Margin Call column has an amusing comment on the privatisation of Telstra. The policy is rather like Voluntary Student Unionism in that it’s been pushed for so long that no-one in the government can abandon it, even though it no longer has any obvious rationale.

The fact that selling Telstra will make the public worse off in fiscal terms has finally sunk in and I suspect that Nick Minchin and the Finance Department (once the leading agency pushing a sale) would be happy enough to drop the entire idea.

As with most aspects of telecommunications policy, I’ve been singularly unimpressed by the government’s handling of digital TV policy. We seem to be lumbered with an incredibly costly design, to which we will all be forced to switch in 2008 or thereabouts. However, I’ve been contacted by Alex Encel who argues that the government could resolve many of the problems by bulk ordering set-top boxes (he estimates $10 a box), giving them away (I may be reading this into his proposal, but I think that’s what he ends) and shutting down analog broadcasts immediately. The revenue from reselling the spectrum would more than offset the cost of the boxes. I can’t see an obvious flaw in this, though I’m taking the $10 cost estimate on trust. As Alex points out, you can buy a VCR for $99 these days, and it has a whole bunch of moving parts as well as the basic electronics. Anyway, I hope there are some technically minded readers who can comment on this.
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My piece in Thursday’s Fin (over the fold) was about Telstra. As I result I got a call from the Age and was quoted in this report.

Comments appreciated
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The comments thread below arising from my piece on unfair dismissals having gone badly meta[1], let me extract one useful point and do a quick calculation. Suppose we accept the estimate by commenter x-anon that employers typically choose to pay out three months’ wages when dismissing someone for cause (that is, for reasons other than redundancy), rather than face the possibility of unfair dismissal action.

I’m going to guess that an upper bound for the proportion of employees annually dismissed for cause in small businesses is 4 per cent (for large businesses it would be smaller and for the public sector smaller again). Then that implies that the effect of the 3-months payout policy is to raise the average wage bill by 1 per cent. Unless all dismissals for cause are justified, there will be an offsetting effect, since rational employees who regard unjustified dismissal as a possibility will want a higher wage to offset the implied reduction in expected payments. Assuming justified and unjustified dismissals are equally common (here it’s the viewpoint of the average employee that matter), and disregarding risk aversion, the net saving falls to 0.5 per cent. Given a typical labour demand elasticity of 0.5 the net increase in employment demand is about 0.25 per cent for small business (the relevant distinction is those with less than 100 employees). If, say, 40 per cent of workers are employed in firms affected by the changes, the net increase in employment is 10 000 jobs. This is a once-off increase, not an increase in the annual rate of job creation.

Of course, this is a rather simplistic calculation, not taking into account effects on employer confidence, worker morale and so forth, but it gives a feel for the order of magnitude involved. A policy initiative that might generate 10 000 new jobs is worth looking at, but it ought to be put in perspective. Telstra alone has cut many more jobs than that in the past decade, which suggests that a focus on making it easier to get rid of people is probably getting the wrong end of the stick.

fn1. Godwin’s law invoked after only 30 comments.

Here’s a paper Mark Bahnisch and I have written on the government’s proposed IR changes, aimed at Online Opinion. We’ll try for a more complete analysis when we both get a bit more spare time. Comments appreciated. Crossposted here at LP
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