I’ve had plenty of disagreements with Andrew Norton about education policy. But I couldn’t write a better response to the government’s decision to end open access to university education for young Australians than this one. So, I’ll just link to it and open comments.
Category: Economic policy
Reviving TAFE
I’ve just been invited to make a submission to a Senate inquiry into TAFE in South Australia. From what I can glean, this is a politically motivated exercise by the Turnbull government to make capital out of some embarrassing failures in a Labor state. But it gives me the incentive to write something about the catastrophic failure of vocational education and training in Australia, a failure for which there is plenty of blame to go around. Rather than making political capital out of such incidents, we need to rebuild the TAFE system as the core of a greatly expanded vocational education and training system, including public and non-profit institutions, free from the discredited ideology of markets and competition.
Among the points I want to cover
* The impact of decades of cuts in public support for vocational training
* The disastrous effects of subsidising for-profit providers
* The goal of universal participation in post-school education and training
* Integration of technical/vocational and university education
Last-minute economic policy post
Both Labor and the LNP have released their economic policies just two days before the state election. This isn’t just a matter of “costings”. Essentially, all the new expenditure items and tax reductions were announced with some fanfare during the campaign, while the revenue measures and expenditure cuts needed to fund these goodies have been kept under wraps until now. This is a terrible way to run an election, but the “hardheads” on both sides obviously think it’s a good idea (the same hardheads who gave us compulsory preferential voting on the Labor side and the Commission of Audit for the LNP).
On the LNP side, my assessments here and here have been confirmed. The tax cuts and extra spending promised by the LNP have been financed by cuts to services (euphemistically referred to as “efficiency dividends”) and by the abandonment of the Cross-River rail project, which appears to be vital if we are going to handle a growing Brisbane population in the future. The efficiency dividend will necessarily involve reduced employment. If the promise to avoid compulsory redundancies is adhered to in spirit as well as letter, that will mean a semi-permanent hiring freeze in areas with low turnover, which is likely to have adverse effects on efficiency.
These are big cuts, but not enough to reach the target of a surplus on fiscal balance. That means the stage is set for yet another Commission of Audit and unannounced further cuts.
Labor is planning to finance promised improvements in services through a mixture of tax increases (targeted at the relatively wealthy) and unspecified reallocation of existing funds, yielding a modest net increase in expenditure as compared to the cuts proposed by the LNP.
We have a choice then between Labor offering improved services, which must ultimately be financed by tax revenue and the LNP offering cuts in taxes, services and jobs. It would have been helpful if this choice had been made explicit four weeks ago, but still it is clear enough. Unsurprisingly, I prefer Labor.
Financing a UBI/GMI
A couple of months ago, I wrote a post making some observations on the closely related ideas of a Universal Basic Income or Guaranteed Minimum Income. The most important was
Observation 1: Any UBI scheme can be replicated by a GBI with the same effective marginal tax rates, and vice versa
I meant to follow up with a more detailed exploration of financing issues, but all sorts of other things intervened. However, I’ve now prepared a draft, which is over the fold.
Comments and criticism much appreciated
The MFP illusion
Expanding on a post a little while ago, I have a piece in Inside Story arguing that multi-factor productivity, the Holy Grail of microeconomic reform for the last few decades, is a residual that is and should be equal to zero.
From getting the idea to publishing it took me a few weeks. That’s a huge contrast from last century when the best I could have hoped for is an article in a low-prestige journal, taking a year or more and reaching an audience of, at most, a few hundred.
That’s great for me, as I’m more interested in reaching a large intelligent public than in impressing my fellow economists (I have to do that to keep my job, of course, but it’s not my top priority). By contrast, the general direction of the profession has been towards fewer and fewer articles in an ever-narrower range of prestigious journals.
Save the weekend! (now with link)
I have a piece in The Conversation about the decision to cut weekend penalty rates. This decision needs to be put in the context of forty years of policy aimed at pushing down wages, eroding conditions (such as the weekend) and weakening the position of unions.
Who will pay for Adani’s infrastructure? We will
A couple of days ago, it was announced that the Fly In Fly Out workforce for Adani’s putative Carmichael mine would be split between Townsville and Rockhampton. Since I’ve long argued that the mine is highly unlikely to go ahead, I didn’t read the news stories closely. So, I missed the fact, buried in the middle of this ABC news report, that the deal requires Townsville and Rockhampton councils to build Adani an airstrip at a cost of $20 million. It turns out that not everyone in Townsville is happy about having their money spent on a project far away from the city.
This outcome is consistent with what I and others have been arguing for some time. Adani has to keep the project alive to avoid recognising the loss of the money its spent so far, and admitting that coal volumes at its Abbot Point port will be far lower than planned. On the other hand, there’s no point throwing good money after bad. So the strategy is to move slowly on the development, building a railway with money from the Commonwealth government and, now, an airstrip paid for by the people of Townsville. When, with much regret, the mine is deferred indefinitely, the Australian public will be the proud owners of a railway to nowhere, with the option of a flight back.
Three observations on guaranteed and universal basic income
I’ve been working for a while on the idea of Universal Basic Income (UBI), and the closely related alternative of a Guaranteed Basic Income (GBI), in which the payment is phased out as income increases. I’ve now developed a very simple model to illustrate some of the crucial points. Here are three observations. Only Observation 2 requires the model, and the assumption that the distribution of income is broadly similar to that prevailing in Australia today.
Observation 1: Any UBI scheme can be replicated by a GBI with the same effective marginal tax rates, and vice versa
Observation 2: A GBI equal to 40 per cent of average income, with a phaseout rate of 40 per cent, would require additional transfer payments equal to between 8 and 10 per cent of national income.
Observation 3: A UBI equal to 40 per cent of average income, with no phaseout, would require additional transfer payments equal around 30 per cent of national income, but would have the same effective marginal tax rates as a GBI.
A rare outbreak of unanimity on PFI
I’m doing some work on privatisation and wanted to look at recent UK experience with the Private Finance Initiative. So, I Googled for PFI in the last year (as Google personalizes searches, your mileage may vary). The result is a surprising degree of unanimity. Across the political spectrum, there is agreement that
* PFI is a disaster, enriching private firms at the expense of the public
* The other side is (mostly) to blame
How to replace the National Electricity Market
There are quite a few proposals around to intervene in, or repair, the National Electricity Market. In my view, it’s much too late for that. We need to scrap the NEM and start on a new path towards a zero-carbon electricity and energy system. I’ve written down some preliminary thoughts. I’d appreciate comments and also suggestions as to how I might push this idea along a bit.
John Quiggin 