November 29, 2013 | Graham

Plain packaging works for everyone but tobacco companies

It seems that plain packaging hasn’t reduced Australian smoking rates so far, according to this report from London Economics, so you might think that it fails to meet its policy targets. And that might be the case if you accept that the previous government’s only aim with this policy was to cut smoking rates.

But combine this fact with the information from yesterday’s post and plain packaging actually makes it easier for the government to meet or exceed its fiscal targets from the tax.

What appears to be happening is that smokers are now paying less to smoke. As tobacco excise is paid per stick, this has zero effect on government revenue, while reducing the proportion of smokers’ budgets directed to their habits.

The former government proposed hiking excise rates to raise a further $5.3 billion. One of the issues in doing this would have been how elastic demand for cigarettes is. We know that it is pretty inelastic, but there had to be some give.

But now that we know that smokers are moving down the cost curve with their habit, their ability to pay has increased and the elasticity question ceases to be as large a concern. Furthermore, if the government’s assumptions were correct, the shift down the cost curve leaves room for yet higher excise hikes in future.

The only potential fly in the financial ointment is the issue of how much is creamed-off by “illicit” tobacco. The tobacco industry says this will be significant, but now courtesy of the tobacco industry we have the answer.  This report, prepared for BAT by KPMG estimates the loss to government revenue from the increase in the illicit tobacco market at $1 billion in 2012/2013.

The report implies this is the result of a 25% excise hike in 2010, and it might have been, but it is hard to be sure of this from their graph as there is a major increase in consumption of illicit tobacco which seems to occur immediately prior to the excise hike, and which has stayed fairly stable thereafter.

However, if the KPMG analysis is correct it is quite possible that the extra $5.3 billion, projected over 4 years, may never arrive in government coffers, suggesting that the government will need to hike the excise even higher to pay for the spending commitments already made with the anticipated revenue.

Apparently, as of February 2013, the federal government had no idea what effect the excise had on revenue. In a “Post Implementation Review” of the increase in excise Treasury says:

The measure was anticipated to raise an extra $5 billion over five years which would be invested in better health and hospitals. An ex‑post analysis of extent of the additional tax revenue received is not available. 

which is curious, to say the least.

So, the takeout from all of this is that the winners from plain packaging are:

  • Smokers, because they’re now spending less on their habit
  • Illicit tobacco producers and sellers, because there is increased take-up of their product
  • The federal government, because they have more room to increase excise (although they have to be careful this isn’t outrun by losses through illicit tobacco consumption)

And the losers are the tobacco companies, who no longer get a premium price for their product, the premium being shared between consumers, crooks and the government.

Posted by Graham at 6:44 am | Comments Off on Plain packaging works for everyone but tobacco companies |
Filed under: Economics,Health

November 28, 2013 | Graham

Aussie plain packaging meme spreads, but does it work?

The UK government has reversed its position and now apparently intends to introduce plain packaging for cigarettes. At the same time one of the Labor taxes the Abbott government is apparently not going to give us relief from is the increase in the Tobacco Tax, according to LDP Senator-elect, David Leyonhjelm.

The ostensible reason for both is to reduce smoking, but do either of these two measures work?

According to British American Tobacco, all plain packaging laws have done is move smokers down the cost curve so they are buying cheaper cigarettes, in part proving the tobacco industry’s contention that packaging is about changing existing smokers’ preferences, and increased the amount of illegal tobacco on the market.

Worryingly, the cheap price segment which represents the lower end of the legal market has actually grown by 33 per cent since plain packaging was introduced. The cheap price segment now makes up over 22 per cent of the market or nearly three billion cigarettes.
BATA spokesperson Scott McIntyre said that was a huge amount of growth at the bottom end of the market…

“Worse still, the illegal market is now at its highest ever level and is equal to 13.3 per cent of total tobacco consumption. The latest illegal tobacco report by KPMG LLP highlights that the number of illegal cigarettes sold in Australia in the last 12 months has grown 154 per cent.”

Significantly the release leaves out the size of the overall market. There is a lot of difference between “more people than ever [are buying] cheaper smokes,” and more people than ever are buying smokes.

No doubt someone will fill in this gap during the day, but it does look like the policy has had some foreseeable adverse consequences for the government and manufacturers. Although, without having to pay for marketing and branding, its possible tobacco company profits could be higher than otherwise.

Increasing the price of tobacco is another issue. Australia has one of the best performers in the world in terms of percentage of the population that smokes, and we’ve achieved this more through social than economic levers.

Like gambling, smoking has become a cash cow for governments at the same time as they mouth moralistic platitudes about the evils of each.

I can understand that Abbott needs the extra revenue, but he’d gain significant goodwill and kudos from working class Australians if he reversed this Labor policy.

The only Australians still smoking are those who are hooked, or too young and reckless to be worried about it. It’s hard to see an ethical reason for punitively taxing them.


Posted by Graham at 10:35 am | Comments Off on Aussie plain packaging meme spreads, but does it work? |
Filed under: Uncategorized

November 26, 2013 | Graham

Maccloskey, innovation and wealth

Every now and then you have one of those cross disciplinary moments when everything you think you know about a discipline is proven wrong.

I thought I had a pretty good handle on economics, but was blown away last night to find that most economists apparently think that wealth is created by savings, or efficiency gains.

This is so obviously wrong, that I was surprised Dierdre Mccloskey, a renowned American economist, would be touring Australia telling us at length that it was wrong.

But apparently there is a real debate in the economics profession, and Mccloskey is on the side that says that innovation is the main driver behind increasing wealth, and her innovation on innovation is to say that it is cultural.

Mind you, I had come across plenty of people who argue that getting the tax system right, or encouraging national savings, are the keys to national wealth, but any survey of world economies shows that this is hard to justify. If tax was the key, why is it that Sweden and Australia have very similar levels of per capita national wealth?

I’m not arguing these things don’t matter, just that if they were the main drivers, then Australia would be very much richer than Sweden, and it isn’t.

Basically wealth is a measure of the stuff that one has available, now or in the future, for one’s personal use. It can be temporarily embodied in things, such as buildings, but the measure of value of a thing is the cash flows that it can generate, and cash flows are only valuable because of what other things they can buy.

An increase in wealth occurs when we control, or have access to, more things.

In this context, looking around modern society, the harnessing of energy through electricity, steam and combustion, is probably the biggest generator of wealth ever – it gives us the slaves that allow us the time to buy access to luxuries that even top human predators a thousand years ago could only dream of.

So having social systems that encourage rather than stifle innovation is important, and according to Mccloskey (assuming I am getting this right) societies where “Having a go” is encouraged have got it right, which societies where “Having a fair go” is demanded, will get it wrong.

Which obviously feeds back into tax systems, but as a second order issue.

So technology is the main driver of economic growth – who would have thought? Apparently not economists.

I heard Mccloskey speak last night at a function jointly sponsored by the The Economic Society of Australia, Griffith University and the ALS Friedman Dinners, and know little of her work apart from this.

So perhaps her approach to savings is more nuanced than it sounded. While the innovation thesis is incontrovertible, I did think that she underplayed the role of savings.

The great powers of the world have all been great banking powers, and the reason that the US colossally bestrides the globe isn’t primarily because she has a large army, but because her financial power buys her one.

And while the US is a tremendously innovative society, others are as well, but it is easier to fund innovation in the US than it is anywhere else, and this has got to be a key to her dominance.

I often think about the information revolution and regret that I wasn’t born in the US. If I had been OLO would be quite different from what it is today. Apart from access to a huge English speaking audience, we would also have had access to Tech Bubble finances.

We’re more innovative than the Huffington Post, yet the Huffington Post is now much larger and more successful than we are ever likely to be. Why?

Innovation counts, but other things, like access to savings, count just as much, certainly in the race to get innovation to market.

Would we know who Bill Gates or Steve Jobs were if they had been born and worked anywhere else but the US? I don’t think so.



Posted by Graham at 6:57 am | Comments (4) |
Filed under: Economics

November 24, 2013 | Graham

Good government and good weather sponsored by good guys

It has to be only a matter of time before the ABC is offering advertising on its website and programs as the federal government opens up government websites to commercial advertising.

In the course of checking the weather to see how long the latest Brisbane thunder storm might last I went to the Bureau of Meteorology Weather Radar site to see, for the first time that I can recall, a commercial advert.

This was for gifts under $200 available from The Good Guys. Refreshing the page revealed other government departments, and Tiger Air, as well as the bureau itself, to also be advertisers on the BOM site.

I was impressed with the speed with which the Abbott government had rushed to find fresh sources of finance to pay back the debt, until I checked Promotional and advertising material on agency websites – Web Guide.

Turns out it was the previous government that decided to implement a 12 month trial, starting in July this year, and only on the BOM site, because of the high traffic that it attracts.

I’m not sure how I missed the advertising before, or perhaps they have only just implemented the policy.

As their advertising doesn’t seem to involve conventional ad serving software, it’s possible it took them 4 months to sort themselves out.

If the trial succeeds this has got to put pressure on the ABC to take advertising. While they wouldn’t make much compared to their overall budget, it would still be a significant amount.

But only if they can get proper take-up from advertisers.

The way they have gone about it suggests that there could be an element of institutional sabotage.

Having mostly internal government ads with occasional commercial ads says either commercial advertisers aren’t that interested, or BOM doesn’t have anyone doing effective advertising sales.

But it is easy to sell ads on any website by signing-up for Google adsense. My recent experience suggests this will return more money, more easily, than retaining your own advertising sales team, or ad agency.

So why aren’t they displaying Google ads?

There’s no reason I can see that government sites shouldn’t be able to run advertising, but it sends a cold shiver down my spine. Unlike the offline world, there is no end of inventory for ads online. That makes the free-to-air publishing model difficult, and probably impossible, to follow with a news, or any other, website.

And imagine if you could advertise on the ABC website – where would that leave Fairfax et al?

Posted by Graham at 2:40 pm | Comments (4) |
Filed under: Uncategorized

November 19, 2013 | Graham

Labor underestimates average Australians too

Part of the secret of Tony Abbott’s success is that Labor and Greens underestimate him. The torrent of accusations that he is too dumb to be PM that has followed his election on Twitter and social media generally is proof of this.

For a really amusing example of this genre – Tony as ventriloquist’s dummy – check out “Earpiecegate“.

The allegation is that because Abbott wears an earpiece in some TV interviews it is because he is so slow on his feet he needs “Radio Kredlin” in his ear to tell him what to think. Huge kudos to Peta Credlin, Abbott’s Chief of Staff, but it had me rolling around the floor for a few minutes. Everyone wears an earpiece when interviewed remotely on TV.

Another part of his success is that Labor also understimates, or just plain misunderstands, average Australians, and in this category I include what used to be their core vote – working class Australians.

This may be what Bob Carr was referring to when he accused Labor of not being “cunning” enough.

You get no better example of this than the last week or federal parliament.

If there is one issue that Labor should steer clear of it is asylum seekers.

Sure, the government will make mistakes, but there is no gain, and plenty of pain, for the opposition in trying to exploit them, because every time they raise the issue of the boats all most Australians will recall is that they were the ones that created the problem in the first place.

Now you may argue that it wasn’t Labor’s fault that the boats ramped up while they were in office, and that push factors are more important than pull factors.

I won’t have that argument with you, because as far as average Australians are concerned, their perceptions are set that Labor created the problem. You won’t change their minds, so whether the point is well-made or not, in terms of public relations, it is irrelevant.

Abbott and his team must love it every time someone limbers up on the other side to hurl down a delivery accusing them of failure on the boats.

Tony Burke is probably the best example of a political quick without line or length. His accusations that:

The reason the secrecy is going on is, in large part, they don’t want to admit that the policies they took to the election in this area, they’re not implementing.

are so wide of the pitch that the government gets to score without even moving their feet.

Anyone who was paying attention knows that the Abbott government never promised to buy Indonesian fishing boats, or even turn boats back, except in certain circumstances. They also know that the promise on boats was to stop them coming, and that policies, and the policy mix, will change over time.

Average Australians don’t care how the government gets there (within the law), as long as they get there.

No doubt there is frustration in the Opposition because the Government that made such an issue of the illegal entrant issue when they were in opposition is now denying the current opposition the oxygen to make an issue of it.

They have some justification in thinking that Scott Morrison was doing his best to make their refugee policies fail, but they are mistaken if they think they can get away with the same tactic.

If the Abbott government fails to stop the boats, it won’t be the Abbott government that gets the blame, it will be the former Labor governments.

In trying to sabotage the present government’s policy, all the opposition does is sabotage its own prospects.

Interesting to see the cunning Carr in today’s Australian approving Australia’s donation of two patrol boats to Sri Lanka, surely part of the “stop the boats” campaign but not a policy telegraphed during the election:

FORMER foreign minister Bob Carr has described a decision by the Abbott government to give the Sri Lankan navy two patrol boats as “sound policy” and revealed that Labor contemplated doing the same thing.

It’s a lead Bill Shorten ought to think about following.

But wait, what’s that I see in Carr’s ear? Who’s he taking his riding instructions from?

Bob_Carr_Earpiece Abbott_Earpiece

Posted by Graham at 7:32 am | Comments (5) |
Filed under: Uncategorized

November 13, 2013 | Graham

Effective versus efficient

The Conversation is supposed to be a vehicle for university academics, but it seems to be becoming a repository for the work of anyone even tenuously connected with a university. Which means that advocacy organisations can insinuate their propaganda onto its pages, as long as one of their researchers is studying at a university.

Such seems to be the case with How efficient is Australia’s public sector? Short answer: very. The, piece funded by vested interests like the CPSU and Slater and Gordon claims that it’s very difficult to get more out of the Australian public service because it is about as efficient as it can be, and certainly as efficient as large private organisations.

The article, written by Christopher Stone, Research Director at the very left-wing Centre for Policy Development, and a PhD student in law at Macquarie University, relies heavily on verbal subterfuge to “prove” its point.

Exhibit A is a World Bank survey which places Australia as the ninth most “effective” government in the world. It then combines this ranking, with our tax expenditure as a percentage of GDP to “show” that dollar for dollar we are one of the most effective governments in the world.

He then claims:

Getting big results compared to the resources used (good “bang for your buck”) is an important aspect of efficiency, so these nations at the top right are the most efficient on this measure.

But what exactly does “effective” mean. According to the World Bank it is a measure based on a survey which:

Reflects perceptions of the quality of public services, the quality of the civil service and the degree of its independence from political pressures, the quality of policy formulation and implementation, and the credibility of the government’s commitment to such policies.

Combining this measure with percentage of economy spent on government services tells you nothing about efficiency. A government which chose to spend all of its GDP could rank exactly the same as one that spent virtually none of its GDP, because this measure only ranks what you supply with no reference to how much.

Governments can only be compared for efficiency against the things that they deliver which are comparable. So, for example, we could work out the efficiency of the education system between countries on the basis of the number of dollars spent, the number of people employed, the assets invested and the outcomes achieved.

But if one government provides education right through from pre-school to university, and another only provides primary, they could both be seen as equally effective, because that is limited only to what they supply, but it would be impossible to work out their efficiency by comparing their systems, because they are apples and oranges.

We can expect more such nonsense as the Abbott government seeks to meet Australians’ expectations of both government services and taxation levels, which are pulling in opposite directions. Public servants will try to avoid working any harder, and have a vested interest in proving that this is as good as it gets.

But should the university sector be involved in helping them propagate the propaganda, particularly from an activist whose only qualification to be writing such a piece appears to be study towards a PhD in a discipline unrelated to the field of the article?

Posted by Graham at 10:53 am | Comments (3) |
Filed under: Uncategorized

November 12, 2013 | Graham

Won’t read it in The Conversation

On Line Opinion invented the genre of the online op-ed in 1999. In the 14 years since we’ve had lots of imitators, but when it comes to openness and balance, no competitors.

One of our closest imitators, so close that it not only copied the genre but stole our financial model as well, is The Conversation. However it’s never been further away from our aims of fostering broad and open debate than today.

The proof of that is in this article – University misconduct inquiries lack transparency – published in OLO yesterday, but originally commissioned for The Conversation.

Why isn’t it running in The Conversation? That’s a good question, but a reasonable inference is that when you are an online vanity press for the university sector, then being open and transparent enough to criticise that sector’s approach to openness and transparency is not possible.

Which raises worrying questions not so much about The Conversation, but the universities themselves.

No role of a university could be clearer than to foster an open and enquiring approach to areas of intellectual inquiry. Yet, universities fail this role in so many ways.

Given some of the misuse of statistics, one wonders why it is necessary to fiddle results in a way that the law finds fraudulent. Plenty of academics fiddle results in ways which apparently keep their universities happy.

One Australian example of misuse of statistics close to my heart is that of Professor Stephan Lewandowsky. Not only does he have a chair at the University of Western Australia, but he receives ARC funding, which he uses in the pursuit of Soviet style punitive pscyhology, essentially defaming opponents under the cover of academic rigour.

Yet the rigour is not there. He famously tried to link climate change skepticism with a belief that NASA faked the moon landings based on a sample of 10, carefully selected from a biased sample of 1200. In his most recent work he draws a conclusion based on zero data points. Why am I not surprised?

Even good researchers in good faith get it wrong. We know that somewhere around 50% of peer reviewed research is wrong, and then there is the fact that often it proves impossible to successfully repeat the original experiment that gave rise to a particular theory in the first place.

Tony Abbott doesn’t have a science minister, but perhaps his education minister can start to look at this mess. Universities are a significant driver of whether we are a “clever country” or not, as well as a major source of import income and prestige.

Some government money judiciously disposed could change academic behaviours and improve the sector out of site. For example, there is a need to do peer review other ways.

Review is outsourced to private organisations like Science and Nature. Why not sponsor the universities to get into the academic publishing business on the basis that they do open peer review via exposure drafts of papers on the net where anyone can comment?

Another area crying out for attention is what I will call “Devil’s Advocacy”. As many studies can’t be replicated, it’s just that we don’t know which ones, monies ought to be put aside to pay teams of scientists to attempt replication. You could also perhaps condition some government buying contracts, so that say, before putting a drug on the PBS the manufacturer has provided funding to a third party to attempt to replicate their studies.

The government should also look at the Australian Research Council. As Lewandowsky’s work demonstrates, public money is in some cases being funnelled into private witch hunts rather than useful research. That is the tip.

Having been close to a few applications to the ARC, it is obvious that it operates as a cosy club, maintaining often mediocre mature researchers at the expense of younger and brighter academics.

That 57 year old economist John Quiggin is a Federation Fellow – an award designated for an early to mid-career academic, is a good example of the latter.

It’s time the country had a genuine conversation about our university sector.

Posted by Graham at 8:18 am | Comments (11) |
Filed under: Uncategorized

November 10, 2013 | Graham

Feast of fools – addicted to takeaway media stunts

An email from Zeg Cartoonist came in (which I have reproduced in full below) along with this cartoon.



 It’s been most amusing and enlightening for me to watch the usual suspects in the mainstream media and surprisingly some not so usual ones, literally crying and bleating because the new Federal Coalition Govt. has decided not to play the 24 hour media cycle game and actually control the flow of information and especially information concerning security sensitive information & foreign policy.
The MSM has been fattened on daily announcements and political stunts for the last 6 years thanks to the Rudd/Gillard/Rudd media circus machine of distraction and this addiction will not slide easily for the press gallery etc. You’d think they’d enjoy the extra time to sit back, think deeply and try to properly analyse the political conversations thus providing the public with a better more considered, informed and less knee jerk reactionary reporting. This style of Governance suits makes me feel quite comfortable but what it has exposed I guess, the standard or lack or standard that our media companions now hold themselves to. The quick flashy rhetoric driven columns and sound grabs are just easy to run, with the benefit of a the lack of scrutiny by peers and public simply because the cycle is moving too fast to stop & study.
Basically speaking, it’s time the Mainstream Media in this country stop being lazy and get use to fighting for not just a comment but a meaningful TRUTH and stop filling in the empty spaces with their opinion because it sells papers, favours ideological support …….. leave opinion to the talk back hosts & callers, political TV talk panels, the writers to the editors page, the opinion editors and of course the satirists.
Freelance Editorial Cartoonist/Caricaturist

Posted by Graham at 4:30 pm | Comments (2) |
Filed under: Australian Politics

November 08, 2013 | Graham

Abbott reality must be wrong

There’s the gag about the economist for whom reality was just a special case of his model, and then there’s the ALP reaction to the reality of Tony Abbott.

I find it bizarre, and dishonest, both to themselves and us, that because Abbott refuses to conform to the “cut to the bone” Tony that the advertising  relentlessly told us he would be, the ALP, and fellow travellers, condemn Abbott for “hypocrisy”.

This has got to be the worst case of fiction being mistaken for real life that I have ever seen.

The line goes, that as Abbott declared there was a “budget emergency” and a “border emergency”, then he has no business extending Australia’s credit lines to meet expenditure already incurred by the previous government, and he should have turned-off illegal immigration like a tap.

At the same time he is criticised for honouring campaign commitments to abolish taxes like the mining tax, along with the income support measures that went with them.

There is a pathology at work here which gives a clue to why the last three federal Labor governments were so bad.

It appears that the whole left of the political spectrum has become entirely divorced from an empirical view of the world and act as though the world as they would like to be is the world as it is.

This explains the thought bubble style of government under both Rudd and Gillard. In this world, issuing a media release (or airing an advertisement) was enough to make it so.

So, spending money on an “education revolution” consisting of better provisioning school buildings and classrooms was both educational and revolutionary. Or instituting a program called the National Disability Insurance Scheme was enough to ensure that the physically less-abled of us would have exactly the same qualit of living at exactly the same price (whatever that quality and price might be) as the rest of us.

That the revolution accompanied declining educational outcomes, and income wasn’t sufficient to meet the commitment, didn’t enter into the picture.

Perhaps this is emblematic of the age. After all Twitter has just listed on Wall Street raising $1.82 billion USD, having virtually no revenue, let alone being in sight of a profit. That’s the world inhabited by more on the left than the right (see our study on social media and the last election).

It could also be part of the “progressive” mind-set, which is predicated on the view that the world must change, which involves a degree of visualisation, that probably has a degree of rub-off as projection.

One thing is for sure, while it might provide cheap rebuttal lines, this mindset is inimical to Labor getting back into power any time soon.

Any future victory has to be planned on the basis of what is, rather than what “should” be.

Posted by Graham at 7:42 am | Comments (1) |
Filed under: Australian Politics