Courts rule: No jobs in dodgy modelling

  1. The great Australian lock out
  2. Rio’s luck dries up
  3. Veggies with benefits
  4. Are banks the biggest, meanest monopoly going?
  5. Recent media
  6. Recent publications

The great Australian lock out

Furthering the Institute’s work on equity, we recently made a submission to the Senate inquiry into affordable housing, finding firstly that, although most Australians (67%) own their own home (either outright or paying off a mortgage), inequality exists between age and income groups.

Owning your own home brings many benefits, social and economic. It is more secure than the rental market, where leases can be terminated, and reduces housing costs in the long term, after mortgages are paid off.

Housing prices are increasing faster than incomes, which is increasing inequality in accessing the market. Housing can be considered unaffordable when housing is three times the median wage. In 2012, Sydney house prices were nine times median earnings, and Melbourne houses 8.4 times the median wage.

Investors are also pushing up house prices, with housing investments more than doubling since 2001. It is largely baby boomers who are driving this investment, impacting their children’s ability to buy into the market without their assistance. This investment has the largest impact on those young people whose parents don’t own property and are unable to assist them financially.

Rental prices have also gone up in response to higher house prices and increased renting by higher income households that are unable to afford to buy. These households rent more expensive dwellings, increasing the amount of higher-end rental accommodation available, and decreasing the amount of cheaper housing available.

Other social factors are pushing up house prices. Investor access to cheap credit, a reduction in household size and increase in dwelling size, low interest rates and population growth have all impacted on housing affordability.

Government housing policy has also contributed to price rises. Negative gearing, exemption from capital gains, and tax concessions all entrench housing unaffordability. Grants intended to assist first home buyers into the market have actually had the opposite effect and increased demand for housing, hence pushing up prices even further.

Reform is clearly needed if we are to address housing inequality. The Institute has made a number of suggestions to the Inquiry on how to make housing more affordable, and more equitable.

TAI recommends that:

The inquiry examine the cost and efficacy of policies such as negative gearing, First Home Owner Grants and capital gains. Policies could also favour renters, particularly low income renters. Rent assistance for those on government benefits should be urgently addressed.

Whilst house prices continue to rise, many will have to rent for longer periods. Policy

changes to assist housing security for those people and assist them into home ownership should be implemented. Public housing should also be increased for low-income owners, with an option to participate in a credit scheme that would allow them to own their own home.

You can read our submission into housing inequality here

Rio’s luck dries up

Another court case, another loss for Rio Tinto. This time in the NSW Supreme Court.

If you cast your mind back to last year, the Institute’s Rod Campbell and Richard Denniss were expert witnesses for the NSW Environmental Defenders’ Office in its court case against Rio Tinto’s Warkworth mine expansion. The case was brought to the Land and Environment Court on behalf of the people of Bulga, a small community in the Hunter Valley. The people of Bulga won a landmark victory, with Chief Justice Preston stating in his judgement:

 “I accept Dr Denniss’ evidence that, to a considerable extent, employment generated from the extension of the Warkworth mine would involve currently employed skilled workers transferring from other industries, but the vacancy thereby created in the other industries may not necessarily be filled.”

And:

“I am not satisfied that the economic analyses provided on behalf of Warkworth support the conclusion urged by both Warkworth and the Minister, namely that the economic benefits of the project outweigh the environmental, social and other costs.”

Rio Tinto didn’t accept the findings of that court, and with the NSW Department of Planning appealed to the Supreme Court. On Monday, they lost again. The court upheld the original ruling of the Land and Environment Court and ordered Rio Tinto to pay costs.

Dodgy economic modelling is often used by industry to make projects look like they will employ far more people than they actually can. Rio Tinto used such modelling for the Warkworth project. As Richard put it:

“Rio’s economists told decision makers this mine, which employs 1,300 people, would somehow create 45,000 jobs – twice the number of people in Singleton!  To come up with such numbers they used economic modelling the ABS describes as ‘biased’ and which the Productivity Commission describes as ‘abused’.” You can read his response to the decision on the ABC here.

Rio Tinto also claimed that if they couldn’t increase their mining area by two per cent, they would sack their entire workforce in the region. This is an exaggeration to scare the community into supporting a mine expansion that they don’t want.

Unfortunately, the Bulga community believe that Rio Tinto may still be able to go ahead with the expansion. Rio has submitted another application to the NSW Planning Department, which previously approved the application the courts have ruled against. New mining regulations prioritise the significance of a coal resource over the impacts of mining it.

The Australia Institute will soon release a new research paper examining the role of coal in the Hunter Valley economy.

Hot on the heels of the NSW Supreme Court rejecting Rio Tinto and the NSW Government’s appeal on the Warkworth coal project in the Hunter Valley, the Queensland Land Court has handed down a decision that throws Gina Rinehart’s Alpha coal project into uncertain territory. The court recommended either rejecting the project outright or imposing further conditions. 

The economic assessment of the Alpha project had rested on the same type of “input-output” modelling which TAI challenged in the Warkworth case and in many other submissions. The Warkworth judgment had given a definitive thumbs-down to this modelling, describing it as “deficient”, based largely on Richard’s evidence to the court.  The Alpha judgement was less decisive, dismissing both sides’ evidence as “rather complex” and accepting that if the mine went ahead it would bring economic benefit to Queensland.  Importantly, however, the judge listed these benefits as direct employment numbers (800-1500 jobs) and royalties ($200m per year) rather than the mine’s model estimates of 7200 – 8300 jobs and $2.2 billion in output.

While the overall implications of the judgement are still difficult to determine, the economic section is clearly another battle won against dodgy economic modelling.  ​

For more of the Institute’s research on mining, click here.

Veggies with benefits

Self-declared “half-man, half-hedge” Costa Georgiadis from the ABC’s Gardening Australia program recently launched the Institute’s Grow Your Own, a research paper on ‘the potential value and impacts of residential and community food gardening’.

The venue was the rooftop garden of the Wayside Chapel in Sydney and Costa’s chook, K*nky, gave us a practical demonstration of ground clearing and pest control. Check out photos from the launch here!

Report author Poppy Wise gave us a great rundown of some of her findings, which included that:

There’s no such thing as an average gardener. People with small children are generally more likely to garden, but on those things that can keep us apart – age, gender, culture, politics – gardening brings us together by appealing equally to all.

  •  Two out of three households support more locally produced food, either through community gardens, school gardens, or in aged care facilities.
  •  Most of us are either growing our own food or want to start. More than half of all Australian households are growing some of their own food, either at home or at a community garden, and a further 13 per cent are keen to get started.
  •  Health, taste and cost savings are the greatest drivers for households to grow their own food.

There are a whole host of other benefits that come with growing your own food, some of them indirectly through the behaviour changes people make as they become more aware of the energy that goes into food production, and what they are actually eating.

Those who grow their own food are less likely to waste it. As Jess Miller from Grow It Local put it:

“It takes three years to grow a pineapple. If you realise how much effort goes into growing something, you’re then less likely to waste it”.

Those who grow their own food are also more likely to compost organic waste, reducing methane emissions and turning it into something useful. $657 million a year and two million tonnes of greenhouse gas emissions could be saved if more people grew their own food and reduced or recycled their food waste.

People who grow their own food are also more likely to source the food they buy locally, which supports their local community and builds resilience into food supply chains by shortening them significantly. Anecdotally, they are also more likely to grow organically, are more likely to eat more fresh food, and be more willing to try new types of fresh food than others.

See pictures of the launch here

You can read the findings of our research into home (or community) grown food here.

Are banks the biggest, meanest monopoly going?

“The exact content of regulatory failure, in this perspective can be summarised in one word: deregulation. Given the culture of greed that inevitably characterises financial markets, deregulatory measures…directly caused the crisis” Notermans T (2013) ‘Reforming finance: A literature review’, Financialisation, economy, society and sustainable development, No 8 working paper series

The Financial Services Inquiry has been very contentious, largely due its terms of reference being skewed toward deregulation. Here the Institute’s Senior Research Fellow David Richardson outlines his submission to the inquiry:

Deregulation, or the ‘flexibility’ of the financial system, was at the root of the Global Financial Crisis.

 The financial system as it currently stands has one side with economic power and an excellent knowledge of the system, and the other side with many unsophisticated investors and borrowers with very little knowledge of the system and often little financial literacy.  With smaller purchases unhappy customers can shop around for a better deal next time, however, the financial system is characterised by large, one-off transactions, limited competition, and no ability for the customer to do it better next time. This is one reason why regulation of the sector is so important. The industry, particularly the ‘big four’ banks, need external monitoring and penalties that ensure they act ethically and fairly towards those dependent on them.

Leaving everything to the market has always been a bad idea, and now is no different. In fact the big four make very high profits against the national interest because the financial return may not be as high as they are accustomed to. The big four banks are some of the most profitable companies in Australia, second only to BHP Billiton, which could be put down to a lack of competition. More concerning is that many of the big shareholders hold shares in each of the four banks, so are unlikely to advocate for competition that may see them lose profits.

 The banks claim that their high profits benefit the community is a furphy.  Whilst many workers hold shares in banks indirectly through superannuation, the distribution of share ownership and superannuation balances means that only the wealthiest Australians benefit.

 Separating traditional and investment banking is one way to assist stability in the banking system, and should also address the problem of the big four’s monopoly over the payments system. Other measures to control bank profits are:

  • Reducing bank profits to one percent or less as a share of GDP.
  • Legislating to ensure that interest rates charged by banks move in line with changes to the RBA cash rate and are set and advertised as a mark-up over the cash rate.
  • Establishing a separate licensing regime for financial institutions that provide payment services and infrastructure to retailers, thus encouraging new entrants into this market.
  • Capping certain kinds of bank fees at a level sufficient to cover costs, including a reasonable return on assets.
  • Mandating that all financial institutions offer a no-frills, low-cost everyday savings/transaction account to every customer.
  • Restricting the interest rates that can be charged on unsecured credit to levels that reflect the underlying risk to the lender.

 To read our submission to the financial services inquiry, download it here.

Recent Media

No clear goals in handout culture Canberra Times 3 March 2014

Gas prices are rising despite protests AFR 6 March 2014 (pdf download)

Forestry aid ignores real problems AFR 11 March 2014 (pdf download)

Goodies and baddies lost in Tasmanian logjam, PM Tony Abbott will find Canberra Times 15 March 2014         

Three myths the coal seam gas industry wants you to believe The Conversation 18 March 2014 

Want a case for regulation? Look at CSG ABC The Drum 18 March 2014

Abbott shifts the budget’s burdens AFR 25 March 2014 (pdf download)                 

Knighthoods a distraction from the big questions The Canberra Times 29 March 2014

The paradoxes of economic growth AFR 08 April 2014  (pdf download)


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mail@australiainstitute.org.au

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