Tobacco fact deniers are at it again

Thu, 19 Jun 2014  |  

As far as I can tell, only two pieces in today's The Australian on the tobacco issue, but both squarely aimed at muddying the debate on the decline in the volume of tobacco consumed by households in Australia.

Let's have a look at what they are saying.

The editorial in The Australian suggests that I was "defending the effectiveness of the [plain packaging] laws' because I had "a stake in their introduction".

There are a couple of issues here. The Australian's Adam Creighton kindly sent me an email yesterday, where he asked, "did you have any involvement in the development of the plain packaging policy when you were working for Julia Gillard?" My reply was "No - I had zero input as it was a health issue, not economic."

For some reason, The Australian editorial chose to ignore this. What my stake in the issue is remains a mystery.

The other issue is that I have not defended the plain packaging laws. While I think most policies aimed at reducing smoking are worthwhile, I merely noted that the ABS data on the household consumption of tobacco highlighted, in no uncertain terms, the embarrassing errors in Christian Kerr's story in The Australian of 6 June 2014. The volume of tobacco consumed is falling. I did note the plain packaging laws, plus the excise increase, as factors that may account for the obvious fall in consumption.

The editorial then moves on to defend the industry data that was the trigger for the Kerr story – data that no one other than those working at The Australian have seen. I have asked to see the data so I can enhance my knowledge of the issue but so far, have not been able to view it. The secrecy that surrounds this industry data – which was the basis of the story – is enlightening. I suspect the data are shonky and The Australian is embarrassed to release them for fear they will raise questions about the survey sample and its timing, among other things.

The editorial then goes to note that in looking at the volume of tobacco consumed, "Koukoulas cites Australian Bureau of Statistics figures on tobacco consumption."

Um... well, what other reliable, accurate and timely data on the volume of tobacco consumed are publicly available?

It then cites Economics Correspondent Adam Creighton's story (who previously worked for Tony Abbott, and is something not disclosed in his article) that "those ABS figures do not refute sales figures from the industry which show a rise in total cigarette sales last year amid a dramatic shift from branded cigarettes to discount lines".

This data torture is extreme and as I noted in yesterday's blog, "To help the smoking fact deniers, here is a little illustration about what might be going on. In Period One, consumption of tobacco is 50 expensive and 50 cheap cigarettes (100 in total). In Period Two, consumption shifts to only 25 expensive yet 70 cheap cigarette (95 in total). Clearly, the overall consumption of tobacco has fallen 5 per cent with a big switch to the cheaper product. This may well be happening if the data cited by Kerr and Creighton is correct and leaves the ABS data and my analysis untouched."

The bottom line is that overall consumption of tobacco is falling, even if there is a shift from expensive to cheaper brands. This is the key point.

In reference to the Media Watch story on the topic on 16 June 2014, The Australian's editorial then is generous enough to suggest "The ABC, of course, is free to publish Koukoulas, just as we and some of our sister organisations occasionally do." 

It then suggests my connection to "Gillard-era policies" should be disclosed. It usually is in the many TV and radio interviews I give, but on this matter, The Australian is putting up a smokescreen for the issue at hand – the consumption of tobacco – as it then tries to bad mouth me suggesting my "analysis is not orthodox but hails from the partisan fringe of economics."

The editorial then cites that in December 2012 I argued that "it is still more likely than not that there will be a surplus in 2012-13". Well, any quick google search can confirm that around the same time The Australian was also pushing hard for the budget return to surplus. The Australian and I were at one on fiscal policy it seems. The reasons the surplus did not materialise have been widely documented and are clearly not the point in the debate on the declining consumption of tobacco.

The Australian's insinuation that my views are somehow less worthy because I am partisan ignores a range of other facts that they could have asked me about. Just days after the September 2013 election I argued in the News Limited owned Business Spectator that Treasurer Hockey should start tightening fiscal policy before year end. Go early, have a mini-budget of sorts and not wait the eight months to the May 2014 budget for fiscal action. Some early "money in the bank" was my idea for newly elected Treasurer Mr Hockey to follow - getting some of the tough decisions out quickly and taking early steps to get the surplus. I even offered a few policy ideas on how to do it. With the miserable 2014 budget we have just seen, I suspect Mr Hockey wishes he had taken my advice.

In the same publication I wrote that government assistance to the car industry should be phased out which is some advise Treasurer Hockey obviously agreed with and followed.

The paper also ignores the fact that I am an advocate for considering reform of the GST – perhaps broadening its base and raising the rate – something the Liberal Party were keen to highlight in the 2013 election campaign, but now seem open too. I can see I am ahead of the pack again when it comes to policy reform.

The paper then ignores the fact that I consider the income tax hike on high income earners and the indexation of petrol to be decent policy changes even if in their current form, they raise precious little money.

The paper also ignores my strong advocacy of a suitably flexible labour market, one which sees wages growth moderate when unemployment rises and vice versa, that encourages productivity growth and rising incomes in the longer run. A little like the conditions currently prevailing in the labour market.

I am about good economic policy and fact based analysis.

And a couple of other issues – I am happy to disclose that in my business dealings, I have received, coincidently, the same financial return for doing work for the Liberal Party as I have from the Labor Party.

Me partisan? Maybe, maybe not. An advocate of sound, facts based policy and looking at issues with hard data? Definitely.

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Why is Abbott considering a GST hike?

Sat, 01 Nov 2014

This article first appeared on The Drum on 28 October 2014, at this link: 


Why is Abbott considering a GST hike?

Tony Abbott's recent consideration of GST hikes is more about covering his costly policy priorities than plugging a revenue hole in the budget over the next decade, writes Stephen Koukoulas.

It is not altogether clear why Prime Minister Tony Abbott is giving consideration to hiking the rate of the goods and services tax.

This is especially the case when the budget his Government brought down in May confirmed that government revenue would be rising to a healthy 24.9 per cent of GDP in 2017-18, to be well above the historical average and some 2 to 3 per cent of GDP higher than the revenue take under the previous Labor government.

Increasing the rate of the GST is, at face value, a simple and very effective way to boost government revenue. Based on 2014-15 data, each 1 per cent extra on the GST would raise about $5.4 billion (increasing to $6.4 billion in 2017-18), meaning a hike in the GST rate from the current 10 per cent to, say, 15 per cent would add more than $25 billion per year to government revenue, escalating to more than $30 billion per annum within three years - if nothing else changed.

Hiking tax rates, including for the GST, raises the question, "What is the money being used for?"

One very popular misconception in todays politics is that the Abbott Government is about shrinking the size of government. Overlooked in the discussion of fiscal policy under Mr Abbott are the big spending government programs, including the paid parental leave scheme, roads and other infrastructure expenditure, defence and the staggering $8.8 billion cash grant to the Reserve Bank of Australia.

The revenue base and the desire to hike the GST would not enter into the current political debate if these spending measures either didn't exist or were smaller in scale.

The facts show that Treasurer Hockey's budget in May delivered government payments, as a share of GDP, at 25.3 per cent in 2014-15 and it will remain at or above 24.7 per cent throughout the forward estimates. By way of contrast, the last three Labor budgets had government payments to GDP averaging 24.6 per cent.

If Mr Abbott and Treasurer Hockey were in fact fiscally tight and their budget cut government payments to, say, 24.1 per cent of GDP, the level delivered in the last full year of the Labor government in 2012-13, the current tax take without hiking the GST would see the budget deficit of 0.1 per cent of GDP in 2015-16 and a surplus in 2016-17 and beyond, even with the expensive spending plans of Mr Abbott.

While there is no doubt the revenue base is problematic in the current global climate of low inflation, Mr Abbott's consideration of GST hikes is more about covering the high spending associated with his policy priorities than plugging a revenue hole in the budget over the next decade.

The beauty of the GST is that it is a transparent tax that is well understood and widely accepted by both business and consumers. The downside of the GST is that it is regressive, meaning that those on lower incomes are hit with a larger proportionate share of tax on a given basket of goods and services than is a rich person buying the same basket of items.
This is where much more detail of Mr Abbott's notion of hiking the GST would need to be considered. What other changes will accompany the tax increase? 

Where would the money go? To have any appeal electorally, pensions and other social security payments would need to rise, making no welfare recipient worse off when confronted with grocery and utility bills boosted by the higher rate for the GST. There may be a case for adjusting income taxes lower as the GST increase took effect. But the problem with giving too much of the money back to pensioners and income earners is that overall impact on the budget bottom line and moving to and locking on budget surpluses is undermined if the money is merely recycled through the economy.

Any review of Australia's tax system must include the GST - its level and coverage. This in turn needs to feed into the shape of the budget and issues of fairness and equity. At a time when the Coalition Government is increasing spending at a hefty pace and cannot get the budget to surplus, reverting to tax hikes has an unpleasant whiff of big government about it.

Before any increase in the GST is contemplated, a lot more information needs to emerge on why the extra revenue is needed and perhaps a tighter reign on government spending would deliver a budget surplus without the tax take jumping to new highs.

House prices from hot to warm - cold just around the corner

Fri, 31 Oct 2014

The RPData house price series shows that for the five major cities, prices rose 1.1 per cent in October. At face value, this seems a strong rise, but allowing for seasonal factors it reflects a further cooling from what was runaway house price growth late in 2013 and early in 2014.

Here is some context.

In the seven months since the end of March, house prices have risen a moderate 3.8 per cent in total. This translates to average monthly gains of 0.5 percent for an annualised pace of around 6.25 per cent which, clearly, is nothing to be too worried about. Even the year over year rise reported by RPData has fallen to 9.1%, down from the peak levels around 12 per cent earlier this year. It seems likely, if not certain, that the rate of increase will ease further, especially if – or when- macroprudential rules come into place to dampen the sector.

As noted, the real heat in house prices was in 2013 and the early part of 2014 when, arguably, the RBA could have and should have hiked interest rates. Alas, it didn't take my advise and it failed to do so but thankfully, with the momentum in house prices is now off the boil, it can sit tight a little longer on interest rates and judge what happens globally, to the unemployment rate and inflation before changing.

For now, the RBA can rest easy knowing house prices are no longer rising at a pace that is all that concerning. A macroprudential tweak, if delivered, would likely see house prices soften further or even fall and this is when the RBA can move to cut official interest rates as it deals with disinflation pressures domestically and from around the globe.