Economic freedom

How many US federal agencies are there?

From the Wall Street Journal on the extent of the red tape problem in the United States:

[President Trump] will need every bit of political skill he can muster if he wants to provide emergency relief to citizens caught in another blizzard that is emanating daily from Washington. According to a report out today from the indispensable Wayne Crews of the Competitive Enterprise Institute, on top of the thousands of rules the federal government churns out, the feds have also been issuing nearly 25,000 “notices” every year telling Americans what to do in the absence of any new law or regulation. Mr. Crews also finds that not even federal agencies can agree on how many federal agencies there are. Estimates range from 61 to 443. The United States Government Manual guesses there are 316. It seems that our government has forgotten more of its departments than some countries will ever know.

Yesterday we mentioned Mr. Trump’s plan to reorganize the government. He’s giving his budget director Mick Mulvaney a year to produce a plan to cut agencies that are redundant, fail to provide public benefits worth the cost or “would be better left to State or local governments or to the private sector through free enterprise.”

This might seem like a hopeless effort, like so many previous initiatives dedicated to fighting Beltway waste, fraud and abuse. What makes this effort more intriguing is that Mr. Trump has nominated to the Supreme Court a judge who actually cares about this stuff and even seems to understand the problem.

“Executive agencies today are permitted not only to enforce legislation but to revise and reshape it through the exercise of so-called ‘delegated’ legislative authority,” wrote Judge Neil Gorsuch in a 2016 opinion. “The number of formal rules these agencies have issued thanks to their delegated legislative authority has grown so exuberantly it’s hard to keep up. The Code of Federal Regulations now clocks in at over 175,000 pages. And no one seems sure how many more hundreds of thousands (or maybe millions) of pages of less formal or ‘sub-regulatory’ policy manuals, directives, and the like might be found floating around these days,” added Judge Gorsuch.

Once on the court, perhaps he can persuade his new colleagues to strike down rules issued by regulators whose existence cannot be verified.

Continue reading here.

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Social responsibility cuts many ways

The Australian Financial Review is reporting that at a Greens-organised Senate hearing today into the potential closure of Australian coal-fired power stations, Energy Australia executive Mark Collette, whose company runs one of Victoria’s four brown coal generators, said that the company had “a social responsibility to keep the plant running”.

He also said that “Yallourn (the name of the power station) is a tricky situation. If you see the Victorian energy market as a car and Hazelwood is the spare tyre, the tyre is going. If Yallourn closes down, the car breaks down.”

This refreshingly honest statement – that a company has a social responsibility to do the job it is paid by its customers to do, should be put on the desk of the chief executives of Australia’s top 100 companies, too many of whom have been seduced over recent years to apologise for their business, in a futile effort to appease anti-business campaigners.

Energy Australia’s inquiry submission also helpfully noted that they would need to build 2 wind turbines a day for 30 years at a total cost of $150 billion to meet a 100% renewables target.

Last year, FreedomWatch noted a speech given 46 years ago by the influential American economist Milton Friedman “The Social Responsibility of Business is to Increase Profits.” It is as relevant today, as it was then.

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I’m a Victorian. Can you please sell me some electricity?

Yesterday’s revelation that the closure of the Hazelwood power station in March 2017 means Victoria will need to import electricity from New South Wales and/or Tasmania during summer peaks shows the extent to which governments are mismanaging our energy future.

The Australian Energy Market Operator report issued after the Hazelwood announcement also noted that in 2015-16:

  • Victoria accounted for 27% of the electricity consumed in the National Energy Market, 86% of which came from brown coal;
  • Victorian exports provided 14% of South Australian consumption, 6% of New South Wales’ and 6% of Tasmania’s; and
  • Hazelwood alone produced 22% of Victoria’s electricity.

When a state that has an estimated 430 billion tonnes of brown coal – equal to hundreds of years of supply, and is the historic heart of the nation’s gas and oil industry, is unable to reliably provide its own electricity, you know you have a big problem.

The problem with Australia’s electricity system is too much government control, too many regulations and playing favourites with particular technologies. This is probably why over the last decade, Australia has slipped from having the lowest energy costs in the OECD to the 27th lowest as revealed  by the Minerals Council of Australia on Thursday.

This is why it was a pleasant surprise on Friday morning when the Australian Financial Review reported that the owner of ERM Power, Trevor St. Baker, has offered to buy Hazelwood, as well as the recently decommissioned Northern Power Station at Port Augusta in South Australia. Whether he is successful remains to be seen, but it is heartening that Australia has not yet lost all of its independent thinking entrepreneurs.

Good luck to him.

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When green fantasies come true

The fact that French electricity multinational Engie would rather close its doors than continue to operate in Victoria tells you all you need to know about the impact of Green renewable energy policies.

Engie today confirmed that it would close Victoria’s Hazelwood power station in March 2017 and in a surprise move said it would also try to sell its Loy Yang B power station, also in the State’s Gippsland region. Together these power stations are responsible for around 35% of Victoria’s electricity.

Hazelwood alone is equal to over 2,000 wind turbines in terms of reliable electricity output. It is nonsense that it can be replaced by renewables any time soon, if at all, and the move will have serious consequences for Australian electricity prices and security.

Victoria is the low price anchor of the National Electricity Market, with its surplus electricity also patching the holes in renewables-rich South Australia and Tasmania. These three states will now be competing for the same, reduced power output. In any market, if you reduce suppliers, prices will rise, and electricity is no different. After South Australia’s last brown coal power station closed in May, two major electricity companies almost immediately announced retail price rises of up to seven times the rate of inflation.

Unfortunately this is the inevitable outcome of federal and state government policies that are destroying the investment environment for fossil fuel companies. In the case of Victoria, in just the last 6 months the Andrews government has tripled the tax on brown coal, announced a new 40% renewable energy target, and extended the current ban on exploration for new gas supplies. What company in their right mind would want to invest?

While predictably, the Federal and State Governments have announced assistance packages, in reality no temporary state or federal government employment schemes or taskforces can possibly replace viable private sector jobs delivering an important commercial product. Nor should they.

Sympathetic comments by environmentalists about the impact on local workers and communities are just crocodile tears, given that renewable energy policies are specifically designed to push coal and gas producers out of the market. They did the same thing in Port Augusta last year.

Meanwhile the CFMEU is pursuing industrial action at a third Victorian brown coal power plant, proving that the union movement has learned nothing after taking Toyota to court in 2013 to prevent it from restructuring to avoid going out of business.

In the last year, South Australia and Tasmania have shown the world what happens when you have an ideological obsession with renewable electricity. Germany also spent €1 billion in 2015 on electricity grid stabilisation alone because of too much wind power and a think tank recently estimating the total cost of its so-called Energy Transformation at 525 billion Euros by 2025.

Given that the Greens have made it clear that they want to close all Australian coal-fired power stations, starting with all four of Victoria’s, the question for the Green movement and its sympathisers in the major parties has to be “Where will our future electricity and gas supplies come from?”

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Australia’s deteriorating fiscal position

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From the Australian Financial Review, on Australia’s deteriorating fiscal position:

The Parliamentary Budget Office has issued a fresh reminder of how Australia’s political system is struggling to grapple with one of its most basic tasks – keeping the budget in balance.

In a series of graphs, the independent body shows that failure to curb spending and manage faltering tax revenues has left the budget in an ever-deteriorating mess, despite years of positive economic growth.

… Most damning – and the primary reason Australia’s AAA credit rating is facing the very real prospect of being cut for the first time in three decades – is the never-ending rise in national debt, which is growing faster than almost every other highly-rated nation.

The budget office estimates that net debt will surge to $428.5 billion – or 22.6 per cent of gross domestic product – by 2018-19. That’s $30.9 billion more than was forecast at the mid-year budget update in late 2015.

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IPA report on the $1.2bn economic cost of green lawfare

The IPA’s recent report on how section 487 of the Environmental Protection and Biodiversity Conservation Act 1999 enables environmental activists to hurt development and job creation, was featured on the front page of The Australian today: 

Environmental groups’ legal challenges to development projects ranging from dams and roads to coalmines are estimated to have cost the economy up to $1.2 billion — an amount that is rising as more “vexatious and frivolous” claims are made.

The 32 legal challenges under the environment laws that went to court meant developers spent a cumulative 7500 days — or 20 years — in court even though 28 of the environmental cases were defeated and three required only minor technical changes to go ahead.

The Institute of Public Affairs estimates that the delays to the projects “cost the Australian economy as much as $1.2bn”.

The conservative think tank’s investigation into challenges to projects under section 487 of the Environment Act, which allows anyone with a “special interest in the environment” the right to challenge, found that environmental groups carried out “an ideological anti-coal, anti-economic development agenda” aimed at holding up projects to reduce profitability and investment.

“Given the high failure rate and frivolous nature of many of the legal challenges, it is clear it hasn’t been applied in the way ­initially intended and rather has been persistently abused by green groups whose primary motivation is an anti-coal agenda,” the IPA report says.

Drawing on Productivity Commission calculations, the IPA finds the use of section 487, which was introduced by the Howard government in 2000, “is estim­ated to have cost the economy ­between $534 million and $1.2bn”.

“This estimate is likely to underestimate the total cost to Australia, as it doesn’t capture all flow-on effects to employment, investment and higher capital costs,” the report says.

“Some projects never go ahead due to heightened risk of legal challenges and consequent higher capital costs.”

Continue reading the front page report here ($). You can read the full report, Section 487: How activists use red tape to stop development and jobs, here.

 

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IPA report: Superannuation cuts “will leave people poorer”

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Coverage of the IPA’s recently released report, “Strangling the goose with the golden egg” by Rebecca Weisser and Henry Ergas appeared in The Australian today. The report outlines that the purpose of a retirement income system should be to enable people to maintain their living standards after leaving the workforce, but that middle-income Australians are poorly served by this system. From The Australian:

Both major parties are condemning middle-income Australians to a dependency on the Aged Pension by targeting superannuation for budget repair, a report from the Institute of Public Affairs says.

As the government prepares to tweak its election commitment to rein in superannuation concessions, the free-market think tank says the government’s “desper­ation” for new revenue sources, as outlined in its $6 billion superannuation tax package, will undermine future retirement incomes.

The release of the report comes as Scott Morrison seeks to reach a consensus with Coalition backbenchers on the shape of the government’s super reforms, with MPs arguing for the Treasurer to lift the cap on non-concessional contributions from the proposed $500,000 to $1 million.

… Institute director of policy Simon Breheny said instead of targeting retirement income to fund spending commitments, the government should cut superannuation taxes of middle Australians to encourage savings.

Mr Breheny said middle-­income earners could expect to have a retirement income equal to 58 per cent of their pre-retirement earnings, compared with nearly 90 per cent for low-income earners.

“The poor have the pension, the rich have alternative investments and the middle class will miss out again. The objective of the superannuation system should be for people to maintain their living standards in retirement, not imply that they should be grateful to be tied to the Age Pension,” Mr ­Breheny said.

… “Unfortunately, proposed changes to superannuation from both the government and the ­opposition worsen, rather than fix the system’s myriad weaknesses,” the report says. “Superannuation reforms should be judged by the effect that they have on helping each individual to accumulate sufficient funds to maintain their living standards in retirement.”The report also concludes that the government’s proposal to introduce a cap on non-concessional contributions and lower the concessional contribution cap will “make a bad situation worse”.

“What is clear is that governments should not tax retirement savings at rates that make it difficult or impossible for savers to ­secure reasonable living standards in retirement based on the living standards they achieved during their working life. Nor should government taxes on retirement savings distort consumption decis­ions, undermining the quality of life in old age and ­reducing overall economic ­efficiency.”

Read the article here ($). Read the IPA’s report, “Strangling the goose with the golden egg” here.

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Public sector wage growth comes at the expense of taxpayers

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Analysis by The Weekend Australian reveals that while private sector wage growth has stalled, there has been rapid growth in public sector jobs and wages, which is making the national debt and deficit situation much worse ($):

An analysis of jobs data by The Weekend Australian shows that the rapid expansion in public-­sector employment and wages comes as workers in the private sector face increased job insecurity and record-low salary rises.

… Australian Bureau of Statistics wages data for the June quarter show the public sector is out-­competing the private sector for jobs. While the overall wages growth was the lowest on record, at just 2.1 per cent for the year, public-sector wages grew by 2.4 per cent.

Wages in the retail sector, Australia’s biggest employer, rose by just 0.1 per cent in the quarter compared with 0.6 per cent in the public sector. As secure work in the public sector expands, workers in retail and hospitality face demands by employers to cut ­penalty rates and hire more casual and junior workers.

Private-sector wage growth has stalled amid warnings that Australia’s debt could blow out by more than $100 billion if the budget is wrong in its prediction that the economy will return to pre-crisis growth and if the Turnbull government is unable to win ­Senate support for all of its outstanding savings measures.

Deloitte Access Economics ­director Chris Richardson said part of the windfall gains from the China boom had been spent on more public-sector employees last decade, but these elevated numbers had been maintained after the boom ended.

Prior to 2002, the share of the labour force attributable to core public-administration jobs was about 5.8 per cent. After 2002, when revenue from the China boom began to feed into the budget, it moved to more than 6 per cent of the economy, “and has been on a mild up trend for the last decade and a half”.

Mr Shepherd, a former Bus­iness Council of Australia president, said there was a “risk of squeezing out” the private ­sector because the public sector could offer well-paid and more ­secure employment. “This does not add much to our national prosperity,” he said.

ABS figures show that hours worked in the non-market economy have grown 1.9 per cent in the year to June, outstripping those in the market economy, which grew by 0.1 per cent. Since March 2008, before the global financial crisis, hours worked in non-market ­industries have grown by 24 per cent, ­compared with 4 per cent for the market sector. Excluding ­educa­tion and training, non-market hours worked grew by 29 per cent over the same period.

The ABS defines the non-­market economy as comprising education and training, public ­administration and safety, and healthcare and social assistance.

The growth in non-market hours worked comes as public-sector salary costs for health and education are rising sharply. Salar­ies paid to public-sector workers in education and training rose 43 per cent to $38bn over the same period, while salaries for health workers rose at the same rate to $35bn.

Wages paid to public-sector employees working in public ­administration and safety rose by 30 per cent to $45bn in the seven years to June 2015, even though the number of workers in this category was unchanged at 580,000.

The strongest growth in job numbers and wage bills has been in state government jobs. The number of state government ­employees grew by 10 per cent to 1.476 million in the seven years to June 2015, while federal public servant numbers were virtually unchanged.

Queensland’s Labor government came into office with a promise to increase public-service job numbers, which have grown by 4000 in the year to March. In Victoria, the Labor government has budgeted for a $3.5bn ­increase in public-sector wage costs over the next four years. The Coalition government in NSW has also ­expanded its ­numbers, by 15,000, to 464,000 in the four years to June 2015. ABS data shows that almost one in three Australian workers is now employed part-time or as a casual, up from 21 per cent in the late 1980s.

Read the whole article here ($)

 

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IPA research: Red tape is pushing investors away

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Joe Kelly reports in The Australian today ($) on a new IPA paper showing the Coalition’s push to reduce red tape has failed to improve Australia as an international investment destination:

The IPA paper urges the government to do more in tackling ­labour market deregulation while also warning that more stringent thresholds triggering scrutiny of foreign investment will lead overseas interests to go elsewhere.

While the government trumpets $4.8 billion in regulatory compliance cost savings in its first term, the IPA questions whether this represents an overall reduction in red tape costs once the passage of legislation over the past three years is accounted for.

When Tony Abbott became prime minister in 2013 he introduced two red tape repeal days per year after declaring that Australia was “open for business” with more than 10,000 legislative instruments being repealed since March 2014.

The IPA paper, written by senior fellow Mikayla Novak, warns that Australia’s red tape performance has worsened over the past decade and notes that excessive regulation is costing the economy $176bn a year.

“The federal government has claimed that $4.8bn in regulatory compliance cost savings were made during its first term in office, exceeding its initial target of $3bn,” Dr Novak said.

“The savings are typically based upon a limited number of specific policy measures that ­either eliminate redundant regulation or amend clauses in existing legislation, identified as imposing onerous compliance costs.”

“However with new legislation constantly enacted by parliament, each containing fresh regulatory edicts, it is unclear that the aggregate compliance costs of federal regulation have fallen.”

Continue reading here ($).

 

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Australian debt control worst in G20: report

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The Australian economics correspondent Adam Creighton has written that Australia has the worst debt control worst in G20 ($):

Australia has shown less control over spending than any advanced G20 nation since the global financial ­crisis eight years ago and has squandered the opportunity offered by superior economic growth to gain control over its budget deficit.

A damning study by the former head of the IMF’s budget division shows the deterioration in Australia’s debt almost matched that of Italy, one of the most troubled European economies, suffering a deep recession and a blowout in interest costs.

Nations that fail to control the growth in their debt are at risk of a crisis when interest rates eventually rise, warns the study published by the Peterson Institute for International Economics, a Washington DC think tank.

Australia’s debt-to-GDP ratio fell 9.8 percentage points in the eight years leading up to the financial crisis but surged 27.1 percentage points over the eight years since the end of 2007, which was only slightly less than the average increase across Japan, Britain, the US, France, Germany, Italy, Canada and South Korea.

In principle, a government that is trying to cut debt should be keeping spending growth to no more than the overall rate of inflation, while revenue should be rising in line with nominal economic growth (the GDP plus inflation). The faster the growth, the quicker debt gets paid off.

However, the study shows Australia had instead used the best growth rate among G20 advanced nations to finance additional spending.

It shows Canberra increased real spending more than any of eight other advanced G20 governments since the end of 2007 — and by almost by double the average increase.

 

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