What would really happen if we gave more tax and spend power to the states?

I published this controversial piece a while ago: Four really awesome, quite left-wing ideas from the Commission of Audit.

I got a lot of thoughtful responses on the twitter.

The audit suggested giving ten percentage points of income taxation to the states to raise or lower as they pleased. I argued:

Putting more tax and spending power in the hands of a demonstrably more left-wing level of government will likely lead to more spending on – and better outcomes in – health and education.

ACTU economist Matt Cowgill wasn’t going to let that wash, and tweeted:

MattCowgillMay 02, 11:11am via Web

@jasemurphy I completely disagree that giving income tax powers to the states would be “left wing” or have progressive results.

A bunch of other comments followed.

This is what’s awesome about the information superhighway. You get to talk to super smart people who have done a lot of thinking, who compel you to think deeper and refine your views.

I concede my analysis was partial.

But today’s comments by Martin Parkinson, Treasury Secretary, have brought me back to this topic.

“the Budget flags that potentially significant changes in the distribution of responsibilities for schools and hospitals could arise from the forthcoming Federation and Tax White Papers.”

Is it a good idea to give more taxing and spending power to the states? Now I’ve thought more about it, I’m not going to die in a ditch for the idea. But I think it deserves to be considered, not dismissed out of hand.

Here’s a list of possible outcomes, arranged into pros and cons.


More tax and spend at state level

When I first wrote on this topic, nobody took issue with my point that letting states set taxes would lead to more tax and spend.

Just this week, My old boss Mat Dunckley published a piece about former premiers’ support for a higher GST. There’s mixed evidence, given Mr Napthine’s comments in the press about not raising the GST but it’s hard to imagine Labor state governments would not tax more – whether on income or goods and services – to spend more if they could.

If you believe publicly provided services are good, you may believe this would lift national living standards

Because Australia’s poor states are also small, I contend extra money for state schools in rich states would be more useful for the disadvantaged than extra money for state schools in poor states.

Sure, a smaller proportion of Victorians are very poor than Tasmanians. 15 per cent of Victorians rely on the government for 90 per cent of their income, compared to 21 per cent of Tasmanians.

But the absolute number of people in need in Victoria is seven times higher. (15 per cent of the population of Victoria is 750,000 people. 21 per cent of the population of Tasmania is 100,000 people.)

Keeping one’s focus trained on equalising between states may distract from equalising between people.

Self determination

Consider Europe. Would it really be a good idea to equalise funding between Sweden and Greece? You’d help Greece, but dim a beacon of quality in publicly-funded systems, and disenfranchise the people of Sweden.

I have in the past been accused of excessive parochialism, and I really do identify as a Victorian, but I think letting different states set different priorities can be good. Should not Victorians be able to set our taxing and spending policies without being compromised by Queenslanders?

Imagine if our federal government set health policy, but health funding came from ASEAN or the G20, along with a range of rules. Would that really be satisfactory?

More accountability for state governments.

State governments are a bit of a joke at the moment. A technocratic solution would be to kill them off and locate responsibility for everything with the federal government. Given that won’t happen, and we’re stuck paying state MPs salaries, can we not use them?

Politicians with big goals and deep skills play the game federally. Relatively little press attention is given to state governments. This is a shame because they have domain over much of what one thinks of as the role of government.

A system that really gave state governments power would simultaneously create an expectation for them to deliver.

More opportunity for innovation

State governments are bundled up inside the COAG system, and trussed with conditional grants. Their policy making freedom is curtailed, by decree of the level of government that holds the purse strings.

But smaller governments can excel. If this were not true, Malaysia would be a disaster compared to Vietnam, Switzerland a shambles compared to Germany.

Left alone to experiment, Australia’s states could model their education system on the Finnish system, the Korean system, a version of the Montessori method, or indeed become the next global model themselves. No doubt some would go backwards for a time, but neither is a the status quo an iron-clad defence against standards slipping.


Differences in outcomes between jurisdictions.

Matt Cowgill tweeted a link to a terrific story he wrote about the US school system. He uses the HBO show The Wire to demonstrate how a poor area can be left behind under a system where small jurisdictions each fund their own education system.

This is a powerful point. But Matt’s argument –  People of equal means and need should have same access to services regardless of state – sets a bar we do not currently clear.

Poor states go into suffering spiral.

The reason we have “horizontal fiscal equalisation” is that without it smaller, poorer states will tend to get further and further behind the rest. Lacking both economies of scale and a wealthy population, they face a tough choice between high taxes and good services, or low taxes and bad services. Both options will hurt living standards and the outcome gap between a Hobarter and a Sydney-sider will grow even wider.

Sorting effect

After a few years of differential tax and spend settings, a possible “sorting” effect could emerge.

People who want more services move to left wing states (e.g. Victoria) and people who want less tax move to right wing states (e.g. Queensland). This could polarise the whole nation, a la Americana.

I’m not going to try to tally the pros and cons column here. But I hope you feel, as I do, that this has been a useful exercise. Feel free to engage in another round of debate!


Melbourne Uni or Sydney Uni? Which will become Australia’s Harvard?

It costs at least US$42,000 a year to attend Harvard University, and up to US$68,000. You get what you pay for, with average starting salaries of US$60,000, and rising fast.

With deregulation of higher education fees announced in the Budget, we will see Australian universities put their prices up. The prices charged to overseas students (around $20,000 a year) might only be a stopping point on the way to competing with the global “best”.

Putting up the price of an education won’t hurt demand as much as putting up the price of a textbook.

graduation dayIn a market like this, price is a quality signal that drives a virtuous circle – attracting better students and staff in turn attracts better students and staff.  This is why the applications process for the world’s top universities is so competitive.

Sandstone universities” are likely to be the first Australian institutions to move. But which will move most boldly?

Melbourne University knows something about its local student body. 70 per cent of them attended private schools, including 35 per cent who attended the kind of independent school where school fees can approach $30,000 a year.

It can probably raise prices without holding too much fear of empty classrooms.

Of course, average incomes in Sydney are even higher, and so are private school fees. But then Sydney’s rental market is tougher.

A uni that wants to call itself Australia’s Harvard needs to drag the best students in from across the nation and the world, not just the eastern suburbs. So far, only the tuition fee cost of university can be put on a HECS/ HELP loan, so living costs will be relevant for many.

I suspect Melbourne*, with its forays into the Melbourne Model, and its previous attempts at setting up a private university, has a lead in trying to distinguish itself.

And other proposed changes in the budget may cap student fees well below the US level, by making Australian students less willing to pay a lot for university.

The government is proposing that the HECS/HELP student loan system use a real interest rate (the government bond rate, capped at 6 per cent), rather than just indexing loans to inflation. This will make student debts rise faster. Experts have speculated that student debts could go over $120,000. Raising prices would only make that even higher.

Of course, higher headline fees can be matched with “generous” scholarship programs. US universities know that a $50,000 course and a $10,000 scholarship is a better marketing proposition than a $40,000 course.

But those scholarship programs don’t change the fundamentals.

In fact, 10 per cent of students receiving financial aid at Harvard come from families with household income over $200,000 a year.

The US model of elite universities does not serve the goal of public education more generally. They do not help people get an equal start. They help the advantaged get ahead. 

Whether it is Melbourne or Sydney University that takes the crown – and starts getting a lot more attention in our status-obsessed world – or whether it is ANU or UQ, the result will be the same. A more unequal Australia.

[*disclaimer: I went to Melbourne Uni, and I really liked it]

Is this Budget pushing 50,000 people out of work?

Australia’s economy seemed to be repairing itself, right?

Unemployment was finally falling.


Job ads were rising.


Growth was out of the doldrums.Image

Corporate profits were rising and the stockmarket too.


So how come the Budget forecasts the unemployment rate to worsen?


The documents released by Joe Hockey last night forecast unemployment rising from 5.8 per cent up to 6.25 per cent by 2014-15. That would represent around 50,000 people out of work.

It makes this forecast despite expecting a fall in labour force participation and a rise in growth in our “major trading partners,” from 4.6 per cent to 4.75 per cent.

There’s been plenty of good news recently. I thought unemployment forecasts might go the other way. In fact unemployment forecasts haven’t improved since MYEFO, despite this:

“Since MYEFO, the near-term outlook for the household sector has improved. Leading indicators of dwelling investment are consistent with rising activity, while household consumption and retail trade outcomes have improved recently, consistent with gains in household wealth.” 

No change since MYEFO? That surprised me. Unemployment forecasts often change between a MYEFO and a Budget. For example, 18 months ago, that MYEFO tipped unemployment of 5.5 per cent in 2013-14. Twelve months ago – at the following Budget – the world looked worse and the forecast was 5.75 per cent. 

This time, all the good news since MYEFO seems to be nullified by the government’s surplus rush.

The qualification in this sentence is perhaps important:

“The timing and composition of the new policy decisions mean that the faster pace of consolidation in this Budget does not have a material impact on economic growth over the forecast period, relative to the 2013-14 Mid-Year Economic and Fiscal Outlook (MYEFO).”

You could read that like this: ‘All the good news on the economy in the last six months is about to be wiped out by austerity.’

The Budget talks a lot about lower investment in the resources sector. It notes in passing that non-mining businesses are waiting to see what happens. It doesn’t note that a slashing budget might frighten them out of investing. (There are exceptions of course: a business selling new work outfits to School chaplains would be wise to get a new warehouse, ASAP.)

ImageThe Budget’s unemployment forecasts are higher than the consensus economics forecast (see chart at right). Perhaps because they wouldn’t cut so hard at the moment the economic recovery is gaining momentum.

All spending helps short-run growth, whether that’s government or private. That’s Keynesianism for you in a nutshell.

The government is apparently allergic to Keynesian concepts of economics. They rail against the spending that flowed during the global financial crisis: cheques for $900, funding for insulation, school halls. All they see is the years of deficits. They can’t see a counter factual where Australia’s economy hit the skids.

But this allergy is now apparently inflaming the ranks of unemployed.

This budget is austere:

“The headline annual pace of consolidation is 0.7 per cent of GDP over the forward estimates. Abstracting from the one‑off nature of the Reserve Bank of Australia transaction, the pace of consolidation is 0.6 per cent of GDP.”

If you’re thinking, “I’m okay because I have a job,” consider this:

“Subdued wage growth is expected to continue until the spare capacity in the labour market is absorbed. The wage price index is forecast to grow by a still subdued 3 per cent through the year to the June quarters of both 2015 and 2016.”

Also know that your taxes will pay more unemployment benefits. Despite cuts to access to the dole, total spending on it is forecast to rise because of the change in the unemployment rate.

Essentially the budget is pushing more people into a position where they need the dole, but then compensating by – for some – whisking it out of their grasp.

Core and non-core promises are actually a good idea

Politicians make and break more promises in one electoral cycle than the rest of us manage in a life-cycle.

We call them names and rant and rave. But really, we seem to forgive them, because we rarely vote them out. We know much of what politicians “promise” is actually contingent on several factors coming together.

It’s like hearing a footballer promising to kick four goals on the weekend – there are only a few circumstances in which they can deliver. We, the voters, form judgments about which promises are dependent on the most unlikely circumstances, and which seem more solid.

But even then we can be wrong. Politicians can be very inventive when it comes to wriggling out of promises.

It would be simpler for them to nominate the circumstances in which their promises will be kept, and the circumstances in which they will be abandoned. 

John Howard spoke of “core” and “non-core promises” after his election win in 1996. I propose a more nuanced promise ranking, with three levels of political promise. Even the top level has plenty of political escape hatches.

1. Cross my heart and hope to die. Exclusions apply in the case of budget-stretching new priorities that may take the shape of major land wars, significant domestic earthquakes, sharp recession, nuclear attack, or mutations that create mega cane toads. Also not applicable in the case of a minority government. nb. Promised policy may mutate like a cane toad in the Senate.

2. Scouts Honour. Exclusions apply if revenues fall below $400 billion a year, or if expenditure on level 1 promises blows out by more than 15 per cent. Also, don’t expect this to happen if News Limited papers start to oppose it.

3. Best efforts. We will implement this if we can get the National Farmer’s Federation and Friends of the Earth to agree on terms of reference for a report before the winter sitting, and assuming the senate committee delivers its report into the issue before the end of the year. If that report aligns with the advice from the department, then the policy has a chance. But only if you deliver us a pliable senate and the rest of the legislative agenda goes smoothly, company tax receipts look healthy, and no other issues – oh, look, asylum seekers! – capture our attention. In fact, this is more of a second term promise.

I struggled not to write the above in a facetious fashion, but I honestly think this idea – contingent commitments – would be the fairest approach.

We elect leaders because we want people who can react sensibly to evolving circumstance, not just automatons who will carry out a plan long after it ceases to be a good idea. 

Stop treating voters like goldfish who will forget not just what happened after the last election, but the very nature of political promises. Contingent commitments would hint at where the government’s focus will be, even in the case of major distractions. 

If a political party opted for this, the initial headlines would be predictable. I imagine a media-cycle would obsess over the political party that no longer made promises! It would go global. Everyone from Fox News to Le Monde would get excited. 

But if the innovation was developed long enough before an election, the brouhaha, the laughter and the op-eds would quieten down. After perhaps six months, the contingent commitments of one party would force the public to look closely at the promises of the other side and start asking questions like: Will you really deliver that expensive new social policy even if we have a recession?


Economics of Graffiti

Sometimes I ask myself if market forces are broken. All over my suburb I get art, totally for free.

An army of workers accept nil pay, terrible hours, and poor conditions to head out and paint each night.

Right near Clifton Hill StationNot only do they work without pay, but they are forced to buy their own materials and if they get busted, the justice system is not kind.

I guess the economists whose models rely on rational actors maximising their consumption never woke up to find this on their back fence:

taggedWhat motivates these characters? Is it the cash??

Once upon a time, the notion would have been ridiculous. Graffiti was a way to raise your status among people who never had the chance to finish school or get the Benz. There was no money in it.

Is graffiti different today?

Two storeys tall. That's a lot of paint.

Piece by Putos.

The answer is both yes and no.

The graffiti economy works for guys like Cope2, who grew up in the Bronx and illegally painted subway trains for 20 years before cashing in. He sells pieces for around €3000. Banksy is the other case in point – probably the most notable street art millionaire.

Sheaprd Fairey (the HOPE guy) has also cashed in big time with his OBEY clothing line. Even Justin Bieber is dabbling in “street art.”

Then there’s things like this:

Royal Doulton puts these posters up in dodgy laneways near my house.
Posh dinnerware company asks: has street art jumped the shark?

How has graffiti gone from definitely underground to potentially lucrative? The difference is in the web.

Some graffiti really caught my eye when I was growing up but it was difficult to take interest in what was going on and turn it into understanding or appreciation.

Then the internet came along. I contend that it has done for graffiti what radio did for music. Made some superstars.

The first Melbourne artist I really googled is Rone, who paints pretty girls all over the place and is kind of a gateway drug for graffiti appreciation

Rone and wonderfresh street art - Won't Stop
Rone and Wonderfresh mural, Wellington St, Collingwood

Rone’s instagram reveals that he has recently been in Miami for Art Basel, after a stint in London painting in Shoreditch and being hosted by a gallery to paint a huge wall in Berlin.

The guys who I first noticed up around Collingwood and Fitzroy are from the Everfresh Crew. They have an extensive internet presence and advertise services for rent. Oh yes, there’s money in them thar walls.

Makatron paints animals.

Collingwood’s Backwoods gallery is also in the game. They bridge “the gap between the street and the gallery wall, whilst remaining authentic to their artists’ history and vision,” by selling prints for around $100.

There’s not heaps of cash in it, but there is certainly the opportunity for travel.

Some Melbourne artists I follow on Instagram (e.g. dvate) recently took off for the Tahiti Graffiti festival (sponsors include a hotel chain, a bank and the Alliance Francaise.)

Many were already Pacific-savvy after having recently gone to the Hawaii Graffiti festival (sponsors include an airline and a clothing company.)

It seems the internet lets the artists who patrol the night control their image, and helps make money from it.

So is graffiti just another culture co-opted by capitalism?

jetso pzr
Jetso and Pzor

Not yet. Melbourne’s graffiti scene is arguably dominated by two names. Jetso and Pzor. And this is where you can go down the rabbit hole and end up like me, taking a photo of a dumpster.

If you start looking for them, they are everywhere. Their work tends not to be elaborate pieces but quick bubble-letter throw-ups, tags and stickers.

pzor left, jetso right
pzor left, jetso right

They have no website, no instagram, no representation in the gallery scene (as far as I know). Their art is not visually appealling at first. The art is in the effort. It’s hard to find a part of inner Melbourne, east to west, that shows none of their finger prints. Once you start to notice, it’s hard not to admire.

For these guys, there’s no money in it. And that tells you that for them, graffiti is not work. The question I asked above about market forces being broken is irrelevant. For these guys, painting is leisure. They’re doing it for the love of it. I respect that.

Melbourne is an amazing place, and it gets even better if you can appreciate the art that’s all around you. Here’s three amazing Melbourne graffiti artists you should know.

1. Rone

2. TwoOne

3. Lush (The artist behind the pirate cat. Also dabbles in cartoons. Often nsfw (not safe for work.))

Revealed: Australia’s manliest and womanliest foods and drinks.

The ABS have set up and released a brand new dataset on Australia’s food consumption. It’s a banquet, a buffet, an all you can eat smorgasbord of delight for data gluttons.

Apparently we consume on average 3.1 kilograms of food and drink in 24 hours. It’s gross to think about.

I’ve gone to the ABS website (or as I call it, the Sizzler of data) and brought you back a doggy bag of sample treats from this survey of 9500 dwellings.

For example, guess what demographic drinks the least water??

Proportion in each group consuming the item in the 24 hours before the survey

The aged! I always imagine them sipping tap water and doing the crossword while muttering darkly about Tony Abbott and their pension. So I’m somewhat amazed. I guess they’re not running 10km very often so perhaps they’re not that thirsty. (Meanwhile, the 14-18 year old bracket loves fizzy drink. No surprises there.)

How about this? Coffee is clearly for people with work to do, while the under-13s and over-71s are busy hosting tea parties.

Proportion in each group consuming the item in the 24 hours before the survey


And how about this one, which shows why you easily sell a bottle of wine for the same price as 24 bottles of beer:

Proportion in each group consuming the item in the 24 hours before the survey

I’d note the ABS probably did this survey during the week, and alcohol consumption is more skewed to the weekend.

Anyway, the dataset is big and quite amazing, and I was able to run some numbers to see what foods and drinks are more skewed to men and women.

1. The biggest skew in the whole dataset was for men aged 51-70. In that age bracket, men were ten times as likely to have chugged back a brew in the preceding 24 hours. 26.8 per cent of men, vs 2.6 per cent of women.

Differences between proportion of women and men consuming in 24 hours preceding survey

2. The next biggest skew in the whole dataset was from women aged 19-30. In that category, women were nearly twice as likely to have sipped a cuppa as men.  35.6 per cent of women vs 20 per cent of men.

Differences between proportion of women and men consuming in 24 hours preceding survey

3. For food, the manliest thing there is, is breakfast cereal, and this is especially so in the nutri-grain demographic, 9-13.

Differences between proportion of women and men eating the food in 24 hours preceding survey


(This fact also reminded me of this line in this song by this quite popular comedy folk duo from New Zealand.)

4. Meanwhile, and lastly For women, the biggest skew is in a little, tiny, unimportant category you’ve probably never heard of. Fruit. Across the age groups, 10 per cent more women had eaten fruit in the preceding 24 hours.

Differences between proportion of women and men eating the food in 24 hours preceding survey

Damnit, men, why’ve you got to be so stereotypical, eating nutrigrain and beer your whole lives and toppling off the perch by having a heart attack?! 

Anyway, it’s Friday so I should probably not lecture you any more about this. See you at the pub.


How all these taxes will help Tony Abbott win the 2016 election

Tony Abbott is throwing his promises under the bus with glee. He promised no new taxes and has now pledged a debt levy and an increase in petrol tax.

He knows how electoral cycles work. Pain and broken promises early in your term are forgotten later:

The 2014 Budget is full of taxes and cuts.

The 2015 Budget will have a few more cuts and be austere.

Then in 2016, election promises will start getting made. “How can we afford these?” people willl ask.

Finally, with an election probably just a few months away, the 2016 Budget comes out. Lo and Behold! Australia’s fiscal position is in surplus, taxes can be cut and the spending can begin.

The press goes into a fury of congratulation over Mr Abbott’s “strong leadership.” Lots of photos appear of him standing outside new hospitals, with a big smile on his face.

To most people, the grumbling of early 2014 is as relevant to the political situation as the result of the 1974 VFL Grand final. Labor can’t get over the broken promises and keeps talking about the past, while Mr Abbott is focused on the future.

Don’t believe me? Evidence for how this works is right under our noses.

The coverage of the Victorian government’s first Budget looked like this:

“THE Baillieu government has been forced to slash more than $2 billion in spending from its first budget in an attempt to insulate the state economy from looming financial pain and deliver on its election promises.

And with Treasurer Kim Wells’ budget predicting a $4.1 billion hit to GST revenue alone over the next five years, the budget also launches a tax crackdown, with 50 new jobs at the state revenue office to raise an extra $235 million.

The Coalition went to the election promising $1.6 billion in savings, but yesterday announced deeper cuts totalling an extra $638 million.”

Coverage of the pre-election budget looks like this:



Mr Abbott is playing the long con. But with a shorter election cycle than was available to Mr Napthine, (federal is three years, not four) it’s more of a gamble. Will it work?


Quit your job – The time is now!

Bosses should expect a sharp uptick in being told where to stick it, as job-quitting season is about to dawn.

(Job quitting season is a bit like El Nino. You’re never quite sure if it’s about to start until the heat is on. But early signs are good.)

Source: ABS

1. Today’s unemployment data show the trend in unemployment is finally pointing downwards. The first time since 2012.

Today’s data were kind of big news. Of course, the unemployment rate fell a lot in March. All the way down from over 6 per cent to 5.8 per cent. So much that it seemed like statistical noise. The fact April has given the same result is amazing.

This means – maybe – you can quit your job and the unemployment rate gets better while you look for a job, not worse!

2. Unlike last month, this result is driven by a lift in full-time jobs, which rose by 14,000.

3. Unlike recent years, the improvement in the unemployment rate is not caused by fewer and fewer people bothering to look for work. The movement in the participation rate this month was rounded to zero.

4. The number of new jobs being advertised is on the up and up. For most of the past few years, Seek.com.au has been an ever more arid wasteland.

But now it is starting to blossom with opportunities. In each of the last four months, the number of jobs advertised in Australia has risen – that’s the best positive streak since 2010. Get amongst it.

Source: ANZ job advertisement series

Don’t feel bad about quitting your job. It could be good for the economy. This paper suggests you probably will self-select out of a job where your productivity is relatively low. The US even tracks the number of people quitting jobs as a measure of confidence.

Quitting your job could also be good for you:

“Yes, you should not worry too much about the consequences and you should definitely quit your job that you hate and it’ll probably all work out great. Job quitters are the happiest people around.”

And if you’re looking for a job, remember, advertised jobs are just the tip of the iceberg.

The real sovereign risk is that people are no longer sovereign

Until the mining tax debacle of 2010/11, the term sovereign risk was used in Australian political discourse very sparingly. The term traditionally refers to a government not paying back a loan, but now is used for all sorts of situations where government is a risk to someone’s business.

Source: Google trends

Now “Sovereign Risk” is not applied to Africa or Greece, but has become a political weapon to be wielded on policies – or indeed entire governments – with which one is unhappy. For example:

“BHP Billiton, Rio Tinto and most other world minerals and energy groups have now concluded that Australia is one if the most dangerous places in the world to invest. We are going to see a capital strike of immense proportions, which will take a long time and much effort to reverse. And when it is reversed miners will still require much greater returns from Australia because of the demonstrated sovereign risk of investing here.”


Most recently, the concept of Sovereign Risk has been used in a debate over whether contracts for a big road tunnel called east-west link can be torn up. This is a specific kind of sovereign risk, unlike the mining tax issue, where the sovereign is also party to your contract.

But the way governments work these days is in partnership with companies. From welfare to infrastructure via defence and health, government has become more and more entwined with private sector suppliers and implementers.

Governments should avoid flip-flopping, because it will raise the cost of contracting. But where policy change is desirable, changing contracts is also desirable. To fetishise sovereign risk is in many cases to say that policy change cannot happen.

If we make sovereign risk our key yardstick, a horrible political trick will become possible.

Say Labor is about to lose an election and the Libs are promising some expensive policy. All Labor has to do is enter into an expensive contract the Liberals have to honour. Then the Libs can’t implement their promise without going into debt. Liberals look bad, Labor gets back into power.

The Age has found experts who say tearing up the contract for the east-west link would not be a big issue: “Labor could tear up East West Link contract if it wins election

To me that is obvious. There’s a big difference between cancelling a contract before any work has been done, and reneging on paying a bill after the fact. The latter is clearly bad for a state’s reputation. The former should be acceptable, given some compensation for preparatory work.

The Greens say they’d tear up contracts. Labor says that even though it opposes building the $8 billion road, it would honour the contracts. (The latter position is seen by some as a way of Labor eating their cake and having it too. They don’t actually want to be seen to deprive people of a new road.)

Sovereign risk in contracting with the government is one thing. But blaming the government for changing laws that hurt your business is another.

Anyone doing business in a democracy should know the law is fluid. A smart person can tell what laws might be about to change. (Tobacco supply laws – likely. Tariffs on textiles and clothing – unlikely).

Just as people manage their lives through changes to road rules and tax laws, so companies must manage their business around possible law changes. If a business exists to exploit one small loophole, like selling fireworks in the ACT, then their cost of capital should be higher than a business like Woolworths that will be more resilient to any single legal change.

Of course, changes to law can make investments worthless.

Of course prospective changes to law raise companies’ risk, and thereby their cost of capital.

Of course companies will try to make the legal environment as stable as possible –  that delivers the biggest bump to their bottom line.

So of course they want to make the concept of sovereign risk current and valid.

We see this most vividly in the provisions of the trans-pacific partnership, a proposed trade deal that could let multinational entities sue the states in which they operate for any law change that hurts their investments.

But these companies should remember why they are headquartered in New York and Sydney, not in Beijing, or Havana. In the long run, a functioning democracy is the best environment for stable investments, and in a fast-changing world, policy change needs to be rapid too.

The real sovereign risk is that people are no longer sovereign.

How much coverage will we gain from the planned Fisherman’s Bend rail station?

The Victorian Budget, released today, sees the government replacing the planned metro rail tunnel with a “Rail Link” that will stop at Fisherman’s Bend.


The point of the Melbourne Metro rail tunnel was to take pressure off the loop and better serve the city. This does not do such a good job of that, but it does serve Fisherman’s bend.

Is that worth it? Let’s look at a map. The map below shows the redevelopment area, with the station in the middle of the Montague section of the Fisherman’s Bend redevelopment. The four yellow areas are the four sections of Fisherman’s Bend.

As you’ll see below, the new station is not quite as useful as you might hope for a suburb that will supposedly be home to 80,000 residents by 2050. I have followed planning protocol and put an 800 metre pedestrian catchment around the train station (black circle) and a 400 metre pedestrian catchment around the stops of the existing 109 tram (red circles).

Hey! That black circle barely overlaps at all with most of Fisherman’s Bend! What’s going on? [CLICK THIS MAP TO OPEN IT IN MORE DETAIL]
It seems obvious that a train station is most useful near the centre of a population cluster. But putting the train station on a link between South Yarra and Southern Cross Stations means it has to be at the eastern end of Fisherman’s Bend (or do a very sharp turn of the kind trains can’t ). That eastern end already has good tram and pedestrian access.

Civilised folk ought steer clear of the forums at railpage.com.au. That’s why bloggers get paid, to do that sort of work for you.

Digging through those forums, the idea came up that Fisherman’s Bend does deserve a rail link. But it ought not be on this train line.

Fisherman’s Bend should be on a new line from Merri (Northcote) to Newport (Wydham Vale – Mernda line).”

Such a solution would permit the Fisherman’s Bend station to be nearer the middle of the suburb, and further from the area well-served by the tram. The rail link would then cross the river, linking fishermen’s bend to the west.

For a government that goes on and on about the need for another river crossing, this could be a tempting proposition.

Thoughts? Objections? Leave a comment below!