The Kouk's top 40 hits and misses

more Over the summer break, while fiddling through data bases, reading and just being interested in things, I unearthed a few quirky bits and pieces about the Australian economy, people, sport

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more Stephen Koukoulas has a rare and specialised professional experience over more than 25 years as an economist in Treasury, as Global Head of economic and market research, a Chief Economist
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THE LATEST FROM THE KOUK

Infrastructure spending should be based on need, not cheap money

Sun, 24 Jul 2016

This article first appeared on The Guardian web site at this address: https://www.theguardian.com/australia-news/2016/jul/22/infrastructure-spending-should-be-based-on-need-not-cheap-money?CMP=share_btn_tw 

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Infrastructure spending should be based on need, not cheap money

As Australian government bond yields fall to record lows, debate is hotting up over whether the government should take advantage of these low borrowing costs to increase infrastructure spending.

Such ideas are based on a nice sentiment, but fall short of sound criteria for big spending. If infrastructure is needed, if it is an essential element for aiding productivity and equity, then it should be done based on a proper cost-benefit analysis regardless of the borrowing costs.

It would be absurd to think that infrastructure spending on power generation, roads, rail and ports would not occur simply because interest rates were high. It is a similar story with low interest rates. Why borrow and build infrastructure that may not do much to boost productivity, efficiency and equity just because 10-year government bond yields are at 2%?

To see how infrastructure spending driven by low interest rates can go badly wrong, one only has to look at the experience in Japan.

What the Turnbull government must do now

Sun, 17 Jul 2016

This article first appeared on the Yahoo 7 Finance at this link; https://au.finance.yahoo.com/news/what-the-turnbull-government-must-do-now-011720936.html 

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What the Turnbull government must do now

The Coalition won the election. Labor lost.

Politics, like sporting events, are pretty simple – you are a winner whether the margin is a point or 50, whether you win by a nose or 20 lengths. The prize is the same regardless of the margin. The Melbourne Cup, Olympic gold or government.

Prime Minister Turnbull and his team will set the agenda on economic and budget policy for the next three years. Whatever policies it took to the election, the economic change unfolding domestically and around the world means that the issues confronting the government are different today than even a few months ago and future risks, both positive and negative, cannot be fully anticipated.

All that should matter for the Turnbull government is having the nous, pragmatism and common sense to adjust policy as these unforecastable events unfold. The Coalition government must do all that it can to promote economic growth, repair the budget and lower the unemployment rate.

The Abbott and Turnbull governments failed on all these three fronts in its prior term, so it is to be hoped it has learned from these shortcomings and over the next three years delivers on its commitments on these vital benchmarks. It needs to stop spending money in low priority areas and look to the tax base to restore the budget balance.