Sunday, 10 December 2017

Poker machine apocalypse?


There seems little doubt the fate of poker machines post 2023 will be an issue that will get plenty of coverage during the upcoming State election campaign.

Depite the government assuring the Joint Select Committee into Future Gaming Markets it would be open to recommendations based on evidence, Premier Stansfield and Chief Strategist McQuestin had their minds made up well before the Committee reported.  The government arranged for a Dorothy Dixer on the 11th of September to allow the Treasurer to set out the government’s policy on gaming. If pokies are banned from communities it would have a “devastating effect on pubs and clubs” he told parliament.

Rather than blithely following the dictates of his political overlords the Treasurer should have read a paper prepared by his own department for the Committee.

A close analysis of Treasury’s modelling reveals in the case of regional areas beyond the 50 km reach of casinos where 40% ($42.9 million) of player losses occur, player losses will reduce by 75% ($31.4 million). There will be some migration to casinos and substitution with Keno, in total about 25%. Pubs and clubs will be worse off by $6.4 million, but the $25 million that previously flowed out of towns to Federal Hotels’ Network Gaming will be free to circulate within regional towns.

Currently on average, only 20% of player losses remain with pubs and clubs via net commissions from Network Gaming. The rest flows out of town to Network Gaming. It is well beyond the wit of this writer to figure why the government is so willing to accept the dumb proposition that stopping the haemorrhaging of regional towns will have a devastating effect on those communities. It’s going to be very difficult to convince an electorate growing weary of political lies. 

Regional pubs and clubs will be worse off by only $6.4 million. This is before any changes to their business models to attract some of the extra $25 million circulating in the community rather than being hijacked by Network Gaming.

Wednesday, 29 November 2017

Removing pokies


All’s quiet on the western front as Labor ponders its position on poker machines ahead of the March election.

What if and when pokies are reduced or removed from communities, players gamble at casinos instead? Will the community be better off? The consensus view seems to be confining pokies to a couple of enclaves will solve all problems. Will it?

The parliamentary select committee into Future Gaming Markets reported at the end of September. The written submissions were already on the public record, as were the transcripts of the public hearings. The minutes of the Committee’s meetings published at the time of the Report’s release revealed additional written evidence mainly from correspondence with interested parties.

One additional piece of evidence not mentioned in the Report was an eight page note from Treasury on the estimated economic impact to State tax receipts if EGMs were removed from hotels and clubs and a $1 bet limit was imposed on casino EGMs. It was a study worthy of more attention than it received.

Friday, 17 November 2017

Forestry Tasmania's demise in detail


Forestry Tasmania’s slide from its peak in 2004 has seen it lose $1 billion. Almost half have been cash losses. The rest have resulted from the loss in value of the trees entrusted to it. FT entered commercial arrangements with customers, particularly major customer Gunns, which effectively forfeited its commercial advantages as a monopoly supplier. As a consequence it fortunes closely tracked those of the industry particularly Gunns, and since the latter’s demise has only survived courtesy of government patronage.

After numerous inquiries, reports and years of procrastination, the government appointed Treasury Secretary to the Board in May 2015 to act as de facto Voluntary Administrator to see if FT could be resuscitated. An interim report was presented to government on 29th September 2016.His tenure lasted until February 2017, FT was restructured as much as its political masters would allow before being handed back for directors to run under the new name of Sustainable Timbers Tasmania (STT).

The following is a more detailed report on FT’s demise following the period of administration. It covers the events leading to insolvency, the actions taken and the prospects for the future.



CONTENTS

The 2016/17 year

The plantation sale

The superannuation transfer

Overview since 2004

Other assistance to the forest industry

The Ta Ann deception

Insolvency signs

Problems with the current model

The future



Thursday, 9 November 2017

Forestry Tasmania's final report


A survey of the wreckage left behind by Forestry Tasmania (FT) reveals since its peak in 2004 it has lost over $1 billion from forestry activities.

 During that time cash outlays were $440 million more than trading revenue and the value of the forest estate fell by over $600 million. Add the two figures together give the aggregate loss over the past 13 years of $1 billion. Equal to $40 for each tonne harvested.

Spending on plantations ($106 million), property and plant ($33 million) and roads ($105 million) added nothing to FT’s asset base. Together with the continual losses from forest harvesting meant FT’s cash losses totalled $440 million over the last 13 years.

Then there are non-cash losses, often called book losses, principally the fall in the value of the forest estate. This has occurred because a lot of trees have been chopped down and sold and because as maintenance and harvest costs rise faster than prices for forest products then the value of remaining forests consequently falls. Over the past 13 years the value of FT’s forests has fallen by over $600 million. Trees entrusted to FT are now worth a fraction of their former value.

So how did FT cover its cash losses?

Monday, 9 October 2017

Pokies: A time to be brave


Everyone is trying to pressure Opposition Leader Rebecca White to make up her mind what to do about poker machines post 2023, the government even bringing on a motion in Parliament a few weeks ago to try to embarrass her. A few weeks even a month or two isn’t going to make an ounce of difference.

All too often the overwhelming social arguments against poker machines are trumped by the gambling industry’s mantra of jobs jobs jobs. It’s important the bogus economic arguments are fully understood by Ms White.

Dear Ms White

You were right to delay framing a new position on EGMs until the Joint Committee presented its findings based on the latest evidence. That was the aim of the inquiry.

From a policy viewpoint an inquiry becomes pointless if trying to confirm predetermined policies drives the process.  Fortunately the Chair managed to keep focussed.

Confirmation bias however dominated the approach of both the Liberals and the Greens, culminating in Ms Courtney’s dissenting report arguing  that the significant reduction in EGMs in pubs and clubs recommended by four of the other five committee members would have “devastating economic and employment impacts on many businesses and communities..”.

Recommendations are supposed to be based on evidence presented. No evidence was offered by non EGM businesses stating withdrawal of some or all EGMs from communities would have adverse effects let alone devastating ones. Communities clamouring to retain EGMs to prevent devastation were also conspicuously absent.

Friday, 15 September 2017

Federal Group's pokie haul




Back in 1996 the Federal Group’s leisure business comprised the two casinos. Its revenue in that year was $134 million, well over half coming from gaming activities including tables, pokies and Keno. Net profit after tax for the leisure business was $4.4 million. The Group’s freight business provided another $2.2 million in profit. Borrowings were $50 million. In 1996 there was no spare cash to pay dividends to shareholders.

All was soon to change. On the first of January 1997 poker machines were rolled out into the community. Over the next 20 year the Group bought 12 pubs, the 9/11 bottleshop chain, built the Saffire resort, bought the leasehold business known as the Henry Jones Art Hotel, and acquired the lease on the new Maq01 hotel on Hobart’s waterfront.  The cash tsunami was such there was enough left over to pay $238 million as dividends to shareholders over the period. At the end on the 2016 year borrowings were $123 million, an increase of only $73 million over the 20 year period. Cash from pokies funded the show.

Saturday, 26 August 2017

Federal Group stitches up a deal?


The Joint Select Committee inquiry into Future Gaming Markets recently received a joint proposal from the Tasmanian Hospitality Association and the Federal Group and heard evidence from the two parties.

The proposal highlights most of the economic and financial issues at stake for the inquiry. The following note was submitted to assist the Committee in its important deliberations.

The proposal will perpetuate existing bad public policy. Benefits will accrue to the few existing participants in proportion to the benefits they have already received over the last 20 years. As a way of assisting businesses to grow it is poorly targeted. Allocating perpetual licenses to existing venues for nil consideration will not only give a windfall gain to a privileged few with unsubstantiated  benefits for the wider community, but will tie the hand of future governments if ever they feel a need to make changes.

Wednesday, 31 May 2017

State Budget: Back to the barn


Put away the Prozac. There are now surpluses as far as the eye can see.

That is the message from this year’s State budget.

Friday, 26 May 2017

Budget pork


If it sounds too good to be true it probably is.

When a government announces in a Budget that it will spend extra on health next year, is that compared to

1.   what has been spent in the current year?; or

2.   what it intended to spend a year ago?

In the case of health the answer is 2.

In last year’s budget the Tasmanian Health Service THS spending was intended to be $1,368 million in 2016/17 and $1,362 million in 2017/18.

If one looks at the Policy and Parameter Statement in this year’s budget papers (Budget Paper 1 page 67) THS’s estimated outcome for 2016/17 shows an extra $106.7 million being spent (or estimated to be spent) for 2016/17. This suggests THS spending of $1,475 million for 2016/17.

Now looking at this year’s budget papers, intended spending by THS (Budget Paper 2 vol 2 page 109) for 2017/18 is $1,460 million.  That may be $98 million more than what was intended a year ago but it is less than what was actually spent in the current year 2016/17.

If the system is in crisis spending less is unlikely to fix the problem.

That’s what Building Tasmania’s Future means. The Mercury was quite correct in depicting the Treasurer in this morning’s edition as a snake oil salesman with a warning that the tonic being marketed may contain pork.

There’s an unreality about the budget. Let’s have a look at the overall Income Statement (Budget Paper 1 page 47), in particular the figures for employee expenses. To make it easy part of the relevant table is pasted below.




I’ve added the estimated outcome figures from page 191. It easy to see the increases in employee expenses are $29 million in 2017/18 then $30 million and $31 million in the next two years.

In % terms that’s a 1% increase in each of the next 3 years. Scarcely believable when the estimated outcome for the current year 2016/17 was $60 million above budget and the Treasurer had the place ticking over like a well oiled machine. Even less credible given wage increase are tracking at a rate higher than 1%, and employment in the health area is supposed to rise.

The coming election is sure to be a pork fest.

Wednesday, 17 May 2017

The bank competition myth


“Australian banks are upset. Their $30 billion per year gravy train of profits from the Australian people is finally being slowed down.

A levy on bank liabilities of 0.06% annually was announced as part of the 2017 Federal government budget, and is expected to raise about $1.5 billion per year, or 5% of bank profits.


To be clear, the banking system is a regulated cartel. Its primary function is to provide a public good in the form of the money supply of the country. As such, we would expect it to be uncompetitive, and use tight regulatory controls to ensure that the privileged position of private banks is not being abused.

In my book, Game of Mates, I explain that the result of this uncompetitiveness and lack of adequate regulation in Australia is that over half of the banks' profits can be considered economic rents, which could be taken back with better regulation and shared with the public at large.”


Read the full article on Cameron Murray’s blog.

Game of Mates


“This is the story of how Australia became one of the most unequal societies in the Western world while merely a generation ago it was one of the most equal. It is the story of how groups of ‘Mates’ have come to dominate our corporate and political sectors, and managed to rob us, the Australian majority, of over half our wealth.”

So begins a just released book by one of my favourite economists Cameron Murray, written with another Queenslander Paul Frijters.


Tuesday, 2 May 2017

A note on GST relativities


If you want to understand more about how the GST pool is split between States have a look at the following table.




Monday, 1 May 2017

Good vs bad budget nonsense


It’s good that the Federal Treasurer has raised the possibility of legitimising more government debt. 

The Federal government budget papers are to be revamped, we are told, to more realistically reflect good and bad debt.

What does all this mean?


Sunday, 30 April 2017

Hydro vs Basslink episode 23


Little is publicly disclosed about the latest dispute between Hydro Tasmania (HT) and Basslink Pty Ltd (BL) following the six month cable outage from December 2015 to June 2016. BL has just revealed a little more with the lodgement of its 2016 Financial Statements and Report with Australian Securities and Investment Commission (ASIC).

We knew HT has not been paying the monthly facility fee to BL  since September 2016 but that it has been making good faith payments. However these are considerably less than the facility fees otherwise payable. The amount in dispute between the parties could get out of hand?

Saturday, 15 April 2017

Reforming banking


Economist Nicholas Gruen has posted a couple of interesting articles recently about reforming banking. Our central bank, the Reserve Bank RBA, lies at the heart of the banking system. Rethinking and adapting its role more in line with the internet age could easily put thousands of dollars into the pockets of Australian households and billions into government coffers he argues.

Wednesday, 12 April 2017

Budget challenges: Money debt & other myths


This is an address to a breakfast meeting of the Burnie Chamber of Commerce & Industry on 12th April 2017.

I’d like to advance the proposition that most of what is commonly believed about money, government spending and debt is wrong. Seriously wrong....and it’s stopping us from sensibly moving forward.

You may remember the Queen in 2008 going to the London School of Economics to open a building as I recall. Referring to the GFC (global financial crisis).... Lehman Bros had just collapsed....she was famously captured on camera saying "Why did nobody notice it?" Their models were wrong that’s why. Money wasn’t in the models. Banks were assumed to be passive intermediaries lending funds from patient savers to willing borrowers. That may have been the situation pre 1971 before President Nixon abandoned the 1944 Bretton Woods agreement which incorporated the gold standard and underpinned bank lending practices. The world changed after that .....and economics didn’t keep up.

Put simply...a lot of economists don’t understand accounting.

Tuesday, 11 April 2017

Housing bubble now official




Great post by Matt Ellis , the Rational Radical.

“Our three economic regulators have finally revealed themselves as the three witches busy tending their poisonous brew while chanting “Bubble, bubble, toil and trouble!” to a nation of tone-deaf property speculators and commentators-come-experts. The architects of our dreaded housing and economic Frankenstein are among the last to formally recognise the monster of their own creation for what it is – a hideous creature that defies all reason, logic, decency, ethics and ultimately, any ability to survive.

Such is the well documented exceptionalism and wilful blindness of the collective Australian bubble psychology, that bubble believers and sceptics alike have come to the physics defying conclusion that Australia has invented an actual perpetual motion machine. The problem with perpetual motion machines? They don’t exist. Can’t you just feel the growing friction rubbing up against the bloated sack of housing hot air? I am amazed at how tenacious the belief is that exponentially growing imbalances can go on forever, when every fibre of the economy must be sacrificed at the altar of housing speculation in ever more dramatic interventions just to keep the damned thing afloat for another few months or years. For just one more election cycle.”

Read the full blog at HERE

Friday, 7 April 2017

Cable car hype


Just a little more info that was omitted from the previous blog to satisfy the space constraints of a tabloid blog.  

Mount Wellington Cableway Company Pty Limited (MWCC) draws attention to itself by its use of hyperbole and alternative facts. And that what gives the show a Mickey Mouse flavour.

Thursday, 6 April 2017

Cable car conflicts


Premier Hodgman was dismissive of concerns about State Growth Minister Groom’s close relationship with Adrian Bold, proponent of the Mount Wellington cable car project, as revealed on social media.

“There are a lot of things that require my attention ---- Matt Groom’s Facebook page isn’t one of those”, he said.

What if the chair of Tourism Tasmania was a 50 per cent owner of a company which is the largest shareholder, apart from Mr Bold, in the cable car venture? Would that appear on the Premier’s radar? After all he is Minister for Tourism as well.


Monday, 27 March 2017

Hydro Tasmania's Basslink stoush


If force majeure is the reason for the Basslink outage then maybe Hydro Tasmania owes Basslink for the six months when the interconnector was being repaired?


Sunday, 26 March 2017

Tas Water & Councils: The broader picture


The previous blog had a closer look at Tas Water’s cash flow statements to show how Tas Water is managing to fund its capital programs with a mixture of operating cash and borrowings and how the distributions to owner councils each year require even more borrowings.

So what is the situation with councils?


Monday, 20 March 2017

Tas Water's cash flows in detail


This is the third in a series of blogs on Tas Water.

The Tas Water saga is yet another example of our inability to solve simple problems. It has quickly degenerated into a political imbroglio where the issues that lay at the heart of the problem are quickly forgotten. This blog will attempt to redress the imbalance.

Friday, 17 March 2017

Tas Water: Where's the money coming from?


Where’s the money coming from?

That’s the problem facing Tas Water irrespective of who might be running it.

For starters there’s $2.5 billion of surplus cash sitting on Tascorp’s balance sheet earning 2.6%.

Tas Water's problems


One doesn’t need Nostradamus’ foresight to realise that borrowing to pay dividends is unsustainable. Especially if the business urgently needs to spend more on capital upgrades.

Tas Water’s 2016 financial statements are an eye opener. An extra $65 million was borrowed during the year, $20 million of which went to councils as dividends in addition to other distributions of $10 million. The rest was needed to fund extra capital spending which coincided with a fall in net operating cash. Another year or two like that and the undertakers would be placed on standby. Treasurer Gutwein’s concerns about Tas Water aren’t without foundation.

Gaming inquiry update


The parliamentary committee investigating Future Gaming Markets has received written submissions and has held five days of hearings.  Only a few witnesses ventured into accounting and economic aspects of gaming and this happened on the 7th and 8th February. The questioning by the Committee was pretty low key. It seemed they were struggling with the issues, not surprising given the enormity of the task in an area unfamiliar to all of them. This note was written in response to the Committee’s offer to accept comments from me that may assist in their deliberations following my brief appearance on the 8th February.

The submissions and appearances of interest  (submissions and transcripts can can be found here ) were from:

·       Australian Leisure and Hospitality Group, the largest pokie operator in Australia associated with Woolworths

·       Dixon Hotel Group, a local group with 35 hotels (not all pokie pubs)

·       Tasmanian Hospitality Association

·       Tourism Industry Council Tasmania

·       Federal Hotels

One  area where no progress was made was trying to understand the costs associated with pokies at the venue level and at the network level. Each face different costs some fixed and some variable. It is crucial to understand the differences if pokies are allowed to survive outside casinos,and a more equitable split is to be recommended between the network operator, the venue, players and government. The note concludes with an Econ 101 presentation setting out costs and revenue for network and venue operator(s) before and after possible changes.

Wednesday, 4 January 2017

Gaming inquiry submissions

 
Federal Hotels has presented its vision of gaming in Tasmania after 2023. Lower taxes for table and EGMs in casinos and higher EGM taxes for pubs and clubs. Despite the absence of a link between tourism and gaming Federal Hotels suggested a low tax model which covers the casinos in Townsville Cairns and Darwin is the way forward for Tasmania. 

Federal Hotels’ views are contained in one of the 147 submissions to the parliamentary inquiry into post 2023 gaming arrangements in Tasmania. Over one hundred of these only comprised a few sentences, of varying levels of disgust/displeasure at EGMs in the community. Another twenty five were contributions from church groups and NGO’s who have seen the effects of social damage from EGMs.